2012-2021 Strategic Development Program

Vice-President Leonid Fedun

[3/13/2012 8:03 PM]

1

LUKOIL Mission and Strategic Goal

Our mission:

Our purpose is to harness natural energy resources for human benefit

Strategic aim of LUKOIL is a dynamic sustainable development at the level of the best world efficiency and competitiveness

Social responsibility consists of creating decent working conditions and remuneration of labor, ensuring environmental safety and preservation of cultural heritage

In accordance with its social code LUKOIL contributes to the social and economic development of the regions where the Company operates

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2

40

60

80

100

120

140

160

180

2004 2008 2012 2016 2020

History Forecast

Oil Demand and Prices

• Dynamically growing transport sector in Asia Pacific will provide the main contribution to the growth of oil demand

• Growing demand is satisfied by production growth in OPEC countries and due to higher cost sources (high-viscosity oil, CTL, GTL, biofuels, oil shale)

• OPEC demonstrates its willingness to maintain prices at $100 per barrel and higher

Range

Brent forecast, $ per barrel

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3

Long-term Level of Gas Prices

0

50

100

150

200

250

300

2012 2015 2018 2021

Netback price

Domestic price

2017 – export parity

0

100

200

300

400

500

600

700

2010 2015 2020Necessary volumes Gas demand level

• Europe's dependence on gas imports will increase

• In the next decade, most gas contracts remain binding to the oil price

• Significant increase in shale gas production in Europe is expected after 2020

• Export parity in Russia will be achieved not earlier than in 2017

Domestic production

Contract volume (pipeline)

Contract volume (LNG)

* As an example of the Moscow region

Forecasted balance of gas in Europe, bcm Natural gas price in Russia*, $ per tcm

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4

Refining Margins in Russia will be Higher Than Those in Europe Under the Current Tax Regime

50%

60%

70%

80%

90%

100%

0

4

8

12

16

20

2005 2006 2007 2008 2009 2010 2011 1Q2012

Free capacity

Throughput

Capacity utilization (rightscale)

In case of Petroplus refinery

stoppage

0

5

10

15

20

25

2006 2009 2012 2015 2018 2021

• Capacity utilization in Europe remain relatively low, which negatively affects the refining margin in the region

• Refining margins in Russia will remain high under the current tax scheme (“60-66”)

• There is a serious possibility of “55-70” tax scheme adoption

Source: Purvin&Gertz

Cracking refinery in Russia

Cracking refinery in Europe

Refinery capacity utilization in Europe, mln barrels per day

Gross refining margin forecast in Europe and in

Russia*, $ per barrel

* Domestic market premium was not taken into account for Russian refineries

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5

E&P Primary Targets

• Full replacement of reserves

• Hydrocarbon production CAGR > 3,5%

• ROACE on the level of the best peers

• Implementation of investment projects with IRR not below than approved reference rate

• Increase in share of international projects in the Group Free Cash Flow; and in total hydrocarbon production up to 20% by 2021 (including acquisitions)

• Sustainable growth of Free Cash Flow

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6

2,8 3,9

5,7 0,1

0,4

4,2

2012-2014 2012-2016 2012-2021

Entering new regions

Existing and new licenses in the regions ofactivity

1,8 2,8

5,8 1,0

1,4

4,1

2012-2014 2012-2016 2012-2021

International

Russia

Growth of Reserves

• Full replacement of C1 reserves in the period 2012-2021, including 2012-2014 – 112%, 2012-2016 – 94%

• Finding costs – 1.2 $ per boe

9.9 9.9

58%

42%

Accumulated growth of C1 reserves , bln boe

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7

2012-2021 Hydrocarbon Production – 10 bln boe

0

300

600

900

1 200

2011 2014 2016 2021

Liquid HC Gas

27%

16% Gas share

20%

19%

16%

mln boe

CAGR

>3.5%

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8

2012-2021 Development of Reserves – 13,6 bln boe

3,1

5,4

8,1

4,0 4,5

5,5

2007-2011 2012-2016 2017-2021

Development of reserves HC production

78%

120%

147%

bln boe

• 2012-2021 reserves development will amount to 136% of hydrocarbon production

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9

3,6

7,5

2,5

2012-2021 Development of Reserves, bln boe

13.6

Producing fields

Krasnoleninskoye

Vat-Yeganskoye

Yaregskoye (Lyaelskaya area)

