O A O TATNEFT 6-K

United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 Under
The Securities Exchange Act of 1934

For the month of November 13 , 2006.

Commission File Number 001-14804

OAO TATNEFT
(also known as TATNEFT)

(Translation of Registrants' Name into English)

75 Lenin Street
Almetyevsk, Tatarstan 423450
Russian Federation

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Yes No

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Yes No

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No

November 13, 2006

On November 13, 2006, OAO Tatneft published on its web-site the following unaudited consolidated U.S. GAAP financial statements for the six months ended June 30, 2006:

TATNEFT

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(PREPARED IN ACCORDANCE WITH U.S. GAAP)

SIX MONTHS ENDED JUNE 30, 2006

(UNAUDITED)

The interim consolidated financial statements were prepared by OAO Tatneft in accordance with U.S. GAAP and have not been audited or reviewed by our independent auditor.

Table of Contents

TATNEFT
Interim Consolidated Balance Sheets (Unaudited)
(in millions of Russian Roubles)


	Notes		At June 30, 2006			At December 31, 2005
Assets
Cash and cash equivalents				16,258			18,031
Restricted cash		4		141			153
Accounts receivable, net		5		27,966			20,207
Due from related parties		18		14,235			14,417
Short-term investments		6		17,497			5,116
Current portion of loans receivable and advances, net		9		4,009			1,652
Inventories		7		9,503			9,948
Prepaid expenses and other current assets		8		18,795			21,653
Total current assets				108,404			91,177
Long-term loans receivable and advances, net		9		5,904			5,867
Due from related parties		18		4,175			2,561
Long-term investments		6		12,379			8,327
Property, plant and equipment, net		10		172,729			174,212
Total assets				303,591			282,144
Liabilities and shareholders’ equity
Short-term debt and current portion of long-term debt		11		3,412			5,857
Notes payable		12		367			384
Trade accounts payable				5,404			4,409
Due to related parties		18		957			1,458
Other accounts payable and accrued liabilities		13		12,759			7,097
Capital lease obligations		10		547			630
Taxes payable		14		8,707			9,310
Total current liabilities				32,153			29,145
Long-term debt, net of current portion		11		1,045			1,765
Notes payable		12		705			403
Due to related parties		18		426			448
Asset retirement obligations, net of current portion		10		27,370			26,230
Deferred tax liability		14		21,124			21,619
Capital lease obligations, net of current portion		10		235			124
Total liabilities				83,058			79,734
Minority interest				3,821			3,689
Shareholders’ equity
Preferred shares (authorized and issued at June 30, 2006 and December 31, 2005 — 147,508,500 shares; nominal value at June 30, 2006 and December 31, 2005 — RR1.00)		15		148			148
Common shares (authorized and issued at June 30, 2006 and December 31, 2005 — 2,178,690,700 shares; nominal value at June 30, 2006 and December 31, 2005 — RR1.00)		15		2,179			2,179
Additional paid-in capital				89,752			89,742
Accumulated other comprehensive income				402			336
Retained earnings				129,136			111,214
Less: Common shares held in treasury, at cost (178,440,892 shares at June 30, 2006 and December 31, 2005)				(4,905	)		(4,898	)
Total shareholders’ equity				216,712			198,721
Total liabilities and shareholders’ equity				303,591			282,144

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TATNEFT
Interim Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(in millions of Russian Roubles)


	Notes		Six months ended June 30, 2006			Six months ended June 30, 2005			Six months ended June 30, 2004
Sales and other operating revenues, including excise tax and export duties		14,17		160,860			138,816			85,035
Costs and other deductions
Operating				23,170			18,803			15,365
Purchased oil and refined products				17,750			25,071			12,599
Exploration				235			389			422
Transportation				3,438			5,031			4,492
Selling, general and administrative				9,485			9,201			8,190
Bad debt charges and credits, net				(84	)		145			279
Depreciation, depletion and amortization		17		5,960			5,225			4,516
Loss on disposals of property, plant and equipment and impairment of investments		9,10		3,249			809			337
Taxes other than income taxes		14		72,538			50,082			23,606
Maintenance of social infrastructure		10		23			62			149
Transfer of social assets		10		35			515			147
Total costs and other deductions				135,799			115,333			70,102
Other income (expenses)
Earnings from equity investments		6		876			493			219
Foreign exchange gain / (loss)				(1,404	)		(4	)		123
Interest income				917			362			168
Interest expense				(367	)		(566	)		(1,647	)
Other (loss) / income, net				1,001			(1,134	)		(180	)
Total other income (expenses)				1,023			(849	)		(1,317	)
Income before income taxes, minority interest and cumulative effect of change in accounting principle				26,084			22,634			13,616
Income taxes
Current income tax				(8,201	)		(6,330	)		(3,900	)
Deferred benefit / (expense)				353			(420	)		94
Total income tax expense		14		(7,848	)		(6,750	)		(3,806	)
Income before minority interest and cumulative effect of change in accounting principle				18,236			15,884			9,810
Minority interest				(314	)		(87	)		(316	)
Net income				17,922			15,797			9,494
Foreign currency translation adjustments				66			216			(176	)
Unrealized holding gains on available-for-sale securities, net of tax				—			—			50
Less: transfer of realized gains included in net income, net of tax				—			(19	)		(43	)
Comprehensive income				17,988			15,994			9,325

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TATNEFT
Interim Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(in millions of Russian Roubles, except per share information)


	Notes		Six months ended June 30, 2006		Six months ended June 30, 2005		Six months ended June 30, 2004
Basic net income per share (RR)		15
Common				8.34		7.45		4.40
Preferred				8.34		7.47		5.07
Diluted net income per share (RR)		15
Common				8.31		7.44		4.40
Preferred				8.31		7.46		5.07
Weighted average common shares outstanding (millions of shares)		15
Basic				2,000		1,997		1,986
Diluted				2,009		2,001		1,986
Weighted average preferred shares outstanding (millions of shares)	15
Basic				148		148		148
Diluted				148		148		148

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TATNEFT
Interim Consolidated Statements of Cash Flows (Unaudited)
(in millions of Russian Roubles)


	Notes	Six months ended June 30, 2006			Six months ended June 30, 2005			Six months ended June 30, 2004
Operating activities
Net income			17,922			15,797			9,494
Adjustments:
Minority interest			314			87			316
Depreciation, depletion and amortization	17		5,960			5,225			4,516
Net barter settlements			5			(266	)		(373	)
Deferred income tax expense (benefit)			(353	)		420			(94	)
Disposals and impairments			3,249			809			337
Net realized (gain) / loss on available-for-sale securities			—			(19	)		7
Effects of foreign exchange			(1,338	)		273			(178	)
Undistributed earnings of equity investments			(493	)		(423	)		(184	)
Transfer of social assets			35			515			147
Accretion of asset retirement obligation			1,313			1,190			851
Other			(346	)		(149	)		(199	)
Changes in operational working capital, excluding cash:
Accounts receivable			(7,950	)		(5,066	)		(1,778	)
Inventories			280			52			587
Prepaid expenses and other current assets			4,020			3,066			3,292
Trading securities			(11,147	)		(312	)		(2,060	)
Certificates of deposit			(1,250	)		—			—
Related parties			(1,954	)		7,756			(11,499	)
Loans receivable and advances			(4,709	)		(846	)		(1,196	)
Notes receivable			1,528			(3,991	)		335
Trade accounts payable			1,188			(2,557	)		2,651
Other accounts payable and accrued liabilities			5,160			(2,004	)		(677	)
Taxes payable			(367	)		766			(778	)
Net cash provided by operating activities			11,067			20,323			3,517
Investing activities
Additions to property, plant and equipment			(5,973	)		(5,329	)		(4,763	)
Proceeds from disposals of property, plant and equipment			2,214			737			318
Proceeds from disposal / maturity of investments			(34	)		(8,023	)		53
Purchase of investments			(6,349	)		(917	)		(1,076	)
Net change in loans given to bank customers			—			(710	)		(3,558	)
Change in restricted cash			12			(7	)		472
Net cash used in investing activities			(10,130	)		(14,249	)		(8,554	)

