St Petersburg August 16, 2018 1H and 2Q 2018 IFRS FINANCIAL AND OPERATING RESULTS
Agenda Highlights, Financials Alexey Yankevich Member of the Management Board, CFO Upstream Alexey Urusov Head of Economics and Investment Directory Downstream Vladimir Konstantinov Head of Economics and Investment Department, Downstream 2
Disclaimer This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of and its consolidated subsidiaries. All statements other than statements of historical facts 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 may 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 to market risks and statements expressing management s expectations, beliefs, estimates, forecasts, projections and assumptions. These forwardlooking 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 can affect the future operations of and can cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and oil products (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 delays or advancements, approvals and cost estimates (k) changes in trading conditions All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on these forward-looking statements. Each forward-looking statement speaks only as of the date of this presentation. Neither nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. 3
1H 2018 highlights 1H 2018 financial performance: Revenue: RUB 1,138 billion (+24.4% y-o-y) EBITDA*: RUB 368 billion (+49.8% y-o-y) Net income: RUB 166 billion (+49.6% y-o-y) 1H 2018 operational progress: Hydrocarbon production up 2.0% y-o-y Refining volumes up 9.8% y-o-y due to scheduled maintenance at refineries in 1H17 Average throughput per filling station in Russia increased by 5.5% y-o-y (up to 20.1 tpd) 2Q 2018 vs 1Q 2018 Revenue up 18.5% EBITDA* up 36.3% Net income up 39.0% Hydrocarbon production up 2.3% Refining throughput up 3.1% * Including GPN share in EBITDA of associates and joint ventures 4
Exploration and production Further greenfield development and brownfield optimization 5
Resource base development in 1H 2018 Development of production cluster in Yamal The acquisition of new licence blocks on the Yamal Peninsula the Yuzhno-Novoportovskiy and Suroviy blocks Increase of resource portfolio near active production asset Optimal usage of production and transport infrastructure New production cluster in Orenburg Discovery of the Novozarinskoye field, located in the Uransky licence block (Orenburg Oblast) with reserves in place (geological reserves) of more than 11 million tonnes. In addition, the Novosamarskoye field was discovered in the area in 2016 (over 8 million tonnes of geological reserves) Licences were awarded for exploration and production at six blocks in the Karabashskiy Zone in the Khanty-Mansi Autonomous Okrug 6
Optimizing production portfolio under OPEC+ agreement Hydrocarbon production, MMtoe Factors driving production growth (1H 2018 vs 1H 2017, MMtoe) 22.1 23.0 3.0% 22.7 22.2 22.7 +1.9 Novy Port MMtoe 6.5 2.1 6.7 2.2 6.7 2.1 6.5 2.0 6.9 2.0 +0.3 MMtoe Messoyakha 13.4 14.2 13.9 13.6 13.8 +0.5 MMtoe Arcticgas 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 +0.2 MMtoe Projects in Iraq Joint ventures* Joint operations** * Joint ventures: equity-participation entities (Slavneft, SeverEnergia (Arcticgas), Northgas and Messoyakhaneftegas) ** Joint operations: proportionally consolidated companies (Tomskneft, SPD) 7
Optimum operational efficiency in the face of production constraints OPEX: 1H 2018 vs 1H 2017, RUB/toe -3.9% -82-11 21 4 1,732 1,664 1H 17 Brownfields* Greenfields** Joint operations*** International assets 1H 18 * NNG, MN, Khantos, Vostok ** Novoportovskoye, Prirazlomnoye, Orenburg *** Joint operations: proportionally consolidated companies (Tomskneft, SPD) 8
Own icebreaker fleet will ensure uninterrupted crude transportation from the Novoportovskoye field Goal: Commissioning of two modern icebreakers within one year will guarantee non-stop operations at the Arctic Gates terminal under any ice conditions Alexander Sannikov a new-generation icebreaker diesel-electric propulsion capacity 22 MW up to30 km/h speed 40 days autonomous operation -50 С operation in ultra-low temperatures Possibility to break up to two meters of ice Zero harmful emissions 9
