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

Transcription

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

2 Definitions and conversions The following discussion is intended to assist you in understanding the Group financial position as of December 31, 2017 and results of operations for the three months ended December 31 and September 30, 2017 and years ended December 31, 2017 and 2016 and should be read in conjunction with the 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) 546, , Sales* 2,003,575 1,695, , ,439 (1.1) Adjusted EBITDA** 550, , ,684 6, RUB per toe of production 6,139 5, USD*** per boe of production ,274 77,731 (17.3) Profit attributable to Gazprom Neft shareholders 253, , (1.4) Operational results Hydrocarbon production including our share in joint ventures (MMboe) Hydrocarbon production including our share in (1.4) joint ventures (MMtoe) (1.6) Daily hydrocarbon production (MMboepd) (4.6) (7.7) Crude oil and condensate production including our share in joint ventures (MMbbl) Gas production including our share in joint ventures (bcf) 1, , Refining throughput at own refineries and joint ventures (MMtonnes) (4.2) * 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 2017 highlights Obtained exploration and production licenses for: o Tazovskoye and Severo-Samburgskoye fields in Yamalo-Nenets Autonomous Okrug o Novosamarskoye field in Orenburg region o Parabelskiy prospecting block in Tomsk region o Ayashskiy block at Okhotskoye Sea shelf o Zapadno-Chistinniy block in Khanty-Mansiysk Autonomous Okrug In June 2017 the Group acquired a 25.02% stake (with the right to increase its share to 50%) in Evrotek- Yugra from Repsol (Spain company). Evrotek-Yugra holds exploration and production rights to seven license blocks in Khanty-Mansiysk Autonomous Okrug In April 2017 export duties exemption was approved for Kuyumba field In October 2017 discovered new hydrocarbon field at Ayashskiy block at Okhotskoye Sea shelf with total geological reserves up to 255 MMtoe In April, August, October and December 2017 the Group placed ruble bonds with total par value of RUB 70 billion Messoyakhaneftegas with active shareholders assistance raised project financing in amount of RUB 100 billion for East-Messoyakhskoye field development The Analytical Credit Rating Agency (ACRA) assigned the Group a long-term credit rating of AAA (RU) with a stable outlook In January 2018 international credit agency Moody s assigned the Group a credit rating of Baa3 with a positive outlook In February 2018 international credit agency Standard&Poor s assigned the Group a credit rating of BBB- with a stable outlook 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 - 3 -

4 Results for 12 months 2017 compared with 12 months 2016 Total hydrocarbon production, including Group s share in joint ventures, increased by 4.1% to MMtoe due to production growth at Novoportovskoye, East-Messoyakhskoye and Prirazlomnoye fields and increased production in Iraq Total refining throughput declined by 4.2% due to reconstruction and scheduled maintenance at Group s refineries Sales increased by 18.2% 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 fields (Novoportovskoye, Prirazlomnoye and East-Messoyakhskoye), higher premium sales and an increase in crude oil and petroleum products prices have resulted in a 20.8% increase in an adjusted EBITDA Net profit attributable to Gazprom Neft shareholders increased mainly due to increase in EBITDA. Results for 4Q 2017 compared with 3Q 2017 The decrease in total hydrocarbon production, including Group s share in joint ventures, Q-o-Q by 1.4% is in line with OPEC+ agreement regarding oil cut Refining throughput decreased by 7.7% Q-o-Q due to scheduled maintenance of the first technological chain units at Omsk refinery in 4Q 2017 Sales increased by 6.4% mainly due to higher prices for oil and petroleum products and increased oil export sales volume Production constraints and lower refining throughput due to scheduled maintenance at Group s refineries resulted in adjusted EBITDA decrease (1.1%) Net profit attributable to Gazprom Neft shareholders decreased, mainly due to foreign exchange loss in 4Q 2017 vs. foreign exchange gain in 3Q

