ROSNEFT ANNUAL REPORT RESPONSIBILITY 2012 TO BE A LEADER ROSNEFT IS THE LEADER OF THE RUSSIAN OIL INDUSTRY AND ONE OF THE WORLD’S LARGEST PUBLICLY TRADED OIL AND GAS CORPORATIONS BUSINESS GEOGRAPHY: Nearly all regions of Russia and a number of foreign countries. MAIN BUSINESSES: Exploration and producton of oil and gas, production of petroleum products and petrochemicals, sale of outputs in Russia and abroad. MAIN ASSETS: • PRMS proved reserves: 18.3 billion barrels of crude oil and 992 bcm of gas; • 424 producing fields with annual output above 890 million barrels of oil and 16 bcm of gas; • 7 oil refineries in Russia with aggregate refining capacity of 54 mln t of oil per annum; • Stakes in 4 refineries in Germany with net capacity of 11.5 mln t of oil per annum; • 1,691 operating filling stations under the Rosneft brand in 46 regions of Russia and 3 filling stations in Abkhazia. COMPETITIVE ADVANTAGES: • Resource base of unique scale and quality; • Russia’s largest greenfield projects; • Lowest unit lifting costs; • Status of a Company of strategic importance for the Russian Federation. FUTURE: A global energy Company, providing consistently high returns to shareholders through sustainable growth, efficiency gains and innovation, including the design and application of new technologies. DEVELOPMENT PRIORITIES: • Maintaining production levels at existing fields and devel- opment of new fields, both onshore and offshore; • Bringing hard-to-recover reserves into production; • Efficient monetization of associated and natural gas reserves; • Completing modernization of refining capacities; • Increasing marketing efficiency in Russia and internationally; • Achieving technology leadership thanks to in-house re- search and development work and strategic partnerships; • Implementing best practice in protection of the environ- ment and industrial safety. ROSNEFT ANNUAL REPORT 2012 RESPONSIBILITY TO BE A LEADER ROSNEFT ОБЗОР РЕЗУЛЬТАТОВ ДЕЯТЕЛЬНОСТИ 4 Annual report 2012 Лицензирование The terms ‘Rosneft Oil Company’, ‘Rosneft’, and ‘the Company’ may refer either to OJSC Rosneft Oil Company or to OJSC Rosneft Oil Company together with its subsidiaries and equity affiliates, depending on the context. The terms ‘TNK-BP’ and ‘company TNK-BP’ refer to TNK-BP Group. RESPONSIBILITY ROSNEFT TO BE A LEADER Annual report 2012 5 Contents Address by the Chairman of the Board . 6 Health, Safety and Environment . .101 Address by the Company President . 8 CORPORATE GOVERNANCE . .104 Key Events in 2012 . 10 System of Corporate Governance . .106 ACQUISITION OF TNK-ВР: REACHING A NEW LEVEL . 12 Remuneration of Members of the Board Key indicators . .24 of Directors and Management . .122 Production chain . 26 Internal Control and Audit . .125 Rosneft Operating Region . 28 Share Capital . .129 PERFORMANCE REVIEW . 30 Dividend Policy . .134 Licensing . 32 Information Disclosure . .136 Geological Exploration . 34 Reserves and Resources . .42 APPENDIX 1. Consolidated Financial Production . 44 Statements under IFRS . .138 Refining . .52 APPENDIX 2. Main Risk Factors . .188 Sales and Marketing . 58 APPENDIX 3. Information on Observance Macroeconomic Environment . 65 of the Code of Corporate Conduct . .197 Key Financial Results . .72 APPENDIX 4. Taxation of Dividends SCIENCE AND INNOVATION . 82 and Capital Gains . .209 SOCIAL RESPONSIBILITY . 88 Statement of Responsibility . .216 Personnel . 90 General Information . .217 Social policy and charity . 95 Contact information . .218 ROSNEFT ADDRESS BY ADDRESS BY ROSNEFT 6 Annual report 2012 THE CHAIRMAN OF THE BOARD THE CHAIRMAN OF THE BOARD Annual report 2012 7 Address by the Chairman of the Board DEAR SHAREHOLDERS, ment’s Technical Regulations for fuel quality. Total invest- payout has thus risen to 25% of IFRS net income, and we ments in modernization and construction of new facilities at intend to maintain this level in the future. Rosneft turned strategic and ambitious plans into reality Rosneft refineries in 2012 were around RUB 140 billion, and during 2012, achieving positive results in all spheres of Com- a total of 16 refining units have been built or renovated since Efficient decision-making and a proactive approach by pany business and giving a new impetus to the development the programme was launched. management resulted in a 35% rise of the Rosneft share price of Russia’s fuel and energy sector. last year. We continued work to improve the efficiency of our sales First of all, I want to emphasize the importance of our acqui- business in 2012, including optimization of the distribution Our achievements in the reporting period create an excellent sition of TNK-BP. Completion of this transaction – of unprece- network, logistics and sales channels in Russia and abroad. platform for the further