ROSNEFT ANNUAL REPORT 2017

Type Risk description Risk management measures Industry-wide risks

Related to crude oil, gas and Crude oil, gas and petroleum product prices are the key factor affecting ’s Rosneft has sufficient capability to redistribute petroleum product prices financial and, indirectly, operational performance. Prices for the Company’s products its commodity flows in case of a significant price depend mainly on the global market environment and the supply and demand balance in difference between the domestic and international some regions of Russia. Rosneft’s ability to control its own product prices is significantly markets. The Company is among the world’s leaders limited. by upstream costs per boe, and can promptly cut its A fall in oil, gas or petroleum product prices has an adverse impact on Rosneft’s perfor- capex and opex to meet its commitments and obli- mance and financial position. gations if prices for oil, gas, and petroleum products A decrease in prices may result in less profitable oil and gas production by the Com- should plummet. Besides, the negative impact of the pany, which will in turn entail a reduction of Rosneft’s effective reserves and financial price risk on the Company’s financial performance is viability of exploration. partially offset by changes in FX rates (natural hedge effect).

Related to the dependency on Rosneft depends on monopolistic providers of oil, gas and petroleum product transpor- Rosneft takes into account the negative impact of monopolistic providers of oil, tation services and cannot control the infrastructure they operate and payments they changes in the natural monopolies’ tariffs for hydro- gas and petroleum product charge. carbon transportation when planning the Company’s transportation services and PJSC is a national monopoly providing oil and petroleum product transporta- future business operations. Decisions to change their tariffs tion services via its trunk pipelines. During its cooperation with Transneft, the Company transportation flows and optimize the schedule of the has not incurred any substantial loss due to failures or leaks in Transneft’s pipelines. Company’s product supply via the Russian oil and gas However, any serious failure in Transneft’s pipeline operation or limited access to pipeline system are made depending on the degree of Transneft’s capacities may disrupt oil and petroleum product transportation and the risk impact. adversely impact Rosneft’s performance and financial position. Like other Russian oil producers, Rosneft is required to pay for transportation services provided by Transneft. Transneft’s charges for pipeline transportation of oil and petro- leum products are set by the tariff regulator. Transneft periodically increases charges for the use of its network. These increases in tariffs result in higher costs for the Com- pany, which adversely impacts its performance and financial position. Similar risks may result from the use of ’s pipeline system. The Company is also dependent on railway transportation of its oil and petroleum products. OJSC Russian Railways (RZD) is a national monopoly rendering railway trans- portation services. RZD tariffs are subject to anti-monopoly control, and traditionally they tend to grow. Further increases in tariffs entail higher costs of oil and petroleum product transportation and may have a negative effect on the Company’s performance and financial position.

Related to geographical The regions where Rosneft operates have a stable climate and generally are not Rosneft has the capability to redistribute commodity And climatic conditions exposed to natural calamities and disasters. However, abnormally low temperatures in flows taking into account climatic conditions, including winter in some northern regions can make the operation of the Company’s oil-produc- the use of alternatives for oil and petroleum product ing sites more difficult. transshipment, as well as the shipment schedule Delays at export terminals can be caused by climatic characteristics of their locations. adjustment. Rosneft exports some oil via its own marine terminals and Transneft-controlled termi- nals. Petroleum products are exported via its marine terminals in Tuapse (Krasnodar Territory) and Nakhodka (Primorsky Territory). Export via the terminals on the Black Sea to Mediterranean ports may be limited by the capacity of the Bosporus and weather conditions on the Black Sea (storms) in fall. Complex ice conditions in winter may require the shutdown of export terminals on the Baltic Sea and in De-Kastri (Khabarovsk Territory). Any long delay in export terminal operation may have a negative effect on the Compa- ny’s performance and financial position.

Related to the sale of gas The key factor that may have a negative impact on the Company’s gas sales consists The Company diversifies its consumer portfolio to produced by the Company in the failure to take the required amount of gas on the part of consumers. Natural gas ensure that gas consumption targets are met, and sales are also affected by the following factors: makes claims to ensure efficient cash receipt for the Non-compliance with the current requirements of PJSC Gazprom for the quality of gas sold gas. Risks related to the quality of gas sent to the sent to the gas transportation system, which may entail the risk of restriction of the gas transportation system can be mitigated by imple- volume of gas accepted by the transportation system due to qualitative characteristics, menting technical measures to raise the quality of gas as well as penalties imposed by Gazprom. to meet the set standards. The Company continuously Gazprom capping the Company’s gas volumes accepted by the GTS to reflect the monitors conditions and ensures non-discriminating amount of gas undistributed to consumers. access to Gazprom’s gas transportation system. The Company has also developed an action plan to mitigate the risk of restricted access to the gas transportation system, including changes in gas supply schedules, redistribution of volumes among various consumers and alternative arrangements for gas supply to consumers via third-party producers.

