Annual Report 2019 Annual Report 2019 (DRAFT) Neft Performance Governance at a glance review system TABLE TABLE CONTENTS OF

4 at a glance 52 Performance 114 Corporate governance 6 Geographical footprint 54 Resource base and production 162 Internal control and risk management 8 Gazprom Neft investment case 68 Refining and manufacturing 184 Investor and shareholder relations Online Annual Report 2019 10 2019 highlights 78 Sales of oil, gas and products 12 Letter from the Chairman of the Board 98 Financial results of Directors

About this Report This Report by the Public Joint Stock Company Strategic report Technological Sustainable Gazprom Neft (Gazprom Neft PJSC, the company) for 2019 includes the results of operational development development activity of Gazprom Neft PJSC and its subsidiaries, collectively referred to as the Gazprom Neft Group (the Group). Gazprom Neft PJSC is the parent company of the Group and provides consolidated information on the operational and financial performance of the Group’s key assets for this Annual Report. The list of subsidiaries 16 The implementation of Strategy 2030 104 Technological development 196 Sustainable development covered in this Report and the shares held 198 Health, safety and environment (HSE) by Gazprom Neft PJSC in their capital are disclosed 18 Letter from the Chairman 106 Innovation management in notes to the consolidated IFRS financial of the Management Board 111 Import substitution 200 Environmental safety statements for 2019. 20 Market overview 204 Employee development This Report is prepared based on analysis 208 Social policy of operational data, consolidated IFRS financial 28 Global trends and their impact indicators and international GRI guidelines. on the Gazprom Neft strategy Information provided in the Report has been verified 30 Strategy 2030 by the Audit Committee and approved by the Board of Directors and the Annual General Meeting 34 Business model of Shareholders of the Company. 36 2019 results Appendices In calculations of shareholdings, percentages, 38 Digital transformation and total amounts, the Annual Report may contain discrepancies as a result of rounding. Data provided 42 Operational transformation in the Annual Report may differ insignificantly 46 Organisational transformation from previous disclosures, also as a result of rounding. 48 Cultural transformation 213 Consolidated financial statements 322 List of major transactions and related-party as of and for the year ended 31 December transactions The Gazprom Neft PJSC ‘s Annual Report has been provisionally approved by the Board of Directors, 2019 with independent auditor’s report 333 Excerpts from management’s discussion Minutes No. PT-0102/16 of 27.04.2020. 291 Company history and analysis of financial condition and results 303 Structure of the Gazprom Neft Group of operations 305 Information on energy consumption 345 Glossary by Gazprom Neft 348 Disclaimer 306 Taxation in oil industry 349 Addresses and contacts 315 Report on compliance with the principles and recommendations set out in the corporate governance code ANNUAL REPORT 2019

Gazprom Neft at a glance

Gazprom Neft at a glance Geographical footprint Gazprom Neft investment case 2019 highlights Letter from the Chairman of the Board of Directors

HOW TO EXTRACT OIL NOWDAYS?

Denis Mikolae, oil and gas production operator GAZPROM NEFT Leader in the commercial development of the Russian Arctic

Company profile Strategic report Performance Prirazlomnoye Novy Port Messoyakha Technological development The first — and so far only — A unique logistics strategy The northernmost Governance system The company's Sustainable development official website oil production project to ensure the year-round onshore oilfield in Appendices on the Russian Arctic shelf transportation of Arctic oil GAZPROM NEFT AT A GLANCE

An industry leader in technology A company setting its

By 2030, thanks to new technology, Gazprom Neft intends to halve the time sights on the future it takes to see the first commercial inflows from an oilfield, to speed up Gazprom Neft the implementation of major oil and gas projects by 40%, and to reduce The company’s strategy is to become a leader 1 production management costs by 10% in priority areas of technology: increasing the oil recovery factor (ORF) at mature fields, Artificial intelligence (AI) Smart logistics developing multi-phase deposits and low- PJSC in geological exploration – A pioneering Arctic-specific permeability reservoirs, undertaking safe – Using AI to analyse geological data logistics management system and efficient offshore operations under ice and search for new oil deposits – Automated systems for loading conditions, and utilising cutting-edge refining – Building digital twins of oilfields, and dispatching oil products catalysts and processes. Implementing mtoe and creating a digital platform – Digitised vehicle fleet to transport a number of major initiatives – including is a vertically for asset development forecasting petroleum products cutting unit well costs at new production – Developing software to eliminate projects in the Yamalo-Nenets Autonomous 1,583 uncertainties and support decision Digitalisation in product Okrug; developing a range of technologies integrated oil making distribution system for developing non-traditional reserves; proved hydrocarbon – Robotised refuelling complexes facilitating the viable deployment of ASP- reserves Enhanced hydrocarbon recovery – Petroleum-product quality-control flooding and miscible gas displacement company technologies system deployed throughout technologies; and building a high-tech catalyst – The Integrated Field Development the entire logistics chain plant – will bring tens of millions of tonnes Centre – Mobile apps and services developed of additional oil into production, as well – Technologies for the production for partners and clients as allowing the company to increase efficiency mtoe of hard-to-recover oil in oil refining. – Unique expertise in working on the Russian Arctic Shelf Its core activities include exploration, 96.1 production and sales of oil and gas, oil High-technology oil refining hydrocarbon production – The Gazprom Neft Downstream refining, and production and distribution in 2019 Efficiency Control Centre, For more details, see For more details, see of petroleum products. – Digital twins of process units pp. 52–111 p. 16 and facilities – The Neftekontrol (oil control) system The company operates in Russia’s are located in Russia (, mt major oil and gas regions as well and Yaroslavl) and . as abroad. Gazprom Neft and its A company committed to sustainable development values upstream subsidiaries are engaged The company’s 41.5 in oil and gas exploration, network throughout Russia, the CIS Health and safety Human resources development development and production and the Balkans has a total of 2,077 refining throughput – ‘Target Zero’ as a strategic – Single incentive model in the Yamalo-Nenets and Khanty- outlets. priority3 for employees Mansi Autonomous Okrugs, – A developing safety culture – Partnership with trade unions the Tyumen Oblast, the Republic Gazprom Neft is one of the world’s – Digital platform for operational – Training, leadership and career- of Sakha, the Irkutsk, Omsk, top 10 public companies by proved risk management development programmes For more details, see Orenburg and Tomsk Oblasts, hydrocarbon reserves, and a leader the Krasnoyarsk Krai, the Nenets in terms of reserves replacement billion Environmental protection Wellbeing of local communities pp. 196-212 Autonomous Okrug; on the Russian under the PRMS classification2. – Environmental management – The 'Home Towns' social Arctic Shelf and offshore system investment programme / 1 / Hereinafter referred to as 'the company'or in the Sea of Okhotsk, as well ₽795.1 – Biodiversity conservation – Supporting the ethnic minorities 'Gazprom Neft'. as in and Serbia. The company’s programme of the Russian Far North / 2 / Petroleum Resources Management System. main refining facilities adjusted EBITDA – Greenhouse gas emissions – Import substitution and local / 3 / Zero harm to people, the environment, accounting and monitoring preference programmes or property in our operations.

4 ANNUAL REPORT 2019 01 THE COMPANY TODAY 5

GAZPROM NEFT

Company profile a

Strategic report e S Performance n Technological development ia r Governance system e GEOGRAPHICAL FOOTPRINT ib Sustainable development S Appendices t 21. s Ea

18.

Gazprom Neft

Baren ts 17. Sea

on the world 9. k f ts Pe o o cho h ra a k Se e O a S 19. map Belgium 20. Russia St Petersburg Estonia 5. 15. Latvia 16. 3. 14. 11. 1. Moscow 2. 13. 6. 12. Serbia 4. 7. Romania 10. Bosnia and Herzegovina 8. Gazprom The geographic range Bulgaria of the company’s presence includes1 countries Neft worldwide 110 in Russia Iraq

Head office St Petersburg

1. Moscow 12.

2. 13. Tyumen Oblast Subsoil rights 3. Krasnoyarsk Krai 14. Khanty-Mansi Autonomous Okrug - Yugra Hydrocarbon production Upstream assets in Production facilities in Products sold in Refining 4. Moscow Oblast 15. Yamalo-Nenets Autonomous Okrug16.

Oils and lubricants (production) 5. 16. Yaroslavl Oblast Bitumen products (production) countries countries countries 6 6 >100 6. Nizhny Novgorod Okrug 17. Barents Sea Petrochemicals 7. 18. East Siberian Sea Bunkering business Filling stations 8. Orenburg Oblast 19. Sea of Okhotsk

9. Sakha Republic (Yakutia) 20. Pechora Sea 10. Ryazan Oblast 21. Chukchi Sea

Singapore 11. Smolensk Oblast

/ 1 / Including Russia.

6 ANNUAL REPORT 2019 01 THE COMPANY TODAY 7 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices GAZPROM NEFT INVESTMENT CASE

trillion The company’s standing in the industry Ongoing digitalisation across the entire production chain to improve ₽1.99 business efficiency market capitalisation as at 31 December 2019 Extensive resource base 28.6% EBITDA margin ₽1,507.2 EBITDA per barrel of oil ₽795.1 billion adjusted EBITDA 20.1% ROE (return on equity) produced 96.1 mtoe hydrocarbon production % 16.8% ROACE (return on average ₽453.0 billion CAPEX 63.3 mt oil and oil-condensate Highly efficient refining capital employed) 0.70x Net debt/EBITDA production thanks to the modernisation +21.2 of refineries share price growth in 2019 Market valuation as at 31 December 2019 Managing every link The goal in the value chain together, EV/EBITDA at year-end 20191 Value growth potential of the Gazprom as a single integrated asset A consensus forecast provided 10 4 6 8 0 Credit ratings 2 by financial analysts confirms that ₽531.6 Neft Strategy the company has strong upside 8.46 average price to 2030 is to build An operational efficiency Company 1 potential. and HSE system covering (consensus forecast) a new-generation all areas of the company’s 3.94 ACRA Company 2 company, business Distribution of analysts’ 3.48 recommendations on Gazprom % and to become Gazprom Neft Neft shares +27 a An adaptive system 3.29 supporting investment AAA(RU) for global industry Company 4 upside potential decision-making peers in terms INVESTMENT GRADE (consensus forecast) of safety, efficiency Growth in both operating Moody’s % % and technological cash flow and dividend 0 30 / 1 / Calculations are based on data advancement. payments as at 31 December 2019. Peer companies are , and . Baa2 BUY HOLD Following the best available environmental INVESTMENT GRADE practices Fitch Market capitalisation and shareholder return Steady dividend growth Organisational, Share of IFRS net profit, % Total dividends per share, ₽ operational, cultural BBB and digital transformation % across the company INVESTMENT GRADE 50 30.00 50 30 40 40 40 35 25 28 20 18.14 S&P 30 25 15.00 of IFRS net profit – dividend 15 20 10.68 ‘Target Zero’: zero harm 10 payout ratio in 1H 2019 to people, the environment, 10 5 or property in our operations 0 0 2016 2017 2018 2019 Plan 2016 2017 2018 2019F BBB- (6 M)

INVESTMENT GRADE 8 ANNUAL REPORT 2019 01 THE COMPANY TODAY 9 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices 2019 HIGHLIGHTS

The company increased hydrocarbon production in 2019 primarily through its projects in the Arctic, allowing it to maintain revenue and EBITDA year on year and to increase dividend payments. This is in spite of a significant fall in oil prices on the domestic and international markets.

Reserves and production Advanced Stable financial Strong safety growth oil-refining performance performance technologies

Adjusted EBITDA, ₽ billion 0 % mt accidents 799.5 795.1 +32 +3.5 41.5 800 Gazprom Neft ended 700 % new licence blocks increase in hydrocarbon refining volumes 600 551.0 the 2019 financial 456.2 500 404.8 -34 year with a good production 400 financial and operational 300 reduction in FAR2 to a performance, 200 100 five-year average price adjustments 0 Hydrocarbon production, Refineries throughput, on the global oil market Proved reserves, mtoe 2015 2016 2017 2018 2019 notwithstanding. Various mtoe mt % Adjusted EBITDA remained almost flat projects throughout 1600 1,583 100 96.1 50 -42 43.1 42.9 1,564 92.9 41.9 40.1 41.5 year on year in spite of a decline in oil the company’s refining 92 89.7 40 prices on the domestic and international 1550 86.2 facilities involving 1,518 1,514 1,522 markets. reduction in associated 84 79.7 30 the construction of major 1500 petroleum gas (APG) flaring 76 20 For details, see the Financial new complexes moved p. 98 1450 Performance section. into their final stages. 68 10 APG utilisation rate, % With the protection 1400 60 0 1,0 79.64 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 of the environment 1 0,8 Net profit , 76.16 78.37 being an overriding 0,6 79.78 and non-negotiable Gazprom Neft actively expanded its Hydrocarbon production (including Refining throughput decreased in 2019 ₽ billion 89.00 resource base throughout 2019, adding joint-venture interests) was up 3.5% as a result of planned refurbishment 0,4 priority for the company, 32 new licence blocks in the year. year on year in 2019: this growth at the Group’s refineries. The company 500 it is vital that our plants The company also increased its project was driven by higher production has continued its refineries development 401.0 422.1 0,2 400 comply with the highest portfolio significantly, having started at the Novoportovskoye and Vostochno- programme directed at increasing both 0,0 environmental standards. developing oil-rim deposits, Achimovsky Messoyakhskoye fields, in the Orenburg the conversion rate and the output 300 269.7 2015 2016 2017 2018 2019 deposits, and Necomian-Jurassic Oblast and at new oil-rim projects, of in-demand petroleum products, 209.7 200 gas and gas-condensate deposits as well as the company increasing its as well as improving the environmental 116.2 Gazprom Neft is committed to increasing Alexander Dyukov at Gazprom PJSC fields, using long-term interest in Arcticgas. performance of its refineries. 100 APG utilisation levels as it brings new risk-operatorship agreements. fields into commercial development 0 Chairman of the Management and increases hydrocarbon production: 2015 2016 2017 2018 2019 Board, CEO, Gazprom Neft PJSC the company's objective in this regard is to achieve an APG-utilisation level The company reached a record-high net of at least 95% by 2022, even in the face profit in 2019 thanks to the appreciation of increasing production. of the rouble and the positive impact For details, see For details, see the Refining of net financial income and expenses. p. 54 the Resource Base and Production p. 68 section. / 1 / Including profit attributable to non-controlling interest. section / 2 / Fatal accident rate

10 ANNUAL REPORT 2019 01 THE COMPANY TODAY 11 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

LETTER Today, a major priority for the industry the entire Russian oil-refining industry history. The company continues is to produce technological solutions to achieve its overarching goal to increase dividend payments FROM THE CHAIRMAN for the economically viable development of allowing Russian refineries to see to shareholders: dividends for 1H 2019 OF THE BOARD of non-traditional and hard-to-recover an end to their dependency on imports totalled as much as 40% of Gazprom reserves. In 2019, Gazprom Neft of catalysts; at the moment most Neft’s net profit for the period. OF DIRECTORS continued to make progress towards are being supplied from abroad. this goal. By developing and introducing Gazprom Neft celebrates its 25th new technologies, the company’s year- In the reporting year, Gazprom Neft anniversary in 2020. During that time, end results showed a 2.5-fold year- made significant progress in developing the company has increased the sheer on-year increase in oil production its petrochemical segment, scale of its business; it has evolved Dear shareholders at the Bazhenov Formation, whereas as the company and its partner, SIBUR, from a regional player with a number and investors, production costs almost halved. consolidated a 100% shareholding of local operating assets into a world- In 2019, Gazprom Neft continued in the Poliom plant in Omsk. Integrating class company and an industry leader developing its business in line The company expanded its resource Poliom and the Gazprom Neft Omsk in technology. In the face of constantly with its new long-term Strategy adopted base in 2019. Thirty two new licence Refinery’s technological capabilities changing market conditions, Gazprom by the Board of Directors. blocks were added to the Gazprom and resources will allow the company Neft continues to give priority Neft portfolio, including in new to improve efficiency by using refinery to safety, environmental responsibility In the reporting year, Gazprom Neft prospecting areas on the Gydan feedstocks to produce high-value- and business efficiency. It does increased hydrocarbon production and Taymyr Peninsulas. One of the key added products. this by applying new technologies by 3.5%, to almost 100 million tonnes areas for developing Gazprom Neft’s across the entire value chain. I believe of oil equivalent. This growth was driven resource base is the development Gazprom Neft is becoming increasingly that this will enable Gazprom Neft both by more efficient development of oil-rim deposits, Achimovsky prominent in the global petroleum- to remain resilient and to continue its of mature fields and by new major deposits, and Necomian-Jurassic products market. The company steady progress towards achieving its projects such as the Novoportovskoye, gas and gas-condensate deposits offers its consumers products that strategic goals, despite momentous Vostochno-Messoyakhskoye at Gazprom’s flagship assets meet the highest international new challenges that the entire world and Prirazlomnoye fields. Arctic assets in Western and Eastern ; standards. New restrictions on sulphur is facing. were responsible for a significant these include the Chayandinskoye, content in bunker fuels are a global contribution to the company’s total Bovanenkovskoye, Yamburgskoye challenge for the oil and shipping production, with about 30% of all and Kharasaveyskoye fields. This has industries. Gazprom Neft responded of today’s oil production occurring been possible thanks to the introduction to this challenge in 2019 by launching within the Arctic Circle. A stable supply of new forms of cooperation – namely the production of a new fuel containing of Arctic oil to the global market is made long-term risk-based operatorship less than 0.5% sulphur. High- possible by the world’s first digital Arctic contracts – that allow Gazprom Neft technology marine oils produced logistics management system developed to develop hydrocarbon production by the company are also consistent by Gazprom Neft specialists. projects at fields belonging to its with the International Convention parent company, on terms identical for the Prevention of Pollution to the licences it owns. from Ships, and are in demand on the global market. Gazprom Construction of a number of modern Neft currently supplies bitumen process units at the company’s products to 57 countries worldwide. refineries entered their final stages The company is working systematically in the reporting year. Once they have to develop bitumen technology, and has Chairman of the Board been commissioned, the company a proven track record in developing of Directors billion will be able to make significant and using innovative bitumen materials. Gazprom Neft PJSC improvements to the operational 32 >₽ 400 and environmental performance of its Strong operational performance refineries. Construction of Russia’s was reflected in Gazprom Neft new licence net profit attributable to Gazprom Neft shareholders first cutting-edge catalyst production financial results: in 2019, Gazprom areas facility in Omsk moved into an active Neft net profit exceeded ₽400 billion phase in 2019. This project will help for the first time in the company’s

12 ANNUAL REPORT 2019 01 THE COMPANY TODAY 13 ANNUAL REPORT 2019

Strategic report

Strategic report Letter from the chairman of the management board Market overview Global trends and their impact on the gazprom neft strategy

‘ASK THE OIL EXPERT’ Strategy 2030 ONE OF A SERIES OF Business model INTERVIEWS ABOUT OIL PRODUCTION IN Digital transformation THE ARCTIC Operational transformation Organisational transformation Cultural transformation Dmitry Starodumov Head of the Emergency and Rescue Unit GAZPROM NEFT

2019 p. 57 Gazprom Neft leads the way towards the “smart p. 20 The oil market is expected to remain highly p. 46 The new strategy fundamentally changes existing HIGHLIGHTS energy” of the future volatile in 2020 business processes The company has embarked As a flagship in Arctic development, we are setting ourselves The global economic slowdown, trade wars, and increased The company needs an adaptive product-based operating ever more ambitious goals as we move into new geologically oil production in the US and elsewhere put oil prices model as it moves towards becoming a global benchmark on the comprehensive and technologically challenging regions, such as the Yenisei under pressure. The situation has been exacerbated in terms of efficiency and technological advancement. That transformation Project on the Gydan Peninsula. This is a major challenge further by the global COVID-19 pandemic and the de facto requires changes to its existing business processes, including of its business. Why and involves the use of unique technological solutions. termination of the OPEC+ agreement in 2020. putting in place flexible cross-functional teams. do we need to change? Because the top league of oil companies is known for fierce competition, rapid STRATEGIC REPORT change and technological development. We have already made great progress in the Russian market but, in order to become a benchmark for industry peers The implementation Strategy in detail globally, the company needs new approaches to doing business: In 2019, Gazprom Neft’s business s) we need to be even le development efforts and its short-term of Strategy sa ( plans were in line with the long-term more efficient, flexible ts n a development areas and goals set out and agile, make use c ri b in the Strategy. u of state-of-the-art l d n technology, and develop a 2030 ls i a new corporate culture. O p. 16

Alexander Dyukov 13 Petrochemicals CEO and Chairman will make

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Neft is founded a (production) d FOOTPRINT BY s n e

on innovation 39 l a global a 1 BUSINESS AREA o 4 Bunkering and digital h technology. W 3 Refining benchmark 3 Bitumen products (production) In September 2019, the Gazprom Neft Board of Directors approved a Digital Gazprom Neft’s development strategy Transformation Strategy. The company is developing to 2030 sets an ambition to grow ahead in-house solutions 5 in artificial intelligence of market trends, while maintaining

(AI), the Industrial Internet A 6 ) a high level of return on capital v s ia le of Things (IIoT), robotics, t a io (s unmanned aerial vehicles n s employed. The company is determined f ct ue du (UAV or drones), and other l ro to consolidate its position in the top su n p Industry 4.0 technologies. pp me league of global public oil companies, ly Bitu and become a benchmark for industry 1,000 peers in terms of safety, efficiency digital and IT projects and technological advancement. 2019 and initiatives was the first year in which Strategy 2030 was successfully implemented

For details, see the Digital / 1 / including Russian Federation Transformation section on

p. 38 16 ANNUAL REPORT 2019 02 STRATEGIC REPORT 17 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices of refining facilities in Moscow, reserves: something that remains the size and scale of its oil production Omsk and Pančevo (Serbia). A Euro+ a priority not just for our company, and refining businesses over the last facility will be commissioned but for the entire oil industry. 10 years, increasing premium sales at the Moscow Refinery in 2020, and entering new markets. Our goal directly replacing five outdated units One of our key objectives in the next now is to consolidate our position LETTER FROM THE and significantly increasing efficiency few years will be further improving among the world’s top-league oil and environmental friendliness. safety throughout our business companies, and to become a flagship CHAIRMAN OF THE Construction starting on our catalyst and production processes. in the “smart-energy” of the future. MANAGEMENT BOARD plant in Omsk – the launch of which The company has committed We want to be a benchmark will resolve the problem of Russian to a risk-based approach, in terms of efficiency, technological refining’s dependence on foreign which will be developed as part advancement and safety, maintaining catalyst supplies – marked a major of an integrated “Safety Framework” a high level of business growth milestone in 2019. project, identifying key risks and return on capital employed and putting barriers in place to protect (ROACE). Gazprom Neft’s sales of oil products against these. We are also engaging Dear shareholders through premium channels reached proactively with our contractors Events such and investors, 26.5 million tonnes in 2019. Bitumen to take their approach to safety as current coronavirus pandemic Despite the deteriorating global oil products saw significant growth, up to a whole new level. and the sharp drop in oil prices market, Gazprom Neft delivered 20%. The company began selling inevitably bring considerable a good financial and operational environmentally-friendly ultra-low- Protecting the environment, uncertainty to expectations for 2020. performance in 2019, successfully sulphur marine fuel in 2019, fully and an effective corporate But – given our experience of working increasing hydrocarbon compliant with MARPOL Convention social responsibility (CSR) policy effectively through previous production – up 3.5%, at 96.1 standards. We are also continuing in all locations in which the company periods of market crisis –we can million tonnes of oil equivalent preparations for entering the LNG- operates, are overriding priorities look to the future with confidence, (mtoe) – predominantly through bunkering market. for Gazprom Neft. The company’s and remain confident in our strategic major assets including the Novy refinery modernisation programme goals Gazprom Neft is a team Port and Eastern Messoyakhskaya Despite the downward trend includes a large number of projects of likeminded, pro-active, passionate projects, as well as the Orenburg in the global oil price, Gazprom directed at further reducing manmade and engaged people. Developing production cluster. Neft succeeded in maintaining environmental impacts. Our “Green a new-generation company EBITDA (earnings before interest, Seismic” programme has already is our common goal: a goal that I have Entering into long-term risk-operator tax, depreciation and amortisation) saved more than 3.5 million trees no doubt we will achieve. agreements with Gazprom will play and turnover at 2018 levels. from being felled. an important role in the company’s The company showed growth continuing growth in the future. in free cash flow and net profit The company is investing By collaborating with our parent and, for the first time in our history, in renewables, having launched company in this way we have been the latter exceeded ₽400 billion1 a solar electricity plant at the Omsk able to get involved in developing in 2019. A stable and sustainable Refinery in 2019. Serbian oil company a whole range of assets, including financial position, together with a low (NIS), Neocomian-Jurassic gas-condensate debt burden, means we can be flexible in which we are a shareholder, deposits at the Bovanenkovo in implementing our investment is managing a wind farming and Kharasavey fields. These projects programme, as well as ensuring project. Gazprom Neft’s CSR policy significantly increase our resource a high dividend distribution. is managed through its ‘Home base, as well as facilitating Towns’ programme, the main focus a significant proportional increase Technological development of which is an integrated and cohesive in gas and gas condensate remains Gazprom Neft’s key focus, approach to improving living Alexander Dyukov in terms of total production volumes. with the company proactively standards in those locations in which CEO and Chairman The company also acquired 32 new researching, developing the company operates. of the Management Board, licences last year, with our reserves- and deploying cutting-edge Gazprom Neft PJSC replacement ratio reaching 120%. physical and digital technologies, The company will celebrate its throughout the entire value chain. 25th anniversary in 2020. We have Total refining volumes throughout % % Deploying innovations means we can reached this anniversary having the company’s own refineries 120 3.5 be more effective in addressing successfully implemented our long- reached 41.5 million tonnes – inter alia – the challenge term strategy to 2020, and having set in 2019. We are continuing reserve-replacement hydrocarbon production of the viable development of hard- ourselves new and ambitious goals. our full-scale modernisation ratio growth in 2019. to-recover and non-traditional Gazprom Neft has more than doubled

/ 1 / Profit attributable to shareholders in Gazprom Neft PJSC.

18 ANNUAL REPORT 2019 02 STRATEGIC REPORT 19 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices MARKET OVERVIEW

Global oil prices in 2019 were lower, albeit more stable, compared to 2018. Global economy The average annual Brent price stood at around $64/bbl against $71/bbl in 2018. The declining global economic growth GDP of key economies in 2015–2019, in 2019 was the most noticeable % year on year factor affecting demand, prices Brent price, 2013–2020, $/bbl and expectations in the oil and other 10 commodity markets. According to the IMF, the global economy grew 8 100 by only 2.9% last year (as against 52 43 54 71 64 6 3.6% in 2018), the lowest figure since year-average 2009. This slowdown affected both 4 80 developed and emerging economies. 2 China’s GDP growth decreased 0 to 6.1% in 2019, which is just 60 above the lower limit of the target -2 set by the country’s government.

India’s economic growth also -4 2015 2016 2017 2018 2019 40 remains fragile: in 2019, it was well below projections, with a number US Eurozone China India Russia of indicators pointing to persistent

20 obstacles for sustainable growth. remains in question, as was production, logistics and consumption The main reasons for the slowdown demonstrated by the withdrawal was exacerbated by coronavirus of the world economy include trade of the UK from the European Union outbreak in early 2020 which caused 0 2015 2016 2017 2018 2019 wars, primarily the US and China’s in 2020, preparations for which significant deterioration in the global conflicts, which resulted in several had been under way since the 2016 economy and affected financial rounds of mutual trade restrictions referendum. markets. Slowing growth and the risk and a drop in trade turnover of recession in key economies between the world’ s two largest The global economic slowdown forced regulators to strengthen The relative stability of the market Instability was heightened economies. In late 2019 to early 2020, in 2019 was at odds with financial their stimulation efforts. was the result of several divergent in 2020 by the coronavirus pandemic $/bbl the countries came to agreements markets, whose stability is supported factors. On the one hand, oil and the de facto termination 64 to resolve trade disputes which, if by regulatory incentives. Central prices were supported by political of the OPEC+ agreement, which successfully implemented, could banks chose to maintain their key International situation volatility across production regions caused prices for oil and other average annual Brent price reduce trade tensions between them. rates or cut them as the US Federal and by the actions of the OPEC+ resources to plunge. High uncertainty in 2019 Reserve did following the attempted While there have been no major countries to curb supply. On the other and volatility on hydrocarbon markets Trade wars may be part of a broader increase in 2018. In this context, conflicts, the high level of international hand, prices came under pressure may remain beyond 2020. trend: the spread of protectionism market valuation of assets against and regional tensions in 2019 had from a global economic slowdown, and the regionalisation indicators such as profit reached a considerable impact on the oil trade wars, and growth in oil . of the world economy both their highest point for many years. market. production in the US and elsewhere. pose a risk to economic growth and energy demand. The growth The world economy entered 2020 The effect of the US sanctions on of international trade has for some with persistent problems of high debt, and has led to a cumulative years lagged behind the growth the stark divide between the financial decline of 1.8 million bpd in production of the world economy, which was and real sectors, heterogeneous in these countries. Although production not the case over the preceding performance of national economies, there saw stabilisation in the second period and in the paradigm and economic instability in some half of the year, the situation in foreign of economic globalisation. The future countries. The situation in global policy and economics remains difficult. of some integration associations

20 ANNUAL REPORT 2019 02 STRATEGIC REPORT 21 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Drone strikes on Saudi Arabia’s Global shortfall in oil production, Renewable energy Car sales on major markets , EV sales on major markets , oil infrastructure in September mbbl/d and automotive markets millions of units thousands of units. 2019 were unprecedented in terms of their implications, demonstrating 10 The situation around renewable 25 the sector’s vulnerability energy remains stable. Annual 24 24 1139 1110 to geopolitical factors. As a result investment in renewable energy, 21 of the attacks, global oil production 8 including hydropower, has remained dropped, albeit for a short time, by 5%. at the $300 billion level over the past 17 17 17 17 15 15 15 15 6 decade, with renewable energy 587 Regions that have traditionally remaining ahead of other sectors 461 been somewhat volatile were able of the global electric power industry. 361 331 4 301 336 287 to maintain relatively stable oil China continues to be a key market 200 217 254 159 156 194 production throughout the year. player, accounting for almost half 115 The situation in , however, 2 of all renewable energy investment. remains uncertain. Overall, especially Stable investments help to expand US EU China US EU China Other in view of OPEC+’s voluntary the installed capacity and increase 0 2016 2017 2018 2019 2016 2017 2018 2019 production cuts, the volume of lost January July January July January July January the share of renewables. Germany production in 2019 turned out to be 2017 2017 2018 2018 2019 2019 2020 is a case in point, where electricity high by historical standards. from renewable sources accounted for 46% of the total electricity output of electric vehicles will appear in demand from freight transport, As at early 2020 there remained in 2019. on the market in 2020-2022 which, aviation and petrochemicals will considerable potential for changes Global carbon dioxide emissions by the energy, together with the efforts of regulators, ensure a moderate, but nonetheless in oil supplies, in either direction. billion tonnes per annum Sales of electric vehicles (EVs) will revive the market. positive, trend in market volumes. As demand fell amid the coronavirus grew only marginally in 2019,

pandemic, OPEC+ was unable to agree 40 as a result of a reduction in subsidies More radical scenarios, which on further tactics, with the curtailment by China causing EV sales to slump Oil demand envisage a peak in oil demand around of OPEC+ countries’ production having 35 at midyear amid low overall demand 2030, suggest significant changes

been stopped from April 2020. 30 for cars. Passenger car sales were Growth in global consumption in the regulatory environment markedly down on the world’s two of liquid hydrocarbons slowed and reallocation of investment 25 largest markets, China and the US. down in response to low levels towards low-carbon energy. There

Regulation and climate agenda 20 The EU saw sales spike at year-end of economic growth and competition are currently no viable mechanisms as manufacturers sought to maximise from electricity and gas. According to ensure consistent implementation International organisations, 15 sales by offering cars on special terms to the International Energy of the low-carbon agenda,

governments and society continue 10 ahead of the forthcoming new limits Agency (IEA), liquid hydrocarbon and the issue of energy transition to pay close attention to climate on emissions. consumption rose by only 0.9 mbbl/d and its adoption by consumers change and pollution. Climate risks 5 in 2019, the lowest growth rate remains open.

are at the top of the agendas of major 0 New energy and transport since 2013. Analytical agencies international conferences, although 2000 2005 2010 2015 2020 2025 2030 2035 2040 segments retain their high expected to see some acceleration commitment at a national level IEA base case scenario IEA Sustainable Development Scenario dependence on government support in demand growth in 2020, Oil supply is variable. Russia joined the Paris and regulation. While reducing but downgraded their forecasts Agreement in September 2019, subsidies for renewable energy because of the coronavirus pandemic. As in previous years, the US was whereas the US may formally withdraw, and electric transport, regulators As a result, global oil consumption the main contributor to global but not before November 2020. to become carbon-neutral by buying such companies lead initiatives are at the same time increasing is expected to decline for the first time oil supply growth in 2019: its oil electricity from renewable sources to develop low-carbon technologies the load on traditional power since 2009. production averaged 12.23 mbbl/d, up While actual carbon dioxide emissions on the market or by financing other and reduce the environmental impact generation and internal combustion 1.24 mbbl/d year on year. Total liquid are already a long way off the original actions to offset their carbon footprint of their sector. More specifically, engines. The EU has adopted a new The long-term outlook of market hydrocarbons supply was up 1.58 targets set in the Paris Agreement, that appear to be more realistic. some major funds have limited plan to limit motor vehicle emissions, watchers, however, remained largely mbbl/d (19.51 mbbl/d as against 17.93 many countries are publicly confirming their investments in conventional and China is increasing mandatory unchanged. Under the IEA’s base- mbbl/d), once again outpacing global their intention to reduce their carbon Environmental and social aspects energy or are planning to consider quotas on EV production. Car case scenario, oil demand growth demand growth. footprint in the long term. Some of operations occupy an increasingly the carbon footprint in asset portfolio manufacturers’ plans and agencies’ will not stop until 2040 at the earliest. have stated their vision to become higher position on the agendas management. outlooks on the development The decrease in the consumption of oil This growth, according carbon-neutral by 2050. Nonetheless, of industrial companies. Often of electric transport are ambitious. products by passenger transport after to , was driven it is the ambitions of corporations acting in their investors’ interests, It is expected that many new models 2020s notwithstanding, the growth mainly by shale production, while

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Changes in oil consumption Oil drilling and production from low-permeability reservoirs in the US, Investments by major foreign oil companies, $ billion by sector to 2040 (forecast), mbbl/d. mbbl/d 1000 9 1500 32,7 % 35 29,9 % 30,7 % 900 30 8 1300 25 800 7 19,3 % 1100 18,0 % 20 15,3 % 16,6 % 16,6 % 700 15,2 % 6 13,3 % 11,5 % 12,8 % 15 9,7 % 900 8,3 % 8,6 % 7,8 % 10 600 5 0,4 % 5 700 500 4 0 500 –2,0 % –1,3 % –5

Petrochemicals Air and marine transport vehicles freight Road Industry vehicles Passenger Utilities Energy Other sectors 400 –3,0 % 3 –10 –8,9 % 300 300 2 –15 200 –20 1 100 –21,5 % –25 –24,6 % 4,2 4,2 (100) 100 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 3,2 Shale oil production, mbbl/d (LHS) Active oil-drilling rigs, units. (RHS) Investment index, 1996 = 100% (LHS) Change in investment, year on year (RHS)

0,1 0,2 refining facilities in China, the Middle Strategy adopted by oil hub, where major discoveries -1,4 -1,3 Diesel fuel/high-sulphur fuel oil price differential in Northern Europe, East and Africa. companies in recent years allowed companies -1,75 $/tonne working in that area to declare The most notable – and expected For the majority of oil companies, several billion barrels of recoverable the number of operating drilling rigs – market highlight was the drop financial discipline remains oil reserves and, by 2025, initiate in the US decreased from 885 to 677 450 in prices for high-sulphur fuel oil as relevant as before. Nevertheless, projects with total production

over the year. The drop in oil prices 400 at the end of the year, as the shipping oil price stabilisation and paybacks volumes standing at about 750,000 in early 2020 led companies to reduce industry was actively preparing obtained in 2019 enabled producers bbl. Given the ongoing exploration drilling activity further, and agencies 350 for new International Maritime to relaunch projects that had been activities in Central America, to revise their estimates significantly. 300 Organization (IMO) regulations initiated earlier and to actively it is possible that production Under the impact of decreasing to take effect. The new rules approve new ones. The sector’s expectations will grow. 250 demand and prices, oil production restricted the use of marine fuels ability to launch sophisticated in the US may slump in 2020 200 with sulphur content exceeding projects quickly has eased experts’ About a quarter of investment for the first time in several years. 150 0.5% in international waters without fears over potential oil shortages in global exploration and production additional exhaust gas cleaning. resulting from underinvestment related to shale oil assets which, 100 The slowdown in shale production As suppliers had to build up reserves in 2015–2017. for the first time since 2016, may be offset by the supply 50 of low-sulphur fuel, demand for high- saw a significant fall in drilling from new production projects sulphur fuel plunged. Total global investments operations. Independent producers 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 in non-OPEC+ countries. Major in hydrocarbon production facing strict financial discipline projects launched in 2019 have Fuel-oil prices nonetheless increased in 2019. According to IEA requirements had to cut their drilling already had a significant impact began to recover in early 2020. estimates, they totalled $505 billion programmes. This, in turn, affected on oil supply across various regions. in the following months due to lower Petroleum-products market The subsequent slump in global in 2019, up 6% on the previous year. the performance of oilfield service Given the slowdown in demand, seasonal demand over winter months. petroleum-products consumption A global recovery in the number companies. Oil majors that had this has limited the capacity of OPEC+ The global petroleum-products amid the coronavirus outbreak of prospecting surveys led previously announced ambitious countries to increase production; In March 2020, OPEC+ members failed market remained well balanced offset the impact of new regulations to an increase in discovered shale-oil production plans had throughout 2019 they continued to reach a common position on further for most of 2019. There were no on prices. reserves. Some estimates suggest to adjust them in early 2020 as oil to take steps towards balancing production cuts and so moved supply disruptions amid the slowing that oil and gas discoveries in 2019 prices fell. supply and demand on the global oil to independent production planning. demand, and even a higher exceeded 20 billion tonnes of oil market. In December 2019, OPEC+ As a result, oil prices hit their lowest level of refinery maintenance equivalent (btoe), of which two-thirds International oil and gas companies members agreed not to include gas since the early 2000s and the global did not noticeably affect are attributable to gas. have not lost sight of the diversification condensate numbers in the overall market saw a significant surplus of oil the crude and product differentials. of their business. This mainly oil output for the Russian Federation in the first quarter of 2020. The supply was supplemented further The Guyana Shelf has the potential involves putting in place a value chain and to lower oil production quotas by the commissioning of major new to become the new global production in the gas business by developing

24 ANNUAL REPORT 2019 02 STRATEGIC REPORT 25 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

their LNG segment, acquiring Inventories of oil and petroleum products in the OECD countries, Russian oil production and exports , power-generation and distribution mbbl. million tonnes businesses, and developing renewable energy capacities. Investments in new mobility 3 000 64 600 (batteries, EV charging stations, 63 and car sharing) and the environment 500 (plastic recycling, forestry) are done 2 900 62 primarily through venture funds 61 400 and have a much smaller scale. 2 800 60

Overall, the sector maintains its 59 300 2 700 financial and operational efficiency 58 priorities, including the use of ‘agile’ 200 57 methods and accelerated adoption 2 600 of technology. Environmental 56 100 matters and corporate social 2 500 55 2017 2018 2019 2020 responsibility (CSR) are receiving 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 Inventories in OECD Average for 2010–2014 Five-year average Inventories in days of consumption ever more attention. countries (LHS) (OPEC+ target) (LHS) (LHS) in OECD countries (RHS) Production Export Refining

Market balance, inventories and key drivers for 2020 of the coronavirus pandemic, falling global hydrocarbon prices, domestic price constraints. Overall, forecasts, this trend may continue but also by weather factors, progress and a budget surplus. Expectations domestic petroleum-products prices in 2020. Real disposable income Despite production cutbacks in EV adoption and government of a significant acceleration remained stable. declined in 1H 2019, triggering in Iran and Venezuela, restrictions on the use of internal of inflation against the backdrop a slight reduction in the annual and the repercussions of the attacks combustion engines. Instability of VAT growth proved misplaced. The limitations of the OPEC+ gasoline demand. By contrast, in Saudi Arabia, the global oil of financial markets and fragile In fact, the year-end growth deal notwithstanding, crude diesel-fuel consumption continued market did not experience any investor sentiment add to price in consumer prices slowed to 3%, oil and condensate production to grow (by approximately 1.3%), shortages throughout 2019. uncertainty. In this context, it is likely which was another record. Low in Russia hit an all-time high of 560.2 which was supported by growth In fact, the OECD countries’ total that the global oil market will inflation allowed the Central Bank mt in 2019 (+0.8% on 2018). Oil in the key sectors of consumption inventories of crude oil and petroleum continue to experience price volatility, to continue reducing its key rate exports grew considerably (268.4 (mining, agriculture, construction, products grew year on year. Given fluctuations in supply and demand, (6.25% at year-end). mt as against 258.2 mt in 2018), railway transport). As ever, changes the situation around the coronavirus as well as a wide range of forecasts. despite the Druzhba oil pipeline in consumption levels by the air outbreak, and the termination Taxation changes in 2019 were contamination. The ongoing transportation sector were more of OPEC + agreement, we may see not substantive; they continued modernisation of domestic refineries pronounced: passenger traffic spiked a considerable surplus on the global Russian oil industry the thinking behind previous meant a boost in output of gasoline, 12.9%, while cargo traffic plunged oil market in 2020. decisions. The procedure diesel-fuel and aviation fuel, 6%. Demand for jet fuel edged up 3% The macroeconomic situation for calculating the damper reducing overall volumes of primary over the year, although early 2020 The set of factors affecting global oil in the Russian economy in 2019 component for motor fuel was distillation which, in turn, led saw a substantial reduction. markets and companies’ operations - early 2020 remained stable. further clarified; the list of excisable to growth in production of fuel oil remains complex. On the supply The economic growth continued, middle distillates was expanded; and heavy marine fuels. The decline in global oil prices side, in addition to the ability albeit on a modest scale. In 2019, and the roadmap for introducing in spring 2020 put pressure of various countries to maintain Russia’s GDP grew by 1.3% against tax concessions in oil production The economic climate was mirrored on the rouble exchange rate production levels amid price 2.5% a year earlier. was approved. The reduction on the petroleum-products market and other indicators, exacerbating volatility, the market will be affected of netback indices for motor fuels and in the key drivers of demand. the macroeconomic situation by the political situation in the Middle Economic stability was supported in the context of moderate global Sales of new cars in Russia in Russia as a result. East and North Africa. Demand, by a strong export balance, despite prices and stable rouble rates were down 2.3% to 1.759 million in turn, is likely to be driven not only made it possible not to extend units and, according to industry by economic growth and the impact

26 ANNUAL REPORT 2019 02 STRATEGIC REPORT 27 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices GLOBAL TRENDS AND THEIR IMPACT ON THE GAZPROM NEFT STRATEGY

Significant changes Global trend Description Challenge for the industry How the company is responding in the global Increasing pace of external Major changes in market, technological, – Fast and efficient decision-making New technologies, digitalisation and operational change social and regulatory factors that – Strategy flexibility and business resilience under any scenario transformation enable the company to make the best energy sector place have a continuous and hard-to-predict – A deep understanding and continuous analysis of the external decisions, and improve performance and viability across high demands impact on the operating environment environment the entire value chain, both in the upstream and downstream of the company. segments. on the efficiency, For details, see the speed and flexibility p. 16 Strategy 2030 section of the companies Growing competition Competition among companies in various – Managing the asset portfolio to maximise its value Gazprom Neft is a technology flagship in the Russian oil in the sector. in traditional markets sectors for consumers, resources – Ensuring asset efficiency across the entire value chain industry. It has experience in implementing projects that and economic value drives the number, – Developing products and services to complement the existing are unique in Russia and globally, including the only Arctic quality and diversity of energy resources business oil platform in the world and construction of complex Gazprom Neft’s and related products and services. infrastructure in permafrost conditions. development strategy For details, see the to 2030 is driven p. 104 Technological Development section by the key trends in the energy sector Growing technological Growing complexity of energy production, – Efficiently developing in-house technological competencies Gazprom Neft is continuously increasing the proportion complexity of the business processing and transportation – Engaging in developing advanced industry-wide technologies of high-technology projects in its portfolio, using best practices and industry. technologies. This is in the context – Reducing reliance on imported technologies and equipment and technologies in geological exploration. 3D-modelling of the gradual depletion of reserves, systems, cloud technologies, big data, and artificial intelligence We strive to be technological progress and increasingly deliver vast improvements in efficiency. The company is also proactive in responding tight requirements for processes developing its own proprietary technologies, such as those and products in the energy sector. for the Bazhenov Formation. to change and are closely For details, see the engaged in shaping p. 54 Resource Base and Production section markets, technologies and influencing A growing role for digital Rapid development of data acquisition – Digitalising production and management processes The company’s digital transformation covers the entire value technology across multiple and processing technologies, which helps – An efficient system for implementing new digital solutions chain. It is intended to improve the flexibility and efficiency the environment. sectors to substantially improve and transform in the company of business management. Gazprom Neft is developing its production and management processes. – Developing digital competencies and proprietary digital own solutions in artificial intelligence, the Industrial Internet solutions of Things, robotics, unmanned aerial vehicles, and other Industry 4.0 technologies

For details, see the p. 38 Digital Transformation section

Growing relevance Greater requirements, standards – Production reliability and safety As a socially responsible company, Gazprom Neft is putting of environmental and social and community demand for the safety – Minimising environmental impacts in place an HSE strategy based on international best practice. factors of people and processes, environmental – Involvement in the social development of those regions in which The company is committed to sustainable development values and other social aspects of the business. the company operates and is engaging effectively with its stakeholders.

For details, see the p. 196 Sustainable Development section

28 ANNUAL REPORT 2019 02 STRATEGIC REPORT 29 GAZPROM NEFT

Company profile Strategic report Performance Technological development Our Our Governance system Sustainable development Appendices Our aim is not only goal mission STRATEGY 2030 to gain a foothold in the top league of oil companies, To become one of the world’s leading Evolving, to change the world. Creating, but also to become industrial companies, driving industry to be proud of our creations. We produce a benchmark for industry transformation, making the impossible resources for the future, enriching peers, both locally a reality, and inspiring our peers the world with the energy, knowledge, Strategy 2030: priorities and globally, in terms in Russia and beyond. and technology to advance. of safety, technological advancement and efficiency. We strive to maximise maximise the value of every barrel of oil that we produce. Our aim is to achieve growth by maximising 1 2 3 efficiency through investing in new projects, Gazprom Neft is one of the world’s Maximising the added value of every Leadership in terms of return rather than merely top-10 public companies in terms barrel of oil produced. The company on average capital employed1. This BUSINESS GOALS expanding scale at any of liquid-hydrocarbon production. This needs to manage the entire value objective requires effective project cost. goal reflects the scale of the business. chain efficiently in order to maximise and asset management, focused The company is committed to continuing financial performance. on maximising profit. Alexander Dyukov, its growth in line with the market, CEO and Chairman or above. of the Management Board, Gazprom Neft PJSC / 1 / ROACE. AREAS OF LEADERSHIP 1 2 3

Gazprom Neft strives to become Safety. A responsible attitude Efficiency. Creating value under any Technological advancement. a benchmark for industry peers in such to employees, partners external scenario. This is a key driver Seizing opportunities for growth crucial areas as safety, efficiency and the environment. As Gazprom of competitiveness in a challenging and improved operational efficiency and technological advancement. Neft is working to become a leader external environment. by developing and implementing COMPANY TRANSFORMATION in industrial safety, it is guided advanced technological solutions, by the key principle: ‘Target Zero’,which and by continuously developing key means zero harm to people, competencies. the environment, or property in our operations.

Gazprom Neft has made remarkable progress in the last 10+ years, and is now a major player in the global 1 2 3 oil and gas sector. The key objective Implementing Strategy 2030 means being of the company’s new development flexible in adopting new approaches Digital transformation will ensure Cultural and organisational Operational transformation involves in operational planning and adapting that additional value is created transformation involves transforming deploying the “Etalon (Touchstone)” Strategy to 2030 adopted in 2018 to external challenges. from data across the entire value chain: Human Resources management system as a basis for day-to-day is to build a new-generation company from geological exploration to fuel from a support function into a driver operations, and a constant focus The company has identified key areas sales to end-users. for continuous development. on efficiency and improvements. and to become a benchmark for both of the business that it plans to transform Russian and international industry in order to achieve its objectives. These A key factor in recruiting the best peers. strategic transformations are both employees and high-potential talent interconnected and mutually supportive. is to offer opportunities for continuous development, both individually and collectively.

30 ANNUAL REPORT 2019 02 STRATEGIC REPORT 31 GAZPROM NEFT

Company profile Strategic report Performance In the downstream sector, the company continues to modernise its refineries Technological development and improve its operating efficiency, as well as expanding its retail network Governance system Sustainable development and making it more efficient. Appendices Areas for long-term strategic development:

Strategy in detail: Increasing the conversion Improving efficiency Developing Developing 2019 highlights rate and light-product and technological the petrochemical the marketing and sales yield advancement business business Adding value throughout Optimising resources, Increasing Maintaining market Gazprom Neft’s business development efforts in 2019 and its short- the company’s oil product cutting costs the sustainability leadership and increasing term plans are consistent with the long-term development areas portfolio to ensure and transforming of the company’s traditional market share in existing refineries’ economic processes throughout business by developing and new product sectors. and goals set out in the Strategy 2030. viability and technological the value chain to secure petrochemicals. flexibility under any market market leadership in new p. 78 conditions. and existing markets. p. 96

p. 68 p. 71 BUSINESS GOALS

In the upstream segment, Yamal development Nadym-Pur- Sakhalin APG utilisation Non-traditional Technological New prospecting areas the company continues to develop Developing Tazovsky region Developing Commissioning gas resources development Preparing the resource mature fields. A wide range the resource base Developing a hydrocarbon infrastructure facilities, Developing non-traditional Bringing currently base for production beyond of opportunities for further of the Yamal Peninsula and monetising production cluster and increasing APG reserves of the Bazhenov unprofitable remaining 2025. development is grouped into and building a gas uniquely high volumes on Sakhalin Island’s utilisation volumes. Formation (Domanic recoverable reserves into several strategic areas. pipeline connecting of liquid hydrocarbon continental shelf. and Palaeozoic deposits). production by developing p. 56 the Novoportovskoye reserves in a region pp. 67, 200 and implementing new % field to the Unified Gas- of strategic importance p. 297 pp. 60, 61, 108 technologies. +3.5 Supply System. to the company. p. 104 pp. 65, 67 p. 58 year on year growth in hydrocarbon Strategic initiatives: Creating production technologies – Improving the oil recovery – Catalyst production; for future factor at mature fields; – Deployment development: in exploration and production, – Developing multi-phase of proprietary improving efficiency in: deposits and low- processes throughout – reserves growth; p. 104 permeability reservoirs; the company’s refineries; LEADERSHIP – production growth; – Operating – Using import substitution AREAS – ongoing production; in the challenging as a tool to help environment of the Arctic; Gazprom Neft become in logistics, processing – safe and efficient offshore a technological leader and sales: operations; and achieve sustainability. – optimising the product Safety Efficiency portfolio and improving ‘Target Zero: zero Maximising the added operational efficiency harm to people, value of every barrel in refining; Operational Organisational Cultural Digital the environment, in any oil market – Improving efficiency Implementing the “Etalon Becoming Moving from “management Improving speed or property development scenario. in sales and distribution. (Touchstone)” Operational a flexible organisation and control” to “leadership and quality of decision in our operations.’ Management System (OMS) with a streamlined by engagement” as a new making by deploying digital COMPANY p. 198 to ensure systemic safety and agile operating collaborative ideology. technologies. TRANSFORMATION p. 42 pp. 54, 68, 78 and efficiency in all day-to- environment. day activities. Developing an ecosystem p. 48 beyond the company. p. 38 p. 42 p. 46

32 ANNUAL REPORT 2019 02 STRATEGIC REPORT 33 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices BUSINESS MODEL

Gazprom Neft’s business A well-balanced Modern Directly-owned retail model is based on the principle portfolio of upstream in Russia and efficient network in Russia of vertical integration. assets 0.04 abroad refineries and abroad

Operating at all stages 10.82 The Gazprom Neft portfolio covers an extensive resource base Gas sales, The high efficiency of Gazprom Neft With an extensive distribution network in Russia of the production chain (in both to ensure the sustainable development of the company. The portfolio mtoe refineries is thanks to their strategically and abroad, Gazprom Neft is able to maximise the upstream and downstream includes traditional and offshore oil and gas fields in various stages located, upgraded facilities and ongoing margins from sales of crude oil and oil products of development (from geological prospecting to mature fields) 10.86 technological projects. A wide to a wide range of customers, from retail segments as well as sales in Russia and abroad, allowing the company to expand production Internal gas range of high-quality petroleum consumers to major traders. The company offers in order to maximise profit in line with market conditions. consumption, products offered by the company, high-quality products and services on the motor- and marketing) it allows mtoe and an advantageous geographical fuel, bunkering, jet-fuel, petrochemicals, location in close proximity to end lubricants and bitumen markets. the company to remain resilient markets, enable Gazprom Neft to meet and enhance its operating .12 demand and cater to the high standards efficiency in the future. of its customers. Oil inventories at year-end, Oil purchases , mt Direct wholesale distribution , mt 0.32 mt 18.98 in Russia 9.29 Gas, oil and condensate Petroleum-products sales through joint inventories at ventures3, mtoe year-end, mt Hydrocarbon production, abroad 1.51 mtoe 0.23

7.78 18.33 Premium sales, 96.10 1 Petroleum- mt products Petroleum-products in Russia abroad 4 production, balance , 26.46 105.0?0139 41.4 mt mt mt of oil 40.23 45.44 mtoe Filling stations 2.44 0.01 5.30 and tank farms 19.51 mt

O i 55.55 l

p r 0.54 o abroad d Jet fuel u c 3.22 mt t t in Russia io 4.37 n m , , m n o t ti Petroleum-products 22.02 c u Oil sales, purchases, d o 2.98 Bunkering r p mt abroad mt 32.26 2.99 mt te a 2.03 s in Russia n e 26.39 5.01 d on Bitumen5 C

0.42 mt

/ 1 / Including stable gas condensate

purchases from NOVATEK (25% Oils and Gas production2, mtoe of Arcticgas production) / 3 / Sales through the Northgas and Arcticgas joint ventures lubricants / 2 / The conversion factor (from bcm / 4 / Including internal consumption and changes in inventories 0.32 mt into mtoe) is 0.803 / 5 / Polymer-modified asphalt cement (PMAC) and bitumen emulsions

34 ANNUAL REPORT 2019 02 STRATEGIC REPORT 35 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Creating stakeholder value

Shareholders Customers Employees Local Government and investors and consumers communities Long-term value growth Readily available and stable energy A stable employer offering Corporate responsibility Energy security supplies professional development and regional development High level of dividend yield opportunities Tax payments Good consumer value and environmental Technological development performance of products A competitive compensation of the Russian oil and gas industry package

WHAT WE DO

– Ongoing communications with investors, – Expanding direct sales to corporate clients through – Systematic recruitment – Making significant tax – Stable production growth shareholders and analysts to maintain a fair price the directly-owned distribution network and employee rotation contributions to local budgets and efficient oil refining for Gazprom Neft securities – Expanding the Gazpromneft filling station network programmes – Contributing to the development with an extensive distribution – Developing a well-balanced corporate governance and developing its loyalty programme – Talent management, of social infrastructure network for petroleum products system to ensure compliance with Russian – Partnerships with leading petroleum-product competency development – Minimising negative environmental – Implementation of the first major and international best practices, taking into account customers and training impact offshore project (Prirazlomnoye) the specifics of the industry – Developing and manufacturing products – Developing motivation – Supporting local initiatives and integrated development – Transparent reporting of development strategy with enhanced consumer and environmental programmes and building of the Russian Arctic shelf implementation properties a culture of engagement – Developing a centre – Fair dividend policy – Increasing the efficiency of distribution channels – Increasing employees’ of technological excellence – Respecting minority shareholders’ rights by business process digitalisation and developing productivity and organisational and ensuring technological – Continuously developing a risk-management system communication channels for customers efficiency independence with highly detailed levels of responsibility and contractors – Increasing efficiency of human resources management

2019 RESULTS

– Gazprom Neft share price as at 31 December 2019: – Leading positions in premium petroleum-products markets – The company has topped – Gazprom Neft is a major taxpayer – Hydrocarbon production: 96.1 mtoe ₽420.2 per ordinary share (+21.2% year on year) – 11.9 million participants in the Gazpromneft filling station the Randstad Award ranking in the key regions of its operation – Over ₽700 billion paid in tax and other – Dividend payout for 6M 2019: 40% of consolidated network’s loyalty programme of the most attractive employers – ₽37 million allocated in 2019 for grants statutory payments in 2019 IFRS result – All motor fuels are compliant with the Euro 5 environmental in Russia under the ‘Home Towns’ Programme; – Extending productive life of mature fields standard – The average monthly salary 143 projects implemented through the use of cutting-edge technologies – Dividend yield: 8% for 2019 – Jet fuel supplied to 283 airports in 67 countries worldwide in the company is ₽134,000 (up – Social investments by Gazprom – Creating tools to remove regulatory industry – Bunkering in 35 ports in Russia, Romania, Latvia and Estonia 9.3%). Neft under social and economic barriers through the Digital Oil and Gas – Lubricants supplied to 80 countries agreements with regional industry-wide working group – Gazprom Neft is the first Russian oil company to have its own governments totalled ₽2.9 billion bitumen terminal network

36 2019 ANNUAL REPORT 02 STRATEGIC REPORT 37 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices DIGITAL TRANSFORMATION

In September 2019, the Gazprom Neft Board of Directors confirmed Breakthrough digital-transformation projects the company’s digital transformation strategy. This new document was implemented at Gazprom Neft developed in line with the company’s wider business development strategy Digital transformation covers every stage of the company’s operations, from geological prospecting and drilling of multilateral wells to refining and delivery of finished products. Thanks to new technologies, by 2030 Gazprom Neft will halve the lead times in obtaining ‘first to 2030, and supports its implementation. oil’, improve lead times for implementing major oil and gas production projects by 40% and reduce production management costs by 10%

The company’s digital (IIoT), robotics, unmanned aerial and operational processes transformation covers its vehicles (UAV or drones), and other at Gazprom Neft. Each of these AI in geological Gazprom Neft has been successfully using machine models of fields that exceed the scale of many entire value chain. It is intended Industry 4.0 technologies. programmes is intended to deliver exploration learning in its search for additional oil reserves, European countries. They can also help to achieve to improve flexibility and efficiency key economic and business impacts with neural networks using geological data to identify a significant reduction in the duration of the geological blocks with potential oil reserves that are undetectable analysis cycle. in business management, based The digital transformation in the medium and long term. using conventional methods. In 2019, a pilot project on data and digital twins of assets. management system uses a highly- using this cognitive system at an existing oilfield The company is developing its own organised, programme-based on the Yamal Peninsula helped to achieve additional solutions in artificial intelligence approach. It consists of a set of major inflow. (AI), the Industrial Internet of Things change programmes in technological Using probabilistic calculations, the cognitive pp. 58–63 algorithms make it possible to build detailed digital

Electronic Asset The EAD Programme is a strategic programme (a digital workstation for geological and field- Development comprising IT projects being implemented by Gazprom development engineers), EAD: REMONTY (computer- Portfolio of digital transformation tools and processes Neft in the upstream segment. Projects implemented aided well-workover management) and EAD: ProActive Meeting the objectives we have set • Regulation governing To establish in-house expert (EAD) by the company include EAD: ISKRA (an integrated (comprehensive analysis of data on hydrocarbon reserves). ourselves requires: the implementation communities specialising in technology, design system that assists with decision-making • A transparent and simple business- of digital projects (describing and to communicate more efficiently on field infrastructure development), EAD: GRAD architecture management model to owners of digital products with business units, the company has to ensure flexible, rapid and efficient and product teams the procedure created centres of excellence focusing on: Digital logistic- To ensure uninterrupted year-round shipments of all about 300 parameters, and allows the fleet’s operational digital transformation; for securing funds, resources • Machine learning and AI; management oil produced in the Arctic (ARCO and Novy Port blends), efficiency to be assessed in real time. • High-quality digital resources and infrastructure); • Virtual and augmented reality; the company has developed a unique digital Arctic logistics and cutting-edge processes; • Guidelines for launching digital • Video analytics; system management system. The system tracks vessels in real Using this system, the company has reduced the unit cost • An efficient, readily accessible projects (containing a step-by-step • Blockchain; for use in the Arctic time, develops an optimal schedule for the fleet and for oil of oil transportation from northern fields by 15%. and scalable IT infrastructure. description of the digital project • Robotics and additive manufacturing; ‘Captain’ shipments from terminals, and monitors the movement implementation process); • Unmanned technologies; of each vessel at every stage of its voyage. It analyses To which end, the company has • A procedure for securing • IIoT, and wearable technology. over 65 million potential options per hour, processes developed the following tools: investment and implementing digital projects to carry out a proof The centres of excellence are tasked Corporate knowledge-sharing system: with: Using a mobile app to place orders and pay for fuel Corporate clients now have the opportunity to sign • A glossary of digital transformation of concept (POC) and deliver value 100% digital promptly; • Expert evaluation of solutions; customer at Gazpromneft filling stations can cut motorists’ time an agreement with the company online, issue virtual containing over 250 terms, designed • Identifying technological solutions spent filling up by as much as half. The ability to issue service cards via the app and exchange documents to unify terminology used throughout • Quick-start of IT and digital transformation projects. and assessing their maturity; the ‘On Our Way’ loyalty programme virtual card without having to meet the company’s managers. All these the company; • Providing expert support for core right in the app means the entire chain of interaction transactions can be made through the personal account • A knowledge-sharing system Technical tools: business projects; with the customer can be executed digitally, while in the OPTI24 app. There are now legal entities who spanning all divisions including • A corporate cloud-based sandbox; • Developing implementation the ‘Refill’ button allows clients to refuel their car without are fully-digital clients. regular events to raise awareness • Technical regulations (streamlining scenarios for Gazprom Neft; leaving it. This button first appeared in the AZS.GO app of digital technologies and digital the process in terms of architecture • Developing digital projects and is currently being replicated in the filling station projects. approval and information security and services that meet the needs network’s app, as well as in partners’ apps. Methodological tools: requirements, and designed of the business; to remove critical barriers • Solution integration and support; • A methodology to determine Analytical This solution is Russia’s first integrated platform that is responsible for motor-fuel sales. Currently, economic impact of investment to project implementation). • Developing new solutions; for data processing, storage and analysis 50% of all analytical projects in this division are being programmes, IT- and digital- • Testing technological solutions; platform with fully integrated Data Governance components. implemented using this platform. The project won transformation projects; • Prototyping. for managing data It is designed for big data processing and storage, the 2019 Project of the Year award from Global CIO advanced analytics, and for improving data and the 2020 CDO Award. management efficiency. Most importantly, it ensures the quality of various data at a Gazprom Neft unit

Geo-analytical The company has leveraged data to create a unique traffic flows and identifies the best locations platform integrated AI-powered solution that models for the development of the filling station network.

38 ANNUAL REPORT 2019 02 STRATEGIC REPORT 39 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

2019 achievements 2019 transformation results Plans for 2020

By the end of 2019, 30 digital The company has identified several key Gazprom Neft transformation programmes development areas for 2020. Utilisation of artificial intelligence (AI) in the company aims to become had been approved. Once they 1. Operational transformation in IT. In order to develop and implement AI-based solutions across the entire value a leader in the digital reach their full design capacity, 1,000+ The key challenge for the company chain, the company has established its Data Monetisation and Development Centre transformation of the fuel the programmes will have delivered is to achieve an efficient and flexible (DMDC), as well as several data-science teams within Gazprom Neft’s divisions and in the Gazprom Neft Science and Technology Centre. and energy sector and their target economic effect of 3–5% digital and IT projects alignment of roles in order to create a leading technology brand. of EBITDA per annum starting and initiatives a well-defined and transparent The Data Monetisation Centre is designed to improve the efficiency of internal from 2022. Investments in IT system to support the development processes in the company by leveraging data, analytics, and mathematical modelling It will do this by attracting and optimisation techniques. The DMDC develops solutions for all areas of Gazprom and supporting qualified and digital transformation in 2019 of digital transformation Neft’s business. The company is building a corporate data analysis platform based personnel and embedding accounted for up to 5% of Gazprom programmes and assist the business on machine learning and optimisation methods, in-depth training and image the development Neft’s cumulative investment to implement them. The system analysis, and natural language processing, aimed at accelerating the development of talent in the company. programme. should also help to create digital and implementation of solutions based on data analysis and mathematical modelling. 700+ The most significant DMDC projects in 2019 involved processing and interpreting seismic We have a growing and IT products, and to provide easy data, analysing and processing magnetograms, and conducting core analysis. number of initiatives: An important milestone in the digital access to information infrastructure we are developing both digital- transformation process at Gazprom scenarios analysed to assess and services. and IT-project portfolios Neft was the Digital Technology potential technological 2. Development of a corporate digital and we are creating tools Vision (DTV), which is a long- application platform comprising the following 35 2,000+ to manage these efficiently term planning tool for developing components: projects models in terms of increasing and applying digital technologies. It – A corporate platform economic benefits is based on intelligence, information for applications and data using AI/machine learning developed for the company. on innovative digital projects, (Platform-as-a-Service, PaaS) The transformation process academic research, and products as the basis of a new has got off to a great start; offered by leading technology 30 technological landscape; it is attracting great interest, companies. – Operational platforms enabling 120 100+ and more and more people programmes in the digital business-process integration are getting involved. The DTV addresses the following transformation portfolio throughout the entire value data models questions: chain; analysts with real-life application Andrey Belevtsev, – How mature is a digital – Application platforms allowing CDO (Chief Digital Officer) technological solution in terms the delivery of centralised of its practical applicability? solutions for highly specific – Which digital technological tasks such as video analytics, solutions does the company need 192 wearable technology, Gazprom Neft is involved in the development of AI today and in the future? augmented and virtual reality, in Russia – Which technological solutions proof-of-concept projects and blockchain. is the company ready for today completed, the results of 46 As part of ongoing projects in artificial intelligence (AI), the company has become one and which does it need to make 3. A corporate platform of the founding members of the Science and Education Centre for Artificial Intelligence of which are currently being in Industry, cooperating to this end with Russia’s leading higher educational institutions sure it is ready for in the future? implemented for data analytics and management, (ITMO University (the St Petersburg State University of Information Technologies, – What needs to be done to ensure and digital service development. Mechanics and Optics), St Petersburg State Electrotechnical University, the St the company is prepared This will help to significantly Petersburg campus of the Higher School of Economics, the St Petersburg State for emerging technologies? speed up project implementation University of Aerospace Instrumentation, St Petersburg State University, and the Peter the Great St Petersburg Polytechnic University). and increase the scale of the launch As part of its digital technological of AI-based solutions. In September 2019, Gazprom Neft, , Mail.ru Group, Sberbank, MTS vision, Gazprom Neft has developed 4. Putting previously launched and the Russian Direct Investment Fund worked together to establish the AI-Russia Alliance, Russia’s first cross-industry alliance for developing AI, with Gazprom Neft over 700 forward-looking scenarios projects into commercial operation, becoming the first industrial company to join the Alliance. for the use of digital technologies and rolling out the results of digital across Gazprom Neft’s entire value transformation in subsidiaries. The Alliance seeks to facilitate the implementation of AI technologies in Russia, and is helping to develop a regulatory framework governing AI development in Russia, chain. 5. Expansion of a partnership as well as legislation governing industrial and personal data. ecosystem for digital developments. 6. Transition to a product-based The AI-Russia Alliance will also work towards developing a professional community of experts and organisations specialising in AI and data analytics. This will include approach throughout the company. an initiative to develop an advanced training programme in AI for university teachers, postgraduate students and undergraduates.

40 ANNUAL REPORT 2019 02 STRATEGIC REPORT 41 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices OPERATIONAL TRANSFORMATION The OMS Development Programme

The operations management system (OMS) transformation is a key programme The “Etalon (Touchstone)” OMS 1. OMS maturity assessment or rolling it out to other processes; to improve efficiency and achieve the goals of Strategy 2030. 2019 saw the start development programme brings and preparing for implementation this involves training together the objectives of achieving at an asset in the use of forward-looking of the programme’s expansion across the company’s main operating assets. full compliance with all elements tools, and providing resources of the management system, 2. Comprehensive potential to support project teams at the asset changing the approach to setting assessment, and planning implementing those tools. objectives in production planning, the implementation of OMS tools The Etalon OMS is a structured efficiency by enabling reliable adhered to in order to improve and encouraging the engagement and practices in a pilot process flow, Once Stage 4 is completed, the focus set of interconnected practices, and safe operation and engaging all operational processes across all of all employees to improve business area or process of OMS development will shift away procedures and processes used employees in a culture of continuous assets. This will bring the company processes. 2019 saw the Etalon OMS from projects, and the objective by managers and employees at each improvement. closer to maximum operational development programme moving 3. Pilot implementation of developing and improving organisational level in the course efficiency. to the ‘Implementation’ stage, and developing prioritised OMS the system will be integrated into of operations. The Etalon OMS The OMS Development Code, adopted with the company adopting a model elements day-to-day operations as part is designed to maximise by the company in 2019, sets out for implementing OMS practices of a continuous improvement cycle. the company’s operational common principles that must be and tools at its assets that comprises 4. Scaling up and developing the following four stages: the system across the asset and/

THE ETALON OMS STRUCTURE IMPLEMENTATION STAGES FOR OMS PRACTICES AND TOOLS Ensuring that managers play a leading role in creating an engaging environment to enable Element 1 Leadership and culture the company to achieve strategic goals • Pilot areas identified • Assessment of potential Achieving the target level of production asset safety and cost-effectiveness throughout its entire • Developing tools updated for scale-up across Element 2 Reliability management life cycle through targeted risk-oriented maintenance, reasonable extension of service life and practices the asset and the durability of technical equipment Training in the use for Elements 1 to 12 • Initiatives implemented of forward-looking tools to achieve the potential Element 3 Process flow management Ensuring that production processes are safe, efficient and sustainable and implementation support Organisational development Ensuring that organisational resources are effectively secured and allocated; assigning Element 4 Pilot and competency management responsibility and developing staff competencies 3implementation 4 Scale-up Ensuring that a uniform, risk-based approach to operations management has been adopted, Element 5 Operational risk management in order to improve operational efficiency by minimising unplanned losses from operational risk through actions to reduce their likelihood and mitigate the consequences Contractor and supplier Ensuring the efficiency and safety of work performed/services provided by contractors, Element 6 management and the efficiency of materials and equipment supplied Point of no return Subsidiaries identified as being Element 7 Project management Ensuring that project goals are achieved efficiently ready to develop the system Data, information and document independently Element 8 Making the best management decisions based on data, information, and documentation Comprehensive management Maturity 1assessment 2 assessment Environmental and social impact Element 9 Preventing unacceptable impacts on people and the environment of potential management Element 10 Change management Ensuring that changes within the company are efficient, and maintaining operational continuity System 3Development 4 • Current asset status • Asset potential Identifying stakeholders in operations, communicating with them and building constructive development Element 11 Stakeholder management determined determined prioritisation stakeholder relationships as part of operations • Aligned • Cultural Performance management management action transformation Element 12 Improving operational efficiency by using continuous improvement tools plan developed plan developed and continuous improvement • Prioritise those elements • Develop tools and practices whose development will on the growing list of prioritised help to reach the potential elements across the asset • Develop prioritised • Initiatives implemented elements across the asset to achieve the potential

Continuous improvement cycle

42 ANNUAL REPORT 2019 02 STRATEGIC REPORT 43 GAZPROM NEFT

Company profile Strategic report Performance Operational Technological development transformation Governance system in questions Sustainable development and answers Appendices

2019 achievements? Glossary Successful Practices Contractor engagement In 2019, the company continued STATUS OF OMS TOOLS ROLLOUT ACROSS KEY OPERATING Roadshow Safe and efficient contractor to introduce forward-looking ASSETS AND ENGAGEMENT OF SUBSIDIARIES IN OPERATIONAL engagement is a key focus area Asset (OMS) OMS development tools such of operational transformation. Subsidiaries, joint ventures TRANSFORMATION In 2019, the company developed as the Operational-Reliability managed by the company, business 1 2.6 12 MA1 CPA2 a Contractor Engagement units, business divisions, corporate Management Model (ORMM), Regular Code. The Code is designed SUBSIDIARIES IN THE UPSTREAM DIVISION centre functions or other units. Management Practices (RMPs), Value >100 to create a new system for market Gazprom Neft Orenburg Creation Flow Mapping, and Standard ■ ■ ■ ■ ■ engagement and establishes Slavneft-Megionneftegaz ■ ■ ■ ■ ■ a special type of relationship Operating Procedures. By year- practices Lean production Gazpromneft-Khantos ■ ■ ■ for implementing joint projects end, over 4,300 employees had been presented and creating added value. A management concept based trained in the use of RMPs, lean Gazpromneft-Vostok ■ ■ ■ on continuous improvement Gazpromneft-Noyabrskneftegaz ■ ■ ■ In 2019, Gazprom Neft launched and commitment to eliminating all production tools and the operational- the Open Book project, to create reliability management model. Gazpromneft-Yamal ■ ■ ■ ■ ■ types of losses, with all employees a partnership model for contracts being involved in the improvement Messoyakhaneftegaz ■ ■ ■ ■ that stipulates a procedure for cost process. During the year, the company Gazprom Neft Development ■ reimbursement, remuneration carried out a diagnostic assessment Gazprom Neft Science and Technology Centre ■ ■ 29 and risk sharing with capital construction contractors. This will Gazpromneft-NoyabrskNefteGazAvtomatika of compliance of eight production enable the company to improve OMS Code assets with the OMS Code, Gazpromneft-Nefteservis ■ subsidiaries project efficiency and engage A description of 98 requirements including the current maturity Noyabrskenergoneft (pilot) ■ financially sustainable contractors. for 12 Operations Management took part System Elements which must be level of the management system. Gazprom Neft Shelf ■ ■ ■ ■ ■ Compared to traditional arrangements, the new model met in order to achieve OMS goals. Gazpromneft-Prirazlomnoye It then prepared an action plan ■ ■ ■ ■ ■ is more transparent, gives a clearer for prioritised development areas. Gazpromneft-Sakhalin ■ picture of pricing and efficiency Following a comprehensive Morneftegazproekt drivers, and introduces a flexible Comprehensive potential potential assessment (which serves SUBSIDIARIES IN THE DOWNSTREAM DIVISION approach to construction budgeting. The company also implemented assessment as a tool to identify opportunities The Gazprom Neft Omsk Refinery ■ ■ ■ ■ ■ 62 An assessment of all of an asset’s the Partnerships project, which for operational efficiency The Gazprom Neft Moscow Refinery ■ ■ ■ ■ ■ covers drilling and well-intervention strategic resources, including improvement), it was confirmed Gazprom Neft Logistics ■ ■ ■ ■ practices services. As part of this project, operational, financial, and human resources. A key OMS tool enabling that nine assets had an incremental Gazpromneft-Lubricants ■ ■ identified new operational engagement with major partners was arranged the company to meet its objectives. achievable economic potential Omsk Lubricants Plant (branch of Gazpromneft-Lubricants) ■ ■ ■ ■ ■ customers with assistance from account of over ₽21 billion. The relevant (pilot) managers. measures to achieve this level were Gazpromneft Bitumen Materials ■ ■ ■ In September 2019, the second Competency, efficiency and safety Regular management practices included in medium-term business The Gazprom Neft Ryazan Bitumen Binders Plant (pilot) Successful Practices Roadshow ■ ■ ■ ■ ■ remain the key requirements Tools used by managers took place at Slavneft- plans. Gazpromneft-Aero ■ ■ ■ ■ for contractors. The company’s to improve operating performance Megionneftegaz. This event contractor engagement policy and safety. They contribute Koltsovo Fuelling Company (branch of Gazpromneft-Aero) (pilot) ■ ■ serves as an official platform that is focused on engaging contractors to the adoption of the company Gazpromneft Marine Bunker ■ ■ enables divisions to exchange in continuous improvement values and the creation of a cultural Etalon Programme expertise and successful practices Subsidiaries of Gazpromneft Marine Bunker (pilot) ■ ■ processes and integrating them into environment that enables in continuous improvement. A total implementation format Customer service of the Regional Sales Directorate ■ ■ the Safety Framework System. the company to achieve its strategic of 164 notional ‘acquisitions’ goals. Tools forming part of OMS element Fuel and logistics operations of the Regional Sales Directorate ■ ■ ■ ■ ■ of practices were made at the event. 1 (Leadership and Culture) are being (pilot at Gazpromneft-Terminal) An ‘acquisition’ is a participant’s implemented Gazpromneft Energoservis ■ ■ commitment to test whether Tools forming part of prioritised Avtomatika-Servis ■ ■ a practice can be rolled out OMS elements (elements 2 and 6) to their operations. The roadshow Gazprom Neft Trading GmbH are being implemented ■ helped identify new customers Tools forming part of OMS element CORPORATE FUNCTIONS AND SUBSIDIARIES OUTSIDE THE SCOPE for 62 out of 104 practices. 12 (Operational Efficiency) are being OF THE DIVISIONS implemented Gazprom Neft PJSC ■ Diagnostic Assessment (maturity assessment) completed. Naftna Industrija Srbije (NIS) ■ ■ ■ ■ ■ Asset Potential Assessment Paradnaya Complex completed / underway Gazprom Neft Business Service ■ ■ 2020 focus Gazprom Neft Procurement ■ ■ ■ Information Technology Service Company (ITSK) ■ ■ Noyabrskneftegazsvyaz ■ / 1 / Maturity assessment / 2 / Comprehensivepotential assessment

44 ANNUAL REPORT 2019 02 STRATEGIC REPORT 45 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices ORGANISATIONAL TRANSFORMATION

To achieve its strategic goals, the company needs to significantly accelerate its decision-making and execution. This requires a fundamentally new

pr ojec 85 perspective on business processes and management models. ts com pl ete s d 0 oces 4 n pr PROFESSIONALS 4.0 ts i jec The company is implementing are quickly formed to bring feature of the new model is that pro and mastering modern, cutting- together specialists in various the corporate centre now focuses PLATFORM edge development and management disciplines to address a specific task on tasks in the Change category, approaches that are based and that are able to look for solutions whereas tasks in the Run category on a network structure. These independently, and coordinate (day-to-day operations) are more include flexible teams that with other teams. An important often delegated to subsidiaries. 125 Operating model PROJECTS UPLOADED In its Strategy 2030, the company Asset of the Future Transformation mapped out a journey towards being 6,200 of the Downstream Division PARTICIPANTS a global benchmark in efficiency The target operating model and technological advancement for subsidiaries in the Upstream The organisational scale that requires a flexible and adaptive Division is based on a value-chain of the Downstream Division has product-based operating model principle: from identifying new already changed significantly, thanks focused on the object of management: development options, developing to the extensive business development the product. The product business cases and value-creation that has been underway since in this context is a comprehensive levers, to launching respective 2010. In 2018, the company began business solution created by a cross- projects and implementing to manage the Division as a single functional product team. To be able these safely and efficiently. asset. This involved changes to assemble such teams, the company At the same time, this model in processes, a shift in the balance 2019 achievements needs to revise its existing business is focused on the principal object of powers and responsibilities processes, and create an environment of management: the asset. and changes to resource allocation, where experts can be mobilised KPIs, and the way that managers To date, the company has formed Furthermore, in 2019, the company The management company has from different divisions. As part of the Asset of the Future of individual businesses viewed more than 300 flexible teams. These completed the transformation consolidated the management project, the company has identified the consolidated result. teams have developed and tested new of its operating model for offshore of the following assets: The company has selected a number key end-to-end business processes practices and mechanisms that help project management. The divisional – Gazpromneft-Prirazlomnoye of pilot projects to test the product- ensuring the integrity of managing To support this transformation, to remove barriers and streamline transformation was designed (operator of the Prirazlomnaya based model, including: the asset potential and increasing the company conducted activities. Candidates are selected to improve flexibility of management platform); – The Asset of the Future project its efficiency. The development an assessment of its organisational through the Professionals 4.0 and introduce new formats – Gazpromneft-Sakhalin (offshore (Upstream Division); of methods to assess the technological health; this is a tool for improving platform and by the company’s HR of work (e.g. operator agreements, exploration); – Organisational transformation potential of assets, as well efficiency and productivity within function. The company has developed partnerships, investments) – Morneftegazproekt (an (Downstream Division); as concepts of upstream control the Division. It also identified those staff relocation mechanisms with mitigation of business risks engineering company – Establishing its Science centres and standard approaches elements and key characteristics and algorithms for training cross- in offshore operations. responsible for the full range and Education Centre (SEC); to the organisational design of the operating model directed functional project managers. It also A management company was of FEED and design work as part – Transformation of the company’s IT of the Asset of the Future at improving organisational introduced non-financial incentives established within Gazprom of offshore projects). function. is ongoing. Furthermore, work efficiency. Further, the company has for flexible-team members (such Neft Shelf which now acts is underway to establish a new developed a model of the product- as additional training and priority as the centre of expertise, For the latter two projects, concepts business management ecosystem, based approach to be adopted career planning). responsibility and decision-making and key approaches to transformation and to help employees acquire those by the division which involved for Gazprom Neft’s offshore projects. are currently under development skills required for implementing identifying key structural elements and will be presented for internal the company’s ambitious strategy. and preparing a conceptual design discussion in 2020. of the organisational structure.

46 ANNUAL REPORT 2019 02 STRATEGIC REPORT 47 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices CULTURAL TRANSFORMATION

Gazprom Neft is implementing a large-scale project to transform its Gazprom Neft’s values corporate culture. Its new engagement philosophy involves a shift from top- down management to facilitative leadership. The company’s values a culture of rules, of success, the culture of success is centred are shaped by its vision, mission, and of consensus. Gazprom Neft’s around efficiency and determination; and strategy. The target corporate values support this process: and the culture of consensus is based Corporate culture transformation – A leader is a role model for all them to its specific needs. culture at Gazprom Neft the culture of rules is underpinned on collaboration and innovation. involves shaping behaviour in a way employees; The supporting elements are: is a synthesis of multiple cultures: by responsibility and safety; that helps the company to achieve – A leader creates an engaging – Providing a rationale its goals. This behaviour needs environment for the team; for the cultural transformation to be supported by appropriate – A leader is committed and target vision; processes, organisational structure to continuous development. – Developing new behaviour models and operational settings. Gazprom for employees; Neft has developed a leadership To implement a new corporate – Making changes to processes Collaboration communication means behaviour model where: culture, the company is using to encourage such behaviour; collaboration international best practices, tailoring – Ongoing communication.

