Material Flows of Oil and Petroleum Products

Home , Novy Urengoy, Noyabrsk, Pechora Sea, Tazovsky District

OVERVIEW OF RESULTS MATERIAL FLOWS OF OIL AND PETROLEUM PRODUCTS

SALES OF GAS, PURCHASE OF OIL GAS SALES CRUDE OIL SALES PURCHASE PREMIUM OIL AND OIL IN RUSSIA IN RUSSIA4 IN RUSSIA OF PETROLEUM SALES CONDENSATE1 PRODUCTS IN RUSSIA

11.04 FS (retail motor fuel sales) mn TOE mn t3 mn TOE2 mn t mn t mn t 27.32 17.33 7.34 11.15 5.57 3.76 26.13 8.97 Petroleum storage depots (small-scale wholesale of motor fuels) mn TOE2 (13.89 bn m3) 2.83 Jet fuel (small-scale wholesale of jet fuel) bn m3 GAS (34.02 ) PRODUCTION2 2.71 Bunkering (small-scale wholesale of marine fuel) Russia 0.29 Oils and lubricants (sale of reﬁned premium oils) 26.90 mn TOE² (33.50 bn m3) 0.29 Bitumen (sale of premium bitumen products)5 International market

0.42 mn TOE² (0.52 bn m3)

HYDROCARBON PETROLEUM 4.02 4 mn t PRODUCTION PETROLEUM PRODUCT BALANCE PRODUCT OUTPUT CONDENSATE Russia PRODUCTION 3.98 mn t 89.75 38.63 43.68 International market MN TOE MN T MN T 0.04 mn t

58.41 mn t

Russia OIL PRODUCTION 56.18 mn t 1.63 mn t 20.96 mn t 0.09 mn TOE² 1.29 mn t 17.55 mn t 3 International market (0.11 bn m ) 2.23 mn t

PURCHASE OF OIL CRUDE OIL SALES GAS SALES PURCHASE DIRECT ON THE INTERNATIONAL ON THE INTERNATIONAL ABROAD OF PETROLEUM WHOLESALE MARKET MARKET PRODUCTS ABROAD

1 — Sales by the joint ventures Northgas, Arcticgas, and SeverEnergy, 2 — Conversion ratio bn m3 to mn TOE equal to 0.803. 3 — Includes the purchase of stable gas condensate from Novatek amounting to 25% of the production of Arcticgas. 4 — Taking into account internal consumption / changes in balances. 5 — Polymer-bitumen binders and bitumen emulsions. GAZPROM NEFT І ANNUAL REPORT І 2017 50 // 51

GAZPROM NEFT’S OPERATIONAL MODEL IS BASED ON THE NOTION OF VERTICAL INTEGRATION. ENGAGING IN ACTIVITIES THAT ARE PART OF THE ENTIRE PRODUCTION CHAIN SUCH AS GEOLOGICAL EXPLORATION, THE DEVELOPMENT OF OIL FIELDS, PRODUCTION, REFINING, AND THE SALE OF OIL AND PETROLEUM PRODUCTS ENSURES THE COMPANY’S SUSTAINABILITY AND HELPS TO IMPROVE EFFICIENCY IN THE FUTURE.

SALES OF GAS, PURCHASE OF OIL GAS SALES CRUDE OIL SALES PURCHASE PREMIUM OIL AND OIL IN RUSSIA IN RUSSIA4 IN RUSSIA OF PETROLEUM SALES CONDENSATE1 PRODUCTS IN RUSSIA

0.42 mn TOE² (0.52 bn m3)

HYDROCARBON PETROLEUM 4.02 4 mn t PRODUCTION PETROLEUM PRODUCT BALANCE PRODUCT OUTPUT CONDENSATE Russia PRODUCTION 3.98 mn t 89.75 38.63 43.68 International market MN TOE MN T MN T 0.04 mn t

58.41 mn t

Russia OIL PRODUCTION 56.18 mn t 1.63 mn t 20.96 mn t 0.09 mn TOE² 1.29 mn t 17.55 mn t 3 International market (0.11 bn m ) 2.23 mn t

PURCHASE OF OIL CRUDE OIL SALES GAS SALES PURCHASE DIRECT ON THE INTERNATIONAL ON THE INTERNATIONAL ABROAD OF PETROLEUM WHOLESALE MARKET MARKET PRODUCTS ABROAD OVERVIEW OF RESULTS RAW MATERIALS BASE AND PRODUCTION

RAW MATERIALS BASE

2013 2014 2015 2016 2017 The resource base of the Company’s current assets has deteriorated PRMS HYDROCARBON RESERVES in terms of the remaining commercial OF THE GAZPROM NEFT GROUP reserves as most fieldsare in a late (MN TOE) stage development. An increase Source: Company data in high-tech drilling and the use of tertiary methods for boosting oil recovery has enhanced the efficient Total 3,212 3,639 3,875 3,908 4,022 development of these reserves. The Company’s reserves are audited Developed 517 639 680 726 719 according to PRMS-SPE standards Undeveloped 827 804 838 788 803 Proven 1,343 1,443 1,518 1,514 1,522 and the more conservative SEC Probable 948 1,112 1,181 1,205 1,259 standards. Based on the report Proven + probable 2,291 2,555 2,699 2,719 2,781 of DeGolyer and MacNaughton’s Possible 922 1,084 1,176 1,189 1,240 independent engineers, total proven and probable hydrocarbon reserves (including the Company’s

Discovery of the Neptune field

AYASHSKY Commissioning in 2025–2027 LICENSED AREA part of the Sakhalin-3 project

Yuzhno-Sakhalinsk 255 80 6 Sakhalin MN TOE MN TOE MN TOE GEOLOGICAL RECOVERABLE PER YEAR AT PEAK Paciﬁc Ocean RESERVES RESERVES PRODUCTION

In October 2017, Gazprom Neft Shelf LLC discovered The quality of the oil that was obtained and the results a new hydrocarbon field after drillingand testing of the well tests suggest that the field can be successfully a prospecting and appraisal well at the Ayashsky developed. license area on the shelf of the Sea of Okhotsk, 55 km from the coast of Sakhalin Island. The field was given The geological reserves of Neptune are estimated the name ‘Neptune’. at 255 million TOE, recoverable reserves could reach as much as 70-80 million TOE, and production could The field was one of the top discoveries of the year. peak at around 5-6 million TOE per year. Existing road For the Company, it provided an opportunity to enter a new maps indicate the Neptune field could be commissioned region and marked the next step in offshore development. in 2025-2027. GAZPROM NEFT І ANNUAL REPORT І 2017 52 // 53

“The Company continues to prioritize improvements to the quality of new reserves, active work to study low permeable reservoirs, and the implementation of a programme to enhance production efficiencyin the traditional regions”. Vadim Yakovlev First Deputy CEO of Gazprom Neft PJSC

stake in the reserves of affiliates MOVEMENT OF PROVED RESERVES IN 20171 (MN TOE) accounted for using the equity Source: Company data method) amounted to 2.781 billion TOE (1.875 billion tonnes of oil, 48 1,522 Revision of previous estimates 3 1,514 88.40 1.128 trillion m of gas), excluding NIS, in 2017 (mn TOE) as of 31 December 2017. 50 Gazprom Neft 23 In 2017, the Group obtained Tomskneft 3 the right to develop the Tazovskoye Slavneft 7 Salym Petroleum 3 field (recoverable reserves Messoyakhaneftegaz 4 of 72 million tonnes of oil, Arcticgas 18 4.6 million tonnes of condensate, Northgas (8) 3 and 183.3 billion m of gas) 2016 Hydrocarbon Revision Acquisition/sale 2017 Total 50 production of previous of licenses and the North Samburgskoye field estimates (recoverable reserves of 90.5 million tonnes of oil) in the Yamalo-Nenets Autonomous District. 1 — Data does not include NIS reserves.

Electronic Asset Development (EAD)

Technology A.1 100–200 +15% –12% SAMPLES INCREASE IN THE SERVICE REDUCTION IN ENERGY COSTS TO BE INCLUDED IN THE FULL BASE LIFE OF WELL EQUIPMENT DUE TO THE INTRODUCTION OF THE DIGITAL CORE AS A RESULT OF EAD OF EAD

Electronic Asset Development (EAD) is a development The Company also utilizes GeoMate, a platform used strategy for Gazprom Neft’s IT projects in exploration to analyse and process all geological and geophysical and production. information on fields. The ‘Digital Core’1 project will be implemented on its core. It will make it possible Nine IT projects were implemented in 2017 and more to use machine learning to build 3D models of a core than 30 are in the development stage. The projects that on which mathematical experiments can be conducted, were implemented include ERA: ISKRA (an integrated thus reducing the need for lengthy laboratory research. design system that helps to make decisions on field development), ERA: GRAD (a digital workstation for field development engineers), ERA: VEGA (a platform 1 — The core is a sample of rock, usually in the form of a cylindrical column, which for the probabilistic geological and economic valuation is extracted from a well using a special type of drilling. It allows for studying of stocks and assets), and ERA. REPAIRS (automated well the rocks cut by a borehole and determine the mineral reserves. For this purpose, the core is subjected to chemical, spectral, petrographic, and other analyses repair control). in a laboratory. OVERVIEW OF RESULTS

Licenses were also obtained The Group also acquired a 25.02% for the Novosamarskoye stake in the company Evrotek-Yugra, fieldin the Orenburg Region, which owns seven exploration Total proven and the Parabelsky exploration site and production licenses in the Khanty- probable hydrocarbon in the Tomsk Region, the Ayashsky Mansi Autonomous District-Yugra, reserves in 2017 section on the shelf of the Sea from the Spanish company Repsol of Okhotsk (where the new Neptune and has the right to increase this stake field was discoveredwith estimated to 50%. geological reserves of roughly 255 million TOE), and the West Exploratory drilling at the Group’s 2.781 Chistinny section in the Khanty-Mansi subsidiaries resulted in the discovery Autonomous District-Yugra. of 31 new hydrocarbon deposits BN TOE and 4 new fields, namely: The average size of the discoveries the Alexander Zhagrin field in 2016-2017 expanded to 26 million (Khanty-Mansi Autonomous tonnes of production potential, which District-Yugra), Novozarinskoye is several times higher compared (Orenburg Region) as well as Kumane with 2010-2015. These achievements and Begeytsy-X in Serbia. Tomskneft are largely due to the introduction discovered the Melimovskoye field of new geological exploration (Tomsk Region). approaches and technologies.

“Today we are creating road maps Cognitive technologies for the transformations that Technology A.2 are changing the actual paradigm of the field:from the automation of processes to their intellectualization, where most –75% of the work is performed by artificial intelligence”. TIME SAVED Maxim Shadura ON INFORMATION ANALYSIS Head of the Information Technologies, Automation, and Telecommunications Office of the Upstream Unit of Gazprom Neft PJSC

Cognitive technologies involve the use of artificial into account all possible risks and uncertainties intelligence and the analysis of big data to solve in the input data. production problems. Gazprom Neft not only seeks out such technologies on the market, but also develops Machine learning in drilling offers enormous potential. its own unique products. One of the main tasks that Gazprom Neft specialists are working on is to create a digital assistant that For example, at present a geologist spends more than will collect all the information from sensors located 70% of the time required to assess a fieldon processing both on the drilling rig and on underground drilling data. The ‘Cognitive Geologist’ project involves creating equipment in real time, analyse this information, and draw a self-learning model for a geological object. This will conclusions about drilling conditions along the entire reduce the analysis time from two years to several wellbore. This will help take the efficiencyof drilling months, create thousands of options for developing management to a new level. the field,and choose the best one. In addition, it takes GAZPROM NEFT І ANNUAL REPORT І 2017 54 // 55

OIL AND GAS PRODUCTION

2013 2014 2015 2016 2017 Hydrocarbon production, including stakes in joint ventures, increased HYDROCARBON PRODUCTION by 4.1% to 89.75 million TOE (MN TOE) in 2017. The biggest contribution Source: Company data to the increased production came from the development of new major projects in the Arctic zone of the Russian Federation – Including stakes in affiliated companies, total 62.3 66.3 79.7 86.2 89.8 the Novoportovskoye, East Messoyakha, and Prirazlomnoye Gazprom Neft1 52.4 53.8 55.4 59.9 63.3 fieldsas well as in Iraq. As a whole, Slavneft2 8.7 8.4 8.1 7.9 7.5 the Group increased daily hydrocarbon Arcticgas2 1.2 3.5 12.1 13.5 13.5 Northgas2 – 0.5 4.1 4.6 3.8 production (in thousands of tonnes Messoyakhaneftegaz2 – – – 0.4 1.6 of oil equivalent) by 4.4% YoY. Average daily hydrocarbon production by the Gazprom Neft Group (1,000 TOE per day) 170.6 181.5 218.3 235.5 245.9

1 — Consolidated companies. 2 — Share in production.

“Information technologies Upstream Control Centre are significantly changing modern Technology B.4 production, and digital transformation is already providing Gazprom Neft with an objective competitive Up to 15% advantage”. Alexander Dyukov REDUCTION IN OPERATING COSTS CEO of Gazprom Neft PJSC

The Upstream Control Centre (UCC) opened in November Testing is now close to being completed 2017 at the subsidiary Gazpromneft-Khantos, combining on the ‘Digital Twin’ systems for maintaining reservoir all previously developed solutions to improve production pressure, energy supply, and the treatment and utilization efficiency. of associated gas. According to preliminary estimates, the system cut losses by half and operating costs by 15%. One of the key systems at the UCC is the ‘Digital Twin’ In the future, Gazprom Neft plans to open upstream process for mechanical fluid lifting. It automatically control centres at other subsidiaries. selects the optimum operational modes and forecasts breakdowns and failures. All the information can be displayed both at the work stations of specialists and on a video wall. As a result, the team can quickly make decisions and monitor how they are performed. OVERVIEW OF RESULTS

OIL PRODUCTION

2013 2014 2015 2016 2017 The Group boosted oil and condensate production OIL PRODUCTION1 by 4.3% YoY to 62.43 million tonnes (MN T) due to increased production Source: Company data at the Novoportovskoye, Messoyakha, and Prirazlomnoye fieldsas well as in Iraq. Based on the results of 2017, the Company ranked third in Russia Including stakes in affiliated companies, total 50.6 52.1 55.7 59.8 62.4 in terms of oil production behind Rosneft and LUKOIL. Gazprom Neft2 42.0 43.0 44.0 47.7 49.6 Slavneft3 8.4 8.1 7.7 7.5 7.1 Arcticgas3 0.2 0.9 3.4 3.8 3.7 Last year, Gazprom Neft launched Northgas3 – 0.1 0.5 0.5 0.4 commercial operations at two major Messoyakhaneftegaz3 – – – 0.4 1.6 fields – Novoportovskoyeand East Average daily hydrocarbon production by Messoyakha, which continue to develop the Gazprom Neft Group (1,000 TOE per day) 138.6 142.6 152.5 163.5 171.0 at present. In addition, the Company will begin to develop the North 1 — Including gas condensate. Samburgskoye and Tazovskoye fields 2 — Consolidated companies. 3 — Share in production. in the near future. The infrastructure created in the region will allow for the development of neighbouring For more on the East Messoyakha field, For more on the East Novoportovskoye field, fields that have both allocated see the ‘Establishing technological leadership; see the ‘Establishing technological leadership; section, p. 28 section, p. 30 and unallocated subsoil resources.

