2015 ANNUAL REPORT Contents
ABOUT NAVIGATING Link THE COMPANY THE REPORT to the Annual Report
Link to the website
2015 key indicators 2 The Company today 4 Regions of operation 4 View the online version Major events of 2015 5 of the 2015 Annual Report at: http://ar2015.gazprom-neft.com/
06 08 MESSAGE FROM MESSAGE FROM THE CHAIRMAN THE CHAIRMAN OF THE BOARD OF THE MANAGEMENT OF DIRECTORS BOARD
10 36 OPERATING STRATEGIC REPORT RESULTS
Market challenges 12 Hydrocarbon balance 38 Raw materials base 38 Oil and petroleum products market 14 Production 39 Global energy balance 14 Global oil consumption 15 Oil refining 43 Global oil production 18 Oil refining assets 44 Global investment in oil 20 Oil refining at joint venture oil refineries 45 Global market in 2016 20 Sale of oil and petroleum products 46 Oil production and refining Sales of oil and petroleum products in the Russian Federation 21 on the domestic market 46 Strategy in action 23 Export sales 47 Strategic benchmarks for 2025 23 Sale of petroleum products Results of 2015 and strategic priorities for 2016 27 by product business units 49 Petrochemistry 53 Highly-efficient business model 28 R&D and innovation 54 Investment appeal factors 30 Innovations in production 54 Focus on high value-added products 30 Innovations in refining and sales 56 Leadership 31 Opportunities for investors 32 Success of the chosen strategy and future growth 34 58 82 FINANCIAL MANAGEMENT RESULTS SYSTEM
Key financial results 60 Corporate governance 84 Message for shareholders and investors 84 Sales revenue 61 Description of corporate governance practice 85 Expenses and other costs 65 Corporate governance system 87 EBITDA and net profit 68 Key risk factors 113 Cash flows 69 Interaction with investors; debt and equity capital 121 Capital investments 70 Equity capital 121 Debt and liquidity 70 Listing 122 Participation in depository receipts programme 124 Financial ratios 71 Debt portfolio management and credit ratings 124 Dividend history 127 Main macroeconomic factors affecting Mechanisms of interaction with investors 128 performance results 72 Q&A 130 Taxation 73 Transportation of oil and petroleum products 80
130 146 SUSTAINABLE APPENDIX DEVELOPMENT
Industrial, environmental Independent Auditor’s Report on 2015 148 and occupational safety 133 Appendix 1. Consolidated IFRS Industrial and occupational safety 134 financial statements 150 Environmental responsibility 135 Appendix 2. Major transactions Energy efficiency 139 and related party transactions 209 Exploration and production unit 139 Logistics, processing and sales unit 140 Appendix 3. Company history 217 Human resource development 141 Appendix 4. Structure of the Company’s Group 221 Profile of personnel 141 Remuneration and social support for personnel 142 Appendix 5. Glossary 223 Personnel training and development 142 Appendix 6. Information about the use Regional policy and development of energy resources by Gazprom Neft PJSC 227 of local communities 143 Disclaimer 228 ‘Native Towns’ 143 Corporate volunteering 145 Addresses and contacts 229
The Gazprom Neft PJSC Annual Report was approved by the Annual General Meeting of Company Shareholders on 10 June 2016, Minutes No. 0101/01 dated 14 June 2016. About the Company
2015 key indicators
PRODUCTION OF MARKETABLE HYDROCARBONS PROVEN HYDROCARBON RESERVES1 (PRMS-SPE) // mn TOE BY GAZPROM NEFT // mn TOE
Source: Company data Source: Company data 79.70 1,443 1,518 1,343 ↗5.2% 66.25 ↗20.3% 62.26 1,130 1,200 59.71 1,518 mn TOE 57.25 79.70 mn TOE
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
1 Excluding NIS a.d. Novi Sad.
OIL REFINING // mn t SALES // RUB bn
Source: Company data Source: Company data
43.34 43.48 40.49 42.63 43.07 ↘0.9% ↘2.1% 1,691 1,656 1,519 1,504 43.07 mn t 1,292 RUB 1,656 bn
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
PROFIT ATTRIBUTABLE TO GAZPROM NEFT PJSC SHAREHOLDERS // RUB bn ADJUSTED EBITDA // RUB bn
Source: Company data Source: Company data
176.3 177.9 ↘10.2% 405 ↗18.2% 160.4 323 337 343 RUB bn 300 122.1 109.7 RUB 405 bn 109.7
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
The text of the Report may contain inaccuracies in the calculation of proportions, percentages and amounts when rounding estimated values. The data cited in the Annual Report may differ slightly from previously published data due to the difference in rounding.
2 GAZPROM NEFT // 2015 ANNUAL REPORT PREMIUM SALES OF JET FUEL2 // mn t PREMIUM SALES OF MARINE FUEL2 // mn t
Source: Company data Source: Company data
2.84 2.80 ↘1.4% 4.20 ↘6.7% 3.92 2.39 2.07 2.80 mn t 3.22 3.92 mn t 1.64 2.58 2.16
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
PREMIUM SALES OF BITUMEN2 // mn t PREMIUM SALES OF OILS AND LUBRICANTS2 // mn t
Source: Company data Source: Company data
0.06 ↗50.0% 0.23 ↗21.1% 0.19 0.06 mn t 0.17 0.23 mn t 0.04 0.14 0.03 0.03 0.12
0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
NET CASH GENERATED FROM OPERATING ACTIVITIES // RUB bn 2 Premium sales include: – Sales of petroleum products through premium sales channels – retail Source: Company data and wholesale. This group includes all sales of petroleum products via petrol stations 277 284 285 ↗0.4% and petroleum storage depots, for aircraft and vessels and small-scale 248 wholesale from refuelling facilitieфs at airports and port terminals. – Sales of packaged petroleum products. 181 RUB 285 bn This group includes all oil sales in barrels and canisters as well as bitumen sales in clovertainers, etc. – Sales of premium petroleum products, i.e. petroleum products that generate added value due to the presence of certain qualitative features compared with other products of their kind. This group includes the sale of premium bulk lubricants (Gazpromneft, G-Family, Texaco), premium bituminous materials (polymer-bitumen binders, PMB, bituminous emulsions, etc.) and the possible wholesale of premium 2011 2012 2013 2014 2015 motor fuels – G-Drive, etc.
www.gazprom-neft.com 3 About the Company
The Company today
Gazprom Neft is a vertically integrated oil company whose principal activities include the exploration, development, production and sale of crude oil and gas as well as the production and sale of petroleum products. In terms of proven hydrocarbon reserves according to SPE (PRMS) classification, Gazprom Neft is comparable with the top 20 largest oil companies in the world.
The Company operates in Russia’s largest oil and gas regions and also has production projects outside of Russia in such countries as Iraq and Venezuela, among others. The Company’s primary refining facilities are located in Russia’s Omsk, Moscow and Yaroslavl Regions in addition to Serbia.
Gazprom Neft is currently a major player on the energy market. The Company produces and supplies a broad range of petroleum products for a number of industries both in Russia and abroad. Regions of operation
The online version of the Annual Report contains additional information about the distribution by region of: Angola Italy Romania Bulgaria Kazakhstan Serbia ↗↗new projects; Bosnia and Herzegovina Kyrgyzstan Tajikistan geological prospecting; ↗↗ Hungary Latvia Ukraine ↗↗production projects; ↗↗refining and sales assets; Venezuela Republic of Belarus Estonia ↗↗average number of employees. Iraq Russia
4 GAZPROM NEFT // 2015 ANNUAL REPORT Major events of 2015
MILESTONES OF 2015 JANUARY 2016 MARCH 2016 ↗↗Gazprom Neft’s project to develop catalyst ↗↗Took over operational control of the Sarqala production was granted national status; field in the Kurdish region of Iraq. ↗↗Start of work to explore Bazhenov Formation reserves at the Vyngayakhinskoye field in the Yamalo-Nenets Autonomous Distric.
2016 FEBRUARY 2016 DECEMBER ↗↗Successful testing of the first Russian-made hydrotreating catalyst at the Omsk Oil ↗↗Completed reconstruction of a crude oil Refinery; processing complex at the Omsk Oil Refinery ↗↗The Company is awarded the title of best and reconstruction of the KT-1/1 atmospheric employer in Russia; residue deep conversion complex. NOVEMBER ↗↗Acquisition of a 75% stake in the charter capital of LLC NOVA-Brit, the owner of an innovative bitumen materials plant. ↗↗Production of the one millionth tonne of oil at the Prirazlomnoye field; OCTOBER ↗↗Start of construction on the first icebreaking supply vessel for the Novy Port project.
↗↗Obtained a certificate of compliance with the ISO 50001 Energy Management System Standard. SEPTEMBER
↗↗Launch of the South Priobskoye Gas Processing AUGUST Plant jointly with SIBUR; ↗↗Completed construction on the Arctic terminal at the Novoportovskoye field. ↗↗Start of offshore geological exploration of the East Siberian and Chukchi Seas; ↗↗First pilot batch of needle coke obtained at the Omsk Oil Refinery; ↗↗The Company’s stake in SeverEnergia (Arcticgas) JULY increased to 46.7% from 45.1%. ↗↗Construction launched on Russia’s largest complex gas treatment plant at the JUNE Novoportovskoye field.
↗↗Establishment of a technopark in Omsk with advanced industrial automation developments. APRIL
↗↗The Moscow Oil Refinery becomes the first Russian oil refining enterprise to install MARCH an automated air monitoring system.
↗↗Chinese rating agency Dagong assigns Gazprom Neft a high credit rating of ‘АА-’; ↗↗The Company’s stake in CJSC Northgas increases FEBRUARY to 50%; ↗↗Acquisition of a large-capacity bunkering tanker for operations in the Black Sea. ↗↗Completed the first stage of the exploration of Bazhenov Formation reserves at the South Priobskoye field in the Khanty-Mansi Autonomous District-Yugra; ↗↗Start of commercial production at the Garmian Block (Kurdistan). 2015 www.gazprom-neft.com 5 Message from the Chairman of the Board of Directors
6 GAZPROM NEFT // 2015 ANNUAL REPORT MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS
Dear Shareholders and Investors, Such difficult times test just how resilient business is to For companies working in the oil and gas sector, the year 2015 the influence of an unstable macroeconomic environment. proved to be a true test of strength. But I am proud to say The unprecedented growth that Gazprom Neft achieved last that Gazprom Neft responded effectively to all the challenges year along with the consistent modernisation of oil refineries, the industry faced as the results of our work in 2015 the successful development of the filling station network and conclusively demonstrate. its entry to new premium sales markets all demonstrate that Gazprom has chosen the proper strategy to develop its oil As it develops the Prirazlomnoye field, Gazprom Neft continues business. to gain unique experience from working on Russia’s Arctic shelf. The Novoportovskoye field is already fully prepared for year- I can say with certainty that over the twenty-year history round oil shipments. This is a landmark project that will result in of Gazprom Neft the Company’s management has never the emergence of a new oil province on the Yamal Peninsula. had any doubts about whether it chose the right leadership model, which each year reaffirms its most important qualities: The Company also continued to develop its technological effectiveness and professionalism, a commitment to results and expertise and performed work to carry out major environmental the ability to drive the Company to achieve its strategic goals projects. Gazprom Neft oil refineries are already manufacturing in spite of the changing external conditions. I am confident premium fuel of the highest environmental standard – Euro 5, that going forward all of these factors will contribute to and the Company is now working on improving the production the successful development of Gazprom Neft and enhance its efficiency of its facilities as well as increasing oil refining depth shareholder value. and the yield of light petroleum products. This will help to propel Gazprom Neft refineries to the level of the global oil refining leaders.
The Company has made consistent progress in achieving its strategic goals, and a key component to its success along the way has been the evolution of domestic technologies. ALEXEY MILLER The further development of this trend is a priority for Chairman of the Board of Directors Gazprom Neft. Gazprom Neft PJSC
www.gazprom-neft.com 7 Message from the Chairman of the Management Board
8 GAZPROM NEFT // 2015 ANNUAL REPORT MESSAGE FROM THE CHAIRMAN OF THE MANAGEMENT BOARD
Dear Shareholders and Investors, second phase of an ambitious programme to modernise Oil companies were forced to work under conditions of global Gazprom Neft oil refineries that aims to enhance the efficiency macroeconomic instability in 2015, and Gazprom Neft was of production processes and increase refining depth and the no exception. However, despite the external challenges, yield of light petroleum products. The Moscow Oil Refinery has the Company finished the year of its twentieth anniversary launched construction on the Biosphera biological treatment with unprecedented growth in production and demonstrated facilities, one of the Company’s most important environmental the resilience of its key operating indicators. For us, this is projects. The Omsk Oil Refinery, the company’s largest above all evidence of the strength of the safety margin that refining asset, has completed a project involving the extensive Gazprom Neft has been building over the 20 years of its reconstruction of key facilities: the primary oil refining unit operations. and the fuel oil deep processing complex. The Company also began implementing a key project for the entire Russian oil The Company’s potential received a highly favourable refining industry last year at Omsk Oil Refinery to develop the assessment last year from China’s largest rating agency production of catalysts that are required to manufacture fuel Dagong Global Credit Rating, which for the first time assigned of the highest environmental standard – Euro 5. Gazprom Neft an international scale long-term issuer credit rating of ‘AA-’ with a stable outlook. This means the Company Despite the negative market dynamics, Gazprom Neft will have greater opportunities to raise capital on Asian financial managed to build up its presence in premium sales channels. markets. Gazprom Neft increased production by a record 20.3% In 2015, we expanded the geography of the jet fuel business last year to 79.7 million tonnes of oil equivalent. We continue and increased our share of the bituminous materials market to implement plans to develop major new projects during as well as the volume of petroleum products sold via a challenging time for the oil industry. The Prirazlomonye the Gazpromneft filling station network. The Company boosted project remains a huge success as the Company has produced sales of lubricants by 21.1% thanks to an effective import its millionth tonne of oil on Russia’s Arctic shelf. Preparations substitution programme. for major new projects in the north of the Yamalo-Nenets Autonomous District – Messoyakha and Novy Port – are in We managed to achieve a lot last year. I am confident that the final stages. We have completed construction on the Gates Gazprom Neft will have new opportunities to develop its of the Arctic shipment terminal and commissioned the South business in 2016, while the company’s safety margin and Priobsky Gas Processing Plant, which will increase the utilisation experience will enable it to respond effectively to all external of associated gas at the South Priobskoye field to 95%. challenges in the future and find new solutions to complex problems. Gazprom Neft continues to expand its resource base: last year 2P hydrocarbon reserves increased by 5.2%, thus the Company has compensated for its production by 196%. The introduction of the latest technologies has resulted in growth in hydrocarbon ALEXANDER DYUKOV output at mature fields that have already peaked in terms Chairman of the Management Board and CEO of production. Projects are actively under way as part of the Gazprom Neft PJSC
www.gazprom-neft.com 9
STRATEGIC REPORT Strategic report
Market challenges
Gazprom Neft has been operating under new conditions given the situation that has currently taken shape on the global oil and gas market. The Strategy developed by the Company in 2010 has proven its effectiveness and, taking into account the update in 2014 and the priorities that have been outlined for 2016, it will help the Company achieve its strategic goals while also making adjustments for any external changes. An appropriate response to macroeconomic changes and a highly-efficient business model are conducive to maintaining stability at the Company and enhancing its investment appeal.
MARKET //
EXCESS OIL LOWER GLOBAL UNSTABLE SUPPLY GLOBALLY HYDROCARBON PRICES GLOBAL ECONOMY
See the “Oil and petroleum products market” section on page 14
DEVELOPMENT OF STRATEGY AND STRATEGIC BENCHMARKS //
2010 2012 2013
APPROVAL OF STRATEGY UPDATE APPROVAL OF STRATEGY UNTIL 2020 TO STRATEGY UNTIL 2025
12 GAZPROM NEFT // 2015 ANNUAL REPORT MAINTAINING AND DEVELOPING INVESTMENT APPEAL //
Focus on high Leadership added-value products
See page 30 See page 31
Opportunities Success of the chosen ACTIONS OF GAZPROM NEFT IN THE CHANGING ENVIRONMENT // for investors strategy and future growth
↗↗ Focus on mitigating risks and extracting the most See page 32 See page 34 cost-efficient resources; ↗↗ Improving the effectiveness of the international projects portfolio; 2015 2016 ↗↗ Optimising the schedule for implementing refining projects; ↗↗ Increasing the profitability of marketing; ↗↗ Cost monitoring; ↗↗ Optimising the exploration and production development model. ↗↗ The Company has made consistent progress in achieving its strategic goals; ↗↗ There were significant external changes and increased uncertainty in 2014–2015; ↗↗ The Company maintains a flexible investment portfolio 2014 given the highly uncertain external environment; ↗↗ The forecast for achieving the Company’s strategic goals remains positive; ↗↗ The Strategy has shown resistance to external changes. UPDATE TO TARGETS FOR 2025: ↗↗ 80% — Output of light products in Russia; ↗↗ 100% — Volume of products manufactured by the Company’s Russian oil refineries and sold via internal See the “Results of 2015 high-margin sales channels. and strategic priorities for 2016” section on page 27
See the “Strategy in action” section on page 23
www.gazprom-neft.com 13 Strategic report
Oil and petroleum products market
GLOBAL ENERGY BALANCE Oil production in 2015 exceeded consumption by an average of Hydrocarbon consumption, particularly oil and gas, forms the basis of the global economy. The decline in oil prices in 2014–2015 was largely a result of overproduction. At the same million barrels per day time, global demand for oil and petroleum products is not decreasing, but on the contrary 2 a more than two-fold increase continues to grow steadily. This will make it possible to restore the balance in supply from 2014 (0.9 million barrels and demand and, as a result, oil and gas prices. per day)
BRENT OIL PRICE // USD/barrel
160 Source: U.S. EIA
140
120
100
80
60
40
20
0
01/2000 01/2001 01/2004 01/2006 01/2009 01/2012 01/2014 01/2016
In 2015, overproduction continued to BALANCE AND DYNAMICS (YOY) OF GLOBAL LIQUID HYDROCARBON PRODUCTION exert pressure on the global oil market. AND CONSUMPTION // mn barrels/day
Oil prices increased over the first Source: IEA months of 2015, but then resumed their 120 2.5 decline until almost the end of the year. 2.0 100 For the year, Brent prices ultimately fell 1.5 by a third – from USD 57 to USD 37 per 80 barrel. 1.0
60 0.5
0.0 Reasons for continued low prices on 40 hydrocarbon markets in 2015: -0.5 ↗↗ Growth in oil production by OPEC 20 -1.0 countries ↗↗ Stable oil production outside of OPEC 0 -1.5 ↗↗ Risk of an economic downturn in Asia 2009 2010 2011 2012 2013 2014 2015 and around the world 85.2 87.4 88.7 90.9 91.3 93.7 96.4 Production ↗↗ Fears about a shortage of oil storage 85.5 88.7 89.6 90.7 91.9 92.8 94.4 Demand facilities –0.30 –1.30 –0.90 0.20 –0.60 0.90 2.00 Balance (along right axis)
14 GAZPROM NEFT // 2015 ANNUAL REPORT GLOBAL OIL CONSUMPTION The International Energy Agency (IEA) predicts that global oil consumption will grow by an average of 1.2 million barrels per day until 2021 and reach the level of 100 million barrels per day in 2020.
GLOBAL OIL CONSUMPTION // mn barrels/day
Source: IEA 120 Forecast 100
80
60
40
20
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
PETROLEUM25 PRODUCTION CONSUMPTION // mn barrels/day
Source: U.S. EIA Global oil demand grew by 20
15 1.6 mn barrels per day in 2015, the highest level seen 10 since 2010. Developing nations continued to increase their share of global oil consumption 5
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 19.76 20.03 20.73 20.80 20.69 20.68 19.50 18.77 19.18 18.88 18.49 18.96 19.11 19.40 U.S. 2.64 2.68 2.75 2.79 2.80 2.89 2.98 2.89 3.13 3.42 3.45 3.49 3.56 3.45 Russia 5.16 5.58 6.44 6.80 7.26 7.48 7.70 8.07 8.94 9.50 10.18 10.48 10.85 11.18 China 2.33 2.43 2.57 2.55 2.70 2.89 2.96 3.07 3.31 3.46 3.62 3.66 3.78 3.97 India 5.29 5.40 5.29 5.30 5.17 5.01 4.77 4.36 4.43 4.44 4.70 4.56 4.35 4.22 Japan
www.gazprom-neft.com 15 Strategic report
TOP OIL CONSUMING COUNTRIES IN 2015 // %
Source: U.S. EIA
20.6 U.S. 15.4 Europe 11.9 China 8.9 Middle East 7.7 Central and South America 4.5 Japan 4.2 India 4.1 Africa 3.7 Russia 12.7 Asia-Pacific (other countries) 4.6 North America (other countries) 1.5 Eurasia (other countries)
GLOBAL DEMAND FOR OIL BY SECTOR // mn TOE
Forecast Source: BP Energy Outlook 2035: February 2016 4,930 4,693 4,845 4,483 4,201 3,891 3,971 4,119 3,565 3,150 3,274
1990 1995 2000 2005 2010 2014 2015 2020 2025 2030 2035 1,470 1,589 1,794 2,012 2,122 2,248 2,304 2,500 2,631 2,698 2,715 Transportation 286 251 232 226 199 215 210 193 181 175 162 Energy 922 964 1,055 1,149 1,190 1,186 1,210 1,305 1,398 1,485 1,564 Industry 472 470 484 504 460 470 477 485 483 487 489 Other sectors
The transportation sector accounts for more than half of all the oil consumed in the world with road transportation making up the lion’s share. Passenger cars account for the bulk of fuel consumed, thus the global vehicle-to-population ratio continues to be the biggest factor in terms of maintaining and increasing demand for oil and petroleum products.
GLOBAL ENERGY CONSUMPTION BY TRANSPORT IN 2012 // % GLOBAL PETROLEUM PRODUCTION CONSUMPTION // %
Source: U.S. EIA Source: U.S. EIA
Passenger transportation 44.7 Passenger cars 11.7 Air 9 Liquefied petroleum gases 3.9 Buses 24 Petrol 2.9 Other 7 Jet fuel Freight transportation 35 Medium distillates 11.7 Trucks 12 Fuel oil 12.6 Maritime shipments 13 Other products 9.7 Other vehicle shipments 2.9 Railway shipments
16 GAZPROM NEFT // 2015 ANNUAL REPORT The global economy once again saw moderate growth in 2015. Slowed economic growth in China continued to put pressure on oil prices. China’s GDP turned out to be lower than expected in 2015: for the year the economy expanded by 6.9%, the lowest growth seen in the last 25 years. However, demand for petrol in China continued to grow rapidly since it depends on the country’s rate of car ownership as opposed to GDP growth.
CHINESE GDP DYNAMICS // % vs. previous year
Source: World Bank The decline in oil prices 14.19 and, as a result, petroleum 12.69 product prices was reflected in 11.35 consumption – increased fuel 10.63 10.02 10.08 9.62 sales in the U.S., China and 9.09 9.23 9.48 8.43 8.30 India led to the highest growth 7.75 7.68 7.27 6.90 rates in oil consumption in five years1.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
The U.S. set all-time records for car sales thanks to low fuel prices and EU countries also saw a sharp increase in car sales in 2015 despite the fact that the U.S. and European automotive markets are mature and not capable of ensuring increased demand for fuel in the long term. At the same time, the level of car ownership in China, India and other developing nations is well below that of developed nations and offers great potential for growth. As a result, growth in the consumption of petroleum products and oil in the global economy remains a stable trend that will prevail in the long term.
NUMBER OF PASSENGER CARS PER 1,000 PEOPLE //
Source: India (2013, Ministry of Road Transport and Highways), China (2015, Ministry of Public Security), Germany (2016, Kraftfahrt-Bundesamt), U.S. (2013, Center for Transportation Analysis (CTA) in the Oak Ridge National Laboratory) The level of car ownership in China, India and other developing nations is well below 800 25 22.3 744 that of developed nations 20 Number of passenger cars per 1,000 people 600 565 Five-year CAGR, % and offers great potential 15 for growth. 400 11.6 10
200 5 119.8 1.8 0 17.5 0
-0.8 -200 -5 India China Germany U.S.
1 Source: https://www.iea.org/oilmarketreport/omrpublic/currentreport/
www.gazprom-neft.com 17 Strategic report
GLOBAL OIL PRODUCTION
Oil production in the U.S. grew by an average of 0.7 million barrels U.S. AND OPEC OIL PRODUCTION DYNAMICS1 // per day in 2015 (versus 1.25 million barrels per day in 2014). Source: U.S. EIA OPEC oil production increased by 0.8 million barrels per day, whereas in 2014 production was roughly the same as compared 1.25 with the 2013 level. Meanwhile, production in the U.S. primarily U.S. declined over the course of 2015 with a decrease of 0.2 million OPEC barrels per day recorded from December 2014 to December 0.98 2015. Thus, it was the Middle East and not the U.S. that played 0.82 the main role in maintaining the oversupply of oil in 2015, 0.73 particularly Iraq and Saudi Arabia, which significantly increased oil 0.49 production in the first half of 2015. 0.36 0.21 0.20 0.17 0.20 0.17 0.13 0.09 0.11 0.12 0.04 0.04
-0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.07 -0.1 -0.1 -0.1 -0.1 -0.1 0.7 mn barrels/day 0.8 mn barrels/day -0.29 -0.2 Growth in U.S. oil production Growth in OPEC oil production in 2015 in 2015
1 Data is presented as mn barrels/day versus the previous year for yearly dynamics -1.03 and mn barrels/day versus the previous month for monthly dynamics. 2010 2011 2012 2013 2014 01/2015 02/2015 03/2015 04/2015 05/2015 06/2015 07/2015 08/2015 09/2015 10/2015 11/2015 12/2015
OPEC OIL PRODUCTION FORECAST // mn barrels/day
Source: IEA
34.0 1.6 mn barrels/day 33.60 Growth in OPEC oil production 33.5 33.50 by 2020 according to IEA 33.20 forecasts, primarily as a result 33.0 33.00 33.00 of Iran’s resumed production after the lifting of sanctions 32.80
32.5
32.00 32.0
31.5
31.0
2015 2016 2017 2018 2019 2020 2021
18 GAZPROM NEFT // 2015 ANNUAL REPORT U.S. AND OPEC OIL PRODUCTION DYNAMICS1 //
Source: U.S. EIA
1.25 U.S. OPEC 0.98
0.82 0.73
0.49 0.36 0.21 0.20 0.17 0.20 0.17 0.13 0.09 0.11 0.12 0.04 0.04
-0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.07 -0.1 -0.1 -0.1 -0.1 -0.1 -0.29 -0.2
-1.03
2010 2011 2012 2013 2014 01/2015 02/2015 03/2015 04/2015 05/2015 06/2015 07/2015 08/2015 09/2015 10/2015 11/2015 12/2015
OIL RESERVES IN U.S. OIL STORAGE DEPOTS // mn barrels
Source: U.S. EIA Overproduction has led to growth in oil reserves at oil 399.66 storage depots. 373.10 357.01 390.53 Reserves at U.S. oil storage 341.23 depots were up 150% in 315.59 361.96 348.93 September 2015 versus 329.96 307.37 September 2014, while the storage capacity usage level 238.17 224.28 had increased from 47% to 56%: the capacity of storage 181.32 depots is expanding at a very 16.39 169.46 166.88 169.20 171.90 139.61 147.15 rapid pace. The growth in oil reserves impacts prices primarily due to the market’s lack of current data on the expansion in storage capacity.
03/2011 09/2011 03/2012 09/2012 03/2013 09/2013 03/2014 09/2014 03/2015 09/2015
Volume of oil in oil storage depots Capacity of oil storage depots
www.gazprom-neft.com 19 Strategic report
GLOBAL INVESTMENT IN OIL
ACTIVE DRILLING RIGS AND SHALE OIL PRODUCTION DYNAMICS IN THE U.S. //
Source: U.S. EIA
Shale oil production, mn barrels/day Active drilling rigs 6.0 1,400
1,200 5.0
1,000 4.0
800 3.0 600
2.0 400
1.0 200
0 0 2010 2011 2012 2013 2014 2015 2016
The decline in oil prices had serious consequences for the OIL PRODUCTION AT POSTPONED PROJECTS VERSUS PROJECTED extraction of hard-to-recover oil. The number of active oil drilling GLOBAL PRODUCTION FOR THE CORRESPONDING YEAR // % rigs in the U.S. plummeted 62% year-on-year in 2015. After Source: Gazprom Neft estimates peaking in spring 2015, oil production from low-permeability reservoirs had decreased by 0.3 million barrels per day as of the 2.8 end of the year. At the same time, conventional oil production remained stable due to proactive investments in new projects when oil prices were still at high levels in 2011-2013. Oil companies around 1.5 the world began postponing or freezing projects with total investments of USD 380 billion once oil prices started tumbling in the second half of 2014 and this continued throughout 2015. These projects would have ensured production of 1.5 million barrels per day in 2021 and 2.9 million barrels per day in 2025. The effect from decreased investment in the industry may start to appear in oil production volumes in the coming years. 2021 2025
GLOBAL MARKET IN 2016
FACTORS THAT WILL IMPACT THE HYDROCARBON MARKET IN 2016
↗↗ Oil production dynamics in OPEC countries ↗↗ Pace of the slowdown in production in the U.S. and outside OPEC as a whole ↗↗ Pace of global economic growth and demand for oil ↗↗ Oil reserve dynamics in storage depots
20 GAZPROM NEFT // 2015 ANNUAL REPORT OIL PRODUCTION AND REFINING IN THE RUSSIAN FEDERATION
The main factors that influence oil production volume in Russia are the dynamics in global oil prices, exchange rates and tax regulations, which collectively determine the economic conditions of oil production for Russian companies. Domestic demand for petroleum products plays a secondary role. The mostly favourable situation on global raw commodity markets has contributed to growth in oil production in the Russian Federation over the last few years. Despite the decline in prices, oil production in the Russian Federation increased in 2015.
RUSSIAN OIL PRODUCTION-TO-EXPORT RATIO // mn t/year
Source: Russian Ministry of Energy
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 323 348 379 421 459 470 481 491 489 494 505 511 518 523 527 534 Production 117 142 148 158 183 206 221 221 216 209 212 212 213 209 203 215 Export
EXPORT OF PETROLEUM PRODUCTS // mn t
Source: Federal Customs Service Despite steady growth in production, crude oil exports from the Russian Federation have not changed significantly over the last ten years. This can be attributed to growth in oil refining, which was supported by tax incentives, among other things.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 62.6 63.3 75.5 77.7 82.4 97.1 103.5 112.3 118.1 124.5 133.2 132.1 138.2 151.6 165.3 171.5
PRODUCTION AND EXPORT OF CORE PETROLEUM PRODUCTS IN 2015 // mn t
Source: Central Dispatch Department of the Fuel and Energy Complex Petroleum product exports 80 76.08 from Russia have increased 71.03 Production significantly in recent years 60 Export 53.81 and these positive dynamics 45.07 continued in 2015. 40 39.81
20
4.69 0 Petrol Diesel fuel Fuel oil
www.gazprom-neft.com 21 Strategic report
PRIMARY OIL REFINING // mn t/year
Source: Russian Ministry of Energy Russia reduced primary oil refining volumes in 2015 as the production and export of crude oil increased. This resulted from the cumulative impact of lower petroleum product prices and a tax manoeuver that diminished the appeal of exporting dark petroleum products. Fuel oil production saw the sharpest decline, while growth was seen in the volume of petrol production.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 219 228 228 236 236 249 257 265 272 289 282
69.2 mn t ↘9.2% 76.1 mn t ↘1.6% 9.7 mn t ↘10.6% 39.8 mn t ↗3.9% Fuel oil production in Russia Diesel production in Russia Kerosene production in Russia Petrol production in Russia in 2015 in 2015 in 2015 in 2015
VEHICLES IN RUSSIA1 // mn vehicles
Source: Autostat
49.83 51.63 47.23 45.25 41.04 41.55 42.89 38.25
2008 2009 2010 2011 2012 2013 2014 2015 0.37 0.38 0.38 0.38 0.39 0.39 0.40 0.40 Buses 3.41 3.51 3.46 3.50 3.60 3.67 3.75 3.72 Trucks 3.05 3.24 3.28 3.40 3.59 3.75 3.91 4.04 Light commercial vehicles 28.81 31.31 31.84 33.04 35.12 36.90 39.23 41.01 Cars 2.61 2.60 2.59 2.57 2.55 2.52 2.54 2.47 Motorcycles
1 Data given as of 1 January of the corresponding year.
Just like the rest of the world, the dynamics in demand for petroleum products within the country is above all determined by the number of passenger cars. Increased car ownership has kept up demand for petroleum products 3.6% 79.4% Growth in the number of vehicles Proportion of passenger cars in the Russian Federation in recent years. Economic difficulties in Russia in 2015 among all vehicles in Russia led to a decline in domestic petrol and diesel consumption in 2015 in 2015, yet the number of vehicles in the country continued to expand.
22 GAZPROM NEFT // 2015 ANNUAL REPORT Strategy in action
STRATEGIC BENCHMARKS FOR 2025 The foundation of Gazprom Neft PJSC’s operations is the Company’s Development Strategy until 2025, which was approved by the Board of Directors in May 2013. In exploration and production, Gazprom Neft focuses on the effective development of its mature resource base and ensuring the maximum return on investments in new projects. In processing and sales, the focus remains on modernising refining facilities and maximising the sale of petroleum products via the Company’s premium sales channels. As it implements the Strategy’s plans on the horizon for 2025, the Company aims to create added value for the equity that shareholders have invested in the Russian oil and gas sector.
GEOLOGICAL EXPLORATION AND PRODUCTION // development, reducing the cost of proven technologies as well Gazprom Neft plans to increase hydrocarbon production to as utilising and introducing new technologies. The Company 100 million TOE per year by 2020 and maintain this level until plans to set up a new production centre in the north 2025. The ratio of proven reserves to production is projected of the Yamalo-Nenets Autonomous District. to remain at the current level. In order to achieve these goals, Gazprom Neft will make every effort to maximise the cost- Gazprom Neft is considering unconventional reserves effective recovery of the remaining reserves from the current as an opportunity for growth and will develop this asset class resource base by employing the best practices for optimising as a core element of its portfolio.
HYDROCARBON PRODUCTION PROVEN HYDROCARBON RESERVES (PRMS-SPE)1 // mn TOE2 BY THE GAZPROM NEFT GROUP // mn TOE
Source: Company data Source: Company data 2,000 100
79.70 1,443 1,518 1,343 62.26 66.25 1,130 1,200 57.25 59.71 KPI KPI
2011 2012 2013 2014 2015 2025 2011 2012 2013 2014 2015 2025
KPI for 2025 KPI for 2025 100 mn TOE 20 years Hydrocarbon production Reserve life (MR / production) 1 Excluding NIS a.d. Novi Sad. 2 KPI for 2025 calculated based on two approved KPI: Reserve life of 20 years and commercial hydrocarbon production of 100 mn TOE per year.
www.gazprom-neft.com 23 Strategic report
OIL REFINING // Modernising refining facilities as well as petroleum products. Work completed on projects to improve enhancing operational efficiency remain among the Company’s operational efficiency and increase the refining depth as well as top strategic priorities for developing its oil refining business in the yield of light petroleum products at facilities in the Russian Russia. The Company has completed the first stage of a large- Federation. A detailed plan has been drawn up for a programme scale oil refinery modernisation project that aims to improve to modernise YANOS, a catalytic cracking unit has been rebuilt the quality of the petroleum products it manufactures and has at the Omsk Oil Refinery and preparations have begun to rebuild moved on to the second phase in which the goal is to increase a unit at the Moscow Oil Refinery. the refining depth and improve the yield indicators of light
OIL REFINING AT RUSSIAN OIL REFINERIES // mn t KPI for 2025 KPI for 2025 Source: Company data 40 mn t 95% Oil refining in Russia Refining depth in Russia 40.0 39.70 39.53 39.26 38.83 KPI 38.13 KPI for 2025 80% Yield of light products in Russia 2011 2012 2013 2014 2015 2025
SALES // Gazprom Neft has two core sales segments: sales of Neft’s sales business should ensure the ability to place 100% motor fuels via its Gazpromneft filling station network along of its petroleum products on markets through its own sales with small wholesale channels as well as sales of petroleum channels in order to provide maximum coverage for the entire products to industrial consumers. Special goals have been value chain in the oil business. established for each segment. The targeted scale of Gazprom
SALES VIA PREMIUM CHANNELS // mn t
Source: Company data KPI for 2025 25.79 25.70 23.98 22.56 19.55 100% Volume of products from the Company’s Russian oil refineries sold via internal high-margin sales channels
2011 2012 2013 2014 2015
24 GAZPROM NEFT // 2015 ANNUAL REPORT MOTOR FUEL SALES // Gazprom Neft plans to boost total sales of motor fuel in the Russian Federation and the CIS by KPI for 2025 KPI for 2025 2025 primarily through a 20% increase in the retail sales 18.5 mn t 1,510 channel. The Company is planning to expand its filling station Sales of motor fuels in Russia Number of retail filling stations network in the Russian Federation and the CIS in order to and the CIS in Russia and the CIS achieve this goal.
SALES VOLUME VIA FILLING STATIONS NUMBER OF FILLING STATIONS IN RUSSIA AND THE CIS // stations AND PETROLEUM STORAGE DEPOTS IN RUSSIA // mn t
Source: Company data Source: Company data
1,432 1,510 14.16 14.28 14.71 14.76 1,339 1,389 1,245 1,265 12.46
KPI
2011 2012 2013 2014 2015 2025 2011 2012 2013 2014 2015
SALES OF PETROLEUM PRODUCTS TO INDUSTRIAL The Company aims to further increase the sales and market CONSUMERS // Gazprom Neft has spun off separate shares of these businesses. In addition, Gazprom Neft plans to businesses for the sale of jet fuel, lubricants, bituminous enter markets for new products and also develop its own sales materials, petrochemical products and bunkering in order to capacity. The Company has set the benchmark of increasing improve the efficiency of petroleum product sales. sales of petroleum products by 30% by 2025.
The Gazpromneft-Aero sales network focuses on boosting sales of jet fuel, further expanding the network of its refuelling complexes and increasing the number of airports where it operates. The Company also plans to further develop its bunkering business through increased sales despite a planned KPI for 2025 KPI for 2025 reduction in fuel oil production at the Company’s oil refineries as 5.5 mn t 4.9 mn t a result of improved refining depth as well as the development Jet fuel sales in Russia and Marine fuel sales in Russia and of its terminal network and an expansion in the bunkering fleet on the international market on the international market in the Russian Federation.
MARINE FUEL SALES1 // mn t MARINE FUEL SALES1 // mn t
Source: Company data Source: Company data
5.50 4.90 4.45 3.93 3.59 3.85 3.63 3.49 3.19 3.42 2.94 KPI KPI 1.95
2011 2012 2013 2014 2015 2025 2011 2012 2013 2014 2015 2025
1 Total sales, including premium and non-premium sales in Russia and on the international market.
www.gazprom-neft.com 25 Strategic report
BITUMEN SALES1 // mn t
Source: Company data KPI for 2025 2.30 2.30 mn t 1.99 2.02 2.04 1.82 Bitumen sales in Russia 1.55 and on the international market KPI
2011 2012 2013 2014 2015 2025
SALES OF PETROCHEMICAL PRODUCTS1 // mn t
Source: Company data KPI for 2025 1.90 1.90 mn t Sales of petrochemical 1.37 1.35 1.37 1.29 1.23 products in Russia and on the KPI international market
2011 2012 2013 2014 2015 2025
SALES OF OILS AND LUBRICANTS1 // mn t
Source: Company data
KPI for 2025 0.68 0.68 mn t 0.52 0.54 Sales of oils and lubricants 0.52 0.50 0.49 sales in Russia and on the KPI international market
2011 2012 2013 2014 2015 2025
1 Total sales, including premium and non-premium sales in Russia and on the international market.
26 GAZPROM NEFT // 2015 ANNUAL REPORT RESULTS OF 2015 AND STRATEGIC PRIORITIES FOR 2016
The actions taken by the Company to develop its business in 2015 STRATEGIC PRIORITIES FOR 2016 correspond to the long-term plans, growth areas and goals set forth in the Strategy. The Company has consistently improved its key production indicators: each year it has managed to increase ↗↗ investment in current production projects with a short the volume of proven reserves and hydrocarbon production, payback period to maximise cash flows in coming years; maintain refining volumes and expand sales of petroleum ↗↗ implementing projects that are nearing completion; products via premium sales channels. ↗↗ keeping all options open for the development of the resource base to ensure new areas of production; modernising primary oil refinery complexes at the Omsk and Sustained growth in production and operating indicators ↗↗ Moscow Oil Refineries; has been achieved despite the deteriorating situation ↗↗ establishing strategic and technological partnerships for on global oil markets as well as a number of factors that are the joint development of fields in Russia and abroad and specific to Russia. The latter include sanctions of a financial improving the efficiency of hydrocarbon production; and technological nature that have been imposed on the oil ↗↗ updating the schedule for the implementation of depth industry, the subsequent drop in oil prices, the devaluation processing projects to optimise cash flows; of the rouble, accelerated inflation as well as a decline in GDP ↗↗ implementing only the most profitable projects to develop its and the domestic consumption of petroleum products. sales business; ↗↗ balanced investment activities for foreign development The current economic situation is a significant factor for the projects while maintaining the ability to step up operations Company and may require local changes such as an adjustment in the medium term taking into account international risks. to the project implementation schedule and sequence. The Company concedes that short-term priorities may be displaced in favour of projects with short payback periods and projects that generate a positive cash flow in the medium term. However, the key long-term goals of Gazprom Neft remain important, attainable and unchanged. The strategy pursued by Gazprom Neft demonstratives its resilience to changes in the external environment.
www.gazprom-neft.com 27 Strategic report
Highly-efficient business model
SALES OF GAS, PREMIUM SALES, PURCHASE OIL AND GAS CONDENSATE PURCHASE OF OIL GAS SALES CRUDE OIL SALES MN T BY ARCTICGAS IN THE RF IN THE RF2 IN THE RF OF PETROLEUM AND NORTHGAS, PRODUCTSIN 15.28 MN TOE THE RF mn TOE
10.16 FS (retail motor fuel sales) 29.92 7.74 mn t 13.56 bn м3 6.14 mn t 2.64 mn t 25.71 mn t bn м3 8.54 Petroleum storage depots (small-scale wholesale of motor fuels) Jet fuel (small-scale wholesale of jet fuel) GAS 2.80 PRODUCTION1 3.92 Bunkering (small-scale wholesale of marine fuel) RF 0.23 Oils and lubricants (sale of refined premium oils) 29.35 bn м3 0.06 Bitumen (sale of premium bitumen products4) International market 0.57 bn м3
3.87 HYDROCARBON HYDROCARBON mn t BALANCE PETROLEUM BALANCE3
CONDENSATE PRODUCT OUTPUT PRODUCTION RF 72.48 44.84 3.84 mn t mn TOE 41.10 mn t International market mn t 0.03 mn t
51.8 mn t
RF OIL PRODUCTION 50.2 mn t 0.32 mn t 10.47 mn t 0.22 bn м3 1.03 mn t 19.07 mn t International market 1.6 mn t
PURCHASE OF OIL CRUDE OIL SALES GAS SALES SALE OF PETROLEUM DIRECT ON THE INTERNATIONAL ON THE INTERNATIONAL ABROAD PRODUCTS ABROAD WHOLESALE MARKET MARKET
1 Conversion ratio bn m3 to mn TOE equal to 0.803. 2 Including own consumption/change in balances of 2.0 bn m3.
28 GAZPROM NEFT // 2015 ANNUAL REPORT Gazprom Neft’s business model is based on the notion of vertical integration. Engaging in activities that are part of the entire production chain such as geological exploration, the development of oil fields, production, refining and the sale of oil and petroleum products, including high-margin end-use products, ensures the Company’s sustainability and helps to improve efficiency in the future.
SALES OF GAS, PREMIUM SALES, PURCHASE OIL AND GAS CONDENSATE PURCHASE OF OIL GAS SALES CRUDE OIL SALES MN T BY ARCTICGAS IN THE RF IN THE RF2 IN THE RF OF PETROLEUM AND NORTHGAS, PRODUCTSIN 15.28 MN TOE THE RF mn TOE
10.16 FS (retail motor fuel sales) 29.92 7.74 mn t 13.56 bn м3 6.14 mn t 2.64 mn t 25.71 mn t bn м3 8.54 Petroleum storage depots (small-scale wholesale of motor fuels) Jet fuel (small-scale wholesale of jet fuel) GAS 2.80 PRODUCTION1 3.92 Bunkering (small-scale wholesale of marine fuel) RF 0.23 Oils and lubricants (sale of refined premium oils) 29.35 bn м3 0.06 Bitumen (sale of premium bitumen products4) International market 0.57 bn м3
3.87 HYDROCARBON HYDROCARBON mn t BALANCE PETROLEUM BALANCE3
CONDENSATE PRODUCT OUTPUT PRODUCTION RF 72.48 44.84 3.84 mn t mn TOE 41.10 mn t International market mn t 0.03 mn t
51.8 mn t
RF OIL PRODUCTION 50.2 mn t 0.32 mn t 10.47 mn t 0.22 bn м3 1.03 mn t 19.07 mn t International market 1.6 mn t
PURCHASE OF OIL CRUDE OIL SALES GAS SALES SALE OF PETROLEUM DIRECT ON THE INTERNATIONAL ON THE INTERNATIONAL ABROAD PRODUCTS ABROAD WHOLESALE MARKET MARKET
3 Including own consumption/change in balances of 0.06 mn t. 4 Polymer-bitumen binders and bitumen emulsions.
www.gazprom-neft.com 29 Strategic report
Investment appeal factors
Gazprom Neft produced steady financial and operating results in 2015, once again confirming that the Company has chosen the correct strategy. Leading analysts all agree that Gazprom Neft has significant potential for growth in its value in the long term.
FACTORS THAT SIGNIFICANTLY IMPROVE GAZPROM NEFT’S INVESTMENT APPEAL //
Focus on high Leadership Opportunities Success of the chosen added-value products for investors strategy and future growth
FOCUS ON HIGH ADDED-VALUE PRODUCTS
The substantial decline in oil prices and changes in taxation have helped enhance the appeal of refining oil and petroleum products in Russia for further sale both on the domestic market and also for export. In this situation, the advantages offered by Gazprom Neft with its highly efficient sales channels to end users as well as wholesale supplies have enabled the Company to significantly increase its market share and maintain sales in the end user segment.
REFINING/PRODUCTION RATIO // %
Source: data from Gazprom Neft PJSC, PJSC Lukoil, OJSC Rosneft OC, OJSC TNK-BP Holding, PJSC Tatneft, PJSC Bashneft AOC and OJSC Surgutneftegas
Gazprom Ne Corridor between maximum and minimum value on the market
0.85 0.76 0.81 0.84 0.84 0.70 0.77 0.61
2008 2009 2010 2011 2012 2013 2014 2015
30 GAZPROM NEFT // 2015 ANNUAL REPORT LEADERSHIP
Leadership is one of the core values of Gazprom Neft’s corporate culture. A high level of efficiency makes it possible for the Company to hold leading positions in a number of key indicators. The results of 2015 enabled the Company to not only maintain its leadership in these indicators, but to also establish new growth points.
GROWTH IN HYDROCARBON PRODUCTION VS. PREVIOUS YEAR // % EBITDA MARGIN // %
24.97 21.36 23.51
20.30 6.41 4.27
2013 2014 2015 2013 2014 2015
P/E RATIO // EV/EBITDA //
4.00 6.62 3.68 5.53
3.89 2.78
2013 2014 2015 2013 2014 2015
ADJUSTED EBITDA PER 1 BARREL OF OIL PRODUCED // RUB/barrel
972.81 905.78 892.06
Gazprom Ne Corridor between maximum and minimum value on the market
Source: data from Gazprom Neft PJSC, OJSC Rosneft OC, 2013 2014 2015 PJSC Lukoil, PJSC Bashneft AOC and PJSC Tatneft
www.gazprom-neft.com 31 Strategic report
OPPORTUNITIES FOR INVESTORS
CONSENSUS FORECAST OF ANALYSTS’ ASSESSMENTS // RUB
Source: MICEX, Bloomberg, bank data 250
200
150 Consensus forecast 100 Value of Gazprom Ne shares 50 Company undervaluation
12/2014 01/2015 02/2015 03/2015 04/2015 05/2015 06/2015 07/2015 08/2015 09/2015 10/2015 11/2015 12/2015
Bank Recommendation Tgt Px Date BofAML Buy 175 09/12/2015 Deutsche Bank Buy 170 11/03/2016 Goldman Sachs Buy 232 21/01/2016 J.P. Morgan Neutral 155 11/01/2016 Raiffeisen Buy 182 13/08/2015 Renaissance Capital Hold 189 12/01/2016 Rye Man & Gor Securities Hold 243 11/12/2015 UBS Buy 178 02/03/2016 UFS-Finance Investment Company Buy 180 02/09/2015 AK BARS Finance Buy 184 29/02/2016 BrokerCreditService Buy 243 09/03/2016 Veles Capital Buy 197 09/03/2016 VTB Capital Hold 147 02/03/2016 Gazprombank Outperformed market 201 01/03/2016 Sberbank Buy 340 29/01/2016 Uralsib Hold 267 11/01/2016
EFFECTIVE COMMUNICATIONS WITH INVESTORS AND SHAREHOLDERS // ACHIEVEMENTS // Despite the changing macroeconomic environment and limited A case study of the personalised content of the Gazprom Neft access to debt capital markets, Gazprom Neft continues to annual report won an award at the IR Society (UK) contest and improve its information transparency and interact effectively was a medallist at Russia’s Financial Communications and Investor with investors and shareholders. Relations IR Case Study competition. In addition, the Company’s annual report received more than ten awards from Russian and international annual report competitions.
32 GAZPROM NEFT // 2015 ANNUAL REPORT QUOTES FROM BUSINESS ANALYSTS //
Gazprom Neft is actively working Based on the results of 2015, Gazprom Neft has a large portfolio to reduce lifting costs through Gazprom Neft continues to show of greenfield projects that will the large-scale integration of new the highest oil production rates in enable the Company to increase technologies. At the same time, the sector. We are upbeat about oil, condensate and natural the Company demonstrated 20% the Company’s results for 2015, gas production volumes for the year-on-year growth in oil and which turned out to be better next few years. Our estimates gas production, which exceeded than our average expectations for project average annual growth in our expectations. Intensive growth the market. The most important hydrocarbon production of 4.1% will enable Gazprom Neft to take qualitative change is growth in in 2015–2020. The Company’s oil leading positions in the industry petroleum product sales at a time production, including its share in in terms of hydrocarbon production when market indicators are the production of joint ventures, growth rates. declining. will reach 66 million tonnes in 2020.
Overall, we assess the Company’s The Company continues to be our The Company’s results for 2015 results for 2015 as quite strong. favourite and we maintain our are quite steady. An increase We also note systematic work by Buy recommendation. We regard in production at the new Novy Port management to increase sales the 2015 results as moderately and Prirazlomnoye fields along of petroleum products on the positive and the numbers justify with the launch of the Messoyakha domestic market and implement our expectations. While increasing project, in our view, will lead the Company’s long-term priority hydrocarbon production, Gazprom to significant growth in the projects. In addition, we positively Neft has demonstrated a slight generation of a free cash flow. note the Company is ahead increase in operating expenses of schedule in the development below the inflation level. of the Novy Port field.
www.gazprom-neft.com 33 Strategic report
SUCCESS OF THE CHOSEN STRATEGY AND FUTURE GROWTH
The dramatic changes on the global oil market without question have impacted the implementation of the Gazprom Neft Strategy and forced the Company to update its short-term priorities. Nevertheless, Gazprom Neft remains on pace to successfully implement its Development Strategy until 2025.
Updates to Gazprom Neft’s strategic vision in 2015–2016: ↗↗ The Company has made consistent progress in achieving its strategic goals. ↗↗ There were significant external changes and increased uncertainty in 2014–2015. ↗↗ The forecast for achieving the Company’s strategic goals remains positive. ↗↗ The Strategy has shown resistance to external changes. ↗↗ The Company ensures its investment portfolio remains flexible given the highly uncertain external environment.
Gazprom Neft has a balanced project portfolio, making it possible to effectively manage See “Strategy in action” production amidst rapidly changing market conditions. section on page 23
2014 results: 2015 results: Strategic goal for 2025:
66.25 mn TOE 79.70 mn TOE 100 mn TOE hydrocarbon production hydrocarbon production hydrocarbon production
↗↗ production maintained and increased at mature assets ↗↗ implementation of promising projects
MAINTAINING AND INCREASING PRODUCTION KEY RESULTS OF 2015 AT MATURE ASSETS // In addition to work at conventional and mature fields, Gazprom Neft continues to develop a number of ↗↗ commissioning of the Kulginskoye and South Tabaganskoye promising projects and prepare them for commercial production. fields (part of the South Pudinsky licence area); This approach will enable the Company to launch production at ↗↗ two low efficiency fields were re-categorised as profitable new fields in the shortest possible time and increase the flow of in 2015: North Pyamaliyakhsokoye and Baleykinskoye. oil by the time the market returns to high oil prices.
34 GAZPROM NEFT // 2015 ANNUAL REPORT PROMISING PROJECTS //
NOVY PORT MESSOYAKHA PRIRAZLOMNOYE
↗↗ Start of year-round shipments – ↗↗ Start of hydrocarbon production – ↗↗ Start of hydrocarbon production – 1st half 2016. Q4 2016. Q4 2013.
Milestones of 2015 Milestones of 2015 Milestones of 2015 ↗↗ shipment of 317,000 tonnes: ↗↗ pile foundations and modular structures ↗↗ annual production totalled by vehicle – 24,000 tonnes, installed for the central gathering facility; 870,000 tonnes of oil; winter sea shipments – 112,000 tonnes, ↗↗ assembly of 6 units and the machine ↗↗ construction completed on four wells; summer sea shipments – 181,000 tonnes; room building of the gas turbine power ↗↗ addendum to the technological ↗↗ Arctic terminal installed and the Baltika plant; development plan drafted and approved; ice-breaker arrived to accommodate ↗↗ 58 km of the linear part of an oil pipeline ↗↗ first and second stages of shift camp personnel during commissioning work; built; accepted and commissioned. ↗↗ 34 km installed of a second branch ↗↗ geological exploration programme of a pressure pipeline and struts lowered completed in full. to bottom for the underground part of the pipeline; ↗↗ supply of gas turbine units.
www.gazprom-neft.com 35
OPERATING RESULTS Operating results
Hydrocarbon balance
RAW MATERIALS BASE
Factors behind growth in raw materials base: The Company’s reserves are audited according to PRMS-SPE ↗↗ geological exploration (GE) performed by Gazprom Neft standards and the more conservative SEC standards. Based and its joint ventures; on the report of DeGolyer and MacNaughton’s independent ↗↗ increased stakes in the companies LLC SeverEnergia reservoir engineers, total proven and probable hydrocarbon and CJSC Northgas. reserves (including the Company’s stake in the reserves of affiliates accounted for using the equity method) amounted to Subsidiaries have seen their resource bases deteriorate in terms 2,699 million TOE (1,840 million tonnes of oil, 1,070 billion m3 of the remaining commercial reserves as most of the highly of gas), excluding NIS, as of 31 December 2015. The Company’s productive fields transition to late stage development and less current proven reserves-to-production ratio according to PRMS efficient hydrocarbon fields are opened. The use of horizontal classification is more than 20 years. drilling technologies may help to effectively develop these reserves. PRMS proven hydrocarbon reserves increased by 75 million TOE in 2015.
DYNAMICS OF THE RAW MATERIALS BASE FOR 2014–20151 // mn TOE
Source: Company data
2014 2015 31 43 Gazprom Neft 23 5 Slavneft 28 12 SeverEnergia 13 1 JVs2 1.518
93 1.443 60
69 (78)
96
1.343
(65)
2014 2015
Proven reserves Production Revision Acquisition Proven reserves Production Revision Acquisition Proven reserves as of 31/12/2013 of previous as of 31/12/2014 of previous as of 31/12/2015 estimates estimates
1 Data does not include reserves and production volume of NIS a. d. Novi Sad. 2 JVs include Tomskneft, SPD, Northgas and Messoyakha.
38 GAZPROM NEFT // 2015 ANNUAL REPORT PRODUCTION
HYDROCARBON PRODUCTION // The Company is The target production profile for 2016 includes: increasing its reserves in addition to the volume and efficiency ↗↗ the development of the following mature assets of Gazprom of production at its own and shared assets. Neft: LLC Gazpromneft-Khantos, OJSC Gazpromneft- Noyabrskneftegaz and LLC Gazpromneft-Vostok with the Gazprom Neft is active in the exploration, development acquisition of licenses for unallocated areas and production and production of oil and gas in Russia and abroad. by CJSC Gazprom Neft Orenburg; ↗↗ the realisation of production shares in joint ventures: Growth in production in 2015 resulted from: OJSC Slavneft OGC (50% jointly with OJSC Rosneft OC), ↗↗ for current assets – the further drilling of the Priobskoye OJSC Tomskneft VNK (50% jointly with OJSC Rosneft OC), field and Orenburg assets; Salym Petroleum Development N. V. (50% jointly with Shell ↗↗ for major projects – increased production at the Salym Development B.V.), LLC SeverEnergia (46.67% jointly Prirazlomnoye and Novoportovskoye fields and an increase with OJSC NOVATEK), CJSC Northgas (50% jointly with in Gazprom Neft’s stakes in LLC SeverEnergia OJSC NOVATEK) and JSC Messoyakhaneftegaz (50% jointly and CJSC Northgas. with OJSC Rosneft OC); ↗↗ the further development of the Prirazlomnoye and Key objectives in 2016: Novoportovskoye fields; ↗↗ ensure growth in hydrocarbon production at least 5% ↗↗ the production of Cenomanian natural gas from throughout the Company; the Novogodneye and Muravlenkovskoye fields ↗↗ inclusion of 32 million tonnes of hard-to-recover reserves of OJSC Gazpromneft-Noyabrskneftegaz. (HTRR) in development work. Growth in production in 2016 will result from: ↗↗ for current assets – the further drilling of the Priobskoye field; ↗↗ for major projects – increased production at the Prirazlomnoye and Novoportovskoye fields, the launch of assets managed by CJSC Messoyakhaneftegaz, growth in natural gas production by LLC SeverEnergia and CJSC Northgas and an increase in Gazprom Neft’s stake in LLC SeverEnergia.
HYDROCARBON PRODUCTION // mn TOE HYDROCARBON PRODUCTION Source: Company data 218.35
181.51 170.58 163.16 156.85 79.70 ↗20.3% 66.25 62.26 57.25 59.71 79.70 mn TOE
2011 2012 2013 2014 2015 37.83 40.32 42.98 44.75 46.52 Hydrocarbon production by Gazprom Neft, mn TOE 9.38 9.27 8.73 8.44 8.11 Share in hydrocarbon production by Slavneft (JV), mn TOE – 0.42 1.18 4.00 16.23 Share in hydrocarbon production by SeverEnergia and Northgas (JV), mn TOE 5.76 5.78 5.76 5.68 5.69 Share in hydrocarbon production by Tomskneft VNK (a proportionately consolidated company), mn TOE 4.27 3.92 3.61 3.38 3.16 Share in hydrocarbon production by SPD (a proportionately consolidated company), mn TOE Average daily hydrocarbon production by the Gazprom Neft Group, 1,000 TOE/day
www.gazprom-neft.com 39 Operating results
OIL PRODUCTION // In 2015, Gazprom Neft maintained its positions among Russian oil companies as an industry leader in terms of oil and gas production.
OIL PRODUCTION OIL PRODUCTION1 // mn t
Source: Company data 152.52 142.62 136.90 138.75 138.57 55.67 52.06 49.94 50.79 50.58 ↗6.9% 55.67 mn t
2011 2012 2013 2014 2015 31.49 32.88 33.42 34.78 36.00 Oil production by Gazprom Neft 9.04 8.93 8.40 8.09 7.74 Share in oil production by Slavneft (JV) – 0.06 0.18 0.94 3.93 Share in oil production by SeverEnergia and Northgas (JV) 5.17 5.11 5.08 4.97 4.95 Share in oil production by Tomskneft VNK (a proportionately consolidated company) 4.23 3.81 3.49 3.28 3.05 Share in oil production by SPD (a proportionately consolidated company) Average daily oil production by the Gazprom Neft Group, 1,000 tonnes/day 1 Including gas condensate.
GAS PRODUCTION // The Company is actively developing The development of small gas deposits that make up a part of gas production operations with a focus on commercialising the fields at which Gazprom Neft is already working will enhance reserves of associate and natural gas produced at oil fields the cost-effective use of the Company’s reserves and help and increasing their value. increase hydrocarbon production to 100 million TOE per year as envisaged by the Company’s development strategy to 2025. The gas programme of the Gazprom Neft Group provides for accelerated growth in gas production in Russia. The target is for production/use of gas to increase to 31.55 billion m3 in 2016 from 29.92 billion m3 in 2015.
