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Global Company — Global Future Annual Report 2019 Annual Report 2019 2 | 3 Contents 2019 HIGHLIGHTS MANAGEMENT AND CORPORATE GOVERNANCE 55 Letter to Shareholders . 4 Corporate Governance System . 55 NOVATEK 25 years . 8 General Meeting of Shareholders . 55 Hydrocarbon Reserves . 10 Board of Directors . 56 Key Events and Achievements . .. 12 Board Committees . 57 Yamal LNG . 14 Management Board . 59 Arctic LNG 2 . 16 Remuneration to Members of the Board of Directors Cryogas-Vysotsk . 17 and Management Board . 60 Strategic Priorities . .18 Internal Control and Audit . 60 Business Model . 19 Share Capital . 62 Key Indicators . 20 Dividends . 62 Geological Exploration and Production . 22 Information Transparency . 62 Processing of Gas Condensate . 24 Natural Gas Sales . 25 ADDITIONAL INFORMATION LNG Sales . 26 Liquid Hydrocarbons Sales . 28 Risk Management System . 65 Environmental and Social Responsibility . 30 Risk Insurance . 72 Corporate Governance . 32 Information on Members of NOVATEK’s Board of Directors . 72 REVIEW OF OPERATING RESULTS Information on Members of NOVATEK’s Management Board . 75 Licenses . 34 Report on major, and interested-party transactions Hydrocarbon Reserves . 35 that the Company did in the reporting year . 77 Geological Exploration . 36 Corporate Governance Code Compliance Report . 78 Field Development . 38 Forward – looking Statements . 96 Hydrocarbon Production . 38 Terms and Abbreviations . 97 LNG Projects . 39 Conversion Factors . 97 Processing of Gas Condensate . 42 IFRS Consolidated Financial Statements for 2019 . 98 Natural Gas Sales . 43 Contact Information . .. 222 Liquid Hydrocarbons Sales . 45 ENVIRONMENTAL AND SOCIAL RESPONSIBILITY Environmental Protection . 46 Industrial Safety and Occupational Health . 48 Human Resources . 50 Social Policy and Charity . 51 NOVATEK Global Company — Global Future Letter to Shareholders DEAR SHAREHOLDERS, We celebrated our 25th anniversary in 2019. It marked an bln incredible journey over the past quarter of a century, as boe we transformed from providing natural gas to the Russian domestic market to a global LNG player delivering natural gas to 28 countries . Over the years, we have built unique facilities for exploration, production, processing and marketing of natural gas and liquid hydrocarbons in the prolific Yamal-Nenets Autonomous Region, one of the Total proved hydrocarbon reserves (SEC) as of largest natural gas basins in the world . 31 December 2019 We have become the largest independent natural gas producer in Russia and 3rd largest globally public holder of proven natural gas reserves(1), and, in late 2017, entered the global LNG market by successfully launching and ramping rates of returns . A high quality, long life resource up the Yamal LNG project . base combined with a low cost operating model represents our biggest competitive advantage vis-à-vis our global industry competitors . In 2019, all three liquefaction trains at Yamal LNG operated above the nameplate capacity of 16 5. million tons per annum, highlighting the ” exceptional performance of Yamal LNG relative to global LNG projects . The facility loaded and Our 25th anniversary marked dispatched 253 cargos or 18 4. million tons of LNG, an incredible journey over the representing approximately 5% of the global LNG output, as well as 42 shipments of gas conden- past quarter of a century, as sate totaling 1 .2 mln tons . Yamal LNG has truly we transformed from providing been a tremendous success story for us, and now represents the industry’s gold standard for natural gas to the Russian project execution and operational performance . domestic market to a global LNG Historically, LNG consumption has doubled every player delivering natural gas to decade since 1980’s, and we believe this posi- 28 countries. tive trend will remain in place for the foreseeable future . When we went public in 2005 there were 15 countries importing LNG . In 2019, 43 coun- “ tries were now importing LNG and recent market forecasts predict this number will reach 57 by 2030 . We have an outstanding opportunity to capture market share and emerge as one of the We made incredible strides in our strategy to leading suppliers of global LNG . We want to be transform NOVATEK into a global gas player . We at the forefront of the next wave of global LNG have built a natural gas platform both domesti- projects . cally and now internationally with our LNG project that is one of the most cost-competitive in the industry . Today, being a low-cost supplier means we can deliver one of the lowest landed costs to all consuming markets and generate suffi- cient cash flows, profitability and high project 1. Under the Security and Exchange Commission (SEC) reserves methodology . Annual Report 2019 4 | 5 By the end of 2019, Yamal LNG had all of the 15 significantly reduces emissions during transport . The Arc7 ice-class tankers in operation . Our ice-class presence of all 15 ice-class