5 Operational data and analysis Oil and Gas Reserves (MMboe) Gazprom Neft* Share in joint operations and joint ventures Sever Slavneft Tomskneft SPD Northgas Energia Messo yakha Proved Reserves (December 31, 2015) 6, , ,268 Production (366) (57) (41) (23) (105) (34) (3) (629) Revision of previous estimates (3) Proved Reserves (December 31, 2016)** 6, , ,218 Production (393) (55) (40) (23) (105) (28) (11) (655) Revision of previous estimates (64) Proved Reserves (December 31, 2017) 6, , ,280 Total Group probable reserves 5,046 1, , ,328 Total Group possible reserves 5,483 1, , ,148 * Reserves above include reserves of Badra and Kurdistan fields on a working interest basis, which differs from net entitlement basis used in the Group consolidated financial statements ** The Company s proved reserves as of December 31, 2016 includes proved gas reserves partly recalculated into liquid hydrocarbons (includes NGL) Total The Company s proved reserves as of December 31, 2017 totaled 6,407 MMboe, including 4,791 MMbbl of crude oil and liquid hydrocarbons and 9,694 bcf of gas The Group proved reserves, including shares in joint operations and joint ventures, were 11,280 MMboe as of December 31, 2017, including 7,099 MMbbl of crude oil and liquid hydrocarbons and 25,090 bcf of gas Proved reserves figures exclude reserve volumes related to the Serbian subsidiary, NIS due to limitations on disclosure of this information in Serbia Reserve estimates are made by independent reservoir engineers DeGolyer and MacNaughton on the basis of standards of the Society of Petroleum Engineers Petroleum Reserves Management System (PRMS) PRMS reserves figures provided in the table differ from those reported in the supplementary information on oil and gas activities included with our consolidated financial statements. Oil and gas reserves included in that supplementary information are prepared using definitions provided by the US Securities and Exchange Commission (SEC), which require the use of a 12-month average of the first day of the month price for each month within the reporting period. The PRMS reserves in the above table use management s best estimate of future crude oil and natural gas prices

6 Exploration Drilling and Discoveries , % Consolidated subsidiaries Exploration drilling ('000 meters) Exploration wells drilled (25.0) New fields discovered New reservoirs discovered Joint operations Exploration drilling ('000 meters) Exploration wells drilled New fields discovered New reservoirs discovered Joint ventures Exploration drilling ('000 meters) Exploration wells drilled New reservoirs discovered Exploration drilling by consolidated subsidiaries in 2017 resulted in the discovery of 31 new reservoirs. Discoveries were made in Western Siberia (25 reservoirs), Orenburg region (3 reservoirs) and Eastern Sibiria (3 reservoirs) Discovered 4 new fields at consolidated subsidiaries field named after Alexander Zhagrin (Khanty- Mansiysk Autonomous Okrug), Novozarinskoye (Orenburg region), Kumane and Begeitsy-X (Serbia) Discovered Melimovskoye field (Tomsk region) at Tomskneft. Production drilling , % , % Consolidated subsidiaries (19.3) Production drilling ('000 meters) 2,530 2,652 (4.6) New production wells (4.9) (6.8) Average new well flow (tonnes per day) Joint operations (21.8) Production drilling ('000 meters) (26.9) New production wells (17.8) Joint ventures (15.4) Production drilling ('000 meters) 1,603 1, (1.0) New production wells The decrease in production drilling Q-o-Q was due to seasonal factors 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 average new well flow by consolidated subsidiaries by 5.3% Y-o-Y was due to the increased number of high-tech wells and the completion of high-debit wells at Novoportovskoye and Prirazlomnoye fields 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 East- Messoyakhskoye field on production

7 Production , % , % (MMtonnes) Crude oil and condensate (MMtonnes) (32.6) Noyabrskneftegaz (11.5) (4.8) Khantos** (0.8) (6.8) Tomskneft (4.2) (1.3) SPD (0.3) (8.5) Orenburg*** (4.0) NIS (4.9) (2.4) Vostok**** (2.4) Novy Port >200 Prirazlomnoye Badra & Kurdistan Others (20.0) (5.4) Total production by subsidiaries and joint operations (7.1) Share in Slavneft (4.7) Share in SeverEnergia (Arcticgas) (2.7) Share in Northgas (26.9) Share in Messoyakha > (1.8) Share in production of joint ventures (4.7) Total crude oil and condensate production (bcm) Gas* (bcm) Noyabrskneftegaz Khantos** Tomskneft (25.0) SPD Orenburg*** NIS (5.5) Vostok**** Novy Port > Others Total production by subsidiaries and joint operations Share in Slavneft (4.3) Share in SeverEnergia (Arcticgas) Share in Northgas (15.4) (50.0) Share in Messoyakha > Share in production of joint ventures (3.4) Total gas production (MMtoe) Hydrocarbons (MMtoe) (2.1) Total production by subsidiaries and joint operations Share in production of joint ventures Total hydrocarbon production (1.4) MMtoe (1.4) MMboe (1.6) 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 - 7 -