GAS PRODUCTION1 // bn m3
Source: Company data
29.92 ↗69.2% 29.92 bn m3 17.68 14.55 81% 11.12 9.07 total APG utilisation level (including joint ventures)
2011 2012 2013 2014 2015 7.86 9.28 11.91 12.42 13.10 Gas production by Gazprom Neft – 0.45 1.24 3.81 15.32 Share in gas production by SeverEnergia and Northgas (JV) 0.42 0.42 0.41 0.44 0.46 Share in gas production by Slavneft (JV) 0.73 0.84 0.86 0.88 0.92 Share in gas production by Tomskneft VNK (a proportionately consolidated company) 0.05 0.13 0.14 0.13 0.13 Share in gas production by SPD (a proportionately consolidated company)
1 Gas production consists of commercial gas and gas used for internal needs.
40 GAZPROM NEFT // 2015 ANNUAL REPORT RUSSIAN PROJECTS //
NOVY PORT MESSOYAKHA3 PRIRAZLOMNOYE KUYUMBA3
Proven + probable hydrocarbon reserves Proven + probable hydrocarbon reserves Proven + probable hydrocarbon reserves Proven + probable hydrocarbon reserves under PRMS standards, mn TOE under PRMS standards, mn TOE under PRMS standards, mn TOE under PRMS standards, mn TOE 175.6 72.9 52.0 113.5 Proven/probable hydrocarbon reserves Proven/probable hydrocarbon reserves Proven/probable hydrocarbon reserves Proven/probable hydrocarbon reserves under PRMS standards, mn TOE under PRMS standards, mn TOE under PRMS standards, mn TOE under PRMS standards, mn TOE 109.1/66.5 6.5/66.4 18.6/33.4 7.7/105.8 Work stage Work stage Work stage Work stage Pilot operation Pilot operation Commercial operation Pilot operation Stake of Gazprom Neft, % Stake of Gazprom Neft, % Stake of Gazprom Neft, % Stake of Gazprom Neft, % 90 50 100 50 Projected start Projected start Projected start Projected start of commercial production of commercial production of commercial production of commercial production 2016 2016 launched 2018 Hydrocarbon production, 1,000 TOE Hydrocarbon production, 1,000 TOE Hydrocarbon production, 1,000 TOE Hydrocarbon production, 1,000 TOE 353 2 879 21 Gas production1, mn m3 Gas production1, mn m3 Gas production1, mn m3 Gas production1, mn m3 13 – 122 – Oil production, 1,000 tonnes Oil production, 1,000 tonnes Oil production, 1,000 tonnes Oil production, 1,000 tonnes 342 2 870 21 Milestones of 2015 Milestones of 2015 Milestones of 2015 Milestones of 2015 ↗↗first winter oil shipment by tanker fleet, ↗↗preparation of 71 km of an oil delivery ↗↗millionth tonne of ARCO oil blend ↗↗testing of drilling technology and marking the first time raw materials pipeline for construction and installation produced; completion of multilateral wells; were transported from a field by sea of gas turbine power plant units; ↗↗12 tankers dispatched in 2015; ↗↗completion of 3D seismic surveys for during winter and shipped to European ↗↗fulfilment of a geological exploration ↗↗approval of addendum to initial field an area of 800 km2. consumers; programme and a solution found for well development plan; ↗↗winter and summer oil shipments with development options; ↗↗completed drilling on 4 wells Plans for 2016 293,000 tonnes exported in 2015; horizontal well drilling time reduced (1 production, 2 injection and 1 slurry ↗↗obtaining a customs duty exemption; ↗↗ supply of the first batch of oil to the exemption granted on customs duty; by 30%; well); ↗↗ ↗↗ trunk oil pipeline system; ↗↗completed installation of the Gates of ↗↗completion of a three-year pilot section ↗↗first and second phases of shift camp ↗↗interpretation and processing of 2D the Arctic offshore offloading terminal; research programme and updating of initiated. and 3D materials from 2014/2015 field ↗↗keels installed on icebreaking supply pre-requisites for field development; season data. vessels that will operate in the Gulf ↗↗start of advance drilling on production Plans for 2016 of Ob. wells to commence the full-scale ↗↗completion of the well construction programme (opening of 1 injection and development of the East Messoyakha 3 production wells) for a more than Plans for 2016 field. ↗↗launch of the Gates of the Arctic two-fold increase in oil production; offshore offloading terminal; Plans for 2016 ↗↗Implementation of a programme to ↗↗use of new technologies as part of ↗↗obtaining a customs duty exemption; phase out imports of foreign equipment a hydraulic fracturing programme; ↗↗construction and installation of basic for offshore ice-resistant fixed ↗↗start of full-scale production and oil infrastructure; platforms. shipments. ↗↗supplying the first batch of oil to the trunk oil pipeline system.
1 Gas production consists of commercial gas and gas used for internal needs. 2 Indicator given taking into account process losses 3 The data expressed in terms of the share of the participation of Gazprom neft in the project.
www.gazprom-neft.com 41 Operating results
RUSSIAN PROJECTS // INTERNATIONAL PROJECTS //
SEVERENERGIA2 CHONSKY DOLGINSKOYE BADRA2
Proven + probable hydrocarbon reserves Proven + probable hydrocarbon reserves Proven + probable hydrocarbon reserves Proven + probable hydrocarbon reserves under PRMS standards, mn TOE under PRMS standards, mn TOE under PRMS standards, mn TOE under PRMS standards, mn TOE 506.0 79.1 No estimate conducted 23.2 Proven/probable hydrocarbon reserves Proven/probable hydrocarbon reserves Proven/probable hydrocarbon reserves Proven/probable hydrocarbon reserves under PRMS standards, mn TOE under PRMS standards, mn TOE under PRMS standards, mn TOE under PRMS standards, mn TOE 319.2/186.8 13.9/65.2 No estimate conducted 11.3/11.9 Work stage Work stage Work stage Work stage Commercial operation Pilot operation Geological exploration Commercial operation Stake of Gazprom Neft, % Stake of Gazprom Neft, % Stake of Gazprom Neft, % Stake of Gazprom Neft, % 46.67 100 100 30 Projected start Projected start Projected start Projected start of commercial production of commercial production of commercial production of commercial production launched 2020 date to be determined launched Hydrocarbon production, 1,000 TOE Hydrocarbon production, 1,000 TOE Hydrocarbon production, 1,000 TOE Hydrocarbon production, 1,000 TOE 12,129 2 – 417 Gas production1, mn m3 Gas production1, mn m3 Gas production1, mn m3 Gas production1, mn m3 10,847 – – 2 Oil production, 1,000 tonnes Oil production, 1,000 tonnes Oil production, 1,000 tonnes Oil production, 1,000 tonnes 3,419 (condensate) 2 – 415 Milestones of 2015 Milestones of 2015 Milestones of 2015 Milestones of 2015 ↗↗start of the commercial operation of ↗↗completed 3D field seismic surveys on ↗↗updating of the geological model for ↗↗start of cost oil shipments at the project; a complex gas treatment plant and an area of 940 km2 at the Ignyalinsky, the Dolginskoye field; ↗↗millionth tonne of oil produced; condensate de-ethanizer plant at the Vakunaysky and Tympuchikansky license ↗↗development of a comprehensive seismic ↗↗completed drilling and development of Yaro-Yakhinskoye oil and gas condensate areas; model of the field; three wells and increased average daily field; ↗↗completed well workovers with hydraulic ↗↗license addendums and updates production 150% to 45,000 barrels/day; ↗↗the Yaro-Yakhinskoye oil and gas fracturing at three wells and proved to license validity (until 2035) and ↗↗commissioning of the second petroleum condensate field reached its projected effectiveness of hydraulic fracturing on construction period of next exploration stage of the Central Gathering Facility; production level. terrigenous and carbonate reservoirs; well (2019). ↗↗final field development plan approved ↗↗completed drilling on 4 exploration wells. by Iraq. Plans for 2016 Plans for 2016 ↗↗supply of natural gas from fields to Plans for 2016 ↗↗3D seismic survey modelling for Plans for 2016 the Unified Gas Supply System; ↗↗confirmation of the effectiveness of the subsequent processing of an area ↗↗commissioning of the third petroleum ↗↗development of oil rims with connection hydraulic fracturing based on well covering 1,600 km2 using the wide stage and priority infrastructure to the Zapolyarye-Purpe oil pipeline workovers and hydraulic fracturing at azimuth method; buildings of the Central Gathering under construction. 2 existing wells; ↗↗search for a partner to jointly Facility; ↗↗drilling of 1 horizontal well at the implement the project. ↗↗commissioning of 4 wells. project (partial elimination of uncertainties concerning development).
1 Gas production consists of commercial gas and gas used for internal needs. 2 The data expressed in terms of the share of the participation of Gazprom neft in the project.
42 GAZPROM NEFT // 2015 ANNUAL REPORT KURDISTAN2 Oil refining
Gazprom Neft has been implementing ambitious programmes to modernise its production facilities since 2009. These programmes not only enhance the quality of the Company’s products, but also improve the environmental performance of motor fuel and minimise the Proven + probable hydrocarbon reserves under PRMS standards, mn TOE environmental impact of its plants. 0.9 Proven/probable hydrocarbon reserves Thanks to the modernisation programmes carried out by the Company’s oil refineries in Russia under PRMS standards, mn TOE –/0.9 and the optimisation of its product mix, the entire range of high-octane petrol and diesel fuel manufactured by Gazprom Neft complied with Euro-5 emission standards in 2015. Work stage Geological exploration Stake of Gazprom Neft, % 40 Garmian; 80 Shakal; 80 Halabja GAZPROM NEFT OIL REFINING BY OIL REFINERY // mn t KEY PRIORITIES Projected start of commercial production Source: Company data Garmian launched; Shakal 2018; Halabja 2019 43.34 42.63 43.48 43.07 40.49 Key Gazprom Neft Hydrocarbon production, 1,000 TOE priorities when 98 manufacturing Gas production1, mn m3 petroleum products: – ↗↗ improving crude oil refining efficiency; Oil production, 1,000 tonnes ↗↗ improving the 98 2011 2012 2013 2014 2015 environmental Milestones of 2015 19.95 20.95 20.23 21.28 20.90 Omsk Oil Refinery performance of launch of production at the Sarkala field ↗↗ 10.80 10.67 11.08 10.76 11.00 Moscow Oil Refinery different types of (Garmian Block); ↗↗2D field seismic surveys conducted at the 7.39 7.64 7.52 7.65 7.63 YANOS fuel; Halabja Block (863 running km); 2.36 2.14 2.75 2.61 2.94 NIS ↗↗ meeting the 3D field seismic surveys conducted at the ↗↗ – 1.94 1.05 1.17 0.60 Mozyr Oil Refinery Shakal Block (100 km2); demands of the ↗↗plan coordinated with the Ministry of domestic market; Natural Resources and Western Zagros GAZPROM NEFT PETROLEUM PRODUCTS PRODUCTION ↗↗ safe production for transferring operatorship of the Garmian Block. STRUCTURE // mn t and environmental protection. Plans for 2016 Source: Company data ↗↗completion of the process of 41.01 40.55 41.64 41.10 transferring operatorship from Western 38.35 Zagros for the Garmian Block; ↗↗completion of a range of geological exploration work at the Shakal Block; ↗↗interpretation of data from the 2D seismic survey conducted at the Halabja Block in 2015; ↗↗comprehensive geological assessment of the Halabja Block.
2011 2012 2013 2014 2015 8.11 8.96 8.92 8.84 9.08 Motor petrol 1.15 1.30 1.47 1.36 1.45 Technological petrol 11.49 11.51 12.09 12.15 11.88 Diesel fuel 2.57 2.67 2.69 2.99 3.00 Jet fuel 2.13 3.38 3.31 4.08 3.67 Marine fuel 8.34 8.78 7.48 7.39 7.20 Fuel oil 1.97 1.72 2.09 2.03 2.02 Bitumen and coke
Source: Company data 2.59 2.70 2.49 2.80 2.81 Other
www.gazprom-neft.com 43 Operating results
Oil refining assets
OIL REFINING ASSETS
OIL REFINING RESULTS AT COMPANY OIL REFINERIES IN 2015
Source: Company data 41.10 mn t commercial petroleum product OMSK OIL REFINERY MOSCOW OIL REFINERY NIS production in 2015
43.07 mn t oil refining in 2015 Installed capacity, mn t Installed capacity, mn t Installed capacity, mn t 20.89 11.00 2.94 Refining, mn t Refining, mn t Refining, mn t 20.90 11.00 2.93 Commercial Commercial Commercial petroleum product output, mn t petroleum product output, mn t petroleum product output, mn t 19.80 10.53 3.02 Refining depth, % Refining depth, % Refining depth, % 91.5 72.50 85.60 Output of light petroleum products, % Output of light petroleum products, % Output of light petroleum products, % 66.9 55.26 72.85 Milestones of 2015 Milestones of 2015 Milestones of 2015 ↗↗the refining of stable gas condensate ↗↗commissioning of the modern GFP-2 ↗↗commissioning of a diesel fuel dewaxing (SGC) reached 1.36 million tonnes gas fractionation plant, which expanded plant to improve the low temperature compared with 0.51 million tonnes in the plant's product range and mitigated properties of diesel fuel; 2014 as part of a programme to increase its environmental impact; ↗↗concept drafted for ‘advanced refining’ the use of SGC in refining; ↗↗continued reconstruction of the Crude with a basic design completed; ↗↗the production of Class 5 motor fuel and Vacuum Distillation Unit Complex-6 ↗↗planned major repairs of bitumen plant; expanded to 10.36 million tonnes in as part of the modernisation of the ↗↗major repairs of catalytic cracking 2015; Moscow Oil Refinery; complex and sulphuric acid regeneration ↗↗micro-spherical zeolite-containing ↗↗start of construction on the Biosphera unit; biceolyte catalyst the Omsk Oil Refinery biological treatment facilities. ↗↗pumps rebuilt on atmospheric vacuum production and Euro-5 diesel fuel were distillation unit; granted a gold diploma in the 100 Best ↗↗optimisation of the operating mode of Russian Products contest; the atmospheric vacuum distillation unit ↗↗completed reconstruction of the AT-9 to improve the output of light petroleum crude oil refining complex; products. ↗↗completed large-scale reconstruction of the KT-1/1 residue deep conversion unit.
44 GAZPROM NEFT // 2015 ANNUAL REPORT OIL REFINING AT JOINT VENTURE OIL REFINERIES
OIL REFINING RESULTS AT JOINT OIL REFINERIES IN 2015 In addition to its own oil refineries, Gazprom Neft Source: Company data has access to the refining facilities of OJSC Slavneft- Yaroslavnefteorgsintez (YANOS) and Mozyr Oil Refinery SLAVNEFT-YANOS MOZYR OIL REFINERY2 in the Republic of Belarus.
Installed capacity, mn t Installed capacity, mn t 15.27 12.03 Refining, mn t Refining, mn t 7.63 1 0.60 Commercial Commercial petroleum product output, mn t petroleum product output, mn t 7.19 0.56 Refining depth, % Refining depth, % 65.58 73.66 Output of light petroleum products, % Output of light petroleum products, % 57.73 57.10 Milestones of 2015 Milestones of 2015 ↗↗selection of a general contractor for ↗↗construction of a C4 fraction absorption a project to build a plant to produce treatment plant and a diesel fuel 3 groups of oils and start of the receiving, storage and shipment yard. construction stage; ↗↗major repairs conducted on the processing chain of the Electric Desalting Crude Distillation Unit-4 to improve the reliability and environmental friendliness of this chain; ↗↗completed construction on a fuel oil and diesel fuel loading rack.
1 Gazprom Neft has a 50% share of refining volume. 2 The volume of oil refined at the Mozyr Oil Refinery is determined based on the Gazprom Neft oil supply schedule approved by the Russian Ministry of Energy and also how the oil is distributed for the oil refining needs of Gazprom Neft and sales to Mozyr Oil Refinery in accordance with an intergovernmental agreement between Russia and Belarus.
www.gazprom-neft.com 45 Operating results
Sale of oil and petroleum products
Gazprom Neft sells oil and petroleum products in bulk in Russia and abroad. Small-scale wholesale and retail sales, including via the Company’s filling stations, are handled by sales subsidiaries.
SALES OF OIL AND PETROLEUM PRODUCTS ON THE DOMESTIC MARKET
Sales of petroleum products on the domestic market edged The decrease in jet fuel sales is attributable to the reformatting down slightly by 0.1% in physical terms, but increased by 3.4% of the airline passenger market and the departure of Russia’s in monetary terms in 2015. second largest air carrier from the market.
Despite the overall decline of the Russian market, the Company As a result, the Company managed to maintain and increase its utilised the competitive advantage of having its own highly market share for all premium product categories. efficient filling station chain, which led to growth in motor fuel sales.
OIL SALES ON THE DOMESTIC MARKET // mn t OIL SALES ON THE DOMESTIC MARKET // RUB bn
Source: Company data Source: Company data 6.14 240.3
233.8 3.96 191.6 175.9 169.9
1.85 1.26 0.20
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
46 GAZPROM NEFT // 2015 ANNUAL REPORT PETROLEUM PRODUCT SALES ON THE DOMESTIC MARKET // mn t PETROLEUM PRODUCT SALES ON THE DOMESTIC MARKET // RUB bn
Source: Company data Source: Company data 27.54 27.50 740.5 25.15 25.84 715.9 24.29 630.4 572.1 478.2
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 7.11 7.71 8.06 8.60 8.94 High-octane petrol 180.1 214.6 241.7 285.3 311.2 High-octane petrol 0.74 0.37 0.20 0.13 0.07 Low-octane petrol 16.8 9.1 5.5 3.6 2.0 Low-octane petrol 6.66 7.38 7.16 7.35 7.44 Diesel fuel 140.0 183.5 200.9 220.0 231.2 Diesel fuel 1.8 1.91 1.66 1.74 1.55 Fuel oil 14.9 21.0 19.2 18.3 11.6 Fuel oil 2.50 2.65 2.83 2.91 2.81 Jet fuel 49.3 62.0 68.8 76.1 76.3 Jet fuel 1.83 2.12 2.45 3.39 3.30 Marine fuel 29.3 39.0 44.0 60.8 53.5 Marine fuel 3.56 3.01 3.48 3.42 3.39 Other 47.9 42.9 50.0 51.7 54.7 Other
DYNAMICS OF OIL EXPORTS TO NON-CIS EXPORT SALES AND CIS COUNTRIES // mn t
Source: Company data OIL EXPORT // Gazprom Neft exported 12.04 million tonnes of oil in absolute terms in the reporting year, or 12.5% more 15.74 16.20 13.12 than in 2014. The increase is attributable to growth in oil 12.04 exports from the Company’s Arctic regions. 10.70
2011 2012 2013 2014 2015 12.75 11.95 8.03 8.36 9.58 Non-CIS countries 2.99 4.26 5.09 2.34 2.46 CIS countries
STRUCTURE OF THE COMPANY’S OIL EXPORTS BY TRANSPORT MODE (TO NON-CIS AND CIS COUNTRIES) // %
Source: Company data 100 100 100 100 100
2011 2012 2013 2014 2015 17.6 18.1 13.9 9.9 15.1 Druzhba (Pipeline) 11.5 0.6 14.1 23.0 25.4 East Siberia – Pacific Ocean (Pipeline) 16.9 20.5 15.3 20.2 18.3 Belarus (Pipeline) 2.1 5.8 22.9 0.0 0.0 Kazakhstan (Pipeline) 40.0 37.0 19.1 25.2 5.0 Primorsk (Sea) 5.2 6.7 9.4 17.2 25.0 Nororossiysk (Sea) 6.7 2.0 0.0 0.0 0.0 Tuapse (Sea) 0.0 9.3 3.8 0.0 0.0 Ust-Luga (Sea) 0.0 0.0 0.0 2.8 9.1 Arctic shelf (Novy Port, Prirazlomnoye) (Sea) 0.0 0.0 0.6 1.6 1.3 Belarus (Railway) 0.0 0.0 0.0 0.0 0.9 Uzbekistan (Railway) 0.0 0.0 0.8 0.0 0.0 Novorossiysk (Railway)
www.gazprom-neft.com 47 Operating results
DYNAMICS OF PETROLEUM PRODUCT EXPORTS TO NON-CIS PETROLEUM PRODUCT EXPORTS // The decrease in AND CIS COUNTRIES1 // mn t petroleum product sales in non-CIS countries resulted from DYNAMICS OF PETROLEUM PRODUCT EXPORTS TO NON-CIS a reduction in the volume of trading operations with third party AND CIS COUNTRIES1 // mn t Source: Company data resources by Gazpromneft-Trading as well as the decreased 17.73 16.48 16.82 volume of oil refining at the Mozyr Oil Refinery in the Republic 14.59 14.09 of Belarus by subsidiary Gazpromneft-Belnefteprodukt.
2011 2012 2013 2014 2015 11.83 14.13 14.61 15.64 11.81 Non-CIS countries 2.76 2.35 2.21 2.09 2.28 CIS countries
1 Including outsourcing except NIS a.d. Novi Sad.
PETROLEUM PRODUCT SALES OUTSIDE RUSSIA PETROLEUM PRODUCT SALES OUTSIDE RUSSIA AND THE CIS1 // mn t AND THE CIS1 // RUB bn PETROLEUM PRODUCT SALES OUTSIDEPETROLEUM RUSSIA PRODUCT SALES OUTSIDE RUSSIA PETROLEUM PRODUCT SALES OUTSIDE RUSSIA AND THE CIS1 // mn t AND THE CIS1 // mn t Source: Company data AND THE CIS1 // RUB bn Source: Company data 15.64 14.61 400.35 14.13 349.05 352.99 12.63 11.81 287.75 260.73
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 0.13 0.32 0.27 0.08 0.05 High-octane petrol 3.44 9.83 7.86 2.56 1.52 High-octane petrol 0.03 0.20 0.22 0.17 0.02 Low-octane petrol 0.80 5.59 6.06 5.34 0.64 Low-octane petrol 1.00 1.19 1.20 1.16 1.08 Naphtha 24.48 33.81 34.17 36.04 28.90 Naphtha 4.66 3.93 4.80 4.59 3.34 Diesel fuel 126.35 117.81 142.13 148.50 98.41 Diesel fuel 5.82 6.66 6.71 7.12 5.45 Fuel oil 104.28 129.44 125.20 137.82 78.15 Fuel oil 0.15 0.22 0.32 0.72 0.54 Jet fuel 4.66 7.55 10.00 24.43 17.95 Jet fuel 0.33 1.00 0.57 1.03 0.68 Marine fuel 6.33 27.04 14.26 26.51 17.30 Marine fuel 0.51 0.61 0.52 0.77 0.65 Other 14.41 17.99 13.32 19.15 17.87 Other 1 Excluding NIS a.d. Novi Sad.
PETROLEUM PRODUCT SALES IN THE CIS // mn t PETROLEUM PRODUCT SALES IN THE CIS // RUB bn
PETROLEUM PRODUCT SALES OUTSIDE RUSSIA Source: Company data Source: Company data AND THE CIS1 // RUB bn 2.35 2.21 2.28 64.58 2.05 2.09 59.18 58.31 78.13 46.81
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 0.57 0.65 0.72 0.75 0.81 High-octane petrol 15.56 18.93 20.86 25.69 32.97 High-octane petrol 0.23 0.19 0.18 0.13 0.14 Low-octane petrol 4.40 4.79 4.31 3.88 5.02 Low-octane petrol 0.11 0.06 – – – Naphtha 2.40 1.01 – – – Naphtha 0.58 0.54 0.63 0.76 0.71 Diesel fuel 14.06 14.35 17.27 24.62 26.48 Diesel fuel 0.08 0.23 0.22 0.07 0.08 Fuel oil 0.95 2.84 2.54 0.69 0.47 Fuel oil 0.11 0.23 0.20 0.09 0.17 Jet fuel 2.70 9.07 7.91 3.19 5.51 Jet fuel 0.37 0.45 0.26 0.29 0.37 Other 6.74 8.19 5.42 6.51 7.69 Other
48 GAZPROM NEFT // 2015 ANNUAL REPORT SALE OF PETROLEUM PRODUCTS BY PRODUCT BUSINESS UNITS
In order to improve the efficiency of petroleum product sales, market and decreased funding for the road industry. Despite Gazprom Neft has set up individual business units that are these conditions, the Company managed to maintain its leading responsible for the sale of jet fuel, bunkering, lubricants, positions and widen its market share. bitumen and petrochemical products. The Company has drawn up specific strategic development plans for each division. Sales of premium-grade bituminous products, particularly polymer-bitumen binders, increased as a result of enhanced Main objectives for the product business units: productivity by the Company’s Ryazan Bituminous Products ↗↗ improve sales efficiency; Plant following the modernisation of production facilities and ↗↗ expand the geography of business; also because an expanded number of its products meet Russian ↗↗ increase the Company’s share in premium market segments. and international quality standards. Thanks to the development of premium sales channels, the expansion in sales geography The key segments experiencing growth are: bunkering and the and participation in the import substitution programme, sales sale of jet fuel, lubricants and premium bituminous materials. of lubricants increased along with the Company’s market share Lower sales of jet fuel, marine fuel and bituminous materials despite an overall 5% decline in the market’s capacity. resulted from the overall decline in the capacity of the Russian
TOTAL PREMIUM SALES BY PRODUCT BUSINESS UNITS IN RUSSIA AND ABROAD1 // mn t
TOTAL PREMIUM SALES BY PRODUCT BUSINESS UNITS IN RUSSIA Source: Company data AND ABROAD1 // mn t 25.78 25.71 23.98 20.34 mn t 19.55 25.71 total sales via premium channels in 2015
2011 2012 2013 2014 2015 15.63 17.74 18.17 18.51 18.70 Sales via filling station network and petroleum storage depots 1.64 2.07 2.39 2.84 2.80 Jet fuel 2.16 2.58 3.22 4.20 3.92 Marine fuel 0.12 0.14 0.17 0.19 0.23 Oils and lubricants 0 0.03 0.03 0.04 0.06 Bitumen
1 Premium sales include: – Sales of petroleum products through premium sales channels – retail and wholesale. This group includes all sales of petroleum products via petrol stations and petroleum storage depots, for aircraft and vessels and small-scale wholesale from refuelling facilities at airports and port terminals. – Sales of packaged petroleum products. This group includes all oil sales in barrels and canisters as well as bitumen sales in clovertainers, etc. – Sales of premium petroleum products, i.e. petroleum products that generate added value due to the presence of certain qualitative features compared with other products of their kind. This group includes the sale of premium bulk lubricants (Gazpromneft, G-Family, Texaco), premium bituminous materials (polymer-bitumen binders, PMB, bituminous emulsions, etc.) and the possible wholesale of premium motor fuels – G-Drive, etc.
www.gazprom-neft.com 49 Operating results
PRODUCT SALES VIA FILLING STATION NETWORK SALES CHANNELS AND PETROLEUM STORAGE DEPOTS // PRODUCT SALES VIA PETROLEUM STORAGE DEPOTS // In 2015, the Gazprom Neft sales unit launched full-scale work as As of the end of 2015, the Company’s oil product part of a targeted functional model to separate by sales channel supply enterprises operated 49 owned and leased ↗↗ The corporate centre (Management Company) consolidates the petroleum storage depots. A total of 7.1 million Company’s retail assets and the management functions for the tonnes of petroleum products were sold via filling station network; small-scale wholesale in 2015. The tank farms ↗↗ Gazpromneft – Regional Sales handled small-scale wholesale of petroleum storage depots had a turnover in 2015; ratio of 16.2 per year. ↗↗ Gazpromneft – Corporate Sales provides services for corporate clients; ↗↗ Gazpromneft – Krasnoyarsk guarantees the integrity of the quality and quantity of petroleum products throughout the entire commodity distribution network.
RETAIL SALES // Developing the petroleum product retail sale SALES VIA FILLING STATIONS IN RUSSIA AND ABROAD // mn t segment is one of the key priorities of the Company’s business. Source: Company data The Company believes having its own national brand with a high level of brand awareness and trust in the quality of its products 9.91 10.16 will help achieve one of its strategic goals of becoming a leader in 9.22 8.10 Russia and the CIS in terms of the volume of retail sales and the 6.18 efficiency of the filling station network by 2015.
With one of the most extensive distribution networks in Russia, Gazprom Neft continued to consolidate its position on the retail motor fuel market in 2015, increasing its market share in the 2011 2012 2013 2014 2015 regions where it operates by 1.3 percentage point to 27.8%. The Gazprom Neft filling station network is represented in 28 Russian regions as well as countries of the CIS and Eastern Europe. As of the end of 2015, the Company had 1,432 filling stations in operation in Russia and the CIS, an increase of 43 stations from the end of the preceding year.
КлючевыеKEY FILLING показатели STATION сети АЗС NETWORK INDICATORS //
Source: Company data
20.0 19.0 19.1 17.60 1,432 filling stations ↗43 stations in operation in Russia 14.2 1,852 and the CIS as of the end of 2015 1,747 1,810 1,670 1,609
Rebranding is one of the tools the Company uses to increase sales via its filling station
2011 2012 2013 2014 2015 network 1,043 1,060 1,111 1,150 1,189 Number of filling stations in Russia 202 205 228 239 243 Number of filling stations in the CIS 425 344 408 421 420 Number of filling stations in Eastern Europe Average daily sales via one filling station in the RF, t/day
50 GAZPROM NEFT // 2015 ANNUAL REPORT BRANDED FUEL GAS ENGINE FUELS
During the reporting period, Gazprom Neft continued In recent times, the environmental friendliness and cost- implementing projects to sell premium branded fuel at its filling effectiveness of transportation has become a much greater social stations. In 2015, 565,000 tonnes of premium class G-Drive 95 issue and particularly important for municipal and commercial fuel were sold. An average of 1,035 filling stations sold this type transportation in large cities. This makes these segments of fuel. Sales of G-Drive 95 accounted for 27% of the overall sales a pillar and an example for the widespread use of this type of Ai-95 fuel. of fuel. Gazprom Neft has responded by paying close attention to developing sales of gas engine fuels, in particular liquefied The Company continued selling G-Drive 98 premium class motor petroleum gas (LPG) and compressed natural gas (CNG). fuel in 2015. A total of 63,000 tonnes of this fuel was sold during the reporting period with an average of 449 filling stations selling In Russia, the consumption of LPG and CNG within the motor this type of fuel. fuel structure does not exceed 3%.Liquefied gas has witnessed the most development as a motor fuel and accounts for 2.4% of all fuel consumption. CNG consumption accounts for only 0.4%. In 2015, there were a total of 146 vehicle filling stations (VFS) under the Gazprom Neft brand within multi-fuel filling complexes. A total of 12,000 tonnes of CNG and 105,000 tonnes of LPG were sold in 2015.
BUNKERING // The Company’s subsidiary LLC Gazpromneft For a map of regions where Marine Bunker handles sales of light and dark blends of marine LLC Gazpromneft Marine Bunker operates, see fuel for sea and river transportation. 21.0% ↗2.4 p.p. http://marinebunker. gazprom-neft.ru/en/ Company’s share of the Russian company/geography/ The Company maintained leading positions on the Russian bunkering market in 2015 bunkering market with a 21.0% share (up 2.4 percentage points from 2014) despite a 12.6% contraction in market capacity in 2015.
PREMIUM SALES OF MARINE FUEL // mn t SHARE OF THE RUSSIAN MARINE FUEL MARKET // %
Source: Company data Source: Company data
4.20 21.0 3.92 18.2 18.6 18.6 18.6 3.22 2.58 2.16
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
www.gazprom-neft.com 51 Operating results
AIRCRAFT FUELLING // The Company provides small wholesale For a map of regions where and retail sales of jet fuel as well as a range of services LLC Gazpromneft-Aero operates, see connected with the provision of aviation fuel and lubricants. 26.3% ↗1.1 p.p. http://www.gazprom-neft. aero/en/ Company’s share of the Russian In 2015, the Company (with a 26.3% share of sales, up 1.1 p.p. jet fuel market in 2015 from 2014) was the leader in retail jet fuel sales in Russia. Retails sales of jet kerosene decreased 7% versus 2014 despite a 10% decline in the market’s capacity.
PREMIUM SALES OF JET FUEL // mn t SHARE OF THE RUSSIAN JET FUEL MARKET // %
Source: Company data Source: Company data
2.84 2.80 25.2 26.3 22.7 2.39 21.3 2.07 19.0 1.64
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
PRODUCTION AND SALE OF OILS AND For a map of regions where LUBRICANTS // Gazprom Neft sells oils and lubricants via its LLC Gazpromneft-Lubricants operates, see own filling station network and also supplies products to retail 35% http://www.gazpromneft- chains, online stores, service stations and the assembly lines of oil.com/ Growth in premium product automotive manufacturers. sales on foreign markets in 2015 vs. 2014 Sales of premium products on foreign markets increased 35% versus 2014.
Despite an overall decline in the market’s capacity by 5 percentage points in 2015, the Company managed to increase A new lubricant production section with capacity of 5,000 tonnes its market share to 17,1% (up 3.5 percentage points versus per year was put into operation at the Omsk Oil Refinery in 2015. 2014). Premium sales grew by 24% compared with 2014, while sales of the G-Family brand soared by 69%.
PREMIUM SALES OF OILS AND LUBRICANTS // mn t SHARE OF THE RUSSIAN OILS AND LUBRICANTS MARKET // %
Source: Company data Source: Company data
0.23 17.1
0.19 13.4 13.6 0.17 12.6 12.8 0.14 0.12
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
52 GAZPROM NEFT // 2015 ANNUAL REPORT BITUMINOUS MATERIALS // In 2014, Gazprom Neft spun For a map of regions where off a subsidiary LLC Gazpromneft – Bituminous Materials, which LLC Gazpromneft-Bituminous Materials operates, see specialises in the production and sale of all the Company’s www.bitum.gazprom-neft.ru bituminous products.
In 2015, the Company completed the first stage of modernising an asset it acquired in 2014 – the Ryazan Bituminous Materials Plant, Russia’s largest producer of polymer-bitumen binders.
PREMIUM SALES OF BITUMINOUS MATERIALS // mn t
Source: Company data The products manufactured by Gazprom Neft’s Ryazan 0.06 Bituminous Materials Plant won the ‘100 Best Russian Products’ contest. High ratings were given to two 0.04 innovative and traditional bituminous material product 0.03 0.03 lines: polymer-bitumen binders and viscous petroleum bitumen for road construction.
0 2011 2012 2013 2014 2015
PETROCHEMISTRY
Gazprom Neft is a major Russian manufacturer of a number Basic petrochemical products are manufactured at all Gazprom of basic petrochemical products – aromatic hydrocarbons Neft oil refineries (Omsk, Moscow and Yaroslavl). The production (benzene, paraxylene, orthoxylene and toluene) and propane- of petrochemical products for further stages of added value propylene fraction products (propylene liquefied petroleum gas). (polypropylene) takes place at integrated enterprises.
PRODUCTION OF BASIC PETROCHEMICAL PRODUCTS // mn t
Source: Company data 2.4% 1.35 1.26 1.29 1.12 1.17 1.3 mn t
2011 2012 2013 2014 2015 0.40 0.39 0.39 0.39 0.47 Aromatics 0.78 0.58 0.62 0.71 0.66 LPG 0.11 0.10 0.11 0.11 0.12 Sulphur 0.05 0.06 0.05 0.05 0.04 Sulphuric acid
www.gazprom-neft.com 53 Operating results
R&D and innovation
One of the priorities for Gazprom Neft’s innovative development is technology that ensures the strategic goals of increasing production and enhancing the technological efficiency of oil refining. The Company has introduced a long-term technological planning system that identifies long-term technological challenges and the solutions needed to deal with them. The Company acquires third-party technologies and also develops its own targeted solutions as part of its technological development.
INNOVATIONS IN PRODUCTION
The Company has had a Technological Strategy for exploration The Company launched roughly 70 technological projects during and development since 2014. Technological challenges were the reporting year that are being implemented jointly with grouped into ten priority areas. leading Russian and foreign technology developers (research organisations, universities, oilfield companies, IT solution developers and engineering companies).
FLOODING METHOD GAS TREATMENT TECHNOLOGY
One method for enhancing oil recovery efficiency that is commonly Associated petroleum gas is an integral component of oil used in Russia is flooding where water is employed as a displacing production at almost all fields. In order to increase the APG usage agent. Pumped into the subsoil resources via special injection level, Gazprom Neft is implementing a number of projects that wells, the water pushes the oil towards the production wells acting will make it possible to efficiently process it directly in the regions as a kind of piston. of production. One of the most commonly used gas treatment technologies is the low-temperature separation of APG into natural The efficiency of the process can be enhanced additionally by gas liquids (NGL), dry stripped gas and natural petrol. The petrol pumping special solutions into the formation, which include can then be used as fuel or gas and pumped into a pipeline, while surfactants that flush away the residual oil by reducing surface NGL is used as a raw material for the petrochemical industry. tension at the boundaries with the rock and the water as well as a thickening agent – a polymer that allows for levelling out the However, the construction of a gas processing plant and injection front and increasing the sweep. infrastructure to transport NGLs is a project that would only be economically justified if significant volumes of APG are utilised. Cost-effective processing methods such as mild steam reforming technology are needed for small amounts of raw materials. Such technology makes it possible to convert NGLs contained in APG into methane and obtain a gas that is suitable for use in the power industry and gas pipeline transportation.
54 GAZPROM NEFT // 2015 ANNUAL REPORT INNOVATIONS IN PRODUCTION IN 2015 //
Area Results
INTEGRATION OF HARD-TO-RECOVER Completion of the first stage of the study of the Bazhenov formation at the AND UNCONVENTIONAL RESERVES South Priobskoye field. The work resulted in confirmation of the existence of mobile oil reserves. After hydraulic fracturing operations were performed at all the wells, a flow of hydrocarbons was obtained with varying intensity. At the Priobskoye field, LLC Gazpromneft-Khantos has introduced innovative non-spherical hydraulic fracturing technology that eliminates restrictions on the number of stages in a single bore. This technology will enable the Company to develop additional hard-to-recover reserves. The drilling of the first horizontal well has been completed at the Novoportovskoye oil and gas condensate field. This marks the first time a dual well has been drilled in Arctic conditions. The drilling of extra-long dual wells intensifies hydrocarbon production while simultaneously reducing infrastructure costs.
INTEGRATED CONCEPTUAL DESIGN TOOLS A software module called ‘Surface Infrastructure Development’ is being developed and its introduction will help to improve the economic efficiency of projects by optimising the infrastructure development of multiple well platforms and in-field communications.
CHEMICAL-BASED ENHANCED OIL RECOVERY METHODS In the second half of 2015, Salym Petroleum Development completed the installation of equipment and began pumping into injection wells as part of a pilot soda-surfactant-polymer flooding project. The results are expected in 2016.
UTILISATION OF ASSOCIATED PETROLEUM GAS The Company has successfully completed the pilot testing of innovative soft steam reforming technology to process associated petroleum gas developed by the Boreskov Catalysis Institute of the Siberian Branch of the Russian Academy of Sciences. The new technology is recommended for introduction at the Company’s enterprises in order to enhance the utilisation of associated petroleum gas at small and remote fields.
IMPORT SUBSTITUTION OF TECHNOLOGICAL EQUIPMENT OJSC Gazpromneft-NNG has successfully completed the first stage of testing at the Vyngapurovskoye field on the first Russian rotary-controlled system produced by OJSC Elektropribor State Research Centre Concern.
Source: Company data
www.gazprom-neft.com 55 Operating results
TECHNOLOGICAL DEVELOPMENT SYSTEM //
Timeframe for effect
Technological area 1–2 years 2–5 years 5+ years Increased oil recovery, production stimulation New generation infrastructure at current assets Infrastructure development in challenging climatic and geographical conditions Electronic development of assets (EDA) Development of unconventional reserves Development of the Arctic shelf Development of carbonate fractured reservoirs Development of deposits below the gas cap Geological exploration and resource base development technologies Well drilling and completion technologies
One of the priorities for Gazprom Neft’s innovative development is technology that ensures the strategic goals of increasing Evaluation Studying the feasibility of utilising technology/R&D production and enhancing the technological efficiency of oil Selection Acquisition/adaption or development of technology/design development Designation Field testing refining. The Company has introduced a long-term technological Implementation Introduction planning system that identifies long-term technological challenges and the solutions needed to deal with them. The Company acquires third-party technologies and also develops its own targeted solutions as part of its technological development.
INNOVATIONS IN REFINING AND SALES
Priorities in the oil refining segment include increasing refining depth, releasing new products and improving the environmental Gazprom Neft is currently the only oil and gas company in the CIS that friendliness of the production process. has its own catalytic cracking catalysts.
HYDROTREATING AND HYDROCRACKING
The widespread use of catalytic hydrotreating and hydrocracking processes in modern oil refining is driven by the growing environmental requirements for the quality of petroleum products manufactured by refineries. Motor fuel-based hydrotreating technology is used to remove sulphur and nitrogen compounds, which ultimately reduces the environmental impact of road transport. The hydrocracking process makes it possible to obtain a wide range of high-quality motor fuels, including from raw materials that had previously been used solely for the production of dark petroleum products.
56 GAZPROM NEFT // 2015 ANNUAL REPORT INNOVATIONS IN REFINING AND SALES IN 2015 //
Area Results
INCREASING THE REFINING DEPTH The ‘Aluminium Oxide-Based Crude Deep Conversion Catalysts’ project aims to provide the Russian AND PRODUCTION MARGIN oil refining industry with modern catalysts that will help to improve the quality of motor fuels and increase the refining depth of crude oil. The Ministry of Energy has assigned national project status to the catalyst production development project at Omsk Oil Refinery. As part of the project, production facilities for cracking and hydrogenation process catalysts are to be built at the Omsk Oil Refinery with total capacity of 21,000 tonnes per year. Gazprom Neft is developing innovative catalyst production technologies in cooperation with the leading Russian scientific research centres that work with catalytic processes. In particular, the Company’s partner in the national project is the Boreskov Catalysis Institute of the Siberian Branch of the Russian Academy of Sciences (Novosibirsk), which is developing a technology to manufacture hydrogenation process catalysts. The Institute of Hydrocarbon Processing Problems of the Siberian Branch of the Russian Academy of Sciences (Omsk) is working jointly with the Company to establish new technologies and improve existing technologies for the production of catalytic cracking catalysts. The first Russian-made diesel-based hydrotreating catalyst was developed as part of a general cooperation agreement with the Boreskov Catalysis Institute of the Siberian Branch of the Russian Academy of Sciences concluded in April 2015. Following the completion of industrial testing, the catalyst is to be introduced at the Company’s oil refining enterprises. IMPROVING THE ENVIRONMENTAL The Company is building a pilot solid acid alkylation plant jointly with the Topchiyev Institute of FRIENDLINESS OF THE PRODUCTION Petrochemical Synthesis of the Russian Academy of Sciences. PROCESS RELEASE OF NEW PRODUCTS Grade A needle coke has been produced at the Moscow Oil Refinery for the first time in Russia. Gazpromneft – Lubricants and Gazpromneft – Bitumen Materials have developed and launched a number of new products that meet current government standards and customer needs.
Source: Company data
www.gazprom-neft.com 57
FINANCIAL RESULTS Financial results
Key financial results
KEY FINANCIAL RESULTS // RUB mn
2014 2015 Change, % SALES (REVENUE INCLUDING DUTIES)1 1,690,557 1,655,775 (2.1) Minus: export duties and excise taxes2 (282,319) (187,832) (33.5) TOTAL SALES REVENUE 1,408,238 1,467,943 4.2 EXPENSES AND OTHER COSTS Acquisition cost of oil, gas and petroleum products (382,505) (345,909) (9.6) Production and operating expenses (171,711) (214,267) 24.8 Selling, general business and administrative expenses (86,318) (100,176) 16.1 Transportation expenses (116,125) (133,320) 14.8 Depreciation, depletion and amortisation (85,951) (98,501) 14.6 Taxes, except profit tax (343,576) ( 353,145) 2.8 Expenses on geological exploration (936) (922) (1.5) TOTAL OPERATING EXPENSES (1,187,122) (1,246,240) 5.0 Other expenses (8,471) (14,088) 66.3 OPERATING PROFIT 212,645 207,615 (2.4) Share of profit / (loss) of associated and joint venture companies (6,306) 24,956 – Net foreign exchange loss (52,265) (67,910) 29.9 Financial income 7,075 14,732 108.2 Financial expenses (15,279) (33,943) 122.2 TOTAL OTHER EXPENSES (66,775) (62,165) (6.9) PROFIT BEFORE TAX 145,870 145,450 (0.3) Current profit tax expenses (17,518) (38,026) 117.1 Deferred profit tax income / (expenses) (1,696) 8,774 – TOTAL PROFIT TAX EXPENSES (19,214) (29,252) 52.2 PROFIT FOR PERIOD 126,656 116,198 (8.3) Minus: profit attributable to non-controlling interest (4,563) (6,537) 43.3 PROFIT ATTRIBUTABLE TO GAZPROM NEFT PJSC SHAREHOLDERS 122,093 109,661 (10.2) Net profit margin 8.99% 7.92% 1.1 p.p. ADJUSTED EBITDA 342,614 404,811 18.2 RUB/TOE 5,172 5,079 (1.8) USD/BOE 18.27 11.21 (38.6) Adjusted EBITDA margin 24.3% 27.6% 3.2 p.p. NET DEBT 433,602 654,694 51.0
The decline in oil and petroleum product prices on global markets was held in check by growth in sales volume and prices on the Russian market, which only resulted in a 2.1% decrease in revenue taking into account duties. Growth in hydrocarbon production and management’s actions to optimise the volume of refining and the output structure not only compensated for the negative impact of the major tax manoeuvre (introduced at the start of 2015), but also ensured an 18.2% increase in adjusted EBITDA. The decrease in net profit attributable to Gazprom Neft PJSC shareholders (–10.2%) compared with the growth in EBITDA (+18.2%) resulted from the negative impact of foreign exchange differences from the revaluation of loans and credits, an increase in depreciation charges as a result of the investment programme, the creation of asset impairment provisions and growth in financial expenses due to increased borrowing costs in the Russian Federation.
1 Revenue including duties (sales) includes revenue taking into account export duties and excise taxes calculated based on the volume of commercial production. 2 ВIncludes the excise tax calculated based on the volume of petroleum products sold by the Serbian subsidiary.
60 GAZPROM NEFT // 2015 ANNUAL REPORT Sales revenue
TOTAL SALES REVENUE // RUB mn
2014 2015 Change, % OIL Export 107,34 0 115,905 8.0 Export sales 229,065 180,240 (21.3) Minus: export duties (121,725) (64,335) (47.1) International market 4,036 9,14 6 126.6 Export to CIS 15,889 27,581 73.6 Export and sales to CIS 15,889 28,416 78.8 Minus: export duties – (835) – Domestic market 42,624 81,187 90.5 TOTAL REVENUE FROM OIL SALES 169,889 233,819 37.6 GAS International market 1,604 3,411 112.7 Domestic market 24,406 28,243 15.7 TOTAL REVENUE FROM GAS SALES 26,010 31,654 21.7 PETROLEUM PRODUCTS Export 282,084 202,477 (28.2) Export sales 400,345 260,731 (34.9) Minus: export duties (118,261) (58,254) (50.7) International market 104,413 107,4 05 2.9 Sales on the international market 14 6,153 171,749 17.5 Minus: excise tax1 (41,740) (64,344) 54.2 CIS 63,989 78,070 22.0 Export and sales to CIS 64,582 78,134 21.0 Minus: export duties (593) (64) (89.2) Domestic market 715,854 740,520 3.4 TOTAL REVENUE FROM PETROLEUM PRODUCT SALES 1,166,34 0 1,128,472 (3.2) OTHER REVENUE 45,999 73,998 60.9 TOTAL REVENUE 1,408,238 1,467,943 4.2
Total revenue increased by 4.2% to RUB 1,467.9 billion in 2015 from RUB 1,408.2 billion in 2014. Revenue from oil sales grew by 37.6% to RUB 233.8 billion from RUB 169.9 billion. Revenue from gas sales increased by 21.7% to RUB 31.7 billion in 2015 from RUB 26.0 billion in 2014. Petroleum product sales decreased by 3.2% last year to RUB 1,128.5 billion from RUB 1,166.3 billion in 2014. Other revenue primarily consists of revenue from transportation, construction, utility and other services. Other revenue soared by 60.9% mainly due to growth in operator services provided to the Messoyakhaneftegaz joint venture in connection with the development of the project.
1 Includes the excise tax calculated based on the volume of petroleum products sold by the Serbian subsidiary.
www.gazprom-neft.com 61 Financial results
SALES VOLUMES //
2014 2015 Change, % OIL (MN T) Export sales 8.47 8.11 (4.3) Sales on the international market1 0.13 0.48 269.2 Export to CIS 1.16 1.88 62.1 Sales on the domestic market 3.96 6.14 55.1 TOTAL OIL SALES 13.72 16.61 21.1 GAS (BN M3) Sales on the international market 0.13 0.22 69.2 Sales on the domestic market 12.37 13.56 9.6 TOTAL GAS SALES 12.50 13.78 10.2 PETROLEUM PRODUCTS (MN T) Export sales 15.64 11.81 (24.5) Sales on the international market 3.03 3.25 7.3 Export and sales to CIS 2.09 2.28 9.1 Sales on the domestic market 27.54 27.50 (0.1) TOTAL PETROLEUM PRODUCT SALES 48.30 44.84 (7.2)
1 Includes product-sharing agreements (PSA).
AVERAGE SALES PRICES // RUB/t
2014 2015 Change, % OIL (RUB/T) Export sales 27,0 4 4 22,224 (17.8) Export to CIS 13,697 14,671 7.1 Sales on the domestic market 10,764 13,223 22.8
PETROLEUM PRODUCTS (RUB/T) Export sales 25,598 22,077 (13.8) Sales on the international market 48,235 52,846 9.6 Export and sales to CIS 30,900 34,269 10.9 Sales on the domestic market 25,993 26,928 3.6
Oil sale prices fell by 17.8% in export sales compared with 2014, but increased by 7.1% in exports to the CIS and by 22.8% in domestic market sales.
The average petroleum product prices also moved in different directions: they fell by 13.8% in export sales, but demonstrated growth ranging from 3.6% in sales on the domestic market to 10.9% in export and sales to the CIS.
62 GAZPROM NEFT // 2015 ANNUAL REPORT OIL SALES IN PHYSICAL TERMS
The 4.3% year-on-year decrease in export oil sales was due to growth in oil sales in Russia in connection with the more attractive pricing environment of the domestic market.
The 62.1% year-on-year increase in export oil sales to the CIS resulted from the start of oil sales in Uzbekistan and increased sales at the Mozyr Oil Refinery.
The 55.1% increase in oil sales on the domestic market was possible due to the improved economic efficiency of trading operations on the domestic market.
GAS SALES
Gas sales on the domestic market increased by 9.6% due to growth in gas production at subsidiaries and proportionately consolidated companies.
PETROLEUM PRODUCT SALES EXPORT SALES OF PETROLEUM PRODUCTS //
2014 2015 Change, %
RUB mn mn t RUB mn mn t RUB mn mn t High-octane petrol 2,564 0.08 1,515 0.05 (40.9) ( 37.5) Low-octane petrol 5,336 0.17 642 0.02 (88.0) (88.2) Naphtha 36,044 1.16 28,904 1.08 (19.8) (6.9) Diesel fuel 148,502 4.59 98,405 3.34 (33.7) ( 27.2) Fuel oil 137,816 7.12 78,14 6 5.45 (43.3) (23.5) Jet fuel 24,431 0.72 17,947 0.54 (26.5) (25.0) Marine fuel 26,505 1.03 17,30 4 0.68 (34.7) (34.0) Bitumen 831 0.04 406 0.03 (51.1) (25.0) Oils 3,925 0.09 5,570 0.12 41.9 33.3 Petrochemical products 7,941 0.39 8,415 0.38 6.0 (2.6) Other 6,450 0.25 3,477 0.12 (4 6.1) (52.0) TOTAL 400,345 15.64 260,731 11.81 (34.9) (24.5)
The 24.5% year-on-year decrease in the volume of petroleum product sales resulted from a reduction in the sale of third-party resources and decreased fuel oil production.
www.gazprom-neft.com 63 Financial results
PETROLEUM PRODUCT SALES IN THE CIS //
2014 2015 Change, %
RUB mn mn t RUB mn mn t mn t RUB mn High-octane petrol 25,693 0.75 32,971 0.81 28.3 8.0 Low-octane petrol 3,884 0.13 5,019 0.14 29.2 7.7 Diesel fuel 24,617 0.76 26,479 0.71 7.6 (6.6) Fuel oil 688 0.07 471 0.08 (31.5) 14.3 Jet fuel 3,192 0.09 5,505 0.17 72.5 88.9 Bitumen 1,870 0.13 2,395 0.19 28.1 46.2 Oils 2,181 0.07 2,435 0.07 11.6 – Petrochemical products 994 0.05 1,218 0.06 22.5 20.0 Other 1,463 0.04 1,641 0.05 12.2 25.0 TOTAL 64,582 2.09 78,134 2.28 21.0 9.1
The sale of petroleum products in the CIS grew by 21.0% in physical terms and by 9.1% in value terms.
PETROLEUM PRODUCT SALES ON THE DOMESTIC MARKET //
2014 2015 Change, %
RUB mn mn t RUB mn mn t mn t RUB mn High-octane petrol 285,311 8.60 311,214 8.94 9.1 4.0 Low-octane petrol 3,604 0.13 2,028 0.07 (43.7) (46.2) Diesel fuel 220,000 7.35 231,189 7.4 4 5.1 1.2 Fuel oil 18,271 1.74 11,629 1.55 (36.4) (10.9) Jet fuel 76,108 2.91 76,269 2.81 0.2 (3.4) Marine fuel 60,823 3.39 53,451 3.30 (12.1) (2.7) Bitumen 16,405 1.58 14,604 1.50 (11.0) (5.1) Oils 7,693 0.22 10,249 0.23 33.2 4.5 Petrochemical products 18,969 0.98 19,607 1.01 3.4 3.1 Other 8,669 0.64 10,280 0.65 18.6 1.6 TOTAL 715,853 27.54 740,520 27.50 3.4 (0.1)
Total petroleum product sales on the domestic market in 2015 remained at the previous year’s level. The sales structure is consistent with the production structure.
The 5.1% year-on-year decrease in bitumen sales resulted from decreased funding for the Russian road industry.
64 GAZPROM NEFT // 2015 ANNUAL REPORT Expenses and other costs
ACQUISITION COST OF OIL, GAS AND PETROLEUM PRODUCTS
The acquisition cost of oil, gas and petroleum products decreased by 19.9% year-on-year due to a reduction in the purchase of petroleum products and lower oil and petroleum product prices.
PRODUCTION AND OPERATING EXPENSES PRODUCTION AND OPERATING EXPENSES // RUB mn
2014 2015 Change, % HYDROCARBON PRODUCTION EXPENSES 83,602 99,378 18.9 Subsidiaries in Russia 63,955 72,854 13.9 including – expenses on production at mature fields 57,271 61,225 6.9 RUB/TOE 1,472 1,582 7.5 USD1/BOE 5.22 3.54 (32.2) – expenses on production at new fields 6,684 11,629 74.0 Subsidiaries outside Russia (including PSAs)2 4,323 9,426 118.0 Proportionally consolidated companies 15,324 17,09 8 11.6 RUB/TOE 1,691 1,932 14.2 USD1/BOE 6.01 4.32 (28.0) REFINING EXPENSES 46,222 53,549 15.9 Expenses on oil refining at the oil refineries of subsidiaries 26,510 30,724 15.9 RUB/t 765 882 15.3 USD1/barrel 2.72 1.97 ( 27.3) Expenses on oil refining at the oil refineries of joint ventures 14,145 14,648 3.6 RUB/t 1,602 1,778 11.0 USD1/barrel 5.69 3.98 ( 30.1) Expenses on the production of oils and packaged products 5,567 8,177 46.9 TRANSPORTATION EXPENSES TO OIL REFINERIES 26,234 27,541 5.0 OTHER OPERATING EXPENSES 15,653 33,799 115.9 TOTAL 171,711 214,267 24.8
1 Conversion to USD is based on the average exchange rate for the period. 2 PSA – product-sharing agreement.
Hydrocarbon extraction expenses include the cost of raw commodities and materials, the maintenance and repair of hydrocarbon extraction equipment, labour, fuel, electricity, measures to increase oil recovery and other similar expenses on the Group’s production enterprises.
The 13.9% year-on-year increase in operating expenses on hydrocarbon extraction at subsidiaries in Russia resulted from the consolidation of the Prirazlomnoye field and an increase in production stimulation measures.
www.gazprom-neft.com 65 Financial results
Specific operating expenses for hydrocarbon production at mature fields for subsidiaries increased by 7.5% year-on-year as a result of: ↗↗ an increase in production stimulation measures (workover solutions on the base fund) in order to maintain oil production levels; ↗↗ growth in liquid extraction due to an increase in the water cut of the manufactured products; ↗↗ the continued transition to a rolling sequence of operating the electrical submersible pumping system (savings on the purchase of equipment has led to growth in lease costs); ↗↗ growth in the tariffs of natural monopolies and inflationary pressure, which was partially offset by cost optimisation measures.
The start of commercial production in Iraq (Badra project) and Iraqi Kurdistan led to year-on-year growth of 118.0% in operating expenses on hydrocarbon production at subsidiaries outside the Russian Federation.
Expenses on oil refining at the refineries of subsidiaries include the cost of raw commodities and materials, the maintenance and repair of the hydrocarbon extraction equipment, labour, electricity and other similar expenses on the Group’s refining enterprises;
Specific operating expenses for oil refining at the refineries of subsidiaries increased by 15.3% year-on-year as a result of growth in: ↗↗ the tariffs of natural monopolies; ↗↗ the cost of raw commodities and materials due to inflationary pressure; ↗↗ costs related to more stringent requirements for the quality of diesel fuel transported via the main oil pipelines; ↗↗ the cost of plant repairs at the Omsk Oil Refinery; ↗↗ environmental programme costs.
Specific operating expenses for oil refining at the refineries of joint ventures grew by 11.0% as a result of the increased cost of raw commodities and materials due to inflationary pressure;
Transportation expenses grew by 5.0% due to growth in refining volumes at the Moscow Oil Refinery in 2015 and higher oil transportation tariffs;
Other operating expenses grew primarily as a result of an increase in operator services that the Group provided to the Messoyakhaneftegaz joint venture.
COMMERCIAL, GENERAL BUSINESS AND ADMINISTRATIVE EXPENSES
Commercial, general business and administrative expenses include expenses on sales, the Group’s retail network, remuneration and wages (except for remuneration and wages at production subsidiaries and the Company’s own oil refineries), social benefits, bank services, insurance, legal, consulting and auditor services and other expenses.
Commercial, general business and administrative expenses increased by 16.1% year-on-year as a result of: ↗↗ the start of commercial production in Iraq (Badra project) and Iraqi Kurdistan; ↗↗ the consolidation of Gazprom Neft Shelf starting from November 2014; ↗↗ growth in expenses at foreign subsidiaries as a result of the weakening of the rouble’s exchange rate; ↗↗ the creation of provisions for the debt of OJSC Transaero Airline; ↗↗ growth in the number of filling stations and the expansion of the Company’s business.
TRANSPORTATION EXPENSES
Transportation expenses include the cost of delivering oil and petroleum products to the ultimate buyer. Such costs consist of transportation via pipeline, sea freight, railway shipments, loading and unloading work and other transportation costs.
Transportation expenses increased by 14.8% due to growth in oil production, the tariffs of natural monopolies and growth in the USD exchange rate versus the RUB, which impacts transportation expenses for the export of oil and petroleum products.
66 GAZPROM NEFT // 2015 ANNUAL REPORT DEPRECIATION, DEPLETION AND AMORTISATION
Depreciation, depletion and amortisation include the depletion of oil and gas assets and the amortisation of other fixed assets.
The 14.6% year-on-year growth in depreciation, depletion and amortisation is related to an increase in the value of amortised assets due to the implementation of the Group’s capital investments programme.
TAXES, NOT INCLUDING PROFIT TAX // RUB mn
2014 2015 Change, % Mineral extraction tax 236,027 256,477 8.7 Excise tax 84,184 68,358 (18.8) Property tax 9,477 9,529 0.5 Social insurance contributions 11,886 15,599 31.2 Other taxes 2,002 3,182 58.9 TOTAL TAXES EXCEPT PROFIT TAX 343,576 353,145 2.8
The 2.8% year-on-year growth in taxes, except for profit tax, resulted from a 8.7% increase in the mineral extraction tax due to growth in the base mineral extraction tax rate as a result of the tax manoeuvre as well as growth in oil production by subsidiary and proportionately consolidated enterprises, which was partially offset by an 18.8% reduction in the excise tax.
SHARE OF THE PROFIT OF ASSOCIATED AND JOINT VENTURE COMPANIES // RUB mn
2014 2015 Change, % Slavneft (5,072) 9,265 – SeverEnergia (Arcticgas) (1,809) 11,913 – Northgas – 3,466 – Other companies 575 312 (45.7) SHARE OF THE PROFIT / (LOSS) OF ASSOCIATED AND JOINT VENTURE COMPANIES (6,306) 24,956 –
The Group’s share of Slavneft’s profit increased year-on-year primarily due to growth in oil prices on the domestic market, the rising cost of processing services and a decrease in foreign exchange losses.
The Group’s increased share in the profit of SeverEnergia (Arcticgas) in 2015 is attributable to the start of operations at the main fields of SeverEnergia (Arcticgas) and an increase in the ownership stake.
OTHER INCOME AND EXPENSES
Other income and expenses skyrocketed by 261.6% due to the creation of provisions for the impairment of assets.
OTHER FINANCIAL ARTICLES
The revaluation of part of the Group’s loan portfolio denominated in foreign currency made up the bulk of the profit / (loss) from the exchange rate difference.
www.gazprom-neft.com 67 Financial results
EBITDA and net profit
CALCULATION OF EBITDA // RUB mn
2014 2015 Change, % PROFIT FOR PERIOD 126,656 116,198 (8.3) Total profit tax expenses 19,214 29,252 52.2 Financial expenses 15,279 33,943 122.2 Financial income ( 7,075) (14,732) 108.2 Depreciation, depletion and amortisation 85,951 98,501 14.6 Net foreign exchange gains 52,265 67,910 29.9 Other expenses 8,471 14,088 66.3 EBITDA 300,761 345,160 14.8 Minus: Share in the profit / (loss) of associated and joint venture companies 6,306 (24,956) – Plus: share in the EBITDA of associated and joint venture companies 35,547 84,607 138.0 TOTAL ADJUSTED EBITDA 342,614 404,811 18.2
Adjusted EBITDA increased by 18.2% year-on-year to RUB 404.8 billion from RUB 342.6 billion.
NET PROFIT // RUB mn
2014 2015 Change, % (LOSS) / PROFIT FOR PERIOD 126,656 116,198 (8.3) Minus: Profit attributable to non-controlling interest (4,563) (6,537) 43.3 (LOSS) / PROFIT ATTRIBUTABLE TO THE SHAREHOLDERS OF GAZPROM NEFT PJSC 122,093 109,661 (10.2)
Taking into account the portion of profit attributable to the non-controlling interest, net profit decreased by 8.3% in the reporting year from RUB 126.7 billion to RUB 116.2 billion.
Profit attributable to the shareholders of Gazprom Neft PJSC declined by 10.2% from RUB 122.1 billion to RUB 109.7 billion.
68 GAZPROM NEFT // 2015 ANNUAL REPORT Cash flows
CASH FLOWS // RUB mn
2014 2015 Change, % Net cash generated from operating activities 283,965 285,175 0.4 Net cash used for investment activities (364,792) (314,511) (13.8) Net cash generated from financial activities 10,573 82,193 67 7.4 NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS (70,254) 52,857 –
NET CASH GENERATED FROM OPERATING ACTIVITIES // RUB mn
2014 2015 Change, % Net cash generated by operating activities before the effect of changes in working capital, profit tax, interest and dividends 304,421 312,169 2.5 Changes in working capital 23,907 18,342 (23.3) Profit tax paid ( 30,122) (19,522) (35.2) Interest paid (16,624) (28,229) 69.8 Dividends paid 2,383 2,415 1.3 NET CASH GENERATED FROM OPERATING ACTIVITIES 283,965 285,175 0.4
Net cash generated from operating activities increased by 0.4% primarily as a result of higher operating profit, which was partially offset by growth in interest expenses and the change in working capital.
