OREANDA-NEWS. March 05, 2012. “TNK-BP has once again produced a set of record operational and financial results,” said Mikhail Fridman, Executive Chairman of TNK-BP Ltd. “The Company delivered record production of 1,784 mboe/d and increased refining throughput by 2% to 747mb/d. Also, we have completed international acquisitions in Vietnam, where we have commenced our first offshore operations, Venezuela, and have entered Brazil. In Russia, we have made significant headway with our projects in the Yamal region, the country’s newest emerging oil and gas province, which could contribute over 30% of TNK-BP’s total production by 2020. To support this rapid expansion, we have welcomed several new executives to TNK-BP, each of them infusing the Company with decades of experience that will be invaluable during this period of our development", reported the press-centre of TNK-BP.

2011 OPERATIONAL HIGHLIGHTS
2011 marked another year of successfully replacing production with new reserves. Total proved reserves according to SEC LOF criteria reached 9.1 bn barrels of oil equivalent representing a 145% reserve replacement ratio. Under PRMS criteria the reserve replacement ratio was 203% with total proved reserves of 13.8 bn barrels of oil equivalent.

Oil and gas production from consolidated subsidiaries in 2011 continued to grow and reached an historical record of 1,784 mboe/d, up 2.4% on 2010. Production including affiliates - Slavneft and Venezuela assets - was 1,987 mboe/d, up 2.8% on 2010.

Production in Orenburg in 2011 grew by 3.2% due to our success in discovering and bidding for new resources and bringing them efficiently into production. We acquired 9 new licenses in federal auctions in Orenburg in 2011 with resource additions of 283 mln boe.

Our producing greenfields, Uvat and Verkhnechonskoye, continued to deliver strong growth and their share in liquids production reached 14%.

We continued implementation of our intervention program in West Siberia brownfields. Our efforts in piloting innovative technologies, more efficient water flooding and drilling resulted in a decrease in the base production decline rate by 4% in 2011. Overall, oil and gas production in West Siberia in 2011 was down 5.1%.

We continued preparation for the Yamal fields start-up in 2016-2019 with substantial progress achieved in exploration and appraisal of the fields potential, positive changes in the tax environment and an agreement signed with Transneft for the transportation of oil through the contemplated Zapolyarnoye-Purpe pipeline.

On the international front we have completed the acquisitions of interest in oil producing assets in Venezuela and in an offshore gas project and related pipe infrastructure in Vietnam contributing 6.2 mln boe of production in 2011. We have also approved the terms of the partnership agreement with HRT O&G and filed a request with the Brazilian state regulator to approve the transfer of a 45% stake in 21 exploration blocks in the Solimoes basin.

In downstream, we achieved an historical annual maximum of refining throughput of 747 mb/d as a result of continuing debottlenecking efforts at our refineries.

Domestic light product sales were up 13% on the back of increased domestic demand. We continued to further expand our premium BP branded retail network, with the number of BP branded sites in Russia increasing by 20 to 105. Development of the TNK brand is supported by the launch of the loyalty program “Carbon” and the total number of company owned TNK sites in Russia has increased to 682.

Our gas sales, both natural and associated gas, have increased significantly in line with our strategy to grow substantially the gas business. Production at Rospan was up 20% y-o-y and associated gas sales were up 7% y-o-y. We progressed preparations for full field development for Rospan and are working on options to further increase associated gas utilization, in particular launching in December 2011 a new 0.7 bcm compressor station at the JV Yugragaspererabotka.

In power, we reached an important milestone in progressing the construction of the 3rd unit of the NizhGres power plant by bringing the GE-made 400MW gas turbine and other major equipment to Russia. Our energy efficiency program builds momentum with USD 94 mln savings achieved in 2011 alone.

Commenting on the financial results, Jonathan Muir, Chief Financial Officer, said:

“In 2011, we continued to build on the successful groundwork laid out since the inception of our company – a unique blend of multinational management talent and professional expertise. 2011 was the best-year ever in all areas of TNK-BP’s performance, from operational results to progressing major greenfield projects and expanding business to the world’s most dynamic markets. Accelerated business activity underpinned by best-in-class investment governance and spending discipline, resulted in an excellent set of financial results.

