Management s Discussion and Analysis of Financial Condition and Results of Operations for the three months ended September 30 and June 30, 2017 and

Transcription

1 Management s Discussion and Analysis of Financial Condition and Results of Operations for the three months ended September 30 and June 30, 2017 and the nine months ended September 30, 2017 and 31, 2016

2 Definitions and conversions The following discussion is intended to assist you in understanding the Group financial position as of September 30, 2017 and results of operations for the three months ended September 30 and June 30, 2017 and the nine months ended September 30, 2017 and 2016 and should be read in conjunction with the Interim Condensed Consolidated Financial Statements and notes thereto, which were prepared in accordance with International Financial Reporting Standards ( IFRS ). This report represents Group s financial condition and results of operations on a consolidated basis. In this report the terms Gazprom Neft, Company, Group represent PJSC Gazprom Neft, its consolidated subsidiaries and joint operations (as defined in IFRS 11) ( Tomskneft, Salym petroleum development (SPD) and Yuzhno- Priobskiy GPZ (UGPZ)). The term Joint ventures represents entities accounted for by the equity method. Tonnes of crude oil produced are translated into barrels using conversion rates reflecting oil density from each of our oil fields. Crude oil purchased as well as other operational indicators expressed in barrels are translated from tonnes using a conversion rate of 7.33 barrels per tonne. Translations of cubic meters to cubic feet are made at the rate of cubic feet per cubic meter. Translations of barrels of crude oil and liquid hydrocarbon into barrels of oil equivalent ( boe ) are made at the rate of 1 barrel per boe and of cubic feet into boe at the rate of 6,000 cubic feet per boe. Forward-looking statements This discussion contains forward-looking statements concerning the financial condition, results of operations and businesses of Gazprom Neft and its consolidated subsidiaries. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Gazprom Neft to market risks and statements expressing management s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, objectives, outlook, probably, project, will, seek, target, risks, goals, should and similar terms and phrases. There are a number of factors that could affect the future operations of Gazprom Neft and could cause those results to differ materially from those expressed in the forward-looking statements contained in this Report, inclusively (without limitation): (a) price fluctuations in crude oil and gas; (b) changes in demand for the Company s products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) economic and financial market conditions in various countries and regions; (j) political risks, project delay or advancement, approvals, and cost estimates; and (k) changes in trading conditions

3 Key financial and operating data , % , % Financial results (RUB million) 513, , Sales* 1,457,525 1,221, , , Adjusted EBITDA** 399, , ,663 5, RUB per toe of production 5,954 5, USD*** per boe of production ,731 49, Profit attributable to Gazprom Neft shareholders 189, , Operational results Hydrocarbon production including our share in joint ventures (MMboe) Hydrocarbon production including our share in joint ventures (MMtoe) Daily hydrocarbon production (MMboepd) Crude oil and condensate production including our share in joint ventures (MMbbl) Gas production including our share in joint ventures (bcf) Refining throughput at own refineries and joint ventures (MMtonnes) (4.4) * Sales includes export duties and sales related excise tax ** EBITDA is a non-ifrs measure. A reconciliation of adjusted EBITDA to profit before income taxes is provided in the appendix *** Translated to USD at the average exchange rate for the period 9 months 2017 highlights Received exploration and production licenses for: o Tazovskoye and Severo-Samburskoye fields inyamalo-nenets Autonomous Okrug o Novosamarskoye field in Orenburg region o Parabelskiy prospecting block in Tomsk region o Ayashskiy block at Ohotskoye Sea shelf o Zapadno-Chistinniy block in Khanty-Mansiysk Autonomous Okrug In June 2017 Group acquired a 25.02% stake (with the right to increase its share to 50%) in Evrotek-Yugra from Repsol (Spain company). Evtotek-Yugra holds exploration and production rights to seven license blocks in Khanty-Mansiysk Autonomous Okrug In April 2017 received export duties tax benefit for Kuyumba field in amount of mln tonnes In October 2017 discovered new hydrocarbon field at Ayashskiy block at Ohotskoye Sea shelf with total geological reserves up to 255 MMtoe. Detailed reserve valuation will be available in the middle of 2018 In April, August and September 2017 Group placed ruble bonds with total par value of RUB 55 billion In March 2017 rating agency Standard&Poor s revised its outlook for Group from stable to positive The Analytical Credit Rating Agency (ACRA) assigned Group a long-term credit rating of AAA (RU) with a stable outlook In September 2017 rating agency Dagong revised its outlook for Group from negative to stable and rating agency Fitch revised its outlook from stable to positive In June 2017 Company s shareholders approved record dividend payments for 2016 at RUB per ordinary share In November 2017 the Board of Directors announced 9 months 2017 interim dividend of RUB 10 per ordinary share Results for 9 months 2017 compared with 9 months 2016 Total hydrocarbon production, including the Group s share in joint ventures, increased by 5.6% to MMtoe due to production growth at Novoport, Messoyakha and Prirazlomnoye fields and increased production in Iraq - 3 -

