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TNK-BP Investor Presentation

TNK-BP Investor Presentation. April 2010. Important notice.

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TNK-BP Investor Presentation

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  1. TNK-BPInvestor Presentation April 2010

  2. Important notice These materials include statements that are, or may be deemed to be, ‘‘forward-looking statements’’. These forward-looking statements can be identified by the use of forward-looking terminology, including, but not limited to, the terms ‘‘believes’’, ‘‘estimates’’, ‘‘anticipates’’, ‘‘expects’’, ‘‘intends’’, ‘‘may’’, ‘‘target’’, ‘‘will’’, or ‘‘should’’ or, in each case, their negative or other variations or comparable terminology or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They include, but are not limited to, statements regarding the intentions, beliefs and statements of current expectations of TNK-BP International Limited and its subsidiaries (“TNK-BP”) concerning, amongst other things, TNK-BP’s results of operations, financial condition, liquidity, prospects, growth, potential acquisitions, strategies and as to the industries and locations in which TNK-BP operates. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that may or may not occur. Forward-looking statements are not guarantees of future performance and the actual results of TNK-BP's operations, financial condition and liquidity and the development of the country, regions, political environment and industries in which TNK-BP operates may differ materially from those described in, or suggested by, the forward-looking statements contained in these materials. TNK-BP does not intend, and does not assume any obligation, to update or revise any forward-looking statements or information set out in these materials, whether as a result of new information, future events or otherwise. TNK-BP does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved. These materials contain reserves data for TNK-BP which has been extracted without material adjustment from the Reserves Reports prepared for TNK-BP by independent petroleum engineers using three different methods. These methods include the U.S. Securities and Exchange Commission ("SEC") standards, the U.S. Society of Petroleum Engineers, Inc. ("SPE") standards and a variation of the SEC standards pursuant to which reserves are calculated through the economic life of the fields ("SEC-LOF"). The SEC-LOF standards differ in certain material respects from the SEC standards and the SPE standards. Unless otherwise indicated reserves data contained in these materials are based on the SEC-LOF standards as in effect on the date of the Reserve Report from which such data has been extracted. The SEC has adopted significant revisions to the SEC standards on oil and gas reporting, which became effective on 1 January 2010. The main revisions that may have an impact on TNK-BP’s reserve quantities relate to the use of a 12-month average price to estimate reserves rather than the price on the last day of the year and to the use of new technology and the enlargement of the areas for which reserves may be determined. These materials do not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire any securities in any jurisdiction or an inducement to enter into investment activity. No part of these materials, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. These materials may not be forwarded, distributed or reproduced in whole or in part, in any manner whatsoever, without TNK-BP’s express consent.

  3. Table of contents • Company introduction • Corporate governance • Business update • Performance highlights • Upstream • Gas • Downstream • Financial overview • 2010 outlook

  4. Company introduction

  5. TNK-BP – one of the leading oil companies globally • Ranks in the top ten private oil producers in the world • Third largest oil company in Russia • 2009 liquids production 1,489 mbpd* Russia leads global oil production TNK-BP 3rd largest oil producer in Russia Source: CDU TEK, TNK-BP data, daily liquids production in 2009 without JVs Source: EIA Short-Term Energy Outlook, April 2009, daily liquids production in 2009 * All TNK-BP data on reserves and production in this presentation are shown without Slavneft unless otherwise stated

  6. TNK-BP at a glance  Brownfield projects  Greenfield projects Financials Refineries YANOS refinery, 50/50 ownedwith Gazprom Neft Yamal(early development) Reserves*: 5.8bn boe EBITDA 2009 – $9.0bn 2008 – $10.1bn 2007 - $9.6bn  Net income 2009 – $5.0bn 2008 – $5.3bn 2007 – $5.3bn West Siberia Reserves: 18.3bn boe    East Siberia Reserves: 1.9bn boe  Orenburg Reserves: 2.4bn boe 2009 operations Retail 1,466 sites under BP and TNK brands Liquids Reserves: 27.4bn boe Production: 1,489 mbpd Gas Reserves: 3.4bn boe Sales: 12.1 bcm Refining Throughput: 675 mbpd Refining cover: 42% 3P reserves as of 31 Dec 2009 *Incl. Rospan