8 Group daily hydrocarbon production increased by 4.0% Y-o-Y Group oil and condensate production increased by 4.3% Y-o-Y to MMtonnes, driven by increased production at Novoportovskoye, East-Messoyakhskoye, Prirazlomnoye fields and Iraq The decrease of Group oil and condensate production Q-o-Q by 4.7% to Mmtonnes is in line with OPEC+ agreement regarding oil cut Group gas production increased by 3.7% Y-o-Y, primarily due to the increase in associated gas utilization resulted from GPF commisioning at Novoportovskoye field 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 6.1% Q-o-Q due to putting in place of complex gas processing plant at Novoportovskoye field in October Crude oil purchases , % (MMtonnes) , % Crude oil purchases in Russia * (14.2) (58.2) Crude oil purchases internationally (15.1) Total crude purchased (8.8) * 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 14.2% Y-o-Y due to a decline in effectivness of domestic trading operations and lower production at own refineries. Refining , % (MMtonnes) , % (15.6) Omsk (4.4) (2.8) Moscow (12.5) Pancevo (9.7) Total throughput at refineries owned by subsidiaries (5.8) Share in Yaroslavl Share in Mozyr (38.5) (7.7) Total refining throughput (4.2) Production of petroleum products (15.8) Gasoline (6.3) (15.8) Class (6.3) Naphtha (11.5) (7.9) Diesel (4.7) Class 2 and below (7.7) (7.9) Class (4.7) Fuel oil (15.2) (18.0) Jet fuel (1.5) Bunker fuel (48.0) Bitumen Lubricants (15.7) Other (7.3) Total production (3.3) Total throughput decreased by 4.2% Y-o-Y due to reconstruction and scheduled maintenance at Group s refineries Refining throughput decreased by 7.7% Q-o-Q due to scheduled maintenance of the first technological chain units at Omsk refinery in 4Q

9 High-octane gasoline production decreased and diesel production deceased Q-o-Q due to scheduled maintenance of the first technological chain units at Omsk refinery High-octane gasoline production decreased by 6.3% and diesel production deceased by 4.7% Y-o-Y due to a crude oil throughput decline at Omsk and Moscow refineries The decrease of bitumen production by 48.0% Q-o-Q primarily due to seasonal factors and stoppage for capital repair of bitumen production plants resulted in the growth of fuel oil production Bitumen production increased by 27.2% Y-o-Y due to higher demand on domestic market and geographic expansion of export sales Fuel oil production decreased Y-o-Y due to a decline in oil throughput and an increase in bitumen production. Petroleum product purchases on international markets 4Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes Diesel 2, , (25.2) (22.2) Jet fuel 2, , Bunker fuel 2, , (2.4) (25.0) Lubricants Total 8, , (7.7) 12m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes Diesel 9, , (24.9) (28.3) Jet fuel 7, , Bunker fuel 8, , Lubricants , (13.3) - Total 25, , 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 and Estonia. Bunker fuel purchases on international markets decreased Q-o-Q due to seasonal factors. Petroleum product purchases in the CIS 4Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 2, , (25.0) Low octane gasoline Diesel Other >200 - Total 3, , (7.7) 12m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 7, , >200 >200 Low octane gasoline (52.8) (50.0) Diesel 4, , Jet fuel Other >200 Total 12, ,

