Sustainability forms the basis for development. Solid Growth allows reaching new heights. Transformation opens new horizons
SUSTAINABILITY REPORT CONTENTS
Letter from the Chief Executive Officer 3 7.4. Preserving Cultural Heritage 50 7.5. Sports 50 1. Report and Reporting Process 6 7.6. Volunteering 51 1.1. Novatek’s Social Reporting Development 6 7.7. NOVATEK-Veteran Program 51 1.2. Principles for Defining Report Content 6 1.3. Report Boundary 8 8. Employment Practices 53 1.4. NOVATEK Group’s Structure Changes 8 8.1. Personnel 53 8.2. Corporate Technical Competency Assessment System 56 2. Company Profile 10 8.3. Personnel Training and Development 56 2.1. The Company’s Scope and Key Lines of Business 10 8.4. Trade Union Relations 57 2.2. Geography 10 8.5. Social Policy 58 2.3. The Company’s Structure as at 31 December 2015 13 2.4. Our Business Model 14 9. Procurement Practices 60 2.5. Share Capital 16 9.1. Key Approaches 60 2.6. Membership in Trade Associations 17 9.2. Supply Chain Management 60 2.7. Awards 17 9.3. Import Substitution Policy 60 2.8. Key Performance Indicators 17 10 Occupational Health and Safety 62 3. Sustainability Strategy 18 10.1. Occupational Health and Safety Goals and Objectives 62 10.2. Special Assessment of Working Conditions 62 4. Stakeholder Engagement 20 10.3. Operational Control 62 4.1. Basics of Stakeholder Engagement 20 10.4. Fire safety, civil defence and emergencies 63 4.2. Stakeholder Engagement Matrix 22 10.5. Accidents and Incidents 63 10.6. Workplace Injury Rate 64 5. Corporate Governance 29 10.7. Contractor Engagement 64 5.1. Corporate Governance Principles 29 10.8. OHS Training 64 5.2. Corporate Governance Structure 29 5.3. BoD and Management Board remuneration packages 34 11. Environmental Protection 66 5.4. Internal Control and Audit 35 11.1. Environmental Vision 66 5.5. Risk Management System 36 11.2. Environmental Monitoring and Industrial Control 67 5.6. Ethics and Integrity 38 11.3. Environmental Protection – Government Control 67 11.4. Emissions and Waste 68 6. Economic Performance and Sustainability 41 11.5. Water Use and Disposal 70 6.1. Economic Performance 41 11.6. Energy Consumption and Efficiency Improvement 71 6.2. Exploration, Development and Production 43 11.7. Biodiversity Preservation 71 6.3. Hydrocarbon Processing 45 11.8. Disturbed Area Reclamation 72 6.4. Marketing and Sales 46 11.9. Environmental Protection Training 72 6.5. Dividend Policy 47 11.10. Environmental Costs 73
7. External Social Policy 48 GRI G4 Content Index 74 7.1. Cooperation with the Regions 48 Abbreviations 81 7.2. Support of Indigenous and Minorities of the North 49 Contact Details 82 7.3. Educational Programs 49 CONTENTS DEAR STAKEHOLDERS,
A balanced business model, low cost Two thousand and fifteen was a structure, high-quality resource base, challenging, yet a successful year for and efficient management are the NOVATEK. Despite a very difficult external fundamental pillars enabling NOVATEK environment, our financial performance to be a leader in its industry and continue improved and demonstrated resiliency – developing steadily in any macroeconomic our revenues grew by 33%, our normalized environment. EBITDA reached a record-high of RUB 214 billion, our free cash flow increased by 1.7 In the reporting year, amid the volatility times. We maintained one of the lowest in the commodity and foreign currency finding and development cost as well as markets, NOVATEK maintained a high production cost structures among the level of stability but also achieved a big industry’s listed companies globally, which step forward in its business development is a testament to the efficiency of our without reducing expenses or efforts into management and the prolific nature of our resource base.
We continued to deliver according to our THE CONTINUOUS AND UNINTERRUPTED GROWTH IN long-term strategy and launched a series of major fields in 2014 and 2015. As a NOVATEK’S OPERATIONAL AND FINANCIAL RESULTS WOULD result, our natural gas production grew by HAVE BEEN IMPOSSIBLE WITHOUT OUR STRONG 9% as well as demonstrating a record-high COMMITMENT TO SUSTAINABILITY, UNDERLYING AN growth in liquid hydrocarbons production, up by 51% compared to 2014. For the first INTEGRAL PART OF OUR LONG-TERM STRATEGY time in the Company’s history, our revenues from liquid hydrocarbon sales exceeded those generated by the sale of natural gas.
In 2015, we fulfilled all of our capital
our social and environmental programs. In construction plans – we launched three r ce 2015, we achieved exceptional operational major fields: the Yaro-Yakhinskoye,
and financial performance and reinforced Termokarstovoye, and Yarudeyskoye. e Offi iv
the foundation for the Company’s future The start-up of the Yarudeyskoye field is t u
development. worth a special mention as it is the largest ec
crude oil project in the Company’s portfolio f Ex e It is my pleasure to bring to your attention and its launch marked the completion of
NOVATEK’s Ninth Sustainability Report for the mid-stage of NOVATEK’s long-term e Chi h
the year 2015. development strategy. m t o r fr ette L
3 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Now is the opportune time to look back the challenges we face and successfully at what we achieved relative to our progress in accordance with our long-term strategic goals and objectives. Over the strategy. We consider human capital to be past five years, our share in the Russian one of our most important assets and, in natural gas market went up twofold to 2015, we implemented our comprehensive approximately 20%, and the share of end human resource policy oriented at training consumers in our total gas sales volumes our employees and further improving their increased from 64% to 93%, our proved professionalism, as well as giving them full hydrocarbon reserves grew by 58%, support and protection. production of natural gas rose by 82%, while the production of liquid hydrocarbons Throughout our history, NOVATEK has increased by 2.5 times. The accelerated adhered to sustainable development growth of liquid hydrocarbon production principles and the most stringent standards led to a significant transformation of in this area. We realize that business our business in terms of sales structure, development must not contradict public customer base, and cash flows. interest or disrupt the ecosystems of the regions where we do our business. THE YAMAL LNG PROJECT IS COMPLETELY IN LINE WITH THE We are now moving to the next stage of We acknowledge that our operations APPROVED SCHEDULE, THE INITIAL START OF LNG PRODUCTION the Company’s transformation, which involve environmental risks and we see IS PLANNED FOR 2017 envisages entering the international LNG environment protection as one of our core market by implementing our flagship priorities. We pursue a systematic approach Yamal LNG Project. We successfully that includes environmental monitoring and completed all of the activities related to the supervision of operations, implementing disclosure on greenhouse gas emissions On behalf of the Company, we welcome project scheduled for 2015, confirming the comprehensive and targeted actions to and energy efficiency – the Carbon our continuous and productive dialogue effectiveness of the Company’s efforts in protect the environment, surveying and Disclosure Project, and on the use of water on sustainability issues with our this area. In particular, 15 new production taking into account all actual and potential resources – the CDP Water Disclosure relevant stakeholders. We hope that wells were drilled, the Sabetta airport was environmental risks, as well as delivering Project. our sustainability report gives you a commissioned, long-lead items and the environmental safety training to our staff. comprehensive view of NOVATEK as a
LNG plant modules began arriving to the By harnessing the energy of the Far North, socially responsible and transparent r ce site. The initial start of LNG production is Geographical and industry specifics of our NOVATEK shows utmost consideration for business.
planned for 2017, which is completely in line business also require that we pay particular indigenous communities, strives to interact e Offi iv with the approved schedule. attention to preserving the biodiversity with them on a permanent basis, and works t u
of the Far North. In particular, in 2015, we actively to help resolve issues they face and ec
Speaking of successful implementation of undertook a set of actions to preserve create favorable conditions for indigenous f Ex e our plans and the good operational and the biodiversity in the area where Yamal peoples to live and uphold their traditions. CHIEF EXECUTIVE OFFICER, OAO NOVATEK financial performance, it is very important LNG operates, including a study of marine LEONID MIKHELSON e Chi h
to emphasize that a vast role in our success mammals in the south-eastern Kara Sea. The Company has traditionally engaged m t belongs to the Company’s employees. Their in charity activities in three areas, namely, o professionalism and commitment to the NOVATEK continues its voluntary sports, culture and education. In 2015, we r fr
interests of NOVATEK allow us to overcome participation in international information increased the total size of our charity work ette L in monetary terms by more than one third.
4 NOVATEK / SUSTAINABILITY REPORT 2015 REPORT AND REPORTING PROCESS
THE REPORT WAS DRAFTED AS PER THE SUSTAINABILITY REPORTING GUIDELINES OF THE GLOBAL REPORTING INITIATIVE (G4) REPORT AND REPORTING PROCESS CONTENTS
NOVATEK’S SOCIAL REPORTING PRINCIPLES FOR DEFINING REPORT DEVELOPMENT CONTENT NOVATEK deems it necessary to regularly NOVATEK seeks to constantly improve For the purposes of this Sustainability Pursuant to the GRI G4 requirements, the disclose information on its sustainable its non-financial reporting procedures: Report, the Company formed a dedicated Report provides an extensive coverage of development practices demonstrating this year’s Report is the second one interdisciplinary task team. Mindful of the corporate governance, business ethics, transparency and an ambition for having prepared pursuant to the new version of principles for defining the report content procurement and anti-corruption practices. a responsible dialogue with stakeholders the Sustainability Reporting Guidelines (as stipulated by the GRI G4 guidelines) on a wide selection of matters. As one of of the Global Reporting Initiative (GRI G4, and key stakeholder opinions, the task The Report drew on the following the acknowledged leaders of the oil and 2014). We can state with confidence that team members and the Company’s standards and documents as core gas industry, the Company is conscious of the Company is fully complied with the management identified several material regulatory guidelines: the importance its long-term sustainable GRI G4 requirements and has improved its matters and topics with a considerable development has for the regions where it sustainability-reporting framework based economic, environmental and social impact XX Sustainability Reporting Guidelines operates. on the requirements. on stakeholders’ opinions and decisions. (GRI G4) In order to map out these material topics XX Oil and Gas Industry Protocol In this Report, the Company discloses This is the ninth Sustainability Report and make adjustments as needed, the team XX AA1000 Stakeholder Engagement information on the direct/indirect economic prepared by NOVATEK. Our previous report analyzed the mass media content over the Standard and environmental impact on the regions was published in Q3 2015, and our next reporting period and factored in the GRI XX Social Charter of Russian Business within its geographical footprint, HR and report will be published in the Q3 2017. industry recommendations on key oil and XX National GOST R ISO 26000:2012 social policies, workplace health and gas matters*. Standard safety measures and engagement with XX Specialized ISO 14001 and ISO 9001:2008 stakeholders, including industry partners, * Global Reporting Initiative. Research and Development Standards Series, 2013, «Sustainability Topics for Sectors: What do government authorities, NPOs and local stakeholders want to know?», Amsterdam. XX OHSAS 18001:2007 Standard communities.
NOVATEK’S 2015 SUSTAINABILITY REPORT HIGHLIGHTS PRINCIPLES FOR ENSURING REPORT QUALITY
XXThis Report is the ninth annual non-financial report. XXBalance ocess XXThe Report was drafted as per the Sustainability Reporting Guidelines XXComparability g pr g n of the Global Reporting Initiative (G4) and the GRI Oil and Gas Sector XXAccuracy i t
Supplement for oil and gas companies. XXClarity o r e p XXThis Report features 4 new indicators not disclosed previously. d r d XX n The Report meets the Core Disclosure requirements. a t o r p Re
6 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
MATERIALITY MATRIX OF SUSTAINABILITY ASPECTS
MATERIAL ASPECTS
GENERAL ASPECTS ECONOMIC ASPECTS Transparency Economic performance Stakeholder engagement Indirect economic impact Corporate governance Risk management Ethics and integrity
ENVIRONMENTAL ASPECTS SOCIAL ASPECTS Emissions Employment Water Social benefits and payments Energy Workplace health and safety Biodiversity Staff training and education Environmental management Freedom of association and collective bargaining Environmental investments Indigenous rights Local communities Anti-corruption policy RELEVANT ASPECTS
Procurement practices Effluents and waste Labor/management relations MATERIALITY STAKEHOLDER FOR Security practices Supplier assessment Products and services Diversity and equal opportunity Customer health and safety Business model ocess
pr g
Transport n i Equal remuneration for women and men t o r Compliance e p d r d n a t o r
MATERIALITY FOR THE COMPANY p Re
7 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
NOVATEK GROUP’S REPORT BOUNDARY STRUCTURE CHANGES NOVATEK’s 2015 Sustainability Report The Report was prepared based on the In the reporting year, the NOVATEK Group’s describes the Company’s key economic, consolidated IFRS financial statements for structure saw no changes that could have social and environmental activities within the fiscal year ended 31 December 2015. an impact on the strategic and economic the sustainable development framework. performance of the Group. The Report discloses operations of The Report may also contain forward- the NOVATEK Group, including those of looking statements on the NOVATEK its subdivisions, subsidiaries and joint Group’s mid- and long-term business ventures based in Russia (the majority), plans. As these plans are contingent upon Poland, Cyprus, Switzerland and a number of external factors beyond the Singapore. To highlight the Company’s Company’s reasonable control, the actual historical performance, maintain performance achieved in the following consistency in sustainability reporting reporting periods may differ materially from and ensure data comparability, the Report the estimates or targets provided herein. provides indicators for the 2013–2015 time period. To ensure comprehensive disclosure herein, the Report may also refer to certain events that occurred before or after the reporting period. ocess g pr g n i t o r e p d r d n a t o r p Re
8 NOVATEK / SUSTAINABILITY REPORT 2015 COMPANY PROFILE
20% OF THE OVERALL GAS SUPPLY TO RUSSIAN MARKET COMPANY PROFILE CONTENTS
THE COMPANY’S SCOPE AND KEY LINES OF BUSINESS The Company’s name : NOVATEK is Russia’s largest independent The majority of our natural gas production OAO NOVATEK private natural gas producer and the is geologically classified as wet gas, or nation’s second largest natural gas natural gas containing gas condensate. Hereinafter referred to as: NOVATEK, Company and producer. Our core operations are The Company operates a vertically NOVATEK Group exploration, production, processing, integrated production chain that includes transportation and marketing of natural gas transportation, processing and marketing Head office located at : and liquid hydrocarbons. capacities for gas condensate and gas 2 Udaltsova St., Moscow, products. The value chain embraces a 119415, Russia We are ranked number three among public network of condensate pipelines linking companies worldwide in terms of proved the Company’s fields with the Purovsky natural gas reserves (the SEC methodology) Gas Condensate Stabilization Plant (the and number six in terms of natural gas Purovsky Plant), which produces stable gas production. condensate and light hydrocarbons; the Stable Gas Condensate Fractionation and GEOGRAPHY NOVATEK plays a major role in Russia’s Transshipment Complex at the port of Ust- NOVATEK’s production facilities are located TRANSPORTATION AND PROCESSING energy sector: in 2015, the Company Luga producing naphtha, jet fuel, gasoil and in the Russian Federation. The gas condensate produced at the fields accounted for approximately 10.8% of fuel oil, and enabling the Company to ship is subsequently delivered through the Russia’s total natural gas production (up its products to global markets. The Company’s core production and Company’s condensate pipelines to the 1.1 p.p. from 9.7% in 2014) and some 20% processing assets are concentrated in Purovsky Plant located in the producing of total natural gas supply to the domestic The Company also produces crude oil. The the Yamal-Nenets Autonomous Region region. The Purovsky Plant produces market. end of the reporting year saw us boost our (YNAO), one of the world’s largest natural stable gas condensate, with the bulk of it average daily output of crude oil due to the gas producing regions by both reserves and transported by rail to be further processed launch of the Yarudeyskoye oil field. production volumes. Geographically, the at the Stable Gas Condensate Fractionation YNAO is the Company’s core region. and Transshipment Complex located at the Baltic port of Ust-Luga. Since the Q2 2014, EXPLORATION AND PRODUCTION all of NOVATEK’s light hydrocarbons (used As at the end of the reporting year, the as feedstock for marketable LPG) have Company, its subsidiaries and joint ventures been transported by pipeline to SIBUR’s held a total of 31 subsoil licenses in the Tobolsk Petrochemical Complex for further YNAO. Over the reporting year, the Company processing. produced natural gas, gas condensate and crude oil at 13 fields. o fi le pr ny mpa o C
10 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Yamal-Nenets Autonomous Region
RUSSIA
Our production assets are located in Russia’s YNAO, one of the world’s largest natural gas producing regions.
The Company has an extensive conventional resource base with strong concentration reserves and a huge geological potential.
FIELDS AND LICENSE AREAS WITH PROSPECTIVE FIELDS AND COMMERCIAL PRODUCTION LICENSE AREAS LEGEND
1. East-Tarkosalinskoye field 12. East-Tazovskoye field 23. North-Russkiy license area Purovsky Gas Condensate Stabilization 2. Olimpiyskiy license area 13. East-Tambeyskiy license area 24. North-Russkoye field Plant, key link in the production chain 3. Samburgskiy license area 14. Geofizicheskoye field 25. North-Tasiyskiy license area producing stable gas condensate. 4. North-Urengoyskoye field 15. Dorogovskoye field 26. North-Chaselskiy license area 5. North-Khancheyskoye field1 16. Yevo-Yakhinskiy license area 27. North-Yubileynoye field Ust-Luga Complex processing stable 6. Termokarstovoye field 17. West-Urengoyskiy license area 28. Trekhbugorniy license area gas condensate into high value added 7. Khancheyskoye field 18. West-Chaselskoye field 29. Ukrainsko-Yubileynoye field products. 8. Yumantilskiy license area 19. West-Yurkharovskoye field 30. Utrenneye field o fi le pr 9. Yurkharovskoye field 20. Malo-Yamalskoye field 31. South-Tambeyskoye field ny 10. Yaro-Yakhinskiy license area 21. Raduzhnoye field NOVATEK’s gas condensate pipelines mpa
11. Yarudeyskoye field 22. North-Obskiy license area connecting production fields with the o C * North-Khancheyskoye plus Khadyryakhinskoye fields Purovsky Plant. since October 2014 11 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Norway UK Sweden Denmark Finland HYDROCARBON SALES Netherlands Marketing and sales GEOGRAPHY IN 2015 Spain Belgium The Company sells all the natural gas it Germany Estonia produces in the domestic market, supplying it to 33 Russian regions in the reporting Lithuania Russia year. Poland
Slovakia LPG and stable gas condensate are Hungary delivered to both domestic and Italy international consumers, whereas Romania substantially all of the petroleum products USA are exported (naphtha is shipped to Asia Pacific, and jet fuel, gasoil and fuel oil to North Western Europe). Turkey
Crude oil is sold both domestically and internationally.
SALES BREAKDOWN IN 2015, %
Japan
Domestic market Export South Korea
Taiwan 1 00 % 65 % 35 % Russia China
Gas Crude oil Singapore
62.5 1.1 Malaysia bcm mmt
1 % 99 % 76 % 24 % 47 % 53 % Oman
LEGEND o fi le pr ny Export countries
Ust-Luga products LPG and light hydrocarbons Stable gas condensate mpa o
Russia C 6.7 2.3 2.8 mmt mmt mmt 12 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
THE COMPANY’S STRUCTURE AS AT 31 DECEMBER 2015
UPSTREAM DOWNSTREAM IN RUSSIA OVERSEAS UPSTREAM AND DOWNSTREAM OTHER
NOVATEK-Yurkharovneftegas NOVATEK-Purovsky Plant NOVATEK GAS & POWER GmbH Sherwood Premier 100% 100% 100% 100%
NOVATEK-Tarkosaleneftegas NOVATEK-Ust-Luga Novatek Polska Sp. z o.o. NOVATEK R&D Centre 100% 100% 100% 100%
Arcticgas NOVATEK-AZK NOVATEK EQUITY (CYPRUS) LIMITED 53,3% 100% 100%
Nortgas NOVATEK-Transervice 50% 100%
YARGEO NOVATEK Moscow Region 51% 100%
Yamal LNG NOVATEK-Kostroma 60%* 100%
Terneftegas NOVATEK-Chelyabinsk 51% 100%
Novatek-Yarsaleneftegaz NOVATEK-Perm 100% 100%
Arctic LNG 1 100%
Arctic LNG 2 100%
Arctic LNG 3 100 % o fi le pr ny
* In December 2015, the Company signed binding definitive agreements to sell a 9.9% stake in the Yamal LNG mpa o project to China’s Silk Road Fund. C
13 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
OUR BUSINESS MODEL
100% domestic market 62.5 bcm
99% international market� 6.7 mmt 81% 19%
47/53% domestic/ international market 2.8 mmt
65/35% domestic/ 76/24%
international market domestic/ o fi le
1.1 mmt international market pr 2.3 mmt ny mpa o C
14 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
OUR BUSINESS MODEL
EXPLORATION PROCESSING MARKETING SUSTAINABLE AND PRODUCTION AND TRANSPORTATION AND SALES DEVELOPMENT
NOVATEK Group has subsoil and production NOVATEK produces mostly wet gas, or The Company sells all the natural gas it We adhere to the sustainable development licenses for the fields located in the natural gas containing gas condensate. produces in the domestic market, delivering principles and consider the welfare of our Yamal-Nenets Autonomous Region, which After separation at the field, de ethanized the commodity to 33 Russian regions. employees and their families, is extremely rich in hydrocarbon resources. gas condensate is transported by the NOVATEK accounts for almost one fifth of environmental and industrial safety, We rank third globally by proved natural Company’s gas condensate pipeline to the total domestic shipments via the Unified creation of a stable and favorable social gas reserves and our reserve to production Purovsky Plant to be stabilized. Gas Supply System. environment, and contributing to overall (R/P) ratio is 25 years, constituting the economic development as top corporate The plant’s primary products are stable gas The Company sells liquid hydrocarbons basis for our production growth. priorities and responsibilities. condensate and light hydrocarbons. (stable gas condensate and petroleum Most of the Company’s reserves are products, light hydrocarbons, LPG, and NOVATEK has implemented a Health, Safety The bulk of stable gas condensate is located onshore or can be developed from crude oil) both locally and globally (Asia and Environment (HSE) Policy, and all of the transported by rail to the Stable Gas onshore locations and are attributed to Pacific, Europe, and North America). Company’s core subsidiaries and joint Condensate Fractionation and conventional hydrocarbons (recoverable ventures operate an Integrated Transshipment Complex located at the port via conventional technologies, in contrast Management System (IMS) for of Ust-Luga. to unconventional gas deposits such Environmental Protection, Occupational as shale gas or coal-bed methane). The complex produces naphtha, jet fuel, Health and Safety. gasoil and fuel oil, and provides We have one of the lowest Finding & The Company provides financial support to transshipment capacities to ship stable gas Development and Lifting costs among the indigenous minorities of the North. condensate to global markets. publicly traded oil & gas companies. NOVATEK’s HR management framework is NOVATEK’s products are supplied to The Company is running commercial centered around fair and equitable customers by pipeline, rail, and sea. production at 13 fields, working to launch treatment (including as regards production at a number of new fields, and professional growth), mutual respect, and implementing the Yamal LNG project (the an ongoing dialogue between the first LNG project in the Russian Arctic). management and employees.