4 Total refining throughput declined by 4.4% due to planned reconstruction and planned capital repair at Group refineries Sales increased by 19.3% due to higher crude oil production and higher prices for crude oil and petroleum products on the domestic and international markets Production growth at major projects (Novoport, Prirazlomnoye and Messoyakha), higher premium sales and an increase in crude oil and petroleum products prices have resulted in a 22.9% increase in an adjusted EBITDA. The increase was trimmed by MET and excise rates growth Net profit attributable to Gazprom Neft shareholders increased mainly due to increased EBITDA. Results for 3Q 2017 compared with 2Q 2017 Total hydrocarbon production, including the Group s share in joint ventures, increased Q-o-Q by 4.3%. Planned stoppage for technical modernization at OIFP Prirazlomnoye resulted in an increase in production at West-Siberian fields in line with production limits established by RF Ministry of Energy Refining throughput increased by 11.8% Q-o-Q due to completion of planned capital repair of large ring units at Moscow refinery and maintenance at Yaroslavl refinery in the middle of 2Q Crude processing volumes were optimized relative to crude oil and petroleum product prices and market conditions. Sales increased by 7.9% mainly due to increased petroleum product volumes sales and higher prices for oil and petroleum products. The increase was trimmed by a decrease of export sales volume Production increase, refining throughput growth and higher crude oil and petroleum product prices resulted in an adjusted EBITDA increase (19.9%) Net profit attributable to Gazprom Neft shareholders increased, mainly due to EBITDA growth and foreign exchange gain in 3Q 2017 resulting from the revaluation of the Group s debt portfolio vs. foreign exchange losses in 2Q

5 Operational data and analysis Production drilling , % , % Consolidated subsidiaries Production drilling ('000 meters) 1,935 2,099 (7.8) New production wells (11.4) (15.9) Average new well flow (tonnes per day) Joint operations (8.7) Production drilling ('000 meters) New production wells (14.9) Joint ventures Production drilling ('000 meters) 1, New production wells The decrease in production drilling and number of new production wells by consolidated subsidiaries Y-o-Y was due to the increased number of high-tech wells The increase in production drilling and number of new production wells by consolidated subsidiaries Q-o-Q was in line with the drilling plan The increase in average new well flow by consolidated subsidiaries by 10.9% Y-o-Y was due to the increased number of high-tech wells and the completion of high-debit wells at Novoport and Prirazlomnoye fields The decrease in production drilling by joint operations Q-o-Q was due to a decline in drilling volumes at Tomskneft. The increase in new wells by joint operations Q-o-Q was due to put in operation of previously drilled wells at SPD The increase in production drilling by joint operations Y-o-Y was due to drilling intensification at Tomskneft The decrease in new wells by joint operations Y-o-Y was due to the increased number of high-tech wells The increase in production drilling and new wells by joint ventures Y-o-Y was due to placing Vostochno- Messoyakhskoye field on production

6 Production , % , % (MMtonnes) Crude oil and condensate (MMtonnes) Noyabrskneftegaz (7.0) Khantos** (0.4) Tomskneft (2.5) SPD Orenburg*** NIS (5.2) Vostok**** (2.4) Novy Port (83.3) Prirazlomnoye Badra & Kurdistan Others (28.6) Total production by subsidiaries and joint operations Share in Slavneft (3.4) Share in SeverEnergia (Arcticgas) (2.8) Share in Northgas (30.0) Share in Messoyakha > Share in production of joint ventures Total crude oil and condensate production (bcm) Gas* (bcm) (5.0) Noyabrskneftegaz (3.6) Khantos** Tomskneft SPD (3.1) Orenburg*** NIS (7.1) Vostok**** >200 Novy Port > Others Total production by subsidiaries and joint operations Share in Slavneft (5.6) Share in SeverEnergia (Arcticgas) Share in Northgas (16.7) Share in Messoyakha > Share in production of joint ventures (4.1) Total gas production (MMtoe) Hydrocarbons (MMtoe) Total production by subsidiaries and joint operations Share in production of joint ventures Total hydrocarbon production MMtoe MMboe Daily hydrocarbon production (MMboepd) * Production volume includes marketable gas and gas utilized in the Company s power plants ** Khantos oil production in includes NGL in the share of Gazprom Neft (50%). Associated gas utilization excludes gas used for NGL production at UGPZ (50%) *** Orenburg oil production since 3Q 2016 includes LPG. Associated gas utilization excludes gas used for LPG **** Vostok oil production since 2017 includes DGS. Associated gas utilization excludes gas used for DGS - 6 -

