Focus on High- Margin Barrels December, 2017
Forward-Looking Statements Certain statements in this presentation are not historical facts and are forward-looking. Examples of such forwardlooking 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. 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 forwardlooking 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
Key Advantages LUKOIL Majors Russian peers Ample conventional reserve base Low upstream cost base Production growth / High level of vertical integration / Advanced refining portfolio / Positive FCF in a low oil price environment / High dividend yield / Progressive transparent dividend policy - commitment to grow dividends / Strong balance sheet / / High free float and liquidity / 3
Global Exposure and Full-Cycle Business Model Full-cycle integrated business model >30 countries >100 th. people >500 E&P licenses >26 bln boe 3P reserves >2.2 mln boepd hydrocarbon production >66 mln tons refinery throughput 2016 financial results: Exploration O&G production 8 refineries (Russia+Europe) 3 gas processing plants 3 petrochemical complexes 6 energy generating companies 5 th. filling stations 4 own transshipment terminals $78.0 bln Revenue $10.9 bln EBITDA $3.1 bln Net income $3.9 bln Free cash flow 4
International peers Reserve Base (2016) Proved reserves, bln boe Hydrocarbon production, Mboepd Hydrocarbon reserve life, years 12.5 16.4 2.4 4.1 20 10.6 20.0 2.0 3.2 14 9.6 16.9 1.9 2.2 13 6.3 11.1 1.8 3.6 13 6.3 13.0 1.7 2.6 12 5.6 11.0 1.3 2.3 11 3.9 6.4 0.9 1.6 11 3.6 6.6 Oil Gas 0.9 1.7 Oil Gas 10 Source: companies data - ExxonMobil, Chevron, ConocoPhillips, Eni, Shell, BP, Total 5
Dividend Policy Execution Cash distribution priorities Dividend Policy M&A Investments Dividends Financial stability The priority of dividend payments Distribution of at least 25% of IFRS profit that may be adjusted by the amount of non-recurring losses and gains Intention to annually increase the amount of dividends per one ordinary share by not less than the ruble inflation rate Dividend yield 2016 scrip 6.9% Interim dividends (BoD recommendation) 85 RUB per share +13% y-o-y in rubles +24% y-o-y in USD Key dates: EGM December 4 Record date December 22 Majors LUKOIL Russia 6
Growing Core Free Cash Flow RUB bln 250 200 150 100 81 59 50 0 1q16 2q16 3q16 4q16 1q17 2q17 3q17 Core FCF* Core FCF* - last 12 months * FCF before changes in working capital, West Qurna-2 and 2Q17 diamond business divestment 7
Sources and Uses of Cash LTM (as of 30.09.17) LUKOIL Russian peers International peers Net debt reduction 12% Dividends 19% FCF 31% Net debt reduction 2% Dividends 11% Dividends 32% OCF 100% CAPEX 69% OCF 100% CAPEX 87% OCF 100% CAPEX 68% Sources Uses Sources Uses Sources Uses EBITDA/boe FCF/boe Net debt/ebitda $16.2 $4.7 0.4 $8.8 $2.1 2.2 $22.3 $5.6 1.3 Russia: Rosneft, Gazprom neft, Novatek International: ExxonMobil, Chevron, Eni, Total, BP, Shell 8
High Liquidity Average daily trading volume in 2017 (YTD), $ mln (LSE + MOEX) 95 SBER OGZD LKOD MNOD MGNT NVTK ROSN SVST NLMK FIVE MAIL SGGD MFON SSA PHOR Capitalization turnover ratio (overall value traded in 2017 (YTD) at LSE and MOEX / average market cap) 50% MNOD MGNT SBER SSA MAIL OGZD LKOD SVST FIVE MFON NVTK NLMK PHOR ROSN SGGD As of November, 30 9
Finance Downstream Upstream 2017 Outlook Update Growth in hydrocarbon production by ~2.5% driven by gas production ramp-up Increase in the share of high-margin barrels Filanovsky, Pyakyahinskoe, Yaregskoe, gas production in Uzbekistan and others Growth of drilling volumes in West Siberia by >15% to decelerate decline rates in the mid-term New opportunities Completion of FEED on new projects in the Caspian Sea; FID on projects in the Baltic Sea; new exploration regions Increasing refinery throughput in Russia by ~3-4% Increase in light products yield in Russia to ~70%; further optimization of cross-supplies among the Group s refineries New opportunities FID on delayed coker complex at Nizhniy Novgorod refinery Development of priority marketing channels Capex <550 bln RUB excluding West Qurna-2 Upstream - >85%; Downstream - <15% Russia - ~70%; Abroad- ~30% 10