Strategic objectives: Strategic objectives: Strategic objectives: Strategic objectives: - expand the resource base and efficiently - maintain low-cost structure - streamline and expand existing and create - maintain increased social responsibility manage reserves - ensure high quality of products new marketing channels - ensure environmental and industrial safety - increase hydrocarbon production - enter into the international LNG market - maintain low-cost structure - maintain low-cost structure o fi le pr ny mpa o C
15 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
SHARE CAPITAL SHARE CAPITAL STRUCTURE*, % BREAKDOWN OF NOVATEK’S Our share capital totals RR 303,630,600 MARKET CAPITALIZATION AS OF split into 3,036,306,000 ordinary shares 31 DECEMBER 2015 with a par value of RR 0.1 each. NOVATEK shares trade in Russian rubles on the Moscow Exchange, while its GDRs trade in 29.9 % Deutsche Bank Trust Company US dollars on the London Stock Exchange Americas** (LSE). Each GDR represents ten ordinary shares. As of 31 December 2015, NOVATEK’s 16.2 % GDRs were issued on 906,782,300 ordinary TOTAL E&P ARCTIC RUSSIA shares comprising 29.9% of the Company’s share capital. 14.6 % VRN SARL RR 786.9 100% BLN 10.0% Gazfin Cyrpus Limited
8.1 % OOO Santata
7.3% OOO Levit 54 % 6.2% Equity OOO Belona 46 % 5.3% Debt capital SWGI Growth Fund (Cyprus) Limited
2.4% Other (interests of less than 5%)
* According to the data contained in the list of persons **GDRs. At the end of the reporting year, the entitled to participate in the General Meeting of Company’s total market capitalization (total Shareholders and holding at least 5% of ordinary shares. Record date is 7 July 2015. debt plus equity) stood at RR 786,876 mln. o fi le pr ny mpa o C
16 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
MEMBERSHIP IN TRADE ASSOCIATIONS AWARDS KEY PERFORMANCE INDICATORS
XX Since 2003, NOVATEK has enjoyed XX In 2015, NOVATEK was awarded with a Unit 2014 2015 Change,% membership of the Russian Gas Society, certificate of merit for its long-standing Total revenues RR mln 357,643 475,325 32.9% an NPO seeking to promote development cooperation with V.I. Vernadsky Non- in the gas industry. Governmental Environmental Fund. Normalized EBITDA (including share in RR mln 159,631 214,466 34.4% EBITDA of JVs)* XX Since 2010, NOVATEK has been a member XX By Russian President’s decree, of the Association of Gas and Oil Complex NOVATEK’s six officers received the Return on average capital employed % 18.2% 20.1% 1.9 P.P. Builders. honorary title of the Distinguished (ROACE) Employee of the Russian Oil and Gas Proved hydrocarbon XX In 2014, NOVATEK joined the Russian Industry. mmboe reserves (SEC) 12,643 12,817 1.4% National Committee of the World Energy Council. XX At the 10th Oil Terminal 2015 congress, Marketable production bcm 62.1 67.9 9.3% NOVATEK-Ust-Luga won the Public of natural gas Opinion nomination. Marketable production mmt of liquid hydrocarbons 6.04 9.09 50.5%
XX NOVATEK-Chelyabinsk became the winner of the MediaTEK, the first national contest among communications * Excluding the effect from the disposal of interest in joint ventures. departments of fuel and energy sector companies. o fi le pr ny mpa o C
17 NOVATEK / SUSTAINABILITY REPORT 2015 SUSTAINABILITY STRATEGY CONTENTS
NOVATEK’s business exerts an impact on That is why the Group’s management Increased social responsibility is NOVATEK’s employees and their families, sustainably the frail ecosystem within the Company’s puts great emphasis on the respect of strategic objective and operating reduce accident rates, workplace injuries, footprint (YNAO). It also has an influence sustainable development principles and benchmark. The Company has adopted a occupational diseases, and create favorable on many of its stakeholders, including the stakeholder interests. Striking the right consistent approach seeking to create safer social and environmental conditions across Group’s employees, local communities, end balance between the environmental, social workplaces, provide social support to its its footprint. consumers, shareholders and investors. and economic performance would ensure On top of that, the Company’s performance NOVATEK’s sustainable development in the affects international and domestic oil and long run. gas markets and impacts the entire Russian economy.
NOVATEK GROUP’S SUSTAINABILITY FOCUS AREAS
SUPPORT OF OUR PEOPLE, TALENT POOL DEVELOPMENT
CHARITY AND SPONSORSHIP WORKPLACE HEALTH AND SAFETY
INCREASED PERFORMANCE IN CORE LINES OF BUSINESS
CONTRIBUTIONS TO LOCAL ENERGY AND RESOURCE DEVELOPMENT AND EFFICIENCY INDIGENOUS POPULATION
PROGRAMS y g ra te
REDUCTION OF st ty ENVIRONMENTAL IMPACT i l i b a n st ai Su
18 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
EMBEDDING SUSTAINABLE DEVELOPMENT OBJECTIVES INTO NOVATEK BUSINESS ACTIVITY NOVATEK has set its sustainable development objectives as follows:
XX complying with applicable law and ECONOMIC PERFORMANCE ENVIRONMENTAL RESPONSIBILITY SOCIAL RESPONSIBILITY adopting international best practices XX respecting stakeholder interests XX improving corporate governance XX enforcing ethical business conduct XX maintaining a good business reputation Contributing to the development of Mitigating the environmental impact Assuming responsibility for workplace XX developing and implementing advanced domestic gas market, national oil and gas safety and health technologies industry and the entire russian economy Ensuring sustainable subsoil use XX factoring in the regional context Ensuring staff development XX protecting environment Contributing to the development of global Ensuring resource efficiency XX ensuring workplace safety oil and gas market Creating social and economic benefits for XX respecting human rights people within the company’s footprint XX ensuring information transparency Complying with global environmental Striking the balance between economic standards feasibility and stakeholder expectations Supporting local communities
Supporting charity
y g ra te st ty i l i b a n st ai Su
19 NOVATEK / SUSTAINABILITY REPORT 2015 STAKEHOLDER ENGAGEMENT CONTENTS
BASICS OF STAKEHOLDER ENGAGEMENT Stakeholder engagement is a strategic The Company’s key stakeholders are: STAKEHOLDER ENGAGEMENT PRINCIPLES To meet our sustainable development mission within the NOVATEK Group’s XX shareholders, investors and broader As provided for by АА1000SES, NOVATEK’s objectives, in engaging with key stakeholder sustainable development practices financial community stakeholder engagement policy is based on groups we pay close attention to their designed to improve our social XX federal and local authorities the principles of materiality, inclusivity and varying interests. We focus on aligning the responsibility performance. XX industrial and academic community responsiveness. We recognize our Company’s activities with stakeholder XX civil society organizations stakeholders’ opinions, interests, expectations, comments and feedback, STAKEHOLDER IDENTIFICATION XX employees and trade unions expectations and concerns and use a while remaining committed to our strategic The Company identifies stakeholders based XX business partners and suppliers consistent response approach to address priorities. on the extent to which they interact, share XX customers them. interests and communicate, and to do so XX local communities across the Company’s we use the criteria suggested by the footprint Institute of Social and Ethical AccountAbility XX media. and included in the АА1000 Stakeholder Engagement Standard (АА1000SES).
To deliver this report, we made a survey among NOVATEK’s departments to identify STAKEHOLDER IDENTIFICATION CRITERIA stakeholders and analyze ways of engagement. Criterion Purpose and scope of engagement
Groups or individuals who are directly or indirectly dependent on the Company's activities, products or Dependency services, or on whom the Company's operations are dependent
Groups or individuals to whom the Company has, or in the future may have, legal, commercial, operational or Responsibility ethical/moral responsibilities
Groups or individuals who need, or in the future may need, immediate attention from the Company with Tension regard to financial, wider economic, social or environmental issues
Influence Groups or individuals who can have impact on the Company's decision-making ent
Groups or individuals whose views and opinions may lead to a new understanding of the situation and open m Diverse perspectives up new opportunities for the Company gag e r en r e d ol h ke a t S
20 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
To mitigate non-financial risks related to KEY WAYS OF ENGAGEMENT XX face-to-face meetings XX surveys and questionnaires our stakeholders, the Company does the The Company’s stakeholder engagement is XX telephone conversations XX non-profit organizations following: managed through a variety of ways and XX letters and emails XX press conferences and press tours methods of communication. XX industry conferences XX disclosure: corporate website, annual XX identifies stakeholders XX joint working groups and standing reports, sustainability reports, press XX identifies and monitors risk situations To align our interests with those of our committees releases, booklets, articles and other XX performs scenario analysis as regards stakeholders on particular matters, we hold XX meetings, workshops and round-table information materials the Company’s behavior and stakeholder a direct dialogue and talks. Conventional discussions engagement ways of stakeholder engagement are: XX public hearings arranged or attended XX works on projects to ensure reasonable stakeholder engagement XX maintains regular contact with stakeholders
NOVATEK adheres to transparency principles and ensures timely disclosure of OAO NOVATEK CODE OF BUSINESS CONDUCT AND ETHICS: complete and accurate information on its STAKEHOLDER ENGAGEMENT PRINCIPLES core activities to stakeholders. Key stakeholder engagement principles are set out in the Company’s Code of Business Conduct and Ethics and include the following:
XXThe Company facilitates competitive behavior, promotes mutual respect among market players, and avoids unfair competition practices and abuse of market position. The Company strictly complies with the local antitrust laws of where it operates, and abstains from unethical practices. XXThe Company facilitates the development of long-term sustainable relations with its business partners. NOVATEK takes reasonable care to select partners and strives to do business only with reliable market players who operate in a lawful manner and prohibit discrimination, corruption and the abasement of human dignity. XXOne of the Company’s priorities is to maintain consumer confidence, improve product quality, use cutting-edge technologies, and ensure timely delivery. XXNOVATEK strives to maintain an active and open dialogue with its shareholders, prospective investors and other stakeholders. The Company endeavors to mitigate the risks the investors and stakeholders are exposed to through the implementation of a strong corporate governance framework and timely, complete, fair and transparent disclosure of information regarding the Company’s financial position and operations.
XX
NOVATEK avoids unlawful efforts to influence the decisions of governmental and/or local authorities. ent m XXThe Company does not, directly or indirectly, participate in political movements, parties or organizations.
XXNOVATEK views cooperation with local communities as a key element of its corporate strategy, which is based on gag e
mutually beneficial and effective partnerships. en r e d XX
The Company adheres to the policy of fostering social responsibility to its employees, their family members, local ol communities in the regions where the Company operates, and society as a whole. h ke a t S
21 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
STAKEHOLDER ENGAGEMENT MATRIX
STAKEHOLDERS CHANNELS FREQUENCY KEY EVENTS IN 2015 FOCUS AREAS
SHAREHOLDERS Shareholder meetings at least once a year An Annual General Meeting of Shareholders held on 24 April 2015 Profit distribution, dividend payout, annual report approval An Extraordinary General Meeting of Shareholders held on 25 September Press releases and corporate action notices all-year-round 2015 to decide on dividend payout Appointment and remuneration of the Board of Directors and Revision Shareholder queries replied to; public information prepared and Commission Shareholder queries (via phone and mail) all-year-round disclosed Introduction of amendments to the Charter and other internal regulations Financial disclosures quarterly Approval of major transactions and Annual and sustainability reports annually related-party transactions
Corporate secretary all-year-round
INVESTORS AND Financial results disclosure and conference calls held quarterly The Company’s operating and Press releases and corporate action notices all-year-round financial performance ANALYSTS 30 key industry investment conferences attended The Company’s competitive position Apart from the conferences, over 340 meetings held in financial centers Financial results disclosure and conference quarterly across the globe Company and industry outlook calls 36 press releases published Sustainable development Annual and sustainability reports annually Investor and analyst queries replied to; public information prepared and One-on-ones and group meetings, disclosed all-year-round conference calls, group presentations A site visit for investors and analysts arranged
Investor requests all-year-round Carbon Disclosure Project and Water Disclosure questionnaires completed Participation in the Carbon Disclosure Project (CDP) and CDP Water Disclosure annually survey
Site visits ad hoc
Information update on the corporate all-year-round website ent m gag e r en r e d ol h ke a t S
22 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
STAKEHOLDERS CHANNELS FREQUENCY KEY EVENTS IN 2015 FOCUS AREAS
In-person meetings of the management Implementation of social programs, pursuant to the approved Advanced training for staff EMPLOYEES all-year-round with employees Fundamental Concept of Social Policy (INCLUDING FAMILY Social benefits and guarantees MEMBERS AND RETIRED Corporate social programs all-year-round Workplace health and safety training and appraisal of employees EMPLOYEES) Workplace health and safety Cultural and sports events held Collective bargaining agreements all-year-round Employee compensation system Health resort treatment for employees arranged improvement Corporate media monthly NOVATEK’s top managers trained in the Project Management program at Educational and advanced training Moscow School of Management SKOLKOVO all-year-round programs Managing Changes forum held for the NOVATEK Group’s managers Steps in Discovering Talents program for annually The 10th Interregional Research-to-Practice Conference for the young specialists Company’s young specialists held
Developing and improving the Corporate Technical Competency Assessment System annually program for various lines of business
Sustainability reports all-year-round
daily Security Hotline round-the-clock
Discussion and signing of collective Four meetings with trade unions held, attended by the Company’s Performance under collective TRADE UNIONS once every three years bargaining agreements management bargaining agreements
Discussion and signing of addenda to Occupational health and safety ad hoc collective bargaining agreements Protection of employees’ rights and interests Participation of the Company’s management in trade union committee all-year-round meetings
Attendance of trade union conferences by all-year-round the Company’s management
Participation in joint Occupational health all-year-round and safety committees
Joint efforts as regards recreational, sports all-year-round and cultural events
Sustainability reports annually ent m gag e r en r e d ol h ke a t S
23 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
STAKEHOLDERS CHANNELS FREQUENCY KEY EVENTS IN 2015 FOCUS AREAS
GOVERNMENT Participation in meetings of the Presidential Commission for Strategic Fuel and energy sector development Development of the Fuel and Energy Sector and Environmental Security AUTHORITIES Preparation of the draft Energy Participation in a meeting of the Government Commission on the Fuel Strategy of Russia Through 2035 and Energy Complex, the Reserve Replacement and Improving the Economy’s Energy Efficiency Preparation of the draft General Scheme for the Gas Industry Federal Contribution to law-making all-year-round Participation in a meeting of the Government Commission on the Use of Development Through 2035 Natural Resources and Environmental Protection Energy efficiency and energy Participation in working groups, meetings, all-year-round Interaction with the State Duma and the Federation Council of the development round-table discussions, conferences, Federal Assembly of Russia, which includes taking part in commission, forums, etc. committee, working group and expert council meetings, and other Eliminating administrative barriers in activities the subsoil and natural resource use
Participation in working groups of the State Commission for Arctic Atmospheric emissions Development Industrial safety
Participation in working groups implementing the General Scheme of the Replacement of mineral resources Gas Industry Development through 2030 and amending the program to set up the unified gas production, transportation and supply system in Taxation Eastern Siberia and the Far East factoring in potential exports to China and other Asia Pacific countries Amending the Water and Forest Codes of the Russian Federation Cooperation with the Russian Gas Society Amending the production and Taking part in the activities of the Interdepartmental Commission on consumption waste laws Eliminating Administrative Barriers in Subsoil Use Preparation of the draft Concept for Participation in the interdepartmental working group on reducing Development of the Common Gas the dependence of the Russian fuel and energy sector on imported Market in the Eurasian Economic equipment, spare parts, accessories and software, as well as services of Union foreign providers, and developing the Russian oil and gas industry Promoting domestic R&D Attending meetings of the Russian-Asian Pacific and Russian-European intergovernmental commissions on economic, industry and scientific- Arctic development technical cooperation Developing the Arctic transport Participation in the working group on monitoring financial and economic system performance of strategic oil and gas companies Protection of Northern indigenous Attending meetings of the interdepartmental working group drafting peoples rights proposed amendments to the laws pertaining to land property relations with respect to linear and infrastructure facilities
Participation in the events organized by the Russian Union of Industrialists and Entrepreneurs
Cooperation with the Expert Council on the Tax Law Improvement of the ent
Chamber of Commerce and Industry of the Russian Federation m
Participation in the ENES 2015, the 4th International Forum on Energy gag e Efficiency and Energy Development, 5th Arctic: Today and the Future
International Forum, 3rd International Legal Arctic Forum 2015, Arctic en r e
Days in Moscow 2015 forum d ol h ke a t S
24 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
STAKEHOLDERS CHANNELS FREQUENCY KEY EVENTS IN 2015 FOCUS AREAS
Participation in the activities of the Committee on Environment and Environmental Management of the Chamber of Commerce and Industry of the Russian Federation
Participation in public hearings organized by the Civic Chamber of the Russian Federation
Signing the Protocol to the Agreement between the Government of the Russian Federation and the Government of the People’s Republic of China on Cooperation in Implementing the Yamal LNG Project
Participation in meetings, round-table Participation in a meeting supported by the Yamal-Nenets Autonomous Economic development of the regions Local all-year-round discussions, conferences, forums, etc. Region Government on LNG production development based on the resources of the Yamal and Gydan Peninsulas Living standards improvement
Interaction under cooperation agreements Signing of a voluntary commitment memorandum on environmental Utility and transport infrastructure on social and economic development of all-year-round safety in the Yamal-Nenets Autonomous Region between the local development local communities government and NOVATEK Protection of Northern indigenous Social and financial programs implemented under the agreements with peoples rights the YNAO Government and Municipal Councils (in the Yamal, Tazovsky, Reparation of the environmental Disclosure of information on the Company’s Nadym, Purovsky and Krasnoselkupsky Districts), and Administrations of all-year-round damage, depollution and other activities in the local media the Chelyabinsk, Samara, Tyumen and Leningrad Regions remedial actions to offset the environmental footprint of legacy business operations LOCAL COMMUNITIES Participation in public hearings ad hoc Financial support provided to the Russian Association of Indigenous Employment Peoples of the North, Siberia and Far East Cooperation agreements on social Financing the construction and pursuant to strategic and economic development of local Financial support provided to Yamal for Descendants Association and its repairs of the utility and transport development plans communities district branches infrastructure Participation in public hearings of the Civic Chamber of the Russian Supporting low-income population Targeted support to welfare beneficiaries all-year-round Federation on the importance of land in developing native minority communities of the Far North, Siberia and the Far East residing in remote Preserving the national identity of Disclosure of information on the Company’s all-year-round rural areas Northern peoples activities in the local media Participation in a working group meeting of the Association of Managers Financing purchases of equipment Population surveys ad hoc on amending the regulatory framework pertaining to the interaction of and supplies for the indigenous industrial enterprises with the indigenous peoples of the North minorities Interaction with associations of indigenous all-year-round and minority peoples Indigenous peoples rights Land use in the areas populated by Sustainability reports annually indigenous minorities
