Press Conference Mineral and Raw Material Base Development. Gas Production. Gas Transmission System Development May 19, 2015 MODERATOR: Good morning, colleagues. Our meeting today is dedicated to Gazprom’s production business. We will talk about the mineral and raw material base, gas production and gas transmission system development. Participants: — Vitaly Markelov, Deputy Chairman of the Management Committee (in charge of the production block); — Oleg Aksyutin, Member of the Management Committee, Department Head (Gas Transportation and Underground Storage); — Dmitry Lyugai, Member of the Management Committee, Department Head (Prospective Development); — Sergey Prozorov, Member of the Management Committee, Department Head (Organization and Management of Industrial Facilities Construction); — Vsevolod Cherepanov, Member of the Management Committee, Department Head (Hydrocarbon Exploration and Production). We are ready to move on to your questions right away. QUESTION: Anastasia Goreva, Argus Media. I have several questions on production and transportation. What is the maximum daily gas production rate at the Bovanenkovskoye field at present? What do you expect it to be by the heating season? Are you going to boost it? And how? What is the annual capacity of the Bovanenkovo – Ukhta gas trunkline system? I know its production potential is about 90 billion cubic meters of gas per year, but what transmission capacity does it have? As for TurkStream, what about pipes procured for South Stream? Are you going to use all of them for TurkStream or are there any other options? VITALY MARKELOV: Last year Gazprom’s production potential reached some 1.648 billion cubic meters of gas daily. This year it will be about 1.5 billion cubic meters of gas daily. We continue building up the Bovanenkovskoye field production capacities, as it is our primary resource base. We are boosting production from this field; in 2015 we expect it to reach 48 billion cubic meters of gas. But we actually hope to get 51 billion cubic meters of gas this year. In addition, I think we’ll manage to produce 218 million cubic meters daily from the Bovanenkovskoye field by the fourth quarter of 2015. We will also develop the Bovanenkovo – Ukhta transmission capacities. ANASTASIA GOREVA: What is the annual capacity of Bovanenkovo – Ukhta? VITALY MARKELOV: 218 million cubic meters daily, that is over 70 billion cubic meters of gas annually. Here we mean the maximum daily gas production rate in the winter period – around 218 million cubic meters of gas daily. As for South Stream, Mr. Aksyutin will tell you about the pipes. OLEG AKSYUTIN: The pipes procured for the South Stream project will be fully used in the TurkStream project. ANASTASIA GOREVA: Are they already in store or yet to be manufactured? 1 OLEG AKSYUTIN: The majority of the pipes have already been manufactured; presently they are kept at special storage yards. VITALY MARKELOV: They are still being worked on – welded into sections and prepared for the construction of TurkStream, namely its offshore section. QUESTION: Sofia Dvornik, Rossiya Segodnya agency. I have two questions. The first one is about your 2015 production plans. For some reason you haven’t included this forecast into your presentation. My second question concerns your plans for the shelf development – not across Gazprom Group as a whole but in Gazprom in particular. VSEVOLOD CHEREPANOV: Our gas production plan stipulated producing 485.6 billion cubic meters. We have already adjusted it by 16 billion cubic meters after the first quarter. We expect it to amount to some 450 billion cubic meters of gas at year-end, which is commensurate with last year’s results. As for our plans for the shelf, we always make big announcements about them. Nothing has changed there. We operate at the Kirinskoye and Yuzhno-Kirinskoye fields (on the shelf of the Sea of Okhotsk). We also carry out seismic surveys in the Sea of Okhotsk as well as at certain prospects in the Barents and Kara Seas. SOFIA DVORNIK: I’m interested in your Arctic shelf development plans. VSEVOLOD CHEREPANOV: We have no drilling plans for the Arctic shelf in 2015. However, there are plans for 3D seismic surveys covering some 10 thousand square kilometers. VITALY MARKELOV: We’re also engaged in exploratory drilling at the Yuzhno-Kirinskoye field. VSEVOLOD CHEREPANOV: That’s right, geological exploration is underway; two wells will be drilled at the Yuzhno-Kirinskoye field. VITALY MARKELOV: I’d like to say a few words about the shelf. Last winter the development of the Kirinskoye field was launched, securing gas supplies to consumers in the Russian Far East. In summer we put the Kirinskoye field on hold because in the summer period we are technologically incapable to offtake gas. That’s why we’ll re-launch it for the 2015–2016 autumn/winter period. Today the Russian Far East receives gas from Sakhalin I and Sakhalin II. QUESTION: Svetlana Savateeva, Interfax agency. Mr. Markelov, you said that Gazprom’s production