Upstream High-margin greenfields Focus on Russia Intensifying production drilling in West Siberia Ramping up international gas production 11
North Caspian Filanovsky Field Key advantages High-margin barrels Production growth Short transportation leg, low lifting costs, high oil quality 9M 2017 results Delivering annual plans for wells launch: 3 high flow rate production wells, including 2 bilateral 2 injection wells Completion of the construction works at the field s 2 nd development stage Field s 2 nd stage 4Q2017 targets Start of the 1 st well drilling at the field s 2 nd development stage Net price, $/bbl* Liquids production, Kbpd $50/bbl $50/bbl 119 MET 95 98 `6 42% Export duty Net price 85% 21 `2 `3 `4 `5 `5 Standard taxation Filanovsky 3Q 16 4Q 16 1Q 17 2Q 17 3Q 17 1.10-27.11 * 2017 tax environment under $50/bbl and 60 RUB per USD. Production wells at the end of the period 12
Filanovsky Field Development Stages IRP-1 1 st stage LQP-1 3 rd stage CPP RB 2 nd stage IRP-2 WP 121 km 131 km Onshore facilities Stavrolen 263 km Shore line Oil pipeline Gas pipeline Gas pipeline for gas lift Multiphase pipeline Water pipeline Construction stage Construction substage LQP-2 First stage - 2016 Second stage - 2018 Third stage - 2019 IRP-1 (ice-resistant stationary platform) LQP-1 (living quarters platform) CPP (central processing platform) RB (riser block) Pipelines Major Onshore Facilities IRP-2 LQP-2 Pipelines Wellhead platform Pipelines 13
Timan-Pechora Yaregskoye Field Key advantages High-margin barrels Production growth potential 9M 2017 results Launched Yarega power plant (75 MW) Launched steam generation unit with 100 tons per hour capacity Put into operation 14 SAGD & 91 underground production wells Put into operation 37 injection wells 4Q2017 targets Launch of additional 200 tons per hour steam generation capacity Mine Net price, $/bbl* Oil production, Kbpd $50/bbl $50/bbl 22 25 MET 17 17 Export duty 96% 11 42% Net price Standard taxation Yaregskoe 2013 2014 2015 2016 1Q 17 2Q 17 3Q 17 1.10-27.11 * 2017 tax environment under $50/bbl and 60 RUB per USD. 14
Timan-Pechora Permocarbon Deposit of Usinskoe Field Key advantages High-margin barrels Production growth potential Scalable technologies 9M 2017 results Launched 4 steam generation units with the capacity 96 tons per hour Put into operation 18 production wells Testing new oil recovery techniques Steam generation units Net price, $/bbl* Oil production, Kbpd $50/bbl $50/bbl 35 39 41 43 46 MET 42% Export duty Net price 62% Standard taxation * 2017 tax environment under $50/bbl and 60 RUB per USD. Permocarbon deposit of Usinskoe field 2013 2014 2015 2016 1Q 17 2Q 17 3Q 17 01.10-27.11 15
West Siberia Pyakyakhinskoye Field Key advantages High-margin barrels Production growth High well flow rates 9M 2017 results Put into production 26 gas wells Put into production 16 oil wells 4Q2017 targets To commission 8 oil wells and 8 gas wells Oil field facilities Net price, $/bbl* Daily production, Kboepd $50/bbl $50/bbl Liquids Gas 57 57 57 42% MET Export duty Net price 62% 15 22 29 35 32 33 33 Standard taxation Pyakyakhinskoye field 3q16 4q16 1q17 2q17 3q17 1.10-27.11 * 2017 tax environment under $50/bbl and 60 RUB per USD. 16