EBITDA reached an historic high of USD 14.6 bn, or a 41% increase year-on-year, on the back of a strong pricing environment and a relentless focus on efficiency and execution. Our net income amounted to a record USD 9 bn which is 54% higher than in 2010.

TNK-BP’s impeccable reputation with the financial community allowed us to secure a ground-breaking USD 1.5 bn bank club deal despite difficult market conditions at highly competitive pricing.

Our prudent and flexible approach to finance will remain in place in 2012 in order to support our ambitious business goals.”

2011 FINANCIAL HIGHLIGHTS
Revenues for 2011 increased by 34% relative to 2010 driven by a higher Urals price and production growth partly offset by changes in sales mix, i.e. redirection of crude volumes from export to the domestic and CIS market to take advantage of higher margins.

Export duties and taxes other than income tax increased by 41% for 2011 relative to 2010 largely due to the effect of higher Urals prices on export duty and mineral extraction tax rates and increased excise rates. These effects were partly offset by the reduction of export sales volumes as well as by increased utilisation of MET allowances for depleted fields and higher production at Verkhnechonskoe field that is not subject to MET.

Costs (operating expenses, transportation and SG&A) increased by 16% reflecting higher electricity and transport tariffs, the effect of a stronger rouble and other inflationary pressures as well as one-off charges.

EBITDA for 2011 amounted to USD 14.6 bn which is 41% higher compared to 2010 largely due to stronger markets, increased production and contribution from the international projects partly offset by higher duties, taxes and costs as well as increased purchase prices.

2011 Net income amounted to USD 9.0 bn, which is 54% higher compared to 2010. This increase outpaced the EBITDA growth primarily due to relatively flat DD&A.

Operating cash flow for 2011 totalled USD 10.5 bn, up 9% compared to 2010. This is a reflection of the higher EBITDA, partly offset by an increase in working capital, primarily in trade receivables, due to the extension of some credit periods to take advantage of higher netbacks as well as a higher level of export duty prepayments.

Cash organic capital investments in 2011 amounted to USD 4.7 bn, 30% above 2010, largely related to associated gas utilisation projects (Orenburg), field development (primarily, Verkhnechonskoe) as well as refinery quality improvement and retail sites rebranding.

4Q11 RESULTS
Revenues for 4Q11 increased by 3% quarter-on-quarter primarily due to an increase in crude export sales volumes and a quarter-on-quarter reduction in crude and products stock, the impact of which was partly offset by the lower Urals price.

Export duties and other taxes increased by 1% quarter-on-quarter primarily due to a comparatively higher negative duty lag effect and higher crude oil export sales volumes, partly offset by the decrease in the Urals price and the positive impact of the “60-66” custom duty regime.

Costs (operating expenses, transportation and SG&A) remained flat quarter-on-quarter: the benefit of a weaker rouble was offset by a seasonal increase in business activity and transport tariffs growth.

EBITDA for 4Q11 was 1% higher compared to 3Q. The positive effects of the increased sales volumes, weaker rouble and “60-66” customs duty regime were offset by the negative effects of the lower Urals price and the comparative impact of one-off gains in 3Q.

4Q11 Net Income decreased by 4%, below the EBITDA trend, primarily due to a lower foreign exchange gain in 4Q compared to 3Q.

Operating cash flow in 4Q increased by 27% compared to 3Q primarily due to the higher EBITDA (adjusted for non-operating items) as well as a higher level of accounts payable at the quarter end due to an increased level of activity.

Cash organic capital investments amounted to USD 1.2bn in 4Q, representing a 17% growth relative to 3Q with additional investment directed primarily to field development and associated gas projects in Upstream as well as to investments in refining and marketing in Downstream.

Compared to the 4Q 2010 results, 4Q 2011 EBITDA and net income increased by 14% and 12%, respectively. This reflects a stronger external environment with the Urals price increasing by 27%, a 2% weaker rouble and production (incl. affiliates) growth of 4.3%. However, these positive factors were partly offset by the effects of a comparatively negative duty lag, one-off gains in 4Q10 as well as the inflationary pressure on costs.

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