daily Interaction of industrial enterprises Security Hotline round-the-clock with indigenous minorities ent m gag e r en r e d ol h ke a t S
25 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
STAKEHOLDERS CHANNELS FREQUENCY KEY EVENTS IN 2015 FOCUS AREAS
PARTNERS UNDER JOINT Cooperation agreements all-year-round Effective interaction under joint initiatives and cooperation agreements Joint initiatives INITIATIVES Joint ventures ongoing Partnership prospects
Shareholder meetings all-year-round
Management meetings all-year-round
Working group meetings all-year-round
Security Hotline round-the-clock
SUPPLIERS AND Tenders ad hoc all-year-round Meetings with oil and gas equipment producers Equipment specifications, pricing, CONTRACTORS delivery terms, supply chain Participation in trade shows, forums and Participation in the 7th Integrated Safety and Security Exhibition 2015 management all-year-round other events Participation in the Neftegazsnab 2015 conference Industrial safety Replies to queries received via the official all-year-round as per Participation in the Neftegazstroy 2015 conference Import substitution website (see Sales and Tenders page) requests Participation in the Sales Technologies in the Oil and Gas Industry 2015 Relations with suppliers and conference contractors
Participation in national and global conferences on occupational health Industrial safety Security Hotline round-the-clock and safety Preventing abusive practices when signing contracts
CUSTOMERS Telephone enquiry service daily Queries received via the telephone enquiry service processed Service quality improvement
Customer Account service and Contact Us daily Questions on technical support of services and proposals on improving Customer support Customer Account replied to forms on the website round-the-clock Tariff regulation Daily interaction with business customers arranged Contact Information all-year-round Payment calculations
daily Payment discipline Security Hotline round-the-clock Connection agreements
Counterparty Account service for business daily Gas supply agreements customers round-the-clock
Meetings on payment discipline all-year-round ent m gag e r en r e d ol h ke a t S
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STAKEHOLDERS CHANNELS FREQUENCY KEY EVENTS IN 2015 FOCUS AREAS
CIVIL SOCIETY Cooperation with V.I. Vernadsky Non-Governmental Environmental Fund Preserving biodiversity and biological resources ORGANIZATIONS Cooperation with the World Wide Fund for Nature (WWF). NOVATEK Membership and cooperation all-year-round included in WWF-Russia’s environmental responsibility rating of Russian Environmental protection oil and gas companies Environmental aspects of the Sabetta Cooperation with the Marine Mammal Council on preservation and study seaport construction in the Gulf of Ob of the Atlantic walrus in the south-eastern Barents Sea and adjacent waters Waste and water resource management in the oil and gas Participation in the Waste and Water Resource Management in the Oil industry and Gas Industry 3rd annual national forum Sustainable development Participation in conferences, forums and Participation in the Global Climate Challenge: Dialogue of the all-year-round other events Government, Community and Business international conference Participation in UN Agreement on Climate Change: The Role of Business In the Shaping of Climate Policy, a round-table discussion organized by the Russian National Committee of International Chamber of Commerce – the World Business Organization (ICC Russia)
Participation in the Enhancing Efficiency in Preserving Water Resources national conference
Participation in the working group meetings on biodiversity preservation at the UN House in Moscow Sustainability reports annually Participation in Socially Responsible Business as a Basis for Sustainable Economic Development: Experience of the Most Successful Corporations and Business Schools and Cooperation Prospects, the 4th annual international forum
SOCIETY Philanthropic efforts all-year-round Support of children deprived of parental care Provision of support and financing to orphanages and residential care Interaction with non-profit organizations all-year-round Two blood donation drives organized for the Blood Center of the Federal facilities Medical and Biological Agency of Russia Philanthropy and sponsorship efforts Interaction with leading sports and cultural all-year-round Support of Russian museums, theaters and creative teams institutions Sports promotion Support to sports projects: title sponsorship of the Russian national football team Support and development of cultural projects Volunteer movements all-year-round Support of foster homes with orphaned children Assistance in socialization of children deprived of parental care ent m gag e r en r e d ol h ke a t S
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STAKEHOLDERS CHANNELS FREQUENCY KEY EVENTS IN 2015 FOCUS AREAS
MEDIA Press releases all-year-round 36 press releases published Key corporate highlights
Press tours all-year-round Three press tours of the Yamal LNG project site organized for Russian Progress of the Yamal LNG project (including local) and international media Company and industry outlook Interviews and comments from top all-year-round Three briefings for Russian and international media held (Davos, Paris, executives Tokyo)
Briefings all-year-round Participation in press conferences as part of joint events with museums, creative and performance teams all-year-round as per Comments and replies to media queries requests Five articles and information materials, including those from the corporate paper, drafted for media publication Press conferences all-year-round
Articles and information materials for the all-year-round media
Participation in conferences, forums, round- Sponsorship of the St Petersburg International Economic Forum Development of the fuel and energy INDUSTRIAL all-year-round table discussions, etc. sector, along with the oil and gas COMMUNITY, INCLUDING Participation in meetings held by relevant ministries and agencies ACADEMIC AND industry in general Participation in joint sessions as per request RESEARCH COMMUNITY Participation in the 26th World Gas Conference and the WGC 2015 Economic performance exhibition, the Gastech 2015 conference and exhibition in Singapore Partnerships as per events calendar Industrial safety Participation in organizing major events as part of the R&D Contest for Cooperation with leading oil and gas all-year-round Young Employees of Fuel and Energy Companies Competition development universities Participation in the meetings held by the Competition and Health Staff training and Safety Committees of the Russian Union of Industrialists and Entrepreneurs Amending the Health and Safety Regulations for the Oil and Gas Supporting studies of gas shows on the Yamal Peninsula, causes and Industry mechanisms of crater formation Participation in the Association of Gas and Combating counterfeit and fake all-year-round Oil Complex Builders NOVATEK-VUZ program implementation: 15 graduates found jobs with products the Company’s subsidiaries
Membership in the Association of Gas and Oil Complex Builders ent m gag e r en r e d ol h ke a t S
28 NOVATEK / SUSTAINABILITY REPORT 2015 CORPORATE GOVERNANCE CONTENTS
CORPORATE GOVERNANCE CORPORATE GOVERNANCE PRINCIPLES STRUCTURE To ensure maximum operating efficiency NOVATEK’s corporate governance practices Placed on an equal footing with the other NOVATEK’s corporate governance system NOVATEK seeks to adopt best corporate make it possible for its executive bodies to lines of business, sustainable development includes the Board of Directors, Board governance practices. Governance quality effectively manage ongoing operations in a and corporate social responsibility are Committees, Management Board, internal does not only impact the economic reasonable and good faith manner and viewed as strategic and operational control and audit bodies. performance, but also sustainable solely to the benefit of the Company and its management focus areas. development, social and environmental shareholders. policy dimensions, as well as the Company’s reputation. NOVATEK’S CORPORATE GOVERNANCE SYSTEM We have established an effective and transparent system of corporate Supreme governance body governance complying with both Russian GENERAL MEETING OF and international standards. Financial and business activity SHAREHOLDERS control bodies
The Company’s corporate governance draws heavily on the principles and REVISION COMMISSION approaches set forth in the following Strategic governance body documents: BOARD OF DIRECTORS
XX Russian legislation Board Committees XX Corporate Governance Code (as recommended by the Central Bank of REMUNERATION STRATEGY Russia) AND NOMINATION AUDIT COMMITTEE COMMITTEE XX Combined Code on Corporate Governance COMMITTEE published by the UK Financial Reporting Council XX NOVATEK’s Corporate Governance Code CHAIRMAN OF THE XX NOVATEK’s Code of Business Conduct and MANAGEMENT BOARD (CEO) Ethics XX NOVATEK’s Charter.
Collegial executive body MANAGEMENT BOARD nce a r n e v Go
INTERNAL AUDIT te
CORPORATE SECRETARY SUBDIVISIONS DIVISION ra o rp o C
29 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
GENERAL MEETING OF SHAREHOLDERS On 25 September 2015, the Extraordinary The current members of the Board were to carry out its tasks in accordance with The General Meeting of Shareholders General Meeting of Shareholders approved elected at the Extraordinary General the Regulations on the Corporate is NOVATEK’s supreme governing body. the amount of interim dividend for the Meeting of Shareholders on 25 September Secretary (Minutes No. 168 of 28 April 2014 The activity of the General Meeting of first half of 2015, early terminated the 2015. The Board of Directors is comprised with further alterations and amendments). Shareholders is governed by the laws of authority of the Board of Directors, elected of nine (9) members, of which eight (8) are the Russian Federation, the Company’s a new Board of Directors and approved non-executive directors. Three (3) BOARD COMMITTEES Charter, and the Regulations on the interested-party transactions. directors are considered to be independent The Company has three (3) Board General Meetings approved by NOVATEK’s in accordance with the Corporate Committees: the Audit Committee, the General Meeting of Shareholders in 2005 BOARD OF DIRECTORS Governance Code recommended by the Strategy Committee and the Remuneration (Minutes No. 95 of 28 March 2005) with The Board of Directors (the Board) activity Central Bank of Russia and the UK and Nomination Committee. The further alterations and amendments. is governed by the laws of the Russian Combined Code on Corporate Governance. Committees’ activities are governed by the Federation, the Company’s Charter and the The Board Chairman is Alexander E. specific Committee Regulations approved The General Meeting of Shareholders is Regulations on the Board of Directors Natalenko. The Chairman is responsible for by the Board of Directors and are available responsible for the approval of annual approved by NOVATEK’s General Meeting leading the Board and ensuring its on our website. reports, annual financial statements, the of Shareholders in 2005 (Minutes No. 96 of effectiveness. distribution of profit, including dividends 17 June 2005) with further alterations and The Committees play a vital role in payout, the election of the Board of amendments. The members of NOVATEK’s Board have a ensuring that the high standards of Directors and the Revision Commission, wide range of expertise as well as corporate governance are maintained approval of the Company’s Auditor and The Board carries out the overall strategic significant experience in strategic, throughout the Company and that specific other corporate and business matters. management of the Company’s activity on operational, financial, commercial and oil decisions are analyzed and the necessary behalf of and in the interests of all its and gas activities. The Board members recommendations are issued prior to On 24 April 2015, the Annual General shareholders, and ensures the Company’s hold regular meetings with NOVATEK’s general Board discussions. The minutes of Meeting of Shareholders approved efficient and effective performance in senior management to enable them to the Committees meetings are circulated to the annual report, annual financial order to increase shareholder value in a acquire a detailed understanding of the Board members and are accompanied statements (in accordance with prudent and responsible manner. NOVATEK’s business activities and strategy by necessary materials and explanatory the Russian Accounting Standards), and the key risks impacting the business. notes. distribution of profit and the size of The Board determines the Company’s In addition to these formal processes, dividends based on the results of FY2014, strategy and priority lines of business, Directors have access to the Company’s In order to carry out their duties, the the amended version of the Regulations endorses long-term and annual business medium-level managers for both formal Committees may request information on Remuneration and Compensations plans, reviews financial performance, and informal discussions to ensure the or documents from members of the payable to members of NOVATEK’s Board internal control, risk management and regular exchange of information needed to Company’s executive bodies or heads of of Directors. The meeting also elected the other matters within its competence, participate in the Board meetings and the Company’s relevant departments. Board of Directors (comprising eight (8) including optimization of corporate and make balanced decisions in a timely For the purpose of considering any members due to exclusion of one of the capital structure, approval of major manner. issues being within their competence, nce candidates nominated by shareholders transactions, making decisions on the Committees may engage experts and a r n following withdrawal by this candidate investment projects and recommendations Efficient operation of the Board of advisers having necessary professional e v
of his consent to be elected) and the on the size of dividend per share and its Directors is supported by the Corporate knowledge and skills. Go
Revision Commission, as well as approved payment procedure, and convening Secretary, who has sufficient te ra remuneration to members of the Board of General Meeting of Shareholders. The independence (appointed and dismissed o rp
Directors, Revision Commission and the General Meeting of Shareholders elects by the Board of Directors) and endowed o C Company’s external auditor for 2015. the members of the Board. with the necessary powers and resources
30 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
XX STRATEGY COMMITTEE In carrying out its responsibilities and preliminarily reviewing and making COMMITTEE MEMBERSHIP: The primary functions of the Strategy assisting the members of the Board in recommendations on the Company’s Chairman: Committee are the determination of discharging their duties, the Strategy participation in other organizations; XXAlexander E. Natalenko strategic objectives of the operations and Committee is responsible for but not XX assessing voluntary and mandatory offers Members: control over the implementation of the limited to: to acquire the Company’s securities; XXAndrei I. Akimov strategy, as well as recommendations on XX evaluating the effectiveness of the XX considering the financial model and XXBurckhard Bergmann the dividend policy. Company’s operations in the long-term; business valuation of the Company XXMichael Borrell and its business segments in order to XXGennady N. Timchenko
BOD MEMBERS AS AT 31 DECEMBER 2015 make recommendations to the Board of Directors in making decisions on the DIRECTORS / INDEPENDENCE AND FIRST definition of business priorities of the ELECTION TO THE BOD OTHER IMPORTANT JOBS AND TITLES Company; XX providing recommendations to the Board of Directors on transactions subject to ALEXANDER E. NATALENKO approval by the Board of Directors; and Board member at Rosgeologia. Recipient of the State Award of the Russian Federation, Distinguished XX Board Chairman Geologist of Russia. Former Deputy Minister of Natural Resources. providing recommendations to the Board 2004 of Directors with respect to the Company’s policy on the use of its non-core assets.
In corporate year 2015, the Strategy Committee met four (4) times.
ANDREI I. AKIMOV Chairman of the Management Board at Gazprombank. Member of the Board of Directors / Supervisory Board at Gazprom, Gazprombank, Rosneft, Rosneftegaz, etc. 2006
Member of the Board of Directors / Supervisory Board at Contilia GmbH and Telenor ASA. Chairman / Deputy Chairman / member of the Advisory Board at Jaeger Beteiligungsgesellschaftmb H & Co KG, nce
Accumulatorenwerke Hoppecke GmbH, Dana Gas International and IVG Immobilien AG. Member of the Board a
BURCKHARD BERGMANN of Trustees at RAG AG. Foreign member of the Russian Academy of Technological Sciences, Honorary Consul r n e
of the Russian Federation in the German State of North Rhine-Westphalia. Holds multiple honorary titles and v distinctions, including Commander of the Royal Norwegian Order of Merit, Order of Merit of the State of North
Independent 2008 Go
Rhine-Westphalia, Officer’s Cross of the Order of Merit of the Federal Republic of Germany, Russian Order of te
Friendship for significant contribution to the development of the Russian-German relations. ra o rp o C
31 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
REMUNERATION AND NOMINATION improvement of the Board of Directors’ members of the collective executive COMMITTEE COMMITTEE MEMBERSHIP: effectiveness. body and the sole executive body of the The primary functions of the Remuneration Chairman: Company, oversee its implementation and Nomination Committee is the devel- XXVictor P. Orlov In order to assist the Board, the Committee and realization; opment of an efficient and transparent Members: performs the following functions: XX preliminarily assess the work of the compensation practice of members of XXRobert Castaigne XX develop and regularly review the executive body of the Company for the the Company’s management, enhance- XXAndrei V. Sharonov Company’s policy on remuneration of year in accordance with the Company’s ment of the professional expertise and the members of the Board of Directors, remuneration policy; XX assess the Board of Directors in terms of professional expertise, experience BOD MEMBERS AS AT 31 DECEMBER 2015 of independence and involvement of its members in the work of the Board of Directors, determine the priority areas for DIRECTORS / INDEPENDENCE AND FIRST strengthening the Board of Directors; ELECTION TO THE BOD OTHER IMPORTANT JOBS AND TITLES XX interact with shareholders in order to form the Board of Directors that best meets the goals and objectives of the Company; MICHAEL BORRELL XX analysis of professional qualifications Since 1995, he held a number of senior management positions in TOTAL. 2015 and independence of the candidates to the Board of directors; XX plan appointments of members of the executive body and the sole executive body on the base of continuity principles; and XX supervision over disclosure of information on the Company’s shares owned by the members of the Board of ROBERT CASTAIGNE Member of SANOFI, VINCI и Societe Generale Boards of Directors Chevalier of the National Directors and Management Board, and Order of the Legion of Honor. Independent 2015 other key management employees.
In corporate year 2015, the Remuneration and Nomination Committee met four (4) times. nce a r n e v Go
LEONID V. MIKHELSON Chairman of the Management Board at NOVATEK (CEO) and Board of Directors at SIBUR Holding. te
Holder of the Russian Order of the Badge of Honor, II Degree Order for Merits and Dedicated Service ra o Executive director to the Country and honorary title of the Honorary Employee of the Gas Industry. rp
2003 o C
32 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
AUDIT COMMITTEE completeness of the Company’s full year The Audit Committee works actively with The primary function of the Audit Commit- financial statements, the candidature of COMMITTEE MEMBERSHIP: the Revision Commission, the external tee is control over financial and operating the Company’s external auditor and the Chairman: auditor and the Company’s executive activities of the Company. In order to assist auditor’s report, and the efficiency of the XXAndrei V. Sharonov bodies, inviting NOVATEK’s managers the Board in performing control functions Company’s internal control procedures and Members: responsible for the preparation of the the Committee is responsible for but not risk management system. XXRobert Castaigne financial statements to attend the limited to evaluating accuracy and XXVictor P. Orlov Committee meetings.
In corporate year 2015, the Audit Commit- tee met five (5) times. BOD MEMBERS AS AT 31 DECEMBER 2015
DIRECTORS / INDEPENDENCE AND FIRST ELECTION TO THE BOD OTHER IMPORTANT JOBS AND TITLES
Professor, Post-Doc in economics, PhD in geological-mineralogical sciences, Distinguished Geologist of Russia. Previous stints: Chairman of the Russian Committee on Geology and Mineral Resources, Russian VICTOR P. ORLOV Minister of Natural Resources and First Deputy Chairman of the Federation Council Committee on Natural Resources and Environmental Protection. Independent Recipient of the State Award of the Russian Federation for Research and Development. Holds IV 2014 Degree Order for Merits and Dedicated Service to the Country and 18 awards, including three letters of acknowledgement from the President and a certificate of merit from the Government of the Russian Federation.
