Company Name: A.O. Tatneft
Public Availability Date: Mar. 26, 1998

[REQUEST LETTER]

March 26, 1998

BY HAND

Ms. Nancy J. Sanow
Assistant Director
Division of Market Regulation
Office of Legal Policy and Trading Practices
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

Re: A.O. Tatneft

Dear Ms. Sanow:

A.O. Tatneft, an open joint-stock company organized under the laws of the Russian Federation and the Republic of Tatarstan (the "Company"), proposes to register an exchange offer (the "Exchange Offer") under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to which the Company will offer 10 American Depositary Shares (the "Exchange Offer ADSs"), each representing one-tenth of an ordinary share, nominal value 10 Russian Roubles per share (each, an "Ordinary Share") of the Company, to the holders (the "Exchange Offerees") of Rule 144A American Depositary Shares each representing one Ordinary Share (the "Restricted ADSs"). The Restricted ADSs were placed in December 1996 as part of an international offering pursuant to Rule 144A under the Securities Act and Regulation S under the Securities Act (the "International Offering"). The Company is intending to list the Exchange Offer ADSs on the New York Stock Exchange, and the Exchange Offer is designed to offer the Exchange Offerees, who are currently holding restricted securities, the liquidity provided by securities registered under the Securities Act and listed on the New York Stock Exchange.

This letter requests certain exemptions from Rule 102 of Regulation M under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-13 and Rule 13e-4 under the Exchange Act, in connection with the Exchange Offer.

We understand that subsequent resales of the Exchange Offer ADSs and the Ordinary Shares underlying the Exchange Offer ADSs may be made by Exchange Offerees without any further registration under the Securities Act or the delivery of a prospectus in connection therewith, insofar as the Company is registering the Exchange Offer in reliance on the position of the staff of the Securities and Exchange Commission enunciated in Exxon Capital Holdings Corporation (available April 13, 1989).

We understand the facts to be as follows:

The Company

The Company is an open joint-stock company organized under the laws of the Russian Federation and the Republic of Tatarstan. The Companys principal business is to explore for, develop, produce and market crude oil, and it is one of the largest producers of crude oil in the Russian Federation. Substantially all the Companys production and other operations are in the Republic of Tatarstan, a republic of the Russian Federation situated between the Volga River and the Ural Mountains, located approximately 750 kilometers southeast of Moscow. For historical reasons, and like most major Russian enterprises, the Company is also engaged in a number of business activities outside its core area of business.

For the fiscal year ended December 31, 1996, the Company and its consolidated subsidiaries had sales and other operating revenues of R.13,341,356 thousand (U.S.$2,214 million) and total assets at that date of R.28,326,204 thousand (U.S.$4,701 million), ¹ and employed approximately 76,500 people. At January 30, 1998, the Company had a market capitalization of approximately U.S.$2.3 billion. ²

The Company is currently exempt from reporting under the Exchange Act pursuant to Rule 12g3-2(b) thereunder, but anticipates that it will become a reporting company under the Exchange Act as a result of the Exchange Offer.

Capital Structure and Principal Shareholder

The Companys share capital is currently divided into Ordinary Shares, each of which is entitled to one vote per share, and preference shares, nominal value 10 Russian Roubles per share (the "Preference Shares"), which are entitled to voting rights only with respect to amendments that would affect their rights to receive dividends and following non-payment or partial payment of dividends. There are currently 21,786,907 Ordinary Shares and 1,475,085 Preference Shares issued and outstanding.

The principal and controlling shareholder of the Company is the Republic of Tatarstan which, through the Tatarstan GKI, currently owns 30.3% of the equity of the Company and 32.4% of the Ordinary Shares of the Company. Certain of these Ordinary Shares are held in trust, but can be removed from the trust by the Tatarstan GKI at any time. The Republic of Tatarstan also owns a "Golden Share" in the Company, which gives it the power to veto major decisions relating to the Companys share capital, charter, subsidiaries, investments, property and the election (and arguably dismissal) of certain members of its Board of Directors. The Golden Share is currently set to expire in January 1999, but could be extended.

