MAKING OPPORTUNITIES REALITY LUKOIL GROUP SUSTAINABILITY REPORT 2017 LUKOIL GROUP Contents SUSTAINABILITY REPORT 2017

About this Report 2 Message from PJSC LUKOIL President and CEO 6 ABOUT THE COMPANY 8

LUKOIL GROUP STRATEGY FOR 16 PERSONNEL 66 SUSTAINABILITY Compliance with Employment Entitlement Rights 69 Integration of the LUKOIL Group’s Sustainability 18 Work-Related Performance Incentives 72 Goals and Strategy Staff Development 74 Structure of Sustainability Management System 21 Youth Policy 75 Human Rights 22 Ethics and Statutory Compliance 23 Stakeholder Engagement 24 Supply Chain 27 Product Quality Assurance 28

CLIMATE CHANGE 30 Climate-Related Risks 32 Impact Assessment 33 Utilization of Associated Petroleum Gas 34 Investments in Renewable Energy 35 LOCAL COMMUNITIES 76 Energy Efficiency and Energy Conservation 36 External Social Policy Priorities 78 Education 82 Support for Children and Childcare Institutions 83 Sport 84 Indigenous Peoples of the North 85

ENVIRONMENTAL PROTECTION AND 38 OCCUPATIONAL SAFETY LUKOIL in the Year of the Environment in Russia 40 Improving the Management System 43 APPENDICES 86 Environmental Safety Program 44 Appendix 1. ReportIng boundaries 86 Water Use 44 Appendix 2. GRI content Index and Individual GRI 88 INTERACTIVE VERSION OF indicators Managing Environmental Impacts 49 SUSTAINABILITY REPORT 2017 Appendix 3. Independent Limited Assurance 100 Biodiversity Conservation 52 Report Ensuring the Integrity of Production Facilities 55 http://csr2017.lukoil.com Appendix 4. Conclusion of the RUIE Council 103 Employee Health and Safety 60 Appendix 5. Abbreviations 110 Appendix 6. ReportIng boundaries of Individual 111 Indicators About the Strategy for Climate Local AboutCompany Report Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017 About this Report

This is the eighth Sustainability Report of stakeholders and seek to provide of the LUKOIL Group (the “Report”), and balanced information that is relevant to presents the performance results for the interests of each group. As part of the period from 1 January 2017 to 31 its corporate governance system, the December 2017. Company pays significant attention to improving its sustainability efforts and The previous report was published to raising the quality of the information in October 2017 (for the period from reported. We believe an important 1 January 2015 to 31 December 2016). factor in meeting these objectives is The Company was awarded for the the performance of an independent quality of its non-financial reporting in assurance of the information disclosed, 2017, winning the Moscow Exchange’s as well as the public assurance of 20th Annual Report Competition in the Report. The audit opinion on the the category “Best Corporate Social assignment to provide limited assurance Responsibility and Sustainability Report”. in respect of the Report is published on The LUKOIL Group consistently ranks page 100. The public conclusions on in the top 10 in the Responsibility and the Report, by the RUIE Non-Financial Openness and Vector of Sustainability Reporting Council, are published on page indexes prepared by the Russian Union 103 hereto. of Industrialists and Entrepreneurs (RUIE), based on an analysis of the public reporting of the 100 largest companies in Russia.

We have been publishing sustainability Reports for previous periods are available at reports since 2005 (that report includes the LUKOIL website performance results for 2003-2004). They are addressed to a wide range

Awards received in 2017

2 LUKOIL 2017 www.lukoil.com 3 About the Company

A COMPREHENSIVE ANALYSIS DETERMINED EIGHT PRIORITY TOPIC AREAS FOR THE COMPANY IN THE MEDIUM TERM.

The UN Sustainable Development Targets GRI Page of Priority area for the Company up to 2030 Standards Report We are seeing a new stage in the development of LUKOIL Group’s GRI 201 36, 37, 39, non-financial reporting in terms of the 1 Integrating risk management and GRI 419 83 integration of the 2030 Agenda for aspects of sustainability into the Company’s business model and Sustainable Development of the UN strategy (hereinafter, the SDGs) into the system for analyzing operations and submitting 2 Ethics and compliance with statutory Targets Targets Target reporting data, and also a gradual requirements 9.4; 9.5 12.4; 12.5 17.16 expansion of the reporting scope. GRI 305 32 3 Climate strategy and climate risk In preparing this Report, we used management the following non-financial reporting standards and guidelines: ΅ Business Reporting on SDGs Target ΅ The Sustainability Reporting Standards 13.1 of the Global Reporting Initiative (GRI) (“core” option). Certain GRI Standard GRI 303 32, 39, 44, 4 Key environmental impacts, the GRI 305 45, 49, 52 indicators and tables of the general and intelligent and efficient use of specific standard reporting indicators natural resources and maintenance GRI 306 are provided in Appendix 2 of biodiversity GRI 308 ΅ The United Nations Global Compact ΅ The Social Charter of Russian Business 5 Industrial safety Targets Target Targets Targets Targets and the Basic Performance Indicators 6.3; 6.4; 6.5 8.4 12.4; 12.5 14.1; 14.2 15.1; 15.2; 15.5 of the Russian Union of Industrialists GRI 302 32, 35 and Entrepreneurs 6 Energy consumption and energy efficiency

Targets 7.2; 7.3 GRI 202 67, 68 7 Human capital management GRI 401 GRI 402 GRI 403 GRI 404 Targets Target 8.3; 8.5 10.3

GRI 203 42, 67, 68, 8 Impacts on the social and economic GRI 204 77, 78, 82 development of local communities, GRI 411 In this document the terms and words “the LUKOIL Group”, including human rights, the supply “LUKOIL”, “the Company”, “the Group”, the pronoun “we”, chain, and the safety and quality of GRI 412 and variants thereof, refer to PJSC LUKOIL and its subsidiaries production GRI 413 and associates. Target Target Target Target 4.4 8.3 11.4; 11.7 17.17

4 LUKOIL 2017 www.lukoil.com 5 Message LUKOIL GROUP SUSTAINABILITY REPORT 2017

Message from PJSC LUKOIL One of the priority areas of the Group President and CEO is the prevention of climate change

As head of the Company, I am convinced At the end of 2017 the LUKOIL Group’s In the regions where we operate that it is only by maintaining a Strategic Development Program for we allocate significant resources to harmonious balance between economic, 2018–2027 was approved. This program social projects to support education, embodies our sustainability priorities. healthcare, culture, and sport. We environmental, and social factors that allocated over RUB 9 billion to these we can truly ensure the harmonious The Company’s operations are geared projects in the reporting period. development of our business. towards achieving the Sustainable Development Targets established by The socially important results presented the United Nations, including in such here would be impossible without areas as combating climate change. effective production operations achieved The results for 2017 show that we on key projects: the development of the Dear friends! reduced greenhouse gas emissions, V. Filanovsky field in the Caspian Sea, including through improving the the Pyakyakhinskoye field in Western > 95% PJSC LUKOIL has been publishing utilization of associated petroleum Siberia, the Yaregskoye field in the Komi sustainability performance results for the gas: this indicator exceeded 95% for Republic, and gas fields in Uzbekistan. level of APG utilization past 15 years. The Company has always the LUKOIL Group. Projects involving in the LUKOIL Group in 2017 sought to work not only to benefit its the development of renewable energy These projects have created thousands shareholders and employees, but also sources also contributed to the reduction of jobs, generated additional tax society as a whole. We are convinced in greenhouse gas emissions. After revenues for the states and regions that our successful development is successfully implementing solar and wind where we have a presence, and only possible if we take into account power projects in Romania and Bulgaria, supported local suppliers and the interests of the communities of the LUKOIL built and commissioned in 2017 contractors. countries where we operate. the first major commercial generation facility in Russia – a 10-MW photovoltaic The Sustainability Report for 2017 Today we are observing changes in power station in Volgograd. was prepared in accordance with the technology, business, and the natural Sustainability Reporting Standards of environment that are more rapid than Taking into account our production the Global Reporting Initiative (GRI) and in previous decades, and are having a development plans, we have set was reviewed by experts from both 5.8 more noticeable impact on business, ourselves the target of reducing the Russian Union of Industrialists and people, and society as a whole. In such greenhouse gas emissions by 1.2% by Entrepreneurs and one of the world’s RUB bln circumstances we believe our primary 2020 compared to the 2016 level. leading audit firms, KPMG. in R&D spending in 2017 objective is to retain our status as a responsible provider of the energy The results of the reporting year President and Chairman of the Management resources needed to undergird the new demonstrate a decrease in indicators Committee of PJSC LUKOIL economic paradigm and facilitate social such as water consumption for own V. YU. ALEKPEROV interaction. We are confident that oil and needs, including the consumption of gas will continue to play an important water from natural sources in the Russian role in the attainment of this goal. organizations of the LUKOIL Group. Taking our further production development plans into account, we have set a goal of reducing greenhouse gas emissions by 1.2% by 2020 compared to the 2016 level

6 LUKOIL 2017 www.lukoil.com 7 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017 About the Company

Geography LUKOIL is one of the world’s largest and business publicly traded, vertically integrated oil and 10 segments gas companies in terms of total proved reserves and hydrocarbon production. LUKOIL employs over 100,000 people in Russia, Europe, Asia, Africa, and America Strategic (more than 30 countries in total). Development 12 Program

Improving 12 sustainability

We are an international oil and gas company whose operations promote the Oil and gas economic development of the countries exploration in which we operate, which in turn 13 and production raises people’s quality of life, and which seeks technological leadership and environmental equilibrium, so that we can all share in a prosperous future. Refining, marketing, 14 and distribution

Power generation and renewable 14 energy

Key 15 indicators

8 LUKOIL 2017 www.lukoil.com 9 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Exploration and production As a vertically integrated company, LUKOIL controls its entire chain of production – from oil and gas production to the marketing of a range of products supplied to industrial and retail consumers in various > 30 Refining countries. countries Marketing Others

21 28

14 20 22 EXPLORATION AND 4 > 60 15 3 PRODUCTION 31 Russian 1 ΅ Exploration 75% 25% regions 10 29 18 24 23 Development Share of oil in Share of gas in 11 12 ΅ 30 proved reserves proved reserves 16 5 ΅ Production 7 27 2 104 26 thousand 9 REFINING employees 8 ΅ Oil refining Average headcount ΅ Gas refining 8.8 86.8% The Nelson Index for Depth of processing 1 Austria 17 Mexico ΅ Petrochemicals company refineries as at 31 December 20171 2 Azerbaijan 18 Moldova 6 3 Belarus 19 Nigeria 19 Around 4 Belgium 20 The Netherlands 5 Bulgaria 13 21 Norway 1% 6 Ghana 22 Russia MARKETING 7 Georgia of proved global 23 Romania ΅ Production and sale of oils hydrocarbon reserves 8 Egypt 585 8.6 4.5 24 Serbia 9 Iraq ΅ Marketing of motor fuels 25 The USA thousand t mln t mln t 10 Spain 26 Turkey ΅ River and maritime fueling Sales of LUKOIL Sales of LUKOIL Sales of 11 Italy brand oils premium ECTO fuel bunker fuel 27 Uzbekistan ΅ Aircraft refueling 12 Kazakhstan 28 Finland 13 Cameroon 29 Croatia > 2% 14 Latvia 3.2 4,174 30 Montenegro of total global oil 15 Luxembourg production 31 Switzerland mln t mln liters 16 Macedonia Aircraft Sales of biofuel refueling blends

ELECTRIC POWER 25 ENGINEERING 1,053.2 17,551.9 15% ΅ Electricity generation of oil production and refining in mln kWh mln kWh 17 ΅ Electricity generation Russia from RES Total electricity Total electricity generation generated from RES (regardless of supply power generation)

1 Not including mini-refineries and external refineries, and also not including unused capacity at the Ukhta Refinery.

10 LUKOIL 2017 www.lukoil.com 11 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Strategic Development Program In 2017 we became the Oil and gas exploration and production first Russian company to In December 2017 the PJSC LUKOIL Company’s business in rapidly changing join the European Business Oil and gas exploration and production Board of Directors approved the LUKOIL macro-economic and environmental Network for Corporate form the central link in LUKOIL Group More information is available Group Budget’s key targets for 2018– conditions. The strategy integrates Social Responsibility, which operations, and are the main creators on the Company’s website 2020 and LUKOIL Group’s Strategic issues of sustainability and sets goals brings together about 11,000 of value for the Company. We possess Development Program for 2018–2027. and objectives in this area that are companies in Europe. a high-quality portfolio of assets that are These are aimed at achieving balanced uniform across the Company. diversified in terms of both geography and and stable development of the type of reserve. V. Filanovsky Thanks to the construction and field commissioning of new facilities to utilize associated petroleum Improving sustainability In the first international The implementation of gas (APG), the utilization rate in Corporate Human Rights system-wide measures to 2017 exceeded 95% for Russian Over the past year, significant work respecting human rights. With the goal Benchmark rating, LUKOIL improve the reliability of Voluntary organizations, better even than ranked second among Initiatives has been done to update a number of improving the quality of management, pipeline transportation helped the planned indicators and target Russian companies and first benchmarks determined at the of in-house regulations, including the changes were made to the approach to us achieve the lowest specific in the Russian energy sector. national level. Social Code of PJSC LUKOIL, which now planning targeted corporate programs in rate of pipeline failure for six sets out the Company’s approach to health, safety, and the environment. years. We believe this result represents a significant achievement, even taking into account the Proved oil and gas reserves consist mainly We continued to actively implement Company’s participation in the Zero Routine Flaring3 by 2030 of those in the conventional category. In projects to develop hard-to-recover initiative by the World Bank and 1 Four sustainability goals of the LUKOIL Group’s Strategic Development 2017 these amounted to 16.0 billion BOE , reserves (high-viscosity oil in the the UN. Program for 2018–2027 of which oil made up 75%. In the reporting Yaregskoye field and Permian- year, the main increases in proved oil and Carboniferous deposit of the Usinskoye gas reserves were achieved in Western field in the Komi Republic). This year, record Siberia and fields in the Caspian Sea. amounts of oil were produced at these fields: 1.1 million and 2.3 million tonnes, Industrial and Competitiveness Return on equity, recovery Social responsibility, The operation of the V. Filanovsky respectively. environmental of investments, and the a worthy field (situated in the Russian sector of safety, reliability continuous creation of contribution to the Caspian Sea) made a significant Although there was a slight drop in total oil and efficiency of shareholder value social development 1 contribution to the trend in oil production in production in the year, under conditions of Barrels of oil equivalent under the SEC classification processes (US Securities and Exchange Commission). 2017: it produced 4.6 million tonnes during external limitations, gas production rose 2 the year, which exceeded the target level. considerably (a 16% rise compared to 2016), The “zero discharge” means that all the operational waste generated at the drilling rig except for water in the power The Company began production drilling as a result of the commencement of gas units’ external cooling circuit is taken to onshore facilities as part of the field’s second development extraction at the Pyakyakhinskoye field where it is treated, neutralized, and recycled. This way the phase – here the “zero discharge” principle in the Yamal-Nenets Autonomous Area in Company avoids marine environment pollution. is also applied.2 Russia and a doubling of gas production 3 The Zero Routine Flaring by 2030 Initiative is a joint initiative under the Gissar project in Uzbekistan. between the United Nations and the World Bank to reduce the routine flaring and dispersal of associated gas during the production of hydrocarbons. The routine flaring and dispersal of associated petroleum gas is understood to mean a situation where volumes of produced associated petroleum gas exceed the requirements of the production entity in energy resources, and there are no technologies for their capture, utilization, or possible sale. Unlike the sporadic flaring and dispersal of associated petroleum gas (related to scheduled repairs, the maintenance and supervision of equipment, the testing and servicing of wells, breaks to the seals of equipment, starting the engine of a compressor, the binding of pipelines, and other similar events), the routine flaring of associated petroleum gas can be reduced significantly if market participants coordinate their actions. The application of the best available technologies and improvements in the market mechanisms used to sell natural gas are the underlying approaches for attaining the objective within the framework of the initiative.

12 LUKOIL 2017 www.lukoil.com 13 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Refining, marketing, and Despite external limitations on oil achieved good financial results in 2017. oil production, growth in gas production distribution production as part of an agreement with Progress made during the reporting year in Russia and Uzbekistan, an improved OPEC, and increases in rates of excise and was secured by increasing the share of product output structure at refineries, and We aim to use the natural resources we mineral extraction tax in Russia, LUKOIL high-margin projects in the structure of reduced costs. extract with maximum efficiency. After Main brands: the ECTO completing a wide-ranging modernization line of gasoline and diesel program at Russian and foreign refineries1, (including the new ECTO 100 Key indicators brand, with an octane number the refining depth of oil reached 86.7% and of more than 100) and the 86.9%, respectively, at these refineries. GENESIS line of oil. KEY FINANCIAL AND PRODUCTION INDICATORS Over the past three years light product 2015 2016 2017 yield has risen by almost 10 percentage points, while the annual increase in the Financial level of primary oil refining at Russian and EBITDA, RUB billion 816.7 730.7 831.6 European own refineries and contracted Total debt/EBITDA 1.1 1.0 0.7 refineries was 10% (2017 versus 2016). In Capital expenditure, RUB billion 600.6 497.1 511.5 2017 a decision was taken to build a delayed coker complex at the Nizhny Novgorod even lower sulfur content (down to 0.5%), in Adjusted net profit, RUB billion 363.5 303.8 399.4 Refinery, similar to the unit operating at the order to ensure timely compliance with the In 2017 we opened an online Research and technical costs, RUB billion 5.5 5.8 5.8 Perm Refinery, which will make it possible to requirements of the International Maritime store to sell lubricants and Number of patents received 20 23 20 increase the light products yield by more than Organization (IMO), pursuant to which such presented our products in 10 percentage points. fuel must be in use from 2020. the virtual shop windows of Production the largest international and Production of oil and gas condensate (including shares in affiliates), million barrels 736 676 645 Our priority in this area of activity is to boost At the end of 2017 our marketing network Russian digital outlets. This Crude oil production (including share by equity affiliates), thousand tonnes 100,688 91,992 87,414 operating efficiency and to ensure that the for motor fuels comprised 5,258 filling expands the availability of our Gas production, billion cubic meters 23,966 24,922 28,861 structure of our output matches the needs stations3, 50% of which were located in products for consumers in any of consumers and market demand. Russia. country in the world. including APG 8,378 9,272 8,942 Petroleum products output, thousand tonnes4 61,750 63,069 69,908 In 2017 we achieved the highest level of In 2017 we continued to develop our Full cycle lubricant production, thousand tonnes 812 917 998 marine fuel sales for five years, including advanced electronic fuel quality control environmentally friendly marine fuel2 sales. system, which allows us to track the Lubricant blending, thousand tonnes 117 118 128 As part of our strategy in this area, we are movement of petroleum products from Output of petrochemicals, thousand tonnes 1,074 1,270 1,171 preparing to produce marine fuel with an refineries to end users.

ECONOMIC VALUE CREATED AND DISTRIBUTED, RUB million Power generation and renewable energy 2015 2016 2017 More complete information on the LUKOIL Group’s production and financial Direct economic value created 5,810,758 5,256,250 6,010,089 Our power-generating and distribution performance can be found in assets provide heat and electricity to both In 2017 a solar power station Revenue 5,749,050 5,227,045 5,936,705 external consumers (commercial power was built in Volgograd that Income from financial investments 17,763 14,756 15,151 generation) and for own needs (supply provides an annual output Income from sale of material assets 43,945 14,449 58,233 power generation). Our power stations of over 10 million kWh of LUKOIL 2017 Annual Report operate on natural gas (of these the electricity. The station will Direct economic value distributed (5,202,356) (4,741,979) (5,380,245) largest producer of electricity is LUKOIL- help reduce greenhouse gas Operating expenses (3,702,873) (3,413,258) (3,908,114) Kubanenergo), while the largest suppliers emissions. Employee payroll (126,506) (136,035) (127,851) of heat are LUKOIL-Volgogradenergo and The 2017 LUKOIL-Rostovenergo. Data Book Other employee payments and benefits (4,837) (20,370) (1,135) We strive to use all contemporary Payments to providers of capital (161,747) (175,435) (166,125) methods of energy generation, including including dividends paid (115,106) (130,728) (141,499) renewable energy. We have solar and wind energy facilities (in Bulgaria and and other including interest paid to creditors (46,641) (44,707) (24,626) materials Romania) and hydroelectric power Payments to the government (1,198,464) (984,821) (1,168,011) facilities (in Russia). Investments in society (7,929) (12,060) (9,009) Undistributed economic value 608,402 514,271 629,844

1 At our own refineries, including Zeeland. 4 At the Group’s refineries, subsidiary refineries, and third-party refineries (by Group share).

2 Fuel that meets MARPOL requirements (the International Convention for the Prevention of Pollution from Ships, 1973, as amended 1978, MARPOL 73/78) regarding the content of pollutants in air Comment. Income from financial investments = Income from interest on deposits + Income from interest on issued loans + Other financial income.Income from the sale of tangible assets = Profit from the sale emissions of combustion products in sulfur emission control areas (SECA) – the North Sea and Baltic Sea, and part of the US coast – as well as waterways of the European Union. and disposal of assets. Operating expenses = Cost of acquired oil, gas and processed products thereof + Transportation expenses + Sale, general and administrative expenses – Employee payroll – Other employee payments and benefits = Salary (including remuneration, estimated liabilities, compensation + incentive payments, pension insurance, voluntary medical insurance, accident voluntary insurance). Other employee 3 Company-owned, leased, and franchised, including mothballed stations. payments and benefits = Accruals on the remuneration program. Paid dividends = Dividends paid on the shares of the Company + Dividends paid to the holders of non-controlling interests. Paid interest to creditors = Interest expenses + Other financial expenses.Payments to the government = Taxes (other than income tax) + Excise and export duties + Current income tax. Investments in society = Charitable expenses.

14 LUKOIL 2017 www.lukoil.com 15 LUKOIL GROUP SUSTAINABILITY REPORT 2017 LUKOIL Group strategy for In December 2017 the PJSC LUKOIL Integration of the LUKOIL Group’s Board of Directors approved the LUKOIL 18 sustainability goals and strategy Group’s Strategic Development Program sustainability for 2018–2027.

Structure of Sustainability Management 21 System Our approach to sustainability management is based on seeking to align the interests and plans of the Company with UN fundamental principles, common human values, and global national Human and regional development trends and 22 rights priorities. This involves the integration of economic, environmental, and social goals and objectives into the corporate business decision-making system. Ethics and statutory 23 compliance

Stakeholder 24 engagement Issues related to industrial, environmental, and personal safety remain unwavering priorities for LUKOIL at all stages of value Supply creation. 27 chain

Product quality 28 assurance

16 LUKOIL 2017 www.lukoil.com 17 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

II. Competitiveness Integration of the LUKOIL Group’s sustainability goals and strategy In a rapidly changing business environment, Our strategic priority includes continual In the process of creating the LUKOIL the Board of Directors, determined the the global targets listed in the UN maintaining and improving the Company’s efforts to boost efficiency and to reduce Group’s Strategic Development Program Company’s priority and equivalent goals Agenda 2030, current oil and gas sector competitiveness is a fundamental the unit consumption of natural resources, for 2018–2027, the core departments, and objectives related to sustainability. trends, and LUKOIL’s corporate culture. prerequisite for success. We are committed materials, and energy while at the same time with advisory support from members of In this regard we took into consideration to increasing the overall productivity of achieving the maximum possible output of our operating activity and to achieving a products, through investment in innovation more rational and efficient use of resources and new technologies. (natural, human, production, and financial). STRATEGIC GOALS Potential risks include higher costs due to We have defined four key strategic sustainability goals up to 2027. Our goals: a failure to keep up with global technology ΅ effective asset portfolio management trends and a change in the level of demand ΅ boosting labor productivity and energy for our products. PROJECTED efficiency RESULTS: ΅ optimizing processes and costs The main mechanisms for achieving this I. Industrial and environmental safety, reliability and efficiency of processes retaining leading Russian oil and ΅ developing technologies, including with strategic goal and reducing risks are the gas sector positions vis-à-vis We are committed to improving LUKOIL is one of the largest private required level of support for health, a view to accelerating the extraction of development and execution of targeted the efficient application of new occupational safety, preventing on-the- international oil and gas companies safety, and the environment at LUKOIL hard-to-recover reserves programs to improve efficiency, investment in technologies job injuries, ensuring that our production whose shares are traded on stock Group subsidiaries”. In 2017, in order to ΅ maximizing the added value of our research, and developing new products that facilities operate accident-free, and exchanges. By extracting and refining increase responsibility for attaining this KPI output meet mounting demands for fuel efficiency. greater efficiency and reduced unit consumption of natural resources, continuously reducing our environmental natural resources, we help satisfy at all management levels, amendments materials, and energy impacts. In view of the observable global people’s needs for fuel, energy, and were made to a corresponding internal impact of climate change, we include in warmth. For us, however, attaining high regulatory document. In particular, in the the setting up of research centers our priorities a reduction in greenhouse production figures is inextricably linked to quarterly assessment we introduced more gas emissions. meeting the challenges of rational natural stringent criteria on aggregate material resource management. The sustainable damages resulting from an accident, and We have set ourselves the following development of PJSC LUKOIL is based on also included a criterion for the absence of objectives: strict adherence to the legislative norms of accidents. III. Social responsibility, a worthy contribution to social development ΅ ongoing improvement of the integrated the countries in which we operate. system for managing occupational and We are a major employer, taxpayer, pursuing a policy of social responsibility environmental safety We plan to expand our relations with product supplier, and consumer of goods on issues related to labor, employment, ΅ the use of new technologies in stakeholders in order to promptly identify and services. We take a very responsible and industrial relations; providing industrial safety and the environment, risks and to implement relevant measures attitude to our stakeholders, and assistance to employees, disabled which allow us to reduce risks and to mitigate these risks. We consider the carefully take their needs into account. people, and veterans; and engaging in improve the effectiveness of measures following to be the main risks: the risk We have a comprehensive social policy extensive charity and sponsorship work. performed of a change in statutory requirements in place in relation to our workers, ΅ improved working conditions, and on industrial safety and environmental and make a significant contribution to Main risks include a global trend towards developing a safe working culture that protection, the risk of adverse impacts improving the quality of life in the regions changing requirements for professional facilitates a reduction in on-the-job on the environment and people as a in which we operate. competencies and skills related to the accidents result of our production activity, the risk implementation of new technologies PROJECTED ΅ reduced risk of breakdowns, incidents, of disruptions to the work of production Our goals: and management systems, changes to RESULTS: fires, and emergencies at production facilities due to the impact of climatic ΅ promoting productive employment legislation and the conditions of doing facilities factors, the risk of depletion to the ΅ supporting decent work and fair business in the areas in which we operate, compliance with international ΅ a constant reduction in adverse biodiversity of vulnerable ecosystems working conditions and increased competition for talent. norms and the principles of the environmental impacts (earth, air, affected by our production activity, and ΅ observing labor rights and human rights global initiatives in which the Company participates water), including greenhouse gas risks associated with maritime production ΅ good-faith conduct of our business and The main mechanisms for achieving this emissions, preserving biodiversity, an and deep-water drilling. PROJECTED zero tolerance towards corruption strategic goal and reducing risks are an more efficient social investment increase in the share of products with RESULTS: ΅ assisting in developing society and the effective human resources policy, training improved environmental characteristics, The main mechanisms for achieving this regions in which we operate and skills development programs, social bolstering relationships with a reduction in the level of on-the- authorities at all levels, with public and the development of alternative strategic goal and reducing risks are job injuries ΅ high-quality product standards programs for employees, trade union energies medium-term targeted programs in which agreements, collective agreements with organizations, and with other stakeholders in the countries in ΅ an improved information security target indicators are clearly outlined. the maintenance of safe working The Company acknowledges its employees, agreements with regions, which we operate system and safeguarding data against The list of KPIs for incentives includes conditions responsibility to all stakeholders in the charity programs, and working tirelessly cyber threats the integrated indicator “Ensuring the countries and regions where it operates, to improve the quality of our products a reduction in the rate of and services. emergencies