capacity had dropped to 1.5 billion cubic meters of gas daily. What is the reason for that? As for Gazprom Georesource, what is done by the company itself and what is delegated to subcontractors? I would also like to hear about the new bids for the Power of Siberia gas pipeline construction. One of the subcontractors has already been chosen. Have you distributed contracts for other sections as well? VITALY MARKELOV: Our production potential amounts to some 610 billion cubic meters of gas annually. Speaking of the maximum daily gas production rate, its decrease is caused by a production drop in the Nadym-Pur-Taz region. Last December we launched Gas Facility No. 1 with the annual capacity of 30 billion cubic meters of gas at the Bovanenkovskoye field. For the winter period we made preparations for the maximum daily gas production rate, taking into account the gas output from independent producers. So we ensure gas supplies to consumers in Russia and abroad to the full extent. As for Power of Siberia, we have a contractor for a 208-kilometer stretch; it is Stroytransgaz. The construction of this section from the Chayandinskoye field to Lensk is currently underway. The construction conditions are rather complicated, but about 15 kilometers of the linear section have already been welded. As for the other sections, tender documents are being prepared and will be completed in 2015 in compliance with the schedule. 2 VSEVOLOD CHEREPANOV: As for Gazprom Georesource, it is a wholly-owned subsidiary of Gazprom, mostly focused on servicing activities including exploratory geophysics, borehole geophysics, well overhaul, diagnostics, equipment manufacturing, and field-specific activities. In general, the contractors’ share in overhaul and diagnostics is about 20 per cent. As for geophysical surveys and well operations, they conduct them using their own resources, meeting 90 per cent of Gazprom’s demand. It is a good service subsidiary: it is very effective and we are satisfied with it. SVETLANA SAVATEEVA: I also have a question on import substitution. It is known that the bulk of Gazprom’s substituted imports accounts for Ukrainian products. Can you say when you plan to completely stop using the products, spare parts and services of Sumy Machine-Building Science-and- Production Association and the Zorya-Mashproekt Gas Turbine Scientific Production Complex? VITALY MARKELOV: We do not purchase Ukrainian equipment under any contracts at present. We supply equipment made by Russian manufacturers only. Speaking of the equipment manufactured at Ukrainian plants, the same is manufactured by Russian companies, including gas compressor units and compressor equipment for gas pumping. Today we have no contracts with Ukrainian companies. As for spare parts, we organized the repairs of Ukrainian gas compressor units at our plant in Tyumen, which is a part of Gazprom Tsentrremont. QUESTION: Mikhail Serov, Vedomosti newspaper. I have two clarification questions. Regarding Power of Siberia, can you already say what the contract price for the construction of the first section is? It was reported it was a framework contract. Could you, perhaps, specify the scope? Speaking about the shelf, a law is currently under discussion as regards providing independent oil producers with access to the shelf. What is the Company’s opinion on this idea? How reasonable do you think it is? VITALY MARKELOV: Regarding the Power of Siberia contracts, you are asking a question that can’t be answered, because this is a confidential matter. As for the shelf, it is a very vulnerable biological environment, especially the Arctic shelf. That is why only companies with experience of working on the shelf should operate there. Gazprom is among the few Russian companies which really work on the shelf today. You know the projects we implement on the shelf of the Sea of Okhotsk. By the way, we employ the most cutting-edge methods of drilling, geological exploration and field development using subsea production facilities. I think we are in the forefront of R&D support for offshore operations right now. As for the Arctic shelf, Gazprom owns a huge fleet for working on the shelf. We have about six platforms we can use. As you know, last year we offloaded the first oil cargo from the Prirazlomnaya platform (Gazprom Neft). Currently Prirazlomnaya is in successful operation. Companies have to be thoroughly prepared to work on the shelf. I think that both Gazprom and our subsidiaries take the matter very seriously. That is why we consider and bring forward proposals for our subsidiary companies to participate. Gazprom is a holding company comprised of production companies, service companies and so on, which, among other things, conduct a broad range of technological operations on the shelf. That’s why we suggest that subsidiary companies take part in offshore operations as well. VSEVOLOD CHEREPANOV: I’d like to give some more details in the context of the said draft law and access expansion for other companies.