Responsible Development

GAZPROM NEFT: RESPONSIBLE DEVELOPMENT SUSTAINABILITY REPORT FOR 2007 Acknowledgements from the Chairman of the Board, JSC Gazprom Neft I would like to express my gratitude to all specialists and managers representing the Company’s various divisions and regions of presence who contributed to the preparation of this Report. Thank you:

Yevgeny Akopov Artyom Kashin Nina Prokhorova Lyudmila Alpatova Tatyana Khokhlova Victoria Razuvayeva Lyubov Aritkulova Lyudmila Khoma Tatyana Rubezhanskaya Ekaterina Avramenkova Yuri Khomich Gulnara Sayfiyeva Irina Bagautdinova Adlan Kikayev Andrey Shvetsov Dmitry Baranov Alyona Knyazeva Marina Shrayner Yuri Bakhmat Valentina Koltsun Vladimir Shutilin Elena Bashuk Vladimir Konstantinov Andrey Shutov Irina Bezmenova Grigory Konvissar Oleg Sidomonidze Sergey Bilkey Natalya Korneychuk Vasiliy Sidorov Denis Brusnitsyn Nalalya Korotkova Andrey Skladchikov Nikolay Bukharov Alexander Krylov Vadim Smirnov Vladimir Bykov Pavel Kryukov Sergey Stomma Alexander Chizh Yulia Lekhova Vladimir Sychyov Alexei Dvortsov Galina Lisitsa Yevgeniya Taller Khasan Delbiyev Valery Lukyanov Natalya Tomenko Victor Dolgov Yelena Lyapina Dmitry Trotsenko Olga Dolgova Tatyana Lyashko Lyubov Tupikova Andrey Dredunov Alexander Makarchuk Vitaly Ulitin Alexander Dybal Sergey Makeyev Yevgeny Unyatitsky Mikhail Dyurik Kseniya Martynova Sergey Vasilenko Nikolay Dyurik Natalya Mezentseva Lyudmila Vlasova Mariya Fakhretdinova Vadim Mishin Dmitry Volokhov Yelena Fedoseyeva Victor Misnik Lyudmila Voronina Danil Fener Vladimir Myakotin Vadim Voronov Svetlana Feshchenko Svetlana Nazarenko Natalia Vyalkina Dmitry Filimonov Natalya Nikitina Alexei Yankevich Galina Gamova Oleg Nikolayenko Nikolay Yeliseyev Gulshat Garyayeva Svetlana Novikova Gennady Yermolayev Natalya Gonchar Lyudmila Ostrovskaya Irina Yurkina Gulnara Grigoryeva Anatoly Pakalo Yevgeny Yurovskikh Nadezhda Gurtovets Tatyana Panova Lyubov Yusupova Vladimir Ivanishin Mikhail Pasechnik Galina Zakusilo Alexader Ilchenko Mikhail Perevyshin Natalya Zhevlakova Levan Kadagidze Fyodor Petrov Stanislav Zhivolup Yuri Kalner Yanina Pitertseva Anatoly Zyulev Abdulla Karayev Alexander Podoroga Alexander Karchkov Vladimir Popov GAZPROM NEFT: RESPONSIBLE DEVELOPMENT SUSTAINABILITY REPORT FOR 2007 BRIEF INTRODUCTION TO THE COMPANY AND THIS REPORT Gazprom Neft is one of the largest integrated oil and gas companies This Report “Gazprom Neft”: Responsible Development” (hereinafter “The Report”) in the Russian Federation, whose operations include oil and gas presents an outline of the Company’s approach toward management of economic, social, production, oil refining, sales of oil and petroleum products, and and environmental aspects of its activities in the context of sustainability (Chapter 1), the respective results achieved in 2007 and plans for the mid-term perspective (Chapters 2-5). provision of oilfield services. The Company conducts its production and sales operations in 16 regions of the Russian Federation and The reporting principles, boundaries and scope of the Report are described in detail in 4 foreign countries, and exports oil and petroleum products to 41 Annex 1. Annex 2 contains the index of the performance indicators disclosed. countries of the world. Terms and abbreviations used are explained in Annex 3. CONTENTS

2 Alexey Miller: Major potential, serious responsibility

4 Alexander Dyukov: We believe that responsible development is the key to achieving Gazprom Neft’s leadership

Chapter 1. Governing responsible development 8 Components of governance framework for responsible development 12 Corporate governance 14 Operational management in the field of responsible development 16 Corporate communications

Chapter 2. Economic development 26 Company profile 30 Economic performance and efficiency 34 Development strategy Chapter 3. Employee development and support 42 Approach to personnel management 48 Motivation and remuneration 52 Social security 58 Recruitment and training

Chapter 4. Contribution to regional development 68 Approach to participation in regional development 70 Collaboration in the regions 80 Engagement with customers and suppliers Chapter 5. Environment and health protection – safe development 88 Approach to ensuring safe development 92 Mitigation of environmental impacts 106 Health and safety at work 110 Emergency preparedness and response 116 Annex 1. Application of the sustainability reporting principles 119 Annex 2. Performance indicators disclosed in the Report 139 Annex 3. Terms and definitions 143 Contact information and feedback

1 Major potential, serious responsibility

Alexei MILLER

Chairman of the Board of Directors JSC Gazprom Neft, Chairman of the Board JSC Gazprom

2 Gazprom Neft is the foundation of Gazprom’s oil business. The Company develops energetically, working to improve the efficiency of its operations. In 2007, Gazprom Neft stabilized oil production and increased oil refining, while concluding partnership agreements with a number of the largest Russian oil companies. By embarking on international projects, the Company created conditions for establishing itself on the international market, while continuing intense growth and development. The Company reviewed and elaborated in detail its strategy regarding the key aspects of its operational performance, including oil production and refining output, as well as retail sales of petroleum products. Major potential of the Company opens unlimited growth prospects: Gazprom Neft is able to strengthen its position, becoming one of the leaders of the Russian oil sector, and enter the global arena in the nearest future.

In this regard, it is a pleasant fact that the Company followed the example of Gazprom, which has been publishing environmental reports aimed at the general public for many years. By preparing and publishing its first sustainability report, Gazprom Neft reached a new level. Such reports are produced by virtually all leading oil companies of the world. The release of the report indicates the seriousness of the Company’s approach toward sustainability and its readiness for an open dialogue. Gazprom Neft makes a serious commitment, but this is a deliberate choice. The Company not only demonstrates a responsible attitude toward its socially significant goals and objectives, but also has the capacity to accomplish them.

Respectfully Yours, Chairman of the Board of Directors JSC Gazprom Neft, Chairman of the Board JSC Gazprom Miller A. B.

3 We believe that responsible development is the key to achieving Gazprom Neft’s leadership

Alexander DYUKOV

Chairman of the Board, JSC Gazprom Neft

4 You are holding in your hands our first sustain- It is impossible to establish a leading position governmental organizations. Therefore in 2007, ability report. To Gazprom Neft and to me per- without support and participation from our em- we started to implement an integrated health, sonally, the decision to publish such a report ployees; therefore, attracting and retaining peo- safety and environmental management system was an obvious one — this was necessary not ple is among our priority objectives. In 2007, we based on the international standards, which, we only to improve the information transparency, focused our efforts on development of a person- are sure, will allow us to improve the environ- but also to enhance the quality of management. nel motivation system, while in the next year we mental performance and reduce injury rate. Being one of the five largest oil and gas com- will give even more attention to professional de- panies in the Russian Federation, we intend to velopment of our staff and fostering corporate In preparing this report, we relied on the sus- establish a leading position in the sector, which culture shared throughout the Company. tainability standards and sectoral guidelines would be impossible without active implemen- the most widely used throughout the world*. tation of the corporate responsibility principle, We continue to closely cooperate with the author- Already in this Report, we have provided infor- without realization of sustainable development ities of our regions of operations, seeking to con- mation on all indicators in accordance with the ideas. This is the way we are going to hold to, tribute to improvement of both the social climate highest GRI Guidelines Application Level, being and we call it “responsible development”. and well-being of their population, including, in the first among the Russian oil and gas compa- particular, our customers. We see our responsi- nies in this respect. We intend to further develop To us, these ideas are a necessary condition for bility to customers in continuous improvement sustainability reporting systems and processes, achieving our strategic goals, including long-term of quality of products and services, while to sup- and in the next year provide you with an update competitiveness, efficiency, and growth of share- pliers our responsibility lies in establishing clear on the implementation of our plans. holders’ equity. We believe that regular and effec- requirements for them and maintaining a trans- tive engagement of our stakeholders, including parent procurement process. In 2007, we active- I would like to express my hope that together we everyone potentially affected by or affecting our ly promoted stakeholder engagement in our re- will be able to address many objectives faced by performance, is a cornerstone of stability and suc- gions of operations using a variety of means: Gazprom Neft and discussed in this report. cessful development of the Company’s business. concluding official agreements with regional governments, maintaining hotlines to get cus- We realize that we will not be able to turn our tomer feedback, and introducing electronic ten- ambitious plans into reality without making dering system to work with our suppliers. our management system transparent to all our stakeholders. Therefore in 2007 we active- While working on enhancing our operational and ly worked to optimize the organizational struc- financial performance, we think of the potential ture of the Company, further elaborated our impact of our activities on human health and the long-term strategy, and developed mechanisms environment. Our goal is to minimize any nega- of corporate governance and corporate com- tive effects, and it can be achieved through ef- munications. Among important objectives for ficient use of resources and modern technol- the future, we see the implementation of an in- ogies, through decision-making processes Respectfully Yours, tegrated risk management system covering, incorporating opinions and suggestions of our Chairman of the Board, in particular, non-financial risks related to re- stakeholders, including shareholders, business JSC Gazprom Neft sponsible development. partners, employees, local communities, non- Dyukov A.V.

*Sustainability Reporting Guidelines by the Global Reporting Initiative (G3 Guidelines), AA1000 series of standards by AccountAbility (the Institute of Social and Ethical Accountability), Oil and Gas Industry Guidance on Voluntary Sustainability Reporting by International Petroleum Industry Environmental Conservation Association and American Petroleum Institute (IPIECA/API).

GOVERNING RESPONSIBLE DEVELOPMENT COMPONENTS OF GOVERNING FRAMEWORK FOR RESPONSIBLE DEVELOPMENT

THE COMPANY REALIZES THAT IN ORDER TO ACHIEVE ITS STRATEGIC GOALS IT HAS TO DEVELOP IN A MANNER PROVIDING FOR THE MOST EFFECTIVE AND EFFICIENT IMPLEMENTATION OF ALL ITS PLANS.

VISION OF RESPONSIBLE DEVELOPMENT Efficient development is possible only providing that the risks that may impede the achievement of established goals are controlled and opportunities for gaining additional economic benefits are taken. Addressing them responsibly, i.e. taking into account these risks and potential benefits in all areas of the Company’s activities is a part of Gazprom Neft’s development strategy aimed at increasing its capitalization (see Development Strategy).

That is why Gazprom Neft has defined the notion of responsible development to rely on in its activities.

Responsible development is development of the Company’s business that involves systematic and effective management of economic, environmental, and social risks and opportunities in order to increase the long-term shareholder value. Essentially, the Company views responsible development as synonymous with the terms “corporate responsibility” and “sustainable business development” widely used all around the world. The Company fully shares and accepts general vision of these concepts presented, in particular, in the IPIECA/API Voluntary Reporting Guidance and on pages 10–11 of the Social Horizons review (http://www.gazprom-neft.ru/social/).

8 GOVERNING RESPONSIBLE DEVELOPMENT In order to ensure systematic and effective management of risks and opportunities the Company identifies four key components of responsible development as follows:

Economic development of the Company — growth of capitalization through increase of output in accordance with the corporate strategy, improvement of production efficiency, and distribution of the value created Employee development and support — job creation, implementation of an integrated motivation and remuneration system, social support, training, responsible approach toward workforce downsizing Contribution to regional development — regional cooperation, including socio-economic agreements and charitable activities, provision of customers with products while maintaining high quality of services and fair prices, as well as creation of opportunities for suppliers based on clear and transparent requirements for them Safe development — protection of the environment, as well as employees’ and public health through minimization of environmental impacts, resource efficiency, strict compliance with the environmental legislation, and timely response to incidents and accidents.

GOVERNING RESPONSIBLE DEVELOPMENT 9 FIGURE 1.1 STAKEHOLDER ENGAGEMENT

Responsible and thus successful development of the Company depends on a large number of individuals and organizations. That is why at the core of governing responsible development is the engagement of so-called stakeholders – those who can be affected by or affect the corporate performance of Gazprom Neft. It is stakeholder engagement that is the main instrument of identifying risks and opportunities, which also helps develop and implement mechanisms for their management.

MECHANISMS OF STAKEHOLDER ENGAGEMENT

In order to improve systems and processes used for stakeholder engagement, in 2007 a Company Working Group comprising representatives of various business functions elaborated a vision of key stakeholder groups of the Company (see Figure 1.1). The Company needs such classification in order to identify common interests of different stakeholder groups, choose the right engagement approaches and methods. During the last year the Company engaged with representatives of all these groups (examples of such engagement regarding different components of responsible development are provided in the respective sections of this Report).

The effectiveness of stakeholder engagement is ensured by Company’s mechanisms of corporate governance and operational management, which collectively comprise the governance and management system of Gazprom Neft. These mechanisms together with corporate communications instruments used by the Company make it possible to maintain the engagement at all levels of or-

10 GOVERNING RESPONSIBLE DEVELOPMENT ganizational hierarchy, in all regions of operations, and regarding all components of responsible development.

Specific engagement forms and methods employed by the Company depend on particular region of operations, stakeholder group and interests of the latter (see, in particular, Corporate Commu- nications).

Partnership is a stakeholder engagement method of particular importance to the Company. In 2007, key groups of Gazprom Neft’s partners, i.e. organizations and individuals with whom the Company concluded official cooperation agreements, included

oil and gas production and petrochemical companies – through joint investments in new projects and jointly owned businesses (see Economic Development for more details) Company's employees – through employment contracts and collective agreements (see Employee Development and Support for more details) regional authorities and local communities – through socio-economic agreements (see Contribution to Regional Development for more details) suppliers and customers – through business contracts (see Contribution to Regional Development for more details)

GOVERNING RESPONSIBLE DEVELOPMENT 11 CORPORATE GOVERNANCE

GOOD CORPORATE GOVERNANCE IS A KEY ELEMENT OF RESPONSIBLE DEVELOPMENT AND DECISION- MAKING AFFECTING THE STAKEHOLDERS. THE COMPANY ENSURES COMPLIANCE OF THE CORPORATE GOVERNANCE PRACTICES OF ITS OWN AND ITS SUBSIDIARY COMPANIES WITH THE CODE OF CORPORATE CONDUCT BY THE FEDERAL FINANCIAL MARKETS SERVICE OF RUSSIAN FEDERATION, AND USES INTERNATIONAL PRINCIPLES AND STANDARDS IN THE FIELD AS GUIDANCE, CONTINUOUSLY IMPROVING THE TRANSPARENCY OF ITS OPERATIONS AND THE QUALITY OF TAKING PUBLIC INTERESTS INTO ACCOUNT.

BOARD OF DIRECTORS The Board of Directors elected by the General Meeting of Shareholders, the supreme governing body of the Company, plays a key role in determining strategic priorities and principles of the Com- pany, including its position with regard to responsible development.

The Board of Directors is chaired by Alexei Miller, the Chairman of the Management Board of JSC Gazprom. The Board comprises ten members who are listed at the corporate website: http://www. gazprom-neft.com/company/management/boadr-of-directors/

Board members Marco Alvera and Stefano Cao are independent directors according to the criteria set forth in the FFMS’s Code of Corporate Conduct. Substantial practical experience and deep knowledge of the Russian and global oil and gas sector allow the Board members to make optimal and effective decisions on the key issues of managing the Company. In order to avoid a conflict of interest in decision-making and to comply with the existing legislation, the decision on a transaction with respect to which there exists an interest is made by a majority vote of the Board members having no interest in the transaction.

12 GOVERNING RESPONSIBLE DEVELOPMENT What is the role of the Board of Directors in the responsible development management? Elena ILYUKHINA Member of the Management Board, Deputy CEO for Legal and Corporate Affairs

For such a large oil and gas company as Gazprom Neft, the issues of efficient use of non-renewable natural resources, ensuring safety of operations, creating decent working conditions for the personnel, assistance in development of infrastructure and social sector in the regions of our operations are among the key priorities. The Board of Directors representing The Board of Directors has two standing committees including (1) Audit Committee and (2) Person- interests of shareholders and providing nel and Remuneration Committee. The Committees are advisory bodies intended to implement ob- strategic management and supervision jectives set by the Board. The Audit Committee proposes to the Board nominees to serve as external always pays close attention to these areas. auditors, reviews regular financial records and audit findings, and evaluates performance of the in- Indeed, deep involvement of the Board ternal audit system. The functions of the Personnel and Remuneration Committee include prepar- in such topics as occupational safety, ing recommendations on evaluating the performance of the corporate governing bodies’ members, environmental impacts, and development of regional cooperation seriously their remuneration, criteria for selecting candidates for these positions, and informing the share- contributes to building credibility of the holders on the individuals nominated for election to corporate governing bodies. Company among minority shareholders, many of whom are ordinary people – A shareholder(s) owning in total not less than two percent of the voting shares of the Company has workers of the oil sector or members of the right to submit agenda items for an Annual General Meeting of Shareholders, and to nominate their families. candidates for the Board of Directors and Auditing Commission of the Company. Any shareholder is able at any time to submit to the Company an inquiry or recommendations on an issue of interest. All such inquiries are reviewed and, when necessary, may be submitted to the Board of Directors or a General Meeting of Shareholders for consideration.

GOVERNING RESPONSIBLE DEVELOPMENT 13 OPERATIONAL MANAGEMENT IN THE FIELD OF RESPONSIBLE DEVELOPMENT

THE COMPANY RECOGNIZES CLEARLY THAT IT IS NECESSARY TO CONTINUOUSLY IMPROVE EFFICIENCY OF ENGAGING WITH STAKEHOLDERS ON MATERIAL TOPICS BOTH AT GAZPROM NEFT’S TOP MANAGEMENT LEVEL AND IN ALL ITS SUBSIDIARY ENTERPRISES.

ROLE OF DIRECTORS AND TOP MANAGEMENT IN RESPONSIBLE DEVELOPMENT Gazprom Neft has appointed top management representatives responsible for coordinating management of one or more of material topics areas at the Company level (see Figure 1.2). With respect to some topics, several managers or bodies may share responsibilities within one general area; links with corporate governance bodies are also maintained. For example, the corporate Development Strategy is approved by the Board of Directors, submitted to the Board by the Chairman of the Man- agement Board, and prepared by the Strategic Planning Department jointly with business functions; the latter then become responsible for its implementation.

INTRODUCING UNIFORM RESPONSIBLE DEVELOPMENT POLICIES AND STANDARDS IN THE SUBSIDIARY COMPANIES The Company realizes the utmost importance of top management’s commitment to the ideas of sustainable development and corporate responsibility. But of equal significance is the introduction of unified responsible development principles, practices and approaches throughout the Company, including its subsidiary entities.

14 GOVERNING RESPONSIBLE DEVELOPMENT DEPUTY CHAIRMAN OF THE MANAGEMENT BOARD, Development strategy DEPUTY CEO FOR EXPLORATION AND PRODUCTION Economic performance Occupational health and safety CEO OF JSC GAZPROMNEFT-NEFTESERVICE Environmental protection Industrial safety DEPUTY CHAIRMAN OF THE MANAGEMENT BOARD, Customer relations DEPUTY CEO FOR LOGISTICS, PROCESSING AND SALES Supplier relations

DEPUTY CHAIRMAN OF THE MANAGEMENT BOARD, Economic performance DEPUTY CEO FOR ECONOMICS AND FINANCE

DEPUTY CHAIRMAN OF THE MANAGEMENT BOARD, Organizational structure of responsible development CHAIRMAN OF DEPUTY CEO FOR ADMINISTRATION Attraction and training of personnel THE MANAGEMENT BOARD Motivation and compensation Social support Occupational health and safety Managing responsible Environmental protection development as a whole Industrial safety Economic performance Development strategy MEMBER OF THE MANAGEMENT BOARD, Regional cooperation including charitable activities DEPUTY CEO FOR CORPORATE COMMUNICATIONS Corporate communications

MEMBER OF THE MANAGEMENT BOARD, Customer relation DEPUTY CEO FOR CONSTRUCTION AND MATERIALS MANAGEMENT

MEMBER OF THE MANAGEMENT BOARD, Corporate governance DEPUTY CEO FOR LEGAL AND CORPORATE AFFAIRSМ

STRATEGIC PLANNING DEPARTMENT Development strategy

FIGURE 1.2 As a part of the management system reform started in 2007, JSC Gazprom Neft will introduce a RESPONSIBILITIES FOR THE KEY RESPONSIBLE “Strategic Supervisor” model, under which the Head Office will define strategic lines of develop- DEVELOPMENT TOPICS AT THE TOP MANAGEMENT LEVEL ment and supervise their implementation while leaving to subsidiary companies operational auton- LEGEND: omy based on a unified strategy, policies, standards, and shared corporate culture. This common - MATERIAL TOPICS FOR WHICH TOP MANAGERS foundation of responsible development is currently being developed as an integrated system by the AND/OR BODIES OF THE COMPANY ARE RESPONSIBLE Head Office.

Thus, it is business functions of the subsidiary companies that in the future will be responsible for the implementation of responsible development policies and standards of the Company, including introduction of non-financial risk management systems at the local level. Specialists of the Head Office will assist them in practical application of the unified approaches. The work on introducing this system has already started, and the Company plans to present the results achieved in subsequent reports.

GOVERNING RESPONSIBLE DEVELOPMENT 15 CORPORATE COMMUNICATIONS

THE COMPANY ACTIVELY DEVELOPS INSTRUMENTS AND CHANNELS OF INTERNAL AND EXTERNAL COMMUNICATIONS, SEEKING TO IMPROVE THE PERFORMANCE OF ITS STAKEHOLDER ENGAGEMENT ACTIVITIES.

OPINION STUDIES AND STAKEHOLDER DIALOGUE The Company studies the opinions of its stakeholders and maintains a dialogue with them in order to make sure that their interests are understood and taken into account in the corporate decision- making processes. In 2007, Gazprom Neft carried out polls and questionnaire surveys of its staff in order to assess the socio-psychological climate among the Company’s workforce (see Chapter 3). As a means of customer communication, the Company maintains hotlines aimed at addressing the issues regarding the quality of services and products in a timely manner (see Chapter 4).

Gazprom Neft representatives conducted meetings with shareholders and investors, participated in conferences and roundtable meetings addressing important issues of oil and gas sector, as well as of sustainable development as a whole. The Company discussed important topics relevant to socio- economic development of Russian regions with non-governmental organizations, representatives of local communities and governmental authorities (see Chapter 4).

Gazprom Neft’s Department of Corporate Communications monitors on a regular basis both media and web publications on the Company’s activities in order to identify important issues that may potentially be of interest to stakeholders or that could lead to conflicts with them. Based on the monitoring results, the Company adjusts its approaches and works to improve the quality of its communications. One of the channels for stakeholder feedback is the corporate website (a form for submitting comments is available at http://www.gazprom-neft.ru/feedback/). The Company will continue to study stakeholders’ opinions and maintain a dialogue with external stakeholders on a systematic basis.