304 Appendix No. 2

Type Risk description Risk management measures Related to the actual amount Data on oil and gas reserves are estimates and contain some uncertainties. The actual Rosneft is a global leader in terms of oil reserves and of reserves reserves may differ from these estimates. Regular re-estimation of the reserves has huge potential to increase its resources minimiz- considerably reduces the uncertainty of estimates. ing any risk of lower oil production as a result of future Data on PRMS and SEC oil and gas reserves provided in this Report are based primarily re-estimation of reserves. on the results of analysis performed by DeGolyer & MacNaughton, Rosneft’s indepen- Rosneft’s SEC-proved reserve replacement ratio dent consultant for estimation of reserves and resources, oil and gas recovery rates, oil stays well above 184% for many years. Rosneft production technologies, etc. intends to replace at least 100% of its hydrocarbon Valuation and estimation of the volume of economically recoverable oil and gas reserves, production by increasing its SEC-proved reserves production volumes, future cash inflows, as well as cost periods for reserve develop- going forward. ment depend on a number of variables and assumptions and may be adjusted over time. The accuracy of any reserves and resources estimate depends on the quality of avail- able information and interpretation of data on oil production technology and geology. Post-evaluation exploration drilling, data interpretation, testing, and production may require significant upward or downward adjustment of estimates of Rosneft’s reserves and resources. Moreover, different experts responsible for estimation of reserves and resources may evaluate reserves and cash inflows differently using the same data. Actual production, revenue, and costs related to reserves and resources might differ from the estimate. There is also an element of uncertainty related to the Russian resource classification system. This system takes into account geological factors only and ignores the eco- nomic feasibility of production. Exploration drilling also entails multiple risks, including the risk of non-discovery of productive oil and gas reserves. The Company carries out exploration activities in different geographical regions, includ- ing areas with unfavorable climatic conditions and high costs. There is often uncertainty over well drilling, infrastructure, and operation costs. The factors contributing to such uncertainty include unforeseen geological conditions, abnormally high or low formation pressure, unforeseen heterogeneity within geological formations, unfavorable weather conditions, etc. As a result, Rosneft may incur additional costs or will have to downscale, suspend, or terminate drilling. If Rosneft cannot conduct efficient exploration or acquire assets with proven reserves, its proven reserves will decrease as the Company produces oil and gas and developed fields are depleted. The Company’s future production greatly depends on successful discovery, acquisition, and development of oil and gas fields.

Related to competition There is strong competition in the oil and gas industry. Rosneft mainly competes with The following measures are taken to minimize risks other leading Russian oil and gas companies to: during the sale of petroleum products in the highly ·· obtain exploration and development licenses at auctions and during bidding procedures competitive domestic market: held by Russian authorities; ·· The Company plans its refining capacity utilization ·· acquire other Russian companies that might hold licenses or existing assets related to based on market forecasts to prevent excess hydrocarbon production; stockpiling of individual types of petroleum ·· engage leading independent services companies with limited service capacity; products; ·· purchase equipment for capital construction projects in case of shortage; ·· It promptly re-distributes regional commodity ·· hire the most skilled and experienced staff; flows in the domestic market and between the ·· acquire existing retail outlets and land plots to establish new retail outlets; domestic market and export taking into account ·· purchase or gain access to refining capacities. the current oil refining and petroleum product mix The Company is one of the industry leaders in Russia and globally, which significantly and availability of the Company’s own marketing improves its competitive position. It has an extensive new project portfolio to maintain and distribution facilities and contractors covering and improve its competitive standing in the future. almost all Russian regions; Rosneft is also exposed to the risks of increased competition in its international target ·· The Company rebuilds its refineries to satisfy the markets. growing demand for high-octane gasoline and low-sulfur petroleum products, which will help increase refinery throughput and conversion rates; ·· The Company maintains a focus on the development of own filling stations and facilities that meet the latest European requirements as the most stable sector for petroleum product sales in the domestic market, which is less exposed to spontaneous price changes and declines in demand. Additionally, to capture new clients, especially cor- porate customers, a system for petroleum product delivery via filling stations using electronic cards is be- ing implemented on a wide scale, together with a filling station service system accepting the cards issued by other market players. Our most effective responses to the risks of in- creased competition in the international market for crude oil and petroleum products include geograph- ical diversification that allows redistributing product flows between regions.