a reduction in adverse environmental impacts

18 LUKOIL 2017 www.lukoil.com 19 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

IV. Return on equity, recovery of investments, and the continuous creation of shareholder value Structure of sustainability management system Our unique competitive advantages ΅ a progressive dividend policy and a We believe that the principal risks are In 2017 a more clearly structured hierarchy was created to manage issues related to sustainability, from the Board of Directors to form the foundation of this strategy: an balanced distribution of additional factors that may impede the successful LUKOIL Group subsidiary level. extensive resource base, low production funds to shareholders implementation of our strategy. costs for traditional sources of energy, Achieving our strategic goals depends STRUCTURE OF SUSTAINABILITY MANAGEMENT SYSTEM AT PJSC LUKOIL extensive experience in implementing To achieve these goals we will work upon the successful implementation Management level Functions large-scale projects, technical expertise, constantly to improve efficiency, foster of our long-term strategy. Other excellent refining efficiency, and a strong continuous technological development, important factors include employing PJSC LUKOIL Board of Directors ΅ Determines the Company’s business priorities. financial position. and maintain an efficient and flexible best corporate practices and integrating ΅ Aligns and approves the LUKOIL Group’s long- and medium-term strategic development reinvestment policy. the requirements of the investment plans and programs. Our goals: community into the corporate system for ΅ Monitors the attainment of strategic goals and the implementation of the group’s plans and ΅ stable and organic production growth The successful implementation of managing sustainability. targeted programs. based on efficiency and value creation our strategy will allow us to retain our ΅ Determines the general corporate principles and approaches to risk management and the ΅ constantly improving refineries, competitive advantages, continuously organization of internal control systems that are then formalized in the Company’s local maximizing free cash flow, and fostering create shareholder value, and boost the regulatory documents. the development of petrochemistry and Company’s investment appeal. PROJECTED When drawing up and approving plans, budgets, and investment programs the Board of gas chemistry RESULTS: Directors takes into account the need to achieve the goals defined in the Environmental ΅ boosting the efficiency of the sales and We guarantee to provide all our Safety Program, the Human Resources Management Program and Functional Strategy, and stable development across all charity and sponsorship programs. marketing network and developing shareholders with support in relation business sectors priority sales channels to rights established by applicable PJSC LUKOIL Management Committee ΅ Elaborates targeted, medium-term, and annual programs and development plans. ΅ growth in financial indicators and profit Russian legislation and to the Company’s implementation of a progressive ΅ Develops and approves budgets and investment programs. margins obligations arising from its listings of dividend policy and the balanced ΅ Exercises operational control over the implementation of targeted development programs ΅ adhering to a conservative financial securities on the Moscow and London distribution of additional profits to and plans, and approves their results. shareholders policy stock exchanges. ΅ Establishes procedures and norms related to the functioning of the risk management and internal control systems, as formalized in the internal regulations of the Company. ΅ Adopts decisions with respect to the risk management and internal control system. Strategy and Investment Committee of the ΅ Performs the preliminary consideration and elaboration of recommendations to the Board PJSC LUKOIL Board of Directors to determine business priorities for the LUKOIL Group and to develop strategies for their long-term implementation. The LUKOIL Group’s Strategic Development ΅ Elaborates recommendations for the Board to determine priority areas within the Program for Company’s operations. 2018–2027 can be In 2018 we plan to amend the Regulations on the Strategy and Investment Committee of found on the Company’s Sustainability goals and the PJSC LUKOIL Board of Directors, with the goal of strengthening the functions related to website objectives are integrated into sustainability. the Company’s overall business strategy, and their attainment HR and Compensation Committee of the ΅ Prepares proposals for the Board of Directors on developing a corporate HR policy. is ensured as part of the PJSC LUKOIL Board of Directors ΅ Conducts annual performance assessments of the work of the Board and its members. implementation of targeted Detailed information on programs and development plans ΅ Develops and from time to time reviews the Compensation Policy for members of the the risk management, in areas of operating activity Board of Directors, the Management Committee, and the President of the Company; internal control monitors its introduction and implementation. and corporate management systems Health, Safety, and Environment (HSE) ΅ Develops the HSE Policy and approves objectives, targets, and KPIs for LUKOIL Group of PJSC LUKOIL can be found in the Annual Committee of PJSC LUKOIL subsidiaries. Report (available on the ΅ Analyses the effect of HSE initiatives. Company website) ΅ Assesses whether LUKOIL Group operations comply with applicable legislative and other HSE requirements. ΅ Prepares proposals to improve the HSE Management System of LUKOIL Group. “In its operations LUKOIL adheres strictly to the Risk Committee ΅ Coordinates risk management work at the Company. principles of sustainable development and pursues ΅ Designates those responsible for the Company’s material cross-functional risks. goals that ensure a balance between socio-economic and ΅ Elaborates recommendations on issues related to implementing the Risk Management and environment development.” Internal Control Policy at LUKOIL Group.

PJSC LUKOIL President and CEO Working Group on preparing the ΅ Organizes and monitors the writing of the Sustainability Report. VAGIT ALEKPEROV Sustainability Report ΅ Assesses other sustainability-related issues.

20 LUKOIL 2017 www.lukoil.com 21 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Monitoring and assessing operations Monitoring the attainment of is consulted on issues related to of the Working Group on preparing the The Company’s obligations on rights employees, the general public, and the ΅ performing internal and independent sustainability goals and targets on a information disclosure about the Sustainability Report in October 2017 and related to ensuring a favorable environment. audits in the respective lines of day-to-day level is performed in the Company’s sustainability efforts and oversees related business processes. environment and occupational safety are business, including as part of Head Office of PJSC LUKOIL by the how the Report is received by foreign set out in more detail in the HSE policy of supervisory audits of the management directors of structural divisions; in LUKOIL audiences (including UN organizations, Natalia Podolskaya, Corporate Secretary PJSC LUKOIL in the 21st Century. system’s compliance with international The full text of the Group subsidiaries, the heads of each the investment and financial community, of PJSC LUKOIL, and the Office of the ΅ The Company intends to make use of document can be found standards Group subsidiary are responsible for and other stakeholders). Corporate Secretary, participates in all available and practicable measures on the Company’s ΅ performing procedures to assess the sustainability performance. coordinating the preparation of the to prevent accidents, occupational website environmental impacts of production Evgeniy Khavkin, Member of Report and responds to questions from diseases and operational stoppages, projects Mrs. Toby T. Gati, member of the the Management Committee of shareholders and investors about the and to reduce their impact and ΅ feedback channels as part of the PJSC LUKOIL Board of Directors and PJSC LUKOIL, Vice President and Chief Company’s performance related to consequences. Company’s information policy Strategy and Investment Committee of of Staff of PJSC LUKOIL, became Head sustainability. ΅ LUKOIL achieves consistent, ongoing The main mechanisms for monitoring the PJSC LUKOIL Board of Directors, improvements from its current and compliance with human rights comprise: The Company’s human rights activity planned activities, products, and ΅ monitoring compliance with legislative is continually assessed during the services in terms of the impact on its requirements preparation of sustainability reporting. Working Group on preparing the Sustainability Report In October 2017 a Working Group on collecting, preparing, and disclosing the sustainability activity of the preparing the Sustainability Report was reporting information. The Group LUKOIL Group as a whole can also be created (the “Working Group”) with includes the heads of PJSC LUKOIL considered by the Working Group. the aim of enhancing the system for divisions. Issues related to improving Ethics and statutory compliance

In 2017 work continued on implementing legislation, is entrusted to the Working the provisions of the LUKOIL Group Group supporting relations of LUKOIL The full text of the document can be found Antimonopoly Policy approved in Group subsidiaries and the Federal on the Company’s Human rights 2016. The Russian subsidiaries of the Antimonopoly Service of the Russian website Group have developed and adopted Federation (FAS) and its regional As an international company that protection that are enshrined in the human rights principles, including in-house regulations on antimonopoly authorities on issues concerning operates in countries with various UN conventions and the International not using child or forced labor, in compliance, and appointed individuals production and commercial activity. In accordance with the Code of Business political systems and cultural traditions, Labour Organization (ILO). accordance with local legislation. Given responsible for monitoring compliance Conduct and Ethics of PJSC LUKOIL, LUKOIL recognizes the importance ΅ LUKOIL respects the rights of trade the differences between labor law with antitrust legislation. Work has In 2017 the number of violations of the main principles underpinning the of respecting and observing the unions, including rights enshrined in provisions in various countries, we seek been carried out to inform employees antitrust legislation by LUKOIL Group business activity of a LUKOIL Group fundamental human rights declared basic ILO conventions: to mitigate the risks of any potential about the provisions of the LUKOIL subsidiaries declined significantly, entity are zero tolerance towards by the United Nations, including labor ― the right of every employee to human rights violations, including by Group Antimonopoly Policy and the which was related to the consistent corruption in any form or manifestation, rights, the right to a healthy environment, be represented by a trade union establishing unified operating policies need to adhere to these norms in implementation of the LUKOIL Group and compliance with the antitrust and the rights of indigenous peoples and of his/her choice and main trade and standards. In particular, the their day-to-day activities. Monitoring Antimonopoly Policy, as well as the legislation of the countries where the special groups and others. union rights concerning freedom of principles and norms enshrined in the compliance with this document, as well stabilization of law enforcement practice Group operates. association and the right to organize Social Code of PJSC LUKOIL, and also in as other in-house regulations aimed in this area in Russia. In 2017 the corporate policy on human workers into trade unions, and also the Personnel Management Policy, are at preventing violations of antitrust rights was consolidated in a new version the right to collective bargaining binding on all Group subsidiaries. of the Social Code of PJSC LUKOIL. This ― preventing all forms of involuntary or document is based, among other things, forced labor The Social Code of PJSC LUKOIL also COMPLIANCE WITH ANTITRUST LEGISLATION BY LUKOIL GROUP SUBSIDIARIES on the United Nations Global Compact ― the elimination of child labor includes obligations on preserving the 2015 2016 2017 Principles and sets out the Company’s ― support for and ensuring equality national cultural identities of peoples position and voluntary undertakings. of opportunity and relations to living in the regions where the Company Number of completed cases of antitrust legislation violations 15 16 3 ΅ LUKOIL recognizes the importance employees in employment, including operates. Total monetary amount of material penalties for antitrust legislation of observing human rights, and equal pay for women and men for violations, RUB million 14.30 0.70 1.10 undertakes in its activity to be guided work of equal value, and preventing by the provisions of the United Nations discrimination in labor and Note. Administrative fines exceeding RUB 100,000 are considered to be material penalties. The total monetary amount of fines indicator reflects the number of cases completed in the corresponding Universal Declaration of Human Rights. employment The full text of the reporting period, including those commenced in previous years. (The process for considering cases until the issue of the final decision can take varying periods of time.) document can be found ΅ The Company seeks to uphold on the Company’s the fundamental principles in In the regions where the Company website labor relations and environmental operates we comply with all respective

22 LUKOIL 2017 www.lukoil.com 23 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Stakeholder engagement

In its operations LUKOIL engages with a account their expectations and positions ΅ achieving long-term, sustainable, and wide range of organizations and private on various issues. Key stakeholder efficient development individuals (stakeholders), with whom the engagement principles1 comprise: ΅ transparency of operations and Company strives to establish successful ΅ partnership with the state and society openness of information long-term relationships, taking into

STAKEHOLDER ENGAGEMENT, 2017

STAKEHOLDERS EVENTS IN 2017 ISSUES RELATED TO PARTICIPATION STAKEHOLDERS EVENTS IN 2017 ISSUES RELATED TO PARTICIPATION State and municipal legislative and executive authorities The International Labour Organization Registration in the 10th European regional meeting of Recognition of fundamental labor The Ministry of Natural Resources and Signing a Trilateral Agreement on Collaboration. Plan for measures to reduce negative (ILO), representatives of governments, the ILO. principles and rights; the impact of Environment of the Russian Federation, environmental impacts in the Year of Preparing suggestions for drafts of industry guides on employers, and employees. Participation in the third international conference the economy on the labor market and The Federal Supervisory Natural the Environment in Russia. best available technologies. on the training and development of local staff in the position of hired laborers; and the Resources Management Service. international companies (Uzbekistan). migration of labor resources. The Ministry of Energy of the Russian Participation on an ongoing basis as part of the Updating the existing regulatory Local communities Federation Working Group on issues related to the technical framework with regard to technical regulation of oil and gas industry operations. regulations. Administration of Tyumen Region, Signing a roadmap to implement the project Interaction with local enterprises. enterprises of the region. “Expansion of the use of the products and The Ministry of Industry and Trade of the Participation in working meetings and groups. Developing technologies for working in Technologies for developing difficult-to- technologies of the enterprises of Tyumen Region”. Russian Federation. the Russian Arctic. recover hydrocarbon reserves. Participation at the 8th Tyumen Oil and Gas Forum. Preventing the illegal trade of products in the oil industry. Supervisory authorities of the constituent Participation in the Coordinating Council on the Results of the Year of the Environment entities of the Russian Federation. Environment in Khanty-Mansi Autonomous Area – in Khanty-Mansi Autonomous Area – Federal Agency for Ethnic Affairs. Signing a cooperation agreement in the area of the Creating joint working bodies on issues Yugra. Yugra. socioeconomic and cultural development of the related to the indigenous peoples of indigenous peoples of the North living in regions the North; developing programs to International and national organizations. Participation in the work of the 16th session of the UN Experience in developing responsible where the Company operates. safeguard their rights. Permanent Forum on Indigenous Issues. relations with indigenous peoples of North in Russia. Federal Agency for Technical Regulating Participation in meetings and other events, submitting Methods for monitoring the quality of and Metrology (Rosstandart). proposals. automobile fuel. Industry associations. Standing participation in the work of the interagency Amendments to Technical Regulation industry working group to combat the illegal sale TR TS 013/2011 “On Requirements on The Ministry of Labor and Social Protection Participation in the Working Group on safeguarding Considering over 20 draft regulations of oil industry products of the Russian Union of Automotive Gasoline and Aviation Fuel, of the Russian Federation. labor rights, health, safety, and the environment of related to occupational safety. Industrialists and Entrepreneurs (RUIE). Diesel and Marine Fuel, Jet Engine the Russian Trilateral Commission on regulating social Fuel, and Fuel Oil”. and labor relations. International environmental organizations, Roundtable “Modern Environmental Protection Ensuring industrial and environmental The Presidential National Council for Participation in meetings and other events, submitting Elaborating and implementing a system members of the State Duma of the Russian Approaches During the Development of Maritime safety during the development of Professional Qualifications, the Ministry of proposals. of professional standards. Federation and members of the European Deposits in the Baltic Sea”. maritime fields in the Baltic Region. Labor and Social Protection of the Russian Parliament, oil and gas companies. Federation, the National Agency for Qualification Development. Heads of government, executive and Introducing the Environmental Security Program in System for ensuring environmental legislative authorities, international public Norway, Uzbekistan, and Kazakhstan. security. Technologies for working Shareholders and investors organizations. safely on the continental shelf in an Investment banks and ratings agencies. Trips to the V. Filanovsky field by stakeholder Quality of production assets. Arctic climate. representatives. The Komi Republic Administration, Joint meeting between LUKOIL President and CEO Results of work to eliminate the All investment and financial organizations Meeting with senior executives of the Company (in Improved interaction and the exchange environmental organizations, residents Vagit Alekperov and the Komi Republic Head Sergey consequences of an incident at the and individual investors. October 2017 in London to mark the 15th anniversary of information. of the Shchelyabozh and Kushshor Gaplikov. Visits of representatives from Russian and A. Alabushin field. of the LSE listing). Teleconferences involving senior communities. international environmental organizations. Meetings executives. with the residents of local communities. ESG analysts and agencies managing Transitioning, starting in 2017, to the annual release of The integrity and timeliness of non- International oil and gas companies and 21st International Exhibition and Conference ”Oil and Ensuring environmental security and assets. a Sustainability Report, widening the reporting scope. financial reporting and sustainability the industry’s expert community. Gas of Uzbekistan”. maintaining biodiversity. Issuing press releases on the most salient data. The Company’s management Astana Economic Forum: New Energy – New Action plan to preserve the sustainability related events. system in this area. Economy. biodiversity of the Khauzak-Shady area Increasing information on sustainability in public (Uzbekistan). databases and specialized analytical reports. Employees and trade unions

1 These principles are set forth in the Social Code of PJSC LUKOIL.

24 LUKOIL 2017 www.lukoil.com 25 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

State and municipal legislative and a regular basis to representatives of the Suppliers and contractors. The LUKOIL executive authorities. LUKOIL engages investment and financial community, supply chain comprises subsidiaries with actively with legislative and executive using various channels, and to react diverse types and scales of operation authorities of the Russian Federation promptly to incoming queries. – major corporations, small- and at all levels. PJSC LUKOIL and LUKOIL medium-sized enterprises, individual Group entity experts take part on an Employees and trade unions. Social entrepreneurs, and social entrepreneurs. “For many years, LUKOIL has ongoing basis in the drafting of laws and partnership forms the basis of the We are open to collaboration and offer consistently integrated the principles of expert reviews of legislative initiatives Company’s relationships with its equitable and competitive terms that Key international projects, programs, corporate social responsibility into its (including assessing the regulatory employees and trade unions. The are designed to facilitate an unbiased and initiatives in which the LUKOIL business model. Joining the European effects of draft laws and the actual Company has built a social partnership and effective selection of suppliers and Group/PJSC LUKOIL participates effects of current statutes) and in the system based on agreements between contractors in key areas of our activity. Business Network for Corporate Social work of consultative groups and expert employer, trade unions, and employees. Responsibility is an extraordinarily forums, discussing issues that are topical The key social partner of the Company Local communities. Social investment important step for us, which will help for the oil and gas industry of the Russian is the International Association of Trade programs are implemented in constant the Company integrate more deeply Federation. Union Organizations of PJSC LUKOIL. contact with stakeholders, including local The European Business Network for Corporate Social Responsibility authorities and municipal and public into the global and European business Shareholders and investors. Our Consumers. The consumers of our organizations. Significant attention is community. We are delighted to become a investors are Russian and foreign products are private individuals and paid to interacting on environmental part of this organization, and will gladly legal subsidiaries and individuals large organizations operating in various protection issues with the environmental The World Bank and the UN initiative, join in the discussion and exchange of Zero Routine Flaring by 2030 pursuing various investment strategies. sectors of the economy. LUKOIL provides community and the residents of the information on such a high level.” We consider the following to be its clients with high-quality products and regions in which we operate. stakeholders: investment funds and services, developing innovative products GLEB OVSYANNIKOV, individual investors, investment that take into account the requirements LUKOIL is also a participant, organizer, The United Nations Global Compact Head of the Public Relations Department banks, financial media, professional of regional markets and the individual and sponsor of forums, single-topic participants on the securities market needs of consumers. Our goal is to conferences, roundtables, and other (brokers and traders), industry analytical reinforce our reputation as a responsible events. agencies, exchanges, rating agencies and reliable producer and supplier of The UN Development Program in Russia “Mainstreaming Biodiversity Conservation Into and information agencies, as well as energy and other products. We devote Russia’s Energy Sector Policies and Operations” non-profit organizations that provide great attention to the energy efficiency analytical and research services of our products, which allows clients to “We welcome LUKOIL to our ranks, and related to sustainability. We constantly reduce their energy consumption and expect that the Company will continue The Carbon Disclosure Project (CDP) strive to raise the level of information mitigate adverse environmental impacts. to steadfastly adhere to the principles of transparency, to furnish information on sustainability in all its operations.”

The Cooperation agreement for 2018–2022 between STEFAN CRETS, the International Labour Organization Executive Director, European Business Network and PJSC LUKOIL for Corporate Social Responsibility

Supply chain in accordance with the Regulations on Each year LUKOIL purchases a In 2017 the share of domestic Holding Tenders to Select Suppliers large volume of goods, work and suppliers of centralized and Contractors of LUKOIL Group services, and does business with material and technical Subsidiaries (“Regulations”). A contract a large number of companies. The resources purchased by is concluded with the organization that Company’s procurements help maintain the Russian subsidiaries of wins the tender, which together with and increase the number of jobs in LUKOIL Group stood at 94%, applicable legislation serves as the basis various economic sectors, and ensure in terms of both the number of for the further regulation of relations the mobility of financial capital, thus suppliers and the total amount between both parties. stimulating economic activity. of purchases in Russia. If the subject of the tender stipulates the need to review the health, safety, and As a rule, goods, work and services are environment management system of purchased through open tenders, with applicants, the experts of PJSC LUKOIL mandatory competitive public bidding and its subsidiaries perform a for the subject of the tender. Suppliers comprehensive assessment, on the basis of goods, work, and services are chosen of the corporate document “Procedure

26 LUKOIL 2017 www.lukoil.com 27 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

for Assessing the Health, Safety, and the working time standards of their Under the terms of signed contracts, ΅ creating a unified data system from pumps) and countermeasures against from refinery to end user. The system Environment Management of Entities employees, and on provision of housing all suppliers and contractors accept the refinery to the tank farm, in order the distribution of counterfeit products is being further developed through Wishing to Participate in a Tender”. and social services to employees. an obligation to comply with the to reduce the number of stationary (including such measures as turnover- the use of tanker trucks equipped This procedure reviews the availability Regulations, confirming their consent laboratories (pilot projects are already based fines and public controls) with an automated management of required licenses, employees with If a comprehensive assessment with a signature, and also to abide by the in place at LUKOIL-Volganefteprodukt system called “Guaranteed Delivery the necessary qualifications, and the determines any non-compliance with legislative and corporate standards set and LUKOIL-Permnefteprodukt) The corporate automated management of Petroleum Products”, the more technical capabilities and technologies of corporate requirements, suppliers are forth in the HSE policy of PJSC LUKOIL ΅ participating in the work of government system, which covers all filling stations widespread application of multifunctional potential contractors. For certain types of not admitted to the tender. in the 21st Century and other corporate and industry organizations on issues as well as the vast majority of tank spectrometric analyzers, infrared-range purchasing, applicants undergo technical standards. related to petroleum product quality farms in Russia (and is also installed at quality indicators for petroleum products, audits. In 2017, reviews of the conditions of controls (including a tracking system facilities in Serbia and Romania), features and introducing reporting as part of the the health, safety, and environment The Company continuously monitors the to prevent fraudulent transactions at the electronic tracking of products Business Intelligence approach3. As part of tender procedures, applicants system were performed on 2,227 tender activity of contracting organizations for also provide information of a social participants (38% of the total number). compliance with these requirements. nature, specifically on compliance with BREAKDOWN OF LUKOIL GROUP FILLING STATIONS BY COUNTRIES AS OF THE END OF 2017

Total 5,258 Product quality assurance Russia 2,609 Europe 2,155 LUKOIL Group subsidiaries sell an Certificates confirming that quality LLK-International began preparations extensive range of products that are management systems comply with for recertification, taking into account Countries of the former Soviet Union 247 used in various industrial sectors and by ISO 9001 standards are held by 10 the new requirements stipulated by The USA 247 vehicle owners in Russia, Europe, Asia, organizations working in aircraft ISO 9001:2015 and IATF 16949:2016. and America. Our priorities are oriented refueling, as well as by facilities towards consumer expectations and to that produce the oils and lubricants Note. Data include information on stations owned by the LUKOIL Group, leased stations, and franchised stations, as well as filling stations mothballed and transferred under leases (situation as of 31 December 2017). constantly improving our quality control of LLK-International. In 2017, management methods. The main mechanisms used to engage The following methods are used to ΅ implementation of the Service Book – with consumers comprise: The LICARD improve the quality of services at filling a corporate approach to standardizing PRODUCT SALES, 2017 Unified hotline, the Secret Customer stations: the activity of petroleum product supply program, Event Monitoring software ΅ implementing targeted programs, such organizations Type of product 2015 2016 2017 (CMIS), and an analytical extension for as the Renovation program for filling ΅ developing the LUKOIL-Inter-Card Premium ECTO fuel, thousand tonnes 5,802 7,535 8,554 the Petronix CMIS called “Monitoring the stations on federal highways and in (LICARD) System Bunker fuel, thousand tonnes 2,549 3,347 4,539 Work of Filling Stations and Tank Farms” regional centers, 2017–2020 (at LUKOIL-Tsentrnefteprodukt). We also ΅ the transitioning of oil supply Aircraft refueling, thousand tonnes 2,875 2,747 3,238 analyze the results of inspections by companies to responsible maintenance Branded oils, thousand tonnes 444 515 585 state and municipal authorities, as well as of facilities Biofuel blends1, million liters 4,014.4 4,246.2 4,174.0 LUKOIL’s internal audit function.

Ensuring the quality of oils and lubricants Ensuring the quality of motor fuels A key element within the lubricant quality All suppliers of raw materials and The monitoring of consumer satisfaction We believe it is our duty to maintain at Our goal is to ensure complete and ΅ having in place a system of safety control system is the regular audit of consumables have to undergo a with oils and lubricants is performed all stages, from production to consumer, timely monitoring of the release and requirements for the transportation of LUKOIL refineries by clients which are precise assessment in accordance three times a year through the the quality of our fuels at the standards acceptance of petroleum products in the petroleum products and their sale at leading automobile manufacturers with applicable corporate standards4. distribution of a Production Satisfaction prescribed by the technical regulations Transneft and Russian Railways transport filling stations (for example General Motors, Ford, A quality record sheet is created for each Questionnaire. In 2017 the average and standard production documents. In systems, and that they are properly ΅ building and optimizing the petroleum Volkswagen, and Renault-Nissan), lot of finished product. Feedback on satisfaction level of respondents in addition, the subsidiaries of the LUKOIL received, stored, and sold at LUKOIL product testing structure, and analyzing during which assessments are made of product quality is received from dealers, Russia was 88%. Group that supply petroleum products tank farms and filling stations. The main the option of using NIR-spectroscopic the quality of products as well as the customer services, and the commercial are governed by respective corporate measures taken to achieve this include: multifunctional analyzers for real-time efficiency of production processes. unit. Data is analyzed at monthly Quality standards and guidelines2. monitoring Day meetings, and is also recorded in summary analysis reports for the quality management system.

1 Assuming an automotive gasoline density of 0.755 kg/l and diesel of 0.845 kg/l. Biofuel blends are understood to mean blends of motor gasoline and ethanol (up to 10%), or diesel fuel and the 3 Business Intelligence approach – a concept of working with information using automated tools, which is oriented towards achieving a maximum efficiency of operations and a consistency in final methyl ethers of fatty acids. These products are sold in European countries (Belgium, the Netherlands, Romania, Italy, Bulgaria, and Turkey). processing and analysis results.

2 For example, LUKOIL technical standard 1.24.1-2016 Motor Fuels. ECTO Automotive Fuel, the Methodological Guidelines on Maintaining the Quality of Petroleum Products during Reception, Storage 4 SP LLK 11-2016 Assessment Procedure For Suppliers of Materials and Services. and Release at LUKOIL-Uralnefteprodukt.

28 LUKOIL 2017 www.lukoil.com 29 LUKOIL GROUP SUSTAINABILITY REPORT 2017 Climate change Climate-related 32 risks Target 7.2. By 2030, increase substantially the share of renewable energy in the global energy mix.

Target 7.3. By 2030, double the global rate of improvement in energy efficiency. Impact 33 assessment

Utilization of 34 associated Target 9.4. By 2030, upgrade petroleum gas infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking Investments in action in accordance with their 35 renewable energy respective capabilities.

Target 9.5. Enhance scientific research, upgrade the technological capabilities of industrial sectors in all countries, in particular developing countries, including, by 2030, encouraging Energy efficiency and innovation and substantially increasing 36 energy conservation the number of research and development workers per 1 million people and public and private research and development spending.

Target 13.1. Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries.