310 411 West Siberia Key advantages Stable region for reinvestment Lowest cost per meter drilled among the Group companies Proven track record Substantial resource base 9M 2017 results Increased production drilling by 26% y-o-y Maintained high share of horizontal wells launch 2017 targets To increase production drilling by >15% Production drilling (LUKOIL-West Siberia) New production wells * launch, YTD th. m 700 Drilling (l. sc.), th. m. y-o-y, % 140% 500 2016 500 100% 400 300 2017 300 60% 200 100 25% 20% 100-100 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q -20% 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -300 2015 2016 2017-60% * oil, gas, gas condensate production wells, excluding wells from exploration drilling 17
Uzbekistan Growth of Gas Production Key advantages Proven track record in the region Substantial production growth potential International prices (export to China) 9M 2017 results Launched gas treatment complex at Gissar, reached target production Put into operation 34 production wells Progress with Kandym gas treatment plant construction (as of the end of November: 1 st train: 100%; 2 nd train: 74%) Kandym 4Q2017 targets To launch the 1 st train of Kandym gas treatment plant Gas production *, mcm per day Gissar Kandym 28 23 13 15 12 4 11 11 15 Gissar 2013 2014 2015 2016 1Q 17 2Q 17 3Q 17 1.10-27.11 * LUKOIL share 18
Downstream Advanced portfolio of refining assets Achieving industry leading product slate 19
Downstream Advanced Portfolio of Refining Assets VGO hydrocracking in Volgograd Refinery Key advantages Maintaining high margin in the tax maneuver environment Among the first ones to compete the refinery upgrade program Facilities commissioned on time and budget 9M 2017 results Increased throughput volumes in Russia by 3% vs. 9M16 The share of fuel oil and VGO is down to 14% (3q17 11%) Delayed Coker complex at Nizhny Novgorod refinery: FEED, FID 2017 targets Further decrease in share of fuel oil and VGO up to 15% Nizhny Novgorod Perm Volgograd Product slate of refineries in Russia Hydrocracking Catalytic cracking Hydrotreating 60% 72% 79% 86% Alkylation Reconstruction Coking Distillation 40% 28% 21% 14% Year 10 11 12 13 14 15 16 2010 2015 2016 9M17 Other Fuel oil and VGO 20
Nizhny Novgorod Refinery Delayed Coker Complex Key advantages Replicating Perm s delayed coker complex (minimization of costs, time and risks) Substantial improvement of the refining depth and light product yield Optimization of utilization rate, including synergy with existing secondary conversion processes 9M 2017 results FEED, FID, start contracts signing on long lead items Influence of the project on refinery indicators Without project 76% With project 65% Feedstock and production balance of the delayed coker (capacity 2.1 mln t per annum) Asphalt; 5% Gas; 8% Naphtha; 12% Diesel fuel; 30% Light products yield 42% 21% Tar; 95% VGO; 23% For further processing at catalytic cracker 4% Coke; 27% Fuel oil and VGO yield Light products yield Feedstock Production 21
9M17 Financial and Operational Highlights 22
Downstream Upstream Key 9M17 Operational Indicators Doubled the share of key high-margin projects year-on-year Progressed on schedule with the construction of 2 nd stage development facilities at the Caspian Sea fields Launched main production facilities at Gissar, Uzbekistan 3q17 2q17 % th. boe per day 9M17 9M16 % 2,219 2,222 (0.1) Hydrocarbon production (ex. West Qurna-2) 2,218 2,168 2.3 1,755 1,772 (1.0) of which crude oil and NGL 1,772 1,774 (0.1) 464 450 3.1 natural and petroleum gas 446 394 13.2 Increased throughput volumes by +5% in Russia, +7% in Europe q-o-q Increased further light product yield in Russia to 71.3% in 3Q 2017, another record high Growth in main high-priority sales channels 3q17 2q17 % 9M17 9M16 % 17.4 16.4 5.9 Refinery throughput at own refineries, mln t 49.9 49.3 1.2 73.5 72.5 1,0 p.p. Light product yield, % 71.5 66.3 5.2 p.p. 3.8 3.5 9.5 Retail sales volume, mln t 10.6 10.5 1.5 23