NET CASH USED FOR INVESTMENT ACTIVITIES // RUB mn
2014 2015 Change, % Capital expenditures (271,330) (349,036) 28.6 Acquisition of subsidiaries, stakes in joint activities and investments recorded using the equity method ( 57,8 4 8) 197 – Receipt / (Placement) of cash deposits (15,877) 45,745 – Other transactions (19,737) (11,417) (42.2) NET CASH USED FOR INVESTMENT ACTIVITIES (364,792) (314,511) (13.8)
Net cash used for investment activities decreased by 13.8% year-on-year. Growth in capital expenditures was offset by less spending on the acquisition of new assets.
NET CASH GENERATED FROM FINANCIAL ACTIVITIES // RUB mn
2014 2015 Change, % Receipt of loans and credits 67,160 121,565 81.0 Dividend payments to Company shareholders (46,755) (36,346) (22.3) Acquisition of non-controlling interests (4,118) – – Other transactions (5,714) (3,026) (47.0) NET CASH GENERATED FROM FINANCIAL ACTIVITIES 10,573 82,193 677.4
Net cash generated from financial activities increased due to the large volume of loans and credits received.
www.gazprom-neft.com 69 Financial results
Capital investments
CAPITAL INVESTMENTS // RUB mn
2014 2015 Change, % Exploration and production 192,739 255,235 32.4 Subsidiaries 178,330 239,199 34.1 Proportionately consolidated companies 14,409 16,036 11.3 Oil refining 26,765 31,552 17.9 Marketing and sales 13,576 13,547 (0.2) Other 10,731 13,317 24.1 Capital investments subtotal 243,811 313,651 28.6 Changes in the amount of advances issued and capital construction materials 27,519 35,385 28.6 TOTAL CAPITAL INVESTMENTS 271,330 349,036 28.6 Source: Company data
The 32.4% year-on-year growth in capital investments in the exploration and production segment resulted from the following factors: ↗↗ the active construction of major infrastructure facilities at the Novoportovskoye field; ↗↗ capital expenditures on the Prirazlomnoye field in connection with the consolidation of the asset in November 2014; ↗↗ the implementation of a geological exploration and exploration drilling programme at projects in Iraq; ↗↗ the acquisition of new licenses in the Orenburg Region and West Siberia; ↗↗ drilling at the Priobskoye field; ↗↗ the construction of gas utilisation facilities at fixed assets and in the Orenburg Region. Debt and liquidity
31 December 2014 31 December 2015 Short-term credits and loans 61,121 147,319 Long-term credits and loans 502,306 670,779 Cash and cash equivalents (53,167 ) (114,198) Short-term deposits (76,658) (49,206) Net debt 433,602 654,694 Short-term loans and credits / Total debt, % 10.8 18.0 Ratio of net debt to EBITDA in annual terms 1.44 1.90 Source: Company data
The Group’s loan portfolio is diversified and includes syndicated and bilateral loans, bonds and other instruments.
The average debt repayment period decreased from 4.49 years as of 31 December 2014 to 3.50 years as of 31 December 2015.
The average interest rate increased from 3.48% as of 31 December 2014 to 4.38% as of 31 December 2015.
Major independent Chinese rating agency Dagong Global Credit Rating Company Limited assigned Gazprom Neft a high credit rating of ‘АА-’ for obligations in Russian currency with a stable outlook.
70 GAZPROM NEFT // 2015 ANNUAL REPORT Financial ratios
PROFIT MARGIN //
2014 2015 Change, p.p. Adjusted EBITDA margin, % 24.33 27.58 3.2 Net profit margin, % 8.99 7.92 (1.1) Return on assets (ROA), % 6.92 5.07 (1.8) Return on equity (ROE), % 11.90 9.77 (2.1) Return on average capital employed (ROACE), % 13.07 10.51 (2.6) Source: Company data LIQUIDITY // %
2014 2015 Change, p.p. Current liquidity ratio 1.88 1.46 (22.1) Acid test ratio 0.94 0.79 (16.1) Absolute liquidity ratio 0.53 0.51 (2.4) Source: Company data LEVERAGE //
2014 2015 Change, p.p. Net debt / Total assets, % 20.67 26.34 5.7 Net debt / Capital, % 38.38 52.44 14.1 Leverage, % 31.11 36.05 4.9 Net debt / Market capitalisation, % 0.64 0.90 40.3 Net debt / EBITDA, % 1.44 1.90 31.6 Total debt / EBITDA, % 1.87 2.37 26.5 Source: Company data
www.gazprom-neft.com 71 Financial results
Main macroeconomic factors affecting performance results
The main factors affecting the Group’s performance results are as follows: ↗↗ change in market prices for oil and petroleum products; ↗↗ change in the RUB/USD exchange rate and inflation; ↗↗ taxation; ↗↗ change in the tariffs for the transportation of oil and petroleum products.
CHANGE IN MARKET PRICES FOR OIL AND PETROLEUM PRODUCTS
The price of oil and petroleum products on the global and Russian markets is the main factor that influences the Group’s performance results.
Petroleum product prices on the global market are primarily determined by the level of global oil prices, the supply of and demand for petroleum products and the level of competition on different markets. Price dynamics on the international market, in turn, influence prices on the domestic market. The price dynamics vary for different types of petroleum products.
A significant decline in oil and petroleum product prices on the international market over the 12 months of 2015 had a negative effect on the Group’s results. Part of the negative impact from the drop in international prices was offset by the growth in the USD exchange rate versus the RUB.
PRICE DYNAMICS FOR OIL AND PETROLEUM PRODUCTS //
2014 2015 Change, % INTERNATIONAL MARKET (USD/BARREL) Brent oil 98.95 52.46 (47.0) Urals oil (avg. Med and NWE) 96.94 51.49 (46.9) (USD/T) Premium petrol (avg. NWE) 918.72 569.96 (38.0) Naphtha (avg. Med and NWE) 825.28 450.05 (45.5) Diesel fuel (avg. NWE) 854.41 500.70 (41.4) Gasoil 0.2 % (avg. Med) 837.7 7 486.26 (42.0) Fuel oil 3.5 % (avg. NWE) 518.48 247.49 (52.3) DOMESTIC MARKET (RUB/T) High-octane petrol 31,948 32,488 1.7 Low-octane petrol 28,071 28,435 1.3 Diesel fuel 27,76 4 28,944 4.2 Fuel oil 9,014 7,202 (20.1)
Source: Platts (international market), Kortes (domestic market)
72 GAZPROM NEFT // 2015 ANNUAL REPORT CHANGE IN RUB/USD EXCHANGE RATE AND INFLATION
The Group’s management has decided that the Russian rouble shall be the Company’s reporting presentation currency. The functional currency of each subsidiary shall be the currency of the economic environment in which the company is engaged in operations, which is the Russian rouble for most companies.
ROUBLE EXCHANGE RATE AND INFLATION //
2014 2015 Change in consumer price index (CPI), % 11.4 12.9 Average RUB exchange rate vs. USD for the period, RUB 38.42 60.96 RUB exchange rate vs. USD at the start of the period, RUB 32.73 56.26 RUB exchange rate vs. USD at the end of the period, RUB 56.26 72.88 Change in the RUB exchange rate vs. USD for the period (in USD), % – 72.0 – 30.0 Source: Company data
Taxation
AVERAGE RATES OF TAXES AND FEES IN EFFECT DURING THE REPORTING PERIODS FOR THE TAXATION OF OIL AND GAS COMPANIES IN RUSSIA //
2014 2015 Change, % EXPORT CUSTOMS DUTY (USD/T) Oil 366.14 120.25 (67.2) Light petroleum products 241.63 57.67 ( 76.1) Diesel fuel 237.93 57.67 (75.8) Petrol 329.48 93.75 (71.5) Naphtha 329.48 102.17 (69.0) Dark petroleum products 241.63 91.34 (62.2) MINERAL EXTRACTION TAX Oil (RUB/t) 5 831 6 326 8.5 Source: Company data
EXPORT CUSTOMS DUTY RATES FOR OIL AND PETROLEUM PRODUCTS
The rates of export customs duties for oil and petroleum products are calculated by the Ministry of Economic Development of the Russian Federation in accordance with the method for calculating export customs duties on crude oil and certain categories of goods produced from oil approved by Resolution No. 276 of the Russian Government dated 29 March 2013.
www.gazprom-neft.com 73 Financial results
EXPORT CUSTOMS DUTY ON CRUDE OIL a) In accordance with clause 4 of Article 3.1 of Law of the Russian Federation No. 5003-1 dated 21 May 1993 “On the Customs Tariff” (as amended by Federal Law No. 366-FZ dated 24 September 2014), export customs duty rates on oil should not exceed the amount of the maximum duty rate calculated as follows:
Urals price quotes (P), USD/t Maximum export customs duty rate ≤109.50 0% 109.50 < P ≤ 146.00 35.0% х (P – 109.50) 146.00< P ≤182.50 12.78 + 45.0% х (P – 146.00) 182.50 29.20 + 59.0% х (P – 182.50) for 2014 29.20 + 42.0% х (P – 182.50) for 2015
Oil exported to Kazakhstan and Belarus shall not be subject to the export customs duty. b) Federal Law No. 239-FZ dated 3 December 2012 legally settled the issue of the Russian Government establishing special formulas used to calculate reduced export customs duty rates on crude oil with special physical and chemical features classified under FEACN codes TS 2709 00 900 1 and 2709 00 900 3 for which the rates are set depending on the average price of Urals oil over the monitoring period in accordance with Resolution No. 276 of the Russian Government dated 29 March 2013 in the following amount:
Urals price quotes (P), USD/t Export customs duty rate (R) ≤365 0 >365 45.0% х (P – 365)
Federal Law No. 366-FZ dated 24 November 2014 and Resolution No. 1274 of the Russian Government dated 29 November 2014 adjusted the procedure described above for calculating the reduced rates of customs export duties for crude oil.
In accordance with the new procedure, rates shall be calculated as follows: ↗↗ R = (Р – 182.5) х C – 56.57 – 0.14 х Р, where Р – is the price of Urals oil (USD/tonne) and C is the incremental coefficient, which was equal to 42% in 2015.
Resolution No. 846 of the Russian Government dated 26 September 2013 approved the procedure for preparing proposals on the use of the special formulas for calculating export customs duty rates for crude oil and monitoring of the validity of their application, including with respect to new projects located on the territory of the Republic of Sakha (Yakutia), the Irkutsk Region, the Krasnoyarsk Territory and areas located north of 65 degrees of the Yamalo-Nenets Autonomous District.
With Decree No. 868 dated 3 December 2013, the Russian Ministry of Energy approved the application form and guidelines for analysing the validity of the use of the special formulas for calculating export duty rates for crude oil.
74 GAZPROM NEFT // 2015 ANNUAL REPORT c) In accordance with clause 1.1 of Article 35 of Law No. 5003-1 dated 21 May 1993 “On the Customs Tariffs”, an exemption from the payment of the export customs duty has been established for oil extracted at a new offshore field for the period until: ↗↗ 31 March 2032 – for fields that are entirely located in the Azov Sea or that have 50% or more of their area in the Baltic Sea, Black Sea (depth up to 100 m), Pechora Sea or White Sea, Sea of Okhotsk (south of 550º N latitude) or the Caspian Sea; ↗↗ 31 March 2042 – for fields that have 50% or more of their area in the Black Sea (depth up to 100 m), Sea of Okhotsk (north of 550º N latitude) or the Barents Sea (south of 720º N latitude); ↗↗ indefinitely – for fields that have 50% or more of their area in the Kara Sea, Barents Sea (north of 720º N latitude) or the east Arctic (the Laptev Sea, the East Siberian Sea, Chukchi Sea or Bering Sea).
In accordance with sub-clause 5 of Article 11.1 of the Tax Code of the Russian Federation, a new offshore field is recognised as an offshore field at which the start date of commercial raw hydrocarbon production is after 1 January 2016. At the same time, if the depletion of all types of raw hydrocarbons (except for associated gas) at the offshore field is less than 1%, the taxpayer shall be entitled to make a decision about classifying the field as a new offshore field.
EXPORT CUSTOMS DUTY FOR PETROLEUM PRODUCTS
In accordance with Article 3.1 of the Law of the Russian Federation “On the Customs Tariff”, the export customs duty rate for certain categories of goods produced from oil shall be set by the Russian Government. Petroleum products exported to Kazakhstan, Belarus and Kyrgyzstan shall not be subject to the export customs duty. In addition, petroleum products exported to Tajikistan and Armenia shall be exempted from export customs duty as part of indicative balances starting from 13 November 2013 and 19 January 2015, respectively.
Resolution No. 276 of the Russian Government dated 29 March 2013 established the following procedure for determining the rates of export customs duties on petroleum products.
Rcod = K × Rco, where Rco is the export customs duty rate on crude oil, and C is the estimated coefficient with respect to the category of petroleum products.
In accordance with Resolution No. 2 of the Russian Government dated 3 January 2014, an estimated coefficient (C) of 0.65 was set for diesel field, 0.90 for petrol and naphtha, and 0.66 for other light and dark petroleum products.
As of 1 January 2015, Federal Law No. 366-FZ dated 24 November 2014 and Resolution No. 1274 dated 29 November 2014 set the following coefficients for the calculation of export customs duty rates for petroleum products:
2015 2016 Starting from 2017 Light and middle distillates Diesel fuel 0.48 0.4 0.3 Lubricants Naphtha 0.85 0.71 0.55 Petrol 0.78 0.61 0.3
www.gazprom-neft.com 75 Financial results
EXCISE TAX FOR PETROLEUM PRODUCTS
Producers of petroleum products are recognised as taxpayers that pay excise taxes for petroleum products on the territory of the Russian Federation. In addition, the tax is paid by legal entities when importing excisable goods to the territory of Russia. In accordance with Article 193 of the Tax Code of the Russian Federation (as amended by Federal Law No. 34-FZ dated 29 February 2016), the following excise tax rates have been set for petroleum products (RUB per tonne):
2014 2015 2016 (01/01–31/03) 2016 (01/04–31/12) 2017 PETROL Below Class 3 11,110 7,300 10,500 13,100 12,300 Class 3 10,725 7,300 10,500 13,100 12,300 Class 4 9,916 7,300 10,500 13,100 12,300 Class 5 6,450 5,530 7,530 10,130 7,430 Straight-run 11,252 11,300 10,500 13,100 12,300 DIESEL FUEL Below Class 3 6,446 3,450 4,150 5,293 5,093 Class 3 6,446 3,450 4,150 5,293 5,093 Class 4 5,427 3,450 4,150 5,293 5,093 Class 5 4,767 3,450 4,150 5,293 5,093 Heating oil 6,446 3,000 4,150 5,293 5,093 Motor oils 8,260 6,500 6,000 6,000 5,400 MIDDLE DISTILLATES 4,150 5,293 5,093
MINERAL EXTRACTION TAX (MET) a) In accordance with Article 342 of the Tax Code of the Russian Federation (as amended by Federal Law No. 366-FZ dated 24 November 2014), the following formulas have been established for determining the MET rate for oil:
2014 2015 2016 2017 MET for oil 493 × Cp × Cd × Cr × Ce × Cdp 766 x Cp – Dm 857 x Cp – Dm 919 x Cp – Dm
Dm = Cmet x Cp x (1 – Cd х Cr х Ce х Cdp х Ccan)
Cmet = 530 for 2015, 559 – starting from 2016
Cp is the coefficient that describes the dynamics of global oil prices and is determined using the following formula: Cp = (P – 15) × R / 261, where P is the average monthly price of Urals on the Rotterdam and Mediterranean exchanges (USD/ barrel) and R is the average monthly RUB exchange rate vs. the USD.
Cd – is the coefficient that describes the degree of depletion of a particular subsoil site. This coefficient envisages a reduction in the MET rate on oil for fields with a high degree of depletion. The degree of depletion of reserves is determined as N/V, where N is the amount of cumulative oil production at a particular subsoil site and V is the initial recoverable oil reserves under categories A, B,
С1 and С2 for a particular subsoil site as of 1 January 2006. If the degree of depletion of the reserves of a particular subsoil site is greater than or equal to 0.8 and less than or equal to 1, Cd shall be calculated using the formula: Cd = 3.8 – 3.5 × N/V. If the degree of depletion of the reserves of a particular subsoil site is greater than 1, Cd shall be assumed as equal to 0.3. In other cases, Cd shall be assumed as equal to 1. For a subsoil site that contains an oil deposit(s) for which Ce is less than 1, Cd shall be assumed as equal to 1.
76 GAZPROM NEFT // 2015 ANNUAL REPORT Cr is the coefficient that describes the size of the reserves of a particular subsoil site. This coefficient envisages a reduction in the
MET rate for small fields. If the initial recoverable oil reserves (Vr – the initial recoverable oil reserves under categories A, B, С1 and С2 for a particular subsoil site as of 1 January of the year preceding the year of the tax period) are less than 5 million tonnes and the degree of depletion of its reserves is determined to be less than or equal to 0.05 in accordance with the provisions of clause 5 of Article 342 of the Tax Code of the Russian Federation, Cr shall be calculated using the formula: Cr = 0.125 × Vr + 0.375.
Ce is the coefficient that describes the degree of difficulty of extracting oil. Its value varies from 0.2 to 1 depending on the difficulty of extracting oil from a particular deposit: ↗↗ 0.2 – when extracting oil from a particular deposit of raw hydrocarbons with an approved permeability index of no more than 2 × 10-3 µm2 and formation net pay of no more than 10 m for the particular deposit; ↗↗ 0.4 – when extracting oil from a particular deposit of raw hydrocarbons with an approved permeability index of no more than 2 × 10-3 µm2 and formation net pay of more than 10 m for the particular deposit; ↗↗ 0.8 – when extracting oil from a particular deposit of raw hydrocarbons falling under the Tyumen Formation productive deposits in accordance with the data of the State Register of Mineral Reserves; ↗↗ 1 – when extracting oil from other raw hydrocarbon deposits.
Cdp is the coefficient that describes the degree of depletion of a particular raw hydrocarbon deposit. This coefficient envisages a reduction in the MET rate on oil for deposits with a high degree of depletion. The degree of depletion of reserves is determined as Ndp/Vdp, where Ndp is the amount of cumulative oil production at a particular deposit and Vdp is the initial recoverable oil reserves under categories A, B, С1 and С2 for a particular deposit as of 1 January of the year preceding the year of the tax period. If the degree of depletion of the reserves of the deposit is greater than or equal to 0.8 and less than or equal to 1, Cdp shall be calculated using the formula: Cdp = 3.8 – 3.5 × Ndp/Vdp. If the degree of depletion of the reserves of a particular deposit is greater than 1, Cdp shall be assumed as equal to 0.3. In other cases, Cdp shall be assumed as equal to 1. If a subsoil section contains oil for which the value of Ce is less than 1, the Cdp coefficient with respect to other deposits of this section (for which Ce is equal to 1) shall be assumed as equal to the Cd coefficient determined for the entire subsoil site.
Ccan is the coefficient that describes the region of production and the properties of the oil. This coefficient envisages a reduction in the MET rate for oil at subsoil sites located fully or partially in regions with difficult climatic and geological conditions (in particular, the Yamal Peninsula in the Yamalo-Nenets Autonomous District, the Irkutsk Region and the Republic of Sakha (Yakutia)). The Ccan coefficient is assumed as equal to 0 until the first day of the month following the month during which at least one of the following conditions occurs: the maximum volume of cumulative oil production is achieved at the subsoil section (1) or the deadline expires (2). Upon expiration of the deadline for applying the tax incentive, Ccan is assumed as equal to 1. b) In accordance with clause 2.1 of Article 342 and clause 6 of Article 338 of the Tax Code of the Russian Federation, the following ad valorem MET rates have been set for oil extracted at new offshore fields (as a % of cost): ↗↗ 30% upon expiration of 5 years following the start date of commercial hydrocarbon production, but no later than 31 March 2022 for fields that are located fully within the Azov Sea or that have 50% or more of their area in the Baltic Sea; ↗↗ 15% upon expiration of 7 years following the start date of commercial hydrocarbon production, but no later than 31 March 2032 for fields that have 50% or more of their area in the Black Sea (depth up to 100 m), the Sea of Japan, the Pechora Sea or White Sea, Sea of Okhotsk (south of 550º N latitude) or the Caspian Sea; ↗↗ 10% upon expiration of 10 years following the start date of commercial hydrocarbon production, but no later than 31 March 2037 for fields that have 50% or more of their area in the Sea of Okhotsk (north of 550º N latitude), the Black Sea (depth up to 100 m) or the Barents Sea (south of 720º N latitude); ↗↗ 5% upon expiration of 15 years following the start date of commercial hydrocarbon production, but no later than 31 March 2042 for fields that have 50% or more of their area in the Kara Sea, Barents Sea (north of 720º N latitude) or the east Arctic (the Laptev Sea, the East Siberian Sea, Chukchi Sea or Bering Sea)
In addition, tax laws prescribe a zero tax rate for oil extracted from deposits classified as Bazhenov productive sediments subject to compliance with the requirements of the Tax Code of the Russian Federation.
www.gazprom-neft.com 77 Financial results
EFFECTIVE MET RATE ON OIL FOR THE GROUP //
2014 2015 Change, % Standard MET rate for oil 5,831 6,326 8.5 Effective MET rate for oil (taking into account Cd, Cr and Ce) 5,588 5,961 6.7 Deviation of the effective MET rate for oil from the standard rate (RUB/t) 243 365 Deviation of the effective MET rate for oil from the standard rate (%) 4.2 5.8
At the end of 2015, the effective MET rate for oil was RUB 5,961/tonne, which is RUB 365/tonne below the standard rate in accordance with Russian legislation.
This deviation is due to the influence of the incentives on the MET for oil prescribed by tax legislation, including the reduction coefficients Cd, Cr, Ce and Ccan.
MET FOR NATURAL GAS AND GAS CONDENSATE
In accordance with Article 342 of the Tax Code of the Russian Federation (as amended by Federal Law No. 366-FZ dated 24 November 2014), the following MET rates have been set for flammable natural gas and gas condensate:
2014 (01/01–30/06) 2014 (01/07–31/12) 2015 4711 Natural gas (RUB/1,000 cub. m) 35 х Feu х Kd 35 х Feu х Kd + Tg 700 Gas condensate (RUB/tonne) 647 42 х Feu х Kd 42 х Feu х Kd х Kkm
1 The reduced MET rate for gas is for taxpayers that are not owners of facilities of the Unified Gas Supply System and are not organisations in which the owners of facilities of the Unified Gas Supply System are directly and/or indirectly involved and the share of such involvement exceeds 50%.
Feu is the base value of the fuel equivalent unit calculated by the taxpayer depending on the price of the natural gas and gas condensate as well as the ratio for the production volume of such hydrocarbons.
Kd is the coefficient that describes the degree of difficulty of extracting minerals from a raw hydrocarbon deposit. This coefficient envisages a reduction in the MET rate on natural gas and gas condensate and is assumed as equal to the minimum value of the following 5 reduction coefficients – Kr (incentive on a territorial basis), Kvg (incentive for depleted subsoil sections), Kgz (incentive for deposits with depth of more than 1.7 km), Kas (incentive for subsoil sections of the regional gas supply system) and Korz (incentive for deposits classified as Turonian productive sediments).
Tg is the indicator that describes expenses on the transportation of natural gas (assumed as equal to 0 for 2015 according to information from the Russian Federal Tariffs Service).
Kkm is the adjusting coefficient, which is equal to 4.4 for 2015.
78 GAZPROM NEFT // 2015 ANNUAL REPORT TAX INCENTIVES
Current legislation on taxes and fees envisages various tax incentives utilised by the Company’s subsidiaries (including reduced tax rates and reduction coefficients on the MET rate for oil and natural gas):
TYPES OF TAX INCENTIVES //
Tax incentives applied in 2015 Applicability to Group MET FOR OIL Cr reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Vorgenskoye, East Vyngayakhinskoye, North Karamovskoye, Valyntoyskoye, South Purpeyskoye) CJSC Zhivoy Istok (Baleykinskoye) Cd reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Pogranichnoye, Kholmogorskoye, Chatylkinskoye, Muravlenkovskoye, Sugmutskoye) LLC Gazpromneft-Vostok (West Lugineysky section) OJSC Yuzhuralneftegaz (Kapitonovskoye) Ce reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Vyngayakhinskoye, Yety-Purovskoye, West Noyabrskoye, Krayneye) LLC Gazpromneft-Vostok (Urmanskoye, Archinskoye, South Shinginskoye) LLC Zapolyarneft (Vyngapurovskoye, Novogodneye) LLC Gazpromneft-Khantos (Priobskoye) Ccan reduction coefficient on MET rate LLC Gazpromneft-Angara (Tympuchikanskoye, Ignyalinskoye) LLC Gazpromneft-Yamal (Novoportovskoye) 0 rate for oil production from Bazhenov productive sediments LLC Gazpromneft-Khantos (Krasnoleninskoye) fields that have 50% or more of their area in the Pechora Sea LLC Gazpromneft Shelf (Prirazlomnoye) MET FOR GAS Cs reduction coefficient on MET rate LLC Gazpromneft-Yamal (Novoportovskoye) CJSC Gazprom Neft Orenburg (Eastern section of Orenburg Oil and Gas Condensate Field) PROFIT TAX OF ORGANISATIONS Use of a reduced rate of 16% (4% benefit in accordance with the regional LLC Gazpromneft-Khantos legislation of the Khanty-Mansi Autonomous District-Yugra) OJSC Gazpromneft-Noyabrskneftegaz Use of a reduced rate of 15.5% (4.5% benefit in accordance with the regional OJSC Gazpromneft-Noyabrskneftegaz legislation of the Khanty-Mansi Autonomous District-Yugra) Use of a reduced rate of 19.3% (discount of 0.7% in accordance with the regional LLC Gazpromneft-Khantos legislation of the Tyumen Region) PROPERTY TAX Exemption from property tax for investment projects in the Khanty Mansi LLC Gazpromneft-Khantos Autonomous District-Yugra announced before 1 January 2011 (in accordance with the regional legislation of the Khanty-Mansi Autonomous District-Yugra) Exemption from property tax for fields under development after 1 January 2011 LLC Gazpromneft-Khantos (in accordance with the regional legislation of the Khanty-Mansi Autonomous District-Yugra) Use of a reduced rate of 1.1% for property created/acquired when implementing OJSC Gazpromneft-Noyabrskneftegaz investment projects in the Yamalo-Nenets Autonomous District (in accordance LLC Zapolyarneft with the regional legislation of the Yamalo-Nenets Autonomous District) Exemption from property tax for property created/acquired when implementing CJSC Gazprom Neft Orenburg, investment projects in the Orenburg Region (in accordance with the regional CJSC Centre for Science-Intensive Technologies legislation of the Orenburg Region)
www.gazprom-neft.com 79 Financial results
Transportation of oil and petroleum products
The policy with respect to transportation tariffs is determined by the government authorities in order to ensure a balance of interests between the government and all parties involved in the transportation process. The transportation tariffs of natural monopolies are established by the Federal Tariffs Service of the Russian Federation (FTS RF).
Tariffs depend on the transportation direction, delivery volume, distance to the destination and several other factors. Changes to tariffs depend on inflation as projected by the Russian Ministry of Economic Development, the need of transport infrastructure owners for capital investments, other macroeconomic factors as well as the payback period of economically substantiated costs incurred by natural monopolies.
Tariffs are revised by the FTS at least once a year, including tariffs for loading and unloading work, handling, shipment and other tariffs.
AVERAGE TRANSPORTATION COST PER ONE TONNE OF OIL FOR EXPORT // RUB/t
2014 2015 Change, % OIL Export Pipeline 1,681 1,624 (3.4) CIS Pipeline 1,204 1,221 1.4 Transportation to oil refineries Omsk Oil Refinery 509 428 (15.9) Moscow Oil Refinery 972 1,006 3.5 Yaroslavl Oil Refinery 1,067 1,081 1.3 PETROLEUM PRODUCTS Export from Omsk Oil Refinery Petrol 2,401 2,759 14.9 Fuel oil 4,121 4,275 3.8 Diesel fuel 3,288 4,682 42.4 Export from Moscow Oil Refinery Petrol 1,678 1,923 14.6 Fuel oil 1,523 2,537 66.6 Diesel fuel 1,720 1,915 11.3 Export from Yaroslavl Oil Refinery Petrol 1,210 1,414 16.9 Fuel oil 1,659 1,826 10.1 Diesel fuel 1,530 1,819 18.9
80 GAZPROM NEFT // 2015 ANNUAL REPORT OIL EXPORT DISTRIBUTION OF GAZPROM NEFT PJSC BY NON-CIS AND CIS COUNTRIES // %
2014 2015 OIL EXPORT DISTRIBUTION BY NON-CIS AND CIS COUNTRIES Baltic Sea port – Primorsk 33.5 6.3 Druzhba pipeline 13.1 19.0 Novorossiysk port 22.9 31.4 Eastern Siberia-Pacific Ocean (ESPO) oil pipeline via the port of Kozmino 30.5 31.9 exported bypassing the Transneft system: 0.0 11.4 from the Prirazlomnoye field 0.0 8.3 from the Novoportovskoye field 0.0 3.1 TOTAL 100.0 100.0 DISTRIBUTION OF OIL EXPORTS TO CIS COUNTRIES Belarus 100.0 95.5 Uzbekistan 0.0 4.5 TOTAL 100.0 100.0
www.gazprom-neft.com 81
MANAGEMENT SYSTEM Management system
Corporate governance
MESSAGE FOR SHAREHOLDERS AND INVESTORS Dear Shareholders and Investors, Improving corporate governance along with respecting Per the recommendations of the Code of Corporate Governance, the interests of shareholders and investors are priority the Board of Directors reviews the state of corporate objectives for the management of public companies and have governance at the Company and evaluates its own activities thus become increasingly important given the changing on an annual basis. macroeconomic conditions. Moreover, the trends we are seeing in corporate practices illustrate to the need to strengthen the In 2015, shareholders approved new versions of the role of the Board of Directors and expand its purview, require Gazprom Neft Charter and Code of Corporate Governance to greater information and financial transparency from companies reflect the core principles of public companies as recommended and also provide shareholders with more freedom to express by the Bank of Russia. It should be noted that the distribution their desires and participate in corporate events. of functional areas among those involved in corporate relations is dictated by the existence of a single major shareholder – The multi-levelled business structure of Gazprom Neft, which PJSC Gazprom. includes geological exploration, production, refining and sales, requires a professional team of managers and a highly efficient We are confident that the experience and professionalism system of corporate governance and control. The Company of the Board of Directors along with the effectiveness currently has a well-defined and clear organisational structure of Gazprom Neft management will enable the Company with a high level of interaction between governing bodies to successfully fulfil all of its vital objectives. and clear delineation of management and control duties to guarantee sustained growth in the Company’s value for shareholders in the long term
In 2015, the Board of Directors focused on such objectives as strategic and investment planning, monitoring the work of the executive bodies, assessing the results of the Company’s financial and operating performance as well as the effectiveness of internal control systems and corporate governance matters. The Board of Directors held 68 meetings, including nine meetings in person, which is in line with the best GAZPROM NEFT PJSC practices of the top Russian companies. BOARD OF DIRECTORS
84 GAZPROM NEFT // 2015 ANNUAL REPORT DESCRIPTION OF CORPORATE GOVERNANCE PRACTICE
In 2015, an extraordinary General Meeting of Shareholders The corporate governance practice of Gazprom Neft PJSC approved the Code of Corporate Governance (the Code), features the following positive aspects in terms of the which was drafted in accordance with the Code of Corporate protection of shareholder rights: Governance of the Central Bank of the Russian Federation, ↗↗ Expanded powers of the Company’s Board of Directors as the generally accepted standards and principles of corporate regards decision-making on significant transactions. governance and the primary objectives in the Company’s ↗↗ JSC PwC Audit, a universally recognised auditor selected on activities. a competitive basis, was hired to audit the Company’s IFRS and RAS financial statements1. Corporate governance at the Company is based on the principle ↗↗ The Company successfully paid dividends for 2008–2014. of sustainable development and increasing the shareholder ↗↗ When determining dividend payments, Gazprom Neft PJSC value of Gazprom Neft in the long term. The Company focuses on IFRS net profit indicators. implements this principle through a system of responsible ↗↗ Information for the annual General Meeting of Shareholders interaction that involves building trust with employees, is posted on the Company’s website. suppliers, customers as well as residents in the regions where it operates. The corporate governance practice of Gazprom Neft PJSC features the following positive aspects in terms of the The Code aims to ensure the effective protection by the activities of governance and control bodies: Company of the rights and interests of its shareholders and ↗↗ Independent directors are elected to the Board of Directors. their fair treatment, the transparency of decision-making by its ↗↗ Meetings of the Board of Directors are held regularly, with governance bodies, the professional and ethical responsibility a sufficient number of members and in accordance with of members of internal governance and control bodies to the a previously approved plan. Company, its employees and counterparties, greater information ↗↗ The preparation procedure for meetings of the Board of transparency and the development of a system of business Directors provides Board members with the opportunity to ethics standards. properly prepare for the meeting. ↗↗ An Audit Committee and Human Resources and Recognising the importance of a high level of corporate Remuneration Committee have been set up under the Board governance for successful business, the Company has of Directors. The activities of the Committees are governed voluntarily committed to adhere to the principles and standards by the relevant Regulations. set forth in this Code in its activities. ↗↗ The Gazprom Neft PJSC Board of Directors evaluates its own work and the individual work of its members. The Board of Directors reviews information on improvements ↗↗ Gazprom Neft PJSC provides liability insurance for members to the corporate governance practice of Gazprom Neft PJSC of the Board of Directors. on an annual basis. ↗↗ The Company has established an Internal Audit Department, a structural unit that performs internal audit functions The corporate governance of Gazprom Neft PJSC features and is subordinate to the Audit Committee of the Board of a single main shareholder – PJSC Gazprom with a stake of Directors. 95.68%. The remaining common shares are distributed among ↗↗ The Company has drafted a regulatory and methodological minority shareholders, including individuals and legal entities, risk management framework. which generally dictates the distribution of the balance of power ↗↗ Gazprom Neft PJSC has established an internal unit that is among those involved in corporate relations. responsible for performing key risk management functions.
1 CJSC PricewaterhouseCoopers Audit until 23 July 2015.
www.gazprom-neft.com 85 Management system
The financial and non-financial information disclosure Corporate social responsibility and sustainable practice features the following positive aspects: development activities performed by Gazprom Neft PJSC ↗↗ The Company discloses information about its majority feature the following positive aspects: shareholder, which owns 95.68% of its shares. ↗↗ The Company has approved internal documents governing ↗↗ The Company discloses detailed information about members corporate social responsibility matters. of the Board of Directors and the Management Board. ↗↗ Gazprom Neft PJSC has adopted a Corporate Conduct Code ↗↗ The Company discloses information about the structure that states its mission, values, core ethical principles and of compensation for members of the Gazprom Neft Board business ethics standards. of Directors and Management Board. ↗↗ The Company implements corporate social projects for ↗↗ The Company discloses all the main forms of financial Gazprom Neft PJSC employees, clients, counterparties and statements prepared in accordance with IFRS and RAS. people living where the Company operates in addition to The disclosed statements are accompanied by the relevant charitable and sponsorship projects. auditor reports. ↗↗ The Company prepares a social report that meets ↗↗ Gazprom Neft PJSC discloses detailed information about GRI standards. related party transactions. ↗↗ The Company’s activities are certified for compliance ↗↗ The Gazprom Neft PJSC website is regularly maintained and with the ISO 14001 standard as regards environmental updated with a large amount of current information about protection. the Company and its operating results.
COMPLIANCE WITH THE PRINCIPLES OF THE CODE OF CORPORATE GOVERNANCE1 //
78
49
24
5
Principles Principles Principles Principles not recommended by observed in full observed in part observed by the the Code Company 13 7 5 1 Rights of shareholders and equitable treatment of shareholders in the exercising of their rights 35 22 11 2 Board of Directors of the Company, purview, committees, independence 2 1 1 0 Corporate secretary of the Company 10 6 3 1 Remuneration system for members of the Board of Directors, executive bodies and other key employees of the Company 6 5 1 0 Risk management and internal control system 7 5 2 0 Information disclosure about the Company, information policy 5 3 1 1 Significant corporate actions
1 Statistics provided based on the Report on Compliance with the Principles and Recommendations of the Code of Corporate Governance Recommended by the Central Bank of the Russian Federation in Information Letter No. IN-06-52/8 dated 17 February 2016.
86 GAZPROM NEFT // 2015 ANNUAL REPORT CORPORATE GOVERNANCE SYSTEM
The corporate governance system of Gazprom Neft PJSC is For Gazprom Neft, the most important information distribution based on principles that aim to preserve and multiply assets, channel available to the greatest number of stakeholders is increase market value, maintain the Company’s financial stability the Company’s official website (http://www.gazprom-neft.ru/) and profitability as well as respect the rights and interests of and in particular the website’s dedicated IR section shareholders and other interested parties. (http://ir.gazprom-neft.ru/). These resources can be used to view the latest Company news, financial and production The management of a complex multi-level VIOC structure that indicators, reporting and other useful information about the includes geological exploration, production, refining and sales Company’s operations as well as documents governing the both within the country and abroad requires a professional activities of Gazprom Neft management and supervisory bodies, team of managers and a highly efficient system of corporate including the Charter, Regulation on the General Meeting of governance and control. The Company currently has a well- Shareholders, Regulation on the Board of Directors, Regulation defined and clear organisational structure with a high level on the Management Board, Regulation on the CEO and of interaction between governing bodies and clear delineation Regulation on the Audit Commission. of management and control duties to guarantee sustained growth in the Company’s value for shareholders in the long Adhering to the principle of equal access to information for all term. stakeholders, Gazprom Neft publishes information on its official website in both Russian and in English. The disclosure and transparency of financial information along with the preservation of the Company’s interests regarding the protection of trade secrets and other confidential information play a significant role in the Gazprom Neft corporate governance system.
STRUCTURE OF GOVERNING AND SUPERVISORY BODIES OF GAZPROM NEFT PJSC //
AUDIT COMMISSION CEO
GENERAL MEETING BOARD OF DIRECTORS MANAGEMENT BOARD OF SHAREHOLDERS
The Board of Directors appoints the head of the Internal Audit Department
HUMAN RESOURCES INTERNAL AUDIT EXTERNAL AUDITOR AND REMUNERATION DEPARTMENT COMMITTEE
The Internal Audit Department is administratively subordinate to the Company’s CEO. AUDIT COMMITTEE
www.gazprom-neft.com 87 Management system
BASIC DEFINITIONS // General Meeting of Shareholders – ↗↗ AUDIT COMMISSION – the supervisory body that oversees the supreme governing body whose purview includes the most the Company’s financial and operational activities and is significant issues concerning the Company’s activities. elected by the General Meeting of Shareholders. The Audit Commission’s purview includes the audit and analysis of the ↗↗ BOARD OF DIRECTORS – the governing body that handles the Company’s financial position, the operation of the internal overall management of the Company and is responsible for control and risk management systems and the legality of strategic management that aims to increase the Company’s business transactions. shareholder value. The Board of Directors ensures the ↗↗ EXTERNAL AUDITOR – the supervisory body that annually Company’s executive bodies operate effectively and audits the Company’s financial statements in accordance supervises their activities. with Russian Accounting Standards (RAS) and International ↗↗ MANAGEMENT BOARD – the collective executive body that Financial Reporting Standards (IFRS) and is approved manages the Company’s day-to-day operations. by the General Meeting of Shareholders based on a proposal ↗↗ CEO – the sole executive body that performs the functions of by the Company’s Board of Directors. the Chairman of the Company’s Management Board. ↗↗ INTERNAL CONTROL – the combination of organisational ↗↗ INTERNAL AUDIT DEPARTMENT – the internal unit that measures, techniques, procedures, corporate culture evaluates the effectiveness of the Company’s business standards and actions undertaken by internal control processes, including production (exploration, extraction, entities as a way to ensure the Company’s financial refining and sales), corporate level processes (information stability, achieve an optimal balance between growth in the technologies and financial activities) and major construction. Company’s value, profitability and risks, conduct business activities in a structured and effective manner, ensure the safeguarding of assets, identify, correct and prevent violations, prepare reliable financial statements in a timely manner and thus enhance the Company’s investment appeal.
MEETING OF SHAREHOLDERS // In 2015, the Company The extraordinary General Meeting of Shareholders held held its obligatory annual General Meeting of Shareholders in on 30 September 2015 approved the following: addition to one extraordinary General Meeting of Shareholders. ↗↗ considered paying dividends based on the results of the first half of 2015; The annual General Meeting of Shareholders held ↗↗ decided to pay dividends based on the results of this period on 5 June 2015 approved the following: in the amount of RUB 5.92 per share; ↗↗ approved the Company’s Annual Report and annual ↗↗ approved a new version of the Charter of accounting statement for 2014; Gazprom Neft PJSC; ↗↗ approved the distribution of profit based on 2014 results; ↗↗ approved the Code of Corporate Governance. ↗↗ decided to pay dividends based on 2014 results in the amount of RUB 6.47 per share (taking into account previously paid dividends for the first half of 2014, payable dividends amounted to RUB 4.62 per share); ↗↗ elected new versions of the Board of Directors and Audit Commission; ↗↗ approved the Company’s external auditor for 2015; ↗↗ approved remuneration for members of the Board of Directors and Audit Commission.
88 GAZPROM NEFT // 2015 ANNUAL REPORT BOARD OF DIRECTORS // The Board of Director’s performs The Board of Directors is balanced in terms of its members the general management of the Company’s operations. possessing the key skills that are essential for effective work. In accordance with its purview, the Board of Directors The members of the Board of Directors have skills in accounting, determines the Company’s strategy, policy and core operating strategic management, corporate governance, corporate finance principles, including with respect to investment and borrowing, and risk management as well as knowledge specific to certain risk management, property disposal and other areas areas of the Company’s business. of operations, and monitors their implementation. The existing structure of the Board of Directors ensures it The purview of the Board of Directors is determined in the has an appropriate level of independence from Company Charter and clearly separated from that of the Company’s management to provide proper control over the latter’s executive governing bodies that manage its day-to-day work. Gazprom Neft has a transparent procedure for operations. electing members of the Board of Directors, specifically: ↗↗ The Company provides shareholders with two months One of the most crucial functions of the Board of Directors is to to nominate candidates for the Board of Directors, while form effective executive bodies and supervise their activities. legislation stipulates one month; The Board of Directors monitors the activities of the executive ↗↗ The Company discloses information about the current bodies and regularly reviews reports on the implementation of members of the Board of Directors and candidates for the the Company’s strategy and business plans. The purview of the Board of Directors in advance; Board of Directors includes the election and motivation of the ↗↗ The Company regularly interacts with the depository bank executive bodies as well as the termination of their powers. that issues depository receipts; ↗↗ The Company employs the principle of cumulative voting The Board of Directors approves the internal control and for the election of members of the Board of Directors risk management policy and supports the operation of the and explains its procedures; risk management and internal control systems. The Board of ↗↗ The Company announces the voting results on matters with Directors is responsible for managing the Company’s key risks an indication of the quorum and the persons who voted for that impact the achievement of its strategic goals. each option; ↗↗ The Company publishes minutes of the General Meetings The Board of Directors monitors improvements in the corporate of Shareholders on its official website. governance system and practices at the Company and reviews reports on the implementation of an action programme to improve corporate governance on an annual basis.
Taking into account the strategic importance of the challenges facing the Board of Directors, the Board members must have the confidence of shareholders and ensure the duties entrusted to them are performed in the most efficient manner possible.
The members of the Company’s Board of Directors ensure the duties entrusted to them are performed in the most efficient manner possible. The Board of Directors is elected with 13 members. In accordance with the share capital structure (95.68% of the total common shares belong to PJSC Gazprom), the vast majority of members of the Gazprom Neft Board of Directors are elected upon recommendation by the controlling shareholder – PJSC Gazprom. Of the 13 members of the Board of Directors, ten are non-executive directors – representatives of the main shareholder, two are independent directors, and one is the Company’s executive director. Gazprom Neft focuses on the criteria for independence enshrined in the Code of Corporate Governance of the Central Bank of the Russian Federation.
www.gazprom-neft.com 89 Management system
MEMBERS OF THE BOARD OF DIRECTORS // All members of Members of the Board of Directors are elected via a transparent the Company’s Board of Directors have a solid professional procedure that enables shareholders to obtain sufficient reputation, substantial experience working at the Company and information about candidates so that they can form an opinion regularly interact with Company management, its structural on their personal and professional qualities. Information units as well as the registrar and auditor in the performance about candidates for the Board of Directors is conveyed to of their functions. stakeholders via the publishing of a material event immediately after the minutes are compiled for the meeting of the Board The number of members of the Board of Directors is optimal for of Directors at which this issue was considered. Comprehensive the Company’s current goals, objectives and industry practices information about the candidates is subsequently published and allows for ensuring the necessary balance of competence on the Company’s website in Russian and English 30 days prior among members of the Board of Directors. to the General Meeting of Shareholders at which the election of the Board of Directors is on the agenda. The concurrent participation by members of the Board of Directors in the work of the boards of directors of other companies has not in any way affected their effectiveness in performing their functions and duties on the Gazprom Neft PJSC Board of Directors
CORE COMPETENCIES OF THE BOARD OF DIRECTORS //
Source: Company data
9
6 6 5
3 2
Strategy Finance Oil and gas Law and Risk Public and Member of the Board Active period Length of service on the Board and audit corporate management government of Directors on the Board of Directors (years) governance relations of Directors
A.B. Miller since 2005 11
V.A. Golubev since 2007 9
A.V. Kruglov since 2005 11
K.G. Seleznev since 2005 11
V.V. Cherepanov since 2011 5
N.N. Dubik since 2008 8
Y.V. Mikhailova since 2012 4
A.V. Dyukov since 2007 9
M.M. Garayev since 2014 2
V.I. Alisov since 2009 7
M.L. Sereda since 2013 3
V.P. Serdyukov since 2012 4
S.A. Fursenko since 2013 3
90 GAZPROM NEFT // 2015 ANNUAL REPORT MEMBERS OF THE BOARD OF DIRECTORS AS OF 31 DECEMBER 2015 //
ALEXEY BORISOVICH VLADIMIR IVANOVICH MARAT MARSELEVICH MILLER ALISOV GARAYEV Chairman of the Board of Directors
Born in 1962. Born in 1960. Born in 1973. Graduated from Voznesensky Leningrad Institute Graduated from the Legal Department Graduated from Saint Petersburg State of Finance and Economics. of Zhdanov Leningrad State University. University of Economics and Finance with 2001 – Chairman of the Management Board 2008 – First Deputy Department Head at a degree in economics. of PJSC Gazprom. PJSC Gazprom. 2002–2014 – Deputy Department Head at 2002 – Deputy Chairman of the Board Member of the Russian Association of Lawyers PJSC Gazprom. of Directors of PJSC Gazprom. and member of the Corporate Governance Expert February 2014 – First Deputy Head of the Candidate of economic sciences. Council under the Central Bank of the Russian Department. Federation. Positions held at other organisations: Positions held at other organisations: ↗↗ 2003 – Chairman of the Board of Directors 2010 – Granted the title of Honoured Lawyer ↗↗ 2003 – Member and Chairman of the Board of JSC Gazprombank; of the Russian Federation under a decree from of Directors of JSC Gazprom Gas Energy ↗↗ 2003 – Chairman of the Board of Directors the President of the Russian Federation. Network; of JSC SOGAZ; Positions held at other organisations: ↗↗ 2009 – Member of the Board of Directors ↗↗ 2007 – Chairman of the Board of the ↗↗ 2007 – Member of the Board of Directors of OJSC Gazprom Sera; Gazfond Private Pension Fund; of OJSC Gazprom Automation; ↗↗ 2010 – Member of the Board of Directors ↗↗ 2007 – Chairman of the Board of Directors ↗↗ 2008 – Member of the Board of Directors of OJSC Kazanorgsintez. of JSC Gazprom-Media Holding; of OJSC Kamchatgazprom; ↗↗ 2008 – Chairman of the Board of Directors ↗↗ 2008 – Member of the Board of Directors of Shtokman Development AG; of OJSC Daltransgaz. ↗↗ 2010 – Chairman of the Supervisory Board of Gazprom Neft International S.A.; ↗↗ 2012 – Chairman of the Board of Directors of OJSC Russian Hippodromes; ↗↗ 2013 – Member of the Supervisory Board of the Global Energy Non-profit Partnership for the Development of International Research and Projects in Energy; ↗↗ 2013 – Chairman of the Management Board of the New Technologies of the Gas Industry Association of Equipment Manufacturers; ↗↗ 2014 – Chairman of the Board of Trustees of Saint Petersburg State University of Economics.
Interest in charter capital Interest in charter capital Interest in charter capital (as of 31 December 2015) (as of 31 December 2015) (as of 31 December 2015) Does not own Company shares Does not own Company shares Does not own Company shares
www.gazprom-neft.com 91 Management system
MEMBERS OF THE BOARD OF DIRECTORS AS OF 31 DECEMBER 2015 //
VALERY ALEXANDROVICH NIKOLAY NIKOLAYEVICH ALEXANDER VALERYEVICH GOLUBEV DUBIK DYUKOV Member of the Audit Committee of the Board of Directors Member of the Audit Committee of the Board of Directors; Chairman of the Human Resources and Remuneration Committee of the Board of Directors
Born in 1952. Born in 1971. Born in 1967. Graduated from Ulyanov (Lenin) Leningrad Graduated from Lomonosov Moscow State Graduated from Order of Lenin Leningrad Electrotechnical Institute and the Academy University and earned an EMBA at the Russian Shipbuilding Institute. Obtained IMISP MBA of National Economy under the Government Academy of National Economy in 2009. in 2001. of the Russian Federation. 2008 – Member of the Management Board and December 2007 – Chairman of the Management 2006 – Deputy Chairman of the Management Deputy Department Head at PJSC Gazprom. Board and CEO of Gazprom Neft PJSC. Board of PJSC Gazprom. Honoured Lawyer of the Russian Federation. Positions held at other organisations: Candidate of economic sciences. Positions held at other organisations: ↗↗ 2005 – Chairman and Deputy Chairman Positions held at other organisations: ↗↗ 2006 – Member of the Supervisory Board of the Board of Directors of PJSC SIBUR ↗↗ 2005 – Chairman and Member of the Board of JSC Moldovagaz; Holding; of Directors of OJSC Volgogradneftemash; ↗↗ 2008 – Member of the Supervisory Board ↗↗ 2008 – Chairman of the Board of Directors ↗↗ 2006 – First Vice President and Member of JSC EuRoPolGAZ; and President of JSC Football Club Zenit; of the Supervisory Board of Russian Gas ↗↗ 2008 – Member of the Board of Directors ↗↗ 2007 – Member and Chairman of the Company Non-profit Partnership; of LLC Lazurnaya; Board of Directors of JSC Lakhta Centre ↗↗ 2006 – Member of the Supervisory Board ↗↗ 2008 – Member of the Board of Directors Multifunctional Complex; of LLP KazRosGaz; of JSC Gazprom-Media Holding; ↗↗ 2009 – Member of the Board of Directors ↗↗ 2007 – Chairman of the Supervisory Board ↗↗ 2008 – Member of the Board of Directors of LLC National Oil Consortium; of JSC Moldovagaz; of Shtokman Development AG; ↗↗ 2010 – Member of the Board of Directors ↗↗ 2007 – Member of the Board of Directors ↗↗ 2009 – Member of the Supervisory Board of CJSC Hockey Club SKA; of LLC International Gas Transportation of OJSC Gazprom Transgaz Belarus; ↗↗ 2012 – Member of the Board of Directors Consortium; ↗↗ 2010 – Member of the Supervisory Board of LLC Hockey City; ↗↗ 2007 – Member of the Board of Directors of Gazprom Neft International S.A.; ↗↗ 2012 – Member of the Board of Directors of PJSC Mosenergo; ↗↗ 2012 – Member of the Board of Directors of LLC LIGA-TV. ↗↗ 2007 – Chairman of the Board of Directors of LLC Gazpromneft-Sakhalin; of CJSC Gazprom Armenia; ↗↗ 2013 – Member of the Board of Directors ↗↗ 2009 – Co-chairman of the Supervisory of JSC Latvijas Gāze; Board for PSAs and Member of the Board ↗↗ 2014 – Member of the Board of Directors of Directors of Sakhalin Energy Investment of CJSC Gazprom Armenia; Company Ltd; ↗↗ 2014 – Member of the Board of Directors ↗↗ 2009 – Member of the Board of Directors of LLC Gazprom Kyrgyzstan; of LLC Gazprom Investproekt; ↗↗ 2015 – Member of the Board of Directors ↗↗ 2009 – Member of the Board of Directors of Gazprom Marketing & Trading Ltd; of OJSC Gazprom-South Ossetia; ↗↗ 2015 – Member of the Board of Directors ↗↗ 2012 – Member of the Supervisory Board of GAZPROM Germania GmbH; of Gazprom Neft Finance B.V. ↗↗ 2015 – Member of the Administrative Board of Gazprom Schweiz AG.
Interest in charter capital Interest in charter capital Interest in charter capital (as of 31 December 2015) (as of 31 December 2015) (as of 31 December 2015) Does not own Company shares Does not own Company shares 0.005357244% (254,003 shares)
92 GAZPROM NEFT // 2015 ANNUAL REPORT MEMBERS OF THE BOARD OF DIRECTORS AS OF 31 DECEMBER 2015 //
ANDREY VYACHESLAVOVICH ELENA VLADIMIROVNA KIRILL GENNADYEVICH KRUGLOV MIKHAILOVA SELEZNEV Member of the Human Resources and Remuneration Committee of the Board of Directors
Born in 1969. Born in 1977. Born in 1974. Graduated from the Saint Petersburg Graduated from Moscow State Industrial Graduated from Ustinov Baltic State Technical Technological Institute of the Refrigerating University with a major in law and earned University and Saint Petersburg State University. Industry. a Master’s Degree in Business Administration 2002 – Head of the PJSC Gazprom Department. 2004 – Deputy Chairman of the Management from the Academy of National Economy under the Government of the Russian Federation. 2003 – Member of the Management Board Board. of PJSC Gazprom. 2003–2011 – Deputy CEO for Corporate 2004-2015 – Head of the OJSC Gazprom 2004 – CEO of LLC Gazprom Mezhregiongaz. Department. and Property Relations of LLC Gazprom Mezhregiongaz. Candidate of economic sciences. Doctor of economic sciences. 2011 – Department Head at PJSC Gazprom. Positions held at other organisations: Positions held at other organisations: ↗↗ 2003 – Member and Chairman of the Board ↗↗ 2003 – Chairman of the Board of Directors 2012 – Member of the Management Board of PJSC Gazprom. of Directors of JSC Latvijas Gāze; of PJSC Belgazprombank; ↗↗ 2003 – Member of the Supervisory Board ↗↗ 2003 – Member of the Board of Directors Positions held at other organisations: of LPP KazRosGaz; of JSC Gazprombank; ↗↗ 2009 – Member of the Board of Directors ↗↗ 2003 – Member of the Board of Directors ↗↗ 2004 – Member of the Board of Directors of JSC Gazprom Gas Energy Network; of OJSC Vostokgazprom; of OJSC Vostokgazprom; ↗↗ 2012 – Member of the Board of Directors ↗↗ 2004 – Member of the Board of Directors ↗↗ 2004 – Member of the Board of Directors of LLC Gazprom Investproekt; of OJSC Tomskgazprom; of OJSC Tomskgazprom; ↗↗ 2012 – Member of the Board of Directors ↗↗ 2006 – Member of the Board of Directors ↗↗ 2006 – Member of the Board of Directors of PJSC Mosenergo; of JSC Football Club Zenit; of JSC SOGAZ; ↗↗ 2012 – Member of the Board of Directors ↗↗ 2006 – Member of the Supervisory Board ↗↗ 2008 – Member of the Board of Directors of OJSC Severneftegazprom; of Russian Gas Company Non-profit of OJSC Gazprom Repair Centre; ↗↗ 2012 – Member of the Board of Directors Partnership; ↗↗ 2009 – Member of the Supervisory Board of CJSC Leader; ↗↗ 2007 – Chairman of the Board of Directors of GAZPROM Germania GmbH; ↗↗ 2012 – Member of the Board of Directors of PJSC Mosenergo; ↗↗ 2009 – Member and Chairman of the of LLC Gazprom Gas Engine Fuel; ↗↗ 2008 – Chairman of the Board of Directors Supervisory Board of Gazprom EP ↗↗ 2013 – Member of the Board of JSC Latvijas of OJSC Territorial Generating Company International B.V.; Gāze. No. 1; ↗↗ 2009 – Member of the Board of Directors ↗↗ 2010 – Member of the Board of Directors of LLC Gazprom Investproekt; of JSC Gazprombank; ↗↗ 2010 – Deputy Chairman of the Board ↗↗ 2011 – Member of the Board of Directors of Directors of JSC Overgaz Inc.; of OJSC Rossiya Bank; ↗↗ 2010 – Member of the Supervisory Board ↗↗ 2011 – Member of the Supervisory Board of Gazprom Neft Finance B.V. of Gazprom Neft Finance B.V.; ↗↗ 2013 – Member of the Supervisory Board of OJSC Russian Regional Development Bank.
Interest in charter capital Interest in charter capital Interest in charter capital (as of 31 December 2015) (as of 31 December 2015) (as of 31 December 2015) Does not own Company shares Does not own Company shares Does not own Company shares
www.gazprom-neft.com 93 Management system
MEMBERS OF THE BOARD OF DIRECTORS AS OF 31 DECEMBER 2015 //
MIKHAIL LEONIDOVICH VALERY PAVLOVICH SERGEY ALEXANDROVICH SEREDA SERDYUKOV FURSENKO Chairman of the Audit Committee of the Board of Directors Member of the Human Resources and Remuneration Committee of the Board of Directors
Born in 1970. Born in 1945. Born in 1954. Graduated from Saint Petersburg State Graduated from Plekhanov Leningrad Mining Graduated from Leningrad Polytechnic Institute. University of Economics and Finance. Institute. 2011 – Member of the Executive Committee 2002 – Member of the Board of Directors 1999–2012 – Governor of the Leningrad Region. of the Union of European Football Associations of PJSC Gazprom. Candidate of economic sciences. Holder (UEFA). 2004 – Deputy Chairman of the Management of government and industry-based awards. 2012 – Member of the Presidential Council Board and Head of the Administration of the on the Development of Physical Education Management Board of PJSC Gazprom. and Sport. Positions held at other organisations: Positions held at other organisations: ↗↗ 2002 – Member of the Board of Directors ↗↗ 2012 – Chairman and Member of the Board of WIEH GmbH and Co KG; of Directors of LLC Gazprom Gas Engine ↗↗ 2002 – Member of the Board of Directors Fuel. of Wingas GmbH; ↗↗ 2002 – Member and Chairman of the Board of Directors of GAZPROM (U.K.) LIMITED; ↗↗ 2002 – Member and Deputy Chairman of the Board of Directors of OJSC Gazprombank; ↗↗ 2002 – Member and Chairman of the Board of Directors of OJSC Vostokgazprom; ↗↗ 2003 – Member of the Board of CJSC Interest in charter capital Interest in charter capital Panrusgaz; (as of 31 December 2015) (as of 31 December 2015) ↗↗ 2003 – Member and Chairman of the Board Does not own Company shares Does not own Company shares of Directors of SOJSC Centreenergogaz; ↗↗ 2004 – Chairman of the Board of Directors of OJSC Tomskgazprom; ↗↗ 2005 – Member and Chairman of the Board of Directors of OJSC Gazpromtrubinvest; ↗↗ 2007 – Member of the Board of Directors of OJSC Gazprom Cosmic Systems; ↗↗ 2014 – Member of the Board of Directors The current Board of Directors as of 31 December 2015 was elected at the annual of OJSC Gazpromtrubinvest; ↗↗ 2015 – Member and Chairman of the Board General Meeting of Shareholders on 5 June 2015 (Minutes No. 0101/01 dated 9 June of Directors of Gazprom Marketing & Trading 2015). Limited; ↗↗ 2015 – Member of the Board of Directors of Gazprom Marketing & Trading Singapore Apart from Alexander Dyukov, the chairman and members of the Board of Directors Ltd; ↗↗ 2015 – Member of the Board of Directors did not own any Company shares during the reporting period. No members of the of Gazprom Global LNG; Board of Directors concluded any transactions for the acquisition or alienation of any ↗↗ 2015 – Member of the Supervisory Board of Gazprom Germania GmbH; Company shares during the reporting year. ↗↗ 2015 – President of the Administrative Board of Gazprom Schweiz AG. No claims were filed against members of the Board of Directors in 2015.
Interest in charter capital CHANGES TO MEMBERS OF THE COMPANY’S BOARD OF DIRECTORS IN 2015 // (as of 31 December 2015) There were no changes to the Company’s Board of Directors in 2015. During Does not own Company shares the election of the Gazprom Neft Board of Directors, all standing members of the Company’s Board of Directors were re-elected.
94 GAZPROM NEFT // 2015 ANNUAL REPORT MEMBERS OF THE BOARD OF DIRECTORS AS OF 31 DECEMBER 2015 //
SECRETARY OF THE BOARD OF DIRECTORS // The Secretary of the Board of Directors handles effective regular interaction with shareholders and the coordination of the Company’s actions to protect the rights and interests of shareholders, and also supports the effective work of the Board of the Directors.
