Cash fl ow from operations, before changes in working capital
Oil reserve growth
Proven and probable reserves
•
Successful merger with Alliance Oil Company•
Cash fl ow increased to MUSD 367•
Proven and probable reserves increased by 35%•
24.6 million barrels of oil were refi ned and 17.4 million barrelsof oil were produced.
Million barrels
Comparative information for 2004–2007 presented in graphs and tables on pages 3–21 refers to data from WSR’s previous dis- closures, including previous annual reports, unless otherwise noted. In the fi nancial statements presented on pages 34–92, all comparative information refers to Alliance Oil Company’s historical fi nancial statements unless otherwise noted.
MUSD MUSD
Million barrels
Total oil production and refi ning volumes
Crude oil production Oil refi ning
The Annual General Meeting
The company’s Annual General Meeting (“AGM”) will be held on May 28, 2009 at 4 pm at the Stockholm Concert Hall (The Grünewald Hall), in Stockholm, Sweden.
Holders of Swedish Depository Receipts, (“SDRs”), of the Company who wish to attend the AGM must be listed in the register of directly registered holders of SDRs kept by Eu- roclear Sweden AB on Friday, May 22, 2009 and notify Skandinaviska Enskilda Banken AB (publ) (“SEB”) of their intention to attend the AGM not later than the same day, Friday, May 22, 2009 at 5.00 pm. SDR holders registered in the name of a nominee must have their SDRs re-registered in their own names in the Euroclear Sweden AB register in order to at- tend and vote at the AGM. SDR holders who hold SDRs through a nominee must therefore notify their nominee to request a temporary owner registration (so-called voting-right registration) in ample time before Friday, May 22, 2009 if they wish to attend and vote.
SDR holders who are directly registered in the shareholder register or who have a vo- ting-right registration by May 22, 2009 may vote at the AGM.
Notice of the intention to attend the AGM should be given to SEB, by mailing to the address: SEB Issue department, Special Services, RB6, SEB Group Operations, SE-106 40 Stockholm, email: tsoissuedepartment@seb.se or by faxing +46 8 763 62 50 or phone +46 8 763 55 60.
Financial information
The company plans to publish the following fi nancial reports:
Three months report (January – March 2009) on May 28, 2009 Six months report (January – June 2009) on August 27, 2009
Nine months report (January – September 2009) on November 26, 2009 Twelve months report (January – December 2009) in February 2010
The company provides continuous operations updates and reports major developments in accordance with the listing agreement with NASDAQ OMX Nordic.
All information is directly published on the company’s website: www.westsiberian.com
Contents
West Siberian Resources Ltd 2008 3
Overview of Operations 6
Message from the Managing Director 8
Summary 2008 10
Share Data 20
Corporate Governance Report 22
Corporate Social Responsibility 32
Financial Statements 2008 34
• Income statement 34
• Balance sheet 35
• Statement of cash fl ow 36
• Statement of changes in equity – group 37
• Statement of changes in equity – parent company 38
• Key fi nancial and operating ratios, with defi nitions 39
Notes to the fi nancial information 41
Independent Auditors’ Report 94
Supplemental information 96
Abbreviations and Terms Used 98
Addresses 99
Annual Report
2008
Overview of Operations
Timano-Pechora Region Crude oil production
Volga-Urals Region Crude oil production
Tomsk Region Crude oil production Moscow
Head office
Khabarovsk Oil refinery Russian Far East
Network of gas stations, wholesale terminals and transportation
Atyrau Region (Kazakhstan) Crude oil production
СHINA
JAPAN
Skovorodino Tynda
Bolshoy Never Taldan Zeya
Magdagachi
The Amur oblast
The Khabarovsk krai
SEA OF JAPAN
The P rimorsky krai
Tygda Sivaki
Shimanovsk
Novokievsky Uval Svobodny
Seryshevo Belogorsk Ivanovka
Ekaterinoslavka Zavitinsk
Talakan Tambovka
Raychikhinsk Progress
Novobureysk Arkhara
Tyoploe Ozero Konstantinovka
Poyarkovo
Berezovy
Amursk
Selikhino Lidoga Troitskoye
Smodovichi Kirga Bira Obluchye Pashkovo
Nikolayevka
Mayak
Pereyaslavka Korfovsky Khor
Novostroyka Vyazemsky Kotikovo Lermontovka Bikin
Luchegorsk Pozharskoe
Roshchino Dalnerechinsk
Novopokrovka Rakitnoe Lesozavodsk
Gornye Klyuchi Kamen-Rybolov
Pogranichny Chernigovka Sibirtsevo Ussuriysk
Kiparisovo Volno-Nadezhdinskoe
Tavrichanka
Zarubino
Terney Plastun Dalnegorsk
Kavalerovo Spassk-Dalny
Chuguevka Arsenyev Anuchino
Artyom Olga
Birobidzhan Blagoveshchensk
Khabarovsk
Vladivostok Nakhodka
Komsomolsk-na-Amure
Message from the Managing Director
Dear Shareholders,
For West Siberian Resources, 2008 was a year of many achievements and challenges. We experienced a rapid price increase with crude oil prices fi rst reaching histori- cal highs and then falling dramatically as recession fears hit the oil market. Overall, the demand for crude oil and oil products decreased precipitously driving down prices.