16 GOVERNING RESPONSIBLE DEVELOPMENT Co-workers and colleagues “Sibirskaya Neft” magazine Federal and regional newspapers, television Immediate supervisor and meetings Corporate website and intranet Bulletin board at the plants Corporate (plant) publications Meetings with Company’s and plant management External websites Other sources Do not know

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

INFORMING STAKEHOLDERS INFORMING THE STAFF Gazprom Neft believes that it is critically important to provide diverse information to the stake- A study of internal corporate communications of holders in order to raise their awareness of the Company’s activities. Therefore the Company Gazprom Neft carried out in late 2007 showed that actively works to broaden the range of information channels used and to improve the quality of the corporate magazine “Sibirskaya Neft” (Siberian Oil) was the second source of information on the these channels. Company’s affairs in terms of popularity among the staff surveyed. The recently created corporate intranet In 2007, the Company put considerable effort into improving the content and usability of the corpo- and the renovated website also took an important rate website, which now offers its users more information on all aspects of Gazprom Neft’s opera- place among the sources used by the staff. tions. The work on improving the corporate intranet has started.

In 2007, Gazprom Neft and its subsidiary companies continued publishing information of importance to stakeholders in corporate periodicals, including the monthly magazine “Sibirskaya Neft” (Siberian Oil) and newspapers “Sibirskiy Neftianik” (Siberian Oil Worker), “Slovo Neftian- ika” (The Word of Oil Worker), “Nashe Delo” (Our Cause), and “Muravlenkovskie Novosti” (Mu- ravlenko News).

Other means of informing stakeholders used in 2007 included public statements of directors and managers of Gazprom Neft, corporate press releases, publications on the Company in federal and regional media, mailing of various information materials (letters, information memorandums, booklets, and brochures), as well as the Annual Report of the Company.

GOVERNING RESPONSIBLE DEVELOPMENT 17 Managing responsible development as a whole RESPONSIBLE DEVELOPMENT Corporate communications Corporate governanceе GOVERNANCE AND MANAGEMENT Operational management in the field of responsible development Economic performance ECONOMIC DEVELOPMENT OF THE COMPANY Development strategy Motivation and remuneration EMPLOYEE DEVELOPMENT AND SUPPORT Social support Attraction and training of personnel Regional cooperation, including charitable activities CONTRIBUTION TO REGIONAL DEVELOPMENT Customer relations Supplier relations Environmental protection SAFE DEVELOPMENT Occupational health and safety Industrial safety

MATERIAL TOPICS COVERED BY THE REPORT

RESPONSIBLE DEVELOPMENT REPORTING The process of responsible development reporting occupies a special place within the Company’s system of corporate communications. On the one hand, such a report is a channel for informing stakeholders; on the other, it is a platform for studying their concerns and a foundation for stakeholder dialogue, essential to effective management of non-financial risks and opportunities relevant to the Company’s business, as well as for the improvement of the quality of management.

SVETLANA Borodina, Director of Corporate Governance Ratings Services, Standard&Poor's Gazprom Neft started to prepare, disclose, and publicly discuss its sustainability reports, and this is a very important move toward meeting the needs of all its stakeholders. Since our partners include foreign and, recently, increasingly more Russian investors, we view corporate reporting from the perspective of this particular stakeholder group. It is important for investors to understand prospects for growth of the investment value, potential factors of and obstacles to this growth. Reviewing sustainability reports, investors look for the information on how companies manage their non-financial risks – reputational, organizational, environmental, social etc. – the risks we attempt to assess with our corporate governance ratings. We hope that the Company will continue to improve its risk management system thus contributing to enhancing its investment attractiveness and the quality of corporate governance.

18 GOVERNING RESPONSIBLE DEVELOPMENT What did the Company want to achieve by publishing this Report?

KIRILL KRAVCHENKO Deputy Chairman of the Management Board, Deputy CEO for Administration, Supervisor of the Working Group for Preparation of the Sustainability Report for 2007.

When preparing and publishing this Report, we set ambitious goals for ourselves. We believe that now, when Gazprom Neft realizes that building a corporate process for such reporting requires a lot of the Company starts to work on many effort, particularly aimed at organizing collection, analysis and checking of information relat- aspects of responsible development, the Report will help us identify possible steps ed to responsible development of the Company. Therefore in late 2007 Gazprom Neft decid- forward. For the first time we disclose ed to establish a system for managing such information based on the requirements of the G3 information on many topics significant Guidelines and IPIECA/API Oil and Gas Industry Guidance on Voluntary Sustainability Report- to the Company. This information is ing – documents widely used throughout the world. expected to provide a foundation for a future productive stakeholder dialogue In addition to a system for collection, analysis and checking of information, one also needs a and initiate changes both within the tool to define appropriate quality and content of the Report in order to provide its users a com- Company and around it. It is feedback from Report readers that will show us plete picture of the Company’s performance. For this purpose the reporting principles pro- whether we succeeded in accomplishing posed by the G3 Guidelines were analyzed and adapted (see Annex 1). the goals set. The Company welcomes comments and suggestions that will Corporate reporting is a continuously evolving process. Continuing social reporting practices help us correct deficiencies and gain of Sibneft company, whose assets formed the core of Gazprom Neft’s business, in late 2007 a deeper insight into relevant issues, the Company published “Gazprom Neft: Social Horizons” (http://www.gazprom-neft.ru/social/ and will contribute to our responsible gazprom-neft-socialnyje-gorizonty.pdf), a review focused mainly on social programs and so- development as a whole. cial performance of Gazprom Neft.

GOVERNING RESPONSIBLE DEVELOPMENT 19 Now the Company is taking the next step by releasing a public document covering material economic, environmental, and social topics. These topics were identified by the Working Group in the process of materiality assessment (see Annex 1) and were reflected in the structure and content of this Report.

In order to ensure high quality and usefulness of the Report to both the Company itself and its stakeholders, Gazprom Neft presented the draft Report at meetings with a broad range of stakeholders (Omsk) and sustainability experts (Moscow). A number of comments and suggestions proposed by the participants were addressed in finalizing the Report; the rest will be taken into account in further development of stakeholder engagement in the future and in preparing the next sustainability report of the Company.

IGOR Zuga, Deputy to the Legislative Assembly of the Omsk region, Member of the Committee for Economic Policy and Investments of the Legislative Assembly, Director General of JSC Omskneftekhimproject

Publication of the sustainability report and conducting the roundtable in Omsk are important and necessary initiatives. There’s not enough information in the media on activities and life of the real sector of the economy. It is good that the Company now tells people what it is busy with, but I still think it is not sufficient — it is necessary to actively demonstrate Gazprom Neft’s successes and initiatives. Why don’t Omsk inhabitants know that JSC Gazpromneft-ONPZ [Omsk Refinery Plant] has reduced its emissions more than by the factor of two, takes an active part in the development of the city’s living environment, and so on? Gazprom Neft plans to publish similar reports annually, expanding stakeholder engagement and reporting on implementation of its responsible development plans in a timely manner.

20 GOVERNING RESPONSIBLE DEVELOPMENT GOVERNING RESPONSIBLE DEVELOPMENT 21

MAIN PLANS FOR THE MID-TERM PERSPECTIVE • Systematize the dialogue with external stakeholders • Improve the system for collection, analysis and checking (in particular, by means of external assurance) of quantitative data in the field of responsible development • Prepare and publish sustainable development reports based on stakeholders’ feedback on the published Report • Join the Social Charter of Russian Business • Develop and approve key responsible development codes and policies, and ensure their implementation at all enterprises of the Company • Develop the corporate non-financial risk management system

GOVERNING RESPONSIBLE DEVELOPMENT 23

ECONOMIC DEVELOPMENT COMPANY PROFILE GAZPROM NEFT IS ONE OF THE LARGEST RUSSIAN OIL AND GAS COMPANIES. IT ACTIVELY DEVELOPS ITS PARTNERSHIPS WITH OTHER LARGE COMPANIES IN THIS SECTOR AND ENTERS NEW MARKETS IN THE COUNTRY AND ABROAD.

HISTORY OF THE COMPANY AND OWNERSHIP STRUCTURE JSC Gazprom Neft emerged in its current form on the basis of Sibneft oil company, when Gazprom Group became a majority shareholder of the latter. The Company controls 50% of shares of JSC NGK Slavneft, which is currently managed jointly by Gazprom Neft and TNK-BP. In 2006 Gazprom Neft entered the retail market of Central Asia. In late 2007 the Company acquired a 50% interest in Tomskneft and made an agreement with Rosneft, the owner of the second half of the shares. At the same time the Company reached an agreement regarding management of the Moscow Oil Refinery with other shareholders of the enterprise. Thus the Company was able to considerably expand the scale of its operations and strengthen its position in the Russian oil and gas sector. Open joint stock company Gazprom Neft has its registered corporate address in St. Petersburg, while the headquarters of the Company are located in Moscow.

26 ECONOMIC DEVELOPMENT Minority shareholder 4,32 Eni PetroRussia B.V. 20,00 Where will we Gazprom Finance B.V. 16,67 JSC Gazprom 59,01 see the Company in the future? STRUCTURE OF OWNERSHIP OF JSC GAZPROM NEFT Vadim YAKOVLEV (AS OF DECEMBER 31, 2007) Deputy Chairman of the Management Board Deputy CEO for Economics and Finance

Gazprom Neft continuously expands its operations to new regions. The main geographic areas of the Company’s activities include Siberian and Central Federal Districts, while the distribution network currently covers 12 Russian regions. The Company also expands sales of petroleum products in the countries of Central Asia. In fact, Gazprom Neft has already reached the international level: in partnership MAJOR AREAS OF BUSINESS with JSC Rosneft and JSC Transneft AND REGIONS OF OPERATIONS we participate in the international Burgas–Alexandroupolis Trans- Major areas of the Company’s business include oil and gas production, oil refining, wholesale and Balkan pipeline project. Our current objective is to achieve the efficiency retail sales of oil and petroleum products, both domestic and international, as well as providing level of the world leaders in the oil specialized oil and gas field services, including exploration, drilling, construction and repair of wells and gas sector. and pipelines. Gazprom Neft carries out its production activities in Russia’s largest oil- and gas- bearing regions, including Khanty-Mansi, Yamalo-Nenets and Chukotka Autonomous Areas, as well as in Tomsk and Omsk Regions. The Company also holds licenses for exploration and production operations in other Russian regions (see Figure 2.1). Gazprom Neft has expanded its distribution network in Russia and the CIS (see Figure 2.2).

ECONOMIC DEVELOPMENT 27 FIGURE 2.1 REGIONS OF OIL PRODUCTION OPERATIONS AND LICENSE AREAS OF THE COMPANY (INCLUDING ACTIVITIES OF SUBSIDIARY AND DEPENDENT COMPANIES) •- OIL PRODUCTION OPERATIONS AND RESERVES, •- RESERVES

28 ECONOMIC DEVELOPMENT FIGURE 2.2 OIL REFINERIES AND SALES REGIONS (INCLUDING ACTIVITIES OF SUBSIDIARY AND DEPENDENT COMPANIES) • - REGIONS WITH RETAIL PRESENCE, •- REGIONS WITH WHOLESALE SALES ONLY, - REFINERY

ECONOMIC DEVELOPMENT 29 ECONOMIC PERFORMANCE AND EFFICIENCY

GAZPROM NEFT IS STRENGTHENING ITS CAPACITY FOR LONG-TERM SUSTAINABILITY AND ECONOMIC GROWTH. IN 2007, ITS CAPITALIZATION ON THE MICEX (MOSCOW INTERBANK CURRENCY EXCHANGE), WHERE MOST OF THE COMPANY’S SHARES ARE TRADED, INCREASED BY 27.5%. AS OF DECEMBER 31, 2007, THE OVERALL CAPITALIZATION OF THE COMPANY WAS RUB 725 BILLION. THE VALUE OF THE COMPANY’S ASSETS HAS ALSO BEEN GROWING — FROM USD9.930 BILLION AT THE END OF 2006 TO USD10.433 BILLION BY DECEMBER 31, 2007, I.E. BY 5.3% FOR THE REPORTING PERIOD.

KEY RESULTS FOR 2007 Due to a number of objective factors the growth rate of the Russian oil sector is currently low. In 2007, many companies showed a decline in production and insignificant increase in oil refining. A detailed analysis of Gazprom Neft’s operational performance (see Table 2.1) in the context of the Russian oil and gas sector’s development is provided in the Annual Report for 2007 and in the second issue of “Sibirskaya Neft,” the corporate magazine of the Company, for 2008 (http://www.gazprom-neft.ru/press-center/corp-press/). In 2007, the Company succeeded in reducing the oil production decline rate, while its oil reserves increased by 125.9 million tons.

Oil production: In the reporting period JSC Gazpromneft-Noyabrskneftegaz remained the main oil production enterprise of Gazprom Neft. At the same time the Company actively developed other production subsidiaries and created new enterprises in the prospective regions. Oil production by the Company’s subsidiaries in 2007 virtually stabilized. The Company resolved the issue of production decline at traditional oilfields, thus creating a foundation for further growth of production.

Refining: JSC Gazpromneft-ONPZ (the Omsk Refinery) — the key refining enterprise of the Com- pany — in 2007 showed a steady increase in petroleum refining and, in particular, in the output of light petroleum products.

30 ECONOMIC DEVELOPMENT What new partner projects did the Company start in 2007 Yuri LEVIN Head of Department of Develop- ment and New Projects

In 2007, Gazprom Neft and LUKOIL oil company created a joint venture for developing new hydrocarbon deposits in Timan-Pechora Basin. In addition, the Company continued joint operations with Sales: The Company increased oil and petroleum products sales in Russia, while showing a slight US Chevron oil company aimed at decrease in the export and a growth in retail sales. developing new oil fields in Yamalo- Nenets Autonomous District on Oilfield services: In 2007, the Company began restructuring its oilfield services business. In Sep- the basis of JSC Severnaya Taiga Neftegaz created in 2006. In 2008, tember 2007, Gazprom Neft set up Gazpromneft–Nefteservice LLC, a subsidiary company to man- the Company plans to expand its age the Company’s oilfield service assets, including JSC Gazpromneft–Noyabrskneftegasgeophisi- operations into new oil-bearing ka, Kapitalniy Remont Skvazhin – Service LLC, Servisnaya Burovaya Kompaniya LLC and other regions, including East Siberia, enterprises. Consolidation of the service enterprises will make it possible to actively develop the Central Asia, Middle East, and oilfield service business of the Company and increase its performance. North Africa.

ECONOMIC EFFICIENCY

With its high share of produced oil being refined, optimal balance between sales of oil and petroleum products, major retail business, and strong R&D potential, the Company holds the leading position among the largest Russian oil companies in terms of economic efficiency. According to the published data for the first nine months of 2007, Gazprom Neft has the highest specific net profit and earnings before interest, taxes, depreciation and amortization (EBITDA) per barrel of oil produced, as well as the best return on average capital employed (ROACE) among the five largest Russian oil companies.

ECONOMIC DEVELOPMENT 31 2005 2006 2007 Oilfield services, billion RUB n/a n/a 18,7 Oil production, thousand tons 45 121 44 367 43 121 incl. subsidiaries 33 040 32 717 32 666 Gas production, million m3 2 020 2 068 1 773 incl. associated petroleum gas, million m3 1 974 2 041 1 746 Petroleum refining, thousand tons 17 635 24 359 26 227 incl. Omsk Refinery 14 500 16 275 16 498 Output of light oil products and aromatic hydrocarbons, thousand tons 12 301 16 493 17 508 incl. Omsk Refinery 10 527 11 857 11 903 Refining depth (Omsk Refinery), % 84.1 84.5 83.4 Oil sales, thousand tons 19 857 21 221 21 410 incl. in Russia 446 1 375 4 270 incl. export sales 19 411 19 845 17 140 Sales of petroleum products, thousand tons 19 045 24 126 24 778 incl. in Russia 10 521 11 865 13 176 incl. export sales 8 524 12 261 11 602 incl. wholesale sales 17 488 22 219 22 517 incl. retail sales 1 557 1 906 2 261

TABLE 2.1. KEY OPERATIONAL PERFORMANCE INDICATORS OF THE COMPANY

R&D INVESTMENTS MAKE SERIOUS CONTRIBUTION TO THE GROWTH OF OIL PRODUCTION AND PROFITABILITY In late 2007, the Company re-organized its Research and Analytical Department into Gazprom Neft Research and Development Center LLC, a standalone corporate research and production center in the field of exploration, design, monitoring, and oil and gas production. It is planned that in 2008 specific R&D spending by Gaz- prom Neft will approach the level of such companies as ВР, Chevron, and Statoil. This is what the investment plan of the R&D Center is aimed at: for example, preliminary estimates show that effective water isolation works based on the Center’s proposal will result in oil production increased by 100–150 thousand tons per years. It is expected that drilling of additional horizontal sidetracks will result in a production increase by 120–170 thousand tons per years, while hydraulic fracturing measures implemented by the R&D Center will provide another 200–220 thousand tons per year. Moreover, according to the estimates by Gazprom Neft’s management, activities of the Center will make it possible to reduce the cost of interpret- ing seismic data by 60–75%. Thus, economic benefit from creating the new subsidiary is obvious. Systematic approach toward development of technology component of the Company’s business will help fully realize the potential created by the former Research and Analytical Department, and strengthen Company’s positions at the domestic and international markets.

32 ECONOMIC DEVELOPMENT 2006 2007 Value generated (revenues) 20.220 21.271 Value distributed (expenses), including: 14.777 15.305 operating costs 6.793 7.812 salaries and other payments to employees, including payroll taxes 0.606 0.759 payments to providers of capital, including dividends 0.711 2.164 payments to governments, including taxes 7.328 6.702 charitable activities 0.050 0.032 Value retained 5.443 5.966

TABLE 2.2 DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED, USD BILLION

NOTE: Hereinafter financial and economic indicators cover only the entities included in the reporting boundary according to US GAAP (see Annex 1 for more details). This accounts, in particular, for the difference in payroll data between this table and Table 3.2 in Chapter 3, which provides the data for DISTRIBUTION OF THE COMPANY’S PROFITS the Company as a whole. In 2006 and 2007, average weighted RUB/USD exchange rate was 27.8 and 25.6 respectively. Gazprom Neft makes considerable contributions to the economic development of Russia and its regions. The Company invests in maintaining stability of operations and efficient use of oil and gas resources, creates jobs and pays decent wages to its employees (see Chapter 3).

Gazprom Neft is a good taxpayer and a responsible business partner (see “Engagement with customers and suppliers”), it pays dividends to shareholders and interest on its borrowings on a timely basis.

The Company sponsors socio-economic partnership programs and charitable projects in its regions of operations (see “Collaboration in the regions”), and reserves remaining funds for future investments, research and development. The data on revenues and expenses (Table 2.2) show the distribution of the value generated between these items.

ECONOMIC DEVELOPMENT 33 DEVELOPMENT STRATEGY IN 2007 THE COMPANY STARTED DETAILED ELABORATION OF ITS LONG-TERM DEVELOPMENT STRATEGY. ACCORDING TO THE STRATEGY, THE COMPANY’S GOAL IS TO INCREASE ITS MARKET CAPITALIZATION TO USD 100 BILLION BY 2020.

STRATEGIC GOALS OF THE COMPANY The key targets the Company plans to achieve by 2020 include (compared to the current values):

2007 Target for 2020 Proven recoverable hydrocarbon reserves 601.8 million tons 2200–2400 million tons Oil production 32.7 million tons 90–100 million tons Refining output 26 million tons 70–80 million tons Retail network 770 filling stations 5000–5500 filling stations Sales of petroleum products through Company’s own distribution network 2.3 million tons 12 million tons.

In order to achieve these targets the Company plans to invest a total of USD70 billion by 2020.

The plan of reaching the production level set for 2020 envisions staged development of all Gazprom Neft’s explored oil fields (taking into account the Company’s 50% interests in JSC NGK Slavneft and JSC Tomskneft) and expansion of the resource base by putting into operation oil fields currently on the balance sheets of other Gazprom Group companies, and by acquiring new licenses.

34 ECONOMIC DEVELOPMENT How has the Company improved its Strategy? Yuri KALNER Head of the Strategic Planning Department

In 2007 the Company started to introduce a systemic approach toward formulating its concept of IMPLEMENTATION OF THE STRATEGY IN 2007 strategic development. Within the framework of this approach we In order to improve its performance in all areas of activities and build a foundation for implementa- develop and annually update both tion of the Strategy, in 2007 the Company: the top-level Strategy and a number of strategies for various business Introduced tendering systems to improve efficiency and transparency of procurement and functions and divisions, which are wholesale sales of petroleum products intended to guide the development Consolidated its oilfield services assets in order to improve competitiveness of this business of individual business segments. The strategic concept, as well as

Strengthened its own research base for wide implementation of advanced techniques to improve functional and divisional strategies efficiency of production and oil recovery factor are developed for short-term, mid- Developed a mid-term strategy for achieving a high rate of associated gas recovery term and long-term time horizons. Concluded important partnership agreements with other companies The so-called KPI pyramid, a Further developed its retail network and created new lines of retail business including bunkering quantitative representation of the of vessels and fuelling of aircrafts degree to which the strategic goals are achieved, serves as a foundation Started a reform of the management system in order to shift from tactical to strategic planning for the managers’ motivation and management system at various levels of the Started the implementation of an integrated health, safety, and environmental management organizational hierarchy. system at the enterprises of the Company Systematized approaches toward personnel motivation, attraction and development, providing decent social benefits, and formation of a shared corporate culture Continued fruitful cooperation with its regions of operations

ECONOMIC DEVELOPMENT 35 According to its Strategy, Gazprom Neft should almost double its oil production by 2020. How is the Company going to achieve this goal? Boris ZILBERMINTS Deputy CEO for Exploration and Production

We will work in several key areas. These include bidding for the acquisition of new license areas, further exploration of discovered oil fields, and introduction of the most advanced techniques for the improvement of oil recovery factor. Increased efficiency and output of joint ventures, development of Gazprom Group’s oil fields, and acquisition of operating assets both in Russia and abroad will also contribute to overall growth of production. In 2008-2010, within the framework of the Associated Gas Recovery Program already approved by the Company, we plan to reach a 95% gas recovery rate, in particular, through cooperation with the SIBUR Group. I would like to particularly emphasize that all measures in the areas listed above will undergo an efficiency assessment, and only the most profitable and feasible ones will be implemented in practice.