Member of the Board of Directors at SIBUR Holding, Chairman of the Board of Directors and President GENNADY N. TIMCHENKO at the SKA St Petersburg Ice Hockey Club, Chairman of the Board of Directors at the Kontinental Hockey League, member of the Board of Trustees at the Russian Geographical Society, Chairman of the Russian 2009 delegation to the Russian-Chinese Business Council, Vice-President of the Russian Olympic Committee, Chairman of the Economic Council under the Franco-Russian Chamber of Commerce and Industry (CCIFR). nce a Dean of the Moscow School of Management SKOLKOVO. Adviser to the mayor of Moscow. Member of the r n e
Supervisory Board at ALROSA, Board of Directors at the Bank of Moscow and Sovkomflot, Chairman of v the Board of Directors at NefteTransService and Ekosistema. ANDREI V. SHARONOV Go
Held various positions (including Deputy Minister) in the Russian Ministry of Economic Development and te
Independent 2014 Trade, worked as Deputy Mayor of Moscow for Economic Policy. ra o
PhD in sociology, Distinguished Economist of the Russian Federation. Holds multiple distinctions, rp o
including the Order of Honor. C
33 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
REMUNERATION TO MEMBERS OF THE BOARD OF DIRECTORS AND MANAGEMENT BOARD The procedure for calculating the remuner- amount of RR 20 million per corporate year. MANAGEMENT BOARD MANAGEMENT BOARD MEMBERS NOVATEK’s Management Board is a AS OF 31 DECEMBER 2015 ation and compensations to members of Members of the Board of Directors are also collegial executive body responsible for NOVATEK’s Board of Directors is governed paid remuneration for attending the the day-to-day management of the by the Regulations on Remuneration and meetings of the Board of Directors in the LEONID V. MIKHELSON Company’s operations. The Management Compensations payable to members of maximum amount of RR 3 million per Chairman Board is governed by the laws of the NOVATEK’s Board of Directors approved by corporate year and remuneration for Russian Federation, NOVATEK’s Charter, the Annual General Meeting of Sharehold- attending the meetings of the committees decisions of the General Meetings of ALEXANDER M. FRIDMAN ers (Minutes No. 122 of 24 April 2015). of the Board of Directors in the maximum Shareholders and the Board of Directors First Deputy Chairman According to the Regulations the remunera- amount of RR 2 million per corporate year. and by other internal documents. More tion consists of the following types: The Board members are also compensated
XX information regarding the Management VLADIMIR A. BASKOV fixed part of remuneration; for travel and lodging expenses related to Board’s competence is provided in the Deputy Chairman XX remuneration for attending the Board of implementation of their functions as Regulations on the Management Board Directors meetings; and NOVATEK Board of Directors members. approved by NOVATEK’s General Meeting XX remuneration for attending the meet- of Shareholders in 2005 (Minutes No. 95 of MARK A. GYETVAY ings of the committees of the Board of The procedure for and criteria of calculating 28 March 2005) with further alterations Deputy Chairman Directors. remuneration to the Chairman and and amendments. members of NOVATEK’s Management TATYANA S. KUZNETSOVA The fixed part of remuneration to a Board Board, as well as the compensation of their Members of the Management Board are Deputy Chairman – Director of member constitutes RR 10 million per expenses, are prescribed in the Regulations elected by the Board of Directors from Legal Department corporate year. The Chairman of the Board for the Management Board and the among the Company’s key employees. The of Directors is paid a fixed remuneration for employment contracts they sign with the Management Board is subordinated to the the performance of its functions in the Company. IOSIF L. LEVINZON Board of Directors and the General Advisor on Geology Meeting of Shareholders. The Chairman of the Management Board is responsible for INFORMATION ON REMUNERATION OF MEMBERS OF NOVATEK’S BOARD leading the Board and ensuring its LEV V. FEODOSYEV OF DIRECTORS AND MANAGEMENT BOARD IN 2015, RR MLN effectiveness as well as organizing the Deputy Chairman – Commercial Management Board meetings and Director Management Board of Directors* Board implementing decisions of the General Total paid, including: Meeting of Shareholders and the Board of SERGEY V. PROTOSENYA 148.9 2,053.2 Directors. The Management Board acting Deputy Chairman as of 31 December 2015 is comprised of Salaries - 625.5 nine (9) members elected by the Board of Bonuses - 1,416.1 Directors on 30 August 2012 (Minutes No. KIRILL N. YANOVSKIY nce
Director for Finance a 150 of 30 August 2012) and 12 March 2015 Fees 147.0 - r n
(Minutes No. 173 of 12 March 2015). e v Other property advancements
1.9 11.6 Go te ra * Some members of NOVATEK’s Board of Directors are simultaneously members of the Management Board. Payments to such o members in relation to their activities as members of the Management Board are included in the total payments to members rp o
of the Management Board. C
34 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
INTERNAL CONTROL AND AUDIT The Company has a system of internal REVISION COMMISSION INTERNAL AUDIT DIVISION To improve the efficiency and optimize the control over financial and business opera- The Revision Commission consisting of In order to conduct a systematic, inde- costs the Internal Audit Division employees tions in accordance with international best four (4) members who are elected at the pendent evaluation of the reliability and serve on the revision commissions of sub- practices. The process of internal control Annual General Meeting of Shareholders effectiveness of the risk management and sidiaries and joint ventures. is an integral part of the risk management for a period of one year. The competence internal control system as well as corpo- process. of the Revision Commission is governed by rate governance practices the Company EXTERNAL AUDITOR the Russian Federation Law On Joint Stock performs internal audits of the Company’s The Annual General Meeting of Sharehold- The system of internal control consists Companies No. 208-FZ dated 26 Decem- operations. The internal audit function is ers appoints an external auditor to con- of the Board of Directors, the Audit Com- ber 1995 as well as the Company’s Charter implemented by the independent Internal duct independent review of NOVATEK’s mittee, the Chairman of the Management and the Regulations on the Revision Com- Audit Division, which has operated continu- financial statements. The Audit Committee Board, the Management Board, the Revi- mission approved by the General Meeting ously since 2005. gives recommendations to the Company’s sion Commission and the Internal Audit of Shareholders in 2005 (Minutes No. 95 of Board of Directors regarding the candida- Division. 25 March 2005). The Internal Audit Division is functionally tures of external auditors and the price of subordinate to the Board of Directors and is their services. Based on the Committee’s The primary objects of internal control are The Revision Commission is an internal guided by International professional inter- recommendations, the Board proposes the OAO NOVATEK, its subsidiaries and joint control body responsible for oversight of nal audit standards of Institute of Internal auditor’ candidature for the consideration ventures, and their subdivisions, as well as the Company’s financial and business activ- Auditors. The Division also adheres to the and for approval by the Annual General their ongoing business processes. ities. The Revision Commission performs principles and rules of conduct stated in Meeting of Shareholders. audits of the Company’s financial and busi- internal auditor’s Code of Business Conduct In order to combat corruption, mitigate ness performance for the year as well as of the Institute of Internal Auditors. AO PricewaterhouseCoopers Audit (an compliance, operational and reputation any other period as may be decided by its internationally recognized audit firm) was risks, the Company adopted the Anti-Cor- members or other persons authorized in The Division carries out its activities on chosen as the Company’s external auditor ruption Policy and the Regulation on accordance with Russian Federation law the basis of an annual plan of inspections to conduct the audit of the annual finan- NOVATEK Risk Management and Internal and the Company’s Charter. The results of approved by the Audit Committee and uses cial statements for 2015 under RAS, as well Audit System approved by the Board of these audits are presented in the form of a combination of risk-based and cyclic as independent reviews of the Company’s Directors on 1 September, 2014 (Minutes findings by the Revision Commission. approaches. According to the results of quarterly financial statements and audit of No. 170 of 1 September 2014). inspections it develops measures to elim- the annual financial statements under IFRS. In March 2016, the Revision Commission inate identified risks and optimize finan- Throughout the reporting year, the Com- completed the on-site audit revision of cial and business activities. Implementation In selecting the auditor’s candidature, pany maintains a Security Hotline in accor- financial and business activity of the Com- of the measures is monitored on a regular attention is paid to level of their profession- dance with the Anti-Corruption Policy. All pany for the year 2015. As a result, the con- basis. al qualifications, independence, possible necessary inspections have been prompt- clusions about the reliability of the data risk of any conflict of interest, terms of the ly made in response to the complaints contained in the Company’s 2015 Financial The Internal Audit Division regularly inter- contract, and an amount of remuneration reported to the Hotline. Statements (under the Russian accounting acts with the external auditor by exchang- requested by the candidates. nce standards) and Annual Report were pre- ing information on action plans, audit a r n
pared and submitted to the Annual General results and other matters of significance e v
Meeting of Shareholders. to ensure the effective discharge of their Go
responsibilities. te ra o rp o C
35 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
RISK MANAGEMENT SYSTEM The Audit Committee oversees the exter- The Company’s activities are subject The Board of Directors’ Audit Committee Operational risks nal auditor’s independence and objectivity to risks inherent only to the Company is responsible for the supervision over the XX Risks of emergencies and incidents as well as the quality of the audit conduct- or associated with the Company’s core reliability and efficiency of the risk man- XX Monopoly risks ed. The Committee annually provides to the business. agement framework and review of the risk XX Competitive risks Board of Directors the results of review and management policy. In the reporting year, XX Commodity price risks evaluation of the audit opinion regarding A multilevel system of risk management the Audit Committee after careful review XX Geological risks the Company’s financial statements. The has been implemented at the Compa- and analysis of the information provided, XX Risk of early termination, suspension or Audit Committee meets with the auditor’s ny. Powers, duties and responsibilities for recognized NOVATEK’s risk management restriction of the right to use subsurface representatives at least twice per year. specific risk management procedures are activities as compliant with the risk man- mineral resources delegated to different governance levels agement policy of the Company. XX Environmental risks NOVATEK’s management is aware of and of the Company depending on the assess- XX Project risks accepts recommendations on the indepen- ment of financial impact of risk. The Com- Below is the list of risks and approaches to XX Ethical risks dence of the external auditor by restrict- pany’s risk management policy is laid out risk management applied by the Company. XX Social risks ing such auditor’s involvement in providing in the Regulations on NOVATEK Risk Man- The risks described herein are not exhaus- XX Terrorism risks non-audit services. Remuneration paid to agement and Internal Control System tive and reflect the opinion on the most XX Country risk the principle auditors for auditing and oth- approved by the Board of Directors on 1 material risks based on the estimates of XX Regional risk er services is specified in the Note 23 to the September 2014 (Minutes No. 170 of 1 Sep- the Company’s management. consolidated financial statements prepared tember 2014) with amendments. Financial risks in accordance with IFRS standards for 2015. XX Credit risk XX Reinvestment risk XX Interest risks XX Currency risks XX Liquidity risk XX Inflation risk
Legal risks XX Risk of law changes XX Litigation risks XX Risk of sanctions nce a r n e v Go te ra o rp o C
36 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
RISK INSURANCE Obligatory Risk Insurance Since 2013, the Company implement- In the reporting year, no insured major Risk insurance is an integral part of The Company and its subsidiaries and joint ed a comprehensive program of property accidents or incidents occurred. NOVATEK’s risk management system. In ventures fully meet the requirements of and business risk insurance with respect 2015, the insurance coverage guaranteed the applicable laws for maintaining obliga- to its and its subsidiaries’ and joint ven- For more than ten (10) years the Compa- adequate protection against the risks of tory insurance, such as civil liability insur- ture’s key assets. The cumulative insured ny has maintained a management liabil- damage to the business of the Compa- ance of: amount for the risks of property damage ity insurance for the top management of ny or its subsidiaries and joint ventures. XX owners of hazardous production facili- and business interruption as at the end the Company and its subsidiaries against Insurance is provided by reputable insur- ties; and 2015 was RR 482 billion. The implement- possible third-party claims for any loss- ance companies that have high ratings by XX owners of transport vehicles. ed program is viewed by the Company’s es incurred through any wrong action (or leading rating agencies (Standard & Poor’s, management as an efficient measure for decision) made by its management bodies. Expert RA, A.M. Best) with partial reinsur- Optional Risk Insurance mitigating the consequences of potential The overall limit of all insurance coverage ance of risks by major international insur- To reduce the risk of financial losses, the accidents and provides additional guaran- is Euro 120 mln. ance and reinsurance companies. Company and its subsidiaries and affiliates tees for the attainment of the expected net maintain the following types of optional profit and key indicators of the Company’s insurance: performance. XX Insurance of the risk of property dam- age/loss, including the risk of mechanical failures; XX Insurance of the risk of damage from business interruption; XX Insurance of risks related to prospecting, exploration and production (risk of loss of control over a well); and XX Management liability insurance. nce a r n e v Go te ra o rp o C
37 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
ETHICS AND INTEGRITY NOVATEK puts great emphasis on ethics ANTI-CORRUPTION POLICY All managers and employees of the Compa- On a regular basis, employees can obtain and fair play. The Company has adopt- NOVATEK strictly abides by the anti-corrup- ny, its subsidiaries and joint ventures were advice on how the Anti-Corruption Policy is ed three key documents, Corporate Gov- tion laws of Russia and other countries of informed about the adoption of the policies implemented in practice, including gift giv- ernance Code (adopted in 2005), Code of presence. With NOVATEK’s shares traded on by signing them. They also signed commit- ing and receiving, making charitable contri- Business Conduct and Ethics (adopted in the London Stock Exchange, the Company ments to refrain from any actions that can butions, engaging in sponsorship programs, 2011), and Anti-Corruption Policy (adopt- complies with the requirements of the UK be deemed an act of corruption. Anti-cor- and handling confidential information. ed in 2014). Bribery Act 2010. In order to promote the ruption requirements and limitations are Group’s credibility, improve compliance of included in the employment contracts and An anti-corruption clause in included into CORPORATE GOVERNANCE CODE its practices with applicable anti-corruption job descriptions of all employees. all contracts with counterparties to inform Corporate governance is viewed as a mean laws, and minimize corruption risks, in 2015 them about the Company’s Anti-Corrup- of enhancing the Group’s performance, the Company continued creating a unified In its corporate newspaper, the Company tion Policy and make sure they undertake developing a uniform corporate culture, mechanism to prevent corruption and cor- published an article that sets out the Pol- to comply with all applicable anti-corrup- bolstering reputation and reducing the cost porate fraud. icy’s main provisions, and limitations and tion laws when performing their contractu- of capital. The Corporate Governance Code also contains information for further read- al obligations. is a body of corporate conduct principles. In accordance with the Company’s Anti-Cor- ing and contact details. ruption Policy adopted in 2014 and The Company’s official website contains the CODE OF BUSINESS CONDUCT AND ETHICS Anti-Corruption Action Plans for 2014–2016, The management of the Company’s inde- Anti-Corruption Policy in both Russian and The Code of Business Conduct and Eth- a set of measures was undertaken in 2015 pendent structural subdivisions provided English for all stakeholder to access. ics sets out business ethics guidelines for aimed at preventing potential corrupt prac- training to their employees to make sure the Company’s employees providing rec- tices that involve employees of the Com- the personnel are aware of the Policy’s pro- The Company has a Security Hotline in ommendations on prescribed behavior in pany, its subsidiaries and joint ventures, visions and zero tolerance to any acts of place that any stakeholder can use to report ethically challenging and non-standard counterparties, government and municipal corruption. known cases of corruption or any oth- situations. authorities and NGOs, and other persons. er concerns. The Security Hotline is avail- An interactive online course called Basics able on the Company’s and other websites, Anti-corruption policies have been adopted of the Company’s Anti-Corruption Policy information boards in the offices, produc- by all subsidiaries and joint ventures, with and Anti-Corruption Practices for Employ- tion areas and living camps of its subsidiar- dedicated employees and subdivisions in ees was developed to train employees of ies and joint ventures. charge of their implementation. the Company, its subsidiaries and joint ventures. The person in charge of implementing and overseeing the measures aimed at pre- venting corruption across the Company, its subsidiaries and joint ventures is the Anti-Corruption Adviser. nce The anti-corruption efforts were discussed a r n
and approved by the Audit Committee on 24 e v
August 2015. Go te ra o rp o C
38 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
PREVENTION OF CONFLICTS OF INTEREST CONFIDENTIALITY PROTECTION OF PROPERTY AND ITS NOVATEK’s internal policies seek to elimi- MEMBERS OF THE BOARD OF NOVATEK treats information confidentiality APPROPRIATE USE nate any potential conflict of interest. The DIRECTORS SHALL: as one of its key stability factors. Embezzlement, mala fide practices and Company’s managers and employees are Disclosures are made in full compliance squander have a direct negative impact on expected to advocate the supremacy of promptly give the Chairman of the with the applicable law, the Company’s NOVATEK’s profitability and reputation. The corporate interests separating their per- Board a written notification of Charter and internal regulations. employees are hence obliged to make an sonal interests (interests of their family, personal or commercial interests in efficient and reasonable use of the friends, etc.) from decision-making. all transactions, including those INSIDER INFORMATION Company’s property, capacities and involving the Company’s securities NOVATEK has strict insider information financial resources. Should their personal and corporate inter- regulations in place enacting effective duly disclose their jobs with other ests become incompatible, NOVATEK’s companies and third-party compliance controls in line with the Russian managers and employees are obliged to business interests that might Federal Law On Preventing Misuse of report on that straight away. They are also prevent such members from Insider Information and Market supposed to refrain from all forms of com- effective discharge of their duties Manipulation and Amending Select petition with the Company in business and and responsibilities. Legislative Acts of the Russian Federation. investment projects. The Company’s offi- cers are not allowed to pursue any property or financial interests in competitor busi- MEMBERS OF THE MANAGEMENT nesses. They are advised to refrain from BOARD SHALL: conducting related-party transactions. The Company also seeks to avoid conflicts of interest caused by giving/receiving gifts, notify the Management Board of services or any other benefits. personal interests in transactions to which the Company is or intends to be a party, before such transactions are decided upon set up or manage no business entities competing with NOVATEK, except as allowed by the Board of Directors. nce a r n e v Go te ra o rp o C
39 NOVATEK / SUSTAINABILITY REPORT 2015 ECONOMIC PERFORMANCE AND SUSTAINABILITY
INCREASE IN OUR NORMALIZED EBITDA BY 34% TO A RECORD HIGH OF RR 214 BLN ECONOMIC PERFORMANCE AND SUSTAINABILITY CONTENTS
ECONOMIC PERFORMANCE NOVATEK’S STRATEGIC PRIORITIES ECONOMIC STABILITY In 2015, the Company achieved another NOVATEK strives to ensure the highest milestone in the ongoing transformation business integrity and performance and to of its business by considerably expanding elaborate its development strategy based the share of liquid hydrocarbons in pro- on economic feasibility, optimization of duction and growing the volumes of stable production processes and dynamically gas condensate processing into high val- changing economic situation in Russia and ue-added products, which drove a strong the world. increase in cash flow generation. The reporting year was a challenging year for The main competitive advantage of the the oil and gas industry struggled during Company is the high quality of its hydro- the reporting year, with, due to a number of carbon resource base. Together with negative factors including the precipitous efficient reserve management and use drop in hydrocarbon prices and the signif- of cutting edge technologies it enables icant volatility in foreign exchange rates NOVATEK to maintain its low Finding & as some of the major challenges. NOVATEK Development and Lifting cost structure was able to mitigate and offset the neg- resulting in high profitability of the Compa- ative impact of these factors thanks to ny’s operations. its balanced financial policy, rapid liquid hydrocarbons production growth and full NOVATEK’s other key competitive advan- utilization of the vertically integrated gas tages include: condensate production chain. The Com- XX size and structure of its hydrocarbon pany reported growth in its major finan- resource base; cial metrics as total revenues increased by XX close proximity of core producing fields 33% to RR 475 bln, and normalized EBITDA to existing infrastructure; (including proportionate share in EBITDA of XX well-developed customer base for natu- joint ventures) increased to a record high ral gas sales; of RR 214 bln, or by 34%.
XX
own facilities for gas condensate pro- ty i
cessing and product exports; The Company considers the sustainable i l b a XX well-developed marketing channels for development as one of the major factors n liquefied petroleum gases (LPG); contributing to the growth of its econom- ai st u XX high level of operational flexibility; ic efficiency. d s d
XX consistent and efficient use of leading n a edge technologies in production and nce processing practices. rma o rf p e c mi cono E
41 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
KEY EVENTS AND ACHIEVEMENTS OF 2015: XX Launch of the Yarudeyskoye oil field at XX Record year-on-year growth in XX Increase in our normalized EBITDA by XX Launch of the Yaro-Yakhinskoye oil and the beginning of December. The field is our marketable liquid hydrocarbon 34% to a record high of RR 214 bln. gas condensate field in April. The field is developed by our Yargeo joint venture production of 51% to over 9 mmt. XX Organic proved reserve replacement developed by our Arcticgas joint venture and ramped up to its full production XX Record growth in our liquid hydrocarbon ratio of 148% despite much lower and ramped up to its full production capacity at the end of 2015. sales volumes by 82%, contributing to hydrocarbon price environment. capacity in June 2015. XX Signing of binding definitive agreements an increase in its respective share in XX Growth in our natural gas production XX Launch of the Termokarstovoye gas with China’s Silk Road Fund on the sale total revenue to 53%. by 9% to 68 bcm. condensate field in May. The field is of a 9.9% equity stake in the Yamal LNG XX Conclusion of a number of long-term developed by our Terneftegas joint project; the receipt of a 15-year loan for contracts for domestic natural gas sales venture and ramped up to its full the purpose of financing Yamal LNG. and international LNG sales. production capacity in June 2015.
DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED, RR MLN*
2013 2014 2015
Created economic value
Revenues 300,499 362,706 487,947
Distributed economic value
Operating expenditures 142,919 177,497 262,035
Salaries and other payments and benefits to employees 10,903 12,009 15,632
Payments to suppliers of financial services ty 30,561 38,278 50,189 i i l b
Taxes payable to the countries’ budgets a 45,037 45,587 59,410 n ai st Social investments 1,180 727 970 u d s d n
Retained economic value 69,899 88,608 99,712 a nce rma
* Data are based on the following methodology: o
Revenues — total revenues plus interest income rf Operating expenditures – operating expenses minus depreciation minus impairment of assets minus salaries and other payments and benefits to employees p e
minus taxes other than income tax, minus social investments c
Payments to suppliers of financial resources – dividends paid plus interest paid mi Taxes payable to the countries’ budgets – current income tax plus taxes other than income tax Social investments – funds voluntarily directed by the Company to charity, sponsorship, support of local communities and not directly related to the activities of cono
the Company and its employees E
42 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
EXPLORATION, DEVELOPMENT AND PRODUCTION LICENSES an organic reserve replacement ratio of TOTAL PROVED AND PROBABLE HYDROCARBON RESERVES, MMBOE* Exploration and production of hydro- 148% due to successful exploration works carbons in Russia is subject to state and drilling, which amounted to reserves 2013 2014 2015 licensing regulations. As of 31 December addition of 774 mmboe, inclusive of 2015 Proved (SEC) 2015, NOVATEK’s subsidiaries and joint production. The increase in proved reserves 12,577 12,643 12,817 ventures held 31 licenses for fields and was primarily driven by the Utrenneye, license areas in the YNAO, of which 29 are North-Russkoye and South-Tambeyskoye Proved and probable (PRMS) 23,266 23,069 23,117 classified as either production or combined fields, and the Urengoyskoye field within exploration and production licenses and the boundaries of the Samburgskiy license two are classified as exploration licenses. area of Arcticgas. * Proved reserves as at the end of 2014 have been adjusted to include 100% of the Yarudeyskoye field reserves (previously The duration of licenses for our core fields accounted for on a 51% basis). exceeds 15 years. GEOLOGICAL EXPLORATION NOVATEK uses a systematic and com- HYDROCARBON RESERVES prehensive approach to exploration and As at 31 December 2015, NOVATEK’s SEC development of its fields and license areas proved reserves, including the Company’s to maximize the ultimate recovery of proportionate share in joint ventures, hydrocarbons in a cost effective manner. FIELD DEVELOPMENT aggregated 12,817 mmboe, including 1,775 During 2015, NOVATEK’s subsidiaries In May 2015, the Termokarstovoye field was bcm of natural gas and 143 mmt of liquid In 2015, we continued full-scale explora- spent RR 56.6 bln on the development of launched, reaching its design capacity of hydrocarbons. Despite the continued price tion works at our license areas located on hydrocarbon reserves as part of our capital approximately 2.4 bcm of natural gas and decline for benchmark crude oil prices on the Gydan Peninsula and offshore in the investment program in order to achieve 0.8 mmtpa of de-ethanized gas conden- the international hydrocarbon market, the Gulf of Ob to properly assess the resource sustainable hydrocarbon production growth. sate as early as June. Natural gas and gas Company’s proved reserves increased by potential of this strategically important condensate is produced from the Jurassic 1.4% compared to year-end 2014 , and our region. We started three-dimensional A total of 107 wells were commissioned layers, which were developed by horizontal reserve replacement ratio was 133%. At (3D) seismic studies at the North-Obskiy into operations, including 49 gas and gas wells with horizontal lengths of up to 2.0 km. year-end 2015, the Company’s reserve to offshore license area and also conducted condensate wells and 58 oil wells. By the end of 2015, a total of 22 wells were production ratio (or R/P ratio) was 25 years. 3D seismic and exploration drilling works drilled at the Termokarstovoye field.
at the Utrenniy license area. In April 2015, we commissioned the ty i
The reserves growth during the reporting Yaro-Yakhinskoye field, which in June 2015 In early December 2015, we launched the i l b a period was affected by the decrease in As a result, nine new gas deposits was achieved its design capacity of 7.7 bcm of Yarudeyskoye field, developed by Yargeo n the Company’s proportional share in the discovered at the Utrenneye, North-Russ- gas and over 1.3 mmtpa of gas condensate. (NOVATEK holds a 51% share). The field ai st Arcticgas joint venture from 54.9% as at koye and North-Chaselskoye fields and Natural gas and gas condensate is produced ramped up to its full production capacity of u d s d year-end 2014 to 53.3% as at 31 December wet gas reserves were added at the from the field’s Valanginian layers. As of approximately 3.5 mmtpa, or 9,700 tons per n a 2015 resulting from the execution of an Achimov deposits (very rich in gas con- the end of 2015, a total of 38 wells with day by the end of 2015, which is a very short nce agreement with Gazprom Neft on the grad- densate) of the Urengoyskoye field within horizontals sections of up to 1 km long were period of time for full ramp up of a crude rma ual alignment of the ownership structure the Samburgskiy and Yevo-Yakhinskiy drilled at the field. The initial daily flow rate oil project. Only 21 wells were required to o in Arcticgas to parity. Excluding this effect, license areas. of some wells exceeds 1.2 mmcm of gas and achieve these production flow rates. By the rf p e the proved reserves grew by 2%, with 270 tons of gas condensate. end of 2015, a total of 39 wells were drilled c at the field. mi cono E
43 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
YAMAL LNG PROJECT The field development plan provides for The plant’s first module was delivered to HYDROCARBON PRODUCTION Yamal LNG is the flagship project the drilling of 208 wells at 19 well drilling the site in September 2015, and delivery of In 2015, NOVATEK carried out commercial in NOVATEK’s asset portfolio and is pads, with production potential exceeding other long-lead items also started during hydrocarbon production at 13 fields. considered a transformational move 27 bcm of natural gas and one million tons the past year. Among the items delivered Marketable production from all fields for the Company into the international of stable gas condensate per annum. to the Sabetta construction site by the end (including the Company’s share in gas market. Yamal LNG envisages the of the year there were seven LNG plant production of joint ventures) amounted to construction of an LNG liquefaction plant At year-end 2015, 41 production wells modules, a cryogenic heat exchanger and 521.6 mmboe, representing an increase of with annual capacity of 16.5 mmtpa, were drilled at the South-Tambeyskoye the full equipment package for compressor 14.2% over the prior year. utilizing the prolific feedstock resources field, representing approximately 70% of lines of the plant’s first and second trains, of the South-Tambeyskoye field located in the well stock required to launch the first boil-off gas compressors, a backup heater, Total marketable production of natural the Northeast of the Yamal Peninsula. The production train of the LNG plant. 46 packages of steel work pipe racks, six gas including the Company’s share in launch of the first LNG train is planned for packages of piping spools, power plant production of joint ventures aggregated 2017. As of 31 December 2015, the field was The LNG plant will consist of plant turbines and other equipment. The unload- 67.9 bcm, representing 85.1% of our total estimated to contain 522 bcm of proved modules with the weight ranging from 85 ing operations for oversized equipment hydrocarbon output. The share of gas natural gas reserves and 15 mmt of proved tons to 6,400 tons. The modules are built in the Sabetta port and its transportation produced from the gas condensate bearing liquid hydrocarbon reserves, under the SEC at contractor’s yards and delivered to the to the installation site were successfully layers (or “wet gas”) in proportion to total reserves methodology. Sabetta construction site by sea. streamlined. gas production was 82.5%. As a result, our marketable natural gas production By the end of 2015, over 20,000 foundation increased by 9.3% or by 5.8 bcm, as YAMAL LNG SHAREHOLDING STRUCTURE AFTER CLOSING THE TRANSACTION piles for the LNG plant were installed, compared to 2014 volumes. WITH CHINA’S SILK ROAD FUND IN MARCH 2016 over 2,000 pile caps were installed on the piles, and more than 17,000 cubic meters Marketable production of liquid hydrocar- of concrete was poured for the foundation. bons, including the Company’s share in Compressor equipment for the first train, production of joint ventures, totaled 9,094 seven modules and the backup heater mt, of which 83% was gas condensate and 50.1 % were installed on the prepared concrete the remaining 17% consisted of crude oil. NOVATEK foundations, as well as over 6,000 tons Marketable production of liquids increased
of steel work pipe racks. The construction by 50.7%, or by 3,058 mt as compared to ty 20 % i of a power plant with a rated capacity of 2014, with gas condensate production i l Total b a
376 MW was underway: four gas turbine demonstrating a 54.6% increase to 7,526 n
20 % ai units with a capacity of 47 MW each were mt and crude oil production growing by СNPC st installed on the concrete foundations. The 34.2% to 1,568 mt. The share of liquid u d s d
outer concrete walls were completed, as production in our overall production n
9.9% a China’s Silk Road Fund well as the installation of the roof on the increased by 4 p.p. as compared to 2014 nce project’s four LNG tanks, and the work on and amounted to 15%. rma
installing the internal multi-layer walls o
was underway. We continued to achieve some of the rf p e lowest lifting costs in the industry. The c Company’s lifting costs were RR 30.1 (USD mi
0.49) per boe in 2015. cono * In December 2015, the Company signed binding definitive agreements to sell a 9.9% equity stake in the Yamal LNG project to E China’s Silk Road Fund.
44 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
HYDROCARBON PROCESSING PUROVSKY GAS CONDENSATE UST-LUGA STABLE GAS CONDENSATE NOVATEK GROUP’S KEY OPERATING INDICATORS IN 2014–2015 STABILIZATION PLANT TRANSSHIPMENT AND FRACTIONATION The Purovsky Gas Condensate Stabiliza- COMPLEX Units 2014 2015 Change tion Plant (Purovsky Plant) is the central The Stable Gas Condensate Transshipment MARKETABLE HYDROCARBON PRODUCTION (including share in production by joint ventures) element in our vertically integrated and Fractionation Complex (Ust-Luga production value chain. The Purovsky Plant Complex) launched in 2013 is located at Total production mmboe 456.7 521.6 14.2% produces stable gas condensate and light the all-season port of Ust-Luga on the Bal- Including: hydrocarbons. tic Sea. The Ust-Luga Complex processes stable gas condensate into light and heavy Gas bcm 62,129 67,905 9.3% As a result of launches of the Termokar- naphtha, jet fuel, ship fuel component (fuel mmboe stovoye and the Yaro-Yakhinskoye fields, oil) and gasoil, and enables us to ship the 406.3 444.1 in June 2015 the Purovsky Plant reached value-added petroleum products to inter- Liquid hydrocarbons mt 6,036 9,094 50.7% full utilization of its processing capaci- national markets. The Ust-Luga Complex mmboe 50.4 77.5 ties amounting to more than 12 mmt of also allows for transshipment of stable unstable gas condensate on an annualized gas condensate to the export market. PROCESSING VOLUMES AND OUTPUT OF THE PUROVSKY PLANT basis. The Purovsky Plant’s processing Processing of de-ethanized mt 6,600 12,021 82.1% capacity matches the overall gas conden- Due to growth in stable gas condensate condensate sate production capacity of the Company’s production at the Purovsky Plant, in March Output: fields in operation as of the second half 2015, the Ust-Luga Complex reached full Stable gas condensate mt of 2015. utilization of its processing capacity of 5,049 9,664 91.4% Light hydrocarbons approximately 7 mmt on an annualized mt and LPG 1,371 2,228 62.5% During the reporting year, the de-etha- basis. In 2015, the Ust-Luga Complex pro- nized gas condensate processing volumes cessed 6,727 mt of stable gas condensate PROCESSING VOLUMES AND OUTPUT OF THE UST-LUGA COMPLEX at the Purovsky Plant increased by 82.1% into 6,593 mt of end products, including Stable gas condensate mt 4,706 6,727 42.9% to 12,021 mt. The structure of this output 3,999 mt of light and heavy naphtha, processing included 9,664 mt of stable gas conden- 949 mt of jet fuel and 1,645 mt of ship Output: sate, 2,228 mt of light hydrocarbons and fuel component (fuel oil) and gasoil. The Light naphtha mt 1,425 1,898 33.2%
LPG, and 11 mt of regenerated methanol. share of heavy fractions like jet fuel, fuel ty i
Our feedstock composition changed oil and gasoil increased from 26% in 2014 i l Heavy naphtha mt 2,006 2,101 4.7% b a following the launches of new fields in to 39% in 2015 due to the change in the n
Jet fuel mt ai 2015 resulting in a higher share of stable feedstock composition following launches 472 949 101.1% st gas condensate in the total output of the of new fields. Gasoil mt 179 462 158.1% u d s d plant, which increased from 78.5% in 2014 n Ship fuel component a mt to 81.2% in 2015. (fuel oil) 542 1,183 118.3% nce rma o rf p e c mi cono E
45 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
MARKETING AND SALES NATURAL GAS SALES Our total revenues from natural gas sales NOVATEK GROUP’S NATURAL GAS AND LIQUID HYDROCARBON SALES During the past year, we supplied natural totaled RR 222.2 bln, which is 3.6% lower IN 2014–2015 gas to 33 key consuming regions of the as compared to 2014. The negative effect Russian Federation. Our customers were from the lower sales volumes on our Units 2014 2015 Change located primarily in the following regions total revenues was partially offset by the NATURAL GAS SALES (with natural gas sales of more than 1 bcm growth in regulated domestic tariffs by per annum per region): Chelyabinsk, Perm, 7.5% effective from 1 July 2015. Our net Total gas sales bcm 67,231 62,465 (7.1)% Stavropol, Moscow, Kostroma, Orenburg, revenues from gas sales (excluding trans- LIQUID HYDROCARBON SALES Vologda, Sverdlovsk and Tyumen regions, portation costs) demonstrated a minor Khanty-Mansiysk and Yamal-Nenets decline of 1.3% as gas transportation tariff Total liquid hydrocarbon sales mt 7,089 12,888 81.8% Autonomous Regions, and the cities of for independent producers increased from Moscow and St Petersburg. These regions 1 July 2015 by only 2%. Including: accounted for more than 95% of our total Petroleum products (Ust- mt gas sales. NOVATEK’s 2015 natural gas During the reporting year, we concluded Luga) 4,438 6,693 50.8% sales volumes totaled 62.5 bcm, repre- several major domestic natural gas Stable gas condensate mt senting a decrease of 7.1% as compared supply contracts. In particular, we signed 303 2,786 819.5% to 2014 sales volumes of 67.2 bcm. Lower five-year contracts with NLMK Group and LPG mt 930 1,280 37.6% natural gas sales volumes resulted from a three-year contract with Enel Russia. one of our major customers temporarily We also extended the contract with Crude oil mt 903 1,090 20.7% not taking its full contracted volumes due Mosenergo for a period of four years. to technical reasons and warmer weather Light hydrocarbons mt 504 1,026 103.6% in the Russian Federation in 2015 as LIQUID HYDROCARBON SALES Other mt compared to 2014. The proportional share Total sales volumes of liquid hydrocarbons 11 13 18.2% of natural gas sales to end-customers in 2015 aggregated 12,888 mt, represent- remained practically unchanged compared ing an 82% increase over 2014 volumes. to 2014 and amounted to 93% of our total The record high growth rate is due to Petroleum products from the Ust-Luga Our liquids sales revenues increased to natural gas mix. higher gas condensate production volumes Complex accounted for 52% of our overall RR 249.8 bn, or by 2 times as compared to
and higher processing volumes at the liquids sales volumes. Export sales of 2014, mainly driven by much higher sales ty i
Purovsky Plant and the Ust-Luga Complex, stable gas condensate were resumed in volumes as well as the growth in average i l b a
as well as to increase in crude oil produc- March 2015 after reaching full capacity prices in ruble terms due to higher US n tion. Our export sales of liquids grew by utilization at the Ust-Luga Complex. dollar to Russian ruble exchange rate and ai st 70% year-on-year to 9,004 mt. lower export duty rates. Liquid revenues u d s d
exceeded revenues derived from natural n a gas for the first time in our corporate nce history. rma o rf p e c mi cono E
46 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
DIVIDEND POLICY The Company’s Dividend Policy is regu- In determining the recommended amount ACCRUED AND PAID DIVIDENDS ON NOVATEK SHARES lated by the Regulation on Dividend Policy of dividend payments to be distributed the FOR THE PERIOD 2010 TO 2015 of OAO NOVATEK approved by the Board Board of Directors consider the current of Directors on 28 April 2014 (Minutes competitive and financial position of the Amount of Total amount No. 168 of 28 April 2014). According to Company, as well as its development pros- Dividend accrual Total amount of dividends, of dividends the regulations, consolidated net income pects, including operating cash flow and period dividends paid, RR RR per share accrued, RR under IFRS is applied for calculation of the capital expenditure forecasts, financing dividend size. requirements and debt servicing. 2010 4.00 12,145,224,000 12,144,967,156 A decision to pay dividends as well as NOVATEK is strongly committed to its the amount of the dividend, the payment dividend policy. deadline and form of the dividend is 2011 6.00 18,217,836,000 18,217,661,063 passed by the Annual General Meeting of The Annual General Meeting of Share- Shareholders according to the recommen- holders of NOVATEK held on 22 April 2016 2012 dation of the Board of Directors. Dividends resolved to pay dividends for FY 2015 in the 6.86 20,829,059,160 20,829,058,569 are paid twice a year. amount of RR 13.5 per ordinary share or RR 135.0 per Global Depositary Receipt (GDR) 2013 7.89 23,956,454,340 23,956,347,687 (including interim dividends of RR 6.6 per ordinary share for 1H 2015). 2014 10.30 31,273,951,800 31,273,843,933
2015 13.50 40,990,131,000 40,990,015,901 ty i i l b a n ai st u d s d n a nce rma o rf p e c mi cono E
47 NOVATEK / SUSTAINABILITY REPORT 2015 EXTERNAL SOCIAL POLICY CONTENTS
COOPERATION WITH THE REGIONS NOVATEK places considerable emphasis NOVATEK contributes significantly to the In the reporting year, the Company allocat- programs and projects, and provided sup- on social policy and charity. The Company social and economic development of Rus- ed funds for repairs and upgrades of social port to low-income families, disabled and implements projects aimed at supporting sian regions as a major taxpayer, employ- infrastructure facilities, financing of edu- elderly people. education, culture, preserving and reviv- er, and a partner in large-scale federal and cational, cultural and children and youth ing Russian national values and cultural local projects. heritage, promoting and integrating Rus- sian art into the world’s culture, develop- The Company is involved in the develop- ing mass and high-level amateur sports. ment of its regions of presence and treats SOCIAL INVESTMENT STRUCTURE IN 2015, % NOVATEK enters into agreements with its contribution as a social partnership, the regional governments across the Compa- principles of which NOVATEK follows in its Support of Cultural ny’s footprint and implements social pro- business operations. indigenous peoples programs and Sports grams to improve living standards. of the North projects programs The Company’s social investments are In 2015, the NOVATEK Group donated aimed at improving living standards and 39.1% 27.3% 18.0% approximately RR 1 bln to charity, cultur- establishing favorable social conditions al and educational projects and initiatives, across its footprint. and provided financial support to indige- nous minorities of the North. Most of the NOVATEK works in cooperation with the funding (39.1%) was spent on supporting YNAO government and municipal coun- indigenous peoples of the North. cils (Yamal, Tazovsky, Nadym, Purovsky, and Krasnoselkupsky Districts, Novy Uren- goy) and authorities of Novokuybyshevsk, Kingiseppsky District, and Chelyabinsk, Tyumen, and Leningrad Regions based on relevant agreements. Educational programs Other 10.5% 5.1% i cy ol p l ia soc l a n te r Ex
48 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
SUPPORT OF INDIGENOUS PEOPLES AND MINORITIES OF THE NORTH EDUCATIONAL PROGRAMS The support of indigenous minorities of the For many years, the Group has been devel- THE GRANTS PROGRAM THE NOVATEK-VUZ PROGRAM North is mainly provided under agreements oping a lifelong learning project intended The Company runs two Grants programs. The program focuses on dedicated with the regions within the Company’s to ensure an inflow of properly qualified high-quality undergraduates’ training in footprint. young specialists from the regions where The Grants Program for Schoolchildren key areas of the Company’s operations to the Company operates. The project starts Under the program launched as early as meet the Company’s demand for young In the reporting year, we assisted the native at schools, and is followed by specialized 10 years ago, 5 through 11-grade students specialists. population in purchasing fishing and reindeer higher education, internship, and subse- of the Purovsky District, YNAO, receive the herding equipment. NOVATEK financed fuel quent employment. This traditional staff Company’s grants on a competitive basis. The Program covers the following purchases for air delivery of the nomadic training system is of great importance for The program supports their intellectu- universities: population and food to remote areas. the Company. al and creative development, encouraging XX National Mineral Resources University responsible and proactive attitude. (University of Mines) in St Petersburg; In 2015, the Company provided the In 2015, the Company spent RR 44.5 mln on XX Gubkin Russian State University of Oil and following financial assistance: the Gifted Children, Grants, and NOVATEK- Since the program’s start, the students Gas (Moscow), and XX event financing for the Association of VUZ educational programs. have received 1,499 grants, including 57 XX Industrial University of Tyumen (Tyumen). Indigenous Peoples of the North of the grants in 2015. YNAO «Yamal for Descendants»; THE GIFTED CHILDREN PROGRAM The most motivated and talented graduates XX sponsoring the Open Reindeer Herders The Gifted Children program is implement- The Grants Program for Teachers of the of the Gifted Children Program, the children Contest for the Yamal-Nenets Autono- ed at Secondary School No. 8 Education- Purovsky District, YNAO of those employed by NOVATEK subsidiaries mous Region Governor’s Cup and other al Center in Novokuybyshevsk, Samara The Grants program for teachers is aimed and joint ventures, and other gifted gradu- events in the Nadym District, as well as Region, and Secondary School No. 2 in Tar- at improving the attractiveness of the pro- ates of the Purovsky District schools are eli- construction of a kindergarten for 50 kids ko-Sale, Purovsky District, YNAO, and, since fession and establishing conditions for dis- gible for the NOVATEK-VUZ program. in the village of Nori; 1 September 2015, School No. 81 in Tyumen. covering new talents. XX construction of a modular heated gym Under the program, specialized class- As of 31 December 2015, 73 students were and a ski lodge in the village of Gyda es comprising the best talents of 10th and Since the program’s launch, the teachers undergoing training under this program. (Tazovsky District); 11th grades are organized on a competi- have received 67 grants, including 6 grants Students with good progress receive addi- XX healthcare and financial support for tive basis. The standard learning program in 2015. tional monthly payment apart from the distressed indigenous minority individ- is extended to include courses in applied state scholarship. Besides, each student uals, air transportation of the nomadic physics, mathematical methods of physics, receives commuter allowance. In the course population and delivery of food to remote advanced mathematical tasks, history of of the training program, the students are intersettlement areas, and targeted world culture, and economics. offered paid internship within the Company. training programs for indigenous peoples In 2015, 35 students of the NOVATEK-VUZ (Yamal District); In 2015, 77 school students were trained Program undertook an internship at the XX equipment, supplies, fuel and other pur- under this program. Company’s subsidiaries. chases for supporting fishing and rein- i cy
deer herding at the district’s agricultural Based on their academic and internship ol p facilities, and contributions to the local performance, the best NOVATEK-VUZ pro- l ia indigenous peoples’ rights movement gram graduates are selected. In the report- soc (Purovsky District); ing year, 15 graduates found jobs with the l a n XX support in resolving social problems and Company’s subsidiaries. As of 31 Decem- implementing local programs (Kras- ber 2015, 63 NOVATEK-VUZ graduates are te r Ex noselkupsky District). employed by the NOVATEK Group.