10 Domestic petroleum product purchases 4Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 18, , Diesel 12, , Jet fuel 1, , (40.2) (40.0) Bunker fuel 1, (25.0) Bitumen (62.2) (66.7) Petrochemicals Other , (64.1) 33.3 Total 34, , m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 67, , Low octane gasoline Diesel 42, , Jet fuel 9, , Bunker fuel 3, , Bitumen Lubricants (74.2) - Petrochemicals (34.7) - Other 5, , > Total 129, , Petroleum product purchases increased Y-o-Y due to lower production at own refineries, caused by scheduled maintenance. Petroleum product marketing through premium channels , % , % (units) Active retail stations (units) 1,193 1, In Russia 1,193 1,197 (0.3) In CIS (6.0) In Eastern Europe ,797 1, Total retail stations (as at the end of the period) 1,797 1,812 (0.8) Average daily sales per retail site in Russia (tonnes per day) (MMtonnes) Sales volume through premium channels (MMtonnes) (5.8) Gasoline and Diesel (12.2) Jet (11.8) Bunkering (2.2) Lubricants (27.3) Bitumen (7.4) Total sales volume through premium channels The total number of active retail stations decreased by 0.8% Y-o-Y due to Group retail operations reorganisation in CIS Average daily sales per retail station in Russia increased by 4.2% Y-o-Y due to active retail business development and Group s marketing activities Jet fuel sales increased Y-o-Y due to higher demand for air carriage Bunker fuel sales increased Y-o-Y due higher demand on the domestic market, entry to the new international markets and geographic expansion of outside processing Sales volumes through premium channels decreased Q-o-Q primarily due to seasonal factors

11 Results of operations , % (RUB million) , % 546, , Sales* 2,003,575 1,695, (39,978) (33,749) 18.5 Less export duties and sales related excise tax (145,644) (150,156) (3.0) 506, , Total revenue 1,857,931 1,545, Costs and other deductions (121,501) (107,576) 12.9 Purchases of oil, gas and petroleum products (456,037) (351,294) 29.8 (58,933) (57,225) 3.0 Production and manufacturing expenses (216,530) (201,862) 7.3 (33,841) (24,840) 36.2 Selling, general and administrative expenses (106,629) (108,981) (2.2) (35,730) (34,858) 2.5 Transportation expenses (141,982) (132,984) 6.8 (38,923) (35,781) 8.8 Depreciation, depletion and amortization (140,998) (129,845) 8.6 (135,747) (130,491) 4.0 Taxes other than income tax (492,269) (381,131) 29.2 (694) (123) >200 Exploration expenses (963) (1,195) (19.4) (425,369) (390,894) 8.8 Total operating expenses (1,555,408) (1,307,292) ,703 88,608 (8.9) Operating profit 302, , ,268 12, Share of profit of associates and joint ventures 45,504 34, (8,183) 2,237 - Net foreign exchange (loss) / gain (241) 28,300-1,832 3,041 (39.8) Finance income 10,098 11,071 (8.8) (5,839) (6,026) (3.1) Finance expense (25,127) (34,282) (26.7) (4,593) Other (loss) / gain, net (7,557) (17,982) (58.0) (2,515) 12,191 - Total other (expense) / income 22,677 21, , ,799 (22.4) (Loss) / Profit before income tax 325, , (9,962) (13,119) (24.1) Current income tax (expense) (43,695) (21,290) (5,232) - Deferred income tax benefit / (expense) (11,827) (28,524) (58.5) (9,009) (18,351) (50.9) Total income tax benefit / (expense) (55,522) (49,814) ,179 82,448 (16.1) (Loss) / Profit for the period 269, , (4,905) (4,717) 4.0 Less: Profit attributable to non-controlling interest (16,404) (9,546) ,274 77,731 (17.3) * Sales include export duties and sales related excise tax Profit attributable to Gazprom Neft shareholders 253, ,