  7. 3 18 16 13 2.5 14 2 12 1.5 Reserve life index (RLI), years Liquids production, mmbpd 10 1.5 8 1 6 4 0.5 2 0 0 BP ENI OMV Shell Total Statoil Exxon Repsol Rosneft Conoco TNK-BP Chevron Strong competitive position World class F&D costs vs RRR Among top companies in production and RLI globally Source: company reports, TNK-BP data Source: UBS Global Integrated Oil & Gas Analyser, 2009Production FY 2009 estimate. Reserve life based on 2008 disclosure and SEC data One of the leaders in oil & gas production growth among Russian vertically integrated majors in 2009 Source: CDU TEK, TNK-BP data, daily liquids production in 2009 without JVs

  8. Corporate strategy – priorities and goals Become a world class oil and gas group, an industry leader in Russia with a clear focus on the sustainability and renewal of its resources and the efficiency of its operations Convert resources to reserves to production Enhance margins Monetize our gas portfolio Corporate governance • Replace a minimum of 100% of our annual production with new reserves • Innovate and apply new technology • Sustain production efficiency at brownfields • Effectively develop new greenfields • Acquire new subsoil licenses • Expand international footprint • Pursue inorganic opportunities • Optimiserefining coverage • Grow marketing coverage • Grow in B2B • Optimize product flow • Utilisecompetitive logistics • Increase contribution of gas sales • Exploit significant gas and associated gas resources • Extend the value chain to end consumers • Develop gas-to-power • Pursue strategic partnerships • Pursue unconventional opportunities • Sustain world class business practices and systems • Promote business ethics and standards • Increase transparency • Run a sustainable business that withstands cycles Best-in-class technology to achieve operational efficiency with no damage to people and the environment Inspirational leadership and a dedicated team of international and national professionals

  9. TNK-BP corporate structure Note: Showing principal holding and operating companies

  10. Corporate governance

  11. 11 Corporate governance update • Signed in January 2009 • Maintains 50:50 ownership structure of TNK-BP Group • Defines the management and financial framework • Includes dead-lock resolution mechanism New Shareholder Agreement • 11 members - 4 representatives each from BP and AAR plus 3 independent directors • Approves major transactions and key strategic decisions • Key functions: provides strategic directions, reviews strategy and performance of TNK-BP • 3 Board Committees: Audit, Compensation and HSE Committee Board of Directors • BP nominates the CEO, subject to the Board of Directors unanimous approval • CEO heads the Management Board; personal authority of CEO expanded • Key functions: responsible for TNK-BP’s day-to-day management CEO and Management Board • Boards of Directors at key TNK-BP subsidiaries to have equal number of representatives from BP and AAR and will also have an independent director • Enhances shareholder governance and prevents deadlock Boards of Directors at key subsidiaries Financial framework • Target gearing range of 25-35% • Quarterly dividends of not less than 40% of TNK-BP’s net income

  12. Board of Directors Mikhail FridmanChairman Alfa Group Lord Robertson of Port Ellen Deputy Chairman Andy Inglis Chief Executive of Upstream Business, BP Gerhard Schroeder Chairman of the Shareholders’ Committee of Nord Stream AG Len Blavatnik Chairman, Access Industries Iain Macdonald Deputy CFO, BP Alexander Shokhin President of the Russian Union of Industrialists and Entrepreneurs Alex Knaster Chairman of Pamplona Capital Management, Alfa Group David Peattie Executive Vice President for Russia and Kazakhstan, BP James Leng European Chairman, AEA (an American private equity partnership) Board member of a number of other international companies Viktor Vekselberg Chairman, Renova Group representatives of AAR representatives of BP independent directors

