AnnuAl RepoRt - Severneftegazprom

AnnuAl RepoRt • 2012

Translation Note

The following text in English is a translation from the original Russian version. While every effort is made to ensure that the translation is accurate, there may nevertheless be differences of meaning between this and the original Russian version. Therefore, please note that the following translation is provided for information only and is not intended for any other use.

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This Annual Report (hereinafter referred to as the Report) de-tails the key performance indicators of Severneftegazprom Open Joint-Stock Company operations (hereinafter referred to as OJSC Severneftegazprom, the Company) for 2012 and the deve-lopment prospects aimed at setting and reaching strategic goals and ensuring the Company’s long-term sustainable development.

In the Report we have taken into account all the significant in-formation for the prospected users. The provided information has been officially accepted by the Company and proved by internal documentation as well as publicly available materials. The Report information was processed using the methods comparable to the ones used in the earlier periods. The Report in general contains no professional terminology or data requiring specific knowledge.

The data presented in the Report makes it possible for the interested parties to get familiar with the results of Company’s operations in 2012 and evaluate their impact on the economy, environment, and society.

Given the responsibility and public interest in its operations, the Company for the second time discloses the information in

compliance with the provisions of the Global Reporting Initiative (GRI) and integrates them in the Report. The information pro-vided is organized under corporate information requests pro-duced in accordance with the GRI recommendations (version G3.1) and disclosure completeness. Determining materiality of the Report’s content, results of cooperation with the key inte-rested parties have been taken into account.

The Report contains evaluations and forecasts of the Company’s authorized management bodies regarding its performance and future events and/or actions, including the Company’s plans and the probability of certain events and actions.

The forward-looking statements, by virtue of their nature, are associated with inherent risk and uncertainty of both general and specific character. The Company emphasizes that actual results may differ considerably from those stated, whether di-rectly or indirectly, in these forward-looking statements. In par-ticular, economic, political, social, technology-related and other conditions may affect Company operations.

Introduction Message from the Chairman of the Board of Directors ................4Message from the General Director ..............................................6Key Events 2012 .............................................................................8Key Events 2013 ...........................................................................11Key Performance Indicators 2012 ...............................................13Severneftegazprom’s Position in the Industry and Development Prospects ...............................14

1 Management Bodies ..............................................18Financial and Business Operations Management and Control Bodies ............................................................19Structure of the management bodies ................................19The General Meeting of Shareholders ................................19The Board of Directors .......................................................20Technical Committee .........................................................21Company’s Board of Directors Report on progress in priority areas ..............................................22Executive Body ..................................................................23Information on the Company auditor ..................................23Audit Commission ..............................................................24

2 Authorized Capital Report on Dividend Payments...............................26Authorized Capital ..............................................................27Report on the Payment of Announced (Accrued) Dividend (Participating Interest Income) on Shares (Participating Interests in the Authorized Capital) of the Company .........................28

3 Gas Exploration, Production and Marketing.........30Reserve Status...................................................................31Development of the Cenomanian and Turonian Gas Deposits ................................................32Exploration .........................................................................33Production Drilling ..............................................................34Gas Production ..................................................................34

4 Financial Results ....................................................36Implementation of the Annual Work Programmе and Budget of the Company in 2012 .................................37Analysis of change in indicators of the Statement on 2012 financial results .....................................................40Analysis of change in the liabilities structure of the Company in 2012.....................................................44Analysis of debt liabilities ....................................................46Analysis of cash flow ..........................................................47Analysis of Key Financial Ratios..........................................48

5 Investments ............................................................50

6 Technology and Innovations ..................................52Well No. 184 ......................................................................53The control system for gas process losses and the system for greenhouse gas extraction and collection ....................................................................54Energy Consumption .........................................................55

7 Sustainable Development ......................................58Social policy .......................................................................59Health and safety ...............................................................62Environmental protection and industrial safety ....................64Main indicators of environmental protection activities .........68Acknowledgement .............................................................71

8 Key Risks Associated With the Company’s Business ...............................72Operational risks ................................................................73Financial risks.....................................................................75Legal risks ..........................................................................76

9 Code of Corporate Governance Compliance Report ................................................78

10 General Information ...............................................80Registration Details ...........................................................81The Company’s Representative Offices ..............................81

11 Summary ................................................................82Report Parameters .............................................................83

Information Disclosure .................................................................84Appendix 1.

Global Reporting Initiative (GRI) Content Index ...................84Appendix 2.

List of Company’s Transactions in the Year 2012 Considered As Major Transactions In Accordance with the Federal Law “On Joint Stock Companies” ..............................................90List of Company’s Transactions in the Year 2012 Considered As Interested Party Transactions In Accordance with the Federal Law “On Joint Stock Companies” ..............................................90

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Message from the Chairman of the Board of Directors

Dear shareholders!

In 2012, OJSC Severneftegazprom continued to develop its successful activity. The Company demonstrates prominent stability among most efficient exploration and production com-panies of Gazprom Group.

OJSC Severneftegazprom is one of the main resource bases of the international infrastructure project – the Nord Stream pipe-line; the fact justifies the responsibility of OJSC Severneftegaz-prom for development of the Yuzhno-Russkoye oil and gas condensate field effectively and to guarantee stable gas supply to the European countries.

In the reporting year the management of the Company con-tinued the Turonian development project in the Yuzhno-Russ-koye oil and gas condensate field. The project is considered to be a key one not only for Gazprom, but for the whole Russian gas industry as well, and symbolizes the beginning of the new era of development of hard-to-recover deposits.

The Company implements the strategy of resource mobi-lization to update production technologies and operational ef-ficiency. The management of OJSC Severneftegazprom pays special attention to industrial safety and labor protection, sus-tainable use of natural resources and policy aimed to minimize ecological risks and save energy.

Alexander Medvedev

Chairman of the Board of Directors of OJSC Severneftegazprom

Commitment and responsibility of the management of the Company, professionalism and hard work of the employees, faci- litated the achievements in production and financial indicators and also the shareholders contributed as they defined the stra-tegic direction and supported initiatives of the management.

On behalf of the Board of Directors I would like to express gratitude to the personnel of OJSC Severneftegazprom for their successful work, and wish them new achievements in solution of large-scale tasks of the Company.

Sincerely,Deputy Chairman of the Management Committee of GazpromChairman of the Board of Directors of OJSC Severneftegazprom

Alexander Medvedev

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Message from the General Director

Dear shareholders, partners, and colleagues!

Summarizing the results of the operational activity of OJSC Severneftegazprom in 2012, I would like to point out that we have achieved high production and financial indicators! The last year proved again that industrial and technical potential, elabo-rated forms and methods of corporate management gua-rantee the steady development of the Company and the achieve-ment of strategic goals and objectives.

Despite the fact that only five years have passed since the start of the development of the Yuzhno-Russkoye oil and gas conden-sate field, the total volume of gas produced by the end of 2012 amounted approximately to 116 billion cubic meters. Nowadays OJSC Severneftegazprom is the fifth in production level of Gaz-prom Group and also one of good examples of international co-operation in oil and gas industry.

The start of the Turonian production highlights the status of the Company as a technological leader in solving a problem of develop-ing hard-to-recover gas deposits. The gained experience in the sphere is the basis of further development of the Company and reflects the global progressive tendencies in effective gas supply.

Nowadays OJSC Severneftegazprom plans to expand its pro-duction activity in developing the Cenomanian and Turonian gas deposits of the Yuzhno-Russkoye oil and gas condensate field,

Stanislav Tsygankov

General Director of OJSC Severneftegazprom

aimed to achieve strategic goals of the Company. In 2012, bear-ing in mind the importance of the projects and the principle of bal-ance between the state and the industry interests, the Company was included in the List of organizations implementing investment projects considered to be priority in the YNAA in accordance with the rules of the law.

In 2012 the world financial community distinguished the result of the work on Project Financing with the consortium of international banks and OJSC Gazprombank, the total amount of which equaled to 1,1 billion Euro. The transaction was marked as ‘The Deal of the Year’ by the respectable edition ‘Project Finance Magazine’ (PFM). The Company carries out its commitments to service the loan and had paid approximately one third of it by the end of 2012.

Being aware that the team is the most valuable asset and the formula of success in any company, in 2012 OJSC Severnefte-gazprom took measures to improve the system of labor protection and health of the workers, their training, raising the level of their skills and social protection, which is reflected in the new version of the Collective Agreement.

Due to the professionalism of the employees and the partners, with the support of the shareholders, we will be able to ensure further continuous work and development of the Company on a long-term basis.

Sincerely,General Director of OJSC Severneftegazprom Stanislav Tsygankov

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Key Events 2012

January

Securing project finance for the deve-lopment of the Yuzhno-Russkoye oil and gas condensate field was named “deal of the year” by the magazine Project Finance International, pub-lished by Thomson Reuters, and by Project Finance Magazine, published by Euromoney Institutional Investor plc.

The second audit of the integrated management system for compliance with the international standards ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007 was conducted.

aprIl

The ceremony of launching the first pro-duction well in the Turonian gas depo-sit in Western Siberia was held at the Yuzhno-Russkoye oil and gas conden-sate field developed by OJSC Sever- neftegazprom in the presence of Alexan-der Medvedev, Deputy Chairman of Gaz-prom Management Board and Chairman of the Board of Directors of OJSC Sever-neftegazprom, and Stanislav Tsygankov, General Director of OJSC Severnefte-gazprom.

FEBruary

Stanislav Tsygankov, General Director of the Company , and Ivan Kostogriz, Head of Administration of the town of Novy Urengoy, signed a General Agreement for Cooperation between OJSC Sever-neftegazprom and Administration of Novy Urengoy.

May

The 100 billionth cubic metre was reco-vered from the Yuzhno-Russkoye oil and gas condensate field.

MarCh

Stanislav Tsygankov, General Direc-tor of OJSC Severneftegazprom, and Vasily Parshakov, Head of the Admini- stration of the Krasnoselkup District, signed an Agreement on Cooperation between the Company and the District Administration for 2012.

JunE

The General meeting of the Company‘s shareholders took place on June 29, at which the Company performance indica-tors for the year 2011 were reviewed, the Annual report and the Annual accounting statement were unanimously approved, the Company’s auditor for 2012 was ap-pointed, the members of the Board of Directors and Audit commission were elected, and a number of interested par-ty transactions for the next fiscal year were approved. A decision on payment of 2011 dividends was made.

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Key Events 2013

January

OJSC Severneftegazprom was grant-ed the Statement GRI Application Level Check, a certificate of the Global Report-ing Initiative (GRI), confirming the comp-liance of the Company Annual Report for 2011 with GRI level C requirements.

FEBruary

According to the results of the re-certifi-cation audit of the Company’s integrat-ed management system by international certification authorities, OJSC Sever-neftegazprom was granted certificates confirming the compliance of the Com-pany’s management system for quality, health and safety environmental protec-tion and industrial safety with the inter-national standards ISO 14001:2004, ISO 9001:2008, OHSAS 18001:2007.

MarCh

Stanislav Tsygankov, General Director of OJSC Severneftegazprom, and Dmitry Kobylkin, Governor of the Yamal-Nenets Autonomous Area, signed an Agreement on social and economic cooperation for 2013-2017.

DECEMBEr

On December 5, in Tyumen, the re-sults of the regional contest coincid-ing with the Day of the Inventor and Innovator were announced. To mark the excellent performance indicators, the staff of OJSC Severneftegazprom and its General Director Stanislav Tsygankov were awarded “The Best in Innovations” diploma.

In 2012 OJSC Severneftegazprom fully completed the action plan on gas infrastructure development in the settle-ment of Krasnoselkup. The gas pipeline launch ceremony was held on December 25, 2012.On December 24, 2012, the Law of the Yamal-Nenets Autonomous Area No. 146-ZAO “On amending the Law of the Yamal-Nenets Autonomous Area “On the list of organizations implementing priority investment projects in the Yamal-Nenets Autonomous Area” (No. 151-ZAO dated 23.12.2011), under which OJSC Sever-neftegazprom is entitled to profit tax re-lief for the period of 2013-2017 and property tax relief for the period of 2015-2017, payable into the regional budget.