Finance Key 9M17 Financial Indicators Improved macro environment All-time high quarterly EBITDA 221 bln RUB in 3Q2017 Record quarterly free cash flow before changes in working capital since 2011 84 bln RUB in 3Q2017 Continued stringent cost control Optimization of debt structure resulting in the reduction in a weighted average cost of debt 3q17 2q17 % RUB bln 9M17 9M16 % 1,483 1,359 9.1 Revenue 4,274 3,826 11.7 221 179 23.5 EBITDA 608 547 11.0 155 114 36.5 Exploration and production segment 396 380 4.4 134 96 39.7 in Russia 341 322 5.9 16 14 11.3 outside Russia, excluding EBITDA of the West Qurna-2 project 42 23 82.3 6 4 50.9 West Qurna-2 13 34 (62.8) 81 62 30.3 Refining, marketing and distribution segment 214 176 22.0 63 56 12.1 in Russia 156 116 34.5 19 7 182.2 outside Russia 58 60 (2.4) 97 139 (29.8) Profit for the period 298 160 86.2 105 79 32.1 Adjusted profit for the period* 281 228 23.5 119 125 (4.6) Capital expenditures 374 357 4.6 91 82 11.0 Free cash flow 174 200 (13.4) 84 43 94.2 Free cash flow before changes in working capital 194 167 16.6 345 349 (1.3) Net debt 345 494 (30.3) * Excluding FX effect and sale of diamond business Arkhangelskgeoldobycha (AGD) 24
Key Operating Indicators Upstream Hydrocarbon production, mln boe 31 10 594 605 37 42 72 80 Западная West Qurna-2 Курна-2 Газ Gas за abroad рубежом Газ Gas в in РФ Russia Growth factors Ramp up at Filanovsky and Pyakyakhinskoye fields Growth of heavy crude oil production in Timan-Pechora Development of gas projects in Uzbekistan Decline factors External limitations (OPEC+) Decrease in compensation crude oil from WQ-2 project 22 22 Жидкие Liquids abroad УВ за рубежом Liquids production in Russia, mln bbl 29.0 (31.5) 464 462 7 196 11 25 7 439 3 4 202 204 14 16 27 27 7 7 407 Прочая Other liquids добыча in Russia ЖУВ в РФ 153 26 154 154 55 Ключевые высоко маржинальные Key high-margin projects проекты liquids production* ЖУВ * 3q16 9M16 2q17 3q17 9M17 9M16 Key high-margin projects* Other projects 9M17 * V. Filanovsky, Yu. Korchagin, Pyakyakhinskoye, Yaregskoye and Usinskoye (Permo-carbon) fields 25
Downstream Russian Refineries Refinery throughput, mln t Refining depth Light product yield Total * 11.1 10.4 11.0 85.1% 87.5% 89.2% 61.8% 70.6% 71.3% Refinery throughput (+5% q-o-q) Higher throughput at Perm refinery after repair Ukhta 0.8 0.5 0.6 69% 75% 76% 45% 52% 55% works in 2q17 Optimized throughput at Ukhta refinery to maximize light product yield Volgograd 3.4 3.7 3.7 93% 93% 93% 59% 72% 73% Refining depth (+1.7 p.p. q-o-q) and light product yield (+0.7 p.p. q-o-q) Perm 3.3 3.1 3.7 96% 98% 99% 61% 72% 70% Optimization of feedstock mix and processes at Nizhny Novgorod, Ukhta and Volgograd refineries Nizhny Novgorod 4.2 4.0 3.9 75% 78% 80% 63% 64% 65% 3q16 2q17 3q17 3q16 2q17 3q17 3q16 2q17 3q17 Reaching design parameters of the oil residue complex at Perm refinery after maintenance works in 2q17 * Total throughput excluding cross-supplies (i.e. dark refined products delivered as feedstock within the Group s refineries) and processing of gas products 26
Downstream European Refineries Refinery throughput, mln t Refining depth Light product yield Total 6.0 5.9 6.3 87.2% 84.4% 90.4% 72.5% 75.8% 77.4% Refinery throughput (+7% q-o-q) Increasing capacity utilization due to high 99% 99% 99% 81% 80% 83% refining margins in Europe Ploiești 0.7 0.6 0.7 Refining depth (+6 p.p. q-o-q) and light product yield (+1.6 p.p. q-o-q) Zeeland 1.1 1.3 1.3 85% 78% 83% 77% 71% 75% Optimizing feedstock basket One-off factors at Burgas refinery Reaching design parameters after maintenance Burgas 1.8 1.7 1.8 81% 89% 88% 72% 82% 78% works at Ploiesti and ISAB refineries ISAB 2.4 2.2 2,6 89% 81% 93% 69% 73% 76% 3q16 2q17 3q17 3q16 2q17 3q17 3q16 2q17 3q17 27
