OREANDA-NEWS. December 17, 2012. 2012 Achievements:

Forecasted production of 19.7 mbbl, 10% growth year-on-year

Proven reserves (1P) increased by 14% to 353 mboe, Proven and Probable (2P) by 17% to 760 mboe and Proven, Probable and Possible (3P) reserves by 26% to 1,256 mboe [1]

Segment EBITDA increased by 51% year-on-year to 396 MUSD in the first nine months of 2012 with positive free cash flow

Kolvinskoye field evaluation and new geological model completed

Entered into the Russian gas market: 2 gas licenses with 2P reserves of 112 mboe

Expanded resource base: new exploration licenses with 500 mboe of resources

Formed joint venture with Repsol for upstream development

Strategic outlook 2013-2015:

Target double digit growth of oil and gas production

Further organic development of current reserves

Gradual increase of production and exploration activity at the Kolvinskoye field

Gas production to start in early 2013 and eventually account for about 20% of total volumes

Strategic partnership with Repsol: new gas assets and acquisition opportunities

Exploration of expanded resource base in the Timano-Pechora region

Lower CAPEX supported by developed infrastructure and facilities

Organic growth fully funded from operating cash flow

Increased profitability and efficiency

“Alliance Oil has historically been one of the most dynamic and efficient midcap companies in Russian oil and gas. With the enlarged upstream portfolio in Timano-Pechora, the recent successful entry into the rising Russian gas market and the advancing strategic partnership with Repsol, we expect to keep this title in coming years. As the joint venture gets completed and gas assets commence production we are targeting double digit production and reserve growth in the nearest future. In addition, the latest fiscal initiatives of the Russian government may further improve the tax treatment for some of our producing assets in 2013”, says Arsen Idrisov, Managing Director of Alliance Oil Company Ltd.

2012 Achievements

In 2012, the Company’s growth pace continued to outperform the Russian oil sector. Total production is forecasted at 54,000 barrels per day or 19.7 mbbl, marking a 10% increase compared to 2011 and extending the Company’s continuous record of reserve and production growth. Meanwhile MET exempt production reached 50% in the first nine months of 2012. The upstream segment became free cash flow positive in the first nine months of 2012.

The Company has expanded into the Russian gas business through the strategic acquisition of two licenses with sizable 2P gas reserves and attractive resource potential in the Tomsk region. Through the acquisition, Alliance Oil’s 2P reserves increased by 17% to 760 mboe and total 3P reserves reached 1,256 mboe. Moreover, the Company has added 6 new exploration licenses in the Timano-Pechora region with prospective resources of about 500 mboe.

The Kolvinskoye field activity was reviewed to evaluate the field’s reserves and potential, update the initial geological model and to prepare an updated drilling and development plan for the field and new licenses. The new model was prepared in cooperation with Schlumberger and with an independent assessment by DeGolyer&McNaughton. The geology of the field appeared to be more complex than initially anticipated. Based on the new 3D seismic data available and recent drilling statistics from about 40 production wells and one exploration well, a revision of reserves in the Devonian formation will be largely compensated by reserve additions in the Permian and Silurian formations, with a possible reduction in net 2P reserves of approximately 5%. The reserve revision is expected to be reflected in the Independent Reserve Audit report for 2012 and is not expected to affect the Company’s financial statements. The undeveloped Permian and Silurian formations will be explored to support the gradual production growth in coming years.

Strategic outlook 2013-2015:

In late 2008, Alliance Oil Company approved a three-year plan for its upstream segment targeting more production, more reserves and more returns primarily from the organic growth of existing assets under assumed market conditions and forecasts. The recent macro developments in oil markets and Russian fiscal incentives, completed infrastructure at the Kolvinskoye field, significant exploration potential in Timano-Pechora with complex geology, the new strategic joint venture with oil major Repsol and attractive gas business opportunities in Russia with awaited export parity in the near future – these factors initiated the review of the Company’s current portfolio and apparent growth opportunities for the upstream segment in coming years.

The Upstream strategy for 2013-2015 will have four focus areas: Growing reserves and production, realising exploration and development potential in Timano-Pechora Expanding in the highly attractive Russian gas industry Growing the joint venture under the strategic partnership with Repsol Improving the profitability with lower costs and greater contribution of high-margin fields

The current production at the Kolvinskoye field stabilized at around 11,500 barrels per day. The Company has initiated a water-flooding program with three wells converted into injectors so far and another two wells to be introduced shortly. The focus in the Kolvinskoye field for the coming year would maintain the lowered CAPEX to continue water-flooding program by converting another 3 wells into injectors and drilling 6-8 new intelligently placed production and exploration wells in the northern and southern blocks. The detailed development plan to unveil the production potential from the new blocks, including Permian and Silurian formations, will be tested and verified by new drilling on a permanent basis with necessary authorizations available within the coming year. The production from the field is expected to gradually increase in coming years.

The geological experience from the Kolvinskoye field, the development of the Kharyaga licenses and recently completed infrastructure with a 146-km pipeline and supporting facilities strengthened the Company’s commitment to the Timano-Pechora region and offered strong competitive advantages in obtaining new resources in the preferential tax environment. In the second half of 2012, Alliance Oil acquired the exploration license for the West-Osoveiskoye block and was awarded with 5 exploration licenses in Timano-Pechora region. The license resources are estimated to hold over 410 million barrels of oil with additional gas resources of 86 million barrels of oil equivalent under Russian reserve classification (D1+D2). The combined area of the licenses amounts to over 3.400 square kilometers. Following the launch of the Kolvinskoye field in 2011 and expansion of the resource base in the region, the Timano-Pechora is expected to continue delivering production growth in coming years.

As part of the long-term growth strategy, Alliance Oil entered the Russian gas market which presents attractive fundamentals. Russia holds the largest gas reserves and is the second largest gas consumer in the world. The market environment in Russian gas has been improving for the past 2-3 years, and the sector offers exciting opportunities for value creation and returns going forward. In 2012, Alliance Oil acquired two gas licenses with 2P reserves of 112 mboe and 3P reserves of 259 mboe in the Tomsk region. Alliance Oil schedules to commence gas production with sales into the domestic market early next year, subject to all necessary approvals. In coming years, natural gas is expected to reach around 20% of the Company’s total production. Gas production EBITDA margins are projected at approximately 65% in the first year, thus exceeding oil production margins of 51% in the first nine months of 2012.

The JV with Repsol is expected to be fully completed before year end. The first phase of the joint venture with Repsol was completed in August. As a result of the second phase, Repsol will have contributed the Eurotek gas company, with 2P gas reserves of approximately 115 mboe to the JV and paid total cash of about 115 MUSD to Alliance Oil. The Company in turn is going to contribute its Tatarstan assets. Eurotek is expected to come on stream shortly with the Syskonsyninskoye gas field. The Yuzhno-Khadyryakhinskoye gas field is expected to be launched in 2016. Alliance Oil will record 51% of Eurotek gas reserves and production.

The Upstream segment became free cash flow positive in the first nine months of 2012. Following the recent completion of the major infrastructure projects in the Timano-Pechora and Tomsk regions, and in the current pricing environment, upstream CAPEX for organic growth is expected to be further reduced and fully funded from the segment’s operating cash flow. Up to 25% of next year CAPEX is expected to be spent on exploration activity.