High-tech drilling

Technology B.5 853 524 76 WELLS WELLS MULTI-HOLE WELLS SUPPORTED BY THE UCC IN 2017 BUILT WITH MSHF IN 2017 DRILLED IN 2017

Gazprom Neft has had a Drilling Control Centre (DCC) In addition, the Company has employed since 2012.4 the ‘Technical Limit’ programme to improve drilling efficiency since 2014. Itis based on the principle In 2017, it supported the construction of more than of continuously improving well construction. This requires 850 wells. Now the Centre has four round-the-clock the development of leadership among employees shifts. Two of them constantly update geological and the dissemination of best practices among all mining models of wells, while the other two are responsible enterprises. The goals of the three-year programme until for updating engineering calculations. If necessary, 2018 are a 30% reduction in the construction cycle, a 20% the Company hires specialized experts on drilling decrease in capital expenditures, and a 50% decrease and grouting mortars, well completion, hydraulic in LTIF. 5 Most of the goals for 2017 were fulfilled. fracturing, coiled tubing, and control of the well path, 4 — The DCC supports more than 60% of the total volume of high-tech well drilling among other things, from the drilling and downhole at the Company. 5 — Lost time injury frequency (LTIF) – the frequency of injuries with temporary drilling work unit. disability for 1 million man-hours. GAZPROM NEFT І ANNUAL REPORT І 2017 56 // 57

GAS PRODUCTION

The Group increased gas production by 3.7% compared with 2016, primarily The Company is actively developing as a result of an increase in the utilization of APG with the launch of a complex gas its gas business with a focus treatment unit at the Novoportovskoye fieldand the commissioning of a compressor on commercializing the reserves station at the Ety Purovskoye fieldin the fourth quarter of 2016. In addition, of associated and natural gas the production of natural gas increased in the Noyabrsk region. produced at fieldsand increasing its value. The development of small gas deposits that make up larger fieldsat which Gazprom Neft operates will further enhance 2013 2014 2015 2016 2017 the cost-effectiveness of the utilization of the Company’s reserves and help GAS PRODUCTION1 (BN M3) increase hydrocarbon production to 100 million TOE per year, Source: Company data as envisioned by the Company’s Development Strategy until 2025.

Including stakes in affiliated companies, total 14.5 17.7 29.9 32.8 34.0

Gazprom Neft2 12.9 13.4 14.1 15.2 17.0 Slavneft3 0.4 0.4 0.5 0.5 0.4 Arcticgas3 1.2 3.3 10.8 12.1 12.2 1 — Consists of commodity gas and gas used for internal Northgas3 – 0.5 4.5 5.1 4.3 needs. 3 2 — Consolidated companies. Messoyakhaneftegaz – – – 0 0.1 3 — Share in production.

Soda-surfactant polymer flooding (ASP)

Technology В.6 172 67% –70% MN T OIL RECOVERY FACTOR DECREASE IN THE COST POSSIBLE ADDITIONAL PRODUCTION AT THE PILOT ASP SITE OF RUSSIAN-PRODUCED SAS AT 10 SITES COMPARED WITH IMPORTED SAS

This is a chemical-based method for enhancing oil Pilot projects were launched at the Western recovery from fieldsin the late stage of development Salymskoye and Kholmogorsksoye fieldsin 2016 due to the injection of a mixture of surfactants, soda, and at the East Messoyakha field in 2017. For the first and polymer into the formation. time in Russia, 11 new surfactants have been synthesized that are capable of replacing foreign analogues. The RosSurfactant project that Gazprom Neft The successful completion of testing will enable is implementing with its partners (Salym Petroleum the Company to transition to the commercial introduction Development, Norkem, and Tyumen State University) of the technology in Western Siberia. According aims to create an efficient mixture for production to preliminary calculations, additional oil production in Russia. will amount to 172 million tonnes with its introduction at the Company’s largest 10 facilities. OVERVIEW OF RESULTS

RUSSIAN PROJECTS

100%

PRIRAZLOMNOYE Naryan-Mar

50% 90%

MESSOYAKHA (EMLS) Salekhard NOVY PORT

Share of Gazprom Neft (%)

NOVY PORT MESSOYAKHA (EMLS) PRIRAZLOMNOYE Yamal Peninsula Tazovsky District of the YNAD Shelf of the Pechora Sea

PRMS1 hydrocarbon reserves (proven + probable), (mn TOE)

203.30 (112.4 + 90.9) 60.09 (12.18 + 47.91) 54.83 (33.67 + 21.16)

Projected capacity (mn t per year) 8.6 5.9 4.9

Hydrocarbon production in 2017 (mn TOE) Oil (mn t) + gas (mn m3) 2018 (forecast)

6.97 (5.951 + 1,264) 1.62 (1.58 + 55) 2.68 (2.64 + 46) 9.89 (6.850 + 3,790) 2.26 (2.19 + 92) 3.64 (3.58 + 72)

2016 2020 2016 2021 2013 2023 Launch Output

In 2017: In 2017: In 2017:

Construction was completed Commissioning of a modular group Construction was completed on 4 wells on 6 Company-owned ice-class tankers pumping station Scheduled work was completed to export oil to European consumers Major decisions were taken to utilize as part of the modernization Commissioning work started in the third APG through flooding of Offshore Ice-Resistant Fixed quarter of 2017 on the first start-up Drilling technologies were successfully Platform (OIRFP) No. 1. facility of a complex gas treatment unit tested and introduced for Fishbone The ‘Arctic 2017’ comprehensive oil spill 3 (CGTU) with capacity of 3.6 billion m wells with cased and uncased holes response exercises were conducted per year and gas utilization was initiated in ice conditions through flooding Hydraulic fracturing was successfully carried out on underlying development A gas turbine power plant was put sites with abnormally high reservoir Plans for 2018: into operation and started generating pressure electricity internally Prepare and implement modernization project No. 2 Plans for 2018: Plans for 2018: Construction of a heliport Commission the second phase Launch construction of an integrated Finish building 2 icebreaking vessels of the Central Gathering Facility for year-round operations offshore support base Launch construction on APG utilization of Ob Bay Implement the projects infrastructure Finish building infrastructure to support of the Poseidon programme oil exports of up to 8.5 mn t per year Select technologies to maximize the oil recovery rate of Eastern Messoyakha Perform key design and survey work on a gas pipeline project Implement the West Messoyakha well testing programme Start commissioning the second start-up facility of the CGTU

1 — Including the Company’s participatory stake in the project. GAZPROM NEFT І ANNUAL REPORT І 2017 58 // 59

100% Salekhard

OTDALENNAYA GROUP OF FIELDS (OGF)

100% 50% Khanty-Mansiysk CHONSKY KUYUMBA

Share of Gazprom Neft (%)

KUYUMBA CHONSKY OTDALENNAYA GROUP Krasnoyarsk Territory Irkutsk Region OF FIELDS (OGF) YNAD

PRMS1 hydrocarbon reserves (proven + probable), (mn TOE) No PRMS estimate of reserves 123.60 (12.0 + 111.60) 78.00 (10.30 + 67.70) was conducted

Projected capacity (mn t per year) 10.8 5.5 1.35

Hydrocarbon production in 2017 (mn TOE) Oil (mn t) + gas (mn m3) 2018 (forecast)

0.13 (0.127 + 4.342) 0.007 0.79 (0.671 + 146) 0.25 (0.242 + 13.1) 0.004 0.80 (0.697 + 133)

2018 2032 2024 2031 2019 2023 Launch Output

In 2017: In 2017: In 2017:

Export duty exemption was obtained Drilling was completed on wells with 2 The preliminary basic integrated Oil started being delivered pilot holes, a workover programme was concept for the project’s development to the Kuyumba-Taishet oil pipeline completed on 4 wells, and hydraulic was approved and the procedure fracturing was completed at 3 wells for a functional expert examination Design work and construction of the concept was successfully was completed on the first phase completed of infrastructure facilities Plans for 2018: An exploration well was drilled Perform the first multi-stage hydraulic conforming the project’s high potential Plans for 2018: fracturing at the project The project was reframed Develop design documentation Launch the full-scale development and an external independent expert of the field to build a road for the year-round implementation of the project examination was completed A feasibility study was conducted Develop the main technical solutions for facilities to equip the Ignyalinskoye for APG flooding fieldfor the period of pilot commercial development Plans for 2018: Implement the first stage Complete the seismic survey of the seismic-geological model programme for the Ignyalinsky license Drill 1 prospecting and appraisal well area and commence work on the seismological model Select a general designer of the Tympuchikansky and Vakunaisky for the project license areas Develop a supply and logistics Attract a partner for the project strategy that is integrated for 2019-2020 OVERVIEW OF RESULTS

RUSSIAN PROJECTS

100%

SEVERO-SAMBURG Salekhard 50%

NORTHGAS Novy Urengoy SEVERENERGY

47%

Share of Gazprom Neft (%)

SEVERO-SAMBURG SEVERENERGY NORTHGAS YNAD Purovsky District of the YNAD Nadymsky District of the YNAD

PRMS1 hydrocarbon reserves (proven + probable), (mn TOE) No PRMS estimate of reserves was conducted 517.90 (329.10 + 188.80) 96.70 (77.60 + 19.10)

Projected capacity (mn t per year) 1.3 14.84 4.95

Hydrocarbon production in 2017 (mn TOE) Oil (mn t) + gas (mn m3) 2018 (forecast)

0.00 (0.00 + 0.00) 13.51 (3.671 + 12,247) 3.83 (0.380 + 4,292) 0.005 (0.005 + 0.00) 14.07 (3.758 + 12,840) 3.23 (0.257 + 3,701)

2021 2023 2012 2017 2001 2015 Launch Output

In 2017: In 2017: In 2017:

The license for the license area was Construction was launched Launch of the commercial operation re-registered from Gazprom Dobycha on oil infrastructure facilities of the Vostochnovo Kupola booster Urengoy LLC to Gazprom Neft of the Yaro-Yakhinskoye field compressor station Seismic operations with increased The Samburgskaya booster compressor production ratios were conducted station was put into commercial operation on an area of 310 km2 at the Samburgskoye oil and gas and an interpretation was made condensate field (OGCF) with the subsequent selection of drilling A commercial inflowof gas condensate targets mixture was obtained from the Ach5-1 Work was completed on the re-opening, formation of the Samburgsky license area hydraulic fracturing, and treatment of an exploratory well. Inflow Plans for 2018: of up to 200 m3/day obtained Ensure the technological readiness of oil infrastructure facilities Total hydrocarbon Plans for 2018: and begin the commercial delivery of oil Update the geological and hydrodynamic from the Yaro-Yakhinskoye field production by Gazprom model based on the results of exploration Start of construction and installation work Neft in 2017 well flowback operations to expand the condensate de-ethanization Drill 2 wells with horizontal shafts unit and the inlet facilities of the CGTU Perform design and survey work to build for the Ach5-1 Samburgskaya CGTU a year-round motorway, oil pipeline, gas Start of construction and installation pipeline, and CGTU at the field work on the Yaro-Yakhinskaya and Urengoyskaya booster compressor stations 89.75 MN TOE 1 — Including the Company’s participatory stake in the project. GAZPROM NEFT І ANNUAL REPORT І 2017 60 // 61

100%

Okha SAKHALIN-B 100% SAKHALIN-A (NEPTUNE)

DOLGINSKOYE 100%

Naryan-Mar

Salekhard

Share of Gazprom Neft (%) Share of Gazprom Neft (%)

SAKHALIN-A (NEPTUNE) SAKHALIN-B DOLGINSKOYE Offshore area of the Sea of Okhotsk Offshore area of the Sea of Okhotsk Offshore area of the Pechora Sea

PRMS1 hydrocarbon reserves (proven + probable), (mn TOE) Appraisal results will be available No estimate by 31 December 2018 No data available conducted

Projected capacity (mn t per year) No data available No data available No data available

Hydrocarbon production in 2017 (mn TOE) Oil (mn t) + gas (mn m3) 2018 (forecast)

– – – – – –

2027 2030 2028 2030 2027 2034 Launch Output

In 2017: In 2017: In 2017:

Construction was completed Engineering and geodesy surveys were 2D seismic exploration conducted on prospecting and appraisal well conducted for the construction of well on 265 linear km No. 1-A No. 1-B 3D seismic exploration conducted Engineering and geodesy surveys were Preparations were initiated on 1,070 square km conducted for the construction of well for the construction of well No. 1-B No. 2-A in 2018 Plans for 2018: Complete the processing Plans for 2018: Plans for 2018: and interpretation of 3D seismic An on-going estimate of the reserves Construction of prospecting exploration data of the Neptune field was performed and appraisal well No. 1 and approved by the State Mineral at the Bautinskaya area Reserves Commission Office processingof engineering and geodesy survey data for the construction of well No. 2-A “We are creating a solid foundation for the future by investing resources in offshore fields. Our unique experience is successfully being utilized in new areas, and the use of the best drilling practices ensures efficient and safe operation”. Andrey Patrushev Deputy CEO for the Development of Offshore Projects of Gazprom Neft PJSC OVERVIEW OF RESULTS

RUSSIAN PROJECTS

100% CHUKOTKA

SILUR-DEVON

PECHORA Anadyr Arkhangelsk

100%

Salekhard

Share of Gazprom Neft (%)

SILUR-DEVON PECHORA CHUKOTKA Offshore area of the Pechora Sea Offshore area of the southern part Offshore area of the East Siberian Sea of the Barents Sea and the Pechora Sea and the Chukchi Sea PRMS1 hydrocarbon reserves (proven + probable), (mn TOE) 8.80 230.00 1,580.00 Projected capacity (mn t per year) No data available No data available No data available

Hydrocarbon production in 2017 (mn TOE) Oil (mn t) + gas (mn m3) 2018 (forecast)

– – – – – –

2024 2026 2031 2035 No data available Launch Output

In 2017: In 2017: In 2017:

Documentation was prepared A contractor completed A concept for the development to contract a contractor to perform 3D work on a feasibility study of potential fields withinthe North-East seismic exploration in 2018 for the development of potential fields license area was completed in the North-West The forecast parameters Plans for 2018: 3D seismic exploration was conducted for the development and characteristics of potential fields were calculated Complete 3D seismic exploration on an area of 425 km2 Plans for 2018: The documentation to contract a contractor to perform 2D seismic Start drafting a concept Complete 3D seismic exploration exploration in 2018 was prepared for development Complete the processing and interpretation of 3D seismic exploration data Plans for 2018: Perform the first phaseof 2D seismic exploration

Yamburg Project In 2017, Gazprom PJSC decided to take part in the development of the oil reserves of the Achimov deposits.

Subsidiaries of Gazprom PJSC and Gazprom Neft PJSC signed short-term contracts for the implementation of the production programme in 2018. The plans for 2018 include implementing a production programme for the re-testing of exploration wells in order to eliminate priority uncertainties as well as the coordination and conclusion of a long-term risk operating agreement between the subsidiaries of Gazprom PJSC and Gazprom Neft PJSC for the development of the Achimov deposits of the Yamburgskoye oil and gas condensate field.

1 — Including the Company’s participatory stake in the project. GAZPROM NEFT І ANNUAL REPORT І 2017 62 // 63

FOREIGN PROJECTS

BARENTS 40% GARMIAN 80% SHAKAL

Baghdad Naryan-Mar 30% BADRA

Salekhard

Share of Gazprom Neft (%) Share of Gazprom Neft (%)

BARENTS BADRA GARMIAN SHAKAL Offshore area of the Barents Sea

PRMS1 hydrocarbon reserves (proven + probable), (mn TOE) 2,200.00 21.27 (9.36 + 11.91) 0.70 (0.0 + 0.70) Projected capacity (mn t per year)

No data available 1.71 1.4

Hydrocarbon production in 2017 (mn TOE) Oil (mn t) + gas (mn m3) 2018 (forecast)

– 1.186 (1.136 + 62.55) 0.167 (0.167 + 0.00) – 1.58 (1.335 + 304.88) 0.42 (0.42 + 0.00)

No data available 2014 2018 2015 2020 Launch Output

In 2017: In 2017: In 2017:

A seismic and facies model of the North- A gas plant and export gas pipeline Work was launched to study a well East part of the Barents Sea was were commissioned and gas supplies at the Shakal block prepared started to Az-Zubaidiyah power plant hydrochloric acid treatment was A basin model of the North-East part 7 production wells were commissioned successfully conducted at the Sarqala of the Barents Sea was prepared active well stock and high-pressure Plans for 2018: and low-pressure separators were Plans for 2018: connected to the well site S-1. Work Complete the construction began to expand the oil treatment unit Perform an assessment of new and commissioning of a second gas technologies treatment line. Plans for 2018: Development of a project for greenfield Complete construction on production work at the site wells Complete the expansion of the oil treatment unit at the Sarqala block and complete drilling of the S-2 well Complete the well workover and launch the pilot operation of the first wellat the Shakal block and endorse the field development plan with the Ministry of Natural Resources of the Kurdistan Autonomous Region Drill subsequent wells at the Sarqala and Shakal blocks OVERVIEW OF RESULTS OIL REFINING

GAZPROM NEFT REDUCED OIL REFINING BY 4.2% IN 2017 AS A RESULT OF MODERNIZATION AND PLANNED OVERHAULS AT ITS RUSSIAN REFINERIES. THE OPTIMAL UTILIZATION OF OIL REFINERIES HELPED TO ENSURE THE MAXIMUM POSSIBLE PROFITABILITY OF OIL REFINING IN THE CURRENT MARKET CONDITIONS.