12 Revenues , % (RUB million) , % Crude oil 106,397 79, Export 367, , ,518 86, Export sales 413, , (11,121) (7,519) 47.9 Less related export duties (46,363) (41,524) ,487 5, International markets 22,480 12, ,038 6, Export to CIS 29,732 23, ,423 6, Export sales and sales in CIS 30,117 23, (385) - - Less related export duties (385) (129) ,353 16, Domestic 83,393 94,809 (12.0) 143, , Total crude oil revenue 502, , Gas (22.1) International markets 1,237 1,853 (33.2) 8,919 9,373 (4.8) Domestic 36,351 30, ,151 9,671 (5.4) Total gas revenue 37,588 31, Petroleum products 55,358 47, Export 198, , ,423 53, Export sales 228, , (9,065) (6,481) 39.9 Less related export duties (29,749) (31,565) (5.8) 34,041 30, International markets 112,912 99, ,095 50, Sales on international markets 180, , (19,054) (19,419) (1.9) Less sales related excise (67,891) (75,807) (10.4) 20,493 21,205 (3.4) CIS 75,898 71, ,846 21,535 (3.2) Export sales and sales in CIS 77,154 72, (353) (330) 7.0 Less related export duties (1,256) (1,131) , ,394 (7.9) Domestic 868, , , ,388 (2.5) Total petroleum products revenue 1,255,632 1,099, ,919 15, Other revenue 61,807 58, , , Total revenue 1,857,931 1,545, Sales volumes , % , % (MMtonnes) Crude oil (MMtonnes) Export Sales on international markets* Export to CIS (5.0) Domestic sales (25.0) Total crude oil sales (bcm) Gas (bcm) (66.7) International markets (38.9) (2.3) Domestic sales (2.8) Total gas sales (MMtonnes) Petroleum products (MMtonnes) Export (11.4) Sales on international markets (5.6) Export and sales in CIS (14.2) Domestic sales (8.1) Total petroleum products sales (0.3) * Including production sharing agreements (PSA)

13 Average realized sales prices , % , % (RUB per tonne) Crude oil (RUB per tonne) 26,000 22, Export 22,741 20, ,940 16, Export and sales in CIS 17,612 14, ,012 14, Domestic sales 14,972 12, (RUB per tonne) Petroleum products (RUB per tonne) 26,403 23, Export 23,936 20, ,113 30, Export and sales in CIS 30,862 30, ,067 30, Domestic sales 31,052 27, Crude oil sales Crude export volumes increased by 16.2% Q-o-Q due to a growth in crude oil production at Prirazlomnoye field resulted from scheduled stoppage for technical modernization in 3Q 2017 Crude export volumes increased by 41.1% Y-o-Y due to an increase in crude oil production at Novoportovskoye, East-Messoyakhskoye 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 Domestic crude volumes decreased by 25.0% Y-o-Y mainly due to a decline in effectivness of domestic trading. Gas sales Domestic gas sales increased by 4.6% Y-o-Y due to increased natural gas production at consolidated subsidiaries. Petroleum product exports 4Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes Naphtha 8, , Diesel 16, , (12.5) (22.2) Fuel oil 19, , Jet fuel 4, , Bunker fuel 9, , Bitumen (93.6) - Lubricants 1, , Petrochemicals 2, > Other 1, , (19.3) (50.0) Total 64, ,

14 12m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline - - 2, Naphtha 26, , (10.6) (22.3) Diesel 74, , (13.0) (23.3) Fuel oil 56, , (5.6) (28.9) Jet fuel 13, , Bunker fuel 32, , Bitumen Lubricants 5, , (8.0) (25.0) Petrochemicals 5, , (6.2) (5.0) Other 14, , > Total 228, , (11.4) Petroleum product export volumes increased by 7.5% Q-o-Q due to an increase in effectivness of international trading Petroleum product export volumes decreased Y-o-Y due to a decline in production volumes Bunker fuel volumes increased twice Y-o-Y due to an 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 4Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 7, , (8.3) Low octane gasoline (8.4) - Naphtha Diesel 9, , Fuel oil (7.3) - Jet fuel (77.3) - Bitumen 1, , (34.9) (46.2) Lubricants (13.2) - Petrochemicals and Other , (41.3) 33.3 Total 20, , (3.2) (5.6) 12m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 30, , (8.1) (8.2) Low octane gasoline , (74.9) (75.0) Naphtha Diesel 30, , Fuel oil (55.9) (71.4) Jet fuel 4, , Bitumen 4, , Lubricants 2, , Petrochemicals and Other 3, , Total 77, ,