development of our business and for dented scale – will make Rosneft a global leader among pub- Achievements include growth of sales through our network strong growth of shareholder value of Rosneft. licly traded companies in terms of hydrocarbon production of filling stations and the signing of long-term contracts with and reserves. And major synergies from integration of the major trading companies. assets of TNK-BP will be a powerful driver for our Company’s shareholder value. The application of complex and innovative solutions is cru- cial to the success of many strategic projects in the oil and Our business results in the reporting year confirmed once gas industry, and only technology leaders have the capac- again the status of Rosneft as one of the fastest growing ver- ity to carry them out. Rosneft is pursuing its own research tically integrated oil companies in the world. Daily production work, applying solutions for more efficient production at of hydrocarbons increased by 4.5% and refinery throughput mature fields and commercial development of fields with by 6.4% compared with 2011. low-permeability reservoirs. Investments by Rosneft in the Company’s Innovative Development Programme totaled RUB The Company is meeting its targets for reserve replacement, 9.9 billion in 2012, which is 16% more than in 2011. This work using all available opportunities to increase its resource base. resulted in Rosneft applying for 18 patents. In addition to developing the existing fields, we are engaged in an ambitious enterprise to develop the resource poten- Rosneft is the flag-bearer in development of the Russian tial of the Russian offshore and to realize the potential of Arctic shelf, and therefore has a special responsibility for hard-to-recover reserves. Rosneft’s exploration and produc- protecting the environment. In 2012, the Company signed tion projects have proved attractive to international majors: a declaration with ExxonMobil and Statoil on protection ExxonMobil, Eni and Statoil have all entered into large-scale of the environment and of biodiversity during exploration cooperation agreements with Rosneft, which include financ- and development of shelf oil and gas resources. Draft ing commitments. A system of tax preferences is being set agreements on cooperation were prepared with the up in Russia to improve the efficiency of offshore projects Russian Ministry for Emergency Situations, the Russian and of work with hard-to-recover reserves, encouraging Space Agency and the Ministry of Transport, and positive further foreign capital inflows. assessments were obtained from government environ- mental panels. The refinery modernization programme remains one of our Chairman of the Board of Directors priorities. It is aimed at increasing outputs of high-margin Strong financial results enabled us to almost triple dividends OJSC Rosneft Oil Company products that meet requirements of the Russian Govern- for 2011 in comparison with 2010 to RUB 78.5 billion. Dividend Alexander Nekipelov ROSNEFT ADDRESS BY ADDRESS BY ROSNEFT 8 Annual report 2012 THE COMPANY PRESIDENT THE COMPANY PRESIDENT Annual report 2012 9 Address by the Company President DEAR SHAREHOLDERS, Siberia (Vankor and Verkhnechonsk) and maintenance of Successful operations ensured strong financial performance a stable production level in Central Russia and West Siberia. in 2012. Net income for the year increased by 7.2% to a histori- In 2012, Rosneft continued the successful implementation of Total crude oil output reached 893 million barrels by the year cal high of RUB 342 billion. its ambitious strategic initiatives, proving that the objectives end. The Company consistently outperforms its competitors it has set for itself in all spheres of business are attainable. by rates of production growth, and our lifting costs are the The business achievements of Rosneft make a substantial lowest in the world. contribution to economic and social stability in Russia. The The key event for Rosneft in the reporting period was un- Company once again became the country’s largest taxpayer doubtedly reaching binding agreements to acquire a 100% Monetization of gas potential is among our Company’s in 2012, paying 1.6 trln RUB to budgets at all levels. stake in TNK-BP. Full consolidation of this highly efficient strategic objectives, and a number of important steps were company with its quality assets will make Rosneft the largest taken in 2012 for the development of gas business. The Extensive work is being done to ensure high standards of publicly traded oil company in the world, increase the scale creation of a joint venture on the basis of Itera has substan- corporate governance through modernization of the Compa- of its gas business, and optimize supply and marketing