Press Conference Mineral and Raw Material Base Development. Gas Production

Press Conference Mineral and Raw Material Base Development. Gas Production. Gas Transmission System Development May 19, 2015

MODERATOR: Good morning, colleagues. Our meeting today is dedicated to Gazprom’s production business. We will talk about the mineral and raw material base, gas production and gas transmission system development. Participants: — Vitaly Markelov, Deputy Chairman of the Management Committee (in charge of the production block); — Oleg Aksyutin, Member of the Management Committee, Department Head (Gas Transportation and Underground Storage); — Dmitry Lyugai, Member of the Management Committee, Department Head (Prospective Development); — Sergey Prozorov, Member of the Management Committee, Department Head (Organization and Management of Industrial Facilities Construction); — Vsevolod Cherepanov, Member of the Management Committee, Department Head (Hydrocarbon Exploration and Production). We are ready to move on to your questions right away. QUESTION: Anastasia Goreva, Argus Media. I have several questions on production and transportation. What is the maximum daily gas production rate at the Bovanenkovskoye field at present? What do you expect it to be by the heating season? Are you going to boost it? And how? What is the annual capacity of the Bovanenkovo – Ukhta gas trunkline system? I know its production potential is about 90 billion cubic meters of gas per year, but what transmission capacity does it have? As for TurkStream, what about pipes procured for South Stream? Are you going to use all of them for TurkStream or are there any other options? VITALY MARKELOV: Last year Gazprom’s production potential reached some 1.648 billion cubic meters of gas daily. This year it will be about 1.5 billion cubic meters of gas daily. We continue building up the Bovanenkovskoye field production capacities, as it is our primary resource base. We are boosting production from this field; in 2015 we expect it to reach 48 billion cubic meters of gas. But we actually hope to get 51 billion cubic meters of gas this year. In addition, I think we’ll manage to produce 218 million cubic meters daily from the Bovanenkovskoye field by the fourth quarter of 2015. We will also develop the Bovanenkovo – Ukhta transmission capacities. ANASTASIA GOREVA: What is the annual capacity of Bovanenkovo – Ukhta? VITALY MARKELOV: 218 million cubic meters daily, that is over 70 billion cubic meters of gas annually. Here we mean the maximum daily gas production rate in the winter period – around 218 million cubic meters of gas daily. As for South Stream, Mr. Aksyutin will tell you about the pipes. OLEG AKSYUTIN: The pipes procured for the South Stream project will be fully used in the TurkStream project. ANASTASIA GOREVA: Are they already in store or yet to be manufactured?

OLEG AKSYUTIN: The majority of the pipes have already been manufactured; presently they are kept at special storage yards. VITALY MARKELOV: They are still being worked on – welded into sections and prepared for the construction of TurkStream, namely its offshore section. QUESTION: Sofia Dvornik, Rossiya Segodnya agency. I have two questions. The first one is about your 2015 production plans. For some reason you haven’t included this forecast into your presentation. My second question concerns your plans for the shelf development – not across Gazprom Group as a whole but in Gazprom in particular. VSEVOLOD CHEREPANOV: Our gas production plan stipulated producing 485.6 billion cubic meters. We have already adjusted it by 16 billion cubic meters after the first quarter. We expect it to amount to some 450 billion cubic meters of gas at year-end, which is commensurate with last year’s results. As for our plans for the shelf, we always make big announcements about them. Nothing has changed there. We operate at the Kirinskoye and Yuzhno-Kirinskoye fields (on the shelf of the Sea of Okhotsk). We also carry out seismic surveys in the Sea of Okhotsk as well as at certain prospects in the Barents and Kara Seas. SOFIA DVORNIK: I’m interested in your Arctic shelf development plans. VSEVOLOD CHEREPANOV: We have no drilling plans for the Arctic shelf in 2015. However, there are plans for 3D seismic surveys covering some 10 thousand square kilometers. VITALY MARKELOV: We’re also engaged in exploratory drilling at the Yuzhno-Kirinskoye field. VSEVOLOD CHEREPANOV: That’s right, geological exploration is underway; two wells will be drilled at the Yuzhno-Kirinskoye field. VITALY MARKELOV: I’d like to say a few words about the shelf. Last winter the development of the Kirinskoye field was launched, securing gas supplies to consumers in the Russian Far