2016 Sustainability Report

SUSTAINABILITY 2016 REPORT CONTENTS

EXTERNAL SOCIAL POLICY Letter from the Chief Executive Officer 3 53 REPORT AND REPORTING PROCESS 7 7.1. Cooperation with Russian Regions 54 6 7.2. Support of indigenous peoples and minorities of the North 55 1 1.1. Evolution of PAO NOVATEK’s Sustainability Reporting 6 7.3. Educational Programs 55 1.2. Principles for Defining Report Content 6 7.4 Preserving Cultural Heritage 56 1.3. Report Boundary 8 7.5 Promotion of sports 57 1.4. NOVATEK Group’s Structure Changes 8 7.6. Volunteering 58 COMPANY PROFILE 7.7. NOVATEK-Veteran Program 58 9 EMPLOYMENT PRACTICES 2 2.1. The Company’s Scope and Key Lines of Business 10 59 2.2. Geography of Operations 10 8 8.1. Personnel 60 2.3. The Company’s structure as at 31 December 2016 13 8.2. Corporate Technical Competency Assessment System 63 2.4. Our Business Model 14 8.3. Personnel Training and Development 63 2.5. Share Capital 16 8.4. Trade Union Relations 65 2.6. Membership of Trade Associations 17 8.5. Social Policy 65 2.7. Awards 17 PROCUREMENT PRACTICES 2.8. Key Performance Indicators 17 69 SUSTAINABILITY STRATEGY 9 9.1. Key Approaches 69 3 18 9.2. Supply Chain Management 70 STAKEHOLDER ENGAGEMENT 9.3. Import Substitution Policy 70 20 OCCUPATIONAL HEALTH AND SAFETY 4 4.1. Basics of Stakeholder Engagement 20 71 4.2 Stakeholder Engagement Matrix 22 10 10.1. Occupational Health and Safety Goals and Objectives 72 CORPORATE GOVERNANCE 10.2. Operational Control 72 33 10.3. Fire Safety, Civil Defence and Emergencies 72 5 5.1. Corporate Governance Principles 33 10.4. Accidents and Incidents 73 5.2. Corporate Governance Structure 33 10.5. Workplace Injury Rate 73 5.3. Remuneration of Members of the Board of Directors 10.6. Contractor Engagement 73 and the Management Board 38 10.7. OHS Training 73 5.4. Internal Control and Audit 39 ENVIRONMENTAL PROTECTION 5.5. Risk Management 40 74 5.6. Ethics and Integrity 42 11 11.1. Environmental Vision 74 ECONOMIC PERFORMANCE AND SUSTAINABILITY 11.2. Environmental Monitoring and Industrial Control 75 44 11.3. Environmental Protection – Government Control 76 6 6.1. Economic Performance 45 11.4. Emissions and Waste 76 6.2. Exploration, Development and Production 47 11.5. Water Use and Disposal 79 6.3. Hydrocarbon processing 50 11.6. Energy Consumption and Efficiency Improvement 80 6.4. Marketing and Sales 51 11.7. Biodiversity Preservation 80 6.5. Dividend Policy 52 11.8. Disturbed Area Reclamation 82 11.9. Environmental Protection Training 82 11.10. Environmental spending 83

GRI G4 CONTENT INDEX 84 ABBREVIATIONS 92 CONTACT DETAILS 93 3 Sustainability Report 2016 Letter from the Chief Executive Officer DEAR STAKEHOLDERS,

I would like to present to you NOVATEK’s Tenth Anniversary Sustainability Report. Over the past ten years, we have adopted and refined our business processes in accordance with sustainable business principles, and we strived to retain the best of the accumulated experience in all areas of sustainable development.

Two thousand and sixteen was Our flagship Yamal LNG project introduced our Anti-Corruption Pol- a difficult year for the global oil and remains a priority for NOVATEK. icy and the results of the anti-corrup- gas industry but NOVATEK's eco- In 2016, we achieved a major tion work over the reporting period nomic indicators in the reporting milestone for the project by closing and the Action Plan to implement year showed that we chose the right the external financing package in the regulations of the NOVATEK strategy and can deliver growth and April as well as progressed with Anti-Corruption Policy for 2016-2017 create shareholder value even in the the construction of the first of three were considered and approved by conditions of tough macroeconomic LNG trains. At year-end, we were the Company's Audit Committee. environment, global hydrocarbons approximately 88% with the first We also implemented a practice price and foreign exchange rates LNG train and approximately 75% to disclose information on conflict of volatility. NOVATEK's revenues from complete on the whole construction interests. This practice will regulate sales grew by 13.1% and amounted project. The first LNG train will be the actions of Company employees to RR 537 billion, and normalized ready for start up in 2017. More than to avoid risks of conflict of interests EBITDA (including of the shares in 95% of the plant's output is already and to ensure an unbiased deci- the EBITDA of joint ventures) grew contracted on a long-term basis. sion-making process. by 13.2% reaching its historic maxi- In 2016, the Board of Directors mum of RR 242 billion. We are very optimistic about the approved the NOVATEK Internal Total hydrocarbon production future direction of our business. The Audit Policy. grew by 3% in 2016 – aggregat- first stage of NOVATEK`s transfor- The Company pursues external ing 537 million boe – thanks to the mation has successfully concluded: social policies consistent with best increase in our liquid hydrocarbons we evolved from a pure domestic practices and with due regard for production by 37%. Our Yarud- gas business to production, process- the business specifics and the eyskoye oil field reached its full ing and global marketing of liquid needs of local communities in the production capacity in the report- hydrocarbons. The Company’s next regions where NOVATEK operates. ing year resulting in a threefold transformation goal is to become a Moreover, we pay close attention to increase in crude oil production, key player in the global LNG market. supporting the indigenous peoples whereas our total natural gas pro- NOVATEK consistently improves of the North. During the past year, duction decreased by 2.7% due to its corporate management system the Company allocated more than a natural decline in the output from and strives for compliance with best RR 1 billion for delivering various mature fields. international practices. In 2016, we events aimed to improve the living 4 Sustainability Report 2016 Letter from the Chief Executive Officer

and ongoing personnel training. In 2016, NOVATEK spent RR 693 million for these purposes. The level of high performance over the past years could not be achieved without the dedication and commitment of our professional employees. We are proud of them and allocate resources to develop and incentivize our staff. The Com- pany provides its employees with a variety of opportunities for professional training and development, promotes social programs for the personnel and their families, organizes cultural events, supports trade unions and takes care of industry execution, where it is very important veterans. In 2016, NOVATEK spent OUR PROLIFIC HYDROCARBON RESOURCE BASE, THE SUCCESSFUL to comprehensively monitor biodiver- RR 1.3 billion on dedicated social IMPLEMENTATION OF THE YAMAL LNG PROJECT AND OUR sity at early work stages, which task programs for the personnel. EXPERIENCE IN NAVIGATING THE NORTHERN SEA ROUTE CREATE we pursued in the reporting year and I hope that our Tenth Anniversary will pursue in future. 2016 Sustainable Development A GREAT PLATFORM FOR DEVELOPING MUTUALLY BENEFICIAL Following Russia's Presidential Report provides all of our stakehold- COOPERATION IN LNG PROJECTS. Decree, 2017 was declared the ers with the required information “Year of Environment” in Russia. to assess the Company’s commit- We joined this important event and ment to sustainable development. standards of the peoples of the practices for future generations is incorporated this theme throughout We pursue full transparency and are North. We allocated RR 1.9 billion based on conscious and continuous the company. always open to dialogue. in total towards implementing our environment protection efforts, Responsibility in business is external social policy. The Company environmental risk assessment at all impossible without complying with is continuously and systematically project execution stages, including the strictest standards in occu- implementing and supporting educa- environmental monitoring. In 2016, pational health and safety. In this tional, sports and cultural programs we spent RR 1.2 billion on environ- area, NOVATEK has been applying a and charitable projects. mental protection and sustainable systematic approach with one major Environmental awareness is an management. I would like to speci- goal: to prevent potential incidents, important aspect of our business fically highlight the Company's emergencies, fire and other hazards. Leonid Mikhelson decision-making process. The efforts to protect biodiversity in the The Company has strong operational Chief Executive Officer, focus on responsible business region of the Yamal LNG Project controls in place, with regular checks PAO NOVATEK 5 Sustainability Report 2016 Report and Reporting Process

COMPLETION RATE OF THE FIRST 88% LNG TRAIN AS OF YEAR-END 2016

CONTENTS 6 Sustainability Report 2016 Report and Reporting Process REPORT AND REPORTING PROCESS

PRINCIPLES FOR ENSURING evolution of pao novatek’s principles for defining REPORT QUALITY sustainability reporting report content Balance NOVATEK annually discloses NOVATEK’s 2016 Sustainabili- In order to prepare this Sustain- —— Comparability information on its sustainability per- ty Report was drafted as per G4 ability Report and identify the most —— Accuracy formance based on the principles Sustainability Reporting Guidelines material topics for our reporting in —— of transparency and openness and of the Global Reporting Initiative. 2016, the Company formed a ded- —— Clarity seeking to cover the main issues NOVATEK tracks global trends in icated interdisciplinary task team. relevant to its stakeholders as ful- non-financial reporting and seeks Mindful of the principles for defin- in this Report to the structure of ly as practically possible. As one of to reflect them; therefore, when ing the report content (as stipulated material topics for reporting. the acknowledged leaders of the preparing this Report, we have con- by the GRI G4 guidelines) and key Pursuant to the GRI G4 require- oil and gas industry, the Compa- sidered certain important require- stakeholder opinions, the task team ments, the Report provides an ny is conscious of the importance ments and approaches set out in members and the Company’s man- extensive coverage of corporate its long-term sustainable develop- the new GRI Standards. In 2018, agement identified several material governance, business ethics, ment has for the regions in which it the Company plans to prepare its matters and topics with a consid- procurement and anti-corruption operates. 2017 Sustainability Report in full erable economic, environmental practices. In the Sustainability Report, compliance with the GRI Standards. and social impact on stakeholders’ The Report was prepared with NOVATEK traditionally provides This is the tenth Sustainability opinions and decisions. In order to due account for principles and information about its direct/indi- Report prepared by NOVATEK. Our map out these material topics and recommendations contained in the rect economic and environmental previous report was published in make adjustments as needed, the following documents: impact on the key regions within its Q3 2016, and our next report will team analyzed the mass media —— Sustainability Reporting Guide- geographical footprint, its HR and be published in Q3 2018. content over the reporting period lines (GRI G4, main document); social policies, occupational health and considered the GRI industry —— Oil and Gas Industry Protocol and safety measures, and its stake- recommendations on key oil and prepared under GRI G4 (main holder relations. gas matters*. When preparing the document); 2016 Report, in 2017 we surveyed —— AA1000 Stakeholder Engage- NOVATEK’S 2016 SUSTAINABILITY REPORT HIGHLIGHTS members of the task team and ment Standard (AA1000SES); ascertained that the material topics —— National GOST R ISO —— This Report is our tenth annual non-financial report. remained unchanged. Therefore, 26000:2012 Standard. —— The Report has been drafted as per the Sustainability Reporting Guidelines of the no significant changes were made Global Reporting Initiative (G4) and the GRI Oil and Gas Sector Supplement for oil and gas companies. * Global Reporting Initiative. Research and Development —— The Report meets the Core Disclosure requirements. Series, 2013, “Sustainability Topics for Sectors: What do stakeholders want to know?”, Amsterdam.

CONTENTS 7 Sustainability Report 2016 Report and Reporting Process

materiality matrix of sustainability aspects

material aspects

general aspects economic aspects —— Transparency —— Economic performance —— Stakeholder engagement —— Indirect economic impact —— Corporate governance —— Risk management —— Ethics and integrity

environmental aspects social aspects —— Emissions —— Employment —— Water —— Social benefits and payments —— Energy —— Occupational Health and Safety —— Biodiversity —— Staff training and education —— Environmental management —— Freedom of association and collective —— Environmental investments bargaining —— Indigenous rights —— Local communities stakeholders relevant aspects —— Anti-corruption policy for —— Procurement practices —— Effluents and waste —— Labor/management relations —— Security practices —— Supplier assessment —— Products and services materiality —— Diversity and equal opportunity —— Customer health and safety —— Business model —— Transport —— Equal remuneration for women and men —— Compliance

materiality for the company CONTENTS 8 Sustainability Report 2016 Report and Reporting Process

report boundary novatek group’s structure changes

NOVATEK’s 2016 Sustainabili- To highlight the Company’s prog- Sale of a 9.9% equity stake in Acquisition of Blue ty Report describes the Company’s ress, maintain consistency in sus- Yamal LNG Gaz Sp. z o.o. key economic, social and environ- tainability reporting and ensure data In December 2015, NOVATEK In December 2016, NOVATEK mental activities within the sus- comparability, the Report provides Group and China’s Silk Road Fund Group acquired 100% interest in tainable development framework indicators mostly for the three- and signed an agreement for the sale Blue Gaz Sp. z o.o, which owns for the period from 1 January to four-year periods. To ensure com- of a 9.9% interest in Yamal LNG to an LNG re-gasification project in 31 December 2016. The Report prehensive disclosure herein, the the Fund. In March 2016, the deal Poland, in a move to secure a plat- covers operations of NOVATEK Report may also refer to certain was closed upon satisfaction of form for further expansion in the Group, including those of its subdi- events that occurred before or after the conditions precedent. The deal Polish market. visions, subsidiaries and joint ven- the reporting period. increased NOVATEK’s proportional tures active in Russia (the majority), Economic performance data in share in Yamal LNG to 50.1%. Poland, Cyprus, Switzerland the Report were compiled based and Singapore. on the consolidated IFRS financial Mentions in this Report of statements for the fiscal year end- «PAO NOVATEK», «NOVATEK», the ed 31 December 2016. «Company», «NOVATEK Group» The Report may also contain refer to PAO NOVATEK. forward-looking statements on NOVATEK Group’s mid- and long- term business plans. As these plans are contingent upon a number of external factors beyond the Company’s reasonable control, the actual performance achieved in the following reporting periods may dif- fer materially from the estimates or targets provided herein.

CONTENTS 9 Sustainability Report 2016 Company Profile

INCREASE OF LIQUIDS SALES 31% VOLUMES IN 2016

CONTENTS 10 Sustainability Report 2016 Company Profile COMPANY PROFILE

the company’s scope and key lines geography of operations of business

NOVATEK is one of the largest ing capacities for gas condensate NOVATEK’s production facil- Transshipment Complex located independent natural gas produc- and gas products. The value chain ities are located in the Russian at the Baltic port of Ust-Luga. All ers in Russia. We are principally comprises a network of gas con- Federation. of NOVATEK’s light hydrocarbons engaged in the exploration, produc- densate pipelines linking the Com- The Company’s major production (used as feedstock for market- tion, processing, transportation and pany’s fields with the Purovsky Gas and processing assets are concen- able LPG) have been transported marketing of natural gas and liquid Condensate Processing Plant (the trated mostly in the Yamal-Nenets by pipeline to SIBUR’s Tobolsk hydrocarbons. Purovsky Plant), which produces Autonomous Area (YNAO), one of Petrochemical Complex for further NOVATEK is ranked 3rd glob- stable gas condensate and light the world’s largest natural gas pro- processing. ally among publicly traded com- hydrocarbons; the Stable Gas Con- ducing regions in terms of both panies in terms of proven natural densate Fractionation and Trans- reserves and production volumes. Sales gas reserves under the Security shipment Complex at the port Geographically, the YNAO is the The Company sells all the nat- and Exchange Commission (SEC) of Ust-Luga, producing naphtha, Company’s core region. ural gas it produces in the domes- reserves methodology and ranks jet fuel, gasoil, and fuel oil, and tic market. During the reporting among 10 top companies in terms enabling the Company to ship its Exploration and production year, NOVATEK supplied natural of natural gas production. products to global markets by sea. As at the end of the reporting gas to 35 regions of the Russian The Company also produces year, the Company, its subsidiaries Federation. crude oil. The Yarudeyskoye oil and joint ventures held a total of 39 LPG and stable gas condensate COMPANY NAME: NOVATEK field, launched in the end of 2015, subsoil licenses in the YNAO. Over are delivered to both domestic and HEADQUARTERS: 2 UDALTSOVA ST., reached its full rated capacity and the reporting year, the Company international consumers, whereas MOSCOW, 119415, RUSSIA made the largest contribution to produced natural gas, gas conden- substantially all of the petroleum the more than three-fold growth in sate and crude oil at 13 fields. products are exported (naphtha is NOVATEK plays a major role in crude oil production. shipped to Asia Pacific, and jet fuel, Russia’s energy sector: in 2016, the Transportation and processing gasoil and fuel oil to North Western Company accounted for 10.5% of The gas condensate produced at Europe). Russia’s total natural gas production the fields is subsequently delivered Crude oil is sold both domestical- and around 20% of total natural gas through the Company’s condensate ly and internationally. supply to the domestic market. pipelines to the Purovsky Plant The majority of our natural gas located in the producing region. production is geologically classified The Purovsky Plant produces stable as wet gas, or natural gas contain- gas condensate and light hydro- ing gas condensate. The Company carbons. The bulk of stable gas operates a vertically integrated pro- condensate is transported by rail to duction chain that includes trans- be further processed at the Stable portation, processing, and market- Gas Condensate Fractionation and

CONTENTS 11 Sustainability Report 2016 Company Profile

Our production assets are located in Russia’s YNAO, one of the world’s 27 29 largest natural gas producing regions in terms of both reserves and production volumes. 39 12 The Company has an extensive conventional resource base with a strong 28 25 concentration of reserves and a huge geological potential. 33 37 34 35 Our reserves enable us to maintain consistently high growth rates Yamal Gydan Рeninsula Рeninsula 36 of hydrocarbon production. 26 31

32 21 Yamburg 13 1 7 30 17 19 18 38 Ust-Luga Complex 6 14 16 11 9 Yamal-Nenets 24 Nadym 15 23 Autonomous Area 20 22 10 39Fields and 4 5 8 license areas Purovsky 2 Plant 3

production prospective fields and licence areas

1. Yurkharovskoye field 12. South-Tambeyskoye field 26. Geofizicheskiy license area 2. East-Tarkosalinskoye field 13. West-Yurkharovskoe field 27. North-Obskiy license area 3. Khancheyskoye field 14. Raduzhnoye field 28. East-Tambeyskiy license area 4. Olimpiyskiy license area 15. West-Urengoyskiy license area 29. North-Tasiyskiy license area 5. Yumantilskiy license area 16. North-Yubileynoye field 30. East-Tazovskoye field Purovsky Gas Condensate Stabilization 6. Samburgskiy license area 17. North-Russkiy license area 31. Trekhbugorniy license area Plant, key link in the production chain 7. North-Urengoyskoye field 18. North-Russkoye field 32. Nyakhartinskiy license area producing stable gas condensate. 8. North-Khancheyskoe field 19. Dorogovskoye field 33. Ladertoyskiy license area 9. Yaro-Yakhinskiy license area 20. Ukrainsko-Yubileynoye field 34. Nyavuyakhskiy license area 10. Тermokarstovoye field 21. Malo-Yamalskoye field 35. West-Solpatinskiy license area NOVATEK’s gas condensate pipelines. 11. Yarudeyskoe field 22. West-Chaselskoye field 36. North-Tanamskiy license area 23. Yevo-Yakhinskiy license area 37. Tanamskiy license area 24. North-Chaselskiy license area 38. Kharbeyskoye field 25. Utrenneye field 39. Syadorskiy license area

CONTENTS 15% 23% 62% Jet fuel Fuel oil and gasoil Naphtha

98%

Sustainability Report 2016 Company Profile 12 6,662 RUSSIA Ust-Luga 20 products 5 4 3 9 2 hydrocarbon sales geography in 8 2016 7 17 6 15 16 80% 18 13 19 15%20% 23% 62% Jet fuel Fuel oil and gasoil12 Naphtha 23 26 10 11 14 98% 24 2,713 100% Ust-Luga LPG Crude SGC LPG and light products and light oil 25 21 hydrocarbons hydrocarbons 1 Russia 2% 2 Denmark 3 Norway 6,662 mt 64.7 bcm 22 4 Finland 32% RUSSIA Ust-Luga Natural gas 5 Sweden 20 products 5 Domestic market 6 Belgium 68%4 3 7 Netherlands 9 8 UK 2 8 9 Estonia 7 17 6 15 16 10 Spain 80% 18 13 11 Greece 19 4,650 20% 12 12 Italy 23 26 10 11 Crude14 oil 13 Romania 24 14 Turkey 2,713 mt 15 Germany Ust-Luga LPG Crude SGC LPG and light products and light oil 25 16 Slovakia 21 hydrocarbons hydrocarbons 27 17 Poland Exports of Ust-Luga products 181 RussiaHungary 2 Denmark 54% 46% 193 NorwayUSA Exports of LPG and light hydrocarbons 22 204 FinlandCanada 32% Exports of crude oil 215 SwedenOman 226 BelgiumSingapore 68% 7 Netherlands Exports of stable gas condensate 238 UKSouth Korea 2,812 249 EstoniaChina Domestic market 1025 SpainTaiwan Stable gas 4,650 mt Export markets 1126 GreeceJapan condensate 12 Italy Crude oil 1327 RomaniaNew Zealand Ust-Luga Complex

14 Turkey Jet fuel Diesel and fuel oil Naphtha 15 Germany 16 Slovakia 27 17 Poland Exports of Ust-Luga products 18 Hungary 54% 46% 19 USA Exports of LPG and light hydrocarbons 20 Canada Exports of crude oil 21 Oman 22 Singapore Exports of stable gas condensate 23 South Korea 2,812 mt 24 China Domestic market 25 Taiwan Stable gas NOVATEK sells liquid hydrocarbons (stable gas condensate, Export markets 26 Japan condensate 27 New Zealand petroleum products, light hydrocarbons, LPG, and crude oil) Ust-Luga Complex Jet fuel Diesel and fuel oil Naphtha domestically and internationally.

