Updated June 5, 2008

   Lukoil acknowledged it experiences extraction drop: according to January-March results it was 3,3%. The company promises to improve the situation by year end.

However, Gazprom Neft, for instance, can not succeed within two years already.

The company started to take radical measures – was fired Sergey Rusakov, the head of its core extractive branch Noyabrskneftegaz. At the current moment only Rosneft does not have troubles with oil extraction.

   Lukoil has published the international reporting for January-March, where it is stated that in 1Q the company has extracted 23,6 million tons

of oil, previous year – 24,4 million tons, i.e. the drop is 3,3%. Until now Lukoil has been demonstrating production growth, although according to 2007 results extraction of Gazprom Neft, TNK-BP and Surgutneftegaz has dropped by 0,3%, 4,12% and 1,6% respectively.

   Lukoil extraction rates have been falling both in Russia (by 0,8%, to 22,27 million tons), and abroad (by 10%, to 1,35 million tons). "Depletion reserves level of our extractive assets in Western Siberia continues to increase and that has resulted in extraction drop and water cut growth (wells)", as it was explained in the report. "Lack of required energy capacities in the region on the background of high demand for energy of multitude oil-production enterprises has significantly influenced extraction rates drop". Extraction drop abroad was the result of

the Indian Mittal company sale to the Kazakh Caspian Investments Resources

company. Lukoil hydrocarbons extraction (including gas) went by 1% down – to 199,5 million barrels of oil equivalent (BOE).

   According to 2008 results Lukoil still promises to increase extraction by 1,8-2%. Launch of Yuzhnaya Khylchuya oilfield (around 7,5 million tons of oil a year will be extracted) in Nenets Autonomous District planned by mid-year will help the company. Analysts consent that Lukoil problems are temporary.

"It will manage to compensate the drop due to Yuzhnaya Khylchuya oilfield launch and extraction stabilization on Kogalymneftegaz fields – both as a result of earlier investments and areas launch adjoining other fields", as considers Denis Borisov from Solid Investment Company.

   However, Gazprom Neft, for instance, fights with extraction drop almost in vain since 2006.

Although, taking into account the stake in Tomskneft it has recently purchased, the company has increased extraction in January-April by 8,5%, to 11,74 million tons, and Gazprom Neft production volume excluding the deal has dropped by 4,1%, to 7,84 million tons. Noyabrskneftegaz indices

in particular, Gazprom Neft core extractive company, go down with a run. Previous year its extraction level fell by 10,5% down, to 19,16 million tons. Recently Gazprom Neft reported it changed Noyabrskneftegaz head: Gennady Lyubin (former Gazpromneft-Khantos head) would take Sergey Rusakov post.

   "Western Siberia is the main extraction region of all Russian companies, and they operate mainly on old fields developed in the soviet times", marks KIT Finance analyst Konstantin Cherepanov. The region fields have entered the phase of natural production drop, and full development of new projects, which every company has, has not been started yet. In its turn Denis Borisov reminds that tax deductions promised by the government should help to develop new fields.

An expert does not eliminate that preferential tax treatment will be implemented in Eastern, as well as Western Siberia in the nearest future. At the moment the only Russian company with the growing extraction level is Rosneft. However, on the background of oil prices drop (Urals – by 2,66%, to $118,05 per barrel) and Luk oil reports all Russian

oil companies go down in price.

According to trades Lukoil stocks have fallen by 6,3% down, Rosneft – by 4,6%, Gazprom Neft – by 3,96%.