Market conditions became more challenging towards the end of the year, particularly for our upstream seg- ment. The economic downturn is expected to further deepen this year to expose us to new threats and to open new opportunities at the same time.
Our performance in 2008 was exceptionally good and showed the ability to deal with an unstable environment.
The merger with Alliance Oil Company and the transfor- mation into a fully integrated oil company has made us less vulnerable to market volatility with the downstream segment becoming increasingly important to our oper- ating and fi nancial performance. The integration has also created a well balanced company with better fi nancing opportunities, lower cost of capital and increased inves- tor awareness.
The merger has enabled us to integrate upstream and downstream activities and participate throughout the oil industry value chain. We are now in the position to proc-
ess our own crude oil which provides supply security for refi ning and marketing operations. We are also witness- ing the operational and fi nancial benefi ts of vertical in- tegration. In recent months, it has become evident that we are well positioned to face the challenging market environment.
For 2008, we report record revenues, EBITDA and cash fl ow. The net result was aff ected by a non-cash impairment charge to the book value of upstream assets. Pro forma for the merger, in 2008 the combined company generated revenues of USD 2.9 billion, EBITDA of MUSD 629, and net income of MUSD 321 excluding the impairment charge.
Our diverse upstream asset base provides low-risk development opportunities and exploration opportuni- ties from which we can grow reserves and production for years to come. However, the market volatility is testing our industry with new challenges. We seek to minimise operating costs, optimize capital expenditures and ef- fi ciently invest in development and exploration drilling.
The company will maintain the focus on improving oper- ating effi ciencies while insuring long-term growth.
The downstream refi ning and marketing business is well positioned to benefi t both from the growing Rus- sian Far East and neighbouring export markets. The Khabarovsk Oil Refi nery is located close to the borders Arsen E Idrisov
Managing Director
with China, North Korea and Japan which facilitates ac- cess to Asia Pacifi c rising petroleum markets. Our long- term outlook for the downstream sector stays clear and fi rm. In 2007, we initiated a great modernisation plan to make the Khabarovsk Oil Refi nery the best-in-class player in terms of operational effi ciency and quality of products, and we look forward to complete this plan in 2012.
Alliance Oil is a well recognised premium brand and market leader in the region with a strong focus to supply domestic markets with high quality oil products. We will maintain our strategy on providing our customers with a guaranteed quality and most excellent services while improving our performance and delivering strong results to shareholders.
For 2009, the budgeted targets are to produce 16 million barrels of crude oil and to refi ne and market 21 million barrels of oil products. The downstream target refl ects that maintenance of the refi nery’s reforming will reduce refi ning volumes in the last quarter 2009.
The capital expenditures budget amounts to MUSD 194 out of which we plan to spend MUSD 58 in the upstream segment and MUSD 136 in the downstream segment. In an environment of severely disrupted fi nancial markets and an uncertain oil price outlook, the modernisation of Khabarovsk Oil Refi nery and the Kolvinskoye oil fi eld devel- opment continue at slower rates than originally planned.
We seek to maintain a solid balance sheet and fi nan- cial fl exibility. Our position should allow us to improve
the capital structure and lower the cost of capital as the fi nancial markets stabilise. Important steps have been taken towards securing the long term debt funding for the refi nery upgrade.
Looking ahead to coming years, our objectives have not changed. We will, however, always adjust to chang- ing markets. Despite current demanding conditions West Siberian Resources is committed and well positioned to continue strengthening its presence in the Russian oil in- dustry and growing both its upstream and downstream segments.
We owe our strong position to the dedicated eff orts of our employees in all regions. I wish to thank them all for their continued support and loyalty to the company through these troublesome times.
In order to further capitalise on the high awareness and greatly recognized value of the Alliance Oil brand in the Russian oil markets, we plan to integrate all seg- ments under this brand and will propose that share- holders approve the change of the corporate name to Alliance Oil Company Ltd. Following last year’s merger this step marks the fi nal integration into one company, – a dynamic and profi table business with a solid interna- tional reputation.
Arsen E Idrisov Managing Director
Oil production and refi ning capacity
crude oil produced and refi ned per annum
Crude oil production Oil refi ning capacity mln bbls p.a.
2008 actual
2012 estimated capacity 35
30 25 20 15 10 5 0
Summary 2008
On April 10, 2008 West Siberian Resources completed the merger with Alliance Oil Company. Through the merger, West Siberian Resources Ltd expanded its exploration and production (upstream) operations and added signifi cant oil refi ning and marketing (downstream) operations. Con- sequently, the enlarged group has vertically integrated oil operations in Russia and Kazakhstan, set to capitalize on the benefi ts of vertical integration in all stages of the oil and gas industry value chain.
In the merger, Alliance Oil’s shareholders contributed the entire share capital of Alliance Oil to WSR in exchange for 1,783,540,968 ordinary shares issued by WSR. In addition, WSR issued warrants to subscribe for 99,682,500 ordinary shares at an exercise price of SEK 6.21 per share as part of the merger agreement.
