1Q 2015 Financial Results (US GAAP) Member of the Board of Directors, Vice-President for Strategic Development Leonid Fedun Moscow, June 2015
Forward-Looking Statements Certain statements in this presentation are not historical facts and are forward-looking. Examples of such forward-looking statements include, but are not limited to: projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios; statements of our plans, objectives or goals, including those related to products or services; statements of future economic performance; and statements of assumptions underlying such statements. Words such as believes, anticipates, expects, estimates, intends and plans and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. You should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements, including our ability to execute our restructuring and cost reduction program. When relying on forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which we operate. Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. 2
Main Events in 1Q 2015 Liquid hydrocarbon production growth + 7.8% Russia production stabilization Executing plans for the project West Qurna-2 The amount of compensation in 1Q15 was $0.6 billion 154 RUB per share recommended dividend for 2014 Launch of heavy residues processing complex in Burgas (May 20, 2015) Large commercial discovery in the Baltic Agreement with Sinopec 3
1Q 2014 Financial Highlights $ mln Net income 690 EBITDA 2,816 Free cash flow 728 4
The Planned Dividend Payment Dividend per share (for the year), RUB Under oil prices turbulence LUKOIL plans to increase significantly the dividend payments in rubles for 2014 in order to keep dividend payments in US dollars at previous year level and to maintain the dividend yield in USD terms 5
jan feb mar apr may jun july aug sep oct nov dec Oil Prices are Located in Positive Trend World oil production, mln barrels/day USA oil Rigs, units In the end of 1Q/beginning of 2Q15 there was a decrease in oil production in the world as well as in the U.S. This led to a rise in oil prices to around $65 per barrel. LUKOIL budget was calculated at Brent price of $60 per barrel (the current price is about $65 per barrel). At the end of the year the Company expects further growths of oil prices which will increase FCF and maintain a high level of dividends in the future Brent price forecast, $/bbl (Company presentation/ March 3 2015 г, London) t Source: Baker Hughes Bloomberg, EIG, EIA, LUKOIL estimates 6
LUKOIL CAPEX Cutting in Dollars Does Not Reduce Investments in Rubles into the Russian Assets Major oil company CAPEX cutting (1Q15/1Q14), %* LUKOIL Russian assets CAPEX In 1Q15 oil and gas majors significantly reduced CAPEX y-o-y Under ruble devaluation (in 1Q15) LUKOIL cut CAPEX in dollars by 33% (y-o-y), while CAPEX in rubles was increased up to 19%. In current macro conditions LUKOIL has a unique opportunity to keep oil production in 2015 at 2014 level and increase the FCF by reducing CAPEX in dollars * Companies reports 7
Macroeconomic and Tax Environment 1Q 2015/1Q 2014-60.1% Fuel oil (Russia) Revenue (prices) -51.6% -50.3% -43.5% -43.2% -42.8% -42.7% Fuel oil (Europe) Urals Diesel fuel (Russia) High-octane gasoline (Russia) Gasoline (Europe) Diesel fuel (Europe) -58.9% Freight rates (oil) -40.0% Railroad tariffs Expenses -36.9% -17.3% Pipeline tariffs Freight rates (petroleum products) Positive factors Negative factors 7.4% Russia inflation Ruble depreciation 43.8% Taxes -66.7% -36.8% Crude oil export tariff Mineral extraction tax -75% -70% -65% -60% -55% -50% -45% -40% -35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Tariff calculation is presented on the basis of transportation expenses related to crude oil and refined products deliveries to various export destinations, weighted by volumes transported 8
