Annual Report 2019 Annual Report 2019 (DRAFT) Gazprom Neft Performance Governance at a glance review system TABLE TABLE CONTENTS OF 4 Gazprom Neft at a glance 52 Performance 114 Corporate governance 6 Geographical footprint 54 Resource base and production 162 Internal control and risk management 8 Gazprom Neft investment case 68 Refining and manufacturing 184 Investor and shareholder relations Online Annual Report 2019 10 2019 highlights 78 Sales of oil, gas and petroleum products 12 Letter from the Chairman of the Board 98 Financial results of Directors About this Report This Report by the Public Joint Stock Company Strategic report Technological Sustainable Gazprom Neft (Gazprom Neft PJSC, the company) for 2019 includes the results of operational development development activity of Gazprom Neft PJSC and its subsidiaries, collectively referred to as the Gazprom Neft Group (the Group). Gazprom Neft PJSC is the parent company of the Group and provides consolidated information on the operational and financial performance of the Group’s key assets for this Annual Report. The list of subsidiaries 16 The implementation of Strategy 2030 104 Technological development 196 Sustainable development covered in this Report and the shares held 198 Health, safety and environment (HSE) by Gazprom Neft PJSC in their capital are disclosed 18 Letter from the Chairman 106 Innovation management in notes to the consolidated IFRS financial of the Management Board 111 Import substitution 200 Environmental safety statements for 2019. 20 Market overview 204 Employee development This Report is prepared based on analysis 208 Social policy of operational data, consolidated IFRS financial 28 Global trends and their impact indicators and international GRI guidelines. on the Gazprom Neft strategy Information provided in the Report has been verified 30 Strategy 2030 by the Audit Committee and approved by the Board of Directors and the Annual General Meeting 34 Business model of Shareholders of the Company. 36 2019 results Appendices In calculations of shareholdings, percentages, 38 Digital transformation and total amounts, the Annual Report may contain discrepancies as a result of rounding. Data provided 42 Operational transformation in the Annual Report may differ insignificantly 46 Organisational transformation from previous disclosures, also as a result of rounding. 48 Cultural transformation 213 Consolidated financial statements 322 List of major transactions and related-party as of and for the year ended 31 December transactions The Gazprom Neft PJSC ‘s Annual Report has been provisionally approved by the Board of Directors, 2019 with independent auditor’s report 333 Excerpts from management’s discussion Minutes No. PT-0102/16 of 27.04.2020. 291 Company history and analysis of financial condition and results 303 Structure of the Gazprom Neft Group of operations 305 Information on energy consumption 345 Glossary by Gazprom Neft 348 Disclaimer 306 Taxation in oil industry 349 Addresses and contacts 315 Report on compliance with the principles and recommendations set out in the corporate governance code ANNUAL REPORT 2019 Gazprom Neft at a glance Gazprom Neft at a glance Geographical footprint Gazprom Neft investment case 2019 highlights Letter from the Chairman of the Board of Directors HOW TO EXTRACT OIL NOWDAYS? Denis Mikolae, oil and gas production operator GAZPROM NEFT Leader in the commercial development of the Russian Arctic Company profile Strategic report Performance Prirazlomnoye Novy Port Messoyakha Technological development The first — and so far only — A unique logistics strategy The northernmost Governance system The company's Sustainable development official website oil production project to ensure the year-round onshore oilfield in Russia Appendices on the Russian Arctic shelf transportation of Arctic oil GAZPROM NEFT AT A GLANCE An industry leader in technology A company setting its By 2030, thanks to new technology, Gazprom Neft intends to halve the time sights on the future it takes to see the first commercial inflows from an oilfield, to speed up Gazprom Neft the implementation of major oil and gas projects by 40%, and to reduce The company’s strategy is to become a leader 1 production management costs by 10% in priority areas of technology: increasing the oil recovery factor (ORF) at mature fields, Artificial intelligence (AI) Smart logistics developing multi-phase deposits and low- PJSC in geological exploration – A pioneering Arctic-specific permeability reservoirs, undertaking safe – Using AI to analyse geological data logistics management system and efficient offshore operations under ice and search for new oil deposits – Automated systems for loading conditions, and utilising cutting-edge refining – Building digital