15 Domestic sales of petroleum products 4Q Q 2017, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 93, , (9.9) (11.8) Low octane gasoline (38.4) - Naphtha Diesel 77, , (5.0) (12.9) Fuel oil 4, , Jet fuel 23, , (1.2) (14.8) Bunker fuel 10, , Bitumen 4, , (54.9) (55.6) Lubricants 2, , (22.3) (28.6) Petrochemicals 5, , (12.0) Other 3, , (2.2) 22.2 Total 227, , (7.9) (14.2) 12m m 2016, % RUB million MMtonnes RUB million MMtonnes RUB million MMtonnes High octane gasoline 363, , Low octane gasoline , (22.5) (33.3) Naphtha Diesel 292, , Fuel oil 16, , Jet fuel 86, , (1.1) Bunker fuel 36, , (12.9) Bitumen 23, , Lubricants 13, , Petrochemicals 22, , (16.7) Other 13, , Total 868, , Petroleum product sales on the domestic market decreased Q-o-Q mainly due to seasonal factors and production decline, caused by scheduled maintenance at Omsk refinery 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 24.8% Y-o-Y due to an increase in market share and geographic expansion of outside processing Petrochemicals volumes decreased Y-o-Y due to scheduled maintenance at Group s refiniries. Purchases of oil, gas and petroleum products Purchases of oil, gas, and petroleum products increased by 29.8% Y-o-Y due to increased volume of petroleum product purchases (connected with a refining decline) and crude oil and petroleum product prices growth

16 Production and manufacturing expenses , % (RUB million) , % 29,556 29, Upstream expenses 111, , ,847 1, RUB per toe 1,767 1,782 (0.8) USD * per boe ,341 22, Consolidated subsidiaries inside Russia 85,898 80, including 1,700 1, RUB per toe 1,653 1, USD * per boe ,186 17,457 (1.6) Brownfields 67,923 65, ,962 1, RUB per toe 1,812 1, USD * per boe ,155 4, Greenfields 17,975 14, ,177 1,465 (19.7) RUB per toe 1,242 1,470 (15.5) (18.9) USD * per boe (3.0) Consolidated subsidiaries outside Russia 2,383 2, (including PSA)** 8,381 9,655 (13.2) 3,220 3, RUB per toe 3,059 4,144 (26.2) USD * per boe (15.2) 4,832 4, Joint operations 17,558 16, ,301 2, RUB per toe 2,061 1, USD * per boe ,205 13, Downstream expenses 55,318 53, ,752 7, Refining expenses at own refineries 31,191 30, , RUB per tonne USD * per bbl ,370 3, Refining expenses at refineries of joint ventures*** 12,259 12,453 (1.6) 1,628 1, RUB per tonne 1,568 1,639 (4.3) USD * per bbl ,083 2, Lubricants manufacturing expenses 11,868 10, ,810 8,478 (7.9) Transportation expenses to refineries 29,265 29,561 (1.0) 6,362 5, Other operating expenses including 20,110 12, ,933 57, Total 216, , * 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 0.4% 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 7.1% Y-o-Y due to: o Production decline in line with OPEC limits o Higher natural monopoly tariffs o Increased share of equipment used under the electric submersible pump (ESP) rental program o Inflationary pressure at cost of services and resources o Increased expenses for associated gas processing. Upstream expenses USD per boe at consolidated subsidiaries outside Russia decreased by 15.2% Y-o-Y mainly due to: o Production growth in Iraq o Optimization of well repair costs at Serbia fields. Upstream expenses at joint operations increased by 7.1% Y-o-Y mainly due to: o Production decline in line with OPEC limits

