9M Financial Results (US GAAP) January 2004
LUKOIL Group Crude Oil Production* mln tonnes 82 80 78 76 74 72 70 68 66 64 Crude oil production 3.2 5.5 3.9 76.8 70.3 71.3 2001 Production by subsidiaries Share in affiliates Crude oil production of US GAAP group (production of subsidiaries and share in affiliates) has grown by 4%, production of subsidiaries by 7% comparing to Overall crude oil production (overall production of all subsidiaries and affiliates) has grown by 2% comparing to * Preliminary operational results for. mln tonnes 82 81 80 79 78 77 76 Ovreall crude oil production 81.4 79.8 78.3 77.8 2000 2001 1
Gas Production and Utilization* 1.35 Natural gas production Associated gas production and utilisation bcm 1.3 1.25 1.2 1.15 1.1 1.18 1.11 1.18 1.3 Production and treatment, bcm 4.5 4 3.5 3 2.5 2 1.5 1 0.5 3.83 81.2 1.07 4.1 80.8 1.19 3.93 2.07 74.6 4.26 80.3 2.2 82 80 78 76 74 72 Utilization rate, % 1.05 0 70 2000 2001 1 2000 2001 Production Treatment Utilization rate * Preliminary operational results for. 2
Crude Oil Production Growth Crude oil production including Company s share in affiliates (mln tonnes) 9M +4% +6% 9M 50.0 55.0 60.0 15.0 17.0 19.0 21.0 bpd 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Consolidation of upstream asssets and crude oil production growth in Jan-03 Feb-03 Mar-03 Apr-03 May-03 Production by subsidiaries Jun-03 Jul-03 Aug-03 Sep-03 Share in affiliates 3
Improving Efficiency of Upstream Operations Average daily output per well t/day 10.5 10.0 9.5 9.0 9.6 9.4 8.8 9.0 9.6 9.9 8.5 8.0 1999 2000 2001 9M Oct Since 2001 daily output per well has been steadily growing 77.5% 77.0% Watercut 76.5% 76.0% 75.5% 4Q LUKOIL also reduces watercut 4
Crude Oil Distribution 10 Crude oil exports mln tonnes 9 8 7 6 5 4 4Q Over 9M LUKOIL decreased domestic crude oil sales by 1.5 mln tonnes. The company increased its exports and domestic refining throughput. mln tonnes 12 10 8 6 4 2 0 Crude oil refining mln tonnes Domestic crude oil sales 7 6 5 4 3 2 1 0 9M 9M Refining in Russia Refining abroad 5
Economic Environment 9M 9M 7.92 7.61 Domestic Market Realized oil ($/bbl) 11.63 6.00 166.27 143.40 Realized refined products ($/tonne) 201.92 157.13 8.59% 10.42% Inflation (%) 0.60% 2.62% 12.59% 5.20% Ruble appreciation against USD (%) -0.27% 5.96% 3.52 2.79 Unified extraction tax ($/barrel) 3.53 3.01 4.04 2.23 Oil export tariff ($/barrel) 3.50 4.89 International Market 24.37 21.32 Realized oil ($/bbl) 26.04 21.27 275.77 227.53 Realized refined products ($/tonne) 263.22 261.95 6
Financial Results 9M 9M Financial results (mln USD) 16,136 11,033 Total revenue 5,994 5,086 (2,054) (1,828) Operating expenses (693) (693) (3,881) (2,814) Taxes other than income taxes (including excise and export tariffs) (1,412) (1,318) 3,626 1,905 Income from operating activities 1,032 1,654 3,634 1,887 Income before income tax 988 1,690 3,065 1,347 Net Income 701 1,544 3.74 1.66 Basic earnings per share 0.85 1.89 4,434 2,663 EBITDA 1,256 1,947 7
Sales Reconciliation 18 16 1.73 0.49 16.14 14 2.54 12 11.03 0.35 bln USD 10 8 6 4 2 0 Total sales in 9M Change in sales mix Change in volumes sold Change in prices of oil and oil products Increase in other sales Total sales in 9M 8
Sales Breakdown 9M 9M Sales breakdown 71.8% 65.9% Export sales and sales on international markets to total volume of sales Refined products to total volume 55.8% 55.4% 57.5% 53.5% of sales 47.9% 48.7% 56.1% 55.8% Share of oil products in total export volumes and international sales Share of oil products in total export sales and international sales 74% 72.1% 51.1% 48.1% 56.3% 58.5% 9M 9M Sales in mln USD 4,513 3,088 International sales of crude oil (non-cis) 1,657 1,373 336 101 Sales of crude oil within CIS 86 94 288 362 Sales of crude oil within Russia 137 100 6,870 4,403 International sales of refined products 2,512 2,281 2,581 2,017 Sales of refined products within Russia 999 743 1,548 1,062 Other sales (incl. petrochemicals) 604 495 16,136 11,033 Total sales oil and oil products 5,995 4,591 9
SG&A and Transportation Expenses mln USD 800 600 400 200 0 G&A expenses 9M G&A reconcilation Ruble appreciation Other G&A expenses 9M Pipeline: volumes transported : +13% tariff: +18% Railroad: volumes transported: +70% tariff: +15% Sea transport: volumes transported: 13% tariff: +90% 9M 9M Selling, general and administrative expenses (mln USD) 1,483 1,000 Transportation expenses 544 503 1,231 970 Other selling, general and administrative expenses 473 429 2,714 1,970 Total SG&A 1,017 932 10