From the second quarter of 2008, Alliance Oil Company’s operations are consolidated in WSR’s fi nancial statements using the accounting model prescribed by IFRS 3 “Business combination” for “reverse acquisitions”. This accounting treatment requires Alliance to be treated as the accounting acquirer and WSR being presented as the acquiree. WSR will, as the legal parent, continue to be presented as parent com- pany in future fi nancial reports.
Thus, WSR’s operations before April 10, 2008 were not consolidated in the group’s consolidated fi nancial state- ments for the fi nancial year ended December 31, 2008.
All comparative fi nancial information refers to Alliance Oil Company’s fi nancial statements for the fi nancial year
ended December 31, 2007 unless otherwise indicated.
Group revenue for the fi nancial year ended Decem- ber 31, 2008 was MUSD 2,721.57 (MUSD 1,618.10). The revenues include revenues from sales of oil products, sa- les of crude oil and other sales. Crude oil and oil product volumes increased and average prices were higher than in 2007.
Cost of sales (including production costs for crude oil and oil products and costs of other sales) were MUSD 1,884.59 (MUSD 1,242.46) for the fi nancial year.
EBITDA amounted to MUSD 585.04 (MUSD 194.81).
Cash fl ows from operations amounted to MUSD 300.27 (MUSD 124.24).
The net result was aff ected by a non-cash impairment charge amounting to MUSD 316.85 resulting from an im- pairment test of the oil and gas properties of the group.
The impairment charge adjusts the upstream asset val- ues recorded at the time of the merger with Alliance Oil Company to refl ect current market conditions in accord- ance with relevant accounting standards.
The operating income amounted to MUSD 135.85 (MUSD 140.93).
Net fi nance expenses were MUSD 31.32 (MUSD 32.65). Currency exchange rate losses amounted to MUSD 25.75 (gains of MUSD 15.52). The exchange rate losses were mainly represented by exchange rate loss- es on the external loans and borrowings denominated in dollars obtained by the group’s Russian subsidiaries.
Net Result
MUSD
* Including an impairment charge of MUSD 317
Net Result
The exchange rates used for the Russian Rouble to the USD at December 31, 2008 and 2007 were 29.38 and 24.55 per USD. As from August 1, 2008 certain intercompany loans to subsidiaries have been reassessed to be viewed as ex- tended investments rather than operating loans. The accounting treatment for such loans is that currency exchange gains and losses
are recorded in equity as a translation diff erence, net of income tax, whereas for operating loans such gains and losses are recorded in the income statement. The impact of the reassessment is that a loss of MUSD 117.75 before income tax has been recorded in equity. The tax charge amounted to MUSD 32.81 (MUSD 49.60). The net income was MUSD 40.57 corresponding to USD 0.01 per share (MUSD 63.56 and USD 0.04 per share, respectively).
Total pro forma revenue for the fi nancial year 2008 in- cluding WSR’s operations from January 1, 2008 amount- ed to MUSD 2,864.96. Pro forma EBITDA for the fi nancial year amounted to MUSD 629.23. The pro forma operating income for the fi nancial year amounted to MUSD 150.03 including the impairment charge of MUSD 316.85.
Financial Summary
TUSD
PROFORMA
2008 2008 2007 2006 2005 2004
12 months 12 months 12 months 12 months 12 months 15 months
Total assets 2 391 450 2 390 941 1 133 818 970 206 425 848 91 752
Oil and gas properties 1 131 422 1 131 931 1 045 879 864 465 378 982 74 551
Refi ning properties 366 139 366 139 - - - -
Current assets 587 571 587 573 77 054 95 368 38 242 9 457
Total liabilities 1 233 359 1 233 265 487 151 468 159 251 525 21 451
Shareholders’ equity 1 128 849 1 128 441 646 667 502 047 174 323 70 300
Minority share 29 242 29 235 295 310 313 -
Profi t margin (before net fi nancial income/expenses and before tax) 5% 5% 9% 11% 15% 106%
Equity ratio 48% 48% 57% 52% 41% 77%
Result for the period 67 135 45 969 29 891 30 225 231 17 415
Result for the period excluding impairment charge and related
deferred tax income 320 822 299 656 29 891 30 225 231 17 415
EBITDA (excluding impairment (charge)/reversal and disposal of
subsidiaries shares) 629 232 585 042 120 899 81 628 25 727 3 702
Return on shareholders equity 6% 4% 5% 6% 0% 24%
Oil production, bbls 17 415 838 13 892 793 10 637 650 8 010 855 2 976 312 1 176 903
Oil sales (to external customers), bbls 13 166 915 9 834 623 10 529 411 7 832 055 2 787 846 1 100 838
Total revenue 2 864 963 2 721 565 380 334 245 210 79 181 22 360
Revenue from sales of crude oil 598 041 455 424 371 696 237 980 73 544 22 119
Revenue from sales of barrel of crude oil, USD 45.42 46.31 35.30 30.39 26.38 20.09
Production costs per barrel of crude oil sold, USD 29.44 29.69 25.38 22.96 17.62 11.87
Oil refi ning, bbls 24 624 001 24 554 479 - - - -
Revenue from sales of oil products 2 236 580 2 233 650 - - - -
Revenue from sales of barrel of oil products, USD 90.83 90.97 - - - -
Production costs per barrel of oil products, USD 70.63 70.61 - - - -
Yevgeny Vorobeichik, Chief Operating Offi cer
The pro forma fi nancial information was based on WSR’s and Alliance Oil’s audited fi nancial statements for 2008 prepared in accordance with IFRS and was compiled based on the assumption that WSR acquired 100% of the shares in Alliance Oil Company as at January 1, 2008 using the accounting model prescribed by IFRS 3 “Business combinations” for “reverse acquisitions” as Alliance’ shareholders owned 60% of WSR following the merger. This accounting treatment requires the assets and liabilities of WSR, being the legal parent, should be initially recorded at fair value in the consolidated fi nancial statements, while the assets and liabilities of the legal subsidiary, Alliance Oil, should be recognized and measured at their pre-combination carrying amounts. The diff erence between the cost of combination and consolidated net assets of WSR as at January 1, 2008 was allocated to WSR oil and gas properties and corresponding deferred tax liability. As a result the pro forma depletion charge for the fi nancial year 2008 and closing balances of oil and gas properties as of December 31, 2008 diff er from the respective values in the consolidated fi nancial statements for the fi nancial year ended December 31, 2008. Additional data and ratios are presented in the ”Key fi nancial and operating ratios” on page 39.