7 Group daily hydrocarbon production increased by 5.8% Y-o-Y Group oil and condensate production increased by 7.0% Y-o-Y to MMtonnes, driven by increased production at Novoport, Messoyakha, Prirazlomnoye fields and Iraq Group oil and condensate production Q-o-Q increased by 4.0% to MMtonnes. Planned stoppage for technical modernization at OIFP Prirazlomnoye resulted in an increase in production at West-Siberian fields in line with production limits established by RF Ministry of Energy Group gas production increased by 2.3% Y-o-Y, primarily due to increase in associated gas utilization resulted from GPF commisioning at Novoport and the 4Q 2016 startup of a compressor station at Eti- Purovskoye field; higher natural gas production in Noyabrsk region according to new sales contracts Group natural gas production increased by 5.3% Q-o-Q due to putting in place of complex gas processing plant at Novoport. Crude oil purchases , % (MMtonnes) , % (2.1) Crude oil purchases in Russia * (14.4) Crude oil purchases internationally Total crude purchased (5.0) * Crude oil purchases in Russia: - exclude purchases from the Group s joint ventures Slavneft and SeverEnergia (Arcticgas) - include purchase of stable gas condensate from Novatek (25% of Arcticgas production) Crude oil purchases in Russia decreased by 14.4% Y-o-Y due to a decline in effectivness of domestic trading operations and lower production at own refineries. Refining , % (MMtonnes) , % Omsk (1.4) Moscow (18.3) Pancevo Total throughput at refineries owned by subsidiaries (5.9) Share in Yaroslavl Share in Mozyr (76.9) Total refining throughput (4.4) Production of petroleum products Gasoline (6.0) Class (6.0) Naphtha (17.1) Diesel (4.2) (25.0) Class 2 and below Class (4.2) (3.1) Fuel oil (14.8) Jet fuel (0.4) Bunker fuel Bitumen Lubricants (10.3) Other Total production (3.3) Total throughput declined by 4.4% Y-o-Y due to planned reconstruction and capital repair at Group refineries - 7 -

8 Refining throughput increased by 11.8% Q-o-Q due to completion of planned capital repair of large ring units at Moscow refinery and maintenance at Yaroslavl refinery in the middle of 2Q Crude processing volumes were optimized relative to crude oil and petroleum product prices and market conditions High-octane gasoline production increased by 16.1% and diesel production inceased by 15.6% Q-o-Q due to completion of planned reconstruction and repair at Moscow refinery, throughput growth at Omsk and Yaroslavl refineries Fuel oil production decreased Y-o-Y due to a decline in oil refining and increased bitumen production Bitumen production increased by 36.0% Q-o-Q primarily due to seasonal factors and completion of reconstraction of bitumen plant at Omsk refinery (January-April 2017) Bitumen production increased by 22.2% Y-o-Y due to higher demand on domestic market and geographic expansion of export sales. Petroleum product purchases on international markets 3Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes Diesel 2, , (18.2) Jet fuel 1, , Bunker fuel 3, , Lubricants Total 7, , m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes Diesel 7, , (26.1) (29.7) Jet fuel 4, , Bunker fuel 5, , Lubricants (19.4) - Total 17, , Diesel purchases decreased Y-o-Y due to accumulated diesel stock utilization Jet fuel purchases on international markets increased Y-o-Y due to higher demand for international flights Bunker fuel purchases on international markets increased Y-o-Y due to higher sales in ports of Romania. Petroleum product purchases in the CIS 3Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 2, , Low octane gasoline Diesel (29.9) (25.0) Other (3.9) - Total 3, , m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 4, , > Low octane gasoline (53.6) - Diesel 3, , Other (3.7) >200 Total 8, ,

9 Domestic petroleum product purchases 3Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline , ,37 23,3 18,9 Diesel , ,21 55,6 47,6 Jet fuel , ,08 45,6 25,0 Bunker fuel 893 0, ,04 2,5 - Bitumen 471 0, ,02 >200 50,0 Other , ,06 (35,9) (50,0) Total , ,78 29,1 21,8 9m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 48, , Low octane gasoline Diesel 30, , Jet fuel 7, , Bunker fuel 2, , Bitumen Lubricants (65.1) - Petrochemicals (73.7) - Other 5, >200 >200 Total 94, , Petroleum product purchases increased Q-o-Q mainly due to seasonal factors Petroleum product purchases increased Y-o-Y due to lower production at own refineries. Petroleum product marketing through premium channels , % , % (units) Active retail stations (units) 1,175 1,201 (2.2) In Russia 1,175 1, (1.1) In CIS (27.8) In Eastern Europe (1.0) 1,775 1,803 (1.6) Total retail stations (as at the end of the period) 1,775 1,845 (3.8) Average daily sales per retail site in Russia (tonnes per day) (MMtonnes) Sales volume through premium channels (MMtonnes) Gasoline and Diesel Jet Bunkering (3.3) (22.2) Lubricants Bitumen Total sales volume through premium channels The total number of active retail stations decreased by 3.8% Y-o-Y due to the Group retail operations reorganisation in CIS Average daily sales per retail station in Russia increased by 4.5% Y-o-Y due to active retail business development and the Group s marketing activities Bunker fuel sales decreased Y-o-Y due to shift to higher margin directions (North-East and Black Sea regions) from the Far East Sales volumes through premium channels increased by 12.1% Q-o-Q primarily due to seasonal factors and higher demand for petroleum products

