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Sibneft Reports $36.2 Million Profit for 1998 & Unveils Ambitious New Strategy

Moscow, Friday 4th June 1999: Sibneft released US GAAP accounts for the period ending December 31st 1998 today, Friday June 4th, which showed a net income for 1998 of $36.145 million.

"1998 was an exceptionally tough year but, nevertheless, the underlying going forward trend is very encouraging. Our cost of production was cut substantially in 1998 through a combination of clear management action and a more competitive currency. The challenge for us now is to drive through further productivity initiatives to capture these savings for the long term."

The key points of the 1998 results presentation were, as follows

Net Income $36.2mm (restated 1997, $23,888mm) Operating loss ($105.2mm) (restated 1997 ($18,671mm) NNG direct production costs cut to $2.4 in 1998 and again to $0.95 per barrel in Q1 1999 Proved reserves increased to 4,129 bn bbls Borrowings reduced to $250mm in Q1 '99 - strong balance sheet Crude export sales increased to 33.8% of production (1997, 26.5%) Consolidation of NNG successfully completed.

Mr. SHVIDLER also announced to investors an ambitious strategy for sustained profit growth over the next five years. Outlining a comprehensive range of new company targets called Project 2003, Mr. SHVIDLER said, "We are determined not just to adapt to change but to create shareholder value for the long term. This ambitious plan maps out a clear strategy for the twenty first century that builds on the strengths of our group."

The key targets of Project 2003 are as follows:

Increase production at NNG to 420k barrels per day by 2003 Increase production at Sugmut & Sporushev fields to 138k bpd Double the level of exported products, including 250% increase in sales to China, Mongolia and Kazakhstan Increase the size of retail network to 1,300 stations Target the Middle-East and North Africa to expand reserve base out of West Siberia, to achieve 10% of reserves outside Western Siberia and 5% of production.

PROGRESS in 1998 UPSTREAN At Noyabrskneftegas production for the year fell by 4.7% as the company focused on profitable long term producing fields. Reserve replacement exceeded production for the third year running with proved reserves, as audited by Miller & Lents at 1st January 1999, at 4,129 bln barrels. The average water cut was reduced to 67.4% compared to the Russian average of 76%.

DOWNSTREAM In 1998 throughput dropped by 19.1% at the Omsk refinery to 13.1 million tons reflecting the falling demand from the Russian economy, although all of NNG not sent for export is exclusively refined at Omsk. Export sales of refined products increased by 27% to 24.0 million barrels and the depth of refining underlining the technological superiority of the Omsk refinery increased again to 81.6% compared to the Russian average of 59%. A new cracking unit was completed and brought on line as part of the focus on the production of higher margin, added value products.

During 1998 150 new retail sites were added to the group through a combination of franchise and exclusive supply arrangements. Sibneft intends to add significantly to this figure during the current year as part of the group strategy to expand the retail network.

CORPORATE In the current year the group has successfully completed the consolidation of Noyabrskneftegas and hopes to publish plans to complete the consolidation of the Omsk refinery later in 1999. The recommendations of the corporate governance committee established in 1998 were accepted in full and published in the Sibneft corporate governance Charter. These recommendations have now been fully implemented with the exception of the appointment of the new non-executive directors. However, Sibneft looks forward to welcoming new non-executives, including Michael Hunter, President of Dart Capital, to the group Board following the AGM on June 29th 1999.