The main tasks of the Secretary of the Board of Directors are: to ensure the Company’s governing bodies and officials comply with the corporate governance rules and procedures prescribed by the laws of the Russian Federation and the Company’s Charter and internal documents; to prepare for and hold the General Meeting of Shareholders and meetings of the Board of Directors and its committees; to disclose information about the Company; and improve corporate governance practices. VSEVOLOD VLADIMIROVICH CHEREPANOV The Secretary of the Board of Directors is appointed by the Board of Directors based Member of the Human Resources on the recommendation of the Chairman of the Board of Directors. and Remuneration Committee of the Board of Directors
The main functions of the Secretary of the Board of Directors include: Born in 1966. ↗↗ organisational and information support for the work of the Board of Directors and Graduated from Lomonosov Moscow State University. its committees; 2010 – Member of the Management Board and ↗↗ preparing for and holding General Meetings of Shareholders; Department Head at PJSC Gazprom. ↗↗ providing assistance to the Chairman of the Board of Directors in organising and Candidate of geological and mineral sciences. planning the work of the Board of Directors; Positions held at other organisations: ↗↗ 2010 – Chairman of the Board of Directors ↗↗ organising the storage of documents of the Board of Documents; of LLC CentreKaspneftegaz; ↗↗ monitoring the implementation of the decisions of the Board of Directors; ↗↗ 2010 – Member of the Board of Directors of CJSC Achimgaz; ↗↗ interaction with members of the Board of Directors, consulting members of the ↗↗ 2010 – Member of the Supervisory Board Board of Directors on corporate governance matters and the provision of the of Wintershall AG; ↗↗ 2010 – Member of the Board of Directors necessary documents and information to members of the Board of Directors; of Shtokman Development AG; ↗↗ ensuring the disclosure of information about the Company; ↗↗ 2010 – Member of the Board of Directors of OJSC Severneftegazprom; ↗↗ organising interaction between the Company and its shareholders; ↗↗ 2010 – Member of the Supervisory Board ↗↗ performing other functions in accordance with the Regulation on the Board of Gazprom EP International B.V.; ↗↗ 2011 – Chairman of the Board of Directors of Directors, the Company’s internal documents and the instructions of the of LLC Gazpromviet; Chairman of the Board of Directors. ↗↗ 2011 – Non-executive Director of the Board of Directors of Sakhalin Energy Investment Company Ltd.; ↗↗ 2012 – Member of the Board of Directors Born in 1972. of LLC Gazpromneft-Sakhalin; Graduated from the State University of ↗↗ 2013 – Member of the New Technologies Management in Moscow and obtained an EMBA of the Gas Industry Association diploma from Stockholm School of Economics of Equipment Manufacturers. in 2012. 2007 – Head of the Corporate Regulation Department of Gazprom Neft PJSC. Interest in charter capital (as of 31 December 2015) 2008 – Secretary of the Board of Directors. Does not own Company shares Alexey Dvortsov finished first in the rating of corporate governance directors in the fuel and energy sector according to Kommersant Publishing House and the Association of Managers. (16th ‘Top 1,000 Russian Managers’ rating)1. In addition, Dvortsov ranked among the ‘25 Best ALEXEY VLADIMIROVICH Corporate Governance Directors / Corporate Secretaries’2 for 2015. 1 DVORTSOV Detailed information about the rating available Dvortsov does not own shares or interests in at the website http://www.kommersant.ru/ Secretary of the Board of Directors PJSC Gazprom Neft or its subsidiaries. doc/2810043. 2 Prepared by experts of the Association Dvortsov does not have kinship with any other Interest in charter capital people who are members of governing bodies of Independent Directors and the Russian Union (as of 31 December 2015) and/or bodies that monitor financial and business of Industrialists and Entrepreneurs in partnership Does not own Company shares operations. with JSC PricewaterhouseCoopers Audit and the Moscow Exchange.
www.gazprom-neft.com 95 Management system
ACTIVITIES OF THE GAZPROM NEFT BOARD OF DIRECTORS //
STRUCTURE OF MATTERS CONSIDERED BY THE BOARD OF DIRECTORS BY THEME //
Source: Company data
141 142 131 112 131 items 89 considered by the Board of Directors in 2015
2011 2012 2013 2014 2015 2 3 4 3 3 Strategic 3 4 4 3 3 HR 27 35 48 44 33 Corporate governance 14 12 21 16 12 Budget planning and financing 43 58 64 76 80 Other
The following issues were considered in strategic and STATISTICS ON THE NUMBER OF MEETINGS OF THE BOARD investment planning: OF DIRECTORS //
↗↗ the Company’s strategic performance indicators; Source: Company data ↗↗ the development strategy for NIS a.d. Novi Sad; 68 63 65 ↗↗ Gazprom Neft’s cooperation with companies from the Asia- 59 Pacific Region;
↗↗ the report on the Company’s Innovative Development 35 Programme until 2020; ↗↗ the report on environmental protection activities and the waste management programme at the Company’s oil refineries; 2011 2012 2013 2014 2015 ↗↗ the status and effectiveness of the implementation of the 4 8 8 9 9 In person Gazprom Neft PJSC Investment Programme based on the 31 55 51 56 59 In absentia Company’s performance results in the first half of 2015 and amendments to the Investment Programme; ↗↗ the preliminary results of the implementation of the The following issues were considered in matters Gazprom Neft PJSC Investment Programme for 2015; of corporate governance: ↗↗ approval of the Gazprom Neft Investment Programme ↗↗ the appointment of members of the Company’s Management for 2016; Board; ↗↗ consideration of the projected investment plan ↗↗ the adoption of a number of decisions on corporate issues, for 2017–2018. including convening an extraordinary General Meeting of Shareholders to approve new versions of the Charter and Code of Corporate Governance and the payment of interim The following issues were considered in the social and dividends; environmental aspects of the Company’s operations: ↗↗ remuneration for members of the Board of Directors ↗↗ the environmental activities of Gazprom Neft; and Audit Commission for their work in 2014; ↗↗ the assessment of and measures to manage the Company’s ↗↗ concurrent membership in the governing bodies of other operational risks and industrial safety risks; organisations by members of the Management Board; ↗↗ the waste management programme at the Omsk and ↗↗ the approval of the first part of the decision to issue the Moscow Oil Refineries as well as the concentration Company’s securities and exchange bonds (Exchange of harmful substances on the territory of plants and Bonds Programme) and the Prospectus for documentary surrounding areas. non-convertible interest-bearing exchange-traded bonds in bearer form with mandatory centralized custody.
96 GAZPROM NEFT // 2015 ANNUAL REPORT STATISTICS ON THE PARTICIPATION OF MEMBERS OF THE BOARD OF DIRECTORS IN MEETINGS IN 2015 //
Board of Directors member Number of meetings attended Total number of meetings the Member by the Member of the Board of the Board of Directors could have All members of the Board of Directors attended of Directors took part in all Miller Alexey Borisovich 68 68 68 meetings of the Board of Chairman of the Board of Directors Directors except for Alexander Non-executive Director Dyukov since he does not Golubev Valery Alexandrovich 68 68 attend meetings where Non-executive Director related party transactions are Kruglov Andrey Vyacheslavovich 68 68 considered. Non-executive Director Dubik Nikolay Nikolayevich 68 68 Non-executive Director Seleznev Kirill Gennadyevich 68 68 Non-executive Director Dyukov Alexander Valeryevich 41 68 Executive Director Alisov Vladimir Ivanovich 68 68 Non-executive Director Cherepanov Vsevolod Vladimirovich 68 68 Non-executive Director Sereda Mikhail Leonidovich 68 68 Non-executive Director Fursenko Sergey Alexandrovich 68 68 Independent Director Mikhailova Elena Vladimirovna 68 68 Non-executive Director Serdyukov Valery Pavlovich 68 68 Independent Director Garayev Marat Marselevich 68 68 Non-executive Director
The following issues were considered in budget Other issues considered: planning and funding for the Company’s activities: ↗↗ the approval of related party transactions; ↗↗ the execution of the Company’s Budget based on the results ↗↗ the adoption of a number of decisions on the Company’s of 2014; participation (termination of participation) in other ↗↗ the approval of the Budget and Cost Optimisation organisations as part of the implementation of a corporate Programme of Gazprom Neft PJSC for 2016; restructuring programme; ↗↗ the debt structure and management of the Gazprom Neft ↗↗ the accession of the Group’s companies to the consolidated Group’s debt portfolio; group of taxpayers; ↗↗ the projected parameters of the Budget and Cost ↗↗ amendments to the Company’s regulatory documents Optimisation Programme of Gazprom Neft PJSC concerning procurements of imported products; for 2017-2018; ↗↗ the approval of sponsorship for sports clubs in the regions ↗↗ the approval of a number of loan transactions; where Gazprom Neft operates (Football Club Zenit, Hockey ↗↗ the approval of transactions to provide collateral for the Club SKA and NP Avangard SC) during sports seasons. obligations of members of the Gazprom Neft Group.
www.gazprom-neft.com 97 Management system
COMMITTEES OF THE BOARD OF DIRECTORS // The Company has two committees operating under the Board of Directors: the Audit Committee and the Human Resources and Remuneration Committee.
HUMAN RESOURCES AUDIT COMMITTEE AND REMUNERATION COMMITTEE
The Audit Committee monitors the Company’s financial and business operations, The Committee contributes to the creation of the is elected by the Board of Directors and acts on the basis of the Charter and Company’s human resources policy and handles internal regulations. matters involving remuneration for members of governing bodies and the Audit Commission. Functions: The Audit Committee assists the Board of Directors in monitoring the The Committee is elected by the Board of Company’s financial and business operations by evaluating the effectiveness of the Directors and acts on the basis of the Charter and internal control systems, including the mechanisms used to oversee the process of internal regulations. preparing and submitting financial and other reporting as well as its completeness and accuracy, and monitoring the risk management system. The Audit Committee The Committee is comprised of four non- is instrumental in maintaining constructive communication with the external executive directors (elected by the Board auditor as well as the Company’s financial and business oversight bodies and of Directors on 10 June 2015): internal audit units. ↗↗ Dubik Nikolay Nikolayevich (Chairman) ↗↗ Kruglov Andrey Vyacheslavovich The Audit Committee’s activities are directly linked to the work plan of the Board ↗↗ Cherepanov Vsevolod Vladimirovich of Directors and include the consideration of matters involving financial activities ↗↗ Fursenko Sergey Alexandrovich (independent and investment planning. director) The Audit Committee is comprised of three non-executive directors (elected In 2015, the Committee held six meetings by the Board of Directors on 10 June 2015): and considered the following key issues: Sereda Mikhail Leonidovich (Chairman) ↗↗ ↗↗ remuneration for members of the Board ↗↗ Golubev Valery Alexandrovich of Directors and Audit Commission; Dubik Nikolay Nikolayevich ↗↗ ↗↗ the approval of the Programme on the The work plan approved by the Audit Committee for 2015 provided for Induction of Newly Elected Members of the the consideration of 24 items. In particular, the following key issues were Board of Directors; considered: ↗↗ the preliminary consideration of a report on the ↗↗ the review of the Company’s consolidated IFRS reporting for 2014; fulfilment of the recommendations on improving ↗↗ the selection of an auditor and determination of the auditor’s remuneration; the quality of the Company’s corporate ↗↗ an assessment of the effectiveness of the internal control and risk governance that were received as part of the management system and procedures; corporate governance audit; ↗↗ interaction between the external and internal auditors; ↗↗ the results of an effectiveness assessment ↗↗ approaches to the assessment of the Company’s core risks using the Logistics, of the activities of the Company’s Board of Processing and Sales Unit as an example and the assessment results; Directors; ↗↗ the review of the action plan to prepare for an external assessment of the ↗↗ participation by members of the Gazprom Neft Internal Audit Department’s activities in 2016; Management Board in the governing bodies of ↗↗ the review of certain liquidity, market, currency and credit risks faced by other organisations; Gazprom Neft PJSC and measures to manage them; ↗↗ changes to the members of the Company’s ↗↗ the results of an audit of the financial statements of Gazprom Neft PJSC Management Board. for the first nine months of 2015. The Committee conducted an assessment of the The financial statements of Gazprom Neft are audited on an annual basis. activities of the Board of Directors based on which The Company’s condensed interim financial reports prepared in accordance it noted the positive dynamics in the Board’s work with IFRS were also examined by an independent auditor per international audit (related to an increase in the number of items standards. submitted for discussion), active participation by Board members and the organisation of the work The Audit Committee considered the following internal documents: of the Committees under the Board. ↗↗ External audit policy of Gazprom Neft PJSC; As regards preparing information (materials) for ↗↗ Work plan of the Internal Audit Department for 2015-2017; the annual General Meeting of Shareholders, ↗↗ Procedure for conducting an internal assessment of the Gazprom Neft PJSC the Committee regularly conducts preliminary Internal Audit Department’s activities. assessments of candidates for election to the Board Representatives of the external auditor and the executives of the Internal Audit of Directors. Service were invited to the Audit Committee’s meeting. The Committee prepared the appropriate recommendations for matters that require recommendations to be submitted to the Board of Directors. The Committee fully performed its duties during the reporting period.
98 GAZPROM NEFT // 2015 ANNUAL REPORT PERFORMANCE EVALUATION OF THE BOARD OF DIRECTORS // The Programme provides for the following measures: In accordance with the recommendations of the best corporate ↗↗ A meeting with the Chairman of the Board of Directors and governance practices, the Board of Directors conducts an annual discussion of the Board’s work plan and the priorities in the analysis and assessment of the effectiveness of its performance Company’s activities; determining the future role of each by evaluating all the areas of the Board’s activities. director on the Board in accordance with the director’s professional knowledge and experience. In accordance with the decision of the Board’s Human Resources ↗↗ A meeting with representatives of senior management, and Remuneration Committee dated 27 September 2010, the the provision of basic information about the Company’s Committee conducts an annual internal assessment of the activities, discussion of the Company’s operational and effectiveness of the activities performed by the Company’s financial structure, and introduction to the members of the Board of Directors in the form of a survey (questionnaire). Management Board. The questionnaire includes approximately 30 questions about ↗↗ Consultations with the Secretary of the Board of Directors: the main areas of activities: members, work structure and the Secretary shall describe the procedural and legal procedures of the Board of Directors. aspects of the activities performed by the Board of Directors and its committees and explain the rights and The analysis of the Board’s performance over the reporting duties of Board members, matters concerning the payment period revealed improvements in the following areas: of remuneration and compensation, and their responsibilities identification of strategic priorities, interaction with executive and liability insurance. management, balanced membership and awareness of the Board ↗↗ Review of the Company’s main documents, guidelines for of Directors. Board members and a description of the main business matters, internal procedures and the organisational management of the Board of Directors and its committees. INDUCTION OF NEW MEMBERS OF THE BOARD ↗↗ The Programme may also include such measures as visits to OF DIRECTORS // In order to support the effective work of the the Company’s fixed assets, participation in the Company’s Board of Directors, the Human Resources and Remuneration public activities and meetings with key management Committee in 2015 approved the Programme on the Induction of personnel. Newly Elected Members of the Board of Directors. The Human Resources and Remuneration Committee shall The objectives of the Programme are to introduce newly elected monitor the implementation of the Programme. members of the Board of Directors to the Company’s production, financial and business activities and corporate governance practices as quickly and effectively as possible.
MANAGEMENT BOARD AND CEO // The structure of the Company CEO Alexander Dyukov (who was the first to run Gazprom Neft executive bodies is determined by the Charter the Company in December 2006 and was re-elected for and includes the Management Board and the CEO. The Gazprom another five years in December 2011) serves concurrently as Neft Management Board is the collective executive body that the Chairman of the Management Board, whose functional oversees its day-to-day operations. In accordance with the duties include organising the activities of the Management Charter of Gazprom Neft, the Management Board is formed by Board. In the absence of the Management Board Chairman, his the Board of Directors upon recommendation by the Gazprom functions are performed by one of three Deputy Management Neft CEO. The term of office of the Management Board is Board Chairmen: V.V. Yakovlev (First Deputy), V.V. Baranov or also determined by the decision of the Board of Directors. A.M. Cherner. A deputy is elected upon recommendation by the The requirements for the professional qualifications of the Management Board Chairman by a majority vote of the elected Gazprom Neft Management Board members are established by Management Board members. If the Chairman and the deputies the Company’s internal documents. are absent, the functions of the Management Board Chairman may be performed by any member of the Management Board based on the decision of the Management Board.
www.gazprom-neft.com 99 Management system
MEMBERS OF THE MANAGEMENT BOARD AS OF 31 DECEMBER 2015 //
ALEXANDER VALERYEVICH VADIM VLADISLAVOVICH IGOR KONSTANTINOVICH DYUKOV YAKOVLEV ANTONOV Chairman of the Management Board, CEO Deputy Chairman of the Management Board, Member of the Management Board, First Deputy CEO Deputy CEO for Security
Born in 1967. Born in 1970. Born in 1951. Graduated from Order of Lenin Leningrad Graduated from the Moscow Engineering Graduated from Leningrad Aviation Shipbuilding Institute. Obtained IMISP MBA Physics Institute and the Graduate School Instrumentation Institute. in 2001. of Finance at the International University in ↗↗ 2000–2005 – CEO of Saint Petersburg ↗↗ 2003–2006 – President of OJSC SIBUR Moscow. Unitary Enterprise Informatika; Holding; 1999 – Earned his Chartered Association of ↗↗ 2005–2007 – Vice President for Security ↗↗ 2003–2006 – CEO of LLC SIBUR; Certified Accountants qualification (ACCA). at OJSC Sibneft; ↗↗ 2006 – Chairman of the Board of 2009 – Earned a diploma from the British ↗↗ December 2007 to present – Deputy CEO Directors of OJSC SIBUR Holding; Institute of Directors (ID). for Security of Gazprom Neft PJSC. ↗↗ 2011 – Deputy Chairman of the Board of Directors of JSC SIBUR Holding; ↗↗ 2005–2006 – Deputy CEO for Economics ↗↗ 2006-2008 – President of OJSC Gazprom and Finance of LLC SIBUR-Russian Tyres; Neft; ↗↗ 2006–2007 – Head of the Budget ↗↗ December 2007 – Chairman of the Planning Department of OJSC Sibneft; Management Board and CEO of ↗↗ September-December 2007 – Gazprom Neft PJSC. Vice President of Finances of Gazprom Neft PJSC; ↗↗ October 2007 – Member of the Management Board of Gazprom Neft PJSC; ↗↗ December 2007 – Deputy CEO for Economics and Finance of Gazprom Neft PJSC; ↗↗ May 2010-August 2011 – First Deputy CEO and CFO of Gazprom Neft PJSC; ↗↗ August 2011 – First Deputy CEO of Gazprom Neft PJSC. The Company handles matters related to exploration and production, strategic planning as well as merger and acquisition transactions.
Interest in charter capital Interest in charter capital Interest in charter capital (as of 31 December 2015) (as of 31 December 2015) (as of 31 December 2015) 0.005357244% (254,003 shares) 0.001051526% (49,856 shares) Does not own Company shares
100 GAZPROM NEFT // 2015 ANNUAL REPORT MEMBERS OF THE MANAGEMENT BOARD AS OF 31 DECEMBER 2015 //
VITALY VITALYEVICH VLADISLAV VALERYEVICH ALEXANDER MIKHAILOVICH BARANOV BARYSHNIKOV DYBAL Deputy Chairman of the Management Board, Deputy Chairman of the Management Board, Member of the Management Board, Deputy CEO for Organisational Matters Deputy CEO for International Business Development Deputy CEO for Corporate Communications
Born in 1966. Born in 1965. Born in 1966. Graduated from Saint Petersburg State Graduated from the Red Banner Military Graduated from Leningrad Electrotechnical University of Economics and Finance in 1993 Institute. Institute. with a major in economics and production ↗↗ 2002–2009 – Director of the ↗↗ 2005–2007 – Chairman of the Board of management. OJSC Gazprom representative office in Directors of OJSC Gazprom Media; 2008 – Completed training at the London China and the regional representative ↗↗ February 2007 – Vice President of Business School Senior Executive Programme office in Asia-Pacific Region countries; Gazprom Neft PJSC and Advisor to in London, UK. ↗↗ State Councillor of the Russian the Chairman of the PJSC Gazprom ↗↗ 2003 – Successively held the positions of Federation, third class; Management Board; Advisor, President for General Affairs and ↗↗ April 2009 – Deputy General Director for ↗↗ December 2007 – Member of the Gazprom Chief of the Presidential Administration at International Business Development; Neft PJSC Management Board and Deputy the SIBUR Group; ↗↗ November 2009 – Member of the CEO for Corporate Communications. ↗↗ May 2006 – Vice President for Gazprom Neft Management Board. Responsible for regional and information Organisational Matters of LLC SIBUR; Handles matters related to international policy as well as internal corporate and ↗↗ March 2009 – Deputy CEO of business development and interaction with marketing communications at the Company. Gazprom Neft PJSC for Organisational foreign partners at the Company. Matters; ↗↗ June 2009 – Member of the Management Board of Gazprom Neft PJSC.
Interest in charter capital Interest in charter capital Interest in charter capital (as of 31 December 2015) (as of 31 December 2015) (as of 31 December 2015) 0.0032% (149,880 shares) Does not own Company shares Does not own Company shares
www.gazprom-neft.com 101 Management system
MEMBERS OF THE MANAGEMENT BOARD AS OF 31 DECEMBER 2015 //
ELENA ANATOLYEVNA KIRILL ALBERTOVICH ANDREY NIKOLAYEVICH ILYUKHINA KRAVCHENKO PATRUSHEV Member of the Management Board, Member of the Management Board, Member of the Management Board, Deputy CEO for Legal and Corporate Affairs Deputy CEO for Foreign Asset Management Deputy CEO for Offshore Project Development
Born in 1969. Born in 1976. Born in 1981. Graduated from the Ulyanov (Lenin) Saint Graduated from Lomonosov Moscow State 2003 – Graduated from the Academy of Petersburg State Electrotechnical University University, Open University and IMD Business the Federal Security Service of the Russian and Saint Petersburg State University. School. Doctor of Economic Sciences and a Federation with a major in jurisprudence. 2001 – Awarded PhD in Economic Sciences Professor. 2006 – Graduated from the Diplomatic in 2001. ↗↗ 2004–2007 – Administrative Director Academy of the Ministry of Foreign Affairs of ↗↗ 2001–2007 – Deputy CEO of FSUE of OJSC EuroChem MCC. Elected to the the Russian Federation with a major in world Rublevo-Uspensky LOK of the Russian boards of directors of several major economics. Presidential Administration; companies over the years; 2008 – Graduated from Gubkin Russian State ↗↗ Prior to appointment at Gazprom ↗↗ April 2007 – Vice President of Gazprom University of Oil and Gas with a major in the Neft PJSC, she served as Executive Neft PJSC; oil and gas business. Director of LLC Northwest Investment ↗↗ December 2007 – Member of the Gazprom Neft PJSC Management Board and Deputy ↗↗ 2006–2009 – Advisor to the Chairman of Company December; the Board of Directors of OJSC Rosneft ↗↗ December 2007 – Member of the CEO for Organisational Affairs; ↗↗ February 2009 – CEO of NIS a.d. Novi Sad; OC; PJSC Gazprom Neft Management Board ↗↗ 2009–2011 – Deputy CEO for Business and Deputy CEO for Legal and Corporate ↗↗ March 2009 – Deputy CEO of Gazprom Neft PJSC for Foreign Asset Management. Development at LLC RN-Service; Affairs. ↗↗ 2011 – Work at OJSC Zarubezhneft and Responsible for legal and corporate support involvement in organising the activities for the Company operations. of the Russian-Vietnamese joint venture Vietsovpetro to develop Vietnam’s offshore fields; ↗↗ 2012 – First Deputy CEO of Vietsovpetro and Deputy CEO of Zarubezhneft; ↗↗ Mid-2013 – Appointed Deputy CEO for Major Construction at LLC Gazprom Dobycha Shelf (renamed Gazprom Dobycha Shelf Yuzhno-Sakhalinsk in 2014); ↗↗ April 2015 – Deputy CEO for Offshore Project Development at OJSC Gazprom Neft (Gazprom Neft PJSC as of 14 October 2015).
Interest in charter capital Interest in charter capital Interest in charter capital (as of 31 December 2015) (as of 31 December 2015) (as of 31 December 2015) Does not own Company shares 0.000068462% (3,246 shares) Does not own Company shares
102 GAZPROM NEFT // 2015 ANNUAL REPORT MEMBERS OF THE MANAGEMENT BOARD AS OF 31 DECEMBER 2015 //
INFORMATION ON CHANGES TO MEMBERS OF THE COMPANY’S MANAGEMENT BOARD THAT TOOK PLACE IN 2015 // In 2015, the following changes were made to the members of the Company’s Management Board: ↗↗ the size of the Management Board was increased to eleven members (resolution of the Board of Directors, Minutes No. PT-0102/19 dated 6 April 2015); ANATOLY MOISEYEVICH ALEXEY VIKTOROVICH ↗↗ Andrey Nikolayevich Patrushev was CHERNER YANKEVICH elected as a new member of the Deputy Chairman of the Management Board, Member of the Management Board, Management Board (resolution of Deputy CEO for Logistics, Processing and Sales Deputy CEO for Economics and Finance the Board of Directors, Minutes No. PT-0102/19 dated 6 April 2015). Born in 1954. Born in 1973. Graduated from Grozny Oil Institute. Graduated from Saint Petersburg State No other changes in Management Board ↗↗ 2006–2007 – Vice President of Electrotechnical University and the OJSC Sibneft for Processing and Sales; Leti-Lovanium International School of members took place in 2015. Management. ↗↗ December 2007 – Member of the Management Board of OJSC Gazprom 2004 – Earned the qualification of a Certified No claims were filed against the CEO or Management Accountant (CMA). Neft and Deputy CEO for Logistics, members of the Management Board in Processing and Sales. ↗↗ 2005–2007 – Deputy CFO 2015. Responsible for oil refining and the logistics of LLC LLK-International; and sales of oil and petroleum products at the ↗↗ 2007–2011 – Head of the Budget Planning Company. Department and Head of the Directorate of Economics and Corporate Planning of OJSC Gazprom Neft; ↗↗ 2011–2012 – Acting Deputy CEO for Economics and Finance of OJSC Gazprom Neft; ↗↗ March 2012 – Member of the Management Board and Deputy CEO for Economics and Finance of Gazprom Neft PJSC.
Interest in charter capital Interest in charter capital (as of 31 December 2015)) (as of 31 December 2015) Does not own Company shares Does not own Company shares
www.gazprom-neft.com 103 Management system
ACTIVITIES OF THE MANAGEMENT BOARD IN 2015 // In 2015, there were 14 meetings of the Gazprom Neft The Gazprom Neft Management Board considers matters Management Board, including eight in-person meetings, on a scheduled basis taking into account the decisions of the during which various issues of the day-to-day operations General Meeting of Shareholders and the Board of Directors as of the Company’s Management Board were considered. well as matters submitted by the CEO and Management Board The main issues included: members. The Management Board’s work plan is also compiled ↗↗ the execution of the Company’s Investment Programme based on the proposals of the heads of Gazprom Neft structural and Budget (financial plan) based on the operational results units. of 2014; ↗↗ amendments to the Gazprom Neft Group’s Investment As one of the tools used to additionally inform Board of Programme and Budget (financial plan) for 2015; Directors members about the Company’s performance results, ↗↗ the operational results of the Exploration and Production the Charter and Regulation on the Gazprom Neft Management Unit and the Logistics, Processing and Sales Unit in 2014; Board provide for MD&A management reports (management’s ↗↗ changes to the arrangement for transferring discussion and analysis of financial conditions and operational targeted petroleum storage depots to the ownership results) to be sent to members of the Board of Directors of CJSC Gazpromneft-Terminal; on a quarterly basis. ↗↗ the management of Gazprom Neft’s intellectual property; ↗↗ the operational results of the Integration Risk Management System in 2014 and the first half of 2015 and the approval of an updated registry of the Company’s key risks; ↗↗ the business plans of the Logistics, Processing and Sales Unit, the Offshore Project Development Unit and the Exploration and Production Unit for 2016–2018; ↗↗ the development strategy for the technologies, automation and telecommunications of Gazprom Neft PJSC for 2015–2020.
ATTENDANCE OF MEETINGS BY MANAGEMENT BOARD MEMBERS IN 2015 //
Management Board Member Number of meetings attended by Total number of meetings the Management Board Member the Management Board Member could have attended
Dyukov Alexander Valeryevich 14 14 Management Board Chairman Antonov Igor Konstantinovich 14 14 Baranov Vitaly Vitalyevich 14 14 Baryshnikov Vladislav Valeryevich 13 14 Dybal Alexander Mikhailovich 9 14 Ilyukhina Elena Anatolyevna 13 14 Kravchenko Kirill Albertovich 11 14 Patrushev Andrey Nikolayevich 9 9 (elected Management Board member on 6 April 2015) Cherner Anatoly Moiseyevich 12 14 Yakovlev Vadim Vladislavovich 12 14 Yankevich Alexey Viktorovich 13 14
104 GAZPROM NEFT // 2015 ANNUAL REPORT REMUNERATION FOR MEMBERS OF GOVERNING includes performance indicators with respect to the Company’s BODIES // REMUNERATION FOR MEMBERS OF THE BOARD strategic goals as well as corporate, financial and performance OF DIRECTORS // The amount of remuneration for members targets, and starting in 2016 it also comprises indicators of the Board of Directors depends on the Company’s financial demonstrating compliance with industrial safety and occupational results and is approved annually by shareholders. The ability of safety standards. shareholders to engage in discretionary intervention eliminates the risk of potential abuse of the remuneration programme. The long-term incentive programme is based on the appreciation of share value and was approved by the Board of Directors in In accordance with the decision of the General Meeting of 2012. The programme is an integral component of the Company’s Shareholders, members of the Board of Directors who do not long-term growth strategy and envisages the payment of hold positions within the Company’s executive bodies (who are remuneration to management for increasing the value of Gazprom not executive directors) were paid remuneration in the amount of Neft for shareholders over a certain period. The Company’s 0.005% of EBITDA for 2014 according to the consolidated financial value is determined on the basis of its market capitalisation. statement of Gazprom Neft in accordance with IFRS standards for The programme is available to management employees of the 2014. Gazprom Neft Group, subject to the performance of specific duties. The remuneration is assessed at fair value at the end Besides the base portion of remuneration, members of the Board of each reporting period and paid at the end of the three-year of Directors were paid additional remuneration for performing programme term. Remuneration depends on certain market the functions of Chairman of the Board of Directors (50% of the conditions and responsibilities that are taken into account when remuneration for a member of the Board of Directors), a member determining the amount payable to such employees. Expenses are of the Board of Directors (10% of the remuneration for a member recognised over the duration of the action plan. In 2015, a new of the Board of Directors) and Chairman of a committee under three-year plan took effect for the long-term incentive programme the Board of Directors (50% of the remuneration for a committee member). Income accrued for members of the Management Board totalled RUB 983 million in 2015. Payments included salary The total amount of remuneration paid to members of the Board for the reporting period, taxes charged for such salary and of Directors in 2015 based on the results of 2014 amounted other mandatory payments to the relevant budgets and extra- to RUB 227 million (remuneration includes the income tax of budgetary funds, the payment of annual paid leave for work individuals). No compensation was paid to members of the Board during the reporting period and payment for treatment and of Directors for expenses related to participation on the Board medical care. of Directors in 2015. No additional remuneration is paid to members of the REMUNERATION FOR MEMBERS OF THE MANAGEMENT Management Board for work in the governing bodies BOARD // The Company has a clearly structured and objective of Gazprom Neft or its subsidiaries and affiliates. Members remuneration programme for top and senior executives that ensures of the Management Board may be paid additional remuneration a connection between short-term goals and the amount of bonus based on the decision of the Board of Directors. payments. In addition to bonuses tied to short-term results, the Company has a motivation system based on the dynamics The Company did not issue any loans (credits) to members of the of the Company’s market capitalisation over a three-year period. Board of Directors or Management Board.
Remuneration for Management Board members consists of three parts: TOTAL REMUNERATION FOR 2015 WITH A BREAKDOWN ↗↗ base portion of remuneration, BY EACH TYPE OF PAYMENT // 1,000 RUB ↗↗ annual bonus, Board of Management Total ↗↗ long-term incentive programme Directors Board Remuneration for 227,838 – 227,838 The base portion of remuneration is determined on an individual participation in governing basis and fixed in the employment contract. bodies Salary – 663,098 663,098 The annual bonus aims to motivate key management personnel to Bonuses – 309,880 309,880 achieve the annual goals. When determining the size of the annual Other payments – 10,080 10,080 bonus, the degree to which executives fulfilled a fixed set of KPIs and business initiatives is analysed and approved. This set of KPIs Total 227,838 983,058 1,210,896
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TALENT POOL // The Board of Directors has approved a talent Management Board members, including the Company’s CEO, are pool and succession planning programme. involved in the coaching system and hold regular meetings with Company employees. The Company launched work in 2014 to establish a functional talent pool with the aim of creating a system of continuity as The talent pool is formed from employees who have been part of a functional hierarchy. recommended for inclusion in the pool based on the results of a regular performance evaluation. The Human Resources and Remuneration Committee was established under the Board of Directors. The Committee’s The manager of the talent pool identifies key employees and main objective is to prepare recommendations concerning the those with high potential and sends them to the appropriate HR policy and remuneration for members of the Management talent group. The Company also has an employee self- Board and Audit Commission. At its meetings, the Committee nomination procedure that is regulated by the relevant internal considered matters involving performance evaluations of documents. members of the Board of Directors and proposals from shareholders on nominating candidates for election to the The talent pool is formed and approved by the Talent Gazprom Neft Board of Directors and Audit Commission. Committee, which meets at least twice a year.
The Company has approved a programme called ‘Succession The Company has developed KPI for the talent pool formation Candidate Development’, which regulates the process of training process – key indicators of process efficiency and productivity: succession pool members. The document contains an Individual demand for a talent pool, key position security index, potential Development Plan (IDP) for succession candidates consisting and the turnover of the talent pool. The Company utilises of a list of developmental activities for the talent pool. The HR automated personnel management systems that help with Development and Training Office of the HR Department handles the process of regularly evaluating employees, preparing for the developmental planning for succession candidates and also meetings of the Talent Committee and establishing a talent oversees the compilation and implementation of the IDP. pool.
The Company has set up a multi-stage coaching programme, evaluation of succession candidates and a management academy as part of the drafting of talent pool formation programmes.
INTERNAL CONTROL // The Board of Directors systematically The Company’s Board of Directors is responsible for determining oversees the introduction of an effective risk management the principles and approaches for establishing risk management and internal control system at various levels of the Company’s and internal control system. organisational structure. The Audit Committee under the Board of Directors regularly The internal control system enables the Company to respond to conducts evaluations to determine how effectively the risk any risks that may arise and consists of a set of organisational management and internal control system is functioning measures, techniques, procedures, corporate culture standards and submits reports on the results of such evaluations to and actions undertaken by the executives of Gazprom Neft and shareholders as part of materials for the annual General Meeting its controlled companies as a way to ensure the Company’s of Shareholders. financial stability, achieve an optimal balance between growth in the Company’s value, profitability and risks, conduct business The Gazprom Neft Management Board and CEO ensure that activities in a structured and effective manner, ensure the the Company establishes and maintains an effective risk safeguarding of assets, identify, correct and prevent violations, management and internal control system and enforce liability for prepare reliable financial statements in a timely manner and thus the implementation of decisions made by the Board of Directors enhance the Company’s investment appeal. and the Audit Commission concerning the organisation of the risk management and internal control system.
106 GAZPROM NEFT // 2015 ANNUAL REPORT A safe, confidential and accessible method to share information AUDIT COMMISSION // The Audit Commission is a standing (hotline) about violations of the law or the internal procedures body that supervises the financial and business operations or the Corporate Governance Code of Gazprom Neft by any of Gazprom Neft. The Audit Commission acts on behalf of of the Company’s employees and/or member of a body that shareholders and is subordinate to the General Meeting of manages or oversees the Company’s financial and business Shareholders in its activities. operations has been established as part of the risk management and internal control system. The Audit Commission conducts audits of financial and business operations on the basis of the Charter and the Regulation on The Company has adopted the following documents: the Risk the Audit Commission and forms an independent opinion on Management Policy, Integrated Risk Management System the state of affairs at the Company. The Audit Commission’s standard (hereinafter the IRMS standard), Risk Identification conclusions are conveyed to shareholders at the General and Assessment Procedure, and Guidelines for the Risk Meeting of Shareholders in the form of a report by the Management Process, and has also developed measures Company’s Audit Commission attached to the Gazprom Neft to manage risks, monitor their implementation and prepare annual report. reporting on risk management. Remuneration is paid to members of the Audit Commission A Financial Risk Management Committee has been established based on the decision of the General Meeting of Shareholders. under the Management Board and its activities are governed by Annual remuneration for members of the Audit Commission that the Regulation on the Financial Risk Management Committee, functioned in 2014 totalled RUB 4,520,000 in 2015. which specifies the size and work sequence of the Committee, the functions, rights and responsibilities of Committee members, the procedure for holding meetings and documenting the Committee’s decisions and the procedure for monitoring the implementation of the Committee’s decisions. THE AUDIT COMMISSION
The Financial Risk Management Committee determines the The following members of the Audit Commission were elected at unified approach to financial risk management at the Company the annual General Meeting of Shareholders on 5 July 2015: and its subsidiaries. ↗↗ Delvig Galina Yuryevna; ↗↗ Kovalev Vitaly Anatolyevich; The Company’s Management Board annually reviews risk ↗↗ Kotlyar Anatoly Anatolyevich; reporting, which includes a description of the key risks facing ↗↗ Mironova Margarita Ivanovna the Company, a risk matrix, risk assessment, a list of measures ↗↗ Frolov Alexander Alexandrovich. to counter such risks for the coming period, information about actual damage from such risks and the results of risk management measures taken in the current year.
The Audit Committee and Board of Directors receive information about existing risks and the measures taken to manage risks on a semi-annual basis. As part of these reports, the Board of Directors also considers matters concerning the effectiveness of the internal control system. At its meetings, the Board considers the management of individual risks, in particular issues concerning the management of corruption risks.
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INTERNAL AUDIT DEPARTMENT // The Company conducts internal The Internal Audit Department’s mission is to provide audits for a systematic and independent evaluation of the management with the necessary assistance by providing reliability and effectiveness of the risk management and internal reasonable and substantiated guarantees and consultations control system as well as corporate governance practices. that aim to achieve the Company’s goals.
Internal audits are performed by the Company’s Internal Audit As part of its activities, the Internal Audit Department evaluates Department whose director is appointed in coordination with and makes improvements to the corporate governance, risk the Board of Directors. management and internal control processes of Gazprom Neft and its subsidiaries using a systematic and sequential approach The Internal Audit Department is functionally subordinate to and also provides consultative support to the Company’s the Audit Committee of the Board of Directors and directly management based on the principles of independence and subordinate to the Company’s CEO. objectivity.
MAIN FUNCTIONS OF THE INTERNAL AUDIT DEPARTMENT
↗↗ Assessing the effectiveness of the internal control system for the Company’s business processes. ↗↗ Assessing the effectiveness of procedures that ensure the safeguarding and legitimate use of the Company’s assets. ↗↗ Assessing the effectiveness of the internal control system for the accuracy of the Company’s external and internal reporting. ↗↗ Assessing the effectiveness of internal monitoring of compliance with the requirements of applicable existing legislation and regulatory organisations, internal organisational and administrative documents and regulations, and the decisions of the Company’s governing bodies. ↗↗ Assessing the effectiveness of information systems, IT processes and automated process, and their compliance with the Company’s strategy. GALINA YURYEVNA ↗↗ Assessing the effectiveness of measures to prevent fraud and corruption at the Company. DELVIG Participation in investigations of fraud and violations of the Corporate Conduct Code Head of the Internal Audit Department based on requests from the Company’s Audit Committee and CEO. ↗↗ Organising a system to collect and process information about signs and instances of fraud and corruption – a hotline to prevent fraud, corruption and other violations Born in 1960. of the Corporate Conduct Code. Graduated from Plekhanov Moscow Institute ↗↗ Assisting the Company with establishing and monitoring the Integrated Risk Management of National Economy. System (hereinafter – IRMS). 2008 – Head of the Internal Audit Department of Gazprom Neft PJSC. ↗↗ Developing recommendations to improve the Company’s activities and eliminate shortcomings based on audits, special inspections, investigations and consultations and convey them to people who can ensure they are properly considered. ↗↗ Monitoring the implementation of measures developed based on audits and investigations to improve the internal control system as well as corporate governance and risk management processes. ↗↗ Interacting with the Company’s audit commissions and external auditors and taking part in inspections of the fulfilment of recommendations from the external auditor and audit commissions. The Head of the Internal Audit Department reports to the Audit Committee and Board of Directors twice a year about the Department’s performance results for the reporting period and the state of the internal control and risk management systems at the Company.
Interest in charter capital (as of 31 December 2015) Does not own Company shares
108 GAZPROM NEFT // 2015 ANNUAL REPORT DEPARTMENT STRUCTURE //
EXPLORATION AND PRODUCTION AUDIT OFFICE
PROCESSING AUDIT COMMITTEE AND SALES AUDIT OFFICE OF THE BOARD OF DIRECTORS
CORPORATE AUDIT OFFICE INTERNAL BOARD OF DIRECTORS AUDIT DEPARTMENT MAJOR CONSTRUCTION AUDIT OFFICE
CEO IRMS MONITORING OFFICE
METHODOLOGY DIVISION
CONFLICTS OF INTERESTS // The main elements for preventing conflicts at the Regulation of potential conflicts of interests among governing bodies, shareholder level are: executive bodies and employees of Gazprom Neft // The Company ↗↗ Compliance with the order and procedure for making strives to maintain a balance of interests between shareholders decisions on the most significant issues. and management with their cooperation characterised by ↗↗ Compliance with the voting procedure for related party a high level of trust, strong culture of business relations transactions: and ethical standards. The Company’s main shareholder has –– not participating in voting by non-arm’s length a sufficient number of votes to pass decisions on a significant shareholders and members of the Board of Directors, number of issues that fall within the purview of the General –– indicating a list of persons who are deemed to be Meeting of Shareholders and also to form the Board interested in a transaction with a description of the of Directors. Despite this, the Company seeks to utilise tools grounds based on which such persons are deemed that feature a high concentration of equity to mitigate risks to be interested. related to the specific nature of management. ↗↗ Hiring reputable and independent appraisers to value the The Company has a transparent ownership structure, assets in related party transactions. the rights and duties of shareholders as well as the procedure ↗↗ Ensuring maximum transparency and information openness for administering property rights are clearly defined in the when preparing for and holding meetings of shareholders as Company’s Charter and internal documents and information well as the prompt disclosure of information about decisions about this is publicly available. The Company adheres to the adopted by the Board of Directors. principle of equal shareholder voting rights and has also established mechanisms to protect voting rights in its internal documents.
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↗↗ Disclosing information about related party transactions. Information may be submitted via email, special mailboxes According to the Company’s financial statement for 2015, installed at the offices of the Company and all subsidiaries related party transactions were concluded as part of regular or telephone. business activities and had a clear economic rationale. The most common types of transactions are those involving The Board of Directors reviews the hotline results twice a year, the sale and purchase of oil, gas and petroleum products. including statistics on the (processed) reports received and ↗↗ Hiring companies from the Big Four auditing firms as violations that are ultimately identified. The Gazprom Neft Code external auditors. of Corporate Governance stipulates that members of the Board ↗↗ Establishing mechanisms to protect against the dilution of Directors must refrain from any actions that would lead or of the Company’s value. The procedure for organising and could lead to a conflict of interests and from voting on matters selecting counterparties for the procurement of goods, in the outcome of which they have a personal interest, and also work and services was carried out in accordance with the must not disclose or use confidential and/or insider information approved Company standards, which stipulate that open about the Company for their personal interests or the interests forms of competitive selection procedures for counterparties of third parties. are preferable. The Corporate Conduct Code defines the concept of a conflict Gazprom Neft has approved internal documents (the Corporate of interests and contains examples of situations in which Conduct Code and Code of Corporate Governance) which a conflict of interests may arise. In particular, according to the enshrine the values and principles that serve as the basis for Code, doing business with relatives or close friends constitutes the establishment and development of the Company’s corporate a conflict of interests. culture. The Code contains a reference to the need for Company The Corporate Conduct Code regulates situations that could employees to inform management and the legal service about involve a conflict of interests, the acceptance of gifts, the use all instances of a conflict of interests. of the Company’s assets or resources, stakeholder engagement, social responsibility, the handling of confidential information, There is a hotline for employees as well as email addresses the activities of the Corporate Culture and Ethics Working and special mailboxes to report violations anonymously. Committee and the operation of the fraud and corruption prevention hotline, among other situations. The Company’s internal documents require that officials provide information about all affiliates. The Company regularly Gazprom Neft has established a Corporate Culture and checks information received from new members of the Board Ethics Working Committee that monitors compliance with of Directors, in particular concerning the ownership of stakes the provisions of the Code. The Corporate Culture and Ethics in subsidiary organisations. Working Committee includes members of the Management Board and is chaired by the Management Board Chairman. The Company verifies whether members of the Company’s Board of Directors and Management Board and their relatives The Company has approved the necessary internal documents have any conflicts of interests in employment at the Company. to implement certain principles of the Code, for instance in According to the Regulation on the Management Board, matters concerning access to confidential information, non- members of the Management Board are only permitted to serve disclosure, HR policy and the development of succession concurrently on the governing bodies of other organisations candidates. with the consent of the Company’s Board of Directors.
The Code provides a mechanism to report corruption violations. The Company re-verifies information on a quarterly basis about Employees can report violations of the Code via the Company’s members of the Company’s Management Board and Board hotline or notify the Ethics Committee of the subsidiary of Directors serving at other companies. where they are employed. Third parties who are not Company employees, in particular counterparties, may also file reports via There were no conflicts of interests among members of the hotline. the Gazprom Neft Board of Directors and Management Board in 2015.
110 GAZPROM NEFT // 2015 ANNUAL REPORT ANTI-FRAUD AND ANTI-CORRUPTION POLICIES The Policy contains a section that sets forth the fundamental AND PROCEDURES // In 2014, the Company adopted principles for implementing the Company’s business processes an Anti-Fraud and Anti-Corruption Policy that serves as the that are most susceptible to fraud risks, specifically: interaction fundamental internal regulatory document of the Company with officials, the receiving and giving of gifts, entertainment and its subsidiaries in combatting corruption. expenses, charitable and sponsorship activities and financial relations with third parties. The Policy defines the concept of fraud and other anti- fraud terminology and stipulates that the Company’s senior The Anti-Fraud and Anti-Corruption Policy requires the management must institute unified ethical standards to Company’s employees to be trained in the principles of rejecting reject corruption in all its forms and manifestations. The fraud and the foundations of applicable law. Policy specifies the methods and procedures employed by the Company to combat fraud and corruption, in particular the The Company’s Deputy CEO for Security and Head of the Company’s hotline, internal investigations and prosecution for Internal Audit Department periodically report to Company instances when fraud is committed. management on anti-fraud and anti-corruption matters.
The Policy separately describes the risks of corruption that are typical for companies working in the oil production and refining industries.
D&O INSURANCE // Gazprom Neft started providing directors and officers (D&O) liability insurance for the Gazprom Neft EUR 45 mn Group in 2011. The policy covers all errors and omissions by Total limit for all insurance directors and officers except for intentional violations of the coverage and extensions. law, fraud and other criminal offences. The total limit for all Worldwide coverage insurance coverage and extensions is EUR 45 million. The coverage area is worldwide.
EXTERNAL AUDITOR // Each year the Company hires In order to assess the quality of work performed by the external a professional auditing firm that is not associated with the Auditor, the Audit Committee reviews reports by the external Company through property interests or its shareholders from Auditor and statements from management and also conducts among the top international auditing companies to audit in-person meetings with representatives of the Auditors. and confirm the accuracy of its annual financial statements. The Audit Committee conducts the preliminary assessment In June 2015, JSC PricewaterhouseCoopers Audit was of auditing firm candidates. re-elected as the Company’s Auditor at the General Meeting of Shareholders. The Company does its best to ensure that the Auditor does not provide the Company with non-audit services or that the cost of In September 2015, the Board of Directors set payment for non-audit services does not exceed 25% of the total cost of the the Auditor’s services at RUB 57 million (excluding VAT): audit services rendered by the Company. In 2015, the Auditor ↗↗ RUB 11 million – audit services for Gazprom Neft statements did not provide non-audit services. according to Russian Accounting Standards (RAS); ↗↗ RUB 46 million – audit services for the consolidated The Company’s Auditor is approved by the General Meeting statements according to International Financial Reporting of Shareholders based on a proposal from the Board Standards (IFRS), including services involving the audit of Directors following a competition to select auditing firms of interim statements. in accordance with existing law.
www.gazprom-neft.com 111 Management system
ROLE OF CORPORATE CENTRE IN IMPROVING ↗↗ The management structure of joint ventures in which the THE MANAGEMENT OF SUBSIDIARIES // The corporate Gazprom Neft Group has an interest has been formalised centre of the Gazprom Neft Group is Gazprom Neft PJSC, which and approved. In order to effectively manage them, ensures effective control over all processes. As of 31 December the Company has established the concept of an asset 2015, the Gazprom Neft structure included 148 Russian and curator whose functional responsibility is to coordinate the foreign legal entities. management of the joint venture. ↗↗ The Boards of Directors of subsidiaries are formed in The corporate governance structure of the Gazprom Neft accordance with the established principles of functional Group’s subsidiaries is strictly aligned with that of Gazprom subordination and the participation of corporate function Neft PJSC. Subsidiaries retain a three-tiered structure of employees. The candidates for the Boards of Directors and governing bodies – the Meeting of Shareholders (Participants), Audit Commissions of subsidiaries are approved annually by the Board of Directors and the sole executive body. an order of the Gazprom Neft CEO.
Regardless of the structure of its charter capital, Regardless of the level of corporate ownership or the charter Gazprom Neft PJSC is the core Company with respect to the capital structure of subsidiaries, the executive bodies of the organisations of the Gazprom Neft Group, as duly recorded Gazprom Neft Group’s organisations (including the CEO) are in the Charters of the Gazprom Neft Group’s subsidiaries. appointed and dismissed after the approval of the candidates by the Gazprom Neft CEO. The General Meeting of Shareholders (Participants) of subsidiaries has broader purview compared with the law due to restrictions on the purview of the sole executive body with respect to the adoption of decisions on transactions that INFORMATION POLICY involve the receipt or provision of loans (credits), the sale or other alienation of real estate or the acquisition or alienation The core principles of the Company’s information policy are: of stakes in charter capital, shares, bonds, mortgages or ↗↗ the provision of information; promissory notes; the adoption of decisions on participation ↗↗ ensuring equal, unhindered and easy access to information for or termination of participation in other organisations as well all stakeholders; as a pre-determined position on matters that fall within the ↗↗ the objectivity, accuracy, completeness and comparability purview of the General Meeting of Shareholders (Participants) of all disclosed data; of business companies in which a subsidiary is a shareholder. ↗↗ neutrality of information, i.e. eliminating the possibility of the preferential satisfaction of the interests of one group over The Company has drafted and approved procedures that those of another (information is not neutral if the choice of its allow for coordinating and monitoring the activities of content or submission form aims to achieve certain results or consequences); subsidiaries under the guidance of the Corporate Centre as ↗↗ ensuring shareholders and other stakeholder have the part of the implementation of the Company’s development opportunity for free and easy access to information disclosed strategy: by the Company; ↗↗ Collective decision-making was enshrined about the ↗↗ maintaining a reasonable balance between the Company’s participation of any organisation that is part of the Gazprom transparency and its commercial interests. Neft Group in another organisation, whether commercial or non-commercial, along with an indication of the circle of decision-makers. Matters that fall within the purview of the Gazprom Neft PJSC Board of Directors shall be submitted to the Gazprom Neft PJSC Management Board for a preliminary decision. ↗↗ The decision-making procedure was specified for the Board of Directors, General Meeting of Shareholders and General Meeting of Participants of Gazprom Neft subsidiaries. The involvement of representatives in the governing bodies of the Gazprom Neft Group is based on the principles of balance and professionalism. Decisions are adopted collectively and administered from the top down, thus The Company maintains a special webpage making it possible to maximise the effectiveness of the at the website decisions. http://ir.gazprom-neft.com/
112 GAZPROM NEFT // 2015 ANNUAL REPORT Key risk factors
RISK MANAGEMENT SYSTEM
The Company’s goal in risk management is to enhance the This approach makes it possible to form zones of responsibility effectiveness of management decisions through detailed for risk management and monitor risks at all levels of the analysis of related risks and to ensure that the risk management Company’s management as well as ensure the preparation measures taken to implement such decisions are effective as of targeted response plans to substantial risks both at each possible. subsidiary and affiliate as well as at Gazprom Neft as a whole.
Objectives of risk management: The regulatory and methodological framework of the IRMS ↗↗ to establish a risk management culture at the Company includes the following documents: to reach a common understanding among management and ↗↗ Risk Management Policy; employees of the main principles and approaches to risk ↗↗ The “Integrated Risk Management System (IRMS) Company management; Standard”; ↗↗ to establish and introduce a systematic approach to ↗↗ Methodological guidelines for the risk management process; identifying and assessing risks that are inherent in the ↗↗ Additional methodological guidelines for certain types Company’s activities both as a whole and individual areas of risks and on the use of certain risk analysis tools. of activities; ↗↗ to stimulate the exchange of information on risks Risk management constitutes an integral part of the between the Company’s structural divisions and the joint internal environment of Gazprom Neft and includes: development of risk management actions; ↗↗ introducing a risk-oriented approach to all aspects of ↗↗ to provide systematic information about risks to the production and management activities; Company’s governing bodies. ↗↗ conducting a systematic analysis of identified risks; ↗↗ building a system to control risks and monitor the In order to meet this objective, the Company has drafted effectiveness of risk management activities; and implemented a unified approach to the risk management ↗↗ an understanding by all Company employees of the basic process that is recorded in the Integrated Risk Management principles and approaches to risk management in place System (IRMS) corporate standard. at the Company; ↗↗ providing the required regulatory and methodological Risk management is built on the principle of integrating analysis support; and risk management tools into key corporate processes. ↗↗ allocating powers and responsibilities for risk management Responsibility for risk management and preparing reporting among the Company’s structural divisions. on risk management is determined in accordance with the system of linear and functional management. An owner is appointed for each risk and is responsible for managing it. Risk coordinators who promote and support the use of corporate risk management principles are selected from among managers at the level of each function and key business process. The risk analysis deadlines and objectives take into account the specific features and demands of each business process for which risk management is performed.
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LEVELS OF FINANCIAL IMPACT OF RISK AND DISTRIBUTION OF POWERS WITHIN THE IRMS //
BOARD OF DIRECTORS AUDIT The Management Board adopts key decisions COMMITTEE KEY RISKS and assesses management results. MANAGEMENT Units directly manage this risk category. BOARD
RISKS OF UNITS Management and monitoring at the Unit level UNIT UNIT DISSEMINATION OF METHODOLOGIES OF DISSEMINATION CONSOLIDATION OF RISK INFORMATION RISK OF CONSOLIDATION
RISKS OF S&A Management and monitoring at the subsidiary and S&A S&A S&A S&A affiliate level
SCHEMATIC DIAGRAM OF IRMS PROCESS AT THE GAZPROM NEFT GROUP //
IDENTIFICATION QUALITATIVE DEVELOPMENT MONITORING (REVISION) AND QUANTITATIVE OF MANAGEMENT OF MEASURES OF RISKS RISK ASSESSMENT MEASURES
AT LEAST ONCE A YEAR AT LEAST ONCE A YEAR AT LEAST ONCE A YEAR AT LEAST ONCE A QUARTER
DEVELOPMENT OF THE INTEGRATED RISK MANAGEMENT SYSTEM
The Company is continuously developing the methodological As of the end of 2015, the IRMS covered all major Gazprom Neft framework for the IRMS, including general recommendations assets. Further expansion is planned once new projects are on the quantitative risk assessment of project and business launched or existing assets are acquired. planning as well as detailed methods for assessing the most substantial inherent risks. In 2016, the Company plans to continue developing regulatory and methodological documents to analyse certain substantial In 2015, the Company successfully implemented a pilot project risks and integrate risk analysis into the decision-making for a quantitative risk analysis of projects in the Logistics, process and also to expand the training programme for the Processing and Sales Unit, drafted several methodological Company’s executives and employees on matters concerning documents to analyse certain production and environmental risk management tools and methods. risks, and established an interactive training course called Fundamentals of Risk Management for all the Company’s employees.
114 GAZPROM NEFT // 2015 ANNUAL REPORT DESCRIPTION OF KEY RISKS
OPERATING RISKS // RISKS ASSOCIATED WITH GEOLOGICAL EXPLORATION OPERATIONS // One of the Company’s key strategic objectives is growth in the raw hydrocarbon resource base in quantitative and qualitative terms in order to ensure the required level of production, which in turn largely depends on the success of geological exploration. The main risk associated with geological exploration operations is the failure to confirm the planned level of hydrocarbon reserves and objective deterioration in the quality of the resource base. Another important factor is geological exploration work in different geographic regions, including regions with adverse climatic conditions and environmental restrictions, which often leads to the risk of increased costs. Estimates depend on a number of variable factors and assumptions, including the following: ↗↗ the correlation of the historical level of productivity in the region of production with the productivity of other regions that are comparable in terms of characteristics; ↗↗ the interpretation of geological exploration data; ↗↗ the effect of the requirements of government structures and legislative acts. Due to the exclusion of the volume of geological exploration from license obligations, Gazprom Neft manages licensing risks as regards geological exploration by making timely changes to design documents for geological study. RISK MANAGEMENT MEASURES // Gazprom Neft has considerable experience in conducting geological exploration work and employing the latest geophysical methods to prospect and explore hydrocarbons as well as advanced technologies in the drilling and development of fields, which results in the decreased probability of such risks. The Company has hired the auditor DeGolyer & MacNaughton to perform an independent audit of reserves based on the estimates of the Gazprom Neft's subsidiaries. Gazprom Neft actively cooperates with government structures at the federal and regional levels on matters concerning the sustainable use of subsoil resources.
LICENSING RISKS // The Company performs its subsoil resource operations on the basis of special permit documents and licenses for the right to use subsoil sites, which specify the intended use (type of subsoil use), spatial boundaries, dates and mandatory conditions for the use of the subsoil resources. Existing law envisages administrative sanctions for the unlicensed use of a subsoil site, and there is a risk of criminal liability in a number of cases. The failure to meet the conditions for the use of subsoil resources may entail an administrative sanction with the imposition of fines, while the repeat (continued) violation of significant conditions for the use of subsoil resources may entail the risk of the long-term termination of a license in accordance with Article 23 of Federal Law No. 2395-1 dated 21 February 1992 “On Subsoil Resources”. If the right to use subsoil resources is terminated prematurely, the Company bears both reputational risks as well as material losses related to the expenses incurred on acquiring the right to use the subsoil resources, investments to develop the subsoil site and decreased capitalization associated with the loss of the resource base. RISK MANAGEMENT MEASURES // The Company views the prohibition on the unlicensed use of subsoil resources as a categorical imperative. The Company provides end-to-end surveying support for all stages of prospecting, exploration and production drilling as an exhaustive measure to prevent the unlicensed use of subsoil resources. The Company’s Subsoil Use Monitoring System (SUMS) automated complex with its well-developed matrix for the risks involved with fulfilling the main (significant) conditions for the use of subsoil resources is the main risk management tool that is used to assess the current state of risks using matrix indicators and plan for an acceptable level of risk in the future. Standing Regional Licensing Commissions (RLC) review the status of current and potential license risks and the implementation of targeted measures to mitigate such risks on a quarterly basis. One of the measures aimed at reducing the level of licensing risks was the transition from risk management to managing licensing obligations. The basic idea of managing license obligations is to adjust the physical volumes of specific types of geological exploration and development indicators that had previously been strictly recorded in the conditions for subsoil resource use in accordance with the requirements of design documents (for example, an associated gas processing facility, raw hydrocarbon production levels). The Company’s goal is to update the entire license portfolio with the exclusion of specific types, volumes and indicators from the conditions for the use of subsoil resources. The CEOs of the Company’s subsidiaries are responsible for retaining licenses for the right to use subsoil resources with the relevant objectives recorded at their training and production centres.
www.gazprom-neft.com 115 Management system
PROJECT RISKS // The Company continuously develops and implements investment projects that aim to achieve strategic goals, in particular growth in the extraction of raw commodities and improvements in the quality of the products manufactured. When implementing projects, the Company encounters a variety of risks that could lead to a violation of the deadlines and/or the increased cost of the project. The main factors behind such risks are poor planning, violations of the project terms and safety requirements by contractors as well as new circumstances (increased cost of materials, errors in the assessment of infrastructure conditions and switching equipment suppliers). RISK MANAGEMENT MEASURES // The Company manages these risks, while paying special attention to the development and coordination stages of investment projects. In 2014, a risk management system was introduced to the process of preparing and implementing major projects. This system is based on the generally accepted approach in the global industry to establishing a project’s value using the Stage- Gate process with a risk assessment of the project at each of its stages. Requirements for contractors are based on a risk assessment and also take into account the requirements of the laws of the country in which the project is being implemented. In addition. The Company has established a project monitoring system.
RISKS ASSOCIATED WITH HUMAN RESOURCES // The Company's business depends on highly skilled key employees, and a lack of skilled labour, in particular in engineering and technical areas, may lead to risks associated with a shortage of personnel. The Company's success largely depends on the efforts and abilities of key employees, including skilled technical personnel, as well as the Company's ability to recruit and retain such personnel. Competition for personnel in Russia and abroad may intensify due to the limited number of skilled specialists on the labour market. The inability to recruit new skilled personnel and/or retain existing skilled personnel could have a negative effect on the Company's appeal as an employer. Demand for skilled employees and the related expenses are expected to grow, thereby reflecting the considerable interest in such resources from other industries and social projects. RISK MANAGEMENT MEASURES // The Company offers a safe workplace and competitive salaries and provides training for employees in specially designed programmes. In addition, the Company is improving personnel recruiting procedures and implementing measures that aim to reduce personnel turnover and encourage the self-development of personnel.
RISKS ASSOCIATED WITH OCCUPATIONAL AND INDUSTRIAL SAFETY // The Company is exposed to risks involving the safety of employees, equipment, buildings and structures. Numerous factors may have a negative effect on the Company's core activities, including the breakdown or failure of equipment, labour disputes, injury to personnel and third parties, natural disasters, political disputes or acts of terrorism. Any of the risk factors may have a significantly adverse impact on the business, financial condition and results of the Company's activities. RISK MANAGEMENT MEASURES // In order to mitigate these risks, the Company is implementing a large-scale integrated programme that aims to ensure safe working conditions for employees and safe manufacturing processes. This programme complies with the best international practices and is based on enhancing the role of production managers of all levels in ensuring work safety. The Company has successfully applied the experience gained from international oil companies by adapting it to the conditions of its production sites. In particular, the Company has introduced behavioural safety audits and internal incident investigations in order to identify and eliminate the causes, is implementing a transport safety programme, has introduced risk assessment for hazardous work and holds numerous drills, training exercises and seminars for all levels of the organisation. The Company has certified the work safety management system for compliance with the OHSAS 18001 international standard, adheres to the principle of continuous improvement and has selected priority areas of this system for the coming years. The Company has declared 2016 the Year of Occupational Safety.
ENVIRONMENTAL RISKS // The production activities of Gazprom Neft are fraught with the potential risk of an environmental impact that exceeds the permitted standards, which may result in civil liability and the need for work to eliminate such damage. The Company is fully aware of its social responsibility to create safe working conditions and maintain a favourable environment, continuously monitors its activities to ensure compliance with the relevant environmental standards and is implementing an environmental protection programme. In the future, costs associated with observing environmental requirements or obligations may increase. RISK MANAGEMENT MEASURES // The environmental protection policy of Gazprom Neft aims to ensure compliance with the requirements of current environmental legislation by investing substantial funds in environmental measures, including the use of technologies that ensure minimal negative impact on the environment. These activities have resulted in a significant decline in the probability of risks associated with environmental pollution. The Company is also following the changes in environmental legislation in the different countries in which it operates.
MARKET RISKS // The main areas of operation of Gazprom Neft are oil and gas production, oil refining and the sale of oil and petroleum products, thus the Company is exposed to risks that are traditionally inherent to the oil and gas industry, namely: ↗↗ risks associated with a possible change in prices for purchased raw materials and services; ↗↗ risks associated with a possible change in oil and petroleum product prices; ↗↗ risks associated with industry-wide competition; ↗↗ risks caused by economic instability in the industry.