West Siberian Resources Ltd operates in three Russian regions: Tomsk, Timano-Pechora and Volga-Urals, and in Kazakhstan. In 2008, the exploration and development
program together with the acquisition of Alliance Oil Company added proven and probable oil reserves of 126 million barrels which increased total proven and probable (2P) reserves by 35%
to 487.28 million bar- rels as at December
31, 2008. The proven oil rese rves increased by 60% (or by 98 million barrels) to 261.04 million barrels. The proven, probable and possible reserves increased to 619.17 mil- lion barrels. The reserves were estimated by DeGolyer &
McNaughton (D&M) in accordance with Petroleum Re- sources Management System (PRMS) guidelines.
The group’s oil production for 2008 amounted to 17,415,838 barrels (14,003,040 barrels) based on pro forma WSR and Alliance Oil Company production for the period. The consolidated fi nancial statements included WSR oil production of 13,892,793 barrels. 4,290,673 bar- rels were produced and sold intra-group for the period from April 11, 2008 to December 31, 2008.
2008 2009
Urals Spot Price
USD/bbl
Source: EIA
Oil reserves and production
Production 2008 (12 months)
PRMS classifi cation of reserves as of December 31, 2008
Russian classifi cation of reserves as of December 31, 2008
’000 bbl 1P 2P 3P A+B+C1 C2 TOTAL
Tomsk region oil fi elds 4 436 27 425 67 271 75 256 52 723 20 975 73 698
Timano-Pechora
region oil fi elds 5 165 120 362 264 625 361 180 149 245 125 365 274 610
Volga-Urals region oil fi elds 7 393 105 213 142 245 169 593 90 795 26 735 117 530
Kazakhstan oil fi elds 422 8 039 13 136 13 136 9 973 - 9 973
Total 17 416 261 039 487 277 619 165 302 736 173 075 475 811
Exploration and Production (Upstream)
Oleg Makeev, CEO Upstream
Additional information on oil reserves are presented in the ” Supplemental information” on page 96.
Oil sales volumes and prices in 2008
Export CIS Domestic Total
Sold volume (barrels) 5 489 786 2 931 547 4 745 582 13 166 915
Gross price (USD/barrel) 88.83 61.31 47.36 64.89
Net price (USD/barrel) 46.90 52.20 39.52 45.42
Selling expenses (USD/barrel) 4.94 11.90 1.63 5.29
Netback price (USD/barrel) 41.96 40.30 37.89 40.13
Revenues from sales of crude oil were MUSD 455.42 (MUSD 72.15). Revenues from export of crude oil amoun- ted to MUSD 223.19, revenues from export to CIS countri- es amounted to MUSD 104.26 and revenues from do- mestic sales amounted to MUSD 127.97.
Actual crude oil sales volumes and prices for export and domestic markets (excluding intra-group crude oil sales of 4,290,673 barrels) are presented in the following table (based on pro forma WSR and Alliance Oil Company sales volumes).
Production and Oil reserves – Tomsk Region
Production
2008 (12 months)
PRMS classifi cation of reserves as of December 31, 2008
Russian classifi cation of reserves as of December 31, 2008
’000 bbl 1P 2P 3P A+B+C1 C2 TOTAL
Middle Nyurola 1 241 9 678 28 865 35 646 28 743 - 28 743
Kluchevskoye 2 123 7 580 12 954 13 808 3 362 - 3 362
Puglalymskoye 527 7 209 8 932 9 161 10 803 13 332 24 135
Khvoinoye 545 2 958 16 520 16 641 9 815 7 643 17 458
Tomsk Region totals 4 436 27 425 67 271 75 256 52 723 20 975 73 698
Oil production costs were MUSD 316.14 (MUSD 60.15).
Production and other taxes included in the oil produc- tion costs amounted to MUSD 221.65 (MUSD 44.41).
The depletion and depreciation charge for upstream assets was MUSD 106.93 (MUSD 23.57). The depletion charges were calculated based on D&M PRMS classifi ca- tion of the company’s recoverable proven and probable reserves and estimates of future capital expenditures.
