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FROM PRODUCTION COMPANY TO NATIONAL ENERGY SERVICE PROVIDER STRATEGY 2025 February 19, 2021 ANDRIY KOBOLYEV CEO, Naftogaz of Ukraine NJSC STRATEGY 2025 WHY THE STATE OWNS NAFTOGAZ NOW Increase security of Transform the Transportation of oil Effective representation supply and achieve energy sector and petroleum and promotion energy independence and complete gas products of Ukraine’s interests (production, reserves, market reform at international level energy efficiency) WHAT WILL BE THE FUTURE OF NAFTOGAZ IPO PETER VAN DRIEL Chief Financial Officer of Naftogaz Group STRATEGY 2025 CRISIS 2020 HAD SIGNIFICANT Change in gas price at TTF (MA), IMPACT ON EUR/MWh 30 OPERATIONS OF 25 ENERGY 20 COMPANIES 15 10 5 0 Jan 2018 Jul 2018 Jan 2019 Jul 2019 Jan 2020 Jul 2020 Jan 2021 (Global demand for primary energy, million BOE* per day) GAS WILL RETAIN ITS 382 POSITION IN COMING YEARS 355 +47% 314 WHILE THE SHARE OF +45% 274 +45% GREEN ENERGY SOURCES +21% DEMAND FOR GAS +31% +23% WILL GROW +19% +35% +15% +13% +7% Renewables +15% ** Hydropower Atomic energy +31% Natural gas +56% +4% +3% -12% Oil Coal 2010 2020 2030 2040 * BOE – barrel of oil equivalent ** Share of hydropower in global demand for primary energy is presented separately on the graph. Source: S&P Global Platts SUCCESS FACTORS Commercial Efficiency Plan 1 2 improvement Investment Digitalization discipline 3 4 ANDRIY KOBOLYEV CEO, Naftogaz of Ukraine NJSC STRATEGY 2025 THREE Increase production Improve trading PLATFORMS OF competency (EU) Gas Increase cost and business NAFGOTAZ investment efficiency GROUP THREE PLATFORMS OF Gas business NAFGOTAZ GROUP Increase production Improve trading competency (EU) Increase cost and investment efficiency THREE PLATFORMS OF Gas business NAFGOTAZ Supply Enter the heat supply market Effective and scalable model GROUP Increase production Customer base of nearly 30% Improve trading (gas, electricity, services) competency (EU) Increase cost and investment efficiency THREE PLATFORMS OF Gas business NAFGOTAZ Supply Enter the heat supply market GROUP Effective and scalable model Increase production Customer base of nearly 30% Improve trading (gas, electricity, services) competency (EU) Increase cost and investment efficiency THREE PLATFORMS OF Gas business NAFGOTAZ Supply Enter the heat supply market Effective and scalable model GROUP Increase production Customer base of nearly 30% Improve trading (gas, electricity, services) competency (EU) Develop low-carbon businesses Increase cost and (hydrogen, biofuels) investment efficiency Zero CO2 emissions by 2040 Low-carbon businesses THREE PLATFORMS OF Gas business NAFGOTAZ Supply Enter the heat supply market Effective and scalable model GROUP Increase production Customer base of nearly 30% Improve trading Develop low-carbon businesses (gas, electricity, services) competency (EU) (hydrogen, biofuels) Zero CO emissions by 2040 Increase cost and 2 investment efficiency Low-carbon businesses GAS BUSINESS PLATFORM OTTO WATERLANDER Chief Operating Officer of Naftogaz Group STRATEGY 2025 INCREASING THE BASE NOW 2025 OF EXPLORED RESERVES Proven recoverable reserves IS KEY TO 254 ≈ 250 bcm ATTRACT bcm INVESTORS 46 