49 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
PRESERVING CULTURAL HERITAGE SPORTS
In 2015, NOVATEK continued cooperation XX Peter Weibel, an Austrian artist and Mass and high-level amateur sport pro- In the same year, NOVATEK collaborated with Russia’s leading cultural and edu- media art theorist, had his solo exhibition grams are of major importance for with the Russian Federation of Acrobatic cational institutions, charity funds, and organized at the Moscow Museum of NOVATEK. Rock ‘n’ Roll, helping to organize the fol- creative teams. The Company traditional- Modern Art, with NOVATEK’s support. lowing events: ly lays great emphasis on supporting and XX In 2015, the Company became a first-time In 2015, the Company was the Gener- taking part in cultural projects, as well as partner of the Jewish Museum & Toler- al Partner of the Russian national football XX Acrobatic Rock ‘n’ Roll & Boogie Woogie partnering up with the best Russian cul- ance Center and supported the exhibition team and continued its long-term part- World Masters tural centers and creative teams. of one modern sculptor Anish Kapoor, nership with the NOVA Volleyball Team XX Russian National Acrobatic Rock ‘n’ Roll who presented his works at the Sixth (Novokuybyshevsk). It also worked in Games In the reporting year, NOVATEK sponsored Moscow Biennale of Contemporary Art. cooperation with the Tyumen Region Vol- XX Acrobatic rock ‘n’ roll federal champi- and participated in the following major XX NOVATEK also continued as a General leyball Federation and Amateur Sports onships and games in Rostov-on-Don, cultural events: Partner of the Moscow Soloists Chamber Foundation. In 2015, NOVATEK-Chelyabinsk Obninsk, Yekaterinburg and Kaliningrad Ensemble led by Yuri Bashmet. continued providing support to the Metal- XX Acrobatic Rock ‘n’ Roll World Cup (Kazan) XX The Company was a partner of the State XX In 2015, NOVATEK became a partner of lurg Hockey Club and sponsored an indoor XX Acrobatic Rock ‘n’ Roll Russian Cup Russian Museum’s annual Imperial Gar- the Arctic Days in Moscow, a federal soccer tournament for schoolchildren (Moscow) dens of Russia Festival. The theme of the Arctic forum organized by the Russian titled A Step towards Big Football. 2015 festival, dubbed Gardens of the Silk Ministry of Natural Resources and NOVATEK also provides assistance to Road, was the culture of the counties that Environment. The forum hosted the 2nd the Student Basketball Association, an had been located near the ancient route. International scientific conference “The umbrella organization bringing togeth- NOVATEK also sponsored the State Rus- Open Arctic”, “The Business Climate in the er sports teams from nearly all Russian sian Museum’s exhibition titled Russia. Arctic” business session, as well as multi- universities. In 2015, the Company helped Realism. 21st century, which showcased media exhibition “The Arctic”, presented organize various games between more various contemporary Russian schools of at the Museum of Moscow. than 800 student teams that represented the Realist movement. almost 70 Russian regions. XX Supported by NOVATEK, the Multimedia Art Museum hosted exhibitions titled In the reporting year, NOVATEK extended Russia. The twentieth century in photos. financial support to the YNAO Figure Skat- 1946–1964 and Antarctic. History. Antrec- ing and Ice Hockey Federations. tomy. i cy ol p l ia soc l a n te r Ex
50 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
VOLUNTEERING NOVATEK-VETERAN PROGRAM NOVATEK promotes and highly prizes In December 2015, NOVATEK volunteers The NOVATEK-Veteran Social Protection In Q4 2015, the district’s local history employee contributions to support low-in- partnered with the Enjoyable Aging chari- Foundation was founded in 2005 to pro- museum organized the traditional Gifted come social groups. Founded in 2008, the ty foundation on the Firewood initiative to vide social assistance to ex-employees Hands exhibition of retirees’ artistic works, Company’s All Together Volunteer Move- collect money on wood for the elderly peo- of the oil and gas sector with a consider- marking the foundation’s 10th anniversary. ment went on with its charitable work ple living in rural areas. able employment track record in the Rus- relying heavily on the enthusiasm of its sian Far North. As of the end of 2015, the The Company organized multiple cultur- most distinguished members who raise On the occasion of the Donor Day Events Foundation provided support to over 900 al events on occasion of holidays (includ- funds and stage charitable events. The (May and November 2015), the volunteers people. Its key focus area is financial and ing industry-specific ones), with veterans volunteers primarily focus on assistance to also raised funds to help treat children moral assistance to veterans. participating in concerts and festivals orphaned children, children suffering from with severe diseases. The above events devoted to the 70th Anniversary of the various illnesses, and elderly people. are held regularly in cooperation with the In the reporting year, the Company orga- WW II Victory Day. Gift of Life Foundation. nized activities to celebrate the 70th In 2015, the volunteers went on regular Anniversary of the WW II Victory Day and In the reporting year, the quarterly finan- visits to Orphanage No. 2 in Vyshny Volo- The volunteers continue to support the provided financial assistance to the vet- cial allocations to veterans amounted chok to socialize with the kids and arrange Home of ROST Initiative (Ivanovo Region, erans and home front workers. A group of to RR 3,915 per person. The assistance various festivals, tours, outings and sports Petrovsky Town) seeking to prepare NOVATEK’s employees visited Tarko-Sale amount was increased by 7% on 1 January events. They were also bringing to the orphaned children for life in adoptive fam- veterans to give them flowers and memo- 2015. In 2015, the Company spent a total of orphans clothes, homeware and gifts ilies and provide comprehensive develop- rable gifts. Out-of-town veterans received RR 23.3 mln to fund the NOVATEK-Veteran donated by the Company’s employees. In ment opportunities for them. greeting messages. program. December, one of the Company’s offices hosted the Tree of Wonders event seeking to collect New Year gifts for children: every employee would pick up a letter of wish- es and provide a gift for the kid. The event also offered an opportunity to raise funds for children’s needs. i cy ol p l ia soc l a n te r Ex
51 NOVATEK / SUSTAINABILITY REPORT 2015 EMPLOYMENT PRACTICES
10,408 PEOPLE — THE HEADCOUNT OF NOVATEK, ITS SUBSIDIARIES AND JOINT VENTRES EMPLOYMENT PRACTICES CONTENTS
PERSONNEL NOVATEK emphasizes responsible and PERSONNEL BREAKDOWN AS AT PERSONNEL BREAKDOWN BY SEX AND LOCATION equitable treatment of employees as a 31 DECEMBER 2015 (NOVATEK, key element of sustainable development. ITS SUBSIDIARIES AND JOINT Our human resources are our vital asset VENTURES), % LOCATION FEMALE MALE TOTAL ensuring growth and advancement of our YNAO 984 5,525 6,509 competitive positions. The Company’s staff make an immense contribution to its Moscow 593 898 1,491 current and future business through their intellectual, physical and creative effort. Moscow Region 2 6 8
St Petersburg 26 13 39 NOVATEK’s HR management framework is centered around fair and equitable Leningrad Region 96 398 494 treatment, mutual respect, and a con- stant dialogue between management and 10,408 Volgograd Region 100 97 197 employees. We care about professional PEOPLE Astrakhan Region growth of our people, which is manifested 11 10 21 by our effective training and development Kostroma Region 101 79 180 system. Perm Territory 10 9 19 As at the end of 2015, the headcount of NOVATEK, its subsidiaries and joint Tyumen Region 74 130 204 ventures amounted to 10,408 people*. Samara Region The majority of our people are employed 0 1 1 full-time, with NOVATEK as their prima- Stavropol Territory 2 6 8 ry employer. This Report does not include 59% part-timers, as their share is marginal to Exploration and production Chelyabinsk Region 610 310 920 the Company (below 0.5%). We source practically no services from freelancers, 16% Rostov Region 70 119 189 Marketing and sales sole proprietors or practitioners. Murmansk Region 11 13 24 12% Processing Arkhangelsk Region 0 3 3
6% Cyprus 3 0 3 Administrative
Singapore 2 5 7 i ces
4% ct Auxiliary production Poland
20 40 60 pra * Hereinafter (in the text and calculations behind the figures reported), this number accounts for full-time 3% ent employees, with NOVATEK, its subsidiaries or joint Switzerland 16 15 31 m ventures as their primary employer. Transportation loy Group's total 2,731 7,677 10,408 Emp
53 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
As at the end of the reporting year, over The majority of the staff are male (74%) Our team is mainly (66%) in the most half of the Company’s staff (63%) were due to the specific nature of our core busi- active age of 30 to 50. located in the Yamal-Nenets Autono- ness. That said, male and female employ- mous Region (YNAO), with the Group’s ees enjoy equitable treatment and equal Moscow-based entities (including joint opportunities. ventures) accounting for about 14% of the staff. NOVATEK’s global subsidiaries employed some 100 people.
PERSONNEL BREAKDOWN BY SEX AND AGE AS AT 31 DECEMBER 2015 MANAGEMENT BREAKDOWN BY SEX AND AGE AS AT 31 DECEMBER 2015 (NOVATEK, ITS SUBSIDIARIES AND JOINT VENTURES), %
Top managers Female Male TOTAL
up to 30 0 0 0
30–50 31 108 139
above 50 7 34 41
TOTAL: 38 142 180
74 % 18 % Male Up to 30
26 % 66% Female 30-50
16% i ces Above 50 ct pra ent m loy Emp
54 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
In 2015, we hired 2,326 new people. In the Most of our staff (92%) are hired based on In 2015, NOVATEK personnel’s minimum reporting year, 129 employees took their open-term employment contracts. compensation in the key regions of opera- maternity and child care leaves. tion (Moscow and YNAO) was significant- A small share of our staff (8%, or 785 ly higher than the local official minimum employees) are employed under fixed- wages. term contracts.
OPEN-TERM CONTRACT PERSONNEL FIXED-TERM CONTRACT PERSONNEL MINIMUM WAGE, RR BREAKDOWN BY SEX AS AT 31 BREAKDOWN BY SEX AS AT 31 DECEMBER 2015, % DECEMBER 2015, % Moscow YNAO
NOVATEK personnel's minimum compensation in 2015 RR 28,500 RR 21,900
Official minimum wage as at 1 January 2015 RR 14,500
Official minimum wage as at 1 April 2015 RR 15,000 RR 12,431 Official minimum wage as at 1 June 2015 RR 16,500
Official minimum wage as at 1 November 2015 RR 17,300
75 % 57 % Male Male
25 % 43 % i ces ct Female Female pra ent m loy Emp
55 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
CORPORATE TECHNICAL COMPETENCY ASSESSMENT PERSONNEL TRAINING AND SYSTEM DEVELOPMENT In 2011, OAO NOVATEK and its core sub- In the reporting year, the assessment Personnel training and development pro- The gender structure of employees trained sidiaries introduced the Corporate Tech- system was implemented at NOVATEK – grams are key to enhancing our per- is generally on par with the overall gen- nical Competency Assessment System Ust-Luga, which saw the development of formance and fostering operational der composition of our team. Training for designed for testing professional potential 103 qualification lists for production posi- excellence, particularly amid the rapid blue-collar workers took twice as much of their engineers and technical special- tions, 120 new competencies, and 1,920 expansion of technology and management time as that for others on average. ists. The system helps monitor the growth test questions, as well as the testing of 104 systems. of employees’ technical competencies and production employees. The tests are set to EMPLOYEE PROFESSIONAL assess them when employing people or continue in 2016. In 2015, over 9,000 employees of the DEVELOPMENT PROGRAM promoting them to higher positions. NOVATEK Group were trained in a variety of In 2015, NOVATEK continued its efforts A total of 936 people were tested under programs embracing almost 157 thousand to enhance employee skills and improve In 2015, 189 Arcticgas employees were the system during the reporting year, hours in total. working conditions to ensure a safe envi- tested in accordance with the 100 qualifi- including 43 people engaged to fill vacant ronment at its production facilities. During cation lists developed in 2014 for produc- positions and 80 employees promoted to the reporting year, 35.5% of our specialists tion positions at the company. higher jobs. and line workers upgraded their respective qualifications.
NUMBER OF PEOPLE WHO AVERAGE TRAINING TIME AVERAGE TRAINING UNDERWENT PROFESSIONAL BY SEX IN 2015 TIME BY TITLE IN 2015 POTENTIAL TESTING IN 2013–2015
936 Male Female Average training hours per person 744 People 7,647 2,683 Top managers 31.03
Total training Middle managers 40.84 hours 137,669 18,989 White-collar workers 43.54 343 Average training hours per person 18.00 7.08 Blue-collar workers 52.81 i ces ct pra 2013 2014 2015 ent m loy Emp
56 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
TRADE UNION RELATIONS IN-HOUSE TRAINING PROGRAM STEPS IN DISCOVERING PROFESSIONAL SKILLS CONTEST Nearly half of NOVATEK’s workforce are To ensure targeted professional upgrade, TALENTS PROGRAM In November 2015, Novy Urengoy host- trade union members. The constructive an In-house Training program started in In 2015, we had our third class of grad- ed the 1st Interregional Professional Skills dialogue between the Company’s manage- 2015. uates of the Steps in Discovering Tal- Contest among field workers. Over 30 ment and trade unions helps defuse social ents program, with 33 young specialists NOVATEK Group employees competed to tensions related to labor disputes. Regular The Head of NOVATEK’s Supervising taking part in the onboarding sessions be recognized the most skilled in their jobs. talks with trade unions have contributed Department organized training for 34 of and on-the-job training. By autumn 2015, NOVATEK-YURKHAROVNEFTEGAS provided to the establishment of an effective work- the Group’s employees in well workover 29 new young specialists had joined the its facilities for the contest to take place. force feedback, which allows the Company emergency operations and equipment. program. The participants competed in four pro- to identify potentially challenging issues fessional categories, namely, oil and gas and respond to them at short notice. The Subsidiaries’ employees provided training In 2015, both young specialists and men- production operator, process unit fitter, long-standing application of this policy to their colleagues in penetrating and test- tors participated in the Mentoring Cul- electrical equipment fitter, and instrument has ensured that the Company has never ing producing horizons while drilling, com- ture training courses. In total, 22 mentors and automation fitter. All participants seen a single case of stoppages or strikes plications and emergencies while drilling, attended the training. received valuable gifts, and the winners due to labor disputes. gas and gas condensate wells equipment, were awarded cash prizes and person- well logging, structural geology, turbo-ex- RESEARCH-TO-PRACTICE al salary allowances for their profession- In 2015, the Company spent a total of RR pander maintenance (for the Arcticgas CONFERENCE FOR YOUNG al skills. 4.6 mln to support trade unions. staff at NOVATEK-YURKHAROVNEFTEGAS), SPECIALISTS etc. The courses were authored by subsid- The 10th Interregional Research-to-Prac- iaries’ employees. tice Conference for the Company’s Young Specialists attended by 70 employees In 2015, 236 employees received training was held in Moscow in September 2015. under the program. All the competition winners received cash prizes, while 9 prize-winners, including the winner in the Best Implemented Proj- ect category, were offered education at international oil and gas training centers in China. i ces ct pra ent m loy Emp
57 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
SOCIAL POLICY NOVATEK’s social policy is being imple- STATE GUARANTEES SUPPORT PROGRAM WORKFORCE VOLUNTARY MEDICAL The program is an unsecured pension mented in line with the Concept adopted (RR 74.2 mln spent in 2015) INSURANCE (RR 80.2 mln spent in 2015) scheme with fixed benefit amounts calcu- in 2006, which provides for a comprehen- The program covers employees working The program includes full outpatient care, lated on the basis of inflation forecasts, pay sive and coherent approach to addressing in the Far North and equal-status locali- dental care, and emergency and scheduled raise rate analysis, the Company’s remu- social challenges. ties, providing compensation for vacation hospitalization. neration policy and demographic assump- travel expenses (including luggage trans- tions. In the Consolidated Statement of TARGETED COMPENSATION AND SOCIALLY portation to/from the respective vaca- HEALTH RESORT TREATMENT AND Financial Position, the current value of fixed IMPORTANT PAYMENTS PROGRAM tion destinations) for the employees and REHABILITATION PROGRAM pension liabilities is recognized as “Other ( RR 386.3 mln spent in 2015) unemployed members of their families. In (RR 67 mln spent in 2015) long-term liabilities” and stands at RR 1.9 The program provides targeted free sup- 2015, 3,343 people received compensation The Company’s employees and their fam- bln as at 31 December 2015. port to the Company’s employees in spe- under the program. ilies can purchase health resort vouchers cific life circumstances, including those at a discount. The 2015 average monthly benefit amount related to childbirth, funerals, childcare (following a 7% annual increase on 1 Janu- (ages 0–3), disabled children care, etc. In 2015, a total of 1,825 people purchased ary 2015) was as follows: vouchers under this program to spend XX RR 6,708 in Moscow, St Petersburg, Far their vacations in 45 health resorts located North and equal-status localities; in Russia’s most picturesque settings. XX RR 2,266 in Perm and other cities.