2013 2014 2015 2016 2017 In 2017, the Company continued the modernization of its oil refineries OIL REFINING (MN T) in an effort to enhance the efficient Source: Company data refiningof raw materials, increase the depth of refining, improve production safety, and protect the environment. In particular, the unique Biosphera complex Total oil refining by the Gazprom Neft Group 42.6 43.5 43.1 41.9 40.1 of treatment facilities was put into Omsk Oil Refinery 20.2 21.3 20.9 20.5 19.6 operation at the Moscow Oil Refinery. Moscow Oil Refinery 11.1 10.8 11.0 10.7 9.4 NIS1 2.8 2.6 2.9 3.1 3.3 Slavneft-YANOS 7.5 7.7 7.6 7.5 7.7 Mozyr Oil Refinery 1.1 1.2 0.6 0.1 0.1 For more, see the ‘Biosphera environmental complex’ section, p. 34 1 — Gazprom Neft owns a 56.15% stake in NIS (Serbia), which owns two refineriesin Pancevo and Novi Sad as well as production projects in the Balkans, Angola, and Turkmenistan and a chain of petrol stations. For more, see p. 66

Efficiency Control Centre

Technology С.4 90% 250,000 –30% PRODUCTION PARAMETERS SENSORS EXPECTED DECREASE TO BE MONITORED TRANSMIT INFORMATION IN ENERGY CONSUMPTION DUE BY THE CENTRE TO THE ECC TO THE OPTIMIZATION OF PROCESSES

Gazprom Neft established the unique Efficiency Control with 60-day rolling scheduling. The Company expects Centre (ECC) for oil refining and sales in St. Petersburg to achieve a significant economic effect by reducing in 2017. The ECC controls the entire process the response time to technological deviations as well from receiving oil at the refineryto the retail sale as raw materials and energy expenses while also of petroleum products. optimizing all core processes. The reliability of production will improve due to the predictive management of potential Some 250,000 automated monitoring sensors and dozens deviations and incidents. The introduction of a reliability of production process systems transmit information management system will lead to increased time between about the consumption of petroleum products, the state repairs and optimize logistics costs. A unified platform of equipment, and the quality of raw materials to the ECC will be created in the future for the management in real time. The Centre has deployed a ‘Data Lake’ of logistics, refining,and sales based on an analysis of big in which management decisions are made based data, predictive analytics, the use of digital twins, machine on an analysis of this data. All assets are consolidated learning, neural networks, and artificial intelligence. GAZPROM NEFT І ANNUAL REPORT І 2017 64 // 65

“Our main focus in refining right now is to modernize oil refineries Gazprom Neft intends to invest in Russia. We want to make our refineries more efficient so that over RUB 400 billion in the development of the Omsk and Moscow Oil Refineries they produce as much light petroleum products and petroleum over the next five years.As a result, products with high added value as possible”. the refiningat the enterprises will grow to 95% by 2025 (this figure currently Alexander Dyukov stands at 91.7% for the Omsk Oil CEO of Gazprom Neft PJSC Refineryand 80.3% for the Moscow Oil Refinery).

2013 2014 2015 2016 2017 For more on the modernization of the Omsk and Moscow Oil Refineries, see p. 36

STRUCTURE OF PETROLEUM PRODUCT PRODUCTION (MN T) The decrease in the production Source: Company data volume of high-octane petrol gasoline and diesel fuel by 6.3% and 4.7% YoY, respectively, is due to a general decrease in the volume of oil refining Total production of petroleum products 40.6 41.7 41.2 39.9 38.6 at the Omsk and Moscow Oil Refineries. The 27.2% YoY increase in bitumen Motor petrol 8.9 8.8 9.1 9.2 8.6 production resulted from growing Straight-run petrol 1.5 1.4 1.5 1.6 1.4 demand on the domestic market Diesel fuel 12.1 12.2 11.9 12.0 11.4 Aviation fuel 2.7 3.0 3.0 3.0 3.0 and the expanded geography Marine fuel 3.3 4.1 3.7 2.4 2.7 of exports. Fuel oil production Fuel oil 7.5 7.4 7.2 6.7 5.7 declined compared with 2016 because Bitumen 2.1 2.0 2.0 2.0 2.6 of a decrease in oil refining as well Other 2.5 2.8 2.8 3.0 3.2 as increase bitumen production.

Digital twins

Technology С.5

2–3 up to 6–7 TIMES YEARS REDUCTION IN THE NUMBER OF ERRORS INCREASE IN TIME BETWEEN IN MACHINERY OPERATION REPAIRS

Digital twins are virtual copies of a real object. Gazprom Neft has created a digital twin for the catalytic cracking petrol hydrotreatment unit at the Moscow The digital twin of an oil refinery installation consists Oil Refinery and the AT-9 primary oil refining units of a complex mathematical model that uses artificial at the Omsk Oil Refinery.A fully digitized plant is being intelligence class algorithms containing complete set up in Shymkent (Kazakhstan) with remote control information about each component of the installation, data capabilities. The Ryazan Bitumen Materials Plant is testing on production processes, energy consumption as well the modular architecture principles for the establishment as the parameters of raw materials and finished product. of a continuous production management platform as part It helps to choose a refinery’s optimal parameters, predict of the BitumLab project. All the successful solutions its failures, and make decisions about the timing of repairs found at the bitumen plants can later be scaled to the level in a predictive mode. of major oil refineries. OVERVIEW OF RESULTS

OIL REFINING AT GAZPROM NEFT REFINERIES

OMSK OIL REFINERY MOSCOW OIL REFINERY NIS (SERBIA)

PROJECTED CAPACITY (MN T)

Installed capacity Refining

22.23 12.76 4.61 19.58 9.37 3.34

REFINING DEPTH 91.7% 80.3% 86.5%

OUTPUT OF LIGHT PETROLEUM PRODUCTS 71.8% 55.1% 75.5%

Milestones of 2017: Milestones of 2017: Milestones of 2017:

construction was completed commissioning of the Biosphera construction began on a delayed coking on the AOLI-1 automated on-spot loading treatment plants to improve unit at the Pancevo Oil Refinery; installation for the sealed loading the efficiencyand quality of wastewater the Pancevo Oil Refinery was of petroleum products; treatment; the first amongthe Company’s energy the bitumen installation was rebuilt reconstruction of the catalytic cracking enterprises in Serbia to receive to increase production and expand unit to increase capacity by 20% the international IPPC certificate, the range of high-tech bitumen and enhance the depth of refining which confirms the production process materials; and energy efficiency; conforms to European environmental construction was completed reconstruction of the gas dispensing protection standards. After receiving on a hydrogen production unit to provide station to bring it into compliance the certificate,the Pancevo Oil Refinery hydrogen to newly constructed with the norms and rules for ensuring was named one of the best and reconstructed facilities; the receipt and shipment of an expanded manufacturing enterprises in Europe. a loading rack was rebuilt range of liquefied petroleum gas (LPG). for the automated and sealed loading Plans for 2018: of petroleum products; Plans for 2018: new products were launched: continued construction of the delayed TCU-80 improved marine fuel the completion of construction coking unit. Thanks to this project, and G-100 high-octane petrol; on the Euro+ unit; the Pancevo Oil Refinery will become several of the refinery’s products the implementation of projects that aim one of the best enterprises in the world won awards at the ‘100 Best Products to increase the efficiencyand depth in terms of refining depth. Asa result, of Russia’ national competition. of refining – the construction of a deep the refineryis expected to reach its oil refining complex and a kerosene cut maximum capacity (4.6 mn t per year), Plans for 2018: hydrotreatment unit; refining depth is to increase to 99.2%, development of logistics infrastructure, and the yield of light petroleum products the continued implementation of projects including the construction of a loading is to increase to 87% in 2019. to increase the depth of refining rack for light petroleum products and enhance the eco-friendliness for motor vehicles and an automated of production, including the construction rack for on-spot loading for railway of the crude vacuum unit (crude oil transport. refining complex), the advanced oil refining complex (AORC), delayed coking unit (DCU), hydrotreatment/dewaxing of diesel fuel, and the Biosphera treatment facilities; the reconstruction of a number of process units (catalytic reforming unit, regeneration gas treatment unit of the catalytic cracking unit, and process condensate treatment unit). 1 — Installed capacity of the Pancevo Oil Refinery. The Novi Sad Oil Refinery (2.495 mn t)is under reconstruction and no oil refiningis planned in 2016–2018. GAZPROM NEFT І ANNUAL REPORT І 2017 66 // 67

OIL REFINING AT JOINT VENTURE OIL REFINERIES

In addition to its own oil refineries, SLAVNEFT-YANOS MOZYR OIL REFINERY Gazprom Neft has access to the refining facilities of Slavneft-YANOS and Mozyr Oil Refinery in the Republic of Belarus.

Installed capacity Refining

15.0 14.03 7.742 0.083

66.7% 75.54% Improved efficiency at the Moscow Oil Refineryin 2017 55.3% 60.55% generated

RUB BN Milestones of 2017: Milestones of 2017: commissioning of a new plant increase in the refinery’s design capacity 1.3 for the production of Group III base oils from 12 mn to 14 mn t per year due and oil-based muds; to the reconstruction of the LK-6U No. 1 the launch of new products, including crude refining unit; low-viscosity hydrocarbon oil-based the reconstruction of the diesel fuel muds, Group III oils, and the bitumen production unit (DFPU) led the refinery grades EN 100/150, EN 70/100, to launch diesel fuel dewaxing and EN 50/70; processes as a result of which a product the refinery’s products won awards with improved low-temperature at the ‘100 Best Products of Russia’ properties was generated. MOSCOW OIL REFINERY national competition. Plans for 2018: Plans for 2018: Moscow Oil Refinery specialists the continued construction implemented 45 measures completion of construction of the hydrocracking complex for heavy to increase production efficiency on the ‘Wet catalysis-2’ hydrogen oil residues. in 2017. sulphide utilization unit and racks for the sealed loading of aromatic hydrocarbons; The total economic effect replacement of raw materials for the year amounted for the hydrogen production unit to RUB 1.3 billion, with work with natural gas; carried out at 25 production continued modernization of the vacuum facilities. distillation unit of the VT-6 unit; continued work on the advanced oil The enterprise experienced refining complex project. the greatest effect from the modernization of Crude Vacuum Unit-6, which resulted in a 16 p.p. increase in furnace efficiencyto 83%. Production of high-octane petrol components at the catalytic reformer unit also increased and the load on the process equipment of the visbreaking unit

2 — Share of Gazprom Neft PJSC. was diminished. 3 — Share of Gazprom Neft PJSC. The volume of oil refiningat the Mozyr Oil Refinery is determined by the schedule approved by the Ministry of Energy of Russia. The Company can refine up to 50% of the oil supplied to the refinery. The actual volume of refiningat the refineryis determined by its economic efficiency. OVERVIEW OF RESULTS SALES OF OIL AND PETROLEUM PRODUCTS

GAZPROM NEFT PJSC SELLS OIL AND PETROLEUM PRODUCTS IN BULK IN RUSSIA AND ABROAD. SMALL-SCALE WHOLESALE AND RETAIL SALES OF PETROLEUM PRODUCTS, INCLUDING VIA THE COMPANY’S FILLING STATIONS, ARE HANDLED BY SPECIALIZED SALES SUBSIDIARIES.

FLOW CHART OF OIL AND PETROLEUM PRODUCT SALES

Gazprom Neft PJSC

Bulk sales of petroleum Oil sales products

Petroleum product Small-scale Gazpromneft filling Customers in Russia supply enterprises wholesale station network of petroleum that are part of the products Gazprom Neft PJSC Group

Retail sale of petroleum products

Small-scale Sales subsidiaries that wholesale Customers in Russia sell aviation and marine and retail sale and the CIS, including fuel, lubricants, of petroleum in exchange trading Non-CIS customers and bitumen materials products

Trading company Non-CIS customers that is part of the Gazprom Neft PJSC Group CIS customers

Oil flows

Petroleum product flows GAZPROM NEFT І ANNUAL REPORT І 2017 68 // 69

OIL SALES

Oil sales increased by 16.8% in 2017 compared with the previous year to 26.5 million The Company is actively expanding tonnes due to an increase in exports and international oil sales.1 An increase its tanker fleetin order to support in production at the Novoportovskoye, Messoyakha, and Prirazlomnoye fields the transportation of growing volumes as well as a decrease in the supply of oil to the Group’s refineries contributed of oil from the Novoportovskoye field. to a 41.1% increase in oil exports to non-CIS countries versus the 2016 level. Four Arc7 ice class tankers began A 45.2% increase in sales on the international market is due to expanded production exporting oil from the Novoportovskoye in Iraq. The 25% YoY decrease in oil sales in the domestic market is primarily fieldin 2017, as the total number the result of the diminished economic efficiencyof trading operations. of tankers of this type expanded to six. Thus, the Company's tanker fleet for oil exports in 2018 will consist of six Arc7 2013 2014 2015 2016 2017 ice class tankers and two Arc5 ice class tankers. Taking into account the further OIL SALES (MN T) increase in oil production, the Company Source: Company data decided to commission a seventh Shturman Albanov-type tanker, which will be built in 2019.

Total oil sales 14.24 13.72 16.61 22.71 26.53

Sales in Russia 1.85 3.96 6.14 7.43 5.57 Exports to non-CIS countries 8.29 8.47 8.11 12.89 18.19 Exports to CIS countries 4.05 1.16 1.88 1.66 1.71 International sales 0.05 0.13 0.48 0.73 1.06

GAS SALES

2013 2014 2015 2016 2017 Total gas sales (natural gas 3 GAS SALES (BN M ) and associated gas, excluding Source: Company data the gas in Gazprom Neft’s share in the Northgas and Arcticgas joint ventures) on the domestic market increased by 4.6% YoY Total gas sales 12.78 12.50 13.78 13.46 14.00 due to an increase in natural gas Sales in Russia 12.64 12.37 13.56 13.28 13.89 production by subsidiaries. International sales 0.14 0.13 0.22 0.18 0.11

1 — International sales – sales by Gazprom Neft subsidiaries. OVERVIEW OF RESULTS

PETROLEUM PRODUCT SALES

The Company sold 43.48 million tonnes 2013 2014 2015 2016 2017 of petroleum products in 2017, a 0.3% STRUCTURE OF SALES decrease from the previous year. BY PRODUCT (MN T)1 This is primarily due to the decreased

Source: Company data production of dark petroleum products at the Group’s Russian oil refineries, as evidenced by the 21.0% reduction in fuel oil sales in 2017 compared 45.74 48.30 44.84 43.59 43.48 with 2016 from 6.6 million tonnes to 5.2 million tonnes. At the same Petrol 10.17 10.43 10.83 11.08 11.09 time, growth was seen in sales Diesel fuel 13.71 13.87 12.81 13.27 13.37 of light petroleum products during Aviation fuel 3.42 3.82 3.62 3.36 3.51 the reporting period, specifically motor Marine fuel 3.22 4.42 3.98 2.87 3.29 fuels (+0.5%), aviation fuel (+4.5%), Oils and lubricants 0.44 0.39 0.43 0.45 0.41 marine fuel (+14.6%), and bituminous Bitumen 2.00 2.02 2.05 2.17 2.65 materials (+ 22.1%). Petrochemicals 1.17 1.26 1.45 1.35 1.25 Fuel oil 9.02 9.31 7.42 6.62 5.23 Other petroleum products 2.59 2.78 2.25 2.42 2.68 The decrease in overall sales in 2017 was the result of a decline in the volume of petroleum product 2013 2014 2015 2016 2017 exports to non-CIS countries.