Safety is our priority 2019 achievements Innovation is our way of thinking In 2019, the company continued Practices’. This is a format that Neft subsidiaries. To do so, to develop its corporate culture will be used to train all top managers Gazprom Neft employees formed workshops for managers. and will then be cascaded through a community of 142 in-house By March 2019, more than 6,000 the management hierarchy. coaches who ran corporate culture Gazprom managers throughout all Gazprom workshops throughout the year. Neft subsidiaries had attended The company is developing In addition, the company developed Neft’s values the workshop. Given the need a community of change ambassadors a special training and recognition for managers to take specific actions to drive its corporate culture. programme for change ambassadors, to create an engaging environment, 2019 saw the launch of a project which includes training courses Responsibility Gazprom Neft developed Workshop to train a second wave of change and an annual forum. is our work ethic 2.0 ‘Facilitative Leadership ambassadors across Gazprom Determination is in our nature

Efficiency is our strategy

48 ANNUAL REPORT 2019 02 STRATEGIC REPORT 49 ANNUAL REPORT 2019

Performance review

Resource base and production Refining and production of petroleum products Sales of oil, gas and petroleum products HOW NEW DIGITAL Financial results STANDARDS ARE TRANSFORMING JET REFUELLING

Alexey Shnyakin, airfield tanker driver GAZPROM NEFT

2019 p. 80 The company unveiled the world's first digital Arctic p. 97 Construction of a new catalyst production p. 91 A new hybrid marine fuel for Today, logistics-management system facility is underway environmentally-friendly bunkering we are a whole highlights The core objective of the new system named 'Captain of the Arctic' Gazprom Neft’s project is designed to meet Russian refineries’ New restrictions on sulphur content in marine fuels introduced new company is to manage logistics in the Arctic safely, and to ensure that all oil demand for efficient cat-cracking and hydrotreatment catalysts by the International Maritime Organisation (IMO) took effect in early in many respects: produced is dispatched at the lowest possible cost. It takes the system necessary for the production of Euro-5- standard gasoline 2020, meaning sulphur content in any marine fuel used for international from production under five minutes to draw up a vessel schedule for a month, while a long- and diesel fuels, as well as hydrocracking catalysts used in deep transportation must not exceed 0.5%. To prepare for a significant increase volumes to the size term three-year plan, broken down into one-hour intervals, takes about two oil refining processes. This new facility in Omsk will have capacity in demand, the Gazprom Neft bunkering operator extended its product range hours. Every day, the system analyses around 7,000 input parameters, to produce 15,000 tonnes of cat-cracking catalysts and 6,000 with a new hybrid fuel not exceeding the 0.5% sulphur cap. The company of our resource base choosing an optimum solution from more than 66.5 million options tonnes of hydroprocessing catalysts per year, in addition to which has already piloted bunkering operations using the new fuel in the ports and the complexity every hour. The Captain of the Arctic System is able not only to manage the plant will regenerate about 2,000 tonnes of spent diesel-fuel of St Petersburg, Primorsk and Ust-Luga. Commercial production of the projects the current situation, but can also forecast the future. hydrotreatment catalysts per year. of this environmentally-friendly product began at the Gazprom Neft Omsk Refinery in January 2020. It has already been certified as meeting we are undertaking. the Eurasian Economic Union standards. To progress further, the company needs to take business PERFORMANCE process organisation to a new level. We 2017 want to become a lodestar for industry 4,022 peers globally Reliance 16 2 20 01 in technology, 8 efficiency 4,0 45 08 and safety. And this calls 3,9 for fundamental on innovation change – in ourselves and our business. p. 58 ensures Vadim Yakovlev 1,522 Deputy CEO for exploration 1 5 ,5 1 4 6 2 5 1 4 and Production, Gazprom 0 ,5 0 our leadership 7 2 1 1 8 , 9 Neft PJSC 3 719 7 26 34 8 7 in the industry 1 5 , 1 0 8 The innovation development programme 6 63 1,583 4,28 Consistently strong financial currently underway in the company performance includes, specifically, technology projects / 1 / Petroleum Resources DEVELOPED Gazprom Neft showed to enhance oil recovery at brownfields, Management System resilience across all bring hard-to-recover hydrocarbon HYDROCARBON financial metrics, RESERVES UNDER with the company achieving reserves into production, bring continuous PROVED a record net profit of ₽422.1 THE PRMS billion in 2019, an increase improvement to the productivity of wells, CLASSIFICATION of 5.3%. as well as the initiative to develop (MTOE)1 and produce hydro-processing and cat- cracking catalysts.

Net profit, Market-leading AI-based Consolidation of a 100% Changes in operational indicators, The development strategy covers every stage ₽ billion solutions shareholding in Poliom million tonnes of the company’s operations In September 2019, Gazprom Neft, Petrochemical production Digital transformation covers every stage of the company’s 500 Yandex, Mail.ru Group, Sberbank, MTS is a strategically important growth Oil Refining Petroleum-products Petroleum-products operations, from geological prospecting and drilling and the Russian Direct Investment Fund area for the company. In order production production sales of multilateral wells to refining and delivery of finished products. 400 established the AI-Russia Alliance, to strengthen the position of Gazprom Thanks to new technologies, by 2030 Gazprom Neft will halve Russia’s first cross-industry alliance Neft on the petrochemical market, the lead times in obtaining ‘first oil’, improve lead times 70 300 for developing artificial intelligence (AI). the company, together with SIBUR for implementing major oil and gas production projects by 40% Gazprom Neft was the first industrial Holding, secured a 100% shareholding 60 and reduce production management costs by 10%. 200 company to join the Alliance. in Poliom LLC in 2019. 50 100 40 0 2015 2016 2017 2018 2019 30 2015 2016 2017 2018 2019 52 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 53 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices RESOURCE BASE AND PRODUCTION 2019 highlights year-round oil shipments • Laser altimetry and aerial and transportation from the photography became an obligatory • Sustained positive growth rate Novoportovskoye field stage in the detailed design of The key areas in Gazprom Neft’s resource base development strategy of 2P1 reserves under PRMS • Long-term risk-operator seismic field surveys. standards. agreements with Gazprom PJSC, • Full-scale deployment of Green include organic growth of existing assets, development of oil assets owned • Successful licensing programme allowing Gazprom Neft to bring into Seismic2 technology in the KhMAO- by Gazprom PJSC, investigating and bringing non-traditional reserves into including access to 32 licence development reserves at oil-rim Yugra. 100% of field seismic blocks, including joint ventures. and Neocomian-Jurassic deposits. operations in the winter seismic commercial development, and proactive geological exploration at new • A 2020 flexible field portfolio • Start of construction of a full- season in the Okrug used this management roadmap developed. scale complex of oil and gas technology. prospecting zones and offshore. • Agreements to expand infrastructure at the Otdalennaya • Opening of Integrated Field cooperation in production and ('Remote') group of fields (OGF). Development Centre (Tyumen), field development, development • An asset swap transaction which provides support for major of digital technologies and (NOVATEK-Yarsaleneftegaz) oil-production projects at all experience-sharing with major • Approval from the Main stages, from infrastructure design market participants State Expert Review Board to well drilling and the production • Completed development of (Glavgosexpertiza) to construct a process. Resource base logistical arrangements for gas pipeline crossing the .

Gazprom Neft Group 3,875 3,908 4,022 4,045 4,287 We are successfully hydrocarbon reserves1 developing complex under the SPE-PRMS 5000 multi-component classification2, mtoe 4000 oil and gas reserves, Source: company data. 3000 The condition of the company’s The company’s reserves are (bcm) of gas), excluding NIS reserves: applying cutting-edge resource base is characterised by audited in accordance with the a year-on-year increase of 0.7%. 2000 technologies, and using the deteriorating structure of its SPE-PRMS standards and the digital models of assets 1000 remaining commercial reserves, as more conservative SEC4 standards. Gazprom Neft’s reserves-to- to perform calculations 0 the majority of fields are entering According to a reserves evaluation by production ratio in terms of proved and find the most their late stage of development. independent consultants DeGolyer hydrocarbon reserves (SPE-PRMS efficient solutions. Type of reserves 2015 2016 2017 2018 2019 The efficiency of developing these and MacNaughton5, Gazprom Neft’s standards), including the company’s Recognition Developed 680 726 719 734 763 fields is improved through the use proved and probable hydrocarbon interest in joint operations and joint from the industry of advanced drilling and tertiary3 reserves (including allocations ventures, currently stands at 17 globally demonstrates Undeveloped 838 788 803 830 820 () techniques. proportional to the company’s years. Total hydrocarbon production that the company Proved 1,518 1,514 1,522 1,564 1,583 In addition to this, Gazprom Neft interests in affiliated companies) in 2019 was offset by new reserves remains at the cutting Probable 1,181 1,205 1,259 1,277 1,278 expands its resource base each year under the SPE-PRMS international (including acquisitions) in the order edge of technological through geological exploration and standards as at 31 December 2019 of 120%. Proved + probable 2,699 2,719 2,781 2,841 2,861 development the acquisition of new assets. are estimated at 2,861 mtoe (1,865 mt and is ready to tackle Possible 1,176 1,189 1,240 1,204 1,426 of oil and 1,241 billion cubic metres the most complex TOTAL 3,875 3,908 4,022 4,045 4,287 projects.

Vadim Yakovlev Deputy CEO for Exploration and Production, Gazprom Neft PJSC / 1 / 2P – proved and probable reserves. / 2 / Green Seismic is a seismic survey technology that leads to a reduction in tree felling. It uses wireless recording equipment that can be installed using lightweight machinery. This makes it possible to reduce the width of clearings for vehicles from between four and five metres to one metre. / 3 / Tertiary recovery techniques are used to enhance oil flow and the oil recovery factor by injecting gas, chemicals, steam or other substances into formations. / 1 / Excluding NIS reserves. / 4 / An oil reserve classification developed by the US Securities and Exchange Commission, which requires the use of a 12-month average of the first- / 2 / Petroleum Resources Management System: a system developed by the World Petroleum of-the-month prices in the reporting period. Council and the Society of Petroleum Engineers, in cooperation with the American Association / 5 / An oil and gas consultancy. of Petroleum Geologists.

54 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 55 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Replacement of hydrocarbon reserves: key achievements 1, mtoe to 32 new licence blocks in the Register. The company also confirmed Source: company data. Yamalo-Nenets and Khanty-Mansi the oil- and gas-bearing potential of 215 Autonomous Okrugs, and other 48 new hydrocarbon deposits. This Exploration, regions. The total number of licences expansion of the company’s resource development held by the company in Russia base was facilitated by successful total number of licences Proved reserves Hydrocarbon and revision of prior Proved reserves Enterprise (2018) production estimates Asset swap (2019) reached 215 (including seven offshore geological prospecting activities at held by the company licences). Three new fields were the Alexander Zhagrin field in the in Russia Gazprom Neft 872.96 (58.25) 57.30 50.33 922.34 discovered across Gazprom Neft’s Khanty-Mansi Autonomous Okrug, Tomskneft 72.71 (4.80) (0.26) – 67.65 concessions (in the Orenburg and and at assets in the Yamalo-Nenets Slavneft 129.84 (7.37) 8.07 – 130.54 Tomsk Oblasts) and were recorded in Autonomous Okrug, Orenburg Oblast, the Russian State Mineral Reserves and the Krasnoyarsky Krai. Salym Petroleum 22.95 (3.25) 3.54 – 23.24 Development Messoyakhaneftegaz (joint 16.32 (2.81) 2.66 – 16.17 venture) Arcticgas 386.29 (15.22) 29.26 (40.78) 359.56 Northgas 62.95 (3.12) 3.40 – 63.23 TOTAL 1,564.02 (94.82) 103.97 9.55 1,582.73

In 2019, as part of an asset swap deal field began several years ago and levels of geological investigation and Partnerships Developing exploration cluster in the Gydan Peninsula with NOVATEK, Gazprom Neft obtained full-scale development of the are relatively remote from transport a 100% shareholding in NOVATEK- Kharasaveyskoye field started in and oil and gas infrastructure. The In 2019, the company not only actively In June 2019, Gazprom Neft and signed an agreement Yarsaleneftegaz, which owns the 2019. To date, however, transport company obtained subsoil rights on developed cooperation with existing confirming their intention to create a joint venture to develop the Leskinsky and Pukhutsyayakhsky licence blocks. The transaction is expected to be concluded Malo-Yamalsky licence block in the infrastructure for liquid hydrocarbons a declarative basis for geological partners, but also entered into in 3Q 2020 once all necessary corporate and regulatory approvals have been Yamalo-Nenets Autonomous Okrug. remains missing at both these fields. prospecting at 12 licence blocks in dialogues on a broad agenda with obtained, and all legal preconditions met. As a result, Gazprom Neft and Shell The new asset will be included in the the west of the Taymyr Peninsula, other companies. will each have a 50% interest in the joint venture. Establishing this joint venture “Yamal Gas” project. Furthermore, in 2019, Gazprom and also won bidding rounds for the is intended to bring both parties’ resources and skills together in developing an Neft went into two new prospecting Severo-Yamburgsky licence block, By building partnerships, the under-researched exploration cluster in the north–east of the Gydan Peninsula. In 2019, Gazprom Neft also secured areas: the Taymyr Peninsula (in the which allowed the company to create company seeks to gain a wide The company is currently working on these and a number of other deals, on which access to field development at a Dolgano-Nenetsky District in the a new potential opportunity for growth range of benefits, including risk and significant progress was made in 2019. In addition to focusing on current projects, in 2020 the company will continue to develop its portfolio of joint projects with number of further licence blocks Krasnoyarsk Krai) and the north of in the north of the Tazovsky Peninsula investment sharing, obtaining or existing and potential partners. belonging to the Gazprom Group. Gas the Tazovsky Peninsula. These two (YaNAO). jointly developing new technologies, production at the Bovanenkovskoye regions are marked by very limited accelerating return on capital, and Overall, in 2019, the company secured more. In addition to this, cooperation exploration and production rights with other companies enables Gazprom Neft to replicate successes Licences obtained in 2019 it has had in its other projects. Source: company data.

Number Region of licences Licence blocks Krasnoyarsk Krai 13 Zapadno-Taymyrsky blocks 1–12, Omorinsky Khanty-Mansi Autonomous Okrug- Severo-Vaysky, Srednevaysky, Polevoy, Severo-Ingolsky, Vostochno-Kinyaminsky, 8 Yugra, Sverdlovsk Oblast Vostochno-Shapshinsky 1, Sverdlovsky 4, Yuzhno-Ostrovnoy Severo-Stakhanovsky, Novoromanovsky, Pukhutsyayakhsky, Yamalo-Nenets Autonomous Okrug 6 Blizhnenovoportovskoye field, Yuzhno-Obsky, Malo-Yamalsky Orenburg Oblast 4 Nadezhdinsky, Zapadno-Rubezhinsky, Kornavarinsky, Pervomaysky Tyumen Oblast 1 Yuzhno-Zimny TOTAL 32

/ 1 / Excluding NIS reserves.

56 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 57 GAZPROM NEFT

Company profile Strategic report Performance 'Geological exploration Technological development Gazprom Neft digital system of the future is a safe, Governance system identifies new oil strata technology-intensive Gazprom Neft’s digital Sustainable development in the Yamalo-Nenets and efficient business' tools will improve Appendices Autonomous Okrug (interview) drilling

Geological prospecting and oilfield development

The company is developing projects More than 12 million tonnes of ARCO complex of field oil-rims united with the presence of a gas cap and account the specifics of logistics, % grouped into large clusters on the (Arctic) oil have now been produced by a single infrastructure. The exceptionally low formation pressure infrastructure and technological 76 Yamal Peninsula, in Eastern and over the six years in which the fields currently being developed and temperatures. complexity. Western Siberia, in the Orenburg Prirazlomnaya platform has been in include Pestsovoye, En-Yakhinskoye prospecting Oblast, as well as through joint continuous operation, with 19 wells and Zapadno-Tarkosalinskoye, The company is developing the Gazpromneft-GEO has put in place a ventures with foreign partners. having been drilled. Three further with exploration activities under oil rim at this field under an matrix-based organisational model and exploration drilling- wells will be built and commissioned way at the Yamburgskoye field. operating agreement with Gazprom that best matches the specifics and success rate in 2019 In 2019, Gazprom Neft expanded at Russia’s first ever project on the Furthermore, in July 2019 Gazprom Dobycha (a subsidiary challenges of geological exploration. its resource base primarily through Russian Arctic Shelf in 2020. Neft secured development rights to of Gazprom that holds the licence This structure enables Gazpromneft- organic growth at its existing assets. the Urengoyskoye field and Achimov for the field). This subsidiary GEO to manage employees’ This involved drilling 59 exploration gas-condensate deposits at the is currently developing the gas workloads efficiently, form project wells (including joint ventures). The Pestsovoye field. portion at this asset and Gazprom teams quickly when initiating new Over the past few total drilling in 2019 (including joint mt Neft intends to develop the oil exploration projects, and apply years, the company ventures and projects) reached 167.7 Of those projects mentioned portion. In late 2019, Gazprom accumulated knowledge and best has significantly kilometres. According to Russian 12 above, Yamburg is set to become Neft moved into pilot development practices in all exploration projects in expanded its portfolio assessment standards, the success the largest new project in the of the field, and dispatched the the company portfolio. of exploration projects, rate for exploration drilling in 2019 of ARCO oil produced Arctic; estimated oil reserves of first batch of marketable oil. Full- in terms of both was 76%. the Achimov deposits within the scale development of this oil-rim Improving the efficiency of geological volume and value. licence block exceed four billion will continue in 2020. The central exploration depends largely on the The portfolio structure Two-dimensional (2D) seismic tonnes. Gazpromneft-Zapolyarye processing facility (CPF) which has development of employees’ skills. has also changed surveys covered 15,757 linear LLC has concluded long-term risk- a planned capacity of one million 2019 saw the launch of the GEO a great deal. kilometres in 2019 – a 2.9-fold 19 based operatorship agreements tonnes per year, is expected to be Academy, a training project for Currently, the portfolio increase on 2018 – including with Gazprom subsidiaries; these expanded and modernised by 2022. exploration specialists. This is a includes projects 14,377 kilometres offshore, with a wells drilled have enabled the company to start multilevel integrated environment with a whole new level record volume of seismic surveys developing the Achimovsky strata for competency development; it of risk and complexity undertaken in the Arctic (the Chukchi at the Yamburgskoye oil and gas- Gazpromneft-GEO includes a system that enables for the company. Sea) using only one vessel without A key area in Gazprom Neft's condensate field, as well as oil- specialists, experts, methodologists In the industry, icebreaking support and covering development strategy is its rim deposits at the Pestsovoye The Gazprom Neft Group’s projects and supervisors to share experience projects of this kind 8,377 kilometres. Three-dimensional engagement in oil-rim development. and En-Yakhinskoye fields. The are managed on a turnkey basis by in this professional area. are called frontier (3D) seismic surveys covered 3,886 The company has both the latest company plans to start developing the Gazpromneft-GEO Competency exploration projects. square kilometres, including 515 technologies and extensive oil-rim deposits at the Pestsovoye Centre, which is implementing about square kilometres offshore. competencies, as well as valuable and En-Yakhinskoye fields at 20 projects. Its task is to enable the experience in developing such the end of 2021, and the start of company to continuously replenish its Yuri Masalkin The “Yuzhny Yamal (Southern Yamal)” complex reserves. commercial hydrocarbon production resource base with viable reserves, Director for Geological is one of the key exploration projects from the Achimovsky strata at the and to maximise the efficiency of Prospecting and Resource in the YaNAO initially comprising the The reporting year of 2019 marked Yamburgskoye field is scheduled equity financing. Base Development, Surovy and Yuzhno-Novoportovsky an important milestone in the for 2024 or 2025. Annual production Gazprom Neft licence blocks. In December development of Gazprom Neft's volumes could reach up to 10 mtoe. The Gazpromneft-GEO approach to 2019, the scope of the project was projects at the assets of its parent exploration is based on: expanded following Gazprom Neft’s company, Gazprom Group. Currently, In Eastern Siberia, Gazprom Neft is – managing a portfolio of major success in the licensing round for Gazprom Neft-Zapolyarye LLC is developing a new production cluster exploration projects; the Khambateysky licence block. developing nine fields on the basis of where a key element will be an oil – concentrating financial and In 2019, 2D seismic investigations long-term risk operator agreements, deposit at the Chayandinskoye oil managerial exploration resources were undertaken at the Yuzhno- with subsoil rights to these fields and gas-condensate field in the in a single centre; Novoportovsky licence block. In 2020, being owned by Gazprom PJSC and its Sakha Republic (Yakutia). This field – optimising the transition of a 2D seismic survey will be conducted subsidiaries. is unique in terms of the size of prepared business cases for at the Surovy licence block and, in its reserves in place, estimated at further development; and 2021, field geological exploration will Accordingly, the Nadym-Pur- 263 mt. The Chayandinskoye field, – assessing each project in terms start at the Khambateyskoye field. Tazovsky region comprises a whole at the same time, is characterised of geology and investment by a complex geological structure, attractiveness, taking into

58 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 59 GAZPROM NEFT

Company profile Strategic report Learn more: Performance Gazprom Neft Technological development is starting to develop Governance system the Achimov Sustainable development Formation Appendices

Top five projects in Gazprom Neft’s exploration technology project portfolio Use of UAVs for hydrocarbon prospecting Gazprom Neft is the first company in Magnetic prospecting is traditionally from −30 to +40°C; they have made “Cognitive Vega 2.0 Exploration Digital Twin “The 365” Russia to use unmanned aerial vehicles performed both on the ground, and flights of up to 90 minutes, covering (UAVs) successfully in multilevel from the air using aeroplanes and 35 to 55 kilometres. It is expected that Geologist” Designer for Seismic a project enabling year- magnetometrical surveys, allowing the helicopters. UAVs that enable the this technology will be used further Modelling an AI-based platform ​a system designed a project to enhance round prospecting and company to obtain initial information company to conduct prospecting in exploring northern territories of designed to speed up to support decision the efficiency of exploration drilling. on rock structure by measuring the surveys in hard-to-reach areas Western Siberia: in the Yamal, Taymyr a project for building geomagnetic field at the surface. throughout the year have been tested and Gydan Peninsulas. geological data analysis making during exploration and digital twins of fields and support decision geological and eliminate geological at the Novoportovskoye field. The UAVs that shortens lead can operate at temperatures ranging making. economic assessments uncertainties. times along the full of new projects. cycle of processes, from an investment 2 decision to creating a × × km geological model. 10 2 100 speed improvement cost reduction compared covered A technology centre for developing Achimovsky deposits compared to on-ground to piloted aerial surveys by testing The Achimovsky stratum is an oil- and equipment and software producers, reserves in the Achimovsky strata methods gas-bearing formation overlying the academic institutions, research under current licences held by Bazhenov Formation in the central part organisations and innovation centres. Gazpromneft-Noyabrskneftegaz. The of the West Siberian Basin. Its complex A test-site will be established on the project is implemented together with structure, great depth and abnormally basis of Achimovsky deposits of the Gazpromneft-GEO and the Gazprom high formation pressure demand Yamburgskoye field. The company Neft Science and Technology Centre. New enhanced oil recovery techniques for the Bazhenov Formation the use of innovative exploration and also plans to create an integrated production techniques. More than half information platform and a data A range of geological exploration The “Bazhenov formation” refers to a Gazprom Neft acting as a production has facilitated a 66% increase in of these reserves are concentrated in centre in order to facilitate experience works are to be undertaken at the specific geological stratum identified in partner. hydrocarbon production at those wells four most promising licence blocks: the centre of Western Siberia, running on which it was tested. the Yamalo-Nenets Autonomous Okrug sharing. In 2019, specialists from the Bazhenov (YaNAO). Novoromanovsky, Sugmutsky, to depths of 2,000–3,000 metres and Gazprom Neft has already built the Sutorminsky and Severo-Yangtinsky. with a thickness of 30 to 80 metres, Technology Centre (a Gazprom Neft Xanthan gum is an alternative to In 2019, Gazprom Neft and the industry’s first digital model of the Processing and interpretation of 3D covering an area of approximately one subsidiary) successfully tested a unique traditional guar-gum gels. It dissolves Government of the Yamalo-Nenets Achimovsky strata covering the seismic data, core surveys, testing of million square kilometres. Best-case new enhanced oil recovery technique completely in water after hydraulic Autonomous Okrug embarked on the entire territory of Western Siberia. existing wells and drilling of several estimates suggest that oil reserves at at the Bazhenov Formation, using a fracturing is completed. establishment of a technology centre In 2019, the company launched new ones, and the building of a local the Bazhenov formation (categorised as xanthan-gum-based fracking fluid. for developing Achimovsky deposits. Achimovka NNG, a major new project geological and petrophysical model to non-traditional reserves) could amount This is a water-soluble polysaccharide This centre will enable cooperation involving comprehensive geological confirm resource potential, are all due to as much as 18–60 billion tonnes. One produced through bacterial For more information between subsoil licence holders, exploration of hard-to-recover to be completed by 2023. of the largest research consortiums fermentation of any high-sugar p. 108 on the Bazhenov Technology in Russia was established in order to material, such as corn, wheat, dairy Centre explore the Bazhenov formation, with waste, etc. Using this new technology The “Bolshaya Achimovka” project % -stage m3 million billion mtoe +66 19 12 2 km tonnes hydrocarbons high-speed injection ~ 1 >60 20–40 production increase rate per minute at the well total area reserves in place hydrocarbons production potential

60 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 61 GAZPROM NEFT

Company profile Strategic report Performance Technological development Russia develops a new oil Governance system blend from West Siberia’s Sustainable development “tight” reserves Appendices

PROJECT PORTFOLIO – FUTURE OUTLOOK Non-traditional reserves Bazhenov Domanic Palaeozoic

Current projects Southern Yamal Meretoyakha Yenisei mtoe (2019–2023) 101 332 306 550 mtoe mtoe mtoe Medium-term projects (2024–2026 ) Oil rim reserves1 Long-term projects Pestsovoye (202+) En-Yakhinskoye Zapadno-Tarkosalinskoye Orenburgskoye Chayandinskoye 145 mtoe

Neocomian-Jurassic deposits1

Kharasaveyskoye Bovanenkovskoye 766 mtoe

Achimovsky strata1

Urengoyskoye Yamburgskoye mtoe Southern Orenburg Ouryinskoe field Zima Otdalennaya group Chona Sakhalin 787 36 4 60 of fields (OGF) 60 115 mtoe mtoe mtoe 20 mtoe mtoe mtoe / 1 / Under long-term risk operatorship agreements with Gazprom.

* На основании рисковых операторских договоров с Газпромом.

62 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 63 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Prirazlomnoye project Appendices

Hydrocarbon High-technology production management at Gazprom Neft production Gazprom Neft opened its Integrated accuracy, and enabling faster and better following basic exploration to the Field Development Centre (IFDC) investment decision-making. completion of the 'Implementation' in Tyumen in 2019. The centre’s stage and the launch of a field. The company consolidated its market Some production will come from reserve classes (including the Bazhenov activities focus on using digital tools The IFDC objectives are as follows: leadership as one of Russia's top-three a new resource base with diverse Formation, the Domanic strata for working with large databases, • To ensure effective field development The Drilling Control Centre (DCC, St integrated modelling and integrated and operation at all stages, from Petersburg) works to maximise drilling hydrocarbon producers in 2019, having geographical, geological and and Palaeozoic oil deposits), liquid preparing for the production of “first efficiency at every development well by increased total production (including technological characteristics. It hydrocarbons at Gazprom Group fields, information analytics. A business model for managing production projects oil” to decommissioning the asset; proactively managing geological and shares in joint ventures) by 3.5% to 96.1 includes new prospecting areas, new offshore projects on Sakhalin, etc. that is new to the industry has been • To provide integrated and engineering operations at drilling sites mtoe. Growth in production was driven implemented at the centre, and cross- comprehensive oversight of all remotely around the clock. major projects being implemented primarily by the company’s projects in functional expert teams are being The Upstream Control Centre (UCC, formed. in Gazprom Neft’s main production the Orenburg Region and in the Arctic hubs; Khanty-Mansiysk) manages upstream (including the Novoportovskoye and This single integrated organisational • To provide round-the-clock projects centrally. It is tasked with and digital space will enable the geological and engineering support unlocking the full potential of the Vostochno-Messoyakhskoye fields), as company assets by using digital tools well as oil-rim development projects. company to halve the lead time for for advanced well drilling. the commissioning of major upstream (integrated modelling, integrated projects and the time to “first oil”. The planning, and capacity management). The current project portfolio enables Hydrocarbon production, Integrated Field Development Centre IFDC subdivisions 79.70 86.20 89.75 92.88 96.10 strong year-on-year growth of liquid mtoe1 will also deliver significant reductions The Project Management Centre (PMO, hydrocarbon production and ensures Source: company data 100 in infrastructure development costs at St Petersburg) supports projects from new assets, while improving planning the beginning of the 'Selection' stage a reserves-to-production ratio (RPR) 80

of 17 years. Growth in production up to 60 2030 is expected to come mainly from 40 existing and soon-to-be-commissioned Oil production are extremely challenging in many assets in the Khanty-Mansi 20 ways, from geology to climate. Autonomous Okrug, the Yamalo-Nenets 0 Oil and condensate production across Development of logistics strategy Autonomous Okrug, the Tomsk Oblast, the group increased by 0.5% year on to ensure the year-round dispatch the Orenburg Oblast, as well as from / 1 / Including shares in subsidiaries and joint ventures. year to 63.30 mt. At year-end 2019, and transportation of Arctic oil major Arctic projects. / 2 / Consolidated companies. the company was the third-largest oil was completed in 2019 at the mt / 3 / Share in production. producer in Russia after Rosneft and Novoportovsjoye oilfield. At the final LUKOIL. stage of the four-year project, the 63.3 company’s second icebreaker, the Gazprom Neft is one of the first Andrey Vilkitsky, was deployed in of oil and condensate Enterprise 2015 2016 2017 2018 2019 Russian oil companies to implement the waters of the Gulf of Ob, and the were produced in 2019 Gazprom Neft 2 55.36 59.89 63.28 65.36 67.58 major Arctic projects, both onshore world’s first-ever digital logistics- and offshore. In the future, new assets management system designed for Slavneft 3 8.11 7.88 7.52 7.28 7.37 beyond the Arctic Circle are expected use in the Arctic was launched. The Arcticgas 3 12.13 13.47 13.50 14.57 15.22 to occupy an increasingly important core objective of the new system is to Northgas 3 4.10 4.59 3.83 3.36 3.12 place in the company’s project manage logistics in the Arctic safely, Messoyakhaneftegaz 3 0.00 0.36 1.62 2.30 2.81 portfolio, as traditional reserves are and to ensure that all oil produced is being depleted and technologies are dispatched at the lowest possible cost. TOTAL, INCLUDING SHARES IN SUBSIDIARIES 79.70 86.20 89.75 92.88 96.10 being developed for oil production in the Arctic. Average daily hydrocarbon production by the Gazprom Neft Group, 218.35 235.52 245.89 254.45 263.31 thousand tonnes of oil equivalent The Yamalo-Nenets Autonomous Okrug (YaNAO) is a key production region for Gazprom Neft. The company has extensive experience in successfully developing the unique fields of the Yamalo- Nenets Autonomous Okrug – the Novoportovskoye and Vostochno- Messoyakhskoye fields – which

64 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 65 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Oil production1, mt Gas production neighbouring licence blocks. In the in 2022. Given the substantial gas Source: company data future, the company will build a gas resources of the Yamal Peninsula, Gazprom Neft is actively developing pipeline that will run from the Yamal the new pipeline will be an important Enterprise 2015 2016 2017 2018 2019 its gas business, with a special focus Peninsula to the Gydan Peninsula and component of the company's strategic Gazprom Neft 2 44.00 47.71 49.65 49.65 49.18 on commercialising associated and on to the Yamburgskoye field, where infrastructure in this region. reserves produced at it will be connected to the integrated 3 Slavneft 7.74 7.50 7.15 6.91 6.98 oilfields, and increasing their value. In gas supply system. The pipeline Arcticgas 3 3.42 3.77 3.67 3.89 4.13 2019, gas production across the group is scheduled to be commissioned Northgas 3 0.51 0.52 0.38 0.31 0.28 increased by 9.8% to 40.85 bcm. This was achieved primarily as a result of Gas production (utilisation) 1, bcm 3 Messoyakhaneftegaz 0.00 0.35 1.58 2.23 2.73 commissioning the second stage of Sourсe: company data TOTAL, INCLUDING SHARES IN SUBSIDIARIES 55.67 59.85 62.43 62.99 63.304 integrated gas treatment units at the Novoportovskoye field, commissioning Enterprise 2015 2016 2017 2018 2019 Average daily oil production by the Gazprom Neft Group (thousand tonnes) 152.52 163.52 171.05 172.58 173.43 a gas-compressor station in the Gazprom Neft 2 14.15 15.18 16.98 19.56 22.92 Orenburg Oblast, and increasing Slavneft 3 0.46 0.47 0.45 0.47 0.48 natural gas production at Arcticgas fields. Arcticgas 3 10.85 12.09 12.25 13.31 13.81 Top-producing oilfields in 2019 Northgas 3 4.47 5.07 4.29 3.79 3.53 The company is currently developing Messoyakhaneftegaz 3 0.00 0.01 0.05 0.09 0.11 Field 2019 production, mt Change on 2018, % its capacity to increase gas utilisation TOTAL, INCLUDING SHARES Priobskoye 10.48 (8.1) at the Novoportovskoye field and 29.92 32.82 34.02 37.22 40.85 develop the resource base from IN SUBSIDIARIES Novoportovskoye 7.73 +8.0 Prirazlomnoye 3.14 (1.6) Messoyakhaneftegaz assets 3 2.73 +22.4 Associated petroleum gas utilisation

2019 results at assets with well-developed gas the Shinginskoye field. These facilities / 1 / Including gas condensate. infrastructure. have a design capacity of 400 million / 2 / Consolidated companies. Gazprom Neft is actively developing cubic metres of gas per year. After this In order to sell gas, Gazpromneft- / 3 / The company’s share of production. its gas business through the gas infrastructure was commissioned, commercialisation of associated and Vostok has commissioned several / 4 / Including condensate and natural gas liquids (NGL) production. the APG utilisation rate across this natural gas reserves produced at gas infrastructure facilities: a booster group of fields increased to 95%. oilfields, and increasing their value. In compressor station at the Urmanskoye 2019, gas production across the group field, a 97-kilometre high-pressure gas increased by 9.8% to 40.85 bcm. This pipeline connecting the Urmanskoye growth was driven primarily by good and Shinginskoye fields, an 18-kilometre Novy Port: the best project in the industry utilisation of gas equipment and a high gas pipeline connecting the Archinskoye APG utilisation rate (up to 97–99%) and Urmanskoye fields, and a gas One of the company’s projects in The award is given for a project involving The Novoportovskoye field is one of the metering and pressure-reduction unit at the Arctic—development of the investment exceeding $500 million that largest oil- and gas-condensate fields Novoportovskoye field—has won adds value to the industry and exemplifies currently under development on the Yamal the Excellence in Project Integration excellence throughout the value chain: Peninsula in the Arctic Circle. Recoverable Award, which is made every year at the in project management, geological B1 and B2 reserves stand at more than 250 Plans for 2020 Vostochno-Messoyakhskoye field as Once gas infrastructure facilities International Petroleum Technology exploration, drilling, engineering, million tonnes of oil and condensate, and part of a comprehensive approach to are commissioned at the Vostochno- Conference (IPTC) held by the American construction, HSE and regional more than 320 billion cubic metres of gas. As the company develops its oil and APG utilisation. This project will enable Messoyakhskoye field, the company Association of Petroleum Geologists development. International experts Novy Port-blend crude is classified as light, gas production in new areas of the Messoyakhaneftegaz to prepare and will be able to reach its target APG (AAPG), the European Association of assessed a total of 17 projects from nine with low sulphur content (about 0.1%). The Yamalo-Nenets Autonomous Okrug, it transport up to 1.5 bcm of APG per utilisation rate, conserve valuable Geoscientists and Engineers (EAGE), the countries worldwide. Gazprom Neft’s development of the Novoportovskoye field is continues to increase the APG utilisation year and pump it into an underground energy resources, and reduce its Society of Exploration Geophysicists (SEG) Arctic asset received the highest possible a unique project that has enabled the first- rate. The active stages of construction storage facility at the Zapadno- environmental footprint in the Arctic. and the Society of Petroleum Engineers score from the professional community ever year-round deliveries of Yamal oil to of infrastructure facilities and a gas Messoyakhsky licence block. (SPE). Gazprom Neft is the first Russian for the company’s unique achievements in European customers via the Northern Sea pipeline are both underway at the company to receive this prestigious industry managing and overseeing an integrated oil Route. award. and gas project.

/ 1 / Gas production includes marketable gas and gas for the company’s own consumption, including to maintain formation pressure. Gas production excludes gas used in the manufacture of gas-processing products. / 2 / Consolidated companies. / 3 / Share in production.

66 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 67 GAZPROM NEFT

Company profile 2019 events. A pilot project in renewable energy launched. Strategic report 2019 events. A pilot project in renewable energy launched. A solar power plant Performance Technological development is built and commissioned at the Omsk Refinery in record time. As a result, Governance system the Omsk Refinery will reduce annual CO2 emissions by more than 6,300 tonnes. Sustainable development By introducing renewable energy technologies, the refinery will improve its energy Appendices efficiency and environmental performance. REFINING AND MANUFACTURING Refining volumes were down 3.4 % almost complete closed-loop water The unique to 41.5 mt in 2019 due to planned consumption, reducing the burden on Biosphere water Gazprom Neft continues the wide-ranging technological refurbishment at all Gazprom Neft municipal wastewater facilities and treatment complex and environmental modernisation of its refining facilities directed refineries and at those refineries in increasing efficiency in wastewater comprehensively which Gazprom Neft has a share in treatment to 99%. Construction of the addresses at achieving the company’s strategic goals in the refining refining. This maintenance, however, Biosphere is expected to be complete the issues of reducing segment, which include – among other things – increasing will enable uninterrupted operation by 2021. the environmental the conversion rate to 99% by 2025. of equipment and improve the impact of production. performance of these facilities. Year- Production of low-sulphur bunker fuel In introducing end results showed the conversion with sulphur content of less than 0.5% new-generation, rate at the company refineries was also started at the Omsk Refinery. environmentally reaching 82.7%, and light product This fuel meets the requirements of friendly technologies 2019 highlights • The first solar power plant in combined oil refining unit began at the region went into operation at the Moscow Refinery. yield 64.4%. the International Convention for the we are conserving • Construction of Russia’s first modern the Omsk Refinery, and the first- • The NIS Pančevo Refinery is Prevention of Pollution from Ships resources as well oil-refining catalyst production phase construction of its innovative preparing for the launch of a deep At the Omsk Refinery, construction (MARPOL 2020) (see the case study as achieving significant facility began in Omsk. “Biosphere” treatment facility was conversion complex involving delayed is underway of a crude oil distillation 'Producing and selling bunker fuel economic benefits. • Together with SIBUR the company also completed there. coking technology. unit, a deep conversion facility, a compliant with the MARPOL 2020 The Biosphere sets consolidated 100% of the charter • An automated system for loading capital in the Poliom LLC and dispatching fuel brought into delayed coking unit, a diesel-fuel requirements'). new standards polypropylene plant in Omsk. operation and preparations for hydrotreatment/dewaxing unit, in environmental pre-commissioning of a new Euro+ and a Biosphere treatment facility. safety and contributes The Biosphere complex will deliver to technological advancement, enabling the company to match In 2019, Gazprom Neft continued to Refining throughput, Breakdown of petroleum- industry leaders. 43.07 41.89 40.11 42.91 41.47 41.10 39.95 38.63 41.40 40.23 develop its downstream business million tonnes products production, in line with the company’s strategic Source: company data 50 million tonnes 50 goals approved by the Board of 40 Source: company data 40 Oleg Belyavsky

Directors. In accordance with 30 30 General Director Strategy 2030, the company intends of the Gazprom Neft 20 20 to become an industry benchmark Omsk Refinery in terms of safety, efficiency and 10 10 technological advancement. In the 0 0 face of constantly changing market conditions, the Gazprom Neft Enterprise 2015 2016 2017 2018 2019 Metric 2015 2016 2017 2018 2019 business demonstrates resilience Omsk Refinery 20.90 20.48 19.58 21.00 20.72 Motor gasoline 9.08 9.18 8.60 8.86 8.02 by maintaining its market-leading Moscow Refinery 11.00 10.71 9.37 10.50 10.08 Naphtha 1.45 1.56 1.38 1.95 2.01 position in the refining and sales of % oil products. NIS 1 2.94 3.10 3.34 3.55 3.14 Diesel fuel 11.87 12.02 11.45 12.32 11.87 82.7 Slavneft-YANOS 2 7.63 7.47 7.74 7.86 7.53 Jet fuel 3.00 3.04 3.04 3.47 3.34 The ongoing large-scale modernisation Mozyr Refinery 0.60 0.13 0.08 0.00 0.00 Marine fuel 3.67 2.41 2.67 2.58 2.49 conversion rate of Gazprom Neft’s refining assets at the company refineries will enable the company to reduce TOTAL REFINING THROUGHPUT Fuel oil 7.20 6.72 5.70 6.20 6.45 ACROSS THE GAZPROM NEFT 43.07 41.89 40.11 42.91 41.47 production of heavy petroleum Bitumen and coke 2.02 2.19 2.73 3.07 2.95 in 2019 GROUP products, increase the output of diesel Oils 0.40 0.42 0.48 0.49 0.54 and aviation fuels, as well as to process Other 2.41 2.41 2.58 2.46 2.56 residual volumes of heavy petroleum TOTAL PETROLEUM-PRODUCTS products into high-margin quality 41.10 39.95 38.63 41.40 40.23 % products. Total investment in the PRODUCTION 64.4 development of the company’s Omsk and Moscow refineries to 2025 exceeds light-product yield ₽500 billion, with ₽99 billion invested / 1 / Gazprom Neft has a 56.15% shareholding in NIS (Serbia), which operates two refineries (in in 2019. Pančevo and ), as well as upstream projects in the Balkans. in 2019 / 2 / Gazprom Neft’s share.

68 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 69 GAZPROM NEFT

Company profile Strategic report Performance Technological development The importance of flexibility Governance system for modern refineries Sustainable development (interview) Appendices

One of the most important objectives A sulphuric acid production unit was in the company’s modernisation commissioned at the Slavneft-YANOS % Value chain as a single asset of its refining assets is reducing refinery; it will enable the company up to 99.9 environmental impacts. The to improve the environmental safety The digital transformation of Smart sensors and systems monitor products on a daily or monthly basis. most significant environmental of its production process. The wastewater treatment the Gazprom Neft Downstream key qualitative and quantitative By 2021, the integrated scheduling project under the Moscow Refinery refinery continues to implement a efficiency at the Biosphere Division aims to manage the entire metrics of all system will cover all Gazprom Neft’s modernisation programme number of technical development and biological treatment facilities value chain as a single asset. The flows in real time, sending downstream assets and, as a result, relates to the construction of performance improvement projects, transformation is focused on the information to the Neftekontrol planning accuracy will increase innovative “Biosphere” biological including the construction of a deep at the Gazprom Neft Omsk key tasks of optimising resources, System. System tools build a digital to match the global benchmark of treatment facilities. Following the conversion facility. Refinery minimising losses and increasing model of the movement of petroleum 97–98%. commissioning of new treatment efficiency at each stage, as well products, identifying potential facilities in 2017, the Moscow as improving the safety, reliability risks, and improving performance The overall integration of these two Refinery has reduced its abstraction Other assets and environmental performance of along the chain by forecasting and systems takes place at the Gazprom of river water 3-fold, with 75% assets. The practical application of reducing the risks of petroleum- Neft’s Downstream Efficiency of treated wastewater now being At the NIS Pančevo Refinery, this concept is based on developing products losses. The Ministry of Control Centre (ECC). By leveraging returned to the production cycle. construction of a new deep end-to-end digital solutions covering Energy of the Russian Federation modern data analysis technologies, conversion complex is nearing the entire value chain and creating and the Federal Agency for predictive analytics methods and The Moscow Refinery is now completion. This facility will process digital ecosystems to increase Technical Regulation and Metrology working with big data, the ECC completing the construction of the tar using delayed coking technology; efficiency in each segment of the (Rosstandart) have recognised enables the company to maximise Euro+ oil refining complex comprising this will enable the refinery to stop chain. Neftekontrol as the industry the operational efficiency of all primary distillation and reforming producing fuel oil. The refinery standard for the fuel traceability processes in the value chain. A units, a hydrotreatment facility for also launched a project to revamp As part of this approach, a single system for all state market single and cohesive environment for diesel fuels and a number of ancillary its cat-cracking unit. Cutting-edge and cohesive database is being participants. managing refining assets makes it facilities. This new complex will allow technologies that are planned to be created for the downstream possible to implement solutions that the company to decommission five used during the renovation will help segment, which will ensure the Today, 90% of Downstream assets increase the efficiency and reliability units built in the 1950–1960s, and to to maximise propylene output using high quality and availability of are connected to this unique system. of the entire production process increase the yield of light oil products existing feedstock. Investment in the all performance indicators and This oversight and control system is hierarchy, from basic processes to to 60%. The facility is expected to be project will total over €72 million, analytical and business information expected to be deployed across all groups of production facilities and brought into operation in the first half and the work is scheduled to be to meet the needs of the entire value assets in the company’s value chain entire enterprises. of 2020. Commissioning the Euro+ completed in 2024. chain. by 2020, including all of Gazprom complex will increase production of Neft’s refining, logistics and retail The Arctic is a strategically motor and aviation fuels, as well as The Gazprom Neft Neftekontrol facilities. important region for the whole stepping up the output of diesel-fuel. ('Oil Control') System is an end-to- of Russia and, in the oil supply end operational efficiency tool for Neftekontrol is linked to another segment, Gazprom Neft is the In 2019 preparations were underway the downstream segment. It was end-to-end solution that affects first among Russian companies to at the Moscow Refinery for the developed in-house to continuously the efficiency of the value chain: create a Digital Arctic ecosystem to construction of a deep conversion monitor and control the volume and an integrated scheduling system. manage logistics there effectively. complex that will comprise two quality of oil products at various Covering the entire value chain, the main facilities: a delayed coking unit stages, from the refinery to the system generates an optimum plan (DCU) and a vacuum gasoil (VGO) customer. for production and distribution of oil hydrocracking unit, allowing the company to maximise production of Euro 5 diesel fuel. A new overhead road-transport loading rack for light oil products was also commissioned at the refinery.

70 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 71 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

The company’s refining assets have reached a level of digital maturity, First Russian industrial The establishment Automated fuel-loading system at the Moscow Refinery From the very such that a transition to a new control system of production control An automated light-products collects escaping vapours and turns start, the new fuel- production-management model is In 2019, a methyl tert-butyl ether centres at refineries loading terminal for road tankers them into liquid condensate that is loading terminal assured. Gazprom Neft continues (MTBE) production unit was is another major with a daily capacity of 6,500 tonnes then reused in the production cycle. was designed to meet was commissioned at the Moscow A completely leak-proof bottom- to develop new approaches, based commissioned at the Gazprom Neft Moscow Refinery, where step in transforming Refinery in 2019. The complex loading system provides additional key requirements: on the smart management of a sophisticated domestically- the company’s includes 12 stations with the ability to protection, as it prevents any the highest possible process units, to utilise the most designed process control system downstream business. dispense, simultaneously, gasoline, emissions of petroleum products into safety standard, zero innovative digital tools and manage was used for the first time. We are building diesel and aviation fuel into road the atmosphere, and prevents dust impact on air quality, tankers. Technological solutions or precipitation from entering tanker its production assets. The creation The design of the automated a new system that will high-speed processes, system piloted at the Moscow used at the terminal significantly compartments. All loading stations of the Production Control Centre Refinery takes into account the enable us to manage increase its throughput, which in are equipped with the latest accident and continuous quality (PCC) is a prime example of the new requirements of local production the business as a single turn reduces loading times. prevention and fire-fighting systems. control. Thanks management model. An initial pilot processes, and complies with asset. The system uses Modern environmental technologies to new technology, project at the Omsk Refinery will industrial safety requirements. real data, algorithms, and control systems at the terminal we are improving take over operational production The new automated process mathematical models help to maintain the highest level production efficiency control system allows the of environmental safety. The new management, including control company to achieve its strategic and state-of-the-art while reducing over daily plan fulfilment, product loading terminal is equipped with objective of increasing its share of digital systems. a vapour-recovery system that the environmental quality, energy consumption, domestically-designed solutions footprint. equipment status assessments, relating to production automation. and the monitoring of industrial and Anatoly Cherner tonnes environmental safety. Deputy CEO for Logistics, billion Vitaly Zuber Refining and Sales, General Director The new centre will be built around Gazprom Neft PJSC 2.5 6.500 of the Gazprom Neft the work of cross-functional ₽ Moscow Refinery teams, united in a cohesive investments daily throughput environment of IT tools and big data analytics systems. Thanks to the implementation of “digital twins” – precise mathematical models of all of the refinery’s technological × facilities and complexes – the 4 PCC will be able to predict and to eliminate, proactively, any deviations faster loading from optimum operation and integrated planning. The pilot project will be implemented at the Omsk Refinery in 2020 at the Moscow Refinery by 2021. The Production Control Centre will become a part of the “digital refinery of the future”, which will be managed from a single control centre, using digital tools running on a single platform.

72 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 73 GAZPROM NEFT

Company profile Strategic report Performance Technological development NIS to invest €72 Governance system million to upgrade its Sustainable development production facilities Appendices

Development of NIS: a decade with Gazprom Neft Implementing alternative energy technologies Our ambition 2019 marked the tenth anniversary Today, NIS is one of the most important and €150 million to developing the at the Omsk Refinery is to develop of Gazprom Neft’s acquisition of a energy companies in south-east sales network. The second stage Gazprom Neft has successfully 1.2 gigawatt hours (GWh), which will a fully-fledged controlling interest (56.15%) in a Europe, owning one of the best state- of the refinery modernisation will implemented a pilot alternative avoid more than 6,300 tonnes of CO 2 company-wide Serbian oil and gas company, Naftna of-the-art refineries in the region, and see the construction of a deep energy project at the Omsk atmospheric emissions per year. Industrija Srbije (NIS). At that time, NIS managing a filling station network conversion complex, which will put Refinery: the company has built and energy business, was a national oil and gas company across Serbia, Romania, Bulgaria, and the Pančevo refinery on a par with the commissioned a one-megawatt solar By introducing renewable energy using the latest with debt exceeding $1 billion and Bosnia and Herzegovina. Apart from world’s leading refineries in terms power plant in record time. technologies, the refinery will energy technologies whose enterprises required immediate developing oil production and its own of technology and efficiency. Once improve its energy efficiency and and creating and large-scale upgrades. power generation, the company is the the complex goes into operation, the The new power station, occupying environmental performance. This will leading supplier on the domestic fuels refinery will cease production of high- a two-and-a-half-hectare plot and be achieved by providing the Omsk synergies with its Gazprom Neft’s principal investment market and exports oil products to sulphur fuel oil, with the conversion comprising 2,500 solar panels, Refinery with additional generation traditional business. project in Serbia concerned the markets throughout the Balkans. It rate reaching 99.2%. In addition, NIS meets the Omsk Refinery’s full while reducing its dependence on The development construction of a mild hydrocracking provides a workplace to over 11,000 will begin producing coke, which is energy requirements for all of its external energy suppliers, as well of the energy business and hydrotreatment complex at the administrative buildings, including as by utilising land not otherwise people and contributes over €1 billion not currently produced anywhere in will focus on captive NIS refinery in Pančevo. In addition, per year to the Serbian budget. Power Serbia. a standalone amenities building involved in the technological process. the company’s retail network has generators with a total installed for 2,600 employees. Given the power generation been extensively overhauled. All capacity of 14 MW operate across the NIS is implementing a joint power- amount of sunshine in Omsk, the using renewable the company’s filling stations were company’s eight oil and gas fields. generation project together with annual electricity output from the and innovative energy rebranded as NIS Petrol and, in 2012, Gazprom Energoholding. It involves photovoltaic power plant is likely to be the premium Gazprom brand was By 2025, a further €1.4 billion will be building a cogeneration power station sources, establishment introduced. More than €3 billion in invested in the development of NIS, of combined steam-and-gas cycle in of a power engineering total has been invested in developing including over €800 million to be Pančevo, with a capacity of up to 200 centre, and intelligent NIS over the past 10 years. allocated to oil and gas exploration MW. The new plant is scheduled to be energy management and production, €400 million to operational in 2020. refinery upgrades and development, solutions based on digital technologies. Gazprom Neft billion billion tonnes refineries will become well-balanced 1.4 2,500 6,300 energy hubs serving >€3 € as benchmarks invested by Gazprom planned investments solar panels annual reduction in СО in terms of reliability 2 and energy efficiency. Neft in NIS development until 2025 emissions between 2009 and 2019 Vladimir Andreev million Head of Department for Power Engineering, MW kWh Gazprom Neft PJSC mtoe MW 1 1.2 1.2 14 capacity annual output annual hydrocarbon installed production capacity

74 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 75 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Company refineries: 2019 highlights

Modernisation and technological developments Installed Volume refined Conversion Light-product key projects key projects Refinery capacity, mt in 2019, mt rate, % yield, % implemented in 2019 scheduled for 2020 – Commissioning a cat-cracking regeneration gas treatment – Continuing the implementation of the second stage unit; of the modernisation; – Completing the reconstruction of the diesel-fuel – Completing the reconstruction and commissioning a number hydrotreatment unit, delivering a 10% capacity increase; of process units, including the catalytic reforming unit. – Commissioning the first (1 MW) solar-power electricity station in the region; Omsk Refinery – Implementing the second stage of refinery modernisation, 22.23 20.72 89.5 70.6 including the construction of a crude oil distillation unit (CDU/ VDU), a deep conversion complex (DCC), a delayed coking unit (DCU), a diesel-fuel hydrotreatment/dewaxing unit, and the Biosphere treatment facility.

– Commissioning an air-tight and leak-proof road-transport – Commissioning of the Euro+ combined oil refining unit; loading rack for light oil products; – Active phase of construction of the automated railcar oil- – Completing the main construction and installation works products loading facility. Moscow Refinery 12.76 10.08 81.6 59.3 at the Euro+ unit, starting pre-commissioning works.

– Completing the construction of a deep conversion complex – Commissioning the deep conversion complex; based on delayed tar coking technology. – Reconstruction of the catalytic cracking unit, and construction NIS Pančevo of an ethyl-tert-butyl ether (ETBE) unit. Refinery (Serbia) 4.60 3.14 81.5 77.4

– Commissioning of the “Wet Catalysis – 2” hydrogen sulphide – Continuing the construction of the deep conversion complex; removal unit; – Continuing the upgrade of the VT 6 vacuum distillation unit; – Converting the hydrogen production unit (UPV 2) to natural – Completing the reconstruction of the gas-loading rack. Slavneft-YANOS gas; 15.00 7.53 65.3 54.5 – Continuing the construction of the deep conversion complex.

– Construction of the hydrocracking unit for heavy oil residues. – Completing the construction and installation of the hydrocracking unit for heavy oil residues and initiating start-up works. Mozyr Refinery 14.03 0.001 79.8 60.5

/ 1 / Gazprom Neft’s share in the Mozyr Refinery’s refining volumes is subject to the oil supply schedule as approved by the Ministry of Energy of the Russian Federation. The company may process up to 50% of oil supplied to the refinery. Actual refining volumes will depend on its economic efficiency. The company did not process any of its oil at the Mozyr Refinery under tolling arrangements in 2019.

76 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 77 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices SALES OF OIL, GAS AND PETROLEUM PRODUCTS each of which has a cargo-bearing Oil sales, mt 16.61 22.71 26.53 24.26 26.39 capacity of 42,000 tonnes, and one Source: company data Arc5 ice-class tanker with a capacity of 30 Gazprom Neft is engaged in the wholesale distribution of crude oil 19,800 tonnes. 25 and petroleum products both in Russia and abroad. Small wholesale 20 A unique logistical arrangement 15 and retail sales, including through its filling station network, created by Gazprom Neft has enabled 10 are managed by dedicated subsidiaries. year-round, maximum-efficiency 5 transportation of oil from the Arctic 0 fields to the global market, and has reduced the risk of logistical Metric 2015 2016 2017 2018 2019 Oil sales disruptions caused by negative external Domestic sales 6.14 7.43 5.57 4.31 4.37 factors. The core objective of the new Non-CIS exports 8.11 12.89 18.19 17.05 19.16 digital Arctic-logistics management Oil sales increased by 8.8% year on Oil sales on international markets own fleet, designed to support and system is to manage logistics in the CIS exports 1.88 1.66 1.71 1.65 1.71 year to 26.4 mt in 2019, as a result totalled 22 mt, up by 10.4% year on service the company’s Arctic fields. Arctic safely, and to ensure that all oil International sales 0.48 0.73 1.06 1.25 1.15 of increased oil production at the year. The growth was driven by a 12.4% Two new-generation icebreakers of the produced is dispatched at the lowest TOTAL OIL SALES 16.61 22.71 26.53 24.26 26.39 Novoportovskoye and Vostochno- increase on 2018 in exports to non-CIS Icebreaker 8 class — the Alexander possible cost. Messoyakhskoye fields, and a slight countries. Oil sales on the domestic Sannikov and the Andrey Vilkitsky — decrease in refining throughput across market grew by 1.4%. built to order for the company are the company’s refineries. transporting Arctic oil. In addition Gazprom Neft had previously to this, the fleet includes seven completed the establishment of its “Shturman”-series Arc7-class tankers,

DISTRIBUTION OF OIL AND PETROLEUM PRODUCTS

Customers Customers Customers Customers Large- and small-scale wholesale in the CIS in non-CIS in non-CIS in Russia distribution and retail sales through countries countries sales subsidiaries to consumers countries in Russia, the CIS and non-CIS countries

Large- and small- scale wholesale and Customers in Russia Gazprom retail sales and the CIS, including Neft commodity exchange traders

Petroleum-products suppliers, A trading company, part of the Gazprom Neft Group part of the The Gazpromneft Gazprom Neft Group Filling Station Oil sales Small-scale Network Wholesale distribution of petroleum wholesale distribution products

78 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 79 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Gas sales, bcm

Gas sales 13.78 13.46 14.00 13.20 13.53 The “Captain” digital Arctic-logistics management The question Source: company data system of uninterrupted 15 1 Gazprom Neft has launched the constraints that vessels may face and effective Gas sales on the domestic and 12 world’s first digital Arctic-logistics along the route, and to offer optimal logistics is critically international markets grew by 2.5% 9 management system. This innovative routes that are safe. important for Gazprom year on year as a result of an increase project has been developed to ensure 6 uninterrupted year-round shipments By optimising vessel speed, reducing Neft’s Arctic fields, in associated petroleum gas and of all ARCO and Novy Port crude fuel consumption and sub-leasing which are some distance natural gas production by Gazprom 3 surplus capacities in the summer, produced. Neft subsidiaries. 0 over the past two years (2018 and from accessible Every hour, the system collates all the 2019) the company made additional infrastructure: necessary information in real time, savings exceeding ₽3.5 billion. production volumes Metric 2015 2016 2017 2018 2019 and develops an optimal schedule for are directly dependent Domestic sales 13.56 13.28 13.89 13.13 13.48 the fleet and for oil shipments from on the timely shipment terminals. The system analyses over Global sales 0.22 0.18 0.11 0.07 0.05 65 million potential options per hour, of hydrocarbons. Using factors in about 300 parameters and digital technologies TOTAL GAS SALES 13.78 13.46 14.00 13.20 13.53 prepares the optimal schedule. The has allowed Petroleum- system’s accumulated historical us to increase efficiency data and predictive capabilities products sales make it possible to predict potential in the company’s operations in the Russian Arctic: Petroleum-products sales remained pilot tests have already almost flat year on year in 2019 Sales breakdown by 44.84 43.59 43.48 45.91 45.44 allowed Gazprom and totalled 45.4 mt. The company product, mt Neft to achieve cost focused on improving the efficiency of Source: company data 50 reductions of 10% petroleum-products sales, improving 40

under the existing margins on retail and small-scale 30 logistics strategy wholesale distribution of motor fuels, 20 for year-round and increasing premium sales of shipments of Arctic jet and bunker fuels and bitumen 10 crude blends. materials. Favourable market 0 conditions enabled the company to increase fuel-oil and petrochemical Metric 2015 2016 2017 2018 2019 Vadim Simdyakin sales. Motor gasoline 10.83 11.08 11.09 11.32 10.22 Head of Crude Oil Supply Diesel fuel 12.81 13.27 13.37 14.01 13.91 Department, Gazprom In 2019, product sales on the Russian Neft PJSC and international markets totalled Aviation fuel 3.62 3.36 3.51 3.84 3.90 28.6 mt and 16.8 mt respectively. Sales Bunker fuel 3.98 2.87 3.29 2.89 2.65 on foreign markets grew by 3.5% Oils and lubricants 0.43 0.45 0.41 0.49 0.47 year on year, driven by an increase in jet-fuel, diesel-fuel, bitumen and Bitumen products 2.05 2.17 2.65 2.97 2.92 petrochemicals exports. Petrochemicals 1.45 1.35 1.25 1.35 1.55 Fuel oil 7.42 6.62 5.23 6.09 6.40 Other petroleum products 2.25 2.42 2.68 2.95 3.41 TOTAL SALES 44.84 43.59 43.48 45.91 45.44

/ 1 / Natural and associated petroleum gas. Excluding the Gazprom Neft share in Northgas and Arcticgas joint ventures.

80 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 81 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

In implementing the programme Petroleumproducts sales, Sales of motor gasolines and diesel 44.84 43.59 43.48 45.91 45.44 of transferring reciprocal mt fuels in Russia in 2019 were optimal New filling-station formats settlements with counterparties Source: company data 50 in view of market conditions, and Gazprom Neft is the first fuel retailer advantage of such filling stations is

using Russian roubles, the company 40 ensured an increase in the efficiency in Russia to launch mixed-format that, given their small size, they can has now switched payments for of retail and small wholesale of filling stations. These operate as be installed on parking lots next to 30 service stations with a cafe and a shop shopping malls and housing estates. petroleumproduct exports under motor fuels. 20 during the day, and as automated The company plans to scale up the export contracts with companies in stations at night. The mixed format project in 2020. the EAEU and CIS member states 10 is used widely around the world, and helps to improve the efficiency In 2019, the Gazpromneft network to the currency of the Russian 0 Retail and small wholesale of filling stations by optimising their launched a filling-station redesign Federation. In April 2019 Gazprom distribution of motor fuels operation. After switching to the project in Moscow and St Petersburg, Neft received its first such payment in Metric 2015 2016 2017 2018 2019 mixed format, fuel throughputs at which involves transforming filling roubles, totalling almost ₽255 million, Key areas in developing the filling stations increased by 2%. stations into digitally-enabled Domestic sales 27.50 27.11 27.96 29.67 28.63 interactive facilities. Filling stations for the delivery of 6,000 tonnes of company’s retail and small wholesale Non-CIS exports 11.81 10.77 9.54 10.00 10.76 In 2019, Gazprom Neft started are being converted to the interactive diesel fuel by tanker to Armenia. distribution of petroleum products developing a network of fully format as part of the Gazprom Neft CIS exports 2.28 2.41 2.50 2.49 2.35 in 2019 included expanding the automated modular filling stations, digital network-transformation Global sales 3.25 3.30 3.48 3.75 3.70 company’s retail network, developing which have been designed by Russian strategy aimed at making filling- new forms of cooperation with manufacturers specifically for station services more customer- Sales breakdown by channel TOTAL PETROLEUMPRODUCTS the Gazprom Neft retail network. friendly. Media screens which serve 44.84 43.59 43.48 45.91 45.44 SALES independent market players, Investment required to launch a as a modern tool for interaction with Premium sales1 in 2019 reached improving efficiency in fuel sales, modular filling station is three and customers are one of the highlights of 26.5 mt. While premium sales of digitalising customer services, and a half to four times less than for a this new format. By the end of 2020, motor-fuels decreased slightly in developing the company’s product conventional station. It takes only media screens will be installed at a week to instal the module, which more than 50 flagship stations in key the reporting period, the company storage facilities. occupies a 150–300 square-metre regions across Russia in which the increased premium sales of aviation Sales breakdown by plot. A filling station of this kind can network operates. and marine fuels, bitumen materials channel, mt 44.84 43.59 43.48 45.91 45.44 refuel up to 350 vehicles per day with gasoline and diesel fuel. The and lubricants. Sales of aviation Source: company data 50 Filling station network fuel through premium channels 40 were up 3.2% as a result of growth In 2019, the company accelerated the in volume on both the domestic and 30 development of its retail network, filling stations and digitally-enabled stations, of which 1,251 stations are international markets. Improved 20 having opened 198 new filling interactive filling stations. directly owned by the company and business efficiency in the North- 10 stations under Gazpromneft and 207 are franchisee-operated. As the

West and Black Sea regions saw 0 OPTI brands throughout Russia. In 2019, the Gazpromneft filling company expanded into new large a 2.4% year-on-year increase in With new filling stations launched on station network made a step regional markets—the Republic of premium sales of marine fuel. Metric 2015 2016 2017 2018 2019 a franchise basis, the company has change in the development of its Bashkortostan and the Republic Expanding the geographic range of Premium channels 25.70 25.16 26.13 27.10 26.46 expanded the geographic coverage retail network across a number of Tatarstan—in the second half of company’s export routes led to a of its retail business to 46 regions of business areas. For instance, the year, the company’s share of Large-scale wholesale 19.14 18.43 17.35 18.81 18.98 20% increase in sales of premium channels throughout Russia. Gazpromneft the network became the first fuel the retail motor-fuels market in bitumen products. filling stations began operating retailer in Russia to introduce those regions in which the network TOTAL SALES 44.84 43.59 43.48 45.91 45.44 in seven new regions: the Kursk, mixed-format filling stations. These operates decreased from 24.0% to Lipetsk, and Voronezh Oblasts, operate as service stations with 20.3% as at end 2019. Republics of Bashkortostan, a cafe and a shop during the day, Mordovia, Tatarstan, the Chuvash and at night as automated stations, Outside Russia, the Gazprom Republic and the Perm Krai. where customers refuel their Neft retail network comprises cars themselves using payment 619 filling stations, including 205 In addition to conventional filling- terminals. The mixed format filling stations in the CIS countries / 1 / Premium sales include the following: station formats developed in recent helps to improve the efficiency of (Belarus, Kazakhstan, Tajikistan – sales of petroleum-products through premium distribution channels, including both retail and small-scale wholesale. This segment includes all sales years (full-service filling stations, filling stations by optimising staff and Kyrgyzstan) and 414 in South- through filling stations and distribution centres, as well as “wing-tip” and “deck-to-deck” sales, and small wholesale through refuelling terminals stations with a cafe and a shop, workloads. After switching to the East Europe (Serbia, Bosnia and at airports and seaports; automated filling stations), in 2019, mixed format, fuel throughputs at Herzegovina, Bulgaria and Romania). – sales of packaged products. This segment includes all sales of oil in barrels and canisters, polymer-modified asphalt cement (PMAC) in Clovertainer® the company launched several filling stations increased by 2%. The number of filling stations containers, etc; new filling-station formats that in Europe decreased as a result – sales of premium petroleum products, i.e. value-added products that have certain advantages over other products in the same category in terms are innovative for the Russian As at the end of 2019 the company’s of a retail network optimisation of quality. This group includes sales of premium-branded liquid lubricants (Gazpromneft, G-Family, ), premium-branded bitumen materials market, including mixed-format filling station network comprised programme that made the network (PMAC, PMB, bitumen emulsion, etc), all brands of bitumen-based products, and premium-branded motor fuels (G-Drive, etc.) available for wholesale filling stations, automated modular 1,458 Gazpromneft and OPTI more cost-effective. distribution.

82 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 83 GAZPROM NEFT

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The company continued to expand its Filling station network 1, Motor-fuel and natural-gas Retail and small-scale autogas sales network by increasing units 1,852 1,866 1,866 1,878 2,077 motor-fuel sales wholesale distribution of 1,852 1,866 1,866 1,878 2,077 the number of filling stations selling Source: company data 2500 motor fuels and LPG 2500 liquefied petroleum gas (LPG). The Total small-scale wholesale and retail Source: company data 2000 2000 number of autogas filling stations sales of motor fuels decreased by 4.4% integrated into multi-fuel filling 1500 year on year to 19.5 mt. This change in 1500 facilities under Gazpromneft brand 1000 motor-fuel sales volumes was shaped 1000 grew by 11 to 156 stations. 500 by current conditions in the Russian 500

0 market, as well as those measures 0 The reporting year saw the taken to improve sales efficiency and completion of the transaction with Metric 2015 2016 2017 2018 2019 maximise profit margin. Despite the Metric 2015 2016 2017 2018 2019 Gazprom Gazomotornoye Toplivo LLC Russia 2 1,189 1,244 1,255 1,260 1,458 decrease in sales volumes, operating Retail sales and small-scale for the sale of the main portion of the profit from this business grew by more 18.58 19.26 20.01 20.40 19.51 CIS 243 200 188 201 205 wholesale of motor fuels (mt) company’s compressed natural gas than 20% thanks to the improved cost- – sales in Russia only 14.76 15.17 15.92 16.16 15.39 (CNG) production and distribution Europe2 420 422 423 417 414 effectiveness of retail sales and small- assets. Under this deal Gazprom TOTAL 1,852 1,866 1,866 1,878 2,077 scale wholesale of motor fuels. Retail sales of motor fuels (mt) 10.16 10.45 11.04 11.34 10.49 Neft sold its gas-filling compressor – sales in Russia only 8.08 8.25 8.84 9.12 8.30 station network. Russia “Gladkoye” fuel terminal in the In 2019, retail sales of motor fuels LPG sales (thousand tonnes) 105 115 97 120 108 Leningrad Oblast was commissioned, through filling stations declined by 7.5% – sales in Russia only 66 69 56 75 64 2019 marked an important allowing the transshipment of up year on year to 10.5 mt, including 8.3 milestone in the development of the to one million tonnes of petroleum mt in Russia. A deteriorating market infrastructure of the company’s fuel- products every year. environment and the company’s focus supply terminals. The new and the on improving retail sales margins most technologically advanced in resulted in average per-station sales A high-technology fuel terminal in Russia decreasing to 18.5 tonnes The new “Gladkoye” fuel terminal has year, and has storage facilities per day (tpd). The Gazprom Neft been commissioned in the Tosnensky capable of holding up to 40,000 cubic filling station network nevertheless District of the Leningrad Oblast. This metres of manufactured goods at any Developing the OPTI filling station network maintained its market-leading position facility, which is unique in terms one time. of the technological capabilities In 2019, the number of filling stations agreements, fair profit distribution, Despite in Russia in terms of this metric. In supporting its management All of the company’s target in the OPTI network reached 120, and and technological solutions to the challenging Europe, average daily sales increased processes, has become Gazprom terminals will be upgraded on now covers 27 regions across Russia. optimise filling-station management. market by 6.5% to 6.6 tpd in 2019. Neft’s first asset built as part of the the basis of the Gladkoye model The OPTI filling station network The terms of the partnership environment, we invest company’s comprehensive terminal by 2025. It is expected that once offers a unique approach to the include a one-time membership fee infrastructure development strategy. the comprehensive terminal retail fuel market. The partnership and a monthly fee calculated as a in the development Despite this trend in motor-fuels sales, reconstruction programme is model developed by Gazprom Neft percentage of revenue. Within two of this project sales of G-Drive premium branded Gladkoye is the only fuel terminal complete, transshipment through involves managing stations through a or three months of the start of their and support our partners, fuel were maintained at 2018 levels. In in Russia equipped with metering the company's own network will see bespoke IT platform, operating under operation under a new brand name, because we believe that 2019, branded-fuel sales throughout facilities allowing oil products’ an increase of more than 20%, with a highly popular brand, and ensuring some filling stations show a 40% volumes and other metrics to average per-terminal transshipment high standards of service and fuel increase in daily fuel sales and an OPTI is a promising Russia and the CIS totalled 722,000 be controlled automatically. A volumes rising by 58%. quality. The key principle behind the average two- or three-fold increase model for modern fuel tonnes (-1% on 2018), with the share of digital twin of this fuel terminal OPTI business model is mutually in non-fuel revenue; in some cases G-Drive fuel in total sales growing from contains all project information Today, Gazprom Neft operates a wide retailing. It is based network of terminals comprising 172 beneficial cooperation: partnership this growth may be ten-fold. on a platform solution 7.3% to 7.9%. Year-end results show since the start of construction. The terminal’s infrastructure allows the own and partner facilities throughout and the principles the G-Drive-brand family accounting transshipment of up to one million Russia and the CIS. of fair profit for every third litre of AI-95 or higher tonnes of petroleum products every OPTI filling station network in 2019 distribution grades of gasoline sold at filling and business stations, with the number of filling transparency. stations offering this fuel reaching cubic 120 in 27 1,235 outlets. metres Alexander Krylov The market environment caused LPG mt outlets regions across Russia Head of Regional sales to decline by 11,300 tones, to 1 40,000 Sales Directorate, 108,000 tonnes – a drop of 10%. Gazprom Neft PJSC oil-products transhipment tank farm storage capacity/year capacity / 1 / Operating stations only. / 2 / Including franchisee-operated filling stations.

84 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 85 GAZPROM NEFT

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Customer relations Marketing campaigns and sales 2019, revenue from non-oil sales The company uses the following promotions conducted by the company totalled ₽20.6 billion (including value- partnership-based filling-station Digital products Strategic priorities The more sensitive customers are to in the reporting year to stimulate added tax). management models: and services for the development fuel pieces at filling stations, the more sales of petroleum-products reached – COPO (company-owned, partner- for motorists of our network relevant are marketing programmes a total of 14.3 million customers and In addition, the Gazpromneft filling operated): a filling station In 2019, Gazprom Neft introduced include diversifying and campaigns aimed at retaining generated additional sales exceeding station network has for several is managed by a network an innovative product: NFC-enabled management models, various customer segments and 200,000 tonnes. years been offering opportunities for employee acting as an individual virtual co-branded Gazpromneft- developing filling increasing customer loyalty towards the management of its own filling entrepreneur; cards, which are stations as hubs available through the Gazpromneft the Gazpromneft filling station An important focus of the company's stations to third-party retailers. In – CODO (company-owned, dealer- filling station network mobile offering additional network. In 2019, the penetration of customer-relations initiatives is the 2019, 117 stations were transferred operated): a station is managed app. This card can now be issued services, introducing the “On Our Way” loyalty programme development of digital sales channels to partnership-based management by a professional dealer selling through the Gazpromneft filling specialised grew, with about 800,000 new and digitalisation of customer models. By changing filling-station fuel supplied by Gazprom Neft and station network mobile app, added station formats, members joining the programme. services. In 2019, the share of digital management models, the company benefiting from the company’s to the virtual wallet, and used and digitalising as a method of payment for fuel channels (the virtual loyalty card, the has been able to improve operational brand, and growth is driven by ordered through the app and any customer experience. At year-end 2019, the number of virtual co-branded card and the AGS. efficiency and increase revenue a high volume of petroleum- other purchases. In addition, the loyalty card holders throughout Russia GO app) in total retail sales through across the Gazpromneft network by products sales; card functions as the “On Our and the CIS increased by 7% year on the Gazpromneft filling station reducing the fill-up costs. As a result – CORO (company-owned, retailer- Way” loyalty card. In the first five Alexander Krylov, months after this function was year, to 11.9 million. Participants in network was about 6%. The number of of putting filling stations under various operated): filling stations are made available, customers issued Regional Sales Director, the loyalty programme accounted active users of the Gazpromneft filling management models, the company’s managed by a non-fuel retailer 290,000 virtual co-branded cards, Gazprom Neft PJSC for 79% of total sales to individuals station network’s mobile app reached 2019 year-end results will see EBITDA under its brand name, and the which is almost 100,000 more than through the filling station network. 1.6 million. increase by ₽222 million. retailer earns revenue from non- the number of plastic co-branded According to Ipsos data, “On Our Way” oil sales. cards. is Russian motorists' favourite loyalty As the company expanded its range of As part of customer-service programme, with popularity levels1 additional goods and services offered development, the functionality of reaching 30% over the past year (up at shops across the Gazpromneft the Gazprom Neft mobile app was also expanded. For example, users 5% on 2018). filling station network, non-oil sales of the mobile app became the first increased by 6.1% year on year. In customers in Russia to be able to operate coffee machines via their smartphones in Drive Cafes at Gazpromneft filling stations. Smart equipment-monitoring system Another addition to the app is the Space.GO game, in which motorists In 2019, Gazprom Neft was the first can be monitored online, and downtime data is transferred to the Gazprom Neft can answer questions on various subjects to earn additional bonus vertically integrated oil company (VIOC) and maintenance lead-times reduced. “Neftekontrol” system, online. points under the “On Our Way” in Russia to bring the monitoring of all loyalty programme. The IMC’s software core processes up It is expected that by 2021 all equipment equipment at automated filling stations to 100,000 signals, and makes more at service and automatic filling stations The digitalisation initiative covered together in a single “smart” system: not only customer services, but than 50,000 calculations, every second. – from coffee machines to fuel tanks – its “Infrastructure Monitoring Centre” also filling stations themselves: Information on oil-product stocks will be connected to the Infrastructure equipment at filling stations (IMC). The automated monitoring and is received continuously from every Monitoring Centre. was integrated into a single predictive analytics capacities mean smart system: the Infrastructure station in the Gazpromneft filling station filling stations’ operational processes Monitoring Centre (IMC). The network connected to the IMC, and this automated monitoring and predictive analytics capacities of the IMC make it possible to % % % monitor the status of equipment and the operation of filling stations >50,000 –30 –21 99 online, which helps to improve the reliability and longevity of calculations per second downtime repair and uptime equipment. maintenance time

/ 1 / Share of motorists covered by the Ipsos survey who are familiar with the Gazprom Neft “On Our Way” loyalty programme brand.

86 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 87 GAZPROM NEFT

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Petroleumproducts sales to corporate customers Development of the aviation refuelling business abroad Gazpromneft-Aero Aviation fuel supplies by 17 units, including two airports in Under its long-term business Total international sales volumes Gazpromneft-Aero also saw a is a technological Russia (Tunoshna and Gagarin) and development strategy to 2030, were up 30% by the end of the year, significant increase in refuelling leader in Russia’s Premium sales of aviation fuel sales 15 airports abroad (nine in China, Gazpromneft-Aero is committed to reaching more than 315,000 tonnes. volumes for Russian and international aviation refuelling The company has developed a airlines in India, Malaysia, totalled 3.22 mt in 2019, up 3.2% year two in Saudi Arabia, one in each of becoming one of the top-10 companies strategic partnership with China's Montenegro, Serbia, South Korea, industry. We on year; this growth was driven by Egypt, France, Italy and Tunisia). At on the international aviation refuelling national fuel supplier, China Aviation Spain, Thailand and Vietnam. The are implementing increased domestic sales and higher end-2019, the Gazpromneft-Aero market, expanding its international Oil Hong Kong Co. Ltd. (CAOHK), company has begun supplying TS-1 the concept reselling volumes. distribution network comprised 61 sales network to cover 350 airports, which is designed to supply aviation jet fuel to Uzbekistan’s national of full automation fuel to CAOHK-partner airlines at airline, Uzbekistan Airways. Overall, refuelling terminals in Russia and and increasing direct sales of aviation those airports at which Gazpromneft- Gazpromneft-Aero will supply 100,000 in technological At year-end 2019, the Gazpromneft- another in Kyrgyzstan. In addition, fuels to 5.3 million tonnes per year. Aero operates. This partnership with tonnes of this product to Uzbekistan process management Aero distribution network covered Gazpromneft-Aero supplies aviation CAOHK will allow Gazpromneft-Aero throughout 2019–2020. at Gazprom Neft’s to increase the amount of refuelling it 283 airports in 67 countries, including fuel to its customers at 10 Russian Gazpromneft-Aero’s clients include state-of-the art Russia. In 2019, the network grew airports through third-party refuelling offers its clients at Chinese airports aviation refuelling every year. In 2019, the company had more than 190 airlines, including terminals and at 211 airports abroad. already seen a three-and-a-half- Russian market leaders , S7 complexes. In addition, fold increase in sales of aviation Airlines, Ural Airlines, and Volga- the company 2 fuels in China compared to 2018, Dnepr, as well as leading international Premium sales, mt Airports of presence Number of refuelling Share of the Russian carriers including Lufthansa, is implementing terminals 3 market, % 4 reaching 78,000 tonnes. In China, another two projects Gazpromneft-Aero has established Emirates, Air France and KLM. its largest in-country sales network that are important outside Russia, covering 32 airports for the industry. throughout the country’s major cities. The first involves implementing – 2.80 2.62 2.83 3.12 3.22 213 239 254 266 283 40 45 46 46 47 26.6 26.8 25.9 26.7 26.3 together with IATA 3,5 300 50 30 – XML standards 3,0 250 40 25 2,5 to enable paper- 200 20 2,0 30 Aviation refuelling volumes abroad in 2019. free document 150 15 1,5 20 management. 100 10 1,0 The second 10 tonnes 0,5 50 5 is a transition to a new 0,0 0 0 0 % form of contracts, 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 +30 315,000 and a new form of settlements Aircraft refuelling, mt 1 based on blockchain Source: company data technology. It will accelerate settlements, Metric 2015 2016 2017 2018 2019 reduce operating Premium sales, mt 2.80 2.62 2.83 3.12 3.22 expenses and make cash transactions 2 Number of airports at which the company has a presence 213 239 254 266 283 transparent. Airlines Number of refuelling terminals 3 40 45 46 46 47 will be able to pay Russian market share, % 4 26.6 26.8 25.9 26.7 26.3 for fuel instantly when refuelling aircraft, without any prepayment, bank guarantees or financial risks for the parties / 1 / Hereinafter, figures reflect total petroleum-product sales and premium sales by the Gazprom Neft Group. to the transaction. / 2 / In 2020, the company changed its procedure for calculating the number of airports/aerodromes at which it has a presence. Figures on airports where the company has a presence have been adjusted accordingly for all reporting periods. / 3 / In 2020, the company changed its procedure for calculating the number of airports/aerodromes at which it has a presence. Figures on the company’s Vladimir Egorov, own refuelling terminals have been adjusted accordingly for all reporting periods. CEO, Gazpromneft-Aero / 4 / In 2020, the company reviewed its market-share calculation procedure, taking into account Petromarket data with respect to market volumes, as well as other internal adjustments.