Development of new assets around current production fields * Gazprom licence, operatorship Yamburg*, Achimov formation Completed analysis of up-to-date 3D-seismic data, completed interpretation and confirmed properties of target oil formation Successfully completed well workover with large-volume hydrofrac (max flow rate 140 tpd) Results of 2018 well workover program confirmed prospects of Achimov formation in bounds of Yamburg licence block Planning to drill 2 horizontal wells with multifracs during 2018-2019 season Severo-Samburg, Achimov formation Completed workover of two wells (max flow rates 193 tpd and 35 tpd) Two horizontal wells with multifrac to be drilled in 2018. Drilling of the first well to be completed in August 2018 Tazovsky Results of drilling on eight wells showed high assurance of planned production profile Approved gas shipment volumes from Tazovsky oil and gas condensate field into the system of PJSC Gazprom EPT taxation system approved for the project Zapadno-Zimneye Completed 3D-seismic (350 km 2 ), interpretation in process Completed drilling of three exploration wells, preparations to well testing Pilot operation project approved by Central Committee of Rosnedra Peszovoye Start of first wellpad construction at Peszovoye field to drill test wells Infrastructure synergy with Severo-Samburg project identified 10
Downstream Refining margin recovery in 2Q 2018 11
Refining volumes restored after maintenance; refining margin recovery Crude price and average netbacks, $/bbl Crude mix, MMTonnes -1.3% 60 33.1 0.5 +18.4% 32.7 0.6 Brent 9.8-12.9% 8.5 40 0.9 3.3-1.2% -33.8% 0.9 2.2 Refining netback 20 Crude export netback 18.7 +9.8% 20.6 0 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 1H 17 1H 18 International market Crude export Crude to CIS Crude to Russia Refining 12
Improved refining performance Refining throughput, MMTonnes Conversion ratio in Russia, % +9.8% 20.6 83.2 +1.8 85.0 NIS 18.7 1.5 +1.3% 1.5 3.8 Yaroslavl Moscow 64.7 81.5 66.7 83.8 Yaroslavl 3.7 +3.2% Omsk 90.9 92.4 Moscow 3.7 +36.9% 5.1 1H 17 1H 18 Light product yield in Russia, % 63.5 +2.9 66.4 Omsk 9.8 +3.4% 10.1 Yaroslavl Moscow 54.2 49.0 55.8 61.7 Omsk 72.5 72.7 1H 17 1H 18 1H 17 1H 18 13
Moscow Refinery completed installation of large-scale equipment for its cutting-edge Euro+ oil refining unit Euro+: Replacement of five previous generation units Improved energy efficiency due to the unit compactness and optimum heat carrier flow Switched from two to four years maintenance period Current status: 90% of construction works completed Equipment delivery completed Tapped to refinery pipeline network, running hydrotests Connecting electrical substations to refinery s power grid, running tests on unit s power grid Operational availability: 4Q 2018 14
Russia* Maintaining an upward trend in retail sales Retail sales in Russia, MMTonnes +1.4% 4.8% Average retail station throughput, tpd 5.5% 4.2 4.4 2.5 2.5 Gasoline 19.1 20.1 1.7 1.9 Diesel 1H 17 1H 18 1H 17 1H 18 The filling station network, together with Yandex.Taxi, is implementing a unique project involving automated pre-trip driver health screenings, improving service quality and safety for passenger traffic on the roads This year s St Petersburg International Economic Forum (SPIEF) saw the launch of the new OPTI 24 service platform for corporate clients An e-commerce site has been launched for small wholesale clients * Retail market dynamics in Russia 15
B2B businesses continues to see growth Aero Presence at 253 airports More than 13,000 aircraft refueled at airports at five host cities of the 2018 FIFA World Cup New long-term refueling agreements concluded with Air China, Hong Kong Airlines, Air France, KLM and Turkish Airlines Premium sales, MMTonnes 1H 17 1.29 +13.2% 1H 18 1.46 Bunkering Marine Bunker was named major international cruise line Royal Caribbean s Supplier of the Year 2017 Environmentally friendly marine fuels saw an increase in both market share and geographic sales coverage Lubricants The G-Energy Service network expanded to a total 135 service stations An agreement was signed with the Government of Moscow region on promoting import substitution 1,000 tonnes of oils for Gazpromneft Drilline drilling fluids was shipped to oilfield service companies Bitumens 1H 17 1.28 1H 18 1.31 1H 17 0.15 1H 18 0.15 +2.3% 0.0% A high-technology production and logistics terminal was acquired in the Rostov Oblast A cross-industry conference, PRO Bitumen and PMBs, attracted more than 450 participants bitumen materials were used in facilities for the FIFA 2018 World Cup 1H 17 0.10 1H 18 0.13 +30.0% 16