The upstream segment operating result for the year was a loss of MUSD 214.97 (an income of MUSD 38.84) including impairment charge of MUSD 316.85 resulting
from impairment test of the group’s oil and gas proper- ties. The upstream segment operating income excluding impairment charge amounted to MUSD 101.88.
Tomsk Region
Total pro forma production in the Tomsk region was 4,436,300 barrels (3,545,502 barrels) in 2008. Total oil production of 3,257,997 barrels was included in the con- solidated fi nancial statements for the fi nancial year 2008.
In total, 17 wells were drilled in the Tomsk region in the fi nancial year 2008.
The net prices are calculated by deducting VAT (for Russian domestic sales) or export duty (for export far abroad and to CIS countries sales) from the gross prices. The netback prices are calculated by deducting VAT (for Russian domestic sales), railway and pipeline transportation costs or export duty, brokers’ com- mission and certain other costs (for export sales) or transportation, brokers’ commission and certain other costs (for CIS countries export) from the gross price.
Production and Oil reserves – Timano-Pechora Region
Production
2008 (12 months)
PRMS classifi cation of reserves as of December 31, 2008
Russian classifi cation of reserves as of December 31, 2008
’000 bbl 1P 2P 3P A+B+C1 C2 TOTAL
Middle Kharyaga 1 777 7 901 22 768 24 023 40 430 2 761 43 191
North Kharyaga 604 9 842 52 571 102 691 46 580 27 362 73 942
Lek-Kharyaga 2 784 13 493 35 465 46 405 16 222 2 982 19 204
Kolvinskoye 0 89 126 153 821 188 061 46 013 92 260 138 273
Timano-Pechora Region totals 5 165 120 362 264 625 361 180 149 245 125 366 274 610
Production and Oil reserves – Volga-Urals Region
Production
2008 (12 months)
PRMS classifi cation of reserves as of December 31, 2008
Russian classifi cation of reserves as of December 31, 2008
’000 bbl 1P 2P 3P A+B+C1 C2 TOTAL
Novo-Kievskoye 1 365 8 664 12 039 12 100 10 264 1 531 11 795
Kochevnenskoye 1 265 3 253 3 253 3 253 3 553 - 3 553
West Kochevnenskoye 491 2 106 2 594 2 594 2 503 - 2 503
Solnechnoye 460 1 294 1 747 5 016 1 428 - 1 428
Kovalevskoye 521 3 189 7 629 7 988 1 125 1 292 2 417
Borschevskoye 4 133 339 3 080 632 - 632
Kulturnenskoye 10 426 851 851 365 441 806
West Borshchevskoye - - 676 1 533 - - -
Stepnoozerskoye 2 214 69 047 93 586 106 782 50 298 9 509 59 807
Yelginskoye 1 063 17 101 19 531 26 396 20 627 13 962 34 589
Volga-Urals Region totals 7 393 105 213 142 245 169 593 90 795 26 735 117 530
Timano-Pechora Region
Total pro forma production in the Timano-Pechora region amounted to 5,164,573 barrels (3,343,502 barrels) for the fi nancial year. Total oil production of 3,863,288 barrels
was included in the consolidated fi nancial statements for the fi nancial year 2008.
In total, 11 production wells and 1 sidetrack were drilled in the region in the fi nancial year 2008.
Volga-Urals region
Total pro forma production in the Volga-Urals region amounted to 7,392,933 barrels in 2008 (6,863,433 barrels).
Oil production of 6,349,477 barrels was included in the
fi nancial year consolidated fi nancial statements.
In total, 26 production wells, 5 exploration wells and 3 sidetracks were drilled in the region in the fi nancial year 2008.
Production and Oil reserves – Kazakhstan
Production
2008 (12 months)
PRMS classifi cation of reserves as of December 31, 2008
Russian classifi cation of reserves as of December 31, 2008
’000 bbl 1P 2P 3P A+B+C1 C2 TOTAL
Central Zhanatalap 331 5 970 9 670 9 670 6 397 - 6 397
South Zhanatalap 91 2 069 3 466 3 466 3 576 - 3 576
Kazakhstan totals 422 8 039 13 136 13 136 9 973 - 9 973
Kazakhstan
Total production in the Kazakhstan region amounted to 422,031 barrels in 2008 (250,602 barrels).
In total, 11 exploration wells were drilled in the region in the fi nancial year 2008.
Total Assets vs Equity
MUSD
The equity ratio increased to 48% (41%) in 2008 and the debt to equity ratio decreased from 96% to 77%, refl ecting an improved fi nancial position.
The debt coverage ratio in 2008 was 7.02 times. For defi nitions of fi nancial ratios, please refer to page 40.
3 000
2 500
2 000
1 500
1 000
500
0
Cost of crude oil purchased for refi ning for the fi nancial year were MUSD 901.44 (MUSD 857.18).
Transportation costs for the fi nancial year were MUSD 479.83 (MUSD 296.84). Transportation costs in- clude expenses for crude oil delivery to the Khabarovsk Oil Refi nery, oil products transportation to gas stations and crude oil insurance. Costs of refi ning of crude oil for the fi nancial year were MUSD 53.39 (MUSD 40.98).
The depreciation charge for downstream assets was 13.94 (MUSD 12.69).