36 ECONOMIC DEVELOPMENT How will the Company Which factors develop will determine its oilfield the growth in services retail sales of the business? Company? Oleg VITKA Anatoly CHERNER CEO of JSC Gazpromneft – Deputy Chairman of the Management Nefteservice Board, Deputy CEO for Logistics, Processing and Sales The development strategy of the Company’s oilfield services business envisions not only The high quality of our refineries’ products providing services to Gazprom Neft itself and other is recognized by customers. The integrated companies of the Gazprom Group, but entering the development program of the Omsk Refinery market with competitive services. We are planning in the near future will make it possible to to improve the efficiency of the business by produce gasoline and diesel fuel conforming to offering a broader range of services, using modern the European environmental safety standards equipment and the most advanced technologies. (Euro 4 from 2011, Euro 5 from 2015). We plan Cooperation with other companies specializing or to increase the number of our filling stations, having significant experience in providing oilfield not only expanding our retail network in our services also contributes to our dynamic growth traditional regions of operations and the and increased quality of services. The key role in regions with a constantly high demand, but the service business development belongs to our actively entering new regions, prospective to staff, its professionalism, high qualifications, and us. We will work to unify the appearance of extensive experience. The Company will improve our filling stations, provide a broader range working conditions, elaborate a motivation of additional services, improve the quality of system and programs for professional upgrading services in accordance with modern standards, and retraining, and develop social support of analyze demand for and customer satisfaction personnel. The introduction of new technologies, with our services, develop loyalty programs advanced managerial and organizational for our clients. We will also continue the approaches will help improve the performance development of new lines of business, including of each employee. Active efforts made by bunkering of vessels, fuelling of aircrafts and Gazprom Neft in the last year (2007) provide a sales of motor oils, and will work to increase good foundation for realization of the Company’s the efficiency of wholesale sales, improving development potential and achievement of the key the tendering system for sales of petroleum targets envisioned by the Strategy. products.

ECONOMIC DEVELOPMENT 37

MAIN PLANS FOR THE MID-TERM PERSPECTIVE • Expand oil production through development of explored oil fields, improvement of oil recovery factor at the oil fields being developed, and acquisition of new license areas and assets • Achieve further integration of oilfield services business and improve its competitiveness • Establish the Research and Development Center on the basis of the Company’s Research and Analytical Department, and implement respective investment program • Produce environmentally safe types of motor fuel • Expand and develop the Company’s retail business

ECONOMIC DEVELOPMENT 39

EMPLOYEE DEVELOPMENT AND SUPPORT APPROACH TO PERSONNEL MANAGEMENT

GAZPROM NEFT INVESTS IN PERSONNEL, SUPPORTING INITIATIVES AND INNOVATIONS AIMED AT THE IMPROVEMENT OF EFFICIENCY OF OPERATING AND MANAGEMENT PRACTICES. THE COMPANY ACTS AS A RESPONSIBLE EMPLOYER MAINTAINING EQUAL RELATIONSHIPS WITH ITS PERSONNEL, PROVIDING DECENT WAGES, DEVELOPMENT OPPORTUNITIES, AND COMFORTABLE WORKING CONDITIONS.

RESPONSIBILITY IN THE FIELD OF PERSONNEL MANAGEMENT It is the Human Resources Department that is responsible for strategic aspects of personnel management. The Department includes four offices whose functions are described by their names: Of- fice of Personnel Administration and Selection, Office of Personnel Development and Training, Of- fice of Motivation, Remuneration and Benefits, and Office of Social Security. In the field of informing personnel the Human Resources Department cooperates with the Corporate Communications De- partment.

DEVELOPMENT PRIORITIES OF THE PERSONNEL MANAGEMENT SYSTEM

At the current stage, the Company’s priorities in the field of personnel development and support include:

Development of an integrated system of employees’ performance evaluation encompassing all stages of their work Creation of a system of continuous training and development of the Company’s personnel Formation of an integrated system of personnel motivation Development of a candidate pool within the Company, creation of an effective promotion and rotation system Improvement of a system of social assistance to the Company’s employees Attraction of highly qualified staff and development of adaptation programs for new employees

42 EMPLOYEE DEVELOPMENT AND SUPPORT How do you see the Company’s personnel five years from now? Oleg SIDOMONIDZE Head of Human Resources Department

We have to become a cohesive, strong team of professionals, where each member contributes to achieving common goals at his Integrated achievement of these priority objectives will contribute to the formation of a highly pro- or her workplace. Our current fessional team with a shared corporate culture. goal is personnel development and formation of a collective In 2007, Gazprom Neft Asia enterprise implemented a targeted pro- that would meet the Company’s gram aimed at training and motivation of junior staff. This Gazprom growing needs in highly qualified Neft subsidiary, which employs 612 filling station attendants, orga- managerial and technical staff, nized a series of training workshops for them. while ensuring both continuity It is the filling station attendant who represents the face of the and innovative development. We Company when greeting and serving a client, receiving payments strive to fill opening vacancies with for the service, and seeing him or her off. Therefore the training our own employees and to attract program covered, in addition to legal liabilities and safe working young staff that meets the highest practices, topics on quality of services, business etiquette, and the requirements while being able to Company’s values. quickly adapt to Gazprom Neft’s It was decided to increase salaries of the junior staff and to intro- corporate culture and practices. duce a new remuneration system aimed at providing incentives for good work. According to the new scheme, the employee’s remuneration includes a guaranteed salary, a bonus linked to accomplishment of responsibilities and compliance with workplace conduct requirements, and an incentive part depending on sales of the filling station. The management of Gazprom Neft Asia believes that these measures will improve employees’ loyalty to the Company and strengthen the corporate spirit.

EMPLOYEE DEVELOPMENT AND SUPPORT 43 FIGURE 3.1. KEY CORPORATE VALUES

POLICY AND STANDARDS IN THE FIELD OF PERSONNEL MANAGEMENT Currently Gazprom Neft is developing a draft unified Human Resources Policy, and expects to approve and begin implementing it in 2008. In order to produce a balanced and comprehensive document, representatives of regional subsidiaries are involved in drafting the policy together with specialists of all offices of the Human Resources Department.

In order to define a standard approach toward labor relations at all its enterprises, the Company works on a standard collective agreement which would include unified employer obligations for all Gazprom Neft’s subsidiaries. Each subsidiary company will be able to amend the agreement with additional elements, adapting universal benefits and conditions to its particular situation.

In 2007, the Company also began to develop a set of new personnel management standards, including “Management by Objectives. Procedure of Setting Objectives and Performance Evaluation,” “Procedure of Organizing Personnel Training,” “Planning and Training the Candidate Pool for Tar- get Positions,” “Procedure of Working with Young Professionals,” “Procedure of Providing Quarterly Bonuses to the Personnel,” “Personnel Awards and Corporate Celebrations,” etc.

Currently the Company is developing a corporate Code of Ethics, formulating its key principles on the basis of expert judgments and opinion surveys of stakeholders with primary focus on the shareholders and employees. The key corporate values identified as a result of this work include:

Later these values will be set forth in the Code, whose adoption and application will contribute to the formation of an integrated corporate culture of the Company.

44 EMPLOYEE DEVELOPMENT AND SUPPORT 47 965 48 327 5 000 44 494

4 000

3 000

2 000

1 000

0 31.12.05 31.12.06 31.12.07

FIGURE 3.2. GAZPROM NEFT HEADCOUNT

PERSONNEL PROFILE At present Gazprom Neft together with its subsidiaries employs more than 48,000 individuals working in 16 Russian regions, Kyrgyzstan, Kazakhstan, and Tajikistan (see Figure 3.2). In particular, about 6% of the personnel are employed in Moscow and Moscow Region, about half of them in the Head Office. 17% of the personnel work in Omsk and Omsk Region, more than half of them at the Omsk Refinery. However, the biggest region in terms of Gazprom Neft employment is Yamalo- Nenets Autonomous Area, where more than half of the Company’s personnel work. Distribution of personnel by region and country is shown in Figure 3.3.

Most of those working at the Head Office of the Company are between 30 and 50 years of age (more than 50%). 30% of the Head Office personnel are younger than 30, about 5% are working pensioners. About 30% of the managers working at the Head Office are women (women comprise about half of the total personnel of the office). The share of women among the Company personnel as a whole is slightly more than 25%. Workers comprise almost three-fourths of Gazprom Neft personnel; the share of specialists and office staff is about 18%. The average age of a Gazprom Neft employee is 40 years of age.

RECRUITMENT AND LEAVING

The key factors determining changes in the Company personnel (see Table 3.1) include Company’s development, restructuring, and growth. For example, in 2005 more than 6100 employees of JSC Sibneft-Noyabrskneftegaz left the Company, and more than 4600 were hired; thus the overall number of enterprise personnel decreased by more than 1500. Some employees were transferred to the

EMPLOYEE DEVELOPMENT AND SUPPORT 45 2005 2006 2007 Average number of personnel 44 640 45 775 47 686 Recruited by the Company 11 981 12 561 9 932 Left the Company 10 343 9 545 9 584 Personnel turnover* 23% 21% 20%

*Ratio of those leaving the Company to the average number of personnel TABLE 3.1. CHANGES IN THE HEADCOUNT

2005 2006 2007 Total personnel expenses, million RUB, without payroll taxes 13 748 16 478 19 958 incl. total payroll, million RUB 13 309 15 982 19 259 social payments, million RUB 439 496 699

TABLE 3.2. PERSONNEL EXPENSES OF THE COMPANY Company’s oilfield service enterprises. Almost 1900 employees were hired by JSC Novosibirskneft- eproduct VNK, where 1455 new jobs were created. In 2006, the largest contribution to the personnel growth was made by JSC Gazprom Neft Asia, where almost 1400 new jobs were created. In 2007, the number of Company personnel increased insignificantly.

If a planned restructuring of a Company’s division requires layoffs, employees of the division in question are notified at the general meeting at least two months prior to the dismissal, as required by the existing legislation. The Company, in cooperation with labor union organizations, uses this period for consultation with the employees and offers them employment options such as transfer- ring to other positions or divisions, other subsidiaries of the Company or project centers. Those approaching retirement age are offered early retirement on terms negotiated between the parties. If an employee accepts neither of these options, he or she is paid dismissal compensation. In case of a violation of employee rights, in particular, with regard to dismissal, all necessary efforts are made to enable amicable resolution of the dispute and to remedy the breach. At the key enterprises of the Company**, there were two cases of illegal dismissal in 2005, one in 2006, and three in 2007. All of them took place in the Company’s retail business. All affected employees were paid compensations and restored to their former positions.

PERSONNEL EXPENSES

The Company pays its employees competitive wages and provides decent social benefits. In 2007, personnel expenses grew more than 20% from the previous year, reaching almost RUB 20 billion (see Table 3.2).

**Companies listed in Annex 1.

46 EMPLOYEE DEVELOPMENT AND SUPPORT FIGURE 3.3. GEOGRAPHIC DISTRIBUTION OF THE COMPANY PERSONNEL (AS OF DECEMBER 31, 2007) LEGEND: •- MORE THAN 50%, •- MORE THAN 15%, •- FROM 1% TO 10%, •- LESS THAN 1%

EMPLOYEE DEVELOPMENT AND SUPPORT 47 MOTIVATION AND REMUNERATION

THE COMPANY SUPPORTS EMPLOYEES’ DRIVE TO WORK BY BUILDING A FOCUSED TEAM THAT IS AIMED AT CONSISTENTLY HIGH RESULTS.

PERFORMANCE-BASED REMUNERATION SYSTEM An effective personnel motivation system is able to make a serious contribution to accomplishment of Company’s business goals by facilitating employee performance. Gazprom Neft introduces and develops an integrated motivation system based on competitive wages, performance-based rewards, and non-financial incentives.

In 2007, the Company introduced the Management by Objectives (MBO) approach that links annual bonuses of top and middle management to accomplishment of both their individual objectives and corporate objectives of the Company. A system of key performance indicators (KPI) is being introduced for the personnel of the Company and its subsidiaries. The KPIs include, in particular, significant performance indicators in the field of occupational health and industrial safety. Managers of the business functions and the Strategic Planning Department participated in the development of KPIs. The Company plans to complete implementation of the system in 2008.

GROWTH OF WAGE LEVEL

Striving to attract and retain the best workforce available, Gazprom Neft carefully tracks competitiveness of the wages paid to its employees. Ratios of average wages at the Company's enterprises to average wages in the regions of operations are shown in Figure 3.6. The Company wants wages

48 EMPLOYEE DEVELOPMENT AND SUPPORT 40

20 15 What’s new 10

05 in the Company’s 2005 2006 2007 00 remuneration system?

FIGURE 3.4. Alyona KNYAZEVA AVERAGE SALARY LEVEL IN THE COMPANY Head of the Office of Moti- vation, Remuneration, and Benefits

To encourage people to work for the Company with full commitment while knowing that their efforts will be decently rewarded, we need of oil workers to grow faster than the inflation rate. During the reporting period, year 2007, the av- a motivation system aligned erage wage for the Company as a whole rose 16 % (see Figure 3.4). The next increase of the wage with goals and objectives of level is expected in late April 2008. In 2008 it is planned to modify the remuneration system in order the Company and its business. to make the remuneration size depend more on the qualifications, experience, and performance of Gazprom Neft has introduced a an employee, and less on the fo mal position in the organizational hierarchy. balanced compensation system for its employees. At present the Company is developing EMPLOYEE SATISFACTION a system for evaluating personnel performance, which In 2007, Gazprom Neft, assisted by ZIRCON Group, a sociology research center, carried out a study will logically complement the of internal communications and socio-psychological climate at its enterprises. The study included existing motivation system. a survey of 7500 employees of 10 enterprises representing different areas of the Company’s business. During the survey, among other important questions, employees were asked about their satisfaction with work.

According to the survey results, the vast majority of employees (more than 70%) are generally satisfied with work at their enterprises. The distribution of answers is presented in Figure 3.5. At some Company’s enterprises the level of employee satisfaction is even higher. In particular, at Gazprom- neft-Noyabrskneftegeaz, one of the largest Company’s subsidiaries, 73.8% of employees are satis-

EMPLOYEE DEVELOPMENT AND SUPPORT 49 Not satisfied 27,2

No answer 0,7

Satisfied 72,1

FIGURE 3.5. LEVEL OF EMPLOYEE SATISFACTION WITH WORK

fied with their work. This situation is primarily a result of the wage level at the Company’s enterprises. Despite this high level of employee satisfaction, in 2008 the Company plans to put an emphasis on improving the system of monetary and non-monetary incentives, fostering a shared corporate culture, strengthening personnel loyalty and engagement, and increasing the effectiveness of the internal communications system. In order to measure positive changes in the personnel attitude, Gazprom Neft plans to carry put similar surveys on a regular basis.

RECOGNITION OF EMPLOYEE ACHIEVEMENTS

The existing personnel motivation system involves not only monetary incentives, but also various kinds of non-monetary rewards. The most productive workers and winners of professional contests are awarded sectoral and corporate honorary signs, their achievements are publicized by the corporate media, and their images are featured on honorary boards. Corporate professional and sports competitions are organized. All this helps employees realize their individual contributions to the common cause, strengthen the corporate culture and shared values.

In 2007, five staff members of JSC Gazpromneft-Noyabrskneftegaz were awarded the honorary title of Meri- torious Worker of JSC Gazprom-Neft. At a special ceremony organized in Moscow, Alexander Dyukov, the Chairman of the Management Board of the Company, presented a gold badge with the Company’s symbols and a monetary remuneration of 100,000 RUB to each of the five employees. The honorary title of Meritorious Worker of JSC Gazprom-Neft was established as a reward for years of productive work, high professional level, and achievements in increasing the performance of Gazprom Neft.

50 EMPLOYEE DEVELOPMENT AND SUPPORT FIGURE 3.6. RATIOS OF AVERAGE WAGES AT THE COMPANY’S ENTERPRISES AND IN RUSSIAN REGIONS IN 2007 (FOR THE REGIONS WHERE MORE THAN 1% OF THE COMPANY PERSONNEL IS EMPLOYED) LEGEND: •-MORE THAN 200%, •-FROM 100 TO 200%

EMPLOYEE DEVELOPMENT AND SUPPORT 51 SOCIAL SECURITY SOCIAL BENEFITS PROVIDED TO PERSONNEL NOT ONLY HELP CREATE COMFORTABLE CONDITIONS AND INCREASE CONFIDENCE IN THE FUTURE, BUT ALSO STRENGTHEN THE CORPORATE CULTURE BY DEMONSTRATING COMPANY’S RESPONSIBLE ATTITUDE TOWARD ITS EMPLOYEES.

Social programs complement monetary compensation as an instrument of attracting and retaining qualified workforce. Various corporate events, competitions and celebrations also play an important role in the Company’s life, gathering together all staff members. All this strengthens the corporate spirit and makes employees feel they are members of a single cohesive team.

BENEFITS PACKAGE

The Company’s employees, in addition to the benefits envisioned by the existing legislation, are provided a benefit package that includes:

Voluntary medical insurance Payment of expenses for meals Jubilee bonuses Monetary assistance Payment of recreation and travel expenses, vacation allowance Additional child care allowance Holiday gifts for employees and members of their families Accident insurance Death allowance

Since each subsidiary of the Company has a different scope and budget of social programs as a result of its unique history, Gazprom Neft initiated systematization and improvement of such pro-

52 EMPLOYEE DEVELOPMENT AND SUPPORT grams in order to provide a standardized decent benefits package focused on the benefits of the most interest to the personnel. The Company develops an occupational pension scheme (calculations for two schemes, one to be funded by the Company only, and one involving also employee’s payments, were made). Currently a housing program for young professionals has been introduced and preferential loan schemes are being developed. The Company also works on enhancing its approach toward voluntary medical insurance of the staff.

In 2007, average social payments for an employee reached RUB 14.700, or 35% more than in 2006 (RUB 10,900). Still there remain considerable differences between the levels of benefits at different enterprises and in different regions, as can be seen in Figure 3.7.

According to the collective agreement, employees of JSC Sverdlovsknefteproduct are provided a considerable benefits package of about thirty items, including free health services and vaccinations, partial coverage of recreation expenses, assistance to pensioners and mothers having many children, etc. All these obligations are strictly observed by the company. The company employees share not only a place of work, but their interest toward active recreations. Corporate celebrations usually include contests and competitions. The employees are eager to participate in regular corporate competitions in different sports. Sverdlovsknefteproduct’s sports initiatives spread beyond the company boundaries – its employees actively participate in bowling competitions between oil companies operating in Sverdlovsk region. One more good tradition of the company is to reward talented and proactive employees. Throughout the year Sverdlovsknefteproduct conducts competitions in professional excellence rewarding winners with valuable priz- es and monetary bonuses. The company organizes regular Best Idea Contests aimed at the improvement of quality of services at filling stations, development of a new station design, cost reduction, innovative sales promotions etc. All these activities help improve performance of the enterprise and strengthen cohesion of its team.

EMPLOYEE DEVELOPMENT AND SUPPORT 53 FIGURE 3.7. SHARE OF SOCIAL PAYMENTS IN THE TOTAL PERSONNEL EXPENSES (FOR THE REGIONS WHERE MORE THAN 1% OF THE COMPANY PERSONNEL IS EMPLOYED) LEGEND: •- MORE THAN 3.5 %, •- FROM 1 TO 3.5%, •- LESS THAN 1%

54 EMPLOYEE DEVELOPMENT AND SUPPORT RELATIONS WITH LABOR UNIONS

Gazprom Neft actively collaborates with labor unions of its employees to jointly address social issues. Union committees representing employees involved in different types of operations are present at the largest subsidiaries of the Company, including Noyabrskneftegaz and Omsk Refinery. Most enterprises are covered by collective agreements. Meetings of union leaders with the top management of the Company are conducted twice a year. Working meetings of union representatives with heads of Com- pany’s department and offices usually occur on a much more frequent basis.

Members of union committees represent the positions of labor collectives and are actively involved in development and implementation of benefits programs: in particular they participate in revision of wages and distribution of recreation packages. Union committees also participate in organizing corporate sports competitions and cultural events. When necessary, the unions help resolve labor disputes occurring at the enterprises.

More than two thirds of the Company’s employees are union members; these include more than 85 % of those employed in Omsk Region and Khanty-Mansi Autonomous Area, and more than 60% of those employed in Kemerovo Region. 76% of the Company’s personnel are covered by collective agreements; these include almost all employees of the enterprises located in Omsk Region, Khan- ty-Mansi Autonomous Area, Yekaterinburg and Sverdlovsk Region, and more than 89% of those employed in Kemerovo Region.

EMPLOYEE DEVELOPMENT AND SUPPORT 55 CORPORATE SPORTS AND HEALTH IMPROVEMENT Sports events help strengthen team spirit, unite employees, and promote a healthy way of life. Ac- cording to a survey carried out by the Company in 2007, an absolute majority of employees – about 70% of those surveyed — were satisfied with conditions for sports and fitness at their enterprises, and only 30% considered these opportunities insufficient.

In 2007, two corporate tournaments – football and chess – were organized with 180 representatives of 12 enterprises participating in them. The Company created the Council for Sports and Health Im- provement. For 2008, Gazprom Neft budgeted more than RUB 30 million for organizing sport events and acquiring sports uniform and equipment for Company employees and veterans. The Compa- ny plans to organize volleyball, table tennis, billiard and chess competitions for Company veterans (non-working pensioners) living in Noyabrsk and Omsk. In May–July 2008, qualifying rounds for Gazprom Neft’s Corporate Olympics will be organized in the Company’s regions of operations. The Olympics themselves, associated with the Day of Oil Worker, will be held in August–September and will include seven of the most popular sports among employees. In addition, corporate basketball and ski racing competitions will be held in the same year. It is expected that more than 1000 employees will participate in all corporate level competitions.

In addition to internal events of the Company, it is planned to organize competitions between managerial teams of oil companies and international Omsk Refinery Prize Football Tournament among petroleum refineries, and to take part in inter-corporate competitions of the Sports League of Oil and Fuel Companies. Company teams and individual athletes will also participate in regional competitions and tournaments.

56 EMPLOYEE DEVELOPMENT AND SUPPORT ASSISTANCE TO COMPANY VETERANS Patronage of veteran organizations and assistance to retired employees is one more important component of the Gazprom Neft’s social policy. The Company does not forget those who worked for it for many years and supports them to the extent possible. Gazprom Neft’s enterprises provide monetary assistance to their pensioners, organize cultural events, and make every effort possible to ensure decent life of their veterans. Some enterprises pay supplementary pensions for long service. Members of Omsk “Fakel” (Torch) Club number almost 4000 veterans who worked at the Omsk Refinery for at least 15 years. The refinery pays the veterans supplementary pensions, provides free health services and space for club meetings and events. Other subsidiaries of the Company also maintain their veterans associations. In 2007, total charitable aid to the veterans of the Omsk Refin- ery increased more than half compared to 2006, and reached 26.3 million RUB.

As the International Day of Older Persons was approaching, JSC Gazpromneft-Tyumen provided charitable aid to veteran organizations of Tyumen and Tyumen Regions comprising, in particular, retired employees of the enterprise. The funds were used to organize events and celebrations, which were attended by more than 700 senior citizens. Gazpromneft-Tyumen acquired essential goods and medi- cations and gave them to Care for the Elderly NGO for further distribution among pensioners. The Council of War and Labor Veterans of Mys settlement was provided with gasoline. More than 500 retired and working pensioners received monetary aid associated with the Day of Older Persons.