East. In summer we put the Kirinskoye field on hold because in the summer period we are technologically incapable to offtake gas. That’s why we’ll re-launch it for the 2015–2016 autumn/winter period. Today the Russian Far East receives gas from Sakhalin I and Sakhalin II. QUESTION: Svetlana Savateeva, Interfax agency. Mr. Markelov, you said that Gazprom’s production capacity had dropped to 1.5 billion cubic meters of gas daily. What is the reason for that? As for Gazprom Georesource, what is done by the company itself and what is delegated to subcontractors? I would also like to hear about the new bids for the Power of Siberia gas pipeline construction. One of the subcontractors has already been chosen. Have you distributed contracts for other sections as well? VITALY MARKELOV: Our production potential amounts to some 610 billion cubic meters of gas annually. Speaking of the maximum daily gas production rate, its decrease is caused by a production drop in the Nadym-Pur-Taz region. Last December we launched Gas Facility No. 1 with the annual capacity of 30 billion cubic meters of gas at the Bovanenkovskoye field. For the winter period we made preparations for the maximum daily gas production rate, taking into account the gas output from independent producers. So we ensure gas supplies to consumers in Russia and abroad to the full extent. As for Power of Siberia, we have a contractor for a 208-kilometer stretch; it is Stroytransgaz. The construction of this section from the Chayandinskoye field to Lensk is currently underway. The construction conditions are rather complicated, but about 15 kilometers of the linear section have already been welded. As for the other sections, tender documents are being prepared and will be completed in 2015 in compliance with the schedule.

VSEVOLOD CHEREPANOV: As for Gazprom Georesource, it is a wholly-owned subsidiary of Gazprom, mostly focused on servicing activities including exploratory geophysics, borehole geophysics, well overhaul, diagnostics, equipment manufacturing, and field-specific activities. In general, the contractors’ share in overhaul and diagnostics is about 20 per cent. As for geophysical surveys and well operations, they conduct them using their own resources, meeting 90 per cent of Gazprom’s demand. It is a good service subsidiary: it is very effective and we are satisfied with it. SVETLANA SAVATEEVA: I also have a question on import substitution. It is known that the bulk of Gazprom’s substituted imports accounts for Ukrainian products. Can you say when you plan to completely stop using the products, spare parts and services of Sumy Machine-Building Science-and- Production Association and the Zorya-Mashproekt Gas Turbine Scientific Production Complex? VITALY MARKELOV: We do not purchase Ukrainian equipment under any contracts at present. We supply equipment made by Russian manufacturers only. Speaking of the equipment manufactured at Ukrainian plants, the same is manufactured by Russian companies, including gas compressor units and compressor equipment for gas pumping. Today we have no contracts with Ukrainian companies. As for spare parts, we organized the repairs of Ukrainian gas compressor units at our plant in Tyumen, which is a part of Gazprom Tsentrremont. QUESTION: Mikhail Serov, Vedomosti newspaper. I have two clarification questions. Regarding Power of Siberia, can you already say what the contract price for the construction of the first section is? It was reported it was a framework contract. Could you, perhaps, specify the scope? Speaking about the shelf, a law is currently under discussion as regards providing independent oil producers with access to the shelf. What is the Company’s opinion on this idea? How reasonable do you think it is? VITALY MARKELOV: Regarding the Power of Siberia contracts, you are asking a question that can’t be answered, because this is a confidential matter. As for the shelf, it is a very vulnerable biological environment, especially the Arctic shelf. That is why only companies with experience of working on the shelf should operate there. Gazprom is among the few Russian companies which really work on the shelf today. You know the projects we implement on the shelf of the Sea of Okhotsk. By the way, we employ the most cutting-edge methods of drilling, geological exploration and field development using subsea production facilities. I think we are in the forefront of R&D support for offshore operations right now. As for the Arctic shelf, Gazprom owns a huge fleet for working on the shelf. We have about six platforms we can use. As you know, last year we offloaded the first oil cargo from the Prirazlomnaya platform (Gazprom Neft). Currently Prirazlomnaya is in successful