CONTENTS 13 Sustainability Report 2016 Company Profile

the company’s structure as at 31 december 2016

Hydrocarbon exploration Downstream Overseas upstream and production in Russia and downstream Other

OOO NOVATEK-YURKHAROVNEFTEGAS OOO NOVATEK– PUROVSKY PLANT NOVATEK GAS&POWER GmbH ООО Sherwood Premier 100% 100% 100% 100%

ООО NOVATEK–TARKOSALENEFTEGAS ООО NOVATEK–Ust-Luga NOVATEK Polska Sp. z o.o. ООО NOVATEK Scientific and 100% 100% 100% Technical Center 100%

OAO Arcticgas OOO NOVATEK–Moscow Region Blue Gaz Sp. z o.o NOVATEK EQUITY (CYPRUS) LIMITED 53.3% 100% 100% 100%

ZАО Nortgas ООО NOVATEK–Kostroma NOVATEK Montenegro B.V. 100% ООО NOVATEK–Transervice 100% 50% 100%

ООО YARGEO OOO NOVATEK–Chelyabinsk Novatek Gas&Power Asia Pte. Ltd. 51% 100% 100%

OAO Yamal LNG ООО NOVATEK Perm 50.1% 100%

ZАО Terneftegas OOO NOVATEK–AZK 51% 100%

ООО NOVATEK–Yarsaleneftegas 100%

OOO Arctic LNG 1 100%

OOO Arctic LNG 2 100%

OOO Arctic LNG 3 100 %

CONTENTS 14 Sustainability Report 2016 Company Profile

business model

Producing fields

100% Natural gas 64.7 bcm Domestic market

Crude oil Treatment and separation Unstable gas condensate

68%

4.7 Domestic market mmt 32% Purovsky Plant International market

12.3 mmt Stabilization of gas condensate 80%

79% 21% 2.7 Domestic market mmt Stable gas condensate LPG 20% International market 72% 28%

54%

Ust-Luga Complex 2.8 Domestic market mmt 46% International market 6.8 mmt

Stable gas condensate fractionation

62% Naphtha 15% ~100% Jet fuel 17% 6.7 Fuel oil mmt International market 6% Gasoil CONTENTS 15 Sustainability Report 2016 Company Profile

our business model

Exploration and production Processing and transportation Marketing and sales Sustainable development

NOVATEK Group holds subsoil and NOVATEK Group produces wet gas, The Company sells all the natural NOVATEK adheres to the sustainable production licenses permitting the Company or natural gas containing gas condensate. gas it produces in the domestic market, development principles and considers the to operate fields located in the Yamal- After separation at the field, de‑ethanized delivering the commodity to 35 Russian welfare of its employees and their families, Nenets Autonomous Area and containing gas condensate is transported via the regions. NOVATEK accounts for almost a environmental and industrial safety, vast natural resources. We are ranked third Company’s gas condensate pipeline to the fifth of total domestic shipments via the creation of a stable and favorable social globally by proven natural gas reserves. The Purovsky Plant to be stabilized. Unified Gas Supply System. environment, and contributing to overall Company’s reserve to production (R/P) ratio The plant’s primary products are stable The Company sells liquid hydrocarbons economic development as its priorities and is 24 years, providing a solid platform for our gas condensate and light hydrocarbons. (stable gas condensate and its products, responsibilities. production growth. The bulk of stable gas condensate light hydrocarbons, LPG, and crude oil) NOVATEK has in place a Health, Safety Most of the Company’s reserves are is transported by rail to the Stable both domestically and globally (Asia Pacific, and Environment (HSE) Policy, and all of located onshore or can be developed from Gas Condensate Fractionation and Europe, and North America). the Company’s major subsidiaries and onshore locations and are attributed to Transshipment Complex located at the port joint ventures benefit from an Integrated the conventional hydrocarbon categories of Ust-Luga. Management System for Environmental (capable of being exploited using The Complex produces naphtha, jet Protection, Occupational Health and Safety conventional technologies, in contrast to fuel, gasoil, and fuel oil and provides (IMS). unconventional gas deposits such as shale transshipment capacity to ship stable gas NOVATEK provides financial support to gas or coal-bed methane). condensate to global markets. indigenous minorities of the North. We have one of the lowest Finding NOVATEK’s products are supplied to NOVATEK’s HR management & Development and Lifting costs among customers by pipeline, rail, and sea. framework is underpinned by fair and publicly traded oil & gas companies. equitable treatment (including professional The Company is running commercial growth), mutual respect, and an ongoing production at 13 fields, working to launch dialogue between management and production at a number of new fields and employees. implementing the Yamal LNG project (the first LNG project in the Russian Arctic).

Strategic objectives: Strategic objectives: Strategic objectives: Strategic objectives:

—— Grow the resource base and ensure —— Maintain a low-cost structure —— Optimize and expand existing —— Maintain high level of social effective reserve management —— Ensure high quality of products marketing channels; create new responsibility —— Grow hydrocarbon production marketing channels —— Ensure environmental and industrial —— Maintain a low-cost structure —— Drive expansion into the international safety market for liquefied natural gas —— Maintain a low-cost structure

CONTENTS 16 Sustainability Report 2016 Company Profile

share capital Shareholding structure*, % Breakdown of NOVATEK’s market capitalisation as at 31 December 2016 Our share capital is RR 303,630,600 and consists of 3,036,306,000 ordinary shares, each 30% with a nominal value of RR 0.1. Our The Bank of New York Mellon** shares are traded in Russian rubles 24 % on the Moscow Exchange. On the OOO VOLGA GROUP London Stock Exchange (LSE), 16 % NOVATEK’s GDRs are traded in US TOTAL E&P HOLDINGS RUSSIA dollars. Each GDR represents 10 10% ordinary shares. As at 31 Decem- GAZFIN CYPRUS LIMITED ber 2016, NOVATEK’s GDRs were 7% issued on 910,574,600 ordinary shares comprising 29.99% of the OOO LEVIT 5% Company’s share capital. SWGI Growth Fund (Cyprus) Limited 8% Other (less than 5%)

75% Equity 25 % Debt

* According to the data contained in the list of persons entitled to participate in the General Meeting of At the end of the reporting year, the Company’s total Shareholders and holding at least 5% of ordinary shares. Record date is 6 September 2016. market capitalization (total debt plus equity) stood at RR 874,485 mln. **Foreign shareholding through GDRs.

CONTENTS 17 Sustainability Report 2016 Company Profile

membership of trade awards Key Performance Indicators associations —— In 2016, by Russian President’s Units 2014 2015 2016 Change, % —— Since 2003, NOVATEK has decree, one of NOVATEK Group’s enjoyed membership of the employees received the honorary Total revenues RR mln 357,643 475,325 537,472 13.1% Russian Gas Society, an title of the Distinguished Employee NPO seeking to promote of the Russian Oil and Gas Normalized EBITDA (including share in RR mln 159,631 214,189 242,407 13.2% development of the gas Industry, and five employees were EBITDA of JVs)* industry. awarded the honorary titles of the —— Since 2010, NOVATEK has been Distinguished Geologist of the Dividends paid RR bln 31.3 41.0 42.2 2.9% a member of the Association of Russian Federation. Gas and Oil Complex Builders. —— Together with NOVATEK Ust- Staff headcount** persons 9,248 10,408 11,536 10.8% —— Since 2016, NOVATEK has Luga, the Company won the Proved hydrocarbon mmboe been participating in technical 2016 National Environmental reserves (SEC) 12,643 12,817 12,775 (0.3%) working groups of the Best Prize in the Innovative Eco- Reserve to production Available Technologies Bureau efficient Technologies for Industrial years ratio (SEC) 28 25 24 (4.0%) of the Federal Agency for Application category (introduction Technical Regulation and of a smokeless flare technology in Organic reserves % 152 148 168 20 p.p. Metrology (Rosstandart), NOVATEK Ust-Luga). replacement ratio covering Natural Gas Production —— NOVATEK Ust-Luga was awarded Marketable production of bcm and Waste Disposal and the Trusted Employer Certificate natural gas 62.1 67.9 66.1 (2.7%) Neutralization focus areas. by the State Labor Inspectorate for the Leningrad Region as a Marketable production of ’000 6,036 9,094 12,441 36.8% company strongly committed to liquid hydrocarbons tonnes the labor rights of its employees. USD per Lifting costs 0.65 0.49 0.57 16.3% —— In 2016, NOVATEK won the boe MediaTEK all-Russia contest organized by the Russian Ministry of Energy, in the Modern Production and Fuel and Energy

Sector Development category, and * Adjusted for the effect on disposal of interests in joint ventures.

came in third in the Best Corporate ** Employees for whom NOVATEK, its subsidiaries or joint ventures are primary employers. Media category among the press services of federal companies active in the fuel and energy sector.

CONTENTS 18 Sustainability Report 2016 Sustainability Strategy SUSTAINABILITY STRATEGY

As a major industrial company, NOVATEK Group’s sustainability focus areas NOVATEK is fully aware of its social and environmental responsibility related to the potential negative impact from the Company’s operations. In line with its sustainable development agenda, NOVATEK acknowledges that its key areas of responsibility include the ecosystem within the Company’s footprint Care about our (YNAO) and its stakeholder groups people, talent pool that are most affected by the Com- development pany’s decisions. On top of that, the Company’s performance affects Charitable Occupational international and domestic oil and and sponsorship health and safety gas markets and impacts the entire activities Russian economy. The Group’s management is INCREASED committed to sustainable devel- PERFORMANCE opment principles and takes into IN CORE LINES account stakeholder interests. Strik- OF BUSINESS ing the right balance between the Contributions environmental, social and economic Energy and to local development performance ensures the Compa- resource efficiency and indigenous population ny’s sustainable development in the programs long run. The Company has adopted Mitigation a consistent approach to social of environmental responsibility seeking to create saf- impact er workplaces, provide social support to its employees and their families, sustainably reduce accident rates, workplace injuries, occupational diseases, and create favorable social conditions across its footprint. NOVATEK’s environmental efforts are focused on minimiz-

CONTENTS 19 Sustainability Report 2016 Sustainability Strategy

ing its negative impacts and imple- Embedding sustainable development objectives into NOVATEK business activity menting its proactive environmental protection strategy which is based Economic performance Environmental responsibility Social responsibility on detailed analysis of environmental risks and continuous environmental monitoring. —— contributing to the —— mitigating the environmental —— assuming responsibility for NOVATEK has set its sustainable development of domestic impact workplace safety and health development objectives as follows: gas market, national oil and —— complying with the applica- gas industry and the entire —— ensuring sustainable —— ensuring staff development ble Russian laws and adopting Russian economy subsoil use international best practices; —— creating social and economic —— ensuring resource efficiency benefits for people within the —— respecting and taking into —— contributing to the development of global oil and Company’s footprint account stakeholder interests; —— biodiversity preservation gas market —— improving corporate —— supporting local communities —— complying with global governance; —— striking the balance between environmental standards —— charitable and sponsorship —— enforcing ethical business economic feasibility and activities conduct; stakeholder expectations —— maintaining a good business reputation; —— developing and implementing advanced technologies; —— factoring in the regional context; —— protecting environment; —— ensuring workplace safety; —— respecting human rights; —— ensuring information transparency.

CONTENTS 20 Sustainability Report 2016 Stakeholder Engagement

STAKEHOLDER ENGAGEMENT

basics of stakeholder engagement

Stakeholder engagement is a Stakeholder identification Stakeholder engagement To mitigate non-financial risks priority mission within NOVATEK’s NOVATEK identifies stakeholders principles related to our stakeholders, the sustainable development practices. based on the extent to which As provided for by АА1000SES, Company: We see efficient stakeholder they interact, share interests and NOVATEK’s stakeholder —— identifies stakeholders; engagement as an essential communicate. The Company’s engagement policy is based —— identifies and monitors risk tool for our social responsibility business is not prone to critical on the principles of materiality, situations; performance. material changes which could affect inclusivity and responsiveness. —— analyzes its stakeholder the number and list of stakeholders We recognize our stakeholders’ engagement; or the quality of engagement, and, opinions, interests, expectations —— works on projects to ensure therefore, stakeholder groups are and concerns, and use a prompt reasonable stakeholder invariable. and weighted response approach to engagement; The Company’s key stakeholders address their queries and requests. —— maintains regular contact with are: To meet our sustainable stakeholders. —— shareholders; development objectives, in —— investors and analysts; engaging with key stakeholder NOVATEK adheres to —— employees; groups we pay close attention to transparency principles and ensures —— trade unions; their varying interests. We focus on timely disclosure of complete and —— federal and local authorities; aligning the Company’s activities accurate information on its core —— local communities across the with stakeholder expectations, activities to stakeholders. Company’s footprint; comments and feedback, while —— partners; remaining committed to our —— suppliers and contractors; strategic priorities. —— customers; —— civil society organizations; —— media; —— industrial and academic community.

CONTENTS 21 Sustainability Report 2016 Stakeholder Engagement

Key ways of engagement To align our interests with those —— joint working groups and —— disclosure: corporate website, The Company’s stakeholder of our stakeholders on particular standing committees; annual reports, sustainability engagement is managed through matters, we hold a direct dialogue —— meetings, workshops and reports, press releases, a variety of ways and methods of and talks. Conventional ways of round-table discussions; booklets, articles and other communication. stakeholder engagement are: —— public hearings arranged or information materials. —— face-to-face meetings; attended; —— telephone conversations; —— surveys and questionnaires; —— letters and emails; —— non-profit organizations —— industry conferences; —— press conferences and press tours;

NOVATEK’S CODE OF BUSINESS CONDUCT AND ETHICS STAKEHOLDER ENGAGEMENT PRINCIPLES

Key stakeholder engagement principles are set out in the Company’s Code of Business Conduct and Ethics and include the following: —— The Company facilitates competitive behavior, promotes mutual respect among market players, and avoids unfair competition practices and abuse of market position. The Company strictly complies with the local antitrust laws of the countries in which it operates, and abstains from unethical practices. —— The Company facilitates the development of long-term sustainable relations with its business partners. NOVATEK takes reasonable care to select partners and strives to do business only with reliable market players who operate in a lawful manner and prohibit discrimination, corruption and abasement of human dignity. —— One of the Company’s priorities is to maintain consumer confidence, improve product quality, use cutting-edge technologies, and ensure timely delivery. —— NOVATEK strives to maintain an active and open dialogue with its shareholders, prospective investors and other stakeholders. The Company endeavors to mitigate the risks the investors and stakeholders are exposed to through the implementation of a strong corporate governance framework and timely, complete, fair and transparent disclosure of information regarding the Company’s financial position and operations. —— NOVATEK avoids unlawful efforts to influence the decisions of governmental and/or local authorities. —— The Company does not, directly or indirectly, participate in political movements, parties or organizations. —— NOVATEK views cooperation with local communities as a key element of its corporate strategy, which relies on mutually beneficial and effective partnerships. —— The Company adheres to the policy of fostering social responsibility to its employees, their family members, local communities in the regions in which the Company operates, and society as a whole.

CONTENTS 22 Sustainability Report 2016 Stakeholder Engagement

stakeholder engagement matrix

Stakeholders Channels Frequency Key events in 2016 Focus areas

SHAREHOLDERS Shareholder meetings at least once An Annual General Meeting of Shareholders held on Profit distribution, dividend a year 22 April 2016. payout, annual report approval. Press releases and all-year-round Extraordinary General Meetings of Shareholders held on corporate action 20 June and 25 September 2016. Appointment and notices remuneration of the Board Shareholder queries all-year-round Shareholder queries replied to; public information prepared of Directors and Revision (via phone and mail) and disclosed. Commission. Financial disclosures quarterly Introduction of amendments Annual and annually to the Charter and other sustainability reports internal regulations. Corporate Secretary all-year-round Approval of major transactions and related-party transactions. INVESTORS AND Press releases and all-year-round Financial results disclosure and conference calls held The Company’s operating and ANALYSTS corporate action quarterly. financial performance. notices 30 key industry investment conferences attended. The Company’s competitive Financial results quarterly position. disclosure and Apart from the conferences, over 320 meetings held in conference calls financial centers across the globe. Company and industry Annual and all-year-round outlook. Sustainability reports 61 press releases published. One-on-ones and all-year-round Investor and analyst queries replied to; public information Sustainable development. group meetings, prepared and disclosed. conference calls, group presentations A site visit for investors and analysts arranged.

Investor requests ad hoc Carbon Disclosure Project and Water Disclosure questionnaires completed.

St. Petersburg International Economic Forum and Eastern Economic Forum attended.

CONTENTS V Eurasian Investment Forum in Verona attended. 23 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Participation in the Carbon Disclosure all-year-round Project (CDP) and CDP Water Disclosure surveys Site visits ad hoc

Information update all-year-round on the corporate website EMPLOYEES In-person meetings all-year-round Implementation of social programs, pursuant to the Advanced training for staff. of the management approved Fundamental Concept of Social Policy. (including family with employees Social benefits and members Workplace health and safety training and appraisal of guarantees. Corporate social all-year-round and retired employees. programs employees) Workplace health and safety . Corporate newsletter and magazine published. Collective bargaining all-year-round Employee compensation agreements Health resort treatment for employees arranged. system improvement. Corporate media all-year-round Evolution of Management Skills: from Process Management to Value Management forum held for the NOVATEK Group’s managers. Educational and all-year-round The 11th Interregional Research-to-Practice Conference advanced training for the Company’s young specialists held. programs Steps in Discovering annually Excursions for employees and their families to exhibitions Talents program for and shows of partner museums, lectures on the history of young specialists art of ХХ–ХХI centuries, and visits to theatres and classical music concerts organized.

Cultural and sports events for employees and their families held, corporate acrobatic rock’n’roll classes organized. They could also visit football matches played by the Russian national team, games of the Russian Volleyball Men’s and Women’s Championships, tournaments of the Association of Student Basketball teams, and acrobatic rock’n’roll and boogie-woogie competitions.

CONTENTS 24 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Developing and all-year-round improving the Corporate Technical Competency Assessment System for various lines of business Sustainability reports annually

Security Hotline daily round-the-clock Cultural and sports all-year-round events TRADE UNIONS Discussion and once every three Four (4) meetings with trade unions held, attended by the Performance under collective signing of collective years Company’s management. bargaining agreements. bargaining agreements Workplace health and safety. Discussion and ad hoc Protection of employees’ signing of addenda to rights and interests. collective bargaining agreements Participation of all-year-round the Company’s management in trade union committee meetings Attendance of trade all-year-round union conferences by the Company’s management Participation in all-year-round joint Occupational health and safety committees

CONTENTS 25 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Joint efforts as all-year-round regards recreational, sports and cultural events Sustainability reports annually

GOVERNMENT Contribution all-year-round Attending a meeting of the Government Commission on Fuel and energy sector AUTHORITIES to law-making the Fuel and Energy Complex, the Reserve Replacement development in the current and Improving the Economy’s Energy Efficiency. and future conditions.

Preparation of the draft Energy Strategy of Russia Through 2035. Federal Engagement with all-year-round Interaction with the State Duma and the Federation working groups, Council of the Federal Assembly of Russia, which includes Preparation of proposals for meetings, round- taking part in commission, committee, working group and the State Commission for table discussions, expert council meetings, and other activities. Arctic Development. conferences, forums Engagement with the Maritime Board of the Developing the Arctic Government of Russia. transport system.

Attending meetings of the Russian-Asian Pacific and Energy efficiency and energy Russian-European intergovernmental commissions development. on energy, economic, industry and scientific-technical cooperation. Eliminating administrative barriers in the subsoil and Engagement with the State Commission for Arctic natural resource use. Development and the working groups on energy development, transport infrastructure development, Implementation of the regulatory base improvement, and social and economic General Scheme for the development; participation in the activities of the Gas Industry Development interim working group on the Arctic shelf regulatory Through 2030. base improvement. Engagement with the working group on eliminating Emissions reduction. administrative barriers at the Government Commission on the Use of Natural Resources and Environmental Industrial safety. Protection. Engagement with the Interdepartmental Commission Replacement of mineral on monitoring financial and economic performance of resources. CONTENTS strategic oil and gas companies. 26 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Taking part in the activities of the Interdepartmental Draft Concept for Commission on Eliminating Administrative Barriers in Development of the Subsoil Use. Common Gas Market in the Eurasian Economic Union. Engagement with the Interdepartmental working group on Protection of Northern reducing the dependence of the Russian fuel and energy indigenous peoples rights. sector on imported equipment, spare parts, accessories and software, as well as services of foreign providers, and Development and approval developing the Russian oil and gas industry. of Best Available Techniques (BAT) reference documents. Attending meetings of the Interdepartmental working Introduction of corporate group on drafting amendments to the laws pertaining GHG emissions management to land property relations with respect to linear and system. infrastructure facilities. Engagement with working groups implementing the General Scheme of the Gas Industry Development through 2030 and amending the program to set up the unified gas production, transportation and supply system in Eastern Siberia and the Far East factoring in potential exports to China and other Asia Pacific countries. Engagement with the Interdepartmental working group on developing the Program for Development of the Common Gas Market in the Eurasian Economic Union.

Engagement with the Expert group to set up a framework for government support to import-substitution product consumers under the Russian Ministry of Industry and Trade. Cooperation with the Russian Gas Society.

Participation in the events organized by the Russian Union of Industrialists and Entrepreneurs. Participation in the activities of the Coordinating Council for the Development of the Northern Territories and the Arctic Region of the Russian Union of Industrialists and Entrepreneurs.

CONTENTS 27 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Participation in the activities of the Coordinating Council for preparation for and holding of the Year of the Environment in Russia in 2017 at the Civic Chamber of the Russian Federation. Participation in ENES 2016, the 5th International Forum on Energy Efficiency and Energy Development; 6th Arctic: Today and the Future International Forum; 4th International Legal Arctic Forum; Arctic Days in Moscow 2016 forum; 6th St. Petersburg International Legal Forum, and engagement with the forums’ steering committees. Engagement with technical working groups of the Russian Best Available Techniques Bureau (BAT) at Rosstandart (Federal Agency on Technical Regulation and Metrology) involved in natural gas production and waste disposal and decontamination (other than thermal decontamination (incineration). Implementation of the quadripartite Cooperation Agreement between NOVATEK, the Russian Ministry of Natural Resources and Environment, the Federal Supervisory Natural Resources Management Service and YNAО Government, in line with the Key Action Plan (the plan of the main events) for the Year of the Environment in Russia in 2017 . Attending Russian and international forums and competitions held by the Russian Ministry of Energy. Attending the St. Petersburg International Economic Forum and the Eastern Economic Forum. Engagement with government delegations at international business events. Local Interaction under all-year-round Social and financial programs implemented under the Economic development of cooperation agreements with the YNAO Government and Municipal regions. agreements on Councils (in the Yamal, Tazovsky, Nadym, Purovsky and social and economic Krasnoselkupsky Districts, and Novy Urengoy), and Living standards development of local Administrations of the Kostroma, Leningrad, Tyumen, improvement, educational communities Samara and Chelyabinsk Regions. programs.