116 GAZPROM NEFT // 2015 ANNUAL REPORT RISKS ASSOCIATED A POSSIBLE CHANGE IN PRICES FOR PURCHASED RAW MATERIALS AND SERVICES // In the process of its business operations, Gazprom Neft uses the infrastructure of monopoly service providers for the transportation of oil and petroleum products and the supply of electricity. The Company has no control over the infrastructure of these monopoly service providers and the amount of tariffs charged. It should be noted that tariffs are regulated by the oversight authorities of the Russian Federation, however tariffs are increased each year despite this fact, which leads to increased costs for the Company. At the same time, additional expenses may arise as a result of the following factors: ↗↗ during rail transportation – the incompatibility of Russia’s broad gauge rail system with the rail systems of neighbouring countries; ↗↗ during transportation by trunk pipeline – mixing of the Company’s oil with that of other companies, which diminishes its quality and consequently its value; ↗↗ during transportation by marine vessels – violation of the vessel arrival and departure schedule as well as the loading and unloading deadlines in the event of icing during winter. RISK MANAGEMENT MEASURES // The Company is implementing a number of measures that aim to mitigate the impact of such risks: ↗↗ long-term planning of commodity flows and the timely provisioning of the cumulative flow of oil and petroleum products as well as the necessary rolling stock; ↗↗ the optimal redistribution of commodity flows by transportation type; ↗↗ the use of alternative and internal sources of power generation; ↗↗ long-term contracting with fixed volumes and prices for the entire duration of the contracts; ↗↗ the use of transparent cost revision formulas as part of long-term service contracts that are strictly dependent on market fluctuations. These measures make it possible to reduce risks associated with the use of services and the acquisition of goods from monopoly providers to an acceptable level and ensure the Company’s continuity of operations.
RISKS ASSOCIATED WITH A POSSIBLE CHANGE IN THE PRICE OF OIL, PETROLEUM PRODUCTS, GAS AND GAS PRODUCTS // The Company’s financial indicators are directly related to the price level of crude oil, petroleum products, gas and gas products. The price level depends on a number of factors which the Company cannot fully control. Such factors include: ↗↗ the volume of oil reserves explored as well as global and regional supply of and demand for crude oil and petroleum products; ↗↗ Russian and foreign government requirements and actions; ↗↗ the impact of global production levels and prices from oil exporting countries (OPEC); ↗↗ the military and political situation and/or instability resulting from the escalation of hostilities or acts of terrorism, including in the United States, the Middle East, the CIS and other resource producing regions; ↗↗ prices and the availability of alternative and competing types of fuel; ↗↗ prices and the availability of new technologies; ↗↗ weather and climatic conditions, natural disasters and industrial accidents. RISK MANAGEMENT MEASURES // Comprehensive measures were prepared to reduce the cost of extracting minerals. The Company has a business planning system which at its core has a scenario-based approach for determining the Company’s key performance indicators depending on oil prices on the global market. This approach makes it possible to cut costs, including by reducing them or carrying them over to future periods of investment programmes. These measures enable the Company to reduce risks to an acceptable level and fulfil the obligations it undertook.
RISKS ASSOCIATED WITH INDUSTRY-WIDE COMPETITION // There is intense competition in the Russian oil and gas industry between the leading Russian oil and gas companies in the main areas of production and economic activities, including: ↗↗ the acquisition of licenses for the right to use subsoil resources to produce hydrocarbons at auctions organised by the government authorities; ↗↗ the acquisition of other companies that own licenses for the right to use subsoil resources to produce hydrocarbons or that own existing assets associated with production raw hydrocarbons; ↗↗ the implementation of foreign projects; ↗↗ the hiring of leading independent service companies; ↗↗ the acquisition of high-tech equipment; ↗↗ the hiring of experienced and the most qualified specialists; ↗↗ access to critical transportation infrastructure; ↗↗ the acquisition of existing retail sales network enterprises and land plots for the construction of new ones; ↗↗ the expansion of sales markets and sales volumes. In addition, there is competition from the suppliers of alternative energy sources, including eco-friendly sources such as solar energy and wind energy. RISK MANAGEMENT MEASURES // The implementation by management of the portfolio of strategic projects that aim to develop key areas of the activities of OJSC Gazprom Neft ensures the gradual strengthening of the Company’s positions in the oil and gas industry through a reduction in risks associated with competition.
www.gazprom-neft.com 117 Management system
RISKS CAUSED BY ECONOMIC INSTABILITY IN THE INDUSTRY // The Russian economy is sensitive to price fluctuations for crude oil, natural gas and other raw commodities on the global market. Negative oil price dynamics on the global market and a slowdown in the Russian economy may have an adverse effect on the Company’s business. Over the past decade, the Russian economy has at different times experienced: ↗↗ a significant decline in GDP; ↗↗ high inflation; ↗↗ high levels of corruption; ↗↗ a price slump on hydrocarbon markets; ↗↗ instability on the currency market; ↗↗ a high level of state debt versus GDP; ↗↗ unstable lending terms and liquidity restrictions given the weakened banking sector; ↗↗ deterioration of the financial position of contractors and the quality of work; ↗↗ fictitious bankruptcies in the industry for the misappropriation of property; ↗↗ tax evasion practices; ↗↗ weak diversification and a high dependency on global raw commodity prices; ↗↗ a significant increase in unemployment and underemployment; ↗↗ ethnic and religious conflicts; ↗↗ a high level of depreciation of the main infrastructural production facilities. RISK MANAGEMENT MEASURES // In order to mitigate the negative effect of these factors on the Company’s performance results, work is being conducted to expand sales markets and increase the volume of products sold in foreign countries. Gazprom Neft companies also provide support to the country’s economy as major taxpayers and take part in large-scale infrastructure and socially significant projects. The Company is constantly improving production and working on enhancing performance efficiency, including by implementing investment projects and updating and modernising fixed assets.
FINANCIAL RISKS // Financial risks at Gazprom Neft are managed by employees in accordance with their professional activities. The Financial Risk Management Committee determines the unified approach to financial risk management at Gazprom Neft and its subsidiaries. This approach is based on mitigating the degree of risk impact and the probability of such risks occurring by implementing the relevant measures and control procedures. The activities of the employees of the Company and the Financial Risk Management Committee help to reduce potential financial damage and achieve stated goals.
CREDIT RISK OF COUNTERPARTIES // Company executives devote extra attention to the credit risk management process, particularly during crisis periods, since some of the Company’s counterparties may experience financial difficulties. RISK MANAGEMENT MEASURES // Gazprom Neft has implemented a number of measures making it possible to manage risks, including: an assessment of the creditworthiness of counterparties, the establishment of individual limits depending on the financial condition of counterparties, control of advance payments and measures for working with receivables by business area, among others.
RISK ASSOCIATED WITH BORROWING // The imposition of sanctions on Gazprom Neft by the U.S. and EU has significantly narrowed the range of financing instruments available to the Company. RISK MANAGEMENT MEASURES // Gazprom Neft effectively manages risk associated with the borrowing of funds. Despite the levying of sanctions against the Company by the U.S. and EU in 2014, the Company fully implemented a programme to attract funding in 2014-2015 and also signed credit agreements for financing that may be used in 2015. The Company is also searching for alternative sources of funding.
CURRENCY RISK // The bulk of the gross revenue of Gazprom Neft comes from export transactions for the sale of oil and petroleum products. Consequently, fluctuations in currency exchange rates versus the rouble affect the results of the Company’s financial and business activities. RISK MANAGEMENT MEASURES // The currency structure of revenue and liabilities acts as a hedging mechanism, whereby opposing factors compensate one another. A balanced structure of assets and liabilities in foreign currency minimises the impact of currency market factors on the results of the Company’s financial and business activities. As regards the unbalanced proportion of claims and liabilities, the Company hedges such risks and in each specific situation utilises internal tools and provisions that allow for effectively managing the currency risk and guarantee the performance of its obligations.
118 GAZPROM NEFT // 2015 ANNUAL REPORT INTEREST RISK // As a major borrower, the Company is exposed to risks associated with changes on financial markets. Much of the debt portfolio consists of loans denominated in U.S. dollars. The interest rate for servicing the existing credits is based on interbank loan rates (primarily LIBOR). An increase in these interest rates may lead to higher debt servicing costs for the Company. Growth in the cost of credits for the Company may negatively impact creditworthiness and liquidity indicators. RISK MANAGEMENT MEASURES // The Company in each specific situation utilises internal tools and provisions to manage financial risks that guarantee the performance of its obligations.
RISKS ASSOCIATED WITH GOVERNMENT REGULATION AND POLICY // Gazprom Neft carries out its activities in strict compliance with the standards of Russian legislation as well as the legislation of the jurisdictions in which the Company performs its operations. Gazprom Neft cannot guarantee the absence of adverse changes in Russian legislation in the long term since most risk factors are out of its control. The negative impact of this risk category is mitigated by monitoring and timely reaction to changes made to various sections of legislation as well as active interaction with the legislative and executive authorities and public organisations on matters involving the interpretation, proper application and improvement of legislative norms
RISKS ASSOCIATED WITH MORE SANCTIONS FROM THE EU AND U.S. // In 2014, the U.S., EU countries and certain other nations imposed sanctions on the Russian energy section that partially apply to the Company. Further sanctions could negatively impact the overall situation in the industry and also have a specific effect on the Company’s long-term projects and the ability of its counterparties to meet their obligations. RISK MANAGEMENT MEASURES // The sanctions have had a negligible effect on the Company’s business and financial condition. In response, the Company is implementing a targeted programme to phase out imported services and equipment. The Company has no grounds to believe that it will be specifically targeted by any new sanctions, but the sanctions may have a specific effect on the Company’s long-term projects. At present, the Company continues to assess the impact of the sanctions, but does not believe that they will have a significant effect on the consolidated financial statement.
POLITICAL RISKS // The political situation in Russia is currently stable, which is characterised by the stability of the federal and regional branches. Gazprom Neft PJSC is registered as a taxpayer in St Petersburg, which is the second largest city in the Russian Federation and the administrative centre of the Northwest Federal District with significant natural resource potential, highly developed industry and an extensive transportation network. Gazprom Neft PJSC has subsidiaries in the Central, Northwest, Urals, Volga, Siberian and Far Eastern Federal Districts. RISK MANAGEMENT MEASURES // Overall, the Company regards the political situation within the country as stable and believes that there are currently no risks of negative changes.
RISKS ASSOCIATED WITH FOREIGN ASSETS // The Company is implementing a number of foreign projects that aim to expand the geography of production operations. Entering new regions is associated both with the ability to obtain additional competitive advantages as well as the risks of underestimating the economic and political situation in countries where the Company’s assets are located, which subsequently may lead to the failure to achieve planned performance indicators. RISK MANAGEMENT MEASURES // At present, Gazprom Neft assesses the level of risks associated with foreign assets as acceptable, however it cannot guarantee the absence of negative changes since the risks described are beyond the Company’s control.
CORRUPTION RISKS // As the Company actively enters new international markets, the risk increases of U.S. or UK anti-corruption laws extending to it. RISK MANAGEMENT MEASURES // Gazprom Neft pursues a strategy of corruption risk management on an ongoing basis. The Company has approved an anti-fraud and anti-corruption policy and all Gazprom Neft subsidiaries have been given recommendations to approve similar policies. All Gazprom Neft employees are required to review and comply with the policy requirements. In order to monitor corruption risks when working with third-party contractors, standard forms of anti-corruption reservations have been prepared and approved by an order of the Gazprom Neft CEO for inclusion in contracts with third parties (both Russian and foreign). The Company also has a permanent anti-fraud and anti-corruption hotline. An internal inspection is conducted in response to hotline complaints.
www.gazprom-neft.com 119 Management system
RISKS ASSOCIATED WITH CHANGES TO TAX LEGISLATION // Gazprom Neft PJSC is one of the biggest taxpayers in the Russian Federation and pays federal, regional and local taxes, in particular VAT, the corporate profit tax, mineral extraction tax, corporate property tax and land tax. The taxation system of the Russian Federation is continuously evolving and improving. Potential growth in tax rates paid by the Company as part of its business operations may lead to increased costs and a reduction in the amount of cash at the Company disposal to finance its day-to-day operations and capital expenditures and meet its obligations, including on outstanding bonds. Virtually any company in Russia may potentially incur losses as a result of claims by the tax authorities that may arise for previous periods and current operations. However, the Company estimates such risks as average. The Company believes that the impact of the obligations arising as a result of such potential events on its operations would not be any more significant than the impact of similar obligations on other Russian oil sector companies with government participation. RISK MANAGEMENT MEASURES // In order to mitigate risks related to changes in tax legislation, the Company carries out thorough work to analyse bills and legislative acts that have been adopted in tax legislation. The most significant recent changes to tax legislation affecting the issuer’s activities include: ↗↗ the introduction of new transfer pricing rules in 2012; ↗↗ the institution of the consolidated group of profit taxpayers in 2012; ↗↗ changes to the base rates of the Mineral Extraction Tax (MET) for oil, gas and gas condensate; ↗↗ the introduction of additional coefficients that describe the degree of difficulty of extracting oil (Ce) and a coefficient that describes the degree of depletion of a particular raw hydrocarbon deposit (Cdp) for deposits containing so-called hard-to-recover oil reserves to the formula used to calculate the MET for oil; ↗↗ the introduction of a formulaic procedure for calculating the MET for gas and gas condensate on 1 July 2014; ↗↗ changes to the excise tax rate for petrol, diesel fuel and jet fuel as a result of ‘tax manoeuvring’. The Company evaluates and predicts the extent of a possible negative impact from changes to tax legislation and makes every effort to minimise risks related to such changes. In particular, risks caused by ‘tax manoeuvring’ were identified by the Company on time and taken into account when compiling the business plan for 2015.
RISKS ASSOCIATED WITH CHANGES TO THE RULES FOR CUSTOMS CONTROL AND DUTIES // Gazprom Neft PJSC is involved in foreign economic relations and therefore exposed to risks associated with changes to legislation in the government regulation of foreign trade activities as well as customs legislation governing relations to establish the procedure for the movement of goods across the customs border of the Russian Federation, establishing and applying customs regimes as well as establishing, introducing and collecting customs payments. Another risk may be the ability of the Russian Government to change customs duty rates (both import and export) for certain goods for which the Company concludes foreign trade transactions. The primary adverse effect from this risk is an increase in expenses and lower export efficiency. RISK MANAGEMENT MEASURES // The Company meets the requirements of customs legislation, completes all documentation required for both export and import transactions in a timely manner and has sufficient financial and human resources to comply with the standards and rules in matters of customs regulation.
120 GAZPROM NEFT // 2015 ANNUAL REPORT Interaction with investors; debt and equity capital
EQUITY CAPITAL
INFORMATION ABOUT THE SHARES AND AMERICAN DEPOSITORY RECEIPTS (ADR) INFORMATION ABOUT OF GAZPROM NEFT PJSC AS OF 31 DECEMBER 2015 // CIRCULATION OF SHARES
SHARE VALUE ON MICEX According to the Charter of Gazprom RUB (closing price) 153.95 Neft, the Company’s charter capital consists of 4,741,299,639 common USD1 (closing price) 2.11 shares. As of the end of 2015, 52-week maximum price 190.50 Gazprom Neft had no preferred shares. 52-week minimum price 134.00 The largest holder of 2 VALUE OF 1 ADR ON LONDON STOCK EXCHANGE Gazprom Neft PJSC shares is USD (closing price) 10.65 PJSC Gazprom, which directly 52-week maximum price 14.95 and indirectly owns 95.68% of the 52-week minimum price 10.25 Company’s total common shares. TRADING VOLUME FOR YEAR The remaining common shares (4.32%) MICEX, RUB bn 14.15 are distributed among minority shareholders – individuals and legal London Stock Exchange (IOB system), USD mn 173.85 entities. MARKET CAPITALISATION ON MICEX As of 31 December 2015, there were RUB mn 729.923 8,740 personal accounts recorded USD mn1 10.015 in the shareholder register, including Code in MICEX/RTS system / ISIN code SIBN / RU0009062467 SIBN / RU0009062467 13 legal entities, 8,721 individuals, Number of common shares 4,741,299,639 2 trustees and 4 nominal holders. Nominal value of common shares, RUB 0.0016 Size of charter capital, RUB 7,586,079.4224 Shares in free float, % 4.32 Number of ADR issued 24,012,996 Proportion of ADR in free float, % 59 1 Converted at the exchange rate of the Central Bank Average monthly trading volume (IOB system), USD mn 14.49 of the Russian Federation as of 31 December 2015. 2 Average monthly MICEX trading, RUB mn 1,179.52 1 ADR is equivalent to 5 common shares of Gazprom Neft PJSC.
LIST OF REGISTERED ENTITIES WITH A STAKE OF AT LEAST 1% OF CHARTER CAPITAL //
As of 31 December 2014 As of 31 December 2015
Entities recorded in the shareholder register Share of charter capital, % Number of shares Share of charter capital, % Number of shares PJSC Gazprom 3 66.9837 3,175,898,234 72.6628 3,445,159,509 Gazprom Finance B.V. 5.6791 269,261,275 0 0 LLC Deutsche Bank (Nominal holder) 20.0002 948,271,442 20.0002 948,271,442 NCO CJSC National Settlement Depository (Nominal holder) 7.0542 334,460,721 7.0600 334,737,790
3 OJSC Gazprom prior to 26 June 2015.
www.gazprom-neft.com 121 Management system
LISTING
The common shares of Gazprom Neft circulate in Russia on the Based on generally accepted market indicators, Gazprom main trading platforms of the unified exchange PJSC Moscow Neft remained undervalued by the market in 2015 compared Exchange. Globally the Company’s shares trade in the form of with other international oil companies as well as its Russian ADRs, primarily in OTC trading in the UK via the LSE IOB system, competitors. This is primarily due to the limited liquidity of the in the U.S. via the OTCQx system as well as in Germany. Company’s shares.
Trading volume with Gazprom Neft shares on all MICEX trading According to several leading analysts, the Company is platforms totalled RUB 14 billion (USD 234 million) in 2015. The significantly undervalued compared with its competitors. ADR issued for the Company’s shares amounted to 0.12% of the The potential for growth in hydrocarbon production, a high cumulative trading volume in 2015 among the ADR of foreign proportion of refining, expanded sales in premium segments companies traded on the London Stock Exchange in the IOB and the active development of new production projects, along system, or USD 235 million. with a high level of operating efficiency, are all factors that provide significant competitive advantages for Gazprom Neft For the year 2015, a slight increase was seen in the Company’s by creating considerable potential for growth in its value in the share value. Based on MICEX trading on the last trading long term. day – 31 December 2015 – the Company’s share price stood at RUB 153.95 per 1 common share (up 7.7% compared with the start of the year). The Company’s capitalisation stood at RUB 730 billion as of 31 December 2015.
TRADING VOLUME DYNAMICS OF GAZPROM NEFT SHARES ON THE MICEX, LSE AND OTCQX // USD mn
Source: MICEX, LSE, OTCQX 52.51 47.38 46.55
37.91 35.87 33.69 33.49 29.01 25.59 24.12 21.33 22.61
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. 13.08 20.63 15.76 22.07 21.75 14.58 7.89 6.86 11.68 17.58 9.75 12.23 LSE 12.25 26.59 22.08 30.32 24.61 18.91 13.19 22.01 21.76 18.23 14.30 10.27 Micex 0.25 0.17 0.74 0.12 0.20 0.20 0.25 0.15 0.48 0.65 0.61 0.11 OTCQX
122 GAZPROM NEFT // 2015 ANNUAL REPORT TRADING DYNAMICS OF GAZPROM NEFT SHARES ON THE MICEX //
Source: MICEX, LSE, OTCQX
60 Trading volume of Gazprom Ne PJSC shares // USD mn Share price of Gazprom Ne PJSC // RUB 200 172.60 180 50 156.90 159.50 153.95 160 145.70 146.90 145.90 145.70 147.05 137.80 136.00 137.40 140 40 120 30 30.32 100 26.59 24.61 80 22.08 20 22.01 21.76 18.91 18.23 60 14.30 12.25 13.19 40 10 10.27 20 0 0 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.
TRADING DYNAMICS OF GAZPROM NEFT SHARES ON THE MICEX // %
Source: MICEX
160 Gazprom Ne MICEX Urals
140
120
100
80
60
40
20
0 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.
www.gazprom-neft.com 123 Management system
PARTICIPATION IN DEPOSITORY RECEIPTS PROGRAMME
American and Global Depository Receipt programmes continued As of the end of 2015, the total number of ADR issued for throughout 2015 for the Company’s shares trading on the OTC common shares was equal to 120 million shares (2.5% of the market of the U.S., UK, Germany and other countries. One ADR is Company’s charter capital). equal to 5 common shares of Gazprom Neft. The depository bank for the Company’s depository receipt programme is The Bank of Trading volume with the ADR of Gazprom Neft totalled New York Mellon. USD 185 million in 2015, including USD 174 million on the IOB London Stock Exchange, USD 2 million on the OTCQx and USD 9 million on other platforms in Europe (primarily in Germany).
DYNAMICS OF ADR TRADING OF GAZPROM NEFT, RUSSIA FTSE IOB INDEX AND URALS OIL PRICES IN 2015 // %
Source: LSE
160 Gazprom Ne Urals Russia FTSE IOB Index
140
120
100
80
60
40
20
0 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.
DEBT PORTFOLIO MANAGEMENT AND CREDIT RATINGS
DEBT PORTFOLIO MANAGEMENT AND CREDIT ratio as calculated by the Gazprom Neft Group. According to RATINGS // As far as funding for its activities, Gazprom Neft the terms of the Company’s loan agreements, the value of the relies both on internal funding sources generated by income ‘Consolidated financial debt/consolidated EBITDA’ ratio should from operating activities as well as borrowed funds. When not exceed 3. As of the end of the reporting period (and also determining the ratio of debt and internal financing within the over the five-year period preceding the reporting date), the capital structure, the Company seeks to achieve an optimal ratio’s value was lower than the specified thresholds. balance between the overall value of capital, on the one hand, and ensuring long-term sustainable development, on the other The other conditions of loan agreements and issuing hand. documentation on bonds and Eurobonds were also observed in full during the reporting period. CORE PRINCIPLES OF DEBT PORTFOLIO MANAGEMENT // The Company adheres to a rather Disclosing the results of activities for the management of the conservative debt financing policy. One of the key principles of Gazprom Neft Group’s debt portfolio on the official corporate the debt policy is to ensure a high level of financial sustainability website ensures the information transparency of the debt for which an important indicator is the ‘Net Debt/EBITDA’ policy. During the reporting year, the Company kept the relevant ratio and ‘Consolidated financial debt/consolidated EBITDA’ section of its website updated.
124 GAZPROM NEFT // 2015 ANNUAL REPORT PRIMARY DEBT FINANCING INSTRUMENTS // As of ↗↗ attracted credit funds for a total of USD 350 million under the end of 2015, the Company’s debt portfolio included such loan agreements with certain private Russian banks. The instruments as debt financing, credit under the guarantee loan rate is LIBOR + 5 % p.a. with a term of five years from of the Export Credit Agency (ECA), syndicated lines of credit the drawdown date; (including a revolving line of credit), local bonds, Eurobonds ↗↗ attracted credit funds for a total of RUB 72.9 billion under and bilateral lines of credit. The diversified structure of the loan agreements signed in the first half of 2015. Company’s debt portfolio makes it possible to maintain a flexible borrowing policy given the volatility of the debt capital markets. The aforementioned borrowed funds were used for general corporate purposes. When raising debt financing, the Company takes into account the specifics of the activities being funded as well as conditions As a result of the Company’s borrowings described above, on debt capital markets. the borrowings of other companies of the Gazprom Neft Group (LLC Gazpromneft Shipping, NIS a.d. and others) and When raising debt financing, the Company takes into the rouble revaluation of borrowings denominated in foreign account the specifics of the activities being funded as currency, the debt portfolio of the Gazprom Neft Group reached well as conditions on debt capital markets. Based on this RUB 818.1 billion as of 31 December 2015 compared with principle, Gazprom Neft had the following borrowings RUB 563.4 billion as of 31 December 2014. in 2015: ↗↗ the drawdown of credit funds for a total of RUB 62 billion (USD 1.054 million) under agreements concluded in 2013– 2014 with a syndicate of European banks, PJSC Sberbank and JSC Rosselkhozbank;
DEBT/EBITDA RATIO //
Indicator 2011 2012 2013 2014 2015 Net debt/ЕBITDA 0.70 0.50 0.60 1.44 1.90 Debt/EBITDA 0.80 0.80 1.00 1.87 2.37 Debt/EBITDA threshold 3.00 3.00 3.00 3.00 3.00
Source: Company data
MAIN FEATURES OF THE DEBT PORTFOLIO // Long-term borrowings dominate the Gazprom Neft Group’s debt portfolio in terms of maturity date, thus minimising the risk of the inability to refinancing debt in 2016.
DEBT PORTFOLIO STRUCTURE // RUB mn
Indicator 2011 2012 2013 2014 2015 Short-term credits and loans1 41,114 7 7,193.0 52,413.0 61,121.0 147,319.0 Long-term credits and loans 174,503 16 6,4 47.0 261,455.0 502,306.0 670,779.0 TOTAL 215,617.0 243,640.0 313,868.0 563,427.0 818,098.0 Percentage of short-term credits and loans, % 19.1 31.7 16.7 10.9 18.0 Percentage of long-term credits and loans, % 80.9 68.3 83.3 89.2 82.0
Source: Company data 1 Short-term loans and credits and the current portion of long-term loans and credits.
www.gazprom-neft.com 125 Management system
DEBT REPAYMENT SCHEDULE // Based on the Gazprom Neft Group’s debt repayment schedule, the Company does not anticipant any significant increase in the debt refinancing burden in 2016–2017.
DEBT REPAYMENT SCHEDULE OF THE GAZPROM NEFT GROUP // RUB mn
Name Under 6 months 6-12 months 1-2 years 2-5 years 5 years or more Bank loans 15,797 23,460 78,335 169,132 6,905 Local bonds 12,452 2,031 23,212 32,434 – Loan participation notes 5,880 2,532 6,566 80,530 200,107 Other loans 14,362 311 220 1,219 2,006 TOTAL 48,491 28,334 108,333 283,315 209,018
Source: Company data
POTENTIAL INSTRUMENTS FOR ATTRACTING FINANCING CREDIT RATINGS // In February 2015, China’s largest ratings IN 2016 // Despite the unfavourable market situation, the agency Dagong assigned Gazprom Neft a high long-term credit Company not only fulfilled its financial borrowing programme rating of ‘AA-’ with a stable outlook. in 2015, but also took a number of important steps to ensure the ability to attract financing in 2016, including the signing of In early 2015, three ratings agencies downgraded their several loan agreements. credit ratings of Gazprom Neft all at once after Russia’s sovereign credit rating was downgraded: In addition, the Company is searching for alternative sources ↗↗ 14 January 2015 Fitch: from ‘ВВВ’ to ‘ВВВ-’ (negative outlook), of financing. In particular, work is under way to attract debt ↗↗ 20 January 2015 Moody’s: from ‘Baa2’ to ‘Ваа3’ financing on Asian markets, financing for imported equipment (negative outlook), and services as well as project financing. ↗↗ 25 February 2015 Moody’s: from ‘Baa3’ to ‘Ва1’ (negative outlook), In order to ensure the ability to promptly raise debt financing ↗↗ 04 February 2015 S&P: from ‘BBB-’ to ‘ВВ+’ (negative outlook). in the form of a local bond issue, the Company registered a multi-currency Exchange Bond Programme in 2015. The As of the end of 2015, all the Company’s credit ratings were at Programme remains in effect for 30 years, thus enabling the the same level as the country rating of the Russian Federation. Company to promptly organise an issue(s) of exchange bonds for a period of up to 30 years for a total in the equivalent of up to RUB 100 billion inclusive if the need arises. The Company is also actively involved in improving legislation on the securities CREDIT RATINGS OF GAZPROM NEFT AS OF 31 DECEMBER 2015 //
market as regards the placement and circulation of local Agency Scale Rating Outlook bonds as part of the Bond Issuers Committee of the Moscow International scale BB+ Negative Exchange. in foreign currency Standard&Poor’s National scale (Russia) ruAA+ Negative Moody’s International scale Ba1 Stable in foreign currency In December 2015, Moody’s FITCH Long-term default rating ВВВ- Negative of issuer in foreign and revised its outlook from national currency ‘negative’ to ‘stable’ due Dagong Long-term credit rating AA- Stable to a change in the sovereign on obligations in foreign rating outlook. currency Source: ratings agency data
126 GAZPROM NEFT // 2015 ANNUAL REPORT DIVIDEND HISTORY
The Gazprom Neft PJSC Regulation on the Dividend Policy is The amount of annual dividends paid out for the designed to ensure that the mechanism for determining the Company’s shares must not be less than the largest of the amount of dividends and the procedure for their payment is as following indicators: transparent as possible for shareholders and all stakeholders ↗↗ 15% of the Gazprom Neft Group’s consolidated financial result as and also describes the approach of the Company’s Board determined in accordance with International Financial Reporting of Directors to preparing recommendations for the General Standards (IFRS), Meeting of Shareholders on the amount of dividends to be paid ↗↗ 25% of the Company’s net profit as determined in accordance on the Company’s shares, the date as of which shareholders with Russian Accounting Standards (RAS). must be registered to receive dividends and the procedure for their payment. Gazprom Neft has paid interim semi-annual dividends since 2013 in an effort to enhance the Company’s investment appeal.
CORE PRINCIPLES OF THE GAZPROM NEFT DIVIDEND POLICY
↗↗ commitment to high corporate governance standards; ↗↗ compliance with the standards of the existing laws of the Russian ↗↗ enhancing the Company’s investment appeal; Federation as well as the Company’s Charter and internal ↗↗ ensuring positive dividend payment dynamics in the event of documents. growth in the Company’s net profit; ↗↗ commitment to ensuring the most convenient method of receiving dividends for shareholders; ↗↗ commitment to paying dividends as quickly as possible; The Gazprom Neft Regulation on the Dividend Policy is available ↗↗ ensuring the maximum transparency of the mechanism used to at the Company’s official website along with dividend payment determine the amount of dividends; http://www.gazprom-neft.com/
COMPANY DIVIDEND HISTORY //
Period 2011 2012 2013 2014 H1 2015 Amount of dividends accrued per one 7.3 9.3 9.38 (including 6.47 (including 5.92 share, RUB dividends dividends for H1 2013) for H1 2014) Total dividends accrued per share 34,611,487,364 44,094,086,642 44,473,390,613 30,676,208,664 28,068,493,862.88 of a particular category, RUB Percentage of IFRS net profit (prior to 20.6 24 25 25 – 2012 – US GAAP) Compilation date of list of persons 24/04/2012 23/04/2013 23/06/2014 22/06/2015 16/10/2015 entitled to receive dividends Meeting date of issuer’s governing 08/06/2012, 07/06/2013, 06/06/2014, 05/06/2015, 30/09/2015, body at which the decision was made Minutes Minutes Minutes Minutes Minutes to pay dividends and the date and No. 0101/02 dated No. 0101/03 dated No. 0101/01 dated No. 0101/01 dated No. 0101/02 dated number of the minutes 14/06/2012 10/06/2013 10/06/2014 09/06/2015 02/10/2015 Deadline given for payment of declared before 07/08/2012 before 06/08/2013 before 28/07/2014 27/07/2015 23/11/2015 dividends Form and other conditions of payment In cash form In cash form In cash form In cash form In cash form of declared dividends Ratio of unpaid dividends to accrued 0.02 0.03 0.05 0.02 0.02 dividends1, % Source: ratings agency data
1 Dividends not paid to shareholders who failed to provide data for the calculation of dividends in accordance with clause 5 of Article 44 of Federal Law No. 208-FZ dated 26 December 1995 “On Joint-Stock Companies”. Dividends accrued for shares belonging to unidentified holders are paid once the rights of the shareholders to the securities have been established.
www.gazprom-neft.com 127 Management system
MECHANISMS OF INTERACTION WITH INVESTORS
DISCLOSURE OF INFORMATION ABOUT THE COMPANY’S The Company holds the annual ‘Investor’s Day’ event each year OPERATIONS // Gazprom Neft aims to promptly and regularly involving senior Gazprom Neft executives at which analysts convey information about its operations to all those interested and investors from investment companies can get first-hand in receiving it to the extent necessary for them to make an answers to all of their questions. informed decision about participation in the Company or other actions that are capable of affecting the Company’s financial Gazprom Neft regularly shows off its own production assets and business operations. to investors and analysts by organising onsite meetings at production and extraction sites. In 2015, Gazprom Neft Gazprom Neft maintains a special web page (www.ir.gazprom- shareholders and investors visited the Company’s bunkering neft.ru) with answers to FAQs from shareholders and investors, terminal at the Novorossiysk port. a regularly updated calendar of corporate events, dividend history, key performance indicators and other useful information In 2015, the Company was honoured with several awards in for shareholders and investors. Gazprom Neft organises regular investor relations. presentations and meetings for members of the Company’s executive bodies and other key senior officials with investors Gazprom Neft became the first Russian company to win at and analysts, including meetings related to the disclosure the IR Society’s Best Practice Awards, a prestigious UK-based (publication) of the Company’s accounting (financial) statements contest for the best annual reports. The Company’s interactive or related to the Company’s core investment projects and annual report (www.ar2014.gazpron-neft.ru) placed first in the strategic development plans. ‘Best Digital Reporting International’ category and also won bronze at the ARC Awards (Academy Awards of Annual Reports). Gazprom Neft executive bodies handle the implementation of the information policy for the Company. The Company’s Board of Gazprom Neft won top prizes at the Moscow Exchange’s Directors monitors compliance with the information policy. annual report contest for ‘Best Presentation of a Company’s Strategy and Investment Appeal in an Annual Report’ and ‘Best The Company attaches great important to cooperation with Information Disclosure on a Corporate Website’. In addition, the current and potential shareholders. The level of information Company’s annual report won a prize in the ‘Best Interactive disclosure for Gazprom Neft shareholders and investors has Report’ category, while its sustainable development report expanded significantly in recent times, as evidenced by a won the ‘Best Corporate Social Responsibility and Sustainable number of studies by independent agencies concerning investor Development Report’ category. relations as well as awards conferred upon the Company for this area of its activities. The Company’s interactive annual report won the ‘Best The Company regularly holds conference calls for investors Digital Reporting International’ category http://ar2014. involving Company executives. In addition, Gazprom Neft gazprom-neft.com/ each quarter publishes an Analysis of the Management of the Company’s Financial Condition and Performance Results – an appendix to the Gazprom Neft Group’s IFRS financial statement.
The Databook and Datafeed statistical reference guides are also published for a detailed analysis of the Company’s operations. NUMBER OF CONFERENCE CALL PARTICIPANTS // persons Source: Company data In order to provide the most complete level of awareness, Gazprom Neft regularly holds meetings with investors and 102 ↗9.7% shareholders and takes part in all major conferences of 93 85 investment and brokerage organisations. 80 102 persons
↗↗ answers to FAQs from shareholders and investors ↗↗ regularly updated calendar of corporate events ↗↗ dividend history ↗↗ key performance indicators ХХ ↗↗ and other useful information for shareholders and investors http://ir.gazprom-neft.com/ 1Q15 2Q15 3Q15 4Q15
128 GAZPROM NEFT // 2015 ANNUAL REPORT Q&A
WHAT IS THE ANTICIPATED LEVEL OF INVESTMENT WHAT KIND OF RESULTS HAS THE IMPORT SUBSTITUTION FOR THE GAZPROM NEFT GROUP IN 2016? PROGRAMME PRODUCED FOR THE COMPANY?
The Company’s Board of Directors has approved the Gazprom Neft has developed regulatory mechanisms to Gazprom Neft investment programme for 2016 in the increase the number of Russian enterprises involved in the amount of RUB 362 billion with RUB 244 billion of that implementation of the Company’s projects. amount to be spent on geological exploration, RUB 75 billion on oil refining, RUB 17 billion on the sale of petroleum At present, strategic partnership agreements have been products, RUB 19 billion on the projects of NIS and RUB 7 signed with leading Russian producers. Gazprom Neft is billion on M&A and other projects. involved in import substitution projects that aim to develop the domestic production of catalysts, compressors and pumps for oil refining, components for offshore projects, the construction of offshore drilling rigs and support vessels, the IS GAZPROM NEFT PLANNING TO EXPAND ITS PROJECT introduction of high-tech drilling services and the creation PORTFOLIO GIVEN THE DETERIORATING MACRO PARAMETERS? of software tools to support oilfield services and develop production services for shale projects. The Company is also planning to initiate a number of oil production R&D projects, Given the long-term decline in oil prices, the Company is which will help to develop unconditional resources more structuring its investment portfolio in favour of more reliable efficiently. projects while also providing for long-term development options. Low oil prices and sanctions limit the potential for For more, see the R&D and Innovations section the Company’s international development both in terms on page 54 of exploration and production as well as processing and sales. The primary option for growth remains implementing production projects within Russia, and options for the joint implementation of projects with the Company’s strategic and IF THE COMPANY’S NEGATIVE CASH FLOW CONTINUES, WHAT SOURCES OF FINANCING IS GAZPROM NEFT CONSIDERING technological partners are also being considered. At present, FOR 2016? the Company’s priority projects are the ones in the final investment stage that will be able to provide a positive cash flow in the near future. Such projects include Prirazlomnoye, The Company has access to the domestic borrowing market Novy Port, Badra and Messoyakha. (bonds and loans from Russian banks). In addition, the Company is searching for alternative sources of financing. In particular, work is under way to attract debt financing on Asian markets, financing for imported equipment and services as well as project financing.
DISTRIBUTION OF INVESTMENT FUNDS // RUB bn
Source: IEA
244 Geological exploration and production 75 Oil refining RUB 362 bn 19 Sale of petroleum products 17 Projects of NIS a.d. Novi Sad 7 M&A and other projects
www.gazprom-neft.com 129
SUSTAINABLE DEVELOPMENT Sustainable development
When drafting and implementing its business strategy, Gazprom Neft seeks to ensure an optimal balance in its economic, environmental and social interests. In 2015, Gazprom Neft set the goal of realising its slogan ‘Goal – Zero: No Harm to People, Objects or the Environment’.
The Company recognises its responsibility to present and future generations and strives to utilise natural resources as carefully as possible, minimise environmental risks in its production activities and carry out environmental measures and projects to preserve biodiversity.
Gazprom Neft aspires to be the best employer in Russia by continuously increasing investment in HR development, providing employees with competitive remuneration and developing social support programmes.
The Company makes a significant contribution to the socioeconomic development of the regions where it operates. The ‘Native Towns’ Programme, a social investment programme sponsored by Gazprom Neft, aims to improve the quality of life for the Company’s local communities and address crucial problems in regional development.
This section describes the Company’s approach to sustainable development and the main results of its activities in this regard. Detailed information is presented in the Sustainable Development Report of Gazprom Neft PJSC for 2015.
The interactive version of the Company’s social report is available at http://csr2015. gazprom-neft.com/
132 GAZPROM NEFT // 2015 ANNUAL REPORT Industrial, environmental and occupational safety
Improving occupational safety levels and reducing the risk of negative effects on the environment are strategic goals for the Company. Gazprom Neft is committed All Gazprom Neft enterprises to becoming one of the leading global oil companies in terms of industrial, are certified in accordance environmental and occupational safety and continuously works to improve its activities with OHSAS 18001:2007 in these areas. and ISO 14001:2004
Gazprom Neft is guided in its work by the requirements of PROJECT TO IMPROVE OCCUPATIONAL SAFETY CULTURE Russian legislation as well as international and corporate standards in industrial, environmental and occupational safety. All the Company’s enterprises have a management system In 2015, the Company launched a project to improve occupational in matters of industrial, environmental and occupational safety culture. The Gazprom Neft Management Board identified safety that complies with the international standards OHSAS the key goal in industrial safety and environmental protection: 18001:2007 and ISO 14001:2004. Gazprom Neft regularly ‘Goal – Zero: No Harm to People, Objects or the Environment’. carries out industrial environmental control, monitors This vision is based on the belief that each accident or injury environmental components, conducts audits of industrial, can be prevented. In order to achieve the ‘Goal – Zero’, Gazprom environmental and occupational safety management systems at Neft will focus on five priority areas to ensure safety: leadership subsidiaries and evaluates the activities of its enterprises based and occupational safety culture, management of industrial, environmental and occupational safety risks, the technological on key areas of work in this regard. reliability of assets, the management of contractors and transport security. For each area, a Gazprom Neft manager has undertaken Gazprom Neft’s safety culture is based on the personal a personal commitment to improve the level of safety at the responsibility of each employee and the involvement of all Company. Company employees and representatives of contractor organisations in the process of enhancing safety levels. When selecting counterparties, one of the basic selection criteria is their compliance with corporate standards in industrial, environmental and occupational safety. Gazprom Neft ensures contractors comply with the Company’s requirements in these matters by concluding the relevant agreements as part of contracts, establishing key performance indicators, monitoring their activities and conducting an analysis of their work efficiency in industrial, environmental and occupational safety based on which the contracts are extended.
Gazprom Neft interacts with a wide range of concerned parties on matters concerning industrial safety and environmental protection. When developing new projects, the Company holds public hearings at which it informs concerned parties about its planned activities. In 2015, public hearings were held and public approval was secured for 43 projects of Gazprom Neft.
www.gazprom-neft.com 133 Sustainable development
INDUSTRIAL AND OCCUPATIONAL SAFETY
Gazprom Neft programmes that aim to enhance industrial NUMBER OF INCIDENTS AT HAZARDOUS PRODUCTION safety levels and improve working and occupational safety FACILITIES // incidents conditions include the following features: Source: Company data ↗↗ emergency management; ↗↗ monitoring compliance with occupational safety 3,566 ↘13% 3,413 3,299 requirements; 2,876 ↗↗ expert evaluations of industrial safety equipment and 2,512 ensuring production facilities comply with the requirements of industrial safety standards and rules; ↗↗ modernisation of emergency shutdown systems; ↗↗ organisation of occupational health and safety for employees; 2011 2012 2013 2014 2015 ↗↗ provision of safe working conditions and establishing workplaces that comply with government and corporate NUMBER OF PEOPLE INJURED IN ACCIDENTS AT WORK // people standards in this regard; Source: Company data ↗↗ provision of employees with personal protective gear; ↗↗ comprehensive training of the Company’s employees 57 ↘5% in industrial, environmental and occupational safety. 47 43 41 In the event of an incident, Gazprom Neft conducts an 33 investigation and drafts and implements an action plan to minimise the risk of the incident ever reoccurring. Preventive measures are carried out in accordance with the plans at all the Company’s subsidiaries. In order to ensure civil protection, 2011 2012 2013 2014 2015 Gazprom Neft improves the operational stability of production facilities in the event of emergencies and trains employees LTIF INJURY RATE // on the actions to take in such situations, including in difficult climatic conditions. Source: Company data
Spending on industrial, environmental and occupational safety 0.64 0.65 ↘9% 0.52 measures totalled more than RUB 10,974 million in 2015 0.47 (excluding joint and foreign assets). The Company invested more 0.44 than RUB 45,231 million in safety in 2013–2015.
The work performed in 2015 resulted in a reduction in the number of incidents at the Company’s production facilities and the further decline of the Lost Time Injury Frequency (LTIF). 2011 2012 2013 2014 2015
134 GAZPROM NEFT // 2015 ANNUAL REPORT ENVIRONMENTAL RESPONSIBILITY
The Company’s main business principles include maintaining The Company underwent an audit that confirmed the a favourable environment and the sustainable use of natural compliance of the environmental management system with the resources. Gazprom Neft objectively assesses potential requirements of the ISO 14001:2004 international standard. environmental risks and takes measures to prevent any negative impacts and to ensure environmental safety. The integrated environmental management system in place at the Company’s enterprises enables Gazprom Neft to adhere to this principle. In 2015, the Company underwent an audit that RUB 3,897 mn confirmed the system’s compliance with the requirements of the Spending on environmental ISO 14001:2004 international standard. safety and protection in 2015
When purchasing an asset, the Company conducts a comprehensive evaluation of its condition based on the requirements of national legislation concerning environmental MAINTAINING BIODIVERSITY protection and international standards that apply to such assets. The Company implements projects to maintain biodiversity in the areas where it operates. In particular, Gazprom Neft Gazprom Neft’s environmental protection strategy aims to is carrying out an indefinite corporate programme to achieve the following changes: preserve biodiversity on the basis of a list of types ↗↗ improve the efficiency of the environmental management of flora and fauna that are indicators of the system; steady state of the marine ecosystems of ↗↗ reduce specific environmental impact indicators; the Arctic zone of the Russian Federation ↗↗ maintain biodiversity; based on instructions from the President ↗↗ the sustainable use of natural resources; of the Russian Federation on matters ↗↗ engage in research activities to search for new effective concerning the safe development of environmental techniques and technologies; the Arctic. ↗↗ develop an environmental culture in management and production in addition to skills among contractor organisations.
AIR PROTECTION // Reducing air pollutant emissions is one of GROSS POLLUTANT EMISSIONS TO THE ATMOSPHERE // 1,000 t the top environmental objectives in the Company’s production Source: Company data activities. A large-scale programme that aims to modernise and rebuild the production facilities of Gazprom Neft’s oil refineries, 725.1 13% increase the utilisation level of associated petroleum gas and 393.4 1,000 t manufacture products with top-notch environmental attributes 408.3 393.4 plays a major role in achieving the Company’s objective. 373.0 348.9 The increase in gross pollutant emissions is attributable to higher raw hydrocarbon production volumes in 2015 compared with 2014. At the same time, the Company managed to reduce the specific rate of pollutant emissions to the atmosphere compared with 2011 2012 2013 2014 2015 the previous year: ↗↗ Exploration and Production Unit – by 14.5%; ↗↗ Logistics, Processing and Sales Unit – by 1.3%.
www.gazprom-neft.com 135 Sustainable development
GROSS POLLUTANT EMISSIONS TO THE ATMOSPHERE BY BUSINESS AREA IN 2015 // 1,000 t
Oil exploration and production Offshore projects Oil refining Logistics and sales
Hydrocarbons (VOC-free) 53.5 0.3 0.3 1.7 Carbon monoxide (CO) 140.5 2.8 0.2 0.2
Nitrogen oxides (NOx) 7.3 2.5 0.4 0.3
Sulphur dioxide (SO2) 94.2 0.4 0.7 0.7 Volatile organic compounds 57.1 0.5 4.7 10.3 Solids 13.1 0.6 0.04 0.01 Other gaseous and liquid substances 0.2 0.7 0.04 0.06 TOTAL: 393.4
APG UTILISATION // The Company is developing projects APG UTILISATION LEVEL1 // % for the efficient utilisation of associated petroleum gas (APG) Source: Company data directly in its production regions. In 2015, the APG utilisation level was 80.17% and total investment by Gazprom Neft in such 79.5 80.7 80.17 ↘0.5 p.p. projects amounted to RUB 27.7 billion. 65.7 60.5 80.17% Key APG utilisation projects in 2015 included the construction of Russia’s largest complex gas treatment plant (CGTP) at the Novoportovskoye field in the Yamalo-Nenets Autonomous District. The unit is designed to compress, purify and dehydrate APG and utilise it by injecting back into the productive 2011 2012 2013 2014 2015 formation. The commissioning of the CGTP will make it possible 1 APG utilisation data given only for the Company’s current assets. to utilise up to 95% of APG at the Novoportovskoye field. The first phase of the CGTP is to be launched in early 2017. It will be able to treat up to 4 billion m3 of APG per year. The CGTP has design capacity of more than 7 billion m3 per year. The decrease in APG utilisation levels is due to growth in the production / flaring of APG as a result of additional drilling carried out in an area with a high gas-oil ratio.
GREENHOUSE GAS EMISSIONS // As one of the largest GREENHOUSE GAS EMISSIONS TO THE ATMOSPHERE2 // mn t of СО equivalent companies in the Russian oil industry, Gazprom Neft is actively 2 developing an action programme to reduce emissions, in Emissions 2013 2014 2015 particular emissions of greenhouse gas at its enterprises. The Greenhouse gas emissions to the Company is committed to improving the effective management atmosphere, including: 13.3 12.4 12.7 of risks related to carbon regulation and evaluates the direct direct greenhouse gas emissions 11.8 11.1 10.7 and indirect greenhouse gas emissions associated with its indirect greenhouse gas emissions 1.5 1.3 2.0 operations.
2 CO2 equivalent is a measurement unit for greenhouse gas global warming potential. Carbon dioxide is the standard by which other greenhouse gases are measured. The calculation of greenhouse gas emissions over the period of 2013–2014 for the 2015 annual report was performed based on a new method for calculating annual greenhouse gas emissions. There is no information on greenhouse gas emissions in the period of 2011–2012.
136 GAZPROM NEFT // 2015 ANNUAL REPORT USE OF WATER RESOURCES // Gazprom Neft is Among the key projects in this area in 2015 was the implementing an action programme that aims to minimise its construction of a unit to treat sulphuric and alkaline wastewater volume of water consumption, mitigate environmental risks in and process condensate as well as the Biosphera modern water resource conservation and improve the environmental biological treatment complex at the Moscow Oil Refinery. The condition of water bodies and their coastal areas. The Company new unit is designed to remove sulphides and ammonia nitrogen regularly monitors water protection zones as well as surface from wastewater and will ensure the complex has top-notch water, groundwater and wastewater, assesses the bottom environmental parameters. The Biosphera complex will use sediment conditions of surface water bodies in the areas where a final water purification technology that is unique to the it operates and performs work to increase the volume of water Russian oil refining industry and removes 99% of contaminants. utilised in water circulation and recycling systems. The use of a multi-stage biological treatment system will enable the plant to reduce water consumption by 60%, while 75% of the water will be recycled into the enterprise’s production cycle.
VOLUME OF WATER DRAWN AND OBTAINED FROM VARIOUS SOURCES1 // mn m3
Source: Company data The Moscow Oil Refinery 174.1 177.2 174.4 167.8 ↘1.6% has launched construction on the Biosphera biological 174.4 mn m3 95.6 treatment facilities, one of the Company's most important environmental projects.
2011 2012 2013 2014 2015 1 The increase in the volume of water 47.00 126.10 133.65 135.90 141.00 From underground sources drawn and obtained is due to growth 34.90 34.60 32.90 33.65 32.70 From surface sources in drilling volumes at the enterprises of the Company’s Development and 13.70 7.10 7.55 7.65 0.70 From other organisations Production Unit.
VOLUME OF WATER USE // mn m3
Source: Company data 406.5 385.9 381.4 396.7 393.7
179.3 180.3 158.1 166.6 107.1
17.7 18.9 17.8 18 18.1
2011 2012 2013 2014 2015 385.9 381.4 396.7 406.5 393.7 In recycled water supply systems 158.1 166.6 179.3 180.3 107.1 In water resupply systems 17.7 18.9 17.8 18 18.1 Sent to other consumers unused
WASTE MANAGEMENT // The Company’s industrial waste In 2015, Gazprom Neft completed research and development management system makes it possible to optimise waste flows, work aimed at improving the efficient use of drilling waste. mitigate the environmental impact and reduce the economic Company specialists have developed technology to obtain cost of waste generation. The Company strives to maximise environmentally friendly soil from drill cuttings that can be the possible use of large-tonnage waste in order to mitigate its used for the subsequent reclamation of sludge pits. A state environmental impact. environmental expert review has given a positive assessment to this technology.
www.gazprom-neft.com 137 Sustainable development
The increase in waste generation resulted from: WASTE GENERATION1 // 1,000 t
↗↗ an increase in production drilling in 2015 compared with 2014 Source: Company data at the sites of: OJSC Gazpromneft-Noyabrskneftegaz, the Gazpromneft-Muravlenko branch, LLC Gazpromneft-Yamal and 1,104.5 % LLC Gazprom Neft Shelf; ↗68.1% ↗↗ changes to the accounting policy for drilling waste at 657.2 1,104,500 t LLC Gazpromneft-Khantos. 530.9 424.2 343.1
2011 2012 2013 2014 2015
1 In 2014, drilling waste was recorded on the balance sheets of contracting WASTE DISPOSAL companies (drilling contractors), while in 2015 such waste was recorded on the balance sheet of LLC Gazpromneft-Khantos due to the fact that the ownership of drilling waste is now attributable to the company. The Moscow Oil Refinery is the first Russian oil refinery to complete the disposal of all its accumulated oily waste. The refinery fulfilled this requirement three years earlier than AREA OF CONTAMINATED LAND RECLAIMED // ha required. Over five years, the refinery utilised more than 180,000 tonnes of oily waste and eliminated the facilities at which Source: Company data it had been stored. As a result, the enterprise freed up 15 hectares of land and reclaimed contaminated soil. The removal of open 388.6 % treatment facilities along with the disposal of all the accumulated ↘52.7% waste will enable the Moscow Oil Refinery to reduce pollutant 183.9 ha emissions to the atmosphere from these sources by 79%. 183.9 138.46
53.9 55.99
2011 2012 2013 2014 2015
PROTECTION OF LAND RESOURCES AND VEGETATION // The reduction in remediation resulted from a decrease in The Company is implementing comprehensive programmes the number of pipeline failures (due to the implementation to reclaim disturbed and contaminated land and sludge of the Clean Territory corporate programme) and, pits taking into account the climatic, hydrological, soil and consequently, a decrease in the area of contaminated land. Oil vegetative conditions of the regions. The programmes contaminated land was remediated in full compliance with the feature an inventory of the land, an assessment of the soil approved programmes in 2015. contamination level and the selection of the most effective rehabilitation technology. As part of the reclamation process, work is performed to remove dead wood, collect oily liquids and conduct the technical and biological stages of RECLAMATION OF SLUDGE PITS // ha reclamation. Gazprom Neft annually conducts an assessment of the quality of environmental restoration work, including Source: Company data chemical and analytical monitoring. The Company is committed to reducing pipeline failure rates 138 % 124 and the area of contaminated land. In order to meet these 106 44 ha objectives, Gazprom Neft has employed a project since 2014 90 called ‘Clean Territory’ that includes measures involving diagnosis, reconstruction, targeted repairs, inhibiter protection 44 and corrosion monitoring. Thanks to the project, the number of failures over this period was 12% less than the projected level. A total of 442 km of pipelines were replaced in 2015. 2011 2012 2013 2014 2015
138 GAZPROM NEFT // 2015 ANNUAL REPORT Energy efficiency
Gazprom Neft actively works on improving energy efficiency, optimising the use of natural resources and introducing a systematic approach to meeting these objectives at its enterprises.
The Company has an Energy Policy that serves as the Main goals of Gazprom Neft in energy conservation and foundation of the energy management system (EMS), efficiency: which meets the requirements of international standard ↗↗ to improve the energy efficiency of the Company’s ISO 50001:2011. The Company’s enterprises have been enterprises while maintaining or improving the level of gradually introducing the EMS since 2012. reliability, safety and productivity; ↗↗ to mitigate any negative environmental impact; ↗↗ to reduce the consumption of non-renewable energy resources.
EXPLORATION AND PRODUCTION UNIT
Electricity expenses make up a large portion of the operating CONSTRUCTION OF GAS TURBINE POWER PLANTS expenses for oil production. A key energy efficiency indicator at the enterprises of the Exploration and Production Unit is the specific consumption of electricity for liquid hydrocarbon Gazprom Neft has launched construction on a gas turbine power production. In 2015, this indicator declined by 1% compared plant (GTPP) at the Novoportovskoye field with projected capacity with 2014. The energy efficiency programme exceeded its of 96 MW and the ability to expand to 144 MW. The plant will target by 92%. The Unit had energy savings of 205 million kWh be one of the largest on the Yamal Peninsula. Both natural gas and associated petroleum gas may be used as raw materials (RUB 640 million). for the future power plant. The GTPP will supply electricity to infrastructure facilities that extract, transport and store Highlights of 2015: hydrocarbons as well as a year-round crude oil trans-shipment ↗↗ use of high efficiency electrical submersible pump units; terminal that is being built near Mys Kameny. The new GTPP ↗↗ introduction of permanent magnet motors; will make it possible to avoid a shortage of generating capacity ↗↗ operation of downhole equipment in periodic operating by providing stable power supplies to the project’s facilities and modes; enhancing its industrial safety. ↗↗ reduction in water produced and its pumping into the formation (shutdown of unprofitable wells and performance of geological and technical measures); ↗↗ selection of the optimal size and replacement of pumping units at water-injection and booster pumping stations and initial water separation units; ↗↗ installation of variable frequency drives on pumping equipment; ↗↗ reduction in power grid losses.
SPECIFIC ELECTRICITY CONSUMPTION FOR THE PRODUCTION OF LIQUID HYDROCARBONS BY THE EXPLORATION AND PRODUCTION UNIT // kWh/t
2011 2012 2013 2014 2015 Specific electricity consumption for the production of liquid hydrocarbons by the Exploration and Production Unit, kwh/t of liquid 29.06 29.07 29.00 28.94 28.66 Specific electricity consumption for the production of liquid hydrocarbons by the Exploration and Production Unit, RUB/t of liquid 66.4 67.9 73.1 7 7.6 76.8
www.gazprom-neft.com 139 Sustainable development
OVERALL ENERGY CONSUMPTION BY THE EXPLORATION AND PRODUCTION UNIT //
2011 2012 2013 2014 2015 Change, % Electricity consumption (purchase and generation), GWh 5,322 5,690 6,033, 6,177 6,420 3.9 Electricity consumption (purchase and generation), RUB mn 12,157 13,297 15,214 16,573 17,19 9 3.8 Heat consumption (internally produced and purchased from third parties), Gcal 304,552 294,062 291,033 254,301 234,539 –8 Heat consumption (internally produced and purchased from third parties), RUB mn 674 686 693 700 696 –0.6
The substantial reduction in the volume of heat consumed for oil production processes in 2015 is attributable to the implementation of an energy conservation programme, the preservation of production sites and changes in ambient air temperatures in 2014 and 2015.
LOGISTICS, PROCESSING AND SALES UNIT
Key energy efficiency measures performed by the Unit In 2015, the Logistics, Processing and Sales Unit approved in 2015: a comprehensive programme to improve the reliability of ↗↗ introduction of motor drive frequency regulation systems; power supplies to oil refining enterprises in 2016-2018. ↗↗ modernisation of lighting systems; The programme aims to reduce the amount and duration of ↗↗ introduction of energy efficient equipment and devices; unplanned downtime of oil refinery technological units resulting ↗↗ replacement of boilers; from the disruption of power supplies and the failure of energy ↗↗ compliance of furnaces with requirements of existing equipment. regulatory and technical documentation; ↗↗ reconstruction of the brickwork (lining) of boilers and furnaces with modern insulation materials; ↗↗ recovery and utilisation of heat flows; ↗↗ reconstruction of condensate collection and return systems; SPECIFIC ENERGY CONSUMPTION AT ENTERPRISES OF THE ↗↗ modernisation of heating systems; LOGISTICS, PROCESSING AND SALES UNIT // kgoe/t ↗↗ modernisation of forced air compressor equipment and air Source: Company data dehumidification systems; ↗↗ optimisation of furnace burning modes in order to reduce 134.4 134.2 131.0 134.6 131.5 2% fuel consumption. 131.5 kgoe/t
Energy costs decreased by RUB 937 million as a result of the measures to improve energy efficiency. The amount of heat, electricity and fuel saved totalled 3,973.9 TJ. Growth in energy intensity related to the introduction of new technological units slowed by 1.5%. 2011 2012 2013 2014 2015
OVERALL ENERGY CONSUMPTION BY THE LOGISTICS, PROCESSING AND SALES UNIT //
2011 2012 2013 2014 2015 Change, % Purchased electricity (minus electricity transferred to third parties), GWh 2,998 3,121 3,322 3,263 3,341 2.4 Purchased electricity (minus electricity transferred to third parties), RUB mn 5,764.67 5,768.32 6,883.46 6,831.58 7,335.72 7.4 Purchased thermal energy (minus electricity transferred to third parties), GJ 16,308,921 16,854,981 17,373,245 16,581,709 16,081,895 –3.0 Purchased thermal energy (minus electricity transferred to third parties), RUB mn 2,881.65 3,139.58 3,561.40 3,693.30 3,675.15 –0.5
140 GAZPROM NEFT // 2015 ANNUAL REPORT Human resource development
Gazprom Neft is committed to recruiting and retaining the best employees – people who aim to achieve results and grow together with the Company – and forming a team united by common aspirations and values. Gazprom Neft views its employees as its strategic partners and investment in human resource development as an investment in the Company’s future.
The HR management strategy employed by Gazprom Neft aims strategic objectives. The EVP is intended to create a strong to provide the Company with a sufficient number of skilled brand for the Company as an employer that attracts and retains employees in the present and the future in order to efficiently the best employees. achieve the Company’s key goals.
Key areas of HR work: ↗↗ systematic recruitment and rotation of personnel; ↗↗ talent management, competency development and training; RUSSIAN EMPLOYERS ↗↗ development of an incentive system and culture of engagement; In 2015, Gazprom Neft ranked first in ↗↗ growth in productivity and organisational efficiency; the ‘Russian Employers’ rating compiled ↗↗ improved efficiency of the HR system. by the recruitment holding HeadHunter. Analysing the appeal of employers, The Company makes conscious efforts to attract, engage and the rating includes expert external retain the best employees. and internal assessments with the participation of the leading research In 2015, Gazprom Neft carried out a number of extensive public companies. opinion surveys encompassing over 4,000 people, including the Company’s potential candidates and employees. An Employer Value Proposition that focuses on the needs of target audiences was formulated based on the survey results and the Company’s
PROFILE OF PERSONNEL
In 2015, Gazprom Neft employed approximately 66,500 people STRUCTURE OF COMPANY PERSONNEL BY CORE ACTIVITY with blue-collar workers making up 55% of personnel, and AS OF 31 DECEMBER 2015 // persons executives, specialists and office employees making up the Source: Company data remaining 45%.
23,343 Petroleum product sales The average number of employees grew by 7.6% in 2015 due 10,426 Production to the addition of new assets and totalled 61,862 people. 5,628 Multi-profile enterprises1 The turnover rate was 16.2% in 2015, a 1% increase from 2014. 5,257 Oil refining The higher turnover rate is the result of restructuring carried 66,497 4,274 Oilfield service and geological exploration persons out at information technology assets. 2,345 Jet fuel supply 2,209 Product subsidiaries2 915 Research 12,100 Other 1 NNIS and others. 2 Lubricants, Bunkering, Bitumens.
www.gazprom-neft.com 141 Sustainable development
REMUNERATION AND SOCIAL SUPPORT FOR PERSONNEL
The Company is constantly improving its personnel In order to involve personnel in the corporate culture, boost remuneration system in accordance with its strategic objectives loyalty and recognise the best employees, the Company and the best global practices. Gazprom Neft conducts regular implements a material incentive programme that features monitoring of the external market and provides employees with professional skills contests, mass fitness activities and sports a competitive remuneration package. The average monthly competitions, recreational events, corporate communication salary of the Company’s employees was RUB 100,222 in 2015. sessions and forums.