NUMBER OF EMPLOYEES AND NOVATEK GROUP’S TOTAL PENSION PROGRAM As at 31 December 2015, a total of 661 peo- THEIR FAMILY MEMBERS WHO SPENDING ON DEDICATED SOCIAL (RR 39.8 mln spent in 2015) ple participated in the program. PURCHASED HEALTH RESORT PROGRAMS, RR BLN Since 2007, NOVATEK has undertaken to VOUCHERS UNDER THE NOVATEK’S pay supplementary benefits to the retired REPAYABLE FINANCIAL AID PROGRAM PROGRAM employees in line with the Regulations on (RR 649.3 mln spent in 2015) Social Benefits for Retired NOVATEK Group The program has two focus areas: Employees. Employees with an employ- XX short-term special-purpose loans ment track record of at least five years who intended for employees who experience leave work at a full retirement age are enti- economic hardship. A total of 76 employ- 2,417 1.4 1.4 tled to monthly benefit payments from the ees applied for loans under this program 1.2 Company (suspendable in case of the retir- in 2015; ee’s employment). The benefit amount is XX special-purpose interest-free home 1,876 1,825 subject to the employee’s average salary, loans to employees residing in Tar- employment track record and geographi- ko-Sale, Novy Urengoy, Moscow, Sosnovy cal location. Bor and Tyumen. In 2015, a total of 111 families took out special-purpose inter- est-free home loans under the program. i ces ct On top of that, in 2015 the construction of four apartment houses (156 apart- pra ent
ments) in Tarko-Sale was completed. m loy Emp 2013 2014 2015 2013 2014 2015 58 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
CORPORATE AWARDS PROGRAM Certificate of Merit and NOVATEK Letter On 5 September 2015, the Company host- ed the facilities that excelled in sports and (RR 9.7 mln spent in 2015) of Gratitude. The Honoured Employee of ed the NOVATEK – New Traditions event in innovation, as well as the best mentor. In NOVATEK’s top-performing employees are NOVATEK is the highest corporate distinc- Tarko-Sale on the occasion of Oil and Gas December, the Company arranged a tradi- entitled to government, industry and cor- tion that can be conferred on a maximum of Industry Employee’s Day. The event fea- tional concert by Yuri Bashmet’s Moscow porate awards, and distinctions from the five employees each year. tured a photo exhibition devoted to the Soloists Chamber Orchestra for its part- Company’s subsidiaries. Company’s subsidiaries. At a special func- ners, employees and their families. CORPORATE CULTURAL AND SPORTING tion, the Company gave awards to the best The Company’s corporate awards include EVENTS PROGRAM employees and, for the first time, celebrat- The Company is in partnerships with the Honored Employee of NOVATEK, NOVATEK (RR 64 mln spent in 2015) Moscow Kremlin Museums, Multimedia The program is an essential element of the Art Museum, Museum of Modern Art, and Company’s corporate culture. Jewish Museum and Tolerance Center to enable its employees, their families and NUMBER OF EMPLOYEES WHO Sports MUSEUM ADMISSIONS UNDER friends to admire the masterpieces of Rus- RECEIVED AWARDS IN 2015 NOVATEK has traditionally laid great NOVATEK’S CORPORATE PROGRAM sian and world art. In 2015, 776 employees, emphasis on regular physical exercises. To their families, friends and partners of the Award Number of promote sports among its staff, the Compa- Company visited exhibitions and museums recipients ny rents gyms, swimming pools and play- under the corporate program. grounds, and offers its employees partial Government awards 6 reimbursement of gym membership fees. The majority of the sports and cultur- In addition, the Company frequently holds al events of the year were devoted to the Distinguished Employee of the corporate sports competitions, including 70th Anniversary of the WWII Victory Day. Russian Oil and Gas Industry 6 annual indoor soccer matches, volleyball and swimming competitions. 776 Industry awards 33 PEOPLE NOVATEK is committed to traditional values Certificate of Merit from the Russian Ministry of Energy 17 and sees sports and physical culture as a unifying phenomenon that fosters friend- Letter of Acknowledgement from ship and understanding among employees the Russian Ministry of Energy 16 and their families. Corporate awards 229 Corporate cultural events Honored Employee of NOVATEK 5 The Company has a special focus on cor- 53% porate culture and communal leisure Multimedia Art Museum and Moscow NOVATEK Certificate of Merit 102 activities, as they contribute to a favour- Museum of Modern Art NOVATEK Letter of Gratitude able working environment within the Com- 41% i ces 122 ct pany. NOVATEK’s subsidiaries stage festive Moscow Kremlin Museums Subsidiary awards 180 events to mark the International Wom- 6% pra
Jewish Museum and Tolerance Center ent
en’s Day, Defender of the Fatherland Day, m Subsidiary Certificate of Merit 180
Oil and Gas Industry Employee’s Day, and loy New Year. TOTAL: 448 Emp
59 NOVATEK / SUSTAINABILITY REPORT 2015 PROCUREMENT PRACTICES CONTENTS
KEY APPROACHES SUPPLY CHAIN MANAGEMENT IMPORT SUBSTITUTION POLICY Materials and equipment procurement in The Company treats all prospective sup- If the supplied complex equipment’s oper- NOVATEK pays great attention to import the NOVATEK Group is based on the princi- pliers equally. Any company may take part ational quality and reliability are affected substitution and local manufacturing of ples of fair competition among suppliers, in a tender, as long as it is eligible and has materially by its components, the supply process equipment in Russia. priority of equipment manufacturers over filed a duly completed application form. chain management approach is used. trading and procurement companies, long- Counterparties are selected on the basis of NOVATEK prioritizes domestic products term partnership with major producers, their pricing, delivery terms, quality of their In most cases, this approach is required with the same price-quality ratio as and strict control over quality and delivery products or services, financial stability and when modular equipment is supplied by foreign ones but with a lower total terms. business reputation. The Company also providers of shut-off and control valves cost of ownership. NOVATEK’s experts places much importance to the weighted and automation and control equipment. are actively involved in oil and gas The Company’s procurement is in line with average cost of equipment ownership. In that case, NOVATEK, its subsidiaries companies’ meetings under the Russian its internal policies and regulations. The Suppliers are required to have production and joint ventures are the ones to select Ministry of Industry and Trade. The main document governing the NOVATEK and technical capabilities, the necessary sub-suppliers, and they do so in accor- Company cooperates closely with the Group’s procurement is Regulations on the equipment along with engineering and dance with the competitive procedure. The leading Russian oil and gas equipment Organization of Competitive Tendering. blue-collar staff, and the relevant business principal supplier under the relevant con- manufacturers, joining forces to identify focus. A successful track record of oper- tract is then informed of the results. foreign equipment to be primarily NOVATEK has a decentralized supply ating the supplier’s equipment in the Far substituted with Russian counterparts. structure. The tenders are mostly orga- North is preferred. All things being equal, The same procedure applies to the pro- nized by subsidiaries and joint ventures preference is given to Russian suppliers. curement of materials and equipment by of the Company, while NOVATEK controls contractors. In that case, the suppliers of the procurement process. This approach expensive materials, namely pipe products increases responsibility of subsidiaries and and components, shut-off valves, cables, joint ventures for the outcome. cable support and cable heating systems, are pre-selected based on the competitive Capital intensive purchases (particularly procedure. oil and gas equipment) are made through public tenders, allowing the Company to diversify its suppliers, keep an up-to-date supplier register, and ensure optimal deliv- ery terms and conditions. i ces ct pra ent e m ur oc r P
60 NOVATEK / SUSTAINABILITY REPORT 2015 OCCUPATIONAL HEALTH AND SAFETY
RR 665 MLN — EXPENSES ON OCCUPATIONAL HEALTH AND SAFETY IN 2015 OCCUPATIONAL HEALTH AND SAFETY CONTENTS
OCCUPATIONAL HEALTH AND SAFETY GOALS AND SPECIAL ASSESSMENT OF OBJECTIVES WORKING CONDITIONS OPERATIONAL CONTROL NOVATEK’s primary goal as regards Special assessment of working conditions Pursuant to the Federal Law On Industrial In the reporting year, we conducted OHS occupational health and safety (OHS) is to includes workplace certification to eval- Safety of Hazardous Production Facili- due diligence checks at six subsidiaries and protect human life and health, and we take uate the impact of hazardous workplace ties and Rules on the Organization and joint ventures. Based on their findings, rel- every effort to become a responsibility factors. Based on the assessment results, Implementation of Industrial Controls over evant reports were produced, and remedial leader in the field through compliance with measures to improve working conditions Compliance with Industrial Safety Require- and preventive measures were developed. the highest safety standards, monitoring, are developed and implemented. In the ments at Hazardous Production Facilities, use of advanced technologies, and staff reporting year, 1,078 workplaces were all our subsidiaries have developed regu- The inspections included HSE management training. assessed, with no workplaces with unac- lations on the organization and implemen- system audits for compliance with OHSAS ceptable working conditions identified. tation of such industrial controls. We also 18001:2007 and ISO 14001:2004 (pursuant Since 2005, NOVATEK has implemented established industrial control compliance to the Company standard ISU-0-10/V2). Six its Health, Safety and Environment (HSE) commissions to run regular audits of OHS audits were carried out and reports pro- Policy. Since 2009, the Company has used compliance. duced with recommendations on remedial the Integrated Management System for actions. Environmental Protection, Occupational In 2015, we kept running OHS due diligence Health and Safety (IMS) compliant with checks on our subsidiaries and joint ven- In addition to internal control, NOVATEK’s ISO 14001:2004 and OHSAS 18001:2007. In tures to measure their compliance with facilities are regularly inspected by gov- 2015, NOVATEK successfully passed IMS occupational health, industrial, fire and ernment authorities: Federal Environmen- compliance audit. environmental safety requirements. The tal, Industrial and Nuclear Supervision Company has a three-step due diligence Service of Russia (Rostechnadzor, Russian OHS expenditures in 2015 amounted to framework involving occupational health environmental body) and Russian Fed- RR 664.7 mln. engineers, management of subdivisions eral Service for Surveillance on Consum- and plants, and NOVATEK’s management er Rights Protection and Human Wellbe- and staff, to make sure that hazardous ing (Rospotrebnadzor, Russian consumer production facilities are compliant with protection body). In the reporting year, federal OHS regulations, and workwear 12 external inspections were conducted, and other personal protection equipment with remedial actions taken based on their is properly used. findings.
OHS due diligence checks are done to mit- igate the risk of accidents and incidents, and improve the Company’s OHS control system. ety af d s d n h a h lt a h e l a on i t upa O cc
62 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
FIRE SAFETY, CIVIL DEFENCE AND EMERGENCIES ACCIDENTS AND INCIDENTS Since fire and explosion risks are inherent Fire safety, civil defence and emergen- response and rescue teams comply with In 2015, NOVATEK’s subsidiaries and joint in the Company’s operations, fire safety cy response training, as well as fire all existing requirements. The Company ventures recorded two incidents related is NOVATEK’s priority. The Company’s and emergency drills, are an important ensures timely re-equipment of both basic to partial shutdowns of core and auxiliary IMS includes a fire safety system compli- element of the fire safety and emergency and specialized fire vehicle fleets. In 2015, equipment, with no severe consequences ant with the Russian law. The system’s response system. In 2015, the Compa- it purchased seven fire trucks outfitted for for the Company and neither injuries nor objective is to prevent fires and protect ny organized around 30,000 fire safety operations in the Far North. environmental damage caused. people and property in case of a fire or an briefings that featured guidance materials emergency. and visual aids, as well as hands-on pre- In the reporting year, NOVATEK’s fire pre- The Company’s subsidiaries and joint sentations. Basic fire safety training was vention activities boosted the implemen- ventures saw no accidents in the reporting In 2015, five NOVATEK’s subsidiaries and provided to 3,761 people and 435 people tation of fire safety measures by 30%. year. joint ventures had licenses to service evacuation drills were conducted. In the firefighting equipment and perform fire- reporting year, the emergency response NOVATEK fully complies with fire safe- fighting operations, and we also engaged and rescue teams performed 23,499 safety ty regulations, with all of its facilities contractors with relevant licenses. control procedures as regards high-hazard equipped with automatic fire detection, Subsidiaries and joint ventures operat- operations, including those related to fire alarm and extinguishing systems. ing hazardous industrial facilities that and gas hazards, at production facilities. In 2015, there were no fires at the Compa- produce, collect, process and manufacture As part of the training, they also arranged ny’s facilities. explosives and flammable substances are 890 fire tactical exercises. The emergency protected by 16 professional emergency response and rescue teams are made up of response and rescue teams. In addition, 328 certified rescue workers. we have decided to build fire stations and establish emergency response and rescue Inspections are regularly carried out at teams within prospective field develop- our subsidiary and joint venture facili- ment and construction projects. ties to assess the emergency response capability of the Company’s subdivisions In 2015, the total headcount of fire and and personnel, and evaluate the resourc- emergency brigades serving the facilities es of in-house and external professional on a 24-hour basis stood at 508 people. emergency response and rescue teams. Twenty-five engineers of the Company In 2015, we made 14,5 thousand patrols directly monitored and supervised the fire and tested 266 external water supply safety and emergency response environ- sources used for firefighting. The Com- ment at our facilities. pany’s facilities implement a full-scale ety af
program to respond to oil, oil product, and s d other hydrocarbon spills. Materials and n h a h
equipment available to the emergency lt a h e l a on i t upa O cc
63 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
WORKPLACE INJURY RATE CONTRACTOR ENGAGEMENT OHS TRAINING In 2015, the Company’s subsidiaries Contractor engagement is an important All NOVATEK’s subsidiaries and joint ven- In the reporting year, the Company orga- and joint ventures recorded five minor aspect of NOVATEK’s operations. The work tures provide training on safe operating nized unscheduled Working at Height workplace injuries. They were mainly begins with selecting contractors through procedures, including briefings, person- courses to comply with new federal regu- caused by workplace discipline breaches, tender procedures; so, relevant criteria nel training and development, and regular lations. procedure violations, and personal were added to the assessment sheets. qualifying tests, including those arranged negligence of the injured. Annexes containing OHS requirements at specialized training centers. At some subsidiaries and joint ventures, constitute an integral part of contracts. we have been practising work breaks to In addition, we instruct our contractors on In 2015, 4,324 people received OHS hold preventive workshops with both the Company’s standards, conduct joint training. in-house staff and contractors. In addition drilling and other activities. to compulsory OHS training, the Company’s Additional training included the following subsidiaries and joint ventures held addi- courses: tional workshops on: XX occupational health, industrial and fire XX safety measures for working near power safety management systems; lines; XX transport safety; XX safe driving in adverse road and weather XX construction rules and procedures; conditions. XX risk assessment. NOVATEK regularly organizes Safety Days, The Best OHS Poster contests and oth- er events aimed at promoting workplace safety among employees. ety af d s d n h a h lt a h e l a on i t upa O cc
64 NOVATEK / SUSTAINABILITY REPORT 2015 ENVIRONMENTAL PROTECTION
RR 776 MLN — ENVIRONMENTAL EXPENDITURES IN 2015 ENVIRONMENTAL PROTECTION CONTENTS
ENVIRONMENTAL VISION The Company is aware of its responsibil- To achieve the objectives stated in the NOVATEK follows the reasonable precau- NOVATEK representatives are mem- ity for environmental protection and sus- Health, Safety and Environment Policy, tionary principle. The Company aims to bers of an advisory group for preserva- tainable use of natural resources. As with prior to any operations associated with timely identify sources of danger, assess tion and study of the Atlantic walrus in the any industrial operations, production and potential environmental impact, the Com- inherent risks, and duly respond to envi- south-eastern Barents Sea and adjacent processing of gas and liquid hydrocarbons pany conducts environmental impact ronmental risks. waters, and a task force focusing on envi- at NOVATEK have certain environmental assessments and informs the public and ronmental aspects of the Sabetta seaport impact and make environmental protec- other stakeholders of their results via the NOVATEK upgrades its core process equip- construction in the Gulf of Ob. tion one of our top priorities. Environ- mass media, public hearings and meetings, ment and technologies to stand to the mental considerations are central to any community liaison offices and the Compa- latest environmental requirements and The Company regularly reports on green- production-related decisions. NOVATEK is ny’s website. industrial safety rules and uses the most house gas emissions and energy efficiency committed to the following environmen- environmentally friendly materials. The (Carbon disclosure project, CDP) and use of tal goals: In addition, the Company regularly moni- Company smoothly switches to the pit- water resources (Water Disclosure, CDP). XX reducing and preventing negative envi- tors the key environmental aspects of its free, directional and horizontal drilling, ronmental footprint; production operations. The monitoring injection of industrial and consumer water XX complying with Russian environmental results are documented and analyzed to waste to the intake beds, closed techno- laws and international standards; be able to develop adequately funded ded- logical cycle of water supply, recycling and XX ensuring sustainable management of icated initiatives and environmental action other advanced environmentally friendly natural resources and energy, rolling plans aiming to: technologies. out modern non-waste and low-waste XX reduce emissions and discharges technologies and technologies for safe of pollutants; The Company engages in extensive coop- accumulation, storage and disposal of XX control waste disposal and protection eration with scientific and non-govern- production and consumer waste; of water resources; mental environmental organizations such XX improving and enhancing our environ- XX ensure sustainable use of land and as the World Wide Fund for Nature (WWF), mental performance, including the envi- high-quality land reclamation. Marine Mammal Council, and V.I. Ver- ronmental management system; nadsky Non-Governmental Environmen- XX engaging all of the Company’s personnel, tal Fund. suppliers and contractors in achieving its environmental policy objectives; XX keeping up personnel’s environmental awareness and responsibility. otect i on pr l a ent m on vir n E
66 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
ENVIRONMENTAL MONITORING ENVIRONMENTAL PROTECTION — AND INDUSTRIAL CONTROL GOVERNMENT CONTROL Annual environmental monitoring program studied in water areas, with hydrological In general, in 2015 the studies showed In 2015, the Federal Service for Super- is a key tool for environmental assessment and hydro-chemical properties analyzed predominantly unharmed conditions vision over Natural Resource Manage- at production sites, identification of as well. Samples are studied in certified of environmental components in the ment (Rosprirodnadzor), local branches challenges and timely adjustment of the laboratories to assess the condition of target areas. At all areas outside the of the Federal Fisheries Agency, munic- environmental policy. The Company runs environmental components and their production footprint, the environmental ipal authorities, the Public Prosecution its annual environmental monitoring annual changes. condition has been classified as stable and Office and other government agencies program across its production footprint. corresponding to the background level. held scheduled and ad hoc field audits The monitoring is carried out by The monitoring also involves visual at major production entities of NOVATEK independent environmental auditors inspection and photographing of the In 2015, the NOVATEK Group spent RR 70 with respect to environment protection (hiring qualified experts) as per applicable areas along the cross-country vehicle and mln to arrange and run environmental and sustainable management of natural programs and methodologies. walking routes. To run the environmental monitoring in its license areas. resources. In total, 37 audits were con- monitoring in the tundra zone, we use ducted at 11 entities of the Group. It involves examining the condition of transport with low-pressure tires to To reduce the negative impact on the environment components, taking soil, preserve the fragile topsoil. environment, a multistage system of Following the audits, measures were taken ground, water and seabed sediment Environmental Monitoring and Industrial to eliminate the shortages identified. samples, checking the condition of the Control (EMIC) operates at the Company’s local flora, animals and microorganisms, enterprises. Every major production entity and estimating air pollution. The condition of NOVATEK has a chemical laboratory of fish population and nutritive base are fully equipped for prompt operational analysis. The EMIC feeds data to analyze and streamline our core processes. otect i on pr l a ent m on vir n E
67 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
EMISSIONS AND WASTE ATMOSPHERIC EMISSIONS Indirect emissions having impact on the The decrease in methane emissions from Currently, NOVATEK facilities are actively Expansion of operations and commis- climate include motor fuel sold via the natural gas production and transportation implementing the cogeneration tech- sioning of new industrial facilities in 2015 Company’s network of gas filling stations. is achieved by rational design solutions (as nology, which almost doubles the fuel created new sources of atmospheric However, the same factor contributed to a regards the number and variety of valves efficiency resulting in a significant reduc- emissions. The intensity of atmospher- 62.3 thousand ton reduction in emissions and flanges used) and implementation of tion of GHG emissions. ic emissions grew by 29% as compared to in 2015 as this volume substituted gasoline relevant maintenance regulations. the previous reporting period and reached used as a motor fuel. ASSOCIATED PETROLEUM GAS (APG) 66,242 tons. The Yamal LNG project provides for an Greater utilization of associated petro- NOVATEK is developing a corporate GHG innovative technology of methane-con- leum gas (APG) is an important target for GREENHOUSE GASES emissions management system to comply taining emissions recovery to be used. the Company. The Company systemati- Given the overall output increase, green- with the requirements of ISO 14064-1:2007 After liquefaction, LNG products emit cally works to decrease its air pollutant house gas emissions in 2015 increased and Russian Government Resolution No. methane fumes (boil-off gas). For boil-off emissions from APG flaring. In 2015, the to 4.9 million tons of CO2 equivalent (the 504-R dated 02 April 2014. gas recovery, a tank fumes removal sys- Program for Rational Use of Associat- calculation includes CO2, СН4, NO2). The tem is used. The boil-off gas can then be ed Petroleum Gas enabled the Company increase was driven mainly by wider use Since 2008, NOVATEK has been taking part re-liquefied or used as a fuel gas for inter- to reach a 96% APG utilization rate at the of gas as a compressor station fuel and by in the Carbon Disclosure Project (CDP) nal consumption. Samburgskoye and East-Tarkosalinskoye the larger number of well pads and flare aimed at collecting GHG emissions data fields. facilities. from large businesses. In 2015, the Compa- ny received a score of 54E, ranking second among Russian oil and gas companies.
ATMOSPHERIC EMISSIONS BY NOVATEK GROUP, TONS TOTAL GREENHOUSE GAS EMISSIONS IN 2013–2015, THOUSAND TONS OF CO2*
2014 2015 2013 2014 2015
Air pollutant emissions, total 51,479 66,242 Direct emissions (fuel combustion and operation of production entities) 2,576.1 3,980.0 4,402.6 incl. priority pollutants:
solids 2,353 3,609 Indirect emissions (purchased energy for internal consumption) 90.4 115.6 184.5 carbon oxide 32,858 44,466 Other indirect emissions 273.1 315.7 344.8 nitrogen oxide (NO2) 6,663 8,225 otect i on
sulphur dioxide pr 6.74 82.77 TOTAL 2,939.6 4,413.3 4,931.9 l a
hydrocarbons (incl. methane) 2,900 4,872 ent m
VOCs 6,685 8,950 on vir
* According to the Guidelines for Calculating GHG Emissions approved by Order No. 300 of the Russian Ministry of Natural n Resources and Environment dated 30 June 2015 E
68 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
WASTE The share of high-hazardous waste mate- cised at our waste disposal and temporary In 2015, most of the drilling waste (73%) In 2015, the overall amount of waste gener- rials (classes I and II) is insignificant, waste storage facilities. We employ inno- was re-processed into gravilat and burolit ated by NOVATEK facilities was 42,040 tons, cumulatively comprising hundredths of a vative eco-efficient waste recycling and construction mix and then used to rein- which is 3.5% higher than in 2014. percent. They are mainly found in mercu- neutralization technologies. force road slopes and well pads, and to ry lamps and luminescent tubes containing restore artificial cavities. The work was car- Most of the waste materials produced mercury. Part of the waste is transferred for disposal ried out by specialized contractors using (approximately 99%) are non-hazardous to specialized contractors. The remain- advanced technologies with all necessary or low-hazardous and generally consist of Production and consumption waste man- ing waste, including water separated from approvals from the state environmental drill mud. agement is carried out in accordance with crude oil during its treatment and gas con- expert review. The quality of the materials the approved guidelines. Environmental densate bearing oil products, is used for our so produced is confirmed by a certificate of monitoring and industrial control is exer- own needs and is re-injected to maintain compliance. reservoir pressure. A drilling mud thermal desorption plant has been in operation at the Yurkharovskoye oil PRODUCTION AND CONSUMER WASTE STRUCTURE IN 2015, % WASTE MANAGEMENT IN 2015, % and gas condensate field since 2008. The WASTE GENERATION IN 2013–2015, technology employed allows us to sep- THOUSAND TONS A YEAR arate and reuse water and drilling mud. The drilling cuttings separated in the pro- cess are stored at a specialized landfill. In 2015, 5,320 tons of drilling waste was 42.0 re-processed. 40.6
17.5
94 % 67 % Class IV – low-hazardous waste Placed at in-house facilities 2013 2014 2015 5 % 27 % Class V – virtually Used by the Company* non‑hazardous waste 5 % otect i on Transferred to specialist contractors pr
1 % l Classes I, II, III – extremely/ 1 % a
highly/moderately hazardous Neutralized ent waste m on
* For re-injection to maintain reservoir pressure and vir n
restoration of artificial cavities E
69 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
WATER USE AND DISPOSAL The Company is committed to sustain- WATER CONSUMPTION, MCM WATER INTAKE BY SOURCE WATER DISPOSAL STRUCTURE able water use and efficient wastewater TYPE IN 2015, % IN 2015 treatment.
Consumption of water increased in 2015 by 27% year-on-year to 1,716 thousand cubic meters, including 1,270 thousand cubic meters for production needs and 446 thousand cubic meters for general and drinking needs. Both surface and ground 1,716 water is used. 1,271 MCM 1,425 In 2015, the water consumption rate stood 1,347 at 2.93 cubic meters / thousand boe for production entities and at 10 cubic meters/thousand tons of finished prod- ucts for processing entities.