Main Operating Results 1Q 2015/1Q 2014 Daily liquid hydrocarbon production abroad 144.9% Exports of crude oil 26.4% Daily liquid hydrocarbon production 7.8% Daily hydrocarbon production* 7.0% Domestic refined product sales -3.3% Domestic crude oil sales -7.7% Refined products produced* -8.5% Positive factors Negative factors Exports of refined products -16.8% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% *Including share in affiliates. 9
Kbpd Liquid Hydrocarbon Production in 1Q 2015 2 050 22 5 2 2,033 155 2 000 1 950 1 900 1,885 36 +7.8% 1 850 1 800 Liquid hydrocarbon production in 1Q 2014 Western Siberia International Timan-Pechora Volga Urals Liquid hydrocarbon production in 1Q 2015 10
LUKOIL Oil Production Oil production, million barrels International Russia 2014 Actual 2015 Expectation In current macro conditions LUKOIL has a unique opportunity to keep oil production in 2015 at 2014 level and increase FCF by reducing CAPEX in dollars 11
Agreement with Sinopec Sinopec On April 15, 2014, a Group company entered into a contract with a Sinopec group company, to sell the Group s 50% interest in Caspian Investment Resources Ltd., an exploration and production company operating in Kazakhstan. On June 3, 2015, a Group company made a substitute transaction with a Sinopec group company for the sale at a price of $1,067 million. The transaction s closing is subject to requisite governmental consents and approvals and is to occur by December 1, 2015. 12
Operating Expenses $ mln 1Q 2015 y-o-y Total operating expenses 1,808-22% Hydrocarbon extraction 881-13% Own refining 332-31% Refining at third parties and affiliated refineries 50-22% Crude oil transportation to refineries 169-38% Power generation and distribution 158-17% Petrochemicals 38-42% Other 180-20% Cost of purchased crude oil, gas and products 11,238-35% 13
Effective Cost Control Lifting costs per boe, $ Lifting costs per boe, $ 8 20 6 4 5.29 5.59 5.67 5.75 5.23 6.13 6.12 5.71* 5.59* 5.42 4.46* 4.24 18 16 14 12 10 8 2 3.30* 6 4 0 1q 2013 2q 2013 3q 2013 4q 2013 1q 2014 2q 2014 3q 2014 4q 2014 1q 2015 2 0 2009 2010 2011 2012 2013 2014 1q 2015 Majors LUKOIL Our average hydrocarbon extraction expenses decreased from $5.23 per boe to $4.24 per boe in the first quarter of 2015, or by 18.9%. In Russia, average hydrocarbon extraction expenses decreased by 39.0% to $3.21 per boe as a result of the ruble devaluation. Source: Companies financial statements. Majors include: ExxonMobil, Royal Dutch Shell, Chevron, BP, ConocoPhillips, Total, Eni. * Excluding West Qurna-2 project. 14
SG&A and Transportation Expenses Transportation expenses, $ mln SG&A expenses, $ mln 1 700 1 200 1 600 1 500 1,553 1,557 1,510 1 000 856 1,015 994 993 1 400 1 300 1,274 1,303 800 665 1 200 1q 2014 2q 2014 3q 2014 4q 2014 1q 2015 600 1q 2014 2q 2014 3q 2014 4q 2014 1q 2015 $ mln 1Q 2015 y-o-y Transportation expenses 1,303-16% Selling, general and administrative expenses 665-22% Total 1,968-18% 15
CAPEX Structure $ mln 1Q 2015 y-o-y Total capital expenditures 2,430-25% Exploration and production 1,976-27% Russia 1,171-41% International 805 7% Refining and marketing 401-10% Russia 292 29% International 109-50% Chemicals 29-9% Russia 29-9% International 0 0% Power generation 8 0% Other 16-20% 16
Capital Expenditures Exploration and production, mln $ Refining, marketing and distribution, mln $ 4 000 3 000 2 000 2,725 55% 3,445 56% 3,000 64% 2,712 60% -27% 1,976 67% 1 000 800 600 400 447 892 744 708-43% 401 1 000 0 45% 44% 36% 40% 33% 1q 2014 2q 2014 3q 2014 4q 2014 1q 2015 200 0 1q 2014 2q 2014 3q 2014 4q 2014 1q 2015 Prospective regions Other Capital expenditures structure in 1q 2015 1% 0% 1% 38% 2,430 mln $ 62% Russia International 17% 2,430 mln $ Exploration and production Refining, marketing and distribution Petrochemicals Power generation 81% Other 17