operation. Companies have to be thoroughly prepared to work on the shelf. I think that both Gazprom and our subsidiaries take the matter very seriously. That is why we consider and bring forward proposals for our subsidiary companies to participate. Gazprom is a holding company comprised of production companies, service companies and so on, which, among other things, conduct a broad range of technological operations on the shelf. That’s why we suggest that subsidiary companies take part in offshore operations as well. VSEVOLOD CHEREPANOV: I’d like to give some more details in the context of the said draft law and access expansion for other companies. We have always been in favor of giving such access and the possibility of obtaining licenses to our subsidiary companies which possess expertise in offshore operations and have a long-term track record. As for the general approach currently under discussion in respect of independent producers, etc., it should be noted that among the independent companies everyone has in mind, LUKOIL, for example, has experience in operations in the waters, not on the shelf, of the Caspian and Baltic Seas. We invite them to be our partners in our offshore projects. Such negotiations are underway; we are ready to offer a number of blocks, certain areas where LUKOIL can participate in our projects by virtue of its expertise. 3

QUESTION: Elena Mazneva, Bloomberg agency. I’d like to get something straight about TurkStream. Is there a scheduled date for the actual start of its laying? EUROPIPE announced yesterday that the restrictions on pipe supply had been lifted, which means that the laying will start sometime soon. As for the Altai project, it is clear that there is no firm contract with China yet, but there might be some kind of a completed gas pipeline feasibility study. What is the latest estimate of the gas pipeline cost and within what timeframe can it be constructed? How many kilometers of the Power of Siberia pipeline do you plan to lay this year? OLEG AKSYUTIN: We certainly have some laying plans. EUROPIPE’s announcement is true: the contract suspension and restrictions have been lifted, including those concerning construction operations. As you know, we have a contract with Saipem on the first pipeline string. Two vessels will work there, depending on the laying conditions. Shallow-water operations will start in early June. VITALY MARKELOV: As for the Altai gas pipeline, we completed the Investment Rationale in 2008. Today we are updating it. I can’t tell you just yet when it will be ready. We haven’t signed a contract on the Investment Rationale yet. Certain steps will be taken for implementing the Altai project once the contract is concluded. As for Power of Siberia, we planned to construct 43 kilometers of the linear section. We’ll see, maybe we’ll manage to make it 50 kilometers this year. We have just started working at this section of Power of Siberia and we are well aware of the difficulties related to implementing such a large-scale project. QUESTION: Anastasia Astrashevskaya, Platts agency. Why did you adjust this year’s production forecast downwards? And how will the sanctions and oil prices affect your production? VITALY MARKELOV: I’ve already told you that our production potential was around 610 billion cubic meters of gas per year. We adjusted the forecast based on the results of the first quarter because of the Ukrainian factor and the warm winter in Europe. We hope that consumption will be a bit higher in summer. We haven’t closed the gap in our performance targets caused by this drop yet. We hope next winter will be cold in Europe. QUESTION: Lyudmila Podobedova, RBC Daily newspaper. I’m interested whether Rosneft submitted some kind of rationale for the domestic market as to where they’d like to supply gas via Power of Siberia. Are you still adamant that only Gazprom’s gas will be supplied via the pipeline or could independent producers deliver gas through the pipeline under certain conditions? If so, what would they be? VITALY MARKELOV: The conditions of access to the gas trunkline system are outlined in a Russian Government’s Directive – it’s a publicly available document. All the necessary conditions should be observed. To inject their gas into the pipe, they should have a clear understanding of where to supply it. So far Rosneft hasn’t provided us with a list of its consumers to be supplied with gas via the Power of Siberia pipeline. We are currently accepting proposals from Rosneft on gas deliveries via Power of Siberia. We are mostly exchanging correspondence right now. QUESTION: Vladimir Soldatkin, Reuters agency. Could you please provide us with details on production in April or from January