Sustainability Report 2017

Home , Baikal Nature Reserve, Blowout (well drilling), KazMunayGas, National Guard of Russia, Novokuybyshevsk, Oka Nature Reserve

SUSTAINABILITY REPORT 2017

Contents

CONTENTS

Message from the Chairman Health, Safety and Environment�� 62 of Rosneft’s Board of Directors��2 Occupational health and safety Message from Rosneft’s management system��62 Chief Executive Officer, Chairman Occupational Health and Safety��65 of the Management Board��4 Key OHS initiatives in 2017��65 Key sustainability performance indicators��5 OHS achievements in 2017��71 About the Report�� 10 Environment ��72

Company performance�� 14 Environmental management system��72 Environmental protection performance in 2017��81 The Company in 2017: general information�� 16 Key achievements in 2017 ��17 Energy consumption and energy efficiency ��88 Offshore activities��24 Emergency prevention and response readiness�� 90 Arctic expeditions��27 Prevention and minimization of potential damage Import substitution and localization��29 from man-made disasters��90 Corporate governance�� 32 Prevention and minimization of damage Board of Directors��33 from natural disasters��91 Shareholder relations��33 Investor relations��35 Human resources�� 94 HR management system��94 Sustainability management�� 36 HR performance in 2017��98 Ethics management framework��37 Compliance framework��38 Society�� 120 Prevention of fraud and corruption��40 Social impact management system�� 120 Risk management and internal control�� 42 Social performance in 2017�� 120 Risk management��43 Independent Assurance Report Internal control��46 on the Sustainability Report 2017�� 128 Stakeholder engagement�� 48 Public consultations��48 Annex 1. Progress against the 2017 Roundtables��49 objectives set in the 2016 Sustainability Report. Objectives for 2018‑20�� 130 Innovation and technology advancements�� 52 Innovation Program ��52 Annex 2. GRI content index�� 134 Corporate Research and Design Complex��56 Annex 3. List of abbreviations�� 150 Partnership with universities and innovation centers��60 Contact information�� 152

1 ROSNEFT SUSTAINABILITY REPORT 2017

MESSAGE FROM THE CHAIRMAN OF ROSNEFT’S BOARD OF DIRECTORS

Gerhard Schroeder As the Chairman of the Board joining the cohort of technology of Directors I place a great leaders as the Company Chairman of the Board emphasis on the Company’s makes a major technological of Directors strategic priorities and their breakthrough. In pursuance achievement. In 2017 we of its strategy, Rosneft is adopted Rosneft-2022, one of set to make investments in the most ambitious strategies oil refining, petrochemicals in the industry and one that fully production, energy efficiency, meets the challenges now facing emissions reductions and oil and gas corporations. This other areas in order to achieve is a thoroughly elaborated plan improved margins on refining that serves as a strong platform and sales of its own products. to support the Company’s leap-forward development As Germany’s former Chancellor and takes into account the I am very keen on promoting operating potential of all its cooperation between Rosneft business segments. It envisages and European businesses. the organic growth in liquid I believe that over recent hydrocarbon production to years the Company has made 250 mmtoe and the rise of gas remarkable headway towards production to 100 bcm per year. building productive and Among other strategy goals are effective business relations increasing the share of products with its European partners. The with high added value, and integrated approach taken by

2 Message from the Chairman of the Board of Directors

the Company is an important its refining, petrochemicals efficiency driver, as it helps to and retail businesses, and attract importing countries establishing itself as an interested in guaranteed experienced player on the global feedstock supplies, and in their commodity trading market. production, transportation, and delivery to end consumers. People in Germany, Russia and Rosneft continued on the path other countries often ask towards diversifying supplies me why I decided to take between eastern and western on this senior role in the routes, with eastbound supplies Company. In my opinion, in 2017 rising to 47.7 mmt, Rosneft strives to make the up 10.7% year on year. Sales best use of global industry through the high-margin retail resources and to expand its channel soared by 7% in 2017. geographic and technological footprint by building mutually In 2017 the Company found beneficial relations with foreign over 80 mmt of oil reserves partners. It has dozens of in the Laptev Sea after joint ventures across Europe spudding its first exploration and Asia and spends billions well, and brought on stream of dollars to support their a unique startup complex business, while over 40% of to support production from shares in the Company are the Erginsky cluster holding held by international investors. total reserves of 256 mmt.

ROSNEFT STRIVES TO MAKE THE BEST USE OF GLOBAL INDUSTRY RESOURCES « AND TO EXPAND ITS GEOGRAPHIC AND TECHNOLOGICAL FOOTPRINT BY BUILDING MUTUALLY BENEFICIAL RELATIONS WITH FOREIGN PARTNERS

I think very highly of the Rosneft Another important topic on management team whose work our agenda is energy security. I oversee as Chairman of the To address these challenges, Board of Directors. 2017 was we need to team up with other marked by a number of strategic players, acting openly and deals to acquire promising observing common interests. We assets that have now started can overcome the lack of trust to appreciate in value as oil by working more closely with prices embark on a journey to our partners. We must move in recovery. The expansion of the this direction — starting today. international refining business by exchanging holdings in German refineries and acquiring an interest in the India-based Vadinar refinery already provides substantial synergies. Rosneft is the world’s largest public oil and gas company both in terms of liquid hydrocarbon production and reserves. It continues on the set course by increasing production from 4 mmtoe 18 years ago to 281.7 mmtoe in 2017, growing

3 ROSNEFT SUSTAINABILITY REPORT 2017

MESSAGE FROM ROSNEFT’S CHIEF EXECUTIVE OFFICER, CHAIRMAN OF THE MANAGEMENT BOARD

Igor Sechin 2017 was a landmark year for with total reserves of Rosneft. We completed a num- 233 mmtoe. Domestic refin- Chairman of the ber of strategic acquisitions and ing improved in terms of both Management Board, approved a new growth strategy quantity (100.6 mmt, up 15% Chief Executive Officer which is focused on gaining year on year) and quality. technology leadership, optimizing the corporate structure Rosneft has tapped into new and forms of management, and strategic markets in India and achieving increased margins Egypt. It completed a deal to along the entire value chain. acquire a 49.13% interest in Essar Oil Limited, a high-per- Rosneft exhibited a strong forming asset that will become operating performance in a valuable link in the Company’s 2017: its hydrocarbon produc- integrated oil supply chain and tion reached a new high of provide substantial additional 281.7 mmtoe, up 6.2% from synergies. We have also joined a year earlier. With 68.4 bcm our long-standing partners Eni of gas produced in 2017, and BP in a project to develop the Company also confirmed the Zohr field, one of the world’s its status as Russia’s larg- largest natural gas fields est independent producer located off the coast of Egypt. of natural gas. Exploration activities in 2017 resulted Rosneft continues its strategy in the discovery of 162 new aimed at maximizing the deposits and 31 new fields efficient recovery of resources

4 Message from the Chief Executive Officer

and boosting production. In of Bashneft-Ufaneftekhim, The average monthly salary in 2017 we started production at a biological treatment complex most Group subsidiaries has the Yurubcheno-Tokhomskoye in Bashkortostan worth over traditionally been above the field and brought on stream RUB 11 billion — the big- average for their regions. three fields that form part gest of its kind in Eurasia. of the Uvatsky project. A Rosneft has remained focused startup complex to support Rosneft is Russia’s largest on enhancing the effectiveness production from the Erginsky taxpayer and undertakes major of measures designed to coun- oil cluster was commissioned social projects, many of which ter corruption and ensure that in November. The cluster holds have completely changed the both top management and other a total of 256 mmt of reserves social landscape in both large staff comply with international and is expected to yield plateau cities and smaller communities and Russian anti-corruption production in excess of 8 mmt. by facilitating public access to laws, as well as with its internal modern medical, education, regulations in this area. The Zvezda shipyard in the sports, recreation, and utility Far East remains a priority for services. Examples of these We are now moving Rosneft and we have taken projects include premises into a new phase. The steps to arrange an anchor renovation and equipment Rosneft-2022 strategy, order to support its future purchases for the regional approved by the Board of business. This project is set to clinical hospital in Orenburg, and Directors, sets key targets give a boost to related industries, including those driving innovations, and to contribute to establishing strong infra- BUILDING A BUSINESS THAT MEETS THE structure in the region. HIGHEST HSE STANDARDS IS AN ESSENTIAL « ELEMENT OF ROSNEFT’S STRATEGY Building a business that meets the highest HSE standards is an essential element of Rosneft’s strategy. We are the upgrading of Ingushetia’s for the next five years. The determined to make it into the water supply network. In strategy’s main focus is on upper quartile of global oil and 2017 the Company opened increasing business profitability gas companies in terms of many social facilities that it had and returns on existing assets, HSE performance by 2022. sponsored: modern hospitals, delivering key projects on time sports centers, ice rinks, and within budget, becoming As a member of the UN Global schools, and kindergartens. a technology leader, and revisit- Compact, Rosneft promotes ing the current management the sustainability agenda by The Company is a key model to raise the Company to focusing closely on innova- contributor to science and a whole new level in the face tions and initiatives to tackle education. Rosneft’s R&D of the challenges of the digital climate change. The Company center comprises 27 research era. Achieving the targets is successfully implementing institutes and brings together set in the new strategy will its Investment Gas Program 12,000 seasoned professionals certainly require major change. and Energy Efficiency Program with vast experience in imple- In doing its business, Rosneft to reduce greenhouse gas menting cutting-edge technolo- remains committed to the UN emissions. Investments in APG gies and innovations. Rosneft Global Compact and its core utilization programs, natural runs School–University– principles, and is fully aware of gas processing and efforts to Company, a program that has the role it plays in advancing end gas flaring have reached proved to yield tangible results; the sustainability agenda. around USD 2 billion in the last 111 Rosneft Classes were five years. Innovation growth, organized in 25 Russian regions biodiversity conservation, and in 2017. The Company has stra- the sustainable use of water are tegic partnership agreements also high on the priority list. with 58 leading universities.

Rosneft spent over RUB In 2017 Rosneft confirmed 150 billion on HSE initiatives its status as one of Russia’s in 2017, which was declared largest employers. At year the Year of Ecology in Russia. end, the Company’s workforce Among these is the upgrading numbered 318,000 people.

5 ROSNEFT SUSTAINABILITY REPORT 2017

KEY SUSTAINABILITY PERFORMANCE INDICATORS

Period 2015 2016 2017

KEY SUSTAINABILITY PERFORMANCE INDICATORS1

SEC proven reserves of oil, condensate and liquefied petroleum gas, mmt 3,330.8 3,701.4 3,791.9

SEC proven marketable gas reserves, bcm 1,608.5 1,713.7 1,949.5

Hydrocarbon liquids production, mmt 202.8 210.0 225.5

Gas production, bcm 62.5 67.1 68.4

Hydrocarbon production, mboe 1,883 1,965 2,087

Oil refining, mmt 96.9 100.3 112.8

Output of petroleum products and petrochemicals, mmt 95.4 98.2 109.1

Assets at the end of the year, RUB billion 9,642 11,1172 12,227

Total revenues and equity share in profits of joint ventures and associates, RUB billion 5,150 4,988 6,014

Total equity, RUB billion 2,929 3,7823 4,183

Current and non-current liabilities, RUB billion 6,6502, 3 7,3353 8,044

Dividends, RUB billion 87 125 1044

DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED, RUB BILLION

GENERATED DIRECT ECONOMIC VALUE

Revenues 5,445 5,134 6,094

ECONOMIC VALUE DISTRIBUTED

Operating costs 1,590 1,743 1,967

Payments to providers of capital 152 177 199

Employee wages and benefits 211 228 269

Insurance contributions 46 49 61

Taxes and duties payable 2,259 2,0215 2,614

Community investments 9 11 19

Economic value retained 1,178 9055 965

1 According to IFRS, unless stated otherwise. 2 Data has been adjusted after the purchase price of Bashneft, Targin JSC, and interests in German refineries, acquired under the Ruhr Oel GmbH reorganization deal, was allocated to the fair value of the acquired assets and liabilities. 3 Excluding liabilities relating to assets held for sale. 4 Including RUB 41 billion paid as dividends for the first six months of 2017. 5 Data on income tax payable has been adjusted after the purchase price of Bashneft and WestInvest was allocated to the fair value of the acquired assets and liabilities.

6 Key sustainability performance indicators

Period 2015 2016 2017

HEALTH, SAFETY AND ENVIRONMENT PERFORMANCE INDICATORS6

Incidence rate of non-fatal injuries among Company employees, per million hours worked 0.33 0.21 0.367

Incidence rate of fatal injuries among Company employees, per 100 hours worked 4.76 2.28 1.87

Gross emissions of pollutants, thousand tonnes 1,7888 1,7098 1,9299

Air pollutant emissions from extraction activities per thousand tce, tonnes10, 11 4.218 4.078 4.16

Air pollutant emissions from refining and petrochemical activities per thousand tce, tonnes 1.24 1.46 1.9012

Associated petroleum gas utilization rate, %13 87.9 90.0 89.214

Gross wastewater discharges to surface waters, million cubic meters 110.7 112.6 105.2

Wastewater discharges from extraction activities per thousand tce, cubiс meters 0.0005 0.0004 0.0006

Wastewater discharges from refining and petrochemical 0.98 0.97 0.87 activities per thousand tce, cubic meters

Polluted wastewater discharges from extraction activities per thousand tce, cubiс meters 0.0001 0.0002 0.0003

Polluted wastewater discharges from refining and petrochemical 0.67 0.60 0.49 activities per thousand tce, cubic meters

Total pipeline failures (in-field oil pipelines, gas pipelines, and water pipelines) 8,841 7,827 8,42815

Total crude oil and petroleum product spills, tonnes 4 581 774 758

HSE training, thousand man-courses 255.7 306.1 413.0

Expenditures on personal and process safety, including fire 42,949 44,257 56,208 safety and blowout prevention, RUB million

Environmental capital expenditures, RUB million 44,646 47,137 69,184

Operating environmental expenditures, RUB million 27,000 26,578 32,547

Environmental fines payable, RUB million 201 260 259

Payments to budgets at all levels associated with environmental 5,153 4,512 4,256 protection and sustainable use of natural resources, RUB million

EMERGENCY PREVENTION AND RESPONSE PERFORMANCE INDICATORS

Emergency prevention and response expenditures, RUB million16 2,952 2,960 3,139

6 Based on data compiled in accordance with the Company’s Regulation on Preparing and Submitting Periodic Reports on HSE Performance, and the Company’s Regulation on Monitoring and Measuring HSE Performance. 7 The increase was due to new assets added to the Company’s portfolio in 2017 (e.g., Bashneft). The injury rate was also driven by the Company’s effort to enhance the transparency of incident reporting. 8 Data for 2015-16 has been adjusted for emissions generated by gas-lift wells. 9 The year-on-year increase in gross emissions of pollutants in 2017 was due to new assets added to the Company’s portfolio (e.g., Bashneft) and new fields being brought on stream. Gross emissions for 2016 include Bashneft’s emissions for the fourth quarter only, while the gross figure for 2017 is shown inclusive of Bashneft’s relevant data for the entire year. 10 Air pollutant emissions (incl. by category) and wastewater discharges to surface waters are calculated within the scope of consolidated environmental data. 11 Environmental performance indicators relating to oil and gas production activities hereinafter include the Group’s oilfield services companies engaged in these activities. 12 The increase in 2017 was due to new assets added to the Company’s portfolio (e.g., Bashneft). 13 The data on the sustainable use of associated petroleum gas, both current and future, is hereinafter provided for Russian assets only. 14 While the total APG utilization level increased in 2017, the Company recorded a minor year-on-year reduction in the APG utilization rate, from 90.0% to 89.2%, brought down by the production of oil and APG at new fields. A number of operating factors drove APG utilization in 2017. For details, see the APG utilization section. 15 The year-on-year increase in the number of total pipeline failures in 2017 was due to new assets added to the Company’s portfolio (e.g., Bashneft). At the same time, ratios of pipeline failures to other indicators, including their impact, decreased. Total pipeline failures for 2016 did not include Bashneft’s failures, while the gross figure for 2017 is shown inclusive of Bashneft’s relevant data for the entire year. 16 Emergency management expenditures were zero in 2015 and 2017, and RUB 1.3 million in 2016.

7 ROSNEFT SUSTAINABILITY REPORT 2017

Period 2015 2016 2017

INNOVATION PERFORMANCE INDICATORS

R&D expenditures, RUB billion 36.0 20.2 29.9

HR PERFORMANCE INDICATORS17

Headcount at the year end, thousand 258.8 287.7 318.0

Average headcount, thousand 247.5 253.2 302.1

Workforce by category at the year end, %

Workers 55.8 57.7 57.8

White-collar employees 31.6 29.8 30.0

Managers 12.6 12.5 12.2

Workforce by gender at the year end, %

Women 34.0 33.5 32.2

Men 66.0 66.5 67.8

Employee turnover, % 12.0 10.9 10.3

Company average monthly salary per person, RUB 69,847 75,467 79,221

Gross payroll (incl. benefits, one-time bonuses, and annual compensation), RUB million 207,408 229,318 287,159

Social payments to employees, RUB million 5,898 6,524 7,735

KEY SOCIAL PERFORMANCE INDICATORS

Tax payments and customs duties, RUB million 2,271 568 1,953 666 2,574 559

Incl. tax payments to the federal budget and customs duties 2,007 752 1,615 429 2,179 751

Incl. tax payments to regional budgets 212,897 281,793 325,205

Incl. payments to extra-budgetary funds 50,919 56,444 69,603

Expenditures on social programs, social investments 35,653 28,961 37,435 and charity in the regions, RUB million18

Incl. optimizing working conditions, RUB million 12,526 8,197 8,510

Incl. social investments under cooperation agreements 4,069 2,403 6,668 with regional authorities, RUB million Incl. support for educational institutions in line with the government’s policy 2,283 1,87919 2,67119 in the area of education and science, and other charity initiatives

Incl. other social expenditures 16,775 16,482 19,586

17 Hereinafter, quantitative HR performance indicators are presented within the scope of the Company’s centralized business planning, unless stated otherwise. 18 According to management accounts (within the scope of centralized business planning). 19 Expenses on certain charity projects, disclosed in the Annual Reports for 2016 and 2017, do not include charity support for universities, pre-university education and the Veterans Council.

8 Key sustainability performance indicators

Production drilling at the Yurubcheno-Tokhomskoye field, Evenk Autonomous District, Krasnoyarsk Territory

9 ROSNEFT SUSTAINABILITY REPORT 2017

ABOUT THE REPORT

This 2017 Rosneft Sustainability This Report is prepared in Report (the “Report”) is the accordance with the Global twelfth in a series of non- Reporting Initiative Sustainability financial corporate reports Reporting Standards (GRI that are published annually by Standards), including where the Company. All reports are relevant the oil and gas sec- available on the Company’s tor disclosures. In reporting website at www.rosneft.ru its financial and operating performance, the Company is Non-financial reports have guided by International Financial been traditionally targeted at Reporting Standards (IFRS). a wide range of stakeholders, including Company employees, To ensure the relevance of shareholders, investors, local disclosures made in the Report, communities, public organiza- the Company performed tions, clients, and partners. a materiality assessment across individual sustainability perfor- The Company uses various mance indicators and topics channels to collect feedback provided in the GRI Standards, on its sustainability per- drawing on the analysis of its formance. Comments and internal and external environ- suggestions are accepted ments that was conducted with by telephone or email, with the involvement of stakeholders. relevant details provided in The findings of the materiality the Contacts section of each assessments performed in publication. All comments are 2014-16 were also taken into carefully analyzed and incor- account. To identify material porated in the next Report. topics, the Company performed

10 About the Report

3 Economic performance Occupational health and safety

Labor/management relations 2 Anti-competitive behavior

Procurement practices

External rating Energy Indirect economic impacts Water Asset integrity and process safety Emissions Market presence, including local content Effluents and waste Biodiversity Materials Rights of indigenous peoples Socioeconomic compliance Supplier environmental Diversity and equal opportunity Employment assessment Training and education Gender pay equity Local communities Non-discrimination Emergency preparedness 1 Child labor Anti-corruption Forced or compulsory labor Freedom of association Supplier social assessment and collective bargaining Involuntary resettlement Customer health and safety Product and service labeling Human rights assessment Customer privacy Socioeconomic compliance Alternative fuels Security practices Volume and type of estimated proved reserves and production Public policy

1 2 3 Internal rating

a benchmarking analysis on pertaining to the priorities of non-financial reports by leading the Company’s 2017 sustain- industry players, both within and ability agenda, including OHS outside Russia, followed by the management by contractors, analysis of industry events and greenhouse gas emissions, trends, which are significant for asset integrity and process sustainability reporting purposes. safety, employee training and Consideration was also given education, and maintaining to topics raised at stakeholder a favorable working environ- meetings, sustainability inputs ment. There have been no major received during 2017, and changes to the list of material feedback on the previous topics and topic boundaries year’s Sustainability Report. from previous reporting periods.

Based on the findings from The Report is structured the analysis and taking into to provide insight into the account GRI’s principles for Company’s performance in defining sustainability context, corporate governance, sustain- materiality, completeness, ability management, risk man- stakeholder inclusiveness and agement and internal controls, significance of economic, envi- stakeholder engagement, ronmental and social impacts, innovations and technology the Company compiled a list of advancements, occupational material topics that are subject health and safety, emergency to mandatory disclosure. preparedness and response, environmental protection, This Report provides detailed talent management, and local disclosures of certain matters community engagement.

11 ROSNEFT SUSTAINABILITY REPORT 2017

The Vankor field

REPORTING PRINCIPLES The 2017 Sustainability Report social performance indica- has been externally assured tors cover the Group entities The Company applies the by EY and has been prepared that are under the effec- reporting principles outlined in accordance with the Core tive control of Rosneft. in the GRI Guidelines. option of the GRI Standards. The external assurance state- This Report provides dis- ment is provided on pages closures for all topics and 128 – 129 of this Report. indicators described in the GRI Standards, including oil and REPORTING BOUNDARIES gas sector disclosures that were identified as material. Rosneft prepares sustainability reports on the This Report reflects the consolidated corporate level, Company’s progress toward covering all Group entities implementing the principles of that are significant to its the UN Global Compact, and sustainability performance. includes information on basic The Group’s key sustainability performance indicators for performance indicators for non-financial reporting devel- 2015–17 are provided on oped by the Russian Union of pages 7 — 9 of this Report. Industrialists and Entrepreneurs (RUIE). The Company sub- Operating and financial scribes to and applies the performance disclosures principles of the Oil and Gas in the Report are made in Industry Guidance on Voluntary compliance with IFRS. Health, Sustainability Reporting safety and environment (HSE) by IPIECA/API (2010). performance indicators, HR performance indicators and

12 About the Report

UN GLOBAL COMPACT PRINCIPLES

Rosneft is a party to the United Nations Global Compact, a UN initiative aimed at encourag- ing businesses to voluntarily adopt a number of principles derived from the Universal Declaration of Human Rights, the International Labor Organization’s Declaration of the Fundamental Principles and Rights at Work, and the Declaration on Environment and Development.

HUMAN RIGHTS

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights.

Principle 2: Businesses should make sure that they are not complicit in human rights abuses.

LABOR STANDARDS ENVIRONMENT Principle 3: Principle 7: Businesses should uphold the Businesses should support freedom of association and a precautionary approach to the effective recognition of the environmental challenges. right to collective bargaining. Principle 8: Principle 4: Businesses should undertake Businesses should uphold initiatives to promote envi- the elimination of all forms of ronmental responsibility. forced and compulsory labor. Principle 9: Principle 5: Businesses should encourage the Businesses should uphold the development and diffusion of envi- effective abolition of child labor. ronmentally friendly technologies. Principle 6: Businesses should uphold the elimination of discrimination in employment and occupation. ANTI-CORRUPTION

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

13 COMPANY PERFORMANCE 16 32 THE COMPANY IN 2017: CORPORATE GENERAL INFORMATION GOVERNANCE

36 42 SUSTAINABILITY RISK MANAGEMENT MANAGEMENT AND INTERNAL CONTROL

48 STAKEHOLDER ENGAGEMENT 52 INNOVATION AND TECHNOLOGY 62 ADVANCEMENTS HEALTH, SAFETY AND ENVIRONMENT

94 HUMAN RESOURCES

120 SOCIETY ROSNEFT SUSTAINABILITY REPORT 2017

THE COMPANY IN 2017: GENERAL INFORMATION

New drilling technologies at the Yurubcheno-Tokhomskoye field

Rosneft achieved a new produc- China, India, Iraq (including BP RIL and QHG Oil Ventures tion high of 281.7 mmtoe in Kurdistan), Vietnam, Indonesia, Pte. Ltd. hold 19.75% and 2017 and confirmed its status Myanmar, Armenia, Georgia, 19.5%, respectively and one as the world’s leading producer Kazakhstan, Turkmenistan, share is held by the state, as of hydrocarbons, including Kyrgyzstan, and Belarus. represented by the Federal liquid hydrocarbons, among Agency for State Property public oil and gas companies. Rosneft’s core businesses Management. The remaining include hydrocarbon prospect- shares are free floating. As in previous years, Rosneft ing and exploration, oil, gas tops the list of the world’s and condensate production public companies in terms of and refining, petrochemicals proven (1P) SEC reserves, with production, and the marketing 39,907 mboe20 of hydrocarbon of oil, gas and refined products reserves at the end of 2017 and within and outside Russia. The the reserves-to-production Company actively develops its ratio of roughly 20 years. OFS business, striving to take the top place among other Rosneft is a global energy industry players in terms of company with a diversified economic performance and portfolio comprised of Russia- technology enablement. based core assets, and other assets and greenfield projects Rosneftgaz, a wholly-owned in frontier regions across the state company, remains globe such as Venezuela, Cuba, Rosneft’s largest shareholder, Canada, the US, Brazil, Norway, with a 50.00000001% inter- Germany, Italy, Egypt, Mongolia, est held at the end of 2017.

20 According to the results of the audit performed by DeGolyer & MacNaughton under the SEC (United States Securities and Exchange Commission) life-of-field classification, Rosneft proven hydrocarbon reserves as of 31 December 2017 stood at 39,907 mboe (5,395 mmtoe).

16 The Company in 2017: general information

KEY ACHIEVEMENTS IN 2017

In 2017 the Board of Directors approved Rosneft-2022, a new strategy focused on quality changes to the Company’s business, which are expected to be achieved through the adoption of innovative management approaches and technologies, as well as the improved performance of existing assets. The strategy is aimed at increasing profitability and returns on core assets as a result of their intensified development, implementing key projects and changing the THE ROSNEFT-2022 STRATEGY IS FOCUSED ON QUALITY CHANGES management model that would allow the Company to rapidly roll TO THE COMPANY’S BUSINESS, WHICH ARE EXPECTED TO BE ACHIEVED out new technologies and raise it THROUGH THE ADOPTION OF INNOVATIVE MANAGEMENT APPROACHES to a whole new level in the face of AND TECHNOLOGIES, AS WELL AS THE IMPROVED PERFORMANCE the challenges of the digital era. OF EXISTING ASSETS.

The Company strength- ened its positions on both The project’s signature feature domestic and international is a new extraction model, markets in 2017 owing to which relies heavily on cutting- a number of acquisition deals edge technologies to extract and new discoveries. «hard-to-recover» reserves.

In April 2017 Rosneft closed In October 2017 Rosneft and a deal to acquire a 100% stake the Government of the Kurdish in the Kondaneft project involving Autonomous Region of Iraq signed the development of license areas the documents required for the in Khanty-Mansi Autonomous entry into force of production District. Three months later, in sharing agreements (PSA) July 2017, the Company won relating to five production blocks OVER 80 MMT the auction to acquire mineral in the Kurdish Autonomous of recoverable oil reserves rights for the Erginsky license Region. Group entities will hold discovered during the drilling area holding 103 mmt of oil a 80% stake in each of these of the northernmost well at reserves (С1+С2). This resulted agreements, while their key Tsentralno‑Olginskaya-1 in the eastern Arctic in the emergence of a new — terms and basic principles of Erginsky — cluster comprising production sharing will mirror a section of the Priobskoye field those of a standard PSA. (located within the boundaries of the Erginsky license area) as In 2017 Rosneft obtained well as the West Erginskoye, approval from the State Kondinskoye, Chaprovskoye and Commission for Mineral Novoyendyrskoye fields with Reserves to register a new field, 281.7 aggregate reserves totaling Tsentralno-Olginskoye, which MMTOE 256 mmt (AВ1С1 + В2С2). was discovered during the drilling These fields contain light and of the northernmost well in the of hydrocarbons produced in 2017, a new high sweet crude oil, with properties Khatanga Bay of the Laptev Sea in similar to those of the Siberian the eastern Arctic (Tsentralno- Light export mixture. The Olginskaya-1). The field’s recover- Erginsky cluster benefits from able reserves are estimated the combined infrastructure of at over 80 mmt (С1+С2). the like-named license area and the Kondinskaya group of fields.

17 ROSNEFT SUSTAINABILITY REPORT 2017

YEAR-ON-YEAR INCREASE IN PRODUCTION DRILLING

BY 29.5%

cycle for multistage fractured horizontal wells was shortened by over a half. Growing daily outputs were also observed at a number of other mature upstream assets, such as RN-Naryanneftegaz (+1.6%), Varyeganneftegaz (+0.7%) and Samaraneftegaz (+1.4%). The growth was driven largely by tax reliefs offered to companies producing hydrocarbons from low permeability reservoirs.

The Company started the commercial development Hydrocarbon production Production drilling in of three fields forming part 2017 increased by 29.5% year of the Uvatsky project: The Company’s average daily on year, hitting a record high North Tyamkhinskoye, production of hydrocarbons of 12 million meters, while North Tamarginskoye and soared to 5.72 mboe in 2017, the number of newly commis- Kosukhinskoye. The fields’ up 6.5% year on year. The sioned wells rose to 3,400, recoverable reserves at production of liquid hydrocar- up 28% from a year earlier. 1 January 2018 are esti- bons amounted to 225.5 mmt mated at around 54 mmt (4.58 mbpd), with the average Among key achievements (АВ1С1+В2С2). daily output rising by 7.6%. in 2017 was the rapid In the wake of production growth of oil production at Major projects, such as Suzun cuts by OPEC and non-OPEC RN-Yuganskneftegaz, which and Messoyakhaneftegaz, are oil producers (Opec Plus), boosted its annual output by progressing as planned, with the Company’s average daily 4.5% to over 66.5 mmt in the Company’s share of produc- output of liquid hydrocarbons in 2017, with daily production tion exceeding 5.7 mmt in 2017. 2017 rose by 0.04%, compared in the last quarter topping Concurrently with an ongoing with the 2016 figure (on a pro 190,000 tonnes, or 69 mmt in drilling program, the Company forma basis, including Bashneft annualized terms. This impres- is completing the second-phase as of 1 January 2016), or sive performance was driven by of an oil treatment plant at by 7.6% (including produc- innovative drilling technologies, the Suzun field and expanding tion figures of newly acquired including real-time drilling and the treatment facilities of the assets as of the acquisition completion, as well as enhanced central gathering station at the date). Rosneft outperformed recovery techniques sup- East Messoyakhskoye field. most major public oil and gas ported by optimized hydraulic companies in 2017 in terms of fracture stimulation treatments, In 2017 the Company brought this metric, and reported the including multi-stage hydraulic on stream a number of new highest 10-year average pro- fracturing. After the comple- large fields: a startup complex duction growth among peers. tion of pilot testing programs to support production from the at the Prirazlomnoye and Erginsky oil cluster in Western Priobskoye fields, the drilling Siberia was commissioned in

18 The Company in 2017: general information

November, with first commer- in the Arctic and the Far cial flows fed to the Transneft East ahead of schedule. pipeline system. As part of a comprehensive testing pro- In April 2017 Rosneft gram, Rosneft commissioned spudded the Tsentralno- an oil treatment plant at the Olginskaya-1 well in the Yurubcheno-Tokhomskoye field Khatanga Bay of the Laptev in Eastern Siberia. The Company Sea, the first exploration well is now finalizing construction drilled on the Russian shelf and installation work on phase- in the eastern Arctic. Six one facilities and continues to months later, in October 2017, expand production facilities and Rosneft obtained approval supporting infrastructure, while from the State Commission proceeding with its drilling plans. for Mineral Reserves to The projects yielded a total of register a new field, Tsentralno- around 1 mmt in 2017, with Olginskoye, discovered in the the daily output at year end Khatanga license area in the exceeding 50,000 barrels. Laptev Sea. The field’s recoverable reserves are estimated Offshore exploration at over 80 mmt (С1+С2).

Rosneft continued offshore Onshore exploration prospecting and exploration 155 for oil and gas in the Russian Rosneft is committed to EXPLORATION WELLS Arctic, Far East and southern developing mineral resources in were tested in 2017, seas in line with the license a sustainable and rational man- almost twice as many terms. The Company completed ner, operating in strict compli- as a year earlie 2D and 3D seismic programs ance with environmental safety requirements and relying widely on innovative technologies.

The Company conducted exploration activities across all mature provinces within Russia, including the Far East, Eastern and Western Siberia, Timan- Pechora, central and southern Russia. In 2017 Rosneft completed the testing of 155 exploration wells, almost twice as many as a year earlier. For the first time ever, the exploration success rate reached 86%. The Company also acquired 7,000 km of 2D seismic (up 150% year on year) and around 10,000 sq. km of 3D seismic (up 30% year on year).

Exploration activities in 2017 resulted in the discovery of 30 fields and 162 new deposits with total reserves of 148 mmtoe. For details on exploration activities, see the 2017 Annual Report.

Rosneft is expanding its foot- The Company acquired 2D seismic and 3D print in frontier basins across seismic in the Arctic and the Far East the world. The Company acts

19 ROSNEFT SUSTAINABILITY REPORT 2017

WITH OVER RUB

36 BILLION invested in 2017, the Company continues to develop its OFS business

as operator at Block 12 in Iraq Natural gas production closed a deal with Beijing and Block ЕР-4 in Myanmar. Enterprises Group Company The first exploration well, Rosneft remains the largest Limited to sell a 20% stake Salaman-1, spudded at Block independent domestic producer in Verskhnechonskneftegaz. 12 in Iraq, delivered promising of natural gas in terms of daily The parties agreed to set results which may be a good output. The Company produced up a vertically integrated predictor of the basin’s high a total of 68.41 bcm in 2017, cooperation framework. Beijing potential. A seismic survey both within and outside Russia. Enterprises Group Company was conducted in Myanmar. Limited acquired a stake in one Domestic production of Eastern Siberia’s largest As an operator of a hydro- growth over the previous producing fields with established carbon exploration project year was mainly driven by infrastructure, access to the in the Solimoes basin in the following factors: ESPO pipeline and attractive Brazil, the Company drilled Increased output of associ- growth opportunities driven by two exploration wells. ated and natural gas, a major gas project. Rosneft with new wells brought on will benefit from the partnership Oilfield services stream at Varyeganneftegaz with China’s major gas supplier, and more gas supplied via as it will help the Company Building a strong oilfield the Tyumen compressor to effectively monetize its services business is one of station after renovation natural gas reserves in frontier the Company’s priorities. Over Acquisition of Bashneft areas in eastern Russia. the past few years, the share assets in the fourth of in-house services in total quarter of 2016 As part of an international drilling footage has been around Increased output of natural consortium, Rosneft started 60%. Rosneft maintains the gas owing to optimized flow production at the Zohr gas lowest level of lifting costs in rates at Sibneftegaz, coupled field. The project is imple- the industry owing to the steady with the launch of new wells. mented on concession terms growth of orders completed in collaboration with Eni S.p. by in-house drilling crews. Going forward, this trend A (Italy, 60%) and BP (UK, will be largely supported by 10%). Zohr is a major gas With over RUB 36 billion growing production from deposit in the Mediterranean invested in 2017, the Company Rospan (a project compris- Sea, with in-place reserves continues to develop its OFS ing the Novo-Urengoy and estimated at 850 bcm. business, thus driving the Vostochno-Urengoy license improved performance of areas), the Kharampurskoye the segment in a challenging field, the Beregovoye field, macroeconomic environment. and the Kynsko-Chaselsky Rosneft boasts the most group of fields. modern drilling capabilities in Russia, with around 60% of In 2017 the Company continued its drilling fleet being less than to develop gas production 10 years old. The Company’s clusters on the basis of its in-house oilfield services pro- upstream assets in Eastern vide an effective platform for Siberia and Yakutia by teaming testing and adopting innovative up with strategic partners. technologies and best practices. Under this strategy, it

20 The Company in 2017: general information

Kuybyshev Refinery OJSC

Gas processing and Oil refining and LNG production petrochemicals production

RN-YuganskGazPererabotka, Rosneft is the largest player a special-purpose vehicle to on the domestic refining MMT support the establishment of market, and controls refining 100.6 the Maysky gas processing facilities with a total annual of oil refined in Russia in 2017 complex, was formed in May capacity of 118.4 mmt. At 2017. The gas processing the end of 2017, its domestic complex is set to improve refining and petrochemicals monetization for the Company’s segment comprised 13 major natural gas produced in refineries in key Russian Nefteyugansk Region, utilize regions, three petrochemi- associated petroleum gas cal and four gas processing and create products with high entities21, two catalyst plants, added value. Site survey work, and one service company. scheduled for completion in 2019, is currently under way. The aggregate output of Russia-based assets Rosneft, in collaboration with rose from 87.5 mmt in its partners, is conducting 2016 to 100.6 mmt in 2017. front-end engineering stud- The yield of light products ies for liquefied natural gas increased by 1.8 p.p. to facilities, including Far Eastern 58.4%, while the conversion LNG and Pechora LNG. Once rate swelled by 3.2 p.p. to completed, the studies will 75.2% from a year earlier. enable the partners to make a final investment decision. The Company continually maintains, supports and

21 Including Bashneft assets and the stake in Slavneft-YaNOS.

21 ROSNEFT SUSTAINABILITY REPORT 2017

Treatment plant design capacity at > 3,500 CM PER HOUR

hour, the treatment complex is capable of handling all types of wastewater (industrial sewage, domestic sewage and stormwater sewage) coming from various sources even during the flood period, including Bashneft’s refineries, 66 entities within Ufa’s northern industrial hub and other facilities that may be brought on stream in the future. In November 2017 Rosneft and Indonesian state oil and gas company Pertamina signed a joint venture The upgrade of biological treatment facilities agreement to build a refinery operated by Bashneft, an entity of the Rosneft Group and a petrochemical plant in Tuban in East Java, Indonesia. upgrades domestic refining plant by Angarsk capacity. Key highlights in Petrochemical Company. Oil and gas supplies 2017 include the following: Completing the renovation Rosneft continued to integrate Rosneft is focused on ensur- of one of the world’s larg- Ufa refineries in its production ing a balanced mix of crude est biological treatment chain. The integrated produc- monetization channels, export plants at the Bashenft- tion chain is set to improve sales under long-term and Ufaneftekhim refinery the performance of refining tender-based spot contracts, Completing extensive repairs and petrochemical assets, and domestic supplies. and renovation for an reduce operating costs and atmospheric distillation unit substitute certain foreign Crude oil exports within (AT-6) at the Ryazan refinery imports with local products. and outside the CIS totaled Launching the produc- 121.8 mmt in 2017, with tion of Group III base oils, A service contract for maintain- the eastern route, including representing highly purified ing biological treatment facilities pipeline supplies to China and feedstock for high-quality at Bashneft’s production sites seaborne shipments from synthetic and semi-synthetic was signed between Rosneft the ports of Kozmino and motor oils produced at and its strategic partner De-Kastri, proving to be the the Yaroslavl refinery General Electric on the sidelines most economically attractive Delivering major process of the 21st St. Petersburg to the Company. Eastbound equipment for a hydroc- International Economic Forum. supplies in 2017 rose to racking plant and methyl- Under the contract, General 47.7 mmt, up 10.7% year diethanolamine (MDEA) Electric undertakes to service on year. The Company also regeneration unit at the and maintain the treatment sold 65.7 mmt of crude oil to Novokuibyshev refinery facilities, which are unique for customers in Northwestern, Completing the assembly Russia. Teaming up with General Central and Eastern Europe, of major process equip- Electric will contribute to the the Mediterranean region ment as part of the Company’s strong environmen- and other regions outside the ongoing construction of tal performance. With a design CIS. Exports to CIS countries a diesel fuel hydrotreatment capacity over 3,500 cm per amounted to 8.4 mmt.