30 LUKOIL 2017 www.lukoil.com 31 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Through their operations energy companies create significant amounts of Impact assessment greenhouse gas emissions, which can affect the climate and lead to the emergence of risks that are significant for a wide range of stakeholders. Climate The concept underlying the system for At the same time, we are making Total direct (Scope 1) greenhouse gas monitoring, reporting, and verifying the improvements to the corporate system emissions by LUKOIL Group subsidiaries change may present a threat to the lives and health of the people, flora, and volume of greenhouse gas emissions for tracking and managing greenhouse in Russia in 2017 stood at 31.14 million 2 fauna of the planet, and hence we share worldwide concerns over this topic. in the Russian Federation involves gas emissions. This issue is closely tonnes of СО2-equivalent, which was the implementation of standardized scrutinized by corporate governance 0.5% less than the same indicator in 2016

calculation methods. LUKOIL plays an bodies. (31.28 million tonnes of СО2-equivalent). active role in shaping the statutory and LUKOIL is making concerted efforts to regulatory framework in this area, puts In 2016 calculations of direct (Scope 1) Total direct greenhouse gas emissions more accurately determine the scale of forward suggestions, and discusses and greenhouse gas emissions were made from LUKOIL’s foreign oil refineries stood Target 7.3. Group entities’ impacts on the climate, assesses the current methodologies using the methodology of The Ministry of at 6.5 million tonnes of СО2-equivalent, to create long-term goals to mitigate By 2030, double the global rate of improvement being developed. Natural Resources and Environment of a 4% drop from 2016 levels. impacts, and to assess the amount of in energy efficiency. the Russian Federation3. investment needed to attain these goals. Target 13.1. Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries. SPECIFIC DIRECT (SCOPE 1) GREENHOUSE GAS EMISSIONS BY RUSSIAN SUBSIDIARIES OF LUKOIL GROUP 2016 2017

Oil and Gas Production, tonnes of СО2-equivalent/tonnes of reference fuel of produced hydrocarbons 0.108 0.088

Oil Refining, tonnes of СО2-equivalent/tonnes of processed raw stock 0.173 0.209 Petrochemicals, tonnes of СО -equivalent/tonnes of processed raw stock 0.352 0.370 Climate-related risks 2

Product Marketing and Distribution, tonnes of СО2-equivalent/tonnes of sold petroleum products 0.001 0.001 Risks associated with climate change are industrial production. European Union reduce the LUKOIL Group’s greenhouse Midstream, tonnes of СО -equivalent/tonnes of transported oil and petroleum products 0.004 0.004 gaining increasing attention, both from countries have set a goal to reduce gas emissions wherever possible. 2 Electric Power Engineering, tonnes of СО -equivalent/MWh of generated electricity and heat 0.339 0.332 governments and the investment and greenhouse gas emissions by at least 2 financial communities. 20%1 by 2020, chiefly by transitioning There are dedicated programs in place from fossil fuels to renewable sources of to reduce the flaring of associated

energy. petroleum gas (APG), to develop DIRECT (SCOPE 1) GREENHOUSE GAS EMISSIONS BY FOREIGN OIL REFINERIES, million tonnes of СО2-equivalent. green energy based on renewable LUKOIL Group subsidiaries 2016 2017 Systemic climate-related risks LUKOIL takes climate change risks energy sources, and to improve overall include physical damage to into account when determining the energy efficiency. We believe that LUKOIL Neftochim Burgas AD (Bulgaria) 1.9 2.1 production assets as a result Integrated Scenario Conditions (ISC), effecting general improvements to ISAB (Italy) 4.4 4.0 of severe weather problems which are used to develop its strategy, business processes and making timely or natural disasters; transition assess investment projects, and create adjustments to the consumer basket PETROTEL-LUKOIL S.A. (Romania) 0.4 0.4 risks (in the transition to a annual and medium-term plans. The and staying abreast of changes in the Total for foreign oil refineries 6.7 6.5 low-carbon economy), risks ISC baseline factors in the impacts of operational environment are equally associated with a reduction Paris Agreement goals on the global important tasks. Looking ahead to in demand for traditional balance of primary energy consumption. the wider use of electric cars, we are products, as well as legal and The fuel efficiency of cars is expected installing charging stations at our filling regulatory risks, etc. to rise in the largest economies over stations and have signed a partnership In the past four years LUKOIL has the medium term, electric and natural agreement with Gazprom on expanding participated in the international Source of information: gas vehicles will come more to the the use of natural gas vehicle (NGV) fuel. Carbon Disclosure Project (CDP), International Environmental Law Committee fore, and the use of renewable energy gradually expanding the list Newsletter sources will continue to grow. In of information provided as the order to assess risks and to test the corporate system for recording sustainability of the Company’s strategy, greenhouse gas emissions Our medium-term goal is to reduce by improves. The connection between global warming we also developed a scenario which 2020 greenhouse gas emissions by and greenhouse gas emissions is still a envisages an accelerated reduction in 1.2% compared to the 2016 level. We topic of discussion within the scientific the consumption of hydrocarbons in the will accomplish this chiefly through 2 Russian Government Directive No. 716-r dated 22 April 2015. community, but most global initiatives transportation sector. measures to boost the utilization of 3 Ministry of Natural Resources and Environment of the associated petroleum gas, energy (including UN initiatives and programs) Russian Federation Order No. 300 dated 30 June 2015. are based on the conclusion from We monitor and analyze business conservation programs, and the use of scientific studies that global warming is trends related to climate change, and alternative energy sources. tied to industrialization and growth in implement programs and projects to

1 Compared to the 1990 level.

32 LUKOIL 2017 www.lukoil.com 33 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Utilization of associated Investments in renewable energy petroleum gas

APG utilization and achieving a reduction in its flaring are priority areas of our environmental policy. Significant Target 7.2. investments have been made to resolve By 2030, increase this issue as part of the Group’s Efficient substantially the share “Today, LUKOIL is a standard bearer for oil industry APG Use Program. of renewable energy enterprises in the Volgograd Region when it comes to in the global energy mix resolving environmental issues.” In 2017, over RUB 15 billion was allocated to the construction and renovation of A. BOCHAROV, APG treatment, transport, and refining Volgograd Region Governor facilities and for generating electricity Through the construction and and heat in Russia (2016: RUB 24.2 commissioning of new APG billion). In 2017, the program’s most utilization facilities in 2017, the For more than 10 years we have been In line with its RES policy, LUKOIL equipment, optimize operating practices, capital-intensive measures were in their total volume of APG flaring for developing state-of-the-art generation commissioned a 10-MW photovoltaic and improve the reliability of LUKOIL- final stages. the LUKOIL Group was almost technology based on renewable energy power station (“solar park”) in January Ekoenergo power facilities. One of the halved compared to 2016, and sources (RES). Our projects promote 2018 at the oil refinery in Volgograd, most important projects in this regard is LUKOIL’s Russian oil and gas In 2017, the commissioning of 17 facilities production subsidiaries achieved reduced consumption of non-renewable which resulted in a doubling of the the refurbishment of the Belorechensk was performed as a part of the Group’s a utilization rate of 95.2%. types of fuel, thereby decreasing the installed capacity of the Company’s solar Hydroelectric Station. The complete Efficient APG Use Program for 2017– level of greenhouse gas emissions. We power facilities. replacement of hydroelectric units No. 1 2019, including the renovation of the analyze previously gained experience and No. 3, with a rise in installed capacity Usinsk Gas Processing Plant and the and widen its application in countries that The Industry Program for Developing from 16- to 24-MW each, will make it commissioning of the Yarega power support such projects at a national level. the Power Engineering Business Sector possible to extend the service life of generating center in the Komi Republic. for 2018-2027 includes proposals on the hydroelectric station by at least 40 The LUKOIL Group’s RES goals are: the construction of new solar parks on years and to improve the cost-efficiency ΅ business diversification through unused sites at oil refineries in Saratov and reliability indicators of electricity implementing projects using the state and Volgograd. Wind farm construction generation. support system for renewable energy projects may also be considered in the in Russia (a mechanism for concluding future. The appearance of localized To develop alternative energy sources capacity supply agreements with a facilities for the production of major in Russia, and to ensure that the industry guaranteed return on investment1) equipment in Russia will enable us to can benefit from human resources with TOTAL APG (HYDROCARBON) FLARING, thousand cubic meters ΅ preventing greenhouse gas emissions play a more active role in RES projects. the required level of qualifications, from power generation facilities LUKOIL assisted in setting up a 2015 2016 2017 ΅ keeping up with global RES trends In 2017, in terms of the development specialized renewable energy sources Total for LUKOIL Group, including: 957,838 952,473 574,867 of hydroelectric power, measures have department at Gubkin Russian State Oil & Russian subsidiaries of LUKOIL Group 900,161 937,555 555,327 been taken to repair and upgrade Gas University. Foreign LUKOIL Group subsidiaries 57,678 14,918 19,540 TOTAL VOLUME AND SHARE OF ELECTRICITY GENERATED FROM RENEWABLE SOURCES, million kWh

2015 2016 2017 The Group’s Efficient APG Use Program retrofitting of the compressor station The program covers a three-year period, for 2018-2020 was approved in 2017. A at the Yu. Korchagin field (LUKOIL- and will be updated annually. The Total electricity generated from RES, including: 651.7 977.1 1,053.2 number of measures are planned under Nizhnevolzhskneft), and the construction effectiveness of the measures taken is Wind power 0 200.8 228.5 this program, including the refurbishment of a multiphase pump station (MPS) at assessed through internal and external of the Kokuy Gas Compressor Station the A. Alabushin field and thermal power audits. Plans are revised based on the Solar power 12.7 11.5 12.0 and the construction of a power plants at the Usinskoye field (LUKOIL- results of analyzing performance targets Hydroelectric power 639.0 764.8 812.8 generation center at the Chashkinskoye Komi). achieved. Total electricity generation by LUKOIL Group commercial power generation field (LUKOIL-PERM), the technical facilities (regardless of supply power generation) 17,775.6 18,315.2 17,551.9 Share of electricity generated from RES in total electricity generated (regardless of supply power generation) 3.7 5.3 6.0 APG UTILIZATION RATE, %

2015 2016 2017 Note. Data on electricity generated through wind power in 2015 were not considered, as the wind farm was part of the LUKERG Renew JV. Total for LUKOIL Group, including: 92.0 92.1 95.4 In 2017 we changed our approach to calculating the share of electricity generated from the RES indicator. The total amount of electricity generated by all commercial generating facilities of LUKOIL Group, net of supply power generation, serves as the basis for the calculation of the indicator. Russian subsidiaries of LUKOIL Group 91.9 91.7 95.2 Foreign LUKOIL Group subsidiaries 93.5 98.1 97.6 1 In 2013 the Russian Federation introduced a support mechanism for RES projects through the conclusion of capacity supply agreements (CSA RES), which offer a special rate for capacity, provided that obligations on the construction of the facilities are met. Requirements related to the localisation level of RES project equipment were approved: solar parks – 70%, wind farms – 65%, small hydro power plants – 65%.

34 LUKOIL 2017 www.lukoil.com 35 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

The energy conservation program ΅ Electricity: about 280 million kWh Program measures were performed in SHARE OF INCOME RECEIVED FROM THE benchmarks for LUKOIL Group ΅ Heat: about 330 thousand Gcal full in 2017, and planned consumption SALE OF ELECTRICITY FROM RES IN THE subsidiaries in Russia up to 2020 ΅ Boiler and furnace fuels: about benchmarks and fuel and energy savings TOTAL INCOME RECEIVED FROM THE SALE comprise energy savings covering a total 360 thousand tonnes of reference fuel were met. INVESTMENTS IN RES DEVELOPMENT1, OF ELECTRICITY GENERATED BY LUKOIL of three years (from 2018 to 2020), and RUB million GROUP POWER GENERATION FACILITIES, % consisting of:

ENERGY SAVINGS FROM IMPLEMENTATION OF THE ENERGY CONSERVATION PROGRAM OF LUKOIL GROUP SUBSIDIARIES IN RUSSIA 500 486.50 10 8.5 2015 2016 2017 400 8 6.8 Electricity, million kWh 108 82 66 300 250.74 6 4.1 Heat, thousand Gcal 168 57 186 200 149.04 4 100 2 Boiler and furnace fuels, thousand tonnes of reference fuel 49 76 181

0 0 Financial savings, RUB million 764 708 1,185 2015 2016 2017 2015 2016 2017

1 Data for 2017 relate to LUKOIL-Ekoenergo and LUKOIL-Volgogradenergo.

Target 9.4. Energy efficiency and energy conservation Target 9.5. By 2030, upgrade infrastructure Enhance scientific research, upgrade the technological capabilities of industrial sectors in all countries, in particular and retrofit industries to make Increasing energy efficiency, including LUKOIL Group organizations have developing countries, including, by 2030, encouraging innovation and substantially increasing the number of them sustainable, with increased through lowering fuel and energy adopted an energy management research and development workers per 1 million people and public and private research and development spending. resource-use efficiency and resource consumption, is a key system based on international standard greater adoption of clean component of our overall efforts to ISO 50001:2011, and are elaborating and and environmentally sound improve operating efficiency and a implementing measures to boost energy technologies and industrial critical factor in the maintenance of the efficiency and energy conservation. In processes, with all countries taking Energy saving technologies Company’s competitive edge in our 2017 the energy management systems action in accordance with their rapidly changing world. of 26 LUKOIL Group organizations had respective capabilities. The LUKOIL Science and Technology for oil production, which are capable of production enterprises was approved certificates on the ISO 50001 standard. Complex develops technology providing energy savings of up to 24%. in 2017, with respective oil production and equipment that is designed to The end-to-end cycle, from initial idea to energy savings expected to exceed improve the energy efficiency of serial production, took around 20 years. 10%. The equipment will be supplied not TOTAL ENERGY CONSUMPTION OF LUKOIL GROUP SUBSIDIARIES production processes. An example only to LUKOIL subsidiaries, but also to in this regard is the development of The strategy for replacing asynchronous domestic and international markets. 2015 2016 2017 submersible brushless electric motors motors with brushless motors at oil Industrial electricity consumption, billion kWh 20.2 20.8 20.9 Industrial heat consumption, million Gcal 16.4 20.7 23.5 Energy-efficient products Industrial consumption of boiler and furnace fuels, million tonnes of reference fuel 7.7 8.3 9.5 Increased energy efficiency requirements LUKOIL is constantly improving both its motor oils) has improved fuel efficiency Industrial energy consumption of LUKOIL Group subsidiaries (total energy consumption within on the part of consumers and a reduction consumer basket and the formulae of its characteristics: test results have shown that the organization)2, million tonnes of reference fuel 13.9 14.5 15.6 in emissions of pollutants and greenhouse products. For example, the new product their use reduces fuel consumption and, gases have become noticeable trends on line (including ECTO-100 motor oil and consequently, air emissions. the fuels and lubricants market. LUKOIL Genesis Glidetech synthetic 2 Total energy consumption within the organization = consumption of non-renewable types of fuel + electricity and heat purchased for consumption. The consumption of non-renewable types of fuel = consumption of boiler-furnace fuels (takes into account fuel consumption for electricity generation and domestic heat). Electricity and heat sold to external consumers are not included in productive consumption and are taken into account separately. Electric car infrastructure

Energy conservation program The wider use of electric vehicles is seen been identified, including converting integrated into the MOESK-EV network. in various countries as a potential way filling stations into client-focused Another project was implemented at a The energy conservation program of conservation measures include a the specific consumption of energy of reducing greenhouse gas emissions facilities. Options and conditions for filling station in Krasnodar Krai. LUKOIL Group subsidiaries in Russia reduction and/or containment of resources in production, oil refining, and and pollutants. LUKOIL has analyzed the installing charging stations at the for 2018 and 2019-20203 is intended growth in the share of energy costs petrochemistry, as well as in the sale of potential of and limitations on expanding Company’s filling stations have been As of 2017, over 10 charging stations to boost the energy efficiency of the in total production costs, as well as petroleum products and electricity and the infrastructure for electric cars, with considered, and the first projects are for electric cars had been installed at industrial activity. The goals of energy a reduction and/or containment of heat generation. due consideration of the experiences under way. LUKOIL filling stations, with a number of of developed countries in this regard, similar projects in the pipeline for the as well as the dynamics of the fleet In 2016, in the Krasnogorsk District of Moscow Region, the Perm Territory, and 3 The energy conservation program of LUKOIL Group subsidiaries covers Russian oil and gas production, oil and gas refining, petrochemical, power engineering, petroleum product marketing and of electric and hybrid cars used by the Moscow Region, a charging station the south of Russia. distribution and transportation subsidiaries. The energy conservation programs of foreign assets are not included in the corporate program. The energy efficiency of foreign assets is monitored as part of the assessment and approval of investment projects. consumers. Promising solutions have was installed at a LUKOIL filling station

36 LUKOIL 2017 www.lukoil.com 37 LUKOIL GROUP SUSTAINABILITY REPORT 2017 Environmental protection and LUKOIL in the Year of the Environment 40 in Russia Target 6.3. By 2030, improve water quality Target 8.4. Improve progressively, Target 14.1. By 2025, prevent and by reducing pollution, eliminating dumping through 2030, global resource efficiency significantly reduce marine pollution of occupational and minimizing release of hazardous in consumption and production and all kinds, in particular from land-based chemicals and materials, halving the endeavor to decouple economic growth activities, including marine debris and proportion of untreated wastewater and from environmental degradation. nutrient pollution. Improving the substantially increasing recycling and safe safety Target 8.8. Protect labor rights and Target 14.2. By 2020, sustainably 43 management system reuse globally. promote safe and secure working manage and protect marine and coastal Target 6.4. By 2030, substantially increase environments for all workers, including ecosystems to avoid significant adverse water-use efficiency across all sectors and migrant workers, in particular women impacts, including by strengthening ensure sustainable withdrawals and supply migrants, and those in precarious their resilience, and take action for their of freshwater to address water scarcity and employment. restoration in order to achieve healthy Environmental substantially reduce the number of people and productive oceans. 44 safety program suffering from water scarcity.

Target 6.5. By 2030, implement integrated water resources management at all levels, including through transboundary cooperation as appropriate. 44 Water use Target 11.7. By 2030, provide universal Target 15.1. By 2020, ensure the access to safe, inclusive and accessible, conservation, restoration, and green and public spaces, in particular for sustainable use of terrestrial and women and children, older persons and inland freshwater ecosystems and their persons with disabilities. services. Managing Target 15.2. By 2020, promote environmental the implementation of sustainable 49 impacts management of all types of forests, halt deforestation, restore degraded forests, and substantially increase afforestation and reforestation globally. Target 15.5. Take urgent and significant Biodiversity Target 12.4. By 2020, achieve the action to reduce the degradation 52 conservation environmentally sound management of of natural habitats, halt the loss of chemicals and all wastes throughout their biodiversity and, by 2020, protect and life cycle, in accordance with agreed prevent the extinction of threatened international frameworks, and significantly species. reduce their release to air, water and soil in Ensuring the order to minimize their adverse impacts on integrity of human health and the environment. 55 production facilities Target 12.5. By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse.

Employee health 60 and safety

38 LUKOIL 2017 www.lukoil.com 39 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

LUKOIL in the Year of the Environment in Russia

The Russian Federation declared 2017 the Year of the Environment. LUKOIL and its subsidiaries were actively involved in this initiative, and held more than 100 events in the federal districts of Russia in which our enterprises operate. Reflecting our active role, LUKOIL projects were given a special award by the Ministry of Natural Resources and Environment of the Russian Federation.

Key environmental protection measures plan During preparations for and the ΅ a special site for oil production implementation of the Year of the waste utilization was built in the Komi Environment, the Russian Government Republic, in accordance with legislative approved a National Plan of Key requirements1 Environmental Protection Measures. ΅ a training exercise was held to simulate A number of LUKOIL ideas were oil spill response times in icy conditions incorporated into this document and in the area surrounding the Varandey a trilateral Cooperation Agreement Terminal was signed as part of the Year of the ΅ trainings were held on the rescue of > 100 Environment between the Ministry of animals affected by oil spills Natural Resources and Environment ΅ a project to introduce a marine measures of the Russian Federation, the Federal environment quality management carried out in Russian Supervisory Natural Resources system at LUKOIL-Nizhnevolzhskneft federal districts Management Service, and LUKOIL. The deposits in the Caspian Sea for Company performed all its agreed upon the period up to 2020 is being obligations in 2017. implemented; interim results were ΅ the Usa and Yarega power generating presented at the Caspian Day event in centers were built in the Komi Republic Astrakhan in August 2017

Elimination of accumulated environmental damage in the Arctic LUKOIL supported a campaign of than 100 soil, water, and vegetation the government of Yamal-Nenets samples were taken for further analysis, Autonomous Area to rehabilitate the and two types of native grass were ecosystem of the Bely and Vilkitsky planted on a trial basis. The Company islands in the Kara Sea. Volunteers will provide support for another from Russia, Israel, and Bulgaria, expedition of scientists and volunteers to including environmental scientists and the islands in 2018 to continue cleaning LUKOIL representatives, cleaned up up the territory and to carry out scientific over two hectares of territory and did research into the local ecosystem. a stocktaking of dangerous waste and abandoned infrastructure assets. More > 100 samples of soil, water, and vegetation were taken in the Arctic for further analysis

1 Site for processing solid and liquid sludge at the West-Tebukskoye field.

40 LUKOIL 2017 www.lukoil.com 41 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Planting of trees Improving the management system The integrated corporate Health, Safety, these standards was confirmed in 2017, Annual improvements are made to the and the Environment Management System based on the results of an independent integrated HSE Management System, Target 11.7. was drafted based on the ISO 14001 and audit. which make it possible to raise the level By 2030, provide universal access to OHSAS 18001 international standards, as of occupational and environmental safe, inclusive and accessible, green well as Russian law requirements and the safety. New tools began to be used at and public spaces, in particular for regulations of the countries where LUKOIL A detailed description the Company in 2017, including leader women and children, older persons and of the integrated persons with disabilities. Group subsidiaries operate. Compliance management system safety visits with the participation of top of the LUKOIL management system and is available on the management, the holding of Safety Days, corporate website, on 46 of its subsidiaries (covering 79.3% of the Company’s website and the implementation of cooperative average headcount during 2017) with plans with key contractors.

In Sochi, young professionals from Improving management quality LUKOIL Group subsidiaries and students from the Sirius Educational Center In 2017, three-year targeted programs were This approach will improve the quality of network of subsidiaries. These steps will planted olive trees in the Natural developed, in line with decisions taken management as well as the productivity foster an integrated approach to reducing Ornithological Park in the Imereti to align the planning of activities related of the targeted programs, and take into industrial impacts and more effective risk Lowlands. Urban greening and the to health, safety, and the environment account all the scheduled measures to management. greening of LUKOIL Group subsidiaries’ with corporate medium-term planning be performed throughout an extensive industrial sites are performed annually procedures. in all the areas where we operate. Voluntary Saturday clean-ups and Targeted programs environmental campaigns are held jointly with regional and local authorities and The Environmental Safety Program of substantially expanded: the document Required Level of Health, Safety, and public and youth organizations. LUKOIL Group Subsidiaries for 2018- now contains over 900 initiatives to the Environmental at LUKOIL Group 2020 and the Program of Health and be performed at 53 subsidiaries (the Subsidiaries”, in order to increase Regional projects Safety, Better Working Environment, previous program comprised around accountability for its performance at all Emergency Prevention, and Responses 600 initiatives at 44 subsidiaries). management levels (the criteria of total Regional organizations engaged in of LUKOIL Group Subsidiaries were material damage because of an accident improving the natural terrain (rivers, evaluated in 2017 (and approved in early HSE-related environmental aspects have been made more stringent; criterion streams, springs, etc.) and land plots 2018). and risks by line of business and target for the absence of accidents has also receive annual support through the indicators were updated when drafting been included). Competition of Social and Cultural The contents of the Environmental the program. Amendments were made Projects. The following projects were Safety Program (“ESP”) of LUKOIL to the regulation to assess the key supported during the Year of the Group Subsidiaries for 2018-2020 were performance indicator “Ensuring the Environment. ΅ “A drop of water is more valuable than a diamond” (the cleaning of Olga’s Spring in Starotimoshkino village) and “Forgive us, Prost, ENVIRONMENTAL PROTECTION COSTS IN RUSSIA, RUB million we have returned to you again” 2015 2016 2017 (beautification of the banks of the Prost River). Both projects were performed in Total costs, including: 48,161 53,286 42,412 the Republic of Bashkortostan. Capital expenditure 22,564 30,854 21,927 ΅ “Information databank of environmental problems”: creation Note. Data include expenses related to the Group’s Efficient APG Use Program. Costs related to the Environmental Safety Program of LUKOIL Group Subsidiaries (for the relevant period) include: waste of a website where information on removal and disposal, purification of emissions and discharges, environmental production controls and monitoring environmental components, biodiversity conservation, pollution clean-ups, and unauthorized landfills and the pollution readiness to respond to emergencies and minimizing the risk of such emergencies arising (total operating and capital expenditure). of water bodies and parks can be COSTS ON MEASURES UNDER THE PROGRAM OF HEALTH AND SAFETY, BETTER WORKING ENVIRONMENT, EMERGENCY PREVENTION, posted (Samara Region). AND RESPONSES OF LUKOIL GROUP SUBSIDIARIES, RUB million ΅ “Energy of the Deep”: the opening 2016 2017 of an exhibition in the World Ocean Museum that acquaints visitors with Total costs on health, safety and fire safety, including: 9,288.2 12,307 offshore oil production and related Costs on ensuring fire safety1 1,753 1,925 environmental topics (Kaliningrad Region).

1 Pursuant to the federal targeted Fire Safety program in Russia up to 2017.

42 LUKOIL 2017 www.lukoil.com 43 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Risk management Target 6.3. By 2030, improve water quality by reducing pollution, eliminating dumping and minimizing release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing We fully comply with the legislation of regularly updated. The materiality criteria Voluntary civil liability, third-party liability, recycling and safe reuse globally. the countries in which we operate, and when assessing risks are the likelihood and environmental liability insurance are constantly analyze changes made to and scope of the consequences of each taken out for LUKOIL Group subsidiaries Target 6.4. By 2030, substantially increase water-use efficiency across all sectors and ensure sustainable respective legislative requirements, identified risk, with due consideration of to protect against catastrophic risks. withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people thereby allowing us to promptly identify geographical factors. suffering from water scarcity. and assess potential risks. All lines of business performed Target 6.5. By 2030, implement integrated water resources management at all levels, including through Measures to mitigate potential risks by LUKOIL Group subsidiaries are transboundary cooperation as appropriate. The management of risks and the are included in the targeted programs, considered during risk identification and environmental aspects of operations with additional measures stipulated assessment, including the purchase of forms an integral part of the overall for material risks. The performance of products and services from suppliers Water consumption corporate risk management system. these measures is monitored during and contractors performing work at our A Register of Material HSE Risks and the internal audits of LUKOIL Group facilities. Despite the wide availability of water in enterprises and make the optimal utilization a Register of Material Environmental subsidiaries and during the preparation Russia3 and the less pronounced impact of The full text of of water intake, including oil field water. the document can Aspects have been created and are of corporate reporting. the oil and gas industry on the consumption be found on the New production facilities are equipped of fresh water than other sectors of the Company’s website in all cases with systems for reverse economy4, improving the efficiency of water supply and the reuse of water and water use and maintaining clean surface treatment facilities. Environmental safety program water and groundwater are very important objectives of the Company. that do not now experience fresh water In 2017 the execution of the targeted shortages. However, in other countries we A wastewater and oil field Environmental Safety Program of The HSE Policy of PJSC LUKOIL in the factor in such potential risks as a shortage water treatment facility was Target 8.4. LUKOIL Group Subsidiaries for 2014- 21st Century contains obligations on of drinking water, as well as possible built at the Yaregskoye field 2018 continued. After its consideration Improve progressively, through 2030, global resource efficiency the efficient use of natural resources, droughts or floods, which could lead to (Komi Republic) in 2017. in consumption and production and endeavor to decouple economic by the Health, Safety, and Environment growth from environmental degradation. including water, and is aimed at: water supply interruptions, a breakdown in The facility will be used to Committee of PJSC LUKOIL, it was ΅ minimizing the consequences of the supply chain, and increased operating generate steam required concluded that it was successfully business activity, including a reduction costs. to extract high-viscosity implemented. in the use of water resources oil. The amount of water ΅ reducing production dependence Prompt risk identification enables us to taken from surface sources ENVIRONMENTAL SAFETY PROGRAM IMPLEMENTATION RESULTS, 2014-2017 on possible adverse external factors, take corresponding measures (to install will be reduced due to the including natural ones (droughts, the modern equipment, including that which introduction of a closed water- 20131 2017 2017/2013 drying up of surface water bodies, reduces water use) to facilitate more use cycle at the field. APG utilization rate in Russia, % 87.7 95.2 7.5 p. p. pollution of groundwater sources) efficient water use. Our basic approach to Air emissions of pollutants, thousand tonnes 735.5 502.5 31.7% resolving the issue of sustainable water use The bulk of LUKOIL Group’s production is to introduce systems for reverse water Discharge of undertreated and contaminated wastewater, million activity in Russia is performed in regions supply and the reuse of water at production cubic meters 2.3 1.1 52.2% Volume of water consumption for own needs, million cubic meters 432.9 376.4 13.1% Volume of waste accumulated in the pre-privatization period2, 576 304.5 VOLUMES OF REVERSE WATER SUPPLY AND REUSED WATER AT LUKOIL GROUP SUBSIDIARIES IN RUSSIA, million cubic meters thousand tonnes (at 31.12.2013) (at 31.12.2017) 271.5 thousand t 2015 2016 2017 Remediation of disturbed and oil-contaminated land, thousand Volume of reverse water supply 2,287.8 2,371.9 2,253.1 hectares 3.06 9.2 x3 times Volume of reused water 908 930.6 875.5

Comment. The fall in the volume of formation water produced with oil is due to a decline in oil production in Russia as a result of external limitations imposed under an agreement with OPEC.