Usinskoye (permocarbon)

New projects

East Lambeyshorskoe 2012

Producing fields

Kandym-Khauzak-Shady Kandym 2014

Karachaganak stage 3 2019

Shakh-Deniz stage 2 2016

New projects

Gissar 29.12.2011 “Early gas”

West Qurna – 2 2013

Junin-6 2015

Trebs and Tittov 2013

V. Filanovsky 2015

Pyakyakhinkoye 2016

Overseas

Russia

Increase in oil recovery factor in Russia

Yu. Korchagin field

Major projects

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10

0

5

10

15

20

25

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Exploration in Russia and overseas,including development costsInternational projects

International projects (PSA)

New regions

Traditional regions

2012 – 2021 E&P Capex – ~$125 bln

~ $33 bln – PSA projects – guaranteed payback of investments

-6

-4

-2

0

2

4

6

8Costs

Revenue

Free Cash Flow

West Qurna-2: pays off in 2015, then – self-financing

~ $23 – 25 bln

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11

E&P Free Cash Flow

0

5

10

15

2014 2016 2021

70%

6%

24%

2012-2021

~ $50 - 60 bln

International projects

New regions in Russia

Traditional regions in Russia

Free Cash Flow, $ bln

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12

2007-2016 Accumulation of assets

2010-2019 Optimization of assets

2012-2021 Competitive development

R&M Strategy Evolution

Acquisition of new assets

• Refineries:ISAB, Zeeland

• Retail network: Balkans, Turkey

Economic efficiency of assets

• Productivity

• Profitability

Viable development of operational assets

• Accelerated modernization

• Weaknesses elimination

Position development

• Russian retail market

• Air bunkering

• Bunkering

• Lubricant sales

Projects for future flows

• New products

• Synergy of assets

• Trade name development

Asset integration on the basis of

• Own raw products

• Brand-building

• Own infrastructure

New business line

• Power generation

Investment portfolio optimization

• Risk / returns

High shareholder profitability

• Growth of cash flow

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13

6.6

9.4

11,0

14.4

5.5 4.1

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Effective Implementation of Conversion Projects to Secure a Competitive Advantage in the Markets of Russia

• Growing domestic demand for gasoline ensures high return on conversion projects at Russian refineries

• Focus on the production of premium gasoline

• Level of integration - 100% of motor gasoline sales in the Russian domestic market

• Position strengthening in the Moscow region (market share up to 20%)

Option +50%

Dark 33,2

42,5

20

25

30

35

40

45

50

55

2010 2014 2017 2021

Max

Probable

Min

48.2

54.6 4,6%

3,4%

2,3%

CAGR 2010-2021

43.2

39.1

2011-2021 gasoline consumption forecast, mln t Gasoline producer #1 in Russia, mln t

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Complexes of advancedprocessing, qualityimprovement

Capacity increase

Supporting, Solomon,automatization

Acquisition of share inISAB

Other

2012-2021 Oil Refining Investments

0.6 (6%)

7.8 (76%)

1.6 (15%)

0.3 (3%)

1.8 (39%)

1.5 (32%)

1.2 (26%)

0.1 (2%)

10.3

• More than 70% of investments goes to improving of conversion and production of premium quality petroleum products in Russia

• Refineries in Europe - maintaining and optimizing the existing assets

0.1 (2%)

Investments in Russia, $ bln Investments internationally, $ bln

4.6

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15

598

419

280 29 Oil

Light

Dark

Other

0,3

0,8

2021 2011E

2,5

3,3

2021 2011E

2,6

3,2

2021 2011E

19.6

15.4

2021 2011Е

1.3 bln t

Reliable Supplier of High-Quality Products – Potential of Worldwide Consumer Market Coverage

Major line of development:

• ‘LUKOIL’ brand promotion

• Growth of sales through the channels of guaranteed distribution

• Geography widening of product deliveries (more than 80 countries)

• Additional value from the own infrastructure of storage, transshipment and petroleum product deliveries