bcm contingent (2С) 112 bcm Undiscovered reserves prospective (2U) ≈ 500 bcm The resources include contingent, which have been * According to the audit report prepared according to discovered, and prospective, which have not been PRMS methodology 01.01.20 ** Estimated potential discovered. Source: Naftogaz Group $7.3 bn $14.1 bn THE PROGRAM in 2021-2025 in 2026-2030 NEEDS 3.1 3.1 Explored fields 2.9 New fields 2.7 NVESTMENT: 2.3 1.9 Long-term investment 1.6 program, including seismic $20-25 BILLION 1.5 1.3 0.9 prospecting, USD billion OVER 10 YEARS 0.6 0.2 0.9 0.7 0.5 0.8 0.5 1.2 0.4 1.5 0.3 2.0 0.3 2.8 0.2 2.9 0.2 2.7 0.2 2.5 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Note: The evaluation of investment needs is presented for the option of funding E&P programs by the Group’s own means (without partner engagement). Source: Naftogaz Group UKRAINE IS ONE OF THE Gas production decrease in the EU and Potential for increasing Ukraine’s gas reserves EUROPEAN Europe’s key gas producing countries in 2020 by 2025 COUNTRIES compared to 2019: WITH STRONG POTENTIAL FOR PRODUCTION GROWTH - 20 bcm - 9 bcm - 7 bcm - 1 bcm ~600 bcm DEVELOPING TRADING MONTHLY TARIFF PROTECTS UAH 6.86 /m3 CONSUMERS AGAINST SURGES ANNUAL TARIFF 3 IN PRICE 2020 – UAH 4.77 /m TRADING JUL 2020 AUG 2020 SEP 2020 OCT 2020 NOV 2020 DEC 2020 JAN 2021 • Operations with cross-commodity tools • Portfolio optimization • Hedging tool • Customer-oriented wholesale trade • Commodity-oriented wholesale trade GAS VOLUME INJECTED INTO Energy security UGS FACILITIES 30% more gas in UGS facilities compared to 2019 IN 2020 EQUALS 4 bcm of SoLR gas ANNUAL Guaranteed supplies to households CONSUMPTION Strong position in gas negotiations with Russia Largest gas stocks over the past 10 years NAFTOGAZ AS A PARTNER IS EASY TO UNDERSTAND FOR INVESTORS NAFTOGAZ SIGNED A MEMORANDUM OF COOPERATION WITH OMV PETROM END-USER SUPPLY PLATFORM MAKSYM RABINOVYCH Head of Retail Supply Division STRATEGY 2025 Heat Electricity Exploration and FROM REGIONAL GAS production BEFORE SINCE Gas Bio Н2 SUPPLIER 1 August 1 August TO NATIONAL ENERGY 2020 2020 Naftogaz Group as an energy SERVICE PROVIDER Intermediaries service provider to end users Consumers Consumers Apartment building SMEs Households co-owner associations NEW PLATFORM 2021 2022 2023 Developing gas supply platform Adding new energy products Integrated energy OFFERING and services solutions •Partnerships as a key channel for • Electricity and other services in • Switching from selling products USERS VARIOUS customer engagement and service the product portfolio to selling multi-product and integrated solutions •Attractive tariff plans • Energy efficiency as a component of the product • Financial resilience of the ENERGY •Quality of customer service range business SOLUTIONS • Effective platform with low costs OUR GOAL IS TO DIGITALIZATION • Convenient online services ALWAYS OFFER 1 • Easy switching to a new supplier GOOD PRICES OPTIMIZED COSTS • Trading GAS.UA 2 • Partner chains ENERGY EFFICIENCY 3 PROJECTS • Lower consumption GAS MARKET LIBERALIZATION IN 5.6 6.0 6.3 10.1 ACTION: OVER 600K NEW 8.3 22.5 CLIENTS ACROSS UKRAINE HAVE 7.6 27.3 3.7 3.4 14.2 2.7 CHOSEN NAFTOGAZ AS THEIR Naftogaz