ANNUAL REPORT JSC GAZPROM NEFT 2008 ANNUAL REPORT JSC GAZPROM NEFT 2008 CONTENTS 173 167 153 143 135 123 109 97 67 63 39 33 23 17 13 7 1 REGIONSOFOPERATION MESSAGE TO SHAREHOLDERS MAJORRISKFACTORS PERFORMANCE ANDFINANCIALINDICATORS INVESTMENT:TECHNICAL RE-EQUIPMENTANDDEVELOPMENT OFTHECOMPANY 2008KEYPERFORMANCE INDICATORS BYTYPEOFOPERATION COMPANY’S GROWTH PROSPECTS GAZPROM NEFTTODAY COMPANY HIGHLIGHTSOF2008 PROFILE CREDIT RATINGS AND DEBT PORTFOLIO MANAGEMENT ASSET MANAGEMENT ANDIMPROVEMENT OFTHECORPORATE STRUCTURE MAJORANDINTERESTED-PARTY TRANSACTIONS TO SHAREHOLDERSAND INVESTORS SOCIAL POLICY ECOLOGY, ENERGY SAVING, INNOVATION CORPORATE GOVERNANCE 208 184 183 180 150 148 146 144 138 136 130 130 124 121 118 117 111 72 70 68 60 58 52 49 46 44 40 40 20 19 18
SUPPLEMENT 2.RASFINANCIALSTATEMENTS. AUDITOR’S REPORT SUPPLEMENT 1.USGAAP CONSOLIDATED FINANCIAL STATEMENTS. AUDITOR’S REPORT. ADDRESSES ANDCONTACTS GLOSSARY OFKEYTERMSANDDEFINITIONS OBSERVING THECORPORATE CODEOFCONDUCT DIVIDEND HISTORY PARTICIPATION INTHEAMERICAN DEPOSITORY RECEIPTPROGRAM STOCK MARKETANDCAPITALIZATION SOCIAL RESPONSIBILITY PERSONNEL, OCCUPATIONAL SAFETYANDHEALTH INNOVATIVE ACTIVITIES ENERGY SAVING HEALTH, SAFETYANDENVIRONMENT TOTAL AMOUNTOFREMUNERATION TO MEMBERSOFTHEBOARD OFDIRECTORS ANDMANAGEMENT BOARD MEMBERSHIP OFTHEMANAGEMENT BOARD ACTIVITIES OFTHEBOARD OFDIRECTORS IN2008 MEMBERSHIP OFTHEBOARD OFDIRECTORS MANAGEMENT’S DISCUSSION ANDANALYSIS OFFINANCIALCONDITIONANDRESULTS OFOPERATIONS KEY FINANCIALRESULTS KEY PERFORMANCE INDICATORS TRANSPORTATION OFOILANDPETROLEUMPRODUCTS OIL ANDPETROLEUMPRODUCT EXPORTS DISTRIBUTION OFOILPRODUCTS OIL REFINING OIL PRODUCTION LICENSING EXPLORATION STATUS OFTHERESOURCE BASE COMPANY’S STRUCTURE AUTHORIZED CAPITAL, SHARECAPITAL STRUCTURE ESTABLISHMENT DATA, LOCATION Dear Shareholders!
Gazprom as a global energy company pays serious attention to the development of its oil business. A good case in point was the decision by Gazprom to exercise the purchase option for a 20% interest in Gazprom Neft in April 2009 with the result that our stake in this critical oil asset of Gazprom Group has increased to 95.68%.
In 2008 Gazprom Neft methodically strengthened its positions in the traditional Russian oil and petroleum product markets. The Company began the implementation of new large-scale projects associated with the sales of lubricants as well as fuel for aviation, marine and river transport. Considerable attention was given to supporting research developments and improvement of oil exploration and production technologies.
The reporting period saw a milestone event for Gazprom – in December 2008 Gazprom Neft and the Government of Serbia signed an agreement for the purchase of a 51% interest in Serbian oil company NIS – one of the largest in Central Europe. In February 2009 the deal was closed. Thus we laid a solid foundation for the development of Gazprom Neft at the international level.
The stable position of JSC Gazprom Neft n the Russian oil industry, entry of the company into the world market, effective corporate governance measures – all this shows a powerful production potential of Gazprom Group in the oil sphere.
MILLER A.B. Chairman of the Management Board, JSC Gazprom, Chairman of the Board of Directors, JSC Gazprom Neft
ANNUAL REPORT JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 1 2008 was very eventful and successful for the Company. Over the past year Gazprom Neft made a big step forward and continued its successful development as part of Gazprom Group.
Today we are confident to say that Gazprom Neft is one of the leaders of the Russian oil industry. The Company has increased its reserves, the acquisition of a stake in Tomskneft has allowed production growth, the volume of oil refining and petroleum product sales has been up as well. Our subsidiaries – Gazpromneft-Aero, Gazpromneft-Lubricants, Gazprom Neft Marine Bunker and Gazpromneft-Nefterservice have been growing rapidly to become important players in the relevant markets.
We have shown good financial results attributable not only to the market environment but also to the implementation of measures designed to enhance the Company’s efficiency. And I have no doubts that our successful results of 2008 will become a springboard for Gazprom Neft’s effective development in the following difficult period.
We are moving steadily towards achievement of the ambitious goals set out in Gazprom Neft’s Development Strategy until 2020. In the future we see Gazprom Neft as a global player of the world fuel market. Already now we are laying the basis for our international business. Last year was a signature one in this respect: we successfully completed talks with the Serbian Government on the acquisition of a 51% interest in oil company NIS. Now it is the largest foreign asset not only of Gazprom Neft but of all Gazprom Group. However we will have to deal with the difficult challenges of improving the acquired asset management system and of new asset modernization.
A young, vibrant, rapidly growing company in the oil industry market – such experts’ take on Gazprom Neft is without question something to be proud of. Our strongest advantages are – an effective governance system, a young management team capable of getting the right result. In the coming years we will receive invaluable experience of working in difficult economic conditions, however, I am confident we will overcome the crisis to become even stronger.
Alexander DUKOV Chairman of the Management Board, JSC Gazprom Neft
ANNUAL REPORT JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 3 KEY FINANCIAL INDICATORS KEY PERFORMANCE 2008 2007 2006 2008/2007 2007/2006 • Sales revenue, mln USD 33 075 21 767 20 176 51.95% 7.89% INDICATORS • EBITDA, mln USD 7 965 6 236 5 676 27.73% 9.87% • Operating income, mln USD 6 249 4 899 4 366 27.56% 12.21% OF THE COMPANY • Income before tax, mln USD 6 122 5 458 4 854 12.17% 12.44% • Net income, mln USD 4 658 4 143 3 661 12.43% 13.17% • Net cash from operating activities, mln USD 5 444 5 316 3 320 2.41% 60.12% • Capital investment, mln USD 3 327 2 212 1 525 50.41% 45.05% • Dividend paid, mln USD 792 2 071 602 -61.76% 244.02% • Net debt (avg.), mln USD 1 618 1 519 771 6.51% 96.97% • Average capital employed, mln USD 14 357 11 700 9 564 22.71% 22.33% • Average shareholders’ equity, mln USD 12 197 10 182 8 793 19.79% 15.79% • Price per share at year-end, USD RTS 2.05 6.35 4.56 -67.72% 39.25% • Price per share at year-end, USD MICEX 2.13 6.21 4.55 -65.70% 36.48%
KEY FINANCIAL RATIOS 2008 2007 2006 2008/2007 2007/2006 • Basic and Diluted Earnings per Common Share, USD per share 0.98 0.87 0.77 12.64% 12.99% • Dividend per share, rub. 5.40 8.08 7.90 -33.17% 2.28% • Return on average capital employed, % 33.12% 31.78% 34.43% 3.13% -5.88% • EBITDA margin, % 24.08% 28.65% 28.13% -17.24% 3.57% • EBITDA per barrel, USD per barrel 34.84 25.64 23.33 35.88% 9.90% • Net income margin, % 14.08% 19.03% 18.15% -26.32% 5.56% • Net income per barrel, USD per barrel 20.38 17.04 15.05 19.60% 13.22% • Return on equity, % 38.19% 40.69% 41.63% -7.32% -2.38% • Gearing, % 10.39% 20.56% 3.27% -52.38% 600.00% • Current ratio 1.48 1.31 1.99 12.98% -34.17%
KEY PRODUCTION INDICATORS 2008 2007 2006 2008/2007 2007/2006 • Oil reserves, mln bbl 4 488 4 823 4 476 -6.95% 7.75% • Gas reserves, bn ft3 2 154 728 1 041 195.68% -30.05% • Hydrocarbon reserves, mln BOE 4 847 4 945 4 650 -1.97% 6.34% • Oil production of consolidated subsidiaries, mln bbl 228.60 243.20 243.30 -6.00% -0.04% • Oil production with share in equity investees (Slavneft and Tomskneft), mln bbl 337.30 319.40 318.00 5.60% 0.44% • Oil refining at own refineries, mln t 18.40 16.50 16.30 11.52% 1.23% • Oil refining at equitiy investees’ refineries, mln t 10.10 9.70 8.10 4.12% 19.75% • Oil exports, mln t Non-CIS 16.30 15.10 18.20 7.95% -17.03% • Oil exports, mln t CIS 3.30 2.50 2.60 32.00% -3.85% • Oil sales, mln t Russian Federation 0.90 1.60 0.10 -43.75% 1500.00% • Petroleum product exports, mln t Non-CIS 11.40 11.40 12.20 0.00% -6.56% • Petroleum product exports, mln t CIS 1.90 1.90 1.30 0.00% 46.15% • Petroleum product sales, mln t Russian Federation 15.70 13.40 11.90 17.16% 12.61% • Petroleum product sales through filling stations, mln t 3.00 2.30 1.90 30.43% 21.05% • Number of filling stations (own, leased and franchise) 865 782 777 10.61% 0.64%
ANNUAL REPORT JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 5 REGIONS OF OPERATION REGIONS OF OPERATION
REGIONS OF OPERATION
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1 6 REGIONAL LOCATION OF COMPANY’S OIL PRODUCTION AND LICENSE PLOTS 10 (including subsidiaries 2 and associates) 3 • PRODUCTION AND RESERVES
1 Nenets 12 Autonomous District 2 Yamal-Nenets Autonomous District 4 3 Khanty-Mansi Autonomoius District 5 4 Tomsk Region 5 Omsk Region 6 Krasonyarsk Krai 7 Serbia* 8 Angola* 9 • RESERVES 9 Irkutsk Region 7 10 Republic of Sakha (Yakutia) 11 Chukotski Autonomous District 8 12 Sea of Okhotsk Offshore Area (Lopukhovsky Block)
* – the regions extraction of group NIS
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OIL REFINERIES AND REGIONS OF SALES 23 (including subsidiaries and associates) 22 • REGIONS WITH RETAIL SALES 1 Moscow and Moscow Region 6 2 Kaluga Region 29 3 Yaroslavl Region 24 4 Ivanovo Region 5 Nizhniy Novgorod 3 6 Saint-Petersburg 2 and Leningrad Region 1 7 Chelyabink Region 21 4 8 Sverdlovsk Region 9 Tyumen Region 10 Omsk Region 5 26 11 Tomsk Region 12 Novosibirsk Region 13 Kemerovo Region 14 Republic of Altai 15 15 Krasnoyarsk Krai 19 8 16 Kazakhstan 17 Kyrgyzstan 18 Tajikistan 7 19 Krasnodar Krai 9 20 Serbia 11 • REGIONS WITH WHOLE 10 SALES ONLY 12 27 21 Tula Region 22 Republic of Karelia 16 13 25 23 Murmansk Region 24 Arkhangelsk Region 25 Irkutsk Region 26 Republic of Sakha (Yakutia) 27 Khabarovsk Kraiй 20 28 Primorsky Krai 14 28 29 Belarus 17 Refinery Operations of Gazprom Neft Marine Bunker LLC (ports) Operations of Gazprom Neft-Aero 18
ANNUAL REPORT ANNUAL REPORT 10 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 11 HIGHLIGHTS OF 2008 HIGHLIGHTS OF 2008
HIGHLIGHTS OF 2008
JANUARY JULY • JSC Gazprom Neft and JSC Moscow Oil and Gas Company settled their differences over management • JSC Gazprom Neft and Yokogawa Electric Corporation signed a strategic cooperation agreement; of the Moscow Refinery. • JSC Gazprom Neft’s Management Board approved a development strategy for bunker enterprise Gazprom Neft-Marine Bunker LLC until 2020 ; FEBRUARY • JSC Gazprom Neft successfully completed syndication of an 1bn USD loan; • Gazprom Neft developed and approved a medium-term investment program for 2008-2010 targeting recovery • JSC Gazprom Neft and JSC Transaero Aviation Company signed a cooperation agreement. and a higher utilization rate of associated gas; • CJSC Gazpromneft – Aero and LUKOIL AERO LLC started joint into-plane fueling operations AUGUST at the Pulkovo International Airport (Saint-Petersburg). • JSC Gazprom Neft and the Administration of the Yamal-Nenets Autonomous District entered into a cooperation agreement. MARCH • Gazprom Neft won the bidding for a subsoil license for the Zimnee oil field in the Khanty-Mansi Autonomous District; SEPTEMBER • Gazprom Neft approved a medium-term investment program for 2008-2010; • JSC Gazprom Neft started petroleum product sales through an electronic trading floor; • Gazprom Neft entered into a trusteeship agreement with Plekhanov Saint-Petersburg State Mining Institute • JSC Gazprom Neft and Lomonosov Moscow State University entered into a 5-year (technical university); strategic cooperation agreement; • Gazprom Neft entered into a cooperation agreement with the Omsk Region for 2008; • JSC Gazprom Neft and JSC Sheremetievo International Airport entered into a general cooperation • Gazprom Neft entered into a socio-economic agreement with the Khanty-Mansi Autonomous District for 2008. agreement on air transportation and jet fuel supplies within the implementation of the program of the Russian Ministry of Transport for the creation of a system of alternative jet fuel supply complexes APRIL at the airports. • Gazprom Neft started the production and retailing of Euro 3 fuel; • Gazprom Neft became one of the founders of the Saint-Petersburg Commodity Exchange; OCTOBER • JSC Gazprom Neft’s Management Board approved the Company’s growth strategy until 2020; • A Gazprom Neft lecture hall opened at Saint-Petersburg State Mining Institute. • Gazprom Neft established a subsidiary, Information Technology Service Company, to enhance the efficiency of IT services; NOVEMBER • Gazprom Neft entered into a cooperation agreement with Gubkin Russian State University of Oil and Gas for 2008. • JSC Gazprom Neft made a decision to switch to formula pricing when selling jet fuel to end consumers; • Gazprom Neft shareholders elected a new Board of Directors; MAY • The five millionth ton of oil was produced at the Zapadno-Krapivinskoye oil field in the Tarsky District • JSC Gazprom Neft and JSC Moscow Oil and Gas Company registered a joint venture to manage the Moscow of the Omsk Region. Refinery – Moscow NPZ Holdings B.V. DECEMBER JUNE • JSC Gazprom Neft and state corporation Bank for Development and Foreign Economic Affairs • Gazprom Neft’s Annual General Shareholders’ Meeting was held; (Vnesheconombank) signed a 750 mln USD credit line; • JSC Gazprom Neft’s Management Board approved a development strategy for subsidiary service enterprise • JSC Gazprom Neft and the Serbian Government signed a purchase agreement for a 51% interest Gazpromneft-Nefteservice LLC until 2020. in oil company Naftna Industrija Srbije (NIS).
ANNUAL REPORT ANNUAL REPORT 14 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 15 COMPANY PROFILE COMPANY PROFILE
COMPANY PROFILE
COMPANY ESTABLISHMENT DATA, LOCATION LOCATION, REGISTRATION DATA 1995 Joint Stock Company Gazprom Neft was established under Decree of President of the Russian Feder ation № 872 • Corporate Name of the Company: Joint Stock Company Gazprom Neft (JSC Gazprom Neft) «On Establishment of Open Joint Stock Company Siberian Oil Company,» dated August 24, 1995, and Resolution of the • Location of the Company: 5A Galernaya St., Saint-Petersburg, 190000, Russian Federation Government of the Russian Federation № 972 «On Organization of Open Joint Stock Company Siberian Oil Company,» dated • The Company was registered on 06.10.1995 by the Omsk City Registration Chamber September 29, 1995. The Company was regis tered on October 6, 1995 under the name: Open Joint Stock Company Siberian • Certificate of State Registration № 38606450 Oil Company. Acting as the Company’s founder, the state created a vertically integrated company by investing shares of JSC • Primary State Registration Number - 1025501701686 Noyabrskneftegaz, JSC Omsk Refinery, JSC Noyabrskneftegazgeophysica, and JSC Omsknefteproduct in the authorized capital. Privatization of the Company was completed in May 1997. CORE BUSINESS OF THE COMPANY: • Prospecting of oil, gas and other deposits; 2005 A controlling interest in the Company (75.68%) was bought out by Gazprom Group. Since May 13, 2006 the Company’s • Production, transportation and refining of oil, gas and other minerals; name has been Joint Stock Company Gazprom Neft. • Oil, gas, petroleum product storage; • Production of petroleum products, petrochemicals; JSC Gazprom Neft controls a 49.9% interest in JSC Slavneft, which is run jointly with TNK-BP. • Oil and petroleum product supplies and sales; • Conduct of exploration, geophysical and prospecting work in search of oil, gas and other mineral deposits. 2006 The Company entered the retail market of Central Asia – Gazprom Neft became the owner of CJSC Munai Myrza and Alliance Oil Asia LLC, holding the largest filling station and tank farm networks in Kyrgyzstan. AUTHORIZED CAPITAL, SHARE CAPITAL STRUCTURE
In 2006 the Company for the first time joined an international pipeline project of state significance as a shareholder – • The Company’s Authorized Capital is 7 586 079.4224 rubles, which was formed by placement construction of the Burgas-Alexandroupolis Transbalkan Oil Pipeline. As part of the arrangements reached in November of 4 741 299.639 common registered shares. 2006, in January 2007 the Company, jointly with JSC Transneft and JSC OC Rosneft, established the Burgas-Alexandroupolis • The par value of shares: 0.0016 rub. The state registration number of the issue of JSC Gazprom Neft Pipeline Consortium. Gazprom Neft received a 33.33% stake in its authorized capital. common shares: 1-01-00146-А. • As of 31.12.2008 the Share Register contained 9 802 personal accounts, including 18 legal entities, 2007 In late 2007 Gazprom Neft acquired a 50% interest in Tomskneft and signed agreements with the holder of the other 9 772 individuals, 1 trustee and 11 nominal holders. 50% – Rosneft. • As of december 31, 2008 JSC Gazprom Neft had no preferred shares.
2008 JSC Gazprom Neft completed the ownership structure of Joint Stock Company Moscow Refinery. The project partners Table 1. LIST OF REGISTERED PERSONS HOLDING IN THEIR ACCOUNTS A STAKE OF AT LEAST 1% – JSC Gazprom Neft and JSC Moscow Oil and Gas Company established on a parity basis a company called Moscow NPZ OF THE AUTHORIZED CAPITA Holdings B.V. contributing to its authorized capital 90.01% of voting shares or 77.25% of the authorized capital of the Moscow As of 31.12.2007 As of 31.12.2008 Refinery. Gazprom Neft and MNGK came to an agreement to jointly manage the Moscow Refinery and make all decisions Shareholders of Record Share in Authorized Share in Authorized Number of Securities Number of Securities on a parity basis. Capital,% Capital,% JSC Gazprom 55.9961 2 654 942 903 55.9961 2 654 942 903 On December 24, 2008 Gazprom Neft and the Government of the Republic of Serbia signed a purchase agreement for a 51% Gazprom Finance BV 16.6667 790 216 606 16.6667 790 216 606 interest in Serbian company NIS. Naftna Industrija Srbije (NIS) is one of the largest vertically integrated oil companies in Central Deutsche Bank LTD* 20.0002 948 271 442 20.0002 948 271 442 Europe involved with oil and petroleum product refining and distribution, hydrocarbon production in Serbia and Angola. CJSC Depositary Clearing Company* 3.6176 171 521 271 3.4363 162 926 684 ING Bank (Eurasia) ZAO* 2,2112 104 837 789 2,3660 112 179 295 Each year the Company grows substantially in scale and strengthens its positions in the oil and gas sector of Russia NP National Depositary Center* 1.0883 51 597 297 1.1104 52 648 608 and abroad. * – nominal holder
ANNUAL REPORT ANNUAL REPORT 18 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 19 COMPANY PROFILE
COMPANY’S STRUCTURE
PRODUCTION OIL SERVICE AND EXPLORATION SALES • JSC Gazpromneft -Noyabrskneftegaz • LLC Gazpromneft-Nefteservice • JSC Gazpromneft-Omsk • LLC Gazpromneft- Khantos • JSC Gazpromneft-Noyabrskneftegaz • CJSC Gazpromneft-Kuzbass • LLC Gazpromneft– Vostok • LLC Kapitalny Remont Skvazhin – • JSC Gazpromneft-Altai • CJSC Archinskoye Service • LLC Gazpromneft-Tsentr • JSC Meretoyakhaneftegaz • LLC Spetstransservice • LLC Gazprom Neft – Lubricants • LLC Sibneft-Yugra • LLC Noyabrskneftegazsvyaz • CJSC Munai-Myrza • LLC Severnaya Taiga- Neftegaz • LLC Noyabrskteploneft • LLC Gazprom Neft Marine • JSC NP Ortyagunskoye • LLC Gazpromneft – Bunker • LLC Zapolyarneft Omsk Refinery • LLC Gazprom Neft Asia • LLC Gazpromneft-Yamal • LLC Noyabrskneftespetsstroy • JSC Gazpromneft-Tyumen • CJSC Pechora Neftegaz • LLC Noyabrskenergoneft • LLC Gazpromneft- Chelyabinsk • LLC Sibneft-Chukotka • LLC NoyabrskEPUService • LLC Gazpromneft-Krasnoyarsk • LLC Shinginskoye • LLC Service Drilling Company • JSC Ekaterinburgnefteproduct • LLC Gazpromneft-Angara • LLC Neftekhimremont • JSC Gazpromneft-Ural • LLC Gazpromneft-Sakhalin • LLC YamalServiceTsentr • JSC Gazpromneft-Aero • LLC Muravlenkovskaya REFINING Transportnaya Kompaniya • JSC Gazpromneft-Aero • JSC Gazprom Neft-Omsk Refinery • LLC Noyabrskneftegazproekt Novosibirsk • LLC Yamalenergoremont • CJSC Gazpromneft-Severo-Zapad OIL EXPORTS • LLC Noyabrskneftegazavtomatika • LLC Gazpromneft-Kaluga • LLC Sibneft- • Gazprom Neft Trading Gmbh • JSC Gazprom Neft-Mobilnaya Karta • LLC Avtomatika Service Krasnoyarsknefteproduct OTHER OPERATIONS • LLC Servisnaya Transportnaya • JSC Sibneft-Yaroslavnefteproduct Kompaniya • JSC Gazpromneft-Novosibirsk • LLC Gazpromneftfinance • LLC Gazpromneft-Noyabrsk • LLC Gazpromneftenergo • LLC Vyshkomontazhnoe Upravlenie • LLC Gazpromneft-Aero Murmansk • LLC Gazprom Neft- ZS • LLC Noyabrskaya Tsentralnaya • LLC Gazprom Neft – NTTS Trubnaya Baza • LLC Gazpromneft-Tajikistan • LLC OKTS NP • LLP Gazpromneft-Kazakhstan • LLC Gazprom Neft Business Service EQUITY INVESTEES • LLC Alliance Oil Asia • Sib Finance B.V. • Moscow Refinery • LLC Gazpromneft-Shipping • Sibneft Oil Trade Company Limited • Slavneft • LLC Gazpromneft-Resurs • LLC Komplex Galernaya 5 • Slavneft • LLC Gazpromneft-Nizhniy Novgorod
ANNUAL REPORT 20 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 GAZPROM NEFT TODAY GAZPROM NEFT TODAY
JSC Gazprom Neft together with its subsidiaries is a vertically integrated oil company operating primarily in the Russian Federation and engaged in the following types of operations: prospecting, development of oil and gas deposits, oil and gas production, production and retailing of petroleum products. The Company boasts proved oil reserves in excess of 4 bn barrels which ranks it among the top twenty oil companies of the world. Gazprom Neft today is one of the fastest growing oil companies in Russia. GEOGRAPHY OF OPERATIONS
The Company is engaged in the prospecting, development and production of oil and gas reserves primarily at the deposits located in the Yamal-Nenets and Khanty-Mansi Autonomous Districts of Western Siberia, in the Omsk and Tomsk Regions and in Chukotka.
Gazprom Neft holds a 49.9% interest in JSC Slavneft (Slavneft) and a 50.0% interest in JSC Tomskneft VNK (Tomskneft), which are engaged in the development of oil and gas deposits in the Urals and Siberian Federal Districts. The Company accounts for investment in Slavneft and Tomskneft using the equity method and acquires from them, at an agreed price, part of produced oil commensurate with the Company’s interest in each of these affiliates.
The main refinery of Gazprom Neft is JSC Gazpromneft - Omsk Refinery in the south-west of Siberia. The Omsk Refinery is the second largest and one of the most technologically advanced refineries in Russia. The Company also holds a 50.0% interest in Moscow NPZ Holdings B.V. which owns a 77.25% stake in JSC Moscow Refinery. Furthermore, the Company has access to the refining capacities of JSC Slavneft-YANOS (YANOS), owned by Slavneft. Thus the Company uses the refining capacities of these two plants in proportion to its interest in each refinery. Oil is processed by the Company at these refineries under refining agreements.
Gazprom Neft sells petroleum products in Russia and CIS countries mostly through its subsidiaries and associates. Export trading is conducted through a wholly-owned subsidiary, Gazprom Neft Trading GmbH, acting as an export trader for the Company.
Gazprom Neft’s distribution network covers the entire country.
The Company is expanding its presence in Central Asian republics, developing there its distribution network. In 2006 JSC Gazprom Neft purchased in Kyrgyzia CJSC Munai Myrza and Alliance Oil Asia LLC, owners of petroleum product storage and distribution assets. As of December 31, 2008 Gazprom Neft Asia LLC operated 102 filling stations and 8 tank farms.
ANNUAL REPORT 24 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 GAZPROM NEFT GAZPROM NEFT TODAY TODAY
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4
GEOGRAPHY OF COMPANYS OPERATIONS 2 1 Moscow Region 1 2 Yaroslavl Region 3 Nizhniy Novgorod Region 4 Leningrad Region 5 Murmansk Region 3 6 Chelyabink Region 7 Sverdlovsk Region 13 8 Tyumen Region 9 Omsk Region 12 10 Novosibirsk Region 7 11 Tomsk Region 12 Khanty-Mansi Autonomoius District 8 13 Yamal-Nenets 6 14 Autonomous District 14 Krasnoyarsk Krai 9 11 15 Chukotski Autonomous District 16 Kazakhstan 17 Kyrgyzstan 10 18 Tajikistan 19 Vienna 16 20 Serbia
Exports 19 Jet Fuel Refining Bunkering 17 Sales Service 20 Production 18 Headquarters
ANNUAL REPORT ANNUAL REPORT 26 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 27 GAZPROM NEFT TODAY
The Company is also ready for participation in international projects of state significance. In particular, the Company’s involvement as a full shareholder in the implementation of the Burgas- Alexandroupolis Transbalkan Oil Pipeline construction project in partnership with JSC OC Rosneft and JSC Transneft will make it possible to address the strategic task of oil transportation, bypassing the congested Black Sea straits, which meets the interests not only of Russia but of the Black Sea and Caspian Regions on the whole.
In October 2008 JSC Gazprom Neft together with Russian companies JSC Rosneft, JSC Lukoil, TNK-BP, JSC Surgutneftegaz signed a Memorandum of Understanding providing for cooperation and joint participation in projects in Venezuela and Cuba through the Consortium. In October 2008 National Oil Consortium LLC was established in Moscow to act as an operator of the Consortium’s projects. Shares in the Company will be equally distributed between the Consortium members, each getting 20%. The priorities for the Consortium are hydrocarbon prospecting and production in the Carabobo and Hunin-6 blocks (Venezuela) as well as in the offshore blocks of an exclusive economic zone (Cuba). The Consortium is currently considering the possibility of joining the above projects.
In January 2008 Gazprom Neft signed an agreement on the principal terms of acquisition of a 51% interest in Serbian oil company Naftna Industrija Srbije (NIS). In September 2008 the agreement was ratified by the Serbian Government. On December 24, 2008 the Republic of Serbia and JSC Gazprom Neft signed a purchase agreement for a 51% interest in NIS. On February 2, 2009 the purchase transaction for NIS shares was closed. Naftna Industrija Srbije (NIS) Naftna Industrija Srbije (NIS) is one of the largest vertically integrated oil companies in Central Europe engaged in petroleum product refining and distribution, hydrocarbon production in Serbia and Angola. 10 000
NIS produces annually around 0.7 mln tons of oil. NIS is the owner of oil refineries in Pancevo and Novi Sad with a total refining capacity of 7.2 mln tons a year. NIS has a corporate distribution network including tank farms and 480 retail filling 9 800 stations and is the leading petroleum product supplier in the Serbian market. NIS produces around 85% of all petroleum products consumed in the country. 9 600 The Company finished 2008 in fifth place among Russian vertically integrated oil companies in oil production and exports and in fourth in refining. OIL PRODUCTION 9 400 After seven years of continuing growth average oil production in Russia peaked in mid-2007 (9.9 mln bpd) and in January 2008 began declining. The decline continued over 2008, but the sharpest drop occurred in March 2008 – by 1.3% compared 9 200 to March 2007 and in June – by 1.2% compared to June 2007. In 2008 production in Russia totaled 488.49 mln tons which 194,96 207,43 is a 0.57% decrease compared to 2007. 219,57 ЯНВ FEBMARAPRMAY JUNJULAUGSEP 2004 OKTNOVDEC 228,60 9 000 Total oil production by Gazprom Neft, including the share of oil produced by the affiliates, was up by 7.3% in 2008 due to the FEBMARAPRMAYJUN JULAUGSEPOKTNOV purchase of a 50% interest in Tomskneft. Gazprom Neft’s share in total oil production in Russia grew to 9.5% (8.8% in 2007), 2005 JAN DEC 236,30
FEBMARAPR which ranks it 5th among Russian vertically integrated oil companies. (table 2) MAYJUNJUL AUG 2006 JAN SEP OKT NOVDEC 8 800
FEBMARAPR MAY JUN JUL 2006 JAN AUGSEP REFINING OKT NOV DEC Oil refining in the Russian Federation was growing over the last five years to increase in 2008 by 3.4% up to 236.3 mln 8 600 FEB MAR APR MAY JUN tons. This growth is attributable to the fiscal policy of the Russian Federation, which makes this line of business the most 2006 JAN JUL AUG SEN OKT NOV DEC attractive for Russian vertically integrated oil companies or, sometimes, in the event of a sharp drop in oil prices (which occurred in the second half of 2008) – the only profitable line of business. Production of diesel fuel in 2008 grew by 4.1%, • OIL PRODUCTION IN RUSSIA, THOUSAND BPD A DAY • OIL REFINING IN THE RUSSIAN FEDERATION, MLN T SOURCE: INFOTECH ANNUAL REPORT 28 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 GAZPROM NEFT GAZPROM NEFT TODAY TODAY
11 12 17 Table 2. OIL PRODUCTION IN THE RUSSIAN FEDERATION IN 2008 2 Oil Production Share Increase 3 3 Company 3 2008 2007 2008 2007 2008/2007 5 20 2 9 23 2 22 • Rosneft* 108 154 110 383 22.1% 22.5% -2.0% 9 7 • Lukoil 90 245 91 432 18.5% 18.6% -1.3% 9 7 • TNK-BP** 78 580 79 893 16.1% 16.3% -1.6% 13 • Surgutneftegaz 61 684 64 495 12.6% 13.1% -4.4% 15 13 18 12 19 • Gazprom Neft*** 46 254 43 121 9.5% 8.8% 7.3% 16 13 15 • Tatneft 26 060 25 741 5.3% 5.2% 1.2% • Russneft 14 247 14 169 2.9% 2.9% 0.5% OIL PRODUCTION IN THE RUSSIAN OIL REFINING IN THE RUSSIAN OIL EXPORTS BY RUSSIAN COMPANIES FEDERATION IN 2008, % FEDERATION IN 2008, % IN 2008*, % • Bashneft 11 738 11 606 2.4% 2.4% 1.1% SOURCE: INFOTECH SOURCE: INFOTECH SOURCE: INFOTECH • Other 51 526 50 467 10.5% 10.3% 2.1% 23 Rosneft 20 Rosneft 22 Rosneft Total 488 487 491 306 100.0% -0.6% 18 LUKOIL 19 LUKOIL 13 LUKOIL SOURCE: INFOTECH * 2008 production was adjusted to include Tomskneft’s share 16 TNK-BP 13 TNK-BP 15 TNK-BP ** Including share in Slavneft’s production 9 Gazprom Neft 12 Gazprom Neft 7 Gazprom Neft *** Including share in Slavneft and Tomskneft’s production 13 Surgutneftegaz 9 Surgutneftegaz 15 Surgutneftegaz Table 3. OIL REFINING IN THE RUSSIAN FEDERATION IN 2008 2 Bashneft 9 Ufa refineries 7 Tatneft Oil Refining Share Increase Company 5 Tatneft 3 TAIF-NK 2 Bashneft 2008 2007 2008 2007 2008/2007 3 Russneft 3 Russneft 2 Russneft • Rosneft 49 544 48 764 21.0% 21.3% 1.6% 11 Other 12 Other 17 Other * – oil exports via the Transneft System • Lukoil 44 126 42 501 18.7% 18.6% 3.8% • TNK-BP* 29 752 28 194 12.6% 12.3% 5.5% • Gazprom Neft** 28 390 26 227 12.0% 11.5% 8.2% of fuel oil – by 1.9%, motor gasoline – by 1.8% with the overall capacity utilization rate across Russia reaching a new • Surgutneftegaz 20 563 19 793 8.7% 8.7% 3.9% milestone – 86.9% as against 81.5% the year before. • Ufa refineries 20 362 19 229 8.6% 8.4% 5.9% • TAIF-NK 7 669 7 499 3.2% 3.3% 2.3% In primary oil refining the leader is Rosneft (45.54 mln t). It is worth noting a high level of concentration of refining assets • Russneft 7 523 7 375 3.2% 3.2% 2.0% in the Russian Federation with the five leading companies accounting roughly for three-fourths (72.95%) of all oil processed • Other 28 373 29 016 12.0% 12.7% -2.2% at Russia’s refineries. (table 3). Total 236 301 228 598 3.4% SOURCE: INFOTECH *Including share in Slavneft’s refining EXPORTS **Including share in Slavneft and Moscow Refinery’s refining Table 4. OIL EXPORTS BY RUSSIAN COMPANIES 2008* Russian oil exports to non-CIS countries in 2008 totaled 203.091 mln tons (4.067 mln bpd) which is 6.2% less than in 2007, Oil Exports Share Increase of which 185.513 mln tons were exported via the Transneft system and around 17.578 mln tons – by other routes. In 2008 Company via the Transneft system 42.554 mln tons (including transit volumes) were shipped through the port of Novorossisk, 4.502 2008 2007 2008 2007 2008/2007 mln tons – through Tuapse, 7.888 mln tons – through Odessa, 73.926 mln tons - Primorsk, 7.748 mln tons - Yuzhny Marine • Rosneft 45 757,5 46 536,80 21.9% 21.1% -1.7% Oil. Enterprises not affiliated with vertically integrated oil companies in 2008 supplied to non-CIS countries via the Transneft • Lukoil 28 102,9 36 179,70 13.4% 16.4% -22.3% system 7.484 mln tons of oil. • TNK-BP 31272 34 546,10 15.0% 15.7% -9.5% • Surgutneftegaz 32 081,3 32 601,60 15.3% 14.8% -1.6% In 2008 Russian oil companies reduced exports to CIS-countries by 6.1% - to 34.213 mln tons. The volume of supplies • Gazprom Neft 14 255,9 15 108,50 6.8% 6.8% -5.6% to the Ukraine was down by 37.5%, compared to 2007, totaling 6.013 mln tons. However, exports of Russian raw materials • Tatneft 14797,4 11 728,60 7.1% 5.3% 26.2% to Belorussia and Kazhakhstan increased to 21.132 mln tons (+5.4%) and 7.068 mln tons (+4.7%), respectively. • Russneft 4910,3 4 995,90 2.3% 2.3% -1.7% • Bashneft 3379,1 4 380,20 1.6% 2.0% -22.9% Oil company Rosneft in 2008 supplied to non-CIS countries via the Transneft system 45.756 mln tons, LUKOIL – 28.103 mln • Other 34 595,4 34 519,2 16.5% 15.6% 0.2% tons, Surgutneftegaz – 32.081 mln tons, TNK-BP Holding – 31.272 mln tons, Tatneft – 14.797 mln tons, Gazprom Neft – Total 209 151,8 220 596,60 -5.2% 14.256 mln tons. SOURCE: INFOTECH * – oil exports via the Transneft System
ANNUAL REPORT ANNUAL REPORT 30 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 31 COMPANY’S GROWTH PROSPECTS COMPANY’S GROWTH PROSPECTS COMPANY PROFILE IN 2020 The strategic objective of JSC Gazprom Neft is to become a global company of Russian origin, a major international player boasting a regionally diversified package of assets along the entire value creation chain.
The oil business development strategy of Gazprom Neft Group provides for an increase in annual oil production up to 100 mln tons by 2020. Refining by 2020 will reach 70-80 mln tons and the distribution network will be expanded to 5000-5500 GROWTH IN SCALE filling stations. The volume of petroleum product sales through own filling station network is to be around 12 mln tons a year PROVED OIL RESERVES – 2 400 MLN T by 2020 with an annual average production growth rate expected to exceed 4% which is double that of the world largest oil OIL PRODUCTION – 90-100 MLN T PER YEAR companies. REFINING – 70-80 MLN T PER YEAR The plan for reaching the production level of 2020 provides for phasing in the development of all proved oil fields DISTRIBUTION NETWORK – 5 000-5 500 FILLING STATIONS of JSC Gazprom Neft (including the 50% interest held by the Company in JSC Slavneft and JSC Tomskneft) and for expanding RETAIL SALES THROUGH OWN NETWORK – 12 MLN T PER YEAR the resource base by putting into production fields that are held on the balance sheet of other companies of the Group REVENUES – 64 BN$; EBITDA – 14 BN$ as well as by obtaining new licenses. Thus Slavneft is already engaged in two major projects that are currently at the exploration stage. MARKET TARGETS Intensification of exploration through the Company’s own resources will target further development and formation of the PRODUCTION – RUSSIAN FEDERATION, CENTRAL mineral resource base in the main gas producing regions for the purpose of creating a single gas production, transportation ASIA, MIDDLE EAST, LATIN AMERICA and supply system in Eastern Siberia and in the Far East. Exploration will focus on the Nadym-Pur-Taz region (including the offshore area of the Ob and Taz Gulfs), the Yamal Peninsula, the offshore areas of the Barents, Pechora and Kara Seas, REFINING – RUSSIAN FEDERATION, EUROPE the Arkhangelsk Region and Krasnoyarsk Krai, the Irkutsk Region, the Sakhalin shelf, and other regions with subsequent obtaining of production licenses for the deposits discovered. TARGET MARKETS – RUSSIAN FEDERATION, EUROPE, APR, USA The resource base development program of the Company provides for a three-times increase in the amount of recoverable hydrocarbon reserves under development by 2020. EFFICIENCY COST REDUCTION ALONG THE ENTIRE PRODUCTION CHAIN Gazprom Neft plans to boost its presence in Russia, where Western Siberia will remain the key region with the importance TO BELOW INDUSTRY AVERAGE of Eastern Siberia and the Nenets Autonomous District also growing.
Having said that, in the long-term Gazprom Neft also intends to develop its operations abroad. In particular, regions MAINTAINING THE HIGHEST RETURN ON INVESTED CAPITAL of strategic interest for the Company are Europe, the Asia-Pacific Region and the USA. AMONG RUSSIAN VERTICALLY INTEGRATED OIL COMPANIES
ANNUAL REPORT 34 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 COMPANY’S GROWTH PROSPECTS
THE COMPANY’S STRATEGY IS DIVIDED INTO THREE TIME HORIZONS I. 2008-2010. The objective of this period is to create the basis for fundamental growth in the Company’s scale by discovering new reserves and reclassifying upwards those of the existing license plots, by acquiring, and commencing the development of new plots in the traditional regions of operation, entering into new producing regions, restructuring the service and creating research and development centers, by building up the refining capacity of the existing assets, expanding the retail network in the Russian Federation, developing product and functional strategies.
II. 2011-2015. Launch of large-scale projects ensuring long-term business development and size growth. For this purpose, it is planned to build a balanced asset portfolio, achieve a high quality of products and processes, commence the commercial development of Gazprom’s oil assets, start production at the fields in Eastern Siberia and Timan-Pechora region, make a transition to self-financing of the service, possible exchange assets with a strategic partner for vertical integration purposes, increase Downstream assets in proportion to production growth, implement organizational, system and personnel projects aimed at the integration of target and existing assets taking into account the growing scale of operations.
III. 2016-2020. The Company has reached a new scale of business, intense international activities which provides for a significant scale of operations, a high quality of products and processes, a balanced investment policy ensuring an average return on capital employed of 12-15%, innovative projects and technologies, organization and development of sea projects: primarily in the oil-bearing offshore areas of the Barents, Chukchi, East Siberian, Laptev Seas; Black Sea basin; first production in international projects; own refining capacity is up to 70-80 mln tons per year, annual retail sales increased to 12 mln t.
In a volatile economic environment the strategic objectives of Gazprom Neft have not changed, however, the medium-term objectives have become anti-crisis ones in nature which will allow the Company to meet its qualitative and quantitative targets without significant adjustment.
In 2009 the Company will continue to introduce a system approach to creating a strategic development concept. Strategies will be developed for the Exploration and Production and the Logistics, Refining and Distribution Blocks. To coordinate the actions of Management in running the Company at all levels and in all directions it is planned to gradually switch to an integrated system of long-term strategy development and medium-term business plan protection.
To meet the target production level, in the coming years JSC Gazprom Neft will be developing its resource base and increasing the volume of production both within the existing asset portfolio and by acquiring new plots. In the very near term the Company will start the development of JSC Gazprom’s oil deposits with first production contemplated for as early as 2009.
In the Oil Refining Block JSC Gazprom Neft will seek to enhance the efficiency of refining and the quality of petroleum products in compliance with the new Technical Regulations “On Requirements for Main Petroleum Products” which have become effective this year and are to become effective in the years to come.
An important aspect is to ensure successful integration of Naftna Industrija Srbije (NIS) into Gazprom Neft Group. In early 2009 a new management team composed of JSC Gazprom Neft managers set to work at NIS.
As far as market sales of products are concerned, the main goal in 2009 and subsequent years will be to enhance the efficiency of distribution operations by increasing the retail share in total sales and optimizing the methods, directions and structure of petroleum product sales.
ANNUAL REPORT 36 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION
STATUS OF THE RESOURCE BASE
Since 2003 the Company’s reserves have been audited by SPE (Society of Petroleum Engineers) standards and more conservative SEC (Securities and Exchange Commission) standards. The audit has been conducted for all deposits based on the estimates of a representative sample of JSC Gazprom Neft’s fields accounting for 90-95% of Russian ABC1 category.
According to independent reservoir engineers, DeGolyer and MacNaughton (Miller and Lents in 2007 and 2006), as of December 31, 2008 JSC Gazprom Neft had total reserves of “proved” and “probable” categories by SPE standards of 994.9 mln t of oil (7 251.36 mln bbl) and 208.1 bn of gas m3 7 350.94 bn ft3). Their current value is estimated at 23.7 bn USD. 27,5 The current reserves-to-production ratio of Gazprom Neft for B+C1 crude reserves is over 27 years. 25,6 YEARS In 2008 additions to Gazprom Neft’s recoverable C1+С2 oil and condensate reserves, less new acquisitions, totaled 61.4 mln 22,1 YEARS 3 21,8 tons, to C1+С2 gas reserves – 3.4 bn m . At yearend of 2008, replacement of Gazprom Neft’s ABC1 reserves was 152%. 21,5 YEARS YEARS 2007 2008 YEARS 2006 Additions to Gazprom Neft’s recoverable C1+С2 reserves at the expense of new acquisitions made through a bidding process 2005 totaled 9.4 mln tons of oil in 2008. 2004 EXPLORATION
In the reporting period 24 exploration-and-appraisal wells were completed in the license plots of JSC Gazprom Neft and its subsidiaries, of which 20 yielded commercial oil inflows, which makes it 240% and 211%, respectively, compared to 2007. Total exploration meters drilled in 2008 - 66 088 line m, which is 112% compared to 2007, this increase in exploration drilling JSC GAZPROM NEFT’S B+C1 CRUDE RESERVES’ GROWTH metreage being attributable to stepped up investment in exploration. SOURCE: INFOTECH
ANNUAL REPORT 40 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 KEY PERFORMANCE INDICATORS OF THE COMPANY KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION IN 2008 BY TYPE OF OPERATION
11
1
REGIONAL LOCATION OF COMPANY’S OIL PRODUCTION AND LICENSE PLOTS 10 (including subsidiaries and associates) 26 • PRODUCTION AND RESERVES
1 Nenets Autonomous District 12 2 Yamal-Nenets Autonomous District 3 Khanty-Mansi Autonomoius District 3 4 Tomsk Region 5 5 Omsk Region 6 Krasonyarsk Krai 7 Serbia* 4 8 Angola* 9 • RESERVES 9 Irkutsk Region 7 10 Republic of Sakha (Yakutia) 11 Chukotski Autonomous District 8 12 Sea of Okhotsk Offshore Area (Lopukhovsky Block)
* – the regions extraction of group NIS
ANNUAL REPORT ANNUAL REPORT 42 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 43 KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION
The exploration drilling success rate was 83.3% with efficiency of 368 tons of hydrocarbons per meter drilled and 154 rub/TOE.
