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1 Gazprom Neft PJSC Financial and Operating Results in 12M and Q4 Gazprom Neft PJSC Financial and Operating Results in 12M and Q4 2020 18 February 2021 Anna Sidorkina, Head of Investor Relations Good afternoon, ladies and gentlemen. We are pleased to welcome you to our quarterly conference call devoted to the business results of Gazprom Neft in 2020. Allow me to present the participants of today's call. Alexey Yankevich, Management Board member and CFO, will be commenting on our financial statements. Igor Shkirov, Head of Planning, Efficiency and Data Management for Upstream, will talk about work in the Upstream Division. Then Alexey Urusov, Head of Economics and Corporate Planning for Downstream, will tell you what has been happening in Logistics, Refining and Marketing. We will be joined by Sergey Vakulenko, Head of the Strategy and Innovation Department, and colleagues from other relevant departments for the Q&A session. Before beginning the presentation, I should remind you that that all comments on the presentation and all statements that are made during the conference call may and will contain forward-looking statements regarding the financial situation and results of the business of Gazprom Neft. All statements, except for statements about past facts, are or may be regarded as forward-looking statements. Forward-looking statements are statements of future expectations based on the current situation and the assumptions of management and may involve known and unknown risks and uncertainties that could cause actual results, indicators and events to differ materially from those contained or implied in today's conference call. Thank you very much. Alexey Yankevich will be the first speaker. Alexey Yankevich, Member of the Management Board and CFO Good afternoon, ladies and gentlemen. Undeniably, 2020 was a very unusual and difficult year. As a responsible company that shares the values of ESG, we would like to start with a summary of the measures we took to combat the spread of the COVID-19 pandemic. We believe that we rose to the challenge of the pandemic and were largely successful in compensating the negative effects that may have arisen from it. Firstly, we succeeded in protecting our employees and contractors and in preventing flare-ups of the disease and production shutdowns. We organized mass testing (more than a million tests) for this purpose, we set up buffer terminals, regulated access to shifts and carried out other actions. We have now progressed to the next stage, that of vaccination. We are working towards collective immunity and we expect the company to gradually return to business as usual. Secondly, we have been helping in regions where we have presence, and helping medical personnel and volunteers. Active assistance was provided on behalf of the company, and personally by employees and managers. Personal contributions were collected in order to help medical personnel and hospitals at the peak of the epidemic, so we have been doing what we could in the fight against coronavirus. Gazprom Neft really has put strong emphasis on ESG, and this is evident in other matters as well as our efforts to fight the coronavirus infection. We have been paying a lot of attention to issues of ecology and the climate agenda. These aspects are under the special control of our CEO, and we are seeing first results of the intensive work that we have carried out in this direction. In 2020, we joined the UN Global Compact and we also made significant improvements to the quality of our ESG reporting and disclosure. As a result, we obtained a high rating (level B) from of the large and reputable CDP (Carbon Disclosure Project), which rates companies based on their work in the sphere of ecology and climate. Let's move on now to quantitative results. We have set ourselves a goal of zero harm to our employees, partners, the environment and property in the course of our industrial work. This is an ambitious goal and tough to meet. We came through 2020 with 1 zero deaths ,which certainly is not something to be specially proud of, but, nevertheless, given the huge scale of our business, the fact that we have not had any fatalities is a very good indicator. As for financial indicators, comparisons with 2019 are hard to make. It is fair to say that, for the whole of the oil industry, there is a division between how things were before and how they were after. All the same, we think that we showed decent results. Adjusted EBITDA was RUB 485 billion. Net profit was 118 billion rubles, and it is important that our company compared well with its peers in the Russian and global industry by the speed with which we went back into positive territory from the second quarter, then obtaining net profit and increasing it consecutively from the second to the fourth quarters. So the third quarter was better than the second, and the fourth was better than the third. Full-year net profit of Gazprom Neft was RUB 118 billion. These results meant that we were able to declare and pay interim dividends. We said that we would not give up interim dividends, even in the midst of the crisis. We announced and paid dividends of 5 rubles per share for nine months of 2020 – not a very large amount, but a decent sum based on the share price and in comparison with interim dividends of competitors. Some of our competitors did not pay interim dividends at all. But we did, and our performance relative to other companies is attractive. As to operating indicators, our hydrocarbon production remained practically at the level of 2019, mainly due to the growth in gas production. Production of liquid hydrocarbons decreased because were working under the OPEC restrictions. Refining volumes were determined by the economy and by market conditions: we refined just as much oil as the economy permitted us to do while staying in positive territory, and just as much as the market could take at that time. Thank you, I will hand over to Igor Shkirov. Igor Shkirov, Head of the Planning, Efficiency and Data Management Department, Upstream Good afternoon. Looking at quarterly results for oil production in 2020, you can see that the third quarter was the toughest, because it was when the main restrictions were in force. From August, OPEC moved to the second stage of its deal, relaxing the restrictions by about 2 million barrels per day, which, naturally, was reflected in growth of our production in the fourth quarter, both at subsidiaries and in joint operations and joint ventures. This factor, coupled with high production in the first quarter and growth of gas production, meant that we were able to maintain total hydrocarbon production at the level of 2019. The increase in the share of gas in total production was made possible by commissioning of a compressor station at the Urmano-Archinskoye field at the end of 2019, and also by steps to increase productivity of our gas infrastructure port and higher production levels at Arcticgas. As regards the structure of production by assets, output at new fields (the Otdalennaya group of fields, Zima, Novy Port, oil rims) increased by 15%, which partially made up for declining production at mature assets. Unit operating costs in the Russian Federation were down by 5% y-o-y. The decline at mature assets was due to large-scale optimization measures and shutdown of wells with high water cut. Increase of production reduced unit costs at new fields. The slight increase of ruble operating costs at foreign assets is explained by weakening of the ruble in a context of natural decline in production. Let me say more about new projects. We substantially increased recoverable reserves at the Zima project in 2020. We drilled 70 wells and increased annual hydrocarbon production to 1.2 million tonnes of oil equivalent. We are also working hard to build infrastructure facilities, drilling work is continuing in order to further increase production and, of course, we are focusing on efficiency improvements. For example, cumulative production from wells increased by 15% over the past year and investments per ton of produced hydrocarbons are falling. Drilling is going ahead at the Otdalennaya group of fields. Production growth there in 2020 was 34% and prospecting wells that have been drilled as part of the project are also showing good production rates, which offers a good basis for further development at Otdalennaya. In the oil rim project, we started production at the Chayandinskoye field and there were substantial production increases at the Pestsovoye, Yen-Yakhinskoye and Zapadno-Tarkosalinskoye fields thanks to launch of mobile oil treatment units. Hydrocarbon production in 2020 was in excess of 1.6 million tonnes of oil equivalent. 2 We have a systematic approach to partnerships and diversification of our portfolio. One good example of this is a joint exploration venture that we set up with Shell in 2020 on the Gydan Peninsula. We are using the same strategy of seeking and establishing partnerships for the large-scale Tazovsky project, which will have a production peak of up to 8 million tons of oil equivalent in 2024 following the start of commercial operation in 2021. The field should produce 3.3 million tons of oil equivalent in 2021. Thank you. Alexey Urusov will be the next speaker. Alexey Urusov, Head of the Economics and Corporate Planning Directorate Good afternoon, colleagues. I will give you an overview of our work in the Downstream Division during 2020. Refining netback increased slightly in the fourth quarter, but record-low crack spreads mean that refining netback has remained below netback for oil exports. We also need to notice atypical reduction of the spread between Brent and Urals which went so far as to make Urals more expensive than Brent.
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