Procurement of Services and Materials, Upstream

I MATERIAL CONTRACTING

We are striving towards maintaining a balance in the procurement system between centralised contracting and contracting done by regional units.

All Material contracting costs are divided into three categories (three lists):

Category	Cost level	Criticality	Example	Material contracting unit
List 1	high	high	Pipes	Procurement Department
List 2	high, medium	medium	Spare parts	CJSC TNK-BP Supply
List 3	low	low	Office supply	Subsidiary

Critical high-cost materials are contracted in a centralised fashion (list 1), whereas less critical and less costly items (lists 2 and 3) are procured by regions on their own.

Materials Suppliers

Materials suppliers interested in cooperation should visit the automated system SAP SRM to undergo prequalification, obtain information about business opportunities and participation in tenders.

Current Materials procurement tenders

All information pertaining to current tenders is published on the web site in the section entitled: Tenders (in Russian only).

II SERVICE CONTRACTING

Upstream sources 100% of production services on a contractual basis from third-party contractor organisations on terms and conditions that ensure the highest benefits for Business. Internal procedures serve as a basis for selecting competitive tender participants among companies that completed preliminary qualification. The primary objective is to involve in the tender the highest possible number of contractors that meet quality and HSE requirements and possess the necessary resources and capabilities to provide the required services to ensure a more representative selection of companies reflecting the true market situation and to improve competitive environment. We are striving towards establishing long-term partnerships with contractors and constantly augmenting the scope of long-term contracts that we execute.

Current Tenders and Procurement Plans for 2012

Service agreements are provisionally categorised into critical and non-critical. Critical agreements are those governing the performance of work / provision of services commencing in January of subsequent year. Non-critical agreements are executed throughout the entire year within deadlines required to ensure timely commencement of work performance.

In order to ensure uninterrupted business critical agreements governing the performance of work / provision of services are executed within timelines set out in the Company’s contracting schedule.

You will be able to find the Contracting Campaign schedule and the key dates in the document entitled The Core Contracting Campaign Schedule for 2012.

Please submit all of your proposals to improve the contracting campaign and questions to the following address: UpstreamServices@tnk-bp.com.

All information pertaining to current tenders is published on the web site in the section entitled: Tenders.

Lists 1, 2, 3

All costs associated with Service contracting are broken down into three categories (three lists):

List 1 Contractor or supplier costs that have the maximum impact upon operational activities. These are normally classified as high cost and/or high significance. This category of service costs is strategically important or our activities and is related to interregional / international contractor markets. Approximate procurement volume amounts to $2.2 billion per year.

List 2 Contractor or supplier costs that have medium impact upon operational activities. These are normally classified as medium cost and/or medium significance. This category of costs is normally linked with regional contractor markets and services that are required by several subsidiaries in a selected region. Approximate procurement volume amounts to $2.5 billion per year.

List 3 Contractor or supplier costs that have medium to low impact upon operational activities. These are normally classified as current procurement with medium impact on HSE and work performance. This category of costs usually includes medium to low costs, the contractor market is limited by local restrictions and organised at the regional level in subsidiaries. Approximate procurement volume amounts to $0.6 billion per year.

You can find the breakdown of transaction types by Lists in the document entitled List of transaction types.

Service Contracting Structures

The single point of accountability in Upstream Service contracting is the Service Contracting Department Director G. Howard (Services SPA), to whom the List 1 Service Contracting Department is directly subordinated. The Department is responsible for all long-term / consolidated costs under List 1 and is located in Moscow. The following are found in functional subordination to Services SPA:

- List 2 Service Contracting Department, responsible for all long-term / consolidated costs under List 2, located in Nizhnevartovsk;

- Service contracting department in each subsidiary in regions, which are responsible for contacting services not covered by long-term / consolidated strategies under Lists 1, 2 and 3.

Prequalification

Contractors who successfully completed preliminary qualification shall be granted the right to take part in tenders and conclude contracts. Prequalification is based on standardised criteria for services contained in Lists 1 and 2 and individual criteria for each oil and gas producing subsidiary for services under List 3. These criteria have been designed to filter out contractors that do not meet quality and HSE requirements, do not possess the necessary resources and capabilities to render the required services as well as those who do not meet basic industry standards. During the preliminary qualification specific attention will be paid to retaining potential contractors with maximum coverage and ensuring transparency of the prequalification process itself.

For services falling under List 1 and 2, successful prequalification results shall remain valid for 3 years, provided that work is performed in a satisfactory fashion.

Oil services contractors interested in cooperation should register on the ProCon website. Following the registration your company will be able to take part in preliminary qualification held online on the ProCon site.

Contractor Manual TNK-BP ProCon site User’s Manual

Please address any questions on service and work performance prequalification in the ProCon system to the ProCon administrator Alexey Larin, Nizhnevartovsk, tel. (3466) 61 17 66, SupplierHelp@tnk-bp.com.

Please submit all of your proposals to improve the prequalification process to the senior contracting campaign manager Vadim Moskovkin, Nizhnevartovsk, tel. (3466) 62 17 11, vvmoskovkin@tnk-bp.com.

More detailed description of the prequalification process is presented in the document entitled Service Supplier Prequalification Process for Upstream.

Information pertaining to current prequalification can be found in the section entitled Preliminary prequalification.

Consolidated list of prequalified service contractors.

Contractor Selection

Tender shall be the preferred form of contractor selection. Non-tender contracting is possible only when justified by objective commercial and/or technological advantages and is an exceptional case in contracting practices. Contractor selection in the framework of tenders shall be based on optimal bids. Optimal bids are identified based on technically most acceptable and best commercial proposals.

Contracting, Standard Contracts

Contracting of services under Lists 1, 2 and 3 shall be performed by subsidiaries, in that contracting under Lists 1 and 2 shall be based on tender results, negotiations and recommendations prepared by List 1 and 2 Service Contracting Departments.

Customarily, Upstream creates and uses standard contracts. Contracts are classified as standard where they are created to describe specific transaction types; they are used to procure services and form basis of contracts awarded to contractors.

Standard contracts may be developed in a format applicable both to all subsidiaries and selected companies only. If you did not manage to find the required standard contract template that corresponds to the type of work / services offered by your, you should contact key employees in the regions. Their contact information is published on the “Procurement and Sales” page and in the document entitled “Upstream Supply Chain Management Organisational Chart”. Oil services contractors interested in cooperation should review standard contract templates.

Standard contracts applicable to all oil and gas producing companies are posted below on this page.