CONTENTS 28 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Attending all-year-round Participation in the Yamal Oil and Gas 2016 forum and Utility and transport meetings, round- exhibition. infrastructure development. table discussions, conferences, forums, Media press tours and visits to the Company’s facilities Protection of Northern etc. and interviews with the Company’s experts arranged. indigenous peoples rights. Disclosure of all-year-round Implementation of promising information on the LNG projects. Company’s activities in the local media Company’s activities, social programs. LOCAL Cooperation all-year-round Targeted programs and targeted payments to indigenous Employment. COMMUNITIES agreements on minorities of the North (under the Agreements with the social and economic YNAO Government). Financing the construction development of local and repairs of the utility and communities Financial support provided to the Russian Association of transport infrastructure. Indigenous Peoples of the North, Siberia and Far East. Preserving the national Interaction with all-year-round Financial support provided to the Yamal for Descendants identity of Northern peoples. associations of Association and its district branches. indigenous and Supporting low-income minority peoples Financing purchases of equipment and supplies for the population. indigenous peoples. Social programs. Targeted support to ad hoc Media press tours and visits to the Company’s facilities Interaction of industrial welfare beneficiaries and interviews with the Company’s experts arranged. enterprises with indigenous Disclosure of all-year-round Participation in the 6th Arctic: Today and the Future peoples. information on the International Forum, and Arctic Days in Moscow 2016 Company’s activities forum. in the local media Population surveys ad hoc

Sustainability reports all-year-round

Security Hotline round

PARTNERS Cooperation all-year-round Effective interaction under joint initiatives and cooperation Joint ventures. UNDER JOINT agreements agreements. INITIATIVES Partnership prospects. Joint ventures all-year-round Participation in the International Conference & Exhibition Shareholder meetings all-year-round on Liquefied Natural Gas, held in Australia.

CONTENTS 29 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Management all-year-round Participation in the LNG Producer-Consumer Conference, meetings held in Tokyo. Working group all-year-round meetings Security Hotline daily, round-the-clock SUPPLIERS AND Tenders ad hoc, all-year- Meetings with oil and gas equipment producers. Equipment specifications, CONTRACTORS round pricing, delivery terms, Participation in the 7th Integrated Safety and Security supply chain management. Participation in trade all-year-round Exhibition 2016. shows, forums and Industrial safety. other events Participation in the Neftegazsnab 2016 conference. Import substitution. Replies to queries all-year-round as received via the per requests Participation in the Neftegazstroy 2016 conference. Relations with suppliers and official website (see contractors. Sales and Tenders page) Industrial safety. Security Hotline daily, round-the-clock Preventing abusive practices when signing contracts. CUSTOMERS Telephone enquiry daily Queries received via the telephone enquiry service Service quality improvement. service processed. Customer Account daily, Questions on technical support of services and proposals Customer support. service and Contact round-the-clock on improving Customer Account replied to. Us forms on the Tariff regulation. website Daily interaction with business customers arranged. Contact Information all-year-round Payment calculations. Security Hotline daily, Payment discipline. round-the-clock Counterparty Account daily, Connection agreements. service for business round-the-clock customers Gas supply agreements. Meetings on payment all-year-round discipline

CONTENTS 30 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

CIVIL SOCIETY Membership and all-year-round Cooperation with V. I. Vernadsky Non-Governmental Preserving biodiversity and ORGANIZATIONS cooperation Environmental Fund. biological resources.

Attending all-year-round Cooperation with the World Wildlife Fund. Environmental protection. conferences, forums and other events NOVATEK included in WWF-Russia’s environmental Environmental aspects of the Sustainability reports annually responsibility rating of Russian oil and gas companies and Sabetta seaport construction ranked seventh. in the Gulf of Ob. Interaction with all-year-round Cooperation with the Marine Mammal Council on Waste and water resource leading sports and preservation and study of the Atlantic walrus in the south- management in the oil and cultural institutions eastern Barents Sea and adjacent waters (within the gas industry. Yamal LNG project). Interaction with non- all-year-round Participation in the Waste and Water Resource Sustainable development. profit organizations Management in the Oil and Gas Industry 4th annual national forum. Taxation. Philanthropic efforts all-year-round Participation in the Global Climate Challenge: Dialogue of Support and development of the Government, Community and Business international cultural projects. conference. Volunteer all-year-round Participation in UN Agreement on Climate Change: The Sports promotion. movements Role of Business in the Shaping of Climate Policy, a round-table discussion organized by the Russian National Philanthropy and sponsorship Committee of International Chamber of Commerce – the efforts. World Business Organization (ICC Russia). Attending working group meetings on biodiversity Provision of support and preservation at the UN House in Moscow. financing to orphanages and residential care facilities. Cooperation with Carbon Disclosure Project (CDP) on carbon emissions and water use. Assistance in socialization of children deprived of parental Participation in activity of the Sub-committee on Taxation care. in oil and gas sector of the Committee on Energy Policy and Efficiency, The Russian Union of Industrialists and Entrepreneurs, and engagement with the Expert Council of The Chamber of Commerce and Industry of the Russian Federation on Tax regulations and law enforcement practice improvement.

CONTENTS 31 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Participation in the Harmonization of Environmental Laws of OECD Member Countries and Russia round-table discussion held by the Russian Union of Industrialists and Entrepreneurs. Attending a meeting of the interdepartmental working group on Environmental Protection and Climate Change held by the Russian Ministry of Economic Development. Participation in the BUREAU VERITAS’s Carbon Reporting: Emission Inventory and Carbon Footprint Assessment workshop. Participation in the Environmental Aspects of Continental Shelf Development round-table discussions held by Gubkin Russian State University of Oil and Gas. Attending the Ministry of Energy’s meeting on Best Available Techniques (BAT) and classification of Environmentally Hazardous Facilities. Support of Russian museums, theaters and creative teams. Support to sports projects: title sponsorship of the Russian national football team. Blood donation drives organized for the patients of the Russian Children’s Clinical Hospital. Support of foster homes with orphaned children, children suffering from various illnesses, and elderly people. MEDIA Press releases all-year-round 61 press releases published. Coverage of the Company’s activities and implementation Twelve visits arranged to the Company’s regional of key projects. production facilities and areas involved in the Yamal LNG Press tours all-year-round Company and industry Project. outlook. Interviews and all-year-round In 2016, Leonid Mikhelson’s (Chairman of the comments from top Management Board) interview was broadcast on Russia executives 24 and published in Kommersant and BIP (France). Briefings and press all-year-round Ten briefings for Russian and international media held. conferences 40 comments on the Company’s topical issues prepared. CONTENTS 32 Sustainability Report 2016 Stakeholder Engagement

Stakeholders Channels Frequency Key events in 2016 Focus areas

Comments on and all-year-round as Over 48,500 publications in Russian and international replies to media per requests media appeared in 2016. queries Articles and all-year-round information materials for the media INDUSTRIAL Attending all-year-round Sponsorship of the St Petersburg International Economic The Company’s promising COMMUNITY, conferences, Forum, International Cooperation in the Arctic: New projects. including forums, round-table Challenges and Vectors of Development conference, academic discussions, etc. National Oil and Gas Forum, Trade and Industrial Dialogue Development of the fuel and and research Russia-Japan business-mission and exhibition, Eastern energy sector, along with community Economic Forum, and ENES 2016 (the 5th International the oil and gas industry in Forum on Energy Efficiency and Energy Development). general. Attending joint as per requests Attending meetings held by relevant ministries and sessions agencies Participation in government delegations at Economic performance. international negotiations and meetings. Partnerships as per events Participation in the 18th International Conference & Industrial safety. calendar Exhibition on Liquefied Natural Gas, held in Australia. Cooperation with all-year-round Technology Days–2016 industry forum organized (hosted Competition development. leading oil and gas by NOVATEK Scientific and Technical Center). universities Participation in the all-year-round Supporting studies of gas shows on the Yamal Peninsula, Association of Gas causes and mechanisms of crater formation, and The and Oil Complex Arctic Floating University-2016 expedition. Builders NOVATEK-VUZ program implementation. Membership in the Association of Gas and Oil Complex Builders. Participation in the International Conference & Exhibition on Liquefied Natural Gas, held in Australia. Participation in the LNG Producer-Consumer Conference, held in Tokyo.

CONTENTS 33 Sustainability Report 2016 Corporate Governance CORPORATE GOVERNANCE

corporate governance principles corporate governance structure

To ensure maximum operating NOVATEK’s corporate gover- Placed on an equal footing with NOVATEK’s corporate gover- efficiency, NOVATEK seeks to adopt nance practices make it possible for the other lines of business, sustain- nance system includes the General best corporate governance prac- its executive bodies to effectively able development and corporate Meeting of Shareholders, the Board tices. The quality of governance manage day-to-day operations in a social responsibility are viewed as of Directors, the Board Committees does not only impact the economic reasonable manner acting in good strategic and operational manage- and the Management Board, inter- performance, but also sustainable faith and solely to the benefit of the ment focus areas. nal control and audit bodies. development, social and environ- Company and its shareholders. mental policy dimensions, as well as the Company’s reputation. NOVATEK’s corporate governance structure NOVATEK has established an

effective and transparent system Supreme governance body of corporate governance complying General meeting of with both Russian and international shareholders Control bodies standards. The Company’s corporate gover- Revision Commission nance draws heavily on the princi- Strategic governance body ples and approaches set forth in the Board of Directors following documents: —— Russian laws; Board Committees —— Corporate Governance Code (as recommended by the Cen- Remuneration and Strategy Audit Nomination Committee Committee Committee tral Bank of Russia); —— UK Corporate Governance Code (former Combined Code Chairman of the on Corporate Governance) Management Board (CEO) issued by the UK Financial Reporting Council; Collegial executive body —— NOVATEK’s Corporate Gover- nance Code; Management Board —— NOVATEK’s Code of Business Conduct and Ethics; —— NOVATEK’s Charter. Corporate Subdivisions Internal Audit Division Secretary

CONTENTS 34 Sustainability Report 2016 Corporate Governance

General Meeting of —— determined the remuneration The Board determines The members of the Board have Shareholders payable to the members of NOVATEK’s strategy and priority a wide range of expertise as well as The General Meeting of Share- the Board of Directors and the lines of business, endorses long- significant experience in strategic, holders is NOVATEK’s supreme Revision Commission; term and annual business plans, operational, financial, commercial governing body. The activity of the —— approved an external auditor reviews financial performance, and oil and gas activities. The Board General Meeting of Sharehold- for 2016; internal controls, risk management members hold regular meetings ers is governed by the laws of the —— approved related party and other matters reserved for the with the Company’s senior manage- Russian Federation, the Compa- transactions. Board, including optimization of cor- ment to enable them to acquire a ny’s Charter, and the Regulations porate and capital structure, approv- detailed understanding of the Com- on the General Meetings approved On 30 September 2016, the al of major transactions, making pany’s business activities, strategy, by NOVATEK’s General Meeting Extraordinary General Meeting of decisions on investment projects, and key risks. Directors also have of Shareholders in 2005 (Minutes Shareholders: preparing recommendations on the access to the Company’s medi- No. 95 dated 28 March 2005), as —— approved the amount of interim size of dividend per shares and its um-level managers for both formal amended. dividend for 1H 2016; payout procedure, and convening and informal discussions to ensure The General Meeting of Share- —— approved amendments to the the General Meeting of Sharehold- the regular exchange of information holders is responsible for the Charter and other internal docu- ers. The members of the Board are needed to participate in the Board approval of annual reports, annual ments governing the activity of elected by the General Meeting of meetings and make balanced deci- accounting (financial) statements, the Company’s bodies. Shareholders. sions in a timely manner. the distribution of profit, including The current members of the Efficient operation of the Board dividends payout, the election of Board of Directors Board were elected at the Annu- of Directors is supported by the the Board of Directors and the Revi- The activity of the Board of al General Meeting of Sharehold- Corporate Secretary, who has suffi- sion Commission, approval of the Directors (the Board) is governed ers on 22 April 2016. The Board of cient independence (appointed and Company’s Auditor and other corpo- by the laws of the Russian Feder- Directors comprises nine (9) mem- dismissed by the Board of Direc- rate and business matters. ation, the Company’s Charter and bers, of which eight (8) are non-ex- tors) and endowed with the neces- On 22 April 2016, the Annual the Regulations on the Board of ecutive directors, including three sary powers and resources to carry General Meeting of Shareholders: Directors approved by NOVATEK’s (3) directors that are considered out its tasks as set out in the Reg- —— approved the annual report and General Meeting of Shareholders to be independent in accordance ulations on the Corporate Secretary annual accounting (financial) in 2005 (Minutes No. 96 dated 17 with the Corporate Governance (Minutes No. 168 dated 28 April statements prepared under June 2005), as amended. Code recommended by the Central 2014, as amended). Russian Accounting Standards The Board carries out the over- Bank of Russia and the UK Corpo- In 2016, there were no changes (RAS); all strategic management of the rate Governance Code. The Board in the membership of NOVATEK’s —— approved profit distribution and Company’s activity on behalf of and Chairman is Alexander E. Natalen- Board of Directors. the amount of dividends for in the interests of all its sharehold- ko. The Chairman is responsible for Pursuant to the recommenda- 2015; ers, and ensures the Company’s leading the Board and ensuring its tions of the Corporate Governance —— elected the Board of Directors efficient and effective performance effectiveness. Code and the Listing Rules of the and the Revision Commission; in order to increase shareholder Moscow Exchange, three (3) of the value in a prudent and responsible nine (9) members elected to the manner. Board were independent directors.

CONTENTS 35 Sustainability Report 2016 Corporate Governance

Board Committees in ensuring that the high standards In order to carry out their duties, Strategy Committee The Company has three (3) Board of corporate governance are main- the Committees may request infor- The primary functions of the Committees: the Audit Committee, tained across the Company and that mation or documents from mem- Strategy Committee are to deter- the Strategy Committee and the specific decisions are analyzed and bers of the Company’s executive mine strategic objectives of the Remuneration and Nomination Com- the necessary recommendations bodies or heads of the Company’s operations, control strategy imple- mittee. The Committees’ activities are issued prior to general Board relevant subdivisions. For the pur- mentation, and prepare recommen- are governed by the relevant Regu- discussions. The minutes of the pose of considering any matters dations on the dividend policy. lations on Committees approved by Committees’ meetings are circulat- being within their competence, the To support the members of the the Board of Directors and available ed to the Board members and are Committees may engage experts Board in discharging their duties, on the Company’s website. accompanied by necessary materi- and advisors having necessary pro- the Strategy Committee is respon- The Committees play a vital role als and explanatory notes. fessional knowledge and skills. sible, inter alia, for: —— evaluation of the long-term effectiveness of the Company’s bod members as at 31 december 2016 operations; Directors / Position and —— preliminarily review and rec- Other important positions and titles tenure as a BoD member ommendations on the Com- pany’s participation in other organizations; Alexander E. Natalenko Board member at Rosgeologia. Recipient of the State Prize of the Russian Federation and an Honored Geologist of Russia. Former Deputy Minister of Natural Resources of —— assessment of voluntary and Board Chairman since 2004 the Russian Federation. mandatory offers to acquire the Company’s securities; —— consideration of the financial model and business valuation Andrei I. Akimov Chairman of the Management Board at Gazprombank. Member of Board of of the Company and its busi- Directors / Supervisory Board at Gazprom, Gazprombank, Rosneft Oil Company, Since 2006 ROSNEFTEGAZ, etc. ness segments to prepare recommendations to the Board of Directors for making decisions on determining business priori- Chairman of the Supervisory Board at Accumulatorenwerke HOPPECKE Carl Zoellner & ties of the Company; Sohn GmbH, a member of Supervisory Board at Contilia GmbH, a member of Advisory Board at Dana Gas, a member of the Board of Trustees at RAG-Stiftung. Foreign COMMITTEE MEMBERSHIP: Burckhard Bergmann Member of the Russian Academy of Technological Sciences, Honorary Consul of the Russian Federation in the German State of North Rhine-Westphalia. Holds multiple Chairman: Since 2008 honorary titles and distinctions, including Commander of the Royal Norwegian Order — Alexander E. Natalenko of Merit, Order of Merit of the State of North Rhine-Westphalia, Officer’s Cross of the MEMBERS: Order of Merit of the Federal Republic of Germany, Russian Order of Friendship for — Andrei I. Akimov significant contribution to the development of the Russian-German relations. — Burckhard Bergmann — Michael Borrell — Gennady N. Timchenko

CONTENTS 36 Sustainability Report 2016 Corporate Governance

—— preparation of recommenda- Remuneration and Nomination To support the Board of Direc- tions to the Board of Direc- Committee tors, the Committee is responsi- tors on transactions subject to The primary functions of ble for: approval by the Board of Direc- the Remuneration and Nomina- COMMITTEE MEMBERSHIP: —— development and regular tors; and tion Committee are to develop Chairman: review of the Company’s policy —— preparation of recommenda- an efficient and transparent prac- — Victor P. Orlov on remuneration of the mem- tions to the Board of Directors tice for remuneration of members MEMBERS: bers of the Board of Directors, on the Company’s policy for the of the Company’s management, — Robert Castaigne members of the collegial exec- use of its non-core assets. enhance professional expertise and — Andrei V. Sharonov utive body and the sole exec- improve the Board of Directors’ utive body of the Company, In corporate year 2016, the Strat- effectiveness. overseeing its implementation egy Committee met four (4) times. and delivery; —— preliminarily assessment of the performance of the Company’s Directors / Position and Other important positions and titles executive body for the year, in tenure as a BoD member line with the Company’s remuneration policy; —— annual detailed and formal- ized self-assessment or exter- Michael Borrell Since 1995, held a number of senior managerial positions at Total. nal assessment of the Board Since 2015 of Directors, its members, Committees of the Board of Directors, determination of the priority areas for strength- ening the Board of Directors’ membership; Robert Castaigne Member of Boards of Directors at Sanofi, VINCI, and Societe Generale. Chevalier of the —— interaction with sharehold- National Order of the Legion of Honor of the French Republic. Independent director since 2015 ers, which shall not be limited to major shareholders only, to generate recommendations to the shareholders on voting on the election of nominees to the Chairman of the Management Board of NOVATEK (CEO) and of the Board of Directors Company’s Board of Directors; Leonid V. Mikhelson at SIBUR Holding. Holder of the Russian Order of the Badge of Honor, II Degree Order —— planning appointments of Executive director since 2003 for Merits and Dedicated Service to the Country and honorary title of the Distinguished members of the executive Gas Specialist. body and the sole executive body, including succession planning; and CONTENTS 37 Sustainability Report 2016 Corporate Governance

—— supervision over disclosure Audit Committee statements, the proposed auditor, of information on NOVATEK’s The primary function of the Audit COMMITTEE MEMBERSHIP: the auditor’s report, and the effi- shares owned by the members Committee is to control financial Chairman: ciency of the Company’s internal of the Board of Directors and and operating activities of the Com- — Andrei V. Sharonov controls and risk management. Management Board, and other pany. To support the Board mem- MEMBERS: The Audit Committee closely col- key managers. bers in performing their control — Robert Castaigne laborates with the Revision Com- In corporate year 2016, the functions, the role of the Commit- — Victor P. Orlov mission, the external auditor and Remuneration and Nomination tee includes, inter alia, assessment executive bodies of the Company, Committee met four (4) times. of accuracy and completeness of regularly inviting NOVATEK’s man- the Company’s annual financial agers responsible for the preparation of accounting (financial) statements to attend the Committee’s meetings. Directors / Position and Other important positions and titles In corporate year 2016, the Audit tenure as a BoD member Committee met four (4) times.

Professor, Doctor of Economics, PhD in Geological and Mineralogical Sciences, Distinguished Geologist of the Russian Soviet Federative Socialist Republic. Served as Chairman of the Russian Committee on Geology and Mineral Resources, Russian Victor P. Orlov Minister of Natural Resources, First Deputy Chairman and Chairman of the Federation Council’s Committee on Natural Resources and Environmental Protection. Independent director since 2014 Recipient of the State Prize of the Russian Federation for Science and Technology. Holds IV Degree Order for Merits and Dedicated Service to the Country and 18 nongovernmental awards, including three letters of acknowledgement from the President and a certificate of merit from the Government of the Russian Federation.

Member of the Board of Directors at SIBUR Holding, Chairman of the Board of Directors and President of the St. Petersburg SKA Ice Hockey Club, Chairman of the Gennady N. Timchenko Board of Directors at the Kontinental Hockey League, member of the Board of Trustees at the Russian Geographical Society, Chairman of the Russian delegation to the Since 2009 Russian-Chinese Business Council, Vice-President of the Russian Olympic Committee, Chairman of the Economic Council under the Franco-Russian Chamber of Commerce and Industry (CCIFR).

President of the Moscow School of Management SKOLKOVO. Advisor to the Mayor of Moscow. Chairman of the Board of Directors at OOO Management Company Andrei V. Sharonov NefteTransService. Member of the Board of Directors of PAO Sovcomflot, member of the Supervisory Board of the Bank VTB (PAO). Independent director since 2014 Held various positions (including Deputy Minister) in the Ministry of Economic Development and Trade of the Russian Federation, served as Deputy Mayor of Moscow for Economic Policy.