The conducted exploration work resulted in the discovery of small Valyntoiskoye oil field in the namesake Valyntoisky license plot and 18 new oil reservoirs in the existing fields with total recoverable C1 and C2 oil reserves of 6.9 mln tons and 3.8 mln tons, respectively.
Overall in 2008 additions to the Company’s reserves totaled 46.8 mln tons, resulting mostly from exploration and additional exploration in the producing fields (24.3 mln tons) as well as from re-estimation of reserves due to an increase in the oil recovery factor and development drilling rate primarily for the Priobskoye, Vyngapurovskoye, Sugmutskoye and Karamovskoye fields (22.5 mln tons).
In the reporting period 3D and 2D seismic surveys of 1518 sq km and 3794 line km, respectively, were conducted in the license plots of JSC Gazprom Neft and its subsidiaries. Furthermore, seismic survey preparation work was performed in the Tympuchikansky license plot, where transient electromagnetic surveys and differential-normalized electrical measurements were carried out as well in the amount of 1186 line km.
In 2008 of the 98 tested zones 47 yielded commercial oil inflows and gas condensate, 4 – non-commercial oil and gas inflows, 24 yielded no inflow, the remaining 23 zones yielded either reservoir water inflows or those slightly admixed with oil.
The financing of exploration by JSC Gazprom Neft and its subsidiaries in 2008 totaled 5.5 bn rub, this being a 35% increase compared to 2007.
In 2008 the Company continued to participate in biddings held by the Federal Agency for Subsoil Use for subsoil licenses for new plots of the unallocated subsoil stock. In 2008 Gazpromneft-Khantos was declared winner of the bidding for a portion of the Zimnee field located in the Khanty-Mansi Autonomous District.
Thus in 2008 the Company purchased at the bidding 9.4 mln tons (in total for C1+C2 reserves) of recoverable hydrocarbons found in the Zimniy subsoil plot. LICENSING
As of 31.12.2008 JSC Gazprom Neft and its subsidiaries held subsoil licenses for 72 license plots located in 11 regions and within the continental shelf of the Russian Federation.
By type of operation, 15 licenses entitle the Company to a five year period of geological survey and 57 licenses grant the right to hydrocarbon exploration and production for a period of 20 to 50 years.
Subsoil licenses are held by 14 subsidiaries, however these licenses are managed by three operators: JSC Gazpromneft - Noyabrskneftegaz, Gazpromneft-Khantos LLC and Gazpromneft-Vostok LLC.
JSC Gazpromneft – Noyabrskneftegaz carries out a full cycle of hydrocarbon operations in 59 license plots owned by 9 subsoil users.
In 2008 terms of license agreements were updated to bring provisions of said license agreements into line with applicable legislation and existing practice of subsoil use as well as to more clearly define the obligations and deadlines for their
ANNUAL REPORT ANNUAL REPORTT 44 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JSC GAZPROM NEFT 200808 4545 KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION
performance. In 2008 the Licensing Committee of the Federal Agency for Subsoil Use reviewed and approved additions to 5 subsoil licenses of the Company: for three plots – the geological survey period was extended, for one plot – additionally, the right to drilling waste injection operations was executed, 2D seismic survey was replaced by 3D.
By priority right and on the basis of applications from subsoil users four licenses were registered in the Yamal-Nenets and Khanty-Mansi Autonomous Districts for geological survey of the producing fields below the mining allotment.
In 2008 42 licenses were reissued in connection with changes in the names of legal entities affiliated with subsoil users. OIL PRODUCTION
Gazprom Neft is engaged in oil and gas exploration and production primarily in the fields located in the Khanty-Mansi and Yamal-Nenets Autonomous District, Omsk, Tomsk Regions and the Chukotka Autonomous District.
The largest hydrocarbon reserves in the Yamal-Nenets Autonomous District are found in: Sugmutskoye, Sutorminskoye, Vyngapurskoye, Sporyshevskoye and Muravlenkovskoye fields. In 2008 these fields accounted for 42.7% of total oil production by the Company.
Production in these fields is carried out by oil and gas producing enterprises JSC Gazpromneft-Noyabrskneftegaz and Zapolyarneft LLC, holding a production license for Vyngapurovskoye, Yarainerskoye and Novogodnee deposits.
The Company’s oil production is carried out predominantly by three of its subsidiary operators: JSC Gazpromneft- Noyabrskneftegaz, JSC Gazpromneft-Khantos, and Gazpromneft – Vostok LLC. Over 2007 the Company set up two new operators: Gazpromneft- Yamal LLC engaged in the exploration and development of JSC Gazprom’s oil fields and Gazpromneft- Angara LLC engaged in the exploration and development of the Company’s new oil deposits in Eastern Siberia.
JSC Gazpromneft-Noyabrskneftegaz, the major producing subsidiary of Gazprom Neft, is developing around 30 fields in the Khanty-Mansi and Yamal-Nenets Autonomous Districts, which accounts for 58% of total proved PRMS reserves of the Company. Moreover, JSC Gazpromneft-Noyabrskneftegaz provides operator servicers to other producing subsidiaries of the Company, such as JSC Meretoyakhneftegaz, Sibneft-Chukotka LLC and the recently acquired subsidiaries: Pechora Neftegaz LLC, NGP Ortyagunskoye LLC. JSC Meretoyakhneftegaz, a 67% interest in which is owned by the Company, holds a license for the Meretoyakhinskoe field to the north of Noyabrsk.
In the Khanty-Mansi Autonomous District the most prospective deposit of JSC Gazprom Neft is the Priobskoye field, a production license for which is held by a subsidiary of the Company, Sibneft-Yugra LLC, with Gazpromneft-Khantos LLC acting as operator. Located in the same region is the Palyanovskaya Area and a group of license plots acquired by the Company in early 2005 (Salymsky-2, Salymsky-3, Salymsky-5) and the Zimnee field in the Tyumen Region.
The Priobskoye field is one of the largest and most promising oil deposits of the Company. Active development of the field began in 2004 and as early as 2008 it already accounted for 23% of total oil produced by the Company with this figure expected to be up at 30.4% by 2010. The Priobskoye field is a key asset strategically important for the Company’s future development which is sure to become the main source of oil production growth in the long term.
A regional group of fields in the Omsk and Tomsk Regions will become a second “new” center. Here the Krapivinskoye field located in the Omsk Region, and the Shinginskoye and Urmanskoye fields, acquired by the Company in the Tomsk Region,
ANNUAL REPORT 46 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 KEY PERFORMANCE INDICATORS OF THE COMPANY KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION IN 2008 BY TYPE OF OPERATION
THOU. TONS THOU. M UNITS MLN TONS MLN TONS 50 000 2 500 609 9 25 521 8 40 000 2 000 2033 7 1698 20 491 6 30 000 1 500 1410 424 15 5 1021 4 20 000 1 000 10 3 2 10 000 500 % % % % % 5 20 20 6 % +38 + + +1 +6 +17 1 0 0 0 2005 2006 2007 2008 0 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 2004 2005 2006 2007 2008
OIL AND GAS CONDENSATE EXPLORATION METERS DRILLED DEVELOPMENT DRILLING. PRIMARY REFINING GROWTH PRODUCTION OF MAIN TYPES
SOURCE: COMPANY DATA SOURCE: COMPANY DATA PRODUCTION NEW WELLS PUT ON PRODUCTION OF PETROLEUM PRODUCTS SOURCE: COMPANY DATA SOURCE: COMPANY DATA • Yaroslavl Refinery SOURCE: COMPANY DATA • Gazprom Neft • YANOS • Jet Fuel • Share of Slavneft • Moscow Refinery • Gasoline • Share of Tomskneft • Omsk Refinery • Diesel Fuel • Fuel Oil
are expected to become leaders in the next five years. In 2008 the Zapadno-Krapivinskoye field, which went into production The sharpest drop in output was registered at the Sugmutskoye (-31.5%) and Sporyshevskoye (-20.7%) fields resulting from in 2001, yielded the five millionth ton of oil. both being at the third stage of production. In 2008 the share of oil produced by subsidiaries went up due to the acquisition of a 50% interest in Tomskneft and totaled 15 478.2 thou. tons, including 9 785.5 thou. tons for JSC Slavneft and 5. 692. thou. On top of that, production licenses for deposits in the Tomsk Region and the Khanty-Mansi Autonomous District tons for Tomskneft.. are held by Tomskeneft, which is managed on a parity basis by Gazprom Neft and Rosneft. Tomskneft operates in 31 fields, the Sovetskoye field being the largest of them. Over 12 months of 2008 609 new development wells were put on production, which is 88 wells more than in 2007. It became possible to increase the number of wells put on production due to an expansion of the development drilling program: Besides, in the Yamal-Nenets, Khanty-Mansi Autonomous Districts and the Krasnoyarsk Krai reserves are developed meters drilled reached 2 033.4 thou. m, which is 335 thou. m more than in 2007, as a result of favorable oil prices. by Slavneft, which is managed on a parity basis by Gazprom Neft and TNK-BP. Slavneft holds geological survey, oil and gas exploration and production licenses for 38 license plots in Western Siberia and the Krasnoyarsk Krai. As of the end of 2008, the producing well stock of the Company grew by 92 units to reach 5102 wells.
In 2008 Gazprom Neft had 36 producing fields, the same number as in 2007. In the post-peak production fields secondary recovery methods are used. The purpose of the Company is to maximize the oil recovery factor (ORF). Gazprom Neft plans to increase the average ORF across the Company from 30% as of now to 40% In 2008 Gazprom Neft maintained its position as one of the industry leaders among Russian oil companies. The Company in 2020. is fifth in oil production in the Russian Federation. Total production by Gazprom Neft in 2008 was up by 7.3% due to the acquisition of a 50% interest in Tomskneft to reach a total of 46 253.8 thou. tons of oil. OIL REFINING Own production by JSC Gazprom Neft in 2008 was 30 775.6 thou. tons, which is 1 890 thou tons less than in 2007 (-5.8%). In 2007 such reduction was 0.2% compared to 2006. In 2008 JSC the Company maintained its position as one of the leaders among Russian oil companies in the growth rate of oil refining volumes. In the reporting period the enterprises of the Company refined 28.4 mln tons of oil. In as short a span A drop in production was attributable principally to a decline in the output of JSC Gazpromneft-Noyabrskneftegaz, which as two years the Company has managed to increase the refining volume by 16.4%: from 24.4 to 28.4 mln tons of oil. was in part compensated for by an increase in the output at new deposits, such as Priobskoye (+13.2%) and some deposits in the Tomsk and Omsk Regions. The main reasons for the production decline were an increase in the base production decline The main refining asset of the Company is the Omsk Refinery (share in refining – 100%). The Company also has a share rate and in the water cut of produced fluid, insufficient scope and a lower efficiency of geotechnical operations (GTO). in the oil processed by the Moscow Refinery and JSC Slavneft-Yaroslavnefteorgsintez.
ANNUAL REPORT ANNUAL REPORT 48 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 49 KEY PERFORMANCE INDICATORS OF THE COMPANY KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION IN 2008 BY TYPE OF OPERATION
OIL REFINERIES AND REGIONS OF SALES
(including subsidiaries and associates) 23
• REGIONS WITH RETAIL SALES 22 1 Moscow and Moscow Region 2 Kaluga Region 6 3 Yaroslavl Region 29 4 Ivanovo Region 24 5 Nizhniy Novgorod 6 Saint-Petersburg 3 and Leningrad Region 2 7 Chelyabink Region 1 8 Sverdlovsk Region 21 4 9 Tyumen Region 10 Omsk Region 11 Tomsk Region 5 26 12 Novosibirsk Region 13 Kemerovo Region 14 Republic of Altai 15 Krasnoyarsk Krai 15 16 Kazakhstan 19 8 17 Kyrgyzstan 18 Tajikistan 19 Krasnodar Krai 7 20 Serbia 9 • REGIONS WITH WHOLE 11 SALES ONLY 10
21 Tula Region 27 22 Republic of Karelia 12 23 Murmansk Region 16 13 25 24 Arkhangelsk Region 25 Irkutsk Region 26 Republic of Sakha (Yakutia) 27 Khabarovsk Kraiй 20 28 Primorsky Krai 29 Belarus 14 28 Refinery 17 Operations of Gazprom Neft Marine Bunker LLC (ports) Operations of Gazprom Neft-Aero 18
ANNUAL REPORT ANNUAL REPORT 50 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 51 KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION
An 8.3% growth in oil refining in 2008 was attributable primarily to an increase in refining at the main refining enterprise – the Omsk Refinery.
The Omsk Refinery is one of the most advanced refineries in Russia and one of the largest in the world. The installed capacity of the Omsk Refinery is 19.5 mln tons of crude oil a year. In 2008 the Refinery maintained leadership in Russia in light hydrocarbon and aromatic hydrocarbon production. In terms of oil refining volumes -18.4 mln tons (7.79% of total oil refined in Russia), in 2008 the Omsk Refinery finished second among Russian refineries (next only to a subsidiary of JSC Surgutneftegaz, PO Kirishinefteorgsintez LLC, with 20.5 mln tons).
In 2008 the utilization rate of primary refining capacities at the Omsk Refinery was 94.4% with processing depth being 82.5% against the Russian industry average of 71.4%.
The staple products of the refinery are: motor gasolines, diesel oil, fuel oil, jet oil, as well as a variety of aromatic hydrocarbons, liquefied hydrocarbon gases, different types of lubricants, additives, catalysts and other products.
The volume of primary refining at the Moscow Refinery in 2008 was 9.8 mln tons, which is a 2.1% drop compared to 2007 attributable to an overhaul of the ELOU-AVT-6 plant in April-May 2008, of which Gazprom Neft’s share is 3.27 mln tons.
The Company is involved in refining at the Moscow Refinery in proportion to its interest in the authorized capital. In 2007 primary oil refining at this enterprise totaled 9 996 mln tons, which is a 3.3% increase compared to 2006, of which the Com- pany accounted for 3.336 mln tons.
In proportion to its equity interest in the authorized capital of JSC Slavneft, Gazprom Neft has access to the refining capacities of this company, in particular, to JSC Slavneft- Yaroslavnefteorgsintez. In 2008 the volume of primary oil refining at JSC Slavneft totaled 13.5 mln tons, of which the share of Gazprom Neft was 6.75 mln tons. PRODUCTION OF PETROLEUM PRODUCTS 2004 In 2008 Gazprom Neft increased the production of petroleum products by 8.5% up to 26.8 mln tons from 24.7 mln tons in 2007. This increase was due to an expansion of the domestic petroleum product market, extension of the Company’s retail 2005 network and reduction of the turnaround time at the Omsk Refinery. The Company processes oil, produced or purchased in the domestic market, mainly at its own Omsk Refinery as well as at the Moscow Refinery and YANOS.
Both oil processed at these refineries and also refined petroleum products are owned by Gazprom Neft, which pays the cost 2006 of refining services to each refinery. DISTRIBUTION OF OIL PRODUCTS • Gasoline 2007 In 2008 Gazprom Neft, boasting one of the most extensive distribution networks in Russia, consolidated its position • Diesel Fuel in the retail petroleum product market. • Fuel Oil • Jet Fuel The Company sells petroleum products in Russia mainly through 21 subsidiaries, 17 of which are retail distribution companies 2008 engaged in both wholesale distribution and in retail sales of petroleum products through filling stations. Three of these subsidiaries sell specific types of petroleum products: CJSC Gazpromneft-Aero – jet fuel, Gazpromneft-Lubricants LLC – PRODUCTION BALANCE OF MAIN PETROLEUM PRODUCTS oils and lubricants, Gazpromneft-Resurs LLC supplies petroleum products to the Federal Agency for State Reserves. SOURCE: COMPANY DATA
ANNUAL REPORT ANNUAL REPORTT 52 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JSC GAZPROM NEFT 200808 535 KEY PERFORMANCE INDICATORS OF THE COMPANY KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION IN 2008 BY TYPE OF OPERATION
In 2008 petroleum product sales in the domestic market went up by 17.2%, compared to 2007, and reached 15.7 mln tons. Gazpromneft-Chelyabinsk LLC was set up with a view to entering into the regional market and to acquiring retail assets. The Company developed a growth strategy for oil distribution enterprises and a medium-term investment program for Over 2008 small wholesales were up by 38%, compared to 2007, to reach 3 001.54 thou. tons, wholesale (transit) distribution 2008-2010 designed to double the sales in the retail sector. grew by 134% to 3 132.9 thou. tons. An important step was the creation of “product” enterprises within Gazprom Neft – Gazpromneft-Aero, Gazpromneft The total number of filling stations operated by the Company’s distribution enter prises increased from 782 to 865 with Marine Bunker and Gazpromneft Lubricants. Now these enterprises are actively growing and expanding their business an increase in daily sales per filling station of 13%. The number of franchise filling stations was down from 30 to 8. in accordance with the overall development strategy. 29 filling stations were built and another 51 renovated. As part of the retail network optimization, the Company decommissioned 23 filling stations and reduced the number of leased filling stations by one. SHIP BUNKERING In Autumn of 2007 Gazprom Neft established a subsidiary, Gazprom Neft Marine Bunker, whose purpose is to supply bunker In 2008 sales through the filling stations in operation grew by 24% to reach 2 806 thou. tons. Gasoline sales increased by 20% fuel for sea- and river-going vessels. As of now the company is one of the leaders among Russian bunker companies with up to 2 027 thou. tons, diesel sales - by 36% up to 725.4 thou. tons. a 10% share in the bunker market. The company has been given the following range of objectives: active entry into the market, stable, guaranteed all-year-round supplies of high-quality ISO 8217-2005(E) bunker fuel to the end user – shipowners and In 2008 the Company continued working under the program for unification of its distribution enterprises until 2010, charterers. the principal objective of which is to enhance the efficiency of Gazprom Neft’s distribution network. Bunkering is a premium sales market for fuel oils and diesel fuel. The ambitious objectives of Gazprom Neft is by 2020 In 2008 transition of distribution enterprises to a unified organizational structure was completed. Distribution enterprises to take up one third of the bunker market and to sell 100% fuel oil and 12% of diesel fuel produced by the Company of the European part of the Russian Federation offered their customers a new Petrol Plus-based solution for fuel cards. at a premium compared to exports. To this end, it is required, first, to ensure the production of 4.2 mln tons of marine fuel The Company completed the active phase of introduction of wholesale efficiency enhancement tools at the distribution complying with international standards; second, to create own port infrastructure of six terminals, a bunker fleet consisting enterprises, began putting in place a CRM system, developed uniform service standards for retail customers and started the of 19 bunker tankers and trade branches united into a single network. In pursuance of the targets set, 9 bunker ships were implementation of unification projects for accounting policies and procedures and budget planning. purchased in 2008. The quarterly bonus system based on economic competition results introduced in 2008 proved to be highly effective for purposes of enhancing the efficiency of operations in the Company’s network of distribution enterprises. AIRCRAFT FUELING Sale of jet fuel produced at JSC Gazprom Neft’s refineries and operation of fuel service complexes at the airports of the The Company has three foreign distribution enterprises in the customs union countries: Gazpromneft-Kazakhstan LLP, Russian Federation are the key operational priorities of CJSC Gazpromneft-Aero. Gazpromneft-Tajikistan LLC and Gazprom Neft Asia in Kyrgyzia. Over 2008 they sold 944.9 thou. tons of petroleum products and also developed a growth strategy for the above markets with an emphasis on the acquisition of retail assets. CJSC Gazpromneft-Aero will follow this line of business development: transition to direct contracts with jet fuel end users, increase in the retail share (aircraft fueling), creation of a distribution network of fuel service complexes both Gazprom Neft continued with the development of projects for entering the markets of the Yaroslavl, Ivanovo and Chelyabinsk affiliated (own) and on a partnership basis. The Development Strategy of CJSC Gazpromneft-Aero until 2020 provides for Regions through JSC Gazpromneft-Yaroslavl and Gazpromneft-Chelyabinsk LLC. establishing a corporate network of 15 modern fuel service complexes at the Russian airports and for phased regional development from Russian airports at the moment to CIS airports in the near term and to airports in other regions of the JSC Gazpromneft-Yaroslavl was organized as part of the division of JSC Slavneft-Yaroslavnefteproduct’s property with TNK- world by 2020. BP. The new enterprise will operate in the Yaroslavl and Ivanovo Regions. After completion of the property transfer process Gazprom Neft will be represented in the specified regions by 97 filling stations and 7 tank farms with total sales of around Availability of own capacities at the airports will allow the company to ensure good competitive positions in the distribution 250 thou. tons a year. markets and get a retail margin on jet fuel sales.
ANNUAL REPORT ANNUAL REPORT 54 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 55 KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION
Currently CJSC Gazpromneft-Aero operates under direct contracts with airlines selling jet fuel without intermediaries. Among the principal counterparties of the company are JSC Aeroflot – Russian Airlines, FGUP State Customs Committee of Russia, JSC Transaero, JSC Sibir Airlines, CJSC Sky Express, CJSC Aeroflot – Nord, CJSC Aeroflot-Don, JSC Atlant-Soyuz.
The company provides aircraft fueling services at the following airports: Sheremetievo (Moscow), Domodedovo (Moscow), Pulkovo (Saint-Petersburg), Novosibirsk, Krasnoyarsk, Murmansk, Tomsk, Kemerovo, Bryansk.
PRODUCTION AND SALE OF MOTOR FUELS Gazpromneft-Lubricants LLC – a young subsidiary of Gazprom Neft – showed the first results of its operation in 2008 within the global marketing strategy of the Company.
In 2008 the enterprise managed to build an effective distribution structure which allowed it to take up 6% of the Russian oils and lubricants market. Another achievement of the past year was active development of export sales, particularly in Kazakhstan and the Ukraine.
In last December the enterprise introduced to the consumer market a fundamentally revamped assortment of products under the SibiMotor brand.
Super T-2, Super T-3 and Trans KP-2 gear oils of Gazpromneft-Lubricants LLC were tested for compliance with the specifications of Zahnradfabrik Friedrichshafen (ZF), a German concern.
Within two years Gazpromneft-Lubricants intends to turn its brand name from a local and marginally known to a national one. The emphasis will be laid on adequate import substitution: the consumer will receive a wide assortment of products complying with international standards, but – at domestic prices.
In the next 3 years the company will invest 74 mln USD in the renewal of existing and construction of new production capacities.
The key role in the promotion of new products will be played by regional distributors of the company. As part of the distribution network development a comprehensive promotion program for new products has been developed, providing, among other things, for loans to the distributors of Gazpromneft-Lubricants LLC. REBRANDING OF THE FILLING STATION NETWORK Consumers have never questioned the high quality of products produced by the Company’s refineries. The comprehensive development program of the Omsk Refinery will enable it in the very near future to produce motor gasolines and diesel fuel complying with existing European environmental standards (EURO 4 – from 2012 and EURO 5 – from 2015). The Company plans to increase the number of filling stations not only by expanding the retail network in its traditional regions and those with high demand, but also by actively entering into new, promising regions. Gazprom Neft is beginning to bring the filling stations to a uniform exterior appearance, provide a wide range of auxiliary services, increase the service quality to comply with modern standards, analyze demand and consumer satisfaction with its services, develop customer loyalty programs.
ANNUAL REPORT 56 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION
MLN In 2008 a visual concept and architectural-and-technical project of filling stations under the Gazprom Neft brand name TONS was developed. The official opening of the first filling station under the brand name is contemplated for the second 18 quarter of 2009. The first filling stations of the new network will appear in Moscow, Moscow Region, Saint-Petersburg, Kaluga, Nizhniy Novgorod and Tyumen. In 2009 it is planned to rebrand 225 filling stations and install 59 stelae of the new retail brand. 16 TENDER SYSTEM OF PETROLEUM PRODUCT SALES 14 In June 2008 Gazprom Neft’s electronic trading floor (ETF) went into operation, allowing buyers themselves to form market 12 prices for Company products. At the moment Gazprom Neft’s ETF is the most advanced floor for electronic sales of petroleum products in Russia boasting over 320 companies that have registered at the floor since the start of its operation. Large 10 and small traders as well as end consumers take part in trading.
Products are traded on the ETF from four bases – the Omsk Refinery, Moscow Refinery, YANOS and Sokur station without 8 restrictions on the regions of shipping and counterparties’ access. In prospect – joining of the trading by Gazprom Neft subsidiaries, upgrade of the sales algorithm and creation of a secondary market for petroleum products purchased from 6 Gazprom Neft. In prospect – trading will be joined by Gazprom Neft subsidiaries, the sales algorithm will be upgraded and a secondary market for petroleum products purchased from Gazprom Neft will be created. 4
Revenues from ETF trading for 7 months totaled 3 638 mln rub. with 115 836 tons of petroleum products sold. 2
We hope that the development of Gazprom Neft’s ETF will over time allow it to become one of the market price indicators. OIL AND PETROLEUM PRODUCT EXPORTS 2000 2001 2002 2003 2004 2005 2006 2007 2008 Over 2008 the Company exported oil and petroleum products through its exclusive trading subsidiary - Gazprom Neft Trading GmbH, which was registered in Vienna in 2005. The main routes of oil export shipments were the Black Sea ports of Novorossiysk and Tuapse, the Baltic Sea port of Primorsk, as well as Slovakia, Germany and Poland - via the Druzhba • OIL EXPORTS Pipeline. • PETROLEUM PRODUCT EXPORTS
In 2008 Gazprom Neft Group supplied to the world market, in absolute terms, a total of 16.3 mln tons of oil, a 7.9% increase compared to 2007, of which 10.3 mln. tons were exported by sea, 5.7 mln tons – via the Druzhba Oil Pipeline and 0.4 mln tons via the Atasu-Alashankou Pipeline to China (transited through Kazakhstan).
3.3 mln tons were exported to the CIS markets, which is 32% more than in 2007. Currently Gazprom Neft does not make any significant oil sales in Russia.
In 2008 petroleum product exports by Gazprom Neft to non-CIS countries remained at the 2007 level with 11.4 mln tons. DEVELOPMENT OF OIL AND PETROLEUM PRODUCTS EXPORTS Exports to the CIS and Baltic countries barely changed in 2008 totaling 1.9 mln tons. SOURCE: COMPANY DATA
ANNUAL REPORT 58 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 KEY PERFORMANCE INDICATORS OF THE COMPANY IN 2008 BY TYPE OF OPERATION
TRANSPORTATION OF OIL AND PETROLEUM PRODUCTS
Oil exports are transported by Gazprom Neft mainly through the state pipeline system run by JSC Transneft (Transneft). Under Russian legislation access to the pipeline system is regulated by the Russian Ministry of Industry and Energy. The throughput capacity of the pipeline system, as a rule, is distributed between users in proportion to their quarterly share of supplies into the system and on a request basis. Pursuant to the Law “On Natural Monopolies” the rights of access to the pipeline system are distributed between the oil producing companies and their parents in proportion to the volume of oil produced and supplied into the Transneft pipeline system (that is, not only in proportion to the volume of oil produced).
As it stands now, the Federal Energy Agency approves quarterly plans specifying the exact volumes of oil a producer may pump into the Transneft system. Once the rights have been distributed, oil producers, as a rule, cannot increase the through- put capacity in the export pipeline system assigned to them, although they have a limited option for changing the transporta- tion routes. Oil producers are normally allowed to transfer their access rights to other parties. Alternatively, international markets may be accessed, bypassing the Transneft system, by rail, tankers as well as using own export infrastructure of oil companies.
Most of the oil produced by the Company is graded as Siberian Light or SILCO and has a below-average density of 34.20 degrees API or 830-850 kg/m3 and a below-average sulfur content of 0.56% compared to average Russian oil. If not blended with other Russian oil, oil produced by the Company could be sold at a premium to the Urals price. Yet this advantage is lost, since during transportation through the trunk pipeline system oil produced by the Company is blended with oil of other Russian producers.
The Company exports SILCO through Tuapse via a special pipeline designed for this type of oil. In 2008 SILCO sales through Tuapse accounted for 6.5% of all export sales by the Company.
In 2008 45% of total oil exports were delivered by the Company through the Baltic Sea ports (Primorsk, mostly); 27.4 of oil was exported via the Transneft-owned Druzhba Pipeline (mainly, to Germany, Poland and Slovakia); 24.9% of oil was transported through the Black Sea ports of Novorossiysk and Tuapse and the Ukrainian port of Yuzhniy; 2.7% of oil was exported via a transit pipeline through Kazakhstan to China.
Domestically, in Russia, petroleum products are transported by rail and via the JSC Transnefteproduct pipeline system. The Russian railways are owned and managed by JSC Russian Railways. Both companies are state-owned. In addition to the transportation of petroleum products, JSC Russian Railways provide oil transportation services to oil companies. The bulk of petroleum products (70%) are transported by the Company by rail; 19% of petroleum products are transported via the petroleum product pipeline system. Insignificant volumes are delivered to consumers by road and water as well as via process product pipelines.
ANNUAL REPORT 60 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 INVESTMENT: TECHNICAL RE-EQUIPMENT AND DEVELOPMENT OF THE COMPANY INVESTMENT: TECHNICAL RE-EQUIPMENT AND DEVELOPMENT OF THE COMPANY
In early 2008 JSC Gazprom Neft approved the scope of the medium-term investment program (MTIP) for 2008-2010 in the -17% amount of 267.5 bn rubles. The bulk of investment in the amount of 176.5 bn rub. was allocated to oil production projects, 82 29.7 bn rub. of investment was channeled to exploration, 14.1 bn rub. – to the development of oil service operations, 27.3 68 bn rub. to oil refining and 19.9 bn – to the retailing and small wholesaling of petroleum products. 52 +58% Implementation of the medium-term investment program will allow JSC Gazprom Neft to accomplish its major strategic 46 objectives: increase oil production, ensure future oil production growth through effective exploration and development of new fields, strengthen the competitive positions of the oil service block, switch to the output of Euro 4 petroleum products by 2012, and substantially increase retail sales of petroleum products.
Total investment in 2008 was 94.9 bn rub. JSC Gazprom Neft’s capital investment in “organic growth” and asset maintenance in 2008 was 82 bn rub., which is a 58% increase compared to 2007. In particular, capital investment in oil +13% production was 65.9 bn rub., in exploration – 5.7 bn rub., in refining – 4.2 bn rub., in petroleum product sales – 4.2 bn rub., another 1.6 bn rub. of investment was allocated to supporting oil service operations. Financing of asset acquisition and other investment totaled 12.9 bn rubles. 2006
In accordance with JSC Gazprom Neft’s investment program for 2008 the bulk of investment in exploration and production 2007 was allocated to drilling new wells, maintaining basic production and conducting exploration in new license plots. Investment in oil refining was channeled to the projects for upgrading the quality of motor fuels to the Euro 4, 5 standards. 2008 The fallen oil prices in world markets and significantly reduced credit resources forced nearly all domestic oil companies into reviewing their investment programs and developing anti-crisis measures to prevent losses and continue normal operations. In late 2008 JSC Gazprom Neft adopted a Medium-Term Investment Program (MTIP) for 2009-2011. Total investment for
2009 is down by 7% compared to 2008. The Company has extended completion deadlines for projects that have no bearing on 2009 production output, scaled back exploration, as well as ineffective production projects. Investment programs for associated PROJECTED gas recovery, distribution and service enterprises have been minimized.
In 2009 JSC Gazprom Neft is expected to invest 88.2 bn rub., of which 50.3 bn rub. is to be allocated to oil production, 3.5 bn rub. to exploration, 7.1 bn rub. – to oil refining (including production of bitumens and lubricants); 5.4 bn rub. – to petroleum product sales, 1.5 bn rubles to oil service operations and another 20.4 bn rub. will be spent on asset CAPITAL INVESTMENT*, BN RUB. acquisition. SOURCE: COMPANY DATA
ANNUAL REPORT 64 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 PERFORMANCE AND FINANCIAL INDICATORS PERFORMANCE AND FINANCIAL INDICATORS KEY PERFORMANCE INDICATORS
BN BOE 425 (342) BOE % 20 000 55% 53% 60% 61% 6906 15 000 6808 10 000 45% 47% 40% 39% 5 000
2007 2008 0 20 YEARS ’30 YEARS ’50 YEARS 2005 2006 2007 2008 PROVED HYDROCARBON RESERVES RESERVES-TO-PRODUCTION RATIO OIL BALANCE UNDER SPE CLASSIFICATION SOURCE: COMPANY DATA SOURCE: COMPANY DATA SOURCE: COMPANY DATA • proved reserves • oil sales • Exploration & Reestimation • 2P • refining and marketing • 3P • Oil and Gas Production 33% DIESELS
MLN 337,3 MLN 28.4 MLN 16,3 TONS BARRELS 37,5 TONS 26.2 3,3 15,1 319,4 71,2 3,3 6,8 76,2 6,4 228,6 18,4 243,2 16,5 +7,9% 7% 3.3 JET FUEL 1% +5,6% +8.8% 2,5 +32% OILS 2007 2008 2007 2008 2007 2008 OIL PRODUCTION REFINING EXPORT 28% SOURCE: COMPANY DATA SOURCE: COMPANY DATA SOURCE: COMPANY DATA % GASOLINES • Slavneft • Omsk • Non-CIS 9 • Gazprom Neft • Yaroslavl • CIS OTHER • Tomskneft • Moscow
% MLN MLN 13,3 96 15,7 13,3 94 TONS TONS 1,9 1,9 22% FUEL OIL 80 13,4 11,4 11,4
+17,2% 0% ОНПЗ ЯНОС МНПЗ 2007 2008 2007 2008 UTILILZATION OF REFINING PETROLEUM PRODUCT SALES PETROLEUM PRODUCT EXPORTS CAPACITIES (2008) IN RUSSIAN FEDERATION SOURCE: COMPANY DATA OUTPUT OF PETROLEUM PRODUCTS SOURCE: COMPANY DATA SOURCE: COMPANY DATA • Exports • Non-CIS SOURCE: COMPANY DATA
ANNUAL REPORT 68 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 PERFORMANCE AND FINANCIAL INDICATORS
KEY FINANCIAL RESULTS
MLN US$ MLN US$ MLN US$ 33,075 7 965 4,658 6 236 4,143 21,767 5 676 3,661 20,176
+8% +52% +10% +28% +13% +12% 2006 2007 2008 2006 2007 2008 2006 2007 2008
REVENUES EBITDA NET INCOME SOURCE: COMPANY DATA SOURCE: COMPANY DATA SOURCE: COMPANY DATA Gas Sales 0 Other 2 Oil Exports to CIS MLN US$ 8 560 US$ PER % 3 Oil Exports BARREL 30% 35
25 6 554 26%
21 -4%
+31% +19% 2007 2008 2007 2008 2007 2008 ADJUSTED EBITDA* ADJUSTED EBITDA* ADJUSTED EBITDA* MARGIN SOURCE: COMPANY DATA SOURCE: COMPANY DATA SOURCE: COMPANY DATA * Adjusted EBITDA includes EBITDA share of equity investees (Slavneft and Tomskneft)
MLN US$ MLN US$ % 31 5 444 4 30 5 316 0,5 1
0,4 24 20 3 320 0,3
0,2 10 0,1 PetroleumOil - Domestic Products toMarekt CIS +55% +2,4% 0 2006 2007 2008 2005 2006 2007 2008 0 NET CASH FROM OPERATING DEBT-TO-EBITDA RATIO Petroleum ProductsPetroleum - Domestic Products Market - Export ACTIVITIES SOURCE: COMPANY DATA SOURCE: COMPANY DATA • Net Debt/EBITDA (left axis) REVENUE STRUCTURE 2008 • Gearing (right axis) SOURCE: COMPANY DATA
ANNUAL REPORT 70 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 PERFORMANCE PERFORMANCE AND FINANCIAL INDICATORS AND FINANCIAL INDICATORS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR 2008, 2007 AND 2006 Table 5. KEY FINANCIAL AND OPERATING RESULTS The following discussion is intended to assist you in understanding of JSC Gazprom Neft’s financial position as of December Change, % 31, 2008 and 2007 and results of operations for the three years ended December 31, 2008 and should be read in conjunction 2008 2007 2006 2008/2007 2007/2006 with the Consolidated Financial Statements and notes thereto, which were prepared in accordance with accounting principles • Revenues, US$ million 33,075 21,767 20,176 52.0 7.9 generally accepted in the United States of America. • Net income, US$ million 4,658 4,143 3,661 12.4 13.2 • EBITDA, US$ million 7,965 6,236 5,676 27.7 9.9 Such terms as “Gazprom Neft”, “Company” and “Group” in their different forms in this report represent JSC Gazprom Neft • Crude oil production including our share of equity investees, and its consolidated subsidiaries and affiliated companies. This report represents JSC Gazprom Neft’s financial condition millions of barrels 337.3 319.4 318.0 5.6 0.4 and results of operations on a consolidated basis. • Refining throughput at own and equity investee refineries, 28.4 26.2 24.4 8.8 7.4 Tonnes of crude oil produced are translated into barrels using conversion rates reflecting oil density from each of our oil millions of tonnes fields. Crude oil purchased as well as other operational indicators expressed in barrels are translated into barrels using a conversion rate of 7.33 barrels per tonne. Translations of cubic meters to cubic feet were made at the rate of 35.31 cubic feet per cubic meter. Translations of barrels of crude oil into barrels of oil equivalent (“BOE”) were made at the rate of 1 barrel per BOE and of cubic feet into BOE at the rate of 6 thousand cubic feet per BOE. OPERATING SEGMENTS FORWARD-LOOKING STATEMENTS The Company’s activities are divided into two main operating segments: This discussion contains forward-looking statements concerning the financial condition, results of operations and businesses of Gazprom Neft and its consolidated subsidiaries. All statements other than statements of historical fact are, or may be • Exploration and production segment– which includes exploration, development and production of crude oil and gas. deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based • Refining, Marketing and Distribution – which includes refining of crude oil, purchases, sales and transportation on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could of crude oil and refined petroleum products. cause actual results, performance or events to differ materially from those expressed or implied in these statements. These segments are interdependent; a portion of the revenues of one segment forms a part of the costs of the other Forward-looking statements include, among other things, statements concerning the potential exposure of Gazprom Neft segment. In particular, JSC Gazprom Neft, as a holding company, buys crude oil from its production subsidiaries, part of to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and which is processed at the Company’s refinery and other refineries; the remaining production is primarily exported through a assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, wholly owned export trading company. The refined petroleum products are then distributed on the international or domestic ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, markets through the Company’s own marketing subsidiaries. In most cases it is difficult to determine market prices for ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases. crude oil in the domestic market due to the significant intragroup turnover within the vertically integrated oil companies. The prices set for intragroup purchases of crude oil reflects a combination of market factors such as international crude There are a number of factors that could affect the future operations of Gazprom Neft and could cause those results to differ oil prices, transportation costs, the cost of crude oil refining, capital investment requirements of the individual upstream materially from those expressed in the forward-looking statements included in this Report, inclusively (without limitation): subsidiaries and other factors. Accordingly, the results of operations of these segments on a stand-alone basis do not (a) price fluctuations in crude oil and gas; (b) changes in demand for the Company’s products; (c) currency fluctuations; necessarily represent each segment’s underlying financial position and results of operations. For this reason, we do not (d) drilling and production results; (e) reserve estimates; (f) loss of market and industry competition; (g) environmental analyze our segments separately. Refer to financial data by operating segments in Note 20 of the Consolidated Financial and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, Statements. and successful negotiation and completion of such transactions; (i) economic and financial market conditions in various countries and regions; (j) political risks, project delay or advancement, approvals and cost estimates; and (k) changes MAIN MACROECONOMIC FACTORS AFFECTING RESULTS OF OPERATIONS in trading conditions. The main factors affecting the Company’s results of operations include:
All forward-looking statements contained in this discussion are expressly qualified in their entirety by the cautionary • Changes in market prices of crude oil and petroleum products; statements contained or referred to in this section. Readers should not place undue reliance on these forward-looking • Russian Ruble (“RR”) exchange rate versus the US Dollar (“USD”); inflation; statements. Each forward-looking statement speaks only as of the date of this discussion. Neither Gazprom Neft nor any • Taxation; of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new • Changes in transportation tariffs of crude oil and petroleum products. information, future events or other information (table 5).
ANNUAL REPORT ANNUAL REPORT 72 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 73 PERFORMANCE AND FINANCIAL INDICATORS
Table 6. AVERAGE CRUDE OIL AND PETROLEUM PRODUCTS PRICES IN THE INTERNATIONAL AND DOMESTIC MARKETS Change % 2008 2007 2006 2008/2007 2007/2006 International market (in US$ per barrel) Brent 97.26 72.34 65.14 34.4 11.1 Urals Spot (average Med. + NWE) 94.79 69.23 61.28 36.9 13.0 (in US$ per tonne) Premium gasoline (average NWE) 841.55 697.41 622.79 20.7 12.0 Regular gasoline (average NWE) 840.31 690.83 616.23 21.6 12.1 Naphtha (average Med. + NWE) 779.84 662.27 563.33 17.8 17.6 Diesel fuel (average NWE) 948.49 667.70 609.37 42.1 9.6 Gasoil 0.2% (average Med. + NWE) 903.81 640.69 581.44 41.1 10.2 Fuel oil 3.5% (average NWE) 452.55 330.76 282.25 36.8 17.2 Domestic market (in US$ per tonne) High-octane gasoline 1,023.15 835.47 737.17 22.5 13.3 Low-octane gasoline 803.38 656.82 589.81 22.3 11.4 Diesel fuel 880.67 617.92 590.78 42.5 4.6 Fuel oil 329.05 219.45 206.92 49.9 6.1 SOURCE: PLATTS (INTERNATIONAL MARKET) AND KORTES (DOMESTIC MARKET)
CHANGES IN MARKET PRICES OF CRUDE OIL AND PETROLEUM PRODUCTS The prices of crude oil and petroleum products in the international and Russian markets are the primary driver of the Company’s results of operations. We do not use derivative instruments to manage our trade operations. Accordingly, market crude oil prices are the main driver of the Company’s revenues.
During 2008, Brent crude oil price grew from average of US$ 92.00 per barrel in January 2008 to its historical high US$ 144.22 in July 2008, and then collapsed to US$ 36.55 at the end of December 2008. In the first half of 2008, the price growth was driven by financial market fluctuations and weakening US dollar. In the second half of 2008 global money supply decrease and falling demand for crude oil and oil products caused crude oil price fall to a four year low. In the forth quarter 2008 crude oil prices were below a level at which development of many oilfields worldwide and in the Russian Federation is profitable (table 6).
In 2008 the Brent average price was US$ 97.26 per barrel, which is 34.4% higher than the corresponding period of 2007; in 2007 the Brent average price was US$ 72.34 per barrel, which is 11.1% higher than the corresponding period of 2006. The average Urals price in 2008 increased by 36.9% to US$ 94.79 per barrel as compared to 2007; in 2007 the average Urals price increased by 13.0% to US$ 69.23 compared to 2006.
RUBLE VS. US DOLLAR EXCHANGE RATE AND INFLATION A substantial part of the Company’s revenues from sales of crude oil and petroleum products is denominated in US Dollars, while most of the expenses are settled in Russian Rubles. Accordingly, any real Ruble appreciation to the US Dollar negatively affects the results of the Company’s operations, though this fact is partially offset by an increased Ruble denominated revenue from sales in Russia. Ruble appreciated against the US Dollar in real and nominal terms during of the years 2006 and 2007 and throughout the first half of 2008. However, as a result of the sharp decline of crude oil prices and a global economic slowdown in the second half of 2008, Ruble depreciated significantly against the US Dollar in both real and
ANNUAL REPORT 74 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 PERFORMANCE PERFORMANCE AND FINANCIAL INDICATORS AND FINANCIAL INDICATORS
nominal terms. In order to mitigate the effects of fluctuation in Ruble – US Dollar exchange rate, in April 2008 the Company began using derivative instruments. Refer to additional information in Note 16 of the Consolidated Financial Statements Table 7. RUBLE VS. US DOLLAR EXCHANGE RATE AND INFLATION (table 7). 2008 2007 2006 • Inflation (CPI), % 13.30 11.90 9.00 TAXATION (table 8) • Ruble/US dollar exchange rate as of the end of the period 29.38 24.55 26.33 • Average Ruble/US dollar exchange rate for the period 24.86 25.58 27.19 CRUDE OIL EXPORT CUSTOMS DUTY RATE. Export custom duty rate per tonne of crude oil is enacted by the Government of • Real appreciation (depreciation) of the Ruble against the US dollar, % (5.3) 20.0 19.1 the Russian Federation based on the average Urals prices, referred to as the monitoring period. The monitoring period SOURCE: THE CENTRAL BANK OF THE RUSSIAN FEDERATION, THE FEDERAL STATE STATISTICS SERVICE. comprises two months starting from November 1, 2001. The rate is effective of the first day of the second month after the monitoring period. Table 8. AVERAGE ENACTED TAX RATES SPECIFIC TO THE OIL AND GAS INDUSTRY IN RUSSIA Change % In December 2008 the Government approved as amended the new mechanism: export custom duty rate is revised monthly 2008 2007 2006 2008/2007 2007/2006 according to data provided by monitoring of the world crude oil price. The special export custom duty rate in October - Export customs duty November 2008 (US$ 372.20 and US$ 287.30 per tonne, respectively) led to partial offset of the negative influence of arising • Crude oil (US$ per tonne) 355.08 206.70 197.01 71.8 4.9 difference between the estimated export custom duty rate and the actual sales price. • Crude oil (US$ per barrel) 48.44 28.20 26.88 71.8 4.9 • Light and middle distillates products (US$ per tonne) 251.53 151.59 143.40 65.9 5.7 The export customs duty on crude oil increased by 71.8% in 2008 to US$ 355.08 per tonne (US$ 48.44 per barrel) from US$ • Fuel oil (US$ per tonne) 135.51 81.64 77.27 66.0 5.7 206.70 per tonne (US$ 28,20 per barrel) in 2007. The increase in these comparative periods was associated with the growth Mineral extraction tax of Urals prices, which increased by 36.9% to US$ 94.79 per barrel in 2008 compared to US$ 69.23 per barrel in 2007. • Crude oil (RUR per tonne) 3,329.09 2, 472.69 2,265.72 34.6 9.1 • Crude oil (US$ per barrel) 18.27 13.19 11.37 38.5 16.0 The export customs duty on crude oil in 2007 increased by 4.9% to US$ 28.20 per barrel compared to the corresponding • Natural gas (RUR per 1000 cm) 147.00 147.00 147.00 00.0 00.0 period of 2006. The growth was due to higher Urals prices in 2007. Table 9. AVERAGE URALS PRICE EXPORT CUSTOMS DUTY RATE ON PETROLEUM PRODUCTS. Export custom duty rate on oil products is determined by the Quoted Urals price (P), USD per tonne Maximum Export Custom Duty Rate Government based on the prices for crude on international markets separately for light and middle distillates and for fuel 0 – 109.50 0% oil (table 9). 109.50 – 146.00 35.0% * (P - 109.50) 146.00 – 182.50 USD 12.78 + 45.0% * (P - 146.00) CRUDE OIL MINERAL EXTRACTION TAX RATE. Starting from January 1, 2007 mineral extraction tax rate on crude oil (R) is >182.50 USD 29.20 + 65.0% * (P - 182.50) determined based on the formula R = 419 * (P – 9) * D/261 where P - is the average monthly Urals oil price on Rotterdam ИСТОЧНИК: RUSSIAN FEDERATION RULE DATED 21.05.1993 № 5003-1 (RED. DATED 30.12.2008) « CUSTOMS TARIFFS» and Mediterranean markets (US$/bbl) and D - is the RUR/US$ average exchange rate for the month.