OCtOBEr

October 25 was the five year anniver-sary of the start of the production on the Yuzhno-Russkoye oil and gas conden-sate field.

auGust

A contest was held in OJSC Severnefte-gazprom among oil and gas field opera-tors on August 8, to select the one to be awarded “The Best Professional” title.

nOvEMBEr

The Company passed the re-certifica-tion audit of the integrated manage-ment system for quality, health and safety, environmental protection and in-dustrial safety for compliance with the international standards ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007. Based on the audit results, the Compa-ny was certified for another three-year period.

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Key performance Indicators 2012

Indicator, billion m3 2010 2011 2012 Change, %

2011 /2010 2012 /2011

Gas reserves 1,040. 780 1,122. 427 1,096. 628 +7% -2%

Gross production 25.359 25.651 25.347 +1% -1%

Gas sales 25.327 25.581 25.280 +1% -1%

Indicator, million rubles

2010 2011 2012 Change, %

2011 /2010 2012 /2011

Sales revenue 36,902 26,038 33,962 - 29% +30%

Sales profit 24,578 9,558 9,741 - 61% +2%

Net profit 19,304 5,940 8,978 - 69% +51%

Net cash from operations (current operations)

23,322 13,796 14,851 - 41% +8%

Net assets 42,248 34,733 41,879 - 18% +21%

Production indicators

Key performance indicators

Gas collecting system at Yuzhno-Russkoe oil and gas condensate field

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severneftegazprom’s position in the Industry and Development prospects

The gas industry is strategically important for the develop-ment and economy of Russia, contributing about 10% of the na-tional gross domestic product. In the structure of the fuel balance in Russia, gas accounts for about a half of the total fuel produc-tion1.

Russia is the most important segment of the global gas in-dustry. The country holds the first position in the global gas production market (over 18%), its share of the global proven re-serves of natural gas is 25% and Russia exports about a quar-ter of the global gas export volume.

Natural gas, a highly efficient source of fuel, which has a minimal adverse impact on the environment, satisfies over half of the domestic energy needs.

The largest part of the measured natural gas reserves is lo-cated in Siberia. The Tyumen Region accounts for 90% of the total gas volume produced in Russia, with Yamal playing a key

1 Source: http://www.bp.com/

role: a large fuel and energy, oil and gas production complex has been established within the autonomous area.

OJSC Severneftegazprom performs production opera-tions in the Yuzhno-Russkoye oil and gas condensate field situated in the Krasnoselkup District of the Yamal-Nenets Autonomous Area. The field is over 85 km long and over 14 km wide. The closest populated area, the Krasnoselkup settlement,

is located 135 km to the east of the field. The Company is part of Gazprom Group, which is one of

the largest vertically integrated energy companies in the world, having the rights to develop one fifth of the global gas reserves and accounting for one sixth of global gas production.

According to the 2012 results, OJSC Severneftegazprom is among the top five gas suppliers in the Gazprom Group. The share of natural gas produced by the Company in 2012 increased to 5% of the total gas produced by the Gazprom Group (4% in 2011).

It is worth mentioning that the Yuzhno-Russkoye oil and gas condensate field is the main source of gas supply for the Nord Stream pipeline, through which 11.5 billion m3 of gas were sup-plied to Europe in 2012.

The successful cooperation of western technologies and the Russian experience of working in adverse weather con-ditions within the framework of the project on developing the Yuzhno-Russkoye oil and gas condensate field, was empha-sized at the meeting of the Chairmen of the management boards of JSC Gazprom and E.ON AG, held in June 2012.

The areas of priority for OJSC Severneftegazprom:

• fulfilling the license agreement conditions on the use of the Yuzhno-Russkoye subsoil plot;

• ensuring the planned gas production level of 25 billion m3 per year;

• implementing design solutions and activities for the control of development of the Yuzhno-Russkoye oil and gas condensate field;

• accomplishing the planned exploration works and re-serve increases;

• undertaking works aimed at the reconstruction, moder-nization and technical upgrade of the Yuzhno-Russkoye oil and gas condensate field facilities;

• complying with the agreement on project finance con-cluded with a consortium of foreign banks and the Rus-sian OJSC Gazprombank;Russia

Iran

Qatar

Turkmenistan

USA

Saudi Arabia

United Arab Emirates

Venezuela

Nigeria

Algeria

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Russia (677)

USA (651)

Canada (160)

Qatar (151)

Iran (149)

Other Countries (1600)

Russia (23)

Qatar (14)

Norway (12)

Canada (8)

Algeria (6)

Other Countries (37)

Proven reserves of natural gas, trln m3

Natural gas production, billion m3 Export of natural gas, billion m3

OJSC Severneftegazprom performs production operations in the Yamal-

Nenets Autonomous Area and is part of the Gazprom Group, which is one

of the largest vertically integrated energy companies in the world

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• effective functioning of the integrated management sys-tem for quality, health and safety, environmental protec-tion and industrial safety in compliance with the require-ments of the international standards ISO 9001:2008, ISO 14001:2004, OHSAS 18001:2007;

• participating in social and economic development of the local municipal units, the Krasnoselkup and Pur Dis-tricts, and implementing of programs aimed at support-ing indigenous minorities of the North.

OJSC Severneftegazprom is an advanced company, using the latest technical solutions to increase efficiency, save energy and protect the environment. The Company is constantly look-ing for new technologies and innovative solutions to develop and equip the Yuzhno-Russkoye oil and gas condensate field and to fulfil the existing gas supply contracts.

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Yamal-Nenets Autonomous Area

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Financial and Business Operations Management and Control Bodies

Structure of the management bodies

The General Meeting of Shareholders is the highest governing body, whose competencies cover all the important Company issues.

The Board of Directors is the governing body that pro-vides general Company leadership and is responsible for stra-tegic management aimed at accomplishing long-term objec-tives and goals, as well as controlling the Company’s operating efficiency.

The General Director is the sole executive body, managing the current activities of the Company.

For the purpose of controlling financial and business opera-tions, the General meeting of shareholders elects the Audit Commission, which is responsible for the audit and analysis of the Company’s financial standings, the operation of the inter-nal control system, and verification of the legality of business operations.

The Company engages an external auditor to conduct the annual audit of financial statements, prepared in accordance with the Russian Accounting Standards (RAS) and the Interna-tional Financial Reporting Standards (IFRS). The independent audit is annually approved by the General meeting of share-holders upon suggestion by the Board of Directors.

The issues associated with the establishment, competence and organization of activities of the management and control bodies are determined by the Company’s Charter and relevant internal documents.

The Charter is available to all interested parties on the Com-pany’s official website: http://www.severneftegazprom.com/.

The General Meeting of Shareholders

Three General meetings of shareholders of the Company were held in 2012 including the annual meeting, at which the shareholders approved the Annual Report and the Annual ac-counting statement of OJSC Severneftegazprom for 2011, as well as the Company auditor for 2012, elected the members of the Board of Directors and the Audit Commission, and re-viewed the issues associated with the distribution of profits and payment of remuneration to the Board of Directors members.

The extraordinary General meetings of the shareholders, held on June 24 and December 27, 2012, approved the amendments to gas supply contracts regarding price fixing for the second half of 2012 and the first half of 2013, as well as the volume of gas to be supplied in 2013.

Management Bodies

1the General Meeting of shareholders

the Board of Directors

the General Director

Structure of the management bodies

The key principle of workflow management in the Company is

corporate governance, based on the clear distribution of the management

bodies’ responsibilities in relation to decision making, to safeguard the interests of the shareholders

and to increase the investment attractiveness of the Company

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Technical Committee

For the purpose of preliminary reviewing of the most impor-tant issues falling under the competence of the Board of Direc-tors and obtaining recommendations for decision-making on such issues, the Company established the Technical Committee.

The process of establishing and operating the Technical Committee is governed by the Shareholders’ Agreement of OJSC Severneftegazprom and the Regulations on the Techni-cal Committee, approved by the Board of Directors.

The Technical Committee consists of 8 members, who are appointed by the Board of Directors. Candidates are proposed by the shareholders of the Company as follows: 4 candidates from JSC Gazprom, and 2 candidates each from Wintershall Holding GmbH and E.ON E & P GmbH.

The function of the Technical Committee is to provide recom-mendations to the Board of Directors regarding all significant technical aspects of the Company’s business within its com-petence, including the approval by the Board of the Long-Term Development Plan and Budget, the Additional Field Develop-ment Plan Draft, the Additional Field Development Plan and Annual Work Programme and Budget, as well as any amend-ments and/or supplements thereto.

The establishment of the Committee, which consists of members possessing significant experience and knowledge in specialized areas, increases the efficiency and quality of work of the Board of Directors and consequently provides effective mechanisms of control over activities of the Company’s execu-tive body.

Alexander Ivanovich Medvedev,

Chairman of the Board of Directors

Elena Vladimirovna

Mikhailova

Vsevolod Vladimirovich

Cherepanov

Alexander Pavlovich

Dushko

Born on August 14, 1955 in the town of Shakhtersk, Sakhalin Region. Graduated from Moscow Institute of Physics and Technology. Candidate of Economics.

2002-2008 – Member of the Management Committee of Gazprom, General Director of LLC Gazexport.

Since 2008, Deputy Chairman of the Management Committee of Gazprom, General Director of LLC Gazprom Export.

Born on April 28, 1977 in the Pskov Region. Graduated from Moscow State Industrial University, majoring in Law, obtained a MBA from the Russian Presidential Academy of National Economy.

Since 2003, Deputy General Director for Corporate Relations and Asset Management of LLC Gazprom Mezhregiongaz

Since 2012, Member of the Gazprom Management Committee, Head of Asset Management and Corporate Relations Department of JSC Gazprom.

Born on November 25, 1966 in Frunze. Graduated from M.V. Lomonosov Moscow State University. Candidate of Geology and Mineralogy Sciences.

2008-2010 – Deputy Director General and Chief Geologist at LLC Gazprom Dobycha Nadym

Since 2010, Member of the Gazprom Management Committee, Head of the Gas, Gas Condensate and Oil Production Department of JSC Gazprom.

Born on June 22, 1964 in Novodruzhesk. Graduated from Saint Petersburg State University of Engineering and Economics.

Since 2005, Deputy Head of the Department of Finance and Economics of JSC Gazprom.

Dr. Rainer Seele Mario Mehren Alan James Weatherill

Frank Allan Sivertsen

Born on September 2, 1960 in Bremerhaven (Germany). Graduated from the University of Göttingen (Germany), has a PhD in Chemistry

2000-2009 – Executive Director of Wingas GmbH & Co.

2002-2009 – Member of the Board of Executive Directors of Wintershall Holding GmbH.

2005-2009 – Executive Director of Wintershall Erdgas Handelshaus GmbH & Co. KG, Executive Director of WINGAS Holding GmbH.

Since 2009, Chairman of the Board of Executive Directors of Wintershall Holding GmbH, Executive Director of Wintershall Erdgas Beteiligungs GmbH.

Born on November 24, 1970 in Koblenz (Germany). Graduated from Saarland University (Germany), majoring in Business Administration.

2006-2011 – Head of the Finance and Information Management Department of Wintershall Holding GmbH, Managing Director of Heidkopf GmbH, Managing Director of Nordkaspische Explorations-und-Produktions GmbH, Managing Director of Wintershall Libyen Oil & Gas GmbH, Managing Director of Gewerkschaft Röchling GmbH, Managing Director of Wintershall Russland GmbH.

2007-2011 – Member of the Management Board of Wintershall AG.

2009-2011 – Managing Director of Wintershall Norwegen Explorations-und-Produktions GmbH

2008-2011 – Managing Director of Wintershall Middle East GmbH.

Since 2011, Member of the Management Board of Wintershall Holding GmbH.

Born on December 17, 1955 in Singapore. Graduated with a Bachelor of Mechanical Engineering from the University of Southampton.

2005-2010 – Chief Engineer of Shell Global Solutions B.V. (Netherlands).

Since 2010, General Director of E.ON Exploration and Production Russia (the legal successor of E.ON Ruhrgas Exploration and Production Russia).