88 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 89 GAZPROM NEFT

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Bunkering Improved business efficiency across to its flagship vessel, Gazpromneft the key markets in the North-West Marine Bunker plans to commission Marine fuels compliant with the MARPOL 2020 Thanks Gazpromneft Marine Bunker, the and Black Sea regions enabled the two additional LNG bunkers by 2030. requirements to the advanced operator of the Gazprom Neft company to increase bunkering With effect from 1 January 2020 environmental standards. Following infrastructure bunkering business, provides volumes by 2.4% year on year to At the end of 2019, the company the requirements of the MARPOL testing, this fuel has been certified of terminals at its bunkering services at all key ports 2.99 mt in 2019. An important area started selling a new marine fuel with Convention forbidding the use of fuels as conforming with the Eurasian refineries, Gazprom in Russia (including 20 sea and 12 of focus in the development of the sulphur content not exceeding 0.5%. with sulphur content above 0.5% are Economic Union requirements. Neft will meet introduced throughout international river ports), as well as in the ports of company’s bunkering business It is in demand with shipowners, navigation. In December 2019, in In December 2019, the company sold the growing demand Constanța (Romania), Riga (Latvia) concerned bunkering of vessels especially in light of a new version of order to supply marine fuel compliant 100,000 tonnes of this new marine for environmentally and Tallinn (Estonia). The company’s transporting oil from the company’s the International Convention for the with these requirements, the fuel with sulphur content of less than friendly marine fuels company started selling marine fuel 0.5%. It is expected that supplies of clients include major Russian and fields in the Arctic. Prevention of Pollution from Ships this fuel to the Russian market in on the Russian market. international shipping companies. (MARPOL 2020) taking effect from with sulphur content not exceeding 0.5% produced at the Omsk Refinery. 2020 may exceed 1.5 mt. Following completion The company's own fleet comprises: 2019 saw the keel of Russia's first 1 January 2020, setting a limit on Gazpromneft Marine Bunker — In 2019, the company also introduced of the construction – 12 bunkering vessels, including LNG-bunkering vessel, the Dmitry sulphur content in emissions from the operator of the Gazprom Neft a new marine oil for engines of the deep one Arctic-class vessel for Mendeleev, laid down as part of the vessels in international waters. bunkering business — bunkered operating on ultra-low sulphur fuel processing complexes refuelling ships in the White and implementation of the company's the first vessel with this new oil with sulphur content not exceeding at the Moscow environmentally-friendly fuel in the Barents Seas; development strategy in LNG 0.1%. The Gazpromneft Ocean CCL17 and Omsk refineries, port of Murmansk. high-technology product fully meets – four Arctic-class shuttle tankers bunkering. This pilot LNG-bunkering the new MARPOL requirements. This we expect to abandon and two icebreakers to ensure vessel with a cargo-bearing capacity The composition of the RMG-180 (type fuel-oil production M) hybrid fuel has been developed oil has been approved by the world's uninterrupted oil shipments from of 5,800 cubic metres is expected to by Gazprom Neft specialists. Ultra- leading manufacturers of marine completely. the Novoportovskoye field. be commissioned in 2021. In addition low-sulphur and heavy petroleum equipment and is currently available products are used as components; in more than 200 ports worldwide. these are mixed to produce a low- Alexey Medvedev sulphur product meeting international CEO, Gazpromneft Marine Bunker Premium sales, mt Ports of presence Russian market share , % 4 mt 3.92 2.77 2.71 2.92 2.99 36 36 37 34 35 21.0 19.1 16.6 15.8 15.7 4,0 40 25 >1.5 3,5 35 20 3,0 30 of the new marine fuel to be supplied 2,5 25 15 2,0 20 to the Russian market in 2020 1,5 15 10 1,0 10 5 0,5 5 0,0 0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

Bunkering Source: company data

Metric 2015 2016 2017 2018 2019

Premium sales (bunkering, million tonnes) 3.92 2.77 2.71 2.92 2.99 Ports at which the company has a presence 36 36 37 34 35 Russian market share, % 21.0 19.1 16.6 15.8 15.7

90 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 91 GAZPROM NEFT

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Oils and lubricants production Its continuously growing product to 23.4%. The company exported oils and sales line currently includes over 950 oils, to 80 countries. Developing the international oils and lubricants Gazprom Neft’s grease lubricants and service fluids. distribution network development The company has an extensive Over the past year, 70 new premium In 2019, the Gazprom Neft Omsk In 2019 Gazprom Neft registered The range of marine oils and strategy to 2030 modern production base for the products were launched on the Lubricants Plant started producing Gazpromneft Marine Lubricants, an lubricants under Gazpromneft and includes expanding manufacturing of oils and lubricants, market. Furthermore, in 2019, the new Gazpromneft Drill Flow drilling operating company with an office in Gazpromneft Ocean brands includes the international and a widespread sales network in company increased by 26,000 tonnes fluids, with 4,000 tonnes of these Singapore. This new enterprise will 43 high-technology products for all geographical reach enable Gazprom Neft to develop its types of marine equipment, including the B2C and B2B segments. Oils per year the capacity of its facilities products supplied to drilling services international marine-oils production 15 types of Gazpromneft Ocean of marine-oil sales. and lubricants are sold through the producing oils packaged in large companies. The company was and logistics network effectively, motor oils for two- and four-stroke The company Gazpromneft filling station network, and small plastic containers at the awarded a prize by Gazprom PJSC including in Southeast Asia and engines. The composition of these plans to increase retail outlets and online shops, and Moscow Lubricants Plant. as part of its annual competition for Europe. The company’s products, oils has been developed taking into its production service stations, as well as supplied projects in science and technology which are approved by key marine account the needs of the international equipment manufacturers, are shipping industry and the MARPOL and sales of specialised directly to enterprises, including In 2019, oils and lubricants sales for designing a production method already available in more than 250 2020 requirements. lubricants significantly. car assembly lines. Gazpromneft- totalled 0.47 mt, with premium sales and base formulation used in ports worldwide. An operating Lubricants aims to become a top-10 totalling 0.32 mt. The Gazprom Neft Gazpromneft DrillLine drilling fluids. company established global lubricants manufacturer by share of the packaged-oils and in Singapore, a centre 2030. lubricants market in Russia increased of international by 1.4 percentage point year on year shipping where one of the world's largest port hubs is located, 250 43 will enable Gazprom Neft to develop ports worldwide in which high-technology products its production Total oils and lubricants Premium sales, mt G-Energy Service Share of the Russian and logistics network sales, mt garage network, outlets packaged-oils and the company's products under Gazpromneft in the most efficient lubricants market , % are available and Gazpromneft Ocean way, including its own brands in the company lubricant production product range plants in Russia and partner blending 0.43 0.45 0.41 0.49 0.47 0.23 0.27 0.29 0.31 0.32 26 70 120 170 210 17.1 20.0 21.3 22.0 23.4 facilities abroad. 0,5 0,5 250 25

0,4 0,4 200 20

0,3 0,3 150 15 Alexander Trukhan

0,2 0,2 100 10 CEO, Gazpromneft-Lubricants 0,1 0,1 50 5

0,0 0,0 0 0 Over the past year, Gazprom Further expansion of the production 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Neft expanded its international and logistics network will allow Gazpromneft Ocean marine-oils Gazprom Neft to build up production business, as it launched production volumes significantly, expand its Oils and lubricants sales, mt and subsequent sales in Singapore, distribution coverage and, by 2030, Source: company data the Netherlands, Turkey and South secure a 4% share in the global Korea. The company established a marine-oils market. Metric 2015 2016 2017 2018 2019 subsidiary in Singapore in 2019 to enable further efficient development The company also continues to Total oils and lubricants sales (mt) 0.43 0.45 0.41 0.49 0.47 of its international marine-oils develop a network of its own Premium sales (mt) 0.23 0.27 0.29 0.31 0.32 production and logistics network. premium-brand G-Energy Service G-Energy Service network (outlets) 26 70 120 170 210 service stations. In 2019, 40 new Share of the Russian packaged-oils and lubricants market, % 17.1 20.0 21.3 22.0 23.4 Thanks do the development of its service stations were added to the international marine-oils business, network, with the total number of Gazprom Neft is already present branded service stations reaching at more than 250 ports worldwide. 210 at year-end.

92 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 93 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Bitumen materials Total sales of bitumen materials, Premium sales, mt mt Supplying bitumen materials to Latin America Many Gazprom Neft is one of the largest Gazprom Neft has supplied region’s climatic conditions: high air of the products manufacturers and suppliers of polymer-bitumen binders (PBB) temperature coupled with tropical in our bitumen- bitumen products in Russia. Gazprom 2.05 2.17 2.65 2.97 2.92 0.18 0.23 0.29 0.35 0.42 for the construction of the largest humidity. The region’s mountainous products line have no 3,0 3,0 Neft has its own bitumen production infrastructure facility in Latin America: terrain, as well as future car and HGV equivalents in Russia 2,5 2,5 the Bi-Oceanic Corridor. This highway traffic, were also taken into account facilities in Russia (in Moscow, Omsk, or anywhere else. 2,0 2,0 will connect the east and west coasts in developing the PBBs. The binders’ Yaroslavl, Ryazan, Vyazma, and of the South American continent and special formulation is expected to This competitive 1,5 1,5 Salsk), Serbia and Kazakhstan. make them into a single transport ensure the highway’s reliable operation advantage – alongside 1,0 1,0 network. for a period of more than 10 years. technologies, modern 0,5 0,5 In 2019, sales of bitumen materials Innovative bitumens produced by PBB deliveries to Latin America from production capacity, exceeded 2.9 mt. Premium sales of 0,0 0,0 the Gazprom Neft Ryazan Bitumen Russia were undertaken by sea and an extensive logistics 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 bitumen materials reached 0.42 mt, Materials Plant are being used in road transport, in special patented network, and scientific asphalt road coverings throughout medium-tonnage cuboid containers up 20% year on year. The growth the 277-kilometre border section of – Clovertainers, which guarantees and technical expertise was driven by the development of Sales of bitumen materials, mt the highway, in Brazil and Paraguay. that the high-performance features of – mean we can expand the distribution network (ensuring Source: company data The specialist formulation of the bitumen are preserved. geographic coverage availability of bitumen-derived PBBs used on the Bi-Oceanic Corridor of our business highway was developed at Gazprom products throughout all Federal Metric 2015 2016 2017 2018 2019 and be involved Neft’s Science and Technology Centre Okrugs of Russia), growth in exports, Total sales of bitumen materials, in Ryazan, under the international in implementing 2.05 2.17 2.65 2.97 2.92 as well as by cooperation with mt Superpave mix design method. major international regions to introduce modern bitumen The composition of this innovative infrastructure projects. materials into construction. Premium sales, mt 0.18 0.23 0.29 0.35 0.42 bitumen has been adapted to the

2019 marked the start of premium Dmitry Orlov product sales in Latvia, Lithuania and CEO, Gazpromneft Armenia. Supplies to Latin America, production and logistics terminal Ryazan Plant rising by 60% year on a processing site in Omsk have also BPG-50 Plus, intended for use in the Bitumen Materials under strategic transnational in Salsk also demonstrated strong year to 64,000 tonnes. Key markets started manufacturing products Arctic, at temperatures ranging from projects, saw a 2.5-fold growth. In performance, with more than 172,000 for packaged products include graded in accordance with the PG -50 to +30°C. The properties of this 2019, Gazprom Neft expanded the tonnes of bitumen shipped during remote regions of Russia, Europe, (Performance Grade) classification sealant will ensure the stability of geography of bitumen-products sales the first year of the asset’s operation and countries of Latin America. (based on performance at different piles supporting storage tanks in the to cover all 85 Russian regions, and under Gazprom Neft’s management. temperatures). construction of facilities in the Arctic. 57 countries worldwide. Expanding geography and entering The company continues to make new global markets enabled the steady progress towards the In expanding the product range and In 2019, the range of products company to increase the productivity introduction of products for a areas of application, the specialists manufactured at the Moscow of its Ryazan Bitumen Binders new volumetric asphalt-mix at the Gazprom Neft bitumen- Refinery’s large bitumen unit was Plant significantly by as much as design system currently being business operator have developed expanded to three types of bitumen 33% to 109,000 tonnes, with binder implemented in Russia. In addition an innovative bitumen sealant, Brit binders, and the maximum daily shipments in Clovertainer containers to facilities in Ryazan and Vyazma, capacity was maintained at 5,500 and other types of packaging from the the bitumen terminal in Salsk and tonnes per day. A high-technology

94 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 95 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Petrochemicals Catalyst production

Sales of basic petrochemical products, mt Source: company data Construction of a cutting-edge catalyst production The new facility in Omsk production facility Metric 2015 2016 2017 2018 2019 Gazprom Neft has begun active catalysts every year. The catalyst will allow construction of its modern high-tech production technologies developed us to reduce Total petrochemicals sales (mt) 1.45 1.35 1.25 1.35 1.55 oil-refining catalyst production facility by Gazprom Neft in conjunction in Omsk. The new 21,000-tonne per- with leading Russian scientific and our heavy dependence year capacity plant will be producing technology institutions are protected on the supply modern catalysts for key processes in by international patents; products will of imported catalysts. deep oil refining and the production of be manufactured using raw materials Gazprom Neft Euro 5 fuels. from Russian suppliers. catalysts will outstrip Gazprom Neft’s project is designed The Ministry of Energy of the foreign alternatives to meet Russian refineries’ demand Russian Federation has awarded on a number Gazprom Neft is Russia’s largest SIBUR Holding, consolidated a 100% for modern and efficient cat-cracking the initiative the status of a National of criteria. Eventually, and hydrotreatment catalysts Project. Construction is expected to producer of a number of basic shareholding in Poliom LLC in 2019. Increasing necessary in producing Euro-5- be completed in 2020. The project the company’s share petrochemicals: aromatic the holding in Poliom standard gasoline and diesel fuels, includes modern treatment, hermetic of the cat-cracking hydrocarbons (benzene, paraxylene, In 2019, polypropylene production is an important as well as hydrocracking catalysts containment and control and and hydroprocessing orthoxylene, toluene) and the propane- totalled 139,000 tonnes at Neftekhimiya milestone in implementing used in deep oil refining processes. monitoring systems, as a result of catalysts market propylene fraction (PPF, propylene- (+4% year on year) and 213,000 tonnes The project’s configuration envisages which environmental emissions will be Gazprom Neft’s production of 4,000 tonnes of almost cut in half, despite a seven-fold may exceed 70%. containing LPG). Basic petrochemicals at Poliom (flat year on year). In addition, long-term strategy, hydrotreatment catalysts, 2,000 increase in output. Theoretically, are produced at all Gazprom Neft Neftekhimiya achieved a maximum the key priorities of which tonnes of hydrocracking catalysts, the company refineries (in Omsk, Moscow and hourly production rate of 17.4 tonnes include developing and 15,000 tonnes of cat-cracking is in a position Yaroslavl). Downstream petrochemical per hour in 2019. the petrochemicals to fully meet domestic products (polypropylene) are produced business. demand. Any surplus at integrated enterprises: NPP Developing the petrochemicals The integration of refining will be exported. Neftekhimiya (Moscow) and Poliom business is part of the Gazprom Neft’s and petrochemical assets (Omsk). long-term strategy to 2030. By that will allow the company time, the share of petrochemicals in to improve efficiency Alexander Chembulaev The development of petrochemical the product mix is expected to increase in using feedstocks CEO, Gazpromneft production is a growth area that is to 15%. supplied by our own Catalytic Systems strategically important to the company. refineries to produce In order to strengthen Gazprom high value-added Neft’s position on the petrochemicals products. Strengthening market, the company, together with the company’s technological partnership with SIBUR will, at the same time, give our products a competitive advantage on the Russian and international markets. Consolidation of a 100% shareholding in Poliom Launched in 2013, Poliom is one of Poliom makes use of the best available Russia's most important polypropylene solutions and zero-waste production Levan Kadagidze producers. With annual capacity of technologies. Head of Commercial 218,400 tonnes, the plant produces and supplies up to 80 different grades In 2019, Gazprom Neft together with Affairs Directorate, of polypropylene. The main feedstock SIBUR Holding purchased a 50% Downstream Division, in polypropylene production is the shareholding in Poliom from a partner Gazprom Neft propane-propylene fraction which is on a parity basis. As a result, Gazprom supplied to the plant by the Gazprom Neft and SIBUR Holding became 100% Neft Omsk Refinery. Having been owners of the plant. certified to international standards,

96 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 97 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices FINANCIAL RESULTS

Key financial indicators (IFRS)

Key indicators , ₽ million

Item 2015 2016 2017 2018 2019 ∆ 2019/2018, % In 2019, Gazprom Neft’s financial At the same time, the company’s net REVENUE1 performance was stable. The profit went up by 5.3% to a record Crude oil, gas and petroleum products sales 1,581,777 1,637,553 1,870,790 2,418,717 2,393,444 (1.0) company’s revenue totalled ₽2.49 amount of ₽422.1 billion thanks to trillion, a slight decrease of 0.2 % the strengthening of the rouble and Less: export duties and sales related excise (187,832) (150,156) – – – – year on year. The negative price a positive impact of net financial Other revenue 73,998 58,211 63,799 70,575 91,864 30.2 trend on the oil market was offset by income (expense). TOTAL REVENUE FROM SALES 1,467,943 1,545,608 1,934,589 2,489,292 2,485,308 (0.2) growth in sales volumes. COSTS AND OTHER DEDUCTIONS Purchases of oil, gas and petroleum products (345,909) (351,294) (456,037) (617,306) (663,068) 7.4 Production and manufacturing expenses (214,267) (201,862) (216,530) (228,618) (260,688) 14.0 Selling, general and administrative expenses (100,176) (108,981) (106,629) (114,882) (125,592) 9.3 Transportation expenses (133,320) (132,984) (141,982) (147,182) (143,474) (2.5) Revenue, ₽ billion Net profit, ₽ billion Depreciation, depletion and amortisation (114,083) (129,845) (140,998) (175,451) (181,372) 3.4 Taxes other than income tax (353,145) (381,131) (492,269) (652,784) (591,193) (9.4) Export duties – – (76,658) (94,916) (71,601) (24.6) 116.2 209.7 269.7 401.0 422.1 Exploration expenses (922) (1,195) (963) (1,411) (1,752) 24.2 1,467.9 1,545.6 1,934.6 2,489.3 2,485.3 500 2500 Total operating expenses (1,261,822) (1,307,292) (1,632,066) (2,032,550) (2,038,740) 0.3 400 2000 OPERATING PROFIT 206,121 238,316 302,523 456,742 446,568 (2.2) 300 Share of profit of associates and joint ventures 24,956 34,116 45,504 90,704 83,906 (7.5) 1500 200 Net foreign exchange gain/(loss) (67,910) 28,300 (241) (33,558) 10,518 – 1000 100 Finance income 14,732 11,071 10,098 7,506 22,906 >200 500 0 Finance expense (33,943) (34,282) (25,127) (21,476) (32,772) 52.6 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Other loss, net 1,494 (17,982) (7,557) (19,796) (23,292) 17.7 Total other income (60,671) 21,223 22,677 23,380 61,266 162.0 PROFIT BEFORE INCOME TAX 145,450 259,539 325,200 480,122 507,834 5.8 Current income tax expense (38,026) (21,290) (43,695) (59,585) (52,502) (11.9) Deferred income tax benefit/(expense) 8,774 (28,524) (11,827) (19,544) (33,244) 70.1 Total income tax expense (29,252) (49,814) (55,522) (79,129) (85,746) 8.4 PROFIT FOR THE PERIOD 116,198 209,725 269,678 400,993 422,088 5.3 Less: profit attributable to non-controlling interest (6,537) (9,546) (16,404) (24,326) (21,887) (10.0) PROFIT ATTRIBUTABLE TO GAZPROM NEFT 109,661 200,179 253,274 376,667 400,201 6.2

/ 1 / Starting from 1 January 2018, the Group has been applying IFRS 15 Revenue from Contracts with Customers

98 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 99 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Peak investments in refining projects and the expansion of the production project portfolio have resulted in higher capital expenditure 2019 financial results

Investments1, ₽ billion Net debt, ₽ billion, Adjusted EBITDA, ₽ billion Factor analysis of the adjusted % and Net debt/EBITDA EBITDA1 2019 vs 2018, ₽ billion 22.4 453 370 654.7 641.9 584.0 527.9 497.7

404.8 456.2 551.0 799.5 795.1 800

800 -32 28 5 -6 795 year on year in capital 800 800 700 167 167 investment growth 700 700 31 600 600 600 Internal 500 633 factors: 628 500 500 21 400 +27 1.9 400 400 Capital expenditure at brownfields 300 16 1.6 300 300 increased by 18.9% due to: 200 1.19 200 200 118 – an increase in drilling and 100 0.73 0.7 100 100 16 workover at new fields in 0 0 0 18 2015 2016 2017 2018 2019 Upstream Downstream Repairs at traditional production regions. 2015 2016 2017 2018 2019 2018 Prices 2019 16 refineries 95 Capital expenditure at greenfields Group share in the EBITDA of JVs increased by 17.5% due to: – an increase in drilling and Credit ratings 121 construction of infrastructure • In February 2019, Moody's The figures may not constitute final amounts due to rounding. facilities; upgraded the company rating to 103 – seismic surveys at new licence Baa2, and revised the outlook to "stable" blocks; • In August 2019, Fitch Ratings – commencing oil rim projects. upgraded the company rating to Cash flow in 2019, ₽ billion BBB, with the "stable" outlook The growth of capital expenditure in 145 In late December 2019, all the downstream segment amounted Gazprom Neft ratings were 122 to 21.3% year on year, and is related investment-grade. to an active phase of deep conversion 609 -453 156 -22 116 -33 -227 -34 -45 800 projects at the Omsk Refinery, and 700 construction of a catalyst plant. 600 500 Debt portfolio 400 300 • In November 2019, the company 200 successfully placed five-year 100 2018 2019 bonds worth ₽25 billion, with a coupon of 6.85% per annum. 0 Brownfields Marketing 2 3 • In December 2019, the company Operating Investments Free Acquisitions Proceeds Net Dividends Other Net cash Greenfields and distribution cash flow cash flow; from sale of borrowings flow successfully placed 10-year Refining Other property, plant bonds worth ₽20 billion, with a and Advances paid equipment, net coupon of 7.15% per annum. of tax The coupon rates were the lowest in the history of the Russian market2

/ 1 / Including the Gazprom Neft share in the EBITDA of associates and joint ventures. / 2 / Capital investment includes changes in reserves and advance payments. / 1 / The figures may not constitute final amounts due to rounding. / 3 / Acquisition of oil and gas licences, and other cash flows from investment activities. / 2 / Placement for comparable periods.

100 ANNUAL REPORT 2019 03 PERFORMANCE REVIEW 101 ANNUAL REPORT 2019

Technological development

Innovation management Import substitution

ARTIFICIAL INTELLIGENCE ISN’T A MAGIC BOX: GAZPROM NEFT SPECIALIST ANNA DUBOVIK ON THE IMPORTANCE OF DIGITAL PRODUCT SAMPLES

Anna Dubovik, Head of Advanced Analytics and Machine Learning GAZPROM NEFT

2019 p. 109 The company opened an Integrated Upstream p. 110 The company established the New Industry p. 111 Russian-made seabed stations conduct offshore We have started HIGHLIGHTS Engineering Centre Ventures Fund seismic surveys considering technological An Integrated Upstream Engineering Centre (a division A joint venture fund, New Industry Ventures, was Seismic surveys at the Ayashsky licence block in the Sea of the Bazhenov Technology Centre) was opened established by the company together with Gazprombank, of Okhotsk is an example of import substitution in practice. solutions development at the Skolkovo Institute of Science and Technology. It provides RVC and VEB Innovations. The fund will invest During these surveys, Gazprom Neft has become the first not only as our core R&D support for non-traditional hydrocarbon reserves in companies developing new materials, technologies, oil company in Russia to use the domestically produced operations supplement, development. products and services for the oil and gas industry. standalone “CRAB” seabed station for seismic surveys. but also as a separate Previously, these surveys were largely conducted using process with intrinsic the foreign equipment. value. Today, technology is not just a way of responding TECHNOLOGICAL DEVELOPMENT to challenges, A digital system helps but also a separate to find promising investment portfolio. formations In order to ensure the product developed The company has achieved 2019 enjoys wide-ranging incremental oil production at the Vyngapurovskoye field demand from business High 8 9 during pilot tests, using digital

once it goes into system recommendations reproduction, The system was designed to search for the missed you need a good 138 18 intervals. A machine-learning understanding – right technology 20 PROGRAMMES model is used to process from the very beginning 2015–2019 geological data and identify 92 – as to exactly what p. 110 promising formations that value it is going 2 have not been detected using 015 to bring to the end- is key to solving conventional methods due 2 to their small size or complex SOFTWARE 01 customer or end- 6 structure. user.. For instance, 2

major 01 hydraulic fracturing 7

software designed 7 26 1 2 0 1 0

2

by the company 2 1

8

challenges 5 1 has become one 8 2

1

6

of the most successful

2

0

1

9 and promising projects 3 in the oil industry. New technology will enable the company 0

to manage large oil production projects INTELLECTUAL PATENTS

Alexey Vashkevich effectively and achieve a leading position PROPERTY

9

Director for Technological in strategic areas. 4

Development,

Gazprom Neft PJSC 6

1 0 7

2 4 9 1

0

2

First stage of the Technology Strategy (completed in 2019)

0

3

6

3

billion 14

16

projects

8

6 1 OUTCOMES 3 20 143 ₽25 27 completed PATENTS 7 2015–2019 invested in 2019 201 20

under the 15 2016

5

1 ₽130 110 600 0

Gazprom Neft billion mtoe mtoe 2 Innovative Development total NPV across incremental incremental Programme the portfolio hydrocarbon hydrocarbon production by 2025 reserves by 2025 PATENT APPLICATIONS 336 APPLICATIONS 2015–2019

104 ANNUAL REPORT 2019 04 TECHNOLOGICAL DEVELOPMENT 105 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices INNOVATION MANAGEMENT

Offshore Technology Strategy petrochemical production Gazprom Neft intellectual Gazprom Neft's approach aligns technology development projects processes); property (IP) portfolio with strategic goals. The company develops and deploys technological In 2018, the company approved – Catalyst production technologies, an Offshore Technology Strategy including for catalytic cracking

solutions that address strategic challenges. with the following priority areas: and hydrogenation. 64 89 115 174 175 – Exploration; – Monitoring, prevention and response to accidents in ice Innovative Development conditions; Programme 175 92 98 Focus areas – Logistics in the Arctic; – APG utilisation on the Arctic shelf; The company is undergoing Technological development – Oil recovery factor increase Each priority area is undergoing – Offshore field development; an Innovative Development is a priority of the Gazprom Neft at mature fields; development or realization – Safety of offshore projects; Programme with core focus 150 Strategy 2030. New technology will – Multiphase fields development; projects, which aimed to design, – Digitalisation. on enhanced oil recovery enable the company to manage – Low-permeability reservoirs test or implement necessary at brownfields, hard-to- large-scale oil production projects development; technologies. recover hydrocarbon reserves 125 effectively and achieve a leading – Efficient and safe offshore Downstream R&D Strategy development, continuous position in strategic areas. development in the ice-bound sea; improvement of well productivity, 61 – Efficient refining catalysts Downstream Research and development and production Priority areas of technological and processes. and development is aligned of catalysts for catalytic 100 development are the following: with a long-term R&D strategy. cracking and hydrogenation 49 Technological solutions processes. In 2019, investments 52 30 are developed in partnership under the Programme totalled 75 with Russia's leading research about ₽25 billion, of which R&D costs and educational institutions. constituted almost ₽3 billion. 36 Basic documents Technology implementation enables 18 the company to increase the output 50 47 of high-margin products, depending 26 Upstream Technology Strategy – Development of non-traditional In 2019, Gazprom Neft updated its on technological capabilities 36 12 30 reserves; Technology Strategy and prioritised of individual refineries, while 25 The Upstream Technology – Development of oil rims; flagship technological programmes reducing operating expenses. 16 Strategy covers all focus areas – Electronic Asset Development that will help to achieve the Strategy 14 of the Upstream Division, including: (EAD); 2030 goals. The company has about 30 projects 0 – Exploration and resource expansion – Development of carbonate in its R&D portfolio: 2015 2016 2017 2018 2019 technologies; and fractured reservoirs; – Advanced refining processes Patents – Well drilling and completion – New-generation infrastructure; (high-octane gasoline and needle Computer software technologies; – Capital construction. coke production; tar hydrotreating; Patent applications – Enhanced oil recovery and well stimulation;

billion mtoe mtoe 27 ₽130 110 600 projects completed billion total portfolio mtoe incremental incremental hydrocarbon hydrocarbon production reserves by 2025 by 2025

106 ANNUAL REPORT 2019 04 TECHNOLOGICAL DEVELOPMENT 107 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Innovation infrastructure

Gazprom Neft Science of collaboration between oil and gas in horizontal wells. Field tests licence blocks located in the Khanty- technology extending the service life – Manufacturing execution and Technology Centre and oilfield service companies, are conducted to validate increasingly Mansi Autonomous Okrug, which of road coverings. systems (MES) for dispatching the scientific community, equipment complex drilling and completion are currently owned by the Bazhenov and scheduling; information The Gazprom Neft Science manufacturers, investors technology: longer laterals, more Technology Centre. The R&D Centre has unique management systems and Technology Centre (STC) and the government. Participants use fracking stages per well and higher laboratory facilities enabling full- for laboratories; New enhanced oil recovery provides analytical, methodological this platform to test new technologies fluid injection rates. The main goal p. 61 techniques cycle research not only on bitumen – High-technology solutions, and R&D support for all key and equipment, including horizontal is to reduce the unit drilling cost for the Bazhenov Formation and its derivatives but also on asphalt including process modelling production and engineering functions well drilling at the Bazhenov to enable commercial oil production concrete mixtures. Given its high and optimisation, monitoring of the Upstream Division. Its Formation, multistage fracking, from the Bazhenov Formation. An Integrated Upstream level of expertise, the Centre serves and diagnostic systems, science and engineering expertise enhanced oil recovery Is a commercially viable technology Engineering Centre (a division as an independent laboratory and computer-based simulators. supports upstream investment techniques, software systems, development on the Bazhenov of the Bazhenov Technology Centre) under the Safe and High-Quality and management decisions. Its key logging tools, and equipment Formation by 2025. was opened at the Skolkovo Institute Roads Federal Project in some Corporate Information competencies include: for hydraulic fracturing, oil gathering of Science and Technology in 2019. Russian regions. Technology Technopark – Geological modelling; and treatment. The Bazhenov Technology Centre The new Centre provides R&D – High-tech wells drilling support; has started first exploration well support for the development of non- Industrial Automation The Corporate Information – Science and engineering expertise; The Palyanovsky area within drilling and coring at the Savitsky traditional hydrocarbon reserves, Technopark Technology Technopark – Integrated field development the Krasnoleninskoye field licence block in the Orenburg including the Bazhenov Formation, in St Petersburg is designed planning; in the Khanty-Mansi Autonomous Oblast. The survey is expected Domanic and pre-Jurassic deposits. The Industrial Automation to facilitate direct cooperation – Development and implementation Okrug-Yugra, is the main site to confirm the presence of moveable Technopark was established in Omsk between technology developers of digital solutions; of the Bazhenov Technology hydrocarbons within the intervals The Integrated Engineering as part of the company's import and IT equipment manufacturers – Technology Strategy project Centre. Advantages of the asset of Domanic formations. Commercially Centre specialists have access substitution strategy. It is a platform for the oil and gas industry. Gazprom management; include compact size, availability viable technologies for Domanic to the research and engineering for research and development, pilot Neft provides the participants – Sharing best practices of comprehensive geological oil production could open infrastructure of the Skolkovo testing and design of high-technology of the Technopark with a platform in technology management. data and field infrastructure, the access to a new major source Institute of Science and Technology. solutions for refinery automation. for testing and assessing promising and commercial flow rates of non-traditional hydrocarbons Skolkovo’s resident organisations, It comprises training, testing solutions and innovative technologies. The STC has over 1,000 employees, from the Bazhenov formation. with the estimated resource base of 3 independent business and R&D centres, a data centre, Regular information sessions who work in St Petersburg billion to 6 billion tonnes of oil. and scientific experts, and venture a co-working space (a shared office are held at the Technopark in order and Tyumen offices. Federal Law No. 396-FZ 'On investors can also be engaged space), and a communication centre to present potential customers Amendments to the Law In 2019 the Bazhenov Technology to assist in addressing technological where working meetings and R&D with new IT solutions that proved its Bazhenov Technology Centre of the Russian Federation on Subsoil Centre discovered a new Palaeozoic challenges. conferences are held. effectiveness. as Concerns Improving the Legal oil deposit at the Urmansky field The Bazhenov Technology Centre Regulation of Relations in the Field in the Tomsk Oblast. The discovery Bitumens Research The Technopark focuses House of Innovations is a Gazprom Neft subsidiary of Geological Surveys, Exploration has confirmed the presence of oil and Development Centre on the development of: established in 2018. It provides and Extraction of Non-traditional in deeper Paleozoic horizons and has – Instrumentation and controls, The Gazprom Neft House an open industry-wide platform Minerals' was adopted in 2019. provided access to pre-Jurassic In 2016, Gazprom Neft established such as pressure and temperature of Innovations is a unique cross- The law introduces a new type reserves. the Bitumens Research sensors, analysers, etc.; functional space for projects of subsoil rights, allowing companies and Development Centre, an in-house – Automated process control involving the use of new end-to- to test and validate new technology Other oil and gas companies R&D facility designed to provide systems, including distributed end technologies and data. This rather than conduct exploration are involved in projects run R&D support for its bitumen control systems, accident project brings together leading and production. When the law comes by the Bazhenov Technology Centre. business. The key task of the Centre prevention systems, and software specialists in machine learning, into force, all the relevant regulations For instance, in 2019, Gazprom is to develop bitumen products systems; >1,000 are adopted and the licence Neft and Zarubezhneft signed is renewed, the Palyanovsky area will an agreement on establishing employees work in the become the first technology test site a joint venture for the exploration, Gazprom Neft Science in Russia. development and production of hard- to-recover oil reserves, including and Technology Centre offices The national project on the Bazhenov non-traditional hydrocarbons. in St Petersburg and Tyumen formation proved the viability The joint venture portfolio will include of multistage hydraulic fracturing the Salymsky-3 and Salymsky-5

108 ANNUAL REPORT 2019 04 TECHNOLOGICAL DEVELOPMENT 109 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

digital platforms, the Industrial of new materials, technologies, and on implementing innovative Refining Gazprom Neft’s strategic priority gasoline. The first pilot batch Internet of Things (IIoT), blockchain products and services for the oil solutions for industrial infrastructure is to develop refining processes of premium-grade needle coke was technologies, augmented and virtual and gas industry. construction and management Gazprom Neft has implemented that deliver unmatched efficiency. produced at the Omsk Refinery reality, and other Industry 4.0 of large-scale projects. Its Captain, a digital logistics These include the Aroforming in 2019. The technology used technologies. The fund’s activities will be focused investment focus will also include management system for projects technology that allows low-grade in its production is an R&D result on developing technologies resource- and energy-saving in the Arctic. This system feedstock (straight-run gasoline) patented by the company. This New Industry Ventures Fund for , technologies, and digital products, enables uninterrupted oil processing into high-octane motor product is used to manufacture production, processing, including Industry 4.0 technologies. shipments from Prirazlomnoye gasoline component. The testing ultra-reliable graphitised petroleum In 2019, the company together transportation, distribution and Novoportovskoye fields. was successfully completed in 2019, coke cathodes, which are used with Gazprombank, RVC and VEB and utilisation, as well Gazprom Neft produces aluminium and the company is developing plans in the metals industry. The company Innovations established a joint as energy transmission and storage, oxide catalysts for deep conversion, for this technology commercialising. also develops processes venture fund, New Industry Ventures. and develops efficient catalytic- to convertheavy feedstock, such The fund will invest in companies cracking, hydrotreatment Another priority for the downstream as tar, asphalt or pyrolysis resin, into specialising in the development and hydrocracking catalysts segment is new products high-quality bunker fuel that comply as part of a national project. manufacturing technologies MARPOL 2020 standards, or into A state-of-the art catalyst plant development, such as needle raw materials for hydrocracking is under construction in Omsk. coke and unleaded aviation and catalytic cracking facilities.

Key projects and 2019 highlights IMPORT SUBSTITUTION Upstream deployment will require lower-cost at the Vyngapurovskoye field during chemicals. The company plans new pilot tests, using digital system As part of a national project to develop surfactant-polymer compositions recommendations. The system was One of Gazprom Neft priorities is an example of import substitution the government, domestic technology for the Bazhenov testing at the Kholmogorskoye designed to identify oil-bearing is to increase the share of Russian in practice. During these surveys, technology developer and equipment formation Gazprom Neft confirmed and Sutorminskoye fields intervals. A machine-learning model products in procurement structure. Gazprom Neft has become manufacturer, and a Russian service the viability of multistage fracking in the coming years. is used to process geological data The company implements solutions the first oil company in Russia company. Its outcomes prove in horizontal wells (see above). and identify promising formations available on the market and supports to use the domestically produced that Russian companies are able The company continued to explore Miscible displacement technology, that have not been detected the development of new products standalone “CRAB” seabed station to take on complex technological Domanic deposits in the Orenburg which proved high efficiency using conventional methods due to achieve this goal. Substantial for seismic surveys. Previously, these challenges and produce solutions Oblast (the Domanic project), during laboratory tests, will enable to their small size or complex part of import substitution projects surveys were largely conducted using promptly. The company also develop a technological solution the company to achieve incremental structure. The company will be able are implemented by partnering the foreign equipment. implements a number of other for hydrocarbon prospecting in pre- production at fields with a high gas/ to boost production without extra companies. joint projects to create domestic Jurassic horizons (the Palaeozoic oil ratio. In 2020, the company plans costs on infrastructure by rolling out The seabed stations development technologies for offshore exploration project) and explore the Achimov surface infrastructure construction this technology across its sites. Seismic surveys at the Ayashsky is an example of successful and production. Formation (see the Resource Base to implement this technology licence block in the Sea of Okhotsk partnership between Gazprom Neft, and Production section). at the sites. Gazpromneft-Yamal has tested self-learning software designed In 2018, the company validated Digital tools implementation enhance to predict changes in rock types the effectiveness of chemical Gazprom Neft key competencies in the course of drilling. The system flooding, a technique that could (geological evaluation, drilling, alerts the operator to the possibility extend the life of depleted fields production and construction of exiting the pay zone, which in Western Siberia. The Zapadno- management) through faster enables real-time drilling trajectory Salymskoye field pilot resulted in a 17 and more efficient decision-making. adjustment. percentage point increase in the oil For instance, the company has recovery factor. Commercial-scale achieved incremental oil production

110 ANNUAL REPORT 2019 04 TECHNOLOGICAL DEVELOPMENT 111 ANNUAL REPORT 2019

Governance system

Corporate governance Internal control and risk management Investor and shareholder relations

GAZPROM NEFT STEPS UP EXPLORATION DRIVE, INVESTMENTS

Vadim Zakharov, operator of the filling-and- sealing machine GAZPROM NEFT % Company profile Strategic report 40 18.14 Performance ₽ Technological development of the consolidated net profit was distributed as dividends in Governance system of the consolidated net profit was distributed Sustainable development 2019 Appendices as dividends in 2019 CORPORATE GOVERNANCE

the protection of shareholders’ in Gazprom Neft’s long-term standards in every location The Board of Directors will Corporate rights and interests, business strategy to 2030. in which the company operates. continue its strategic management and maintaining an open dialogue It is of no small importance that of the company in improving with the investment community, The Board of Directors approved Gazprom Neft’s Sustainability the sustainability and increasing governance – together with full transparency various pieces of internal Report was subjected the scale and scope of Gazprom of information – the Gazprom Neft regulation developed in 2019, to its first ever independent Neft’s business throughout 2020. Board of Directors was successful including the company’s external audit in 2019 – with experts best practice in addressing all of these in 2019. audit policy, regulations on insider verifying the document as being Alexey Miller, information, and regulations fully compliant with the Global Chairman of the Board of Directors The Gazprom Neft Board governing the procurement Reporting Initiative’s best practice Gazprom Neft PJSC equals of Directors saw considerable of goods, works and services – all and international standards changes for this reporting year, of which are directed at further in sustainable development. with five new representatives improving the company’s – each having the appropriate management and business Senior management at Gazprom higher qualifications and experience processes, and all of which Neft has been proactive – being elected. Board outline Gazprom Neft’s approach in engaging with shareholders meetings examined more to upholding independence and the investment community than 100 issues of strategic and avoiding conflicts of interest. throughout 2019, discussing income importance to the company, the company’s free cash flow with the resulting decisions having This reporting year saw the Board (FCF) utilisation, sustainable a major impact on the effective of Directors adopt Gazprom development policy, development of Gazprom Neft’s Digital Transformation and increasing dividend payments Neft’s business. The Board Strategy: this document to shareholders during meetings Chairman’s letter of Directors was responsible having been developed in line with representatives from global for overseeing the fulfilment with the company’s Development investment funds. of the company’s investment Strategy to 2030, and being programme, management designed to ensure full support Gazprom Neft made dividend of the company’s debt portfolio, for (and implementation of) payments to shareholders on two plans for international business that strategy. Changes being occasions in 2019, increasing development and the development made within Gazprom Neft the amounts paid on both of the aviation and bitumens as a result of new technologies occasions, with dividends for 2018 sectors, the outcomes (mainly based around “Big Data” representing 38% of consolidated of the first year of the company’s and “digital twins” of company net profit, and dividends Dear shareholders new development strategy, assets) are improving flexibility for the first half of 2019 being 40% and investors, and other issues. and effectiveness in business of consolidated net profit for that The Board of Directors’ management. period. Effective corporate governance assessment of Gazprom is vital to the stable Neft’s activities in 2019, Key priorities for Gazprom This reporting year has made and sustainable development and the company’s business- Neft include safety, care clear the considerable efficiency of any company. And the Board development plans, confirm for the environment, of the company’s governing of Directors is a key element their full compliance and the meticulous management bodies, and their positive in that system. Strategic with the objectives outlined of natural resources – as well impact on the outcomes business management, ensuring as working to improve living of Gazprom Neft’s activities.

114 ANNUAL REPORT 2019 05 GOVERNANCE SYSTEM 115 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Corporate governance practice overview

Code are actually debated – the Secretary of the Board Sustainable development Gazprom Neft’s corporate governance – the Company’s by-laws provide and shareholders, including on in-person meetings; of Directors responsibilities and social responsibility framework encompasses all for a regular review of shareholder the annual Investor Day, – the competency of the Gazprom are aligned with those the key elements of public companies data, the data is updated jointly and participates in investment Neft Board of Directors includes recommended by the Corporate Gazprom Neft PJSC is a socially with established governance with the registrar; and broker conferences. Regular control over material transactions Governance Code for the corporate responsible company that operates structures and is fully aligned – the Company uses a tender site visits to the company’s of major legal entities, controlled secretaries. in full compliance with applicable with the applicable statutory procedure for contracts exceeding upstream and downstream by the company; laws and business ethics standards. requirements and the Listing Rules specific thresholds in line facilities are organized to acquaint – liability insurance of the Board Initiatives to enhance corporate social of the . This helps with the Company’s internal investors and shareholders of Directors members is in place; Information Disclosure responsibility (CSR) and sustainability the Company provide shareholders regulations; with the company’s production – the Company has a practice include: and investors with sufficient – the Board of Directors assets. of settlement of conflicts The Company strives to ensure full – approval and public disclosure confidence about the consistency reviews matters related – the company has adopted of interest between directors transparency for all stakeholders. of internal documents focusing of its strategy and decision making. to the procurement policy the Dividend Policy, that and executive bodies; The Board of Directors approved on CSR; on a regular basis; outlined the main principles, – the Board of Directors the Information Policy Regulation – approval and public disclosure Gazprom Neft’s corporate governance – the Board of Directors criteria for dividend calculation, has the Audit Committee based on recommendations of the revised Corporate Code is underpinned by sustainability has an extended authority as well as the procedure, periods, and the Human Resources of the Corporate Governance of Conduct; and the mission to enhance to make decisions on material and forms of payment; and Compensation Committee Code. The Company’s financial – approval and public disclosure the Company’s shareholder value transactions; – Online Shareholder Account governed by respective and non-financial disclosures cover of the Anti-Fraud and Anti- in the long term. To achieve that, – the list of insider information is available on the registrar’s Regulations; the following matters: Corruption Policy; the Company works to build was defined and the procedure website to provide those – the Gazprom Neft Board – share capital structure; – corporate social responsible, trust-based relations of usingwas determined; listed in the register of Directors has a self- – detailed information projects for employees with its employees, suppliers, – the company has adopted with access to the Company’s assessment/evaluation practice on the members of the Board and local communities, charitable customers, and local communities. the Regulation on the General news, information about dividends in place; of Directors and the Management and sponsorship initiatives; Meeting of Shareholders, and taxes, payment document – the Company has the Management Board; – the Gazprom Neft Group operating Gazprom Neft’s PJSC majority formalizing the process numbers, reasons for refunds, Board, a collegial executive body – remuneration of the Board companies are certified to comply shareholder is PJSC “GAZPROM”, of planning and execution etc.; governed by a relevant Regulation; of Directors and the Management with the requirements of ISO 9001 which owns 95.68% of its capital. of the meetings; – shareholders are entitled to vote – the Board of Directors approved Board; in quality management, and ISO The remaining ordinary shares – shareholders are notified using two electronic systems by-laws on remuneration – key forms of financial 14001:2018 in environmental are held by minority shareholders of General Meetings at least 30 – the Online Shareholder and incentivisation of members statements under IFRS and RAS protection; represented by both individuals days in advance; Account, and the e-voting service of the Company’s executive bodies; and the Management Discussion – formalisation of corporate and legal entities. – the company has a dedicated of the National Settlement – a talent pool was established and Analysis; conflicts settlement standards telephone line (a hotline) Depository (NSD). to provide continuity in the roles – related party transactions. in the Company’s by-laws; and email address for shareholder of the CEO, their deputies, heads – Company’s Sustainability Shareholders protection communications during of directorates, departments, Gazprom Neft’s corporate Report for 2018 was prepared the General Meetings Governance and control bodies divisions, and units; website contains up-to-date and disclosed on the corporate The Gazprom Neft PJSC corporate of Shareholders preparation; – the Board of Directors information about the Company website. The report was governance ensures full protection – the results of the General Meeting Gazprom Neft’s corporate governance approved by-laws setting forth and its performance, and is updated prepared in accordance of shareholders’ rights. The following of Shareholders are announced framework is designed to ensure the key principles, components regularly. with the GRI Standards (basic factors contribute to this: during the meeting; thehighest level of internal and procedures of internal control version), ISO 26000:2010 – the company has no restrictions – materials for the General Meetings and external control. To achieve that: and risk management systems; This Annual Report is fully (Guidance on social responsibility), on acquisition and sale of shares, of Shareholders are posted – the Regulation on the Board – the Company has dedicated complied with all the Corporate and the Basic Performance and no restrictions on the number on the company website; of Directors was approved; structural unit responsible Governance Code recommendations. Indicators of the Russian Union of shares owned by a single – internal regulation secures – members of the Board of Directors for the key risk management roles; The Company’s previous reports of Industrialists and Entrepreneurs shareholder; the shareholders right have all the key skills required – the Board of Directors annually were multiple award winners both (RUIE). Sustainability Report – the company’s Charter provides to question the members for their role; reviews the efficiency of internal- in Russia and globally. passed independent audit shareholders with an extended of governance and control bodies – an induction programme for newly control and risk-management by PricewaterhouseCoopers Audit. period (compared to уestablished during the General Meeting assigned directors is in place; systems; The Company has business units by law) to submit proposals of Shareholders, and establish – majority of the questions that – responsibilities of the Internal responsible for shareholder on agenda of the Annual General the procedure to answer that; requires in-person meetings Audit Department are aligned and investor relations Meeting of Shareholders; – Gazprom Neft PJSC holds under the Corporate Governance with best practices in corporate with their managers contacts regular meetings with investors governance; are available on the website.

116 ANNUAL REPORT 2019 05 GOVERNANCE SYSTEM 117 GAZPROM NEFT % Report on compliance The Gazprom Neft Company profile p. 315 p. 303 Strategic report with the Corporate >77 Group structure. Performance Governance Code Technological development share of fully Governance system Sustainable development compliant principles Appendices and recommendations Role of the Corporate Centre in improving the management

Compliance with the Corporate Governance Code1 of subsidiaries

Source: company data Gazprom Neft PJSC is the group of Directors in most subsidiaries. This of the parent company representative PRINCIPLES corporate centre that ensures aimed to improve the performance in the General Meetings of Participants Principles effective control over all processes. of subsidiaries’ governance bodies (Shareholders) of subsidiaries, SECTION and recommendations Full compliance Partial compliance Non-compliance As of 31 December 2019, Gazprom including: introduction of voting system Neft structure comprised 141 – reducing bureaucracy; and preliminary materials approval Shareholder rights and equitable treatment 13 11 2 0 of shareholders Russian and foreign legal entities. – reduced decision-making time; at the level of the Gazprom Neft core – empowering the role business units, in line with a decision- Board of Directors, competencies, 36 24 8 4 Gazprom Neft PJSC is the parent and responsibility of Gazprom making matrix, and through the regular Committees, independence company with regards to the Gazprom Neft Deputy CEOs throughout audit of corporate governance Corporate secretary 2 2 0 0 Neft Group entities, regardless of its the entire chain of subsidiaries of subsidiaries. Remuneration of directors, members share in subsidiary’s capital. This under their control; 10 9 0 1 of executive bodies and other key officers is duly documented in their respective – empowering Transition to the two-link corporate charters. the role and responsibility governance system will distribute Risk management and internal controls 6 6 0 0 of the subsidiaries’ CEO. the issues previously considered Disclosures and the Company's information In 2019, the Management Board by the Board of Directors policy 7 6 1 0 of Gazprom Neft PJSC has agreed Under the two-link governance system in subsidiaries, between the General Material corporate actions 5 3 1 1 the transition to two-link corporate Gazprom Neft controls subsidiaries Meeting of Participants (shareholders) TOTAL 79 61 12 6 governance system through performance through the participation and the CEO, strengthening the abolishment of the Boards the performance of the subsidiaries’

Subsidiaries decision-making matrix 2019 Information disclosure by type The Gazprom Neft Board of Directors makes decisions on the following issues related to the subsidiaries activities: Information type Amount – Increase or reduction of the authorised capital; – property contributions; Bonds issuance 13 – acquisition, disposal, encumbrance of shares/interest in other entities; The agenda and decisions of the governance bodies 102 – property contributions to other entities; – stock issuance and distribution; Various reports disclosure (quarterly reports, lists of affiliates, Annual reports, consolidated financial statements, 16 – reorganisation or liquidation. annual financial statements) The Gazprom Neft Management Board addresses strategic development of subsidiaries, and provides preliminary approval On transactions of the issuer and its related parties 23 on acquisition/ disposal of shares/ interest transactions in other entities. On receipt, renewal and withdrawal of the licences of material importance for the Company 9 General Meeting of Shareholders (Participants) of subsidiaries On income accrued and paid 34 The legally prescribed sole responsibility of the General Meeting of Shareholders (Participants) of a subsidiary includes key business decisions, transactions on loans and borrowings provision/receipt, property sale/other alienation or encumbrance, acquisition/ Other material facts 22 disposal of shares in capital, stocks, bonds, promissory notes, shares/stocks encumbrance, free-of-charge property alienation TOTAL 219 valued above ₽1 million, conclusion of corporate agreements or other joint operating agreements, acquisition/disposal of interest in other entities, preliminary decisions on questions within the competency of the General Meetings of legal entities under control. The responsibility of a Chief Executive Officer of a subsidiary includes taking decisions on the following operating activities: – immovable property lease; – conclusion of settlement agreements (regardless of the amount); – other transactions outside the sole responsibility of the General Meeting of Shareholders (Participants).

/ 1 / Statistics is based on the report on Compliance with the Corporate Governance Code, recommended by the Central Bank of Russian Federation, Informational Letter dated 17 February 2016, № IN-06-52/8

118 ANNUAL REPORT 2019 05 GOVERNANCE SYSTEM 119 GAZPROM NEFT

Transition to a two-link Company profile p. 119 Strategic report corporate governance system Performance Technological development Governance system Sustainable development Appendices

governance bodies, while retaining Executive bodies of the Gazprom Neft in using refinery feedstock to produce (SPD, registered in the Netherlands) to improve the governance the management and control functions Group’s entities (including the CEO) high value-added products. to the newly created Russia-based efficiency; at Gazprom Neft PJSC, as well are appointed to their position subject Strengthening the Gazprom Neft subsidiary, GPN-Salymskiye Proekty – the revised version of the Insider as collegial nature of decision-making. to approval by the Corporate Centre, and SIBUR technological partnership LLC. SPD is developing the Salym Information Regulation was The Board of Directors was retained regardless of the level of corporate will provide competitive advantages group of fields in the Khanty- approved, determining in those subsidiaries and joint ventures ownership and authorised capital on the Russian and international Mansi Autonomous Okrug (Khanty- the restrictive periods of Gazprom Neft PJSC (hereinafter – structure of a subsidiary. markets. Mansi Autonomous Okrug-Yugra). on transactions with the company JV), where its existence and functioning The Salym project is the largest shares for insiders; are required by national legislation October 2019 onshore investment project – the Board of Directors approved or existing agreements between Key changes to the Gazprom Neft with foreign capital in the Russian the Regulation on Procurement partners on JV governance bodies corporate structure Gazprom Neft has registered a new oil industry. The company’s of Goods, Works and Services design and functions. operating company, Gazpromneft cumulative production since the start to regulate the procurement July 2019 Marine Lubricants, with an office of the Salym group development has activities of Gazprom Neft One of the means used to ensure in Singapore. The new business will exceeded 83 mt of oil. PJSC and its subsidiaries. effective corporate governance Gazprom Neft PJSC and SIBUR manage the effective development The Regulation establishes and monitoring of subsidiary operations Holding PJSC have consolidated 100 of an international sales and logistics December 2019 the single centre of responsibility is the review of subsidiaries’ key % of the charter capital in Poliom LLC network for Gazprom Neft marine for the procurement control, operational matters by the Gazprom polypropylene plant in Omsk. lubricants, including, specifically, Gazprom Neft PJSC and Nexign JSC approves the annual procurement Neft PJSC governance bodies. in the Southeast Asian and European have established a joint venture plan for the Gazprom Neft Launched in 2012, Poliom is one markets. The company’s products, GX Tech LLC, with the Gazprom Group, applies the procedure The Company has developed of Russia’s largest polypropylene endorsed by leading marine Neft Group interest totaled 50%. for determination and justification and approved procedures that allow producers. In 2014, Poliom became equipment producers, are already The main activity of this JV is develop of the initial (maximum) for coordinating and monitoring the basis for a joint venture between available in more than 250 ports and implementation of domestic contract price, and enables the subsidiaries’ operations Gazprom Neft (25%), SIBUR (25%) worldwide. software for oil and gas industry. the procurement in line under the guidance of the Corporate and the Titan Group (50%). The plant with a closed list of procurement Centre as part of the Company’s has capacity to produce 218,000 The marine lubricants and oils range, As part of the sales assets methods used by Gazprom PJSC; Development Strategy. tonnes of high-technology product available under the Gazpromneft optimization project, Universal-Neft – the External Audit Policy every year, with a range covering 100 and Gazpromneft Ocean brands, JSC was merged into GazpromNeft- of Gazprom Neft PJSC Participation of any entity brands of polypropylene. The key includes 43 branded high- Terminal JSC in December 2019, and its subsidiaries was of the Gazprom Neft Group in another feedstock for production — propane- tech products for all kinds completing its reorganisation. approved. The Policy sets out entity, whether commercial or non- propylene fraction — is sourced of marine equipment, with the range the main principles of organisation commercial, is only approved via from the Gazprom Neft Omsk Refinery, including, specifically, 15 kinds and conducting the external collective decision-making by a group with SIBUR managing the distribution of Gazpromneft Ocean engine Commitment to better corporate audit of Gazprom Neft PJSC of duly authorised persons. Matters of end-products throughout Russia lubricants for two- and four- governance and its subsidiaries, the procedure pertaining to subsidiaries’ strategic and the CIS. stroke engines, the formulations and criteria for selecting development are submitted of which have been developed The Company closely monitors auditors, and approaches for preliminary approval to Gazprom Poliom LLC deploys best-practice in line with international shipping corporate laws and best practices to ensure that the auditors Neft’s Management Board. R&D solutions and technologies requirements and the provisions both in Russia and globally in attempt comply with the principles to ensure waste-free production. of the MARPOL-2020 convention1. to improve its corporate governance of independence and absence The joint ventures in which Increasing the interest in Poliom framework. of conflicts of interest. the Gazprom Neft Group’s entities marks an important milestone November 2019 hold a stake have a formalised in Gazprom Neft’s long-term In 2019, the steps taken to enhance / 1 / The International Convention and approved governance structure. strategy implementation, a key Within a framework of the Gazprom corporate governance were for the Prevention of Pollution from Ships In order to manage these ventures element of which involves developing Neft Group internal restructuring as follows: (MARPOL), adopted in 1973. New IMO efficiently, the Company established petrochemical production. and in order to optimise the corporate – the transition to the two-link 2020 emissions standards took effect the role of an asset supervisor Integrating the assets in the refining governance of its assets, the Group subsidiaries governance system from 1 January 2020, including stricter who is responsible for coordinating and petrochemical sectors enables has transferred the ownership was completed, which aims requirements for sulphur content the management efforts. the company to improve efficiency of Salym Petroleum Development N.V. in marine fuels

120 ANNUAL REPORT 2019 05 GOVERNANCE SYSTEM 121 GAZPROM NEFT

Company profile KEY INFORMATION CHANNELS Strategic report available to a wide range Performance of stakeholders Technological development Governance system The company’s official IR section Sustainable development website of the website Appendices

Initiatives on corporate A highly professional management GAZPROM NEFT PJSC GOVERNANCE AND CONTROL BODIES Focus on the protection team and an effective system of shareholder rights governance practices of corporate governance and control includes efforts to: development are a prerequisite for the successful Management The Internal Audit • improve disclosure Following the general update management of a complex multi- Board Department transparency; of Strategy 2030, corporate tiered vertically integrated oil company • update the shareholder As part of the Internal Audit and Risk register and upgrade the Online governance is also undergoing with domestic and foreign upstream Manage the company’s Chief Executive Management Directorate, the Internal Shareholder Account including transformation. In 2018 the company and downstream assets. The Company ongoing operations, Audit Department is responsible provision of additional started automating corporate currently has a well-defined accountable to the General Officer for offering the Board of Directors Executive opportunities on sale of shares procedures including organisation organisational structure encouraging Meeting of Shareholders (through the Audit Committee) for registered shareholders. and the Board of Directors. bodies and the Company’s management (the of the governance bodies routine, seamless interaction between CEO and the Management Board) information disclosure, transactions its governance bodies and clear Focus on greater efficiency independent, unbiased, reasonable approval, and control of subsidiaries distribution of governance and control and substantiated guarantees of the Company’s and joint ventures. In 2019, definition roles to guarantee progressive growth and consultations aiming to improve governance bodies Audit and selection stages were completed. of the shareholder value in the long the Company’s performance includes efforts to: Committee and achieve the Company’s term. goals by advocating a systematic • improve operating procedures; The solutions are expected and consistent approach to assessing • automate of the processes to enable automotive processes Accountability and financial Board and enhancing the efficiency control. control of Gazprom Neft PJSC transparency (with adjustments Exercises control of corporate governance, risk of Directors over the financial and business and its subsidiaries, by establishing made for the Company’s concerns management and internal control Focus on information Responsible for the general management operations of the Company. processes. the control over the group about the protection of trade secrets disclosures includes efforts of the Company and determining its strategy, of companies and embedding and other confidential data) play policies and core operating principles. It to: the corporate procedures. This a pivotal role in Gazprom Neft’s is accountable to the General Meeting • automate information transfer of Shareholders and must act in the best will be attained through the automation corporate governance system. interests of the Company and all and approval from the source of the documents preparation shareholders of the event to its final disclosure Annual on the securities market. and verification, acceleration The Company’s website offers of the required information receipt, access to the latest news, financial General Meeting of Shareholders Focus on corporate and by reduction of the risk and operating results, reports governance improvements of corporate control loss. and other useful information, while The supreme governance body responsible and adoption of best also making available the documents Secretary of the Board for the most significant aspects of the company’s activities practices includes efforts on Gazprom Neft’s governance of Directors to: and control bodies, including the Charter, Regulation on the General • improve the governance system Corporate of subsidiaries; Meeting of Shareholders, Regulation The Human Resources • update by-laws and procedures, governance system on the Board of Directors, Regulation Appointed by the Board of Directors. Ensures and Compensation regulating corporate-governance on the Management Board, Committee issues within the group; effective communication External auditor The key targets, goals and principles Regulation on the Chief Executive with shareholders, • organise internal control A professional audit organisation underpinning Gazprom Neft’s Officer, and Regulation on the Audit makes necessary to prevent, detect, and suppress approved by the General arrangements to protect Evaluates the effectiveness misuse of insider information. corporate governance framework Committee. Meeting of Shareholders upon their rights and interests, of HR management include preserving and growing Audit Committee the recommendation of the Board and provides policy and remuneration of Directors issued following the Company’s asset base, increasing To ensure equitable access operating support system, determines An elected body, overseeing the assessment by the Audit its market value, maintaining to information for all stakeholders, to efficiency of the Board the criteria for selecting nominees the company’s financial Committee. External auditor financial stability and profitability the materials at Gazprom Neft’s official of Directors. to the Board of Directors, and economic activities. conducts an independent review and assesses the Board of the Company, and respecting website are available in both Russian of the Company’s financial of Directors performance. the rights and interests of its and English. and business operations. shareholders, investors and other stakeholders. Election, setup Administrative reporting Appointmentby resolution of the Board Reporting Functional reporting of Directors

122 ANNUAL REPORT 2019 05 GOVERNANCE SYSTEM 123 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

General Meeting of Shareholders management and internal control of responsibilities in the Board All directors have a balanced set initiatives. Also, the Board manages of Directors and its committees. of skills and experience required The General Meeting of Shareholders is the supreme governance body, responsible for the most significant aspects key risks related to the Company’s for their roles. The directors possess of the company’s activities. strategic objectives. The scope of authority skills in strategic management, of the Board of Directors, corporate governance, corporate The Board of Directors its operating arrangements finance, risk management, General Meetings of Shareholders Gazprom Neft PJSC held in 2019 is also responsible for improving and the existing corporate accounting, and other areas specific the Company’s corporate governance procedures make it possible to adopt to the Company’s operations. Extraordinary General system and practices, assessing a substantial part of resolutions Meeting of Shareholders The number of members of the Gazprom Neft PJSC Board of Directors was determined (11 members). the corporate governance framework, by a simple majority vote. That said, The current composition of the Board 19 April 2019 and reviewing reports on progress the Chairman must take into account of Directors ensures sufficient The company’s Annual Report and accounting statements for 2018 were approved. against the corporate governance the opinion of each director and seek independence from the Company’s Gazprom Neft shareholders supported the recommendation of the Board of Directors to pay dividends improvement programme to ensure a consensus on key items. management and enables effective Annual General Meeting in the total amount of ₽142.2 billion (₽30 rubles per ordinary share, 38% of the company’s IFRS on a regular basis. control over the performance of Shareholders consolidated net profit for 2018). In 2019, the Board of Directors of the Management Board. 14 June 2019 Financial and Accounting Consultants (FBK) LLC was appointed as Gazprom Neft’s auditor for 2019. Given the strategic importance was chaired by Alexey Miller who New members of the Board of Directors and the Audit Committee were elected. of its objectives, it is crucial did not sit on any of the Board’s Remuneration of the Board of Directors and the Audit Committee was approved. for the Board of Directors to have committees. Even though at that time Extraordinary General trust of the Company’s shareholders Alexey Miller served as a director Meeting of Shareholders The number of members of the Gazprom Neft PJSC Board of Directors was determined (13 members). and make sure that all of its tasks in some other companies and fulfilled 1 August 2019 are fulfilled in the most efficient way the responsibilities of the Management Extraordinary General The powers of the members of the Gazprom Neft PJSC Board of Directors were terminated possible. Committee Chairman at Gazprom, Meeting of Shareholders prematurely. The Board of Directors was elected based on the membership of 13 persons. the Company believes that 2 September 2019 The main functions of the Chairman these roles did not prevent Extraordinary General The resolution to pay interim dividends for the six months of 2019, in the total amount of ₽86.01 billion of the Board of Directors are set him from effectively chairing Meeting of Shareholders (₽18.14 per ordinary share), which accounts for 40% of the company’s IFRS consolidated net profit forth in the Charter, the Regulation the Board of Directors of Gazprom 30 September 2019 for the six months of 2019. on the Board of Directors, Neft. and the Corporate Governance Code. Those include: – providing organizational support Composition of the Board to the Board of Directors activities, of Directors including setting up the work plans; Based on the decision Board of Directors – promoting an open discussion of the Extraordinary General of the agenda items and ensuring Meeting of Shareholders held thoughtful consideration on 1 August 2019, the Board The Board of Directors is responsible differentiated from the remit is to set up strong executive of all opinions expressed of Directors comprises 13 members. for the Company’s strategic of the Company’s executive bodies bodies and exercise oversight by the directors; With 95.68% of the Company’s management, determining priority responsible for managing its ongoing over their performance. On top – identifying key matters to be ordinary shares held by Gazprom development areas, defining operations. of that, the Board regularly reviews reviewed by the Board of Directors PJSC, the overwhelming majority key principles and approaches reports on the implementation and choosing the right meeting of Gazprom Neft’s directors of risk management and internal The election of executive of the Company’s strategy format for the discussion; are elected upon the recommendation controls, exercising control bodies, termination and business plans. – representing of Gazprom PJSC, the Company’s over the Company’s executive bodies, of their powers and control the Board of Directors in relations controlling shareholder. As at the end / 1 / The independence criteria used and performing other functions. over the incentive system are all The Board of Directors approves with shareholders, management of the reporting year, the Gazprom by Gazprom Neft are based The scope of authority of the Board reserved to the Board of Directors. the Internal Control and Risk and other stakeholders; Neft Board of Directors did on recommendations of the Corporate of Directors is set out in Gazprom One of the key responsibilities Management Policy and ensures – preparing proposals not include independent directors.1 Governance Code of the Central Bank Neft’s Charter and is clearly of the Board of Directors implementation of the risk for the distribution of the Russian Federation (Bank of Russia)

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Gazprom Neft has a transparent – uses cumulative All members of the company Board The number of directors is aligned to get a clear idea of their personal Age of the Board of Directors procedure for the board members voting and provides of Directors have high professional with the company’s current goals and professional skills. Immediately members, % election, specifically: comprehensive explanation reputation and extensive experience and objectives, and industry after drafting the minutes – provides shareholders with two about the associated voting in the company. They perform practices. It also ensures the required of the relevant meeting, information 8 months to propose nominees procedure to the shareholders; the duties in close collaboration balance of competencies in the Board on nominees to the Board of Directors 23 to the Board of Directors – provides quorum details with the company management, of Directors. is communicated to stakeholders 31 (applicable law only provides and the number of votes cast business units, registrar and auditor. by issuing a corporate action for a one-month nomination for each option when announce Simultaneous participation notice. Afterwards, full information 13 period); the voting results; The Board of Directors is balanced of the members of the Board is published on the corporate members – discloses information – publishes resolutions by age; 85% of directors are aged of Directors in other companies’ website in Russian and English 30 about the current composition of the General Meetings between 40 and 60. boards of directors did not affect days prior to the General Meeting of the Board of Directors, and its of Shareholders on its corporate their performance in respect of Shareholders which will vote 38 nominees in due time; website. of Gazprom Neft’s Board of Directors. on the nominees. Younger than 45 Aged between 56 and 65 Directors are elected in a manner Aged between 46 and 55 Aged 66 and older providing shareholders with sufficient information on candidates Key competencies of the Gazprom Neft Board of Directors

KEY COMPETENCIES Composition of the Board Composition of the Board of Directors in 2019 MEMBER OF legal issues of Directors by age THE BOARD OF PERIOD OF SERVING ON THE BOARD OF finance and corporate risk PR Members of the Board Members of the Board Members of the Board DIRECTORS DIRECTORS strategy and audit oil and gas governance management and GR of Directors from 01/01/2019 of Directors from 14/06/2019 of Directors from 02/09/2019 Full name Age through 13/06/2019 through 01/09/2019 through 31/12/2019 Alexey Miller 14 years (starting from October 2005) + + + + Alexey Miller 57 INDEPENDENT DIRECTORS Sergey Kuznets four months (starting from September 2019) + + Sergey Kuznets 49 Valery Serdyukov Valery Serdyukov1 – Famil Sadygov four months (starting from September 2019) + + Famil Sadygov 51 Sergey Fursenko – – Vitaly Markelov four months (starting from September 2019) + + + Vitaly Markelov 57 NON-EXECUTIVE DIRECTORS Sergey four months (starting from September 2019) + + + Sergey Menshikov 51 Alexey Miller Alexey Miller Alexey Miller Menshikov Alexander Valery Golubev – Vitaly Markelov Alexander 64 six months (starting from June 2019) + + + + Medvedev Medvedev Andrey Kruglov Andrey Kruglov Famil Sadygov Kirill Seleznev 45 Kirill Seleznev 14 years (starting from October 2005) + + + Igor Fedorov Igor Fedorov Sergey Kuznets Elena Mikhailova 42 Elena Mikhailova seven years (starting from June 2012) + + + Kirill Seleznev Kirill Seleznev Kirill Seleznev Alexander Dyukov 52 Alexander Vladimir Alisov Vladimir Alisov Vladimir Alisov 12 years (starting from November 2007) + + + + Dyukov Vladimir Alisov 59 Vsevolod Cherepanov – Sergey Menshikov Vladimir Alisov 10 years (starting from June 2009) + Mikhail Sereda 49 Mikhail Sereda Mikhail Sereda Mikhail Sereda Mikhail Sereda six years (starting from December 2013) + + Valery Serdyukov 74 Elena Mikhailova Elena Mikhailova Elena Mikhailova Valery Andrey Dmitriev 45 seven years (starting from December 2012) + + Andrey Dmitriev Andrey Dmitriev Andrey Dmitriev Serdyukov – Alexander Medvedev Alexander Medvedev Andrey Dmitriev one year (starting from June 2018) + + / 1 / Lost the status of independent director starting from December 2019, based – – Valery Serdyukov Valery Golubev 12 years (from June 2007 through June 2019) + + + on seven years membership. EXECUTIVE DIRECTOR 14 years (from October 2005 through Andrey Kruglov + + + + Alexander Dyukov Alexander Dyukov Alexander Dyukov September 2019) six years (from February 2015 through June Sergey Fursenko + 2019) 15 months (from June 2018 through Igor Fedorov + + + September 2019) Vsevolod eight years (from June 2011 through June + + Cherepanov 2019)

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Members of the Board of Directors as at 31 December 2019

ALEXEY VLADIMIR ANDREY MILLER ALISOV DMITRIEV Chairman of the Board of Directors member of the Human member of the Audit Resources and Compensation Committee Committee

Interest Interest in the authorised in the authorised capital capital (as at 31 December 2019) (as at 31 December 2019) Interest in the authorised capital None None (as at 31 December 2019) None

BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS

Born in 1962. Born in 1960. Graduated from the Volga State Academy of Water Transport Graduated from the N.A. Voznesensky Leningrad Financial and Economic Institute. Graduated from the Law Faculty of the Leningrad State University and Stockholm School of Economics (ЕМВА). From 2001, Chairman of the Management Board, Gazprom PJSC. named after A. Zhdanov. 2016–2019 – First Deputy Head of Department, Gazprom PJSC. From 2002, Deputy Chairman of the Board of Directors, Gazprom PJSC. From 2008 – First Deputy Head of Department, Gazprom PJSC.Member From 2019 – Chief Executive Officer, Gazprom Gas-Engine Fuel LLC. A PhD in Economics. of the Association of Lawyers of Russia, member of the Professional Board for Corporate Governance under FFMS of Russia. POSITIONS HELD IN OTHER ORGANISATIONS POSITIONS HELD IN OTHER ORGANISATIONS In 2010, under a decree of the President of the Russian Federation, he was awarded an honorary title of the Honoured Lawyer From 2017 – Chairman of the Board of Directors of Himsorbent CJSC; From 2003 – Chairman of the Board of Directors of Bank GPB (JSC); of the Russian Federation. from 2018 – member of the Board of Directors of OGK-2 JSC; from 2003 – Chairman of the Board of Directors of SOGAZ JSC; from 2018 – member of the Board of Directors of PJSC TGC-1; from 2007 – Chairman of the Board of Directors of Gazprom-Media Holding JSC; POSITIONS HELD IN OTHER ORGANISATIONS from 2018 – member of the Board of Directors of JSC Metaclay; from 2010 – Chairman of the Supervisory Board of Gazprom Neft International S.A.; from 2019 – member of the Board of Directors of Mosenergo; from 2012 – Chairman of the Board of Directors of Rosippodromy JSC; From 2007 – member of the Board of Directors of Daltransgaz JSC; from 2019 – member of the Board of Directors of МIРС JSC. from 2012 – member of the Board of Trustees of the Graduate School of Management, St Petersburg University; from 2016 – member of the Board of Directors of DRAGA JSC; from 2012 – member of the Board of Trustees of the All-Russian Non-Governmental Organisation «Russian Geographical Society»; from 2018 – member of the Supervisory Board of the Belarusian from 2012 – member of Board of Trustees of the Charitable Fund for the Restoration of the New Jerusalem Resurrection Stavropegial Monastery and Russian of the Russian Orthodox Church; from 2012 – member of the Board of Trustees of the All-Russian Non-Governmental Organisation «Association of Lawyers of Russia”; from 2012 – member of the Management Board of the All-Russian Association of Employers «Russian Union of Industrialists and Entrepreneurs»; from 2012 – member of the Management Board of the All-Russian Non-Governmental Organisation «Russian Union of Industrialists and Entrepreneurs»; from 2012 – First Deputy Chairman of the Board of Trustees of the Russian Cycling Federation; from 2013 – member of the Supervisory Board of the Global Energy Association; from 2013 – President – Chairman of the Management Board of the Equipment Manufacturers Association «New Technologies of the Gas Industry»; from 2013 – member of the Board of Trustees of the Federal State Budget Educational Institution of Higher Professional Education «Lomonosov Moscow State University»; from 2013 – member of the Board of Trustees of the Moscow City Church Construction Support Foundation; from 2014 – Chairman of the Board of Trustees of the Federal State Budget Educational Institution of Higher Education St Petersburg State Economic University; from 2015 – member of the Board of Trustees of the Russian Academy of Education; from 2016 – President, Chairman of the Presidium of the International Business Congress (IBC) e. V; from 2017 – member of the Board of Trustees of the Federal State Autonomous Educational Institution of Higher Education “National Research University – Higher School of Economics”; from 2017 – member of the Board of Trustees of the «Doctors, Innovations, Science for Children» Foundation for Support and Development in Children’s Haematology, Oncology, and Immunology; from 2018 – member of the Board of Trustees of the Fund for the Conservation and Development of the Solovetsky Archipelago; from 2018 – member of the Presidential Council of the Russian Federation for the Development of Physical Culture and Sport; from 2018 – member of the Board of Directors of joint stock company the non-government Pension Fund Gazfond; from 2019 – member of the Board of Trustees of the Foundation for Support of Scientific and Project Activities of Students, Postgraduate Students and Young Scientists “National Intellectual Development”; from 2019 – Chairman of the Board of Trustees of the Alexandrinsky Theatre.

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Members of the Board of Directors as at 31 December 2019 (continued)

ALEXANDER SERGEY ALEXANDER ELENA KUZNETS MEDVEDEV MIKHAILOVA DYUKOV Chairman member of the Audit of the Human Resources Committee and Compensation Interest in the authorised capital Interest in the authorised Committee (as at 31 December 2019) Interest in the authorised capital capital (as at 31 December 2019) Interest in the authorised 0.00105456 % (as at 31 December 2019) capital (50,000 shares) 0.005357244 % (254,003 (as at 31 December 2019) None shares.) None

BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS

Born in 1967. Born in 1970. Born in 1955. Graduated from the Order of Lenin Leningrad Shipbuilding Institute. Graduated from Lomonosov Moscow State University. Graduated from the Moscow Institute of Physics and Technology. Born in 1977. In 2001, Mr. Dyukov received the IMISP MBA degree. 2006–2019 – Deputy Head of Department, Gazprom PJSC. 2013–2019 – Deputy Chairman of the Management Board, member Graduated from the Moscow State Industrial University, majoring From 2006 – President, from December 2007 – Chairman of the Management From 2019 – member of the Management Board, Head of the Management Board of Gazprom PJSC. in jurisprudence, received an MBA from the Academy of National Board, Chief Executive Officer, Gazprom Neft PJSC. of Department, Gazprom PJSC. From 2019 – member of the Board of Directors, Chairman of the Board Economy under the Government of the Russian Federation. of Directors of FC Zenit JSC. From 2011 – Head of Department, Gazprom PJSC. A PhD in Economics. From 2012 – Member of the Management Board, Gazprom PJSC. POSITIONS HELD IN OTHER ORGANISATIONS POSITIONS HELD IN OTHER ORGANISATIONS 2003–2019 – Deputy CEO for Corporate and Property Relations, POSITIONS HELD IN OTHER ORGANISATIONS Gazprom Mezhregiongaz LLC. From 2005 – member of the Board of Directors, Chairman of the Board of Directors, From 2018 – Director for Legal Affairs, GAZPROM Germania GmbH; Deputy Chairman of the Board of Directors of «SIBUR Holding» PJSC; from 2018 – member of the Board of Directors of Shtokman From 2013 – member of the Management Board, member of the Board from 2007 – member of the Supervisory Board of the Union of Oil and Gas Industry Development AG; of Directors, Panrusgaz Zrt.; Organisations «Russian Gas Society»; from 2019 – member of the Supervisory Board, JSC EuRoPol GAZ from 2013 – Chairman of the Board of Directors, Prometheus Gas S.A.; POSITIONS HELD IN OTHER ORGANISATIONS from 2008 – member of the Board of Trustees of the Federal State Budget Transit Gas Pipeline System; from 2013 – Chairman of the Board of Directors, Overgaz Inc. AD; Educational Institution of Higher Education «St Petersburg Mining University»; from 2019 – member of the Board of Directors of joint stock company from 2013 – Chairman of the Board of Directors of OJSC From 2012 – member of the Board of Directors, Chairman from 2010 – member of the Board of Directors of SKA Ice Hockey Club CJSC; the non-government Pension Fund Gazfond; Severneftegazprom; of the Board of Directors of Mosenergo; from 2010 – member of the Board of Trustees of the All-Russian Non-Governmental from 2019 – member of the Supervisory Board of Moldovagaz JSC; from 2013 – Chairman of the Board of Directors of KazRosGas LLP; from 2012 – member of the Board of Directors Organisation «Russian Geographical Society»; from 2019 – member of the Board of Directors of Gazprom-Media from 2013 – Chairman of the Supervisory Board of SGT EuRoPol GAZ of Severneftegazprom OJSC; from 2012 – member of the Board of Directors of Hockey City LLC; Holding JSC; s.a.; from 2012 – member of the Board of Directors of Leader CJSC; from 2013 – member of the Management Board, member of the Bureau from 2019 – member of the Supervisory Board of Gazprom Holding from 2013 – Chairman of the Supervisory Board of Yugorosgaz AD; from 2012 – member of the Board of Directors of Gazprom Gas- of the Management Board, Chairman of the Committee on Industrial Security, Coöperatie U. A.; from 2013 – Chairman of the Board of Directors, Deputy Chairman Engine Fuel LLC; Co-Chairman of the Commission on Oil and Gas Industry of the All-Russian Non- from 2019 – member of the Board of Directors of South Stream of the Board of Directors, member of the Board of Directors, SKA Ice from 2013 – member of the Board of Latvijas Gāze JSC; Governmental Organisation «Russian Union of Industrialists and Entrepreneurs»; Transport B.V.; V.; Hockey Club LLC; from 2017 – member of the Supervisory Board of the Autonomous from 2014 – member of the Presidium of the Football Federation of St Petersburg; from 2019 – member of the Board of Directors of Lazurnaya LLC; from 2013 – member of the Supervisory Board of Gazprom EP Non-Profit Organisation «VC Zenit St Petersburg»; from 2014 – member of the Executive Committee, Chairman of the Committee from 2019 – member of the Board of Latvijas Gāze JSC; International B.V.; V.; from 2018 – member of the Board of Directors of FC Zenit JSC; of Football Development Programmes of the Football Union of Russia; from 2019 – member of the Board of Directors of REP Holding JSC; from 2013 – Chairman of the Supervisory Board, Deputy Chairman from 2018 – member of the Board of Directors of joint stock from 2014 – member of the Board of Trustees of the Chess Federation of Russia; from 2019 – member of the Supervisory Board of Gazprom Transgaz of the Supervisory Board, Erdgasspeicher Peissen GmbH; company the non-government Pension Fund Gazfond; from 2015 – member of the Board of Trustees of the Foundation for Support Belarus OJSC; from 2013 – member of the Management Board, Chairman from 2019 – member of the Board of Directors, Chairperson of Scientific and Project Activities of Students, Postgraduate Students and Young of the Management Board, Chairman of the General Assembly, of the Board of Directors of Lazurnaya LLC; Scientists “National Intellectual Development”; Association «JHL»; from 2019 – member of the Board of Directors of Vostokgazprom from 2015 – member of the Board of Trustees of the Federal State Budgetary from 2013 – Chairman of the Board of Directors, Hockey City LLC; OJSC; Educational Institution of Higher Education «Gubkin Russian State University of Oil from 2013 – member of the Supervisory Board, Moravia Gas Storage from 2019 – member of the Board of Directors of Tomskgazprom and Gas (National Research University)»; a.s.; JSC; from 2018 – member of the Board of Trustees of the Lomonosov Moscow State from 2014 – Chairman of the Supervisory Board, member from 2019 – member of the Board of Directors of Gazprom LNG University High School (a boarding school); of the Supervisory Board, GAZPROM Austria GmbH; Technologies LLC. from 2019 – President of the Football Union of Russia; from 2015 – member of the Advisory Board, WIGA Transport from 2019 – member of the Presidential Council of the Russian Federation Beteiligungs-GmbH & Co. KG; for the Development of Physical Culture and Sport; from 2015 – Director of the Autonomous Non-Profit Organisation from 2020 – member of the Governmental Commission on the Use of Information «Social, Cultural and Sports Club Gazpromexport»; Technologies for Improving Quality of Life and Business Environment. from 2016 – member of the Board of Directors, Nord Stream 2 AG; from 2017 – Chairman of the Board,Gaso JSC; from 2017 – member of the Board of Directors, KHL LLC ; from 2019 – member of the Board of Directors, Chairman of the Board of Directors, BC Zenit LLC; from 2019 – Chairman of the Management Board, International Business Congress e. V.