In case of the depletion, which is determined as the accumulated volume of crude produced from the field (N) divided by the NATURAL GAS MINERAL EXTRACTION TAX RATE. The rate of mineral extraction tax for natural gas has remained stable since total volume of reserves (V = A + B + C1 + C2, as determined by Russian Resources Classification), equals or exceeds 80%, January 1, 2006 and equals 147.00 Rubles per thousand cubic meters of natural gas. there is a special ratio (C) added to the formula (419 * (P – 9) * D/261* C), where C = -3.5 * N/V + 3.8. This adjustment provides TRANSPORTATION OF CRUDE OIL AND PETROLEUM PRODUCTS a reduction of the tax payable in accordance with the formula provided above by 3.5% for every 1% of depletion over 80%. The transportation tariff policies are defined by the state authorities to ensure the balance of interests of the state and Because of the current economic downturn, starting from September 2008, the Government revised the calculation of all participants in the transportation process. Transportation tariffs of natural monopolies are set by the Federal Tariffs mineral extraction tax on crude oil described above. Effective from January 1, 2009 the Urals crude oil price used in the Service of the Russian Federation (“FTS”). The tariffs are dependent on transport destination, delivery volume, distance of formula above will increase from US$9 per barrel to US$ 15 per barrel. This change in the tax rate will lead to reduction of transportation, and several other factors. Changes in the tariffs depend on inflation forecasts by the Ministry of Economic the Company’s mineral extraction tax payments. Development of the Russian Federation, the investment needs of owners of transport infrastructure, other macroeconomic factors, and compensation of economically reasonable expenses, incurred by entities of natural monopolies. Tariffs are to be In 2008 mineral extraction tax rate on crude oil increased by 38.5% to US$ 18.27 per barrel primarily due to a 36.9% increase revised by FTS at least annually, comprising a dispatch tariff, loading, transshipment, pumping and other tariffs. in average crude oil prices as compared to the corresponding period of 2007. The main Russian crude oil production regions are remote from the main crude oil and refined products markets. Therefore, In 2007 mineral extraction tax rate on crude oil increased by 16.0% to US$ 13.19 per barrel primarily due to a 13.0% increase access of crude oil production companies to the markets is dependent on the extent of diversification of transport infrastructure in average crude oil prices as compared to the same period of 2006. and access to it. As a result, transportation cost is an important macroeconomic factor affecting our results.
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Table 10. THE COMPANY’S RESERVES Changes in 2008 millions barrels of oil equivalent (BOE) 31.12.2008 Production Revision of previous estimates 31.12.2007 • Gazprom Neft 4,847 (234) 136 4,945 • Company’s share in equity investees* 1,961 (109) 109 1,961 • Proved oil and gas reserves 6,808 (343) 245 6,906 • Gazprom Neft 3,630 1,448 • Company’s share in equity investees* 1,297 1,520 • Probable oil and gas reserves 4,927 2,968 • Gazprom Neft 4,708 1,568 • Company’s share in equity investees* 1,856 3,363 • Possible oil and gas reserves 6,564 4,931 * 49.9% of Slavneft’s reserves and 50% of Tomskneft’s reserves
RESOURCE BASE According to the independent reservoir engineers, DeGolyer and MacNaughton (Miller and Lents in 2007 and 2006) on the basis of the standards set forth by the Society of Petroleum Engineers, Petroleum Reserves Management System (“PRMS”) as of December 31, 2008 the Company had 4,847 millions of barrel of oil equivalent (BOE), including proved crude oil reserves of 4,488 millions of BOEl and proved gas reserves of 2.2 trillion cubic feet.
The PRMS reserves above differ from those reported in the supplementary information on oil and gas activities included with our consolidated financial statements. Oil and gas reserves included in this supplementary information are prepared using definitions provided by the US Securities and Exchange Commission (SEC), which require the use of period end market prices and costs when determining oil and gas reserve estimates. The PRMS reserves above use management’s best estimate of future crude oil and natural gas prices.
The Company’s proved reserves including equity investees were 6,808 millions of BOE, including proved crude oil reserves of 6,303 millions of BOE and proved gas reserves of 3.0 trillion cubic feet.
The Company’s reserves are all located in the Russian Federation, primarily in the Western and Eastern Siberia and in the Far East (table 10).
PRODUCTION OF CRUDE OIL, GAS AND PETROLEUM PRODUCTS CRUDE OIL PRODUCTION. In 2008 the Company’s crude oil production decreased by 6.0% to 228.6 million barrels (30.8 million tones), compared to 2007. The reduction in this period was primarily a result of a decrease in output at Noyabrskneftegaz, which was partially offset by an increase in production in new fields such as Priobskoye and certain fields in Tomsk and Omsk regions.
In 2007 the Company’s crude oil production was approximately the same as in 2006 - 243.2 million barrels (32.7 million tonnes respectively) (table 11).
ANNUAL REPORT 78 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 PERFORMANCE PERFORMANCE AND FINANCIAL INDICATORS AND FINANCIAL INDICATORS
In 2008 the Company’s share in production of equity investees increased by 42.7% to 108.7 million barrels (14.8 million Table 11. THE COMPANY’S PRODUCTION tonnes) compared to 2007. The increase was primarily due to the acquisition of our 50% interest in Tomskneft in December millions of barrels Change % 2007 (table 12). 2008 2007 2006 2008/2007 2007/2006 • Crude oil produced by consolidated subsidiaries 228.6 243.2 243.3 (6.0) - In 2007 the Company’s share in production of equity investees increased by 2.0% to 76.2 million barrels (10.4 million tonnes) • Company’s share in production of equity investees 108.7 76.2 74.7 42.7 2.0 compared to 2006. • Total crude oil production 337.3 319.4 318.0 5.6 0.4 In 2008 the Company increased the volumes of crude oil purchased internationally due to the expansion in its marketing activities. Table 12. THE COMPANY’S CRUDE OIL PURCHASES millions of barrels Change % GAS PRODUCTION. In 2008 the Company produced 2.2 billions of cubic meters of associated and natural gas with an increase 2008 2007 2006 2008/2007 2007/2006 of 22.2% compared to 2007. This increase relates to the Company’s program for the utilization of associated gas, which • Crude oil purchases in Russia and CIS* 12.0 16.3 14.2 (26.4) 14.8 is described below. • Crude oil purchases internationally 15.3 3.9 6.8 292.3 (42.6) • Total crude oil purchases 27.3 20.2 21.0 35.1 (3.8) Including share in gas production of equity investees the Company’s production increased by 45.5% to 3.2 billions of * Crude oil purchases in Russia and CIS exclude purchases from Company’s equity investees Slavneft and Tomskneft cubic meters in 2008 compared to 2007. The increase was attributed to the acquisition of our 50% interest in Tomskneft Table 13. THE COMPANY’S GAS PRODUCTION in December 2007. billions of cubic meters Change % 2008 2007 2006 2008/2007 2007/2006 In 2007 including share in gas production of equity investees the Company produced 2.2 billions of cubic meters of associated • Gas produced by consolidated subsidiaries 2.2 1.8 2.1 22.2 (14.3) and natural gas, which is slightly less than 2.5 billions of cubic meters produced in 2006. • Company’s share in production of equity investees 1.0 0.4 0.4 150.0 - • Total gas production 3.2 2.2 2.5 45.5 (12.0) In February 2008, Gazprom Neft adopted a medium term program for the utilization of associated gas with the goal • Gas purchased in Russia* 1.2 0.5 0.8 140.0 (37.5) of increasing its efficient use, mitigating environmental and tax risks and increasing revenues from the sale of additional * Gas purchases in Russia exclude purchases from Company’s equity investees Slavneft and Tomskneft. volumes of associated gas and its refined products. The Company plans to invest Rubles 18 billion (approximately US$ 600 million) to implement this program during the period from 2008 through 2010. In particular, the program provides for the Table 14. THE COMPANY’S PETROLEUM PRODUCTS PRODUCTION construction of associated gas transportation facilities from the Ety-Purovskoye, Meretoyakhinskoye, Severo-Yangtinskoye, millions of tonnes Change % Chatylkinskoye, Kholmistoye, Yuzhno-Udmurtskoye, Ravninnoye, Vorgenskoye, Urmanskoye and Shinginskoye fields (table 2008 2007 2006 2008/2007 2007/2006 13). • Production of petroleum products at the Company’s refinery 17.3 15.5 15.2 11.6 2.0 • Production of petroleum products at equity refineries 9.5 9.2 7.6 3.3 21.1 PRODUCTION OF PETROLEUM PRODUCTS. In 2008 the Company increased the volumes of refined petroleum products by • Total production of petroleum products 26.8 24.7 22.8 8.5 8.3 8.5% to 26.8 million tonnes from 24.7 million tonnes in 2007. The increase was associated with the extension in the domestic • Petroleum products purchases in Russia and CIS 1.1 0.3 1.7 266.7 (82.4) petroleum market capacity, an expansion of the Company’s retail network and increasing of regional sales. • Petroleum products purchases internationally 1.7 1.6 1.5 6.3 6.7 • Total petroleum products purchases 2.8 1.9 3.2 47.4 (40.6) The Company processes domestic crude oil into refined products primarily at its Omsk Refinery, Moscow Refinery and Yaroslavl Refinery. Gazprom Neft owns the Omsk Refinery and has access to the Moscow Refinery and Yaroslavl Refinery in proportion of its equity interest. Gazprom Neft owns both the crude oil processed at these oil refineries and the products produced from refining and pays each refinery a fee for their processing services. its refined products in central Asia through three subsidiaries: Gazpromneft Asia LLC in Kyrgyzstan; Gazpromneft—Tajikistan LLC and Gazpromneft—Kazakhstan LLC (table 14). The Company primarily markets its own crude oil and petroleum products for export through Gazprom Neft Trading GmbH, its trading subsidiary in Austria. During 2008 the Company’s revenues increased by 52.0% to US$ 33,075 million compared to US$ 21,767 million in 2007 (in 2007 increased by 7.9% compared to 2006 results). The growth in revenues was primarily due to the following: The Company’s petroleum products are distributed within Russia primarily through 21 subsidiaries. Most of these subsidiaries are retail distribution companies engaged in wholesale distribution, providing petroleum oil products for • an increase in crude oil and petroleum products production; Rosreserv or operate in the gas station retail markets. Gazprom Neft Aero JSC, Gazpromneft Smazochny materialy LLC • an increase in sales volumes of crude oil and petroleum products. and Gazprom Neft Marine Bunker LLC specialize in the sale of particular petroleum products. Gazprom Neft distributes • an increase in average prices
ANNUAL REPORT ANNUAL REPORT 80 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 81 PERFORMANCE PERFORMANCE AND FINANCIAL INDICATORS AND FINANCIAL INDICATORS
RESULTS OF OPERATIONS in US$ million Change, % REVENUES in US$ million Change % 2008 2007 2006 2008/2007 2007/2006 2008 2007 2006 2008/2007 2007/2006 Revenue • CIS 1,267 820 526 54.5 55.9 • Refined products and oil and gas sales 32,410 21,247 19,931 52.5 6.6 • Domestic 10,307 6,093 4,622 69.2 31.8 • Other 665 520 245 27.9 112.2 Total petroleum products sales 19,646 13,090 11,203 50.1 16.8 Total 33,075 21,767 20,176 52.0 7.9 Other sales 665 520 245 27.9 112.2 Costs and other deductions Total sales 33,075 21,767 20,176 52.0 7.9 • Crude oil, petroleum and other products purchased 8,296 3,928 3,705 111.2 6.0 • Operating expenses 2,060 1,981 1,635 4.0 21.2 SALES VOLUMES • Selling, general and administrative expenses 1,078 874 563 23.3 55.2 Change % • Transportation expenses 1,661 1,279 1,348 29.9 (5.1) 2008 2007 2006 2008/2007 2007/2006 • Depreciation, depletion and amortization 1,309 929 803 40.9 15.7 Crude oil, millions of barrels • Export duties 6,533 3,371 4,669 93.8 (27.8) • Export 118.7 109.9 132.5 8.0 (17.1) • Taxes other than income taxes 5,222 3,998 2,940 30.6 36.0 • CIS 24.0 18.2 18.9 31.9 (3.7) • Exploration expenses 193 184 107 4.9 72.0 • Domestic 6.6 11.6 0.7 (43.1) 1571.1 • Cost of other sales 474 324 40 46.3 710.0 Crude oil, millions of tonnes Total 26,826 16,868 15,810 59.0 6.7 • Export 16.3 15.1 18.2 7.9 (17.0) Operating income 6,249 4,899 4,366 27.6 12.2 • CIS 3.3 2.5 2.6 32.0 (3.8) Other income (expense) • Domestic 0.9 1.6 0.1 (43.8) 1500.0 • Income from equity affiliates 407 408 507 (0.2) (19.5) Total crude oil sales 20.5 19.2 20.9 6.8 (8.1) • Interest income 100 94 39 6.4 141.0 Gas (bcm) 3.7 2.2 3.0 68.2 (26.7) • Interest expense (167) (149) (126) 12.1 18.3 Petroleum products, millions of tonnes • Other income (expense), net 89 45 (6) 97.8 (850.3) • Export 11.4 11.4 12.2 - (6.6) • Foreign exchange (loss) gain, net (517) 161 74 (421.1) 117.6 • CIS 1.9 1.9 1.3 - 46.2 • Minority interest (39) - - • Domestic 15.7 13.4 11.9 17.2 12.6 Total (127) 559 488 (122.7) 14.5 Total petroleum products sales 29.0 26.7 25.4 8.6 5.1 • Income before provision for income taxes 6,122 5,458 4,854 12.2 12.4 • Provision for income taxes 1,425 1,342 1,113 6.2 20.6 REALIZED AVERAGE SALES PRICES • Deferred income tax (benefit) expense 39 (27) 80 (244.4) (133.8) Change % Total 1,464 1,315 1,193 11.3 10.2 2008 2007 2006 2008/2007 2007/2006 • Net income 4,658 4,143 3,661 12.4 13.2 Crude oil, US$ per barrel : • Export 94.60 62.43 59.96 51.5 4.1 REVENUES • CIS 45.42 42.09 37.41 7.9 12.5 in US$ million Change % • Domestic 45.00 41.90 38.57 7.4 8.6 2008 2007 2006 2008/2007 2007/2006 Crude oil, USD per tonne Crude oil • Export 688.90 454.37 436.54 51.6 4.1 • Export 11,229 6,861 7,945 63.7 (13.6) • CIS 330.30 306.40 271.92 7.8 12.7 • CIS 1,090 766 707 42.3 8.3 • Domestic 330.00 303.75 270.00 8.6 12.5 • Domestic 297 486 27 (38.9) 1700.0 Gas, US$ per bcm 40.00 20.00 16.33 100.0 22.5 Total crude oil sales 12,616 8,113 8,679 55.5 (6.5) Petroleum products, USD per tonne Gas 148 44 49 236.4 (10.2) • Export 708.07 541.84 496.31 30.7 9.2 Petroleum products • CIS 666.84 431.58 404.62 54.5 6.7 • Export 8,072 6,177 6,055 30.7 2.0 • Domestic 656.50 454.70 388.40 44.4 17.1
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CRUDE OIL EXPORT SALES. In 2008 our revenues from export crude oil sales increased by 63.7% to US$ 11,229 million compared to US$ 6,861 million in 2007. This growth was primarily due to an increase in sales prices by 51.5% and a 8.0% increase in sales volumes. The price increase was attributable to the growth in Urals price by 36.9%. The growth in volumes was primarily due to the acquisition of our 50% interest in Tomskneft in December 2007.
In 2007 our revenues from export crude oil sales decreased by 13.6% to US$ 6,861 million compared to US$ 7,945 million in 2006. This decrease was primarily due to a decrease in sales volumes by 17.1% accompanied be a slight increase in sales prices by 4.1%. The price increase was attributable to the growth in Urals price by 13.0%. A decrease in sales volumes was primarily driven by the reallocation of export sales volumes and due to a decrease in crude oil purchases by 3.8%.
CRUDE OIL SALES TO CIS. In 2008 the Company’s revenues from CIS crude oil sales increased by 42.3% to US$ 1,090 million compared to US$ 766 million in 2007. This growth was primarily due to an increase in sales prices by 7.9% and a 31.9% increase in sales volumes. The price increase was driven by the general growth in world prices. Increase in sales volumes was primarily due to the acquisition of our 50% interest in Tomskneft in December 2007.
In 2007 the Company’s revenues from CIS crude oil sales increased by 8.3% to US$ 766 million compared to US$ 707 million in 2006. This was primarily due to an increase in sales prices by 12.5%, which was offset by slightly decreased in sales volumes by 3.7%. The price increase was due to the general growth in world prices.
CRUDE OIL DOMESTIC SALES. In 2008 our revenues from domestic crude oil sales decreased by 38.9% to US$ 297 million compared to US$ 486 million in 2007. The decrease in domestic crude oil sales was caused by an increase in the relative volume of crude oil that the Company sent to the export and CIS markets.
In 2007 our revenues from domestic crude oil sales increased to US$ 486 million compared to US$ 27 million in 2006. This growth was attributable to an increase in crude oil purchased volumes in Russia by 14.8% and an increase in sales prices by 8.6%. The price increase was driven by the general growth in world prices.
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PETROLEUM PRODUCTS EXPORT SALES. In 2008 the Company’s revenues from export petroleum product sales increased Table 15. OPERATING EXPENSES by 30.7% to US$ 8,072 million compared to US$ 6,177 million in 2007. This growth was primarily a result of an increase in in US$ million Change % sales prices by 30.7%. The price increase was driven by the general growth in world prices. 2008 2007 2006 200/2007 2007/2006 • Hydrocarbon extraction expenses 1,416 1,408 1,215 0.6 15.9 In 2007 the Company’s revenues from export petroleum product sales slightly increased by 2.0% to US$ 6,177 million • Refining expenses at own refinery 310 282 226 9.9 24.8 compared to US$ 6,055 million in 2006. This was due to an increase in sales prices by 9.2% accompanied by a slight decrease • Refining expenses at equity investee refineries 334 291 194 14.8 50.0 in sales volumes by 6.6% Total operating expenses 2,060 1,981 1,635 4.0 21.2
PETROLEUM PRODUCTS SALES TO CIS. In 2008 our revenues from CIS petroleum product sales increased by 54.5% to US$ 1,267 million compared to US$ 820 million in 2007. This growth was primarily due to an increase in sales prices by 54.5%. The price increase was attributable to the growth in sales price by 54.5%. In 2007 the Company’s revenues from CIS petroleum product sales slightly increased by 55.9% to US$ 820 million compared to US$ 526 million in 2006. This was due to an increase in sales prices by 9.2% accompanied by an increase in sales volumes by 46.2%
PETROLEUM PRODUCTS DOMESTIC SALES. In 2008 the Company’s revenues from domestic petroleum product sales increased by 69.2% to US$ 10,307 million compared to US$ 6,093 million in 2007. This growth was primarily due to an increase in sales prices by 44.4% and a 17.2% increase in sales volumes. The price increase was driven by the general growth in world prices.
In 2007 the Company’s revenues from domestic petroleum product sales increased by 31.8% to US$ 6,093 million compared to US$ 4,622 million in 2006. This growth was primarily due to an increase in sales prices by 17.1% and a 12.6% increase in HYDROCARBON EXTRACTION EXPENSES. Our hydrocarbon extraction expenses include expenditures related to raw materials sales volumes. The price increase was driven by the general growth in world prices. and supplies, maintenance and repairs of extraction equipment, labor costs, fuel and electricity costs, activities to enhance oil recovery and other similar costs at our extraction subsidiaries. OTHER SALES. Other revenues consist primarily of sales of services such as transportation, construction, utilities and other services and are recognized when goods are provided to customers and services are performed providing that the price In 2008 the Company’s extraction expenses increased by 0.6% to US$ 1,416 million compared to US$ 1,408 million in for the service can be determined and no significant uncertainties regarding realization exist. 2007. This was primarily due to an increase in expenses for energy supply, workovers, materials and labor. The Company’s average hydrocarbon extraction cost per barrel of oil equivalent increased from US$ 5.55 to US$ 5.86, or by 5.6% compared Other sales were US$ 665 million in 2008 that is 27.9% higher compared to the same period of 2007 (520 US$ million in 2007 to 2007. which is 112.2% higher than in 2006). The increase was a result of the growth in other sales and services provided to third parties in Russia. In 2007 the Company’s extraction expenses increased by 15.9% to US$ 1,408 million compared to US$ 1,215 million in 2006. This increase is primarily due to an increase in expenses for energy supply, workovers, materials and labor. The Company’s COSTS AND OTHER DEDUCTIONS average hydrocarbon extraction cost per barrel of oil equivalent increased from US$ 4.75 to US$ 5.55, or by 16.8% compared CRUDE OIL, PETROLEUM AND OTHER PRODUCTS PURCHASED. In 2008 cost of purchased crude oil, gas and petroleum to 2006. products increased by 111.2% to US$ 8,296 million compared to US$ 3,928 million in 2007. The growth was primarily due to the acquisition of our 50% interest in Tomskneft, which resulted in an increase in crude oil purchases in the domestic OWN REFINING EXPENSES. In 2008 the Company’s refining expenses at our own refinery increased by US$ 28 million, or market by 42.7% (32.5 million barrels) in 2008. 9.9%, compared to 2007. This resulted primarily from increase in expenses for electricity and other operating costs due to inflation and because of an increase in the refinery throughout 11.5 % in 2008. The Company’s average refining expenses In 2007 cost of purchased crude oil, gas and petroleum products slightly increased by 6.0% to US$ 3,928 million compared per barrel at own refinery decreased from US$ 2.33 to US$ 2.30, or by 1.3% in 2008 due to an increase in the volumes of to US$ 3,705 million in 2006. The growth was primarily due to an increase in world prices for crude oil. petroleum products produced.
OPERATING EXPENSES. The main cost drivers of the Company’s operating expenses are the growth of hydrocarbon extraction In 2007 the Company’s refining expenses at our own refinery increased by US$ 56 million, or 24.8%, compared to 2007. This expenses and refining costs at own and equity investee refineries. The effective cost control policy implemented by the was primarily due to an increase in expenses for electricity and other operating costs due to inflation and because of growth Company helped us to hold the level of operating costs growth in 2008 to 4.0% compared to 2007. In 2007 operating expenses in production volumes of 1.2 % in 2006. The Company’s average refining expenses per barrel at own refinery increased from increased by 21.2% compared to 2006 (table 15). US$ 1.89 to US$ 2.33, or by 23.3% in 2007.
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REFINING EXPENSES AT EQUITY INVESTEE REFINERIES. In 2008 the Company’s refining expenses at equity investee refineries increased by US$ 43 million, or 14.8%, compared to 2007. This resulted primarily from increased cost of processing services due to higher electricity costs. The Company’s average refining expenses per barrel at equity investee refineries increased from US$ 4.09 to US$ 4.51 per barrel, or by 10.3%, compared to 2007.
In 2007 the Company’s refining expenses at equity investee refineries increased by US$ 97 million, or 50.0%, compared to 2006. This resulted primarily from increased cost of processing services due to higher electricity costs. The Company’s average refining expenses per barrel at equity investee refineries increased from US$ 3.27 to US$ 4.09 per barrel, or by 25.1%, compared to 2006.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses include general business expenses, wages, salaries, social benefits (except for wages and salaries at our production and refining subsidiaries), insurance, banking commissions, legal fees, consulting and audit services, charity, allowances for doubtful accounts and other expenses.
In 2008 the Company’s selling, general and administrative expenses increased by 23.3% to US$ 1,078 million compared to US$ 874 million in 2007. This growth was due to an increase in the Company’s activities and overall increase in selling expenses.
In 2007 the Company’s selling, general and administrative expenses increased by 55.2% to US$ 874 million compared to US$ 563 million in 2006. This growth was due to an increase in the Company’s activities and overall increase in selling expenses.
TRANSPORTATION EXPENSES. Transportation expenses consist of the costs of delivering crude oil to refineries and crude oil and petroleum products to final customers. These costs consist of pipeline transportation, sea freight, railway, shipping, handling and other costs.
ANNUAL REPORT 88 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 PERFORMANCE PERFORMANCE AND FINANCIAL INDICATORS AND FINANCIAL INDICATORS
In 2008 our transportation expenses increased by 29.9% to US$ 1,661 million compared to US$ 1,279 million in 2007. This Table 16. EXPORT DUTIES growth was due to an increase in transportation tariffs, volumes of crude oil and petroleum products transported. in US$ million Change % 2008 2007 2006 2008/2007 2007/2006 In 2007 our transportation expenses slightly decreased by 5.1% to US$ 1,279 million compared to US$ 1,348 million in 2006. • Export customs duties for crude oil 4,876 2,348 3,371 107.7 (30.3) This change was due to a decrease in sales volumes of crude oil by 8.1% accompanied by an increase in sales of petroleum • Export customs duties for petroleum products 1,657 1,023 1,298 62.0 (21.2) products volumes by 5.1% Total export customs duties 6,533 3,371 4,669 93.8 (27.8)
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and amortization expenses include depletion of oil Table 17. TAXES OTHER THAN INCOME TAXES and gas producing assets and depreciation of other fixed assets. in US$ million Change % 2008 2007 2006 2008/2007 2007/2006 In 2008 our depreciation, depletion and amortization expense was US$ 1,309 million compared to US$ 929 million for 2007, • Mineral extraction taxes 4,202 3,139 2,719 33.9 15.4 an increase of US$ 380 million, or 40.9%. The increase was a result of the growth in depreciable assets due to the Company’s • Excise 828 681 138 21.6 393.5 capital expenditure program. • Property tax 107 87 70 23.0 24.3 In 2007 our depreciation, depletion and amortization expense was US$ 929 million compared to US$ 803 million for 2006, an • Other taxes 85 91 13 (6.6) 600.0 increase of US$ 126 million, or 15.7%. The increase was a result of the Company’s capital expenditure program, acquisitions Total taxes other than income tax 5,222 3,998 2,940 30.6 36.0 and significant increase in depreciable assets.
EXPORT DUTIES. Export customs duties include duties related to the export of both crude oil and petroleum products. In 2008 export customs duties increased by 93.8% to US$ 6,533 million compared to US$ 3,371 million in 2007. The growth was due to an increase in export custom duty rate for crude oil by 68.3% and for petroleum products by 62.0%. The increase in export custom duty was attributable to the growth in Urals price by 36.9% and an increase in export and CIS volumes of crude oil by 8.0% and 31.9% due to the acquisition of 50% interest in Tomskneft (table 16). COST OF OTHER SALES. Cost of other sales increased by 46.3% and 710.0% in 2008 and 2007, respectively, compared In 2007 export customs duties decreased by 27.8% to US$ 3,371 million compared to US$ 4,669 million in 2006. The decline to the previous comparative periods. The increase was primarily due to a result of the growth in other sales and services was due to a decrease in export and CIS sales volumes of crude oil by 17.1% and 3.7% which was offset by a slight increase provided. in Urals price by 13.0%. INCOME FROM EQUITY AFFILIATES. The Company accounts its investments in Slavneft, Tomskneft, Moscow Refinery using TAXES OTHER THAN INCOME TAXES. In 2008 taxes other than income tax increased by 30.6% to US$ 5,222 million compared the equity method. These companies are primarily engaged in crude oil exploration, production and refining in the Russian to US$ 3,998 million in 2007. This growth was a result of the increase in mineral extraction tax rate on crude oil by 38.5% and domestic market. due to the increase in excise caused by increase in volumes of production of petroleum products by 8.5% (table 17). In 2008 income from equity affiliates reduced by 0.2% to US$ 407 million compared to the corresponding period of 2007. In 2007 taxes other than income tax increased by 36.0% to US$ 3,998 million compared to US$ 2,940 million in 2006. This growth was a result of the increase in mineral extraction tax rate on crude oil by 16.0% and changes in the Russian tax In 2007 income from equity affiliates decreased by 19.5% to US$ 408 million compared to the corresponding period of 2006. legislation for excise on oil products. INTEREST INCOME. In 2008 and 2007 interest income increased by 6.4% and 141.0% to US$ 100 million and US$ 94 million, EXPLORATION EXPENSES. Exploration expenses include seismic, geophysical and exploratory drilling costs (including costs respectively, compared to the previous comparative periods. This was due to an increase in cash and deposits placed in associated with stratigraphic test wells). Exploration drilling costs are temporarily capitalized pending determination of banks during the related periods. whether proved oil and gas reserves have been found, which justify further commercial development. If such reserves are not found, the drilling costs are charged to exploration expenses in the period when a determination is made that such costs INTEREST EXPENSE. In 2008 interest expense increased by 12.1% to US$ 167 million compared to US$ 149 million in 2007. have not resulted in additional proved oil and gas reserves. The increase was attributable to obtaining a US$ 1 billion syndicated loan in May and July of 2008.
In 2008 and 2007 our exploration costs increased by 4.9% and 72.0% to US$ 193 million and US$ 184 million, respectively. In 2007 interest expense increased by 18.3% to US$ 149 million compared to US$ 126 million in 2006. The increase was The growth was due to increased volume of exploration services in order to expand the Company’s reserve base. attributable to obtaining US$ 2.2 billion syndicated loan in September 2007.
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INCOME TAX EXPENSES. In 2008, 2007 and 2006 effective income tax rate was 23.9%, 24.1% and 24.6. In 2008 effective Table 18.RECONCILIATION OF NET INCOME TO EBITDA (EARNINGS BEFORE INTEREST, INCOME TAX, income tax rate was slightly lower than a statutory tax rate in Russia due to the change in income tax rate from 24% to 20% DEPRECIATION AND AMORTIZATION) and non-deductible permanent differences during the period indicated. in US$ million 2008 2007 2006 Net income 4,658 4,143 3,661 EBITDA represents earnings before interest, income tax, depreciation and amortization. EBITDA is a supplemental non- Add back: • Minority interest 39 - - GAAP financial measure used by management, as well as industry analysts, to evaluate operations. Management believes • Income tax expense 1,464 1,315 1,193 that EBITDA represents useful means of assessing the performance of the Company’s ongoing operating activities, as it • Depreciation, depletion and amortization 1,309 929 803 reflects the Company’s earnings trends without showing the impact of certain charges. • Interest income (100) (94) (39) • Interest expense 167 149 126 EBITDA is not used by management as an alternative to net income as an indicator of the Company’s operating • Other income (expenses), net (89) (45) 6 performance, as an alternative to any other measure of performance in conformity with US GAAP or as an alternative to • Foreign exchange (loss) gain, net 517 (161) (74) cash flow from operating activities as a measure of liquidity. EBITDA does not have a standardized meaning prescribed EBITDA 7,965 6,236 5,676 by US GAAP (table 18). Table 19. CASH FLOWS LIQUIDITY AND CAPITAL RESOURCES in US$ million Change % NET CASH PROVIDED BY OPERATING ACTIVITIES. In 2008 net cash provided by operating activities was US$ 5,444 million 2008 2007 2006 2008/2007 2007/2006 as compared to US$ 5,316 million in 2007. The increase of US$ 128 million or 2.4% in net cash provided by operating • Net cash provided by operating activities 5,444 5,316 3,320 2.4 60.1 activities is due to the following (table 19): • Net cash used in investing activities (3,463) (5,636) (1 864) (38.6) 202.4 • Net cash used in financing activities (566) (320) (440) 76.9 (27.3) • a growth in net income of US$ 515 million and depreciation, depletion and amortization increase of US$ 380 million accompanied by an decrease in income from equity investees of US$ 101 million resulted in higher operating cash flow in 2008 compared to 2007; • a US$ 265 million net decrease in accounts receivable and payable; • an increase in inventory of US$ 173 million was a result of the increase in balances of purchased and produced crude oil and petroleum products; • a US$ 901 million decrease in income and other taxes payable. • an increase in purchase of investments during 2007 by US$ 3,623 million of cash used primarily due to the acquisition In 2007 net cash provided by operating activities was US$ 5,316 million as compared to US$ 3,320 million in 2006. of 50% interest in Tomskneft in December 2007; The increase of US$ 1,996 million or 60.1% increase in net cash provided by operating activities is due to the following: • a significant increase of capital expenditures by US$ 687 million in 2007 compared to 2006, which was due to necessity • a growth in net income of US$ 482 million and depreciation, depletion and amortization increase of US$ 126 million and to maintain the Company’s production on existing fields and development of the related infrastructure. an increase in income from equity investees of US$ 111 million resulted in higher operating cash flow in 2007 compared to 2006; NET CASH USED IN FINANCING ACTIVITIES. In 2008 net cash used in financing activities was US$ 566 million as compared • a US$ 1,026 million net decrease in accounts receivable and payable; to US$ 320 million of net cash used in financing activities for the same period of 2007. The increase of US$ 246 million • a US$ 360 million increase in income and other taxes payable. or 76.9% was due to net loans proceeds and repayments (US$ 271 million in 2008 as compared to US$ 1,751 million in 2007), which is partially offset by amount of dividends paid (by US$ 1,279 million less in 2008 as compared to 2007). NET CASH USED IN INVESTING ACTIVITIES. In 2008 net cash used in investing activities was US$ 3,463 million compared In 2007 net cash used in financing activities decreased by US$ 120 million as compared to US$ 440 million in 2006. The to US$ 5,636 million in 2007 (or 38.6% decrease). These changes in the net cash used in investing activities were due decrease was due to the healthy increase of dividends paid - US$ 2,071 million in 2007, which was partially offset by net to acquisition of 50% interest in Tomskneft in December 2007 and due to an increase of capital expenditures by US$ 1,115 loans proceeds and repayments (US$ 1,751 million in 2007 as compared to US$ 162 million in 2006). million in 2008 compared to 2007, which was due to the necessity to maintain the Company’s production on existing fields and development of the related infrastructure. CAPITAL EXPENDITURES. In 2008 the Company’s capital expenditures increased by 50.4% to US$ 3,327 million as compared to US$ 2,212 million in 2007. The growth was primarily driven by the exploration and production and refining activities. In 2007 net cash used in investing activities was US$ 5,636 million against US$ 1,864 million in 2006 (or three times increase). Exploration and production increased by 45.7% to US$ 2,979 million due to the rapid development of Priobskoe oilfield, These changes in the net cash used in investing activities consist primarily of:
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Table 20. CAPITAL EXPENDITURES in US$ million Change % 2008 2007 2006 2008/2007 2007/2006 • Exploration and production 2,979 2,045 1,394 45.7 46.7 • Refining 189 107 43 76.6 148.8 • Marketing and distribution 159 60 88 163.3 (31.8) Total capital expenditures 3,327 2,212 1,525 50.4 45.0
refining - by 76.6% to US$ 189 million in 2008 compared to 2007. The increase in refining segment was a result of the modernization program launched at the Omsk Refinery.
In 2007 the Company’s capital expenditures increased by 45.0% to US$ 2,212 million as compared to US$ 1,525 million in 2006. The growth was primarily driven by the exploration and production and refining activities. Exploration and production increased by 46.7% to US$ 2,045 million due to the rapid development of Priobskoe oilfield, refining - by 148.8% to US$ 107 million in 2007 compared to 2006. The increase in refining segment was a result of the modernization program launched at the Omsk Refinery (table 20).
RECENT VOLATILITY IN GLOBAL FINANCIAL MARKETS. The ongoing global liquidity crisis has resulted in, among other things, a lower level of capital market funding and lower liquidity levels across the Russian Federation. The uncertainties in the global financial market, has also led to bank failures and or bank rescues.
While the Russian government has introduced a range of stabilization measures aimed at providing liquidity and supporting debt refinancing for Russian banks and companies, such circumstances could affect the ability of the Company to obtain new borrowings and re-finance its existing borrowings at terms and conditions similar to those applied to earlier transactions. Additionally, the uncertainty in the global markets combined with other local factors has led to very high volatility in the Russian Stock Markets during 2008.
Management is unable to reliably determine the effects on the Company’s future financial position, results of operations or cash flows as a result of the ongoing crisis. Management believes the Company’s current and long-term investment and capital expenditures program can be funded through cash generated from existing operations.
Management also believes the Company has the ability to obtain syndicated loans and other financings as needed to fund business acquisitions and other transactions that may arise in the future.
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MAJOR RISK FACTORS
RISK MANAGEMENT POLICY OF THE COMPANY RISKS ASSOCIATED WITH POTENTIAL CHANGES IN OIL AND PETROLEUM PRODUCT PRICES In 2008 JSC Gazprom Neft developed a Risk Management Policy setting out the risk management principles and objectives The financial performance indicators of the Company are directly related to the level of oil and petroleum product prices. for the purpose of enhancing the efficiency of the Company’s operations in the short and long-term. The main Policy The Company cannot control prices for its products which depend on the supply and demand balance as well as actions implementation tool is the introduction of an integrated risk management system (IRMS) covering all levels and areas of the of Russian regulatory authorities. Company’s operations. The major consequence of a drop in oil and petroleum product prices is deterioration of corporate financial indicators. INDUSTRY RISKS To reduce adverse exposure to the above risks the Company has taken the following measures: The oil-and-gas industry is critical for the budget of the Russian Federation. Development of the industry is among the state • has developed comprehensive measures for reducing the cost of mineral production; priorities. • has introduced a flexible commodity flow distribution system allowing the Company to promptly and timely redistribute commodity flows in the event of a gap in oil and petroleum product prices between the foreign and domestic markets; The main industry development prospects are related to putting onstream new oil-and-gas fields and creating high-tech • has a business planning system which is based on a scenario approach to identifying the key performance indicators production facilities for deep hydrocarbon processing, which will ensure comprehensive and rational use of hydrocarbons of the Company dependent on the level of world oil prices. This approach enables the Company to reduce costs, among with maximum recovery of valuable components. other things, by scaling back or postponing its investment programs. It should be noted that against the backdrop of stable oil consumption levels and absence in the mid-term of any alternative These measures allow the Company to reduce risks to an acceptable level and perform the obligations assumed. fuel sources capable of largely replacing oil and petroleum products, no serious deterioration of the situation in the industry is expected. RISKS ASSOCIATED WITH POTENTIAL CHANGES IN THE PRICES OF TARGET RAW MATERIALS AND SERVICES INDUSTRY COMPETITION RISKS In the course of its business, JSC Gazprom Neft uses the infrastructure of monopoly providers of oil, petroleum product The oil-and-gas industry is known for tough competition between the leading Russian oil-and-gas companies in the main transportation, and energy supply services. areas of production and economic operations, including:
The Company has no control over the infrastructure of such monopoly providers which may potentially lead to the risks of • obtaining subsoil licenses for hydrocarbon production at the biddings organized by Russian government authorities; a logistics system failure or disruptions of operations. • acquisition of other companies that hold subsoil licenses for hydrocarbon production or existing assets associated with hydrocarbon production; The rates of monopoly providers are regulated by the appropriate regulatory authorities of the Russian Federation: and yet, • engagement of leading independent service companies; they are raised annually, this resulting in growing costs for the Company. • purchase of high-tech equipment; • purchase of existing retail network enterprises and land plots for the construction of new ones; To reduce exposure to these risks the Company: • expansion of sales markets and volumes.
• performs long-term planning of commodity flows, timely reserves oil and petroleum product throughput volumes Implementation of a portfolio of strategic projects aimed at the development of JSC Gazprom Neft across the key areas and required rolling stock; of operation enables the Company to strengthen its competitive positions in the oil-and-gas industry and reduce industry • conducts optimal redistribution of commodity flows by type of transport; competition risks. • takes measures to use alternative and own power generation sources; EXPLORATION RISKS These measures allow the Company to reduce risks associated with the use of services and goods acquired from monopoly The key strategic goal of the Company is to increase its hydrocarbon resource base in quantity and in quality to ensure providers to an acceptable level and to ensure continuing operation of the Company. an adequate production level which, in its turn, is largely dependent on the success of exploration activities.
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The major exploration risk is failure to confirm the estimated hydrocarbon reserves. An important factor is the conduct of exploration in different geographical regions, including areas with adverse climatic conditions, which often incurs the risk of cost growth.
At the same time, JSC Gazprom Neft has an extensive experience in conducting exploration work and using state-of-the- art hydrocarbon prospecting and exploration methods as well as advanced drilling and field infrastructure development technologies, which, as a result, reduces the probability of such risks. COUNTRY AND REGIONAL RISKS POLITICAL RISKS As of now the political situation in Russia is stable which is characterized by the sustainability of the federal and regional branches of power.
JSC Gazprom Neft is registered as a taxpayer in Saint-Petersburg which is the administrative center of the North-Western Federal District.
JSC Gazprom Neft is represented by subsidiaries in the North-Western, Siberian, Urals, Far-Eastern and Central Federal Districts.
At the moment the probability of risks associated with changes in the political situation in the country is insignificant.
FOREIGN ASSET RISKS Expansion into new regions is associated for JSC Gazprom Neft with the possibility of getting extra advantages as well as with the risks of misjudging the political and economic situation in the countries where the Company holds assets, which may result in the loss of assets and failure to meet the target efficiency indicators.
The first step was the establishment of Gazprom Neft Asia LLC in Kyrgyzia. An operator of 102 filling stations, Gazprom Neft Asia LLC is already firmly established in the Kyrgyz market.
Furthermore, JSC Gazprom Neft set up distribution enterprises in Kazakhstan – Gazpromneft Kazakhstan LLP and Tajikistan – Gazpromneft Tajikistan LLC, which allows JSC Gazprom Neft to become an important player among petroleum product sellers in the Asian market.
JSC Gazprom Neft is also one of the co-founders of the Burgas-Alexandroupolis Pipeline Consortium. Construction of the namesake pipeline will allow JSC Gazprom Neft to transport oil and petroleum products bypassing the Turkish Straits which will significantly lower transportation expenses.
In December 2008 JSC Gazprom Neft closed the purchase deal for a 51% interest in Serbian company Naftna Industrija Srbije (NIS).
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NIS is one of the largest vertically integrated oil companies in Central Europe: its total oil production is estimated at 1 mln resources by drawing loans from Vnesheconombank (under Law № 173-FZ “On Additional Measures for Supporting tons a year, total refining capacity – at 7.3 mln tons a year. the Financial System of the Russian Federation”, dated October 13, 2008) and Sberbank. There are plans to use also other instruments enabling diversification of financing. NIS’s producing assets are located in Serbia and Angola and refineries – in Serbia (in the cities of Pancevo and Novi-Sad). CURRENCY RISK In the recent years the political situation in the countries where the Company holds its foreign assets can be regarded The greater part of the Company’s gross revenues are generated by oil and petroleum product export operations but as stable. at the same time part of the Company’s liabilities are denominated in hard currency, which is a risk factor. However, thanks to the fact that currency revenues significantly exceed the volume of currency liabilities the adverse risk exposure is thereby At the moment JSC Gazprom Neft views the level of foreign asset risks as acceptable, however, negative changes cannot neutralized (natural hedge). be ruled out, since said risks are beyond the Company’s control. Since liabilities and assets are denominated in different currencies, the Company is exposed to the currency exchange risk. FINANCIAL RISKS However the Company hedges these risks and, additionally, in each specific situation draws upon internal financial risk management instruments and reserves, allowing it to effectively manage the currency risk and guarantee the performance Financial risk management at the Company is performed by Company employees in accordance with their professional of its obligations. fields of activity.