Born on 21 August, 1957 in Time (Norway). Graduated from the Norwegian School of Economics and Business Administration. Master of Business Administration (MBA).

2005-2007 – Managing Director of E.ON Ruhrgas UK North Sea (Great Britain).

Since 2008, Chief Executive Officer of E.ON Exploration and Production GmbH (the legal successor of E.ON Ruhrgas E & P GmbH).

Board of Directors over the period of January 1 – June 29, 2012

Board of Directors over the period of June 29 – December 31, 2012

Alexander Ivanovich Medvedev Alexander Ivanovich Medvedev

Olga Petrovna Pavlova Elena Vladimirovna Mikhailova

Vsevolod Vladimirovich Cherepanov Vsevolod Vladimirovich Cherepanov

Alexander Pavlovich Dushko Alexander Pavlovich Dushko

Dr. Rainer Seele Dr. Rainer Seele

Mario Mehren Mario Mehren

Alan James Weatherill Alan James Weatherill

Frank Allan Sivertsen Frank Allan Sivertsen

Information on changes in the Company’s Board of Directors in the reporting year

The members of the Company’s Board of Directors at the end of the accounting period

The Board of Directors

Pursuant to the Charter, the Board of Directors of the Com-pany shall consist of 8 members.

The Chairman and Members of the Board of Directors did not hold any shares in the Company in the accounting year. There were no deals for the acquisition or transfer of Company shares conducted by the Members of the Board of Directors in the accounting year.

Meeting of Technical Committee

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No members of the Technical Committee hold shares of the Company. There were no deals for the acquisition or transfer of Company shares conducted by members of the Technical Committee in the accounting year.

Company’s Board of Directors Report on progress in priority areas

The Board of Directors plays the most important role in en-suring shareholders’ rights, planning the development strategy of the Company and ensuring its successful financial and eco-nomic operations.

The Board of Directors judges the performance of the Com-pany in priority business areas as being generally successful in the accounting year.

Eight meetings of the Board of Directors took place in 2012, at which 36 issues regarding various aspects of the Company’s business were considered.

The Board of Directors of OJSC Severneftegazprom fo-cused on the following important issues relating to the current activities of the Company:

• reviewing the shareholders’ proposals regarding candi-dates for the position of member of the Board of Direc-tors, to be appointed by vote at the General meeting of shareholders;

• recommendations regarding the amount of dividend on the Company shares and terms of payment, based on the result of the 2011 financial year;

• the approval of the Company’s Annual programme of works and Budget for 2013;

• the approval of interested party transactions;• the approval of the amount of remuneration for auditor ser-

vices;• the convocation of extraordinary General meetings of

shareholders

No. Name Place of work Position

1Stanislav Evgenievich Tsygankov

OJSC Severneftegazprom General Director

2Yulia Viktorovna Sukhanova

OJSC Severneftegazprom Deputy General Director of Economics and Finance

3Egor Alekseevich Efimochkin

JSC GazpromDeputy Head of the Directorate – Head of the Division of Mergers and Acquisition of the Department of Foreign Economic Activities

4Nazhib Abdulkadyrovich Bilalov

JSC GazpromChief Product Engineer of the Unit for Reconstruction and Expansion of the Gas, Gas Condensate and Oil Production Department

5 Dr. Rolf Udo Norbert Pilling Wintershall Russland GmbHDeputy Managing Director for Technical Development and Joint Ventures Support

6 Ubbenjans Hermann OJSC SeverneftegazpromDeputy General Director for Development and Strategic Planning

7 Alan James WeatherillE.ON Exploration and Production Russia (the legal successor of E.ON Ruhrgas Geological Exploration and Mining Russia)

General Director

8 Dr. Peter ReichetsederE.ON Exploration and Production GmbH (the legal successor of E.ON Ruhrgas E & P GmbH)

Managing Director for Production and Technology

The members of the Technical Committee as of December 31, 2012

As part of preparing for the extraordinary General meetings of shareholders, the Board of Directors considered the follow-ing matters:

• fixing the selling price of gas for the second half of 2012 and the first half of 2013;

• recommendations to the General meeting of sharehold-ers to approve the supplement agreements to the long-term gas supply contracts

Remuneration to the Board of Directors members

Members of the Board of Directors received remuneration to the total value of 4,250,000 RUB in 2012, based on the re-sults of work in 2011.

Executive Body

According to the Charter of the Company, there is no colle-gial executive body of the Company (Management Board). The sole executive body of the Company is the General Director.

Information on the Company auditor

The auditor of the Company is CJSC PricewaterhouseCo-opers Audit (CJSC PwC Audit)

Address: 10 Butyrsky Val, Moscow 125047, Russian Fede-ration

The certificate of state registration of the joint stock compa-ny No. 008.890, issued by the Moscow Registration Chamber on February 28, 1992.

The certificate of record entry into the Unified State Re-gister of Legal Entities registered before July 1st, 2002 under No. 1027700148431, dated August 22, 2002, issued by the Interdistrict Inspectorate of the Ministry for Taxes and Levies of the Russian Federation No. 39 for Moscow.

Member of the Non-Commercial Partnership “Audit Cham-ber of Russia” (NP APR), a self-regulating organization of audi-tors – registration number 870 in the registry of NP APR mem-bers.

The audit was approved by the general meeting of share-holders of the Company on June 30, 2011.

Brief personal profile of the General Director

Term of office: from 25/02/2011 to the present

Born on July 27, 1966 in Moscow.

Graduated from the Plekhanov Russian University of Economics, majoring in Finance and Credit.

Positions occupied in the last 5 years:

2002-2011 – Head of the International Business Department of JSC Gazprom.

Since February 25, 2011 – General Director of OJSC Severneftegazprom.

The labour remuneration of the Company’s General Director is based on the Agreement on labour remu-neration, a supplement of the Employment Agreement that stipulates the list of social protection and compen-sation payments.

The General Director does not hold any shares in OJSC Severneftegazprom. No transactions for acquisition or transfer of Company shares were executed by the General Director in the accounting year.

Stanislav E. TsygankovGeneral Director of OJSC Severneftegazprom

Man

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Audit Commission

The Audit Commission is a permanent internal control body, independent of the officials, management bodies and manage-ment of the Company.

In its work, the Audit Commission is guided by the Federal Law “On Joint Stock Companies”, the Charter of the Compa-ny and the Regulations on the Audit Commission. Pursuant to the Charter of the Company, the Audit Commission consists of 3 members.

No members of the Internal Audit Commission hold shares in the Company. No transactions for acquisition or transfer of Company shares were executed by members of the Internal Audit Commission in the accounting year.

No. Full name Place of work Position

1 Yulia N. Antonovskaya JSC GazpromChief Economist of the Organizational Directorate of the Department of Internal Audit of the Management Committee Administration

2 Judith BussE.ON Exploration and Production GmbH (the legal successor of E.ON Ruhrgas E & P GmbH)

Chief Finance Officer

3 Larissa Janz Wintershall Russland GmbHHead of the Department of Finance and Information Technologies

Members of the Company’s Audit Commission at the end of the accounting period



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Authorized CapitalReport on Dividend Payments

2Authorized Capital

The authorized capital is shown as the sum of the nominal value of ordinary and preferred shares issued by the Company. The Company’s authorized capital is divided into 533,330 shares; it was 39,999,749.40 RUB at the end of the reporting period.

The Company’s authorized capital is fully paid.All the Company’s issued shares were state registered by the

Federal Service for Financial Markets Regional Office of the Ural Federal District.

The Company mobilized no financial and other assets result-ing from the issue of securities in the reporting year.

The Company’s securities were not declared for listing with stock market operators, nor have been market quoted.

No Kind of securities

Issued shares: Including:

Shares (pcs.) Par value (RUB) Fully paid (pcs.)Partially paid

nominal value (RUB)

1. Company’s authorized capital: 533,330 ------- 533,330 None

2.2.1.

Ordinary shares, incl. those accounted in the balance sheet

533,324None

60.00None

533,324None

NoneNone

3. Preferred shares, incl. 6 6 None

3.1.3.1.1.

Type A preferred sharesincl. those accounted in the balance sheet

2None

2,461,620.00None

2None

NoneNone

3.2.3.2.1.

Type B preferred sharesincl. those accounted in the balance sheet

3None

666,692.40None

3None

NoneNone

3.3.3.3.1.

Type C preferred sharesincl. those accounted in the balance sheet

1None

1,076,992.20None

1None

NoneNone

Information on authorized capital as of December 31, 2012

Kind and category (type) of securities

Nominal value of each security

in the issue, RUB

Total number of allotted securities

in the issue

State registration issue number

State registration issue date

Ordinary registered shares 60 533,324 1-02-31375-D July 5, 2011

Type A preferred shares 2,461,620 2 2-10-31375-D October 3, 2011

Type B preferred shares 666,692.4 3 2-08-31375-D October 3, 2011

Type C preferred shares 1,076,992.2 1 2-09-31375-D October 3, 2011

Information on the Company’s equity securities

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Report on the Payment of Announced (Accrued) Dividend (Participating Interest Income) on Shares (Participating Interests in the Authorized Capital) of the Company

According to 2011 results, and in compliance with the deci-sion of the extraordinary General Meeting of Shareholders held on June 29, 2012 (Minutes No. 25/2012 of June 29, 2012) RUB 1,831,884 thousand were allocated to pay dividends.

As of December 31st, 2012, dividends were paid in full, and there are no dividends in arrears.

Information on Changes in the Company’s Capital Reserve

In compliance with the the Company’s Charter, the Com-pany forms the capital reserve totaling 5 percent of the Charter capital. The capital reserve was formed in full as of December 31, 2011, equal to RUB 2,000 trousand.

Information on Changes in the Company’s Additional Capital

As of December 31, 2012, the additional capital was RUB 25,099,046 thousand. In the reporting year, the capital surplus amount did not change.

Category (Type) of SecurityAmount of Dividends Paid,

TOTAL, RUB thousandDividend Payment Date

Ordinary shares 1,465,507.20 August 2012

Preferred shares, type A 225,468.28 August 2012

Preferred shares, type B 91,594.20 August 2012

Preferred shares, type C 49,314.32 August 2012

Total: 1,831,884.00 August 2012

Report on the Payment of Announced Dividend on Shares of the Company

Shareholder Number of shares Par value, RUBInterest in authorized

capital, % Percentage of

ordinary shares, %

JSC Gazprom Ordinary shares Type A preferred shares Type B preferred shares Type C preferred shares

266,668266,668

---

16,000,080.0016,000,080.00

---

40.000450602840.0004506028

---

50.0011250250.00112502

---

Wintershall Holding GmbH Ordinary shares Type A preferred shares Type B preferred shares Type C preferred shares

133,331133,328

2-1

13,999,912.20 7,999,680.00 4,923,240.00

- 1,076,992.20

34.999999775019.999325295812.3081771107

- 2.6924973685

24.9994374924.99943749

---

E.ON Exploration & Production GmbH Ordinary shares Type A preferred shares Type B preferred shares Type C preferred shares

133,331133,328

-3-

9,999,757.207,999,680.00

-2,000,077.20

-

24.999549622219.9993252958

- 5.0002243264

-

24.9994374924.99943749

---

Total 533,330 39,999,749.4 100.00% 100.00%

Company shareholders holding more than 5% of voting shares, at the end of the reporting period

Cluster of wells at Yuzhno-Russkoye oil and gas condensate field


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Gas Exploration, Production and Marketing

3Reserve Status

The Company holds the SLKh No. 11049 NE license on the geological survey and hydrocarbon raw materials production within the Yuzhno-Russkoye subsoil area. The area includes three fields: the Yuzhno-Russkoye oil and gas condensate field, brought into development in 2007; and the Yarovoye and Za-padno-Chaselskoye ones, registered in the governmental ba-lance sheet as exploration fields.

As of December 31, 2012, all the Company’s license liabili-ties regarding the subsoil geological study were fulfilled in full.

Field

Hydrocarbon reserves as of December 31, 2012.

