INTRODUCTION

LUKOIL is one of the world’s leading vertically integrated oil & gas companies. Main

activities of the Company are exploration and production of oil & gas, production of petroleum

products and petrochemicals, and marketing of these outputs. Most of the Company's exploration

and production activity is located in Russia, and its main resource base is in Western Siberia.

LUKOIL owns modern refineries, gas processing and petrochemical plants located in Russia,

Eastern Europe and near-abroad countries. Most of the Company's production is sold on the

international market. LUKOIL petroleum products are sold in Russia, Eastern and Western

Europe, near-abroad countries and the USA.

LUKOIL is the second largest private oil Company worldwide by proven hydrocarbon

reserves. The Company has around 1.3% of global oil reserves and 2.3% of global oil

production. LUKOIL dominates the Russian energy sector, with almost 19% of total Russian oil

production refining.

LUKOIL proven reserves at the beginning of 2007 were 15,715 mln barrels of crude oil

and 27,921 bcf of natural gas, totaling 20,369 mln boe.

LUKOIL has an outstanding portfolio of production assets. The main production region

for LUKOIL Group is Western Siberia. LUKOIL is carrying out international exploration and

production projects in Kazakhstan, Egypt, Azerbaijan, Uzbekistan, Saudi Arabia, Colombia,

Venezuela, Cote d’Ivoire, Ghana and Iraq.

With putting into operation the Nakhodkinskoye gas field in 2005 the Company started

its gas program which targets at a rapid growth of gas production. The key regions for

development of LUKOIL gas production are the Bolshekhetskaya Depression, the Northern

Caspian and Tsentralno-Astrakhanskoye field in Russia as well as the Kandym – Khauzak –

Shady project in Uzbekistan (put into production in 2007) and the Shakh Deniz project in

Azerbaijan.
 LUKOIL owns significant oil refining capacity both in Russia and abroad. In Russia the

company owns four large refineries at Perm, Volgograd, Ukhta and Nizhny Novgorod. Total

capacity of LUKOIL facilities in Russia is 44.5 mln tons of oil per year. LUKOIL also has

refineries in Ukraine, Bulgaria, and Romania, with total capacity of 14.0 mln tons per year. In

2007 LUKOIL refined 52.16 mln tons of oil at its own refineries, including 42.55 mln tons at its

Russian refineries.

At the beginning of 2008 the Company's marketing network encompassed 24 countries,

including Russia, the near-abroad and European countries (Azerbaijan, Belarus, Georgia,

Moldova, Ukraine, Bulgaria, Hungary, Finland, Estonia, Latvia, Lithuania, Poland, Serbia,

Montenegro, Romania, Macedonia, Cyprus, Turkey, Belgium, Luxemburg, Czech Republic, and

Slovakia) as well as the USA and includes 197 tank farm facilities with total capacity of 3.11

million cubic meters as well as 6,090 filling stations, including franchises.

Company Mission

Our purpose is to harness natural energy resources for human benefit

We aim to support long-term economic growth, social stability, prosperity and progress

in the regions where we operate, as well as caring for the environment and ensuring sustainable

use of natural resources

We want to achieve consistent and long-term growth of our business, transforming

LUKOIL into a leading global energy company. We want to be a reliable supplier of

hydrocarbons on the international energy market

Who we are

LUKOIL is one of the world's biggest vertically integrated companies for production of

crude oil & gas, and their refining into petroleum products and petrochemicals. The Company is

a leader on Russian and international markets in its core business

 Every day millions of people in 30 countries of the world buy our products, and use

those products to improve the quality of their lives

Every day more than 150,000 people unite their efforts and talents to give our Company

leading market position.

Our goals

LUKOIL sets itself the objectives to create new value, maintain business stability and

provide shareholders with high return on their investments through asset value appreciation and

cash dividends

LUKOIL will use all available means to achieve these objectives, including further

efforts to reduce costs, operating efficiency increases, improvement of product and service

quality, and application of the latest technologies

Liquidity
 Liquidity measures a company's capacity to pay its debts as they come due. There are two

ratios for evaluating liquidity.

Cash ratio = Cash ratio and cash equivalents / Current liabilities = 841mln.USD /

9,728mln.USD = 0,09 to 1

Cash ratio shows us how many USD dollars of cash and cash equivalents cover the each

dollar of liabilities. In our case it forms 0,09 USD to each dollar of liabilities.