CONTENTS 38 Sustainability Report 2016 Corporate Governance

MEMBERSHIP OF THE remuneration of members MANAGEMENT BOARD AS AT of the board of directors and 31 DECEMBER 2016: the management board Leonid V. Mikhelson Management Board Chairman of the Management The procedure for calculating Fixed remuneration payable to The Management Board is a Board remuneration and compensations members of the Board of Direc- collegial executive body responsi- Alexander M. Fridman payable to members of NOVATEK’s tors amounts to RR 10 mln per cor- ble for the day-to-day management First Deputy Chairman of the Board of Directors is set out in porate year. The Chairman of the of the Company’s operations. The Management Board the Regulations on Remuneration Board of Directors is paid a fixed Management Board is governed Vladimir A. Baskov and Compensations Payable to remuneration for the performance by the laws of the Russian Federa- Deputy Chairman of the Members of the Board of Direc- of his functions in the amount tion, NOVATEK’s Charter, decisions Management Board tors approved by the Annual Gen- of RR 20 mln per corporate year. of the General Meetings of Share- Viktor N. Belyakov eral Meeting of Shareholders of Remuneration payable to members holders and the Board of Directors, Deputy Chairman of the NOVATEK (Minutes No. 122 dated of the Board of Directors for the and by other internal documents. Management Board for Economics 24 April 2015). According to the Reg- discharge of their functions is limit- For more information on the Man- and Finance ulations, remuneration includes: ed to RR 3 mln per corporate year. agement Board’s competence see Mark Anthony Gyetvay —— fixed remuneration; Members of the Board of Direc- NOVATEK’s Charter. Deputy Chairman of the —— remuneration for attending tors also receive remuneration for Management Board Members of the Management meetings of the Board of Direc- attending meetings of the Board Board are elected by the Board of Oleg V. Karpushin tors; and of Directors’ Committees, which is Directors from among the Compa- Deputy Chairman of the —— remuneration for attending limited to RR 2 mln per corporate Management Board – ny’s key employees. The Manage- Operations Director meetings of the Board of Direc- year. Directors are also compensat- ment Board reports to the Board of tors’ Committees. ed for travel and lodging expens- Tatyana S. Kuznetsova Directors and the General Meeting Deputy Chairman of the es related to the discharge of their of Shareholders. The Chairman of Management Board – Director of functions. the Management Board is respon- the Legal Department The procedure for and crite- sible for leading the Board, ensur- Igor A. Plesovskikh ria of calculating remuneration of ing its effectiveness and organizing Deputy Chairman of the the Chairman and members of its meetings, as well as for imple- Management Board – Director NOVATEK’s Management Board, for Geology menting decisions of the General as well as compensation for their Meeting of Shareholders and the Ilya V. Tafintsev expenses, are prescribed in the Board of Directors. The Manage- Director for Strategic Projects Regulations on the Management ment Board acting as of 31 Decem- Lev V. Feodosyev Board and the employment con- ber 2016 was elected by the Board Deputy Chairman of the tracts they sign with the Company. Management Board – Commercial of Directors on 30 August 2012 Director (Minutes No. 150 dated 30 August Denis G. Khramov 2012), 12 March 2015 (Minutes Deputy Chairman of the No. 173 dated 12 March 2015), Management Board and 10 March 2016 (Minutes No. Kirill N. Yanovskiy 184 dated 10 March 2016). As at Director of Finance 31 December 2016, the Manage- ment Board comprised twelve CONTENTS (12) members. 39 Sustainability Report 2016 Corporate Governance

internal control and audit Remuneration of members of NOVATEK’s Board of Directors and NOVATEK has in place a sys- Revision Commission Management Board in 2016, RR mln tem for internal control over finan- The Revision Commission com- cial and business operations, in line prises four (4) members who are Board of Directors* Management Board with international best practices. elected by the Annual General Total paid, including 133.38 1,996.5 The process of internal control is Meeting of Shareholders for a peri- an integral part of the risk manage- od of one year. The authority of the Salaries – 682.0 ment process. Revision Commission is governed The system of internal control by Russian Federation Law No. Bonuses – 1,274.3 includes the Board of Directors, 208-FZ On Joint Stock Companies the Audit Committee, the Chair- dated 26 December 1995, and mat- Fees 132.4 – man of the Management Board, the ters not provided for by the law are Other property advancements 0.98 40.2 Management Board, the Revision regulated by the Company’s Charter Commission and the Internal Audit and the Regulations on the Revi- Division. sion Commission approved by the The primary objects of internal General Meeting of Shareholders control are NOVATEK, its subsid- in 2005 (Minutes No. 95 dated 25 * Some members of NOVATEK’s Board of Directors also serve as members of the Management Board. Payments to such members for their serving on the Management Board are included in the total payments to members of the iaries and joint ventures, includ- March 2005). Management Board. ing their subdivisions and business The Revision Commission audits processes. the Company’s financial and busi- To prevent corruption, mitigate ness performance for the year or compliance, operational and rep- for any other period as may be utation risks, the Company adopt- decided by its members or other ed the Anti-Corruption Policy and persons authorized to initiate audits the Regulations on Risk Manage- in line with the laws of the Rus- ment and Internal Control System sian Federation and the Company’s approved by the Board of Directors Charter. The results of these audits on 1 September 2014 (Minutes No. are presented in the form of find- 170 dated 1 September 2014). ings by the Revision Commission. In March 2017, the Revi- sion Commission completed the in-house audit of the Company’s financial and business operations in 2016. Based on the audit work performed, the Commission prepared and submitted to the Annual Gen- eral Meeting of Shareholders its findings on the reliability of the data

CONTENTS 40 Sustainability Report 2016 Corporate Governance

risk management contained in the Company’s 2016 and optimize financial and busi- pared under RAS, as well as inde- The Company’s activities are accounting (financial) statements ness operations. Implementation of pendent reviews of the Company’s subject to risks inherent only to prepared under RAS and the Com- these measures is monitored on a quarterly financial statements and the Company or associated with its pany’s 2016 Annual Report. regular basis. audit of the annual financial state- core business. The Internal Audit Division reg- ments prepared under IFRS. NOVATEK has in place and con- Internal audit ularly interacts with the external When selecting the auditor, tinuously develops a multilevel To ensure a consistent and inde- auditor by exchanging information attention is paid to the level of its system of risk management. Pow- pendent assessment of the reli- on action plans, audit results and expertise, independence, pos- ers, duties and responsibilities for ability and effectiveness of the risk other matters of significance to sible risk of any conflict of inter- specific risk management proce- management and internal control ensure the effective discharge of est, terms of the contract, and the dures are delegated to different system, as well as of corporate their responsibilities. amount of expected remuneration. governance levels of the Company governance practices, the Company To improve the efficiency and The Audit Committee oversees depending on the assessment of performs internal audits of its oper- optimize the costs, the Internal the external auditor’s independence financial impact of risk. The Compa- ations. The internal audit function is Audit Division employees serve and objectivity, as well as the qual- ny’s risk management policy is set implemented by the independent on revision commissions of the ity of the audit conducted. The out in NOVATEK’s Regulations on Internal Audit Division, which has Company’s subsidiaries and joint Committee annually submits to the Risk Management and Internal Con- operated continuously since 2005. ventures. Board of Directors the results of trol System approved by the Board The Internal Audit Division review and assessment of the audit of Directors on 1 September 2014 reports to the Board of Directors External Auditor opinion on the Company’s account- (Minutes No. 170 dated 1 Septem- and is guided by International Stan- The Annual General Meeting of ing (financial) statements. The Audit ber 2014), as amended. dards for the Professional Practice Shareholders appoints an exter- Committee meets with the audi- The Board of Directors’ Audit of the Internal Auditing of Insti- nal auditor to conduct independent tor’s representatives at least twice Committee is responsible for the tute of Internal Auditors. The Divi- review of NOVATEK’s accounting a year. supervision over the reliability and sion also adheres to the principles (financial) statements. The Audit NOVATEK’s management efficiency of the risk management and rules of conduct stated in the Committee prepares recommen- accepts recommendations on the system and review of the risk Code of Ethics for internal auditing dations to the Company’s Board independence of the external audi- management policy. In the report- of the Institute of Internal Auditors. of Directors on a proposed exter- tor by restricting such auditor’s ing year, after careful review and In 2016, the Board of Directors nal auditor and the price of its ser- involvement in providing non-audit analysis of the information provid- approved NOVATEK’s Internal Audit vices. Based on the Committee’s services. Remuneration paid to the ed, the Audit Committee recog- Policy (Minutes No. 192 dated 26 recommendations, the Board pro- principle auditors for auditing and nized NOVATEK’s risk management August 2016). poses the auditor for consideration other services is specified in Note activities as compliant with the The Internal Audit Division and approval by the Annual General 24 to the consolidated financial risk management policy of the operates on the basis of an annu- Meeting of Shareholders. statements prepared under IFRS Company. al plan of audits approved by the PricewaterhouseCoopers Audit for 2016. The list of major sustainability Audit Committee and prepared (an internationally recognized audit risks is provided below. For more under combined risk-based and firm) was chosen as the Compa- details on approaches to risk man- cyclic approaches. According to the ny’s external auditor to conduct agement see NOVATEK’s 2016 results of audits, it develops mea- the audit of the annual accounting Annual Report. CONTENTS sures to mitigate identified risks (financial) statements for 2016 pre- 41 Sustainability Report 2016 Corporate Governance

cial losses, the Company, its sub- Company’s performance. Risk insurance Obligatory risk insurance sidiaries and joint ventures main- In the reporting year, no insured Risk insurance is an integral part The Company, its subsidiaries tain the following types of optional major accidents or incidents of NOVATEK’s risk management and joint ventures fully meet the insurance: occurred. system. In 2016, the insurance cov- requirements of the applicable laws —— insurance of the risk of prop- At the end of 2016, one of erage guaranteed adequate protec- for maintaining obligatory insur- erty damage/loss including the NOVATEK’s subsidiaries entered tion against the risks of damage to ance, such as civil liability insurance risk of mechanical failures; into a one-year contract for insur- the business of the Company or of: —— insurance of the risk of dam- ance of receivables of an approved its subsidiaries and joint ventures. —— owners of hazardous produc- age from business interruption natural gas consumer list with a Insurance is provided by reputation facilities; and (business risk); view to assess how efficiently this ble insurance companies that have —— owners of vehicles —— insurance of risks associated instrument is used to manage risks. high ratings by leading rating agen- with prospecting, exploration For more than 11 years, the cies (Standard & Poor’s, Expert RA, Optional risk insurance and production (risk of loss of Company has maintained a man- A.M. Best), with partial reinsurance To mitigate the risk of finan- control over a well); and agement liability insurance for the of risks by major international insur- —— management liability insurance. top management of the Company ance and reinsurance companies. and its subsidiaries against possi- Since 2013, the Company has in ble third-party claims for any losses OPERATIONAL RISKS FINANCIAL RISKS place an ongoing comprehensive incurred through any wrong actions program of property and business (or decisions) made by their man- Risks of emergencies and incidents Credit risk —— —— risk insurance for key assets of the agement bodies. The overall limit Monopoly risks Reinvestment risk —— —— Company, its subsidiaries and joint of all insurance coverage is Euro Competitive risks Interest risks —— —— ventures. As at the end of 2016, 120 mln. Commodity price risks Currency risks —— —— the cumulative insured amount Geological risks Liquidity risk —— —— for the risks of property damage Risk of early termination, Inflation risk —— —— and business interruption totaled suspension or restriction of the right to use subsurface mineral RR 512 bln. The implemented resources LEGAL RISKS program is viewed by the Compa- —— Environmental risks ny’s management as an efficient —— Project risks —— Risk of law changes measure for mitigating the con- —— Ethical risks —— Litigation risks sequences of potential accidents —— Social risks —— Risk of sanctions and provides additional guarantees —— Terrorism risks for the attainment of the expected —— Country risk net profit and key indicators of the —— Regional risk —— Information technology and information security risks (cyber risks)

CONTENTS 42 Sustainability Report 2016 Corporate Governance

ethics and integrity NOVATEK puts great emphasis Anti-Corruption Policy All managers and employees of An anti-corruption clause is on ethics and fair play. The Com- NOVATEK strictly abides by the the Company, its subsidiaries and included into all contracts with third pany has adopted three key docu- anti-corruption laws of Russia and joint ventures were informed about parties to inform them about the ments: Corporate Governance Code other countries, in which it oper- the adoption of the Anti-Corrup- Company’s Anti-Corruption Policy (adopted in 2005), Code of Busi- ates. With NOVATEK’s shares trad- tion Policy by signing it. They also and make sure they undertake to ness Conduct and Ethics (adopted ed on the London Stock Exchange, assume (by signing) commitments comply with all applicable anti-cor- in 2011), and Anti-Corruption Policy the Company complies with the to refrain from any actions that ruption laws when performing their (adopted in 2014). requirements of the UK Bribery can be deemed an act of corrup- contractual obligations. Act 2010. In order to promote the tion. Anti-corruption requirements The Company’s official website Corporate Governance Code Group’s credibility, improve compli- and limitations are included in the contains the Anti-Corruption Policy Corporate governance is ance of its practices with applicable employment contracts and job in both Russian and English for all viewed as a means of enhancing anti-corruption laws, and minimize descriptions of all employees. stakeholders to access. NOVATEK’s performance, develop- corruption risks, in 2016, the Com- An interactive online course The Company has in place a ing a uniform corporate culture, bol- pany continued creating a unified called the Basics of the Company’s Security Hotline that any stakehold- stering reputation and reducing the mechanism to prevent corruption Anti-Corruption Policy and Anti-Cor- er can use to report known cases cost of capital. The Corporate Gov- and corporate fraud. ruption Practices for Employees of corruption or any other concerns. ernance Code is a body of corpo- In accordance with the Compa- was developed to train employees The Security Hotline is available rate conduct principles. ny’s Anti-Corruption Policy adopt- of the Company, its subsidiaries on the Company’s and other web- ed in 2014 and Anti-Corruption and joint ventures. sites, information boards in the Code of Business Conduct Action Plans for 2014–2016, a set On a regular basis, employ- offices, production areas and living and Ethics of measures was undertaken in ees can obtain advice on how the camps of its subsidiaries and joint The Code of Business Conduct 2016 aimed at preventing poten- Anti-Corruption Policy is implement- ventures. and Ethics sets out business eth- tial corrupt practices that involve ed in practice, including gift giving The person in charge of imple- ics guidelines for the Company’s employees of the Company, its and receiving, making charitable menting and overseeing the mea- employees providing recommenda- subsidiaries and joint ventures, contributions, engaging in sponsor- sures aimed at preventing cor- tions on prescribed behavior in eth- counterparties, government and ship programs, and handling confi- ruption across the Company, its ically challenging and non-standard municipal authorities, NGOs and dential information. subsidiaries and joint ventures is situations. other persons. the Anti-Corruption Advisor. Anti-corruption policies have The anti-corruption efforts tak- been adopted by all subsidiaries en in the reporting year and the and joint ventures, with dedicat- Anti-Corruption Action Plan for ed employees and subdivisions in 2016–2017 were discussed and charge of their implementation. approved by the Audit Committee on 25 August 2016.

CONTENTS 43 Sustainability Report 2016 Corporate Governance

MEMBERS OF THE BOARD OF Prevention of conflicts Should their personal and cor- Confidentiality of interest porate interests become incom- DIRECTORS SHALL: NOVATEK treats information con- NOVATEK’s internal policies seek patible, NOVATEK’s managers and fidentiality as one of its key stability —— promptly give the Chairman of to eliminate any potential conflict employees are obliged to report on the Board a written notification of factors. Disclosures are made in full of interest. The Company’s man- that straight away. They are also personal or commercial interests compliance with the applicable law, agers and employees are expect- supposed to refrain from all forms in all transactions, including those the Company’s Charter and internal ed to advocate the supremacy of competition with the Company involving the Company’s securities; regulations. of corporate interests separating in business and investment proj- —— duly disclose their jobs with other The Company maintains confi- companies and third-party business their personal interests (interests ects. The Company’s officers are interests that might prevent such dentiality agreements with all its of their family, friends, etc.) from not allowed to pursue any proper- members from effective discharge counterparties. decision-making. ty or financial interests in competi- of their duties and responsibilities. tor businesses. They are advised to Insider information refrain from conducting related-par- NOVATEK has strict insider infor- MEMBERS OF THE ty transactions. The Company also mation regulations in place enacting MANAGEMENT BOARD SHALL: seeks to avoid conflicts of interest effective compliance controls in line caused by giving/receiving gifts, —— notify the Management Board of with the Russian Federal Law on services or any other benefits. personal interests in transactions to Preventing Misuse of Insider Infor- In 2016, the Company adopted a which the Company is or intends to mation and Market Manipulation conflict of interest (absence of con- be a party, before such transactions and Amending Select Legislative are decided upon; flict of interest) disclosure practice Acts of the Russian Federation. —— set up or manage no business obligating all officers to complete entities competing with NOVATEK, conflict of interest declarations des- except as allowed by the Board of Protection of property and its ignated by the Company’s relevant Directors. appropriate use regulatory document. Embezzlement, mala fide practices and squander have a direct negative impact on NOVATEK’s profitability and reputation. The employees are hence obliged to make an efficient and reasonable use of the Company’s property, capacities and financial resources.

CONTENTS 44 Sustainability Report 2016 Economic Performance and Sustainability

INCREASE OF LIQUID HYDROCARBON PRODUCTION TO RECORD LEVEL OF 12.4 MMT WAS THE MAIN DRIVER 37% OF TOTAL HYDROCARBON PRODUCTION GROWTH

CONTENTS 45 Sustainability Report 2016 Economic Performance and Sustainability ECONOMIC PERFORMANCE AND SUSTAINABILITY

economic performance

Economic stability NOVATEK’s strategic priorities NOVATEK strives to ensure the In 2016, the Company continued highest business integrity and per- to grow from strength to strength: formance and to build its develop- total hydrocarbon production ment strategy based on economic increased by 3% to 537 mmboe. feasibility and optimization of pro- Driving this growth was the record duction processes. level of liquid hydrocarbon produc- The main competitive edge of tion of 12.4 mmt, an increase of the Company is the high quality 37%, allowing us to fully load our of its hydrocarbon resource base. gas condensate processing facili- Together with effective reserve ties at the Purovsky Plant and the Prudent Optimizing Corporate investment and expanding governance management and use of cut- Ust-Luga Complex. decisions marketing channels ting-edge technologies it enables In 2016, we successfully com- NOVATEK to maintain low develop- pleted the first phase of business ment and lifting costs resulting in transformation by evolving from a high profitability of the Company’s pure domestic gas business to pro- Growth DEVELOPMENT Maintaining operations. duction, processing and global mar- in hydrocarbon OF HYDROCARBON a low-cost production RESOURCE structure NOVATEK’s other key competi- keting of liquid hydrocarbons. Now, BASE tive advantages include: we enter a new phase of transfor- —— size and structure of its hydro- mation with exciting prospects to carbon resource base; grow the Company into a global —— close proximity of producing player in the LNG market. Expansion into Sustainable the international Conservative fields to existing infrastructure; 2016 was a challenging year for development market for liquefied financial policy —— well-developed customer base the oil and gas industry due to a natural gas for natural gas sales; number of negative factors and a —— own facilities for gas conden- challenging macroeconomic envi- sate processing and product ronment, including volatility in glob- exports; al hydrocarbon prices and foreign —— well-developed marketing chan- exchange rates. nels for liquid hydrocarbons; NOVATEK was able to mitigate —— increased operational flexibility; and offset the negative impacts —— focus on use of leading-edge of these factors on its operations technologies in production and thanks to its balanced financial pol- management practices. icy, rapid growth in liquid hydrocarbon production and full utiliza-

CONTENTS 46 Sustainability Report 2016 Economic Performance and Sustainability

tion of its vertically integrated gas Key events and achievements in Signing of Memorandum of —— Successfully reaching the condensate production chain. The 2016: Understanding for Strategic Yarudeyskoye crude oil field’s Company reported growth in its key —— Finalization of external financ- Partnership with the Japan full production capacity of 3.5 financial metrics as total revenues ing package for the Yamal LNG Bank for International mmt annualized and launching increased by 13.1% to RR 537 bln, project for the total amount Cooperation (JBIC). an associated petroleum gas and normalized EBITDA (including equivalent to USD 19 bln with —— Closing of the sale of a 9.9% treatment unit at the field. proportionate share in EBITDA of participation of Russian and equity stake in the Yamal LNG —— Conclusion of a concession joint ventures) grew by 13.2%, hit- international banks, the National project to China’s Silk Road contract with the State of ting an all-time high of RR 242 bln. Welfare Fund of Russia and Fund. Montenegro for the exploration The Company considers sus- international export credit —— Obtaining the rights for the and production of hydrocar- tainable development as one of the agencies. Nyakhartinskiy, Ladertoyskiy, bons on four offshore blocks in key factors driving its economic —— Signing of Memoranda of Tanamskiy, Syadorskiy, West- the Adriatic. efficiency. Understanding with Japan’s Solpatinskiy, North-Tanamskiy, Mitsubishi Corporation, and Nyavuyahskiy license Marubeni Corporation, and areas, as well as for the Mitsui, and Thailand’s PTT. Kharbeyskoye field.