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Members of the Board of Directors as at 31 December 2019 (continued)

VITALY SERGEY FAMIL KIRILL MARKELOV MENSHIKOV SADYGOV SELEZNEV

Interest in the authorised Interest in the authorised Interest in the authorised Interest in the authorised capital capital capital capital (as at 31 December 2019) (as at 31 December 2019) (as at 31 December 2019) (as at 31 December 2019) None None None None

BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS

Born in 1963. Born in 1968. Born in 1968. Born in 1974. Graduated from the Kuibyshev Aviation Institute. Graduated from the Grozny Oil Institute, the National University of Oil Graduated from the Sergo Ordzhonikidze State Academy Graduated from the Baltic State Technical University named after D.F. From 2012 – member of the Board of Directors, member and Gas «Gubkin University». of Management (Moscow). Ustinov, the St Petersburg State University. of the Management Board, Deputy Chairman of the Management 2008–2019 – Chief Executive Officer of Gazprom Dobycha Nadym LLC. 2009–2019 – member of the Management Board, Deputy Chairman 2002–2019 – Head of Department, Gazprom PJSC. Board, Gazprom PJSC. From 2019 – member of the Management Board, Head of Department, of the Management Board, Gazprombank (JSC); 2003–2019 – member of the Management Board, Gazprom PJSC. Gazprom PJSC. from April 2019 – member of the Management Board, Deputy 2003–2019 – Chief Executive Officer, Gazprom Mezhregiongaz LLC. POSITIONS HELD IN OTHER ORGANISATIONS A PhD in Economics. Chairman of the Management Board, Gazprom PJSC. From 2019 – Chief Executive Officer, member of the Board of Directors A PhD in Economics. of RusKhimAlyans LLC. From 2012 – Editor-in-chief of Gas Industry Magazine; POSITIONS HELD IN OTHER ORGANISATIONS A PhD in Economics. from 2012 – member of the Board of Directors, Chairman of the Board POSITIONS HELD IN OTHER ORGANISATIONS of Directors of JSC Gazprom Space Systems; From 2019 – member of the Management Board of the Equipment POSITIONS HELD IN OTHER ORGANISATIONS from 2012 – member of the Board of Directors of USC JSC; Manufacturers Association «New Technologies of the Gas Industry»; From 2019 – member of the Board of Directors of Gazprombank (JSC); from 2012 – President, Pipe Producers Association; from 2019 – member of the Board of Directors, from 2019 – member of the Board of Directors of joint stock company From 2003 – member of the Supervisory Board of the Union of Oil from 2012 – member of the Management Board, Vice-President Investment Company Ltd.; the non-government Pension Fund Gazfond; and Gas Industry Organisations «Russian Gas Society»; and Deputy President–Chairman of the Management Board from 2019 – member of the Board of Directors of Vostokgazprom OJSC; from 2019 – member of the Presidium, Chairman of the Law, Banking from 2006 – member of the Board of Directors of FC Zenit JSC; of the Equipment Manufacturers Association «New Technologies from 2019 – member of the Board of Directors of Tomskgazprom JSC; and Finance working committee, International Business Congress (IBC) from 2006 – member of the Board of Directors, Chairman of the Board of the Gas Industry»; from 2019 – member of the Supervisory Board of joint stock company e. V.; V. ; of Directors of Latvijas Gāze JSC; from 2014 – member of the Supervisory Board of Wintershall AG; Wintershall AG; from 2019 – Chairman of the Board of Directors of Belgazprombank; from 2009 – member of the Supervisory Board of KazRosGas LLP; from 2014 – Chairman of the Board of Directors of Gazprom Kyrgyzstan from 2019 – member, Chairman of the Board of Directors of Achim from 2019 – member of the Board of Directors of SOGAZ JSC; from 2011 – member of the Board of Directors of BANK «ROSSIYA»; LLC; Development LLC; from 2019 – member of the Board of Directors of GAZPROM Germania from 2013 – member of the Supervisory Board of Bank RRDB (JSC); from 2014 – Chairman of the Board of Trustees of the V.I. Vernadsky from 2019 – member of the Board of Directors of JSC Achimgaz; GmbH; from 2017 – member of the Board of Directors of RusGazAlyans LLC; Non-Governmental Ecological Foundation; from 2019 – member of the Board of Directors of Gazprom Kyrgyzstan from 2019 – Chairman of the Supervisory Board of Gazprom Holding from 2016 – member of the Supervisory Board of Gazprom EP LLC; Coöperatie U.A.; International B.V.; V.; from 2019 – member of the Board of Directors of LLC «Gazpromviet»; from 2019 – member of the Supervisory Board, Chairman from 2016 – member of the Presidium, International Business from 2019 – member of the Supervisory Board of Gazprom EP of the Supervisory Board of Gazprom EP International B.V. V.; Congress (IBC) e. V.; International B.V. ). from 2019 – member of the Board of Directors of Gazprom Gas-Engine from 2017 – member of the Board, Chairman of the Board, Association Fuel LLC; of Gas-Industry Construction Organisations; from 2017 – member of the Board of Directors, Chairman of the Board of Directors, Gazprom Armenia CJSC; from 2018 – Chairman of the Board of Directors, Deputy Chairman of the Board of Directors, RusKhimAlyans LLC; from 2019 – member of the Supervisory Board of the Federal State Budgetary Educational Institution of Higher Education «Gubkin Russian State University of Oil and Gas (National Research University)»; from 2019 – Non-executive director of Sakhalin Energy Investment Company Ltd; from 2019 – member of the Board of Directors, Chairman of the Board of Directors of Gazprom Teploenergo JSC; from 2019 – Chairman of the Board of Directors of RusGazAlyans LLC; from 2019 – member of the Supervisory Board, First Vice-President of the Union of Oil and Gas Industry Organisations «Russian Gas Society»; from 2019 – member of the Supervisory Board of Gazprom Transgaz Belarus OJSC.

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Membership of the Board of Directors (continued) Members of the Board of Directors as at 31 December 2019 (continued) Members of the Board of Directors, whose authority was terminated in the reporting year

VALERY MIKHAIL VALERY ANDREY SERDYUKOV1 SEREDA GOLUBEV1 KRUGLOV2 Independent Director Chairman of the Audit Committee Interest in the authorised Interest in the authorised Interest in the authorised Interest in the authorised capital capital capital capital (as at 31 December 2019) (as at 31 December 2019) (as at 31 December 2019) (as at 31 December 2019) None None None None

BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS

Born in 1945. Born in 1970. Born in 1952. Born in 1969. Graduated from the G.V. Plekhanov Leningrad Mining Institute. Graduated from the St Petersburg State University of Economics Graduated from the V. I. Ulyanov (Lenin) Leningrad Electrotechnical Graduated from the St. Petersburg Technological Institute 1999–2012 – Governor of the Leningrad Oblast. and Finance. Institute, and the Academy of National Economy under the Government of Refrigeration Industry. A PhD in Economics. From 2002 – member of the Board of Directors of Gazprom PJSC. of the Russian Federation. 2015–2019 – Deputy Chairman of the Management Board, Gazprom He has government and industry awards. From 2004 – Deputy Chairman of the Management Board – Head 2006–2019 – Deputy Chairman of the Management Board, Gazprom PJSC. of the Management Board Administration, Gazprom PJSC. PJSC. From 2019 – Deputy Minister of Finance of the Russian Federation. From 2020 – First Deputy CEO, Gazprom Export LLC; CEO, Gazprom A PhD in Economics. A Grand PhD in Economics Trading LLC.

POSITIONS HELD IN OTHER ORGANISATIONS

From 2002 – member of the Board of Directors, Chairman of the Board of Directors of Gazprom (U.K.) Limited; from 2002 – member of the Board of Directors, Deputy Chairman of the Board of Directors of Bank GPB (JSC); from 2002 – member of the Board of Directors, Chairman of the Board of Directors of OJSC Vostokgazprom; from 2003 – member of the Board of Directors, Chairman of the Board of Directors of JSC Gazprom Tsentrenergogaz; from 2004 – Chairman of the Board of Directors of OJSC Tomskgazprom; from 2005 – member of the Board of Directors, Chairman of the Board of Directors of JSC Gazpromtrubinvest; from 2007 – member of the Board of Directors of JSC Gazprom Space Systems; from 2015 – chairman of the Administrative Board of Gazprom Schweiz AG; from 2016 – member of the Supervisory Board, Chairman of the Supervisory Board of Gazprom Austria GmbH; from 2016 – member of the Presidium, International Business Congress (IBC) e. V. ; from 2017 – member of the Advisory Board, WIGA Transport Beteiligungs-GmbH & Co. KG; from 2017 – member of the Board of Directors, Chairman of the Board of Directors of Gazprom Transservice LLC; from 2018 – member of the Board of Directors of Panrusgas Gas Trading Plc.; from 2019 – Chairman of the Advisory Board of Gazprom Germania GmbH.

/ 1 / From 1 January 2019 through December 2019, member / 1 / He was a member of the Board of Directors, and the member of the Audit Committee until 13 June 2019. of the Human Resources and Compensation Committee. / 2 / He was a member of the Board of Directors, and the member of the Human Resources and Compensation Committee until 13 June 2019.

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Company profile In 2019, Viktoriya Nenadyshina was included into the Top 50 Corporate Governance Strategic report Directors Ranking of the Kommersant1 Publishing House , and became an award Performance winner of the 12th prize of the Russian Corporate Counsel Association (RCCA, non- Technological development commercial partnership) nominated in the «Achievement of the Year».2 Governance system Sustainable development Appendices

Membership of the Board of Directors (continued) Secretary of the Board VIKTORIYA Members of the Board of Directors, whose authority was terminated in the reporting year of Directors NENADYSHINA The Secretary of the Board Secretary of the Board of Directors since 25 September 2018. of Directors ensures effective ongoing SERGEY IGOR communication with shareholders, Interest in the authorised coordination of the company’s efforts capital 1 2 (as at 31 December 2019) FURSENKO FEDOROV to protect their rights and interests, and supports the effective work None Interest in the authorised Interest in the authorised of the Board of Directors. capital capital (as at 31 December 2019) (as at 31 December 2019) The Secretary of the Board BIOGRAPHICAL DETAILS None None of Directors’ main tasks are to make sure that the Company and its officers Born in 1984. comply with the rules and procedures Graduated from the Université des Sciences Sociales de Toulouse (France), majoring in DU European and International Business Law, and the Russian Law Academy of the Ministry of Justice of corporate governance of the Russian Federation, majoring in jurisprudence. established by Russian laws, 2009–2011– Head of the Legal Department, OJSC OC Magma; BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS the Company’s Charter 2011–2012 – Head of the Legal Section, JSC Moscow Oil and Gas Company; 2012–2014 – Head of the Legal and Corporate Affairs Section, Gazpromneft Marine Bunker LLC; and internal documents; to prepare Born in 1954. Born in 1965. 2014–September 2018 – Deputy CEO for Legal, Corporate and Property Affairs, Gazpromneft Graduated from the Leningrad Polytechnic Institute. Graduated from the Leningrad State University, the St Petersburg and hold the General Meeting Marine Bunker LLC; 2017–2019 – President of FC Zenit JSC. State Academy of Service and Economics, and the St Petersburg of Shareholders and meetings September 2018 – June 2019 – Head of the Corporate Governance Department, Gazprom Neft PJSC; From 2019 – Vice-President of Gazprombank (JSC). International Institute of Management. of the Board of Directors and its A PhD in Economics. from June 2019 – Head of the Corporate and Project Support Department, Gazprom Neft PJSC. 2012–2019 – member of the Management Board, committees; to disclose information 2017–2019 – Head of Departmen, Gazprom PJSC. about the Company, and improve its A member of the Board of Directors of the following companies: Tomskneft VNK JSC, Nortgaz corporate governance practices. CJSC , Information Technology Service Company (ITSC LLC), Gazpromneft Lubricants Italia, TsentrCaspneftegaz LLC. A member of the Board of Directors of AS Baltic Marine Bunker, a member of the Supervisory Board of Gazpromneft Marine Bunker Balkan S. A. In Gazprom Neft International The Secretary of the Board S.A., she is the member of the Supervisory Board, and its Secretary. of Directors is responsible for: – providing organisational She does not own any shares of Gazprom Neft PJSC, and has no shares and interest in its and information support subsidiaries. to the Board of Directors and its Ms Nenadyshina has no family connections with other persons, who are members of the governance committees; bodies and/or bodies which control financial and business operations of the company. – preparing and running of the General Meeting VSEVOLOD of Shareholders; CHEREPANOV1 – assisting the Chairman – disclosing information impeccable professional reputation, of the Board of Directors about the Company; while also continuing to upgrade his/her in organising and planning – arranging interaction between professional skills on an ongoing basis Interest in the authorised the activities of the Board the Company and its shareholders; and being a notable figure in the professional capital of Directors; – other functions in line community. (as at 31 December 2019) The members of the Board of Directors made no – arranging storage of the Board with the Regulation on the Board None transactions related to the acquisition or disposal of Directors’ documents; of Directors, the Company’s In order to ensure the Secretary’s of the company shares, in the reporting year. In 2019, no – exercising control over the Board internal documents and requests independence, the Secretary is appointed claims were made against the members of the Board of Directors’ resolutions; from the Chairman of the Board by the Board of Directors based of Directors. – interacting with members of Directors . on recommendations from the Chairman. of the Board of Directors, The Secretary of the Board of Directors BIOGRAPHICAL DETAILS advising them on corporate The Secretary of the Board and the Secretary of the Management Board / 1 / He was a member of the Board of Directors, and the member Born in 1966. governance matters, providing of Directors has sufficient skills, are two different persons. Graduated from Lomonosov Moscow State University. of the Human Resources and Compensation Committee until them with necessary documents experience and qualifications 2010–2019 – member of the Management Board, Head of Department, 13 June 2019 and information; to perform his/her duties and enjoys The role of the Secretary of the Board Gazprom PJSC. / 2 / He was a member of the Board of Directors, and the member of Directors is formalised by the Regulation A PhD in Geology and Mineralogy. of the Human Resources and Compensation Committee until / 1 / More details on the ranking https://www.kommersant.ru/doc/4109977. on the Secretary of the Board of Directors. 1 September 2019 . / 2 / For more information on the award, see https://www.rcca.com.ru/about/award-2019.shtml.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Attendance at the meetings of the Board of Directors in 2019

Report on progress made Agenda items Number of meetings Total number of meetings, which Number of meetings attended could be attended by the member by Gazprom Neft’s Board reviewed in 2015-2019 held by the Board of Directors Member of the Board of Directors by the member of the Board of Directors1 of the Board of Directors of Directors on priority areas by the Board of Directors, in 2015–2019 Alexey Miller in 2019 by area Chairman of the Board of Directors 51 52 Non-Executive Director As part of its work during the year, Vitaly Markelov 52 68 59 66 57 17 17 112 the Board of Directors remained 131 143 127 114 Non-Executive Director Sergey Menshikov committed to addressing the key 17 17 tasks in Gazprom Neft’s priority Non-Executive Director areas, including strategic operations, Sergey Kuznets 87 16 17 investment case, oversight over asset Non-Executive Director 59 management, investing and financing 80 Famil Sadygov 57 17 17 activities, improved performance 76 Non-Executive Director and transparency of governance Alexander Medvedev 28 28 tools, enhancement of internal 40 51 Non-Executive Director controls, and accountability 59 48 Kirill Seleznev of the Company’s governance bodies. 52 52 46 Non-Executive Director Alexander Dyukov Gazprom Neft’s Board of Directors 52 52 Executive Director operated under the approved semi- Vladimir Alisov annual work plans. The Board held 52 51 52 Non-Executive Director meetings in 2019. 13 Mikhail Sereda 51 52 Non-Executive Director 51 Elena Mikhailova 27 52 52 18 Non-Executive Director 12 15 Valery Serdyukov 33 Until December 2019 – Independent Director, since 51 52 27 28 December 2019 – Non-Executive Director 22 Andrey Dmitriev 51 52 Non-Executive Director 9 9 9 Igor Fedorov 2 8 24 24 3 3 4 6 Non-Executive Director 3 8 3 4 5 4 Vsevolod Cherepanov 24 24 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Non-Executive Director Valery Golubev Strategy Budget planning In-person 24 24 HR and financing In absentia Non-Executive Director Corporate Other Sergey Fursenko governance 24 24 Independent Director Andrey Kruglov 14 24 Non-Executive Director

/ 1 / He also presented a written opinion.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Strategic development The company activities in value-chain management, Neft continued the implementation and effective response to changes in 2019 and its short-term business increasing the conversion rate of a strategic project to develop In 2018, the Board of Directors in macroeconomic conditions. development plans are fully aligned and light product yield, developing LNG bunkering in the Baltic basin, approved an approach to portfolio Key issues: with its long-term objectives, set its petrochemicals sector, which is aimed at developing a new analysis of the company upstream In the reporting year, • implementation of the Gazprom out in the Strategy. In the Upstream and maintaining its market-leading bunkering market segment in Russia. enterprises, and ranking geological the Board of Directors also Neft Development Strategy to 2030; segment the company retained its position on the existing and expanding The total number of airports, exploration in terms of priorities approved the Gazprom • long-term development programme for the Eastern focus on maximising the recovery its share on the new product markets. of Gazpromneft-Aero (the operator and efficiency. That methodology Neft Digital Transformation block of the Orenburgskoye oil profitability by introducing new of the Gazprom Neft aviation refuelling allowed improving the quality Strategy, which fully complies and gas condensate field, aimed technologies and developing projects. As part of the large-scale technical business) presence, exceeded of the portfolio analysis, by ensuring with the Strategy 2030 and is aimed at increasing oil recovery; For instance, it is continuing drilling and environmental upgrade 280. The Gazpromneft bitumen- additional impact due to integrating at achieving its goals and objectives. • Gazprom Neft PJSC plans in the Nadym-Pur-Tazovsky district, of Gazprom Neft refineries, materials range, and the geography projects at early stages of geological The Digital Transformation for international business growth; • results of Gazprom Neft PJSC building new onshore infrastructure construction of a crude oil of production and supply were exploration and technological analysis, Strategy covers the entire production entities portfolio and facilities at the Tazovskoye distillation unit, hydrocracking expanded. A company subsidiary was with the current production projects. value chain, the management analysis, Upstream Division and Severo-Samburgskoye and delayed coking units established in Singapore to develop In 2019, the methodology was and support systems, and ecosystems development plans in terms fields, and at the En-Yakhinskoye is continuing at the Omsk Refinery, the international marine-lubricants developed to implement prioritisation of the company partners of current assets and geological exploration projects; and Pestsovoye fields. The company the modernisation of the filtration business. and analysis of uncertainty in a single and customers. The Gazprom Neft • prospects of development conducted seismic survey system for a small catalytic cracking portfolio-management system, rather PJSC flexibility and performance of the Orenburg cluster, as part at the Kheisovsky and Severo- unit was completed. Construction In 2019, the Board of Directors than in separate groups of assets, are to increase due to transforming of the Gazprom Neft PJSC resource Vrangelevsky licence blocks of the Euro+ combined oil refining considered and took into account projects and opportunities, taking the company business processes base development strategy; on the Arctic Shelf. The company unit (CORU) at the Moscow Refinery the information on the plans into account both the project logic and business models, through • Gazprom Neft PJSC Digital Transformation Strategy approval; also increased its resource is being completed, and a new light for international business development, and ranking on the basis of individual systematic use of digital technologies • Gazprom Neft PJSC bitumen base, winning licensing rounds products road-transport loading and noted the company role indicators. and data-based management. Target business organisation, its results for geological prospecting, facility was built. Construction as the rightful and prominent vision of the digital transformation: and perspectives; exploration and production at several of a delayed coking unit at the NIS participant of the global oil and gas Further development of the tools – creating an effective organisational • Gazprom Neft PJSC aviation refuelling business organisation, its blocks in the Yamalo-Nenets Pančevo refinery is in its final stage. community, which is actively involved for portfolio analysis is a priority structure, which allows swift results and perspectives. Autonomous Okrug, the Khanty- Construction of the first modern in forming the development agenda, for making management decisions. adaptation and end-to-end Mansi Autonomous Okrug-Yugra, oil-refining catalyst production and is cooperating at global forums The methodology improvement optimisation throughout the value and the Orenburg Oblast. Gazprom facility in Russia started, as part and conferences at the highest is mainly focused on automating chain; Neft also obtained the licences of the development of the Gazprom level. Currently, the Gazprom the portfolio analysis. Automated – achieving the100% asset potential for the Blizhnenovoportovskoye Neft catalyst business in Omsk. Neft PJSC portfolio comprises calculation allows improving and “Target Zero” in safety through field, and for geological prospecting Gazprom Neft and SIBUR consolidated over 20 projects on upstream the quality and speed of portfolio management based on digital at blocks in the western part 100% of the authorised capital and downstream operations analysis, avoiding repeated work twins, and by reducing the impact of the Taymyr Peninsula. of the Poliom polypropylene plant outside the Russian Federation. during data collection between of human error; in Omsk. Integration of assets in the The opportunities for participating the blocks, forming a single – opening up new business- Gazprom Neft successfully used oil refining and petrochemicals in new projects in foreign information space for all subdivisions, development opportunities, due The Gazprom Neft Board of Directors machine learning to search segments will improve the efficiency regions, which are interesting and eliminate discrepancies to the partnering ecosystem considered and took note for additional oil reserves. Based of using feedstock from the company for the company, depend on external in the initial data. and platform solutions; on the information on implementation on the geological data, the neural refineries to produce high value-added environment. In current conditions – achieving a new level of the Strategy 2030. Current network predicted the blocks, products. Gazprom Neft is also considering Integrating the regular portfolio in data management, IT, long-term Strategy was approved where oil deposits may occur. partnership with foreign companies analysis of production enterprises, and the development of digital by the Board of Directors in November In the future, the company plans Gazprom Neft continued as an effective tool for developing and ranking geological survey products and solutions. 2018. It defines the key strategic to use the new digital tool at the fields to develop its own sales network, Russian assets. Gazprom Neft and production in terms of priority goals in Gazprom Neft development in the Noyabrsk Region – the potential and the expansion of its product PJSC is partnering with foreign and efficiency of projects allow In 2019, the Board of Directors until 2030, and the ways to achieve of which is estimated at three million range. The new “Gladkoye” fuel companies in the following areas: formulating a balanced plan considered the performance them, taking into account the changes barrels of oil. terminal in the Leningrad Oblast capital-intensive assets, for developing the company Upstream and prospects of the Gazprom in the global economy and new was commissioned as part of mature fields requiring new Division, taking into account strategic Neft PJSC bitumens business. challenges for the industry. In 2019, Gazprom Neft continued integrated development of fuel- competencies, and high-risk projects goals, and ensuring an immediate By 2019, Gazpromneft Bitumen to improve the efficiency supply infrastructure. Gazprom at the prospecting surveys stage. Materials (Gazpromneft BM LLC)

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Innovations The Gazprom Neft Board of Directors cat-cracking catalysts outperform Financial and economic activity, became a leader on the bitumen, updated its long-term business considered and took into account imported analogues. risk management polymer-bitumen binders (PBB) strategy to 2030. During that the information on the main outcomes and bitumen-derivative markets, period, it expects to become a top- Key issues: and priority areas of the company R&D The Gazprom Neft R&D programme and in terms of the R&D potential ten international jet-fuel company, • on approval of the Report activities in hydrocarbon processing. also includes projects on developing in development, technologies and use by doubling the volume of retail fuel on Gazprom Neft Innovative Gazprom Neft currently holds 115 (and improving efficiency in) oil- Key issues: of bitumen binders and asphalt sales, including by considerable Development Programm patents for inventions in oil refining, refining and petrochemicals concrete. Currently, Gazpromneft expansion of international business. implementation for 2018; petrochemicals and catalysis, 45 of which technologies; such projects form • on the debt structure and management of the Gazprom BM LLC is the most rapidly To achieve that, further expansion • on the main outcomes and key are already used in production, while a large part of the programme. In 2019, priority areas in the company’s Neft Group debt portfolio; developing company on the Russian of the sales-network geography R&D activities in oil refining the remaining solutions are prepared the company successfully did bench • on the performance of the Gazprom bitumen market. The company and digital transformation • on implementing oil- for commercial implementation. tests of the aeroforming process – Neft PJSC Internal Audit and Risk strategic goals by 2030: retaining of business are required — rim projects to ensure The company is creating and developing the conversion of low-octane fractions Management Directorate for 2018; • on updating the Gazprom Neft leadership on the bitumen market by introducing advanced technologies production volumes of liquid technologies in partnership into a high-octane gasoline component. hydrocarbons at the Severo- PJSC key risks for 2019; and the PBB market in Russia, in production and accounting. Samburgskoye, Pestsovoye with the leading Russian R&D The company is also actively developing • on executing the Investment and becoming the industry leader Gazprom Neft Aero LLC long- and at the En-Yakhinskoye institutions, which include the Boreskov processes to facilitate the conversion Programme, the Budget (financial in terms of technologies among term goals include improving fields, and subsequently Institute of Catalysis (part of the Siberian of heavy raw materials – such as tar, plan), and the financial borrowing bitumen-materials manufacturers. the performance and increasing sending the feedstock Branch of the Russian Academy asphalt or pyrolysis resins – into high- programme of the Gazprom Neft Group for 2018, on the basis In the medium term, the company the scale of business, and achieving to the Urengoyskaya of Sciences), the Center of New Chemical quality bunker fuel meeting MARPOL pumping station, based of the group performance in 2018; aims to develop a highly competitive strategic competitive advantage, on the perfomance in 2018; Technologies BIC of the Boreskov 2020 standards, or the raw materials • on the progress and efficiency service portfolio, expand due to digital management of all • on carrying out the Action Institute of Catalysis, the St Petersburg for hydrocracking and catalytic cracking of implementing the Budget the production and bitumen-logistics production processes. Plan to ensure hydrocarbon State Institute of Technology, the Samara facilities. and the Investment Programme of the Gazprom Neft Group geography to ensure maximum production during Polytech, etc. the development of for 2019, on the basis coverage of consumers and improve In the reporting year, the Achimov Formation blocks Gazprom Neft also formed an effective of performance in the first six the group performance, and develop the Board of Directors at the Urengoyskoye oil and gas As a result system for developing and deploying months of 2019; innovative products ans technology considered and took into account field, and oil rims, taking into of the implementation of the Gazprom innovative applied solutions, aimed • on the preliminary results solutions. The Gazprom Neft PJSC the information on implementing account the development Neft R&D programme on catalyst- at developing catalytic systems and oil of performing the Investment Programme and the Budget bitumen business is ready for scaling the Gazprom Neft PJSC Innovative of facilities, which refine production technologies, a range of unique refining technologies, and expanding and transport liquid of the Gazprom Neft Group its best practices and coming Development Programme for 2018. hydrocarbons in northern oil-refining catalysts for high-quality the product range. The company will for 2019; on new niche markets. Therefore, The Programme includes the four key parts of the Tyumen Oblast, motor fuels was put into production. continue systematic work on patenting • on the draft Investment the possibility of becoming a top-ten innovative projects: and on the status of building The Gazprom Neft highly effective new, highly effective products Programme and the draft Budget (financial plan), including global producer of premium bitumen – developing the alkaline- oil-supply infrastructure, and technologies, and their further metering stations, and facilities the Gazprom Neft Group materials is being a key goal. surfactant-polymer flooding supplying liquid hydrocarbons commercial use. financial borrowings programme, technology; to the pipeline and the Cost Optimisation Besides, in 2019 the Board – preparing the technologies system and the Gazprom PJSC (Reduction) Programme of Directors took into account for developing unconventional alternative routes system. of the Gazprom Neft Group for 2020, and the forecast to 2022; the performance and prospects oil reserves (the national project • on loans from Russian banks. of the company’s aviation refuelling to study the Bazhenov Formation); business. Currently, Gazprom Neft – implementing technologies Aero LLC is the most efficient jet- to increase well productivity; fuel company on the Russian market. – developing and starting The company is an acknowledged production of oil refining industry leader in developing catalysts – for catalytic cracking and using new technologies and hydrogenation process (the The Gazprom Neft Board of Directors and competencies in the aviation national «Aluminium Oxide-Based is giving careful attention to control refuelling segment, and in unique Crude Deep Conversion Catalysts» over the Gazprom Neft Group financial digital services for consumers. project). and business operations, and its In 2019, Gazprom Neft Aero LLC investment activity.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Social activity, industrial safety Corporate governance Despite limited opportunities The Board of Directors considered Centre. The most significant and environment In 2019, the Board of Directors to attract long-term financing information on the Gaprom Neft risks of the company subsidiaries approved the External Audit in foreign currency, the Gazprom PJSC risk-management system, are being consolidated to form Policy of Gazprom Neft Neft Group achieved considerable the assessment results, and updates the risk registers of divisions, used Key issue: Key issues: PJSC, its subsidiaries results in terms of managing its debt on the main risks for 2019 at its as a basis for drafting the company • on the programme on utilisation • on approving participation and organisations. The Policy sets portfolio: in-person meetings throughout key-risk register, to be approved and more effective use of the members of the Gazprom out the main principles of organising Neft PJSC Management – optimising the portfolio structure 2019. In general, the company by the Management Board. of associated petroleum gas and conducting the external (APG) carried out in 2018, Board in governance bodies by increasing the share of long- risk-management and internal- and future plans for 2019−2021. of organisations; audit of Gazprom Neft PJSC term borrowings in rubles; control system was recognised to be To improve the quality of information • on convening General Meetings and its subsidiaries, the procedure – increasing the average portfolio effective. on the Gazprom Neft PJSC risks, of Shareholders; and criteria for selecting maturity, and simultaneously in the reporting period the company • on reorganising subsidiaries, auditors, and approaches and increasing the authorised reducing the interest rate The company main risks were implemented initiatives to develop Gazprom Neft PJSC is aiming capital of Gazprom Neft PJSC to ensuring that the auditors comply on the debt in rubles; assessed, and information on them and introduce tools, methods to ensure a required level of APG companies; with the principles of independence – performing the financial was updated due to the work for analysis and risk-management utilisation, and simultaneously • on approving the Regulations and absence of conflicts of interest. borrowings programme, approved in all areas of the integrated risk- (including quantitative risk- start commercial development on the Procurement of Goods, Works and Services by Gazprom as part of the 2019 budget management framework, including assessment, simulation modelling, of greenfields, Neft PJSC; To meet statutory requirements (financial plan), in the required development and introduction and the bow-tie and decision-tree and increase oil and gas production. • on approving the Regulation related to insider information, volume, and using the most of tools, methods for analysis methodologies). To improve staff The Board of Directors considered on Insider Information; the Board of Directors approved effective tools; and risk management, and increasing competencies in risk management, the information on the company • on approving the External Audit a revised version of the Regulation – reducing the Net Debt/Operating the level of risk-management the Monitoring Division of the Risk- events and plans for APG utilisation Policy of Gazprom Neft PJSC, its on Insider Information of Gazprom subsidiaries and organisations. Profit ratio as at 31 December competencies of the staff. Management Framework (MDRMF) at the current assets, and increasing Neft PJSC, which determines 2018, compared to 31 December developed new training modules, the efficiency of its use in accordance the periods when insiders 2017, to 0.70 (the reduction by 0.03 The company is updating organised and held training events with the programme on utilisation The Regulations on the Procurement are prohibited from making in absolute terms, and by 4% the information on its risks for the company employees. and more effective use of associated of Goods, Works and Services transactions with the company in relative terms). in accordance with regulatory petroleum gas. An active investment of Gazprom Neft PJSC, approved shares. The powers of the Chief and methodological documents, The report on the areas of developing policy and timely implementation by the company Board of Directors, Executive Officer were expanded In 2019, the Board of Directors also which govern the functioning internal control at Gazprom Neft of programme events are to ensure are the main document governing in terms of approving the list determined the Gazprom Neft Group of the Integrated Risk-Management PJSC in 2018, and the internal-control that the utilisation rate is retained, the procurement of Gazprom of the company insider information, strategic performance indicators Framework (IRMF).1 It is based development plan for 2019, also and that the value-added APG use Neft PJSC and its subsidiaries. and appointing a dedicated for 2019–2021. The following on a bottom-up approach, starting underwent preliminary consideration in the company reaches 95% by 2022, The Regulations provide subdivision, which is to exercise documents were approved: from the company subsidiaries, by the Audit Committee of the Board with gas production growth. for establishing and approving internal control to prevent – the Gazprom Neft Group and involving all the key managers of Directors. The main projects a single annual procurement and identify unauthorised use Budget (financial plan) for 2019, and experts at subsidiaries, divisions, to develop internal control, plan for the Gazprom Neft Group, of the insider information. including the financial borrowings and the Gazprom Neft Management implemented in the reporting period, and forming a single responsibility programme; Board. were related to assisting the business centre to control procurement. – the Gazprom Neft Group further development of control Investment Programme for 2019; The company subsidiaries procedures in the company business – the Gazprom Neft Group Cost are reassessing risks, developing processes (selling petrochemicals Optimisation (Reduction) measures to manage them, and liquefied hydrocarbon gas, Programme for 2019. and approving risk registers selling bitumen materials wholesale, with respective functions conducting geological exploration, The drafts of the Investment and supervising subdivisions and developing the resource base). Programme, the Budget and the Cost at the Gazprom Neft Corporate Optimisation (Reduction) Programme for 2020, and the forecast to 2022 / 1 / The Risk Management Policy (SK-11.03.01, approved on 7 February 2013), the Master Standard were also considered. for the Integrated Risk Management Framework (OSK-11.07, approved on 1 March 2016), and the Methodology Guidelines for the Risk Management Process (M-11.07-01, approved on 1 In the reporting year, March 2016). the Board of Directors carried out the performance assessment of the company risk-management and internal-control system.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

– promoting constructive representatives of the external Human Resources Committees of the Gazprom In accordance with the approved Work Plan for 2019, communication with an external auditor, the Management Board Neft Board of Directors the Audit Committee held 14 meetings and considered and Compensation Committee auditor, bodies controllling members, the chief accountant, the following key issues: The company has two committees the financial and business the head of the Internal Audit The Human Resources of the Board of Directors: operations, and the company and Risk Management Directorate, • on the performance of the Gazprom Neft PJSC Internal Audit and Risk and Compensation Committee Management Directorate for 2018; the Audit Committee, and the Human internal-audit subdivisions. and heads of the company • on updating the Gazprom Neft PJSC key risks for 2019; is an advisory body of the Board Resources and Compensation departments. • on assessing candidates for becoming the Gazprom Neft PJSC auditors, of Directors. The Committee Committee. The Committee acitvities and providing recommendations for the Gazprom Neft PJSC Board membership, status, work are directly related to the work plan The Committee prepared relevant of Directors; procedures, competency of the Board of Directors, and include recommendations on the issues • on the Gazprom Neft Group consolidated financial statements (IFRS) for 2018; and functions, the procedure • on the results of the external audit for 2018; Audit Committee consideration of the following issues: which require recommendations • on the interim condensed financial statements (unaudited) of the Gazprom Neft for convening and holding accounting (financial) statements, from the Board of Directors. Group (IFRS) for the three, six, and nine months of 2019; meetings, formalising resolutions, The Audit Committee supervises consolidated financial statements, • on the areas of developing the internal control in Gazprom Neft PJSC for 2018, and the responsibility the company financial risk management, internal control During the reporting period, and on the plan for developing the internal control for 2019; of the Committee members are set • on the results of measures for ensuring internal-control procedures and business operations. Its members and corporate governance, internal the Committee fully carried out its in the Gazprom Neft PJSC information systems for 2018; out in the Regulation on the Human are elected by the Board of Directors, and external audit, and combating tasks. • on the Gazprom PJSC 2018 draft Annual Report; Resources and Compensation and the Committee acts on the basis illegal actions. • on the programme of guarantees and improving the internal-audit quality Committee. of the Charter and internal regulations. of Gazprom Neft PJSC in 2018; The Committee competency The Committee membership, The Audit Committee • on the results of assessing the Gazprom Neft PJSC external auditor’s work In accordance with the Regulation, in 2018; and duties cover the following status, work procedures, membership • on the External Audit Policy of Gazprom Neft PJSC, its subsidiaries the Committee main tasks key areas: accounting (financial) competency and functions, From 22 June 2018 through 13 June and organisations; are the following: preliminary statements, consolidated financial the procedure for convening 2019: • on information disclosed to third parties, including analytical and rating comprehensive examination statements, risk management, and holding meetings, formalising • Mikhail Sereda (Chairman) agencies, and on disclosing indicators not included in the IFRS; of the issues within • on determining the amount of payment for the auditor services for 2019; internal control and corporate resolutions, and the responsibility • Valery Golubev the Board of Directors competency, • Elena Mikhailova • on the performance of the Gazprom Neft PJSC Internal Audit and Risk governance (in terms of internal of the Committee members Management Directorate for the first six months of 2019; and preparing recommendations audit), internal and external audit, are set out in the Regulation From 19 July 2019 through 31 • on preparing proposals for a competition commission to select an audit for decision-making by the Board and combating illegal actions. on the Committee. December 2019: organisation to carry out the mandatory annual audit of Gazprom Neft PJSC; of Directors in relation to improving • Mikhail Sereda (Chairman) • on the Risk Management Policy and the Internal Control Policy of Gazprom the work procedures of the Board • Andrey Dmitriev Neft PJSC; The Audit Committee does The members of the Board • Elena Mikhailova • on the results of internal control, aimed at counteracting unauthorised use of Directors and its committees, the following as part of its duties: of Directors have sufficient relevant of insider information for the first six months of 2019; the company work in terms – assisting the Board of Directors experience and skills in finance, • on preparing the Gazprom Neft PJSC plan of audits for 2020–2022. of HR policy and the management controlling the company financial which are necessary for working succession system, compensation and business operations; with financial statements, for members of governance bodies – assessing the effectiveness analysing business, and financial and the company Audit Committee. of internal control systems, management. The Audit Committee including mechanisms does not include the company senior The Human Resources for controlling preparation executives. and Compensation Committee duties and submission of financial are the following: and other statements, its The Committee members participated – analysing and assessing the Board completeness and accuracy; in all meetings. In accordance Number of meetings of the Board of Directors’ Audit Committee of Directors membership in terms – monitoring the risk-management with the issues under consideration, of specialisation, expertise, system; the following persons were Indicator 2015 2016 2017 2018 2019 independence, and of its members invited to the Committee meeting: involvement in the Board work; Number of meetings 8 11 12 13 14 – determining the priority areas Number of issues considered 22 30 34 35 29 for strengthening the Board membership;

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

– initiating and monitoring According to the Human Resources Assessing the Board of Directors and how the Board of Directors members of the Board of Directors self-assessment or external and Compensation Committee, Membership work members are informed. On the basis familiar with the company production, assessment of the Board the following conclusions were made of the Human Resources of the assessment, the issues financial and business activities, of Directors and its committees, due to analysing the candidates: and Compensation In accordance with recommendations related to whether information and with its corporate-governance in terms of their performance – The expertise and education, Committee of the best corporate governance on implementing development plans, practice, as quickly and effectively in general, and individual knowledge and great From 22 June 2018 through 13 June practices, the Board of Directors and analysing the company key as possible. contribution of directors professionalism of the candidates 2019: conducts annual analysis and self- performance indicators was provided in the work of the Board for the Board of Directors will • Igor Fedorov (Chairman); assessment of its performance. in a timely manner, and regularly, were The Programme provides • Andrey Kruglov of Directors and its committees; enable them to perform the duties • Vsevolod Cherepanov The Human Resources and included in the areas to be developed. for the following measures: – preparing a report on the results of the Board of Directors • Sergey Fursenko (Independent Compensation Committee approved – meeting with the Chairman of self-assessment or external members, and to directly assist Director). new assessment criteria and deemed In general, the activity of the Board of Directors, assessment, to be included the effective work of the entire From 19 July 2019 through 1 it advisable to engage an independent of the Board of Directors, its discussing the work plan in the company Annual Report; Board of Directors in the interests September 2019: service provider for the Board’s review Chairman and Secretary, the Audit of the Board of Directors, – approving the programme of the company and its • Vladimir Alisov (Chairman); at least once in three years. Committee, and the Human Resources and the company priority of an introductory course shareholders. • Valery Serdyukov (Independent and Compensation Committee activities; determining the future for newly elected members – All candidates have excellent Director); The performance of the Gazprom Neft is highly effective. The number role of a director in the Board • Igor Fedorov of the Board of Directors, aimed professional and personal PJSC Board of Directors is assessed of the Board of Directors members of Directors, on the basis at effectively making new reputation, which means, among From 25 September 2019 through 31 in the form of a survey (questionnaire). meets the company requirements. of his or her expertise; December 2019: directors familiar with business other things, absence of criminal • Sergey Kuznets (Chairman); The questionnaire includes about 30 The level of the Board of Directors – meeting with senior managers, practice, organisational structure, liability at present or in the past. • Valery Serdyukov (Independent questions regarding the main areas engagement in analysing critical risks, receiving the main information the key assets and strategy, – The Board of Directors Director until December 2019); of activity: membership, the nature and in analysing the achievement on the company business, the company key employees, is to include one executive • Vladimir Alisov of activity, the Board of Directors of management performance discussing the company and with the work procedures director, which complies procedures, performance indicators, is high. The Board operational and financial of the Board of Directors; with the recommendations assessment of the Chairman of Directors assists and supports structure, and introduction supervising the implementation of the Corporate Governance Code. of the Board of Directors, its its members in developing to the Management Board; of the introductory course. – At the end of the reporting year, In 2019, the Audit Committees and Secretary, their competencies and knowledge. – consultations with the Secretary no independent directors are to be Committee held six and the level of relations within of the Board of Directors. The Committee prepared relevant included in the Board of Directors. meetings and considered the Board of Directors, etc. The Board of Directors achieved The Secretary of the Board recommendations on the issues, – The Board of Directors the following key issues: a high level in many issues related of Directors describes procedural which require recommendations will be sufficiently balanced • on the proposals from shareholders Analysis of the questionnaires to meeting efficiency. The level and legal aspects of the work from the Board of Directors. in terms of gender and age. regarding candidates of the Board of Directors members of communication between the Non- of the Board of Directors and its for the Board of Directors allows quickly understanding Executive Director and the Chairman committees, clarifies the rights During the reporting period, The Committee prepared relevant and the Audit Committee the current condition of the key Board of the Board of Directors is also and duties of a Board member, of Gazprom Neft PJSC; the Committee fully carried out its recommendations on the issues, • on assessing the candidates of Directors processes, including high. All Committees of the Board issues related to paying tasks. which require recommendations for the Gazprom Neft PJSC Board strategy, the principles of business, of Directors and its Secretary remuneration and compensation, from the Board of Directors. of Directors; the company performance are functioning effectively. and the liability and liability In the reporting period, the Human • on the compensation management, organising the work insurance; for the members of the Gazprom Resources and Compensation During the reporting period, Neft PJSC Board of Directors; of the Board and its committees, – becoming familiar Committee formed an opinion the Committee fully carried out its • on the compensation and assessing contribution Onboarding of newly elected with the company main documents, on independence of each candidate tasks. for the members of the Gazprom of the Board of Directors members, members of the Board and the written Guidelines for the Board of Directors. Neft PJSC Audit Committee; including its Chairman and Secretary. of Directors for the Board of Directors • on participation of the members member, with description of the Gazprom Neft PJSC Management Board in governance The analysis of the Board To ensure effective work of the Board of the key business issues, internal Number of meetings of the Board of Directors’ Human Resources bodies of other organisations; of Directors work, conducted of Directors, the company has procedures, and organisation and Compensation Committee • on appointing the First Deputy CEO in the reporting period, showed the Onboarding Programme for newly of the work of the Board of Gazprom Neft PJSC; improvement of the following: elected members of the Board of Directors and its Committees; Indicator 2015 2016 2017 2018 2019 • on assessing the performance of the Gazprom Neft PJSC Board determining the company strategic of Directors. The Programme goals – the Programme may also include Number of meetings 6 7 6 4 6 of Directors. plans, interaction with executives, include making the newly elected visits to the company main Number of issues considered 10 10 10 5 7

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

facilities, participation in public they hold management positions Competencies of the Management Board and the CEO events, and meetings with the key in the Gazprom Group companies, managers. and have the main information Main issues within the Management Board competency Main issues within the CEO competency on the company business; therefore, The Management Board competency is determined The CEO reports to the Gazprom Neft PJSC Board of Directors The Human Resources they did not have to undergo by the company Charter. and the General Meeting of Shareholders. and Compensation Committee the entire onboarding programme. The key functions of the Management Board: The CEO manages the company ongoing business, and acts within is monitoring the Programme The new directors were familiarised – to arrange control over implementation the competency established by the Gazprom Neft PJSC Charter. implementation. with the rules of the Board of resolutions of the General Meeting The key issues within the competency: of Directors work, their rights of Shareholders and the company Board – to enter into transactions on behalf of the company and manage of Directors; the company’s assets subject to by-laws governing the transaction Throughout 2019, and duties, issued related to paying – to develop for submission to the company Board handling procedure and interaction with investee entities; the Board of Directors members remuneration and compensation, of Directors, long-term plans and the most – to approve the stuffing profile of the company, its branch offices were re-elected twice, and five new and liability insurance. important programmes of the company business, and representative offices, determining the form, systems and amount directors were included in it: V. including annual budget and investment of remuneration; Markelov, S. Kuznets, S. Menshikov, programmes, preparation of reports – to approve the company by-laws, which regulate its ongoing business; F. Sadygov, and A. Medvedev; on performing them, and develop and approve – in coordination with the Board of Directors, to appoint and dismiss current plans for the company business; the CEO deputies, the chief accountant, the head of the legal – to monitor the implementation of long- service, the head of the internal audit (control) subdivision, the head term and short-term plans and programmes of the security service, the head of the subdivision for preparing of the company along with investment, financial, and implementing competitive procurement, and the heads and other projects of the company; of the company branch offices and representative offices; The Management Board and the CEO – to prepare and submit to the Board of Directors – to ensure the implementation of resolutions of the General Meeting proposals regarding Gazprom Neft PJSC of Shareholders, the Board of Directors, and the Management participation and termination in other Board of the company, and performance of obligations to the budget The Management Board and the CEO PJSC Management Board members one of his deputies performs organisations (including foreign entities), opening and contractors; are the Gazprom Neft PJSC executive are set out in the Gazprom Neft PJSC his functions: V. Yakovlev or A. and closing branch offices and representative – to make resolutions on participation and termination of the company bodies. The company Management by-laws. Cherner. The deputy is elected upon offices of the company. participation in other entities, if such resolution involves a transaction Board is a collective executive body, the recommendation of the Chairman in the amount not exceeding 0.2% of the company assets book value, which manages its ongoing business. The company CEO A. Dyukov of the Management Board determined on the basis of its accounting statements as at the last In accordance with the Gazprom Neft (in December 2006, by a majority of votes of elected reporting date, or is connected with the reorganisation or liquidation PJSC Charter, the Management Board he headed the company Management Board members. of an entity with the book value of assets not exceeding ₽1 billion; – to make resolution in accordance with the procedure for transactions, is formed by the Board of Directors for the first time, and in December In the absence of the Chairman on transactions in the amount not exceeding 0.2% of the company upon the recommendation 2016 he was re-elected for the next of the Management Board assets book value, determined on the basis of its accounting statements of the company Chief Executive five years) is also the Chairman and his deputies, any Management as at the last reporting date. Officer. The term of the Management of the Management Board, whose Board member may perform Board members office is also functions include organising the functions of the Chairman, determined by the Board of Directors. the Management Board work. in accordance with the Management Requirements for professional In the absence of the Chairman Board decision. qualification of the Gazprom Neft of the Management Board,

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Members of the Management Board as at 31 December 2019

ALEXANDER IGOR ALEXANDER ELENA DYUKOV ANTONOV DYBAL ILYUKHINA Chairman Member of the Management Member of the Management Member of the Management of the Management Board, Board, Deputy CEO Board, Deputy Board, Deputy CEO for Legal Chief Executive Officer for Security CEO for Corporate and Corporate Matters Communications Interest in the authorised Interest in the authorised capital Interest in the authorised Interest in the authorised capital (as at 31 December 2019) capital capital (as at 31 December 2019) 0.005357244 % (254,003 (as at 31 December 2019) (as at 31 December 2019) None shares) None None

BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS

Born in 1967. Born in 1951. Born in 1966. Born in 1969. Graduated from the Order of Lenin Leningrad Shipbuilding Institute. Graduated from the Leningrad Institute of Aviation Instrumentation. Graduated from the Leningrad Electrotechnical Institute. Graduated from the Ulyanov (Lenin) St Petersburg State In 2001, Mr. Dyukov received the IMISP MBA degree. 2005–2007 – Vice-President for Security, Sibneft. From 2007 – member of the Management Board of Gazprom Neft PJSC, Electrotechnical University, the St Petersburg State University. From 2006 – President. From December 2007 the Deputy CEO for Security, Gazprom Neft PJSC. Deputy CEO for Corporate Communications. In 2001, Ms. Ilyukhina got a PhD in Economics. from December 2007 – Chairman of the Management Board, Chief Executive Mr. Dybal is in charge of regional and information policy, internal From 2007 – member of the Management Board of Gazprom Neft PJSC, Officer, Gazprom Neft PJSC. and marketing communications in the Company. Deputy CEO for Legal and Corporate Affairs. In charge of legal and corporate support of the Company’s activities. POSITIONS HELD IN OTHER ORGANISATIONS POSITIONS HELD IN OTHER ORGANISATIONS From 2005 – member of the Board of Directors, Chairman of the Board of Directors, Deputy Chairman of the Board of Directors of «SIBUR Holding» From 2015 – member of the Board of Directors of Gazprom-Media; POSITIONS HELD IN OTHER ORGANISATIONS PJSC; from 2015 – member of the Board of Directors of TNT TV network; from 2007 – member of the Supervisory Board of the Union of Oil and Gas from 2017 – member of the Board of Directors of Gazprom-Media From 2009 – Chief Executive Officer of Gazpromneft Eastern European Industry Organisations «Russian Gas Society»; Entertainment TV LLC; Projects JSC (previously, MFC Lakhta Centre JSC); from 2008 – member of the Board of Trustees of the Federal State Budget from 2018 – Chairman of the Board of the’Home Towns’ Social from 2010 – member of the Supervisory Board of Gazprom Neft Educational Institution of Higher Education «St Petersburg Mining University»; Initiatives Support Foundation. International S.A.; from 2010 – member of the Board of Directors of SKA Ice Hockey Club CJSC; from 2012 – member of the Board of Directors from 2010 – member of the Board of Trustees of the All-Russian Non- of Gazpromneft-Sakhalin; Governmental Organisation «Russian Geographical Society»; from 2018 – member of the Board of Directors, Chairman of the Board from 2012 – member of the Board of Directors of Hockey City LLC; of Directors of FC Zenit JSC; from 2013 – member of the Management Board, member of the Bureau from 2018 – member of the Supervisory Board of the St Petersburg of the Management Board, Chairman of the Committee on Industrial Security, Electrotechnical University «LETI». Co-Chairman of the Commission on Oil and Gas Industry of the All-Russian Non- Governmental Organisation «Russian Union of Industrialists and Entrepreneurs»; from 2014 – member of the Presidium of the Football Federation of St Petersburg; from 2014 – member of the Executive Committee, Chairman of the Committee of Football Development Programmes of the Football Union of Russia; from 2014 – member of the Board of Trustees of the Chess Federation of Russia; from 2015 – member of the Board of Trustees of the Foundation for Support of Scientific and Project Activities of Students, Postgraduate Students and Young Scientists “National Intellectual Development”; from 2015 – member of the Board of Trustees of the Federal State Budgetary Educational Institution of Higher Education «Gubkin Russian State University of Oil and Gas (National Research University)»; from 2018 – member of the Board of Trustees of the Lomonosov Moscow State University High School; from 2019 – President of the Football Union of Russia; from 2019 – member of the Presidential Council of the Russian Federation for the Development of Physical Culture and Sport. from 2020 – member of the Governmental Commission on the Use of Information Technologies for Improving Quality of Life and Business Environment.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Members of the Management Board as at 31 December 2019 (continued)

KIRILL ANATOLY VADIM ALEXEY KRAVCHENKO CHERNER YAKOVLEV YANKEVICH Member of the Management Deputy Chairman Deputy Chairman Member of the Management Board, Deputy CEO of the Management Board, of the Management Board, Board, Deputy CEO for Administration Deputy CEO for Logistics, Deputy CEO for Upstream for Economics and Finance Processing and Sales (Downstream) Interest in the authorised Interest in the authorised Interest in the authorised capital Interest in the authorised capital capital (as at 31 December 2019) capital (as at 31 December 2019) (as at 31 December 2019) (as at 31 December 2019) 0.000068462 % 0.001051526 % None (3,246 shares) None (49,856 shares)

BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS

Born in 1976. Born in 1954. Born in 1970. Born in 1973. Graduated from Lomonosov Moscow State University, the Open Graduated from the Grozny Oil Institute. Graduated from the Moscow Engineering Physics Institute, Graduated from the St Petersburg Electrotechnical University «LETI», University (UK), and IMD Business School. Holds a Grand PhD From 2007 – member of the Management Board of Gazprom Neft PJSC, and the Higher School of Finance of the International University the LETI-Lovanium International School of Management. in Economics, Professor Deputy CEO for Logistics, Processing and Sales (Downstream). in Moscow. In 2004, Mr, Yankevich received the Certified Management Accountant 2009–2017 – CEO of Naftna Industrija Srbije A.D., Novi Sad; Mr. Cherner is in charge of oil refining, logistics, and sales of oil In 1999, Mr. Yakovlev received the qualification of the Chartered (CMA) qualification. 2009–2017 – member of the Management Board of Gazprom Neft PJSC, and petroleum products in the Company. Association of Certified Accountants (ACCA), and in 2009, Mr. Yakovlev 2007–2011 – Head of the Budgeting and Planning Department, Head Deputy CEO for Foreign Asset Management, Gazprom Neft PJSC. received a diploma from the British Institute of Directors (IoD). of the Economics and Corporate Planning Directorate, Gazprom Neft From 2017 – member of the Management Board, Deputy CEO POSITIONS HELD IN OTHER ORGANISATIONS 2007–2011 – member of the Management Board, Deputy CEO OJSC. for Administration, Gazprom Neft PJSC. for Economics and Finance, Gazprom Neft PJSC. From 2012 – member of the Management Board of Gazprom Neft PJSC, From 2006 – member of the Board of Directors of SLAVNEFT; 2011–2019 – First Deputy CEO, Deputy Chairman of the Management Deputy CEO for Economics and Finance. POSITIONS HELD IN OTHER ORGANISATIONS from 2007 – member of the Board of Directors, Chairman of the Board Board, Gazprom Neft PJSC. of Directors of Slavneft-YANOS; From 2019 – Deputy Chairman of the Management Board, Deputy CEO From 2017 – member of the Board of Directors, Chairman of the Board from 2009 - member of the Board of Directors of SPIMEX JSC; for Upstream, Gazprom Neft PJSC. POSITIONS HELD IN OTHER ORGANISATIONS of Directors of the Information Technology Service Company (ITSC); from 2009 – member of the Board of Directors, Naftna Industrija Srbije In the Company, Mr. Yakovlev supervises the upstream matters, from 2019 – member of the Board of Directors, Chairman of the Board A.D., Novi Sad; strategic planning, and M&A transactions. From 2011 – member of the Board of Directors, Chairman of the Board of Directors, Noyabrskneftegazsvyaz LLC. from 2009 – member of the Supervisory Board of Mozyr JSC; of Directors, Gazpromneft Lubricants Italia; from 2016 – member of the Board of Directors of Gazpromneft POSITIONS HELD IN OTHER ORGANISATIONS from 2013 – member of the Board of Directors of SLAVNEFT; Lubricants Italia. from 2013 – member of the Board of Directors, Naftna Industrija Srbije From 2007 – member of the Board of Directors of SLAVNEFT; A.D., Novi Sad. from 2009 – member of the Board of Directors, Chairman of the Board of Directors, Naftna Industrija Srbije A.D., Novi Sad; from 2011 – Chairman of the Supervisory Board, member of the Supervisory Board, Salym Petroleum Development N. V.; from 2012 – member of the Board of Directors of Gazpromneft-Sakhalin; from 2016 – member of the Supervisory Board of the University of Tyumen; from 2019 – member of the Board of Directors, Chairman of the Board of Directors, MP IP New Industry LLC;

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Members of the Management Board, whose Member of the Management Board Report on performance Issues considered authority was terminated in the reporting year In 2019, 20 meetings of the Gazprom after the reporting date of the Management Board in 2019 by the Management Board Neft Management Board were held, in 2019, a breakdown by area and seven of them were in-person The Gazprom Neft Management meetings. At the meetings, various Board meets on a regular basis, Issue 2019 issues related to the current activity taking into account the resolutions of the company Management Board PAVEL ANDREY Strategic 5 were considered, including: of the General Meeting • on approving the updated Key-Risk KOLOBKOV PATRUSHEV Corporate governance 5 of Shareholders, the Board Register of Gazprom Neft PJSC; Member of the Management Member of the Management of Directors, and the issues raised Budget planning • on the results of the Partnership Board, Deputy CEO Board, Deputy CEO 5 for Federal Government for Offshore Development by the CEO and members and financing Management programme, Relations (from 2 March until 25 October 2019. of the Management Board. and proposals for development 2020) Other 12 of the partnership management Interest in the authorised The Management Board work plan TOTAL 27 system in Gazprom Neft PJSC; Interest in the authorised capital is developed based on the suggestions • on executing the Investment capital (as at 5 October 2019) coming from heads of the Gazprom Programme, the Budget (financial None None Neft subdivisions. plan), and the financial borrowing programme of the Gazprom Neft Group for 2018, based on the group Number of meetings held by the Management Board in 2015–2019 performance in 2018; BIOGRAPHICAL DETAILS BIOGRAPHICAL DETAILS • on establishing subsidiaries, Meeting format 2015 2016 2017 2018 2019 and disposal of assets; Born in 1969. Born in 1981. • on information disclosed Graduated from the State Central Order of Lenin Institute of Physical In 2003, graduated from the Academy of the Federal Security Service In-person 8 15 12 8 7 by Gazprom Neft PJSC; Education, and Kutafin Moscow State Law University (MSAL). of the Russian Federation, majoring in jurisprudence; In absentia 6 7 4 13 13 • on improving corporate An Honoured Master of Sport. in 2006, Mr. Patrushev graduated from the Diplomatic Academy governance efficiency From 2007 – Deputy CEO, Dynamo Sports Club. of the Ministry of Foreign Affairs of the Russian Federation, majoring TOTAL 14 22 16 21 20 in the Gazprom Neft Group; from 2010 – Deputy Minister of Sport, Tourism and Youth Policy in global economics; (following the restructuring of the ministry in 2012 — Deputy Minister in 2008 – from the National University of Oil and Gas «Gubkin • on the strategy of the Upstream of Sport), simultaneously being a member of the Civic Chamber University», majoring in oil and gas engineering. Division development in the MENA of the Russian Federation. From 2015 through October 2019, Mr. Patrushev held the position region; 2016–2020 – Minister of Sport of the Russian Federation. of the member of the Management Board, Deputy CEO for Offshore Attendance of the Management Board members at meetings in 2019 • on the Gazprom Neft PJSC talent from 2016 – Full State Counsellor (2nd class) of the Russian Federation. Development, Gazprom Neft PJSC. management programme; Awarded the Order of Honour medal, the Order of Friendship medal, Total number • on the business plan the Order of Alexander Nevsky medal, and the Order for Service Number of meetings of meetings, which of the Downstream Division to the Fatherland medal (1st and 2nd classes). attended by the Management could be attended for 2020—2022; from March 2020 – member of the Gazprom Neft PJSC Management Board member, including by the Management • on transforming the business Board, Deputy CEO for Federal Government Relations. VLADISLAV Full name written votes Board member model for the Regional Sales BARYSHNIKOV Alexander Dyukov, Directorate of the Downstream Division, Gazprom Neft PJSC; Member of the Management Chairman of the Management 20 20 • on the business plan Board, Deputy CEO Board for International Business of the Upstream Division Development from 18 for 2020—2022; November 2009 through 18 Igor Antonov 18 20 • on the business plan November 2019. of the Gazprom Neft Group Alexander Dybal 20 20 for 2020—2022. Interest in the authorised capital Elena Ilyukhina 18 20 (as at 18 November 2019) Kirill Kravchenko 19 20 None Anatoly Cherner 20 20

BIOGRAPHICAL DETAILS Vadim Yakovlev 18 20

Born in 1965. Alexey Yankevich 20 20 Graduated from the Red Banner Military Institute. Vladislav Baryshnikov, 2002–2009 – Director of the Gazprom OJSC representative office There were no transactions related to the acquisition Management Board member until 12 14 or disposal of the company shares by the Chairman in the People’s Republic of China, the regional representative office in the countries of the Asia-Pacific Region. 18 November 2019 and members of the Management Board in the reporting The State Counsellor of the Russian Federation, 3rd Class. Andrey Patrushev, Management year. In 2009–2019, Mr. Baryshnikov held the position of the member of the Management Board, Deputy CEO for International Business Board member until 25 October 11 12 Development, Gazprom Neft PJSC. 2019 In 2019, no claims were filed against the Chief Executive In the Company Mr. Baryshnikov supervised the issues related Officer and members of the Management Board. to international business development, and interaction with foreign partners.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Remuneration The main goals of the annual bonus the group, a division, an organisation, Remuneration payable to governance bodies of the Management Board system: a subdivision, and individual – providing motivation performance and efficiency The Company has put in place a well- for achieving the annual targets, of employees, measured on the basis Remuneration of the Board positions in the company executive of Directors), and the Chairman structured and fair remuneration and, consequently, the company’s of annual contribution assessment. of Directors bodies (do not serve as executive of the Board of Directors committee scheme for the Management Board strategic goals; implementing directors), in 2019 amounted to 0.005% (50% of the remuneration paid and senior management that links the principle of performance- The company believes that Remuneration payable of EBITDA, based on the Gazprom to committee members). bonuses to short-term targets. On top based payment, and improvement the success (efficiency) of its current to the Board of Directors Neft consolidated financial statements of bonuses for achieving the said of employee efficiency; business, and implementation is linked to the financial performance (IFRS) for 2018. The total amount of remuneration targets, the Company introduced – formalising general rules, of long-term strategic-development of the company, and is approved annually paid to the members of the Board incentives hinging on its market and determining uniform corporate measures, which form the basis by shareholders. The discretionary Apart from the base remuneration, of Directors in 2019 was ₽531.7 million capitalisation in the three-year standards in the field of annual for high-quality development control by shareholders is necessary the members of the Board of Directors (the amount includes personal income horizon. bonuses paid to the Gazprom Neft of the company in the medium to prevent potential abuse received the additional compensation tax). Members of the Board of Directors Remuneration payable Group employees. and long term, are equally of the remuneration process. for serving as the Chairman were not reimbursed for their expenses to the Management Board includes: important. Therefore, when goals of the Board of Directors (50% related to membership in the Board – base remuneration; Annual Bonus Policy principles: for the reporting period are set, both In accordance with the resolution of the remuneration paid to members of Directors in 2019. – an annual bonus; – focusing on achievement of key financial and operating indicators, of the General Meeting of Shareholders, of the Board of Directors), a member – the Long-Term Incentive strategic / priority goals; and business initiatives are taken the remuneration accrued of the Board of Directors committee Programme (LTIP) – taking into account employee into account: and paid to the members of the Board (10% of the remuneration paid impact on performance; – the financial and operating of Directors, who do not hold any to the members of the Board The amount of the base – ensuring transparency and clarity. indicators (FOI) are indicators remuneration is specified individually, covering the most important and formalised in employment The main parameters of the annual aspects of current operations; Remuneration paid to the members of the Gazprom Neft PJSC Board of Directors for participation contracts. bonus system: – business initiatives (BI) in the governance body in 2019 – a list of the annual bonus system are objectives aimed at improving The annual bonus is designed participants (for the Policy the company business, including Full name Position Amount, ₽ to motivate key managers to achieve purposes, they include all full- future activity. Alexey Miller Chairman of the Board of Directors 59,962,950 annual targets and is calculated time employees of the company, following the review and approval excluding the Gazprom Neft Strategic target indicators (planned Vladimir Alisov Member of the Board of Directors 39,975,300 of their performance against a set PJSC CEO, employees of project and actual) are approved by the Board Andrey Dmitriev Member of the Board of Directors 39,975,300 of KPIs and business initiatives. offices working under fixed- of Directors of Gazprom Neft PJSC. Valery Golubev Member of the Board of Directors, member of the Audit Committee 43,972,830 The KPIs cover metrics to assess term employment contracts, delivery on the Company’s strategic and workers at production Member of the Board of Directors, chairman of the Human Resources Igor Fedorov 45,971,595 goals, along with corporate, financial, facilities); and Compensation Committee project performance and HSE – target percentage of the annual Member of the Board of Directors, member of the Human Resources Andrey Kruglov 43,972,830 compliance metrics. bonus (specified depending and Compensation Committee on an employee position); Elena Mikhailova Member of the Board of Directors, member of the Audit Committee 43,972,830 To boost the efficiency – factors having an impact of financial incentives offered on the annual bonus amount: Kirill Seleznev Member of the Board of Directors 39,975,300 to employees to meet annual targets achieving KPIs, and executing Mikhail Sereda Member of the Board of Directors, chairman of the Audit Committee 45,971,595 and, by extension, the Company’s business initiatives. Valery Serdyukov Member of the Board of Directors 39,975,300 strategic goals, the Board of Directors approved Annual Bonus These principles are being Member of the Board of Directors, member of the Human Resources Sergey Fursenko 43,972,830 and Compensation Committee Policy, an underlying document that implemented through correlation links KPIs with annual bonuses between the bonus amount Member of the Board of Directors, member of the Human Resources Vsevolod Cherepanov 43,972,830 payable to the Company’s and its and the achievement of annual and Compensation Committee subsidiaries’ Employees. goals, that may be set at various Alexander Dyukov Executive member of the Board of Directors Compensation is not paid levels, depending on the position: TOTAL 531,671,490

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Strategic target performance indicators for 2019 Total compensation for 2019, with a breakdown by payment type, ₽ thousand

Metric 2019 (plan) 2019 (adjusted plan) 2019 (actual) Metric Board of Directors Management Board Total Normalised consolidated earnings before interest, tax, 757.3 777.7 795.1 Compensation for serving on governance bodies 531,671 – 531,671 depreciation and amortisation (EBITDA), ₽ billion Salary – 726,837 726,837 Economic value added (EVA), ₽ billion 66.4 120.4 137.7 Bonuses – 674,028 674,028 Return on average capital employed (ROACE)1, % 14.6 16.8 17.4 Other – 37,562 37,562 Net Debt-to-EBITDA ratio 0.85 0.74 0.70 TOTAL 531,671 1,438,427 1,970,098 Total proved reserves, including a share 3,656 3,644 3,709 in subsidiaries 2,mt of oil equivalent Reserve-replacement ratio (RRR), % 100 83 102 Hydrocarbon production, mt of oil equivalent 96.5 96.3 96.1 The Long-Term Incentive Programme are the Company’s senior managers for the reporting period, and medical Refining volume, mt 41.8 41.3 41.5 based on share price growth, provided they meet certain criteria. treatment and assistance. is an integral part of the long-term The remuneration is based Premium sales of petroleum products, mt 26.4 26.3 26.5 Growth Strategy of the Gazprom on fair value at the end of each In 2019, the Management Board Conversion rate, % 82.8 82.8 82.7 Neft Group, and provides for paying reporting period and is payable received no additional remuneration Labour productivity, ₽ million per person 36.67 38.09 39.79 compensation to management at the end of a three-year spell. for membership in the Company’s for increasing the group value The compensation depends on certain or its subsidiaries’ governance Equity-to-debt ratio, % 32.2 33.3 32.3 for shareholders for a particular market conditions and duties, bodies. Oil production3, mt 64.9 63.7 63.3 period. which are taken into account, when Sales of crude oil and petroleum products, mt 74.4 72.3 72.1 the amount to be paid to particular The company did not give loans The Programme seeks to: employees is determined. Expenses to members of the Board of Directors 4 Net profit , ₽ billion 333.8 380.5 400.2 – boost the Company’s long-term are recognised throughout the entire and the Management Board. Net working capital, ₽ billion 45.3 20.9 71.5 performance ; period of implementing the plan. Inventory turnover, days 28.3 28.4 29.0 – harmonise the interests In 2019, provisions amounting of the Company’s shareholders to ₽1,526.8 million were accrued Ratio of accounts-receivable growth rate to revenue 0.98 1.00 1.59 and senior management; under the Long-Term Incentive growth rate (without the group turnover) – balance short-term results Programme (LTIP) for 2018-2020. Operating expenses, ₽ billion 2,092.3 2,052.0 2,038.7 and long-term sustainability; Limit on capital-investment financing sources, ₽ billion 507.8 486.2 486.2 – attract and retain senior managers Remuneration accrued in line with best domestic to the Management Board in 2019 and international practices. amounted to ₽1,438.4 million. The payments included salaries The Programme rewards for the reporting period, applicable / 1 / Under the IFRS. Based on adjusted EBIT and income tax rate including share in JVs. are conditional on positive changes taxes, and other statutory payments / 2 / In the budget of 2017 and onwards, hydrocarbon reserves in accordance with the Russian classification are categorised into АВ1 + С1 based to the Company’s market cap in each to budgets and non-budget funds, on the new classification (Order of the Russian Ministry of Natural Resources and Environment No. 477 of 2013). of the programme’s three-year bonuses, paid annual leave / 3 / Including production of condensate and natural gas liquids. periods . Eligible for participation / 4 / Profit attributable to shareholders in Gazprom Neft PJSC.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices INTERNAL CONTROL AND RISK MANAGEMENT

Internal Control The Board of Directors The Audit Committee Executive bodies of Gazprom Neft PJSC implements functions and senior management The Internal Control Policy – inform the relevant governance – timely settle conflicts implements the following aimed at: of the company of Gazprom Neft PJSC, approved bodies of material control of interest emerging in the course functions, as part • preparing recommendations are implementing of the general governance functions aimed at: by the Board of Directors in 2017, weaknesses and suggest remedial of business. for the Board of Directors of the company business: of Gazprom Neft PJSC is the principal document specifying actions; • organising development regarding organisation, and efficient operation goals, objectives, components, – ensure business continuity • establishing a proper control operation, performance environment, adopting the internal of the internal control and principles of organisation and maximum efficiency, along Internal control units assessment and improvement system, through approval control culture, maintaining high of the company internal and functioning of the company with sustainability and evolution, composition, and allocation ethical standards at all levels of local regulations internal-control system. Efficient including timely adaptation control system, and other regarding the content of functions of the company activity; issues within the competency operation of the internal control to changes in the internal • specifying principles and rules for implementing of the Audit Committee internal control procedures system is based on the involvement and external environment; The composition of internal control and approaches to organisation (including preparation and operation of the company by the company structural of top managers, heads of structural – provide high-quality informational, units in the company, and allocation of recommendations after subdivisions within their lines internal control system; considering the Internal Control units, and all employees methodological and analytical of functions related to organising • analysing and assessing of business; Policy); • establishing the proper of the company. support for the management and maintaining the efficient work the efficiency of organisation • ensuring preliminary decision-making; of the internal control system among and operation of the company control environment, adopting consideration of internal control the internal control culture, The internal control system aims to: – ensure proper allocation them, are described below. internal control system, including issues; annual consideration of respective maintaining high ethical – identify and assess risks that of responsibility, authority, • ensuring preliminary standards at all levels issues, and preparing consideration of the Internal may prevent the company and functions among internal recommendations to improve it (if of the company activity, which Control Policy (before approval ensures efficient organisation from achieving its goals; control units, with no overlapping needed). Information on efficiency by the Gazprom Neft PJSC Board – develop, adopt, properly execute, of functions; of the internal control system and operation of the internal of Directors); control system; monitor and improve control – continuously improve is disclosed to shareholders • analysing and assessing as part of the company Annual • allocating authority, duties procedures at all levels of business the control framework the efficiency of the internal and responsibility among heads Report , and as part of the report control system operation; operation and the company with respect to information of the Gazprom Neft PJSC Internal of structural subdivisions, • analysing compliance related to establishing, adopting, management; technology; Audit Department on the company of the company statements performance; maintaining, monitoring and external audit results and improving the efficient • monitoring of implementation with the Russian laws, of orders and resolutions organisation and operation international financial of the company internal control of the Gazprom Neft PJSC Board reporting standards, Russian of Directors and shareholders system; accounting standards, and other • conducting regular assessment by the company executive bodies; regulations; • controlling the company of the company employees • considering detected performance and personnel compliance with laws or assumed facts of fraud of the Russian Federation, training, in the field of internal on the part of the company control due to changes corporate governance, employees. and disclosure of complete in internal and external and correct information conditions of the company on the company to stakeholders; operation. • approving the Internal Control Policy.