STRUCTURE OF SALES Sales of petroleum products BY REGION (MN T) on the domestic market increased Source: Company data by 3.1%. Growth was seen in the entire range of the Company’s petroleum products except petrochemical products (-16.7% YoY) and marine fuel Total petroleum product sales 45.74 48.30 44.84 43.59 43.48 (-12.9%). Meanwhile, the Company

Sales in Russia 25.84 27.54 27.50 27.11 27.96 recorded a significant increase in sales Exports to non-CIS countries 14.61 15.64 11.81 10.77 9.54 of bitumen (+24.8%) and diesel fuel Exports to CIS countries 2.21 2.09 2.28 2.41 2.50 (+7.9%). International sales 3.08 3.03 3.25 3.30 3.48 Exports to non-CIS countries fell by 11.4% to 9.5 million tonnes. The biggest decline was seen in fuel oil (-28.9%) and diesel fuel (-23.3%). 1 — Data changed taking into account adjustments to international sales (sales by NIS) that were previously included in the ‘Other petroleum products’ line. At the same time, exports of marine 2 — Premium sales: fuel to non-CIS countries increased – sales of petroleum products via premium distribution channels for retail and small-scale wholesale. This group includes all petroleum product sales via filling stations and petroleum storage depots as well as wet wing aircraft by twofold, while exports of aviation fuelling, ship fuelling and small-scale wholesale from refuelling complexes at airports and port terminals; – sales of packaged petroleum products. This group covers all sales of oils in barrels and cans as well fuel rose by 62.5% due to increased as bitumen sales in clovertainers, among other sales; – sales of premium petroleum products, i.e. petroleum products that generate added value due to the presence demand for international transportation of certain qualitative features compared with other products of their kind. This group includes the sale of premium and the expanded geography bulk lubricants (Gazpromneft, G-Family, Texaco), premium bitumen materials (polymer-bitumen binders, PMB, bituminous emulsions, etc.) and the possible wholesale of premium motor fuels – G-Drive, etc. of the Company’s operations. GAZPROM NEFT І ANNUAL REPORT І 2017 70 // 71

STRUCTURE OF SALES BY CHANNEL

2013 2014 2015 2016 2017 The Company's sales STRUCTURE OF SALES BY CHANNEL (MN T) of aviation fuel via Source: Company data premium channels in 2017 increased by

Total sales 45.74 48.30 44.84 43.59 43.48

Premium channels 23.98 25.79 25.70 25.16 26.13 Non-premium channels 21.76 22.51 19.14 18.43 17.35 8%

Premium sales2 increased by 3.9% in the reporting period to 26.1 million tonnes. Sales of the Company’s aviation fuel The Company’s success in developing premium sales channels and expanding through premium channels increased the geography of supplies and the range of its premium products made it possible by 8%, while sales of bitumen rose to increase its share at the end of the year on the retail markets of most petroleum by 22.0%. Premium sales of oils products, including the markets for motor fuels, aviation kerosene, lubricants, and motor fuels increased by 6.7% and premium bitumen materials. and 3.9%, respectively. Information about the sale of individual petroleum The aviation fuel supply market as well as in the bitumen market accounted products is provided in the corresponding for the highest growth rates in the Company’s premium sales in 2017. sections of the Report.

MOTOR FUELS AND FILLING STATIONS

SALES OF MOTOR FUELS

2013 2014 2015 2016 2017 One of the key areas PREMIUM SALES OF MOTOR FUELS BY REGION (MN T) of the Company’s activities

Source: Company data is the development of the small-scale wholesale and retail segment of petroleum product sales. 18.17 18.51 18.58 19.26 20.01

Russian markets 14.28 14.71 14.76 15.17 15.92 Foreign markets 3.89 3.80 3.81 4.09 4.09

One of the key areas of the Company’s activities is the development The growth in sales via premium of the small-scale wholesale and retail segment of petroleum product sales. channels in Russia primarily resulted Having its own national brand as well as a high level of awareness and trust from more sales to corporate in the quality of its product helps Gazprom Neft achieve one of its strategic goals customers due to increased sales of joining the leaders in Russia and the CIS in terms of the volume of retail sales to existing customers as well and efficiency of the filling station networkby 2025. as the recruiting of new customers. OVERVIEW OF RESULTS

FILLING STATION NETWORK

2013 2014 2015 2016 2017 and Kyrgyzstan) and 423 stations in Southeast Europe (Serbia, Bosnia, FILLING STATION NETWORK1 Bulgaria, and Romania). The decrease (STATIONS) in the number of filling stations abroad Source: Company data was due to the optimization of the retail network in CIS countries in 2017 in order to increase its economic efficiency. 1,747 1,810 1,852 1,866 1,866 The growth in the Company’s retail Russia 1,111 1,150 1,189 1,244 1,255 motor fuel sales in Russia significantly CIS countries 228 239 243 200 188 Countries of Southeast Europe 408 421 420 422 423 outpaced the market growth rate. In particular, the Company increased retail sales of motor petrol in Russia In Russia, the Company has one of the largest and most geographically by 3.6%, while the market grew by 1.1%. diversified sales networks on the retail petrol market. As of the end of 2017, Retail sales of diesel fuel expanded the Gazpromneft filling station network included 1,255 filling stations, including by 14% versus market growth of 2.3%. 1,193 Company-owned stations and 62 stations managed by franchise partners. The Company had a 14.9% share The filling station network increased by 11 stations in 2017 and expanded its of the retail motor petrol market presence to 40 regions of the Russian Federation taking into account franchise in Russia, an increase of 0.4 p.p. operations. Developing the network and improving its efficiency has enabled from 2016, while its market share the Company to increase its market share in the regions where it operates. in the diesel fuel segment grew to 19.1% As of the end of the year, the Company had a 23.2% share of the retail motor fuel (+2 p.p. versus 2016). market in the regions where it has a presence.

On foreign markets, the Company’s filling station network consists of 611 stations, 1 — The Company did not have a franchise network of filling stations until 2015; starting from 2016 data including 188 filling stationsin CIS countries (Belarus, Kazakhstan, Tajikistan, includes franchises.

Digital platform for filling station management

Technology D.1 –45% 58 3 DECREASE IN FILLING STATION FILLING STATIONS MIN COSTS DUE TO DIGITALIZATION SWITCHED TO AUTOMATED AVERAGE SERVICE TIME OPERATIONS IN 2017 AT AUTOMATED FILLING STATIONS

Gazprom Neft is systematically switching its gas stations The experience gained from introducing this system can to an automated format of operations. Autonomous be used in the future to create a single sales platform that operations reduce direct costs by almost 45% per station. unites all segments of the fuel sales chain. Any market participant could immediately get the needed solution All automatic filling stations are controlled centrally using this digital platform. For the Company, this would from a single dispatch centre that monitors all equipment translate into a multi-fold increase in the number and petroleum product quality parameters in real time. and speed of transactions at minimum costs. Even coffee machines at Gazpromneft filling stations are managed from a single automated centre that monitors compliance with the recipe and the number of cups sold. GAZPROM NEFT І ANNUAL REPORT І 2017 72 // 73

2013 2014 2015 2016 2017 At the end of the year, total retail sales of motor fuels were up by 6.2% SALES VIA FILLING STATIONS compared with 2016 and totalled (MN T) 11.0 million tonnes, including Source: Company data 8.8 million tonnes in Russia.

Average daily sales at one station in Russia increased by 4.1% in 2017 9.22 9.91 10.16 10.45 11.04 and amounted to 20.1 tonnes/day. Meanwhile, measures to optimize Russia 7.28 7.97 8.08 8.25 8.84 and improve the economic efficiency Countries of Europe and the CIS 1.94 1.94 2.08 2.20 2.20 of the Gazpromneft petrol station retail network in CIS countries ensured 2013 2014 2015 2016 2017 an increase in daily petrol pumping in this region by 24.8% compared AVERAGE DAILY with 2016 to 18.6 tonnes. Average daily FILLING STATION sales in European countries increased SALES (T/DAY) to 6.1 tonnes/day in 2017 (+3.4% versus Source: Company data 2016).

NIS 5.2 5.0 5.5 5.9 6.1 CIS countries 14.2 13.8 13.6 14.9 18.6 Russia 19.0 20.0 19.1 19.3 20.1

CROSS-SELLING

EFFECTIVENESS OF CROSS-SELLING IN RUSSIA AND CIS COUNTRIES The Company is paying more and more Source: Company data attention to the development of cross- selling, which is one of the most CROSS-SELLING REVENUE CROSS-SELLING REVENUE PER (RUB MN INCLUDING VAT) 1 T OF PETROLEUM PRODUCTS promising segments of retail business SOLD TO INDIVIDUALS (RUB 1,000 in Russia and CIS countries. Total INCLUDING VAT) revenue via the ‘Cross-selling Business’ channel increased by 2% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 compared with the previous year and amounted to RUB 18.59 billion. The increase in cross-selling ensured growth in this business’s key performance indicators (KPI).

The growth drivers included new café 10,586 13,614 15,846 18,281 18,590 1.9 2.2 2.5 2.8 3.0 products, the use of point pricing, the development of the Company’s own private label product NUMBER OF FILLING STATIONS CROSS-SELLING REVENUE PER 1 M2 WITH A STORE AT END OF YEAR OF COMMERCIAL SPACE (RUB 1,000 range, the launch of new coffee (STATIONS) INCLUDING VAT) machines with an expanded menu, and the development of the ‘TV-Media’ 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 project.

904 964 1,026 997 999 15.6 17.3 18.3 20.4 21.3 OVERVIEW OF RESULTS

LOYALTY PROGRAMME

The ‘Going the Same Way’ The NPS index – the key customer in 2017 and the overall effect loyalty programme for clients loyalty indicator for the Gazpromneft from these campaigns amounted of the Gazpromneft filling station filling station network – was 59 points to 67,200 tonnes of additional fuel sales. network remains the undisputed in 2017, which is two points higher than Marketing activities helped attract leader among vertically integrated in 2016. This indicates that customers 440,400 new customers. oil companies in terms of the number are highly willing to recommend of members. The loyalty programme the Gazpromneft filling station The Company launched the first had 12.4 million cardholders in Russia network. targeted marketing campaigns (TMC) and the CIS at the end of 2017, a 16.2% in 2017. A total of 11 CMCs were increase from 2016. Given the high level of competition held from March to December on the retail petroleum products 2017 and encompassed 3.2 million Loyalty programme members account market, advertising and marketing customers of Gazpromneft filling for 83% of total sales to individuals activities remain the primary tool stations, or 74% of the network’s at the Company’s filling station network for maintaining loyalty among existing active clientele. Additional fuel sales in the Russian Federation, a 3 p.p. customers and attracting new ones. from targeted campaigns amounted increase compared with the previous A total of 13 federal and regional to 114,000 tonnes. year. advertising campaigns were conducted

BRANDED FUEL

SALES OF PREMIUM FUEL IN RUSSIA AND CIS COUNTRIES

Source: Company data

Indicator 2015 2016 2017 Number of filling G-DRIVE 95 (1,000 T) 565 594 622 stations offering branded share of sales in the 95 petrol basket via filling stations (%) 27 27 27 fuel in 2017 G-DRIVE 98 (1,000 T) 63 62 64 share of sales in the 98 petrol basket via filling stations (%) 96 95 91 +5% G-DRIVE 92 (1,000 T) 21 25 23 share of sales in the 92 petrol basket via filling stations (%) 1 1 1 G-DRIVE 100 (1,000 T) − − 2 1,182 share of sales in the 100 petrol basket via filling stations (%) − − 100 STATIONS

Branded G-Drive fuel was introduced to the Russian market in 2010 In 2017, Gazprom Neft PJSC continued and from the very start of sales have become increasingly popular, in part thanks to actively develop its product line to the brand’s promotion using the platform of the G-Drive Racing motor racing of branded motor fuel. The Company team, which has become a leader at global and European endurance racing introduced new branded gasoline championships. to the market – G-Drive 100, Opti 92, and Opti 95 – and also began promoting The Company increased sales of premium branded fuel at its own filling stations the Diesel Opti brand in several by 4% in 2017. The total volume of branded fuel sales in Russia and CIS countries regions. amounted to 711,000 tonnes last year, or 7.4% of total motor fuel retail sales. For the year, G-Drive accounted for every third litre of AI-95 and higher petrol sold The number of filling stations offering at filling stations. branded fuel increased by 5% to 1,182 stations in 2017. GAZPROM NEFT І ANNUAL REPORT І 2017 74 // 75

Premium petrol

Technology D.2 711,000 29% TONNES PERCENTAGE OF BRANDED FUEL SALES OF BRANDED FUEL IN RUSSIA IN SALES OF AI-95 AND HIGHER AND THE CIS IN 2017 PETROL

Gazprom Neft began selling G-Drive petrol with an octane G-Drive fuel contains an active set of additives that rating of 100 in 2017. This premium product is designed increase engine efficiency. Its latest generation friction for modern engines that have mostly been adapted to run modifier helps to significantly improve efficient engine on gasoline with an octane rating of 95 and above. operation. The attributes of G-Drive 100 petrol have been confirmedby the National Scientific Research Institute G-Drive 100 petrol improves car engine performance for Oil Refining,a leading institute in the industry, while and increases its power and acceleration dynamics. its compliance with European quality standards has been In addition, this fuel cleans engines and provides confirmedthe prominent international laboratory SGS. protection against wear.

GAS ENGINE FUELS

SALES OF GAS ENGINE FUEL AND NUMBER OF VEHICLE STATIONS Sales of LPG decreased by 16% Source: Company data to 97,000 tonnes in 2017. The key reason for this was the optimization Indicator 2013 2014 2015 2016 2017 of the vehicle filling station LPG (1,000 t) 93 97 105 115 97 network in CIS countries, which are a major market for LPG retail CNG (1,000 m3) 12,749 15,106 17,080 17,500 19,314 sales. Sales of CNG increased by 10% 1 Number of VFS 123 136 153 156 151 to 19.314 million m3 in the reporting Number of NGVFS2 4 7 7 7 7 year compared with 2016.

The number of vehicle filling stations Environmental friendliness and cost-effectiveness play a key role in municipal under the Gazpromneft brand within and commercial transportation in large cities, making these segments major multi-fuel filling complexes decreased consumers of gas engine fuels. Gazprom Neft pays close attention to developing by fiveto 151 stations in 2017. sales of gas engine fuels, in particular liquefied petroleum gas (LPG) and compressed natural gas (CNG).

1 — Number of vehicle filling stations under the Gazpromneft brand within multi-fuel fuelling complexes. 2 — Number of natural gas vehicle filling stations (NGVFS). OVERVIEW OF RESULTS

AIRCRAFT FUELLING

The retail aviation fuel market in Russia grew by 7.4% in 2017. Gazprom Neft In May 2017, Gazprom Neft served remains the leader on this market with a share of 25.6%. as a general partner at the Aviation Fuel Forum of the International Total aviation fuel sales by the Company increased by 4.5% to 3.5 million tonnes Air Transport Association (IATA) in 2017. Premium sales amounted to 2.8 million tonnes, an increase of 8.0% in St. Petersburg, marking the first from the previous year, which is the result of higher sales at third-party (mainly time Russia had hosted the forum. Vnukovo Airport) refuelling complexes and the Company’s own refuelling The event had a record number complexes (Tolmachevo, Pulkovo, and Koltsovo Airports) as well as growing of participants and brought together demand outside Russia (resale operations). over 650 delegates from 61 countries. Fifty-seven major global airlines The Gazpromneft-Aero sales network (refuelling complexes) increased by 14 units and more than 100 suppliers of fuel in 2017 compared with 2016. At the end of 2017, Gazpromneft-Aero's own sales and equipment for aircraft refuelling network consisted of 50 refuelling complexes in Russia and one refuelling complex were represented at the forum. in Kyrgyzstan. In addition, Gazpromneft-Aero provides its customers with aviation kerosene at nine third-party airports in Russia and 189 airports in 64 other countries. The company began providing wet wing aircraft refuelling at the airports of Kadala (Chita) and Khrabrovo (Kaliningrad) in 2017.

AVIATION FUELLING

Source: Company data

2013 2014 2015 2016 2017 Share of the Russian TOTAL AVIATION FUEL SALES (MN T) market in 2017

3.42 3.82 3.62 3.36 3.51 25.6%

Premium sales 2.39 2.84 2.80 2.62 2.83

2013 2014 2015 2016 2017

NUMBER OF AIRPORTS WHERE GAZPROM NEFT OPERATES

172 199 210 235 249

Internal sales network, refuelling complexes 39 41 42 47 51 GAZPROM NEFT І ANNUAL REPORT І 2017 76 // 77

BUNKERING

The Company provides bunkering for ships at all key sea Key focuses for developing and river ports in the Russian Federation (20 sea and 14 river ports). At present, the Company’s bunkering business Gazpromneft Marine Bunker has the most extensive geographical operations in 2017: in Russia among all domestic bunkering companies. The Company’s clients include the release of the new eco-friendly major Russian and foreign shipping companies. Besides Russia, the Company product TSU-80 produced provides bunkering at the ports of Constanta (Romania), Riga (Latvia), and Tallinn by the Omsk Oil Refinery (Estonia). The Company’s fleet consists of eleven bunkering tankers. to the market to comply with legislative requirements on the sulphur content of marine BUNKERING fuels; Source: Company data provision of bunkering for vessels as part of projects 2013 2014 2015 2016 2017 being implemented by Gazprom TOTAL MARINE FUEL SALES PJSC, including vessels involved (MN T) in the construction of Turkish Stream as well as offshore projects in the Arctic, the Sea of Okhotsk, and the Black Sea.