10 Results of operations , % (RUB million) , % 513, , Sales* 1,457,525 1,221, (33,749) (34,476) (2.1) Less export duties and sales related excise tax (105,666) (110,206) (4.1) 479, , Total revenue 1,351,859 1,111, Costs and other deductions (107,576) (109,997) (2.2) Purchases of oil, gas and petroleum products (334,536) (252,862) 32.3 (57,225) (54,059) 5.9 Production and manufacturing expenses (157,597) (145,270) 8.5 (24,840) (24,237) 2.5 Selling, general and administrative expenses (72,788) (77,397) (6.0) (34,858) (34,744) 0.3 Transportation expenses (106,252) (98,228) 8.2 (35,781) (33,984) 5.3 Depreciation, depletion and amortization (102,075) (89,268) 14.3 (130,491) (111,644) 16.9 Taxes other than income tax (356,522) (273,662) 30.3 (123) (42) Exploration expenses (269) (308) (12.7) (390,894) (368,707) 6.0 Total operating expenses (1,130,039) (936,995) ,608 72, Operating profit 221, , ,526 7, Share of profit of associates and joint ventures 31,236 24, ,237 (7,477) - Net foreign exchange gain / (loss) 7,942 20,043 (60.4) 3,041 2, Finance income 8,266 8,302 (0.4) (6,026) (6,543) (7.9) Finance expense (19,288) (26,283) (26.6) 413 (2,513) - Other gain / (loss), net (2,964) (14,766) (79.9) 12,191 (5,928) - Total other income / (expense) 25,192 11, ,799 66, (Loss) / Profit before income tax 247, , (13,119) (10,450) 25.5 Current income tax (expense) (33,733) (13,690) (5,232) (2,790) 87.5 Deferred income tax expense (12,780) (19,925) (35.9) (18,351) (13,240) 38.6 Total income tax benefit / (expense) (46,513) (33,615) ,448 53, (Loss) / Profit for the period 200, , (4,717) (4,001) 17.9 Less: Profit attributable to non-controlling interest (11,499) (4,794) ,731 49, Profit attributable to Gazprom Neft shareholders 189, , * Sales include export duties and sales related excise tax

11 Revenues , % (RUB million) , % Crude oil 79,204 93,792 (15.6) Export 260, , , ,623 (17.9) Export sales 296, , (7,519) (11,831) (36.4) Less related export duties (35,242) (31,012) ,154 4, International markets 14,993 8, ,439 7,099 (9.3) Export to CIS 20,694 19, ,439 7,099 (9.3) Export sales and sales in CIS 20,694 19, Less related export duties - (129) - 16,869 18,116 (6.9) Domestic 63,040 67,363 (6.4) 107, ,951 (13.1) Total crude oil revenue 359, , Gas (25.1) International markets 1,005 1,441 (30.3) 9,373 9, Domestic 27,432 21, ,671 9, Total gas revenue 28,437 23, Petroleum products 47,067 35, Export 143, , ,548 42, Export sales 163, , (6,481) (6,571) (1.4) Less related export duties (20,684) (21,623) (4.3) 30,722 25, International markets 78,871 71, ,141 41, Sales on international markets 127, ,137 (0.3) (19,419) (15,863) 22.4 Less sales related excise (48,837) (56,649) (13.8) 21,205 18, CIS 55,405 52, ,535 18, Export sales and sales in CIS 56,308 52, (330) (211) 56.4 Less related export duties (903) (793) , , Domestic 640, , , , Total petroleum products revenue 917, , ,777 15,793 (0.1) Other revenue 45,888 42, , , Total revenue 1,351,859 1,111, Sales volumes , % , % (MMtonnes) Crude oil (MMtonnes) (23.9) Export Sales on international markets* (16.7) Export to CIS (8.0) (14.4) Domestic sales (18.4) (20.1) Total crude oil sales (bcm) Gas (bcm) (25.0) International markets (28.6) Domestic sales Total gas sales (MMtonnes) Petroleum products (MMtonnes) Export (10.7) Sales on international markets Export and sales in CIS Domestic sales Total petroleum products sales (0.6) * Including production sharing agreements (PSA)

12 Average realized sales prices , % , % (RUB per tonne) Crude oil (RUB per tonne) 22,294 20, Export 21,664 19, ,098 14, Export and sales in CIS 16,424 14, ,176 13, Domestic sales 14,198 12, (RUB per tonne) Petroleum products (RUB per tonne) 23,589 20, Export 23,088 19, ,331 30,702 (1.2) Export and sales in CIS 30,769 30, ,809 29, Domestic sales 30,393 26, Crude oil sales Crude export volumes decreased by 23.9% Q-o-Q due to a decline in crude oil production at Prirazlomnoye field resulted from planned stoppage for technical modernization in 3Q 2017 and crude oil refining growth at Group refiniries Crude export volumes increased by 57.7% Y-o-Y due to an increase in crude oil production at Novoport, Messoyakha and Prirazlomnoye fields and reduction of crude oil delivery to refiniries Oil sales on international markets increased Y-o-Y due to production growth in Iraq Crude export volumes to the CIS decreased by 8.0% Y-o-Y due to a reduction of the oil export scheduled by RF Ministry of Energy to Belarus Domestic crude volumes decreased by 14.4% Q-o-Q due to higher crude oil delivery to Group refiniries Domestic crude volumes decreased by 18.4% Y-o-Y mainly due to a decline in effectivness of domestic trading. Gas sales Domestic gas sales increased by 6.5% Y-o-Y due to increased natural gas production at consolidated subsidiaries. Petroleum product exports 3Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes Naphtha 5, , Diesel 18, , Fuel oil 13, , Jet fuel 3, , Bunker fuel 8, , Bitumen Lubricants 1, , (2.3) (50.0) Petrochemicals (26.6) 33.3 Other 2, , (57.4) (48.1) Total 53, ,

