‘09 JSC GAZPROM NEFT ANNUAL REPORT 2009 ENERGY FOR LIFE ENERGY FOR PEOPLE JSC GAZPROM NEFT ANNUAL REPORT 2009 CONtENts 2 1. MESSAGE TO SHAREHOLDERS 110 11. ENVIRONMENT, ENERGY SAVING, INNOVATION 8 2. KEY PERFORMANCE INDICATORS 122 12. SOCIAL POLICY 124 PERSONNEL, OCCUPATIONAL SAFETY AND 10 3. 2009 HIGHLIGHTS HEALTH 16 4. COMPANY’S PROFILE 128 13. TO SHAREHOLDERS AND INVESTORS 18 COMPANY’S HISTORY 130 AUTHORIZED CAPITAL, SHAREHOLDER CAPITAL 19 COMPANY’S STRUCTURE STRUCTURE 20 GEOGRAPHY OF OPERATIONS 130 STOCK MARKET AND CAPITALIZATION 30 HIGHLIGHTS OF THE YEAR 132 PARTICIPATION IN THE DEPOSITARY RECEIPT 32 COMPETITIVE STATE OF THE COMPANY PROGRAM 134 DIVIDEND HISTORY 36 5. KEY PERFORMANCE INDICATORS OF THE COM- 135 OBSERVING THE CORPORATE CODE OF CON- PANY IN 2009 BY TYPE OF OPERATION DUCT 38 OIL AND GAS EXPLORATION AND PRODUCTION 40 RESOURCE BASE 138 14. MAJOR TRANSACTIONS AND RELATED PARTY 40 EXPLORATION TRANSACTIONS 41 LICENSING 42 HYDROCARBON PRODUCTION 144 15. ASSET MANAGEMENT AND IMPROVEMENT OF 44 REFINERIES & MARKETING REGIONS CORPORATE STRUCTURE 46 REFINING 48 PRODUCTION OF PETROLEUM PRODUCTS 148 16. CREDIT RATINGS AND DEBT PORTFOLIO MAN- 52 PREMIUM BUSINESS SEGMENTS AGEMENT 54 6. COMPANY’S GROWTH PROSPECTS 154 17. GLOSSARY OF KEY TERMS AND DEFINITIONS 60 7. INVESTMENT: TECHNICAL REEQUIPMENT AND 156 18. ADDRESSES AND CONTACTS DEVELOPMENT OF THE COMPANY 64 8. PERFORMANCE AND FINANCIAL INDICATORS 66 PERFORMANCE AND FINANCIAL INDICATORS 70 Management’S DISCUSSION AND Analysis OF FINANCIAL CONDITION AND Results OF Operations FOR 2009, 2008 AND 2007 86 9. MAJOR RISK FACTORS 94 10. Corporate Governance 102 BOARD OF DIRECTORS’ ACTIVITIES IN 2009 104 MEMBERSHIP OF THE MANAGEMENT BOARD 108 TOTAL AMOUNT OF REMUNERATION TO MEM- BERS OF THE BOARD OF DIRECTORS AND MANAGEMENT BOARD 1 JSC GAZPROM NEFT ANNUAL REPORT 2009 Dear Shareholders The oil business of Gazprom Group has successfully overcome the 2009 crisis. Despite the complicated external financial and economic environment, in terms of operating efficiency JSC Gazprom Neft has secured the position as one of the leaders of the Russian oil sector. The Company showed high results of operating revenue per barrel produced and a high level of return on capital invested. This has resulted in the stockholders of Gazprom Neft receiving one of the highest returns in the sector. In 2009 the Company increased the volume of both oil production and refining, effectively managing its key enterprises. The geographic expansion of oil production due to new projects in the Near East, Africa, and Latin America, integration of Serbia’s NIS, purchase of lubricants facility in Italy, consolidation of the controlling interest in Sibir Energy, launch of large-scale rebranding program of the chain of filling stations – these events of 2009 determined the development direction of Gazprom Neft and therefore of the total business of the global energy company “Gazprom”. Alexey Miller Chairman of the Management Board, JSC Gazprom, Chairman of the Board of Directors, JSC Gazprom Neft 3 JSC GAZPROM NEFT ANNUAL REPORT 2009 Dear Shareholders All over the world the previous year was affected by the economic crisis. However, despite the negative global economic trends Gazprom Neft showed stable operations throughout the year and good year-end financial and operating results. First of all, we are satisfied with the operational perfomance of The Company. Gazprom Neft’s hydrocarbon reserves of ABC1 category increased to 1.782 bn tons of oil equivalent, and oil and gas production increased up to 50.2 mln tons of oil equivalent. The refining throughput grew by 17.6% and amounted to 33.4 mln tons. The year 2009 was a period of active development of our marketing business units. The Company achieved a leading position in Russia’s jet fuel and bunker market. Further in the development of the lubricants business there was a serious breakthrough plus the initiation of a large-scale rebranding program of the chain of filling stations. In summary 40% more petroleum products were sold through premium segments in 2009 than in 2008. These operational achievements are reflected in the year end financial results. In spite of the fact that in absolute terms the revenue and net income of Gazprom Neft decreased, in estimates of comparable market environments the operating income went up. Besides the year end results show that Gazprom Neft became one of the leaders of the sector