The current ratio is computed by dividing total assets by total current liabilities. With it

we compare cash and near-cash current assets against the debt (current liabilities) coming due

and payable within one year

Current ratio = Current assets / Current liabilities = 17,903 mln.USD/ 9,728

mln.USD = 1,84 to 1

It means that our assets exceeded our liabilities in 84 %. In our opinion, this is not

enough, because for that kind of industry norm of ratio is approximately 2,5-2,7.

The quick ratio supplements the current ratio by taking into consideration the

composition of the extent to which cash and near cash items (short-term investments and

receivables) cover current liabilities as follows:

Quick ratio = (Cash + Short-term investments + Accounts and notes receivable) /

Current liabilities = (841 mln.USD + 48 mln.USD + 7,467mln.USD) / 9,728 mln.USD = 0,86

to 1

The industry average has been somewhat less than 1 to 1 for the quick ratio. Our

company’s result of quick ratio corresponds with this norm.

The accounts receivable turnover shows the number of times that accounts receivable is

converted into cash during the period. It is obtained by dividing net sales by the average accounts

receivable:

Accounts receivable turnover = Accounts receivable * 365 days / Sales = 81,891

mln.dol. * 365 / 7,467 mln.dol. = 28 times

 Lukoil is a big company with a huge volumes of commodity circulation, big number of

suppliers and purchasers. We think that 28 times for the year is a good index.

Average collection period shows us the average time it takes a firm to collect its accounts

receivable:

Average collection period = 365 / Accounts receivable turnover = 365 / 28 = 13 days

In our case, we collect our accounts receivables every 13 days approximately. This index

is a good result. Average norm for the industry companies averages in 30 days.

After all calculations and discussions we can make a conclusion that our company has a

good ability to meet its short-term obligations as they become due, normally referred to as the

firm’s short-term debt-paying ability. In the evaluation of liquidity we can assume that this

current assets is enough to fulfill short-term obligations.

Profitability
 Profitability ratios measure the company's ability to generate a return on its resources.

Use the following four ratios to help your client answer the question, "Is my company as

profitable as it should be?" An increase in the ratios is viewed as a positive trend.

ROE is a fundamental measure of profitability from the standpoint of current and

prospective investors. ROE is calculated by dividing net income by the average’s shareholders

equity:

Return on equities = Net income / Average equity for the year = 9,511 mln.USD /

41,213 mln.USD = 25,7 %

Our company’s investors rate of return on their investments. This result is enough good

because net income will cover our amount of equity in 4 years.

Return on assets or ROA has been regarded as a measure of the return obtained on all the

company’s assets without consideration of the method used to finance them. It is computed as

follows:

Return on assets = Net income / Average assets for the year = 9,511 mln.USD/ 59,632

mln.USD = 17,6 %

It means that in the end of operational period of 2007 year our company had 0,18 USD on

every US dollar of assets.

Income margin ratio shows us a portion of income before taxes in sales amount:

Income margin = Income before taxes / Sales = 13,018 mln.USD / 81,891mln.USD =

15,9 %

In our opinion, almost 0,16 US dollars of every dollar from sales is quite normal result.

The calculation of price – earnings ratio serves as a reflection of how much the investing

public is willing to pay for the company’s prospective earnings

 Price - earnings ratio = Share price / Basic earnings per share = 87 USD / 11,48 USD

= 7,58 times

This result shows that investors of our company are sufficiently confident in prospective

business with OAO “Lukoil”.

As a conclusion, we can say that OAO “Lukoil” is stable in such aspect as profitability.

Our company’s investors rate of return on their investments will cover our amount of equity in 4

years. Also investors of our company are sufficiently confident in prospective business with

OAO “Lukoil”.

Solvency

Solvency ratios indicates a company's vulnerability to risk, e.g., the degree of protection

provided for the business' debt. Three ratios help you evaluate safety.
 Debt ratio demonstrates us the difference between our company’s amount of total debt and

amount of total assets. It’s calculated by dividing amount of total debt by total assets:

Debt ratio = Total debt / Total assets = 7,043 mln.USD / 59,632 mln.USD = 11,8 %

In our case, OAO “Lukoil” has only 11,8% portion of total assets amount.

Debt to total capital shows portion of debts in total capital structure.

Debt to total capital = Total debt / Total capital = 7,043 mln.USD/ 48,256 mln.USD =

14,6%

OAO “Lukoil” has only 14,6 % debts in total capital amount. It means, that less than15 %

of our capital is our liabilities. In other words, our company didn’t depend on the attracted

capital in 2007 year. More than 85 % of total capital were used of owner’s equity means or

facilities.

The debt-to-equity ratio is an expression of the creditors’ financing in relation to the

owners’ financing.