HSE risks ·· The Company’s HSE risks are connected with: Rosneft has its own HSE management system, which ·· emergencies, incidents, fi res and other contingencies characterized by damaging combines resources and procedures needed for of operated facilities and equipment and deviation from the preset process both prevention of and response to harmful events. parameters; Principles and approaches used at all the stages of ·· damage caused to health of workers, counterparties and visitors, as well as to the facilities’ lifecycle are designed to ensure the effective population of adjacent territories; HSE risk management in accordance with applicable ·· negative impact on the environment in the course of production and commercial requirements to safe conduct of processes and operations; operation of the facilities with allowance for existing ·· imposition of punitive sanctions and suspension of facilities’ operation, as well as loss advanced technologies. of business reputation and lowering of stakeholders’ credibility level in case of non- compliance with applicable statutory requirements in the fi eld of HSE.

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Type Risk description Risk management measures Risks related to unavailability of In its operations, the Company uses multiple information systems that must provide Cyber-security is a strategic priority of the Company. core IT systems and IT services reliable functionality to support proper performance of the Company’s core processes. Our cyber-security framework relies on a risk-ori- due to cyber-attacks From year to year, the number of potential threats to the Company’s information infra- ented approach and takes into account legislative structure is growing, as is their potential harmful effect. requirements and best international practices. Information security management processes are embedded into the Company’s corporate governance framework. Within its operations, the Company also fully complies with government regulations ensuring information security. Rosneft’s regulatory framework governing cyber-se- curity arrangements is updated on an ongoing basis, with relevant functions set up within the Company. Its focus areas are threat intelligence and cyber awareness. Country and regional risks

Related to the country and Rosneft operates in all federal districts of the Russian Federation. Regional development In case of political, economic, or social risks arising in region of operation prospects and potential social and economic risks are outlined in the Program of Medi- Rosneft’s regions of operation, the Company’s man- um-Term Social and Economic Development of the Russian Federation. The Company agement will take every reasonable step to minimize believes that the risk of military conflicts, civil unrest, strikes and announcement of a their potential adverse impact. The actual profile of state of emergency in the regions where it operates is insignificant. such measures will be decided on a case-by-case The Company notes the impact of risks related to changes in foreign policy on its basis and may include negotiations with authorities, operations. and streamlining/capping costs. It also faces operational risks outside the Russian Federation. It is exposed to higher political, economic, social and legal risks in developing economies as compared to more developed countries. Risks related to operation in such countries are in many respects similar to or may be higher than in Russia, including due to possible changes in foreign policy. Financial risks

Currency risks A significant portion of Rosneft’s gross revenue comes from oil and petroleum product The Company identifies and manages currency risks exports. Therefore, fluctuations in ruble exchange rates impact the Company’s financial by using an integrated approach enabling the use of and business performance, which is a currency risk factor. natural (economic) hedging. For short-term manage- ment of its currency risk, the Company selects a cur- rency for free cash balances from among the Russian ruble, the US dollar and other foreign currencies. The Company’s active currency risk management practices also involve the use of derivative and non-derivative instruments to mitigate the potential impact of FX fluctuations on the indicators of the Company’s consolidated financial statements.

Changes in interest rates As a major borrower, Rosneft is exposed to risks related to changes in interest rates. The Company analyzes exposure to interest rate The Company mainly borrows in the international debt markets. Part of the Company’s changes, including the development of various loan portfolio consists of USD. An interest rate on most of these loans is based on scenarios to assess the influence of interest rate LIBOR and EURIBOR interbank lending rates. An increase in these interest rates may changes on financial indicators. result in higher debt service fees for Rosneft. Growth of borrowing costs for the Com- pany may have a negative effect on its solvency and liquidity. As at end of 2017, the Company had the following credit ratings assigned by leading rating agencies: Moody’s (Ва1), S&P(BВ+)

Inflation Inflation rates in the Russian Federation significantly impact the Company’s perfor- When planning its business operations, Rosneft takes mance. into account the impact of the inflation rate on its financial performance, including the impact on the cost of procured materials and equipment, as well as changes in contractors’ fees. The Company develops measures to mitigate the risk, including the search for alternative contractors and suppliers of materials and equipment. Legal risks

Related to inspections by In 2017, certain Group Subsidiaries underwent scheduled and unscheduled audits for Rosneft regularly monitors compliance with legal regulators compliance with subsoil, environmental, urban planning, labor, and other legislation. requirements; it takes into account the findings of The audits identified no material violations; no liability that might lead to business inspections conducted by government bodies in its interruption was imposed. Majority of the identified violations were promptly eliminated, operations; it plans its operations taking into account and relevant action plans were prepared and are being implemented for violations that detected violations, including those revealed during require time to eliminate. audits, and seeks to prevent such violations in the future.

