In accordance with the resolution of the Board of Directors of LUKOIL the Executive Board of LUKOIL Overseas reviewed and approved the preliminary results of operational and economic activities of the Company in 2006.

Oil and gas condensate production of the international projects of LUKOIL Overseas (comprising all of LUKOIL's international upstream projects with the exception of Tengiz) have reached 5.3 million tons of oil (5.6 % of LUKOIL's total oil production), an increase of 51.2% year-on-year. Gas production amounted to 1.75 billion cubic meters (11% of LUKOIL’s gas production), an increase of 5.2%.

Similarly to last year the largest volume of work was carried out in Kazakhstan. In particular, construction of production facilities and new well drilling was being undertaken at the Kumkol field (Kyzylorda Region). A new oil treatment and pumping unit with annual capacity of 4 million tons of oil, plus 8 million tons of water for injection into the reservoir, was commissioned there.

At the Karachaganak field (West Kazakhstan Region), hydrocarbon production reached the level of 11.9 billion cubic meters of gas and 10.4 million tons of gas condensate. An agreement was signed to increase gas shipments to the Orenburg Gas Plant, where a joint Russian-Kazakhstan gas processing venture has been established.   A new economical export route for Karachaganak crude from the field to Samara and the Transneft trunk pipeline system, wherefrom oil crude can be directed either to Black Sea or Baltic ports or directly to Central Europe via Druzhba oil pipeline. Preparation for the construction of the Karachaganak-Uralsk gas line to supply up to 500 million cubic meters of gas to consumers in West Kazakhstan Region has been completed.

On November 2, 2006, LUKOIL Overseas signed an agreement to farm into TOO Zhambai, the contractor under the PSA on two offshore blocks, Zhambai South and South Zaburuniye, with a total area of 2,000 square kilometers, located in shallow water and the transitional zone of Kazakhstan's sector of the Caspian Sea, with a 25% interest. Earlier, a detailed 2D seismic survey was performed on the blocks, as a result of which three prospects, Edil, Kosarna and Karabulak, were identified. The project will be implemented jointly with KazMunaiGas, the national oil and gas company, and Repsol Exploracion Kazakhstan of Spain.

The Kandym-Khauzak-Shady-Kungrad project in Uzbekistan, which is being carried out jointly with Uzbekneftegas, the national holding company, came very close to Kazakhstan projects in 2006 in terms of scope of work and investment. During the year intensive development drilling continued at the Khauzak field (Bukhara-Khiva Region), as well as the construction of a gas treatment plant, gas gathering stations, camp, motor road and power line.  First commercial gas will be produced here late this year. Active operations continued at other PSA sites, in particular, exploration on the Kungrad acreage (Ust’yurt Region). As for now, it is the largest investment project in Uzbekistan.

On August 30, 2006, the PSA for Exploration and Development of Hydrocarbon Deposits in the Uzbek Sector of the Aral Sea was signed. The PSA will be implemented by a consortium of investors comprised of Uzbekneftegas, LUKOIL Overseas, Petronas Carigali Overseas (Malaysia), CNPC International (China) and KNOC (Korea). Each member of the Consortium holds an equal share interest in the project. In December 2006 the parties of the consortium signed a joint operating and single operating agreement and called a tender to select the contractor for acquisition of a seismic survey, which is due to start in March 2007. The three-year exploration program includes a 2D seismic survey and the drilling of two exploration wells.

On December 15, 2006 the consortium (which LUKOIL Overseas is a part of) developing the Shah-Deniz maritime gas condensate field in Azerbaijan started commercial hydrocarbon production from the first well, which is 6,500 meters deep and was drilled from a stationary platform in 105 meters of water.

The company achieved considerable success in its Middle Eastern projects.  At the Anaran onshore exploration project in Iran being implemented jointly with the Norway's Norsk Hydro, discovery of commercial oil reserves exceeding 2 billion barrels of oil was confirmed after analysis of the results of exploration drilling on the Azar structure. It is one of the world’s largest oil discoveries of the current decade. In June 2006 commercialization report for Azar was signed by the National Iranian Oil Company (NIOC) – and it gives the parties the exclusive right to negotiate on further development of the field. Negotiations and the drafting of the overall field development plan are expected to be completed this spring.

On February 18, 2006, LUKOIL Overseas and NIOC singed a contract for the joint geophysical and geological study of Moghan and Lali prospective blocks located in the South Caspian and Zagros Basins of Iran, respectively. Reprocessing and interpretation of drilling, log, seismic, gravitational and magnetic survey, and geochemical rock analysis data is being undertaken in the course of joint operations. Geological modeling training of Iranian professionals at a Russian training and operations base is planned for 2007.

At the gas Block A in the Rub Al-Khali desert in Saudi Arabia the drilling of the first exploration well on the Tukhman structure was successfully completed. Analysis of acquired geological data has started. Drilling of the exploration well on the Malaiha structure is continuing. The project is being implemented together with Saudi Aramco, the national petroleum company.

In 2006 the company's activities in Latin America reached a qualitatively new level. On the Condor Block in the Llanos petroleum basin in Colombia (a joint project with Ecopetrol, the national oil company) drilling of the first deep exploration well on the Medina structure was completed successfully. At present drilling data is being studied.

In Venezuela, on the Junin-3 block (State of Anzoategui, the Orinoco extra heavy oil belt) drilling of the first stratigraphic (parametric) well started under the program to estimate and certify reserves on one of the most promising oil blocks in Latin America. The program is being implemented jointly by LUKOIL and CVP (the investment arm of PDVSA, the national petroleum company). The size of the block area is 640 square kilometers. A total of 17 stratigraphic wells will be drilled on the block.

In 2006, LUKOIL Overseas significantly expanded its activities in Africa. In particular, in July an agreement to acquire a 63% interest in the exploration, development and production PSA project on the ultra deepwater block CI-205 from Oranto Petroleum International was signed. The block is located in the Bay of Guinea, 100 kilometers off the coast of Cote d'Ivoire in deep water. It is geologically confined to the Tano Basin, where the Baobab field, the largest in the country, was discovered. Earlier, 2D and 3D seismic was acquired over the block, and exploration drilling is the next step. The project is implemented together with the PETROCI Holding, the national oil company. LUKOIL Overseas has established an office in Abidjan, the capital of Cote d'Ivoire.

In August 2006 LUKOIL and Sonatrach, the Algerian national oil and gas company, signed the Memorandum of Cooperation in the Area of Oil and Gas. The Memorandum provides for cooperation between LUKOIL and Sonatrach in Algeria and Russia, and in third countries. LUKOIL Overseas has opened an office in the capital of Algeria.

On October 31, 2006, as result of talks between the Presidents of Russia and Angola the chief executives of LUKOIL and Sonangol, the national oil and gas company, signed a Memorandum of Understanding.