Gas, bln m3 Condensate, mln tonnes Crude oil, mln tonnes

АВС1

С2

АВС1

С2

АВС1

С2


912.783 163.182 - 3.823 9.288 30.894

Yarovoye field 2.796 10.468 0.212 0.993 0.057 1.203

Zapadno-Chaselskoye field 7.367 0.032 0.043 - - -

Total: 922.946 173.682 0.255 4.816 9.345 32.097

Hydrocarbons

Reserves as of January 1st, 2012

Changes in reserves in 2012 Reserves as of December 31st, 2012

Production + losses

Exploration Reevaluation Transfer

АВС1

С1

АВС1

С2

АВС1

С2

АВС1

С2

АВС1

С2

Crude oil (mln tonnes)

9.345 32.097 - - - - - - - 9.345 32.097

Gas (bln m3) 947.646 174.781 25.363 - - - - 0.662 -1.099 922.946 173.682

Condensate (mln tons)

0.255 4.816 - - - - - - - 0.255 4.816

Description of the raw materials base at the end of the reporting period

Reserve flow of the ABC1 and C

2 categories in the reporting period

Creating long-term growth potential –

improving exploration work efficiency using state-of-the-art technologies –

is one of the main principles of the Company’s work

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Development of the Cenomanian and Turonian Gas Deposits

Indexes2012

Project Actual

Annual gas production, total, bln m3/year 25.168 25.363

including: Cenomanian (PK

1)

25.100 25.305

Turonian (Т1-2

) 0.068 0.058

Total gas production, bln m3 114.868 115.657


1)

114.800 115.570

Turonian (Т1-2

) 0.068 0.087

Gas production as a share of initial balance sheet reserves, % 11.448 11.527


1)

17.300 17.376

Turonian (Т1-2

) 0.02 0.026

Gas production in 2012 as a share of initial balance sheet reserves, %

2.508 2.528


1)

3.700 3.805

Turonian (Т1-2

) 0.02 0.017

Commissioning of wells, pcs. 0 4

Producing 0 0

Observation 0 4

Wells stock as of year end, pcs. 163 166

Producing 143 143

including active 143 143

Observation 18 21

Disposal 2 2

Power Capacity of the Booster Pump Stations 4*16 MW 4*16 MW

Well utilization rate 0.95 0.98

Well stock utilization rate 1 1

Comparative characteristics of project and actual development indexes

Exploration

The 2012 geological exploration in the Yuzhno- Russkoye license area was carried out in accordance with the adjusted geological exploration assignment, as ap-proved by V.A. Markelov, JSC Gazprom Management Board Deputy Chairman on August 21st, 2012.

These works were carried out in three main directions: • topical and R&D;• seismic survey;• environmental activities and mitigation of adverse con-

ditions of construction.

No exploration wells were constructed in 2012, and no cased hole tests were performed.

In 2012, the field stage of the comprehensive seismic explo-ration works on the basis of 3D common depth point method, with increased density, for 420 km2 of the Turonian-Cenoma-nian sediments was completed. The comprehensive process-ing and interpretation of the seismic survey results has started.

The environmental activities and mitigation of adverse con-ditions of construction were performed; eight obsolete geologi-

cal exploration wells from the old well stock (No. 1, 4, 10, 12, 14, 29, 30 and 107) were abandoned.

Work was completed on the design of the Additional Explo-ration Project of the Yuzhno-Russkoye license area (continued from 2011). The Project was reviewed and approved by the Protocol No. 11-z/2012 of April 20, 2011 of the JSC Gazprom Gas Industry Commission for Field Development and Subsoil Use; it also received the positive expert opinion of the West-Siberian Branch of the State Commission for Mineral Reserves, No. 020.12-ZS of March 28, 2012.

Within the framework of the adjusted 2012 geological assign-ment (approved on August 21, 2012), development of the Group Work Project began for the construction of Yuzhno-Russkoye oil and gas condensate field wells No. 50, 51, 52, 53, 54 and 55. The com-prehensive engineering surveys for drilling sites and access roads were performed; the assignment for project development was de-veloped and approved; the land allocation surveying and cadastral works are under way. The continuation of the project work is envi-sioned by the 2013 Geological Assignment of December 18, 2012.

In 2012, prospecting and appraisal wells No. 40 and 41 and exploration well No. 113 were reentered and transferred to ob-servation well stock.

The first production well on the Turonian natural gas deposit at Yuzhno-Russkoye oil and gas condensate field

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Index 2012 2011 2010

Production (extracted from the reservoir) 25.363 25.667 25.384

Process losses 0.016 0.016 0.025

Gross production of natural gas 25.347 25.651 25.359

Gas for technical needs 0.065 0.068 0.031

Gas losses during exploitation technological equipment

0.002 0.002 0.001

Sales gas volume 25.280 25.581 25.327

Gas Production in 2010-2012, bln m3

160

0

20

40

60

80

2007 2008 2009 2010 2011 2012

100

120

140

30,000

–

5,000

10,000

15,000

20,000

25,000

42

1,256

15,066

22,584 23,359 25,651 25,347

106

141 142 143 143

Operating production wells

Sales gas, bln m3

Pro

duc

tion

wel

ls, p

cs.

2007 – 2012 Gross production of natural gasThe C1 and C

2 category reserves changed in the Zapad-

no-Chaselskoye field within the Zapadno-Chaselskiy, Kynsko-Chaselskiy, and Yuzhno-Russkoye license areas and the undis-tributed Yamal-Nenets Autonomous Area subsoil fund.

The review by the State Commission for Mineral Reserves “Rosnedra” resulted in the changed gas reserves of the Yuzhno-Russkoye license area (Protocol of State Commission for Mine-ral Reserves FAN No 18/671-pr of October 18, 2012) being transferred to the OJSC Severneftegazprom balance:

Production Drilling

In 2012, the project for the construction of production well No. 184 at the Yuzhno-Russkoye oil and gas condensate field began. Within the Project framework, the comprehensive en-gineering surveys for drilling sites and access roads were per-formed; the design assignment was developed and approved.

No drilling was carried out in 2012 (vs. 2,667 metres in 2011). Within the reporting period, Well 2N was included in the observation well stock.

Gas Production

The 2012 gas production plan was 25.000 bln m3. The 2012 actual gross production was 25.347 bln m3. The plan assignment was 101.4% (+ 347 mln m3) fulfilled.

Field

Reserves increment, category С1

Gas, bln m3

Crude oil, mln tonnes

Condensate, mln tonnes

Zapadno-Chaselskoye field

0.662 0 0

Total 0.662 0 0

Changes in gas reserves accruing to the Yuzhno-Russkoye oil and gas condensate field

Gas-collecting system of Yuzhno-Russkoye oil and gas condensate field


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Financial Results

4This section represents the review of the financial status of OJSC Severneftegazprom as of December 31, 2012 and shall be considered in association with the Financial state-ment of the Company for 2012, formed up in accordance with the Russian account-ing standards and available to all concerned parties on the Company’s official web site at: http://www.severneftegazprom.com/

Implementation of the Annual Work Programmе and Budget of the Company in 2012

The Annual Work Programme and the Budget of the Company were approved by the Board of Directors in accordance with the resolution of the Minutes No. 56/2011, dated the 5th of December, 2011.

All gas produced by the Company is sold under long-term gas supply agreements to the following consumers:

• 40% - JSC Gazprom;• 35% - CJSC Gazprom YRGM Trading; • 25% - CJSC Gazprom YRGM Development.

The quality requirements of the gas delivered to consumers from the Yuzhno-Russkoye oil and gas condensate field is regulated in accordance with the corporate standard of Gazprom 089-2010 “Combustible natural gas supplied and transpor-ted via main gas pipelines. Technical specifications.” The given standard is aimed at improving the quality of production and ensuring the safety and efficiency in the function of gas trans-portation systems.

Current gas quality is measured at the gas measuring station in the Yuzhno-Russkoye oil and gas condensate field using the inter- ference dew point analyzer Kong-Prima-10 and flow chromato-graph. Additionally, 4 times a month, according to the Technical Agreement between LLC Gazprom Transgaz Surgut and OJSC Severneftegazprom, gas laboratory analysis is performed in an ac-

Item2012 Deviation actual / budget 2012

Budget Actual In thousand m3 %

ANNUAL PROGRAMME OF WORKS

Gross gas production, thousand m3 25,000,000 25,346,741 346,741 1%

Volume of marketable gas, thousand m3 24,903,619 25,280,292 376,673 2%

Total marketable gas sales, thousand m3, incl.:

24,903,619 25,280,292 376,673 2%

JSC Gazprom 9,961,447 10,112,117 150,670 2%

CJSC Gazprom YRGM Trading 8,716,267 8,848,102 131,835 2%

CJSC Gazprom YRGM Development 6,225,905 6,320,073 94,168 2%

2012 Annual Programme of Works

JSC Gazprom (40%)

CJSC Gazprom YRGM Trading (35%)

CJSC Gazprom YRGM Development (25%)

Sales of the gas produced by the Company

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ments.

The actual expenditure of the Company, budgeted under current activity for 2012, amounted to 25,890 million RUB, which is lower by 460 million RUB or 2% lower than budget in-dicator. The indicated saving is mainly caused by:

• Reduction of actual expenditure under the budget clause “Interests and one-off payments due on loans”, caused by early partial redemption of debt in 2012, a decrease of actual inter-bank rates, and also apprecia-tion of the national currency;

• Optimization of the operational process and implemen-tation of retrenchment programme, carried out by the

Company.

The 1% growth of MET payments against a planned indicator is caused by an increase in the volume of actual gas production.

The reduction of capital expenditure by 19% in comparison with budget indicator is due to the refinement of design and engineering arrangements, resulting in adjustments of progress schedule.

All ratios under the Annual work programme and Budget for 2012 were fully executed. Deviations of the actual indicators against budget are within the limits of permissible value.

In million RUB, excl. VAT2012 Deviation actual / budget 2012

Budget Actual in million RUB %

CURRENT OPERATING EXPENDITURE: 26,350 25,890 -460 -2%

Materials 331 328 -4 -1%

Energy purchase 3 11 8 240%

Payroll, social benefits and payments 1,631 1,580 -51 -3%

Insurance premiums 251 269 18 7%

Depreciation 6,035 6,027 -9 0

Lease of fixed assets 126 119 -7 -5%

Taxes and other obligatory payments, incl: 13,709 13,865 156 1%

Mineral extraction tax (MET) 12,724 12,901 177 1%

Other taxes included in cost value of gas (works, services)

985 964 -21 -2%

Geological exploration (contracting mode) 535 541 6 1%

Expenditure on insurance contracts 296 282 -14 -5%

Overhaul (contracting mode, excl. inventory) 0 0 0 0

Other expenditure, incl.: 3,433 2,868 -565 -16%

Interests and one-off payments due on loans 1,811 1,420 -391 -22%

Current Operating Expenditure

credited laboratory in the Yuzhno-Russkoye oil and gas condensate field. Certificate of gas quality is issued based on the laboratory test results.