to April? Why did Gazprom stop publishing production data through CDU TEK? VITALY MARKELOV: We can’t answer for CDU TEK, which is a ministry department. You should ask them why they do not publish it, not Gazprom. We provide all the necessary data. In April gas production totaled 33.6 billion cubic meters, the original plan being 35.6 billion cubic meters. The factors I have already mentioned affected April’s production as well. VSEVOLOD CHEREPANOV: Every month we produce some 31 billion cubic meters of gas on average. That makes about 91 to 92 billion cubic meters per quarter. Yes, it’s a bit lower now. I’ve already said that in the first quarter we adjusted our plan by 16 billion cubic meters. The second

quarter’s plan will be adjusted by some 14 to 15 billion cubic meters. The specific numbers are available, CDU TEK always publishes them. QUESTION: Vitaly Sokolov, Energy Intelligence agency. My first question is whether Gazprom Neft participates in the development of the oil rim in the Chayandinskoye field? Previously it was announced that Gazprom Neft might take part in it. If I understand it correctly, now Gazprom works there by itself, doesn’t it? If Gazprom Neft doesn’t participate, why did you decide not to involve them? When will the oil rim development be completed and when will you start exploiting the Chayandinskoye field’s gas resources? One more question concerning exports to China. Your five-year strategic partnership agreement envisages export growth. How can exports be boosted via both western and eastern routes? As for the eastern route, I’d like to learn more about Gazprom’s stance on giving independent producers access to export markets. That’s what is currently being discussed at the Russian Energy Ministry. And can gas from Sakhalin be supplied to China via the pipeline? VITALY MARKELOV: Gas from Sakhalin may be supplied to China, but that’s rather a matter of negotiation. We have ample potential for production in the east of Russia, but it is currently restricted by the contract. As a matter of fact, we have a very decent resource base, including the Chayandinskoye field and the Kovyktinskoye field. By developing them we could produce more than the amount presently stipulated by the contract. As for independent producers, once again, that’s a question of access and boosting gas volumes. To say that we are working on boosting them… Let us sign the contract first. It’s a very complex facility, which provides not only for field development but also for the construction of a linear section of the gas trunkline with compressor stations under harsh conditions: no people, harsh climate… Plus, there is a gas processing complex near the town of Svobodny. It’s the kind of a facility Gazprom has never had before, with interrelated components. We’ll consider boosting gas volumes once we start supplying gas at least. China’s gas demand is currently the same as outlined in the contract. I should say that CNPC, our partners under this contract, will start constructing the extension of the Power of Siberia pipeline in June. That is to say, they’ll start working on their section. Gazprom Neft takes part in developing the oil rim of the Chayandinskoye field. Gazpromneft- Zapolyarye operates there. Just a couple of days ago Gazprom Bureniye started drilling four wells. This week we’ll have an onsite meeting in Lensk dedicated to the construction of Power of Siberia: we’ll look at the progress of drilling operations and the construction of the linear section. VITALY SOKOLOV: When will the oil rim development be completed? When will you start producing gas? VSEVOLOD CHEREPANOV: In 2016 we’ll complete the pilot commercial operation. There are several categories of wells in the field: two appraisal wells, three gas control ones and six wells for pilot commercial development. After that we’ll re-estimate the reserves, look at the deposit’s behavior, consider the ways of developing the technology, update the project plan and continue drilling production wells. QUESTION: Dmitry Bandura, Nikkei newspaper. What is this year’s production plan for Sakhalin II? Does it provide for larger or smaller volumes than last year? VSEVOLOD CHEREPANOV: Last year we produced 17.6 billion cubic meters of gas and 3.6 million tons of oil there. This year it will be about 16 or 17 billion cubic meters of gas. DMITRY BANDURA: What is this drop caused by? VSEVOLOD CHEREPANOV: There was no drop. On the contrary, we increased our oil production last year. The plan was less than three million tons, but we extracted more. It depends on the contracts and gas batches. We extract about 80 thousand barrels of oil a day there. That’s why it depends on the demand and contract batches.