Debt-to-equity ratio = Total debt /Total equity = 7,043 mln.USD/41,213 mln.USD =

17,1%

In this ratio we are interested to have higher amount of total equity and lower amount of

total liabilities. Result of our company in this ratio is more than good, we are sure. Because OAO

“Lukoil” used only 0,17 USD on each US dollar of owners.

The interest coverage ratio is determined by dividing earnings before interest and taxes by

the annual interest charges:

Interest coverage = EBIT / Interest charges = 13,216 mln.USD / 333 mln.USD = 3,97 %
 As the conclusion, we can say, that solvency of our company is very strong. As the

explanation of our opinion are the Debt ratio, Debt to total capital, Debt-to-equity ratio.

OAO “Lukoil” has only 14,6 % debts in total capital amount. It means, that less than15 % of our

capital is our liabilities. In other words, our company didn’t depend on the attracted capital in

2007 year. More than 85 % of total capital were used of owner’s equity means or facilities. Also

OAO “Lukoil” used only 0,17 USD on each US dollar of owners.

Asset management

This indicates how efficiently the company generates sales on each dollar of assets. A

volume indicator, this ratio measures the ability of the company's assets to generate sales.
 The Assets turnover shows the number of times that assets is converted into cash during

the period. It is obtained by dividing net sales by the average assets:

Assets turnover = Assets * 365 / Sales = 59,632 mln.USD * 365 / 81,891 mln.USD =

240 times;

This index demonstrates that in 240 times our investigated company will convert their

assets into the cash.

Assets to equity ratio shows the relation between assets and company’s equity. It is

calculated by dividing total assets by amount of total equity:

Assets to equity = Assets / Equity = 59,632 mln.USD / 41,213 mln.USD = 1,45 to 1;

This ratio demonstrates that on every US dollar of owner’s equity our company has 1,45

USD of amount of total assets.

Market capitalization is a measurement of corporate or economic size equal to the share

price times the number of shares outstanding of a public company. As owning stock represents

owning the company, including all its assets, capitalization could represent the public opinion of

a company's net worth and is a determining factor in stock valuation.

A ratio that compares a firm's stock price with its book value per share. A low ratio

indicates the firm's assets are not being fully valued by investors or the assets are being

overvalued on the firm's financial statements. If the former is the case, the company may be a

candidate for a takeover attempt.

Price to assets = Market capitalization / Assets = 73,999 mln.USD / 59,632 mln.USD

= 1,24 to 1;

A ratio used to compare a stock's market value to its book value. It is calculated by dividing the

current closing price of the stock by the latest quarter's book value per share.
 Price to book = Market capitalization / Equity = 73,999 mln.USD / 41,213 mln.USD

= 1,80 to 1.

In our case, investors value our firm’s stock high. Also other ratios show that situation in

the company is stable. It does not depend on the facilities from the side. We mean, that company

is secured well with the funds of it owners.

FINANCES
 The FINANCIAL -- LUKOIL paid EUR 852.47 million on February 17 to Italian ERG

as a final settlement of the amount due for acquiring a 49% stake in the joint venture that will

operate the ISAB refinery complex in Sicily.

The total transaction amount was EUR 1.45 billion including inventory (valued at

average November 2008 prices).

According to previous reports, the Agreement was signed in Rome on June 23, 2008.

The transaction structure provides LUKOIL with a possibility to increase its stake in future.

The parties signed a supplementary agreement on November 06, 2008, which envisaged

the transaction closing on December 01, 2008. By that time, LUKOIL had paid an upfront

amount of EUR 600 million. It was decided that the remaining amount would be deferred and

paid in three instalments before the end of September 2009.

Thus, LUKOIL paid today the amount due to ERG in full and ahead of schedule saving

EUR 15 million for paying in advance.

In addition to that, within 4 years ERG will have the right to exercise a put option for its

51% stake in the joint venture with a EUR 15 million reduction on the exercise price.

LUKoil was first structured in 1992 and its name derived from three production

associations in west Siberia that were merged: Langepasneftegaz (then with output the capacity

of 275,000 b/d); Uraineftegaz (cap. 87,000 b/d); and Kogalymneftegaz (475,000 b/d). In Sept.

1995, under a decree, LUKoil took from Rosneft four producers which had agreed to merge with

it: Permneft (170,000 b/d); Nizhnevolzhskneft (52,000 b/d); Kaliningradmorneftegaz in the

north-west of the federation (15,000 b/d); and Astrakhanneft, the Caucasus (2,000 b/d).

