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EXPANDING OUR GLOBAL LNG FOOTPRINT GLOBAL LNGFOOTPRINT EXPANDING OUR ANNUAL REPORT 2018 NOVATEK at a Glance 2018

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EXPANDING OUR GLOBAL LNG FOOTPRINT GLOBAL LNGFOOTPRINT EXPANDING OUR ANNUAL REPORT 2018 NOVATEK at a Glance 2018 EXPANDING OUR GLOBAL LNG FOOTPRINT ANNUAL REPORT 2018 EXPANDING OUR GLOBAL LNG FOOTPRINT OUR GLOBAL EXPANDING ANNUAL REPORT 2018 NOVATEK at a Glance 2018 PAO NOVATEK is one of the largest independent producers of natural gas in Russia. The Сompany is engaged in the exploration, production, processing and sale of natural gas and liquid hydrocarbons and has almost twenty-five years of experience in the Russian oil and gas industry. The Company entered the international gas market in December 2017 with the start of LNG production at the Yamal LNG Project. HYDROCARBON PRODUCTION SALES RR RESERVES BLN BLN MLN BCM 415 1.22 BOE 549 BOE 66 Normalized EBITDA Total proved hydrocarbon Hydrocarbon Natural gas sales reserves addition (SEC), production in Russia including production USD BLN BLN % BCM 15.79 BOE 9 6 Total proved hydrocarbon Share of natural gas LNG sales on reserves (SEC) production in Russia international markets 51.9 Market capitalization as of 31.12.2018 (LSE) +8.5 % 15.8 MMT RR Natural gas production Liquid hydrocarbons increase sales volume MMT RR 26.06 BLN Fields56 and license areas 11.8 832 Recommended dividend per share Liquid hydrocarbons $ $ Total revenues production NOVATEK at a Glance 2018 HYDROCARBON PRODUCTION SALES RR RESERVES BLN BLN MLN BCM 415 1.22 BOE 549 BOE 66 Normalized EBITDA Total proved hydrocarbon Hydrocarbon Natural gas sales reserves addition (SEC), production in Russia including production USD BLN BLN % BCM 15.79 BOE 9 6 Total proved hydrocarbon Share of natural gas LNG sales on reserves (SEC) production in Russia international markets 51.9 Market capitalization as of 31.12.2018 (LSE) +8.5 % 15.8 MMT RR Natural gas production Liquid hydrocarbons increase sales volume MMT RR 26.06 BLN Fields56 and license areas 11.8 832 Recommended dividend per share Liquid hydrocarbons $ $ Total revenues production 4 Annual Report 2018 Contents Letter to Shareholders ......................................................................6 Strategic Priorities ............................................................................ 12 Business Model .................................................................................. 13 Key Events and Achievements 2018 ....................................... 22 Key Indicators .................................................................................... 24 ENVIRONMENTAL AND SOCIAL RESPONSIBILITY Environmental Protection ............................................................ 52 Industrial Safety and Occupational Health ........................54 REVIEW OF OPERATING RESULTS Human Resources ............................................................................56 Social Policy and Charity .............................................................. 57 Licenses ................................................................................................40 Hydrocarbon Reserves ..................................................................40 Geological Exploration .................................................................41 Field Development .......................................................................... 43 Hydrocarbon Production ..............................................................44 LNG Projects ......................................................................................44 Processing of Gas Condensate ................................................. 47 Natural Gas Sales ............................................................................48 Liquid Hydrocarbons Sales ........................................................49 Expanding Our Global LNG Footprint 5 MANAGEMENT AND CORPORATE GOVERNANCE Corporate Governance System .................................................62 General Meeting of Shareholders ............................................62 Board of Directors ..........................................................................63 Board Committees .........................................................................65 Management Board ........................................................................66 Remuneration to Members of the Board of Directors and Management Board .................................... 67 Internal Control and Audit........................................................... 67 Share Capital ......................................................................................69 Dividends .............................................................................................70 Information Transparency ............................................................. 