Water use Projects to provide local communities with Low levels of fresh water consumption feature of the LUKOIL business model drinking water are implemented as part of are maintained by subsidiaries in all main in comparison with other oil and gas Water is used at all stages of the time, people, animals, and vegetation our social partnerships with the southern production lines of business. In these companies. In 2017 the volume of water production cycle in the oil and gas also require water, which illustrates the regions of Russia and in foreign countries conditions, general indicators of water used for its own needs by electric power sector (from exploration drilling to social significance of sustainable water with a hot climate. withdrawal and water consumption are engineering subsidiaries amounted to refining crude into finished products and use. Access to clean drinking water is a significantly influenced by electric power 65.1% of the water consumption used for its delivery to consumers). At the same fundamental human right. Through the implementation of the engineering subsidiaries, which are large its own needs by Russian subsidiaries of LUKOIL Environmental Safety Program we consumers of water (used for steam LUKOIL Group. significantly reduced water consumption generation and cooling equipment in 1 We compared the indicators with 2013, which was the previous year that the ESP was implemented. from natural sources: this indicator fell by central heating and power plants). The 2 Pre-privatization period waste: waste accumulated at facilities in the period preceding their privatization and/or the acquisition of licenses by LUKOIL Group. 7.5% from 2015 to 2017. availability of these assets is a special

3 See World Resource Institute http://www.wri.org/resources/maps/aqueduct-water-risk-atlas

4 See Water in the Energy Industry (BP International, 2013).

44 LUKOIL 2017 www.lukoil.com 45 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

PROJECTS TO PROVIDE FRESH WATER IN IRAQ AND UZBEKISTAN SPECIFIC WATER CONSUMPTION FOR ITS OWN NEEDS BY LUKOIL GROUP SUBSIDIARIES IN RUSSIA, WITH A BREAKDOWN BY MAIN Our largest project for local residents in Iraq in 2017 entailed providing permanent access to water to residents of the Beit BUSINESS ACTIVITIES Zamel and Turaba villages. 2015 2016 2017

The residents of the Beit Zamel village did not have full access to water for basic daily needs. Water had to be brought Oil and Gas Production, cubic meters/tonnes of reference fuel of produced hydrocarbons 1.0 1.0 0.95 in by tanker truck, which was inconvenient and expensive. The village only recently became inhabited, and people were reluctant to move to it because of the issues with the water supply. With LUKOIL’s support, all homes in the village Oil Refining, cubic meters/tonnes of refined oil 0.5 0.6 0.5 were connected to the water supply. According to forecasts from the regional administration, a further 100 homes are Petrochemicals, kg/tonnes of processed raw stock 12.8 6.2 7.3 earmarked to be built there in the near future. Product Marketing and Distribution, cubic meters/tonnes of sold petroleum products 0.047 0.055 0.065 In Turaba, which has 150 households, the water supply pump station did not have sufficient capacity to permanently supply all houses with water. This issue was resolved by installing a new electric pump. Midstream, cubic meters/tonnes of transported oil and petroleum products 0.045 0.039 0.017 LUKOIL supplies bottled water to 10 orphanages and boarding schools, where over 2,000 children and teenagers study in the cities of Bukhara and Qarshi in Uzbekistan. Thanks to measures to decommission central heating and power plants equipment, the specific water TOTAL WATER WITHDRAWAL AND WATER CONSUMPTION FOR ITS OWN NEEDS consumption indicator at electric power BY LUKOIL GROUP SUBSIDIARIES IN RUSSIA, million cubic meters engineering subsidiaries is falling. For example, in 2016-2017 a large unblocked 2015 2016 2017 section of the Krasnodar CHPP (LUKOIL- Total water withdrawal by LUKOIL Group subsidiaries in Russia, including: 526.8 522.2 511.1 Kubanenergo) was decommissioned. а) by types of business activities Electric Power Engineering 350.1 345.1 331.9 Oil and Gas Production 112.4 112.3 109.5 Oil Refining, Gas Processing, Petrochemicals 62.9 63.3 68.5 SPECIFIC WATER CONSUMPTION FOR ITS Others 1.4 1.5 1.2 OWN NEEDS BY LUKOIL GROUP ELECTRIC DISPOSAL OF FORMATION WATER b) by source of water withdrawal POWER ENGINEERING SUBSIDIARIES IN IN UZBEKISTAN RUSSIA, from surface water bodies 305.9 297.4 279.7 LUKOIL Uzbekistan Operating Company LLC adopted a strategy for the cubic meters/tonnes of reference fuel from groundwater sources 78.7 77.1 76.1 disposal of formation water at all gas production sites, by pumping it back consumed into the formation. The company was the first in Uzbekistan to be issued from other sources (central water supply networks, etc.) 142.2 147.6 155.3 a license to use subsoil to pump field wastewater into absorbing wells at Water consumption for its own needs of LUKOIL Group subsidiaries, including: 413.1 415.9 376.4 fields. Under the terms of the licenses, field infrastructure for the complex 50 of injection and monitoring wells must be developed at producing fields. 40.7 40.1 а) by types of business activities 40 34.4 In 2016-2017 four injection wells were built at the Northern Shady, Electric Power Engineering 276.1 275.0 245.0 30 Kuvachi-Alat, and Kandym fields, as well as two monitoring wells in each Oil and Gas Production 101.1 100.3 96.6 20 area. The wells were successfully commissioned at Northern Shady and Kuvachi-Alat, and at Kandym the wells will begin to operate in conjunction Oil Refining, Gas Processing, Petrochemicals 34.5 39.1 33.5 10 with a gas refinery. Others 1.4 1.5 1.3 0 2015 2016 2017 These projects allowed LUKOIL to move away from the surface disposal a) by purpose of field wastewater, significantly reduce emissions of pollutants into the atmosphere, improve air quality in the working areas of the treatment production needs (excluding consumption to maintain formation pressure) 304.8 307.4 278.2 facilities, and minimize risks of environmental pollution during the formation pressure maintenance 79.2 76.4 74.0 discharge of industrial effluent. others 29.1 32.1 24.2

Note. The water intakes of LUKOIL Group subsidiaries are also used to supply nearby enterprises.

46 LUKOIL 2017 www.lukoil.com 47 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Wastewater discharge Managing environmental impacts The environmental aspects of the ΅ building systems that initially separate The ESP for 2018-2020 includes formation and discharge of effluent into and utilize formation water measures to design or upgrade Target 12.4. surface waters and central wastewater ΅ treating contaminated groundwater biological treatment facilities at oil By 2020, achieve the environmentally sound management of chemicals and all wastes throughout their life cycle, in disposal networks are constantly from drainage systems refining and petrochemical subsidiaries accordance with agreed international frameworks, and significantly reduce their release to air, water and soil in order monitored by the respective LUKOIL in order to maintain discharge treatment to minimize their adverse impacts on human health and the environment. department and by specialists within its We were able to put a complete halt quality. subsidiaries. Key measures to minimize to the discharge of undertreated Target 12.5. the negative impacts of effluents on the effluent into water bodies at oil refining, In 2017 the share of undertreated By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse. quality of water bodies comprise: petrochemicals, and electric power discharge in total wastewater disposed ΅ ensuring in-process monitoring of the engineering subsidiaries. by LUKOIL Group subsidiaries continued quality of effluents to be insignificant (0.5%). ΅ commissioning new and/or renovating In 2017 the main measures to deal with Air emissions existing treatment facilities this issue at oil and gas production ΅ performing diagnostics and overhauls subsidiaries included building effluent Key measures to reduce emissions of ΅ improving the technology used in The reduction in specific emissions of pipeline transport treatment facilities at Yareganeft and pollutants comprise: systems to capture and treat pollutant of pollutants by electric power LUKOIL-Komi (the facilities are scheduled ΅ the renovation and construction of new emissions engineering subsidiaries in 2017 was for commissioning in 2018). generating capacities at electric power primarily due to a reduction in the engineering subsidiaries, with improved In 2017 we achieved a reduction in share of fuel oil in the fuel mix at the automated systems for controlling emissions of pollutants, chiefly through steam and heat generation facilities of RANGE OF WASTEWATER DISCHARGES IN SURFACE WATER BODIES BY LUKOIL GROUP SUBSIDIARIES IN RUSSIA, million cubic meters fuel consumption processes and heat building facilities that use APG, which LUKOIL-Volgogradenergo. The slight losses and minimizing emissions of effected a drop in flaring, as well as increase in specific emissions in 2017 2015 2016 2017 pollutants the relaunch of the Lokosovsky Gas by petrochemical subsidiaries was due Wastewater discharges into surface water bodies, including: 268.4 244.0 236.4 ΅ replacing or upgrading equipment Processing Plant after its refurbishment. to a reduction in product output from clean according to standards 245.2 223.7 206.2 at industrial sites according to the Stavrolen. principle of best available technology treated according to standards 21.8 19.5 29.1 undertreated 0.7 0.7 1.1 contaminated (untreated) 0.7 0 0 TOTAL AIR EMISSIONS OF POLLUTANTS BY LUKOIL GROUP SUBSIDIARIES IN RUSSIA, thousand tonnes 2015 2016 2017

Air emissions of pollutants, total, including: 541.9 627.5 502.5 SPECIFIC DISCHARGES OF UNDERTREATED WASTEWATER BY LUKOIL GROUP SUBSIDIARIES IN RUSSIA NОx emissions 38.9 44.0 49.6 2015 2016 2017 SO2 emissions 58.2 59.7 23.0 Oil and Gas Production, cubic meters/ tonnes of reference fuel of produced hydrocarbons 0.005 0.005 0.008 solid emissions 25.4 26.9 24.3 Oil Refining, cubic meters/tonnes of refined oil 0 0 0 СО emissions 232.0 295.9 216.6 Petrochemicals, cubic meters/tonnes of processed raw stock 0 0 0 hydrocarbon emissions (net of methane) 184.7 199.2 187.8 Product Marketing and Distribution, cubic meters/tonnes of sold petroleum products 0 0.001 0.004 other pollutants 2.7 1.8 1.2 Midstream, cubic meters/tonnes of transported oil and petroleum products 0.003 0.002 0.008

Electric Power Engineering, cubic meters/tonnes of reference fuel consumed 0.102 0.003 0 SPECIFIC AIR EMISSIONS OF POLLUTANTS BY LUKOIL GROUP SUBSIDIARIES IN RUSSIA

2015 2016 2017

Oil and Gas Production, kg/tonnes of reference fuel of produced hydrocarbons 4.5 5.5 4.1 Oil Refining, kg/tonnes of refined oil 0.9 0.9 0.9 Petrochemicals, kg/tonnes of processed raw stock 2.3 1.0 1.3 Product Marketing and Distribution, kg/tonnes of sold petroleum products 0.7 0.7 0.8 Midstream, kg/tonnes of transported oil and petroleum products 0.1 0.1 0.1 Electric Power Engineering, kg/tonnes of reference fuel consumed 2.9 3.7 2.6

48 LUKOIL 2017 www.lukoil.com 49 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Waste The Company disposes waste 2016 (to 304.5 thousand tonnes as at condition of the production control accumulated in the pre-privatization 31 December 2017). system, and ensure that sufficient Most production waste is generated In 2015-2017 the Company made the (including horizontal well drilling, which period at LUKOIL Group subsidiaries resources are available to perform during well drilling and operation, and transition to the concept of pit-free requires drilling fluid to be replaced in Russia from its own funds. Measures We pay close scrutiny to the quality contractual obligations. Cooperation its respective level depends primarily drilling, whereby drilling waste generated more frequently), the application of new taken in 2017 allowed us to reduce of waste disposal work performed by between subsidiaries and contractors on the volume of drilling work. The is not stored on drilling platforms, regulations for accounting for drilling the total amount of such waste by contractors, and monitor their activities to improve the quality of their output is main types of waste are drilling mud but is instead allocated for use or waste at LUKOIL-Western Siberia, and 41.1 thousand tonnes compared to under the contracts concluded. We constantly expanding. and waste drilling fluids, which under decontamination. Consequently, the also significant volumes of disassembling check waste-handling techniques, the environmental hazard classification volume of waste generated during the and construction work carried out at criteria belong to the hazard classes year is compatible with the total volume LUKOIL-Nizhegorodnefteorgsintez and Land remediation IV (low hazard) and V (non-hazardous), of waste used, decontaminated, and an increase in the sale of non-fuel goods and are subject to disposal1. The total transferred to third-party organizations. (packaging and other household waste) Oil and gas production activity is techniques for the natural restoration of ΅ a rotary cultivation system used in amount of waste generated in 2017 in cafes and stores located at filling unavoidably tied to the acquisition of biodiversity, including: difficult-to-traverse swampy areas stood at 1,434.0 thousand tonnes, of The increase in generated waste stations. land, and can lead to the contamination ΅ the dredging of wetlands: a less which 1,297.3 thousand tonnes (90.5%) in 2017 (by 38.8%) was attributable of soil, as well as a deterioration in impactful method for removing surface LUKOIL-Komi has stepped up its constituted hazard class IV and V waste. to a rise in volumes of drilling work the habitats of plants and animals. contamination that does not disturb remediation activity on disturbed land: Each year, measures are taken under native vegetation sprouts work is being performed to eliminate the Environmental Safety Program to ΅ active adsorption of oil on flooded three sludge pools that do not conform GENERATION OF HAZARD CLASS I-V WASTE AND WASTE-HANDLING AT LUKOIL GROUP SUBSIDIARIES IN RUSSIA, thousand tonnes remediate contaminated land. areas with current requirements in the Usinsk ΅ microbiological methods of soil District, with a total area of seven 2015 2016 2017 Our longstanding working relationship bioremediation, using biological hectares. Work is planned by 2019 to Waste generation, total 1,015.7 1,032.9 1,434.0 with the UNDP/Global Environmental substances liquidate an additional 14 completed Amount of waste that was used, neutralized and transferred for use/neutralization by Facility (UNDP-GEF) and the Ministry of ΅ melioration and agricultural methods for sludge pits at the Usinskoye and dedicated organizations, and buried 956.5 1,115.1 1,395.7 Natural Resources and Environment of oil stripping Vozeiskoye fields. the Russian Federation has enabled ΅ a two-tier system for protecting water Annual volumes of waste disposal to new waste generation 0.9 1.1 1.0 us to choose efficient remediation courses during the remediation of Amount of waste at year-end 911.9 765.1 807.7 coastal land

Note. Data on the volume of waste generated in 2017 are shown without rocky material produced during the excavation of oil wells at Yareganeft (fifth hazard class). Due to changes in the legislation covering waste-handling, since 2017 this waste has been accounted as storage waste and included in the balance sheet of waste generated at LUKOIL-Komi, where it will remain until it is utilized during the remediation stage. REMEDIATION OF DISTURBED AND OIL-CONTAMINATED LAND BY LUKOIL GROUP SUBSIDIARIES IN RUSSIA

2015 2016 2017 MAIN TYPES OF WASTE FROM PRODUCTION ACTIVITY AND WASTE-HANDLING TECHNIQUES OF LUKOIL GROUP SUBSIDIARIES IN RUSSIA Area of remediated land, hectares 3,527.7 8,409.52 9,197.33 Activity Type of waste Waste-handling technique including oil-contaminated land, hectares 165.84 98.34 93.3 Production of crude Drilling waste Waste is recycled by dedicated contracting organizations. oil and natural gas Contaminated land on the balance sheet of subsidiaries at year-end, hectares 138.1 78.0 59.7 Rocky material When developing oil fields using mining methods (in the Komi Republic), rocky material is produced during brought to the surface and piled in waste heaps – it is not subject to decontamination. underground mining Oil-contaminated Oil-contaminated waste at oil and gas production subsidiaries primarily comprises oil- waste contaminated soil and sludge from tank and pipeline purging operations. LUKOIL uses tried- and-tested disposal (microbiological destruction) and decontamination (thermal treatment) techniques. Oil and gas refining Oil-contaminated Oil-contaminated waste at oil and gas refineries mainly comprises sludge from tank and waste pipeline purging operations, oil/petroleum products entrapped in process water, etc. Disposal methods include slop oil being fed back into the technological process, and sludge being decontaminated at dedicated processing facilities. Silt from biological Forms during the treatment process that removes organic compounds from water used for treatment facilities production and service water. Excessive biosilt is regularly removed from treatment facilities, ENVIRONMENTAL PROJECTS IN ROMANIA then dried, and sometimes used in other operations (for example as fertilizer). A joint five-year project between the Rotary Club and PETROTEL-LUKOIL S.A. on the landscaping of a former landfill in Production and Sludge produced This waste is deposited in landfills. the city of Ploiesti (Romania) was completed in 2017. The partners of the project comprised the Mayor’s Office of Ploiesti, distribution of during the chemical the National Forestry Agency Romsilva, the Prahova Administration, and the Prahova Educational Inspectorate. electricity, gas, and treatment of water water

2 The level of remediation rose in 2016 to ensure prompt compliance with changes to regional Russian law.

3 In 2017 the Area of remediated land indicator included actually remediated land, as well as undamaged land returned to the land fund after the end of production.

1 Hereinafter the term “disposal” is used within the meaning “use, neutralisation, and transfer to specialised organizations for processing and disposal.” 4 The data were adjusted based on the results of the recalculation.

50 LUKOIL 2017 www.lukoil.com 51 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Biodiversity conservation lies in the comprehensive observation A corporate procedure has been standard regarding the organization of and monitoring of all natural and man- developed to facilitate the prompt environmental monitoring using sea-floor Maintaining natural ecosystems and an important aspect in human health. in a way that does not threaten their made environments at all stages of the interpretation of environmental monitors and the identification of sources biodiversity has significant economic, Our goal is to conserve the diversity of capacity for self-regeneration. life cycle of the facility, with the help of monitoring results. For example, the of hydrocarbon pollution in the Caspian environmental, and social importance, natural biosystems in the areas where satellite data, underwater observations system for assessing the intensity sea basin during the development of oil ensures a productive habitat, and is the Company operates, and to use them (sea-floor monitors and geophysical of impacts of oil production on the and gas fields. observatories), and measurements marine environment is reflected in the taken directly at the facilities and in the LUKOIL-Nizhnevolzhskneft corporate Target 14.1. immediate environs. By 2025, prevent and significantly reduce marine pollution of all kinds, in particular from land-based activities, including marine debris and nutrient pollution. Targeted programs Target 14.2. Key biodiversity conservation measures and the greening and beautification of subsidiaries in the Arctic Zone of the consist of the implementation of industrial facilities. Specific measures Russian Federation. As part of this By 2020, sustainably manage and protect marine and coastal ecosystems to avoid significant adverse impacts, protection systems for fish and birds; are planned and performed under the program subsidiaries working in this including by strengthening their resilience, and take action for their restoration in order to achieve healthy and productive oceans. compensation for damage to marine medium-term Environmental Safety zone (LUKOIL-Western Siberia, LUKOIL- bioresources; silt control in small rivers, Programs of the LUKOIL Group. Komi, and Varandey Terminal) draft including in the underwater passages their own programs and action plans to Target 15.1. of pipeline systems; the remediation of The LUKOIL Group has Biodiversity conserve rare types of flora and fauna disturbed and oil-contaminated land; Conservation Programs for Company (indicator species). By 2020, ensure the conservation, restoration, and sustainable use of terrestrial and inland freshwater ecosystems and their services. Research and development work Target 15.2. By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore The Research and Development Program For example, in 2017 research was The development of technologies and degraded forests, and substantially increase afforestation and reforestation globally. is aimed, among other things, at studying carried out into lacustrine-boggy equipment to remove oil and petroleum the biological diversity of ecosystems landscapes in petroleum provinces in the products from bodies of water also Target 15.5. and reducing the impact of production. sub-Arctic and Arctic Zones of Russia. continued. Take urgent and significant action to reduce the degradation of natural habitats, halt the loss of biodiversity and, by 2020, protect and prevent the extinction of threatened species. Training to rescue animals LUKOIL applies and passes on biodiversity conservation best practices. Principles and methods of activity Training and exercises on rescuing Our activity to preserve biodiversity the territory of the projected activity At the operating stage we take measures animals in the event of oil spills were is performed based on the principle (including the condition of valuable to reduce and mitigate the impact of held in 2017. Many stakeholders took “prevent – reduce – rehabilitate – and protected flora and fauna). The production hazards and risks, including part in the project, including the Ministry compensate”, which is applied at all data received are considered when measures to prevent the introduction of Natural Resources and Environment of stages of the life cycle of oil and gas selecting the site for production of invasive species. The measures the Russian Federation, the joint project production projects. facilities, and if necessary alternative being taken and the action plans are between the UNDP-GEF and the Ministry project implementation scenarios are adjusted based on an assessment of of Natural Resources of the Russian At the early stages, an environmental considered. The risk of damaging environmental monitoring results. We Federation Biodiversity Conservation in impact assessment (EIA) of the planned biodiversity is assessed, as are the pay special attention to our emergency the Policies and Development Programs projects is performed, during which forecasted environmental and related response readiness and our ability to of the Energy Sector in Russia, the background information is collected social and economic ramifications of this liquidate potential impacts and to save World Wildlife Fund (WWF) of Russia, a on the condition of the ecosystem on damage. animals, birds, and plants. number of environmental and nature conservation organizations, and the international SEA ALARM Foundation. “The training at Naryan-Mar was a unique experience, Environmental monitoring The Varandey Terminal and LUKOIL-Komi because the participants included the directors and were chosen as the base sites. management personnel of companies. We know of no The company uses advanced other case where an oil and gas company was able to technologies to ensure environmental The results of environmental monitoring at offshore facilities have been The goal of the training was to published annually on our website since 2003. During our 15 years of dedicate an entire week to on-the-job training on this safety, investing significant funds in observation, there have been no instances of Company facilities having implement best practices in rescuing this objective. The integrated industrial a material impact on the marine environment and eliciting a response and rehabilitating wildlife resources in issue. This is the only way to build a sensible corporate environmental control system (IEC) the event of spills of oil and petroleum response system in the event of an oil spill.” in place at its offshore facilities helps products. International experts held HUGO HIJKAMP, assess environmental impacts in a timely table-top exercises based on a simulated Sea Alarm Foundation General Manager manner. The innovative quality of the IEC event and a two-week practical course

52 LUKOIL 2017 www.lukoil.com 53 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

on organizing the search and capture of possible to share the experience gained seminar’s methods and materials can be Ensuring the integrity of production facilities oil-covered birds and the correct way to with all LUKOIL Group subsidiaries. For used in creating an integrated regional treat them. example, LUKOIL-Nizhnevolzhskneft response and preparedness centers for We believe that improving the reliability key components of industrial safety. specialists held a similar seminar in the the protection and rescue of wildlife. of pipeline systems and lowering the We take a systematic approach to this, A corporate document will be drafted Northern Caspian with the participation accident rate at production facilities are employing state-of-the-art technologies. that summarizes the training results. The of the Astrakhan Nature Reserve and the knowledge received began to be shared non-governmental organization Friends in 2017 and this document will make it of the Astrakhan Nature Reserve. The Improving the reliability of pipeline transport LUKOIL manages a well-developed Diagnostics, the overhaul of pipelines, pipeline system that comprises the and the application of corrosion inhibitors Replenishment of marine biological resources Through investment and sound most extensive system of offshore are performed as part of operating engineering decisions we As part of the implementation of Yugra, the Komi Republic, the Perm pipelines among Russian oil and gas activity, with some measures being achieved in 2017 the lowest its environmental program, LUKOIL Territory, and the Astrakhan Region. Volunteers from LUKOIL companies. Efforts to ensure the performed under the Environmental specific rate of pipeline failure performs wide-ranging work to replenish A total of RUB 280.2 million was spent Uzbekistan Operating reliability of the pipeline transport system Safety Program. Pipes made from for LUKOIL Group oil and gas fish stocks. In 2017, around 95.7 million replenishing fish stocks in 2017. Company LLC in Tashkent are comprehensive and multifaceted in modern materials, including new grades production subsidiaries in Russia fingerlings of valuable species of fish (Uzbekistan) and their families nature: we record all breakdowns in the of steel, and with various protective in the past six years: 0.117. (including sturgeon, walleyes, starlet, and We believe the implementation held an urban greening integrity of the pipelines, analyze the coatings, are used when building and pike) were released into rivers and other of LUKOIL’s program to conserve event called “Give the Planet reasons, and search for solutions that will replacing pipelines. bodies of water in the regions where the biodiversity and local ecosystems a Tree!”. During the event ensure reliable and safe operation in the Company operates. has made a significant contribution to they planted over 100 trees, future. increasing fish numbers in local bodies including birch and Crimean Pipelines with anticorrosion SPECIFIC RATE OF PIPELINE FAILURE1, The most intensive work to artificially of water. pine, as well as rose bushes Leveraging our extensive experience in performance were increased instances x km/year stock bodies of water is being performed and various types of juniper operating pipeline transport in different from 23.6% of the total in the Khanty-Mansi Autonomous Area- bushes. geological and weather conditions, we in 2016 to 25.2% in 2017 select the optimum engineering solutions (from 10,726 km to 11,755 km, 0.148 0.15 0.133 and apply the most tried-and-trusted respectively). 0.117 methods. 0.12 0.09

Key measures to renovate and overhaul Our goal is to further improve industrial 0.06

pipelines are planned as part of LUKOIL’s quality controls, including monitoring 0.03 investment program, with the investment the actions of contractors in performing 0.00 cycle lasting at least 2.5 years. responsible technological processes at 2015 2016 2017 wells.

1 A pipeline failure refers to a malfunction involving a sudden full or partial pipeline shutdown due to a breakdown in the seal of the pipeline itself or the shut-off and control valves, or due to a pipeline blockage. Consolidated pipeline length figures are used when calculating results: oil pipelines, gas pipelines and water pipelines.

PRESERVATION OF SAIGA ENVIRONMENTAL EDUCATION POPULATION FOR SCHOOLCHILDREN With the support of LUKOIL, the Directorate of We continue to support the largest environmental the Stepnoy Wildlife Sanctuary (Limansky District, education program in Romania, EcoAtitudine. In 2017, Astrakhan Region) is implementing the Saiga – around 95,000 students from 230 schools took Antelope of the Steppe project. The main aim of the part in program-related events. In Romania we also project is to preserve the Saiga population in the support the “Think Green, Think Clean” program of the northwest Caspian Sea Region. This species is on the Environmental Protection Agency of Prahova County: verge of extinction, and the implementation of the a summer “environmental school” has been organized project will make it possible to prevent a further decline for schoolchildren, with classes held in a local park. in the number of Saiga and preserve the biodiversity In 2017 workers of the refinery in Bulgaria (LUKOIL of the steppe of the Limansky District of the Astrakhan Neftochim Burgas AD) held lessons for students of Region. three schools in the city of Burgas. They discussed human impacts on wildlife and our responsibility to preserve wildlife and the environment for future generations.