The Financial Risk Management Committee outlines a uniform approach to financial risk management at the Company and INTEREST RATE RISK its subsidiaries. This approach is based on reducing the level of risk exposure and probability of risk occurrence through As a borrower the Company is exposed to interest rate risks. The main source of borrowing is the international financial implementation of appropriate measures and control procedures. market. The debt portfolio is denominated primarily in US dollars. The interest rate for a small portion of these loans (the share is not fixed and may vary) is based on interbank LIBOR rates, which, if raised, may result in higher debt servicing costs The work performed by Company employees and the Financial Risk Management Committee is instrumental in reducing for the Company. An increase in the cost of loans for the Company may adversely affect the creditworthiness and liquidity potential financial damage to the Company and meeting the objectives set. indicators. However currently the LIBOR rate is in a long-term downward trend which, coupled with a small share of LIBOR- based loans, allows us to speak of a low exposure of the Company to the interest rate risk. CREDIT RISK Management of the Company pays increased attention to credit risk management. The Company has implemented a range INFLATION RISK of measures providing for effective monitoring and management of this risk, including: counterparties’ creditworthiness Inflation risk is taken into account in the preparation of the Company’s financial plans. The current and projected evaluation, dealing with receivables by line of business, and other measures. inflation rates are far from critical for the Company and the industry on the whole, hence the impact of inflation factors on the financial stability of the Company does not look significant in the long-term. These actions allow Management of the Company to be assured that at the moment there are no significant risks of damage exceeding the amount of accumulated reserves. LEGAL RISKS JSC Gazprom Neft operates in strict compliance with the civil, tax, customs and currency legislation. The Company places funds on deposit with a number of Russian banks and branches of international banks. The Company has a Policy which is used to regularly evaluate the creditworthiness of the banks holding its deposits and to rank these The Company cannot guarantee there will be no adverse changes in Russian legislation in the long-term, since most risk banks by reliability. factors are beyond the Company’s control.
BORROWING RISK The adverse exposure to this category of risks is reduced by monitoring and timely responding to the changes made In connection with the world financial crisis many Russian companies have encountered the problem of borrowing. This to different sections of legislation as well as by active interaction with legislative and executive authorities, and public risk is effectively managed by JSC Gazprom Neft. In particular, in 2009 the Company has already received required credit organizations over the interpretation and improvement of legislation.
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RISK ASSOCIATED WITH CURRENCY REGULATION CHANGES The Company is a participant of foreign economic relations. Part of the Company’s assets and liabilities are denominated in foreign currency, therefore any general changes in the currency regulation mechanism made by the state may affect the financial and economic operations of the Company.
Having said that, today the currency regulation of the Russian Federation is significantly liberalized, which is attributable to the general policy of the state designed to ensure free convertibility of the ruble. The conducted liberalization of currency regulation reduces the risks of adverse consequences for the Company’s operation associated with future changes in the currency legislation.
RISK ASSOCIATED WITH TAX LEGISLATION CHANGES JSC Gazprom Neft is one of the top taxpayers whose operations are based on the principles of good faith and tax transparency.
The Company bears the burden of paying value-added tax, income tax, mineral extraction tax, property tax, land tax, unified social tax, subsoil use fees.
In the course of business the Company performs online monitoring of tax legislation changes, changes in the application of current provisions; it also acts as an expert in the law-making process by assessing and developing draft laws, including tax ones.
In view of the crisis the Government provides assistance to Russian business and oil companies. In addition to cutting the income tax rate from 24% to 20%, a number of other measures having a positive effect on the industry have been adopted:
• As regards mineral extraction tax, the cut-off price has been increased from 9 to 15 USD per barrel; • Obstacles to applying depletion and oil viscosity allowances have been removed; • Depreciation bonus for new capital assets has been increased; • License amortization period has been reduced to two years; • Reference period for calculation of oil and petroleum product duties has been reduced from two months to one.
This package of measures allows oil companies to count on additional sources of investment in the low oil price environment.
JSC Gazprom Neft assesses and forecasts the extent of potential adverse impact of tax legislation changes, directing its efforts to minimize the related risks.
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RISKS ASSOCIATED WITH CHANGES IN CUSTOMS REGULATIONS AND DUTIES JSC Gazprom Neft is a participant of foreign economic relations, hence it is exposed to risks associated with changes JSC Gazprom Neft does not appear to be directly exposed to any legal risks associated with the loss of the right to use in the legislation governing foreign economic activities as well as the Customs Legislation governing relations with respect subsoil plots or violation of the current legislation, resulting from the above changes. to establishment of the procedure for transfer of goods through the customs border of the Russian Federation, imposition and application of customs regimes, imposition, introduction and collection of customs payments. RISKS ASSOCIATED WITH CHANGES IN COURT PRACTICE REGARDING ISSUES RELATED TO THE COMPANY’S BUSINESS The history and nature of changes made to the Customs Legislation since the enactment of the Tax Code of the Russian JSC Gazprom Neft regularly monitors decisions made by the supreme courts and evaluates the trends in law enforcement Federation (effective from January 1, 2004) allows us to view the customs legislation of the Russian Federation as one of the practice taking shape at the level of district arbitration courts, actively using and employing it not only to protect in court its most stable sections of Russian legislation. rights and legal interests but also to resolve any legal issues arising in the course of the Company’s business. In view of this, One can single out as a risk the possibility that the Government of the Russian Federation will change customs duty rates the risks associated with changes in court practice are estimated as insignificant. (both export and import) for specific goods, in respect of which JSC Gazprom Neft signs foreign trade deals. The major adverse consequence of this risk, if realized, will be higher costs and lower export efficiency. RISKS ASSOCIATED WITH VIOLATION OF ANTIMONOPOLY LEGISLATION REQUIREMENTS The Company complies with the customs control requirements, timely executes all documents necessary for the performance In September 2008 the Commission of the Federal Antimonopoly Service (FAS) of the Russian Federation found the Company of both export and import operations and has sufficient financial and personnel resources to observe the customs rules in violation of an antimonopoly legislation requirement. Based on its decision, the FAS assessed the Company an administrative and regulations. penalty of 1.357 bn rubles. Seeing the decisions made by the FAS as illegal and unjustified, the Company applied to arbitration courts seeking to annul the decision on violation by the Company of the antimonopoly legislation and the penalty assessment ruling. RISKS ASSOCIATED WITH CHANGES IN LICENSING REQUIREMENTS FOR CORE BUSINESS In January 2009 the Saint-Petersburg and Leningrad Region Arbitration Court annulled the FAS ruling on assessment Development of the modern subsoil legislation is based on detailed regulation of the subsoil use processes by the state, of an administrative penalty on the Company. The decision has not become effective, as an appeal was filed. As of 10.04.2009 on the need to enhance the rational use of subsoil plots, need for strict compliance with the environmental legislation. hearing of the case in the appellate instance was put on hold.
JSC Gazprom Neft conducts its operations in the license plots in compliance with the strict requirements of the Russian The case for the annulment of the FAS Commission’s decision on violation of the antimonopoly legislation by the Company subsoil legislation, updating its license agreements subject to changes in the current legislation. is being heard by the Moscow Arbitration Court. As of 10.04.2009 no decision was made in the case. The current law of the Russian Federation “On Subsoil” has been supplemented to include a list of grounds for transferring the right to use subsoil plots and for reissuing subsoil licenses. The right to use a subsoil plot may now be transferred ENVIRONMENTAL RISKS from the parent to a subsidiary, from a subsidiary to the parent and between subsidiaries of the same parent. In this case, JSC Gazprom Neft’s operations involve a potential risk of environmental damage or contamination which may result in civil the transferee legal entity must comply with the requirements for subsoil users set forth in Russian legislation. liability and the need to carry out works to eliminate such damage.
The above changes can be viewed on the whole as positive, since Russian legislation has been revised to include provisions The Company is fully aware of its responsibility to society for the creation of safe working conditions and preserving the allowing the transfer of a license within a group which enables JSC Gazprom Neft to optimize its license management environment, continuously controls its operations to ensure compliance with the appropriate environmental standards, system. implements environmental protection programs.
JSC Gazprom Neft works to analyze and evaluate the legislative initiatives of the interested ministries and departments The environmental policy of JSC Gazprom Neft is designed to ensure compliance with the requirements of the current concerning the subsoil legislation and the licensing of specific operations. The proposed and discussed amendments environmental legislation by investing considerable funds in the implementation of environmental protection measures, to the current legislation will have an overall positive effect on the regime of subsoil use and on the performance of licensable including employment of technologies minimizing the negative environmental impact. As a result of such activities, operations in the Russian Federation. the probability of environmental contamination risks has significantly diminished.
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CORPORATE GOVERNANCE
As one of the largest and most rapidly growing Russian oil-and-gas companies, JSC Gazprom Neft recognizes the objective The general management of the Company’s operations is the responsibility of the Board of Directors, whose main functions importance and significance of maintaining a high level of corporate governance to be successful in running the business, are to ensure the exercise and protection of the shareholders’ rights, provide for long-term growth of the Company’s reduce investment risks, increase competitiveness, shareholder value and investment appeal of the Company. shareholder value, create effective mechanisms of internal control over the financial and economic activities and a risk management system, ensure timely, full and fair disclosures. The Company is making its best efforts to achieve maximum compliance not only with Russian but also international standards of corporate governance, continuing to work on improvement of its corporate governance system. The management of the day-to-day operations of the Company is the responsibility of the executive bodies: Director General (sole executive body) and Management Board (collective executive body). The Company models its operations after the best international corporate relations practices, being governed, first of all, by the principles of ensuring a high level of business ethics in relations with the shareholders, investors, employees, The governing bodies of the Company act within the scope of their competence clearly defined by the Charter. counterparties of the Company and other market participants and of compliance with the current Russian legislation, the Charter and bylaws, observing the generally accepted standards and principles of corporate governance. Over the reporting period the Company has held two General Shareholders’ Meetings, whose resolutions amended the Charter of the Company, among other things, extending the deadline for notifying the shareholders of General Shareholders’ The Company operates on the principle of ensuring effective protection of the rights and interests of Company shareholders, Meetings. The amendments adopted by Gazprom Neft evidence that the Company seeks to make sure that the principle fair treatment of all Company shareholders without exception, transparency of decision-making by the governing bodies of of observing the rights of its shareholders is realized as fully as possible. the Company, professional and ethical responsibility of the members of the governing and supervisory bodies to the Company, its employees and counterparties, expansion of information transparency and development of a system of business ethics standards. MEMBERSHIP OF THE BOARD OF DIRECTORS
By following the above principles the Company seeks to achieve a new level of corporate governance, develop positive A professional and effective Board of Directors held in confidence by the shareholders is viewed by the Company as the interaction between the governing bodies and shareholders of the Company, maintain sustainable growth of financial main element of high level corporate governance. Hence, the members of the Company’s Board of Directors are persons indicators, successfully perform its charter activities as well as to build a positive image of the Company in the eyes of its whose professional qualities and experience are not questioned by the shareholders or potential investors. The Board of shareholders, employees, counterparties and potential investors. Directors is headed by the Chairman of impeccable reputation and high professional qualification in Gazprom Neft’s area of business. The number of Board members is adequate to the scope of the Company’s operations and ensures the most The governance system of the Company is based on compliance with the current Russian legislation, the Charter and bylaws effective fulfillment of the functions assigned to the Board of Directors. of the Company as well as with the provisions of the Corporate Governance Code recommended for use by the Federal Commission for the Securities Market. On top of that, as a public company whose shares are traded on the Russian and The Company recognizes that one of the most important guarantees of observing and protecting the rights of its shareholders world stock exchanges, JSC Gazprom Neft fully complies with the requirements of the Russian stock exchanges. is to ensure maximum transparency of the Board member election procedure allowing the shareholders to get access to information about the Board member candidates and to freely exercise their right to elect this governing body. The supreme governing body of the Company, in accordance with the Russian legislation on joint-stock companies, is the General Shareholders’ Meeting acting on the basis of the Charter and the Regulation on the General Shareholders’ The Company recognizes the importance of having independent directors among the Board members in order to form Meeting. a balanced and objective position on the issues of the Board competence. Therefore, two of the directors on the Board meet
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the independence criteria recommended by the Corporate Code of Conduct of the Federal Commission for the Securities GOLUBEV Valeriy Alexandrovich Markets which fosters the confidence of potential investors in the Company. Born in1952 in Leningrad. After graduation from V. I. Ulyanov (Lenin) Leningrad Electrotechnical Institute in 1975, went to work at the Central Research Institute of Ship Electrical Engineering and To make the work of the Board of Directors as productive and effective as possible, some of its members are concurrently Technology. In 1979 enlisted to serve in the KGB of the USSR. In 1991 left for the Saint-Petersburg members of the governing bodies. That said, the Company maintains the balance recommended by the Federal Commission Administration. Worked as Head of Secretariat at the Mayor’s Office, Head of the Administration for the Securities Markets – members of the governing bodies account for 1/4th of the total Board membership. of Vasileostrovsky District, Chairman of the Tourism Committee. Graduated from the Academy of National Economy under the Government of the Russian Federation in 1996, defended a thesis in 1997, To best observe the principle that the Directors must act for the benefit of the Company, positions of the Board members and received a Ph.D. degree in economics. In April 2002 was elected by the Legislative Assembly of the Leningrad Region as Representative at the Federation Council of the Federal Assembly of the Russian at JSC Gazprom Neft are held by persons unrelated to any entities competing with the Company. Moreover, the elected Federation. In February 2003 was appointed Director General of Gazkomplektimpex LLC and elected directors notify the Company in good faith of any information about situations that may lead to a potential conflict a member of the Management Board, JSC Gazprom. Since March 2005 – Head of the Department of interest. for Investments and Construction, General Director of Gazkomplektimpex LLC, member of the Management Board, JSC Gazprom. Since November 2006 – Deputy Chairman of the Management The productiveness of the Board of Directors is ensured by effective interaction with Company officials resulting in timely Board, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not. provision to the Board members of all requested information necessary for balanced and informed decision-making. DUBIK Nikolai Nikolaevich As of December 31, 2008 the Company had the Board of Directors elected by resolution of the extraordinary General Born in 1971 in the town of Orekhovo-Zuyevo, Moscow Region. In 1993 graduated from the Shareholders’ Meeting of the Company on November 20, 2008, which includes: Law Faculty of Lomonosov Moscow State University. 1992 to 1997 Nikolai Dubik worked for the Constitutional Court of the Russian Federation as assistant and adviser to a judge of the Constitutional Court. Since 1997 employed at JSC Gazprom. In 2002 and 2003 held the positions of Head of the Directorate of Legal Support for International Business, from 2003 to 2008 – Deputy Head of the Legal Department. In 2008 appointed First Deputy Head and subsequently Head of Legal Department, JSC Gazprom. In June 2008 elected member of the Management Board, JSC Gazprom. 1st Class Counselor of Justice. Executive Director of Gazprom Finance B.V. and RosUkrEnergo AG. Authorized share capital (as at 31.12.2008) is not.
MILLER Alexei Borisovich (Chairman of the Board of Directors) DUKOV Alexander Valerievich Born in 1962 in Leningrad. Education: 1984 - N. A. Voznesenskiy Leningrad Finance and Economics Born in 1967 in Leningrad. After leaving school in 1985 he entered the Leningrad Order-of-Lenin Institute. 2000-2000 - Director General, Open Joint Stock Company “Baltic Piping System”. Shipbuilding Institute; From 1996 to 1998 Dukov held consecutive positions of Financial Manager and 2000-2001 - Deputy Minister of Energy of the Russian Federation. 2001-present - Chairman of the Chief Executive Director of JV CJSC Saint-Petersburg Oil Terminal. In 1998 was Economics Director, Management Board, Joint Stock Company Gazprom. Since 2002 – Deputy Chairman of the Board and during 1999 acted as Director General of JSC Sea Port Saint-Petersburg. In 2000 resumed work of Directors, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not. at JSC Saint-Petersburg Oil Terminal as Chairman of the Board of Directors. In 2001 received an IMISP MBA degree. In February 2003 was appointed President of JSC AK SIBUR. From July 2005 - also President of JSC AKS Holding. In November 2005 released from the office of President of JSC AK SIBUR. He is President of JSC AKS Holding and since December 2005 - also President of JSC SIBUR Holding. Since November 2006 - Chairman of the Board of Directors, JSC SIBUR Holding. From November 23, 2006 – Acting President of JSC Gazprom Neft. On December 30, 2006 was elected President of JSC Gazprom Neft at an extraordinary General Shareholders’ Meeting (since 19.11.2007 – Director General). Authorized share capital (as at 31.12.2008) is not.
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KRUGLOV Andrei Vyacheslavovich SELEZNEV Kyrill Gennadievich Born in 1969 in Leningrad. Education: 1994 - Saint-Petersburg Technological Institute of the Born in 1974 in Lengingrad. Education: 1997 - D.F. Ustinov Baltic State Technical University; 2002 Refrigeration Industry. 2000-2001 - Head of the Foreign Trade and Investment Division at the - Saint-Petersburg State University; 2000-2001 - Head of the Tax Policy Group of Open Joint Stock Foreign Economic Cooperation Department of the Foreign Relations Committee, St. Petersburg Company Baltic Pipeline System (BPS), then of a BPS branch - Verkhnevolzhskie Magistralnye Administration. 2001-2002 - Deputy Director, Invest-In Limited Liability Company. 2002-2003 - Head Nefteprovody. 2001-2002 - Deputy Head of the Management Board Administration – Assistant of the Corporate Finance Department, member of the Management Board, JSC Gazprom. 2003- to Chairman of the Management Board, JSC Gazprom; 2002-2002 - Head of the Department for 2004 - Head of Financial and Economic Department, member of the Management Board, JSC Marketing and Processing of Gas and Liquid Hydrocarbons, JSC Gazprom; 2002-present – Head of Gazprom. 2004-2004 - Acting Deputy Chairman of the Management Board - Head of the Financial the Department for Marketing and Processing of Gas and Liquid Hydrocarbons, member and Economic Department, member of Management Board, JSC Gazprom. 2004-present - Deputy of the Management Board, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not. Chairman of the Management Board - Head of the Financial and Economic Department, member of Management Board, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not.
PAVLOVA Olga Petrovna Marco ALVERA Born in 1953 in Vladivostok. Graduated from the Far Eastern State University in 1976. Candidate Born in 1975. Education: London School of Economics and Political Science. 2002-2004 - Assistant of Legal Sciences. From 2001-2002 - Assistant Professor of the Civil Law Department, Saint- to Chief Executive Officer , ENEL S.p.A Rome, Head of Corporate Strategy, ENEL S.p.A Rome. Petersburg State University; 2002-2003 - Deputy Head of the Economic Department of the President 2004-2005 - Chief Financial Officer, WIND TELECOMUNICAZIONI S.p.A. Rome. 2005-2006 - Assistant of the Russian Federation; 2003-2004 - Head of the Property Management and Corporate Relations to Chief Executive Officer for Special Projects, Eni S.p.A. Rome/Milan. 2006 -present - Senior Vice- Department, JSC Gazprom. 2004-present - member of the Management Board, JSC Gazprom, Head President of Supply & Portfolio Development, Gaz & Power Division Eni S.p.A. Milan. 2007 -present of the Property Management and Corporate Relations Department, JSC Gazprom. Authorized share - Project Manager Russian Development & Project Manager South Stream, Eni S.p.A. Moscow. capital (as at 31.12.2008) is not. Authorized share capital (as at 31.12.2008) is not.
PODYUK Vasiliy Grigorievich Claudio DESCALZI Born in 1946 in Kobaki Village of the Kosov District, Ivano-Frankovsk Region. Education: 1969 Born in 1955. 2002-2005 – Senior Vice-President of Italy, Africa and Middle East Geographic - Ivano-Frankovsk Oil and Gas Institute; 2000-2002 - Head of the Gas, Gas Condensate and Division, Exploration and Production Department, Eni S.p.A. 2006-present – Deputy Senior Director Oil Production & Processing Department, member of the Management Board, JSC Gazprom. of Operations and Senior Vice-President of Italy, Africa and Middle East Geographic Division, 2002-present - Head of the Gas, Gas Condensate and Oil Production Department, member Exploration and Production Department, Eni S.p.A.; 2006 – Chairman of Assominerari; 2006 – 2007 of the Management Board, JSC Gazprom. Authorized share capital (as at 31.12.2008) is not. – Senior Vice-President, Confindustria Energia. 2007-2008 – Deputy Senior Director of Operations, Exploration and Production Department, Eni S.p.A.; 2008-present – Senior Director of Operations, Exploration and Production Department, Eni S.p.A. Authorized share capital (as at 31.12.2008) is not.
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INFORMATION ON CHANGES IN THE MEMBERSHIP OF THE BOARD OF DIRECTORS IN THE REPORTING YEAR From the regular (annual) General Shareholders’ Meeting of the Company conducted on June 20, 2006 to election The Audit Committee ensures actual participation of Board members in exercising control and assists in establishing their of the Board of Directors that was in office as of the end of 2008, the Board of Directors of the Company was composed of: personal awareness with respect to the Company’s operations in the above areas.
Miller Alexei Borisovich (Chairman of the Board of Directors) As of December 31, 2008 the Audit Committee was composed of: Dubik Nikolai Nikolaevich Dukov Alexander Valerievich Kruglov Andrei Vyacheslavovich Golubev Valery Alexandrovich Pavlova Olga Petrovna Kruglov Andrei Vyacheslavovich Dubik Nikolai Nikolaevich Marco Alvera Pavlova Olga Petrovna THE PERSONNEL AND REMUNERATION COMMITTEE Podyuk Vasily Grigorievich The Personnel and Remuneration Committee assists the Board of Directors in reviewing the issues of corporate Seleznev Kyrill Gennadievich governance, personnel policy and social sphere. It is within the province of the Personnel and Remuneration Committee Stefano Cao to develop recommendations to the Board of Directors of the Company regarding the recruitment, keeping, incentivization and development of the Company’s human resources. Until June 20, 2008 the following were members of the Board of Directors of the Company elected by the extraordinary General Shareholders’ Meeting on November 19, 2007: As of December 31, 2008 the Personnel and Remuneration Committee was composed as follows:
Miller Alexei Borisovich (Chairman of the Board of Directors) Pavlova Olga Petrovna Golubev Valery Alexandrovich Kruglov Andrei Vyacheslavovich Kruglov Andrei Vyacheslavovich Dubik Nikolai Nikolaevich Pavlova Olga Petrovna Podyuk Vasily Grigorievich The activities of the Board of Directors’ Committees is minutely governed by the relevant Regulations setting out their goals, Seleznev Kyrill Gennadievich objectives, functions, membership, formation procedure and organization of their work. Chuichenko Konstantin Anatolievich Dukov Alexander Valerievich Marco Alvera ACTIVITIES OF THE BOARD OF DIRECTORS IN 2008 Stefano Cao 12 meetings of the Board of Directors were held in the reporting period, adopting resolutions which: COMMITTEES OF THE BOARD OF DIRECTORS • approved a bond issue program of the Company for a total of 35 bn rubles in order to attract financing for implementation of JSC Gazprom Neft’s investment program and to refinance the Company’s current liabilities; For the purpose of preliminary review and in-depth study of the most important issues falling within the competence of the • on the basis of proposals received from the shareholders, approved a list of candidate members for the Board Board of Directors and preparation of recommendations to the Board of Directors on such issues, the Board of Directors of Directors and the Audit Commission of the Company; of the Company has set up two committees: • following analysis of the issue by the Audit Committee, determined the amount of recommended distributable dividend income for 2007; THE AUDIT COMMITTEE • preliminarily approved the 2007 Annual Report of the Company; The Audit Committee assists the Board of Directors in exercising control over the financial and economic activities of the • approved new memberships of the Board of Directors’ Committees of the Company; Company; preparation and presentation of financial and other statements; their completeness and fairness; creation and • reelected the Management Board of the Company; effective operation of internal control and risk management systems; ensuring constructive communication with the external • on the recommendation of the Audit Committee, determined the amount of payment for the services of the Company’s auditor, bodies supervising the financial and economic activities of the Company; internal audit units of the Company; Auditor for 2008; compliance of the Company with the current legislation and approved bylaws. • approved interested-party transactions of the Company; • approved participation of the Company in other organizations.
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MEMBERSHIP OF THE MANAGEMENT BOARD ZILBERMINTS Boris Semenovich, Deputy Chairman of the Board, In accordance with the legislation on joint stock companies the management of day-to-day operations of the company Deputy Director General for Exploration and Production is assigned to the executive bodies constituting a key link of the corporate governance structure: Director General (sole Born in 1967 in Cherkassy. 1992 - graduated with distinction from the Geology Faculty of Gubkin executive body) and Management Board (collective executive body). Russian State University of Oil and Gas with a degree in “field geology of oil and gas”. 1997 - awarded a Masters Degree in economics at Southern Methodist University (Dallas, USA). Worked The executive bodies of the Company act for the benefit of the Company and its shareholders and are accountable to the as senior geologist of the Oil and Gas Production Workshop at JSC Noyabrskneftegaz, strategic Board of Directors and the General Shareholders’ Meeting. planning analyst at oil company “AMOCO-Eurasia” (Houston, USA), Senior Economics and Finance Adviser at oil consulting firm Gaffney, Cline and Associates (Olton, United Kingdom). From 2001 - Head of the Strategy Department, LUKOIL Overseas Service Ltd. in Kazakhstan. From November The main objectives of the executive bodies of the Company are: organization of day-to-day operations of the Company 2002 - Regional Director of LUKOIL Overseas Service Ltd. in Kazakhstan. Since February 2008 in accordance with the adopted financial and economic plan and efficient and timely implementation of resolutions of the - Deputy Chairman of the Board, Deputy Director General for Exploration and Production, JSC General Shareholders’ Meeting and the Board of Directors of the Company. Gazrpom Neft. Authorized share capital (as at 31.12.2008) is 0,0004218253%.
Director General of the Company is Alexander Valerievich Dukov. By virtue of his office Director General helms the Management Board of the Company composed of highly-qualified professionals possessing special knowledge and skills in the area of the Company’s business and sufficient management experience. KRAVCHENKO Kyrill Albertovich, Deputy Chairman of the Management Board, The Company’s policy regarding remuneration of the executive bodies is designed to incentivize top managers of the Deputy Director General for Organizational Matters Company into long-term and maximally productive work for the benefit of the Company. In view of this, the incentive system Born in 1976 in Moscow. 1998 - graduated with distinction from Lomonosov Moscow State University for the members of the executive bodies of the Company is based on the following principles: (sociology). 2002-2003 - studied at the Open British University (financial management), in 2003- 2004 – at IMD Business School. Doctor of Science in Economics, professor. Until 2000 worked in consulting, 2000-2004 - at YUKOS holding various positions in Moscow and Western Siberia. • the amount of remuneration is commensurate with the professional experience and qualification of the members 2001-2002 - employed with Schlumberger (under partnership program with NK Yukos) in Europe of the executive bodies of the Company; and Latin America. 2004-2007 – Administrative Director, JSC MHK Eurohim. Many times elected • the amount of remuneration is directly dependent on the results of operations achieved by the Company. member of the boards of directors of major companies. In April 2007 appointed Vice-President of JSC Gazprom Neft. Since January 2008 – Deputy Director General for Organizational Matters, JSC As of December 31, 2008 the members of the Management Board of the Company were:: Gazprom. Authorized share capital (as at 31.12.2008) is not.
DUKOV Alexander Valerievich, Director General, Chairman of the Management Board CHERNER Anatoliy Moiseevich, Deputy Chairman of the Management Board, Deputy Director General for Logistics, Refining and Distribution Born in 1967 in Leningrad. After leaving school in 1985 he entered Leningrad Order-of-Lenin Shipbuilding Institute; From 1996 to 1998 Dukov held consecutive positions of Financial Manager Born in 1954. 1976 - graduated from Groznyy Oil Institute with a degree in “chemical technology of and Chief Executive Director of JV CJSC Saint-Petersburg Oil Terminal. In 1998 was Economics oil and gas refining”. 1976-1993 – worked at the Sheripov Groznyy Refinery, where he rose through Director, and during 1999 acted as Director General of JSC Sea Port Saint-Petersburg. In 2000 the ranks from a machine operator to Director of the Refinery. 1996 - joined JSC NGK SlavNeft resumed work at JSC Saint-Petersburg Oil Terminal as Chairman of the Board of Directors. I as Head of the Oil and Petroleum Products Trading Department and was later appointed Vice- n 2001 received an IMISP MBA degree. In February 2003 was appointed President of JSC AK SIBUR. President of the company. Appointed Vice-President of Sibneft (from June 2006 – Gazprom Neft) for From July 2005 - also President of JSC AKS Holding. In November 2005 released from the office Refining and Distribution in April 2006. Since January 2008 - Deputy Chairman of the Management of President of JSC AK SIBUR. He is President of JSC AKS Holding and since December 2005 - also Board, JSC Gazprom Neft, Deputy Director General for Logistics, Refining and Distribution. President of JSC SIBUR Holding. Since November 2006 - Chairman of the Board of Directors, Authorized share capital (as at 31.12.2008) is not. JSC SIBUR Holding. From November 23, 2006 – Acting President of JSC Gazprom Neft. On December 30, 2006 was elected President of JSC Gazprom Neft at an extraordinary General Shareholders’ Meeting (since 19.11.2007 – Director General). Authorized share capital (as at 31.12.2008) is not.
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ANTONOV Igor Konstantinovich, member of the Board, YAKOLEV Vadim Vladislavovich, Deputy Chairman of the Management Board, Deputy Director General for Security Deputy Director General for Economics and Finance Born in 1951 in Leningrad. 1974 – graduated from Leningrad Institute of Aviation Instrument Born in 1970. 1993 - graduated from Moscow Engineering Physics Institute (in applied nuclear Engineering. 1977-1995 – served for the state security bodies. 1995 – 2000 – Director for Security physics). 1995 - graduated from Higher School of Finance at the International University in Moscow. and Information Protection, JSC Bank Saint-Petersburg. 2000-2005 – Director General, Saint- 1999 - qualified as a member of the Association of Chartered Certified Accountants (ACCA); 1995- Petersburg State Unitary Enterprise Informatika. From December 2005 – Vice-President for Security, 2000 - worked with PricewaterhouseCoopers, starting his career as a consultant and promoted JSC Sibneft. 2007- present – Deputy Director General for Security, JSC Gazprom Neft. Authorized to audit manager in 2000. 2001-2002 – held office of Deputy Head of the Financial and Economic share capital (as at 31.12.2008) is not. Department, CJSC YUKOS EP. 2003-2004 - Financial Director, JSC YuganskNeftegaz (NK Yukos). 2005-2006: - Deputy Director General for Economics and Finance, LLC SIBUR-Russian Tyres. Since December 2006 employed with JSC Gazprom Neft – first as Head of the Budget Planning Department, then, since January 2008, - as Deputy Chairman of the Management Board, JSC Gazprom Neft, Deputy Director General for Economics and Finance. Authorized share capital (as at 31.12.2008) is not.
DYBAL Alexander Mikhailovich, member of the Board, Director General for Corporate Communications Born November 3, 1966 in Leningrad. 1991 - graduated from Leningrad Electrotechnical Institute with a degree in “automatic control systems”. 1991-1995 and 1997-2001 – Commercial Director, Radio Baltica (St. Petersburg). 1995-1997 – Director General of the state-owned TV and Radio Broadcasting Company Petersburg – Pyatiy Kanal. 2001 – Deputy Director of Severo-Zapad Strategic Research Center; same year appointed Director of Information Policy Department, JSC Gazprom. 2003-2004 – Director General of JSC Gazprom-Media. From July 2004 – Chairman of INFORMATION ABOUT JSC GAZPROM NEFT SHARES HELD BY MEMBERS OF THE BOARD the Board of Directors, JSC Gazprom-Media. February 2007 - appointed Vice-President and Head OF DIRECTORS AND MANAGEMENT BOARD (AS OF DECEMBER 31, 2008) of the Corporate Communications Department, JSC Gazprom Neft. Adviser to Chairman of the Members of the Board of Directors and Management Board, Management Board, JSC Gazprom. Since January 2008 – member of the Management Board, JSC Number of Common Shares Share in Authorized Capital, % JSC Gazprom Neft Gazprom Neft, Deputy Director General for Corporate Communications. Authorized share capital (as at 31.12.2008) is not. • Zilbermints Boris Semenovich 20 000 0,0004218253
TOTAL AMOUNT OF REMUNERATION TO THE MEMBERS OF THE BOARD ILYUKHINA Elena Anatolievna, member of the Board, OF DIRECTORS AND MANAGEMENT BOARD Deputy Director General for Corporate and Legal Matters Born in 1969. 1993 – graduated from Ulyanov (Lenin) Saint Petersburg State Electrotechnical The total amount of remuneration to the members of the Board of Directors paid in 2008 was 407.99 mln rub. including University with a degree in “electronic devices”. 1999 – graduated from Saint Petersburg State 180.21 mln rub. for the period from 23.06.2007 to 31.12.2007 (in accordance with the resolution of the Annual Meeting University with a degree in “law”. 2001 – received a Ph.D. in economics. 1993 - 1996 – Executive of June 20, 2008) and 227.78 mln rub. for the period from 23.06.2006 to 22.06.2007 ((in accordance with the resolution of the Director of AOZT OSTO. 1996-1999 – Director General of Firm Onega Plus LLC. 1999 to 2001 - worked for banking companies such as JSCB SbS Agro and JSCB North-Western O.V.K. holding Annual Meeting of November 19, 2007). various positions from a legal advisor to Head of the Legal Department. 2001 to 2007 – Deputy Director General, FGUP Rublevo-Uspensky LOK (medical and recreational complex) of the Property The remuneration was paid only to those Board members who do not hold positions at the executive bodies of the Company Management Department of the President of the Russian Federation. Prior to employment with JSC (are not Executive Directors). Gazprom Neft – Executive Director of North-Western Investment Company LLC. Since January 2008 – member of the Management Board, JSC Gazprom Neft, Deputy Director General for Corporate and Legal Matters. Authorized share capital (as at 31.12.2008) is not. The total amount of payments to the members of the Management Board, including Chairman of the Management Board, in 2008 was 283.59 mln rub. Payments included salary for the reporting period, taxes assessed on salary and other mandatory payments to the relevant budgets and extra-budgetary funds, payment for annual paid leave for work in the reporting period, treatment and medical expenses.
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MLN RUB. THOU. T MLN М3 % 1 200 159,0 5 000 ECOLOGY, ENERGY SAVING, 1 110 158, 872 1 000 158,5 4 000 70 800 733 158,0 3 000 INNOVATION 157, 583 50 600 157, 552 456 157,5 2 000 400 30 157,0 200 1 000 10
0 2006 2007 2008 156,5 2006 2007 2008 0 2006 2007 2008 0 ENVIRONMENTAL COSTS TOTAL HARMFUL ATMOSPHERIC AG RESOURCES AND UTILIZATION
SOURCE: COMPANY DATA EMISSIONS RATE IN 2006-2008 SOURCE: COMPANY DATA SOURCE: COMPANY DATA • Gazpromneft-NNG • Gazpromneft-Khantos • Gazpromneft-Vostok • AG Utilization Rate HEALTH, SAFETY AND ENVIRONMENT
In 2008 the Company approved the “Health, Safety and Environmental Policy”. The Policy sets out the strategic goal measures were taken to correct the violations found. The Company plans to further develop the procedures for investigation facing the Company – to become one of the leaders among world oil-and-gas companies in ensuring health, safety and and analysis of incidents related to violation of the legislation and introduce corrective measures which will enable environmental protection, proving this by actual results and advanced work methods. The Policy identifies the employee, it to minimize the probability of such events occurring again. public and environmental safety as the priority in the economic and technical decision-making. Among the obligations of the Company, confirmed in the Policy, are continuing improvement of working conditions, industrial and environmental ENVIRONMENTAL EXPENDITURE safety, introduction and continuing improvement of an effective management system, development of information exchange The Company’s current and capital expenditure on environmental measures, including the use of technologies minimizing with interested parties, increasing the competence of and involvement of employees in the Policy implementation, setting the adverse environmental impact many times exceed payments made by the Company for environmental contamination. uniform safety requirements to the employees and contractors of the Company. Current costs include also expenses on the development of regulatory documents, conduct of environmental monitoring, industrial environmental control, improvement of environmental qualifications and environmental training of specialists. INTRODUCITON OF AN INTEGRATED MANAGEMENT SYSTEM In 2008 the Company developed and approved an Integrated Health, Safety, Environment and Civil Protection Management ATMOSHERIC EMISSIONS System (hereinafter HSE and CP) complying with the main requirements set out by OHSAS 18001 (Occupational Health The enterprises of the Company work non-stop to reduce harmful atmospheric emissions. In the period from 2006 to 2008 & Safety Assessment Series), ISO 14001 (environmental management) and ISO 9001 international standards (quality total emissions at Gazprom Neft have slightly increased due to an increased scope of operations. management) as well as with the recommendations of the International Association of Oil and Gas Producers. The bulk of Company emissions occur in the oil and gas production sector, whereas in the oil refining sector there were INDUSTRIAL RISK MANAGEMENT on a decline. Lower emissions in refining were attributable to the renovation of refining capacities, replacement of burner One of the key instruments in HSE and CP is the risk management mechanism. The Company has developed and approved units, optimization of process parameters, reconstruction of tanks and introduction of an installation ensuring precise and a standard called: “The Procedure for Identification, Assessment and Minimization of Industrial, Environmental, Occupational leakproof oil loading. and Civil Protection Risks”. We organized training of specialists and began an industrial risk analysis process. UTILIZATION OF ASSOCIATED GAS Company employees at all levels are involved in the HSE and CP risk identification process which lays a good basis In the production sector active work is underway to ensure a high rate of gas utilization. The rate of associated gas (hereinafter for creating a high safety culture. – AG) utilization across the Company’s main producing enterprises remains low – 46.8 of recovered gas was used in 2008.
ENVIRONMENTAL SAFETY MANAGEMENT Increasing the AG utilization rate is an important state priority, and to ensure a contribution to addressing this objective, The Company seeks to fully comply with the current environmental legislation. The amount of payments for exceeding in 2008 the Company adopted a 2008-2010 Medium-Term Investment Program for AG utilization and higher efficiency use the existing environmental impact standards at the major enterprises of Gazprom Neft in 2008 totaled 210 mln rub., which is (hereinafter – MTIP). The actual financing of MTIP projects in 2008 was 106% compared to plan. The developed Program, a 21% increase compared to 2007. A total of 1.66 mln rub. was paid in penalties for violation of the environmental legislation, as revised in 2009, will allow JSC Gazprom Neft to upgrade the AG utilization rate to 95%, commencing 2012.
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PRODUCTION OF ENVIRONMENTALLY-FRIENDLY FUEL The oil refining sector of the Company works methodically to improve the environmental friendliness of its fuels. The Omsk Refinery has come up with a development program designed to ensure a complete transition to the production
of environmentally-friendly fuels by 2012. A serious reconstruction of the installation is scheduled for 2009 which will allow a transition to the production of EURO 4 and EURO 5 diesel fuel. In 2008 around 9% of gasolines produced by the Refinery complied with the EURO 3 requirements. Consumption of cleaner fuel produced by the Omsk Refinery will result in a 22 ton-reduction of sulfur dioxide emissions by motor transport. UTILIZATION OF WATER RESOURCES The enterprises of the Company seek to utilize water resources with maximum efficiency by injecting reservoir waters back into the wells to maintain the reservoir pressure during oil production and by organizing closed cooling cycles in refining. In 2008 water consumption for the Company’s own needs was up by 15% compared to 2007 due to an increase in oil refining volumes and to the implementation of project solutions conerning water injection into the reservoir pressure maintenance system at Gazpromneft – Khantos LLC. The water reuse rate in refining remained very high – over 97.5%. Company-wide the total volume of effluents in 2006-2008 was around 0.1 mln m3. WASTE TREATMENT The Company strives to reduce waste accumulation and improve waste treatment practices. The main share of accumulated waste is represented by drilling waste of hazard class IV (low hazard). In total, IV and V class (low hazard and practically non- hazardous) waste accounts for over 90%. Drilling waste accumulates during the operations of oil producing and oil service enterprises (overall share of these enterprises – over 90%). The principal method of drilling waste treatment remains placement of such waste in dedicated storage areas. The work on waste treatment improvement is performed in all sectors of the Company’s operations. Thus, in refining the Omsk Refinery independently processes 100% of accumulated waste oils. In petroleum product distribution new effective technologies are being introduced, such as a mobile treatment complex designed to clean the inside of tanks from solid deposits. Worth of note among the completed projects is the launch at the Yuzhno-Priobskoye field of a unique-for-Russia installation for waste injection into reservoirs, which allows drilling operations to be conducted without discharging drilling waste on the surface. LAND CONTAMINATION CONTROL AND REMEDIATION 79,8 71,9 82,5 The Company performs operations for land decontamination and liquidation of unorganized consumption waste storage areas. In 2008 219 ha of contaminated land was remediated, the sludge pit remediation rate was increased. To reduce the amount of disturbed land the Company plans to introduce pitless drilling methods at a number of fields. 2006 2007 2008
To conduct land remediation the Company’s enterprises use modern chemical biological agents (like Fare Zyme) designed for oil destruction. They are based on mineral, rather than biological, components which artificially feed the natural microflora WATER CONSUMPTION and facilitate land rehabilitation. Also, biological remediation involves the seeding of large batches of area-specific grasses (WATER USED, TOTAL), MLN M3 and perennials. SOURCE: COMPANY DATA
ANNUAL REPORT 126 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 ECOLOGY, ENERGY SAVING, INNOVATION
SAFETY AND HEALTH MANAGEMENT The Health, Safety and Environmental Policy adopted in 2008 gives critical attention to the issues of occupational safety and reducing the accident and injury incidence rate. 300 HA
Occupational safety costs per worker in 2008 totaled 12 200 rub., which is 18% more than in 2007. 250 The Company has developed and is introducing a program for the provision of all employees with personal protective equipment, is actively involved in revising the legislation as regards personal protective equipment for oil industry employees.
In 2008 the Company developed and introduced an automated HSE and CP Information Management System (IMS). This 200 system allows it to standardize reporting, reduce the number of one-time inquiries, automate and standardize the main HSE and CP management reporting generation processes, enhance control over compliance with the health, safety and environmental requirements. The IMS is used to give early notification of incidents, provide information about the measures taken to localize and liquidate their consequences, render assistance in conducting investigations. The IMS serves 150 to accumulate and classify data for effective analysis of health, safety and environmental incidents and risks.
A HSE and CP statistics transparency program was introduced. As against 2007, the incident transparency index was up 100 by 40% to reach the level of leading world oil companies. In 2008 the Company-wide lost injury time frequency rate (LTIFR) was 0.76 and the fatal accident rate (FAR) – 12.6. The introduction of a standard governing the incident investigation process enabled the Company to minimize the possibility of a formal approach to this process and to focus on the identification of major causes rather than finger-pointing. To prevent identical incidents, the subsidiaries and affiliates exchange information 50 about incidents and lessons learnt from them. The process of recording minor incidents and prerequisites therefor has been established, this enabling the Company to take preventive measures to avoid major incidents rather than deal with their consequences. 269 164 219 0 The Company has launched the introduction of a transport safety program to reduce personnel injury and corporate property damage risks in road accidents. To this end, a special standard has been developed and introduction of a training program 2006 2007 2008 for drivers and executives is currently underway.
In 2008 the Company reorganized its Civil Protection (Civil Defense and Emergency) Service, developed a regulatory framework, reviewed compliance with the legislative requirements and corporate regulations at the subsidiaries CONTAMINATED LAND REMEDIATION and associates. SOURCE: COMPANY DATA
ANNUAL REPORT 128 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 ECOLOGY, ENERGY SAVING, ECOLOGY, ENERGY SAVING, INNOVATION INNOVATION
Table 21. GEOTECHNICAL OPERATIONS (GTO) IN 2006 -2008. 2006 2007 2008 • GTO, number of wells 1 035 1 003 1 194 • Additional production, thou. t 5 233,7 4 919,3 4 649,3 ENERGY SAVING
Total energy consumption at the Company is growing due to the intensification of operations in all major sectors. Energy In 2008 JSC Gazprom Neft conducted geotechnical operations (GTO) at 1 194 wells, this resulting in the additional production consumption at JSC Gazprom Neft’s subsidiaries was up from 4.8 bn kW/h in 2006 to 5.2 kW/h and 5.5 bn kW/h in 2007 of 4 649 thou. tons of oils (table 21). and 2008, respectively. One of the most important results of the Company’s technology improvement activity is extensive use of oil production Yet thermal energy consumption at the Company was down from 350 thou. Gcal in 2006 to 330 and 314 Gcal in 2007 and 2008, intensification and enhanced oil recovery (EOR) methods. In 2008 total production from the EOR operations conducted respectively. Specific power consumption at JSC Gazprom Neft has increased due to the intensification of operations, primarily in the reporting year (without the carryover effect) was 1.5 mln tons or 5% of the Company’s total output. These methods resulting from energy consumption growth in the reservoir pressure maintenance system at Gazpromneft-Khantos LLC. allow Gazprom Neft to substantially increase recoverable reserves (additions are estimated at 2.6 mln tons) and bring into production low quality reserves (high viscosity, in impermeable reservoirs). Gazprom Neft is working to ensure efficient energy use. The Company conducts energy audits at its enterprises, introduces energy consumption control and reduction measures, develops and implements efficient energy use programs. In 2009 The Company uses physical, chemical, hydrodynamic and thermal recovery stimulation methods. The bulk of additional it is planned to reduce energy consumption at JSC Gazpromneft-Noyabrskneftegaz by 2%, compared to 2008. production was attributable to physical methods, first and foremost, to hydraulic fracturing (HF). 609 new wells were put into production in 2008, of which 36 – horizontal, 179 HF were created (without HF at the new wells), 43 wells were sidetracked The implementation of the energy saving program in oil production yielded economy of 34 mln rub. in 2006, 152 mln rub. and 31 deepened into lower formations. in 2007 and 880 mln rub. in 2008. Furthermore, the hydrodynamic and chemical field development methods that were used in difficult geological conditions to achieve more complete reserve recovery, yielded additional oil production of 119.4 thou. tons and 158.1 thou. tons, INNOVATIVE ACTIVITIES respectively.