13 9m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline - - 2, Naphtha 18, , (17.2) (25.8) Diesel 57, , (11.2) (21.8) Fuel oil 36, , (29.9) Jet fuel 8, , Bunker fuel 23, , Bitumen Lubricants 3, , (18.1) (33.3) Petrochemicals 2, , (34.9) (25.0) Other 12, , >200 >200 Total 163, , (10.7) Petroleum product export volumes increased Q-o-Q due to a high margin of export sales to Netherlands, Germany and Denmark Bunker fuel volumes increased by 36.0% Q-o-Q mainly due to seasonal factors Petroleum product sales volumes decreased Y-o-Y due to a decline in production volumes Bunker fuel volumes increased twice Y-o-Y due to a increase in effectivness of trading Jet fuel sales on international markets increased by 62.5% Y-o-Y due to higher demand for international flights and geographic expansion. Petroleum product sales in the CIS 3Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 7, , Low octane gasoline (6.7) - Naphtha Diesel 8, , Fuel oil Jet fuel , (52.3) (66.7) Bitumen 1, Lubricants Petrochemicals and Other 1, Total 21, , m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 22, , (10.0) (8.2) Low octane gasoline , (77.7) (87.5) Naphtha Diesel 21, , Fuel oil (77.1) (85.7) Jet fuel 4, , Bitumen 2, , Lubricants 2, , (0.7) - Petrochemicals and Other 2, , Total 56, ,

14 Domestic sales of petroleum products 3Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 104, , Low octane gasoline Diesel 81, , Fuel oil 3, , Jet fuel 23, , Bunker fuel 9, , (9.6) Bitumen 10, , Lubricants 3, , Petrochemicals 5, , Other 4, , (14.3) Total 247, , m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 269, , Low octane gasoline (22.6) (33.3) Diesel 214, , Fuel oil 11, , Jet fuel 62, , (1.8) Bunker fuel 26, , (17.0) Bitumen 18, , Lubricants 10, , Petrochemicals 16, , (18.1) Other 9, , (3.3) Total 640, , Petroleum product sales on the domestic market increased by 12.5% Q-o-Q mainly due to seasonal factors and production growth Bunker fuel sales decreased Y-o-Y due to shift to higher margin directions (North-East and Black Sea regions) from the Far East Bitumen sales increased by 18.5% Y-o-Y due to an increase in market share and geographic expansion of outside processing Petrochemicals volumes decreased Y-o-Y due to repairs at the Group s refiniries. Purchases of oil, gas and petroleum products Purchases of oil, gas, and petroleum products increased by 32.3% Y-o-Y due to increased volume of petroleum product purchases (connected with a refining decline) and an increase of purchased crude oil cost (connected with prices growth on domestic and international markets)

15 Production and manufacturing expenses , % (RUB million) , % ,0 Upstream expenses , (0,1) RUB per toe (0,4) 4,12 4,26 (3,3) USD * per boe 4,09 3,51 16, ,2 Consolidated subsidiaries inside Russia ,7 including (0,1) RUB per toe ,0 3,83 3,96 (3,3) USD * per boe 3,83 3,23 18, ,7 Brownfields , (7,6) RUB per toe ,4 3,97 4,44 (10,6) USD * per boe 4,13 3,28 25, ,3 Greenfields , ,2 RUB per toe (16,1) 3,39 2,75 23,3 USD * per boe 2,97 3,02 (1,7) Consolidated subsidiaries outside Russia ,1 (including PSA)** (18,7) (4,7) RUB per toe (29,7) 7,02 7,61 (7,8) USD * per boe 7,01 8,51 (17,6) ,9 Joint operations , ,9 RUB per toe ,8 5,04 5,06 (0,4) USD * per boe 4,82 3,71 29, ,5 Downstream expenses , ,2 Refining expenses at own refineries , (3,6) RUB per tonne ,6 1,98 2,12 (6,6) USD * per bbl 2,14 1,65 29, ,3 Refining expenses at refineries of joint ventures*** (4,1) ,5 RUB per tonne (6,5) 3,58 3,64 (1,6) USD * per bbl 3,62 3,30 9, (15,5) Lubricants manufacturing expenses , ,1 Transportation expenses to refineries (0,9) ,8 Other operating expenses including , ,9 Total ,5 * Translated to USD at the average exchange rate for the period ** PSA refers to production sharing agreement *** Refining expenses of joint ventures is based on processing agreement Upstream expenses include expenditures for raw materials and supplies, maintenance and repairs of production equipment, labor costs, fuel and electricity costs, enhanced oil recovery activities and other similar costs at our upstream subsidiaries Upstream expenses per toe at consolidated subsidiaries in Russia increased by 1.0% Y-o-Y due to increased brownfields expenses which was partially offset by increased crude production at greenfields Upstream expenses per toe at consolidated subsidiaries at brownfields increased by 7.4% Y-o-Y due to: o Higher natural monopoly tariffs o Production decline in line with OPEC limits o Increased share of equipment used under the electric submersible pump (ESP) rental program o Increased wells repair expenses o Inflationary pressure at cost of services and resources o Increased expenses for associated gas processing. Upstream expenses per boe at consolidated subsidiaries outside Russia decreased by 17.6% Y-o-Y mainly due to production growth in Iraq Upstream expenses at joint operations increased by 10.8% Y-o-Y mainly due to: o Higher natural monopoly tariffs