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TATNEFT
Interim Consolidated Statements of Cash Flows (Unaudited)
(in millions of Russian Roubles)


	Notes	Six months ended June 30, 2006			Six months ended June 30, 2005			Six months ended June 30, 2004
Financing activities
Proceeds from issuance of debt			14,995			27,724			56,585
Repayment of debt			(17,412	)		(35,357	)		(49,473	)
Repayment of capital lease obligations			(625	)		—			—
Net increase in banking customer deposits			—			193			(465	)
Net increase / (decrease) in banking customer deposits with related parties			—			—			(100	)
Dividends paid			(69	)		—			—
Purchase of treasury shares			(24	)		(152	)		(312	)
Proceeds from sale of treasury shares			27			227			210
Proceeds from issuance of shares by subsidiaries			398			63			—
Net cash (used in) / provided by financing activities			(2,710	)		(7,302	)		6,445
Effect of foreign exchange on cash and cash equivalents			—			—			—
Net change in cash and cash equivalents			(1,773	)		(1,228	)		1,408
Cash and cash equivalents at beginning of period			18,031			18,100			8,450
Cash and cash equivalents at end of period			16,258			16,872			9,858

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TATNEFT
Interim Consolidated Statements of Shareholders' Equity (Unaudited)
(in millions of Russian Roubles)


	2006						2005						2004
	Shares			Amount			Shares			Amount			Shares			Amount
Preferred shares:
Balance at January 1 and June 30 (shares in thousands)		147,509			148			147,509			148			147,509			148
Common shares:
Balance at January 1 and June 30 (shares in thousands)		2,178,691			2,179			2,178,691			2,179			2,178,691			2,179
Treasury shares, at cost:
Balance at January 1		178,441			(4,898	)		185,560			(5,129	)		191,430			(5,143	)
Purchases		163			(23	)		5,378			(238	)		10,920			(1,181	)
Sales		(163	)		16			(12,497	)		469			(16,790	)		1,195
Balance at June 30 and December 31 (shares in thousands)		178,441			(4,905	)		178,441			(4,898	)		185,560			(5,129	)
Additional paid-in capital
Balance at January 1					89,742						89,625						89,516
Treasury share transactions					10						117						109
Balance at June 30 and December 31					89,752						89,742						89,625
Accumulated other comprehensive income
Balance at January 1					336						180						189
Foreign currency translation adjustments					66						175						15
Unrealized holding gains on available-for-sale securities, net of tax					—						—						19
Transfer of realized gains included in net income, net of tax					—						(19	)					(43	)
Balance at June 30 and December 31					402						336						180
Retained earnings
Balance at January 1					111,214						83,473						62,291
Net income					17,922						28,242						23,410
Dividends					—						(501	)					(2,228	)
Balance at June 30 and December 31					129,136						111,214						83,473
Total shareholders' equity at June 30 and December 31					216,712						198,721						170,476

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 1: Organization

OAO Tatneft (the ‘‘Company’’) and its subsidiaries (jointly referred to as ‘‘the Group’’) are engaged in crude oil exploration, development and production principally in the Republic of Tatarstan (‘‘Tatarstan’’), a republic within the Russian Federation. The Group also engages in refining and marketing of crude oil and refined products and petrochemical and banking activities, as further described in Note 17.

In 2005 the Company disposed of a 26.75% interest in OAO Bank Zenit (‘‘Bank Zenit’’) and all of its interest in AB Devon-Credit (‘‘Bank Devon-Credit’’). The Group now accounts for its investments in Banking Group Zenit-Devon-Credit under the equity method. As the results of operations, financial position and cash flows of these entities were included in the Group’s consolidated financial statements in prior periods, such periods may not be comparable with the current year presentation.

The Company was incorporated as an open joint stock company effective January 1, 1994 (the ‘‘privatization date’’) pursuant to the approval of the State Property Management Committee of the Republic of Tatarstan (the ‘‘Government’’). All assets and liabilities previously managed by the production association Tatneft, Bugulminsky Mechanical Plant, Menzelinsky Exploratory Drilling Department and Bavlinsky Drilling Department were transferred to the Company at their book value at the privatization date in accordance with Decree No. 1403 on Privatization and Restructuring of Enterprises and Corporations into Joint-Stock Companies. Such transfers are considered transfers between entities under common control at the privatization date, and have been recorded at book value.

At June 30, 2006, the Government, through its wholly owned company, OAO Svyazinvestneftekhim, held 36% of the common shares of the Company. As further described in Note 15, the Government owns a ‘‘Golden Share’’ which carries the right to veto certain decisions taken at meetings of the shareholders and the Board of Directors. The Government of Tatarstan is able to exercise significant influence through its ownership interest in the Company, its legislative, taxation and regulatory powers, its representation on the Board of Directors and informal influence. The Government has used its influence in the past to facilitate actions that may not maximize shareholder value, such as maintaining employment levels, increasing expenditure on social assets, selling oil to certain customers, transferring exploration or production licenses to small Tatarstan oil companies (including companies not affiliated with the Group), acquiring specified companies or taking actions to raise funds for the benefit of Tatarstan (see Notes 8, 9, 10, 14, 15, 18, 20 and 21).

The Government of Tatarstan controls a number of the Group's suppliers, such as OAO Tatenergo, the supplier of electricity to the Group, and a number of the Group's ultimate customers, such as OAO Nizhnekamskneftekhim (‘‘Nizhnekamskneftekhim’’), the principal petrochemical company in Tatarstan. Consequently, the Group may be subject to pressures to enter into transactions that the Group might not otherwise contemplate with suppliers and contractors controlled by the Government. Related party transactions are further disclosed in Note 18.

On June 30, 2006, the Company’s Board of directors approved a plan to remove the Company’s securities from listing on the New York Stock Exchange (the ‘‘NYSE’’). On August 18, 2006, the Company notified the NYSE of its intention to delist its securities and on September 5, 2006, the Company filed Form 25 with the SEC to remove its securities from listing on the NYSE. The Company’s application on Form 25 became effective and the trading of its securities on the NYSE ceased on September 14, 2006. As a result the Company’s depositary receipts are no longer listed on the NYSE. These steps have been taken by the Company with a view to terminate the registration of its securities with the SEC. The Company intends to file an application to terminate the registration of its securities with the SEC when circumstances permit. Once the Company’s application to terminate the registration of its securities with the SEC becomes effective, the Company will no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, including the filing of annual report on Form 20-F.

Note 2: Basis of Presentation

The Group maintains its accounting records and prepares its statutory financial statements principally in accordance with the Regulations on Accounting and Reporting of the Russian Federation (‘‘RAR’’). The accompanying financial statements have been prepared from these accounting records and

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 2: Basis of Presentation (continued)

adjusted as necessary to comply with accounting principles generally accepted in the United States of America (‘‘US GAAP’’). The principal differences between RAR and US GAAP relate to: (1) valuation and depreciation of property, plant and equipment; (2) foreign currency translation; (3) deferred income taxes; (4) valuation allowances for unrecoverable assets; (5) capital leases; (6) stock option transactions; (7) accounting for investments in oil and gas property and conveyances; (8) recognition and disclosure of guarantees, contingencies and commitments; (9) accounting for asset retirement obligation; (10) business combinations and goodwill; and (11) consolidation and accounting for subsidiaries, equity investees and variable interest entities (‘‘VIEs’’).

