1. The Reality of Russia Ray LeonardSr. Vice President, MOL Plc. Lisbon, May 2005 Slovnaft THE MOL GROUP

2. 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► 1

3. 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► 2

4. 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 ► 3► 3

5. 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► 4

6. 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 ► 5► 5

7. Rising Costs (continued) Eskin 2004 ► 6► 6

8. 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► 7

9. 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 ► 8► 8

10. Russian Oil Production and Exports ► 9► 9

11. 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