Financial Position Debt, RUB bln Debt maturity profile, RUB bln 860 Cash and cash equivalents Total debt 438 603 257 261 699 438 293 638 345 Net debt Credit lines * Cash 145 293 15 116 98 85 47 277 Net debt/ EBITDA 2015 2016 9М17 0.74 0.60 0.42 As of 30.09.2017 4q17 2018 2019 2020 2021 2022 and further *Stand-by revolving committed credit lines. Debt structure as of 30.09.2017 Credit ratings 01.01.2017 30.11.2017 USD / EUR / Other debt 89% 8% 3% S&P BBB- BBB Secured / Unsecured debt Fixed / Variable rate 11% 57% 89% 43% Fitch BBB- BBB+ Eurobonds (all in $) / Other debt 55% 45% Moody s Ba1 Ba1 28
APPENDIX 29
Supportive Macro Environment for Upstream Profitability 140% 130% Urals, $/bbl Benchmark EBITDA (West Siberia), $/bbl RUB/USD +33% +24% 120% 110% 100% 90% -8% 80% Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 30
Russian Country Risk (Russia CDS USD 5Y) Basis points 700 Sanctions 600 500 Oil collapse led to FX crisis 400 300 200 2010-2014 average 100 0 2013 2014 2015 2016 2017 Source: Bloomberg 31
Sensitivity to Oil Price Net price, $/bbl (Urals less taxes, 2017 tax terms) Urals $30/bbl Urals $50/bbl Urals $70/bbl 41 43 59-60 48 67 17 21 25 21 31 26-27 29 Standard taxation Pyakyakhinskoe, Usinskoe (Permo-carbon) Korchagin, Filanovsky Yaregskoe Net price sensitivity to a $1 increase in oil price +$0.22 +$0.51 +$0.81-0.85 +$0.95 32
Downstream Upstream Exchange rate, $/RUB Upstream and Downstream Sensitivity Brent 30 35 40 45 50 55 60 65 70 50 2.6 3.7 4.8 5.9 7.0 8.1 9.2 10.2 11.3 55 4.0 5.0 6.1 7.2 8.3 9.4 10.5 11.6 12.7 60 5.1 6.1 7.2 8.3 9.4 10.5 11.6 12.7 13.8 65 6.0 7.1 8.2 9.3 10.4 11.4 12.5 13.6 14.7 70 6.8 7.9 9.0 10.1 11.2 12.2 13.3 14.4 15.5 75 7.5 8.6 9.7 10.8 11.9 12.9 14.0 15.1 16.2 80 8.1 9.2 10.3 11.4 12.5 13.6 14.6 15.7 16.8 85 8.7 9.7 10.8 11.9 13.0 14.1 15.2 16.3 17.4 Benchmark West Siberia EBITDA, $/bbl 90 9.1 10.2 11.3 12.4 13.5 14.6 15.7 16.7 17.8 Oil export duty (ED), $/ton 36 47 58 69 80 91 102 113 124 Dark products ED, $/ton 36 47 58 69 80 91 102 113 124 Light products ED, $/ton 11 14 17 21 24 27 31 34 37 Refining tax incentive (Δ Dark-Light ED), $/ton 25 33 41 48 56 64 71 79 87 Refining tax incentive, (Δ Dark-Light ED), $/bbl 3.5 4.5 5.6 6.6 7.7 8.7 9.8 10.8 11.9 33
Consolidated Statement of Profit or Loss (in USD mln, at the average exchange rate for the period) 3q17 2q17 9M17 9M16 Revenue 25,144 23,803 Sales (including excise and export tariffs) 73,315 55,937 Costs and other deductions (2,044) (1,936) Operating expenses (5,809) (4,957) (13,270) (12,280) Cost of purchased crude oil, gas and products (38,194) (27,338) (1,067) (1,182) Transportation expenses (3,503) (3,443) (727) (687) Selling, general and administrative expenses (2,031) (2,131) (1,422) (1,474) Depreciation, depletion and amortization (4,269) (3,373) (2,293) (2,551) Taxes other than income taxes (7,454) (4,744) (1,980) (2,020) Excise and export tariffs (5,859) (5,237) (14) (12) Exploration expenses (39) (82) 2,326 1,662 Profit from operating activities 6,157 4,630 55 54 Finance income 166 163 (100) (119) Finance costs (380) (489) 68 69 Equity share in income of affiliates 200 87 (160) 487 Foreign exchange gain (loss) (431) (1,236) (12) 838 Other income (expenses) 765 (68) 2,176 2,991 Profit before income taxes 6,477 3,087 (511) (564) Current income taxes (1,288) (688) (7) 3 Deferred income taxes (56) (49) (518) (560) Total income tax expense (1,344) (737) 1,657 2,431 Profit for the period 5,133 2,350 (8) (3) Profit for the period attributable to non-controlling interests (17) (8) 1,650 2,428 Profit for the period attributable to PJSC LUKOIL shareholders 5,117 2,342 34
CONTACT DETAILS Alexander Palivoda, Head of IR Tel.: +7 (495) 981-75-26 Mob.: +7 (906) 789-49-24 Alexandr.Palivoda@lukoil.com IR@lukoil.com CONTACT DETAILS Evgeniya Bitsenko, Deputy Head of IR Tel.: +7 (495) 627-14-39 Mob.: +7 (916) 919-20-25 Evgeniya.Bitsenko@lukoil.com IR@lukoil.com 35