Actual revenue in 2012 increased by 8% in comparison with the budget indicator due to:

• Increase in the actual volume of gas sales;

• Increase of gas sale price in the second half of 2012 in accordance with the price calculation formula, settled by the Shareholders’ agreement and Gas supply agree-

In million RUB, excl. VAT 2012 Deviation actual / budget 2012


CAPITAL EXPENDITURES: 1,433 1,161 -272 -19%

31,545

+8%

33,962

Budget 2012 Actual 2012 Budget 2012 Actual 2012

24.904 25.280

+2%

Budget 2012 Actual 2012

1.267 1.343

+6%

Capital Expenditures

Gas sales revenue, in mln RUB

Sales gas, in bln m3

Annual average gas sale price, in RUR per thousand m3

In million RUB, excl. VAT2012 Deviation actual / budget 2012


TOTAL REVENUE: 31,545 33,962 2 417 8%

JSC Gazprom 12,618 13,585 967 8%

CJSC Gazprom YRGM Trading 11,041 11,887 846 8%

CJSC Gazprom YRGM Development 7,886 8,490 604 8%

Revenues from gas sales

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Analysis of change in indicators of the Statement on 2012 financial results

The following factors influenced the indicators in the 2012 Statement of financial results and accordingly the amount of net profits over the accounting period, in comparison with the previous year:

• gas sales revenue increased by 7,923 million RUB or by 30% in comparison with the previous year and amounted to 33,962 million RUB. The growth in gas sales revenue is due to an increase in the gas sales price by 32% as compared to the previous year. The calculation of gas sales price is done according to the gas price formula, fixed by the Shareholders’ Agreement and gas supply agreements;

• the cost of gas sold increased by 7,868 million RUB or by 52% as compared to the previous year and amount-ed to 23,086 million RUB. The increase in expenditure

is mainly due to an increase in the mineral extraction tax as the rate has more than doubled (237 rubles in 2011, 509 rubles in 2012);

• the balance of other incomes and expenses over 2012 resulted in the positive value of 1,172 million RUB. Posi-tive balance increase of other incomes and expenses of 2,234 million RUB, in comparison with the previous accounting period, is caused by the essential increase of exchange gains from re-evaluation of the Company’s liabilities in foreign currency, as well as reduction over 2012 of one-off payments within project facility agree-ment obligations;

• current profit tax increased by 557 million RUB due to the increase of the tax base caused by gas sales revenue growth and growth of non-operating income

Unit of measurement – thousand RUB

Item Line No. 2012 2011Deviation

2012 / 2011

Change in %2012/2011

(+/-)

Revenue 2110 33,961,806 26,038,396 7,923,410 30%

Cost of sales 2120 -23,086,086 -15,217,725 7,868,361 52%

Gross profit 2100 10,875,720 10,820,671 55,049 1%

Commercial expenses 2210 0 0 0 0

Administrative expenses 2220 -1,134,394 -1,262,402 -128,008 -10%

Sale profit 2200 9,741,326 9,558,269 183,057 2%

Interest receivables 2320 809,261 625,677 183,584 29%

Interest payable 2330 -1,414,246 -1,499,582 -85,336 -6%

Balance of other income and expenses (2340+2350) 1,172,116 - 1,062,314 2,234,430 210%

Profit before tax 2300 10,308,457 7,622,050 2,686,407 35%

Current profit tax 2410 -1,502,988 -945,966 557,022 59%

Tax on previous years profit 2411 -193,527 380,351 -573,872 -151%

Change in deferred tax liabilities 2430 -563,474 -989,510 426,036 -43%

Change in deferred tax assets 2450 -5,285 -114,057 108,772 -95%

Other 2460 935,010 -12,667 947,677 -

Net profit for the accounting period 2400 8,978,193 5,940,201 3,037,992 51%

Analysis of change in indicators of the Statement on 2012 financial results

(exchange differences), as compared to the previous year;

• a significant growth factor in the Company’s net prof-it for the accounting period was the right to use the profit tax benefit in accordance with the Law of YNAA No. 146-ZAO, dated 24th of December, 2012 “Con-cerning the introduction of amendments to the Law of Yamal-Nenets Autonomous Area “About the list of companies implementing the priority investment proj-ects within the Yamal-Nenets Autonomous Area”. Since 2013 and for the next five years the Company has the right to apply the reduced profit tax rate of 15,5% (in-stead of the common rate of 20%). In conjunction with the applicable tax benefit, the Company restated the deferred tax assets and liabilities in 2012, resulting in an increase in the net profit of the Company for 2012 to the value of 935 million RUB.

As a result, the Company’s net profit for 2012

increased by 3,038 million RUB or 51% as compared

to the previous year, and amounted to 8,978 million RUB Flowline of the gas-collecting system at Yuzhno-Russkoye oil

and gas condensate field

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Item Line No.

Changes in natural termsChange of specific weight

in assets

At the end

of the period

At the beginning

of the period

Change over the period Specific weight

in thous. RUB

In %

At the end

of the period

At the beginning

of the period

Change

I. NON-CURRENT ASSETS 1100 52,553,042 57,469,398 -4,916,356 -9% 65% 71% -6%

Intangible assets 1110 3,192 5,155 -1,963 -38% 0 0 0

Results of research and development

1120 26,885 11,094 15,791 142% 0 0 0

Fixed assets including: 1150 51,253,627 56,332,850 -5,079,223 -9% 64% 70% -6%

Fixed assets 1151 50,670,566 54,332,838 -3,662,272 -7% 63% 67% -4%

Capital investments in progress 1154 583,061 2,000,012 -1,416,951 -71% 1% 3% -2%

Deferred tax assets 1180 115,661 154,525 -38,864 -25% 0 0 0

Other non-current assets 1190 1,151,566 963,595 187,971 20% 1% 1% 0

II. CURRENT ASSETS 1200 27,385,599 23,372,955 4,012,644 17% 35% 29% 6%

Inventories, including: 1210 741,906 673,532 68,374 10% 1% 1% 0

Raw materials, other materials and other similar valuables

1211 730,517 667,359 63,158 9% 1% 1% 0

Finished products for resale 1214 11,389 6,173 5,216 84% 0 0 0

VAT recoverable 1220 0 53 -53 -100% 0 0 0

Receivables including: 1230 4,626,982 5,052,553 -425,571 -8% 6% 6% 0

Receivables due after 12 months 1231 291,172 430,643 -139,471 -32% 0 0 0

Receivables due within 12 months incl: 1235 4,335,810 4,621,910 -286,100 -6% 5% 6% 0

Purchasers and customers 1236 3,902,004 2,748,962 1,153,042 42% 5% 3% 2%

Advances issued 1238 214,768 247,036 -32,268 -13% 0 0 0

Other receivables 1239 219,038 1,625,912 -1,406,874 -87% 0 2% -2%

Financial investments 1240 3,583,538 0 3,583,538 100% 5% 0 5%

Cash, including: 1250 18,362,514 17,575,679 786,835 5% 23% 22% 1%

Settlement accounts 1252 17,016,715 12,767,517 4,249,198 33% 21% 16% 6%

Currency accounts 1253 192,834 516 192,318 37,271% 0 0% 0

Other cash 1259 1,152,965 4,807,646 -3,654,681 -76% 1% 6% -5%

Other current assets 1260 70,659 71,138 -479 -1% 0 0 0

BALANCE (lines 1100 + 1200) 1600 79,938,641 80,842,353 -903,712 -1% 100% 100% 0

Analysis of change in the asset structure of the Company in 2012 Within the accounting period, the Company’s assets re-duced integrally by 904 million RUB (-1%) and equaled to 79,939 million RUB.

The assets reduced under the following balance sheets:• fixed assets decreased by 3,662 million RUB or by 7%,

due to the accumulated depreciation for the account-ing period;

• capital investments in progress decreased by 1,417 mil-lion RUB or by 71%, due to the completion of construc-tion and commissioning of fixed assets;

• receivables decreased by 426 million RUB or by 8%.

At the same time, long-term receivables for the accounting period decreased by 140 million RUB, which was caused by JSC Gazprom settling a part of the liabilities (penalty) for failure to take gas off in 2009. According to accepted liabilities within the gas supply agreements, the total penalty amount should to be paid within 5 years from January 1, 2011, to December 31, 2015.

The reduction of short-term receivables within accounting period by 286 million RUB was mainly caused by the retrench-ment of tax payments. Herein, trade receivables (purchasers and customers) increased due to gas sale price escalation.

The assets increased under the following balance sheets:• financial investments increased by 3,584 million RUB or

by 100% due to the placement of bank deposits for the period of more than 3 months;

• cash increased by 787 million RUB or by 5%; • inventories increased by 68 million RUB or by 10% due

to the formation of emergency stocks and exchange fund of spare parts, in accordance with industrial safe-ty requirements for the operation of hazardous produc-tion facilities.

Fixed Assets

Capital Investments in Progrerss

Others

54,333

2,000

1,136

5831,299

-9%

50,671

2011 2012

52,553 MRURas of 31 Dec 2012

Cash

Finansial Investments

Receivables

Others

27,386 MRURas of 31 Dec 2012

17,576

5,053

744

813

+17%

18,363

3,584

4,626

2011 2012

Non-current assets, in million RUB Current assets, in million RUB

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Analysis of change in the liabilities structure of the Company in 2012


Item Line No.

Changes in natural termsChange of specific weight

in assets

At the end of the

period

At the beginning

of the period

Change over the period Specific weight

in thous. RUB

In % At the

end of the period

At the beginning

of the period

Change

III. EQUTY AND RESERVES 1300 41,879,454 34,733,145 7,146,309 21% 52% 43% 9%

Share capital 1310 40,000 40,000 0 0 0 0 0

Revaluation of non-current assets

1340 47,142 47,142 0 0 0 0 0

Additional capital 1350 25,099,046 25,099,046 0 0 31% 31% 0

Reserve fund 1360 2,000 2,000 0 0 0 0 0

Retained earnings 1370 16,691,266 9,544,957 7,146,309 75% 21% 12% 9%

IV. LONG-TERM LIABILITIES

1400 27,115,017 36,745,629 -9,630,612 -26% 34% 45% -12%

Borrowed funds, including: 1410 23,778,741 33,004,231 -9,225,490 -28% 30% 41% -11%

Bank loans repayable after 12 months

1412 23,778,741 33,004,231 -9,225,490 -28% 30% 41% -11%

Deferred tax liabilities 1420 3,336,276 3,741,398 -405,122 -11% 4% 5% -1%

V. SHORT-TERM LIABILITIES

1500 10,944,170 9,363,579 1,580,591 17% 14% 12% 2%

Borrowed funds, including: 1510 7,106,006 6,902,967 203,039 3% 9% 9% 0

Current long-term debt 1513 7,106,006 6,902,967 203,039 3% 9% 9% 0

Payables, including: 1520 3,522,755 2,157,728 1,365,027 63% 4% 3% 2%

Suppliers and contractors 1521 299,056 231,606 67,450 29% 0 0 0

Payables to state non-budgetary funds

1523 21,597 0 21,597 100% 0 0 0

Payables to personnel 1522 34,933 0 34,933 100% 0 0 0

Payable taxes and duties 1524 3,110,142 1,918,818 1,191,324 62% 4% 2% 2%

Other payables 1525 57,027 7,304 49,723 681% 0 0 0

Provisions for liabilities 1540 315,409 302,884 12,525 4% 0 0 0

BALANCE (lines 1300+1400+1500)

1700 79,938,641 80,842,353 -903,712 -1% 100% 100% 0

Analysis of change in the liabilities structure of the Company in 2012

Within the accounting period, the Company’s liabilities de-creased by 904 million RUB (-1%) and equaled to 79,939 mil-lion RUB.

The amount of liabilities decreased due to a reduction in long-term liabilities under bank loans by 9,225 million RUB or by 28% as compared to the previous year.

The amount of liabilities increased within the accounting period mainly under the following balance sheets:

• retained earnings increased by 7,146 million RUB or by 75%. The retained earnings markup is caused by the

net profit of 8,978 million RUB, earned during 2012. A reduction in profit of 1,832 million RUB for the pre-vious years was due to dividend payment in 2012, according to the results of 2011;

• payables increased by 1,365 million RUB or by 63%, which was caused mainly by a 1,191 million RUB in-crease in tax liabilities under the mineral extraction tax and VAT as of the end of the accounting period, due to the raising of the tax base subject to revenue growth.

Long-term Credit Loans

Deferred Tax Liabilities

33,004

3,741

-26%

23,779

3,336

2011 2012

27,115 MRURas of 31 Dec 2012

Current Long-term Debt

Payable Taxes and Duties

Other Short-term Indebtedness

6,903

1,919

+17%

7,106

3,110

2011 2012

542

728

10,944 MRURas of 31 Dec 2012

Shareholders’ Equity

Profit of Previous Years

Net Profit for the Accounting Period

25,188

9,545

+21%

25,188

2011 2012

7,713

8,978

41,879 MRURas of 31 Dec 2012

Long-term liabilities, in million RUB

Short-term liabilities, in million RUB

Equity and reserves, in million RUB

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Interest rate 2011 2012 Deviation 2012/2011

EUR tranche, floating rate 3.79 3.14 - 0.65

USD tranche, floating rate 2.65 2.81 + 0.16

RUB tranche, fixed rate 11.4 11.4 -

Analysis of debt liabilities

On the 25th of May 2011, financial closure of the transaction was effected, pursuant to the project facility agreement signed in March 2011 for the total amount equivalent to EUR 1.1 bln, pro-vided by the international consortium of banks and “Gazprom-bank” (Open Joint-Stock Company). The loan repayment date is 31st of December 2018 with the possibility of prepayment (Cash sweep).