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The Internal Audit Department To deliver on its objectives, – ensure completeness Heads of structural units The Internal Audit The company Audit Commission within the Internal Audit the Internal Audit Department has and timeliness of improvement and the company employees Department, part is controlling preparation of accurate and Risk Management been given the remit to: measures with respect to internal are implementing of the Internal Audit financial statements, and other Directorate – draw up an the Internal Audit control, corporate governance functions aimed at: and Risk Management information on the company financial Department’s plan, including and risk management processes • developing, documenting, Directorate, and business operations, and its annual and projected audit suggested based on audit results; adopting, executing, is performing financial position. To conduct systematic independent schedules, and submit them – gather, consolidate monitoring (conducting self- the following functions: assessment) and improving assessment of reliability to the Audit Committee and analyse information control procedures, as part • doing independent and objective and efficiency of the corporate- for approval; required for the Internal Audit of respective competencies assessment of the efficiency Audit Committee governance, risk-management – organise and perform due internal Department to deliver on its within their responsibility; of the company internal control system organisation and internal-control system, audits and consultations across functions and certain instructions • reporting to immediate The Audit Committee is a permanent the company performs internal audit. the company and its entities based of the company management; supervisors in a timely manner and operation, based on the risk- about the cases when it was focused approach; body controlling the Gazprom Neft on Russian and international – establish and improve the Internal impossible to carry out control • developing and monitoring financial and business operations. It The Internal Audit and Risk internal audit best practices; Audit Department’s operations procedures, and/or when adoption of recommendations acts for the benefit of shareholders, Management Directorate of Gazprom – independently and objectively based on standards; for eliminating drawbacks organisation of the control and is accountable to the General Neft PJSC is functionally accountable assess the reliability and efficiency – contribute to the development, procedures needs to be changed, revealed during audits; due to changes in internal • providing advice for stakeholders Meeting of Shareholders. to the Audit Committee of the Board of the company risk management, launch and operation or external conditions within the company, in relation of Directors, and has a direct internal control and corporate of automated internal audit of the company operation. to organisation and operation In accordance with the Charter administrative reporting line governance frameworks based management systems of the company internal control system; and the Regulation on the Audit to the company CEO. on the risk-oriented approach; in the Company and coordinate • reporting about the results Committee, the Committee inspects – inform the company Audit relevant development efforts of the internal control system the company financial and business The internal audit function is held Committee and executive in the Company entities; assessment, and of proposals operations, and forms an independent by the Internal Audit Department, bodies of internal control, risk – draw up and implement for its improvement to the Audit opinion regarding the company which is part of the Internal Audit management and corporate the Programme to Warrant Committee, the company executive bodies, and (if needed) position. It presents its conclusions and Risk Management Directorate, governance frameworks the Performance and Boost the Gazprom PJSC structural to shareholders at the General with its head being appointed subject assessment results the Quality of Internal Audit Membership of the Audit subdivision responsible Meeting of Shareholders, in the form to approval by the Board of Directors . and improvement suggestions; approved by the Audit Committee; Committee for internal audit. of an opinion attached to the Annual – come up with suggestions – following audits, ad hoc From 9 June 2018 Report of Gazprom Neft. The key objective of the Internal Audit to eliminate gaps and violations, inspections, investigations through 13 June 2019: Department within the Internal Audit identify their causes, produce and consultations, produce • Vadim Bikulov; Remuneration and Risk Management Directorate recommendations to improve recommendations to improve • Mikhail Veigel; • Galina Delvig; to members of the Audit is to provide the Board of Directors the company performance the Company performance • Margarita Mironova; Committee is paid on the basis (through the Audit Committee) and provide this information and eliminate gaps, bringing • Sergey Rubanov. of a resolution of the General Meeting and the company management to the company management; them to the attention of relevant From 14 June 2019 through 31 of Shareholders. (the CEO and the Management – provide advisory decision makers; December 2019: Board) with independent, unbiased, support to stakeholders – assess the effectiveness • Vadim Bikulov; reasonable and substantiated within the company of the company anti-fraud • Mikhail Veigel; guarantees and consultations aiming with respect to the establishment and anti-corruption efforts; • Galina Delvig; • Margarita Mironova; to improve the company performance and maintenance of internal – ensure gathering and processing • Sergey Rubanov. and achieve the company goals control, risk management of information on cases and signs by advocating a systematic and corporate governance of fraud and corruption via ₽4,520,000 and consistent approach to assessing frameworks; the Hotline to Report Fraud, and enhancing the efficiency – where necessary, duly engage Corruption and Other Violations annual remuneration paid to the Audit of corporate governance, risk independent external advisors of Gazprom Neft’s Corporate Code Committee members in 2019 management and internal control and experts (within the Internal of Conduct; processes. Audit Department’s approved – ensure completeness budget) to provide internal audit and timeliness of measures taken related services;

164 ANNUAL REPORT 2019 05 GOVERNANCE SYSTEM 165 GAZPROM NEFT

Company profile The Board of Directors determined Strategic report Performance the amount of payment Technological development for the audit of financial (accounting) 27,300,000 Governance system ₽ Sustainable development statements of Gazprom Neft PJSC for 2019 Appendices (excluding VAT) at the level of

as per instructions of the company The Internal Audit and Risk Management Directorate is headed by External auditor The company auditor with the auditor representatives (if management following audits. G. Delvig. is approved by the General needed). Throughout 2019, the Audit To validate and confirm its Meeting of Shareholders based Committee considered the following The head of the Internal Audit GALINA annual financial statements, on the proposal from the Board issues related to external audit: and Risk Management Directorate the сompany annually engages of Directors. Candidates for becoming – on assessing candidates reports to the Audit Committee DELVIG a professional audit firm, selected an audit organisation for the company for becoming the Gazprom Neft and the Board of Directors from the largest international audit undergo preliminary assessment PJSC auditors, and providing about the Directorate performance Interest in the authorised companies, which has no property by the Audit Committee. recommendations for the Gazprom for a reporting period at least once capital interest in the company or its Neft PJSC Board of Directors; (as at 31 December 2019) in six months, and regularly provides shareholders. The main principles In June 2019, the annual General – on the results of the external audit information on other issues within None of organising and conducting Meeting of Shareholders selected for 2018; the Audit Committee competency external audit, the procedure Financial and Accounting Consultants – on a candidate for the Gazprom at current meetings, in-person and criteria for selecting Limited Liability Company (FBK LLC) Neft PJSC auditor for 2019; and in absentia. auditors, and approaches as an auditor of financial statements – on assessing the Auditor’s opinion to ensuring that the auditors comply (RAS and IFRS) for 2019. about financial (accounting) In 2019, the Internal Audit BIOGRAPHICAL DETAILS with the principles of independence statements of Gazprom Neft Department completed all audit and absence of conflicts of interest, In over 28 years of cooperation PJSC for 2018 prepared Born in 1960. projects scheduled for the reporting Education: Plekhanov Moscow Institute of National Economy are formalised in the External Audit between FBK and Russian business by PricewaterhouseCoopers Audit period, in the fields of corporate Since 2008, she has headed the internal audit function of Gazprom Neft PJSC. Policy of Gazprom Neft PJSC. leaders in all key sectors of economy, JSC; governance, IT and investing activities, Ms. Delvig is a member of audit commissions of Gazprom Neft PJSC, Oil and Gas Company the company has accumulated – on the results of assessing SLAVNEFT, Tomskneft VNK JSC, and FC Zenit JSC and in the main production lines Auditors are selected on the basis unique practical experience the Gazprom Neft PJSC external of the company business. As part of a tender, based on assessment of implementing major projects, such auditor work for 2018; of those projects, the Internal Audit In 2019, the Internal Audit Department Based on the Internal Audit in accordance with the following as the projects for the fuel and energy – on considering the External Department paid special attention also completed the audits of cross- Department’s recommendations, criteria: sector. Ongoing collaboration Audit Policy of Gazprom Neft to analysing, detecting and assessing functional lines of the company the management has developed a set – participant qualification with representatives of the oil and gas PJSC and its subsidiaries systemic high-level areas for various business, including those related of measures to enhance internal and expertise in the selection industry provides the company and organisations; lines of the company business. to assessing performance controls effectiveness as regards area, including the experience specialists with deep understanding – on determining the amount of the internal control system used business processes and has been of auditing oil and gas companies; of current industry problems of payment for the auditor services For instance, the internal audit was for processes in finance, IT, HSE working on their implementation – ensuring data protection and challenges. FBK has been for 2019; focused on production processes, and investment activities of Gazprom along with the amendment of internal and compliance with requirements cooperating with Gazprom PJSC – on preparing proposals including geological exploration Neft PJSC. regulations and procedures. of loan agreements (including since 1996. As part of consulting for a competition commission and resource base development, On top of audits, the Internal Audit rating agencies); services provided to the Gazprom to select an audit organisation , oil and APG In addition, the Internal Audit Department also focused on extending – financial parameters (cost Group organisations, FBK specialists to carry out the mandatory annual metering, and energy efficiency Department conducted the audit consultancy services to improve of services, payment conditions); have completed over 250 major audit of Gazprom Neft PJSC; management. Moreover, the auditors of financial (accounting) statements the Company’s performance. – independence (in accordance projects and provided numerous – on the results of the action plan assessed the internal control system as part of activity of audit with the requirement consultations. It has implemented to eliminate drawbacks detected used for processing and selling commissions. of the Ministry of Finance more than 85 projects on preparing in the course of Gazprom Neft crude oil and petroleum products, of the Russian Federation feasibility studies, cost-effectiveness PJSC external audit for 2018. and qualitative and quantitative – Clause 2.112 of the Rules analysis of investment projects, control of petroleum products. for Independence of Auditors developing financial models The Board of Directors determined and Audit Organisations, for enterprises, business plans the amount to be paid for the audit and with the international and development strategies. of the Gazprom Neft PJSC financial requirements – Clause 290.219 (accounting) statements for 2019 of the IESBA Code of Ethics, To assess the quality at the level of ₽27,300,000 (excluding the independence of an auditor of an external auditor work, VAT). is not violated, if the revenue per the Audit Committee considers customer does not exceed 15% the external auditor reports, of the auditor›s total revenue). management representations, and holds in-person meetings

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Management of potential conflict – following the procedure by the Board of Directors, which and use it in their personal interests Executives and managers Neft PJSC. The Regulation was of interest for decision-making on the most is mandatory for all Gazprom Neft or the interests of third parties. of structural units, who are engaged supplemented with the section significant issues; subsidiaries. in external relations and contacts «Detection and Prevention The company is committed – following voting procedures The Corporate Code defines on behalf of the company, are most of Conflicts of Interests for Members to balancing the interests of its for related-party transactions; Gazprom Neft approved by-laws (the a conflict of interests, control zones likely to get involved in conflict of the Board of Directors», specifying shareholders and management – engaging independent Corporate Code and the Corporate in managing conflicts of interests, of interest. the procedures for preventing interacting with a high level and well-recognised appraisers Governance Code) formalising values positions of personnel that are most conflicts of interest in the Board of trust, business culture and ethics. to determine the value of non- and principles, which are the basis sensitive to conflicts of interests, The Code states that of Directors: The company majority shareholder cash property under related-party for forming and developing corporate and contains examples of situations the company employees are to inform – in case of a potential conflict has enough votes to resolve transactions; culture in the company. when conflicts of interests may arise. their immediate supervisors of interest for a member on many matters falling within – ensuring maximum transparency The Corporate Code regulates and the Corporate Protection of the Board of Directors, including the remit of the General Meeting and information disclosure when situations when conflicts of interests Gazprom Neft also has Directorate about all cases the interest in a transaction made of Shareholders and to appoint arranging and holding General may arise: accepting gifts, using the Ethics Committee, of corruption, fraud, theft, and conflict by the company, that member the Board of Directors. Nonetheless, Meetings of Shareholders, the company assets and resources, which controls compliance of interest (including suspected of the Board of Directors must the company makes efforts and timely disclosing the Board interaction with stakeholders, with the Company Code provisions. ones). The company has a hotline, send a notification to the Chairman to decrease risks related of Directors’ resolutions; and handling of confidential The Ethics Committee includes an email address and special letter or Secretary of the Board to governance, where most – disclosing information and insider information. members of the Management boxes for employees to report of Directors; of the share capital is held by a single on related-party transactions. To implement individual Code Board under the supervision on violations anonymously. Messages – information on the conflict shareholder. As per the Company’s financial principles, the company approved of the Chairman of the Management to the company hotline may also of interest, including the interest statements for 2019, related-party the required by-laws, for instance, Board. be sent by third parties who in a particular transaction, The ownership structure transactions were entered into inrelation to access to confidential are not the company employees, are to be included in materials is transparent. Rights in the ordinary course of business information, trade secrets, HR policy The main control zones in managing for instance, its contractors. submitted to the members and obligations of shareholders and had clear economic rationales. and succession pool development. conflict of interest are the following: The Board of Directors considers of Board of Directors at a meeting; along with the procedure to exercise Most frequent transactions – selecting contractors, relations the hotline performance twice a year, – The Chairman of the Board ownership rights are clearly specified included sale and purchase The Gazprom Neft Corporate with contractors; including statistics on received of Directors may offer the member in the company Charter and by-laws, of crude oil, gas and petroleum Governance Code requires that – a settlement and payment system, (processed) messages and detected of the Board of Directors, who with the information being publicly products; members of the Board of Directors especially involving agents/ violations. In 2019, the company has the respective conflict accessible. The company ensures – organising mechanisms must refrain from actions that cause, mediators; hotline received 243 messages. of interest, not to attend equality of shareholder voting rights to prevent dilution of the company or may cause, conflicts of interests, – recruiting the company personnel; the discussion of the relevant issue and provides relevant protection value. Thus, contractors from voting on issues related – participation of employees In December 2018, the extraordinary at the meeting, when the nature mechanisms specified in the by-laws. for purchasing products, works to their personal interest, and must in politics and state activities; General Meeting of Shareholders of the issue discussed or specifics and services are selected not disclose the confidential and (or) – charity and sponsorship; approved the new version of the conflict of interest require Key conflict prevention measures in accordance with the Regulation insider information on the company – gifts and entertaiment expenses. of the Regulation Governing that,; at a shareholder level: on Procurement approved the Board of Directors of Gazprom

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Company profile Strategic report Performance Technological development By-laws Information Governance system on the company for investors Sustainable development website and shareholders Appendices

of Directors and the Management – members of the Board of Directors Board. and Risk Management Directorate The company selects an insurer implementation of the company Pursuant to the Regulation and their related parties must report regularly to the company on the basis of accepted tendering information policy, for instance, on Information Disclosure, not accept gifts from parties executives on anti-fraud and anti- procedures. In 2019, the insurer was the information disclosed by Gazprom the Company’s disclosures interested in decision-making, Anti-fraud and anti-corruption corruption issues. Sogaz JSC, based on the corporate Neft PJSC to third parties, including on the Internet include releases and use any other direct or indirect policies and procedures insurance policy. analytical and rating agencies. on the website of a security market benefits provided by such parties D&O insurance information provider (Interfax-CIDC). (except for symbolic sings The basic anti-corruption by-law Information policy The company official website provides of appreciation, which are common of the company and its subsidiaries Since 2011, Gazprom Neft has and information disclosure the following: Transparency is one of the most courtesy, or souvenirs presented is the Anti-Fraud and Anti-Corruption provided the Directors And Officers – the Charter and by-laws; important corporate governance during official events). Policy adopted in 2014. Liability Insurance (D&O). It protects The company seeks to report – information on the shareholding principles of Gazprom Neft PJSC. the company directors and executives on its activities to all stakeholders structure; The company is a stable leader Moreover, the company inspects The Policy defines fraud and other from possible claims of third parties, in a timely manner and regularly, – information on the governance in information disclosure at Russian members of the Management terms related to fraud prevention. that may be made as a result within the scope required to make bodies; and international competitions. Board and their relatives to identify Based on this Policy, the Company’s of unintended and/or erroneous informed decisions regarding – information on the independent conflicts of interest, when they senior management sets a single actions of the company officers. participation in the company auditor and registrar; are employed by the company. ethical standard of unacceptability The D&O policy covers expenses or other actions that may have – other information to be disclosed In accordance with the Regulation of corruption of any type and form. related to legal defence of directors, an impact on the company financial pursuant to the applicable laws on the Management Board, members The Policy outlines methods and the expenses incurred and business operations. and the Company’s by-laws, of the Management Board may and procedures employed in connection with any claims including Gazprom Neft’s annual participate in governance bodies by the Company to combat fraud brought against them, in relation The Company’s information reports . of other organisations, or combine and corruption. These include to performance of their duties. policy is implemented jobs only with the consent a hotline, official investigations by the executive bodies. The company has a special page on its of the Board of Directors. and prosecution with respect The total limit for all insurance Compliance with the information website with answers to common to identified cases of fraud. covers and extensions: €47.6 policy is monitored by the Board questions from shareholders The company checks the information million. Additional liability limit of Directors. The Gazprom Neft and investors, a regularly updated on participation of members Special attention is paid for independent directors: €1.9 executive bodies are responsible investor calendar, the dividend history of the Management Board to corruption risks inherent to the oil million. The insurance cover is valid for implementing the information for the last five years, key performance and the Board of Directors in other industry. The Policy has a section in all countries of the world. policy. In 2019, the Audit Committee indicators, contact details, and other companies on a quarterly basis. on the Company’s business processes of the Board of Directors considered useful information. most exposed to fraud: interacting The company collects and processes with officials, accepting and making information on beneficial owners gifts, entertainment expenses, charity of contractors under all contracts and sponsorship, and financial concluded by Gazprom Neft PJSC arrangements with third parties. and its subsidiaries. The Policy also provides for training of the company employees in zero In 2019, no conflicts of interest tolerance to fraud and the basics were detected among the members of applicable legislation. of the Gazprom Neft Board The Deputy CEO for Security and the head of the Internal Audit

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

in accordance with the Company’s The risk-management objectives The IRMF regulatory – ensuring that all employees In 2020, Gazprom Neft plans Risk management linear and functional management are as follows: and methodological framework understand the basic to continue developing regulatory system, with individual managers – developing risk-management includes the following documents: principles and approaches and methodological documents assigned to oversee specific culture to achieve a common – Risk Management Policy; to risk management adopted regarding analysis of particular Risk management system risk areas At the level of each understanding of the main principles – Integrated Risk Management by the Company; material risks, and integrating risk function and key business process, and approaches to risk management Framework Company’s standard; – providing proper regulatory analysis into the decision-making Gazprom Neft PJSC has coordinators for risks were among executives and employees; – Guidelines for Risk Management and methodological support; processes. The Company also plans the Risk Management determined among executives who – developing and implementing Process; – distribution to expand the training programme Policy that determines risk- disseminate and support corporate an integrated approach to identifying – additional guidelines for certain of powers and responsibilities for executives and employees regarding management goals and principles risk-management principles. and assessing company-wide types of risks and application for risk management among application of risk-management tools to improve the guaranteed The timing and objectives for risk and specific-area risks; of individual risk-analysis tools. the Company’s structural units and methods. reliability of the Сompany’s analysis depend on the particular – promoting exchange operations in the short and long circumstances and requirements of information on risks between Risk management forms an integral term. The Gazprom Neft risk- of each business process, the Company’s structural units, part of the Gazprom Neft internal Developing the Integrated Risk management targets are to improve with respect to which risk and joint development of measures environment, and includes Management Framework the efficiency of management management is implemented. for managing those risks; the following: decisions by analysing the related – regularly presenting information – introducing a risk-focused The Company is continuously risks, and to maximise the efficiency Such an approach allows creating on risks to the Company’s approach in all aspects expanding the IRMF methodological of risk-management measures, when areas of responsibility for risk governance bodies. of production and management framework that includes general implementing the decisions made. management, and monitoring operations; recommendations for quantitative risk risks at all management levels To achieve those goals, the Company – performing systematic analysis assessment and detailed techniques The Company’s risk management of the Company. It also helps develop developed and is using a single of identified risks; for assessing the most significant risks. system is based on the integration target plans to ensure response approach to the risk-management – building a system to control risks of the risk analysis and management to significant risks, both in each process. Together with standardised and monitor the efficiency of risk Aa at the end of 2019, IRMF covered tools into all key corporate processes. subsidiary and in Gazprom Neft risk-analysis tools and methods, that management; all significant assets of Gazprom Neft Responsibility for risk management as a whole. approach forms the Integrated Risk with all new projects or acquisitions and reporting on risks is determined Management Framework (IRMF). included in the framework.

FINANCIAL IMPACT LEVELS OF RISKS AND DISTRIBUTION OF AUTHORITY WITHIN IRMF PRINCIPAL IRMF PROCESS SCHEME IN THE GAZPROM NEFT GROUP

Subsidiary Audit Committee Division Subsidiary Board Detecting Quantitative Developing Monitoring of of Directors Subsidiary (revising) risks and qualitative risk management initiatives at least once a year assessment initiatives at least once a quarter Management Division at least once a year at least once a year Board Subsidiary

Key risks Risks Risks of subsidiaries Making key decisions and assessing of divisions Management management results at the Management Management and monitoring at the level Board meetings. Divisions carry out direct and monitoring of subsidiaries management of this category of risks. at the division level

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Description of key risks

1. Operational risks 1.1. RISKS ASSOCIATED WITH GEOLOGICAL EXPLORATION 1.4. HR RISKS The Company’s key strategic objective is to increase its Gazprom Neft has significant experience in geological Highly qualified personnel is key to effective operation The Company offers a safe work environment, opportunity hydrocarbon resource base both in quantitative and qualitative exploration using cutting-edge geological and geophysical of the Company’s business. A lack of qualified employees, to take part in major projects and exciting challenges, terms to ensure a sufficient production level, which to a large methods of hydrocarbons exploration and employing advanced especially engineering and technology experts, can result competitive salaries, and professional training programmes extent depends on successful geological exploration. drilling and field development technology, including in harsh in risks associated with personnel shortages. The Company’s to its personnel. The main risks associated with geological exploration have to do weather conditions to reduce the likelihood of such risks. success largely depends on the efforts and expertise of key Gazprom Neft is working continuously to improve with failure to confirm the anticipated hydrocarbon reserves The Company has engaged DeGolyer and MacNaughton employees, including qualified engineering staff, and on its the recruitment procedures, limit staff turnover, and provide and the objective decline in resource base quality. A major for an independent audit of its reserves based on the estimates ability to attract and retain such personnel. Competition self-development opportunities for its employees. priority for the Company is geological exploration in a variety by Gazprom Neft subsidiaries. Gazprom Neft closely cooperates for the best talent in Russia and worldwide may intensify due of geographic regions, including areas with adverse climatic with the federal and regional authorities on sustainable use to the shortage of qualified specialists in the labour market. conditions and environmental restrictions, which often involves of natural resources. Failure to attract qualified employees and/ or retain the existing the risk of extra costs. The assessment is based on a number talent pool could have an adverse effect on the Company’s of variables and assumptions, including the following: reputation as an employer. Demand for qualified personnel – comparison of the region’s historical production rates and the associated costs are expected to grow further given with the productivity of similar regions; the significant need for such employees in other industries. – geological data interpretation; – government regulations and legal framework. 1.5. HSE RISKS 1.2. LICENCE RISKS Risks associated with environmental, health and safety In the field of industrial safety, the Company strives As a company engaged in the exploration and mining of mineral The Company has deployed an automated Subsoil Use (including fire safety) legislation that may entail a temporary to achieve the strategic ‘Target Zero’ – zero harm to people, resources, Gazprom Neft operates based on government subsoil Monitoring System, a key risk management tool featuring shutdown of facilities and licence revocation, along with the risks the environment, or property in our operations. licences. These licences specify the purpose of the work (type a risk matrix to track compliance with the main (material) of accidents (fatalities and workplace injuries, fires/explosions/ The main focus areas reflected in the corporate HSE Policy of subsoil use), geographic boundaries of the area, timeframe terms and conditions of subsoil use. The System makes accidents, accidents with environmental consequences Statement include: and terms and conditions of resource use. Under the Russian it possible to assess the current risk status based on the matrix of nationwide scale). – safe production based on risk analysis, mitigation law, using subsoil resources without a licence is subject to civil indicators and plan for an acceptable risk level in the future. and management; and in some cases criminal liability. The status of the current and potential licence risks – reduction of workplace injury and occupational disease rates, In case of early withdrawal of the subsoil licence, the Company as well as implementation of the regular risk mitigation accident hazards and environmental impact; may face reputational risks and material losses related activities are reviewed on a quarterly basis at the meetings – consistent implementation of best global HSE practices. to the costs incurred to acquire the licence and develop of the permanent regional commissions for subsidiary licensing. The risk-based approach and the principle of integrating the subsoil area, as well as lower capitalisation due to reduced Subsidiary CEOs are responsible for maintaining subsoil HSE risks into all key business processes of the Company resource base. licences. underlie the occupational risk management ideology. As part of the implementation of a risk-based approach, the Company focuses on the following parameters: 1.3. PROJECT RISKS – fundamental barrier setting obstacles for priority risks across The Company works continuously to initiate and implement To address these risks, the Company makes every effort the Company’s assets and ensuring their reliability; investment projects aimed at achieving its strategic goals, to ensure thorough planning and coordination of its – competency barrier ensuring that only competent employees including increased hydrocarbon production and improved investment projects. In 2014, a risk management framework have access to work; . product quality. While implementing these projects the Company to handle potential risks associated with the preparation – digital barrier management eliminating human impact where faces various risks that can potentially result in missed and implementation of major projects was rolled out. This applicable deadlines and higher costs. The project risks are mainly related framework is based on the stage-gate approach to project The company is fully aware of its responsibility to preserve to inadequate planning, failure to comply with the project management that is widely used globally and provides the environment. Gazprom Neft keeps monitoring its activities terms and safety requirements by contractors, as well as new for risk assessment at each stage of the project. Contractor for compliance with relevant environmental requirements circumstances, including higher cost of materials and supplies, requirements are determined based on risk assessment and runs environmental protection programmes. The Company’s infrastructure assessment errors, and new equipment suppliers. and the regulatory environment of the country, where the project policy seeks to ensure compliance with Russia’s environmental is run. In addition, the Company has deployed a project regulations by investing in environmental protection, monitoring system. including technologies to minimise environmental footprint. The outcome of these efforts is a considerably lower probability of environmental risks.

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1.6. IT, AUTOMATION, AND TELECOMMUNICATION RISKS 2. Market risks The Company is increasingly faced with the growing dependence As a high-tech campany, Gazprom Neft recognises the existence of its main business processes on the quality of IT, automation, of ITAT risks and seeks to manage them on a consistent basis. 2.1. RISKS ASSOCIATED WITH POTENTIAL CHANGES IN PRICES FOR FEEDSTOCK AND SERVICES and telecommunications (ITAT). In managing ITAT risks, the Company is striving to increase In the course of business, Gazprom Neft uses the infrastructure To reduce the impact of such risks, the Company implements Along with positive effects, the growing reliance on ITAT entails business efficiency by anticipating the impact of ITAT risk factors of natural monopolies and other dominant market players in oil a number of activities, including: elements of uncertainty and related risks (ITAT risk). and to boost the effectiveness of its ITAT risk management and petroleum products transportation and electricity supply. – long-term commodity flow planning and timely reservation As a high-tech company, Gazprom Neft places special activities. The Company also purchases feedstock and services from a wide of throughput for oil and petroleum products and the rolling emphasis on managing ITAT related risks. ITAT risks have The Company constantly monitors and carefully analyses range of companies. stock required; to do with with ITAT management, operation of IT systems the existing and potential ITAT threats. The IT, Automation Gazprom Neft has no control over the infrastructure of these – optimal redistribution of commodity flows by transport mode; (primarily in the areas of production and quantitative analysis), and Telecommunications Department at Gazprom Neft natural monopolies and other dominant market players, – use of alternative and own power generation sources; ITAT development projects, and the risk arising from the ban is responsible for developing regulations and procedures their tariffs, as well as prices charged by feedstock and service – long-term contracts with fixed volumes and prices on purchasing and using foreign software and ITAT equipment for ITAT risk management activities and implements a number suppliers. for the term of the contract; due to sanctions and other restrictions. of measures to mitigate the impact of these risks, including: – use of transparent cost review formulas in long-term service – identifying events and developments that may adversely affect contracts directly linked to market fluctuations. the Company’s objectives; These measures help reduce to an acceptable level the risks – analysing, assessing, and setting priorities for addressing associated with procuring products and services from monopoly ITAT risks; suppliers, and ensure the Company’s seamless operation. – designing optimal response strategy for ITAT risk management; 2.2. RISKS ASSOCIATED WITH POTENTIAL PRICE CHANGES FOR OIL AND PETROLEUM PRODUCTS, GAS, AND GAS PROCESSING PRODUCTS – providing ongoing monitoring of ITAT risks and oversees Gazprom Neft’s financial results are directly linked to prices The Group has implemented a business planning system in line implementation of ITAT risk management activities. for oil and petroleum products. The Company does not have with the scenario approach based on which the Company’s key 1.7. RISKS OF DECLINE IN DEMAND FOR OIL AND PETROLEUM PRODUCTS a full control over its product prices as they are subject to supply performance indicators are linked to global oil prices. It helps A strategy to managing this risk involves reducing its impact Cost optimisation and demand fluctuations in the global and domestic oil markets cut costs, including by reducing or rolling forward investment on financial stability of the Company and comprises the following As part of the response to the decline in business activity and steps taken by regulators. programmes and using other mechanisms. measures: in Russia and the world, due to the impact of epidemiological These measures reduce the risk to an acceptable level. factors, the company is implementing cost optimisation Optimisation of production programs and material flows programme, including cancellation of financing mass cultural A high level of modernisation and technological flexibility and sports events, reducing advertising and sponsorship, as well 2.3. INDUSTRY COMPETITION RISKS of the company’s refineries and the use of modern digital as administrative, managerial and educational costs. Russia’s leading oil and gas companies compete in all main By implementing its strategic project portfolio aimed at boosting integrated planning systems across the entire value chain allow areas of business activity, including: performance in key business areas, Gazprom Neft is consistently the company to respond in predictive mode to the turbulence A balanced approach to cost optimisation allows to increase – government auctions for subsoil use licences for hydrocarbon strengthening its positions in Russia’s oil and gas industry of the external environment and changes in market demand, the concentration of human and material resources production; and mitigating the risks related to industry competition. ensuring at the same time maximum efficiency of the product for the implementation of priority tasks to improve – acquisition of companies holding hydrocarbon production range, timely allocation of crude oil and petroleum products the company’s financial resilience. licences or owning hydrocarbon assets; supply and storage volumes, as well as optimum redistribution – engagement of independent service companies; of commodity flows. Long-term fixed volume and price contracting – procurement of high-tech equipment; Based on the company’s historically achieved “Trusted – recruitment of the most experienced and highly qualified Partner” status, agreements on fixed volumes and price professionals; are negotiated with key contractors, which allows to share risks – access to transportation infrastructure; of macroeconomic volatility, and at the same time to guarantee – acquisition of existing and construction of new assets the counterparty a long-term cooperation and stable financing to increase sales to end consumers. of works / services. Industry competition also includes suppliers of energy sources other than oil and gas such as coal, nuclear power, and renewable energy.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

2.4. RISKS ASSOCIATED WITH POTENTIAL CHANGES IN ECONOMIC ENVIRONMENT The Group’s borrowings were partly raised at a floating interest In an environment of lower borrowing rates, fixed interest rates The Russian economy remains sensitive to global price The Company takes every effort to mitigate the impact rate (linked to LIBOR, EURIBOR or the Bank of Russia’s key rate), may become more expensive than floating interest rates, and vice fluctuations for crude oil, natural gas, and other commodities. of this risk on its performance by maintaining proper balance and partly at a fixed interest rate. versa. The Group maintains a balanced portfolio structure, which The negative trend in global prices for oil and petroleum between domestic sales and exports, oil production and refining, minimises the risk of negative consequences arising from adverse products, as well as the slowdown of the world and Russian as well as a continued focus on expanding markets for premium changes in interest rates. In addition, the Group Treasury from time economies could adversely affect the Company’s business distribution channels and increasing sales in foreign markets. to time reviews current interest rates in the capital market, based by reducing its revenue and sales and increasing the cost Gazprom Neft subsidiaries support the national economy on which hedging instruments are used, if necessary. of financial and other resources. as major tax payers and by contributing to large-scale infrastructure and social projects. The Company is constantly upgrading its production facilities and improving performance 4. Risks associated with government regulation efficiency by implementing major investment projects and renewing and modernising its fixed assets. 4.1. RISKS OF INCREASED EU AND US SANCTIONS Sanctions against the Russian energy sector have been imposed The sanctions have had a negligible impact on the business by the US (with amendments to sanctions regime introduced and financial condition of Gazprom Neft. As a response, in 2017 and 2018), EU, and a number of other countries since the Company runs a targeted import substitution programme 3. Financial risks 2014. Tougher sanctions may adversely affect the overall for services and equipment. The Company has no reason situation in the industry have impact on the Company’s specific to believe that the new sanctions will target it specifically, 3.1. COUNTERPARTY CREDIT RISK prospective projects and the ability of its counterparties to meet but they can have a affect certain prospective projects. Following their obligations. the assessment of the impact of sanctions, the Company’s Credit risk is the risk of the Group incurring financial losses due Trade and other receivables include a large number management thinks that sanctions do not affect its consolidated to failure of buyers or counterparties to fulfil their contractual of counterparties operating across different industries financial statements. obligations. This risk is primarily related to the Group’s and geographical areas. To manage the credit risk, Gazprom receivables from buyers and the investment securities. Neft implements a number of activities, including: 4.2. POLITICAL RISKS – assessment of counterparty credit capacity; – setting individual credit limits and payment terms depending Today, the political situation in Russia is stable, which In general, the Company assesses the political situation on the counterparty’s financial position; is characterised by the stability of the federal and regional in the country as stable and believes that there are no risks – advance payment monitoring; governments. Gazprom Neft is registered as a taxpayer of negative developments at the moment. – measures to control receivables focused on specific business in St Petersburg, the second largest city in Russia areas, and other initiatives. and the administrative centre of the North-Western Federal District, with a significant potential of natural resources, mature 3.2. BORROWING RISK industry and extensive transport network. Subsidiaries of Gazprom Neft operate in the Central, North- Sanctions against Gazprom Neft imposed by the US, EU The Company effectively manages the risk associated Western, Ural, Volga, Siberian and Far Eastern federal districts. and other countries have substantially limited the range with borrowings. Despite the sanctions from the US, EU and other of available financing instruments for the Company. countries imposed against Gazprom Neft in 2014, the Company has 4.3. CORRUPTION RISKS successfully completed its borrowing programme in 2019. Also, loan agreements with long-term availability, including revolving credit As the Company actively enters into new international markets, Gazprom Neft implements the Corruption Risk Management facilities were signed, which will improve flexibility of the Company’s the risks of the US and UK anti-corruption laws being applicable Strategy on a permanent basis. The Company has approved financial policy and effectiveness of liquidity management. On top to it aggravate. the Anti-Fraud and Anti-Corruption Policy. In addition, of that, the Company keeps looking for alternative funding sources. recommendations were made to all subsidiaries of the Gazprom Neft Group for approving local policies. Knowing the key 3.3. FX RISK principles of and compliance with the requirements of this policy are mandatory for all Gazprom Neft employees. To control The foreign exchange risk primarily arises from the availability The Group’s FX risk is substantially mitigated by its corruption risks when cooperating with external counterparties, of borrowed funds denominated in currencies other than FX-denominated assets and liabilities as the current mix Gazprom Neft CEO has developed and approved standard anti- the functional currencies of the respective Group companies, of revenues and liabilities acts as a hedging mechanism corruption clauses to be included in agreements with third which mainly include their local currencies. For example, rouble with opposite cash flows offsetting each other. The Group applies parties (both Russian and foreign ones). The Company also is the functional currency of the companies operating in Russia. a hedging policy to manage volatility in profit and loss with its has an anti-fraud and anti-corruption hotline. When hotline The aforementioned borrowed funds are largely denominated FX-denominated cash flows. operators receive messages, it triggers a mandatory internal in US dollar and euro. investigation.

3.4. INTEREST RISK 4.4. RISKS ASSOCIATED WITH CHANGES IN JUDICIAL PRACTICE CONCERNING MATTERS OF THE COMPANY OPERATIONS

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

In Russia’s law enforcement system, the legal positions The Company continuously monitors the decisions taken Gazprom Neft is a company engaged in foreign trade, hence The Company meets the requirements of the customs of the highest judicial bodies such as the Constitutional Court by the high courts and analyses the current trends in the law it is exposed to risks associated with changes in the nation’s legislation of Russia and the Eurasian Economic Union, and the Supreme Court are of utmost importance and can affect enforcement practice of arbitration courts in federal districts. legislation in the field of foreign trade regulation, as well draws up all the documentation necessary for both exports the environment, in which the Company operates. This helps defend the Company’s rights and legitimate interests as the customs legislation of the Eurasian Economic Union, and imports in a timely manner, and has sufficient financial in court and resolve legal issues arising from our business. which regulates the establishment of procedures and human resources to comply with the customs-related In this context, it is believed that the risks associated for moving commodities and goods across the customs rules and regulations and to respond to changes in customs with changes in the judicial practice are negligible. border of the Eurasian Economic Union, the establishment legislation and law enforcement practice in a timely fashion. It should be noted, however, that court rulings with respect to oil and application of customs regimes, the establishment, and gas companies have often been inconsistent, and it would introduction and charging of customs duties. be difficult to predict what direction they will take in the future. As a risk, the Russian Government may change customs duty Potentially, the Supreme Court might take decisions that rates (both for imports and exports) on certain commodities would adversely affect the Company’s current and future legal and goods in respect of which the Company makes foreign trade proceedings. transactions, and change in law enforcement practice in the area of customs regulation. The key negative consequences, if 4.5. RISKS ASSOCIATED WITH CHANGES IN RUSSIAN TAX LAWS these risks materialise, are growing costs and lower efficiency of exports. The Group’s major companies are among Russia’s largest To reduce the risks associated with changes in Russia’s tax laws, taxpayers, paying federal, regional and local taxes, including Gazprom Neft thoroughly examines draft laws and approved the mineral extraction tax (MET), excise tax, value added taxation-related regulations. tax (VAT), corporate income tax, compulsory social security The most significant recent changes in Russia’s tax laws contributions, corporate property tax, and land tax. affecting the Company include: 5. Strategic risks Russia’s tax system is constantly evolving and improving. – changes in MET rates, export duties and excise taxes A potential rise in taxes paid by the Company could increase resulting from the so-called tax maneuvre; 5.1. RISK OF FAILURE TO ACHIEVE STRATEGIC GOALS costs and reduce the funds available to finance current – introduction of a formula-based calculation of MET for gas activities, capital expenditures and obligations, including those and gas condensate from 2014; The market of oil and petroleum products has been undergoing The Company conducts regular monitoring of market trends relating to bonds issued. Virtually any company in Russia could – introduction of a tax on additional income from the extraction significant changes along with the geopolitical environment. accounting for the threats and opportunities created by the unstable potentially suffer losses resulting from claims by tax authorities of hydrocarbons, effective from 2019; The Company believes that the high likelihood of volatility external environment while managing its project portfolio. It with respect to the past or current activities. However, such risks – increase in the VAT rate from 18% to 20%, effective in the market persists. successfully allocates resources between major strategic projects are considered to be moderate by the Company. from 2019; In the long run, the state of the global energy sector will depend and those ensuring a quick return on investment and supporting Gazprom Neft believes that the impact of the obligations arising – introduction of a negative excise tax on crude oil, accounting on a wide range of factors that are hard to predict, including the ongoing sustainability of the Company. from such potential events on the Company will not be more for the damping coefficient, which reflects the difference economic growth rates, international cooperation, innovation To deliver on the goals outlined in the Strategy, Gazprom Neft plans significant than the impact of similar obligations on other between domestic motor fuel prices and export netbacks rate, and decarbonisation efforts. These factors determine to overhaul its management framework, to effect digital, cultural, Russian oil companies with government ownership. from 2019. the following key characteristics of the environment in which and organisational transformation of the Company. The reform The Company assesses and forecasts the level of potential the Company, and the oil and gas industry as a whole, operate: will make the Company’s management framework more flexible adverse effect of changes in Russia’s tax laws, taking every oil price and and consumption volumes, tax regime, access and will facilitate the decision-making process. effort to mitigate the risks arising from these changes. to technology, and international development opportunities. One of the key objectives set forth by the Strategy In 2019, Gazprom Neft expanded the list of companies included Major changes in the external environment may affect is the development of a partnership ecosystem helping in the new tax control mechanism, known as tax monitoring. the Company’s ability to deliver on its strategic goals. the Company to enhance key competencies by engaging partners In 2019, three of the Group’s subsidiaries – major tax payers – in joint development of scientific, human, and intellectual joined it: potential at all levels of interaction with the business, government, – Gazpromneft-Noyabrskneftegaz; and society. – Gazpromneft-Yamal; By focusing on flexible decision-making, technology development, – Gazprom Neft Shelf. operating efficiency, and safety the Company is able to produce This tax control mechanism allows the Company to obtain high performance results and deliver steady growth of its financial a reasoned opinion of the tax authority helping. It is particularly and economic indicators. helpful for the above companies, as they are covered by the new Gazprom Neft views its existing and soon-to-be launched assets tax regimes in the oil industry, including the additional income as the key contributors to the Company’s production growth in 2020 tax, and the tax regime for new offshore fields. to 2030. The remaining upstream portfolio is expected to come from new exploration areas we tap into and putting on stream non- traditional and hard-to-recover reserves, including in the Bazhenov, 4.6. RISKS ASSOCIATED WITH CHANGES IN CUSTOMS DUTIES AND REGULATIONS Domanic and Paleozoic formations, and the Achimov deposits. The liquid hydrocarbon reserves in the Nadym-Pur-Taz region and offshore projects will also be a major driver. The Company is also planning to take advantage of potential new market niches by creating innovative products, to continue growing in the mature petroleum product markets, and remain a leader in Russia in terms of distribution network efficiency.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

6. Risks of partner engagement Insurance

6.1. RISKS OF PARTNER ENGAGEMENT In an unstable macroeconomic environment, engaging The Company keeps working to engage new partners, including The group insures risks to: of risk distribution. When terms from an accident at the hazardous partners in joint projects is becoming an increasingly important companies in Russia and the Asia-Pacific countries that – protect the assets of the company and conditions of insurance contracts facility; and difficult task. As they drastically cut their investment have not imposed sanctions on offshore, Arctic, deep-water shareholders; are determined, the group actively – mandatory vehicle insurance budgets, potential business partners scale back their activities and shale projects. To this end, we hold regular meetings – comply with legal requirements; applies self-retention, which means (basic and additional insurance); and put off any potential join projects. and talks with potential partners, including with the involvement – secure financing to cover independent (without involving – liability for damage resulting The sanctions against the Russian energy sector that have been of Russian government agencies such the Ministry of Energy, and manage losses; the insurance market) compensation from a terrorist act at a facility imposed since 2014 by the United States (with amendments the Ministry of Foreign Affairs, and the Ministry of Economic – obtain supplementary consulting for losses. The self-retention level of the fuel and energy complex; to sanctions regime introduced in 2017 and 2018), the European Development of Russia. Union, and a number of other countries create additional services to assess insurable risks, means the amount of potential – liability of fuel tankers, hurdles for any potential partnership. and recommendations on risk losses during one year in all with the indemnity limits of up reduction; the group subsidiaries, which will to $250 million per insured event; – provide incentive worsen ROACE by 5%, as calculated – liability of a charterer; 7. Country risks and social support programmes on the basis of the group consolidated – liability of a carrier; for personnel as part business plan. The risks are subject – liability of a shipowner (P&I), 7.1. RISKS ASSOCIATED WITH FOREIGN ASSETS of the benefits package. to compulsory or voluntary insurance, with the limit of at most $3 billion; Gazprom Neft implements a number of foreign projects aimed The vast majority of Gazprom Neft upstream and downstream if their realisation may result in a loss – liability for defects affecting at expanding production geography. Coming onto markets assets is located in the Russian Federation, therefore, the impact To maximise efficiency in terms exceeding the self-retention level. the safety of capital construction in new regions is connected both with the possibility of gaining of that risk is limited. However, the Company seeks to diversify of the number of risks insured, The group main risks to be insured, facilities . of additional competitive advantage, and with the risks its international operations. the Group takes a centralised and examples of insurance coverage of underestimating the economic and political situation in those When implementing projects in high-risk countries, approach to risk insurance conditions for these risks in 2020 countries where the company’s assets are located, which may the Company applies stricter requirements for the rate to develop and deliver a unified are given below: subsequently cause a failure to achieve planned performance of return of such projects. In addition, in case of deterioration risk insurance strategy across Various types of liabilitiy related indicators. Gazprom Neft PJSC is operating in a number in the political or social and economic situation in the Company’s of countries with a high-risk level (such as Iran and Angola), regions of operation, Gazprom Neft PJSC may implement the Group. To this end, mandatory to damage to property, life and health and realisation of those risks may pose considerable challenges a number of anti-crisis measures, such as cost reduction, insurance practices are implemented of third parties, including (but to the Company’s operations and even stop them. optimising the investment programme, reducing interest in all subsidiaries, with the latter not limited to) the following types: The key factors which may have a negative impact on Gazprom in the project, and engaging partners. having the opportunity to propose – comprehensive liability (to Neft PJSC operations in those countries include: At present, Gazprom Neft assesses the risks related to foreign improvements to the Group existing third parties, manufacturers, – destabilised political situation; assets as acceptable, but it cannot guarantee that there insurance framework. The Company for pollution, to terminal – escalation of military conflicts; will be no adverse changes, since the specified risks are beyond develops, adopts, and maintains owners, etc.), with an extension – macroeconomic instability; the Company’s control. up-to-date rules and procedures to compensation for losses – expropriation of the Company’s assets; with respect to different types related to legal requirements – inefficiency of legal framework and judicial system. of insurance that reflect specific for environmental damage, nature of the insured risks. and the limit of €500 million per 8. Pandemic insured event; The group risks – liability of directors and officers, 8.1. RISKS ASSOCIATED WITH THE POSSIBLE SPREAD OF COVID-19 AMONG COMPANY EMPLOYEES OR CONTRACTORS, WHICH MAY LEAD are only insured and reinsured with the indemnity limit of $50 TO FURTHER INFECTION OF EMPLOYEES with those insurance companies million per insured event; The company has put in place a Response Centre headed Risk management is carried out at the enterprise-wide level, that meet the requirements – liability of a hazardous facility by the Gazprom Neft CEO, which serves as the company’s by selecting, implementing and monitoring barriers aimed in terms of reliability and quality owner for damage resulting central coordination body in managing the “Pandemic” risk. at preventing and minimizing the consequences of possible The Response Centre, together with divisional and subsidiary- unfavorable events associated with the spread of the pandemic level response centres carries out general coordination among the company employees and contractors. in the following areas: “Antivirus”, “Operational reliability” The group strictly complies Insurance companies are selected The insurer of the majority and “Financial stability”. with the legal requirements in accordance with regulated of the group risks is SOGAZ JSC, of the Russian Federation contractor selection procedures which is number one on the Russian and other countries where adopted by the group. insurance market. Some group the group enterprises operate, risks are insured by Rosgosstrakh in terms of insurance coverage, PJSC. and acquires all types of insurance stipulated by the laws of Russia and the countries of operation.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices INVESTOR AND SHAREHOLDER RELATIONS

Share capital

The Gazprom Neft PJSC authorised ₽1,992 billion, which was equivalent Key information on Gazprom Neft PJSC shares and ADRs as at 31 December 2019 capital consists of 4,741,299,639 billion ($888 million), which was two to $32 billion. ordinary shares traded in Russia and a half times higher than trading SHARE PRICE ON THE MOSCOW EXCHANGE on the main market of the Moscow volumes in 2018. In 2019, the maximum share price Closing price (₽ ) 420.2 Exchange PJSC. Outside Russia, increased to ₽436, which was Closing price ($) 6.79 company’s shares are mainly OTC- On the last trading day of 2019, 30 the highest figure in the history traded in the form of American December, the Gazprom Neft share of Gazprom Neft PJSC. The company’s 52-week high price (₽ ) 436.0 depositary receipts (ADRs), via price on the Moscow Exchange value increased as a result 52-week low price (₽ ) 313.8 the LSE IOB service in the UK reached ₽420.2 per ordinary share. of the growth in hydrocarbon PRICE PER ADR ON THE LONDON STOCK EXCHANGE and the OTCQX system in the USA. That was a growth of 21%, compared production, improvement in refining to the start of the year, which was efficiency thanks to innovative Closing price ($) 33.5 On all trading platforms one of the most significant figures technology, the launch of key projects, 52-week high price ($) 34.4 of the Moscow Exchange, trading in the industry on the Russian and expanding sales in premium 52-week low price ($) 23.8 volumes in the Gazprom Neft PJSC market. At the end of 2019, Gazprom segments. shares in 2019 amounted to ₽57 Neft PJSC capitalisation reached Trading volumes per year Moscow Exchange (₽ billion) 57.3 London Stock Exchange (IOB) ($ million) 195.5 Changes in Gazprom Neft PJSC share prices, the Moscow Exchange MARKET CAPITALISATION ON THE MOSCOW EXCHANGE Index, and prices (against the start of 2019), % ₽ billion 1,992 057 $ million 32 ,178.9 MICEX-RTS code / ISIN code SIBN / RU000 906 2467 Gazprom Neft MICEX Urals Number of ordinary shares 4,741,299,639 150 Par value per ordinary share (₽ ) 0.0016

140 Authorised capital (₽ ) 7,586,079,42 Free-float (%) 4.32 130 ADRs issued 14,532,290

120 ADRs share in free float, % 35 Average monthly trading volumes (IOB) ($ million) 16.3 110 Average monthly trading volumes (MICEX) (₽ million) 4,772.1

100

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Company profile Strategic report Performance Technological development Governance system Gazprom Neft PJSC Sustainable development Dividend Policy Appendices Regulation

Participation depositary receipts programme Dividend policy

In addition to trading on the Moscow million on the London Stock volumes were $16.3 million on LSE The dividend policy is a critical The core principles of the Gazprom by the General Meeting Exchange, American and global Exchange IOB, and $0.5 million IOB, and $0.04 million on OTCQx. component of corporate governance Neft PJSC dividend policy of Shareholders, at which depositary receipts for the company on OTCQx. Average monthly trading and the key indicator of how are as follows: the resolution to pay dividends was shares are traded on the OTC the company observes the rights – Maximum transparency adopted, is entitled to dividends. markets in the USA, the UK, Germany, of its shareholders. The Dividend of the dividend calculation That date must be set no earlier and other countries. The Bank Policy Regulation of Gazprom and payment procedure. than 10 days and no later than of New York Mellon is a depositary Gazprom Neft PJSC share trading volumes on the Moscow Neft PJSC is designed to ensure The Dividend Policy Regulation 20 days from the date when bank for the depository receipt Exchange and the London Stock Exchange in 2019, $ million maximum transparency of dividend sets out the minimum annual the resolution to pay dividends was programmes of Gazprom Neft PJSC. calculation and payment procedure dividends on the company’s adopted; Sources: MOEX, LSE for all stakeholders, including shares, which must not be less – Commitment to the highest One ADR is equivalent to five shareholders. It also determines how than the greater of: corporate governance standards. Gazprom Neft PJSC ordinary shares. the company’s Board of Directors – 15% of the Gazprom Neft Group The company introduced 120 LSE MOEX At the end of 2019, ADRs issued develops its recommendations consolidated results (IFRS); or the principle of ensuring for the ordinary shares were 100 to the General Meeting of Shareholders – 25% of the company net profit positive dynamics of dividend equivalent to 73 million shares (1.5% with regard to calculating the dividends (RAS). payments in line with the growth of the company authorised capital). 80 on the company’s shares, to the date – Compliance with the applicable of the net profit of the company; The total number of outstanding of identifying the persons entitled laws of the Russian Federation, the approved Gazprom Neft 60 ADRs went down as ADRs were being to the dividends, and to the payment the company Charter and by-laws. PJSC Dividend Policy Regulation redeemed throughout the year amidst 40 procedure. Each shareholder included and the company dividend history restrictions on new ADR issuances. in the shareholder register are available on the official 20 as at the date established company website. In 2019, trading volumes in Gazprom Neft PJSC ADRs totalled $195.5 January February March April May June July August September October November December

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Dividend history Debt management and credit ratings

Company dividend history Debt portfolio period (and during the five-year period the features of operations being preceding the reporting date), that funded, and the situation on debt- Indicator 2015 2016 2017 2018 6 months 2019 Gazprom Neft uses both internal ratio was below the threshold. The net capital markets. The diversified Dividends accrued per share (₽ ) 6.47 10.68 15.0 30.0 18.14 sources (generated from operations) debt/EBITDA ratio decreased by 4.1% structure of the Gazprom Neft Group and borrowings to finance its in 2019. debt portfolio makes it possible Total dividends accrued 30,676,208,664 50,637,080,144.52 71,119,494,585 142,238,989,170 86,007,175,451.46 operations. When determining debt to maintain a flexible debt policy amid on shares of this class (₽ ) and equity share within the capital The company had a comfortable volatility on debt-capital markets. Total dividends paid on shares 30,673,891,577 50,636,890,886 71,118,331,325 142,236,616,411 86,005,202,291.10 structure, the company seeks headroom under all applicable of this class (₽ ) (99.99%) (99.99%) (99.99%) (99.99%) (99,99%) to maintain the optimal balance covenants on loan agreements In 2019, the Gazprom Neft Group between the total cost of capital, and Eurobonds. raised loans and borrowings totaling Share of net profit (IFRS), % 28 25 28 38 40 on the one hand, and long-term ₽259.3 billion (taking into account Date of the list of persons financial sustainability, on the other Information transparency of the debt short-term borrowings), including: 27/06/2016 26/06/2017 26/06/2018 01/07/2019 18/10/2019 entitled to dividends hand. policy is ensured by disclosing – bond offering for the total amount the performance of the Gazprom Neft of ₽1.2 billion; 14/06/2019 30/09/2019 Group debt-portfolio management – placement of local bonds worth Date of the meeting Minutes Minutes 10/06/2016 09/06/2017 09/06/2018 Core debt portfolio management on the official company website. ₽45.0 billion; of the issuer's governing body, of the annual of the extraordinary Minutes Minutes Minutes principles In the reporting year, the company – drawdown of ₽213.1 billion at which the resolution to pay General Meeting General Meeting no 0101/01 no 0101/01 no 0101/01 regularly updated the relevant section (including short-term borrowings) dividends was adopted, date of Shareholders of Shareholders on 14/06/2016 on 14/06/2017 on 13/06/2018 The company adheres to a fairly of the website. under loan agreements. and number of the minutes № 0101/02 № 0101/05 conservative debt financing policy. on 18/06/2019 on 02/10/2019 The key debt-policy principles In 2019, the Gazprom Neft Group include a high level of financial Key debt instruments repaid the loans and borrowings sustainability, with such critical totalling ₽292.4 billion. indicators as the net debt/EBITDA At the end of 2019, the Gazprom ratio and the consolidated financial Neft Group debt portfolio consisted The Gazprom Neft Group regularly debt/EBITDA ratio, calculated of such debt instruments as bilateral implements measures designed Dividend yield in 2019, %1 for the Gazprom Neft Group. credit facilities (including revolving to optimise its debt portfolio In accordance with the terms facilities), syndicated credit facilities, structure and profile. As part of those and conditions of the company loan local bonds, Eurobonds, and a credit measures in 2019, the company Indicator Gazprom Neft PJSC Company 2 Company 3 Company 4 Company 5 Company 6 Company 7 agreements, the consolidated financial facility guaranteed by the Export agreed on better conditions debt/EBITDA ratio must not exceed Credit Agency (ECA). In addition, for existing credit facilities, Dividend yield 11 16 8 7 6 3 2 three. At the end of the reporting the company made a number and carried out unscheduled long- of project-financing transactions. term refinancing of borrowings for ₽148.5 billion in advance. When raising debt financing, the company takes into account Debt-to-EBITDA ratio As at 31/12/2019 / 1 / Calculated on the basis of dividends declared in 2019, and the price of shares as at 3 January 2019. In order to ensure equivalence, the dividends paid by Gazprom Neft were calculated on the basis of dividends for the fourth quarter of 2018 and for the first six months of 2019 and also taking into account the dividends for the third quarter of 2019 (the estimated figure, the dividend payout ratio is 50%). Companies for comparison: Rosneft Oil Company, LUKOIL PJSC, PJSC, NOVATEK, ANK Bashneft PJSC, and PJSC. =0.7

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

As a result of borrowings Debt portfolio structure, ₽ million Debt portfolio structure Gazprom Neft Group maturity instruments, subject to the current market in terms of placement and repayments during the year, by currency, % schedule, ₽ million market conditions but not limited and circulation of bonds. changes in the debt of other Gazprom to, bonds, bank loans, and project Neft Group companies (Naftna Source: company data Source: company data Source: company data financing. Industrija Srbije А.D., the Gazprom 450 198 Credit ratings Neft Moscow Refinery, Gazpromneft 0.03 0.03 0.03 0.03 0.02 185,124 49,931 Within the multi-currency 15,96 31.03 39.62 54.47 60.61 715,228 818,098 680,414 676,408 Shipping), and ruble revaluation 775,453 Exchange-Traded Bond Programme As at the end of February 2019, all of FX-denominated borrowings, registered in 2018, the company of the company credit ratings were the debt portfolio of the Gazprom 147,319 73.15 may at short notice, arrange in investment grade category: 90,923 96,178 Neft Group for the reporting 30,198 the issue of exchange-traded bonds – In February 2019, Moody’s upgraded period declined from ₽775 billion 670,779 80,187 131,760 684,530 685,030 56.18 with maturity of up to 15 years, the company rating to Baa2, 320,755 as at 31 December 2018 to ₽715 596,221 and with a total volume of up to ₽115 and revised the outlook to Stable; 44.93 6,775 billion as at 31 December 2019. 548,654 billion in equivalent, inclusive. – in August 2019, Fitch upgraded Thanks to a significant growth 1,048 The Programme remains in effect the rating of Gazprom Neft to BBB, 35.56 19 969 1,651 2,840 in operating profit, the Gazprom 26.13 for 15 years. In February 2020, and revised the outlook to Stable. Neft Group reduced its debt leverage 16,932 exchange-traded bonds were as defined by the net debt/EBITDA 9,083 placed for the amount of ₽10 billion. ratio. In addition, the available limit 15.42 2,294 393 12.76 13.24 10.86 9.94 1,607 under the programme registered >5 years 2-5 years 1-2 years 6–12 <6 months in 2015 amounts to ₽5 billion (with months Key features of the debt portfolio 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 bond maturity of up to 30 years Bank loans Loan participation notes Long-term loans and borrowings € ₽ inclusive). Local bonds Other loans Long-term borrowings dominate Short-term loans and borrowings $ Other the structure of the Gazprom The company also actively cooperates Neft Group debt portfolio with the Moscow Exchange Bond in terms of maturity; however, in different currencies offsetting Debt maturity schedule Issuers Committee to improve in 2019 the share of long-term debt each other. The group applies Russian laws on the securities increased by nine percentage points, hedge accounting to its cash flows According to the 2020-2021 debt which minimised the refinancing denominated in foreign currency, repayment schedule, Gazprom Neft Gazprom Neft PJSC credit ratings risks in 2020. to prevent profit and loss volatility. Group expects to reduce its debt The FX risks of the group debt refinancing burden. S&P Moody's Fitch АКРА Assets and liabilities denominated portfolio were substantially mitigated, AAA (RU) in foreign currency significantly as the proportion of ruble borrowings reduces the FX risk: current structure grew to 61%. Potential debt sources in 2020 of revenues and liabilities acts as a natural hedge with cash flows The Gazprom Neft Group not only

successfully implemented a financial BBB debt programme using the most efficient instruments in 2019, but also took a number of major steps to raise BBB- funds in 2020 with several bank loan agreements signed. BB+ In 2020, the company intends to continue to improve the efficiency of its debt-portfolio management 2014 2015 2016 2017 2018 2019 2020 by selecting the best debt

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Investor and shareholder Analyst assessment of the company events in 2019 Investors’ FAQ relations Positive factors Negative or neutral factors ? control over the production process, and includes measures The company holds What are your capital investment plans for 2020? FINANCE for preventing infection. regular conference calls Gazprom Neft’s comprehensive and complex portfolio About 60% of employees at the company headquarters in St for investors, involving its – Substantial generation of free cash flow – Increased capital investment includes projects at early stages of development that require Petersburg have started working remotely, primarily pregnant executives. In addition, Gazprom – Lower debt burden forecast for 2020-2021 the adjustment of capital investment plans, so it is difficult women, employees aged 60 and older, disabled people, and all to state a definite figure. Prior to the COVID- 19 pandemic, Neft publishes the Management’s – Continued payment of interim dividends, – Seasonal increase those who have chronic cardiovascular and lung diseases. and an increase in the payout ratio to 50% in H2 in operating, selling we were planning on capital expenditure of up to $7.3 billion. Overall, the Gazprom Neft Group has organised remote Discussion and Analysis of Financial However, if the situation deteriorates, the company may consider 2019 and administrative expenses working for about 15% of its staff, and this figure is increasing. Condition and Results of Operations a 20% reduction of the programme. It is difficult to predict The company has introduced additional digital services for remote on a quarterly basis, as an appendix PRODUCTION what will happen next; but, importantly, the Gazprom Neft work that were not available before. In addition, the company has position is strong, and the company is ready for any scenario. made it easier for its employees to use its devices and software to the Gazprom Neft PJSC financial – Increase in the resource base By the time of this crisis, the company had already achieved – Restriction of liquid at home. statements (IFRS). The company also – Control over OpEx in the upstream segment strong financial performance, with low leverage. There has hydrocarbon production publishes the Databook and Datafeed – Developing partnerships and new forms not yet been any substantial investment in new major projects; under the OPEC+ statistical reference guides to enable of cooperation as part of managing the project however, the company has mostly finished spending on key agreement detailed analysis of its operations. portfolio current upstream and refining projects, which allows more flexibility in decision-making. The company will have to be ? Is it likely that dividend payments will amount to 50% DOWNSTREAM more conservative now, and it will have to review all its plans, of the net profit? To ensure comprehensive and extend the deadlines for some projects. However, Gazprom communication, the company holds – Continued modernisation of refineries Neft focuses on long-term plans, rather than on the current The resolution regarding the dividend payout ratio and implementation of environmental initiatives – Reduction in refining of 50% of the net profit was made at one of the last meetings regular meetings with investors situation on the market. – Development of catalyst production volume in 2019 due of the Board of Directors in 2019. This means that all resolutions and shareholders, and takes part – Continued development of premium distribution to scheduled repairs on dividend payment in 2020 will correspond to a 50% in all major investment and broker benchmark. channels ? What is the main driver of capital expenditure for you conferences. Every year, Gazprom in the short term, in order of priority? Neft PJSC holds an Investor Day attended by its top management The company prioritises key major projects in terms of investment. Those key projects include the Novoportovskoye and company representatives, ? What growth or reduction in production can be field, where drilling-out is continuing, and the gas infrastructure expected from the company? who directly answer questions Consensus forecast for the Gazprom Neft PJSC target share price is being built. They also include oil rims, which the company from analysts and investors has begun to develop on the Yamal Peninsula (the Tazovskoye The balanced project portfolio provides significant opportunities to increase production; however, the production growth depends from investment companies. Broker Analyst Date Recommendation TP, ₽ and Severo-Samburgskoye fields). There are also projects to develop the Neocomian and Jurassic deposits of large on how the situation on the market develops. In its previous BrokerCreditService Kirill Tachennikov 21/02/2020 Buy 663.4 Gazprom gas fields, the Bovanenkovskoye and Kharasaveyskoe, conservative scenario, as part of continuing the OPEC+ deal Gazprom Neft organises regular site which will be developed under long-term risk operator without changes, the company expected hydrocarbon production visits to its production and upstream VTB Capital Dmitry Lukashov 26/02/2020 Hold 473.9 agreements. These projects are priorities for Gazprom Neft that to increase by 1%. Given the pandemic, it is extremely difficult require large amounts of capital investment. They are, however, to predict changes on the market. I would like to emphasise that facilities to keep investors Gazprombank Evgeniya Dyshlyuk 27/02/2020 Buy 517.6 and analysts informed about its expected to contribute significantly to future production. the company is strong and it is working on several scenarios Sberbank Andrey Gromadin 26/02/2020 Hold 480.4 for further development, and is able to respond to the changes production assets. both flexibly and quickly. Bank of America ML Karen Kostanyan 28/02/2020 Buy 549.3 What measures is the company taking in relation Information about the company ? to COVID-19? is included in all industry reports. Sova Capital Mitch Jennigs 26/02/2020 Buy 490.0 About 10 reports are published each Aton Anna Butko 26/02/2020 Buy 506.4 Given the spread of COVID-19, the company’s strategy of focusing ? On which fields was the excess-profits tax (EPT) quarter, following the publication on digital technologies proved to be wise, as it allows many imposed in 2019? Raiffeisen Andrey Polishuk 25/02/2020 Buy 495.0 processes to be managed remotely, and increases their safety. of the company results. In general, To ensure business continuity, the company has a multi-level In 2019, EPT was imposed on blocks at the following mature analysts assess the information Renaissance Capital Alexander Burgansky 25/02/2020 Hold 470.0 crisis management action plan. It has created a corporate system fields: Vyngayakhinskoye, Vostochno-Vyngayakhinskoye, of barriers to prevent the spread of infection. Kraynee, Romanovskoye, and Novogodneye. EPT was disclosed during conference calls Goldman Sachs Heydar Mamedov 28/02/2020 Buy 669.9 The company has modelled basic scenarios in relation to the risk also levied on some blocks at greenfield sites, such as positive or neutral for the market. as Tazovsky, Ignyalinsky, Zapadno-Yubileyny, Severo- MEAN 531.6 of COVID-19 spreading among employees and contractors. Any irregular or unpredictable events It has conducted drills to ensure its smooth operation, if Samburgsky, Novoportovsky, Kuyumbinsky, Tersko-Kamovsky, affecting the company performance COVID-19 is found among employees at fields and refineries, and Zapadno-Zimny. are discussed with analysts. including increasing rotation periods at remote fields to 45−90 days, and paying advances to those employees who are on rotational leave. Gazprom Neft refineries are ensuring manufacture of petroleum products in accordance with this plan. Automation at refineries in Omsk and Moscow allows remote

192 ANNUAL REPORT 2019 05 GOVERNANCE SYSTEM 193 ANNUAL REPORT 2019

Sustainable development

Health, safety and environment Environmental safety Human Resources development Social policy INTERNATIONAL EXPERTS NAME GAZPROM NEFT’S NOVY PORT PROJECT AS THE BEST IN THE OIL AND GAS INDUSTRY

Marina Keyvabu, Chemistry Lab Technician GAZPROM NEFT

2019 p. 204 A solar power plant has been built and commissioned p. 203 'Narwhal: Legend p. 206 Gazprom Neft has topped At Gazprom Neft HIGHLIGHTS at the Omsk Refinery within a record-breaking time frame of the Arctic' project the Randstad employer rankings we are guided by the principles This will enable the Omsk Refinery to reduce CO2 emissions In the summer of 2019, Gazprom Neft successfully In 2019, Gazprom Neft topped the Randstad employer by more than 6,300 tonnes per year. By introducing renewable completed the first exploratory expedition as part rankings for the third year in a row. The company was ranked of sustainable energy technologies, the refinery will improve its energy of the 'Narwhal: Legend of the Arctic' project. This project first in the fuel and energy sector. Gazprom Neft is creating development efficiency and environmental performance. will make it possible to assess the status of the narwhal an engaging environment aligned with company values. in everything we do. population in the western sector of the Russian Arctic. We don’t measure the company’s success simply in terms of productivity and financial SUSTAINABLE DEVELOPMENT performance. Reduction in FAR to The key priorities Investment in personnel a five-year for us are care training and develop- average ment, billion for the environment ₽ -34% and meticulously Key priorities careful usage 1.95 Accidents of natural resources; safety; appropriate Training programmes for 0 employees use of technology; to Gazprom Neft and consistently improving quality >156,000 APG flaring of life in those regions are to PERSONNEL HEALTH, % in which we operate. DEVELOPMENT SAFETY AND -42 ENVIRONMENT

Alexander Dyukov, protect Chairman of the Management Board, CEO, Gazprom Neft PJSC the environment, Energy savings achieved under energy conserva- tion programmes, ensure safety,enable million GJ 2019 5.4 technological HIGHLIGHTS

advancement, 96% Key stakeholder groups of waste being safely and consistently recycled • Shareholders and investors Gazprom Neft seeks to minimise negative • Employees improve the standard environmental impacts from oil production • Consumers and refining, make its products more environmentally • Government friendly, and use natural resources carefully. of the Russian Federation of living in the company and governments SOCIAL of Gazprom Neft regions The company contributes to addressing climate change POLICY of operation by implementing projects to increase associated • Suppliers and partners regions of operation petroleum gas (APG) utilisation, developing energy- Social projects imple- • Local communities mented as part of the in Gazprom Neft regions saving technologies and renewable energy projects. of operation Gazprom Neft is consistently integrating 'Home Towns' • Industry peers in Russia Gazprom Neft social responsibility initiatives also Programme and worldwide the principles of sustainable development into include incentive and social support programmes Social investment, • Non-profit its strategy and operations. The key priorities for employees, as well as projects aimed at developing and non-governmental ₽ billion >350 organisations for the company are safe production, occupational the potential of those regions in which the company safety, and protecting the health of its employees. operates. .5

196 ANNUAL REPORT 2019 06 SUSTAINABLE DEVELOPMENT 197 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices HEALTH, SAFETY AND ENVIRONMENT (HSE)1

Safety invariably remains Protection, Fire and Transport Safety, As part of comprehensive the key priority for Gazprom Neft. and Civil Defence is a framework HSE In 2018, the company initiated Reliability management business transformation, The Gazprom Neft HSE strategy is aimed regulatory document. a transformation of its HSE system, is underpinned by risk assessment Responsible contractor the company has set itself at achieving 'Target Zero': zero harm underpinned by a risk-focused at all stages of the life cycle management a strategic goal of becoming to people, the environment, or property Gazprom Neft has in place approach. of a production facility, from design The company is taking active steps one of the safest oil and gas in our operations. a comprehensive system of collegial to dismantling and reclamation. to incorporate its contractors companies by 2030. bodies responsible for making In 2019, the company completed At the operation stage, the company in the HSE system. Gazprom Neft informs contractors of the rules, Gazprom Neft judges itself alongside decisions on key HSE matters. The HSE the first round of practical seeks to ensure the uninterrupted codes and procedures that the world’s safest Top 10 producers Professional Board is responsible implementation of this approach. operation of equipment and reduce it applies, and holds joint meetings of liquid hydrocarbons. If, by 2030, for consolidated decision-making To manage key HSE risks, the number of repairs. which are aimed at developing To achieve its the company achieves a Fatal supporting the development at the corporate level, Gazprom Neft the best solutions to improve Accident Rate and Process Safety of a company-wide HSE management identified 31 scenarios of events In addition, Gazprom Neft workplace safety. All standard stated HSE safety forms of contract include goals, Gazprom Event (PSE) Tier 1 values ​​lower system, and for submitting strategic that may lead to catastrophic is implementing a number requirements for compliance Neft is implementing than those industry leaders against initiatives for review to the Supervisory consequences. In order to develop of transport safety programmes, with the codes and rules applicable a risk-oriented which it measures itself, this will Board and the Gazprom Neft and implement effective preventative which include introducing a vehicle in the regions in which the company approach. Today, demonstrate the effectiveness of its Management Board. measures to mitigate these tracking system, training in defensive operates, as well as with corporate HSE requirements. the company focuses policy. risks, Gazprom Neft launched driving, on-site training and briefings on the making sure that The HSE Supervisory Board is a collegial the Safety Framework Project. on transport safety, etc. it puts in place defences The company is consistently improving body comprised of senior executives An independent inspection team against key risks HSE management by building risk of operational units. It is tasked assesses the efficiency of measures in all assets. Digital management processes and developing with reviewing strategic matters related taken by Gazprom Neft enterprises technology is essential safety culture among employees to safety improvements in the company, to determine whether these Occupational to the effective and contractors. drawing on the expertise of operational protective barriers are robust. management functions. Key decisions are reviewed health of this process . The Gazprom Neft Policy on Industrial by the Management Board at its The company is aware that employees Another strategic and Occupational Safety, Environmental meetings. play a key role in maintaining a safe Gazprom Neft is implementing objective is to ensure working environment. Accordingly, a corporate programme to develop that only those people Fatal Accident Rate (FAR)2 Lost Time Injury Frequency it places a special emphasis an occupational health system. who are qualified to do Rate (LTIF)3 on communications with personnel. so will be able to work Every year, the company holds As a preventative measure, at our facilities. 3.5 1.2 Safety Days, which are attended employees, including those 3.0 1.0 by Gazprom Neft top managers. in contractor organisations, are only 2.5 0.8 During these events, Gazprom Neft authorised to work on Gazprom Anton Gladchenko, 2.0 0.6 employees and contractors express Neft sites if no contraindications 1.5 0.4 Head of HSE Directorate, their opinions on workplace hazards. or restrictions on health grounds 1.0 0.2 Gazprom Neft PJSC This enables the company to receive have been identified during the initial 0.5 0.0 high-quality feedback, and promptly or regular health examination 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 address any issues arising carried out by a healthcare provider in the workplace. accredited by the company.

/ 1 / HSE requirements include, but are not limited to, industrial, fire and environmental safety, To assess technology-related risks A major focus of the corporate occupational safety and health, electrical safety, and emergency prevention and response in the course of design, construction, occupational-risk management standards. operation and decommissioning strategy is on providing modern / 2 / The Fatal Accident Rate is calculated as the number of fatalities / total hours worked × 100 of facilities, the company and affordable medical aid million. uses advanced international at production sites: providing first-aid / 3 / The Lost Time Injury Frequency is calculated as the number of lost time injuries (including methodologies, such as HAZID/ENVID posts with diagnostic and emergency fatalities) in the workplace / total hours worked x 1 million man-hours. (hazard identification), HAZOP (hazard medical equipment, ambulances, In addition to Gazprom Neft assets in Russia, the injury rate is also calculated for joint ventures and operability study) and PHSER and robust telecommunication whose operations are managed by Gazprom Neft, as well as Gazprom Neft assets overseas (in (analysis of HSE risks). services, including telemedicine. Serbia, Iraq, Italy, Eastern Europe and Central Asia).

198 ANNUAL REPORT 2019 06 SUSTAINABLE DEVELOPMENT 199 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices ENVIRONMENTAL SAFETY

The company is committed GHG emissions, mt of CO₂ Air a multi-stage wastewater treatment to using natural resources Climate impact equivalent1 system, which includes mechanical, Federal 'Clean Air' sustainably, consistently reducing protection physical and chemical, biological, project its environmental footprint, management Source: company data filtration and ultrafiltration stages, Gazprom Neft is participating preventing environmental damage Measures taken by Gazprom as well as a reverse osmosis unit. in the 'Ecology' project initiated from its operations, introducing best Gazprom Neft supports Neft while actively exploring by the Russian Government in 2018, in accordance with the May Decrees 26.22 13.23 22.78 23.73 30.96 global practices and technologies the implementation and developing new fields enabled After the reverse osmosis unit forming of the President of the Russian for environmental protection of the Paris Agreement, which is aimed it to avoid a year-on-year increase part of the Biosphere facilities was Federation. This national project and sustainable use of resources, at combating climate change. 9.02 in air pollutant emissions. put into operation and reached includes the federal 'Clean Air' and developing an environmental Emissions are caused mainly by APG full capacity, the Moscow Refinery project, which is aimed at reducing emissions by 20% in 12 large safety culture. Assessment of greenhouse gas (GHG) 6.24 flaring. Therefore, an increase reduced water withdrawal three- industrial cities with low air quality, 8.36 emissions is a key tool forming part 6.60 in the APG utilisation rate is a key fold, with 75% of treated wastewater including Omsk, by the end of 2024. The Gazprom Neft approach of the climate risk management 21.94 driver of emission reduction. now being reused in the production to environmental safety management system used by the company. 19.98 cycle. The Omsk Refinery is expected In order to implement the federal 'Clean Air' project, the Russian is based on the understanding For this purpose, Gazprom Neft has 16.18 In order to reduce pollutant to demonstrate a similar performance 15.37 Government has approved integrated of its potential environmental adopted a corporate standard on GHG emissions, Gazprom Neft after the Biosphere treatment facilities action plans aimed at reducing air 2.83 impact. The company analyses emission monitoring and accounting, is also implementing a large-scale are commissioned at the site, where pollutant emissions. These plans the environmental impact which is aligned with the applicable 10.40 programme to upgrade and overhaul the first stage of construction was include nine upgrade projects launched at the Omsk Refinery, which of its operations at all stages; Russian legislation and international its refining assets, and other completed in 2019. involve introducing environmental this is a necessary requirement recommendations. environmental initiatives covering technologies and state-of-the- for management and investment all of its operations. Gazprom art treatment facilities, building decision-making. The company An increase in direct and indirect GHG Neft is participating in the federal new units, and decommissioning 2015 2016 2017 2018 2019 has in place an environmental emissions in 2019 was due to the fact 'Clean Air' project, which is aimed previous-generation facilities. Gazprom Neft plans to invest management system compliant that the company is continuously Direct emissions Indirect emissions at reducing emissions in large over ₽100 billion in these projects. with the international ISO 14001:2015 expanding its geographical footprint, industrial cities, including Omsk, standard. prospecting for and assessing where company assets are located. hydrocarbon reserves, and developing Water consumption for company Gazprom Neft is implementing a range upstream and transport infrastructure. needs, million m³ of key environmental measures, As a result, the number of facilities Memorandum as well as individual programmes that are a source of additional of understanding Water resources 428.9 or projects aimed at achieving greenhouse gas emissions with WWF Russia management the relevant environmental objectives, is increasing. In 2019, Gazprom Neft 370.0 and continues to support national and the World Wildlife Fund and international environmental However, the company is implementing (WWF) signed a Memorandum Key priorities for Gazprom Neft initiatives. projects to increase associated of Understanding. It expands in the field of water resources 316.4 314.2 cooperation in the field 278.9 petroleum gas (APG) utilisation, of environmental conservation, management include sustainable develop energy-saving technologies including efficient and safe use of water resources, effective and renewable energy projects. These development in the Arctic, and joint wastewater treatment, and preventing activities help it to avoid a much bigger communications. The parties intend contamination of natural water bodies increase in GHG emissions. to maintain a dialogue with oil or petroleum products. on environmental conservation, discuss projects relevant × In 2019, the APG utilisation rate across to environmental conservation Key water resources management and sustainable development, 3 the company assets in Russia reached projects being implemented 89% (up 11 percentage points year and share information on best by the company include building international standards and practices decrease in water withdrawal on year). Moreover, at mature fields for minimising environmental Biosphere wastewater treatment with well-developed gas infrastructure, impacts. facilities at the Moscow and Omsk at the Moscow Refinery, after the gas utilisation rate has ranged Refineries. These facilities feature commissioning the Biosphere between 92% and 99% since 2016. 2015 2016 2017 2018 2019 treatment facilities

/ 1 / GHG are presented using the operational management method.

200 ANNUAL REPORT 2019 06 SUSTAINABLE DEVELOPMENT 201 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Waste Clean Territory Project Biodiversity Monitoring 'Narwhal Gazprom Neft continues to implement Territory Project also involves of the Sea Legend of the Arctic' management a targeted programme aimed remediating disturbed lands. preservation of Okhotsk ecosystem expedition at improving pipeline reliability, and land use including the Clean Territory Project. This programme is centred around In 2019, Gazprom Neft conducted Being a leader in the development This programme involves assessing, preventative measures enabling Gazprom Neft is implementing environmental monitoring of the Russian Arctic entails timely detection of pipeline defects monitoring, forecasting and extending biodiversity preservation programmes of the grey whale population a high degree of responsibility and potential vulnerabilities likely at the Ayashsky licence block, for preserving the region’s unique the life of pipeline systems, and conducting environmental as well as replacing pipeline sections to result in pipeline failure, and thus offshore from Sakhalin Island. ecosystem and biodiversity. To minimise in advance, based on the findings helping to prevent emergencies. monitoring to assess its impact Environmental monitoring As a result, potential risks of pipeline of grey whales in the Sea In the summer of 2019, Gazprom the risk of oil and petroleum products of diagnostic assessments. The Clean on ecosystems in the regions in which Neft successfully completed contaminating the soil, Gazprom Neft incidents were reduced. it operates. of Okhotsk forms part of a joint programme being implemented the first exploratory expedition continuously monitors equipment by oil and gas companies operating as part of the 'Narwhal: Legend reliability and introduces new The company is implementing on Sakhalin. The programme of the Arctic' project. The narwhal technologies. The company continues a corporate programme to preserve is being implemented with support is a rare species of cetaceans from and in close cooperation (whales), which lives in the waters to develop infrastructure for using biodiversity based on a list of the Russian Arctic and is included waste in the production process, of plant and animal species that with environmental organisations, including WWF. The findings in the IUCN Red List of Threatened and to search for technological serve as indicators of the stable of the 2019 expedition confirmed Species. solutions that will help to reduce Pipelines renovated Pipelines covered condition of marine ecosystems that the grey whale population During a four-week research waste generation. in the Russian Arctic. This in the Sea of Okhotsk had increased. expedition to the Franz Joseph and replaced by diagnostic assessment programme includes measures Land archipelago, researchers implemented by the company around succeeded in obtaining unique data on narwhal habitats in the Russian Green Seismic Project km km the Prirazlomnaya offshore ice- Rivers. In 2019, company enterprises Arctic, which will be used Green Seismic is a seismic 110 3,939 resistant oil-producing stationary released a total of over 71 million as a basis for a comprehensive survey technology that helps platform and Gazpromneft-Yamal juvenile fish of commercially valuable programme of research into to prevent deforestation. It assets; it also involves wildlife species into water bodies. In 2019, this species until 2022. This enables the company to reduce monitoring along oil transportation the company and the government project will make it possible the number of trees to be cut to assess the status of the narwhal down, the use of heavy tracked all- routes. of the Khanty-Mansi Autonomous population in the western sector terrain vehicles, fuel consumption, Corrosion monitoring Pipelines protected Okrug-Yugra signed an agreement, of the Russian Arctic, and determine and atmospheric emissions, covered Gazprom Neft is implementing under which Gazprom Neft will the size of the population and to improve safety. Between with corrosion inhibitors the Aquatic Bioresources consider potential compensatory and its distribution. The 'Narwhal: Legend of the Arctic' project 2016 and 2019, this technology Reproduction Programme as part (remedial) measures, namely was introduced at Gazpromneft- is an environmental project Noyabrskneftegaz, Gazpromneft- km km of its field development projects. releasing juvenile Siberian sturgeon, forming part of a large-scale 'Time Khantos, Slavneft-Megionneftegaz, 6,325 4,238 Gazprom Neft subsidiaries operating sterlet, whitefish and broad whitefish of the Arctic' programme launched and Gazpromneft-Vostok. It has in the Arctic breed rare fish species bred at enterprises in the Okrug, by Gazprom Neft. helped to preserve more than 3.5 in northern rivers and seas. Millions as a priority. million trees. of juvenile whitefish are released into the Ob, Konda and Severnaya Sosva

Public recognition Messoyakhaneftegaz—a Gazprom in the drilling process. These units in the Reliable Partner—Ecology Neft subsidiary—is using flocculation enable the company to reduce liquid annual national competition for best and sedimentation units. This Russian- drilling waste. environmental practices. designed resource-saving equipment is used in well construction to clean In July 2019, this project was recognised drilling mud and reuse process water as the Best Project to Recycle Materials

202 ANNUAL REPORT 2019 06 SUSTAINABLE DEVELOPMENT 203 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices EMPLOYEE DEVELOPMENT million Energy efficiency GJ Gazprom Neft employees Average headcount by age group Average headcount by gender2, 1.2 Efficient utilisation of energy are its strategic partners helping in 2019, % '000 people resources makes it possible to improve First Gazprom Neft the company to achieve sustainable energy savings performance, optimise production solar power plant development goals. In order to meet in the Upstream Division processes, and reduce The company has successfully company needs for skilled specialists, 61,862 62,998 66,500 73,251 15 63,897 implemented a project to build in 2019 the environmental footprint. Gazprom Neft is developing incentive 19 a solar power plant. The pilot and social support programmes solar power plant has been built 27,046 The company has incorporated for personnel, providing training at the Omsk Refinery, as there 26,103 million an energy efficiency strategy set out are, on average, 308 sunny days per and development for employees, 24,288 24,349 26,006 in the Gazprom Neft Energy Policy year in this region. To implement and creating a talent pool. GJ into its business model. This Policy this project, Gazprom Neft has partnered with Hevel Group, 46,204 provides a foundation for an energy The company is focusing its efforts 40,397 4.1 a Russian solar energy company that 38,649 37,891 37,574 management system (EnMS) compliant has built Russia's first integrated on recruiting, engaging and retaining energy savings with the international ISO 50001 plant producing solar (photovoltaic) the best employees. Gazprom Neft 66 in the Downstream Division standard. modules. Gazprom Neft signed has formed an employer value a cooperation agreement proposition aligned with demands in 2019 with Hevel Group in June 2019, Gazprom Neft annually develops at the St Petersburg International and expectations of target audiences, Under 30 Over 50 and approves an energy management Economic Forum. company strategic plans and its 30–50 2015 2016 2017 2018 2019 system development plan. This year, competitive position in the industry. The capacity of the first Gazprom Men Women the plan involves expanding the scope Neft solar power plant totals 1 MW, This value proposition is integrated In order of the energy management system, which can provide up to 1% of total into recruitment, executive to maximise adopting new and updating outdated energy consumption at the Omsk onboarding and training processes. performance, regulatory documents, providing Refinery. Gazprom Neft personnel training, and adopting a new In the reporting year, Gazprom is introducing version of the ISO 50001:2018 standard. Neft employed 78,800 people.1 innovations in all A total of 21,367 employees joined areas of operations In 2019, the energy efficiency and energy Gazprom Neft in 2019, while 17,817 as part of the Omsk conservation initiatives undertaken left the company. The increase Refinery development by the company were focused in headcount was due to the company programme. These on improving the performance of power- implementing its strategy, which include production generation and process equipment, involved production growth, business automation, reliable and optimising the utilisation of , including joint ventures, treatment systems, resources and process conditions. as well as further implementation and renewable energy. of digital programmes. 21,367 There can be no doubt that modern employees joined the company industrial enterprises Energy consumption, million GJ 1 in 2019 need to be not only Energy consumption by the Gazprom efficient, but also Neft Group, million GJ 2015 2016 2017 2018 2019 environmentally friendly. The Omsk Refinery TOTAL 198.1 199.3 251.8 242.8 229.2 solar power project is a perfect example of this approach. / 1 / Detailed energy consumption indicators will be presented in the Sustainability Report for 2019.

Oleg Belyavsky, CEO, Gazprom Neft Omsk / 1 / Average headcount as at 31 December 2019. Refinery / 2 / Detailed data on HR management, including personnel costs, the number of employees trained by category, etc., will be provided in the Sustainability Report for 2019.