  13. Management structure CEO Interim M. Fridman Deputy CEO M. Barsky* Executive Director G. Khan Executive Director V. Vekselberg СОО B. Schrader CFO J. Muir Deputy Executive Director, Gas business development A. Ferguson EVP Upstream S. Brezitsky Executive Director, EVP Downstream D. Baudrand EVPTechnology F. Sommer EVPSupport Services A. Tyomkin EVPStrategy & BusinessDevelopment S. Miroshnik Chief Legal Counsel I. Maydannik members of the Management Board *M. Barsky to become CEO effective 1 January 2011

  14. Business updatePerformance highlights Upstream Gas Downstream

  15. Improving business environment Macro environment • Oil price recovered from early 2009 • Urals at $36/bbl at end 2008 and $77/bbl at end 2009 • Inflation diminished • 8.8% during 2009 vs 13.3% during 2008 • Forex weakened (with a positive effect on costs) • RUR / USD average 32 for 2009 vs 25 for 2008 Licences • Renewal: 24 licenses extended during 2008 and 2009 • Accessibility: 10 licenses acquired in federal auctions during 2008 and 2009 Fiscal • Corporate income tax rate reduced from 24% to 20% effective 1 Jan 2009 • Export duty calculation methodology changed effective 1 Dec 2008, reducing duty lag effect • Export duty suspended for oil generated from 22 East Siberian fields (including Verkhnechonskoe, Suzun, Tagul) effective Jan 2010 • Non taxable threshold for mineral extraction tax (MET) up from $9 to $15 per barrel from 1 Jan 2009 • MET holidays introduced to encourage development of new fields in East Siberia, Yamal-Nenets Autonomous District • Accelerated VAT refund effective from 2010 – positive for working capital

  16. 2009 performance highlights • Operations • HSE: continued improvements in safety metrics and spill rates - 2009 fatalities lower by 62%, DAFWC down by 26% and spills by 11% relative to 2008 • Reserves: record reserve replacement under PRMS • 329% total proved reserves reserve replacement ratio (RRR) under PRMS • 177% total proved RRR under SEC LOF • Production: continued growth to record production - 2.9% growth vs 2008 with 9 consecutive quarters of production growth • average annual growth rate of 5% since 2004 • new production areas commenced on time • Costs: reduced to 2007 levels • Exploration: 74% success rate • Financial • Full investment grade ratings from S&P, Moody’s and Fitch • EBITDA: $9.0bn; Net Income: $5.0bn • Portfolio • Selective expansion in retail markets and sale of oilfield services business

  17. 0.16 0.10 0.14 Spill rate down by two-thirds 0.11 0.09 0.05 0,09 0.09 0.07 0,05 0.05 0.04 0,04 0.04 0.03 0,03 0.00 2006 2007 2008 2009 2006 2006 2007 2007 2008 2008 2009 OGP Top Quartile TNK-BP OGP 2008 Average HSE - “the best run companies tend to be the cleanest and the safest” Environment Health and safety • Legacy land remediation • 2,776 hectares of polluted land remediated to end 2009 • Pipeline integrity • $1bn invested in 2004-2009, with 3,600 kilometres of pipelines reconstructed, resulting in a significant reduction of oil spills • Occupational safety • significant reduction in Days Away From Work Cases (DAFWC) • Transportation safety • the most significant health and safety risk • significant reduction in vehicle accident rates DAFWC rate: 12 months rolling average, per 200,000 man-hours Spill rate: 12 months rolling average, # of spills per ‘000 tonnes produced

  18. Business update Performance highlightsUpstream Gas Downstream

  19. Extensive resource base 19 11.7 billion barrels of proved reserves and with 19 years reserves life (PRMS) As at end 2009. SEC-LOF reserves of 8.6 billion barrels and 14 years reserve life 258% organic reserve replacement ratio (PRMS) 2007-2009 average. 3-year average reserve replacement ratio on SEC-LOF basis 146% 73% exploration success rate 2007-2009 average $3.6 finding & development (F&D) costs per barrel 2007-2009 average. $2.2/boe in 2009 Reserve Replacement Ratio Resource base at YE2009 (PRMS)