EXPLORATION AND PRODUCTION TECHNOLOGIES In 2008 continuing to actively use new drilling and casing technologies, Gazprom Neft: The main purpose of innovations in exploration is development of rational geological-and-geophysical survey complexes, improvement of reserves estimation methods, reduction of geological risks and higher precision in identifying exploration targets. • Introduced Rihno Reamer, a system designed to prepare the wellbore for casing (manufacturer: Smith Eurasia) To serve this purpose, state-of-the-art approaches were used during operations in 2008. Thus in the area of field seismic survey, • Introduced CemCrete, a new well and sidetrack casing technology (Schlumberger Logelco Inc.) a 2D survey was for the first time conducted on a large-scale (375 line km) in the mountainous conditions of Northern Caucasus, • Completed one horizontal open-hole well (based on this experience, 6 same type wells are scheduled for 2009). using vibrators, and in the area of seismic data processing and analysis the following original technologies were employed: • Pioneered the introduction of electromagnetic MWD equipment.
• processing and stacking of seismic signals based on the curvilinear reflector model – “multifocusing” – a product For the purpose of implementation of an effective development control and production monitoring system, Gazprom Neft of Geoimage (Israel). The technology was employed in the seismic survey of the Novorossiiskoye and Doobskoye license is introducing at its fields nonstop reservoir data monitoring technologies. This work focuses on two areas: plots. In difficult mountainous and seismological conditions – indented shelf, placation, seismic sections with high- amplitude reflecting horizons were acquired. 1. Formation of a bottomhole pressure and temperature control system based on suction pipe-mounted monitor sensors. • comprehensive analysis of seismic and other geological-and-geophysical data based on the horizontal fault model In 2008 specialists of Gazpromneft-NTTS LLC summarized the measurement results for the entire operating stock for the purpose of forecasting oil and gas accumulations. This work was performed at JSC CGE. The materials of the Priobskoye field. As a result the filtration properties and drilling-in quality characteristics of more than 100 wells for a group of areas in the central part of the Noyabrsk region covering Ety-Purovskiy, Valyntoiskiy, Yarainerskiy, were evaluated without intervening into the process cycle, which allowed the Company to avoid oil losses associated Novogodniy and Vyngayakhinskiy license plots show the efficiency of the horizontal fault model in terms of oil and gas with inevitable well shutdowns during dynamic well testing – roughly 10 thou. tons. This experience can be extended deposit prospecting. The existence of rootless anticlines and tectonic faults was substantiated. A new approach to other fields as well, hence the overall oil loss reduction figures will be much higher. to forecasting prolific wells was proposed. 2. Use in the wells of a fixed downhole separate inflow and output composition control system during joint development of two or more oil reservoirs, which allows controlled and managed joint development of several targets by one well network. The use of innovative exploration technologies by JSC Gazprom Neft did not result in reserve additions, but further work on the newly acquired data will allow the Company to more accurately locate exploration wells and hence get hydrocarbon The economic effect for the Company from saving on additional production well drilling resulting from the introduction reserve additions. of pilot and industrial technologies in 23 wells at 7 fields totals around 1.12 bn rubles.
ANNUAL REPORT ANNUAL REPORT 130 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 131 ECOLOGY, ENERGY SAVING, INNOVATION
OIL REFINING TECHNOLOGIES 2008 saw the performance of research and development (R&D) in oil refining, commissioned by Gazprom Neft, for a total of 34 mln rub. The main areas of R&D in 2008 were related to safety and environmental protection; as well as to product quality maintenance and production technologies, efficient inventory consumption technologies, including those used to inspect installations and issue operation optimization recommendations.
The Company pays increased attention to modernization and new construction for the purpose of meeting the technical regulations: “On Requirements for Motor and Aviation Gasoline, Diesel and Marine Fuel, Jet Fuel and Residual Fuel Oil”. To meet the legislative requirements a motor fuel quality upgrade program was developed for JSC Gazpromneft-Omsk Refinery. Under this program in 2008 the Company continued to implement isomerization, diesel fuel hydrotreatment, L-24/9 hydrotreater reconstruction, and catalytic cracking gasoline hydrotreatment projects.
In 2008 construction of Russia’s largest isomerization unit got underway at the Omsk Refinery. The unit construction is scheduled for completion in 2010. The new unit will have the capacity to process 800 thou. tons of raw materials a year and produce isopentane and isomerizate, which will allow the production of gasolines containing no more than 42% of aromatic hydrocarbons, no more than 1% of benzol and sulfur maximum of 150 ppm. The new unit will enable the Company to cut purchases of high octane additives and substantially increase the output of high octane gasolines complying with European standards.
Under the Omsk Refinery modernization program, reconstruction of the L-24/9 diesel fuel hydrotreater was launched in 2008 (design, configuration, construction and installation work). As a result the quality of diesel fuel output will be upgraded to the Euro-4 and Euro-5 level. The L-24/9 diesel fuel hydrotreater will become the first capacity at the Omsk Refinery to produce motor oil of such high grade.
In 2008 refurbishment of the cracking catalyst production complex was completed at the Omsk Refinery. After the refurbishment, the one and only complex in Russia resumed its normal operations. The complex produces modern cracking catalysts for refinery units which are used to convert heavy petroleum stock into a high-octane gasoline component.
A feasibility study for investment in boosting the output of aromatic hydrocarbons at JSC Gazpromneft-Omsk Refinery was conducted.
The Omsk Refinery has developed a growth program designed to make a complete transition to the output of environmentally-friendly fuels by 2012. Serious reconstruction is planned for 2009 which will allow the production of Euro-4 and Euro-5 diesel fuel.
Gazprom Neft pays serious attention to the development of advanced oils and additives production technologies. Continuing improvement of the product quality serves the interests of consumers and the environment.
ANNUAL REPORT 132 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 SOCIAL POLICY SOCIAL POLICY
PERS. THOU. RUB. RUB.
49 48 339 25 000 000 SOCIAL POLICY 40 000 48 +61% 47 686 20 000 000 47 30 000 46 45 775 15 000 000 45 20 000 44 640 10 000 000 44 5 000 000 10 000 43
PERSONNEL, OCCUPATIONAL SAFETY AND HEALTH 42 2005 2006 2007 2008 0 2005 2006 2007 2008 0 2005 2006 2007 2008
Gazprom Neft invests in personnel, supporting the initiatives and innovations designed to enhance operation and management AVERAGE HEADCOUNT IN 2005-2008 PERSONNEL COSTS IN 2005-2008 AVERAGE EMPLOYEE WAGES efficiency. The Company acts as a responsible employer maintaining equal relations with the employees, ensuring decent SOURCE: COMPANY DATA SOURCE: COMPANY DATA AT THE COMPANY IN 2005 - 2008 SOURCE: COMPANY DATA wages, career opportunities and comfortable working conditions. PERSONNEL MANAGEMENT POLICY AND STANDARDS In 2008 Gazprom Neft developed a uniform personnel management concept. To identify uniform approaches to dealing with the employees of all enterprises the Company is preparing a collective agreement which will include the uniform obligations of Gazprom Neft to all enterprises of the Company. Additional elements and details of the benefits and terms to be provided will be determined by each enterprise at its own discretion. SOCIAL PACKAGE In 2008 the Company continued to develop its uniform personnel standards; among them – “Procedure for the Organization Company employees, in addition to the statutory benefits, are provided with a social package, which includes voluntary of Corporate Employee Training”, “Planning and Training of Personnel Reserve for Target Positions”, “Procedure for Working medical insurance, free meals, anniversary bonuses, material aid, payment for employee trips as well as of leave with Young Specialists”, and other. allowance and travel fees, additional childcare allowance, holiday gifts to employees and their families, accident insurance, death allowance. In 2008 social payments averaged 32 thou. rub. per employee, which is twice as much as in 2007. In 2008 the Company developed a grading system which allows employees to understand their place in the corporate hierarchy. This system will be the basis for a wage system and social benefit policy. COOPERATION WITH EDUCATIONAL INSTITUTIONS AND RECRUITMENT OF YOUNG SPECIALISTS In 2008 Gazprom Neft developed and approved a Corporate Code containing the basic values and principles. The draft Code In 2008 as part of cooperation with higher educational institutions Gazprom Neft opened a namesake lecture hall at the was discussed with representatives of the work teams of the Company’s major organizational units and the corporate center. G.V. Plekhanov Saint-Petersburg State Mining Institute and a corporate display booth at the I.M.Gubkin Russian State The final version, as far as possible, takes into account the comments and opinions of all interested parties expressed University of Oil and Gas. Representatives of Gazpromneft-NTTS held meetings with the Heads of the relevant faculties in the discussion. over R&D issues, at which the lines of cooperation where identified. In October 2008 two professors of the I.M.Gubkin Russian State University of Oil and Gas were in internship at INFORM training center (Canada) together with Gazprom As of today Gazprom Neft enterprises employ over 48 thousand people working in 18 regions of the Russian Federation Neft employees. as well as in Kyrgyzia, Kazakhstan, Tajikistan. In particular, Moscow and the Moscow Region account for 8% of the employees, roughly 30% of them work at the Head Office. The share of Omsk and the Omsk Region is 17% of Company employees (over The Company seeks to become one of the industry leaders in efficiency and is interested in recruitment of talented 50% of them employed at the Omsk Refinery). However the greater part of Gazprom Neft personnel – about half of the total specialists. The key areas of personnel development at the Company include working with young specialists, building headcount – is concentrated in the Yamal-Nenets Autonomous District. a personnel reserve, creating a comprehensive continuing training system which would embrace all categories of personnel and all levels of management. DISTRIBUTION OF GAZPROM NEFT PERSONNEL BY REGION IN 2008 The Company ensures competitive wages and decent social benefits to its employees. Personnel costs in 2008 showed a more In 2008 Gazprom Neft signed a cooperation agreement with three higher educational institutions, strategic partners of the than 20% increase compared to the year before and totaled nearly 25 bn rub. Company: G.V. Plekhanov Saint-Petersburg State Mining Institute, I.M.Gubkin Russian State University of Oil and Gas and M.V.Lomonosov Moscow State University. A perfect employee incentive system, providing for effective work by the personnel, enables the Company to achieve its business objectives. Gazprom Neft is introducing and developing a comprehensive incentive system based on competitive The main purpose of cooperation – is to recruit talented graduates to work for the Company. In 2008 the Company units wages, performance bonuses and intangible elements. recruited 326 young specialists.
ANNUAL REPORT ANNUAL REPORT 136 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 137 SOCIAL POLICY
EMPLOYEE PROFESSIONAL DEVELOPMENT Gazprom Neft is traditionally committed to the professional development of its personnel. In 2008 1 167 employees received training. The training rate was 1.2 compared to 0.6 in 2007. Professional development costs in 2008 totaled 30.8 mln rub.
Gazprom Neft’s professional training system is designed to comply with the requirements of the Company’s business and its corporate culture. Gazprom Neft’s training and development programs include three main sections: professional training programs designed to provide knowledge and skills for particular specialties and functions, corporate and management competence development programs, and business awareness development programs.
In 2008 the Company launched a number of corporate trainings: “Finance and Economics for Non-Economists”, “Oil Industry for Non-Industry Workers”, “Art of Presentations”.
Tyumen Region Region Tyumen Development of a career planning system is underway at the Company enterprises with the key career planning tool being District Autonomous Yamal-Nenets Kyrgyzstan Yaroslavl Region Individual Development Plans, which are prepared taking into account the requirements for a specific position, assessment Other Regions results of employee development capabilities, and also opinions of line managers and mentors. Saint-Petersburg and Leningrad Region Tomsk Region
In 2008 120 persons attended management competence development trainings for Company personnel reserves. Khanty-Mansi Autonomous District The training curricula were developed based on the analysis of Individual Development Plans. As part of the improvement of Gazprom Neft’s personnel development system in 2008 various-function employees were trained in the “best practices” format, including the conduct of subject-specific master classes. Kemerovo Region
SOCIAL RESPONSIBILITY Ektaterinburg and Sverdlovsk Region RESPONSIBILITY IN THE AREA OF REGIONAL COOPERATION Activities of the Company seriously influence the social sphere and economy of the regions of its operation. Gazprom Neft takes active part in addressing the priorities of regional development. Novosibirsk Region
The Company is a major taxpayer; a number of Gazprom Neft enterprises are local mainstays. Gazprom Neft maintains dialogue and cooperation with interested parties in the regions of operation and also implements charitable programs designed to develop the cultural and social infrastructure, healthcare of the regions, education and upbringing of children and youth. Moscow and Moscow Region Gazprom Neft seeks to participate in the development of regions in such manner as to maximize benefits for both society and the Company and to make the jointly implemented projects effective both socially and economically.
In the regions of the Company’s operation the main instrument of cooperation with regional and municipal authorities
is socio-economic cooperation agreements. As a rule such agreements are initiated by the Company because the signing DISTRIBUTION OF GAZPROM NEFT PERSONNEL Omsk Region of such agreements allows Gazprom Neft to coordinate its strategy with regional needs, direct joint efforts to address BY REGION IN 2008 the priorities for the Company and the regions. SOURCE: COMPANY DATA
ANNUAL REPORT 138 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 SOCIAL SOCIAL POLICY POLICY
The Company provides assistance to the socio-economic development of the territories in all regions of operation. In 2008 alone, • Support of children and youth under cooperation agreements signed with the regional and municipal authorities of the Yamal-Nenets, Khanty-Mansi and Nenets • Regional cooperation Autonomous Districts, Omsk, Tomsk and Tyumen Regions, and Krasnodar Krai, Gazprom Neft allocated over 830 mln rub. • Support of sports
In one of the most important regions for the Company’s development - Yamal-Nenets Autonomous District – aid is provided Total charitable expenses in the reporting period, including those under socio-economic agreements with the regions to the territory on the whole and, separately, to five municipal entities: Krasnoselkup, Nadym, Purovsky Regions, towns of of the Company’s operation, were 1 bn rub. Noyabrsk and Muravlenko. Funds are allocated to the construction, improvements and renovation of residential houses, schools, hospitals, sports facilities. Funding is provided to the construction of a swimming pool, sports-and-fitness center The activities of the Charity Commission set up by JSC Gazprom Neft in 2008 allowed the Company to systematize its charitable and a Center of National Cultures, renovation of the Ice Palace, serious support of agricultural and national communities. activities and to work on the key priorities in 2008. It helped reduce total expenses (financing of sports organizations, indirect support through charitable organizations, foundations and associations was scaled down), while at the same time increasing Another priority region for the Company’s business is the Khanty -Mansi Autonomous District. The main municipal entities the funding of social aid programs for orphanages, schools and boarding schools, cultural institutions, administrations of receiving aid from the Company are the Khanty-Mansi, Nefteyugansk, Nizhnevartovsk, Oktyabrskoye, Surgut Regions. the districts, cities and regions where the Company operates.
It is here that the Priobskoye field is found, the development of which plays an important role in the plans to boost annual JSC Gazprom Neft is proud to be one of the general sponsors of Zenit, the football club which in 2008 won the UEFA Cup oil production up to 100 mln tons by 2020. By agreement with the District Administration, Gazprom Neft is building in and the Supercup. Khanty-Mansiisk a Chess Palace as part of the preparation for the 2010 Chess World Cup and World Chess Olympic Games, finances an annual international film festival, “The Spirit of Fire”, provides assistance in the construction and renovation of The Company also supports SKA Saint-Petersburg Hockey Club and is a co-founder of Avangard Hockey Club. social facilities located in the district areas. In 2008 Omsk Region agrarians received from Gazprom Neft 80 00 tons of oil at discount prices. In the future the Company will continue its commitment to the strategic priorities, first and foremost, to supporting the health and development of children and youth and, when determining the charitable targets and the scope of charitable The agreement designed to support the agrarian sector was signed also with the agricultural producers of the Tyumen programs, will do its utmost to take into account the opinions and expectations of all interested parties. Region. Social aid programs for orphanages, schools and boarding schools are also financed in these territories. Today these priorities apply to both the socio-economic agreements with the regions of operation and to specific charitable Notwithstanding the continuing financial crisis, Gazprom Neft has no intention to terminate or significantly cut its “regional” programs and projects. program. Thus at the end of 2008 the Company entered into a new general cooperation agreement with the Khanty-Mansi Autonomous District - Yugra for 2009-2011 and plans to sign similar cooperation agreements in 2009 with the Yamal-Nenets Thus in 2008 in the Parabelsky District of the Tomsk Region, construction of a roofed hockey rink with a plastic coating got Autonomous District, Omsk, Tomsk, and Murmansk Regions. underway with the assistance of Gazpromneft-Vostok LLC. This rink is given over to one hockey class; also, skate rental services have been organized. In the summer it is planned to organize one volleyball and 3 basketball classes at this rink. Any crisis ends one day, it is a temporary phenomenon, while relations with partner regions are built not for a month or a year – such partnership has no time-limits. JSC Gazpromneft-Omsk Refinery is implementing a special-purpose program: “On Providing Assistance to Educational Institutions of the Bolsherechie Municipal District”. Within this program they purchased equipment for kindergartens, CHARITY playgrounds, as well as sports equipment for the children’s sports school in Bolsherechie Village. The Company approved a “Charity Policy” setting out the principles and objectives of Gazprom Neft’s charitable activities, JSC Gazpromneft-Ural financed the construction and opening of children’s playgrounds in the towns of Irbit and Serov. major priorities and rules of specific projects. JSC Gazprom Neft’s key charitable priorities are determined by the following It has become a tradition to hold the Interregional Gazprom Neft Cup Children’s Ice Hockey Tournament. In 2008 the programs: 2nd tournament took place in Khanty-Mansiisk boasting 200 participants from 6 regions of the country.
ANNUAL REPORT ANNUAL REPORT 140 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 141 TO SHAREHOLDERS AND INVESTORS TO SHAREHOLDERS AND INVESTORS
TO SHAREHOLDERS AND INVESTORS
STOCK MARKET AND CAPITALIZATION
BACKGROUND INFORMATION ON THE OUTSTANDING SECURITIES OF JSC GAZPROM NEFT: Common registered shares, State Registration Number 1-01-00146-А of 17.06.2003 RUB. • 250 • Par value per issued share: 0.0016 rubles 600 • Number of issued securities: 4 741 299 639 units 500 • Issue Value: 7 586 079.4224 rubles 200 • Shares are included in Quotation List “B” of the CJSC MICEX and JSC RTS Stock Exchanges. • Stock Symbol – SIBN. 400
150 STOCK TRADING INFORMATION 300 JSC Gazprom Neft shares are traded on the main trading floors: CJSC MICEX, where, as of December 31, 2008, they
accounted for 1.4% in the index and JSC RTS Stock Exchange (0.9%). During 2008 the American Depository Receipt (ADR) 100 200 Program for Company shares traded in the US, UK, German, and other over-the-counter markets was still in operation.
100 In 2008 the Company was included in the MSCI Russian index and as of December 31, 2008 its weight in the index was 0.7%. 50
The volume of trading in JSC Gazprom Neft shares on the RTS Exchange for all types of transactions, including OTC trading, 09.01.08 09.03.08 09.05.08 09.07.08 09.09.08 09.11.08 04.01.04 04.03.04 04.05.04 04.07.04 04.09.04 04.11.04 04.01.05 04.03.05 04.05.05 04.07.05 04.09.05 04.11.05 04.01.06 04.03.06 04.05.06 04.07.06 04.09.06 04.11.06 04.01.07 04.03.07 04.05.07 04.07.07 04.09.07 04.11.07 04.01.08 04.03.08 04.05.08 04.07.08 04.09.08 04.11.08 04.01.09 04.03.09 in 2008 totaled 772 mln USD (of which 16 mln USD in the RTS stock market), compared to 1 041 mln USD (14 mln USD) 0 0 in 2007. The volume of trading in JSC Gazprom Neft shares on the MICEX Exchange in 2008 totaled 56 bn rub. (2 295 mln CHANGES IN THE WEIGHTED AVERAGE PRICE CHANGES IN THE PRICE OF JSC GAZPROM NEFT SHARES USD), compared to 52 bn rub. (1 957 mln USD) in 2007. OF JSC GAZPROM NEFT SHARES ON THE RTS ON THE RTS STOCK EXCHANGE, RTS INDEX AND PRICE AND MICEX STOCK EXCHANGES IN 2008 OF URALS CRUDE SINCE 2008 SOURCE: RTS, MICEX SOURCE: RTS At yearend of 2008, for the first time in five years, a fall in the price of Company shares was recorded: over the year • RTS • Gazprom Neft the price dropped 67.7% (in RTS Trading) to be quoted at 2.05 USD at yearend. JSC Gazprom Neft capitalization as of • MICEX • RTS 31.12.2008 was 9.72 bn USD. Among the major external factors that adversely affected the price of Company shares, the • Urals Crude
investment community singled out the following: $ 45 000 000 000
• world fi nancial and economic crisis 40 000 000 000 • drop in oil prices; 35 000 000 000
• strict fi scal policy of governmental authorities with respect to oil companies. 30 000 000 000
25 000 000 000
Despite a decrease in capitalization in 2008 caused by short-term negative factors, there exist serious fundamental 20 000 000 000
prerequisites for further growth of the Company’s shareholder value – it is the best “value-added” business among Russian 15 000 000 000
companies in terms of the depth of refining, availability of distribution capacities and plans for further development of the 10 000 000 000 distribution business which, under the current tax regime, create considerable value for the Company. There is a consensus 5 000 000 000 in the investment community that the record low oil prices of late 2008 are also a short-term phenomenon inconsistent 27.01.03 27.01.04 27.01.05 27.01.06 27.01.07 27.01.08 0 with the real supply and demand balance. All these factors provide a significant competitive edge for the Company, creating CAPITALIZATION OF JSC GAZPROM NEFT ON THE RTS STOCK EXCHANGE IN 2003-2008 a considerable value growth potential in the long-term. SOURCE: RTS
ANNUAL REPORT ANNUAL REPORT 144 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 145 TO SHAREHOLDERS AND INVESTORS
% 200
180
160
140
120
100 USD 80 1 200 000 000 60
40
20 21.01.07 11.02.07 04.03.07 25.03.07 15.04.07 06.05.07 27.05.07 17.06.07 08.07.07 29.07.07 19.08.07 09.09.07 30.09.07 21.10.07 11.11.07 02.12.07 23.12.07 13.01.08 03.02.08 24.02.08 16.03.08 06.04.08 27.04.08 18.05.08 08.06.08 29.06.08 20.07.08 10.08.08 31.08.08 21.09.08 12.10.08 02.11.08 23.11.08 14.12.08 0 1 000 000 000 CHANGES IN THE PRICE OF JSC GAZPROM NEFT ADRS IN LONDON AND FTSE RUSSIA IOB INDEX SINCE 2007 SOURCE: BLOOMBERG • Gazprom Neft (London) • RIOB
800 000 000
PARTICIPATION IN THE AMERICAN DEPOSITORY RECEIPT PROGRAM
During 2008 the ADR Program for Company shares traded in the US, UK, German, and other over-the-counter markets 600 000 000 was still in operation. At yearend of 2008, the total number of ADRs issued for common shares was equivalent to • RTS 69 mln shares, which is 1.5% of the Company’s authorized capital. The ADR issued for Gazprom Neft shares in 2008 • RTS - OTC accounted for 0.2% of the total trading volume among foreign company ADRs quoted on the London Stock Exchange in the • MICEX IOB system (1 068 mln USD). • LSE INFORMATION ON JSC GAZPROM NEFT ADRS: 400 000 000 Ticker GZPFY (GAZ, SCF) Closing Price as of 31.12.2008 $9.95 CUSIP 36829G107 52 week Max price $40.45 Ratio 1 ADR: 5 common shares 52 week Min price $8.00 Effective as of April 20, 1999 Average monthly trading volume (IOB) $89 mln SEDOL 5109407 200 000 000 ISIN RU0009062467 Depository Bank BNY Mellon SOURCE: BLOOMBERG
For further information, please contact the Moscow Office of the depository bank, The Bank of New York Mellon 0 01.2008 02.2008 03.2008 04.2008 05.2008 06.2008 07.2008 08.2008 09.2008 10.2008 11.2008 12.2008 (http://www.adrbnymellon.com).
Contact Person: Irina Baichorova Tel: 7 495 967 3110 Fax: 7 495 967 3106 TRADING VOLUMES OF JSC GAZPROM NEFT ADRS 2008 E-Mail: [email protected] SOURCE: BLOOMBERG
ANNUAL REPORT 146 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 TO SHAREHOLDERS AND INVESTORS
Table 21. DIVIDEND HISTORY Period 2005 2006 2007 • Dividend per share, rub. 7.9 8.0822 5.40 • Total dividend per class of shares, rub. 37 456 227 806 38 320 131 942 25 603 018 051 • % of net income 88.15 60.99 32.21 • Name of the issuer’s governing body which adopted the resolution to pay dividends General Shareholders’ Meeting 22.06.2006 22.06.2007 20.06.2008 • Date of the meeting of the issuer’s governing body at which the resolution Minutes № 40 Minutes № 42 Minutes № 45 to pay dividends was adopted, date and No. of the Minutes: of 29.06.2006 of 27.06.2007 of 30.06.2008 • Dividend payment period: By 31.05.07 By 31.05.08 By 31.05.2009 • Method of payment and other terms: In cash Payment • Unpaid to accrued ratio, % 0.02 0.04 Period is still in progress Dividends were not paid to the shareholders who failed to provide the data required for dividend transfer under cl.5 of Article 44 of Federal Law № 208-FZ “On Joint Stock Companies”, dated 26.12.1995. Dividends accrued on shares of unidentified holders are paid as the shareholders’ rights to their securities are established.
DIVIDEND HISTORY
The Company is committed to the long-term policy of capitalization growth and systematic payment of dividends to its shareholders. The dividend policy of the Company is based on maintaining the balance of interest between the Company and its shareholders. Thus, parallel to increasing the value of its assets, the Company seeks to increase the dividend amount payable to its shareholders taking into account the amount of net income and the development needs of the Company (table 21).
Given the priority of observing the rights of Company shareholders, the Board of Directors, when determining the amount of distributable dividend income, evaluates the scope of the planned investment program and potential expenses on the development of the Company’s operations. The long-term dividend policy of the Company is based on the intent to pay dividends in the amount of at least 15% of net income for a reporting period.
By resolution of the regular (Annual) General Shareholders’ Meeting of the Company, dated June 20, 2008, the total amount of accrued dividends for the 2007 financial year was determined as 25 603 018 050.60 rubles: the dividend amount per common share was set at 5.40 rubles.
The right to receive dividends is granted to all shareholders of record as of the date of compiling the list of shareholders entitled to participate in the General Shareholders’ Meeting, at which the resolution to pay dividends was adopted. The registration date for holders of Company ADRS is set separately by the depository bank, which is The Bank of New York.
Dividend payment period – by May 31 of the year following the year in which the resolution to pay dividends was adopted.
ANNUAL REPORT 148 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 TO SHAREHOLDERS TO SHAREHOLDERS AND INVESTORS AND INVESTORS
OBSERVING THE CORPORATE CODE OF CONDUCT
Recognizing the importance of maintaining high standards of corporate governance for the success of its business, • ensuring the rules of order of the General Shareholders’ Meeting that guarantee equal opportunities the Company in its operations voluntarily follows the recommendations set out in the Corporate Code of Conduct for all shareholders present at the meeting to express their opinions and to ask any agenda-based questions; of the Federal Commission for the Securities Market. • ensuring the most simple and unobstructed registration procedure for the participants of the General Shareholders’ Thus the operations of the Company are based on the following principles of corporate governance: Meeting ; • having at the Company a reliable and effective system for recording stock ownership rights, which is ensured • observance and effective protection of the rights of Company shareholders, as required by applicable legislation; by cooperation of the Company with a professional independent registrar; • observance of the rights of interested parties and Company employees; • establishing a maximally clear and transparent mechanism for determining the dividend amount and ensuring • providing Company shareholders with the real opportunity to exercise their rights associated with participation the dividend payment procedure that allows shareholders to best exercise their right to receive dividends; in the Company’s operations; • having effective control over the financial and economic activities of the Company by both the internal bodies of the • ensuring equal treatment of Company shareholders holding the same class (type) of shares; Company (Board of Directors, Management Board, Audit Commission, Audit Committee) and the external Auditor; • ensuring high standards of business ethics in relations between shareholders, investors, employees, counterparties, • ensuring equal rights and opportunities for all shareholders and other interested parties to receive information; and other market participants; • information transparency of the Company; • maintaining high standards of social responsibility in the Company’s operations; • publishing information about the Company in Russian and English on its corporate website (www.gazprom-neft.ru) • strategic management of the Company’s operations by the Board of Directors and effective control of the Board to the extent provided by the current legislation and bylaws of the Company; of Directors over the activities of the Company’s governing bodies as well as accountability of the Board members • giving its shareholders access to complete and reliable information, including that about the Company’s financial to Company shareholders; standing, the results of its operations, as well as about material facts related to its financial and economic activities; • reasonable, good-faith and effective management of the Company’s operations by the executive bodies as well • not avoiding negative disclosures about the Company and its operations which are essential for Company shareholders as their accountability to the Board of Directors and the General Shareholders’ Meeting; and all interested parties; • ensuring effective control over the financial and economic activities of the Company; • making disclosures, on a regular basis, about the most important events and facts of the Company’s operations • ensuring the efficiency of the internal control and audit system; affecting the interests of its shareholders and other interested parties, using the communication means available to the Company; • ensuring timely and full disclosures about the Company, including its financial standing, performance indicators, ownership and management structure. • ensuring disclosures about its operations are made as soon as possible to avoid reducing the relevance of such disclosures;
The Company guarantees observance of the shareholders’ rights by: • making sure disclosures made by different methods and/or in different forms are consistent and in agreement with each other; • giving shareholders the opportunity to manage their shares at their own discretion, quickly and at will; • using such information dissemination methods that provide for its shareholders and other interested parties free, • providing shareholders with an option to request a General Shareholders’ Meeting, make proposals for the agenda easy and least expensive access to disclosures; of the General Shareholders’ Meeting, nominate candidates to the governing and supervisory bodies of the Company, • not giving preference to meeting the interests of one audience over another when making disclosures. exercise their right to vote with all their shares;
ANNUAL REPORT ANNUAL REPORT 150 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 151 MAJOR AND INTRESTED-PARTY TRANSACTIONS MAJOR AND INTERESTED-PARTY TRANSACTIONS
5 JSC Gazprombank Signing of a Surety Agreement between JSC 1. JSC Gazprom holding a more than 20% interest in JSC № 173 MAJOR AND INTERESTED-PARTY Gazprom Neft (Surety) and JSC Gazprombank Gazprom Neft and JSC Gazprombank; 22.09.2008 (Bank). The Surety is jointly and severally liable 2. Members of the Board of Directors of JSC Gazprom to the Bank for the performance by Moscow Neft who are concurrently members of the Board of NPZ Holdings B.V. (Principal) of the obligations Directors of JSC Gazprombank; Miller A.B.; Kruglov A.V.; TRANSACTIONS arising from the Bank Guarantee Agreement, Pavlova O.P. entered into between the Bank and the Principal. Bank guarantee amount: 2 462 330 214. 78 rub. Guarantee valid from 01.12.08 to 31.07.09, fee - 0.5% per annum of the guarantee amount. Surety Agreement expires on 31.08.2012 6 JSC SKA Hockey Club Signing of an Agreement for the Provision to JSC Dyukov A.V., a member of the Board of Directors, the № 173 SKA Hockey Club of production and placement sole executive body of JSC Gazprom Neft and Chairman 22.09.2008 services for Gazprom Neft advertising (sponsor of the Board of Directors of JSC SKA Hockey Club. advertising) on the following terms: services deadline date: by 31.07.2009, total cost of services: 699 600 760 rub. 7 JSC Gazprombank Signing of a Services Agreement between 1. JSC Gazprom holding a more than 20% interest in JSC № 170 Gazprom Neft and JSC Gazprombank for Gazprom Neft and JSC Gazprombank; 16.06.2008 Organization of Initial Offering and Subsequent 2. Members of the Board of Directors of JSC Gazprom Trading of Gazprom Neft’s Series 01-05 Bond Neft who are concurrently members of the Board of Issues. Maximum service fee will not exceed 1% Directors of JSC Gazprombank; Miller A.B.; Kruglov A.V.; of the par value of outstanding Bonds. Pavlova O.P. In 2008 JSC Gazprom Neft did not enter into any major transactions as defined by the current legislation of the Russian TRANSACTIONS APPROVED BY THE GENERAL SHAREHOLDERS’ MEETING Federation. 1 JSC Sibur Holding Petroleum Product Supply Contract between 1. JSC Gazprom holding, together with its affiliates, a № 45 JSC Gazprom Neft and JSC Sibur Holding on the more than 20% interest in JSC Gazprom Neft and JSC 29.06.2008 following basic terms: Sibur Holding; LIST OF INTERESTED-PARTY TRANSACTIONS APPROVED BY THE GOVERNING BODIES OF JSC GAZPROM NEFT Supplier – JSC Gazprom Neft, 2. Members of the Board of Directors of JSC Gazprom Buyer - JSC Sibur Holding; Subject of the Neft holding positions at the governing bodies (Board of № Party to Transaction Subject and Material Terms of Transaction Interested Party Minutes №, Contract – supply of 7.69 thou. tons of petroleum Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev Date products for the amount of 122.58 mln rub. K.G.; Dyukov A.V. TRANSACTIONS APPROVED BY THE BOARD OF DIRECTORS 2 JSC Sibur Holding Petroleum Product Supply Contract between 1. JSC Gazprom holding, together with its affiliates, a № 45 1 JSC Social and Business Acquisition of JSC Okhta shares of an additional 1. JSC Gazprom holding a more than 20% interest in JSC № 165, JSC Gazprom Neft and JSC Sibur Holding on the more than 20% interest in JSC Gazprom Neft and JSC 29.06.2008 Center Okhta issue: Type of shares: common registered; Gazprom Neft and being an affiliate of JSC Social and 11.03.2008 following basic terms: Sibur Holding; Issuer: JSC Social and Business Center Okhta; Business Center Okhta; Supplier – JSC Gazprom Neft, 2. Members of the Board of Directors of JSC Gazprom Form of issue: uncertificated; Number of 2. Dyukov A.V., a member of the Board of Directors, the Buyer - JSC Sibur Holding; Subject of the Neft holding positions at the governing bodies (Board of shares: 122 400; Par value: 1 rub.Contract value: sole executive body of JSC Gazprom Neft and a member Contract – supply of 62.78 thou. tons of petroleum Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev 3 060 000 000 rub. of the Board of Directors of JSC Social and Business products for the amount of 978.12 mln rub. K.G.; Dyukov A.V. Center Okhta. 3 JSC Sibur Holding Petroleum Product Supply Contract between 1. JSC Gazprom holding, together with its affiliates, a № 45 2 JSC Sibur Holding Supply of 2 162.91 mln cub m of associated gas 1.JSC Gazprom holding, together with its affiliates, a № 165 JSC Gazprom Neft and JSC Sibur Holding on the more than 20% interest in JSC Gazprom Neft and JSC 29.06.2008 to JSC Sibur Holding more than 20% interest in JSC Gazprom Neft and JSC 11.03.2008 following basic terms: Sibur Holding; Sibur Holding; Supplier – JSC Gazprom Neft, 2. Members of the Board of Directors of JSC Gazprom 2. Members of the Board of Directors of JSC Gazprom Buyer - JSC Sibur Holding; Subject of the Neft holding positions at the governing bodies (Board of Neft holding positions at the governing bodies (Board of Contract – supply of 0.817 thou. tons of petroleum Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev products for the amount of 9.86 mln rub. K.G.; Dyukov A.V. K.G.; Dyukov A.V. 4 JSC Sibur Holding Petroleum Product Supply Contract between 1. JSC Gazprom holding, together with its affiliates, a № 45 3 JSC Sibur Holding Purchase of 671.03 mln cub m of dry gas from 1.JSC Gazprom holding, together with its affiliates, a № 165 JSC Gazprom Neft and JSC Sibur Holding on the more than 20% interest in JSC Gazprom Neft and JSC 29.06.2008 JSC Sibur Holding more than 20% interest in JSC Gazprom Neft and JSC 11.03.2008 following basic terms: Sibur Holding; Sibur Holding; Supplier – JSC Gazprom Neft, 2. Members of the Board of Directors of JSC Gazprom 2. Members of the Board of Directors of JSC Gazprom Buyer - JSC Sibur Holding; Subject of the Neft holding positions at the governing bodies (Board of Neft holding positions at the governing bodies (Board of Contract – supply of 72.27 thou. tons of petroleum Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev Directors) of JSC Sibur Holding: Golubev V.A..; Seleznev products for the amount of 1 483.7 mln rub. K.G.; Dyukov A.V. K.G.; Dyukov A.V. 5 Gazprom neft Trading Gmbh Oil Supply Contract between JSC Gazprom Neft JSC Gazprom due to the fact that its affiliate – JSC № 46 4 JSC Gazprom Provision of services to JSC Gazprom for 1. JSC Gazprom holding a more than 20% interest in JSC № 165 and Gazprom Neft Trading Gmbh on the following Gazprom Neft holds a more than 20% interest in the 28.11.2008 organizing the transportation of JSC Gazprom Gazprom Neft; 11.03.2008 basic terms: authorized capital of a party to the transaction. Neft’s gas across the Russian Federation in 2008 2. Members of the Board of Directors of JSC Gazprom Supplier – JSC Gazprom Neft, for the amount of 650.91 mln rub. Neft holding positions at the governing bodies of JSC Buyer - Gazprom Neft Trading Gmbh; Subject of Gazprom: Miller A.B.; Golubev V.A.; Kruglov A.V.; Pavlova the Contract – sale of 12 268 thou. tons of oil for O.P.; Podyuk V.G.; Seleznev K.G.; Chuichenko K.G. the amount of 6636 mln USD.
ANNUAL REPORT ANNUAL REPORT 154 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 155 MAJOR AND INTERESTED-PARTY MAJOR AND INTERESTED-PARTY TRANSACTIONS TRANSACTIONS
6 JSC Gazpromneft-Omsk Sale of 983 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 24 Gazprom Neft Trading Gmbh Sale of 6 664 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 the amount of 14.7 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 the amount of 4316 mln USD. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 7 JSC Gazpromneft-Tyumen Sale of 512 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 25 LLC Gazpromneft Provision of transportation and forwarding JSC Gazprom due to the fact that its affiliate – JSC № 46 the amount of 9.3 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 -Lubricants services for the amount of 238.05 mln rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 8 CJSC Gazpromneft-Kuzbass Sale of 1 378 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 26 JSC Gazpromneft- Purchase of 16 541 thou. tons of oil for the JSC Gazprom due to the fact that its affiliate – JSC № 46 the amount of 23.6 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 Noyabrskneftegaz amount of 105.7 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 9 JSC Gazpromneft-Ural Sale of 599 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 27 LLC Zapolyarneft Purchase of 4178 thou. tons of oil for the amount JSC Gazprom due to the fact that its affiliate – JSC № 46 the amount of 8.97 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 of 26.3 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 10 JSC Ekaterinburgnefte- Sale of 366 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 28 LLC Gazpromneft--Khantos Purchase of 137 thou. tons of oil for the amount JSC Gazprom due to the fact that its affiliate – JSC № 46 product the amount of 6.5 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 of 860.3 mln rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 11 JSC Gazpromneft- Sale of 631 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 29 CJSC Archinskoye Purchase of 347 thou. tons of oil for the amount JSC Gazprom due to the fact that its affiliate – JSC № 46 Novosibirsk the amount of 12.02 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 of 2 093.9 mln rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 12 LLC Gazpromneft-Tsentr Sale of 1 011 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 30 LLC Shinginskoye Purchase of 115 thou. tons of oil for the amount JSC Gazprom due to the fact that its affiliate – JSC № 46 the amount of 17.6bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 of 725.3 mln rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction authorized capital of a party to the transaction. 13 LLC Gazpromneft-Severo- Sale of 549 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 31 LLC Sibneft-Yugra Purchase of 7220 thou. tons of oil for the amount JSC Gazprom due to the fact that its affiliate – JSC № 46 Zapad the amount of 10.3 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 of 45.26 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 14 LLC Sibneft- Sale of 491 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 32 JSC Meretoyakhaneftegaz Purchase of 21 thou. tons of oil for the amount of JSC Gazprom due to the fact that its affiliate – JSC № 46 Krasnoyarsknefte-product the amount of 9.2 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 108.6 mln rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 15 LLC Gazpromneft-NIzhniy Sale of 57 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 33 JSC Tomskneft-VNK Purchase of 4 943 thou. tons of oil for the amount JSC Gazprom due to the fact that its affiliate – JSC № 46 Novgorod the amount of 1.08 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 of 30.4 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction. authorized capital of a party to the transaction. 16 LLC Gazpromneft-Kaluga Sale of 95 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 34 JSC Slavneft-MNG Purchase of 6 531 thou. tons of oil for the amount Members of the Management Board of JSC Gazprom № 46 the amount of 1.7 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 of 40.5 bn rub. Neft who are concurrently members of the Board of 28.11.2008 authorized capital of a party to the transaction. Directors of JSC Slavneft-MNG: Zilbermints B.S. 17 LLC Gazpromneft-Noyabrsk Sale of 141 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 the amount of 2.7 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 35 JSC NGK Slavneft Purchase of 569 thou. tons of oil for the amount Members of the Management Board of JSC Gazprom № 46 authorized capital of a party to the transaction. of 3.4 bn rub. Neft who are concurrently members of the Board of 28.11.2008 Directors of JSC Slavneft-MNG: JSC Gazpromneft-Altai Sale of 213 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 18 Dukov A.V., Yakovlev V.V., Zilbermints B.S., Ilyukhina E.A., the amount of 3.6 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 Cherner A.M. authorized capital of a party to the transaction. JSC Gazprombank Deposit Transaction № 251084 of 17.09.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 LLC Gazprom Neft-Asia Sale of 462 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 36 19 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the amount of 5.5 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom authorized capital of a party to the transaction. Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of 20 LLP Gazpromneft- Sale of 325 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 deposit amount - 5 000 000 000 rub. Interest Directors of JSC Gazprombank: Miller A.B.; Kruglov A.V.; Kazakhstan the amount of 3.5 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 rate - 9.5% per annum. Deposit date: 17.09.2008. Pavlova O.P. authorized capital of a party to the transaction. Maturity date: 18.09.2008. 21 LLC Gazpromneft-Tajikistan Sale of 136 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 37 JSC Gazprombank Deposit Transaction № 249318 of 10.09.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 the amount of 1.96 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 authorized capital of a party to the transaction. the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom 22 Gazpromneft-Chelyabinsk Sale of 128 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of LLC the amount of 2.06 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 deposit amount - 2 000 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; authorized capital of a party to the transaction. rate - 8.3% per annum. Deposit date: 10.09.2008. Pavlova O.P. Maturity date: 23.10.2008. 23 JSC Sibneft- Sale of 447 thou. tons of petroleum products for JSC Gazprom due to the fact that its affiliate – JSC № 46 Yaroslavnefteproduct the amount of 7.4 bn rub. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to the transaction.
ANNUAL REPORT ANNUAL REPORT 156 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 157 MAJOR AND INTERESTED-PARTY TRANSACTIONS
38 JSC Gazprombank Deposit Transaction № 247412 of 02.09.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 2 500 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; – 8.05% per annum. Deposit date: 02.09.2008. Pavlova O.P. Maturity date: 21.10.2008. 39 JSC Gazprombank Deposit Transaction № 259120 of 20.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 5 000 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; - 10.5% per annum. Deposit date: 20.10.2008. Pavlova O.P. Maturity date: 21.10.2008. 40 JSC Gazprombank Deposit Transaction № 251362 of 18.09.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007 Transaction terms: Neft who are concurrently members of the Board of deposit amount - 2 000 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; - 8.55% per annum. Deposit date: 18.09.2008. Pavlova O.P. Maturity date: 20.10.2008. 41 JSC Gazprombank Deposit Transaction № 251365 of 18.09.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 3 000 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; - 8.55% per annum. Deposit date: 18.09.2008. Pavlova O.P. Maturity date: 20.10.2008. 42 JSC Gazprombank Deposit Transaction № 249682 of 11.09.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 3 000 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rate - 9.5% per annum. Deposit date: 11.09.2008. Pavlova O.P. Maturity date: 15.10.2008. 43 JSC Gazprombank Deposit Transaction № 257594 of 14.10.2008, 1. 1. JSC Gazprom holding a more than 20% interest in № 45 entered into under Agreement № 2312 on JSC Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 2 000 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; - 7.0% per annum. Deposit date: 14.10.2008. Pavlova O.P. Maturity date: 15.10.2008. 44 JSC Gazprombank Deposit Transaction № 256421 of 09.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 5 000 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rate – 8.0% per annum. Deposit date: 09.10.2008. Pavlova O.P. Maturity date: 14.10.2008. 45 JSC Gazprombank Deposit Transaction № 259677 of 21.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 2 500 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; - 10.0% per annum. Deposit date: 21.10.2008. Pavlova O.P. Maturity date: 24.11.2008.
