ANNUAL REPORT 2010 Annual CreportONTENT 2010 s 1 2 Key performance indicators 93 board of directors and management board 4 message to shareholders 93 Governing bodies structure of JsC Gazprom Neft 9 highlights 94 Membership of the Board of Directors 101 Membership of the Management Board 12 development strategy 106 Total compensation for members of Board 18 Company history of Directors and Management Board 20 Company structure 22 Geography of operations 107 environment and innovations 26 Competitive state of the company 107 Environmental protection and safety 115 Innovation activity 31 company Key performance indicators by type of operation 121 energy and energy saving in 2010 31 Oil and gas exploration and production 124 social responsibility 41 Oil refining and regional policy 45 Production of petroleum products 124 Personnel, occupational safety, and health 46 sales of petroleum products management 48 Premium business segments 129 social responsibility in areas of operations 52 Export of crude oil and petroleum products 131 to shareholders and investors 54 analysis of the company’s 131 Authorised capital shareholder capital financial results of activity structure by the management 132 share market and capitalisation 54 Definitions and recalculation methodology 134 Participation in the Depositary Receipt 54 Forecast statements Program 55 Key performance indicators for 2008–2010 136 Dividend history 56 Key financial and performance indicators 137 Observing the Corporate Code of Conduct 57 Results of activities for 2010 compared to 2009 140 asset management and 57 Production segments corporate structure 58 Changes in structure of the group 60 Performance indicators and analysis 142 credit ratings and debt portfolio 66 Results of activities management 76 Financial appendices 142 Credit rating 77 Financial indicators 143 Debt obligations 78 Additional information 144 glossary of Key terms 84 investment program and definitions 86 Key risK factors 145 appendix. major deals and deals of interest addresses and contacts 2 KEy PERFORMANCE JsC GAZPROM NEFT INDICATORs Key financial indicators 2010 2009 2008 2007 2006 2010/2009 sales revenue, mn UsD 32 772 24 166 33 870 22 768 20 176 36 % EBITDA, mn UsD 7 226 5 977 8 610 6 601 6 091 21 % Operating income, mn UsD 4 658 3 429 6 249 4 899 4 366 36 % Income before tax, mn UsD 4 277 3 897 6 161 5 458 4 854 10 % Net income*, mn UsD 3 346 2 685 4 658 4 143 3 661 25 % Net cash from operating activities, mn UsD 5 392 3 475 5 483 5 316 3 320 55 % Investments, mn UsD 4 925 4 889 3 399 5 959 1 649 1 % Dividends paid mn UsD 728 937 792 2 071 602 –22 % Net financial debt, mn UsD 5 246 5 014 1 312 2 641 336 5 % Average capital employed, mn UsD 24 858 19 542 14 245 11 672 9 541 27 % Average shareholders’ equity, mn UsD 19 728 16 379 12 268 10 183 8 793 20 % Price per share at year-end, UsD RTs 4.19 5.55 2.05 6.35 4.56 –25 % Price per share at year-end, RUB. MICEX 128.27 163.46 62.67 151.74 119.9 –22 % Key financial ratios 2010 2009 2008 2007 2006 2010/2009 Base and diluted earnings per common share, UsD per 0.67 0.64 0.98 0.87 0.77 4 % share Dividend per share**, RUB – 3.57 5.40 5.40 8.08 – Return on average capital employed, % 15.96 % 15.53 % 36.30 % 35.36 % 39.83 % 0.43 p.p. EBITDA margin, % 22.05 % 24.72 % 25.42 % 28.99 % 30.32 % –2.67 p.p. EBITDA per barrel, UsD per barrel 18,55 16.25 23.85 19.96 18.00 14 % Net income margin*, % 10.21 % 11.11 % 13.75 % 18.20 % 18.15 % –0.90 p.p. Net income* per barrel, UsD per barrel 13.48 11.32 19.42 16.44 14.43 19 % Return on equity, % 18.41 % 16.81 % 38.29 % 40.69 % 41.64 % 1.60 p.p. Gearing, % 20.88 % 22.58 % 10.29 % 20.56 % 3.27 % –1.70 p.p. Current liquidity ratio 1.46 1.33 1.48 1.31 1.99 10 % sales revenue, mn usd ebitda, mn usd net income, mn usd 40 000 10 000 5 000 4 658 35 000 36 % 4 % 33 870 8 610 32 772 4 000 [25 %]* 8 000 21 % 4 153 30 000 3 346* 7 226 3 661 3 013 25 000 6 601 6 000 3 000 24 166 6 091 5 977 3 148 22 768 20 000 20 176 2 685* 4 000 2 000 15 000 10 000 2 000 1 000 5 000 0 0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 * Corrected for non-recurring income and expenses: losses of 142 mn UsD due to the sale of sibneft-Chukotka in the fourth quarter of 2009. Income of 470 mn UsD due to