In early 2000, the LUKOIL Management Committee decided to establish a single company with responsibility for all of the international trading activities of the LUKOIL Group. In order to ensure full transparency for both investors and management, all LUKOIL group crude oil and products exported from Russia would be handled by LITASCO. LITASCO would also be responsible for the supply of crude oil and products to LUKOIL's rapidly expanding international downstream operations.  This decision came after a period of significant growth in LUKOIL's upstream production as well as its investment in downstream assets outside of Russia and the rising need for the supply of crude oil and products to these operations.

LITASCO was registered in Switzerland in April 2000 and has since established subsidiary offices in ten countries, extending our reach around the world from the United States to Europe, the Middle East and Singapore. LITASCO is the strategic arm of LUKOIL for all of its international trading and supply operations outside of Russia.

LITASCO is also LUKOIL's main business development arm for the international expansion of the Group's trading operations. LITASCO's key functions include both marketing LUKOIL system crude oil and products and trading with third parties. Third party trading activity in 2005 represented approximately 35 percent of the total activity of the company. Trading with third parties allows LITASCO to increase the efficiency of LUKOIL system barrel sales and enables the company to further expand its international operations. For this reason,  LUKOIL's strategy is to increase the scale of its third party trading in our activity mix over the next several years.

In 2005, LITASCO Group organised the export of over 40 million metric tons of crude oil and 20 million metric tons of petroleum products from the OAO LUKOIL system. The international trading operations of LITASCO enabled the company to exchange an additional 9.8 million metric tons of crude oil and 20 million metric tons of petroleum products sourced from third parties. LITASCO has been able to achieve this growth while keeping a high level of profitability and despite the complexity and rapid evolution of a very competitive market.

Expansion of LITASCO global market share on both sides of the Atlantic Ocean and in the Far East has established it as a major international trading company. Opening these markets to LITASCO's operations will ensure that our overall goal of increasing the ratio of third party trading to 50 percent of total activity is achieved.

Vagit Alekperov

LUKOIL President