204 ANNUAL REPORT 2019 06 SUSTAINABLE DEVELOPMENT 205 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Incentive system and social support Employee training The Gazprom Neft training and development system covers The Gazprom Neft for employees and development all categories of employees Corporate University in the company and in contractor has won the Effective № The company has in place Gazprom Neft strives to make organisations. In addition, Education Award 1 an integrated incentive system which sure that all the components of its the company attaches special The Gazprom Neft Partnership Gazprom Neft is aimed at recruiting, retaining remuneration system are competitive. importance to the training Management Programme won has topped and developing talented specialists, The company regularly revises The prestigious of prospective employees from target an award at the 3rd Annual Effective Education Conference. This project won the Randstad and supporting career advancement salaries in line with labour market award received groups: school and university employer rankings in the 'Best Educational Programme and professional development trends in the oil and gas sector. by the company students. of a Corporate University' category. In 2019, Gazprom Neft of employees. The objectives In 2019, the average monthly salary demonstrates topped the Randstad This award is presented annually and principles of financial and non- in Gazprom Neft totalled ₽134,000. that Partnership Gazprom Neft has created for the most effective and creative employer rankings financial incentives for employees an integrated company-wide for the third year in a row. Management educational initiatives in business The company ranked first are set out in a consistent corporate is an innovative educational environment—the development and professional in the fuel and energy remuneration policy. methodological Corporate University—which education in Russia. Leading Russian sector, with respondents approach, that meets combines all corporate training specialists in practical implementation of educational and corporate projects citing the oil, gas and energy Remuneration and social support the current needs and development practices. sector as the most attractive participate in the conference. industry. The Randstad programmes in the company of Russian businesses. At the Corporate University, Gazprom are based on a cumulative Neft employees gain up-to-date According to the panel, Gazprom employer rankings This programme offers Neft has created a sophisticated are based on an independent compensation model, which includes a range of benefits: innovative knowledge, and each technological educational project, survey among 14,000 a compensation package, benefits, Average monthly salary employees gain employee can be both a student, which is unique in Russia. It enables representatives and opportunities for career and a coach or expert. One of the key students to study the best Russian of the working-age in the company, ₽ '000 knowledge and develop advancement and professional the necessary objectives of the Corporate University and international partnership population across all regions management practices, form of Russia, undertaken development of employees. This competencies, while is to engage experts and executives 134.0 a shared conceptual framework for all in December 2019 model enables the company the company is creating in personnel training, create a strong employees involved in this process, by an international market to align its goals and individual 122.6 and developing unique community of in-house coaches, and share the relevant experience. research company TNS 112.9 Global. skills and needs of employees, 104.9 management tools that and generate state-of-the-art and determines infrastructure 100.2 give it a competitive knowledge within the company. for flexible implementation of HR edge. and business strategies. The Corporate University consists Average training hours per of faculties and departments. employee In 2019, Gazprom Neft introduced Ilya Dementiev, A department is a professional a bonus system based on integrated President of the Gazprom expertise centre, which helps performance assessment of divisions Neft Corporate University to make Gazprom Neft an industry 46 45 and employees at three pilot assets. leader by developing professional Starting from 2020, this new bonus communities and engaging the best 36 33 system will be rolled out across experts in order to accumulate 31 the company. 2015 2016 2017 2018 2019 and share knowledge and successful practices. In 2019, the Corporate University updated its concept Personnel costs, ₽ million and the methodology of working with departments, compiled 2015 2016 2017 2018 2019 a list of key performance indicators, Payroll 74,400 79,316 86,600 97,865 117,776 analysed performance, and outlined 2015 2016 2017 2018 2019 performance improvement plans. Employment benefits 2,432 3,260 3,177 3,596 3,743

206 ANNUAL REPORT 2019 06 SUSTAINABLE DEVELOPMENT 207 GAZPROM NEFT

Company profile In 2019, the 'Home Towns' Programme Strategic report won the top prize in Russia's most Performance prestigious social investment contest, Technological development the Leaders in Corporate Philanthropy. Governance system Sustainable development Appendices SOCIAL POLICY 'Home Towns' Gazprom Neft makes The principles governing Social Investment an important contribution interactions between Gazprom Neft Establishing a Research to the development of those and local communities are set out and Education Centre Programme regions where it operates, in the following documents: in Tyumen as an investor, a supplier of high- – The Regional Policy Concept; Established jointly quality petroleum products, – The Policy on Interactions by the company, the Tyumen Oblast a customer for Russian-made with Indigenous Northern, Siberian and the University of Tyumen, Modern sports high-technology products that and Far Eastern Minorities; the Research and Education Centre centres replace imported analogues, – The Charity Policy. will be one of 15 world-class Gazprom Neft has built two sports centres in the Yamalo- are an integral and an initiator and participant research and education centres to be established under the federal Nenets Autonomous Okrug part of development of environmental activities. For Gazprom Neft, social policy, which national 'Science' project. This The Polyarny Sports Facility sessions and competitions, while on Yamal. Sports is aimed at supporting the development initiative will combine Gazprom Neft and the Avangard Ice Centre, built at the Polyarny Sports Facility, local facilities such of those regions in which the company research capabilities with those by Gazprom Neft as part of its 'Home residents will now be able to swim, do as Polyarny Social investments operates, is an integral tool of universities and research Towns' Social Investment Programme, dancing and aerobics, and play futsal, are becoming centres in the Tyumen Oblast for achieving sustainable development have been opened in the town basketball, volleyball and tennis all the centre of attraction by Gazprom Neft and the Khanty-Mansi and Yamalo- of Labytnangi in the Yamalo-Nenets year round. The 7,000 square-metre under social goals. When interacting with local Nenets Autonomous Okrugs. Autonomous Okrug. facility includes a multifunctional gym for local people communities, the company seeks The centre will provide a platform and opening up and economic agreements and a workout room, an aerobics studio to make a step change in the way social for joint R&D projects, technological The area of the Ice Centre totals and a swimming pool. new opportunities 5,400 square metres. The Centre in 2019 and economic issues are addressed. development, and personnel training for the oil and gas industry. will host ice-hockey, figure-skating for talented billion The Gazprom Neft efforts in this area and other winter-sports training children. Together are focused on: with the Avangard Ice – Ensuring environmental safety, Centre, the opening ₽2.6 and minimising environmental of Polyarny marks impacts; and reached a mutual understanding The 'Home Towns' Programme is one the completion – Cooperating with the governments on outstanding issues, with the regional of the most successful and best- Key outcomes of the development of the federal subjects of Russia governments agreeing to assist known regional development initiatives of the 'Home Towns' of sports infrastructure and municipal administrations Gazprom Neft in addressing these launched by Russian businesses. It Programme in 2019 in this Arctic town. to promote the sustainable issues. The company concluded 18 covers all Gazprom Neft social projects, The new sports development of the regions social and economic cooperation from small-scale volunteer campaigns facilities offer and improve the standard of living; agreements with the federal subjects and town celebrations to major every opportunity – Creating a competitive of Russia and municipalities. international festivals, and construction to Labytnangi environment on regional labour of apartment blocks and sports residents to be able markets; Gazprom Neft operates in areas centres. to play sports and take – Creating a favourable financial, where indigenous minorities live, billion part in competitions all economic and legal environment in the Khanty-Mansi and Yamalo- This programme is centred ₽7.5 year round. for the company operations; Nenets Autonomous Okrugs. around a partnership-based – Expanding cooperation The company respects the rights model of cooperation with regional social investment with stakeholders and ensuring of indigenous minorities, supports governments, non-profit organisations, Alexander Dybal, information transparency. local communities, promotes local residents, and company Member of the Management their integration into the modern employees. Gazprom Neft forms its Board, Deputy In 2019, Gazprom Neft continued social and economic landscape, social projects portfolio taking into CEO for Corporate to expand its cooperation and at the same time takes steps account stakeholder expectations, Communications, with the governments of the federal to preserve their traditional culture allocates resources for addressing >350 Gazprom Neft PJSC subjects of Russia and municipal and way of life. outstanding issues facing the regions, administrations. The company and seeks to provide long-term social social initiatives conducted an annual audit of relations benefits. implemented with regional governments,

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Company profile Strategic report Performance Technological development Governance system Sustainable development The VII Kustendorf Appendices CLASSIC Festival

Key projects forming part of the 'Home Towns' Programme in 2019

'Home Towns' Social Investment Forum In 2019, Gazprom Neft held the sixth international 'Home Towns' Social Investment Gazprom Neft Cup Bashmet became a guest of honour Forum. This is the key annual event held by Gazprom Neft in the field of regional at the festival, and 25 young Russian development and social projects. Over 300 Russian and foreign experts, volunteers Established in 2007, the Gazprom musicians took part in the contest. and winners of the Gazprom Neft grant competition participated in the Forum For Gazprom Neft, and discussed the preservation of local identity in the regions. it is important Neft Cupinternational kids hockey to preserve tournamenis the key company project the local identity aimed at promoting children's Makers of Russia Stenographia X of those regions sports. This is the world's biggest Gazprom Neft supports in which it operates. non-profit ice-hockey tournament Together with the Creative Practices the Stenographia Festival, Russia's Volunteering Grant contest Every city, every town for children aged under 11. Foundation, Gazprom Neft biggest street art event. As part of this event, artists turn ordinary and every village The Gazprom Neft Cup boasts a level is implementing the Makers of Russia urban buildings into works of art. Gazprom Neft employees participate The grant competition is the key tool has its own unique of organisation unparalleled by any programme aimed at supporting in volunteering initiatives. A total for supporting initiatives by local other children’s competitions: youth entrepreneurship. This project 2019 marked the tenth anniversary history, traditions, of the Stenographia Festival. This of 5,756 company employees have activists, non-governmental and non- and culture. But in order the games are played in world- includes a series of studies, forums year, artists drew 35 large pieces put forward their ideas, joined profit organisations, and state-funded to strengthen local class ice arenas, and the opening and crash courses, and is centred of graffiti in Gazprom Neft 'home the large Gazprom Neft team, institutions in those regions in which identity, it is important ceremony and the super final can around the Mastera.academy online towns': Yekaterinburg, Khanty- or implemented their own volunteer Gazprom Neft operates. The company to promote social rival the best international ice- media platform. This resource gives Mansiysk, Omsk, Tomsk, Kargasok, Parabel, Noyabrsk, Muravlenko, projects, including as part of a special not only assists in implementing development hockey shows. In 2019, 31 teams young entrepreneurs an opportunity and Orenburg, as well as in Arctic corporate contest. a project, but also seeks to make sure in the regions, from 10 countries competed to share experience, develop towns: Novy Port, Mys Kamenny that most initiatives could continue and improve the standard in this tournament, with teams their professional competencies, and Tazovsky. to develop and produce results after of living. This from Russia, Belarus, Germany, and present their products to a wide In addition, a multimedia exhibition the grants have been used. is precisely what Latvia, Kazakhstan and Finland audience, free of charge. In 2019, titled Stenographia X was held the 'Home Towns' joined for the first time by players over 20,000 users completed online at the Lumiere Hall creative space Social Investment from Austria, China, Slovakia courses on the Mastera.academy in St Petersburg. It showcased the most spectacular works of art Programme being and the Czech Republic. platform. and records of the festival over its implemented 10-year history. million by Gazprom Neft 53 ₽37 is aimed at: supporting Kustendorf Classic 'Mathematical Progression' educational, sports, volunteer projects grant fund in 2019 scientific and cultural The Kustendorf Classic Festival Gazprom Neft is a partner implemented initiatives, which of Russian Music, founded of the Chebyshev Laboratory in 2019 with support make people's lives and managed by a world-famous at St Petersburg State University, from the company in the regions more film director Emir Kusturica, is held headed by a Fields Medal winner comfortable, eventful annually in Serbia. This festival Stanislav Smirnov. The joint project and interesting. was launched in 2013 and has been titled 'Mathematical Progression' As a result, people supported by Gazprom Neft since is aimed at supporting talented 143 have more reasons its inception. The key idea behind mathematicians at all stages to be proud the festival is to support talented of training. of and identify young musicians and strengthen projects of local residents themselves with those cultural ties between Serbia In 2019, the company awarded implemented places where they live. and Russia. The festival includes personal scholarships and prizes a young musicians' contest, as well to 73 students and four young as masterclasses and performances researchers. This project has become Alexander Dyukov, by world-renowned classical music international, as a Department Chairman stars, such as conductor Valery of the Management Board, Gergiev and pianist Denis Matsuev. CEO, Gazprom Neft PJSC In 2019, a world-famous violist Yuri

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

of Mathematics and Computer over 1,000 people attended In the City, Science has been established a conference on technologies shaping in the Chebyshev Laboratory. the future of cities, In addition, the Modern Mathematics as well as lectures and workshops MSc programme has been launched by entrepreneurs, researchers for students from Russia, Eastern and specialists in urban studies Europe and Asia, with support from the USA, the Netherlands, from Gazprom Neft. Indonesia and Russia, with 25,000 viewers watching online broadcasts.

Multiplying Talent ' Social initiatives abroad Since 2015, Gazprom Neft has been holding the ' Multiplying Talent ' Social initiatives undertaken Case Tournament for gifted school by Gazprom Neft abroad students every year. High school contribute to building constructive students from the company regions relationships with local communities of operation compete in solving and implementing company projects business cases related to the oil successfully. and gas sector. In 2019, the Sirius Educational Centre, Russia's leading In Serbia, Gazprom Neft campus for gifted children, partnered is implementing large-scale social the tournament. The tournament projects aimed at supporting was held in a new format— culture and preserving the country's participants solved not only problems historical heritage. NIS, a Gazprom from the oil and gas sector, but also Neft subsidiary, has been one digital business cases prepared of the leading social investors by Gazprom Neft. 2,800 applications in education, healthcare, social were submitted for the competition, support, culture and sports in Serbia with 71 high school students reaching for years, acting under the motto the final. 'Future in Action'.

Social projects in the Kurdistan In The City Region of Iraq and Wasit Governorate in Iraq are being implemented Since 2015, Gazprom Neft has been in close cooperation with the local cooperating with the Strelka Institute governments. The Gazprom Neft for Media, Architecture and Design social policy in this region is focused on educational programmes on developing the education for representatives involved and healthcare systems, and power in regional development initiatives supply. in Omsk and St Petersburg. In 2019,

212 ANNUAL REPORT 2019 APPENDIX 1. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2019 WITH INDEPENDENT AUDITOR’S REPORT

Independent Auditor’s Report

To the Shareholders and the Board of Directors of Public Joint Stock Company Gazprom Neft

Opinion

We have audited the accompanying consolidated financial statements of Public Joint Stock Company Gazprom Neft (“PJSC Gazprom Neft”) and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at 31 December 2019, and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year ended 31 December 2019, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2019, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Rules of Independence of the Auditors and Audit Organizations and the Code of Professional Ethics of the Auditors, which are in accordance with International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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Revenue recognition Information about the approaches applied to measure and recognise impairment of non-current assets is provided in Note 2 “Summary of significant accounting policies” and Note 3 “Critical accounting estimates, assumptions During the audit we specially focused on revenue recognition as the amount of revenue is material and revenue streams and judgements” to the consolidated financial statements, information about the conducted impairment testing are formed in different geographical and operating segments. In addition, revenue streams differ in such terms is disclosed in Note 11 “Property, plant and equipment” and Note 13 “Goodwill and other intangible assets” of recognition as the identification of performance obligations, determination of transaction prices and the pattern to the consolidated financial statements. of transfer of risks and rewards.

Despite the high level of automation, a large number of contracts and a significant number of transactions pose a risk Classification and recognition of financial instruments as cash equivalents of misstatement of this item. Due to the economic importance of cash and cash equivalents, the significance of the cash equivalent balances, Our audit procedures in respect of the risk of material misstatement of revenue included: and the professional judgement and assumptions applied by the Group's management in classifying and recognising – assessing the consistency of the application of the revenue recognition accounting policy in relation to a variety financial instruments as cash equivalents, we consider this matter to be one of the key audit matters. of performance obligations; – testing controls and assessing the risk of fraud or error; The classification and recognition of financial instruments as cash equivalents applied by the Group are based – verifying the timeliness of revenue recognition and the right to recognised revenue based on the terms of contracts on the significant professional judgement applied by the Group's management, which is supported by the intention and other documents; of the Group’s management to use such financial instruments to settle the Group's short-term cash liabilities. – receiving confirmation letters from counterparties as of the end of the reporting period. In addition, the Group analyses various factors, including the assessment of liquidity and credit risks, records on cash returns at any point of time without significant loss of interest and penalties. Based on the results of our audit procedures, we considered the position of the Group’s management on the revenue recognition to be acceptable. During our audit procedures regarding the classification and recognition of financial instruments as cash equivalents, we performed the following procedures: Information about the approaches to revenue recognition is provided in Note 2 “Summary of significant accounting – assessing the appropriateness and consistency of the professional judgements applied by the Group's management policies” to the consolidated financial statements, information about revenue figures, including information regarding the classification and recognition of financial instruments as cash equivalents; by geographic segments, is disclosed in Note 40 “Segment information” to the consolidated financial statements. – reviewing intentions of the Group's management regarding the use of financial instruments classified as cash equivalents for the purposes of managing the Group's liquidity; – assessing liquidity and credit risks related to the solvency of counterparties, including transactions under repurchase Assessment of the recoverable amount of non-current assets agreements and cash pooling agreement with the Group's parent company; – analysing agreements and other documents confirming the availability of cash at any point of time without significant Due to the material carrying amount of the Group’s non-current assets, continuing volatility of macroeconomics loss of interest and penalties because of early redemption. parameters supplemented by political instability in some regions where the Group operates, sensitivity of impairment models to the assumptions applied by the Group’s management as well as the high level of subjectivity of the applied Based on the results of our procedures, we believe that the key assumptions and professional judgements judgements and estimates of the Group’s management we consider this matter to be one of most significance of the Group's management regarding the classification and recognition of financial instruments as cash equivalents in the audit. are reasonable and do not contradict the available audit evidence.

The risk of the non-recoverability of the carrying amount of non-current assets primarily relates to production and oil Information about the main accounting policies applied to account for cash and cash equivalents is provided refining assets located in the Russian Federation, oil and gas production and exploration assets located in Iraq, in Note 2 "Summary of significant accounting policies" to the consolidated financial statements, and information and assets located mostly in Serbia. As at the reporting date, the Group’s management measured the recoverable about the amount of cash and cash equivalents is disclosed in Note 6 "Cash and cash equivalents" to the consolidated amount of non-current assets for cash-generating units by means of value in use. financial statements.

Our audit procedures in respect of this area included: – testing the principles applied to prepare future cash flow forecasts; Other Matter – involvement of our valuation experts who: – analysed the methodology used by the Group when performing impairment testing of non-current assets The consolidated financial statements of the Group for the year ended 31 December 2018 presented in accordance and the consistency of its application by the Group; with IFRSs were audited by another auditor (AO PricewaterhouseCoopers Audit) who expressed an unmodified opinion – compared the data used by the Group with the information available from independent sources (inflation on those statements on 20 February 2019. and income tax rates) as well as with our own assessments in relation to key inputs used in impairment testing (future oil prices and exchange rates, determined discount rates, estimation of oil and gas reserves and its future production and sales volumes); – analysed the sensitivity of the models applied for testing purposes to changes in key assumptions. Based on the results of the audit procedures, we believe that the information and key assumptions applied by the Group’s management to calculate the recoverable amount of non-current assets are acceptable and are well in line with current economic environment.

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Other Information Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Management is responsible for the other information. The other information comprises the information included Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole in Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three months are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes ended December 31 and September 30, 2019 and years ended December 31, 2019 and 2018 (but does not include our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted the consolidated financial statements and our auditor’s report thereon), which we obtained prior to the date in accordance with ISAs will always detect a material misstatement when it exists. of this auditor’s report, the Annual Report of PJSC Gazprom Neft for 2019 and the Quarterly issuer’s report of PJSC Gazprom Neft for the first quarter of 2020, which are expected to be made available to us after the date of this auditor’s Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could report. reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: In connection with our audit of the consolidated financial statements, our responsibility is to read the other information a. identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s misrepresentations, or the override of internal control; report, we conclude that there is a material misstatement of this other information, we are required to report that fact. b. obtain an understanding of internal control relevant to the audit in order to design audit procedures that We have nothing to report in this regard. are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control; When we read the Annual report of PJSC Gazprom Neft for 2019 and the Quarterly issuer's report of PJSC Gazprom c. evaluate the appropriateness of accounting policies used, the reasonableness of accounting estimates and related Neft for the first quarter of 2020, if we conclude that there is a material misstatement therein, we are required disclosures made by management; to communicate the matter to those charged with governance. d. conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty Responsibilities of Management and Those Charged with Governance exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated for the Consolidated Financial Statements financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause Management is responsible for the preparation and fair presentation of the consolidated financial statements the Group to cease to continue as a going concern; in accordance with IFRSs, and for such internal control as management determines is necessary to enable e. evaluate the overall presentation, structure and content of the consolidated financial statements, including the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud the disclosures, and whether the consolidated financial statements represent the underlying transactions and events or error. in a manner that achieves fair presentation; f. obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern supervision and performance of the Group audit. We remain solely responsible for our audit opinion. basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during Those charged with governance are responsible for overseeing the Group’s financial reporting process. our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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From the matters communicated with those charged with governance, we determine those matters that were of most Consolidated Statement of Financial Position significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated Currency – RUB millions in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 31 December 31 December Notes 2019 2018 President of FBK, LLC S.M. Shapiguzov ASSETS CURRENT ASSETS (by virtue of the Charter, audit qualification certificate 01-001230) Cash and cash equivalents 6 202,404 247,585 Short-term financial assets 19,906 847 Engagement partner on the audit resulting К.S. Shirikova, FССA Trade and other receivables 7 205,272 129,150 in this independent auditor’s report Inventories 8 173,674 149,956 (audit qualification certificate 01-000712) Current income tax prepayments 6,622 3,179 Other taxes receivable 9 104,918 91,929 Date of the independent auditor’s report: 21 February 2020 Other current assets 10 55,052 40,483 Total current assets 767,848 663,129 NON-CURRENT ASSETS Property, plant and equipment 11 2,469,338 2,366,069 Right-of-use assets 12 79,073 - Goodwill and other intangible assets 13 88,620 80,139 Investments in associates and joint ventures 14 341,115 328,937 Long-term trade and other receivables 829 980 Long-term financial assets 16 11,037 10,345 Deferred income tax assets 17 18,492 19,127 Other non-current assets 18 49,131 52,200 Total non-current assets 3,057,635 2,857,797 TOTAL ASSETS 3,825,483 3,520,926 LIABILITIES AND EQUITY AUDITED ENTITY AUDITOR Current liabilities Name: Name: Short-term debt and current portion of long-term debt 19 30,198 90,923 Public Joint Stock Company Gazprom Neft (Gazprom Neft PJSC). FBK, LLC. Address of the legal entity within its location: Address of the legal entity within its location: Current lease liabilities 25 9,927 - 3-5 Pochtamtskaya St, St. Petersburg, 190000, Russian 44/1 Myasnitskaya St, Bldg 2AB, Moscow, 101990, Russian Current finance lease liabilities 25 - 1,829 Federation. Federation. State registration: State registration: Trade and other payables 20 307,439 307,604 Registered on 6 October 1995 by the Omsk Registration Registered by the Moscow Registration Chamber on 15 Other current liabilities 21 40,741 39,510 Chamber. Statutory registration certificate No. 38606450. November 1993, registration number 484.58З. Current income tax payable 2,247 3,328 Primary state registration number 1025501701686. The registration entry was made in the Unified State Register of Legal Entities on 24 July 2002 under primary state registration Other taxes payable 22 96,401 99,085 number 1027700058286. Provisions and other accrued liabilities 23 23,741 20,043 Membership in a self-regulatory organization of auditors: Member of the Self-regulatory organization of auditors Total current liabilities 510,694 562,322 Association "Sodruzhestvo". NON-CURRENT LIABILITIES Primary number of registration entry in the register of auditors Long-term debt 24 685,030 684,530 and audit organizations of the self-regulatory organization of auditors 11506030481. Non-current lease liabilities 25 77,868 -

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31 December 31 December Notes 2019 2018 Consolidated Statement of Profit or Loss Non-current finance lease liabilities 25 - 23,654 Other non-current financial liabilities 26 21,504 44,857 and Other Comprehensive Income Deferred income tax liabilities 17 148,253 127,448 Provisions and other accrued liabilities 23 119,004 67,192 Currency – RUB millions (except per share data) Other non-current liabilities 27 49,933 19,104 Total non-current liabilities 1,101,592 966,785 Year ended Year ended EQUITY 31 December 31 December Notes 2019 2018 Share capital 28 98 98 REVENUE Treasury shares 28 (1,170) (1,170) Crude oil, gas and petroleum products sales 2,393,444 2,418,717 Additional paid-in capital 36,044 60,397 Other revenue 91,864 70,575 Retained earnings 1,943,523 1,680,978 TOTAL REVENUE FROM SALES 40 2,485,308 2,489,292 Other reserves 78,711 99,874 COSTS AND OTHER DEDUCTIONS Equity attributable to Gazprom Neft shareholders 2,057,206 1,840,177 Purchases of oil, gas and petroleum products (663,068) (617,306) Non-controlling interest 38 155,991 151,642 Production and manufacturing expenses (260,688) (228,618) Total equity 2,213,197 1,991,819 Selling, general and administrative expenses (125,592) (114,882) TOTAL LIABILITIES AND EQUITY 3,825,483 3,520,926 Transportation expenses (143,474) (147,182) Depreciation, depletion and amortisation 11,12,13 (181,372) (175,451) Taxes other than income tax 22 (591,193) (652,784) Export duties (71,601) (94,916) Exploration expenses (1,752) (1,411) A. V. Dyukov A. V. Yankevich TOTAL OPERATING EXPENSES (2,038,740) (2,032,550) OPERATING PROFIT 446,568 456,742 Chief Executive Officer Chief Financial Officer PJSC Gazprom Neft PJSC Gazprom Neft Share of profit of associates and joint ventures 14 83,906 90,704 Net foreign exchange gain / (loss) 31 10,518 (33,558) Finance income 32 22,906 7,506 Finance expense 33 (32,772) (21,476) Other loss, net 30 (23,292) (19,796) TOTAL OTHER INCOME 61,266 23,38 PROFIT BEFORE INCOME TAX 507,834 480,122 Current income tax expense (52,502) (59,585) Deferred income tax expense (33,244) (19,544) TOTAL INCOME TAX EXPENSE 34 (85,746) (79,129) PROFIT FOR THE PERIOD 422,088 400,993 Other comprehensive (loss) / income - may be reclassified to profit or loss Currency translation differences (29,674) 36,937 Cash flow hedge, net of tax 35 319 14,63 Other comprehensive (loss) / income (319) 95 TOTAL OTHER COMPREHENSIVE (LOSS) / INCOME - MAY BE RECLASSIFIED TO PROFIT (29,674) 51,662 OR LOSS

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Year ended Year ended Attributable to Gazprom Neft shareholders 31 December 31 December Notes 2019 2018 Additional Non- Share Treasury paid-in Retained Other controlling Total OTHER COMPREHENSIVE LOSS - WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS capital shares capital earnings reserves Total interest equity Remeasurement of provision for post-employment benefits (2,411) Transactions with shareholders, recorded in equity TOTAL OTHER COMPREHENSIVE LOSS - WILL NOT BE RECLASSIFIED TO PROFIT (2,411) OR LOSS Dividends to equity holders - - - (123,091) - (123,091) (6,616) (129,707) OTHER COMPREHENSIVE (LOSS) / INCOME (32,085) 51,662 Transactions with shareholder (Note 11) - - (24,353) - - (24,353) - (24,353) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 390,003 452,655 TOTAL TRANSACTIONS - - (24,353) (123,091) - (147,444) (6,616) (154,060) PROFIT ATTRIBUTABLE TO: WITH SHAREHOLDERS Gazprom Neft shareholders 400,201 376,667 Balance as of 31 December 2019 98 (1,170) 36,044 1,943,523 78,711 2,057,206 155,991 2,213,197 Non-controlling interest 21,887 24,326 Balance as of 1 January 2018 98 (1,170) 62,256 1,431,931 60,142 1,553,257 105,876 1,659,133 Profit for the period 422,088 400,993 Profit for the period - - - 376,667 - 376,667 24,326 400,993 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Other comprehensive income Gazprom Neft shareholders 379,038 416,399 Currency translation differences - - - - 25,007 25,007 11,930 36,937 Non-controlling interest 10,965 36,256 Cash flow hedge, net of tax - - - - 14,630 14,630 - 14,630 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 390,003 452,655 Other comprehensive income - - - - 95 95 - 95 TOTAL COMPREHENSIVE INCOME Earnings per share attributable to Gazprom Neft shareholders - - - 376,667 39,732 416,399 36,256 452,655 FOR THE PERIOD Basic earnings (RUB per share) 84.82 79.84 Transactions with shareholders, recorded Diluted earnings (RUB per share) 84.82 79.84 in equity Weighted-average number of common shares outstanding (millions) 4,718 4,718 Dividends to equity holders - - - (127,620) - (127,620) (11,769) (139,389) Transaction under common control - - (2,819) - - (2,819) - (2,819) Change of non-controlling interest - - 960 - - 960 21,279 22,239 Consolidated Statement of Changes in Shareholders' Equity in subsidiaries (Note 38) TOTAL TRANSACTIONS - - (1,859) (127,620) - (129,479) 9,510 (119,969) WITH SHAREHOLDERS Currency – RUB millions Balance as of 31 December 2018 98 (1,170) 60,397 1,680,978 99,874 1,840,177 151,642 1,991,819

Attributable to Gazprom Neft shareholders Additional Non- Share Treasury paid-in Retained Other controlling Total capital shares capital earnings reserves Total interest equity Balance as of 31 December 2018 98 (1,170) 60,397 1,680,978 99,874 1,840,177 151,642 1,991,819 Effect of changes in accounting policies - - - (14,565) - (14,565) - (14,565) (Note 4) Balance as of 1 January 2019 98 (1,170) 60,397 1,666,413 99,874 1,825,612 151,642 1,977,254 Profit for the period - - - 400,201 - 400,201 21,887 422,088 OTHER COMPREHENSIVE (LOSS) / INCOME Currency translation differences - - - - (18,752) (18,752) (10,922) (29,674) Cash flow hedge, net of tax - - - - 319 319 - 319 Remeasurement of provision for post- - - - - (2,411) (2,411) - (2,411) employment benefits Other comprehensive loss - - - - (319) (319) - (319) TOTAL COMPREHENSIVE INCOME / - - - 400,201 (21,163) 379,038 10,965 390,003 (LOSS) FOR THE PERIOD

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Year ended Year ended 31 December 31 December Notes 2019 2018 Dividends received 65,404 20,063 Other cash flows from operating activities 859 - Net cash provided by operating activities 609,076 537,523 Consolidated Statement of Cash Flows Cash flows from investing activities Increase in cash due to subsidiary acquisition - (920) Acquisition of investments in joint ventures (210) (440) Currency – RUB millions Bank deposits placement (97,090) (640)

Year ended Year ended Repayment of bank deposits 82,000 7,350 31 December 31 December Notes 2019 2018 Acquisition of other investments (474) (70) Cash flows from operating activities Proceeds from sales of other investments 1,425 - Profit before income tax 507,834 480,122 Short-term loans issued (532) (143) Adjustments for: Repayment of short-term loans issued 661 218 Share of profit of associates and joint ventures 14 (83,906) (90,704) Long-term loans issued (7,148) (984) Net foreign exchange (gain) / loss 31 (10,518) 33,558 Repayment of long-term loans issued 1,313 12,490 Finance income 32 (22,906) (7,506) Purchases of property, plant and equipment and intangible assets (453,011) (370,067) Finance expense 33 32,772 21,476 Purchases of oil and gas licences (9,623) (5,130) Depreciation, depletion and amortisation 11,12,13 181,372 175,451 Proceeds from sale of property, plant and equipment, net of tax 115,710 4,413 Other non-cash items 10,804 12,386 Interest received 17,155 18,885 Operating cash flow before changes in working capital 615,452 624,783 Other cash flows from investing activities (13,765) - Changes in working capital: Net cash used in investing activities (363,589) (335,038) Accounts receivable (41,927) (10,661) Cash flows from financing activities Inventories (23,453) (27,688) Proceeds from short-term borrowings 15,592 442 Taxes receivable (13,531) (33,855) Repayment of short-term borrowings (343) (220) Other assets (8,165) (4,339) Proceeds from long-term borrowings 243,371 366,102 Accounts payable 83,185 51,826 Repayment of long-term borrowings (292,036) (360,840) Taxes payable (1,974) 13,175 Transaction costs directly attributable to the borrowings received (375) (158) Other liabilities 45,370 11,868 Dividends paid to Gazprom Neft shareholders (227,120) (70,774) Dividends paid to non-controlling shareholders (6,609) (11,864) Total effect of working capital changes 39,505 326 Proceeds from sale of non-controlling interest in subsidiaries 38 - 22,348 Income tax paid (53,087) (61,157) Repayment of principal portion of lease liabilities (9,200) - Interest paid (59,057) (46,492) Repayment of principal portion of finance lease liabilities - (1,579) Net cash used in financing activities (276,720) (56,543) (Decrease) / increase in cash and cash equivalents (31,233) 145,942 Effect of foreign exchange on cash and cash equivalents (13,948) 11,035 Cash and cash equivalents as of the beginning of the period 247,585 90,608 Cash and cash equivalents as of the end of the period 202,404 247,585

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Notes to the Consolidated Financial Statements

Foreign currency translation

1. General 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 Description of business entity of the Group. For the majority of the entities the functional currency is the local currency of the entity.

PJSC Gazprom Neft (the “Company”) and its subsidiaries (together referred to as the “Group”) is a vertically integrated Monetary assets and liabilities have been translated into the functional currency at the exchange rate as of the reporting oil company operating in the Russian Federation, CIS and internationally. The Group’s principal activities include date. Non-monetary assets and liabilities have been translated at historical rates. Revenues, expenses and cash flows exploration, production and development of crude oil and gas, production of refined petroleum products and distribution are translated into functional currency at average rates for the period or exchange rates prevailing on the transaction and marketing operations through its retail outlets. dates where practicable. Gains and losses resulting from the re-measurement into functional currency are included in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges. 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 presentation currency for the Group is the Russian Rouble. Gains and losses resulting from the re-measurement the Group’s ultimate parent company, owns 95.7% of the shares in the Company. into presentation currency are included in Other Reserves line of equity in the Consolidated Statement of Financial Position.

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, 2. Summary of significant accounting policies 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.

Basis of preparation Principles of consolidation 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 The Consolidated Financial Statements include the accounts of subsidiaries in which the Group has control. Control Consolidated Financial Statements were primarily derived from the Group’s statutory books and records implies rights or exposure to variable returns from the involvement with the investee and the ability to affect with adjustments and reclassifications made to present them in accordance with International Financial Reporting those returns through the power over the investee. An investor has power over an investee when the investor has Standards (“IFRS”). 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 Subsequent events occurring after 31 December 2019 were evaluated through 21 February 2020, the date these when the investor’s return from its involvement has the potential to vary as a result of the investee’s performance. Consolidated Financial Statements were authorised for issue. 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. The principal accounting policies are set out below. Apart from the accounting policies changes and additions resulting from adoption of IFRS 16 and Tax Code changes effective from 1 January 2019, these policies have been consistently In assessing control, the Group takes into consideration potential voting rights that are substantive. Investments applied to all periods presented, unless otherwise stated. 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 Basis of measurement of the joint operation. All other investments are classified as financial assets measured at fair value through other comprehensive income or through profit or loss. The Consolidated Financial Statements are prepared on the historical cost basis except that derivative financial instruments, equity investments at fair value through other comprehensive income (OCI) and obligations under the Stock Appreciation Rights plan (SAR) are stated at fair value. 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 identifiable assets acquired and liabilities and contingent liabilities

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

assumed in the acquiree at the acquisition date, measured at their fair values as of that date. Determining the fair value entity. When these transactions represent transactions with owners in their capacity as owners, the effect on such of assets acquired and liabilities assumed requires Management’s judgment and often involves the use of significant transactions is included in Additional paid-in capital in Equity. 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). Investments in associates

An associate is an entity over which the investor has significant influence. Investments in associates are accounted Goodwill 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 Goodwill is measured by deducting the fair value net assets of the acquiree from the aggregate of the consideration to align accounting policies with those of the Group, from the date that significant influence commences until the date transferred for the acquiree, the amount of non-controlling interest in the acquiree and the fair value of an interest that significant influence ceases. 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. Joint operations and joint ventures

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights amounts are generally recognised in profit or loss. Transaction costs, other than those associated with the issue of debt to the assets, and obligations for the liabilities, relating to the arrangement. or equity securities, that the Group incurs in connection with a business combination, are expensed as incurred. 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. Non-controlling interest Where the Group acts as a joint operator, the Group recognises in relation to its interest in a joint operation: 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 attributable – Its assets, including its share of any assets held jointly; to the parent and the non-controlling interest are both presented on the face of the Consolidated Statement of Profit – Its liabilities, including its share of any liabilities incurred jointly; or Loss and Other Comprehensive Income. – 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. Changes in ownership interests in subsidiaries without change of control With regards to joint arrangements, where the Group acts as a joint venturer, the Group recognises its interest in a joint Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions venture as an investment and accounts for that investment using the equity method. – 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. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, Disposals of subsidiaries 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 When the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there when control is lost, with the change in carrying amount of the investment to the entity recognised in profit or loss. is no evidence of impairment. 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. Cash and cash equivalents This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. Cash represents cash on hand and in bank accounts, that can be effectively withdrawn at any time without prior notice.

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

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Cash equivalents include all highly liquid short-term investments with initial maturity within three months that can The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed. be converted to a certain cash amount and are subject to an insignificant risk of changes in value. They are initially recognised based on the cost of acquisition which approximates fair value and carried at amortised cost as are readily convertible to known amounts of cash. Debt instruments

The Group uses the additional highly liquid instruments for cash management that are recognised as cash equivalents: Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. The Group classifies its debt instruments into three measurement – deposits with initial maturity more than three months if the Group has the right to early withdraw it without categories: significant interest loss and penalties; – cash transferred under the repurchase agreements with the maturity within one months if the risks and rewards do – Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely not transferred to the Group, cash returns at the fixed interest rate and do not linked to the securities market value; payments of principal and interest are measured at amortised cost. Interest income from these financial assets – short-term loans issued to the parent company (“cash pooling”) if the Group has the right for early redemption is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition of loans without significant interest loss and penalties. is recognised directly in profit or loss and presented in other gains / (losses) together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss if material. Financial assets at amortised cost comprise trade receivables, other financial assets, cash and cash equivalents. Non-derivative financial assets – FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements The Group classifies its financial assets in the following measurement categories: in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset – those to be measured subsequently at fair value (either through OCI or through profit or loss), and is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss – those to be measured at amortised cost. and recognised in other gains / (losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains / (losses) At initial recognition, the Group measures a financial asset at its fair value plus transaction costs that are directly and impairment expenses are presented as separate line item in the statement of profit or loss if material. attributable to the acquisition of the financial asset (in the case of the financial asset not at fair value through profit The changes in fair value will no longer be reclassified to profit or loss when they are impaired or disposed. These or loss (FVPL)). Transaction costs of financial assets carried at FVPL are expensed in profit or loss. assets are non-material for the Group. – FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss The Group initially recognises financial assets on trade-date (the date on which the Group commits to purchase or sell on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have other gains / (losses) in the period in which it arises. These assets are non-material for the Group. expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

For assets measured at fair value gains and losses will either be recorded in profit or loss or OCI. The classification Equity instruments of financial assets depends on: The Group subsequently measures all equity investments at fair value. Where the group’s management has elected – the entity’s business model for managing the financial assets and to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value – the contractual cash flow characteristics of the financial asset. gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established. In particular, debt financial assets in the Group are usually held to obtain contractual cash flows that are solely Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported payments of principal and interest. In rare cases, debt financial assets are held within a business model whose separately from other changes in fair value. objective is achieved by both collecting contractual cash flows and selling financial assets. Other equity instruments are recognised at FVPL. Changes in the fair value of financial assets at FVPL are recognised The Group reclassifies debt investments when and only when its business model for managing those assets in other gains/(losses) in the statement of profit or loss as applicable. The assets are not significant for the Group. changes. Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Group undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Factors considered by the Group in determining the business model include the purpose Non-derivative financial liabilities and composition of a portfolio, past experience on how the cash flows for the respective assets were collected, how risks are assessed and managed, how the assets’ performance is assessed. The Group initially recognises debt securities issued, loans and borrowings on the date that they are originated (in particular, date of bond issue or receiving of cash). Financial liabilities also include bank overdrafts, trade and other Equity securities at initial recognition are usually accounted at fair value through other comprehensive income (FVOCI). payables. These financial liabilities recognised initially on the trade date on which the Group becomes a party These are strategic investments and the Group considers this classification to be more relevant. to the contractual provisions of the instrument. The financial liabilities are recognised initially at fair value minus (in the case of a financial liability that is not at fair value through profit or loss (FVTPL)) transaction costs that are directly Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows attributable to issuing the financial liability. Subsequent to initial recognition, these financial liabilities are measured are solely payment of principal and interest (“SPPI”). at amortised cost using the effective interest method. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Derivative financial instruments 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: Derivative instruments are recorded at fair value in the Consolidated Statement of Financial Position in either financial assets or liabilities. Realised and unrealised gains and losses are presented in profit or loss on a net basis, except Intangible asset group Average useful life for those derivatives, where hedge accounting is applied. Licences and software 1-5 years The estimated fair values of derivative financial instruments are determined with reference to various market Land rights 25 years 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. Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and any impairment. The cost Hedge accounting of maintenance, repairs and replacement of minor items of property, plant and equipment are expensed when incurred; renewals and improvements of assets are capitalised. Costs of turnarounds and preventive maintenance The Group applies hedge accounting policy for those derivatives that are designated as a hedging instrument (currency performed with respect to oil refining assets are expensed when incurred if turnaround does not involve replacement exchange forwards and interest-rate swaps). 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 The Group has designated only cash flow hedges – hedges against the exposure to the variability of cash flow currency are recorded in profit or loss. 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 Oil and gas properties 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 or loss. Exploration and evaluation assets 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. Acquisition costs include amounts paid for the acquisition of exploration and development licences. Any ineffective portion is directly recognised in profit or 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 Exploration and evaluation assets include: transferred to profit or loss. – Costs of topographical, geological and geophysical studies and rights of access to properties to conduct those The fair value of the hedge instrument is determined at the end of each reporting period with reference to the market studies that are directly attributable to exploration activity; value, which is typically determined by the credit institutions. – Costs of carrying and retaining undeveloped properties; – Bottom hole contribution; – Dry hole contribution; Inventories – Costs of drilling and equipping exploratory wells.

Inventories, consisting primarily of crude oil, refined oil products and materials and supplies are stated at the lower The costs incurred in finding, acquiring, and developing reserves are capitalised on a ‘field by field’ basis. 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 Costs of topographical, geological, and geophysical studies, rights of access to properties to conduct those studies them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course are considered as part of oil and gas assets until it is determined that the reserves are proved and are commercially of business, less the estimated costs of completion and selling expenses. 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 Intangible assets 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 Goodwill that arises on the acquisition of subsidiaries is included in intangible assets (IA). Subsequently goodwill sufficient/continued progress is being made in assessing the commerciality of the hydrocarbons. All such carried is measured at cost less accumulated impairment losses. 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 Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less the case, the costs are written off. accumulated amortisation and accumulated impairment loss. Amortisation has been included within depreciation, depletion and amortisation line in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Other exploration costs are charged to expense when incurred.

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An exploration and evaluation asset is reclassified to property, plant and equipment and intangible assets when Goodwill is tested for impairment annually or more frequently if impairment indicators arise. An impairment loss the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Exploration recognised for goodwill is not reversed in a subsequent period. and evaluation assets are assessed for impairment, and any impairment loss is recognised, before reclassification. Exploration and development licences are classified as property, plant and equipment after transfer from exploration If any indication of impairment exists, the Group makes an estimate of the asset’s recoverable amount. Individual and evaluation assets. 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-generating units - CGUs). The carrying amount of the CGUs (including goodwill) is compared with their recoverable amount. The recoverable amount of CGUs Development costs 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 Development costs are incurred to obtain access to proved reserves and to provide facilities for extracting, treating, is recognised. 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 An impairment loss is recognised in profit or loss. Prior impairments of non-financial assets (other than goodwill) systems, and nearby gas processing facilities. are reviewed for possible reversal at each reporting date.

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. Impairment of non-derivative financial assets

The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried Depreciation, depletion and amortisation at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk till the initial recognition. 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 For all trade receivables the Group applies the simplified approach permitted by IFRS 9, which requires expected are not amortised. lifetime losses to be recognised from initial recognition of the receivables, in respect of credit risk see note 36 for further details. 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 To measure the expected credit losses, trade receivables are grouped based on shared credit risk characteristics, type and equipment having similar economic characteristics, as shown below: of products or services and the days past due. The Group calculates expected loss rates for trade receivables based on historical data which are a reasonable approximation of current loss rates. Asset group Average useful life The Group has the following types of financial assets that are subject to the expected credit loss model: trade Buildings and constructions 8-35 years receivables, debt investments carried at amortised cost and cash and cash equivalents. Machinery and equipment 8-20 years The Group recognises any impairment loss including impairment loss reversal in the selling, general and administrative 3-10 years Vehicles and other equipment expenses in the costs and other deductions line.

Catalysts and reagents mainly used in the refining operations are treated as other fixed assets. Decommissioning obligations

Capitalisation of borrowing costs The Group has decommissioning obligations associated with its core activities. The nature of the assets and potential obligations is as follows: 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 Exploration and production to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs eligible for capitalisation. 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, licences and other permissions for mineral resources extraction require certain actions to be Impairment of non-current assets 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 The carrying amounts of the Group’s non-current assets, other than assets arising from goodwill, inventories, long- depleted, the Group will incur costs related to well retirement and associated environmental protection measures. term financial assets and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Refining, marketing and distribution Mineral extraction tax and excise duties

The Group’s oil refining operations are carried out at large manufacturing facilities that have been operated for several Mineral extraction tax and excise duties, which are charged by the government on the volumes of oil and gas extracted decades. The nature of these operations is such that the ultimate date of decommissioning of any sites or facilities or refined by the Group, are included in operating expenses. Taxes charged on volumes of goods sold are recognised is unclear. Current regulatory and licensing rules do not provide for liabilities related to the liquidation of such as a deduction from sales. 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. Government grants and excise duties on crude oil materials, with appropriate increased deductions 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 From 1 January 2019 due to changes in the Tax Code the new excise duties on crude oil materials with appropriate of the oil and gas assets. Estimating future asset retirement obligations is complex and requires Management to make double deductions and dempfer part are introduced. The Group applies separate accounting policy for excise deductions estimates and judgments with respect to removal obligations that will occur many years in the future. The Group applies and dempfer part that bring economic benefit to the Group by analogy to the government grants and other assistance, risk-free rate adjusted for specific risks of the liability for the purpose of estimating asset retirement obligations. i.e. by deducting them from related expenses.

Changes in the measurement of existing obligations can result from changes in estimated timing, future costs or discount rates used in valuation. Additional income tax for hydrocarbon producers

The amount recognised as a provision is the best estimate of the expenditures required to settle the present obligation From 1 January 2019 the new tax treatment is implemented in the oil business – additional income tax for hydrocarbon at the reporting date based on current legislation in each jurisdiction where the Group’s operating assets are located, producers (AIT). AIT is classified as operating expense in line with the mineral extraction tax and included in the Taxes and is also subject to change because of revisions and changes in laws and regulations and their interpretation. other than income tax line in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. As a result of the subjectivity of these provisions there is uncertainty regarding both the amount and estimated timing of such costs. Export duties 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. Changes Export duties, which are charged by the government on the volumes of crude oil and petroleum products transferred in the measurement of an existing decommissioning obligation that result from changes in the estimated timing abroad by the Group, are included in operating expenses. 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. Share capital

Income taxes Share capital 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 Currently some Group companies including PJSC Gazprom Neft exercise the option to pay taxes as a consolidated tax- and approved at the annual shareholders’ meeting. 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 Treasury stock 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 Common shares of the Company owned by the Group as of the reporting date are designated as treasury shares the Russian Federation are subject to income tax at the applicable statutory rate in the country in which these entities and are recorded at cost using the weighted-average method. Gains on resale of treasury shares are credited operate. 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. 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 Dividends 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 Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income in the years Any dividends declared after the reporting period and before the Consolidated Financial Statements are authorised in which those temporary differences are expected to reverse and the assets recovered and liabilities settled. Deferred for issue are disclosed in the subsequent events note. tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that sufficient future taxable profit will be available against which the deductions can be utilised.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Earnings per share The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful Basic and diluted earnings per common share are determined by dividing the available income to common shareholders lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. In addition, by the weighted average number of shares outstanding during the period. There are no potentially dilutive securities. the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

Stock-based compensation The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily The Group accounts for its best estimate of the obligation under cash-settled stock-appreciation rights (“SAR”) granted determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate to employees at fair value on the date of grant. The estimate of the final liability is re-measured to fair value at each as the discount rate. reporting date and the compensation charge recognised in respect of SAR in profit or loss is adjusted accordingly. Expenses are recognised over the vesting period. Lease payments included in the measurement of the lease liability comprise the following:

– fixed payments, including in-substance fixed payments; Retirement and other benefit obligations – variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; In the normal course of business the Group contributes to the Russian Federation State pension scheme on behalf of its – amounts expected to be payable under a residual value guarantee; and employees, and contributions by the employer are calculated as a percentage of current gross salary payments; such – the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments contributions are charged to expense as incurred. in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The Group has also recognised defined benefit plans, which cover the majority of employees of the Group. The cost of providing post-employment benefits is accrued and charged to other employee costs and compensation included Variable payments are not included in the calculation of lease liability: in the Consolidated Statement of Profit or Loss and other comprehensive income reflecting the cost of benefits as they are earned over the service lives of employees. Actuarial gains and losses on liabilities arising from experience adjustments – payments under land lease agreements, the calculation of which depends on the cadastral value of the land plot and changes in actuarial assumptions are recognized in other comprehensive income in the period in which they arise and other coefficients established by government decrees; and are included in Other reserves line of equity in the Consolidated Statement of Financial Position. – payments for utilities (including well drills) and other services, determined upon the fact of consumption; – payments that depend on the use of the asset (per unit of volume or revenue received using the asset).

Leases The Group applies a practical expedient and takes into account additional payments not related to the lease, but provided for by the lease agreement along with payments for right to use an asset, for all contracts except for time- charter contracts. Under time-charter contracts, the Group identifies service component not related to the right to use Accounting policies for leases applied starting 1 January 2019 the asset as part of the expenses of the period if the share of such payments can be reliably determined.

For any new contracts entered into on or after 1 January 2019 the Group assesses whether a contract is, or contains, The term used to measure a liability and an asset in the form of a right of use is defined as the number of days during a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset which the Group has sufficient confidence that it will lease the asset. Any option for renewal or termination is taken for a period of time in exchange for consideration. To apply this definition, the Group assessed whether: into account when estimating the term. The Group considers monetary and non-monetary aspects to determine – The contract involves the use of an identified asset – this may be specified explicitly or implicitly, and should be physically the lease term of the contract, such as business plans, past practices and economic incentives to extend or terminate distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; the contract (the presence of inseparable improvements, etc.) and other factors that may affect management’s – The Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period judgment on the lease term. of use; and – The Group has the right to direct the use of the asset. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value The Group has the right when it has the decision-making rights that are most relevant to changing how and for what guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination purpose the asset is used. In rare cases where the decision about how and for what purposes the asset is used option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount is predetermined, the Group has the right to direct the use of the asset if either: of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been – The Group has the right to operate the asset; or reduced to zero. – The Group designed the asset in a way that predetermines how and for what purpose it will be used. The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset have a lease term of 12 months or less and leases of low-value assets. is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

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In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard: The Group applies a practical expedient which allows entity not to disclose the information of its remaining performance – the use of a single discount rate to a portfolio of leases with reasonably similar characteristics; obligations at the end of the reporting period as the performance obligation is part of a contract that has an original – the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; expected duration of less than one year. – the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease; – not revising the approach to the classification of the contract to which IFRIC 4 was previously applied and continuing Buy / sell transactions to take into account such contracts as service contracts. Purchases and sales under the same contract with a specific counterparty (buy / sell transaction) are eliminated The Group presents right-of-use assets and lease liabilities in the separate lines in the Consolidated Statement under IFRS. The purpose of the buy-sell operation, i.e. purchase and sale of same type of products in different locations of Financial Position. 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 transportation costs and any negative difference is treated as an increase in transportation costs. Accounting policies for leases applied until 31 December 2018

Leases under the terms of which the Group assumed substantially all the risks and rewards of ownership were Transportation costs classified as finance leases. Upon initial recognition the leased asset was 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 was Transportation expenses recognised in profit or loss represent expenses incurred to transport crude oil and oil products accounted for in accordance with the accounting policy applicable to that asset. through the PJSC “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 leases were operating leases and the leased assets were not recognised in the Group’s Consolidated Statement of Financial Position. The total lease payments were charged to profit or loss for the year on a straight-line basis over the lease term. Other comprehensive income / loss

All other comprehensive income / loss is presented by the items that are or may be reclassified subsequently to profit Recognition of revenues or loss, net of related income tax.

Revenue is an income arising in the course of the Group’s ordinary activities. Revenue is recognised in the amount of transaction price. Transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring control over promised goods or services to a customer, excluding the amounts collected on behalf of third parties. 3. Critical accounting estimates, assumptions and judgments

The Group recognizes Revenue from sales of crude oil, petroleum products, gas and other products and services when it satisfies a performance obligation and control over goods and services is passed. For the most contracts Preparing these Consolidated Financial Statements in accordance with IFRS requires Management to make judgements control over goods or services passes to a customer at point of time and consideration is unconditional because only on the basis of estimates and assumptions. These judgements affect the reported amounts of assets and liabilities the passage of time is required before the payment is due. Specifically: and the disclosure of contingent assets and liabilities at the reporting date, and the reported amounts of revenues – For export contracts control generally passes to buyer on the border of the Russian Federation, the Group and expenses during the reporting period. is not responsible for transportation, – For domestic contracts control generally passes when products are dispatched or delivered to customer. When Management reviews the estimates and assumptions on a continuous basis, by reference to past experiences and other control passes on delivery to customer transportation is not considered as a distinct performance obligation. factors that can reasonably be used to assess the book values of assets and liabilities. Adjustments to accounting In most contracts when control passes on dispatch the Group is not responsible for transportation or transportation estimates are recognised in the period in which the estimate is revised if the change affects only that period is a distinct service provided to customer within a separate contract. In case of sales of petroleum products or in the period of the revision and subsequent periods, if both periods are affected. and transportation by railway performance obligation for transportation is considered to be distinct and excluded from contract price. The Group recognizes this type of revenue within Other revenue line. Actual results may differ from the judgements, estimates made by the Management if different assumptions or circumstances apply. The transaction price excludes amounts collected on behalf of third parties such as value added tax and sales related tax. The Group doesn’t consider export duties as a part of transaction price and includes expenses with regard to export Judgments and estimates that have the most significant effect on the amounts reported in these Consolidated duties within operating expenses. Financial Statements and have a risk of causing a material adjustment to the carrying amount of assets and liabilities are described below. 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.

The contract liability balance presented as advances received at the beginning of the reporting period was short-term by nature and was recognized as revenue during the period.

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Impairment of non-current assets Contingencies

The following are examples of impairment indicators, which are reviewed by the Management: changes in the Group’s Certain conditions may exist as of the date of these Consolidated Financial Statements are issued that may result business plans, changes in oil and commodity prices leading to sustained unprofitable performance, low plant in a loss to the Group, but one that will only be realised when one or more future events occur or fail to occur. utilisation, evidence of physical damage or, for oil and gas assets, significant downward revisions of estimated reserves Management makes an assessment of such contingent liabilities that is based on assumptions and is a matter or increases in estimated future development expenditure or decommissioning costs. In case any of such indicators of judgement. In assessing loss contingencies relating to legal or tax proceedings that involve the Group or unasserted exist the Group makes an assessment of recoverable amount. 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 The long-term business plans (models), which are approved by the Management, are the primary source of information of relief sought or expected to be sought therein. 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. 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 As an initial step in the preparation of these plans, various market assumptions, such as oil prices, refining margins, the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, refined product margins and inflation rates, are set by the Management. These market assumptions take into account or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range long-term oil price forecasts by the research institutions, macroeconomic factors such as inflation rate and historical of possible loss if determinable and material, is disclosed. If loss contingencies can not be reasonably estimated, trends. 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 In assessing value in use, the estimated future cash flows are adjusted for the risks specific to the asset group or CGU the nature of the guarantee is disclosed. However, in some instances in which disclosure is not otherwise required, and are discounted to their present value using a discount rate that reflects current market assessments of the time the Group may disclose contingent liabilities of an unusual nature which, in the judgment of Management and its legal value of money. counsel, may be of interest to shareholders or others.

Estimation of oil and gas reserves Accounting for liabilities of the defined benefit pension plan

Engineering estimates of oil and gas reserves are inherently uncertain and are subject to future revisions on annual The assessment of the obligations of the defined benefit plan is based on the use of actuarial techniques basis. The Group estimates its oil and gas reserves in accordance with rules promulgated by the US Securities and assumptions. Actual results may differ from estimates, and the Group’s estimates may be adjusted in the future and Exchange Commission (SEC) for proved reserves. Oil and gas reserves are determined with use of certain based on changes in the economic and financial situation. Management uses judgments on selected models, cash assumptions made by the Group, for future capital and operational expenditure, estimates of oil in place, recovery flows and their distribution over time, as well as other indicators, including the discount rate. The cost of future benefits factors, number of wells and cost of drilling. Accounting measures such as depreciation, depletion and amortisation is determined on the basis of actuarial techniques and assumptions. 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. Joint arrangements 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 Upon adopting of IFRS 11 the Group applied judgement when assessing whether its joint arrangements represent a joint certainty. In some cases, substantial new investment in additional wells and related support facilities and equipment operation or a joint venture. The Group determined the type of joint arrangement in which it is involved by considering will be required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir its rights and obligations arising from the arrangement including the assessment of the structure and legal form data, estimates of underground reserves are subject to change over time as additional information becomes available. of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances. 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 Acquisition of Gazprom Resource Northgas LLC 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 Gazprom Resource Northgas LLC is a subsidiary of the Group in which the Group holds an 18.2% share. Starting 2015 in determining whether or not property impairment is present. 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. 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.

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The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount 4. Application of new IFRS of any prepaid or accrued lease payments relating to that lease and effect of retrospective adjustment recognized in the balance sheet as of 1 January 2019. Balance value of assets leased under finance lease contracts was reclassified from property, plant and equipment to right-of-use assets: The following standards or amended standards became effective for the Group from 1 January 2019: Balance as of 31 December Effect of changes Balance – IFRS 16 – Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019); 2018 in accounting policies as of 1 January 2019 – IFRIC 23 – Uncertainty over Income Tax Treatments (issued on 7 June 2017 and effective for annual periods beginning Property, plant and equipment 25,483 (25,483) - on or after 1 January 2019); (under finance lease) – Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017 and effective Right-of-use asset - 69,023 69,023 for annual periods beginning on or after 1 January 2019); – Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28 (issued on 12 October 2017 Short-term / long-term lease liabilities - (87,322) (87,322) and effective for annual periods beginning on or after 1 January 2019); Finance lease liabilities (25,483) 25,483 - – Annual improvements 2015-2017 Cycle (issued on 12 December 2017 and effective for annual periods beginning Deferred tax asset recognised - 3,734 3,734 on or after 1 January 2019); Effect on retained earnings - 14,565 14,565 – Plan amendment, Curtailment or Settlement – Amendments to IAS 19 (issued on 7 February 2018 and effective for annual periods beginning on or after 1 January 2019).

Impact of adoption 5. New accounting standards

The Group has adopted IFRS 16 – Leases from 1 January 2019. The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining The following other new standards and amendments to the existing standards do not have any material impact the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. on the Group when adopted: Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees are required to recognise: (a) assets – IFRS 17 – Insurance Contracts (issued on 18 May 2017 and effective for annual periods beginning on or after 1 and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) January 2021); depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be as operating leases or finance leases, and to account for those two types of leases differently. determined by the IASB); – Amendments to the Conceptual Framework for Financial Reporting (issued in March 2018 and effectivefor annual The Group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 periods beginning on or after 1 January 2020); reporting period, as permitted under the specific transitional provisions in the standard. The Group elected – Definition of a Business – Amendments to IFRS 3 (issued in October 2018 and effective for annual periods beginning to measure right-to-use assets at an amount equal to the lease liability adjusted for any lease payments made on or after 1 January 2020); at or before the commencement date, except for time-charter contracts, for which the associated right-of-use asset – Definition of Material – Amendments to IAS 1 and IAS 8 (issued in October 2018 and effective for annual periods is retrospectively adjusted. The difference between asset and liability is recognised as retained earnings. beginning on or after 1 January 2020); – Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7 (issued in September 2019 On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified and effective for annual periods on or after January 2020); as operating leases under the principles of IAS 17 Leases. These liabilities were measured at the present value – Classification of Liabilities as Current or Non-Current – Amendments to IAS 1 (issued in January 2020 and effective of the remaining lease payments, discounted using the Group’s incremental borrowing rate as of 1 January 2019. for annual periods on or after January 2022). The lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was ranged from 4.2 % to 9.3%.

2019 Operating lease commitments as of 31 December 2018 123,600 Less service component (32,786) Less effect of discounting (26,462) Less other adjustments (2,513) Add: finance lease liabilities recognised as of 31 December 2018 25,483 Balance of lease liability as of 1 January 2019 87,322 Current lease liability as of 1 January 2019 8,859 Non-current lease liability as of 1 January 2019 78,463

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6. Cash and cash equivalents 9. Other taxes receivable

Cash and cash equivalents as of 31 December 2019 and 31 December 2018 comprise the following: Other taxes receivable as of 31 December 2019 and 31 December 2018 comprise the following

31 December 2019 31 December 2018 31 December 2019 31 December 2018 Cash on hand 587 753 Value added tax receivable 73,387 79,921 Cash in bank 79,669 50,897 Prepaid custom duties 21,045 7,232 Bank deposits 51,485 185,589 Other taxes prepaid 10,486 4,776 Cash pooling to the parent entity 43,912 - TOTAL OTHER TAXES RECEIVABLE 104,918 91,929 Cash transferred under repurchase agreements 24,709 6,238 Other cash equivalents 2,042 4,108 TOTAL CASH AND CASH EQUIVALENTS 202,404 247,585 10. Other current assets

Other current assets as of 31 December 2019 and 31 December 2018 comprise the following: 7. Trade and other receivables 31 December 2019 31 December 2018 Advances paid 40,413 25,191 Trade and other receivables as as of 31 December 2019 and 31 December 2018 comprise the following: Prepaid expenses 1,481 1,662

31 December 2019 31 December 2018 Other current assets 13,158 13,630 Trade receivables 153,738 129,520 TOTAL OTHER CURRENT ASSETS, NET 55,052 40,483 Other receivables 53,637 2,060 Less credit loss allowance (2,103) (2,430) TOTAL TRADE AND OTHER RECEIVABLES 205,272 129,150 11. Property, plant and equipment

Movements in property, plant and equipment for the year ended 31 December 2019 and 2018 are as follows: 8. Inventories Assets Oil and Gas Refining Marketing under constru- Inventories as of as of 31 December 2019 and 31 December 2018 consist of the following: Cost properties assets and distribution Other assets ction Total As of 31 December 2018 2,084,208 387,099 237,386 27,658 655,772 3,392,123 31 December 2019 31 December 2018 Effect of changes in accounting policies (124) - (27,145) - - (27,269) Petroleum products and petrochemicals 62,891 70,385 (Note 4) Crude oil and gas 36,341 34,601 As of 1 January 2019 2,084,084 387,099 210,241 27,658 655,772 3,364,854 Materials and supplies 34,274 27,416 Additions 9,014 5,225 - - 433,655 447,894 Acquisitions through business Other 40,168 17,554 221 - - - - 221 combinations TOTAL INVENTORY 173,674 149,956 Changes in decommissioning obligations 37,259 - - - - 37,259 Capitalised borrowing costs - - - - 30,230 30,230 Transfers 266,344 24,166 18,575 5,144 (314,229) - Internal movement (5,891) (323) 249 (2,533) 8,498 - Disposals (15,049) (4,481) (2,904) (960) (161,266) (184,660)

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Assets Assets Oil and Gas Refining Marketing under constru- Oil and Gas Refining Marketing under constru- Cost properties assets and distribution Other assets ction Total Cost properties assets and distribution Other assets ction Total Translation differences (54,029) (9,121) (9,551) (325) (7,696) (80,722) Depreciation and depletion charge (131,293) (16,930) (12,801) (2,600) - (163,624) As of 31 December 2019 2,321,953 402,565 216,610 28,984 644,964 3,615,076 Impairment (4,340) - - - - (4,340) Depreciation, depletion and impairment Acquisitions through business - - (110) - - (110) As of 31 December 2018 (815,875) (125,189) (75,809) (9,181) - (1,026,054) combinations Effect of changes in accounting policies Internal movement 229 102 (546) 215 - - 14 - 1,772 - - 1,786 (Note 4) Reclassification from other non-current (175) (1,600) - - - (1,775) As of 1 January 2019 (815,861) (125,189) (74,037) (9,181) - (1,024,268) assets Depreciation and depletion charge (130,316) (18,309) (14,811) (3,026) - (166,462) Disposals 7,891 1,569 1,511 849 - 11,820 Internal movement 90 13 (717) 614 - - Translation differences (38,250) (3,240) (3,573) (190) - (45,253) Disposals 3,132 2,943 1,925 960 - 8,960 AS OF 31 DECEMBER 2018 (815,875) (125,189) (75,809) (9,181) - (1,026,054) Translation differences 28,969 3,219 3,656 188 - 36,032 Net book value AS OF 31 DECEMBER 2019 (913,986) (137,323) (83,984) (10,445) - (1,145,738) AS OF 1 JANUARY 2018 1,122,166 242,648 129,313 19,183 538,965 2,052,275 Net book value AS OF 31 DECEMBER 2018 1,268,333 261,910 161,577 18,477 655,772 2,366,069 AS OF 1 JANUARY 2019 1,268,223 261,910 136,204 18,477 655,772 2,340,586 AS OF 31 DECEMBER 2019 1,407,967 265,242 132,626 18,539 644,964 2,469,338 Capitalisation rate for the borrowing costs related to the acquisition of property, plant and equipment equals to 7% for the year ended 31 December 2019 (6% for the year ended 31 December 2018).

The information regarding Group’s exploration and evaluation assets (part of oil and gas properties) is presented below: Capitalised borrowing costs for the year ended 31 December 2019 include interest expense in the amount of RUB 29.0 billion and exchange losses arising from currency borrowing in the amount of RUB 1.2 billion (RUB 31.6 billion and RUB 6.1 billion for the year ended 31 December 2018 accordingly). 2019 2018 NET BOOK VALUE AS OF 1 JANUARY 114,286 94,027 In the first quarter of 2019 the object of capital construction MFK “Lahta” was transferred to the shareholder, the transaction was recorded in the Consolidated Financial Statements as the transaction with shareholders Additions 49,969 26,363 in accordance with IAS 1 (p.106 d (iii)). Unsuccessful exploration expenditures derecognised (4,969) (9,532) Transfer to proved property (4,240) (2,886) Assets Oil and Gas Refining Marketing under constru- Disposals (4,857) (407) Cost properties assets and distribution Other assets ction Total Translation differences (4,723) 6,721 As of 1 January 2018 1,772,103 347,738 189,603 26,638 538,965 2,875,047 NET BOOK VALUE AS OF 31 DECEMBER 145,466 114,286 Additions 9,029 1,699 - - 395,112 405,840 During 2019 the Group performed impairment testing. For impairment testing the cash flow forecast are in line Acquisitions through business - - 1,108 - - 1,108 with the usual period for budgeting and covered the period of expected useful life for analysed assets. combinations Changes in decommissioning obligations (8,885) - - - - (8,885) During 2019 there were no indicators of impairment in relation to upstream oil and gas assets (for the year ended Capitalised borrowing costs - - - - 37,670 37,670 31 December 2018 the Group recognised impairment in relation to upstream oil and gas assets in the amount Transfers 251,966 25,450 35,969 3,447 (316,832) - of RUB 4.3 billion). The impairment loss was included in Depreciation, depletion and amortisation line item in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Internal movement 137 (1,028) 1,167 98 (374) - Reclassification from other non-current 1,003 5,160 602 13 (2,040) 4,738 assets Disposals (13,841) (1,987) (1,865) (2,879) (9,623) (30,195) Translation differences 72,696 10,067 10,802 341 12,894 106,800 As of 31 December 2018 2,084,208 387,099 237,386 27,658 655,772 3,392,123 Depreciation, depletion and impairment As of 1 January 2018 (649,937) (105,090) (60,290) (7,455) - (822,772)

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Cost Goodwill Software Land rights Other IA Total 12. Right-of-use assets comprise the following: As of 1 January 2018 34,100 33,376 17,611 17,012 102,099 Additions - 5,781 824 5,307 11,912 As of 31 December 2019 right-of-use assets comprise the following: Acquisitions through business combinations - - - 99 99 Internal movement - 788 11 (799) - Land, buildings Disposals - (373) (1,727) (261) (2,361) Vessels and premises Total Translation differences 2,927 1,107 75 225 4,334 As of 1 January 2019 62,455 6,568 69,023 As of 31 December 2018 37,027 40,679 16,794 21,583 116,083 Additions 16,189 2,047 18,236 Amortisation and impairment Modification and remeasurement (127) 434 307 As of 1 January 2018 (201) (16,708) (5,916) (5,087) (27,912) Depreciation of right-of-use assets (6,371) (2,030) (8,401) Amortisation charge - (5,228) (696) (1,563) (7,487) Currency translation effect - (92) (92) Internal movement - 328 - (328) - As of 31 December 2019 72,146 6,927 79,073 Disposals - 369 359 (246) 482 Translation differences (33) (859) (3) (132) (1,027) As of 31 December 2018 (234) (22,098) (6,256) (7,356) (35,944) 13. Goodwill and other intangible assets Net book value As of 1 January 2018 33,899 16,668 11,695 11,925 74,187 The information regarding movements in Group’s intangible assets is presented below: As of 31 December 2018 36,793 18,581 10,538 14,227 80,139

Cost Goodwill Software Land rights Other IA Total Goodwill acquired through business combinations has been allocated to Upstream and Downstream in the amounts of RUB 27.3 billion and RUB 6.9 billion as of 31 December 2019 (RUB 29.7 billion and RUB 7.1 billion as of 31 December As of 1 January 2019 37,027 40,679 16,794 21,583 116,083 2018). Additions - 1,729 - 17,483 19,212 Internal movement - (570) (23) 593 - The Group has performed impairment test for CGUs to which goodwill related. In assessing whether goodwill has been Disposals - (792) (92) (3,401) (4,285) impaired, the carrying amount is compared with the estimated value in use.

Translation differences (2,639) (982) (62) (206) (3,889) The value in use is determined as the discounted net cash flows based on the forecasts of oil prices and production As of 31 December 2019 34,388 40,064 16,617 36,052 127,121 quantities based on reserve report and confirmed long-term strategic plans. The forecasting period for determining Amortisation and impairment the value in use is in line with the management assumptions for long-term planning and does not exceed the useful life of assets different from goodwill and included in the CGUs. As of 1 January 2019 (234) (22,098) (6,256) (7,356) (35,944) Amortisation charge - (5,235) (663) (1,051) (6,949) Internal movement - (18) 21 (3) - Key assumptions applied to the calculation of value in use: Disposals - 742 - 2,662 3,404 – The discount rate calculation is based on the Company’s weighted average cost of capital adjusted to reflect after-tax Translation differences 37 827 2 122 988 discount rate ranged from 7.88%-8.68% per annum in 2019 (for the 2018: 8.54%-9.86% per annum in real terms); As of 31 December 2019 (197) (25,782) (6,896) (5,626) (38,501) – Oil prices are based on the available forecasts from globally recognized research institutions such as Wood Net book value Mackenzie, Platts/PIRA, Energy Group and others; – The estimated annual RSD / USD exchange rate was forecasted as RSD 104.35 and the estimated average annual As of 1 January 2019 36,793 18,581 10,538 14,227 80,139 RUB / USD exchange rate was forecasted as follows: As of 31 December 2019 34,191 14,282 9,721 30,426 88,620 2020 2021 2022 2023 2024 Average for 2025-2039 2040 onwards 61.50 61.50 61.50 61.00 60.00 58.97 60.00 – Estimated production volumes were based on detailed data for the fields and refineries and the field development plans and refineries utilization rates approved by management through the long-term planning process were taken into account.

Goodwill was tested for impairment and no impairment was identified.

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In 2019 Messoyakha declared and paid dividends in the total amount of RUB 34.6 billion, of which RUB 17.3 billion 14. Investments in associates and joint ventures is attributable to the Group.

The summarised financial information for the significant associates and joint ventures as of 31 December 2019 and 31 The carrying values of the investments in associates and joint ventures as of 31 December 2019 and 31 December 2018 December 2018 and for the year ended 31 December 2019 and 2018 is presented in the tables below. are summarised below: 31 December 2019 Slavneft Arcticgas Messoyakha Northgas Ownership percentage 31 December 2019 31 December 2018 Cash and cash equivalents 2,771 2,978 2 1,267 Slavneft Joint venture 49.9 136,792 126,835 Other current assets 97,774 34,148 26,122 3,358 Arcticgas Joint venture 50.0 136,262 146,246 Non-current assets 428,919 382,236 195,568 41,368 Messoyakha Joint venture 50.0 45,350 36,837 Current financial liabilities (48,343) (42,499) (103,883) (6,243) Northgas Joint venture 50.0 10,307 7,767 Other current liabilities (40,050) (12,080) (10,958) (1,892) Others 12,404 11,252 Non-current financial liabilities (122,010) (66,197) - (9,701) TOTAL INVESTMENTS 341,115 328,937 Other non-current liabilities (53,648) (50,394) (16,576) (6,170) NET ASSETS 265,413 248,192 90,275 21,987 The principal place of business of the most significant joint ventures and associates disclosed above is the Russian Federation. 31 December 2018 Slavneft Arcticgas Messoyakha Northgas Cash and cash equivalents 3,448 38,132 1 1,151 Other current assets 89,057 18,430 23,977 3,560 Slavneft Non-current assets 379,881 382,586 178,452 41,785 PJSC NGK Slavneft and it’s subsidiaries (Slavneft) are engaged in exploration, production and development of crude oil Current financial liabilities (31,609) (40,645) (10,063) (8,002) and gas and production of refined petroleum products in the Russian Federation. The control over Slavneft is divided Other current liabilities (30,902) (11,055) (8,810) (83) equally between the Group and PJSC NK Rosneft. Non-current financial liabilities (126,151) (65,160) (99,000) (15,522) Other non-current liabilities (42,469) (51,637) (11,302) (5,982) Arcticgas NET ASSETS 241,255 270,651 73,255 16,907 Year ended 31 December 2019 Slavneft Arcticgas Messoyakha Northgas JSC Arctic Gas Company (Arcticgas) is developing oil and gas condensate fields located in the Yamalo-Nenetskiy autonomous region of the Russian Federation. The control over Arcticgas is divided equally between the Group and PJSC Revenue 316,084 196,395 141,449 21,136 NOVATEK. Depreciation, deplition and amortisation (39,084) (22,428) (27,920) (2,202) Finance income 545 1,214 5 161 In 2019 Arcticgas declared and paid dividends in the amount of RUB 92.0 billion, of which RUB 46.0 billion is attributable to the Group. Finance expense (12,562) (8,520) (12,278) (1,600) Total income tax expense (8,644) (15,866) (10,878) (1,559) Profit for the period 24,732 79,696 51,632 6,179 Northgas TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 24,212 79,696 51,632 6,179 CJSC Northgas (Northgas) is engaged in development of Severo-Urengoiskoe natural gas field. The Group’s investment Year ended 31 December 2018 Slavneft Arcticgas Messoyakha Northgas in Northgas is held through Gazprom Resource Northgas LLC which is controlled by the Group and owns a 50% share Revenue 314,332 195,581 125,521 23,337 in Northgas. The control over Northgas is divided equally between the Group and PJSC NOVATEK. Depreciation, deplition and amortisation (38,713) (21,100) (19,692) (2,554)

In 2019 Northgas declared and paid dividends in the total amount of RUB 1.1 billion, of which RUB 0.6 billion Finance income 371 1,243 - 679 is attributable to the Group. Finance expense (9,246) (10,215) (7,531) (2,113) Total income tax expense (7,682) (16,926) (11,656) (1,951)

Messoyakha Profit for the period 31,235 81,823 56,344 7,399 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 31,372 81,823 56,344 7,399 JSC Messoyakhaneftegas (Messoyakha) is developing the Vostochno-Messoyakhskoe and Zapadno-Messoyakhskoe oil and gas condensate fields. The control over Messoyakha is divided equally between the Group and PJSC NK Rosneft.

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Others Lease 2,107 - 2,107 Other 8,127 (5,946) 2,181 The aggregate carrying amount of all individually immaterial associates and joint ventures as well as the Group’s share Net-off (33,803) 33,803 - of those associates’ and joint ventures’ profit or loss and other comprehensive income are not significant for both TOTAL DEFERRED INCOME TAX ASSETS / reporting dates and periods. 18,492 (148,253) (129,761) (LIABILITIES) As of 31 December 2018 Property, plant and equipment 3,869 (149,449) (145,580) 15. Joint operations Intangible assets - (3,875) (3,875) Investments 515 (9) 506 Inventories 1,047 (1,902) (855) Under IFRS 11 Joint Arrangements the Group assessed the nature of its 50% share in joint arrangements Trade and other receivables 2,595 (15) 2,580 and determined investments in JSC “Tomskneft” VNС (Tomskneft) and Salym Petroleum Development N.V. (SPD) as Joint operations. Tomskneft and SPD are engaged in production of oil and gas in the Russian Federation and all Long-term and short-term debt - (286) (286) of the production is required to be sold to the parties of the joint arrangement (that is, the Group and its partners). Provisions 6,063 (251) 5,812 Tax loss carry-forwards 24,387 - 24,387 Finance lease 5,264 - 5,264 Other 5,002 (1,276) 3,726 16. Long-term financial assets Net-off (29,615) 29,615 - TOTAL DEFERRED INCOME TAX ASSETS / 19,127 (127,448) (108,321) (LIABILITIES) Long-term financial assets as of 31 December 2019 and 31 December 2018 comprise the following:

31 December 2019 31 December 2018 Movement in temporary differences during the period: Long-term loans issued 9,919 7,846 Recognised Equity investments measured at fair value through OCI 1,562 3,083 in other Recognised comprehensive As of 31 December Deposits with original maturity more than 1 year 93 - As of 1 January 2019 in profit or loss income Other 2019 Less expected credit loss allowance (537) (584) Property, plant and equipment (145,580) (33,770) 8,409 4,849 (166,092) TOTAL LONG-TERM FINANCIAL ASSETS 11,037 10,345 Intangible assets (3,875) 93 - - (3,782) Investments 506 1,063 (80) - 1,489 Inventories (855) (1,427) - - (2,282) 17. Deferred income tax assets and liabilities Trade and other receivables 2,580 (746) (58) - 1,776 Loans and borrowings (286) 116 - - (170) Provisions 5,812 10,401 (80) - 16,133 Recognised deferred tax assets and liabilities are attributable to the following: Tax loss carry-forwards 24,387 (5,499) (9) - 18,879

As of 31 December 2019 Assets Liabilities Net Lease - (2,042) - 4,149 2,107 Property, plant and equipment 3,097 (169,189) (166,092) Finance lease 5,264 - - (5,264) - Intangible assets 1 (3,783) (3,782) Other 3,726 (1,433) (112) - 2,181 TOTAL DEFERRED INCOME TAX Investments 1,512 (23) 1,489 (108,321) (33,244) 8,070 3,734 (129,761) ASSETS / (LIABILITIES) Inventories 595 (2,877) (2,282) Trade and other receivables 1,777 (1) 1,776 Long-term and short-term debt 19 (189) (170) Provisions 16,180 (47) 16,133 Tax loss carry-forwards 18,880 (1) 18,879

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Recognised in other Recognised comprehensive Acquired/ 20. Trade and other payables As of 1 January 2018 in profit or loss income disposed of As of 31 Decembe2018 Property, plant and equipment (121,877) (21,073) (2,479) (151) (145,580) Accounts payable as of 31 December 2019 and 31 December 2018 comprise the following: Intangible assets (3,535) (340) - - (3,875) 31 December 2019 31 December 2018 Investments 18 2,293 (1,805) - 506 Trade accounts payable 279,985 185,269 Inventories (541) (314) - - (855) Dividends payable 2,362 106,713 Trade and other receivables 2,810 (316) 86 - 2,580 Other accounts payable 25,092 15,622 Loans and borrowings (276) (10) - - (286) TOTAL TRADE AND OTHER PAYABLES 307,439 307,604 Provisions 6,574 (853) 91 - 5,812 Tax loss carry-forwards 23,255 1,098 34 - 24,387 Other accounts payable are partly represented by short-term part of liability to PJSC Gazprom for assets related Finance lease 4,866 398 - - 5,264 to Prirazlomnoye project. Other 3,990 (427) 162 1 3,726 TOTAL DEFERRED INCOME TAX (84,716) (19,544) (3,911) (150) (108,321) ASSETS / (LIABILITIES) 21. Other current liabilities

18. Other non-current assets Other current liabilities as of 31 December 2019 and 31 December 2018 comprise the following:

31 December 2019 31 December 2018 Other non-current assets are primarily comprised of advances provided on capital expenditures (RUB 44.9 billion Advances received 26,219 25,599 and RUB 42.8 billion as of 31 December 2019 and 31 December 2018, respectively). Payables to employees 3,896 3,878 Other non-financial payables 10,626 10,033 TOTAL OTHER CURRENT LIABILITIES 40,741 39,510 19. Short-term debt and current portion of long-term debt

As of 31 December 2019 and 31 December 2018 the Group has short-term debt and current portion of long-term debt 22. Other taxes payable outstanding as follows:

31 December 2019 31 December 2018 Other taxes payable as of 31 December 2019 and 31 December 2018 comprise the following: Current portion of long-term debt 14,317 90,263 31 December 2019 31 December 2018 Bank loans 14,981 - VAT 32,098 42,580 Other borrowings 900 660 Mineral extraction tax 32,849 33,782 TOTAL SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT 30,198 90,923 Excise tax 14,558 11,001 Social security contributions (social taxes) 7,868 6,051 Property tax 2,591 3,180 Additional income tax for hydrocarbon producers 3,954 - Other taxes 2,483 2,491 TOTAL OTHER TAXES PAYABLE 96,401 99,085

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Taxes expense other than income tax expense for the year ended 31 December 2019 and 2018 comprise the following: 24. Long-term debt Year ended Year ended 31 December 31 December 2019 2018 Mineral extraction tax 464,773 487,492 As of 31 December 2019 and 31 December 2018 the Group has long-term outstanding debt as follows: Excise tax 70,125 126,779 31 December 2019 31 December 2018 Social security contributions (social taxes) 25,707 22,113 Bank loans 335,690 424,447 Property tax 12,580 13,098 Loan participation notes 186,775 209,426 Additional income tax for hydrocarbon producers 14,348 - Bonds 168,918 132,719 Other taxes 3,660 3,302 Other borrowings 7,964 8,201 TOTAL TAXES OTHER THAN INCOME TAX 591,193 652,784 Less current portion of long-term debt (14,317) (90,263) TOTAL LONG-TERM DEBT 685,030 684,530

23. Provisions and other accrued liabilities Bank loans

In February 2019 the Group performed pre-scheduled final principal repayment in the total amount of USD 249.1 million Movement in provisions and other accrued liabilities for the years ended 31 December 2019 and 2018 is below: (RUB 16.4 billion) under the Club term loan facility with the syndicate of international banks (facility agent – Mizuho).

Decommissioning provision Other Total In July 2012 the Group signed an ECA-covered term loan facility with the group of international banks (facility agent HSBC) with a final maturity date in December 2022. In June 2019 and December 2019 the Group performed a partial Carrying amount as of 1 January 2018 58,601 33,846 92,447 principal repayment in the total amount of EUR 25.8 million (RUB 1.8 billion) according to the payment schedule. Short-term part 151 29,722 29,873 Long-term part 58,450 4,124 62,574 In the first half 2015 the Group signed several long-term facility agreements with one of the Russian banks New obligation incurred 9,323 9,917 19,240 with maturity date in August 2019. In February and April 2019 the Group performed pre-scheduled principal repayment in the total amount of USD 202.4 million (RUB 13.3 billion) and USD 496.0 million (RUB 31.9 billion) respectively. Utilisation of provision / accrual (2,422) (16,972) (19,394) The loan is fully repaid as of 31 December 2019. Change in estimates (11,857) - (11,857) Unwind of discount 3,809 - 3,809 In December 2018 the Group borrowed RUB 30.0 billion and in January 2019 RUB 20.0 billion under a long-term facility agreement with one of the Russian banks. In December 2019 the Group performed a pre-scheduled final repayment Translation differences 2,176 814 2,990 in the total amount. Carrying amount as of 31 December 2018 59,630 27,605 87,235 Short-term part 1,771 18,272 20,043 In February 2019 the Group borrowed EUR 400.0 million (RUB 29.9 billion) under a long-term facility agreement due Long-term part 57,859 9,333 67,192 payable in February 2024. In July 2019 the Group performed pre-scheduled final repayment in to total amount.

New obligation incurred 10,074 19,122 29,196 In July 2019 the Group borrowed EUR 200.0 million (RUB 14.4 billion) under a long-term facility agreement due payable Utilisation of provision / accrual (2,444) (2,082) (4,526) in July 2022. Change in estimates 28,856 - 28,856 In September 2019 the Group borrowed RUB 5.0 billion under a long-term facility agreement due payable in September Unwind of discount 4,083 - 4,083 2024. Translation differences (1,146) (953) (2,099) Carrying amount as of 31 December 2019 99,053 43,692 142,745 In December 2019 the Group borrowed RUB 10.0 billion under a long-term facility agreement due payable in December Short-term part 2,550 21,191 23,741 2022.

Long-term part 96,503 22,501 119,004 In December 2019 the Group borrowed RUB 15.0 billion under long-term facility agreement due payable in December 2024. Change in estimates was mainly caused by revision of discount and inflation rates. In December 2019 the Group borrowed RUB 30.0 billion under a long-term facility agreement with one of the Russian banks due payable in December 2022.