EMPLOYEE DEVELOPMENT AND SUPPORT 57 RECRUITMENT AND TRAINING

THE COMPANY STRIVES TO BECOME ONE OF THE SECTOR LEADERS IN EFFICIENCY AND IS INTERESTED IN ATTRACTING TALENTED SPECIALISTS. THE KEY AREAS OF PERSONNEL DEVELOPMENT IN THE COMPANY INCLUDE WORK WITH YOUNG PROFESSIONALS, FORMATION OF A CANDIDATE POOL, AND CREATION OF AN INTEGRATED CONTINUOUS TRAINING SYSTEM COVERING ALL PERSONNEL CATEGORIES AND ALL LEVELS OF THE ORGANIZATIONAL HIERARCHY.

Systematic efforts aimed at personnel development help employees fully realize their potential and acquire new knowledge and skills. In the future the Company plans to fill up to 80% of opening vacancies with its own employees (currently this figure is much less). Gazprom Neft already has more than 2% of the employees in its candidate pool. The Company will also work to attract young talented employees.

ATTRACTING YOUNG PROFESSIONALS

When recruiting new employees, the Company will look for talented, promising and goal-oriented young people capable of contributing to the inflow of fresh ideas and dynamic growth of the business. Realizing that excellent specialists are fostered in university auditoriums, Gazprom Neft collaborates with many Russian universities, assisting them in training students. In particular, in 2007 the Company recruited more than 300 graduates, while in 2008 it plans to recruit another 400 students. Gazprom Neft maintains a special adaptation and development program for newly recruited students.

58 EMPLOYEE DEVELOPMENT AND SUPPORT 350 306 334 300 283 250

200

150 100 Why is Gazprom Neft 50 2005 2006 2007 00 attractive to graduates? Irina BEZMENOVA FIGURE 3.8. RECRUITMENT OF YOUNG Head of the Office for Personnel PROFESSIONALS Development and Training

Our Company, one of the largest in Russia, continues its active development. We have programs for supporting students and young professionals. Gazprom Neft offers graduates a broad range of opportunities in terms of both professional and personal development. The Young Professional Program takes three years. During this period newly recruited specialists — new graduates — develop their professional, technical, and leadership skills, at the same time planning their career paths. For all three years a young professional is assisted by a mentor who initially helps the new employee adapt to the corporate environment, and then assists in developing his or her professional and corporate competencies, identifying the leadership potential.

The Company organizes special training for the mentors themselves, thus helping them perform their functions effectively. The program provides for rotation of young professionals between different divisions and business functions; the most talented and successful are included in the strategic candidate pool. In 2007, Gazprom Neft recruited 334 young professionals, or 9% more than the previous year. By the end of 2007 the Company employed a total of 696 young professionals. The program is considered a success — in 2008 it is planned to increase the recruitment of young professionals by 2.5 times. The growth of young professionals’ recruitment is shown in Figure 3.8. According to forecasts, the overall share of young professionals among the Company employees should reach at least 3%.

EMPLOYEE DEVELOPMENT AND SUPPORT 59 COLLABORATION WITH EDUCATIONAL INSTITUTIONS For many years Gazprom Neft and its subsidiaries have closely collaborated with universities. This partnership helps make training process closer to real practice due to a well-established collaboration system that includes on-site training of students and internship of teachers at the Company’s enterprises, funding research and development activities of universities relevant to the Company and, finally, recruiting best graduates. Gazprom Neft cooperates with a number of universities, including:

G. V. Plekhanov St. Petersburg State Mining Institute M. Gubkin Russian State Oil and Gas University M. V. Lomonosov Moscow State University Tyumen Oil and Gas State University Ufa State Oil Technical University Tomsk Polytechnic University Kazan State University Omsk State University Omsk State Technical University Novosibirsk State University Samara State Technical University Siberian State Automobile and Road Academy

60 EMPLOYEE DEVELOPMENT AND SUPPORT A good example of the Company’s partnership with educational establishments is the collaboration of the Omsk Refinery with Chemistry Department of the Omsk State University, Chemical and Mechanical College, and Industrial and Economic College. The best students of these establishments have been granted Ivan Litskevich Awards (named after a former Refinery director) for eight years already. Since March 2002, the Refinery funds stipends for the best senior students of Technical and Agrarian Universities. The stipends are granted based on the results a competition, which takes into account, in addition to learning achievement, the students’ performance during their onsite training in the working collectives of the refinery.

In addition to targeted cooperation with universities, the Company collaborates with secondary professional educational institutions on a regular basis. This helps the Company recruit graduates of such institutions for worker positions in its largest subsidiaries including JSC Gazpromneft-Noyabr- skneftegaz and JSC Sibneft–ONPZ. As for the latter company, graduates of secondary professional educational institutions account for almost 60 % of young professional recruited annually. Our key partners in the field of secondary professional education include:

Noyabrsk Oil College Omsk Industrial and Economic College Omsk Chemical and Mechanical College Moscow Geological Exploration Technical College

EMPLOYEE DEVELOPMENT AND SUPPORT 61 EMPLOYEE TRAINING Gazprom Neft traditionally gives serious attention to training and professional development of its employees. In 2007, training activities involved more than 30% of employees; in 2008 it is planned to increase this number by 2.5 times. The integrated personnel training and development system in place provides good conditions for development of employee creativity and lead, their professional and career growth. Gazprom Neft’s integrated training system is designed to meet the requirements of the Company’s business and its corporate culture. Corporate training programs include three main components:

Professional training programs aimed at acquiring knowledge and skills relevant to specific professions, positions, and functions Programs aimed at development of corporate competencies Programs aimed at development of business thinking, economic literacy, and understanding of business. In 2008, Gazprom Neft plans to put special emphasis on creating new and enhancing existing corporate training centers, which would result in a considerable improvement of the quality of employee training. The Company introduces advanced training techniques including simulators and spe- cially equipped training grounds.

The Company develops a career planning system. The key element of this system is Personal De- velopment Plans based on job requirements, employee strengths, and recommendations of immediate supervisors and mentors. As a part of improvement of the corporate personnel development system, in 2008 it is planned to introduce training methods based on best practices, including the- matic master classes.

62 EMPLOYEE DEVELOPMENT AND SUPPORT EMPLOYEE DEVELOPMENT AND SUPPORT 63

MAIN PLANS FOR THE MID-TERM PERSPECTIVE • Introduce a system of key performance indicators, and develop a system of qualification grades, while linking the remuneration and benefits scheme to it • Define of a common approach toward the scope of benefits packages and align social assistance level across Company’s subsidiaries • Form a shared corporate culture, strengthening personnel loyalty and motivation, in particular, through the development and application of the Company’s Code of Ethics • Expand recruitment of young professionals and broaden collaboration with universities and technical colleges • Establish new and improve existing corporate training centers, expand programs of professional training and development of organizational and managerial skills

EMPLOYEE DEVELOPMENT AND SUPPORT 65

CONTRIBUTION TO REGIONAL DEVELOPMENT APPROACH TO PARTICIPATION IN REGIONAL DEVELOPMENT

THE COMPANY’S ACTIVITIES SIGNIFICANTLY AFFECT THE SOCIAL SPHERE AND ECONOMICS OF ITS REGIONS OF PRESENCE. GAZPROM NEFT TAKES AN ACTIVE ROLE IN RESOLVING PRIORITY TASKS OF REGIONAL DEVELOPMENT.

The Company is a major taxpayer; a number of Gazprom Neft enterprises are major workplace and tax income sources for the towns in which they are located. Gazprom Neft maintains a dialogue and collaborates with stakeholders in its regions of operations. It also implements charitable programs aimed at the development of cultural and social infrastructure of the regions, improvement of health services, as well as education and upbringing of children and youth.Company’s collaboration in its regions of operations is described in more details in the section “Collaboration in the regions.”

Large-scale operations of Gazprom Neft facilitate development of auxiliary economic sectors and small businesses in the regions. The Company produces basic materials for the chemical industry, provides petroleum products for private and public transport, cargo transportation, and heat- ing of remote villages. The principles of the Company's engagement with customers and suppliers are described in the section “Engagement with customers and suppliers.”

Gazprom Neft strives to participate in regional development in a manner providing for maximum benefits both to society and to the Company, and to make joint projects with regional stakeholders effective both in social and economic terms.

68 CONTRIBUTION TO REGIONAL DEVELOPMENT CONTRIBUTION TO REGIONAL DEVELOPMENT 69 COLLABORATION IN THE REGIONS

THE COMPANY’S COLLABORATION WITH THE REGIONS OF ITS OPERATIONS IS BASED UPON SOCIO-ECONOMIC COOPERATION AGREEMENTS AND THE CHARITY POLICY.

RESPONSIBILITY IN THE FIELD OF REGIONAL COLLABORATION In 2007, Gazprom Neft created the Commission for Regional Policy comprised of representatives of the key divisions of the Company and its regional subsidiaries. Functions of the Commission include planning actions related to Company’s policy in its regions of operations, and overseeing the implementation of socio-economic cooperation programs. Practical implementation of the programs is a responsibility of the Office of Regional Policy and Internal Communications of the Department of Corporate Communications and of regional subsidiaries of the Company.

The Commission for Charity created in 2007 is responsible for coordination of charitable activities of the Company, oversight of respective expenses, and review of the results of individual charitable projects.

PARTNERSHIP AGREEMENTS WITH THE REGIONS OF OPERATIONS

Agreements on socio-economic cooperation are the main instrument of Company’s collaboration with regional and municipal authorities in its regions of operations. Such agreements are usually initiated by the Company itself, since they make it possible to coordinate Gazprom Neft’s strat-

70 CONTRIBUTION TO REGIONAL DEVELOPMENT FIGURE 4.1. REGIONS WHERE THE COMPANY IMPLEMENTED SOCIO-ECONOMIC AGREEMENTS IN 2007

egy with regional needs and join efforts to address the issues of priority to the Company and the REGION (MUNICIPALITY) 2006 2007 regions. The Company’s approach to designing such agreements is described in detail in the docu- Yamalo-Nenets Autonomous Area 592 360.3 ment “Gazprom Neft: Social Horizons. Overview of Corporate Social Programs 2007.” Khanty-Mansi Autonomous Area 100 150 Omsk Region 60 62 In 2007, the Company concluded socio-economic agreements with Yamalo-Nenets and Khanty- Tomsk Region (Kargasoksky Mansi Autonomous Areas, Omsk, Tomsk (Kargasoksky and Parabelsky districts), Tyumen (Uvatsky and Parabelsky districts) 7 13 district), and Krasnodar Regions. The overall Company’s expenses within the framework of all Tyumen Region (Uvatsky district) 3 5 agreements amounted to 595.7 million RUB (see. Table 4.1). Krasnodar Region - 5.4 Total 762 595.7

The funding under the Yamalo-Nenets Autonomous Area agreement was reduced in 2007, since the TABLE 4.1. Company, with the consent of the Area Administration, planned to reserve a part of the funds for fi- BUDGET OF SOCIO-ECONOMIC AGREEMENTS WITH THE nancing the preparation and initial implementation of the Noyabrsk Town development strategy. All REGIONS, MILLION RUB the projects planned in Yamalo-Nenets Autonomous Area for 2007 were fully implemented. The regions participating in the cooperation agreements with the Company are presented in Figure 4.1; the activities under these agreements in the three key regions are described below.

CONTRIBUTION TO REGIONAL DEVELOPMENT 71 YAMALO-NENETS AUTONOMOUS AREA

The General Agreement on Cooperation for 2006–2008 between the Company and the Administra- tion of Yamalo-Nenets Autonomous Area envisions implementation of socio-economic development programs in the towns of Noyabrsk and Muravlenko, and in Nadymsky, Purovsky, and Krasnoselk- upsky districts.

In 2007, a number of socially significant programs, including those aimed at supporting small and indigenous peoples of the North, were implemented in the Autonomous Area. In particular, the Noyabrsk Ice Palace, an important sports facility, was reconstructed; in Purovsky District a Cen- ter of National Cultures was built in the Town of Tarko-Sale, assistance was provided to local ru- ral communities and to the Purovskoe Branch of the “Yamal for Our Descendants!” Association. In Krasnoselkupsky District, several residential houses were built and musical instruments for the brass band of the Tolkinskoe Children’s School of Arts were acquired. In Nadymsky District, equipment for the boiler shop in Kutopyugan village was acquired, and traditional competition of North- ern reindeer herders was financed. In 2007, the Company traditionally sponsored the Festival of Reindeer Herders – one of the most important events in the calendar of the Nenets people, dedicated to the coming of spring. The main forms of assistance included:

food fuel, lubricants and construction materials work clothing transport health care services covering expenses for secondary and university education

72 CONTRIBUTION TO REGIONAL DEVELOPMENT Why does the Company participate in the preparation of the Noyabrsk Town Development Strategy? Mikhail PEREVYSHIN LONG-TERM STRATEGY OF THE SOCIO- Head of the Office of Social ECONOMIC DEVELOPMENT OF THE TOWN Security OF NOYABRSK Our Company is concerned about the future of the regions where we Preparation and implementation of the long-term work. Moreover, the objectives of socio-economic development strategy of the Town of Noyabrsk is an important initiative supported by the socio-economic development of Company. It was originally proposed in 2007 by the the regions and of the Company’s municipal authorities and Gazprom Neft and sup- growth are inseparable from ported by large oil companies operating in Noyabr- one another. Gazprom Neft is sky district including, in addition to Gazprom Neft, interested in improvement of Schlumberger, Gazpromneft-Noyabrskneftegaz, and living conditions in Noyabrsk, in Gazprom Dobycha Noyabrsk. It is planned to involve making the population feel good in the process other companies working in the re- about their future prospects, since gion. It was decided to form a working group which our subsidiaries operating in would coordinate the formulation and implementa- the Autonomous Area, including tion of the town’s socio-economic strategy up to 2025. Noyabrskneftegaz company and In order to finance the project, the Noyabrsk Devel- service companies affiliated with opment Foundation, a non-commercial organization, JSC Gazpromneft–Nefteservice, was established. The strategy preparation will involve collectively employ 23,000 local an analysis of the town’s development prospects and residents. Therefore we consider identification of opportunities for the business sec- our participation in the preparation tor to participate in this development. The objectives of the town’s strategy as an the companies and municipal authorities set for important strategic step. themselves imply maintaining steady development of Noyabrsk through expansion of competitive sectors and diversification of the local economy, which would make it possible to preserve jobs and ensure comfortable living conditions for the town residents.

CONTRIBUTION TO REGIONAL DEVELOPMENT 73 KHANTY-MANSI AUTONOMUS AREA – YUGRA The agreement between Gazprom Neft and the Administration of Khanty-Mansi Autonomus Area – Yugra for 2006-2008 is aimed at socio-economic development of the Area and its municipalities, including implementation of the priority national projects, organizing temporary employment of teenagers during school vacations, recreation and health improvement, supporting youth policy, culture, education, and health services.

Natalya ZAPADNOVA, First Deputy Head of the Government for Social Policy, Khanty–Mansi Autonomous Area – Yugra We energetically cooperate with Gazprom Neft within the framework of the socio-economic agreement, and it is interesting for us to learn about the whole range of programs implemented by the Company in its regions of operations. In its report, the Company decided to disclose both its current activities and objectives for the future thus demonstrating its openness. That is why in the next year we would like one of the roundtable meetings dedicated to discussing Company’s social and economic performance to be conducted in Yugra, and results of the meeting to be taken into account by Gazprom Neft in implementing the social partnership agreement.

In 2007, under the general agreement with Khanty-Mansi Autonomous Area the Company financed a number of activities, including the Ninth “Save and Preserve” Environmental Television Festival, arrangement of the Samarovsky Ostanets geological monument site, assistance to the Chess Fed- eration of Khanty-Mansi Autonomous Area, the Spirit of Fire International Film Festival. In Nefteyu- gansk District equipment and furniture for educational institutions were acquired, in Russkinskaya village of Surgutsky District the funds were used to support activities of the Ethnic Center of Small

74 CONTRIBUTION TO REGIONAL DEVELOPMENT indigenous Peoples of the North, in Nizhnevartovsky District temporary employment of indigenous teenagers (from 14 to 18 years of age) was organized.

OMSK REGION

The cooperation of the Company with the Administration of Omsk Region under the general agreement for 2006-2008 is aimed at the implementation of social programs in the region, including assistance to social facilities, as well as joint implementation of environmental and resource efficiency programs and projects. In 2007, the funds allocated under the agreement were used, in particular, for social assistance to orphanages, schools and residential schools (“Devel- opment of the Educational System of Omsk Region to 2007” and “Children of Omsk Region” regional targeted programs, “The Road to Life” Governor’s program aimed at social assistance to orphan children). In Tarsky District the Company funded a major repair of the local outpatient clinic building, supported the introduction of energy-saving technologies and equipment in local municipal utilities, etc.

OTHER REGIONS OF OPERATIONS

The Company is involved in implementing socio-economic programs in other Russian regions, where it conducts production and sales operations. For example, under the general cooperation agreement with Krasnodar Region, the Company provided support to the Cossack Cathedral of St. Alex- ander Nevsky, and plans to participate in social, environmental, and research projects till 2009.

CONTRIBUTION TO REGIONAL DEVELOPMENT 75 CHARITABLE ACTIVITIES In June 2007, Gazprom Neft adopted its Charity Policy, which, prior to the final approval, was reviewed by all structural divisions of the Company. The Policy defines goals, principles, and priorities of Gazprom Neft’s charitable activities, as well as procedures for implementing individual projects. According to the Charity Policy, the key principles of the Company’s charitable activities include:

Regional principle Charitable projects are implemented immediately in the regions of operational, commercial or other business-related interest to the Company Long-term outlook Company’s charitable projects are not limited to its current regions of operations. Gazprom Neft views charitable activities in the regions of importance to its mid-term or long-term development strategy as investments in the future Efficiency Charitable aid should be rendered in a manner that ensures maximum efficiency in terms of both use of funds by the recipients and contribution to enhancing social climate in the Company’s regions of operations Accessibility and transparency Scope and social significance of Company’s charitable projects should fit the needs of the citizens and communities. Projects should be selected based on understandable principles and managed in a transparent manner. The Company ensures oversight of spending in its charitable projects Uniqueness Charitable projects reflect values of Company’s corporate culture, its unique identity. In most of its charitable projects the Company is the only corporate sponsor representing the oil sector

76 CONTRIBUTION TO REGIONAL DEVELOPMENT What are the priorities of the charitable activities of the Company? Sergey BILKEY Head of the Office of Regional Policy and Internal Communications Regional social programs based on these principles are described in more details in the document “Gazprom Neft: Social Horizons. Overview of Corporate Social Programs 2007” (see http://www. The Company supports gazprom-neft.ru/social/). The priority areas of corporate charitable programs include: effective, transparent and comprehensible projects in its Supporting children and youth actual or prospective regions of operations. The priorities Supporting educational sector include development of local infrastructure, support Protecting cultural heritage of children and youth, and sports. Supporting health care sector Supporting sports

Total charitable spending in the reporting period, including expenses under the Socio-Econom- ic Cooperation Agreements, amounted to about RUB 820 million. Systematization of the Compa- ny’s charitable activities and identification of clear priorities (“Regional Collaboration,” “Supporting Children and Youth,” and “Sports”) in 2007 made it possible to reduce corporate charitable spending (the funding of sports organizations and indirect support through charitable organizations, foun- dations, and associations was reduced), while making it more focused. The Company substantial- ly increased funding of social assistance programs aimed at orphanages, schools and residential schools, cultural institutions, as well as authorities of districts, towns, and regions of Company’s presence. Gazprom Neft is proud to be one of the primary sponsors of Zenit Football Club, the winner of 2007 Russian Championship. The Company also supports SKA – St. Petersburg Ice Hockey Club, and is a co-founder of Avangard Ice Hockey Club.

CONTRIBUTION TO REGIONAL DEVELOPMENT 77 The Company will continue to focus its charitable activities on strategic priority areas where long- term effects of investments can be expected, and with all due responsibility will take into account stakeholders’ opinions and expectations when determining targets and scale of its charitable programs.

The most significant priority is assistance to development of children and youth and supporting their health. These priorities are taken into account in designing both general socio-economic agreements with the regions of operations and individual charitable programs and projects; they are followed by both the Head Office and regional subsidiaries of the Company. For example, in 2007 Gaz- promneft-Noyabrskneftegaz company organized a charitable action “Gift for the School Season” associated with the beginning of a new school year and aimed at low-income families. More than 120 school students from Noyabrsk, Muravlenko and Vyngapurovsky received new schoolbags with all the necessary stationery. Similar actions were organized by Gazpromneft-Tyumen and Gazprom- neft-Khantos, while Omsknefteproduct provided support to the Eleventh “Overcoming” Festival, an Omsk City arts festival for children with disabilities.

78 CONTRIBUTION TO REGIONAL DEVELOPMENT What do you consider to be the most important in the charitable programs of Gazprom Neft? Alexander DYBAL Member of the Management Board, Deputy CEO for Corporate Communications

When planning and implementing our charitable programs, we think, first of all, of actual help we can render to the residents of all Gazprom Neft’s regions of operations. We do not limit ourselves to corporate programs aimed at our employees only, PARTICIPATION since we realize that successful IN THE “GAZPROM TO CHILDREN” PROGRAM operations and development of our Company depends on well- In addition to its own initiatives aimed at social development of being and social comfort of the regions of operations, since March 2007 Gazprom Neft has most residents in its regions of participated in the “Gazprom to Children” charitable program. presence. We try to ensure that A prominent example of the program implementation is the everyone has access to sports interregional Gazprom Neft Cup Ice Hockey Children’s Com- activities, necessary health care petition organized in Omsk in November 2007. services, recreation, education, The Company’s regional subsidiaries also participate in the and personal development. program. For example, JSC Gazpromneft-Tyumen financed New Year’s celebrations in the Karasul special residential school, social rehabilitation center in Omutinskoe village, and Tobolsk residential school #5. Gazpromneft-Noyabrsknefte- gaz, among other actions within the framework of the “Gaz- prom to Children” program, sponsored a mini-football children’s competition dedicated to World Football Day.

CONTRIBUTION TO REGIONAL DEVELOPMENT 79 ENGAGEMENT WITH CUSTOMERS AND SUPPLIERS

THE COMPANY MAKES EVERY EFFORT TO ENSURE THE MOST COMFORTABLE EXPERIENCE OF BOTH RETAIL AND WHOLESALE CUSTOMERS, OFFERING HIGH QUALITY FUEL AT THE PRICES CORRESPONDING TO THE MARKET DEMAND.

Gazprom Neft uses fair pricing practices complying with the anti-monopoly legislation. The quality of fuel produced by the Company’s enterprises is complemented by high quality of services provided to retail customers at the filling stations and to the wholesale buyers, and by permanent quality control at every stage from production to sales. The Company maintains a high transparency level of procurement and sales of petroleum products, thus ensuring equal market conditions for all its partners.

RESPONSIBILITY IN THE FIELD OF SALES AND PROCUREMENT

It is the Regional Sales Department that is responsible for both retail and wholesale sales of petroleum products. The Corporate Communications Department is responsible for the re-branding program, which involves, in particular, redesign of the Company’s filling stations. The responsibility in the field of procurement and supplier relations lies with the Materials Management Department. Procurement tenders are organized by the Tender Committee which is immediately subordinate to the Chairman of the Management Board. The establishment and work of the Committee is one of the key measures aimed at preventing incidents of fraud and corruption.