16 o Increased share of equipment used under the electric submersible pump (ESP) rental program and growth of its maintenance costs o Increased wells repair expenses at SPD o Inflationary pressure at cost of services and resources. Refining expenses at the refineries of consolidated subsidiaries include expenditures for raw materials and supplies, maintenance and repairs of production equipment, labor and electricity costs, and other similar costs at the Group s refineries Refining expenses per tonne at own refineries decreased by 3.6% Q-o-Q due to production growth. Refining expenses per tonne at own refineries increased by 10.6% Y-o-Y primarily due to: o Production decrease resulted from planned repairs o Increased MTBE purchases to sustain gasoline production as a result of capital repair of large ring units at Moscow refinery in 1Q and 2Q 2017 o Increased expenses for natural gas consumption for own use purposes o Higher tariffs of natural monopolies. Refining expenses per tonne at refineries of joint ventures declined by 6.5% Y-o-Y due to optimized expenses for compounds, chemicals and additives Transportation expenses to refineries increased by 13.1% Q-o-Q mainly due to increased crude oil volumes delivered to refineries Other operating expenses increased by 61.6% Y-o-Y due to increased services rendered to joint ventures. Selling, general and administrative expenses Selling, general and administrative expenses include general business expenses, wages, salaries (except wages and salaries at production subsidiaries and own refineries), insurance, legal fees, consulting and audit services, and other expenses. Selling, general and administrative expenses decreased by 6.0% Y-o-Y, driven mainly by decreased expenses at foreign subsidiaries due to ruble strengthening Transportation expenses Transportation expenses include costs to transport crude oil and petroleum products to final customers. These costs consist of pipeline transportation, sea freight, rail, shipping, handling, and other transportation costs. Transportation expenses increased by 8.2% Y-o-Y mainly due to higher export crude sales volumes. Depreciation, depletion and amortization Depreciation, depletion and amortization expenses include depreciation of oil and gas properties, refining and other assets and impairment provision. Depreciation, depletion and amortization expenses increase by 14.3% Y-o-Y and 5.3% Q-o-Q in line with an increase in depreciable assets driven by implementation of the investment program and increased production Taxes other than income tax , % (RUB million) , % 84,683 70, Mineral extraction tax 236, , ,567 32, Excise tax 95,958 83, ,723 4,761 (0.8) Social security contributions 14,583 13, ,518 3, Other taxes 9,910 10,235 (3.2) 130, , Total taxes other than income tax 356, , MET increased by 19.9% Q-o-Q due to higher oil prices Excise taxes increased by 14.0% Q-o-Q due to increased production at refineries of consolidated subidiaries in Russia 3Q

17 MET increased by 41.8% Y-o-Y due to higher rates according to the Tax Code, imposition of additional multiplying ratio, production growth and higher oil prices Excise taxes increased by 15.0% Y-o-Y due to higher rates according to the Tax Code. Share of profit of equity accounted investments , % (RUB million) , % 3,372 1, Slavneft 7,549 11,114 (32.1) 4,910 3, SeverEnergia (Arcticgas) 12,672 10, ,868 1, Messoyakha 7,040 (1,300) Nortgaz 2,514 1, (19.5) Other companies 1,461 2,835 (48.5) 12,526 7, Share of profit of associates and joint ventures 31,236 24, The Group s share in Slavneft s profit decreased Y-o-Y mainly due to a production decline and depreciation growth The Group s share in Slavneft s profit increased Q-o-Q mainly due to EBITDA growth resulted from higher crude oil prices The Group s share in profit of SeverEnergia (Arcticgas) increased by 22.0% Y-o-Y as a result of increased EBITDA and reduction of financial expenses The Group s share in profit of Messoyakha increased Y-o-Y as a result of started commertial production in 4Q Other income and expenses Other expenses decreased by 79.9% Y-o-Y. Other expenses in 2016 mainly include impairment provision of advances paid. Other financial items Foreign exchange gains/losses were mainly due to revaluation of the portion of the Group s debt portfolio that is denominated in foreign currencies

18 Liquidity and capital resources Cash flows 9m (RUB million) % Net cash provided by operating activities 325, , Net cash used in investing activities (235,661) (220,573) 6.8 Net cash used in financing activities (54,141) (83,257) (35.0) Increase / (Decrease) in cash and cash equivalents 35,979 (68,216) - Net cash provided by operating activities 9m (RUB million) % Net cash provided by operating activities before changes in working capital, income tax, interest and dividends 323, , Net changes in working capital 54,352 17,397 >200 Income tax paid (25,494) (17,336) 47.1 Interest paid (29,760) (27,701) 7.4 Dividends received 3,306 2, Net cash provided by operating activities 325, , Net cash provided by operating activities increased by 38.3% Y-o-Y primarily due to higher operating profit and changes in working capital. Net cash used in investing activities 9m (RUB million) % Capital expenditures (242,768) (266,004) (8.7) Acquisition of subsidiaries, shares in joint operations and equity affiliates (8,093) (1,545) >200 Net changes in deposits (3,943) 48,307 - Net changes in loans issued and other investments 10,119 (6,000) - Other transactions 9,024 4, Net cash used in investing activities (235,661) (220,573) 6.8 Net cash used in investing activities increased by 6.8% Y-o-Y due to lower repayments of bank deposits. Net cash used in financing activities 9m (RUB million) % Net changes in debt (726) (79,553) (99.1) Payment of dividends to shareholders (50,383) (2,598) >200 Other transactions (3,032) (1,106) Net cash used in financing activities (54,141) (83,257) (35.0) Net cash used in financing activities decreased by 35.0% Y-o-Y mainly due to a decline of net amount of new funds raised and repayments of loans and borrowings. Group paid dividends for 2016 in 3Q

