M . E . Stavsky Vice President OJSC NK Rosneft

1. Rosneft Experience in Preparing Joint Implementation Projects: Constraints and Prospects M.E.StavskyVice PresidentOJSC NK Rosneft Moscow Carbon Market Forum 2008 April 28-29

2. MMT 491 481 469 459 500 421 380 400 323 314 300 200 44.2 100 bcm 0 Recovered (72%) 1995 2000 2002 2003 2004 2005 2006 2007 Oil Production 16.8 Flared bcm (28%) bcm 61.0 70 56.6 56.3 54.9 60 50 38.9 32.5 40 29.4 25.0 30 20 10 0 1995 2000 2002 2003 2004 2005 2006 2007 APG Production (Recovery and Flaring) Associated Petroleum Gas (APG) Production and Utilization in Russia Oil and Condensate Production Growth in Russia APG Resource Distribution1in Russia: 2007 Рост в 1,6 раза APG Production Growth in Russia APG flaring is largely underestimated due to the absence of reliable production and recovery measurements Рост в 2,4 раза Source: Fuel and Energy Sector Central Dispatch Department 1APG resources: amount of associated gas extracted together with oil

3. APG Utilization Issues in Russia • Maintaining status quo means: • Atmosphere pollution by growing GHG emissions; • Suboptimal use of natural resources. Key APG utilization issues: • Absence of additional gas processing capacities in some oil producing regions; • Restricted access to Gazprom’s Unified Gas Transmission System; • Large distances between certain fields and regional gas processing and transport centers; • A relatively narrow range of available technologies and technical solutions; • Low APG prices in oil producing regions. Projects to develop gas collection, transport and processing infrastructure are not cost effective for non-Gazprom gas producers

4. bcm 20 Supply to GPP % 95 95 93 100 15 Supply to Gazprom 68 80 61 60.3 10 60 Supply to other users 40 Own consumption 5 and power generation 20 Flaring 0 0 2007 2008 2009 2010 2011 2012 2008 2012 Rosneft APG Utilization Program • Rosneft activities to enhance APG utilization: • Increasing APG utilization rate in existing fields; • Maximizing APG utilization rate in new fields (Vankorskoye, Yurubcheno-Tokhomskoye); • Looking for new technical solutions and APG utilization technologies. APG Utilization Rate in Rosneft APG Utilization Options and Methods

5. bcm 2500 2000 1500 1000 500 0 2008 2010 2012 2014 2016 2018 2020 APG production APG flaring APG Recovery Project in Komsomolskoye Oilfield Project scope: • Construction of a 2 bcm booster compressor station (BCS); • Construction of an external gas pipeline. Utilization of Komsomolskoye APG Resources BCS with a gas conditioning unit BCS put into operation External gas pipeline Gubkinsky GPP Urengoi-Chelyabinsk trunk gas pipeline Komsomolskoye oilfield Current supply arrangements New supply arrangements Project objectives: • Utilization (treatment and supply to Gazprom trunk gas pipeline) over 2 bcm of APG by 2010; • Addressing the APG utilization issue; • Reduction of GHG emissions into the atmosphere.

6. Internal Rate of Return (IRR), % Discounted Payback Period (DPP, 10%), years 17.3 19.6 10.5 7.3 Without ERU sale option With ERU sale option Improving Project Economy Based on the Kyoto Protocol Mechanisms • A Joint Implementation (JI) project under the Kyoto Protocol: A set of activities to reduce GHG emissions, with emission reduction unit (ERU) sale options to generate additional income; • The ERU sale facility allows increasing the project’s Internal Rate of Return; Comparative Economic Indicators of the JI Project in Komsomolskoye Oilfield: 2010-2030 The Kyoto Protocol offers a mechanism to reduce economic barriers to GHG emission reduction projects

7. Analysis of possible technical solutions for gas utilization, and selection of the most cost effective option; Analysis of applicability of the Kyoto Protocol mechanisms with a view to improving project performance; Analysis of project compliance with JI criteria, and selection of a methodology for estimating the GHG emission reduction level; Preparation of technical design documents (TDD); TDD: a preliminary independent review, publication for comments, and the final review. Key JI Project Design and Preparation Stages Parallel stages: • State Environmental Review of the project; • ERU sale negotiations; • Document preparation for project review at the national level.

8. 6 000 5 000 4 000 Emission Reduction Units СО2 emissions, thousand tons 3 000 2 000 Baseline scenario emission level 1 000 0 1 2 3 4 5 6 7 8 9 10 Project implementation year Methodology for Estimating the GHG Emission Reduction Level • Selecting of the project baseline scenario:estimating CO2 emissions from APG flaring; • Estimating emission level under the JI project; • Calculating Emission Reduction Units for further sales.

9. Mandatory elements of technical design documents: General description of project scope/activities; Use of the baseline scenario selection methodology and additionality assessment; Project lifetime / ERU generation period; Use of the monitoring methodology and plan; GHG emission assessment by source, and emission reduction estimates; Project environmental impact assessment; Stakeholder comments. Specific elements of the ‘national’ package: Description of project risks. Scope of Technical Design Documents

10. NK Rosneft –World Bank Partnership The World Bank is a partner to Rosneft as regards implementation of the Kyoto Protocol mechanisms in Russia’s oil industry. The Bank’s experts made 3 visits to the oilfield: in July and October 2007, and in March 2008. The oilfield was also visited by experts from EcoSecurities (an international consulting firm responsible for the TDD Environmental Monitoring Section) and DNV Certification (a company that evaluated GNL project compliance at the final review stage). World Bank and DNV Certification experts visit LLC RN-Purneftegaz, the Komsomolskoye oilfield operator

11. JI Project Constraints • Key methodological constraints: • There is no methodology to assess GHG emission reduction for a number of technical solutions providing for APG utilization (injection into the oil reservoir, underground gas storage facilities) • Potential APG recovery by NK Rosneft under such projects is estimated at not less than 1 bcm per year; • TDD preparation involves much labor input and relatively high costs, and therefore JI projects are not cost effective for small oilfields • Potential APG recovery by NK Rosneft under such projects is estimated, in the aggregate, at not less than 0.5 bcm per year; • There is no practical experience in using available methodologies in the Russian context. National-level constraints: • There is no practical experience in JI project review and approval by authorized public bodies; • The regulatory legal framework governing relations arising from JI project preparation and implementation needs further elaboration and improvement; • It is necessary to specify JI mechanisms in terms of hydrocarbon field licensing and operation.

12. Additional investment in the Russian economy to address the GHG emission reduction issue: up to 3 billion Euros in 2008-2012; Encouraging transition to more stringent environmental protection standards; Creation of new jobs and tax revenue growth; Encouraging new technology development; Releasing oil companies’ investment resources for enhanced raw material base reproduction; Rational use of available natural gas resources. Prospects for JI Use in Russia

13. Additional slides

14. JI Project Preparation in Komsomolskoye Oilfield: Actual Work Schedule