The Company uses multiple wastewa- 49 % 40 % Ground water Gas flaring systems ter disposal methods, including burning at horizontal gas flaring systems and injec- 48 % 31 % tion into intake beds after preliminary puri- Surface water Underground horizons fication at full-service treatment plants. 26% 3 % After thorough treatment, wastewater is 2013 2014 2015 Surface water Municipal and other water also channelled to surface water bodies supply systems 3% such as the Gulf of Ob in the Kara Sea and Storage the Luga Bay in the Gulf of Finland. <1 % Transferred to other organizations The quality of wastewater so channelled qualifies as treated to standard quality. No admissible discharge limits were exceed- ed over the reporting year. Analysis of sam- Water protection initiatives were imple- water for its subsequent channelling to The Company’s subsidiaries operat- ples shows that hydro-chemical parameters mented at the South-Tambeyskoye field the Gulf of Ob. The sewerage system was ing pipelines carried out hydrological, and concentrations of pollutants in the sea- of the Yamal LNG project in 2015. New reconstructed and new treatment facilities hydro-chemical and organoleptic exam- water near discharge points fall within the facilities were commissioned to clean the commissioned. inations to assess the quality of water otect i on pr limits for commercial fishing waters. domestic, production and storm waste- resources. l a ent m on vir n E
70 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
ENERGY CONSUMPTION AND EFFICIENCY IMPROVEMENT BIODIVERSITY PRESERVATION NOVATEK embraces a lean approach ENERGY CONSUMPTION BY Industrial development in the Far North In 2015, NOVATEK carried out ship obser- to consumption of heating energy and NOVATEK’S PRODUCTION imposes a great responsibility for ecosys- vations of the marine mammals in the electricity. SUBSIDIARIES AND JOINT VENTURES tem preservation on NOVATEK. To minimize south-western Kara Sea. In line with the IN 2015* damage to unique natural resources and Biodiversity Preservation Program, the Part of internally generated heating preserve biodiversity, the Company takes findings are used to manage and mitigate power and electricity is produced using particular care in studying and preserving the impact of the Yamal LNG project. On Indicator UoM hydrocarbons of own production. Also, the northern flora and fauna. top of that, the Company conducted labo- part of electricity was produced from Total consumption of ratory toxicity studies of fat and muscular thousand the renewable sources of energy (solar heating energy and STUDY OF MARINE MAMMALS IN THE tissue samples from a ringed seal caught GJ 3,864 panels and wind power generation). electricity SOUTH-WESTERN KARA SEA near the Seyakha village (the Gulf of Ob). It NOVATEK operates a total of 54 solar panel Under the Yamal LNG project, the Gulf of was the first time information on the com- and wind generator sets installed on its Consumption from Ob’s waters will be actively used for trans- position and concentration of pollutants in non-renewable sources thousand feed pipelines as part of the automatic (natural gas) to produce portation and handling operations. In 2015, marine mammal organisms in the region GJ 6,614 control and communication system. The heating energy and the Company continued dredging opera- was obtained. main sources of heating power are waste electricity tions to enable passage of vessels. Tak- heat boilers and heat exchangers at ing into account the specific nature of the In 2015, under the Biodiversity Preserva- Aggregate electricity million cogeneration power plants. project, NOVATEK deems it necessary to tion Program within the Yamal LNG proj- consumption kWh 588 consider the risks of negative impact on ect the Company monitored biodiversity
The increased consumption of energy Aggregate heating energy thousand marine mammals and their key habitats in and marine mammals, as well as disturbed resources in 2015 was mainly caused by the consumption GJ 1,746 the Gulf of Ob’s waters, as well as along lands. Based on the results of the monitor- launch of new facilities and fields of Yargeo. vessel routes. Across the prospective foot- ing and studies, the Company implements In the reporting year, the overall reduction * Energy consumption for 2015 includes the following print, several species of marine mammals initiatives to reduce its impact on biodi- companies: NOVATEK-YURKHAROVNEFTEGAS, of energy consumption enabled by energy- NOVATEK-TARKOSALENEFTEGAS, NOVATEK – PUROVSKY exist: ringed seals, bearded seals, white versity, with relevant audits conducted by saving and efficiency initiatives comprised: GAS CONDENSATE PROCESSING PLANT, NOVATEK – UST- whales, Atlantic walruses and polar bears. contractors. 5,698 thousand kWh of electricity, 347 toe LUGA, NOVATEK-TRANSERVICE, Arcticgas, NORTGAS, YARGEO, TERNEFTEGAS of fuel. The Company is conducting studies in the In 2015, the Biodiversity Preservation Pro- vicinity of the Yamal peninsula and in the gram and the framework action plan were Gulf of Ob to obtain up-to-date informa- discussed in public hearings. At the Adviso- tion on marine mammals in the area of the ry Board meeting on the development and project. implementation of the Yamal LNG project, where indigenous minorities and the Yamal district government were present, repre- sentatives of the tundra population of the South-Tambeyskoye license area took part
in a biodiversity poll. otect i on pr
l a ent m on vir n E
71 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
DISTURBED ENVIRONMENTAL AREA RECLAMATION PROTECTION TRAINING IDENTIFICATION AND STUDY OF VALUABLE The Company monitors disturbed and Consistent with the Company’s HABITATS OF BIRDS AND PLANT contaminated lands to track accumulated environmental policy, we annually COMMUNITIES (past and present) environmental damage implement employee training and NOVATEK continuously works on identi- at the South-Tambeyskoye license area, as development programs with further fying and studying valuable habitats of well as to asses Yamal LNG’s environmen- assessment of the acquired knowledge birds and plants communities within the tal remedial actions. in order to increase their HSE skills and South-Tambeyskoye license area. It is responsibility. In 2015, 159 employees inhabited by six species of birds includ- Disturbed land mapping and registering is underwent training to improve their ed in the Red Book of the Russian Feder- most effective and cost-efficient if based qualifications and skills, which is 1.6 times ation, two species of birds included in the on high-resolution satellite images con- more than in 2014. Red Book of the YNAO, and two species firmed by field observations. Monitoring of with the IUCN conservation status. Before the accumulated environmental damage is 2015, out of the ten species only three performed by Aerogeologia (Federal State were known to nest in the area (snowy Unitary Research and Production Enter- owl, long-tailed duck and Steller’s eider). In prise) and is to be completed in Q1 2016. NUMBER OF PEOPLE TRAINED IN ENVIRONMENTAL MANAGEMENT 2015, Bewick’s swan was added to the list. In the reporting year, Aerogeologia provid- ed two batches of satellite imagery of the ENVIRONMENTAL license area. Training programs 2013 2014 2015 DAMAGE COMPENSATION Environmental safety for managers and general business To compensate for damages to aquatic In 2015, NOVATEK remediated approxi- management personnel 12 20 8 bioresources, the Company had approxi- mately 1,668 hectares of disturbed lands mately 1,790 thousand muskuns and 880 within license areas and transferred 1,543 Environmental safety and hazardous waste treatment 6 28 50 thousand peleds grown and released into hectares of remediated and idle lands to the rivers of the Ob-Irtysh basin in 2015. the major land user. Environmental safety for managers and experts of environmental departments and environment control systems 3 10 14
Professional training of persons entitled to work with class I–IV hazardous waste 24 36 88
Other environmental programs 6 13 0
Total 51 107 160 otect i on pr l a ent m on vir n E
72 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
ENVIRONMENTAL COSTS In 2015, NOVATEK’s overall environmental NOVATEK GROUP’S 2015 CHARGES FOR NEGATIVE costs reached RR 776 mln. ENVIRONMENTAL COSTS, RR TH. ENVIRONMENTAL IMPACT IN 2013–2015, RR MLN Land protection and environment protec- tion from production and consumer waste accounted for the major part of the costs Land protection 238,979 (RR 238 mln and RR 213 mln, respective- 35.0 ly). Considerable costs of RR 72 mln were Environment protection from 213,351 associated with the protection and sus- production and consumer waste tainable management of water resourc- 25.1 Environmental damage es. The biggest part of these costs was compensation 127,910 incurred in the construction of water treat- 19.4 ment facilities. Water protection and rational use 72,674
Charges for negative environmental Air protection 10,424 impact amounted to RR 35,028 thousand. Monitoring and environmental The growth in payments for negative impact assessment 69,580 environmental impact in 2015 compared to 2014 was mainly driven by the increase Subsoil protection 37,780 in water disposal by Yamal LNG due to the launch of numerous social infrastructure Environmental management 4,807 2013 2014 2015 facilities, and higher headcount in the license area. Charges for drilling waste disposal at in-house facilities (NOVATEK-YURKHAROVNEFTEGAS, Yamal LNG) grew as well. otect i on pr l a ent m on vir n E
73 NOVATEK / SUSTAINABILITY REPORT 2015 TABLE OF GRI G4 GUIDELINES AND INDUSTRY CONTENTS
PROTOCOL INDICATORS Level of disclosure External assurance
Fully none Partially Not applicable
Indicator index Section of the Report Comments Level of coverage External assurance DISCLOSURES, CHARACTERISTICS Strategy and Analysis G 4.1 Letter from the Chief Executive Officer G 4.2 Sustainability Strategy Organization Profile G 4.3 Company Profile G 4.4 Company Profile G 4.5 Company Profile G 4.6 Company Profile Report and Reporting Process G 4.7 Company Profile G 4.8 Company Profile G 4.9 Company Profile At the beginning of the reporting period, NOVATEK Group included 38 Employment Practices entities (subsidiaries and joint ventures). At the end of the reporting Economic Performance and Sustainability period, the number of entities decreased to 37 due to reorganization. G 4.10 Employment Practices G 4.11 Employment Practices G 4.12 Procurement Practices s r
G 4.13 Report and Reporting Process to a c
G 4.14 Environmental Protection di n i G 4.15 Environmental Protection G 4.16 Company Profile otocol r P
Identified Material Aspects and Boundaries y r
G 4.17 Report and Reporting Process st du G 4.18 Report and Reporting Process d In d n
G 4.19 Report and Reporting Process a nes G 4.20 Report and Reporting Process i el G 4.21 Report and Reporting Process Boundaries of all material Aspects identified are reported within the organization. G uid 4 4 G G 4.22 Economic Performance and Sustainability The Report contains no restatements of information provided in the 2014 report. f GRI o f G 4.23 In the reporting year, there were no significant changes from 2014 in ble the Scope and Aspect Boundaries. Ta
74 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Indicator index Section of the Report Comments Level of coverage External assurance
Stakeholder Engagement G 4.24 Stakeholder Engagement G 4.25 Stakeholder Engagement G 4.26 Stakeholder Engagement G 4.27 Stakeholder Engagement Report Profile G 4.28 Report and Reporting Process Reporting period: 1 January 2015 – 31 December 2015 G 4.29 Report and Reporting Process G 4.30 Report and Reporting Process G 4.31 Contact Information Investor Relations: [email protected] G 4.32 Report and Reporting Process There was no external assurance. Table of GRI G4 Guidelines Indicators G 4.33 Since 2014, the Company has not sought external assurance, with the Report internally audited by highly skilled specialists. Governance G 4.34 Corporate Governance G 4.36 The Company has appointed such positions. G 4.38 Corporate Governance In accordance with the corporate governance structure, the General Meeting of Shareholders is the Company's highest governance body. Details are provided on the Board of Directors, which acts on behalf of s
the shareholders. r to a
G 4.39 Corporate Governance c di n G 4.40 Corporate Governance Details are provided on the members of the Board of Directors. i G 4.41 Corporate Governance otocol G 4.42 Corporate Governance r P y G 4.48 The Report is officially approved by Mark Anthony Gyetvay, Deputy r
st Chairman of the Management Board. du G 4.51 Corporate Governance
In d n G 4.52 Corporate Governance a nes Ethics and Integrity i el G 4.56 Corporate Governance G uid 4 4
G 4.58 Corporate Governance G f GRI o f ble Ta
75 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Indicator index Section of the Report Comments Level of coverage External assurance
CATEGORY: ECONOMIC Economic Performance G 4-EC1 Economic Performance and Sustainability G 4-EC2 NOVATEK faces risks and implications of climate changes, as the Company’s key production sites are located in the permafrost region of the Far North. To prevent potential negative effects of climate changes and determine the permafrost soil and temperature conditions, NOVATEK Group’s fields are subject to continuous cryological monitoring, which shows that permafrost thaw risks are currently minor and have no impacts on the Company’s operations. G 4-EC3 Employment Practices Market Presence G 4-EC5 Employment Practices The Company does not pay variable wages by gender. Company Profile Indirect Economic Impacts G 4-EC7 External Social Policy Procurement Practices G 4-EC9 Procurement Practices In 2015, NOVATEK Group purchased local products and services for a total amount of RR 300 bln. Approximately 35% of those were purchased from YNAO-based suppliers.
CATEGORY: ENVIRONMENTAL Energy s
G 4-EN3 Environmental Protection Resolution of the Russian Federal State Statistics Service No. 46 dated r
23 June 1999 On Approval of Methodological Guidelines for Calculating to
a
Fuel and Energy Balance of the Russian Federation in Accordance with c
International Practices. di n i G 4-EN4 All energy is consumed by NOVATEK entities internally. G 4-EN6 Environmental Protection otocol r P
Water y r
G 4-EN8 Environmental Protection Actual water intake (according to flow meters). st Biodiversity du d In d
G 4-EN11 The Company does not operate within protected areas. n a
G 4-EN12 Environmental Protection nes i
G 4-EN13 Environmental Protection el G uid 4 4 G f GRI o f ble Ta
76 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Indicator index Section of the Report Comments Level of coverage External assurance
G 4-EN14 Snowy owl: Red Data Book of YNAO — Category 2 (rare species with decreasing population) Conservation status IUCN — LC (Least Concern) Long-tailed duck: Conservation status IUCN — VU (Vulnerable) Steller’s Eider: Conservation status IUCN — VU (Vulnerable) Bewick’s swan: Red Data Book of Russian Federation — Category 5 (rehabilitating) Red Data Book of YNAO — Category 5 (rehabilitating) Conservation status IUCN — LC (Least Concern) Emissions G 4-EN15 Environmental Protection Direct CO2 emissions from biomass burning or decomposition amount to 1.259 million tons of CO2 equivalent. Please, see NOVATEK’s annual disclosure report on GHG emissions and energy efficiency as part of the Carbon Disclosure Project at www.cdproject.net (the report is available for registered users). G 4-EN16 Environmental Protection Please, see NOVATEK’s annual disclosure report on GHG emissions and energy efficiency as part of the Carbon Disclosure Project at www.cdproject.net (the report is available for registered users). G 4-EN17 Environmental Protection Indirect CO2 emissions from biomass burning or decomposition amount to 218 tons of СО2 equivalent. Please, see NOVATEK’s annual disclosure report on GHG emissions and energy efficiency as part of the Carbon Disclosure Project at www.cdproject.net (the report is available for registered users). s G 4-EN18 Please, see NOVATEK’s annual disclosure report on GHG emissions and r to
energy efficiency as part of the Carbon Disclosure Project at a www.cdproject.net (the report is available for registered users). c di n G 4-EN19 GHG emissions were reduced by 2.639 million tons of CO2 equivalent. i
Please, see NOVATEK’s annual disclosure report on GHG emissions and otocol
energy efficiency as part of the Carbon Disclosure Project at r P
www.cdproject.net (the report is available for registered users). y r
G 4-EN20 The Company does not produce ODS emissions. st du G 4-EN21 Environmental Protection Methodologies are stated in Letter of the Russian Ministry of Natural d In d
Resources and Environment No. 05-12-47/4521 dated 29 March 2012. n a
Guidelines for calculating pollutant concentrations in enterprises’ nes i
emissions (All-Union Regulatory Document OND-86). el
Please, see NOVATEK’s annual disclosure report on GHG emissions and G uid 4 4
energy efficiency as part of the Carbon Disclosure Project at G www.cdproject.net (the report is available for registered users). f GRI o f ble Ta
77 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Indicator index Section of the Report Comments Level of coverage External assurance
Effluents and Waste G 4-EN22 Environmental Protection Actual waste water (according to flow meters). G 4-EN23 Environmental Protection G 4-EN24 There were no significant spills in the reporting year. G 4-EN25 Environmental Protection The Company does not transport hazardous waste.
COMPLIANCE Transport G 4-EN30 Environmental Protection Overall G 4-EN31 Environmental Protection
LABOR PRACTICES AND DECENT WORK Employment G 4-LA1 Employment Practices G 4-LA2 Employment Practices Company Profile Labor/Management Relations G 4-LA4 Under the Russian law, the minimum notice period as regards the Company’s significant operational changes is 8 weeks. Incorporated s
into the collective bargaining agreement. r to
Occupational Health and Safety a c
G 4-LA5 There are no joint management-worker health and safety committees. di
n i G 4-LA6 Occupational Health and Safety
G 4-LA7 There are no records of occupational illnesses. There are no otocol
r
employees with high incidence. P y G 4-LA8 Employment Practices r
st
Training and Education du d In d
G 4-LA9 Employment Practices n a G 4-LA10 Employment Practices nes i
G 4-LA11 Employment Practices el
Diversity and Equal Opportunity G uid 4 4 G 4-LA12 Employment Practices G Equal Remuneration for Women and Men f GRI o f
G 4-LA13 Basic salary and remuneration of women and men are equal at ble
NOVATEK. Ta
78 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Indicator index Section of the Report Comments Level of coverage External assurance
Labor Practices Grievance Mechanisms G 4-LA16 There were no grievances about labor practices filed. Non-discrimination G4-HR3 There were no incidents of discrimination identified during the reporting period. G 4-HR4 There were no operations identified in which employee rights to exercise freedom of association or collective bargaining may be violated or at significant risk. Child Labor G 4-HR5 The Company does not use child labor. There were no operations identified as having significant risk for incidents of child labor. Forced or Compulsory Labor G 4-HR6 There were no operations identified as having significant risk for incidents of forced or compulsory labor. Indigenous Rights G 4-HR8 There are no records of incidents of violations involving the rights of indigenous peoples. Human Rights Grievance Mechanisms G 4-HR12 There were no grievances about human rights impacts filed.
SOCIETY Local Communities
G 4-SO1 External Social Policy s r Stakeholder Engagement to
Environmental Protection a c di
Anti-corruption n i G 4-SO3 No operations were assessed for risks related to corruption.
G 4-SO4 Corporate Governance otocol r P G 4-SO5 There were no confirmed incidents of corruption. y r
Public Policy st du G 4-SO6 NOVATEK does not make political contributions. d In d n
Oil & Gas sector specific disclosures a
OG1 Economic Performance and Sustainability nes
i OG2 Environmental Protection The Company did not invest in renewable energy. el G uid
OG3 There is no record of generated renewable energy. 4 G OG4 Environmental Protection
OG5 The volume of formation or produced water amounted to 337 GRI o f
ble thousand cubic meters. Ta OG6 Environmental Protection
79 NOVATEK / SUSTAINABILITY REPORT 2015 CONTENTS
Indicator index Section of the Report Comments Level of coverage External assurance
OG7 Environmental Protection OG8 There are no benzene, lead, or sulfur in produced fuels. OG9 External Social Policy OG10 There were no disputes with local communities. OG11 No sites are being decommissioned or have been decommissioned. OG12 The Company was not engaged in operations where involuntary resettlement took place. OG13 Occupational Health and Safety Environmental Protection OG14 The Company does not produce or purchase biofuels. s r to a c di n i otocol r P y r st du d In d n a nes i el G uid 4 4 G f GRI o f ble Ta
80 NOVATEK / SUSTAINABILITY REPORT 2015 ABBREVIATIONS CONTENTS
AZK fuel filling complex UNITS OF MEASUREMENT GDR Global Depositary Receipt boe barrels of oil equivalent IMS Integrated Management System for Environmental Protection, GJ gigajoule Occupational Health and Safety Gcal gigacalorie IFRS International Financial Reporting Standards kWh kilowatt hour associated petroleum gas APG cu. m cubic meter(s) RAS Russian Accounting Standards mln million LNG liquified natural gas bln billion LPG liquid petroleum gases t ton(s) FZ Federal Law toe ton of oil equivalent NGL natural gas liquid th. thousand NGO Non Government Organisation YNAO Yamal-Nenets Autonomous Region
CDP Carbon Disclosure Project GRI Global Reporting Initiative ISO International Organization for Standardization OHSAS Occupational Health and Safety Management Systems PRMS Petroleum Resources Management System SEC US Securities and Exchange Commission WWF World Wildlife Fund ons i t via e Abb r
81 NOVATEK / SUSTAINABILITY REPORT 2015 CONTACT DETAILS
MOSCOW OFFICE: PRESS SERVICE: SECURITY HOTLINE: 2 Udaltsova St., Moscow, 119415, Russia +7 495 721-22-07, e-mail: [email protected] +7 495 232 3959 e-mail: [email protected] CENTRAL INFORMATION SERVICE: INVESTOR RELATIONS: +7 495 730 6000, fax: +7 495 721 2253 +7 495 730 6013, e-mail: [email protected] e-mail: [email protected]
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