  20. Brownfield asset base Nyagan fields 3P Reserves: 4.7bn boe 2009 prod’n: 89 mbpd Samotlor field 3P Reserves: 7.6bn boe 2009 prod’n: 573 mbpd Other West Siberia fields 3P Reserves: 4.8bn boe 2009 prod’n: 295 mbpd   Moscow Samotlor Nyagan  Nizhnevartovsk     Orenburg Orenburg fields 3P Reserves: 2.4bn boe 2009 prod’n: 378 mbpd Novosibirsk Novosibirsk fields 3P Reserves: 0.1bn boe 2009 prod’n: 38 mbpd

  21. Brownfields Sustaining brownfield production mboed • Brownfield production maintained broadly flat through application of select new technology and processes • Base production decline rate decreased by 1% in 2009 and 4% since 2007 • Samotlor • delivers 39% of total liquids production • will remain a reliable producer going forward • 3P reserves of 7.6bn boe • Orenburg • delivers 26% of total liquids production • 3P reserves of 2.4bn boe • outstanding growth of 6% in 2009 Samotlor and other brownfields (West Siberia) 40 years old fields Orenburgneft (Volga-Urals) 60-70 years old fields

  22. Greenfield projects under development   Gas project  Further exploration focus areas Greenfields: foundation for production growth Yamal projects 3P Reserves: 3.1bn boe Start-up: 2012-2014 Projects at phase of commercial production Timan-Pechora Messoyakha*  Kamennoye 3P Reserves: 2.4bn boe Start-up: 2009 (north) 2009 prod’n: 39 mbpd Suzun    Rospan Tagul  Russkoe Kamennoye  Verkhnechonskoye   Uvat Astrakhan Uvat 3P Reserves: 1.2bn boe Start-up: 2009 2009 prod’n: 41 mbpd Verkhnechonskoye 3P Reserves: 1.9bn boe Start-up: 2008 2009 prod’n: 24 mbpd *Messoyakha (3P reserves - 1.8bn boe) is owned by Slavneft, a 50/50 JV between TNK-BP and Gazprom neft

  23. Verkhnechonskoye  Producing greenfields: Verkhnechonskoye • Largest oil field in East Siberia though discovered in 1978, developed in partnership with Rosneft • 3P reserves c.1.9bn bbl • 2009 production 24 mbpd • Expected plateau production - 125 mbpd by 2014 • Total Capex to end 2009 of $1.4bn • Tax incentives currently apply Oil production and wells completed in Verkhnechonskoye Verkhnechoskoye and ESPO pipeline (# wells) (‘000 tonnes) Source: Reuters Wells completed Oil production

  24. Producing greenfields: Uvat • 21 fields in 15 license plots in the south of Tyumen region, West Siberia, some 700 km away from Tyumen city • Eastern Hub: a new production centre launched in 2009 with 41 mbpd produced at Urnenskoye and Ust-Tegusskoye fields • Central Uvat: pilot production commenced at Tyamkinskoye field in 2010 • Development partly financed with government grants as the project stimulates industrial development of the region and creates jobs • Total Capex to end 2009 of $1.9bn

  25. Yamal - a major new production area for TNK-BP and Russia 25 • Oil and gas province of global significance • Next generation of projects which have the potential to account for a significant amount of our output in the future • Development currently enjoys mineral extraction tax holidays and some fields are temporarily exempt from export duty • Transportation infrastructure key for effective development

  26. Business update Performance highlights UpstreamGas Downstream

  27. Gas business development • Increase contribution of gas sales • Exploit significant gas and associated gas resources • Extend the value chain to end consumers • Develop gas-to-power • Pursue strategic partnerships • Pursue unconventional opportunities Natural gas Strategy: monetize our gas portfolio • Rospan: 3P gas reserves of 1.4bn boe, 2009 gas sales 2.4 bcm • Nizhnevartovsk gas caps Associated petroleum gas • Over $1.2bn investments planned for 2010-2012 to increase APG utilisation at brownfields to 95% by 2012 • Associated gas processing JV with Sibur • Orenburg integrated project Gas-to-power Gas sales and APG utilisation rate • Plan to invest over $700mln in development of power generation projects in 2010-2012 • Construction of power generation facilities launched at Verkhnechonskoye, Kamennoye, Van-Eganskoye, Bahilovskoye and Samotlor fields • JV with OGK-1 in Nizhnevartovsk to secure long-term sales of gas and purchase electricity