Direct economic value created and distributed, RR mln*

2014 2015 2016 Created economic value

Revenues 362,706 487,947 556,204 Distributed economic value

Operating expenditures 178,224 262,268 284,881 Salaries and other payments and benefits to employees 12,009 15,368 19,885 Payments to suppliers of financial resources 38,278 50,189 57,950 Taxes payable to the budgets of relevant countries 45,587 59,410 79,630 Social investments 727 1,000 1,871 Retained economic value 88,487 99,712 111,987

* Data are based on the following guidelines: Revenues – total revenues plus interest income. Operating expenditures – operating expenses less depreciation, less impairment of assets, less salaries and other payments and benefits to employees, less taxes other than income tax, less social investments. Payments to suppliers of financial resources – dividends paid plus interest paid. Taxes payable to the budgets of relevant countries – current income tax plus taxes other than income tax. Social investments – funds voluntarily directed by the Company to charity, sponsorship, support

CONTENTS of local communities and not directly related to the activities of the Company and its employees. 47 Sustainability Report 2016 Economic Performance and Sustainability

exploration, development and production

Licenses Excluding the decrease in the Total proved and probable hydrocarbon reserves, mmboe Under Russian laws, exploration Company’s proportional share in and production of hydrocarbons in the Yamal LNG joint venture, total Russia is subject to licensing. As proved reserves increased by 2014 2015 2016 at 31 December 2016, NOVATEK’s 2.8% year-on-year, with an organic Proved (SEC) subsidiaries and joint ventures held reserve replacement rate of 168% 12,643 12,817 12,775 39 subsoil licenses in Russia includ- due to successful exploration ing five licenses classified as explo- works and drilling, which amounted Proved and probable (PRMS) 23,069 23,117 22,756 ration licenses. The duration of to reserves addition of 902 mmboe licenses for our core fields exceeds inclusive of 2016 production. The 15 years. primary contributors to reserves additions were the Utrenneye, Hydrocarbon reserves South-Tambeyskoye, Kharbeys- Exploration As at 31 December 2016, koye, Dorogovskoye and Yarudeys- NOVATEK uses a systematic and the appraised reserves volumes NOVATEK’s SEC proved reserves, koye fields. comprehensive approach to explo- and confirm higher well flows at including the Company’s propor- Change in total proved reserves ration and development of its fields the field. tionate share in joint ventures, in 2016 was primarily driven by the and license areas to maximize the We successfully discovered one amounted in aggregate to 12,775 decrease in the Company’s propor- ultimate recovery of hydrocarbons new gas condensate deposit in the mmboe, including 1,755 bcm of tional share in the Yamal LNG joint in a cost-effective manner. Middle Jurassic layer at the Khar- natural gas and 152 mmt of liquid venture from 60% as at year-end In 2016, we continued full- beyskoye gas condensate field, and hydrocarbons. 2015 to 50.1% as at 31 December scale exploration activities at our nine new gas condensate deposits Under the PRMS reserves 2016, resulting from the sale of a license areas located on the Gydan at the Utrenneye, South-Tambeys- reporting methodology, the Com- 9.9% equity stake in Yamal LNG to Peninsula and offshore in the Gulf koye and Yevo-Yakhinskoye fields. pany’s total proved plus probable China’s Silk Road Fund. Therefore, of Ob to fully assess the resource We managed to expand the gas reserves, including the Company’s our total proved reserves decreased potential of this strategically potential of the Achimov layer (very proportionate share in joint ven- by 0.3%, representing a reserve important region. We carried out rich in gas condensate) at the Uren- tures, amounted in aggregate to replacement ratio of 92%. At year- three-dimensional (3D) seismic sur- goyskoye field operated by Arctic- 22,756 mmboe, including 3,067 end 2016, the Company’s reserve veys at the North-Obskiy offshore gas, and confirmed the crude oil bcm of natural gas and 319 mmt of to production ratio (or R/P ratio, license area and also completed potential at the Yarudeyskoye and liquid hydrocarbons. SEC standards) was 24 years. drilling of another exploration well East-Tarkosalinskoye fields, as well at the Utrenneye field. From 2014 as validated the natural gas poten- to 2016, the Company drilled a tial at the Malo-Yamalskoye field. total of five exploration wells at the Utrenneye field, and the well test results allowed us to increase

CONTENTS 48 Sustainability Report 2016 Economic Performance and Sustainability

Yamal LNG’s shareholding structure as at Field development missioning of reservoir pressure 31 December 2016 In 2016, NOVATEK continued maintenance systems. investing capital in developing our As part of the Yurkharovskoye producing and prospective fields. In field development strategy, the the reporting year, the Company’s Cenomanian production area subsidiaries invested RR 23.6 bln in achieved its design capacity with the resource base development. 18 wells in operation, and a 48 MW In 2016, production drilling, Cenomanian gas booster compres- 50.1% including joint ventures, reached sor station was completed and NOVATEK 235 thousand meters, down 30% launched. The 25 MW fourth phase 20% year-on-year. The decrease in drill- of gas booster compressor station Total ing activities is due to the success- was commissioned, bringing the 20% ful completion of the main drilling station’s aggregate capacity up to CNPC program at the fields operated by 300 MW. 9.9% NOVATEK-Yurkharovneftegas, Arc- China’s Silk Road Fund ticgas and Yargeo. The biggest drop Yamal LNG Project in drilling activities was observed at Yamal LNG is the flagship proj- the Yurkharovskoye, Urengoyskoye, ect in NOVATEK’s asset portfolio Yaro-Yakhinskoye and Yarudeyskoye and a transformational move for the fields. Drilling at the South-Tam- Company into the international mar- beyskoye field increased during the ket for liquefied natural gas. The year. project envisages the construction As at 31 December 2016, the production train of the LNG plant A total of 76 wells were put on of an LNG liquefaction plant with field was estimated to contain 607 (58 wells). production, including 41 gas and an annual capacity of 16.5 mmt bcm of proved natural gas reserves The LNG plant will consist of 142 gas condensate wells and 35 crude per annum which will utilize the and 18 mmt of proved liquid hydro- modules weighting between 85 oil wells. resource base of the South-Tam- carbon reserves, under the SEC tonnes and 6,400 tonnes. The mod- In January 2016, a month after beyskoye field in the northeast of reserves methodology. ules are built at contractors’ yards it was commissioned, the Yarud- the Yamal Peninsula. LNG produc- The field development plan pro- and delivered to the construction eyskoye field, with 21 wells drilled tion start-up is scheduled for 2017. vides for the drilling of 208 wells on site by sea. and completed, reached its design At year-end 2016, the construc- 19 well pads, with annual produc- As at 31 December 2016, all production capacity of 3.5 mmt of tion progress on the first train of tion potential exceeding 27 bcm of modules for the first LNG train crude oil per year. The field’s infra- the LNG project was 88%, with the natural gas and 1 million tonnes of were installed on the prepared structure includes a central oil gath- overall construction progress reach- stable gas condensate. foundations, and hook up was in ering facility, a gas treatment unit, ing 75% completion. The project’s At year-end 2016, 73 production progress. The main cryogenic heat a 350-km oil pipeline and a 149-km infrastructure includes a seaport, wells were drilled at the South-Tam- exchanger for the first LNG train gas pipeline. We constructed water an international airport, roadways, beyskoye field, exceeding the well was installed into the liquefaction sourcing wells and completed com- power lines, gas gathering lines and stock required to launch the first module. Compressor equipment for the living quarters. CONTENTS 49 Sustainability Report 2016 Economic Performance and Sustainability

the first train, boil-off gas compres- More than 95% of the LNG plant Hydrocarbon production duction, which more than tripled to sors and the backup heater were output has been contracted on a In 2016, NOVATEK carried out 4,915 thousand tonnes, while gas installed on the prepared founda- long-term basis. To transport the commercial hydrocarbon produc- condensate production was broadly tions, and over 67,500 tonnes of LNG, Arc7 ice-class LNG tankers tion at 13 fields. The Company’s flat at 7,526 thousand tonnes. The pre-assembled pipe racks were will be used. The first tanker was marketable production (including share of liquid hydrocarbon produc- erected. Over 37,000 foundation placed from dry-dock into water in the Company’s share in production tion in our overall production grew piles for the LNG plant were driven, early 2016, fully equipped and by of joint ventures) amounted to 537 by four (4) p.p. year-on-year to 19%. about 3,900 pile caps were installed year-end the LNG carrier success- mmboe, up 3% year-on-year. Our record growth in liquids on the piles, and more than 53,000 fully passed sea acceptance tests. Total marketable production of production was due to the start- cubic meters of concrete were At year-end 2016, five other LNG gas, including the Company’s share up of the Yarudeyskoye oil field, in poured for the foundation. carriers and two Arc7 tankers for in production of joint ventures, December 2015, and the Termokar- The project requires four LNG transportation of stable gas conden- amounted in aggregate to 66.10 stovoye and Yaro-Yakhinskoye gas tanks, including two LNG tanks for sate were under construction. bcm, representing 80.5% of our condensate fields, in 1H 2015. the first train. The pile-supported total hydrocarbon output. The share In 2016, NOVATEK continued outer walls of the tanks are made of gas produced from gas conden- to benefit from some of the low- of concrete while the multi-layer sate bearing layers (“wet gas”) in est lifting costs in the global oil and internal walls ensure leak integrity total gas production was 79.1%. gas industry. The Company’s lifting and thermal insulation. Our marketable gas production costs were RR 38.4 (USD 0.57) per All four LNG tanks successfully was down by 1.8 bcm, or 2.7%, boe in 2016. passed hydro-testing in 2016. year-on-year. The drop was due to natural declines in reservoir pressure at current producing horizons in mature fields. Marketable production of liquid hydrocarbons, including the Com- pany’s share in production of joint ventures, totaled a record 12,441 thousand tonnes, with gas condensate accounting for 60.5% and crude oil 39.5%. Marketable production of liquids increased by 3,347 thousand tonnes, or 36.8%, year-on-year, driven by crude oil pro-

CONTENTS 50 Sustainability Report 2016 Economic Performance and Sustainability

NOVATEK Group’s key operating indicators in 2014–2016 hydrocarbon processing

Purovsky Gas Condensate Ust-Luga Complex Change: 2016 Stabilization Plant Launched in 2013, the Stable Units 2014 2015 2016 vs. 2015 The Purovsky Gas Condensate Gas Condensate Fractionation and Marketable hydrocarbon production (including share in production of joint ventures) Stabilization Plant (Purovsky Plant) Transshipment Complex (the Ust- is the central element in our ver- Luga Complex) is located at the port Total production mmboe 456.7 521.6 537.0 3.0% tically integrated production value of Ust-Luga on the Baltic Sea. The Including: chain. The Purovsky Plant produc- Complex processes stable gas con- Gas mmcm 62,129 67,905 66,103 (2.7%) es stable gas condensate and light densate into light and heavy naph- hydrocarbons. tha, jet fuel, gasoil and ship fuel mmboe 406.3 444.1 432.4 In 2016, the de-ethanized gas component (fuel oil) and enables us Liquid hydrocarbons ’000 tonnes 6,036 9,094 12,441 36.8% condensate processing volumes to ship the value-added petroleum mmboe 50.4 77.5 104.6 at the Purovsky Plant increased by products to international markets. Processing volumes and output of products at the Purovsky Plant 3.1% to 12,397 thousand tonnes. The Ust-Luga Complex also allows The plant’s processing capacity for transshipment of stable gas con- Processing of ’000 tonnes 6,600 12,021 12,397 3.1% matches the aggregate gas condensate to export markets. de‑ethanized condensate densate production capacity of the In 2016, the Complex processed Output: fields operated by NOVATEK and 6,917 thousand tonnes of stable Stable gas condensate ’000 tonnes 5,049 9,664 9,667 0.03% its joint ventures. In 2016, the plant gas condensate into 6,784 thou- Light hydrocarbons produced 9,667 thousand tonnes of sand tonnes of marketable products, ’000 tonnes 1,371 2,228 2,597 16.6% and LPG stable gas condensate, 2,597 thou- including 4,195 thousand tonnes of sand tonnes of light hydrocarbons, light and heavy naphtha, 998 thou- Regenerated methanol ’000 tonnes 14 11 10 (9.1%) and 10 thousand tonnes of regener- sand tonnes of jet fuel and 1,591 Processing and output of marketable products at the Ust-Luga Complex ated methanol. thousand tonnes of gasoil and ship Stable gas condensate fuel component (fuel oil). ’000 tonnes 4,706 6,727 6,917 2.8% processing High value-added petroleum products produced at the Ust-Luga Output: Complex have a significant positive Light naphtha ’000 tonnes 1,425 1,898 2,000 5.4% impact on the profitability of our liq- Heavy naphtha ’000 tonnes 2,006 2,101 2,195 4.5% uid hydrocarbon sales and the Com- pany’s cash flow generation. Jet fuel ’000 tonnes 472 949 998 5.2% As the Ust-Luga Complex Gasoil ’000 tonnes 179 462 443 (4.1%) reached full processing capacity, we Ship fuel component ’000 tonnes 542 1,183 1,148 (3.0%) transshipped stable gas condensate (fuel oil) to export markets by sea.

CONTENTS 51 Sustainability Report 2016 Economic Performance and Sustainability

NOVATEK Group’s sales of natural gas and liquid hydrocarbons marketing and sales in 2014–2016

Natural gas sales Change: 2016 In 2016, the Company supplied In 2016, revenues from gas Units 2014 2015 2016 vs. 2015

natural gas to 35 Russian regions. sales totaled RR 229.7 bln, up 3.4% Natural gas sales Our customers were located pri- year-on-year. The revenue growth marily in the Chelyabinsk, Lipetsk, was driven by higher sales. Total gas sales mmcm 67,231 62,465 64,709 3.6%

Tyumen, Vologda and Kostroma In order to offset seasonal Liquid hydrocarbon sales Regions, the Perm and Stavropol changes in demand for natural gas, Territories, the Khanty-Mansi and the Company has engaged Gaz- Total liquid hydrocarbon ’000 tonnes 7,089 12,888 16,850 30.7% Yamal-Nenets Autonomous Areas, prom to provide gas storage ser- sales the Republic of Tatarstan, and in vices. Natural gas inventories are Including: Moscow and the Moscow Region. accumulated during warmer periods Petroleum products ’000 tonnes 4,438 6,693 6,662 (0.5%) The above regions accounted for when demand is lower and then (Ust‑Luga) over 94% of our total gas sales. used to meet increased demand Crude oil ’000 tonnes 903 1,090 4,650 326.6% In 2016, gas sales volumes during colder periods. At year-end totaled 64.7 bcm, up 3.6% year-on- 2016, our inventories of natural gas Stable gas condensate ’000 tonnes 303 2,786 2,812 0.9% year, as compared to 62.5 bcm in in underground gas storage facil- Light hydrocarbons ’000 tonnes 504 1,026 1,468 43.1% 2015. The increase was driven by ities amounted to approximately LPG ’000 tonnes 930 1,280 1,245 (2.7%) restored sales to one of NOVATEK’s 0.8 bcm. Other ’000 tonnes 11 13 13 0.0% major customers, who did not take full contracted volumes in 2015 Liquid hydrocarbon sales due to technical reasons, as well Total sales of liquid hydrocarbons as extra sales of natural gas to our in 2016 amounted in aggregate to tonnes of such products, including was mainly supplied to the Asia-Pa- end-customers and wholesale trad- 16,850 thousand tonnes, up 30.7% 4,113 thousand tonnes of naph- cific Region, while North-Western ers. The share of gas sales to end year-on-year. The growth was main- tha, 985.6 thousand tonnes of jet Europe was the major consumer of users was 92.2%, virtually flat com- ly due to an increase in crude oil fuel, and 1,563.7 thousand tonnes jet fuel, gasoil and fuel oil. pared to 2015. production. Export sales grew by of gasoil and ship fuel component In 2016, revenue from liquids 9.6% year-on-year to 9,869 thou- (fuel oil). The bulk of processed sales increased by 21.7% year-on- sand tonnes. SGC products (98%) were sold for year to RR 304.1 billion, mainly driv- High value-added products pro- exports. Sales to the European mar- en by higher sales volumes. cessed from stable gas condensate kets accounted for 53% of total (SGC) by the Ust-Luga Complex exports, 29% were sold to Asia-Pa- accounted for 40% of our over- cific, 14% to North America, and all sales. We sold 6,662 thousand 4% to the Middle East. Naphtha

CONTENTS 52 Sustainability Report 2016 Economic Performance and Sustainability

dividend policy

The Company’s dividend and form of payment is passed the Company, as well as its 139.0 per one Global Depositary policy is governed by NOVATEK’s by the Annual General Meeting development prospects, including Receipt (GDR) (including an interim Regulations on Dividend Policy of Shareholders based on the operating cash flow and capital dividend for 1H 2016 in the amount approved by the Board of Directors recommendation of the Board of expenditure forecasts, and of RR 6.9 per ordinary share). on 28 April 2014 (Minutes No. 168 Directors. Dividends are paid twice borrowing needs. dated 28 April 2014). In accordance a year. NOVATEK is strongly committed with the Regulations, the amount In making a recommendation to its dividend policy. of dividends is calculated based on to the Annual General Meeting of The Annual General Meeting of consolidated net profit under IFRS. Shareholders on the amount of Shareholders of NOVATEK held on A decision to pay a dividend, as dividend, the Board of Directors 21 April 2017 resolved to pay a final well as its amount, payment date considers the current financial dividend for 2016FY in the amount and competitive position of of RR 13.9 per ordinary share, or RR

Accrued and paid dividends on NOVATEK’s shares for the period 2011 to 2016

Dividend accrual period Amount of dividends, RR Total amount of dividends Total amount of dividends per share accrued, RR paid, RR

2011 6.00 18,217,836,000 18,217,661,018

2012 6.86 20,829,059,160 20,829,057,901

2013 7.89 23,956,454,340 23,956,386,796

2014 10.30 31,273,951,800 31,273,941,251

2015 13.50 40,990,131,000 40,990,056,937

2016 13.90 42,204,653,400 42,204,604,017

CONTENTS 53 Sustainability Report 2016 External Social Policy

RR BLN NOVATEK INVESTED IN PROJECTS AND ACTIVITIES RELATED TO THE SUPPORT OF INDIGENOUS PEOPLES, CHARITABLE CONTRIBUTIONS, CULTURAL AND EDUCATIONAL PROGRAMS

CONTENTS 54 Sustainability Report 2016 External Social Policy EXTERNAL SOCIAL POLICY

cooperation with russian regions

NOVATEK places considerable NOVATEK contributes significant- The Company’s social invest- Tyumen, Samara and Kostroma emphasis on social investment ly to the social and economic devel- ments are aimed at improving living Regions in 2016. NOVATEK also and charity. In 2016, the Compa- opment of Russian regions as a standards and establishing favor- financed the construction, renova- ny continued to pay close atten- major taxpayer, employer, and a part- able social conditions across its tion and upgrades of social infra- tion to projects aimed at supporting ner in large-scale federal and local footprint. structure facilities, allocated funds education and culture, preserving projects. Under the agreements signed for support educational, cultural, and reviving national values and The Company is involved in the with a number of regions, the Com- children and youth programs and spiritual legacy of Russia, promot- development of the regions in which pany made investments in the projects, and supported low-income ing Russian art and its integration it operates and treats its contribution Yamal-Nenets Autonomous Area, families, people with disabilities into the international cultural space, as a social partnership, the princi- and the Leningrad, Chelyabinsk, and the elderly. and developing amateur and pro- ples of which underpin NOVATEK’s fessional sports. NOVATEK signs activities. agreements with local administrations in the regions in which the Company operates, rolls out corpo- Social investment structure in 2016, % Social investments in 2013–2016, rate projects and implements pro- RR bln grams across these regions to help improve living standards and preserve the distinctive cultural identity 1.9 of indigenous peoples of the North. 60% In 2016, NOVATEK Group donat- Support of indigenous ed RR 1.9 bln to charity, cultural peoples of the North 21% and educational projects and initia- 1.2 tives, and provided financial sup- Sports programs 1.0 port to indigenous minorities of the 9% North. In the reporting year, most of Cultural programs and 0.7 the funding (60.1%) was spent on projects 6% supporting indigenous peoples of the North. Educational programs 4% Other 2013 2014 2015 2016

CONTENTS 55 Sustainability Report 2016 External Social Policy

support of indigenous peoples educational programs and minorities of the north

Following the policy of cooper- Each year, the Company allo- For many years, NOVATEK Group Gifted Children Program ation with indigenous peoples and cates substantial funds to renovate has been running a continuing edu- The Gifted Children Program minorities of the North, NOVATEK* power supply facilities, housing cation project to ensure an inflow is run at Secondary School No. 8 is implementing a comprehensive and utilities infrastructure, roads, of properly qualified young talent Educational Center in Novokuyby- program to improve their living con- medical centers and other facili- from the regions in which the Com- shevsk, Samara Region, and Sec- ditions and help them preserve their ties in indigenous communities. pany operates. The project starts at ondary School No. 2 in Tarko-Sale, culture and identity. The Company NOVATEK helped develop the vil- schools, and is followed by special- Purovsky District, Yamal-Nenets provides substantial assistance to lage of Seyakha in the Yamalsky ized higher education, internships, Autonomous Area, and School No. indigenous communities on an annu- District, including development of and subsequent employment. Tra- 81 in Tyumen. al basis. This includes: infrastructure and construction of ditionally, this training system is of Under the program, special- —— financing the development and houses and community and cultural great importance for the Company. ized classes comprising the most improvement of settlements, facilities. The Company is support- In 2016, the Company spent RR talented students from grades 10 including housing construction; ing the construction of a school for 43.9 mln on the Gifted Children, and 11 are organized on a compet- —— construction, renovation and 800 pupils and a 100-tonne cold Grants, and NOVATEK-VUZ educa- itive basis. The standard curricu- maintenance of educational and storage facility in the village of tional programs. lum is extended to include courses community facilities; Gyda of the Tazovsky District. We in applied physics, mathemati- —— assisting in the development of funded the construction of a fish cal methods of physics, advanced a local healthcare system; hatchery in the Kharp village on mathematical tasks, history of world —— supplying fuel and lubricants, the Sob River (Priuralsky District, culture, and economics. and providing aircraft and motor Yamal-Nenets Autonomous Area) In 2016, 95 school students were vehicles, including for boarding and opened trading posts, where trained under this program. school children’s transportation reindeer herders, fishermen and and emergencies; hunters can exchange fish and ven- Grants Programs —— providing social assistance to ison for the goods and food prod- The Company runs two Grants low-income families; ucts they need. Programs. —— delivering food and everyday In 2016, NOVATEK provid- products to remote areas; ed financial support to the Yamal —— assisting in the set-up and run- for Descendants Association of ning of indigenous festivals. indigenous peoples and its district branches.

* Governed by the Regulations on NOVATEK’s Contribution to Social and Economic Development of Indigenous Minorities of the North Living within License Areas of NOVATEK and its Land-Using Subsidiaries and CONTENTS Affiliates (adopted on 1 October 2005). 56 Sustainability Report 2016 External Social Policy

preserving cultural heritage

Grants Program for schoolchildren NOVATEK-VUZ Program The most motivated and talent- In 2016, NOVATEK continued its Under the program launched as The program focuses on dedi- ed graduates of the Gifted Children cooperation with Russia’s leading early as 10 years ago, students of cated high-quality undergraduates’ Program, children of employees at cultural and educational institutions, grades 5 through 11 based in the training in subjects linked to the key NOVATEK’s subsidiaries, and other charitable foundations, and creative Purovsky District, Yamal-Nenets areas of the Company’s operations gifted graduates of schools in the groups. The Company provides sup- Autonomous Area, receive the Com- to support its growth and ensure a Purovsky District are eligible for the port to the Moscow Kremlin Muse- pany’s grants on a competitive basis. pipeline of young talent. NOVATEK-VUZ Program. ums, the State Russian Museum, The program supports their intel- The program covers the follow- As at 31 December 2016, 57 the Moscow Museum of Modern lectual and creative development, ing universities: students were trained under this Art and the Multimedia Art Muse- encouraging responsible attitude to —— Saint Petersburg Mining program. um. In 2016, NOVATEK supported learning and activism. University; Students demonstrating good the following events. Over the years of the program’s —— Gubkin Russian State Universi- academic progress receive addition- —— The Moscow Kremlin Muse- existence, local students have ben- ty of Oil and Gas (Moscow); al monthly allowances in addition ums, with assistance from efited from a total of 1,535 grants, —— Industrial University of Tyumen. to their state-sponsored bursaries. NOVATEK, prepared and host- including 36 grants awarded in 2016. Besides, each student receives ed the exhibition titled “The commuter allowance. During their Elegance and Splendor of Art Grants Program for teachers studies, the students are offered Deco. The Kyoto Costume of the Purovsky District, paid internships at the Company. In Institute, Jewelry Houses Carti- Yamal‑Nenets Autonomous Area 2016, 35 students of the NOVATEK- er and Van Cleef & Arpels”. The Grants Program for teachers VUZ Program completed an intern- —— The Company supported the is intended to raise the prestige of ship at the Company’s subsidiaries. Wassily Kandinsky and Russia the teaching profession and create Based on their academic and exhibition in the State Rus- favorable conditions for developing internship performance, the best sian Museum to mark the new and talented teachers. NOVATEK-VUZ Program graduates 150th anniversary of the artist Since the Grants Program’s are selected. In the reporting year, who co-founded the abstract launch, teachers have received 72 17 graduates were hired by the art movement, and continued grants, including five grants in 2016. Company’s subsidiaries. As at 31 supporting the annual Imperial December 2016, 77 graduates of Gardens of Russia International the NOVATEK-VUZ Program were Festival in Saint Petersburg. employed by the NOVATEK Group.