Use of estimates in the preparation of financial statements. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. While management uses its best estimates and judgments, actual results could differ from those estimates and assumptions used. Among the estimates made by the management are: in-process inventories, assets valuation allowances, depreciable lives, oil and gas reserves, dismantling costs and income taxes.

Foreign currency transactions and translation. The functional currency of the Group, except for subsidiaries located outside of the Russian Federation is the Russian Rouble because the majority of its revenues, costs, property and equipment purchased, debt and trade liabilities are either priced, incurred, payable or otherwise measured in Russian Roubles. Accordingly, transactions and balances not already measured in Russian Roubles (primarily US Dollars) have been re-measured into Russian Roubles in accordance with the relevant provisions of US Statement of Financial Accounting Standards (‘‘SFAS’’) No. 52, ‘‘Foreign Currency Translation’’.

Under SFAS No. 52, revenues, costs, capital and non-monetary assets and liabilities are translated at historical exchange rates prevailing on the transaction dates. Monetary assets and liabilities are translated at exchange rates prevailing on the balance sheet date. Exchange gains and losses arising from re-measurement of monetary assets and liabilities that are not denominated in Russian Roubles are credited or charged to operations.

For operations of subsidiaries located outside of the Russian Federation, that primarily use US Dollars as the functional currency, adjustments resulting from translating foreign functional currency assets and liabilities into Russian Roubles are recorded in a separate component of shareholders’ equity entitled accumulated other comprehensive income. Gains or losses resulting from transactions in other than the functional currency are reflected in net income.

Exchange rates, restrictions and controls. At present, the Russian Rouble is not a fully convertible currency outside of the Russian Federation and, further, the Company throughout 2005 was required to sell up to 10% (from December 27, 2004) of its hard currency earnings for Russian Roubles. In May 2006, the Central Bank abolished the requirement to convert hard currency proceeds. Within the Russian Federation, official exchange rates are determined daily by the Central Bank of Russia (‘‘CBR’’). Market rates may differ from the official rates but the differences are, generally, within narrow parameters monitored by the CBR. Accordingly, the translation of foreign currency denominated assets and liabilities into Russian Roubles does not indicate that the Group could realize or settle, in Russian Roubles, the reported values of these assets and liabilities. The official rate of exchange of the Russian Rouble (‘‘RR’’) to the US Dollar (‘‘US $’’) at June 30, 2006 and December 31, 2005 was RR 27.08 and RR 28.78 to US $1.00, respectively.

Barter transactions. Transactions settled by barter are included in the accompanying interim consolidated balance sheets and statements of operations on the same basis as cash transactions.

Barter transactions relate to sales of crude oil and refined products and are generally transacted through a chain of non-cash transactions involving several companies. In such cases, both sales and purchases are recorded as a result of the barter transaction. Barter sales are recognized at fair value as disclosed in Note 3 ‘‘Non-monetary transactions’’.

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 2: Basis of Presentation (continued)

Reclassifications. Certain reclassifications have been made to previously reported balances to conform to the current year’s presentation; such reclassifications have no effect on net income or shareholders’ equity.

Principles of consolidation and long-term investments. The accompanying consolidated financial statements include the operations of all majority-owned, controlled subsidiaries and VIEs, if any, where the Group is the primary beneficiary. Joint ventures and affiliates in which the Group has significant influence but not control are accounted for using the equity method. Intercompany transactions and accounts are eliminated on consolidation. Other long-term investments are carried at cost and adjusted for estimated impairment. The Group reviews equity method investments for impairment whenever events or changes in circumstances indicate that an other-than-temporary decline in value has occurred. The amount of the impairment is based on quoted market prices, where available, or other valuation techniques, including discounted cash flows.

Note 3: Summary of Significant Accounting Policies

Cash equivalents. Cash equivalents are highly liquid short-term investments that are readily convertible to known amounts of cash and have original maturities within three months from their date of purchase. They are carried at cost plus accrued interest, which approximate fair value.

Inventories. Inventories of crude oil, refined oil products, materials and supplies, and finished goods are valued at the lower of cost or net realizable value. For inventories valued at cost, the Group uses the weighted-average-cost method. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location, but not unusual/non-recurring costs or research and development costs.

Short-term investments. Short-term investments consist of certificates of deposit, debt and equity securities classified as available-for-sale or trading. Securities are classified as available-for-sale when, in management’s judgment, they may be sold in response to or in anticipation of changes in market conditions. Available-for-sale securities are carried at estimated fair values on the consolidated balance sheet. Unrealized gains and losses on available-for-sale securities are reported net as increases or decreases to accumulated other comprehensive income. The specific identification method is used to determine realized gains and losses on available-for-sale securities.

Securities classified as trading are bought and held principally for the purpose of selling them in the near term. Trading securities are carried at fair value on the consolidated balance sheet. In determining fair value, trading securities are valued at the last trade price if quoted on an exchange or, if traded over-the-counter, at the last bid price. Unrealized and realized gains and losses on trading securities are included in other income of the interim consolidated statements of operations and comprehensive income.

If the decline in fair value of an investment below the accounting basis is other-than-temporary, the carrying value of the securities is reduced and a loss in the amount of any such decline is recorded. No such reductions have been required during the past three years.

Sale and repurchase agreements and lending of securities. Sale and repurchase agreements are treated as secured financing transactions. Securities sold under sale and repurchase agreements are included in trading securities. The corresponding liability is presented within short-term and long-term debt as well as banking customer deposits. Securities purchased under agreements to resell (‘‘reverse repurchase’’) are recorded as loans receivable and advances. The difference between the sale and repurchase prices is treated as interest and recognized over the life of the repurchase agreements using the effective interest method.

Securities lent to counterparts are retained in the interim consolidated financial statements. Securities borrowed are not recognized in the interim consolidated financial statements, unless these are sold to third parties, in which case the purchase and sale are recorded within gains less losses arising from trading securities in the interim consolidated statements of operations and comprehensive income. The obligation to return them is recorded at fair value as a trading liability.

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 3: Summary of Significant Accounting Policies (continued)

Trade accounts receivable and allowances for doubtful accounts. Trade accounts receivable are stated at their principal amounts outstanding net of allowances for doubtful accounts. Specific allowances are recorded against trade receivables whose recovery or collection has been identified as doubtful. An estimated allowance is recorded against trade receivables which are inherent in the portfolio but which at the date of preparing the financial statements have not been specifically identified, as doubtful. Estimates of allowances require the exercise of judgment and the use of assumptions.

Loans receivable and allowances for impairment. Loans originated by the Group by providing money directly to the borrower are carried at amortized cost less allowance for loan impairment. Loans are recognized when cash is advanced to borrowers.

The allowance is equal to the difference between the carrying amount and estimated recoverable amount, calculated as the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted based on the loan’s interest rate at inception.

The allowance for loan impairment also covers losses where there is objective evidence that probable losses are present in components of the loan portfolio at the balance sheet date. These have been estimated based on historical patterns of losses in each component and the credit ratings assigned to the borrowers, and reflect the current economic environment in which the borrowers operate.

