Ukrnafta (50%+1 share) Oil and gas production Naftogaz of Ukraine Ukrtransnafta (100%) NAFTOGAZ Headquarters, trading Oil transmission and storage Ukrgazvydobuvannya (100%) Ukrtatnafta (43 %) GROUP Oil and gas upstream GROUP Oil refining and storage Ukrtransgaz (100%) Petrosannan Company (JV, Egypt) STRUCTURE Oil and gas production Gas transmission and storage OIL Ukrspetstransgaz (100%) Zakordonnaftogaz (100%) LHG railway transportation GAS 6% Oil and gas production revenues Gas of Ukraine (100%) Retail supply until 2012 92% revenues OTHER Ukravtogaz (100%) Naukanaftogaz (100%) CNG retail (stations) 2% Research and development revenues Naftogaz Trading Europe S.A. (100%) (former Naftogaz Overseas S.A.) Vuhlesyntezgaz of Ukraine (100%) Development of gas replacement projects Trading (Geneva) Kirovohradgaz (51%) LIKVO (100%) Gas distribution and supply Prevention of emergencies Chornomornaftogaz* (100%) Naftogazbezpeka (100%) Oil and gas upstream Security services Ukrnaftogazkomplekt (100%) Supply of equipment Naftogazobslugovuvannia (100%) Services Gas value chain: 92% of the group revenues Oil value chain: 6 % of the group revenues EXPLORATION AND TRANSMISSION AND MARKETING AND EXPLORATION AND TRANSMISSION AND IMPORT DISTRIBUTION REFINING MARKETING AND RETAIL PRODUCTION STORAGE SUPPLY PRODUCTION STORAGE UKRGAZVYDOBUVANNYA NAFTOGAZ (HQ) UKRTRANSGAZ 1.5% NAFTOGAZ UKRNAFTA UKRTRANSNAFTA UKRTATNAFTA UKRNAFTA natural monopoly Naftogaz share in the segment (50 % + 1 share) natural monopoly (43 %) The biggest retail chain in Ukraine: 14.6 bcm 74% 36% Even formal control was lost in 2015 production (73% of domestic production) in total imports from the EU 82.2 bcm 70% market share in non-regulated segment 1.52 million t 15.2 million t The only oil refinery operating in Ukraine 537 of transit of the segment is controlled by one in 2016 oil production (68% of domestic production) oil transportation, including: fuel stations (8.4% of total) 271 bcm 8.2 bcm private group 18.6 million t/year gas reserves of imported gas 29.3 bcm 100% 40 million t 13.8 million t capacity 14% domestic transmission of supplies to DHCs, the most troublesome oil/condensate reserves to Europe share in Ukraine’s total retail 140 15 segment (17% of total consumption) 1.2 million t in 2016 fields explored and operated suppliers from Europe 31 bcm 1.4 million t production (15% of domestic demand) of UGS capacity 0% UKRGAZVYDOBUVANNYA within Ukraine UKRGAZVYDOBUVANNYA 0 cubic meters of direct supplies to households UKRNAFTA (50% + 1 share) of gas imported from Russia since 0.5 million t 1.1 mcm UKRGAZVYDOBUVANNYA 18 November 2015 The market is controlled by intermediaries oil/condensate production (20% of domestic oil reservoir capacity fuel stations in Kharkiv region 1.3 bcm related to operators of distribution production) 0.9 million t/year production (8% of domestic production) networks oil, condensate and NGL refining capacity 3.7 million t 32.1 bcm oil/condensate reserves 0.5 million t gas reserves production of petrochemicals (3% of total demand) NAFTOGAZ (HQ) NAFTOGAZ (HQ) 0.2 million t 1.9 million t LPG production (12% of total demand) 0.5 bcm oil/condensate reserves gas reserves PETROSANNAN CO PETROSANNAN CO (JV, Egypt) (JV, Egypt) 0.3 million t 176 bcm oil/condensate production gas production 0.5 million t Naftogaz estimates based on reserves assessed by Ryder Scott Company 0.2 bcm oil reserves gas reserves ANNUAL WHO WE ARE REPORT NAFTOGAZ FINANCIAL INDICATORS NAFTOGAZ GROUP NET CONTRIBUTIONS TO THE STATE BUDGET 2016 2016, UAH billion IN 20142016, UAH BILLION Upstream Midstream Downstream +132 40.4 SEGMENT RESULT 9% 9% 1% 10% 5% 0.8 91.3 1.7 73.8 1.6 1.6 3.5 5% 47.6 NATURAL GAS CRUDE OIL CRUDE OIL NATURAL STORAGE TRANS REFINING, GAS GAS SALES PAID CONDENSATE AND SUPPLY 20.2 AND OTHER PORTATION RECEIVED PROCESSING AND 11.9 29.7 PETROLEUM 21.0 OTHER 33.4 43% PRODUCT 23% 26.2 AND PROFIT TRADING UNALLOCATED BEFORE 96.6 17.1 ITEMS TAXES PAID GAS INCOME 6.8 TRANSMISSION TAX AND 2016 IN 2016 SUBSIDIES/TARIFF DIFFERENCE, CRUDE DISTRIBUTION EXEMPTIONS AND SUBSIDIES (2014) OIL AND GAS RECAPITALIZATION OF NAFTOGAZ 15.3 CONDENSATE 23% ROA PRODUCTION 14.9 NATURAL GAS PRODUCTION 2014 2015 2016 CHANGE IN THE GROUP’S REVENUES AND ASSETS THE GROUP'S OPERATING REVENUE (WITHOUT ELIMINATION) THE GROUP'S ASSETS OTHER DOWNSTREAM MIDSTREAM UPSTREAM UPSTREAM MIDSTREAM OTHER 262.1 0.5 115.6 82.1 63.5 2016 2016 82.8 488.4 93.5 39.9 704.6 157.7 1.8 54.8 73.5 27.6 2015 2015 94.5 488.1 46.9 31.4 660.7 94.3 0.4 27.6 58.5 7.8 2014 2014 48.3 405.9 33.3 28.5 515.9 90.3 0.5 32.4 52.1 5.3 2013 2013 39.4 144.5 32.3 21.7 237.9 4 5 4 5 ANNUAL WHO WE ARE REPORT 2016 CONTENT WHO WE ARE WHAT WE HAVE ACHIEVED Naftogaz group .............................................................................2 Operating revenues and assets by segment ................99 Key financial results ....................................................................4 Key figures ..................................................................................103 Mission and values ..................................................................... 