CONTENTS 57 Sustainability Report 2016 External Social Policy

promotion of sports

—— In partnership with NOVATEK, —— For several years, NOVATEK Mass and professional sport pro- NOVATEK collaborated with the the Moscow Museum of Mod- has been supporting the Histo- grams are of major importance for Russian Federation of Acrobatic ern Art presented “Little Gold- ry of Russia in Photographs, a NOVATEK. The Company, its sub- Rock’n’Roll to establish corporate en America: Based on a True major program run by the Mul- sidiaries and joint ventures regularly clubs for this sport, and their stu- Story”, the exhibition devoted timedia Art Museum. As part hold tournaments in the most pop- dents will take part in competitions to Ilya Ilf’s and Evgeny Petrov’s of the program, in 2016 the ular and wide-spread sports, such as early as in 2017. travels, as well as “Sculptures Company helped launch two as soccer, volleyball, swimming, In the reporting year, NOVATEK and Reliefs”, a solo exhibition exhibitions: “Sergey Shiman- skiing, etc. continued cooperation with the of Stephan Balkenhol. sky. Leningrad” and “Alexan- The Company supports the Russian Football Union as the Gen- —— Starting in late 2015, the edu- der Rodchenko. Experiments children and youth sports in the eral Partner of the Russian national cation division of the Moscow for the Future”. regions in which it operates. The football team. Museum of Modern Art has —— In 2016, NOVATEK traditional- NOVATEK – Step to Bigger Foot- The Company supported been delivering a special series ly cooperated as the General ball Indoor Football Cup among sec- women’s volleyball club Dina- of lectures on the history of the Partner with the Moscow Solo- ondary school teams expanded its mo and the NOVA Volleyball Club 20th century Russian and for- ists Chamber Orchestra and geographical footprint in 2016. In (Novokuybishevsk). eign art, photography, architec- acted as the General Partner addition to the competition in the ture and cinema to the Com- of the tour across Russia and Chelyabinsk Region, which was pany’s employees and their Europe of the All-Russian Youth attended by several thousand boys families in NOVATEK’s office. Symphony Orchestra led by and girls, the tournament was held To expand this activity, in 2016 Yuri Bashmet. in several cities and towns of the the Company for the first time Kostroma Region, bringing together supported the education pro- more than one hundred teams. gram of the Fifth Moscow The Company supported Figure Biennale of Contemporary Art. Skating and Ice Hockey Federations of the Yamal-Nenets Autonomous Area, and the Student Basketball Association.

CONTENTS 58 Sustainability Report 2016 External Social Policy

volunteering novatek-veteran program

NOVATEK promotes and highly received essential homeware and The NOVATEK-Veteran Social Employees of the Foundation vis- values employee contributions to hygiene products to facilitate their Protection Foundation was estab- ited veterans living in Tarko-Sale to support low-income social groups. adaptation to living independent- lished in 2005 to provide social give them flowers and gifts. Out- The Company continued its ly. In December 2016, one of the assistance to ex-employees of the of-town veterans received greeting cooperation with Chulpan Khama- Company’s offices hosted the tradi- oil and gas sector with a consider- messages via mail. It has become tova’s Gift of Life charitable foun- tional Tree of Wonders event seek- able employment track record in a tradition for retired employees to dation in 2016 and held a blood ing to collect New Year gifts for chil- the Russian Far North. At year-end participate in the Immortal Regi- donor session for children receiving dren: every employee would pick 2016, the Foundation registered ment procession taking part on the treatment in the Russian Children’s up a letter of wishes and provide 888 retired employees. The Foun- Victory Day. Clinical Hospital at the Company’s a gift for the kid who wrote it. The dation is the only nongovernmental During the year, the Compa- headquarters in Moscow, in collab- event also offered an opportunity to organization in the Purovsky district, ny organized multiple cultural and oration with the foundation. raise funds for children’s needs. Yamal-Nenets Autonomous Area, festive events to celebrate nation- NOVATEK expanded the scope In December 2016, NOVATEK’s assists and supports to retired al and industry-specific holidays of activities undertaken by its All volunteers partnered with the employees, who devoted their lives and arranged for retired employees Together volunteer movement, Enjoyable Aging charitable founda- to the country’s oil and gas sec- to visit a number of concerts and which was founded in 2008. Assis- tion on the initiative to collect New tor, focusing on financial assistance performances. tance to orphans and children with Year gifts for lonely elderly people and moral support for the industry In 2016, the quarterly financial various illnesses, the elderly, as living in nursing homes in various veterans. allocations to retired employees well as support for the blood donor Russian regions. In May 2016, the In the reporting year, there was amounted to RR 4,189 per per- movement remained the key focus volunteers also raised funds to help a recognition of war veterans and son. The assistance amount was areas for our employee volunteers. treat children with severe diseas- home front workers on the eve indexed by 7% on 1 January 2016. In 2016, volunteers went on es on the occasion of the Blood of the Victory Day celebrations. In the reporting year, the Company regular visits to Foster Home No. Donor Day. The Company’s volun- spent a total of RR 24.7 mln to fund 2 in Vyshny Volochok and to a fos- teers continue to support the Home the NOVATEK-Veteran Program. ter home in the village of Mosolo- of ROST Initiative (Ivanovo Region, vo in the Ryazan Region to social- Petrovsky settlement) seeking to ize with kids and arrange various prepare orphaned children for life in festivals, tours, outings and sports adoptive families and provide com- events. They were also bringing prehensive development opportuni- to the orphans clothes, homeware ties for them. and gifts donated by the Compa- ny’s employees. In May, our volunteers held the 2016 Graduate cam- paign to support graduates of foster homes. Foster home graduates

CONTENTS 59 Sustainability Report 2016 Employment Practices

THE TOTAL STAFF HEADCOUNT OF NOVATEK, ITS SUBSIDIARIES AND JOINT VENTURES 11, 5 3 6 AT YEAR-END 2016

CONTENTS 60 Sustainability Report 2016 Employment Practices EMPLOYMENT PRACTICES

Staff profile by gender and location personnel Staff profile as at 31 December 2016 (NOVATEK, its subsidiaries and joint ventures), % NOVATEK emphasizes respon- Location Female Male Total sible and equitable treatment of YNAO employees as a key element of 1,056 6,225 7,281 sustainable development. Our peo- Moscow 661 1,090 1,751 ple are our greatest asset ensur- Moscow Region 4 4 8 ing growth and advancement of our competitive position. The Compa- St Petersburg 3 2 5 ny’s staff make an immense con- Leningrad Region 123 418 541 tribution to its current and future business through their intellectual, Volgograd Region 97 93 190 physical and creative effort. Astrakhan Region 9 10 19 NOVATEK’s HR management framework is underpinned by fair Kostroma Region 106 82 188 and equitable treatment, mutu- Perm Territory 12 9 21 al respect, and an ongoing dialogue between management and Tyumen Region 78 136 214 employees. We care about profes- Samara Region 0 2 2 sional development of our people, Stavropol Territory 2 6 8 enhancing it through our effective 58% training and development system. Chelyabinsk Region 607 328 935 At year-end 2016, the total staff Exploration and production 20% Rostov Region 78 115 193 headcount of NOVATEK, its subsidiaries and joint ventures was Transportation and marketing Murmansk Region 28 40 68 11,536*. The majority of our peo- 11% Arkhangelsk Region 0 3 3 ple are employed full-time, with Processing NOVATEK as their primary employ- 6% Cyprus 3 0 3 er. This Report does not include Administrative staff Singapore 4 4 8 part-timers, as their share is mar- 4% Poland ginal to the Company (below 0.5%). Power supply 19 43 62 We source practically no services 1% Switzerland 17 19 36 from freelancers, sole proprietors Auxiliary production GROUP’S TOTAL or practitioners. 2,907 8,629 11,536

* Hereinafter (in the text and calculations behind the figures reported), this number accounts for full-time employees, with NOVATEK, its subsidiaries CONTENTS or joint ventures as their primary employer. 61 Sustainability Report 2016 Employment Practices

Management profile by gender and age as at 31 December 2016 Staff profile by gender and age as at 31 December 2016 (NOVATEK, its subsidiaries and joint ventures), %

Top managers Female Male Total

Under 30 0 0 0

30 To 50 32 111 143

Above 50 8 42 50

TOTAL: 40 153 193

As at the end of the reporting The majority of the staff are year, over half of the Company’s male (75%) due to the specific 75% 17% staff (63%) were located in the nature of our core business. That Yamal-Nenets Autonomous Area said, male and female employees Male Under 30 (YNAO), with NOVATEK Group’s enjoy equitable treatment and equal 25% 68% Moscow-based entities (includ- opportunities. Female 30 to 50 ing joint ventures) accounting for Our team is mainly (68%) in the 15% about 15% of FTEs. NOVATEK’s most active age group (between 30 above 50 global subsidiaries employed some and 50). 109 people. In 2016, we hired 2,196 new people. In the reporting year, 153 employees took their maternity and child care leaves.

CONTENTS 62 Sustainability Report 2016 Employment Practices

Most of our staff (91%) are hired In 2016, the minimum compen- Open-term contract staff profile Fixed-term contract staff profile by gender as at by gender as at based on open-term employment sation of NOVATEK’s personnel in 31 December 2016, % 31 December 2016, % contracts. the key regions of operation (Mos- A small share of our staff (9%, cow and YNAO) was significantly or 1,013 employees) are employed higher than the local official mini- under fixed-term contracts. mum wages.

Moscow YNAO

Minimum compensation of NOVATEK’s personnel in 2016 RR 30,500 RR 23,400

Official minimum wage before 1 October 2016 RR 17,300 RR 12,431

Official minimum wage from 1 October 2016 RR 17,561 RR 12,431

76% 62% Male Male 24% 38% Female Female

CONTENTS 63 Sustainability Report 2016 Employment Practices

corporate technical competency Number of people who under- personnel training and assessment system went professional potential development testing in 2013–2016

In 2011, NOVATEK and its core In the reporting year, the assess- Our multi-level training and pro- subsidiaries introduced the Corpo- ment system was rolled out to fessional development program rate Technical Competency Assess- Nortgas, NOVATEK Scientific and enables our employees to contrib- ment System designed for test- Technical Center, and Terneftegas. 1,019 ute to improving the Company’s ing professional potential of their In 2016, 1,019 employees were performance, particularly amid the 936 engineers and technical specialists. tested, including 33 persons tested rapid pace of technology inno- The system helps monitor the prog- at recruitment and 135 persons at vation and management system ress of employees’ technical com- promotion. development. petencies and assess them when In 2016, over 5,000 employees employing people or promoting 701 of NOVATEK Group were trained them to higher positions. under a variety of programs which provided a total of almost 910 thousand hours of training (a major increase over 2015 was due to the training provided to the Yamal LNG Company Qualification lists Number of employees plant blue-collar workers). developed tested 343 The gender balance of employ- Nortgas 67 129 ees trained is generally on par with the overall gender balance of our NOVATEK Scientific and team. Training for blue-collar work- Technical Center 74 138 ers took on average six times as much time as that for other job categories. Terneftegas 62 92

2013 2014 2015 2016

CONTENTS 64 Sustainability Report 2016 Employment Practices

Employee professional In-house Training program ing courses on the following top- Steps in Discovering Talents development program In order to provide targeted pro- ics: “Seismic Exploration Basics”, program In 2016, NOVATEK continued fessional development opportuni- “Integrated Engineering of Gas In 2016, we had our fourth class its efforts to advance professional ties, an In-house Training program Condensate Fields”, “Geological of graduates under the Steps in Dis- development of its staff, improve was launched in 2016, with employ- 3D Modelling Basics”, “Integrat- covering Talents program, with 37 working conditions and train its per- ees at our subsidiaries providing ed Interpretation of Seismic and young specialists successfully com- sonnel in safe working practices training to their fellow team mem- Log Data”, “Lithofacies analysis. pleting the onboarding and on-the- at its production facilities. A total bers in a variety of industry-specif- Sedimentary Environments. Theory job professional development pro- of 48.3% of white- and blue-collar ic topics. and Practice”, “Hydrocarbon Fluid gram. In autumn 2016, another 42 workers upgraded their skills. In 2016, the In-house Training Properties for Modelling their Pro- young specialists joined the pro- program was put together by man- duction, Treatment, and Transporta- gram, with 32 mentors assigned to agers and experts at NOVATEK tion”, etc. them after completing the Mentor- Scientific and Technical Center. A total of 184 employees of ing Culture training course. The program comprised 15 train- NOVATEK Group received training In 2016, the Value Creation under the program in 2016. Mindset and Cross-Functional Inter- action training courses were provided for the first time to the young talent benefiting from the program.

Average training time by gender in 2016 Average training time by position in 2016

Male Female Average training hours per trainee

Total employees 8,534 2,758 Top managers 40.11 Middle managers 54.04 Total training hours 873,688 35,524 White-collar workers 63.89

Average training hours per employee 102.38 12.88 Blue-collar workers 241.58

CONTENTS 65 Sustainability Report 2016 Employment Practices

trade union relations social policy

Interregional Research-to- Professional Skills Contest Nearly half of the Company’s NOVATEK’s social policy is being Practice Conference for young In November 2016, Tarko-Sale workforce are trade union mem- implemented in line with the Con- specialists hosted the 2nd Interregional Pro- bers. The constructive dialogue cept adopted in 2006, which pro- In September 2016, Mos- fessional Skills Contest among between the Company’s man- vides for a comprehensive and cow hosted the 11th Interregional field workers. NOVATEK-TARKO- agement and trade unions helps coherent approach to addressing Research-to-Practice Conference SALENEFTEGAS provided its facili- defuse social tensions related to social challenges. for the Company’s young special- ties for the contest. The number of labor disputes. Regular meetings ists attended by 70 employees. companies and participants in the with trade unions have contributed Following the competition held as contest doubled from 2015 to 67 to the establishment of an effective part of the conference, all win- employees from eight NOVATEK workforce feedback, which allows NOVATEK Group’s total spend- ners received bonuses, and 12 of Group companies. In addition to the the Company to identify potential- ing on targeted social programs, the most successful participants, four jobs covered by the first con- ly challenging issues and respond RR bln including the winners in the Best test, namely oil and gas production to them at short notice. Our Implemented Project category, operator, process unit fitter, electri- long-standing commitment to this were awarded a trip to petroleum cal equipment fitter, and instrument policy has ensured that the Com- training centers in Australia. and automation fitter, the 2016 con- pany has never seen a single case 1.4 1.4 test included two more job cate- of stoppages or strikes due to labor 1.3 gories: process unit operator and disputes. 1.2 chemical analysis technician. All In 2016, the Company spent a participants received valuable gifts total of RR 4.9 mln to support trade and the winners in each profession- union activities. al category were awarded bonuses and personal salary allowances in recognition of their professional excellence.

2013 2014 2015 2016

CONTENTS 66 Sustainability Report 2016 Employment Practices

Special-purpose compensation Voluntary medical insurance Number of employees and their Pension program and social support payments for employees family members who purchased Since 2007, NOVATEK has The program provides for target- The program includes full health resort vouchers under undertaken to pay supplementary ed financial support for the Com- outpatient care, dental care, NOVATEK Group’s program benefits to the retired employees in pany’s employees in specific life and emergency and scheduled line with the Regulations on Social situations, including childbirth, aid hospitalization. Benefits for Retired Employees of in case of natural disasters or fire, NOVATEK Group. Employees who child care allowance (ages 0–3), RR 125.1 MLN SPENT ON spent at least five years with the support for disabled children’s care, EMPLOYEE VOLUNTARY MEDI- Company are entitled to monthly funeral cost coverage, etc. CAL INSURANCE IN 2016. benefit payments from the Com- pany when they retire upon reach- RR 573.9 MLN SPENT ON SPE- Therapeutic resort treatment ing full retirement age (payments CIAL-PURPOSE COMPENSA- and rehabilitation program are terminated if the retiree gets TION AND SOCIAL SUPPORT The Company’s employees and employed). The benefit amount is PAYMENTS. their family members can pur- subject to the employee’s average chase health resort vouchers at a 3,479 salary, length of tenure with the State guarantees discount. Company and geographical location support program In 2016, a total of 3,479 people of their workplace. The program covers employ- purchased vouchers under this pro- The program is an unsecured ees working in the Far North and gram to spend their vacations in 45 pension scheme with fixed ben- equal-status localities, providing for health resorts located in Russia’s efit amounts calculated based on 2,464 compensation of vacation travel most picturesque settings. inflation forecasts, salary growth expenses (including luggage trans- rate analysis, the Company’s remu- portation to/from the vacation des- RR 132.1 MLN SPENT ON THER- neration policy, and demograph- tinations) for the employees and APEUTIC RESORT TREATMENT 1,876 1,882 ic assumptions. In the Consolidat- unemployed members of their fami- AND REHABILITATION IN 2016 ed Statement of Financial Position, lies. In 2016, 3,553 people received the current value of defined benefit compensation under the program. pension obligations is recognized as “Other Long-Term Liabilities” RR 87.3 MLN SPENT ON STATE and stands at RR 2.2 bln as at 31 GUARANTEES SUPPORT IN 2016. December 2016.

2013 2014 2015 2016

CONTENTS 67 Sustainability Report 2016 Employment Practices

Number of employees recognized with awards in 2016 The average monthly social ben- —— Interest-free special-purpose efit amount in 2016 (following a 7% home loans to employees annual increase on 1 January 2016) residing in Tarko-Sale, Novy Number of was as follows: Urengoy, Moscow, Sosnovy Award recipients —— RR 7,103 in Moscow, St Bor and Tyumen. In 2016, a Petersburg, Far North and total of 50 families took out Government awards 6 equal-status localities; interest-free special-purpose —— RR 2,540 in Perm and other home loans under the program. cities. Distinguished Employee of the Russian Oil and Gas Industry 1 RR 226.8 MLN SPENT ON REPAY- As at 31 December 2016, a total ABLE FINANCIAL AID IN 2016. Distinguished Geologist of the Russian Federation 5 of 758 people benefited from the

program. Corporate awards Industry awards Top-performing employees of 44 RR 50.4 MLN SPENT ON THE NOVATEK Group are recognized PENSION PROGRAM IN 2016. with government, industry and cor- Certificate of Merit from the Russian Ministry of Energy 32 porate awards, as well as awards Repayable financial by the Company’s subsidiaries. Letter of Acknowledgement from the Russian Ministry of Energy 12 aid program The Company’s corporate The program has two focus awards include Honored Employee Corporate awards areas: of NOVATEK, NOVATEK Certificate 311 —— Special-purpose short-term of Merit, and NOVATEK Letter of loans intended for employees Gratitude. The Honoured Employ- Honored Employee of NOVATEK 5 in need of financial assistance ee of NOVATEK is the highest cor- due to personal circumstances. porate distinction which can be NOVATEK Certificate of Merit A total of 168 employees conferred on a maximum of five 138 applied for loans under the employees in any one given year. program in 2016. NOVATEK Letter of Gratitude 168 RR 13.3 MLN SPENT ON CORPO- RATE AWARDS IN 2016. Subsidiary awards 273

Certificate of Merit 273

TOTAL: 634

CONTENTS 68 Sustainability Report 2016 Employment Practices

In 2016, 1,081 employees along Corporate cultural and sporting physical culture as a bonding expe- In December 2016, the Compa- with their families and friends, events program rience that fosters friendships and ny arranged a traditional concert by and partners of the Company The program is an essential ele- understanding among employees Yuri Bashmet’s Moscow Soloists visited exhibitions and museums ment of the Company’s corporate and their families. Chamber Orchestra for its partners, under the corporate program. culture. employees and their families. Corporate cultural events NOVATEK partners with the RR 81.5 MLN SPENT ON CORPO- NOVATEK has traditionally put Moscow Kremlin Museum, Mos- RATE CULTURAL AND SPORTING a special focus on corporate cul- cow Musical Theater and Multime- EVENTS IN 2016. ture and corporate leisure activi- dia Art Museum to enable hun- ties, as they contribute to a favour- dreds of employees, their families, Sports able working environment within friends and partners to admire the NOVATEK has traditionally laid the Company. NOVATEK’s subsid- cultural events and masterpieces of great emphasis on encouraging iaries hold festive events to mark Russian and world art. employees to engage in regular the International Women’s Day, physical exercises. In order to pro- Defender of the Fatherland Day, Oil mote wellness and fitness among and Gas Industry Employee’s Day, its staff, the Company rents gyms, and New Year. swimming pools and playgrounds, On 3 September 2016, the Com- and offers its employees partial pany hosted the Story of a Real reimbursement of gym member- NOVATEK event in the Geolog Cul- ship fees. tural and Sporting Center in Tar- 516 In addition, NOVATEK frequent- ko-Sale for the employees of sub- Moscow Kremlin ly holds corporate sports compe- sidiaries on the occasion of the Oil 454 titions, including annual indoor and Gas Industry Employee’s Day. Multimedia Art Museum and soccer matches, volleyball and At a special function, awards were Moscow Museum of Modern swimming competitions. presented to the best employees Art NOVATEK is committed to tradi- in the following categories: Imple- 111 tional values and sees sports and mented Projects, The most sport- Moscow Musical Theater ive team, Mentor by designation. The event ended with a traditional induction ceremony for young employees was held.