Financial Results $ mln 1Q 2015 y-o-y Sales 23,190-35% OPEX 1,808-22% Taxes other than income tax, excise, export tariffs 5,172-42% Income from operating activities 1,023-61% Income before income tax 916-62% Net income 690-60% Basic EPS, $ 0.91-60% EBITDA 2,816-30% 18
1Q 2014 Net income Decrease in taxes, excise and export duties OPEX decrease Decrease in loss on disposals and impairments of assets Decrease in transportation expenses Decrease in currency translation loss Other changes Decrease in revenue less purchases of oil, gas and petroleum products Increase in DD&A 1Q 2015 Net income $ mln 1Q 2015 Net Income Reconciliation 8 000 7 000 6 000 4,209 501 332 250 233 225 (6,486) 5 000 4 000 3 000 2 000 1,733 1 000 (307) 690 0 19
Cash at the beginning of 1Q 2015 Net cash provided by operating activities Capital expenditures and acquisition of licenses Dividends paid on Company common stock Other changes Cash at the end of 1Q 2015 $ mln 1Q 2015 Cash Flow Reconciliation 3,289 (2,561) 6 000 (619) 3 000 3,004 (139) 2,974 0 20
Robust Financial Position 30% Debt-to-capital 1.2 Net debt to EBITDA 1.0 20% 0.8 0.6 10% 0.4 0.2 0% 2011 2012 2013 2014 1q 2015 0.0 2011 2012 2013 2014 1q 2015 LUKOIL Average LUKOIL Average 4 0 Total debt and net debt, $ bln 3.0 3.0 In May, 2015 Fitch confirmed LUKOIL investment grade ВВВ- rating -4-8 -12 10.5 10.4 2014 1q 2015 In June, 2015 LUKOIL signed an agreement with Sberbank to open a committed revolving credit line. The 90-billion-ruble loan facility has a maturity period till April 30, 2018. Cash & cash equivalents Net debt Source: Companies financial statements. Average includes: ExxonMobil, Royal Dutch Shell, Chevron, BP, ConocoPhillips, Total, Eni. 21
Commercial Discoveries in the Baltic Federal law N 121-FZ "On the amendments to Article 12 of the Federal Law On the amendments to individual legislative acts of the Russian Federation and invalidation of individual provisions of the legislative acts of the Russian Federation pursuant to adoption of the Federal Law On the procedure for making foreign investments in economic companies having a strategic significance for the country's defense and security of the state. Adopted by the State Duma 2015.04.24 Approved by the Federation Council 2015.04.29 Signed by the President of the Russian Federation V. Putin 2015.05.02 Exploration drilling was carried out on structures D29, D41 и D33 within the Russian sector of the Baltic Sea A new oil field was discovered at D29 structure. When prospecting and appraisal well 1 was tested 44 m³/day gushing oil flow was obtained. On the structure D41 a new oil field was discovered. Testing gave 123 m³/day gushing oil flow. Currently, work is underway to establish a geological model of the stratum and reserves estimation The volume of reserves and resources on explored oil fields in the Baltic Sea is estimated at up to 300 mln boe. 22
High Prospects in Baltic Net income structure, $/boe Projected level of total production in base variant is more than 3 times higher than current level of the Company production in region Net income (per boe) in Baltic projects is more then 3 times higher, than in the Western Siberia 23
Production on the Greenfield LUKOIL Assets in Russia: Vostochno-Lambeyshorskoe Field Production, Kbpd 2012 2013 2014 1Q 2014 1Q2015 Vostochno-Lambeyshorskoe LUKOIL field in Russia demonstrates positive dynamics of production 24
Production on the Greenfield LUKOIL Assets in Russia: Vinogradov Field Production, Kbpd 2012 2013 2014 1Q 2014 1Q2015 LUKOIL Vinogradov field in Russia demonstrates positive dynamics of production 25
