OREANDA-NEWS. April 29, 2011. Commenting on the results, Mikhail Fridman, Executive Chairman of TNK-BP Ltd., said:

“Despite disruptions at the shareholder level, TNK-BP showed exceptionally strong performance in the first quarter of 2011, nearly doubling its net income, increasing output and proceeding to establish a presence in Vietnam and Venezuela," said Mikhail Fridman, CEO of TNK-BP. "Such outstanding performance once again underscores the tremendous value and promise of TNK-BP - one of the most dynamic and profitable oil and gas companies in the world", reported the press-centre of TNK-BP.

1Q11 OPERATIONAL HIGHLIGHTS
In 1Q11, the company achieved record high underlying oil and gas production of 1,771 mboed, 2% up on 1Q10. Production growth was underpinned by strong contributions from the Uvat fields in West Siberia and the Verkhnechonskoye oil field in East Siberia, incremental gas sales from Rospan and our producing assets in Orenburg, partially offset by the natural production decline of our mature assets in West Siberia.

We proceeded with our consistent effort to grow the company’s resource base. In 1Q11, the company completed 7 exploration wells, mostly in Uvat and Orenburg, with an 86% success ratio, updating our knowledge on productivity of reservoirs and once again proving field potential. Inorganically, the company acquired 3 licences in the Orenburg region with estimated resources of 135 mln boe.

Refining throughput increased to 774 mbd, a 7% growth y-o-y, as a result of successful debottlenecking activities. We achieved an important milestone in operational efficiency, receiving approval to extend the turnaround cycle at Ryazan refinery to 3 years from 2 years in line with industry best practice.

The company made further progress in its commitment to meet the product quality specifications set by the Russian government. In 1Q11, another TNK-BP refining unit –Saratov refinery – launched production of diesel and AI-95 gasoline compliant with Euro-4 standard.

In 1Q11, we successfully expanded the range of quality branded fuels offered to customers in Russia by launching the sales of BP Ultimate Diesel at all BP-branded retail sites in Moscow and the Moscow region. BP Ultimate Diesel has superior environmental, cleaning and engine efficiency properties like its partner fuel, BP Ultimate gasoline which the company started to sell with great success in Russia in 2006.

In 1Q11, TNK-Sheremetyevo, a JV where TNK-BP holds 50%, closed a deal to acquire a 74.9% stake in the Sheremetyevo jet fuelling company. As a result, TNK-BP will become a premier fuel supplier in the Moscow jet fuel market. The acquisition is in line with the company’s strategy to strengthen its presence in Russia’s jet fuel market by expanding the share of direct fuel supplies to leading airlines and ‘in-wing’ sales.

In 1Q11, assets of RUSIA Petroleum, a subsidiary of the parent company TNK-BP Limited and the license-holder to the Kovykta gas condensate field, were sold at an auction for 22.3 bn roubles following bankruptcy proceedings initiated by RUSIA Petroleum management in 2010.

The company made another step to complete its agreement with BP to acquire upstream and pipeline assets in Vietnam and Venezuela. We signed transfer documents and received partner confirmation for TNK-BP’s operatorship role for offshore block 06.1 in Vietnam.

Commenting on the financial results, Jonathan Muir, Chief Financial Officer of TNK-BP Ltd., said:
“In the first quarter of 2011, TNK-BP delivered excellent results, driven by a favorable market environment, continued production growth and operational efficiencies. EBITDA increased by 72% y-o-y to USD 3.9 bn, underpinned by a 36% rise in the oil price, which was partly offset by excise increases, rising electricity and transportation costs, and rouble appreciation. Net income increased by 91% y-o-y to USD 2.4 bn on the back of stronger EBITDA. Such a strong financial performance allowed us to raise organic capital expenditure by 38% y-o-y to USD 0.9 bn with additional investment allocated to producing greenfields – Uvat and Verkhnechonskoye – as well as for our growing operation in Orenburg. We intend to maintain our high standards of capital efficiency and investment governance, providing financial flexibility to achieve our strategic goals.”

1Q11 FINANCIAL HIGHLIGHTS
Revenues for 1Q11 increased by 35% relative to 1Q10 reflecting a higher Urals price, 15% y-o-y rise in domestic gas prices and 34 mboed (2%) production growth.

Export duties and taxes other than income tax increased by 26% for 1Q11 relative to 1Q10 with the effect of the Urals price increase on export duty and mineral extraction tax rates as well as growth in excise rates in Russia partly offset by a significant duty lag benefit.

Cash costs (operating expenses, transportation and SG&A) increased by 14% reflecting the effect of a stronger rouble and increased transportation and electricity tariffs.

EBITDA for 1Q11 amounted to USD 3.9bn which is 72% higher compared to 1Q10 largely due to higher prices supported by a duty lag benefit, while partly offset by a negative exchange rate impact as well as tariff and excise rates growth. EBITDA also includes a one-off gain of USD 0.15bn related to the disposal of the assets of RUSIA Petroleum.

1Q11 Net income amounted to USD 2.4bn which is 91% up on the same period of 2010. This increase outpaced EBITDA growth primarily due to relatively flat DD&A expenses.

Operating cash flow for 1Q11 totaled \\$2.3bn, up 18% compared to 1Q10. This is a reflection of the higher EBITDA, partly offset by a \\$0.9bn increase in working capital due to a price-driven growth in inventory and accounts receivable balances and changes in payment policies.

Net debt was reduced by USD 0.8bn compared to year end 2010 resulting in gearing falling to 16%.

Organic capital investment in 1Q11 amounted to USD 0.9bn, 38% above 1Q10, largely associated with increased investments in our growth greenfields (VCNG, Uvat) and Orenburg.

1Q11 v. 4Q10 RESULTS
Revenues for 1Q11 increased 11% relative to 4Q, reflecting the Urals price increase partly offset by lower sales and trading volumes in a shorter quarter and a relative decrease in stock levels in 4Q.

Export duties and other taxes increased 12% q-o-q driven by a 20% increase from the price effect on export duties and MET as well as by higher excise rates partly offset by the effect of lower export sales volumes and a comparative increase in duty lag.

Cash costs (operating expenses, transportation and SG&A) decreased by 3% largely due to the effect of year end accruals partly offset by negative tariffs impact in 1Q11.

EBITDA for 1Q11 was 25% higher compared to 4Q largely due to the higher prices, the increased positive duty lag and the one-off gain on the disposal of the Kovykta assets by RUSIA Petroleum, partly offset by lower sales volumes and excise rates growth.

1Q11 Net Income increased by 26% relative to 4Q10 mainly due to higher EBITDA.

Operating cash flow in 1Q was 15% lower than in 4Q10, primarily due to an increase in working capital in 1Q11 as noted above offsetting the underlying impact of stronger EBITDA

Organic capital investments were USD 0.4bn lower than in 4Q10, representing primarily the seasonally lower activity level in 1Q. Overall, for 2011 the Group plans to spend USD 4.6bn of organic capex, 13% above the 2010 actual spend.

The financial information shown in this press release relates to TNK-BP International Ltd.