ANNUAL REPORT ANNUAL REPORTT 158 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JSC GAZPROM NEFT 200808 15915159 MAJOR AND INTERESTED-PARTY MAJOR AND INTERESTED-PARTY TRANSACTIONS TRANSACTIONS
46 JSC Gazprombank Deposit Transaction № 259678 of 21.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 54 JSC Gazprombank Deposit Transaction № 259673 of 21.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount – 2 500 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; deposit amount - 200 000 000 USD. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; - 10.0% per annum. Deposit date: 21.10.2008. Pavlova O.P. rate - 3.55% per annum. Deposit date: 21.10.08. Pavlova O.P. Maturity date: 24.11.2008. Maturity date: 24.11.2008. 47 JSC Gazprombank Deposit Transaction № 259679 of 21.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 55 JSC Gazprombank Deposit Transaction № 260751 of 24.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 2 000 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; deposit amount - 100 000 000. 00 USD. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rate - 8.5% per annum. Deposit date: 21.10.2008. Pavlova O.P. rate - 2.5% per annum. Deposit date: 24.10.08. Pavlova O.P. Maturity date: 14.11.2008. Maturity date: 21.11.2008 48 JSC Gazprombank Deposit Transaction № 259681 of 21.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 56 JSC Gazprombank Deposit Transaction № 1-3295/2007 of 15.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 entered into under Agreement № 1-3295/2007 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom the Procedure for Deposit Operations with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 3 000 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; deposit amount - 175 000 000 Euro. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; - 9.1% per annum. Deposit date: 21.10.2008. Pavlova O.P. rate - 5.15% per annum. Deposit date: 15.10.08. Pavlova O.P. Maturity date: 20.11.2008. Maturity date: 17.11.2008 49 JSC Gazprombank Deposit Transaction № 260037 of 22.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 57 JSC Gazprombank Deposit Transaction № 1-3295/2007-2 of 24.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 entered into under Agreement № 1-3295/2007 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom the Procedure for Deposit Operations with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of Gazprombank of 13.06.2007 Transaction terms: Neft who are concurrently members of the Board of deposit amount - 3 000 000 000 rub. Interest rate Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; deposit amount - 4 000 000 000 .00 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; - 10.0% per annum. Deposit date: 22.10.2008. Pavlova O.P. rate - 8.4% per annum. Deposit date: 24.11.08. Pavlova O.P. Maturity date: 19.11.2008. Maturity date: 25.11.08. 50 JSC Gazprombank Deposit Transaction № 260038 of 22.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 58 JSC Gazprombank Deposit Transaction № 1-3295/2007-3 of 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 24.11.08, entered into under Agreement № Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom 1-3295/2007 on the Procedure for Deposit 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of Operations with JSC Gazprombank of 13.06.2007. Neft who are concurrently members of the Board of deposit amount - 3 000 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; Transaction terms: deposit amount - 2 000 Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rate - 10.0% per annum. Deposit date: 22.10.08. Pavlova O.P. 000 000 rub. Interest rate - 8.75% per annum. Pavlova O.P. Maturity date: 17.11.2008. Deposit date: 24.11.08. Maturity date: 26.11.08. 51 JSC Gazprombank Deposit Transaction № 260039 of 22.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 59 JSC Gazprombank Deposit Transaction № 1-3295/2007-4 of 28.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 entered into under Agreement №1-3295/2007 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom the Procedure for Deposit Operations with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount - 3 000 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; deposit amount - 5 500 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rate - 10.0% per annum. Deposit date: 22.10.08. Pavlova O.P. rate - 10.5% per annum. Deposit date: 28.11.08. Pavlova O.P. Maturity date: 28.11.2008. Maturity date: 08.12.2008. 52 JSC Gazprombank Deposit Transaction № 261361 of 28.10.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 60 JSC Gazprombank Deposit Transaction № 1-3295/2007-5 of 04.12.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 entered into under Agreement № 1-3295/2007 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom the Procedure for Deposit Operations with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of deposit amount -4 000 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; deposit amount - 3 500 000 000.00 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rate - 9.5% per annum. Deposit date: 28.10.08. Pavlova O.P. rate - 8.0% per annum. Deposit date: 04.12.08. Pavlova O.P. Maturity date: 05.11.2008. Maturity date: 08.12.08. 53 JSC Gazprombank Deposit Transaction № 266973 of 19.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 61 JSC Gazprombank Deposit Transaction № 265082 of 12.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007 Transaction terms: Neft who are concurrently members of the Board of Gazprombank of 13.06.2007 Transaction Neft who are concurrently members of the Board of deposit amount - 2 500 000 000 rub. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; terms: deposit amount - 200 000 000.00 USD. Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rate – 8.2% per annum. Deposit date: 19.11.08. Pavlova O.P. Interest rate - 4.2% per annum. Deposit date: Pavlova O.P. Maturity date: 24.11.2008. 12.11.2008. Maturity date: 15.12.2008.
ANNUAL REPORT ANNUAL REPORT 160 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 161 MAJOR AND INTERESTED-PARTY MAJOR AND INTERESTED-PARTY TRANSACTIONS TRANSACTIONS
62 JSC Gazprombank Deposit Transaction № 265084 of 12.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 JSC Gazprombank Agreement of 25.09.2008. Fee payable to the bank 1. JSC Gazprom holding a more than 20% interest in JSC № 45 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 – 70 000 USD (less VAT), Agreement applies to Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom relations between the Parties that have occurred 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of since 01.06.2008 and will remain effective until the Neft who are concurrently members of the Board of deposit amount - 150 000 000.00 USD. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; Parties have performed their obligations in full. Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rate - 4.25% per annum. Deposit date: 12.11.08. Pavlova O.P. Period of Services: from 01.06.2008 to 31.07.2008. Pavlova O.P. Maturity date: 22.12.2008 71 JSC Gazprombank Provision of investment consulting services in 1. JSC Gazprom holding a more than 20% interest in JSC № 45 63 JSC Gazprombank Deposit Transaction № 265086 of 12.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 order to perform the transaction for the purchase Gazprom Neft and JSC Gazprombank; 29.06.2008 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 by JSC Gazprom Neft of Naftna Industrija Srbije 2. Members of the Board of Directors of JSC Gazprom the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom (Serbia). Agreement of 02.07.2008. Monthly fee Neft who are concurrently members of the Board of Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of payable to the Bank – 10 000 USD (less VAT), Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; deposit amount - 50 000 000.00 USD. Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; overheads – within 1 150 000 rub. (less VAT). If the Pavlova O.P. rate - 4.3% per annum. Deposit date: 12.11.08. Pavlova O.P. transaction is signed, the success fee – 2 000 000 Maturity date: 23.12.2008. USD (less VAT). Agreement applies to relations between the Parties that have occurred since JSC Gazprombank Deposit Transaction № 265339 of 13.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 64 01.11.2007 and will remain effective until the entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 Parties have performed their obligations in full. the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Period of Services: from 01.11.2007 to 30.11.2010. Gazprombank of 13.06.2007. Transaction Neft who are concurrently members of the Board of terms: deposit amount - 50 000 000.00 USD. Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; 72 JSC SOGAZ Supplemental Agreement № 5 to Voluntary 1.JSC Gazprom holding, together with its affiliates, a № 46 Interest rate - 4.15% per annum. Deposit date: Pavlova O.P. Medical Insurance Contract № 07LM0502 of more than 20% interest in JSC Gazprom Neft and JSC 28.11.2008 13.11.2008. Maturity date: 18.12.2008. 29.12.2006. Insurance premium: 15 162 683.00 SOGAZ; rub. 2. Members of the Board of Directors of JSC Gazprom Neft JSC Gazprombank Deposit Transaction № 265340 of 13.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 65 holding positions at the governing bodies (Board of Directors) entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 of JSC SOGAZ: Miller A.B. Kruglov A.V. Dubik N.N. the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of 73 JSC SOGAZ Business Risk Insurance Contract № 08- 1.1. JSC Gazprom holding, together with its affiliates, a № 46 deposit amount - 50 000 000.00 USD Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; PR0001F. Insurance premium: 87 475 312.20 rub. more than 20% interest in JSC Gazprom Neft and JSC 28.11.2008 rate - 4.15% per annum. Deposit date: 13.11.08. Pavlova O.P. SOGAZ; Maturity date: 19.12.2008. 2. Members of the Board of Directors of JSC Gazprom Neft holding positions at the governing bodies (Board of JSC Gazprombank Deposit Transaction № 265341 of 13.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 66 Directors) of JSC SOGAZ: Miller A.B., Kruglov A.V., Dubik entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 N.N. the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of 74 LLC Gazpromneft-Tsentr Loan Agreement. Loan amount: 1 305 224 000 JSC Gazprom due to the fact that its affiliate – JSC № 46 deposit amount - 100 000 000.00 USD Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; rub. Maturity date no later than: 30.10.2010. Gazprom Neft holds a more than 20% interest in the 28.11.2008 rate - 4.2% per annum. Deposit date: 13.11.08. Pavlova O.P. authorized capital of a party to transaction. Maturity date: 23.12.2008. 75 LLC Gazpromneft-Tsentr Loan Agreement. Loan amount: 96 864 406.78 JSC Gazprom due to the fact that its affiliate – JSC № 46 67 JSC Gazprombank Deposit Transaction № 265344 of 13.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 rub. Maturity date no later than: 31.12.2011. Gazprom Neft holds a more than 20% interest in the 28.11.2008 entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 authorized capital of a party to transaction. the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom LLC Gazpromneft-Nizhniy Loan Agreement. Loan amount: 483 000 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Gazprombank of 13.06.2007. Transaction terms: Neft who are concurrently members of the Board of 76 Novgorod Maturity date no later than: 01.01.2015. Gazprom Neft holds a more than 20% interest in the 28.11.2008 deposit amount - 50 000 000.00 USD Interest Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; authorized capital of a party to transaction. rate - 4.15% per annum. Deposit date: 13.11.08. Pavlova O.P.. Maturity date: 17.12.2008. 77 LLC Gazpromneft-Nizhniy Loan Agreement. Loan amount: 25 000 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Novgorod Maturity date no later than: 01.01.2015. Gazprom Neft holds a more than 20% interest in the 28.11.2008 JSC Gazprombank Deposit Transaction № 267178 of 20.11.08, 1. JSC Gazprom holding a more than 20% interest in JSC № 45 68 authorized capital of a party to transaction. entered into under Agreement № 2312 on Gazprom Neft and JSC Gazprombank; 29.06.2008 the General Terms of Transactions with JSC 2. Members of the Board of Directors of JSC Gazprom 78 LLC Gazpromneft-Nizhniy Loan Agreement. Loan amount: 6 226 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Gazprombank of 13.06.2007. Transaction Neft who are concurrently members of the Board of Novgorod Maturity date no later than: 01.01.2015. Gazprom Neft holds a more than 20% interest in the 28.11.2008 terms: deposit amount - 200 000 000.00 USD. Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; authorized capital of a party to transaction. Interest rate - 4.2% per annum. Deposit date: Pavlova O.P. 79 LLC Gazpromneft-Nizhniy Loan Agreement. Loan amount: 23 000 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 20.11.2008. Maturity date: 23.12.2008. Novgorod Maturity date no later than: 01.01.2015. Gazprom Neft holds a more than 20% interest in the 28.11.2008 69 JSC Gazprombank Currency exchange transactions entered into 1. JSC Gazprom holding a more than 20% interest in JSC № 45 authorized capital of a party to transaction. under Agreement № 2312 on the General Terms Gazprom Neft and JSC Gazprombank; 29.06.2008 80 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 8 779 641.25 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 of Transactions with JSC Gazprombank of 2. Members of the Board of Directors of JSC Gazprom Maturity date no later than: 31.12.2013. Gazprom Neft holds a more than 20% interest in the 28.11.2008 13.06.2007. Number of transactions: 70, Neft who are concurrently members of the Board of authorized capital of a party to transaction. Currency: USD, amount of currency sold: Directors JSC Gazprombank: Miller A.B.; Kruglov A.V.; 4 410 140 000.00 USD. Pavlova O.P.. 81 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 21 709 898.31 JSC Gazprom due to the fact that its affiliate – JSC № 46 rub. Maturity date no later than: 31.12.2013. Gazprom Neft holds a more than 20% interest in the 28.11.2008 70 JSC Gazprombank Provision of investment consulting services 1. JSC Gazprom holding a more than 20% interest in JSC № 45 authorized capital of a party to transaction. regarding the investment appeal of an asset. Gazprom Neft and JSC Gazprombank; 29.06.2008 Asset means equity interests of JSC Gazprom 2. Members of the Board of Directors of JSC Gazprom Neft 82 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 3 524 515.56 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Neft in JSC Moscow Refinery and JSC who are concurrently members of the Board of Directors Maturity date no later than: 31.12.2013. Gazprom Neft holds a more than 20% interest in the 28.11.2008 Mosnefteproduct. JSC Gazprombank: Miller A.B.; Kruglov A.V.; Pavlova O.P. authorized capital of a party to transaction.
ANNUAL REPORT ANNUAL REPORT 162 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 163 MAJOR AND INTERESTED-PARTY TRANSACTIONS
83 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 20 284 067.80 JSC Gazprom due to the fact that its affiliate – JSC № 46 rub. Maturity date no later than: 31.12.2013. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 84 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 19 350 491.53 JSC Gazprom due to the fact that its affiliate – JSC № 46 rub. Maturity date no later than: 31.12.2013. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 85 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 35 602 200.78 JSC Gazprom due to the fact that its affiliate – JSC № 46 rub. Maturity date no later than: 31.12.2013. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 86 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 27 097 347.50 JSC Gazprom due to the fact that its affiliate – JSC № 46 rub. Maturity date no later than: 31.12.2011. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 87 LLC Gazpromneft-Kaluga Loan Agreement. Loan amount: 1 477 170.00 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Maturity date no later than: 31.12.2011. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 88 LLC Gazprom Neft Asia Loan Agreement. Loan amount::937 382.17 USD JSC Gazprom due to the fact that its affiliate – JSC № 46 Maturity date no later than: 01.05.2009. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 89 LLC Gazpromneft-Resurs Loan Agreement. Loan amount: 815 000 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Maturity date no later than: 18.05.2008. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 90 LLC Gazpromneft-Resurs Loan Agreement. Loan amount: 355 429 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Maturity date no later than: 18.05.2008. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 91 LLC Gazpromneft-Resurs Loan Agreement. Loan amount: 277 000 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Maturity date no later than: 19.05.2008. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 92 LLC Gazpromneft-Resurs Loan Agreement. Loan amount: 52 491 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Maturity date no later than: 24.05.2008. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 93 LLC Gazpromneft-Resurs Loan Agreement. Loan amount: 293 000 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Maturity date no later than: 11.08.2008. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 94 LLC Gazpromneft-Resurs Loan Agreement. Loan amount: 53 330 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Maturity date no later than: 19.09.2008. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 95 LLC Muravlenkovskaya Loan Agreement. Loan amount: 38 535 543 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Transportnaya Kompaniya Maturity date no later than: 1.09.2015. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 96 LLC Muravlenkovskaya Loan Agreement. Loan amount: 40 021 533 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Transportnaya Kompaniya Maturity date no later than: 01.10.2011. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 97 LLC Muravlenkovskaya Loan Agreement. Loan amount: 50 000 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Transportnaya Kompaniya Maturity date no later than: 01.11.2015. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 98 LLC Muravlenkovskaya Loan Agreement. Loan amount: 18 180 000 rub. JSC Gazprom due to the fact that its affiliate – JSC № 46 Transportnaya Kompaniya Maturity date no later than: 23.12.2009. Gazprom Neft holds a more than 20% interest in the 28.11.2008 authorized capital of a party to transaction. 99 LLC Gazprom Neft Aero Loan Agreement. Loan amount: 1 300 000 000. JSC Gazprom due to the fact that its affiliate – JSC № 46 00 rub. Maturity date no later than: 31.12.2018. Gazprom Neft holds a more than 20% interest in the 28.11.2008 Interest rate - 9 % per annum. authorized capital of a party to transaction. 100 LLP Gazpromneft- Loan Agreement. Loan amount: 18 500 000. 00 JSC Gazprom due to the fact that its affiliate – JSC № 46 Kazakhstan USD. Maturity date no later than: 31.12.2012. Gazprom Neft holds a more than 20% interest in the 28.11.2008 Interest rate - 1 % per annum authorized capital of a party to transaction.
ANNUAL REPORT 164 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 ASSET MANAGEMENT AND IMPROVEMENT OF THE CORPORATE STRUCTURE ASSET MANAGEMENT AND IMPROVEMENT OF THE CORPORATE STRUCTURE
ASSET MANAGEMENT AND IMPROVEMENT OF THE CORPORATE STRUCTURE
Improvement of the Company’s corporate governance structure is designed to enhance the efficiency of Gazprom Neft’s operations During 2008 Gazprom Neft and MNGK registered a joint venture - Moscow NPZ Holdings B.V. (Moscow NPZ) in the Netherlands, as a vertically integrated company and optimize the core business management structure at the level of subsidiaries. into which both parties contributed their respective interests in the Moscow Refinery. As a result the venture controls 77.25% of the Moscow Refinery. The Company and MNGK each own 50% of the Moscow NPZ and agreed to jointly manage Moscow Refinery and In February 2009 Gazprom Neft completed the purchase transaction for a 51% interest in Serbian oil company Naftna make all decisions on an equal basis. This transaction will allow for modernization project to be completed at Moscow Refinery. Industrija Srbije (NIS), the transaction amount being 400 mln Euros. Gazprom Neft is a party to the construction project for the Burgas-Alexandroupolis oil pipeline, which is intended to be The Agreement also provides for a program of renovation and modernization of NIS’s refining capacities by 2012; capital routed through the territories of Bulgaria and Greece. The expected length of the pipeline is 280-290 km, depending on the investment will be at least 500 mln Euros. As part of this program measures will be implemented to upgrade the quality of exact route of the pipeline, which has not yet been approved. The pipeline’s initial capacity is expected to be 35 million tons petroleum products to the European standards (Euro-5). The bulk of capital investment will be allocated to improving the of crude oil per year and could potentially be increased to 50 million tons per year. Preliminary estimates indicate the cost of environmental safety of the production processes. constructing the pipeline will be approximately 1.2 bn USD. The pipeline will comprise an oil terminal in Burgas (Bulgaria) and Alexandroupolis (Greece) and a trunk pipeline connecting these terminals with oil pumping stations, oil storages Gazprom Neft intends to strictly observe all the arrangements set out in the purchase agreement. The purpose of the and other related facilities. The pipeline is expected to provide a route for crude oil transportation from the ports of the Company is to enhance the efficiency of NIS’s operations and to propel it to a leadership position in the oil industry of South- Black Sea to the markets of Europe, the USA and Asian-Pacific countries. Russia’s 51% interest in the project is managed Eastern Europe. by Truboprovodny Konsortsium Burgas-Alexandroupolis LLC, of which 33.33% is owned by Rosneft, 33.34% is owned by Transneft and 33.33% is owned by Gazprom Neft. The Government of Greece and Bulgaria hold the remaining stake in Naftna Industrija Srbije (NIS) is one of the largest vertically integrated oil companies in Central Europe engaged in oil equal proportions. In January 2008, a shareholders agreement of the Russian-Greek-Bulgarian company was signed. In refining, petroleum product sales, hydrocarbon production in Serbia and Angola. NIS produces annually around 0.7 mln tons February 2008, a new company, Trans-Balkan Pipeline B.V., was registered in the Netherlands. The current project phase is of oil. NIS is the owner of oil refineries in Pancevo and Novi Sad with a total refining capacity of 7.2 mln tons a year. NIS has developing a feasibility study and obtaining all the necessary approvals in Bulgaria and Greece. a corporate distribution network including tank farms and 480 retail filling stations and is the leading petroleum product supplier in the Serbian market. NIS produces around 85% of all petroleum products consumed in the country. In December 2007 the Company acquired a 50% interest in Tomskneft from JSC Oil Company Rosneft for 3 567 mln USD. The purchase price was based on the fair value of Tomskneft as confirmed by an independent appraiser. As part of this During 2008 Gazprom Neft and MNGK registered a joint venture - Moscow NPZ Holdings B.V. in the Netherlands, to which transaction, the Company and Rosneft agreed to jointly manage the business operations of Tomskneft and purchase their both parties contributed their respective interests in the Moscow Refinery. As a result the joint venture controls 77.25% of respective share of Tomskneft’s annual production. the Moscow Refinery. The Company and MNGK, each holding a 50% stake Moscow NPZ Holdings B.V., came to an agreement to jointly manage the Moscow Refinery and to make all decisions on a parity basis, which will allow for the modernization of In September 2007 Gazprom Neft established a new company – Gazpromneft-Nefteservice LLC – to manage its existing oil the Moscow Refinery to be completed. service companies. At present the Company manages ten service companies, which provide a wide range of services, such
ANNUAL REPORT ANNUAL REPORT 168 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 169 ASSET MANAGEMENT AND IMPROVEMENT OF THE CORPORATE STRUCTURE
as development and survey work, drilling, well-workover, geophysical services, construction of drilling rigs, transportation and other. The company has branches in the major oil producing regions of Russia: Yamal-Nenets Autonomous District, Khanty-Mansi Autonomous District, Tomsk and Omsk Regions.
Gazprom Neft continued to consolidate distribution assets in the Sverdlovsk Region, buying JSC Uralnefteproduct in 2008. This transaction gave Gazprom Neft qualified control over JSC Gazpromneft-Ural and JSC Ekaterinburgnefteproduct.
The Company and JSC Lukoil set up a joint venture, NGK Razvitie Regionov LLC, to be run on a parity basis. The JV’s operations focus on the acquisition of subsoil licenses, geological survey of subsoil plots, hydrocarbon exploration and production, field infrastructure development, implementation of infrastructure projects as well as transportation and sales of hydrocarbons produced. Gazprom Neft intends to continue the practice of joint hydrocarbon exploration and development projects, if these projects are instrumental in expanding the regions of the Company’s operation and in enhancing the efficiency of new fields’ development.
More joint ventures were set up in the area of jet fuel distribution. 2008 saw the establishment of Gazpromneft-Aero Tomsk LLC, Toplivno-Zapravochnaya Kompaniya Severo-Zapad LLC, Gazpromneft-Aero Bryansk LLC, Gazpromneft-Aero Sheremetyevo LLC (Gazprom Neft Group’s interest – 50%), Gazpromnneft-Aero Murmansk LLC (wholly owned).
JSC Gazprom Neft carried on with the consolidation of hydrocarbon production assets. In 2008 JSC Ravninnoye merged with JSC Gazpromneft – Noyabrskneftegaz with the subsoil license for the Ravninnoye oil field transferred to the latter.
JSC Gazprom Neft bought out the stake of Chevron Neft B.V. in joint venture Severnaya Taiga Neftegaz LLC, which holds licenses for the Pyakutinskoye and Aikhetinskoye fields, raising its interest to 100%.
JSC Gazprom Neft has completed the renaming of the Group’s subsidiaries to comply with a uniform standard. Renamed in 2008 were: JSC Gazpromneft-Noyabrsknefegaz (formerly – JSC Sibneft-Noyabrskneftegaz), JSC Gazpromneft-Omsk Refinery (formerly – JSC Sibneft-Omsk NPZ), CJSC Gazpromnef - Severo-Zapad (formerly – CJSC Sibneft - Severo- Zapad), CJSC Gazpromneft-Kuzbass (formerly – CJSC Kuzbassnefteproduct), JSC Gazpromneft-Omsk (formerly JSC Sibneft-Omsknefteproduct), Gazpromneft-Tsentr LLC (formerly Sibneft-AZS Service LLC), JSC Gazpromneft-Ural (formerly - JSC Sverdlovsknefteproduct), CJSC Gazpromneft-Mobilnaya Karta (formerly – CJSC Sibneft-Mobilnaya Karta), CJSC Gazpromneft-Aero Novosibirsk (formerly – CJSC Aeroport-Service), JSC Gazpromneft-Novosibirsk (formerly – JSC Novosibirsknefteproduct VNK).
ANNUAL REPORT 170 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 CREDIT RATINGS AND DEBT PORTFOLIO MANAGEMENT CREDIT RATINGS AND DEBT PORTFOLIO MANAGEMENT
STANDARD & POOR’S RATINGS SERVICES BBB/Baa2 On January 9, 2008, Standard & Poor’s Ratings Services raised its corporate credit rating on JSC Gazprom Neft to "BBB-" from "BB+". The outlook is stable. At the same time, Standard & Poor’s affirmed its "ruAA+" Russia national scale rating on the company. BBB-/Baa3
The stable outlook reflects S&P expectation that Gazprom Neft will maintain strong financial metrics given the continuing high oil price environment. Capital expenditures and investments are, however, likely to increase, reflecting the Company’s BB+/Ba1 need to invest in new fields to offset declines at other major fields. S&P An equalization of the ratings on Gazprom Neft with those on Gazprom may arise after Gazprom entered into an agreement BB/Ba2 to acquire an additional 20% interest in the Company from ENI (in April 2009); if the Company’s strategic importance to Gazprom is further strengthened and Gazprom Neft’s operational and financial integration within the Gazprom group increases; or if there is parental support for future acquisitions, either directly or through dividend reductions. BB-/Ba3
Rating downside could emerge from sizeable debt-financed acquisitions if these are not offset by parental support. Moodus B+/B1 On October 24, 2008, Standard & Poor’s Ratings Services affirmed "BBB-" long-term corporate credit rating and "ruAA+" Russia national scale rating on JSC Gazprom Neft. The outlook is stable. B/B2 The rating on Gazprom Neft continues to be based on a bottom-up approach, with a one-notch uplift for potential support from JSC Gazprom, - the "S&P" report says. B-/B3 Under S&P release, the rating differential to Gazprom reflects Gazprom Neft’s operating and financial autonomy relative 2003 2004 2005 2006 2007 2008 2009 to the Gazprom group, as well as the absence of parental guarantees on Gazprom Neft’s debt.
The stable outlook reflects the agency’s expectation that even if the rating on Gazprom were to be lowered by one notch, CHANGES IN THE COMPANY’S CREDIT RATINGS the rating on Gazprom Neft would likely be affirmed, in line with the bottom-up approach. SOURCE: COMPANY DATA
ANNUAL REPORT 174 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 CREDIT RATINGS AND DEBT PORTFOLIO MANAGEMENT
Table 23. INFORMATION ON THE CREDIT RATINGS ASSIGNED TO JSC GAZPROM NEFT IN 2008 Agency Scale Rating Outlook • Standard&Poor’s International scale in foreign currency ВВВ- Stable International scale in national currency ВВВ- Stable National scale (Russia) ruAA+ Stable • Moody’s International scale in foreign currency Ваа3 Stable SOURCE: STANDARD&POOR'S, MOODY'S 9 10 5
2006 2007 2008 MOODY’S INVESTORS SERVICE On July 4, 2008 Moody’s Investors Service upgraded the senior unsecured ratings of JSC Gazprom Neft ("Gazprom Neft"), including the rating of Gazprom Neft’s senior unsecured 10.75% US$500 million notes with the interest of 10.75% per annum (repaid in January 2009), to Baa3 from Ba1. As part of the upgrade of the ratings into investment grade, the Ba1 Corporate 95 Family Rating and Probability of Default Rating have been withdrawn. 90 91 Gazprom Neft’s ratings have a stable outlook which is based on expectation that the recently upgraded investment grade rating is not expected to move further over the immediate term due to the fundamental constraining factors described above. To maintain current rating Moody’s expect the Company to continue delivering a robust operational and financial performance, while adhering to its financial policies and business plan targets.
Given the Company’s strong performance on the majority of the methodological metrics, the key constraining factors relate to low diversification of Gazprom Neft’s reserves base and exposure to the country and operational risks. Therefore significant improvements in the above factors could bring some upward pressure on the current rating. Additionally, Moody’s would require evidence of continued strong operational and financial performance, production and reserves growth and successful execution on its investment program. Upward pressure could also increase if there was to be a commitment • LONG-TERM LOANS, % by Gazprom to either guarantee Gazprom Neft’s debt. • SHORT-TERM LOANS, %
Decision to raise substantial unsecured debt by Gazprom Neft could eliminate the Group’s financial flexibility and possibly put pressure on ratings (although there is financial headroom at present as compared to 2007 financial ratios). Any uncertainty related the shareholding structure, as well as a major acquisition which would alter the Company’s business and credit risk profile, could also trigger the rating downgrade if not appropriately structured. JSC GAZPROM NEFT’S DEBT STRUCTURE BY TYPE OF BORROWING, % JSC Gazprom Neft’s investment grade ratings expand its borrowing options and reduce the cost of loans (table 23). SOURCE: COMPANY DATA
ANNUAL REPORT 176 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 CREDIT RATINGS AND DEBT PORTFOLIO MANAGEMENT
Table 24. MATURITIES OF LONG-TERM BORROWINGS AS OF DECEMBER 31, 2008 Year Due Amount Due, mln USD 2009 1 472 2010 758 2011 529 2012 211 2013 110 3 080 4 035
3 363 736 736 Table 25. MAJOR BORROWINGS IN 2008 -163 500 Lender Loan Amount Date of Agreement Due Date Interest Rate MLN USD • BBVA $50 000 000.00 24.01.2008 23.01.2009 Libor+0.55 % -800 150 • ZAO Raiffeisenbank $100 000 000,00 26.11.2008 30.11.2009 Libor+4,75 % 975 975 • SMBC, BBVA, BTMU, 23.05.2011 Libor+1,50% 1000 Barclays, West LB AG $1 000 000 000,00 23.05.2008 23.05.2013 Libor+1,75% -500 $750 000 000,00 (first 12 months from the • Vnesheconombank tranche - $150 000 000,00) 15.12.2008 relevant tranche date Libor+5,0% -100 724 1000 -150 1400 Table 26. BORROWING PLANS FOR 2009 724
Instrument Amount, USD 163 • Loan from Vnesheconombank $375 000 000,00 100 600 • Loan from Sberbank $724 000 000,00 Loan Repayment Repayment Repayment Repayment of Repayment Repayment Borrowing Loan Portfolio • Loan from Vnesheconombank $600 000 000,00 Portfolio of Syndicated of Syndicated of Eurobonds BBVA of RBA of VEB from 01.01.10 01.01.09 Loan I Loan II Loan Loan Loan Sberbank, • Other instruments $736 000 000,00 VEB and other
• BBVA • Sberbank • Other borrowings • Syndicated Loan II • Eurobonds • VEB • Syndicated Loan I DEBT OBLIGATIONS • RBA • Syndicated Loan III In 2008 JSC Gazprom Neft continued its policy of borrowing in the foreign debt capital markets. Considering the relatively expensive and limited loan options available through Russian banks, in the reporting year JSC Gazprom Neft did most of the borrowing in the foreign financial markets.
As of December 31, 2008 The Company’s long-term debt was US$ 3,080 million as compared to US$ 3,081 million as of December, 31, 2007. The decrease was due to the partial repayment US$ 2.2 billion syndicated loan obtained from Calyon, ABN-AMRO, Commerzbank and Citibank which is partially offset by a US$ 1 billion syndicated loan from BBVA Bank, BTMU Bank, Barclays Capital, Sumitomo Mutsui Banking Corporation and WestLB Bank obtained in 2008 (table 24, 25).
The loan agreements contain financial covenants that set requirements for the Company’s ratios of Consolidated EBITDA to Consolidated Interest Payable, Consolidated Indebtedness to Consolidated Tangible Net Worth and Consolidated Indebtedness to Consolidated EBITDA. Management believes the Company was in compliance with these covenants as of December 31, 2008 and 2007, respectively (table 26).
On August 14, 2008 the Russian Federal Financial Markets Service conducted state registration of the issues and registration PLANS FOR RESTRUCTURING THE LOAN of the prospectus of documentary interest-bearing non-convertible bearer bonds to be offered to the public for a total of 35.0 PORTFOLIO IN 2009 bn rub. In view of the adverse financial situation, the bond offering was rescheduled for the first half of 2009. SOURCE: COMPANY DATA
ANNUAL REPORT ANNUAL REPORTT 178 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JSC GAZPROM NEFT 200808 17917179 GLOSSARY OF KEY TERMS AND DEFINITIONS
ADR of JSC Gazprom Neft An American depository receipt (an American depository share) issued for JSC Gazprom Neft MET Mineral extraction tax shares. It is equivalent to four common shares of JSC Gazprom Neft. PRMS and SEC International Standards International classification and estimation of hydrocarbon reserves by PRMS (Petroleum FS Filling Station Reserves Management System) and SEC (Securities and Exchange Commission) standards. APR Asia-Pacific Region. It includes countries located in the continental part of Asia and America The standards not only assess the presence of hydrocarbons but also provide estimates as and the Pacific Ocean area. to the economic practicability of their extraction and the justification of their presence as well as take into account the economic life of a field (term of the licenses for its development). BOE Barrel of oil equivalent VAT Value-added tax VIOC Vertically-integrated oil company R&D Research and development GCR Gas- and / or condensate refinery NPZ Refinery EW Exploration work AG Associated gas Gazprom Neft Group, Group, Gazprom JSC Gazprom Neft (parent) and its subsidiaries taken as a whole. UGS Underground Gas Storage Neft RTS Russian Trading System Stock Exchange GTO Geotechnical operations CIS Commonwealth of Independent States – former republics of the USSR, other than Latvia, Non-CIS Foreign countries, other than CIS and Baltic States Lithuania and Estonia SA Subsidiaries and associates JV Joint Venture Dollars, USD US dollars LNG Liquefied natural gas DNEM Differentially-normalized electrical measurements ISO 14001 Standard International environmental standard. It identifies the requirements for the environmental EU European Union quality management system, is used to develop environmental policies subject to legislative requirements. It applies to the environmental aspects of an organization’s activities which EBITDA Earnings before interest, taxes, depreciation and amortization can be controlled and should be influenced. The standard is voluntary and does not replace Associate A company in which Gazprom Neft Group holds more than 20% of voting shares (if a joint legislative requirements. stock company) or 20% of the authorized capital (if a limited liability company). Baltic States Latvia, Lithuania and Estonia АВС1 Hydrocarbon Reserves Explored reserves by Russian classification standards. They represent the part of geological TOE Ton of oil equivalent (coal equivalent). Equal to 877 m3 of natural gas. reserves, extraction of which, as of the date of estimation, is cost-effective, taking into account the market conditions and rational use of modern equipment and technologies, and FER Fuel and energy resources subject to compliance with the subsoil and environmental protection requirements. Explored FC Fueling Complex gas reserves (categories ABC1) are deemed fully recoverable. For oil and gas condensate reserves a special extraction factor is used, calculated on the basis of geotechnical factors. FTS of Russia Federal Tariff Service of Russia С1+С2 Hydrocarbon Reserves C1 category - oil or gas reserves established to be present in specific wells, with favorable FFMS of Russia Federal Financial Markets Service production and geological data also available for other wells. C2 category – oil or gas reserve KhMAD Khanty-Mansi Autonomous District expected to be present within certain known gas-bearing areas on the basis of geological and geophysical data. C2 reserves are treated as preliminary estimates and serve as the Central Asia Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan basis for organizing exploration at a specific field. BFLH Broad fraction of light hydrocarbons CS Compressor station ETF Electronic trading floor m3 Cubic meter of natural gas as measured at a pressure of one atmosphere and 20°C YNAD Yamal-Nenets Autonomous District MICEX Moscow Interbank Currency Exchange 2D, 3D Seismic survey OGCF Oil and gas condensate field SILCO (Siberian Light) Siberian light crude oil
ANNUAL REPORT ANNUAL REPORT 180 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 181 ADDRESSES AND CONTACTS
FULL NAME Joint Stock Company Gazprom Neft ABBREVIATED NAME JSC Gazprom Neft LEGAL ADDRESS 5A Galernaya St., Saint-Petersburg, 117467, Russian Federation MAILING ADDRESS 125A Profsoyuznaya St., Moscow, 117647, Russia INTERNENT ADDRESS http://www.gazprom-neft.ru/ INFORMATION SERVICE Tel: +7 (495) 777-3152; fax: +7 (495) 777-3151
PRESS SERVICE SAPUN Alla, Tel: +7 (495) 777-3143; fax: +7 (495) 777-3142 Directorate for information Policy E-mail: [email protected]
SHAREHOLDER RELATIONS CHUBAROVA Irina Tel: +7 (495) 961-1324; fax: +7 (495) 961-2759 Corporate Governance Department E-mail: [email protected]
INVESTOR RELATIONS SHVETSOV Andrei, Tel: +7 (495) 662-7548 Нead of the Consolidation and International Reporting Department E-mail: [email protected] SIDORKINA Anna, Tel: +7 (495) 662-7548 Head of the Investor Department E-mail: [email protected] KAMENSKIY Alexei, Tel: +7 (495) 662-7548 Chief Specialist of the Investor Department E-mail: [email protected]
AUDITOR The 2008 accounting (financial) statements were audited by Address: 52 Kosmodamianskaya Emb., Bldg. 5, 115054, Moscow. independent auditing firm CJSC PricewaterhouseCoopers Audit Tel: (495) 967-60-00. Fax: (495) 976-60-01
REGISTRAR Closed Joint Stock Company Specialized Registrar - Holder of the Gas Address: 71/32 Novocheremushkinskaya Street, 117420, Moscow Industry Shareholder Register (ZAO Spetsializirovanny Registrator Tel: (495) 719–40–44; fax: (495) 719-45-85 Derzhatel Reestra Aktsionerov Gazovoy Promyshlennosti) (ZAO SP- http://www.draga.ru; эл. почта: [email protected] DRAGa).
This Annual Report was tentatively approved by Resolution No. 180 of the Board of Directors of JSC Gazprom Neft, dated May 15.05. 2009
Director General Dukov A.V.
Chief Accountant Barabash L.A.
ANNUAL REPORT JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 183 SUPPLEMENT 1
JSC Gazprom Neft CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006
CONTENTS
186 REPORT OF INDEPENDENT AUDITORS 187 CONSOLIDATED FINANCIAL STATEMENTS 188 CONSOLIDATED BALANCE SHEETS 189 CONSOLIDATED STATEMENTS OF CASH FLOWS 190 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
ANNUAL REPORT JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 185 SUPPLEMENT SUPPLEMENT
REPORT OF INDEPENDENT AUDITORS CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007 CURRENCY – US$ MILLIONS
CJSC PricewaterhouseCoopers Audit Notes 2008 2007 52 Kosmodamianskaya Emb., Bldg. 5, 115054, Moscow. Assets Tel: (495) 967-60-00. Fax: (495) 976-60-01 • Current assets Cash and cash equivalents 3 2 075 721 Short-term investments 143 - Short-term loans receivable 17 12 Accounts receivable, net 4 1 866 2 264 Inventories3 5 1 256 1 083 Other current assets, net 6 580 680 Total current assets 5 937 4 760 • Long-term investments 7 4 724 4 685 Report of Independent Auditors • Long-term loans receivable 16 88 51 • Oil and gas properties, net 8 7 559 5 802 • Property, plant and equipment, net 9 1 032 832 To the Board of Directors and Shareholders of JSC Gazprom Neft: • Construction-in-progress 10 578 230 • Other non-current assets 172 112 • Non-current deferred income tax assets 17 115 137 In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in Total assets 20 205 16 609 shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of JSC Gazprom Neft and its subsidiaries Liabilities and shareholders’ equity at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the • Current liabilities: period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements Short-term loans 11 613 241 based on our audits. We conducted our audits of these statements in accordance with the auditing standards generally accepted in the Accounts payable and accrued liabilities 12 1 111 1 171 United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Income and other taxes payable4 13 299 734 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts Dividends payable 525 381 and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and Current portion of long-term debt 14 1 472 1 098 evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Total current liabilities5 4 020 3 625 • Long-term debt 14 1 608 2 083 April 15, 2009 • Asset retirement obligations 15 330 324 • Deferred income tax liabilities 17 147 141 Total liabilities 6 105 6 173 • Minority interest 139 3 • Commitments and contingencies 18 • Shareholders’ equity: Common stock (authorized, issued and outstanding: 4,741,299,639 shares, 0.0016 Ruble par value) 22 Additional paid-in-capital 573 573 Retained earnings 13 431 9 858 Less: Common stock held in treasury, at cost (23,359,582 shares as of December 31, 2008) (45) - The company is an authorized licensee of the corporate name and trademark "PricewaterCoopers". This report is a translation of the original prepared in Total shareholders’ equity 13 961 10 433 English. However, in all matters of interpretation of information views or opinions version of the report in the original language takes precedence over the translation. Total liabilities and shareholders’ equity 20 205 16 609
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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 2008, 2007 AND 2006 CURRENCY – US$ MILLIONS CURRENCY – US$ MILLIONS
2008 2007 2007 Operating activities • Net income 4 658 4 143 3 661 • Reconciliation of net income to net cash provided by operating activities: • Income from equity affiliates, net of dividends received (230) (331) (220) • Deferred income tax expense (benefit) 39 (27) 80 • Depreciation, depletion and amortization 1 309 929 803 Notes 2008 2007 2006 • Asset retirement obligation accretion expense net 13 22 21 Revenues of spending on existing obligations • Refined products and oil and gas sales 32 410 21 247 19 931 • Allowance for doubtful accounts 44 (8) (20) • Other 65 520 245 • Gain on disposal of property, plant and equipment and investments (16) (16) (24) Total 20 33 075 21 767 20 176 • Changes in assets and liabilities: Costs and other deductions • Accounts receivable 413 123 (451) • Crude oil, petroleum and other products purchased 8 296 3 928 3 705 • Inventories (173) (302) (345) • Operating expenses 2 060 1 981 1 635 • Other current assets 89 23 (238) • Selling, general and administrative expenses 1 078 874 563 • Other non-current assets (60) (55) (27) • Transportation expenses 1 661 1 279 1 348 • Accounts payable and accrued liabilities (70) 485 110 • Depreciation, depletion and amortization 1 309 929 803 • Income and other taxes payable (572) 330 (30) • Export duties 6 533 3 371 4 669 Net cash provided by operating activities 5 444 5 316 3 320 • Taxes other than income taxes 13 5 222 3 998 2 940 Investing activities • Exploration expenses 193 184 107 • Purchase of investments in associated entities (33) (3 747) (124) • Cost of other sales 474 324 40 • Loans and short-term investments received 372 334 48 Total 26 826 16 868 15 810 • Loans and short-term investments issued (557) (42) (290) Operating income 6 249 4 899 4 366 • Proceeds from disposals of property, plant and equipment and investments 82 31 27 Other income (expense) • Capital expenditures (3 327) (2 212) (1 525) • Income from equity affiliates 7 407 408 507 Net cash used in investing activities (3 463) (5 636) (1 864) • Interest income 100 94 39 Financing activities • Interest expense (167) (149) (126) • Short and long-term loans proceeds received 2 367 4 906 772 • Other income (expense), net 89 45 (6) • Short and long-term loans repaid (2 096) (3 155) (610) • Foreign exchange (loss) gain, net (517) 161 74 • Dividends paid (792) (2 071) (602) • Minority interest (39) - - • Purchase of treasury shares (45) - - Total (127) 559 488 Net cash used in financing activities (566) (320) (440) Income before provision for income taxes 6 122 5 458 4 854 • Effect of exchange rate changes on cash (61) 26 14 • Provision for income taxes 1 425 1 342 1 113 • Change in cash and cash equivalents 1 354 (614) 1 030 • Deferred income tax expense (benefit) 39 (27) 80 • Cash and cash equivalents as of the beginning of the year 721 1 335 305 Total 17 1 464 1 315 1 193 • Cash and cash equivalents as of the end of the year 2 075 721 1 335 Net income 4 658 4 143 3 661 • Supplemental disclosures of cash flows information • Basic and Diluted Earnings per Common Share (US$ per share) 0,98 0,87 0,77 • Cash paid for interest (net of amount capitalized) 159 158 131 • Weighted-average number of common shares outstanding Basic and Diluted (millions) 4 736 4 741 4 741 • Cash paid for income taxes 1 819 1 087 1 104
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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY In 2008, 2007 and 2006 the Company processed approximately The minority interest is calculated based on the shareholders’ equity of FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 62.3%, 60.9% and 56.8% of produced crude oil, respectively, at the each subsidiary as determined under US GAAP. Company’s refinery and other Russian refineries. The remaining CURRENCY – US$ MILLIONS production was sent to export. The Company sells its crude oil MANAGEMENT ESTIMATES under general rules of export quotation applicable for all Russian The preparation of financial statements in conformity with US oil producers. Under these general rules, the export quotas for the GAAP requires management to make estimates and assumptions Common Additiona Treasury Stock Retained Total Transneft pipeline system are defined and approved by the Energy that affect the reported amounts of assets and liabilities in the Stock Paid-in Earnings Shareholders’ Commission of the Russian Government based on the legislation on balance sheet as well as the revenues and expenses during the Capital Equity equal access to the oil pipeline system. reporting periods. Certain significant estimates and assumptions for the Company include: recoverability and useful lives of long- • Balance as of December 31, 2005 2 2 727 - 4 927 7 656 CURRENCY EXCHANGE AND CONTROL term assets and investments; allowances for doubtful accounts • Net income for the year – – – 3 661 3 661 Foreign currencies, in particular the US Dollar, play a significant receivable; asset retirement obligations; legal and tax contingencies; • Common stock dividends – – – (1 386) (1 386) role in the underlying economics of many business transactions in depreciation, depletion and amortization; environmental • Acquisition of treasury shares – – – - - Russia. For the oil and gas sector in particular, substantial export remediation obligations; oil reserves; recognition and disclosure • Balance as of December 31, 2006 2 2 727 - 7 202 9 931 arrangements as well as investing and financing activities are of guarantees and other commitments. While management uses • Net income for the year – – – 4 143 4 143 denominated in foreign currencies such as the US Dollar. its best estimates and judgments, actual results could differ from those estimates and assumptions used. • Common stock dividends – – – (1 487) (1 487) SUMMARY OF SIGNIFICANT ACCOUNTING • Recognition of the financial effect of a FOREIGN CURRENCY TRANSLATION transaction under common control (see Note 7) – (2 154) - – (2 154) POLICIES The management of the Company has determined the US Dollar • Balance as of December 31, 2007 2 573 - 9 858 10 433 BASIS OF PRESENTATION is the functional and reporting currency of the Company as the • Net income for the year – – – 4 658 4 658 The Company maintains its books and records in accordance majority of its revenues, costs, property and equipment purchased, • Common stock dividends – – – (1 085) (1 085) with accounting and taxation principles and practices mandated by debt and trade liabilities are either priced, incurred, payable or • Acquisition of treasury shares – – (45) - (45) the Russian legislation. The accompanying consolidated financial otherwise measured in US Dollars. Monetary assets and liabilities • Balance as of December 31, 2008 2 573 (45) 13 431 13 961 statements were derived from the Company’s Russian statutory have been translated into US Dollars at the exchange rate at the books and records with adjustments and reclassifications made to balance sheet date. Non-monetary assets and liabilities have present them in accordance with accounting principles generally been translated at historical rates. Revenues, expenses and cash accepted in the United States of America ("US GAAP"). flows are translated into US Dollars at average rates for the period or exchange rates prevailing on the transactions dates where NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PRINCIPLES OF CONSOLIDATION AND LONG-TERM practicable. Gains and losses resulting from the re-measurement INVESTMENTS into US Dollars are included in the consolidated statement of The accompanying consolidated financial statements include income. GENERAL the accounts of majority-owned subsidiaries where no minority The official rates of exchange of the Ruble to the US Dollar as of shareholder or group of minority shareholders exercise substantive December 31, 2008, 2007 and 2006 were 29.38 Rubles, 24.55 Rubles DESCRIPTION OF BUSINESS participating rights, and variable interest entities for which the and 26.33 Rubles per US $1.00, respectively. JSC Gazprom Neft (formerly JSC Siberian Oil Company) and its 2009, Gazprom entered into an agreement to exercise its option Company is determined to be the primary beneficiary. Investments The translation of local currency denominated assets and subsidiaries (the “Company”) is a vertically integrated oil company to acquire an additional 20% interest in the Company. in entities that the Company does not control, but has the ability to liabilities into US Dollars for the purpose of these consolidated operating in the Russian Federation. The Company’s principle In April 2009, JSC Gazprom entered into an agreement exercise significant influence over their operating and financial financial statements does not indicate that the Company could activities include the exploration, production and development of oil to acquire an additional 20% interest in the Company. policies, are accounted for under the equity method. Accordingly, the realize or settle, in US Dollars, the reported values of these assets and gas fields, the production of refined petroleum products and Under Russian legislation, natural resources, including Company’s share of net earnings from these companies is included in and liabilities. Likewise, it does not indicate that the Company could distribution and marketing operations through its retail outlets. oil, gas, precious metals and minerals and other commercial the consolidated statements of income as income from equity affiliates. return or distribute the reported US Dollar value of capital to its Export trade is conducted through a wholly owned subsidiary minerals situated within the territory of the Russian Federation All other investments are recorded at cost. As further discussed in Note shareholders. Gazprom Neft Trading GmbH, which operates as a trader for the are the property of the Russian Federation. The Law of the Russian 7, the Company has interests in various Russian and CIS legal entities, Company’s export sales. Federation No. 2395-1, "On Subsurface Resources", regulates which are accounted for using the cost method. Intercompany profits, CASH AND CASH EQUIVALENTS JSC Siberian Oil Company (‘’Sibneft”) was created by Presidential relations arising in connection with the geological study, use and transactions and balances have been eliminated in consolidation. Cash and cash equivalents include all highly liquid investments Decree Number 872 dated August 24, 1995. On September 29, 1995 protection of subsurface resources within the territory of the The Company reviews its equity investments for impairment with original maturities of three months or less from the date of Sibneft’s charter was approved when the Government of the Russian Russian Federation. Pursuant to the Law, subsurface resources whenever events or changes in circumstances indicate that an other purchase. Federation issued Resolution Number 972. The Omsk Registration may be developed only on the basis of a license. The license is than temporary decline in value has occurred. The amount of the Chamber officially registered Sibneft on October 6, 1995. In October issued by the regional governmental body and contains information impairment is based on quoted market prices, where available or SHORT-TERM INVESTMENTS 2005 JSC Gazprom (“Gazprom”) completed its acquisition of a on the site to be developed, the period of activity, financial and other other valuation techniques, including discounted cash flows. Short-term investments consist primarily of bank deposits 75.68% stake in Sibneft, becoming a subsidiary of Gazprom. On May conditions. The Company holds multiple licenses issued by Regional Minority interest in the consolidated balance sheets reflects with original maturities in excess of three months from the date 30, 2006 Sibneft was renamed into “JSC Gazprom Neft”. In April authorities in areas where its subsidiaries are located. minority owners’ percent share of shareholders’ capital in subsidiaries. of purchase.