QUESTION: Mikhail Serov, Vedomosti newspaper. Recently Gazprom posted on its website the documents concerning its transmission capacity development, including investment volumes, deadlines, etc. According to the documents, there is a cost estimate for the Power of Siberia project in 2011 terms: RUB 800 billion, with a length of 3,250 kilometers and a completion deadline in 2022. As I understand it, that’s the length of the section from the Chayandinskoye field to Vladivostok. Does it mean that by 2022 Gazprom plans to lay Power of Siberia as far as Vladivostok and if it does, what for? My second question is the following. The section from the Chayandinskoye field to the Chinese border is 1,100 kilometers shorter (that is, by one-third). Does it mean that the price of this pipeline should also be one-third lower than RUB 800 billion? VITALY MARKELOV: When compiling the Investment Rationale, we considered various options of gas supply – to China, to Vladivostok, and so on. But since the Sakhalin resource base allows for delivering gas to all of Gazprom’s projects in the Russian Far East, we do not plan to construct a gas trunkline to Vladivostok. The Power of Siberia project design has been approved. It includes the linear section of the gas trunkline: phase I, from the Chayandinskoye field to Blagoveshchensk, covers 2,160 kilometers of the linear section. I can’t tell you the exact cost of the linear section as for now. I mean the project documents. You mentioned the Investment Rationale, which was compiled back in 2012. Today the prices in the project documents are totally different from the ones in the Investment Rationale. I can’t even tell you the exact figures by sections. QUESTION: Anastasia Goreva, Argus Media agency. Are you considering the option of supplying gas from Sakhalin fields to China via the existing gas pipeline before it is delivered there by Power of Siberia, taking into account the difficulties you’ve mentioned related to the Power of Siberia construction? Basically, it is easier to supply gas from Sakhalin, since the Kirinskoye field is operationally ready. VITALY MARKELOV: The Kirinskoye field is aimed at meeting gas demand in the Russian Far East. ANASTASIA GOREVA: So, you are not considering this option, are you? VITALY MARKELOV: No, we are not. ANASTASIA GOREVA: Does it mean that gas will be supplied to China only from the Yuzhno- Kirinskoye field, where the current situation is unclear? VITALY MARKELOV: Right now we are involved in design operations at the Yuzhno-Kirinskoye field. We are carrying out geological exploration there and preparing the field for development. As you know, we also have the Vladivostok LNG project, which is to be supplied with gas from the Yuzhno- Kirinskoye field. ANASTASIA GOREVA: My question is whether you are considering the option of supplying gas to China from the Sakhalin fields before it is delivered from the Chayandinskoye field via Power of Siberia? VITALY MARKELOV: We do not have such a project today, but we do have the Power of Siberia project. If we have a new project, it will certainly be implemented after Power of Siberia. ANASTASIA GOREVA: One more question: when conducting the feasibility study for the Altai project, are you considering the possibility of connecting the Kovyktinskoye field to the Altai pipeline? Do you know how much gas from the Kovyktinskoye field will be fed into Altai and how much to Power of Siberia? VITALY MARKELOV: The fields in Western Siberia are Altai’s resource base. ANASTASIA GOREVA: But production in Nadym is declining, isn’t it? VITALY MARKELOV: We have the Bovanenkovskoye field, Yamal, Gydan.

ANASTASIA GOREVA: But Yamal is not connected to the gas pipeline system that Altai will be linked to, is it? VITALY MARKELOV: We have enough resources in Western Siberia for the Altai project. ANASTASIA GOREVA: Does it mean that presently you are not considering the possibility of linking the Kovyktinskoye field and Altai? VITALY MARKELOV: We are not. Do you realize how immense the distance between the Kovyktinskoye field and Proskokovo in the Kemerovo Region is? ANASTASIA GOREVA: It’s about 1,200 kilometers. That’s a lot, but we have a big country. VITALY MARKELOV: Big investments... QUESTION: Lyudmila Podobedova, RBC Daily newspaper. Mr. Lyugai, there was an emergency situation at Gazprom VNIIGAZ a month ago, when the employees’ wages were held back and they were paid only RUB 14 thousand. That debt was settled afterwards, but a debt to contractors still remains. And the financial situation at Gazprom VNIIGAZ is not very favorable in general. Why is it so, in your opinion? Can Gazprom help in any way? Had they, perhaps, failed to complete some jobs on time and that’s why they were not paid? A question to Mr. Markelov: will any Chinese equipment or workforce be used within the Power of Siberia project and will there be any Chinese technologies or companies involved? DMITRY LYUGAI: I am pleasantly surprised that you monitor the situation at our