19 Capital expenditures 9m (RUB million) , % Exploration and production 152, ,592 (13.2) Consolidated subsidiaries 140, ,372 (13.8) Joint operations 11,650 12,220 (4.7) Refining 45,077 23, Marketing and distribution 4,502 4, Others 7,761 9,324 (16.8) Subtotal capital expenditures 209, ,613 (1.3) Change in advances issued and material used in capital expenditures, including 33,019 53,391 (38.2) Total capital expenditures 242, ,004 (8.7) Capital expenditures for exploration and production decreased by 13.2% Y-o-Y due to: o Completion of first stage of infrustructure construction at Novoport field o Decreased drilling volumes at brownfields Capital expenditures for refining increased by 93.1% Y-o-Y due to the second stage of modernisation program at Omsk and Moscow refineries (catalytic cracking reconstruction and construction of plant EURO+ at Moscow refinery). Debt and liquidity (RUB million) September 30, 2017 December 31, 2016 Short-term loans and borrowings 142,843 80,187 Long-term loans and borrowings 523, ,221 Cash and cash equivalents (68,676) (33,621) Short-term deposits (2,572) (886) Net debt 595, ,901 Short-term debt / total debt, % Net debt / EBITDA for 12 months preceding The Group s diversified debt structure includes syndicated and bilateral loans, bonds and other instruments As at September 30, 2017 average debt maturity decreased to 3.53 years from 3.60 years as at December 31, 2016 The average interest rate increased from 5.52% as at December 31, 2016 to 5.69% as at September 30, 2017 mainly due to the increased share of loans denominated in ruble in debt portfolio

20 Financial appendix EBITDA reconciliation , % (RUB million) , % 82,448 53, Profit for the period 200, , ,351 13, Total income tax benefit / (expense) 46,513 33, ,026 6,543 (7.9) Finance expense 19,288 26,283 (26.6) (3,041) (2,713) 12.1 Finance income (8,266) (8,302) (0.4) 35,781 33, Depreciation, depletion and amortization 102,075 89, (2,237) 7,477 - Net foreign exchange gain / (loss) (7,942) (20,043) (60.4) (413) 2,513 - Other gain / (loss), net 2,964 14,766 (79.9) 136, , EBITDA 355, , (12,526) (7,892) 58.7 less Share of profit of associates and joint ventures (31,236) (24,468) 27.7 add Share of EBITDA of equity accounted 29,050 21, investments 75,351 61, , , Adjusted EBITDA 399, , Financial ratios Profitability September 30, 2017 September 30, 2016, p.p. Adjusted EBITDA margin, % Net profit margin, % Return on assets (ROA), % Return on equity (ROE), % Adjusted Return on average capital employed (ROACE), % Adjusted ROACE calculation For 12 months preceding September 30, 2017 September 30, 2016 Adjusted EBITDA 530, ,457 Depreciation, depletion and amortization (176,939) (161,992) Effective income tax charge on EBIT (75,876) (56,917) Adjusted EBIT* 277, ,548 Average capital employed 2,128,821 1,910,677 Adjusted ROACE *Adjusted EBIT represents the Group s EBIT and its share in associates and joint ventures EBIT Liquidity September 30, 2017 September 30, 2016, % Current ratio (22.8) Quick ratio (19.0) Cash ratio

21 Leverage September 30, 2017 September 30, 2016, p.p. Net debt/ Total Assets, % (4.4) Net debt/ Equity, % (9.3) Gearing, % (4.9), % Net debt/ Market Capitalization (27.3) Net debt/ EBITDA (28.7) Total debt/ EBITDA (24.9) Main macroeconomic factors affecting operational results The main factors affecting the Group s operational results include: Changes in market prices for crude oil and petroleum products Changes in the exchange rate between the Russian Ruble and the US dollar; inflation Taxation Changes in transportation tariffs for crude oil and petroleum products. Changes in market prices for crude oil and petroleum products Prices for crude oil and petroleum products on international and Russian markets are the primary factor affecting the Group s operational results. Petroleum product prices on international markets are primarily determined by world prices for crude oil, petroleum product supply and demand, and competition on different markets. Petroleum product price trends on international markets in turn determine domestic prices. Price trends are different for different types of petroleum products. The increase in crude oil and petroleum product prices on international markets in 9 months 2017 had a positive impact on the Group s results , % , % (US$/ barrel) International market (US$/ barrel) Brent Urals Spot (average Med + NWE) (US$/ tonne) (US$/ tonne) Premium gasoline (average NWE) Naphtha (average Med. + NWE) Diesel fuel (average NWE) Gasoil 0.1% (average Med.) Fuel oil 3.5% (average NWE) (RUB/ tonne) Domestic market (RUB/ tonne) 37,212 36, High-octane gasoline 36,624 34, ,715 30, Low-octane gasoline 31,622 29, ,094 31, Diesel fuel 31,936 27, ,698 8, Fuel oil 9,156 5, Sources: Platts (international), Kortes (domestic)