Integrated development of the bitumens business Acquisition of a high-tech production and logistics terminal in Salsk, Rostov Oblast SERBIA Moscow Yaroslavl Omsk Ryazan Vyazma Pančevo RUSSIA KAZAKHSTAN Shymkent Salsk A major element in a logistics system to supply innovative bitumen products to Russia s southern regions Delivery of raw materials from the Moscow Refinery Process facilities at this new asset include: a PBB production unit (capacity 300 tpd) a packaging unit (capacity up to 200 tpd) an automated vehicle loading point (up to 2,000 tpd) an elevated rail tank filling rack for loading packaged bitumens and draining and filling tank cars Oil bitumens (MMTonnes) 1 2 3 4 5 6 7 8 Total Moscow Refinery Omsk Refinery 1.7 YaNOS NIS Gazpromneft- Bitumen Kazakhstan 0.7 Ryazan Bitumen Binders Plant NOVA-Brit Salsk bitumens terminal* capacity 0.5 0.5 0.28 0.14 3.82 Bitumen composites ( 000 tonnes) 40** 40 120 80 25 305 * Bitumen materials loaded ** Production of polymer-modified bitumens and polymer-bitumen binders is undertaken at Total joint-venture bitumen facilities 17
Financials Better macro environment drove financials up y-o-y 18
Better macro environment, increased greenfield production and sales volumes drove financials up y-o-y Revenue RUB bln 460 494 +34% 527 521 +19% 617 914 +24% 1,138 Revenue increased by 24.4% y-o-y due to higher prices for oil, increase of refining throughput and ruble depreciation Revenue increased by 18.5% q-o-q due to increase in upstream volumes and higher prices for oil and petroleum products 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 1H 17 1H 18 Adj. EBITDA* RUB bln +66% +36% 212 128 153 152 156 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 +50% 368 246 1H 17 1H 18 Higher prices for oil, increase of production on major projects (Novy Port, Messoyakha) and management effectivenes resulted in increase of adjusted EBITDA by 49.8% y-o-y Adjusted EBITDA increased by 36.3% q-o-q mainly due to higher prices for oil, increase of upstream volumes and refining throughput as well as refining margin growth Net income RUB bln 49 78 +96% 64 70 +39% 97 111 +50% 166 Y-o-y growth of net income, supported by growth of EBITDA, was partially restricted by FX loss for 1H18 Net income increased q-o-q mainly due to an increase in EBITDA, was partially restricted by FX loss for 2Q18 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 1H 17 1H 18 *Including GPN share in EBITDA of associates and joint ventures 19
Adjusted EBITDA* reconciliation 1H 2018 vs. 1H 2017, RUB bln 15 Internal factors = +30 15 368 78 92 Group share in JV s EBITDA 246 46 290 200 1H 17 Price factor Upstream Downstream, other factors 1H 18 *Including GPN share in EBITDA of associates and joint ventures 20
Adjusted EBITDA* reconciliation 2Q 2018 vs. 1Q 2018, RUB bln 212 42 3 Internal factors = +14 11 45 Group share in JV s EBITDA 156 33 168 123 1Q 18 Price factor Upstream Downstream, other factors 2Q 18 *Including GPN share in EBITDA of associates and joint ventures 21
Increasing dividend payments supported by stable generation of positive free cash flow 1H 2018 Cash flow reconciliation, RUB bln 210-163 8 48-59 -47 26-24 Operating cash flow Investments* Free cash flow Messoyakha investments recovery Net borrowings Dividends Other Net cash flow * Includes changes in the amount of prepayments and materials for capital construction 22
IFRS CAPEX IFRS CAPEX Active refineries modernisation has led to higher investments Investment, RUB bln 2.5% y-o-y increase in IFRS CAPEX 3 154 22 5 3 163 27 6 Upstream CAPEX declined by 4% 27 31 Refining CAPEX increased by 18% YoY as a result of the ongoing modernization of refineries 49 46 Marketing CAPEX in line y-o-y 49 48 Changes in the amount of prepayments and materials for capital construction include the cost of materials and equipment for ongoing projects. 1H 17 Advances issued Others Marketing and distribution 1H 18 Refining Greenfields Brownfields 23
Further improvement of debt portfolio Net debt/ebitda dynamics 1.37 Debt maturity profile at the end of 2Q18 EUR 9% 1.19 1.01 41% 38% bank loans 51% bonds 20% USD 45% RUB 675 bln RUB 10% 11% LPN 28% other 46% 30.06.2017 31.12.2017 30.06.2018 1year 1-2 years 3-5 years over 5 years 1% In April 2018, redeemed Series 2 EUR 750 mln 2.933% p.a. eurobond 24