  28. Business update Performance highlights Upstream Gas Downstream

  29. Refinery assets Retail sites Strong refining presence and an extensive marketing network Ryazan Modernised in 2006 Capacity: 323 mbpd Conversion ratio: 63% Light products output: 56% Utilisation: 95% Nizhnevartovsk Built in 1998 Capacity: 27 mbpd Utilisation: 90% Krasnoleninsk Built in 1998 Capacity: 4 mbpd Utilisation: 78% YANOS (50%) Modernised in 2006 Capacity: 300 mbpd Conversion ratio: 63% Light products output: 57% Utilisation: 91% Moscow Nyagan 1,466 retail sites Nizhnevartovsk Orenburg Novosibirsk Saratov Modernised in 2004 Capacity: 132 mbpd Conversion ratio: 68% Light products output: 44% Utilisation: 88% Lisichansk Modernised in 2008 Capacity: 144 mbpd Conversion ratio: 69% Light products output: 58% Utilisation: 71%

  30. Total refining throughput of 675 mbpd in 2009 Robust refining margins benefiting from fiscal regime Scheduled turnarounds at Ryazan and Saratov – incident free and completed ahead of schedule Operating availability of over 93% $/bbl TNK-BP North West Europe Europe Mediterranean 2008 2009 Source: BP Trading Conditions Update, company data Refining • Continued modernization of refining portfolio to produce fuel to meet European quality standards • Over $2.0bn to be invested next 5 years to: • ensure asset integrity • enhance product quality • maximize operational efficiency Refining margins outperform other regions Stable throughput and high operating availability

  31. 60 25 Average throughput per BP site (Russia) 50 20 Average throughput per TNK site 40 Indicative 15 throughput (Europe) Average throughput per site, klpd Retail fuel margin, c/l 30 53 48 10 20 5 10 12 11 11 11 0 0 2008 2009 Continued retail expansion Throughput per site • Inorganic activities in Russia, Belarus, Ukraine • Launch of new fuels • New range of products under TNK and BP brands • B2B business expansion: jet fuels, bitumen, lubricants and marine fuel TNK-BP retail network in Russia, Ukraine and Belarus

  32. Financial overview

  33. 34.8 REVENUES 9.0 EBITDA 5.0 NET INCOME Highlights 2009 financial performance highlights, $bn • Efficient cost management • costs at early 2007 levels, despite transport and electricity tariffs up by 19% and 21% respectively • Improved tax environment • tax benefits from legislation changes • Strong liquidity • healthy cash balances and continued access to debt markets • Robust financial profile • gearing towards bottom range due to strong free cash flows • Efficient debt management • $1.3bn of debt repaid prior to maturity during 2009

  34. Business environment Significant price improvement during 2009: • Range: $36/bbl to $77/bbl • Average: $61/bbl • Duty lag benefit higher by $3.5/bbl 2009 overall weaker than 2008: • Urals lower by 36% ($34/bbl) Positive impact of forex in 2009: • RuR/$ weakened from 25 to 32 • Cost benefits partly offset by negative effect on domestic sales and working capital conversion

  35. Costs 35 $bn Transportation 4 2 3.2 3.1 2008 Forex Tariff Volume 2009 $bn Opex & SG&A 8 4 7.1 5.4 2008 Forex Inflation Savings 2009 • Forex benefit: $0.5bn • Forex benefit partly offset by tariff increase of c.19% • Costs flat overall • Forex benefit: $1.3bn • Small net inflationary increase • $0.5bn of real reductions resulting from cost management initiatives

