27 June 2008
New oil price deck
USD100/bbl in 2010...
USD125/bbl in 2015
Pavel Kushnir
Research Analyst
(7) 495 9339240
pavel.kushnir@db.com
Tatiana Kapustina
Research Analyst
(7) 495 933 9236
tatiana.kapustina@db.com
Adam Sieminski, CFA
Strategist
(1) 202 662 1624
adam.sieminski@db.com
Rally on tax discussion and strong oil prices
The Russian energy sector has demonstrated exceptional performance in the past
three months on the initiation of oil sector tax discussions and continued growth in
international energy prices. While the tax component potentially contains the risk
of a disappointment for the market, we remain positive on the second component
and expect international energy prices to remain strong both in the short- and the
long-term.
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from
local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
Independent, third-party research (IR) on certain companies covered by DBSI's research is available to customers of
DBSI in the United States at no cost. Customers can access this IR at http://gm.db.com, or call 1-877-208-6300 to
request that a copy of the IR be sent to them.
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
Industry Analysis
Top picks
Gazprom (GAZP.RTS),USD14.42 Buy
Novatek (NVTKq.L),USD85.30 Buy
Rosneft (ROSN.RTS),USD11.18 Buy
LUKOIL (LKOH.RTS),USD96.80 Buy
Companies featured
Gazprom (GAZP.RTS),USD14.42 Buy
2006A 2007E 2008E
DB EPS (USD) 1.00 1.05 1.85
P/E (x) 10.1 13.8 7.8
EV/EBITDA (x) 7.1 9.6 5.5
Novatek (NVTKq.L),USD85.30 Buy
2007A 2008E 2009E
DB EPS (USD) 2.42 4.03 4.59
P/E (x) 23.1 21.2 18.6
EV/EBITDA (x) 14.9 14.1 11.8
Rosneft (ROSN.RTS),USD11.18 Buy
2007A 2008E 2009E
DB EPS (USD) 1.34 1.34 0.96
P/E (x) 6.4 8.3 11.7
EV/EBITDA (x) 7.5 5.7 7.1
LUKOIL (LKOH.RTS),USD96.80 Buy
2007A 2008E 2009E
DB EPS (USD) 11.52 18.78 11.32
P/E (x) 7.1 5.2 8.5
EV/EBITDA (x) 4.6 3.5 5.1
KazMunaiGas E&P (KMGq.L),USD28.63 Buy
2007A 2008E 2009E
DB EPS (USD) 3.11 6.03 7.05
P/E (x) 7.3 4.7 4.1
EV/EBITDA (x) 2.7 1.7 1.1
Surgutneftegaz (SNGS.RTS),USD1.12 Buy
2006A 2007E 2008E
DB EPS (USD) 0.11 0.12 0.16
P/E (x) 12.8 9.3 6.8
EV/EBITDA (x) 7.2 4.3 3.1
TNK-BP Holding (TNBPI.RTS),USD2.20 Buy
2006A 2007E 2008E
DB EPS (USD) 0.30 0.41 0.60
P/E (x) 9.1 5.4 3.7
EV/EBITDA (x) 5.7 3.4 2.4
Bashneft (BANE.RTS),USD17.00 Hold
2007A 2008E 2009E
DB EPS (USD) 2.50 4.81 2.27
P/E (x) 5.7 3.5 7.5
EV/EBITDA (x) 2.4 1.4 2.3
Gazprom Neft (SIBN.RTS),USD7.50 Sell
2007A 2008E 2009E
DB EPS (USD) 0.87 1.33 0.92
P/E (x) 4.8 5.6 8.1
EV/EBITDA (x) 2.5 3.1 3.9
Tatneft (TATN.RTS),USD7.51 Sell
2007A 2008E 2009E
DB EPS (USD) 0.76 1.24 0.89
P/E (x) 6.5 6.1 8.4
EV/EBITDA (x) 3.4 3.5 4.7
Transneft (TRNF_p.RTS),USD1,370.00 Buy
2006A 2007E 2008E
DB EPS (USD) 305.12 375.26 457.45
P/E (x) 7.6 3.7 3.0
EV/EBITDA (x) 4.3 3.5 3.2
Global Markets Research Company
Revision of crude oil price forecasts
We upgrade our oil price forecasts for 2008 from USD96/bbl to USD120/bbl and
for 2009 from USD103/bbl to USD115/bbl, and set our new mid-cycle (2010) oil
price forecast at USD100/bbl (nominal, growing by USD5/bbl each year thereafter).
Revision of European gas price forecasts
We upgrade our European gas price forecasts to USD406/mcm (Gazprom’s recent
guidance for this year is USD402/mcm) for 2008, to USD449/mcm for 2009 and to
USD384/mcm for 2010.
Delay in gas market liberalisation to 2015E
We have postponed full-scale gas market liberalisation in our gas and oil
companies’ models from 2012 to 2015. Given our new oil price assumptions, we
forecast a domestic gas price of USD290/mcm in 2015.
Model revisions
We incorporate the change in MET scale, the introduction of MET holidays in new
oil provinces and the change in excise taxes. We take a more conservative stance
towards oil and gas companies’ ability to control costs, in particular capex. We
have raised real-term capex assumptions in all our models.
Stocks with Buy recommendations
We assign a Buy rating to the following stocks: Gazprom (TP USD30.0/share),
Novatek (TP USD170/GDR), Rosneft (TP USD24.0/share), LUKoil (TP
USD165/share), KazMunaiGas EP (TP USD60.0/GDR), Surgut ords (TP
USD1.50/share), Surgut prefs (TP USD1.05/share), TNK-BP Holding (TP
USD2.50/share) and Transneft (TP USD1,800/share). The downside risks to Buy
recommendations include lower-than-expected oil prices, capex over-runs and
potential inability to control costs.
Stocks with Hold and Sell recommendations
We rate Bashneft (TP USD15.0/share) a Hold. The downside risks to our Hold
recommendation include lower-than-expected oil prices, capex over-runs and
potential inability to control costs. We rate the following stocks in our coverage a
Sell: Gazprom Neft (TP USD6.30/share) and Tatneft (TP USD6.70/share). The
upside risks to our Hold and Sell recommendations include higher-than-expected
oil prices and improvements in operating and investment efficiency.