QUALITY OF CUSTOMER SERVICE

In 2008 the Company will begin to implement a new program of re-branding and modernization of its filling stations, which is being currently designed, offering new services and continuing to improve the quality of services. Gazprom Neft plans to eventually reach European level of service at all

80 CONTRIBUTION TO REGIONAL DEVELOPMENT What do we do to make our filling stations more convenient to clients? Alexander KRYLOV Head of the Regional Sales Department

We plan on modernization our its stations, using several basic formats depending on the station’s location – in a city or on a high- filling station network in all regions. way – and expected demand for additional services. In some regions, clients of the Company’s fill- Eventually all our filling stations will reach the world level – with a ing stations are already able to have a cup of coffee in a cafe, to use a car wash, to get free tire infla- high quality of services, additional tion, to buy periodicals and books, and to pay for mobile communications services. In order to ease services, and attractive appearance. the choice of fuel for the clients, in the next years the Company plans to introduce its own brands. Gazprom Neft conducts interesting sales promotions and prize draws for its clients, and introduces the “Mobile Card” non-cash payment system.

Already in 2005, the Company introduced a unified phone hotline to quickly address customer complaints. Later Gazprom Neft switched to a scheme that better met customer needs and enabled faster responses. This scheme involves a 24-hour hotline maintained by each retail division; the respective phone number is prominently posted at each filling station. The work of the hotline services is supervised by the Head Office on a weekly basis. Each complaint filed through a hotline trig- gers an internal investigation, and the Company takes necessary measures communicating with the concerned customer. For example, if a complaint deals with the quality of fuel, the customer is invited to be present during official analysis of the fuel samples; if terms of sales promotions or dis- count programs raise customers’ questions, detailed explanations are provided.

Communications of the Company’s managers with wholesale buyers are guided by well-established procedures, and positive experience of the customers gives them confidence about the quality of products and reliability of supply. In the nearest years, the Company will develop common customer service standards applicable to all its enterprises as a part of unified corporate policies.

CONTRIBUTION TO REGIONAL DEVELOPMENT 81 JSC Gazpromneft-Omsk maintains 40 self-service mini-markets at the filling stations of its retail network. Recently the sales of mini-markets at the Company’s stations in Omsk increased 30%. Each shops offers customers some three thousand items, including food and drinks, car and household goods, as well as the latest issues of newspapers and magazines. The services are not limited to merely selling goods – a driver is always able to drink a cup of hot coffee or tea, to buy fresh baked goods. Station attendants can help fill a car, 15 stations are equipped with free tire inflation systems and vacuum cleaners.

TRANSPARENCY OF WHOLESALE TRADE AND PROCUREMENT In addition to creation and work of the Tender Committee, since 2007 the Company uses best international practices of open tendering for wholesale sales of petroleum products aiming, in particular, to prevent incidents of corruption and fraud. In 2007, overall sales of petroleum products through an electronic tendering system, which can be accessed via the corporate website (http:// www.gazprom-neft.ru/tender-np/), amounted to 3.21 million tons, or about 30% of the total domestic wholesale sales of the Company. The introduction of the system allowed Gazprom Neft to achieve maximum efficiency of sales and ensured equal access of all buyers to the Company’s resources.

The responsible approach of the Company to foreign trade was rewarded in 2007, when Gaz- prom Neft became the winner of the Customs Olympus competition in the “Leader of Russian Foreign Trade” category. The annual competition was organized by the Federal Customs Ser-

82 CONTRIBUTION TO REGIONAL DEVELOPMENT What does the Company do for its suppliers? Alexander ABRAMKOV Member of the Board, Deputy CEO for Construction and Materials Management

Full transparency and openness of the procurement process, as well as predictability of terms and conditions, are important both to us vice in order to identify and reword the most bona fide participants of international trade among and our business partners. Recently Russian companies. introduced tendering systems for procurement of standardized goods The key criteria in procurement of materials, equipment, and services for the Company include and services are accessible through maximum efficiency, delivery on time, and appropriate quality. The development of the Russian the Company’s website and make economy allows the Company to rely on domestic suppliers, thus contributing to further develop- it possible for organizations of any ment of non-extracting economic sectors. Russian suppliers account for 90-95% of all Company’s size to participate on equal terms with our traditional suppliers. This purchases; only unique or special goods are purchased abroad. The Company has developed and allows us to broaden the range introduced a procurement system which allows for centralized selection of suppliers for standard- of suppliers and use regional ized goods and services on a competitive basis: through open competitions, requests for propos- potential, including opportunities of als, and an electronic tendering system. And often it is offers from local suppliers that turn out to small and medium business. At the be the most profitable. If necessary goods are produced by monopoly companies or a limited num- same time we continue to maintain ber of key suppliers, the Company builds strategic partnership relations, ensuring mutual benefits relationships with our long-term and stable working conditions for both itself and its clients. partners developing cooperation strategies convenient and beneficial to both sides. According to the “National Rating of Procurement Transparency” for 2007, the Company received the highest score of 328 participants and was given the highest rating – “Guaranteed Transparen- cy”. The rating was maintained by the National Association of Electronic Trade and supported by the Federal Antimonopoly Service.

CONTRIBUTION TO REGIONAL DEVELOPMENT 83

MAIN PLANS FOR THE MID-TERM PERSPECTIVE • Optimize charitable expenses based on the priorities set forth by the Charity Policy • Develop a detailed methodology for assessing the efficiency of charitable projects • Accomplish existing cooperation agreements with the regional authorities and further develop regional collaboration • Develop and implement unified client service standards • Expand the filling station network and range of services offered to retail customers, while improving the quality of services

CONTRIBUTION TO REGIONAL DEVELOPMENT 85

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT APPROACH TO ENSURING

SAFE DEVELOPMENT THE COMPANY REALIZES ITS RESPONSIBILITY FOR THE SAFETY OF ITS OPERATIONS FOR THE ENVIRONMENT AND HUMAN HEALTH. GAZPROM NEFT AIMS TO EFFICIENTLY USE NATURAL RESOURCES AND TO REDUCE NEGATIVE IMPACTS. THE COMPANY STRIVES TO PREVENT AND APPROPRIATELY RESPOND TO INJURIES AND EMERGENCIES.

RESPONSIBILITY IN THE FIELD OF HEALTH, SAFETY, AND ENVIRONMENT

In late 2007, the Office of Health, Safety, and Environment (HSE) was created in the Head Office of the Company. The new body will develop strategic approaches in the field of industrial safety, occupational health and safety, and the environment, coordinating activities of business functions and subsidiary companies in this area. The Office also addresses the issues of emergency preparedness and response jointly with the Section of Special Programs. Highly qualified HSE professionals work in all production departments of the Company and its subsidiaries.

HEALTH, SAFETY, AND ENVIRONMENT POLICY

As guidance for its occupational health and safety, industrial safety, and environmental activities, the Company has developed a Health, Safety, and Environment Policy approved in March 2008. The Policy defines the strategic goal of the Company – to achieve a leading position in terms of HSE among the world’s oil and gas companies, proving this with actual performance and advanced approaches. According to the Policy, the safety of employees, population, and the environment is the priority in making economic and technical decisions. Company’s commitments established by the

88 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT How does the Company plan to implement an integrated health, safety, and environmental management system? Oleg NIKOLAYENKO Head of the Office of Health, Safety, and Environment

Taking into account the experience of the world’s leading oil and gas companies, we are building an integrated management system based on international standards. Gazprom Neft plans to implement the most effective system aimed at protecting human life and health, and the environment through the Policy include continuous improvement of working conditions, as well as industrial and environ- management of key industrial and environmentl risks. mental safety, implementation and continuous improvement of an effective management system, development of stakeholder communications, enhancement of employee competence and their involvement in the Policy implementation, imposing uniform safety requirements on both employees and contractors of the Company.

Evgeny SHVARTS, Director for Conservation Policy, WWF Russia, Doctor of Science (Geography) According to assessments by World Wildlife Fund Russia (WWF Russia), in 2005–2006 Gazprom Neft lagged considerably behind private Russian companies, including, for example, TNK-BP and LUKOIL, in terms of environmental policy and openness to non-governmental organizations. This certainly raised concerns about the path the country has taken – whether it evolved toward the Norwegian model or, say, toward Nigeria and Venezuela. The process of preparing the Gazprom Neft’s Sustainability Report for 2007 raises the hope that the company and the country as a whole may begin the evolution toward better development models, the most friendly to humans and the environment.

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 89 The Policy sets forth the key commitments of the Company, which would help it in accomplishing established goals. In order to support the Policy implementation, key objectives for 2008 encompassing various HSE areas have been identified. The main priorities for 2008 include situation assessment at the largest subsidiary companies and development of corporate standards in a number of areas including: environmental management; safety and health risk assessment; personal protective equipment; and safe driving In this year the Company will initiate a project on introducing a unified system of management reporting in the field of HSE, begin the development of a reg- ister of safety risks and creation of corporate HSE training programs.

IMPLEMENTATION OF AN INTEGRATED MANAGEMENT SYSTEM

In 2008, the Company plans to embark on the implementation of an integrated HSE management system compliant with the key requirements of relevant international standards, including OH- SAS 18001 (occupational health and safety), ISO 14001 (environmental management), and ISO 9001 (quality management), and recommendations of the International Association of Oil and Gas Pro- ducers. Based on the results of the integrated system implementation, a decision on the need for its certification will be made.

90 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 91 MITIGATION OF ENVIRONMENTAL IMPACTS THE COMPANY TAKES MEASURES TO EFFICIENTLY USE NATURAL RESOURCES AND ENERGY, REDUCE EMISSIONS TO THE ATMOSPHERE AND IMPACTS ON WATER BODIES, TO PROTECT BIODIVERSITY, TO PREVENT OIL SPILLS AND LAND CONTAMINATION.

ENVIRONMENTAL COMPLIANCE AND PREVENTION OF ADVERSE IMPACTS

The Company strives to fully comply with the requirements of the existing environmental legislation. In 2007, the total fees for exceeding established environmental impact limits and costs of repairing environmental damages by major Gazprom Neft subsidiaries were about RUB 2 million, an insignificant sum given the scale of the Company’s operations. Total fines for breaches of environmental legislation amounted to RUB 1 million only; measures to eliminate the violations identified were taken.

The Company plans to develop procedures for investigation and analysis of incidents involving breaches of environmental legislation and, based on the analysis results, implement corrective measures to minimize the probability of similar incidents in the future.

In accordance with the existing legislation, the Company conducts an environmental impact assessment when planning new activities. After obtaining a positive conclusion of the State Expert Review, it implements selected options making efforts to minimize environmental impacts. All new products in the process of their development undergo an assessment of customer safety; safety issues are taken into account at all stages of development and production. The approved HSE Policy re- flects the Company’s understanding of potential risks associated with any planned and ongoing activities, and of the need for an integrated preventive approach.

92 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT ENVIRONMENTAL EXPENSES

The Company’s operating and capital expenses on environmental activities, including introduction and use of technologies to minimize environmental impacts, exceed by many times the pollution fees paid by the Company (see Table 5.1). Operating expenses also include costs of developing corporate regulations and standards, environmental monitoring and industrial environmental control, professional upgrading and training of environmental specialists. As seen from the table, operating expenses in 2007 were lower than in the previous year with most of them spent for wastewater treatment. This is the result of high environmental expenses in 2006, when, as a priority measure for protecting water bodies, the Company made a major purchase of oil spill cleanup equipment from Lamor company*.

Major capital expenses on the construction of environmental protection facilities were also made in 2006. In particular, about 100 million RUB was invested in the construction of a gas cleaning and separation section at the Omsk refinery; the facility is planned to be put in operation in 2008. It is oil refining and production sectors that accounted for most capital and operating environmental expenses in these years. In the future the Company plans to introduce environmentally safer technologies and techniques, making necessary investments in environmental protection equipment and implementation of best available techniques for reclamation of polluted areas. The dynamics of the Company’s environmental expenses in recent years is shown in Table 5.1.

*The expenses were attributed to the “water consumption” budget item.

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 93 2005 2006 2007 Operating expenses, incl.: 518.6 722.7 577.7 expenses on wastewater treatment 366.6 353.6 349.1 expenses on waste management 54.7 41.5 43.7 expenses on water consumption 24.7 226.7 30.7 expenses on air and gas cleaning 1.3 13.3 12.6 payments for violating environmental legislation and expenses on repairing environmental damages 0.6 1.3 2.2 payments for impacts within established limits 70.5 82.7 128.2 Capital expenses 83.2 256.2 29.9

Note 1: The amount of capital expenses was determined more accurately compared to the Annual Report for 2006 (p. 35) and the “Social Horizons” review (p. 35). Note 2: The data in the table encompass the subsidiary companies listed in the Annex 1. The contribution of the remaining subsidiaries is considered insufficient. Note 3: The data for 2005 in the table do not include the petroleum products supply sector. According to the data for 2006–2007, the share of the supply sector in total energy consumption, water consumption and discharges was insignificant (less then 1%); its share in total emission to the air and waste generation was about 1.5 – 2 %.

TABLE 5.1. ENVIRONMENTAL EXPENSES, MILLION RUB

EFFICIENT USE OF RESOURCES AND MATERIALS

Efficient use of natural resources is a key area of the Company’s activities, relevant not only to the field of environmental protection. Important objectives of the oil and gas extraction sector of the Company include improvement of oil recovery factor at the producing oil fields and of associated gas recovery rate. In the refining sector, high refinery depth is a priority. In 2007 the amount of oil processed at the Omsk Refinery, the primary refining asset of the Company, reached almost 16.5 million tons. The refining depth at the refinery decreased 1.08% in 2007 reaching 83.4% (see Table 2.1), as a result of the focus on producing light petroleum products with high value added.

Nevertheless, according to the Russian Ministry of Industry and Energy, the Omsk Refinery is the second Russian refinery in terms of refinery depth. In 2007, the output of key petroleum products increased 1.7%, allowing the refinery to keep the leading position within the sector in terms of this indicator.

In addition to oil, the refinery used 25,000 tons of reagents, catalysts, and basic materials for their production in 2007, reducing their consumption 8.5% compared to the previous year as a result of improved resource efficiency. In the extraction sector the consumption of materials considerably grew between 2005 and 2007 as a result of intensified well drilling and construction. The data on the materials consumption are presented in Table 5.2.

94 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 2005 2006 2007 Oil refining Reagents, catalysts, and basic materials for producing them 26 066 27 424 25 099 Basic materials for producing motor oils, additives and lubricants 5 851 5 872 6141 Oil production Components of drilling fluids 12 313 18 073 21 687 Cement of all grades 43 090 63 245 75 894 Earth for filling 4 340 000 6 370 000 7 644 000 Steel structures and pipes 61 120 89 708 107 649

TABLE 5.2. CONSUMPTION OF RESOURCES AND MATERIALS, TONS

ENERGY CONSUMPTION AND EFFICIENCY

Total energy consumption of the Company grew in the recent years as a result of intensified operations in all areas of activity. The overall energy consumption* by key Gazprom Neft enterprises grew from 74x1012 J in 2005 to 80x1012 J and 84x1012 J in 2006 and 2007 respectively. At the same time the share of fuel in the total energy consumption decreased from 12% to 8% (from 8.7x1012 J in 2005 to 6.3x1012 J in 2007). Specific energy consumption (normalized to consumption of primary energy*) in the oil extraction sector increased as a result of intensified operations. Specific energy consumption at the Omsk Refinery was decreasing – in 2006 it was 11.7% less than in 2005, while in 2007 it was slightly less than in 2006.

Gazprom Neft makes efforts to improve the energy efficiency of its operations. The Company’s enterprises conduct energy audits, introduce measures to improve control over energy consumption, and develop and implement programs aimed at more efficient use of energy resources. The implementation of such a program in the oil extraction sector made it possible to save RUB 34 million in 2006, and RUB 152 million in 2007. The Omsk Refinery has developed and implements a program for reducing its heat consumption for the period to 2012. Complete implementation of the program should result in a 17% reduction of specific heat consumption.

*The primary energy consumption was calculated based on the total consumption of fuel, heat and electricity, taking into account the amount of fuel required to produce these heat and electricity, estimated using the Basic Indicators Methodology by the Russian Union of Industrialists and Entrepreneurs.

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 95 2005 2006 2007 Total emissions to the air 159.1 159.4 161.8 incl. CO 79.5 68.1 73.0 NOX 12.8 10.9 10.7 SO2 12.8 12.8 12.5 particulate matter 2.8 4.1 3.6 volatile organic compounds (total) 32.5 42.6 54.3

TABLE 5.3. EMISSIONS TO THE AIR, THOUSAND TONS

EMISSIONS TO THE AIR

The Company’s subsidiaries make continuous efforts to reduce their emissions to the air. During the period from 2005 to 2007 the total emissions slightly increased as a result of an increase in the Com- pany’s operations (the emission data are presented in Table 5.3). The main source of the Company’s emissions was the oil and gas extraction sector; emissions in the refining sector were decreasing.

In the previous periods the Company’s refinery enterprises also actively worked on reducing their emissions; for example, from 1980 to 2006 the emissions of the Omsk Refinery decreased by four times. Important factors that contributed to this reduction included general modernization of production facilities, replacement of burner units, optimization of process parameters, reconstruction of tanks, and introduction of equipment for precise and enclosed loading of petroleum products. In the oil and gas extraction sector, the emissions are determined mainly by the amount of associated gas burnt (the data on associated gas recovery are provided below in Table 5.4). Ozone depleting substances are used in some thermostatic and fire extinguishing equipment in amounts several times less than the established standards. The Company has developed and implements plans for replacement of these substances in the respective systems.

In 2007, the Company’s operations in Yamalo-Nenets Autonomous Area accounted for more than half of its total pollutant emissions; operations in Omsk Regions for about 30%. The distribution of the emissions by region is shown in Figure 5.1.

RECOVERY OF ASSOCIATED PETROLEUM GAS

The Company actively works on increasing the associated petroleum gas (APG) utilization rate in its oil extraction sector. Currently the level of associated gas recovery at the key production enterprises of the Company remains low – about 35.7% of produced gas in 2007. The amounts of produced and recovered gas are shown in Table 5.4. The decline in the utilization rate in 2007 is a result of re-

96 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT FIGURE 5.1. DISTRIBUTION OF AIR EMISSIONS BY REGION LEGEND: •- MORE THAN 50%, •- 25-30%, •- 5-10%

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 97 2005 2006 2007 Production, million m3 5609 4532 4886 Recovery (utilization), million m3 1974 2041 1746 Utilization rate, % 35.2% 45.0% 35.7%

TABLE 5.4. PRODUCTION AND RECOVERY OF ASSOCIATED PETROLEUM GAS pair work at gas pipelines, changed date of putting the pipeline between the Sugmutskoye oil field and Muravlenko Gas Processing Plant into operation, and decrease in gas recovery rate at the No- vogodneye oil field.

Indeed, increasing the APG utilization rate is an important national objective, and in order to contribute to its accomplishment, in February 2008 the Company has adopted a medium-term investment program for the period 2008-2010, aimed at increased recovery and more efficient utilization of associated gas.

The overall budget of the program is RUB 17.6 billion, including RUB 12 billion for the construction of gas-collecting systems and gas-processing facilities, about RUB 5 billion for development of Company’s own generation capacities, and about RUB 600 million for auditing existing APG resources, utilization of low-pressure gas, and organizing an associated gas accounting system. The investment program will make it possible to recover 95% of associated gas, contributing to secure energy supply of oil production facilities, and increased sales of associated gas and its derivatives. All oil fields operated by Gazprom Neft are being or will be equipped with new gas collection and transportation systems. By 2010 the Company plans to put into operation 2 gas turbine and 4 gas engine power plants. The implementation of the program will make it possible to utilize an additional 10.5 billion m3 of associated gas during the period to 2014.

The adopted program will continue the Company’s previous and ongoing activities aimed at APG utilization, which have already brought certain results. In particular, the associated gas utilization rate pre- scribed by license agreements for oil field development is already achieved at the Kholmogorsk field cluster. Recently the construction of gas pipelines from Novogodneye, Yarainerskoye, Sugmutskoye,

98 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT The government established an objective for oil companies concerning recovery of associated gas. To what extent is Gazprom Neft ready to meet this objective? Nikolay YELISEYEV Head of Gas and Gas Processing Department and Romanovskoye fields operated by JSC Gazpomneft-Noyabrskneftegaz has been completed. Al- most 93% of associated gas produced at Sutorminskoye, Muravlenkovskoye and Krayneye oil fields We plan to recover 95% is processed at the Muravlenko Gas Processing Plant operated by SIBUR Group. of associated petroleum gas starting from 2011. For this purpose the Company has Increased APG recovery will help reduce emissions of pollutants and greenhouse gases, and will developed a medium-term also help the Company make an additional contribution into meeting the demand of the national investment program with economy for natural gas. a budget exceeding RUB 17 billion. Realizing the importance of climate change issues, the Company plans to continue its energetic efforts in the field primarily by undertaking a company-wide inventory of greenhouse gas emissions and by developing a detailed action plan to identify and take opportunities for reducing these emissions.

PRODUCTION OF ENVIRONMENTALLY FRIENDLY FUEL

The refining sector of the Company systematically works on the improvement of environmental qualities of the fuel produced. The Omsk Refinery has prepared a development program aimed at complete transition to producing environmentally friendly types of fuel by 2012. In 2007, the refinery undertook a scheduled major repair of a diesel fuel hydrotreater. As a result, the unit now is able to produce Euro 3 compliant fuel. A serious modernization of the unit, aimed at making it capable of producing Euro 4 and Euro 5 compliant diesel fuel, is planned for 2009. According to the refinery’s plans, about 9 % of motor gasoline produced in 2008 will comply with the Euro 3 standard. Con- sumption of cleaner fuels produced by the Omsk Refinery will reduce emissions of sulphur dioxide by vehicles by approximately 22 tons.

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 99 2005 2006 2007 Total water consumption, million m3 72.8 79.8 73.8 Incl. from underground sources 23.4 29.2 31.4 from surface sources 48.1 49.0 41.1 received from other organizations 1.3 1.4 1.2 Transferred to other organizations (without use) 21.4 22.4 29.1 Water recycling rate (for key enterprises of the Company in all sectors) 84.1% 82.9% 90.0% Water recycling rate (oil and gas production) 17.4% 18.4% 77.4% Water recycling rate (oil refining) 97.7% 97.5% 97.6% Wastewater disposal, million m3 8.55 8.00 9.11 incl. transferred to other organizations (after use) 8.24 7.62 8.42

TABLE 5.5. WATER CONSUMPTION

CONSUMPTION OF WATER RESOURCES The Company makes efforts to ensure the most efficient water use at their enterprises, practicing re-injection of produced water to maintain reservoir pressure in oil production operations, and organizing closed-circuit recycling of cooling water at their refineries.

The Company’s water consumption for its own needs fell by 21.9% in 2007 compared to 2006 as a result of broader use of produced water and gradual increase of water cutting at long-used oil fields developed by JSC Gazpromneft-Noyabrskneftegaz. This also made it possible to reduce consumption of surface water for maintaining reservoir pressure and contributed to the increase of water recycling rate in the oil and gas extraction sector. The water recycling rate in the refining sector remained very high — more than 97.5%. The overall volume of polluted discharges by the Company in 2005–2007 was about 0.1 million m3. The data on water consumption by the Company are shown in Table 5.5.