When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after the necessary legal procedures have been completed and the amount of the loss has been determined. Recoveries of amounts previously written off are credited to the related allowance for impairment.

If the required allowance for loan impairment subsequently decreases due to an event occurring after the write-down, the release of the allowance is credited to other net-banking line in the interim consolidated statements of operations and comprehensive income.

Oil and gas exploration and development cost. Oil and gas exploration and production activities are accounted for using the successful efforts method whereby costs of acquiring unproved and proved oil and gas property as well as costs of drilling and equipping productive wells, including development dry holes, and related production facilities are capitalized. Exploration expenses, including geological and geophysical expenses and the costs of carrying and retaining undeveloped properties, are expensed as incurred. The costs of exploratory wells that find oil and gas reserves are capitalized pending determination of whether proved reserves have been found. If proved reserves are not found exploratory well costs are expensed. In an area requiring a major capital expenditure before production can begin, an exploratory well remains capitalized if sufficient reserves are discovered to justify its completion as a production well, and additional exploration drilling is underway or firmly planned. The Group does not capitalize the costs of other exploratory wells for more than one year unless proved reserves are found.

Impairment of long-lived assets. Long-lived assets, including proved oil and gas properties at a field level, are assessed for possible impairment in accordance with SFAS No. 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’. Property, plant and equipment used in operations are assessed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recovered. If the carrying amounts are not expected to be recovered by undiscounted pretax future cash flows, the assets are impaired and an impairment loss is recorded through additional amortization or depreciation provisions in the periods in which the determination of impairment is made. The amount of impairment is determined based on the estimated fair value of the assets determined by discounting anticipated future net cash flows or based on quoted market prices in active markets, if available. In the case of oil and gas fields, the net present value of future cash flows is based on management’s best estimate of future prices, which is determined with reference to recent historical prices and published forward prices, applied to projected production volumes of individual fields and discounted at a rate commensurate with the risks involved. The projected production volumes represent reserves, including risk-adjusted probable reserves, expected to be produced based on a stipulated amount of capital expenditures. The production volumes, prices and timing of production are consistent with internal

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 3: Summary of Significant Accounting Policies (continued)

projections and other externally reported information. The price and cost outlook assumptions used in impairment reviews differ from the assumptions used in the Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserve Quantities. In that disclosure, SFAS No. 69, ‘‘Disclosures about Oil and Gas Producing Activities’’ requires the use of prices and costs at the balance sheet date, with no projection of future changes in those assumptions.

Individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets – generally on a field-by-field basis for exploration and production assets, at an entire complex level for refining assets or at a site level for service stations. Long-lived assets committed by management for disposal within one year are accounted for at the lower of amortized cost or fair value, less cost to sell. Acquisition costs of unproved oil and gas properties are evaluated periodically and any impairment assessed is charged to expense.

Depreciation, depletion and amortization. The Group calculates depletion expense for acquisition costs of proved properties using the units-of-production method over proved oil and gas reserves. Depreciation and depletion expense for oil and gas production equipment and wells is calculated using the units-of-production method for each field over proved developed oil and gas reserves. Depreciation of all other plant and equipment is determined on the straight-line method based on estimated useful lives which are as follows:

Maintenance and repair. Maintenance and repairs, which are not significant improvements, are expensed when incurred.

Capitalized interest. Interest from external borrowings is capitalized on major projects. Capitalized interest is added to the cost of the underlying asset and is amortized over the useful lives of the assets in the same manner as the underlying assets. Since there were no projects which qualified for interest capitalization, no interest was capitalized during the periods ended June 30, 2006, 2005 or 2004.

Asset retirement obligations. Effective January 1, 2003, the Group adopted SFAS No. 143, ‘‘Accounting for Asset Retirement Obligations’’ (‘‘SFAS 143’’), which applies to legal obligations associated with the retirement and removal of tangible long-lived assets. The Group recognizes a liability for the fair value of legally required asset retirement obligations associated with long-lived assets in the period in which the retirement obligations are incurred. The Group capitalizes the associated asset retirement costs as part of the carrying amount of the long-lived assets. Over time the liability is increased for the change in its present value, and the capitalized cost in properties, plant and equipment is depreciated on a units-of-production basis over the useful life of the related assets.

Property dispositions. When complete units of depreciable property are retired or sold, the asset cost and related accumulated depreciation are eliminated, with any gain or loss reflected in the interim consolidated statements of operations and comprehensive income. When less than complete units of depreciable property are disposed of or retired, the difference between asset cost and salvage value is charged or credited to accumulated depreciation.

Capital leases. Capital leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the interest charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liabilities. Interest charges are charged directly to the interim consolidated statements of operation and comprehensive income.

Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term unless the leased assets are capitalized by virtue of the terms of the lease agreement

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 3: Summary of Significant Accounting Policies (continued)

granting the Group with ownership rights over the leased assets by the end of the lease term or containing a bargain purchase option. In this case, capitalized assets are depreciated over the estimated useful life of the asset regardless of the lease term. Depreciation of assets held under capital leases is included in depreciation, depletion and amortization charge.

Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Operating lease payments are recognized as an expense in the interim consolidated statements of operation and comprehensive income on a straight-line basis over the lease term.

Environmental expenditures. Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and do not have a future economic benefit, are expensed. Liabilities for these expenditures are recorded on an undiscounted basis when environmental assessments or cleanups are probable and the costs can be reasonably estimated.

Pension and post-employment benefits. The Group’s mandatory contributions to the governmental and discretionary non-governmental defined contribution pension schemes are expensed when incurred. The amount of contributions, frequency of payments and other conditions of non-governmental pension plans are regulated by the ‘‘Statement of National non-governmental pension fund of OAO ‘‘Tatneft’’ and the contracts concluded between the Company or its subsidiaries and non-profit organization ‘‘National non-governmental pension fund’’. In accordance with these contracts the Group is committed to make certain contributions which are determined solely at the discretion of the Group’s or its subsidiaries’ management but not less than the minimum annual payment regulated by current Russian legislation. In accordance with the provisions of collective agreements concluded on an annual basis between the Company or its subsidiaries and their employees, the Group is obligated to pay certain post-employment benefits the amounts of which are either fixed or depend on the governmental pension amount or at the full discretion of the Group’s management. In 2006, 2005 and 2004 the contributions to non-governmental pension plans and post-employment benefit payments were not material.

Revenue recognition. Revenues from the production and sale of crude oil, petroleum and chemical products and all other products are recognized when deliveries of products to final customers are made, title passes to the customer, collection is reasonably assured and sales price to final customers is fixed or determinable. Revenues include the sales portion of contracts involving purchases and sales necessary to reposition supply to address location or quality or grade requirements (e.g., when the Group repositions crude by entering into a contract with a counter party to sell crude in one location and purchase it in a different location) and sales related to purchase for resale activity.

Bank interest income and expense are recognized on an accrual basis calculated using the effective interest method. The recognition of contractual interest income is suspended when loans become overdue by more than ninety days or when management believes that interest is not collectible. When interest accruals are suspended, interest accrued in a prior year is charged against the allowance for loan impairment while interest accrued in the current year but unpaid is reversed and charged against interest income. Loans are returned to accrual status when, in management’s judgment, the borrower’s ability to make periodic interest and principal payments has improved and payments are made timely over an approximately six month period. Until the loan is returned to accrual status, payments by borrower are applied to loan principal. Bank interest is included on a net basis in sales and other operating revenues in the interim consolidated statement of operations and comprehensive income since management believes that the activities of the banks are one of the core activities of the Group.