Vysotsk Export Terminal will Allow LUKOIL to Decrease Export Costs Construction operations on the Vysotsk Export Terminal began in June. The terminal is designed to lift crude oil and finished products (fuel oil, gas oil, gasoline and lubricants). The terminal will serve tankers of 20,000-40,000 tonnes deadweight at the initial/first stage and tankers up to 80,000 tonnes deadweight at the advanced stages. Vysotsk export terminal will allow Lukoil to decrease export costs significantly (up to $40-50 mln per annum). Vysotsk terminal to give LUKOIL better exposure to European and US markets and strengthens Compasny s export chest. Primorsk terminal is unable to lift finished products Export using Baltic terminals is connected with considerable transit costs ($9-15/tonne) through the territory of Baltic states Frequent tanker delays at Turkish straits causes significant losses: tanker delay costs $40,000 per day and a common delay lasts up to 20 days 11
Growth of Tax Burden $/tonne 60 50 40 30 $/tonne 35 30 25 20 15 10 5 0 Unified extraction tax and export tariffs comparison 21 16 26 9M 9M Unified extraction tax +25% +181% 30 Crude oil export tariff 20 10 0 4Q Unified extraction tax Crude oil export tariff Light refined products export tariff Comparing to 9M tax burden has grown significantly 12
Operating Expenses 9M 9M Operating expenses (mln USD) 1,076 1,016 Extraction expenses 382 356 361 305 Refinery expenses 123 122 131 Processing cost on the affiliated refinery 617 376 Other operating 188 215 2,054 1,828 Total 693 693 4,300 1,749 Cost of purchased crude oil, petroleum and chemical products 1,635 1,386 13
Improving the Logistics of Supply To improve the logistics of supply LUKOIL increased the number of buy-sell operations with third-parties. This operations allow in the case of favorable price environment to get extra profit from buy-sell operations and optimize transportation costs. $ mln 1800 1600 1400 1200 1000 800 600 400 200 0 Cost of purchased crude oil, petroleum and chemical products 4Q Cost of purchased crude oil, petroleum and chemical products growth drivers: increase of crude oil and refined products price growth of volumes sold, including due to increase of the number of arbitrage operations change in sales mix 14
Shutting Down Marginal Wells Cutting Costs Idle wells Production wells Share of idle wells 22% 21.1% 21.9% 30000 20% 19.2% 19.5% 25000 Percentage of idle wells 18% 16% 14% 16.1% 16.5% 23766 23545 17.5% 18.0% 23364 22906 22794 22680 22311 22128 20000 15000 10000 Number of wells 12% 10% 4239 4380 4952 5252 5385 5411 5971 6197 1.02 4.02 7.02 10.02 1.03 4.03 7.03 10.03 5000 0 About 1,400 low-effective wells were shut down since January,. Reducing the number of marginal wells (low flow rate wells) forced production costs go down 15
Crude Production Costs * 3.6 Ruble appreciation 7% 3.4 3.2 Decrease of extraction costs per barrel 6% 5% 4% 3% 2% 3.0 2.92 1% 0% $/bbl 2.8 2.6 2.75 2.7 2.78-1% 2.58 2.6 2.66 4Q 2.56 2.56 2.62 2.63 2.4 2.2 2001 average 2.74 average 2.60 9M average 2.60 2.0 2001 2001 2001 4Q 2001 4Q * Exploration and production costs, including lifting costs, maintenance and repair of expensed wells, insurance and other costs; excluding taxes and depreciation. Calculated in accordance with US GAAP data. 16
Net Income Reconciliation 6,0 5,0 4,0 3,0 2,0 1,0 0,0 17 Net Income 9M Income from sale of ACG Change in accounting policy Increase in revenue (less purchases) Increase in taxes other than on income Increase in transport bln USD Increase in SG&A Increase in OPEX Increase in income taxes Increase in other income Increase in equity share in affiliates Net Income 9M
Capex Breakdown 9M 9M Capital expenditures (mln USD) 1,324 985 Exploration and production 382 551 1,106 773 Russia 365 420 218 212 International 17 131 855 469 Refining / Marketing and distribution and other 431 247 673 182 315 154 Russia 337 197 International 94 50 2,179 1,454 Total (cash and non-cash) 813 798 18
Company s Strategy Increase revenues increase volume of oil extracted increase volume of refined products increase export of crude oil and refined products Decrease expenses shut-in inefficient (low-producing) wells put into operation new high-producing wells use effective and efficient service companies Increase efficiency of investments development of export infrastructure purchase new oil and gas reserves at the lowest possible price increase number of high-producing wells divesting of non-core assets 19
Forward Looking Statements Certain statements in this presentation are not historical facts and are forward-looking. Examples of such forward-looking statements include, but are not limited to: projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios; statements of our plans, objectives or goals, including those related to products or services; statements of future economic performance; and statements of assumptions underlying such statements. Words such as believes, anticipates, expects, estimates, intends and plans and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forwardlooking statements will not be achieved. You should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements, including our ability to execute our restructuring and cost reduction program. When relying on forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which we operate. Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. 20