MONITORING OF WATER POLLUTION Water samples are taken at the oil production enterprises twice a year: during spring flood and in the autumn. The sampling points approved by environmental authorities are usually located upstream and downstream from the places where pipelines cross natural watercourses – rivers and streams. The tests involve identification of not only the content of petroleum products, but also other physical and chemical parameters, including the content of manganese and iron, nitrates and nitrites, ammonium and other substances. Since due to natural reasons the background content of many chemicals in northern rivers exceeds the limits established for fishery water bodies, it is important to single out the impact of production operations, if it is present at all.

In the reporting period most water was consumed by the Company’s enterprises in Yamalo-Nenets Autonomous Area and Omsk Region; about 10% in Khanty-Mansi Autonomous Area. The distribution of water consumption by region is presented in Figure 5.2.

100 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT FIGURE 5.2. DISTRIBUTION OF WATER CONSUMPTION BY REGION LEGEND: •- 35-50%, •- 10-15%, •- 1-5%

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 101 2005 2006 2007 Waste generation, thousand tons 269 352 393 Waste reuse and recycling (incl. waste transferred to other organizations for reuse and recycling), thousand tons 17 50 63 Waste decontamination and disposal (incl. waste transferred to other organization for decontamination and disposal), thousand tons 232 219 231 Waste stored at the end of the year, thousand tons 185 275 379

TABLE 5.6. WASTE MANAGEMENT

WASTE MANAGEMENT The Company strives to reduce the amount of waste generated and improve waste management practices. Most of the waste generated (more than half in terms of mass) is represented by drilling waste of 4th hazard grade (low hazard). The overall share of 4th and 5th hazard grade waste (low hazard and virtually no hazard respectively) in the amount of waste generated is more than 90%. Drilling waste is generated by oil production and oilfield service enterprises (collectively these account for more than 90% of waste generated).

Therefore the observed growth of waste generation (see Table 5.6) is a result of developing new oil fields, intensifying drilling works, and constructing new oil production and transportation facilities. Currently most drilling waste is disposed of at special storage sites. At the same time the Company studies the experience of the leading oil companies that practice re-injection of drilling waste.

Efforts to reduce waste generation and increase waste recovery are made by Company’s enterprises in all its sectors of operation. For example, the Omsk Refinery processes 100% of produced waste oil and more than 85% of petroleum-contaminated waste. In the petroleum products supply sector, the Company introduces new effective technologies, such as mobile cleaning system used for cleaning internal surfaces of tanks from solid deposits. Tank walls are cleaned by a high pressure jet of a special chemical mix. Then the system separates gasoline suitable for further use from the resulting emulsion pumped out of the tank, thus providing for waste recovery.

102 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 2005 2006 2007 Oil spilled (tons) 4,1 5,3 5,6 Oil collected (tons) 2.9 4.1 4.8 Total number of pipeline breaches 1424 1823 1861

TABLE 5.7. OIL SPILLS

PREVENTING LAND CONTAMINATION AND RECLAMATION OF CONTAMINATED LANDS The Company works on cleanup of contaminated lands and elimination of unorganized consumption waste disposal sites. According to the data available, oil spills in 2005–2007 were of local scale in terms of existing classification, although the number of pipeline breaches increased. The data on oil spills are presented in Table 5.7. Gazprom Neft plans to develop internal processes for recording, reporting, analysis and removal of causes of incidents involving contamination of land and water bodies. Currently the Company develops an Accident Reporting and Investigation Standard in order to elaborate a unified and effective approach toward this issue.

In order to prevent oil spills and land contamination, the Company carries out inspections and technical monitoring of its pipelines, uses corrosion inhibitors to protect them, and replaces old corrod- ed pipes. More reliable steel pipes with internal polymer coating and GRP (glass-reinforced plastic) pipes are used for construction of new pipelines. A phased program to reduce pipeline breaches has been designed and is currently implemented. At the first stage priority measures included inhibitor protection and other approaches toward preventing breaches caused by corrosion. In 2007, 210 km of pipelines were replaced. At the subsequent stages of the program implementation, from 2008 to 2011, the main efforts will be aimed at the replacement of worn-out pipelines.

The area of disturbed land and the number of mud pits in the oil extraction sector reduced in 2005 as a result of intense reclamation efforts, and then grew again in 2007 due to expanded drilling op-

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 103 2005 2006 2007 Disturbed land, ha by the beginning of the year 11 714 10 400 10 470 by the end of the year 10 400 10 471 11 478 disturbed during the year 349 663 1176 reclaimed during the year 1895 640 214 Oil-contaminated land, ha by the beginning of the year 783 623 354 by the end of the year 623 354 189 reclaimed during the year 160 269 165 Number of mud pits by the beginning of the year 280 249 263 by the end of the year 232 263 288 built during the year 16 14 35 reclaimed during the year 64 25 10

TABLE 5.8. LAND USE AND RECLAMATION

erations. In 2007, the need for new mud pits to contain drilling waste exceeded pit reclamation rate by 1.3-1.6 times. The data on land use and reclamation are presented in Table 5.8. In 2007, the reclamation rate of disturbed (affected by the Company’s operations) land somewhat slowed down compared to the previous year. This was the result of the fact that in the last three years competent state authorities almost stopped the acceptance of land reclamation results, which made it impossible to include such lands reclaimed by the Company in official reporting. At the same time the Compa- ny continued intense efforts on reclaiming oil-contaminated lands and managed to reduce the area of such land by more than three times in three years. In 2008, the Company plans to reclaim another 87 ha of contaminated land and increase the rate of mud pit reclamation. In order to reduce land disturbance, the Company plans to introduce pitless drilling at a number of its oil fields.

In its land reclamation projects, the Company uses modern chemical bioagents (of Fare Zyme type) for oil decomposition. Instead of new microbial cultures to be introduced, these agents contain mostly mineral components that support natural microbial flora thus facilitating land restoration. Massive planting of grass and perennial plants adapted to local conditions is also practiced as a bi- ological reclamation method.

104 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT The Company’s system of spill response has the necessary equipment and technical means. Re- moval of causes leading to land contamination and reclamation of previously contaminated areas are common priorities for traditional oil and gas producing regions that suffered from environmentally unfriendly production practices in the second half of the 20th century.

BIODIVERSITY PROTECTION

The Company neither carries out nor plans oil production activities in environmental protected areas or in the areas adjacent to them. When developing oil fields in Khanty-Mansi and Yamalo-Nenets Au- tonomous Areas, the Company takes organizational measures to prevent operations in protected environmental areas, including in particular game reserves, and adverse impacts on biodiversity and sensitive tundra ecosystems. The schedules of Company activities take into account vegetation periods, fish spawning periods, and seasonal migrations of birds and other animals in accordance with recommendations of respective environmental impact assessment. All rare or endangered species listed in the Red Book list of endangered species and the ecosystems which are potentially most sensitive to adverse factors associated with oil and gas production are identified and recorded.

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 105 HEALTH AND SAFETY AT WORK

GAZPROM NEFT TAKES MEASURES TO REDUCE INJURIES AND OCCUPATIONAL ILLNESSES BY IMPROVING TRAINING AND CONTROL IN HEALTH AND SAFETY, BY INCREASING WORKPLACE SAFETY AND COMFORT OF THE PERSONAL PROTECTIVE EQUIPMENT.

ORGANIZATIONAL ARRANGEMENTS IN THE FIELD OF OCCUPATIONAL HEALTH AND SAFETY

The Company’s Health, Safety and Environmental Policy, adopted in March 2008, gives great attention to issues of occupational health and safety, including reduction of the injury rate. Issues of employees’ health and safety are reflected in collective agreements and official agreements with labor unions; they are continuously monitored by joint committees comprising workers and managers of large enterprises.

The Office of Health, Safety, and Environment defines a consistent approach of the Company toward the issues of occupational health and safety, in particular, working on unifications of corporate standards in the field. The Working Group on Personal Protective Equipment (PPE), created in order to develop a corporate PPE standard, is an example of such activities. The standard will define allowance of work clothing and PPE, specifications for work clothing, and a registry of the best PPE types allowed to be acquired for the Company employees. Gazprom Neft decided to provide two sets of work clothing for each employee and allocated RUB 82 million for this project. The standard being developed will provide clear guidelines on selection of relevant PPE for employees based on their occupational risks, and on the re-

106 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT What is the place of of occupational health and safety among your Office’s priorities? Grigory Konvissar Head of the Office for Health, Safety, Environment, and Emer- gency Preparedness of the Oil and Gas Production Department

Protecting employee life and health is the ultimate priority of all Company’s operations. This objective is accomplished through introducing safe technologies and working conditions conforming to the best international standards, providing employees with convenient and state-of-the-art quired PPE quality. In 2007, Company’s occupational health and safety expenses per employee were personal protective equipment, about RUB 6500, or 13% more than in 2006. training them using modern means and facilities, as well as fostering REDUCING THE INJURY RATE personal responsibility, awareness and creative attitude toward work The key priority of the HSE Office is reducing the rate of injuries involving Company employ- among the staff. ees. In 2007, the overall number of recorded injuries decreased more than by 1.5 times. Given increase in the number of employees, the injury rate and the rate of days lost as a result of injuries and occupational diseases decreased even more (see Table 5.9).In 2006 and 2007, some cases of occupational diseases contracted earlier were identified as a result of an improved level of health services. In order to prevent injuries and occupational diseases the Company carries out an assessment of workplaces (so far 77% of workplaces have been certified as compliant with the relevant requirements) and works on elimination of workplace hazards including, for example, increased noise level.

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 107 2005 2006 2007 Number of injuries at work 76 74 48 incl. fatalities 4 5 5 Workplace injury rate* 0.18 0.16 0.10 Occupational disease rate** n/a 0.006 0.013 Lost days rate*** 8.58 9.55 4.64

TABLE 5.9. OCCUPATIONAL HEALTH AND SAFETY INDICATORS

SAFETY HOTLINE AT THE OMSK REFINERY A Safety Hotline Service was created at the enterprise in June 2006 and proved its effectiveness. It was created to help employees realize their responsibility for safety of their own and their peers at the enterprise. Calls from employees of the refinery, its subsidiaries and contractors helped prevent collapse of a crane and an illumination pole, eliminate in time gas leakage from a pipeline, and remove numerous other hazards that could potentially lead to workplace injuries. Most calls addressed occupational hazards and inadequate state of industrial and occupational safety at refinery’s facilities and communications, including leaks in pipelines and sealed equipment, and non-compliance with industrial and occupation safety requirements in the performance of work.

The main causes of grave injuries that occurred in 2007 included neglect of labor and workplace discipline (violation of respective safety guidelines in the performance of work) and violations of established production processes. Therefore there are obvious opportunities for reducing the injury rate, which include increasing professional qualifications of employees, providing orientation in specific safety requirements in the performance of work, strengthening line managers’ supervision over and responsibility for employees’ compliance with established work procedures and safety requirements. Joint management/employee committees created at large enterprises participate in investigating and analyzing causes of grave injuries, and in designing measures aimed to prevent similar incidents in the future.

*Ratio of the total number of injuries involving Company employees to the total time in hours worked by the total workforce in the reporting period multiplied by 200000. **Ratio of the total number of occupational diseases of Company employees (including cases identified earlier) to the total time in hours worked by the total workforce in the reporting period multiplied by 200000. ***Ratio of the total number of work days lost by Company employees as a result of injuries and occupational diseases to the total time in hours worked by the total workforce in the reporting period multiplied by 200000.

108 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 109 EMERGENCY PREPAREDNESS AND RESPONSE

GAZPROM NEFT ENDEAVORS TO ACHIEVE A HIGH LEVEL OF SAFETY OF INDUSTRIAL OBJECTS AND PREPAREDNESS TO LOCALIZE AND MITIGATE CONSEQUENCES OF POSSIBLE EMERGENCIES.

COLLABORATION IN THE FIELD OF INDUSTRIAL SAFETY The Company’s Office of Health, Safety and Environment, the Section of Special Programs, and specialists of production departments and subsidiary companies all collaborate in the field of industrial safety. The Section of Special Programs created in 2007 addresses the issues of emergency preparedness and response at production facilities of the Company. Joint efforts of these divisions and specialists are aimed at strengthening of the corporate incident, accident, and emergency preparedness and response system.

The Company has formed special emergency units, which are provided with necessary training and special equipment. The Company collaborates with regional divisions of the Ministry of Emergency in order to coordinate potential emergency response action, continues the development of plans for elimination of accidental oil spills, obtains necessary consent for these plans and approves them. The Company’s emergency response groups have been fully formed and are ready for possible accident and emergency response actions in coordination with the competent state authorities.

110 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT ACCIDENT ANALYSIS AND PREVENTION In 2005–2006 there were two accidents in the Company, one in each year. In 2005, breach of safety rules during cementing a well led to uncontrolled gas outburst and fire outbreak, which finally resulted in rig collapse. In 2006, a fire broke out at the Omsk Refinery, at a gas fractionation unit being prepared for a scheduled repair. In order to prevent gas contamination of the area, the petroleum products were allowed to burn out. The fire was localized in two hours and extinguished in three more hours. The planned repair was carried out according to the schedule. Three refinery employees were injured during the fire; one of them, operator of the unit, died from burns in a hospital. The Company paid compensation to the operator’s family.

In 2007 there were two accidents in the Company. In one case breach of safety rules during well commissioning resulted in a blowout with a subsequent fire outbreak; no fatalities occurred. The second case involved breaking of a logging cable with a logging device during exploratory drilling. In order to prevent accidents, in late 2006 the Company carried out an initial gap analysis and identification of industrial risks in the refining sector; a system of measures to minimize these risks

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 111 has been identified and implemented since 2007. In oil and gas production, refining, and petroleum product supply sectors the Company carries out monitoring of pipelines and other industrial equipment, on a timely basis conducts preventive repair or replacement of equipment, takes measure to increase reliability of equipment and ensure compliance with the safety requirements. In addition, attention is given to oversight of employees’ compliance with HSE rules and emergency preparedness training. The Company also develops a system for recording and analysis of information on accidents occurring at its enterprises.

In the near future Gazprom Neft plans to intensify the relations with its contractors regarding their HSE performance and strengthen oversight of their compliance with the respective rules. The Com- pany will encourage compliance with HSE standards and rules, while holding its contractors – organizations, managers and individual workers – liable for breaches and non-compliance. The safety record of contractors will be taken into account in tendering; preference will be given to those with better safety performance.

112 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 113

MAIN PLANS FOR THE MID-TERM PERSPECTIVE • Implement the Health, Safety and Environmental Policy and establish an integrated management system to accomplish it • Improve associated petroleum gas recovery rate • Conduct an inventory of greenhouse gas emissions • Reduce employee injury rate and adverse environmental impacts • Raise HSE awareness and competence of the personnel • Provide state-of-the-art personal protected equipment to employees • Increase the safety of road transportation

ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT 115 Annex 1. Application of sustainability reporting principles ANNEX 1.

The Company realizes that preparation of high-quality sustainability reports being of interest and use to the stakeholders requires adherence to certain rules of disclosure. Following this approach, Gazprom Neft fully subscribes to the principles for defining report content and ensuring report quality set forth in the G3 Guidelines.

The Company’s understanding of these principles and approach to their application in preparing the Sustainability Report for 2007 are summarized in the table below.

INTERPRETATION OF THE REPORTING PRINCIPLES APPLICATION OF THE PRINCIPLES IN PREPARING THE 2007 REPORT SET FORTH IN THE G3 GUIDELINES Materiality. In defining topics to be covered by its sustainability In preparing this Report, Gazprom Neft used the following “materiality filters”: reports, the Company is guided by the recommendations Policies and programs approved or being developed by the Company and addressing various social, economic, of AccountAbility and the requirements of АА1000 series of or environmental aspects of its activities. Topics covered by similar reports for 2006–2007, prepared by other standards, using so-called “materiality filters”. The process Russian and international oil and gas companies. The Company’s commitments described in the “Social of selecting topics for inclusion in the reports is based on Horizons” publication, an overview of Company’s social programs. Issues that were covered by the media or an annual assessment of their materiality, which takes into raised concern among some stakeholders in the course of the Company’s stakeholder engagement activities account the Company’s policies and commitments, sectoral in 2007. practice of sustainability reporting in Russia and abroad, and The Company included in the Report comments of key business function managers on some of these material issues raised by the stakeholders and the mass media. topics Stakeholder inclusiveness. The Company maintains a process The structure of Gazprom Neft’s stakeholders, procedure used to identify them, and approaches toward for identification of stakeholders, engages with them, and identification and analysis of material topics are described in detail in Chapter 1 “Governing Responsible describes the results of this engagement in its reports. The Development”. The Company welcomes feedback on the content and quality of this Report and will take it into materiality assessment process includes analysis of issues that account in preparing subsequent ones. The contact information and feedback methods are provided at the end attract stakeholders’ attention. of the Report. Sustainability context. The company discloses available In preparation of this Report, Gazprom Neft presented data or described its activities in a regional or national information on significant economic, environmental, and social context, when such information was available. issues discussed by the public. The Company also seeks to present its activities in a broader regional, national, or sectoral context.

116 Completeness. The Company defines the scope of its reports The Report scope is determined by the material topics identified as a result of an assessment encompassing based on the results of materiality assessment process, thus all aspects of sustainability. The Company’s organizational units were selected for inclusion in the Report allowing its stakeholders to form their opinions on how the Boundary based on the magnitude of their impacts with regard to the material topics identified.The Report Company addresses issues in the areas of interest to them. presents information and data for Calendar Year 2007 (when appropriate and available, data for 2005 and 2006 As the Company improves its information management are included for comparison). Qualitative and quantitative information on financial and economic indicators systems, it gradually expands the reporting boundary. is presented for the enterprises covered by US GAAP consolidated financial statements (see the Company’s The Company’s reports contain descriptions of their Annual Report), since the financial reporting boundary includes enterprises the most significant in economic boundaries and timeframes. terms. All other qualitative and quantitative information, unless otherwise specified and except for the ANNEX information in Chapter 5, applies to JSC Gazprom Neft and all its subsidiary companies. The information in Chapter 5, and on certain indicators in Chapter 3 (where specified), is presented for JSC Gazprom Neft and the following subsidiary companies, selected on the basis of their scale (including the number of personnel) 1. and significance of their OHS and environmental impacts: Gazpromneft-Nefteservice LLC JSC Gazpromneft–Noyabrskneftegazgeophisika Kapitalniy Remont Skvazhin – Service LLC Muravlenkovskaya Transportnaya Kompaniya LLC Noyabrskaya Tsentralnaya Trubnaya Baza LLC Noyabrskneftespetsstroy LLC Servisnaya Burovaya Kompaniya LLC Servisnaya Transportnaya Kompaniya LLC Yamalservicetsentr LLC Spetstransservice LLC JSC Gazpromneft-Noyabrskneftegaz and its subsidiaries Gazpromneft-Khantos LLC Gazpromneft-Vostok LLC JSC Gazpromneft-ONPZ and its subsidiaries JSC Gazpromneft-Tyumen and its subsidiaries JSC Gazpromneft-Omsk and its subsidiaries Sibneft-Krasnoyarsknefteproduct LLC CJSC Gazpromneft-Severo-Zapad CJSC Gazpromneft-Kuzbass Gazpromneft-Noyabrsk LLC JSC Sverdlovsknefteproduct Gazprom Neft Asia LLC and its subsidiaries JSC Novosibirsknefteproduct VNK Gazpromneft-AZS-Service LLC. The Company decided not to include in its Sustainability Report for 2007 the data and information on its dependent companies, including in particular JSC NGC Slavneft and its subsidiaries, JSC Moskovskiy NPZ and its subsidiaries, JSC Yekaterinburgnefteproduct, and JSC Mosnefteproduct. The decision on incorporating data and information regarding the dependent companies in subsequent reports can be made in the future, as the corporate systems for collection and analysis of sustainability information mature.

Balance. The Company considers it necessary to disclose Gazprom Neft strives to provide information on all material topics identified, covering both achievements and both favorable and unfavorable information, describing problematic areas. Each chapter of the Report contains the Company’s future objectives regarding most of the both achievements and difficulties in its development and material topics. stakeholder relations. This balanced approach allows stakeholders to see the complete picture of the Company’s performance.

Comparability. The Company tries to calculate and present Gazprom Neft decided to rely on the G3 Guidelines, IPIECA/API Guidance, and Basic Indicators of the Russian all qualitative indicators in a consistent manner, and seeks Union of Industrialists and Entrepreneurs. A content index helping Report users locate various indicators to ensure continuity of the data presented in order to enable proposed by these guidelines is provided in Annex 2. It is intended mainly for ensuring comparability of the Report users to track changes in the Company’s performance Report with reports of other organizations. The Company declares “A” GRI Application Level*. When necessary across all reporting periods and compare the indicators information is available, the Report presents performance data for the last three years. presented with similar indicators of other companies.

*Regardless that this level assumes publicising maximal number of standard disclosures, the Level A provides reporting organization with an opportunity to explain reasons for omission or partial provision of indicators.

117 2002 in accordance C+ C+ B B+ A A+ Mandatory Self Declared assured assured assured

ANNEX Optional Third Party Checked

GRI Checked Report externally Report externally Report externally 1.

Accuracy. The Company strives to ensure adequate In preparing this Sustainability Report, Gazprom Neft used measurement and calculation methods representation of its performance in published qualitative recommended by the G3 Indicator Protocols. A part of the consolidated information presented in this Report is and quantitative sustainability information, and intends to based on expert assessments, while some other indicators were produced using integrated calculations and continuously improve the system used for collection and data from various sources at the level of the Head Office, subsidiary companies, and their production units. analysis of this information. The Company recognizes and accepts the fact that presentation of most social and environmental indicators inevitably depends upon the human factor, especially given that the corporate system for sustainability information management is still emerging. Timeliness. The Company plans to release the sustainability The process of Report preparation was scheduled to align its release with presentation of the US GAAP reports annually, aligning their content and schedule with the Consolidated Financial Statements and the Annual Report of Gazprom Neft. ones of its Annual Reports. Clarity. Being convinced that sustainability reports should be In the process of the Report preparation, Gazprom Neft used the services of a professional editor to ensure interesting and comprehensible to representatives of all the clarity and consistency of the text. The Report is appended with Annex 3, where the reader can find definitions stakeholder groups, the Company works to present information of terms and expansions of abbreviations used. in simple language and explains in its reports the terms and abbreviations used. Reliability. The Company is convinced that all information According to the reporting principles subscribed to by the Company, independent external assurance is an presented in the reports should be based on data carefully important instrument of ensuring information and data reliability. However, in preparing its first Sustainability collected and independently verified using internal and, if Report, the Company decided to limit itself to internal assurance conducted by the employees involved in the possible, external resources. Report’s preparation at the level of both the Head Office and subsidiary companies. The assurance methods used included self-checking, analysis and comparison of data from different sources, and cross-checking.