54 LUKOIL 2017 www.lukoil.com 55 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Implementation of the program to increase the reliability of pipelines in the Komi Republic 1,786 km of pipelines Increasing the reliability of the pipeline system in the Komi scope of technical diagnostics Republic is one of the Company’s priorities. The replacement of pipelines in the region has increased substantially over the past three years: in 2017 this indicator exceeded the Company average by 1.3 times (in 2017, 3.6% of the total length of pipelines).

he Komi Republic is In 2017 we began the full upgrade of the distinguished by having a 33-km Makariel-Shchelyayur pipeline, combination of unique factors including the replacement of a section not present in any other oil and passing through the Pechora River Tgas province in Russia which significantly (Izhma District). The completion of the affect the construction and operation project is scheduled for 2018. of pipelines. Soil composition, the low load-bearing ability of the soil, and the The overall results of activities to formation conditions of the field all increase the reliability of pipelines in the contribute to creating a highly corrosive Komi Republic in 2017 compared to 2016 environment (the rate of metal corrosion are as follows: can reach 22 mm/year). Hence LUKOIL ΅ an increase in the length of pipelines must, on the one hand, apply three times with corrosion inhibitors from 2,198 km more corrosion inhibitor to protect pipes to 2,282 km, representing over 30% of than in other regions (31% in Komi, 10% the total length of the Komi Republic in other Russian regions), and, on the pipeline system > 30% other, find technologies that will help ΅ a rise in the total replacement of of the total length of the pipeline system in the extend the accident-free work of pipeline pipelines to 269 km (3.6% of the total Komi Republic is protected against corrosion transport. length of pipelines) ΅ technical diagnostics being expanded Steel pipes with internal and external to 1,768 km of pipelines anticorrosion coating are used effectively in this region. Every year when steel pipes are replaced, this type of pipe accounts for a much greater share of the total in Komi than the average for the Company. Their length equaled 1,100 km in 2016 and 1,335 km in 2017. 269 km of pipelines replaced

56 LUKOIL 2017 www.lukoil.com 57 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Study of global best practice Incidents In 2017 a meeting was held between pipelines, and also methods to increase pipelines, a new corporate standard on In 2017 two major incidents were Regular staff training courses on the regulatory and legal frameworks LUKOIL specialists and the specialists the reliability of upstream pipeline corrosion protection was drafted1, with recorded at LUKOIL subsidiaries: a following topics is planned: governing the activity of professional of leading oil and gas companies operations in harmful environmental implementation expected to begin at fire at a well at the A. Alabushin field, ΅ clean-ups of uncontrollable blowouts accident rescue groups charged with and engineering centers in China conditions. Based on the results of visits LUKOIL-Komi. After testing, the standard and an incident which occurred during by the representatives of blowout the prevention and clean-up of gas, oil, and the USA to study the equipment and existing technical and regulatory will be applied at all the Company’s oil the installation of a fire extinguisher prevention units and the structural and water inflows and uncontrollable used in offshore production and documentation on the operation production subsidiaries. system on a tank at LUKOIL- subdivisions of a subsidiary, in order blowouts at oil and gas wells. repair technologies of underwater of oil and gas field equipment and Nishnegorodnefteorgsintez. to develop the skills necessary to ascertain solutions and to develop In connection with the above incident, On 10 April 2017, during geophysical an operational clean-up plan for an the Company increased its interaction Participation in the legislative process work to determine the location of a uncontrollable blowout with the local authorities and residents bottom hole (during a well workover) ΅ working through issues involved of the population centers nearest to LUKOIL professionals play a proactive pipelines, as well as to draft national accurately the coatings that are most at the LUKOIL-Komi A. Alabushin field, in registering incoming resources the A. Alabushin field (Shchelyabozh role in the drafting of Russian federal standard on the protective coating effective for use in different conditions, there was a discharge of petroleum (chronology of events) village and Kusshor village), as well legislation regulating the safe operation of the internal surface of pipes used thus increasing the level of industrial products and a subsequent fire at the ΅ communications and transferring as environmental organizations. At a of pipelines: in 2017 work was in the oil industry. Standardization of and environmental safety and reducing well. An investigation determined that an information on progress regarding the working meeting, LUKOIL CEO Vagit performed to draft federal norms and respective requirements will enable all the number of oil spills throughout the uncontrollable blowout had occurred as clean-up of an accident Alekperov and Head of the Komi rules on the safe operation of in-field Russian companies to determine more country. a result of using non-standard equipment ΅ resource management during the Republic Sergey Gaplikov discussed during well-logging survey work. This clean-up of an uncontrollable blowout the results of efforts undertaken to was compounded by the unprofessional eliminate the consequences of the Use of unmanned technologies actions on the part of a contractor’s staff The state of readiness of blowout incident. LUKOIL voluntarily arranged when the first indications of gas, oil, and prevention units (based on concluded comprehensive and free medical We are looking at the experience in and Technology Board of LUKOIL is determine their potential value and use. water inflows arose. contracts) was audited, together with examinations for affected residents and applying new technologies, such as assessing various technologies that Based on the test results there are plans their technical equipment, staffing levels, organized a summer holiday for children drones, including for the purpose of could be used at the Company’s to adopt a decision on the expedience As a the result of the incident, mandatory and the extent of the preparation of from the affected areas. Representatives monitoring the integrity of pipelines facilities. Aerial vehicles from different of using them, and the terms governing requirements were developed for emergency response personnel. This from Russian and international and rapidly responding to unauthorized manufacturers are being tested at their practical use. contractors (at the tender stage), and included response arrival times at the environmental organizations also visited actions from third parties. The Research LUKOIL Group subsidiary sites in order to procedures were introduced requiring: scenes of accidents and incidents, or if the scene of the incident to assess the ΅ attestation (knowledge audit) of the there is the appearance of any signs of results of the clean-up work, and they management, chief engineer, and the possible oil, gas, and water inflows and also met with affected residents. Oil spills heads of the production units of the uncontrollable well blowouts. contractor on industrial safety issues at On 5 October 2017 there was In 2017 the total amount of oil and Based on 2016 data, LUKOIL’s indicator tie-in into a pipeline in West Siberia, all an attestation commission of the client Expenditures on fountain and another incident at LUKOIL- petroleum products spilled dropped by for oil spilled was low compared to other other incidents combined accounted for entity radiation safety were increased from Nizhegorodnefteorgsintez. An accident 13.6% in comparison with 2016, despite oil and gas companies2. In 2017, the 5.7% of the total volume of oil spilled. ΅ audits of the compliance of engineering 106 RUB million in 2016 to 110 RUB million occurred during the installation of the fact that the number of accidents Group’s overall dynamics improved. and technical facilities of bidders with in 2017. the fire extinguisher system for tank affecting the environment rose. In 2017, two incidents resulted in tender documentation requirements R-1549 in the marketable product and Apart from one large spill, which environmental damage and oil being ΅ audits of the existence of operational Work was organized with the federal crude storage unit, which led to a fire. occurred as a result of an unauthorized spilled into water bodies. HR management systems and quality executive authorities to improve the At the time this Report is issued, an controls of services being provided investigation into the reasons for the incident is still ongoing. The liability of LUKOIL Group subsidiary VOLUME OF OIL AND PETROLEUM PRODUCTS SPILLED DURING INCIDENTS employees was increased, up to and including dismissal under the Russian 2016 2017 Labor Code in the event that violations Volume of oil and petroleum products spilled during incidents, thousand tonnes 0.26 0.22 were identified of occupational and fire Specific spills rate (kg of oil and petroleum products spilled per thousand tonnes of oil and gas condensate 3.1 2.7 safety rules and process engineering “It goes without saying that the mistake of the extracted) norms which resulted in grave contractors leading to the fire had serious consequences. consequences (accident, occupational However, we managed, together with the accident rescue Note: The specific factor is calculated on the basis of the volume of oil and gas condensate production in Russia (excluding the share of dependent organizations). accident), or demonstrably created a real risk of such consequences. groups, the fire teams of the EMERCOM of Russia and the rapid response teams of LUKOIL-Komi, to extinguish the fire as quickly as possible.” VAGIT ALEKPEROV, PJSC LUKOIL President and CEO 1 For example, LUKOIL-Komi Oil Field Pipelines of Regional Production Enterprises of LUKOIL-Komi. Corrosion Monitoring System, LUKOIL-Nizhnevolzhskneft Repair of Offshore Pipelines technical regulation.

2 According to the reports of the following companies: Rosneft (2016 Sustainability Report, page 57), BP (2016 Sustainability Report, page 8), Shell (2016 Sustainability Report, http://reports.shell.com/ sustainability-report/2016 /data-and-reporting/environmental-data.html).

58 LUKOIL 2017 www.lukoil.com 59 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Employee health and safety

Target 8.8. Protect labor rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment.

We seek to comply with global best The actions of LUKOIL Group’s Program Working conditions improvement practices when it comes to the health of Health and Safety, Better Working and safety of our employees and we Environment, Emergency Prevention, and LUKOIL allocates significant The number of employees engaged funds to implement health have set ourselves the following goal: to Response for 2017-2019 aim to prevent and safety measures. In 2017, at workplaces with potentially harmful rd reduce the number of on-the-job injuries accidents and injuries, implement RUB 12,307 million was allocated working conditions (3 class) decreased. through planned and systematic actions a culture of work safety, provide to finance program measures aimed at improving health and safety employees with protective equipment, For the second consecutive year, the conditions. deliver training and instruction, and Company has fully eliminated workplaces prevent work-related illnesses, among with harmful working conditions of 3.4th other goals. The description of the subclass (the highest subclass of the relevant management 3rd class). The Company also has no system can be found on the Company’s website workplaces with dangerous working conditions (the 4th class).

CHANGE IN NUMBER OF EMPLOYEES ENGAGED AT WORKPLACES WITH HARMFUL WORKING CONDITIONS AT RUSSIAN LUKOIL GROUP SUBSIDIARIES, people

30,000 28,767 28,533 28,289 25,000 20,000 15,000 10,000 5,000 0 2015 2016 2017

Injury rate According to data for 2016, the injury rate order to prevent any repeat accidents at Russian subsidiaries of LUKOIL Group in the future. (The incidents in 2017 Over three years the total was lower than the injury rate of the mainly related to road traffic accidents, number of accidents at Russian industries in which Russian subsidiaries rockslides, and injuries due to high subsidiaries fell by 33%, and at of LUKOIL Group operate1. In 2017 we voltage.) foreign subsidiaries by 50%; the managed to considerably improve the lost time accident frequency rate values of indicators related to injuries, The total number of injured employees (LTAFR) dropped by nine and such as the lost time accident frequency at such accidents in Russia dropped 14 points, respectively. rate and the total number of lost time over three years by a third, including injuries in Russian subsidiaries. at LUKOIL Group subsidiaries (by 33%), and contractor organizations (by 33%). We carefully investigate each accident, Nevertheless, despite the reduction determine the causes, and analyze in the total number of accidents and all circumstances surrounding it in injuries, there was a rise in the number of fatalities at contractor organizations.

1 The comparison is based on the bulletin Occupational injuries in the Russian Federation in 2016, source: the website of the Federal State Statistics Service (http://www.gks.ru/wps/wcm/connect/ rosstat_main/rosstat/en/main/). The injury rate is understood to mean the number of fatalities and lost time injuries (for one business day or more) per 1,000 employees. The comparison was performed for the following industries: production of crude oil and natural gas and the provision of services in these areas, the output of petroleum products, electricity generation, and pipeline transportation).

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INDICATORS RELATED TO OCCUPATIONAL INJURIES AND DISEASES AT RUSSIAN SUBSIDIARIES OF LUKOIL GROUP INDICATORS RELATED TO OCCUPATIONAL INJURIES AND DISEASES AT LUKOIL GROUP FOREIGN SUBSIDIARIES

2015 2016 2017 2015 2016 2017

Total number of occupational accidents 24 18 16 Total number of occupational accidents 8 1 4 Number of injured employees (total number of injuries1), including: 30 27 18 Number of injured employees (total number of injuries1), including: 8 1 4 number of fatalities (FA) 7 4 3 number of fatalities (FA) 0 0 1 number of lost time injuries (LTI) 23 23 15 number of lost time injuries (LTI) 8 1 3 Number of employees with occupational diseases established for the first time 7 6 5 Number of employees with occupational diseases established for the first time 0 0 0 Lost time accident frequency rate (LTAFR) 0.28 0.21 0.19 Lost time accident frequency rate (LTAFR) 0.38 0.05 0.24 Severity rate (SR) 81.0 69.7 71.6 Occupational disease rate (ODR) 0.082 0.070 0.060

INDICATORS RELATED TO OCCUPATIONAL INJURIES AND DISEASES AT RUSSIAN SUBSIDIARIES OF CONTRACTOR ORGANIZATIONS INDICATORS RELATED TO OCCUPATIONAL INJURIES AND DISEASES AT LUKOIL GROUP CONTRACTOR ORGANIZATIONS

2015 2016 2017 2015 2016 2017

Total number of occupational accidents 24 22 16 Total number of occupational accidents 4 4 4 Number of injured employees (total number of injuries1), including: 29 28 20 Number of injured employees (total number of injuries1), including: 5 4 5 number of fatalities (FA) 7 8 10 number of fatalities (FA) 2 0 0 number of lost time injuries (LTI) 22 20 10 number of lost time injuries (LTI) 3 4 5

Note. Lost time accident frequency rate = Number of occupational accidents in the reporting period * 1000 / Average headcount of employees in the reporting period. Injury severity rate = Number Note. Lost time accident frequency rate = Number of occupational accidents in the reporting period * 1000 / Average headcount of employees in the reporting period. Injury severity rate = Number of days of temporary incapacity for work (due to occupational accidents) according to the closed sick leave certificates in the reporting period / Number of accidents for which sick leave certificates of days of temporary incapacity for work (due to occupational accidents) according to the closed sick leave certificates in the reporting period / Number of accidents for which sick leave certificates were closed in the reporting period. Occupational disease rate = Number of persons with newly established occupational diseases in the reporting period * 1000 / Average headcount in the reporting were closed in the reporting period. Occupational disease rate = Number of persons with newly established occupational diseases in the reporting period * 1000 / Average headcount in the reporting period. period.

1 If an employee was injured more than once during the reporting period, each instance is recorded as a separate injury. 1 If an employee was injured more than once during the reporting period, each instance is recorded as a separate injury.

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Interaction with trade unions on health and safety issues We believe the main way to reduce line managers – from the senior vice In order to further improve health and injuries is to further improve the HSE president of PJSC LUKOIL to the safety, plans are under way to bolster The International Association of Trade techniques and methods, compliance dealing with health and safety issues. Management System of LUKOIL management of subsidiaries work in the following areas: Union Organizations of PJSC LUKOIL with safety requirements, prevention of These employees monitor compliance Group and to increase the motivation ΅ Safety Days were held throughout the ΅ improve the operational efficiency of (IATUO) is dedicated to safeguarding the occupational injuries and diseases, the with the occupational safety obligations of employees and management of Company, with the participation of key decision-making to prevent and/or legal interests and rights of employees to status of medical services, the provision of the Company contained in the subsidiaries to ensure safe work. contractors resolve emergencies healthy and safe working conditions and of individual and group protection gear, collective bargaining agreements of ΅ Cooperation Plans with key contractors ΅ increase the commitment of both to working jointly on these issues with and notification of employees about LUKOIL Group subsidiaries. In 2017 the Company began on health, safety and environment management and employees in the administration of the Company on work safety and other areas designed to implementing new tools to increase issues were introduced at LUKOIL ensuring and complying with safe the basis of social partnership principles. inculcate a culture of work safety. Additional information safety levels in this regard: Group subsidiaries working methods on the structure of ΅ over 200 leadership safety visits ΅ establish the necessary terms and Trade unions that are members of IATUO IATUO includes an institute of technical the technical labor inspectorate of IATUO of were held, with the participation of conditions to prevent emergencies at pay particular attention to the quality labor inspectors and around 2,000 LUKOIL is available on contractor (subcontractor) organizations of employee training on safe working authorized employee representatives the website

Maintaining employee health Health and safety training Against a backdrop of a low level of registered instances were identified timber workers, and oil and gas Each year LUKOIL Group subsidiaries To develop a culture of safety and assimilated the materials on each topic, of work-related illnesses at LUKOIL at the Yareganeft oil mining division of production operators. carry out actions to increase employee to perfect the actions required in and undergo certification procedures. Group subsidiaries, the vast majority LUKOIL-Komi, among mine workers, awareness surrounding industrial, fire, emergencies, LUKOIL organized a mass In 2017 programs were undertaken to and occupational safety, to develop the training of employees in 2017 on the raise the quality of DLS education and, in required skills and to increase the quality topics “Health and Safety” and “Providing particular, to provide additional training. of training in this area. Main actions First Aid To Those Injured At Work”. A include: decision was taken to make extensive ΅ the delivery of face-to-face and remote use of situational training simulators. In 2017 a total of training, retraining, and advanced Such simulators are used to practice 57,513 employees at Russian training of employees the actions to be taken in the event subsidiaries and 12,670 at ΅ updating health and safety training and of emergencies and also improve the foreign subsidiaries attended control programs technical skills required for the safe various types of health and ΅ the deployment of a special training operation of complex equipment. safety training courses. system for staff operating hazardous equipment By leveraging the advantages offered ΅ increasing safety related by distance learning systems (DLS), In 2018 there are plans to implement a communications employees can independently enhance project to use electronic briefings in the their skills, test how well they have DLS system.

IMPROVING THE WORKING CONDITIONS AT OIL MINES The Yareganeft oil mining division is developing one of the oldest Timan-Pechora fields, Yaregorskoyе. Operations began TOTAL AMOUNT OF HEALTH AND SAFETY TRAINING, man-hours TOTAL HEALTH AND SAFETY TRAINING COSTS, LUKOIL GROUP, RUB million back in 1939. This is the only location in Russia where oil is extracted, in part through the underground thermal mining Subsidiaries 2015 2016 2017 method. As in any mining method to extract minerals, the extraction method has its shortcomings – for example working in a constricted space, and heightened noise levels, vibrations, and temperature. Total, including: 57,332 47,560 56,481 350 335.6 329.8 327.9 To reduce the impact of these adverse factors, state-of-the-art extraction technologies are being implemented at the Russian subsidiaries of LUKOIL Group 38,783 33,898 42,114 300 division which will significantly reduce health risks for workers. The working conditions have also been improved thanks Foreign subsidiaries of LUKOIL Group 18,549 13,662 14,367 250 to the introduction of new air conditioning and ventilation systems, retrofitting of the pumping fleet, the acquisition of 200 equipment that eliminates contact with vibration sources, the installation of computer equipment, reduction in the share 150 of manual labor, and the use of individual protection gear. 100 50 In addition, we are implementing measures to facilitate the early identification of an employee’s susceptibility to work- 0 related diseases, thus making it possible to promptly transfer that employee to another job which does not involve 2015 2016 2017 contact with industrial health hazard sources. Note. Data for 2015 relate to the Russian subsidiaries of We believe these and other measures will have a positive impact on employee health, in particular on employees who LUKOIL Group; data for 2016 also include information on the organizations OOO LUKOIL Uzbekistan Operating Company have worked for a long period at mines. Over time this will help dramatically reduce the number of registered work- and LUKOIL MEDIUM EAST LIMITED. related illnesses.

64 LUKOIL 2017 www.lukoil.com 65 LUKOIL GROUP SUSTAINABILITY REPORT 2017 Personnel

Compliance with employment 69 entitlement Target 8.3. Promote development- rights oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, Work-related including through access to financial 72 performance services. incentives

Target 8.5. By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value. Staff 74 development

Youth 75 policy Target 10.3. Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies, and practices.

66 LUKOIL 2017 www.lukoil.com 67 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Target 8.3. BREAKDOWN OF EMPLOYEES BY CATEGORY AS AT 31 DECEMBER OF EACH YEAR Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, Personnel categories 2015 2016 2017 creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized Management 12% 12% 12% enterprises, including through access to financial services. Target 8.5. Specialists 28% 27% 27% By 2030, achieve full and productive employment and decent work for all women and men, including for young Workers and other employees 60% 61% 61% people and persons with disabilities, and equal pay for work of equal value.

The strategic priorities of the Company In 2017 our HR systems were enhanced BREAKDOWN OF EMPLOYEES BY SEGMENT are to guarantee safe working and a number of projects were AS AT 31 DECEMBER 2017, % conditions, reduce accident and injury implemented, including: Target 10.3. rates, and apply global best practices in ΅ the Working Group on Organizational Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies, the oil industry. Efficiency was set up, and proposals and practices. were prepared to boost labor The HR system at LUKOIL Group is productivity at LUKOIL Group based on the Code of Business Conduct subsidiaries and Ethics of PJSC LUKOIL, Corporate ΅ methodological support was provided Culture Rules, and the obligations set to help develop the risk management Our HR Strategy is guided by the general AVERAGE HEADCOUNT, employees forth in the Social Code of PJSC LUKOIL. and internal control system strategy of LUKOIL Group and focuses on ΅ implementation of the software solution Downstream 60 stable, long-term development based on 2015 2016 2017 ICS Personnel continued Upstream 35 traditions and many years of experience Total for LUKOIL Group, 107,040 105,539 103,647 in the Russian oil industry. Our aim is to More information Other lines of business 3 including: about this area can utilize our staff’s potential to the fullest, be found on the Corporate center 2 thus strengthening the Company’s key Russian subsidiaries 84,739 85,391 85,790 Company’s website competitive advantages and boosting of LUKOIL Group our ability to rapidly adapt to changes in Foreign subsidiaries 22,301 20,148 17,857 external factors and successfully implement of LUKOIL Group innovations. Our underlying principles and the basis for a relationship with employees Compliance with employment entitlement rights and trade unions focus on strict adherence HEADCOUNT AS AT 31 DECEMBER OF EACH YEAR, employees to all legislative and social norms. Employment and the diversity of labor resources 2015 2016 2017 The staffing structure has remained We seek to apply unified principles and Total for LUKOIL Group, 111,331 110,101 107,405 stable over the past three years: approaches to our work with personnel SHARE OF MANAGERIAL STAFF FROM THE LOCAL POPULATION AT FOREIGN including: ΅ the ratio between men and women in all the countries and regions in which SUBSIDIARIES OF LUKOIL GROUP employed is roughly equal, with a Russian subsidiaries 89,167 90,112 89,323 we operate, always taking into account 2017 slightly larger number of men, which is of LUKOIL Group local specifics and characteristics. attributable to the operating specifics Foreign subsidiaries 22,164 19,989 18,082 The principles and norms set forth in Senior management2 219 of LUKOIL Group of the industry in which the Company our staffing policy and other internal Including from local population3 74 operates (as at 31 December 2017, 59% regulations are binding on all LUKOIL Share of local management 34% of the Company’s employees were men STAFF TURNOVER, % Group subsidiaries. These documents and 41% were women) determine the procedure for recruiting, ΅ employees under the age of 35 2015 2016 2017 selecting, and evaluating personnel, account for approximately 40% of all determining employment terms and employees1 Total for the LUKOIL Group, 7.4 7.2 6.7 conditions, and actions regarding LUKOIL provides opportunities for (between 40% and 100%). Our including: ΅ the ratios between different categories seconded employees and their family suitably qualified local employees to fill fundamental approach is to recruit the of employees were virtually unchanged. Russian subsidiaries 6.6 5.9 5.6 members in the event of emergencies vacancies – including managerial ones best specialists to the Company and of LUKOIL Group and other issues. – in its regions of operation. In European provide them with the opportunities they Average headcount in 2017 stood at Foreign subsidiaries 10.9 12.8 11.6 countries, the share of representatives need to fully realize their potential. 103,647. Around 83% of employees of LUKOIL Group from the local population in management worked at Russian subsidiaries. is higher than average for the Company Note. The staff turnover coefficient is calculated as the ratio of the number of those dismissed to the average number of employees for the reporting period. Dismissed employees include those discharged for absenteeism or other labor discipline violations, and those who retire voluntarily (as a result of moving, retiring, looking after a child aged under 14, etc.), or who leave the Company upon mutual agreement (with the exception of employees who are rehired the following day). 2 Senior management is understood to mean the Chief Executive Officer (Managing Director/General Director) and his deputies in functional areas.

1 Data relate to 2016 and 2017; in 2015 employees under the age of 30 were included in the category of young employees. 3 The local population is understood to mean employees that are registered as or are citizens in the foreign countries where the Company operates.

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The professional recruitment and subsidiaries. If no executives can be in order to support and disseminate Working hours deployment of management facilitates recruited from local markets at foreign uniform standards and the corporate results in consistently high levels subsidiaries, Russian employees culture of LUKOIL Group, as well as to The Company adheres to labor provided. In shift work, each group of The employer accounts for the working of performance and the effective recognized as having high potential expand competencies through work legislation regarding working hours employees must perform their work and leisure hours of each employee management of LUKOIL Group are seconded to managerial positions experience on international projects. and time-off. In most countries where during established working hours in working rotation by months and for the the Company operates, local legislation accordance with the shift schedule. entire accounting period. The working contains specific requirements on the The employer drafts the shift schedule and leisure hours within the accounting Guarantees of employment entitlement rights duration of the working week, and with due account of the opinion of the period are regulated by the rotation LUKOIL strictly observes these. representative body of employees, and work schedule, which is approved by The main document regulating notifies employees against a signed the employer, taking into account the relations between the Company and In Russia, working hours are established receipt no later than one month before opinion of the elective body of the our employees is the Agreement by Employment Policies and Procedures the schedule comes into force. primary trade union organization, and between the Employer and the Trade in accordance with labor legislation, the is communicated to employees against Union Association of Public Joint-Stock Industry Agreement on the Organization Rotation work is a particular type of work a signed acknowledgment receipt no Company LUKOIL Oil Company for of Oil and Gas Industries and the which is conducted at a considerable later than two months before it comes 2015-2020. Construction of Oil and Gas Facilities of distance from the place of permanent into force. This schedule stipulates the the Russian Federation, the Agreement residence of employees (i.e., where time required to deliver employees between the Employer and the Trade daily return to the permanent place of to the rotation and back. The days in Union Association of Public Joint-Stock residence of the employee cannot be transit to the work place and back are Detailed information about the document Company LUKOIL Oil Company for guaranteed). Rotation work is established not included in working hours and may and interaction with the 2015-2020, and collective bargaining at LUKOIL Group subsidiaries at remote accrue to days of rest and recreation trade union organization agreements. For employees whose fields and continuous production between rotations. When assembling can be found on the Company’s website working hours differ from the general facilities. A rotation cannot last longer rotation personnel, priority is given to rules established by the employer, this than one month. local individuals with the necessary issue is governed by the respective qualification. employment contract, with due account In rotation work a record is kept of Collective bargaining agreements By ensuring social stability and additional obligations, based on Russian for the nature of production and the work cumulative working hours for a month, During their time at production facilities, were concluded at 461 Russian and 10 improving the comfort and quality of life law and international standards, are set specifics and working conditions. quarter, or other more protracted comfortable conditions are created for foreign subsidiaries, and covered 88% of employees, LUKOIL implements an forth in the Social Code of PJSC LUKOIL. period, but no more than one year. The employees engaged in rotation work: of employees. Moreover, this figure extensive social policy, which includes In particular, shift work is introduced accounting period covers all working they live in specially created rotation covers 95.1% of employees at Russian benefits and guarantees available to in instances where the duration of hours, the time in transit from the location camps or in furnished hostels paid by the subsidiaries. Russian subsidiaries where all employees, irrespective of whether Detailed the production process exceeds the of the employer or from the collection employer. collective bargaining agreements have they are a member of a trade union information in this permitted number of daily working hours, point to the workplace and back, and the not been concluded are subject directly to organization or whether there is a regard is available and also to ensure the most effective leisure hours attributable to this calendar on the Company’s the Industry Agreement of Organizations trade union or not. These benefits are website use of equipment and to increase segment. Operating in the Oil and Gas Industry and provided regardless of the employment output or the volume of services being the Construction of Oil and Gas Facilities in type (full or part-time). The Company’s the Russian Federation. INFORMATION ON NUMBER OF FULL-TIME ROTATION EMPLOYEES

Share of rotation employees in total STAFF EXPENSES, RUB million Headcount of rotation employees number of employees of subsidiaries at 2015 2016 2017 at end of period end of period, %

Staff expenses, total for the LUKOIL Group, including: 153,729.4 153,415.0 142,145.0 2015 2016 2017 2015 2016 2017 wages 135,465.0 137,664.1 132,022.3 Total, including: 13,280 13,823 14,080 social benefits and payments, social support for employees 17,175.0 14,698.2 9,297.4 Russian subsidiaries of LUKOIL Group 10,751 10,562 10,763 12 12 12 training 1,089.3 1,052.6 825.3 Foreign subsidiaries of LUKOIL Group 2,529 3,261 3,317 11 16 18 (production)

Note. The indicator “wages” is prepared in accordance with instructions on how to complete the federal statistical monitoring forms approved by Federal State Statistics Service Order No. 278 dated 12 November 2008, including amendments and addenda approved by Federal State Statistics Service Order No. 240 dated 3 November 2009. Salary includes remuneration amounts accrued by the entity to the employees (with due account of personal income tax and other withholdings) in monetary and non-monetary forms for worked and non-worked time, compensation payments related to working hours and employment conditions, benefits and surcharges, bonuses, one-time incentive payments, and payments for food and housing that are regular in nature, in accordance with the methodology for completing the accrued payroll of employees indicator in form No. P-4 Information on headcount and employee salaries.

1 Including LUKOIL Oil Company and LUKOIL PERSONNEL, which have Regulations on employee guarantees and compensation that are similar in content to the collective bargaining agreements, and also LLK-International (production facilities in Perm and Volgograd).