22 The Company in 2017: general information

GROWING THE COMPANY’S REFINING FOOTPRINT IN ASIA PACIFIC

In August 2017 Rosneft closed a strategic deal to acquire a 49.13% stake in Essar Oil Limited. This is a high-quality asset with substantial growth potential. Essar’s Vadinar refinery has an annual capacity of 20 mmt and ranks second on the Indian market by output and among the world’s top ten most complex refineries with a Nelson Complexity Index of 11.8. Owing to its high feedstock flexibility, the refinery can process various types of feedstock coming from Rosneft’s own assets and trading operations, including heavy grades. The deal also includes the Vadinar deep-water export/import port that can accommodate very large crude carriers (VLCC) with a capacity up to 350,000 tonnes, and handle direct feedstock supplies and product export operations. A retail network of over 4,200 fuel stations across India also serves as an important addition to the deal.

Rosneft’s total gas sales of the world’s most promising Committee, which is tasked with were 63.9 bcm, including oil regions with the expected promoting strategic cooperation 63.2 bcm sold on the domes- recoverable oil reserves of between the companies that tic market and 0.7 bcm to around 45 billion barrels. involves long-term oil supplies, customers outside Russia. LNG projects, exploration and Rosneft, Petrocas Energy development of oil and gas Under deals signed with (a Rosneft subsidiary) and reserves, oil refining, equip- foreign oil companies in 2017, Motor Oil Hellas Corinth ment manufacture and R&D. Rosneft is purchasing crude Refineries signed a trilateral from Libya’s National Oil agreement of intent in the Rosneft signed a number Corporation and will be investing area of crude oil and product of documents with Turkey’s in exploration and production supply. The parties agreed to leading energy producers, projects in this country. arrange mutual supplies of including an agreement with crude oil and oil products for Demiroren Group Companies In 2017 Rosneft singed the next five years, includ- on petroleum product supplies a series of agreements with ing a possibility of increasing in 2018-20, which are set the Government of the Kurdish annual supplies to 7.5 mmt. to cover more than a half of Autonomous Region of Iraq to The agreement raises the Demiroren’s annual demand. widen cooperation in exploration cooperation with the Greek Rosneft also signed a coopera- and production of hydrocarbons, partners to a whole new level tion agreement with BA Gas commerce and logistics. The and sets a foundation for stable Enerji Sanayi ve Ticaret A.S. parties entered into production and long-standing relations. to organize the supplies of up sharing agreements on five The document will also enable to 6 mmt of oil products per promising blocks and announced Rosneft to independently sell year to consumers in Turkey. the launch of a joint infra- oil products produced at the structure project to operate refineries of Motor Oil Hellas. the region’s oil export pipeline. This marked an important step In 2017 Rosneft and toward strengthening the coop- China National Petroleum eration between Rosneft and Company (CNPC) increased oil Iraqi Kurdistan, which started supplies to China via Kazakhstan in February 2017 from the to 10 mmt per year and agreed signing of a two-year contract to prolong the existing contract on crude purchase and sale. for 10 years. . The parties Owing to these agreements, also signed an agreement to Rosneft gains access to one establish a Joint Coordinating

23 ROSNEFT SUSTAINABILITY REPORT 2017

Rosneft is successfully implementing offshore projects both in and outside Russia

OFFSHORE ACTIVITIES a year-round research base on Khara-Tumus peninsula) with the Khara-Tumus peninsula in a large deviation from the Offshore exploration and the Khatanga Bay in 2016. After vertical. With this approach, production activities are conducting exploration activities the Company was able to a priority for Rosneft and play in the Khatanga license area, significantly reduce costs, an essential role in delivering which took less than 18 months achieve efficiencies and meet enhanced value for the oil to complete, the Company high environmental standards. and gas industry. Rosneft is selected the Tsentralno- successfully implementing its Olginskaya prospect to spud In June 2017, after obtaining offshore projects both within the first exploration well. drilling results, Rosneft submit- and outside Russia in compli- ted evidence proving the dis- ance with the license terms. The surrounding area is covery of a new oil field to the unpopulated and has no infra- State Commission for Mineral Offshore projects in Russia structure. Over 8,000 tonnes Reserves. The field’s recover- of cargo were delivered to able reserves are estimated Khatanga license area the drilling site. Drawing on at over 80 mmt (С1+С2). In April 2017 Rosneft spudded the latest technological and Tsentralno-Olginskaya-1 in engineering tools, the Company Sakhalin-1 the Khatanga license area. managed to complete the Rosneft continued its participation Tsentralno-Olginskaya-1 is the required work in a record short in the Sakhalin-1 project as mem- northernmost well ever drilled time having drilled a structure ber of the international consortium on the Russian Arctic shelf. test well, followed by a set consisting also of ExxonMobil (US), The drilling was inaugurated of aerial, magnetic, gravity SODECO (Japan) and ONGC Videsh by Russian President Vladimir and seismic surveys. While Ltd. (India). Sakhalin-1 involves Putin during a video conference the prospect is located in the the development of three offshore call with Rosneft CEO Igor waters of the Khatanga Bay in fields (Chayvo, Odoptu-Sea and Sechin who was on the shore of the Laptev Sea, the Tsentralno- Arkutun-Dagi) in the Sea of the Khatanga Bay. The drilling Olginskaya-1 well was Okhotsk, off the northwestern comes after Rosneft opened drilled from the shore (the coast of Sakhalin Island. The

24 The Company in 2017: general information

project produced over 9.2 mmt vertical. Innovative completion drilled since the project’s incep- of oil and condensate in 2017, techniques were used on all tion, each with a high-angle with the Company’s share wells; each of them is fitted deviation from the vertical. totaling around 1.8 mmt. The with a blowout preventer to The output in 2017 totaled extracted crude is delivered to control the flow of gas and 371,000 tonnes of oil and a local treatment facility and achieve the highest cumulative 128 million cubic meters of gas. is then transported by pipeline output. The field’s production in The field’s 2017 infrastructure to an oil terminal in De-Kastri 2017 totaled 1.4 mmt of oil and development program included in Khabarovsk Territory. The 200 million cubic meters of gas the construction of oil and world’s longest well, measured which was supplied to consum- gas gathering and treatment 15,000 meters, was completed at ers. The accumulated produc- facilities, a reservoir pressure the Orlan platform on the Chayvo tion since the inception of the maintenance system, pipelines oilfield in the Sea of Okhotsk in project reached the landmark for transporting oil, gas and 2017. This is a super complex figure of 5 mmt in April 2017. water from the field, and well, which was drilled with a large power generating facilities. deviation from the vertical. Lebedinskoye field Lebedinskoye, an offshore As part of the Odoptu second field in the Sea of Okhotsk, stage drilling program, the produces oil from four wells. Company drilled a production well The oil properties are similar from the new onshore drilling to those of the Sokol grade. rig Krechet in 2017. The rig is The output in 2017 totaled specifically designed for wells 332,000 tonnes of oil and with long horizontal sections, around 25 million cubic meters has superior mobility and can of gas. Following the Company’s withstand exposure to extremely successful efforts to change low temperatures below -400С the boundaries of the field, its and seismic conditions. reserves were revised upward in 2017. Another highlight in Northern Tip of the 2017 is the commissioning Chayvo field of an oil pipeline between Under the license terms, Lebedinskoye and Odoptu- Rosneft executes a work Sea that is designed to increase program at the Northern Tip the safety of operations. of the Chayvo field in shallow waters, off the northwestern Odoptu-Sea field (the coast of Sakhalin in the Sea of Northern Dome) Okhotsk. Chayvo oil is produced Oil is produced from horizontal from five unique wells that wells drilled from the shore. deviate significantly from the A total of 40 wells have been

25 ROSNEFT SUSTAINABILITY REPORT 2017

International offshore Company’s projects in Vietnam and achieving a rapid growth projects in frontier can benefit from this agree- in gas production abroad regions ment through the shared use of Tapping into Egypt’s gas Block 06.1 infrastructure and market with a possibility to VIETNAM the Nam Con Son pipeline. establish itself as a major player both in Egypt and neighboring countries EGYPT Expanding competencies in the area of joint development of offshore fields Learning to develop carbon- ate reservoirs and deploy the accumulated experience in its Black Sea projects.

VENEZUELA

Rosneft teams up with ONGC and PVN in joint projects to produce gas and condensate, and explore Block 06.1 in the Socialist Republic of Vietnam. The In 2017 the Company closed partners produced 2.99 bcm of a deal with Italy’s Eni S.p.A gas and 0.07 mmt of condensate, to acquire a 30% stake in with Rosneft’s share totaling the concession for the Zohr 0.6 bcm and 14,700 tonnes, gas field off the coast of respectively. Earlier acquired 3D Egypt. Zohr is a major gas seismic data helped to identify deposit in the Mediterranean Rosneft continued to assess near-term drilling prospects. Sea, with in-place reserves various possibilities for develop- estimated at 850 bcm. ing gas condensate fields off Since 2013 the Company has Venezuela’s coast and building been participating in a project By teaming up with Eni and ВР the supporting infrastructure. to develop Block 05.3/11. The the Company will be able to In December 2017 its subsidi- project, implemented on produc- build competencies in managing ary obtained a 30-year license tion sharing terms, is currently large offshore projects and for the Patao and Mejillones at the exploration phase. The establish itself as a major oil offshore gas fields, which grants license work program, which and gas player in the MENA and the right to sell all of the fields’ includes a seismic survey and the Mediterranean region that production for export. The a first exploration well, has have a substantial resource Company plans to participate in now been completed in full. In potential, as confirmed recently new licensing rounds to acquire 2017 the Company took steps to by major hydrocarbon finds. rights for other acreages. extend the exploration period for this Block. Another exploration Production from the Zohr field well is scheduled for 2018. started in December 2017, and the entire amount of Along with Perenco and PVN, produced gas will be supplied Rosneft has a stake in the to Egypt’s national gas grid. Nam Con Son offshore pipeline, which transports gas and The development of the unique condensate from offshore sites gas field on a par with the in the Nam Con Son basin to world’s majors and strategic an onshore treatment facility. partners provides the following benefits to the Company: In 2017 the Governments of Participating in one of the Vietnam and Indonesia agreed largest discoveries in the on hydrocarbon supplies from recent years (over 30% of Indonesia to Vietnam. The Egypt’s total gas reserves)

26 The Company in 2017: general information

ARCTIC EXPEDITIONS The Company continues year- Drafting a methodology for round hydrometeorological geocryological mapping of Rosneft continues its com- observations that include the the Arctic shelf and build- prehensive Arctic research studies of the region’s sea-ice ing digital maps for the program. The Company’s Arctic conditions. These activities geocryological zoning of the Research and Design Center are focused on gathering Kara Sea and the Laptev Sea for Offshore Development (the metocean data and developing Populating the Arctic “ARC”), established in 2011, a recalculation methodology Sea Database conducts supporting research for determining the structural Conducting systematic and provides expertise in the properties of sea ice of differ- research aimed at pre- environmental and industrial ent age in the Laptev Sea. dicting and monitoring safety of offshore projects. offshore geological and ARC’s activities include per- The following tasks were geotechnical conditions forming hydrometeorological also completed by the across the eastern Arctic and sea-ice observations, ARC in 2017 in line with Conducting geochemi- building databases, draw- its work program: cal, geotechnical and ing up design specifications Building a mathemati- geophysical studies to for offshore facilities and cal model and calculating evaluate the oil and gas developing innovative solu- metocean parameters of potential of the eastern tions for monitoring the the Barents, Kara, Laptev, Arctic in the course of an Arctic environment, including East Siberian and Chukchi interdisciplinary expedition glaciers and drifting icebergs. seas of the Russian Finalizing a methodol- Arctic over a minimum ogy for marine-mammal The following expeditions were period of 50 years observations during offshore organized by the ARC in 2017: Developing an iceberg exploration activities in the Kara-Summer 2017, drift modeling program Arctic, subject to individual an expedition to gather Conducting scientific research conditions in a given basin sea-ice and metocean in order to (i) propose rec- Finalizing a methodology data on the Barents ommendations for wellhead for mapping marine benthic Sea and the Kara Sea protection during the winter habitats using common Khatanga-Winter 2017, drilling season as part of hydrobiological methods an expedition to conduct a two-year exploration pro- and remote-sensing geocryological stud- gram, and (ii) design solutions geophysical techniques ies of permafrost rocks for a longer drilling season on Completing in-house work in the Khatanga Bay mobile offshore drilling plat- to process data on polar of the Laptev Sea. forms under ice conditions bears inhabiting the Wrangel

27 ROSNEFT SUSTAINABILITY REPORT 2017

The Kara-Summer 2017 expedition made a unique contribution to ice management practice

Island Nature Reserve as tons. The expedition worked in hydrometeorological observa- part of a wider program the Barents and Kara seas. tions in East Prinovozemelskiy to study the populations of license areas that polar bears in Alaska and The work program included started in 2012. the Chukchi Sea region. ice-management tests and 18 towings of icebergs in Khatanga-Winter 2017 In 2017 the ARC patented the Kara Sea. An onshore 18 inventions in biotechnol- computer-aided team was The Khatanga-Winter ogy, microbiology, ecology and set up at the ARC to provide 2017 glacial ice research environmental management ongoing support for the expedi- expedition, organized by Rosneft (biodegradation of oil sludge tion by processing real-time in collaboration with the ARC, and petroleum product waste). data from the Novorossiysk explored the Khatanga Bay Following the publication of icebreaker and offshore facilities and the southern part of the an environmental atlas on the in the Barents and Kara seas. Laptev Sea. The studies were Kara Sea a year earlier, the conducted from Rosneft’s ARC published an environmental With the set of tasks completed year-round research base atlas of the Laptev Sea and during the expedition, Rosneft located on the Khara-Tumus an atlas of sea mammals of gained unique experience and peninsula in the Khatanga Bay. Russia’s Arctic and Far East. competencies which are essential to the safety of offshore The research program Kara-Summer 2017 exploration operations in the included hydrometeorological Arctic. All tasks were performed observations, a morphometric Kara-Summer 2017, the eight- with due care and diligence, and spatial analysis of ice eenth Arctic expedition organ- observing the highest environ- landforms to determine per- ized jointly by Rosneft, the ARC, mental and safety standards. mafrost dynamics, and a study and the Arctic and Antarctic of physical and mechanical Research Institute, made Maintenance jobs were done properties of Arctic ice. a unique contribution to ice on automatic weather stations management practice: for the and autonomous subsurface first time in the Russian Arctic, floats in the Kara Sea. The a Russian icebreaker towed Rosneft team obtained a five- an iceberg weighing 1.1 million year data record of continuous

28 The Company in 2017: general information

IMPORT SUBSTITUTION AND LOCALIZATION

With a view to reducing dependence on imports and building domestic manufacturing and engineering capabilities, Rosneft implements the Import Substitution and Localization Program, adopted in May 2015 both for mid- and long-term.

The program is focused on maximizing local content in the procurement of products and services through sourcing from local producers and service providers and establishing local production sites and maintenance centers for critical equipment required in the Company’s current and future projects.

The Company continued to work closely with the Russian Government, the Ministry of Industry and Trade, the Ministry Zvezda shipbuilding complex workshop, paint shops, heavy of Energy, the Ministry for fitting workshops with an Economic Development and The Zvezda shipbuilding open land-based construc- other federal executive bodies complex in Bolshoi Kamen is tion area and a floating to address import substitution the Company’s key project transfer dock to build tasks in 2017. It is represented that involves the establish- vessels and marine engineer- in various intergovernmental ment of a modern industrial ing facilities. The work is task forces and research groups and shipbuilding cluster in the scheduled for 2012-19. established by federal executive Russian Far East based on Phase 2 includes a dry dock bodies to consider topical issues, the Far Eastern Shipbuilding and full-cycle production such as reducing the domestic and Ship Repair Center. facilities and workshops to energy sector’s dependence on build large vessels and marine imported equipment, components The project to construct engineering facilities. The work and spare parts, as well as on the modern shipbuilding is scheduled for 2016-24. foreign services and software. complex is planned to be Rosneft is also involved in public delivered in two phases: The hull fabrication workshop discussions of draft laws and Phase 1 provides for an and paint shops were com- regulations aimed at facilitat- extended work program that missioned in 2016. A permit ing import substitution. includes a hull fabrication to commission the open

1. Searching for domestic equivalents of foreign equipment, justifying their use and replacing foreign imports with domestic products through developing local manufacturing capabilities and improving the quality of domestic products. The program spans 2. Teaming up with the world’s leading equipment a 10-year period manufacturers to set up local production through and includes the a partnership or joint venture arrangement. following key stages: 3. Establishing a phased process to gradually move foreign production to Russia, from assembly to full-scale manufacturing in collaboration with foreign partners, and achieving the localization rate of at least 70% by 2025.

29 ROSNEFT SUSTAINABILITY REPORT 2017

land-based construction General Electric, Gaztransport area was granted in August & Technigaz, Hyundai Heavy 2017. Once completed, Industries, Samsung Heavy Zvezda is set to become Industries, DSEC and Lamor, Russia’s most modern to set up local production of shipyard that uses some equipment and other prod- 330,000 tonnes of rolled ucts, which are not currently steel per year. Until 2035, it manufactured in Russia. is planned to build 178 vessels and offshore facilities. Cooperation with General Electric (GE) Zvezda will be geared for building large high-tech vessels, The construction of a plant offshore drilling, exploration and to manufacture steerable production platforms, and ser- thrusters to support Zvezda’s vice fleet, including ice breakers. shipbuilding projects has started recently. Tanker vessels and LNG carriers will also constitute Rosneft signed a contract an essential element of the with GE on the sidelines of production program. Their the 2017 St. Petersburg manufacture will require International Economic Forum the use of unique pioneering to design a new configuration solutions, most of which will of steerable thrusters for large be completely new for the vessels. Once the project is domestic shipbuilding industry. finished, the plant will be able to expand its product range Among other innovations, with higher-power thrusters Zvezda will use highly automated (up to 15 MW) used in large processes such as automated vessels and LNG carriers. lines and modern CNS systems. Work was completed on an Localization agreements engineering design solution of 330,000 a 7.5 MW thruster for Zvezda’s TONNES In 2017 Rosneft signed multi-purpose supply vessels. of rolled steel is to be used a number of important Rosneft obtained approval for by Zvezda shipyard annually agreements with the world’s project documentation from leading companies, including the Russian Maritime Register 178 VESSELS AND OFFSHORE FACILITIES are to be built by Zvezda by 2035

30 The Company in 2017: general information

of Shipping, and started the and the Eastern Economic Cooperation with Lamor procurement process for Forum to advance cooperation long-lead items, with some on the Aframax construction Rosneft signed an agree- contracts already awarded. project via the Zvezda-Hyundai ment with Finland’s Lamor on joint venture (design and con- the sidelines of the Eastern Cooperation with struction support, engineering Economic Forum to establish Gaztransport & and design work, and project a joint venture for the pro- Technigaz (GTT) documentation development). duction of oil spill response equipment at Ship Repair Plant A memorandum of Cooperation with Samsung No. 82. The parties are now understanding (MOU) to Heavy Industries (SHI) preparing legal documenta- design and manufacture cargo tion for the joint venture. containment systems for On the sidelines on the Eastern LNG carriers in Russia was Economic Forum in September signed in June 2017. The MOU 2017, Zvezda and SHI signed also envisages preparatory a Heads of Agreement for activities for the construction the establishment of a joint of LNG carriers at venture to manage shuttle the Zvezda shipbuilding complex. tanker construction projects. With a view to obtaining a manufacturing license from Cooperation with DSEC GTT, the parties agreed, on the sidelines of the 2017 Eastern The Far Eastern Design Economic Forum, that GTT Institute Vostokproektverf, would conduct a technical due a subsidiary of the Far Eastern diligence to assess Zvezda’s Shipbuilding and Ship Repair capabilities to manufacture Center, and South Korea’s membrane tank systems. The DSEC Co., Ltd agreed to Zvezda shipbuilding complex establish a joint venture to has passed GTT’s initial audit. provide design, engineering, procurement, management, and Cooperation with Hyundai supervision services in shipyard Heavy Industries (HHI) construction. The JV agreement was signed on the sidelines Rosneft signed several of the Eastern Economic documents with HHI on the Forum in pursuance of the sidelines of the St. Petersburg memorandum of understanding International Economic Forum earlier signed by the parties.

31 ROSNEFT SUSTAINABILITY REPORT 2017

CORPORATE GOVERNANCE

Corporate governance at Rosneft In 2017 Rosneft continued to by the Federal Agency for State represents a comprehensive implement the Roadmap, adopted Property Management (Order framework involving the entire by the Board of Directors two No. 306 of 22 August 2014), up range of relations among years earlier, to introduce the key 2.7 p.p. from a year earlier. This executive bodies, the Board of provisions of the CBR Code in the signals that the Company observes Directors, shareholders and other Company’s day-to-day business. almost all CBR recommendations stakeholders that is aimed at: Detailed information on the progress that are applicable to it. Observing the rights of achieved in 2017 is provided in the shareholders and investors Company’s 2017 Annual Report. Rosneft is determined to continue on Increasing the Company’s the set toward a robust corporate investment appeal As recommended by the CBR Code, governance, with the main target Creating effective mechanisms all existing and proposed members of for the coming years being to to assess risks that may the Board of Directors were subject establish a system that will make impact shareholder value to regular assessment procedures it possible for shareholders to get Ensuring the efficient and diligent to make sure they meet key notice of a General Shareholders’ use of financial resources provided independence criteria, with results of meeting, have access to materials by shareholders and investors. such assessments used as a basis for for a meetings, request and confirming their independence status. receive documents, and vote Corporate governance is constantly Resolutions of the Board of Directors electronically on its agenda items. evolving in response to both external are available on the Company’s and internal factors and requires the website https://www.rosneft.ru/ ongoing monitoring of developments governance/corpboard/. in corporate law, regulatory requirements and bidding criteria. The Company scored 92.4% in Over the past few years, including the corporate governance self- 2017, Rosneft has used the CBR assessment that was conducted by Code as a benchmark to improve its the internal audit team in accordance corporate governance framework. with the methodology recommended

32 Corporate governance

1. Protect and facilitate the exercise of shareholders’ rights and ensure the equitable treatment of all shareholders, with each shareholder to have Rosneft’s Corporate the opportunity to obtain effective redress for violation of their rights. Governance Code is a core document that 2. Ensure the strategic guidance of the Company by an effective determines key principles and professional Board of Directors, the effective monitoring underlying its corporate of management by the Board of Directors, and the Board’s governance framework. and management’s accountability to the shareholders. The principles embedded in the Company’s Code are aligned with those 3. Recognize and protect the rights of stakeholders established by of the Code of Corporate law, and encourage active cooperation between the Company Governance adopted by and stakeholders in building the Company’s wealth, observing the Bank of Russia (the sustainability standards and creating jobs; build an effective “CBR Code”), as well as internal control and risk management framework that provides those of the Organization reasonable assurance that the Company's goals will bemet. for Economic Cooperation and Development, including the following: 4. Ensure that timely and accurate disclosure is made on all material matters regarding the Company, including the financial situation, performance, ownership, governance of the Company, significant corporate actions, etc.

BOARD OF DIRECTORS Ivan Glasenberg, Member of the and deploy occupational and Board of Directors, Member of the environmental controls Pursuant to amendments to Strategic Planning Committee. New versions of the Company’s Rosneft’s Charter, approved by an Sustainable Development Policy, extraordinary General Shareholders’ Each of them has strong Innovation Policy, Internal Audit Meeting on 29 September 2017, competencies and extensive Policy and Dividend Policy the size of the Company’s Board experience across a broad range of Directors was increased from of sustainability topics, including Regulation on managing nine to eleven members in order responsible financing, non-financial conflicts of interest at Rosneft to accommodate the Company’s risk management, business ethics, and its subsidiaries growing business and address anti-corruption practices, HR, Rosneft's Energy Saving new strategic priorities. occupational health and safety, human Program for 2018-22 rights, climate changes, greenhouse The following reports The composition of the Board of gas emissions, energy efficiency, were also considered by Directors is determined based on and environmental protection. the Board of Directors: proposals from the shareholders Reports on the implementation and maintains the optimum Information about the experience of the Innovation Program for balance between executive, and professional level of other 2016 and the Energy Saving non-executive and independent members of the Board of Directors Program for 2016-20 directors. The Board of Directors is provided in Sustainability Report on the group- is comprised of four independent Reports for prior periods. wide implementation of directors — Gerhard Schroeder, professional standards. Matthias Warnig, Oleg Vyugin and To advance the Company’s Donald Humphreys — who account sustainability agenda, the SHAREHOLDER RELATIONS for over a third of its members. Board of Directors approved the following key documents in Rosneft’s corporate governance Three members were elected in 2017 after they were considered framework ensures equitable 2017 for the first time: Gerhard by the Board committees 22: treatment for all shareholders to Schroeder, Chairman of the Board Rosneft-2022, the strategy enable them to exercise their rights of Directors, Independent Director; aimed at implementing programs effectively. The Company’s supreme Faisal Alsuwaidi, Member of the and initiatives to promote a safety governing body is the General Board of Directors, Member of the culture and leadership, improve Shareholders’ Meeting, which is Strategic Planning Committee; and industrial safety management competent to decide on matters

22 Except Rosneft’s Energy Saving Program for 2018-22.

33 ROSNEFT SUSTAINABILITY REPORT 2017

that are fundamental to Rosneft’s minimum payout ratio from 35% to business. The Company uses its best 50% of consolidated net earnings efforts to facilitate the participation of reported under IFRS. Dividend the shareholders in general meetings. payouts are to be made every six months or more frequently. The claim According to the Charter, in- period for dividends declared but person shareholders’ meetings not paid due to the absence of the may be held not only in Moscow, shareholder’s address or bank details where the Company is based, has been extended to five years. but also in large regional centers where its shareholders reside, According to a decision by the such as St. Petersburg, Krasnodar, shareholders in 2017, dividend Sochi, Stavropol, Saratov, payouts for 2016 and for the first Orenburg, Tyumen, Krasnoyarsk, six months of 2017 amounted Khabarovsk, Vladivostok and to RUB 63.4 billion and RUB Krasnogorsk in Moscow Region. 40.6 billion, respectively. The Company offers several During a general shareholder’s communication channels that are meeting, all shareholders are given designed to assist shareholders equal opportunities to express their in exercising their rights: opinion on its agenda items and direct Oral communications can questions at speakers, members be made via the hotline at of the Board of Directors, the Chief 8 800 500 1100 (toll-free within Executive Officer, members of the Russia) or +7 495 987 3060 Audit Commission, independent Letters can be mailed to auditors, candidates for executive 26/1 Sofiyskaya Naberezhnaya, and controller positions, analysts 117997, Moscow, Russia and consultants, with relevant Emails can be sent to answers to be provided either [email protected] during or after the meeting. Fax communications can be set to +7 499 517 8653. Resolutions of the Board of Directors Two general shareholders’ meetings can be found at the Company’s website: https://www.rosneft.com/ were held in 2017: an annual A total of 4,585 phone calls, governance/board/ meeting on 22 June in Sochi, 509 letters, 77 emails and and an extraordinary meeting on 727 dividend payment requests for 29 September in St. Petersburg. prior periods were processed in 2017. Detailed information about these meetings is disclosed in the The most frequently asked questions 2017 Annual Report. Resolutions of from shareholders in 2017 were the general shareholders’ meetings about records of title to shares, are available on the Company’s disposal of shares, dividend payments, website https://www.rosneft.com/ participation in general shareholders’ Resolutions of the general shareholders’ meet- Investors/Shareholders_meeting/. meetings, and voting with shares. The ings can be found at the Company’s website: https://www.rosneft.com/Inves- Company answered all the questions. tors/Shareholders_meeting/ The Company provides equal and fair opportunities for all shareholders to participate in its profits by deciding on profits allocation, including distributing a portion of profits as dividends. Rosneft’s Dividend Policy stipulates key principles and approaches regulating dividend payments, and ensures that the decision-making process to pay or declare dividends and to determine their amount and payment procedure is transparent.

The Board of Directors approved amendments to the Dividend Policy on 31 August 2017 to raise the

34 Corporate governance

INVESTOR RELATIONS attended by its finance and database; in 2018 the Company operations executives, to discuss its plans to be assessed for the first In 2017 Rosneft continued to work operating results for the reporting time and assigned a CDP score. closely with institutional investors period. Information for shareholders drawing on best international and investors, including press In response to investor requests, practices, with full transparency releases, presentations, annual the Company was providing updates regarded as a number one priority. reports, sustainability reports on its activities through the prism and material disclosures relating of climate changes, including Rosneft shares are among the to decisions of the Board of progress on its Gas Investment most attractive investments Directors and Management Program, steps to improve energy on the domestic stock market. Board, is posted on the corporate efficiency, ensure pipeline safety, The Company’s has a diversified website www.rosneft.ru. produce environmentally friendly investor base comprising over fuels and manage greenhouse gas 700 institutional investors. Its Rosneft continued steps in 2017 to emissions, etc. Given that ESG stock performance is analyzed by improve its investment appeal as investing matters are in the spotlight 19 investment banks. The Company measured by environmental, social for both current and potential engages with its investors, both and governance (ESG) investing investors, Rosneft is determined current and prospective, through criteria. The Company reaffirmed to make major improvements to the Chairman of the Management its commitment to the UN Global the way it communicates them to Board, business line leaders, Compact. Rosneft has improved its external stakeholders in 2018. the First Vice President, and the ESG performance across a number Investor Relations Department. of ratings, including Bloomberg, Thomson Reuters, RobecoSAM, The Company’s extensive investor Sustainalytics, and GES by tapping relations program in 2017 included into global analytical resources in the participation of the Chairman the area of environmental, social and of the Management Board in major governance investing. The Company international investment forums as a continued to engage with other key speaker and over 200 personal leading ESG consulting agencies, and collective meetings between such as ISS, MSCI, Trucost, Company management and Corporate Human Rights Benchmark leading investment funds. and CDP. Rosneft completed a CDP questionnaire (unscored) in The Company holds quarterly 2017 and its responses are now conference calls for investors, available to investors in the CDP

35 ROSNEFT SUSTAINABILITY REPORT 2017

SUSTAINABILITY MANAGEMENT

conservation and emergency prevention and response.

The Policy also reflects the Company’s position on human Sustainable rights. The Company recognizes Development Policy the sanctity of human rights, including the right to live In 2017 the Board of Directors and work in a healthy and approved the new version of favorable environment. The the Sustainable Development Company strives to prevent any 24 Policy that reflects recent violations of human rights. The developments in sustainability Company employs underage management and takes into workers only to the extent it account new regulations 23 is permitted by Russian law. and best practices. The Sustainable Development The Company’s Sustainable Development Policy The new version contains Policy is a public document can be found at the corporate website: https://www.rosneft.com/upload/ amendments and additions to and may be accessed on site2/document_file/ 24 sections dealing with health, the Company’s website . development_policy_eng.pdf safety and environment, engagement with the business community, engagement with society, and sustainability reporting. It was expanded with new sections on energy efficiency and

23 The Public Non-Financial Reporting Concept, approved by Resolution No. 876-r of the Russian Government of 5 May 2017.

36 Sustainability management

sessions and contests. These initiatives were also supported by a large-scale campaign to promulgate the Code across Participation in the ETHICS MANAGEMENT Bashneft and Kondaneft as UN Global Compact FRAMEWORK part of their integration in the Group. Both Bashneft and The UN Global Compact In 2015 the Company Kondaneft had a Code approval (UN GC) is a United Nations adopted a new version of procedure put in place, with initiative launched in 2000 by the Code of Business and roll-out plans established and then UN Secretary-General Corporate Ethics that is delivered, ethics champions Kofi Annan to encourage aligned with best domestic and appointed and information businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation. The UN GC is a principle-based framework, stating 10 principles in the areas of human rights, labor, the environment and anti-corruption, and its members are expected to engage in business practices while pursuing profitability with integrity. The UN GC is the world’s largest corporate sustainability initiative, with more than 9,700 companies and non-business signatories based in over 160 countries. Rosneft became member of the UN GC in 2010.

Since 2007, the Company has been voluntarily publishing The Code and its values as a topic of discussion sustainability reports at the young employees’ corporate retreat containing qualitative and quantitative information about its environmental and global practices. The Code, materials prepared and social performance. The designed to ensure employees’ communicated to all employees. reports also demonstrate the commitment to the highest Company’s commitment to UN ethical principles, is a common The Company has a Council for GC principles. Environmental reference document that sets Business Ethics, a permanent performance disclosures out the standards of behavior body composed of ethics have become mandatory expected from employees leaders and other executives. for state-owned companies in relationships with each The Council is a collective body since 2012 25. Rosneft has other and stakeholders, responsible for considering continued its sustainability including business partners. ethics and conflict of interest reporting practice, with this All employees were involved in issues, overseeing and Report being the eleventh implementing the Code, and monitoring the enforcement in a series of publications it applies to every employee, procedures for the Code, prepared on an annual basis. regardless of level or position. and ensuring compliance with corporate regulations. The Company continued to build awareness of the Code and The Council’s activities in promote a compliance culture 2017 resulted in the adoption in 2017 by holding business of a Comprehensive Anti-Fraud ethics workshops, training and Anti-Corruption Program

25 Directive No. 1710p-P13 of the Russian Government of 30 March 2012.

37 ROSNEFT SUSTAINABILITY REPORT 2017

for 2017-18, the approval the session. As part of an of a draft Regulation on executive workshop, around managing conflicts of interest at 200 members of corporate Rosneft and its subsidiaries, and social services teams the updating of the Compliance participated in a focus group COMPLIANCE FRAMEWORK Roadmap for 2018-19. themed The Code as a Means of Increasing Employee The Company is highly The Company publishes regular Involvement and Loyalty: committed to preventing articles in the Our News Empowering Young Talent. and fighting corruption. information bulletin and Oil In 2017 it continued to Courier newspaper. It also The Company continued to build a robust framework runs a regular column featuring run the ethics hotline that is designed to ensure questions and answers on designed to obtain feedback compliance with applicable the Code. Ethics of Business on ethics issues. Employees domestic and international Relations, a corporate contest and other concerned persons anti-corruption laws: among internal communications are welcome to email their Efforts are under way to experts, also helped to raise queries regarding the Code’s implement and update awareness of business ethics. application or compliance issues the Compliance Roadmap, to [email protected]. A total approved by the Board of Rosneft held regular ethics of 66 queries were received Directors for 2016-19 workshops and training in 2017, relating mostly to The Business Ethics Council sessions in 2017. The Company compliance with labor laws, put together and introduced organized Code of Business ethics breaches and requests the Comprehensive Anti- and Corporate Ethics: Theory for additional information Fraud and Anti-Corruption and Practice, a corporate about business ethics. All Program for 2017-18 seminar attended by around queries were duly handled by The Board of Directors 120 professionals. Employees relevant departments. There approved a formalized of Group entities in Moscow is an ongoing exchange of procedure for managing Region and the Company’s head information with the Security conflicts of interest at office underwent training in Service that supervises the Rosneft and Group entities fundamentals of business and Company’s Security Hotline. Updates were made to the corporate ethics, which was Company’s policy governing delivered by internal trainers. anti-corruption assessment Another training session, of local regulations The Code and its Values, was proposed for adoption held during a retreat in Sochi Regular training initiatives organized for the Company’s and awareness campaigns young trade unionists; around are organized for 100 employees attended employees to improve

BUSINESS GAME “WHAT IS THE CODE?”

A business game called “What is the Code?” was held in Novokuibyshevsk Petrochemical Company in August 2017. The game’s 48 participants were divided into eight teams; each team was given a piece of paper with one of the Company’s four values written on it: leadership, safety, effectiveness or integrity. The teams were supposed to create an animated video about the value of their choice, illustrating its real purpose and meaning to each employee. They went through every stage of the film-making process from writing a script, drawing moving pictures to dubbing the film. By the end of the day, each team presented their product, with eight films now available to those willing to learn more about the Company’s corporate values.