twins of oilfields, and dispatching oil products catalysts and processes. Implementing mtoe and creating a digital platform – Digitised vehicle fleet to transport a number of major initiatives – including is a vertically for asset development forecasting petroleum products cutting unit well costs at new production – Developing software to eliminate projects in the Yamalo-Nenets Autonomous 1,583 uncertainties and support decision Digitalisation in product Okrug; developing a range of technologies integrated oil making distribution system for developing non-traditional reserves; proved hydrocarbon – Robotised refuelling complexes facilitating the viable deployment of ASP- reserves Enhanced hydrocarbon recovery – Petroleum-product quality-control flooding and miscible gas displacement company technologies system deployed throughout technologies; and building a high-tech catalyst – The Integrated Field Development the entire logistics chain plant – will bring tens of millions of tonnes Centre – Mobile apps and services developed of additional oil into production, as well – Technologies for the production for partners and clients as allowing the company to increase efficiency mtoe of hard-to-recover oil in oil refining. – Unique expertise in working on the Russian Arctic Shelf Its core activities include exploration, 96.1 production and sales of oil and gas, oil High-technology oil refining hydrocarbon production – The Gazprom Neft Downstream refining, and production and distribution in 2019 Efficiency Control Centre, For more details, see For more details, see of petroleum products. – Digital twins of process units pp. 52–111 p. 16 and facilities – The Neftekontrol (oil control) system The company operates in Russia’s are located in Russia (Omsk, Moscow mt major oil and gas regions as well and Yaroslavl) and Serbia. as abroad. Gazprom Neft and its A company committed to sustainable development values upstream subsidiaries are engaged The company’s filling station 41.5 in oil and gas exploration, network throughout Russia, the CIS Health and safety Human resources development development and production and the Balkans has a total of 2,077 refining throughput – ‘Target Zero’ as a strategic – Single incentive model in the Yamalo-Nenets and Khanty- outlets. priority3 for employees Mansi Autonomous Okrugs, – A developing safety culture – Partnership with trade unions the Tyumen Oblast, the Republic Gazprom Neft is one of the world’s – Digital platform for operational – Training, leadership and career- of Sakha, the Irkutsk, Omsk, top 10 public companies by proved risk management development programmes For more details, see Orenburg and Tomsk Oblasts, hydrocarbon reserves, and a leader the Krasnoyarsk Krai, the Nenets in terms of reserves replacement billion Environmental protection Wellbeing of local communities pp. 196-212 Autonomous Okrug; on the Russian under the PRMS classification2. – Environmental management – The 'Home Towns' social Arctic Shelf and offshore system investment programme / 1 / Hereinafter referred to as 'the company'or in the Sea of Okhotsk, as well ₽795.1 – Biodiversity conservation – Supporting the ethnic minorities 'Gazprom Neft'. as in Iraq and Serbia. The company’s programme of the Russian Far North / 2 / Petroleum Resources Management System. main refining facilities adjusted EBITDA – Greenhouse gas emissions – Import substitution and local / 3 / Zero harm to people, the environment, accounting and monitoring preference programmes or property in our operations. 4 ANNUAL REPORT 2019 01 THE COMPANY TODAY 5 GAZPROM NEFT Company profile a Strategic report e S Performance n a Technological development ri Governance system e b GEOGRAPHICALSustainable development FOOTPRINT i S Appendices t 21. s Ea 18. Gazprom Neft Baren ts S 17. ea on the world 9. k f ts Pe o o cho h ra a k Se e O a S 19. map Belgium 20. Russia St Petersburg Estonia 5. 15. Latvia 16. 3. 14. Belarus 11. 1. Moscow 2. 13. 6. 12. Serbia 4. 7. Romania 10. Italy Bosnia and Herzegovina 8. Gazprom The geographic range Bulgaria of the company’s presence Kazakhstan includes1 countries Neft worldwide 110 Kyrgyzstan in Russia Iraq Tajikistan Head office St Petersburg 1. Moscow 12. Tomsk Oblast 2. Irkutsk Oblast 13. Tyumen Oblast Subsoil rights 3. Krasnoyarsk Krai 14. Khanty-Mansi Autonomous Okrug - Yugra Hydrocarbon production Upstream assets in Production facilities in Products sold in Refining 4. Moscow Oblast 15. Yamalo-Nenets Autonomous Okrug16. Oils and lubricants (production) 5. Nenets Autonomous Okrug 16. Yaroslavl Oblast Bitumen products (production) countries countries countries 6 6 >100 6. Nizhny Novgorod Okrug 17. Barents Sea Petrochemicals 7. Omsk Oblast 18. East Siberian Sea Bunkering business Filling stations 8. Orenburg Oblast 19.