OVERVIEW OF RESULTS MATERIAL FLOWS OF OIL AND PETROLEUM PRODUCTS SALES OF GAS, PURCHASE OF OIL GAS SALES CRUDE OIL SALES PURCHASE PREMIUM OIL AND OIL IN RUSSIA IN RUSSIA4 IN RUSSIA OF PETROLEUM SALES CONDENSATE1 PRODUCTS IN RUSSIA 11.04 FS (retail motor fuel sales) mn TOE mn t3 mn TOE2 mn t mn t mn t 27.32 17.33 7.34 11.15 5.57 3.76 26.13 8.97 Petroleum storage depots (small-scale wholesale of motor fuels) mn TOE2 (13.89 bn m3) 2.83 Jet fuel (small-scale wholesale of jet fuel) bn m3 GAS (34.02 ) PRODUCTION2 2.71 Bunkering (small-scale wholesale of marine fuel) Russia 0.29 Oils and lubricants (sale of refined premium oils) 26.90 mn TOE² (33.50 bn m3) 0.29 Bitumen (sale of premium bitumen products)5 International market 0.42 mn TOE² (0.52 bn m3) HYDROCARBON PETROLEUM 4.02 4 mn t PRODUCTION PETROLEUM PRODUCT BALANCE PRODUCT OUTPUT CONDENSATE Russia PRODUCTION 3.98 mn t 89.75 38.63 43.68 International market MN TOE MN T MN T 0.04 mn t 58.41 mn t Russia OIL PRODUCTION 56.18 mn t 1.63 mn t 20.96 mn t 0.09 mn TOE² 1.29 mn t 17.55 mn t 3 International market (0.11 bn m ) 2.23 mn t PURCHASE OF OIL CRUDE OIL SALES GAS SALES PURCHASE DIRECT ON THE INTERNATIONAL ON THE INTERNATIONAL ABROAD OF PETROLEUM WHOLESALE MARKET MARKET PRODUCTS ABROAD 1 — Sales by the joint ventures Northgas, Arcticgas, and SeverEnergy, 2 — Conversion ratio bn m3 to mn TOE equal to 0.803. 3 — Includes the purchase of stable gas condensate from Novatek amounting to 25% of the production of Arcticgas. 4 — Taking into account internal consumption / changes in balances. 5 — Polymer-bitumen binders and bitumen emulsions. GAZPROM NEFT І ANNUAL REPORT І 2017 50 // 51 GAZPROM NEFT’S OPERATIONAL MODEL IS BASED ON THE NOTION OF VERTICAL INTEGRATION. ENGAGING IN ACTIVITIES THAT ARE PART OF THE ENTIRE PRODUCTION CHAIN SUCH AS GEOLOGICAL EXPLORATION, THE DEVELOPMENT OF OIL FIELDS, PRODUCTION, REFINING, AND THE SALE OF OIL AND PETROLEUM PRODUCTS ENSURES THE COMPANY’S SUSTAINABILITY AND HELPS TO IMPROVE EFFICIENCY IN THE FUTURE. SALES OF GAS, PURCHASE OF OIL GAS SALES CRUDE OIL SALES PURCHASE PREMIUM OIL AND OIL IN RUSSIA IN RUSSIA4 IN RUSSIA OF PETROLEUM SALES CONDENSATE1 PRODUCTS IN RUSSIA 11.04 FS (retail motor fuel sales) mn TOE mn t3 mn TOE2 mn t mn t mn t 27.32 17.33 7.34 11.15 5.57 3.76 26.13 8.97 Petroleum storage depots (small-scale wholesale of motor fuels) mn TOE2 (13.89 bn m3) 2.83 Jet fuel (small-scale wholesale of jet fuel) bn m3 GAS (34.02 ) PRODUCTION2 2.71 Bunkering (small-scale wholesale of marine fuel) Russia 0.29 Oils and lubricants (sale of refined premium oils) 26.90 mn TOE² (33.50 bn m3) 0.29 Bitumen (sale of premium bitumen products)5 International market 0.42 mn TOE² (0.52 bn m3) HYDROCARBON PETROLEUM 4.02 4 mn t PRODUCTION PETROLEUM PRODUCT BALANCE PRODUCT OUTPUT CONDENSATE Russia PRODUCTION 3.98 mn t 89.75 38.63 43.68 International market MN TOE MN T MN T 0.04 mn t 58.41 mn t Russia OIL PRODUCTION 56.18 mn t 1.63 mn t 20.96 mn t 0.09 mn TOE² 1.29 mn t 17.55 mn t 3 International market (0.11 bn m ) 2.23 mn t PURCHASE OF OIL CRUDE OIL SALES GAS SALES PURCHASE DIRECT ON THE INTERNATIONAL ON THE INTERNATIONAL ABROAD OF PETROLEUM WHOLESALE MARKET MARKET PRODUCTS ABROAD OVERVIEW OF RESULTS RAW MATERIALS BASE AND PRODUCTION RAW MATERIALS BASE 2013 2014 2015 2016 2017 The resource base of the Company’s current assets has deteriorated PRMS HYDROCARBON RESERVES in terms of the remaining commercial OF THE GAZPROM NEFT GROUP reserves as most fields are in a late (MN TOE) stage development. An increase Source: Company data in high-tech drilling and the use of tertiary methods for boosting oil recovery has enhanced the efficient Total 3,212 3,639 3,875 3,908 4,022 development of these reserves. The Company’s reserves are audited Developed 517 639 680 726 719 according to PRMS-SPE standards Undeveloped 827 804 838 788 803 Proven 1,343 1,443 1,518 1,514 1,522 and the more conservative SEC Probable 948 1,112 1,181 1,205 1,259 standards. Based on the report Proven + probable 2,291 2,555 2,699 2,719 2,781 of DeGolyer and MacNaughton’s Possible 922 1,084 1,176 1,189 1,240 independent engineers, total proven and probable hydrocarbon reserves (including the Company’s Discovery of the Neptune field AYASHSKY Commissioning in 2025–2027 LICENSED AREA part of the Sakhalin-3 project Yuzhno-Sakhalinsk 255 80 6 Sakhalin MN TOE MN TOE MN TOE GEOLOGICAL RECOVERABLE PER YEAR AT PEAK Pacific Ocean RESERVES RESERVES PRODUCTION In October 2017, Gazprom Neft Shelf LLC discovered The quality of the oil that was obtained and the results a new hydrocarbon field after drilling