The Company executed partial redemption of multi-currency obligations during 2012, which integrally reduced the debt bur-den by 19% as compared to the previous year.

The interest rate for foreign currency tranches is deter-mined at the rate of Libor/Euribor + margin (2.35% from 2011 to March 31, 2014; 2.50% from April 1, 2014 to March 31, 2017; 2.75% from April 1, 2017 to December 31, 2018). The interest rate for ruble tranche is fixed at 11.4%.

Euro

USD

RUR

5,079

-19%

4,098

450

2011 2012

324

557

402

Currency, in mln

Raised funding under project

facility agreement

Settlement in 2011

Settlement in 2012

EUR 474 72 78

USD 657 100 108

RUB 5,993 914 981

Annual average interest rate for loans

Analysis of cash flow

• Net cash from current operations increased by 8% up to 14,851 million RUB. The increase of net cash from current operations is caused by a growth in gas sales revenue, and also by a decline in profit tax payments due to intake within the accounting period of advance made payments.

• Reduction in net cash from investment activity is caused by movements of deposit accounts with more than 3 months maturity. In December 2011, the amounts placed in deposits with maturity exceeding 3 months were received back (reflected in the line Proceeds from investment activities) and were allocated to pay divi-dends to the Company’s shareholders. As of Decem-

ber 31, 2012, the funds standing to the credit of debt service reserve accounts were placed in fixed term de-posits with maturity exceeding 3 months in an overseas bank account in accordance with provisions of project facility agreement.

• Net cash used in financial operation decreased by 33% as compared to the previous year and equaled to 9,402 million RUB. This change is mainly caused by a reduction in dividend payments (1,711 million RUB in 2012; 12,329 million RUB in 2011, with the deduc-tion of profit tax). The total amount of credit redemp-tion within accounting period amounted to 7,691 mil-lion RUB.

Indicator, million RUB As of 31/12/2012 As of 31/12/2011 Deviation 2012 /

2011

Change in % 2012/2011

(+/-)

Short-term credits and loans 7,106 6,903 203 + 3%

Long-term credits and loans 23,779 33,004 -9,225 - 28%

Cash and cash equivalents including cash deposited for terms over 3 months and accounted for as financial investments

- 21,946 - 17,576 - 4,370 + 25%

Net debt 8,939 22,331 - 13,390 - 60%

Indicator, million rubles 2012 2011 Deviation 2012 /

2011Change in %

2012/2011(+/-)

Net cash from current operations 14,851 13,796 1,055 8%

Net cash from (used in) investment operations

-4,623 9,878 -14,501 -147%

Net cash from (used in) financial operations

-9,402 -14,050 4,648 -33%

Net debt

Analysis of cash flow

Loan liabilitiesLoan liabilities, in mln

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Analysis of Key Financial Ratios

RatioAs of

31 Dec 2012As of

31 Dec 2011Change over

the periodEconomic value of ratios

Equity Ratio 0.52 0.43 +0.09 Equity to Total Capital

Financial Leverage Ratio 0.91 1.33 -0.42 Borrowed Capital to Equity

Working capital financed by equity to total assets ratio

-0.39* -0.97* +0.58 Own current assets to total current assets

Investment coverage Ratio 0.86 0.88 -0.02 Equity and long-term liabilities to total capital

Current Assets to Equity Ratio -0.25* -0.65* +0.4 Own current assets to equity sources

Current Assets Mobility Ratio 0.80 0.75 +0.05The most mobile part of current assets to total value of current assets

Reserves to Production Ratio -14.39* -33.76* +19.37 Own current assets to stock (inventories) value

* For calculation of the above ratios, long-term liabilities under project financing are taken into account when determining own current assets. In the case of calculation of own current assets without taking into account long-term liabilities under project financing, the ratios have the following values: • - the working capital financed by equity to total assets ratio = 0.48 (as of 31/12/2011 = 0.44);• - the Current Assets to Equity Ratio = 0.31 (as of 31/12/2011 = 0.30); • - the Reserves to Production Ratio = 17.66 (as of 31/12/2011 = 15.24).

RatioAs of 31 Dec

2012As of 31 Dec

2011Change over

the periodEconomic value of ratios

Current Liquidity Ratio (Asset Coverage Ratio)

2.48 2.45 +0.03Current assets to short-term liabilities. Shows coverage of short-term liabilities by all current assets

Quick (Intermediate) Liquidity Ratio 2.41 2.38 +0.03

Liquid assets to short-term liabilities. Shows security of short-term liabilities with monetary funds and short-term financial assets and short-term receivables

Absolute Liquidity Ratio 2.01 1.88 +0.13High-liquid assets to short-term liabilities. Shows the part of short-term liabilities which may be repaid immediately

Key Financial Stability Ratios

Key Liquidity Ratios

Rates of Return 2012 2011 Change over the period

Profit margin (in kopecks per ruble of revenues)

28.7 36.7 -8.0

Return on sales by EBIT, in % 34.5 35.0 -0.5

Return on sales by net profit (in kopecks per ruble of revenues)

26.4 22.8 +3.6

Interest Payable Coverage Ratio (ICR) 8.3 6.1 +2.2

Profitability Analysis

Absorbers of the gas-dehydration complex at Yuzhno-Russkoye oil and gas condensate field


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Investments

5The Company’s key objectives in capital investing are: • achieving the key indicators of the Long-term Develop-

ment Plan for the Cenomanian and Turonian Deposits in the Yuzhno-Russkoye oil and gas condensate field;

• fulfilling the geological exploration works plan according to the existing license liabilities;

• implementing the approved design solutions for com-missioning, reconstructing and upgrading the main pro-duction facilities at the main and auxiliary production;

• minimising risks.

The principal directions of investment are: • completing in 2012 the construction and commissioning

of the bilateral double bottom operating production gas well for the Turonian field, and several Yuzhno-Russkoye oil and gas condensate field systems and facilities;

• continuing in 2012 project development and construc-tion of the facilities envisioned for launching in 2013 and later on;

• launching in 2015 Booster Compressor Station #1 stage 2, envisioned in the Company’s long-term development plan;

• reconstruction and upgrade of the facilities, equipment, and systems of the Yuzhno-Russkoye oil and gas con-densate field to ensure their safe operation according to health and safety, and environmental requirements.

An essential aspect of the Company’s activities is ensuring a reliable basis

for sustainable development

Indicator in million RUB, excl. VAT

2011 2012Change

2012 / 2011

Actual Plan Actual +/- %

Capital investments

1,062 1,433 1,161 + 99 + 9%

Capital investments

535

2,379

2,384

Actual 2011 Budget 2012 Actual 2012

Geological Exploration

Construction

Production Drilling

Equipment not Covered by Estimates of Constructions Costs

32

19

16

13

Execution of Scientific-research, Design-experimental and Technological Works

R&D of Future Years

625

272

165

954

128

2011 2012

Commissioned fixed assets, in million RUB

Capital expenditure, in million RUB


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Technology and Innovations

6Well No. 184

In 2010, OJSC Severneftegazprom began implementing a pilot project to construct the first experimental bilateral produc-tion well No. 174 for the Yuzhno-Russkoye oil and gas conden-sate field’s Turonian deposits. In December 2011, the Turonian gas came to the Unified Gas Supply System of Russia.

The analysis of well No. 174 operation in 2012 supported the chosen solutions: the well had a large enough horizontal tailing-in (300 m) for productive horizons, which enabled a daily production rate of about 200,000 m3 and about 56 mln m3 of gas production in 2012.

It should be noted that the Western Siberia has practically no experience in developing the Turonian deposits, hence the necessity of the pilot works to select the most promising well construction and operation techniques.

In 2012, within the framework of the “Yuzhno-Russkoye Field’s Turonian Gas Deposits Reservoir Development Chart”, the OJSC Severneftegazprom Directorate for field geology, de-velopment, and licensing and LLC TiumenNIIgiprogaz specialists analysed the various designs of wells for different penetrations of the Turonian sub-layers.

The analysis has shown that increasing the wellbore penet-ration by seam up to 500 m and more will yield a significant increase of the single bottom well. The uprise wellbore wells have the best productivity due to the longer bore and the best among the analysed profiles fluid carryover.

To substantiate the new technologies, and clarify the de-posit properties, the decision was made to arrange in the vici-nity of the cluster No.18 a single bore ascending wellbore well with 800m penetration.

The construction of uprise profile Well No. 184 will allow to:• optimise the wells’ design and the earlier solutions for the

Yuzhno-Russkoye oil and gas condensate field’s Turoni-an deposit development;

• optimise the expenses and improve the cost efficiency for the Yuzhno-Russkoye oil and gas condensate field’s Turonian deposit development.

The Company’s gas production principle:

applying innovative solutions and state-of-the-art techniques

and technologies of field development and exploitation,

improving exploration work and efficiency of gas production

The ceremony of official commencing of the first production well on the Turonian natural gas deposit

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The control system for gas process losses and the system for greenhouse gas extraction and collection

To improve the energy efficiency of the single chain of natural gas production, transport, processing, storage, and distribution processes at all stages of operation, the OJSC Severneftegazprom has, within the R&D framework, developed and patented the innovative control system for

gas process losses after Stationary Gas Unit GPA-16DKS-09 “Ural” in the Yuzhno-Russkoye oil and gas condensate field.

The implementation of the innovative System pilot prototype at the R&D stage will allow the general concept of efficient energy saving and environmental safety to be determined in the Rus-sian fuel and energy complex and other industries, where the gas pumping units with dry gas dynamic seals to protect the magnetic bearings and ensure the safe operation conditions of the gas pumping units of booster compressor stations are used.

Energy Consumption

The Company has been working to ensure efficient energy use, and developing and implementing measures for reducing heat and power consumption, as well as programmes for efficient use of energy resources.

Key goals for improving energy efficiency:• using advanced energy efficiency management methods

and approaches;• optimising the available technological processes and

improving the energy efficiency in terms of energy con-sumption, and maintaining the key parameters of tech-nological processes;

• permanent monitoring of economic and efficient use of energy resources;

• improving the energy efficiency in the electricity and heat energy transmission and distribution systems;

• employing the energy efficiency criteria to analyse and improve the available business processes and when designing and implementing new production facilities; and

• implementing up-to-date systems for the energy and key process parameters of technological accounting.

No.Type of the energy resources

UoM.

2011 2012 Deviation from 2011

report plan report

+,- %total

Incl. own

productiontotal total

Incl. own

production

Natural gas mln. m3 68.24 68.24 93.95 64.87 64.87 -3.37 -5%

mln. rubles 43.73 43.73 90.63 59.44 59.44 15.71 36%

2 Power

thousand. kW*h

26,635 25,573 32,401 27,066 25,964 431 2%

mln. rubles 216.34 213.7 255.35 265.02 262.14 48.68 22%

3 Heat energyGcal 32,956 31,817 40,916 32,958 29,709 2 0%

mln. rubles 75.56 73.46 99.96 81.96 71.58 6.40 8%

4 Diesel fuel

thousand. tonnes

0.75 - - 0.74 - -0.01 -1%

mln. rubles 20.17 - - 22.01 - 1.84 9%

5 Car petrol AI-95

thousand. tonnes

0.19 - - 0.29 - 0.10 55%

mln. rubles.

