OAO GAZPROM Annual Report 2012 OAO GAZPROM Annual Report 2012 2 CONTENTS
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OAO GAZPROM Annual Report 2012 OAO GAZPROM Annual Report 2012 2 CONTENTS Address by the Chairman of the Board of Directors and the Chairman of the Management Committee to the Shareholders of OAO Gazprom 4 Major Results 6 Gazprom Group Results 6 OAO Gazprom Results 8 Major Events 10 About the Company 16 Mission and Strategic Goal 16 OAO Gazprom's Operating Principles 16 OAO Gazprom's Competitive Advantages 17 The Group's Position in Global Energy Industry 18 Gazprom Group's Production and Marketing Geography 20 Development Prospects 22 OAO Gazprom’s Board of Directors and Management Committee 28 OAO Gazprom’s Board of Directors 28 OAO Gazprom’s Management Committee 32 Board of Directors’ Report on OAO Gazprom’s Development in Priority Areas of Operation in 2012 37 Performance Results 41 Exploration and Production 41 Gas Transportation, Storage and Distribution 54 Refining 65 Electric Power Business 70 Marketing 73 Innovative Development 86 Research and Development 86 Improving Innovation Management 89 International R&D Cooperation 89 Environment Protection, Industrial Safety and Energy Efficiency 91 Environment Protection 91 Industrial and Labor Safety 97 Energy Saving and Energy Efficiency 100 Social Policy 103 Managing Human Capital 103 Social Projects 105 OAO GAZPROM Annual Report 2012 3 Corporate Governance 108 Corporate Governance Principles 108 Corporate Governance Subjects 109 Internal Control System and Audit 118 Dividend Policy 122 Compensation and Liability Insurance of Members of the Board of Directors, Members of the Management Committee and Chairman of the Management Committee 124 Equity Capital and Equity Market 126 Investor and Shareholder Relations, Information Disclosure 128 Corporate Governance Improvement Prospects 131 Risk Management 133 Development of Risk Management System 133 Key Risk Factors 134 Glossary 143 Units of measurement and Convertion table 143 List of the foreign companies mentioned in the report 145 Additional Information 147 List of Interested Party Transactions in 2012 Approved by OAO Gazprom’s Governance bodies 147 Information on Transactions with OAO Gazprom’s Shares Carried Out by Members of OAO Gazprom’s Board of Directors and Management Committee in 2012 179 Information on the Actual Results of Execution оf Orders and Directions of the President of the Russian Federation and Orders of the Government of the Russian Federation 180 Information Featured at OAO Gazprom’s Corporate Web-Site 185 Addresses and Contacts 186 Notes The terms OAO Gazprom, Company used in the Annual Report refer to the parent Company of Gazprom Group, i.e., to Open Joint Stock Company Gazprom. Gazprom Group, the Group or Gazprom imply OAO Gazprom and its subsidiaries taken as a whole. For the purposes of the Annual Report, the lists of subsidiaries were prepared on the basis used in the preparation of OAO Gazprom’s combined accounting (financial) statements in accordance with the requirements of the Russian legislation. Similarly, the Gazprom Neft Group and Gazprom Neft refer to OAO Gazprom Neft and its sub- sidiaries, Gazprom energoholding refers to OOO Gazprom energoholding and its subsidiaries, Gazprom neftekhim Salavat refers to ОАО Gazprom neftekhim Salavat and its subsidiaries. The Annual Report also contains information related to Gazprom Group's business activities in the future, based on the forecast and estimates of Gazprom’s management derived from the cur- rent situation. Actual results may differ from the said forecast and estimates, due to the effect of various objective factors. In the report, a number of Gazprom’s operating and financial results are stated in compliance with the principles for preparing Gazprom Group's consolidated accounting (financial) statements in accordance with the Russian legislation (consolidated financial statements of Gazprom Group). At the same time, some results of OAO Gazprom and its subsidiaries are stated in compliance with the principles for preparing management accounting. Figures calculated using these methods may differ due to differences in methodologies for preparing consolidated financial statements and management accounting. OAO GAZPROM Annual Report 2012 4 ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE CHAIRMAN OF THE MANAGEMENT COMMITTEE TO THE SHAREHOLDERS OF OAO GAZPROM Dear Shareholders! The global energy industry knows many large companies. However, not all of these are capable of implementing unprecedented projects. This is the job for those companies, that along with their large scale deliver high performance efficiency, well-designed strategies and active implementation of cutting-edge technologies. Gazprom is the company to deliver all of the above. This is clearly