Shipping and handling costs. Shipping and handling costs are included in Transportation expenses caption in the interim consolidated statements of operation and comprehensive income.

Non-monetary transactions. In accordance with Accounting Principles Board Statement No. 29, ‘‘The Accounting for Non-monetary Transactions’’ (‘‘APB 29’’) such transactions are recorded based on the fair values of the assets (or services) involved which is the same basis as that used in monetary

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 3: Summary of Significant Accounting Policies (continued)

transactions. Thus, the cost of a non-monetary asset acquired in exchange for another non-monetary asset is the fair value of the asset surrendered to obtain it, and a gain or loss is recognized on the exchange if the carrying amount of the asset surrendered differs from its fair value. The fair value of the asset received is used to measure the cost if it is more clearly evident than the fair value of the asset surrendered.

Income taxes. Deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, except for deferred taxes on income considered to be permanently reinvested in foreign subsidiaries. Deferred tax assets and liabilities are measured using enacted tax rates in the periods in which these temporary differences are expected to reverse. Valuation allowances are provided for deferred income tax assets when management believes that it is unlikely such assets will be realized.

Minority interest. Minority interest represents the minority shareholders’ proportionate share of the equity of the Group’s subsidiaries. This has been calculated based upon the minority interest ownership percentage of these subsidiaries. The Company does not own any preference shares in subsidiaries.

Net income per share. Basic income per share is calculated using the two class method of computing income per share. Under this method, net income is reduced by the amount of dividends declared in the current period for each class of shares, and the remaining income is allocated to common and preferred shares to the extent that each class may share in income if all income for the period had been distributed. Diluted income per share reflects the potential dilution arising from options granted to senior managers and the Directors of the Group.

In March 2004, the Emergency Issue Task Force (‘‘EITF’’) reached a consensus on Issue 03-6, ‘‘Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share’’, that explained how to determine whether a security should be considered a ‘‘participating security’’ and how income should be allocated to a participating security when using the two-class method for computing basic income per share. The adoption of this standard in 2004 did not have a material impact on the Group's income per share calculation.

Treasury shares. Common shares of the Company owned by the Group at the balance sheet date are designated as treasury shares and are recorded at cost using the weighted-average method. Gains on the resale of treasury shares are credited to additional paid-in capital whereas losses are charged to additional paid-in capital to the extent that previous net gains from resale are included therein or otherwise to retained earnings.

Guarantees. The Group recognizes a liability for the fair value of the obligation it assumes under the guarantee in accordance with the provisions of Financial Accounting Standard Board (‘‘FASB’’) issued Interpretation No. 45, ‘‘Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others’’.

Recent accounting pronouncements:

Variable interest entities. In January 2003, FASB issued FIN 46 and in December 2003, FASB issued a revised interpretation of FIN 46 (‘‘FIN 46-R’’), which superseded FIN 46 and clarified and expanded current accounting guidance for Variable Interest Entities (‘‘VIEs’’.) FIN 46-R clarifies when a company should consolidate in its financial statements the assets, liabilities and activities of a VIE. FIN 46-R provides general guidance as to the definition of a variable interest entity and requires it to be consolidated if a party with an ownership, contractual or other financial interest absorbs the majority of the VIE’s expected losses, or is entitled to receive a majority of the residual returns, or both. A variable interest holder that consolidates the VIE is the primary beneficiary and is required to consolidate the VIE’s assets, liabilities and non-controlling interests at fair value at the date the interest holder first becomes the primary beneficiary of the VIE. The Group adopted FIN 46 and FIN 46-R effective January 1, 2004; however, such adoption did not have a material impact on the Group’s financial reporting and disclosures.

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 3: Summary of Significant Accounting Policies (continued)

Stock-based compensation. On December 16, 2004, FASB issued SFAS No. 123 (revised 2004), ‘‘Share Based Payment’’ (‘‘SFAS 123R’’), which is a revision of SFAS 123. SFAS 123R supersedes APB 25 and amends Statement No. 95, ‘‘Statement of Cash Flows’’. SFAS 123R prescribes the accounting for a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans; pro forma disclosure is no longer permitted. The cost of the equity instruments is to be measured based on fair value of the instruments on the date they are granted (with certain exceptions) and is required to be recognized over the period during which the employees are required to provide services in exchange for the equity instruments. SFAS 123R is effective in the first interim or annual reporting period beginning after June 15, 2005.

SFAS 123R provides two alternatives for adoption: (1) a ‘‘modified prospective’’ method in which compensation cost is recognized for all awards granted subsequent to the effective date of this statement as well as for the unvested portion of awards outstanding as of the effective date and (2) a ‘‘modified retrospective’’ method which follows the approach in the ‘‘modified prospective’’ method, but also permits entities to restate prior periods to reflect compensation cost calculated under SFAS 123 for pro forma amounts disclosure. The Group plans to adopt SFAS 123R using the modified prospective method. The adoption of SFAS 123R is not expected to have a material impact on our results of operations. On March 30, 2005, the Security and Exchange Commission (‘‘SEC’’) released Staff Accounting Bulletin No. 107, ‘‘Share-Based Payment,’’ (‘‘SAB 107’’), which expresses the views of the SEC staff regarding the application of SFAS 123R. The adoption of SFAS 123R and SAB 107 will approximate the impact of SFAS 123 as described in the disclosure of pro forma net income and income per share in this Note to the interim consolidated financial statements.

Inventory costs. In November 2004, the FASB issued SFAS No. 151, ‘‘Inventory Costs an amendment of ARB No. 43, Chapter 4’’ (‘‘SFAS 151’’), which will become effective for the Group on January 1, 2006. SFAS 151 requires that items, such as idle facility expense, excessive spoilage, double freight, and re-handling costs, be recognized as a current-period charge. The Group is currently analyzing the provisions of this statement to determine the effects, if any, on the Group's results of operations, financial position or cash flow.

Nonmonetary exchanges of similar assets. In December 2004, the FASB issued SFAS No. 153, ‘‘Exchanges of Nonmonetary Assets’’ (’’SFAS 153’’), which will become effective for the Group on January 1, 2006. SFAS 153 addresses the measurement of exchanges of nonmonetary assets. The guidance in APB 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB 29, however, included certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The adoption of the provisions of SFAS 153 is not expected to have a material impact on the Group's results of operations, financial position or cash flow.

Accounting changes and error corrections. In May 2005, the FASB issued SFAS No. 154, ‘‘Accounting changes and error corrections’’ (’’SFAS 154’’), which will become effective for the Group on January 1, 2006. SFAS 154 replaces APB Opinion No. 20, ‘‘Accounting Changes’’ (‘‘APB 20’’), and SFAS No. 3, ‘‘Reporting Changes in Interim Financial Statements’’, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior period’s financial statements of all changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change, if a pronouncement which requires the change in accounting principle does not include specific transition provisions. SFAS 154 carries forward without change to the guidance contained in APB 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate.

Conditional asset retirement obligations. In March 2005, the FASB issued Interpretation No. 47, ‘‘Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143’’

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 3: Summary of Significant Accounting Policies (continued)

(‘‘FIN 47’’). This interpretation clarifies that an entity is required to recognize a liability for a legal obligation to perform asset retirement activities when the retirement is conditional on a future event if the liability’s fair value can be reasonably estimated. In adopting FIN 47, the Group did not recognise any additional liabilities for conditional retirement obligations due to an inability to reasonably estimate the fair value of those obligations because of their indeterminate settlement dates.