5.38 - - 9.09 - 3.71 69%

6 Car petrol AI-92

thousand. tonnes

0.27 - - 0.25 - -0.02 -7%

mln. rubles 6.98 - - 6.74 - -0.24 -3%

Consumption of energy resources in physical and monetary terms

RUSSIAN FEDERATIONUTILITY MODEL PATENT

№ 122131

AUTOMATED SYSTEM FOR CONTROL OF PROCESS GAS LOSSES

OF GAS PUMPING UNITS OF BOOSTER COMPRESSOR STATIONS

Title holder(s): Open Joint Stock Company Severnefte-gazprom (RU)

Author(s): Tsygankov Stanislav Evgenievich (RU), Sorokin Anatoliy Aleksandrovich (RU), Kasyanenko Andrey Aleksandro-vich (RU)

Application No 2012118165Utility model priority 03 May 2012Registered in Russian Federation State Register of uti-

lity models on 20 November 2012.Term of patent expires on 03 May 2022.

Head of Federal Agency for intellectual property

B.P. Simonov

RUSSIAN FEDERATIONUTILITY MODEL PATENT

№ 119415

GREENHOUSE GASES REMOVAL AND COLLECTION SYSTEM FROM GAS PUMPING UNITS

Title holder(s): Open Joint Stock Company Severnefte-gazprom (RU)

Author(s): Tsygankov Stanislav Evgenievich (RU), Sorokin Anatoliy Aleksandrovich (RU), Kasyanenko Andrey Aleksandro-vich (RU)

Application No 2012112970Utility model priority 03 April 2012Registered in Russian Federation State Register of uti-

lity models on 20 August 2012.Term of patent expires on 03 April 2022.

Head of Federal Agency for intellectual property

B.P. Simonov

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Key activities

Resulting saving in fuel and energy resources

Natural gas, mln m3

Electric energy, mln kW*h

Heat energy, Gcal

Fuel and energy resources,

tonnes of reference fuel

Plan Actual Plan Actual Plan Actual Plan Actual

Replacing incandescent lamps with energy saving ones

0.240 0.176 - -

Installing a frequency regulator on the electric drive of the fire water supply circulating pump

- - 0.035 0.035 - - - -

Applying liquid heat insulation onto pipes inheat units of buildings and structures

- - - - 30.420 30.420 - -

Implementing the “Booster Compressor Station-1 factory control system” algorithm

5.360 5.360 - - - - 6.185 6.185

TOTAL 5.360 5.360 0.275 0.211 30.420 30.420 6.185 6.185

The Company’s Energy Saving Programme performance

To improve operating efficiency, the Company has been consistently implementing the policy of energy saving and im-proving the energy efficiency of production processes. This system-based work employs medium and long-term planning mechanisms.

The 2012–2014 energy efficiency improvement plan was approved in December 2011.

The Company’s primary targets in this area are:• maximally realising the energy saving potential in all the

activities based on the Company’s energy saving policy and improvement in energy saving management;

• improving the Company’s energy efficiency based on innovative technologies and equipment use; and

• ensuring a reduction in the environmental footprint.



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Sustainable Development

7Social policy

In order to achieve strategic and operational objectives, OJSC Severneftegazprom is relying upon the formation of a competitive, highly professional and cohesive team, whose energy and responsible behavior is the key to efficient and un-interrupted production activities of the Company.

The Company has established itself as a socially responsible employer, building a system of governance based on respect for each employee’s rights, as well as ensuring occupational and industrial safety standards, implementation of modern cor-porate culture and professional ethics. OJSC Severneftegaz-prom guarantees its every worker unconditional respect to-wards labor rights in accordance with the Labor Code of the Russian Federation and international laws.

The Company has been consistently implementing best Russian and international practices for creating a favorable work environment for its employees, and provides most active and responsible of them with development opportunities and career advancement. OJSC Severneftegazprom staff is provid-ed with various benefits, health insurance and a private pen-sion scheme.

The Company’s production activities are concentrated in uninhabited, remote areas with harsh environmental condi-tions. The rotation method used by the Company for organis-ing labor at the sites of the Yuzhno-Russkoye oil and gas con-densate field is the most effective and widely used in the Far North. In 2012, 58% of the workforce was employed on the ro-tation basis. Procedures for the organisation of work and rest, time tracking and payments are settled in “the Regulations on the organisation of rotational work”, which is a Supplement to the Collective Agreement.

Persons under 18, pregnant women and women with chil-dren up to three years of age, as well as persons with contrain-dications to working in the Far North, according to the medical report issued in line with the procedure established by federal laws and other normative legal acts of the Russian Federation, are not permitted to work on a rotational basis.

A regular working shift lasts no more than one month. The length of the working shift can be increased up to three months to ensure interoperability in the absence of an employee because of illness or seasonal conditions (seasonal absence of the pontoon bridge crossing over the river Pur, etc.).

As of December 31, 2012, 1,024 employees worked for OJSC Severneftegazprom, compared to 991 employees at the end of the previous reporting period. 16 employees were hired by the Company on a fixed-term employment contract.

The primary area of Company operations is the Yamal-Nenets Autonomous Area of the Tyumen region. The Company is regis-tered in the village of Krasnoselkup and has offices in the settle-ment of Urengoy, the town of Novy Urengoy, Tyumen and Moscow.

From a sustainable development point of view, the Com-pany makes the greatest impact on the labor market of Kras-noselkup and Pur districts as well as on the city of Novy Uren-goy. At the end of 2012, 940 people (including 168 women and 772 men) worked in these areas. In the reporting period, 98 em-ployees from the Far North regions retired, and 15 employees from other areas of the Company’s presence. The Company’s overall employee turnover rate is less than 4% (see table on the next page).

In the course of its business, the Company has been continuously

searching for the optimal balance of environmental, social

and economic components

2005

1050

56226

668 882 933 963 991 1024850650450250

502006 2007 2008 2009 2010 2011 2012

Number of OJSC SEVERNEFTEGAZPROM employees at the end of reporting period

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HR indicators 2012 2011

Number of employees hired during the year 146 149

Number of employees who left jobs during the year 113 121

By gender:

Men, % 73 70

Women, % 27 30

By age:

Younger than 30 years 62 54

From 30 to 50 years 35 47

Older than 50 years 16 20

Labour turnover, % 4 4

Number of employees, in total 1,024 991

Number of employees, by gender:

Men, % 79 80

Women, % 21 20

Retired employees 11 12

Staff composition, by age Managers Specialists Industrial and office workers

Younger than 30 years 10 74 75

From 30 to 40 years 90 124 165

From 40 to 50 years 75 71 192

Older than 50 years 47 26 75

In total 222 295 507

Staff structure

Staff composition by age

The Company is actively engaging young professionals. More than half of the team consists of workers under the age of 40.

Taking into account that the production processes of the Company have a potentially negative social and environmental impact1, OJSC Severneftegazprom, according to Convention 138 of the International Labor Organization, “On the minimum age for employment” of 1973 and the Russian Labor Law, does not hire workers under 18 years of age to work at industrial sites.

The Company continues to evaluate the basic needs and problems of workers and strives to provide them with a com-fortable and safe work environment, as well as with adequate wages. During the accounting year, the Company successfully implemented a comprehensive programme of human resource management for the period of 2011–2015, aimed at improving the organization of work, the system of staff motivation, cor-porate communications, as well as staff training and develop-ment. In 2012, as part of the programme and in accordance with the current law to carry out a plan for the certification of workplaces’ working conditions, 178 management workplaces in the office and in the new workplaces created in the Yuzhno-Russkoye oil and gas condensate field, were certified. During the period from 2009 to 2012, a total of 622 workplaces were certified for having appropriate working conditions.

Additionally, as part of increasing staff motivation in 2012, provisions for professional skills contests “The Best in the Pro-fession”, “The Best Department”, “For implementation and in-vention,” including cash awards for winners, were developed. To encourage staff to participate in the professional skills con-tests, a system of incentive wage supplements was developed, for winners as well as for all competition participants.

1 A conclusion of Environmental Resource Management, an independentenvironmental consultant, prepared in accordance with the Equator Principlesand Standards of the International Finance Corporation.

The Collective Agreement is the main instrument for ensur-ing an attractive level of benefits and compensation for all em-ployees and retirees of the Company, in line with the Labor Law of the Russian Federation.

In order to improve the provisions of the Collective Agree-ment, discussions were held in 2012 regarding proposals made by the Company’s employees, as part of the Commis-sion on the regulation of social and labor relations, and staff meetings. The new version of the document, for 2013 to 2015, was registered with the Labor and Social Security Administra-tion of the Krasnoselkup District Municipality, and reflects the agreement reached between the Company’s management and the employees’ representatives. With continuous monitoring of the Collective Agreement conditions, all the employer’s obliga-tions to provide social benefits, guarantees and compensation to employees and pensioners were carried out in 2012, in full in accordance with the financial plan.

In addition, OJSC Severneftegazprom has a Commission for the regulation of social and labor relations. The Commission provides the Company’s employees with the opportunity to in-fluence the decisions made by management in the area of labor and social and economic relations. The Commission is formed on an equal basis from the duly authorized representatives of the employer and employees.

Creating a management talent pool is the one of the strate-gic initiatives of the Company’s HR Department. A quality talent pool allows the minimization of staffing risks and simultaneously improves employee motivation.

The Company is interested in the personal and professional development of its employees. A training programme

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was developed and implemented for these purposes. The train-ing is mostly conducted at the corporate training centers of JSC Gazprom. In 2012, the Company’s employees attended about 32 thousand hours of advanced training. This reflects the

policy of the Company’s management to support the theoreti-cal knowledge and practical skills of employees at a high level at the expense of the enterprise, which is certainly an additional motivational incentive for the employees.

Item No

Employee category Number of employeesTotal number of training

hoursAverage number of training

hours per person

1 Managers 216 14,460 67

2 Specialists 136 9,792 72

3 Other employees 4 312 78

4 Workers 64 7,168 112

Total 420 31,732 76

In 2012, 356 professionals and executives of the Compa-ny underwent training, including 114 as per the 2012 schedule for training and retraining of managers and specialists of the JSC Gazprom.

A competition was carried out for a OJSC Severneftegaz-prom grant for postgraduate studies and conduct of research on a relevant topic of Company production. A three party agreement with FGBOU VPO “Gubkin Russian State University of Oil and Gas” was signed.

In September 2012, together with the NOU “Corporate Uni-versity of JSC Gazprom”, training for E.ON Ruhrgas AG spe-cialists was carried out at the Company’s production facilities. A Partnership agreement was concluded in 2012 with LLC Win-tershall Russland GmbH, under which employees of the Com-pany take part in traineeship on production issues at foreign enterprises. The Company organises practical training for stu-dents of energy sector institutions of higher, vocational and basic education. A total of 43 students took part in practical training during the reporting period.

There are regularly held sport matches in mini-football, vol-leyball and other sports, as well as cultural events for the em-ployees.

The Company sees its primary objective as ensuring that the replacement of the most experienced and professional retiring employees is done gradually and smoothly, and new workers are consistent with the professional requirements of the Company. In order to guarantee dignity and social protec-tion for retired employees, the Company has an additional pri-

vate pension scheme carried out through the NPF “Gazfond” pension fund. In 2012, the Company provided social support to pensioners of the Company, including targeted social assis-tance if required.

Over the years, the Company has proven that its activities are crucial and important to many people, who can be con-fident in the stability of their future jobs, social support and economy.

Health and safety

One of the basics of the Company’s production activities is to ensure industrial health and safety because production effi-ciency depends on the reliable, trouble-free operation of equip-ment and actions of workers.

Operation of production facilities of the Company is per-formed on the basis and in accordance with Russian laws, cor-porate and international standards.

The integrated management system of the Company has been certified for compliance with international standards in the field of occupational health and safety OHSAS 18001:2007 “Occupational Health and Safety Management”.

The Company regularly monitors the state of the environ-ment at the workplace, the compliance with the safety require-ments in the operation of hazardous facilities, and compliance with the rules of labour protection and industrial safety.

The organisation of training and knowledge testing for the

protection and safety of workers is performed in accordance with Russian regulations and corporate standards. Employee fire safety training is performed in accordance with the rules of fire safety “Fire Safety Training for employees of organizations”, approved by order No. 645 of Ministry of Emergency Situations on December 12, 2007.