CONTENTS 69 Sustainability Report 2016 Procurement Practices PROCUREMENT PRACTICES

key approaches

Procurement of materials and NOVATEK relies on centralized The Company treats all prospec- The weighted average cost of equipment in NOVATEK Group is procurement for purchases of stra- tive suppliers equally. Any company ownership is a major consideration based on the principles of fair com- tegically important materials and may take part in a tender, as long in purchasing equipment. Suppliers petition among suppliers, priority of equipment or when aggregation is as it is eligible and has filed a duly are required to have adequate tech- equipment manufacturers over trad- economically reasonable and feasi- completed application form. Coun- nical and production capabilities and ing and procurement companies, ble, and offers a significant posi- terparties are selected on the basis necessary equipment, along with long-term partnerships with major tive effect. All other categories of of their pricing, delivery terms, qual- engineering and blue-collar staff. A producers, and strict control over materials and equipment are pur- ity of their products or services, successful track record of operating quality and delivery terms. chased by subsidiaries and joint financial stability and business the supplier’s equipment in the Far The Company’s procurement is ventures, while NOVATEK controls reputation. North is preferred. All things being in line with its internal regulations. the procurement process and pro- To select suppliers of materi- equal, preference is given to Rus- The main document governing vides guidelines. This approach als and equipment for the needs of sian suppliers. NOVATEK Group’s procurement is increases responsibility of subsid- NOVATEK Group, the Company col- Regulations on the Organization of iaries and joint ventures for the out- lects information on qualifications, Competitive Tendering. come while maintaining the leading and technical and production capa- The Company’s procurement role of the parent company. bilities of prospective suppliers. structure provides for both central- NOVATEK’s procurement poli- We collect information in an open ized and decentralized purchasing. cy gives absolute priority to pub- manner outside the procurement lic tenders, allowing the Compa- procedures. All interested suppli- ny to diversify its suppliers, keep ers are required to register with an up-to-date supplier register, and NOVATEK’s procurement system by ensure optimal delivery terms and filling out a questionnaire. conditions.

CONTENTS 70 Sustainability Report 2016 Procurement Practices

supply chain management import substitution policy

If operational quality and reliabili- tract is then informed of the results. NOVATEK pays great attention to The Company collaborates close- ty of the supplied complex process The same procedure applies import substitution and local man- ly with the leading Russian manu- equipment are affected materially to the procurement of materials ufacturing of process equipment in facturers of oil and gas equipment, by its components, the supply chain and equipment by contractors. In Russia. joining forces to identify foreign management approach is used. that case, the suppliers of expen- NOVATEK prioritizes domestic equipment to be primarily substitut- In most cases, this approach is sive materials, namely pipe prod- products with the same price-qual- ed with domestic counterparts. required when modular equipment ucts and components, shut-off ity ratio as foreign counterparts but is purchased from suppliers of shut- valves, cables, cable support and with a lower total cost of owner- off and control valves, instrumenta- cable heating systems, are pre-se- ship. NOVATEK’s experts are active- tion and automation equipment. In lected based on the competitive ly involved in oil and gas compa- that case, NOVATEK, its subsidiar- procedure. nies’ meetings under the Russian ies and joint ventures independent- Ministry of Industry and Trade. ly select sub-suppliers through a competitive procedure. The princi- pal supplier under the relevant con-

CONTENTS 71 Sustainability Report 2016 Occupational Health and Safety

RR MLN SPENT ON OCCUPATIONAL 693 HEALTH AND SAFETY IN 2016

CONTENTS 72 Sustainability Report 2016 Occupational Health and Safety OCCUPATIONAL HEALTH AND SAFETY

occupational health operational control fire safety, civil defence and safety goals and and emergencies objectives NOVATEK’s primary goal as Pursuant to Federal Law On Since the Company’s business In 2016, the total headcount of regards occupational health and Industrial Safety of Hazardous Pro- directly involves operation of facil- fire and emergency brigades serv- safety (OHS) is to protect human duction Facilities and the Rules on ities exposed to fire and explosion ing the facilities on a 24-hour basis life and health, and we take every Setting up and Implementing Indus- risks, fire safety is a top priority for stood at 595 people. Twenty-five effort to become a responsibility trial Controls over Compliance with NOVATEK. The Company’s IMS engineers of the Company directly leader in the field through compli- Industrial Safety Requirements at includes a fire safety system com- monitored and supervised the fire ance with the highest safety stan- Hazardous Production Facilities, all pliant with the Russian law. The safety and emergency response dards, monitoring, use of advanced our subsidiaries have developed purpose of the system is to prevent environment at our facilities. technologies, and staff training. regulations on setting up and imple- fires and protect people and proper- Fire safety, civil defence and Since 2005, NOVATEK has implementing such industrial controls. ty in case of a fire or an emergency. emergency response training and mented its Health, Safety and Envi- We also established industrial con- In 2016, five NOVATEK’s sub- drills are an important element ronment (HSE) Policy. Since 2009, trol compliance commissions to run sidiaries held valid licenses to ser- of the fire safety and emergen- the Company has used an Integrat- regular audits of OHS compliance. vice fire-fighting equipment and cy response system. In 2016, the ed Management System for Envi- In 2016, a NOVATEK commission four more had licenses to perform Company organized around 43,000 ronmental Protection, Occupational continued comprehensive audits fire-fighting, emergency response fire safety briefings that featured Health and Safety (IMS) compliant of NOVATEK subsidiaries for occu- and rescue operations. We also out- guidance materials and visual aids, with ISO 14001:2004 and OHSAS pational health, industrial, fire and source fire safety services, engag- as well as hands-on presentations. 18001:2007. In 2016, NOVATEK environmental safety requirements. ing properly licensed contractors. Basic fire safety training was pro- successfully passed the second In the reporting year, we conduct- Subsidiaries operating hazardous vided to 3,867 people and 594 IMS compliance audit with no cas- ed comprehensive OHS audits at industrial facilities that produce, people evacuation drills were con- es of non-compliance identified. four subsidiaries and joint ventures. collect, process or manufacture ducted. In the reporting year, the OHS expenditures in 2016 Based on their findings, relevant explosives and flammable sub- emergency response and rescue amounted to RR 693 mln. reports were produced, and reme- stances are protected by 17 pro- teams performed 15,145 safe- dial measures were developed. fessional emergency response and ty control procedures as regards Special assessment of working rescue teams. In addition, we have high-hazard operations, including conditions includes monitoring the decided to build fire stations and those related to fire and gas haz- impact of hazardous workplace fac- establish emergency response and ards, at production facilities. As part tors. Measures to improve working rescue teams within prospective of the training, they also arranged conditions are developed based on field development and construction 668 fire tactical exercises. The the results of such assessments. In projects. emergency response and rescue the reporting year, special assess- teams are made up of 519 certified ments were carried out for 4,830 rescue workers. workplaces. No workplaces with hazardous working conditions were CONTENTS identified. 73 Sustainability Report 2016 Occupational Health and Safety

accidents and incidents contractor engagement ohs training

Inspections are regularly carried In 2016, NOVATEK’s subsidiar- Contractor engagement is an All of the Company’s subsidiaries out at our subsidiary facilities to ies and joint ventures recorded two important aspect of NOVATEK’s conduct periodic safety training and assess the emergency response incidents related to shutdowns of operations. The work begins with briefings, provide personnel train- capability of the Company’s subdi- core and auxiliary equipment. The selecting contractors through ten- ing and development programs, visions and personnel, and evalu- incidents were due to power out- der procedures; so, relevant crite- including at specialized training cen- ate the resources of in-house and age caused by adverse weather ria were added to the assessment ters, and carry out regular knowl- external professional emergen- conditions. The equipment shut- sheets. Annexes containing OHS edge assessments. During 2016, all cy response and rescue teams. downs did not affect feedstock requirements constitute an inte- subsidiaries carried out scheduled In 2016, we made 16.6 thousand receipt, production or shipment of gral part of contracts. In addition, and unscheduled OHS training and patrols and tested 450 external products, and caused neither inju- we instruct our contractors on the appraisal of employees; within this water supply sources used for ries nor environmental damage. Company’s standards, conduct joint period, 6,852 employees complet- fire-fighting. The Company’s facil- The Company’s subsidiaries and drilling and other activities. ed certified health and safety cours- ities implement a full-scale pro- joint ventures recorded no acci- es, and 3,018 employees took certi- gram to respond to oil, oil prod- dents in the reporting year. fied industrial safety courses. uct, and other hydrocarbon spills. The Company regularly organizes Materials and equipment avail- Safety Days, the Best OHS Poster able to the emergency response workplace injury rate contests and other events aimed at and rescue teams comply with all promoting workplace safety among existing requirements. The Com- In 2016, the Company’s subsid- employees. pany ensures timely re-equipment iaries and joint ventures recorded of both basic and specialized fire five minor workplace injuries. The vehicle fleets. In 2016, it purchased main causes of accidents include nine fire trucks outfitted for opera- violation of workplace safety guide- tions in the Far North. lines and staff negligence when NOVATEK fully complies with moving across production sites or fire safety regulations, with all of its using vehicles or equipment. facilities equipped with automatic fire detection, alarm and extinguish- ing systems. In 2016, there were no fires at the Company’s facilities.

CONTENTS 74 Sustainability Report 2016 Environmental Protection ENVIRONMENTAL PROTECTION

environmental vision

The Company is aware of its —— engaging all of the Company’s other stakeholders of their results als. The Company is focused on responsibility for environmental pro- personnel, suppliers and con- via the mass media, public hearings smooth transition to the pit-free, tection and sustainable use of natu- tractors in achieving its environ- and meetings, community liaison directional and horizontal drilling, ral resources. As with any industrial mental policy objectives; offices and the Company’s website. injection of industrial and con- operations, production and process- —— keeping up personnel’s envi- In addition, the Company moni- sumer water waste to the intake ing of gas and liquid hydrocarbons ronmental awareness and tors the key environmental aspects beds, closed technological cycle of at NOVATEK have certain environ- responsibility. of its production operations regular- water supply, recycling and other mental impact and make environ- ly. The monitoring results are docu- advanced environmentally friendly mental protection one of our top In 2016, a revised version of mented and analyzed to inform ade- technologies. priorities. Environmental consider- NOVATEK’s Health, Safety and quately funded dedicated initiatives The Company actively engag- ations are central to any produc- Environmental (HSE) Policy was and environmental action plans aim- es research and non-governmen- tion-related decisions. NOVATEK is approved, which sets forth the ing to: tal environmental organizations committed to the following environ- Company’s commitments consis- —— reduce emissions and discharg- such as the World Wide Fund for mental goals: tent with the best Russian and es of pollutants; Nature (WWF), Marine Mammal —— reducing and preventing nega- international practices. Our sub- —— control waste disposal and pro- Council (MMC), and the Vernadsky tive environmental footprint; sidiaries and affiliates are using an tection of water resources; Non-Governmental Ecological —— complying with Russian envi- Integrated Management System for —— ensure sustainable use of Foundation. ronmental laws and internation- Environmental Protection, Occu- land and high-quality land NOVATEK representatives are al standards; pational Health and Safety (IMS) reclamation. members of an advisory group for —— ensuring sustainable use compliant with ISO 14001:2004 preservation and study of the Atlan- and management of natural and OHSAS 18001:2007. In 2016, NOVATEK follows the reasonable tic walrus in the south-eastern Bar- resources and energy sources, NOVATEK successfully passed precautionary principle. The Com- ents Sea and adjacent waters, and deployment of modern non- the second IMS compliance audit pany aims to timely identify sourc- a task force focusing on environ- waste and low-waste technolo- with no cases of non-compliance es of danger, assess inherent risks, mental aspects of the Sabetta sea- gies and technologies for safe identified. and duly respond to environmental port construction in the Gulf of Ob. accumulation, storage and dis- To achieve the objectives stated risks. The Company regularly reports posal of production and con- in the Health, Safety and Environ- NOVATEK upgrades its core pro- on greenhouse gas emissions and sumer waste; ment Policy, prior to any operations cess equipment and technologies energy efficiency (submissions —— improving and enhancing our associated with potential environ- to meet the latest environmental to the Carbon Disclosure Project, environmental performance, mental impact, the Company con- requirements and industrial safe- CDP) and use of water resources including the environmental ducts environmental impact assess- ty regulations, and uses the most (Water Disclosure, CDP). management system; ments and informs the public and environmentally friendly materi-

CONTENTS 75 Sustainability Report 2016 Environmental Protection

environmental monitoring and industrial control

An annual environmental mon- It involves examining the condi- In general, studies in 2016 To reduce the negative impact itoring program is a key tool for tion of environment components, showed predominantly unharmed on the environment, a multi-tier environmental assessment at pro- taking soil, ground, water and sea- condition of environmental com- system of Environmental Monitor- duction sites, identification of chal- bed sediment samples, check- ponents in the areas covered by ing and Industrial Control (EMIC) lenges and timely adjustment of ing the condition of the local flora, existing environmental monitor- is in place at the Company’s enter- the environmental policy. The Com- animals and microorganisms, and ing stations. Measurements at the prises. Every major production pany runs its annual environmental estimating air pollution. The sta- monitoring stations outside the entity of NOVATEK has a chem- monitoring program across its pro- tus of fish populations and feeding production footprint show that the ical laboratory fully equipped for duction footprint. The monitoring is resources in water areas is studied, condition of environmental compo- prompt operational analysis. The carried out by independent envi- as are local hydrological and hydro- nents in the covered areas has con- EMIC feeds data to analyze and ronmental auditors (hiring qualified chemical parameters. Samples are sistently remained at the baseline streamline our core processes. experts) as per applicable programs analyzed in certified laboratories. levels. and methodologies. Based on laboratory analysis, the In 2016, NOVATEK Group spent condition of environment compo- more than RR 90 mln to set up and nents is evaluated as well as its run environmental monitoring in its dynamic pattern over the year. license areas. The monitoring also involves visual inspection and photographing of the areas along the cross-country vehicle and walking routes. To run environmental monitoring programs in the tundra zone, we use vehicles with low-pressure tires to prevent damage to the fragile topsoil.

CONTENTS 76 Sustainability Report 2016 Environmental Protection

environmental protection – government control emissions and waste

During 2016, the Federal Ser- total, 42 audits were conducted Atmospheric emissions Greenhouse gas emissions and vice for Supervision over Natural at 14 entities of NOVATEK Group. Expansion of operations and com- energy efficiency Resource Management (Rosprirod- In 2016, the number of audits for missioning of new industrial facilities Given the overall output nadzor), local branches of the Fed- environmental protection and sus- created new sources of atmospheric increase, greenhouse gas emis- eral Fisheries Agency, municipal tainable management of natu- emissions. Our emissions increased sions in 2016 increased to 6.6 mmt authorities, public prosecutor’s ral resources increased by 13.5% in 2016 to 121,232 tonnes. of CO2 equivalent (the calcula- offices and other authorities held while the number of identified irreg- The increase was due to pro- tion includes CO2 and СН4). The scheduled and unscheduled field ularities was down by 51% from duction start-up at the Company’s increase was mainly due to pro- audits at major production enti- 2015. oil assets and their ramp-up to full duction start-up at the Company’s ties of NOVATEK to look into key Following the audits, remedial design capacity (crude oil production oil assets and their ramp-up to full arrangements for environmental measures were taken to close iden- and treatment volumes increased design capacity, wider use of gas protection and sustainable man- tified gaps. from 190 thousand tonnes in 2015 to as a compressor station fuel and agement of natural resources. In 3,555 thousand tonnes in 2016). a larger number of well pads and flare facilities.

Atmospheric Emissions by NOVATEK Group, tonnes Total greenhouse gas emissions in 2013–2016, ’000 tonnes of CO2*

2014 2015 2016 2013 2014 2015 2016

Air pollutant emissions, total 51,479 66,242 121,232 Direct emissions (fuel combustion and 2,576.1 3,980.0 4,402.6 6,571.77 incl. priority pollutants: operation of production entities) solids 2,353 3,609 2,568 Indirect emissions (purchased energy) 90.4 115.6 184.5 181.94 carbon oxide 32,858 44,466 86,022 nitrogen oxide (NO2 equivalent) 6,663 8,225 10,448 sulphur dioxide 6.74 82.77 20.14 hydrocarbons (incl. methane) 2,900 4,872 8,993 VOCs 6,685 8,950 10,219 As per the Guidelines for Calculating GHG Emissions approved by Order No. 300 of the Russian Ministry of Natural Resources and Environment dated 30 June 2015.

CONTENTS 77 Sustainability Report 2016 Environmental Protection

NOVATEK is further improving Since 2008, NOVATEK has been NOVATEK facilities are active- Associated petroleum gas its corporate GHG emissions man- taking part in the Carbon Disclosure ly implementing the cogeneration Greater utilization of associ- agement system to bring it into Project (CDP), a global initiative to technology, which almost doubles ated petroleum gas (APG) is an compliance with ISO 14064-1:2007, promote GHG emissions reporting the fuel efficiency, driving a signifi- important target for the Company. Russian Government Resolution among large businesses. cant reduction of GHG emissions. NOVATEK makes consistent efforts No. 504-R dated 2 April 2014, and Going forward, methane emis- The Company equips pipe- to reduce its air pollutant emissions Guidelines for Calculating GHG sions from natural gas production line valve remote control systems from APG flaring. In 2016, the Pro- Emissions approved by Order No. and transportation will be reduced with alternative sources of pow- gram for Rational Use of Associ- 300 of the Russian Ministry of Nat- by rational design solutions (as er such as solar panels and wind ated Petroleum Gas enabled the ural Resources and Environment regards the number and choice of turbines. The length of pipelines Company to reach a 96.2% APG dated 30 June 2015. valves and flanges used) and imple- using alternative sources of pow- utilization rate at the Samburgskoye NOVATEK’s GHG emissions mentation of relevant maintenance er totals 991 km. The total number field and 95% at the East-Tarkosa- management system was includ- regulations. of pipeline remote control stations linskoye field. ed into the plan of key activities to The Yamal LNG project will uti- is 73. The maximum output power Due to a low depletion rate (less support Russia’s Year of the Envi- lize an innovative technology to of a solar panel is 1.5 kW; a wind than 5%) and the fact that commis- ronment in 2017*. capture methane-containing emis- turbine — 1 kW. sioning activities continued in 2016, At the Eastern Economic Forum, sions. After liquefaction, LNG prod- The Company generated a total APG utilization at the Yarudeyskoye NOVATEK, the Russian Ministry ucts emit methane vapor (boil-off of 292 MWh of renewable energy field was not included in the calcu- of Natural Resources and Envi- gas). A tank vapor removal system in 2016. lations for the NOVATEK Group. ronment, the Federal Service for is used to recover boil-off gas. The Supervision over Natural Resource boil-off gas can then be re-liquefied Waste management Management, and the Government or used as a fuel gas for internal In 2016, the total amount of of the Yamal-Nenets Autonomous consumption. waste generated by NOVATEK facil- Area signed an agreement on coop- ities was 49,472 tonnes, up 15% eration, including in implementing year-on-year. NOVATEK’s GHG emissions man- The growth in production and agement system. consumption waste generation is mostly attributable to an increase in drilling meterage and volumes of drilling waste at Yamal LNG.

* Approved by Russian CONTENTS Government Decree No. 1082-r dated 2 June 2016. 78 Sustainability Report 2016 Environmental Protection

Production and consumption Waste Structure by environmen- Waste management in 2016, % Most of the waste (approxi- waste generation in 2013–2016, tal impact in 2016, % mately 95%) is non-hazardous or ’000 tonnes a year low-hazardous and generally consists of drill cuttings. The share of high-hazardous waste materials (classes I and II) is 49.5 insignificant, cumulatively compris- 42.1 ing hundredths of a percent. They 40.6 are mainly found in mercury lamps and luminescent tubes containing mercury. Production and consumption waste management is carried out 17.5 in accordance with the approved guidelines. Environmental monitoring and industrial control is exer- cised at our waste disposal and 91% 60% temporary waste storage facilities. 2013 2014 2015 2016 We employ innovative eco-efficient Class IV – low-hazardous Placed at in-house storage waste facilities waste recycling and neutralization 5% 20% technologies. Part of the waste is transferred Classes I, II, III – extremely/ Transferred to specialist con- highly/moderately hazardous tractors for disposal to specialist contrac- waste 13% tors. The remaining waste, includ- 4% Used by the Company* ing water separated from crude oil Class V – virtually non-hazard- 7% during its treatment is used for our ous waste own needs and reinjected to main- Neutralized tain reservoir pressure.

* For re-injection to maintain reservoir pressure and restoration of artificial cavities.

CONTENTS 79 Sustainability Report 2016 Environmental Protection

water use and disposal

The Company is committed to tion at full-service treatment plants. The quality of wastewater so The Company’s subsidiaries that sustainable water use and efficient After thorough treatment, waste- channeled qualifies as treated to operate pipelines conducted hydro- wastewater treatment. water is also channeled to surface standard quality. Analysis of samples logical, hydro-chemical and organo- Consumption of water increased water bodies such as the Gulf of Ob shows that hydro-chemical parame- leptic monitoring of water bodies. in 2016 by 60% year-on-year to in the Kara Sea and the Luga Bay in ters and concentrations of pollutants 2,748 thousand cubic meters, the Gulf of Finland. at monitoring sections are within per- including 1,590 thousand cubic missible levels. meters for production needs and 1,149 thousand cubic meters for general and drinking needs (with 9 Water consumption in 2013 –2016, Water withdrawal by source type Water disposal structure in 2016, thousand cubic meters passed to ’000 cubic meters in 2016, % % (2,011 thousand cubic meters other companies). in total) The increase in water consumption was due to the formation pressure maintenance program on the oil part of the East-Tarkosalinskoye field 2,748 and an increase in water production for industrial use from Aptian-Ceno- manian wells for the pressure maintenance program. Both surface and ground water is used. 1,716 In 2016, the water consumption 1,425 rate stood at 3.5 cubic meters per 1,347 thousand boe of gross production 59% 36% for production entities and 1.4 cubic meters per thousand boe of finished Ground water Surface water 39% 32% products for processing entities. The Company uses multiple Surface water Gas flaring systems 2% 30% wastewater disposal methods, including burning at horizontal gas Municipal and other water Subsurface horizons flaring systems and injection into supply systems 2% intake beds after preliminary purifica- 2013 2014 2015 2016 Storage <1% Transferred to other organizations CONTENTS 80 Sustainability Report 2016 Environmental Protection

energy consumption and efficiency biodiversity preservation improvement

NOVATEK embraces a lean NOVATEK operates a total of 54 The higher energy consump- Industrial development in the Far approach to consumption of heat solar panel and wind generator sets tion in 2016 was mainly due to the North places a great responsibili- and electricity. installed on its feed pipelines as part launch of new facilities and fields by ty for ecosystem preservation on Part of internally generated heat of the automatic control and commu- Yargeo. NOVATEK. To minimize damage to and electricity is produced using nication system. The main sources of In the reporting year, the over- unique natural resources and pre- hydrocarbons of own production. heat are waste heat boilers and heat all reduction of energy consumption serve biodiversity, the Company Also, part of electricity was pro- exchangers at cogeneration power enabled by energy-saving and effi- takes particular care in studying and duced from renewable sources plants. ciency initiatives totaled 5,784 thou- preserving the northern flora and (solar and wind power generation). sand kW of electricity and 510 toe fauna. of fuels. In 2016, Yamal LNG conducted a comprehensive biodiversity monitoring of South-Tambeyskoye license area (its onshore ecosystems) as part of its Biodiversity Monitoring Energy consumption by NOVATEK’s production subsidiaries and joint ventures in 2016* Program 2016–2017. A biodiversity preservation framework action plan compliant with IFC’s Performance Standard 6* was developed and Indicator UoM 2014 2015 2016 implemented in 2016 as part of the Total consumption of heat and electricity ’000 GJ 3,060 3,864 4,200 above Program. Under the Yamal LNG project, the Gulf of Ob’s waters will be active- Consumption from non-renewable sources (natural gas) to generate heat and electricity ’000 GJ 4,332 6,614 7,485 ly used for transportation and handling operations. The fairway area is being dredged jointly with feder- Aggregate electricity consumption million kWh 449 588 658 al enterprise Rosmorport to allow passage of deep-draught vessels. Aggregate heat consumption ’000 GJ 1,442 1,746 1,830 Given the business profile of Yamal * Performance Standard 6 of the International Finance LNG, its activities may have a neg- Corporation: Biodiversity Conservation and ative impact on marine mammals Sustainable Management of * Energy consumption for 2016 includes the following companies: NOVATEK-YURKHAROVNEFTEGAS, NOVATEK-TARKOSALENEFTEGAS, NOVATEK – PUROVSKY GAS and their key habitats in the Gulf of Living Natural Resources. CONDENSATE PROCESSING PLANT, NOVATEK – UST-LUGA, NOVATEK-TRANSERVICE, ARCTICGAS, NORTGAS, YARGEO, and TERNEFTEGAS.