Mln t

LITASCO – 10-year export deliveries

+30% +20% +30% +155%

EBITDA*, $/t

63 25 10 234

* Average for 2012-2021

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16

R&M Free Cash Flow

0

3

6

9

12

2014 2016 2021

62%

22%

5% 6% 5%

2012-2021

Transport

Power

Petrochemistry

Marketing,includinginternationaltradingRefining

~ $50 - 57 bln

Free Cash Flow, $ bln

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17

R&M Capex

0

1

2

3

4

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Refining

Marketing

Petrochemistry

Power

Transport

2012-2021 – $24 bln

Capital expenditures, $ bln

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Value Chain

Natural gas/APG 5.4 bcm Ethane – 290 th. t per annum

LPG – 590 th. t per annum

Marketable gas 4.3 bcm

Stavrolen pyrolysis

Stripped gas 0.3 bcm

CHP Stavrolen

EBITDA 2012, $/tcm

Oil 94 mln t per

year

46 mln t per annum

Petroleum products

12 mln t per annum

141 244 307 EBITDA 2012,

$/t

638

5.4 bcm 402

121

Gas sales

Oil production, refining and marketing in Russia

Production, refining and sales of Caspian gas

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19

LUKOIL Gas Strategy in Russia

0

1

2

3

4

5

2012 2014 2016 2021

Production

Processing, petrochemistry,power generation

• 6.5-fold EBITDA increase by 2021

• In 2011 LUKOIL signed a 5-year contract (2012-2016) with Gazprom to supply up to 12 bcm per year of natural gas from the Bolshekhetskaya Depression

• High return on projects is guaranted by binding of gas price to the FST tariff for the Yamal-Nenets Autonomous District

6.5-fold

Gas projected EBITDA in Russia, $ bln

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20

0

3

6

9

12

15

18

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

39% 17%

61% 83%

2007-2010 2012-2021

Upstream

Downstream and other

• Free Cash Flow stable growth

• Maintaining ROACE at a competitive level

• Debt-to-equity ratio not above 20%

LUKOIL Financials

0

5

10

15

20

25

2011 2014 2016 2021

Capital expenditures, $ bln Free Cash Flow, $ bln

Structure of strategic portfolio

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21

33 38

42 50 52

59

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011E 2012E 2014E 2016E

+25%E

Increase in Shareholder Value

• LUKOIL plans to increase the dividend payments every year

• Dividend payout will be not less than 30% in the long-term as a result of dividend increase

Dividend per share (not less), RUB

+4% +13%

CAGR 15%E

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22

LUKOIL Strategy Risks

Political risks

• Risk decrease after presidential election in Russia

• High geopolitical risks in the world

Tax risks

• Favourable forecast. We expect decrease in tax burden in oil sector

• LUKOIL projects on Russian refineries reconstruction are resistant to the increase in taxes in refining sector under “55-70” tax scheme

• Tax risks in international upstream projects

Price risks

• We consider oil prices are not likely to decrease by more than 20% from the current level. However in case of significant decrease in prices the Company has a procedure of investment program balanced adjustment.

Geological risks

• LUKOIL implements an ambitious $5.5 bln exploration program in the new regions. In case of geological risk realization our losses can be compensated by additional increase in oil recovery factor in the traditional regions.

Investment risks

• Unprecedented plans of reserves development (13,6 bln boe) are subject to risk of project launching delay. Risk is compensated by fact, that a significant share of funds is invested into PSA projects with guaranteed rapid payback.

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23

2012-2021 LUKOIL Strategic Aims

LUKOIL Group

• Stable growth of shareholder value

• Ecological, industrial, social and personal safety

Exploration and Production

• Full replacement of reserves

• Hydrocarbon production CAGR >3,5%

• ROACE on the level of the best peers

• Implementation of investment projects with IRR not below than approved reference level

• Increase in share of international projects in the Group Free Cash Flow; and in total hydrocarbon production up to 20% by 2021 (including acquisitions)

Refining and Marketing

• Covering the demand for light petroleum products on strategic markets of LUKOIL Group

• Gradual switching to fuel oil free production. Gradual approaching of refineries configuration to the best peers level

• ROACE on the level of the best peers

• Implementation of investment projects with IRR not below than approved reference rate

• Company value maximizing due to usage of integration capabilities

Thank you for your attention!