Related to changes in FX Rosneft is actively involved in foreign trade. Some of the Company’s assets and liabilities Rosneft regularly monitors changes in laws on FX regulation are denominated in foreign currencies. Therefore, government FX regulation impacts regulation and control and rulings by supreme courts the Company’s financial and business operations. On the whole, there were no signifi- and assesses legal precedents. cant amendments to Russian currency laws that could impact Rosneft’s operations in the reporting period.

306 Appendix No. 2

Type Risk description Risk management measures Related to changes in tax Rosneft is a major taxpayer, and its operations are based on the principles of good faith Rosneft continuously monitors amendments to tax legislation and transparent relationships with tax authorities. The Company pays VAT, excise tax, laws, evaluates and forecasts the degree of their income tax, mineral extraction tax, property tax, land tax, as well as other taxes and potential impact on its operations, follows the latest duties. legal precedents taking into account amendments to In 2017, the following changes that affect Rosneft’s operations were introduced to tax the legislation in its operations; the Company’s ex- legislation: perts are regularly involved in various working groups 1. Tax Calculation and Payment: responsible for drafting tax legislation. 1.1 Federal Law No. 254-FZ On Amendments to Part Two of the Tax Code of the Rus- sian Federation dated 29 July 2017, which extended until 2020 the application of the “additional component” to the MET rate for oil. This component of RUB 428 per tonne of oil represents the Kk coefficient, which is deductible from the coefficient describing the oil production profile (Dm) and is accordingly increasing the MET rate. 1.2 Federal Law No. 353-FZ On Amendments to Parts One and Two of the Tax Code of the Russian Federation and Individual Laws of the Russian Federation dated 27 November 2017, which: ·· allowed companies producing oil from license areas located completely within the boundaries of the Nizhnnevartovsk District of the Khanty-Mansi Autonomous Area – Yugra under a subsoil use license issued before 1 January 2016, with initial recoverable oil reserves of 450 mmt or more as at 1 January 2016, to apply from 1 January 2018 through 31 December 2027 MET deduction of RUB 2,917 mln for a tax period (calendar month) ·· exempted from the income tax proceeds from sale of shares (stakes) by companies that are subject to sanctions imposed by foreign countries and intergovernmental associations, provided that they fulfil a number of conditions contained in tax legislation; at the same time, expenses in the form of the cost of such shares (stakes) are not included in the taxable base for profit tax purposes ·· clarified the taxation policy applicable to offshore projects so as to eliminate risks of tax disputes that existed before such amendments ·· as of 1 January 2018, increased excise tax rates for certain petroleum products (Euro 5 motor gasoline, diesel fuel, middle distillates) ·· modified certain criteria for classifying petrochemical products (straight-run gasoline, middle distillates) as excisable goods ·· introduced a new excisable item: “receipt” and “recognition” of middle distillates ·· introducing a grace period for property tax on the movable property: in 2018, the property tax rate for movable property that was previously exempted from the tax will not exceed 1.1% ·· changing the procedure for deducting VAT on goods (works, services) purchased, and property rights for taxpayers where the share of their aggregate expenses for purchasing, producing and/or selling goods (works, services), or property rights the sale of which is not subject to VAT, does not exceed 5% of their total expenses: now only goods (works, services) or property rights that are used at the same time in VAT taxable and non-taxable transactions are eligible for deduction ·· changing the procedure for recognizing VAT on goods (works, services) acquired by taxpayers with subsidies (government investments): VAT on relevant goods (works, services) passed by sellers through to taxpayers must be either included in their price directly without deduction, or clawed back and recognized as expenses (depending on when the taxpayer receives the subsidies (government investments)), while the VAT recognition procedure is no longer tied to the tax amount being recognized within the amount of the subsidy (government investment) 2. Tax Accounting, Reporting, and Control: 2.1 Federal Law No. 163-FZ On Amendments to Part One of the Tax Code of the Rus- sian Federation dated 18 July 2017, which introduced new provisions into the Russian Tax Code that limit the exercise of rights to calculate the tax base and tax liabilities (charges, insurance contributions) whereby the taxpayer is required to avoid misrepre- sentation of business facts and taxable items in its reporting, and to avoid represen- tation of deals (transactions) that are entered into mainly to evade (or partially evade) taxation. These amendments might lead to stricter tax control over the execution and purpose of deals (transactions) made by the Company. 2.2 Federal Law No. 340-FZ On Amendments to Part One of the Tax Code of the Russian Federation Related to the Implementation of International Automated Exchange of Information and Documents on International Groups of Companies dated 27 November 2017, which introduced the requirement to submit country-level reports under international treaties of the Russian Federation, and requirements to automated exchange of financial information with foreign countries (territories) for tax purposes.