The Company employs a unified social benefits system that When drafting and implementing its personnel and social policy includes basic and additional benefits. Such benefits include programmes, the Company develops partnerships with trade voluntary health insurance and accident insurance, supplemental union organisations. Union representatives are actively involved payment exceeding the maximum disability benefits, monthly in resolving matters that concern the professional, social and assistance for employees on childcare leave, the payment of labour interests of employees. health resort treatment for workers, financial assistance for family events, housing programmes, a private pension and more. PERSONNEL EXPENSES // RUB mn
2011 2012 2013 2014 2015 Payroll 42,403 39,364 45,040 58,510 74,400 Social payments 2,875 2,896 3,186 2,097 2,432 RUB 74,400 mn TOTAL 45,278 42,260 48,226 60,607 76,832 Salary fund in 2015
PERSONNEL TRAINING AND DEVELOPMENT
Gazprom Neft is continuously increasing investment in In order to provide a talent pool for the present and the personnel training and development as well as the fostering future, Gazprom Neft is developing a system to establish of professional, management and leadership skills among workforce capacity that includes vocational guidance with high employees. school students, targeted education at higher and secondary educational institutions and a system to recruit and provide The scope of training programmes is determined by the career planning for employees with high potential (including Company’s strategic objectives and the results of employee young professionals). skills evaluations. A total of 50,395 Company employees As part of such activities, the Company cooperates with the underwent training in 2015. Spending on training totalled industry’s best universities in the regions where it operates. RUB 690.1 million. The professional development of employees Such cooperation aims to provide targeted training for is based on models developed by the Company for the students, enhance the skills of teachers and the quality of professional and technical skills of a particular position. educational programmes and support talented students. In Gazprom Neft pursues an individual approach to professional 2015, more than 200 people underwent training at targeted development based on an annual evaluation of an employee’s sites of Gazprom Neft. Some 1,000 students from partner activities. Since 2014, Gazprom Neft has employed an internal universities and 300 students from special secondary coaching system that makes it possible to train workers educational institutions hold internships at the Company’s more effectively and simultaneously improve the skills of the enterprises each year. coaches themselves. Leadership and management skills are More than 160 young professionals join the Gazprom Neft taught at the Corporate Management Academy, which offers team each year. Candidates for the talent pool are selected modular programmes for different levels of specialists: from line at meetings of the Talent Committee – collective meetings managers to senior executives. The Company also employs an of management teams based on an annual evaluation of the organisational coaching system to train managers in mentoring activities and potential of employees. Individual development and non-directive management skills. plans are drawn up for succession candidates.
142 GAZPROM NEFT // 2015 ANNUAL REPORT Regional policy and development of local communities
Gazprom Neft is heavily involved in the socioeconomic development of the regions where it operates. The company contributes to regional development as an employer, taxpayer, business entity, social investor and a partner of the government and the public in the resolution of priority regional objectives.
In its interaction with the regions, the Company bases Main tools used to implement Gazprom Neft’s regional its activities on the principles of social responsibility and policy: sustainable development. The top priorities of Gazprom Neft’s ↗↗ agreements on socioeconomic cooperation with the regional policy are to contribute to the prosperity of the authorities of the constituent entities of the Russian regions, improve the quality of life and expand opportunities for Federation and municipalities; the personal fulfilment of local residents. In its efforts to meet ↗↗ internal social projects; these objectives, the Company actively develops cooperation ↗↗ targeted corporate philanthropy; with all stakeholders. ↗↗ corporate volunteering; ↗↗ grant contests.
RUB 3,966 mn Investment in social activities in 2015
‘NATIVE TOWNS’
All of Gazprom Neft’s social activities since 2013 have been competence in resolving regional development problems and carried out within the framework of the ‘Native Towns’ social achieve a long-term systemic effect from social investments. investment programme. The programme’s portfolio of social A key tool in meeting this objective is the concept of grant and charitable projects is compiled based on the results of contests for social initiatives. In 2015, such contests interaction with stakeholders (the public, employees, regional were held in the Omsk, Tomsk and Orenburg Regions, the authorities, non-profit organisations) and a range of studies Yamalo-Nenets Autonomous District and the Khanty-Mansi concerning the socioeconomic situation of a particular region. Autonomous District – Yugra. The grant fund totalled When scaling interregional projects in a region where the RUB 21.89 million. Company operates, their content is determined in accordance with the needs of the local target audiences. As it implements In 2015, the ‘Native Towns’ programme encompassed the ‘Native Towns’ programme, the Company strives for 34 regions and included more than 450 implemented projects. local residents to become more involved in carrying out Investment in social activities amounted to more than social projects. This helps to boost their commitment and RUB 3,966 million in 2015.
www.gazprom-neft.com 143 Sustainable development
STRUCTURE OF THE ‘NATIVE TOWNS’ SOCIAL INVESTMENT PROGRAMME //
Programme focuses Objectives Activities 2015 results
Creation of a Construction and major ↗↗ In 2015, a 27-apartment building was built in the Novy Port village high-quality urban repair of housing, of the Yamalo-Nenets Autonomous District with most of the housing environment, beautification of urban provided to indigenous people who relocated from the tundra. expanded areas, infrastructure ↗↗ In 2015, construction continued on a 120-apartment residential prospects for the development of complex in the city of Khanty-Mansiysk. CITIES personal fulfilment outdoor play areas for ↗↗ Social infrastructure development: construction of playgrounds and FOR PEOPLE of residents children, improvement bicycle stations in the regions where the Company operates. in the quality of medical ↗↗ The ‘DIY City’ project laboratory in Omsk. Local residents along services, establishment with experts and representatives of the government and business of a barrier-free utilise the site to develop and launch their own social initiatives environment and the for the development of the urban environment. Five projects were implementation of implemented in 2015. joint initiatives with ↗↗ Support for the Stenograffia interregional street art festival where stakeholders street art is used for the decorative design of a monochrome urban environment.
Fostering a healthy Development of ↗↗ Construction of sports infrastructure facilities. In 2015, multi- generation and infrastructure purpose stadiums were built in the cities of Noyabrsk and Tarko- the establishment for children’s and Sale, an ice arena was built in Noyabrsk, the Muravlenko sports of strong regional grassroots sports complex and an indoor hockey rink were built in the village of sports schools along with support for Khanymey, six multi-purpose sports facilities were built in the sporting events Orenburg Region, Yamalo-Nenets Autonomous District and the FIELDS Leningrad Region. OF VICTORY ↗↗ The Gazprom Neft Cup international children’s hockey team tournament – one of the largest children’s hockey competitions in Europe. Twenty-five teams took part in the tournament in 2015. ↗↗ Support for regional sports projects that have special significance for the area (chess in Yugra, motor sports in Noyabrsk and the opening of a martial arts school in Omsk).
Development Establishment of ↗↗ The oil and gas-themed ‘Multiplying Talent’ school tournament, of intellectual innovative preschool which aims to enhance the appeal of engineering and technical potential, support development centres, professions among school students and develop their research skills. for educational staging of scientific In 2015, tournament participants included 1,221 people from six sectors – from research tournaments, regions in which the Company operates. preschool to support for gifted ↗↗ ‘Mathematical Progression’ – a joint project implemented by Saint NEW HORIZONS postgraduate – children and the support Petersburg State University and Gazprom Neft that involves and the promotion and development students from 23 Russian regions who have undergone competitive of science among of school and selection in order to attend popular scientific lectures by famous young people university educational scholars. Gazprom Neft has also established scholarships as part of programmes the project for the best students from the Faculty of Mathematics and Mechanics of Saint Petersburg State University and incentive payments for young scholars. ↗↗ ‘Career Centre’ – an educational project being implemented jointly by the Faculty of Liberal Arts and Sciences of Saint Petersburg State University. The project aims to develop skills among the local community in the creative industry and social planning. ↗↗ ‘Creative Social Entrepreneurship and Social Planning Tools’ international research and training conference, which brought together leading experts in social planning as well as representatives of the authorities, business and the creative industry. ↗↗ Support for educational institution infrastructure in small villages. ↗↗ Promotion of maritime professions among young people – the establishment of specialised maritime classes and children’s maritime and shipbuilding associations in Rostov and Saint Petersburg, the ‘Morfest’ maritime intercollegiate festival and other events.
144 GAZPROM NEFT // 2015 ANNUAL REPORT Programme focuses Objectives Activities 2015 results
Development Support for cultural ↗↗ ‘Native Towns’ festival, which aims to broaden family entertainment of the cultural events and initiatives opportunities, consolidate the local community and expand potential of the that are significant prospects for the personal fulfilment of residents. regions for the residents of ↗↗ Support for the ‘Spirit of Fire’ film debut festival and the ‘PORA!’ the regions where the social communications festival. Company operates and ↗↗ Support for the activities of cultural institutions. CULTURAL CODE expanded access to high-quality cultural products for the residents of regions
Support for the Financial support for ↗↗ Support for events that help to preserve the national identity traditional ways families of Northern of Northern indigenous peoples, establish cultural ties between of life of Northern indigenous peoples, various communities and families, and attract public attention to the indigenous peoples housing construction, preservation of traditional crafts and trades. and facilitating the development of ↗↗ Financial assistance for the families of Northern indigenous peoples: their integration parks and museums, compensation for family living expenses and the supply of fuel and KEEPING into the modern and hosting of ethnic lubricants. TRADITIONS economic and holidays and festivals ↗↗ Assistance to indigenous farming communities working in areas social landscape of hydrocarbon exploration and production. ↗↗ Funding for housing construction in remote villages and homes for representatives of Northern indigenous peoples.
PERSONAL CONTRIBUTION
CORPORATE VOLUNTEERING
Gazprom Neft has been developing the ‘Personal Contribution’ In 2015, the Company held the first volunteer project contest volunteer movement since 2008. The Company’s volunteer for employees. A total of 23 winning projects that aim to solve movement expanded to 38 Russian cities during the reporting urgent social problems in regions where the Company operates year and included 2,633 people. Gazprom Neft volunteers took were implemented in Moscow, Muravlenko, Noyabrsk, Omsk, part in 265 events in 2015 with the key events being donation, Orenburg, Saint Petersburg, Tomsk, Tyumen and Chelyabinsk. support for orphanages and boarding schools, the clean-up of different areas as well as landscaping and beautification.
Additional information available at the website www.rodnyegoroda.ru 38 Russian cities 2,633 people covered by the Gazprom Neft in the Gazprom Neft volunteer volunteer movement in 2015 movement in 2015
www.gazprom-neft.com 145
APPENDIX
The interactive version of the annual report also contains the following appendices:
Major transactions and related party transactions http:// www.ar2015.gazprom-neft. com/upload/gpn_ar15_ Transactions_eng.pdf Appendix
Independent Auditor’s Report on 2015
148 GAZPROM NEFT // 2015 ANNUAL REPORT www.gazprom-neft.com 149 Appendix
Appendix 1. Consolidated IFRS financial statements Currency – RUB millions
Notes 31 December 2015 31 December 2014 ASSETS CURRENT ASSETS Cash and cash equivalents 7 114,198 53,167 Short-term financial assets 8 65,157 78,844 Trade and other receivables 9 95,241 103,014 Inventories 10 102,378 102,658 Current income tax prepayments 13,903 17,315 Other current assets 11 119,867 115,927 TOTAL CURRENT ASSETS 510,744 470,925 NON-CURRENT ASSETS Property, plant and equipment 12 1,587,653 1,293,800 Goodwill and other intangible assets 13 75,090 71,240 Investments in associates and joint ventures 14 169,611 150,727 Long-term trade and other receivables 8,867 265 Long-term financial assets 16 50,884 37,631 Deferred income tax assets 17 22,099 31,460 Other non-current assets 18 60,518 41,676 TOTAL NON-CURRENT ASSETS 1,974,722 1,626,799 TOTAL ASSETS 2,485,466 2,097,724 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt and current portion of long-term debt 19 147,319 61,121 Trade and other payables 20 104,830 83,817 Other current liabilities 21 32,870 40,921 Current income tax payable 1,096 520 Other taxes payable 22 49,011 45,788 Provisions for liabilities and charges 23 13,938 18,564 TOTAL CURRENT LIABILITIES 349,064 250,731
The accompanying notes are an integral part of these Consolidated Financial Statements
150 GAZPROM NEFT // 2015 ANNUAL REPORT Notes 31 December 2015 31 December 2014 NON-CURRENT LIABILITIES Long-term debt 670,779 502,306 Other non-current financial liabilities 25 115,375 105,944 Deferred income tax liabilities 68,752 81,032 Provisions for liabilities and charges 23 31,065 25,876 Other non-current liabilities 1,942 2,050 TOTAL NON-CURRENT LIABILITIES 887,913 717,208 EQUITY Share capital 26 98 98 Treasury shares 26 (1,170) (1,170) Additional paid-in capital 44,326 50,074 Retained earnings 1,078,626 1,005,642 Other reserves 35,189 11,104 EQUITY ATTRIBUTABLE TO GAZPROM NEFT SHAREHOLDERS 1,157,069 1,065,748 Non-controlling interest 37 91,420 64,037 TOTAL EQUITY 1,248,489 1,129,785 TOTAL LIABILITIES AND EQUITY 2,485,466 2,097,724
A. V. DYUKOV A. V. YANKEVICH Chief Executive Officer Chief Financial Officer Gazprom Neft PJSC Gazprom Neft PJSC
The accompanying notes are an integral part of these Consolidated Financial Statements
www.gazprom-neft.com 151 Appendix
Consolidated Statement of Profit and Loss and Other Comprehensive Income Currency – RUB millions (except per share data)
Notes Year ended 31 December 2015 Year ended 31 December 2014 SALES 1,655,775 1,690,557 Less export duties and sales related excise tax (187,832) (282,319) TOTAL REVENUE FROM SALES 39 1,467,943 1,408,238 COSTS AND OTHER DEDUCTIONS Purchases of oil, gas and petroleum products (345,909) (382,505) Production and manufacturing expenses (214,267) (171,711) Selling, general and administrative expenses (100,176) (86,318) Transportation expenses (133,320) (116,125) Depreciation, depletion and amortisation (98,501) (85,951) Taxes other than income tax 22 ( 353,145) (343,576) Exploration expenses (922) (936) TOTAL OPERATING EXPENSES (1,246,240) (1,187,122) Other loss, net 28 (14,088) (8,471) OPERATING PROFIT 207,615 212,645 Share of profit / (loss) of associates and joint ventures 14 24,956 (6,306) Net foreign exchange loss 29 (67,910) (52,265) Finance income 30 14,732 7,075 Finance expense 31 (33,943) (15,279) TOTAL OTHER EXPENSES (62,165) (66,775) PROFIT BEFORE INCOME TAX 145,450 145,870 Current income tax expense (38,026) (17,518) Deferred income tax benefit / (expense) 8,774 (1,696) TOTAL INCOME TAX EXPENSE 32 (29,252) (19,214) PROFIT FOR THE YEAR 116,198 126,656 OTHER COMPREHENSIVE INCOME / (LOSS) Currency translation differences 43,739 79,669 Cash flow hedge, net of tax 33 (9,333) (55,265) Other comprehensive (loss) / income (199) 139 OTHER COMPREHENSIVE INCOME FOR THE PERIOD 34,207 24,543 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 150,405 151,199
The accompanying notes are an integral part of these Consolidated Financial Statements
152 GAZPROM NEFT // 2015 ANNUAL REPORT Notes Year ended 31 December 2015 Year ended 31 December 2014 PROFIT ATTRIBUTABLE TO: – Gazprom Neft shareholders 109,661 122,093 – Non-controlling interest 6,537 4,563 PROFIT FOR THE YEAR 116,198 126,656 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: – Gazprom Neft shareholders 133,746 129,110 – Non-controlling interest 16,659 22,089 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 150,405 151,199 Earnings per share attributable to Gazprom Neft shareholders Basic earnings (RUB per share) 23.24 25.88 Diluted earnings (RUB per share) 23.24 25.88 Weighted-average number of common shares outstanding Basic and Diluted (millions) 4,718 4,718
The accompanying notes are an integral part of these Consolidated Financial Statements
www.gazprom-neft.com 153 Appendix
Consolidated Statement of Changes in Shareholders’ Equity Currency – RUB millions
Attributable to Gazprom Neft shareholders Attributable to Gazprom Neft shareholders
Share capital Treasury shares Additional paid-in capital Retained earnings Other reserves Total Non-controlling interest Total equity BALANCE AS OF 1 JANUARY 2015 98 (1,170) 50,074 1,005,642 11,10 4 1,065,748 64,037 1,129,785 Profit for the period – – – 109,661 – 109,661 6,537 116,198 OTHER COMPREHENSIVE INCOME / (LOSS) Currency translation differences – – – – 33,617 33,617 10,122 43,739 Cash flow hedge, net of tax – – – – (9,333) (9,333) – (9,333) Other comprehensive (loss) / income – – – – (199) (199) – (199) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD – – – 109,661 24,085 133,746 16,659 150,405 TRANSACTIONS WITH OWNERS, RECORDED IN EQUITY Dividends to equity holders – – – (36,677) – (36,677) (1,842) (38,519) Transaction under common control (Note 6) – – (5,748) – – (5,748) 12,566 6,818 Acquisition of non-controlling interest – – – – – – – – TOTAL TRANSACTIONS WITH OWNERS – – (5,748) (36,677) – (42,425) 10,724 (31,701) BALANCE AS OF 31 DECEMBER 2015 98 (1,170) 44,326 1,078,626 35,189 1,157,069 91,420 1,248,489
Attributable to Gazprom Neft shareholders Attributable to Gazprom Neft shareholders
Share capital Treasury shares Additional paid-in capital Retained earnings Other reserves Total Non-controlling interest Total equity BALANCE AS OF 1 JANUARY 2014 98 (1,170) 19,293 930,304 4,087 952,612 45,409 998,021 Profit for the period – – – 122,093 – 122,093 4,563 126,656 OTHER COMPREHENSIVE INCOME / (LOSS) Currency translation differences – – – – 62,143 62,143 17,526 79,669 Cash flow hedge, net of tax – – – – (55,265) (55,265) – (55,265) Other comprehensive income – – – – 139 139 – 139 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD – – – 122,093 7,017 129,110 22,089 151,199 TRANSACTIONS WITH OWNERS, RECORDED IN EQUITY Dividends to equity holders – – – (46,755) – (46,755) (2,824) (49,579) Transaction under common control – – 33,700 – – 33,700 – 33,700 Acquisition of non-controlling interest – – (2,919) – – (2,919) (637) (3,556) TOTAL TRANSACTIONS WITH OWNERS – – 30,781 (46,755) – (15,974) (3,461) (19,435) BALANCE AS OF 31 DECEMBER 2014 98 (1,170) 50,074 1,005,642 11,10 4 1,065,748 64,037 1,129,785
The accompanying notes are an integral part of these Consolidated Financial Statements
154 GAZPROM NEFT // 2015 ANNUAL REPORT Attributable to Gazprom Neft shareholders Attributable to Gazprom Neft shareholders
Share capital Treasury shares Additional paid-in capital Retained earnings Other reserves Total Non-controlling interest Total equity BALANCE AS OF 1 JANUARY 2015 98 (1,170) 50,074 1,005,642 11,10 4 1,065,748 64,037 1,129,785 Profit for the period – – – 109,661 – 109,661 6,537 116,198 OTHER COMPREHENSIVE INCOME / (LOSS) Currency translation differences – – – – 33,617 33,617 10,122 43,739 Cash flow hedge, net of tax – – – – (9,333) (9,333) – (9,333) Other comprehensive (loss) / income – – – – (199) (199) – (199) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD – – – 109,661 24,085 133,746 16,659 150,405 TRANSACTIONS WITH OWNERS, RECORDED IN EQUITY Dividends to equity holders – – – (36,677) – (36,677) (1,842) (38,519) Transaction under common control (Note 6) – – (5,748) – – (5,748) 12,566 6,818 Acquisition of non-controlling interest – – – – – – – – TOTAL TRANSACTIONS WITH OWNERS – – (5,748) (36,677) – (42,425) 10,724 (31,701) BALANCE AS OF 31 DECEMBER 2015 98 (1,170) 44,326 1,078,626 35,189 1,157,069 91,420 1,248,489
Attributable to Gazprom Neft shareholders Attributable to Gazprom Neft shareholders
Share capital Treasury shares Additional paid-in capital Retained earnings Other reserves Total Non-controlling interest Total equity BALANCE AS OF 1 JANUARY 2014 98 (1,170) 19,293 930,304 4,087 952,612 45,409 998,021 Profit for the period – – – 122,093 – 122,093 4,563 126,656 OTHER COMPREHENSIVE INCOME / (LOSS) Currency translation differences – – – – 62,143 62,143 17,526 79,669 Cash flow hedge, net of tax – – – – (55,265) (55,265) – (55,265) Other comprehensive income – – – – 139 139 – 139 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD – – – 122,093 7,017 129,110 22,089 151,199 TRANSACTIONS WITH OWNERS, RECORDED IN EQUITY Dividends to equity holders – – – (46,755) – (46,755) (2,824) (49,579) Transaction under common control – – 33,700 – – 33,700 – 33,700 Acquisition of non-controlling interest – – (2,919) – – (2,919) (637) (3,556) TOTAL TRANSACTIONS WITH OWNERS – – 30,781 (46,755) – (15,974) (3,461) (19,435) BALANCE AS OF 31 DECEMBER 2014 98 (1,170) 50,074 1,005,642 11,10 4 1,065,748 64,037 1,129,785
The accompanying notes are an integral part of these Consolidated Financial Statements
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Consolidated Statement of Cash Flows Currency – RUB millions
Year ended Year ended Notes 31 December 2015 31 December 2014 CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax 145,450 145,870 ADJUSTMENTS FOR: Share of (profit) / loss of associates and joint ventures 14 (24,956) 6,306 Loss on foreign exchange differences 67,910 52,265 Finance income 30 (14,732) ( 7,075) Finance expense 31 33,943 15,279 Depreciation, depletion and amortisation 12, 13 98,501 85,951 Impairment of trade and other receivables, net 9, 34 2,090 427 Write-off payables 28 (16,107 ) – Impairment of Property, plant and equipment 12 15,582 – Other non-cash items 4,488 5,398 OPERATING CASH FLOW BEFORE CHANGES IN WORKING CAPITAL 312,169 304,421 CHANGES IN WORKING CAPITAL: Accounts receivable 16,019 49,382 Inventories 6,128 5,072 Other assets 7,9 9 8 4,152 Accounts payable (2,245) (10,958) Taxes payable (2,905) (4,942) Other liabilities (6,653) (18,799) TOTAL EFFECT OF WORKING CAPITAL CHANGES 18,342 23,907 Income taxes paid (19,522) ( 30,122) Interest paid (28,229) (16,624) Dividends received 2,415 2,383 NET CASH PROVIDED BY OPERATING ACTIVITIES 285,175 283,965 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiaries and joint operations, net of cash acquired 303 (12,493) Increase in cash due to acquisition of a subsidiary under common control 6 2,229 – Proceeds from disposal of subsidiaries, net of cash disposed (9) –
The accompanying notes are an integral part of these Consolidated Financial Statements
156 GAZPROM NEFT // 2015 ANNUAL REPORT Year ended Year ended Notes 31 December 2015 31 December 2014 Acquisition of associates and joint ventures (106) (45,355) Bank deposits placement (128,298) (129,917) Repayment of bank deposits 174,043 114,040 Acquisition of other investments (4,476) (2,480) Short-term loans issued (26,169) (2,100) Repayment of short-term loans issued 27,883 1,867 Long-term loans issued (25,578) (23,142) Repayment of long-term loans issued 5,737 1,374 Capital expenditures (349,036) (271,330) Proceeds from sale of property, plant and equipment 982 1,743 Interest received 7,9 8 4 3,001 NET CASH USED IN INVESTING ACTIVITIES (314,511) (364,792) CASH FLOWS FROM FINANCING ACTIVITIES - Proceeds from short-term borrowings 35,171 26,750 Repayment of short-term borrowings (13,691) (24,601) Proceeds from long-term borrowings 153,748 109,078 Repayment of long-term borrowings (53,663) (44,067) Transaction costs directly attributable to the borrowings received (350) (2,342) Dividends paid to Gazprom Neft shareholders (36,346) (46,755) Dividends paid to non-controlling interest (2,676) (3,372) Acquisition of non-controlling interest in subsidiaries – (4,118) NET CASH PROVIDED BY FINANCING ACTIVITIES 82,193 10,573 INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 52,857 (70,254) Effect of foreign exchange on cash and cash equivalents 8,174 32,344 CASH AND CASH EQUIVALENTS AS OF THE BEGINNING OF THE PERIOD 53,167 91,077 CASH AND CASH EQUIVALENTS AS OF THE END OF THE PERIOD 114,198 53,167
The accompanying notes are an integral part of these Consolidated Financial Statements
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Notes to the Consolidated Financial Statements For the year ended 31 December 2015, Currency – RUB millions
1. GENERAL
DESCRIPTION OF BUSINESS // Gazprom Neft PJSC (the “Company”) and its subsidiaries (together referred to as the “Group”) is a vertically integrated oil company operating in the Russian Federation, CIS and internationally. The Group’s principal activities include exploration, production and development of crude oil and gas, production of refined petroleum products and distribution and marketing operations through its retail outlets.
The Company was incorporated in 1995 and is domiciled in the Russian Federation. The Company is a public joint stock company and was set up in accordance with Russian regulations. PJSC Gazprom (“Gazprom”, a state controlled entity), the Group’s ultimate parent company, owns 95.68% of the shares in the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION // The Group maintains its books and records in accordance with accounting and taxation principles and practices mandated by legislation in the countries in which it operates (primarily the Russian Federation). The accompanying Consolidated Financial Statements were primarily derived from the Group’s statutory books and records with adjustments and reclassifications made to present them in accordance with International Financial Reporting Standards ("IFRS").
Subsequent events occurring after 31 December 2015 were evaluated through 1 March 2016, the date these Consolidated Financial Statements were authorised for issue.
BASIS OF MEASUREMENT // The Consolidated Financial Statements are prepared on the historical cost basis except that derivative financial instruments, financial investments classified as available-for-sale, and obligations under the Stock Appreciation Rights plan (SARs) are stated at fair value.
FOREIGN CURRENCY TRANSLATION // The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. In accordance with IAS 21 the Group has analysed several factors that influence the choice of functional currency and, based on this analysis, has determined the functional currency for each entity of the Group. For the majority of the entities the functional currency is the local currency of the entity.
Monetary assets and liabilities have been translated into the functional currency at the exchange rate as of reporting date. Non- monetary assets and liabilities have been translated at historical rates. Revenues, expenses and cash flows are translated into functional currency at average rates for the period or exchange rates prevailing on the transaction dates where practicable. Gains and losses resulting from the re-measurement into functional currency are included in profit and loss, except when deferred in other comprehensive income as qualifying cash flow hedges.
The presentation currency for the Group is the Russian Rouble. Gains and losses resulting from the re-measurement into presentation currency are included in a separate line of equity in the Consolidated Statement of Financial Position.
158 GAZPROM NEFT // 2015 ANNUAL REPORT The translation of local currency denominated assets and liabilities into functional currency for the purpose of these Consolidated Financial Statements does not indicate that the Group could realise or settle, in functional currency, the reported values of these assets and liabilities. Likewise, it does not indicate that the Group could return or distribute the reported functional currency value of capital to its shareholders.
PRINCIPLES OF CONSOLIDATION // The consolidated financial statements include the accounts of subsidiaries in which the Group has control. Control implies rights or exposure to variable returns from the involvement with the investee and the ability to affect those returns through the power over the investee. An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee’s returns. An investor is exposed, or has the rights to variable returns from its involvement with investee when the investor’s return from its involvement have the potential to vary as a result of the investee’s performance. The financial statements of subsidiaries are included in the Consolidated Financial Statements of the Group from the date when control commences until the date when control ceases.
In assessing control, the Group takes into consideration potential voting rights that are substantive. Investments in entities that the Group does not control, but where it has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method except for investments that meet criteria of joint operations, which are accounted for on the basis of the Group’s interest in the assets, liabilities, expenses and revenues of the joint operation. All other investments are classified either as held-to-maturity or as available for sale.
BUSINESS COMBINATIONS // The Group accounts for its business combinations according to IFRS 3 Business Combinations. The Group applies the acquisition method of accounting and recognises assets acquired and liabilities assumed in the acquiree at the acquisition date, measured at their fair values as of that date. Determining the fair value of assets acquired and liabilities assumed requires Management’s judgment and often involves the use of significant estimates and assumptions. Non-controlling interest is measured at fair value (if shares of acquired company have public market price) or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets (if shares of acquired company do not have public market price).
GOODWILL // Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“bargain purchase”) is recognised in profit or loss, after Management identified all assets acquired and all liabilities and contingent liabilities assumed and reviewed the appropriateness of their measurement.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination, are expensed as incurred.
NON-CONTROLLING INTEREST // Ownership interests in the Group’s subsidiaries held by parties other than the Group entities are presented separately in equity in the Consolidated Statement of Financial Position. The amount of consolidated net income attributable to the parent and the non-controlling interest are both presented on the face of the Consolidated Statement of Profit and Loss and Other Comprehensive Income.
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CHANGES IN OWNERSHIP INTERESTS IN SUBSIDIARIES WITHOUT CHANGE OF CONTROL // Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
DISPOSAL OF SUBSIDIARIES // When the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount of the investment to the entity recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequent accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
ACQUISITIONS FROM ENTITIES UNDER COMMON CONTROL // Business combinations involving entities under common control are accounted for by the Group using the predecessor accounting approach from the acquisition date. The Group uses predecessor carrying values for assets and liabilities, which are generally the carrying amounts of the assets and liabilities of the acquired entity from the consolidated financial statements of the highest entity that has common control for which consolidated financial statements are prepared. These amounts include any goodwill recorded at the consolidated level in respect of the acquired entity.
INVESTMENTS IN ASSOCIATES // An associate is an entity over which the investor has significant influence. Investments in associates are accounted for using the equity method and are recognised initially at cost. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity accounted investees, after adjustments to align accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.
JOINT OPERATIONS AND JOINT VENTURES // A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Where the Group acts as a joint operator, the Group recognises in relation to its interest in a joint operation: ↗↗ Its assets, including its share of any assets held jointly; ↗↗ Its liabilities, including its share of any liabilities incurred jointly; ↗↗ Its revenue from the sale of its share of the output arising from the joint operation; ↗↗ Its share of the revenue from the sale of the output by the joint operation; and ↗↗ Its expenses, including its share of any expenses incurred jointly.
With regards to joint arrangements, where the Group acts as a joint venturer, the Group recognises its interest in a joint venture as an investment and accounts for that investment using the equity method.
TRANSACTIONS ELIMINATED ON CONSOLIDATION // Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
CASH AND CASH EQUIVALENTS // Cash represents cash on hand and in bank accounts, that can be effectively withdrawn at any time without prior notice. Cash equivalents include all highly liquid short-term investments that can be converted to a certain cash amount and mature within three months or less from the date of purchase. They are initially recognised based on the cost of acquisition which approximates fair value.
160 GAZPROM NEFT // 2015 ANNUAL REPORT NON-DERIVATIVE FINANCIAL ASSETS // The Group has the following non-derivative financial assets: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.
The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS // A financial asset is classified at fair value through profit or loss category if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit and loss.
HELD-TO-MATURITY FINANCIAL ASSETS // If the Group has the positive intent and ability to hold to maturity debt securities that are quoted in an active market, then such financial assets are classified to held-to-maturity category. Held-to-maturity financial assets are recognised initially at fair value. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Group from classifying investment securities as held-to-maturity for the current and the following two financial years.
LOANS AND RECEIVABLES // Loans and receivables is a category of financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Allowances are provided for doubtful debts based on estimates of uncollectible amounts. These estimates are based on the aging of the receivable, the past history of settlements with the debtor and current economic conditions. Estimates of allowances require the exercise of judgment and the use of assumptions..
AVAILABLE-FOR-SALE FINANCIAL ASSETS // Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the above categories of financial assets. Such assets are recognised initially at fair value. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented within equity in the other reserves line. When an investment is derecognised or impaired, the cumulative gain or loss in equity is reclassified to profit and loss.
NON-DERIVATIVE FINANCIAL LIABILITIES // The Group initially recognises debt securities issued and liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date on which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. The Group classifies non-derivative financial liabilities into the other financial liabilities category. Financial liabilities are recognised initially at fair value. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.
DERIVATIVE FINANCIAL INSTRUMENTS // Derivative instruments are recorded at fair value on the Consolidated Statement of Financial Position in either financial assets or liabilities. Realised and unrealised gains and losses are presented in profit and loss on a net basis, except for those derivatives, where hedge accounting is applied.
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The estimated fair values of derivative financial instruments are determined with reference to various market information and other valuation methodologies as considered appropriate, however significant judgment is required in interpreting market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts that the Group could realise in a current market situation.
HEDGE ACCOUNTING // The Group applies hedge accounting policy for those derivatives that are designated as a hedging instrument (currency exchange forwards and interest-rate swaps).
The Group has designated only cash flow hedges – hedges against the exposure to the variability of cash flow currency exchange rates on a highly probable forecast transaction.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. Changes in the fair value of certain derivative instruments that do not qualify for hedge accounting are recognised immediately in profit and loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity until the forecast transaction occurs. Any ineffective portion is directly recognised in profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss on any associated hedging instrument that was reported in equity is immediately transferred to profit and loss.
The fair value of the hedge instrument is determined at the end of each reporting period with reference to the market value, which is typically determined by the credit institutions.
INVENTORIES // Inventories, consisting primarily of crude oil, refined oil products and materials and supplies are stated at the lower of cost and net realisable value. The cost of inventories is assigned on a weighted average basis, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
INTANGIBLE ASSETS // Goodwill that arises on the acquisition of subsidiaries is included in intangible assets. Subsequently goodwill is measured at cost less accumulated impairment losses.
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment loss.
Intangible assets that have limited useful lives are amortised on a straight-line basis over their useful lives. Useful lives with respect to intangible assets are determined as follows:
Intangible Asset Group Average useful life Licenses and software 1-5 years Land rights 25 years
PROPERTY, PLANT AND EQUIPMENT // Property, plant and equipment is stated at cost, net of accumulated depreciation and any impairment. The cost of maintenance, repairs and replacement of minor items of property, plant are expensed when incurred; renewals and improvements of assets are capitalised. Costs of turnarounds and preventive maintenance performed with respect to oil refining assets are expensed when incurred if turnaround does not involve replacement of assets or installation of new assets. Upon sale or retirement of property, plant and equipment, the cost and related accumulated depreciation and impairment losses are eliminated from the accounts. Any resulting gains or losses are recorded in profit and loss.
162 GAZPROM NEFT // 2015 ANNUAL REPORT OIL AND GAS PROPERTIES // EXPLORATION AND EVALUATION ASSETS // Acquisition costs include amounts paid for the acquisition of exploration and development licenses. Exploration and evaluation assets include: ↗↗ Costs of topographical, geological, and geophysical studies and rights of access to properties to conduct those studies, that are directly attributable to exploration activity; ↗↗ Costs of carrying and retaining undeveloped properties; ↗↗ Bottom hole contribution; ↗↗ Dry hole contribution; ↗↗ Costs of drilling and equipping exploratory wells.
The costs incurred in finding, acquiring, and developing reserves are capitalised on a ‘field by field' basis.
Costs of topographical, geological, and geophysical studies, rights of access to properties to conduct those studies are considered as part of oil and gas assets until it is determined that the reserves are proved and are commercially viable. On discovery of a commercially-viable mineral reserve, the capitalised costs are allocated to the discovery.
If no reserves are found, the exploration asset is tested for impairment. If extractable hydrocarbons are found then it should be subject to further appraisal activity, which may include drilling of further wells. If they are likely to be developed commercially (including dry holes), the costs continue to be carried as oil and gas asset as long as some sufficient/continued progress is being made in assessing the commerciality of the hydrocarbons. All such carried costs are subject to technical, commercial and Management review as well as review for impairment at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off.
Other exploration costs are charged to expense when incurred.
An exploration and evaluation asset is reclassified to Property, Plant and Equipment and Intangible assets when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Exploration and evaluation assets are assessed for impairment, and any impairment loss is recognised, before reclassification.
DEVELOPMENT COSTS // Development costs are incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing oil and gas. They include the costs of development wells to produce proved reserves as well as costs of production facilities such as lease flow lines, separators, treaters, heaters, storage tanks, improved recovery systems, and nearby gas processing facilities.
Expenditures for the construction, installation, or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells are capitalised within oil and gas assets.
DEPRECIATION, DEPLETION AND AMORTISATION // Depletion of acquisition and development costs of proved oil and gas properties is calculated using the unit-of-production method based on proved reserves and proved developed reserves. Acquisition costs of unproved properties are not amortised.
Depreciation and amortisation with respect to operations other than oil and gas producing activities is calculated using the straight- line method based on estimated economic lives. Depreciation rates are applied to similar types of buildings and equipment having similar economic characteristics, as shown below:
Asset Group Average useful life Buildings and constructions 8-35 years Machinery and equipment 8-20 years Vehicles and other equipment 3-10 years
Catalysts and reagents mainly used in the refining operations are treated as other assets.
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CAPITALISATION OF BORROWING COSTS // Borrowing costs directly attributable to the acquisition, construction or production of assets (including oil and gas properties) that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets. Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs eligible for capitalisation.
IMPAIRMENT OF NON-CURRENT ASSETS // The carrying amounts of the Group’s non-current assets, other than assets arising from goodwill, inventories, long-term financial assets and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment.
Goodwill is tested for impairment annually or more frequently if impairment indicators arise. An impairment loss recognised for goodwill is not reversed in a subsequent period.
If any indication of impairment exists, the group makes an estimate of the asset’s recoverable amount. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets (cash-generated units - CGUs). The carrying amount of the CGUs (including goodwill) is compared with their recoverable amount. The recoverable amount of CGUs to which goodwill is allocated is the higher of value in use and fair value less costs of disposal. Where the recoverable amount of the CGUs to which goodwill has been allocated is less than the carrying amount, an impairment loss is recognised.
An impairment loss is recognised in profit and loss.
IMPAIRMENT OF NON-DERIVATIVE FINANCIAL ASSETS // Financial assets are assessed at each reporting date to determine whether there is any objective evidence of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
The Group considers evidence of impairment for loans and receivables and held-to-maturity investments at both a specific asset and collective level. All individually significant loans and receivables and held-to-maturity investments are assessed for specific impairment. Loans and receivables and held-to-maturity investments that are not individually significant are collectively assessed for impairment by grouping together loans and receivables and held-to-maturity investments with similar risk characteristics.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investments.
DECOMMISSIONING OBLIGATIONS // The Group has decommissioning obligations associated with its core activities. The nature of the assets and potential obligations is as follows: ↗↗ Exploration and Production: the Group’s activities in exploration, development and production of oil and gas in the deposits are related to the use of such assets as wells, well equipment, oil gathering and processing equipment, oil storage tanks and infield pipelines. Generally, licenses and other permissions for mineral resources extraction require certain actions to be taken by the Group in respect of liquidation of these assets after oil field closure. Such actions include well plugging and abandonment, dismantling equipment, soil recultivation, and other remediation measures. When an oil field is fully depleted, the Group will incur costs related to well retirement and associated environmental protection measures. ↗↗ Refining, Marketing and Distribution: the Group’s oil refining operations are carried out at large manufacturing facilities that have been operated for several decades. The nature of these operations is such that the ultimate date of decommissioning of any sites or facilities is unclear. Current regulatory and licensing rules do not provide for liabilities related to the liquidation of such manufacturing facilities or of retail fuel outlets. Management therefore believes that there are no legal or contractual obligations related to decommissioning or other disposal of these assets.
Management makes provision for the future costs of decommissioning oil and gas production facilities, wells, pipelines, and related support equipment and for site restoration based on the best estimates of future costs and economic lives of the oil and gas assets. Estimating future asset retirement obligations is complex and requires Management to make estimates and judgments with respect to removal obligations that will occur many years in the future.
164 GAZPROM NEFT // 2015 ANNUAL REPORT Changes in the measurement of existing obligations can result from changes in estimated timing, future costs or discount rates used in valuation.
The amount recognised as a provision is the best estimate of the expenditures required to settle the present obligation at the reporting date based on current legislation in each jurisdiction where the Group’s operating assets are located, and is also subject to change because of revisions and changes in laws and regulations and their interpretation. As a result of the subjectivity of these provisions there is uncertainty regarding both the amount and estimated timing of such costs.
The estimated costs of dismantling and removing an item of property, plant and equipment are added to the cost of the item either when an item is acquired or as the item is used during a particular period for the purposes other than to produce inventories during that period. Changes in the measurement of an existing decommissioning obligation that result from changes in the estimated timing or amount of any cash outflows, or from changes in the discount rate are reflected in the cost of the related asset in the current period.
INCOME TAXES // Currently some Group companies including Gazprom Neft PJSC exercise the option to pay taxes as a consolidated tax-payer and are subject to taxation on a consolidated basis. The majority of the Group companies do not exercise such an option and current income taxes are provided on the taxable profit of each subsidiary. Most subsidiaries are subject to the Russian Federation Tax Code, under which income taxes are payable at a rate of 20% after adjustments for certain items, that are either not deductible or not taxable for tax purposes. In some cases income tax rate could be set at lower level as a tax concession stipulated by regional legislation. Subsidiaries operating in countries other than the Russian Federation are subject to income tax at the applicable statutory rate in the country in which these entities operate.
Deferred income tax assets and liabilities are recognised in the accompanying Consolidated Financial Statements in the amounts determined by the Group using the balance sheet liability method in accordance with IAS 12 Income Taxes. This method takes into account future tax consequences attributable to temporary differences between the carrying amounts of existing assets and liabilities for the purpose of the Consolidated Financial Statements and their respective tax bases and in respect of operating loss and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to reverse and the assets recovered and liabilities settled. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.
MINERAL EXTRACTION TAX AND EXCISE DUTIES // Mineral extraction tax and excise duties, which are charged by the government on the volumes of oil and gas extracted or refined by the Group, are included in operating expenses. Taxes charged on volumes of goods sold are recognised as a deduction from sales.
COMMON STOCK // Common stock represents the authorised capital of the Company, as stated in its charter document. The common shareholders are allowed one vote per share. Dividends paid to shareholders are determined by the Board of Directors and approved at the annual shareholders’ meeting.
TREASURY STOCK // Common shares of the Company owned by the Group as of the reporting date are designated as treasury shares and are recorded at cost using the weighted-average method. Gains on resale of treasury shares are credited to additional paid-in capital whereas losses are charged to additional paid-in capital to the extent that previous net gains from resale are included therein or otherwise to retained earnings.
EARNINGS PER SHARE // Basic and diluted earnings per common share are determined by dividing the available income to common shareholders by the weighted average number of shares outstanding during the period. There are no potentially dilutive securities.
STOCK-BASED COMPENSATION // The Group accounts for its best estimate of the obligation under cash-settled stock- appreciation rights (“SAR”) granted to employees at fair value on the date of grant. The estimate of the final liability is re-measured to fair value at each reporting date and the compensation charge recognised in respect of SAR in profit and loss is adjusted accordingly. Expenses are recognised over the vesting period.
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RETIREMENT AND OTHER BENEFIT OBLIGATIONS // The Group and its subsidiaries do not have any substantial pension arrangements separate from the State pension scheme of the Russian Federation, which requires current contributions by the employer calculated as a percentage of current gross salary payments; such contributions are charged to expense as incurred. The Group has no significant post-retirement benefits or other significant compensated benefits requiring accrual.
LEASES // Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position. The total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term.
RECOGNITION OF REVENUES // Revenues from the sales of crude oil, petroleum products, gas and all other products are recognised when deliveries are made to final customers, title passes to the customer, collection is reasonably assured, and the sales price to final customers is fixed or determinable. Specifically, domestic crude oil sales and petroleum product and materials sales are recognised when they are shipped to customers, which is generally when title passes. For export sales, title generally passes at the border of the Russian Federation and the Group is responsible for transportation, duties and taxes on those sales.
Revenue is recognised net of value added tax (VAT), excise taxes calculated on revenues based on the volumes of goods sold, customs duties and other similar compulsory payments.
Sales include revenue, export duties and sales related excise tax.
BUY / SELL TRANSACTIONS // Purchases and sales under the same contract with a specific counterparty (buy-sell transaction) are eliminated under IFRS. The purpose of the buy-sell operation, i.e. purchase and sale of same type of products in different locations during the same reporting period from / to the same counterparty, is to optimise production capacities of the Group rather than generate profit. After elimination, any positive difference is treated as a decrease in crude oil transportation to the refinery costs and any negative difference is treated as an increase in crude oil transportation costs to the refinery.
TRANSPORTATION COSTS // Transportation expenses recognised in profit and loss represent expenses incurred to transport crude oil and oil products through the OJSC “AK “Transneft” pipeline network, costs incurred to transport crude oil and oil products by maritime vessel and railway and all other shipping and handling costs.
OTHER COMPREHENSIVE INCOME / LOSS // All other comprehensive income / loss is presented by the items that are or may be reclassified subsequently to profit or loss, net of related deferred tax.
3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGMENTS
Preparing these Consolidated Financial Statements in accordance with IFRS requires Management to make judgements on the basis of estimates and assumptions. These judgements affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the reporting date, and the reported amounts of revenues and expenses during the reporting period.
Management reviews the estimates and assumptions on a continuous basis, by reference to past experiences and other factors that can reasonably be used to assess the book values of assets and liabilities. Adjustments to accounting estimates are recognised in the period in which the estimate is revised if the change affects only that period or in the period of the revision and subsequent periods, if both periods are affected.
Actual results may differ from the judgements, estimates made by the management if different assumptions or circumstances apply.
166 GAZPROM NEFT // 2015 ANNUAL REPORT Judgments and estimates that have the most significant effect on the amounts reported in these Consolidated Financial Statements and have a risk of causing a material adjustment to the carrying amount of assets and liabilities are described below.
IMPAIRMENT OF NON-CURRENT ASSETS // The following are examples of impairment indicators, which are reviewed by the Management: changes in the Group’s business plans, changes in oil and commodity prices leading to sustained unprofitable performance, low plant utilisation, evidence of physical damage or, for oil and gas assets, significant downward revisions of estimated reserves or increases in estimated future development expenditure or decommissioning costs. In case any of such indicators exist the Group makes an assessment of recoverable amount.
The long-term business plans (models), which are approved by the Management, are the primary source of information for the determination of value in use. They contain forecasts for oil and gas production, refinery throughputs, sales volumes for various types of refined products, revenues, costs and capital expenditure.
As an initial step in the preparation of these plans, various market assumptions, such as oil prices, refining margins, refined product margins and inflation rates, are set by the Management. These market assumptions take into account long-term oil price forecasts by the research institutions, macroeconomic factors such as inflation rate and historical trends and variability.
In assessing value in use, the estimated future cash flows are adjusted for the risks specific to the asset group or CGU and are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money.
ESTIMATION OF OIL AND GAS RESERVES // Engineering estimates of oil and gas reserves are inherently uncertain and are subject to future revisions. The Group estimates its oil and gas reserves in accordance with rules promulgated by the US Securities and Exchange Commission (SEC) for proved reserves. Oil and gas reserves are determined with use of certain assumptions made by the Group, for future capital and operational expenditure, estimates of oil in place, recovery factors, number of wells and cost of drilling. Accounting measures such as depreciation, depletion and amortisation charges that are based on the estimates of proved reserves are subject to change based on future changes to estimates of oil and gas reserves.
Proved reserves are defined as the estimated quantities of oil and gas which geological and engineering data demonstrate recoverability in future years from known reservoirs under existing economic conditions with reasonable certainty. In some cases, substantial new investment in additional wells and related support facilities and equipment will be required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change over time as additional information becomes available.
Oil and gas reserves have a direct impact on certain amounts reported in the Consolidated Financial Statements, most notably depreciation, depletion and amortisation as well as impairment expenses. Depreciation rates on oil and gas assets using the units- of-production method for each field are based on proved developed reserves for development costs, and total proved reserves for costs associated with the acquisition of proved properties. Moreover, estimated proved reserves are used to calculate future cash flows from oil and gas properties, which serve as an indicator in determining whether or not property impairment is present.
USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT // Management assesses the useful life of an asset by considering the expected usage, estimated technical obsolescence, residual value, physical wear and tear and the operating environment in which the asset is located. Differences between such estimates and actual results may have a material impact on the amount of the carrying values of the property, plant and equipment and may result in adjustments to future depreciation rates and expenses for the period.
CONTINGENCIES // Certain conditions may exist as of the date of these Consolidated Financial Statements are issued that may result in a loss to the Group, but one that will only be realised when one or more future events occur or fail to occur. Management makes an assessment of such contingent liabilities that is based on assumptions and is a matter of judgement. In assessing loss contingencies relating to legal or tax proceedings that involve the Group or unasserted claims that may result in such proceedings, the Group, after consultation with legal and tax advisors, evaluates the perceived merits of any legal or tax proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
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If the assessment of a contingency indicates that it is probable that a loss will be incurred and the amount of the liability can be estimated, then the estimated liability is accrued in the Group’s Consolidated Financial Statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed. If loss contingencies can not be reasonably estimated, Management recognises the loss when information becomes available that allows a reasonable estimation to be made. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee is disclosed. However, in some instances in which disclosure is not otherwise required, the Group may disclose contingent liabilities of an unusual nature which, in the judgment of Management and its legal counsel, may be of interest to shareholders or others.
JOINT ARRANGEMENTS // Upon adopting of IFRS 11 the Group applied judgement when assessing whether its joint arrangements represent a joint operation or a joint venture. The Group determined the type of joint arrangement in which it is involved by considering its rights and obligations arising from the arrangement including the assessment of the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances.
4. APPLICATION OF NEW IFRS
The amendments to IAS 19 – Employee Benefits on contributions from employees or third parties to defined benefit plans became effective for the annual periods beginning on or after 1 July 2014. The amendment has no significant impact on Group’s Consolidated Financial Statements.
5. NEW ACCOUNTING STANDARDS
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2016 or later, and that the Group has not early adopted.
IFRS 9, Financial Instruments Part 1: Classification and Measurement (issued in November 2009, amended in October 2010, November 2013 and July 2014, effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are: ↗↗ Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value (either through profit and loss or other comprehensive income), and at amortised cost. The decision is to be made at initial recognition. ↗↗ An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only. All other debt instruments are to be measured at fair value through profit or loss. ↗↗ All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is no recycling of fair value gains and losses to profit or loss.
The Group is currently assessing the impact of the new standard on its Consolidated Financial Statements.
IFRS 15 – Revenue from Contracts with Customers (issued in May 2014 and effective for annual periods beginning on or after January 1, 2018). The new standard introduces the core principle that revenue must be recognised when the goods and services are transferred to the customer, at the transaction price. Any bundled goods and services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed.
The Group is currently assessing the impact of the new standard on its Consolidated Financial Statements.
168 GAZPROM NEFT // 2015 ANNUAL REPORT IFRS 16 Leases (issued in January 2016 and replaces the previous IAS 17 Leases, effective for annual periods beginning on or after January 1, 2019 with early adoption permitted in case of implementation of IFRS 15 Revenue from Contracts with Customers). Key features of the standard are: ↗↗ IFRS 16 changes the lessees accounting requirements given in IAS 17 and eliminates the classification of leases as either operating leases or finance leases. Instead, introduces a single lessee accounting model where a lessee is required to recognise: –– (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and –– (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. ↗↗ IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. ↗↗ IFRS 16 does not change the accounting for services.
The Group is currently assessing the impact of the new standard on its Consolidated Financial Statements. The following other new standards are not expected to have any material impact on the Group when adopted: ↗↗ Amendments to IFRS 11 – Joint Arrangements (issued in May 2014 and effective for annual periods beginning on or after January 1, 2016). ↗↗ Amendments to IAS 16 – Property, Plant and Equipment and IAS 38 Intangible Assets (issued in May 2014 and effective for annual periods beginning on or after January 1, 2016. ↗↗ Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint ventures (issued in September 2014 and December 2014 and effective for annual periods beginning on or after January 1, 2016). ↗↗ Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016). ↗↗ Amendments to the IFRS for Small and Medium-Sized Entities (issued in May 2015 and effective for annual periods beginning on or after January 1, 2017).
Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s Consolidated Financial Statements.
6. ACQUISITION OF SUBSIDIARIES AND NON-CONTROLLING INTEREST
ACQUISITION OF GAZPROM RESOURCE NORTHGAS // On 1 July 2014 the Group acquired an 18.2% share in Gazprom Resource Northgas LLC (a holding company which owns 50% share in Northgas) from Gazprombank for RUB 8.6 billion providing the Group with significant influence over Northgas due to presence in Board of Directors. In March 2015 the Group has obtained control over Gazprom Resource Northgas LLC based on signed management agreement and charter documents which provided the Group with a majority of voting rights which differ from the Group's share in equity. The transaction was treated as a transaction under common control (the other owner of Gazprom Resource Northgas LLC is a subsidiary of Gazprom) and was accounted for using predecessor accounting method. As a result of this transaction, non-controlling interest in the amount of RUB 12.6 billion was recognised and the difference between the Group's share in net assets and the initial cost of its investment reduced the additional- paid-in-capital for the period by RUB 5.8 billion. The following table represents information of Gazprom Resource Northgas LLC as of date of obtaining control:
As of 19 March 2015 ASSETS Cash and cash equivalents 2,229 Other current assets 24
Loan issued 8,476 Investment in Northgas 4,730 TOTAL ASSETS ACQUIRED 15,459 LIABILITIES Other payables (2) TOTAL LIABILITIES ASSUMED (2) Net assets acquired 15,457
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7. CASH AND CASH EQUIVALENTS
Cash and cash equivalents as of 31 December 2015 and 2014 comprise the following:
31 December 2015 31 December 2014 Cash on hand 986 791 Cash in bank 39,937 41,106 Deposits with original maturity of less than three months 69,891 8,928 Other cash equivalents 3,384 2,342 TOTAL CASH AND CASH EQUIVALENTS 114,198 53,167
8. SHORT-TERM FINANCIAL ASSETS
Short-term financial assets as of 31 December 2015 and 2014 comprise the following:
31 December 2015 31 December 2014 Deposits with original maturity more than 3 months less than 1 year 49,206 76,658 Short-term loans issued 15,802 2,18 4 Financial assets held to maturity 149 2 TOTAL SHORT-TERM FINANCIAL ASSETS 65,157 78,844
The loans issued in 2015 include loans issued to a joint venture.
9. TRADE AND OTHER RECEIVABLES
Trade and other receivables as of 31 December 2015 and 2014 comprise the following:
31 December 2015 31 December 2014 Trade receivables 112,572 108,447 Other financial receivables 7,254 7,543 Less impairment provision (24,585) (12,976) TOTAL TRADE AND OTHER RECEIVABLES 95,241 103,014
Trade receivables represent amounts due from customers in the ordinary course of business and are short-term by nature.
170 GAZPROM NEFT // 2015 ANNUAL REPORT 10. INVENTORIES
Inventories as of 31 December 2015 and 2014 consist of the following:
31 December 2015 31 December 2014 Petroleum products and petrochemicals 41,692 41,787 Materials and supplies 38,782 34,422 Crude oil and gas 16,947 22,619 Other 8,497 7,243 Less provision (3,540) (3,413) TOTAL INVENTORY 102,378 102,658
As part of the management of crude inventory the Group may enter transactions to buy and sell crude oil from the same counterparty. Such transactions are referred to as buy / sell transactions and are undertaken in order to reduce transportation costs or to obtain alternate quality grades of crude oil. The total values of buy / sell transactions undertaken for the years ended 31 December are as follows:
2015 2014 Buy / sell crude oil transactions for the year ended 31 December 92,949 41,450
11. OTHER CURRENT ASSETS
Other current assets as of 31 December 2015 and 2014 consist of the following:
31 December 2015 31 December 2014 Value added tax receivable 47,616 42,281 Advances paid 40,080 39,782 Prepaid custom duties 6,728 18,178 Prepaid expenses 999 594 Other assets 33,437 32,043 Less impairment provision (8,993) (16,951) TOTAL OTHER CURRENT ASSETS 119,867 115,927
The impairment provision mainly relates to other assets attributable to Group’s Serbian subsidiary.
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12. PROPERTY, PLANT AND EQUIPMENT
Movement in property, plant and equipment for the years ended 31 December 2015 and 2014 is presented below:
Marketing and Assets under Cost O&G properties Refining assets distribution Other assets construction Total AS OF 1 JANUARY 2015 1,120,873 260,219 134,430 18,659 245,847 1,780,028 Additions 12,641 1,016 – – 311,871 325,528 Acquisitions through business combinations – – 24 283 47 354 Changes in decommissioning obligations (214) – – – – (214) Capitalised borrowing costs – – – – 14,558 14,558 Transfers 183,139 38,093 16,543 1,921 (239,696) – Internal movement (12,394) (75) (483) (394) 11,893 (1,453) Disposals (12,249) (1,061) (2,747) (2,800) (2,871) (21,728) Translation differences 63,486 9,845 5,028 264 27,625 106,248 AS OF 31 DECEMBER 2015 1,355,282 308,037 152,795 17,933 369,274 2,203,321 DEPRECIATION AND IMPAIRMENT AS OF 1 JANUARY 2015 (383,053) (68,395) (32,593) (2,187 ) – (486,228) Depreciation charge (70,978) (11,032) (10,552) (1,256) – (93,818) Impairment (15,582) – – – – (15,582) Acquisitions through business combinations – – – (143) – (143) Internal movement 222 (31) 1,114 148 – 1,453 Disposals 8,246 199 1,600 62 – 10,107 Translation differences (28,143) (2,202) (1,009) (103) – (31,457) AS OF 31 DECEMBER 2015 (489,288) (81,461) (41,440) (3,479) – (615,668) NET BOOK VALUE AS OF 1 JANUARY 2015 737,820 191,824 101,837 16,472 245,847 1,293,800 AS OF 31 DECEMBER 2015 865,994 226,576 111,355 14,454 369,274 1,587,653
172 GAZPROM NEFT // 2015 ANNUAL REPORT Marketing and Assets under Cost O&G properties Refining assets distribution Other assets construction Total AS OF 1 JANUARY 2014 789,524 214,682 101,943 13,154 136,945 1,256,248 Additions 39,873 872 – 3,885 216,341 260,971 Acquisitions through business combinations and increase of share in joint operation 84,001 – 1,823 25 22,658 108,507 Changes in decommissioning obligations 757 – – – – 757 Capitalised borrowing costs – – – – 10,598 10,598 Transfers 167,417 29,270 14,665 1,886 (213,238) – Internal movement (48,031) (1,692) (1,885) (26) 51,000 (634) Disposals ( 7,232) (1,159) (1,724) (201) (3,683) (13,999) Translation differences 94,564 18,246 19,608 (64) 25,226 157,580 AS OF 31 DECEMBER 2014 1,120,873 260,219 134,430 18,659 245,847 1,780,028 DEPRECIATION AND IMPAIRMENT AS OF 1 JANUARY 2014 (281,165) (56,211) (21,829) (1,500) – (360,705) Depreciation charge (63,360) (9,208) (8,866) (735) – (82,169) Impairment (4,116) – – – – (4,116) Acquisitions through business combinations and increase of share in joint operation (1,990) – – – – (1,990) Internal movement (88) (370) 1,066 26 – 634 Disposals 3,453 488 944 55 – 4,940 Translation differences (35,787) (3,094) (3,908) (33) – (42,822) AS OF 31 DECEMBER 2014 (383,053) (68,395) (32,593) (2,187 ) – (486,228) NET BOOK VALUE AS OF 1 JANUARY 2014 508,359 158,471 80,114 11,654 136,945 895,543 AS OF 31 DECEMBER 2014 737,820 191,824 101,837 16,472 245,847 1,293,800
In 2015 the Group changed presentation of movement and balances in Property, Plant and Equipment: the new accounting policy is to present acquisition or construction of O&G properties as additions of assets under construction and put in use of O&G properties – as transfers from assets under construction to O&G properties. Previously these movements were classified as additions of O&G properties.
Capitalisation rate for the borrowing costs related to the acquisition of property, plant and equipment equals to 11% for the year ended 31 December 2015 (8.7% for the year ended 31 December 2014).
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The information regarding Group’s exploration and evaluation assets (part of O&G properties) is presented below:
2015 2014 AS OF JANUARY 1 75,294 53,514 Additions 26,032 35,361 Acquisitions through business combinations – 24,495 Impairment (4,024) (4,116) Unsuccessful exploration expenditures derecognised (132) (810) Transfer to proved property (26,323) (66,573) Disposals (279) (183) Translation differences 12,437 33,606 AS OF DECEMBER 31 83,005 75,294
Due to decrease in international oil prices in 2015 the Group performed impairment testing and recognised impairment loss in relation to upstream oil and gas assets in Iraq region and exploration asset located in Russia in the amounts of RUB 11.6 billion and RUB 4.0 billion, respectively. The Group recognised impairment loss for the amount by which the book value of these assets exceeded its recoverable amount of RUB 85.4 billion. The impairment loss relating to exploration asset located in Russia was due to uncertain viability of commercial production. The recoverable amount was determined as present value of estimated future cash flows using available forecasts of oil prices from globally recognized research institutions and production quantities based on reserve reports and long-term strategic plans. The pre- tax discount rates reflect current market assessments of the time value of money and the risks specific to the asset and vary in real terms from 10.3% to 14.4% depending on currencies the cash flows are denominated in.