  36. $bn Taxes other than Income Tax 30 15 27.1 14.4 - 2008 Price Duty lag Tax 2009 legislation $bn Income Tax 2.5 2.3 1.5 - 2008 Taxable Tax Other 2009 profit legislation Taxes Taxes other than Income Tax lower by 47%: • Urals price: causes 40% reduction in Export duties and MET ($10.8bn) • Legislation: increased MET threshold and depleted fields relief benefits - further $0.9bn of savings Income tax lower by 35%: • Taxable profits: lower in 2009 • Legislation: 4% rate reduction - benefit of $0.3bn

  37. $bn 6 3 5.3 5.0 2008 Price - Price - Forex Tax Operations OFS Other 2009 Market Duty lag legislation Net Income • Environment: • Price: Urals down $34/bbl (-36%) • Duty lag: positive effect of $3.5/bbl • Forex: cost benefits from weaker RuR • Legislation: • MET and Income Tax benefits • Performance: • Operations: • - Volume: +48 mboed (excl. Slavneft) • - Cost reduction initiatives • OFS: divestment gain

  38. Operations: strong pre-tax inflows of $22.4bn from operations and working capital management Taxes: total $16bn paid Capex: $2.5bn of organic investments Debt: $2.8bn repaid with $1.8bn of new debt raised Dividends: $3.5bn paid in respect of 2H08 and 9M09 earnings Strong cash flows $bn

  39. Prudent financial strategy Focused on supporting the Group’s growth while minimising financial risks and maintaining a strong balance sheet with adequate liquidity and financial flexibility Financialframework • Maintain gearing within a range of 25% to 35%Narrowed from the previous 25-50% starting from Jan 2009 • Maintain financial ratios in line with strong investment grade companies • Maintain investment grade credit ratings • Dividends of 40% min of Net Income Debt strategy • Maintain average life of debt portfolio at 4-5 yearsReflecting investment project cash generation profiles • Maintain the right fixed / floating ratioBy balancing between bonds and bank financing • Maintain a smooth repayment profile • Keep debt portfolio largely unsecured • Maintain proper currency of debt • Broaden investor base

  40. Debt and Gearing 40% 35% 30% 25% 20% 31.12.08 31.03.09 30.06.09 30.09.09 31.12.09 Debt portfolio characteristics • Average life of debt portfolio maintained within 4-5 years target • Debt portfolio largely unsecured and US dollar denominated • Active cash management with $1.3bn of debt repaid prior to its maturity in 2009 • Continued access to debt markets with $1.8bn of new debt raised in 2009 • $1bn Eurobond issued in January 2010, with $210mln of short-term debt pre-repaid during 1Q 2010 using Eurobond proceeds Gearing • Year end 2009 gearing at 28%, within 25%-35% band set forth by the Shareholder Agreement

  41. Liquidity Management Cash and cash equivalents Strong liquidity $bn • Maintaining ample liquidity reserve to cover c. 3 quarters of scheduled debt repayments: • cash balances of at least $0.5bn • undrawn committed lines of up to $0.5bn 2.0 1.5 1.0 0.5 0 31.12.08 31.03.09 30.06.09 30.09.09 31.12.09 Debt maturity profile as of 31 December 2009 • Smooth debt repayment profile

  42. Investment grade credit ratings 42 Net Debt / EBITDA (x) Credit Ratings of TNK-BP International Baa2 Baa2 BBB- BBB- Investment grade Ba1 BB+ Ba2 BB+ BB BB BB EBITDA / interest expense (x) BB- B+ • Investment grade ratings from S&P (BBB-), Moody’s (Baa2) and Fitch (BBB-) • Ratings upgrade: to BB+ by S&P in May 2009 and further to BBB- in December 2009 • Financial metrics consistently maintained in line with strong investment grade companies Funds from operations / Net Debt (%) * S&P average for EMEA industrials, 2006-2008

  43. 2010 outlook

  44. 2010 outlook • Operations • $4.4bn Capex approved by the Board • Continued production growth (1-2%) • Further development of Greenfields, including Yamal • Cost focus – particularly energy efficiency • Refinery upgrades to improve fuel quality • Portfolio • Selective M&A opportunities • Financing • Continuous optimization of debt portfolio • Governance • M. Barsky to assume a deputy CEO role from mid 2010

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