MANAGEMENT SYSTEM GOVERNANCE SYSTEM ADDRESS FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS Dear Shareholders and Investors, Gazprom Neft’s key objective for the period until 2025 at priority projects and tools for implementing Gazprom is to increase shareholder value through the effective use Neft’s technology strategy. The Company also approved its of the resource potential and the greater incorporation target environmental indicators for the period of 2017-2019, of oil reserves in development, the establishment of new which take into account the specificsof production activities, sources of business growth, and a maximum return the Company’s development plans as well as environmental on investment in new projects. In 2017, Gazprom Neft made measures at Gazprom Neft industrial facilities. steady progress towards achieving its strategic goals, continued to consistently improve its production indicators, The principles of corporate governance at Gazprom Neft and demonstrated strong financial results. are based on the meticulous observance of the rights and interests of shareholders and strict compliance This is largely a reflectionof the Company’s effective with the requirements of Russian law. Adhering management and the high quality of the decisions made to the recommendations of the Code of Corporate while clearly adhering to the path specified in the long-term Governance, each year the Board of Directors analyses strategy. its own activities and reviews an assessment of the state of corporate governance at the Company. The assessment The Board of Directors plays the most important conducted in 2017 confirmed that such key components role in resolving strategic issues that aim to ensure of the corporate governance system as Shareholder Rights, the sustainable development of Gazprom Neft’s business. Information Disclosure, and Corporate Social Responsibility This management body focused on the fulfilmentof Gazprom are consistent with best practices. Neft’s strategic performance indicators in 2017 as well. The Board of Directors concluded that Gazprom Neft’s In 2017, the Board of Directors approved a number business developed in full accordance with the long-term of important regulatory documents that ensure the regulation plans and goals outlined in the strategy in 2017. At the same of the Company’s activities. Such documents include time, the decision was made to exclude a target benchmark the Internal Control Policy, the Regulation on Information for oil refining volume abroad from the company's long-term Policy, the Regulation on Insider Information, and the Internal development strategy due to changes in the macroeconomic Audit Policy. environment. Gazprom Neft continues to improve its corporate governance Challenges related to the innovative development of Gazprom system. In doing so, the Company relies on the best Neft were another focus of the Board of Directors, which Russian and international experience and utilizes tools that reviewed the implementation of the Company’s innovative meet its current business needs and aim to improve its development programme for 2016 and took a close look effectiveness. ALEXEY MILLER Chairman of the Board of Directors Gazprom Neft PJSC GAZPROM NEFT І ANNUAL REPORT І 2017 118 // 119 DESCRIPTION OF CORPORATE GOVERNANCE PRACTICE Corporate governance at the Company is based A shareholder user account has been set up on the principle of sustainable development and increasing on the registrar’s website, which enables registered the shareholder value of Gazprom Neft in the long term. individuals to obtain information about the Company’s The Company implements this principle through a system corporate events, accrued dividends and withheld taxes, of responsible interaction that involves building trust payment document numbers and reasons for refunds, with employees, suppliers, customers as well as residents among other things. in the regions where it operates. ACTIVITIES OF MANAGEMENT The corporate governance of Gazprom Neft PJSC features AND CONTROL BODIES a single main shareholder – Gazprom PJSC with a stake of 95.68%. The remaining common shares are distributed The practice of corporate governance in terms of the activities among minority shareholders, including individuals of the management and control bodies is characterized and legal entities, which generally dictates the distribution by the following positive aspects: of the balance of power among those involved in corporate Independent directors have been elected to the Board relations. of Directors since 2012. The Board of Directors is balanced in terms of the work The Board of Directors reviews information on improvements experience of Board members and their key skills that to the corporate governance practice of Gazprom Neft PJSC are required for the Board to work effectively. on an annual basis. Meetings of the Board of Directors are held regularly, with a sufficient number of members and in accordance In general, the Company adheres to legislative requirements with a previously approved plan. and certain standards of best corporate governance The Company utilises the practice of inducting newly practices. elected members of the Board of Directors. The preparation procedure for meetings of the Board of Directors provides Board members with the opportunity PROTECTION OF SHAREHOLDERS’ RIGHTS to properly prepare for the meeting. The Audit Committee and Human Resources The corporate governance practice of Gazprom Neft and Remuneration Committee have been set PJSC features the following positive aspects in terms up under the Board of Directors. The activities of the protection of shareholder rights: of the Committees are governed by the relevant Expanded powers of the Company’s Board of Directors regulations. as regards to decision-making on significant transactions. The Gazprom Neft PJSC Board of Directors evaluates The Company conducts a competitive selection of suppliers its own work and the individual work of its members. of goods and services whose cost exceeds a certain level The purview of the Gazprom Neft PJSC Board of Directors as required by the relevant internal document. The Board includes monitoring major transactions concluded of Directors regularly reviews procurement policy issues. by significant legal entities under the Company’s control. The Company’s positive dividend history. Gazprom Neft PJSC provides liability insurance The hiring of a generally recognised audit company to audit for members of the Board of Directors. the Company’s financial statement per International The Audit Committee and Human Resources Financial Reporting Standards (IFRS) and Russian and Remuneration Committee report on their work Accounting Standards (RAS), and no consulting services to the Board of Directors annually. provided by an external auditor. the Company has developed a regulatory The Company has established a practice for working and methodological framework for risk management with minority shareholders: Gazprom Neft PJSC and set up an internal division to manage key risk regularly meets with investors and shareholders, management functions; holds the ‘Investor’s Day’ event and takes part the Company ensures the comprehensive regulation of any in all major conferences by investment and brokerage conflictsof interests among members of the executive companies. The Company regularly informs investors bodies; and shareholders about its production plans by arranging the functions of the Internal Audit Department onsite meetings at manufacturing and production sites. are consistent with the recommendations of best The Company’s internal documents envisage a procedure corporate governance practices and ensure the functional to update outdated information about shareholders, which accountability of the Internal Audit Department is periodically implemented jointly with the registrar. to the Board of Directors. MANAGEMENT SYSTEM INFORMATION DISCLOSURE SUSTAINABLE DEVELOPMENT AND SOCIAL RESPONSIBILITY The financialand non-financial information disclosure practice features the following positive aspects: Corporate social responsibility and sustainable development The Company discloses information about the structure activities performed by Gazprom Neft PJSC feature of its shareholder capital. the following positive aspects: The Company discloses detailed information The Company has approved internal documents that about members of the Board of Directors govern corporate social responsibility issues. and the Management Board. Gazprom Neft PJSC has adopted a Corporate Conduct The Company discloses information about the structure Code that states its mission, values, core ethical principles of compensation for members of the Gazprom Neft Board and business ethics standards. of Directors and Management Board. The Company implements corporate social projects The Company discloses all the main forms of financial for Gazprom Neft PJSC employees, clients, counterparties statements prepared in accordance with IFRS and RAS. and people living where the Company operates in addition The disclosed statements are accompanied by the relevant to charitable and sponsorship projects. audit reports. The Company prepares a social report that meets GRI Gazprom Neft PJSC discloses detailed information standards. about related party transactions. The Company’s activities are certifiedfor compliance The Gazprom Neft PJSC website is regularly maintained with the ISO 14001 standard as regards environmental and updated with a large amount of current information protection.