13. GOODWILL AND OTHER INTANGIBLE ASSETS
The information regarding movements in Group’s intangible assets is presented below:
Cost Goodwill Software Land rights Other IA Total AS OF 1 JANUARY 2015 33,635 19,327 17,513 14,881 85,356 Additions – 3,529 – 1,881 5,410 Acquisitions through business combinations – – – – – Internal movement – 989 – (711) 278 Disposals – (767) – (830) (1,597) Translation differences 2,902 1,165 69 230 4,366 AS OF 31 DECEMBER 2015 36,537 24,243 17,582 15,451 93,813 AMORTISATION AND IMPAIRMENT AS OF 1 JANUARY 2015 (196) (7,778) (3,829) (2,313) (14,116) Amortisation charge – (3,035) (627) (1,021) (4,683) Impairment – – – – – Internal movement – (309) – 31 (278) Disposals – 666 – 400 1,066 Translation differences (32) (574) (1) (105) (712) AS OF 31 DECEMBER 2015 (228) (11,030) (4,457) (3,008) (18,723) NET BOOK VALUE AS OF 1 JANUARY 2015 33,439 11,549 13,684 12,568 71,240 AS OF 31 DECEMBER 2015 36,309 13,213 13,125 12,443 75,090
174 GAZPROM NEFT // 2015 ANNUAL REPORT Cost Goodwill Software Land rights Other IA Total AS OF 1 JANUARY 2014 27,972 14,617 17,108 5,700 65,397 Additions 44 3,736 346 1,695 5,821 Acquisitions through business combinations 311 13 – 7,267 7,591 Internal movement 72 (185) 25 90 2 Disposals – (579) – (397) (976) Translation differences 5,236 1,725 34 526 7,521 AS OF 31 DECEMBER 2014 33,635 19,327 17,513 14,881 85,356 AMORTISATION AND IMPAIRMENT AS OF 1 JANUARY 2014 – (5,382) ( 3,143) (1,486) (10,011) Amortisation charge – (2,002) (685) (790) (3,477) Impairment (188) – – – (188) Internal movement – (41) – 39 (2) Disposals – 282 – 165 447 Translation differences (8) (635) (1) (241) (885) AS OF 31 DECEMBER 2014 (196) (7,778) (3,829) (2,313) (14,116) NET BOOK VALUE AS OF 1 JANUARY 2014 27,972 9,235 13,965 4,214 55,386 AS OF 31 DECEMBER 2014 33,439 11,549 13,684 12,568 71,240
Goodwill acquired through business combination has been allocated to Upstream (NIS and Tomskneft) and Downstream (Moscow Refinery) in the amounts of RUB 29.2 billion and RUB 7.1 billion as of 31 December 2015 (RUB 26.5 billion and RUB 6.9 billion as of 31 December 2014). Goodwill was tested for impairment and no impairment was identified.
14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
The carrying values of the investments in associates and joint ventures as of 31 December 2015 and 2014 are summarised below:
Ownership percentage 31 December 2015 31 December 2014 Slavneft Joint venture 49.9 83,301 74,177 SeverEnergy Joint venture 46.7 72,128 60,215 Northgas Joint venture 50.0 8,196 8,878 Others 5,986 7,457 TOTAL INVESTMENTS 169,611 150,727
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The principal place of business of the most significant joint ventures and associates disclosed above is the Russian Federation. The reconciliation of carrying amount of investments in associates and joint ventures as of the beginning of the reporting period and as of the end of the reporting period is shown below:
2015 2014 CARRYING AMOUNT AS OF 1 JANUARY 150,727 120,358 Share of profit / (loss) of associates and joint ventures 24,956 (6,306) Dividends declared (2,862) ( 7,453) Share of other comprehensive income of associates and joint ventures 141 – Increase in associates and joint ventures – 44,526 Other changes in cost of associates and joint ventures (3,351) (398) CARRYING AMOUNT AS OF 31 DECEMBER 169,611 150,727
The total amount of dividends received from joint ventures in 2015 equals to RUB 2,415 million (RUB 7,453 million in 2014). The group didn’t receive any dividends from associates in the years 2015 and 2014.
SLAVNEFT // The Group’s investment in OJSC Slavneft and various minority stakes in Slavneft subsidiaries (Slavneft) are held through a series of legal entities. Slavneft is engaged in exploration, production and development of crude oil and gas and production of refined petroleum products. The control over Slavneft is divided equally between the Group and OJSC NK Rosneft.
SEVERENERGY // The Group’s investment in SeverEnergy LLC (SeverEnergy) is held through Yamal Razvitie LLC (Yamal Razvitie, an entity jointly controled by the Group and OJSC NOVATEK). SeverEnergy, through its subsidiary OJSC Arctic Gas Company (Arcticgas), is developing the Samburgskoye, Urengoiskoe and Yaro-Yakhinskoye oil and gas condensate fields and some other small oil and gas condensate fields located in the Yamalo-Nenetskiy autonomous region of the Russian Federation.
The Group and NOVATEK negotiated a series of linked transactions that aim to simplify the ownership structure and achieve parity shareholdings in SeverEnergy upon completion. The Group provided several long-term loans to Yamal Razvitie of which Yamal Razvitie financed RUB 34.9 billion on acquisition of additional 20% share in Artic Russia B.V. The loans will form the Group’s contribution in equity of Yamal Razvitie upon completion of the restructuring of the joint venture. In July 2015 the Group and NOVATEK decided to increase Yamal Razvitie share capital by converting partially long-term loans and transferring of 6.4% Arctic Russia B.V. shares. In August 2015 the Group made contributions to the capital of Yamal Razvitie by converting partially long-term loans. As a result the Group’s share increased from 45.1% to 46.7%.
The carrying amount of the Group’s investment exceeds the Group's share in the underlying net assets of SeverEnergy by RUB 18.3 billion as of 31 December 2015 due to complex holding structure, current financing scheme and goodwill arising on acquisition (RUB 19.8 billion as of 31 December 2014).
NORTHGAS // The Group’s investment in CJSC Northgas (Northgas) is held through Gazprom Resource Northgas LLC which owns a 50% share in Northgas. Northgas is engaged in exploration and development of natural gas and oil. After the Group obtained control over Gazprom Resourse Northgas (note 6) the Group’s effective share in Northgas increased to 50% (9.1% as of 31 December 2014).
176 GAZPROM NEFT // 2015 ANNUAL REPORT The summarised financial information for the significant associates and joint ventures as of 31 December 2015 and 2014 and for the years ended 31 December 2015 and 2014 is presented in the table below.
Slavneft SeverEnergy Northgas
31 December 31 December 31 December 31 December 31 December 31 December 2015 2014 2015 2014 2015 2014 Cash and cash equivalents 8,078 13,709 13,875 698 2,160 4,000 Other current assets 15,830 17,56 8 13,941 9,413 3,131 11,811 Non-current assets 288,077 269,667 363,513 369,502 49,695 49,474 Current financial liabilities (49,748) (68,967) (31,762) (112,478) (6,110) (5,906) Other current liabilities (18,294) (20,109) (9,309) (2,289) (2,001) (3,702) Non-current financial liabilities (54,562) (46,592) (185,376) (126,172) (24,841) (34,550) Other non-current liabilities (30,034) (24,973) (49,297) (49,065) (3,645) (2,122) NET ASSETS 159,347 140,303 115,585 89,609 18,389 19,005
Year ended Year ended Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 31 December 31 December 2015 2014 2015 2014 2015 2014 Revenue 224,224 197,453 125,450 32,110 28,888 13,750 Depreciation, depletion and amortisation ( 32,169) (30,637) (20,786) (5,966) (2,328) (3,656) Finance income 2,074 1,472 2,354 75 1,151 452 Finance expense (5,279) (1,530) (36,041) (14,263) (5,275) (929) Total income tax (expense) / benefit (6,486) 1,999 (3,570) 1,152 (2,004) (854) Profit / (loss) for the period 19,566 (10,282) 20,991 (4,341) 8,008 3,338 Total comprehensive income / (loss) 19,054 (9,876) 20,991 (4,341) 8,008 3,338
Current and non-current financial liabilities of SeverEnergy include RUB 146 billion payables to the Group and Russian banks as of 31 December 2015 (RUB 130 billion as of 31 December 2014). Other change of net assets of SeverEnergy relates to fair value adjustments on acquisition of additional share in 2015.
Summarised financial information on Northgas includes assets and liabilities of Gazprom Resource Northgas as of 31 December 2014.
OTHERS // The aggregate carrying amount of all individually immaterial joint ventures and associates as well as the Group’s share of those joint ventures’ and associates’ profit or loss and other comprehensive income is not significant.
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15. JOINT OPERATIONS
Under IFRS 11 Joint Arrangements the Group assessed the nature of its 50% share in joint arrangements and determined investments in Tomskneft and Salym Petroleum Development as Joint operations. Tomskneft and Salym Petroleum Development are engaged in production of oil and gas in the Russian Federation and all of the production is required to be sold to the parties of the joint arrangement (that is, the Group and its partner).
16. LONG-TERM FINANCIAL ASSETS
Long-term financial assets as of 31 December 2015 and 2014 comprise the following:
31 December 2015 31 December 2014 Long-term loans issued 41,047 28,229 Available for sale financial assets 11,534 10,266 Financial assets held to maturity 3 112 Less impairment provision (1,700) (976) TOTAL LONG-TERM FINANCIAL ASSETS 50,884 37,631
17. DEFERRED INCOME TAX ASSETS AND LIABILITIES
RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES // Recognised deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net AS OF 31 DECEMBER 2015 Property, plant and equipment 11,775 (93,593) (81,818) Intangible assets 6 (3,887) (3,881) Investments 732 (630) 102 Inventories 747 (997) (250) Trade and other receivables 611 (27) 584 Loans and borrowings – (1,066) (1,066) Provisions 5,498 (29) 5,469 Tax loss carry-forwards 32,896 – 32,896 Other 2,897 (1,586) 1,311 Net-off (33,063) 33,063 – TAX ASSETS / (LIABILITIES) 22,099 (68,752) (46,653)
178 GAZPROM NEFT // 2015 ANNUAL REPORT Assets Liabilities Net AS OF 31 DECEMBER 2014 Property, plant and equipment 8,612 (72,655) (64,043) Intangible assets 7 (4,14 4) (4,137 ) Investments 2,220 (505) 1,715 Inventories 342 (858) (516) Trade and other receivables 428 (98) 330 Loans and borrowings – (1,132) (1,132) Provisions 3,029 (40) 2,989 Tax loss carry-forwards 13,958 – 13,958 Other 2,864 (1,600) 1,264 TAX ASSETS / (LIABILITIES) 31,460 (81,032) (49,572)
Movement in temporary differences during the period:
Recognised in other As of Recognised comprehensive Acquired/ As of 1 January 2015 in profit or loss income disposed of 31 December 2015 Property, plant and equipment (64,043) (14,552) (3,346) 123 (81,818) Intangible assets (4,137 ) 256 – – (3,881) Investments 1,715 1,132 (2,745) – 102 Inventories (516) 266 – – (250) Trade and other receivables 330 183 71 – 584 Loans and borrowings (1,132) 66 – – (1,066) Provisions 2,989 2,368 28 84 5,469 Tax loss carry-forwards 13,958 19,088 (150) – 32,896 Other 1,264 (33) 82 (2) 1,311 (49,572) 8,774 (6,060) 205 (46,653)
Recognised in other As of Recognised comprehensive Acquired/ As of 1 January 2014 in profit or loss income disposed of 31 December 2014 Property, plant and equipment (48,614) (9,774) (4,785) (870) (64,043) Intangible assets (2,875) 191 – (1,453) (4,137 ) Investments 1,358 195 162 – 1,715 Inventories (433) (83) – – (516) Trade and other receivables 286 (86) 130 – 330 Loans and borrowings (545) (490) (97) – (1,132) Provisions 2,911 38 40 – 2,989 Tax loss carry-forwards 6,062 7,821 71 4 13,958 Other 629 492 149 (6) 1,264 (41,221) (1,696) (4,330) (2,325) (49,572)
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18. OTHER NON-CURRENT ASSETS
Other non-current assets are primarily comprised of advances provided on capital expenditures (RUB 55.2 billion and RUB 38.4 billion as of 31 December 2015 and 2014, respectively).
19. SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
As of 31 December 2015 and 2014 the Group has short-term loans and current portion of long-term debt outstanding as follows:
31 December 2015 31 December 2014 Bank loans 24,193 4,875 Other borrowings 1,731 14,251 Current portion of long-term debt 121,395 41,995 TOTAL SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT 147,319 61,121
Short-term bank loans and other borrowings include interest payable on short-term debt. Current portion of long-term debt includes interest payable on long-term borrowings.
In January 2015 the Group obtained revolving loan USD 300 million (RUB 16.9 billion) under the club term and revolving facilities agreement with a number of banks with six months maturity and interest rate of LIBOR+1% per annum. In July 2015 and December 2015 the Group refinanced the maturing facilities under the club term and revolving facilities agreement with a number of banks in a total amount of 300 million USD by new loans in the amount of USD 300 million at an interest LIBOR+1% per annum due for repayment on 30 June 2016.
On 22 March 2015 companies of Rosneft’s group concluded a settlement deed with companies of YUKOS’s group (hereinafter – the “Agreement”). In accordance with the Agreement the parties waived their mutual claims and terminated all existing court disputes, connected with the bankruptcy and liquidation of JSC “NK “YUKOS”. The Agreement does not prescribe any monetary payments on behalf of companies of Rosneft’s group. As a result companies of YUKOS’s group waived all of their claims to JSC “Tomskneft” VNK. Upon completion of the agreement (in April 2015) the Group wrote off its share in the respective liability of JSC Tomskneft that resulted in a gain in the amount of RUB 16.1 billion recognised within Other loss line in the Consolidated Statement of Profit and Loss and Other Comprehensive Income.
20. TRADE AND OTHER PAYABLES
Accounts payable as of 31 December 2015 and 2014 comprise the following:
31 December 2015 31 December 2014 Trade accounts payable 76,372 65,624 Dividends payable 2,659 2,509 Other accounts payable 2,254 5,762 Forward contracts – cash flow hedge 23,545 9,922 TOTAL TRADE AND OTHER PAYABLES 104,830 83,817
180 GAZPROM NEFT // 2015 ANNUAL REPORT 21. OTHER CURRENT LIABILITIES
Other current liabilities as of 31 December 2015 and 2014 comprise the following:
31 December 2015 31 December 2014 Advances received 23,008 28,863 Payables to employees 2,864 2,180 Other non-financial payables 6,998 9,878 TOTAL OTHER CURRENT LIABILITIES 32,870 40,921
22. OTHER TAXES PAYABLE
Other taxes payable as of 31 December 2015 and 2014 comprise the following:
31 December 2015 31 December 2014 VAT 17,578 12,933 Mineral extraction tax 14,898 16,270 Excise tax 6,738 9,276 Property tax 2,329 2,389 Social security contributions 4,275 3,110 Other taxes 3,193 1,810 TOTAL OTHER TAXES PAYABLE 49,011 45,788
Taxes other than income tax expense for the years ended 31 December 2015 and 2014 comprise the following:
Year ended Year ended 31 December 2015 31 December 2014 Mineral extraction tax 256,477 236,027 Excise tax 68,358 84,184 Social security contributions 15,599 11,886 Property tax 9,529 9,477 Other taxes 3,182 2,002 TOTAL TAXES OTHER THAN INCOME TAX 353,145 343,576
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23. PROVISIONS FOR LIABILITIES AND CHARGES
Movement in Provisions for liabilities and charges for the years ended 31 December 2015 and 2014 is below:
Decommissioning provision Other Total CARRYING AMOUNT AS OF 1 JANUARY 2014 20,773 15,266 36,039 SHORT-TERM PART 33 10,125 10,158 LONG-TERM PART 20,740 5,141 25,881 New obligation incurred 1,596 657 2,253 Provision assumed in a business combination – 420 420 Utilisation of provision (1,963) (778) (2,741) Change in estimates (839) 3,260 2,421 Unwind of discount 1,422 – 1,422 Translation differences 2,467 2,159 4,626 CARRYING AMOUNT AS OF 31 DECEMBER 2014 23,456 20,984 44,440 SHORT-TERM PART 168 18,396 18,564 LONG-TERM PART 23,288 2,588 25,876 New obligation incurred 2,085 8,634 10,719 Utilisation of provision (123) (11,557) (11,680) Change in estimates (2,939) – (2,939) Unwind of discount 2,172 – 2,172 Translation differences 1,446 845 2,291 CARRYING AMOUNT AS OF 31 DECEMBER 2015 26,097 18,906 45,003 SHORT-TERM PART 121 13,817 13,938 LONG-TERM PART 25,976 5,089 31,065
24. LONG-TERM DEBT
As of 31 December 2015 and 2014 the Group has long-term outstanding loans as follows:
31 December 2015 31 December 2014 Bank loans 451,887 258,087 Bonds 51,748 61,609 Loan Participation Notes 280,193 221,107 Other borrowings 8,346 3,498 less current portion of long-term debt (121,395) (41,995) TOTAL LONG-TERM DEBT 670,779 502,306
182 GAZPROM NEFT // 2015 ANNUAL REPORT BANK LOANS // In May 2011 the Group signed a USD 870 million Club term loan facility with the syndicate of international banks (facility agent – SMBC) at an interest rate of Libor+1.5% per annum and final maturity date in September 2016. The outstanding balance as of 31 December 2015 is RUB 25.5 billion.
In July 2012 the Group signed EUR 258 million ECA-covered term loan facility with the group of international banks (facility agent – HSBC) at an interest rate of Euribor+1.45% per annum and final maturity date in December 2022. The outstanding balance as of 31 December 2015 is RUB 14.4 billion.
In April 2013 the Group signed USD 700 million club term loan facility with the group of international banks (facility agent – Commerzbank) at an interest rate of Libor+1.75% per annum and final maturity date in October 2018. The outstanding balance as of 31 December 2015 is RUB 43.7 billion.
In November 2013 the Group signed USD 2,150 million club term loan facility with the group of international banks (facility agent – Mizuho) at an interest rate of LIBOR+1.50% per annum and final maturity date in March 2019. The outstanding balance as of 31 December 2015 is RUB 156.8 billion.
In September 2014 the Group signed a RUB 30 billion term loan facility with PJSC Rosselkhozbank at an interest rate of 11.9% per annum and final maturity date in September 2019. The outstanding balance as of 31 December 2015 is RUB 30 billion.
In September 2014 the Group signed RUB 35.0 billion term loan facilities with PJSC Sberbank of Russia with final maturity date in September 2019. As of 31 December 2015, the interest rates vary from 13.48% to 13.58% per annum and the outstanding balance is RUB 35 billion.
In March 2015 the Group signed USD 350 million term loan facilities with one of the Russian privately owned banks due in September 2020. As of 31 December 2015 the interest rate is LIBOR+5% per annum and the outstanding balance is USD 350 million (RUB 25.5 billion).
In first half 2015 the Group signed several long-term facility agreements with final settlement in January 2018. As of 31 December 2015 the amount outstanding was RUB 72.9 billion.
In August 2015 the Group signed a long-term facility agreement in the amount of RUB 13.9 billion with PJSC Sberbank of Russia. The interest rate is determined as the interest rate offered to the Russian local bank by the Central Bank of Russia for refinancing of loan provided under this agreement in accordance with the Program of support of investment projects+2.5% per annum fixed for three years; the final maturity date is August 2025. In November and December 2015 the Group borrowed RUB 7.2 billion under the agreement.
The loan agreements contain one financial covenant that limits the Group's ratio of “Consolidated financial indebtedness to Consolidated EBITDA”. The Group is in compliance with the covenant as of 31 December 2015.
BONDS // In February 2012 the Group placed ten-year Rouble Bonds (series 11) with the total par value of RUB 10 billion. In February 2015 the put option was exercised by the bondholders that resulted in the repurchase of the bonds by the Group in amount of RUB 9.6 billion.
As of 31 December 2015 the outstanding balance of Rouble Bonds (series 4, 8, 9, 10, 11, 12) is RUB 51.7 billion. The bonds bear interest of 8.2-12% per annum and are due for repayment in 2016-2018.
LOAN PARTICIPATION NOTES // In years 2012 and 2013 the group raised USD 3,000 million and EUR 750 million by issuing 10 years USD and 5 years EUR Loan Participation Notes. The outstanding balance as of 31 December 2015 is RUB 280.2 billion.
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25. OTHER NON-CURRENT FINANCIAL LIABILITIES
Other non-current financial liabilities as of 31 December 2015 are primarily comprised of RUB 60.6 billion of deferred consideration to PJSC Gazprom (RUB 53.7 as of 31 December 2014) and RUB 52.7 billion of cash flow hedge under forward contracts (RUB 48.4 billion as of 31 December 2014). The discounted liability is non-interest bearing and the timing of the redemption will occur from the future free cash flows of the Prirazlomnoye project (estimated repayment until the 2020 year).
26. SHARE CAPITAL AND TREASURY SHARES
Share capital as of 31 December 2015 and 2014 comprise the following:
Ordinary shares Treasury shares
31 December 2015 31 December 2014 31 December 2015 31 December 2014 Number of shares (million) 4,741 4,741 23 23 Authorised shares (million) 4,741 4,741 23 23 Par value (RUB per share) 0.0016 0.0016 0.0016 0.0016 ON ISSUE AS OF 31 DECEMBER, FULLY PAID (RUB MILLION) 8 8 (1,170) (1,170)
The nominal value of share capital differs from its carrying value due to effect of the inflation.
On 30 September 2015 the general shareholders’ meeting of Gazprom Neft PJSC approved an interim dividend on the ordinary shares for the six months ended 30 June 2015 in the amount of RUB 5.92 per share.
On 5 June 2015 the annual general shareholders’ meeting of Gazprom Neft PJSC approved a dividend on the ordinary shares for 2014 in the amount of RUB 6.47 per share.
On 30 September 2014 the general shareholders’ meeting of Gazprom Neft PJSC approved an interim dividend on the ordinary shares for the six months ended 30 June 2014 in the amount of RUB 4.62 per share.
On 6 June 2014 the annual general shareholders’ meeting of Gazprom Neft PJSC approved a dividend on the ordinary shares for 2013 in the amount of RUB 9.38 per share.
27. EMPLOYEE COSTS
Employee costs for the years ended 31 December 2015 and 2014 comprise the following:
Year ended Year ended 31 December 2015 31 December 2014 Wages and salaries 71,288 56,006 Stock appreciation rights (SAR) 657 594 Other costs 5,103 3,655 TOTAL EMPLOYEE COSTS 77,048 60,255 Social security contributions 15,593 11,886 TOTAL EMPLOYEE COSTS (WITH SOCIAL TAXES) 92,641 72,141
184 GAZPROM NEFT // 2015 ANNUAL REPORT 28. OTHER LOSS, NET
Other gain / (loss) for the years ended 31 December 2015 and 2014 comprise the following:
Year ended Year ended 31 December 2015 31 December 2014 Write-off payables 16,107 – Impairment of assets (15,582) (4,116) Write-off of assets ( 7,7 72) – Provisions (legal, environmental, etc.) 1,041 (1,460) Penalties 4 (1,826) Other losses ( 7,8 8 6 ) (1,069) TOTAL OTHER LOSS, NET (14,088) (8,471)
29. NET FOREIGN EXCHANGE LOSS
Net foreign exchange loss for the years ended 31 December 2015 and 2014 comprise the following:
Year ended Year ended 31 December 2015 31 December 2014 NET FOREIGN EXCHANGE LOSS ON FINANCING ACTIVITIES, INCLUDING: (111,816) (122,299) foreign exchange gain 53,989 74,755 foreign exchange loss (165,805) (197,054) NET FOREIGN EXCHANGE GAIN ON OPERATING ACTIVITIES 43,906 70,034 NET FOREIGN EXCHANGE LOSS (67,910) (52,265)
Capitalised borrowing costs include interest on loans and exchange losses arising from foreign currency borrowings. The exchange losses capitalised within borrowing costs amounted RUB 5.9 billion for the year ended 31 December 2015 (RUB 4.8 billion for the year ended 31 December 2014).
30. FINANCE INCOME
Finance income for the years ended 31 December 2015 and 2014 comprise the following:
Year ended Year ended 31 December 2015 31 December 2014 Interest income on loans issued 7,383 3,170 Interest on bank deposits 5,076 2,346 Other financial income 2,273 1,559 TOTAL FINANCE INCOME 14,732 7,075
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31. FINANCE EXPENSE
Finance expense for the years ended 31 December 2015 and 2014 comprise the following:
Year ended Year ended 31 December 2015 31 December 2014 Interest expense 40,411 19,220 Decommissioning provision: unwinding of discount 2,172 1,863 Less: capitalised interest (8,640) (5,804) FINANCE EXPENSE 33,943 15,279
32. INCOME TAX EXPENSE
The Group’s applicable income tax rate for the companies located in the Russian Federation is 20%.
Year ended Year ended 31 December 2015 31 December 2014
RUB million % RUB million % TOTAL INCOME TAX EXPENSE 34,943 23.1 18,14 4 12.5 Profit before income tax excluding share of profit of associates and joint ventures 120,494 152,176 Profit before income tax of associates and joint ventures 30,645 ( 7,267 ) PROFIT BEFORE INCOME TAX 151,139 144,909 Tax at applicable domestic tax rate (20%) 30,228 20.0 28,982 20.0 Effect of tax rates in foreign jurisdictions 3,892 2.6 (659) (0.5) Difference in statutory tax rate in domestic entities (2,983) (2.0) (1,894) (1.3) Non-deductible income and expenses 3,517 2.3 (3,034) (2.1) Adjustment for prior years 2,803 1.9 (2,14 6) (1.5) Change in tax rate – – (73) (0.1) Foreign exchange gain of foreign non-operating units (2,514) (1.7) (3,032) (2.1) TOTAL INCOME TAX EXPENSE 34,943 23.1 18,14 4 12.5
Reconciliation of effective tax rate:
Year ended Year ended 31 December 2015 31 December 2014 CURRENT INCOME TAX EXPENSE Current year 34,057 15,879 Adjustment for prior years 3,969 1,639 38,026 17,518 DEFERRED INCOME TAX BENEFIT / (EXPENSE) Origination and reversal of temporary differences (8,774) 1,769 Change in tax rate – (73) (8,774) 1,696 TOTAL INCOME TAX EXPENSE 29,252 19,214 Share of tax of associates and joint ventures 5,691 (1,070) TOTAL INCOME TAX EXPENSE INCLUDING SHARE OF TAX OF ASSOCIATES AND JOINT VENTURES 34,943 18,14 4
186 GAZPROM NEFT // 2015 ANNUAL REPORT 33. CASH FLOW HEDGES
The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the fair value of the related hedging instrument:
From 6 to 12 Fair value Less than 6 month months From 1 to 3 years Over 3 years AS OF 31 DECEMBER 2015 Forward exchange contracts Liabilities (76,258) (22,609) (935) (49,280) (3,434) TOTAL (76,258) (22,609) (935) (49,280) (3,434) AS OF 31 DECEMBER 2014 Forward exchange contracts Liabilities (58,312) (8,576) (1,345) (28,433) (19,958) TOTAL (58,312) (8,576) (1,345) (28,433) (19,958)
As of 31 December 2015 and 2014 the Group has outstanding forward currency exchange contracts for a total notional value of US Dollars 1,237 million and US Dollars 1,642 million respectively. During the year ended 31 December 2015 the amount of RUB 13,044 million was reclassified from equity to a loss in the statement of profit and loss (RUB 827 million for the year ended 31 December 2014).
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The impact of foreign exchange cash flow hedges recognized in other comprehensive income is set out below:
2015 2014
Before income tax Income tax Net of tax Before income tax Income tax Net of tax TOTAL RECOGNIZED IN OTHER COMPREHENSIVE (LOSS)/INCOME AS OF THE BEGINNING OF THE PERIOD (58,312) 1,885 (56,427) (2,885) 1,723 (1,162) Foreign exchange effects recognized during the period (30,990) 5,819 (25,171) (54,600) 142 (54,458) Recycled to foreign exchange differences in profit or loss 13,044 (1,382) 11,662 (827) 20 (807) Tax adjustment related to prior years – 4,176 4,176 – – – TOTAL RECOGNIZED IN OTHER COMPREHENSIVE (LOSS)/INCOME FOR THE PERIOD (17,946) 8,613 (9,333) (55,427) 162 (55,265) TOTAL RECOGNIZED IN OTHER COMPREHENSIVE (LOSS)/INCOME AS OF THE CLOSING OF THE PERIOD (76,258) 10,498 (65,760) (58,312) 1,885 (56,427)
A schedule of the expected reclassification of the accumulated foreign exchange loss from other comprehensive income to profit or loss as of 31 December 2015 is presented below:
Year 2016 2017 2018 2022 Total TOTAL, NET OF TAX (20,222) (14,693) (27,770) (3,076) (65,761)
The Group uses an estimation of the fair value of forward currency exchange contracts prepared by independent financial institutes. Valuation results are regularly reviewed by the Management. No significant ineffectiveness occurred during the reporting period.
34. FINANCIAL RISK MANAGEMENT
RISK MANAGEMENT FRAMEWORK // Gazprom Neft Group has a risk management policy that defines the goals and principles of risk management in order to make the Group’s business more secure in both the short and the long term.
The Group’s goal in risk management is to increase effectiveness of Management decisions through detailed analysis of related risks.
The Group’s Integrated Risk Management System (IRMS) is a systematic continuous process that identifies, assesses and manages risks. Its key principle is that responsibility to manage different risks is assigned to different management levels depending on the expected financial impact of those risks. The Group is working continuously to improve its approach to basic IRMS processes, with special focus on efforts to assess risks and integrate the risk management process into such key corporate processes as business planning, project management and mergers and acquisitions.
FINANCIAL RISK MANAGEMENT // Management of the Group’s financial risks is the responsibility of employees acting within their respective professional spheres. The Group’s Financial Risk Management Panel defines a uniform approach to financial risk management at the Company and its subsidiaries. Activities performed by the Group’s employees and the Financial Risk Management Panel minimise potential financial losses and help to achieve corporate targets.
188 GAZPROM NEFT // 2015 ANNUAL REPORT In the normal course of its operations the Group has exposure to the following financial risks: ↗↗ market risk (including currency risk, interest rate risk and commodity price risk); ↗↗ credit risk; and ↗↗ liquidity risk. MARKET RISK // CURRENCY RISK // The Group is exposed to currency risk primarily on borrowings that are denominated in currencies other than the respective functional currencies of Group entities, which are primarily the local currencies of the Group companies, for instance the Russian Rouble for companies operating in Russia. The currency in which these transactions are denominated is mainly US Dollar.
The Group’s currency exchange risk is considerably mitigated by its foreign currency assets and liabilities: the current structure of revenues and liabilities acts as a hedging mechanism with opposite cash flows offsetting each other. The Group applies hedge accounting to manage volatility in profit or loss with its cash flows in foreign currency and hedges predominantly its borrowings.
The carrying amounts of the Group's financial instruments by currencies they are denominated are as follows:
As of 31 December 2015 Russian Rouble USD EURO Serbian dinar Other currencies FINANCIAL ASSETS Current Cash and cash equivalents 22,142 81,112 2,514 6,271 2,159 Bank deposits 1,956 45,959 636 – 655 Loans issued 15,728 – 74 – – Trade and other financial receivables 37,553 35,464 6,063 14,716 1,445 Non-current Trade and other financial receivables 1,18 4 – 7,6 8 4 – – Loans issued 33,983 6,959 91 – – Held to maturity financial assets – 3 – – – Available for sale financial assets 9,748 – – 99 – FINANCIAL LIABILITIES Current Short-term debt (23,774) (117,713) (5,813) – (19) Trade and other financial payables ( 57,94 6 ) (9,046) (4,133) (8,076) (2,084) Forward exchange contracts – (23,545) – – – Non-current Long-term debt (107,072) (479,958) (83,255) (1) (493) Forward exchange contracts – (52,713) – – – Other non-current financial liabilities (62,654) (7) – – – NET EXPOSURE (129,152) (513,485) ( 76,139) 13,009 1,663
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As of 31 December 2014 Russian Rouble USD EURO Serbian dinar Other currencies FINANCIAL ASSETS Current Cash and cash equivalents 17,543 21,780 4,661 2,058 7,125 Bank deposits 630 66,558 1,14 6 – 8,324 Loans issued 2,162 22 – – – Forward exchange contracts – – – – – Trade and other financial receivables 39,287 33,673 1,988 26,789 1,277 Non-current Trade and other financial receivables 265 – – – – Loans issued 25,680 2,544 5 – – Forward exchange contracts – – – – – Held to maturity financial assets – 109 – – – Available for sale financial assets 9,276 – – 14 – FINANCIAL LIABILITIES Current Short-term debt (25,918) (30,211) (4,980) – (12) Trade and other financial payables (4 6,170) (17,195) (1,442) ( 7,19 8) (1,891) Forward exchange contracts – (9,921) – – – Non-current Long-term debt (69,858) (365,559) (66,613) (1) (275) Forward exchange contracts – (48,391) – – – Other non-current financial liabilities ( 57,553) – – – – NET EXPOSURE (104,656) (346,591) (65,235) 21,662 14,548
The following exchange rates applied during the period:
Reporting date spot rate
31 December 2015 31 December 2014 USD 1 72.88 56.26 EUR 1 79.70 68.34 RSD 1 0.66 0.57
Sensitivity analysis // The Group has chosen to provide information about market and potential exposure to hypothetical gain / (loss) from its use of financial instruments through sensitivity analysis disclosures.
190 GAZPROM NEFT // 2015 ANNUAL REPORT The sensitivity analysis shown in the table below reflects the hypothetical effect on the Group's financial instruments and the resulting hypothetical gains/losses that would occur assuming change in closing exchange rates and no changes in the portfolio of investments and other variables at the reporting dates.
Weakening of RUB
Equity Profit or loss 31 DECEMBER 2015 USD/RUB (30% increase) (19,357) (135,791) EUR/RUB (30% increase) (3) (22,923) RSD/RUB (30% increase) (19,891) (2) 31 DECEMBER 2014 USD/RUB (70% increase) (24,159) (225,022) EUR/RUB (70% increase) 149 (46,606) RSD/RUB (70% increase) 61,837 –
Decrease in the exchange rates will have the same effect in the amount, but the opposite effect on Equity and Profit and loss of the Group.
INTEREST RATE RISK // The significant part of the Group’s borrowings is at variable interest rates (linked to the LIBOR or EURIBOR rate). To mitigate the risk of unfavourable changes in the LIBOR or EURIBOR rates, the Group’s treasury function monitors interest rates in debt markets and based on it decides whether it is necessary to hedge interest rates or to obtain financing on a fixed-rate or variable-rate basis.
Changes in interest rates primarily affect debt by changing either its fair value (fixed rate debt) or its future cash flows (variable rate debt). However, at the time of any new debts Management uses its judgment and information about current/expected interest rates on the debt markets to decide whether it believes fixed or variable rate would be more favourable over the expected period until maturity.
The interest rate profiles of the Group are presented below:
Carrying amount
31 December 2015 31 December 2014 FIXED RATE INSTRUMENTS Financial assets 220,239 160,238 Financial liabilities (474,639) (319,395) (254,400) (159,157) VARIABLE RATE INSTRUMENTS Financial liabilities (343,459) (244,032) (343,459) (244,032)
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Cash flow sensitivity analysis for variable rate instruments // The Group's financial results and equity are sensitive to changes in interest rates. If the interest rates applicable to floating debt increase by 100 basis points (bp) at the reporting dates, assuming all other variables remain constant, it is estimated that the Group's profit before taxation will change by the amounts shown below:
Profit or loss 31 DECEMBER 2015 Increase by 100 bp (3,435) 31 DECEMBER 2014 Increase by 100 bp (2,440)
A decrease by 100 bp in the interest rates will have the same effect in the amount, but the opposite effect on Profit and loss of the Group.
COMMODITY PRICE RISK // The Group’s financial performance relates directly to prices for crude oil and petroleum products. The Group is unable to fully control the prices of its products, which depend on the balance of supply and demand on global and domestic markets for crude oil and petroleum products, and on the actions of supervisory agencies.
The Group’s business planning system calculates different scenarios for key performance factors depending on global oil prices. This approach enables Management to adjust cost by reducing or rescheduling investment programs and other mechanisms.
Such activities help to decrease risks to an acceptable level.
CREDIT RISK // Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and in connection with investment securities.
The Group’s trade and other receivables relate to a large number of customers, spread across diverse industries and geographical areas. Gazprom Neft has taken a number of steps to manage credit risk, including: counterparty solvency evaluation; individual lending limits and payment conditions depending on each counterparty’s financial situation; controlling advance payments; controlling accounts receivable by lines of business, etc.
The carrying amount of financial assets represents the maximum credit exposure.
TRADE AND OTHER RECEIVABLES // The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Any excess of receivables over approved credit limit is secured by either letter of credit from a bank with an external credit rating not less than A, or advance payment. Management believes that not impaired trade receivables are fully recoverable.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.
Impairment Losses // As of 31 December 2015 and 2014, the analysis of financial receivables is as follows:
Gross Impairment Gross Impairment 31 December 2015 31 December 2015 31 December 2014 31 December 2014 Not past due 95,916 (134) 87,434 (88) Past due 0–180 days 11,190 (4,796) 9,291 (93) Past due 180–365 days 3,199 (3,012) 799 (623) Past due 1–3 year 7,976 (6,371) 11,075 (5,101) Past due more than three years 10,412 (10,272) 7,656 ( 7,071) 128,693 (24,585) 116,255 (12,976)
192 GAZPROM NEFT // 2015 ANNUAL REPORT The movement in the allowance for impairment in respect of trade and other receivables during the period was as follows:
2015 2014 BALANCE AT THE BEGINNING OF THE YEAR 12,976 8,991 Increase during the year 6,284 662 Amounts written off against receivables 110 104 Decrease due to reversal (4,426) (284) Reclassification from other lines 7,94 6 Other movements (610) (239) Translation differences 2,305 3,742 BALANCE AT THE END OF THE YEAR 24,585 12,976
In 2015 the Group recognised an impairment provision in relation to trade receivables from OJSC “TRANSAERO Airlines” in the amount of RUB 5.7 billion.
Release in provision in the amount of RUB 4.4 billion mainly relates to positive outcome of negotiations with the Serbian Government for collection of receivables from Serbian state owned companies. The negotiations ended in adoption of the Law on taking over the receivables by the Government. As a result the receivables were restructured and in December 2015 the Group received the first instalment.
The movement in the allowance for impairment in respect of other current assets during the period was as follows:
2015 2014 BALANCE AT THE BEGINNING OF THE YEAR 16,951 10,461 Increase during the year 1,410 1,949 Amounts written off against receivables (4,047) (312) Reclassification to other lines ( 7,94 6 ) (0) Other movements 903 (284) Translation differences 1,722 5,137 BALANCE AT THE END OF THE YEAR 8,993 16,951
INVESTMENTS // The Group limits its exposure to credit risk mainly by investing in liquid securities. Management actively monitors credit ratings and does not expect any counterparty to fail to meet its obligations. The Group does not have any held-to-maturity investments that were past due but not impaired as of 31 December 2015 and 2014.
Credit quality of financial assets // The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:
A BBB Less than BBB Without rating Total AS OF 31 DECEMBER 2015 Cash and cash equivalents – 84,361 19,825 5,642 109,828 Deposits with original maturity more than 3 months – 42,652 6,554 – less than 1 year 49,206 Long-terms loans issued – – – 41,047 41,047 AS OF 31 DECEMBER 2014 Cash and cash equivalents 8,993 26,499 6,051 8,491 50,034 Deposits with original maturity more than 3 months 65,758 5,739 1,719 3,442 less than 1 year 76,658 Long-terms loans issued – – – 28,229 28,229
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The credit quality of trade and other receivables is assessed regularly by the Management of the Group. For this purpose the customers are individually analysed based on a number of characteristics, such as: ↗↗ legal form of the entity; ↗↗ duration of relationships with the Group, including ageing profile, maturity and existence of any financial difficulties; and whether the customer is a final customer or not, or a related party or not. One of the major factors that are considered is ageing profile. The most significant current customers do not have any breakage of payment history.
LIQUIDITY RISK // Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.
The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. In managing its liquidity risk, the Group maintains adequate cash reserves and actively uses alternative sources of loan financing in addition to bank loans. The Group’s stable financial situation helps it to mobilise funds in Russian and foreign banks with comparative ease.
The following are the contractual maturities of financial liabilities, including estimated interest payments:
Carrying Contractual Less than amount cash flows 6 months 6–12 months 1–2 years 2–5 years Over 5 years AS OF 31 DECEMBER 2015 Bank loans 476,080 540,886 67,6 80 68,683 108,054 282,073 14,396 Bonds 51,748 63,783 25,678 2,159 14,272 21,674 – Loan Participation Notes 280,193 363,090 10,104 5,672 12,509 94,967 239,838 Other borrowings 10,077 11,928 5,024 690 2,807 1,413 1,994 Other non-current financial liabilities 62,662 62,662 – – 60,601 2,061 – Trade and other payables 81,285 81,285 78,774 2,511 – – – 962,045 1,123,634 187,260 79,715 198,243 4 02,188 256,228 AS OF 31 DECEMBER 2014 Bank loans 262,962 293,629 15,797 23,460 78,335 169,132 6,905 Bonds 61,609 70,129 12,452 2,031 23,212 32,434 – Loan Participation Notes 221,107 295,615 5,880 2,532 6,566 80,530 200,107 Other borrowings 17,749 18,118 14,362 311 220 1,219 2,006 Other non-current financial liabilities 57,553 85,171 – – 1,031 67,951 16,189 Trade and other payables 73,896 73,896 71,188 2,708 – – – 694,876 836,558 119,679 31,042 109,364 351,266 225,207
194 GAZPROM NEFT // 2015 ANNUAL REPORT CAPITAL MANAGEMENT // The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, to provide sufficient return for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure the Group may revise its investment program, attract new or repay existing loans or sell certain non-core assets.
On the Group level capital is monitored on the basis of the net debt to EBITDA ratio and return on the capital on the basis of return on average capital employed ratio (ROACE). Net debt to EBITDA ratio is calculated as net debt divided by EBITDA. Net debt is calculated as total debt, which includes long and short term loans, less cash and cash equivalents and short term deposits. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortisation, foreign exchange gain (loss), other non-operating expenses and includes the Group’s share of profit of equity accounted investments. ROACE is calculated in general as Operating profit adjusted for income tax expense divided by the average for the period figure of Capital Employed. Capital employed is defined as total equity plus net debt.
The Group’s net debt to EBITDA ratios at the end of the reporting periods were as follows:
Year ended Year ended 31 December 2015 31 December 2014 Long-term debt 670,779 502,306 Short-term debt and current portion of long-term debt 147,319 61,121 Less: cash, cash equivalents and deposits (163,404) (129,825) NET DEBT 654,694 433,602 Total EBITDA 345,160 300,761 NET DEBT TO EBITDA RATIO AT THE END OF THE REPORTING PERIOD 1.90 1.44 Operating profit 207,615 212,645 Operating profit adjusted for income tax expenses 157,213 185,796 Add / (less) share of profit / (loss) of associates and joint ventures 24,956 (6,306) Average capital employed 1,733,285 1,373,665 ROACE 10.51% 13.07%
There were no changes in the Group’s approach to capital management during the period.
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FAIR VALUE MEASUREMENT // Fair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date.
The different levels of fair value hierarchy have been defined as follows: ↗↗ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities ↗↗ Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) ↗↗ Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following assets and liabilities are measured at fair value in the Group’s Consolidated Financial Statements: ↗↗ Derivative financial instruments (forward exchange contracts and interest-rate swaps used as hedging instruments), ↗↗ Stock Appreciation Rights plan (SAR), ↗↗ Financial investments classified as available for sale except for unquoted equity instruments whose fair value cannot be measured reliably that are carried at cost less any impairment losses.
Derivative financial instruments and SAR refer to Level 2 of the fair value measurement hierarchy, i.e. their fair value is determined on the basis of inputs that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices). There were no transfers between the levels of the fair value hierarchy during the year ended 31 December 2015 and 2014. There are no significant assets or liabilities measured at fair value categorised within Level 1 or Level 3 of the fair value hierarchy. The fair value of the foreign exchange contracts is determined by using forward exchange rates at the reporting date with the resulting value discounted back to present value.
As of 31 December 2015 the fair value of bonds and loan participation notes is RUB 258,408 million (RUB 232,210 million as of 31 December 2014). The fair value is derived from quotations in active market and related to Level 1 of the fair value hierarchy. The carrying value of other financial assets and liabilities approximate their fair value.
The table below analyses financial instruments carried at fair value, which refer to Level 2 of the fair value hierarchy.
Level 2 AS OF 31 DECEMBER 2015 Forward exchange contracts (76,258) Other financial liabilities (657) TOTAL LIABILITIES (76,915) AS OF 31 DECEMBER 2014 Forward exchange contracts (58,312) Other financial liabilities (2,228) TOTAL LIABILITIES (60,540)
The Company implements a cash-settled stock appreciation rights (SAR) compensation plan. The plan forms part of the long term growth strategy of the Group and is designed to reward Management for increasing shareholder value over a specified period. Shareholder value is measured by reference to the Group’s market capitalisation. The plan is open to selected Management provided certain service conditions are met. The awards are fair valued at each reporting date and are settled in cash at the conclusion of the three years vesting period. The awards are subject to certain market and service conditions that determine the amount that may ultimately be paid to eligible employees. The expense recognised is based on the vesting period. In 2015 the new three years period of SAR plan commenced.
The fair value of the liability under the plan is estimated using the Black-Scholes-Merton option-pricing model by reference primarily to the Group’s share price, historic volatility in the share price, dividend yield and interest rates for periods comparable to the remaining life of the award. Any changes in the estimated fair value of the liability award will be recognised in the period the change occurs subject to the vesting period.
196 GAZPROM NEFT // 2015 ANNUAL REPORT The following assumptions are used in the Black-Scholes-Merton model as of 31 December 2015:
Volatility 4.1% Risk-free interest rate 10.4% Dividend yield 6.1%
In the Consolidated Statement of Profit and Loss and Other Comprehensive Income for the year ended 31 December 2015 and 2014 the Group recognised compensation expense of RUB 657 million and RUB 594 million, respectively. This expense is included within selling, general and administrative expenses. A provision of RUB 657 million has been recorded in respect of the Group’s estimated obligations for one year under the plan as of 31 December 2015. As of 31 December 2014 the amount of the three years provision was equal to RUB 2,228 million.
35. OPERATING LEASES
Non-cancellable operating lease rentals are payable as follows:
31 December 2015 31 December 2014 Less than one year 8,179 15,425 Between one and five years 17,169 24,211 More than five years 65,404 69,062 90,752 108,698
The Group rentals mainly land plots under pipelines and office premises.
36. COMMITMENTS AND CONTINGENCIES
TAXES // Russian tax and customs legislation is subject to frequent changes and varying interpretations. Management’s treatment of such legislation as applied to the transactions and activity of the Group, including calculation of taxes payable to federal, regional and municipal budgets, may be challenged by the relevant authorities. The Russian tax authorities may take a more assertive position in their treatment of legislation and assessments, and there is a risk that transactions and activities that have not been challenged in the past may be challenged later. As a result, additional taxes, penalties and interest may be accrued. Generally, taxpayers are subject to tax audits for a period of three calendar years immediately preceding the year in which the decision to carry out a tax audit has been taken. Under certain circumstances tax audits may cover longer periods. The years 2012, 2013 and 2014 are currently open for tax audit. Management believes it has adequately provided for any probable additional tax accruals that might arise from these tax audits.
Russian transfer pricing legislation was amended starting from 1 January 2012 to introduce significant reporting and documentation requirements regarding market environment at the date of transaction. Compared to the old rules the new transfer pricing rules appear to be more technically elaborate and better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). The new legislation allows the tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controllable transactions (transactions with related party and some types of transactions with an unrelated parties), if the transaction pricing was not established in line with arm's length principles.
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The Group’s controllable transactions with related parties are subject to constant internal review for compliance with the new transfer pricing rules. The Group believes that the transfer pricing documentation that the Group has prepared to comply with the new legislation provides sufficient evidence to support the Group’s tax positions and related tax returns. In addition in order to mitigate potential risks, the Group negotiates pricing approaches for major controllable transactions with tax authorities in advance. Nine pricing agreements between the Group and tax authorities regarding some significant intercompany transactions have been concluded in 2012-2014. Given that the practice of implementation of the new transfer pricing rules has not yet been developed and some clauses of the new law have contradictions and cannot be called unambiguous, the impact of any challenge to the Group's transfer prices cannot be reliably estimated.
ECONOMIC ENVIRONMENT IN THE RUSSIAN FEDERATION // The Russian Federation displays certain characteristics of an emerging market. Tax, currency and customs legislation is subject to varying interpretations and contributes to the challenges faced by companies operating in the Russian Federation. The political and economic instability, uncertainty and volatility of the financial markets and other risks may have negative effects on the Russian financial and corporate sectors. The future economic development of the Russian Federation is dependent upon external factors and internal measures undertaken by the government to sustain growth, and to change the tax, legal and regulatory environment. Management believes it is taking all necessary measures to support the sustainability and development of the Group’s business in the current business and economic environment.
In 2014 the U.S., the EU and certain other countries imposed sanctions on the Russian energy sector that partially apply to the Group. The information on the main restrictions related to sanctions was disclosed in the Consolidated Financial Statements as of and for the year 31 December 2014. There were no significant changes in sanctions during the year 2015.
ENVIRONMENTAL MATTERS // The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its potential obligations under environmental regulation. Management is of the opinion that the Group has met the government’s requirements concerning environmental matters, and the Group does not therefore have any material environmental liabilities.
CAPITAL COMMITMENTS // As of 31 December 2015 the Group has entered into contracts to purchase property, plant and equipment for RUB 281,503 million (RUB 203,749 million as of 31 December 2014).
198 GAZPROM NEFT // 2015 ANNUAL REPORT 37. GROUP ENTITIES
The most significant subsidiaries of the Group and the ownership interest are presented below:
Ownership interest
Subsidiary Country of incorporation 31 December 2015 31 December 2014 EXPLORATION AND PRODUCTION OJSC Gazprom Neft-Noyabrskneftegaz Russian Federation 100% 100% Gazprom Neft Orenburg CJSC Russian Federation 100% 100% Zapolyarneft LLC Russian Federation 100% 100% Gazprom Neft Shelf LLC Russian Federation 100% 100% Gazprom Neft-Khantos LLC Russian Federation 100% 100% Gazprom Neft-Vostok LLC Russian Federation 100% 100% Gazprom neft Yamal LLC Russian Federation 90% 90% JSC Uzhuralneftegaz Russian Federation 87.5% 87.5% REFINING SC Gazprom Neft-Omsk Refinery Russian Federation 100% 100% JSC Gazprom Neft-Moscow Refinery Russian Federation 100% 100% MARKETING PJSC Gazpromneft-Tumen Russian Federation 99.5% 99.5% OJSC Gazpromneft-Omsk Russian Federation 100% 100% JSC Gazpromneft-Ural Russian Federation 100% 100% JSC Gazprom Neft-Novosibirsk Russian Federation 100% 100% OJSC Gazpromneft-Yaroslavl Russian Federation 92.5% 92.5% OJSC Gazpromneft-Centre Russian Federation 100% 100% OJSC Gazpromneft Regional Sales Russian Federation 100% 100% JSC Gazprom Neft-Severo-Zapad Russian Federation 100% 100% JSC Gazpromneft-Kuzbass Russian Federation 100% 100% CJSC Gazprom Neft-Aero Russian Federation 100% 100% Gazprom Neft Marin Bunker LLC Russian Federation 100% 100% OTHER OPERATIONS Gazpromneft-Lubricants LLC Russian Federation 100% 100% Gazpromneft-Bitumen Materials LLC Russian Federation 100% 100% Gazpromneft-NTC LLC Russian Federation 100% 100% OJSC CNT Russian Federation 100% 100% Gazpromneftfinance LLC Russian Federation 100% 100% Gazpromneft-Invest LLC Russian Federation 100% 100% MULTIBUSINESS COMPANIES Naftna industrija Srbije A.D. Serbia 56.2% 56.2%
The following tables summarise the consolidated financial information relating to the significant Group’s subsidiary Naftna industrija Srbije A.D. and its subsidiaries and Gazprom Resource Northgas LLC (note 6). The carrying amount of non-controlling interests of all other subsidiaries are not significant individually.
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As of and for the year ended 31 December 2015:
Carrying amount Profit attributable of non-controlling to non-controlling Non-current interest interest Current assets Non-current assets Current liabilities liabilities Naftna industrija Srbije A.D. and its subsidiaries 71,528 26,616 56,620 243,131 (43,006) (76,400) Gazprom Resource Northgas LLC 15,460 3,319 2,009 8,197 (7) –
Revenue Profit Naftna industrija Srbije A.D. and its subsidiaries 183,022 7,071 Gazprom Resource Northgas LLC – 4,058
As of and for the year ended 31 December 2014:
Carrying amount Profit attributable of non-controlling to non-controlling interest interest Current assets Non-current assets Current liabilities Non-current liabilities Naftna industrija Srbije A.D. and its subsidiaries 58,536 25,225 62,066 192,646 (42,726) (62,027)
Revenue Profit Naftna industrija Srbije A.D. and its subsidiaries 153,706 11,053
Dividends paid in 2015 by Naftna industrija Srbije A.D. to the non-controlling share comprised RUB 2.6 billion (RUB 2.3 billion in 2014). Gazprom Resource Northgas LLC didn’t pay dividends in 2015.
38. RELATED PARTY TRANSACTIONS
For the purpose of these Consolidated Financial Statements parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operational decisions as defined by IAS 24 Related Party Disclosures. Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.
The Group has applied the exemption as allowed by IAS 24 not to disclose all government related transactions, as the parent of the Company is effectively being controlled by the Russian Government. In the course of its ordinary business, the Group enters into transactions with natural monopolies, transportation companies and other companies controlled by the Russian Government. Such purchases and sales are individually insignificant and are generally entered into on market or regulated prices. Transactions with the state also include taxes which are detailed in Notes 11, 22 and 32. The tables below summarises transactions in the ordinary course of business with either the parent company or associates and joint ventures.
The Group enters into transactions with related parties based on market or regulated prices. Short-term and long-term loans provided as well as debt are based on market conditions available for not related entities.
200 GAZPROM NEFT // 2015 ANNUAL REPORT As of 31 December 2015 and 2014 the outstanding balances with related parties were as follows:
Parent's subsidiaries Associates and joint 31 December 2015 Parent company and associates ventures Cash and cash equivalents – 15,402 – Short-term financial assets – 3,135 14,901 Trade and other receivables 1,232 2,895 17,941 Other assets 4,527 1,253 Long-term financial assets 10 503 30,791 TOTAL ASSETS 1,242 26,462 64,886 Short-term debt and other current financial liabilities – – 1,672 Trade and other payables 3,203 2,737 1,567 Other current liabilities 2,107 1,107 241 Long-term debt and other non-current financial liabilities 62,650 72,883 – TOTAL LIABILITIES 67,960 76,727 3,480
Parent's subsidiaries Associates and joint 31 December 2014 Parent company and associates ventures Cash and cash equivalents – 13,780 – Short-term financial assets – 1,719 1,295 Trade and other receivables 1,257 3,038 13,190 Other assets 38 3,762 1,889 Long-term financial assets – – 23,541 TOTAL ASSETS 1,295 22,299 39,915 Short-term debt and other current financial liabilities – – 981 Trade and other payables 1,096 2,217 1,956 Other current liabilities 2,108 507 328 Long-term debt and other non-current financial liabilities 57,552 – – TOTAL LIABILITIES 60,756 2,724 3,265
For the years ended 31 December 2015 and 2014 the following transactions occurred with related parties:
Parent's subsidiaries Associates and joint Year ended 31 December 2015 Parent company and associates ventures Crude oil, gas and oil products sales 18,678 34,597 56,641 Other revenue 8 1,088 31,739 Purchases of crude oil, gas and oil products – 41,799 98,785 Production related services 31 14,332 17,730 Transportation costs 6,000 1,811 8,130 Interest income 370 1,588 3,580 Interest expense 5,993 94 160
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Parent's subsidiaries Associates and joint Year ended 31 December 2014 Parent company and associates ventures Crude oil, gas and oil products sales 14,259 22,523 42,790 Other revenue 16 414 10,830 Purchases of crude oil, gas and oil products – 38,825 84,599 Production related services – 14,737 19,092 Transportation costs 8,176 1,519 2,717 Interest income – 821 1,772 Interest expense 942 – –
For the year ended 31 December 2015 the Group had a transaction with a subsidiary of Gazprom (Note 6).
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL // For the years ended 31 December 2015 and 2014 the Group recognized RUB 1,564 million and RUB 1,664 million, respectively, as compensation for key management personnel (members of the Board of Directors and Management Committee). Starting from the Consolidated Financial Statements for the period ended December 31, 2014 the Group also includes quarterly accruals of SAR in key management remuneration in addition to salaries, bonuses and other contributions.
39. SEGMENT INFORMATION
Presented below is information about the Group’s operating segments for the years ended 31 December 2015 and 2014. Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM), and for which discrete financial information is available.
The Group manages its operations in 2 operating segments: Upstream and Downstream.
Upstream segment (exploration and production) includes the following Group operations: exploration, development and production of crude oil and natural gas (including joint ventures results), oil field services. Downstream segment (refining and marketing) processes crude into refined products and purchases, sells and transports crude and refined petroleum products. Corporate centre expenses are presented within the Downstream segment.
Eliminations and other adjustments section encompasses elimination of inter-segment sales and related unrealised profits, mainly from the sale of crude oil and products, and other adjustments.
Intersegment revenues are based upon prices effective for local markets and linked to market prices.
Adjusted EBITDA represents the Group’s EBITDA and its share in associates and joint ventures’ EBITDA. Management believes that adjusted EBITDA represents useful means of assessing the performance of the Group's ongoing operating activities, as it reflects the Group's earnings trends without showing the impact of certain charges. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortisation, foreign exchange gain (loss), other non-operating expenses and includes the Group’s share of profit of associates and joint ventures. EBITDA is a supplemental non-IFRS financial measure used by Management to evaluate operations.
202 GAZPROM NEFT // 2015 ANNUAL REPORT Year ended 31 December 2015 Upstream Downstream Eliminations Total Revenue from sales: External customers 74,802 1,393,141 – 1,4 67,943 Inter-segment 534,625 18,373 (552,998) – TOTAL REVENUE FROM SALES 609,427 1,411,514 (552,998) 1,467,943 Adjusted EBITDA 266,879 137,932 – 404,811 Depreciation, depletion and amortisation 71,153 27,34 8 – 98,501 Impairment of assets (15,582) – – (15,582) Capital expenditure 244,958 104,078 – 349,036
Year ended 31 December 2014 Upstream Downstream Eliminations Total Revenue from sales: External customers 24,226 1,384,012 – 1,408,238 Inter-segment 454,755 10,114 (464,869) – TOTAL REVENUE FROM SALES 478,981 1,394,126 (464,869) 1,408,238 Adjusted EBITDA 160,320 182,294 – 342,614 Depreciation, depletion and amortisation 64,223 21,728 – 85,951 Capital expenditure 208,796 62,534 – 271,330
The geographical segmentation of the Group’s revenue and capital expenditures for the years ended 31 December 2015 and 2014 is presented below:
Russian Export and Federation CIS international operations Total YEAR ENDED 31 DECEMBER 2015 Sales of crude oil 81,187 28,416 189,386 298,989 Sales of petroleum products 740,520 78,134 432,480 1,251,134 Sales of gas 28,243 – 3,411 31,654 Other sales 66,235 2,085 5,678 73,998 Less custom duties and sales related excises – (899) (186,933) (187,832) TOTAL REVENUE FROM SALES 916,185 107,736 444,022 1,467,943 YEAR ENDED 31 DECEMBER 2014 Sales of crude oil 42,624 15,889 233,101 291,614 Sales of petroleum products 715,854 64,582 546,498 1,326,934 Sales of gas 24,406 – 1,604 26,010 Other sales 40,695 1,430 3,874 45,999 Less custom duties and sales related excises – (593) (281,726) (282,319) TOTAL REVENUE FROM SALES 823,579 81,308 503,351 1,408,238
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Russian Export and Federation CIS international operations Total Non-current assets as of 31 December 2015 1,548,035 13,861 390,726 1,952,623 Capital expenditures for year ended 31 December 2015 301,070 1,277 46,689 349,036 Impairment of assets (4,023) – (11,559) (15,582) Non-current assets as of 31 December 2014 1,288,625 15,332 253,751 1,557,708 Capital expenditures for year ended 31 December 2014 235,337 1,737 34,256 271,330
Adjusted EBITDA for the years ended 31 December 2015 and 2014 is reconciled below:
Year ended 31 December 2015 Year ended 31 December 2014 Profit for the period 116,198 126,656 Total income tax expense 29,252 19,214 Finance expense 33,943 15,279 Finance income (14,732) ( 7,075) Depreciation, depletion and amortisation 98,501 85,951 Net foreign exchange loss 67,910 52,265 Other loss, net 14,088 8,471 EBITDA 345,160 300,761 (less) / add share of (profit) / loss of associates and joint ventures (24,956) 6,306 add share of EBITDA of associates and joint ventures 84,607 35,547 TOTAL ADJUSTED EBITDA 404,811 342,614
40. SUBSEQUENT EVENTS
In February 2016 the Group repurchased Rouble Bonds (series 8, 9 and 11) with the total par value of RUB 20.4 billion.
SUPPLEMENTARY INFORMATION ON OIL AND GAS ACTIVITIES (UNAUDITED) // The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). In the absence of specific IFRS guidance, the Group has reverted to other relevant disclosure standards, mainly US GAAP, that are consistent with practices established for the oil and gas industry. While not required under IFRS, this section provides unaudited supplemental information on oil and gas exploration and production activities.
The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). In the absence of specific IFRS guidance, the Group has reverted to other relevant disclosure standards, mainly US GAAP, that are consistent with practices established for the oil and gas industry. While not required under IFRS, this section provides unaudited supplemental information on oil and gas exploration and production activities.
The Group makes certain supplemental disclosures about its oil and gas exploration and production that are consistent with practices. While this information was developed with reasonable care and disclosed in good faith, it is emphasised that some of the data is necessarily imprecise and represents only approximate amounts because of the subjective judgments involved in developing such information. Accordingly, this information may not necessarily represent the current financial condition of the Group or its expected future results.
204 GAZPROM NEFT // 2015 ANNUAL REPORT The Group voluntarily uses the SEC definition of proved reserves to report proved oil and gas reserves and disclose certain unaudited supplementary information associated with the Group’s consolidated subsidiaries, share in joint operations, associates and joint ventures.
The proved oil and gas reserve quantities and related information regarding standardised measure of discounted future net cash flows do not include reserve quantities or standardised measure information related to the Group's Serbian subsidiary, NIS, as disclosure of such information is prohibited by the Government of the Republic of Serbia. The disclosures regarding capitalised costs relating to and results of operations from oil and gas activities do not include the relevant information related to NIS.