3.22 4.42 3.98 2.87 3.29

Premium sales 3.2 4.20 3.92 2.77 2.71

Eco-friendly marine fuel

Technology C.6 <0,1% 27% 0.158 SULPHUR COMPANY’S SHARE MN T PER YEAR AMOUNT THAT MARINE ON THE MARINE FUEL MARKET POTENTIAL OF THE ECO-FRIENDLY FUEL SHOULD CONTAIN IN THE BALTIC REGION MARINE FUEL MARKET FOR EMISSION CONTROL ZONES

The Omsk Oil Refinery launched productionof TCU-80 from hydrotreated catalytic cracking vacuum gas oil marine fuel with sulphur content of less than 0.1% in 2016. The new brand’s formula includes an additive that in 2017. reduces the flow temperatureand prevents paraffin waxes from settling in marine fuel. The product is suitable for use in emission control zones as definedby MARPOL1 due to its minimum sulphur The new product has quickly gained recognition: the entire content. Such zones include the Baltic and North Seas, 48,000 tonnes of the new brand that was produced was the English Channel, and the coastal waters of North sold in just six months after sales began. Plans for 2018 America and the Caribbean. include increasing sales to 102,000 tonnes.

Omsk Oil Refinery specialists developedthe technology for the production of low-sulphur marine fuel 1 — MARPOL – International Convention for the Prevention of Pollution from Ships. OVERVIEW OF RESULTS

2013 2014 2015 2016 2017 Share of the Russian INTERNAL SALES NETWORK (UNITS) market in 2017

– – 36 36 37 16.6%

The bunkering market in Russia expanded by 2.5% compared with 2016. The Company’s share of the Russian market was 16.6% in 2017. The Company provides The 14.6% increase in the total volume of ship fuel sales compared to 2016 bunkering for ships resulted from a twofold increase in exports and sales in non-CIS countries. Premium sales of marine fuel amounted to 2.7 million tonnes in 2017, a decrease at all key ports of Russia of 2.2%, or 60,000 tonnes, versus 2016. The decline in premium sales primarily (20 sea and 14 river ports). resulted from reduced business in the Far East since negative market factors Gazpromneft Marine Bunker has made this region unprofitablefor supplies. The remaining fuel was distributed the most extensive geographical to more high-margin regions such as northwest Russia and the Black Sea. Furthermore, the decrease in sales was partially offset by a revival in sales operations in Russia among all on inland waterways. domestic bunkering companies.

OILS AND LUBRICANTS PRODUCTION AND SALES

SALES OF OILS AND LUBRICANTS Gazprom Neft sells oils and lubricants

Source: Company data via its own filling station network and also supplies products to retail 2013 2014 2015 2016 2017 chains, online stores, service stations, and the assembly lines of automotive TOTAL SALES OF OILS AND LUBRICANTS (MN T) manufacturers. The Company manufactures oils and lubricants at five production facilities in Russia and Italy.

The Company sold 0.4 million tonnes

0.44 0.39 0.43 0.45 0.41 of oils and lubricants in 2017. Premium sales amounted to 0.29 million tonnes, Premium sales 0.17 0.19 0.23 0.27 0.29 an increase of 7.4% from last year’s figure.The growth in premium sales was mainly due to a 10% increase 2013 2014 2015 2016 2017 in sales in Russia1 compared with 2016, including products under the G-Family G-ENERGY SERVICE NETWORK OF SERVICE STATIONS (STATIONS) brand (+11% versus 2016). For the year, Gazprom Neft increased its share of the oils and lubricants market in Russia by 1.3 percentage points to 21.3%.

– 10 26 70 120

1 — Packaged oils market. GAZPROM NEFT І ANNUAL REPORT І 2017 78 // 79

Gazprom Neft has significantly expanded its product line. In particular, the Company began producing marine oils under its own brand Gazpromneft Ocean, which Share of the Russian are designed for engines that run on various fuels and are installed on all types market in 2017 of vessels. Gazprom Neft was the first companyto start producing low viscosity oil-based muds using its own technology. The Company markets import-substituting products under the Gazpromneft Drilline brand. In addition, Gazprom Neft has launched sales of 66 other new premium products, which include synthetic compressor and turbine oils for industrial use as well as hydraulic, transmission, 21.3% and motor oils (including synthetic oils) for cars and commercial vehicles.

The Company continued working with the Russian regions on the import substitution programme in 2017. The Sakhalin, Bryansk, Ulyanovsk, and Sverdlovsk Regions and the Krasnodar Territory joined the programme, bringing the total number of participating regions to 15. The programme involves concluding agreements with regional and municipal authorities on the supply of Gazprom Neft-produced lubricants instead of imports, which helps to save budget funds on housing and utility services and agriculture. Over the past year, Gazprom Neft has expanded the international geography of its sales to 72 countries. Iran, Peru, Senegal, and Thailand were among the new countries to which supplies began.

The G-Energy Service international network of premium branded service stations For more about new products under the Gazpromneft Ocean and Gazpromneft expanded by 44 new stations in 2017 and now includes 120 stations in 14 countries. Drilline brands, see p. 76

Low viscosity oil-based muds

Technology C.7 5,000 –50% –30% T PER YEAR DECREASE IN DRILLING MUD SAVINGS ON OIL-BASED OF INTERNALLY PRODUCED LOSSES USING THE NEW BASE OILS MUDS OIL-BASED MUDS

Hydrocarbon-based drilling muds are one of the methods The product was developed by Gazpromneft-Lubricants used to enhance the productivity of difficult wells. together with specialists from the Gazprom Neft Research The main component of such mud is specialized low and Engineering Centre as well as with the support viscosity oils, which make up 70-90% of the solution. of Gubkin Russian State University of Oil and Gas (National Research University). The Company has set up production The oil base for such had previously been imported. of the oils at the Slavneft-YANOS Oil Refinery. Now In 2017, however, Gazprom Neft started producing its own the Gazpromneft Drilline product range includes four low viscosity oil-based muds under the brand name brands. The project enabled Gazprom Neft to almost Gazpromneft Drilline. The first field tests, which were completely eliminate the use of imported base oils carried out at one of the wells of the Tsarichanskoye + in its process chain for the production of drilling mud Filatovskoye oil field, showed excellent performance and to cut expenses on this raw material by 30%. capabilities. Hydraulic pressure losses decreased by 10%, while drilling fluid losses in the well declined by 50%. OVERVIEW OF RESULTS

BITUMEN MATERIALS

2013 2014 2015 2016 2017 In addition, Gazprom Neft has increased the productivity of its TOTAL SALES OF BITUMEN assets: the facility in Kazakhstan MATERIALS (MN T) almost doubled output (from 550 Source: Company data to 1,000 tonnes/day), while the facility in Ryazan boosted output by one third (from 288 to 384 tonnes/day). In 2016, Gazprom Neft bought 2.0 2.0 2.1 2.2 2.7 a controlling stake in NOVA-Brit LLC (Vyazma), a major producer of innovative Premium sales 0.03 0.04 0.18 0.23 0.29 bitumen materials. The Company launched the production of innovative products such as protective, Gazprom Neft PJSC is one of the biggest producers and suppliers of bitumen regenerative, dipping compounds products in Russia. The Company’s share of the Russian bitumen materials1 and primers in 2017. Brit brand market increased by 3.1 p.p. to 34.4% in 2017. Gazprom Neft sold 2.7 million products were used to repair runways tonnes of bitumen materials last year, an increase of 22.0% from 2016. The higher at the Almaty airport. This product was bitumen sales is due to growth in demand on the Russian market, entry to new also approved for use in construction foreign markets, and the expanded geography of processing at third-party sites. and repair work in the St. Petersburg Gazprom Neft’s bitumen material production facilities are located in Russia metro system. In 2017, the Company (Moscow, Omsk, Yaroslavl, Ryazan, and Vyazma) as well as Serbia and Kazakhstan. introduced the premium products to new The Company launched bitumen production at processing facilities in the Volga, markets: both developed countries Siberian, Ural, and North-West Federal Districts as well as at two sites such as Finland as well as developing in Kazakhstan in 2017, bringing the number of processing sites to seven. countries such as Bolivia, Chile, Peru.

Innovative bitumen materials

Technology C.8 10 +35% –60% YEARS WATER RESISTANCE COEFFICIENT DECREASE IN ROAD SERVICE LIFE OF PAVEMENT OF ROAD SURFACES WITH BRIT MAINTENANCE COSTS WITH INNOVATIVE BITUMEN ZVS SEALANT

Polymer-bitumen binders (PBB) are made based materials in 2016. Theoretical calculations are tested on bitumen with the addition of polymer and plasticizer. on a pilot basis on equipment that simulates natural road use conditions. PBB are used for road construction because they are much stronger and more durable than ordinary asphalt In addition to the road brands of bitumen, the Company concrete. Such materials reduce road maintenance costs produces the airfield bitumen polymeric sealants by 60% while simultaneously extending the service life BRIT-Nord and BRIT-Arctic. They are required from 3–4 years to 7–10 years. for watertight seams on the surface of runways and highways. Other segments where they can be applied Gazpromneft-Bitumen Materials opened its own research include creating elastic inserts between tram rails and development centre to develop innovative bitumen and covering city streets.

1 — Overall bitumen market in Russia. GAZPROM NEFT І ANNUAL REPORT І 2017 80 // 81

PETROCHEMICALS

2013 2014 2015 2016 2017 Neftekhimiya NPP switched SALE OF BASIC PETROCHEMICAL PRODUCTS (MN T) the production of polypropylene

Source: Company data to phthalate-free catalysts for the first timein Russia in 2017, making it possible to manufacture products that – – 1.45 1.35 1.25 are recommended for use Gazprom Neft PJSC is a major Russian manufacturer of a number of basic in the production of medical petrochemical products: aromatic hydrocarbons (benzene, paraxylene, goods. orthoxylene, and toluene) and propane-propylene fraction products (propylene liquefied petroleum gas). Basic petrochemical products are manufactured at all Gazprom Neft oil refineries (Omsk, Moscow, and Yaroslavl).

The production of petrochemical products for further stages of added value (polypropylene) takes place at integrated enterprises – Neftekhimiya NPP A decrease in the sale of petrochemical (Moscow) and Poliom LLC (Omsk). In 2017, polypropylene production amounted products (except polypropylene) to 103,000 tonnes at Neftekhimiya NPP and 205,000 tonnes at Poliom LLC. to 1.3 million tonnes in 2017 was due In addition, Neftekhimiya NPP switched the production of polypropylene to a reduction in its output as a result to phthalate-free catalysts for the first time in Russia in 2017, making it possible of repairs at the process units to manufacture products that are recommended for use in the production of the Moscow Oil Refinery. of medical goods.

Multi-agent technologies

Technology D.3 +40% 4 GROWTH IN DELIVERIES YEARS TO THE NOVOPORTOVSKOYE FIELD IN 2017 PAYBACK PERIOD OF THE PROJECT

Multi-agent technologies involve the use of artificial The organization of supplies to the Novoportovskoye intelligence for the operation of complex systems field duringthe summer navigation period of 2017 in an ever-changing environment. served as a pilot project for their use at Gazprom Neft. The multi-agent system made it possible to reduce They are particularly effective in logistics. In a multi-agent losses from the underloading of transport, reduce system, each programme participant in the logistics chain, employee labour costs, ensure the transparency including suppliers, warehouses, transport, customers, of purchases, and monitor supplies. The next stage will etc., is assigned a software agent – a digital twin that consist of disseminating the technology to the whole is assigned a specific operational logic. Software agents process of logistics support for Gazprom Neft-Yamal seek to solve problems by obtaining and utilizing resources as part of the Smart Logistics project. as efficientlyas possible and they do it much faster than people without experiencing fatigue and nervous tension. OVERVIEW OF RESULTS INNOVATIVE INFRASTRUCTURE

GAZPROM NEFT’S APPROACH TO INNOVATIVE DEVELOPMENT ‘FROM STRATEGIC GOALS TO TECHNOLOGICAL PROJECTS’ WAS INTRODUCED IN 2014. IT FOCUSES ON THE TECHNOLOGIES REQUIRED TO OVERCOME THE CHALLENGES THAT ARE ENCOUNTERED AS THE COMPANY SEEKS TO ACHIEVE ITS STRATEGIC GOALS.

Gazprom Neft takes a pragmatic approach to the development and introduction of new technologies. The Company acquires the effective solutions that are available on the market and adapts them to the conditions of its specific assets. In 2017, the Company continued At the same time, the Company is developing a technology market by encouraging to expand its intellectual partners to create new solutions and acting as the first buyer. Unique solutions property portfolio. that are not available on the market are developed by the Company together with domestic and foreign partners.

RESEARCH AND INNOVATION CONTROL CONFIGURATION

Strategy and Innovations Department

Ensuring the development of technological strategies Updating and monitoring the implementation of the IDP1 Technological forecasting Enhancing the overall efficiency of processes

Upstream Division Downstream Division

Search for new technologies Update of technological challenges and targeted solutions Expert examination of offers from technology suppliers Collection and expert examination of offers from Initiation and implementation of technology projects technology suppliers Update of technological challenges and targeted solutions R&D and technological development projects Identification of RIA 2 Monitoring of R&D and technological development projects Collection of offers from technology suppliers Identification and legal protection of RIA Applying for protection documents

1 — IDP – Innovative development programme. 2 — RIA – results of intellectual activity. GAZPROM NEFT І ANNUAL REPORT І 2017 82 // 83

2013 2014 2015 2016 2017 “Our successes in 2017, INTELLECTUAL PROPERTY ASSETS (IPA) the expansion of our resource

Source: Company data base, the growth in inventories, greater efficiency, the record volume of production, and the record profit are all due Total IPA 13 16 28 40 54 to the use of the most advanced Patent law items 7 16 16 14 36 technological solutions”. Computer programmes and databases 6 0 12 26 18 Alexander Dyukov CEO of Gazprom Neft PJSC 2013 2014 2015 2016 2017

APPLICATIONS

Source: Company data

Total applications 21 11 36 49 61

Upstream Division 13 4 16 23 35 Downstream Division 8 7 20 26 26

FUNDAMENTAL DOCUMENTS

TECHNOLOGY STRATEGY OF THE UPSTREAM DIVISION

The Upstream Division drafted a Technology Strategy in 2014. It serves The Technology Strategy is managed as a driver for the Company’s organic growth and is a key to solving the problem by the Management Committee of the cost-effective incorporation of hard-to-recover reserves into development. chaired by the First Deputy CEO Today, the Technology Strategy encompasses all the division’s priority areas, of Gazprom Neft PJSC. including technologies for geological exploration and the development of the resource base: The Upstream Division has introduced well drilling and completion technologies; the Technology Management enhanced oil recovery and intensificationof the inflow; System (TMS), which consists development of unconventional reserves; of a structured set of methods, development of sub-gas deposits; standards, and supporting tools that Electronic Asset Development (EAD); constitute a single system for managing development of carbonate and fractured reservoirs; processes involving the search new generation infrastructure; for, selection, testing, introduction, capital construction. and replication of technologies. OVERVIEW OF RESULTS

One of the key components of the TMS is the technological Priorities will include support for new major asset development plan (ADP), which consists of a portfolio projects in the early stage of implementation (Yamal of technological solutions that are proposed for each specific or the Yamburgskoye field),the effective incorporation asset. of residual recoverable reserves (RRR) into extraction, the incorporation of hard-to-recover reserves (HRR) into The projects implemented within the framework development, and the development of enhanced oil recovery of the Technology Strategy have had a noticeable effect. methods. For example, the technology strategy budget of 2016 was recouped by the results of four major projects in 2017.

