Alliance Oil annual report for 2011

Supported by higher oil prices and increased demand for oil products, Alliance Oil Company’s operations further expanded in 2011. Oil production, refining volumes and the financial results reached the highest  levels in the Company’s history and significant achievements were made towards the long-term development  of the business.

In the upstream segment, the most significant accomplishment was the timely launch of the Kolvinskoye  oil field in Timano-Pechora. Prior to the production  start our team established necessary infrastructure,  including 146 kilometers of pipeline, and initiated a  development program. These efforts mark our commitment to this region where we expect to develop our  operations for many years to come.

Another significant milestone was the creation of  a joint venture with the Spanish oil company Repsol.  Through the joint venture, the Company’s upstream prospects continue to improve as  we create another platform for longterm development of oil and gas reserves and production. Together with  Repsol we are realizing an opportunity  to enter the Russian gas market, which  offers attractive opportunities for business development.

Looking ahead, the key objectives for the upstream segment  remain to continue extending  the Company’s track record  of value creating, reserve additions and production growth.

In the downstream segment, the Company’s market presence expanded further as oil product deliveries increased and we improved our position in the  bunker market. The modernization of the Khabarovsk oil refinery progressed further. The second phase of  a chemical water treatment plant, a boiler plant and  a reagent farm were constructed in 2011. Designing  works and contracting of equipment were almost completed and the project is well into the construction phase.

The refinery modernization remains the key project  in the coming year, while we are also establishing a  connection to the East Siberia Pacific Ocean (ESPO)  pipeline to gradually replace railway deliveries of crude  oil to the refinery, and continuing to strengthen the  marketing arm.

Alliance Oil Company takes great pride in and commits significant resources to the sustainable development of the operations. Our employees, the societies  we operate in and the environment are important priorities and in the past year valuable progress was made  in all areas.

The Company is well positioned to extend its history  of profitable growth through the further development  of the integrated business model and operations while  capitalizing on new business opportunities. Our commitment to return greater value to our shareholders  remains firm.

Arsen Idrisov, Managing Director


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