Suspended well costs. In April 2005, the FASB issued FASB Staff Position FAS No. 19-1, ‘‘Accounting for suspended well costs’’ (‘‘FSP FAS 19-1’’), which the Group adopted on July 1, 2005. FSP FAS 19-1 amends SFAS 19 and applies to companies that follow the successful efforts method of accounting. FSP FAS 19-1 concludes that exploratory well costs should continue to be capitalized when the well has found a sufficient quantity of reserves to justify its completion as a producing well and an entity is making sufficient progress assessing the reserves and the economic and operating viability of the project. In addition FSP FAS 19-1 requires certain disclosures to provide financial statement users information about management’s evaluation of capitalized exploratory well costs. The adoption of the provisions of FSP FAS 19-1 did not have a material impact on the Group's results of operations, financial position or cash flow.

Buy / sell transactions. In November 2004, the EITF began deliberating the accounting for buy/sell and related transactions as Issue No. 04-13, ‘‘Accounting for Purchases and Sales of Inventory with the Same Counterparty,’’ and reached a consensus at its September 2005 meeting. The EITF concluded that purchases and sales of inventory, including raw materials, work-in-progress or finished goods, with the same counterparty that are entered into ‘‘in contemplation’’ of one another should be combined and reported net for purposes of applying APB Opinion No. 29.

Additionally, the EITF concluded that exchanges of finished goods for raw materials or work-in-progress within the same line of business is not an exchange subject to APB Opinion No. 29 and should be recorded at fair value.

The new guidance is effective prospectively, and will become effective for the Group beginning July 1, 2006, for new arrangements entered into, and for modifications or renewals of existing arrangements. The Group is reviewing this guidance to determine the effects, if any, on the Group's results of operations, financial position or cash flow.

Impairment of investments. In November 2005, FASB issued FSP FAS 115-1/FAS 124-1, ‘‘The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments’’ (‘‘FSP 115-1/124-1’’), which will become effective for the Group on January 1, 2006. FSP 115-1/124-1 provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss. FSP 115-1/124-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The Company does not expect this FSP will have a material impact on its financial reporting and disclosures.

Presentation of taxes collected from customers. In June 2006, the FASB ratified the earlier EITF consensus on Issue 06-3, ‘‘How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation),’’ which will become effective for the Group on January 1, 2007. The new accounting standard requires that a company disclose its policy for recording taxes assessed by a governmental authority on a revenue-producing transaction between a seller and a customer. In addition, for any such taxes that are reported on a gross basis, a company is required to disclose the amounts of those taxes. The Group’s expected policy in relation to Issue 06-3 is to present the relevant taxes on a gross basis.

Income tax uncertainties. FASB Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109’’ (‘‘FIN 48’’). In July 2006, the FASB issued FIN 48, which will become effective for the Group on January 1, 2007. This standard clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements. A company can only

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 3: Summary of Significant Accounting Policies (continued)

recognize the tax position in the financial statements if the position is more-likely-than-not to be upheld on audit based only on the technical merits of the tax position. This accounting standard also provides guidance on thresholds, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company does not expect the implementation of this standard will have a material effect on its results of operations or financial position.

Fair value measurements. In September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value Measurements,’’ (‘‘SFAS 157’’) which provides enhanced guidance for using fair value to measure assets and liabilities, which will become effective for the Group on January 1, 2008. SAFS 157 establishes a common definition of fair value, provides a framework for measuring fair value under U.S. GAAP and expands disclosure requirements about fair value measurements. The Group is currently evaluating the effect, if any, the adoption of SFAS 157 will have on its financial reporting and disclosures.

Note 4: Cash and Cash Equivalents, Restricted Cash, and Cash Flow Information

The interim consolidated statements of cash flows provide information about changes in cash and cash equivalents. At June 30, 2006, December 31, 2005 and 2004, cash and cash equivalents of the Group, include US Dollar denominated amounts of RR 692 million (US $26 million), RR 4,299 million (US $149 million) and RR 7,583 million (US $273 million), respectively. Short-term restricted cash is cash held in escrow accounts in the amount of RR 141 million and RR 153 million at June 30, 2006 and December 31, 2005, respectively.

Note 5: Accounts Receivable

Accounts receivable are as follows:


	At June 30, 2006						At December 31, 2005
	Total accounts receivable		Accounts receivable from related parties		Accounts receivable, net		Total accounts receivable		Accounts receivable from related parties		Accounts receivable, net
Trade – domestic		10,051		521		9,530		8,562		889		7,673
Trade – export (US $857 million and US $586 million at June 30, 2006 and December 31, 2005, respectively)		23,217		4,781		18,436		16,880		4,346		12,534
Total accounts receivable, net		33,268		5,302		27,966		25,442		5,235		20,207

Trade receivables are presented net of an allowance for doubtful accounts of RR 782 million and RR 792 million at June 30, 2006 and December 31, 2005, respectively.

Note 6: Short and Long-Term Investments

Short-term investments are classified as follows:


	At June 30, 2006		At December 31, 2005
Certificates of deposit		4,000		2,750
Trading securities		13,497		2,366
Total short-term investments		17,497		5,116

Trading securities are held in the Group with the objective of earning profits on short-term differences in price.

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 6: Short and Long-Term Investments (continued)

Short-term investments are classified as follows:


	At June 30, 2006		At December 31, 2005
Bonds and other Russian government securities		1,129		569
Corporate debt securities		2,407		443
Equity securities		9,961		1,354
Total trading securities		13,497		2,366

Long-term investments are as follows:


	Ownership percentage at June 30, 2006	Net book value at				Group’s share income for the period ended June 30,
	Ownership percentage at June 30, 2006	June 30, 2006		December 31, 2005		2006		2005		2004
Investments in equity affiliates and joint ventures:
ZAO Tatex	50		2,151		2,001		205		139		174
Bank AK Bars	32		3,643		3,128		217		158		—
Bank Zenit	40		5,063		1,740		344		33		—
Other	20-50		472		298		110		163		45
Total investments in equity affiliates and joint ventures / income			11,329		7,167		876		493		219
Long-term investments, at cost:
ZAO Ukrtatnafta	9		504		504
ZAO OLK Center-Kapital	13		193		193
Other	0-20		353		463
Total long-term investments, at cost			1,050		1,160
Total long-term investments			12,379		8,327

At June 30, 2006, consolidated retained earnings included RR 3,085 million (at December 31, 2005 – RR 2,650 million) related to the undistributed earnings of 50% or less owned companies that are accounted for using the equity method.

Long-term investments not designated as available-for-sale or trading securities are recorded at cost because they are not traded on any market and it is not practicable to determine their fair value.

Note 7: Inventories

Inventories are as follows:


	At June 30, 2006		At December 31, 2005
Materials and supplies		5,531		4,729
Crude oil		1,981		2,869
Refined oil products		1,205		1,402
Petrochemical supplies and finished goods		786		948
Total inventories		9,503		9,948

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 8: Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are as follows:


	At June 30, 2006		At December 31, 2005
VAT recoverable		5,110		5,462
Prepaid export duties		4,074		6,238
Notes receivable		1,747		2,845
Advances		2,719		526
Prepaid transportation expenses		336		392
Deferred tax asset (Note 14)		607		749
Prepaid income tax		1,053		2,244
Interest receivable		1		14
Other		3,148		3,183
Total prepaid expenses and other current assets		18,795		21,653

Note 9: Loans Receivable and Advances


	At June 30, 2006			At December 31, 2005
Long-term notes receivable		1,304			1,612
Loans to employees		1,453			1,656
Long-term accounts receivable		446			992
Other Russian Rouble denominated loans receivable		11,130			7,012
Total loans and notes receivable and advances		14,333			11,272
Less: current portion of loans receivable and advances		(4,009	)		(1,652	)
Less: due from related parties (Note 18)		(4,420	)		(3,753	)
Total long-term loans and notes receivable and advances		5,904			5,867

Loans and notes receivable and advances reported as of June 30, 2006 in the amounts of RR 1,168 million, RR 2,471 million and RR 2,265 mature in 2007, 2008 and after 2009, respectively.