acquiring sibir Energy in the second quarter of 2009. Reserve of 198 mn UsD to pay a penalty to the Federal Antimonopoly service in the fourth quarter of 2010. ** Not announced as at the date of signing the Dividends Report for 2010. Annual report 2010 3 Key production indicators 2010 2009 2008 2007 2006 2010/2009 Proven reserves of oil, mn bbl 6 441 6 924 6 303 6 709 5 845 –7 % of gas, bn ft3 6 511 3 231 3 033 1 232 1 263 102 % Hydrocarbons, mn BOE 7 526 7 462 6 808 6 914 6 056 1 % Crude oil production by consolidated subsidiaries, mln bbl 230 225 229 243 243 2 % Crude production including share in equity investees, mln bbl 366 349 343 321 329 5 % Marketable gas production by consolidated subsidiaries, bn m³ 3.1 2.1 1.9 1.5 1.8 47 % Marketable gas production including share in equity investees 4.0 3.2 3.1 1.9 2.2 26 % (slavneft and Tomskneft), bn m³ Marketable hydrocarbon production, thousand BOE per day 1 067 1 008 987 909 938 6 % Oil refining at own refineries, mln t 30.8 26.6 18.4 16.5 16.3 16 % at equity oil refineries, mln t 7.2 6.8 10.0 9.7 8.0 5 % Crude exports, mln t Non-CIs countries 15.9 15.6 16.3 15.1 18.2 2 % CIs countries 3.0 3.3 3.3 2.5 2.6 –9 % sales of crude oil in Russian Federation, mln t 0.01 0.5 0.9 1.6 0.1 –97 % Gas, bn m³ 5.2 3.7 3.7 2.2 3.0 41 % Petroleum product exports to international market, mln t Non-CIs countries 14.9 13.7 11.4 11.4 12.2 9 % CIs countries 1.7 1.9 1.8 1.9 1.3 –11 % Petroleum product sales in Russian Federation, mln t 20.5 17.4 15.6 13.4 11.9 18 % Number of active filling stations (own, leased and franchise) 1 596 1 546 865 783 776 3 % net cash from operating activities, net income per barrel, mn usd usd per barrel gearing, % 6 000 20,00 25,00 22,58 55 % 5 483 19,42 5 316 5 392 20,56 5 000 18,00 20,00 20,88 1,70 p.p. 4 000 16,00 16,44 15,00 3 320 3 475 3 000 14,43 10,00 14,00 19 % 10,29 2 000 13,48 12,00 5,00 1 000 11,32 3,27 0 0 10,00 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 4 JsC GAZPROM NEFT MEssAGE TO sHAREHOLDERs Annual report 2010 5 Dear shareholders and Investors, Characterising the results of activities of JsC Moreover, Gazprom Neft continues to employ Gazprom Neft in 2010, the Board of Directors notes a systematic approach in forming its strategic with satisfaction stable growth in the company's development concept. To improve managerial key financial and performance indicators. Gazprom control efficiency at all levels, the company is Neft has repeatedly confirmed its status as an adopting an integrated system for long-term effective company. This is a guarantee of realising strategy development and medium-term business its future plans and projects. plans. Current activities focused on improving efficiency In the near-term, the company has defined the in the producing fields. Integrating new acquired following strategic objectives for key business assets has also allowed the company to increase directions: performance indicators significantly. z successfully implementing major projects and We note 2010 as a year of quality achievements for building up the resource base Gazprom Neft, not only in operational activities but also in its corporative and financial management. z effective activity on existing assets The Board of Directors approved the company’s dividend policy, the debt portfolio of Gazprom z improving the quality and extent of oil-refining Neft was optimised, and activity for further cost reduction is continuing. z developing sales in premium segments. Last year, Gazprom Neft expanded its geography To conclude, I would like to remind you that of operations significantly and continued to every company measure to optimise production strengthen its vertical integration. This allowed activities, financial policy and corporative the company to maintain its leading industry management focuses on creating additional position, in such indicators as operating efficiency revenue for Gazprom Neft. and profitability. Alexey Miller Chairman of the Management Board, JsC Gazprom Chairman of the Board of Directors, JsC Gazprom Neft 6 JsC GAZPROM NEFT Annual report 2010 7 Dear shareholders, Pre-crisis oil prices and the global economic North-West region of Russia, pilot sales of new situation recovered during 2010.