The main principles of the Company’s updated Technology Strategy in 2018 should be the effectiveness of incorporating For more on technologies, see the ‘Raw materials reserves and supporting new production projects. base and production’ section on p. 52

R&D STRATEGY OF THE DOWNSTREAM DIVISION

The oil refining segment has its own long-term R&D Strategy. In 2017, the oil refining R&D portfolio was comprised Introducing R&D results at oil refineries enables of roughly 30 projects in key areas, including the construction the Company to increase the yield of high-margin products of catalysts for catalytic cracking and hydrogenation while taking into account the technological conditions processes. The economic effect alone from the introduction of a specific refinery and to also reduce operating costs. of the Company’s own catalysts in 2017 exceeded the total R&D costs over the past seven years by more than two-fold. The R&D portfolio is managed at the corporate level by the Oil Refining Directorate. The R&D units of oil refineries are responsible for implementing specific projects. External developers of technologies, including leading domestic scientific organizationsand universities, are involved For more on technologies, see the ‘Oil refining’ in performing R&D. section on p. 64

INNOVATIVE DEVELOPMENT PROGRAMME

In 2016, the Company updated its Innovative Development Programme, which is based on measures that aim to introduce a set of technologies to enhance well productivity Planned funding for the Technology as well as the following key projects: Strategy and R&D Strategy in 2018 soda-surfactant-polymer flooding technologies; amounts to roughly technologies to incorporate unconventional oil reserves into development; RUB BN the development and production of catalysts for catalytic cracking and hydrogenation processes. 2.3 In addition, production digitalization projects in the oil production and refining segmentsare also an important part of the Innovative Development Programme. Development Programme, which primarily targets the Company's partners. This document informs Projects that are part of the Technology Strategy external entities involved in the innovation environment and R&D Strategy have been included in the Innovative about Gazprom Neft’s technological priorities and needs. GAZPROM NEFT І ANNUAL REPORT І 2017 84 // 85

Portfolio analysis In accordance with best practices, Gazprom Neft does The Company’s goal is to select the optimal portfolio not evaluate its investments in isolation, but as part of its taking into account strategic goals, investment portfolio. restrictions, the permissible debt burden, the significance of the project for the state, the level of risk, and synergy Multiple alternative development options are generated with future projects. A portfolio analysis allows for making for each asset in production, refining,and sales the best investment decisions in all areas of the Company’s and any of them may be included in the final portfolio. operations, whether it’s developing a new field, building The Company uses its own analytical tools to regularly an oil refinery, developing a sales network, or buying evaluate hundreds of possible options and generate or selling an asset. optimal combinations of project portfolios from them.

DIGITAL TRANSFORMATION

Total volume off data accumulated Knowledge Dissemination in the Gazprom Neft system System The Knowledge Dissemination System (KDS) is a tool TB that helps coordinate the management and exchange of knowledge in matters concerning oil exploration and production within the Gazprom Neft Group in order 6,000 to solve technological and production objectives. It is designed based on an analysis of the world’s best Digital transformation is one of the most important aspects knowledge management systems. of the business development strategy for Gazprom Neft. New generation production management systems are being The KDS systematizes information about the best created in all segments of the Company’s operations. practices employed by the Company in matters They involve the integrated management of all services concerning exploration and production. Employees to maximize asset value, the use of digital counterparts have access to documents that contain experience to optimize operating modes and maintenance plans, with resolving production-related challenges, lessons that have been learned, and useful practices that have and the use of cognitive systems to support decision-making been identifiedas well as descriptions of technologies, by operators. Projects are implemented at all stages scientific articles, and publications by the Company’s of the value chain, from extracting enterprises to the sale employees. of petroleum products. The KDS enables the user to conduct a comparative At present, the Company’s data processing centres have analysis and select optimal technical solutions accumulated huge amounts of information – approximately in accordance with the necessary criteria. It also stores 6,000 TB. Gazprom Neft is effectively exploring opportunities data on all tests of new equipment conducted within for the monetization of such information. In particular, the Company. individual components of big data technologies have been tested or applied in production to solve business challenges At the end of 2017, the KDS contained and actively used more than 8,000 documents. The monthly number as regards projecting the effectiveness of complex geological of requests in the KDS exceeded 52,000. and technical measures, clustering wells, and automating the interpretation of seismic research results. For its part, the Efficiency Control Centre was established within the Downstream Division and is responsible for managing the division’s entire value chain. OVERVIEW OF RESULTS

RESEARCH CENTRES AND TECHNOPARKS

SCIENCE AND TECHNOLOGY CENTRE (STC)

The Company’s key competencies are concentrated CORE ACTIVITIES OF THE STC: in the Science and Technology Centre (Gazpromneft STC). The main goal of the Science and Technology Centre planning and supporting geological exploration work; is to increase oil production and its efficiency through the technical and economic valuation of assets; the introduction of new technologies and design solutions the creation of integrated concepts for field development at the fieldsof Gazprom Neft. and planning; scientificand technical support for drilling and downhole In 2017, the staff of the Gazpromneft STC exceeded work; 900 people. The staff members included 4 professors, oil and gas production techniques and technologies; 7 doctors of science, and more than 50 candidates the development of engineering techniques of science. The officesof the Gazpromneft STC are located and standards; in St. Petersburg and Tyumen. IT solutions for engineering; the organization of research as well as R&D; The STC prepares the scientificand technical foundation the collection, updating, and dissemination of knowledge based on which specialists from the Gazprom Neft and best practices. headquarters adopt the most important investment and management decisions: it creates field development models, adjusts them based on field tests,and determines what technologies can be applied to achieve the best result. The Science and Technology Centre’s responsibilities include creating and maintaining a corporate database of geological Team-based group work on case studies in the sector and commercial information, managing the extraction enabled participants to get a grasp of the basic stages of oil from subsoil resources through the use of permanent of managing intellectual property in just one day: geological and technological models as well as planning from identifying protectable assets to preparing and organizing pilot projects for the introduction of new presentations on commercializing the results of innovative technologies in oil production. The Gazpromneft STC also projects. After the business game, the participants identified drafts, examines, and protects project documentation several protectable results of intellectual activity (RIA) for the fulfilmentof licensing obligations and trains that were created in the course of their work and studied specialists from Gazprom Neft subsidiaries. the mechanism for submitting applications to the Federal Institute of Industrial Property (FIIP). In 2018, the needs In addition, as part of training on intellectual of the Upstream Division will be studied in similar sessions property management, the STC utilized the format and the appropriate decision will be made. of the ‘Intellect-Monetization’ business game for the first time for stakeholders during a visiting session in 2017.

“Continuously enhancing efficiency and the level of technological development is the future of the industry. We intend to take full advantage of the new opportunities and tools of Industry 4.0 while solidifying our status as a technological leader in the industry”. Anatoly Cherner Deputy CEO of the Downstream Division of Gazprom Neft PJSC GAZPROM NEFT І ANNUAL REPORT І 2017 86 // 87

INDUSTRIAL AUTOMATION TECHNOPARK

CORE ACTIVITIES OF THE TECHNOPARK: The Gazprom Neft Industrial Automation Technopark (Omsk), which was established as part of the import substitution instrumentation and automation (IA) – pressure strategy, is a unique platform for research and development, and temperature sensors, analysers, etc.; pilot testing, and the development of high-tech solutions automated process control systems (APCS) – distributed for the automation of oil refineries. The technopark control systems, emergency protection systems, includes several functional clusters: training, testing, and software and logic systems; developments, data processing centre (DPC), co-working manufacturing execution systems (MES) for dispatching and a communications centre, where working meetings and scheduling as well as laboratory information as well as scientificand practical conferences are held. management systems; high-tech solutions (BTP) – modelling and optimization of processes, monitoring and diagnostic systems, and computer training systems.

CORPORATE INFORMATION DIGITAL INNOVATIONS CENTRE TECHNOLOGIES TECHNOPARK

In 2017, the Company worked on creating a Digital Innovation Gazprom Neft founded the Corporate Information Centre that would unite the efforts of Gazprom Neft, Technologies (CIT) Technopark in St. Petersburg, which start-ups, developers, and the scientific community.1 aims to establish direct interaction between developers Its objective is to develop breakthrough digital products and manufacturers of IT solutions in the oil and gas industry. for the development of Gazprom Neft’s unified technological Gazprom Neft provides the participants of CIT Technopark platform in logistics, refining,and sales. The centre with a platform to evaluate and test promising solutions is working on applying big data and blockchain technologies, and innovative technologies. It regularly holds information predictive management, digital twin enterprises, sessions that are designed to present potential customers the industrial Internet of things, and AI-based self-learning with new IT solutions that have proved their effectiveness. systems in the Company's business.

The products will have the opportunity for testing in conditions close to real production at the Industrial Automation Technopark in Omsk or at the Centre. In the future, the Centre also plans to conduct hackathons and expert technological sessions.

1 — The Centre opened after the reporting year in April 2018. OVERVIEW OF RESULTS SAFE DEVELOPMENT

THE LIVES AND HEALTH OF EMPLOYEES ARE A KEY PRIORITY FOR GAZPROM NEFT. THE COMPANY’S STRATEGIC GOAL IN TERMS OF OCCUPATIONAL SAFETY (OS) IS DEFINED AS ‘GOAL – ZERO: NO HARM TO PEOPLE, THE ENVIRONMENT, OR PROPERTY WHEN PERFORMING WORK’. GAZPROM NEFT IS COMMITTED TO BECOMING ONE OF THE WORLD’S LEADING OIL AND GAS COMPANIES IN THIS REGARD.

GOALS OF THE OCCUPATIONAL To achieve the ‘Goal – Zero’, the Company is improving the risk management SAFETY POLICY: system in occupational safety, investing in advanced technologies that strengthen the reliability of its assets, and enhancing its safety culture. reducing industrial injuries, occupational diseases, accidents, The Company has identified five key areas in its activities to achieve and any negative environment the ‘Goal – Zero’. Within these areas, each manager of Gazprom Neft has impact; committed to enhancing the level of safety at the Company. These commitments organizing safe production are reflected in the performance targets of managers. based on a constant analysis and the minimization of production The fundamental corporate document that defines the principles risks; of the Company’s activities and obligations is the corporate Occupational Safety introducing the best global Policy (OS Policy). practices in this field. All enterprises of the group of companies have an occupational safety management system.

PRIORITIES OF THE OCCUPATIONAL SAFETY STRATEGY

LEADERSHIP AND CULTURE Main aspects of safe conduct and a leading role by all levels of executives in achieving this goal CONTRACTOR MANAGEMENT Improving the effective management of the execution of contracts with contractors in occupational safety matters ASSET RELIABILITY Ensuring the safe operation of existing assets and their reconstruction as well as the safe design and construction of new facilities RISK MANAGEMENT Further integration of OS risks and environmental aspects in the Company’s overall risk management system and developing risk management and assessment skills among personnel TRANSPORT SAFETY Ensuring traffic safetyand a reduction in accident rates among the Company’s vehicles ORGANIZATIONAL MODEL Supporting all work by developing OS functions as well as the relevant skills of employees GAZPROM NEFT І ANNUAL REPORT І 2017 98 // 99

The Corporate University of Gazprom Neft has had an Occupational Safety Department since 2016. Its training programmes are developed by external and corporate experts.

The Management Board has a joint Committee on the Operational Management STAGES OF THE ‘STEPS’ STRATEGY System (OMS) and OS. It consists of members of the Board, directors of production units, and department heads. Assessment and selection of candidates, training, Gazprom Neft is committed to ensuring a constant increase in the level of industrial and conclusion of a contract safety, conducts comprehensive work to minimize the accident rate of equipment and occupational injuries, and is also introducing the best world practices and advanced technologies in this area.

When developing occupational safety and labour protection programmes, Performance of work. Gazprom Neft relies on an occupational safety risk map. The list of such risks Management of the effective is regularly updated. The Company uses advanced international methods to assess activities of the contractor manmade risks. The goal of such methods is to convey an important rule: don’t start work if you’re not confident that it can be safely performed. To minimize security risks, Gazprom Neft is introducing effective methods of production control and is developing a safety culture. The Company considers the occupational safety training system to be the basis for the formation of such a culture. Conclusion of the contract and the final rating The Corporate University of Gazprom Neft has had an Occupational of the contractor Safety Department since 2016. Its training programmes are developed by external and corporate experts. Internal coaching plays a key role in achieving the ‘Goal – Zero’. In particular, internal coaches trained more than 7,000 of the Company’s employees internally in 2017, while roughly 20,000 employees Contractors are linked took part in communication sessions. to the implementation of the Company's strategy in occupational safety. The ‘Steps’ strategy specifies the uniform requirements of occupational safety 2013 2014 2015 2016 2017 for the performance of work/ services, describes the sequence OCCUPATIONAL SAFETY TRAINING for the execution of the steps FOR EMPLOYEES (PEOPLE) of the process from the start of initiating Source: Company data a contract to its completion, and determines the roles and responsibilities of the participants required to implement the process. 16,080 14,014 11,667 13,973 13,408

Occupational safety training 5,391 3,901 3,852 6,610 5,839 Contractors are also part Industrial safety training 8,776 8,807 6,620 6,231 6,092 of the corporate safety training Environmental safety training 1,913 1,306 1,195 1,132 1,477 system. In 2017, representatives of contractors underwent roughly 12,000 courses in occupational safety and 61,000 courses as part of cascading communications on basic safety rules. OVERVIEW OF RESULTS

OCCUPATIONAL SAFETY ARCTIC ENVIRONMENTAL PROTECTION

2013 2014 2015 2016 2017 Gazprom Neft Shelf LLC took LTIFR INJURY RATE part in the complex ‘Arctic-2017’

Source: Company data exercises under the leadership of the Ministry of Natural Resources and Environment of the Russian Federation.

0.44 0.52 0.472 0.402 0.326 The exercises aimed to improve the level of preparation for the clean-up of an oil spill 2013 2014 2015 2016 2017 over an area of 5,000 m3 near the Prirazlomnaya platform NUMBER OF INCIDENTS AT HAZARDOUS and the protection of the coastal PRODUCTION FACILITIES (INCIDENTS) strip of Varandey village Source: Company data from the oil spill in icy conditions. The results of the exercises demonstrated the Company’s readiness to cope with oil spills 3,299 2,876 2,512 2,385 2,183 at sea and in the coastal area.

2013 2014 2015 2016 2017 an increase of 14% compared NUMBER OF INJURIES IN WORKPLACE with 2016. The themes of the events ACCIDENTS (PEOPLE) were determined in accordance Source: Company data with the specific production activities in a particular region.

The corporate employee health safety 33 43 41 38 36 system includes: disease prevention (accreditation The Company’s main programmes In 2017, the Company did not have any of clinics, thorough medical for enhancing the level of occupational accidents or manmade emergencies examinations, and the formation safety: at its production facilities. The number and monitoring of risk groups an expert assessment of equipment of accidents involving equipment for cardiovascular diseases); safety and harmonising production (incidents) decreased by 8.5%. emergency response (first aid/ facilities with the requirements To the Company’s deepest regret, fatal medical assistance, transportation of occupational safety standards accidents were not eliminated entirely, to clinics, first aid training); and rules; but their number decreased from three promotion of a healthy lifestyle the modernization of emergency in the previous year to one last year. (organizing vaccinations, shutdown systems; promoting a healthy lifestyle, the prevention and management The Company is doing everything preventing alcohol and drug use, of emergency situations; possible to prevent such and an insurance system). monitoring compliance a tragedy from repeating. The special with occupational safety commission that was formed As it develops responsibility throughout requirements; to investigate the incident conducted the entire supply chain, Gazprom Neft ensuring safe work conditions; a detailed analysis, identified its is introducing a new health safety measures to protect workers’ causes, and took action to minimize focus – ‘Contractor management’ – health; the risk of such an incident reoccurring. in which the Company controls training of the Company’s employees medical examinations by employees in occupational safety. Gazprom Neft continues to develop of contractors and organizes effective a system to prevent emergencies. emergency medical responses Investment in enhancing occupational The Company held 370 exercises for them, among other things. safety in 2017 amounted1 and training sessions on civil to RUB 54 billion. defence and emergency situations, 1 — Data given without joint and foreign assets. GAZPROM NEFT І ANNUAL REPORT І 2017 100 // 101

MITIGATING NEGATIVE ENVIRONMENTAL IMPACTS

The careful and sustainable use of natural resources and minimizing environmental risks are key priorities in Gazprom Neft’s activities. As it seeks to achieve its goal of zero environmental damage, the Company consistently Investment reduces its environmental footprint, introduces best practices, inventions, in environmental and technologies for nature protection, and improves the environmental training protection during system for its employees. the reporting year Gazprom Neft is bolstering risk management in matters of environmental safety totalled and maintains constant environmental monitoring and industrial environmental control. An analysis of the environmental impact of production activities RUB BN is carried out during all stages of the production life cycle, starting with front- end engineering design. An assessment of the potential environmental impact, environmental monitoring, and an independent expert examination are all 27.1 mandatory when taking management and investment decisions.