LUKoil began its vertical integration in 1993 by taking in one oil refining firm,

Volgogradneftepererabotka (with a 188,000 b/d refinery at Volgograd whose usable capacity is

about 100,000 b/d). Under the same 1995 decree, LUKoil took from Rosneft three refining

companies: Permnefteorgsintez (278,000 b/d refinery in Perm being partly used); a smaller plant

at Novoufimsk, the Urals; and the large Ufa refining complex in Bashkortostan (whose capacity
once was over 900,000 b/d but now is about 100,000 b/d). In late 1999 it got the 150,000 b/d

Ukhta refinery as part of the KomiTek deal.

LUKoil is modernising these refineries so that, together with other plants being acquired

fully or partly elsewhere, its refining capacity should reach 1m b/d by 2005. This would include

a new 180,000 b/d plant, being built in an area 30 km from Russia's Black Sea port of

Novorossyisk, called Southern Oil Refinery. To cost about $1.5 bn, the refinery has been

proposed as a JV with Agip, KazakhOil, the regional administration of Krasnodar, Transneft,

Sidanco, Tatneft, ABB Lummus, Mitsui, Lurgi and Sirecox of Spain. At home the refineries are

generating cash, but they produce fuel oil far in excess of local demand.

The group has built an oil products pipeline linking its Perm refinery, on the Volga

River, to Moscow and other markets including Tatarstan. This has joined an existing line for

products exports from Omsk refinery in Siberia to Europe, which will enable LUKoil's

marketing units to expand in premium European regions. At the same time, the group is building

up a fleet for its shipping units, with one at Astrakhan where barge traffic along the Volga River

links Russia's refining centres to the Caspian Sea.

Other companies in the group include construction firms and units providing various

services, such as LUKoil-nefteavtomatika, Rostovneftekh-improekt, Uraiskoe, and

Volgogradnefteproduktavtomatika.

1995. It was the first to convert "daughter shares" into shares of the holding company

and the exchange ended on Jan. 1, 1996. It was the first to enter foreign capital markets,

successfully placing converted bonds which were later exchanged for a 6% block of common

shares. The exchange of daughter shares for holding company shares was conducted at "market

cost". Daughter shares not quoted on the market were exchanged at somewhat arbitrary ratios.

This was not resisted by shareholders. The success of the conversion had a positive effect on the

share price of the holding company. Now the level of consolidation at LUKoil exceeds that of

the other Russian groups.

 Arco in 1995 got a 6% stake in LUKoil for $250m paid by means of convertible bonds.

Arco later increased this to 7.99% and formed a joint venture with the group called LukArco.

Now the equity is held by BP, which acquired Arco in 1999, and the super-major is looking at

the possibility of taking a seat on LUKoil's board of directors.

LUKoil formed LukAgip as a JV with the Italian company Agip. By then, 16% of the

group's shares were held by US investors in the form of American Depositary Receipts (ADRs).

The holding company is to attract bigger investment through a listing in New York, with each

daughter firm seeking investors on its own. CS First Boston, a unit of Credit Suisse and a major

player on Russia's stock market, is the group's financial advisor. Imperial Bank is its main local

banker and holds 5% in LUKoil, said to be on behalf of the management.

CONCLUSION
 LUKOIL is one of the world's biggest vertically integrated companies for production of
crude oil & gas, and their refining into petroleum products and petrochemicals. The Company is
a leader on Russian and international markets in its core business
Every day millions of people in 30 countries of the world buy our products, and use
those products to improve the quality of their lives
Every day more than 150,000 people unite their efforts and talents to give our Company
leading market position.
In the result, we can make a conclusion that our company has a good ability to meet its

short-term obligations as they become due, normally referred to as the firm’s short-term debt-

paying ability. In the evaluation of liquidity we can assume that this current assets is enough to

fulfill short-term obligations.

Also we can say that OAO “Lukoil” is stable in such aspect as profitability. Our

company’s investors rate of return on their investments will cover our amount of equity in 4

years. Also investors of our company are sufficiently confident in prospective business with

OAO “Lukoil”.

In our opinion, solvency of our company is very strong. As the explanation of our

opinion are the Debt ratio, Debt to total capital, Debt-to-equity ratio. OAO “Lukoil” has only

14,6 % debts in total capital amount. It means, that less than15 % of our capital is our liabilities.

In other words, our company didn’t depend on the attracted capital in 2007 year. More than 85 %

of total capital were used of owner’s equity means or facilities. Also OAO “Lukoil” used only

0,17 USD on each US dollar of owners.

In our case, investors value our firm’s stock high. Also other ratios show that situation in

the company is stable. It does not depend on the facilities from the side. We mean, that company

is secured well with the funds of it owners.