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ACCOUNTS RECEIVABLE DEPRECIATION, DEPLETION AND AMORTIZATION generally on a field-by-field basis for exploration and production other operating permits require certain actions to be taken by the Accounts receivable are presented at net realizable value. Depreciation, depletion and amortization of oil and gas assets, at an entire complex level for refining assets or at an Company in the abandonment of well bores and related equipment Allowances for doubtful debts are provided for estimated uncollectible properties are provided on the unit-of-production method at the operating unit level for other assets. Long-lived assets committed after the end of production. Such actions include well abandonment amounts. Estimation is made based on aging of the receivable, oil field level based on the ratio of current year production to total by management for disposal within one year are accounted activities, equipment dismantlement and other reclamation past history of settlements with the debtor and existing economic estimated future production from proved developed reserves. Cost for at the lower of amortized cost or fair value, less cost to sell. activities. The Company’s estimates of future abandonment costs conditions. Estimates of allowances require the exercise of judgment of unproved properties are not amortized. Acquisition costs of unproved oil and gas properties are evaluated consider present regulatory or license requirements and are based and the use of assumptions. The past due status of receivables is The provision for depreciation and amortization with respect to periodically and any impairment assessed is charged to expense. upon management’s experience of the costs and requirement of determined based on contractual obligations. Changes in allowances operations other than oil and gas producing activities is computed No impairment has been recognized for the years ended December such activities. Most of these costs are not expected to be incurred for doubtful debts are recorded in the consolidated statements of using the straight-line method based on estimated economic 31, 2008, 2007 and 2006. until several years, or decades, in the future and will be funded from income within selling, general and administrative expenses. lives. Depreciation rates are applied to similar types of buildings general Company’s resources at the time of removal. and equipment having similar economic characteristics, as shown MAINTENANCE AND REPAIR Management believes that present regulatory and permitting LOANS RECEIVABLE below: Maintenance and repair, which are not significant improvements, activities do not stipulate an obligation associated with abandoning Loans receivable are presented at net realizable value. are expensed when incurred. The costs of overhauls and preventive of gathering and oil processing systems, oil storage units and Allowances are provided for estimated losses. Estimation is Asset Group Average Life maintenance performed with respect to oil refining assets are pipelines to main transportation trunks. As a result, the Company made based on past history of settlements with the borrower and Buildings and constructions 8-35 years expensed when incurred. believes that it does not have clear or definitive legal or contractual existing economic conditions. The past due status of a receivable is Machinery and equipment 8-20 years obligations associated with activities to retire or otherwise abandon determined based on contractual obligations. Interest income is Vehicles and other equipment 3-10 years CAPITALIZED INTEREST those assets. accrued when earned and recorded in the consolidated statements Interest is capitalized on expenditures made in connection The Company’s refining operations consist of major industrial of income as a part of interest income. with capital projects that, theoretically, could have been avoided complexes. These industrial complexes have been in operation for IMPAIRMENT OF LONG-LIVED ASSETS if expenditures for the assets had not been made. Interest is only several decades. Because of the nature of the operation of these INVENTORIES Long-lived assets, including proved oil and gas properties at capitalized for the period when construction activities are actually complexes, management believes that these industrial complexes Inventories, consisting primarily of crude oil, refined oil products a field level, are assessed for possible impairment in accordance in progress and until the resulting properties are put into operation. have indeterminable lives, while certain operating components and materials and supplies are stated at the lower of weighted with SFAS No. 144, “Accounting for the Impairment or Disposal During 2008, 2007 and 2006 interest capitalized related to capital and equipment have definite lives. Management believes that average cost or market value. Costs include both direct and indirect of Long-Lived Assets”. Long-live assets used in operations projects amounted to US$ 16 million, US$ 8 million and US$ present regulatory and permitting activities do not stipulate an expenditures and charges incurred in bringing an item or product are assessed for impairment whenever events or changes in 11 million, respectively. obligation associated with abandoning these industrial complexes. to its existing condition and location. circumstances indicate that the carrying amounts may not be Furthermore, management believes that existing regulatory recovered. If the carrying amounts are not expected to be recovered ASSET RETIREMENT OBLIGATIONS requirements do not stipulate an obligation associated with its OIL AND GAS PROPERTIES by undiscounted pretax future cash flows, the assets are impaired The Company records the fair value of legal obligations to retail networks. As a result, the Company believes that it does not Oil and gas properties are accounted for using the successful efforts and an impairment loss is recorded in the amount by which the retire and remove long-lived assets in the period in which the have clear or definitive legal or contractual obligations associated method of accounting whereby property acquisitions, successful asset’s carrying value exceeds its fair value, which is calculated obligation is incurred (typically when the asset is installed at the with activities to retire or otherwise abandon those assets. exploratory wells, all development costs and support equipment based on discounted future cash flows. production location or when drilling is commenced). When the Inasmuch as the regulatory and legal environment in and facilities are capitalized. Exploratory well costs (including costs In the case of oil and gas fields, the net present value of future liability is initially recorded, the Company capitalizes this cost by Russia continues to evolve, there could be future changes to the associated with stratigraphic test wells) are temporarily capitalized cash flows is based on management’s best estimate of future increasing the carrying amount of the related properties, plants requirements and costs associated with abandoning long-lived pending determination of whether such proved oil and gas prices, which is determined with reference to recent historical and equipment. Over time the liability is increased for the change assets. reserves have been found, which justify commercial development. prices and published forward prices, applied to projected in its present value, and the capitalized cost in properties, plants If such reserves are not found, the drilling costs are charged to production volumes of individual fields and discounted at a rate and equipment is depreciated over the useful life of the related INCOME TAXES exploration expenses. Other exploration costs such as geological commensurate with the risks involved. The projected production asset. Russian legislation does not contain the concept of a “consolidated and geophysical expenses and the cost of carrying and retaining volumes represent reserves, including risk-adjusted probable and FAS 143 calls for measurements of asset retirement obligations tax payer” and, accordingly, the Company is not subject to taxation undeveloped properties are expensed as incurred. Intangible drilling possible reserves, expected to be produced based on a stipulated to include, as a component of expected costs, an estimate of the price on a consolidated basis. Current income taxes are provided on costs applicable to productive wells and to development dry holes, as amount of capital expenditures. The production volumes, prices that a third party would demand, and could expect to receive, for taxable profit of each subsidiary as determined under the Russian well as tangible equipment costs and costs of injection wells related and timing of production are consistent with internal projections bearing the uncertainties and unforeseeable circumstances inherent Federation Tax Code at a rate of 24%, as of December 31, 2008, to development of oil and gas reserves are capitalized. and other externally reported information. The price and cost in the obligations, sometimes referred to as a market-risk premium. 2007 and 2006, after adjustments for certain items which are not outlook assumptions used in impairment reviews differ from the To date, the oil and gas industry in Russia has few examples of credit- deductible for taxation purposes. PROPERTY, PLANT AND EQUIPMENT assumptions used in the Standardized Measure of Discounted worthy third parties who are willing to assume this type of risk, for Deferred income tax assets and liabilities are recognized in the Property, plant and equipment are stated at historical cost, net Future Net Cash Flows Relating to Proved Oil and Gas Reserve a determinable price, on major oil and gas production facilities accompanying consolidated financial statements in the amounts of accumulated depreciation. The cost of maintenance, repairs and Quantities. In that disclosure, SFAS No. 69, “Disclosures about Oil and pipelines. Therefore, because determining such a market-risk determined by the Company using the liability method in accordance replacement of minor items of property is charged to expenses. and Gas Producing Activities” requires the use of prices and costs premium would be an arbitrary process, it has been excluded from with SFAS 109 “Accounting for Income Taxes”. This method takes Renewals and betterments of assets are capitalized. at the balance sheet date, with no projection of future changes in the Company’s assets retirement obligation estimates. into account future tax consequences attributable to temporary Upon sale or retirement of property, plan and equipment, the those assumptions. The Company’s field exploration, development, and production differences between the carrying amounts of existing assets and cost and related accumulated depreciation are eliminated from Individual assets are grouped for impairment purposes at the activities include assets related to well bores and related equipment, liabilities for the purpose of the consolidated financial statements the accounts. Any resulting gains or losses are recorded in the lowest level for which there are identifiable cash flows that are gathering and oil processing systems, oil storage units and and their respective tax bases and in respect of operating loss and consolidated statements of income. largely independent of the cash flows of other groups of assets - pipelines to main transportation trunks. Generally, its licenses and tax credit carry-forwards. Deferred income tax assets and liabilities
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are measured using enacted tax rates expected to apply to taxable EARNINGS PER SHARE to final customers is fixed or determinable. Specifically, domestic other things, clarifies initial measurement, decreases in value and income in the years in which those temporary differences are Basic and diluted earnings per common share have been crude oil sales and petroleum product and materials sales are changes in the level of ownership in equity method investments. expected to reverse and the assets be recovered and liabilities be determined by dividing the available income to common shareholders recognized when they are shipped to customers, which is generally The standard is effective on a prospective basis for fiscal years settled. A valuation allowance for deferred tax asset is recorded by the weighted average number of shares outstanding during the when title passes. For export sales, title generally passes at the beginning on or after December 15, 2008, and earlier adoption is when management believes that it is more likely than not that this year. There are no potentially dilutive securities. border of the Russian Federation and the Company is responsible prohibited. The Company does not believe EITF 08-6 will have an tax asset will not be realized in the future. for transportation, duties and taxes on those sales. impact on its financial position, results of operations or cash flows. Starting from January 1, 2007 the Company accounts for CONTINGENCIES Other revenues consist primarily of sales of services such In May 2008, FASB the issued SFAS No. 162, “The Hierarchy uncertain tax positions in accordance with FIN 48 Accounting for Certain conditions may exist as of the date these financial as transportation, construction, utilities and other services are of Generally Accepted Accounting Principles,” which identifies Uncertainty in Income Taxes. Liabilities for unrecognized income tax statements are issued, which may result in a loss to the Company, recognized when goods are provided to customers and services are a consistent framework for selecting accounting principles to benefits under the provisions of FIN 48 together with corresponding but which will only be resolved when one or more future events performed providing that the price for the service can be determined be used in preparing financial statements for nongovernmental interest and penalties are recorded in the consolidated statement occur or fail to occur. The Company’s management and legal and no significant uncertainties regarding realization exist. entities that are presented in conformity with United States of income as income tax expense. Interest and penalties associated counsel assess such contingent liabilities. The assessment of loss Revenues are presented net of VAT. generally accepted accounting principles generally accepted in with tax liabilities are recorded in the consolidated statement of contingencies necessarily involves an exercise of judgment and is a the United States (US GAAP). The current GAAP hierarchy was income as other expenses. The adoption of FIN 48 did not have a matter of opinion. In assessing loss contingencies related to legal BUY/SELL TRANSACTIONS criticized due to its complexity, ranking position of FASB Statements material impact on the Company’s financial position or results of proceedings that are pending against the Company or unasserted In a typical matching buy/sell transaction, the Company enters of Financial Accounting Concepts and the fact that it is directed at operation. claims that may result in such proceedings, the Company’s legal into a contract to sell a particular quantity of crude oil at a specified auditors rather than entities. SFAS No. 162 will be effective 60 days counsel evaluates the perceived merits of any legal proceedings or location and date to a particular counterparty, and simultaneously following the SEC’s approval of the Public Company Accounting DERIVATIVE INSTRUMENTS unasserted claims as well as the perceived merits of the amount of agrees to buy a particular quantity of crude oil at a specified location Oversight Board amendments to AU Section 411, “The Meaning of The Company uses derivative instruments to manage its relief sought or expected to be sought therein. on the same or another specified date from the same counterparty. Present Fairly in Conformity with Generally Accepted Accounting exposure to changes in foreign currency exchange rates. A If the assessment of a contingency indicates that it is probable Prior to April 1, 2006, the Company recorded all matching buy/sell Principles.” The FASB does not expect that SFAS No. 162 will have a substantial portion of the Company’s sales revenues are received that a material loss has been incurred and the amount of the liability transactions in both revenues and cost of crude oil purchased as change in current practice, and the Company does not believe that in US Dollars. Additionally, a significant portion of the Company’s can be estimated, then the estimated liability would be accrued in separate sale and purchase transactions. Effective April 1, 2006, SFAS No. 162 will have an impact on its financial position, results of financing and investing activities are also undertaken in US Dollars. the Company’s financial statements. If the assessment indicates upon adoption of the provisions of Emerging Issues Task Force operations or cash flows. However, Company’s operating expenditures and capital spending that a potentially material loss contingency is not probable, but is (“EITF”) Issue No. 04-13, the Company accounts for matching buy/ In April 2008, the FASB issued FSP on SFAS 142-3, which are primarily denominated in Russian Rubles. Accordingly, a reasonably possible, or is probable but cannot be estimated, then sell arrangements entered into as exchanges of inventory. amends the factors that should be considered in developing renewal decline in the value of the US Dollar against the Russian Ruble the nature of the contingent liability, together with an estimate of or extension assumptions used to determine the useful life of a will negatively impact the Company’s operating results and cash the range of possible loss if determinable and material, would be TRANSPORTATION COSTS recognized intangible asset under SFAS 142 No. 142, “Goodwill and flows. Therefore the Company enters into foreign currency forward disclosed. If loss contingencies can not be reasonably estimated, Transportation expenses recognized in the consolidated Other Intangible Assets.” The intent of this FSP is to improve the contracts to manage this risk. management recognizes the loss when information becomes statements of income represent all expenses incurred in the consistency between the useful life of a recognized intangible asset Derivative instruments are recorded at fair value in either other available. transportation of crude oil and oil products through the Transneft and the period of expected flows used to measure fair value of the current assets or other current liabilities on the consolidated Loss contingencies considered remote are generally not pipeline network, as well as cost incurred by maritime vessel and asset. FSP SFAS 142-3 is effective January 1, 2009, early adoption balance sheet. Realized and unrealized gains and losses are disclosed unless they involve guarantees, in which case the nature railway. Transportation expenses also include all other shipping is prohibited. The provisions of FSP SFAS 142-3 are to be applied presented in the consolidated statements of income on a net basis. of the guarantee would be disclosed. However, in some instances and handling costs. prospectively to intangible assets recognized as of, and subsequent These transactions are not accounted for as hedges pursuant to in which disclosure is not otherwise required, the Company may to, the effective date. Any intangible assets recognized from the SFAS 133 “Accounting for Derivative Instrument and Hedging disclose contingent liabilities of an unusual nature which, in the RECENT ACCOUNTING STANDARDS Company’s acquisition of NIS will be accounted for under these new Activities” or its related guidance. judgment of management and its legal counsel, may be of interest In December 2008, the U.S. Securities and Exchange Commission requirements (refer to Note 21 Subsequent Events). to shareholders or others. (SEC) announced that it had approved revisions to its oil and gas In March 2008, the FASB issued SFAS No. 161, “Disclosures COMMON STOCK reporting disclosures. The new disclosure requirements include about Derivative Instruments and Hedging Activities,” which amends The common stock represents the authorized capital of RETIREMENT AND OTHER BENEFIT OBLIGATIONS introducing a new definition of oil and gas producing activities, SFAS No. 133, “Accounting for Derivative Instruments and Hedging the Company, as stated in its charter document. The common The Company and its subsidiaries do not have any substantial report oil and gas reserves using an unweighted arithmetic Activities.” Enhanced disclosures to improve financial reporting shareholders are allowed one vote per share. Dividends paid pension arrangements separate from the State pension scheme average of the price on the first day of each month during the prior transparency are required and include disclosure about the location to shareholders are determined by the Board of directors and of the Russian Federation, which requires current contributions by 12-month, permit disclosures of probable and possible reserves and amounts of derivative instruments in the financial statements, approved at the annual shareholders’ meeting. the employer calculated as a percentage of current gross salary and other maters. The SEC indicated they will communicate with how derivative instruments are accounted for and how derivatives payments; such contributions are charged to expense as incurred. the Financial Accounting Standards Board (FASB) staff to align affect an entity’s financial position, financial performance and TREASURY STOCK In addition, the Company has no post-retirement benefits or their accounting standards with these new rules. The Company is cash flows. A tabular format including the fair value of derivative Common shares of the Company owned by the Group as of significant other compensated benefits requiring accrual. currently evaluating what impact these new requirements may have instruments and their gains and losses, disclosure about credit balance sheet date are designated as treasury shares and are on its financial position, results of operations or cash flows. risk-related derivative features and cross-referencing within the recorded at cost using the weighted-average method. Gains on RECOGNITION OF REVENUES In November 2008, the FASB ratified EITF 08-6, “Equity Method footnotes are also new requirements. SFAS No. 161 is effective resale of treasury shares are credited to additional paid-in capital Revenues from the production and sale of crude oil, petroleum Investment Accounting Considerations” which clarifies how to for financial statements issued for fiscal years and interim whereas losses are charged to additional paid-in capital to the and chemical products and all other products are recognized when account for certain transactions and impairment considerations periods beginning after November 15, 2008, with early application extent that previous net gains from resale are included therein or deliveries of products to final customers are made, title passes involving equity method investments. EITF 08-6 applies to all and comparative disclosures encouraged, but not required. The otherwise to retained earnings. to the customer, collection is reasonably assured and sales price investments accounted for under the equity method, and among Company has not yet adopted SFAS No. 161. The Company does
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not believe that SFAS No. 161 will have an impact on its financial income and was often combined with other financial statement ACCOUNTS RECEIVABLE position, results of operations or cash flows. amounts. In addition, the ownership interests in subsidiaries In December 2007, the FASB issued SFAS No. 141(R), “Business held by parties other than the parent must be clearly identified, Accounts receivable as of December 31 consists of the Ownership Net book value Combinations.” SFAS No. 141(R) was issued in an effort to labeled, and presented in the equity in the consolidated financial following: Percentage as of continue the movement toward the greater use of fair values in statements separately from the parent’s equity. Subsequent 2008 2008 2007 financial reporting and increased transparency through expanded changes in a parent’s ownership interest while the parent retains its 2008 2007 Investments in equity affiliates: disclosures. It changes how business acquisitions are accounted controlling financial interest in its subsidiary should be accounted Trade receivables $818 $1,220 JSC Slavneft 49.9 $2,710 $2,534 for and will impact financial statements at the acquisition date and for consistently, and when a subsidiary is deconsolidated, any Value added tax receivable 555 898 JSC Tomskneft VNK 50.0 1,458 1,419 in subsequent periods. retained noncontrolling equity interest in the former subsidiary Related party receivables 34 25 JSC Moscow Oil Refinery 38.6 331 316 Certain of these changes will introduce more volatility into must be initially measured at fair value. Other receivables 518 136 Total investments in equity affiliates 4,499 4,269 earnings. The acquirer must now record all assets and liabilities Expanded disclosures, including a reconciliation of equity Less allowance for doubtful accounts (59) (15) of the acquired business at fair value, and related transaction balances of the parent and noncontrolling interest are also Long-term investments, at cost: and restructuring costs will be expensed rather than the previous required. SFAS No. 160 is effective for fiscal years, and Total accounts receivable $1,866 $2,264 JSC Mosnefteprodukt 14 56 method of being capitalized as part of the acquisition. SFAS interim periods within those fiscal years, beginning on or after Other various No. 141(R) also impacts the annual goodwill impairment test December 15, 2008 and earlier adoption is prohibited. Prospective Trade receivables represent amounts due from regular marketing entities 115 129 associated with acquisitions, including those that close before the application is required. At this time, the Company does not have customers in the ordinary course of business, denominated Other entities 96 231 effective date of SFAS No. 141(R). any material noncontrolling interests in consolidated subsidiaries. primarily in US Dollars, and are short-term in nature. Total long-term investments, at cost 225 416 The definitions of a “business” and a “business combination” The Company does not believe that the adoption of SFAS No. 160 Other receivables consist primarily of profits taxes receivable Total long-term investments $4,724 $4,685 have been expanded, resulting in more transactions qualifying will have a material impact on its financial position, results of and other receivables. as business combinations. SFAS No. 141(R) is effective for fiscal operations or cash flows. years, and interim periods within those fiscal years, beginning on INVENTORIES The Company’s share of income in equity affiliates consist of the or after December 31, 2008 and earlier adoption is prohibited. The RECLASSIFICATIONS following as of December 31: Company’s acquisition of NIS will be accounted for under these Certain reclassifications have been made to previously reported Inventories as of December 31 consist of the following: new requirements (refer to Note 21 Subsequent Events). amounts to conform with the current year’s presentation; such 2008 2007 2006 In April 2009, FASB) issued FSP FAS 141(R)-a, “Accounting reclassifications have no effect on net income, net cash flow or 2008 2007 Equity affiliates: for Assets Acquired and Liabilities Assumed in a Business shareholders’ equity. Crude oil $106 $121 JSC Slavneft $ 353 $ 392 $ 503 Combination That Arise from Contingencies,” which amends the Petroleum products 295 356 JSC Tomskneft VNK 39 5 - provisions related to the initial recognition and measurement, CASH AND CASH EQUIVALENTS Materials and supplies 820 577 JSC Moscow Oil Refinery 15 11 4 subsequent measurement and disclosure of assets and liabilities Other 35 29 arising from contingencies in a business combination under SFAS Cash and cash equivalents as of December 31 comprise the Total share of income in equity affiliates $407 $408 $507 following: Total inventories $1,256 $1,083 141(R). FSP SFAS 141(R)-a provides additional guidance for the The Company’s investment in JSC Slavneft and various minority recognition and subsequent accounting for contingencies acquired 2008 2007 OTHER CURRENT ASSETS stakes in Slavneft’ subsidiaries (“Slavneft”) are held through a in a business combination. FSP SFAS 141(R)-a will have the Cash in bank – Rubles $424 $177 series of off-shore entities and an investment trust. During 2005, the same effective date as FAS 141(R), and will therefore be effective Cash in bank – foreign currency 359 237 Other current assets as of December 31 consist of the Company and TNK-BP agreed to jointly manage the refineries of the for all business combinations for which the acquisition date is Bank deposits and other cash equivalents 1,290 306 following: Slavneft group with each party purchasing its share of production, on or after January 1, 2009 and early adoption is prohibited. The refer also to Note 19 Related Party Transactions. During 2008, Cash on hand 2 1 Company’s acquisition of NIS will be accounted for under these new 2008 2007 Slavneft paid dividends to the Company of US$ 177 million (US$ 77 Total cash and cash equivalents $2,075 $721 requirements (refer to Note 21 Subsequent Events). Prepaid customs duties $216 $407 million in 2007 and US$ 287 million in 2006 ). In December 2007, the FASB issued SFAS No.160, “Noncontrolling Advances paid 334 232 The following table summarizes the financial information of Interest in Consolidated Financial Statements, an amendment of The majority of cash in bank is primarily represented by Rubles. Prepaid expenses 22 22 Slavneft as of December 31: Accounting Research Bulletin (ARB) No. 51.” SFAS No. 160 clarifies As of December 31, 2008 the majority of bank deposits are Current deferred tax assets (See Note 17) 8 19 that a noncontrolling interest (previously commonly referred to represented by US Dollars. As of December 31, 2007 the majority of 2008 2007 Total other current assets $580 $680 as a minority interest) in a subsidiary is an ownership interest in bank deposits were represented by Rubles. Bank deposits represent Current assets $1,002 $1,363 the consolidated entity and should be reported as equity in the deposits with original maturities of less than 90 days at the date of Long-term assets 6,453 5,443 consolidated financial statements. acquisition. LONG-TERM INVESTMENTS Total liabilities 2,051 1,897 The presentation of the consolidated income statement has Revenues 7,378 6,239 been changed by SFAS No. 160, and consolidated net income None of the companies listed below are publicly traded in Russia attributable to both the parent and the noncontrolling interest is and due to the nature of the financial markets it is not possible to Net income including minority interest 708 785 now required to be reported separately. Previously, net income obtain current market price for these investments. The significant attributable to the noncontrolling interest was typically reported equity and other long-term investments as of December 31 are In December 2007 the Company acquired a 50% equity interest as an expense or other deduction in arriving at consolidated net summarized below: in JSC Tomskneft VNK (“Tomskneft”) and its subsidiaries from
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2008 2007 a subsidiary of JSC Oil Company Rosneft (“Rosneft”) for US$ The Company’s oil and gas fields and related hydrocarbons In general, short-term loans are used for the provision of Trade accounts payable 511 523 3,567 million. The purchase price was based on the fair value of belong to government authorities. The Company obtains licenses working capital needs. Advances received from customers 165 272 Tomskneft, which amounted to US$ 3,670 million as determined by from such government authorities and pays royalties to explore As of December 31, 2008 the Company has a US$ 50 million Related party accounts payable 87 225 an independent appraiser. As part of this transaction, the Company and produce from these fields. These licenses expire between 2013 loan outstanding from BBVA Bank repayable in US Dollars. The loan Deferred income 64 - and Rosneft agreed to jointly manage the business operations and 2050. During 2007 and 2008 management was successful in bears a floating interest rate of LIBOR plus 0.55% and matures in Accrued interest 40 39 of Tomskneft and to each purchase their respective share of extending several licences and believes the remaining licences January 2009. Other payables 244 112 Tomskneft’s annual production. As both the Company and Rosneft may be extended at the initiative of the Company and management As of December 31, 2008 the Company has a US$ 100 million Total accounts payable 1 111 1 171 are ultimately controlled by the Russian Federation, the transaction intends to extend such licenses for properties expected to produce loan outstanding from Raiffeisenbank repayable in US Dollars. The was deemed to have occurred between entities under common subsequent to their original license expiry dates. loan bears a floating interest rate of LIBOR plus 4.75% and matures control and therefore was accounted for at Rosneft’s historical cost. in November 2009. INCOME AND OTHER TAXES PAYABLE Accordingly, the difference of US$ 2,154 million between the purchase PROPERTY, PLANT AND EQUIPMENT In December 2008 the Company obtained the first tranche of US$ 150 price and historical cost was charged to additional-paid-in-capital in million from a US$ 750 million loan facility from the State Corporation Income and other taxes payable as of December 31 comprise shareholders’ equity for the year ended December 31, 2007. Property, plant and equipment as of December 31 consist of the Bank for Development and Foreign Economic Affairs (Vnesheconombank) the following: The following table summarizes the financial information of following: repayable in US Dollars. The tranche bears a floating interest rate of Tomskneft as of December 31: LIBOR plus 5.00% and matures in December 2009. 2008 2007 2006 2008 2007 As of December 31, 2008 the Company has an interest-free Mineral extraction tax 114 346 2008 2007 Buildings 3 663 3 352 loan from Tomskneft of US$ 289 million, repayable in Rubles Value added tax 53 230 Current assets 881 1 029 Machiner and equipment 1 561 1 393 which matures in August 2009. Tomskneft is a related party to the Excise tax 51 67 Long-term assets 3 880 4 256 Vehicles and other equipment 161 81 Company. Income tax 37 57 Total liabilities 2 496 3 344 5 385 4 826 As of December 31, 2008 the Company has a series of loans Property tax5 31 25 Net income 78 10 Less: Accumulated depreciation (4 353) (3 994) from MNPZ for US$ 17 million, repayable in Rubles, which bears Other taxes 13 9 Total property, plant and equipment, net 1 032 832 interest at a rate between 3,5% to 5% and matures in January 2009. Total income and other taxes payable 299 734 The investment in Tomskneft includes goodwill of US$ 325 million. MNPZ is a related party to the Company. During 2008 Gazprom Neft and MNGK created a joint-venture As of December 31, 2007 the Company has a US$ 50 million Taxes other than income taxes expense as of December 31 – Moscow NPZ Holding B. V., into which both parties agreed to CONSTRUCTION-IN-PROGRESS loan outstanding from ING Bank repayable in US Dollars. The loan comprise the following: contribute their respective interests in JSC Moscow Oil Refinery bears a floating interest rate of LIBOR plus 0.55%, which was repaid (“Moscow Refinery”). In August 2008, the Company transferred Construction-in-progress includes various construction projects and during the year ended December 2008. 2008 2007 2006 its 38.8% interest in the Moscow Refinery to Moscow NPZ Holding machinery and equipment delivered but not installed yet. As of December As of December 31, 2007 the Company had a US$ 75 million Mineral resource extraction tax 4 202 3 139 2 719 B. V. As a result, Moscow NPZ Holding B. V. controls 77.2% of the 31, 2008 construction-in-progress comprises the following: loan from Sumitomo Mitsui Banking Corporation repayable in US Excise duties 828 681 138 Moscow Refinery. The Company and MNGK have agreed to jointly Dollars which bore interest at LIBOR plus 0.55%, which was repaid Property tax 107 87 70 manage the Moscow Refinery. during the year ended December 31, 2008. Construction Machinery & Equipment Other taxes 85 91 13 The following table summarizes the financial information of JSC Work in To be installed Total As of December 31, 2007 the Company had a US$ 40 million loan Total taxes other than income taxes expense 5 222 3 998 2 940 Moscow Oil Refinery as of December 31: Progress outstanding from Raiffeisenbank repayable in US Dollars which Buildings 398 - 398 bore interest rate of LIBOR plus 0.5%, which was repaid during the Plant and machinery 65 - 65 2008 2007 year ended December 31, 2008. LONG-TERM DEBT Vehicles and other 57 58 115 As of December 31, 2007 the Company had a loan from Slavneft Current assets $197 $158 equipment Long-term assets 310 300 of US$ 59 million repayable in Rubles which bore interest at a rate As of December 31, the Company has long-term outstanding Total 520 58 578 of 6%, which was repaid during the year ended December 31, 2008. loans as follows: Total liabilities 144 13 Comparative balance 195 35 230 Slavneft is a related party to the Company. Revenues 432 376 at December 31, 2007 Weighted average interest rates related to the short-term loans 2008 2007 Net income 39 28 outstanding as of December 31, 2008 for US Dollar and Ruble Bonds 500 500 denominated loans equal 5.6% and 0.3%, respectively. Weighted Bank loans outstanding 2 564 2 662 OIL AND GAS PROPERTIES SHORT-TERM LOANS average interest rates related to the short-term loans outstanding Other borrowings 16 19 as of December 31, 2007 for US Dollar and Ruble denominated Less current portion of long- term debt (1 472) (1 098) Oil and gas properties as of December 31 consist of the As of December 31 the Company has short-term loans loans equaled 5.2% and 4.9%, respectively. Total long-term debt 1 608 2 083 following: outstanding as follows: Bank loans are comprised of loan facilities primarily in US 2008 2007 2008 2007 ACCOUNTS PAYABLE AND ACCRUED Dollars from major western banks and their affiliates. Oil and gas properties $15,181 $12,599 Banks 302 165 LIABILITIES In December 2002, the Company placed US$ 500 million in Less: Depreciation, depletion and amortization (7,622) (6,797) Related parties 306 60 7-year Eurobonds on the Luxemburg Stock Exchange (all current Total oil and gas properties, net $7,559 $5,802 Other 5 16 Accounts payable and accrued liabilities as of December 31 as of December 31, 2008). The bonds bear interest of 10.75% per Total short-term loans 613 241 comprise the following: year and have semi-annual coupon payments due on January 15
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and July 15 of each year. These Eurobonds matured and were repaid ASSET RETIREMENT OBLIGATIONS SFAS No. 157 establishes a formal fair value hierarchy based on the advances. A significant portion of the Company’s accounts receivable is in full on January 15, 2009. inputs used to measure fair value. The three levels of the fair value due from domestic and export trading companies. The Company does During 2006 the Company obtained US$ 630 million syndicated The following summarizes the activity of the Company’s asset hierarchy are as follows: not generally require collateral to limit the exposure to loss; however, loan from Citibank and ABN-AMRO Bank maturing in July 2009, retirement obligations: Level 1: Valuations utilizing quoted, unadjusted prices for letters of credit and prepayments may be used. Although collection of bearing a floating interest of LIBOR plus 0.6%. As of December 31, identical assets or liabilities in active markets that the Company these receivables could be influenced by economic factors affecting 2008, the amount outstanding under this syndicated loan is US$ 2008 2007 has the ability to access. This is the most reliable evidence of fair these entities, management believes there is no significant risk of loss 163 million (all current). As of December 31, 2007 the amount Beginning balance as of January 1 324 288 value and does not require a significant degree of judgment. to the Company beyond provisions already recorded. outstanding under the loan was US$ 443 million (including current Change in estimate (15) 13 Level 2: Valuations utilizing quoted prices in markets that are The Company deposits available cash mostly with a variety portion of US$ 280 million). New obligations incurred 8 1 not considered to be active or financial instruments for which all of Russian banks and Russian affiliates of international banks. During 2007 the Company obtained US$ 2.2 billion syndicated Spending on existing obligations (12) (1) significant inputs are observable, either directly or indirectly for Management periodically reviews the creditworthiness of the banks loan from Calyon, ABN-AMRO, Commerzbank and Citibank maturing Accretion expense 25 23 substantially the full term of the asset or liability. in which it deposits cash. in September 2010, bearing a floating interest rate of LIBOR plus Ending balance as of December 31 330 324 Level 3: Valuations utilizing significant, unobservable inputs. Prepaid VAT, representing amounts payable or paid to suppliers, 0.75%. As of December 31, 2008, the amount outstanding under This provides the least objective evidence of fair value and requires is recoverable from the tax authorities via offset against VAT payable this syndicated loan is US$ 1.4 billion (including current portion of a significant degree of judgment. to the tax authorities on the Company’s revenue or direct cash US$ 800 million). As of December 31, 2007 the amount outstanding FAIR VALUE OF FINANCIAL INSTRUMENTS The Company’s only assets and liabilities measured at fair receipts from the tax authorities. Management periodically reviews under the loan was US$ 2.2 billion (including current portion of US$ value on a recurring basis are its derivative financial instruments, the recoverability of the balance of prepaid VAT and believes it is 800 million). FAIR VALUES which have been valued using Level 2 inputs under the fair value fully recoverable within one year. During 2008 the Company obtained US$ 1 billion in syndicated The estimated fair values of financial instruments are determined hierarchy. loan in two tranches from BBVA Bank, BTMU Bank, Barclays with reference to various market information and other valuation The Company uses derivative financial instruments to manage its INCOME TAXES Capital, Sumitomo Mutsui Banking Corporation and WestLB Bank. methodologies as considered appropriate, however considerable exposure to changes in foreign currency exchange rates. A majority of First tranche in amount of US$ 315 million bears a floating interest judgment is required in interpreting market data to develop these Company’s revenues are received in US Dollars, a growth or a decline The Company’s provision for income taxes as reported in the rate of LIBOR plus 1.5% and matures in May 2011. Second tranche estimates. Accordingly, the estimates are not necessarily indicative in the value of the US Dollar against the Russian Ruble impacts accompanying consolidated statements of income for the years in amount of US$ 685 millions bears a floating interest rate of of the amounts that the Company could realize in a current market the Company’s operating results and cash flows. During 2008 the ended December 31 is as follows: LIBOR plus 1.75% and matures in May 2013. situation. Certain of these financial instruments are with major Company entered into a number of foreign currency forwards with As of December 31, 2007 the Company had US$ 17 million (all financial institutions and expose the Company to market and credit maturities between September 2008 and January 2009 for a total 2008 2007 2006 in current) loan from Gazprombank, bearing interest rate of 9.60%, risk. The creditworthiness of these institutions is routinely reviewed notional value of US$ 1.7 billion to manage its future exposures to Current income taxes expense 1 425 1 342 1 113 which was repaid during the year ended December 31, 2008. and full performance is anticipated. the variability in foreign currency rates under this program. Deferred income taxes expense (benefit) 39 (27) 80 The loan agreements contain financial covenants that require The net carrying values of cash and cash equivalents, short- As of December 31, 2008, the Company has only one open Total provision for income taxes 1 464 1 315 1 193 the Company’s ratios of Consolidated EBITDA to Consolidated term investments, short-term loans receivable, accounts receivable derivative contract, with a fair value (loss) of US$ 9 million, which Interest Payable, Consolidated Indebtedness to Consolidated and payable approximate their fair values because of the short is included in other accrued liabilities on the consolidated balance The current portion of income taxes represents the Tangible Net Worth and Consolidated Indebtedness to maturities of these instruments. sheet. During the year ended December 31, 2008, the Company total income tax expense for the Company and each of its Consolidated EBITDA. Management believes the Company is in Long-term loans receivables of US$ 88 million and US$ 51 recognized US$ 179 million in realized losses in foreign exchange subsidiaries. Although the Company does not pay tax on compliance with these covenants as of December 31, 2008 and million are mostly due from related parties as of December 31, loss, net in the consolidated statement of income. a consolidated basis, a reconciliation of expected income 2007, respectively. 2008 and 2007, respectively. These loans bear no interest and The Company does not purchase, hold or sell derivative financial tax expense to the actual tax expense for the years ended Maturities of long-term loans as of December 31, 2008 are as mature between 2010 and 2018. The fair value of these loans is instruments unless it has an existing asset or obligation or December 31 is as follows: follows: approximately US$ 52 million and US$ 37 million as of December anticipates a future activity that is likely to occur that will result in 31, 2008 and 2007 assuming a discount rate of 13.0% and 10.0% an exposure to foreign exchange risk. The Company does not enter 2008 2007 2006 Year due Amount due as of December 31, 2008 and 2007, respectively (CBR interbank into any derivative instruments for speculative purposes. Income before income taxes 6 122 5 458 4 854 2009 1 472 refinancing rate). In February 2007, the FASB issued SFAS No. 159, “The Fair Statutory income tax rate 24,0% 24,0% 24,0% 2010 758 As discussed in Note 7, the Company has investments in certain Value Option for Financial Assets and Financial Liabilities, “Expected” income tax expense 1 469 1 310 1 165 2011 529 Russian and CIS companies. There are no quoted market prices for including an amendment of FASB Statement No. 115, “ which Add (deduct) tax effect of: 2012 211 these instruments and a precise estimate of fair value could not be permits companies to measure certain assets and liabilities at fair Foreign income taxed at different rates 5 (8) (1) 2013 110 made without incurring excessive costs. value. The standard was effective on January 1, 2008; however, the Difference between enacted tax rate and (1) (10) (20) 3 080 Loan arrangements on short-term and long-term debt have both Company elected to not apply the fair value option for any eligible taxes to be withheld from dividends fixed and variable interest rates that reflect the currently available assets or liabilities. Accordingly, the adoption of this standard Non-deductible expenses and other (9) 23 49 terms for similar debt. Management believes the carrying values had no impact on the Company’s financial position, results of permanent accounting of short-term and long-term debt are not materially different from operations, or cash flows. differences Income taxes 1 464 1 315 1 193 their fair values. Effective tax rate 23,9% 24,1% 24,6% In September 2006, the FASB issued SFAS No. 157, “Fair CREDIT RISK Value Measurements,” which establishes a formal framework for Company’s financial instruments that are potentially exposed to Effective January 1, 2009 the income tax rate in Russia has been measuring fair values of assets and liabilities in financial statements concentrations of credit risk consist primarily of accounts receivable, reduced to 20%. This rate change did not have a significant impact that are already required by US GAAP to be measured at fair value. cash and cash equivalents, as well as prepaid VAT, loans receivable and on the Company’s deferred taxes.