118 Annex 2. Performance indicators disclosed in the Report ANNEX 2. DISCLOSURE (INDICATOR) (INDICATOR) DISCLOSURE OF THE G3 GUIDELINES DISCLOSURE RESPECTIVE OF THE (INDICATOR) GUIDANCE IPIECA/API BASIC RESPECTIVE PERFORMANCE (RSPP) INDICATOR CHAPTER OF THE REPORT OF THE REPORT PAGES IN THE OF PRESENTATION STATUS SOURCES REPORT AND OTHER COMMENTS* AND OTHER REFERENCES TO SOURCES

1234567 STRATEGY AND ANALYSIS 1.1 Statement from the Chairman Statement from the 2-5 of the Board, Statement from the Chairman of the Board, CEO Statement from the CEO 1.2 Description of key impacts, Statement from the CEO, The information on key sustainability trends, risks, risks, and opportunities: Chapter 1. Governing and opportunities, and their impact on the long- responsible development, term prospects of the Company is not presented in Chapter 2. Economic separate sections. development, Chapter 3. The Company plans to consolidate and publish this Employee development information in the long-term perspective, as its and support, Chapter 4. approach to the management of sustainability risks Contribution to regional develops. see below: development, Chapter 5. Environment and health protection – safe development description of the significant Statement from the CEO, 4-5, impacts the organization has Chapter 1. Governing 8, 9 on sustainability and associated responsible development challenges and opportunities an explanation of the approach The Company did not prioritize sustainability to prioritizing these challenges challenges and opportunities yet. It plans to and opportunities do so and publish the results in the mid-term perspective. key conclusions about progress Statement from the CEO 4-5 in addressing these topics and related performance in the reporting period

119 1234567 description of the main processes Chapter 1. Governing 12-23 in place to address performance responsible development and/or relevant changes. description of the most important At present most enterprises included

ANNEX risks and opportunities for in the reporting boundary identify and manage the organization arising from sustainability impacts, risks, and opportunities, sustainability trends relevant to their regions and the context of their operations themselves. The Company plans 2. to consolidate and publish this information in the long-term perspectives, as its approach to the management of sustainability risks develops. prioritization of key sustainability The Company did not prioritize key sustainability topics as risks and opportunities risks and opportunities yet. It plans to do so and according to their relevance for to publish the results in the mid-term perspective. long-term organizational strategy table(s) summarizing performance In the reporting period the Company started to set against targets, and lessons- specific sustainability targets; therefore information learned for the current reporting on accomplishing them during the reporting period period is unavailable. This information will be published in the short-term perspective. table(s) summarizing targets for Chapter 1. Governing 23, Provided at the end of each chapter. the next reporting period and mid- responsible development, 39, term objectives and goals related Chapter 2. Economic 65, to key risks and opportunities development, Chapter 3. 85, Employee development 115 and support, Chapter 4. Contribution to regional development, Chapter 5. Environment and health protection – safe development concise description of governance Annex 2. Performance 120 The Company develops an integrated risk mechanisms in place to specifically indicators disclosed management system. Key sustainability-related manage these risks and in the Report impacts and opportunities of the Company are opportunities, and identification described in the Report. A generalized analysis of other related risks and of risks is presented in the 2007 Annual Report. opportunities. At present most enterprises included in the reporting boundary identify and manage sustainability impacts, risks, and opportunities, relevant to their regions and the context of their operations themselves.

120 1234567 ORGANIZATIONAL PROFILE 2.1 Name of the organization. Chapter 2. Economic 26 development

2.2 Primary brands, products, and/ Chapter 2. Economic 27 ANNEX or services. development 2.3 Operational structure of the Chapter 2. Economic 30-31 organization, including main development 2. divisions, operating companies, subsidiaries, and joint ventures. 2.4 Location of organization’s Chapter 2. Economic 26 headquarters. development 2.5 Number of countries where the Brief introduction to the Cover, organization operates, and names Сompany and this report, 28-29 of countries with either major Chapter 2. Economic operations or that are specifically development relevant to the sustainability issues covered in the report. 2.6 Nature of ownership and legal Chapter 2. Economic 26 form. development 2.7 Markets served (including Chapter 2. Economic 28-29, geographic breakdown, sectors development 33 served, and types of customers/ beneficiaries). 2.8 Scale of the reporting Chapter 2. Economic organization, including: development, Chapter 3.

Employee development and see support below: number of employees (breakdown Chapter 3. Employee 54 by country/region) development and support net sales, breakdown of sales/ Net sales of the Company are disclosed in the 2007 revenues by countries/regions that Annual Report; the Company considers breakdown make up 5 percent or more of total of sales (revenues) by significant regions to be revenues confidential. total capitalization Chapter 2. Economic 30 development quantity of products or services Chapter 2. Economic 32 provided development total assets Chapter 2. Economic 30 development beneficial ownership (including Chapter 2. Economic 27 identity and percentage of development ownership of largest shareholders)

121 1234567 costs by countries/regions that Total costs of the Company are disclosed in the make up 5 percent or more of total 2007 Annual Report; the Company considers revenues breakdown of costs by significant regions to be confidential.

ANNEX 2.9 Significant changes during the Chapter 2. Economic 26 Significant changes regarding Company's size reporting period regarding size, development during the reporting period did not affect the structure, or ownership. Report scope. They will be taken into account in the 2. subsequent reports. 2.10 Awards received in the Chapter 4. Contribution to 82-83 In 2007, the Company received awards reporting period. regional development acknowledging its achievements in foreign trade and ensuring transparency of procurement. REPORT PARAMETERS 3.1 Reporting period. Annex 1. Application of the 117 sustainability reporting principles 3.2 Date of most recent previous Annex 1. Application of the 118 report (if any). sustainability reporting principles 3.3 Reporting cycle. Annex 1. Application of the 117 sustainability reporting principles 3.4 Contact point for questions Contact Information and 143 regarding the report or its Feedback contents. 3.5 Process for defining report Chapter 1. Governing 18-20, content. responsible development, 116 Annex 1. Application of the sustainability reporting principles 3.6 Boundary of the report. Annex 1. Application of the 117 sustainability reporting principles 3.7 Limitations on the scope or Annex 1. Application of the 117 The Report scope covers the complete range of boundary of the report. sustainability reporting significant economic, environmental, and social principles impacts of the Company. 3.8 Basis for reporting on joint Annex 1. Application of the 117 ventures, subsidiaries, leased sustainability reporting facilities, outsourced operations, principles and other entities that can significantly affect comparability from period to period and/or between organizations.

122 1234567 3.9 Data measurement techniques Annex 1. Application of the 118 and the bases of calculations, sustainability reporting including assumptions and principles techniques underlying estimations applied to the compilation of the Indicators and other information in ANNEX the report. 3.10 Explanation of the effect of Chapter 5. Environment 94, Technically, this is the first sustainability report any re-statements of information and health protection – 123 of the Company. Nevertheless, the Company 2. provided in earlier reports, and the safe development, Annex considers it important to improve the accuracy of reasons for such re-statement. 2. Performance indicators information and data provided in the documents disclosed in the Report already published. When necessary, the information published earlier is re-stated in this Report; such re-statements are explicitly specified. 3.11 Significant changes from Annex 1. Application of the 117 This is the first sustainability report by the previous reporting periods in the sustainability reporting Company with clearly defined scope and boundary. scope, boundary, or measurement principles methods applied in the report. 3.12 Table identifying the location Annex 2. Performance 119- of the Standard Disclosures in the indicators disclosed in the 139 report. Report 3.13 Policy and current practice Annex 1. Application of the 118 The Company decided not to seek external with regard to seeking external sustainability reporting assurance of this Report; at the same time it used assurance for the report. principles internal assurance mechanisms. GOVERNANCE, COMMITMENTS, AND ENGAGEMENT 4.1 Governance structure of the Chapter 1. Governing 15 organization, including committees responsible development under the highest governance body responsible for specific tasks, such as setting strategy or organizational oversight. 4.2 Indication whether the Chair Chapter 1. Governing 12 of the highest governance body is responsible development also an executive officer. 4.3 For organizations that have Chapter 1. Governing 12 a unitary board structure, state responsible development the number of members of the highest governance body that are independent and/or non-executive members.

123 1234567 4.4 Mechanisms for shareholders Chapter 1. Governing 13 Mechanisms for incorporating shareholders' and employees to provide responsible development opinion are described. In the long-term perspective, recommendations or direction to the Company will publish information on the highest governance body. mechanisms for non-shareholder employees to provide recommendations or direction to the Board ANNEX of Directors, as such mechanisms develop. 4.5 Linkage between compensation Chapter 1. Governing 13, 48 for members of the highest responsible development, 2. governance body, senior managers, Employee Development and executives (including and Support, Chapter 3. departure arrangements), and Employee development and the organization’s performance support (including social and environmental performance). 4.6 Processes in place for the Chapter 1. Governing 12 highest governance body to ensure responsible development conflicts of interest are avoided. 4.7 Processes for determining Chapter 1. Governing 14 the qualifications and expertise responsible development of the members of the highest governance body for guiding the organization’s strategy on economic, environmental, and social (sustainability) topics. 4.8 Internally developed statements Chapter 1. Governing 8, 76, By now the Company has adopted its Charity Policy of mission or values, codes of responsible development, 88 and the EHS Policy. The Company set an objective to conduct, and principles relevant Chapter 4. Contribution prepare and approve key responsible development to economic, environmental, and to regional development, codes and policies at all its enterprises. These social performance and the status Chapter 5. Environment documents will be based upon the internationally of their implementation. and health protection – safe recognized standards. At present the policies development already adopted are being implemented, and information on the extent of their implementation is not yet available. This information will be disclosed in the mid-term perspective, as respective mission statements, codes, and policies are adopted and implemented. 4.9 Procedures of the highest Chapter 1. Governing 12-13 governance body for overseeing responsible development the organization’s identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles.

124 1234567 4.10 Processes for evaluating Chapter 1. Governing 13 The performance evaluation process is based the highest governance body’s responsible development on recommendations of the Personnel and own performance, particularly Remuneration Committee, according to item 3.5 with respect to economic, of its Charter (see http://www.gazprom-neft. environmental, and social com/investor/corp-governance/Regulation%20 performance. on%20the%20Human%20Resources%20and%20 ANNEX Remunerations%20Committee-eng.pdf). Currently the evaluation is based on economic performance of the organization. The information on the 2. processes for performance evaluation will be amended in the long-term perspective, as the respective criteria of environmental and social performance are defined. 4.11 Explanation of whether and Chapter 5. Environment 92 how the precautionary approach and health protection – safe or principle is addressed by the development organization. 4.12 Externally developed Annex 2. Performance 125 At present the Company has not been subscribed to economic, environmental, and indicators disclosed in the any of such initiatives. social charters, principles, or other Report initiatives to which the organization subscribes or endorses. 4.13 Memberships in associations Annex 2. Performance 125 The Company does not consider its membership in (such as industry associations) indicators disclosed in the associations as a material factor of its economic, and/or national/international Report social, and environmental performance. advocacy organizations. 4.14 List of stakeholder groups Chapter 1. Governing 10-11, engaged by the organization. responsible development, 68 Chapter 4. Contribution to regional development 4.15 Basis for identification and Chapter 1. Governing 10 selection of stakeholders with responsible development whom to engage. 4.16 Approaches to stakeholder Chapter 1. Governing 11, Approaches to stakeholder engagement used in engagement, including frequency responsible development, 16-20, the reporting period are described in a generalized of engagement by type and by Chapter 3. Employee 44, 49, form; examples of specific engagement methods stakeholder group. development and support, 55-57, used are also provided. The Company conducts Chapter 4. Contribution to 59-61, most of its stakeholder engagement activities regional development 68, at the regional level using context-specific 70-71, means and methods. Such information has not 81-82, been consolidated. More detailed information 106 will be provided in the reports in the long-term perspective.

125 1234567 4.17 Key topics and concerns Chapter 1. Governing 18 Key topics raised by stakeholders in the reporting that have been raised through responsible development period are listed in the Report; Company’s stakeholder engagement, and how responses to them are described in the Report in a the organization has responded respective context to those key topics and concerns, ANNEX including through its reporting. ECONOMIC PERFORMANCE INDICATORS 2. Management Approach 1.1. Key business Chapter 1. Governing 14-15 principles responsible development ASPECT: ECONOMIC PERFORMANCE EC1 Direct economic value ECO–1 Tax 1.2. Sales Chapter 1. Governing 33 generated and distributed, Expenses; of products responsible development, including revenues, operating ECO-A1 (services) Chapter 4. Contribution to costs, employee compensation, Transparency 1.3. Taxes and regional development donations and other community of Payments; other mandatory investments, retained earnings, ECO-2 Dividends payments and payments to capital providers Paid Plus Share 1.4. Spending on and governments. Repurchases; employees ECO-A2 Payroll 1.5. Capital and Benefits; investments ECO-3 Capital 1.6. Community Expenditures; investments ECO-A3 Interest 1.7. Payments to Paid capital providers EC2 Financial implications and No such assessment was carried out. Currently other risks and opportunities for the Company plans to assess implications, risks, the organization’s activities due to and opportunities related to climate change; the climate change information on the results will be published in the long-term perspective. EC3 Coverage of the organization’s 1.8. Voluntary Chapter 3. Employee In the reporting period the Company did not defined benefit plan obligations. pension schemes development and support have obligations under defined retirement plans; information on the future plans regarding additional (occupational) pension schemes is provided. The Company plans to disclose such information in the mid-term perspective, as these schemes are implemented. EC4 Significant financial assistance The Company considers this information received from government. confidential.

126 1234567 ASPECT: MARKET PRESENCE EC5 Range of ratios of standard Chapter 3. Employee 48-49 The data in comparison with average wages in the entry level wage compared to development and support regions are provided, which is more material than local minimum wage at significant the GRI requirement. The Company plans to provide locations of operation. the data on wages in other contexts in the long- ANNEX term perspective. EC6 Policy, practices, and Chapter 4. Contribution to 83 General information on the Company's approach, proportion of spending on locally- regional development not including data on specific regions and 2. based suppliers at significant proportion of local procurement, is provided. The locations of operation. Company plans to provide more information on this indicator in the long-term perspective. EC7 Procedures for local hiring and SOC-A3 Local Annex 2. Performance 127 The Company gives preference to local workforce proportion of senior management Employment indicators disclosed in the in hiring. The information on proportion of senior hired from the local community at Opportunities Report managers of subsidiary companies hired from locations of significant operation. the local community has not been consolidated. The Company plans to publish more detailed information on hiring procedures and proportion of senior management hired from the local community in the long-term perspective. ASPECT: INDIRECT ECONOMIC IMPACTS EC8 Development and impact of Chapter 4. Contribution to 71-79 infrastructure investments and regional development services provided primarily for public benefit through commercial, in-kind, or pro bono engagement. EC9 Understanding and describing Chapter 4. Contribution to 68 The Company works to better understand its significan indirect economic regional development indirect economic impacts, and the information impacts, including the extent of on them provided in this report is not complete. impacts. The Company pans to develop its approach to assessment of indirect economic impacts and disclose the results in its reports in the mid-term perspective. ENVIRONMENTAL PERFORMANCE INDICATORS Management Approach ENV-6 1.1. Key business Chapter 5. Environment 88-90 Environmental principles and health protection – safe Management development Systems ASPECT: MATERIALS EN1 Materials used by weight or Chapter 5. Environment 94 volume. and health protection – safe development

127 1234567 EN2 Percentage of materials used ENV-A5 2.1. Percentage Chapter 5. Environment 102 that are recycled input materials. Recycled, of recycled or and health protection – safe Reused or reused input development Reclaimed materials Materials ANNEX ASPECT: ENERGY EN3 Direct energy consumption by ENV-5 Energy 2.2. Energy use Chapter 5. Environment 95 The data are provided without breakdown by 2. primary energy source. Use and health protection – safe primary source due to the difficulty of consolidating development such information. It is planned to publish these data in the mid-term perspective. EN4 Indirect energy consumption Chapter 5. Environment 95 The data are provided without breakdown by by primary energy source. and health protection – safe primary source due to the difficulty of consolidating development such information. It is planned to publish these data in the mid-term perspective. EN5 Energy saved due to Chapter 5. Environment 95 The data on certain projects are provided. conservation and efficiency and health protection – safe Consolidated data are currently unavailable, improvements. development since most of such projects were not managed in a centralized way. It is planned to produce and publish such data in the long-term perspective. EN6 Initiatives to provide energy- ENV-A8 New The Company does not implement initiatives to efficient or renewable energy & Renewable provide energy-efficient or renewable energy based products and services, and Energy based products and services. The information on reductions in energy requirements Resources such initiatives will be published in the long-term as a result of these initiatives. perspective, as they are adopted by the Company. EN7 Initiatives to reduce indirect Chapter 5. Environment 95 The Company works on improving energy efficiency energy consumption and and health protection – safe of its operations by producing electricity from reductions achieved. development associated petroleum gas. Quantitative data on the overall energy savings achieved in this way are unavailable due to the difficulty of consolidation and analysis of such information. They are planned to be disclosed in the long-term perspective. ASPECT: WATER EN8 Total water withdrawal by ENV-A7 2.3. Freshwater Chapter 5. Environment 100 source. Freshwater Use consumption for and health protection – safe organization’s development own needs EN9 Water sources significantly Annex 2. Performance 128 As the Company extracts water from surface water affected by withdrawal of water. indicators disclosed in the bodies within allowed limits, it is presumed that Report the impact on the latter is insubstantial; however, specific data on this are unavailable. The Company plans to publish such data in the long-term perspective.

128 1234567 EN10 Percentage and total volume 2.4. Percentage Chapter 5. Environment 100 of water recycled and reused. of water recycled and health protection – safe and reused development in total water consumption for organization's ANNEX own needs ASPECT: BIODIVERSITY 2. EN11 Location and size of land ENV-A9 Chapter 5. Environment 105 The Company does not conduct operations in owned, leased, managed in, or Biodiversity and health protection – safe environmental protected areas. The information adjacent to, protected areas and development on the areas of high biodiversity value is not areas of high biodiversity value consolidated. The Report contains general outside protected areas. information on the Company’s understanding of importance of biodiversity. More detailed information will be published in the long-term perspective. EN12 Description of significant Chapter 5. Environment 105 The Company does not conduct operations in impacts of activities, products, and health protection – safe environmental protected areas. The information and services on biodiversity in development on the areas of high biodiversity value is not protected areas and areas of high consolidated. More detailed information will be biodiversity value outside protected published in the long-term perspective. The Report areas. contains general information on the Company’s actions aimed at protecting biodiversity. EN13 Habitats protected or Chapter 5. Environment 104 restored. and health protection – safe development EN14 Strategies, current actions, The Company does not have special strategies and future plans for managing and company-wide plans for managing impacts on impacts on biodiversity. biodiversity. The Company plans to publish such information in the long-term perspective, as such strategies and/or plans are approved. EN15 Number of IUCN Red List The information is not consolidated. The Company species and national conservation plans to publish such information in the long-term list species with habitats in areas perspective. affected by operations, by level of extinction risk. ASPECT: EMISSIONS, EFFLUENTS, AND WASTE EN16 Total direct and indirect ENV-3 2.5. Greenhouse The information is unavailable, no estimations were greenhouse gas emissions by Greenhouse Gas gas emissions performed. The Company plans to disclose these weight. Emissions data in the long-term perspective, as necessary estimations are performed.

129 1234567 EN17 Other relevant indirect 2.5. Greenhouse The information is unavailable, no estimations were greenhouse gas emissions by gas emissions performed. The Company plans to disclose these weight. data in the long-term perspective, as necessary estimations are performed.

ANNEX EN18 Initiatives to reduce Chapter 5. Environment 99 The Report describes initiatives on improving greenhouse gas emissions and and health protection – safe associated gas recovery rate, which directly lead to reductions achieved. development reduction of greenhouse emissions, however the amount of reduction has not been estimated. The 2. Company plans to disclose these data in the long- term perspective, as necessary estimations are performed. EN19 Emissions of ozone-depleting Chapter 5. Environment 96 substances by weight. and health protection – safe development EN20 NOx, SOx, and other ENV-4 Flared 2.6. Air pollutant Chapter 5. Environment 96 significant air emissions by type and Vented Gas; emissions and health protection – safe and weight. ENV-A6 Other development Operational Air Emissions EN21 Total water discharge by ENV-2 2.7. Total water Chapter 5. Environment 100 The data on water discharge are provided without quality and destination. Controlled discharge and health protection – safe breakdown by destination and quality, since the Discharges to 2.7.2. Discharge development overall impact of discharges is insignificant due to Water; ENV-A2 of polluted their insignificant volume. The Company does not Other Effluent wastewater plan to disclose these data considering them non- Discharges material, unless changes in volume or quality of discharges occur. EN22 Total weight of waste by type 2.8. Amount of Chapter 5. Environment 102 The data on the waste disposal methods are and disposal method. waste and health protection – safe consolidated according to the existing Russian development legislation, i.e. in a different way that the one recommended by the respective G3 Protocol. The Company plans to provide the information in accordance with the Protocol in the mid-term perspective. EN23 Total number and volume of ENV-1 2.9. Number Chapter 5. Environment 103- The Report contains the data on the total volume of significant spills. Hydrocarbon of accidents and health protection – safe 104 oil spills; the data published can be corrected later, Spills to the that resulted in development as the reporting systems improves. The Company Environment; environmental plans to publish data on all significant spills in the ENV-A1 Other damage 2.10. mid-term perspective, as unified accounting and Spills and Monetary value reporting systems are implemented. Accidental of established Releases environmental damages

130 1234567 EN24 Weight of transported, ENV-A3 Annex 2. Performance 131 Non-material. This indicator was excluded based on imported, exported, or treated Hazardous indicators disclosed in the the results of the materiality assessment process. waste deemed hazardous under Waste; ENV-A4 Report The Company is involved neither in transboundary the terms of the Basel Convention Non-Hazardous waste transportation nor in significant Annex I, II, III, and VIII, and Waste transportation of hazardous waste at all. percentage of transported waste ANNEX shipped internationally. EN25 Identity, size, protected Consolidated information on this indicator is status, and biodiversity value of not available. The Company did not conduct an 2. water bodies and related habitats assessment of impact of discharges on biodiversity. significantly affected by the It is planned to publish such information in the reporting organization’s discharges long-term perspective. of water and runoff. ASPECT: PRODUCTS AND SERVICES EN26 Initiatives to mitigate H&S-5 Product- 2.11. Initiatives Chapter 5. Environment 99 environmental impacts of products related Health to mitigate and health protection – safe and services, and extent of impact Risks environmental development mitigation impacts of products and services, and extent of impact mitigation EN27 Percentage of products sold Annex 2. Performance 131 The indicator does not apply to the main products and their packaging materials that indicators disclosed in the of the Company – oil and petroleum products used are reclaimed by category. Report as fuel and basic materials for chemical industry. The Company does not reclaim used motor oils produced by it and their packaging. ASPECT: COMPLIANCE EN28 Monetary value of significant Chapter 5. Environment 92 No significant fines and non-monetary sanctions fines and total number of and health protection – safe were imposed on the Company in the reporting non-monetary sanctions for development period. noncompliance with environmental laws and regulations. ASPECT: TRANSPORT EN29 Significant environmental Chapter 5. Environment 103- Only information regarding land transportation of impacts of transporting products and health protection – safe 104 oil is provided. and other goods and materials development used for the organization’s operations, and transporting members of the workforce.