The Company does not currently intend to increase the number of Ordinary Shares or Preference Shares issued and outstanding, and no increase will occur in connection with the Exchange Offer.

ADS Facilities

The Company currently has three American Depositary Share facilities (collectively, the "ADS Facilities," and each an "ADS Facility"). In June 1996, the Company established a "Level I" registered ADS Facility (the "Unrestricted ADS Facility" for the "Unrestricted ADSs") for the Companys Ordinary Shares with The Bank of New York as depositary (the "Depositary"). In connection with the International Offering (as described below), the Company established a Regulation S unregistered ADS Facility (the "Regulation S ADS Facility") and a Rule 144A unregistered ADS Facility (the "Rule 144A ADS Facility"), both with the Depositary as depositary.

On December 12, 1996, the International Offering of Restricted ADSs and other American Depositary Shares ("Regulation S ADSs") sold outside the United States and the Russian Federation pursuant to Regulation S under the Securities Act was made by the Republic of Tatarstan through the Tatarstan GKI as selling shareholder. In the International Offering, the Tatarstan GKI offered and sold 2,326,200 Ordinary Shares in the form of 2,326,200 Restricted ADSs and Regulation S ADSs. Dresdner Kleinwort Benson acted as global coordinator for the International Offering. Upon full exercise of the over-allotment option granted to the underwriters in the international offerings, the Tatarstan GKI sold an additional 348,930 Ordinary Shares in the form of 348,930 Restricted ADSs and Regulation S ADSs.

The Depositary has indicated that, as of November 3, 1997, there were (i) 1,846,100 Restricted ADSs outstanding under the Restricted ADS Facility and that such Restricted ADSs were held of record by 18 persons, (ii) 3,016,042 Regulation S ADSs outstanding under the Regulation S ADS Facility and that such Regulation S ADSs were held of record by 15 persons, and (iii) 1,249,000 Unrestricted ADSs outstanding under the Unrestricted ADS Facility and that such Unrestricted ADSs were held of record by 53 persons. Since certain of the Restricted ADSs, Regulation S ADSs and Unrestricted ADSs are held by brokers and other nominees, the above numbers may not be representative of the actual number of U.S. beneficial holders or of the number of Restricted ADSs, Regulation S ADSs or Unrestricted ADSs beneficially held by U.S. persons.

The Company intends to take certain actions the net effect of which will be that there will remain one ADS Facility (the "Registered ADS Facility") for the Companys Ordinary Shares after the completion of the transactions described herein, and each ADS will represent one-tenth of an Ordinary Share. At the expiration of the Exchange Offer and the termination of the other ADS Facilities, the Unrestricted ADSs and the Exchange Offer ADSs and the Ordinary Shares represented thereby will be registered under the Securities Act and the Exchange Act and listed on the New York Stock Exchange. To accomplish this result, the Company will cause The Bank of New York to merge the Regulation S ADS Facility and the Unrestricted ADS Facility into an amended Unrestricted ADS Facility prior to the Exchange Offer, register the Unrestricted ADSs and the Exchange Offer ADSs with the U.S. Securities and Exchange Commission and, at the same time, list the Unrestricted ADSs and the Exchange Offer ADSs on the New York Stock Exchange, and then exchange Offer ADSs for the outstanding Restricted ADSs upon the completion of the Exchange Offer.

Markets for the Companys Ordinary Shares

The Ordinary Shares currently trade only in the Russian Federation on the RTS, a screen-based over-the-counter trading system. The Ordinary Shares were first quoted on the RTS in October 1995. Generally accepted public indications of trading volumes in the Companys shares are not available. The Companys Ordinary Shares are also listed on the Moscow Stock Exchange, but there has been no trading of such shares on that exchange. There is no public market outside the Russian Federation for the Ordinary Shares.

Due to the restrictions on trading Restricted ADSs, the Restricted ADSs trade only in the Rule 144A-qualified institutional buyer market in the United States, and outside the United States in transactions not subject to registration pursuant to Regulation S under the Securities Act. The Regulation S ADSs are listed on the London Stock Exchange. Following the Exchange Offer, the Company believes that an active public market for the Unrestricted ADSs and the Exchange Offer ADSs will develop in the United States on the New York Stock Exchange.