The probability of risk related to amendments to tax legislation that came into force in the reporting period is assessed as low.

Related to changes in customs Rosneft is involved in foreign trade. Therefore, the Company is exposed to risks related Rosneft continuously monitors changes in customs regulation to changes in state regulation of foreign trade activity and the customs legislation regu- legislation, assesses, and forecasts the extent to lating the procedure for transfer of goods through the customs border, determining and which such changes might affect its operations. The application of customs procedures; imposition, introduction, and collection of customs Company’s experts are regularly involved in various payments. working groups responsible for drafting customs In 2017, the Eurasian Economic Union adopted its Customs Code (EAEU Customs legislation. Code) effective since 1 January 2018. The main changes in the EAEU customs legis- As part of working groups and expert panels, Ros- lation are related to simplification of customs administration procedures and customs neft’s representatives were involved in the drafting formalities, reduction of goods release time and number of submitted declaration doc- of a new Federal Law, On Customs Regulation, resolu- uments, prioritizing e-declaration of goods and electronic document workflow between tions of the Eurasian Economic Commission (EEC), the customs bodies and the foreign trade operators, including automated registration and resolutions of the Russian Government across and release of customs declarations via information systems. various platforms established by the EEC and Russian 2017 also saw the adoption of Federal Law No. 436‑FZ dated 28 December 2017 federal authorities to improve customs administration that extended the existing customs regulation standards and procedure covering the procedures. foreign trade operator’s custom formalities until the end of the transition period from the date the EAEU Customs Code takes effect till the moment when new national customs legislation is passed.

Related to changes in an- Rosneft has a significant share on the Russian wholesale gasoline, diesel fuel, jet fuel Rosneft continuously monitors amendments to ti-trust laws and fuel oil market. Therefore, the Company has to meet additional requirements aimed anti-trust legislation and rulings by supreme courts at protecting competition and might face risks related to amendments to anti-trust and assesses legal precedents. In case of any legal laws. precedents, Rosneft applies to government bodies for No material amendments that would affect the Company’s operations were made to explanations and recommendations for implementing the Federal Law On Protection of Competition in 2017. the specific regulations and submits proposals for updating anti-trust legislation.

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Type Risk description Risk management measures Related to statutory regulation Subsoil use is Rosneft’s core line of business. Therefore, significant changes in statutory The Company performs operations related to subsoil of subsoil use regulation of subsoil use may impact the Company’s operations. At the same time, use in accordance with subsoil laws under issued subsoil legislation is not subject to frequent significant adjustments. Changes in subsoil licenses. The Company continuously monitors legislation in 2017 are considered positive. The most significant changes are related amendments to subsoil laws and assesses the latest to introduction of an option to repeatedly increase subsoil areas in certain situations legal precedents. Plans for obtaining subsoil licenses and as long as the increase constitutes 20% of subsoil reserves or less, and also to the and conducting day-to-day operations related to increase of prospecting and exploration work times in the Komi Republic to 7 years. subsoil use are developed taking into account the latest trends in statutory regulation in this sphere.

Related to statutory regulation Rosneft is exposed to risks related to changes in land legislation. No material amend- Rosneft regularly monitors amendments to the of land use ments to land legislation were made in 2017. The most significant changes that affect applicable legislation, rulings by supreme courts and the Company’s operations are related to adjusting calculation of lease fees for state assesses legal precedents. In case of any legal prec- and municipal land to bring it in line with the market fee rates. There were no changes in edents Rosneft also submits proposals for updating 2017 that might have a negative impact on the Company’s operations. the legislation and applies to government bodies for explanations and recommendations for implementing the specific regulations.