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Control NON-STATE PENSION COVERAGE IN RUSSIAN SUBSIDIARIES OF LUKOIL GROUP 2015 2016 2017 HR work at LUKOIL Group subsidiaries K.N. Holding, TPE TatRITEKneft, Based on an analysis of the is constantly monitored by the Staffing RITEK, LUKOIL-Chernomorye, governance systems at a subsidiary, Number of former employees receiving a corporate pension 41,422 43,094 46,294 and Organizational Development LUKOIL-Nizhnevolzhsknefteprodukt, recommendations were made on how Average non-state pension size, RUB 2,100 2,290 2,240 Unit through regular HR audits. The LUKOIL-URTs Volgograd, Volgograd to improve managerial processes, and work of HR functions is audited every Regional Directorate of LUKOIL- plans were drafted to eliminate identified year at LUKOIL Group subsidiaries for ENERGOSETI, LUKOIL-Volgogradenergo, deficiencies, indicating respective Healthcare compliance with Russian labor law and LUKOIL-Stavropolenergo, LUKOIL- deadlines and the responsible parties. respective corporate requirements. Energoengineering, and Varandey Particular attention was paid in 2017 Terminal. No violations of human rights in the form to preventive treatment in relation to During 2017 HR audits were of the use of child labor or forced labor acute conditions at the workplace, conducted at LUKOIL-Komi, were found at the audited subsidiaries. cardiovascular diseases, and the prevention of a number of dangerous infections (including anthrax).

Work-related performance incentives The system of regular and in-depth medical check-ups to prevent acute We seek to maintain a competitive is set individually for each employee The incentive system for employees conditions was expanded. Employees employee remuneration system. Our taking into account their level of in Russian subsidiaries also consists receive primary healthcare from goal is to attract, retain, and motivate education and practical experience. of a wide range of benefits and healthcare professionals at more than individuals whose qualifications and compensations established by the 100 first-aid rooms, pre-trip medical performance will ensure the successful In 2017 the starting salary in Russian agreement between the employer examination rooms, and medical clinics. implementation of our mission and the operating regions of the LUKOIL Group and the trade union organization, achievement of our business goals. exceeded the established regional collective bargaining agreements, and Thanks to equipment upgrades at clinics minimum wage in the respective regions other internal regulations. Within the used for medical check-ups, state-of- Under an agreement between LUKOIL by on average 25%1. The starting salary benefits and compensation system the-art electronic systems are now in and the trade union association, of employees of LUKOIL Group foreign considerable attention is paid to use and a number of tests are now the minimum rate of pay in Russian subsidiaries is set at no lower than the issues that affect the quality of life of automated, thereby significantly reducing subsidiaries is established as being no minimum wage in the countries where employees, such as maintaining their the amount of time needed to undergo less than the subsistence minimum of the the Group operates, as established health, helping employees and their certain procedures. employed population. The base salary by labor legislation norms and/or the families, and providing assistance on depends on the employee’s established collective bargaining agreement and/or home purchases. Social support is also duties, the challenges inherent in their internal regulations. provided to employees that have retired Professional standards and employee performance evaluation work and the level of responsibility, and from the Company. In 2017, work continued to bring the job A Qualifications Evaluation Center For the first time, an independent duties and qualifications of employees in was set up, on the basis of LUKOIL- appraisal of qualifications is being carried line with the requirements of professional INFORM2. In October 2017 the Board for out in the industry. This process will VOLUNTARY HEALTH HOUSING PENSION standards. Towards this end, uniform Professional Qualifications in the Oil and make it possible to raise the professional INSURANCE PROGRAM SUPPORT approaches to working with professional Gas Sector approved the Qualifications level of oil and gas enterprise employees standards at LUKOIL Group subsidiaries Evaluation Center of LUKOIL-INFORM. and to improve the quality of human Additional voluntary health 1,410 employees participated in a The estimated value of pension were drafted. capital in the industry. insurance programs are provided housing program in 2017. liabilities at the end of the reporting to over 90% of the employees of period was RUB 10,367 million. The The program is implemented under Russian subsidiaries; employees pension plan covered over 52,000 the Fundamental Principles of the have the option to make additional employees. PERFORMANCE EVALUATION OF PJSC LUKOIL EMPLOYEES, 2015-2017 LUKOIL Group’s Housing Policy, payments to add services to the and aims to proide production Pension coverage for the 2015 2016 2017 existing voluntary health insurance staff (invited specialists and young employees of foreign LUKOIL program in order to meet their Employees that underwent performance evaluation, total 1,973 2,015 2,109 specialists) with housing and help Group subsidiaries is provided in specific personal needs. employees improve their housing accordance with the legislation of Headcount of PJSC LUKOIL as at 31 December of each year 2,204 2,277 2,331 conditions by subsidizing interest the country in which the subsidiary Percentage of employees that underwent performance evaluation 89.5% 88.5% 90.5% rates on bank mortgage loans. operates and local regulations.

Note. The percentage of employees that underwent performance evaluation is calculated using the formula: in the numerator – the total number of employees who underwent performance evaluation; in the denominator – the headcount of personnel as at 31 December of the corresponding calendar year.

1 We took the maximum of the following three figures to define entry-level salaries at subsidiaries operating in a specific region: the subsistence minimum as a whole for the Russian Federation, the 2 In connection with the adoption of Federal Law FZ-238 dated 3 July 2016, “On the Independent Appraisal of Qualifications”. subsistence minimum in the respective Russian region, and the regional minimum wage.

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Corporate knowledge management system Staff development We closely monitor the development of primarily based on joint work with Segment” was declared the winner in The staff corporate learning and NUMBER OF PEOPLE TRAINED, NUMBER OF ATTENDED TRAININGS, person- staff knowledge in order to facilitate the recognized corporate experts. the Organizational Intelligence category development system revolves around persons course innovative development of the Company at the 4th Russian competition of best the Company’s strategic plans and and to achieve optimum financial In 2017 the LUKOIL project “Creation and practices of employers in developing requirements for employees with 80,000 200,000 193,761 results. As part of the existing corporate Development of a Corporate Knowledge human capital, Creating the Future. 69,571 70,183 specific qualifications and competencies. 70,000 161,560 knowledge management system, we Management System Based on the 150,000 60,000 Example of the Knowledge Management We focus above all on allowing our 50,000 follow the development processes of employees to develop the skills and 40,000 100,000 young specialists and staff in general, System of the Upstream Business competencies that they need and 30,000 on attracting and developing young 20,000 50,000 10,000 specialists. 0 0 2016 2017 2016 2017 Youth policy We believe staff training, including through professional retraining, is key to LUKOIL Group subsidiaries. Our main integrated long-term training program for Youth policy is a key focus area for us. at recruiting young employees and opportunities to ensure their successful minimizing risks related to unprofessional strategic partners are higher education various employee groups. It comprises a system of measures aimed creating the necessary conditions and development. employee actions, including those on the academic institutions and academic part of employees of service/contractor centers with a proven record of providing The Company pays significant attention organizations. quality educational services. to the training and development of INDICATORS OF WORK WITH YOUNG PROFESSIONALS young specialists, including by involving 2017 Development programs focus on Employee educational programs them directly in the work process. With prioritizing the training requirements help the Company successfully meet this in mind, we plan to set up an institute Total number of young employees1 42,772 identified for different staff groups, based objectives related to new lines of of mentors. Number of young professionals 1,945 on an analysis of differences between business, and maintain the required level the requirements imposed on employees of competitiveness. An increase in the To ensure the necessary quantitative Recruited young employees 12,125 and the existing competency level. quality and effectiveness of employee and qualitative pool of candidates to fill including young professionals 706 We use our entire arsenal of training work and a reduction in staff turnover management positions at different levels, Number of students trained under contracts with LUKOIL Group subsidiaries 295 resources and forms, applying relevant through greater commitment and we also plan to continue to implement economic and methodological tools. engagement help reduce costs. our succession planning system for Number of students on internships at LUKOIL Group subsidiaries 2,950 senior management. We train staff on the basis of the annual We intend to continue to develop the Continuing Professional Development continuous corporate learning system. Plans of employees of PJSC LUKOIL and This work includes plans to draft an R&D competitions and conferences. Young Professionals Day. Young Meeting Between Generations R&D competitions and conferences Professionals Day is an annual event. corporate evening. In 2017 a corporate are held annually. In 2016 events were In 2017 the day included a LUKOIL City evening entitled Meeting Between Distance learning held at 31 LUKOIL Group subsidiaries in teambuilding training course, with 150 Generations was held. The event was Russia. people participating, and the second attended by young and long-term The corporate distance learning system Based on the results for 2017, over Leveraging DLS opportunities, we round of the “Club of Merry Oil Workers.” employees of the Company. The event makes it possible to successfully meet 60 LUKOIL Group subsidiaries were implemented an integrated training Councils of Young Professionals. included the awards ceremony of the our general learning objectives, conduct connected to DLS, and more than program for the operators of filling The goal of these Councils is to help Young Professional of the Year contest. 12th Young Professional of the Year knowledge audits of compliance with 92,000 users were registered. During stations (including adaptation, start, and young employees adapt to working In 2017 the results of the 12th Annual from LUKOIL Group subsidiaries of the corporate requirements and applicable the year employees successfully support training). conditions at LUKOIL. Off-site meetings Young Professional of the Year were Moscow Region and a concert from the legislation, and develop the professional completed more than 100,000 training of the LUKOIL Group Council of Young announced. The contest featured 122 Alexandrov Ensemble. and management competencies and courses, thereby increasing their Professionals are held annually in participants in 22 categories, and 59 personal efficiency skills of employees. workplace-related qualifications. Russian regions. In 2017 an event was young professionals from LUKOIL Group hosted in Sochi at the Sirius Educational subsidiaries were declared winners. Center, as part of Russian Health and Safety Week. The participants drafted proposals which will serve as the basis for the new Integrated Target Program for Working with Youth.

1 Young employees – employees of PJSC LUKOIL and LUKOIL Group subsidiaries aged up to 35, including young professionals. Young professionals are employees under the age of 46, who have a higher or secondary professional education, joined the Company based on their educational background, including blue-collar professions, within six months after graduating from an academic institution or within three months after completing their military service with the Russian Armed Forces.

74 LUKOIL 2017 www.lukoil.com 75 LUKOIL GROUP SUSTAINABILITY REPORT 2017 Local

External social communities 78 policy priorities Target 4.4. By 2030, substantially increase the number of youth and adults who have relevant skills, including technical and vocational skills, for employment, decent jobs and entrepreneurship. 82 Education

Target 11.4. Strengthen efforts to protect Support for children and safeguard the world’s cultural and 83 and childcare natural heritage. institutions

84 Sport Target 17.17. Encourage and promote effective public, public-private and civil society partnerships, building on the experience and resourcing strategies of partnerships. Indigenous peoples 85 of the North

76 LUKOIL 2017 www.lukoil.com 77 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Many LUKOIL Group subsidiaries are major enterprises in the regions where the Company operates, and thus have a significant impact on local communities. By investing in production capacities, creating decent working conditions, and implementing charity programs, LUKOIL contributes to the social and economic 27 stability of these areas, as well as the development of human capital. cooperation agreements were in place in 2017, with total financing exceeding RUB 6 billion Target 17.17. Encourage and promote effective public, public-private and civil society partnerships, building on the experience and resourcing strategies of partnerships.

Cooperation agreements with constituent subjects of the Russian Federation We recognize the importance of regular stakeholders. The Company’s external sponsorship activity. Thanks to LUKOIL’s As a result of social investments in built, infrastructure developed, and regions, boost personal development interaction with local communities, social policy is structured in accordance support, hundreds of such projects are Russian regions, educational, cultural, landscaping performed. Joint projects opportunities, and improve health. focusing on objective 17.17 of the with the principles of constructive implemented annually in Russia and healthcare, sports, and religious with local authorities help increase the Sustainable Development Goals to cooperation and responsible behavior, abroad. facilities have been upgraded or quality of life of the residents of the stimulate effective partnerships among and priority is given to charity and

External social policy priorities

MALY THEATRE IN KOGALYM Target 11.4. A branch of the Maly Theatre will soon open in Kogalym, LUKOIL’s “Family Seat”. Its façade will be similar to that of Strengthen efforts to protect and safeguard the world’s cultural and natural heritage. the Moscow branch of the Maly Theatre on ulitsa Bolshaya Ordynka. Large-scale productions are being planned for the theatre. The troupe of the theatre in Kogalym will be formed from graduates of Schepkin College, who will work with professional directors from Moscow. The completion of the renovation work is scheduled for 2018.

The Company’s external social policy The priorities of LUKOIL Group’s focuses on key stakeholder groups and external social activity are the same is performed using various mechanisms: for all the regions and countries where Social and Cultural Projects Contest TOTAL CONTEST BUDGET, RUB million ΅ partnerships with local authorities as our subsidiaries operate, and include part of cooperation agreements with assisting with economic development; The Social and Cultural Projects Contest of organizations, and local government the constituent subjects of the Russian supporting culture, sports, science and LUKOIL has been held since 2002. Its main authorities. Applications are considered 150 ~9 1 125.3 Federation education; improving the environment in goals are to support projects and initiatives in three key areas: the Environment, 120 ΅ interactions with indigenous peoples of the regions where the Group operates; RUB bln from local communities to resolve existing Spirituality and Culture, and Sport. 103.5 90 81.1 the North in Russia promoting healthy lifestyles; and External social support costs problems and to create the conditions Furthermore, an additional subject is ΅ holding the annual Social and Cultural assistance to childcare institutions. amounted in 2017 necessary to increase the number of approved each year. 60 Projects Contest in Russia for a active citizens and organizations capable 30

wide range of public and municipal An important principle of external social of implementing outstanding social ideas 0 organizations activity is partners and initiators making in their region. LUKOIL Group subsidiaries 2015 2016 2017 ΅ supporting charity and sponsorship, a financial contribution to social projects. and the LUKOIL Charity Foundation are the Detailed information is with the ultimate beneficiaries both For example, a mandatory condition for contest’s organizers. published on the LUKOIL 1 Taking into account the contribution by the LUKOIL Charity Foundation Charity Foundation. specific target groups (for example, taking part in the Social and Cultural You can read in social website children deprived of parental care or Projects Contest is that the applicant networks about the The contest is open to private non-profit social projects that have with special needs) and the residents of organization must make a contribution received support from organizations, state municipal budgetary population centers in general from its own funds or borrowings LUKOIL, for example equivalent to at least 30% of the on Facebook requested amount.

78 LUKOIL 2017 www.lukoil.com 79 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Areas taking part in the Social and Cultural Projects Contest RESULTS OF THE SOCIAL AND CULTURAL PROJECTS CONTEST, 2017 Contest operator Number of projects Financial support Project to winners’ implementation Submitted to the projects, area RUB million VLADIMIR contest (Winners) REGION LUKOIL-PERM, LUKOIL-Permnefteprodukt, Perm Territory, Republic of KALININGRAD NIZHNY NOVGOROD KOMI YAMALO- LUKOIL-Permnefteorgsintez 855 (174) 27 Bashkortostan, Udmurtia REGION REGION REPUBLIC NENETS AUTONOMOUS LUKOIL Nizhnevolzhsknefteproduct, RITEK, VOLGOGRAD YAROSLAVL NENETS DISTRICT REGION REGION AUTONOMOUS LUKOIL-Volgogradneftepererabotka, LUKOIL-Volgogradenergo, DISTRICT LUKOIL Charity Foundation 470 (68) 11 Volgograd Region VOLOGDA REGION LUKOIL-Nizhnevolzhskneft, LUKOIL-Astrakhanenergo 108 (35) 5 Astrakhan Region UDMURT REPUBLIC LUKOIL- Nizhnevolzhskneft, LUKOIL Charity Foundation 38 (5) 1 Republic of Kalmykia Komi Republic, Nenets LUKOIL-Komi, LUKOIL Charity Foundation 155 (56) 15 Autonomous Area Khanty-Mansi Autonomous Area-Yugra, Yamalo- Nenets Autonomous Area, LUKOIL-West Siberia 118 (32) 4 Tyumen Region Nizhny Novgorod Region, Vologda Region, Vladimir Region, Republic LUKOIL-Volganefteprodukt, of Mordovia, Mari El LUKOIL-Nizhegorodnefte-orgsintez, LUKOIL Charity Fund 375 (60) 10 Republic, Chuvashia

LUKOIL-Kaliningradmorneft, LUKOIL Charity Fund 103 (17) 4 Kaliningrad Region

RITEK, LUKOIL Charity Foundation 408 (74) 15 Samara Region

RITEK, LUKOIL Charity Foundation 683 (197) 30 Republic of Tatarstan

Stavrolen, LUKOIL-Yugnefteprodukt, LUKOIL Charity Foundation 51 (21) 3 Stavropol Territory PERM TERRITORY Total 3,364 (739) 121 KHANTY-MANSI REPUBLIC OF AUTONOMOUS BASHKORTOSTAN DISTRICT – YUGRA

REPUBLIC OF TYUMENT TATARSTAN REGION ASTRAKHAN MARI EL REGION REPUBLIC KALMYK CHUVASH REPUBLIC REPUBLIC

STAVROPOL SAMARA “The AntiSWINE project, which “Thanks to grants received from “Our project “Win by Overcoming” TERRITORY REGION has been with us for five years the LUKOIL Charity Fund we have won a grant in the 2017 competition. REPUBLIC OF now, was implemented thanks implemented a number of socially With the funds awarded we examined MORDOVIA to support from the LUKOIL important projects in various regions 190 children from remote districts of Charity Fund. The project brings of Astrakhan: we created Veterans’ the republic for the early detection together people that care about Square, improved the Walk of Fame, and of diseases, and organized various maintaining order in the city and restored the territory of a park near a memorable and enjoyable events keeping the shorelines of lakes memorial to soldiers who gave their lives for families raising children with and rivers clean.” in World War Two.” disabilities and physically challenged R.B. KLISHKOVSKAYA, E.G. SELIVERSTOVA, children.” Head of the AntiSWINE movement (Nizhny Novgorod) Director of the Center for Strategic Analysis A.L. ZAGRETDINOV, and Project Management (Astrakhan Region) Project Director and founder of the Strength in Children charitable fund (Kazan)

80 LUKOIL 2017 www.lukoil.com 81 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Charity and sponsorship As part of the comprehensive significantly, and new training aids have Supervising Oilfield Development, and LUKOIL’s charity and sponsorship Russia, these issues are managed by Foreign subsidiaries with smaller budgets cooperation program between LUKOIL been published. Exhibition Areas, which was refurbished projects are conducted throughout the LUKOIL Council for Coordination of plan charity activity independently within Group subsidiaries and industry- with the Company’s support. The LUKOIL the country. Partners and beneficiaries Charity/Sponsorship Activities, which is the framework of the general priorities specific higher education institutions In 2017 LUKOIL CEO Vagit Alekperov CEO delivered a lecture on development include well-known creative teams, chaired by First Vice-President of LUKOIL approved by LUKOIL. (oil, chemistry, and gas), dedicated visited the opening at the Gubkin trends in global fuel and energy markets sports teams, research and medical Alexander Matytsyn. departments have been set up, the Russian State University of Oil and and the Russian oil industry, and met the centers, and small subsidiaries and material and training facilities of Gas (national research university) of a recipients of LUKOIL scholarships and groups of citizens in need of help. In universities have been increased research and training site, a Center for grants.

Education

In our interactions with local communities interactive programs with secondary and establishing intellectual potential in we pay close attention to improving and higher educational institutions. We production areas that require modern educational levels, and seek to achieve believe that in this way the Company can and innovative solutions. In Iraq a project is being implemented in Basra, jointly this both through charity projects and contribute to developing human capital with the Education Department to train young children from the Eiz Eldeen Saleem District on the deployment of digital technologies. Equipment has been supplied to schools and is being used to teach a number of subjects, Target 4.4. including mathematics. Currently the program is only available to first graders; however, there are plans to By 2030, substantially increase the number of youth and adults who have relevant skills, including technical and subsequently expand it to the entire primary school. vocational skills, for employment, decent jobs and entrepreneurship.

FAMILY NIGHTS IN HOUSTON LUKOIL supports the Children’s Museum in Houston as a sponsor of a Free Family Night event. Thanks to our Programs for schoolchildren focus on Since 2000 we have been supporting support, low-income families can visit museums for free and participate in educational programs that acquaint developing the skills and knowledge promising students, young teachers, and Detailed related informa- the children with science, technologies, engineering, and that they will need in their studies and masters of industrial training by awarding tion can be found on the “I like these pictures on the screen – it mathematics. The goal of the project is to increase the Company’s website professional activity. Career-oriented them with scholarships and grants. In feels as if you are watching cartoons at engagement of partners in the education of children and work is performed for senior high school 2017 the scholarship program covered to reduce the impact of poverty on the level of education students, and trips are organized to 11 institutions of higher education, four home. Now it is always fun in lessons!” achievement. In 2017 a record number, over 100,000, LUKOIL enterprises. colleges, and one high school in Russia. HASSAN SHAHID, visited the Free Family Night event. On average, LUKOIL grants are more pupil of the Al Rawad primary school located in Um Shewage village than twice the size of a state grant1.

SUPPORT PROGRAMS FOR STUDENTS AND TEACHERS IN HIGHER AND SECONDARY EDUCATIONAL ORGANIZATIONS IN RUSSIA Support for children and childcare institutions 2015 2016 2017 Our support program for childcare As a result of reforms to the guardianship The Company continues to help the Student grants institutions (family support and childhood system, the requirements of childcare graduates of sponsored orphanages Number of grant holders, people 180 186 180 centers) is a priority within LUKOIL’s institutions in the social sector in Russia obtain an education by providing them charity activity. We decided to provide have changed. It is for this reason that with grants. In 2017, 49 graduates Amount of financing, RUB million 5.1 5.8 6.6 support in this area long before the topic LUKOIL is intensifying its activity focused received support in this area. We provide Grants for teachers came to the attention of society. Our goal on the long-term personal development vocational training and also pay attention Number of grant holders, people 82 88 89 is to create conditions that provide the of children and their socialization and to the creative development of children. best start in life for children deprived of adaptation to independent life. Towards this end, we hold the children’s Amount of financing, RUB million 9.0 9.6 10.3 parental care. drawing contest “We’re Drawing the An acute problem faced by the children Kremlin” and a special program as part of

Note. Numbers for 2015-2016 have been adjusted. The Company has helped resolve we support is the lack of an appropriate the Spasskaya Tower festival. numerous issues encountered by adult role model to communicate with, sponsored childcare institutions: as a result of a breakdown in parent- buildings now have modern interiors, and child relations. We attempt to help For more details classrooms are equipped with suitable resolve this complex issue through go to the website furniture and educational materials. voluntary activities involving our young professionals.

1 In 2017 the academic state grant for university students was set at RUB 1,484 per month.

82 LUKOIL 2017 www.lukoil.com 83 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

global football and coaches who have won final, with the winner (“Rubin”, Kazan) final round of the tournament draw in SPASSKAYA TOWER – international trophies in professional sports. participating in the final round in Bulgaria. 2017 was held in the main arena of the FOR CHILDREN Bulgarian club Levsky (Sofia), with more In 2017 the format and geography of Since 2001 LUKOIL has been supporting than a 1,000 people attending. As part of the annual musical festival Spasskaya Tower the tournament were expanded: the one of the largest children’s sport we implement a charity campaign that has already Russian rounds of the tournament were organizations – the regional public become a tradition for the young residents in family held in the Russian cities of Sochi, organization Children’s Football League support and children centers. Educational master Detailed information classes and lectures are organized for the young Kazan, St. Petersburg, as well as Perm (http://www.dfl.org.ru/). The tournament is published residents, who get to see real officer uniforms and and Tula. The winners of the regional draws together over 4,000 thousand on the website weaponry, and also enjoy performances by musical stages arrived in Moscow for the national participants from 50 countries. The ORPHANAGES IN SERBIA bands and equestrian shows. In 2017 pupils from the Assistance Center for Family Education Kahovskie The clients of LUKOIL filling stations in the cities of Romashki and the Center for Family and Childhood Niš and Novi Sad in Serbia selected orphanages to be Support in Zelenograd came to Moscow to attend an Indigenous peoples of the North supported by the Company in 2017: the Institution for event, joining the Center for Family and Childhood Support of the North-West Administrative District of Mar’s Children and the Center for Housing Orphans We share the principles set forth in ΅ sponsoring specific projects through Compensation payments are made and Adoption in Nish, and the Orphanage for Street Moscow. the United Nations Declaration on grant-based financing as part of the annually to indigenous residents: Children and the House for Children and Young People In honor of the 10th anniversary of the festival, an Art with Development Disorders in Novi Sad. The Company the Rights of Indigenous Peoples, the LUKOIL Social and Cultural Projects on the territory of the Khanty-Mansi Object was placed in the area – a pumping unit for the also provides assistance to the Primary School of Boško United Nations Global Compact, and Contest Autonomous Area-Yugra (LUKOIL-West production of oil. In addition, we developed theme- Buha for children with development disorders. the UN World Conference Resolution Siberia, RITEK, LUKOIL-AIK), as part based drawings that the children were able to color in on Indigenous Peoples. We seek to Specialized divisions are responsible of licensing obligations; and on the on special easels placed in the children’s village. achieve a harmonious combination of for the interaction, in particular the territory of the Nenets Autonomous Area our subsidiaries’ business activity on the LUKOIL Public Relations Department, (LUKOIL-Komi) within the framework ancestral habitats of indigenous peoples and surveying departments and public of contracts with deer farms. We also of the North (the Indigenous Peoples), relations centers at LUKOIL subsidiaries. implement charity projects (for example, Sport thereby enabling them to retain their the Red Tent project in the Nenets traditional lifestyle and business activity. The Russian Association of the Autonomous Area). LUKOIL’s sports program aims to promote implementation of the program is scheduled Indigenous Peoples of the North is healthy lifestyles and sport in general, and for 2018. The Company sponsors the Interaction with the Indigenous Peoples our constant partner, and a LUKOIL Mechanisms for hearing the appeals expand the number of grassroots sports football club Spartak-Moscow, is carried out within the framework of representative is a member of the Expert of representatives from the Indigenous projects and the diversity of their formats. The In 2017 the Company sponsored the charity the non-profit organization federal and regional Russian law, the Advisory Board of this organization. Peoples and non-governmental organized approach we adopt to achieving hockey campaign entitled With a Pure Heart, Unified Basketball League, the licensing obligations of LUKOIL Group organizations have been created, these aims includes providing continual with proceeds going towards sponsoring Russian Cross-Country Skiing subsidiaries, and federal and regional In 2017 a cooperation agreement and work is successfully carried out support to sports organizations (clubs, sportsmen and children with disabilities. Federation, the LUKOIL Racing support programs for the Indigenous was signed between LUKOIL and the at LUKOIL Group subsidiaries on federations, leagues, etc.) through the LUKOIL Team, the Handball Club Peoples. The main forms of interaction Federal Agency for Ethnic Affairs. issues related to providing assistance Sports Club. In 2017 the LUKOIL Racing Team turned “Zarya Kaspiya”, the Spartak- include: A representative of the Company to or safeguarding the rights of the 20. A leading racing team, both in Russia Volgograd Water Polo Club, the ΅ cooperation agreements between is a member of the working group Indigenous Peoples. In 2017 there were We help both professional and amateur and globally, in its anniversary year it Children’s Football League, and LUKOIL and the authorities of the responsible for putting forward 62 appeals, which related to different teams and are constantly looking for new won numerous races in Russian and the Automotorsport Federation regions amendments to the procedure for areas of cooperation with the Company, ideas to implement social initiatives in this international tournaments. As well as of the Republic of Kazakhstan. ΅ economic agreements with the heads conducting ethnological expert reviews assistance on compensation for tuition area. A sponsorship program is being participating in tournaments, the team of territories on the traditional use of of geological exploration and production and the treatment of the representatives developed to improve the accessibility of trains drivers and advances their careers, natural resources projects on the territories where the of the Indigenous Peoples, the purchase sports lessons for people with disabilities, in and develops, tests, manufactures, and ΅ socio-economic development contracts Indigenous Peoples traditionally live. of specialized equipment, and providing particular an adaptive physical culture. The prepares racing cars for competitions. with deer farms information on the activities and plans of ΅ cooperation with non-governmental the Company to support the Indigenous organizations Peoples. No appeals were submitted that related to violations of the rights of the Indigenous Peoples. ROAD SAFETY In Italy ISAB S.r.l. finances school road safety projects. With the support of the Mayor and the Syracuse police (Carabinieri of Siracusa), the Company provides explanatory work to schoolchildren and holds a drawing contest on the topic Safety and Law and Order. SUPPORT FOR INDIGENOUS PEOPLES IN RUSSIA UNDER THE LICENSING OBLIGATIONS OF LUKOIL GROUP SUBSIDIARIES, RUB million