In January 2004 the Group purchased, at the request of the Tatarstan government, a promissory note of RR 960 million issued by ‘‘Tatgospostavki’’, a unitary company controlled by the Tatarstan government, in order to finance social expenditures planned under Tatarstan’s budget. The promissory note is interest free and redeemable in 2024. The fair value of this note is RR 165 million and RR 157 million as of June 30, 2006 and December 31, 2005, respectively, calculated using an implied rate of return of 10%.

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 10: Property, Plant and Equipment

Property, plant and equipment are as follows:


	Cost		Accumulated depreciation, depletion and amortization		Net book value
Oil and gas properties		260,507		122,425		138,082
Buildings and constructions		28,605		10,193		18,412
Machinery and equipment		49,997		40,246		9,751
Assets under construction		6,484		—		6,484
June 30, 2006		345,593		172,864		172,729
Oil and gas properties		264,951		123,776		141,175
Buildings and constructions		26,116		9,598		16,518
Machinery and equipment		48,945		37,990		10,955
Assets under construction		5,564		—		5,564
December 31, 2005		345,576		171,364		174,212

As stated in Note 3, the Group calculates depreciation, depletion and amortization using the units-of-production method over proved or proved developed oil and gas reserves depending on the nature of the costs involved. The proved or proved developed reserves used in the units-of-production method assume the extension of our production license beyond their current expiration dates until the end of the economic lives of the fields as discussed below in further detail.

The Group’s oil and gas fields are located principally on the territory of Tatarstan. The Group obtains licenses from the governmental authorities to explore and produce oil and gas from these fields. Most of our existing production licenses expire from 2013 to 2019, and the license for our largest field, Romashkinskoye, expires in 2038. The economic lives of our licensed fields extend significantly beyond these dates. Under Russian law, the Group is entitled to renew the licenses to the end of the economic lives of the fields, provided certain conditions are met. Article 10 of the Subsoil Law provides that a license to use a field ‘‘shall be’’ extended at its scheduled termination at the initiative of the subsoil user if necessary to finish production in the field, provided that there are no violations of the conditions of the license. The legislative history of Article 10 indicates that the term ‘‘shall’’ replaced the term ‘‘may’’ in August 2004, clarifying that the subsoil user has an absolute right to extend the license term so long as it has not violated the conditions of the license. The Group has received a written confirmation from the Federal Regional Agency for Subsoil Use under the Ministry of Natural Resources of the Russian Federation confirming that, to date, it has not identified any violations of the terms of the Group’s licenses that could prevent their extension and that, based on approved development plans and in accordance with the Subsoil Law, the Group’s licenses will be extended at the Group’s request. In addition, in July 2006, the term of the Group’s license to produce oil and gas from our largest field, Romashkinsokoye, was extended through 2038. The Group’s right to extend licenses is, however, dependent on the Group continuing to comply with the terms of the licenses, and management has the ability and intent to do so. Management plans to request the extension of the licenses that have not yet been extended. The Group’s current production plans are based on the assumption, which management considers to be reasonably certain, that the Group will be able to extend all existing licenses. These plans have been designed on the basis that the Group will be producing crude oil through the economic lives of the fields and not with a view to exploiting the Group’s reserves to maximum effect only through the license expiration dates.

Miller & Lents, the Group’s independent oil and gas consultants, have confirmed with management that it is ‘‘reasonably certain’’ that the Group will be allowed to produce oil from the Group’s reserves after the expiration of existing production licenses and until the end of the economic lives of the fields. ‘‘Reasonable certainty’’ is the applicable standard for defining proved reserves under the SEC’s Regulation S-X, Rule 4-10. Accordingly, management has included in proved reserves in the supplementary information on oil and gas exploration and production activities of the interim consolidated financial statements as of and for the year ended December 31, 2005 all reserves that otherwise meet the standards

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 10: Property, Plant and Equipment (continued)

for being characterized as ‘‘proved’’ and that the Group estimates the Group can produce through the economic lives of Group’s licensed fields.

The SEC staff has indicated that proved reserves generally should be limited to those that can be produced through the license expiration date unless there is a long and clear track record which supports the conclusion that the extension of the license will be granted as a matter of course. The Group believes that the extension of the licenses is a matter of course as fully described above. To assist the financial statement reader in understanding the proved oil reserves that will be produced during the existing license period and those that will be produced during the period of the expected license extension, the proved oil reserves have been presented separately for each of these two periods in the accompanying supplementary oil and gas information (see SFAS No. 69, ‘‘Disclosures about Oil and Gas Producing Activities’’).

The Group’s cash flows from operations are dependent on the level of oil prices, which are historically volatile and are also significantly impacted by the proportion of production that the Group can sell on the export market. Historically, the Group has supplemented its cash flows from operations with additional borrowings and may continue to do so. Should oil prices decline for a prolonged period and should the Group not have access to additional capital, the Group would need to reduce its capital expenditures, which could limit its ability to maintain or increase production and in turn meet its debt service requirements and pay dividends.

Asset Retirement Obligations. Effective January 1, 2003, the Group adopted SFAS 143 which applies to legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Subsequently, the liability is accreted for the passage of time and the related asset is depreciated over its estimated useful life. The adoption of SFAS 143 affected the accounting and reporting of the assets, liabilities and expenses related to these obligations.

The Group has numerous asset removal obligations that it is required to perform under law or contract once an asset is permanently taken out of service. The Group’s field exploration, development, and production activities include assets related to: well bores and related equipment and operating sites, gathering and oil processing systems, oil storage facilities and pipelines to main transportation trunks. Generally, the Group’s licenses and other operating permits require certain actions to be taken by the Group in the abandonment of these operations. Such actions include well abandonment activities, equipment dismantlement and other reclamation activities. The Group’s estimates of future abandonment costs consider present regulatory or license requirements and are based upon management’s experience of the costs and requirement for such activities. Most of these costs are not expected to be incurred until several years, or decades, in the future and will be funded from general Group resources at the time of removal. Legal or contractual obligations, if any, to retire or otherwise abandon petrochemical, refining and marketing, distribution and banking assets are generally not recognized because of limited history of such activities in these operating areas, absence of clear and definitive legal requirements and indeterminable lives of these assets. Inasmuch as the regulatory and legal environment in Russia continues to evolve, there could be future changes to the requirements and costs associated with abandoning long-lived assets.

SFAS 143 calls for measurements of asset retirement obligations to include, as a component of expected costs, an estimate of the price that a third party would demand, and could expect to receive, for bearing the uncertainties and unforeseeable circumstances inherent in the obligations, sometimes referred to as a market-risk premium. To date, the oil and gas industry has few examples of credit-worthy third parties who are willing to assume this type of risk, for a determinable price, on major oil and gas production facilities and pipelines. Therefore, because determining such a market-risk premium would be an arbitrary process, it has been excluded from the Company’s SFAS 143 estimates.