17 o Higher natural monopoly tariffs o Increased share of equipment used under the electric submersible pump (ESP) rental program and growth of its maintenance costs 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 Group s refineries Refining expenses per tonne at own refineries increased by 23.2% Q-o-Q due to: o Production decrease resulted from scheduled maintenance o Increased expenses for natural gas consumption for own use purposes o Increased energy supply expenses (switch to winter period). Refining expenses per tonne at own refineries increased by 8.2% Y-o-Y primarily due to: o Production decrease resulted from scheduled maintenance o Increased MTBE* purchases to sustain gasoline production as a result of scheduled maintenance of large ring units at Moscow refinery in 1Q and 2Q 2017 o Increased expenses for natural gas consumption for own use purposes. Refining expenses per tonne at refineries of joint ventures declined by 4.3% Y-o-Y due to optimized expenses for compounds, chemicals and additives Transportation expenses to refineries decreased by 7.9% Y-o-Y and 1.0% Q-o-Q mainly due to decreased crude oil volumes delivered to refineries Other operating expenses increased by 62.1% 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 2.2% Y-o-Y, driven by optimization procedures and 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 6.8% 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 8.6% Y-o-Y in line with an increase in depreciable assets driven by implementation of the investment program and increased production *MTBE- methyl-tret-butyl-ether. Applied as an motor vehicles additive intended for increasing of gasoline octane number

18 Taxes other than income tax , % (RUB million) , % 93,508 84, Mineral extraction tax 329, , ,271 37,567 (14.1) Excise tax 128, , ,850 4, Social security contributions 20,433 18, ,118 3, Other taxes 14,028 13, , , Total taxes other than income tax 492, , MET increased by 10.4% Q-o-Q due to higher oil prices Excise taxes decreased by 14.1% Q-o-Q due to decreased production at refineries of consolidated subidiaries in Russia 4Q 2017 MET increased by 38.9% 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 14.4% Y-o-Y due to higher rates according to the Tax Code. Share of profit of equity accounted investments , % (RUB million) , % 2,798 3,372 (17.0) Slavneft 10,347 13,916 (25.6) 7,189 4, SeverEnergia (Arcticgas) 19,861 14, ,936 2, Messoyakha 9,976 (947) Nortgaz 3,433 3, (13.4) Other companies 1,887 3,666 (48.5) 14,268 12, Share of profit of associates and joint ventures 45,504 34, Share of Slavneft profit decreased Y-o-Y mainly due to a production decline, depreciation growth and decreased income from foreign exchange differences Share of SeverEnergia (Arcticgas) profit increased by 37.2% Y-o-Y as a result of increased EBITDA and reduction of financial expenses Share of Messoyakha profit increased Y-o-Y as a result of started commertial production in 4Q Other income and expenses Other expenses decreased by 58.0% 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

19 Liquidity and capital resources Cash flows 12m (RUB million) % Net cash provided by operating activities 421, , Net cash used in investing activities (312,889) (323,854) (3.4) Net cash used in financing activities (50,521) (68,430) (26.2) Increase / (Decrease) in cash and cash equivalents 58,290 (70,987) - Net cash provided by operating activities 12m (RUB million) % Net cash provided by operating activities before changes in working capital, income tax, interest and dividends 439, , Net changes in working capital 52,808 15,216 >200 Income tax paid (36,530) (22,158) 64.9 Interest paid (39,449) (36,476) 8.2 Dividends received 5,551 3, Net cash provided by operating activities 421, , Net cash provided by operating activities increased by 31.2% Y-o-Y primarily due to higher operating profit and changes in working capital. Net cash used in investing activities 12m (RUB million) % Capital expenditures (357,090) (384,817) (7.2) Acquisition of subsidiaries, shares in joint operations and equity affiliates (8,345) (2,028) >200 Net changes in deposits (5,933) 48,517 - Net changes in loans issued and other investments 44,938 (2,104) - Other transactions 13,541 16,578 (18.3) Net cash used in investing activities (312,889) (323,854) (3.4) Net cash used in investing activities decreased by 3.4% Y-o-Y due to lower capital expenditures and repayments of loans issued to Messoyakha. Net cash used in financing activities 12m (RUB million) % Net changes in debt 3,556 (63,929) - Payment of dividends to shareholders (50,382) (2,598) >200 Other transactions (3,695) (1,903) 94.2 Net cash used in financing activities (50,521) (68,430) (26.2) Net cash used in financing activities decreased by 26.2% Y-o-Y mainly due to a decline of net amount of new funds raised and repayments of loans and borrowings. The Group paid dividends for 2016 in 3Q