38 Sustainability management

their knowledge of core anti-corruption principles adopted by the Company Efforts are under way to put together two multimedia ВС¨ О СИСТЕМЕ distance learning (MDL) programs, Business Ethics КОМПЛАЕНС Основная цель создания в Компании системы комплаенс — минимизация правовых и репутационных рисков, возникающих Compliance: Managing вследствие нарушения профессиональных и этических стандартов сотрудниками и Компанией в целом. Conflicts of Interest МОСКВА ДЕКАБРЬ 2017 ГОДА ¹26 and Business Ethics Compliance: Corporate «УПРАВЛЕНИЕ КОНФЛИКТОМ ИНТЕРЕСОВ Gifts and Hospitality. КАК МЕРА ПРОТИВОДЕЙСТВИЯ КОРРУПЦИИ»

управления конфликтом инте- ресов, правила поведения ор- Internal communications ганов управления, должност- ных лиц/работников Компании are a critical element of a robust при возникновении конфликта их частных интересов и личной заинтересованности с деловы- compliance framework. ми интересами Компании, ре- гулирует вопросы разрешения 2017 saw the publication of подобных ситуаций, в том числе меры управления Конфликтом five issues of the All About интересов и принципы приня- тия управленческих решений. Compliance information КОНФЛИКТ ИНТЕРЕСОВ — bulletin covering a wide range ситуация, при которой личная заинтересо- ванность (прямая или of topics, such as corporate косвенная) работников ПАО «НК «Роснефть»/ values and their role in shaping Общества Группы и чле- нов коллегиальных ор- an organizational culture, ганов управления ПАО «НК «Роснефть»/Об- compliance practices applied щества Группы влияет или может повлиять на by Western companies, latest надлежащее, объектив- Каждый из нас сталкивался с ситуацией конфликта интересов в своей ное и беспристрастное developments in compliance профессиональной деятельности. Но не всегда мы понимаем и знаем, исполнение ими долж- как правильно находить выход из подобных ситуаций. Неурегулирован- ностных (служебных) regulation, and managing ные конфликты интересов могут привести к различным коррупционным обязанностей (осущест- нарушениям и оказать негативное влияние, как на репутацию, так и на вление полномочий). conflicts of interest as a means деятельность организации. Данная проблема актуальна не только для (термин из корпоративного государственных компаний, но и для коммерческих организаций незави- глоссария). to counter corruption. The симо от размеров бизнеса. Международное и российское законодатель- ство, а также внутренние нормативные документы корпораций требуют Оценка «надлежащего, объ- ективного и беспристрастного Company runs an ongoing урегулирования конфликта интересов. исполнения обязанностей» — дело достаточно тонкое. Она campaign to raise awareness неизбежно связана с субъек- ОСНОВЫ УПРАВЛЕНИЯ нием Совета директоров ПАО конов Великобритании «О борь- тивной характеристикой отно- КОНФЛИКТОМ ИНТЕРЕСОВ «НК «Роснефть» в этом году. По- бе со взяточничеством» (UK шения к действиям (решению) of fraud and corruption with ложение разработано в соответ- Bribery Act 2010), Законом США субъекта конфликта интересов. В нашей Компании основные ствии с требованиями антикор- «О противодействии коррупции management and other staff принципы управления конфлик- рупционного законодательства во внешнеэкономической дея- Конфликт интересов должен том интересов изложены в По- Российской Федерации, Кодекса тельности» FCPA (Foreign Corrupt устанавливаться исключитель- ложении «Порядок управления деловой и корпоративной этики Practices Act 1977). но на реальности фактов, а не and build an effective culture конфликтом интересов в ПАО НК «Роснефть», Кодекса корпо- на предположениях относи- «НК «Роснефть» и Обществах ративного управления ПАО «НК Положение устанавливает ос- тельно возможности действий that reinforces a zero tolerance Группы», утвержденном реше- «Роснефть», а также с учетом за- новные требования в области лица, обязанного принимать to fraud and corruption across the Rosneft Group.

1. Approved templates and guidelines for reporting income, property and property-related obligations of Rosneft employees, complete with an approved list of job positions

2. Approved and adopted regulations on high-level process Rosneft continued to mapping and business process data sheets to compile a list improve its internal of corruption-prone business processes and keep it current anti-corruption and anti-fraud regulatory framework in 2017. In 3. Approved a standard anti-corruption clause and particular, the Company: a model addendum to agreements on intra-group deals and transactions with individuals

4. Revised its internal regulations governing procurement, pricing and counterparty checks, which are instrumental to mitigating corruption risks in procurement

39 ROSNEFT SUSTAINABILITY REPORT 2017

on intra-group deals and transactions with individuals Revised its internal regulations governing PREVENTION OF FRAUD procurement, pricing and AND CORRUPTION26 counterparty checks, which are instrumental The Company remained focused to mitigating corruption on enhancing the effectiveness risks in procurement of measures designed to counter corruption and corporate Owing to its robust controls of fraud and ensure that both top contracting, pricing and discount management and other staff practices, the Company was in comply with international and the position to effectively detect Russian anti-corruption laws, any indications or evidence of as well as with its internal affiliation, vested interests or regulations in this area. potential corruption schemes. The 2017 review process Rosneft continued to improve its covered 117,051 prospective internal anti-corruption and anti- contractors, of which 2,618 were fraud regulatory framework in barred from participating in 117,051 2017. In particular, the Company: procurement procedures. PROSPECTIVE CONTRACTORS Approved templates and guidelines for reporting The Company continued were reviewed in 2017 income, property and systematic efforts to identify property-related obligations commercial schemes involving of Rosneft employees, malpractice or abuse of power complete with an approved on the part of management or 26 list of job positions third parties; 735 criminal cases Approved and adopted were initiated in 2017 based regulations on high-level on evidence gathered by process mapping and security officers of various business process data Group entities and provided to sheets to compile a list of law enforcement agencies. The Company’s Anti-Corruption Policy can be found at corruption-prone business the corporate website: https://www.rosneft.com/upload/ processes and keep it current Rosneft continued to take site2/document_file/ Approved a standard anti- actions to prevent any instances P3-11_03_01_P-01_EN.pdf corruption clause and a model of theft, fraud or damage addendum to agreements

INTRODUCTION OF ANTI-CORRUPTION PRINCIPLES AT BASHNEFT

Among key objectives facing the process of Bashneft’s integration in Rosneft is ensuring consistent approaches to doing business and reliance on a common regulatory framework. In March 2017 Bashneft’s Board of Directors approved a local Anti-Corruption Policy, which is another high-level document designed to promote consistent business practices, including on the anti-corruption front. The company takes a zero-tolerance approach to corruption in all its forms and manifestations when communicating with shareholders, investors, counterparties, government officials, political party officials, subsidiaries, employees or other stakeholders. This is a fundamental principle of its Anti-Corruption Policy.

40 Sustainability management

CYBERSECURITY

Cybersecurity is a key Company makes regular focus for Rosneft in the updates to its information context of its strategic security regulations and has priorities set for the next formed dedicated security five years until 2022. The teams to focus on meeting Company adopts a risk-based IT security needs. Ongoing approach to cybersecurity threat intelligence27 and that is in line with statutory awareness28 are also requirements and draws on regarded as important international best practice. drivers of cybersecurity.

Information security The Company is closely management processes are focused on ensuring the embedded in the corporate security of its industrial governance framework. The automation control systems.

when handling hydrocarbons The Company provided various or petroleum products. in-class and distance training The number of calls made to the Security options in 2017, including Hotline rose by 48.4% in 2017 All prospective applicants for Countering Corruption and employment with the Company Fraud, a distance training course 20,486 are screened to identify conflicts attended by 10,832 employees. of interest that they may 13,805 have, including affiliation. The Security Hotline Company completed a number of organizational procedures in Rosneft amended the existing 2017 focused on (i) employing procedure for verifying former government officials; information communicated via (ii) gathering and verifying the Security Hotline in order information about income, to improve its performance. 2016 2017 property and property-related obligations for certain categories A total of 20,486 calls were Security Hotline results of employees: (iii) increasing the made to the Security Hotline were reported to the accountability of the Company’s in 2017, up 48.4% since the Board of Directors senior executives for preventing previous year, helping to reveal on a quarterly basis corruption (incl. conflicts of or prevent incidents with an interest), with relevant provisions estimated combined loss of to be incorporated in their RUB 100 million. Following employment contracts and (iv) investigative procedures, making Company employees employment contracts were liable for failure to comply with terminated with 29 employees corporate anti-fraud and anti- and disciplinary sanctions were corruption requirements by imposed on 69 employees. In incorporating relevant provisions 18 cases, the investigation in their job descriptions. materials were provided to law enforcement agencies. Training in anti-corruption and anti-fraud practices forms Security Hotline results were an integral part of a wider reported to the Board of compliance training program. Directors on a quarterly basis.

27 Analyzing threats and sharing information about current threats, security breaches or hacker activity before the damage is done. 28 Raising cybersecurity awareness among employees.

41 ROSNEFT SUSTAINABILITY REPORT 2017

RISK MANAGEMENT AND INTERNAL CONTROL

Rosneft has a Risk Management Maintaining compliance approved by Rosneft’s Board of and Internal Control System with applicable laws Directors. The Company also (RM&ICS) which is continuously and local regulations established a comprehensive improved in line with Russian Preparing reliable financial plan, aligned with the LTDP, law, the recommendations and non-financial reports that details how the RM&ICS of the CBR Corporate for internal and/or external will evolve in the short and Governance Code and users in a timely manner medium term. The plan sets international best practices. key targets and objectives Owing to ongoing improvements and outlines critical steps RM&ICS’s objectives are set to its RM&ICS, the Company toward the achievement of the out in the Company’s Risk can promptly and adequately Company’s strategic goals in Management and Internal respond to changes in the area of risk management Control Policy, a document the external and internal and internal control. developed with input from environment, achieve better international professional performance, and maintain and As part of ongoing organizations specializing in increase its shareholder value. improvements to the RM&ICS risk management, internal in 2017, the Company: control and internal audit. The Company decided to Compiled a consolidated The RM&ICS is designed to transition to a centralized risk and control register provide reasonable assurance RM&ICS model in 2017, listing (i) the most common that the Company achieves with the Risk and Internal risks that may hinder its goals, including: Control Department to act progress towards the Strategic goals contributing as a single point of contact for Company’s strategic goals to the accomplishment of coordinating risk management and long-term objectives, the Company's mission and internal control processes. (ii) the most common Operational goals relating risks arising from the to the Company’s financial RM&ICS development agenda is Company’s current financial and business performance, incorporated in the Long-Term and business operations, and asset integrity Development Program (LTDP) (iii) risk factors, business

42 Risk management and internal control

RM&ICS owners

GOAL-SETTING AND OVERSIGHT

BOARD OF DIRECTORS AND ITS AUDIT COMMITTEE

RISK MANAGEMENT AND DECISION MAKING

Chief Executive Officer Risk Management Committee Management

GUIDANCE AND INDEPENDENT REVIEW

Risk and Internal Internal Audit Function Audit Commission Control Department

RISK MANAGEMENT AND DECISION EXECUTION

Risk and internal control Company employees officers in business units

process risks, controls and RISK MANAGEMENT their interdependencies Introduced guidelines for Risk management at Rosneft determining and applying risk is governed by the Company’s appetite that were used to Risk Management and Internal establish relevant metrics Control Policy and the Standard The Company’s Risk Management and Internal Control and targets for 2018 for the Corporate-Wide Risk Policy can be found at the corporate website: https://www.rosneft.com/upload/ Approved a standard set Management System (CWRMS). site2/document_file/ of competencies for risk The CWRMS is a combination of P4-01_P-01_EN.pdf management and internal interrelated elements that are control officers as part embedded into various business of a wider initiative to processes of the Company and promote in-house expertise, implemented at all management with relevant positions in levels by all employees. The core Rosneft business units elements of the CWRMS and and 24 Group entities filled risk management infrastructure by internal applicants are described in detail in Organized training in risk the 2017 Annual Report. management and internal control for more than In 2017 the Company set 180 employees of Rosneft the risk appetite for the and its subsidiaries next year based on the Launched the trial versions following key principles: of the Internal Control and Financial and economic Risk Management databases indicators as part of the RM&ICS ••The Company does not automation program assume the risk of its credit rating falling below the sovereign rating and makes

43 ROSNEFT SUSTAINABILITY REPORT 2017

sure it is in full compliance stay accident-free, improve Supply chain risks with existing debt covenants workplace safety and create and pays all of its debts, a safe environment for The Company applies a multi- both short-term and communities living in the tier control approach to long-term, as they fall due. areas where it operates. managing risks it faces when Corporate governance ••As part of its commitment dealing with prospective ••The Company takes a to prevent any potential suppliers and contractors. zero-tolerance approach adverse impact on the Tier 1: Accreditation to corruption in all its environment, the Company procedures designed forms and manifestations makes every effort to to determine whether when conducting operating, protect, preserve and the bidder meets the investing or other activities. restore natural resources. minimum criteria, including ••The Company does not thestandard “duty of care”” tolerate fraud in any Key risks inherent in the principle and anti-corruption form regardless of the Company’s business and anti-fraud requirements. size of resulting damage Tier 2: Qualification and makes every effort Industry, country, financial procedures involving supplier to prevent fraud from and legal risks to which evaluation by product type occurring in the course the Company is exposed in order to determine of its operations. are described in detail in whether the supplier Health, safety and Appendix 2 to the 2017 Annual has requisite experience, environment Report. This section provides capabilities and resources ••The Company understands information about sustainability to provide high-quality the nature and scale of the risks, including risks related and timely service under impact that may be caused to HR and social policy, the contract. Along with by its operations, products industrial and occupational qualification requirements and services, and takes health and safety, and (experience, availability of a responsible attitude to environmental protection. product permits/licenses/

44 Risk management and internal control

certificates required under Rosneft has a dedicated HSE Russian law, etc.), the management system, which Company imposes special brings together resources requirements for personal and procedures essential to and process safety. both prevent, and respond to, hazardous occurrences. Sound All contractors must principles and a structured sign a term sheet describing approach applied throughout HSE requirements (which are an asset’s life cycle are also applicable to lessees), set to ensure the effective with such term sheet management of HSE risks that forming an integral part of is compliant with applicable agreements between the requirements for process and Company and its contractors. operational safety and draws on advanced technologies. In an effort to adopt a category management approach to inventory, products and services, the Company develops optimal procurement strategies to meet its needs for critical resources and seeks to establish long-lasting relations with key suppliers. The optimal procurement strategy is based on an analysis of demand for a given item and its availability on the market. When adopted, the category management approach will help to secure sustainable supplies, augment category expertise and achieve more cost-effective procurement.

Health, safety and environment risks

РThe Company is exposed to health, safety and environment risks resulting from: Accidents, incidents, fires, or other emergency situations involving damage to the Company’s active production facilities and equipment or deviation from process specifications Harm to the health of employees, contractors, visitors or local population Adverse impact on the environment from operations Penalty sanctions, suspension of operations, damage to business reputation or loss of trust on the part of stakeholders due to failure to comply with applicable HSE regulations.

45 ROSNEFT SUSTAINABILITY REPORT 2017

HR and social risks

Highly qualified and motivated people are at the heart of running a successful business. Employee motivation and competencies are becoming increasingly important to the financial performance of each business unit and the Company as a whole as it expands its global footprint and operations in challenging environments, including offshore. Based on the assessment of HR and social risks, the Company identifies risks relating to social obligations and talent shortage in certain specialist areas. Rosneft manages these risks through a variety of measures, as set down in its HR and social strategy, designed to recruit and retain highly qualified personnel, and develops and improves the existing policies and procedures covering HR management, social development, and corporate culture.

INTERNAL CONTROL Company’s needs and As part of its 2017 internal The internal control system stakeholder expectations, control program, the Company: forms an integral part of the and keeping them current Completed a set of RM&ICS and is aligned with Designing, implementing and procedures to plan, design, its goals. It is governed by the maintaining internal controls: implement and maintain Company’s Risk Management ••Planning annual procedures internal controls (incl. the and Internal Control Policy, to design, implement and classification of business the Internal Control Standard, maintain internal controls process risks and mitigating and Regulation on Designing, ••Conducting internal control controls) using an approved Implementing and Maintaining health checks (evaluating map of high-level business the Internal Control System. business process risks processes that served as a The Company acts on these and mitigating controls, basis for allocating roles and policies to establish and identifying control responsibilities between top improve internal controls deficiencies and establishing managers (process owners) that are designed to drive remediation plans) Compiled a consolidated better management and ••Designing and introducing Risk and Control Register efficiency across business standard risk and highlighting links between processes, increased reliability control matrices business process risks and of financial statements and ••Tracking progress of risks inherent in current management reports, and remediation actions financing and operating compliance with applicable Putting together an internal activities, and ranked laws and internal regulations. control methodology business processes by their and ensuring its impact on these risks. Key objectives aimed at consistent application building a robust internal Facilitating communication Corporate insurance control system include: between internal control Identifying key areas for owners including via IT tools The Company uses a number internal control improvement Providing internal of mechanisms to transfer taking into account the control training the risk of potential financial

46 Risk management and internal control

losses to insurers. The The Company also arranges following insurance coverage for all mandatory insurance is provided as part of the coverage required by federal corporate insurance program: law. Pursuant to Rosneft’s Comprehensive commercial Corporate Insurance property insurance, Standard, risks are placed equipment breakdown with solvent carriers and A- insurance and business are subsequently ceded to CREDIT RATING OF INSURERS, disruption insurance international reinsurance Comprehensive liability companies rated ‘A-’ or higher. with whom the Company insurance (CLI) The Company is regularly places risks pursuant All-risk insurance against inspected by independent risk to its Corporate construction and assembly engineers and underwriters Insurance Standard risks, complete with from international insurance civil liability coverage companies to make sure it Energy exploration takes recommended actions and development to reduce or eliminate hazards insurance covering well that could cause accidents. construction, rehabilitation and repair costs Protection for claims brought against directors, officers and senior employees (Corporate Guard D&O Liability Insurance) Motor vehicle insurance of road transport (incl. trucks and specialty vehicles), air transport and maritime transport

47 ROSNEFT SUSTAINABILITY REPORT 2017

STAKEHOLDER ENGAGEMENT

According to the corporate Rosneft uses various ways to Policy on Regional Development engage with its stakeholders and Cooperation with and in doing so it always shows Constituent Entities of the respect for their interests, Russian Federation, Rosneft’s maintains ongoing contacts, PUBLIC CONSULTATIONS stakeholders include its and promptly provides them partners and counterparties, with information on key In accordance with a statutory international and national developments in its business. procedure, the Company business associations, non- The mechanisms of engaging organizes and holds public profit and non-governmental with the key groups of the hearings to discuss the organizations, educational Company’s stakeholders, such findings of environmental institutions, as well as as employees and investors, impact assessments for Company employees, the are described in detail in the its planned operations. general public, and other following chapters of this persons that are interested in Report. The most important of A total of 127 public awareness cooperating with the Company them are public consultations campaigns of various types or rely, to any extent, on its on the environmental footprint were launched in 2017 across operations in the regions of upcoming activities, and Russia, including Yamalo- where it has a presence. roundtables that the Company Nenets Autonomous District, holds regularly in its host Primorsky, Krasnodar, regions to share opinions and Khabarovsk and Krasnoyarsk maintain partner relationships Territories, Irkutsk, Tyumen, with local stakeholders and Arkhangelsk, Murmansk, government authorities. Sakhalin, Orenburg and Samara Regions, Khanty-Mansi The Company's Sustainable Development Policy can be found at the Company's website: Autonomous District, Nenets https://www.rosneft.com/upload/ Autonomous District, the site2/document_file/ Republic of Sakha (Yakutia), development_policy_eng.pdf

48 Stakeholder engagement

Chukotka Autonomous District, Region), Saratov (Saratov the Republic of Ingushetia, Region), Usinsk (the Republic and the Republic of Komi. of Komi), and Yuzhno- Sakhalinsk (Sakhalin Region). Over 50 public consultations in the form of public hearings Key topics of roundtable and surveys were organized discussions to discuss geological and geophysical programs and Meetings with stakeholders exploration drilling activities dealt with various topics planned in the Company’s that can be arranged into license areas in the Arctic, the following major groups. the Black Sea, the Azov Sea and in the Far Eastern seas. In Development priorities each case, the public opinion of Group entities was recorded in the minutes and taken into account when As a major employer and finalizing project documentation. taxpayer Rosneft understands that the social and economic ROUNDTABLES development of regions where it has a presence depends Since 2007, Rosneft has been largely on its business. holding annual roundtable For this reason, the future discussions in each key region activities of Group entities have where it has a presence. The historically been a dominant Company meets with various theme at roundtable meetings stakeholder groups, including with local stakeholders. 127 partners, clients, public PUBLIC AWARENESS organizations, educational Stakeholders in Usinsk asked CAMPAIGNS institutions, mass media, questions about the Company’s and federal and regional operating plans and its launched in 2017 government authorities. intentions to bring new fields on stream. The roundtable These initiatives allow Rosneft discussion in Nefteyugansk not only to report on its focused on reserves additions, activities for the previous restrictions on exploration year but to have a candid and activities, and the latest open discussion of specific innovations and how they cooperation opportunities emerge in the Company. At with stakeholders. the roundtable in Krasnodar, participants were keen to 2017 was the eleventh learn about the Company’s 15 year that the Company has plans to expand its retail ROUNDTABLE DISCUSSIONS hosted these events, with network, especially into remote 15 roundtable meetings locations, while in Saratov held in host regions organized in Angarsk (Irkutsk the discussion was about the in 2017 Region), Baykit and Igarka launch of a hydrocracking (Krasnoyarsk Territory), project and its prospects. Gubkinskiy (Yamalo-Nenets Autonomous District), Izhevsk (Udmurt Republic), Komsomolsk-on-Amur (Khabarovsk Territory), Krasnodar (Krasnodar Territory), Nefteyugansk (Khanty-Mansi Autonomous District), Orenburg (Orenburg Region), Ryazan (Ryazan Region), Samara (Samara

49 ROSNEFT SUSTAINABILITY REPORT 2017

Health, safety and environment

Among matters that top the agenda of roundtable discussions are steps to minimize adverse impact on the environment, including the prevention of oil and petroleum product spills, emission control, APG utilization, waste recycling, cleaning up past damage, land reclamation, tree planting, etc.

Stakeholders in Nefteyugansk Roundtable in Krasnodar, Krasnodar Territory were pleased to note that the environmental performance results In Saratov, Rosneft was praised contractors, the condition of reported by the Company match for excellent performance during infrastructure assets, etc. the records of oversight bodies. regional fire training exercises The participants acknowledged hosted by the Russian Ministry The Company’s current road significant efforts made by the for Emergency Situations. construction projects and Company in restoring disturbed The Company reported on future plans to sponsor local land and reducing pollution. In progress in decommissioning infrastructure were brought up Krasnodar, discussion was also the underground storage tank at several meetings, including held regarding the progress and renovating treatment those held in Orenburg, Baykit achieved by the Company in facilities. The latter topic was and Igarka. Separate mention cleaning up past environmental also discussed with stakeholders in Nefteyugansk was made damage and restoring disturbed in Ryazan alongside progress about a project to repair the land. The participants discussed the on measures to improve energy bridge, which is viewed as an commissioning of a waste recycling efficiency at the local refinery. important local initiative; there facility and asked the Company were also suggestions to reduce about its plans to replace pipelines. At the meeting in Usinsk, the the size of sanitary protection oversight authorities praised the zones within municipal During the roundtable discussion in Company as it registered a zero- boundaries and abolish them Igarka, special mention was made accident rate and no cases of altogether in the areas where oil about a concerted effort to restore petroleum-product contamination facilities were decommissioned. the site after exploration drilling in 2017, and appreciated its andremove waste and scrap metal. efforts in responding rapidly to One of the issues under In Samara, the participants spoke changes in environmental law. discussion in Angarsk was how about the Company’s valuable input best to frame a tariff regime for into the tree planting campaign and Contribution to the construction companies, taking its successful efforts to upgrade development of regional into account the region’s zoning refining capacity and renovate and economy and infrastructure pattern, and how to maximize improve the pipeline network. the use of rail infrastructure Rosneft is strongly committed pending the delivery of liquid At the meeting in Izhevsk, the to supporting its host regions, bulk cargo. At the roundtable participants were pleased to note as evident by discussions with in Igarka it was noted that that the Company's integrated HSE stakeholders. The Company during the summer season system had successfully passed uses social and economic reindeer herders were able an external audit without any partnership schemes to to get temporary employment negative findings. In Komsomolsk- provide funds required for with Rosneft contractors. on-Amur, the Company reported the development of local on results of ambient air quality territories. Recent roundtable Social responsibility monitoring, purchases of non- discussions covered a broad and charity destructive test equipment, range of topics, including and the operation of a mobile integrated plans of sustainable Roundtable participants environmental laboratory. development, the use of local acknowledged Rosneft’s role

50 Stakeholder engagement

as an active contributor to local clinic, street landscaping guidance and expanding university building a more sustainable projects and support for capabilities. Stakeholders local community by helping charities were much appreciated highlight the Company’s greater indigenous peoples, organizing by the local community. involvement with secondary sports and fun events, and education institutions and the undertaking a wide range of In Saratov, the Company growing role of Rosneft Classes. charity projects and socially reported on its initiatives responsible activities. aimed at providing additional The roundtable participants protection to vulnerable groups, in Gubkinskiy pointed to the As in previous years, the voluntary health insurance and successful vocational training roundtable discussion in Baykit life insurance programs, cultural, program Oil and Gas Field was centered on the Company’s recreational and sports activities, Development that was launched landmark projects for indigenous and the Live Longer program. using the Company’s funds. In small-numbered peoples of The Usinsk community expressed Orenburg, the panelists spoke the North. The participants gratitude to the Company for about successful cases of discussed the results of earlier helping to fix the water main partnership with Gubkin Russian projects (Evenki Reindeer, Bread breaks and restore heat supply State University of Oil and Gas, for People of the North, Siberian to the Parma settlement. including collaborative efforts Sable, and Young Reindeer in building the university’s Herder School) and a new At the roundtable in educational capabilities and project called Evenki Geese. Nefeyugansk, the local authorities physical infrastructure. thanked the Company for At the roundtable in Izhevsk, the participants thanked the Company for its efforts to expand cooperation with Udmurt State University, arrange internship programs for students, and organize a regional workshop for young professionals. Discussions in Samara were focused on the agreement between the Company and Samara State Technical University, and on joint activities to improve oil treatment facilities.

The panelists at the roundtable in Saratov discussed progress toward the creation of a training Roundtable in Izhevsk, Udmurt Republic base, and also pointed to successful internship programs organized by the Company for the Stakeholders in Gubkinskiy completing a number of academic staff of core universities thanked the Company for socially significant construction and vocational training schools. becoming patron of the projects in Khanty-Mansi Kharampur national village that Autonomous District. In Angarsk, the Company was will mark its 85th anniversary thanked for its sponsorship in in 2018, and for its unwavering Education purchasing educational equipment commitment to helping families and for inviting local universities with disabled children. Another Engagement with universities to bid for its R&D contracts. signature event for Gubkinskiy to enable seamless transition At the roundtable meeting in was the transfer of the Neftyanik from university to the workplace Nefteyugansk, the panelists from community center to municipal remains a key topic for discussion Yugra State University said that ownership. A project to renovate at roundtable meetings. This cooperation with the Company the community center in covers a broad range of areas helps to improve talent training Angarsk contributed to the from determining current quality and allows graduates to Company’s image as a socially needs for university graduates develop valuable competencies, responsible business, while through to collaborative effort such as creative, systemic its purchases of expensive in organizing the educational and algorithmic thinking. high-tech equipment for the process, providing vocational

51 ROSNEFT SUSTAINABILITY REPORT 2017

INNOVATION AND TECHNOLOGY ADVANCEMENTS

INNOVATION PROGRAM and large-scale digital transformation programs Rosneft drives innovation to Technology-enabled 49.2 become a technology leader access to new deposits RUB BILLION in the global energy industry and markets to achieve in line with its strategic goals. a reserve replacement in investment in Rosneft’s Innovation Program in 2017 The results of the Company’s rate of no less than 100% Innovation Program show that for liquid hydrocarbons, Rosneft advances confidently including higher speeds to in the direction of this start production, subject ambition. Currently, Rosneft to the economic viability INCLUDING implements a number of of such new projects dedicated innovation projects, Adding business value with which involve advanced a technology breakthrough 29.9 research, the deployment Technological independence RUB BILLION of new technologies and the and safety in R&D investment upgrade of existing production Key actions to achieve the processes and facilities. strategic objectives include:

In accordance with the Developing high performance decision of the Shareholders’ technologies to tap into new Meeting in 2017, Rosneft types of deposits and regions adopted a new growth Developing new products and strategy – Rosneft-2022. processes in oil refining and The strategy outlines the petrochemicals production, following key objectives: including new catalysts Growth in hydrocarbon Introducing smart production supported by production processes, best-in-class technologies digital technologies and innovative software solutions

52 Innovation and technology advancements

Developing innovative implemented a number of key equipment and materials projects, including the following: to address current and future challenges Exploration and production

Rosneft’s spending under its Building and starting AS OF YEAR-END 2017, Innovation Program totaled after successful tests ROSNEFT OWNED RUB 49.2 billion in 2017, a preliminary water with RUB 29.9 billion going discharge system at the toward R&D activities. Barsukovskoye field operated 604 by RN-Purneftegaz PATENTS Rosneft continued in 2017 to Developing a framework place a particular focus on for formation studies and the implementation of R&D tests at the Berezovskaya results and the protection of suite. Developing a regional intellectual property rights. The conceptual framework, Company filed 49 applications including lithofacies analysis, for patents and software rights, and a schematic map for and obtained 52 patents in the generation potential 2017, with the total number of the Upper Cretaceous of patents reaching 604. of Western Siberia Under a pilot-testing program, Developing, adjusting Rosneft continued to test, and testing a slick water adapt and implement advanced hydraulic fracturing technologies, defining the technology for low key features of new solutions permeable reservoirs at and studying the technical, the Cherkashinskaya and economic and operational Bazhenovskaya suites, feasibility of their deployment in based on a solution used the Company’s geological and for tight oil deposits in technical conditions. Rosneft the US and Canada spent RUB 3,156 million on Developing and introducing testing new technologies and techniques for identifying another RUB 24,377 million on stagnant areas with little implementing and rolling out water movement in low solutions tested successfully permeable reservoirs, in previous years. and enhancing recovery through infill drilling Technology testing and Starting a project to improve deployment in 2017 an integrated approach to modeling and monitoring The Company undertakes exploration activities at projects in various areas, tight deposits such as the including oil and gas Kamenny license block of exploration and production, oil the Krasnoleninskoye field refining and petrochemicals. Preparing a polymer flooding In 2017, Rosneft also plan for a pilot project at the Russkoye field operated

TOTAL OIL PRODUCTION NUMBER OF TOTAL ECONOMIC GAINS, THOUSAND TECHNOLOGIES EFFECT, RUB MILLION TONNES

Technology testing 175 177 1,350

Technology deployment 103 1 091 8 331

53 ROSNEFT SUSTAINABILITY REPORT 2017

by Tyumenneftegaz. along with a process to Running core flow testing produce synthetic crude oil Starting a R&D project to from catalytic conversion develop a SAGD three- Completing work on draft reservoir model technology technical specifications for the exploration of for synthetic crude oil and oil with extremely high synthetic, isoalkane-rich viscosity to be tested at crude oil suitable for the Karabikulovskoye field transportation via trunk operated by Samaraneftegaz pipelines and refining. Developing a software solution for detecting Oil refining and fractured-cavernous petrochemicals reservoirs by scattered waves extracted from Running successful trials on seismic data for Gaussian pilot batches of isodewaxing beam monitoring systems and hydrofinishing catalysts Completing pilot tests on a to produce winter and unique Russian-developed Arctic diesel fuels, which electromagnetic probing showed a high catalytic solution for high-resolution activity and product yields of well logging to investigate more than 95% by weight formations with a high Completing work on input number of beds and data for designing a anisotropic rock properties. process to produce highly Developing and building an dearomotized white oils in-field calibration tool and based on modern catalytic a solution for the processing hydrotreating processes, and interpretation of and waxy base for Arctic electromagnetic probing lubricants, including data, and refining design and hydraulic lubricants, engineering documentation motor oils and grease Developing and testing Developing an experimental corporate IT infrastructure technology for the production modules for hydrodynamic of fire-resistant oil for the modeling of formations lubrication and maintenance Completing work on the of turbine generators in development of a software Russia’s nuclear power solution for ranking hard- industry to use instead of to-recover reserves to oil based on extremely toxic support oil engineering phosphorus oxychloride. processes, which was Laboratory-scale samples subsequently tested by of the new product are Tyumen Oil Research Center similar in properties to and RN-UfaNIPIneft new generation fire- Completing work on the resistant oils produced by development of a hydraulic international companies fracturing simulation tool Developing the chemical for corporate applications, composition of a catalyst which is currently deployed and its synthesis process to on a trial basis across produce PAOs – synthetic Rosneft’s subsidiaries base oils with a high viscosity index for applications such as APG monetization transmission oils and highly loaded units and mechanisms Developing the chemical Developing an experimental composition of a catalyst technique for the and its synthesis process hydrogenation of acetone to produce synthetic, to isopropanol, a simple isoalkane-rich hydrocarbons, and widely used process

54 Innovation and technology advancements

enabling phenol and acetone producers to diversify into higher margin products and increase profits Developing technical specifications and programs to test synthetic oils for applications in the space industry. The tests showed that esters, PAOs and synthesized monocyclic cycloalkanes can be successfully used as synthetic oil base for the space industry. Developing a compound of additives for all-season energy efficient hydraulic oils to substitute for imports currently used by the Company and give it Polymer of ultra-lightweight a competitive edge as a PDCPD-based resin-coated producer of energy efficient Developing an experimental proppants and adjusting hydraulic oils for industrial technique to produce the process to generate equipment and vehicles ultra-lightweight PDCPD- precursors for resin-coated Running successful tests based resin-coated proppants, including the on a multi-functional proppants adapted for polymerization stage relying additive for commercial manufacturing purposes on the pre-generation of gasoline produced by Scaling the experimental monodispersed monomers. Syzran Oil Refinery to process, developing a This method enables a higher study its performance technology for the production generation of spherical

POLYMER-MODIFIED BITUMEN APPLICATION IN THE CONSTRUCTION OF THE M-4 DON HIGHWAY

In line with the Russian Government’s roadmap to promote innovative technologies and materials, RN-Bitum29 supplied polymer-modified binder based on selected properties for the experimental construction of an M-4 Don section in Krasnodar Territory. Work is also underway to build test sites in different climatic zones under a cooperation agreement between Rosneft and State Company Avtodor. Mapping climate zones is a difficult process as a range of road operating conditions should be taken into account, including the local climate, traffic loads, intensity and patterns. According to tests run by an independent research center, polymer-modified bitumen made by RN-Bitum conforms to the highest standards, enabling a better performance of asphalt concrete. RN-Bitum and State Company Avtodor are monitoring the performance of the experimental sections at the M-4 Don highway in partnership with independent research centers.

29 Rosneft’s subsidiary

55 ROSNEFT SUSTAINABILITY REPORT 2017

PDCPD beads of desired cut systems. Rosneft has become CORPORATE RESEARCH at the polymerization stage the first Russian company to AND DESIGN COMPLEX (an increase of up to 76%) pass the certification audit of its innovation management system, The Corporate Research and For details about Rosneft’s reaffirming its commitment Design Complex is Rosneft’s activities in the Arctic, see the to become a technology core platform for making R&D section Offshore Projects. leader in the industry. and engineering decisions across the Company’s areas Innovation management As part of its focus on improving of operations. This Complex system certification innovation management, Rosneft is responsible for all kinds of updated and adopted the following innovations, from exploration In 2017, Rosneft successfully internal regulations in 2017: activities to the delivery passed a compliance audit of The Company’s Innovation of end-products in the its innovation management Policy outlining corporate petrochemicals and oil and system certified according to principles and approaches gas processing industries, the GOST R 56273.1-2014. to innovations supporting the Company's The Company’s Innovation operations across Russia and The Russian standard is Classification Principles abroad. Today the Complex identical to the CEN/TS that lay down criteria for combines 27 corporate R&D 16555-1:2013 standard designating Rosneft’s services and design institutions run (Innovation Management. Part and goods as innovations or by Rosneft that employ over 1. Innovation Management R&D projects, including for 12,000 skilled workers, System), outlining requirements the procurement of innovative with 5% of them holding for innovation management or high-tech products. one PhD degree or more.

CENTRALIZED MANAGEMENT OF R&D AND DESIGN INSTITUTIONS

FOCUS AREAS OF LEAD INSTITUTIONS:

Research Engineering Research in Refining Engineering in Refining in Exploration in Exploration and Petrochemical and Petrochemical and Production and Production Processes Processes

30 SPECIALIST INSTITUTIONS

56 Innovation and technology advancements

Leading institutes

In 2017, Rosneft introduced centralized management for its R&D and design institutions and 27 designated four lead institutions with the following focus areas. CORPORATE R&D AND DESIGN INSTITUTIONS > 12,000 This structure of R&D and UNITED BY THE CORPORATE SKILLED WORKERS design institutions, which vary RESEARCH AND DESIGN COMPLEX in the type of core activity, employed by the the number of employees, Corporate Research competencies, IT capabilities, and Design Complex other infrastructure and the number of subsidiary organizations, enables: Synergies from the mobility of intellectual Better quality and more informed and effective capital and capabilities shorter design times engineering decisions, balancing The right environment workloads across R&D and to provide consistent Monitoring and enhancing design institutions, driving methodological support for R&D activities is a key priority research in existing and the activities of all R&D for lead institutions that new fields, promoting digital and design institutions help the Company achieve transformation, expanding Consistent approaches better performance and R&D capabilities and providing to implementing technical move forward in line with the methodological support for policies, providing training Rosneft-2022 strategy. The the Group's companies. and fostering a shared lead institutions play a crucial information environment role in enabling quicker,

R&D LEADERSHIP COMPETITION

Rosneft held its R&D Leadership Competition in Moscow in April 2017 to recognize the most talented researchers, managers and project teams in its R&D institutions. For the first time in its history, the competition was held in an in-person format, providing a platform for the exchange of professional experience and knowledge. The 27 institutions nominated more than 50 projects for participation in the competition, with half of them making it into the final. A jury composed of the Company's line managers selected winners in eight categories.