F-21

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TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 10: Property, Plant and Equipment (continued)

The following tables summarize the Group’s asset retirement obligations and asset retirement costs activities:

Asset Retirement Obligations


	Six months ended June 30, 2006			Year ended December 31, 2005
Balance, beginning of period		26,262			23,803
Accretion of discount		1,313			2,380
New obligations		35			156
Spending on existing obligations		(35	)		(77	)
Balance, end of period		27,575			26,262
Less: current portion of asset retirement obligations (Note 13)		(205	)		(32	)
Long-term balance, end of period		27,370			26,230

Capital leases. The Group leases machinery and equipment.

The following is an analysis of the leased property under capital leases:

The following is a schedule by year of future lease payments under capital leases together with the present value of the future minimum lease payments as of June 30, 2006:

Six months ended June 30:


2007	548
2008	275
2009	48
2010	9
2011	1
Total future lease payments	881
Less interest	(99	)
Present value of future minimum lease payments	782
Less current portion	(547	)
Long-term portion of capital lease obligations	235

Social assets. During the six months ended June 30, 2006, 2005 and 2004 the Group transferred social assets with a net book value of RR 35 million, RR 515 million and RR 147 million, respectively, to local authorities. At June 30, 2006 and December 31, 2005, the Group held social assets with a net book value of RR 3,796 million and RR 3,906 million all of which were constructed after the privatization date. The remaining social assets comprise mainly dormitories, hotels, gyms and other facilities. The Group may transfer some of these social assets to local authorities in the future, but does not expect these to be significant. The Group incurred social infrastructure expenses of RR 23 million, RR 62 million and RR 149 million for the six months ended June 30, 2006, 2005, and 2004, respectively, for maintenance that mainly relates to housing, schools and cultural buildings (see also Note 1).

F-22

Table of Contents

TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 11: Debt


	At June 30, 2006			At December 31, 2005
Short-term debt
Foreign currency denominated debt
Current portion of long-term debt		2,249			2,761
Other foreign currency denominated debt		310			299
Rouble denominated debt
Current portion of long-term debt		65			1,675
Other rouble denominated debt		1,350			2,070
Less: due to related parties (Note 18)		(562	)		(948	)
Total short-term debt		3,412			5,857
Long-term debt
Foreign currency denominated debt
BNP Paribas		1,805			2,638
Credit Suisse First Boston		895			1,586
Other foreign currency denominated debt		—			53
Rouble denominated debt		659			1,924
Total long-term debt		3,359			6,201
Less: current portion		(2,314	)		(4,436	)
Total long-term debt, net of current portion		1,045			1,765

Foreign currency debts are primarily denominated in US Dollars.

Short-term foreign currency denominated debt. As of June 30, 2006 other short-term foreign currency denominated debt includes a loan from Credit Suisse Zurich.

In December 2003 the Group entered into a RR 1,034 million (US $35 million) one month revolving overdraft facility with Credit Suisse Zurich. The monthly revolving loan bears interest at 1 month LIBOR plus varying margin of about 1.8% per annum and is collateralized by crude oil sales. The amount of loan outstanding as of June 30, 2006 and December 31, 2005 was RR 310 million (US $11.4 million) and RR 299 million (US $ 10.3 million), respectively.

Short-term Russian Rouble denominated debt. Russian Rouble denominated short-term debt is primarily comprised of loans with Russian banks. Short-term Rouble denominated loans of RR 788 million and RR 1,122 million bear contractual interest rates of 7% to 20% and 6% to 14% per annum for the periods ended June 30, 2006 and December 31, 2005, respectively. The loans are collateralized by the assets of the Group.

Long-term foreign currency denominated debt. In October 2002, the Group entered into a loan agreement with BNP Paribas for US $300 million. The amount outstanding under this loan as of June 30, 2006 was RR 1,805 million of which RR 1,354 million is classified as current. The loan proceeds are payable in two tranches. The first tranche in the amount US $125 million bears interest of LIBOR plus 4.25% per annum. The second tranche in the amount US $175 million bears interest at LIBOR plus 3.75%, per annum. The second tranche was redeemed in October 2005. The loan is collateralized by crude oil export contracts of 120 thousand tons per month, and matures in October 2007. The loan agreement requires compliance with certain financial covenants including, but not limited to, minimum levels of consolidated tangible net worth, and maximum debt and interest coverage ratios.

In March 2002 the Group entered into a US $200 million loan agreement with Credit Suisse First Boston. The amount of loan outstanding as of June 30, 2006 was RR 895 million of which RR 895 million is classified as current. The loan bears interest at LIBOR plus 3.78% per annum, is collateralized by crude oil export contracts of 80 thousand tons per month and matures in March 2007.

F-23

Table of Contents

TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 11: Debt (continued)

Long-term Russian Rouble denominated debt. Long-term Russian Rouble denominated debt includes non-banking loans. The loans mature between July 2007 to June 2015.

The fair value of the Group’s long-term debt is similar to its book value. Fair value assessment is subject to considerable uncertainty.

Aggregate maturities of long-term debt outstanding at June 30, 2006 are as follows:


June 30, 2006 – June 30, 2007					2,314
June 30, 2007 – June 30, 2008					943
June 30, 2008 – June 30, 2009					3
June 30, 2009 – June 30, 2010					68
June 30, 2010 – June 30, 2011					—
Thereafter					31
Total long-term debt					3,359

Interest paid during the six months ended June 30, 2006, 2005 and 2004 was RR 369 million, RR 516 million, and RR 789 million, respectively.

The Group has no subordinated debt and no debt that may be converted in an equity instrument of the Company.

Note 12: Notes payable and banking customer deposits

Notes payable are as follows:


	At June 30, 2006			At December 31, 2005
Other notes payable		1,662			1,278
Less: current notes payable		(367	)		(384	)
Less: due to related parties		(590	)		(491	)
Notes payable long-term		705			403

Other notes payable as of June 30, 2006 include short-term and long-term trade promissory notes payable to third parties and bear contractual interest rates ranging from 1% to 9%, respectively.

Long-term notes payable in the amounts of RR 391 million, RR 216 million and RR 98 million outstanding at June 30, 2006 are payable in 2007, 2008 and after 2009, respectively.

F-24

Table of Contents

TATNEFT

Notes to Interim Consolidated Financial Statements (Unaudited)
(in millions of Russian Roubles)

Note 13: Other Accounts Payable and Accrued Liabilities

Other accounts payable and accrued liabilities are as follows:


	At June 30, 2006		At December 31, 2005
Prepayments for oil sales		4,977		—
Salaries and wages payable		2,537		2,909
Insurance provision		2,622		2,082
Payable under commission contracts		—		161
Deferred revenues		148		137
Interest payable		7		9
Current portion of asset retirement obligations (Note 10)		205		32
Other accrued liabilities		2,263		1,767
Total other accounts payable and accrued liabilities		12,759		7,097

Note 14: Taxes

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for statutory tax purposes. Deferred tax assets (liabilities) are comprised of the following at June 30, 2006 and December 31, 2005:


	At June 30, 2006			At December 31, 2005
Inventories		—			692
Accounts receivable		159			—
Obligations under capital leases		188			181
Other accounts payable		403			204
Prepaid expenses and other current assets		—			100
Other		397			246
Deferred tax assets		1,147			1,423
Property, plant and equipment		(19,978	)		(20,527	)
Inventories		(182	)		—
Long-term investments		(740	)		(587	)
Undistributed earnings

Buildings and constructions

Machinery and equipment

At June 30,
2006

At December 31,
2005

Machinery and equipment

Less: accumulated amortization