Activities of the Company and its Affiliates in the Market

The Company and its affiliates, including directors, management, and affiliated broker-dealers and financial institutions, have in the past been active, and are likely in the future to continue to be active, in the market for Ordinary Shares. For example, the Company is a 55% shareholder in Z.A.O. IFK Solid ("Solid"), an affiliated Russian broker-dealer which has been a market maker in the Companys shares in the Russian equity market since September 1996, and which also serves as a financial advisor and agent to the Company for transactions in that market. Another affiliate of the Company that buys and sells Ordinary Shares is Tatneft, Solid & Co., a limited partnership controlled by the Company. Tatneft, Solid & Co. was formed to purchase Ordinary Shares as well as the rights to acquire Ordinary Shares which currently have resale restrictions arising from the initial privatization of the Company when those shares became unrestricted, in order to control the flow of Ordinary Shares into the market as the restrictions on resale expire. The offering documents for the Exchange Offer will disclose the fact that the Company and its affiliates buy and sell Ordinary Shares, and the current form of that disclosure is attached for your information.

The Exchange Offer

In order to expand the potential number of investors in the Companys capital stock and improve the liquidity for its issued and outstanding Restricted ADSs, the Company would like to make Exchange Offer ADSs available to the existing holders of Restricted ADSs. The Company is proposing to conduct the Exchange Offer immediately following the effectiveness under the Exchange Act of its registration statement on Form F-4 and effectiveness under the Securities Act of its registration statement on Form 20-F. The Bank of New York will act as exchange agent (the "Exchange Agent") for the purpose of administering the Exchange Offer. Holders of the Restricted ADSs that may be deemed to be "affiliates" or "promoters" (as such terms are defined in Rule 405 under the Securities Act) of the Company will be excluded from the Exchange Offer in order to comply with certain requirements of the Securities Act. However, the Company is not aware that any potential participant in the Exchange Offer is an "affiliate" or "promoter" as so defined.

The Exchange Offer will involve the surrender of the existing Restricted ADSs by the tendering Exchange Offerees, withdrawal of the Ordinary Shares underlying the Restricted ADSs from the Restricted ADS Facility, deposit of such Ordinary Shares with The Bank of New York as depositary under the Registered ADS Facility, and issuance and delivery of Exchange Offer ADSs to tendering Exchange Offerees on the basis of 10 Exchange Offer ADSs for one Restricted ADS. The terms of the Exchange Offer ADSs received in the Exchange Offer will be substantially identical to the terms of the tendered Restricted ADSs from the viewpoint of the holders of the Restricted ADSs. In addition, the Exchange Offer ADSs received in the Exchange Offer will represent the same Ordinary Shares that were previously represented by the Restricted ADSs.

Registration Statements and Related Filings

American Depositary Receipts

The Company proposes to register the Exchange Offer ADSs to be offered in the Exchange Offer by means of a registration statement on Form F-6.

Exchange Offer

The Company proposes to register the Ordinary Shares underlying the Exchange Offer ADSs on a registration statement on Form F-4 under the Securities Act. A prospectus (the "Exchange Offer Prospectus") will be sent to Exchange Offerees as soon as practicable after commencement of the Exchange Offer, and will incorporate the Companys registration statement on Form 20-F. In connection with the Exchange Offer, the Company will also file a Schedule 13E-4 under the Exchange Act. This Schedule 13E-4 will contain the Exchange Offer Prospectus, a form of agreement with the Exchange Agent and the letter of transmittal and other letters required to be filed as exhibits to such Schedule 13E-4. In order to effect the listing of the Exchange Offer ADSs on the New York Stock Exchange, the Company will file the necessary listing application and other information with the New York Stock Exchange, and the Ordinary Shares and Exchange Offer ADSs will be registered under the Exchange Act on Form 20-F.