57 ROSNEFT SUSTAINABILITY REPORT 2017

Specialized institutes procurement documents for specialized institutes focusing 102 categories of goods to on industry standards teamed Specialized institutes act as improve the procurement up with Rosstandart’s Technical centers of excellence within process in the long run and Committee on Oil Fuels and their area of focus. They are reduce the number of goods Lubricants to develop and primarily responsible for: procured by the Company update 24 standards for oil and Providing methodological Adoption of 14 internal oil products. Rosneft experts and advisory support for regulations of the Company performed an assessment of Group entities regarding outlining design rules and more than 80 standards and matters within their scope mechanisms for the selection regulations that have relevance Monitoring technology of the best design solutions to the Company’s operations. advances in their focus area Identifying, developing, In 2017, the institute developed Technology Council testing and implement- and deployed tools to make ing new technologies the system of standard design In line with its strategic priorities, Developing, implement- solutions more sustainable and Rosneft also made the first ing and disseminating efficient, including mechanisms steps in 2017 to establish regulations, guidelines and and incentives to encourage the its Technology Council. The methodological materials use of standard design solutions Technology Council will be Maintaining databases, where possible, automation responsible for handling matters including databases on solutions for standard designing related to the development and design concepts, completed processes, a dedicated website implementation monitoring of projects and deliverables to create a shared information technology strategies across environment and training in the Company’s activities, driving One of such institutes cur- how to use the system. Thanks its innovation growth through rently continues work to to the use of standard design partnership and cooperation with develop and deploy a system solutions, the Company expects external stakeholders engaged in of standard design solutions to save around RUB 50 bil- innovations, and introducing new to support Rosneft’s opera- lion in capital expenditures in IT solutions. The key objective tions. The key highlights of this 2018-22, the period covered of this standing advisory council work in 2017 included: by the Rosneft-2022 strategy. will be improving the quality Increased usage of standard of innovations and technology design solutions under In 2017, Rosneft continued to advances. The Technology Council surface infrastructure participate in working groups will feature representatives of development projects for oil formed under the Federal companies that are leading the and gas fields (up to 50%) Agency for Technical Regulation pack in innovative technologies, Development and practi- and Metrology (Rosstandart) to top Russian universities and cal evaluation of standard develop standards. One of its development institutions.

58 Innovation and technology advancements

International R&D the production of thruster cooperation elements for the first vessels.

The Corporate Research and Two new agreements on Design Complex cooperates strategic partnership were closely with global engineering signed in 2017, including: companies. Currently, it has An agreement with SNC- engineering and technology Lavalin on the sidelines of partnership arrangements the 21st St. Petersburg with General Electric (Sapphire International Economic Engineering and Training Forum to establish a high- Center), Fluor (Sakhalin Oil and tech engineering center as Gas Technologies), SNC-Lavalin a joint venture. The center’s (VNIPIneft) and ExxonMobil focus will be on engineering (Arctic Scientific Center). and project management. It will have world-class In particular, Sapphire capabilities to run capital Engineering and Training construction projects in the Center has been established refining and petrochemicals to enable Rosneft's projects industries, which will drive relying on a wide range of the development of Rosneft’s General Electric’s products Corporate Research and technologies, from concept and Design Complex selection to support and An agreement on strategic monitoring at the project design cooperation with Saipem and execution stages, to ensure SpA on the sidelines of the safety, efficiency and reliability. 10th Eurasian Economic One of the priority projects Forum in Verona. The focuses on the development agreement provides for of a 7.5 MW azimuth thruster closer cooperation in many for multi-purpose, reinforced areas, including oilfield ice-class supply vessels services, the localization of to be built at the Zvezda design and engineering work shipyard. In 2017, work was in Russia, the development completed to draw up a design of new technologies and solution, obtain approval for the establishment of a it from the Russian Maritime joint engineering center. Register of Shipping and start

59 ROSNEFT SUSTAINABILITY REPORT 2017

PARTNERSHIP WITH offshore license blocks in the Company's priority areas UNIVERSITIES AND the Arctic and the Far East are underway. Three projects INNOVATION CENTERS Under a R&D initiative to more are planned or 2017-19. design solutions for a longer To deliver on the objectives of drilling season on mobile Work continued to develop its Innovation Program in 2017, offshore drilling platforms job competencies under an Rosneft pursued a number under ice conditions, innovation project aimed at of initiatives as part of its Rosneft accomplished in introducing competency-based cooperation with universities 2017 the following: performance evaluation and and research organizations. ••Development of a testing professional development program for floating and programs across all business Cooperation with Far Eastern jack-up rigs in the ice basin segments in collaboration Federal University focused ••Development of ice with Gubkin Russian State on the following areas: protection solutions for University of Oil and Gas, Tomsk Developing functional and the riser of jack-up rigs Polytechnic University and technical requirements and ••Assessment of impacts leading advisory firms in Russia. project documentation for that proposed solutions an IT system to perform can have on the duration The Company also cooperated an economic and technical of the drilling season in R&D with Siberian Federal assessment of offshore University’s Oil and Gas development activities As part of cooperation with Institute, Samara State as part of a dedicated Moscow State University Technical University, Tyumen innovation project and the National Intellectual State University and Tyumen Drilling in a fast ice zone Development Foundation, Industrial University. to evaluate the offshore 21 R&D projects were permafrost conditions selected for implementation in To enhance interactions with of the Khatanga license 2013-19 on commission from the innovation community and block under an innovation Rosneft. The first six projects empower efforts to develop an project focusing on the have been completed, with innovation transfer framework, creation of a database of the relevant deliverables to be the Company joined the environmental and seabed put into practice at Rosneft. National Technology Transfer soil parameters on Rosneft’s Twelve projects focusing on Association. The association

60 Innovation and technology advancements

unites leading Russian 307 suggestions as sound universities, R&D centers, and implementing 197 to manufacturers, venture capital improve operations. Inventors funds, development institutions, received monetary rewards. technology brokers and other In addition, Rosneft employees providers of infrastructure submitted 4,215 ideas for services to support R&D improvements, with 611 of and innovation projects. them put into action.

Efficiency improvements The economic effect from such improvements in 2017 is Rosneft pursues efficiency estimated at RUB 3.7 billion. improvement projects and inventive activities in accordance with its in-house standards. Rosneft received 1,354 improvement suggestions in 2017, recognizing

DEVELOPMENT OF A MEMBRANE FOR A BIOREMEDIATION PRODUCT CAPABLE OF OIL DEGRADATION AT LOW TEMPERATURES 1,354 IMPROVEMENT SUGGESTIONS received by Rosneft in 2017 197 IMPROVEMENT SUGGESTIONS

AND 611 IDEAS PROPOSED BY EMPLOYEES FOR IMPROVEMENTS PUT INTO ACTION

As part of an Innopraktika-sponsored project run jointly with Rosneft, Moscow State University researchers set to work in 2017 to develop a membrane for a microbial formulation that can be applied at low temperatures to remove oil and oil products from soils, seawater, shorelines, vessels and platforms. The project began in 2014, with the team successfully identifying more than 100 psychrophilic oil-degrading bacteria strains during the period. They developed a methodology for a stepwise 3.7 selection of bacteria that are best at degrading petroleum RUB BILLION hydrocarbons. This methodology helped select the best in economic effect from performing strains which were patented and added to the improvement suggestions All-Russian Collection of Industrial Microorganisms.

61 ROSNEFT SUSTAINABILITY REPORT 2017

HEALTH, SAFETY AND ENVIRONMENT

OCCUPATIONAL As part of its integrated and an important focus in HEALTH AND HSE system, Rosneft has relationships with stakeholders, SAFETY MANAGEMENT committed to the following: including contractors. SYSTEM Prioritizing the safety and health of people The Rosneft-2022 strategy HSE policies and strategies over productivity adopted by the Board of Prioritizing emergency Directors in December As Russia’s top oil and gas prevention apart 2017 outlines the Company’s producer and a global industry from detection and mission, target indicators and leader, Rosneft understands management programs priorities for the HSE agenda. the scale and nature of Improving the sustainability the impact that may be of operations by protecting The key strategic objective is caused by its operations and and restoring natural to receive top marks in global takes a responsible attitude resources, including through rankings for accident-free to stay accident free, improve land reclamation programs operations, create a safe workplace safety and minimize Minimizing a negative environment for workers and its environmental footprint. impact on the environment communities living in areas from operations where the Company operates The Company’s mandate is Conserving ecosystems and minimize a negative to ensure a safe environment and biodiversity, especially environmental impact. for its workers, partners and during offshore activities communities in regions where at environmentally By 2022, Rosneft is determined it operates. To deliver on its sensitive areas to make it into the upper commitment, Rosneft is focused quartile of global oil and gas on improving processes, Adhering to the Company’s companies in HSE performance increasing the reliability of top standards in occupational as measured by indicators such equipment to ensure its safety, health and environment, as LTIF, LWIF, Tier 1 PSER and safety and zero accidents and including fire safety, is the greenhouse gas emissions. implementing new technologies. responsibility of all employees

62 Health, Safety and Environment

The integrated HSE system is centered around the following six elements:

ELEMENT DELIVERABLES

Managers at all levels lead by example to foster an ethical culture and leadership in HSE in line with the Company’s priorities. Leadership and safety culture Rosneft cooperates with contractors based on clear expectations, with managers interfering only when contractors fail to meet them.

There is a robust management framework for HSE talent and competencies, which the Company tries to embed in every activity it does. Competencies HSE knowledge and achievements are highly appreciated across the Company, which reaps benefits from their good management.

Clear requirements for occupational safety are in place, prioritized and easily accessible for all employees. Employees know well how to comply with safety rules Safety management and what they are personally responsible for. system Transparent reporting and accident investigations help identify the root causes and drive a continuous improvement culture in management.

There is a monitoring system to track compliance with Monitoring the Company’s standards and ensure that corrective action is taken where necessary depending on priority.

Rosneft has underlying principles in place to ensure technical integrity and reduce the number of accidents and incidents. Risk management and integrity HSE risk management enables better long-term decisions and is embedded in the day-to-day activities of employees to reduce the number of injuries.

The Company systematically compares its HSE performance against competitors’ to align strategies Reporting and action plans toward achieving HSE goals. and performance measurement Automation tools empower data collection, reporting and review processes.

63 ROSNEFT SUSTAINABILITY REPORT 2017

To improve its sustainability in 2017 an HSE Committee It is in charge of reviewing performance as desired, which is made up of functional follow-up reports on stressful Rosneft has tied incentives and business unit leaders. The events and annual HSE for top managers to Committee provides a platform performance reports that contain sustainability targets to for handling HSE matters at the current and historical data on encourage leader sponsorship highest corporate level, prioritizing injuries, traffic incidents and and top-down approaches. occupational and environmental fires expressed in absolute and safety issues for reporting to top relative values by business unit. HSE Committee managers and giving assurance regarding HSE risk management In an effort to improve its HSE through its sustained focus on performance, Rosneft established improving related practices.

INTEGRATED HSE SYSTEM

OHSAS 18001

Occupational Health and Safety Management System The Company maintains an integrated HSE system certified in 2006 according to the ISO 14001:2004 environmental management standard and the OHSAS 18001:2007 professional health and safety standard. In 2017, the Company successfully passed an annual compliance audit for the system whose implementation, maintenance and improvement was recognized ISO 14001 by the auditors as efficient and effective. As a result of the audit, two more subsidiaries of Rosneft – Samotlorneftegaz Environmental and RN-Lubricants – obtained conformance certificates. Management System A total of 53 Group entities passed the certification process.

64 Health, Safety and Environment

OCCUPATIONAL HEALTH AND SAFETY

KEY OHS INITIATIVES its subsidiaries from accidents IN 2017 and incidents in the past.

As part of its commitment to In 2017, Rosneft set on a task improving occupational safety to “reboot” its Golden Safety and achieving zero accidents, Rules, improving their visibility Rosneft runs various OHS and running an extensive programs, cooperates with awareness campaign to get key stakeholders in an increasing messages across using a multi- number of areas, adopts best channel approach, which practices and pursues safety included mandatory briefings, promotion and awareness different types of training and programs for employees to motivational activities such reduce accidents and injuries. as art contests, surveys and publications. The Rosneft CEO Golden Safety Rules and other high-level executives addressed employees of To strengthen its safety Rosneft and contractors to culture and promote informed emphasize the importance leadership in OHS among of adhering to safety rules employees of Rosneft and both at home and at work. 300,000 contractors, the Company adopted the Golden Safety More than 300,000 employees EMPLOYEES AND CONTRACTORS Rules back in 2014. They passed tests as part of the outline basic guidelines for implementation process for the successfully good safety practices based Golden Safety Rules in 2017. passed a test on on the related experience of the Golden Safety Rules global oil and gas leaders and lessons learned by Rosneft and

CELEBRATION OF THE WORLD DAY FOR SAFETY AND HEALTH AT WORK

The Company ran a number of initiatives on 28 April 2017 to celebrate the World Day for Safety and Health at Work and engage as many employees as possible in safety.

Those included the launch of a corporate portal devoted to occupational health, safety and environment, including fire safety, as a source of reference in safety matters for employees. The vice president for HSE delivered a special address, and conversations about safety were held among employees, along with surveys. The celebration program also featured safety quizzes and trivia across subsidiaries.

65 ROSNEFT SUSTAINABILITY REPORT 2017

OHS Leadership To foster OHS leadership OHS awareness programs skills among managers at all focusing on safety messages, As the Company grew in scale in levels across subsidiaries, including lessons learned 2017, the safety of employees, Rosneft adopted in from incidents in the past partners and local communities 2017 formal OHS leadership moved up its agenda. criteria, which include: Personal leadership goals in Personal participation OHS are annually established All managers in Rosneft are in risk assessment and for managers at all levels based responsible for enhancing OHS occupational safety analysis on such formal criteria, with performance by demonstrating to ensure compliance with year-end results consolidated safe behaviors and leadership, the Golden Safety Rules into company-wide rankings. establishing a clear segregation Cooperation with contractors of duties and responsibilities, in OHS: participation in Rosneft has an OHS culture mobilizing resources and behavior-based safety audits, and informed leadership enabling the continuous a focus on OHS matters at program that envisages many improvement of processes meetings and occupational activities, including the Safety through regular measurement, safety inspections to Leader initiative to build safety assessment and monitoring. monitor compliance with with incentives, rewards and the Golden Safety Rules recognition. The initiative was The key elements of Meetings with employees run at six subsidiaries on a pilot corporate leadership in OHS to discuss current basis in 2016 and rolled out include vision, commitment, challenges, goals and across 15 companies more in expertise and integrity. commitments in OHS the exploration and production, refining, and distribution and sales businesses in 2017. The key objective is to recognize and reward IMPROVEMENTS IN AIR SAFETY employees for good safety performance and discourage dangerous behaviors.

All employees of Group entities are welcome to participate in the program under which each participant is assigned a certain score at the beginning of a year to be upgraded or downgraded during the year depending on their safety-related behaviors and contribution to the prevention of incidents and violations of OHS rules. The year ends with the recognition of safety- conscious employees as Safety The Company places a particular focus on flight Leaders or Champions and safety. It took a number of measures in 2017 to distribution of monetary prizes. improve its overall performance in flight safety as the use of air transport expanded. Rosneft signed Cooperation with several long-term contracts with airlines on condition that partners in OHS they upgrade their fleet and introduced a ban on the use of one-motor helicopters for the carriage of passengers. The Rosneft signed a cooperation Company also adopted a group-wide air transport regulation agreement with BP on the aligned with international standards. In addition, 27 client- sidelines of the 21st St. side operational safety audits were conducted at airlines Petersburg International Economic providing services to 22 Rosneft subsidiaries. Thanks to such Forum in 2017 to exchange initiatives, Rosneft’s overall safety indicator increased by best practices, information 11.93% year-on-year to reach 99.90% in 2017. The average and technologies in order to age of the helicopter fleet lowered from 31 to 12 years. improve OHS performance and incident response.

66 Health, Safety and Environment

A workshop on global leadership Cooperation with of the Russian Government) to in occupational safety was government authorities assess implications, introduce held in Moscow in October new provisions and refine 2017, bringing together In 2017, Rosneft continued regulatory requirements, Rosneft top managers to to participate in legislative recommending improvements discuss safety performance initiatives to improve Russia’s for most of them. In addition, across industry lines based HSE regulatory framework. Rosneft employees cooperated on benchmarking analysis and In particular, Rosneft experts with Rostekhnadzor's Science and outline major HSE leadership participated in debates on Technology Council in developing principles for the Company. 128 draft HSE laws and bylaws methodological recommendations sponsored by ministries and other for classifying man-made To exchange experience and government agencies (including occupational incidents and best practices in OHS, Rosneft draft laws, draft orders of the accidents at hazardous sites in employees visited production Federal Service for Environmental, the oil and gas industry. These sites run by partners in Technological and Nuclear guidelines will become an essential Rotterdam and Baku. Oversight (Rostekhnadzor) and reference point for classifying ministries, and draft directives such incidents and accidents.

Rosneft First Vice President Eric Liron (left) and BP Executive Vice President S&OR Robert Fryar at the workshop on Global Safety Leadership

67 ROSNEFT SUSTAINABILITY REPORT 2017

Introduced fine rates performance in traffic safety. for contractors for HSE The key objective of Rosneft’s violations depending on traffic safety management their gravity, a widely used system is to reduce accidents Cooperation in HSE tool to motivate managers and other potential risks with contractors of contracting companies associated with the carriage to implement a robust HSE of passengers and cargo. Rosneft understands the management system in importance of ensuring that order to minimize accidents, In line with its commitment its contractors comply with job-related injuries and under the newly adopted HSE requirements. As part occupational diseases. regulation, Rosneft of this focus, the Company conducted various initiatives, issued a number of decisions Road traffic safety which included: in 2017 to establish additional Training of more than HSE requirements for Ensuring road traffic safety is 20,000 drivers in contractors and extend them an important element of overall defensive driving beyond the delivery stage to operational safety culture for A project to equip the the bid qualification process. the Company. In 2017, Rosneft Company’s fleet and In particular, Rosneft: adopted a framework for its contractor vehicles with Made amendments traffic safety management on-board monitoring systems to the in-house HSE system that extends beyond and dashboard cameras. Requirements for providers Rosneft and its subsidiaries of services contracted by to contractors and Industrial safety the Company to increase subcontractors. This regulation their liability for safety outlines basic requirements Improving the integrity violations and establish for vehicles, special equipment, of production was in the eligibility requirements drivers, operators, maintenance focus of all business units regarding their staff’s and repair services, and of Rosneft in 2017. qualifications and health responsibilities. Compliance is a prerequisite for sustainable Companies in the exploration and production business continued to make progress ROAD TRAFFIC SAFETY INITIATIVES under their Pipeline Safety Program. The program, which uses a risk-based approach, embraces the following components: pipeline reconstruction, major repairs, inhibition and inhibitor screening. All reconstruction work and major repairs are done using modern materials in the pipeline industry. The failure rate for pipelines decreased by 23% year- on-year in 2017 as a result of program initiatives.

Rosneft also introduced an in-field pipeline ranking process Rosneft held four road traffic safety initiatives in in 2017 to identify critical 2017, including Safe Road, Slow Down for Kids, pipeline sections with high Car-free Day and We are For Road Safety 2017. failure risks and prioritize them for planning reconstruction and The awareness campaign featured safety topics in corporate major repairs. The process was periodicals, road traffic safety conversations with employees implemented in 11 subsidiaries and an address by the Rosneft vice president for HSE to and is expected to be rolled highlight the importance of safe behaviors on the road. out further across the Group.

68 Health, Safety and Environment

Rosneft continues work on solution to keep an automated to sites run by East Siberian developing a uniform approach record of all failures. This Oil and Gas Company. for identifying and keeping system incorporated 22 Group track of pipeline failures. The entities as of the end of 2017. Company uses an OIS Pipe In 2018, it is to be extended

PIPELINE FAILURES AND OIL SPILLS, EXPLORATION AND PRODUCTION BUSINESS

Period 2015 2016 2017

Total pipeline failures (in-field oil pipelines, gas pipelines and water pipelines) 8,841 7,827 8,42830

Total pipeline failures per million tonnes of oil and gas condensate produced 43.6 35.3 37.4

Total pipeline failures resulting in oil spills 5,688 5,034 5,312

Crude oil and petroleum product spills due to pipeline failures, tonnes 855 694.5 684.3

Crude oil and petroleum product spills due to pipeline failures per 4.2 3.1 3.0 million tonnes of oil and gas condensate produced

Rate of pipeline failures per kilometer per year 0.14 0.13 0.10

PIPELINES: BASIC CHARACTERISTICS AND SAFETY IMPROVEMENTS, KILOMETERS

Period 2015 2016 2017

Total length of in-field pipelines 85,652 88,463 116,358

Total length of in-field pipelines in operation at period end 61,522 62,630 82,513

Reconstruction and repair of in-field pipelines 1,320 1,276 1,426

Inhibition of in-field pipelines 24,118 22,960 27,301

Internal cleaning of in-field pipelines 10,968 10,360 12,980

Diagnostics and examination of in-field pipeline safety 21,233 18,138 23,998

30 The increase in the pipeline failure rate was due to the incorporation of new assets into the Company’s perimeter (Bashneft) in 2017. Ratios of pipeline failures to other indicators, however, dropped, and their aftermath was less significant. The 2016 data did not include pipeline failures at Bashneft, while the 2017 data includes all of them.

69 ROSNEFT SUSTAINABILITY REPORT 2017

Group entities engaged in the A program was completed Personal and process oil refining and petrochemicals to improve the fire safety safety expenditures, businesses pursue various of residential buildings at including fire safety and programs to increase the sites operated by Rosneft blowout prevention costs integrity of equipment and and its contractors (trailers, prevent accidents, which bunkhouses in rotation villages, The Company spends significant involve the elimination of dead etc.). Continuous monitoring funds on personal and process ends in process pipelines, is in place at such sites to safety programs that also the replacement of carbon maintain fire safety at a high focus on the prevention of fires steel process pipes with level. Action taken helped and blowouts. In 2017, the chromium-molybdenum models prevent fires and injuries. spending for these purposes that have welded joints of An emergency response totaled RUB 56,208 million. austenitic stainless steels and was early and prompt, follow-up action on violations with no damage caused. detected by regulators. As a follow-up on independent Fire safety audits conducted to evaluate the fire safety of refining Rosneft takes consistent efforts and petrochemicals facilities, to improve fire safety at its Rosneft developed programs Expenditures on personal and process safety, facilities. To prevent fires at to make them safer. including fire safety and blowout prevention, its tank fleets, the Company RUB million carried out a stock-taking In addition, the Company 56,208 of tanks whose service life developed and introduced was repeatedly extended. targets in different areas 42,949 44,257 As a follow-up on the for fire departments across inspections, a number of Group its sites to reduce damage entities developed modernization from fires and prevent deaths strategies for tank fleets, through an increased alertness. involving the replacement, major repairs, reconstruction and upgrade of tanks. 2015 2016 2017

70 Health, Safety and Environment

OHS ACHIEVEMENTS business, the Company always mishandling of equipment. It is IN 2017 places a particular focus important to note that there on registering, investigating were no injuries or fatalities The Company has seen a rapid and analyzing incidents to caused by these accidents. growth in recent years led by improve OHS indicators both strategic acquisitions for the new assets. Group entities took action and internal efficiency gains. A to improve the safety successful integration of newly Rosneft took measures in of equipment by: acquired businesses, including 2017 to ensure that a proper Developing a program to Bashneft, requires a transition record is kept of all injuries. install or upgrade fail-safe period for their employees to As a result, the number of systems and distributed adapt to a new safety culture, recorded injuries increased in control systems and including the Company’s 2017 due to the expansion of create one key for shutting policy requirements regarding the Company’s asset portfolio. down refineries when accident and injury prevention. At the same time, the injury an emergency occurs The transition period is severity rate dropped by Reviewing local and also necessary for building 20%. The contractor-related on-site alarm systems transparent and consistent fatality rate also lowered. across Group entities. relationships with contractors and subcontractors to reduce In 2017, the Company reported accidents and injuries on their 11 accidents, which were largely side. After acquiring a new due to process violations and

COMPANY-RELATED INJURIES

Period 2015 2016 2017

Incidence of fatal injuries per 100 million hours worked31 4.76 2.28 1.87

Incidence of non-fatal injuries per million hours worked32 0.33 0.21 0.3633

Total occupational injuries among employees 158 101 211

including fatalities 23 11 11

Lost Time Injury Frequency Rate (days away from work due to an 18.27 17.43 23.51 incident or occupational illness) per million hours worked34

Incidence of occupational illnesses per million hours worked 0.12 0.116 0.11

CONTRACTOR-RELATED INJURIES

Period 2015 2016 2017

Total occupational injuries – contractors, 126 121 140

including fatalities 22 43 13

ACCIDENTS AT ROSNEFT'S SITES

Period 2015 2016 2017

Number of accidents35 9 8 1136

including those with environmental impact37 5 0 0

31 The number of deaths among the Company’s employees, including through the fault of third parties, per one hundred million hours worked. 32 The number of occupational injuries among the Company’s employees, including deaths and through the fault of third parties, per one million of hours worked. 33 The higher injury rate in 2017 was due to new assets added to the Company’s portfolio, including Bashneft, and steps taken by the Company to make the incident reporting process more transparent. 34 LTIFR (Lost Time Injury Frequency Rate)refers to the number of lost time injuries occurring in a workplace per one million hours worked. 35 The number of accidents excludes controlled and uncontrolled flows of oil, gas and water. 36 ВThe Company’s portfolio expanded in 2017 after the acquisition of new assets, including Bashneft. Four out of the 11 accidents in 2017 occurred at Bashneft’s sites.. 37 According to the classification of the Federal Service for Natural Resource Management, environmental impact occurs when environmental damage extends beyond an industrial site.

71 ROSNEFT SUSTAINABILITY REPORT 2017

ENVIRONMENT

ENVIRONMENTAL MANAGEMENT SYSTEM

Environmental sustainability highlights in 2017

Environmental protection lies at the heart of Rosneft’s corporate culture and social responsibility. The Company is undertaking large-scale efforts to improve its environmental performance and resource sustainability. To achieve better environmental sustainability, Rosneft continues to improve environmental management approaches, scale up environmental initiatives and invest in environmental protection.

Rosneft’s key environmental protection priorities in 2017 under its Environmental Management Efficiency Program included: Meeting environmental obligations as part of day- to-day operations (land reclamation, sludge removal and waste treatment) Repairing damage done by third parties Reducing air pollutant emissions Increasing water recycling and reuse, sustainable management of produced water and installation of water treatment systems environmental campaigns The Year of Ecology As part of enhancing its to promote environmentally at Rosneft – outcomes environmental protection responsible behaviors and and plans framework, Rosneft updated in conserve biodiversity in regions 2017 its Waste Management of presence. It also cooper- With 2017 declared as the Standard and adopted the ates with various stakeholders Year of Ecology in Russia Remediation of Disturbed and to exchange experience, by a presidential decree, Rosneft Contaminated Land Standard. improve the legal framework gave top priority to the envi- and advance environmentally ronmental protection theme. Apart from the Environmental sustainable practices. Management Efficiency Pursuant to an agreement Program, the Company signed with the Russian Ministry pursues a great number in of Natural Resources and Environment and the Federal

72 Environment

Service for Monitoring the structures being 60 years. Congress of Environmental Use of Natural Resources More than 4,000 units of Experts at which they delivered (Rosprirodnadzor), Rosneft equipment were procured and their reports on environmental implemented eight environmental delivered at the construc- challenges, best practices projects included in the Russian tion site, with 70% of them and innovative solutions, Government’s Plan of Key sourced locally. The project is summed up the performance Actions for the Year of Ecology. estimated at RUB 11.5 billion. of Rosneft’s subsidiaries, and Rosneft spent RUB 29.7 billion discussed pressing issues in under these projects in 2017, Existing facilities were upgraded environmental protection and with total investments for the using General Electric’s inno- solutions for addressing them period until 2025 estimated vative technologies such as and building an integrated HSE at more than RUB 100 bil- membrane bioreactors, elec- system. Managers and envi- lion. The projects included the trodialysis reversal and reverse ronmental protection experts construction of the Bashneft- osmosis to treat water accord- of more than 120 subsidiaries Ufaneftekhim biotreatment ing to the required standards. participated in the event. plant for industrial, rainfall and domestic wastewater produced The Year of Ecology was marked by three oil refineries operated by numerous events across by Bashneft, Ufaorgsintez, the Group entities operating in all oil-pumping station Cherkassy its business segments, which and sites in the northern included scientific confer- industrial hub of Ufa. ences, environmental festivals, competitions and clean-up Bashneft’s new plant, which is campaigns in special protection one of the largest biotreatment areas, shorelines, parks and systems in Eurasia, will enable forests. Environmental officers the company to treat more of Group entities held lessons on industrial and domestic waste- sustainability practices as part water according to industry of Rosneft Classes. Rosneft’s standards. The amount of rainfall cluster scientific confer- wastewater reused increased by ences and the Interregional 150%, reducing Rosneft’s nega- Scientific Conference of Young 11.5 tive impact on the River Belaya. Professionals, hosted by six RUB BILLION venues, featured sub-panel The biotreatment system discussions on “Ecology. in investment to with a capacity of 3,500 cubic Occupational Safety and Health.” build Bashneft’s meters per hour is comprised of biotreatment plant, one 81 facilities, with the estimated The Year of Ecology wrapped of the largest systems service life of buildings and up with the Fourth Corporate of the kind in Eurasia

Bashneft’s biotreatment system

73 ROSNEFT SUSTAINABILITY REPORT 2017

Developing a consistent Creating an album of methodology for determining environmental protec- drilling waste thresholds tion technologies Updating project documenta- Providing designer supervi- Innovations in tion for a drilling waste sion services to ensure the environmental protection treatment technology using proper treatment of drilling a degradable absorbent waste and reclamation of Rosneft established the subject to the government well construction sites Specialized Ecology Institute environmental impact at SamaraNIPIneft in 2016 to assessment process In addition, Specialized Ecology drive innovations and R&D and Developing guidelines for Institute researchers par- adopted a development program determining maximum ticipated in Rosneft’s scientific for it in 2017. The institute opening prices of procure- conferences to deliver reports provided the following services ment contracts for services on a range of subjects, contrib- to Rosneft and its subsidiaries: in oil spill management uting to the Company’s effort to build vast knowledge potential.

INNOVATIVE SOLUTION FOR DRILLING WASTE TREATMENT

Rosneft began drilling waste reinjection trial operations near Nizhnevartovsk, Khanty- Mansi Autonomous District. The system has a capacity of more than 140,000 cubic meters of drilling cuttings per year. Three wells were drilled for trials after exploration activities.

Drilling waste reinjection is one of the most innovative and environmentally safe solutions for the management of drilling cuttings from oil and gas production. Unlike traditional techniques, reinjection into formations prevents cuttings from coming into contact with the surface and doing harm to the environment.

The technology converts drilling cuttings and used solutions into a liquid slurry that is injected deep into isolated subsurface formations, without it contacting the ground water.

Observation wells were also built for subsurface soil and water monitoring to track the flow of slurry and hydrodynamic properties of the targeted formations.

The system has an automated control tool to centrally collect and process data on parameters of the injection process.

In 2017, Rosneft also started an innovation project to develop a drilling waste management technology based on a solution already used by subsidiaries to produce artificial soils. The objective of the project is to enable subsidiaries to switch from multiple drilling waste management techniques to one technology adapted for their operating environment, which is cost efficient, environmentally friendly and autonomous to eliminate their dependence on external suppliers.

74 Environment

Ministry and the Ministry of Economic Development, to discuss regulation of greenhouse gas emissions, including proposals for reducing Cooperation with them in the public sector. governmental and non-governmental In addition, Rosneft participated environmental groups in Arctic 2017 exercises initiated and organized by the As part of commitment to Ministry of Natural Resources develop and promote more and Environment, the Ministry environmentally friendly tech- of Emergency Situations and nologies, Rosneft participated Rosprirodnadzor to simulate in work on Best Available an oil spill containment and Techniques (BAT) Reference cleanup effort near the marine Documents for processes ice-resistant fixed platform such as oil production (BAT Prilazlomnaya and the onshore 28), natural gas production system Varandei, which (BAT 29), oil refining (BAT 30), involved several companies. and natural and associated gas processing (BAT 50).

These reference documents were approved by the Federal Agency on Technical Regulation and Metrology in 2017. Biodiversity conservation

Rosneft understands the In 2014, Rosneft challenges of climate action launched a program for the and provides support for initia- conservation of marine biological tives to enhance government diversity at its license blocks regulation mechanisms for in Russia’s Arctic region. The greenhouse gas emissions and key objective of the program, drive the ratification procedure which will run until 2019, is to for the Paris Agreement under ensure safe and responsible the United Nations Framework operations in the Arctic and Convention on Climate Change. minimize the adverse impact In particular, the Company on the environment from participates in work on creating the Company’s activities. the required legal framework. Investments under the program In 2017, Rosneft took part in totaled around RUB 850 mil- numerous events organized lion in 2017 since its launch. by Russia’s governmental agencies, including the Energy

REPOPULATION OF FISH SPECIES

Rosneft gives high priority to the mitigation of environmental damage caused to ecosystems by its operations. In 2017, Group entities released around 12 million baby and juvenile fish, including Peled, Salmon, Siberian Sturgeon, Sterlet, Coregonus and Thymallus, into aquatic ecosystems. The campaign targeted rivers and lakes in Arkhangelsk, Vologda, Novosibirsk and Tyumen Regions, Krasnoyarsk Territory, Krasnodar Territory, Yamalo-Nenets Autonomous District, the Republic of Karelia and the Republic of Sakha (Yakutia).

75 ROSNEFT SUSTAINABILITY REPORT 2017

Key environmental indicators were identified for the EVENK REINDEER PROJECT period until 2019, with annual independent audits conducted to check compliance. The program is consisted of the following key components: Environmental protection action to increase the safety of exploration activities R&D and methodological support Environmental monitoring of species serving as indicators of Arctic ecosystem health and their habitats

The following projects were completed under the program in 2017: Processing of field data on populations of polar bears and walruses on Wrangel Island, Bennett Island and the Bolshiye Oranskiye Islands and onshore processing Vostsibneftegaz in Krasnoyarsk Territory runs a program of biological materials to offer annual scholarships for individual and team research collected during the Kara- on Evenkia. Leto-2016 expedition Development of obser- Research under the Evenk Reindeer Project is of a particular vation guidelines to importance to local communities in the Evenkia and Taymyr dis- evaluate impacts on marine tricts in Krasnoyarsk Territory because reindeer is the central mammals from marine species in the Arctic ecosystem and an essential part of the geological surveys lives of indigenous peoples engaged in traditional occupations. Development of a list of species serving as indica- At the first stage of the project, the research team fitted rein- tors of marine ecosystem deer with GPS collars using the ARGOS satellite data network health across the Company’s to collect data about their annual movements in Evenkia. license blocks in seas of the Arctic Ocean, and the The next stages, including data analytics, the mapping of publication of a brochure on reindeer routes on geobotanical, climatic and topographic the conservation of biologi- maps and the release of a final report, are planned for cal diversity in the Arctic 2018. The findings will be used to draw up recommendations on sustainable reindeer herding practices for indig- Rosneft’s 133 stations in the enous peoples of the North and the local authorities. Barents Sea, East Siberian Sea, Sea of Japan and Laptev Sea Key deliverables that are expected of this project include: conducted studies on samples Determining the size of reindeer populations, their of air, seawater and seabed annual movements in Evenkia and factors influenc- sediments, and hydrobiological ing the behavioral responses of animals and ichthyological indicators, Developing recommendations on the protection and sustain- along with observations of able use of wild reindeer for Krasnoyarsk Territory’s Ministry marine mammals and birds. of Natural Resources, other local authorities and indigenous The data collected allowed peoples of the North living in the Evenk Autonomous District the research teams to map Engaging all stakeholders in efforts to conserve wild rein- the marine environment deer, including leading environmental groups, local authori- of the Company’s license ties in northern Russia and indigenous peoples of the North blocks for environmental Aligning data collected in Siberia with and fishing purposes and data obtained in Arctic studies.

76 Environment

propose more environmentally the environmental safety of friendly exploration plans. operations at such areas. The register is updated on a regular In 2017, Rosneft prepared basis. When planning a new and issued two brochures: project and designing project Environmental Atlas. The Laptev documentation, Rosneft always Sea and Marine Mammals in submits inquiries with the Russia’s Arctic and Far East. Russian Ministry of Natural They sum up the key findings Resources and Environment and from studies on polar bear other governmental agencies and walrus populations, and to make sure the new site is marine mammals observations. not part of a special protected area. If the site is located The Company keeps its own in a protected area, Rosneft register of special protec- strictly follows technical regulation areas which serves as tions and standards and draws an underlying framework for up environmental protection evaluating and monitoring measures. When necessary,

SAKHALIN TAIMEN

The Sakhalin taimen is included in the Red Book of Russia and the Red Book of Sakhalin Region as an endangered indigenous species of the Far East. In 2017, RN-Sakhalinmorneftegaz implemented a project to draw up recommendations and take action for preserving the Sakhalin taimen and other endangered fish species.

The key objectives of the project were: Assessing the current state of Sakhalin taimen populations in the Company’s regions of operation and identifying factors negatively influencing their populations Increasing environmental literacy for the conservation of the Sakhalin taimen Creating research capabilities for further studies

The research team prepared a detailed description of the morphology of the River Dagi’s ecosystem, evaluating the size and condition of the Sakhalin taimen population. The density of the population was estimated at 0.028 to 0.164 fish per cubic meter depending on the river section, and their condition was described as good. The research team also analyzed environmental impacts from recreational and commercial fishing and poaching on the River Dagi and the Nyyskiy Zaliv.

Their findings suggest that poaching and uncontrolled fishing practices are posing a much bigger threat to the Sakhalin taimen population in the River Dagi than oil and gas production infrastructure, which has an insignificant impact.