The downstream segment operating income was MUSD 349.71 (MUSD 132.59).
In the second quarter of 2008, West Siberian Re- sources completed the merger with Alliance Oil Com- pany, through which it added signifi cant oil refi ning and marketing operations to the group’s business model.
Given the fact that the Company releases for the fi rst time its combined audited twelve months fi nancial in- formation which included the downstream segment, the company do not provide adequate comparison in Following the merger with Alliance Oil Company, the
group operates the Khabarovsk Oil Refi nery and a net- work of gas stations and wholesale oil terminals, all lo- cated in the Russian Far East.
Revenues from sales of oil products for the fi nancial year were MUSD 2,233.65 (MUSD 1,528.92). In 2008, rev- enues from export of oil products amounted to MUSD
519.88 and revenues from domestic sales amounted to MUSD 1,746.26. No sales of oil products to CIS countries were made in 2008.
Sales volumes and prices for oil products for export and domestic (wholesale and retail) markets are presented in the following table:
Refi ning, transportation and marketing (Downstream)
Oil product sales volumes and prices in 2008
Export Wholesale Retail Total
Sold volume (barrels) 8 556 672 12 004 734 3 932 448 24 493 854
Net price (USD/barrel) 60.76 100.28 129.67 91.19
Refi nery Capacity Description, total (000 tonnes)
Installations and facilities Current annual capacity Start-up year Modernisation year
Atmospheric crude distillation 4 178 1966
Initial oil processing, including: 4 350
Atmospheric distillation 2 950 1936 2001
Vacuum distillation 1 400 1988
Catalytic reforming 300 1973 1998
Isomerisation 108 2004
Bitumen 318 1939
Absorption and gas fractionation 225 1998
Gas desulphurisation 34 2001
Inert gas 1.8 1973
this segment for the pre- vious periods.
Refi ning volumes at the Khabarovsk Oil Re- fi nery amounted to 24.3 million barrels. Out of total oil products out- put for the fi nancial year about 60% were repre- sented by higher value light products.
In 2008 35% of oil products, primarily fuel oil, were exported. 49% of prod- ucts, primarily diesel were sold through domestic whole- sale and 16% - through the group’s retail network which was primarily marketed gasoline.
Preparations are underway, and initial investments were made in order to upgrade the Khabarovsk Oil Refi nery to a very modern high complexity refi nery in- tended to produce higher quality oil products for the Far East markets. The upgrade project is proceeding, but at a slower rate than originally planned, which means that the upgrade now is scheduled to be completed by 2012.
Upgrade activities in 2008 included engineering, pro- curement and construction of a hydrogenation process- es complex. Construction of facilities for ensuring com- plex operation is in progress, including the construction
of a new chemical water treatment unit, an intermediate tank fl eet (10 tanks with 400 m3 capacity each) and boiler modernization. In 2008 an agreement was signed to ac- quire licenses for vacuum fuel oil distillation (with 1,800 thousand tons per year capacity) and oil tar visbreaking installation. Basic engineering of these units has started.
The commercial bitumen site was reconstructed and a new rack for loading dark oil products into rail road tank cars was commissioned. A new tank with 4,900 m3 capac- ity was installed to store aviation kerosene. A treatment facilities fl otation fi lter was put into operation.
Alexander Sutyagin, CEO Downstream
Refi nery Capacity after modernisation (000 tonnes)
Installation Annual Capacity Notes
Hydrogenation facility, including
hydrofi ning 1 180 New construction
hydrocracking 506 New construction
Amine regeneration, acid waste steaming and sulphur extraction 13.38
New construction installation combined with end gas distillation unit (sulphur prill)
New Hydrogen production 20.02 (including 100% hydrogen 19.95) New construction
Catalytic reforming unit 450 Reconstruction
Asphaltum oil visbreaking unit 1 000 New construction
Fuel oil vacuum distillation unit 1 800 New construction
Oil products output volumes
’000 bbl 2008 2007
Nafta 2 324 2 012
Gasoline 3 041 2 575
Diesel fuel 8 024 7 684
Mazut 9 097 8 795
Jet fuel 1 559 1 391
Bitumen and оthers 606 552
Total 24 651 23 009
Investments
Total pro forma net invest- ments in upstream assets for 2008 amounted to MUSD 242.88 and were made in the Timano- Pechora region (MUSD 109.13), Tomsk region (MUSD 53.56), Volga-Urals region (MUSD 70.61) and Kazakhstan (MUSD 9.58).
For the fi nancial year to- tal consolidated net investments in upstream assets amounted to MUSD 175.70 (MUSD 55.61). For the fi nan- cial year net investments in refi ning assets amounted to MUSD 350.79 (MUSD 46.21) and net investments in mar- keting, selling and other assets amounted to MUSD 14.95 (MUSD 16.33).
Financing
In April 2008, MSEK 1,006.20 (MUSD 170.31 before place- ment costs) was raised through a private placement of 258 million common shares. The net proceeds after place- ment costs amounted to MSEK 974.66 (MUSD 165.15).