The Exchange Offer Prospectus will contain financial statements and business-related disclosure as required by Form F-4, and will disclose the principal terms of the Exchange Offer. Unless extended, the Exchange Offer will remain open for 20 business days after its commencement, and consummation of the Exchange Offer will be conditional on obtaining a New York Stock Exchange listing. The letter of transmittal to be executed by an Exchange Offeree in order to participate in the Exchange Offer will include a representation to the effect that, by accepting the Exchange Offer, the Exchange Offeree represents that it has not engaged in, and does not intend to engage in, any distribution of the Exchange Offer ADSs to be received in the Exchange Offer. The Exchange Offer Prospectus will also indicate that if any Exchange Offeree (i) is an "affiliate" or "promoter" (as such terms are defined in Rule 405 under the Securities Act) of the Company, (ii) is participating in a distribution of the Exchange Offer ADSs to be received in the Exchange Offer, (iii) is a broker-dealer that purchased the Restricted ADSs in the International Offering for resale pursuant to Rule 144A or another available exemption under the Securities Act, or (iv) is not acquiring the Exchange Offer ADSs in the ordinary course of its business, such Exchange Offeree would not be entitled to rely on the staff position with respect to prospectus delivery set out in response to this letter. The Company acknowledges that a secondary resale transaction in the United States by an Exchange Offeree who is using the Exchange Offer to participate in a distribution of the Exchange Offer ADSs to be acquired in the Exchange Offer should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K.

Because the Exchange Offer will provide the existing Restricted ADS holders with the opportunity, without incurring any charge, to obtain freely tradable New York Stock Exchange-listed Exchange Offer ADSs in exchange for their Restricted ADSs, the Company expects that virtually all of the Exchange Offerees will participate in the Exchange Offer. The Company intends to disclose to the Exchange Offerees its intention to terminate the Rule 144A Deposit Agreement in accordance with its terms approximately 90 days following the close of the Exchange Offer, or immediately thereafter if all the outstanding Restricted ADSs are tendered. If, for any reason, less than all of the outstanding Restricted ADSs are exchanged in the Exchange Offer, the holder of any Restricted ADSs that remain outstanding will have the option, prior to the termination of the Rule 144A Deposit Agreement, to (i) cause the sale of the Ordinary Shares underlying its Restricted ADSs in a transaction on the RTS, (ii) sell its Restricted ADSs in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or to a person that it reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A (which will not remove the restrictions on such Restricted ADSs), or (iii) subject to the provision of the Rule 144A Deposit Agreement, withdraw the Ordinary Shares underlying its Restricted ADSs.

Requests for Relief

Rule 102 of Regulation M

The purpose of Rule 102 of Regulation M under the Exchange Act ("Rule 102") is to prevent issuers from artificially conditioning the market for securities in order to facilitate a distribution and to protect the integrity of the securities trading market. Where bids for, and purchases of, securities that are the subject of a distribution will not result in manipulation of the market, the SEC has previously granted exemptions from Rule 10b-6 under the Exchange Act, the predecessor to Rule 102.

The Company believes that the Exchange Offer should not be subject to the requirements of Rule 102 (or any other applicable regulation under Regulation M) on the grounds, among other reasons, that it does not involve any manipulation of the market for the Unrestricted ADSs or the Ordinary Shares. The Exchange Offer is a price-insensitive share-for-share exchange with no changes to be made to the terms of the Ordinary Shares. Investment decisions by purchasers in the Ordinary Share secondary market should not be affected by the existence or results of the Exchange Offer. Accordingly, because the Exchange Offer might be viewed as involving "bids" or "purchases" prohibited by Rule 102, or as a "distribution" under Rule 102, the Company and its affiliates respectfully request an exemption from Rule 102 pursuant to Rule 102(e) to permit the Company and its affiliates to conduct transactions in Ordinary Shares, and securities representing interests in Ordinary Shares, without regard to the prohibitions contained in Rule 102.

Rule 10b-13

Rule 10b-13 under the Exchange Act prohibits a person making an exchange offer for an equity security from, directly or indirectly, purchasing or making any arrangement to purchase such security or any security which is immediately convertible into or exchangeable for such security, otherwise than pursuant to the offer, from the time the offer is publicly announced until its termination, including any extensions thereof. Bids for and purchases of Ordinary Shares by the Company or its affiliates following the public announcement of the Exchange Offer might be viewed as purchasing or arranging to purchase Ordinary Shares or Unrestricted ADSs otherwise than pursuant to the Exchange Offer. The Company believes that the Exchange Offer does not raise concerns about the potential for market manipulation in the trading markets for the Ordinary Shares or the Unrestricted ADSs, as noted above, and further that the bids for or purchases of Ordinary Shares by the Company or its affiliates outside the Exchange Offer would not constitute deceptive devices or contrivances or fraudulent, deceptive or manipulative acts or practices intended to be prevented pursuant to Rule 10b-13. Accordingly, the Company and its affiliates request an exemption from the application of Rule 10b-13 during the pendency of the Exchange Offer.