77 ROSNEFT SUSTAINABILITY REPORT 2017

Rosneft applies to the administration of the protected area for the approval of such measures.

Pursuant to its Environmental Protection Policy, the Company tries to avoid any activities in special protected areas when possible or, when its activities may have an impact, takes action to minimize it and establish strong environmental monitoring programs.

In 2017, Rosneft’s subsidiaries conducted oil and gas exploration and production operations at 44 special protected areas and 28 adjacent areas of high biodiversity value. In addition, they carried out environmental monitoring activities in eight resort towns with protected status and parks where filling stations are located.

The Company’s environmental assessment did not reveal any risks posed by its operations to special protection areas and areas of high biodiversity value. license blocks: Pritaimyrsky, Environmental monitoring at Rosneft also drew up biodi- Khatangsky, Vostochno- the Temryuksko-Akhtarsky versity conservation plans and Sibirsky-1, Deryuginsky license block in the Azov programs for 19 sites in 2017. and Tsentralno-Tatarsky Sea. Development and Background assessment and approval of an environmental Environmental monitoring mapping for environmental rehabilitation program for and fishing purposes at the shallow-water sections In 2017, Rosneft implemented the Tsentralno-Tatarsky, of the Azov Sea and the all environmental protection Vostochno-Sibirsky-1 and Kulikovo-Kurchanskaya measures planned under its Pritaimyrsky license blocks group of coastal lakes exploration program to meet to collect current data Environmental monitoring of obligations arising out of its about the environment the Pechora Sea’s marine licenses. Environmental protec- Development of envi- ecosystem and a study of tion activities were carried ronmental monitoring wellheads at the Medynsko- out at all license blocks where programs to ensure safe Varandeisky license block. Rosneft conducts exploration exploration operations at activities. Those included: the Tsentralno-Tatarsky Investment projects in Surveys of the heads of and Bogatinsky license environmental protection wells drilled earlier at the blocks, and their approval following license blocks: by the Department for the In 2017, Rosneft pursued Pomorskaya No. 1, Severo- Management of Continental a number of investment Gulyayevskaya No. 1, Shelf and World Ocean projects to reduce a negative Pakhancheskaya No. 1 and Subsoil Resources of environmental impact by build- Admiralteiskaya No. 1. The the Ministry of Natural ing and upgrading environmental condition of the wellheads Resources and Environment protection systems at its was assessed as satisfac- Comprehensive background sites. An overview of such tory, with no hydrocarbon environmental monitoring projects is presented below: leaks detected at the Severo-Kaspiiskaya Environmental monitor- Ploshchad license block and Exploration and Production ing as part of exploration the Zapadno-Rakushechnoye Samotlorneftegaz started operations at the following oil field in the Caspian Sea the trial operations of

78 Environment

a drilling waste reinjec- RN-Purneftegaz completed is projected to decrease the tion system. More than the second phase in the concentration of pollutants 80,000 cubic meters of industrial and solid waste in wastewater: concentra- drilling cuttings were injected disposal site project at the tions will reduce from into formations by the Barsukovskaya group of 70,000 to 20 for ammonium Company’s subsidiaries in deposits. Planning and sur- ions, from 3,000 to 30 for the upstream segment using veying activities were com- suspended substances and this technology in 2017, with pleted for the construction of from 5,000 to 150 for oil RN-Uvatneftegaz accounting the second phase in a similar products, while pH will drop for 54,000 cubic meters project at the Tarasovskoye from 2 - 14 to 6.5 - 8.5 and Samotlorneftegaz for and Kharampurskoye fields Upgrade of the waste- around 26,000 cubic meters water collection unit Samotlorneftegaz also com- Refining of Novokuibyshevsk Oil pleted the pre-commission- The construction of on-site Refinery’s biological treat- ing stages for an oily waste wastewater treatment ment plant The new tech- treatment system with a facilities and a water reuse nology will use membrane capacity of 3,700 tonnes per system for the production of bioreactors that effectively year at the Kuleshovskoye additives at Novokuibyshevsk treat wastewater containing field. Preparatory work Oil and Additive Plant. oil, suspended substances, was conducted at the Outputs: the new facilities nitrogen compounds and Yablonevskoye field to build will meet the plant’s reused other pollutants. A por- an oily waste treatment water needs according to tion of wastewater will system with a capacity of the required standards be pumped back into the 4,700 tonnes per year for the additive production water reuse system after Vostsibneftegaz commis- process. Additive produc- treatment to reduce the sioned the first phase in the tion wastewater will be concentration of pollutants. Sludge Collector 3 Project, preliminary treated according estimated to have a total to standards for release capacity of 20,000 cubic into the sewage system of meters, at the Yurubcheno- Novokuibyshevsk Oil Refinery Tokhomskoye field to comply to reduce the workload of with regulatory requirements its wastewater treatment facilities. The new process

ROSNEFT’S CONTRIBUTION TO ENVIRONMENTAL AWARENESS

Rosneft was highly praised by regulators and environ - mental groups for its Year of Ecology activities. At the Fifth All-Russian Congress of Environmental Experts, Russia’s Ministry of Natural Resources and Environment awarded Rosneft the Certificate for the Company’s Active Environmental Policy in the Year of Ecology, recognizing its strong engagement in environmental protection initiatives outlined in its trilateral cooperation agreement with the ministry and Rosprirodnadzor.

Rosneft also earned a certificate for consistent efforts to reduce its environmental footprint at a ceremony held to unveil 2017 green rankings in Russia’s oil and gas industry, a sign of recognition of the Company’s large-scale environmental programs.

Rosneft’s commitment to environmental sustainability was also recognized at the highest government level, as it received a thank you letter from the Russian President for participation in Year of Ecology initiatives in 2017.

79 ROSNEFT SUSTAINABILITY REPORT 2017

Gas: Sales and distribution This was more compared with Upgrading of low-pressure RN-Morskoi Terminal Tuapse the previous year, largely due to flare systems at the complex started the construction of programs run to celebrate the gas treatment plants of a third industrial wastewater Year of Ecology and a 47% rise the Novo-Urengoisky and and stormwater treat- in investment, with investment Vostochno-Urengoisky ment system on the left worth RUB 2 billion made by license blocks. The project bank of the River Tuapse Bashneft accounting for 54% is focused on replacing flare RN-Morskoi Terminal of this growth. For details about tips with more sophisticated Nakhodka started build- key investment projects, see models utilizing a variable ing second and third the section Investment projects exit area with control sys- systems under its upgrade in environmental protection. tems. Gas seals provide a program for industrial high exit velocity irrespective wastewater and stormwater of the amount of waste gas treatment facilities. to produce a vacuum zone, maximize the amount of Investments in air entrained and produce environmental protection increased mixing between waste gas and air, resulting Rosneft spent a total of RUB in smokeless combustion. 69 billion in 2017 for purposes The project will lead to the such as environmental protec- zero level of soot emis- tion and resource sustain- sions and a reduction in ability, including in operational carbon monoxide and benz(a) expenditures. Rosneft’s total pyrene emissions which are spending on environmental safety projected to drop 12.5 and amounted to RUB 101.7 billion. fourfold, respectively. The system is to switch to soot-free operations during turnaround maintenance scheduled for 2018 ENVIRONMENTAL EXPENDITURES, RUB MILLION The construction of a wastewater treatment and dis- Period 2015 2016 2017 posal system for Valanginian Environmental capital expenditures 44,646 47,137 69,184 deposits (Vostochno- Urengoisky license block) Operating environmental expenditures 27,000 26,578 32,547 to reduce the discharge of Payments to budgets at all levels wastewater into aquatic associated with environmental 5,153 4,512 4,256 ecosystems. The system is to protection and resource sustainability including charges for adverse start operations in May 2019 2,621 1,990 395 The construction of a com- environmental effects including compensation for plex gas and gas condensate 997 1,293 1,705 environmental damage treatment system for the Vostochno-Urengoisky Pollution fines 201 260 259 license block. The system Non-financial sanctions, cases 0 0 0 will help reduce air pollutant emissions through a better treatment of gas and gas condensate and Environmental capital expenditures, RUB million a reduction in associated gas flaring and flash gas production. The system is to be commissioned in 2019. 166 Special Environmental Program 13,552 capital construction of major environment protection systems 69,184 177 materials and equipment 51,768 associated investment 3,521 other

80 Environment

ENVIRONMENTAL AIR POLLUTANT EMISSIONS BY BUSINESS SEGMENT38, THOUSAND TONNES PROTECTION Period 2015 2016 2017 PERFORMANCE IN 2017 Total air pollutant emissions, including: 1,78839 1,70939 1,929 Air pollution oil and gas production 1,60739 1,49739 1,612

Associated petroleum gas refining and petrochemicals 139 168 254 flaring is the most significant source of air pollution from gas business 16 18 31 the Company’s operations. distribution and sales 19 19 20

Gross air pollutant emissions oilfield services 8 7 11 from the Company’s operations increased by 219 million tonnes in 2017, which was mainly due to the acquisition of AIR EMISSIONS BY POLLUTANT, THOUSAND TONNES Bashneft and other assets, and Period 2015 2016 2017 the development of new fields. At the same time, a number Total air pollutant emissions, including: 1,78839 1,70939 1,929 of Rosneft’s key subsidiaries lowered their air pollutant emis- particulate matter 87 84 89 sions, including Taas-Yurakh sulfur dioxide 55 61 89 Neftegazodobycha, RN-Vankor and RN-Yuganskneftegaz carbon monoxide 810 78039 806 which cut them by 28%, 15% and 3%, respectively. nitrogen oxide 50 50 58 hydrocarbons (excl. volatile 48039 43039 501 organic compounds)

volatile organic compounds 30339 30039 364

benz(a)pyrene 0.000014 0.000022 0.00003

other 3 6 22

AIR POLLUTANT EMISSIONS, TONNES PER THOUSAND TONNES OF COAL EQUIVALENT

Period 2015 2016 2017

SO2 emissions

oil and gas production 0.05 0.06 0.06

refining and petrochemicals 0.30 0.34 0.4840

NOX emissions

oil and gas production 0.09 0.09 0.10

refining and petrochemicals 0.13 0.13 0.13

Hydrocarbon emissions (incl. volatile organic compounds)

oil and gas production 1.8041 1.6641 1.78

refining and petrochemicals 0.63 0.80 1.04

38 Numbers may not add up to totals due to rounding. 39 The 2015-16 data was adjusted for emissions from gas lift production. 40 The higher SO2 emissions in 2017 was due to new assets added to the Company’s portfolio, including Bashneft. 41 The 2015-16 data was adjusted for emissions from gas lift production.

81 ROSNEFT SUSTAINABILITY REPORT 2017

Priobskaya autonomous power plant, RN-Yuganskneftegaz

Greenhouse gas emissions mechanism for reducing greenhouse gas emissions greenhouse gas emissions. dropped by 2% year on year Rosneft understands the impor- in 2017. tance of climate change action, In 2017, Rosneft’s greenhouse striving to improve environ- gas emissions totaled 75.5 mil- Indirect use-phase emissions mental sustainability in line with lion tonnes of CO2 equivalents, from products sold by the best international practices with direct emissions42 stand- Company totaled 207 million 44 in the industry. Rosneft’s ing at 53.5 million tonnes of tonnes of СО2 equivalents . strategy, adopted by the Board CO2 equivalents and indirect of Directors, sets greenhouse emissions from the consump- Rosneft implemented a number gas emissions reduction goals. tion of purchased electricity of measures in 2017 to reduce and heat43 at 22.0 million greenhouse gas emissions

The Investment Gas tonnes of CO2 equivalents. from its gas business. Program and the Energy Those included a project Efficiency Program com- Despite the acquisition to use high pressure flash prise the Company’s key of Bashneft’s assets, Rosneft’s gas from wells at the

DIRECT GREENHOUSE GAS EMISSIONS, THOUSAND TONNES

Period 2015 2016 2017

carbon dioxide (СО2) 39,586 45,711 45,895

45 methane (СН4) 256 266 304

GREENHOUSE GAS EMISSIONS, TONNES OF СО2 EQUIVALENTS PER THOUSAND TONNES OF STANDARD FUEL

Period 2015 2016 2017

Oil and gas production (including oilfield services) 0.139 0.139 0.125

Refining, petrochemicals and sales 0.109 0.131 0.124

42 Scope 1 as defined in the Corporate Accounting and Reporting Standard of the Greenhouse Gas (GHG) Protocol, developed by World Business Council on Sustainable Development (WBCSD) and World Resources Institute (WRI). 43 Scope 2 as defined in the above standard. 44 Other indirect GHG emissions (Scope 3) were calculated from the sales of petroleum products. 45 The 2015-16 data was adjusted for emissions from gas lift production.

82 Environment

Vostochno-Urengoisky with air pollutant emissions and output by 1.3 billion license block instead of dropping by 2,634 tonnes cubic meters at Severnoye- commercial dry stripped gas Chaivo due to a higher in the on-site automated Associated petroleum actual gas-input factor gas-distributing station. gas (APG) utilization Bashneft: an increase in The solution allowed the APG utilization and output Company to utilize 6.4 million In 2017, Rosneft continued to by 0.5 billion cubic meters cubic meters of flare gas implement its gas program, following the integration of for operational needs and increasing the APG utiliza- Bashneft’s assets in the reduce air pollutant emis- tion rate to 37.2 billion cubic fourth quarter of 2016 sions by 288 tonnes meters, up 0.7 billion cubic The commissioning stage meters on the 2016 level. Despite the higher APG utiliza- was completed for ejectors tion level in 2017, Rosneft’s at the Novo-Urengoisky The higher APG utiliza- APG utilization rate dropped license block, enabling the tion level in 2017 can be from 90.0% in 2016 to 89.2% annual utilization of 9 million mainly attributed to the in 2017 due to development cubic meters of flash gas and following Group entities: operations at new oil deposits. ending a high-pressure gas Varyeganneftegaz: an flare. The project is to result increase in APG utiliza- Greenfield projects play a key in a reduction in air pollutant tion by 0.5 billion cubic role in the Company’s develop- emissions by 400 tonnes meters and an increase ment. APG utilization is an Rosneft also implemented in the APG utilization rate important focus for Rosneft, a pilot project focus- to 97.8%, up 0.8 % on the with its planning process ing on post-treatment 2016 level, following the for greenfields taking place hydraulic fracturing flow- start of the second phase as early as the infrastruc- back operations and gas in the pipeline project at the ture engineering stage. condensate treatment at Varyenganskoye field and the Vostochno-Urengoisky increased gas supplies to the By Directive No. 1148 of license block operated by Tyumen compressor station 8 November 2012, the Russian Rospan International. The RN-Nyaganneftegaz: an Government has set an APG technology removes prop- increase in APG utilization utilization rate target for the pants, solids and liquids by 0.2 million cubic meters industry at no more than 5% of from well fuids during the following the start of new production. This target excludes flaring process. The amount wells at Em-Egovskoye APG flared during preventive of gas and gas condensate and increased gas supplies repairs at gas processing annually flared reduced by to Nyagangazpererabotka plants, gas produced at new 67.1 million cubic tonnes and Gas Processing Plant deposits and gas with a con- 20,600 tonnes, respectively, as RN-Shelf Dalny Vostok: an centration of non-hydrocarbons a result of the project in 2017, increase in APG utilization of more than 50%.

ASSOCIATED PETROLEUM GAS (APG) UTILIZATION

Period 2015 2016 2017

APG utilization CAPEX, RUB billion 13.2 17.8 20.1

APG production in Russia, billion cubic meters 37.7 40.2 41.6

APG production in Russia, excluding gas flared/utilized, billion cubic meters 33.1 36.2 37.1

APG utilization rate, % 87.9 90.0 89.2

Routine APG (hydrocarbons) flaring, billion cubic meters 4.6 4.0 4.5

APG flared, % of total APG production 12.1 10.0 10.8

Hydrocarbons venting, billion cubic meters 0.0 0.0 0.0

83 ROSNEFT SUSTAINABILITY REPORT 2017

Rosneft plans to achieve this Gas transportation infra- A 12% year-on-year increase target for active fields in 2021. structure (Varyeganneftegaz, in water consumption in As part of cooperation with the RN-Krasnodarneftegaz, 2017 was mainly due the Russian Ministry of Energy, the RN-Yuganskneftegaz and acquisition of Bashneft, which Company studied the possibil- Bashneft-Dobycha) accounted for 0.25 billion ity of joining the Zero Routine 5 MW gas engine power cubic meters of all water Flaring by 2030 initiative plant for the Gerasimovskoye resources used by Rosneft. introduced by the World Bank. deposit operated by Tomskneft VNK Apart from consuming more Rosneft’s capital expenditures Gas utilization infra- reused and recycled water, under the APG utilization pro- structure for operational Rosneft was also focused gram totaled RUB 20.1 billion needs (Samaraneftegaz, on a better treatment of in 2017. Thirty-six projects Bashneft-Dobycha, Taas- wastewater discharged into were completed in 2017 to build Yuryakh Neftegazodobycha the environment. The amount APG utilization infrastructure. and Sorovskneft. of untreated or undertreated The key projects included: wastewater discharged into A low-pressure gas Water consumption and surface waters decreased compression facility for wastewater discharge by 5% in 2017 compared RN-Vankor’s PWDU-Sever with the previous year, while and compression facilities for Rosneft consumed a significant the discharge of wastewater PWDU-1 and PWDU-3 at amount of water in some treated according to the the Sovetskoye deposit oper- Russian regions, which, how- required standards rose by 7%. ated by Tomskneft VNK ever, had vast water resources.

WATER WITHDRAWALS FROM ALL SOURCES46, MILLION CUBIC METERS

Period 2015 2016 2017

Water withdrawals from all sources 2,053.7 1,953.7 2,188.7

ground water 94.2 89.6 101.7

surface water 222.3 223.1 231.3

third-party water supply networks 36.1 36.0 50.0

own reservoirs 1.3 1.2 2.2

stormwater 7.1 7.1 12.2

wastewater 113.3 114.6 132.9

produced water 1,563.4 1,482.5 1,659.8

bottom water 17.2 0.8 1.0

TOTAL WATER CONSUMPTION FROM ALL SOURCES, MILLION CUBIC METERS

Period 2015 2016 2017

Consumption of water from all sources, including: 1,754.1 1,697.9 1,911.7

oil and gas production 1,642.6 1,583.8 1,782.6

refining and petrochemicals 105.2 106.7 119.9

Gas Business 1.6 1.7 1.9

distribution and sales 2.3 2.2 2.0

oilfield services 2.4 3.4 5.4

46 Numbers may not add up to totals due to rounding

84 Environment

Waste management and contaminated land remediation PRODUCED WATER

The amount of waste produced Period 2015 2016 2017 by the Company is on the rise Total produced water, million cubic meters 1,563.4 1,482.5 1,659.8 due to the extension of opera- Injection without treatment, tions and the environmental 13.2 15.6 26.9 million cubic meters reporting parameter. Prompt Injection after treatment, 1,438.5 1,346.7 1,476.8 actions in waste management, million cubic meters including waste treatment, are Produced water use, million 111.2 99.86 119.2 high on Rosneft’s environmental cubic meters, including: agenda. Accumulated waste injections into formations 110.1 99.81 119.1 rose by an insignificant 2% in 2017, driven by a growth in discharges into waterways 0.00 0.00 0.00

discharges into soils 1.1 0.05 0.04

Total hydrocarbons in oil and gas 18.5 19.1 18.1 wastewater, thousand tonnes

CRUDE OIL AND PETROLEUM PRODUCT SPILLS, TONNES

Period 2015 2016 2017

Total crude oil and petroleum product spills 4,581 774 758

TOTAL WASTEWATER DISCHARGES, THOUSAND CUBIC METERS

Period 2015 2016 2017 Wastewater discharges into third- 307 341 290 party networks for reuse Domestic wastewater discharges 71,906 70,468 75,898

Industrial wastewater discharges, including: 190,730 192,510 197,382

into surface waters 110,719 112,554 116,650

into formations 78,655 79,735 80,633

into soils 1,355 221 99

including:

properly treated wastewater 112,394 122,617 130,914 contaminated and poorly 78,336 69,894 66,467 treated wastewater

WASTEWATER DISCHARGES INTO SURFACE WATERS, THOUSAND CUBIC METERS

Period 2015 2016 2017 Wastewater discharges into 110,719 112,554 116,650 surface waters, including: oil and gas production 106 19 191.5

refining and petrochemicals 110,058 111,945 115,833

Gas Business 20 20 15

distribution and sales 425 407 513

oilfield services 110 164 97

85 ROSNEFT SUSTAINABILITY REPORT 2017

LAND CONTAMINATION AND REMEDIATION, HECTARES

Period 2015 2016 2017

Contaminated land at the beginning of the year 4,222 4,03647 3,617

Contaminated lands as adjusted after a pre-project survey 212 325 306

Newly contaminated land 413 291 322

Contaminated land at the end of the year 4,132 3,617 3,348

Land remediation during the year 13,603 13,745 20,136

Including contaminated land 708 833 740

Natural recovery of disturbed and contaminated lands 76 202 157

Reused and recycled water

TOTAL MUD PITS 2,260 Period 2015 2016 2017 1,467 1,679 At beginning of the year 808 75548 64349

At the end of the year 719 571 620

Built during the year 327 290 640

Remedied during the year 416 474 663

2015 2016 2017

47 The amount of properly treated wastewater discharged into soils in 2015 has been adjusted. 48 The amount of properly treated wastewater discharged into soils in 2015 has been adjusted.. 49 The figure at the beginning of 2017 differs from the figure at the end of 2016 due to the change in the environmental reporting perimeter and inventory adjustments

86 Environment

drilling cuttings which increased legislation. Drilling waste accu- the year and 2% of such waste following the physical count of mulated at the end of the year accumulated previously. such waste produced by the accounted for only 24% of newly acquired Kondaneft Oil such waste recycling in 2017. Thanks to a large-scale reme- Company and the long selec- diation effort, Rosneft reduced tion process of drilling waste Rosneft did not accumulate oily the total area of oil-contam- disposal contractors ensuring waste in 2017 as it recycled inated land by 7% in 2017. compliance with antimonopoly all such waste produced during

WASTE MANAGEMENT, THOUSAND TONNES

Period 2015 2016 2017

Waste at the beginning of the year 10,349 14,71150 13,80450

including oily waste 5,975 10,363 10,229

including drilling cuttings 2,140 2,080 1,164

Adjustment for waste in the current period 4,694 -26 326.5

including oily waste 4,226 39 -78

including drilling cuttings 391 -124 406

Waste produced during the year 5,393 5,455 6,412

including oily waste 591 587 698

including drilling cuttings 3,186 4,000 4,676

New waste inventories (third-party waste and waste taken over as a result 1,578 2,126 2,443 of a reorganization of another legal entity)

including oily waste 271 75 66

including drilling cuttings 1,304 2,048 2,375

Waste used during the year 995 711 580

including oily waste 100 115 170

including drilling cuttings 487 531 294

Waste treated and recycled 266 135 83

including oily waste 236 126 80

including drilling cuttings 0 0 0

Waste buried 95 133 91

including oily waste 3 4 6

including drilling cuttings 28 94 25

Waste transferred to third parties 5,925 7,495 8,151

including oily waste 602 591 664

including drilling cuttings 4,164 6,226 6,659

Waste at the end of the year 14,734 13,792 14,080

including oily waste 10,122 10,229 9,994

including drilling cuttings 2,342 1,153 1,641

50 The figure at the beginning of 2016 and 2017 differs from the figure at the end of previous year due to the change in the environmental reporting perimeterввиду изменения границ отчетности по экологическим показателям.

87 ROSNEFT SUSTAINABILITY REPORT 2017

ENERGY CONSUMPTION AND ENERGY EFFICIENCY

Rosneft is a major energy Refining: 534,500 tce, consumer in Russia, with oil or 14.6 million gigajoules, and gas production operations 6% above the target accounting for most power Petrochemicals and consumption as suggested gas processing: by an analysis of energy 38,600 tce, or 1 million consumption by type of energy gigajoules, 32% above and business segment. Oil the target refining is the most intensive Gas production and distribution: process in terms of heat 1,000 tce, or 0.03 million giga- and fuels consumed. Overall, joules, 261% above the target Rosneft consumed 636 million Distribution and sales: gigajoules of energy in 2017. 7,400 tce, or 0,10 million gigajoules, 9% above the target With lower operating costs Oilfield services: 1,700 tce, being a key component of or 0.04 million gigajoules, Rosneft’s market leadership 43% above the target strategy, apart from production growth, the Company is The Board of Directors strongly focused on energy approved Rosneft’s Energy savings. In 2017, Rosneft Efficiency Program for successfully achieved energy 2018-22 based on the savings planned under its Company’s similar program Energy Efficiency program. for 2017-21 which was adjusted for a medium-term The 2017 energy savings macroeconomic outlook and amounted to 1,196.2 tce, broader energy efficiency plans. or 22.6 million gigajoules, which was 14% above the Pursuant to its Energy target approved by the Board of Efficiency and Energy Saving Directors. In monetary terms, Policy and the Corporate 1.6 the Company saved around RUB Standard “Energy Management RUB BILLION 9.2 billion, 17% more than it System: Procedures and in expenditures under the planned, while its expenditures Guidance,” Rosneft accom- Energy Efficiency Program under the Energy Efficiency plished in 2017 the following: Program totaled RUB 1.6 billion. Rosneft’s Energy Efficiency Committee approved a road- In particular, Rosneft achieved map for improving energy the following energy savings efficiency and deploying an under its Energy Efficiency energy management system 9.2 Program in 2017: across Rosneft in 2018-20 RUB BILLION Oil and gas production: Assets of the newly acquired 612,900 tce, or 6.9 mil- Bashneft group (three in energy savings in 2017 lion gigajoules, 20% above companies in the oil and gas the target production business, four

ENERGY CONSUMPTION, MILLION GIGAJOULES

Period 2015 2016 2017

Total consumption of renewable and non-renewable energy resources 311.9 347.851 440.1

Consumption of electricity from external suppliers 113.7 123.1 151.2

Consumption of heat from external suppliers 24.3 25.0 44.7

Total energy consumption 449.9 495.9 636.0

51 The 2016 data was updated as a result of an adjustment in gas consumption by Vankorneft for operational needs

88 Environment

in the refining and petro- environmental management the checks. Those included chemicals business and one across Bashneft’s energy RN-Vankor, Samaraneftegaz, in the distribution and sales intensive companies and Orenburgneft, Novokuibyshevsk business) were added to the subsequently run a cer- Oil and Additive Plant, scope of Rosneft’s 2018- tification audit (33 Group RN-Komsomolsky Refinery 22 Energy Efficiency Program entities are currently and Novokuibyshevsk Oil Energy efficiency require- certified to this standard) Refinery. The Energy Efficiency ments were added to job Committee adopted an descriptions for employees Rosneft’s Energy Efficiency audit schedule for 2018. who are directly or indirectly Committee, established in involved in energy efficiency 2013, held three meetings Rosneft also continued program (more than 5,500 employees) in 2017 to approve guidelines activities to support its energy Mandatory energy efficiency and specific measures toward efficiency control system competencies were outlined achieving better energy effi- that spans 13 oil production for operations support in the ciency and building a strong companies and 10 oil refiner- oil production, oil refining, energy management sys- ies and updated activities and and distribution and sales tem across the Group. costs planned under its 2018- businesses, followed by the 22 Energy Efficiency Program. approval of a framework The Company conducts regular for their assessment based energy efficiency audits in The Company also works on on a 2,500-question test accordance with its internal developing and updating internal Rosneft also started work to regulations, which are critical energy efficiency regulations. release a reference docu- to robust energy management. In 2017, Rosneft updated its ment for BAT , know-hows Repeat audits in 2017 tar- guidelines on “The electricity and equipment used for geted 15 companies in the consumption structure for the energy efficiency improve- oil production and refining Group’s oil and gas produc- ments in oil refining (a similar segments. Eight companies, tion companies” and “Planning reference document for BAT including seven entities of the and assessment of energy in oil and gas production Bashneft group, underwent saving from energy efficiency was adopted in 2016) such checks for the first time. programs run by the Group’s Rosneft also planned proce- entities in the refining and dures for 2018 and 2019 Several teams were awarded petrochemicals segment.” to introduce the ISO with bonuses for good energy 50001 standard on efficiency performance following

89 ROSNEFT SUSTAINABILITY REPORT 2017

EMERGENCY PREVENTION AND RESPONSE READINESS

Developing a framework for PREVENTION AND staff training in protection MINIMIZATION OF against threats of any kind POTENTIAL DAMAGE FROM and introducing modern MAN-MADE DISASTER To improve the safety of people, education techniques assets and the environment and materials To improve the safety of people, in the event of emergencies Creating, using and assets and the environment across the Group, Rosneft replenishing financial and in the event of man-made implemented comprehensive non-financial capabilities disasters across the Group, measures, including: in emergency response Rosneft was focused in Updating the Group’s Increasing cooperation 2017 on the following: emergency management between the command, Fire prevention and regulations on-site units and local/ management (preventing Expanding knowledge, functional subunits of the deaths, injuries and skills and competencies to Company’s Unified State damage and enhancing increase the emergency Emergency Prevention fighting techniques and readiness of command and and Response System rescue strategies) on-site units that are part Maintenance of firefighting of the Company’s Unified For purposes of emergency equipment operated by State Emergency Prevention prevention and response, the Company’s firefighting and Response System Group entities built up financial departments to keep it Reducing the risk, mitigating and non-financial reserves in working condition damage caused by worth a total of more than Establishment of professional emergencies and running RUB 3.1 billion in 2017. and ad hoc rescue squads awareness campaigns (training and certification) in emergency prevention Deployment and maintenance and management of local and on-site alarm

90 Emergency prevention and response readiness

systems for alerting employees about an emergency or its threat

The Company introduced a set PREVENTION AND of up-to-date requirements MINIMIZATION OF DAMAGE for risk minimization in FROM NATURAL DISASTERS emergency prevention and management under its plan Key natural hazards that to deploy a risk management may have a negative effect information system that will on Group entities’ operations integrate corporate analytics include floods, wildfires, systems and capabilities in the hurricanes, heavy downpours, collection and processing of snowstorms, abnormally cold data on errors in production weather and earthquakes. processes, threats and man- made and natural disasters for Comprehensive measures are ensuring a prompt response. taken every year to ensure accident-free operations and The project provides for the the readiness of command deployment of IT infrastructure and units of the Unified State and the integration of all Emergency Prevention and dispatch services of Group Response System to respond 3 .1 entities into one emergency promptly to natural disaster RUB BILLION management perimeter risks that may affect Group using extended capabilities. entities. The key focus is in expenditures Overall, 44 dispatch services on prevention and potential for emergency prevention of key entities and the damage minimization. and response in 2017 Company’s head office will be consolidated as a result As part of preparing an of the two-stage project. effective response to spring

Tactical training exercises at RN-Vankor

91 ROSNEFT SUSTAINABILITY REPORT 2017

floods in 2017, Rosneft and State Emergency Prevention its subsidiaries compiled a list and Response System and of preventive and protective ensure trouble-free operations, measures, including forecasts as well as the safety of workers of ice break-up dates for rivers and assets during spring floods. in various regions of operation. These preventive measures Such measures included forming ensured trouble-free operations anti-flood committees across across the Group’s sites the Group, drawing up and during the flood season. implementing prevention plans to prepare sites for trouble-free Group entities also developed operations in the flood season, and implemented a range updating the list of the most of fire safety and response susceptible sites, establishing measures to prevent wildfires cooperation with the emergency near oilfields, production prevention and management sites and other facilities. offices of the local governments, testing the readiness of They also teamed up with the command and on-site local forest protection squads units of the Unified State to monitor fire risks in the Emergency Prevention and Group’s areas of operation. Response System and reviewing The Group’s sites were kept and replenishing response safe from wildfires in 2017. resources in flood-prone areas. Overall, measures taken by the command and on-site In March 2017, the Group units of the Unified State held a command post exercise Emergency Prevention and to enhance the emergency Response System helped readiness of the command and prevent damage to the Group’s on-site units of the Unified sites from natural disasters.

ROSNEFT’S SPENDING ON EMERGENCY PREVENTION, RUB MILLION

Period 2015 2016 2017

Expenditures for emergency prevention and response, including: 2951.7 2960.2 3139.4

financial and non-financial reserves 1664.57 1728.9 1891.0

maintenance of professional rescue and response teams 1287.13 1231.3 1248.4

92 Emergency prevention and response readiness

necessary vehicles, equipment management was held for and tool to ensure an effective the command of the Group’s response to any emergency civil defense and emergency as required by federal laws. management units in Samara in June 2017 to improve their Response to emergencies professional knowledge and competencies. Taking part were To ensure a prompt 211 employees in charge of and effective response civil defense and emergency to emergencies, Group management, as well as entities implemented the Emergency response managers of Group entities following measures: training for employees operating in Samara Region.

Updating action plans for The Company strives The Group annually organizes emergency prevention to minimize the impact competitions for the title of and management of emergencies, best Group entity in terms of Forming the on-site units maintaining a strong focus civil defense and emergency of the Company’s Unified on employee training and the management. As many as State Emergency Prevention readiness of the command 152 Group entities participated and Response System that and staff of the Unified State in the competition held at the plays an important functional Emergency Prevention and beginning of 2018 to sum part in the emergency Response System. Around up performance in 2017. prevention and response 300,000 Rosneft employees system of the Russian received training in 2017. To Emergency management Ministry of Energy and check the emergency response authorities conducted Russia’s entire energy sector readiness of the command of 24 inspections across the Forming 61 rescue on-site teams, Rosneft held Group in 2017 to check squads and running a 44 comprehensive training emergency safety, detecting certification program exercises, 143 command no violations of federal Contracting external rescue post exercises, 87 tactical regulations at 21 companies services for subsidiaries training exercises and and issuing minor warnings with no such squads 41,747 on-site drills. to another three without imposing penalties. All in-house and external rescue A training session in civil squads of the Group have the defense and emergency

93 ROSNEFT SUSTAINABILITY REPORT 2017

HUMAN RESOURCES

on the basis of gender, age, nationality, race, religion, etc. 318,000 In view of its dynamic growth PEOPLE and expansion, Rosneft employed by the Company HR MANAGEMENT SYSTEM continues to place a high at the end of 2017 priority on the effective use In 2017 Rosneft confirmed of HR tools to raise labor its status as one of Russia’s productivity and motivate largest employers. At year employees as well as on end, the Company’s workforce the enhanced organization numbered 318,000 people of Group entities. For this – up 10.5% year on year. reason, among others, efforts This increase was the result to unify and automate HR, of newly acquired assets, compensation and social including the Targin Group, development were initiated in Kondaneft and Drilling Service 2014. In 2017 the Company Technologies, as well as growing made great strides in enhancing production at current assets. the HR management system

The Company continued to Unification and automation meet its targets in 2017 in of basic HR processes line with the strategy for the period through 2020. Rosneft’s Efforts continued in 2017 to HR management complies with introduce template solutions Russian and international law for Rosneft’s approved and makes no use of forced, “Plan for HR Control and compulsory or child labor in any Automation, Payroll Calculation form, nor does it discriminate and Social Development

94 Human resources

through 2020.” As a result, and passed on to Group the organizational structure the Unified Corporate HR, entities for implementation. of Group entities with the Compensation and Social The organizational/functional Company’s “Procedure for Development Template was structures of Group entities the Initiation and Approval of rolled out on a unified IT are updated every three Changes in the Organizational platform at another 10 Group years on average. Structure of Group entities.” entities with a total of around In particular, the status 20,000 employees in Samara The following standard of Group entities’ divisions Region and southern Russia. organizational/functional was brought into line with structures were unified and the approved criteria. Given In 2017 the methodology of the passed on to Group entities the Company’s size, these Unified Corporate Template that for implementation in 2017: processes will continue in 2018. underlies the unified information innovation solution was updated. A new corporate property and Staff composition rollout project got under way in corporate governance autumn of 2017 at 26 Group record management, In 2017 the composition of entities employing a total archiving and Rosneft’s staff remained of some 45,000 people. secretarial work generally the same as in the By the end of 2019, unified the standard organizational previous year. The majority procedures and methodology structure of corporate of Company employees (98%) on a single IT platform are R&D institutes were located in Russia, while expected to be used for the largest percentage outside HR records and payroll for In addition to standard solutions of Russia (1%) were employed 160,000 employees of Group for corporate functions, efforts in Group entities in Ukraine. entities (approximately 50% of were also made in 2017 to the Company’s total workforce). standardize the divisions and The average age of Rosneft functions of Group enterprises’ employees also remained Unification of functional production units. Among other nearly the same at 40.1 years. units at Group entities things, standard organizational Employees in management structures for refinery positions made up 12.2% In order to unify the Company’s divisions were developed (38,600 employees) of the organizational structuring, and passed on to Group total year-end headcount. standard organizational/ entities for implementation. Women as a percentage of functional structures have been These efforts are to continue Company employees dropped under development for the in 2018, resulting in the 1.3% year on year to 32.2%. corporate functions of Group progressive introduction of Women held 22.9% of Rosneft’s entities since 2014. Standard standard headcounts for management positions at the subordination schemes as various production functions. end of 2017 and represented well as a standard set of 13.6% of top management and competences and standard For purposes of improved the upper-level management headcounts for various organization, work was done of Group entities. functions are being developed throughout 2017 to align

Staff breakdown by country, employees

626 Republic of Belarus 14 Iraq 626 Venezuela 13 UK 267 Kyrgyzstan 10 Norway 158 Vietnam 10 Myanmar 119 Abkhazia 9 Mongolia Other 2,144 countries 105 Brazil 8 Poland 82 Armenia 6 Cyprus 55 Germany 4 USA 30 Switzerland 2 Canada

297,873 Russia 2,048 Ukraine

95 ROSNEFT SUSTAINABILITY REPORT 2017

HR PERFORMANCE IN 2017 work continued in 2017 to exploration and production formulate and approve unified segment, taking production Employee compensation compensation principles specifics into account. for individual business The average monthly salary for lines, taking the specifics Job evaluation (grading) all Group entities reached RUB of each into account. 79,200 in 2017, and the great Rosneft’s people strategy majority of these entities have The following were places a high priority on raising traditionally paid higher salaries successfully implemented labor productivity, including by than other companies in the at Group entities in 2017: enhancing the HR management same regions. Social payments, A model regulation on and incentive system. To this systemic benefit payments and labor compensation end, a pilot project to describe one-time bonuses included in for corporate research and grade positions in six gross payroll averaged RUB and design institutes Group entities was undertaken 51,400 per employee in 2017. A system of regular in 2017, employing the HAY (monthly) bonuses for retail Group’s global job evaluation In April 2017, salaries were filling station employees method, the most widely used to indexed 6% for employees A regulation on salaries construct a system of job levels. of Group entities in Russia and bonuses for employees to boost real salaries and of the Company’s The unified grading methodology compensate for inflation. aviation enterprises will enable a unified pay A target concept for an structure and make the Unified compensation employee compensation employee incentive system principles system in the oil refining and and personnel costs petrochemicals segment at Group entities more To make the incentive system effective and transparent. more transparent and tie In 2018, a target compensation employees’ compensation more system is to be developed closely to their performance, for employees in the

INTEGRATED RANKING

To motivate employees and Group entities to fulfill their production plans, the Company has held an annual competition since 2005 to determine the best enterprise in the following business lines: oil and gas extraction, oil refining, gas processing and petrochemicals, oil product supply (sales), oil product supply (marine transshipment), and research and design.