In October 2008 West Siberian Resources Group renewed a short-term unsecured revolving MUSD 50 loan facility from UniCredit Bank for ongoing upstream
development program. In November 2008 West Sibe- rian Resources Group, through its downstream subsidi- ary Alliance Oil Company, and Bank VTB renewed and prolonged the 5 billion Russian Roubles (MUSD 170.18) credit line for the ongoing Khabarovsk Oil Refi nery mod- ernization program.
Liquidity
As of December 31, 2008 the group’s liquidity amounted to MUSD 335.37 (MUSD 408.37). Consolidated cash fl ow from operations, before changes in working capital, for the fi nancial year amounted to MUSD 366.71 (MUSD 119.90).
As of December 31, 2008 the amount of MUSD 42.10 (MUSD 190.88) was held by Bank VTB as cash collateral for the letters of credit opened by the Khabarovsk Oil Refi nery in favour of Tecnicas Reunidas.
Parent company
The parent company’s net loss before tax for the fi nan- cial year ended December 31, 2008 amounted to MUSD 12.31 (MUSD 2.34).
As of December 31, 2008 the liquidity of the parent company amounted to MUSD 1.31 (MUSD 0.63).
In April 2008, the parent company issued shares to the shareholders of Alliance Oil Company as described above. In April 2008, the parent company issued 258 million shares as described above.
Investments, Financing and Liquidity
MUSD
EBITDA
Angelika Adieva, Chief Financial Offi cer
A lik Adi
Share Capital, Voting Rights and Trading
The registered share capital as of December 31, 2008 amounted to USD 161,528,415 represented by 3,23 0,568,280 shares with a par value per share of USD 0.05. Each share carries one vote. The shares are traded as Swedish Depository Receipts (SDRs) at the NASDAQ OMX Nordic in Stockholm, where they were approved for tra- ding from May 23, 2007. SEB acts as the custodian bank.
Market Capitalisation and Share Turnover
The market capitalisation as of December 31, 2008 was MSEK 8,237.95 (MSEK 5,065.26 as of December 31, 2007).
In 2008, 3,412,194,649 shares were traded. The average daily turnover during the year amounted to 13,594,401 shares. The 2008 year high of SEK 8.50 was noted on June 24, and the year low of SEK 1.87 on October 27.
Dividend Policy
WSR’s strategy is to redeploy cash fl ows from operations through its capital expenditure programme aimed at increasing oil reserves and production and upgrading the Khabarovsk refi nery. The company has not paid any dividends since it went public in the year 2000 and does
not currently plan to propose dividend payments for the foreseeable future. The dividend policy is reviewed annually.
Largest Shareholders
The 10 largest shareholders of West Siberian Resources Ltd (as per Euroclear’s (VPC) data as of February 28, 2009 combined with known changes thereafter).
Share Data
CJSC Investment Company
Alliance Capital 892 742 594 27.63%
OJSC Alliance Group 616 339 940 19.08%
Daumier Investments Ltd 224 458 434 6.95%
SIX SIS AG 151 630 191 4.69%
Repsol Exploracion S.A. 118 902 732 3.68%
BNP Paribas (Suisse) S.A. 79 660 474 2.47%
JP Morgan Chase Bank 68 121 896 2.11%
Andra AP-Fonden 39 672 485 1.23%
AFA Sjukförsäkrings AB (AKT) 35 069 045 1.09%
Subtotal 10 largest shareholders 2 226 597 791 68.92%
Other, approximately 37,500
shareholders 1 003 970 489 31.08%
Total 3 230 568 280 100.00%
Distribution of Shareholders
Share distribution by size of holdings (as per Euroclear’s (VPC) data as of February 28, 2009 combined with known changes thereafter).
Holdings
Share-
holders No of SDBs
Share capital
1–500 5 326 1 323 423 0.04%
501–1 000 5 194 4 842 930 0.15%
1 001–5 000 13 028 37 830 568 1.17%
5 001–10 000 6 041 50 364 123 1.56%
10 001–15 000 1 703 22 262 913 0.69%
15 001–20 000 1 862 35 090 750 1.09%
20 001– 4 394 3 078 853 573 95.30%
Total 37 548 3 230 568 280 100.00%
Share Price Development and Turnover
Data per share
2008 2007 2006 2005 2004
12 months 12 months 12 months 12 months 15 months
Earnings per share for the period, USD 0.01 0.03 0.03 0.00 0.06
Earnings per share for the period (dilluted), USD 0.01 0.02 0.03 0.00 0.06
Market capitalization at the end of the period, MSEK 8 237.95 5 065.26 8 077.85 3 851.68 806.61
Revenue per share, USD 0.95 0.32 0.23 0.12 0.08
Revenue per share (dilluted), USD 0.95 0.32 0.23 0.12 0.08
Cash fl ow per share, USD 0.10 0.08 0.05 0.02 0.03
Cash fl ow per share (dilluted), USD 0.10 0.08 0.05 0.02 0.03
Assets value per share, USD 0.74 0.95 0.88 0.54 0.21
Share price at fi nancial period end, SEK 2.55 4.26 7.35 4.86 1.88
Dividend per share - - - - -
Average share trading volumes 13 594 401 4 564 925 7 182 847 6 191 797 2 338 677
Number of shares at fi nancial period end 3 230 568 280 1 189 027 312 1 099 027 312 792 527 312 429 050 500 Weighted average number of shares for the fi nancial period 2 863 316 355 1 186 447 178 1 060 073 994 635 615 586 296 350 869 Weighted average number of shares for the fi nancial period (dilluted) 2 866 153 325 1 186 447 178 1 064 214 168 635 615 586 296 350 869
Number of outstanding options at fi nancial period end 73 031 000 66 455 000 38 499 000 - -
2007 2008 2009
SEK/share mln of
shares
The Code Application
West Siberian Resources Ltd was incorporated in Ber- muda in 1998 where it has its registered offi ce. The company’s shares are publicly traded, through Swedish Depositary Receipts, on the NASDAQ OMX Nordic in Stockholm where they are listed since May 2007. The company’s governance is based on the company’s arti- cles of association and bye-laws, the listing agreement with the NASDAQ OMX Nordic and other applicable laws and regulations. In the absence of a Bermudian corporate governance code, the implementation of the Swedish Code of Corporate Governance started in 2006.