When planning new projects, Gazprom Neft enterprises assess the environmental impact of the planned activities. Based on the results of the analysis, the best available technologies (BAT) that aim to mitigate any negative impact are introduced during all stages of the project.

MAIN ENVIRONMENTAL PROGRAMMES OF GAZPROM NEFT

Environmental aspect Key programmes Indicators

ATMOSPHERE Target gas programme Reduction in specific pollutant Oil refinery modernization programmes using BAT emissions into the atmosphere Recovery and purification systemsfor emissions Reduction in specific greenhouse gas from petroleum product facilities emissions Increase in the level of APG utilization

WATER Construction of new treatment facilities as part Reduction in wastewater discharge RESOURCES of modernization of oil refineries Eliminating the discharge Wastewater quality control of contaminated and insufficiently treated sewage

LAND The ‘Clean Territory’ project (corrosion diagnostics Reduction in pipeline failure indicators RESOURCES and monitoring and the reconstruction and replacement Restoration of soil fertility of pipelines) in the ecosystems of production areas Programmes for the reclamation of oil contaminated Introduction of new technologies lands for the reclamation of saline lands Reclamation of disturbed lands by sludge pits and sludge collectors Pilot testing of treatment technologies for saline land

PRODUCTION Programme for the disposal/neutralization of oily waste Increase in the proportion of waste WASTE Programme for the disposal of drilling waste shipped off for disposal and utilization

PRESERVING Programme for the preservation of the biodiversity Reduction BIODIVERSITY of marine ecosystems in the Arctic zone of the Russian in the impact on the biodiversity Federation of regions of operations Programmes for the preservation of biodiversity Preservation of the natural abundance in the regions where the Company operates and dynamics of biological species OVERVIEW OF RESULTS

YEAR OF ECOLOGY

As part of the Year of Ecology in Russia, Gazprom Neft drafted non-industrial measures such as environmental and implemented a special plan of environmental protection monitoring, preserving biodiversity, and providing measures in 2017 to solve key ecological challenges. support for federal and international environmental campaigns; Main focuses of the plan: environmental communication – creating platforms the environmental education of personnel; for communication and interaction with stakeholders industrial measures such as the modernization such as NGOs, the state authorities, schoolchildren, of production facilities, the development and students; and implementation of eco-friendly technologies, the special project ‘Green Territory’, which involves mitigating negative environmental impact indicators, creating infrastructure for the separate collection the commissioning of environmental facilities, of waste at the Company’s filling stations and offices and the implementation of energy conservation as well as landscaping and other improvements. programmes;

‘Green seismics’

Technology Е.2 RUB 25 MN 1,300 TREES PER 1 KM2 EXPECTED ECONOMIC EFFECT FOR EACH PROJECT FROM TO BE SAVED FROM FELLING USING THE NEW TECHNIQUE

‘Green seismics’ are a technology that makes it possible and Slavneft-Megionneftegaz. The geological information to avoid cutting down trees in seismic survey area. obtained using this method proved to have the same quality as the results of traditional seismic exploration. Seismic exploration is one of the primary methods used to study the structure of the earth's interior Geologists can monitor the signal from sensors in real and is essential to all mining companies. However, 4-metre time and process the results quickly in the field. The new wide clearings have to be cut in wooded areas to carry technology is easy to use in areas with mountainous out such surveys so that heavy ATVs carrying sensors terrain or infrastructure facilities where it is much easier and pulling cable can pass through them. to set up wireless sensors than traditional sensors. It creates opportunities for working in complex areas ‘Green seismics’ allow for using cable-less recording where seismic surveys of the required quality had systems with compact equipment. Narrow paths previously been considered virtually impossible. with a width of 1-1.5 metres cleared of bushes and undergrowth are sufficientfor light machinery to pass. In addition, the technology has reduced the cost of seismic As a result, the felling of trees can be reduced by 40%. exploration work. The new methodology is expected to produce an economic effect of roughly RUB 25 million For example, roughly 1.2 million trees are cut down per project. for a seismic exploration project in the Khanty-Mansi District with an area of 330 km2 using the conventional In 2017, the Company decided to fully replicate the ‘green method,. Using ‘green seismics’ makes it possible to save seismics’ approach at all its projects. In 2018, two major 450,000 trees. projects are being implemented in the KMAD with total area of 600 km2 using components of this technology. Gazprom Neft first tested such equipment Such work is to be used for several projects at its foreign assets in 2014 (the Middle East project in the KMAD and Orenburg Region with a total survey area in the Kurdish Autonomous Region of the Republic of Iraq), of about 1,000 km2 in 2019. and then at deposits of Gazpromneft-Noyabrskneftegaz, Gazpromneft-Khantos, Gazpromneft-East, GAZPROM NEFT І ANNUAL REPORT І 2017 102 // 103

Overall, the Company spent over RUB 17.5 billion implemented by the Company as part of the Year on implementing more than 1,100 measures as part of Ecology); of the Year of Ecology. the opening of a landfill at the Taylakovskoye field for the disposal and processing of industrial Key results: and household waste at Slavneft-Megionneftegaz OJSC; the commissioning of a gas treatment unit (1st stage) the release of 36 million fish into water bodies; at the Novoportovskoye fieldof Gazprom Neft-Yamal LLC 100 Saturday volunteer work days held in the regions for the injection of associated petroleum gas in order with the participation of over 6,000 people (resulting to maintain reservoir pressure; in the clean-up of more than 1.5 hectares the completion of construction work on the Biosphera of land and the removal of more than 670,000 tonnes biological treatment facilities at the Moscow Oil Refinery of garbage); and the start of construction work on treatment facilities the planting of more than 298,000 shrubs and trees at the Omsk Refinery (the largest project among those as part of public campaigns.

TRADITIONAL SEISMICS ‘GREEN SEISMICS’

Seismic station Seismic station

Heavy Light all-terrain machinery vehicle OVERVIEW OF RESULTS

PROTECTING THE ATMOSPHERE

In 2017, the Company reduced gross emission standard fuel components. air emissions by 26% compared The construction of the new facility In 2017, the Company’s with 2016. This result was achieved will enable the Moscow Oil Refinery through the further modernization to decommission several plants gross air emissions of oil refineries, the implementation of the previous generation, boost declined by of APG utilization programmes, energy efficiencyand industrial safety and an increase in APG consumption levels, and reduce the environmental for oil treatment through the increased impact. extraction of production fluid. The Omsk Oil Refinery produced 26% One way to reduce air emissions the first batchof new marine fuel is to improve the environmental with improved environmental performance of products. attributes. Due to the minimum In the reporting year, the Moscow Oil sulphur content – no more than of Pollution from Ships (MARPOL). Refinery continued to build a Euro+ 0.1% - the product is suitable The new fuel is certifiedin accordance oil refining unit that is designed for use in emission control zones with the requirements of the technical for the primary refiningof oil identifiedby the International regulations of the Eurasian Economic and the production of Euro-5 high Convention for the Prevention Community.

REDUCTION IN GREENHOUSE GAS EMISSIONS

As one of the leaders in the Russian to national legislation on the control an increase in APG consumption oil industry, Gazprom Neft is aware of greenhouse gas emissions. for oil treatment due to an increase of its responsibility to preserve The Company continued in the extraction of production the environment for present and future to develop a programme to increase fluidsat Messoyakhaneftegaz generations. The Company pays the level of APG utilization at all of its JSC and the transition of the gas special attention to the control production assets. This programme turbine power plant’s fuel supply of greenhouse gas emissions – one allows for reducing emissions while from natural gas to APG; of the key environmental problems increasing production efficiency. the commissioning of a 96 MW gas faced by mankind today. Gazprom Neft turbine power plant and an APG supports the implementation Key projects: compression unit at the facilities of the Paris Climate Agreement the commissioning of fuel gas units of the Novoportovskoye field and the Concept to Form a System to meet the fuel needs of a gas to support the injection of APG into of Monitoring, Reporting, and Verifying turbine power plant at the East the reservoir; Greenhouse Gas Emission Messoyakha deposit; the commissioning of compressor Volumes in the Russian Federation stations at the Shinginskoye and also adheres and West Luginetskoye fields.

2013 2014 2015 2016 2017 The higher amount of flared APG PRODUCTION AND USAGE APG is due to an increase (MN M3) in oil production at the East Source: Company data Messoyakha, Novoportovskoye, and Urmano-Archinskoye fields. The construction of infrastructure for APG utilization at these assets 5,387 6,128 6,498 7,583 8,708 is in the final stage. GAZPROM NEFT І ANNUAL REPORT І 2017 104 // 105

WASTE MANAGEMENT

Gazprom Neft is developing an industrial waste management system that aims to optimize waste flows, mitigatethe environmental impact, reduce the economic The increase in waste generation cost of waste generation, and maximize the possible use of waste. during the reporting year is due to higher drilling volumes as well In 2017, the subsidiaries of the Upstream Division introduced a concept as the active development of Arctic for the utilization of drilling waste in order to mitigate environmental risks projects. and unify waste management requirements. The concept takes into account the infrastructure of the fieldsunder development, the existing technologies for neutralizing drilling waste, key performance indicators, and well construction methods.

PROTECTING WATER RESOURCES

When using water resources, Gazprom Neft seeks to reduce water consumption and discharges in wastewater as well as improve the environmental attributes of water bodies and their coastal areas. In 2017, the Moscow Oil Refinery completed construction In 2017, the Moscow Oil Refinery completed construction on the Biosphera on the Biosphera innovative innovative biological treatment facilities, which will purify water at a level consistent biological treatment facilities, with global standards. Construction has begun on similar structures at the Omsk Oil Refinery. which will purify water at a level consistent with global standards.

2013 2014 2015 2016 2017

STRUCTURE OF WATER CONSUMPTION (MN M³)

Source: Company data

The withdrawal of water from surface sources has Total water consumption 174.1 177.2 174.4 177.5 169.5 increased due to heightened requirements for reservoir From underground sources 133.6 135.9 141.0 133.0 122.6 pressure maintenance systems. From surface sources 32.9 33.7 32.7 36.4 40.2 Received from other organizations 7.6 7.7 0.7 8.1 6.7

2013 2014 2015 2016 2017

WATER USAGE (MN M³)

Source: Company data

Use in water recycling systems 396.7 406.5 393.7 403.1 341.6 Transfer to other consumers without use 179.3 180.3 107.1 184.9 19.3 Use in water reuse systems 17.8 18.0 18.1 18.6 165.4 OVERVIEW OF RESULTS

PROTECTION OF LAND RESOURCES AND VEGETATION

Gazprom Neft reclaims disturbed 2013 2014 2015 2016 2017 and contaminated land and sludge pits by introducing advanced technologies RECLAMATION OF OIL CONTAMINATED LAND (HA) for pipeline monitoring and diagnostics

Source: Company data and restoring soil (taking into account the soil and climatic conditions of the regions).

138.46 388.6 183.9 86.5 86.9 In 2017, Gazpromneft- Noyabrskneftegaz JSC conducted the pilot testing of recultivation technologies for saline lands. Washing 2013 2014 2015 2016 2017 the soil layer with water and using agronomic and biological methods RECLAMATION OF SLUDGE PITS (UNITS) of reclamation revealed it was

Source: Company data possible to accelerate the adaptation and purificationof soils. Based on the testing results, a decision will be made on the feasibility

124 90 44 3 7 of introducing the technology at the Company’s facilities.

PRESERVING BIODIVERSITY

Gazprom Neft is implementing a perpetual corporate programme to preserve biodiversity based on a list of floraand fauna that serve as indicators of the stable Starting in 2017, the Company condition of the marine ecosystems in Russia’s Arctic zone. introduced action programmes In particular, the Company carries out environmental monitoring of its impact to preserve biodiversity for all on the Arctic ecosystems (in the area of its operations), and since 2010 has been its assets located in Russia. implementing a programme to study and preserve the Atlantic walrus. Studies conducted in 2017, including toxicological and genetic analyses of biological samples, did not reveal any significant changes.

Starting in 2017, the Company introduced action programmes to preserve biodiversity for all its assets located in Russia. The implementation of these programmes will be continued in full in 2018. GAZPROM NEFT І ANNUAL REPORT І 2017 106 // 107

ENERGY CONSUMPTION AND ENERGY EFFICIENCY

The steady growth rates in the Company’s production have resulted in increased at the Company’s facilities starting consumption of energy resources in recent years. Aware of the human impact from 2012. The Energy Conservation of these processes, Gazprom Neft has increased the energy efficiencyof its and Energy Efficiency Programme production assets and is working to reduce the consumption of energy resources. serves as the main tool for achieving the Company’s planned energy The Company adheres to the Gazprom Neft Energy Policy, which serves efficiency indicators. as the foundation for the Energy Management System (EMS). The EMS meets the requirements of ISO 50001:2011. The EMS has been gradually introduced

UPSTREAM DIVISION

The EMS was introduced at Gazpromneft-Yamal LLC and Messoyakhaneftegaz JSC NEW TECHNOLOGIES IN THE ARCTIC in 2017.

In 2017, Gazpromneft-Yamal The Energy Efficiency Programme exceeded its targetsin 2017. Energy savings launched the pilot testing totalled 466 million kWh (RUB 1.501 billion). of the YURTA combined wind- solar power plant. The key energy efficiency indicator for the Upstream Division is the specific electricity consumption for liquid extraction, which totalled 28.98 kWh/t in 2017, The power plant has capacity or 1.4% below the planned level for the year. of 47.5 kW and is designed to supply power to a group During the reporting year, the Upstream Division drafted and implemented of line-to-line consumers. the Programme for the Improved Reliability and Modernization of Electrical The hybrid technology Equipment and Networks, which included 102 measures. Implementing these will significantly reduce measures made it possible to significantly reduce oil shortages during emergency the cost of power supplies power outages compared with 2016. to long-distance and remote sites from network infrastructure facilities due to the lack of a need to build power lines.

TOTAL ENERGY CONSUMPTION BY THE UPSTREAM DIVISION

Indicator 2013 2014 2015 2016 2017 Electricity consumption (purchased + generated) (MWh) 6,032,738 6,177,164 6,419,919 6,298,276 6,064,268 Change vs. previous period (%) 6.0 2.4 3.9 (1.9) (3.7) Thermal energy consumption (internally produced and purchased from third-party suppliers) (GJ) 1,218,555 1,064,758 982,015 996,644 1,124,180 Change vs. previous period (%) 1 13 8 1 12.81

1 — The growth in thermal energy consumption is due to the introduction of new boiler houses at Gazpromneft-Vostok and boiler houses at the major projects of the Messoyakha and Novoportovskoye fields. OVERVIEW OF RESULTS

The Company adheres to the Gazprom Neft Energy Policy, which serves as the foundation for the Energy Management System (EMS). The EMS meets the requirements of ISO 50001: 2011.

DOWNSTREAM DIVISION

In 2017, the enterprises of the Downstream Division continued implementing the measures of the integrated Energy Conservation Programme. As a result, MOSCOW OIL REFINERY BOOSTS ENERGY EFFICIENCY the Downstream Division exceeded the target for the savings of fuel and energy resources, which amounted to: thermal energy – 279,400 Gcal; The modernization and repair of key facilities at the Moscow Oil fuel – 137,500 TOE; Refineryin 2017 made it possible electricity – 18.9 mn kWh. to reduce the refinery’s fuel consumption by 2.1% and thermal Overall, energy-saving activities made it possible to save 7.8 TJ of heat, energy consumption by 0.9%. electricity, and fuel. The economic effect exceeded the targets and amounted to RUB 929.7 million. The main contribution to the reduction In 2017, Gazpromneft-Aero and Gazpromneft-BM joined the Energy Conservation in fuel consumption came Programme, which as a result now includes the energy conservation measures from the modernization of the Downstream Division’s 49 production assets. of the process furnaces of the Crude and Vacuum During the reporting year, Slavneft-YANOS OJSC and the Omsk Lubricants Plant Distillation Unit Complex-6, which were included in the unified EMS of the Downstream Division. account for 19% of the plant’s total energy consumption, In addition, due to the implementation of the measures of the integrated and the completion Programme for the Increased Reliability of Power Supplies for Oil Refining of their transition from liquid Enterprises, the number of power supply violations at oil refineries decreased to eco-friendly gas fuel. In by 15% compared with 2016. addition, the installation of modern energy-efficient equipment and the transfer of the entire plant’s lighting system to energy- saving technologies contributed to the energy savings.