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In June-July 2018 the Group signed several long-term facility agreements with final maturity date in July 2022 – For 2018 the Group has finance lease agreements regarding vessels. As of 31 December 2018 net book value December 2023. In September, November and December 2019 the Group performed pre-scheduled partial principal of the leased assets which are pledged for finance lease is RUB 24.2 billion. At the end of lease term ownership title repayment in the total amount of RUB 70.0 billion. to the vessels transfers to the Group. The lease contract also contains an option for early purchase of the assets by the Group. Net book value of other items of property, plant and equipment under finance lease contracts is non The loan agreements contain financial covenant that limits the Group’s ratio of “Consolidated financial indebtedness significant. to Consolidated EBITDA”. The Group is in compliance with all covenants as of 31 December 2019 and 31 December 2018 and during the year ended 31 December 2019. The reconciliation between future minimum lease payments and their present value as of 31 December 2018 is presented in the table below:

Bonds Present value of minimum Minimum lease payments lease payments In June 2016 the Group placed Ruble bonds (series BO-03) with the total par value of RUB 10.0 billion. In June 2019 31 December 2018 the bond holders exercised the put option on Rouble bonds (series BO-03) with the 100% par value in amount Less than one year 3,392 3,282 of RUB 8.8 billion. Between one and five years 13,792 11,462 In November 2019 the Group placed five-year Rouble bonds (003P-01R series) with the total par value More than five years 17,627 10,739 of RUB 25.0 billion. The bonds bear interest of 6.85% per annum. The issue has a two-year call option, allowing TOTAL MINIMUM LEASE PAYMENTS 34,811 25,483 the early redemption of the bonds at the Group’s decision.

In December 2019 the Group placed ten-year Rouble bonds (003P-02R series) with the total par value of RUB 20.0 billion. The bonds bear interest of 7.15% per annum. 26. Other non-current financial liabilities

Other non-current financial liabilities as of 31 December 2019 and 2018 comprise the following: 25. Lease liabilities 31 December 2019 31 December 2018 Deferred consideration 20,269 43,407 The reconciliation between undiscounted lease liabilities and their present value as of 31 December 2019 is presented in the table below: Forward contracts - cash flow hedge 1,230 1,623 Other liabilities 5 (173) Lease liabilities TOTAL OTHER NON-CURRENT FINANCIAL LIABILITIES 21,504 44,857 As of 31 December 2019 Deferred consideration represents liability to PJSC Gazprom for assets relating to Prirazlomnoye project. Payments Less than one year 15,599 of the principal amount of the liability are presented as financing activities at line “Repayment of long-term borrowings” Between one and five years 49,941 in Consolidated Statement of Cash Flows. More than five years 53,791 Total undiscounted lease liabilities 119,331 Lease liabilities as of 31 December 2019 87,795 Current lease liabilities 9,927 27. Other non-current liabilities Non-current lease liabilities 77,868 Other non-current liabilities are primarily comprised of advances received (RUB 48.0 billion and RUB 17.2 billion From lease liabilities the Group has excluded expenses related to variable lease payments and payments under short- as of 31 December 2019 and 31 December 2018, respectively). term lease contracts in amount RUB 15,310 million for the year ended 31 December 2019.

Total cash outflow for leases equals RUB 14,768 million for the year ended 31 December 2019 and does not include payments for non-lease component.

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28. Share capital and treasury shares 30. Other loss, net

Share capital as of 31 December 2019 and 2018 comprise the following: Other loss, net for the years ended 31 December 2019 and 2018 comprise the following:

Ordinary shares Treasury shares Year ended 31 December Year ended 31 December 2019 2018 31 December 2019 31 December 2018 31 December 2019 31 December 2018 Disposal of intangible assets, property, plant and equipment (11,679) (13,330) Number of shares (million) 4,741 4,741 23 23 Other losses, net (11,613) (6,466) Authorised shares (million) 4,741 4,741 23 23 TOTAL OTHER LOSS, NET (23,292) (19,796) Par value (RUB per share) 0.0016 0.0016 0.0016 0.0016 ON ISSUE AS OF 31 DECEMBER, FULLY PAID 8 8 (1,170) (1,170) (RUB MILLION)

The nominal value of share capital differs from its carrying value due to the effect of inflation. 31. Net foreign exchange gain / (loss)

On 2 October 2019 the general shareholders’ meeting of PJSC Gazprom Neft approved an interim dividend on the ordinary shares for the six months ended 30 June 2019 in the amount of RUB 18.14 per share. Net foreign exchange gain / (loss) for the year ended 31 December 2019 and 2018 comprise the following:

On 14 June 2019 the general shareholders’ meeting of PJSC Gazprom Neft approved a dividend on the ordinary shares Year ended 31 December Year ended 31 December for 2018 in the amount of RUB 30.00 per share including an interim dividend on the ordinary shares in the amount 2019 2018 of RUB 22.05 per share. Net foreign exchange gain / (loss) on financing activities, including: 32,846 (72,735) foreign exchange gain 43,499 5,506 On 9 June 2018 the annual general shareholders’ meeting of PJSC Gazprom Neft approved a dividend on the ordinary shares for 2017 in the amount of RUB 15.00 per share including an interim dividend on the ordinary shares foreign exchange loss (10,653) (78,241) in the amount of RUB 10.00 per share. Net foreign exchange (loss) / gain on operating activities (22,328) 39,177 Net foreign exchange gain / (loss) 10,518 (33,558)

29. Employee costs 32. Finance income

Employee costs for the years ended 31 December 2019 and 2018 comprise the following: Finance income for the year ended 31 December 2019 and 2018 comprise the following: Year ended 31 December Year ended 31 December 2019 2018 Year ended 31 December Year ended 31 December Wages and salaries 92,475 84,902 2019 2018 Other costs and compensations 18,130 12,269 Interest income on loans issued 728 1,137 TOTAL EMPLOYEE COSTS 110,605 97,171 Interest on bank deposits 2,286 806 Social security contributions (social taxes) 25,707 22,113 Interest income on cash and cash equivalents 14,798 5,118 TOTAL EMPLOYEE COSTS (WITH SOCIAL TAXES) 136,312 119,284 Other financial income 5,094 445 TOTAL FINANCE INCOME 22,906 7,506

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Reconciliation of effective tax rate: 33. Finance expense Year ended 31 December Year ended 31 December 2019 2018 Finance expense for the year ended 31 December 2019 and 2018 comprises the following: Current income tax expense Current year 54,020 60,177 Year ended 31 December Year ended 31 December 2019 2018 Adjustment for prior years (1,518) (592) Interest expense 57,689 49,250 52,502 59,585 Decommissioning provision: unwinding of discount 4,083 3,809 Deferred income tax expense Less: capitalised interest (29,000) (31,583) Origination and reversal of temporary differences 31,903 20,711 TOTAL FINANCE EXPENSE 32,772 21,476 Change in tax rate 1,341 (1,167) 33,244 19,544 Interest expense includes expenses on the lease liabilities in the amount RUB 5,761 million for the year ended Total income tax expense 85,746 79,129 31 December 2019. Share of tax of associates and joint ventures 18,906 19,572 Total income tax expense including share of tax of associates and joint 104,652 98,701 ventures 34. Income tax expense

The Group’s applicable income tax rate for the companies located in the Russian Federation is 20%. 35. Cash flow hedges

Year ended 31 December 2019 Year ended 31 December 2018 RUB million % RUB million % 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: Total income tax expense including share of tax of associates and joint 104,652 20 98,701 20 ventures Less than From 6 From 1 Profit before income tax excluding share of profit before tax Fair value 6 month to 12 months to 3 years Over 3 years 423,928 389,418 of associates and joint ventures As of 31 December 2019 Profit before income tax of associates and joint ventures 102,808 109,676 Forward exchange contracts and interest rate Profit before income tax 526,736 499,094 - swaps Tax at applicable domestic tax rate (20%) 105,347 20 99,819 20 Liabilities (1,094) - - (1,094) - Effect of tax rates in foreign jurisdictions 538 - 1,133 - TOTAL (1,094) - - (1,094) - Difference in statutory tax rate in domestic entities (9,335) (2) (9,423) (2) As of 31 December 2018 Non-deductible and deductible items (including Intragroup) 7,837 1 7,882 2 Forward exchange contracts and interest rate swaps Adjustment for prior years (1,137) 1 360 1 Liabilities (1,493) - - - (1,493) Change in tax rate 1,341 - (1,167) - TOTAL (1,493) - - - (1,493) Foreign exchange loss of foreign non-operating units 61 - 97 - Total income tax expense including share of tax of associates and joint 104,652 20 98,701 21 As of 31 December 2019 and 2018 the Group has outstanding forward currency exchange contracts and interest ventures rate swaps for a total notional value of USD 105 million and USD 140 million respectively. During the year ended 31 December 2019 loss in the amount of RUB 576 million was reclassified from equity to net foreign exchange (loss) / gain in the Consolidated Statement of Profit or Loss and Other Comprehensive Income (RUB 16,758 million for the year ended 31 December 2018).

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

The impact of foreign exchange cash flow hedges recognized in other comprehensive income is set out below: 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. 2019 2018 Before Before In the normal course of its operations the Group has exposure to the following financial risks: income tax Income tax Net of tax income tax Income tax Net of tax Total recognised in other comprehensive – market risk (including currency risk, interest rate risk and commodity price risk); (loss) / income as of the beginning (1,493) 298 (1,195) (17,928) 2,103 (15,825) – credit risk; and of the period – liquidity risk Foreign exchange effects recognised during (177) 35 (142) (323) 65 (258) the period Market risk Recycled to Net foreign exchange gain / (loss) 576 (115) 461 16,758 (1,870) 14,888 on operating activities Total recognised in other comprehensive 399 (80) 319 16,435 (1,805) 14,630 Currency Risk income / (loss) for the period Total recognised in other comprehensive The Group is exposed to currency risk primarily on borrowings that are denominated in currencies other than (1,094) 218 (876) (1,493) 298 (1,195) (loss) / income as of the closing of the period 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 currencies in which these borrowings The accumulated foreign exchange loss will be reclassified from other comprehensive income / (loss) to profit and loss are denominated in are mainly USD and EUR. in 2022. The Group’s currency exchange risk is considerably mitigated by its foreign currency assets and liabilities: the current The Group uses an estimation of the fair value of forward currency exchange contracts prepared by independent structure of revenues and liabilities acts as a hedging mechanism with opposite cash flows offsetting each other. financial institutes. Valuation results are regularly reviewed by the Management. No significant ineffectiveness occurred The Group applies hedge accounting to manage volatility in profit or loss with its cash flows in foreign currency. during the reporting period. The carrying amounts of the Group’s financial instruments by currencies they are denominated in are as follows:

As of 31 December 2019 Russian Other 36. Financial risk management Rouble USD EURO Serbian dinar currencies FINANCIAL ASSETS Risk Management Framework Current Cash and cash equivalents 135,688 51,483 6,393 4,153 4,687 Gazprom Neft Group has a risk management policy that defines the goals and principles of risk management in order Bank deposits 15,076 - - - - to make the Group’s business more secure in both the short and the long term. Loans issued 4,829 - - 1 - The Group’s goal in risk management is to increase effectiveness of Management decisions through detailed analysis Trade and other financial receivables 114,570 74,023 1,276 13,486 1,917 of related risks. Non-current Trade and other financial receivables 696 - 133 - - 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 Bank deposits 13 - 78 2 - levels depending on the expected financial impact of those risks. The Group is working continuously to improve its Loans issued 9,919 - - - - approach to basic IRMS processes, with special focus on efforts to assess risks and integrate the risk management Equity investments at fair value through OCI 978 - - 47 - process into such key corporate processes as business planning, project management and mergers and acquisitions. FINANCIAL LIABILITIES Current Financial Risk Management Short-term debt (26,031) (1,673) (2,467) - (27) Trade and other financial payables (264,299) (19,830) (4,506) (16,765) (2,039) 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 Forward exchange contracts - - - - - Current lease liabilities (1,795) (7,919) (112) - (101) Non-current

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

As of 31 December 2019 Sensitivity analysis Russian Other Rouble USD EURO Serbian dinar currencies The Group has chosen to provide information about market and potential exposure to hypothetical gain / (loss) from its Long-term debt (406,858) (185,819) (92,223) - (130) use of financial instruments through sensitivity analysis disclosures. Forward exchange contracts (136) (1,094) - - - The sensitivity analysis shown in the table below reflects the hypothetical effect on the Group’s financial instruments Non-current lease liabilities (3,555) (73,465) (466) - (382) and the resulting hypothetical changes in the Group’s profit or loss and equity that would occur assuming change Other non-current financial liabilities (20,271) - - - (3) in closing exchange rates and no changes in the portfolio of investments and other variables at the reporting dates. NET EXPOSURE (441,176) (164,294) (91,894) 924 3,922 Changes in the Group’s profit or loss and equity 31 DECEMBER 2019 As of 31 December 2018 USD/RUB (20% increase) (40,655) Russian Other Rouble USD EURO Serbian dinar currencies EUR/RUB (20% increase) (18,581) FINANCIAL ASSETS RSD/RUB (20% increase) (454) Current 31 DECEMBER 2018 Cash and cash equivalents 144,352 88,487 6,304 4,896 3,546 USD/RUB (20% increase) (37,950) Bank deposits - - - - - EUR/RUB (20% increase) (15,008) Loans issued 838 - 17 - - RSD/RUB (20% increase) - Trade and other financial receivables 33,389 76,676 1,503 15,624 1,958 Decrease in the exchange rates will have the same effect in the amount, but the opposite effect on Equity and Profit Non-current or loss of the Group. Trade and other financial receivables 980 - - - - Loans issued 7,846 - - - - Interest Rate Risk Equity investments at fair value through OCI 2,433 - - 66 - FINANCIAL LIABILITIES Part of the Group’s borrowings is at variable interest rates (linked to the Libor, Euribor or key rate of the Bank Current of Russia). 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 Short-term debt (21,077) (67,171) (2,683) - 8 or to obtain financing on a fixed-rate or variable-rate basis. Trade and other financial payables (269,489) (20,452) (4,944) (10,387) (2,332) Finance lease liability (38) (1,742) (48) - (1) Changes in interest rates primarily affect debt by changing either its fair value (fixed rate debt) or its future cash Non-current 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 (in Long-term debt (401,315) (208,617) (74,433) - (165) aggregate with other conditions) would be more favourable. Forward exchange contracts (130) (1,493) - - - Finance lease liability (65) (23,082) (385) - (122) The interest rate profiles of the Group are presented below: Other non-current financial liabilities (41,818) (1,413) - - (3) Carrying amount NET EXPOSURE (544,094) (158,807) (74,669) 10,199 2,889 31 December 2019 31 December 2018

The following exchange rates applied during the period: FIXED RATE INSTRUMENTS Financial assets 232,322 256,286 Reporting date spot rate Financial liabilities (678,476) (681,008) 31 December 2019 31 December 2018 (446,154) (424,722) USD 1 61.91 69.47 VARIABLE RATE INSTRUMENTS EUR 1 69.34 79.46 Financial liabilities (124,547) (119,928) RSD 1 0.59 0.67 (124,547) (119,928)

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Cash flow sensitivity analysis for variable rate instruments Trade and Other Receivables

The Group’s financial results and equity are sensitive to changes in interest rates. If the interest rates applicable The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each counterparty. to floating debt increase by 100 basis points () 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: Credit limit is established for each customer individually as maximum amount of credit risk taking into account a number of characteristics, such as: Profit / (loss) – financial statements of the counterparty; 31 December 2019 – history of relationships with the Group; Increase by 100 bp (1,245) – credit profile of the customer; 31 December 2018 – duration of relationships with the Group, including ageing profile. Increase by 100 bp (1,199) The compliance with credit limits by wholesale customers is automatically controlled. A decrease by 100 bp in the interest rates will have the same effect in the amount, but the opposite effect on Profit or loss of the Group. As a rule, an excess of receivables over approved credit limit is secured by either bank guarantee, letter of credit from a bank, pledge or third party guarantee.

Commodity Price Risk The Group regularly assesses the credit quality of trade and other receivables taking into account analysis of ageing profile of receivables and duration of relationships with the Group. To assess whether there is a significant increase The Group’s financial performance relates directly to prices for crude oil and petroleum products. The Group is unable in credit risk the Group compares the solvency data occurring as at the reporting date with the same data as at the date to fully control the prices of its products, which depend on the balance of supply and demand on global and domestic of initial recognition. The Group considers available reasonable and supportable forwarding-looking information. markets for crude oil and petroleum products, and on the actions of supervisory agencies. The Management believes that not impaired trade and other receivables are fully recoverable. 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 The Group recognises an allowance for impairment that represents its best estimate of incurred losses in respect and other mechanisms. Such activities help to decrease risks to an acceptable level. of trade and other receivables.

Trade receivables representing due from customers in the ordinary course of business are short-term by nature and do Credit risk not contain the significant financial component. Lifetime expected credit loss estimation is equal 12-months measure. The Group makes forward looking information adjustment, if changes between prior year macroparameters’ level Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual and its forecast for next 12 months are significant. obligations, and arises principally from the Group’s receivables from customers and in connection with investment securities. Estimated provision matrixes have been prepared for separate portfolios of receivables, homogeneous in terms of credit risk. Types of products sold, geographical specificity of distributional channels, ageing period of receivables and other Credit risk arises from cash and cash equivalents, contractual cash flows of debt investments carried at amortised cost, factors were taken into account to separate individual portfolios. at FVOCI, favourable derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. As of and 2018, the ageing analysis of financial receivables is as follows:

The Group is exposed to credit risk due to sales with deferred payment terms which are usual and customary Gross Impairment Gross Impairment in the market. There is risk of non-timely receipt of payments for crude oil and petroleum products (risk of tiding up 31 December 2019 31 December 2019 31 December 2018 31 December 2018 of working capital) and risk of default of counterparty. Not past due 196,040 (101) 122,674 (65) Sales to retail customers are required to be settled in cash or using major credit cards, mitigating credit risk. There Past due 0 - 30 days 4,280 (1) 2,282 (3) are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry Past due 31 - 90 days 3,021 (5) 3,775 (31) sectors and/or regions. The Group’s trade and other receivables relate to a large number of customers, spread across Past due 91 - 180 days 1,667 (10) 944 (70) diverse industries and geographical areas. The Group has taken a number of steps to manage credit risk, including: counterparty solvency evaluation; individual credit limits and payment conditions depending on each counterparty’s Past due 181 - 365 days 127 (23) 533 (124) financial situation; controlling advance payments; controlling accounts receivable by lines of business, etc. Past due more than 1 year 3,069 (1,963) 2,352 (2,137) 208,204 (2,103) 132,560 (2,430) The carrying amount of financial assets represents the maximum credit exposure.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for trade and other receivables.

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The movement in the credit loss allowance for impairment in respect of trade and other receivables during the period BBB Less than BBB Without rating Total was as follows: As of 31 December 2019 Cash and cash equivalents 82,848 87,992 31,564 202,404 2019 2018 Short-term loans issued - - 4,830 4,830 BALANCE AT THE BEGINNING OF THE PERIOD 2,430 7,567 Deposits with original maturity more than 3 months less than 1 year - 15,039 37 15,076 Increase during the year 201 461 Deposits with original maturity more than 1 year - - 93 93 Amounts written off against receivables (40) (5,766) Long-terms loans issued - - 9,919 9,919 Decrease due to reversal (182) (236) As of 31 December 2018 Reclassification to other lines (79) 191 Cash and cash equivalents 11,671 190,856 45,058 247,585 Other movements (30) 9 Short-term loans issued - - 855 855 Translation differences (197) 204 Long-terms loans issued - - 7,846 7,846 BALANCE AT THE END OF THE PERIOD 2,103 2,430 The Group uses lifetime expected credit loss approach to measure expected credit losses for most of its financial Other current assets assets.

The movement in the allowance for impairment in respect of other current assets during the period was as follows: As of 31 December 2019 and 2018 no significant credit loss allowance for impairment in respect of these assets was recognized. 2019 2018 Balance at the beginning of the period 11,727 12,288 Liquidity risk Increase during the year 827 172 Amounts written off against receivables (10,499) (532) Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial Decrease due to reversal (227) (92) liabilities that are settled by delivering cash or another financial asset.

Reclassification to other lines 83 (199) The Group’s approach to managing liquidity and monitoring liquidity risks is to ensure that sufficient financial resources Other movements (7) (7) (including cash position and available unused credit facilities) are maintained and available to meet upcoming liabilities Translation differences (54) 97 under normal and stressed conditions without incurring unacceptable losses or risking damage to the Group’s reputation. Balance at the end of the period 1,850 11,727 The following are the contractual maturities of financial liabilities, including estimated interest payments:

Carrying Contractual Less than 6 6 – 12 Investments amount cash flows months months 1 - 2 years 2 - 5 years Over 5 years As of 31 December 2019 The Group limits its exposure to credit risk mainly by investing in liquid securities. Management actively monitors credit Bank loans 350,671 416,818 25,975 10,945 27,395 350,166 2,338 ratings and does not expect any counterparty to fail to meet its obligations. Bonds 168,918 222,472 6,414 6,414 62,450 120,061 27,132 The Group does not have any loans issued measured at amortized cost that were past due but not impaired as of. Loan Participation Notes 186,775 220,194 4,818 4,818 9,635 200,924 - Other borrowings 8,864 9,328 6,538 485 265 650 1,390 Other non-current financial Credit quality of financial assets 20,274 32,724 - - 3 30,175 2,547 liabilities The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external Lease liabilities 87,795 118,841 7,724 7,586 14,017 36,030 53,483 credit ratings (if available) or to historical information about counterparty default rates: Trade and other payables 307,439 307,439 282,108 14,785 10,513 10 22 1,130,736 1,327,816 333,577 45,033 124,278 738,016 86,912 As of 31 December 2018 Bank loans 424,447 526,423 32,310 63,181 27,733 398,655 4,544 Bonds 132,719 173,579 15,548 4,915 9,627 85,206 58,283 Loan Participation Notes 209,426 257,913 5,406 5,406 10,812 236,289 -

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Carrying Contractual Less than 6 6 – 12 Dividends paid - - (82,638) (82,638) amount cash flows months months 1 - 2 years 2 - 5 years Over 5 years Finance expense 41,302 1,550 5,269 48,121 Other borrowings 8,861 13,249 9,487 981 333 710 1,738 Dividends declared - - 139,389 139,389 Other non-current financial 43,234 62,643 5 - 11,057 34,779 16,802 liabilities Changes in fair values, cash flow hedge - - (323) (323) Finance lease liabilities 25,483 34,809 1,694 1,697 3,414 10,080 17,924 Gain on foreign exchange differences 63,651 4,361 - 68,012 Trade and other payables 307,604 307,604 296,839 10,552 28 163 22 Currency translation differences 6,073 61 442 6,576 1,151,774 1,376,220 361,289 86,732 63,004 765,882 99,313 Change in contract terms - - 2,819 2,819 Other non-cash movements 445 417 (535) 327 AS OF 31 DECEMBER 2018 775,453 25,483 163,571 964,507 Reconciliation of liabilities arising from financing activities

The table below sets out the movements in the Group’s liabilities from financing activities for each of the years Capital management presented. The items of these liabilities are those that are reported as financing in the Consolidated Statement of Cash Flows: 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 Short-term Other liabilities structure to reduce the cost of capital. In order to maintain or adjust the capital structure the Group may revise its and long-term Financial lease / from financing investment program, attract new or repay existing loans or sell certain non-core assets. debt Lease activities Total AS OF 1 JANUARY 2019 775,453 25,483 163,571 964,507 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 Cash flows, including: (67,643) (14,961) (253,173) (335,777) 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 Proceeds from borrowings 258,963 - - 258,963 and short term deposits. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion Repayment of borrowings (280,878) - (11,501) (292,379) and amortisation, foreign exchange gain (loss), other non-operating expenses and includes the Group’s share of profit Repayment of lease liabilities - (9,200) - (9,200) of equity accounted investments. ROACE is calculated in general as Operating profit adjusted for income tax expense Interest paid (45,353) (5,761) (7,943) (59,057) divided by the average for the period figure of Capital Employed. Capital Employed is defined as total equity plus net debt. Transaction costs directly attributable to the borrowings (375) - - (375) The Group’s net debt to EBITDA ratios at of and and return on average capital employed for years ended and were received as follows: Dividends paid - - (233,729) (233,729)

Finance expense 45,827 5,761 4,679 56,267 Year ended 31 December Year ended 31 December 2019 2018 Dividends declared - - 129,707 129,707 Long-term debt 685,030 684,530 Changes in fair values, cash flow hedge - - (177) (177) Short-term debt and current portion of long-term debt 30,198 90,923 Gain on foreign exchange differences (33,279) (8,945) - (42,224) Less: cash, cash equivalents and deposits (217,480) (247,585) Currency translation differences (5,591) (122) (329) (6,042) NET DEBT 497,748 527,868 Implementation of IFRS 16 - 62,223 - 62,223 Total EBITDA 711,846 722,897 Additions under IFRS 16 - 18,369 - 18,369 NET DEBT TO EBITDA RATIO AT THE END OF THE REPORTING PERIOD 0.7 0.7 Other non-cash movements 461 (13) 1,747 2,195 Operating profit 446,568 456,742 AS OF 31 DECEMBER 2019 715,228 87,795 46,025 849,048 Operating profit adjusted for income tax expense 356,243 363,933 AS OF 1 JANUARY 2018 680,414 22,223 122,332 824,969 less share of profit of associates and joint ventures 83,906 90,704 Cash flows, including: (16,432) (3,129) (105,822) (125,383) Average capital employed 2,615,316 2,381,424 Proceeds from borrowings 366,544 - - 366,544 ROACE 16.8% 19.1% Repayment of borrowings (340,459) - (20,601) (361,060) Repayment of finance lease liabilities - (1,579) - (1,579) There were no changes in the Group’s approach to capital management during the period. Interest paid (42,359) (1,550) (2,583) (46,492) Transaction costs directly attributable to the borrowings (158) - - (158) received

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Fair value measurement reporting date. The awards are subject to certain market and service conditions that determine the amount that may ultimately be accrued to eligible employees. The expense recognised is based on the vesting period. 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 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 The different levels of fair value hierarchy have been defined as follows: 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. During the reporting period there were – Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities no changes in conditions for SAR compensation plan. – 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) The following assumptions are used in the Black-Scholes-Merton model as of 31 December 2019 and 2018: – Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). 31 December 2019 31 December 2018 The following assets and liabilities are measured at fair value in the Group’s Consolidated Financial Statements: Volatility 3.9% 3.2% derivative financial instruments, equity investments and Stock Appreciation Rights plan (SARs). Risk-free interest rate 5.6% 8.1% Derivative financial instruments and SARs refer to Level 2 of the fair value measurement hierarchy, i.e. their fair value Dividend yield 11.9% 7.3% is determined on the basis of inputs that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices). Equity investments represented by unlisted equity securities and refer to Level 3 of the fair value In the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the years ended 31 December measurement hierarchy. The Group determines fair value for unlisted equity securities considering different scenarios 2019 and 2018 the Group accrued expenses related to SAR provision due to the growth in the value of Company’s shares of future capital distributions for such investments. There were no significant changes in fair values for the reporting in the amount of RUB 8,111 million and RUB 4,652 million, respectively. This expense is presented within selling, period. There were no transfers between the levels of the fair value hierarchy during the years ended and. There are no general and administrative expenses. In the Consolidated Statement of Financial Position as of 31 December 2019 significant assets or liabilities measured at fair value categorised within Level 1 or Level 3 of the fair value hierarchy. and 31 December 2018 the Group recognised accrued liability in amount of RUB 12,764 million and RUB 4,652 million, The fair value of the foreign exchange contracts is determined by using forward exchange rates at the reporting date respectively. with the resulting value discounted back to present value.

As of 31 December 2019 the fair value of bonds and loan participation notes is RUB 371,410 million (RUB 338,324 million as of). The fair value is derived from quotations in active market from external source of financial information and related to Level 1 of the fair value hierarchy. The carrying value of other financial assets and liabilities measured 37. Commitments and contingencies at amortised cost approximates their fair value. The fair values were calculated based on cash flows discounted using a current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk. Taxes

The table below analyses financial instruments carried at fair value, which refer to Level 2 of the fair value hierarchy. 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 Level 2 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 As of 31 December 2019 that transactions and activities that have not been challenged in the past may be challenged later. As a result, Forward exchange contracts (1,094) additional taxes, penalties and interest may be accrued. Generally, taxpayers are subject to tax audits for a period TOTAL LIABILITIES (1,094) of three calendar years immediately preceding the year in which the decision to carry out a tax audit has been taken. As of 31 December 2018 Under certain circumstances tax audits may cover longer periods. For the individual entities of the Group the field tax audit with regard to the years 2015-2017 is performing now, the years 2018-2019 are currently open for tax audit. Forward exchange contracts (1,493) Management believes it has adequately provided for any probable additional tax accruals that might arise from these Other financial liabilities (4,652) tax audits. TOTAL LIABILITIES (6,145) The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed The Company implements a cash-settled stock appreciation rights (SAR) compensation plan. The plan forms part by the Organisation for Economic Cooperation and Development (OECD), although it has specific features. This 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

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

legislation provides for the possibility of additional tax assessments for controlled transactions (transactions between related parties and certain transactions between unrelated parties) if such transactions are not on an arm’s-length 38. Group entities basis.

The compliance of the prices of the Group’s controllable transactions with related parties with the transfer pricing rules The most significant subsidiaries of the Group and the ownership interest are presented below: is subject to regular internal control. Management believes that the transfer pricing documentation that the Group has prepared to confirm its compliance with the transfer pricing rules provides sufficient evidence to support the Group’s Ownership interest tax positions and related tax returns. In addition in order to mitigate potential risks, the Group regularly negotiates Subsidiary Country of incorporation 31 December 2019 31 December 2018 approaches to defining prices used for tax purposes for major controllable transactions with tax authorities in advance. Twenty-two pricing agreements between the Group and tax authorities regarding major intercompany transactions have EXPLORATION AND PRODUCTION been concluded in 2012-2019. JSC Gazpromneft-NNG Russian Federation 100% 100% Gazpromneft-Orenburg LLC Russian Federation 100% 100% As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, Gazprom Neft Shelf LLC Russian Federation 100% 100% interpretations of such uncertain areas that reduce the overall tax rate of the Group. While Management currently estimates that the tax positions and interpretations that it has taken can probably be sustained, there is a possible Gazpromneft-Khantos LLC Russian Federation 100% 100% risk that an outflow of resources will be required should such tax positions and interpretations be challenged Gazpromneft-Yamal LLC Russian Federation 90% 90% by the tax authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant JSC Uzhuralneftegaz Russian Federation 87.5% 87.5% to the financial position and/or the overall operations of the Group. Gazpromneft-Vostok LLC Russian Federation 51% 51% Gazprom Resource Northgas LLC Russian Federation 18.2% 18.2% Economic environment in the Russian Federation REFINING JSC Gazpromneft Omsk Refinery Russian Federation 100% 100% The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes JSC Gazpromneft Moscow Refinery Russian Federation 100% 100% and varying interpretations. The Russian economy was growing in 2017-2019, after overcoming the economic recession MARKETING of 2015 and 2016. The economy is negatively impacted by volatility of oil prices, ongoing political tension in the region Gazpromneft-Centre LLC Russian Federation 100% 100% and international sanctions against certain Russian companies and individuals. The financial markets continue to be volatile. This operating environment has a significant impact on the Group’s operations and financial position. Gazpromneft Regional Sales LLC Russian Federation 100% 100% Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future JSC Gazpromneft-Aero Russian Federation 100% 100% effects of the current economic situation are difficult to predict and management’s current expectations and estimates Gazpromneft Marin Bunker LLC Russian Federation 100% 100% could differ from actual results. Gazpromneft Corporate Sales LLC Russian Federation 100% 100% In 2014 the U.S., the EU and certain other countries imposed sanctions on the Russian energy sector that partially apply OTHER OPERATIONS to the Group. The information on the main restrictions related to sanctions was disclosed in the Consolidated Financial Gazpromneft-Lubricants LLC Russian Federation 100% 100% Statements as of and for the year ended 31 December 2014. In August 2018 the U.S. signed an act to impose further Gazpromneft-Bitumen Materials LLC Russian Federation 100% 100% sanctions against the Russian Federation. The Group assessed that the new sanctions don’t have significant impact on its activity. Gazpromneft NTC LLC Russian Federation 100% 100% GPN-Finance LLC Russian Federation 100% 100% GPN-Invest LLC Russian Federation 100% 100% Environmental matters Gazpromneft Shipping LLC Russian Federation 100% 100% The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture MULTIBUSINESS COMPANIES of government authorities is continually being reconsidered. The Group periodically evaluates its potential obligations Naftna industrija Srbije A.D. (NIS) Serbia 56.2% 56.2% under environmental regulation. Management is of the opinion that the Group has met the government’s requirements concerning environmental matters, and therefore the Group does not have any material environmental liabilities. In September 2018 the Group completed deal on disposal of non-controlling interest equal to 49% of share capital of Gazpromneft-Vostok LLC to third parties. The Group maintained control over the Company. In result non-controlling interest in the amount of RUB 21.3 billion was recognized. Excess of the payment over non-controlling interest was Capital commitments recognized at additional paid-in capital attributable to Gazprom Neft shareholders

As of 31 December 2019 the Group has entered into contracts to purchase property, plant and equipment The following table summarises the information relating to the non-controlling interest of Naftna industrija Srbije A.D. for RUB 523,364 million (RUB 363,690 million as of 31 December 2018). and its subsidiaries, Gazpromneft-Vostok LLC, Gazpromneft-Yamal LLC and Gazprom Resource Northgas LLC. The carrying amount of non-controlling interests of all other subsidiaries is not significant individually.

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Carrying amount of non-controlling Profit for the period attributable to non- Dividends paid in 2019 by Gazpromneft-Yamal LLC to the non-controlling share comprised RUB 3.0 billion interest controlling interest (RUB 1.5 billion in 2018). Year ended Year ended 31 December 2019 31 December 2018 31 December 2019 31 December 2018 Dividends paid in 2019 by Gazpromneft-Vostok LLC to the non-controlling share comprised RUB 1.5 billion. Naftna industrija Srbije A.D. and its subsidiaries 79,636 87,815 4,144 6,641 Gazpromneft-Vostok LLC 24,938 24,176 2,232 909 Dividends paid in 2018 by Gazprom Resource Northgas LLC to the non-controlling share comprised RUB 8.1 billion. Gazpromneft-Yamal LLC 28,300 19,506 11,820 12,450 Dividends paid in 2019 by Naftna industrija Srbije A.D. to the non-controlling share comprised RUB 1.8 billion Gazprom Resource Northgas LLC 21,493 18,374 3,119 3,806 (RUB 1.9 billion in 2018).

The table below summarises financial information for Naftna industrija Srbije A.D. and its subsidiaries, Gazpromneft- Vostok LLC, Gazpromneft-Yamal LLC and Gazprom Resource Northgas LLC as of 31 December 2019 and 2018 and for the years ended 31 December 2019 and 2018: 39. Related party transactions Naftna industrija Srbije A.D. and its Gazpromneft-Vostok Gazpromneft-Yamal Gazprom Resource 31 December 2019 subsidiaries LLC LLC Northgas LLC For the purpose of these Consolidated Financial Statements parties are considered to be related if one party has Current assets 57,323 10,718 111,923 15,981 the ability to control or jointly control the other party or exercise significant influence over the other party in making Non-current assets 241,009 64,206 363,111 10,307 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 Current liabilities (38,463) (5,565) (26,991) (13) on the same terms, conditions and amounts as transactions between unrelated parties. Non-current liabilities (59,218) (18,465) (165,043) - Naftna industrija Gazpromneft-Vostok Gazpromneft-Yamal Gazprom Resource The Group enters into transactions with related parties based on market or regulated prices. Short-term and long-term 31 December 2018 Srbije A.D. and its LLC LLC Northgas LLC loans provided as well as debt are based on market conditions available for not related entities. subsidiaries Current assets 66,310 9,631 85,475 14,715 The Group has applied the exemption as allowed by IAS 24 not to disclose all government related transactions, Non-current assets 262,190 56,454 296,249 7,767 as the parent of the Company is effectively being controlled by the Russian Government. In the course of its ordinary Current liabilities (37,010) (4,657) (93,068) (21) business the Group enters into transactions with natural monopolies, transportation companies and other government- related entities. Such purchases and sales are individually insignificant and are generally entered into on market Non-current liabilities (69,569) (12,091) (93,597) - or regulated prices. Transactions with the state also include taxes which are detailed in Notes 9, 22 and 34.

Naftna industrija The tables below summarise transactions in the ordinary course of business with either the parent company or parent’s Srbije A.D. and its Gazpromneft-Vostok Gazpromneft-Yamal Gazprom Resource subsidiaries and associates or associates and joint ventures of the Group. Year ended 31 December 2019 subsidiaries LLC LLC Northgas LLC Revenue 258,908 34,851 240,878 - As of 31 December 2019 and 31 December 2018 the outstanding balances with related parties were as follows: Profit 9,460 4,556 118,198 3,813 Total comprehensive (loss) / income (14,617) 4,556 118,198 3,813 Parent’s subsidiaries Associates and joint 31 December 2019 Parent company and associates ventures Year ended 31 December 2018 Cash and cash equivalents 43,912 67,811 - Revenue 270,427 34,268 236,008 - Short-term financial assets - - 4,455 Profit 15,166 5,922 124,501 4,652 Trade and other receivables 67,564 12,381 11,456 Total comprehensive (loss) / income (11,051) 5,922 124,501 4,652 Other current assets 120 4,476 1,737 Long-term financial assets - 443 9,897 The table below summarises net cash flows information for Naftna industrija Srbije A.D. and its subsidiaries, Gazpromneft-Vostok LLC, Gazpromneft-Yamal LLC and Gazprom Resource Northgas LLC for the years ended and: Other non-current assets - 595 - Short-term debt and other current financial - - 278 Naftna industrija liability Srbije A.D. and its Gazpromneft-Vostok Gazpromneft-Yamal Gazprom Resource Other current liabilities 2 360 265 subsidiaries LLC LLC Northgas LLC Long-term debt and other non-current financial Net Cash Flows 20,269 20,000 - liability Year ended 31 December 2019 (1,771) (416) 6,791 1,265 Other non-current liabilities 35,007 - - Year ended 31 December 2018 (3,893) 6,163 (29,226) 867

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Parent’s subsidiaries Associates and joint Transactions with Key Management Personnel 31 December 2018 Parent company and associates ventures Cash and cash equivalents - 82,184 - For the year ended 31 December 2019 and 2018 remuneration of key management personnel (members of the Board Short-term financial assets - 3 - of Directors and Management Committee) such as salary and other contributions amounted RUB 3,599 million and RUB 2,681 million, respectively. Key management remuneration includes salaries, bonuses, quarterly accruals Trade and other receivables 12 10,254 9,188 of SAR and other contributions. Other current assets 63 2,669 1,319 Long-term financial assets - - 7,827 Other non-current assets - 498 - Short-term debt and other current financial - 48,519 627 liability 40. Segment information Other current liabilities 10 398 250 Long-term debt and other non-current financial Operating segments are components that engage in business activities that may earn revenues or incur expenses, 43,618 20,000 - liability whose operating results are regularly reviewed by the chief operating decision maker (CODM), and for which discrete Other non-current liabilities 17,055 - - financial information is available.

For the year ended 31 December 2019 and 2018 the following transactions occurred with related parties: The Group manages its operations in two operating segments: Upstream and Downstream.

Parent’s subsidiaries Associates and joint Upstream segment (exploration and production) includes the following Group operations: exploration, development, Year ended 31 December 2019 Parent company and associates ventures production and sale of crude oil and natural gas (including joint ventures results), oil field services. Downstream Crude oil, gas and petroleum products sales 90 92,950 57,741 segment (refining and marketing) processes crude into refined products and purchases, sells and transports crude oil and refined petroleum products. Other revenue 19,790 2,702 6,886 Purchases of crude oil, gas and petroleum products - 34,379 228,711 The information about the Group’s operating segments for the and is presented below: Unsettled operations as of the reporting date 22,346 3,683 146,493 Production related services 215 30,867 24,954 Year ended 31 December 2019 Upstream Downstream Eliminations Total Transportation costs 2,146 2,460 11,614 Revenue from sales: Interest expense 4,679 2,069 35 External customers 148,883 2,336,425 - 2,485,308 Interest income 6,571 5,098 694 Inter-segment 1,027,079 31,796 (1,058,875) - TOTAL REVENUE FROM SALES 1,175,962 2,368,221 (1,058,875) 2,485,308

Parent’s subsidiaries Associates and joint Adjusted EBITDA 640,931 154,198 - 795,129 Year ended 31 December 2018 Parent company and associates ventures Depreciation, depletion and amortisation 134,033 47,339 - 181,372 Crude oil, gas and petroleum products sales 24,338 77,292 65,527 Capital expenditure 283,696 192,703 - 476,399 Other revenue 142 5,182 7,039 Purchases of crude oil, gas and petroleum products - 48,579 211,626 Year ended 31 December 2018 Upstream Downstream Eliminations Total Unsettled operations as of the reporting date 111,862 2,605 88,278 Revenue from sales: Production related services 49 26,795 23,341 External customers 57,575 2,431,717 - 2,489,292 Transportation costs 9,009 1,922 9,243 Inter-segment 1,135,245 20,630 (1,155,875) - Interest expense 5,269 2,550 168 TOTAL REVENUE FROM SALES 1,192,820 2,452,347 (1,155,875) 2,489,292 Interest income - 619 1,063 Adjusted EBITDA 686,174 113,332 - 799,506 Depreciation, depletion and amortisation 137,076 38,375 - 175,451 During 2019 the Group has accrued dividends in the total amount of RUB 123.0 billion to the parent company (during 2018: RUB 127.6 billion). Impairment of assets 4,340 - - 4,340 Capital expenditure 209,788 165,409 - 375,197

Intersegment revenues are based upon prices effective for local markets and linked to market prices.

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Eliminations and other adjustments section encompasses elimination of inter-segment sales and related unrealised Export Russian and international profits, mainly from the sale of crude oil and petroleum products, and other adjustments. Federation CIS operations Total Capital expenditures for the year ended Adjusted EBITDA represents the Group’s EBITDA and its share in associates’ and joint ventures’ EBITDA. Management 448,512 846 27,041 476,399 31 December 2019 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 Non-current assets as of 31 December 2018 2,164,360 12,228 321,820 2,498,408 as earnings before interest, income tax expense, depreciation, depletion and amortisation, net foreign exchange gain Investments in associates and joint ventures as of 31 327,562 - 1,375 328,937 (loss), other non-operating expenses and includes the Group’s share of profit of associates and joint ventures. EBITDA December 2018 is a supplemental non-IFRS financial measure used by Management to evaluate operations. Other long-term financial assets as of 11,230 - 95 11,325 31 December 2018 The geographical segmentation of the Group’s revenue and capital expenditures for the and is presented below: Capital expenditures for the year ended 340,919 1,448 32,830 375,197 31 December 2018 Export Russian and international Year ended 31 December 2019 Federation CIS operations Total Adjusted EBITDA for the year ended 31 December 2019 and 2018 is reconciled below: Sales of crude oil 88,797 41,067 614,696 744,560 Sales of petroleum products 1,046,521 86,752 484,857 1,618,130 Year ended 31 December Year ended 31 December 2019 2018 Sales of gas 29,891 - 863 30,754 Profit for the period 422,088 400,993 Other sales 79,076 2,749 10,039 91,864 Total income tax expense 85,746 79,129 REVENUES FROM EXTERNAL CUSTOMERS, NET 1,244,285 130,568 1,110,455 2,485,308 Finance expense 32,772 21,476 Finance income (22,906) (7,506) Export Russian and international Depreciation, depletion and amortisation 181,372 175,451 Year ended 31 December 2018 Federation CIS operations Total Net foreign exchange (gain) / loss (10,518) 33,558 Sales of crude oil 88,848 38,993 590,630 718,471 Other loss, net 23,292 19,796 Sales of petroleum products 1,075,927 91,334 496,170 1,663,431 EBITDA 711,846 722,897 Sales of gas 35,805 - 1,010 36,815 less share of profit of associates and joint ventures (83,906) (90,704) Other sales 54,801 2,498 13,276 70,575 add share of EBITDA of associates and joint ventures 167,189 167,313 REVENUES FROM EXTERNAL CUSTOMERS, NET 1,255,381 132,825 1,101,086 2,489,292 TOTAL ADJUSTED EBITDA 795,129 799,506

For the year ended 31 December 2019 and 2018 export sales of crude oil include sales from upstream segment in the amount of RUB 128,840 million and RUB 36,981 million, respectively. The remaining amount of RUB 485,856 Supplementary information on oil and gas activities (unaudited) million for year ended 31 December 2019 (RUB 553,649 million for the year ended 31 December 2018) represents sales from downstream segment. 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 The geographical segmentation of the Group’s non-current assets as of 31 December 2018 was adjusted for the amount disclosure standards, mainly US GAAP, that are consistent with practices established for the oil and gas industry. of RUB 24.6 billion that was reclassified from Export and international operations to Russian Federation segment While not required under IFRS, this section provides unaudited supplemental information on oil and gas exploration retrospectively. Investments in associates and joint ventures and other long-term financial assets are presented and production activities. separately by geographical segmentation from non-current assets. The Group makes certain supplemental disclosures about its oil and gas exploration and production that are consistent Export with practices. While this information was developed with reasonable care and disclosed in good faith, it is emphasised Russian and international that some of the data is necessarily imprecise and represents only approximate amounts because of the subjective Federation CIS operations Total judgments involved in developing such information. Accordingly, this information may not necessarily represent Non-current assets as of 31 December 2019 2,397,649 10,596 277,917 2,686,162 the current financial condition of the Group or its expected future results. Investments in associates and joint ventures as of 31 339,905 - 1,210 341,115 December 2019 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 Other long-term financial assets as of 11,593 - 273 11,866 31 December 2019 operations, associates and joint ventures.

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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 RESULTS OF OIL AND GAS PRODUCING ACTIVITIES 139,153 158,672 Serbian subsidiary, NIS, as disclosure of such information is prohibited by the Government of the Republic of Serbia. GROUP’S SHARE OF ASSOCIATES AND JOINT VENTURES The disclosures regarding capitalised costs relating to and results of operations from oil and gas activities do Total revenues 319,371 296,568 not include the relevant information related to NIS. Production costs (31,621) (25,567) Presented below are capitalised costs relating to oil and gas producing activities: Exploration expenses (348) (533) Depreciation, depletion and amortisation (54,162) (36,237) 31 December 2019 31 December 2018 Taxes other than income tax (131,358) (122,260) CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS PRETAX INCOME FROM PRODUCING ACTIVITIES 101,882 111,971 Unproved oil and gas properties 136,620 103,983 Income tax expenses (15,591) (16,758) Proved oil and gas properties 2,062,056 1,852,270 RESULTS OF OIL AND GAS PRODUCING ACTIVITIES 86,291 95,213 Less: Accumulated depreciation, depletion and amortisation (878,357) (783,343) TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESULTS OF OIL AND GAS 225,444 253,885 NET CAPITALISED COSTS OF OIL AND GAS PROPERTIES 1,320,319 1,172,910 PRODUCING ACTIVITIES GROUP’S SHARE OF ASSOCIATES AND JOINT VENTURES Proved oil and gas properties 706,622 623,845 Proved oil and gas reserve quantities Less: Accumulated depreciation, depletion and amortisation (257,726) (203,268) Proved reserves are defined as the estimated quantities of oil and gas, which geological and engineering data Net capitalised costs of oil and gas properties 448,896 420,577 demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic TOTAL CAPITALISED COSTS CONSOLIDATED AND EQUITY INTERESTS 1,769,215 1,593,487 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 Presented below are costs incurred in acquisition, exploration and development of oil and gas reserves for the years nature of reservoir data, estimates of underground reserves are subject to change over time as additional information ended 31 December: becomes available.

2019 2018 Proved developed reserves are those reserves, which are expected to be recovered through existing wells with existing CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS 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 Exploration costs 46,862 22,301 and deliver the production from existing and future wells. Development costs 203,584 191,420 COSTS INCURRED 250,446 213,721 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 GROUP’S SHARE OF ASSOCIATES AND JOINT VENTURES respectively): Exploration costs - 459

Development costs 82,777 69,833 Proved Oil Reserves Quantities - in MMBbl 31 December 2019 31 December 2018 TOTAL COSTS INCURRED CONSOLIDATED AND EQUITY INTERESTS 333,223 284,013 CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS

Results of operations from oil and gas producing activities for the years ended 31 December: Beginning of year 4,840 4,849 Production (359) (356) 2019 2018 Change of assets 21 - CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS Revision of previous estimates 307 347 Revenues: End of year 4,809 4,840 Sales 354,624 339,424 Minority’s share included in the above proved reserves (92) (42) Transfers 587,996 629,183 Proved reserves, adjusted for minority interest 4,717 4,798 TOTAL REVENUES 942,620 968,607 Proved developed reserves 2,588 2,630 Production costs (111,268) (104,072) Proved undeveloped reserves 2,221 2,210 Exploration expenses (1,752) (1,411) GROUP’S SHARE OF ASSOCIATES AND JOINT VENTURES* Depreciation, depletion and amortisation (130,316) (131,293) Beginning of year 1,562 1,445 Taxes other than income tax (500,630) (507,190) Production (107) (103) PRETAX INCOME FROM PRODUCING ACTIVITIES 198,654 224,641 Change of assets (37) - Income tax expenses (59,501) (65,969)

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Purchases of minerals in place - 31 The information provided in tables set out below does not represent Management’s estimate of the Group’s expected Revision of previous estimates 126 189 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, End of year 1,544 1,562 which may become proved in the future, are excluded from the calculations. The calculations should not be relied upon Proved developed reserves 778 735 as an indication of the Group’s future cash flows or of the value of its oil and gas reserves. Proved undeveloped reserves 766 826 TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESERVES - END OF YEAR 6,353 6,402 31 December 2019 31 December 2018 Consolidated subsidiaries and share in joint operations

Proved Gas Reserves Quantities - in Bcf 31 December 2019 31 December 2018 Future cash inflows 17,144,989 18,695,537 CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS Future production costs (11,199,812) (11,427,272) Beginning of year 10,218 8,785 Future development costs (1,056,587) (892,476) Production (794) (665) Future income tax expenses (1,209,796) (2,057,005) Change of assets 2,091 - Future net cash flow 3,678,794 4,318,784 Revision of previous estimates 1,625 2,098 10% annual discount for estimated timing of cash flow (1,939,797) (2,188,299) End of year 13,140 10,218 Standardised measure of discounted future net cash flow 1,738,997 2,130,485 Minority’s share included in the above proved reserves (441) (489) Group’s share of associates and joint ventures Proved reserves, adjusted for minority interest 12,699 9,729 Future cash inflows 4,279,241 4,660,776 Proved developed reserves 4,304 4,006 Future production costs (2,795,981) (2,867,502) Proved undeveloped reserves 8,836 6,212 Future development costs (249,513) (251,088) Group’s share of associates and joint ventures* Future income tax expenses (210,212) (265,892) Beginning of year 13,930 12,972 Future net cash flow 1,023,535 1,276,294 Production (633) (624) 10% annual discount for estimated timing of cash flow (328,248) (501,792) Change of assets (1,560) - Standardised measure of discounted future net cash flow 695,287 774,502 TOTAL CONSOLIDATED AND EQUITY INTERESTS IN THE STANDARDISED MEASURE Purchases of minerals in place - 705 2,434,284 2,904,987 OF DISCOUNTED FUTURE NET CASH FLOW Revision of previous estimates 1,845 877 End of year 13,582 13,930 Proved developed reserves 9,311 8,435 Proved undeveloped reserves 4,271 5,495 TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESERVES - END OF YEAR 26,722 24,148

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.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices APPENDIX 2. COMPANY HISTORY 2005 1995

Gazprom acquires controlling interest in Sibneft Siberian Oil Company (‘Sibneft’) The controlling interest (75.68%) in Sibneft was acquired by the Gazprom Group. On 13 May 2006, the company was Siberian Oil Company (‘Sibneft’) was formed by the decree of the President of the Russian Federation. The company was renamed Gazprom Neft. The company priorities in development included strategic goals to become a global player established by the government, which transferred its interest in the country’s oil majors, including Noyabrskneftegaz, with a regionally diversified portfolio of assets across the entire value chain. Noyabrskneftegazgeophysika, the Omsk Refinery and Omsknefteprodukt, to the holding company’s authorised capital.

2006 1996–1997

Coming onto the market in Central Asia Sibneft was privatised Gazprom Neft came onto the market in Central Asia and established a subsidiary, Gazprom Neft Asia, selling To develop market economy, the Government of the Russian Federation implemented the Sibneft privatisation plan. In the company’s petroleum products in Kyrgyzstan, Tajikistan and Kazakhstan. 1996, private investors acquired 49% of the company share capital through auctions. In 1997, Financial Oil Company won the auction to sell the government interest in Sibneft as part of the Shares for Loans government programme.

2007 1998–2004 Acquisition of Tomskneft JSC

Asset build-up In December 2007, the company acquired 50% of shares in Tomskneft VNK, which produces oil and gas in the Tomsk Oblast and the Khanty-Mansi Autonomous Okrug-Yugra, to continue expanding its resource base. By implementing an aggressive growth strategy, Sibneft significantly expanded the geography of its production (the Tomsk Oblast and the Omsk Oblast) and sales network (the Sverdlovsk Oblast and the Tyumen Oblast, the Krasnoyarsk Krai, St Petersburg and Moscow). The company’s major acquisitions during that period include the purchase of a 49.9% Splitting business lines holding in Slavneft, which produces oil and gas in Western Siberia and the Krasnoyarsk Krai. Separate business units were set up by line of business, including Gazpromneft Marine Bunker, Gazpromneft- Lubricants, and Gazpromneft-Aero. Strong growth

A strong resource base, efficient refining assets and highly professional executives are the core drivers of the company strong growth. Sibneft executives significantly upgraded production facilities, introduced cutting-edge technologies and streamlined business processes. 2008

Projects in Venezuela

In 2008, Gazprom Neft, Rosneft, Lukoil, TNK-BP and Surgutneftegas signed a memorandum of understanding on cooperation and joint participation in projects in Venezuela as part of the National Oil Consortium.

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Premium-class fuels 2009 The company started producing Euro 4 fuels at its refineries, and launched sales of the new G-Drive premium-class motor fuel via its own retail network. The company expanded the geography of its filling stations operation by coming Expanding the resource base onto the market in the Southern Federal District of the Russian Federation.

Gazprom Neft expands its resource base and refining capacities by acquiring Naftna Industrija Srbije А.D., Novi Sad (NIS), and controlling interest in , while also increasing its share in the Moscow Refinery and getting access High-quality bitumen materials to the Salym oil fields. In April 2009, Gazprom Neft completed a transaction with Chevron Global Energy to purchase Chevron Italia s.p.a., an oils and lubricants production plant located in Bari (Italy), Launch of a major rebranding The company implemented a project on preparing feedstock for bitumen production at the Omsk Refinery, ensuring programme for the Gazprom Neft retail network was a milestone for the company. stable quality of feedstock for bitumen production, and the high quality of products manufactured by a processing facility. In 2011, a manufacturing unit for polymer-bitumen binders and bitumen emulsions supplied by the Italian company MASSENZA was launched.

2010 2012 Global oil and gas market

Gazprom Neft continued rapid expansion on the global oil and gas market, signing a contract to develop the Badra field Leadership in efficiency in Iraq, and being appointed to lead the Junin-6 project in Venezuela. The company continued to come onto new fuel markets outside Russia. Gazprom Neft is the Russian leader in terms of hydrocarbon-production and refining growth rates, along with a range of efficiency indicators. The company started pilot oil production at two new major fields in the north of the Yamalo- For instance, it acquired a retail network of 20 filling stations and nine land plots in Kazakhstan. Nenets Autonomous Okrug (the Vostochno-Messoyakhskoye and Novoportovskoye fields). The first stage of commercial production started at the Samburgskoye oil and gas condensate field owned by the Russian-Italian company It also expanded its presence on the Russian market by joining a project to develop promising fields in the north SeverEnergia, in which Gazprom Neft has a 25% holding. of the Yamalo-Nenets Autonomous Okrug covered by SeverEnergia development licences. In February, Gazprom Neft completed a transaction to buy STS-Service, a subdivision of the Swedish company Malka Oil, which develops fields The formation and development of a new production cluster continued in the Orenburg Oblast. The company entered in the Tomsk Oblast. into new upstream projects in Iraq. The Moscow Refinery started producing Euro 4 gasolines, while the Omsk Refinery launched production of Euro 4 and Euro 5 gasolines, and the Euro 5 diesel fuel. Gazprom Neft started developing a sales network in Europe (in Serbia and Romania) under the GAZPROM brand.

2011 Opening the GeoNavigator Drilling Control Centre

To enhance the efficiency of advanced well construction, Gazprom Neft set up the GeoNavigator Drilling Control Centre. Production growth Its work is mainly based on the geo-steering technology, which involves quickly obtaining information on the geological model of a field, with adjustments made to the well trajectory in accordance with that. The use of cutting-edge Gazprom Neft gave a major boost to its production by ensuring more efficient development of the existing fields technologies allows transferring data to the Drilling Support Centre during drilling without delay. New information and acquiring new assets. The company bought 5.15% of shares in the Serbian company NIS, having increased its total is shown as part of the existing geological model of the field. interest to 56.15%, became the sole shareholder of Sibir Energy and acquired its first assets in the Orenburg Oblast – the Tsarichanskoye and Kapitonovskoye fields, as well as the Eastern block of the Orenburgskoye field. Drilling started at the Badra field in Iraq.

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New licences acquired 2013 Gazprom Neft obtained licences for the Kuvaysky and Yagodny licence blocks in the Orenburg Oblast. The resources of those blocks can help maintain and increase the company oil production. Strategy

The Gazprom Neft Board of Directors approved the company Development Strategy extended through 2025. The document provided for developing the Strategy to 2020, determining the ways of achieving the previously set targets in the key business segments – hydrocarbon production, refining, and petroleum product sales – taking into account 2015 changes in conditions in the industry and global economic environment. Until 2025, the company will continue to increase shareholder value. The strategies for the developing the company’s bunkering, aviation-fuel and lubricants businesses were also updated until 2025. New capacities commissioned

Gazprom Neft and SIBUR launched Yuzhno-Priobsky Gas Processing Plant (GPP) Start of production on the Arctic Shelf

In December 2013, Gazprom Neft produced the first oil on the Arctic Shelf at the Prirazlomnoye field in the Pechora Sea. Russia’s best employer The company was an operator at that field. Gazprom Neft became Russia’s Best Employer in the 2015 Russia’s Best Employers ranking released by HeadHunter, up two places from last year. Euro 5 fuels

The catalytic-cracking gasoline hydrotreatment units and light naphtha isomerisation facilities were commissioned New licences acquired at the Gazprom Neft Moscow Refinery. That allowed the plant to fully switch to the production of Euro 5 gasolines. Thus, all Gazprom Neft refineries switched to Euro 5 fuels, ahead of the deadlines set by the Technical Regulations Gazprom Neft acquired the licence to develop the Zapadno-Yubileynoye field in the Yamalo-Nenets Autonomous Okrug, of the Russian Federation. and several new licences – for the Yuilsky-3, Lyaminsky-6, Severo-Ityakhsky-1, Maloyugansky and Zapadno-Zimny licence blocks – in the Khanty-Mansi Autonomous Okrug-Yugra.

Bitumen business development Oil production The company acquired assets in Russia (Ryazan) and Kazakhstan to develop its bitumen business. In 2013, Gazprom Neft and the French oil company Total established a joint venture to produce and sell polymer-modified bitumen Gazprom Neft produced the millionth tonne of ARCO oil at the Prirazlomnoye field, with the one-million tonne/barrel for road construction under the G-Way Styrelf brand, and bitumen emulsions at the Moscow Refinery. milestones also reached at the Badra field in Iraq and the Sarqala field in the Kurdistan Region of Iraq.

2014 2016

Developing production projects Arctic assets

Gazprom Neft got the first oil at the Badra field in Iraq, and started commercial supply of oil into the Iraqi pipeline Gazprom Neft completed commissioning of all its Arctic assets, including the Prirazlomnoye and Novoportovskoye system. The company also shipped oil from the Novoportovskoye field in summer, which was the first time when fields, the Messoyakha group of fields, and the Arctic Gates terminal in the Gulf of Ob. feedstock was transported from the field to European consumers by sea.

Arctic Shelf production

The company produced the millionth barrel of the new Arctic crude blend (ARCO) at the Prirazlomnoye field. Drilling of a new exploration well started at the Dolginskoye oil field on the Pechora Sea shelf.

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Catalyst production Deep conversion at the Pančevo Refinery

Gazpromneft Catalytic Systems was set up as part of the Gazprom Neft Group to implement a project on building cat- Naftna Industrija Srbije (NIS, with 56.15% of shares owned by Gazprom Neft) started the construction of a new deep- cracking catalyst and hydroprocessing-catalyst production facilities. That project was given a status of the national conversion facility based on delayed coking technology at the Pančevo Refinery (Serbia). project by decision of the working group of the Ministry of Energy of the Russian Federation.

Biological treatment facilities at the Moscow Refinery Rospolychem acquisition Gazprom Neft completed the construction of the cutting-edge Biosphere biological treatment facilities at its Moscow In June 2016, Gazpromneft—Lubricants Ltd. acquired 100% of Rospolychem Group shares, and got an asset with a full Refinery. Overall, the company invested ₽9 billion in that project. production cycle for complex esters.

NOVA-BRIT acquisition 2018 Gazpromneft Bitumen Materials acquired a 75% holding in the charter capital of NOVA-BRIT, a company specialising in the production of bituminous sealants under the BRIT® brand for construction, repair and maintenance of motorways, airfields, etc. New strategy to set a global industry benchmark

The Gazprom Neft Board of Directors approved the new Strategy-2030 for the company to become a global industry Opening an R&D centre benchmark in terms of performance, technology and safety.

Gazprom Neft opened the largest and the most high-technology specialist bitumens research and development facility To implement the Strategy, the company needs to adapt to new approaches and external challenges. To achieve that, (R&D Centre) in Russia. the company launched a major operational, organisational, cultural and digital transformation covering all aspects of its operations.

Advanced icebreakers 2017 Gazprom Neft completed its Arctic fleet of support vessels, including the Alexander Sannikov and Andrey Vilkitsky icebreaker vessels,both being the most high-technology and powerful vessels in their class. and featuring zero New fields discovered emissions just like all other Gazprom Neft’s facilities. The icebreakers support the company tankers en route along the Gulf of Ob from the Arctic Gate terminal to the floating storage tanker in the Kola Bay. The new promising Neptune field with 415 mt of oil reserves in place was discovered on the shelf of the Sea of Okhotsk near Sakhalin Island. Another new field was discovered in the Khanty-Mansi Autonomous Okrug. Its proved and probable reserves amounted to 2.74 mtoe. The field was named after the company former head of production New fields discovered Alexander Zhagrin. The Triton field with 137 mtoe of hydrocarbons in place was discovered in the Sea of Okhotsk near Sakhalin Island. It became the second field found in that area, which shows that the company new strategic production cluster was formed The Bazhenov Technology Centre national project in the Russian Far East.

The Ministry of Energy of the Russian Federation gave the ’Developing Domestic Technologies and High-technology A total four new fields, and 27 hydrocarbon deposits, were discovered at Gazprom Neft licence blocks and recorded Equipment to Develop Reserves at the Bazhenov Formation’ project the status of a national project. Creation in the Russian State Register of Mineral Reserves in 2018. of the Bazhen Technology Centre in the Khanty-Mansi Autonomous Okrug-Yugra started.

New approach to geological exploration Digital Upstream Control Centre Gazprom Neft established Gazpromneft-GEO, a competency centre for managing large-scale geological-exploration Gazpromneft-Khantos launched the Upstream Control Centre as part of the Digital Field programme. The centre projects. It is aimed at integrating the company financial and management resources in relation to geological combined solutions for improving production efficiency and created the single integrated environment. exploration, ensuring turn-key project management and stable replenishment of the company resource base with new cost-effective reserves.

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Efficiency Control Centre In 2018, reorganisation of Arcticgas was also completed, which provided for equal participation (50/50) of Gazprom Neft PJSC and NOVATEK. That will allow implementing the synergy of shared use of competencies in hydrocarbon The Gazprom Neft Downstream Efficiency Control Centre (DECC) became fully operational. It was designed to manage production, regional experience and infrastructure. performance throughout the value chain, from oil delivery to refineries to petroleum-product sales to consumers, as part of a single digital platform. That involves using predictive analytic tools, neural networks, artificial intelligence, Gazprom Neft acquired a production and logistics terminal in Salsk in the Rostov Oblast. That asset is to form and digital twins of production facilities. The automated integrated-planning system, a unique one in the Russian oil an important part of the logistics system, which will ensure the supply of modern bitumen products to southern regions and gas industry, streamlines refining volumes, feedstock delivery and the petroleum product mix 60 days ahead. of Russia.

Digital transformation

The Gazprom Neft Digital Transformation Directorate was set up. The new subdivision is to develop and implement 2019 the company long-term digital strategy. Currently, the company has created the Digital Technology Vision Strategy and road maps for developing digital technologies. Operational transformation Besides, two innovation platforms were set up. The Gazprom Neft Digital Innovation Centre integrated the efforts of the company, start-ups, developers and the academic community. It is to design disruptive digital solutions Gazprom Neft started the roll-out of the Etalon Operations Management System (OMS) at all its assets. Pilot projects for the Gazprom Neft integrated downstream platform. to implement the OMS have shown that the system is highly efficient. The Etalon OMS Development Code (OMS Code) was approved. It sets out standard OMS implementation principles to maximise operational efficiency. The House of Innovations based in St Petersburg drew together the company experts in neural networks, digital platforms, the industrial Internet of Things, blockchain technology, augmented and virtual reality, machine learning, and other Industry 4.0 technologies. The platform is used by the company subdivisions for joint work on relevant Digital transformation business challenges. In September 2019 the Board of Directors approved the Gazprom Neft Digital Transformation Strategy. By the end of 2019, Gazprom Neft approved 30 digital transformation programmes. To form communities of technology experts New HSE system in the company, and to interact with business units, Gazprom Neft created competency centres on machine learning and artificial intelligence, virtual and augmented reality, video content analysis, blockchain technology, robotics The company set a goal of becoming a global industry leader in HSE by 2030 in accordance with its updated and additive technologies, unmanned technologies, industrial Internet of Things, and wearable technology. Development Strategy. A risk-based approach became the basis for HSE transformation. The company experts prepared several projects to be implemented, including the Goals, Safety Measures, and Certification, Examination, and Investigation projects focused on priority risks identification, risk mitigants development and implementation, New prospecting areas and control over the mitigants roll-out across the company, respectively. Gazprom Neft entered two new prospecting areas: the Taymyr Peninsula (in the Dolgano-Nenetsky District in the Krasnoyarsk Krai) and the north of the Tazovsky Peninsula. The company was granted a subsoil licence Setting up JVs for geological exploration at 12 licence blocks in the western part of the Taymyr Peninsula based on applications, and won the auction for the Severo-Yamburgsky licence block. In June 2019, Gazprom Neft and Royal Dutch Shell signed Gazprom Neft, Mubadala Petroleum and the Russian Direct Investment Fund (RDIF) set up a joint venture to develop an agreement of intent to establish a joint venture to develop the Leskinsky and Pukhutsyayakhsky licence blocks fields in the Tomsk Oblast and the Omsk Oblast in Russia’s Western Siberia, using Gazpromneft-Vostok capacities. The on the Gydan Peninsula. JV key opportunities are related to developing technologies for prospecting and production from hard-to-recover pre- Jurassic (Palaeozoic) hydrocarbon deposits.

A joint venture was also established by Gazprom Neft and the Spanish company to carry out geological exploration at the Karabashsky 10 licence block in the Khanty-Mansi Autonomous Okrug-Yugra. The block adjoins the Karabashsky licence blocks owned by Eurotek Yugra, another joint venture of Gazprom Neft and Repsol.

Acquiring new assets

In 2018, Gazprom Neft acquired 100% of shares of Enercom LLC, which holds a licence for the Solnechny licence block in the Orenburg Oblast. The new asset will form part of the Orenburg production cluster.

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The Achimov Formation development Supplying bitumen materials to Latin America

Gazprom Neft and the Government of the Yamalo-Nenets Autonomous Okrug started to create a technology Gazprom Neft supplied polymer-bitumen binders (PBB) for construction of the largest infrastructure facility in Latin centre for developing the Achimov Formation. A pilot testing site will be created based on Achimovsky strata America: the Bi-Oceanic Road Corridor, which is to connect the eastern and western coast of the continent to form at the Yamburgskoye field. The company also plans to create an integrated information platform and a data centre a single transportation network. Innovative bitumen produced by the Gazprom Neft Ryazan Bitumen Binders Plant to facilitate experience sharing. Gazprom Neft had previously built the Digital Model for the Achimov Formation covering is being used to pave a 277-kilometre-long section of the highway on the border between Brazil and Paraguay. A special the entire Western Siberia. That is the first model of that kind in the industry. PBB formula for the Bi-Oceanic Road Corridor has been developed at the Gazprom Neft research centre.

The Chayandinskoye field development Consolidation of a 100% holding in Poliom

Gazprom Neft is creating a new production cluster. An oil deposit at the Chayandinskoye oil and gas-condensate field Launched in 2013, Poliom is one of the largest polypropylene producers in Russia, with the capacity of 218,400 tonnes in the Sakha Republic (Yakutia) will be one of its important parts. This field is unique due to its oil reserves in place per year. In 2019, Gazprom Neft and SIBUR purchased a 50% holding in Poliom from a partner on a parity basis. Due (263 mt). The company is developing its oil rim under the operating agreement with Gazprom Neft Dobycha Noyabrsk to that Gazprom Neft and SIBUR got 100% of the plant shares. LLC, which is developing gas deposits at the asset. In late 2019, Gazprom Neft initiated pilot development of the field, and shipped the first batch of marketable oil. Full-scale development of the oil rim will start in 2020. Construction of a catalyst plant in Omsk

Alternative energy at the Omsk Refinery Gazprom Neft started an active phase of building a high-tech oil-refining catalyst production facility in Omsk. The new plant with a capacity of 21,000 tonnes per year will produce catalysts for the key Euro 5 fuel-production processes, Gazprom Neft commissioned a 1MW solar power plant with 2,500 solar panels at the Omsk Refinery. It is supplying and deep conversion. The Ministry of Energy of the Russian Federation has granted this initiative the status of a national electricity to all administrative buildings at the Omsk Refinery. The estimated annual electricity output at the power project. The project is expected to be completed in 2021. plant will amount to 1.2 million kWh, which will allow avoiding over 6,300 tonnes of CO2 emissions every year.

The federal ‘Clean Air’ project High-technology fuel terminal Gazprom Neft is implementing the federal ‘Clean Air’ project, part of the Russian Government’s ‘Ecology’ project, Gazprom Neft commissioned the Gladkoye fuel terminal in the Leningrad Oblast. Gladkoye is the only terminal in Russia which is aimed at reducing emissions by 20% in industrial cities with low air quality by the end of 2024. The programme equipped with metering units that enable automated monitoring of the volume and characteristics of petroleum includes nine projects to upgrade the Omsk Refinery. Gazprom Neft plans to invest over ₽100 billion in those projects. products. A digital twin of the fuel terminal contains all project information since the start of construction. The terminal infrastructure enables transshipment of up to 1 million tonnes of petroleum products every year, and the tank farm allows simultaneously storing 40,000 cubic metres of products. Expedition under the ‘Narwhal: Legend of the Arctic’ project

Gazprom Neft successfully completed the first exploratory expedition as part of the 'Narwhal: Legend of the Arctic’ Environmentally-friendly bunker fuel project. Explorers got unique data on the life of narwhals in the Russian part of the Arctic, which will form the basis for the comprehensive programme to study this species through 2022. The ‘Narwhal: Legend of the Arctic’ project The company started producing and selling bunker fuel with sulphur content of less than 0.1%. It meets is an environmental project forming part of the large-scale ‘Time of the Arctic’ programme launched by Gazprom Neft. the requirements of the International Convention for the Prevention of Pollution from Ships (MARPOL), in accordance with which the use of fuels with sulphur content exceeding 0.5% has been banned for all international shipping operations starting from 1 January 2020. The composition of the RMG-180 (type M) hybrid fuel has been developed by Gazprom Neft specialists. The company also introduced new marine oil for engines which use ultra-low sulphur fuel oil with sulphur content not exceeding 0.1%.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices APPENDIX 3. STRUCTURE OF THE GAZPROM NEFT GROUP1 Research and IT Bunkering

Gazprom Neft STC LLC Gazpromneft Marine Bunker LLC Production Service companies GX Tech LLC (JV) Gazpromneft Shipping LLC ITSC LLC Gazpromneft Terminal SPb LLC Gazpromneft-Salym LLC Gazpromneft-Noyabrskneftegazgeofizika LLC AS Baltic Marine Bunker Savitsky LLC Gazpromneft-Nefteservis LLC Novorossiysk Oil Transhipment Complex LLC Gazpromneft-Palyan LLC Gazpromneft-Automation LLC Lubricants, bitumen and petrochemicals Novorosnefteservis LLC Salymsky 2 LLC Noyabrskteploneft LLC New Oil Production Technologies LLC (JV) Noyabrskenergoneft LLC Gazpromneft-Lubricants LLC NOVATEK-YARSALENEFTEGAZ LLC Noyabrskneftegazsvyaz LLC Gazprom Neft Moscow Lubricants Plant JSC Multibusiness companies Slavneft-Megionneftegaz PJSC (JV) Gazpromneft Energoservis LLC Gazprom Neft Lubricants Italia S.p.A. Slavneft-Krasnoyarskneftegaz LLC (JV) Neftekhimremont LLC GAZPROMNEFT LUBRICANTS LLC Naftna Industrija Srbije А.D., Novi Sad Gazpromneft-Noyabrskneftegaz JSC Machinery and Repair Plant Gazpromneft – Omsk Refinery LLC Gazpromneft Bitumen Materials LLC Oil and Gas Company Slavneft PJSC (JV) Gazpromneft-Khantos LLC Avtomatika-Servis LLC Gazpromneft Catalytic Systems LLC Gazpromneft-Vostok LLC Garant Service LLC (JV) Gazprom Neft Ryazan Bitumen Binders Plant LLC Meretoyakhaneftegaz LLC NOVA-BRIT LLC Other operations Gazpromneft-Angara LLC Polyefir LLC Gazpromneft-Sakhalin LLC Refining BSV-CHEM LLC Altaiskoye Podvorye LLC Gazprom Neft Orenburg LLC Sovkhimtekh JSC Gazpromneft Eastern European Projects LLC Gazpromneft-GEO LLC Gazprom Neft Moscow Refinery JSC Gazprom Neft-Bitumen Kazakhstan LLP GPN-Finance LLC Yuzhuralneftegaz JSC Gazprom Neft Omsk Refinery JSC Bitumen Terminals LLC GPN-Energo LLC Morneftegazproekt JSC Slavneft-YANOS PJSC (JV) GPN-BT South LLC GPN-ZS LLC Mosnefteprodukt LLC Yuzhno-Priobsky GPP LLC (JV) Poliom LLC (JV) GPN Middle Eastern Projects LLC Gazpromneft-Yamal LLC NPP Neftekhimiya LLC (JV) GPN Salym Projects LLC Gazprom Neft Shelf LLC Gazpromneft-Total PMB LLC (JV) GPN-Invest LLC Gazpromneft-Zapolyarye LLC Oil and petroleum-products sales GAZPROMNEFT MARINE BUNKER BALKAN S.A. Gazprom Neft Business Service LLC Gazprom Neft Development LLC GAZPROMNEFT MARINE LUBRICANTS PTE. LTD. Gazprom Neft Logistics LLC Khanty-Mansiysk Petroleum Alliance JSC (JV) Gazprom Neft Trading GmbH Paradnaya Complex LLC Tomskneft VNK JSC (JV) Gazpromneft-Centre LLC Gazprom Neft Procurement LLC Messoyakhaneftegaz JSC (JV) Munai-Myrza CJSC Aircraft refuelling Arctica Media JSC ARCTICGAS JSC (JV) Gazprom Neft Asia LLC Gazprom Neft International S.A. Salym Petroleum Development N.V.(JV) Gazprom Neft Krasnoyarsk LLC Gazpromneft-Aero JSC Gazprom Neft Finance B.V. Gazprom Neft Badra B.V Gazprom Neft-Ural JSC Gazpromneft-Aero Murmansk LLC Gazprom Neft Downstream B.V. Gazprom Neft Middle East B.V. Gazprom Neft – North-West JSC Gazpromneft-Aero Kemerovo LLC Gazprom Neft Business Service B.V. Bazhenov Technology Centre LLC Gazprom Neft-Yaroslavl JSC Gazpromneft-Aero Sheremetyevo LLC PC-BA LLC (JV) Enercom LLC Gazprom Neft-Transport JSC TZK Severo-Zapad LLC (JV) NNK LLC (JV) Karabashsky 6 LLC Gazprom Neft-Novosibirsk JSC Sovex JSC (JV) GPN-project LLC Gazpromneft-Prirazlomnoye LLC Gazprom Neft-Belnefteprodukt FLLC Gazpromneft-Aero Tomsk LLC (JV) Zarechye Club LLC Eurotek-Yugra JSC (JV) Gazprom Neft – Tajikistan LLC Gazpromneft-Aero Kyrgyzstan LLC (JV) Unifel LLC Northgas CJSC (JV) Gazprom Neft – Kazakhstan LLC TZK Yenisey LLC (JV) Sibgazpolimer JSC (JV) ASB Geo LLC (JV) Alliance-Oil-Asia LLC Aero TO LLC Gazpromneft Orenburg Soyuz LLC Gazprom Neft Corporate Sales LLC Gazpromneft-Aero Novosibirsk JSC (JV) Gazpromneft-Aero Bryansk LLC Gazprom Neft-Mobilnaya Karta JSC TZK Slavneft-Tunoshna JSC (JV) Gazprom Neft-Alternative Fuel LLC TZK Omsk (Tsentralny) LLC (JV) Gazpromneft-Terminal JSC Chukotaerosbyt LLC Gazpromneft Laboratory LLC Gazpromneft-Trade Orenburg LLC Gazprom Neft Regional Sales LLC

/ 1 / The group includes JVs and key operating companies

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices APPENDIX 4. INFORMATION ON ENERGY CONSUMPTION BY APPENDIX 5. TAXATION IN OIL INDUSTRY GAZPROM NEFT Average tax rates effective in the reporting periods for the taxation of oil and gas companies in Russia

In 2019, Gazprom Neft electricity costs were accounted for as part of lease costs 12 months under lease agreements and totalled₽16,478,326.29, including VAT totalling Indicator 2019 2018 ∆, % ₽2,731,117.42. EXPORT DUTY $/TONNE

Gazprom Neft does not keep records of the amount of energy consumed. Crude oil 93.70 128.48 (27.1) Light petroleum products 28.07 38.52 (27.1) Diesel fuel 28.07 38.52 (27.1) Gasoline 28.07 38.52 (27.1) Naphtha 51.48 70.62 (27.1) Heavy petroleum products 93.70 128.48 (27.1) MINERAL EXTRACTION TAX Crude oil, ₽ /tonne 13,039 12,455 4.7

Export duties on oil and petroleum products

Export duty rates for crude oil and petroleum products are calculated by the Ministry of Economic Development of the Russian Federation in accordance with the Methodology for Calculating Export Duties on Crude Oil and Certain Categories of Petroleum Products approved by Resolution of the Government of the Russian Federation No. 276 of 29 March 2013.

Export duty on crude oil

The export duty rate for crude oil is determined under one of the following procedures:

a) in accordance with Clause 4 of Article 3.1 of Federal Law of the Russian Federation No. 5003-1 of 21 May 1993 'On the Customs Tariff', export duty rates for crude oil must not exceed the marginal duty rate calculated as follows:

Urals price quote (P), $/tonne Maximum export duty rate ≤109.50 0% 109.50 < P ≤ 146.00 35% × (P – 109.50) 146.00 < P ≤ 182.50 12.78 + 45% × (P – 146.00) >182.50 29.20 + 30% × (P – 182.50) as at 2018

1 Coil × (29.20 + 30 % × (P – 182.50)) as from 2019

Oil exported to Kazakhstan is exempt from export duty on oil. Crude oil exports to Kyrgyzstan and Belarus within indicative limits are exempt from export duties;1

b) in accordance with Clause 6.2 of Article 3.1 of Federal Law of the Russian Federation No. 5003-1 of 21 May 1993 'On the Customs Tariff', the Government of the Russian Federation may set a protective export duty rate for crude oil calculated as follows:

/ 1 / Coil = 0.833 in 2019, 0.667 in 2020, 0.5 in 2021, 0.333 in 2022, 0.167 in 2023, and 0 as from 2024

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Urals price quote (P), $/tonne Maximum export duty rate The following coefficients have been established for calculating export duty rates for petroleum products:

≤182.50 0% Light and middle distillates Diesel fuel 0.3 P > 182.50 29.20 + 45% × (P – 182.50) Lubricants This procedure shall be applied for six months starting from the month following changes in crude oil prices by more Naphtha 0.55 than 15% over three consecutive months; Gasoline 0.3

c) in accordance with Subclause 4 of Clause 5 of Article 3.1 of Federal Law of the Russian Federation No. 5003-1 of 21 May 1993 'On the Customs Tariff', starting from 1 January 2019, a procedure shall be established for applying special In accordance with Clause 6.2 of Article 3.1 of Federal Law of the Russian Federation No. 5003-1 of 21 May 1993 'On formulas for calculating the export duty on oil with special physical and chemical properties produced within specified the Customs Tariff', the Government of the Russian Federation may set a protective export duty rate on certain categories geographical areas. This reduced duty rate shall be applied until stipulated volumes of oil exported using the special of petroleum products equal to 60% of the export duty on crude oil. This procedure shall be applied for six months starting formula for calculating export duty rates are achieved for each such geographical area: from the month following changes in crude oil prices by more than 15% over three consecutive months.