Rule 13e-4(f)(8)(i)

Although the Company is currently exempt from reporting under the Exchange Act pursuant to Rule 12g3-2(b), the Company expects to become a reporting company under the Exchange Act as a result of the Exchange Offer. Consequently, Rule 13e-4 would appear to apply to the Exchange Offer. The Exchange Offer Prospectus will contain a description of the terms and conditions of the Exchange Offer and contain the information required to be disclosed by Rule 13e-4(d)(i), and the Company will prepare and file a Schedule 13E-4 relating to the Exchange Offer with the Commission.

Rule 13e-4(f)(8)(i) requires that an issuer tender offer be "open to all security holders of the class of securities subject to the tender offer." Because the principal purposes of the Exchange Offer are to provide holders of Restricted ADSs with freely tradable, New York Stock Exchange-listed registered Exchange Offer ADSs and to avoid duplicative ADS Facilities, no purpose would be served by extending the Exchange Offer to the holders of Ordinary Shares. Unrestricted ADSs or other securities representing interests in Ordinary Shares. We do not believe that the Ordinary Shares, Unrestricted ADSs or any other securities representing interests in Ordinary Shares (other than Restricted ADSs) should be viewed as part of the "class of securities subject to the tender offer" for the purposes of Rule 13e-4(f)(8)(i). However, to avoid any uncertainty, and because the Exchange Offer does not constitute a fraudulent, deceptive or manipulative act or practice within the purpose of Rule 13e-4, the Company and its affiliates respectfully request that, pursuant to Rule 13e-4(h)(8), an exemption from Rule 13e-4(f)(8)(i) be granted to permit the Company to conduct the Exchange Offer as described herein.

The relief requested in this letter is consistent with the relief granted in similar exchange offers that have occurred in past years. See Grupo Industrial Maseca, S.A. de C.V. (April 19, 1994) and Buenos Aires Embotteladora S.A. (May 4, 1993).

Please call me or James Small in our London office (011-44-171-614-2200), or Michael Sussman in our Brussels office (011-32-2-287-2183), if you have any questions or if we may be of any assistance regarding this matter.

Yours sincerely,

Daniel A. Braverman

Attachment

[SEC STAFF REPLY LETTER]

March 26, 1998

Daniel A. Braverman, Esq.

Cleary, Gottlieb, Steen & Hamilton

Level 5, City Place House

55 Basinghall Street

London, EC2V 5EH

United Kingdom

Re: A.O. Tatneft Exchange Offer for Restricted ADS

File No. TP 98-20

Dear Mr. Braverman:

In regard to your letter dated March 26, 1998, as supplemented by conversations with the staff, this response thereto is attached to the enclosed photocopy of your correspondence. By doing this, we avoid having to recite or summarize the facts set forth in this letter. Each defined term in this letter has the same meaning as defined in your letter, unless otherwise noted herein.

Response:

Rule 102 of Regulation M ("Rule 102") under the Securities Exchange Act of 1934 ("Exchange Act") is an anti-manipulation rule that covers certain activities of issuers and selling securities holders, and their affiliated purchasers, during a distribution of securities. Under Rule 102, issuers and selling securities holders, and their "affiliated purchasers," must refrain from bidding for, purchasing, or attempting to induce any person to bid for or purchase a subject security or any reference security during the applicable restricted period, ¹ unless an exception permits the activity.

For purposes of Rule 102, because A.O. Tatneft (the "Company") has determined to proceed with the Exchange Offer, the Company may be engaged in a distribution of Exchange Offer ADSs pursuant to the Exchange Offer. As a result, absent an exception or an exemption, Rule 102 would prohibit the Company and its affiliated purchasers from bidding for or purchasing the Ordinary Shares, and securities representing interests in Ordinary Shares during the distribution of Exchange Offer ADSs pursuant to the Exchange Offer.