71 ADDITIONAL INFORMATION Risk Management System ............................................................73 Risk Insurance .....................................................................................81 Information on Members of NOVATEK's Board of Directors ............................................................................81 Information on Members of NOVATEK's Management Board ........................................................................84 Report on major, and interested-party transactions that the Company did in the reporting year ....................... 87 Corporate Governance Code Compliance Report ........... 87 Forward-looking Statements ....................................................110 Conversion Factors.........................................................................110 Terms and Abbreviations ..............................................................111 IFRS Consolidated Financial Statements for 2018 .........112 Contact Information .....................................................................188 6 Annual Report 2018 Letter to Shareholders ALEXANDER NATALENKO Chairman of the Board of Directors LEONID MIKHELSON Chairman of the Management Board MARK GYETVAY Deputy Chairman of the Management Board Expanding Our Global LNG Footprint 7 Dear Shareholders, TWO THOUSAND AND EIGHTEEN was an incredible year for NOVATEK culminating with the successful launch of our flagship Yamal LNG project and reaching the facilities' full design capacity in record time. It marked a year of exceptional achievements and EXPANDING OUR GLOBAL LNG FOOTPRINT with shipments to customers around the globe. Yamal LNG was launched in record time and on budget MMBOE with the commissioning of the second and third LNG trains accomplished ahead of schedule by six months and more than a year, respectively. Yamal LNG established a new benchmark in the industry known for numerous budget overruns and delays in project 549 implementation. The successful launch of all three Total hydrocarbons production liquefaction trains confirms that Yamal LNG is a unique 7% growth as compared with 2017 project in the fastest-growing segment of the natural gas industry, enabling us to emerge as one of the major players in the global LNG market. despite the harsh climatic conditions, the colder ambient temperature provides us with a competitive advantage With a nameplate capacity of 16.5 million tons per annum to lower the cost of liquefaction. (mmtpa) with the launch of three LNG trains, Yamal LNG’s natural gas feedstock is based on reserves of the Many industry commentators consider natural gas as South-Tambeyskoye field on the coast of the Ob Bay, a “transition” or “bridge” fuel. We disagree with this located on the hydrocarbon-rich Yamal Peninsula. We characterization. Natural gas is a clean burning fossil will build the fourth LNG train with a planned capacity fuel and will play a major role in the future energy of 0.9 mmtpa based on NOVATEK’s patented proprietary mix as a key contributor to meet climate change and liquefaction technology called “Arctic Cascade” using de-carbonization goals. We are very optimistic about equipment produced and manufactured domestically in our future LNG projects given forecasted LNG and Russia. Combined, the project should reach a nameplate natural gas demand scenarios, and the transition from capacity of 17.4 mmtpa. coal to natural gas in the primary energy mix to support sustainable development principles. Yamal LNG is an integrated project encompassing natural gas production, liquefaction and marketing, with We officially opened the summer navigation period via its key advantages of a prolific conventional reserve the Northern Sea Route when we delivered the first base, proven development technologies, very low commercial LNG shipments to China from Yamal LNG lifting costs, advantageous geographical location and using the newly designed Arc7 ice-class tankers. These colder ambient temperatures. These strategic favorable shipments were made possible due to the exceptional operating conditions further support our future LNG characteristics of our brand new, fully dedicated fleet projects on the Yamal and Gydan peninsulas, thus of ice-class LNG carriers to serve our Arctic projects. making our overall LNG platform extremely attractive These unique ice-class LNG carriers enable year-round based on lower capital intensity per ton of LNG navigation without icebreaker support along westbound produced, and optional transport routes to East and navigation routes and, eastbound during the Arctic zones West natural gas consuming markets. seasonal navigation period, along the Northern Sea Route. Yamal LNG is currently the largest LNG project in Russia During 2018, we delivered LNG cargos to Asia, India, with an aggregate share of about 5% of the global South America, the Middle East and Europe, representing LNG market and represents a unique benchmark
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