Region 2015 2016 2017

Khanty-Mansi Autonomous Area-Yugra 275.4 274.8 311.4 A children’s and youth sports school has The Children’s Champions Cup of associations and clubs of 40 countries Nenets Autonomous Area 29.5 29.5 30.5 been established under the auspices LUKOIL (LUKOIL Cup, http://www. and has over 3,500 participants. of the Handball Club “Zarya Kaspiya”, lukoilcup.com/) is an international Children’s teams from countries in Total 304.9 304.3 341.9 where around 900 young sportsmen social project aimed at tackling racial Europe and Asia and well-known football regularly practice. intolerance and discrimination in players participate in the project. The football. The project unites the national Project Ambassadors are stars from

84 LUKOIL 2017 www.lukoil.com 85 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017 Appendix 1 Reporting boundaries

The reporting boundaries comply with The reporting boundaries additionally with the reporting boundaries, due to the consolidated financial reporting include subsidiaries involved in differences in the data collection and standards (IFRS) for 2017 relating to forming individual indicators due to consolidation systems. Information about LUKOIL Group subsidiaries in which the specifics of the respective activity the boundaries of these indicators is PJSC LUKOIL has a stake of over 50%, and the corporate data collection and given in Appendix 6. and which have significant environmental consolidation systems. The boundaries and social impacts on local communities. of individual indicators may not coincide

Russian subsidiaries of PJSC LUKOIL Foreign subsidiaries of PJSC LUKOIL Russian subsidiaries of PJSC LUKOIL Foreign subsidiaries of PJSC LUKOIL

Exploration OOO LUKOIL-AIK ООО LUKOIL-PERM Included in LUKOIL International LUKOIL Overseas Anaran Ltd. Electric Generation Energy transfer and supply LAND POWER S.A. and ООО LUKOIL-Western Siberia JSC RITEK , ООО LUKOIL- Upstream Holding B.V.: LUKOIL Overseas Aral Ltd. Power ООО LUKOIL-Astrakhanenergo OOO Astrakhanskie Teplovye S.C. LUKOIL ENERGY & GAS production Engineering ООО LUKOIL-Kaliningradmorneft Primoryeneftegaz , OOO NK LUKOIL MID-EAST LIMITED LUKOIL Overseas Karachaganak ООО LUKOIL-Volgogradenergo Seti ROMANIA S.R.L. Yugranefteprom ООО LUKOIL-Komi LUKOIL Overseas Atash B.V. B.V. ООО LUKOIL-Kubanenergo OOO Volgodonskie Teplovye Seti LUKOIL Neftochim Burgas AD OOO UralOil ООО LUKOIL-Nizhnevolzhskneft LUKOIL OVERSEAS EGYPT LUKOIL Overseas Kumkol B.V. ООО LUKOIL-Rostovenergo OOO Volzhskie Teplovye Seti ООО TURSUNT LIMITED LUKOIL Overseas North Shelf AS ООО LUKOIL-Stavropolenergo ООО LUKOIL-ENERGOSETI ООО Chumpassneftedobycha LUKOIL Overseas Iraq LUKOIL Overseas Shah Deniz ООО LUKOIL-Ekoenergo OOO Rostovskie Teplovye Seti Exploration B.V. Ltd. OOO Volgodonskaya Teplovaya Other LUKOIL Uzbekistan Operating LUKOIL Overseas Uzbekistan Ltd. Company LLC Generatsia OOO LUKOIL-TSUR LUKOIL SAUDI ARABIA ENERGY OOO Teplovaya Generatsia OOO LUKOIL-Energoengineering SOYUZNEFTEGAZ VOSTOK LIMITED LIMITED G. Volzhskogo OOO LUKOIL ENERGOSERVICE TURGAI-PETROLEUM JSC ООО Kamyshin CHPP LUKOIL International Upstream Other OOO LUKOIL-Engineering OOO LUKOIL-URTs Perm LUKOIL Cyprus Limited West Inc OOO LUKOIL-INFORM AO LUKOIL Chernomorye Refining, Oil refinery ООО LUKOIL-Аero Oil refinery and petrochemistry Trade PJSC LUKOIL OOO LUKOIL PERSONNEL trade and OOO LUKOIL- ООО LUKOIL-Аero Volgograd ISAB S.r.l. LITASCO SA OOO LICARD (LUKOIL-Inter-Card) OOO LUKOIL EPU Service sales, trans- Volgogradneftepererabotka portation ООО LUKOIL-Aero Nizhniy PETROTEL-LUKOIL S.A. Other OOO LUKOIL- OOO LUKOIL-TSUR ООО LUKOIL- Novgorod LUKOIL Neftochim Burgas AD LUKOIL LUBRICANTS Nizhegorodniinefteproekt ООО LUKOIL Trading House Nizhegorodnefteorgsinez ООО LUKOIL-Aero Perm Oil products distribution International Holding GmbH OOO LUKOIL-URTs Volgograd ООО LUKOIL-TTK ООО LUKOIL-Permnefteorgsintez ООО LUKOIL-Aero Samara LUKOIL Aviation Bulgaria EOOD LUKOIL Lubricants Middle East K.N. Holding OOO LUKOIL- ООО LUKOIL-Aero Surgut Madeni Yag Sanayi ve Ticaret Ukhtaneftepererabotka LUKOIL Belgium N.V. Limited Sirketi Subsidiaries PAO Astrakhan Power Sale OOO AIR ООО KARPATNEFTEKHIM ООО LUKOIL Engineering affiliate ООО LUKOIL-Aero Tyumen in reorgani- Company in London ООО LUKOIL-KGPZ LUKOIL Croatia Ltd. LUKOIL Lubricants Central Asia OOO LUKOIL-Kambarsk Bulk JSC LUKOR ООО LUKOIL-Aero Chelyabinsk zation AO Arkhangelskgeolrazvedka Plant ООО LUKOIL Engineering affiliate Petrochemistry LUKOIL Eurasia Petrol Anonim LLP LUKOIL International Services B.V. Transport Sirketi representatives in Mexico in Teheran ООО Saratovorgsintez LUKOIL LUBRICANTS EAST OOO Varandey Terminal LUKOIL Italia S.r.l. EUROPE S.R.L. LUKOIL International Services B.V. ООО LUKOIL Engineering affiliate ООО Stavrolen in Atyrau ООО LUKOIL-Trans LUKOIL MACEDONIA LTD Skopje LUKOIL Lubricants Europe GmbH affiliate in Astana Oil products distribution ООО LUKOIL Engineering affiliate AO RPK-Vysotsk LUKOIL-II LUKOIL MONTENEGRO DOO LICARD Euro Services GmbH LUKARKO B.V. OOO LUKOIL-AERO in Mexico OOO LUKOIL-Nizhnevolzhskneft- LUKOIL Netherlands B.V. LUKOIL Accounting and Finance LUKOIL International U.K. Limited OOO LUKOIL-BUNKER ООО LUKOIL Engineering affiliate Kalmykia LUKOIL NORTH AMERICA LLC Europe s.r.o. LUKOIL International Services B.V. ООО LUKOIL-Volganefteprodukt in Dubai ООО LUKOIL-AVIA LUKOIL ROMANIA S.R.L. LUKOIL International Secondment LUKOIL Energy & Gas Bulgaria ООО LUKOIL- ООО TZK-Arkhangelsk B.V. EODD Nizhnevolzhsknefteprodukt LUKOIL SERBIA PLC Belgrade ООО LUKOIL-KNT Lumex Operacion S. de R.L. de ООО LUKOIL-Permnefteprodukt LUKOIL-Azerbaidjan, ZAO C.V. Trade ООО Rostovnefteprodukt LUKOIL-BULGARIA EOOD LUKOIL Technology Services ООО LLK-International ООО LUKOIL-Severo- LUKOIL-Georgia Ltd. GmbH zapadnefteprodukt ООО LUKOIL-MarineBunker LUKOIL-Moldova S.R.L. VARS ООО LUKOIL-Uralnefteprodukt ООО LUKOIL-Rezervnefteprodukt Oy Teboil Ab ООО LUKOIL-Tsentrnefteprodukt ООО LUKOIL-RNP-Trading LUKOIL Belarus ООО LUKOIL- Other LUKOIL-Bulgaria Bunker EOOD Chernozemyenefteprodukt ООО INTESMO LUKOIL Americas Corporation ООО LUKOIL-Yugnefteprofukt

86 LUKOIL 2017 www.lukoil.com 87 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017 Appendix 2 GRI content index and individual GRI indicators

This report has been prepared in accordance with the GRI Standards (Core option)

2.1. GRI Index 102-55 GRI Standards and Indicators Table Index Indicators Section of the Report Page

102-14 Statement from senior decision-maker Address by the President and CEO of PJSC LUKOIL 6 Index Indicators Section of the Report Page 102-15 Key impacts, risks, and opportunities LUKOIL Group strategy for sustainability 16 GRI 101. Reporting Principles About this Report, Appendix 2 GRI Index and Individual GRI 4, 95 Indicators 3. Ethics and integrity GRI 102. General Disclosures 102-16 Values, principles, standards, and norms of behavior http://www.lukoil.com/Company/CorporateProfileEthics 1. Organizational profile and statutory compliance

102-1 Name of the organization About the Company 9 4. Governance 102-2 Activities, brands, products, and services About the Company 14 102-18 – The corporate governance system is detailed in the Annual Report for 2017, page 90, as well as on the corporate website 102-3 Location of headquarters 102-19 (http://www.lukoil.com/Company/CorporateGovernance)

http://www.lukoil.com/Company/contacts 102-20 Executive-level responsibility for economic, environmental, LUKOIL Group strategy for sustainability 16 and social topics 102-4 Location of operations About the Company 11

102-5 Ownership and legal form About the Company 102-21 Consulting stakeholders on economic, environmental, Stakeholder engagement 24 and social topics Information about share capital and PJSC LUKOIL’s securities is available on the corporate website: http://www.lukoil.com/InvestorAndShareholderCenter/Securities/sharecapital 102-22 – Details about the corporate governance system are provided in the Annual Report for 2017, on page 90, as well as on the 102-28 corporate website. (http://www.lukoil.com/Company/CorporateGovernance) 102-6 Markets served About the Company 11, 28 102-35 – Product quality assurance 102-38

102-7 Scale of the organization About the Company 10-11 102-29 Identifying and managing economic, environmental, and social 16 102-8 Information on employees and other workers Personnel 68-69 impacts LUKOIL Group strategy for sustainability The information on employment agreements is consolidated by the Company without a breakdown by permanent and temporary 102-31 Review of economic, environmental, and social topics About this report employees. Workers that are legally recognized as being self-employed, or individuals other than employees or supervised workers, are not significantly engaged in operations. 102-32 Highest governance body’s role in sustainability reporting

102-9 Supply chain Stakeholder engagement 27 5. Stakeholder engagement Supply chain 102-40 List of stakeholder groups Stakeholder engagement 24 102-10 Significant changes to the organization and its supply chain 102-41 Collective bargaining agreements Appendix 2 GRI Index and Individual GRI Indicators 94 No significant changes in the structure of LUKOIL occurred in the reporting year. Data about the supply chain are not consolidated. 102-42 Identifying and selecting stakeholders 24 102-11 Precautionary Principle or approach 102-43 Approach to stakeholder engagement Stakeholder engagement As part of its existing risk management system, the Company employs the precautionary approach in the exercise of 24 Environmental and Social Impact Assessment (ESIA) procedures and in planning its Environmental Safety Program activities. 102-44 Key topics and concerns raised

102-12 External initiatives Stakeholder engagement. Appendix 2 GRI Index and 6. Reporting practice Individual GRI Indicators

102-13 Membership of associations Stakeholder engagement. Appendix 2 GRI Index and 93 Individual GRI Indicators

2. Strategy

88 LUKOIL 2017 www.lukoil.com 89 About the Strategy for Climate Local Company Sustainability Change EP and OS Personnel Communities LUKOIL GROUP SUSTAINABILITY REPORT 2017

Index Indicators Section of the Report Page Index Indicators Section of the Report Page

102-45 Entities included in the consolidated financial statements Appendix 2 GRI Index and Individual GRI Indicators 94 203-1 Infrastructure investments and services supported External social policy priorities 80

102-46 Defining report content and topic Boundaries Appendix 1 Reporting boundaries 86 GRI 204 Procurement Practices

102-47 List of material topics About this report 5 204-1 Proportion of spending on local suppliers Supply chain 27

102-48 Restatements of information The data include only Russian organizations of the LUKOIL Group

No restatements was carried out. GRI 302 Energy

102-49 Changes in reporting Appendix 1 Reporting boundaries 103-1, 103-2, The management approach and its components Energy efficiency and energy conservation 36 103-3 The reporting boundaries and scope have essentially not changed compared with the LUKOIL Group Sustainability Report for Regulations: PJSC LUKOIL Standard STO LUKOIL 1.20.6-2013 Energy Management System of LUKOIL Group organizations 2015-2016. The boundaries of indicators, which differ significantly from reporting boundaries, including due to their specifics, are given in the Report (see Appendix 1). Some indicators, whose boundaries differ slightly from reporting boundaries, are Department responsible – Department of Energy Efficiency and Energy Supply of PJSC LUKOIL accompanied by relevant comments in the notes. 302-1 Energy consumption within the organization Energy efficiency and energy conservation 37

GRI 303 Water

102-50 Reporting period 4 103-1, 103-2, The management approach and its components Water use 45 103-3 102-51 Date of most recent report About this report Department responsible – HSE Department of PJSC LUKOIL

102-52 Reporting cycle 303-1 Water withdrawal by source Water use 46

102-53 Contact point for questions regarding the report 4 303-3 Water recycled and reused Water use 45

Contact information on issues related to the content of the Report: Does not include the total volume of water recycled and reused as a percentage of total water withdrawal, since the methodology is under development Coordination Center for Corporate Activities Tel.: +7(495) 981-79-77, +7(499) 973-70-56. E-mail: [email protected] GRI 305 Emissions Investor Relations Department 103-1, 103-2, The management approach and its components Climate-related risks. Environmental safety program 49 103-3 Tel.: +7(495) 627-16-96. E-mail: [email protected] Department responsible – HSE Department of PJSC LUKOIL Press Service 305-1 Direct GHG emissions 33 Tel.: +7(495) 627-16-77. E-mail: [email protected] Impact assessment 305-5 Reduction of GHG emissions 102-54 Claims of reporting in accordance with the GRI Standards About this report 4, 88 305-6 Emissions of ozone-depleting substances (ODS)

102-55 GRI content index Appendix 2 GRI Index and Individual GRI Indicators 88 The Company does not use ozone-depleting substances (ODS) on an industrial scale

102-56 External assurance About this report 4 305-7 Nitrogen oxides (NOX), sulfur oxides (SOX), and other significant air Managing environmental impacts 49 emissions GRI 201 Economic Performance GRI 306 Effluents and Waste 201-1 Direct economic value generated and distributed About the Company 15 103-1, 103-2, The management approach and its components 103-3 201-3 Defined benefit plan obligations and other retirement plans Work-related performance incentives 72 Department responsible – HSE Department of PJSC LUKOIL 306-1 Water discharge by quality and destination Water use 48 GRI 202 Market Presence Information on volumes and quality of wastewater is provided without its destination 202-1 Ratios of standard entry level wage by gender compared to local Work-related performance incentives 72 minimum wage 306-2 Waste by type and disposal method Managing environmental impacts 50 306-3 Significant spills Ensuring the integrity of production facilities 58 The standard entry level wage in the Russian organizations of the LUKOIL Group is presented in comparison with local minimum wages prevalent in the regions where the Company operates. Wages do not differ according to gender. GRI 308 Supplier environmental assessment

202-2 Proportion of senior management hired from the local community Compliance with employment entitlement rights 69

GRI 203 Indirect Economic Impacts

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Index Indicators Section of the Report Page Index Indicators Section of the Report Page

103-1, 103-2, The management approach and its components Supply chain 28 404-2 Programs for upgrading employee skills and transition assistance Appendix 2 GRI Index and Individual GRI Indicators 89 103-3 programs Regulations: Regulations on Holding Tenders to Select Suppliers and Contractors of LUKOIL Group Subsidiaries; the HSE policy of PJSC LUKOIL in the 21st Century; PJSC LUKOIL Standard Health, Safety and Environment Management System: Contractors 404-3 Percentage of employees receiving regular performance and career Staff development 73 Requirements development reviews Department responsible – HSE Department of PJSC LUKOIL Information is provided without breakdown by gender and categories of employees, as this information is not consolidated and 308-1 New suppliers that were screened using environmental criteria Supply chain 28 is not used to manage this issue in the Company GRI 401 Employment GRI 411 Rights of Indigenous Peoples 103-1, 103-2, The management approach and its components Personnel 68 103-3 103-1, 103-2, The management approach and its components Indigenous peoples of the North 85 Regulations: The Social Code of PJSC LUKOIL, The Personnel Management Policy 103-3 Department responsible – Personnel Policy Department of PJSC LUKOIL Department responsible – Regional Communications Department of PJSC LUKOIL For more information see the corporate website: 411-1 Incidents of violations involving rights of indigenous peoples Indigenous peoples of the North 85 http://www.lukoil.com/Responsibility/SocialPartnership/HumanResources

401-1 New employee hires and employee turnover Personnel 68 GRI 412 Human Rights Assessment

Employee turnover disclosure is presented. Disclosures related to new hires are not material for the Company 103-1, 103-2, The management approach and its components Human rights 103-3 401-2 Benefits provided to full-time employees that are not provided to Work-related performance incentives 72 temporary or part-time employees 412-1 Operations that have been subject to human rights reviews or impact Compliance with employment entitlement rights 72 Social benefits are granted to all employees, regardless of the type of employment assessments

GRI 402 Labor/Management Relations GRI 413 Local Communities

402-1 Minimum notice periods regarding operational changes Appendix 2 GRI Index and Individual GRI Indicators 97 103-1, 103-2, The management approach and its components External social policy priorities 78 103-3 GRI 403 Occupational Health and Safety Department responsible – the Public Relations Department of PJSC LUKOIL

103-1, 103-2, The management approach and its components Employee health and safety 60 413-1 Operations with local community engagement, impact assessments, External social policy priorities 78 103-3 and development programs Regulations: STO LUKOIL 1.6.14-2016 Health, Safety and Environment management system. Procedure for registration, recording and investigation of accidents and incidents. All Company subsidiaries have programs in place related to local community engagement. For the list of Company subsidiaries Department responsible – the HSE Department of PJSC LUKOIL see the Annual Report for 2017, page 143

403-1 Workers representation in formal joint management-worker health and Employee health and safety 65 GRI 419 Socio Economic Compliance safety committees 103-1, 103-2, The management approach and its components Ethics and statutory compliance 23 403-2 Types of injury and rates of injury, occupational diseases, lost days, and Employee health and safety 62-63 103-3 Regulations: the LUKOIL Group Antimonopoly Policy. absenteeism, and number of work-related fatalities Department responsible – Department of Legal Support of International Disputes of PJSC LUKOIL The lost day and absentee rates are not presented in the Report, as the Company does not apply these indicators to HSE management reporting system. The Report includes indicators used for the internal and external reporting purposes of the 419-1 Non-compliance with laws and regulations in the social and economic Ethics and statutory compliance 23 Company. area

403-3 Workers with high incidence or high risk of diseases related to their Employee health and safety 64 occupation

403-4 Health and safety topics covered in formal agreements with trade Appendix 2 GRI Index and Individual GRI Indicators 98 unions

GRI 404 Training and Education

103-1, 103-2, The management approach and its components Staff development 74 103-3 Department responsible – Department of Personnel Assessment and Development of PJSC LUKOIL

404-1 Average hours of training per year per employee Staff development 74

The number of individuals that underwent training is presented in the Report. The number of training hours per year per employee by gender and by employee category is not available within the current reporting system.

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2.2 Individual indicators of GRI Standards 102-45 Entities included in consolidated financial statements

GRI 102. GENERAL INFORMATION Russian organizations of the LUKOIL Group ООО LUKOIL-Nizhnevolzhsknefteprodukt PJSC LUKOIL 102-12 External initiatives (the share of PJSC LUKOIL is 50 % and over) ООО LUKOIL-Nizhnevolzhskneft JSC RITEK OOO Rostovskie Teplovye Seti OOO Astrakhanskie Teplovye Seti ΅ The National Council for Professional ΅ The Council for Professional ООО LUKOIL-Permnefteorgsintez AO RPK-Vysotsk LUKOIL-II Qualifications of the President of the Qualifications in the Oil and Gas OOO Varandey Terminal Russian Federation Industry of Russia ООО LUKOIL-Permnefteprodukt ООО Saratovorgsintez OOO Volgodonskie Teplovye Seti 102-13 Membership of associations ООО LUKOIL-PERM ООО Stavrolen OOO Volzhskie Teplovye Seti ООО LUKOIL-Primoryeneftegaz OOO UralOil ΅ The Airport Civil Aviation Association – ΅ The Association of Fuel Distribution Chambers and Commodity Exchanges OAO KamyshinTeploEnergo LUKOIL-AERO is a member. Companies of Turkey (ADER). Akpet of Turkey (ТОВВ). LUKOIL subsidiaries ООО LUKOIL-Rezervnefteprodukt AO Arkhangelskgeolrazvedka ΅ The Bulgarian Oil and Gas Association. GAZ A.S. and LUKOIL Eurasia Petrol participate actively in discussions ООО LLK Marin Rus ΅ The Macedonian-Russian Chamber of A.S are members of the organization; a of practical issues related to the ООО LUKOIL-RNP-Trading OOO LUKOIL-Nizhnevolzhskneft-Kalmykia Commerce and Industry, the Chamber LUKOIL representative was its chairman development of the Turkish gas market. ООО LLK-International of Commerce of Montenegro. in 2017. ΅ The Belgian Petroleum Federation. ООО Rostovnefteprodukt NK Yugranefteprom ΅ The National Oil Committee of Serbia, ΅ The Association of Oil and Petroleum ΅ The Croatian Energy Regulatory OOO LUKOIL-AIK which is a member of the WPC (World Product Distributors of Montenegro. Agency (Hrvatska energetska ООО LUKOIL-Rostovenergo ООО Perm-Invest Petroleum Council). Representatives ΅ The Union of Energy and Extractive regulatorna agencija). LUKOIL Croatia ООО LUKOIL-Astrakhanenergo from LUKOIL Serbia PLC Belgrade Industry of Montenegro – LUKOIL Ltd. does not occupy a position in the ООО LUKOIL-Severo-zapadnefteprodukt OOO RITEK-ITC occupy positions in the management Montenegro DOO is a member of the management bodies and regards its OOO LUKOIL-AERO bodies (the Board of Directors and Management Board of the organization. membership as strategic. ООО LUKOIL-Stavropolenergo ООО SP Neftestroy Executive Council); participate in ΅ The Union of Oil Companies of Serbia. ΅ The Croatian Chamber of the Economy OOO LUKOIL-BUNKER ongoing activity, including committee Representatives from LUKOIL Serbia (Hrvatska gospodarska komora) – ООО LUKOIL-Trans ООО TURSUNT work (for example, in the Young PLC Belgrade hold positions in the LUKOIL Croatia Ltd. does not occupy ООО LUKOIL-Volganefteprodukt Specialists Committee). The Company management bodies; the subsidiary a position in the management bodies ООО LUKOIL-Uralnefteprodukt ООО UTTiST does not provide substantial financing is an active participant in all the and views its membership as being OOO LUKOIL-Volgogradneftepererabotka outside standard membership dues, organization’s undertakings. strategic. OOO LUKOIL-Ukhtaneftepererabotka ООО Chumpassneftedobycha and does not consider its membership ΅ The Turkish LPG Association (Türkiye ΅ The Netherlands Organization for the ООО LUKOIL-Volgogradenergo to be strategic. LPG Derneği) and the Union of Energy sector. ООО LUKOIL-Tsentrnefteprodukt ООО AERO-NEFTO ООО LUKOIL-Western Siberia ООО LUKOIL-Chernozemyenefteprodukt OOO Volgodonskaya Teplovaya Generatsia 102-41 Collective bargaining agreements OOO LUKOIL-Engineering ООО LUKOIL-Ekoenergo ООО Donbunker OOO LUKOIL-INFORM ΅ The Company’s obligations to its ΅ “2.5.7. To provide representatives of organization in cases stipulated by OOO LUKOIL-Energoengineering ООО INTESMO workforce are set forth in the Social trade-union organizations with the the Russian Labor Code, the Industry ООО LUKOIL-Kaliningradmorneft Code of PJSC LUKOIL, specified in ability to participate in the work of the Agreement, this Agreement, and the OOO LUKOIL ENERGOSERVICE ООО Kamyshin CHPP the course of collective negotiations management bodies of the controlled collective agreements of the controlled ООО LUKOIL-Komi with trade-union organizations, and organizations”. organizations”. ООО LUKOIL-ENERGOSETI K.N. Holding OOO LICARD (LUKOIL-Inter-Card) enshrined in the Agreement between ΅ “2.5.9. To adopt internal regulations ΅ Trade unions are also granted the right ООО LUKOIL-Kubanenergo the Company and the unions, as well as and decisions with due consideration to participate in management decision- OOO LUKOIL EPU Service ООО LUKOIL-AVIA in internal regulations. The freedom of for the opinions of (by agreement making processes on an equal basis ООО LUKOIL-MarineBunker collective negotiations is set out in the with) the union committee (council) with the Company’s management ООО LUKOIL-Yugnefteprofukt OOO LUKOIL-AERO following points of the Agreement: of the corresponding trade-union (members of the Board of Directors). ООО LUKOIL-Nizhegorodnefteorgsintez

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102-45 Entities included in consolidated financial statements 102-45 Entities included in consolidated financial statements

ООО LUKOIL-Аero Volgograd АО SOVEKS LAND POWER S.A. LUKOIL NORTH AMERICA LLC LUKOIL Pan Americas, LLC LUKOIL LUBRICANTS EAST EUROPE S.R.L.