Rule 10b-13 under the Exchange Act, among other things, prohibits a person making a cash tender offer or exchange offer for an equity security from, directly or indirectly, purchasing or making any arrangement to purchase such security or any security which is immediately convertible into or exchangeable for such security otherwise than pursuant to the offer, from the time the offer is publicly announced until its termination, including any extensions thereof.

The term "issuer tender offer," as used in Rule 13e-4 under the Exchange Act, refers to a tender offer for, or request or invitation for tenders of, any class of equity security, made by an issuer of a class of equity security or by an affiliate of the issuer. Rule 13e-4 requires that, in connection with a tender offer for any class of equity security, an issuer with a class of equity security registered pursuant to Section 12 of the Exchange Act, or which is required to file periodic reports pursuant to Section 15(d) of the Exchange Act, or which is a closed-end investment company registered under the Investment Company Act of 1940, must comply with disclosure and other provisions regarding the manner in which such offer may be made. Paragraph (f)(8)(i) of Rule 13e-4 requires that the issuer tender offer be open to all security holders of the class of securities subject to the issuer tender offer.

On the basis of your representations and the facts presented in your correspondence and in conversations with the staff, in particular that:

(i) the terms of the Exchange Offer ADSs to be received in the Exchange Offer will be identical in all material respects to the terms of the Restricted ADSs subject to the Exchange Offer;

(ii) the Exchange Offer is limited to the issuance of a registered security (Exchange Offer ADSs) in exchange for a non-registered security (Restricted ADSs);

(iii) the Exchange Offer will be made to all holders of the Restricted ADSs, which were offered and sold to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act) in transactions exempt from registration under the Securities Act, or to certain persons in offshore transactions pursuant to Regulation S under the Securities Act, except that holders of the Restricted ADSs who may be deemed to be "affiliates" or "promoters" (as those terms are defined in Rule 405 under the Securities Act) of the Company will be excluded;

(iv) all holders of Restricted ADSs to whom the Exchange Offer may be made will receive the Prospectus as soon as practicable after commencement of the Exchange Offer, which will disclose the principal terms of the Exchange Offer;

(v) all holders of Restricted ADSs to whom the Exchange Offer is made are expected to participate in the Exchange Offer;

(vi) there is no previously established public trading market in the United States for the Exchange Offer ADSs or the Ordinary Shares (or any related securities); and

(vii) the Company is not presently, but will become, a reporting company for purposes of Sections 12 or 15(d) of the Exchange Act by virtue of the Exchange Offer, and without necessarily concurring in the analysis in your correspondence, the Commission hereby grants exemptions from:

(a) Rule 102, if the Company and broker-dealers participating in the Exchange Offer, or their affiliated purchasers, bid for or purchase Ordinary Shares, or securities representing interests in Ordinary Shares, during the Exchange Offer;

(b) Rule 10b-13, if the Company and broker-dealers participating in the Exchange Offer or their affiliates purchase, or arrange to purchase, Ordinary Shares prior to the expiration of the Exchange Offer; and

(c) Rule 13e-4(f)(8)(i), if the Company makes the Exchange Offer solely to all holders of Restricted ADSs, other than "affiliates" or "promoters" (as those terms are defined in Rule 405 under the Securities Act) of the Company.

The foregoing exemptions from Rules 102, 10b-13, and 13e-4 are based solely on your representations and the facts presented and are strictly limited to the application of those rules to the Exchange Offer. Any different facts or conditions might require a different response. Such transactions should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any of those facts or representations.

In addition, your attention is directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 10(b) and 14(e), and Rule 10b-5 thereunder. Responsibility for compliance with these and any other applicable federal securities laws must rest with the Company, broker-dealers participating in the Exchange Offer, and their affiliated purchasers. The Division expresses no view with respect to any other questions that the proposed transactions may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of other federal or state laws to, the proposed transactions.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority,

Larry E. Bergmann

Senior Associate Director

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