and testing of the well tests suggest that the field can be successfully a prospecting and appraisal well at the Ayashsky developed. license area on the shelf of the Sea of Okhotsk, 55 km from the coast of Sakhalin Island. The field was given The geological reserves of Neptune are estimated the name ‘Neptune’. at 255 million TOE, recoverable reserves could reach as much as 70-80 million TOE, and production could The field was one of the top discoveries of the year. peak at around 5-6 million TOE per year. Existing road For the Company, it provided an opportunity to enter a new maps indicate the Neptune field could be commissioned region and marked the next step in offshore development. in 2025-2027. GAZPROM NEFT І ANNUAL REPORT І 2017 52 // 53 “The Company continues to prioritize improvements to the quality of new reserves, active work to study low permeable reservoirs, and the implementation of a programme to enhance production efficiencyin the traditional regions”. Vadim Yakovlev First Deputy CEO of Gazprom Neft PJSC stake in the reserves of affiliates MOVEMENT OF PROVED RESERVES IN 20171 (MN TOE) accounted for using the equity Source: Company data method) amounted to 2.781 billion TOE (1.875 billion tonnes of oil, 48 1,522 Revision of previous estimates 3 1,514 88.40 1.128 trillion m of gas), excluding NIS, in 2017 (mn TOE) as of 31 December 2017. 50 Gazprom Neft 23 In 2017, the Group obtained Tomskneft 3 the right to develop the Tazovskoye Slavneft 7 Salym Petroleum 3 field (recoverable reserves Messoyakhaneftegaz 4 of 72 million tonnes of oil, Arcticgas 18 4.6 million tonnes of condensate, Northgas (8) 3 and 183.3 billion m of gas) 2016 Hydrocarbon Revision Acquisition/sale 2017 Total 50 production of previous of licenses and the North Samburgskoye field estimates (recoverable reserves of 90.5 million tonnes of oil) in the Yamalo-Nenets Autonomous District. 1 — Data does not include NIS reserves. Electronic Asset Development (EAD) Technology A.1 100–200 +15% –12% SAMPLES INCREASE IN THE SERVICE REDUCTION IN ENERGY COSTS TO BE INCLUDED IN THE FULL BASE LIFE OF WELL EQUIPMENT DUE TO THE INTRODUCTION OF THE DIGITAL CORE AS A RESULT OF EAD OF EAD Electronic Asset Development (EAD) is a development The Company also utilizes GeoMate, a platform used strategy for Gazprom Neft’s IT projects in exploration to analyse and process all geological and geophysical and production. information on fields. The ‘Digital Core’1 project will be implemented on its core. It will make it possible Nine IT projects were implemented in 2017 and more to use machine learning to build 3D models of a core than 30 are in the development stage. The projects that on which mathematical experiments can be conducted, were implemented include ERA: ISKRA (an integrated thus reducing the need for lengthy laboratory research. design system that helps to make decisions on field development), ERA: GRAD (a digital workstation for field development engineers), ERA: VEGA (a platform 1 — The core is a sample of rock, usually in the form of a cylindrical column, which for the probabilistic geological and economic valuation is extracted from a well using a special type of drilling. It allows for studying of stocks and assets), and ERA. REPAIRS (automated well the rocks cut by a borehole and determine the mineral reserves. For this purpose, the core is subjected to chemical, spectral, petrographic, and other analyses repair control). in a laboratory. OVERVIEW OF RESULTS Licenses were also obtained The Group also acquired a 25.02% for the Novosamarskoye stake in the company Evrotek-Yugra, fieldin the Orenburg Region, which owns seven exploration Total proven and the Parabelsky exploration site and production licenses in the Khanty- probable hydrocarbon in the Tomsk Region, the Ayashsky Mansi Autonomous District-Yugra, reserves in 2017 section on the shelf of the Sea from the Spanish company Repsol of Okhotsk (where the new Neptune and has the right to increase this stake field was discovered with estimated to 50%. geological reserves of roughly 255 million TOE), and the West Exploratory drilling at the Group’s 2.781 Chistinny section in the Khanty-Mansi subsidiaries resulted in the discovery Autonomous District-Yugra. of 31 new hydrocarbon deposits BN TOE and 4 new fields, namely: The average size of the discoveries the Alexander Zhagrin field in 2016-2017 expanded to 26 million (Khanty-Mansi Autonomous tonnes of production potential, which District-Yugra), Novozarinskoye is several times higher compared (Orenburg Region) as well as Kumane with 2010-2015.