Presented below are capitalised costs relating to oil and gas producing activities:
31 December 2015 31 December 2014 CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS Unproved oil and gas properties 78,442 70,295 Proved oil and gas properties 1,199,223 1,163,58 4 Less: Accumulated depreciation, depletion and amortisation (474,857) (373,218) NET CAPITALISED COSTS OF OIL AND GAS PROPERTIES 802,808 860,661 GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES Proved oil and gas properties 472,931 366,771 Less: Accumulated depreciation, depletion and amortisation (101,596) (80,870) Net capitalised costs of oil and gas properties 371,335 285,901 TOTAL CAPITALISED COSTS CONSOLIDATED AND EQUITY INTERESTS 1,174,143 1,146,562
Presented below are costs incurred in acquisition, exploration and development of oil and gas reserves for the years ended 31 December:
Year ended Year ended 31 December 2015 31 December 2014 CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS Exploration costs 922 936 Development costs 242,400 179,461 COSTS INCURRED 243,322 180,397 GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES Exploration costs 311 583 Development costs 55,792 51,676 TOTAL COSTS INCURRED CONSOLIDATED AND EQUITY INTERESTS 299,425 232,656
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Results of operations from oil and gas producing activities for the years ended:
Year ended Year ended 31 December 2015 31 December 2014 CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS Revenues: Sales 120,476 100,567 Transfers 426,604 396,928 TOTAL REVENUES 547,080 497,495 Production costs (99,138) (84,089) Exploration expenses (922) (936) Depreciation, depletion and amortisation (70,978) (63,405) Taxes other than income tax (268,750) (245,484) PRETAX INCOME FROM PRODUCING ACTIVITIES 107,292 103,581 Income tax expenses (19,211) (12,058) RESULTS OF OIL AND GAS PRODUCING ACTIVITIES 88,081 91,523 GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES Total revenues 165,500 98,849 Production costs (19,521) (20,311) Exploration expenses (311) (583) Depreciation, depletion and amortisation (24,046) (16,293) Taxes other than income tax (64,248) (50,604) PRETAX INCOME FROM PRODUCING ACTIVITIES 57,374 11,058 Income tax expenses (5,274) 1,979 RESULTS OF OIL AND GAS PRODUCING ACTIVITIES 52,100 13,037 TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESULTS OF OIL AND GAS PRODUCING ACTIVITIES 14 0,181 104,560
PROVED OIL AND GAS RESERVE QUANTITIES // Proved reserves are defined as the estimated quantities of oil and gas, which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. In some cases, substantial new investment in additional wells and related support facilities and equipment will be required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change over time as additional information becomes available.
Proved developed reserves are those reserves, which are expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those reserves which are expected to be recovered as a result of future investments to drill new wells, to recomplete existing wells and/or install facilities to collect and deliver the production from existing and future wells.
206 GAZPROM NEFT // 2015 ANNUAL REPORT As determined by the Group's independent reservoir engineers, DeGolyer and MacNaughton, the following information presents the balances of proved oil and gas reserve quantities (in millions of barrels and billions of cubic feet respectively):
Proved Oil Reserves Quantities – in MMBbl 31 December 2015 31 December 2014 CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS BEGINNING OF YEAR 5,051 4,981 Production (315) (307) Purchases of minerals in place – 105 Revision of previous estimates 106 272 END OF YEAR 4,842 5,051 Minority’s share included in the above proved reserves (27) (16) Proved reserves, adjusted for minority interest 4,815 5,035 Proved developed reserves 2,573 2,747 Proved undeveloped reserves 2,270 2,304 GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES BEGINNING OF YEAR 1,362 1,189 Production (92) (77) Purchases of minerals in place 73 58 Revision of previous estimates 71 192 END OF YEAR1 1,414 1,362 Proved developed reserves 681 614 Proved undeveloped reserves 734 748 TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESERVES – END OF YEAR 6,256 6,413
Proved Gas Reserves Quantities – in Bcf 31 December 2015 31 December 2014 CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS BEGINNING OF YEAR 6,321 6,323 Production (479) (455) Purchases of minerals in place – 23 Revision of previous estimates 295 430 END OF YEAR 6,137 6,321 Minority’s share included in the above proved reserves (51) (29) Proved reserves, adjusted for minority interest 6,086 6,292 Proved developed reserves 3,598 3,821 Proved undeveloped reserves 2,539 2,500 GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES BEGINNING OF YEAR 10,188 7,069 Production (557) (150) Purchases of minerals in place 3,202 1,677 Revision of previous estimates 524 1,592 END OF YEAR 13,357 10,188 Proved developed reserves 6,846 4,357 Proved undeveloped reserves 6,511 5,831 TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESERVES – END OF YEAR 19,494 16,509
1 Including 82% NCI share in Gazprom Resource Northgas.
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STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES // Estimated future cash inflows from production are computed by applying average first-day-of-the-month price for oil and gas for each month within the 12 month period before the balance sheet date to year-end quantities of estimated proved reserves. Adjustment in this calculation for future price changes is limited to those required by contractual arrangements in existence at the end of each reporting period. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end proved reserves based on year-end cost indices, assuming continuation of year end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates. These rates reflect allowable deductions and tax credits and are applied to estimated future pre-tax cash flows, less the tax bases of related assets. Discounted future net cash flows have been calculated using a 10% discount factor. Discounting requires a year-by-year estimate of when future expenditures will be incurred and when reserves will be produced.
The information provided in tables set out below does not represent Management’s estimate of the Group’s expected future cash flows or of the value Group’s proved oil and gas reserves. Estimates of proved reserves quantities are imprecise and change over time, as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The calculations should not be relied upon as an indication of the Group’s future cash flows or of the value of its oil and gas reserves.
31 December 2015 31 December 2014 CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS Future cash inflows 10,101,648 12,756,212 Future production costs (6,506,491) ( 7,734,833) Future development costs (804,747) (938,935) Future income tax expenses (428,252) (665,167 ) Future net cash flow 2,362,158 3,417,27 7 10% annual discount for estimated timing of cash flow (1,237,50 4) (1,936,851) STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW 1,124,654 1,480,426 GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES Future cash inflows 3,560,911 3,593,104 Future production costs (1,840,372) (2,003,356) Future development costs (231,270) (254,790) Future income tax expenses (243,400) (228,982) Future net cash flow 1,245,869 1,105,976 10% annual discount for estimated timing of cash flow (752,451) (668,192) STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW 493,418 437,784 TOTAL CONSOLIDATED AND EQUITY INTERESTS IN THE STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW 1,618,072 1,918,210
208 GAZPROM NEFT // 2015 ANNUAL REPORT Appendix 2. Major transactions and related party transactions
No. of minutes No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction and date TRANSACTIONS APPROVED BY THE BOARD OF DIRECTORS 1 OJSC Gazprom Neft; Sale contracts for property located in the southwest Company’s shareholder – PT-0102/01 LLC Gazpromneft-Vostok part of the Krapivinskoye field; total transaction OJSC Gazprom dated amount including VAT – RUB 186,711,400. 15/01/2015 2 OJSC Gazprom Neft; Sale contracts for property located at the Company’s shareholder – PT-0102/01 OJSC Gazpromneft- Romanovskoye field; total transaction amount OJSC Gazprom dated Noyabrskneftegaz including VAT – RUB 5,298,200. 15/01/2015 3 OJSC Gazprom Neft; Sale contracts for property located at the South Company’s shareholder – PT-0102/01 LLC Gazpromneft-Khantos Kinyaminsky license area; total transaction amount OJSC Gazprom dated including VAT – RUB 53,076,400. 15/01/2015 4 OJSC Gazprom Neft – Contract on the provision of advertising services as Member of the Board of Directors, PT-0102/03 Advertiser, part of which the Advertiser is granted the status CEO A.V. Dyukov dated CJSC Hockey Club SKA – Club of “Sponsor of Hockey Club SKA” and a sponsorship 22/01/2015 package of advertising services that are provided, among other reasons, in connection with the participation of the Club’s team in games of the Kontinental Hockey League and Russian Hockey Championship season in 2014-2015 and 2015-2016. The period of services is from 01/01/2015 until the date of the last game for the SKA hockey team in the 2014-2015 season, from 01/09/2015 to 31/12/2015; The transaction price is determined based on market value and amounts to RUB 1,180,000,000, including VAT. 5 OJSC Gazprom; Addendum No. 1 to Contract No. 12NPtr/k-2014 Company’s shareholder – PT-0102/06 OJSC Gazprom Neft dated 03/03/2014 for the provision of gas OJSC Gazprom, Board of Directors dated transportation services. members A.B. Miller, K.G. Seleznev, 27/01/2015 A.V. Kruglov, M.L. Sereda, V.V. Cherepanov, E.V. Mikhailova, N.N. Dubik, V.A. Golubev 6 OJSC Gazprom; Service contract for organising and conducting an Company’s shareholder – PT-0102/06 OJSC Gazprom Neft inventory of the fixed assets of OJSC Gazprom leased OJSC Gazprom, Board of Directors dated to OJSC Gazprom Neft in the amount of RUB 1,075. members A.B. Miller, K.G. Seleznev, 27/01/2015 A.V. Kruglov, M.L. Sereda, V.V. Cherepanov, E.V. Mikhailova, N.N. Dubik, V.A. Golubev 7 OJSC Gazprom Neft – Service contract for the refining of no more than Management Board member PT-0102/07 Customer, OJSC Slavneft- 4,030,000 tonnes of oil with total value of no more A.M. Cherner dated YANOS – Refinery than RUB 6,314,816,000 over the period from 04/02/2015 01/07/2014 to 31/12/2014. 8 OJSC Gazprom Neft – Additional Agreement No. 4 to Supply Contract No. Management Board member PT-0102/07 Customer, OJSC Slavneft- GPN-11/27110/2096/D dated 01/10/2011 under A.M. Cherner dated YANOS – Refinery which clause 1.2 of the Contract is reworded. 04/02/2015
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No. of minutes No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction and date 9 OJSC Gazprom Neft – Additional Agreement No. 9 to Gas Supply Contract Company’s shareholder – PT-0102/07 Customer, LLC Gazprom No. 1-016/13 dated 12/12/2012 amending the supply OJSC Gazprom, Board of dated Mezhregiongaz volume from 01/01/2015 to 31/12/2015 for a total of Directors member K.G. Seleznev 04/02/2015 RUB 13.024 bn. 10 JSC Lakhta Centre MFC – Additional Agreement No. 2 to a Loan Agreement Company’s shareholder – PT-0102/13 Borrower under which the loan shall be no more than OJSC Gazprom, Management dated OJSC Gazprom Neft – RUB 15,946,150,000 until 31/12/2015. Board member E.A. Ilyukhina 06/03/2015 Lender 11 OJSC Gazprom Neft; Additional Agreement No. 1 to Contract No. 5688- Company’s shareholder – PT-0102/17 OJSC Sberbank of Russia POR-2 dated 24/12/2013 on the provision by OJSC OJSC Gazprom dated Gazprom Neft of a surety to OJSC Sberbank of Russia 24/03/2015 to secure the obligations of LLC Yamal Razvitie 12 OJSC Gazprom Neft; Additional Agreement No. 7 to Oil Refining Contract Company’s shareholder – PT-0102/20 OJSC Gazpromneft-Moscow No. MNZ-14/00000/00032/D dated 24 January 2014 OJSC Gazprom, Management dated Oil Refinery under which the Contract duration is extended until Board member A.M. Cherner 07/04/2015 01/07/2015; the Refinery’s cost of refining services per 1 (one) tonne of the Company’s oil and other raw materials shall be RUB 2,213 and the oil refining volume shall be 6,424,267 tonnes. 13 OJSC Gazprom Neft; Additional Agreement No. 3 to Contract Management Board member PT-0102/20 OJSC Slavneft-YANOS No. 03D00269/14 dated 01/07/2014 under which A.M. Cherner dated the Contract duration is extended until 31/12/2015 07/04/2015 and for the unfulfilled obligations – until they are fully met; the refining volume from 01/01/2015 shall amount to no more than 7,450,000 tonnes of oil with maximum value of up to RUB 12,968,066,000. 14 OJSC Gazprom Neft – Contract for the sale of 1,260,000.00 (+/- 10% at Company’s shareholder – PT-0102/22 Seller; NIS a.d. Novi Sad – the Seller’s discretion) metric tonnes of crude oil with OJSC Gazprom, Management dated Buyer the supply of nine batches containing 140,000.00 Board members V.V. Yakovlev, 16/04/2015 (+/- 10% at the Seller’s discretion) according to the K.A. Kravchenko, A.M. Cherner and following schedule: January, March, April, May, June, A.V. Yankevich July, August, September October; The Product price is determined based on the market value on CIF terms at Omišalj port in USD per barrel net as an average of the five average quotes following the bill of lading date (bill of lading date – Day 0) published in the bulletins of PLATT’S Crude Oil Marketwire under the heading “Urals (RCMB)”, plus USD 1.20 (one and 20/100); The total transaction amount shall not exceed RUB 23 bn; Contract duration from 31/12/2014 to 31/12/2015. 15 OJSC Gazprom Neft – Sale contracts for property located in the South Company’s shareholder – PT-0102/23 Seller; Kinyaminsky license area; total transaction amount – OJSC Gazprom dated LLC Gazpromneft- RUB 137,222,200, including VAT. 23/04/2015 Khantos – Buyer 16 OJSC Slavneft OGC – Oil supply contract for 256,667 tonnes (deviation Management Board members PT-0102/25 Supplier; of +/- 5%); total value of no more than RUB A.M. Cherner,V.V. Baranov, dated OJSC Gazprom Neft – 4,256,080,428, including VAT, from 01/01/2015 to A.V. Yankevich, V.V. Yakovlev 27/04/2015 Buyer 31/12/2015. 17 OJSC Gazprom Neft – Contract on the provision of advertising services Management Board member PT-0102/26 Customer, NP SC Avangard – for the placement of advertising materials of the A.M. Dybal dated Contractor OJSC Gazprom Neft retail brands at games of the KHL 28/04/2015 and MHL as well as other hockey tournaments from 01/08/2015 until 30/04/2016, with total value of RUB 798,860,000, including VAT.
210 GAZPROM NEFT // 2015 ANNUAL REPORT No. of minutes No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction and date 18 OJSC Gazprom Neft – Oil supply contract for 600,000 tonnes. Monthly Company’s shareholder – PT-0102/33 Supplier; OJSC Gazprom supply volume of 50,000 tonnes from 01/01/2015 to OJSC Gazprom dated Neftekhim Salavat – 31/12/2015, with the total transaction amount not 06/07/2015 Buyer exceeding RUB 10,320,160,000, including 18% VAT. 19 LLC Archinskoye – Oil supply contact for 259,324 tonnes +/- Company’s shareholder – PT-0102/33 Supplier; OJSC Gazprom 5% at the Supplier’s option starting from OJSC Gazprom dated Neft – Buyer 01/01/2015, from 01/01/2015 to 31/12/2015, 06/07/2015 with the total transaction amount not exceeding RUB 4,199,000,000, including VAT. 20 LLC Gazpromneft- Oil supply contract for 1,138,619 tonnes; Company’s shareholder – PT-0102/33 Vostok – Supplier; from 01/01/2015 to 31/12/2015, with the OJSC Gazprom dated OJSC Gazprom Neft – total transaction amount not exceeding 06/07/2015 Buyer RUB 18,437,000,000, including 18% VAT. 21 OJSC Gazprom Neft; Appendix No. 3 to Methyl Tert-Butyl Ether (MTBE) Management Board members PT-0102/34 OJSC Slavneft OGC Supply Contract No. 64537- A.M. Cherner, V.V. Baranov, dated 2014-100/GPN-14/27130/00804/D dated A.V. Yankevich, V.V. Yakovlev 09/07/2015 07/04/2014 under which supplies shall amount to 4,500 tonnes (option of +/- 3%); price per tonne of RUB 49,600.00; total value of RUB 263,376,000, including 18% VAT; supply period: from 17/03/2015 to 17/04/2015. 22 OJSC Gazprom; Gas transportation service contract for 6,427.4 mn m2 Company’s shareholder – PT-0102/35 OJSC Gazprom Neft starting from 01/01/2015 with total value of no more OJSC Gazprom, Board of Directors dated than RUB 5,750,000,000. members A.B. Miller, K.G. Seleznev, 13/07/2015 A.V. Kruglov, M.L. Sereda, V.V. Cherepanov, E.V. Mikhailova, N.N. Dubik, V.A. Golubev 23 OJSC Gazprom Neft; Additional Agreement No. 8 to Crude Oil Refining Company’s shareholder – PT-0102/35 OJSC Gazpromneft-Omsk Oil Contract No. GPN-13/09000/02436/R dated OJSC Gazprom dated Refinery 18/12/2013 under which the cost of refining 1 tonne 13/07/2015 of crude oil shall be RUB 2,299.60 and 1 tonne of semi-finished petroleum products shall be RUB 131.02; the refining volume from 01/01/2015 shall amount to no more than 8,719,137 tonnes of oil and 204,646 tonnes of other raw materials with maximum value of up to RUB 17,015,000,000, excluding VAT. 24 OJSC Gazprom Neft – Gas supply contract and Additional Agreement Company’s shareholder – PT-0102/38 Supplier; LLC Gazprom No. 1 for the supply of natural and/or stripped dry OJSC Gazprom, Board of Directors dated Mezhregiongaz – combustible natural gas produced at the fields member K.G. Seleznev 20/07/2015 Buyer of OJSC ARCTICGAS with supply volume in 2015 of 4,350,300,000 m2 and value of no more than RUB 8,798,255,661.69, excluding VAT. 25 OJSC Gazprom Neft; Additional Agreement No. 9 to Gas Condensate Company’s shareholder – PT-0102/41 OJSC NOVATEK Supply Contract No. GPN-12/28000/00881/R/2012- PJSC Gazprom dated 308-M dated 25/05/2012 under which the Contract 02/09/2015 duration is extended until 31/05/2015 inclusive, and for other obligations – until they are fully met; the supply volume shall amount to no more than 450,000 tonnes with maximum value of up to RUB 7,600,000,000, including VAT.
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No. of minutes No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction and date 26 OJSC Gazprom Neft; Additional Agreement No. 10 to Gas Condensate Company’s shareholder – PT-0102/41 OJSC NOVATEK Supply Contract No. GPN-12/28000/00881/R/2012- PJSC Gazprom dated 308-M dated 25/05/2012 under which the Contract 02/09/2015 duration is extended until 31/07/2015 inclusive, and for other obligations – until they are fully met; the supply volume shall amount to no more than 235,000 tonnes with maximum value of up to RUB 4,900,000,000, including VAT. 27 OJSC Gazprom Neft; Additional Agreement No. 11 to Gas Supply Contract Company’s shareholder – PT-0102/42 LLC Gazprom Mezhregiongaz No. 1-016/13 dated 12/12/2012 under which Table PJSC Gazprom, Board of Directors dated No. 2 of clause 2.1 of the Contract is revised. member K.G. Seleznev 03/09/2015 28 OJSC Gazprom Neft; Loan agreement on the opening of a line of credit. Company’s shareholder – PT-0102/45 Gazprombank (JSC) PJSC Gazprom, Board of Directors dated members A.B. Miller, K.G. Seleznev, 18/09/2015 A.V. Kruglov, M.L. Sereda 29 OJSC Gazprom Neft; Loan agreement on the opening of a line of credit. Company’s shareholder – PT-0102/45 Gazprombank (JSC) PJSC Gazprom, Board of Directors dated members A.B. Miller, K.G. Seleznev, 18/09/2015 A.V. Kruglov, M.L. Sereda 30 OJSC Gazprom Neft; Loan agreement on the opening of a line of credit. Company’s shareholder – PT-0102/45 Gazprombank (JSC) PJSC Gazprom, Board of Directors dated members A.B. Miller, K.G. Seleznev, 18/09/2015 A.V. Kruglov, M.L. Sereda 31 OJSC JSC Transneft; Service contract for oil blending – conditioning the Company’s shareholder – PT-0102/46 OJSC Gazprom Neft quality parameters of oil to no lower than Class 1 PJSC Gazprom dated according to the requirements of GOST R 51858- 21/09/2015 2002 “Oil. General Technical Specifications”; supply volume of 1,500,000 tonnes per year; cost of services calculated at a rate of RUB 150 per tonne (net weight) delivered to the main oil pipeline system for transportation, plus VAT in accordance with the existing legislation of the Russian Federation and not exceeding RUB 300,000,000.00, excluding 18% VAT; the contract shall take effect from the time of signing, apply to services rendered after 01/02/2015 and remain valid until 31/12/2015. 32 OJSC JSC Transneft; Additional Agreement No. 2 to Oil Blending Services Company’s shareholder – PT-0102/46 OJSC Gazprom Neft Contract No. 0415014 dated 24/02/2015 under which PJSC Gazprom dated Transneft shall provide blending services to condition 21/09/2015 the quality parameters of oil supplied to OJSC Gazpromneft-Omsk Oil Refinery and accepted at the Demyanskoye and Megion departure points to quality parameters of no less than Class 1 according to the requirements of GOST R 51858-2002 “Oil. General Technical Specifications” in an amount of up to 2 mn tonnes per year, and the Company shall pay for the services according to the procedures and dates set in the contract; takes effect from the time of signing and applies to services rendered after 01/05/2015.
212 GAZPROM NEFT // 2015 ANNUAL REPORT No. of minutes No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction and date 33 OJSC JSC Transneft; Contract for oil transportation services from Company’s shareholder – PT-0102/46 OJSC Gazprom Neft 01/01/2015 to 31/12/2015 via the main oil pipeline PJSC Gazprom dated system in the Russian Federation as well as agency 21/09/2015 services to ensure oil transportation by pipeline on the territory of Ukraine, the Republic of Belarus and the Republic of Kazakhstan for further transportation outside of the member nations of the Customs Union Agreement; the supply volume shall be 31,450,389 tonnes and the cost of services shall not exceed RUB 23,024,515,652.00. 34 OJSC JSC Transneft; Contract for oil storage services from 01/01/2015 Company’s shareholder – PT-0102/46 OJSC Gazprom Neft to 31/12/2015 with pooling in a tank farm of the PJSC Gazprom dated main oil pipeline system; the cost is calculated by 21/09/2015 adding up the daily cost of the oil storage services over the course of a month in accordance with the tariffs specified in the Contract and shall not exceed RUB 2,000,000.00. 35 OJSC JSC Transneft; Agreement on the provision of information services as Company’s shareholder – PT-0102/46 OJSC Gazprom Neft well as Additional Agreements No. 1, 2 and 3 thereto PJSC Gazprom dated under which the monthly cost of the services is RUB 21/09/2015 128.961.95 as of 01/12/2014, RUB 136,699.79 as of 01/01/2015, RUB 151,888.66 as of 01/02/2015 and RUB 167,077.52 as of 01/07/2015, including VAT. 36 OJSC JSC Transneft; Service contract for the transportation of petroleum Company’s shareholder – PT-0102/46 OJSC Gazprom Neft products with supply volume of 7,197,188 tonnes and PJSC Gazprom dated cost not exceeding RUB 9,382,311,877.00, excluding 21/09/2015 VAT, shall take effect upon signing and remain valid until 31/12/2015. 37 OJSC Gazprom Neft; Additional Agreement No. 12 to Gas Supply Contract Company’s shareholder – PT-0102/51 LLC Gazprom Mezhregiongaz No. 1-016/13 dated 12/12/2012 under which the PJSC Gazprom, Board of Directors dated price of 75.1 mn m2 of gas supplied from 01/07/2015 member K.G. Seleznev 30/09/2015 to 31/08/2015 shall be determined by the Parties in an amount corresponding to 80 per cent of the absolute minimum wholesale price for gas for the relevant period as established by the Russian Federal Tariffs Service for consumers in the Yamalo-Nenets Autonomous District to which the principles of government regulation apply (in the ‘except the population’ category). These gas volumes are an integral part of the volumes specified in clauses 2.2.4 (13.1 mn m2) and 2.2.5 (62.0 mn m2) of Table No. 2 of the Contract. Additional Agreement No. 12 shall apply to the parties’ relations arising after 01/07/2015. 38 LLC Meretoyakhaneftegaz – Oil supply contract for 1,750 tonnes +/- 5% at the Company’s shareholder – PT-0102/53 Supplier; Supplier’s option from 01/06/2015 to 31/12/2015. PJSC Gazprom dated OJSC Gazprom Neft – 06/10/2015 Buyer
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No. of minutes No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction and date 39 OJSC Gazprom Neft; Additional Agreement No. 1 to Oil Supply Contract Company’s shareholder – PT-0102/53 LLC Gazpromneft-Vostok No. GPN-14/28000/02818/R/VST-14/28000/573/D PJSC Gazprom dated dated 27/11/2014 under which the Product is 06/10/2015 supplied over the course of 2015 in the amount of 1,277,133 tonnes +/- 5% at the Supplier’s option, starting from 01/01/2015. The Product quantity to be delivered over a calendar month (hereinafter – supply month) shall be determined by the Parties on a monthly basis in the Addenda that constitute integral parts of the Contract. 40 OJSC Gazprom Neft; Additional Agreement No. 14 to Gas Condensate Company’s shareholder – PT-0102/53 OJSC NOVATEK Supply Contract No. GPN-12/28000/00881/R/2012- PJSC Gazprom dated 308-M dated 25/05/2012 under which the Contract 06/10/2015 duration is extended until 31/12/2015 inclusive, and for other obligations – until they are fully met; the supply volume shall amount to no more than 589,000 tonnes with maximum value of up to RUB 12,300,000,000, including VAT. 41 OJSC Gazprom Neft; Additional Agreement No. 1 to Contract No. GPN- Member of the Board of Directors, PT-0102/53 CJSC Hockey Club SKA 15/09000/00191/R dated 22/01/2015 under which CEO A.V. Dyukov dated the period of services according to the Contract is 06/10/2015 from 22/01/2015 until the date of the last game for the SKA hockey team in the 2014-2015 season, from 24/08/2015 to 31/12/2015. The reporting periods under the Contract are: January 2015, February 2015, March 2015, April 2014 and the period from 24 August to 30 September 2015, hereinafter – a calendar month. In the event of a reduction in the calendar months during which services are provided due to the elimination of the SKA hockey team from championship content (defeat in a playoff series), the total cost of services under Appendix No. 1 shall not be subject to change. 42 OJSC Gazprom Neft; Additional Agreement No. 2 to Crude Oil Sale Company’s shareholder – PT-0102/53 NIS a.d. Novi Sad Contract No. GPN-14/28000/03178/D dated PJSC Gazprom, Management dated 31/12/2014 under which the Seller agrees to sell Board members V.V. Yakovlev, 06/10/2015 and the Buyer agrees to buy a total of 1,400,000.00 K.A. Kravchenko, A.M. Cherner and (+/- 10% at the Seller’s discretion) metric tonnes A.V. Yankevich of REBCO crude oil (Russian export blend) (the “Product”) subject to and in accordance with the terms of this Contract with the supply of 10 batches of the Product in an amount of 140,000.00 (+/- 10% at the Seller’s discretion) based on the following schedule: January, March, April, May, June, July (2 batches), August, September and October 2015. The Buyer may at its own unilateral discretion increase or decrease the quantity of the Product to be supplied in 2015 by no more than ten per cent (10%) by sending written notice to the Seller no later than the 15th of the month preceding the month of the most recent supply over the validity of the Contract. 43 OJSC Gazprom Neft; Agreement on the provision of information services Company’s shareholder – PT-0102/53 OJSC JSC Transneft according to the appendix with monthly cost of PJSC Gazprom dated RUB 607,406.01 (including VAT) and validity until 06/10/2015 31/12/2015.
214 GAZPROM NEFT // 2015 ANNUAL REPORT No. of minutes No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction and date 44 OJSC Gazprom Neft; Additional Agreement No. 11 to Crude Oil Refining Company’s shareholder – PT-0102/53 OJSC Gazpromneft-Omsk Oil Contract No. GPN-13/09000/02436/R dated PJSC Gazprom dated Refinery 18/12/2013 under which the Contract duration is 06/10/2015 extended until 31/10/2015 and for the unfulfilled obligations – until they are fully met; the refining volume from 01/06/2015 to 31/10/2015 shall amount to no more than 9.63 mn tonnes of oil and 0.25 mn tonnes of other raw commodities with maximum value of no more than RUB 18.6 bn, excluding VAT. 45 OJSC Gazprom Neft; Appendix No. 10 to Oil Supply Contract No. GPN- Company’s shareholder – PT-0102/54 CJSC CNT 11/28000/02546/r dated 25/10/2011 under which PJSC Gazprom dated the supplier CJSC CNT agrees to transfer and the 08/10/2015 buyer OJSC Gazprom Neft agrees to accept and pay for oil (hereinafter the “Product”) in the amount of 782,000 (seven hundred eighty-two thousand) tonnes +/- 10% at the Seller’s option from 01/01/2015 to 31/12/2015 inclusive. The overall cost of the Product during the supply period shall not exceed RUB 13 bn, including 18% VAT. 46 OJSC Gazprom Neft; Appendix No. 10 to Oil Supply Contract No. GPN- Company’s shareholder – PT-0102/54 OJSC Yuzhuralneftegaz 11/28000/02770/R/303/11 dated 28/11/2011 under PJSC Gazprom dated which the supplier OJSC Yuzhuralneftegaz agrees to 08/10/2015 transfer and the buyer OJSC Gazprom Neft agrees to accept and pay for oil (hereinafter the “Product”) in the amount of 300,000 tonnes +/- 10% at the Supplier’s option from 01/01/2015 to 31/12/2015 inclusive. The overall cost of the Product during the supply period shall not exceed RUB 6 bn, including 18% VAT. 47 OJSC Gazprom Neft; Appendix No. 10 to Oil Supply Contract No. GPN- Company’s shareholder – PT-0102/54 CJSC Zhivoy Istok 11/28000/02222/r dated 01/12/2012 under which PJSC Gazprom dated the supplier CJSC Zhivoy Istok agrees to transfer and 08/10/2015 the buyer OJSC Gazprom Neft agrees to accept and pay for oil (hereinafter the “Product”) in the amount of 10,000 tonnes +/- 10% at the Supplier’s option from 01/01/2015 to 31/12/2015 inclusive. The overall cost of the Product during the supply period shall not exceed RUB 170,000,000, including 18% VAT. 48 OJSC Gazprom Neft; Receipt by OJSC Gazprom Neft of an interest-bearing Company’s shareholder – PT-0102/55 LLC Gazprom Resource loan from LLC Gazprom Resource Northgas for no PJSC Gazprom dated Northgas more than RUB 9,200,000,000 at an interest rate 09/10/2015 of 12.23% p.a. with the ability to revise the rate at least once a year depending on changes to market conditions and based on the agreement of the parties to the loan agreement and a repayment date no later than 31/03/2019. 49 PJSC Gazprom Neft – Provision of a surety under Non-Revolving Credit Company’s shareholder – PT-0102/59 Guarantor; Facility Agreement No. 12 dated 19/08/2015 (along PJSC Gazprom dated PJSC Sberbank – Creditor; with all amendments and additions) (hereinafter 03/11/2015 LLC Gazpromneft Shipping – the Credit Agreement), including the repayment of Borrower principal, interest for the use of the loan (fee for provisioning, fee for the use the credit facility limit, fee for the early repayment of the loan), penalties and the reimbursement of court costs for the recovery of the creditor’s debt and other losses caused by the Borrower’s failure to perform or improper performance of its obligations under the Credit Agreement the essential terms of which are given in the appendix to this resolution. Validity until 18/08/2028.
www.gazprom-neft.com 215 Appendix
No. of minutes No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction and date 50 PJSC Gazprom Neft –Seller; Sale contract for a filling station with Company’s shareholder – PT-0102/60 LLC Gazpromneft-Centre – 5 fuel dispensers, provisional No. PJSC Gazprom dated Buyer 89:08:050101:001163510/А, transaction price – 05/11/2015 RUB 8,319,000, including VAT. 51 PJSC Gazprom Neft; Additional Agreement No. 16 Crude Oil Refining Company’s shareholder – PT-0102/62 JSC Gazpromneft-Moscow Oil Contract No. GPN-14/00000/00032/D dated PJSC Gazprom, Management dated Refinery 24/01/2014 on the terms of: the cost of refining 1 Board member A.M. Cherner 24/11/2015 tonne of the Company’s oil by the Refinery shall be RUB 2,486, excluding VAT, and including the cost of expenses related to the receipt of a bank guarantee by the Refinery. The cost of refining 1 tonne of the Company’s other raw commodities by the Refinery, excluding VAT, shall amount to: ↗↗ propane fraction – component of liquefied gas – RUB 448.00; ↗↗ butane-butylene fraction from the polypropylene production complex – RUB 69.00; ↗↗ fuel oil component – washout product – RUB 76.00; ↗↗ fuel oil component – distillate, oxidised tar and bitumen according to specifications – RUB 76.00. The planned refining volume from 01/07/2015 to 31/03/2016 shall be no more than 8.67 mn tonnes of crude oil and 0.02 mn tonnes of other raw commodities. The Contract duration shall be extended until 31/03/2016 and for the unfulfilled obligations – until they are fully met. 52 PJSC Gazprom Neft; Sale contract for REBCO crude oil with a supply Company’s shareholder – PT-0102/65 NIS a.d. Novi Sad volume of 140,000.00 (+/- 10% at the Seller’s PJSC Gazprom, Management dated discretion) metric tonnes of crude oil (hereinafter Board members V.V. Yakovlev, 18/12/2015 the “Product”) with supply in December 2015; total K.A. Kravchenko, A.M. Cherner and transaction amount of up to RUB 4,000,000,000; A.V. Yankevich Contract validity from 12/08/2015 to 31/12/2015. 53 PJSC Gazprom Neft; Additional Agreement No. 2 to Advertising Service Management Board member PT-0102/66 NP SC Avangard Contract No. GPN-15/09000/00954/R dated A.M. Dybal dated 29/04/2015 under which the total cost of the 21/12/2015 Contractor’s advertising services (performed advertising work) over the duration of the Contract amounts to RUB 798,860,000, including VAT, as well as the amount of additional payments (bonuses) as established by clause 1.1 of this Contract. 54 PJSC Gazprom Neft – Provision of an interest-bearing loan for no more than Company’s shareholder – PT-0102/68 Lender; RUB 3,359,308,000 with a repayment date no later PJSC Gazprom dated LLC Gazpromneft Shipping – than 31/12/2026. 30/12/2015 Borrower
216 GAZPROM NEFT // 2015 ANNUAL REPORT Appendix 3 Company history
1995
ESTABLISHMENT OF OJSC SIBERIAN OIL COMPANY // OJSC Siberian Oil Company was established under a decree of the President of the Russian Federation. The Russian Government founded the Company by contributing its stakes in some of Russia’s largest oil industry enterprises to the holding’s charter capital: OJSC Noyabrskneftegaz, OJSC Noyabrskneftegazgeophysika, OJSC Omsk Refinery and OJSC Omsknefteprodukt.
1996–1997
PRIVATISATION OF OJSC SIBERIAN OIL COMPANY // The Russian Government privatised Sibneft as part efforts to develop a market economy. Private investors bought 49% of Sibneft stock at auctions in 1996. In 1997, Financial Petroleum Company won an auction to purchase the government’s stake in Sibneft as part of the Government’s ‘Shares for Loans’ programme.
1998–2004
ASSET BUILD-UP // A proactive acquisition policy rapidly expanded the Company’s production territory (in the Tomsk and Omsk Regions) and the Company’s sales network (Sverdlovsk, Tyumen and Krasnoyarsk Regions, and the cities of St. Petersburg and Moscow). One of the Company’s major purchases during this period was its acquisition of 49.9% of the shares in JSC Slavneft Oil and Gas Company, which produced oil and gas in Western Siberia and the Krasnoyarsk Region.
RAPID DEVELOPMENT // Good resource potential, efficient refining capacities and professional management ensured the rapid development of the Company. Sibneft management worked hard to modernise production, introduce the latest technologies and optimise business processes.
2005
OJSC GAZPROM ACQUIRES CONTROLLING STAKE // The Gazprom Group bought a controlling interest in OJSC Sibneft (75.68%) and the Company’s name was changed to JSC Gazprom Neft on 13 May 2006. The new strategic objectives of Gazprom Neft were to become a global company with regionally diversified assets along the entire value chain.
2006
ENTRY TO THE CENTRAL ASIAN MARKET // Gazprom Neft entered the retail market in Central Asia by creating a subsidiary — Gazprom Neft Asia — to sell the Company’s petroleum products in Kyrgyzstan, Tajikistan and Kazakhstan.
www.gazprom-neft.com 217 Appendix
2007
PURCHASE OF OJSC TOMSKNEFT // In December 2007, to further expand its resource base, Gazprom Neft acquired a 50% stake in Tomskneft (VNK), a company producing oil and gas in the Tomsk Region and Khanty-Mansi Autonomous District.
CREATION OF BUSINESS UNIT // Business units were set up within the Company to focus on activities in specific segments: Gazprom Neft Marine Bunker, Gazprom Neft-Lubricants and Gazprom Neft-Aero.
2008
PROJECTS IN VENEZUELA // OJSC Gazprom Neft, OJSC Rosneft, OJSC Lukoil, TNK-BP and OJSC Surgutneftegas signed a Memorandum of Understanding on cooperation and joint participation in projects in Venezuela as part of the National Oil Consortium.
2009
BUILD-UP OF RESOURCE BASE // Gazprom Neft acquired new assets for its resource portfolio and refinery capacities: the Serbian oil company, NIS, and a controlling stake in Sibir Energy. The latter acquisition increased the Company’s ownership stake in the Moscow Refinery and gave it access to the Salym oil fields. In April 2009, the Company closed a deal with Chevron Global Energy to purchase the Chevron Italia s.p.a. oils and lubricants production plant in the city of Bari (Italy). Another milestone for the Company in 2009 was the launch of a large-scale rebranding programme for the Gazpromneft filling station chain.
2010
GLOBAL OIL AND GAS MARKET // Gazprom Neft actively expanded its presence in the global oil and gas market. The Company signed a contract to develop the Badra field in Iraq. In addition, Gazprom Neft was appointed the leading company in the Junin-6 project in Venezuela in 2010. The Company continued entering new fuel markets outside of Russia with the acquisition of a retail chain of filling stations and nine land plots in Kazakhstan. It also expanded its presence on the Russian market by taking part in a project to develop promising fields in the north of the Yamalo-Nenets Autonomous District for which LLC SeverEnergia holds the development licenses. In February, Gazprom Neft closed a deal to purchase STS Service, a production unit of Sweden’s Malka Oil, which operates at fields in the Tomsk Region.
2011
PRODUCTION GROWTH // Gazprom Neft substantially improved its operating performance by purchasing new assets and through the more efficient development of existing fields. The Company purchased a further 5.15% stake in Serbia’s NIS, thus raising its overall holding to 56.15%, became the sole shareholder in Sibir Energy and also acquired its first assets in the Orenburg Region – the Tsarichanskoye and Kapitonovskoye fields as well as the eastern part of the Orenburg field. Drilling began at the Badra field in Iraq.
PREMIUM FUEL // The Company began manufacturing environmental grade 4 gasolines at its oil refineries and launched sales of a new G-Drive premium-class motor fuel at its Gazpromneft filling station network, which was further expanded when the Company entered the market of Russia’s Southern Federal District.
HIGH QUALITY BITUMINOUS MATERIALS // A project was implemented to prepare raw materials for bitumen production at the Omsk Oil Refinery, ensuring the stable quality of raw commodities for bitumen production and guaranteeing the quality of the finished products manufactured using the refinery processing unit. An industrial unit was launched in 2011 to produce polymer- bitumen binders and bitumen emulsions from Italy’s MASSENZA.
218 GAZPROM NEFT // 2015 ANNUAL REPORT 2012
A LEADER IN EFFICIENCY // Gazprom Neft holds the leading position in Russia in terms of hydrocarbon production and refining growth rates in addition to a number of efficiency metrics. The Company launched pilot oil production at two major new fields in the north of the Yamalo-Nenets Autonomous District: East Messoyakha and Novoportovskoye. The first stage of commercial production began at the Samburgskoye oil and gas condensate field, which belongs to the Russian-Italian company SeverEnergia, in which Gazprom Neft holds a 25% stake. The formation and development of a new production cluster continued in the Orenburg region. The Company entered into new projects for the exploration and development of hydrocarbon reserves in Iraq. The Moscow Oil Refinery switched to producing environmental grade 4 gasolines, while the Omsk Oil Refinery began producing Euro 4 and Euro 5 gasolines and Euro 5 diesel. Gazprom Neft started developing a retail network in Europe (Serbia and Romania) under the Gazprom brand.
2013
STRATEGY // The Gazprom Neft Board of Directors approved the Company’s development strategy, which it has extended to 2025. This builds on the strategy to 2020, which aimed to achieve goals set for the main business segments – hydrocarbon production, refining and sales of petroleum products – taking into account changing conditions in the industry and the global economy. The Company aims to continue actively increasing shareholder value in the period until 2025. The development plans for the marine and aviation fuel business and lubricant production business were brought forward to 2025.
PRODUCTION LAUNCHED ON ARCTIC SHELF // Gazprom Neft is the operator of the Prirazlomnoye field in the Pechora Sea, which produced the first oil from the Arctic shelf in December 2013.
EURO-5 FUEL STANDARD // A hydro-processing facility for catalytic gasoline and a light naphtha isomerisation unit was commissioned at Gazprom Neft’s Moscow refinery. This enabled the plant to switch entirely to producing Euro-5 grade gasolines. All of the Company’s refineries have thus completed the switch over to the Euro-5 standard well ahead of the deadline specified in Russian legislation.
BITUMEN BUSINESS DEVELOPMENT // The Company acquired assets in Ryazan and Kazakhstan to develop its bitumen business. In 2013, Gazprom Neft and France’s Total established a joint venture to produce and sell polymer-modified bitumen (PMB) under the G-Way Styrelf brand as well as bitumen emulsions at the Moscow Oil Refinery.
2014
DEVELOPMENT OF PRODUCTION PROJECTS // Gazprom Neft obtained the first oil at the Badra oil field in Iraq and began the commercial shipment of oil into the Iraqi pipeline system. The Company made the first summer shipment from the Novoportovskoye field, marking the first time that raw commodities were exported from the field by sea and sent to European consumers.
PRODUCTION ON THE ARCTIC SHELF // The one millionth barrel of the new ARCO (Arctic Oil) blend was produced at the Prirazlomnoye field. The drilling of a new exploration well began at the Dolginskoye oil field on the Pechora Sea shelf.
ACQUISITION OF NEW LICENSES // Gazprom Neft obtained access to the licenses for the Kuvaysky and Yagodny license areas in the Orenburg Region. The subsoil resources of the license areas are capable of maintaining and increasing the Company’s oil production level.
www.gazprom-neft.com 219 Appendix
2015
COMMISSIONING OF NEW FACILITIES // Gazprom Neft and SIBUR commissioned the South Priobsky Gas Processing Plant.
RUSSIA’S BEST EMPLOYER // Gazprom Neft was declared Russia’s best employer (in the Russian Employers 2015 rating conducted by the Headhunter recruiting holding). The Company rose two positions compared with the 2014 results.
ACQUISITION OF NEW LICENSES // Gazprom Neft obtained a license to develop the West Yubileynoye field in the Yamalo-Nenets Autonomous District. The Company obtained new licenses in the Khanty-Mansi Autonomous District at the Yuilsky-3, Lyaminsky-6, North Ityakhsky-1, Maloyugansky and West Zimny sections.
OIL PRODUCTION // The one millionth tonne of the ARCO oil blend was produced at the Prirazlomnoye field. The one millionth barrel of commercial oil was produced at the Sarqala field in Iraq’s Kurdish region. The one millionth tonne of oil was produced at the Badra field in Iraq.
220 GAZPROM NEFT // 2015 ANNUAL REPORT Appendix 4. Structure of the Company’s Group1
PRODUCTION
↗↗ OJSC Gazpromneft-Noyabrskneftegaz ↗↗ LLC Gazpromneft-Yamal ↗↗ LLC Gazpromneft-Khantos ↗↗ LLC Gazpromneft-Shelf ↗↗ LLC Gazpromneft-Vostok ↗↗ CJSC Khanty-Mansi Oil and Gas Union (JV) ↗↗ LLC Meretoyakhaneftegaz ↗↗ OJSC Slavneft OGC (JV) ↗↗ LLC Zapolyarneft ↗↗ OJSC Tomskneft VNK (JV) ↗↗ LLC Gazpromneft-Angara ↗↗ LLC SeverEnergia (JV) ↗↗ LLC Gazpromneft-Sakhalin ↗↗ CJSC Messoyakhaneftegaz (JV) ↗↗ CJSC Gazprom Neft Orenburg ↗↗ OJSC Arcticgas (JV) ↗↗ OJSC Yuzhuralneftegaz ↗↗ Salym Petroleum Development N.V.
OILFIELD SERVICE
↗↗ OJSC Gazpromneft-NNGGF ↗↗ LLC Noyabrskteploneft ↗↗ LLC Gazpromneft-Nefteservice ↗↗ LLC Noyabrskenergoneft ↗↗ LLC NoyabrskNefteGazAvtomatika ↗↗ LLC Noyabrskneftenazsvyaz
REFINING
↗↗ JSC Gazpromneft – Omsk Oil Refinery ↗↗ LLC Gazpromneft-Total PMB ↗↗ JSC Gazpromneft – Moscow Oil Refinery ↗↗ LLC South Priobsky Gas Processing Plant (JV) ↗↗ OJSC Slavneft-YANOS (JV) ↗↗ LLC Neftekhimia SPE (JV) ↗↗ LPP Gazpromneft-Bitumen Kazakhstan ↗↗ JSC Sibgazpolimer (JV)
SALE OF PETROLEUM PRODUCTS
↗↗ OJSC Gazpromneft-Omsk ↗↗ LLC Gazpromneft-Belnefteprodukt ↗↗ JSC Gazpromneft-Kuzbass ↗↗ LLC Gazpromneft-Tajikistan ↗↗ LLC Gazpromneft-Centre ↗↗ LPP Gazpromneft-Kazakhstan ↗↗ CJSC Munay-Myrza ↗↗ LLC Alliance-Oil-Asia ↗↗ LLC Gazprom Neft Asia ↗↗ LLC Gazpromneft – Corporate Sales ↗↗ PJSC Gazpromneft-Tyumen (formerly LLC Gazpromneft – Nizhny Novgorod) ↗↗ LLC Gazpromneft-Chelyabinsk ↗↗ JSC Gazpromneft – Mobile Map ↗↗ LLC Gazpromneft-Krasnoyarsk ↗↗ LLC Mosnefteprodukt ↗↗ OJSC Gazpromneft-Ural ↗↗ JSC Gazpromneft-MNGK ↗↗ JSC Gazpromneft – North-West ↗↗ LLC Gazpromneft-SOUTH ↗↗ OJSC Gazpromneft-Yaroslavl ↗↗ LLC Gazpromneft Regional Sales ↗↗ JSC Gazpromneft-Transport ↗↗ JSC Gazpromneft – Alternative Fuel ↗↗ JSC Gazpromneft-Novosibirsk
1 Taking into account changes occurring after the reporting date.
www.gazprom-neft.com 221 Appendix
LUBRICANTS
↗↗ JSC Gazpromneft Moscow Lubricants Plant ↗↗ LLC Gazpromneft Lubricants Ukraine ↗↗ Gazprom Neft Lubricants Italia S.p.A. ↗↗ LLC Gazpromneft – Lubricants
AIRCRAFT FUELLING
↗↗ CJSC Gazpromneft-Aero ↗↗ LLP Gazpromneft-Aero Astana (JV) ↗↗ LLC Gazpromneft-Aero Murmansk ↗↗ LLC Gazpromneft-Aero Dushanbe (JV) ↗↗ LLC Gazpromneft-Aero Ulyanovsk ↗↗ LLC Gazpromneft-Aero Tomsk ↗↗ LLC Gazpromneft-Aero Kemerovo ↗↗ LLC Gazpromneft-Aero Bryansk ↗↗ LLC Gazpromneft-Aero Sheremetyevo (JV) ↗↗ LLC Gazpromneft-Aero Kyrgyzstan (JV) ↗↗ LLC North-West Refuelling Complex (JV) ↗↗ LLC Yenisey Refuelling Complex (JV) ↗↗ CJSC Sovex (JV) ↗↗ LLC Airport Fuel Supply
BUNKERING
↗↗ LLC Gazpromneft Marine Bunker ↗↗ AS BALTIC MARINE BUNKER ↗↗ LLC Gazpromneft-Shipping ↗↗ LLC Novorossiysk Oil Transhipment Complex ↗↗ LLC Gazpromneft Terminal SPb ↗↗ LLC Novorosnefteservice ↗↗ GAZPROMNEFT MARINE BUNKER BALKAN S.A.LLC
OTHER ACTIVITIES
↗↗ JSC JSC Lakhta Centre MFC ↗↗ LLC Gazpromneft-Logistics ↗↗ LLC Gazpromneftfinance ↗↗ SIBIR ENERGY LIMITED ↗↗ LLC Gazpromneftenergo ↗↗ LLC ITSC ↗↗ LLC Gazpromneft-FS ↗↗ LLC Gazpromneft-Supply ↗↗ LLC Gazpromneft RDC ↗↗ CJSC Blagovest Publishing House ↗↗ LLC Gazpromneft Invest ↗↗ LLC TK-BA (JV) ↗↗ LLC Gazpromneft Business Service ↗↗ LLC National Oil Consortium (JV) ↗↗ LLC Galernaya 5 Complex ↗↗ LLC Gazpromneft-Development
FOREIGN ACTIVITIES
↗↗ Gazprom Neft North Africa B.V. ↗↗ Gazprom Neft Downstream B.V. ↗↗ Gazprom Neft Badra B.V. ↗↗ Gazprom Neft Adria Ltd. ↗↗ Gazprom Neft Finance B.V. ↗↗ Gazprom Neft Business Service B.V. ↗↗ Gazprom Neft Middle East B.V. ↗↗ Gazprom Neft International S.A. ↗↗ Gazprom Neft Projects B.V.
DIVERSIFIED COMPANIES EXPORT
↗↗ Naftna Industrija Srbije А.D., Novi Sad ↗↗ Gazprom Neft Trading Gmbh
222 GAZPROM NEFT // 2015 ANNUAL REPORT Appendix 5. Glossary
1P Proved reserves according to international standards SPE-PRMS 2D, 3D Seismic exploration ADR OF GAZPROM NEFT PJSC American depositary receipts issued for shares of Gazprom Neft PJSC. One ADR equals five ordinary shares of Gazprom Neft PJSC APG Associated petroleum gas ARCTIC OIL (ARCO) Grade of Russian oil produced at Prirazlomnoye field ASSOCIATE COMPANY A company in which Gazprom Neft PJSC holds at least 20% of voting shares (for a joint-stock company) or 20% of charter capital (for a limited liability company) BALTIC STATES Estonia, Latvia and Lithuania BOE Barrel of oil equivalent BRENT Benchmark crude produced in the North Sea CATALYTIC CRACKING Thermal catalytic refining of petroleum fractions to produce high-octane petrol CENTRAL ASIA Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan CFO Chief Financial Officer CGTP Complex gas treatment plant CIS Commonwealth of Independent States: all former Republics of the USSR, except Estonia, Georgia, Latvia and Lithuania COKING Refining of liquid and solid fuels by heating them in the absence of air. As the fuel decomposes, it produces solid coke and volatile particles CNG Compressed natural gas CODU Crude Oil Distillation Unit COGTP Central oil gathering and treatment plant CP Civil protection CS Compressor station DF Diesel fuel DOMESTIC MARKET Russian market of goods, services, etc. DOWNSTREAM Processing and sales EBIT Earnings before interest and taxes EBIT MARGIN Operational return on sales EBITDA Earnings before interest, taxes, depreciation and amortisation ECA Emission Control Areas EN CERTIFICATION Certification according to European standards EU European Union EUR Euros EV/EBITDA Ratio of the company’s value versus earnings before taxes. Used to assess investment appeal (length of the payback period for investments) FCP RATE (FIRST COMMERCIAL Target volume (barrels per day) for oil production during the initial stage of a field’s commercial development PRODUCTION RATE) FEC Fuel and energy complex FS FILLING STATION GAZPROM NEFT GROUP All companies of the Group that comprise Gazprom Neft PJSC (the parent company) and its subsidiaries GCS Gas compressor station
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GE Geological exploration GEARING Ratio to indicate the proportion of borrowed funds GEO Geological and engineering operations GPP Gas and/or condensate processing plant HF Hydraulic fracturing HRR Hard-to-recover reserves HYDROCARBON RESERVES Explored reserves according to the Russian classification. Represents the part of geological reserves that IN CATEGORIES A+B+C1 it would be economically efficient to extract at the date of the estimate, based on the market situation and rational use of modern equipment and technologies, and taking into account requirements for the protection of mineral deposits and the natural environment. Explored reserves of gas in categories А+В+С1 are viewed as fully recoverable. For reserves of oil and gas condensate, an extraction coefficient based on geological and technical factors is used HYDROCARBON RESERVES IN Category С1 represents reserves of oil and gas proven to exist in standalone wells, with favourable industrial CATEGORIES С1+С2 and geological data for other wells. Category С2 represents reserves of oil and gas, the existence of which is suggested by geological and geophysical information within known gas-producing areas. Reserves of category С2 are preliminary estimates that are used to plan detailed survey work at specific fields HYDROCRACKING A cracking technique used in refining of crude oil fractions with a high boiling point, fuel oils or tar oil to make petrol, diesel fuel, jet fuel, lubricants, etc. HYDROTREATMENT Purification of petroleum products to remove organic sulphuric, nitric, and oxygen-based compounds using molecules of hydrogen. Hydrotreatment improves the quality of petroleum products IES Industrial environmental safety IFRS International Financial Reporting Standards INTEREST COVERAGE Times interest earned commensurate to profit before the payment of loan interest and taxes with interest expenses INTERNATIONAL MARKET The market of goods, services, etc. outside of Russia IR Investor relations IRMS Integrated Risk Management System ISO 14001 STANDARD International standard for environmental protection that sets requirements for environment management quality and is used to work out legally compliant environmental policies. The standard regulates environmental aspects of corporate activities that are controllable and require monitoring. This is a voluntary standard that does not supersede legislated requirements ISO 50001 STANDARD International standard established by the International Organisation for Standardisation to manage power systems that specifies requirements for establishing, implementing, maintaining and improving an energy management system, whose purpose is to enable an organisation to follow a systematic approach in achieving continual improvement of energy performance, including energy efficiency, energy use and consumption ISO 9001 STANDARD International standard for quality management systems. It establishes the requirements for the quality management system that may be used internally by organisations for the purpose of certification or concluding contracts. The standard aims to make the quality management system effective while meeting customer demands ISO/TS 16949 STANDARD International industry standard as well as technical specifications established by the International Organisation for Standardisation. The standard defines the quality management system requirements for enterprises that design, develop, produce, install and service automotive-related products JV Joint venture KMAD-YUGRA Khanty-Mansi Autonomous District – Yugra LA License area LNG Liquefied natural gas
224 GAZPROM NEFT // 2015 ANNUAL REPORT LPG Liquefied petroleum gas LTIF Lost Time Injury Frequency MICEX Moscow Interbank Currency Exchange MET Mineral extraction tax MIDDLE EAST Armenia, Bahrain, Cyprus, Egypt, Georgia, Iraq, Iran, Israel, Jordan, Lebanon, Oman, Palestine, Qatar, Saudi Arabia, Syria, Turkey, Yemen, Kuwait and UAE MOR Moscow Oil Refinery MSHF Multi-stage hydraulic fracturing M3 Cubic meter of natural gas, measured at the pressure of one atmosphere and temperature of 20°С M&A Mergers and acquisitions NG Natural gas NIS NIS a.d. Novi Sad NON-CIS COUNTRIES Foreign countries with the exception of CIS and the Baltic states NOVY PORT Grade of oil produced at the Novoportovskoye field OC Oil company OE Oil equivalent OGCF Oil and gas condensate field OHSAS 18001 STANDARD International industry for the development of Occupational Health and Safety Management Systems. This is an official document that confirms compliance with a special occupational health policy. OOR Omsk Oil Refinery OR Oil refinery ORF Oil recovery factor ORFFS Oil recovery factor feasibility study OS Occupational safety P/E The price/earnings ratio that is equal to the ratio of a company’s market capitalisation versus its annual earnings. One of the main indicators used for a comparative assessment of the investment appeal of joint-stock companies. GAZPROM NEFT PJSC Gross increment of proven reserves, divided by total production in the period REPLACEMENT RATIO PMB Polymer-modified bitumen PMI Purchasing managers index that reflects the condition of a certain industry or the economy or provides a competitive assessment POSSIBLE RESERVES Unproven reserves, which are less likely to be extracted than probable reserves, based on the analysis of engineering and geological data. There must be at least 10% probability that actual production will be equal to or more than the estimate of proven, probable and potential reserves PPSE Petroleum product supply enterprises PREMIUM MARKET SEGMENTS High-margin market segments: small wholesale, own chain of filling stations, sales of jet fuel, bitumen, oils and lubricants, and bunkering PRIMARY REFINING Crude oil distillation using crude oil distillation units. Crude oil enters the distillation columns to undergo the atmospheric pressure distillation process, which splits it into a number of fractions: light and heavy petrol fractions, kerosene fraction, diesel fraction, and fuel oil as a residue. The quality of the obtained fractions does not meet standards for marketable petroleum products, so the fractions must undergo further (secondary) refining PRIRAZLOMNAYA OIFP Prirazlomnaya offshore ice-resistant fixed platform PRMS INTERNATIONAL International classification and estimate of hydrocarbon reserves by the standards of the Petroleum Resources STANDARDS Management System (PRMS). These standards include not only the estimate of hydrocarbon reserves, but also provide the estimate of the commercial practicability of extraction and the justifiability of its availability. The period of economically viable reserve development (period of validity of the development license) is taken into account as well
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PROBABLE RESERVES Unproven reserves, which are most likely to be extracted based on the analysis of engineering and geological data. There must be at least a 50% probability that actual production will be equal to or greater than the estimate of proven and probable reserves PROVEN RESERVES Quantities of liquid, gaseous and solid hydrocarbons, which, according to engineering and geological information, are most likely to be produced by industrially available methods from known deposits starting from a specific date, under the existing economic conditions, with generally accepted operating techniques, and in compliance with applicable effective national regulations PSA Product-sharing agreement Q&A Questions and answers RAS Russian Accounting Standards RC Refuelling complex REFINING DEPTH A refining indicator defined as the percentage ratio of obtained petroleum products, not including bulk fuel oil, to the original quantity of crude oil. Measured in % REFINING OUTPUT CAPACITY Maximum possible output by a plant unit in a specific period RF Russian Federation ROACE Return on average capital employed ROE Return on equity RPM Reservoir pressure maintenance RUB Roubles RUSSIAN FTS Federal Tariffs Service RUSSIAN FFMS Federal Financial Markets Service R&D Research and development SAA Surface-active agents SE Seismic exploration SGC Stable gas condensate SPD Salym Petroleum Development N. V. SS Service station SSP Social services package S&A Subsidiaries and affiliates TOTAL PROVED (TP) Proven reserves UPSTREAM Exploration and production URALS A Russian brand of an exported oil blend. It is a mix of Urals and Volga heavy sour crude oil with the light western Siberian crude oil Siberian Light within the pipeline system of JSC Transneft. US GAAP Generally Accepted Accounting Principles USD U.S. dollars VAT Value-added tax VCS Vacuum compressor station VIOC Vertically integrated oil company WESTERN EUROPE Austria, Belgium, France, Germany, Ireland, Liechtenstein, Luxembourg, Monaco, the Netherlands, Switzerland and the UK WTI Grade of oil produced in Texas YNAD Yamalo-Nenets Autonomous District YANOS Yaroslavl Oil Refinery (Slavneft-YANOS)
226 GAZPROM NEFT // 2015 ANNUAL REPORT Appendix 6. Information about the use of energy resources by Gazprom Neft PJSC
Type of energy resource Consumption in volume terms Measurement unit Consumption volume, RUB mn Electricity 1.3 thousand MWh 6.6
The consumption of other energy and heat resources is not reflected in the accounting of Gazprom Neft PJSC.
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Disclaimer
This Annual Report was prepared based on information known to Public Joint-Stock Company Gazprom Neft and its subsidiaries (‘Gazprom Neft’) on the date of reporting. This Report contains forward-looking statements that represent the expectations of the Company’s executive management. Such estimates are not based on any actual circumstances, and they include all statements concerning the Company’s intentions, opinions or current expectations as regards its activities, financial situation, liquidity, future growth, strategy and the industry in which Gazprom Neft operates. By their very nature, such forward-looking statements are exposed to risks and factors of uncertainty because they describe events and depend on circumstances that may or may not occur in the future.
Such words as ‘assume’, ‘believe’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘surmise’, ‘examine’, ‘might’, along with other similar words and phrases, also expressed as negations, typically mark forward-looking statements. Such assumptions contain risks and uncertainties, both expected and unforeseeable. Therefore, future performance may differ from current expectations, and the users of this information must not base their own estimates solely on the information contained herein.
Apart from the official information on the activities of Gazprom Neft this Annual Report includes information acquired from third parties. Such information was obtained from sources viewed by Gazprom Neft as reliable. Nevertheless, we cannot guarantee the accuracy of such information, which may be abbreviated or incomplete. Gazprom Neft does not guarantee that actual results, scope or indicators of its performance or performance of the industry in which the Company operates will exactly match the results, scope or indicators contained explicitly or implicitly in any forward-looking statement included herein or elsewhere.
Gazprom Neft cannot be held responsible for any losses that a party may sustain as a result of reliance of such forward-looking statements. Except in cases directly regulated under the applicable law, the Company shall not assume any obligation to distribute or publish any updates or adjustments to its forward-looking statements that would reflect any changes of expectation or contain new information, or describe any subsequent events, conditions or circumstances.
228 GAZPROM NEFT // 2015 ANNUAL REPORT Addresses and contacts
FULL NAME OF THE COMPANY Public Joint-Stock Company Gazprom Neft SHORT NAME OF THE COMPANY Gazprom Neft PJSC REGISTERED OFFICE Let. A. Galernaya, 5 Saint Petersburg, ul, 190000, Russian Federation The Company was registered on 6 October 1995 by the Registration Chamber of the City of Omsk. Statutory Registration Certificate No. 38606450. Main Federal Registration Number 1025501701686. MAILING ADDRESS Ul. Pochtamtskaya, 3-5 Saint Petersburg, 190000, Russian Federation WEB ADDRESS www.gazprom-neft.com INFORMATION SERVICE Tel: +7 (812) 363-31-52 Tel: +7 (800) 700 31 52 (free call in Russia) Fax: +7 (812) 363-31-51 E-mail: [email protected] PRESS SERVICE Media enquiries Tel: +7 (812) 363-31-52 Fax: +7 (812) 363-31-51 E-mail: [email protected] SHAREHOLDER RELATIONS Corporate Regulation Department Tel: +7 (812) 363-31-52 Fax: +7 (812) 363-31-51 E-mail: [email protected] INVESTOR RELATIONS Investor Relations Administration Tel: +7 (812) 358-95-48 E-mail: [email protected] AUDITOR The Company’s accounting (financial) reports in 2015 were audited by CJSC PricewaterhouseCoopers Audit (CJSC PwC Audit). Address: Belaya Ploschad Business Center Butirskiy Val, 10, Moscow, ul. 125047, Russian Federation, Tel: +7 (495) 967-60-00 Fax: +7 (495) 967-60-01 Web address: www.pwc.ru SHARE REGISTRAR Closed Joint-Stock Company, Specialised Registrar – Register-Keeper for Gas Industry Shareholders (CJSC SR-DRAGa) Address: Novocheriomushkinskaya, 71/32 Moscow, ul. 117420 Russian Federation Tel: +7 (495) 719-40-44 Fax: +7 (495) 719-45-85 Web address: www.draga.ru E-mail: [email protected]