The Reality of RussiaThe Reality of Russia

Ray Leonard Sr. Vice President, MOL Plc.

Lisbon, May 2005

SlovnaftSlovnaft

THE MOL GROUP

Russia has entered a new era

► 1980’s: Soviet Empire with 20% of world oil production

► 1990-1998: Collapse and reorganization as production drops from 12 to 6 MMBO/D

► 1999-2004: Industry revival in Russia with production increase to 9 MMBO/D

► 2005-?: State re-asserts control and production stabilizes

► 1

Russian Reserves

Two sets of calculations: Russian C1(proven) accurately measures reserves without economic filter while SPE and SEC measure economically recoverable reserves and actual developed reserves

C1 Russian reserves are 119 billion barrels

As development of past five years has taken place, gap between SPE and SEC numbers and C1 is narrowing

Proven reserves are concentrated in West Siberia with about 70% in difficult to produce reservoirs

► 2

0

10

20

30

40

50

60

70

80

90

W S

iberia

Vo

lga U

rals

Tim

anP

echo

ra

E S

iberia

Ru

ssia Sh

elf

Proven Reserve BB

Exploration Potential

Minimal exploration took place in 1999-2004 period

Lack of guaranteed production rights if discovery is made

Far lower cost to increase production in discovered fields

Fiscal terms not encouraging for upfront capital intensive projects

Large portion of future risked potential of 43 billion barrels is in more costly areas

0

2

4

6

8

10

12

14

WS

VU

TP

ES

RS

Risked Expl Reserves BB

► 3

Infrastructure

Limitation of production increase in 1999-2004 period was pipeline access

With production flat or slightly declining, this is no longer a problem

Combination of export tariff (now $120/ton) and high rail transportation costs have made rail export unattractive economically

► 4

Rising Costs (Eskin 2004)

Part of the reason for 1999-2004 boom was ruble devaluation

Ruble appreciation is taking away that benefit

In the coming years, production will shift to tighter reservoirs in West Siberia and frontier areas with high costs

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

2

1998

1999

2000

2004

2005-8

W Sib wells $MM V Urals wells $MM

► 5

Rising Costs (continued) Eskin 2004

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

19

98

19

99

20

00

20

04

20

05

-8

Lifting Costs WS and VU $/bbl

0

2

4

6

8

10

12

14

W S

ib

VU

TP

ES

RS

Capex per new unit prod $/bbl

► 6

Investment 2005-2010

Investment will not increase despite high oil prices during the 2005-10 period

Export tariffs and other taxes remove 90% of value of oil above $25/bbl

Russian investment laws remain unfriendly to long-term high front end cost projects

Limited number of projects for foreign investors to operate

For this period, Russian companies will use available capital to cover rising costs and pay taxes

► 7

Future Investment

Shift from mature to frontier regions will require greater investment after 2008

Under current tax regime, these funds will have to be borrowed

If funds are not available, production will drop -60

-40

-20

0

20

40

60

80

20

05

-10

20

11

-15

20

16

-20

Investment $BBTax collectedCash flow

► 8

Russian Oil Production and Exports

012

34567

89

10

2000 2005 2010 2015 2020

Oil production MMBO/D Crude exports MMBO/D

► 9

Conclusions

Current Russian policies have ended period of production growth

With production flat or slightly declining, no new pipelines are needed, although East Siberia line may be built for political reasons, reducing exports to Europe

State has assumed control of industry with limited opportunities for foreign investment

Russia will be able to use industry as cash generator for next five years as lower cost areas are produced

Crisis will come at the end of decade when lack of investment during 2005-10 needed to maintain future level of production by development of new areas becomes apparent, unless current policies are changed

► 10