For a more objective integrated ranking, oil and gas production enterprises were divided into two groups in 2017 at the initiative of the top manager in charge: those with an annual output of 6 or more million tons of oil equivalent and those with less than 6 million tons.

The most notable change in the integrated ranking procedure in 2017 was a substantial increase in the size of awards. First-place winners are awarded a bonus of 50% of their monthly salary (previously 15%), second-place winners receive 30% (previously 5%), and a 20% bonus has been introduced for third place.

96 Human resources

Internal rules and Key performance indicators standards a key performance regulations indicator for managers in Rosneft’s system of key the Company and Group “Standard Internal Rules performance indicators (KPI) entities (for details, see the and Regulations of Group plays an essential part in the section “State Professional entities”52 – approved the motivation and compensation Standards” in this report). year before – were adopted of managers. The KPI as part of efforts to unify system includes a number Also, a norm designed to make the Group’s HR processes. of sustainable development information on all accidents, The Rosneft Interregional indicators that are tied including minor injuries, more Trade Union Organization to bonuses for Company open and transparent was was actively involved in management. These include included in the indicator of drafting this document. Some fuel and energy savings, work-related injuries, and this 450 comments and suggestions frequency of employee indicator was broadened to from 55 Group entities were injuries and the efficiency of include injuries to Company taken into consideration. purchases from small and employees that are the fault medium-sized businesses. of contractors. This approach The unified rules enables a fuller assessment made it possible: An important innovation in of workplace safety and timely to establish local standard 2017 was to make compliance responses to rapid changes. rules and regulations that with state professional serve the interests of employer and employees and comply with the Russian Labor Code as well as minimizing the risks of labor disputes to systematize working hours so that they can be used more rationally and efficiently to minimize the risk of violating the law in the area of labor conduct to raise the level of employees’ adherence to labor discipline.

Over the years, Rosneft management has shown an unwavering commitment to high standards of social security for its employees. Social payments to employees totaled RUB 15.5 billion in 2017.

Social payments, benefit payments and one-time bonuses included in gross payroll in 2017, RUB million

Wellness programs for employees 1,097.99 and members of their families 6 27. 81 Employee termination 15,512 635.98 Retirement 2,563.42 Voluntary health insurance 2,810.02 Other social payments Systemic benefit payments and one-time 7,776.75 bonuses included in gross payroll

52 The Company’s “Standard Internal Rules and Regulations of Group Entities”

97 ROSNEFT SUSTAINABILITY REPORT 2017

COMPARISON OF MONTHLY SALARIES IN SELECT ROSNEFT GROUP ENTITIES AND THEIR LOCAL REGIONS IN 2017, RUB

Average salary Average salary in Average salary at Group entities the region, RUB Region Group entity at Group as a percentage (November 2017, entities, RUB of the average Rosstat data) for the region, %

Arkhangelsk Region RN-Arkhangelsknefteprodukt LLC 39,697.89 41,192.00 96%

Irkutsk Region Angarsk Petrochemical Company OJSC 67,239.79 37,917.00 177%

Angarsk Polymer Plant OJSC 58,607.92 37,917.00 155%

Irkutsknefteprodukt CJSC 43,207.31 37,917.00 114%

Verkhnechonskneftegaz OJSC 107,806.55 37,917.00 284%

Krasnodar Territory RN-Krasnodarneftegaz LLC 50,506.38 30,283.00 167%

RN-Tuapse Refinery LLC 66,641.00 30,283.00 220%

RN-Tuapsenefteprodukt LLC 48,758.80 30,283.00 161%

RN Kubannefteprodukt OJSC 29,125.89 30,283.00 96%

Krasnoyarsk Territory RN-Vankor LLC 141,661.51 40,633.00 349%

East Siberian Oil and Gas Company OJSC 123,505.41 40,633.00 304%

Achinsk Refinery VNK OJSC 74,610.52 40,633.00 184%

RN-Krasnoyarsknefteprodukt LLC 58,209.88 40,633.00 143%

Moscow Region CJSC TZK Sheremetyevo 88,482.14 47,005.00 188%

Murmansk Region RN-Murmansknefteprodukt OJSC 38,293.55 50,114.00 76%

Nenets Autonomous District Bashneft-Polyus LLC 148,556.39 71,438.00 208%

Orenburg Region Buguruslanneft LLC 54,988.88 27,383.00 201%

Primorsky Territory Eastern Petrochemical Company CJSC 132,880.23 38,196.00 348%

RN-Nakhodkanefteprodukt LLC 57,270.39 38,196.00 150%

Republic of Bashkortostan Bashneft-Dobycha LLC 64,379.21 30,620.00 210%

OAO Ufaorgsintez 76,922.78 30,620.00 251%

Ufa Oil Refinery OJSC 82,968.72 30,620.00 271%

Branch of Bashneft Oil Company 87,293.52 30,620.00 285% PJSC: Bashneft Regional Sales

Bashneft-Roznitsa LLC 36,894.01 30,620.00 120%

Republic of Ingushetia RN-Ingushneft OJSC 27,658.75 21,914.00 126%

RN-Ingushnefteprodukt LLC 25,075.04 21,914.00 114%

Republic of Karelia CJSC Karelianefteprodukt 30,569.32 34,476.00 89%

Republic of Komi RN-Severnaya Neft LLC 108,804.75 44,748.00 243%

Sakha Republic (Yakutia) Taas-Yuryakh Neftegazodobycha LLC 138,344.38 61,171.00 226%

Republic of Khakassia Khakasnefteprodukt VNK CJSC 31,976.73 34,078.00 94%

Rostov Region RN-Rostovnefteprodukt JSC 29,288.28 27,910.00 105%

98 Human resources

COMPARISON OF MONTHLY SALARIES IN SELECT ROSNEFT GROUP ENTITIES AND THEIR LOCAL REGIONS IN 2017, RUB

Ryazannefteprodukt OJSC 31,100.14 28,941.00 107%

Samara Region Samaraneftegaz OJSC 60,782.50 30,242.00 201%

Kuybyshev Refinery OJSC 58,484.79 30,242.00 193%

Novokuybyshevsk Refinery OJSC 57,000.36 30,242.00 188%

Syzran Refinery OJSC 60,701.59 30,242.00 201%

Novokuybyshevsk Petrochemical Company OJSC 44,726.24 30,242.00 148%

Novokuybyshevsk Oil and Additive Plant LLC 56,402.48 30,242.00 187%

Samaranefteprodukt OJSC 31,233.28 30,242.00 103%

St. Petersburg RN-Trade LLC 51,216.52 54,353.00 94%

Saratov Region Saratov Refinery OJSC 64,750.33 24,478.00 265%

Saratovnefteprodukt OJSC 28,337.48 24,478.00 116%

Sakhalin Region RN-Sakhalinmorneftegaz LLC 100,530.97 66,271.00 152%

Tomsk Region Tomskneft OJSC 92,543.68 38,346.00 241%

Tomsknefteprodukt OJSC 40,349.41 38,346.00 105%

Tyumen Region Tyumenneftegaz OJSC 143,270.15 40,715.00 352%

RN-Uvatneftegaz 128,513.24 40,715.00 316%

Udmurt Republic Udmurtneft OJSC 64,274.35 30,005.00 214%

Khabarovsk Territory RN-Komsomolsk Refinery LLC 76,445.76 43,461.00 176%

Khanty-Mansi RN-Yuganskneftegaz LLC 98,046.06 59,552.00 165% Autonomous District

Varyeganneftegaz OJSC 125,368.40 59,552.00 211%

RN-Nyaganneftegaz JSC 102,170.86 59,552.00 172%

Samotlorneftegaz OJSC 96,984.30 59,552.00 163%

Krasnoleninsky Refinery LLC 90,536.88 59,552.00 152%

Nizhnevartovsk Refinery LLC 99,061.11 59,552.00 166%

Zapsibnefteprodukt LLC 62,917.35 59,552.00 106%

Chechen Republic Grozneftegaz OJSC 31,887.24 22,464.00 142%

RN-Chechennefteprodukt LLC 16,562.81 22,464.00 74%

Yamalo-Nenets RN-Purneftegaz LLC 102,855.23 81,481.00 126% Autonomous District

Rospan International CJSC 219,197.97 81,481.00 269%

Sibneftegaz JSC 171,243.79 81,481.00 210%

Yaroslavl Region RN-Yaroslavl JSC 28,306.30 31,425.00 90%

99 ROSNEFT SUSTAINABILITY REPORT 2017

62 CORPORATE TRAINING CENTERS successfully operate across the Group

Training and career development

Rosneft has a unified corporate system of career development across all business sectors and categories of personnel. Rosneft meets its legal requirements in terms of education and develops employee competencies in line with its business needs, corporate policies and procedures and the best Russian and international practices.

Some 400,000 man-courses TRAINING AND PROFESSIONAL DEVELOPMENT OF ROSNEFT STAFF IN 2017 were provided in 2017, including mandatory, occupational and Total man-hours of training 13,497,685 management training. The Company has 62 corporate Average number of man-hours of training per employee per year 42.4 training centers. The Man-hours by category occupational, corporate and management competencies of Managers 66.3 over 28,000 people have been evaluated. Rosneft works closely White-collar employees 25.0 with 58 partner universities Blue-collar employees 46.5 and has 20 specialized academic departments. Each Man-hours by sex year around 6,500 students do internships at Rosneft, and Male 52.2 1,000 of these are hired. Female 21.9

To create a pool of talent for jobs in high demand, TRAINING AND PREPARATION OF ROSNEFT STAFF IN 2017, MAN-COURSES the Company also works with 24 colleges, and over Period 2015 2016 2017 1,000 of their students do internships each year. Total for the year 325,890 438,507 533,298 By category A total of 2,615 secondary school students in 25 regions Managers 74,443 83,981 99,715 are enrolled in 111 Rosneft Classes. In 2017, 685 graduates Talent pool 2,259 2,625 3,077 of Rosneft Classes enrolled in Professionals 81,855 103,094 121,198 related university programs. Young professionals 6,556 3,706 3,847

Blue-collar employees 160,777 245,101 305,461

100 Human resources

Staff training Employee training for strategic projects

To unify staff training practices One particularly important training program offered in and establish a single corporate 2017 was designed to prepare employees for priority training methodology, Version goals of the Company’s long-term strategy, including: 3.00 of the Company’s Staff 1. Preparation of managers of Group entities Training Standard was approved and formation of a Company talent pool and implemented in 2017. This standard is the central staff 2. Exploration and production training: specialized training document and sets corporate training, mandatory training of key unified requirements for training Group entity employees and programs for mid- at Rosneft and Group entities. level production managers of Group entities

Its puts particular emphasis 3. Young Engineers Program: a comprehensive course on raising corporate of career planning and training for young engineers requirements for mandatory in the exploration and production segment and occupational training in order to ensure job quality and 4. Professional retraining for work on offshore projects safety and prevent and manage 5. Training in oil refining and petrochemicals accidents and emergencies. 6. Retail training: upgrading of professional qualifications and In 2017, 533,300 man-hours practical mastery, training in corporate service standards of mandatory occupational and for filling stations and in the marketing and sales of management training were complementary goods provided – 24% more than were planned for the year. 7. Training in corporate research and design 8. Training to promote a culture of job safety and informed HSE leadership

9. Energy efficiency training

10. Supply chain training

11. Corporate compliance programs

12. Professional retraining as part of the implementation state professional standards

THE WORLDSKILLS COMPETITION

In order to popularize skilled professions and bring the level of preparation up to international standards, Rosneft’s second corporate laboratory chemical testing championship was held in 2017 in accordance with Worldskills standards.

29 chemistry lab technicians and 33 experts employed by 32 Company oil refineries and petrochemical plants entered the competition at a corporate production facility in Novokuybyshevsk.

The winners represented the Company at the Fourth National WorldSkills Hi-Tech Championship of Universal High-Tech Occupations, held in autumn of 2017 in Ekaterinburg. A young professional from Saratov Refinery took third place in the category of laboratory chemical testing.

101 ROSNEFT SUSTAINABILITY REPORT 2017

In-house training resources the establishment of a Rosneft Technical In order to preserve and Qualification Center at transmit knowledge within Gubkin Russian State the corporation as well as to University of Oil and Gas ensure training quality and the creation of an Offshore effectiveness, Rosneft has Drilling Center as a division developed its own in-house of the Company’s Technical training resources. Qualification Center at Gubkin Russian State 48% of all employee training in University of Oil and Gas 2017 was in-house, including the completion of practical training provided by corporate training areas at the Oil training centers, in-house & Gas Training Center at instructors and experts Ingush Polytechnical College and on-the-job mentors. the creation of two training centers at Group entities 62 training centers, including practical training areas, In parallel, Rosneft continued have been set up and to develop its in-house successfully operated at training system by recruiting Group entities, drawing on the in-house instructors, experts resources of local educational and mentors. Rosneft’s 386 institutions, to provide in-house instructors trained IN-HOUSE TRAINING workers and professionals over 200,000 employees in COURSES with advanced, occupational 2017. 386 in-house training DESIGNED AND HELD AT THE and mandatory training. Key courses were designed and CORPORATE LEVEL FOR achievements in 2017 were: held at the corporate level the creation of a Rosneft for 7,838 employees. corporate training and 7,8 3 8 Distance learning in career development center EMPLOYEES at the Odintsovo branch 2017 included over of Moscow State Institute 67,000 man-courses. in 2017 of International Relations

102 Human resources

BEST IN THE PROFESSION

Competency evaluation system

Rosneft employees are evaluated for purposes of planning training and forming a talent pool and expert communities and as part of the process of screening candidates for hiring and promotions.

The ongoing process of improving the system of assessment and professional development of blue- and white- collar employees and managers includes efforts along two lines: Evaluation of corporate and management competencies based on Rosneft’s Model of Corporate and Management Competencies, which reflects the Company’s The Best in the Profession Competition is important culture and values and as an element of the incentive system and as a means describes managers’ of developing the professional skills and knowledge competencies. This model of Company employees. As part of the competition, was used to evaluate over the Company holds major events each year for 15,000 employees in 2017. purposes of disseminating best practices and Evaluation of professional production culture, implementing new technologies, competencies based on enhancing the prestige of skilled professions and a methodology developed rewarding employees who show initiative. in-house. The competencies of over 13,000 professionals In 2017, more than 900 employees from over 100 Group were evaluated in 2017. entities took part in the 13th competition, held at Rosneft production facilities in the cities of Krasnodar and Tuapse. In 2017 Rosneft continued work on a unified corporate Both theoretical and practical skills were taken into information resource consideration, and high priority was given to industrial, fire, for the evaluation and and occupational safety. Over seven days, the participants development of employee competed in 26 skill categories in the areas of oil and competencies: documentation gas production, oil refining and distribution and sales. was drafted, and network hardware was purchased, The victors and prizewinners received certificates installed and configured. and cash awards. Competitors who did not win but showed special promise were awarded certificates “For the Will to Win,” “For Professional Dedication,” “For a Strong Start” and “For Creativity.”

COMPREHENSIVE PERFORMANCE EVALUATION SYSTEM

Period 2015 2016 2017

Evaluation of vocational competencies, employees 6,500 over 9,000 over 13,000

Evaluation of corporate and management competencies, employees 11,300 over 12,000 over 15,000

103 ROSNEFT SUSTAINABILITY REPORT 2017

State professional standards the Council for Professional Qualifications in the Oil Efforts continued in 2017 to and Gas Sector. In 2017, 29 implement professional standards Company specialists also PROFESSIONAL at Rosneft and Group entities. developed and presented five STANDARDS Tasks involved in implementing professional standards to be introduced as mandatory professional standards were considered by the council in for all Group entities included in the performance accordance with its plan. indicators for Rosneft and Group entity managers responsible for International HR management. The Company’s education projects progress in fulfilling its plan for implementing professional Rosneft collaborates with standards in 2017 was checked foreign partners to prepare twice by the Company’s Board talent for work on joint projects. of Directors in accordance International education projects

with government directives. 53 and employee exchange bachelor’s, professional and The OHS Expert professional programs are a powerful way master’s programs at partner standard became mandatory of developing the competencies schools, and a new group in all Group entities, regardless needed to achieve the of students was admitted: of the nature of their business. Company’s strategic goals. 30 Venezuelans were accepted Depending on the area involved, for master’s programs to 2020. another 29 professional In 2017, joint education standards are mandatory, projects were continued with With the Company’s including drilling, exploration, Cuba-Petr leo, Petr leos support, 18 Cuban students well repair and reconstruction, de Venezuela S.A. (PDVSA) completed master’s programs oil and gas production and (Republic of Venezuela) and at Gubkin Russian State processing, education, welding, the Ministry of Education University of Oil and Gas. nondestructive inspection, etc. and Science of Mongolia. The Company provided financial Two short-term courses Since 2015, Rosneft, along and organizational support so on geology and drilling were with other oil companies, has that 27 Mongolian citizens and offered for 29 employees taken part in the activities of 15 Venezuelans could continue

53 Directive No. 5119p-P13 of the Russian Government of 14 July 2016

104 Human resources

of Rosneft and PDVSA joint as part of the talent-pool ventures in Venezuela. automation process, maintenance of talent Another milestone in 2017 was pool data was developed the establishment of Rosneft as a function in corporate internships for employees of information systems KazMunayGas: four Kazakh a multi-tier competency professionals did internships evaluation system was set at Syzran Refinery. In addition, up to aid in selecting pool two trilateral international members and in mapping cooperation agreements were their development priorities signed in May 2017 between and individual development Rosneft, the Polytechnic plans 7,000 employees University of Turin (Italy), have been evaluated Moscow State Institute of since the start of 2017 International Relations (under talent pool members studied the Russian Ministry of Foreign in corporate MBA programs Affairs) and Gubkin Russian at the International Institute State University of Oil and Gas. of Economics and Law of Under agreements reached Moscow State Institute in December 2017, the first of International Relations, renewable energy training the Higher School of module of the University of Management and Gubkin Turin was offered as part of Russian State University of the professional retraining Oil and Gas and as well as program “Practical Engineering took courses to develop their 7,000 and Oil and Gas Production management competencies EMPLOYEES Technologies” at Gubkin Russian were assessed State University of Oil and Gas. A total of over 3,000 talent using a multi-tier pool members received competency evaluation Talent pool program instruction in 2017. system

Rosneft is committed to developing the corporate and management competencies of employees in its talent pool. The talent pool program is designed to identify and retain the best people by offering them opportunities for career development and growth.

Personnel committees chaired by Rosneft top managers met in 2017 and updated the talent pool for designated first-tier management positions.

A milestone in 2017 was the creation of a talent pool at subsidiaries of Bashneft, following corporate methodology, that fully covered target second- and third- tier positions and partially covered first-tier positions.

Rosneft’s system-wide talent pool efforts in 2017 included the following initiatives:

105 ROSNEFT SUSTAINABILITY REPORT 2017

Work with young mentored young professionals entities took part. As a result professionals at Group entities in 2017. of the games, 119 professionals Mentors’ tasks include helping were recommended, Systemic work with young young professionals adapt because of their aptitude for professionals is one of the top to their jobs and corporate corporate and management priorities of Rosneft’s people culture, develop professionally competencies, to the pool of policy. Rosneft strives to ensure and prepare for higher young talent and for further an ample supply of talent by professional, white-collar and training in the Three Steps training the best university management positions. The Program. In addition, 62 young graduates to become highly regulation envisages special professionals who won the qualified professionals and by orientation events for young 2016 games received training. facilitating their orientation professionals, including an at individual companies. introductory course, a series

In 2017, 108 Group entities employed 4,161 young professionals, 54 1,437 of whom were hired in that year.

For more effective work with young professionals, the Company updated its regulation on work with young professionals in 2017.

Training and career growth are aligned with young professionals’ individual development plans. 3,847 man-courses were provided in 2017 as part of programs to develop the professional and management competencies of young professionals. Councils of young of meetings with enterprise professionals and a mentoring and department managers, program help recent graduates team-building training and an adapt smoothly at Group oil worker initiation ceremony. entities. Young professionals are mentored in accordance with The traditional business games the Company’s regulation on were held in 2017 in order to work with young professionals, identify young professionals which states that a mentor with leadership potential and is to be assigned to each form a strategic reserve of young professional. Over young talent, and 349 young 2,000 experienced employees professionals from 72 Group

YOUNG PROFESSIONALS AT ROSNEFT

Period 2015 2016 2017

Number of young professionals hired after they completed their higher education 1,398 1 273 1 437

Number of young professionals in the Company 3,810 4 027 4 161

Number of young professionals who participated in science and technology conferences 1,632 1,853 2 072

Expenditures on corporate programs targeting young professionals, RUB million 84.3 94.5 102.7

54 An employee of a Group entity who is classified as a “young professional” and meets the following criteria: graduated from a full-time program at a state-accredited university with a bachelor’s degree, professional qualification (engineering) or master’s degree; is employed for the first time in this specialization; was hired by the Group entity within one year after graduation as a result of a competitive selection process; was hired for a managerial, professional, white-collar or blue-collar position in his/her primary area of activity.

106 Human resources

Science and technology Training of young engineers conferences in the exploration and production segment Rosneft’s annual science and technology conferences are Work continued in among the most effective ways of 2017 on a comprehensive working with the company’s young program of career planning and professionals and assessing training for young engineers in their potential. Conferences are the exploration and production held in three stages: regional, segment. Program incentives cluster and interregional. include the following: 2,072 young professionals took In the area of drilling, the part in 2017, and 88 of these first group of young engineer emerged as winners at the trainees continued the concluding 12th Interregional Rosneft Drilling Supervision Workshop, held at Lomonosov and Engineering Program Moscow State University, one of (20 employees at 6 Group Rosneft’s key partner schools. entities); a second group, 301 young professionals from formed for training in 64 Group entities took part. 2017-20 (30 employees at 61 projects entered in the 15 Group entities), completed workshop were recommended the first module in December. for implementation at Rosneft. In the area of production, an oilfield chemistry professional For example, as part of the retraining program was project “Implementation designed and launched, and of a Hydraulic Fracturing 30 employees at 19 Group Design Model for a Corporate entities successfully defended Simulator,” young professionals their graduation projects. at RN-UfaNIPIneft (part of the In the area of geology, a corporate research and design professional retraining 30 PROJECTS cluster) did research to develop program in sedimentology RECOMMENDED FOR mathematical models for use in and sequence stratigraphy IMPLEMENTATION AT THE the RN-GRID corporate hydraulic was developed and approved, 2016 INTERREGIONAL fracturing simulator. A hydraulic and 16 employees at WORKSHOP RESULTED IN THE fracturing simulator is specialized 10 Group entities began ADDITIONAL PRODUCTION OF software for mathematical the course; professional modeling and engineering analysis retraining programs of the fracturing process. It were designed for the 235,000 allows fracture geometry to positions of seismic analyst TONNES OF OIL be calculated based on seam and GIS petrophysics structure, the geomechanical seismic-support analyst. properties of the rock and the In the offshore area, RUB parameters of fluid and proppant professional retraining 395 injection. The RN-GRID corporate programs were developed MILLION hydraulic fracturing simulator is and approved for the in total economic effect used at RN-GRP, which forms positions of offshore drilling part of the Company’s internal supervisor and offshore service cluster and carries out drilling professional; two hydraulic fracturing work. training groups were formed (a total of 26 employees Also, thirty projects at 11 Group entities). recommended on the basis In the processing area, work of the 2016 workshop were continued on the design and implemented at 15 Group entities approval of the professional in 2017. As a result, an additional retraining programs 235,000 tons of oil were in geological modeling, produced, yielding an economic hydrodynamic modeling effect of RUB 395 million. and project management.

107 ROSNEFT SUSTAINABILITY REPORT 2017

2,615 SECONDARY SCHOOL STUDENTS

Rosneft Class at Secondary School №6 in Saratov. enrolled in 111 Rosneft The fifth graduation program will be completed in 2018 Classes in 2017

Work with youth in of instructors, acquiring pursue university engineering local communities equipment for dedicated degrees that are in demand rooms and career guidance. in the oil and gas industry In 2017 Rosneft continued its These expenditures came to and ultimately be hired by corporate continuing education RUB 180.6 million in 2017. Rosneft after graduation. system, School–University– Development of partnership Company, working actively with relations with vocational In 2017 a total of young people not only in the and higher educational 2,615 secondary school Company’s regions of operation institutions, including the students were enrolled but throughout Russia. The updating of education in 111 Rosneft Classes program’s main objectives are: programs, the maintenance in 58 general education to create an external talent of specialized departments schools in 52 cities and pool and ensure a steady and master’s programs settlements in 25 regions influx of highly educated at partner universities, of the Russian Federation. young people with solid the development of professional training infrastructure and the 1,179 young people completed to support the university academic capabilities of Rosneft Classes in 2017, education of talented educational institutions, and 1,108 of these went on students, including Rosneft scholarships for gifted to university. The project’s Classes graduates, and students and grants for effectiveness can be gauged potentially bring them into teaching staff. These by the frequency with which Rosneft as new hires expenditures totaled RUB Rosneft companies hire 870.3 million in 2017. graduates of Rosneft Classes To promote the School– who receive specialized higher University–Company system Rosneft Classes education. 97 young graduates and to support participating of Rosneft Classes were hired educational institutions, Rosneft contributes to the by Group entities in 2017. Rosneft and Group entities system of pre-university provide charitable assistance education and career guidance Rosneft Classes achieve to schools, technical schools, by offering specialized Rosneft high results by means of colleges and universities. This Classes in Russia’s regions. advanced instruction in assistance goes toward: These classes, offered with physics, mathematics and Establishing and supporting the support of Group entities, natural science and additional Rosneft Classes, including help secondary school students education in career-specific costs for further education, obtain a good general education subjects. Lecturers from upgrading the qualifications so that they can go on to partner universities teach

108 Human resources

the career-specific subjects, Partnership with universities and this ensures high-quality instruction and enhances Partnerships with leading graduates’ professional Russian universities are being level and competitiveness in actively developed as part of the applying to universities. School–University–Company program of continuing 58 To upgrade the qualifications of education. In 2017 the number LEADING INTERNATIONAL school directors and teachers of universities with which AND RUSSIAN UNIVERSITIES involved in Rosneft Classes, the Rosneft and Group entities have signed long-term Company holds annual seminars have signed long-term package package agreements with led by teaching staff from the agreements grew to 58, of Rosneft and Group entities country’s leading universities. which 22 are partners of Rosneft. The Company’s new At the start of the school year, partners in 2017 were the students taking Rosneft Classes Polytechnic University of Turin participate in a major corporate (Italy), Kazan (Volga) Federal event: the Ladder to Success University and South Ural Seminar. The event’s format State University (National was changed in 2017, and Research University). each school offering Rosneft Classes became a seminar Agreements with universities venue. A total of 52 seminars are a basis for partnership were held in 2017 for in the areas of employee 2,606 tenth- and eleventh- training and retraining, graders in 8 federal districts. research and innovation and

ROSNEFT CLASSES PROJECT

Period 2015 2016 2017

Number of Rosneft Classes 98 105 111

Number of students 2,359 2,499 2,615

Investments in Rosneft Classes, RUB million 147.6 185.2 191.1

TEACHER TRAINING: “INTRODUCTION TO THE OIL AND GAS INDUSTRY”

In 2017 Rosneft, in cooperation with Gubkin Russian State University of Oil and Gas, held the first advanced teacher training course for educators teaching “Introduction to the Oil and Gas Industry” as part of the Rosneft Classes program. The training is designed to educate teachers about this subject and so make career guidance more effective for students in Rosneft Classes. The teacher training program was developed by Gubkin Russian State University of Oil and Gas at the Company’s request to make teachers more knowledgeable about the oil and gas industry and prepare teachers of career-specific subjects to include career guidance in their lessons. The training was taken by 49 teachers from 42 cities in 24 constituent entities of the Russian Federation.

109 ROSNEFT SUSTAINABILITY REPORT 2017

the development of university to ensure the quality of Petersburg State Marine science infrastructure so that professional training: a Technical University and a highly qualified specialists Rosneft Offshore Drilling Rosneft drilling laboratory at can be prepared to meet Center was opened at Tyumen Industrial University current business needs. Gubkin Russian State as well as to develop Rosneft’s partnerships with University of Oil and Gas, and the Technology Training universities included the Ufaorgsintez Petrochemical Center of St. Petersburg following efforts in 2017: Process Technology Academic University (Russian 20 specialized academic Laboratory was created Academy of Sciences) departments, involving at Ufa State Petroleum Upgrading of the 57 Company employees Technological University mining and petroleum A number of projects Work continued to set up a department of Ufa State to develop university Marine Engineering Science Petroleum Technological infrastructure in order and Education Center at St. University was begun

PARTNERSHIPS WITH UNIVERSITIES

Period 2015 2016 2017

Number of partner universities 47 54 58

Number of student interns 4 839 6 645 6 661

Expenditures on partnerships with universities, RUB million 769.4 908.8 1049.8

Financing of continuing education incentives in 2017, RUB million

117.4 Skill upgrading programs at universities 191.1 Training at the school level 1,049.8 Partnership with universities (development of university infrastructure, 1,496.8 internships, stipends and grants for instructors) 102.7 Work with young professionals 35.8 Conferences

110 Human resources

Financial support was PARTNERSHIP IN THE “CASE IN” INTERNATIONAL provided for the creation of ENGINEERING CHAMPIONSHIP a cluster of interdisciplinary and convergent research on education as part of the Program for the Development of the Russian Academy of Education, 2017–20 Some 100 professional and advanced professional training programs for Rosneft employees were updated 195 university staff members and 656 students received support in the form of corporate grants and scholarships Over 20,000 students took part in the Rosneft Days career guidance event Training and internships at Rosneft companies were offered to 6,661 students In 2017 a long-term internship at Rosneft headquarters was established for 113 master’s students at Rosneft partner universities

In 2017 Rosneft supported government education policy by working with the boards of regents and supervisory boards of 10 partner universities, the National Intellectual Development Foundation, Lomonosov Moscow State University’s preparatory school for gifted children, the Russian Academy of Education and the Russian Security Council to promote the training of engineers for shipbuilding and In 2017 Rosneft was a partner of the “Case In” International ship repair enterprises; the Engineering Championship, the largest practice-oriented project Company’s collaboration with for university students involving the solution of engineering MSU’s preparatory school for cases. gifted children included a seminar for directors of schools offering In the preliminary rounds of the championship’s oil and gas Rosneft Classes and the division, student teams at 10 partner universities competed introduction of distance learning in solving an engineering case based on materials provided by for students and teachers of Rosneft. The panel of judges included over 60 representatives Rosneft Classes was launched. of Rosneft. Rosneft also provided support for expanding the capabilities “Case In” identifies promising students at industry-related of maritime universities in universities for the Company’s external talent pool and helps order to prepare highly qualified to popularize engineering professions and involve the best engineers for the shipbuilding students in solving current production tasks. industry and the navy. Victors and prizewinners took part in the 19th World Festival of Youth and Students, held in Sochi in October 2017.

111 ROSNEFT SUSTAINABILITY REPORT 2017

unified standards for the it possible for 829 families of design, construction and use employees to improve their RUB 16,2 of s rotation villages, including living conditions in 2017. MILLION albums of standard technical of interest-free loans solutions for rotation villages Under the corporate granted to Company and modular (frame and panel) mortgage program, the employees in 2017 housing complexes as well as Company was successful for support bases, areas and in obtaining a substantial workshops. Guidelines also went reduction in the rate charged by into effect establishing unified partner banks in 2017: by year Education support for technical requirements for the end, the mortgage rate had employees and members design of modular administrative been cut to 9.2% for program of their families and support buildings, participants in 2017 as well modular trailers with various as for employees who signed A key area of Rosneft’s functions and heating units for mortgage agreements in corporate social policy in rotation workers. A total of 2015-17 at a rate of 11.5%. 2017 was the financing RUB 6,164.9 million was spent of intramural university to ensure comfortable living Rosneft also provides the education for employees conditions in rotation villages, families of highly qualified and their children. In 2017, regardless of their location. employees from other cities 223 Company employees were with corporate housing granted interest-free loans In 2017 a number of inspections and reimburses the cost of totaling RUB 16.2 million. were done of providers of food, apartments rented on the housing and other services in secondary housing market. Creation of optimal the Company’s rotation villages. An additional 370 families of working conditions employees were provided with Costs for the maintenance corporate apartments in 2017, In 2017 Rosneft continued and comprehensive servicing bringing the number of such its systemic efforts to create of work-related social apartments to over 1,300. In quality working conditions at facilities and for food and 2017 the program included Rosneft production and support housing for the employees updating the Regulation on facilities. A key element was of Group entities came to Renting Corporate Housing and the enhancement of 97 rotation RUB 8,004.2 million in 2017. Standardizing the Corporate villages and trailer parks that Housing Rental Agreement. housed some 35,000 employees Quality living conditions The Company is also building of Rosneft and its contractors houses to encourage highly at the end of 2017. Rosneft’s corporate social qualified employees to take policy places a high priority jobs in remote areas. This year saw the approval and on a comprehensive housing implementation of a number program. Corporate mortgages of internal regulations setting and housing construction made

RUB 6 ,16 4 . 9 MILLION spent to ensure comfortable living conditions in rotation villages in 2017

112 Human resources

Promotion of 28 drills with a view to of cardiovascular disease employee health optimizing the stages of and a program to upgrade air evacuation at worksites air ambulance services. In 2017 Rosneft continued of 12 Group entities its successful employee To improve the system of To ensure the quality and health program of timely and health care and emergency effectiveness of medical high-quality medical services, medical aid at remote services for Company wellness initiatives, treatment worksites, the Company employees, as part of a joint and recreation at sanatoriums formed an occupational project with Lomonosov Moscow and resorts, disease prevention medicine advisory board in State University, Rosneft and a healthy lifestyle. 2015, including physicians continued a program responsible for the health involving a comprehensive Rosneft spent over RUB care system at Group analysis of the quality and 500 million to promote its entities. The board’s monitoring of employees’ health employees’ health in 2017. achievements included in 2017. A comparative module inspections of the health was added to the information Occupational medicine care system and emergency system being developed, medical services at all allowing analytical information The Company is successfully Company medical stations. on employee health care and applying unified standards of wellness for each entity to health care, emergency medical In 2017, 61 inspections be visualized and health risks aid and evacuation at worksites. of medical stations were for Company personnel to done at six Group entities, be assessed and managed System of health care and and 17 medical stations emergency medical aid were inspected at Bashneft enterprises. These inspections An important accomplishment formed the basis for an expert in 2017 was the implementation assessment of medical station of a program to upgrade equipment and the qualifications air ambulance services for and practical skills of medical Company employees, including: station personnel. Based on regulation of the air the findings, members of an evacuation procedure at expert panel worked with worksites, depending on the professionals from Group nature of the business and entities to develop correctives > RUB 500 the region of dislocation that are regularly monitored. MILLION improved emergency medical services during In 2017 the panel also spent on employee air evacuation, achieved by oversaw drills held at all health in 2017 purchasing additional medical levels, a program at Group and immobilization equipment entities for the prevention 28 DRILLS held in 2017 to optimize the stages of air evacuation at worksites

113 ROSNEFT SUSTAINABILITY REPORT 2017

and a practical module using mannequins to develop hands-on skills, followed by a practical exam.

In addition, videoconference training in modern standards of prehospital emergency care was provided for professionals in the relevant departments of Group entities and the staff of medical stations: three training courses on the topic “Cardiopulmonary and Cerebral Resuscitation: Intensive Prehospital Care in Cases of Circulatory Arrest” – 225 participants three training courses on the topic “Basic Procedures for Prehospital Care in Cases of Cardiopulmonary Resuscitation and Injuries” – 218 participants

Disease prevention

Training of health 46 professionals from 16 Group Disease prevention is an care professionals entities and medical institutions. important part of Rosneft’s efforts to develop occupational The Company puts great The training program, developed medicine. Under a corporate emphasis on providing by the Department of General program to prevent guidance and support for and Specialized Surgery of cardiovascular disease that was Group entities’ health care Lomonosov Moscow State launched at 27 Group entities professionals and the staff of University’s medical school, in 2017, 68,800 employees medical stations. In 2017 field included a theory module received medical checkups. training in modern standards on modern standards of Based on the results, some of prehospital medicine was prehospital emergency care employees were given physicals, provided at RN-Vankor for involving air evacuation and outpatient or inpatient

CORPORATE WELLNESS CONFERENCE

For purposes of enhancing the health care system for employees at remote worksites, a corporate wellness conference was held in 2017 in collaboration with the NIR Foundation (Lomonosov Moscow State University).

The conference, attended by professionals responsible for occupational medicine at 51 Group entities, covered the legal framework of emergency medical aid, scientific approaches to monitoring and analyzing the health care system, the prevention of occupational and general illnesses and monitoring of employee groups in the oil and gas production and processing industries.