22 Ruble vs. US dollar exchange rate and inflation The Group s presentation currency is the Russian ruble. The functional currency of each of the Group s consolidated entities is the currency of the primary economic environment in which the entity operates. For most entities, this is the Russian ruble (0.6) 1.3 Change in Consumer Price Index (CPI), % Average RUB/US$ exchange rate for the period US$/ RUB exchange rate as of the beginning of the period US$/ RUB exchange rate as of the end of the period Taxation (0.02) 0.05 Depreciation (appreciation) of Russian rouble to US$, % (0.04) (0.13) Average tax rates effective in the reporting periods for the taxation of oil and gas companies in Russia , % , % (US$/ tonne) Export duty (US$/ tonne) (5.3) Crude oil (5.4) Light petroleum products (10.9) (5.4) Diesel (10.9) (5.4) Gasoline (41.5) (5.4) Naphtha (7.9) (5.3) Heavy petroleum products Mineral extraction tax 7,818 7, Crude oil (RUB/ tonne) 7,604 5, Crude oil and petroleum products export duty rates Resolution of the Russian Government No. 276 (March 29, 2013) establishes a methodology for the Ministry of Economic Development of the Russian Federation to calculate export duty rates for crude oil and certain petroleum products. Crude oil export duty rate a) According to Russian Federal Law No (May 21, 1993) clause 3.1. subclause 4, export duty rates for oil shall not exceed the marginal export duty rates calculated according to the following formulas: Quoted Urals Price (P), USD/ tonne Maximum Export Customs Duty Rate % < P % х(p ) < P % х (P ) > % х (P ) for % х (P ) for 2017 Crude oil exports to Kazakhstan and Belarus are not subject to oil export duties. Crude oil export to Kyrgyzstan under indicative limits is not subject to oil export duties from 1 January b) According to Federal Law No. 239-FZ (December 3, 2012), the Government of the Russian Federation establishes formulas for lower export duty rates for crude oil with special chemical and physical properties, identified by the specific customs codes (TN VED TS and ). According to Russian Government Resolution No. 276 (March 29, 2013), these lower export duty rates are calculated based on the average Urals price in the monitoring period using the following formula:

23 Ct = (P 182.5) х K х P where P is the Urals price (USD/tonne) and K is an incremental coefficient equal to 36% for 2016 and 30% for 2017 and following periods. Resolution of the Russian Government No. 846 (September 26, 2013) sets out the rules for applying specific export duty rates and monitoring their use for crude oil produced, inter alia, at fields located in Sakha Republic (Yakutia), Irkutsk Oblast, Krasnoyarsk Krai, and to north of latitude 65 o in Yamalo-Nenets Autonomous Okrug. Order No. 868 (December 3, 2013) of the Ministry of Energy establishes the application form and methodology to analyze the applicability of these special rates for crude oil. c) According to Federal Law No (May 12, 1993) clause 35 subclause 1.1, crude oil produced at offshore fields is exempt from export duties until: March 31, 2032 for fields located entirely in the Sea of Azov, or located 50% or more in the Baltic Sea, Black Sea (at water depths of less than 100 meters), Pechora Sea, White Sea, Sea of Okhotsk (to south of 55 o N), or the Caspian Sea March 31, 2042 for fields located 50% or more in the Black Sea (at depths exceeding 100 meters), Sea of Okhotsk (to north of 55 o ), or Barents Sea (to south of 72 o N) Indefinitely for fields located 50% or more in the Kara Sea, Barents Sea (to north of 72 o N), or the Eastern Arctic (Laptev Sea, East Siberian Sea, Chukchi Sea, Bering Sea) According to clause 11.1, subclause 5 of the Russian Federation Tax Code, a new offshore field is a field where commercial hydrocarbon production has commenced no earlier than January 1, Export duty rate on petroleum products In accordance with clause 3.1 of Russian Federal Law No (May 21, 1993), the export duty rate on petroleum products is determined by the Government. Petroleum products exported to Kazakhstan, Belarus and Kyrgyzstan (till 31 december 2016) are not subject to export duties. Exports of petroleum products to Tajikistan, Armenia and Kyrgyzstan within the indicative limits are not subject to export duties from November 13, 2013, January 19, 2015 and January 1, 2017 respectively. According to Resolution of the Russian Government No. 276 (March 29, 2013), the export duty rate on petroleum products is calculated using the following formula: R = K * R crude, where R crude is the export duty rate per tonne of crude oil and K is a coefficient depending on the type of petroleum product. The coefficients, K, for different petroleum products are as follows: 2016 from 2017 Light and middle distillates Diesel Lubricants oil Naphtha Gasoline Excise duties on petroleum products In Russia, excise duties are paid by producers of refined products. Excise duties are also applied to petroleum products imported into Russia