Group 12.8 7.4 7.8 4.0 RETAIL SUPPLIER 200.3 received 12k NEW 36.9 4.1 0.3 APPLICATIONS DAILY 17.7 10.8 10.0 181.6 TOP 3 REGIONS by number of new customers: Kyiv, Dnipropetrovsk and Lviv Map of new household customers engaged in August 2020 – January 2021, thousands NAFTOGAZ GROUP DOES NOT PLAN TO STOP AND SETS THE AMBITIOUS GOAL OF Number of customers, thousands INCREASING ITS RETAIL MARKET SHARE TO 35% IN 2025 December December February December December December December 2019 2020 2021 2021 2022 2023 2025 by 5 times LOW-CARBON BUSINESSES PLATFORM LANA ZERKAL Head of Low-Carbon Businesses STRATEGY 2025 GREEN ENERGY: UKRAINE’S ENERGY BASKET: UKRAINE’S ENERGY BASKET: RESPONSIBILITY 2020 2035 FOR OUR HOME 5% 13% 15% 30% 25% 7% 30% 24% 26% 25% Coal Natural gas Atomic energy Oil products Renewables Coal Natural gas Atomic energy Oil Renewables EU GREEN DEAL EU GREEN DEAL GOAL: NAFTOGAZ GROUP: UKRAINE IS THE EU’s CLIMATE NEWUTRAL EUROPEAN THE COMPANY’S CARBON FULL-FLEDGED PARTNER CONTINENT NEUTRALITY 2050 2040 RENEWABLE ENERGY IS: ENVIRONMENT INVESTMENTS INNOVATION IN COOPERATION WITH THE EU WE’VE STARTED LOOKING DEVELOPING GENERATION AND PRODUCTION PROJECTS FOR NEW OPPORTUNITIES PETER VAN DRIEL Chief Financial Officer of Naftogaz Group STRATEGY 2025 BALANCE BETWEEN 2 GROWTH AND 1 Gas business RETURN ON Supply INVESTMENTS PROPRIETARY INVESTMENTS 3 PROPRIETARY INVESTMENTS Low-carbon PARTNER ENGAGEMENT PARTNER ENGAGEMENT businesses ENVIRONMENT SOCIAL PARTNERSHIP GOVERNANCE ENVIRONMENT SOCIAL PARTNERSHIP GOVERNANCE Achieving carbon neutrality Corporate citizenship and №1 in SOE corporate by 2040 supporting the country governance E S G IMPLEMENTATION OF THE STRATEGY Strategic Bond investors Equity investors partner STABLE INVESTMENT CLIMATE - Judicial system - Support from the government - Clear rules PREREQUISITES: WHAT WE NEED ANDRIY KOBOLYEV CEO, Naftogaz of Ukraine NJSC STRATEGY 2025 GOVERNMENT’S NAFTOGAZ’S 20/20 PROGRAM: COMMITMENTS ACHIEVEMENTS LESSON WE Issuing licenses and permits (most of Investments in drilling equipment them issued at the end of 2020) COOPERATION WITH THE Stopped production decline at exhausted GOVERNMENT AND SHOULD LEARN Amendments to the Tax Code fields PARLIAMENT AS WELL AS Partnerships with international companies THE COMPANY’S PSA conditions (signed in December which are willing to cooperate even now EXPLORATION EFFORTS 2020) Production on par with international companies helped solve most of the issues by the end of 2020 The Government fully delivered on (at equally exhausted fields) just one of its 19 commitments Production experts with international experience How we Who we are work FOR ITS STRATEGY TO SUCCEED, Corporate culture Organizational Building Eliminating NAFTOGAZ NEEDS structure Processes Digitalization partnerships bureaucracy TRANSFORMATION Mission and values IMPLEMENTATION CONTINUED MARKET REFORMS will ensure lower prices for Ukrainians O1 and protect the country against Russia’s economic pressure OF THE STRATEGY: O2 DEBT SETTLEMENT ( UAH 80 BN) and further PSO cancellation for heat EXTERNAL producers to stop the accumulation of debts PREREQUISITES O3 BALANCED DIVIDEND POLICY to increase
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