20 Capital expenditures 12m (RUB million) , % Exploration and production 223, ,256 (8.7) Consolidated subsidiaries 207, ,084 (8.8) Joint operations 16,016 17,172 (6.7) Refining 81,370 50, Marketing and distribution 12,466 9, Others 16,227 14, Subtotal capital expenditures 333, , Change in advances issued and material used in capital expenditures, including 23,111 65,014 (64.5) Total capital expenditures 357, ,817 (7.2) Capital expenditures for exploration and production decreased by 8.7% Y-o-Y due to: o Completion of first stage of infrustructure construction at Novoportovskoye field o Completion of oil infrustructure construction at Badra o Decreased drilling volumes at brownfields. Capital expenditures for refining increased by 62.4% 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) December 31, 2017 December 31, 2016 Short-term loans and borrowings 131,760 80,187 Long-term loans and borrowings 548, ,221 Cash and cash equivalents (90,608) (33,621) Short-term deposits (5,779) (886) Net debt 584, ,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 December 31, 2017 average debt maturity remained unchanged from 3.60 years as at December 31, 2016 The average interest rate increased insignificantly from 5.52% as at December 31, 2016 to 5.54% as at December 31, 2017 In March 2017 rating agency Standard&Poor s revised its outlook for the Group from stable to positive. In September 2017 rating agency Dagong revised its outlook for the Group from negative to stable and rating agency Fitch revised its outlook from stable to positive

21 Financial appendix EBITDA reconciliation , % (RUB million) , % 69,179 82,448 (16.1) Profit for the period 269, , ,009 18,351 (50.9) Total income tax benefit / (expense) 55,522 49, ,839 6,026 (3.1) Finance expense 25,127 34,282 (26.7) (1,832) (3,041) (39.8) Finance income (10,098) (11,071) (8.8) 38,923 35, Depreciation, depletion and amortization 140, , ,183 (2,237) - Net foreign exchange (loss) / gain 241 (28,300) - 4,593 (413) - Other (loss) / gain, net 7,557 17,982 (58.0) 133, ,915 (2.2) EBITDA 489, , (14,268) (12,526) 13.9 less Share of profit of associates and joint ventures (45,504) (34,116) 33.4 add Share of EBITDA of equity accounted 32,095 29, investments 107,446 88, , ,439 (1.1) Adjusted EBITDA 550, , Financial ratios Profitability December 31, 2017 December 31, 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 December 31, 2017 December 31, 2016 Adjusted EBITDA 550, ,198 Depreciation, depletion and amortization (178,449) (158,919) Effective income tax charge on EBIT (71,605) (62,429) Adjusted EBIT* 300, ,850 Average capital employed 2,164,614 1,994,626 Adjusted ROACE *Adjusted EBIT represents Group s EBIT and its share in associates and joint ventures EBIT Liquidity December 31, 2017 December 31, 2016, % Current ratio (34.3) Quick ratio (34.8) Cash ratio (19.2)

22 Leverage December 31, 2017 December 31, 2016, p.p. Net debt/ Total Assets, % (5.3) Net debt/ Equity, % (9.3) Gearing, % (4.8), % Net debt/ Market Capitalization (20.3) Net debt/ EBITDA (25.6) Total debt/ EBITDA (17.3) 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 12 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) 37,402 37, High-octane gasoline 36,820 34, ,847 33,715 (2.6) Low-octane gasoline 31,931 29, ,643 33, Diesel fuel 32,619 27, ,897 9, Fuel oil 9,594 6, Sources: Platts (international), Kortes (domestic)

23 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) 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 (0.01) (0.02) Depreciation (appreciation) of Russian rouble to US$, % (0.05) (0.17) Taxation Average tax rates effective in the reporting periods for the taxation of oil and gas companies in Russia , % , % (US$/ tonne) Export duty (US$/ tonne) Crude oil Light petroleum products (14.0) Diesel (14.0) Gasoline (43.6) Naphtha (11.1) Heavy petroleum products Mineral extraction tax 9,723 7, Crude oil (RUB/ tonne) 8,134 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: Ct = (P 182.5) х K х P