131 1234567 ASPECT: OVERALL EN30 Total environmental 2.12. Investments Chapter 5. Environment 93-94 The data are presented in accordance with the protection expenditures and in environmental and health protection – safe accounting approaches used in the Russian investments by type. protection development Federation. The data compliant with the

ANNEX facilities recommendations of the GRI Protocol are unavailable; the Company plans to consolidate and disclose such data in the long-term perspective. 2. LABOR PRACTICES AND DECENT WORK PERFORMANCE INDICATORS Management Approach 1.1. Key business Chapter 3. Employee 42-44 principles development and support ASPECT: EMPLOYMENT LA1 Total workforce by 3.1.1. Total Chapter 3. Employee 45, 47 Only the data on permanent employees are employment type, employment workforce by development and support provided; consolidated data regarding other contract, and region. territory employee types are unavailable. The Company plans to consolidate and disclosure data on other employment types in the mid-term perspective. LA2 Total number and rate of 3.1.2. Employee Chapter 3. Employee 45-46 The data are provided without breakdown by age employee turnover by age group, turnover rate development and support group and gender. The data with the respective gender, and region. due to workforce breakdown are unavailable; the Company plans mobility 3.1.3. to collect and disclose such data in the mid-term Employee perspective. turnover rate due to all reasons LA3 Benefits provided to full-time Chapter 3. Employee 52-54 employees that are not provided to development and support temporary or part-time employees, by major operations. ASPECT: LABOR/MANAGEMENT RELATIONS LA4 Percentage of employees 3.1.4. Percentage Chapter 3. Employee 55 covered by collective bargaining of employees development and support agreements. covered by collective agreements LA5 Minimum notice period(s) Chapter 3. Employee 46 regarding operational changes, development and support including whether it is specified in collective agreements. ASPECT: OCCUPATIONAL HEALTH AND SAFETY LA6 Percentage of total workforce H&S-1 Health Chapter 5. Environment 106, The data on the percentage of workforce represented in formal joint & Safety and health protection – safe 110 represented in joint OHS committees is not management–worker health Management development provided, since it is not available in consolidated and safety committees that help Systems form. The Company plans to disclose this monitor and advise on occupational information in the mid-term perspective. health and safety programs.

132 1234567 LA7 Rates of injury, occupational H&S-3 3.1.5. Chapter 5. Environment 107- The data on the work time lost because of all diseases, lost days, and Workforce Occupational and health protection – safe 108 illnesses is not provided, since it is not available in absenteeism, and number of work- Health; H&S-4 injury rate 3.1.6. development consolidated form. The Company plans to disclose related fatalities by region. Occupational Number of this information in the mid-term perspective. Injury and Illness fatalities 3.1.7. Rates Number of ANNEX employees with occupational diseases identified 2. 3.1.8. Work time lost because of diseases of any origin LA8 Education, training, Annex 2. Performance 133 Prevention and risk control regarding serious counseling, prevention, and risk- indicators disclosed in the diseases is a part of prevention programs covered control programs in place to assist Report by voluntary medical insurance. workforce members, their families, or community members regarding serious diseases. LA9 Health and safety topics H&S-2 Employee Chapter 5. Environment 106 covered in formal agreements with Participation and health protection – safe trade unions. development ASPECT: TRAINING AND EDUCATION LA10 Average hours of training per SOC-5 3.1.10. Hours Chapter 3. Employee 62 The Company does not collect information in year per employee by employee Training and of training per development and support such form; the information on the proportion category. Development employee of employees trained is provided. The Company plans to disclose the information in the form compliant with the GRI Guidelines in the long-term perspective. LA11 Programs for skills Chapter 3. Employee 62 management and lifelong learning development and support that support the continued employability of employees and assist them in managing career endings. LA12 Percentage of employees Chapter 3. Employee 48 The Company does not collect information in such receiving regular performance and development and support form; general approaches toward the improvement career development reviews. of employee performance and career development are described. The Company plans to disclose the information in the form compliant with the GRI Guidelines in the mid-term perspective. SOC-A2 Chapter 3. Employee 49-50 Employee development and support Satisfaction

133 1234567 ASPECT: DIVERSITY AND EQUAL OPPORTUNITY LA13 Composition of governance 3.1.12. Chapter 3. Employee 45 The information regarding the Head Office is bodies and breakdown of Participation development and support provided; it is planned to consolidate information employees per category according of women in on significant diversity indicators for the whole

ANNEX to gender, age group, minority organization's Company and disclose it in the mid-term group membership, and other management perspectives. indicators of diversity. 2. LA14 Ratio of basic salary of men Chapter 3. Employee 134 Basic salaries of men and women are equal. to women by employee category. development and support HUMAN RIGHTS PERFORMANCE INDICATORS Management Approach Chapter 3. Employee 42-44 Because of peculiarities of existing legislation development and support and practice of Company's operations in the Russian Federation, only the indicators regarding employee rights are considered material. This approach can be re-considered in the future.

ASPECT: INVESTMENT AND PROCUREMENT PRACTICES HR1 Percentage and total Annex 2. Performance 134 Non-material. This indicator was excluded based number of significant investment indicators disclosed in the on the materiality assessment results. Because of agreements that include Report peculiarities of existing legislation and the fact that human rights clauses or that the Company makes most of its investments in the have undergone human rights Russian Federation, there was no need for a special screening. human rights screening of investment agreements, and such screening was not conducted. HR2 Percentage of significant Annex 2. Performance 134 Non-material. This indicator was excluded based suppliers and contractors that have indicators disclosed in the on the materiality assessment results. Because of undergone screening on human Report peculiarities of existing legislation and the nature rights and actions taken. of activities of significant suppliers and contractors, there was no need for a special screening of them on human rights, and such screening was not conducted. HR3 Total hours of employee Annex 2. Performance 134 Non-material. This indicator was excluded based training on policies and indicators disclosed in the on the materiality assessment results. Because of procedures concerning aspects Report peculiarities of existing legislation, the issue was of human rights that are relevant not considered material, and the Company did not to operations, including the conduct trainings in human rights. percentage of employees trained. ASPECT: NON-DISCRIMINATION HR4 Total number of incidents of SOC-4 Non- 3.2.2. Incidents of Chapter 3. Employee 46 discrimination and actions taken. Discrimination discrimination development and support and Equal Opportunity

134 1234567 ASPECT: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING HR5 Operations identified in which SOC-7 Labor Chapter 3. Employee 55 The Company is not involved in activities that result the right to exercise freedom Practices development and support in restricting the right to exercise freedom of of association and collective association and collective bargaining. bargaining may be at significant ANNEX risk, and actions taken to support these rights. ASPECT: CHILD LABOR 2. HR6 Operations identified as Annex 2. Performance 135 The Company does not conduct operations involving having significant risk for incidents indicators disclosed in the significant risk for incidents of child labor. of child labor, and measures taken Report to contribute to the elimination of child labor. SOC-6 Non- 3.2.1. Labor Annex 2. Performance 135 There were no labor disputes at the Company's retaliation disputes indicators disclosed in the enterprises in the reporting period. and Grievance Report System ASPECT: FORCED AND COMPULSORY LABOR HR7 Operations identified as Annex 2. Performance 135 The Company does not conduct operations having significant risk for incidents indicators disclosed in the involving significant risk for incidents of forced or of forced or compulsory labor, Report compulsory labor. and measures to contribute to the elimination of forced or compulsory labor. ASPECT: SECURITY PRACTICES HR8 Percentage of security SOC-1 Human Annex 2. Performance 135 Non-material. This indicator was excluded based personnel trained in the Rights; SOC-9 indicators disclosed in the on the materiality assessment results. Because of organization’s policies or Security Report peculiarities of existing legislation, the issue was procedures concerning aspects of not considered material, and the Company did not human rights that are relevant to conduct such trainings. operations. ASPECT: INDIGENOUS RIGHTS HR9 Total number of incidents SOC-A6 3.2.3. Incidents Annex 2. Performance 135 There were no incidents of violating the rights of violations involving rights of Indigenous of violations indicators disclosed in the of small and indigenous peoples by Company's indigenous people and actions Communities involving rights Report enterprises in the reporting period. taken. of small and indigenous peoples SOCIETY PERFORMANCE INDICATORS Management Approach 1.1. Key business Chapter 4. Contribution to 70, 76 The Company continues to develop its approach to principles regional development managing interactions with the society. Complete information on this item will be provided in the mid- term perspective, as this approach is improved

135 1234567 ASPECT: COMMUNITY SO1 Nature, scope, and SOC-8 3.3.1. Chapter 4. Contribution to 76-77 The Company develops systematic approaches effectiveness of any programs and Community Collaboration regional development to assessment of socio-economic impact on practices that assess and manage Relationships; with authorities communities, and the Report provides examples

ANNEX the impacts of operations on SOC-A4 Social in addressing of using these approaches. Complete information communities, including entering, Investments; objectives of on this indicator will be provided in the long-term operating, and exiting. SOC–A5 External social significance perspective, as these approaches are improved. Capacity (socio-economic 2. Building; SOC- development of A7 Resettlement organization's and Land Rights areas of presence) 3.3.3. Assessment of impacts of organization's operations on socio-economic development of local communities ASPECT: CORRUPTION SO2 Percentage and total number SOC-2 Bribery Annex 2. Performance 136 The Company works to fight corruption. Incidents of business units analyzed for risks and Corruption indicators disclosed in the of financial violations in all business units are related to corruption. Report monitored. SO3 Percentage of employees SOC-2 Bribery Annex 2. Performance 136 It is the Economic Security Department that is trained in organization’s anti- and Corruption indicators disclosed in the responsible for preventing economic violations. The corruption policies and procedures. Report Company considers information on the percentage of employees trained in this field confidential. SO4 Actions taken in response to Chapter 4. Contribution to 80, 82, There were no significant incidents of corruption incidents of corruption. regional development, Annex 136 identified in the reporting period. The Company 2. Performance indicators has a Tender Committee and other mechanisms of disclosed in the Report supplier relations in place.

ASPECT: PUBLIC POLICY SO5 Public policy positions and SOC-3 Political 3.3.4. Annex 2. Performance 136 The Company did not take any special position participation in public policy Contributions; Participation indicators disclosed in the regarding public policy development. development and lobbying. SOC-A1 Political in external Report Lobbying and initiatives Advocacy including public policy development SO6 Total value of financial and Annex 2. Performance 136 There were no incidents of anticompetitive behavior in-kind contributions t o political indicators disclosed in the by the Company in the reporting period. parties, politicians, and related Report institutions by country.

136 1234567 ASPECT: ANTI-COMPETITIVE BEHAVIOR SO7 Total number of legal actions Annex 2. Performance 137 В отчетном периоде не было случаев нарушений for anticompetitive behavior, anti- indicators disclosed in the в сфере противодействия конкуренции со сторо- trust, and monopoly practices and Report ны Компании. their outcomes. ANNEX ASPECT: COMPLIANCE SO8 Monetary value of significant Annex 2. Performance 137 The Company strives to comply with all applicable 2. fines and total number of indicators disclosed in the legislation in its operations. No significant fines non-monetary sanctions for Report and non-monetary sanctions were imposed on the noncompliance with laws and Company in the reporting period. regulations. PRODUCT RESPONSIBILITY PERFORMANCE INDICATORS Management Approach Chapter 5. Environment 99 and health protection – safe development ASPECT: CUSTOMER HEALTH AND SAFETY PR1 Life cycle stages in which H&S-5 Product- Chapter 5. Environment 99 health and safety impacts of related Health and health protection – safe products and services are Risks development assessed for improvement, and percentage of significant products and services categories subject to such procedures. PR2 Total number of incidents of Annex 2. Performance 137 There were no incidents of Company's non- non-compliance with regulations indicators disclosed in the compliance with product safety requirements in the and voluntary codes concerning Report reporting period health and safety impacts of products and services during their life cycle, by type of outcomes.

ASPECT: PRODUCT AND SERVICE LABELING PR3 Type of product and 3.4.1. Information Annex 2. Performance 137 The existing legislation requires to provide service information required by and labeling indicators disclosed in the information on conformance of petroleum products procedures, and percentage of Report to safety standards. This requirement applies to significant products and services most products of the Company's refining operations subject to such information and is fully complied with requirements. PR4 Total number of incidents of Annex 2. Performance 137 There were no incidents of Company's non- non-compliance with regulations indicators disclosed in the compliance with requirements concerning and voluntary codes concerning Report product information and labeling (accompanying product and service information documents) in the reporting period. and labeling, by type of outcomes.

137 1234567 PR5 Practices related to customer Chapter 4. Contribution to 81 The Report contains a description of practices satisfaction, including results regional development used and qualitative information on customer of surveys measuring customer satisfaction; quantitative measurements of satisfaction. customer satisfaction are not consolidated. The Company plans to publish such information in the ANNEX long-term perspective. ASPECT: MARKETING COMMUNICATIONS PR6 Programs for adherence to Annex 2. Performance 138 The Company strives to comply with legal 2. laws, standards, and voluntary indicators disclosed in the requirements related to marketing communications codes related to marketing Report and implements a company-wide policy in this field. communications, including advertising, promotion, and sponsorship. PR7 Total number of incidents of Annex 2. Performance 138 There were no incidents of Company's non- non-compliance with regulations indicators disclosed in the compliance with requirements concerning and voluntary codes concerning Report marketing communications in the reporting period. marketing communications, including advertising, promotion, and sponsorship by type of outcomes. ASPECT: CUSTOMER PRIVACY PR8 Total number of substantiated Annex 2. Performance 138 There were no violations or substantiated complaints regarding breaches indicators disclosed in the complaints regarding breaches of customer privacy of customer privacy and losses of Report in the reporting period. customer data. АСПЕКТ: СООТВЕТСТВИЕ ТРЕБОВАНИЯМ PR9 Monetary value of significant Annex 2. Performance 138 No significant fines concerning the provision and fines for noncompliance with laws indicators disclosed in the use of products and services were imposed on the and regulations concerning the Report Company in the reporting period. provision and use of products and services.

LEGEND AND NOTES * The Company considers it necessary (in accordance with «A» G3 Application Level) to explain its decisions regarding presentation of data or information on the G3 indicators. In some cases a brief information on the indicators or a reference to additional sources that may be useful to the reader are also included.

- fully disclosed in the Report, - partially disclosed in the Report, not disclosed in the Report, - additional indicators

138 Annex 3. Terms and Definitions

TERM/ABBREVIATION DEFINITION/EXPANSION USEFUL LINKS ANNEX 12 3 AA1000 (AccountAbility 1000) A series of standards developed by AccountAbility and addressing stakeholder engagement, http://www.accountability21.net/default. sustainability reporting, and independent assurance of sustainability reports. aspx?id=228 3. http://www.urbaneconomics.ru/texts. php?folder_id=202&mat_id=104&page_ id=8555 Accident Disruption of structures and/or technical equipment used at a hazardous industrial facility; uncontrolled explosion and/or release of hazardous substances. AccountAbility The Institute of Social and Ethical AccountAbility, the developer of AA1000 series of standards, http://www.accountability21.net/ is an international non-profit organization established in the United Kingdom in 1995. Members of AccontAbitiliy include leading companies, as well as NGOs, research institutions, consultancies, and individuals from all over the world. AccountAbility's goal is to promote accountability of organizations for sustainable development. Additives Substances, small amounts of which are added to fuels, motor and industrial oils in order to improve their performance characteristics. GRI Global Reporting Initiative, an independent non-profit organization with the mission of http://www.globalreporting.org/ development and worldwide promotion of common sustainability reporting principles, relying mainly on the Sustainablity Reporting Guidelines. Created in 1998, the organization with headquarters in Amsterdam is governed by multiple stakeholders from all over the world.

AA1000 (AccountAbility 1000) A series of standards developed by AccountAbility and addressing stakeholder engagement, http://www.accountability21.net/default. sustainability reporting, and independent assurance of sustainability reports. aspx?id=228 http://www.urbaneconomics.ru/texts. php?folder_id=202&mat_id=104&page_ id=8555 Accident Disruption of structures and/or technical equipment used at a hazardous industrial facility; uncontrolled explosion and/or release of hazardous substances. AccountAbility The Institute of Social and Ethical AccountAbility, the developer of AA1000 series of standards, http://www.accountability21.net/ is an international non-profit organization established in the United Kingdom in 1995. Members of AccontAbitiliy include leading companies, as well as NGOs, research institutions, consultancies, and individuals from all over the world. AccountAbility's goal is to promote accountability of organizations for sustainable development. Additives Substances, small amounts of which are added to fuels, motor and industrial oils in order to improve their performance characteristics. API American Petroleum Institute, a US non-governmental organization conducting research of http://www.api.org/aboutapi/ the oil and gas sector. Assets, enterprises In the context of this report, subsidiary companies of JSC Gazprom Neft

139 12 3 Associated (petroleum) gas, APG Mixture of various gaseous hydrocarbons dissolved in oil and released in the process of oil extraction. Basic indicators of RSPP Indicators proposed by the document Guidelines for Using Basic Indicators of Companies' http://www.rspp.ru/Default. Performance in Corporate Non-Financial Reporting (2007 version, draft), developed by aspx?CatalogId=283&d_no=1810

ANNEX the RSPP Department of Social Policy and Labor Relations for the purpose of reporting in accordance with the Social Charter of Russian Business. Charitable activities Voluntary activities aimed at non-profit (free of charge or at a reduced rate) transfer of property, including monetary resources, performance of work, provision of services and other 3. support to individuals and organizations. Company In this Report the Company means JSC Gazprom Neft with all its subsidiary companies. Corporate communications Interactions, including information exchange, between the Company and its stakeholders. Corporate responsibility A way of doing business wherein a company manages its economic, environmental, and social risks and opportunities on the basis of systematic stakeholder engagement. Environmental expenses Operating and capital expenses on reduction (prevention) of environmental impacts, including cleaning of waste gases, wastewater treatment and waste management, and fees for environmental pollution within and beyond established limits. FFMS of Russia Federal Financial Markets Service of the Russian Federation http://www.fcsm.ru/ G3 Guidelines The third version of the GRI Sustainability Reporting Guidelines. G3 Guidelines provide http://www.globalreporting.org/ guidance on sustainability reporting (i.e. reporting that covers social, economic and ReportingFramework/G3Online/ environmental aspects of organization's performance). G3 Indicator Protocols A part of GRI Reporting Framework, additional documents providing methodological guidance http://www.globalreporting.org/ on calculation and interpretation of indicators proposed by the G3 Guidelines. ReportingFramework/G3Online/ GRI Application Levels The levels reflecting the extent to which the G3 Guidelines and associated Protocols have been http://www.globalreporting.org/ applied in preparing a report. ReportingFramework/G3Online/ Head Office JSC Gazprom Neft, the managing company HSE Health, safety and environment IPIECA International Petroleum Industry Environmental Conservation Association, an organization http://www.ipieca.org/ providing platform for communication of oil and gas industry with international organizations, including the UN, on social and environmental issues. IPIECA/API Guidance Oil and Gas Industry Guidance on Voluntary Sustainability Reporting developed by IPIECA/API, http://www.oilandgasreporting.com/ 2005 version. ISO 14001 Environmental Management Systems – Requirements with Guidance for Use (2004 version), one of the most widely used environmental management standards developed by the International Organization for Standardization. ISO 9001 Quality Management Systems – Requirements (2000 version), one of the most widely used standards in the field of products and services quality management, developed by the International Organization for Standardization. JSC Joint Stock Company KPI Key performance indicator

140 12 3 LLC Limited Liability Company Material topics Aspects that reflect significant economic, environmental and social impacts of the Company and/or can significantly affect valuations and decisions of key stakeholders groups. Within the framework of Gazprom Neft's reporting process material topics are identified by the Working

Group. ANNEX MBO Management by Objectives MICEX Moscow Interbank Currency Exchange 3. NGK Oil and gas company NGO Non-governmental organization

NOX Nitrogen oxides OHS Occupational health and safety OHSAS 18001 Occupational Health and Safety Management Systems – Requirements, a part of the Occupation Health and Safety Assessment Series (2007 version), one of the most widely used occupational health and safety management standards. Oil recovery factor Ratio of produced amount of oil to overall (geological) reserves Ozone-depleting substances Substances listed in the Montreal Protocol on Substances That Deplete the Ozone Layer to the Vienna Convention for the Protection of the Ozone Layer. Personnel expenses All kinds of payments to the personnel, and all capital and operating expenses on social assistance to the personnel (except for expenses on personal protective equipment). PPE Personal Protective Equipment Primary energy consumption Consumption of fuel plus consumption of heat and electricity normalized to the amount of fuel necessary for their production. The evaluation method used in preparing this Report was based on the RSPP Basic Indicators methodology. Produced water Water contained in oil-bearing formations being developed, a by-product of oil extraction. Report Gazprpom Neft's Sustainability Report for 2007 (this Report), a public document disclosing information of the Company's sustainability performance for the reporting period. Responsible development A concept combining “corporate responsibility” and “sustainable development” RSPP The Russian Union of Industrialists and Entrepreneurs http://www.rspp.ru/ RUB Russian rubles SDC Subsidiaries and dependent companies

SO2 Sulphur oxide (IV) Stakeholders All individuals and organizations who are interested in the Company's performance, affect it, or can be affected by it. Substantial / category incident Failure of or damage to technical equipment used at a hazardous industrial facility, or deviation from established process conditions, in case such event falls into a category defined by the existing standards or regulations.

141 12 3 Significant fines Fines exceeding 1% of annual turnover of the enterprise they are imposed on. Significant non-financial sanctions Non-financial sanctions by regulatory bodies that may result in substantial (more than 1%) changes in revenue or output of the enterprise on which they were imposed.

ANNEX Sustainability reporting Systems and processes for collection, consolidation, checking, and analysis of information and data on the range of material topics. Sustainable development The development whose goal is to “meet the needs of the present without compromising the 3. ability of future generations to meet their own needs.” [World Commission on Environment and Development. Our Common Future. Oxford: Oxford University Press, 1987, p.43. (Cited from the G3 Guidelines)]. Thermostatic equipment Equipment for maintaining a constant temperature UNESCO The United Nations Educational, Scientific and Cultural Organization http://www.unesco.org/ US GAAP Generally Accepted Accounting Principles in the United States, also used is some other countries. VOC Volatile organic compounds

Working Group A coordinating group comprising managers of various business functions of JSC Gazprom Neft. The objectives of the group include improvement of the responsible development reporting system, and systematization of stakeholder engagement activities.

142 CONTACT INFORMATION AND FEEDBACK

The Company considers it very important to receive your feedback regarding all topics presented in this report. Indeed, the Company will not be able to improve its performance without your suggestions and comments.

You may reach us to express your opinion regarding the Report’s content or to ask a question of interest to you by telephone or regular mail, email or fax, using the following contact information:

JSC Gazprom Neft 125 A, Profsoyuznaya Street, Moscow 117647, Russia. Tel.: +7 (495) 777-3152, 777-3184 Fax: +7 (495) 777-3151, 777-3164 Office of Social Security of the Human Resources Department [email protected]

Other contact information is available at the following page of the Company’s website: http://www.gazprom-neft.com/contacts/

You can also send us an electronic message using the Company’s feedback webpage: http://www.gazprom-neft.ru/feedback/

Questions and comments we receive will be taken into account in the reporting process and will be reflected in the Company’s subsequent reports. www.gazprom-neft.ru