Production on the Greenfield LUKOIL Assets in Russia: Korchagin Field Production, Kbpd 2012 2013 2014 1Q 2014 1Q2015 LUKOIL Korchagin field in Russia demonstrates positive dynamics of production 26
Production on Newly Acquired LUKOIL assets in Russia: Samara-Nafta Production, Kbpd 2012 2013 2014 1Q 2014 1Q2015 Newly acquired Russian asset Samara-Nafta demonstrates positive dynamics of production 27
Production on Newly Acquired LUKOIL Assets in Russia: Imilor Field Production, Kbpd 2012 2013 2014 `Q 2014 `Q2015 Newly acquired Russian asset Imilor Field demonstrates positive dynamics of production 28
Production on Newly Acquired LUKOIL Assets in Russia: Kama-Oil Production, Kbpd 2012 2013 2014 1Q 2014 1Q 2015 Newly acquired Russian asset Kama-Oil demonstrates positive dynamics of production 29
In 2015 LUKOIL Will Complete Most of the Oil Refining Projects Nizhny Novgorod Catalytic cracking - 2 Capacity: 2.0 mln t/year Launch: 2Q 2015 Burgas Residue hydrocracking Capacity: 2.5 mln t/year Started Perm Coker Capacity: 2.1 mln t/year Launch: 4Q 2015 Volgograd Vacuum gas oil hydrocracking Capacity: 3.5 mln t/year Launch: 2016 CDU Capacity: 5.0 mln t/year Launch: 2Q 2015 Budennovsk gas processing unit (processing of gas from the Northern Caspian) Capacity: 2.2 bln м 3 /year Launch: 3Q 2015 In 2015-2016 LUKOIL will complete a large refining investment cycle, launching > 10 mln t of conversion process capacity Projects IRR >15% 30
Foreground Project - Residue Hydrocracking in Burgas The complex consists of: Residue hydrocracker with capacity 2.5 mln t per year, auxiliary facilities Effects: decline in output of fuel oil increased production of gasoline and diesel fuel energy efficiency growth positive environmental impact by reducing greenhouse gas emissions Processing depth up to 90% Capacity (mill. t) -9.8 Nelson index (2014) 8.9 Complex was launched on May 20, 2015 in time and budget Nelson index after project launch 13.0 The increase in EBITDA will be more than $200 mln per year 31
Margin Of LUKOIL Russian Refineries in 2015 will Remain at a Competitive Level LUKOIL Russian refineries margin, RUB per barrel в new т.ч. projects за счет effects ввода новых объектов Tax maneuver and domestic market stagnation will reduce the refinery margin in 2015 New conversion process launching in 2015 (Perm Coker, Nizhny Novgorod Catalytic cracking - 2) will compensate for lower margins 1q 2015 2015 LUKOIL Russian refinery margin in 2015 will remain at a competitive and at a level that ensures its profitability performance and return on invested funds 32
Added value West Qurna-2 Development 20% 20% 60% In 1Q 2015 we shipped 11 tankers with 16.3 mln barrels of oil Compensation volume was $0.6 bln Production at 1Q 2015: 300 Kbpd. By the end of this year the Company expects to complete historical cost compensation for the field development 33
Environmental Safety is LUKOIL Priority In April 2015 LUKOIL and World Wide Fund for Nature (WWF) signed a cooperation agreement The agreement provides for bilateral consultations, working meetings, exchange of information and data regarding implementation of environmental protection projects and nature conservation in Russia 2.3 2.2 2.1 2.0 1.9 Dirty discharge, mcm -14% 750 725 700 675 Atmospheric pollutant emission, th. t -7% 500 450 400 350 Water consumption for own needs, mcm -20% 7.0 6.8 6.5 6.3 Total amount of pipeline failures, th. -6% 1.8 2013 2014 650 2013 2014 300 2013 2014 6.0 2013 2014 34
Conclusions Keeping a high level of dividend payments Optimization of operating and capital expenditures The high efficiency of new fields Realization of incurred cost compensation plan on West Qurna-2 project Running efficient projects in oil and gas refinery sector in time and within the planned budget Strong financial position 35