ООО LUKOIL-Аero Domodedovo ООО SP Volgodeminoil LITASCO SA LUKOIL International Upstream Holding B.V. LUKOIL ROMANIA S.R.L. LUKOIL Lubricants Europe GmbH

ООО LUKOIL-Aero Nizhniy Novgorod ООО TZK Volga LITASCO Middle East DMCC Esh El Mallaha Petroleum Company LUKOIL SERBIA PLC Belgrade LUKOIL Lubricants Mexico S.de R.L.de C.V. (ESHPETCO) ООО LUKOIL-Aero Perm ООО TZK Severo-Zapad LUKINTER FINANCE B.V. LUKOIL Sweden AB LUKOIL LUBRICANTS UKRAINE, TOV LUKOIL International Secondment B.V. ООО LUKOIL-Aero Samara ООО TsentrKaspneftegaz LUKOIL Accounting and Finance Europe s.r.o. OOO LUKOIL Uznefteprodukt LUKOIL MARINE LUBRICANTS DMCC LUKOIL International Upstream West Inc. ООО LUKOIL-Aero Surgut Foreign organizations of the LUKOIL Group LUKOIL Americas Corporation LUKOIL-Azerbaidjan, ZAO LUKOIL Marine Lubricants Germany GmbH LUKOIL MID-EAST LIMITED ООО LUKOIL-Aero Tyumen LUKOIL-Bulgaria Bunker EOOD LUKOIL ASIA PACIFIC PTE LTD. LUKOIL-BULGARIA EOOD LUKOIL MARINE LUBRICANTS USA INC. LUKOIL Overseas Anaran Ltd. ООО LUKOIL-Aero Chelyabinsk LICARD Euro Services GmbH LUKOIL Aviation Bulgaria EOOD LUKOIL-Georgia Ltd. LLK-NAFTAN LUKOIL Overseas Aral Ltd. OOO LUKOIL-Varandey-AVIA LUKOIL-Inter-Card-Bel LUKOIL Belgium N.V. LUKOIL-Moldova S.R.L. LUKOIL Technology Services GmbH LUKOIL Overseas Atash B.V. ООО LUKOIL-KGPZ LUKARCO B.V. (group of sub-consolidated LUKOIL Benelux B.V. Lumex Holding B.V. VARS reporting) LUKOIL OVERSEAS EGYPT LIMITED ООО LUKOIL-KNT LUKOIL Capital Markets Ltd Lumex Amatitlan B.V. LUKARCO Finance B.V. LUKOIL Overseas Etinde Cameroon Sarl OOO LUKOIL-Nizhegorodniinefteproekt LUKOIL Croatia Ltd. Lumex Amatitlan Holding S. de R.L. de C.V. LUKOIL INTERNATIONAL GmbH (group of LUKOIL OVERSEAS GHANA TANO LIMITED OOO LUKOIL-URTs Volgograd sub-consolidated reporting) LUKOIL Eurasia Petrol Anonim Sirketi Lumex Operacion S. de R.L. de C.V. LUKOIL Overseas Iraq Exploration B.V. OOO LUKOIL-URTs Perm AC MANAGEMENT COMPANY LIMITED LUKOIL Europe Holdings B.V. Petrolera de Amatitlan, S.A.P.I. de C.V. LUKOIL Overseas Karachaganak B.V. OOO LUKOIL-TSUR Akdeniz Boru Hatlari Nakliyat ve Isletmecilik Ic LUKOIL Hamburg GmbH MEROIL TANK S.L. ve Dis Tic. Ltd Sti LUKOIL Overseas Kumkol B.V. AO LUKOIL Chernomorye LUKOIL Holding B.V. Op-Ay Akaryakit Tic. Ltd. Sti. Akpet Akaryakit Dag. A.S. LUKOIL Overseas Nigeria Limited OOO LUKOIL PERSONNEL LUKOIL Holding GmbH Oy Teboil Ab Akpet Gaz A.S. LUKOIL Overseas North Shelf AS АО Maritime Agency Novotorik LUKOIL International Finance B.V. PETROTEL-LUKOIL S.A. ARJ LTD LUKOIL Overseas Riyadh Ltd. ООО Sports and cultural complex LUKOIL INVESTMENTS CYPRUS LTD S.C. LUKOIL ENERGY & GAS ROMANIA S.R.L. Auto Maas Tankstations B.V. LUKOIL Overseas Shah Deniz Ltd. OOO Teplovaya Generatsia G. Volzhskogo LUKOIL ISRAEL LIMITED (Cyprus) TOTAL Opslag en Pijpleiding Nederland N.V. EIGER SHIPPING SA LUKOIL Overseas Shah Deniz Midstream Ltd. ООО TZK-Arkhangelsk BRAZOS PETROLEUM OVERSEAS LIMITED Verolma Mineralol GmbH IMMANIS N.V. LUKOIL Overseas Supply and Trading Ltd. AО LUKOIL-Aero-Sheremetievo LUKOIL Istasyon Isletmeciligi Limited Şirketi LITASKO Central Asia IRAQ PETROLEUM TRAIDING DMCC LUKOIL Overseas Uzbekistan Ltd. ООО Gas-Oil trading LUKOIL Italia S.r.l. LUKOIL Belarus ISAB S.r.l. LUKOIL SAUDI ARABIA ENERGY LIMITED ZАО KalmTtaneft LUKOIL MACEDONIA LTD Skopje LUKOIL Lubricants (China) Co., Ltd. ISTASYON YONETIMI VE PETROL URUNLERI LUKOIL UPSTREAM MEXICO, S. de R.L. de ООО KNGK TICARETI ANONIM SIRKETI LUKOIL MONTENEGRO DOO C.V. LUKOIL LUBRICANTS International Holding GmbH (group of sub-consolidated reporting) ООО Oil Company Vostok NAO Kiinteisto Oy Nurmijarven LUKOIL Netherlands B.V. LUKOIL Uzbekistan Operating Company LLC Liikennepalvelukeskus LUKOIL Lubricants Middle East Madeni Yag ООО PermTOTIneft LUKOIL Neftohim Burgas AD SOYUZNEFTEGAZ VOSTOK LIMITED Sanayi ve Ticaret Limited Sirketi

TURGAI-PETROLEUM JSC LUKOIL Lubricants Central Asia LLP

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102-46 Defining report content and topic boundaries 403-4 Health and safety topics covered in formal agreements with trade unions

In the process of preparing reporting ΅ a survey of the heads of the main reporting period, including legislative A key document is the Agreement appropriate personal protection, etc.) ΅ providing compensation for working information, we performed an analysis of structural departments requirements on the disclosure of non- between the Employer and the Trade- ΅ registering and tracking the under harmful conditions whether the Company’s activity complies ΅ queries for information received from financial information, the requirements Union Association of PJSC LUKOIL for circumstances and causes of accidents, ΅ additional guarantees for pregnant with the Sustainable Development stakeholders during the reporting year of financial marketplaces, etc. 2015–2020. as well as ensuring that union women Targets of the 2030 Agenda for ΅ personal visits with the representatives ΅ monitoring non-financial reporting representatives can participate in ΅ additional guarantees to employees Sustainable Development and with the of stakeholders in various formats systems and the main initiatives in this Section 6, Health, Safety, and the investigations with medical contraindications for work procedure for identifying material topics (round tables, conferences, working area Environment of this document includes ΅ supporting the activity of the union they previously performed, etc. in accordance with GRI Standards. meetings, etc.) the obligations of PJSC LUKOIL and its association’s technical labor inspection ΅ publications on the Company in The Report also reflects certain subsidiaries to preserve the health and and union safety officers The procedure for identifying material business and public-affairs periodicals, indicators of the Environmental safety of their employees, including: ΅ supporting the activity of the social topics includes an analysis of the as well as in internet publications Responsibility Rating of Oil & Gas ΅ financing measures to improve working insurance commission following sources: ΅ the reports of Russian and foreign oil & Companies (WWF-Creon), as well as the conditions ΅ conducting safety and environmental ΅ topics raised by the Company’s gas companies that are commensurate indices Responsibility and Openness and ΅ informing employees about safety competitions management and senior executives in scale Vector of Sustainability (RUIE). related issues (working conditions, during their public speeches and ΅ analyzing events that are important to presentations in Russia and abroad the industry which occurred during the 404-2 Programs for upgrading employee skills and transition assistance programs

EMPLOYEE SKILLS DEVELOPMENT PROGRAMS 402-1 Minimum notice periods regarding operational changes Type of training Training programs and courses

In-house training courses DLS: over 300 educational courses on the following topics: Quality Management and Lean Manufacturing, Region Minimum notice period Organizational Change Management, Project Management, Management, Personal Effectiveness, Foreign Languages, Corporate Spirit, IT Courses (Outlook, Excel, PowerPoint), Public Speaking and Presentations, People Belgium 3 months Management, Human Resources Management, Effective Negotiations, Production Orientation, Petroleum Product Russia, Azerbaijan, Bulgaria, Moldova, Serbia, and Uzbekistan 2 months Supply, Risk Management, IT Security, Civil Defense and Emergency Protection, Industrial Safety, Occupational Safety, Fire Safety. Austria 6 weeks

Germany, Switzerland, Italy, Macedonia, Norway 1 month External training or education Professional retraining, education in MBA, EMBA, DBA programs Romania For specialists 20 days; for executives 45 days The Company pays 50% of the cost of employee education. Finland, Turkey 14 days

Kazakhstan 15 business days or 1 month If the employee receives an additional professional education, including a postgraduate degree, where the Belarus 7 days (in the event of staff reductions or the liquidation of the enterprise – 2 months) employer is not the initiator, then educational leave is granted, and the respective employee receives a guarantee that they will not lose their positions while studying. Egypt 1 week

Georgia 3 days Iraq, Montenegro, Mexico No notice period is established for employees EXTERNAL TRAINING PROGRAMS TO DEVELOP MANAGERIAL AND PROFESSIONAL COMPETENCIES

The USA No universal period has been established for substantial changes to working Program Frequency; educational institution conditions, however, under certain circumstances the law may prescribe special procedures and periods. For example, during mass staff reductions, a notice period of Master’s in Business Administration – Oil & Gas Management Annually. Gubkin Russian State University of Oil and Gas at least two months Development of the company’s management resources Annually. The Russian Presidential Academy of National Economy and Public Administration

Professional training for the general directors of LUKOIL Group subsidiaries Annually

Head of Oil and Gas Production Department Annually

LUKOIL Integrated Project Management System (IPMS) Once (2015-2017). Skolkovo Moscow School of Management

Training experts in the independent assessment of professional qualifications Once (2017)

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Appendix 3

Our Independence and Quality Control We have complied with the independence and ethical requirements established by the Rules on Independence of Auditors and Audit Firms and the Code of Professional Ethics for Auditors approved by the Audit Council of the Ministry of Finance of the Russian Federation and by the Code of Ethics for Professional Independent Limited Assurance Report Accountants issued by the International Ethics Standards Board for Accountants, which are based on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. on the LUKOIL Group Sustainability Report 2017 We apply the International Standard on Quality Control 1, and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Audited entity: PJSC LUKOIL. Registration No. in the Unified State Register of Legal Entities 1027700035769. Procedures Performed Moscow, Russia. The procedures selected, and our determination of the nature, timing and extent of these procedures, depend Independent auditor: JSC “KPMG”, a company incorporated under the Laws of the Russian Federation, a member firm of the KPMG on our professional judgment, including the assessment of risk of material misstatement during the preparation network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a of the Report, whether due to fraud or error, our understanding of the Group’s activities, as well as other Swiss entity. engagement circumstances. Registration No. in the Unified State Register of Legal Entities 1027700125628. In making these risk assessments, we considered the internal control system relevant to the Group’s preparation of the Report, in order to design procedures that are appropriate in the circumstances, but not for Member of the Self-regulated organization of auditors “Russian Union of auditors” (Association). The Principal the purposes of expressing a conclusion as to the effectiveness of the Group’s internal control. Registration Number of the Entry in the Register of Auditors and Audit Organisations: No. 11603053203. The procedures we developed based on the performed risk assessment are a combination of inspections, recalculations, analytical procedures and inquiries. Our engagement also included: assessing the appropriateness of the information included in the Report and TO THE MANAGEMENT OF PJSC LUKOIL the suitability of the GRI Standards used by Management in preparing the Report in the circumstances of the engagement; evaluating the appropriateness of the methods, policies and procedures used in the preparation of the Report and the reasonableness of estimates made by Management. Introduction We were engaged by the Management of PJSC LUKOIL (the “Management”) to perform an assignment The procedures we developed based on the risk assessment included, but were not limited to, the resulting in the issue of an independent limited assurance report on the LUKOIL Group (the “Group”) following: Sustainability Report 2017 (the “Report”) with an independent limited assurance conclusion that, based on our ΅ Inspection of the processes used by the Group to identify topics and issues material to the Group’s key work performed, nothing has come to our attention that causes us to believe that Management’s statement stakeholder groups, with the purpose of understanding such processes in the Group, as well as analysis that the Report is prepared, in all material respects, based on the “core” version of the Global Reporting of information from open sources on topics and issues material to key stakeholder groups of other Initiative Sustainability Reporting Standards (the “GRI Standards”) and is free from material misstatement, is not organizations in the industry, with the purpose of determining the level of completeness of disclosure of fairly stated. such topics and issues in the Report; ΅ Interviews with Management representatives and officers at corporate headquarter level and subsidiaries regarding the sustainable development strategy and policies regulating material issues in areas of Management’s Responsibilities Management is responsible for the preparation and presentation of the Report that is free from material importance for the Group, stage of implementation of such policies, and procedures for collecting misstatement in accordance with the GRI Standards, and for the information and statements contained therein. information on sustainable development; This responsibility includes designing, implementing and maintaining internal control system relevant to ΅ Interviews with staff at the corporate headquarter level and subsidiaries responsible for providing the the preparation of the Report that is free from material misstatement, whether due to fraud or error. It also information in the Report; includes: determining the Group’s objectives in respect of sustainable development performance and ΅ Visits to the following subsidiaries: reporting, including the identification of key stakeholder groups and their material issues; selecting applicable ― LUKOIL West Siberia LLC, Kogalym, Langepas; requirements of the GRI Standards; preventing and detecting fraud; identifying and ensuring that the Group ― LUKOIL Komi, Usinsk; complies with the laws and regulations applicable to its activities; selecting and applying appropriate policies; making judgments and estimates that are reasonable in the circumstances; maintaining adequate records ― LUKOIL Nizhegorodnefteorgsintez, Kstovo; in relation to the information included in the Report; ensuring that staff involved with the preparation of the ― LUKOIL Neftochim Burgas AD, Bulgaria, Burgas, Report are properly trained, information systems are properly updated and that any changes in the reporting which were selected based on a risk analysis using both qualitative and quantitative criteria; system encompass all key divisions. ΅ Comparing the information presented in the Report with data from other sources to determine its completeness, accuracy and consistency; ΅ Assessing the completeness of qualitative and quantitative information on sustainable development against Our Responsibilities and Applicable Our responsibility is to perform procedures to obtain evidence in respect of the Report prepared recommendations of the GRI Standards; Standards by Management, and to issue a report with an independent limited assurance conclusion regarding ΅ Reading and analysing information on sustainable development included in the Report to determine whether Management’s statement in respect of the Report based on the evidence obtained. We conducted our it is in line with our understanding and knowledge of the Group’s sustainable development activity; engagement in accordance with the International Standard on Assurance Engagements 3000 Assurance ΅ Recalculation of quantitative data and inspection of underlying documentation. Engagements Other Than Audits or Reviews of Historical Financial Information (ISAE 3000) issued by the International Auditing and Assurance Standards Board. The procedures performed in a limited assurance engagement vary in nature and timing from, and are less ISAE 3000 requires that we plan and perform our procedures to obtain a meaningful level of assurance about in extent than for, a reasonable assurance engagement. Consequently, the level of assurance obtained in a whether Management’s statement that the Report is prepared, in all material respects, based on the GRI limited assurance engagement is substantially lower than the assurance that would have been obtained had a Standards and is free from material misstatement, is fairly stated. reasonable assurance engagement been performed.

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Criteria Used To evaluate the Report, GRI Standards were used which are available at the link: https://www.globalreporting. org/standards/ Appendix 4 Management’s Statement Management states that the Report is prepared, in all material respects, based on the GRI Standards and is free from material misstatement. Conclusion of the RUIE Council for Non- Inherent Limitations Due to the limitations inherent in any internal control structure, it is possible that errors or irregularities in the information presented in the Report may occur and not be detected. Our engagement is not designed to detect all weaknesses in the internal control system over the preparation and presentation of the Report, as the engagement has not been performed continuously throughout the reporting period, and the procedures Financial Reporting on the public assurance were performed on a test basis.

Conclusion Our conclusion has been formed on the basis of, and is subject to, the matters outlined in this report. We review of the LUKOIL Group Sustainability believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. Based on the procedures performed and described in this report, nothing has come to our attention that causes us to believe that Management’s statement that the Report is prepared, in all material respects, based on the GRI Standards and is free from material misstatement, is not fairly stated. Report for 2017

At the request of PJSC LUKOIL (the “Company”, the “Group”, “LUKOIL”), the Council for Non-Financial Reporting of the Russian Union of Industrialists and Entrepreneurs (the “Council”), established by a decision of the Management Committee Bureau (Resolution dated 28 June 2007), has reviewed the LUKOIL Group Sustainability Report for 2017 (the “Report”).

Anton Ivanovich Oussov The Company asked the RUIE Council to perform a public assurance review. The JSC “KPMG” Council was asked to provide an opinion on the relevance and completeness of Moscow, Russia information about the company’s activity disclosed in the Report, in accordance 17 May 2018 with the principles of responsible business practices contained in the Social Charter of Russian Business, and whether it complies with the provisions of the UN Global Compact as well as Russian and international social responsibility standards.

From 28 May to 18 June 2018, Council members studied the Report provided by the Company and prepared this Conclusion in accordance with the Regulations for the Public Assurance Review of Corporate Non-Financial Reporting approved by the Council. The Council members have the necessary qualifications in the field of corporate social responsibility, sustainable development, and non-financial reporting, comply with the ethical requirements of independence and impartiality, and are expressing their personal expert opinion rather than that of the organizations they represent.

The Report was assessed based on the following criteria for the completeness and relevance of information contained in the Report: ΅ Information is considered relevant if it reflects the Company’s activities in implementing the principles of responsible business practices of the Social Charter of Russian Business (www.rspp.ru). ΅ Information is considered complete if the company has comprehensively presented its activity in the Report, including its underlying values and strategic benchmarks, its management system and structure, achievements and key performance results, and the system for stakeholder engagement.

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΅ The Company’s use of international reporting standards is taken into account during Business partnerships: The Report covers the principles, programs, and topics of interaction with main the public assurance review. However, confirming how well the Report complies groups of stakeholders. Information is given on how the Company meets its with international standards is beyond the scope of this Conclusion. obligations to shareholders and investors, including issues related to ensuring ΅ The Company is responsible for the information and statements contained in this transparency, regular reporting, implementing the dividend policy, and also Report. Determining the reliability of the data contained in the Report is not the goal responding to queries received from investment and financial institutions of the public assurance review. and analytical agencies. The Report covers participation by the Company’s representatives in the advisory panels of ministries related to the oil and gas sector, This Conclusion has been prepared for the Company, which can use it for its internal and in the drafting of legislation and providing appraisals of legislative initiatives. corporate needs and for communication with stakeholders, by publishing it without It also covers interactions with the Company’s key social partner, the International making any changes. Association of LUKOIL Group Trade Union Organizations, including on issues related to improving working conditions. Information is given on the main mechanisms of the HR policy, training programs and personnel development, and social programs for employees. The Report covers how the procurement of goods, work, and services is organized through open tenders and the selection of suppliers in accordance with CONCLUSIONS Based on our analysis of the Report, public information available on the Company’s the requirements of corporate Regulations. Information is also provided on support official website, and a collective discussion of the independent assessment of the for local suppliers and contractors. The Report notes that the Company monitors Report by the members of the RUIE Council on Non-Financial Reporting, the Council the activity of contracting organizations for compliance with the health, safety, and confirms the following: environmental requirements stipulated in the contracts with these contractors. ΅ The LUKOIL Group Sustainability Report for 2017 contains relevant information on The Company reports that in the reporting year it opened an online store to sell key areas of responsible business practices in accordance with the principles of lubricants, which makes the Company’s products available to consumers worldwide. the Social Charter of Russian Business, and provides sufficient comprehensive The main mechanisms for interacting with consumers and receiving consumer disclosure of the Company’s activity in these areas. feedback are cited. The Report provides information on the Company’s participation ΅ The recommendations of the RUIE Council, based on the public assurance review in international and Russian public organizations and in international projects, of the Company’s previous report for 2015–2016, were reflected in the 2017 Report programs, and initiatives. in the form of greater disclosure of information on integrating sustainability goals into the Company’s strategy and the consolidation of data at Group level, including Russian and foreign assets.

The Company’s 2017 Report contains relevant information in respect of the following Human rights: The Report states that in the reporting year the corporate human rights policy aspects of responsible business practices: was consolidated in a new version of the Social Code. In all the countries where it operates, the Company recognizes the importance of observing the UN Universal Economic freedom and responsibility: The Report discloses information on the Group’s Russian and foreign assets, Declaration of Human Rights, including rights pertaining to labor, the right to a healthy includes key financial and production performance results, presented over time, and environment, and the rights of indigenous minorities and special community groups. describes the Company’s key lines of business, operating footprint, and competitive advantages. The approval of the LUKOIL Group Strategic Development Program The main mechanisms are described for monitoring and assessing activity in for 2018–2027 is reported, which reflects the sustainability priorities, sets out the connection with human rights compliance. The Report contains information on goals and objectives for the entire Company in this area, and correlates them observing employee rights to free association, which are exercised through the with UN Sustainability Goals. The key projects of the reporting year are listed, and activities of trade unions and through concluding collective agreements in the include the development of renewable energy, the development of hard-to-recover majority of Russian and foreign organizations, with a broad coverage of employees. reserves, and the utilization of associated petroleum gas (APG). The Report provides Information is provided on compliance with labor rights and the observance of social information on work to improve the efficiency of production activity across the value guarantees. Information is also given on the Company’s obligations, as contained in creation chain. Issues related to ensuring product quality and management in this the Social Code, to support the national and cultural identities of indigenous peoples area, in accordance with international standards, are covered. The structure for living in areas where the Company operates, as well as the mechanisms for their managing aspects of sustainability and sustainability risks is presented vertically, from implementation, including partnership agreements, joint working bodies on issues Board to subsidiary level. Information is given on updates to in-house regulations related to the indigenous peoples of the North, programs to protect their rights and designed to improve activity in this area; on new management approaches to legal interests, and the provision of support. planning targeted corporate programs in health, safety and the environment; and on confirmation that the management system in this area complies with ISO 14001 and OHSAS 18001. The Report highlights ongoing efforts to implement the provisions of the LUKOIL Group Antimonopoly Policy. The Report contains a Company statement on compliance with anti-corruption legislation in the countries where the Company operates.

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Environmental protection: The Report presents the implementation results of the Environmental Security CONCLUDING Overall, the Report reflects the LUKOIL Group’s responsible business practices, Program for 2014-2017, and gives the key results for the reporting year. The REMARKS management system, and the Company’s impact on society and the environment. approval of the Environmental Security Program for 2018-2020 is mentioned. The Report uses an integrated approach to disclose information across key lines of The main measures are listed for reducing emissions of pollutants, curtailing APG business, including a substantial number of performance indicators related to the flaring, and developing “green” energy based on renewables. The Company’s economic, environmental, and social aspects of the Company’s operations. The approach to effective water management and wastewater removal are covered. Report provides information on the implementation of the Company’s strategy, and Information is included on Russian assets created as a result of land reclamation. how the Company’s performance is in line with UN Sustainable Development Goals. The Report also contains information on oil spills and the scope of the measures taken to mitigate risks in this area, including more stringent requirements for The Report was drafted based on recommendations, standards, and guidelines contracting organizations. The principles and approaches to preserving biodiversity, used both in Russia and internationally (the Global Reporting Initiative (GRI), the UN including in the Arctic Zone, are described. The Report provides a wide range of Global Compact, the Social Charter of Russian Business, and the Corporate Reporting aggregate and relative indicators on the environmental impacts of the Company’s Guidelines for Sustainable Development Goals), which ensures consistency across a production activities. Information is provided on energy conservation measures, the number of reporting cycles and comparability with the reports of other companies. implementation of energy-saving technologies, and installations of the first charging stations for electric automobiles at Company filling stations. The goals and objectives The 2017 Report is the Company’s eighth non-financial report and its first annual of the Energy Conservation Program of LUKOIL Group Subsidiaries in Russia for 2018 report, which attests to the consistent development of the Company’s reporting and for the period from 2019-2020 are presented. The Report states that Group process, including in relation to the provision of time-sensitive information. The organizations have certificates confirming compliance with ISO 50001 standards. Company uses various methods to make independent assessments and to verify Information is included on the performance of climatic risk assessments when taking reporting information (professional audits and public assurance), thus reaffirming its investment decisions and creating strategic, medium-term, and annual plans. Data are responsible approach to ensuring the quality of information presented. presented on measures taken together with regional and local authorities and non- governmental organizations during the Year of Ecology. Support for environmental education programs in Romania, Bulgaria, and Uzbekistan is reported.

RECOMMENDATIONS While noting the merits of the Report, the Council draws the Company’s attention to Participation in local community The Report covers the priorities and mechanisms for implementing the social policy a number of aspects that are important for stakeholders concerning the relevance development: and the Company’s interactions with local communities. Mention is made of the 27 and completeness of the information disclosed, and recommends taking them into partnership agreements in place in the Company’s areas of operation. The Report account in future reports. includes information on support for projects and initiatives of local communities, as part of a Competition of Social and Cultural Projects implemented by the Company’s The Council notes that the recommendations elaborated on the basis of the analysis subsidiaries and the LUKOIL Charity Foundation in the categories Environment, of the Company’s previous reports will be useful in the future reporting practices of Spirituality and Culture, and Sport. The key elements of the system for managing the Group. charity activity are indicated, including data on the Company’s expenditure in this area. Information is provided on Company projects to support social infrastructure, The Report compares the results of the Company’s activities with UN Sustainable education, healthcare, culture, and sport. Examples are given of social projects that Development Goals, in line with modern global best reporting practices. It is will be implemented by the Company’s foreign subsidiaries. advisable to continue to analyze the Company’s activity for compliance with UN Goals, to expand on this information, and to demonstrate how the business results contribute towards attaining the Company’s strategic benchmarks and progressing towards the global goals and objectives relevant for the Company and stated in the 2017 Report.

We recommend that the Company’s sustainable development goals defined in the Report, as well as corresponding strategic objectives, be accompanied in future by the plans for their implementation in the next reporting period and over the medium term, with measurable targets stated in the Report.

The Report indicates that information requests from various stakeholders are taken into account during the Report’s preparation, including the indicators to be used for independent assessments and the compilation of indices and ratings. In this regard, attention should be paid to the Company’s performance indicators, which include labor productivity, and this information should be incorporated into the report in future.

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It is stated in the Report that the Company applies a procedure for identifying topics of interest based on GRI Standards, and the elements of this procedure are indicated (here special mention is made of the survey of the directors of main structural divisions). It would also be prudent to describe the tools for taking stakeholder opinions into account when drawing up lists of material topics, and to set out the procedure for interacting with them in this regard.

In the previous period the Company gained experience in holding discussions with stakeholders in its areas of operation on resolving social issues and the development of local communities. If this practice continues going forward, it should be covered in reports, with an emphasis made on the creation and implementation of the Company’s social programs. This type of information serves to confirm the effectiveness of the stakeholder cooperation and feedback mechanisms employed by the Company.

In view of increasing attention being paid by numerous stakeholders, both in Russia and globally, to issues related to business ethics and corporate anti-corruption practices, it would be worth expanding the scope of information regarding this topic in future reports.

The Company has gained extensive experience in the area of sustainability reporting, including the best practices for showcasing the key results of activity at a regional level. This experience should be leveraged in the future, with the most salient information on the Company’s performance in the areas of operation of the LUKOIL Group organization being included in reports.

The RUIE Council for Non-Financial Reporting, having given the Report a positive assessment, supported the Company’s commitment to responsible business practices, and noted the reporting consistency, confirms that the LUKOIL Group 2017 Sustainability Report has passed public assurance.

RUIE Council for Non-Financial Reporting

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Appendix 5 Appendix 6 Abbreviations Reporting boundaries of individual indicators FS – filling station KMAA – Khanty-Mansi Autonomous Units Area NIR spectrometer – near-infrared BOE – barrel of oil equivalent spectrometer SG – Sustainability Targets (UN Agenda 2030) p.p. – percentage point RES – renewable energy sources EBITDA – Earnings before Interest, VMI – voluntary medical insurance Taxation, Depreciation and Amortization

IMN – indigenous minorities of the North ESG – Environmental, Social, and Corporate Governance KPIs – key performance indicators SDGs – Sustainable Development SMMW – statutory minimum monthly Targets wage Names of organizations NAA – Nenets Autonomous Area IATUO – International Association OR – oil refinery of Trade-Union Organizations of PJSC LUKOIL OMA – oil mining administration ILO – the International Labour EIA – environmental impact assessment Organization

OOO – limited-liability company UN – United Nations

HSE – health, safety, and the OPEC – Organization of Petroleum- environment Exporting Countries

APG – associated petroleum gas PJSC LUKOIL – Public Joint-Stock Company LUKOIL IEC – industrial environmental control REPORTING BOUNDARIES OF INDIVIDUAL INDICATORS system UNDP/GEF – United Nations ARE PRESENTED ON THE WEBSITE OF THE INTERACTIVE Development Program (UNDP)/Global REPORT DLS – distance learning system Environment Facility (GEF)

MM – the mass media R&D – research and development

JV – joint venture RR – OAO Russian Railways

SO – the standards of the organization RUIE – Russian Union of Industrialists and Entrepreneurs SPP – solar power plant CDP – Carbon Disclosure Project FEC – fuel and energy complex GRI – Global Reporting Initiative TPP – thermal power plant WWF – World Wildlife Fund CHPP – combined heat and power plant

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LUKOIL Company welcomes your feedback. Your feedback, suggestions and comments on the Report’s contents will help us identify the topics and indicators that are of the greatest interest, and balance properly the amount of information published, when the Company prepares the next Sustainability Report.

LEGAL ADDRESS CENTRAL OFFICE COORDINATION CENTER AND CORPORATE HEADQUARTERS INFORMATION SERVICE FOR CORPORATE ACTIVITIES

101000, Russian Federation, Moscow Tel.: Tel.: Sretensky Boulevard, 11 +7(495) 627-44-44, 628-98-41 +7(495) 981-79-77 Website: Fax: E-mail: www.lukoil.ru (Russian), +7(495) 625-70-16 [email protected] www.lukoil.com (English)

INVESTOR RELATIONS DEPARTMENT PRESS SERVICE

Tel.: Tel.: +7(495) 627-16-96 +7(495) 627-16-77 E-mail: E-mail: [email protected] [email protected]