8 Operational efficiency ............................................................104 Address of CEO Andriy Kobolyev ..........................................10 Oil and gas upstream ........................................................... 106 Ukrgazvydobuvannya .................................................... 116 HOW WE WORK Ukrnafta .............................................................................122 Supervisory board report .......................................................12 Investment projects in Egypt ....................................124 Corporate governance structure ........................................18 Midstream ..................................................................................126 Creating value: 6 capitals ......................................................20 Gas transmission ............................................................132 Executive board structure and remuneration ...............22 Crude oil transmission .................................................138 Other top executives ................................................................24 Downstream ............................................................................142 Personnel ......................................................................................26 Gas supply and trading ................................................143 Health and safety .......................................................................32 Refinery, petroleum products ...................................149 Local community development ...........................................40 Other activities ...........................................................................151 Energy efficiency ....................................................................... 44 Capital investments ..................................................................151 Environmental protection ......................................................48 Taxes, subsidies and loans ..................................................152 Cash flows and working capital ........................................154 WHERE WE ARE NOW Timeline .........................................................................................58 FINANCIAL STATEMENTS Macroeconomic environment ..............................................60 Management comments on the auditor’s opinion.....156 Ukraine in European gas market .......................................62 Independent auditor’s opinion ........................................... 160 Gas balance of Ukraine...........................................................64 Statement of financial position ..........................................163 Gas market overview ...............................................................68 Transit to the EU .............................................................. 70 Statement of profit or loss ..................................................164 Imports to Ukraine ..........................................................73 Statement of changes in equity ........................................165 Production ...........................................................................74 Statement of cash flows .....................................................166 Consumption ......................................................................75 Notes ............................................................................................ 168 Oil and petroleum products market overview ...............79 Important regulatory changes ............................................85 ADDITIONAL INFORMATION First results of gas market reform ...................................90 Terms and abbreviations ....................................................208 Unbundling ...................................................................................92 GRI content index .....................................................................210 6 Main risks .....................................................................................94 Contacts ......................................................................................7217 6 7 ANNUAL REPORT 2016 Integrity and trust: we are honest and reliable in our relations both inside the company and with third parties Transparency: we are open and objective in our interaction both within the company and with third parties