OREANDA-NEWS. November 17, 2008. This year, Rosneft ranked 2nd in the S&P Russian Companies Transparency and Disclosure Survey, compared to the 10th place in 2007, reported the press-centre of Rosneft.

At the awards ceremony held in Moscow, Rosneft Vice President Peter O’Brien said the Company will intensify efforts to take the business forward and gain the lead in the S&P ranking. Immediately after the ceremony, Mr. O’Brien was interviewed by the Interfax news agency.

As the global financial crisis gets more severe, does Rosneft plan to stop paying out compensation to independent directors?
Such decisions are made by the Board and consider independent directors’ opinion. You might have seen some of their remarks in the media, and I feel I am not in a position to comment on these personal initiatives. I believe this question will be debated at the shareholders meeting.

I have a question about Rosneft’s anti-crisis program. Is it already in place and what are the program’s key stages?
We have made good progress in reducing expenses; however, our anti-crisis program is still at the development stage. The document will be approved by the Board of Directors and the Management Board within a month. The program’s key focus is our business plan for 2009, but it also provides for a set of measures that will be implemented already this year.

Now, as for pivotal points, first, our business plan for 2009 is based on a conservative Brent price of USD 50 per barrel. Second, we are focused on generating enough free cash flow to cover capital expenditures. This means the Company will not need any additional debt financing.

We will also continue efforts to strengthen control over upstream and downstream unit operating expenses, and I would like to stress that Rosneft has good prospects to further increase operational efficiency.

The most acute challenges Rosneft is faced up with are transport costs, and particularly monopoly tariffs — pipeline and rail transportation — which are beyond our control. I think recent proposals to increase these tariffs are hardly justifiable, considering the global financial turmoil we are all experiencing.

Next, electricity tariffs are rising at an extremely rapid pace, while Rosneft’s electricity purchases in the liberalized market segement are also increasing, driven by growth in crude production.

Last but not least comes tax burden. Export duty and Mineral Extraction Tax only make up more than 50% of USD 50 per barrel factored into the 2009 business plan, let alone other taxes that Rosneft pays.

Does this mean that if oil prices fall below USD 50 per barrel, Rosneft may fail to increase oil production in 2009?
We do not expect crude production to decrease in 2009.

And what is Rosneft’s oil production target for 2009?
It is too early to say, I think. We will definitely share our plans following their approval by the Board in mid-December.

Does Rosneft plan to hedge against falling oil prices, similarly to LUKOIL?
Currently, we have no such plans and, more broadly, I believe price risk hedging in Russia is largely complicated by the existing tax system. As for interest and forex risks, we consistently work to bring adequate hedging measures.

As we know, LUKOIL has recently asked the Russian government to reduce oil rail transport tariff. Do you have any such plans?
We are also involved in this discussion.

What is your idea of an appropriate methodology to calculate export duty?
With the rapid growth in transport and energy costs coupled with rising inflation, I personally see little reason to support the current revenue-based tax policy. In my view, we should seek profit-based solutions instead, which would promote Russia’s economic development, while also contributing to the efficiency of petroleum companies’ investment.

What do you think about the recent proposal to set oil export duty monthly, based on a one-month monitoring period?
Today, the discussion is concerned with changes in calculation methodology only. Nevertheless, this marks a huge step forward and gives much needed emphasis on tax regime update.

What is Rosneft’s total debt?
Rosneft’s US GAAP statements for Q3 will be published in the first week of December, but preliminary data suggest our net debt is below USD 20 billion.

How much will Rosneft have to repay before the year-end?
In Q4, we are repaying approximately USD 770 million that will be refinanced through a new facility, of almost the same amount, recently approved by Vneshekonombank.

What percentage of shares will be allocated for Rosneft’s management option incentive plan?
Again, it is too early to say as this program has not yet been finalized.

As Rosneft share quotes decline, has any of your major shareholders, such as ВР, Petronas and CNPC, shown interest in acquiring an additional stake?
We are not aware of any such plans.