CONSUMPTION OF PURCHASED ENERGY IN THE DOWNSTREAM DIVISION

Indicator 2013 2014 2015 2016 2017 Purchased electricity (minus electricity transferred to third parties) (MWh) 3,322,147 3,262,669 3,340,550 3,400,210 3,236,805 Change vs. previous period (%) 6.4 (1.8) 2.4 1.8 (4.81) Purchased thermal energy (minus electricity 17,373,245 16,581,709 16,081,895 15,186,997 15,531,129 transferred to third parties) (GJ) Change vs. previous period (%) 3.1 (4.6) (3.0) (5.6) 2.27 GAZPROM NEFT І ANNUAL REPORT І 2017 108 // 109 HUMAN RESOURCE DEVELOPMENT

GAZPROM NEFT’S EMPLOYEES ARE THE COMPANY’S KEY ASSET AND STRATEGIC PARTNERS IN ACHIEVING ITS SUSTAINABLE DEVELOPMENT GOALS. THE GAZPROM NEFT TEAM INCLUDES PROFESSIONALS WITH A HIGH LEVEL OF INVOLVEMENT WHO SHARE THE COMPANY’S VALUES. TAKING CARE OF THEIR WELL-BEING AND ATTRACTING AND RETAINING THE BEST EMPLOYEES IS A TOP PRIORITY FOR GAZPROM NEFT.

The human resources strategy is directly linked to the overall strategy of Gazprom Neft and aims to achieve the Company’s key goals by providing BEST EMPLOYER OF RUSSIA it with the required number of qualifiedand engaged employees in the present and the future. Gazprom Neft confirmed its status as one of the country’s best employers in 2017 KEY FOCUSES OF THE HR STRATEGY: by winning a number of awards.

systematic recruitment and rotation of personnel; talent management, competency development, and training; development of an incentive system and culture of engagement; The Company ranked first growth in productivity and organizational efficiency; among employers in the energy sector based on the results improved efficiency of HR functions. of the International Randstad Award 2017 and finished second In addition, the Company conducts systematic work to attract, engage, and retain in the Employers of Russia qualified personnel.The employee incentive and training system, the development rating compiled by the recruiting of a corporate culture, and the establishment of a talent pool all aim to meet these company HeadHunter. challenges. Gazprom Neft respects human rights, provides equal opportunities, Gazprom Neft was among and does not discriminate based on nationality, sex, origin, age or any other the top three employers in Russia grounds. for engineering students according to the Universum Top 100 Russia rating.

This section is presented in the interactive version of the Sustainable Development Report of Gazprom Neft PJSC for 2017: https://csr2017.gazprom-neft.com/hr-development/ OVERVIEW OF RESULTS

Gazprom Neft respects human rights, provides equal The proportion opportunities, and does not discriminate based of blue-collar workers on nationality, sex, origin, age or any other grounds. at the Company in 2017 was 50%

PROFILE OF PERSONNEL

In 2017, Gazprom Neft employed over 67,800 people.1 Blue-collar workers make up STRUCTURE OF COMPANY PERSONNEL BY half of all personnel, while executives, specialists, and office employees account CORE ACTIVITY AS OF 31 DECEMBER 2017 for the other half. (PEOPLE) Source: Company data A total of 17,184 employees joined Gazprom Neft in the reporting year, while 16,093 people left the Company. The turnover rate was 15.1% in 2017, which is consistent with the 2016 level.

67,882 PEOPLE 2013 2014 2015 2016 2017

NUMBER OF PERSONNEL BY GENDER (%)

Source: Company data

20,547 Petroleum product sales 11,559 Production 5,955 Multi-profile enterprises Women 38 40 39 39 41 4,948 Oil refining Men 62 60 61 61 59 4,370 Oilfield service and geological exploration 5,151 Product subsidiaries 965 Research 14,387 Other

2013 2014 2015 2016 2017

NUMBER OF PERSONNEL BY AGE (%)

Source: Company data

Over 50 19 19 19 16 15 30–50 58 57 57 61 63

Under 30 23 24 24 23 22 1 — Average number of employees as of 31 December 2017. GAZPROM NEFT І ANNUAL REPORT І 2017 110 // 111

REMUNERATION AND SOCIAL SUPPORT FOR PERSONNEL The number of Company employees who are union REMUNERATION SYSTEM OF GAZPROM NEFT members and are covered FINANCIAL Basic remuneration by collective bargaining COMPONENT Bonuses agreements in 2017 Benefits (voluntary medical insurance, vacation payments, housing programme, private pension totalled roughly provision, etc.)

PROFESSIONAL Training and development system COMPONENT Professional and career development system Non-financial incentive programmes SOCIAL Social support programmes for employees 13,000 COMPONENT and their families PEOPLE

The personnel remuneration system is linked to the Company’s overall strategy The Company actively cooperates and aims to ensure competitive remuneration, retain and develop talented with trade union organizations personnel, and support the career and professional growth of employees. when drafting and implementing HR and social policy programmes. A number of large-scale projects were launched in 2017 in order to enhance In particular, changes the effectiveness of variable compensation. Specifically, the Upstream Division to the system of Gazprom Neft’s implemented an incentive programme that aims to create a culture of efficiency social benefitsare discussed jointly and careful production. Unifying bonus systems in the sales division reduced with representatives of trade union the number of compensation formulas and increased their transparency organizations, the heads of HR services for employees. hold meetings with each other, and measures are taken to create safe working conditions. The Company established commissions to work 2013 2014 2015 2016 2017 with young people, which protect the interests of young employees AVERAGE MONTHLY SALARY OF GAZPROM NEFT EMPLOYEES (RUB) and are involved in programmes for the adaptation of new specialists. Source: Company data

67,054 84,775 100,222 104,919 112,942

PERSONNEL EXPENSES (RUB MN)

Indicator 2013 2014 2015 2016 2017 Payroll 45,040 58,510 74,400 79,316 86,600 Social payments 3,186 2,097 2,432 3,260 3,176 TOTAL 48,226 60,607 76,832 82,576 89,776 OVERVIEW OF RESULTS

TRAINING AND DEVELOPMENT OF PERSONNEL

The training and development system encompasses all categories of the Company’s personnel as well as target groups of potential employees, including schoolchildren IN 2017 and students. The Corporate University of Gazprom Neft serves as the centre for knowledge Training encompassed management. It was established in 2016 and brought all training practices over 80% of personnel under one roof. The corporate university has a services platform model that throughout the Group is unique for the corporate training market – a marketplace, which makes of Companies. it possible to not only attract external providers for training, but to also establish communication between employees who need to learn and employees who can teach. This model allows for implementing strategic goals in HR management Over 16,000 managers given the rapidly growing pace of changes in the external environment and create and specialists received training a stimulating educational environment at such a large, geographically distributed in targeted programmes company as Gazprom Neft. at the Corporate University.

The Crystal Pyramid awards ceremony was held during the Summit of HR Directors of Russia and the CIS in October 2017. The Corporate University of Gazprom Neft The professional departments received two awards at the ceremony – first place in the ‘Digital Transformation’ of the Corporate University category and third place in the ‘Best Corporate University’ category. employed 1,033 internal trainers and experts of the Company.

Employees took more than 85,000 online courses via 2013 2014 2015 2016 2017 the Corporate University portal.

NUMBER OF EMPLOYEES WHO UNDERWENT TRAINING (PEOPLE) Over 40 internal online Source: Company data professional communities were established.

42,094 50,939 50,395 52,582 55,891

DEVELOPMENT OF A TALENT POOL

The Company is developing the ‘School – Secondary Specialized College/ candidates are considered based University – Enterprise’ human resources system to provide the Company on the results of an annual evaluation with highly skilled personnel in the present and future. It includes career guidance of their activities and potential. work with high school students, targeted education at higher and secondary In 2017, the regular performance educational institutions, and a system to recruit employees with high potential assessment encompassed more than and plan their careers. 19,000 employees, a 50% increase from the previous year. Meetings of the Talent Committee – collective meetings of management teams – are a key tool in selecting candidates for the talent pool. Specialist GAZPROM NEFT І ANNUAL REPORT І 2017 112 // 113 REGIONAL POLICY AND DEVELOPMENT OF LOCAL COMMUNITIES

ONE OF GAZPROM NEFT’S KEY PRIORITIES IN SUSTAINABLE DEVELOPMENT IS TO EXPAND THE COMPETITIVENESS OF THE TERRITORIES WHERE INTERACTION WITH INDIGENOUS PEOPLES OF THE NORTH, SIBERIA, IT OPERATES AND IMPROVE THE QUALITY OF LIFE OF THE PEOPLE LIVING AND THE FAR EAST (IPNR) THERE. THE COMPANY IS A RELIABLE PARTNER FOR THE GOVERNMENT AND SOCIETY IN TERMS OF RESOLVING REGIONAL DEVELOPMENT PROBLEMS The Company engages AND IS DEVELOPING A SOCIAL INVESTMENT PROGRAMME IN CLOSE in production activities in areas PARTNERSHIP WITH ALL STAKEHOLDERS. where indigenous peoples of northern Russia (IPNR) reside in the Khanty-Mansi and Yamalo-Nenets Autonomous PRIORITIES OF GAZPROM NEFT Districts. IN ITS INTERACTION WITH THE REGIONS: In exploring and developing fields, ensuring environmental safety and minimizing the Company’s environmental Gazprom Neft strictly observes impact; the rights of indigenous peoples cooperation with the regional and municipal authorities to ensure and engages in a dialogue the sustainable development of the regions; with them. creating a competitive environment on regional labour markets; expanding cooperation with stakeholders; The Company provides ensuring information transparency for all stakeholders. financial support to indigenous communities, cares about preserving their national The Company is developing various tools to support regional development. identity, and promotes In particular, road maps that Gazprom Neft signed with the Tomsk and Tyumen the development of cultural ties Regions in 2017 call for the use of high-tech products, including import-substituting between communities. A key products, from local suppliers in the Company’s production activities. focus of Gazprom Neft’s activities is to attract public attention The Company is also involved in the development of industrial clusters in the regions. to traditional occupations During the reporting year, Gazprom Neft began setting up the Bazhen Technological and crafts. In 2017, the Company Centre in the Khanty-Mansi Autonomous District-Yugra, which will develop cost- approved the Corporate Policy efficient methods for the extraction of hard-to-recover oil reserves from the Bazhenov ‘Interaction with Indigenous formation using the Company’s advanced technologies and competencies. Minorities of the North, Siberia, and the Far East’ as well as a guideline that clearly For more on the Bazhen Technological Centre project, see page 32 specifiesthe mechanisms and focuses of work in this area.

“Gazprom Neft has become a reliable partner and a recognized expert in the development of the regions. We engage the best specialists to implement effective humanitarian and infrastructure projects, hold grant competitions, and are developing corporate volunteering. Developing human capital remains the key goal of our social investments”. Alexander Dybal Deputy CEO for Corporate Communications of Gazprom Neft PJS OVERVIEW OF RESULTS

The Company has been implementing the ambitious Native Towns social investments programme since 2013. The programme takes an integrated approach to creating an environment that is conducive to the development SINCE 2013: of the regions in which the Company operates through supporting projects that encompass all aspects of public life. KEY FOCUSES OF THE NATIVE TOWNS SOCIAL INVESTMENTS PROGRAMME 35 ‘Towns for people’ REGIONS Creation of a high-quality urban environment that is competitive OF RUSSIA with the opportunities offered by major towns and cities, and expanded prospects for the personal fulfilment of residents

‘Fields of victory’ Fostering a healthy generation and the establishment of prominent regional sports schools >2,100 PROJECTS ‘New horizons’ IMPLEMENTED Establishment of equal education opportunities for children from large and small cities

‘Cultural code’ Development of the cultural potential of the regions 100 ‘Preserving traditions’ PARTNER Support for the traditional ways of life of indigenous peoples ORGANIZATIONS of the Russian north and facilitating their integration into the modern economic and social landscape

Gazprom Neft’s social investments programme aims to support systemic positive changes in the regions by engaging local residents and enhancing their social 144 activities. The Company views stakeholders as partners in implementing social programmes, and this cooperation is a key condition for systemic long-term INFRASTRUCTURE changes. FACILITIES BUILT Tools for the implementation of the Native Towns programme: agreements on socioeconomic cooperation with the regional and local authorities; the Company’s own social projects; grant competitions for social initiatives; corporate volunteering; The Company support 221 projects targeted corporate charity. and 13 subsidiaries of Gazprom Neft took part in the programme. Grant In 2017, the Company implemented socioeconomic agreements competitions for social initiatives were with the governments of 21 regions of the Russian Federation held in six regions and the grant fund and the administrations of 20 municipalities. Under the agreements, the Company totalled RUB 26 million. As a result invested funds in the construction and modernization of social infrastructure of the competitions, 112 projects in the regions. The biggest social facilities included the Native Towns in Khanty- put forward by local residents were Mansiysk with 120 apartments and an ice stadium in Muravlenko. launched. GAZPROM NEFT І ANNUAL REPORT І 2017 114 // 115

KEY SOCIAL PROJECTS OF 2017

held in Tyumen, St. Petersburg, Noyabrsk and Muravlenko hosted Tomsk, Orenburg, and Noyabrsk. the traditional Native Town urban The Gazprom Neft The joint project Creative Practices festival, which has become volunteer movement of the Company and the Faculty a significant cultural eventfor cities. includes of Liberal Arts and Sciences The programme of the festivals, of St. Petersburg State University which feature the active involvement seeks to finda solution to urban of local residents, includes problems using creative industries. entertainment, interactive, The intensive programmes and intellectual events. are conducted by prominent Russian The fourth contest of Gazprom Neft 4,567 and international experts: urban volunteer projects was held PEOPLE specialists, economists, and cultural in 2017. The competition experts, among others. resulted in the implementation The Calvert Forum Siberia, of 58 initiatives. The Gazprom Neft an international conference volunteer movement includes on creative industries 4,567 people and is developing in Russia, was held in Tyumen in 38 Russian cities. The key focuses with the Company’s support. It was are donation, support for young The Stenograffia street art festival attended by Chairman of the Board people who reside at and have was held in 10 cities, including of the Centre for Strategic Research left orphanages and boarding in Tomsk for the first time. Alexey Kudrin, Chairman schools, environmental campaigns, As part of the festival, street artists of the Gazprom Neft Management landscaping and urban create artworks that brighten up Board Alexander Dyukov, Governor beautification. During the reporting the monochrome urban environment of the Tyumen Region Vladimir year, Gazprom Neft's volunteer of the northern regions. Yakushev, Calvert Foundation projects won three awards The ‘Multiplying Talent’ oil- and gas- Director Nonna Materkova, in the ‘Good Deed Champions’ themed competition was attended and over 250 Russian and foreign competition organized by 2,366 students, including experts. by the Association of Managers schoolchildren from the Orenburg St. Petersburg hosted Strelka of Russia. Region and Omsk for the first time. Week – a series of free educational The finalistsof the senior section events conducted by experts of the tournament, which aims from the Strelka Institute for Media, to promote scientific and technical Architecture, and Design. More than professions, received certificates 5,000 people attended lectures, AWARDS from Gazprom Neft’s partner Peter workshops, and discussions the Great St. Petersburg Polytechnic on new approaches to studying The Company’s social University, which provided and developing the urban programmes received awards the students additional points upon environment. at the ‘Corporate Charity admission to this university. The ‘DIY City’ social projects Leaders’ contest founded Fifty-two talented young laboratory, which was launched by the Donors Forum in 2017. mathematicians were awarded in 2016, held its first training session scholarships and prizes as part for participants. Ten local residents of the ‘Mathematical Progression’ whose ideas for transforming project to develop fundamental the urban environment were science. The project offers selected from among 40 applications Prizes were awarded to the ‘DIY City’, ‘Mathematical Progression’, schoolchildren the opportunity received expert support and training and ‘Stenograffia’ projects. to enter a prestigious university in social design. in the country, grants The ‘People Need You’ contest scholarships to talented students, of student social projects was and provides financial support held with Gazprom Neft’s support. The Company won awards to young researchers in applied The finalof the competition in the categories ‘Information Transparency of Organizations’ and theoretical mathematics. featured 47 of 143 student teams and ‘Evaluation of social projects’. Intensive educational from different regions. The authors courses on the development of the projects received training of the urban environment were and consultations from experts.