demon- strated by the Company's achievements in the reporting year, and many of these are landmarks for the national and international gas industry. In 2012 Gazprom commissioned a large Bovanenkovskoye field at Yamal Peninsula. Now Russia’s map features a new natural gas production center, to be the country’s largest. Gas from Bovanen- kov skoye field will make its way to customers via a unique gas transportation system. Up to this day, no other country has ever implemented such a giant project this far North. Gazprom gave a start to the new era in the history of the global gas industry. Gazprom is the only Russian company capable of creating a modern gas industry sector in the country’s East. Under the Eastern Gas Program, we have already set up two gas production centers, in Sakhalin and Kamchatka, Yakutia is next in line. In 2012 the Company made the final investment decision to proceed with development of Chayandinskoye field, crucial for our Yakutia gas produc- tion center. Supplies from the new gas production center will be delivered to customers via a new gas transportation system to be built, the name “Power of Siberia” was selected for the system in a Gazprom-initiated contest. The development of Yakutia gas production center, based on Chayandin- skoye field will launch large-scale development of gas refining in Russia’s East. Speaking of unique features of Gazprom, one cannot but mention that Gazprom is the only com- pany in our country to carry out such active and systematic development of such a major socially sig- nificant project, as development of gas distribution infrastructure. The unprecedented investments of Gazprom into development of gas distribution infrastructure in 2012 — about RR 33.8 bln — yielded excellent results: natural gas for the first time came to 429 communities. The program of gas distribution infrastructure development has gained even more importance: starting from this year, it also includes Gazprom’s efforts to expand use of natural gas vehicle fuel. In 2012 we established a special company with the key purpose of coordinating efforts of gas pro- ducers, automotive manufacturers and constituent regions of the Russian Federation in this area. OAO GAZPROM Annual Report 2012 5 Natural gas vehicle fuel encompasses many aspects — optimization of road transportation costs, im- provement of environmental conditions and and is one of the most promising segments of the Rus- sian gas market. Gazprom is not only a global energy Company, it is also one of the major suppliers of natural gas on the planet, and it continues to focus on further diversification of delveries of this fuel to its inter- national customers. In 2012 Nord Stream pipeline reached its design capacity, and it is the first gas pipeline in history to directly connect gas transportation systems of Russia and Europe. We launched construction of South Stream, which is the largest investment project in Europe. The starting point of South Stream, Russkaya compressor station, will be the most powerful station in the world. When South Stream reaches its designed capacity, Gazprom’s transit risks for supply to its European con- sumers will be brought down almost to zero. Being the only LNG manufacturer in Russia, in 2012 Gazprom performed the world’s first shipment across the Northern Sea Route — the shortest route between Northern Europe and North – East Asia. Developing its sideline business areas, Gazprom is implementing unique projects as well. In 2012 we launched a combined cycle gas turbine unit at Kirishskaya GRES. This is the largest thermal gene- ration facility, commissioned in Russia during the last 30 years, and the most productive combined cycle unit in the country. Commissioning the unit enabled Gazprom to meet over a half of its new generation commitments. Gazprom’s success is achieved by our outstanding efforts. Daily hard work of many thousands of Gazprom’s employees made it one of the most reliable and dynamically developing global energy companies. And this work is focused on our future. Even today our commitment secures reliability of future supply of key energy resources to domestic and international customers, ensuring dynamic development of Gazprom and confidence of our investors. Chairman of the Board of Directors Victor Zubkov Chairman of the Management Committee Alexey Miller OAO GAZPROM Annual Report 2012 6 MAJOR RESULTS Gazprom Group Results Gazprom Group's 40 1.5 reserves categories 35 35.0 35.1 1.4 33.6 33.1 33.1 1.3 A+B+C , 30 29.9 29.8 1.4 1 28.0 28.9 29.1 1.2 25 1.08 2003–2012 1.08 1.1 Gas reserves 1.04 1.06 1.06 1.01 1.18 20 1.0 as of December 31, 15 0.9 tcm 0.8 0.8 10 0.7 0.7 Gas reserves 5 0.6 replacement ratio 0 0.5 due to geological 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 exploration Gazprom Group's 800 hydrocarbons 700 707 670 698 696 648