Related to environmental pro- Amendments to laws on industrial safety and environmental protection made during Rosneft has implemented a health, safety and tection and industrial safety the reporting period are minor. The likelihood of the occurrence of risks related to environment management system that comprises amendments that came into force in the reporting period is assessed as low. resources and procedures required for preventing hazardous events and responding to them. The principles and approaches followed at all stages of the life cycle of industrial facilities are designed to enable continuous improvement of the system and effective management of HSE risks in accordance with applicable requirements for process safety and safe operation of industrial facilities, taking into account existing state-of-the-art technologies. The Company continuously monitors amendments to laws on environmental and industrial safety and takes into account legal precedents in its operations.

Related to ongoing court pro- Rosneft was, or is, a party to the following litigations that may have a significant impact Rosneft regularly monitors rulings by supreme courts ceedings in which the Company on its financial and business performance: and assesses legal precedents created in district is involved 1. Rosneft and are parties to legal disputes involving PJSFC and arbitration courts; it actively uses such precedents JSC Sistema-Invest over Bashneft shares unlawfully held by PJSFC Sistema and when protecting its rights and legal interests in court JSC Sistema-Invest, including as co-plaintiffs in a case against PJSFC Sistema and when settling any legal issues arising during its and JSC Sistema-Invest whereby Bashneft sought to recover RUB 170.6 bln operations. Therefore, risks related to changes in of losses caused by its restructuring (Dispute 1) and RUB 131.6 bln of losses court practice are considered minor. incurred as a result of dividend payouts to the defendants when they unlawfully held Bashneft shares (Dispute 2), and as co-defendants in a case brought by PJSFC Sistema to recover RUB 330.4 bln of losses caused by the suits brought by Rosneft and Bashneft to defend Bashneft’s legitimate interests (Dispute 3). These disputes were settled through an out-of-court agreement between the parties, which was approved by the Arbitration Court of the Republic of Bashkortostan in its Ruling on Dispute 1 dated 26 December 2017. Under the out-of-court agreement, PJSFC Sistema and JSC Sistema-Invest undertake to indemnify Bashneft until 30 March 2018 for RUB 100 bln of losses incurred by it, after which the parties to the disputes will waive their claims under Disputes 2 and 3. 2. In October–November 2014, former shareholders of JSC RN Holding brought an action against Rosneft claiming losses caused by allegedly wrong (in view of the plaintiffs) valuation of shares bought back under Article 84.8 of the Federal Law On Joint-Stock Companies. The court of first instance ruled (with the ruling upheld by superior courts) to fully dismiss the claims. In May 2017, the Supreme Court of the Russian Federation dismissed a claim to refer the complaints to its Judicial Chamber on Economic Disputes; the dispute was closed, with claims against the Company found to be baseless. Rosneft is also involved in a number of other litigations that arise in the course of its business. The outcomes of these litigations will have no major impact on the Company’s performance or financial position. 3. In 2015, First National Petroleum Corporation (FNPC) initiated arbitration proceedings in the Arbitration Institute of the Stockholm Chamber of Commerce against JSC Tyumenneftegaz, a subsidiary of Rosneft, seeking recovery of losses and interest in the amount exceeding USD 260 million for alleged breach of certain provisions of the agreement to incorporate a joint venture, Tumtex, in the Russian Federation.In the award dated 30 March 2018, FNPС’s claims were partially satisfied in the amount of USD 70 million plus interest. The risk associated with the dispute was transferred to the Company within the perimeter of the deal to acquire TNK-BP’s assets, and was factored in when signing the deal. The Company intends to challenge the arbitration award. Rosneft is involved in a number of other legal proceedings that arise in the course of carrying out business. The resolution of such proceedings will not have a material impact on the results of operations or the financial position of the Company.

EU and US Sanctions In 2014, the US and EU imposed a series of sectoral sanctions. The sanctions intro- The Company takes these sanctions into account duced restrictions with regard to certain persons designated by the US and EU and: in its operations and continuously monitors them in 1. prevent US and EU residents from providing new financing, or works, goods, or order to minimize their negative impact. services that can be used by such persons under deep-water oil, Arctic oil, and Russian shale oil upstream projects 2. prevent US residents from providing works, goods, or services that can be used by such persons to implement similar projects initiated as of 29 January 2018 in any region if such person holds (i) a stake equal to, or exceeding, 33%, or (ii) a majority stake in such project. A number of other countries have also imposed sectoral sanctions similar to the US and EU sanctions.

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