Rt= (Р – 182.5) × 30% – 56.57 – 0.14 × Р, where Р is the Urals oil price, $/tonne; Excise tax on petroleum products d) in accordance with Clause 1.1 of Article 35 of Federal Law of the Russian Federation No. 5003-1 of 21 May 1993 'On the Customs Tariff', oil produced at a new offshore field shall be exempt from export duty: The excise tax on petroleum products in the Russian Federation is paid by petroleum-product producers. In addition, – until 31 March 2032, for fields located entirely in the Sea of Azov or with at least 50% of their area in the Baltic the tax is paid by legal entities importing excisable goods into the Russian Federation. Sea, the Black Sea (up to 100 metres deep), the Pechora Sea or the White Sea, the Sea of Okhotsk (south of 55° N), or the Russian sector of the Caspian seabed; In accordance with Article 193 of the Tax Code of the Russian Federation, the following excise tax rates have been – until 31 March 2042, for fields with at least 50% of their area in the Black Sea (over 100 metres deep), the Sea established for petroleum products (₽ /tonne): of Okhotsk (north of 55° N), or the Barents Sea (south of 72° N); – indefinitely, for fields with at least 50% of their area in the Kara Sea, the Barents Sea (north of 72° N), or the Eastern Arctic (the Laptev Sea, the East Siberian Sea, the Chukchi Sea, and the Bering Sea). Indicator 2018 2019 2020 2021 1 January – 31 1 June – 31 In accordance with Clause 5 of Article 11.1 of the Tax Code of the Russian Federation, a new offshore field is defined May December as an offshore field where commercial hydrocarbon production commenced on or after 1 January 2016; GASOLINE below Euro 5 13,100 13,100 13,100 13,100 13,624 d) in accordance with Clause 7 of Article 35 of Federal Law of the Russian Federation No. 5003-1 of 21 May 1993 'On Euro 5 11,213 8,213 12,314 12,752 13,262 the Customs Tariff', starting from 1 January 2019, oil produced at subsurface sites subject to EPT shall be exempt from export duty for a period when the Cy coefficient applied to the MET rate for oil is less than 1. straight-run 13,100 13,100 13,912 14,720 15,533 DIESEL FUEL 7,665 5,665 8,541 8,835 9,188 ENGINE OILS 5,400 5,400 5,400 5,616 5,841 Export duty on petroleum products MIDDLE DISTILLATES 8,662 6,665 9,241 9,5351

In accordance with Article 3.1 of Federal Law of the Russian Federation No. 5003-1 of 21 May 1993 'On the Customs Tariff', the export duty rate for certain categories of petroleum products shall be set by the Government of the Russian In accordance with Clause 13.1 of Article 181 of the Tax Code of the Russian Federation, starting from 1 January 2019, Federation. At the same time, petroleum products exported to Tajikistan, Belarus, Armenia and Kyrgyzstan within a new excisable product is introduced: crude oil feedstock. The excise tax shall be paid by crude oil feedstock owners indicative limits shall be exempt from export duties. having a registration certificate for oil feedstock processing operations at their own production facilities or at production facilities owned by third-party providers of processing services. The excise tax rate for crude oil feedstock is calculated Resolution of the Government of the Russian Federation No. 276 of 29 March 2013 establishes the following procedure as follows: for determining export duty rates for petroleum products:

ECOF = ((Poil × 7.3 – 182.5) × 0.3 + 29.2) × R × Fpc × Ccorr × Creg Rpp = С × Rco, where Rco is the export duty rate for crude oil and С is the estimated coefficient for individual categories of petroleum products. Poil – is the average Urals oil price on global markets, $/tonne.

R – is the average US dollar/Russian rouble exchange rate.

Fpc – is a specific coefficient that reflects the petrochemical-products mix. / 1 / For the period from 1 January through 31 March; starting from 1 April, the excise tax rate for middle distillates shall be calculated using the following formula: Emd = (Edf + 750) - Ddf x Cdf_comp, where Edf is the excise tax rate set for the fiscal period for diesel fuel; Ddf and Cdf_comp are values determinedunder the procedure set in Clause 27 of Article 200 of the Tax Code of the Russian Federation. If the Ddf value determined under the procedure set in Clause 27 of Article 200 of the Tax Code of the Russian Federation is more than 0, the Ddf value shall be assumed to be equal 0.

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Ccorr – equals to 0.167 for 2019, 0.333 for 2020, 0.5 for 2021, 0.667 for 2022, 0.833 for 2023, 1 as from 2024. Dm = CMET × Cp × (1 – Cd × Cr × Ce × Cdp × Ccan) – Cc for 2018. C – is a coefficient that reflects regional characteristics of petrochemical-products markets. For production facilities reg Dm = C × C × (1 – C × C × C × C × C ) – Cc – C × S – C as from 2019. located in the Omsk Oblast, Creg equals to 1.05. MET p d r e dp can MAN ov MGDF C = 559. When calculating the tax on crude oil feedstock, tax deductions may be applied. Tax deductions shall be applied MET to excise amounts multiplied by 2 and increased by C . DAMP. Cp is a coefficient that reflects global oil price changes and is calculated using the following formula: Cp = (P – 15) × R / 261, where P is the average monthly Urals price on the Rotterdam and Mediterranean markets ($/

CDAMP = ((DMG + FMG) × VMG + (DDF + FDF) × VDF) × CCOMP for the period from January through June 2019. bbl) and R is the average monthly US dollar/Russian rouble exchange rate.

CDAMP = DMG × VMG × CMG_COMP + DDF × VDF × CDF_COMP + DFE_MG × VFE_MG + DFE_DF × VFE_DF as from July 2019. Cd is a coefficient that reflects the degree of depletion of a specific subsurface site. This coefficient reduces the MET rate for oil from highly depleted subsurface sites. The degree of reserve depletion is determined as N/V, where N V /V – is the volume of Euro 5 motor gasoline with an octane number of 92 or higher (Euro 5 diesel fuel) sold or used MG DF is cumulative oil production from a specific subsurface site, and V is initial extractable oil reserves of all categories for own needs in the Russian Federation. at a specific subsurface site as at 1 January 2006. If the degree of depletion of a specific subsurface site is greater than or equal to 0.8 and less than or equal to 1, Cd shall be calculated using the following formula: Cd = 3.8 – 3.5 x C – equals to 0.6 for the period from January through June 2019. COMP N/V. If the degree of depletion of a specific subsurface site exceeds 1, Cd shall be assumed to be equal to 0.3. In other cases, Cd shall be assumed to be equal to 1. If a subsurface site contains an oil deposit(s) with Ce lower than 1, the Cd C – equals to 0.75 for the period from July through December 2019 and 0.68 starting from 1 January 2020. MG_COMP coefficient shall be assumed to be equal to 1. C – equals to 0.7 for the period from July through December 2019 and 0.65 starting from 1 January 2020. DF_COMP Cr is a coefficient that reflects the size of reserves of a specific subsurface site. This coefficient reduces the MET rate for smaller subsurface sites. If initial extractable oil reserves (Vr – initial extractable oil reserves of all categories DMG/DDF – is the difference between the average export alternative price and the nominal average wholesale price for Euro 5 gasoline with an octane number of 92 (Euro 5 diesel fuel) in the Russian Federation. at a specific subsurface site as at 1 January of the year preceding the tax year) are less than 5 mt, and depletion is less than or equal to 0.05 as at 1 January 2012 (or as at 1 January of the year when the relevant licence was issued, if the licence was issued after 1 January 2012), Cr shall be calculated using the following formula: Cr = 0.125 х Vr + 0.375. VFE_MG/VFE_DF – is the volume of Euro 5 motor gasoline with an octane number of 92 or higher (Euro 5 diesel fuel) sold at delivery locations in the Far Eastern Federal District. Ce is a coefficient that reflects the level of complexity of oil extraction. It ranges from 0.2 to 1, depending on the level

DFE_MG, DFE_DF – are Far Eastern allowances calculated as the sum of ₽2,000 and DMG or DDF. If DFE_MG or DFE_DF is greater than 2,000 of complexity of oil extraction from a specific deposit: – 0.2, when oil is extracted from a specific deposit with confirmed permeability of no more than 2 × 10–3 μm2 or less than 0, DFE_MG or DFE_DT shall be assumed to be equal to 2,000 or 0 respectively. and the net pay thickness of no more than 10 m; 2 FMG, FDF – is a compensatory allowance for motor gasoline (diesel fuel) equal to: – 0.4, when oil is extracted from a specific deposit with confirmed permeability of no more than 2 × 10–3 μm

– 0, if DMG (DDF) is less than or equal to 0 or and the net pay thickness of more than 10 m; – 0.8, when oil is extracted from a specific deposit classified in the State Mineral Reserves register as forming part – FMG = 5,600 and FDF = 5,000, if DMG (DDF) is greater than 0. In accordance with Federal Law No. 326-FZ of 29 September 2019, starting from 1 April 2019, the tax rate for middle of the Tyumen Formation pay zone; – 1, when oil is extracted from other hydrocarbon deposits. distillates shall be calculated using the following formula:

Cdp is a coefficient that reflects the degree of depletion of a specific hydrocarbon deposit. Cdp applies to subsurface

EMD = (EDF + 750) – DDF × CDF_COMP, sites that contain deposits where Ce < 1. This coefficient reduces the MET rate for oil from highly depleted deposits. The degree of depletion of a deposit with Ce < 1 is calculated as Ndp/Vdp, where Ndp is cumulative oil production

EDF – is the excise tax rate set for diesel fuel. from a specific deposit, and Vdp is initial extractable oil reserves of all the categories at a specific deposit as at 1 January of the year preceding the tax year. If the degree of depletion of a specific deposit is greater than or equal to 0.8 If DDF is greater than 0, it shall be assumed to be equal to 0 for the purposes of the excise tax rate calculation for middle and lower than or equal to 1, the Cdp coefficient shall be calculated using the following formula: Cdp = 3.8 – 3.5 x Ndp/ distillates. Vdp. If the degree of depletion of a specific deposit exceeds 1, Cdp shall be assumed to be equal to 0.3. In other cases, Cdp shall be assumed to be equal to 1. For other deposits at the site in question (with Ce equal to 1), the Cdp coefficient shall be assumed to be equal to the Cd value calculated for the entire site. Mineral extraction tax (MET)

Ccan is a coefficient that characterises the region of production and the properties of oil. This coefficient reduces the MET rate for oil for subsurface sites located entirely or partially in regions with challenging climatic MET on crude oil and geological conditions (including the Yamal Peninsula in the Yamalo-Nenets Autonomous Okrug, the Irkutsk Oblast, and the Republic of Sakha (Yakutia)). Ccan shall be assumed to be equal to 0 until the first day of the month a) In accordance with Article 342 of the Tax Code of the Russian Federation, the following formulas shall be used following the month when at least one of the following conditions is met: (1) the limit on cumulative oil production to calculate the MET rate for crude oil: from the subsurface site is reached, or (2) the stipulated period expires. After the tax incentive period expires, Сcan shall be assumed to be equal to 1. MET on crude oil 919 × Cp – Dm Cc is set at ₽357 for 2018 and ₽428 as from 2019.

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CMAN = ED × R × Ccorr – FM. R is the average monthly US dollar/Russian rouble exchange rate. ED is a coefficient calculated as follows: ED is the export duty rate for crude oil, $/tonne.

Urals price quote (P), $/tonne ED, $/tonne Cy–is a coefficient that reflects the time period from the date when commercial oil production commenced at the subsurface site. This coefficient reduces the MET rate for oil from new subsurface sites located entirely ≤109.50 0% or partially in Western (including the Khanty-Mansi Autonomous Okrug-Yugra and the Yamalo-Nenets Autonomous 109.50 < P ≤ 146.00 35% × (P – 109.50) Okrug) and Eastern Siberia (including the Irkutsk Oblast and the Republic of Sakha (Yakutia)). The Cy coefficient 146.00 < P ≤ 182.50 12.78 + 45% × (P – 146.00) is applied until the end of the stipulated time period starting from the year following the year when the degree of depletion for a subsurface site exceeded 1%. The Cy coefficient for active sites is set at 1. >182.50 29.20 + 30% × (P – 182.50) Effective MET rate for crude oil across the group R is the average US dollar/Russian rouble exchange rate. 12 months C – equals to 0.167 in 2019, 0.333 in 2020, 0.5 in 2021, 0.667 in 2022, 0.833 in 2023, and 1 as from 2024. corr Indicator 2019 2018 ∆, % Fm is a coefficient that reflects the introduction of a protective export duty rate for crude oil (for details, see paragraph Standard MET rate for crude oil 13,039 12,455 4.7 b) of the Export Duty on Crude Oil section) by the Government of the Russian Federation Effective MET rate for oil (after Cd, Cr, Ce, Cdp and Ccan are applied) 9,873 10,301 (4.2) Sov – equals to 0.1 for oil with viscosity of at least 10,000 mPa•s (in situ). In other cases, Sov equals to 1. Difference between the standard and effective MET rates for crude oil, ₽ /tonne 3,166 2,154 Difference between the standard and effective MET rates for crude oil, % 24.3 17.3 CMGDF = AMG × IMG + ADF × IDF. For the 12 months of 2019, the effective MET rate for crude oil was ₽9,873 per tonne, which is ₽3,166 per tonne

AMG/ADF is a coefficient that reflects an allowance for motor gasoline (125 for the period from January through lower than the average standard rate set in accordance with the tax legislation. This deviation was due to reductions September 2019, 200 for the period from October through December 2019, and 105 as from 2020) or diesel fuel (110 in the MET rate for crude oil in accordance with the tax legislation, including the application of the Cd, Cr, Ce, Cdp for the period from January through September 2019, 185 for the period from October through December 2019, and 92 and Cy coefficients. as from 2020).

IMG and IDF –is a binary coefficient for motor gasoline (diesel fuel) equal to 0 if DMG (DDF) does not exceed 0. If DMG (DDF) MET on natural gas and gas condensate

exceeds 0, IMG (IDT) is set at 1. In accordance with Article 342 of the Tax Code of the Russian Federation, MET on natural gas and gas condensate b) In accordance with Clause 2.1 of Article 342 and Clause 6 of Article 338 of the Tax Code of the Russian Federation, is the following: the following ad valorem MET rates have been set for oil produced at new offshore fields (as a percentage of its value): – 30% for a five-year period from the start of commercial hydrocarbon production, for fields located entirely in the Sea Indicator 2018 As from 2019 of Azov or with at least 50% of their area in the Baltic Sea; Natural gas, ₽ /'000 m3 35 × Ufe × Ccom + Tg 35 × Ufe × Ccom + Tg – 15% for a seven-year period from the start of commercial hydrocarbon production, for fields with at least 50% 42 × Ufe × Ccom × Cadj + 0.75 × of their area in the Black Sea (up to 100 metres deep), the Sea of Japan, the Pechora Sea or the White Sea, the Sea Gas condensate, ₽ /tonne 42 × Ufe × Ccom × Cadj of Okhotsk (south of 55° N), or the Russian sector of the Caspian seabed; Cman – 10% for a 10-year period from the start of commercial hydrocarbon production, for fields with at least 50% Ufe – is the base value of a unit of fuel equivalent calculated by the taxpayer based on natural gas and gas condensate of their area in the Sea of Okhotsk (north of 55° N), the Black Sea (over 100 metres deep), or the Barents Sea (south prices, as well as the ratio of their respective production volumes. of 72° N); – 5% for a 15-year period from the start of commercial hydrocarbon production, for fields with at least 50% Ccom is a coefficient that reflects the complexity of mineral extraction from a deposit. This coefficient reduces the MET of their area in the Kara Sea, the Barents Sea (north of 72° N), or the Eastern Arctic (the Laptev Sea, the East rate and is assumed to be equal to the lowest of the following five reduction coefficients: Creg (reduction based Siberian Sea, the Chukchi Sea, and the Bering Sea). on location), Cdep (reduction for depleted sites), Cd (reduction for deposits located at a depth of more than 1.7 km), Cs In addition, the tax legislation stipulates a reduced tax rate for oil extracted from deposits classified as forming part (reduction for subsurface sites that are part of a regional gas supply system) and Ctur (reduction for deposits classified of the Bazhenov Formation pay zone, provided that the requirements of the Russian Tax Code are met. In accordance as forming part of the Turonian pay zones). with Clause 3.2 of Article 343.2 of the Tax Code of the Russian Federation, as from 1 January 2019, a tax deduction may be applied for subsurface sites listed in Subclause 4 of Clause 5 of Article 3.1 of Federal Law No. 5003-1 of 21 Тg is an indicator reflecting the cost of natural gas transportation (assumed to be equal to 0 in 2017–2019, according May 1993 'On the Customs Tariff', which is calculated as Cman × Veo, where Veo is the amount of crude oil extracted to the Federal Anti-Monopoly Service of the Russian Federation). at a subsurface site and exported from Russia under preferential crude oil export duty rates. Cadj is an adjustment coefficient equal to 6.5/Cg, where Cg is a coefficient reflecting the export margin per unit of fuel c) In accordance with Article 342.6 of the Tax Code of the Russian Federation, the following formula shall be used equivalent. to calculate the MET rate for crude oil produced at subsurface sites subject to excess-profits tax (EPT): For the 12 months of 2019, the effective MET rate for natural gas was ₽620 / 1,000 m3, which is ₽38 lower than MET on crude oil = (50% × (P – 15) × 7.3 × Cy – ED) × R the average standard rate set in accordance with the tax legislation. This deviation was due to reductions in the MET rate for natural gas in accordance with the tax legislation, including the application of the Cc coefficient. P is the average monthly Urals price on the Rotterdam and Mediterranean markets, $/bbl.

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Excess-profits tax (EPT) Tax benefits applied in 2019 Eligible entities in the Group PROPERTY TAX Federal Law No. 199-FZ of 19 July 2018 introduced a tax on excess profits from hydrocarbon production, effective Exemption from property tax for fields where development commenced after 1 January Gazpromneft-Khantos LLC as from 1 January 2019. The EPT shall be levied on income from hydrocarbon production at a rate of 50% minus 2011 (in accordance with the local legislation of the Khanty-Mansi Autonomous Gazpromneft-Noyabrskneftegaz JSC an estimated export duty and transportation costs, as well as actual capital and operating expenses associated Okrug-Yugra) with developing a subsurface site. Exemption from property tax for a national project to create domestically-developed technology and high-technology equipment for developing the Bazhenov Formation (in Bazhenov Technology Centre LLC The new tax regime involves reducing the total amount of fiscal payments that depend on gross values (MET and export accordance with the local legislation of the Khanty-Mansi Autonomous Okrug-Yugra) duty for crude oil) by changing the MET calculation formula and implementing a system of tax concessions on MET and the export duty for certain categories of pilot projects. Reduced rate of 1.1% for property that was built/purchased during the implementation of investment projects in the Yamalo-Nenets Autonomous Okrug (in accordance Gazpromneft-Noyabrskneftegaz JSC An exhaustive list of pilot sites in Western and Eastern Siberia potentially subject to EPT was drawn up for the trial with the local legislation of the Yamalo-Nenets Autonomous Okrug) period of the new fiscal regime. The Gazprom Neft portfolio includes pilot sites of all categories. Exemption from property tax for property that was built/purchased during the implementation of investment projects in the Orenburg Oblast (in accordance Gazprom Neft Orenburg LLC with the local legislation of the Orenburg Oblast) Tax benefits Exemption from property tax for property that was built/purchased and put into operation during the implementation of investment projects, totalling 50% of the tax payable Gazpromneft-Vostok LLC The applicable tax legislation stipulates the following types of tax benefits, which are applied by the group subsidiaries to the Tomsk Oblast budget (in accordance with the local legislation of the Tomsk Oblast) (including reduced tax rates, and reduction coefficients applied to the MET rate for crude oil and natural gas): Exemption from property tax for property that was built/purchased and put into operation during the development of technology for prospecting and exploration of pre-Jurassic Gazpromneft-Vostok LLC Tax benefits applied in 2019 Eligible entities in the Group deposits in the Tomsk Oblast (in accordance with the local legislation of the Tomsk MET ON NATURAL GAS Oblast) Gazpromneft-Noyabrskneftegaz JSC

Ccom coefficient applied to the MET rate Gazpromneft-Yamal LLC Gazprom Neft Orenburg LLC MET ON CRUDE OIL Gazpromneft-Noyabrskneftegaz JSC C coefficient applied to the MET rate r Gazprom Neft Orenburg LLC Gazpromneft-Noyabrskneftegaz JSC Gazpromneft-Vostok LLC C coefficient applied to the MET rate d Yuzhuralneftegaz JSC Gazpromneft-Khantos LLC Gazpromneft-Noyabrskneftegaz JSC Gazpromneft-Vostok LLC C coefficient applied to the MET rate e Gazpromneft-Khantos LLC Gazprom Neft Orenburg LLC

Cdp coefficient applied to the MET rate Gazpromneft-Noyabrskneftegaz JSC Gazprom Neft PJSC Gazpromneft-Angara LLC Cy coefficient applied to the MET rate Gazpromneft-Yamal LLC Gazpromneft-Khantos LLC Meretoyakhaneftegaz LLC Reduced rate for oil produced from the Bazhenov Formation pay zone Bazhenov Technology Centre LLC Reduced MET rate for production at a new offshore field in the Pechora Sea Gazprom Neft Shelf LLC PROFIT TAX Reduced rate of 16% (a 4% tax rate reduction in accordance with the local legislation Gazpromneft-Noyabrskneftegaz JSC of the Khanty-Mansi Autonomous Okrug-Yugra) Reduced rate of 17% (a 3% tax rate reduction in accordance with the local legislation Gazpromneft-Khantos LLC of the Khanty-Mansi Autonomous Okrug-Yugra) Reduced rate of 16.5% (a 3.5% tax rate reduction in accordance with the local legislation Gazpromneft-Noyabrskneftegaz JSC of the Yamalo-Nenets Autonomous Okrug) Gazpromneft-Yamal LLC

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices APPENDIX 6. REPORT ON COMPLIANCE WITH THE PRINCIPLES Status of compliance Explanations concerning failure to meet the criteria AND RECOMMENDATIONS SET OUT IN THE CORPORATE Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance № governance principle governance principle principle GOVERNANCE CODE IN 2019 During the reporting period, shareholders had an opportunity to propose agenda items for the annual general meeting for at least 60 Status of compliance Explanations concerning failure to meet the criteria days after the end of the relevant calendar year. Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance № governance principle governance principle principle 1.1.4 During the reporting period, the company did Compliance An internal company document approved not refuse to accept proposals for the agenda by the General Meeting of Shareholders or candidates nominated to its bodies and establishing the procedures for holding due to misprints or other minor defects a general meeting is publicly available. in shareholders' proposals. The company provides easily available An internal company document (internal means of communication with the company, policy) contains provisions stipulating that each participant of a general meeting may request 1.1.1 such as a hotline, email or an Internet Compliance 1.1.5 Compliance forum, enabling shareholders to express a copy of the voting ballot filled in by them their opinions and send questions concerning and certified by the tellers committee before the agenda in the course of preparation the end of the relevant meeting. for a general meeting. These actions were taken When holding general meetings of shareholders With regard to item 2: not all candidates nominated by the company before each general meeting during the reporting period in the form to governance and control bodies were present held during the reporting period. of an in-person meeting (joint attendance at the meeting where their nominations were put The notice of a general meeting is published of shareholders), enough time was provided to the vote. (posted) on the company website not later than to make reports on agenda items and discuss At the same time, in order to enable shareholders 30 days before the general meeting. 1.1.6 these items. to communicate with candidates nominated The notice of a general meeting specifies Candidates nominated to the company to governance and control bodies, the company the meeting venue and documents required governance and control bodies were offers easily available means of communication, available to answer shareholders' questions such as a hotline and email, enabling shareholders 1.1.2 for admission to the premises. Compliance Partial compliance at the meeting where their nominations were to express their opinions and send their questions Shareholders have been granted access put to the vote. to the candidates. to information about persons who had proposed The Board of Directors considers matters related agenda items and nominated candidates When making decisions related to preparing for and holding general meetings to preparing for general meetings of shareholders to the Board of Directors and the Audit and attendance of candidates nominated Committee. of shareholders, the Board of Directors considered using telecommunications to provide to governance bodies at the same meetings. If, During the reporting period, shareholders had shareholders with remote access enabling for example, the chairman of the Board of Directors an opportunity to address questions to members them to participate in general meetings during cannot attend, the Board of Directors appoints one of executive bodies and members of the Board the reporting period. of its members to chair the meeting. of Directors before and during the annual general meeting. The company has developed and disclosed a dividend policy approved by the Board The Board of Directors position (including of Directors. dissenting opinions reflected in the minutes) on each agenda item of general meetings If the company dividend policy stipulates 1.2.1 Compliance 1.1.3 held during the reporting period was included Compliance the use of figures from the company financial in the materials for the general meeting statements for determining the amount of shareholders. of dividends, the relevant provisions of the dividend policy also apply consolidated Eligible shareholders were granted access results recorded in financial statements. to the list of persons eligible to participate in the general meeting, starting from the date when this list was received by the company, whenever general meetings were held during the reporting period.

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Status of compliance Explanations concerning failure to meet the criteria Status of compliance Explanations concerning failure to meet the criteria Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance № governance principle governance principle principle № governance principle governance principle principle The Gazprom Neft Dividend Policy Regulation During the reporting period, the Board does not clearly stipulate financial/economic of Directors considered matters related circumstances when the company must not pay to implementing and updating the strategy, dividends. 2.1.2 approving the company business plan (budget), Compliance The Regulation sets forth the following principles: and reviewing criteria and indicators (including improving the investment potential and enabling interim ones) related to the implementation dividend payout growth, provided that the company of the company strategy and business plans. net profit is growing. In practice, the Gazprom The company dividend policy clearly stipulates The board of directors has determined Neft operations are profitable, and the company 1.2.2 financial/economic circumstances when Partial compliance the principles of and approaches to creating adheres to the policy of regular dividend payouts. the company must not pay dividends. a risk-management and internal-control system Throughout its history, the company has been 2.1.3 in the company. Compliance paying dividends, and in recent years it has been taking steps to increase dividends per share. The Board of Directors assessed the company The company does not rule out the possibility risk-management and internal-control system of revising the dividend policy principles during the reporting period. and criteria in the future, including stipulating The company has developed financial/economic circumstances when and adopted a policy (policies) approved the Company must not pay dividends. by the Board of Directors on remuneration During the reporting period, the company did and reimbursement for expenses of members 1.2.3 not take any actions infringing on the dividend Compliance 2.1.4 of the Board of Directors, executive bodies Compliance rights of existing shareholders and other key executives of the company. To make sure that shareholders do not use During the reporting period, the Board any other means of earning profit (income) of Directors considered matters related from the company, except for dividends to the said policy (policies). and disposal value, the company internal The Board of Directors plays the key role documents stipulate controls ensuring timely in preventing, detecting and resolving internal 1.2.4 Compliance detection and establishing the procedure conflicts. for approving transactions with persons 2.1.5 The company has created a system to identify Compliance affiliated (connected) with substantial transactions involving a conflict of interest, shareholders (persons entitled to vote and a system of measures for resolving such with voting shares). conflicts. During the reporting period, procedures The Board of Directors has approved for managing potential conflicts of interest the Information Policy Regulation. 1.3.1 of substantial shareholders were efficient, while Compliance 2.1.6 Compliance The company has appointed persons responsible conflicts between shareholders, if any, were for implementing the information policy. properly addressed by the Board of Directors. During the reporting period, the Board of Directors There were no quasi-treasury shares, or they did not consider the corporate governance practice 1.3.2 were not used for voting during the reporting Compliance in the company. period. During the reporting period, the Board A report on the Gazprom Neft corporate The quality and reliability of activities performed 2.1.7 of Directors considered the corporate Non-compliance governance practice is submitted for review by the company registrar to maintain the share 1.4 Compliance governance practice in the company. to the Board of Directors based on the approved register meet the needs of the company and its work plan. It is planned to review the report shareholders. in the second half of the year. The Board of Directors has the authority to appoint and dismiss members of executive The annual report of the company bodies, and to set the terms and conditions for the reporting period includes information of contracts with them; this authority about directors' attendance at meetings 2.1.1 is stipulated in the company charter. Compliance of the Board of Directors and its committees. 2.2.1 Compliance The Board of Directors has considered The annual report contains information a report (reports) by the chief executive officer about the key findings of performance and members of the collegial executive body assessment of the Board of Directors carried out on the implementation of the company strategy. in the reporting period.

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Status of compliance Explanations concerning failure to meet the criteria Status of compliance Explanations concerning failure to meet the criteria Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance № governance principle governance principle principle № governance principle governance principle principle The company has in place a transparent During the reporting period, the Board With regard to item 3: procedures stipulating procedure enabling shareholders to send of Directors (or its Nominations Committee) the actions that the Board members must take 2.2.2 Compliance their questions and the relevant opinions formed an opinion as to the independence if they cease to be independent are not set out Partial compliance to the chairman of the Board of Directors. of each candidate nominated to the Board in the company internal documents. The procedure for assessing of Directors, and presented the relevant At the same time, in practice, the company verifies the Board of Directors performance adopted statement to shareholders. information about the participation of the Board

by the company includes assessing professional members in other organisations and ownership qualifications of the Board members. of shares (interests) in other organisations on a quarterly basis, and assesses the independence During the reporting period, the Board of Directors 2.3.1 Compliance During the reporting period, the Board of candidates nominated to the Board of Directors. (or its Nominations Committee) assessed of Directors (or its Nominations Committee) This information enables the company to form candidates nominated to the Board of Directors 2.4.2 at least once assessed the independence an opinion about the independence of directors in terms of required experience, knowledge, of the current members of the Board in a timely manner. business reputation, absence of conflict of interest, of Directors listed in the company annual report Given the absence of independent directors etc. as independent directors. on the Board of Directors, the company will initiate Whenever the agenda of a general meeting the development of the required procedures if they of shareholders held during the reporting period are elected to the Board of Directors. included matters related to electing the Board The company has developed procedures of Directors, the company provided shareholders stipulating the actions that the Board members with biographical details of all candidates must take if they cease to be independent, nominated to the Board of Directors, findings including the obligation to promptly notify 2.3.2 of assessment of such candidates by the Board Compliance the Board members of that fact. of Directors (or its Nominations Committee), as well as information on whether the candidate As at the end of the reporting year, the Board met independence criteria in accordance of Directors did not include independent directors: with Recommendations 102–107 of the Code, On 14 June 2019, under the resolution of the General and the written consent of the candidates Meeting of Shareholders, Sergey Fursenko was for election to the Board of Directors. removed from the Board of Directors; On 25 December 2019, Valery Serdyukov lost As part of performance assessment of the Board his status as an independent director pursuant of Directors carried out in the reporting period, to Clause 104 of the Corporate Governance 2.3.3 the Board of Directors analysed its needs Compliance Code: he was recognised as a person connected for professional qualifications, experience with the company, as he had been a member and business skills. of the Board of Directors for more than seven years As part of performance assessment of the Board in total. of Directors carried out in the reporting period, All other members of the Board of Directors the Board of Directors considered whether are persons connected with a substantial shareholder 2.3.4 Compliance the number of its members was consistent of the company. with the company needs and shareholder Due to the fact that the company has no other interests. Independent directors comprise at least shareholders (except for Gazprom) having an interest As at the end of the reporting period, the Board 2.4.3 one third of the membership of the Board Non-compliance of more than 2%, which would enable them of Directors did not include independent directors: of Directors. to nominate candidates to the Board of Directors, On 14 June 2019, under the resolution full compliance with this recommendation largely of the General Meeting of Shareholders, depends on the willingness of the majority Sergey Fursenko was removed from the Board shareholder (Gazprom) to nominate and elect During the reporting period, all independent of Directors; independent directors to the company Board members of the Board of Directors met On 25 December 2019, Valery Serdyukov lost of Directors. all the independence criteria established his status as an independent director pursuant The company conducts an annual performance 2.4.1 Non-compliance in Recommendations 102–107 to Clause 104 of the Corporate Governance assessment of the Board of Directors; as part of the Code, or were recognised as independent Code: he was recognised as a person connected of the assessment, the company considers whether under the resolution of the Board of Directors. with the company, as he had been a member it is necessary to elect independent directors. of the Board of Directors for more than seven years Most members of the Board of Directors see no in total. need to elect independent directors due to the fact All other members of the Board of Directors that the composition of the Board of Directors are persons connected with a substantial is sufficiently well-balanced in terms of professional shareholder of the company. competencies, experience and business skills, which is considered to be sufficient for the Board of Directors to perform its functions.

318 ANNUAL REPORT 2019 319 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Status of compliance Explanations concerning failure to meet the criteria Status of compliance Explanations concerning failure to meet the criteria Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance № governance principle governance principle principle № governance principle governance principle principle The company internal documents stipulate that As at the end of the reporting year, the Board members of the Board of Directors must notify of Directors did not include independent directors. the Board of Directors if they have a conflict On 14 June 2019, under the resolution of the General of interest in relation to any agenda item Meeting of Shareholders, Sergey Fursenko was at a meeting of the Board of Directors or a Board removed from the Board of Directors; on 25 committee, before they start discussing December 2019, Valery Serdyukov lost his status the relevant agenda item. as an independent director pursuant to Clause 104 of the Corporate Governance Code: he was 2.6.1 The company internal documents stipulate that Compliance Independent directors (who have no conflict recognised as a person connected with the company, members of the Board of Directors must refrain of interest) carry out a preliminary assessment as he had been a member of the Board of Directors from voting on any matters in relation to which of significant corporate actions involving 2.4.4 Non-compliance for more than seven years in total. All other members they have a conflict of interest. a potential conflict of interest, and the findings of the Board of Directors are persons connected of these assessments are presented The company has established a procedure with a substantial shareholder of the company. to the Board of Directors. allowing the Board of Directors to obtain The company has no other shareholders (except professional advice on matters within for Gazprom) having an interest of more than 2%, their competency, at the company expense. which would enable them to nominate candidates The company has adopted and published to the Board of Directors. Full compliance 2.6.2 an internal document clearly specifying Compliance with this recommendation largely depends the rights and duties of the Board members. on the willingness of the majority shareholder (Gazprom) to nominate and elect independent Individual attendance at the Board The provisions of item 2 are complied with only directors to the company Board of Directors.. and committee meetings, as well as the amount partially: the company internal documents do of time allocated for preparing for the meetings, not stipulate the Board members' duty to notify The chairman of the Board of Directors With regard to item 1: the Chairman were taken into account in the course the Board of Directors of their intentions to join is an independent director, or a senior elected by the Board of Directors does of performance assessment of the Board governance bodies of any other organisations independent director has been appointed not meet the independence criteria established of Directors in the reporting period. (except for Gazprom Neft controlled entities from among independent directors. in the Corporate Governance Code. Based and affiliates). on the performance assessment of the Board In accordance with the Gazprom Neft Regulation of Directors, the activities of its Chairman have Governing the Board of Directors, members been deemed to meet the company needs. of the Board of Directors must notify the company The absence of the senior independent director 2.5.1 Partial compliance of their election to governance bodies of other does not entail additional risks for the company 2.6.3 In accordance with the company internal Partial compliance The roles, rights and duties of the Chairman organisations. or its shareholders. The Chairman of the Board documents, members of the Board of the Board of Directors (and, if applicable, At the same time, in practice, members of Directors has a flawless personal and business of Directors must notify the Board of Directors the senior independent director) are properly of the Board of Directors notify reputation, and extensive experience in executive of their intentions to join governance specified in the company internal documents. the Chairman of the Board of Directors in advance positions. The functions of the Chairman bodies of any other organisations (except of their intentions to join governance bodies of the Board of Directors are stipulated for the company controlled entities of other organisations and obtain his/her consent. in the Charter and the Regulation Governing and affiliates), and of their appointment to such The company does not rule out the possibility the Board of Directors. bodies. of stipulating the Board members' duty to notify The performance of the Board chairman was the company of their intentions to join governance 2.5.2 assessed as part of performance assessment Compliance bodies of other organisations in the Regulation of the Board of Directors in the reporting period. Governing the Board of Directors in the future. The Board chairman's duty to take measures In accordance with the company internal to ensure the timely provision of the Board documents, members of the Board of Directors 2.5.3 members with materials regarding agenda Compliance have the right to gain access to documents items of the Board meeting is stipulated and make enquiries regarding the company in the company internal documents. and its controlled entities, and the company 2.6.4 executive bodies must provide the relevant Compliance information and documents. The company has a formalised induction programme for newly elected members of the Board of Directors. The Board of Directors held at least six meetings 2.7.1 Compliance in the reporting year.

320 ANNUAL REPORT 2019 321 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Status of compliance Explanations concerning failure to meet the criteria Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance Status of compliance Explanations concerning failure to meet the criteria № governance principle governance principle principle Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance The company has approved an internal № governance principle governance principle principle document establishing the procedure The Board of Directors has formed With regard to items 1 and 2: the Human for preparing and holding the Board meetings, 2.7.2 Compliance the Remuneration Committee consisting only Resources and Compensation Committee does and stipulating that notification of the meetings of independent directors. not include independent directors. The Committee must be generally given at least 5 days before The Remuneration Committee has been formed of representatives of the principal the meeting date. is chaired by an independent director who shareholder (Gazprom) who have special The company charter or an internal is not the Chairman of the Board of Directors. professional expertise in the field of preparation, document stipulates that the most important analysis, assessment and audit of financial 2.7.3 matters (according to the list provided Compliance statements (accounts). in Recommendation 168 of the Code) must be considered at in-person meetings of the Board. The company conducts an annual performance assessment of the Human The company charter stipulates that resolutions 2.8.2 Partial compliance Resources and Compensation Committee on the most important matters specified of the Board of Directors; as part in Recommendation 170 of the Code must be The company internal documents stipulate of the assessment, the company considers whether 2.7.4 adopted at the Board meetings by a qualified Compliance the responsibilities of the Remuneration it is necessary to elect independent directors. majority comprising at least three quarters Committee, including those specified Most members of the Board of Directors see no of votes, or by the majority of votes cast by all in Recommendation 180 of the Code. need to elect independent directors due to the fact elected members of the Board of Directors. that the composition of the Human Resources The Board of Directors has formed the Audit With regard to items 1 and 3: the Audit Committee and Compensation Committee is sufficiently well- Committee consisting only of independent does not include independent directors. The Audit balanced in terms of professional competencies, directors. Committee has been formed of representatives experience and business skills, which is considered The company internal documents stipulate of the principal shareholder (Gazprom) who to be sufficient for the Committee to perform its the responsibilities of the Audit Committee, have special professional expertise in the field functions effectively. of preparation, analysis, assessment and audit including those specified in Recommendation The Board of Directors has established With regard to item 1: the Human Resources of financial statements (accounts). 172 of the Code. the Nominations Committee (or its and Compensation Committee does not include responsibilities specified in Recommendation independent directors. The Committee has At least one member of the Audit Committee The company conducts an annual performance 186 of the Code are carried out by another been formed of representatives of the principal who is an independent director has expertise assessment of the Audit Committee 2.8.1 Partial compliance committee) with most members being shareholder (Gazprom) who have special in the field of preparation, analysis, assessment of the Board of Directors; as part of the assessment, independent directors. professional expertise in the field of preparation, and audit of financial statements (accounts). the company considers whether it is necessary analysis, assessment and audit of financial to elect independent directors. Most members statements (accounts). of the Board of Directors see no need to elect independent directors due to the fact Meetings of the Audit Committee were held The company conducts an annual performance that the composition of the Audit Committee at least once a quarter during the reporting assessment of the Human Resources is sufficiently well-balanced in terms of professional period. 2.8.3 Partial compliance and Compensation Committee of the Board competencies, experience and business skills, which of Directors; as part of the assessment, the company is considered to be sufficient for the Committee The company internal documents stipulate considers whether it is necessary to elect to perform its functions effectively. the responsibilities of the Nominations Committee (or the relevant committee independent directors. Most members of the Board performing its functions), including those of Directors see no need to elect independent specified in Recommendation 186 of the Code. directors due to the fact that the composition of the Human Resources and Compensation Committee is sufficiently well-balanced in terms of professional competencies, experience and business skills, which is considered to be sufficient for the Committee to perform its functions effectively. During the reporting period, the Board of Directors considered whether the composition of its committees was consistent with the Board 2.8.4 Compliance objectives and the company goals. Additional committees were either formed or considered unnecessary.

322 ANNUAL REPORT 2019 323 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Status of compliance Explanations concerning failure to meet the criteria Status of compliance Explanations concerning failure to meet the criteria Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance № governance principle governance principle principle № governance principle governance principle principle During the reporting period, the Remuneration The Board committees are headed With regard to item 1: Committee Chairmen Committee considered the remuneration policy (policies) and the practice of its (their) by independent directors. elected by the Board of Directors do 4.1.2 Compliance not meet the independence criteria established implementation and, if required, submitted in the Corporate Governance Code. Based the relevant recommendations to the Board The company internal documents (policies) on the performance assessment of the Board of Directors. stipulate that persons who are not members of Directors, the activities of the Committee The company remuneration policy (policies) 2.8.5 of the Audit Committee, the Nominations Partial compliance Chairmen have been deemed to meet the company contains (contain) transparent mechanisms Committee or the Remuneration Committee needs. The Chairmen of the Board Committees for determining the amount of remuneration may attend Committee meetings only if they have a flawless personal and business reputation, for the members of the Board of Directors, are invited by the Chairman of the relevant 4.1.3 Compliance and extensive experience in executive positions. executive bodies and other key executives Committee. The functions of the Committee Chairmen of the company, and regulates (regulate) all are stipulated in the Regulation on Committees. types of payments, benefits and privileges During the reporting period, Committee granted to them. Chairmen regularly reported 2.8.6 Compliance The remuneration policy (policies) or other to the Board of Directors on the performance internal documents of the company establish of their Committees. rules for reimbursing expenses incurred 4.1.4 Compliance Self-assessment or external assessment by the members of the Board of Directors, of the Board performance carried out With regard to item 2: the findings executive bodies and other key executives in the reporting period included the assessment of the Board performance assessment carried of the company. out in the reporting period were reviewed of performance of the Board Committees, Fixed annual remuneration was not the only form at the meeting of the Human Resources individual members of the Board of Directors of financial remuneration paid to the members and Compensation Committee held by absentee 2.9.1 and the Board of Directors as a whole. Partial compliance of the Board of Directors for serving on the Board voting. of Directors during the reporting period. The findings of self-assessment or external In the future, the company plans to initiate a review The amount and the procedure for paying assessment of the Board of Directors of the findings of performance assessment/self- remuneration and compensation to the members carried out during the reporting period were assessment of the Board of Directors at in-person of the Board of Directors are governed reviewed at an in-person meeting of the Board meetings of the Board of Directors. of Directors. by the relevant Regulation. In accordance with the Regulation, the members The company engaged an external organisation Fixed annual remuneration was the only form of the Board of Directors receive the following (consultant) to carry out an independent of financial remuneration paid to the members forms of remuneration: basic remuneration, 2.9.2 performance assessment of the Board Compliance 4.2.1 of the Board of Directors for serving Non-compliance and remuneration for additional duties (serving of Directors at least once during the last three on the Board of Directors during the reporting on Committees). The annual remuneration paid reporting periods. period. by the company to the members of the Board The company has adopted and disclosed of Directors is calculated based on profit. an internal document titled the Regulation The rules set forth in the Regulation are designed on the Corporate Secretary. to ensure that the forms of remuneration used 3.1.1 Biographical information of the corporate Compliance by the company are consistent with its goals. secretary is published on the company website The company does not rule out the possibility and in the annual report with the same level of revising the structure of remuneration paid of detail as for the members of the Board to the members of the Board of Directors of Directors and the company executives. in the future to ensure that it is consistent The Board of Directors approves with the best practices. 3.1.2 the appointment, dismissal and additional Compliance If an internal document (documents), namely remuneration of the corporate secretary. the remuneration policy (policies), provides The company has adopted an internal document (provide) for share-based compensation for the members of the Board of Directors, (documents): a policy (policies) on remuneration 4.2.2 Not applicable. of the members of the Board of Directors, clear rules must be introduced and disclosed 4.1.1 Compliance executive bodies and other key executives, which regarding share ownership by the members clearly stipulates approaches to remuneration of the Board of Directors in order to encourage of these persons. long-term ownership of such shares.

324 ANNUAL REPORT 2019 325 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Status of compliance Explanations concerning failure to meet the criteria Status of compliance Explanations concerning failure to meet the criteria Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance № governance principle governance principle principle № governance principle governance principle principle The company does not provide for any The company executive bodies have ensured additional payments or compensation in case that risk management and internal control 4.2.3 of early resignation of the Board members Compliance 5.1.2 functions and powers have been distributed Compliance due to a change of control or any other among the heads of divisions and departments circumstances. accountable to them. During the reporting period, annual The company has approved an anti-corruption performance indicators approved by the Board policy. of Directors were used to determine the amount The company has provided easily available of variable remuneration paid to the members 5.1.3 means for reporting breaches of legislation, Compliance of executive bodies and other key executives the company internal procedures, of the company. or the corporate code of ethics to the Board During the latest assessment of the system of Directors or the Audit Committee. of remuneration for the members of executive During the reporting period, the Board bodies and other key executives of the company, 4.3.1 Compliance of Directors or the Audit Committee assessed the Board of Directors (the Remuneration the performance of the company risk 5.1.4 Compliance Committee) made sure that the company was management and internal control system. using an effective balance between the fixed The key findings of this assessment have been and variable components of remuneration. included in the company annual report. The company has established a procedure In order to conduct internal audit, the company ensuring that any bonus payments wrongfully has created a separate internal audit unit received by the members of executive bodies accountable to the Board of Directors 5.2.1 Compliance and other key executives of the company or the Audit Committee, or has engaged are returned to the company. an independent external organisation following The company has adopted a long-term incentive the same accountability principle. programme for the members of executive bodies During the reporting period, the performance and other key executives of the company, which of the risk management and internal control involves using the company shares (financial system was assessed as part of internal audit. instruments based on the company shares). 5.2.2 Compliance The company uses generally accepted The long-term incentive programme approaches to internal control and risk 4.3.2 for the members of executive bodies and other Compliance management. key executives of the company stipulates that the right to sell shares and other financial The Board of Directors has approved instruments used in this programme can be the company information policy developed taking exercised not earlier than three years after into account the recommendations provided in the Code. the date when they were provided. At the same 6.1.1 Compliance time, this right is conditional upon the company The Board of Directors (or one achieving certain performance targets. of its Committees) considered matters related In the reporting period, the amount to the company compliance with the information of compensation (the golden parachute) paid policy at least once during the reporting period. by the company to the members of executive bodies or key executives in case of early 4.3.3 Compliance resignation on the company initiative, provided that they had committed no wrongdoings, did not exceed twice the amount of the fixed component of annual remuneration. The functions of various governance bodies and divisions of the company within the risk management and internal control system 5.1.1 Compliance are clearly specified in internal documents / in the relevant company policy approved by the Board of Directors.

326 ANNUAL REPORT 2019 327 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Status of compliance Explanations concerning failure to meet the criteria Status of compliance Explanations concerning failure to meet the criteria Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance № governance principle governance principle principle № governance principle governance principle principle The company discloses information about its The company information policy stipulates corporate governance system and general that shareholders must be granted easy corporate governance principles applied 6.3.1 access to information, including information Compliance in the company, including disclosure about legal entities controlled by the company, on the company website. With regard to item 3: the Company did not receive at the shareholders' request. The company discloses information a memorandum from the controlling person During the reporting period, the company about the composition of its executive bodies about this person's plans regarding corporate did not refuse shareholders' requests 6.1.2 and the Board of Directors, independence Partial compliance governance in the company. for information, or provided a rationale for such of the Board members and their membership Full compliance with this recommendation largely refusals. 6.3.2 Compliance in the Board Committees (as defined depends on the willingness of the controlling In cases specified in the company information in the Code). shareholder to submit the memorandum. policy, shareholders are notified that If there is a person controlling the company, the information in question is confidential, the company shall publish a memorandum and assume an obligation to keep it confidential. from the controlling person outlining its plans The company Charter contains a list regarding corporate governance in the company. of transactions or other actions that qualify The company information policy stipulates as significant corporate actions, and establishes approaches to and criteria for identifying criteria for identifying them. Making decisions information that may have a significant impact regarding significant corporate actions on the company valuation and the value of its is the prerogative of the Board of Directors. 7.1.1 Compliance securities, as well as procedures ensuring In those cases when the applicable legislation timely disclosure of such information. specifically stipulates that such significant If the company securities are traded on foreign corporate actions fall within the competence organised markets, the disclosure of material of the General Meeting of Shareholders, 6.2.1 Compliance information in Russia and on such markets the Board of Directors provides the shareholders during the reporting year shall be synchronised with the relevant recommendations. and equivalent. As at the end of the reporting year, the Board If foreign shareholders hold a considerable of Directors did not include independent number of the company shares, information directors. On 14 June 2019, under the resolution was disclosed during the reporting year not only of the General Meeting of Shareholders, in Russian, but also in one of the most widely Sergey Fursenko was removed from the Board used foreign languages. of Directors; on 25 December 2019, Valery Serdyukov lost his status as an independent During the reporting period, the company director pursuant to Clause 104 of the Corporate disclosed its annual and semi-annual Governance Code: he was recognised as a person financial statements prepared in accordance The company has established a procedure connected with the company, as he had been with International Financial Reporting whereby independent directors express a member of the Board of Directors for more 7.1.2 Non-compliance Standards (IFRS). The company annual report their opinions with regard to significant than seven years in total. All other members for the reporting period included annual 6.2.2 Compliance corporate actions before their approval. of the Board of Directors are persons connected financial statements prepared in accordance with a substantial shareholder of the company. with IFRS, together with an auditor's report. The company has no other shareholders (except The company discloses full information for Gazprom) having an interest of more than 2%, on the structure of its capital in accordance which would enable them to nominate candidates with Recommendation 290 of the Code in its to the Board of Directors. Full compliance annual report and on its website. with this recommendation largely depends The company annual report contains information on the willingness of the majority shareholder on the key aspects of its operations and its (Gazprom) to nominate and elect independent financial results. directors to the company Board of Directors. 6.2.3 Compliance The company annual report contains information on environmental and social aspects of the company operations.

328 ANNUAL REPORT 2019 329 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices APPENDIX 7. LIST OF MAJOR TRANSACTIONS Status of compliance Explanations concerning failure to meet the criteria Criteria for assessing compliance with the corporate with the corporate for assessing compliance with the corporate governance AND RELATED-PARTY TRANSACTIONS № governance principle governance principle principle Given the nature of the company operations, the minimum criteria established in its Charter for classifying the company transactions as significant corporate actions are lower than 7.1.3 those established by law. Compliance List For more details on related-party During the reporting period, all significant of major transactions transactions made by Gazprom Neft corporate actions underwent the approval and related-party in 2019, see procedure before they were performed. transactions ir.gazprom-neft.com/?id=9 During the reporting period, the company disclosed detailed information 7.2.1 about its significant corporate actions, including Compliance the rationale for and the timing of such actions, in a timely manner. The company internal documents establish With regard to item 3: the company internal a procedure for engaging an independent documents do not contain an expanded list appraiser to carry out a valuation of the property of grounds for recognising the members to be disposed of or purchased in a major of the Board of Directors and other persons transaction or related-party transaction. stipulated by law as having interest in the company The company internal documents establish transactions. a procedure for engaging an independent The company internal documents provide appraiser to carry out a valuation of the company for a list of grounds for recognising the members shares for the purpose of purchase or buyback. of the Board of Directors and other persons stipulated by law as having interest in the company transactions only under Russian legislation. 7.2.2 Partial compliance After the adoption of the Corporate Governance Code, significant amendments have been made The company internal documents contain to the Law 'On Joint-Stock Companies' (Chapter an expanded list of grounds for recognising XI 'Interest in the Execution of a Transaction the members of the Board of Directors and other by the Company') with regard to compiling a list persons stipulated by law as having interest of interested parties and establishing a procedure in the company transactions. for approving transactions. Accordingly, the company has made the relevant amendments to its internal documents: the Charter, the Regulation Governing the Board of Directors, and the Regulation on the Management Board.

330 ANNUAL REPORT 2019 331 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices APPENDIX 8. EXCERPTS FROM MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Production and manufacturing expenses

Production and manufacturing expenses, ₽ million Revenue Item 2015 2016 2017 2018 2019 ∆ 2019/2018, % Upstream expenses 1 98,095 106,765 111,837 109,090 121,167 11.1 Revenue from sales, ₽ million ₽ per toe n/a 1,782 1,767 1,669 1,793 7.4

∆ $2 per boe n/a 3.63 4.13 3.63 3.78 4.1 Item 2015 2016 2017 2018 2019 2019/2018, % Consolidated subsidiaries in Russia 72,854 80,392 85,898 81,385 91,984 13.0 CRUDE OIL ₽ per toe n/a 1,647 1,653 1,510 1,634 8.2 Net export (excluding CIS) 115,905 225,137 – – – – $ per boe n/a 3.35 3.86 3.29 3.44 4.6 Export 180,240 266,661 413,662 552,692 586,357 6.1 including: 61,225 65,960 67,923 65,870 72,414 9.9 Less: export duties (64,335) (41,524) – – – – brownfields 1,582 1,692 1,812 1,660 1,876 13.0 International markets 9,146 12,683 22,480 37,938 28,339 (25.3) ₽ per toe 3.54 3.44 4.24 3.61 3.95 9.4 Net export to CIS 27,581 23,528 – – – – $ per boe 11,629 14,432 17,975 15,515 19,570 26.1 Export sales and sales in CIS 28,416 23,657 30,117 38,993 41,067 5.3 greenfields n/a 1,470 1,242 1,104 1,120 1.4 Less: export duties (835) (129) – – – – ₽ per toe n/a 2.99 2.90 2.40 2.36 (1.7) Domestic market 81,187 94,809 83,393 88,848 88,797 (0.1) $ per boe 9,426 9,655 8,381 9,311 9,899 6.3 TOTAL CRUDE OIL REVENUE 233,819 356,157 549,652 718,471 744,560 3.6 3 GAS Consolidated subsidiaries outside Russia (including PSC) n/a 4,144 3,059 2,975 3,322 11.7 ₽ per toe n/a 8.43 7.15 6.47 7.00 8.2 International markets 3,411 1,853 1,237 1,010 863 (14.6) $ per boe 15,815 16,718 17,558 18,394 19,284 4.8 Domestic market 28,243 30,116 36,351 35,805 29,891 (16.5) Joint operations 1,787 1,924 2,061 2,232 2,396 7.3 TOTAL GAS REVENUE 31,654 31,969 37,588 36,815 30,754 (16.5) ₽ per toe 4.00 3.92 4.82 4.86 5.05 3.9 PETROLEUM PRODUCTS $ per boe 53,549 53,132 55,318 58,919 66,104 12.2 Net export (excluding CIS) 202,477 184,272 – – – – Refining expenses at own refineries4 30,724 30,619 31,191 32,251 35,637 10.5 Export 260,731 215,837 228,346 330,290 328,434 (0.6) ₽ per tonne 882 893 966 920 1,050 14.1 Less: export duties (58,254) (31,565) – – – – $ per barrel 1.97 1.82 2.26 2.00 2.21 10.5 International markets 107,405 99,440 112,912 165,880 156,423 (5.7) 5 Sales on international markets 171,749 175,247 180,803 257 803 249,131 (3.4) Refining expenses at refineries of joint ventures 14,648 12,453 12,259 12,496 13,450 7.6

Less: sales-related excise tax (64,344) (75,807) (67,891) (91,923) (92,708) 0.9 ₽ per tonne 1,778 1,639 1,568 1,590 1,786 12.3 CIS 78,070 71,838 76,058 91,334 86,752 (5.0) $ per barrel 3.98 3.34 3.67 3.46 3.76 8.7 Export sales and sales in CIS 78,134 72,969 77,154 92,245 87,623 (5.0) Lubricants and packaged-products manufacturing expenses 8,177 10,060 11,868 14,172 17,017 20.1 Less: export duties (64) (1,131) – – – – Transportation to refineries 27,541 29,561 29,265 32,950 32,910 (0.1) Less: sales-related excise tax – – (1,096) (911) (871) (4.4) Other operating expenses 35,082 12,404 20,110 27,659 40,507 46.5 Domestic market 740,520 743,721 866,234 1,075,927 1,046,521 (2.7) Total 214,267 201,862 216,530 228,618 260,688 14.0 Total petroleum products revenue 1,128,472 1,099,271 1,283,550 1,663,431 1,618,130 (2.7)

1 Other revenue 73,998 58,211 63,799 70,575 91,864 30.2 / 1 / Expenditure on raw materials and supplies, equipment maintenance and repairs, labour costs, fuel and electricity costs,enhanced oil recovery TOTAL 1,467,943 1,545,608 1,934,589 2,489,292 2,485,308 (0.2) activities and other similar costs at the group upstream subsidiaries. / 2 / Translated into US dollars at the average exchange rate for the period. / 3 / PSC stands for a production sharing contract. / 4 / Expenditure on raw materials and supplies, equipment maintenance and repairs, labour costs, electricity costs and other similar costsat the group / 1 / Mainly comprises revenue from the sale of transportation, construction and utility services. refineries. / 5 / Refining expenses of joint ventures are based on processing agreement.

332 ANNUAL REPORT 2019 03 PERFORMANCE 333 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Upstream expenses per toe at consolidated subsidiaries in Russia increased by 8.2% year on year, mainly due to production Depreciation, depletion and amortisation decline at brownfields.

Upstream expenses per toe at consolidated subsidiaries at brownfields increased by 13% year on year due to: Depreciation, depletion and amortisation expenses1 increased by 3.4% year on year due to an increase in the cost of depreciable – Comparison with a low base in 2018 due to shutdowns of high water-cut wells in 1H 2018 under the OPEC+ agreement; assets driven by the implementation of the investment programme, and the application of IFRS 16 since 1 January 2019. – Inflationary pressure.

Upstream expenses per toe at joint operations increased by 7.3% year on year, mainly due to growth of electricity tariffs, higher liquid production volume and water injection. Taxes

Refining expenses per tonne at own refineries increased by 14.1% year on year due to: – Increase in maintenance expenses; Taxes other than income tax, ₽ million – Increase in MTBE purchases1; – Throughput decline; Tax 2015 2016 2017 2018 2019 ∆ 2019/2018, % – Increase in expenses related to environmental programmes. Mineral extraction tax (MET) 256,477 237,300 329,579 487,492 464,773 (4.7) Excess-profits tax – – – – 14,348 – Refining expenses per toe at joint ventures increased by 12.3% year on year due to higher processing expenses (launch of new refining units, electricity and repairs). Excise tax 68,358 112,102 128,229 126,779 70,125 (44.7) Social security contributions 15,599 18,530 20,433 22,113 25,707 16.3 Lubricants and bitumen production expenses increased by 20.1% year on year, mainly due to a rise in high-technology additives Other taxes 12,711 13,199 14,028 16,400 16,240 (1.0) and packaging prices. Total 353,145 381,131 492,269 652,784 591,193 (9.4) Other operating expenses increased mainly due to an increase in other revenue, which was related to growth of services rendered and development of oil rims. MET expenses decreased by 4.7% year on year, mainly due to a lower effective MET rate as a result of lower crude oil prices. In addition, excess-profits tax (EPT) was imposed on 1 January 2019. The group introduced EPT for several fields in Western and Eastern Siberia.

Selling, general Excise tax decreased by 44.7% year on year, mainly due to the introduction of crude oil materials excise tax deduction and the damper component since 1 January 2019, which was partially offset by an increase in motor fuel excise tax and administrative expenses rates (by 28%).

Selling, general and administrative expenses2 increased by 9.3% year on year, driven mainly by: – Increased estimated liabilities due to share price growth; – Increased advertising and marketing expenses as part of selling expenses. Share of profit of associates and joint ventures

Transportation expenses Share of profit/(loss) of associates and joint ventures, ₽ million

Transportation expenses 3 decreased by 2.5% year on year, mainly due to a change in terms of gas supply contracts Company 2015 2016 2017 2018 2019 ∆ 2019/2018, % with consumers and the application of IFRS 16 since January 2019. The decrease was offset by higher crude oil Slavneft 9,265 13,916 10,347 15,025 11,944 (20.5) and petroleum-products transportation expenses due to crude oil sales volume growth and higher transportation tariffs. Messoyakhaneftegaz – (947) 9,976 28,172 25,814 (8.4) SeverEnergia (Arcticgas) 11 913 14,472 19,861 40,451 39,849 (1.5) Northgas 3,466 3,009 3,433 3,699 3,090 (16.5) Other companies 312 3,666 1,887 3,357 3,209 (4.4) Total 24,956 34,116 45,504 90,704 83,906 (7.5) / 1 / MTBE stands for methyl tert-butyl ether. It is utilised as a motor-fuel additive to increase the gasoline octane number. / 2 / Distribution costs, retail business expenses, remunerations, wages and salaries (excluding remunerations, wages and salariesat upstream subsidiaries and own refineries), social benefits, insurance, legal, consulting and auditservices, and other expenses. / 3 / Costs to transport crude oil and petroleum products to final customers. These costs consist of pipeline transportation, sea freight,rail, shipping, handling, and other transportation costs. / 1 / Depreciation, depletion and amortisation expenses include depletion of oil and gas properties, depreciation of other property, plant and equipment, and impairment of oil and gas properties.

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

The group share of Slavneft profit decreased year on year, mainly due to higher MET expenses caused by the standard Net cash provided by operating activities, ₽ million tax rate increase, and higher finance expense as a result of debt portfolio growth. The decrease in the share of profit was partially offset by revenue growth due to production increase. Item 2015 2016 2017 2018 2019 ∆ 2019/2018, % Net cash provided by operating activities 1 312,169 361,567 439,319 624,783 616,311 (1.4) The group share of Messoyakhaneftegaz and Arcticgas profit decreased mainly due to higher finance expense. The Changes in working capital 18,342 15,216 52,809 326 39,505 >200 group share of Northgas profit decreased mainly due to lower production. Income tax paid (19,522) (22,158) (36,530) (61,157) (53,087) (13.2) Interest paid (28,229) (36,476) (39,449) (46,492) (59,057) 27.0 Dividends received 2,415 3,148 5,551 20,063 65,404 >200 Other income and expenses Total 285,175 321,297 421,700 537,523 609,076 13.3

Other expenses, which included mainly disposal of non-current assets in 2019, increased by 17.7% year on year. Net cash provided by operating activities increased by 13.3% year on year, primarily due to higher dividends received from joint ventures, and the positive effect of changes in working capital.

Net cash used in investing activities, ₽ million Other financial items Item 2015 2016 2017 2018 2019 ∆ 2019/2018, % Capital expenditures (349,036) (384,817) (357,090) (370,067) (453,011) 22.4 Foreign exchange gains (losses) are mainly influenced by revaluation of the foreign currency-denominated part (Acquisition)/disposal of subsidiaries, shares in joint 197 (2,028) (8,345) (1,360) (210) (84.5) of the Group's loan portfolio. operations and equity-accounted investments Purchase of oil and gas licences – – – (5,130) (9,623) 87.6 Net changes in deposits 45,745 48,517 (5,933) 6,710 (15,090) – Proceeds from sale of property, plant and equipment, 982 1,008 2,210 4,413 115,710 >200 Liquidity and sources of capital net of tax Net changes in loans issued and other investments (22,603) (2,104) 44,938 11,511 (4,755) – Cash, ₽ million Interest received 7,984 4,384 9,149 18,885 17,155 (9.2) Other cash flows from investing activities 2,220 11,186 2,182 – (13,765) – Item 2015 2016 2017 2018 2019 ∆ 2019/2018, % Total (314,511) (323,854) (312,889) (335,038) (363,589) 8.5 Net cash provided by operating activities 285,175 321,297 421,700 537,523 609,076 13.3 Net cash used in investing activities (314,511) (323,854) (312,889) (335,038) (363,589) 8.5 Net cash provided by / (used in) financing activities 82,193 (68,430) (50,521) (56,543) (276,720) >200 Net cash used in investing activities increased by 8.5% year on year. Cash outflow in investing activities resulting from capital Net increase / (decrease) in cash and cash equivalents 52,857 (70,987) 58,290 145,942 (31,233) – expenditure, changes in deposits, loans issued and other investments was partially offset by an inflow from the transfer of a capital facility to the parent company in 1Q 2019.

/ 1 / Before changes in working capital, income tax, interest and dividends.

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Net cash used in financing activities, ₽ million Debt and liquidity, ₽ million

∆ As at 31 As at 31 As at 31 As at 31 As at 31 Item 2015 2016 2017 2018 2019 2019/2018, % December December December December December Item 2015 2016 2017 2018 2019 Net changes in debt 121,565 (63,929) 3,556 5,484 (33,416) – Short-term loans and borrowings 147,319 80,187 131,760 90,923 30,198 Payment of dividends to shareholders (36,346) (2,598) (50,382) (70,774) (227,120) >200 Long-term loans and borrowings 670,779 596,221 548,654 684,530 685,030 Other transactions (3,026) (1,903) (3,695) 8,747 (16,184) – Cash and cash equivalents (114,198) (33,621) (90,608) (247,585) (202,404) Total 82,193 (68,430) (50,521) (56,543) (276,720) >200 Short-term deposits (49,206) (886) (5,779) – (15,076) Net cash used in financing activities increased year on year, mainly due to higher dividends paid to shareholders Net debt 654,694 641,901 584,027 527,868 497,748 and a decrease in debt load. Short-term debt / total debt, % 18.0 11.9 19.4 11.7 4.2 Net debt / EBITDA (LTM) 1.90 1.60 1.19 0.73 0.70 Capital expenditures, ₽ million The group’s diversified debt portfolio includes syndicated and bilateral loans, bonds and other instruments. The average Item 2015 2016 2017 2018 2019 ∆ 2019/2018, % debt maturity decreased from 3.84 years as at 31 December 2018 to 3.18 years as at 31 December 2019. The average Exploration and production 255,235 245,256 223,916 224,852 266,386 18.5 interest rate decreased from 6.29% as at 31 December 2018 to 6.18% as at 31 December 2019. consolidated subsidiaries 239,199 228,084 207,900 208,138 247,754 19.0 joint operations 16,036 17,172 16,016 16,714 18,633 11.5 Refining 31,552 50,095 81,370 95,202 118,210 24.2 Marketing and distribution 13,547 9,728 12,466 15,585 16,204 4.0 For reference Other 13,317 14,724 16,227 18,296 21,469 17.3 Capital expenditures (subtotal) 313,651 319,803 333,979 353,935 422,269 19.3 EBITDA reconciliation, ₽ million Change in advances issued and materials used in capital 35,385 65,014 23,111 16,132 30,742 90.6 expenditures ∆ 2019/2018, Item 2015 2016 2017 2018 2019 % Total 349,036 384,817 357,090 370,067 453,011 22.4 Profit for the period 116,198 209,725 269,678 400,993 422,088 5.3 Total income tax expense 29,252 49,814 55,522 79,129 85,746 8.4 Upstream capital expenditure increased by 18.5% year on year (mainly for consolidated subsidiaries) due to: Finance expense 33,943 34,282 25,127 21,476 32,772 52.6 – Increase in production drilling and workover operations at new fields in traditional production regions; – Increase in production drilling, construction of multi-well pads and infrastructure facilities at greenfields Finance income (14,732) (11,071) (10,098) (7,506) (22,906) >200 and at offshore projects; Depreciation, depletion and amortisation 114,083 129,845 140,998 175,451 181,372 3.4 – Seismic surveys at newly acquired licence blocks. Net foreign exchange gain/(loss) 67,910 (28,300) 241 33,558 (10,518) –

Downstream capital expenditure increased by 24.2%, mainly due to increased costs at the Omsk Refinery resulting Other income/(expenses), net (1,494) 17,982 7,557 19,796 23,292 17.7 from deep conversion projects and construction of a catalyst production plant. EBITDA 345,160 402,277 489,025 722,897 711,846 (1.5)

Less: share of profit of associates and joint ventures (24,956) (34,116) (45,504) (90,704) (83,906) (7.5)

Add: share of EBITDA of associates and joint ventures 84,607 88,037 107,446 167,313 167,189 (0.1)

Total adjusted EBITDA 404,811 456,198 550,967 799,506 795,129 (0.5)

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices

Profitability, % Changes in the group net debt, ₽ Changes in adjusted ROACE, billion, and the net debt/EBITDA % As at 31 As at 31 As at 31 As at 31 As at 31 ∆ 2019/2018, ratio December December December December December percentage Item 2015 2016 2017 2018 2019 points Adjusted EBITDA margin 27.58 29.52 28.48 32.12 31.99 (0.1) 654.7 641.9 584.0 527.9 497.7 19.66 800 Net profit margin 7.92 13.57 13.94 16.11 16.98 0.9 700 Return on assets (ROA) 5.07 8.33 9.84 12.43 11.49 (0.9) 600 17.42 500 Return on equity (ROE) 9.77 15.58 17.38 21.97 20.08 (1.9) 400 13.90 1.9 300 1.6 12.15 11.77 Adjusted return on average capital employed (ROACE) 12.15 11.77 13.90 19.66 17.42 (2.2) 200 1.19 100 0.73 0.7 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Adjusted ROACE calculation1, % For more details on the company P. 189 debt, see the Debt Portfolio As at 31 As at 31 As at 31 As at 31 As at 31 and Credit Ratings subsection. December December December December December Item 2015 2016 2017 2018 2019 Leverage Adjusted EBITDA 404,811 456,198 550,967 799,506 795,129 Depreciation, depletion and amortisation (140,659) (158,919) (178,449) (216,480) (227,150) As at 31 As at 31 As at 31 As at 31 As at 31 ∆ 2019/2018, December December December December December percentage Effective income tax charge on EBIT (53,501) (62,429) (71,605) (114,725) (112,464) Item 2015 2016 2017 2018 2019 points Adjusted EBIT2 210,651 234,850 300,913 468,301 455,515 Net debt / total assets, % 26.34 25.18 19.93 14.99 13.01 (2.0) Average capital employed 1,733,285 1,994,626 2,164,614 2,381,424 2,615,316 Net debt / equity, % 52.44 44.45 35.20 26.50 22.49 (4.0) Adjusted ROACE 12.15 11.77 13.90 19.66 17.42 Gearing, % 36.05 30.80 25.97 20.74 18.23 (2.5) Net debt / market capitalisation 0.90 0.64 0.51 0.32 0.25 (21.9) Net debt / EBITDA 1.90 1.60 1.19 0.73 0.70 (4.1) Liquidity Total debt / EBITDA 2.37 1.68 1.39 1.07 1.00 (6.5)

As at 31 As at 31 As at 31 As at 31 As at 31 December December December December December ∆ 2019/2018, Item 2015 2016 2017 2018 2019 % Current ratio 1.46 1.37 0.88 1.18 1.51 28.0 Quick ratio 0.79 0.66 0.42 0.67 0.84 25.4 Cash ratio 0.51 0.26 0.21 0.44 0.44 –

/ 1 / Return on average capital employed. / 2 / Adjusted EBIT represents the group EBIT and its share in EBIT of associates and joint ventures.

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Key macroeconomic factors Changes in the US dollar/Russian rouble exchange rate and inflation

The group management has determined that the group presentation currency is the Russian rouble. The functional Key factors affecting the group performance include the following: currency of each of the group’s consolidated subsidiaries is the currency of the primary economic environment in which – Changes in market prices for crude oil and petroleum products; the entity operates. For most entities, this is the Russian rouble. – Changes in the US dollar/Russian rouble exchange rate and inflation; – Taxation; – Changes in crude oil and petroleum-products transportation tariffs. Item 2015 2016 2017 2018 2019 Change in the Consumer Price Index (CPI), % 12.9 5.4 2.5 4.30 3.02 Average US dollar/rouble exchange rate for the period, ₽ 60.96 67.03 58.35 62.71 64.72 Changes in market prices for crude oil and petroleum products US dollar/rouble exchange rate as at the beginning 56.26 72.88 60.66 57.60 69.47 of the period, ₽ Prices for crude oil and petroleum products on the international and Russian markets are the primary factor affecting the group performance. They are primarily determined by global prices for crude oil, petroleum-product supply US dollar/rouble exchange rate as at the end of the period, ₽ 72.88 60.66 57.60 69.47 61.91 and demand, and competition on different markets. In turn, price trends on the international market determine Depreciation (appreciation) of the Russian rouble against 30 (17) (5) 21 (11) domestic prices. Price trends differ for different types of petroleum products. the US dollar, %

The decrease in crude oil and petroleum-product prices on the international market in 2019 had a negative impact on the group results.

Changes in crude oil and petroleum-product prices Taxation

Fuels 2015 2016 2017 2018 2019 ∆ 2019/2018, % Average tax rates effective in the reporting periods for the taxation of oil and gas companies in Russia INTERNATIONAL MARKET ($/BBL) Item 2015 2016 2017 2018 2019 ∆ 2019/2018, % Brent 52.46 43.73 54.09 71.16 64.25 (9.7) EXPORT DUTY ($/TONNE) Urals Spot (average Med + NWE) 51.49 42.02 52.94 69.86 63.39 (9.3) Crude oil 120.25 75.61 86.74 128.48 93.70 (27.1) INTERNATIONAL MARKET ($/TONNE) Light petroleum products 57.67 30.21 25.99 38.52 28.07 (27.1) Premium gasoline (average NWE) 569.96 467.05 557.58 674.67 613.20 (9.1) Diesel fuel 57.67 30.21 25.99 38.52 28.07 (27.1) Naphtha (average Med + NWE) 450.05 377.85 477.10 595.99 495.23 (16.9) Gasoline 93.75 46.07 25.99 38.52 28.07 (27.1) Diesel fuel (average NWE) 500.70 398.58 493.65 641.23 590.95 (7.8) Naphtha 102.17 53.63 47.67 70.62 51.48 (27.1) Gasoil 0.1% (average Med) 486.26 391.21 483.49 632.07 580.92 (8.1) Heavy petroleum products 91.34 61.96 86.74 128.48 93.70 (27.1) Fuel oil 3.5% (average NWE) 247.49 199.93 290.96 387.07 320.46 (17.2) MINERAL EXTRACTION TAX (₽ /TONNE) DOMESTIC MARKET (₽ /TONNE) Crude oil 6,326 5,770 8,134 12,455 13,039 4.7 High-octane gasoline 32,488 34,574 36,820 41,724 39,438 (5.5) Low-octane gasoline 28,435 29,858 31,931 37,249 8,515 (77.1) For more details on taxation and its application to Gazprom Neft, see Appendix 5, Oil Industry Taxation,

Diesel fuel 28,944 27,965 32,619 41,070 40,530 (1.3) p. 306 Fuel oil 7,202 6,051 9,594 14,319 12,666 (11.5)

Sources: Platts (international market); Thomson Reuters Kortes (domestic market).

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices GLOSSARY FAR sensors to enable data collection MFWKO Fatal accident rate and exchange. This enables remote Mobile free-water knockout unit equipment control and industrial ADR Cased borehole DCU Fracking automation, with no human MSHF American depositary receipt A portion of the borehole lined Delayed coking unit Hydraulic fracturing intervention Multi-stage hydraulic fracturing with casing pipes, which are screwed Alkaline-surfactant-polymer (ASP) or welded together to form a casing EAD GDP IRMF Mud pit flooding string Electronic asset development Gross domestic product Integrated risk-management A facility designed for centralised A chemical enhanced oil recovery framework collection, treatment and disposal technique for mature fields where CGF EBIT GRI of drilling waste a mixture of alkali, surfactant Central gathering facility Earnings before interest and taxes. An internationally recognised KMAO and polymers is injected into This measure of company financial sustainability reporting framework Khanty-Mansi Autonomous Okrug Network-based management a formation CGU performance is in between gross developed by the Global Reporting A modern management model based Cash-generating units and net profit Initiative KPI on flexible cross-functional teams APG Key performance indicator capable of setting their own goals Associated petroleum gas CIS EBITDA Hierarchical management and making independent decisions. It Commonwealth of Independent Earnings before interest, taxes, A classical organisational model LB relies on horizontal hierarchy, lifelong Augmented reality States (former Soviet republics, depreciation and amortisation integrating top-down management Licence block learning and personal responsibility Superimposing digital information except for Latvia, Lithuania, Georgia guidance with bottom-up flow for the outcomes It is best suited (images, videos, text, graphics) and Estonia) ECA of information from personnel Lean production for addressing complex challenges on content displayed by an electronic Export credit agency on the ground. It is based on strict A management concept based in a rapidly changing environment device, be it a smartphone or AR CNG supervision, clear delineation on continuous improvement glasses. In production, it is leveraged Compressed natural gas Engaging environment of responsibilities, red tape and commitment to eliminating all NGL to promptly receive information A set of principles and processes and a vertical hierarchy, types of losses, with all employees Natural gas liquids about equipment and its condition, Corporate culture that help employees reach their full and is regarded as inefficient being involved in the improvement simulate work processes, report A system of values, attitudes, goals potential, continuously develop in today's world process NIS failures, conduct employee training, and principles underlying teamwork and improve their performance, Naftna Industrija Srbije А.D., Novi Sad etc. This significantly reduces and workplace dispute settlement, actively collaborate to address HRR LIBOR the number of errors and helps which are shared by all company issues, and feel a sense of personal Hard-to-recover reserves London Interbank Offered Rate NPP to improve performance employees. Corporate culture responsibility for their share of work Non-profit partnership is based on corporate values and their contribution to the company HSE LPG B2B achievements Health, safety and environment Liquefied petroleum gas NPS Business-to-business: the exchange Corporate culture workshops Net Promoter Score of products and services between Employee workshops attended EnMS IEA LTIFR businesses, rather than between by company and enterprise Energy management system International Energy Agency Lost time injury frequency rate OC businesses and consumers executives to discuss the current Oil company and target corporate culture model Etalon IFRS Management by objectives B2C in the company and initiatives that An operational transformation International Financial Reporting A collective approach to formulating Oe Business-to-consumer: the process may help to build an engaging programme based on an exemplary Standards goals, setting the direction, Oil equivalent of selling products and services environment business model. The commitment and decision-making in the company. directly to consumers, who to delivering exemplary performance Indigenous minorities It ensures that company executives OECD are the end-users of these products CPI is typical of a mature company that Indigenous minorities of the Russian and employees share the same Organisation for Economic and services Consumer price index has successfully navigated through Far North goals, understand their importance, Cooperation and Development development challenges and are able to assess D&O Industrial Internet of Things (IIoT) their performance and make Basis point Directors and officers liability EURIBOR A system of interconnected computer improvements insurance Euro Interbank Offered Rate networks and connected physical assets (equipment) with embedded MET Mineral extraction tax

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Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices DISCLAIMER OGCF over oil and gas discovery, but also Oil and gas condensate field the economic feasibility of extracting A drilling technique where formation hydrocarbons. Reserves to be pressure is higher than the pressure This Annual Report is based on the information OIRSP measured are divided into three in the wellbore. The pressure available to Public Joint Stock Company Gazprom Prirazlomnaya offshore ice-resistant categories: proved, probable difference minimises formation stationary platform and possible (3P) contamination and helps to increase Neft and its subsidiaries (Gazprom Neft) the drilling rate and the oil recovery as at the reporting date. OMS Proppant / propping agent factor Operations management system Granular material designed to keep an induced hydraulic fracture open US GAAP OPEC under ground pressure and thus Generally Accepted Accounting Organisation of the Petroleum enhance oil recovery Principles approved in the US The Annual Report contains forward- to risks and uncertainties both in any forward-looking statements Exporting Countries looking statements that represent expected and unforeseeable contained herein or elsewhere. R&D USA the expectations of the company by the company. Therefore, future Gazprom Neft shall bear no ORF Research and development Untied States of America management. These forward-looking performance may differ from current responsibility for any losses that Oil recovery factor statements are not based on actual expectations, and the recipients may be incurred by any person due RAS VAT circumstances and include all of the information contained herein to the fact that the person in question PMAC Russian Accounting Standards Value-added tax statements pertaining to the company should not use it as a sole basis relied on forward-looking statements. Polymer-modified asphalt cement intentions, opinions or current for their assumptions. Except as expressly required Refinery VIOC expectations with regard to company by applicable law, the company PMB Oil refinery Vertically integrated oil company performance, financial position, In addition to official information assumes no obligation to distribute Polymer-modified bitumen used liquidity, growth prospects, on Gazprom Neft operations, or publish any updates or revisions for road construction Regular management practices YNAO strategy and the industry this Annual Report contains to the forward-looking statements Tools used by managers to improve Yamalo-Nenets Autonomous Okrug in which Gazprom Neft operates. information obtained from third to reflect any changes in expectations Pp operating performance and safety. By their nature, such forward- parties and sources which Gazprom or new information, as well Percentage point They rely on clearly defined looking statements are subject Neft deems to be reliable. as subsequent events, conditions algorithms and implementation to inherent risks and uncertainties, Nevertheless, the company does or circumstances. Predictive analytics principles and are applied at all as they refer to events and depend not guarantee the accuracy A class of data analysis techniques levels of company management. on circumstances that may or may of this information as it may be focused on predicting the future Regular management practices not occur in the future. condensed or incomplete. Gazprom behaviour of objects and entities help implement the company values Neft does not provide any in order to optimise decision-making and create a cultural environment Such words as 'assume', 'believe', guarantees that the actual that contributes to achieving its 'expect', 'forecast', 'intend', results, the scope of the company Predictive incident management strategic goals 'plan', 'project', 'consider', 'might' operations and its performance A fundamentally new approach and other similar or equivalent indicators or those of the industry to equipment maintenance ROACE words and phrases, as well in which the company operates and repairs based on the analysis Return on average capital employed, as negations thereof generally will be consistent with the results, of digital data gathered from sensors calculated as net profit (less dividend indicate a forward-looking statement. scope and performance indicators to accurately predict wear and tear. on shares) divided by the average These assumptions are subject expressly stated or implied This helps to maximise maintenance number of ordinary shares efficiency and prevent accidents SEC PRMS US Securities and Exchange Petroleum Resources Management Commission System. This is the world's most widely used system for estimating Seismic hydrocarbon resources, defining Seismic survey not only the degree of uncertainty

346 ANNUAL REPORT 2019 347 GAZPROM NEFT

Company profile Strategic report Performance Technological development Governance system Sustainable development Appendices ADDRESSES AND CONTACTS

Full company name Public Joint Stock Company Gazprom Neft

Short company name Gazprom Neft PJSC

Location St Petersburg, Russian Federation

Registration date The company was registered on 6 October 1995 by the Omsk Registration Chamber. Statutory Registration Certificate No. 38606450. Primary State Registration Number (OGRN) 1025501701686.

Postal address 3–5 Pochtamtskaya St., St Petersburg, Russia, 190000

Website gazprom-neft.com

Information service Phone: +7 (812) 363-31-52 Phone: +7 (800) 700-31-52 (toll-free in Russia) Fax: +7 (812) 363-31-51 Email: [email protected]

PRESS SERVICE Phone: +7 (495) 777-31-43 (Moscow) Media enquiries Phone: +7 (812) 648-31-43 (St Petersburg) Email: [email protected]

SHAREHOLDER RELATIONS Phone: +7 (812) 363-31-52 Corporate and Fax: +7 (812) 363-31-51 Project Support Department Email: [email protected]

INVESTOR RELATIONS Phone: +7 (812) 358-95-48 Investor Relations Department Email: : [email protected]

Auditor Limited Liability Company Financial and Accounting Consultants (FBK) Address: 44/1 Myasnitskaya St., building 2AB, Moscow, Russia,101990 Phone: +7 (495) 737-53-53 Website fbk.ru/ Email: : [email protected]

Registrar Joint Stock Company Specialised Registrar – Holder of the Gas Industry Shareholders Register (DRAGA JSC) Address: 71/32 Novocheremushkinskaya St., Moscow, Russia, 117420 Phone: +7 (495) 719-40-44 Fax: +7 (495) 719-45-85 Website draga.ru Email: [email protected]

348 ANNUAL REPORT 2019