LUKOIL GROUP SUSTAINABILITY REPORT 2015-2016 LUKOIL IN HARMONY WITH THE PRESENT, WITH CARE FOR TOMORROW Community CONTENTS Personnel 85 Management approach 87 Social investments 90 High quality industry-specific education 92 Interaction with the indigenous minorities of the North 94 Charity and sponsorship Health, safety 62 Management approach Appendix and environment 63 The company’s position with to Sustainability Report regards to employment entitlement and human rights Interactive version 64 Guarantees of employee labor Sustainable Development of LUKOIL Group and human rights of the Russian Regions Sustainability Report and corporate 2015-2016 66 Health and on-site safety responsibility practices in 70 Personnel policy foreign assets. 2015-2016 73 Incentives and remuneration (Appendix) 80 Training http://csr2015–2016.lukoil.com 82 Youth policy 02 Address by PJSC LUKOIL President About the Company 11 General information 42 Management approach 102 Table of conformity to the GRI Guidelines, and CEO UN Global Compact and RUIE’s Core 22 Strategy and management 44 Management system Performance Indicators 06 About the Report Corporate governance Environmental safety program 27 45 109 Conclusion of KPMG Ethics Biodiversity conservation 31 55 113 Conclusion of the RUIE Risk management and internal Health and safety 32 57 119 Reporting boundaries control 123 Basic terms and notions 34 Stakeholder engagement 125 Contact Information on the Report 37 Supply chain 02 lukoil.com Address by PJSC LUKOIL President and CEO 03 2.5 trillion rubles LUKOIL CAPITALIZATION “We intend to continue a constant dialogue with the stakeholders, AS OF THE END implement programs and projects that have shown their effectiveness, OF 2016 (RECORD HIGH) and look for new approaches and ideas”. Address by PJSC LUKOIL President and CEO This Sustainability Report is an opportunity for our The high productivity and cost-effectiveness Among our international projects, attention must be G4-1 G4-2 Company to present a comprehensive view of our of these projects confirm the Company’s ability drawn to our deposits in Uzbekistan, where we have economic, environmental and social achievements. to successfully develop complex hydrocarbon invested substantially in the construction of a gas We are convinced that it is only through observing reserves from scratch, both onshore and offshore. production and treatment infrastructure. Once these a balance between all these factors that we The competences that have been accumulated projects have achieved full capacity, they will be can ensure the truly harmonious development form a solid foundation for further sustainable one of the major growth factors of the Company’s of the business. In fact, along with the creation development of the Company in the circumstances hydrocarbon production in the medium term. of shareholder value, we strive to ensure that our of a reduced conventional resource base. activities contribute to maintaining the ecological It is worth mentioning that we were one of the balance, as well as improving the prosperity of the The Vladimir Filanovsky field is the largest of our first in Russia to complete the basic modernization regions of our presence through taxation and social new projects. With its record breaking outputs program for our Russian refineries. As a result, we support programs and minimal environmental impact, it is a good have significantly improved the output composition illustration of the sustainable development concept of our products and have fully transitioned to the Observance of laws and moral standards, in action. The ‘zero discharge’ principle has been production of fuels under the Euro 5 environmental consideration of the expectations of stakeholders applied here, which completely rules out the standard. Today, our refineries are in line with the and the interests of future generations have discharge of wastes into water, and a biodiversity best global practices. % been used for strategic decision making since conservation program is also being implemented. 95 the foundation of LUKOIL. The development of this project contributes to the As a result of the implementation of the the planned level economic growth of the Astrakhan Region through Environmental Safety Program in Russian of APG utilization When planning our activities, we take into account the creation of new jobs, the use of contractors, and enterprises, the volume of water withdrawn from at all subsidiaries the main global trends in the field of sustainable implementation of regional social support programs. natural sources has been reduced, while the scope of the Group development. One of the latest initiatives our of land reclamation and volume of waste utilization in Russia Company has supported is the United Nations The Pyakyakhinskoye field is distinguished have increased. In recent years, we have been Development Program, “Transforming Our World: by its use of highly complex drilling and well actively implementing the Efficient APG Management The 2030 Agenda for Sustainable Development”. completion technologies. In particular, we use Program and are approaching the target of 95% This document gives recommendations horizontally branched wells that ensure high flow of APG utilization in all subsidiaries in Russia. for coordinating the efforts of government and rates and enable us to minimize geological risks. business in the field of sustainable development. The experience we have gained has opened up Despite numerous economic challenges, we new possibilities for implementing oil production have managed to show strong financial results Among the industrial achievements of the projects in future. It is also important to note that in the reporting period and have outperformed reporting period, mention should be made of the development of this field, like our work in the many global oil and gas companies. Thanks commissioning of the Pyakyakhinskoye field in the new East-Taimyr license block, contributes to the to our considerable cash flow, we have been north of West Siberia and the Vladimir Filanovsky integrated development of the Russian subarctic able to reduce our debt burden to a record low field in the Russian sector of the Caspian Sea. regions. (net debt/EBITDA – 0.6). LUKOIL Group Sustainability Report 2015-2016 04 lukoil.com Address by PJSC LUKOIL President and CEO 05 The outcome of our business development efforts by the LUKOIL Group. They are people of various In response to the growing needs of our and our balanced financial policy are reflected trades and ethnic backgrounds, who, together, stakeholders as regards information about in the market value of the Company – LUKOIL’s form a highly professional and motivated team. the Company, we have prepared this report in capitalization reached a historic high of 2.5 trillion Our relationship with our employees is focused accordance with the G4 Global Reporting Initiative rubles in 2016. on creating conditions conducive to a high quality (GRI) Guidelines. This Guidelines introduces more >100 of work and life, and on solving the specific social extensive requirements on the disclosure of thousand people In the last two years, we have increased our ruble problems they and their families may have through information on corporate ethics and product supply are employed dividends by 27% per share and, in 2016, approved social partnerships with trade union organizations. chain, which are reflected in this document. by LUKOIL Group. new provisions on dividend policy, designed Much attention has been paid to safety issues, The Company to improve the traceability and predictability of our educational programs, and personnel development I am pleased to present to you the Sustainability is one of the largest dividend payments. programs. Report of the LUKOIL Group and I am happy to employers in Russia say that, starting from 2017, we are moving to an In 2015–2016, the Company paid a great deal We are in dialogue with public environmental annual reporting cycle and expanding the reporting of attention to the development of the corporate organizations and the indigenous minorities of the boundaries by including foreign assets in the governance system. Among the important North, on whose ancestral territories our production document. changes has been the formation of the Corporate facilities operate. As a direct result of the support Secretary department in accordance with the the Company gives, both in Russia and abroad, In gratitude for your interest in our Company, recommendations of the Bank of Russia’s significant social facilities have been built, and the Corporate Governance Code. In addition to this, initiatives of local organizations have been realized. further confirmation of the high value placed on An important area of social investment, in which environmental and industrial safety has been the the Company works together with the “Our Future” introduction of a Health, Safety and Environment Foundation for Regional Social Programs, is the Committee, accountable to the President development of social entrepreneurship in the President and CEO, of PJSC LUKOIL. Russian regions. Chairman of the PJSC LUKOIL Management Committee Throughout its history, LUKOIL has maintained the We intend to continue a constant dialogue with the V.Yu. Alekperov status of one of Russia’s largest employers. Over stakeholders, implement programs and projects that 85 thousand people work for our Russian entities, have shown their effectiveness, and look for new and more than 100 thousand people