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Temporary differences between the Russian statutory accounts periods. The years 2007 and 2008 are currently open for review. Moscow Refinery. Such transactions are in the ordinary course of to split Tomskneft’s production based on each party’s respective and these financial statements give rise to the following deferred Management believes it has adequately provided for any probable business and on terms available to other suppliers. The information 50% interest. As of December 31, 2008 the Company has US$ 10 income tax assets and liabilities as of December 31: losses that might arise from these maters. on transactions with Moscow Refinery for the years ended December million in payables to Tomskneft and US$ 7 million in receivables 31 is presented below: from Tomskneft. 2008 2007 OPERATING ENVIRONMENT Substantially all of the Company’s short-term and long-term Assets arising from the tax effect of: While there have been improvements in the economic situation 2008 2007 2006 loans receivable are due from related party balances. Allowance for doubtful accounts 2 5 in the Russian Federation in recent years, the country continues Processing fees 100 95 65 Inventories - 9 to display some characteristics of an emerging market. These Oil products purchased 8 7 - SEGMENT INFORMATION Prepaid expenses 6 5 characteristics include, but are not limited to, the existence of a Oil products sales 10 9 5 Current deferred income tax assets 8 19 currency that is not freely convertible in any countries outside of Presented below is information about the Company’s operating Asset retirement obligation 66 78 the Russian Federation, restrictive currency controls, and a level As of December 31, 2008 the Company has US$ 14 million segments for the years ended December 31, 2008, 2007 and Tax loss carryforward 27 17 of inflation. The prospects for future economic stability in the in payables to Moscow Refinery. As of December 31, 2007 the 2006. The Company determined its operating segments based on Fixed assets 22 42 Russian Federation are largely dependent upon the effectiveness of Company had US$ 14 million in payables to Moscow Refinery and differences in the nature of their operations considering the regular Non-current deferred income tax assets 115 137 economic measures undertaken by the government, together with US$ 2 million in receivables from Moscow Refinery. review by the chief operating decision maker to make decisions Equity Investment and other investments (22) (17) legal, regulatory, and political developments. about resources to be allocated and to assess performance of the Fixed assets (125) (124) The ongoing global liquidity crisis has resulted in, among other SLAVNEFT GROUP (SLAVNEFT) Company. Deferred income tax liability (147) (141) things, a lower level of capital market funding and lower liquidity During 2008 the Company conducted numerous transactions The exploration and production segment explores, develops levels across the Russian Federation. The uncertainties in the global with Slavneft or its subsidiaries. The Company and TNK-BP have in and produces crude oil and natural gas and sells its production Net deferred income tax asset (liability) (24) 15 financial market, has also led to bank failures and or bank rescues. principle agreed to split Slavneft’s production based on each party’s to the refining, marketing and distribution segment. The refining, While the Russian government has introduced a range of stabilization respective interest. The information on transactions with Slavneft marketing and distribution segment processes crude oil into refined For Russian income tax purposes, certain subsidiaries of the measures aimed at providing liquidity and supporting debt refinancing for the years ended December 31 is presented below: products and purchases, sells and transports crude oil and refined Company have accumulated tax losses totaling US$ 135 million as for Russian banks and companies, such circumstances could affect petroleum products. of December 31, 2008 (US$ 73 million as of December 31, 2007), the ability of the Company to obtain new borrowings and re-finance 2008 2007 2006 Operating Segments as of and for the year ended December 31, resulting in associated deferred income tax assets of US$ 27 and its existing borrowings at terms and conditions similar to those Processing fees 234 196 130 2008: US$ 17 million, respectively. Tax losses carried forward as of applied to earlier transactions. Additionally, the uncertainty in the Crude, gas and oil products purchased 3 199 2 510 2 855 December 31, 2008 expire between 2012 and 2017. global markets combined with other local factors has led to very high Crude and oil products sales 609 555 644 volatility in the Russian Stock Markets during 2008. COMMITMENTS AND CONTINGENCIES Management is unable to reliably determine the effects on the As of December 31, 2008 the Company has US$ 54 million in Company’s future financial position, results of operations or cash payables to Slavneft and US$ 16 million in receivables from Slavneft. TAXES flows as a result of the ongoing crisis. Management believes As of December 31, 2007 the Company had US$ 173 million in During 2008, tax authorities completed reviews over the the Company’s current and long-term investment and capital payables to Slavneft and US$ 17 million in receivables from Slavneft. operations of the Company and its subsidiaries for the year ended expenditures program can be funded through cash generated from Revenues and Exploration Production Refining, Marketing and Distribution Elimination Consolidated December 31, 2006. There were no significant findings as a result existing operations. Management also believes the Company has GAZPROM GROUP (GAZPROM) Revenues from external customers 127 32 948 - 33 075 of these reviews. the ability to obtain syndicated loans and other financings as needed During 2008 the Company conducted numerous transactions Inter-segment revenues 7 899 102 (8 001) - Russian tax and customs legislation is subject to varying to fund business acquisitions and other transactions that may arise with Gazprom, its primary shareholder, or its subsidiaries. The Total 8 026 33 050 (8 001) 33 075 interpretations, and changes, which can occur frequently. in the future (Refer to Note 21 Subsequent Events). information on transactions with Gazprom for the years ended Operating income 828 5 421 - 6 249 Management’s interpretation of such legislation, including the December 31 is presented below: Capital expenditures 2 979 348 - 3 327 allocation of tax payments to the Federal and Regional budgets, ENVIRONMENTAL MATTERS Depreciation, depletion and amortization 1 193 116 - 1 309 as applied to the transactions and activity of the Group may be The enforcement of environmental regulation in the Russian 2008 2007 2006 Income tax expense 281 1 183 - 1 464 challenged by the relevant authorities. Federation is evolving and the enforcement posture of government Gas and oil products purchased $64 $36 $16 Segment assets as of December 31, 13 086 15 868 (8 749) 20 205 The Russian tax authorities may be taking a more assertive authorities is continually being reconsidered. The Company Gas and oil products sales 67 17 14 2008 position in their interpretation of the legislation and assessments, periodically evaluates its potential obligations under environmental and it is possible that transactions and activities that have not regulation. Management is of the opinion that the Company has met As of December 31, 2008 the Company has US$ 9 million been challenged in the past may be challenged. The Supreme the government’s requirements concerning environmental matters, in payables to Gazprom and US$ 11 million in receivables from Arbitration Court issued guidance to lower courts on reviewing tax and therefore believes that the Company does not have any material Gazprom. As of December 31, 2007 the Company had US$ 38 cases providing a systemic roadmap for anti-avoidance claims, current environmental liabilities. million in payables to Gazprom and US$ 6 million in receivables and it is possible that this will significantly increase the level from Gazprom. and frequency of tax authorities scrutiny. As a result, significant RELATED PARTY TRANSACTIONS additional taxes, penalties and interest may be assessed. Fiscal TOMSKNEFT GROUP (TOMSKNEFT) periods remain open to review by the authorities in respect of JSC MOSCOW OIL REFINERY (MOSCOW REFINERY) For the year ended December 31, 2008 the Company purchased taxes for the preceding three calendar years. Under certain During 2008 the Company processed crude oil based on crude and gas from Tomskneft or its subsidiaries amounting to US$ circumstances reviews by tax authorities may cover longer processing agreements and conducted other transactions with 1,326 million. The Company and Rosneft have in principle agreed
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SUPPLEMENTARY INFORMATION ON OILAND GAS ACTIVITIES (UNAUDITED) (IN MILLIONS OF US DOLLARS)
Operating Segments as of and for the year ended December 31, For the years ended December 31, 2008, 2007 and 2006 the As required by SFAS No. 69, “Disclosures about Oil and Gas Producing The Company’s share in acquisitions, exploration and development 2007: Company had one customer which accounted for approximately 20.4%, Activities”, the Company is making certain supplemental disclosures costs of its equity investees was US$ 800 million, US$ 682 million and 27.1% and 26.6% of the Company’s sales, respectively. Management about its oil and gas exploration and production operations. While this US$ 375 million in 2008, 2007 and 2006, respectively. does not believe the Company is reliant on any particular customer. information was developed with reasonable care and disclosed in good The geographical segmentation of the Company’s revenue for faith, it is emphasized that some of the data is necessarily imprecise RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING the years ended December 31 is presented below: and represents only approximate amounts because of the subjective ACTIVITIES judgments involved in developing such information. Accordingly, The Company’s results of operations from oil and gas producing 2008 2007 2006 this information may not necessarily represent the current financial activities are shown below. Natural gas production does not condition of the Company or its expected future results. represent a material portion of the Company’s total oil and gas Revenues Exploration and Production Refining, and Marketing Distribution Elimination Consolidated Export $ 19 372 $ 13 071 $ 14 021 Revenues from external customers 86 21 681 - 21 767 Domestic 11 320 7 110 4 923 The Company’s exploration and development activities are production. Inter-segment revenues 6 474 21 (6 495) - CIS 2 383 1 586 1 232 exclusively within the Russian Federation; therefore, all of the Sales are derived from realized prices applicable to third party Total revenues from external information provided in this section pertains entirely to this region. crude oil sales to the Company’s various markets (export, domestic Operating income 6 560 21 702 (6 495) 21 767 $ 33 075 $ 21 767 $ 20 176 Capital expenditures 814 4 085 - 4 899 customers and CIS). Transfers to the Company’s refining operations represent Depreciation, depletion and 2 045 167 - 2 212 CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING prices equivalent to those that could be obtained in an arm’s-length amortization Преимущественно все долосрочные активы Компании рас- ACTIVITIES transaction. Income tax expense 838 91 - 929 положены в Российской Федерации. The following tables set forth information regarding oil and Results of operations for oil and gas producing activities do Segment assets as of December 31, 281 1 034 - 1 315 Substantially all of the Company’s long-lived assets are located gas exploration and development costs. The amounts reported as not include general corporate overhead and monetary effects, or 2007 in the Russian Federation. costs incurred include both capitalized costs and costs charged to their associated tax effects. Income tax is based on statutory rates Сементные активы по состоянию на 11 074 15 025 (9 490) 16 609 expense during the period ended December 31: for the years ended, respectively, adjusted for tax deductions, tax 31 декабря 2007 . SUBSEQUENT EVENTS credits and allowances. For the period ended December 31 results On January 14, 2009 the Company obtained a US$ 375 million 2008 2007 2006 of operations are as follow: Operating Segments as of and for the year ended December 31, loan from Vnesheconombank. The loan bears interest at 10.75% Total capitalized costs of oil and gas $ 15 181 $ 12 599 10 870 2006: and matures in January 2010. properties 2008 2007 2006 On February 03, 2009 the Company completed its acquisition of a Less: Accumulated depreciation, depletion (7 622) (6 797) (6 301) Revenues from net production 51% interest in Serbia’s Serbia’s Naftna Industrija Srbije (NIS) for € and amortization 400 million (approximately US$ 564 million). As part of the purchase Total net capitalized costs of oil and gas $ 7 559 $ 5 802 4 569 Sales 10 262 6 687 7 019 agreement the Company pledged to invest € 500 million (approximately properties Transfers 4 713 4 540 3 446 US$ 705 million) to rebuild and upgrade NIS’s refining facilities. NIS is Total revenues 14 975 11 227 10 465 one of the largest vertically integrated oil companies in central Europe, The Company’s share in the net capitalized costs of equity Production costs (1 602) (1 590) (1 080) with oil production of approximately 0.7 million tones per year from investees as of December 31, 2008, 2007 and 2006 was US$ 3,949 Accretion expenses (25) (23) (21) Revenues Exploration and Production Refining, and Marketing Distribution Elimination Consolidated its oil and gas exploration and production operations in Serbia and million, US$ 3,883 million and US$ 1,723 million, respectively. Revenues from external customers 79 20 097 - 20 176 Angola. NIS also operates two oil refineries in Pancevo and Novi Sad, Depreciation, depletion and amortization (1 193) (838) (713) Inter-segment revenues 5 415 18 (5 433) - Serbia, with a total processing capacity of 7.3 million tones per year 2008 2007 2006 Taxes, other than income tax (9 187) (5 578) (5 729) Total 5 494 20 115 (5 433) 20 176 and operates a network of retail stations throughout Serbia. Costs incurred in oil and gas properties acquisitions, exploration and Pretax income from producing activities 2 968 3 198 2 922 Operating income 714 3 652 - 4 366 On February 13, 2009 the Company obtained a US$ 724 million development activities Income tax expenses (637) (659) (614) Capital expenditures 1 394 131 - 1 525 from Sberbank. The loan is repayable in 18 months and bears Property acquisition costs - $ 51 - Depreciation, depletion and 713 90 - 803 interest at 10.25%. Exploration costs 193 184 107 Results of oil and gas producing activities 2 331 2 539 2 308 amortization On March 16, 2009 the Company obtained the second tranche Development costs 2 582 1 729 1 127 Income tax expense 270 923 - 1 193 of US$ 150 million from the US$ 750 million loan facility from Total costs incurred in oil and gas properties $ 2 775 $ 1 964 $ 1 234 The Company’s share in the results of operations for oil and gas Segment assets as of December 31, 7 717 9 721 (3 336) 14 102 Vnesheconombank. The tranche bears a floating interest rate of acquisitions, exploration and development production of equity investees was US$ 992 million, US$ 743 million 2006 LIBOR plus 5.00% and matures in March 2010. activities and US$ 281 million in 2008, 2007 and 2006, respectively.
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PROVED OIL AND GAS RESERVE QUANTITIES Proved reserves are defined as the estimated quantities of oil Total net proved reserves of crude oil and gas condensate are assuming continuation of year end economic conditions. Estimated The Company’s share in the discounted value of future cash and gas, which geological and engineering data demonstrate with presented below (in millions barrels of oil equivalent): future income taxes are calculated by applying appropriate year-end flows related to the oil and gas reserves of equity investees was reasonable certainty to be recoverable in future years from known statutory tax rates. These rates reflect allowable deductions and tax US$ 3,553 million, US$ 16,365 million and US$ 4,917 million in reservoirs under existing economic and operating conditions. In some 2008 2007 2006 credits and are applied to estimated future pre-tax cash flows, less 2008, 2007 and 2006, respectively. cases, substantial new investment in additional wells and related Proved reserves at January 1, 4 203 3 963 3 530 the tax bases of related assets. Discounted future net cash flows support facilities and equipment will be required to recover such proved have been calculated using a 10% discount factor. Discounting PRINCIPAL SOURCES OF CHANGES IN STANDARDIZED reserves. Due to the inherent uncertainties and the limited nature Production (234) (253) (255) requires a year-by-year estimate of when future expenditures will MEASURE OF DISCOUNTED FUTURE of reservoir data, estimates of underground reserves are subject to Revision of previous estimates and improved (722) 493 688 be incurred and when reserves will be produced. NET CASH FLOWS change over time as additional information becomes available. recovery The information provided in tables set out below does not Management believes that proved reserves should include Proved reserves at December 31, 3 247 4 203 3 963 represent management’s estimate of the Company’s expected future 2008 2007 2006 quantities, which are expected to be produced after the expiry Minority’s share included in the above proved 10 30 26 cash flows or of the value Company’s proved oil and gas reserves. Discounted present value as of 34 265 18 172 18 208 dates of the Company’s production licenses. These licenses expire reserves Estimates of proved reserves quantities are imprecise and change beginning of year between 2013 and 2050, with the most significant licenses expiring in Proved developed reserves 2 281 2 923 2 857 over time, as new information becomes available. Moreover, probable Sales and transfers of oil produced, net (4 186) (4 058) (3 656) 2013 and 2014. Management believes the licences may be extended and possible reserves, which may become proved in the future, are of production costs and other operating at the initiative of the Company and management intends to extend The Company’s share in the proved reserves of equity investees was excluded from the calculations. The valuation prescribed under expenses such licenses for properties expected to produce subsequent to 1,676 million BOE, 1,874 million BOE and 1,325 million BOE in 2008, 2007 SFAS No.69 requires assumptions as to the timing and the amount Net change in prices received per (31 333) 17 885 679 their license expiry dates. The Company has disclosed information and 2006, respectively. The Company’s share in the proved developed of future development and production costs. The calculations should barrel, net of production costs and other on total proved oil and condensate and gas reserve quantities and reserves of equity investees was 1,278 million BOE, 1,441 million BOE not be relied upon as an indication of the Company’s future cash operating expenses standardized measure of discounted future net cash flows. and 1,064 million BOE in 2008, 2007 and 2006, respectively. flows or of the value of its oil and gas reserves. Changes in future development costs (115) (2 167) (1 701) Proved developed reserves are those reserves, which are Development costs incurred 2 975 2 044 1 397 expected to be recovered through existing wells with existing STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH 2008 2007 2006 during the period equipment and operating methods. Proved undeveloped reserves FLOWS AND CHANGES THEREIN RELATING TO PROVED OIL AND Future cash inflows $ 64 610 $ 206 836 $ 119 470 Revisions of previous quantity estimates (838) 5 595 5 629 are those reserves which are expected to be recovered as a result of GAS RESERVES future investments to drill new wells, to recomplete existing wells The standardized measure of discounted future net cash flows, Future production costs) (32 607) (101 112) (59 940) Net change in income taxes 8 687 (5 414) (204) and/or install facilities to collect and deliver the production from related to the above oil and gas reserves, is calculated in accordance Future development costs (3 992) (7 770) (7 212) Accretion of discount 1,780 2 252 2 296 existing and future wells. with the requirements of SFAS No.69. Estimated future cash Future income tax expenses (4 515) (24 351) (12 860) Other 850 (44) (4 476) The reserve quantities shown below include 100 percent of the inflows from production are computed by applying year-end prices Future net cash flows 23 496 73 603 39 458 net reserve quantities attributable to the Company’s consolidated for oil and gas to year-end quantities of estimated proved reserves. Discounted present value as of end of year 12 085 34 265 18 172 Future net cash flow 10% annual (11 411) (39 338) (21 286) subsidiaries. Adjustment in this calculation for future price changes is limited to discount for estimated timing of cash As determined by the Company’s independent reservoir those required by contractual arrangements in existence at the end flow engineers, DeGolyer and MacNaughton (Miller and Lents in 2007 of each reporting period. Future development and production costs The other change in discounted future net cash flows in the table Standardized measure of discounted $ 12 085 $ 34 265 $ 18 172 and 2006), the following information presents the balances of are those estimated future expenditures necessary to develop and future net cash flows above represents a change in the expected timing of cash flows due proved oil and gas reserve quantities as of December 31. produce year-end proved reserves based on year-end cost indices, to corresponding changes in production from year to year.
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CONTENT
210 INDEPENDENT AUDITORS’ REPORT 211 CONSOLIDATED ACCOUNTING BALANCE SHEET 214 CONSOLIDATED PROFIT AND LOSS REPORT 215 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY 218 CONSOLIDATED STATEMENT OF CASH FLOW 219 ACCOUNTING BALANCE SHEET SUPPLEMENT
ANNUAL REPORT JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 209 SUPPLEMENT SUPPLEMENT
AUDITOR’S REPORT FINANCIAL STATEMENT BY RAS FOR 2008 BALANCE SHEET AS OF DECEMBER 31, 2008
CODES CJSC PricewaterhouseCoopers Audit OKUD Form № 1 0710001 52 Kosmodamianskaya Emb., Bldg. 5, 115054, Moscow. Date (year, month, day) 2008.12.31 Tel: (495) 967-60-00. Fax: (495) 976-60-01 Organization JSC Gazprom Neft OKPO 42045241 Taxpayer Identification Number INN 5504036333 AUDITOR AUDITEE Type of Business wholesale trade in oil and oil products OKVED 51.51 Closed joint-stock company “PriceWaterHouseCooper Audit” (CJSC “PwC Joint-stock company “Gazprom neft” Form of Incorporation/ Form of Ownership OKOPF/OKFS 47/34 Audit”). Location: 190000, the Russian Federation, St. Petersburg, Galernaya street Open Joint Stock Company / Joint Private and Foreign Ownership State Registration Certificate of joint-stock company #008.890 issued by 5, litera A Unit of Measure: thou. rub. OKEI 384 Moscow Chamber of Registration date 28 February 1992 State Registration Certificate of joint-stock company #38606450 issued by Location (Address) 5A Galernaya St., Saint-Petersburg, 190000 Certificate of Registration in the Unified State Register of Legal Entities Omsk City Registration Chamber dated October 6, 1995 of the Record about the Legal Entity registered before July 1, 2002 under Certificate of Registration in the Unified State Register of Legal Entities #1027700148431 dated 22 August 2002 issued by Moscow Inter-district of the Record about the Legal Entity registered before July 1, 2002 under Line Code At the At the End Inspection of Ministry for Taxes and Levies of the Russian Federation #39 #1025501701686 dated August 21 2002 issued by the Inspection of Ministry Beginning of Reporting License to carry out auditing activities #E000376 issued by Ministry of Finance for Taxes and Levies of the Russian Federation of Lubinsky Region of of Reporting Period of the Russian Federation dated May 20, 2002, valid until May 20, 2012 Omskaya Oblast. ASSETS Period Is a member of the Institute of Professional Accountants and Auditors of the 1234 Russian Federation and the Chamber of Auditor’s of the Russian Federation I. NON-CURRENT ASSETS Auditor’s Report on Financial Statement of the Joint-Stock Company “Gazprom Neft” • Intangible assets 110 8 364 6 197 including: patents, licenses, trademarks, other similar rights and assets 111 982 878 To the shareholders of the joint-stock company “Gazprom Neft”: organizational expenses 112 – – We conducted an audit of the attached financial statement (hereinafter referred to as the Company) for the period from January 1 to goodwill 113 – – December 31, 2009, inclusive. The financial statement of the Company consists of Accounting Balance Sheet, Profit and Loss Report, • Fixed assets 120 7 344 284 7 361 503 Statement of Changes in Stockholder’s Equity, Statement of Cash Flow, Accounting Balance Sheet Supplement, Executive Summary including: land plots and environmental facilities 121 38 235 37 190 (hereinafter all reports are referred collectively as “financial statement”). Financial statement is prepared by the administration of the Company on the basis of the legislation of the Russian Federation in part of financial statement preparation. The statement prepared on buildings, structures, plant and equipment 122 7 230 402 7 082 630 the basis of the mentioned legislation substantially differs from the statement drawn up in accordance with the International Accounting • Construction in progress 130 5 204 538 8 360 633 Standards. • Income-bearing investment in tangible assets 135 – – The executive body of the Company is responsible for preparation and presentation of the financial statement. Our obligation is to • Long-term financial investment 140 30 085 687 37 073 725 express an opinion on credibility of such financial statement in all material respects on the basis of the conducted audit. including:investment in subsidiaries 141 24 241 338 28 101 160 We conducted an audit in accordance with the Federal Law “On Auditing Activities”, Federal Rules (standards) of Auditing activities, investment in associates 142 36 008 6 923 553 International Accounting Standards as well as with our internal standards. investment in other organizations 143 1 633 923 163 501 The audit was planned and carried out in the manner that allowed to acquire reasonable confidence in the fact that the financial Loans to organizations due within 12 months 144 4 017 427 1 826 750 statement does not have any falsifications. The audit was conducted on sample basis and included the study of evidence proving index • Deferred tax assets 145 211 853 28 219 numbers in the financial statement on test basis and the disclosure of information on financing and operating activities, the evaluation of the observance of principles and accountancy regulations used for financial statement preparation in the statement, the examination of the • Other non-current assets 150 2 694 764 3 175 387 main performance measures received by the administration of the Company as well as the evaluation of financial statement presentation. including: VAT refundable from the budget 151 657 888 482 850 We believe that the conducted audit presents good reasons for the expression of our opinion on credibility of the financial statement. • TOTAL for Section I 190 45 549 490 56 005 664 It is our opinion that the financial statement of the Company attached to this Auditor’s report reliably reflects in all material respects financial situation of the Company of December 31, 2008, and the results of its financing and operating activities over a period from January II. CURRENT ASSETS 1 till December 31, 2008, inclusive in accordance with the requirements of the legislation of the Russian Federation in part of financial • Inventory 210 7 064 933 5 563 888 statement preparation. including: raw material, materials, and other similar assets 211 1 569 192 1 075 796 livestock 212 - - March 02, 2008 work in process costs 213 469 194 182 896 Joint-Stock Company Director R. Justice finished products and goods for resale 214 2 032 379 1 111 367 Auditor S. Blokhin goods shipped 215 2 250 393 1 499 904 deferred expenses 216 743 775 1 693 925 • Value-added tax on acquired assets 220 8 996 500 4 061 313 Qualification Certificate # K 008770 in the field of general audit (perpetual) • Receivables (due beyond 12 months after reporting date) 230 12 099 357 98 165 561
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including: buyers and customers 231 - - including: bank loans maturing beyond 12 months after reporting date 511 50 646 993 47 008 640 notes receivable 232 - - loans maturing within 12 months after reporting date 512 2 874 326 4 473 393 advances receivable 234 - - • Deferred tax liabilities 515 40 515 63 723 other debtors 235 12 099 357 • Other long-term liabilities 520 • Receivables (due within 12 months after reporting date) 240 240 959 722 182 739 601 • TOTAL for Section IV 590 53 561 834 51 545 756 including: buyers and customers 241 6 673 491 88 900 406 notes receivable 242 71 528 V. SHORT-TERM LIABILITIES «due from founders to authorized capital» 244 - - • Borrowings 610 74 079 826 101 346 423 advances receivable 245 5 046 100 8 954 958 including: bank loans maturing beyond 12 months after reporting date 611 4 055 061 8 840 297 other debtors 246 159 168 603 84 884 237 loans maturing within 12 months after reporting date 612 42 571 296 48 080 263 • Short-term financial investment 250 4 500 000 37 970 017 current maturity of long-term debt 613 27 453 469 44 425 863 including: loans to organizations due within 12 months 251 • Payables 620 69 451 400 63 313 11 other short-term financial investment 252 4 500 000 37 970 017 including: suppliers and contractors 621 57 708 440 46 756 670 • Cash 260 9 303 824 15 108 340 due to employees 622 51 565 56 680 including: cash in hand 547 841 due to state extra-budgetary funds 623 7 069 settlement accounts 262 3 623 939 9 029 283 taxes payable 624 1 795 183 328 212 currency accounts 263 5 677 792 6 076 633 other creditors 625 9 889 143 16 158 86 other cash 264 1 546 1 583 including: notes payable 626 726 146 902 • Other current assets 270 advances received 627 8 782 662 8 202 581 • TOTAL for Section II 290 282 924 336 343 608 720 other creditors 628 1 105 755 7 809 379 BALANCE 300 328 473 826 399 614 384 • Income due to shareholders (founders) 630 9 345 792 15 418 841 • Deferred income 640 9 928 6 244 Line Code At the At the End • Provisions for future expenses 650 918 096 2 375 205 Beginning of Reporting • Other short-term liabilities 660 of Reporting Period • TOTAL for Section V 690 153 805 042 182 459 823 LIABILITIES Period BALANCE 700 328 473 826 399 614 384 1234 III. EQUITY AND RESERVES Off-Balance Sheet Statement • Authorized capital 410 7 586 7 586 • Leased fixed assets 910 189 471 978 628 • Treasury stock 411 Including under leasing arrangements 911 45 837 79 745 • Surplus capital 420 7 807 598 7 807 598 • Inventory in safe custody 920 • Reserve capital: 430 379 379 • Goods on commission including: statutory reserves 431 379 379 • Bad debt written off to losses 940 90 037 238 801 • Retained earnings (uncovered loss) 470 113 291 387 157 793 242 • Security for obligations and payments received 950 4 657 431 862 286 • Government social fund 480 • Security for obligations and payments granted 960 6 763 079 9 629 349 • TOTAL for Section III 490 121 106 950 • Housing stock depreciation 970 • Depreciation of land improvements and other similar assets 980 1 368 1 587 IV. LONG-TERM LIABILITIES • Intangible assets received for use 990 47 810 267 225 • Borrowings 510 53 521 319 51 482 033
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PROFIT AND LOSS STATEMENT FOR 2008 BREAKDOWN OF SOME PROFITS AND LOSSES
CODES For Reporting Period For Same Period of OKUD Form № 2 0710002 Item Previous Year Date (year, month, day) 2008.12.31 Name код Profit Loss Profit Loss Organization JSC Gazprom Neft OKPO 42045241 1 23456 Taxpayer Identification Number INN 5504036333 • Penalties, fines, forfeits recognized or subject to collection by court ruling 210 54 292 153 247 2 097 909 222 951 (arbitration award) Type of Business wholesale trade in oil and oil products OKVED 51.51 • Profit (loss) of previous years 220 32 018 237 978 277 688 405 321 Form of Incorporation/ Form of Ownership OKOPF/OKFS 47/34 Open Joint Stock Company / Joint Private and Foreign Ownership • Payment of damages caused by non-performance or improper performance of 230 80 15 - 3 obligations Unit of Measure: thou. rub. OKEI 384 • Foreign exchange rate differences 240 5 351 378 20 385 203 9 495 402 7 803 708 Location (Address) 5A Galernaya St., Saint-Petersburg, 190000 • Deductions to valuation reserves 250 Х ( 94 839 ) Х 734 151 Item For Reporting For Same Period of • Write-off of statute-barred receivables and payables 260 329 842 148 451 5 266 32 751 Period Previous Year Name Code 1234 Operating Income and Expenses • Earnings (net) from sales of goods, products, works, services 010 584 497 934 439 388 218 (net of VAT, excise taxes, and similar mandatory payments) including from sale of: oil and oil products 11 563 533 530 427 405 525 STATEMENT OF CHANGES IN EQUITY FOR 2008 other 16 20 964 404 11 982 693 CODES • Cost of goods, products, works, and services sold 020 (430 832 028( (304 970 360( OKUD Form № 2 0710003 including from sale of: oil and oil products 21 (410 061 303 ) (289 772 299 ) Date (year, month, day) 2008.12.31 other 26 (20 770 725 ) (15 198 061 ) Organization JSC Gazprom Neft OKPO 42045241 • Gross profit 153 665 906 134 417 858 Taxpayer Identification Number INN 5504036333 • Commercial expenses 030 (35 249 690( (28 767 644( Type of Business wholesale trade in oil and oil products OKVED 51.51 • Administrative expenses 040 (-) (-) Form of Incorporation/ Form of Ownership OKOPF/OKFS 47/34 • Gain (loss) on sales 050 118 416 216 105 650 214 Open Joint Stock Company / Joint Private and Foreign Ownership Other Income and Expenses Unit of Measure: thou. rub. OKEI 384 • Interest receivable 060 2 180 638 3 079 135 Location (Address) 5A Galernaya St., Saint-Petersburg, 190000 • Interest payable 070 ( 4 414 094) ( 3 920 374 ) • Income from interests in other organizations 080 5 249 3 662 I. CHANGES IN EQUITY • Other income 090 451 174 922 435 497 990 Item Authorized Treasure Stock Surplus Reserve Retained Uncovered Total • Other expenses 100 ( 473 067 338 ) ( 434 111 996 ) Name Code Capital Capital Capital Earnings Loss Profit (Loss) before Tax 140 94 295 593 106 198 631 123456789 • Deferred tax assets 141 28 219 211 853 • Balance of December 31, 00 7 586 (-) 7 807 598 379 73 244 926 (-) 81 060 489 • Deferred tax liabilities 142 (63 723) (40 515( • Changes in Accounting Policy 01 Х Х Х Х (1 165 089) – (1 165 089) • Current income tax 50 ( 23 180 323 ) ( 26 291 781 ) 2007 • Other expenses out of profit 151 ( 566 897 ) ( 596 866 ) • Revaluation of fixed assets 02 ХХ - Х --- Net Profit (Loss) for Reporting Period 190 70 512 869 79 481 322 • Balance as of January 1, 2006 03 7 586 (-) 7 807 598 379 72 079 837 (-) 79 895 400 FOR REFERENCE • Exchange rate differences 04 Х - ХХХ- • Fixed tax liabilities (assets) 200 ( 584 884 ) ( 632 772 ) • Net profit 05 Х - ХХ79 479 413 - 79 479 413 • Basic earnings (loss) per share 201 15 17 • Dividends 06 ХХ Х(38 320 132) Х (38 320 132) • Diluted earnings (loss) per share 202
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• Deductions to the Reserve Fund 07 ХХ Х ( – ) – (-) – Valuation Reserves • Increase in equity due to: Provsion for investment impairment (name of reserve) additional issue of shares 08 - Х Х Х Х - previous year 165 188 901 - (188 901) - increase in par value of shares 09 - ХХ ХХ - reporting year 166 - 152 (-) 152 reorganization of legal entity 10 - - ХХ- (-) - Provision for doubtful debts (name of reserve) • Decrease in equity due to: previous year 167 1 416 171 661 230 (1 416 171) 661 230 decrease in par value of shares 11 (-) - ХХХХ(-) reporting year 168 661 230 609 775 (661 230) decrase in number of shares 12 (-) - ХХХХ(-) (name of reserve) reorganization of legal entity 13 (-) - ХХ(-) (-) (-) previous year 169 - - (-) - • Treasure stock 131 ------reporting year 170 - - (-) - • Balance as of December 31 of the previous 14 7 586 (-) 7 807 598 379 13 239 118 (-) 121 054 681 Provisions for Future Expenses: year • Contingency reserve (name of reserve) 2008 (reporting year) previous year 171 - 468 096 - 468 096 • Changes in Accounting Policy 70 - - ХХ52 269 - 52 269 reporting year 172 468 096 1 776 149 (468 096) 1 776 149 • Revaluation of fixed assets 80 ХХ - Х --- • Remuneration reserve (name of reserve) • Balance as of January 1, 2008 100 7 586 (-) 7 807 598 379 113 291 387 (-) 121 106 950 previous year 174 450 000 708 221 (559 165 599 056 • Exchange rate differences 101 Х Х -ХХ Х - • Net profit 102 ХХ ХХ70 512 869 - 70 512 869 • Dividends 103 ХХ ХХ(26 011 014) Х (26 011 014) REFERENCES • Deductions to the Reserve Fund 110 Х Х (-) - (-) - • Increase in equity due to: Item At the Beginning of Reporting Year At the End of Reporting Yearа отчетноо ода additional issue of shares 121 - - ХХХХ- Name Code increase in par value of shares 122 - - ХХ--- 1234 reorganization of legal entity 123 - - ХХ- (-) - 1) Net assets 200 121 116 878 165 615 049 • Decrease in equity due to: From Budget From Extra-Budgetary Funds decrease in par value of shares 131 (-) - ХХХХ(-) for reporting for previous year for reporting year for previous year year decrase in number of shares 132 (-) - ХХХХ- 34 56 reorganization of legal entity 133 (-) - ХХ(-) Х (-) 2) Received for: operating expenses - total 210 - - - - • Treasure stock 134 ------including: capital investment in non-current assets 220 - - - - • Balance as of December 31, 2008 140 7 586 (-) 7 807 598 379 157 793 242 (-) 165 608 805 including: Minerals base recovery - - - -
II. RESERVES AND PROVISIONS Item Balance Received Used Balance Name Code 123456 Statutory Reserves: • Reserve Capital (name of reserve) previous year 151 379 - (-) 379 reporting year 152 379 - (-) 379 (name of reserve) previous year 153 - - (-) - reporting year 154 - - (-) - Reserves set up under Constituent Documents: (name of reserve) previous year 161 - - (-) - reporting year 162 - - (-) - (name of reserve) previous year 163 - - (-) - reporting year 164 - - (-) -
ANNUAL REPORT ANNUAL REPORT 216 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 217 SUPPLEMENT SUPPLEMENT
CASH FLOW STATEMENT FOR 2008
CODES 370 - - OKUD Form № 2 0710004 • Cash disbursements (total): 380 (40 462 282) (77 571 163) Date (year, month, day) 2008.12.31 including: Repayment of borrowings (with interest) 390 (-) (-) Organization JSC Gazprom Neft OKPO 42045241 Repayment of borrowings (less interest) 391 (40 431 635) (77 550 665) Taxpayer Identification Number INN 5504036333 Repayment of finance lease 400 (30 647) (20 498) Type of Business wholesale trade in oil and oil products OKVED 51.51 Repayment of interest on borrowings 410 (-) (-) Form of Incorporation/ Form of Ownership OKOPF/OKFS 47/34 420 (-) (-) Open Joint Stock Company / Joint Private and Foreign Ownership • Net cash from financing activities 430 4 633 252 42 869 437 Unit of Measure: thou. rub. OKEI 384 • Net increase (decrease) in cash and cash equivalents 40 4 720 551 (5 608 227) Location (Address) 5A Galernaya St., Saint-Petersburg, 190000 • Ending cash balance 450 15 108 341 9 303 824 • Exchange rate differences balance 460 1 083 966 (442 132) Item For Reporting Period For Same Period of Name Code Previous Year 1234 Beginning Cash Balance 100 10 387 790 14 912 051 Cash flow from operating activities • Cash received from buyers and customers 110 938 117 586 574 199 430 • Other income 120 503 593 122 468 059 229 • Cash disbursements (total):: 130 (1 392 583 243) (1 012 209 677) including: payments of goods, works, services, raw materials, and other current assets SUPPLEMENT TO THE BALANCE SHEET FOR 2008» acquired 150 (579 702 252) (395 564 509) salaries and wages 160 (2 340 574) (1 538 029) repayment of dividend and interest 170 (18 642 481) (46 954 976) CODES taxes 180 (223 833 630) (147 636 315) OKUD Form № 2 0710005 repaymen of interest on borrowings 181 (5 011 720) (4 012 639) Date (year, month, day) 2008.12.31 other expenses 190 (563 052 586) (416 503 209) Organization JSC Gazprom Neft OKPO 42045241 • Net cash from operating activities 200 49 127 465 30 048 982 Taxpayer Identification Number INN 5504036333 Cash flow from investing activities Type of Business wholesale trade in oil and oil products OKVED 51.51 • Revenue from sale of fixed and other non-current assets 210 1 640 312 90 037 Form of Incorporation/ Form of Ownership OKOPF/OKFS 47/34 • Revenue from sale of securities and other financial investments 220 466 454 022 190 530 264 Open Joint Stock Company / Joint Private and Foreign Ownership • Dividend received 230 5 925 3 501 Unit of Measure: thou. rub. OKEI 384 • Interest received 240 2 085 822 2 179 999 Location (Address) 5A Galernaya St., Saint-Petersburg, 190000 • Repayment of loans to other organizations 250 17 254 414 5 347 065 INTANGIBLE ASSETS 260 - - Item At the Beginning Additions Disposals At the End of • Cash disbursements (total): 270 270 (536 480 661) Name Code of Reporting Reporting Year including: Acquisition of subsidiaries 280 (3 697 844) (3 461 501) Year Acquisition of fixed assets, income-bearing investment in tangible and 290 (5 158 794) (3 658 169) • Intellectual property items (exclusive rights to intellectual property) 010 14 734 - (-) 14 734 intangible assets including the rights of: patent holder to invention, industiral design, useful model 011 1 - (-) 1 Acquisition of securities and other financial investments 300 (500 287 196) (175 349 573) right holder to computer software, databases 012 13 113 - (-) 13 113 Loans to other organzations 310 (27 336 827) (94 208 269) right holder to microchip technologies 013 - - (-) - Transfers under investment agreements 320 - - owner to trademark and service mark, name of the place 014 1 620 - (-) 1 620 330 - - of goods origin • Net cash from investing activities 340 (49 040 166) (78 526 646) patent holder to achievements in selection 015 - - (-) - Cash flow from financing activities • Organizational expenses 020 - - (-) - • Proceeds from issue of shares and other securities 350 - - • Goodwill 030 - - (-) - • Proceeds from borrowings to other organizations 360 45 095 534 120 440 600 • Other 040 15 512 - (-) 15 512
ANNUAL REPORT ANNUAL REPORT 218 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 219 SUPPLEMENT SUPPLEMENT
Item At the Beginning of At the End of Reporting Year INTEREST-BEARING INVESTMENT IN TANGIBLE ASSETS Name Code Reporting Year Item At the Beginning of Additions Disposals At the End of Reporting Year Reporting Year • Total amortization of intangible assets: 050 21 882 24 049 Name Code including the rights of: patent holder to invention, industrial design, useful model 051 1 1 • Assets for leasing 200 - - (-) - right holder to computer software, database 052 9 764 10 289 • Assets for hire 210 - - (-) - owner to trademark and service mark, name of the place 054 638 742 • Other 220 - - (-) - of goods origin Total 230 - - (-) - • Other 055 11 479 13 017 At the Beginning of At the End of Reporting Year Reporting Year Amortization of interest-bearing investment in tangible assets 240 - - FIXED ASSETS Item At the Beginning of Additions Disposals At the End of RESEARCH, DEVELOPMENT, DESIGN AND TESTING EXPENSES Name Code Reporting Year Reporting Year Type of Work At the Beginning of Additions Disposals At the End of Reporting Year Reporting Year • Buildings 060 1 270 458 30 105 (767 146) 533 41 Name Code • Structures and transfer mechanisms 070 7 736 087 1 229 980 (249 337) 8 716 730 • Total 310 - - (-) - • Machinery and equipment 080 793 587 207 132 (72 495) 928 224 including: audit of reserves 311 - - (-) - • Vehicles 090 17 638 - (13 791) 3 847 FOR REFERENCE код At the Beginning of Reporting At the End of Reporting Year Year • Tools and utensils 100 88 432 257 733 (9 153) 337 012 • Total expenses on research, development, design and testing in progress 320 1 714 1 090 • Working livestock 110 - - (-) - Code For Reporting Period For Same Period of Previous • Productive livestock 111 - - (-) - Year • Perennial plants 112 7 459 21 (1 795) 5 685 • Total expenses on failed research, development, design and testing included 321 - - • Other types of fixed assets 120 5 436 - (243) 5 193 in non-operating expenses • Land plots and natural resources 130 38 235 611 (1 656) 37 190 • Capital investment in land reclamation 131 - - (- - • Total 9 957 332 1 725 582 (1 115 616) 10 567 298 NATURAL RESOURCE DEVELOPMENT COSTS Item At the Beginning of Additions Disposals At the End of Reporting Year Reporting Year Item At the Beginning of At the End of Reporting Year Name Code Name Code Reporting Year • Total expenses on natural resource development 410 597 666 1 157 760 (373 681) 1 381 745 • Total depreciation of fixed assets: 140 2 613 048 3 205 795 including: audit of reserves 411 6 587 7 522 (4 487) 9 622 including: buildings and structures 141 2 231 707 2 709 838 replacement of forest loss 412 30 130 23 062 (19 729) 33 463 machinery, equipment, and vehicles 142 351 503 450 072 seismic survey 413 484 898 942 472 (330 097) 1 097 273 other 143 29 83 45 885 other 414 76 051 184 704 (19 368) 241 387 • Total fixed assets leased out 150 2 379 098 1 336 149 FOR REFERENCE код At the Beginning of At the End of Reporting Year Reporting Year including: buildings 151 1 224 853 457 798 • Total expenses on subsoil plots where field exploration and 420 568 598 1 147 990 structures 152 972 083 759 183 evaluation, prospecting and (or) hydrological survey, and other similar machinery, equipment, and vehicles 153 167 117 108 923 works are not completed other 154 15 045 10 245 • Total expenses on failed natural resource development recognized in 430 - - • Suspended fixed assets 155 - - the reporting period as non-operating expenses • Total fixed assets taken on lease: 156 189 471 978 628 including: buildings 157 133 805 874 340 structures 158 - - plant 159 964 1 041 transport 160 54 702 100 207 • Real properties in use and in the process of state registration 161 628 138 856 900 Revaluation of fixed assets: historical (replacement) cost 171 - - depreciation 172 - - • Change in value of fixed assets due to completion of construction, additional 173 6 861 3 314 equipment installation, reconstruction, partial liquidation
ANNUAL REPORT ANNUAL REPORT 220 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 221 SUPPLEMENT SUPPLEMENT
FINANCIAL INVESTMENT 1234 Item Long-Term Short-Term loans 645 42 571 296 48 333 067 Name Code At the At the End At the At the End other 646 1 158 046 8 012 961 Beginning of Reporting Beginning of Reporting of Reporting Year of Reporting Year • long-term total 650 53 521 319 51 482 033 Year Year including: credits 651 50 646 993 47 008 640 • Total investment in third party authorized (share) capital 510 25 911 269 35 188 366 - - loans 652 2 874 326 4 473 393 of which: in subsidiaries and affiliates 511 24 277 346 34 283 341 - - other 653 - - • Government and municipal securities 515 108 126 58 761 - - deferred tax liabilities 654 40 515 63 723 • Total third-party securities 520 - - - 2 938 040 Total 660 197 093 060 216 205 289 of which: debt securities (bonds, notes) 521 - - - 2 938 040 • Loans extended 525 4 017 427 1 826 750 - - OPERATING EXPENSES (BY COST ELEMENT) • Deposits 530 - - 4 500 000 35 031 977 Item For Reporting Period For Previous Period • Other 535 48 865 - - - Name Code Total 540 30 085 687 37 073 877 4 500 000 37 970 017 • Material costs 710 433 008 347 305 063 105 Investment carried at market value, of the total financial investment: • Salaries and wages 720 2 363 863 1 973 865 • Total investment in third-party authorized (share) capital 550 - 86 330 - - • Social payments 730 180 681 171 866 of which: in subsidiaries and affiliates 551 - - - - • Depreciation 740 852 256 713 756 • Government and municipal securities 555 - - - - • Other costs 750 31 501 021 24 765 643 • Total third-party securities 560 - - - - • Total by cost element 760 467 906 169 32 688 235 of which: debt securities (bonds, notes) 560 - - - - • Changes in balances (increase [+], decrease [-]): • Other 561 - - - - work in process 765 - 286 298 169 121 Total 570 - 86 330 - - deferred expenses 766 1 663 648 27 877 FOR REFERENCE provisions for future expenses 767 1 457 109 918 096 • For financial investment carried at current market value, value changes due to 580 - (270 305) - - appraisal adjustment COLLATERALS • For debt securities, the difference between historical cost and par value is 590 - - - - recognized in the financial result of reporting period Item At the Beginning of Reporting At the End of Reporting Year Name Code Year • Received - total: 810 4 657 431 862 286 RECEIVABLES AND PAYABLES including: notes 811 - - Item At the Beginning of At the End of Reporting • Pledged assets 820 - - Name Code Reporting Year Year of which: fixed assets 821 - - 1234 securities and other financial investments 822 - - Receivables: other 823 - - • short-term total: 610 241 620 952 183 349 376 • Issued - total: 830 6 763 079 9 629 349 including: from buyers and customers 611 76 673 491 88 900 632 including: notes 831 - - advances extended 612 5 099 597 8 956 761 • Pledged assets: 840 - - other 613 159 847 864 85 491 983 of which: fixed assets 841 - - • long-term total 620 12 099 357 98 165 561 securities and other financial investments 842 - - including: from buyers and customers 621 - - other 843 - - advances extended 622 - - other 623 12 099 357 98 165 561 GOVERNMENT ASSISTANCE Total 630 253 720 309 281 514 937 Item For Reporting Period For Same Period of Previous Year Payables: Name Code • short-term total: 640 143 531 226 164 659 533 • Total budget appropriations received in reporting year 910 - - including: due to suppliers and contractors 641 57 708 440 46 756 670 including: advances received 642 8 782 662 8 202 581 At the Beginning of Received for Returned for At the End of taxes due to government extra-budgetary funds 643 1 802 252 340 898 Reporting Period Reporting Period Reporting Period Reporting Period credits 644 31 508 530 53 013 356 • Total budget loans 920 - - - - including:
ANNUAL REPORT ANNUAL REPORT 222 JJSCSC GAZPROMGAZPROM NNEFTEFT 22008008 JJSCSC GGAZPROMAZPROM NEFTNEFT 20082008 223 JSC Gazprom Nef 125A Profsoyuznaya St., Moscow, 117647, Russit Tel: +7 (495) 777-3152; fax: +7 (495) 777-3151 http://www.gazprom-neft.ru/ http://www.gazprom-neft.ru/