114 Human resources

THE “LIVE LONGER!” PROGRAM TO PROMOTE treatment was arranged A HEALTHY LIFESTYLE for the illnesses identified. Recommendations were also provided on the prevention of cardiovascular disease.

Sanatoriums and resorts

Treatment, rehabilitation and wellness programs at sanatoriums and resorts is a key component of social benefits for employees, members of their families and retired veterans of labor. In 2017 over 65,000 Rosneft employees improved their health at sanatoriums in Krasnodar Territory and resorts in Belokurikha, Bashkortostan and other regions of Russia.

In 2017, to optimize the use of funds that it provides for employee wellness programs, the Company, in collaboration The successful “Live Longer!” program to promote a healthy with Sogaz – selected lifestyle continued in 2017. The Company uses this unique as corporate insurer for program to make a positive impact on its employees’ employees’ voluntary health health by reducing the incidence of disease, insurance (VHI) plans as a result popularizing a healthy lifestyle and involving employees of centralized procurement of various ages and fitness levels in athletic events. procedures – continued a pilot project to use VHI mechanisms Program initiatives at all Group entities fell into two main areas: for employee rehabilitation and Wellness: disease prevention and early diagnosis in treatment at sanatoriums and order to maintain and build the health of Company resorts. As part of this project, employees and establish health as a core value over 12,000 employees of Active lifestyle: popularization of an active lifestyle and broad Group entities and members involvement of employees in sports initiatives for an informed of their families stayed at spas and responsible attitude toward personal health and fitness and resorts on the Black Sea coast and in the Caucasian Wellness included preventive measures for the early Mineral Waters region as well detection of disease. Wellness marathons were held by four as at regional sanatoriums. offices of Rosneft headquarters and 127 Group entities. Since 2013 Rosneft has Great progress was made in promoting an active lifestyle offered a wellness program in 2017, especially by Rosneft sports clubs: running, GTO in Cuba for employees and and CrossFit, Nordic walking, triathlon and speed skiing. The members of their families. Company arranged for employees to take part in 36 external In 2017, 2,155 employees of sports events in Moscow and Moscow Region, St. Petersburg, Group entities and members of Nizhny Novgorod, Sochi, Kazan, Rybinsk and Suzdal. For their families vacationed and example, 150 employees ran in the 2017 Moscow Marathon. improved their health at Cuban resorts, and two new wellness To build on current achievements and further promote a healthy programs for employees lifestyle, a comprehensive five-year program – Live Longer! – were developed and approved was developed and approved in 2017 for the period of 2018-22. for 2018 in cooperation with Cuban partners.

115 ROSNEFT SUSTAINABILITY REPORT 2017

Voluntary health insurance for contractors’ employees opportunity to demonstrate has become more common. their athletic achievements. Voluntary health insurance Insurance benefits paid to an (VHI) is a key part of the employee or members of an 25,000 employees of benefits package provided to employee’s family are often 92 Group entities took part Rosneft employees. At the end the only significant source of in the 2017 Spartakiads. of 2017, 274,000 employees income for an injury victim or the were insured under VHI family of a deceased employee. The 7th Winter Spartakiad was agreements and 295,000 under Contractors’ employees generally held in Ufa at the Ufa Sports voluntary personal injury lack social protection, including Center and Biathlon Sports and insurance agreements. in the event of partial or full Recreation Complex, where disability. In 2017, the process 440 athletes on 25 teams An important milestone in of introducing requirements representing the Company’s 2017 was the consolidation of that Bashneft contractors enter subsidiaries and head office Bashneft’s insurance programs. into agreements for voluntary competed for medals in four On 1 October 2017 the entire personal injury insurance for sports: hockey, skating, skiing staff of Bashneft’s corporate their employees was initiated. and luge relay. The Bashneft center and subsidiaries was The introduction of personal team – first-time entrants switched to VHI programs used insurance requirements for in the Rosneft Spartakiad – by Rosneft Group entities. VHI contractors is to continue in emerged as the gold medalists efforts focus on improving the 2018, including at the stage of in terms of overall team quality of service and expanding procurement documentation, score. The silver medal went the range of medical services when a contractor is selected to to Samaraneftegaz and the offered to employees under perform production-related work. bronze to last year’s champion, VHI policies and on involving the Angara united team. the best regional health Promotion of a healthy care facilities in Russia. lifestyle and sports At the finals of the 2017 Summer Spartakiad in Important progress was made in For many years, Rosneft Sochi, over 780 participants in 2017 in spreading the practice, has made far-reaching 20 teams, representing Group at the procurement stage, efforts to develop sports and entities in 9 regional zones of having terms of reference promote a healthy lifestyle from Khabarovsk to Ryazan, require that contractors enter among its employees and in local competed in 10 sports: indoor into agreements for voluntary communities. Annual summer football, basketball, volleyball, personal injury insurance so that and winter Spartakiads are an tug-of-war, table tennis, chess, their employees will be covered important part of these efforts. powerlifting (push-pull), track during their work for Rosneft Rosneft corporate sports and field, Russian billiards Group entities. As a result of events promote an active way and bowling. Samaraneftegaz Group entities’ efforts, voluntary of life and give employees an took gold, followed by the personal injury insurance Angara united team with

116 Human resources

THE “ROSNEFT LIGHTS UP THE NIGHTS” FESTIVAL silver, and Novokuybyshevsk Oil Refinery took the bronze.

Another important event in 2017 was the participation by 35 members of the amateur Rosneft Triathlon Team in the international Ironstar competition in Sochi. The Rosneft Triathlon Team is the biggest and most successful corporate team in Russia, uniting over 65 amateur athletes from various cities, who are divided into marathon, swimming and triathlon groups. To achieve the team’s ambitious goals, athletic facilities are rented jointly, a world-class trainer leads group sessions, and the season training schedule is professionally prepared.

A program to promote acrobatic rock and roll was also pursued in 2017. With the support of the Dancesport and Acrobatic Rock and Roll Federation, classes were offered to children of employees in Tyumen, Krasnodar, Samara and Ufa, and the united Rosneft team took part in the Russian national acrobatic rock and roll competition in Kazan. In 2017 Rosneft held its 7th annual “Rosneft Lights Up the Nights” Festival, in which over 6,000 participants competed for the favor of the audience and judges in various categories: vocal, dance, instrumental, variety and circus, art and photography. In 2017, preliminary rounds were held at 117 Group entities, followed by local rounds in Ufa, Krasnoyarsk, Samara, Tuapse and Moscow. Employees of Bashneft and Targin took part in the festival for the first time.

The finals were held in the concert hall of the Cosmos Hotel. Over three days, the professional jury evaluated over 100 performances and entries in various categories and three age groups: 7 to 12, 13 to 17, and 18 and older.

The performances were notable for their innovative ideas and high level of professionalism. The level of talent increases markedly each year, and the festival is growing in importance as a cultural event, uniting several generations of oil workers in various cities and regions of the country.

The festival culminated in a gala concert, timed to coincide with Oil Workers’ Day and conceived as a theatrical journey through the Company’s regions of operation. The audience was treated to a variety of stories and features sharing a common theme: the unity of the Rosneft family and friendship between all festival participants.

117 ROSNEFT SUSTAINABILITY REPORT 2017

Collective bargaining agreement

In 2017 Rosneft continued to work with employees to improve the Model Collective Bargaining Agreement for Group entities. The principle of freedom of association is a core value for Rosneft, which also recognizes workers’ right to collective bargaining. In 2017, Rosneft made around 20 amendments to its model agreement to enhance social security for its workers, including an important amendment compensating Employees raising disabled in place since 2000 is an the employees of Group children without a spouse important means of enhancing entities for the difference Employees injured the security of Rosneft between a temporary disability in accidents employees. In 2017 Rosneft allowance and average salary. Employees working and Group entities paid a total in the Far North of RUB 6.84 billion in pension Other amendments contributions to Neftegarant were aimed at extending Corporate pension benefits Private Pension Fund, social safeguards for: and care for veterans of which RUB 462.86 million Retirees went to the Veterans Social Employees (health resort The corporate pension Support Project. 55 treatment and recreation) program that has been

Use of multipliers in 2017 Percentage change in corporate pensions in 2015-17 21.44%

No multipliers Multipliers 1.1 3.86% 2.74% Multipliers 1.2 Multipliers 1.3 2015 2016 2017

PRIVATE PENSION SUPPORT

Period 2015 2016 2017

Rosneft’s payments to Neftegarant under the pension plan, RUB million 5,380 5,175 6,843

Number of persons receiving corporate pensions 62,207 67,167 72,841

Pension payments, RUB million 1,706 2,001 2,196

Total value of personal pension plans with Neftegarant, RUB million 3,963 5,062 6,868

Number of persons with personal pension plans (cumulative total) 51,996 64,023 76,460

over over over Number of Rosneft employees covered by the pension system 206,000 206,000 233,000

55 Veterans are former employees who were employed at Rosneft or a Group entity for 10 or more years, who left before Rosneft or the Group entity concluded a corporate pension agreement with a private pension fund under a unified private pension program and who qualified for pension benefits under Russian law when their employment was terminated

118 Human resources

The average monthly the new pension agreements reached 199,537, or 82% of corporate pension rose to exceeded RUB 1 billion. the Company’s employees. RUB 6,400 in 2016. Payments Bashneft employees thus to Neftegarant in 2017 reached received additional social The tradition of annual meetings RUB 2.196 billion under two safeguards in the form of between representatives programs: the corporate corporate pensions. of Rosneft’s HR and social pension program and the social segment and leaders of trade support project for veterans. In 2017 Rosneft continued to union organizations that A total of around 72,800 people implement its social support form part of the interregional received private pensions in program for veterans, paying organization was continued 2017: some 44,500 retirees them monthly corporate in 2017. The 2017 meeting and 28,300 veterans. pensions that were raised in Moscow focused on 5% as part of annual inflation employees’ concerns about According to an analysis, adjustments. Rosneft also compensation, incentives, the adoption of Rosneft’s held holiday celebrations for salary adjustments, allowances, Private Pension Security veterans on the occasion health resort treatment and Standard made such pensions of Victory over the Nazis in health care. Trade unions considerably more attractive for WWII, Oil and Gas Workers’ raised a range of issues employees. Newly introduced Day and New Year’s Day. regarding the availability, quality multipliers reflecting years of and variety of work clothes. service increased pensions for Partnership with trade 64% of employees, resulting union organizations In 2017, Rosneft made in a 21% year-on-year rise in considerable progress toward the average corporate pension. The Rosneft Interregional building social partnerships Trade Union Organization in the industry and worked to As part of the standard’s is a partner that plays a key establish relations with the implementation, a number of role in the Company’s personnel All-Russian Association of training seminars were held in management and social policies. Employers in the Oil and Gas 2017 for employees involved Industry. Rosneft Group entities in social work and deputy HR As many as 236 grassroots signed cooperation agreements directors of Group entities. trade unions of the Rosneft with the association as the first These included a seminar for Interregional Trade Union step toward joining the Industry 120 employees responsible for Organization operated across Agreement on Companies in the the corporate pension program, the Group at the end of 2017. 56 Oil and Gas and Infrastructure which focused on key challenges The number of members Construction Industries. and enabling factors to support the program across subsidiaries and best practices depending on subsidiaries’ core activities.

In addition, audio and video conferences were held for more than 100 Group entities to provide instruction and improve processes under the personal pension program.

Rosneft extends its corporate pension program to all its subsidiaries and affiliates, including those recently acquired. Full-scale implementation of the corporate pension program across Bashneft’s entities was an important milestone in 2017. Contributions to Neftegarant Private Pension Fund under Over 100 activists participated in the Rosneft Interregional Trade Union Organization’s Youth Festival held in Sochi in September 2017 56 http://www.mporosneft.ru

119 ROSNEFT SUSTAINABILITY REPORT 2017

SOCIETY

SOCIAL IMPACT SOCIAL PERFORMANCE MANAGEMENT SYSTEM IN 2017 78 Rosneft was one of Russia’s Regional partnerships largest taxpayers in 2017. The AGREEMENTS Company is active in carrying Rosneft carries out a large with government bodies out socioeconomic programs number of socially oriented were in force in Rosneft's in its regions of operation projects in its key regions of regions of operation and also finances a number operation. This helps to create in 2017 of charity projects. Rosneft favorable economic, legal and takes a systematic approach to organizational conditions for RUB social investments. In its charity broad regional development programs, support for local and to promote the Company's regions and other efforts, the business in constituent entities 6,668 Company adheres to a strict of the Russian Federation. MILLION anti-corruption policy. spent by Rosneft Regional projects are largely to finance socioeconomic financed under partnership partnership agreements agreements with administrative with regional authorities bodies in regions of key across Russia in 2017 importance for Rosneft. Such framework agreements are concluded for a period of several years. Obligations relating

120 Society

to specific regional projects Krasnodar Territory preservation and development are included in addenda. construction and of the culture indigenous improvement of public peoples of the North In 2017 a total of 78 such facilities in Tuapse construction of a agreements were in place with chapel and a park with government bodies in Rosneft’s Khanty-Mansi Autonomous playgrounds in Uvat. regions of operation. The District–Yugra following were signed in 2017: construction, reconstruction, Stavropol Territory Partnership agreements major repairs, maintenance, maintenance and major between Rosneft and equipping and improvement repairs of a sports school, official representatives of of the infrastructure of a center for out-of-school Kursk Region, the Republic educational, cultural, athletic activities, a children’s school of Bashkortostan and and sports institutions of the arts, the infrastructure the Udmurt Republic construction, reconstruction, of Svetlyachok Recreation Addenda to cooperation repairs and improvement of and Education Center, a agreements between Rosneft roads, streets and grounds library, preschool educational and the Irkutsk, Orenburg, construction, institutions and the Yasinov Samara, Kostroma and Tver reconstruction, major Regional History Museum regions, Stavropol Territory, repairs and maintenance landscaping of a secondary the Chechen Republic and of utility, heating and school’s grounds the republics of Ingushetia water supply systems and Sakha (Yakutia) competitions and Orenburg Region spectator sports events socioeconomic development Rosneft spent RUB erection of a monument of Orenburg Regional Hospital: 6,668 million to finance in Nyagan to victims of windows were replaced in socioeconomic partnership political repression the cardiovascular unit, and agreements with various support for the operation equipment was provided regions in 2017. Under current and improvement of the (endoscopy equipment, a agreements with government infrastructure of social multifunctional ultrasound bodies in Rosneft’s regions and youth organizations diagnostic apparatus, of operation, Rosneft and measures to protect the an ophthalmic surgery Group entities financed various public and territories against microscope, a ventilator, an publicly funded institutions and emergency situations and anesthesia machine, ENT social organizations, including promote fire safety operating equipment and an for the following projects: aerosol disinfection device). Tyumen Region Republic of Ingushetia support for childhood construction and repair disease prevention and the of water mains treatment and rehabilitation construction of an athletic of children with life- complex in Malgobek. threatening illnesses

Period 2015 2016 2017

Financing of regional social projects 4,069.1 2,403 6,668

Financing of regional social projects by area, RUB million

123 Health care 666 Education and science 3 152 Sports 6,668 117 Culture 2,563 Infrastructure development 4757 Other expenses

57 Data on several charity projects taken from Company’s annual reports 2016-2017 do not include charitable support for universities, pre university education or the Veterans Council.

121 ROSNEFT SUSTAINABILITY REPORT 2017

RUB 2,671 MILLION spent by Rosneft on charity projects in 2017

Charity including the employees of the Federation of Jewish Group entities. Charity projects Communities in Russia for Rosneft engages in charity are undertaken by decision of an the upkeep of the “Children of work under the Federal authorized Rosneft management the Future” boarding school Law “On Charity” and the body in accordance with the the Open Hearts Association company’s 2016 “Procedure approved business plan. of Parents for the Rights for Charitable Activities of of Children with Special Rosneft and Group entities.” The Company spent a total of Needs to purchase medical RUB 2,671 million 58 on charity equipment for Krasnoyarsk In selecting specific projects projects in 2017. Key projects Territorial Hospital and initiatives for funding, in 2017 included donations to: the National Council of Rosneft gives priority to social the State Academic Veterans of the Russian and infrastructure projects that Mariinsky Theater to Airborne Forces for events have the maximum social impact support the theater’s to mark the 87th anniversary and directly affect the quality touring companies of the Airborne Forces of life of local communities,

OPENING OF A SPORTS AND RECREATION CENTER IN NEFTEYUGANSK

A new sports and recreation center in Nefteyugansk was formally opened. Under a partnership agreement with the government of Khanty-Mansi Autonomous Okrug–Yugra, Rosneft financed the construction of an indoor ice arena with an area of 60 by 30 meters. The latest technologies were used, and the ice is kept frozen automatically. The new rink is designed to be a center of city social life as well as allowing athletes to train regularly in comfortable conditions. Young hockey players are already using it, and there are plans for figure skating sections and skate rental. The ice arena is equipped to meet all modern technical requirements and makes it possible to hold sports events year-round at the regional level. The new center should give a fresh impetus to winter sports in the region.

58 Data on certain charity projects disclosed in the Annual Report for 2017 do not include charitable support for universities, pre-university education or the Veterans Council

122 Society

the Anatoly Granov for the development of Charitable Foundation for science and medicine the Support of Modern the National Medical Medical Technologies to Chamber to support the fund a monument to Anatoly Congress “Russian Health Granov, provide scholarships Care Today: Problems for graduate students and and Potential Solutions” medical residents at the the Permafrost Natural Russian Scientific Center History Museum for repairs for Radiology and Surgery to the museum’s main Technologies and to promote building, cameras, facade, activities in the fields underground depository, of bioradiology, medical drainage system, etc. genetics, genetic engineering, the administration of surgery, transplantology, Gubkinsky to support social oncology, nuclear medicine projects and initiatives and the creation of to keep children and information resources students engaged.

Period 2015 2016 2017

Charity expenditures60 2,282.5 1,879.3 2,671

Financing of regional social projects by category, RUB million

462 Health care 1,202 Education and science 51 Sports 109 Culture 29 Preschools 185 Support for veterans, the disabled and people in need 2,671 36 Children’s homes 171 Charities, NGOs, humanitarian aid 66 Renewal of the cultural heritage 34 Support for indigenous peoples of the North 297 Infrastructure development in regions, districts and municipalities 2859 Other

CONSTRUCTION OF AN ICE ARENA IN IZLUCHINSK

With Rosneft’s support, a new ice arena was built in Izluchinsk, Khanty-Mansi Autonomous Okrug–Yugra. This is the first indoor rink with synthetic ice in Nizhnevartovsk Region. With an area of over 3,500 square meters, the new facility will accommodate up to 1,500 people on a daily basis. There will be hockey and figure skating sections, and the arena will also be open to local residents. The ice mats used are an ideal surface for all varieties of ice sport – hockey, curling, figure skating and speed skating – and energy consumption is 20% lower than for traditional surfaces

59 Including support for retirees, low-income families, youth organizations, city events and social and agricultural institutions 60 Data on several charity projects taken from Company’s annual reports 2016-2017 do not include charitable support for universities, pre university education or the Veterans Council

123 ROSNEFT SUSTAINABILITY REPORT 2017

Key efforts to support the indigenous peoples of the North in 2017 included donations to: the administration of Uvat Municipal District of Tyumen Region for the socioeconomic development of indigenous peoples of the North

the Union of Communities of Indigenous Peoples in Evenk Municipal District of Krasnoyarsk Territory,” a nonprofit organization of people engaged in traditional trades and crafts, to support the traditional economy of indigenous communities

the administration of Evenk Municipal District in Krasnodar Territory for incentives including Support for indigenous funding purchases of equipment housing construction, peoples of the North for their traditional occupations support for reindeer- and providing for housing breeding enterprises Support for the indigenous construction and repair, social and their employees, and peoples of the North is one of facilities and infrastructure. design and estimate work Rosneft’s traditional charity Another important focus for the construction of focuses. For many years, is the preservation of the a bypass road around Rosneft has promoted the unique cultures and traditional the Yurubcheno- economic development of the lifestyle of northern peoples. Tokhomskoye field indigenous peoples of the North,

UPGRADING MEDICAL INSTITUTIONS

As part of its charity program, the Company donated a set of modern medical equipment to Krasnoyarsk Territorial Veterans Hospital for endoscopic operations and laboratory research. The hospital is Krasnoyarsk Territory’s leading institution for the treatment and rehabilitation of war veterans and equivalent patient categories. Each year over 6,000 people are treated in the hospital’s in-patient facility, and around 47,000 residents of the territory use its out-patient services. The new equipment will substantially increase the quality of patient diagnostics.

Rosneft also donated new equipment to Krasnoyarsk Territorial Maternity and Childhood Center No. 2 to support its medical rehabilitation program for children with musculoskeletal problems, including a Buffalo standing aid, a kinesiotherapy system and an exerciser for knee and hip joints. This equipment will help enhance the medical rehabilitation of children. Around 300 children will be able to participate in the program every year.

124 Society

Siberian Federal University FOUNDATION FOR THE SUPPORT OF THE INDIGENOUS for the Evenk Reindeer PEOPLES OF THE NORTH, SIBERIA AND FAR EAST environmental project

the Union for Assistance to Indigenous Peoples in Irkutsk Region (Irkutsk Regional Social Organization) to help indigenous communities in Katanga Region develop and preserve their traditional forms of economy

the administration of Pur Region for purchases of equipment, stocks and supplies, fuel, lubricants and other items needed by the fishers and reindeer herders of Pur Region The Foundation for the Support of the Indigenous the administration of Peoples of the North, Siberia and Far East was founded Krasnoselkup Region in 2017 by the Russian Association of the Indigenous for social initiatives and Peoples of the North, Siberia and Far East. The programs, including foundation is funded by voluntary contributions and donations support for indigenous from sponsors, partners and the Russian constituent entities peoples of the North in which indigenous peoples live. The collected funds are used to support the association’s projects and key initiatives, including the development of regional and international Financing to support the indigenous peoples partnerships and a variety of projects in the legal sphere. of the North, RUB million

Period 2015 2016 2017 Expenditures to support the indigenous 54.1 48.2 43.561 43.5 peoples of the North

34.3 Expenditures for supplies and equipment 9.2 Expenditures to preserve native culture and for wellness programs

ASSISTANCE FOR THE OKA NATURE RESERVE

In 2017, Rosneft provided assistance to the Oka Nature Reserve to finance the purchase of unmanned planes for wildlife protection and monitoring. These planes will also help with early fire detection in protected areas. The Group has worked with the Oka Nature Reserve on a social and charity program since 1999. Under this program, Ryazan Oil Refining Company helped the reserve repair its museum and visitor center, upgrade the transport fleet, publish its researchers’ papers and buy feed for animals.

61 Including RUB 9.5 million included in expenditures to support regional social servicesй

125 ROSNEFT SUSTAINABILITY REPORT 2017

Sponsorship The Company acted sambo tournaments held in as a sponsor for 12 Russian Russia and abroad, including in Rosneft and Group entities and foreign business forums, Columbia, Serbia, South Korea engage in sponsorship under exhibitions and conferences. and the UK, and supported Russian law and the Regulation Rosneft has long been a general an auto rally featuring the on Sponsorship at Rosneft sponsor for many high-profile Lada Sport Rosneft team. and Group entities. The events in Russia such as the Company is strongly committed St. Petersburg International Rosneft also gives high priority to social responsibility, Economic Forum, the to reviving and promoting making a considerable Eastern Economic Forum, the partnership ties between contribution to Russia’s International Arctic Forum business and culture. In socioeconomic development by “The Arctic: Territory of 2017 Rosneft continued supporting large-scale projects Dialog” and the Russian Energy its collaboration with the to promote Russia’s cultural Week International Forum. Shostakovich St. Petersburg and national values, science, Academic Philharmonic and culture, industry, education and The Company is also committed St. Petersburg’s Boris Eifman amateur and professional sports. to promoting amateur State Academic Ballet Theater. and professional sports Thanks to the Company’s Rosneft annually receives over as a sponsor of Russia’s sponsorship, the Philharmonic 500 requests to sponsor CSKA ice hockey club and organized the Square of various projects. Rosneft the Arsenal Football Club. In Arts and Music Collection spent a total of RUB 1,216 billion 2017 Rosneft provided financial international festivals, featuring on sponsorship in 2017. assistance for international Russian and foreign artists

THE 14TH BOXING WORLD CUP FOR OIL-PRODUCING COUNTRIES

Rosneft and its subsidiaries are active in supporting popular sports their regions of operation. The 14th Boxing World Cup for oil-producing countries was held in Nizhnevartovsk with the support of Rosneft. More than 140 boxers representing 16 countries, including Russia and other Soviet successor states as well as countries outside the CIS participated in the championship in memory of Farman Salmanov, the pioneer discoverer of oil in Siberia. Men competed in 10 weight classes, while women competed in four classes. Matches were held according to the rules of the International Boxing Association (elimination after the first defeat).

126 Society

RUB 1,216 BILLION spent by Rosneft on sponsorship in 2017

and went on an international tour in the US and seven European cities, while the ballet theater toured five Russian cities: Krasnodar, Khabarovsk, Vladivostok, Krasnoyarsk and Surgut.

In 2017 Rosneft signed on as a partner of the “Rosneft in KidZania” project, displaying replicas of drilling rigs, oil In 2017 Rosneft was a general Biennale, which was attended refineries and filling stations sponsor of the Bravo Inter by renowned Chinese poets. in an interactive city for national Professional Music children, the largest KidZania Awards Ceremony, instituted Environmental protection and in Europe. The idea is to show to recognize outstanding safety is also a high priority, and children in simple terms how opera singers, ballet dancers Rosneft makes a substantial oil companies operate and and musicians in classical contribution, focusing especially how oil is processed before and pop genres. Rosneft also on the protection of rare it makes its way into a car provided support for a large- species in the Arctic and tank. The project is aimed scale education project that other regions of operation. In at promoting professions in plays an important role in particular, Rosneft continued the oil industry among the Russian and international to implement a comprehensive younger generation and building culture as part of the 10th care program in 2017 for trust in the Rosneft brand. Moscow International Poetry polar bears in Russian zoos.

THE WORLD SAMBO TOURNAMENT IN MEMORY OF ANATOLY KHARLAMPIYEV

Rosneft provided support for the World Sambo Tournament in memory of Anatoly Kharlampiyev at the Luzhniki Small Sports Arena in Moscow in March 2017. Participants showcased their mastership, with men competing in combat sambo and women in sport sambo. Around 200 prominent athletes from 29 countries competed for the titles of world champion and international- class master of sports. The Russian team won the gold medal in women’s sport sambo as well as top spots in combat sambo. The Russian national team collected nine medals during the two days of the tournament.

127 ROSNEFT SUSTAINABILITY REPORT 2017

Ernst & Young LLC ООО «Эрнст энд Янг» Sadovnicheskaya Nab., 77, bld. 1 Россия, 115035, Москва Moscow, 115035, Russia Садовническая наб., 77, стр. 1 Tel: +7 (495) 705 9700 Тел.: +7 (495) 705 9700 +7 (495) 755 9700 +7 (495) 755 9700 Fax: +7 (495) 755 9701 Факс: +7 (495) 755 9701 www.ey.com/ru ОКПО: 59007 ОГРН: 1773970703 ИНН: 77093353

Independent Assurance Report Our responsibilities on the Sustainability Report 2017 Our responsibility is to independently express conclu sions that:

To the Board of Directors and Stakeholders of ► The information in the Report is, in all material re Rosneft Oil Company spects, a fair representation of sustainability poli cies, activities, events and performance of Rosneft Subject matter for the year ended ecember 31, 017

At the reuest of Rosneft Oil Company (hereinafter ‘the ► The Report is prepared ‘in accordance’ with the Company’) we have obtained a limited level assurance GRI Standards using the Core option. on the ualitative and uantitative information disclosed in the Sustainability Report 017 of Rosneft e apply International Standard on uality Control 1 Oil Company (hereinafter ‘the Report’) except for the and accordingly maintain a comprehensive system of following matters: uality control including documented policies and pro cedures regarding compliance with ethical reuire ► Forwardlooking statements on performance, events or planned activities and ments, professional standards and applicable legal and regulatory reuirements. ► Correspondence between the Report and the Oil and Gas Industry Guidance on oluntary Sustaina e have complied with the independence and other bility Reporting developed by the International Pe ethical reuirements of the Code of Ethics for Profes troleum Industry Environmental Conservation As sional Accountants issued by the International Ethics sociation and American Petroleum Institute Standards Board for Accountants, which is founded on (‘IPIECA/API’), Basic Performance Indicators is fundamental principles of integrity, obectivity, profes sued by the Russian Union of Industrialists and En sional competence and due care, confidentiality and trepreneurs (‘RUIE’), and UN Global Compact prin professional behavior. ciples. Summary of work performed Applicable criteria The criteria of our engagement were the Global Report Our engagement was conducted in accordance with In ing Initiative’s Sustainability Reporting Standards ternational Standard on Assurance Engagements (hereinafter ‘the GRI Standards) and the sustainability (ISAE) 3000 (Revised), Assurance Engagements Other reporting principles of Rosneft as set out in section than Audits or Reviews of Historical Financial Infor- ‘About the report’ of the Report. e believe that these mation, issued by IFAC, and accordingly included the criteria are appropriate given the purpose of our assur following procedures: ance engagement. ► Interviews with representatives of the Company management and specialists responsible for its Management’s responsibilities sustainability policies, activities, performance and The management of Rosneft is responsible for the relevant reporting, preparation of the Report and for the information ► Analysis of key documents related to Company therein to represent fairly in all material respects sus sustainability policies, activities, performance and tainability policies, activities, events and performance relevant reporting, of Rosneft for the year ended ecember 31, 017 in compliance with the GRI Standards and the sustainabil ► Obtain understanding of the process used to pre ity reporting principles of the Company that are de pare the information on sustainability perfor scribed in section ‘About the report’ of the Report. This mance indicators of the Company and other en responsibility includes designing, implementing and gagement circumstances by reviewing the report maintaining internal controls relevant to the prepara ing process used for preparation of sustainability tion of a sustainability report that is free of material reports, misstatements, selecting and applying appropriate re ► Analysis of stakeholder engagement activities via porting principles and using measurement methods reviewing minutes of stakeholder meetings con and estimates that are reasonable in the circum ducted by the Company, stances. ► Benchmarking of the Report against sustainability reports of selected international and Russian peers of the Company and lists of sectorspecific sustain ability issues raised by stakeholders,

► Analysis of material issues in field of sustainable development identified by the Company,

128 Independent Assurance Report on the Sustainability Report 2017

► Identification of sustainability issues material for onlsion the Company based on the procedures described Based on the procedures performed and evidence ob above and analysis of their reflection in the Re tained, nothing has come to our attention that causes port, us to believe that the information in the Report does

► Review of data samples regarding key human re not represent fairly, in all material respects, the sus sources, energy usе, environmental protection, tainability policies, activities, events and performance process safety, health and safety, and charitable of the Company for the year ended ecember 31, 017 activities indicators for the year ended ecember in accordance with the GRI Stanards and sustainability 31, 017 to assess whether these data have been reporting principles of the Company. collected, prepared, collated and reported appro priately at the central office level, Nothing has come to our attention that causes us to be lieve that the Report is not prepared ‘in accordance’ ► Collection on a sample basis of evidence substan with the GRI Standards using the Core option. tiating the ualitative and uantitative information

included in the Report at the central office level,

► Assessment of compliance of the Report and its preparation process with Rosneft sustainability re porting principles, and

► Assessment of compliance of information and data Signed: disclosures in the Report with the reuirements of .E. Lobachev the Core option of reporting ‘in accordance’ with Partner, General director, the GRI Standards. Ernst & Young LLC

Our evidence gathering procedures are more limited une , 01 than for a reasonable assurance engagement, and therefore less assurance is obtained than in a reasona ble assurance engagement.

Details of the subject of the independent assurance Name: Rosneft Oil Company Entered in the Unified state register of legal entities August 1, 00 and assigned state registration number 10770004350. Registered address and location: Russia, 115035 Moscow, Sofiyskaya emb., /1.

Details of the assurance provider Name: Ernst & Young Limited Liability Company Entered in the Unified state register of legal entities ecember 5, 00 and assigned state registration number 10773970703. Registered address and location: Russia, 115035 Moscow, Sadovnicheskaya emb., 77, bld. 1. Ernst & Young LLC is a member of Selfregulated organization of auditors “Russian Union of auditors” (Association) (“SRO RUA”). Ernst & Young LLC is included in the control copy of the register of auditors and audit organiations, main registration number 11030504.

129 ROSNEFT SUSTAINABILITY REPORT 2017

Annex 1.

PROGRESS AGAINST THE 2017 OBJECTIVES SET IN THE 2016 SUSTAINABILITY REPORT. OBJECTIVES FOR 2018-20

Progress against the 2017 objectives set in the 2016 Sustainability Report

OBJECTIVE PROGRESS

Innovation

Perform the activities included in the Innovation Program. The Company completed all planned activities and met key performance targets established in its Innovation Program. An integrated key performance indicator (IKPI) is a core metric, which is used to measure performance in this area. IKPI reflects quantitative progress toward the set objectives of the Innovation Program and the status of relevant activities by assessing performance throughout the entire innovation life cycle, from in-house development/external procurement to implementation, monetization and quality assurance. The final rating for 2017 is 100%.

Environmental safety

Ensure the operation and improvement In 2017 the Company developed/updated the following of the integrated HSE system. internal regulations governing HSE processes: --Waste Management Standard --Standard on Remediation of Disturbed and Contaminated Land --Regulation on Responsibilities of Rosneft and Group Entity Employees in the Area of Industrial and Fire Safety, Occupational Health and Environmental Protection --Regulation on Preparing and Submitting Periodic Reports on HSE Performance --Technical Requirements for Portable Measuring Devices for Oxygen, Toxic and Combustion Gases --Regulation on Rosneft’s Committee on Health, Safety and Environment and its Subcommittees --Regulation on Traffic Safety Management System --Regulation on Industrial Safety Management System --Guidelines on Firefighting Equipment and Other Firefighting Resources at Company Sites --Technical specifications: a collection of 52 technical specifications for protective clothing Corporate-level internal audits on the integrated HSE system were conducted as scheduled. Two more Group entities – Samotlorneftegaz and RN-Lubricants – were included in the perimeter of the integrated HSE system in 2017. The Company completed the activities planned for 2017 as part of a wider program to align corporate practices with the requirements of ISO 14001:2015. The integrated HSE system’s ISO 14001:2015 and OHSAS 18001:2007 certification process is to be extended in 2018 to cover more Group entities.

130 Annex 1

OBJECTIVE PROGRESS

Perform the activities planned for 2017 as part The activities planned for 2017 were completed. These activities are of the Environmental Management Efficiency described in reports prepared by business units that were audited as part Program for the period until 2025. of an assessment of progress on the Long-Term Development Program.

Activities were performed as part of the Environmental Perform the activities aimed at preserving a Management Efficiency Program. healthy and sustainable environment in the regions where the Company has a presence: 1. Meet current environmental obligations in a timely manner (reduce the area of disturbed lands, production and consumption waste and accrued waste, and reintroduce it into the economic cycle). 2. Reduce damage to the Company’s sites caused by third-party activities until it is completely eliminated. 3. Protect water bodies, decrease water consumption by increasing the share of reused water in total water used for production, and reduce industrial pollutant load in wastewater. 4. Protect the air, reduce total pollutant emissions.

Company employees from the Exploration and Production and Natural Contribute to the development of Best Available Gas business segments contributed to the development of BAT reference Techniques (BAT) reference documents to be documents dealing with oil and gas production and processing. finalized by the Russian Ministry of Energy and the Russian Ministry of Natural Resources in 2017 through the involvement of Company employees.

Ensure the establishment and operation of The Company put together a five-year program to support its subordinate organizations of corporate research SamaraNIPIneft-based Specialized Ecology Institute; the program was and design institutes responsible for environmental prepared with the involvement of relevant functions and business units, protection in order to examine and implement and covers six areas for developing the Institutes's competencies. best practices and methods of manufacturing goods, performing work or providing services.

Implement programs/action plans aimed at Programs/action plans aimed at preserving biological diversity, including for preserving biological diversity, including for the the purposes of offshore projects in the Arctic region, were implemented. purposes of offshore projects in the Arctic region. The following research activities and procedures were performed in 2017 under the program for the preservation of the biological diversity of marine ecosystems at Rosneft’s license areas in Russia’s Arctic region: Processing of data from camera traps set at polar bear appearance and maternity denning sites, and at walrus haulout sites on Wrangel Island, Bennett Island and the Bolshiye Oranskiye Islands to study the populations of polar bears and walruses. In-house processing of biological materials.

Develop and implement a package of measures to raise Environmental awareness initiatives were performed environmental awareness among Company employees. as part of the Year of Ecology program.

Develop and implement locally adapted Methodologies for estimating greenhouse gas emissions were adopted methodological guidelines for the quantitative by the government (e.g., Quantitative Greenhouse Gas Emission assessment of greenhouse gas emissions. Estimation Methodologies for Organizations Engaged in Business and Other Activity in the Russian Federation, approved by Order No. 300 of the Russian Ministry of Natural Resources of 30 June 2015).

131 ROSNEFT SUSTAINABILITY REPORT 2017

OBJECTIVE PROGRESS

Occupational health and safety

Take measures to develop/update internal In 2017 the Company developed the following internal OHS regulations as scheduled. regulations governing OHS processes: 1. Standard on Remediation of Disturbed and Contaminated Land 2. Regulation on Responsibilities of Rosneft and Group Entity Employees in the Area of Industrial and Fire Safety, Occupational Health and Environmental Protection 3. Technical Requirements for Portable Measuring Devices for Oxygen, Toxic and Combustion Gases 4. Regulation on Rosneft’s Committee on Health, Safety and Environment and its Subcommittees 5. Regulation on Traffic Safety Management System 6. Regulation on Industrial Safety Management System 7. Technical specifications: a collection of 52 technical specifications for protective clothing Updates were made to the following internal regulations: 8. Waste Management Standard 9. Regulation on Preparing and Submitting Periodic Reports on HSE Performance 10. Guidelines on Firefighting Equipment and Other Firefighting Resources at Company Sites Regulations referred to in items 1, 5, 8, 9 and 10 above also apply to subcontractors.