Table of Contents
Executive summary ........................................................................... 3
Changes in key assumptions ....................................................................................................3
Valuation ..................................................................................................................................3
Risks ........................................................................................................................................4
Valuation ............................................................................................ 5
APT-based DCF valuation..........................................................................................................5
Target price revisions................................................................................................................6
Oil price forecast upgrade .............................................................. 11
The “equilibrium” oil price ......................................................................................................11
Finding and development costs ..............................................................................................11
Supply and demand fundamentals..........................................................................................12
Oil price outlook......................................................................................................................14
Macroeconomic impact of high oil prices ...............................................................................15
Oil sector tax changes..................................................................... 18
Tax changes ............................................................................................................................19
Tax discussion chronicles .......................................................................................................21
Model revisions ............................................................................... 25
Summary of forecast changes ................................................................................................25
Revision of crude oil and European gas price assumptions....................................................26
Revision of domestic gas price assumptions..........................................................................27
Revision of macro assumptions..............................................................................................27
Company-specific changes ............................................................. 28
Gazprom ................................................................................................................................28
Novatek..................................................................................................................................29
Vertically-integrated companies ..............................................................................................30
Upstream companies..............................................................................................................34
KazMunaiGas EP .....................................................................................................................35
Transneft................................................................................................................................36

Executive summary
The Russian energy sector has demonstrated exceptional performance in the past
three months on the initiation of oil sector tax discussions and continued growth in
international energy prices. We believe that one component of the rally potentially
contains the risk of a disappointment for the market if the final tax proposals for the oil
sector are not large enough to justify the recent share price performance. We,
however, remain positive on the second component and expect international energy
prices to remain strong, both in the short run and in the longer term.
Changes in key assumptions
We have made the following changes in our oil and gas price assumptions:
􀂄 We upgrade our oil price forecasts from USD96/bbl to USD120/bbl for 2008, from
USD103/bbl to USD115/bbl for 2009 and set our new mid-cycle (2010) oil price forecast
at USD100/bbl (nominal, growing by USD5/bbl each year thereafter).
􀂄 We upgrade our European gas price forecasts to USD406/mcm (Gazprom’s recent
guidance for this year is USD402/mcm) for 2008, to USD449/mcm for 2009 and to
USD384/mcm for 2010.
􀂄 We have postponed full-scale gas market liberalisation in our gas and oil companies’
models from 2012 to 2015. Given the new oil price assumptions, we forecast a domestic
gas price of USD290/mcm in 2015.
􀂄 We have made the following universal change in our company analysis: we have taken a
more conservative stance towards oil and gas companies’ ability to control costs, in
particular capex. We have raised real-term capex assumptions in all our models.
􀂄 Given the scale of our oil price upgrade, in particular in the long term, we have raised the
commodity price component of standard equity risk in our APT-based DCF valuations by
1pp to reflect the risk of an oil price reduction in the long term and terminal periods.
Valuation
We use APT-based discounted cash flow valuation as our primary basis for assigning
investment ratings, as we believe it provides a superior tool for estimating company-specific
risks compared with the CAPM model. We derive our discount rate from several components
including the risk-free rate and sovereign risk, standard equity risk, liquidity risk, and corporate
governance risk.
The revision of key assumptions in our models for the oil and gas companies has resulted in
an upgrade of our earnings forecasts and valuations for oil and gas companies in our
coverage universe.
In the context of the DB oil price upgrade, we prefer gas names and well-integrated oil
names with good liquidity. While KazMunaiGas EP benefits from high oil prices to a greater
extent than Russian oil companies, we note a risk that taxes may be reviewed in Kazakhstan
in the near future.
We assign Buy ratings to the following stocks: Gazprom (TP USD30.0/share), Novatek (TP
USD170/GDR), Rosneft (TP USD24.0/share), LUKoil (TP USD165/share), Surgut ord (TP
USD1.50/share), Surgut pref (TP USD1.05/share), TNK-BP Holding (TP USD2.50/share),
Transneft (TP USD1,800/share) and KazMunaiGas EP (TP USD60.0/GDR).
We rate the following stock in our coverage universe a Hold: Bashneft (TP USD15.0/share);
we recommend a Sell rating for Gazprom Neft (TP USD6.30/share) and Tatneft (TP
USD6.70/share).

Risks
The downside risks to Buy and Hold recommendations include a lower-than-expected oil
price, capex over-runs and potential inability to control costs. The upside risks to our Sell and
Hold recommendations include higher-than-expected oil prices and improvements in
operating and investment efficiency.