subsidiaries. In fact, the emergency situation you are referring to was caused by certain tardiness on the part of the company’s management who hadn’t sped up the payments for the works performed. A week’s delay was caused by the delay in payments under the already drawn up acts. And a few words about the stabilization and restructuring of the sci-tech complex. In compliance with Gazprom’s Order dated November 27, 2013, steps are being taken to restructure the sci-tech complex. They are aimed at resolving the issues you’ve mentioned. Gazprom’s sci-tech complex was created with a view to solve tasks promptly and to the highest standard, but there are some federal laws which require that R&D projects be put up for tenders. It’s only natural that we have a certain discrepancy with that, because the law does not account for Gazprom’s specialized sci-tech complex which has supported our activities for many decades. You can’t help but admit that it’s a bit inappropriate to put our R&D projects up for tenders, including the ones regarding the important facilities you’ve touched upon. I think we’ll return to this matter a bit later, once we’re done with restructuring. Then we’ll be able to discuss it in more detail. VITALY MARKELOV: The Power of Siberia gas pipeline will be furnished with mostly Russian equipment and materials. We instructed our production block to use Russian technologies and equipment for Power of Siberia. Russian equipment and materials will be used to the maximum extent possible. That’s the task we’ve set for ourselves. You’ll be pleasantly surprised when the gas pipeline is completed. As for using Chinese equipment, during our talks with CNPC, the Chinese party offered to provide us with Chinese material resources, equipment and workforce. I’ve already noted that Russian manufacturers would meet our demand for equipment and materials. Our construction companies are able to construct the Power of Siberia gas pipeline themselves. It is for each construction company to decide what kind of construction machinery and equipment to use in onsite operations, be it Chinese, Japanese, American or Russian. It should be powerful, because Power of Siberia is a very complex facility. LYUDMILA PODOBEDOVA: I also have a clarification question on import substitution. What Russian machinery and technologies for Power of Siberia do you lack and would like to have? Have you, perhaps, already commissioned them and when will they be ready? VITALY MARKELOV: The gas trunkline is under construction with the use of Russian technologies and equipment. We see no problem with applying Russian technologies at production facilities either.

The stage of design and technology selection at the gas processing plant is nearing completion. Two consortiums are engaged in these works: PETON (Russia) with Linde (Germany) and Kompressormash (Russia) with Air Liquide (France). We are carrying out design and technology selection procedures; there will be some foreign equipment there, but I can’t tell you yet to which extent. The final design is not yet completed. Our work on the design is drawing to a close. The gas processing plant is an immense project unrivalled in the history of the Gas Industry Ministry and Gazprom. It will be four times bigger than the Orenburg gas processing plant. Do you remember who worked in Orenburg? Viktor Chernomyrdin and Rem Vyakhirev. We are going to build a facility even bigger than the Orenburg one. Four times bigger. QUESTION: Svetlana Savateeva, Interfax agency. Mr. Lyugai, what is the consolidation perimeter of Gazprom Nauka? Mr. Markelov, you said that in the winter period you had managed to meet the gas demand with the help of independent producers. Could you please say how much you purchased from independent producers in the first quarter? Also, could you please give some details on the terms and conditions of your contract for the design of Amur GPP with SIBUR’s design institute? DMITRY LYUGAI: Let us return to this question once we complete that project. I told you that the issue of restructuring had been under consideration since late 2013. Gazprom Nauka is an option which is being looked into. A decision has been made to set up a lead research center based on the multipurpose R&D institute, that is true. It seems to me that it is not the name that matters, but the content and a comprehensive solution to the challenge of ensuring continuous and efficient operation of the sci-tech complex. VITALY MARKELOV: You’ll have a separate Press Conference dedicated to marketing. You could probably ask for some details there. As for the details on the contract with SIBUR’s institute, what terms and conditions are you interested in? SVETLANA SAVATEEVA: Price conditions, for example. VITALY MARKELOV: Do you want me to disclose a commercial secret? I’ll have to resign if I do. Right now SIBUR is focused on designing the off-site facilities. They are our contractors within this project. MODERATOR: Thank you very much. The Press Conference is over.