Since July 1, 2008 the revised Swedish Code of Corpo- rate Governance is applied. Since 2006, WSR has de- veloped and implemented an application of the code that also corresponds to Bermudian law and company practice.
Annual General Meeting
The annual shareholders’ meeting is West Siberian’s high- est decision making body. The AGM is held annually in Stockholm, Sweden. The latest AGM was held on May 21, 2008, and the next meeting will be held on May 28, 2009. A Special General Meeting was held in Stockholm
on March 3, 2008, to approve the merger with Alliance Oil Company. The meetings are held in the Swedish lan- guage, or translated into Swedish when necessary. The AGM is open to all registered shareholders of the com- pany who have the right to participate either in person or by proxy. At the AGM, the board, the management and the auditors are available to answer questions relating to the company and its activities. Shareholders who wish to have a certain matter included on the agenda for the AGM should send such request or proposal to the board of directors not later than three months prior to the AGM.
At the AGM, the managing director informs about the company’s progress and annual accounts are presented for approval. The AGM also considers matters such as elec- tion and remuneration of board members, the Chairman of the board, and the auditors. Directors and auditors are elected for the period until the next AGM. Principles for appointing the nomination committee and for remunera- tion of management are approved by the AGM.
Nomination Committee for the Annual General Meeting 2009
In line with the Swedish Code of Corporate Governance, the principles for appointing a nomination committee and its guidelines, was presented to and approved by
Corporate Governance Report
Eric Forss
Chairman of the board
the shareholders at the AGM on May 21, 2008. In accord- ance with this resolution, the nomination committee was appointed by the four largest shareholders in the com- pany as of November 25, 2008 which were OJSC Alliance Capital, OJSC Alliance Group, Daumier Investments Ltd and Alltech Investments Ltd who together held approxi- mately 60% of the shares and the votes in the company.
These four shareholders appointed the following repre- sentatives to constitute the nomination committee for the Annual General Meeting 2009:
Christer Sandberg,
Chairman of the nomination committee representing OJSC Alliance Capital and OJSC Alliance Group.
Andrei Sletov,
representing Daumier Investments Ltd.
Fred Boling,
representing Alltech Investments Ltd.
Eric Forss,
Chairman of the board West Siberian Resources Ltd.
The Nomination Committee shall present proposals for the election of the Chairman and other members of the Board of Directors, election of auditors, and proposals re- garding remuneration for the board of directors and the auditors as well as related questions for adoption at the Annual Shareholders’ Meeting. The nomination commit- tee shall complete its tasks and consider the independ- ence of the Directors as set out in the Swedish Code of Corporate Governance.
Composition of the Board
The company’s bye-laws stipulate that the board of di- rectors shall consist of not less than three and not more than fi fteen members. The present board of directors is composed of seven directors and one alternate director, all elected at the AGM in May 2008. Five directors are in- dependent in relation to the company and the manage- ment and six directors are independent in relation to the major shareholders. The directors represent competence and experience from the oil business, several other indus-
tries and corporate governance. The directors are citizens of six countries (Sweden, Russia, USA, Switzerland, France and Spain). The managing director is a member of the board of directors. The board of directors participates in the company’s global share option plan (described at page 29 and in Note 24 and 33).
Chairman of the Board
The chairman ensures that the work of the board is pur- sued eff ectively and that the board discharges its duties.
The duties of the chairman also include keeping regular contact with the managing director and function as a dis- cussion partner and support for the managing director.
The current chairman is not an employee of the company.
A Swedish company associated with the current chair- man has been remunerated for providing administrative and investor relations services for the company. Since 2008, the Chairman has been appointed by the AGM.
Board Meetings and Procedures
The board of directors holds at least four ordinary meet- ings during the calendar year. The Board had thirteen meetings during 2008 including telephonic board meetings. All directors attended all meetings, except for Mr. Nemesio Fernandez-Cuesta who attended four meetings. At meetings which Mr. Fernadez-Cuesta did not attend, Mr. Fernando Martinez-Fresneda attended as alternate. At each of these meetings, the following mat- ters were addressed:
• Review and approval of the minutes from the preceding meeting
• Management report including fi nancial report and update on state of business
• Investment proposals
• Financing
• Business-related decisions
• Reports from Audit and Remuneration Committees
• Miscellaneous issues of material importance for the company