Implement the Program of Enhanced Job Safety and The program’s activities were performed in line Informed Leadership in Occupational Health and Safety. with the priorities set for 2017.

Reduce the incidence rate of non-fatal The Company’s OHS initiatives resulted in improved reporting, with injuries per million hours worked. transparency rate rising by more than 100% since the beginning of 2017. This had a positive impact on incidence rates, with serious injuries falling by 20% against a growing total number of injuries (LTIF = 0.36). The fatal injury rate dropped by over 50% year on year.

Perform the ISO 14001 and OHSAS 18001 An unqualified opinion was issued to confirm the validity of the certificate. compliance audit on the integrated HSE system.

Employees

Continue to roll out the Unified Corporate HR, The Unified Corporate HR, Compensation and Social Development Template Compensation and Social Development Template. was rolled out on a unified information platform at 10 Group entities with a total over 20,000 employees in Samara Region and southern Russia. A new rollout project got under way in September 2017 at 26 Group entities employing a total around of 45,000 people.

Continue to develop and implement standard 14 standard organizational/functional structures were implemented organizational/functional structures for the across Group entities as at 31 December 2017. Another 5 structures corporate functions of Group entities. for implementation by the end of 2018 are currently pending approval.

Update methodologies used to calculate labor efficiency With its continued focus on improved labor productivity in 2017, Rosneft indicators for Group entities, the Company’s core business updated its estimation methodologies to assess labor productivity at the level segments, and the Company as a whole. Implement of the Company as a whole, core business segments, and individual entities updated methodologies in Group entities and the Company’s forming part of core business segments. The productivity growth target for head office divisions to improve labor productivity. 2017 was met across the Company (for comparable sites). Rosneft has an action plan to improve labor productivity which forms part of its Long- Term Development Program. Progress under the action plan is reported on an annual basis. As part of annual business planning procedures, the productivity metrics of individual entities within core business segments are used as an input for calculating and approving staffing needs.

132 Annex 1

OBJECTIVE PROGRESS

Continue to embed professional standards Monitoring the implementation of state professional standards was added into the Company’s operations. to the list of KPIs for executives in the Company and Group entities. The OHS Expert professional standard is mandatory for all Group entities, regardless of the nature of their business, and another 29 professional standards are mandatory for certain entities depending on the nature of their business.

Society

In 2017 Rosneft signed partnership agreements with the governments of Kursk Region, the Republic of Bashkortostan and the Udmurt Continue engagement with local communities, Republic, as well as addenda to cooperation agreements with the including through agreements with local authorities governments of Irkutsk, Orenburg, Samara, Kostroma and Tver regions, on social and economic partnership. Stavropol Territory, the Chechen Republic and the republics of Ingushetia and Sakha (Yakutia). The parties are to cooperate on a number of specialized industrial, financial, investment and social programs.

Objectives for 2018-20

2018 2019-2020

Innovation

Perform the activities included in the Innovation Program. Meet the KPIs set in the Innovation Program.

Environmental safety

Put together a five-year action plan for achieving strategic Achieve the Company’s strategic HSE targets. HSE targets, and perform activities scheduled for 2018.

Occupational health and safety

Achieve a year-on-year reduction in the Achieve the Company’s strategic HSE targets. incidence rate of non-fatal injuries.

Develop/update internal OHS regulations.

Put together a five-year action plan for achieving strategic HSE targets, and perform activities scheduled for 2018.

Society

Continue engagement with local communities, including through agreements with local authorities on social and economic partnership

133 ROSNEFT SUSTAINABILITY REPORT 2017

Annex 2.

GRI CONTENT INDEX Correspondence between this Report and GRI Sustainability Reporting Standards (2016), UN Global Compact principles, RUIE basic performance indicators for non-financial reporting (2008), and the Oil and Gas Industry Guidance on Voluntary Sustainability Reporting by IPIECA/API (2010).

External GRI Standard Name REPORT SECTION Omission Page assu rance

GENERAL DISCLOSURES

General

GRI 102-1 Name of the organization Contact information 152 ^ GRI 102-2 Activities, brands, products, The Company in 2017: 16 ^ and services general information

Primary products include oil, gas and refined products. GRI 102-3 Location of headquarters The Company's head office - ^

is located in Moscow. GRI 102-4 Location of operations The Company in 2017: 16 ^ general information

See the 2017 Annual Report (Sections 1.1. Assets and regions of operation,

pp. 8-9, and 1.3. Company structure, pp. 12-13). GRI 102-5 Ownership and legal form The Company in 2017: 16 ^ general information

See the 2017 Annual Report (Section 6. Information for shareholders and investors – 6.1. Share capital, p. 246)

GRI 102-6 Markets served -

See the 2017 Annual Report (Sections 1.1. Assets and regions of operation, pp. 8-9, and 1.3. Company structure, pp. 12-13; Appendix 1: Consolidated financial statements, Note 8: Segment information, pp. 278-279, Note 39: Key

subsidiaries, pp. 298-299; Appendix 6: Audit report on the financial statements, Note 26: Segment information, p. 365). GRI 102-7 Scale of the organization Key sustainability performance indicators 6-8, ^ Human resources 94

See the 2017 Annual Report (Section 2.3. Business model, pp. 52-53, Section 2.2. Long-Term Development Program and progress report, p. 51; Appendix 1: Consolidated financial statements, Note 8: Segment information, pp.‑278‑279, Note 39: Key subsidiaries, pp. 298-299; Appendix 6: Audit report on the financial statements, Note 26: Segment‑information, p. 365).

134 Annex 2

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 102-8 Information on employees Key sustainability performance indicators 8, ^ RUIE – 3.1.1 and other workers Human resources — HR management 95 system — Staff composition

Total workforce at the end of 2017, including: Permanent employees (93,807 women and 200,600 men) Temporary employees (8,643 women and 14,974 men) Full-time employees (101,605 women and 215,043 men)

Part-time employees (845 women and 531 men). GRI 102-9 Supply chain - ^

See the 2017 Annual Report (Section 2.3 Business model, p. 52) GRI 102-10 Significant changes to the Message from the Chairman 2-3, ^ organization and its supply chain of Rosneft’s Board of Directors Message from Rosneft’s Chief 4-5, Executive Officer, Chairman of the Management Board The Company in 2017: 16-31, general information

Corporate governance 32-35 GRI 102-11 Precautionary Principle or approach - ^ UN GC Principle 7 IPIECA-EN5, HS4

The Company considers it important to conduct an environmental impact assessment (EIA) that provides inputs for measures to mitigate any negative environmental impact from future operations. When planning and conducting EIA procedures, the Company adheres to the precautionary principle set out in the Rio Declaration on Environment and

Development (Rio Declaration Principle 15. United Nations Conference on Environment and Development, 1992). GRI 102-12 External initiatives - ^ RUIE – 3.3.4

In 2009, the Company joined the UN Global Compact and the Social Charter of Russian Business,

and it has endorsed the Anti-Corruption Charter of Russian Business since 2013. GRI 102-13 Membership of associations - ^ RUIE – 3.3.5

The Company is a member of the following initiatives and organizations: Union of oil and gas industry organizations, Russian Gas Society, Association of subsoil use organizations, National Association for Subsoil Examination, Russian National Committee for Pacific Economic Cooperation, Chamber of Commerce and Industry of the Russian Federation, Russian-German Chamber of Foreign Trade, Nonprofit Partnership Russian National Committee for UNEP (UNEPCOM),

Association of Oil Refiners and Petrochemical Producers GRI 102-14 Statement from senior decision-maker Message from the Chairman 2-3, ^ of Rosneft’s Board of Directors Message from Rosneft’s Chief 4-5 Executive Officer, Chairman of the Management Board

135 ROSNEFT SUSTAINABILITY REPORT 2017

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 102-15 Key impacts, risks, and opportunities Message from Rosneft’s Chief 4-5, ^ IPIECA-HS4 Executive Officer, Chairman of the Management Board Key sustainability performance indicators 6-8, Sustainability management 36- 41, Risk management and internal control 4 2 - 47, Stakeholder engagement 48-49, Occupational health and safety 65-71, Environment 72-80, Energy consumption and energy efficiency 88-89, Emergency prevention and 90-93, response readiness Human resources 94 -119, Society 120-127, Annex 1. Progress against the 2017 130-133 objectives set in the 2016 Sustainability Report. Objectives for 2018-20

For more information, please visit https://www.rosneft.ru/ GRI 102-16 Values, principles, standards, Sustainability management 36-41 ^ UN GC and norms of behavior Principle 10

For more information, please visit https://www.rosneft.ru/Investors/corpgov/ Sustainable Development Policy https://www.rosneft.ru/upload/site1/document_file/development_policy.pdf

Code of Business and Corporate Ethicshttps://www.rosneft.ru/upload/site1/document_file/Kodeks_rus(2).pdf GRI 102-17 Mechanisms for advice and Sustainability management — 37-38, ^ UN GC concerns about ethics Ethics management framework Principle 10 Sustainability management — 38-39

Compliance framework GRI 102-18 Governance structure Corporate governance 32-35 ^ IPIECA-HS4

See the 2017 Annual Report (Section 5 Corporate governance system, pp. 196‑259,

Section 5.3 Rosneft’s Board of Directors, pp. 203-215). GRI 102-20 Executive-level responsibility Corporate governance 32-34 ^ for economic, environmental,

and social topics GRI 102-40 List of stakeholder groups About the Report 10, ^

Stakeholder engagement 48 GRI 102-41 Collective bargaining agreements Human resources — 118 ^ UN GC HR performance in 2017 — Principle 3 Collective bargaining agreement RUIE – 3.1.4 IPIECA SE 15

76% of employees are covered by collective bargaining agreements. GRI 102-42 Identifying and selecting stakeholders Stakeholder engagement 48-51 ^

The Company engages with all stakeholder groups which influence the Company’s activities or which are influenced by the Company’s activities.

136 Annex 2

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 102-43 Approach to stakeholder engagement About the Report 10 -11, ^

Stakeholder engagement 48-51 GRI 102-44 Key topics and concerns raised About the Report 10 -11, ^

Stakeholder engagement 48-51 GRI 102-45 Entities included in the consolidated About the Report 12 ^ financial statements

See IFRS consolidated financial statements as of 31 December 2017, Note 39: Key subsidiaries. GRI 102-46 Defining report content About the Report 10-12 ^

and topic Boundaries GRI 102-47 List of material topics About the Report 11, ^

This Annex 134-149 GRI 102-48 Restatements of information Key sustainability performance indicators 6-8, ^ About the Report 10-12, Occupational health and safety — 71, OHS achievements in 2017 Environment — Environmental 81-87 protection performance in 2017

The development and improvement of the corporate reporting system and changes in the reporting boundaries

and retrospective information are the key reasons for the restatements of information provided in the Report.

GRI 102-49 Changes in reporting About the Report 11 ^

GRI 102-50 Reporting period About the Report 10 ^ GRI 102-51 Date of most recent report - ^

Rosneft 2016 Sustainability Report was published in July 2017.

GRI 102-52 Reporting cycle About the Report 10 ^ GRI 102-53 Contact point for questions Contact information 152 ^

regarding the report GRI 102-54 Claims of reporting in accordance About the Report 12 ^

with the GRI Standards

GRI 102-55 GRI content index This Annex 134-149 ^ GRI 102-56 External assurance About the Report 12, ^ Independent Assurance Report 128-129, on thesustainability Report 2017 This Annex 134-149

Management approach GRI 103-1 Explanation of the material About the Report 10-12, ^ topic and its Boundary This Annex 134-149

137 ROSNEFT SUSTAINABILITY REPORT 2017

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 103-2 The management approach Message from the Chairman 2-3, ^ UN GC and its components of Rosneft’s Board of Directors Principle 8 Message from Rosneft’s Chief 4-5, RUIE – 1.1 Executive Officer, Chairman of the Management Board IPIECA-HS1, HS2, HS3, SE8, Corporate governance 32-35, SE9, SE15 Sustainability management 36- 41, Risk management and internal control 4 2 - 47, Innovation and technology advancements 52-61, Occupational health and safety 62-64, management system Environmental management system 72-80, Energy consumption and energy efficiency 88-89, Emergency prevention and 90-93, response readiness HR management system 94-95,

Social impact management system 120 GRI 103-3 Evaluation of the Message from the Chairman 2-3, ^ RUIE – 1.1 management approach of Rosneft’s Board of Directors Message from Rosneft’s Chief 4-5, Executive Officer, Chairman of the Management Board Corporate governance 32-35, Sustainability management 36- 41, Risk management and internal control 4 2 - 47, Innovation and technology advancements 52-61, Occupational health and safety 62-64, management system Environmental management system 72-80, Energy consumption and energy efficiency 88-89, Emergency prevention and 90-93, response readiness HR management system 94-95, Social impact management system 120

See the 2017 Annual Report (Section 2.4 KPI system, pp. 54-56)

MATERIAL TOPICS

Economic performance GRI 201-1 Direct economic value Key sustainability performance indicators 6 ^ RUIE – 1.2, generated and distributed 1.3, 1.4, 1.5, 1.6 and 1.7 IPIECA-SE4,

SE13 GRI 201-3 Defined benefit plan obligations Human resources — HR performance 118-119 ^ RUIE – 1.8 and other retirement plans in 2017 — Corporate pension benefits and care for veterans

According to the findings from the actuarial valuation of Neftegarant Non-State Pension Fund in 2017, the fund’s current financial position is stable and it is virtually certain that the fund will be able to meet its obligations (see http://www.neftegarant.ru/pokazateli/actuar.php).

138 Annex 2

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 201-4 Financial assistance received - ^ from government

The Company and Group entities benefit from tax reliefs established by federal tax legislation. In some regions, the Company and Group entities benefit from tax reliefs for income tax and property tax provided in accordance with regional legislation.

Indirect economic impacts GRI 203-1 Infrastructure investments Key sustainability performance indicators 6, ^

IPIECA-SE7 and services supported Society — Social performance in 2017 120-123 GRI 203-2 Significant indirect economic impacts Message from the Chairman 2-3, ^ IPIECA-SE6 of Rosneft’s Board of Directors Message from Rosneft’s Chief 4-5 Executive Officer, Chairman

of the Management Board GRI OG1 Volume and type of estimated Key sustainability performance indicators 6 ^ proved reserves and production

Procurement practices GRI 204-1 Proportion of spending The Company in 2017: 29-31 ^ IPIECA-SE5 on local suppliers general information — Import substitution and localization

With Russia being a key region of its business, Rosneft is strongly focused on supporting local suppliers. In its procurement activities, the Company gives priority to Russian goods, work and services, including by purchasing them directly from SMEs under current law. Local supplies to the Company exceeded 90% in 2017. The Company’s procurement process is aligned with the principles established by Federal Law No. 223-FZ, On the Procurement of Goods, Work and Services by Certain Types of Legal Entities, such as openness and transparency, the elimination of unjustified restrictions on competition, and appropriate and cost-effective spending. Contracts for the supply of goods, work and services required by the Company are awarded based on the results of procurement procedures set forth in the Federal Law, including through a competitive bidding process.

Anti-corruption

GRI 205-1 Operations assessed for risks The indicator - UN GC related to corruption is not Principle 10 disclosed. IPIECA-SE11, The exact SE12 number of Group entities analyzed for corruption- related risks is confidential.

Countering corruption is part of the Code of Business and Corporate Ethics adopted by Rosneft. The Company has the approved the Anti-Corruption Policy and Anti-Fraud Policy. Relevant implementation

activities took place in 2017 as part of the Comprehensive Anti-Fraud and Anti-Corruption Program. GRI 205-2 Communication and training Sustainability management — 38-39, ^ UN GC about anti-corruption policies Compliance framework Principle 10 and procedures Sustainability management — 40-41 IPIECA-SE11 Prevention of fraud and corruption

139 ROSNEFT SUSTAINABILITY REPORT 2017

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 205-3 Confirmed incidents of Sustainability management — 40 ^ UN GC corruption and actions taken Prevention of fraud and corruption Principle 10 IPIECA-SE11, SE14

Anti-corruption issues are also handled by the Company’s Security Function and the Internal Audit and Control Function.

Energy GRI 302-1 Energy consumption within Health, Safety and Environment — 88-89 ^ UN GC the organization Energy consumption and energy efficiency Principles 7 and 8 RUIE – 2.2 IPIECA-E2

Group entities use various fuels, primarily natural gas and associated petroleum gas,

as well as fuel oil (88% and 7% of total fuel consumption, respectively). GRI 302-4 Reduction of energy consumption Health, Safety and Environment — 88-89 ^ UN GC Energy consumption and energy efficiency Principles 8 and 9 IPIECA-E2

The implementation of the Energy Saving Program resulted in energy savings

of 22.6 million GJ in 2017 (heat, electricity and fuel). GRI OG3 Total amount of renewable The indicator - ^ IPIECA-E3 energy generated by source is disclosed partially. Information is not available due to insignificant volumes of renewable energy generation. The Company intends to start keeping record of this type of energy when it begins using it more extensively.

At present, the amount of generated renewable energy represents an insignificant portion of total energy generation.

Water GRI 303-1 Water withdrawal by source Environment — Environmental protection 84 ^ UN GC performance in 2017 — Water Principles consumption and wastewater discharge 7 and 8 RUIE – 2.3 IPIECA-E6

According to its data collection methodology, the Company publishes data on total water withdrawal, including rainwater, wastewater and bottom water.

140 Annex 2

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 303-2 Water sources significantly - ^ UN GC affected by withdrawal of water Principle 8 IPIECA-E6

The Company identified no significant impacts of water withdrawal on water sources. The volume

of water withdrawn from surface and ground sources is within the allowable level. GRI 303-3 Water recycled and reused Environment — Environmental protection 86 ^ UN GC performance in 2017 — Water Principle 8 consumption and wastewater discharge RUIE – 2.4 IPIECA-E6

The percentage of water recycled and reused in 2017 was around 54.18% (2, 260 million cubic meters).

Biodiversity

GRI 304-1 Operational sites owned, leased, Environment — Environmental 78

UN GC managed in, or adjacent to, protected management system —

areas and areas of high biodiversity Biodiversity conservation Principle 8 ^ value outside protected areas IPIECA-SE5

The Company conducts exploration activities in fragile ecosystems and protected areas, including in Yamalo-Nenets Autonomous District, Krasnoyarsk Territory, Arkhangelsk Region and the Republic of Sakha, and in the Sea of Okhotsk, the Kara Sea and the Barents Sea. It also extracts, treats and transports oil near the Verkhnee Dvuobye wetlands, in the Yugansky state nature reserve in Khanty-Mansi Autonomous District, in various protected areas in Samara Region, including near the Sprygin Zhigulevsky state nature reserve, and the More-Yu wildlife sanctuary, the Pym-Va-Shor natural monument in Nenets Autonomous District, and in the wildlife sanctuaries and wetlands of Krasnodar Territory. In addition, the Company carries out oil and gas extraction, treatment and transportation operations in the areas with natural resources traditionally used by indigenous peoples of the North and sells petroleum products in the vicinity of various protected areas, including the Utrish state nature reserve, the Losiny Ostrov, Samarskaya Luka, the Tunkinsky and Pribaikalsky national parks, the Baikal nature reserve, the Teberdinsky state nature reserve, the Kumysnaya Polyana nature park and the Vysokovsky Bor natural monument. The Company carries out operations, including in the vicinity of fragile ecosystems

and protected areas, in full compliance with environmental law. GRI 304-2 Significant impacts of activities, Environment — Environmental The indicator 75-80 ^ UN GC products and services on biodiversity management system — is disclosed Principle 8 Biodiversity conservation partially. IPIECA-E5, HS4 Due to the scale of the Company’s operations, it is impossible to indicate all affected species and the extent of the impacted areas.

The main impacts on biodiversity come from Rosneft’s exploration, production, treatment, transportation and marketing activities and generally last for as long as the Company leases or operates production facilities. The Company does not exert any irreversible impact on biodiversity. The most common impacting factors are the pollution of areas and the construction and use of production facilities.

141 ROSNEFT SUSTAINABILITY REPORT 2017

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 304-3 Habitats protected or restored Environment — Environmental The indicator 86 ^ UN GC protection performance in 2017 — is disclosed Principle 8 Waste management and partially. contaminated land remediation IPIECA-SE5 Due to the scale of the Company’s operations, it is impossible to indicate the location and status of all protected and restored habitats.

The final stage of the land remediation process is an independent assessment. Land remediation is

evidenced by certificates of acceptance to be submitted to local government authorities. GRI 304-4 IUCN Red List species and national - ^ UN GC conservation list species with habitats Principle 8 in areas affected by operations IPIECA-SE5

Areas affected by the Company’s operations are home to 292 species from the IUCN Red List and the national conservation list: Critically endangered (IUCN): 3 species Endangered (IUCN): 2 species Vulnerable (IUCN): 11 species Near threatened (IUCN): 26 species Least concern (IUCN): 54 species Threatened with extinction (Russia): 11 species Rare (Russia): 117 species Decreasing in number (Russia): 44 species Uncertain status (IUCN, Russia): 21 species Restored and restoring (Russia): 2 species Species with habitats in areas affected by the Company’s operations include gray whale, cachalot, reindeer, grey heron, golden eagle, Eurasian otter, pond turtle, sturgeon and others.

The Company analyzes its impact on the above species and seeks to mitigate it. GRI OG4 Number and percentage of Environment — Environmental 78 ^ UN GC significant operating sites in management system — Principle 8 which biodiversity risk has been Biodiversity conservation assessed and monitored IPIECA-E5, HS4

The percentage of significant operating sites in which biodiversity risk has been assessed was 10% in 2017 (24 sites).

Emissions GRI 305-1 Direct (Scope 1) GHG emissions Environment — Environmental 82-83 ^ UN GC protection performance in 2017 — Principles Greenhouse gas emissions 7 and 8 RUIE – 2.5

IPIECA- E1 GRI 305-2 Energy indirect (Scope 2) Environment — Environmental 82 ^ UN GC GHG emissions protection performance in 2017 — Principles Greenhouse gas emissions 7 and 8 RUIE – 2.5 IPIECA- E1

142 Annex 2

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 305-3 Other indirect (Scope 3) Environment — Environmental 82 ^ UN GC GHG emissions protection performance in 2017 — Principles Greenhouse gas emissions 7 and 8

IPIECA- E1 GRI 305-4 GHG emissions intensity Environment — Environmental 82-83 ^ UN GC protection performance in 2017 — Principle 8 Greenhouse gas emissions IPIECA- E1

GRI 305-5 Reduction of GHG emissions Environment — Environmental 82-83 protection performance in 2017 — Greenhouse gas emissions

The Gas Program, the Energy Efficiency Program and other corporate programs comprise

the Company’s key mechanism for reducing greenhouse gas emissions. GRI 305-6 Emissions of ozone-depleting - ^ UN GC substances (ODS) Principles 7 and 8 IPIECA-E8

The Company does not use any ozone-depleting substances on an industrial scale. ^

GRI 305-7 Nitrogen oxides (NOX), sulfur Key sustainability performance indicators 7, oxides (SO ), and other UN GC X Environment — Environmental protection 81 Principles significant air emissions performance in 2017 — Air pollution 7 and 8 RUIE – 2.6 IPIECA-E8

Effluents and waste GRI 306-1 Water discharge by quality Key sustainability performance indicators The indicator 7, ^ UN GC and destination Environment — Environmental protection is disclosed 85 Principle 8 performance in 2017 — Water partially. RUIE – 2.7 consumption and wastewater discharge Due to the scale of the IPIECA-E7, E9 Company’s operations, it is impossible to present information by destination.

According to its data collection methodology, the Company publishes data on total effluents (those of its own and of third parties) discharged via a centralized wastewater disposal system of its own

and of third parties. The Company also publishes data on domestic wastewater discharge. GRI 306-2 Waste by type and disposal method Environment — Environmental 87 ^ UN GC protection performance in 2017 Principle 8 — Waste management and contaminated land remediation RUIE – 2.8 IPIECA-E9, E10

Oily sludge and drill cuttings are the main types of waste produced by the Company. Rosneft does not transport, import, export or treat waste deemed hazardous under the terms of the Basel Convention Annexes I, II, III, and VIII. The Company does not keep record of waste by hazard class.

143 ROSNEFT SUSTAINABILITY REPORT 2017

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 306-3 Total number and total volume Key sustainability performance indicators 7, ^ UN GC of recorded significant spills Environment — Waste management Principle 8 and contaminated land remediation 85 RUIE – 2.9

IPIECA-E9 GRI 306-4 Transport of hazardous waste - ^ UN GC Principle 8 IPIECA-E10

Oily sludge and drill cuttings are the main types of waste produced by the Company. Rosneft does not transport,

import, export or treat waste deemed hazardous under the terms of the Basel Convention Annexes I, II, III, and VIII. GRI 306-5 Water bodies affected by water - ^ UN GC discharges and/or runoff Principles 8 and 9 IPIECA-E7, E9

The Company’s discharges in 2017 had no significant impact on water bodies. GRI OG5 Volume and disposal of Environment — Environmental protection 85 ^ UN GC formation or produced water performance in 2017 — Water Principles consumption and wastewater discharge 8 and 9

IPIECA-E10 GRI OG6 Volume of flared and Environment — Environmental protection 83 ^ UN GC vented hydrocarbon performance in 2017 — APG utilization Principles 8 and 9 IPIECA-E4

In 2017 associated petroleum gas was flared only by upstream entities in Russia. GRI OG7 Amount of drilling waste (drill Environment — Environmental 85-87 ^ UN GC mud and cuttings) and strategies protection performance in 2017 Principles for treatment and disposal — Waste management and 8 and 9 contaminated land remediation IPIECA-E10

The total amount of drill cuttings produced in 2017 using aqueous and non-aqueous drilling fluid was 4,604,000 tonnes and 71,000 tonnes, respectively.

Environmental compliance OG8 Benzene, lead and sulfur - ^ content in fuels

The Company does not produce fuels with benzene, lead and sulfur content significantly exceeding that established by national standards (technical regulations).

144 Annex 2

External GRI Standard Name REPORT SECTION Omission Page assu

rance GRI 307-1 Non-compliance with environmental Key sustainability performance indicators 7, ^ UN GC laws and/or regulations Environment — Environmental 80 Principle 8 management system RUIE – 2.10

Some Group entities faced administrative fines for non-compliance with environmental regulations. The amounts of individual fines are insignificant. There were no non-monetary sanctions in 2017.

Employment RUIE – 3.1.9 Occupational health expenditures Key sustainability performance indicators 7, ^ Health, Safety and Environment — 70

Occupational health and safety GRI 401-1 New employee hires and Key sustainability performance indicators The indicator 8 ^ UN GC employee turnover is disclosed Principle 6 partially. RUIE – 3.1.2 Information on and 3.1.3 new employee hires and turnover by gender and age is currently not gathered. The Company intends to gather such information after all Group entities have implemented a single automated HR administration system within the scope of centralized business planning (not earlier than

2020). GRI 401-2 Benefits provided to full-time Human resources — HR performance 112, ^ employees that are not provided to in 2017 — Education support for temporary or part-time employees employees and members of their families Human resources — HR performance 118 in 2017 — Quality living conditions Human resources — HR performance in 2017 — Collective bargaining agreement

Employment GRI 402-1 Minimum notice periods regarding Human resources — HR performance in 118 ^ operational changes, including 2017 — Collective bargaining agreement whether these are specified in collective bargaining agreements

The Company fully complies with regulations governing notice periods for operational changes.

145 ROSNEFT SUSTAINABILITY REPORT 2017

External GRI Standard Name REPORT SECTION Omission Page assu rance

Occupational health and safety GRI 403-2 Types of injury and rates of injury, Key sustainability performance indicators The indicator 7, ^ RUIE – 3.1.5, occupational diseases, lost days, Occupational health and safety — is disclosed 71 3.1.6, 3.1.7 and absenteeism, and number OHS achievements in 2017 partially. and 3.1.8 of work-related fatalities The IPIECA-HS3 information required to calculate the absenteeism rate is currently not available, as no such records are kept by the

Company. GRI 403-3 Workers with high incidence - ^ or high risk of diseases related to their occupation

The Company analyzed historical data on injuries and occupational diseases to identify jobs with the highest risk rates. Jobs with the highest risk of injury include drilling rig and other machine operators, filling station attendants, and oil and gas field workers; jobs with the highest risk of occupational diseases include machine operators, bulldozer operators,

and drivers of special-purpose vehicles. Rosneft makes every effort to mitigate negative impacts on these jobs. GRI 403-4 Health and safety topics covered in Health, Safety and Environment — 62-63, ^ IPIECA-HS1, formal agreements with trade unions Occupational health and safety HS2, HS3, SE8, management system SE9, SE15 Human resources — 119

HR performance in 2017 IPIECA-HS2, Programs and processes for Human resources — 113-116 ^ HS3 identifying and addressing significant HR performance in 2017

workforce health issues GRI OG13 Number of process safety Occupational health and safety The indicator 65-71 ^ IPIECA-HS1, events, by business activity is disclosed HS5 partially. The Company does not register loss of containment events according to the methodology for calculating this indicator. Currently, such events are recorded and classified in accordance with the requirements of Russian law.

Safety is a number one priority for Rosneft. To prevent accidents, the Company regularly conducts OHS reviews, and it has also built an OHS personnel training system, and practices emergency skills during training exercises and on-site drills. There were 11 accidents at the Company’s sites in 2017, with none of them having any environmental impact.

146 Annex 2

External GRI Standard Name REPORT SECTION Omission Page assu rance

Training and Education GRI 404-1 Average hours of training per Human resources — 100 ^ UN GC year per employee by gender HR performance in 2017 — Principle 6 and employee category Training and career development RUIE – 3.1.10

IPIECA-SE16 GRI 404-3 Percentage of employees Human resources — The indicator 103 ^ HR performance in 2017 — is disclosed UN GC receiving regular performance and Training and career development partially. Principle 6 career development reviews The Report IPIECA-SE16 presents data on the total number of employees who have been subject to reviews. Currently, the Company does not collect data on reviews by category or gender.

Company-wide, reviews were conducted for more than 28,000 employees in 2017.

Diversity and equal opportunity GRI 405-1 Diversity of governance Corporate governance 34, ^ bodies and employees Human resources — HR management 95 system — Staff composition

Non-discrimination GRI 406-1 Incidents of discrimination and - ^ UN GC corrective actions taken Principle 6

The Company detected no incidents of discrimination in the reporting period.

Freedom of association and collective bargaining GRI 407-1 Operations and suppliers in which the - ^ UN GC right to freedom of association and Principle 3 collective bargaining may be at risk

The Company is committed to comply with the requirements of legislation on freedom of association and

collective bargaining. The Company has no business units or suppliers that may violate these rules. IPIECA – SE18 Labor disputes - ^ RUIE – 3.2.1

The Company is committed to comply with the requirements of labor legislation. The Company seeks to resolve all labor disputes by means of negotiation.

147 ROSNEFT SUSTAINABILITY REPORT 2017

External GRI Standard Name REPORT SECTION Omission Page assu rance

Rights of indigenous peoples GRI 411-1 Incidents of violations involving - ^ UN GC rights of indigenous peoples Principles 1 and 2 RUIE – 3.2.3

The Company is committed to comply with the requirements of legislation prohibiting any forms of human

rights violation. No violations involving the rights of indigenous peoples were reported in 2017. GRI OG9 Operations where indigenous - ^ communities are present or affected by activities and where specific engagement strategies are in place

In some regions, the Company carries out oil and gas production operations in the areas where indigenous communities are present. In all these regions, the Company has programs to engage with, and provide support to, such communities.

Local communities GRI 413-1 Operations with local community Society 120-127 ^ UN GC engagement, impact assessments, Principle 1 and development programs IPIECA-SE1, SE2, SE3, SE4, SE5

The Company implements procedures for stakeholder engagement and community impact assessment and management in key regions of operation, including when developing new

projects. These approaches cover the absolute majority of the Company’s operations. RUIE – 3.3.2 Engagement with government Society — Social impact 120, ^ authorities when handling management system publicly important tasks Society — Social performance in 120-121

2017 — Regional partnerships Social investments Key sustainability performance indicators 7, ^ Society — Social impact 120, management system

Society — Social performance in 2017 120-127 GRI 413-2 Operations with significant - ^ UN GC actual and potential negative Principle 1 impacts on local communities

The relocation of the Company’s employees and contractors in connection with the development of new projects may have an adverse impact on local communities. Other adverse factors may include environmental impacts and threats to the safety of facilities. The Company takes action to avoid adverse impacts of employee relocation on local communities. It also implements

measures to mitigate adverse environmental impacts and enhance safety management performance. GRI OG10 Number and description of significant - ^ RUIE – 3.2.3 disputes with local communities and indigenous peoples

No significant disputes with local communities and indigenous peoples were recorded in 2017.

148 Annex 2

External GRI Standard Name REPORT SECTION Omission Page assu rance

Public policy GRI 415-1 Political contributions - ^ UN GC Principle 10 IPIECA-SE11, SE14

The Company does not provide finance for political purposes. RUIE – 3.3.1 Position on the public policy, Health, Safety and Environment — 6 7, ^ participation in public policy Occupational health and safety development and lobbying management system Environment — Environmental 75, management system — Cooperation with governmental and non‑governmental environmental groups Human resources — 104 HR performance in 2017 — Training and career development

The following decisions and actions were taken by the Company in 2017 pursuant to public policy: Rosneft updated its long-term development program in line with new strategic targets and changes in its consolidation perimeter by providing a more detailed description of measures aimed at achieving long- term goals and revising measures prescribed by Russian Government directives No. 4955p-P13 of 17 July 2014, No. 7558p-P13 of 12 November 2014, No. 1346p-P13 of 5 March 2015, No. 2303p-P13 of 16 April 2015, No. 7389p-P13 of 31 October 2014, No. 1472p-P13 of 3 April 2016, No. 4531p-P13 of 28 June 2016, No. 4750p-P13 of 4 July 2016, No. 830p-P13 of 6 February 2017 and others. Pursuant to Instruction No. DM-P9-705r of the Russian Prime Minister dated 31 January 2014 and with the support of the Russian President expressed in Instruction No. Pr-2579 dated 29 December 2016, the Company continued work on the construction project of Eastern Petrochemical Company, the largest oil refining and petrochemical facility in Far Eastern Federal District. Acting on the instructions of the Russian President and the Russian Government, Rosneft’s Board of Directors made a number of decisions in 2017 with respect to the following: --Establishing and implementing plans to reduce operating costs, promote import substitution and support procurement activities --Divesting non-core assets and holding quarterly reviews of progress reports under the Non- Core Asset Divestment Program for the first, second and third quarters of 2017 --Embedding professional standards into the Company’s operations In pursuance of the instructions of the Russian President and the Russian Government, the Company approved internal regulations covering its key processes in 2017, with some of them already put into effect (for the full list of adopted documents, see the 2017 Annual Report, Section 5.4 Rosneft’s executive bodies, p. 216). Pursuant to the instruction of the Russian President, the consortium of Rosneft, Rosneftegaz and Gazprombank is building an industrial and shipbuilding cluster in the Russian Far East based on the Far Eastern Shipbuilding and Ship Repair Center, with the Zvezda shipbuilding complex in Bolshoi Kamen at its core. Rosneft fully met the demand for petroleum products from the military units of the Russian Ministry of Defense deployed in the Central and Eastern military districts, as well as from the Ministry of the Interior, the Ministry of Emergency Situations and the Russian Investigative Committee. In accordance with the resolutions of the Russian Government, Group entities act as sole supplier to the Russian Ministry of Defense, the Investigative Committee, the Ministry of Emergency Situations, the Ministry of Interior, and the National Guard of Russia. In pursuance of Directives of the Russian Government (No.6362P-P13 of 24 October 2013, No. 7377p-P13 of 7 October 2013 and No. 4252p-P132 of 16 June 2016), the Company took steps aimed at improving access for small and medium-sized businesses to contracts with the Company. Contracts worth RUB 97.9 billion were awarded to small and medium-sized businesses. For details, see the 2017 Annual Report (Appendix 4: Information on compliance with instructions given by the President of the Russian Federation and the Government of the Russian Federation, pp. 322-333).

149 ROSNEFT SUSTAINABILITY REPORT 2017

Annex 3.

LIST OF ABBREVIATIONS “Rosneft” and the “Company” mean Rosneft Oil Company PJSC either separately or together with its subsidiaries and affiliates, depending on the context. “GRI Standards” mean the Global Reporting Initiative Sustainability Reporting Standards, version 2016.

APG Associated petroleum gas

API American Petroleum Institute

bcm billion cubic meters

CIS Commonwealth of Independent States

CWRMS Corporate-Wide Risk Management System

EIA Environmental impact assessment

GHG Greenhouse gas

HSE Health, safety and environment

IFRS International Financial Reporting Standards

IPIECA International Petroleum Industry Environmental Conservation Association

ISO International Organization for Standardization

150 Annex 3

KPI Key performance indicator

mboe million barrels of oil equivalent

mbpd million barrels per day

mmt million metric tonnes

mmtoe million metric tonnes of oil equivalent

Neftegarant Neftegarant Non-State Pension Fund

OHS Occupational health and safety

R&D Research and development

RM&ICS Risk Management and Internal Control System

Rostekhnadzor Federal Service for Environmental, Technological and Nuclear Oversight

RUIE Russian Union of Industrialists and Entrepreneurs

SEC U.S. Securities and Exchange Commission

tce tonne of coal equivalent

UN United Nations

UNEPCOM Russian National Committee for UNEP

VHI Voluntary health insurance

151 ROSNEFT SUSTAINABILITY REPORT 2017

Contact information

ROSNEFT OIL COMPANY PUBLIC JOINT STOCK COMPANY

Address 26/1 Sofiyskaya Embankment, Moscow, 117997, Russia Phone +7 499 517–73–33

E–mail [email protected]

Corporate website www.rosneft.ru www.rosneft.com

Contact us If you have any queries about this Sustainability Report, please contact our Social Development and Corporate Culture Department. E-mail: [email protected]

152 ©

WWW.ROSNEFT.RU Photo by Yevgeny Mamayev, Ph.D. in Biological Sciences, Deputy Director for Science, Komandorsky Nature Reserve Mamayev, Ph.D. in Biological Sciences, Deputy Director for Science, Komandorsky Photo by Yevgeny