tankers creates additional tanker fleet can ship all of the LNG produced opportunities from 2020 for optimizing the project’s logis- given the increased performance of three LNG tics both westbound and eastbound, including the more trains and the planned launch of the fourth train . extensive use of the Northern Sea Route . All our tankers use LNG as a fuel, which we believe mmt of LNG Yamal LNG loaded and dispatched in 2019 Alexander NATALENKO Leonid MIKHELSON Mark GYETVAY Chairman of the Board Chairman of the Management Deputy Chairman of Directors Board of the Management Board NOVATEK Global Company — Global Future tankers RR bln By the end of 2019, Yamal LNG had all 15 Total revenues in 2019 Arc7 ice-class tankers in operation In 2019, we successfully launched Cryogas-Vysotsk, our Our large, high quality, low-cost resource base in the first medium-scale LNG project in the port of Vysotsk on hydrocarbon-rich Yamal and Gydan peninsulas under- the Baltic Sea in the Leningrad Region . We see good pros- lies our ambitious growth strategy . In 2019, we successfully pects in using LNG as marine fuel with the introduction of expanded our resource base through exploration works IMO 2020, as well as motor fuel to substitute for fuel oil and as well as obtaining new mineral licenses in YNAO . Large diesel, which will contribute to decreasing emissions and geological discoveries in reserves appraised under inter- improving the environment . national reserve standards will contribute significant hydrocarbon resources to NOVATEK’s future large-scale LNG projects in the Arctic zone and ensure the mainte- nance of natural gas production levels delivered into the domestic pipeline network . NOVATEK’s total SEC proved reserves aggregated ” 16,265 million boe, including 2,234 billion cubic meters (bcm) of natural gas and 193 million tons of liquid hydrocarbons as In 2019, we made the final of 31 December 2019 . The organic reserve replacement rate, investment decision on our excluding the effect from acquisitions and disposals, which mainly related to the disposal of the 40% participation second major project, Arctic interest in Arctic LNG 2 project, amounted to 252%, with LNG 2, as well as closed the the addition of 1,487 million boe, inclusive of 2019 production . sale of participation interests We had a very successful year operationally . Our hydro- in the project to TOTAL, CNPC, carbon production totaled 589 9. million boe, including 74 .7 bcm of natural gas and 12,148 thousand tons of liquids CNOOC, and the Mitsui and (gas condensate and crude oil), resulting in an increase in JOGMEC consortium, at 10% total hydrocarbons produced by 40 .8 million boe, or by 7 4%. as compared with 2018 . The increase was mainly attrib- each. uted to natural gas growth production from Yamal LNG and launch of new production wells at the Beregovoy license “ area . We achieved record sales volumes this past year . Natural gas sales volumes, including volumes of LNG sold, aggre- gated 78 45. bcm in 2019, representing an increase of 8 .8% as compared with the prior year period . Natural NOVATEK is creating an LNG platform on the gas volumes sold in the Russian Federation were 65 .65 Yamal and Gydan peninsulas, with the aim of bcm, whereas LNG volumes sold on international markets becoming one of the largest LNG producers amounted to 12 .80 bcm . globally . In 2019, we made the final investment decision on our second major project, Arctic In 2019, our revenues increased by 3 .7% to RR 863 bln and LNG 2, as well as closed the sale of participa- our normalized EBITDA increased by 11 0%. to RR 461 bln, tion interests in the project to TOTAL, CNPC, while our normalized profit(1) increased by 5 .2% to RR CNOOC, and the Mitsui and JOGMEC consortium, 245 bln . Based on the Company’s financial results, the at 10% each . In 2019, the construction of a gravi- Board of Directors recommended to the General Meeting ty-based platform for the first train of LNG plant of Shareholders to approve dividends for 2019 at RR 32 33. of Arctic LNG 2 was commenced at our LNG per share, exceeding the dividend paid out for the previous construction center in Murmansk Region . year by 24 1%. 1. Normalized profit attributable to shareholders of PAO NOVATEK excluding the effect of foreign exchange gains (losses) . Annual Report 2019 6 | 7 We will develop the whole natural gas value chain to We believe natural gas is an important contributor to enhance the competitive advantages of our scalable achieve climate change goals. Our long-term goal to low-cost LNG projects. NOVATEK’s strategy as a natural increase our LNG production up to 70 million tons per gas and LNG producer implies greater involvement in annum by 2030 is fully consistent with the Paris Climate further developing natural gas as a motor fuel both in Agreement, ratified by the Russian Federation in September Russia and abroad. In December 2019, NOVATEK Polska(2), 2019.

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