CONTENTS 81 Sustainability Report 2016 Environmental Protection

Ob’s waters, as well as along vessel Marine mammal studies conduct- Ship observations of marine Environmental Damage routes. A number of marine mam- ed in 2016 included stationary obser- mammals in the south-western Kara Compensation mal species are found in the areas vation of animals in the south-west- Sea were continued in the report- To compensate for damages to potentially affected by our activities ern part of the Kara Sea (the mouth ing year. In order to have structured aquatic bioresources, the Company in the Gulf of Ob’s waters: ringed of the Gulf of Ob, Shokalsky Island), information on the status and loca- had approximately 4.1 million young seals, bearded seals, white whales, satellite tagging of white whales tions of marine mammal popula- muksuns and 33.9 million young Atlantic walruses and polar bears. and ringed seals (a pioneering ini- tions in the areas affected by Yamal peleds grown and released into Planning marine mammal pres- tiative in this region), and toxicolog- LNG’s activities, all sightings of sin- the rivers of the Ob-Irtysh basin ervation activities in the project ical analysis of biospecimens taken gle or groups of marine mammals in 2016. area is a particular challenge given from ringed seals and white whales. (seals, polar bears, walruses and that virtually no targeted studies of The research findings were used to cetaceans) are recorded. Crews of marine mammals had been under- make recommendations on meth- marine vessels and the Company’s taken in these areas during the past ods for further monitoring of marine employees working at the Sabet- twenty years, or the research was mammals and setting up a system ta seaport and on the shores of the fragmentary. To address this gap, to prevent and minimize human-po- Gulf of Ob were instructed to fill out the Company initiated studies in the lar bear conflicts. reporting forms upon encounters Yamal Peninsula and the Gulf of Ob On 14–16 November 2016, a and prevent any impact on animals. to obtain up-to-date data on marine workshop on Prevention and Mini- Data on encounters with marine mammals in the areas potentially mization of Human-Polar Bear Con- mammals are passed to Yamal affected by Yamal LNG operations. flicts was delivered by the Marine LNG and then made freely avail- Mammal Council to employees of able to the research community to Yamal LNG and its contractors in help with knowledge accumulation, the Sabetta port. Experts on polar study of animal ecology and iden- bear ecology taught employees in tification of negative impacts. The the ways to stay safe and deter a results of marine mammal observa- bear in case of an encounter with tions obtained in the course of the this Arctic predator. A total of 33 above activities are used to inform employees attended the workshop. approaches to managing and miti- A focus group was formed to share gating the impacts of Yamal LNG’s these tips amongst the employees operations as part of the Biodiversity of all contractors and subcontractors Preservation Program. involved in operations on the Yamal LNG’s site.

CONTENTS 82 Sustainability Report 2016 Environmental Protection

disturbed area environmental protection reclamation training

Number of people trained in environmental management The Company monitors dis- Consistent with the Company’s turbed and contaminated lands to environmental policy, we annually track accumulated (past and pres- implement employee training and ent) environmental damage at the development programs with further Training programs 2013 2014 2015 2016 South-Tambeyskoye license area, as assessment of the acquired knowl- well as to assess Yamal LNG’s envi- edge in order to increase their HSE Environmental safety for managers and general business management personnel 12 20 8 17 ronmental remedial actions. skills and promote ownership of In 2016, NOVATEK remediated HSE issues. In 2016, 201 special- 332 hectares of disturbed lands and ists at NOVATEK underwent training Environment safety and hazardous waste treatment 6 28 50 35 handed them over to the primary to improve their qualifications and land user. skills, which is 1.3 times more than in 2015. Environment safety for managers and experts of environmental departments and 3 10 14 28 environment control systems

Professional training of staff qualified to handle class I–IV hazardous waste 24 36 88 110

Other environmental programs 6 13 0 11

TOTAL: 51 107 160 201

CONTENTS 83 Sustainability Report 2016 Environmental Protection

Charges for negative NOVATEK Group’s 2016 environmental expenditures by key item, environmental spending environmental impact in RR thousand 2013–2016, RR mln

In 2016, NOVATEK’s environmental expenditures totaled RR 1,199 mln, including RR 710.707 mln for Protecting the environment from production and consumption waste 276,520 environmental protection and RR 30.5 488.294 mln for sustainable man- Protecting flora and fauna and their habitat, biodiversity preservation 124,385 agement of natural resources. 25.1 Monitoring and environmental impact assessment 90,926

19.4 19.3 Water protection and sustainable use 77,317

Land protection 49,208

Subsoil protection 36,908

Environmental charges 19,253

Air protection 15,503

Other charges 2013 2014 2015 2016 15,356

Environmental management 5,208

Environmental damage compensation* 123

TOTAL: 710,707**

* Compensation of damage to aquatic bioresources is included in the Protecting Flora and Fauna and their Habitat, Biodiversity Preservation cost item.

** Since April 2017, the calculation of environmental expenditures does not include expenditures for registration and re-registration of land title documents and permits for land (forest) property use (including the cost of lease payments for land and forest land), and expenditures for licenses for common commercial minerals production and subsurface waste storage. These expenditures are included in capital expenditures. Expenditures for forest, land and mineral resources protection are included in environmental expenditures.

CONTENTS 84 Sustainability Report 2016 Table of GRI G4 guidelines and industry protocol indicators TABLE OF GRI G4 GUIDELINES AND INDUSTRY PROTOCOL INDICATORS

Level of disclosure External assurance    Fully none  Partially Not applicable

Indicator Level of External Index Page of the Report Comments reporting assurance

Reporting elements and characteristics

1. Strategy and analysis

  G4-1 Letter from the Chief Executive Officer, p.3

Sustainability Strategy, p.18   G4-2 Environmental safety for managers and general business management personnel. Corporate Governance, p.33 2. Organizational profile

  G4-3 Company Profile, p.10   G4-4 Company Profile, p.10   G4-5 Company Profile, p.10 Head office: 2 Udaltsova St., Moscow, 119415, Russia.

Company Profile, p.11   G4-6 Report and Reporting Process, p.8   G 4-7 Company Profile, p.10   G 4-8 Company Profile, p.10-12

Company Profile, p.16 Employment Practices, p.59-60   G 4-9 Number of divisions (subsidiaries and joint ventures) – 38. Economic Performance and Sustainability, p.51   G 4-10 Employment Practices, p.60-61 No seasonal headcount fluctuations observed.   G 4-11 Employment Practices, p.65   G 4-12 Procurement practice, p.69-70   G 4-13 Report and Reporting Process, p.8   G 4-14 Environmental Protection, p.74   G 4-15 Environmental Protection, p.74   G 4-16 Company Profile, p.17

CONTENTS 85 Sustainability Report 2016 Table of GRI G4 guidelines and industry protocol indicators

Indicator Level of External Index Page of the Report Comments reporting assurance

3. Material aspects and boundaries Identified

  G 4-17 Report and Reporting Process, p.8   G 4-18 Report and Reporting Process, p.6   G 4-19 Report and Reporting Process, p.6   G 4-20 Report and Reporting Process, p.7

The boundaries of all material aspects identified are considered in the report within the   G 4-21 Report and Reporting Process, p.6 organization.   G 4-22 There has been no rewording in this report compared to that of 2015.

In the reporting year, the aspects saw no material change to the scope and boundaries as   G 4-23 compared to the report of 2015. Stakeholder Engagement

  G 4-24 Stakeholder Engagement, p.20   G 4-25 Stakeholder Engagement, p.20   G 4-26 Stakeholder Engagement, p.20-21   G 4-27 Stakeholder Engagement, p.22-32 Report profile

  G 4-28 Report and Reporting Process, p.6 Report and Reporting Process Reporting period: January 1, 2016 – December 31, 2016   G 4-29 Report and Reporting Process, p.6   G 4-30 Report and Reporting Process, p.6   G 4-31 Contact Details, p.93 Investor Relations Division [email protected]

Report and Reporting Process, p.6   G 4-32 There was no external assurance. Table of GRI 4 Guidelines Indicators, p.84 Since 2014, the Company has used no external assurance services, the Report undergoes   G 4-33 internal audit based on the Company’s in-house capabilities and accumulated expertise. Corporate Governance

  G 4-34 Corporate Governance, p.33-40

Deputy Chairman of the Management Board are in charge of resolving economic,   G 4-36 environmental and social issues in the Company. The Management Board in its turn reports to the Board of Directors and the General Meeting of Shareholders. Under the corporate governance structure, the General Meeting of Shareholders is the   G 4-38 Corporate Governance, p.34-38 CONTENTS Company’s supreme. 86 Sustainability Report 2016 Table of GRI G4 guidelines and industry protocol indicators

Indicator Level of External Index Page of the Report Comments reporting assurance

  G 4-39 Corporate Governance, p.34   G 4-40 Corporate Governance, p.34 Details are provided on the Board of Directors members.   G 4-41 Corporate Governance, p.43   G 4-42 Corporate Governance, p.34

The report is officially approved by Mark Anthony Gyetvay, Deputy Chairman of the   G 4-48 Management Board.   G 4-51 Corporate Governance, p.38-39   G 4-52 Corporate Governance, p.38 Ethics and Integrity

  G 4-56 Corporate Governance, p.42

Stakeholder engagement, p.20   G 4-58 Corporate Governance, p.47 Category: Economic

Aspect: Economic Performance

Economic Performance and Sustainability,   G4-EC1 p.46 NOVATEK recognizes risks and implications of climate changes, given that the Company’s major production facilities operate in the Far North areas of permafrost. In order to prevent potential negative implications of climate changes and assess the condition of permafrost   G4-EC2 soil and its temperature status at NOVATEK Group fields, cryological monitoring has been regularly performed, the results of which demonstrate low risk of permafrost thaw at the moment, having no significant impact on the Company’s activities.   G4-EC3 Employment Practices, p.66 Aspect: Market Presence

Employment Practices, p.62   G4-EC5 There is no gender pay gap in the Company. Company Profile, p.10-11 Aspect: Indirect Economic Impacts

  G4-EC7 External Social Policy, p.54-55 Aspect: Procurement Practices

Procurement practice, p.69 In 2016, NOVATEK Group procurement totaled around RR 710 bln. Around 10% of the   G4-EC9 Company Profile, p.10-11 procurement was from Yamal-Nenets Autonomous District suppliers.

CONTENTS 87 Sustainability Report 2016 Table of GRI G4 guidelines and industry protocol indicators

Indicator Level of External Index Page of the Report Comments reporting assurance

Category: Environmental

Aspect: Energy

Resolution of the Russian Federal State Statistics Service No. 46 dated June 23, 1999   G4-EN3 Environmental Protection, p.80 On Approval of Methodological Guidelines for Calculating Fuel and Energy Balance of the Russian Federation in Accordance with International Practices.   G4-EN4 All energy is consumed by NOVATEK entities internally.   G4-EN6 Environmental Protection, p.80 Aspect: Water

  G4-EN8 Environmental Protection, p.79 Actual measurement of water taken (according to flow meters). Aspect: Biodiversity

  G4-EN11 The Company does not operate within protected natural areas.   G4-EN12 Environmental Protection, p.80-81   G4-EN13 Environmental Protection, p.81-82

Total number of species – 7 1. critically endangered – 0 2. endangered – 0   G4-EN14 3. vulnerable - 3 (polar bear, long-tailed duck, Steller’s eider) 4. near threatened – 0 least concerning – 4 (snowy owl, small swan, white-tailed eagle, peregrine falcon). Aspect: Emissions

a. Total direct emissions of greenhouse gases (scope of coverage 1) - 6.6 mln t of CO2 equivalent; b. Gases included in calculation - CO2, CH4; c. CO2 emissions from burning from the total volume of direct greenhouse gas emissions – 1.863 mln t of CO2 equivalent; d. Base year will be established in 2017 after a GHG emission management system is implemented across NOVATEK Group.   G4-EN15 Environmental Protection, p.76-77 e. Guidelines approved by Order No. 300 of the Russian Ministry of Natural Resources dated 30.06.2015. f. Guidelines approved by Order No. 300 of the Russian Ministry of Natural Resources dated 30.06.2015. g. Operation control method Please see NOVATEK’s annual disclosure report on greenhouse gas emissions and energy efficiency as part of the Carbon Disclosure Project at: www.cdproject.net (available for registered users).

CONTENTS 88 Sustainability Report 2016 Table of GRI G4 guidelines and industry protocol indicators

Indicator Level of External Index Page of the Report Comments reporting assurance

a. indirect emissions (from electrical power purchased) totaled 181,940 t of CO2 equivalent b. CO2 c. Base year will be established in 2017 after a GHG emission management system is implemented across NOVATEK Group.   G4-EN16 Environmental Protection, p.76-77 d.e 1996 IPCC Guidelines for National Greenhouse Gas Inventories Module 1, Energy Resolution of the Russian Federal State Statistics Service No. 46 dated June 23, 1999 On Approval of Methodological Guidelines for Calculating Fuel and Energy Balance of the Russian Federation in Accordance with International Practices. f. operation control method.

Indirect CO2 emissions from biomass burning or decomposition amount to 863 tons of СО2 equivalent.   G4-EN17 Environmental Protection, p.76-77 Please see NOVATEK’s annual disclosure report on greenhouse gas emissions and energy efficiency as part of the Carbon Disclosure Project at www.cdproject.net (available for registered users). а. 12.27 b. barrel of oil equivalent c. direct emissions (Scope of coverage 1 + Scope of coverage 2)   G4-EN18 d. CO2, CH4; Please see NOVATEK’s annual disclosure report on greenhouse gas emissions and energy efficiency as part of the Carbon Disclosure Project at www.cdproject.net (available for registered users). a. not evaluated b. CO2, CH4; c. Base year will be established in 2017 after a GHG emission management system   G4-EN19 is implemented across NOVATEK Group. d. Guidelines approved by Order No. 300 of the Russian Ministry of Natural Resources dated 30.06.2015. e. not evaluated.   G4-EN20 No emissions of ozone-depleting substances observed.

a. —— NOX – 10,448 t; —— SOX – 20.14 t; —— persistent organic pollutants (POP) – none; —— volatile organic compound (VOC) – 10,219 t; —— hazardous air pollutants (HAP), carbon oxide – 86,022 t;   G4-EN21 Environmental Protection, p.76 —— solid particles (SP) – 2,568 t; —— other standard categories of emissions covered by relevant regulations – 2,962 t. b. Guidelines are stated in Letter of the Russian Ministry of Natural Resources No. 05-12-47/4521 dated March 29, 2012. c. Guidelines for calculating pollutant concentrations in enterprises’ emissions (Soviet Union Regulatory Document OND-86).

CONTENTS 89 Sustainability Report 2016 Table of GRI G4 guidelines and industry protocol indicators

Indicator Level of External Index Page of the Report Comments reporting assurance

Aspect: Effluents and Waste

3 a. Total volume of water disharge planned and unplanned – 2,011 thous. m . 3 —— to surface water bodies through waste treatment facilities – 716 thous. m ; 3 —— at gas flares through waste treatment facilities – 647 thous. m ; 3 —— into underground horizons through waste treatment facilities – 611 thous. m ; 3   G4-EN22 Environmental Protection, p.79 —— to intake pits through waste treatment facilities – 36 thous. m ; 3 —— transferred to other entities – 1 thous. m . Wastewater quality - treated to standard quality. Treatment techniques - mechanical, membrane, biological and disinfection with UV. b. Actual waste water (according to flow meters).   G4-EN23 Environmental Protection, p.78   G4-EN24 The reporting year saw no significant spills.   G4-EN25 Environmental Protection, p.78 The Company does not transport hazardous waste. Aspect: Compliance

Aspect: Transport

  G4-EN30 Environmental Protection, p.75-76 Aspect: Overall

  G4-EN31 Environmental Protection, p.83 Employment Practices and Decent Work

Aspect: Employment

  G4-LA1 Employment Practices, p.61

Employment Practices, p.60-61   G4-LA2 Company Profile , p.10 Aspect: Labor/ Management Relations

Under the Russian law, the minimum notice period regarding the Company’s significant   G4-LA4 operational changes is eight weeks. Incorporated into the collective bargaining agreement. Aspect: Occupational Health and Safety

There are no joint health and safety committees with both managers and staff as   G4-LA5 members.   G4-LA6 Occupational health and safety, p.73

There are no records of occupational illnesses. There are no employees with high   G4-LA7 injury rates.

CONTENTS 90 Sustainability Report 2016 Table of GRI G4 guidelines and industry protocol indicators

Indicator Level of External Index Page of the Report Comments reporting assurance

  G4-LA8 Employment Practices, p.23-24 Aspect: Training and Education

  G4-LA9 Employment Practices, p.64   G4-LA10 Employment Practices, p.63-65   G4-LA11 Employment Practices, p.61 Aspect: Diversity and Equal Opportunity

  G4-LA12 Employment Practices, p.61 Aspect: Equal Remuneration for Women and Men

  G4-LA13 Wage rates for women and men are equal at NOVATEK. Aspect: Employment Practices Grievance Mechanisms

  G4-LA16 There were no employment practices grievances. Aspect: Non-Discrimination

  G4-HR3 No incidents of discrimination observed during the reporting year.

There are no records of subdivisions where the right to freedom of association and   G4-HR4 collective bargaining can be violated or put at significant risk. Aspect: Child Labor

The company does not use child labor. There are no records of subdivisions where there is   G4-HR5 a risk of child labor use. Aspect: Forced or Compulsory Labor

  G4-HR6 There are no records of subdivisions at risk of using forced or compulsory labor. Aspect: Indigenous Rights

  G4-HR8 There are no records of incidents of violations involving rights of indigenous peoples. Aspect: Human Rights Grievance Mechanisms

  G4-HR12 There were no grievances regarding human rights violations. Company

Aspect: Local Communities

External Social Policy, p.54-55   G4-SO1 Stakeholder Engagement, p.28 CONTENTS Environmental Protection, p.74, 80-81 91 Sustainability Report 2016 Table of GRI G4 guidelines and industry protocol indicators

Indicator Level of External Index Page of the Report Comments reporting assurance

Aspect: Anti-Corruption

  G4-SO3 No assessment of corruption-related risks was carried out at the Company’s subdivisions.   G4-SO4 Corporate Governance, p.33-34   G4-SO5 There are no records of incidents of corruption. Aspect: Public Policy

  G4-SO6 NOVATEK does not provide financial assistance for political activities. Oil & Gas sector specific disclosures

Economic Performance and Sustainability,   OG1 p.47   OG2 The Company did not invest in renewable energy.

The total length of the pipelines where renewable energy sources are used is 991 km. Number of line telemetry control stations – 73. Solar panel max capacity is 1.5 kW, wind   OG3 generator max capacity is 1 kW. Renewable power generation in 2016 amounted to 292 thous. kWh.   OG4 Environmental Protection, p.80-81   OG5 Associated water production amounted to 337 thous. cubic meters.   OG6 Environmental Protection, p.76   OG7 Environmental Protection, p.78   OG8 The fuel produced does not contain benzene, lead and sulphur.   OG9 External Social Policy, p.54-55   OG10 There were no disputes with local communities.   OG11 No sites are being decommissioned or have been decommissioned.   OG12 The Company was not engaged in operations where involuntary resettlement took place.

Occupational health and safety, p.72-74   OG13 Environmental Protection, p.82   OG14 The specified substances are not found in the marketable fuel produced.

CONTENTS 92 Sustainability Report 2016 Abbreviations ABBREVIATIONS

A Z K fuel filling complex units of measurement GDR Global Depositary Receipt boe barrels of oil equivalent I M S Integrated Management System for Environmental mmboe million boe Protection, Occupational Health and Safety bcm billion cubic meters IFRS International Financial Reporting Standards mmt million metric tons APG associated petroleum gas RR Russian rouble RAS Russian Accounting Standards GJ gigajoule LNG liquified natural gas Gcal gigacalorie LPG liquid petroleum gases kWh kilowatt hour FZ Federal Law mln million NGO Non Government Organisation bln billion YNAO Yamal-Nenets Autonomous Region t ton(s) CDP Carbon Disclosure Project toe ton of oil equivalent GRI Global Reporting Initiative th. thousand ISO International Organization for Standardization OHS Occupational Health and Safety OHSAS Occupational Health and Safety Management Systems PRMS Petroleum Resources Management System SEC US Securities and Exchange Commission

WWF World Wildlife Fund

CONTENTS Sustainability Report 2016

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