in terms of total return for stockholders. The ambitious tasks that we now face will lead to further growth in the size of the business in tandem with international geographic expansion while keeping the leading position in the sector in terms of operational efficiency. I am sure that implementation of the strategy aimed at transforming Gazprom Neft into a visible player on the global oil market will enable the company to show high operating results in future and to fully utilize its unique business potential. Alexander Dyukov Chairman of the Management Board, CEO JSC Gazprom Neft 5 ENERGYENERGY FOR FOR LIFE LIFE ENERGYENERGY FORFOR PEOPLE PEOPLE 2 KEY PERFORMANCE INDICAtORs OF tHE COMPANY KEY PERFORMANCE INDICATORS Energy for life 2 OF THE COMPANY ENERGY FOR PEOPLE KEY PERFORMANCE INDICAtORs OF tHE COMPANY Key Financial inDicatorS 2009 2008 2007 2009 / 2008, % Sales revenue, mln USD 24 166 33 870 22 768 (28,7) EBITDA, mln USD 5 977 8 610 6 601 (30,6) Operating income, mln USD 3 429 6 249 4 899 (45,1) Income before tax, mln USD 3 897 6 161 5 458 (36,7) Net income, mln USD 3 013 4 658 4 143 (35,3) Net cash from operating activities, mln USD 3 474 5 483 5 316 (36,6) Investments, mln USD 4 899 3 399 5 959 44,13 Dividend paid, mln USD 937 792 2 071 18,31 Net financial debt, mln USD 5 014 1 312 2 641 282,16 Average capital employed, mln USD 18 586 14 357 11 700 29,5 Average shareholders’ equity, mln USD 15 056 12 197 10 182 23,4 Price per share at year-end, USD RTS 5,55 2,05 6,35 170,7 Price per share at year-end, rub. MICEX 163,64 62,67 151,74 161,1 Key Financial ratioS 2009 2008 2007 2009 / 2008 Basic and Diluted Earnings per Common Share, USD per share 0,64 0,98 0,87 (35,1) Dividend per share*, rub. - 5,40 5,40 Return on average capital employed, % 13,87 33,45 31,86 (19,6) EBITDA margin, % 24,73 25,42 28,99 (0,7) EBITDA per barrel, USD per barrel 17,12 25,12 20,67 (32,7) Net income margin, % 12,47 13,75 18,02 (1,3) Net income per barrel, USD per barrel 13,40 20,38 17,04 (32,7) Return on equity, % 20,01 38,19 40,69 (18,2) Gearing, % 25,20 10,39 20,56 14,8 Net financial debt / EBITDA 0,99 0,17 0,45 472,41 * — on the signature date of this Report the dividend for 2009 had yet to be announced 8 JSC GAZPROM NEFT ANNUAL REPORT 2009 Key ProDuction inDicatorS 2009 2008 2007 2009 / 2008, % Proven oil reserves, mln bbl 6 924 6 303 6 709 9,9 Proven gas reserves, bn ft3 3 200 3 033 1 232 6,5 Hydrocarbon reserves, mln BOE 7 462 6 808 6 914 9,7 Crude production by consolidated subsidiaries, mln bbl 224,9 228,6 243,2 (1,6) Crude production including share in equity investees, mln bbl 349,2 342,8 320,5 1,9 Marketable gas production by consolidated subsidiaries, bn m3 2,0 1,9 1,5 5,3 Marketable gas production including share in equity investees (Slavneft and Tomskneft), bn m3 3,2 3,1 1,9 3,2 Marketable hydrocarbon production, thousand BOE per day 1 008 987 909 2,1 Refining at own refineries, mln t 26,6 18,4 16,5 44,5 Refining at equity Oil Refinery, mln t 6,8 10,0 9,7 (32,7) Exports, mln t Non-CIS 15,6 16,3 15,1 (3,7) Exports, mln t CIS 3,3 3,3 2,5 0,0 Sales, mln t Russian Federation 0,3 0,9 1,6 (66,7) Gas sales, bn m3 3,7 3,7 2,2 - Petroleum product exports Non-CIS, mln t 13,2 10,9 11,4 21,1 Petroleum product exports CIS, mln t 2,3 1,9 1,9 21,1 Petroleum product sales Russian Federation, mln t 18,3 16,2 13,4 13,0 Number of filling stations (own, leased and franchise) 1 562 865 783 80,6 9 ENERGY FOR LIFE ENERGY FOR PEOPLE 3 2009 HIGHLIGHTS 2009 HIGHLIGHTS Energy for life 3 ENERGY FOR PEOPLE 2009 HIGHLIGHts FEBRUARY A JSC Gazprom Neft completed the consolidation process for the controlling interest in NIS (51%); the Company’s representatives became members of NIS’ Board of Directors A JSC Gazprom Neft-Aero started fuelling aircraft of the Transaero Company at Moscow Domodedovo airport A JSC Gazprom Neft and the Government of the Leningrad Region signed a general agreement for cooperation for 2009–2011 A JSC Gazprom Neft and Sberbank of Russia signed a loan agreement for USD 724 mln for 1.5 years MARCH A An ‘Information Stand’ for JSC Gazprom Neft was opened in Gubkin Russian State University of Oil and Gas A KRS-Service LLC, an affiliate of Gazprom Neft-Nefteservice LLC received an ISO 9001:2008 certificate APRIL A JSC Gazprom Neft started selling petroleum products on the Saint Petersburg International Mercantile Exchange A JSC Gazprom Neft closed the deal purchasing the Chevron Italia S.p.A.