During the reporting period, OJSC Severneftegazprom has recorded one minor injury as a result of a road traffic accident. For the registration and investigation of accidents, the Com-pany uses the Ministry of Labor Decree of October 24, 2002 No. 73 “On the approval of document forms required for the in-vestigation and registration of occupational accidents and the provisions of the peculiarities of accidents investigation at work in specific sectors and organizations”. A 24 hour health centre operates at the housing complex, for the purpose of rendering first aid to workers during shifts.

The Company annually performs preliminary and periodical medical examinations of workers. To prevent the incidence of SARS and influenza in 2012, workers were immunised with a specific vaccine, as well as receiving non-specific vitamin com-plexes and antiviral drugs, which helped to avoid an influenza outbreak.

In the Far North, it is particularly important for workers to obtain quality health care services. To this end, the Company

signed an agreement for voluntary health insurance with the SOGAZ Insurance Group. The contract provides the following services:

• medical care in clinics equipped with advanced medi-cal technologies and modern equipment for diagnosis and treatment;

• the provision of dental care, including prosthetics;• inpatient care;• health resorts and rehabilitation treatment.

In 2012, all employees of the Company were assigned to various hospitals in the region of their workplace. The voluntary medical insurance programme offers medical care at 1,324 fa-cilities. In cases where medical services could not be provided by the state system of compulsory health insurance, workers were sent to specialized clinics outside the Far North.

During the reporting period, the rehabilitative treatment of the Company’s employees was organised at the health cen-ters of the Russian Federation under the contract of voluntary health insurance.

Thanks to an integrated approach to the organisation of work and recreation, the maintenance of staff health and per-formance, the company is able to successfully cope with pro-duction tasks.

Information on the average number of employee training hours for 2012

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Environmental protection and industrial safety

When implementing its key objectives and strategic goals, OJSC Severneftegazprom defines environmental safety as a basis for their activity. While implementing a strategy of en-vironmental friendliness and rational management of natu-ral resources, the Company not only complies with legal re-quirements, but also consistently extends the application of industry best practices. Under control of production opera-tions, OJSC Severneftegazprom carries out regular environ-mental monitoring at its facilities, which includes:

• identifying the sources of polluting emissions;• recording the types and quantity of pollutants released

into the environment from the pollution sources;• monitoring the compliance with established regulations

regarding the impact on the environment, discharges and emissions, production and domestic wastes;

• analysing the reports of state experts on construction, reconstruction, and modernisation projects;

• determining the availability of licenses and permits re-quired by the environmental legislation of the Russian Federation;

• timely provision of reliable reporting documentation re-quired by the state reporting laws;

• implementing environmental protection measures, guidelines and recommendations of the authorised state bodies.

In June 2012, the Federal Service for Environmental, Tech-nological and Nuclear Supervision reissued the license to the OJSC Severneftegazprom to perform “The operation of flam-mable and explosive production facilities” for an indefinite period.

In 2012, the Company fully implemented the Action plan to ensure industrial safety at OJSC Severneftegazprom, as well as the Company management developing and approving the ac-tion plan for 2013.

As part of the OJSC Severneftegazprom complex, 16 hazardous industrial facilities were registered in the corre-sponding state register and insured under civil liability for injury

to life, health or property of other persons and the environment, in the event of accidents at the enterprise facilities. The Com-pany carries out production supervision in accordance with the “Regulations on the production supervision for compliance with industrial safety requirements at hazardous production fa-cilities of the OJSC Severneftegazprom” in agreement with the North Ural Department of the Federal Service for Environmen-tal, Technological and Nuclear Supervision.

Since 2010, the Integrated Management System is used in the Company, based on the international ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 standards.

The environmental management system places a great em-phasis on the Far North ecosystem.

In 2012, the annual surveillance audit of the Company was held, confirming its compliance with international environmen-tal standards. In addition, the Company successfully passed the re-certification process undertaken by Bureau Veritas Cer-tification in November 2012, which demonstrated the effective-ness of the integrated management system and the Company’s commitment to its continuous improvement. One of the most important principles of the Company is to constantly and sys-tematically reduce the impact on the environment by using the latest technologies combined with in-house solutions. This al-lows the Company to achieve a high level of performance in en-vironmental and ecological safety.

In accordance with corporate and international standards, the Company:

• controls and monitors greenhouse gas emissions;• implements a programme to reduce gas flaring, which

makes it possible to reduce the main part of green-house gas emissions;

• implements a programme to reduce energy con-sumption.

Emissions of air pollutants (tons)

2011 2012

Permitted emissions 11,610.470 3,492.704

Actual emissions 2,023.639 2,054.914

Emissions of air pollutants

Methane (38,5%)

Carbon Monoxide (26,7%)

Nitrogen Oxide (28,5)

Solid Aerosols and VOC (6,3%)

Hazardous substance Mass of emission (t) 2011 Mass of emission (t) 2012

Methane 1,326.783 792.827

Carbon monoxide 337.676 548.830

NOх in terms of NO

2205.167 585.638

Methanol 93.644 92.860

Sulphur dioxide 1.467 0.192

Volatile organic compounds (VOC) 151.774 120.616

Solid pollutants 0.771 0.537

Emissions from organised sources 1,775.160 1,854.533

Emissions from non-organised sources 248.479 200.381

Mass of hazardous emission 2011-2012

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The Company maintains the technical condition of the pro-duction equipment at an appropriate level, and performs envi-ronmental protection measures in order to minimise possible environmental pollution and to reduce the negative impact of industrial activities on wildlife.

Statistical data on the main results of production control and the state of industrial safety of the hazardous production facilities of the Company has been provided to the Novy Uren-goy Integrated Department of the North Ural Directorate of the Federal Environmental, Technological and Nuclear Supervision Service every three months.

The total volume of air emissions from production sources in 2012 amounted to 2,054.914 tonnes, 31.275 tonnes more than in 2011. The increase in the total mass of emissions is as-sociated with the booster compressor station operating at its full capacity.

Permitted emission of pollutants into the atmosphere in 2012 was 3,131.737 tonnes at the operational facilities, 355.531 tonnes at the drilling facilities, and 5.436 tonnes from the settlement of Urengoy.

Methane, the major component of the emissions, is formed during venting and emptying of the plant process equipment for integrated gas treatment and gas gathering collectors for the purpose of conducting regular preventive work, as well as the continuously operating flares at the pumping units of the boo-ster compressor station. Significant amounts of carbon mono-xide and nitrogen oxides are formed during the combustion of gas on gas stoves while well testing, as well as during gas burning for Company’s own needs (power generation, gas compression).

The specific mass of pollutants released into the atmo-sphere was 0.081 tonnes/mln m3 of gas produced.

Out of the total mass of pollutant emissions into the air, emissions from the processes equaled 988.611 tonnes, from the burning of fuel to generate electricity and thermal energy – 267.202 tonnes.

Regular checks for toxicity of vehicles exhaust gases are carried out in the mechanical repair workshop of the gas field.

In 2012, the Company carried out a number of activities to reduce emissions. In particular, work continued on the re-duction of gas flaring at the treatment facility through the use of separated gas as fuel for TEG regeneration. At present, the work on the design and construction documents is com-pleted. Measures were taken to reduce energy consumption during field facilities by replacing incandescent lamps and sodium vapor lamps with energy-saving LED spotlights and lamps, 2,669 pieces in total.

In 2012, neither accidents nor essential and nonessential spills occurred at the hazardous production facilities. Acciden-tal emissions and discharges of pollutants into the environ-ment did not occur. No accidents occurred during the report-ed period in the contracting companies carrying out work for OJSC Severneftegazprom.

During the reporting year, total greenhouse gas emis-sions (the calculation is based on the STO Gazprom 102-2011 “Inventory of greenhouse gas emissions”) made up 167,815 tonnes of CO

2-equivalent, 557 tonnes of which were

indirect emissions, according to the method of EPMS calcula-tion of The Company Wintershall Holding GmbH. The growth of the indirect emissions is due to changes in the applicable con-version factor for CO

2 when receiving electricity from the public

grid (old is 0.317, new is 0.639).

As for the ozone-depleting substances included in Appen-dices A, B, C and E of the Montreal Protocol on Substances that Deplete the Ozone Layer, there were no emissions in 2012. Freon (R404A), which is used in air conditioning and refrige-ration (for food storage), has zero ozone depletion potential. At present in Russia there are no planned restrictions on the use of the R404A type Freon up to 2020, which corresponds to the Montreal Protocol requirements.

The Company is extracting water from an underground aquifer, with no removal of water from the surface water reservoirs. Water is supplied on the basis of the required permits.

Total volume of extracted water in 2012 was 74,202 m3, including:

• 67,014 m3 from the underground aquifer (56,440 m3 in 2011, 60,490 m3 in 2010);

• 7,188 m3 – stratum water extracted simultaneously with natural gas (8,160 m3 in 2011).

Extraction of fresh water from aquifers was only 37.3% of the established limit of 199,180 m3 (28.4% in 2011, 30.4% in 2010). Extracted water has been treated in the Company’s own water treatment plants in accordance with sanitary standards.

The increase in water consumption in 2012 compared to 2011 was due to the construction and commissioning of a Health Complex.

An on-site wastewater disposal system operates at the gas field, allowing industrial and domestic wastewater to be inject-ed back into the aquifers after they have been cleaned at spe-cial facilities.

Subsoil Aquifier

Produced Water

10 000

20 000

30 000

40 000

50 000

60 000

70 000

20122011

87% 90%

13% 10%

Allocation

Actual Extraction

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011

Volume of extracted water, thousand m3 Fresh water extraction

Power consumption

including own generation

26,635 25,573 32,4 31,062 27,065 25,963

Actual 2011 Actual 2012Plan 2012

1,6%1,5%

Energy consumption, mln kW•h

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The strategic priorities of OJSC Severneftegazprom are also important for the territory on which the Company operates. Gas production plays the leading role in the economy of the Yamal-Nenets Autonomous Area. The Company is active-ly interacting with the federal and municipal authorities to im-plement environmental, social and cultural projects aimed at improving the quality of life and social welfare.

To support economic development in the areas of operation, the Company sticks to the obligations of the license agreement and its own policy of competitive procedures, and, all other things being equal, gives preference to Russian companies, es-pecially local suppliers, who are registered in the Yamal-Nenets Autonomous Area.

Interaction with the regions is regulated on the basis of the General Agreements on cooperation concluded between the

Company and the Administration of the Pur and Krasnoselkup Districts and the town of Novy Urengoy, as well as additional annual agreements.

The General Agreements on social-economic coopera-tion with the administration of Novy Urengoy was concluded in 2012 for the first time.

The priorities of the General Agreements are activities such as:

• the rational and effective use of the subsoil and lands located in the regions, where the Company carries out its economic activities;

• creating conditions for successful interaction, aimed at the social and economic development of the munici-pality population;

• respect for the opinion of the interested party;

Subject of interaction

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State bodies and public offices • • • • • • •

Suppliers/buyers • • • •

Shareholders • • • •

Non-commercial organizations • •

Media •

General population • • •

Employees • • • • • •

Main directions of regional policy and interactions with interested parties

Interested parties

Main indicators of environmental protection activities

No. Indicator Unit of measurement 2010 2011 2012

1. Gross hazardous emissions into the atmosphere – total thous. tonnes 1.678 2.023 2.054

Including:

within permissible emission limits (PEL) -«- 1.678 1.996 2.040

within temporarily approved emission limit (TAEL) (above PEL)

-«- 0 0 0

above-limit emissions (above TAEL) -«- 0 0.026 0.014

Including:

gross emissions of methane -«- 0.908 1.326 0.792

Specific NOx emissions (per transport unit) tonnes/bln. m3•km 0 0 0

Specific NOx emissions (per unit of fuel gas) thous. tonnes /mln. m3 0.002 0.002 0.008

2. Intake of water – total thous. m3 86.57 56.4 67.01

3. Water discharge – total thous. m3 47.87 52.72 59.99

4. Wastes per year – total thous. tonnes 3.848 2.093 0.155

Including wastes sent for disposal thous. tonnes 3.751 1.998 0.076

5. Waste ratio sent for disposal

% of waste produced during the reporting period taking into consideration the presence of waste at the beginning of the year

97.45 95.4 44.23

6. Re-cultivated land area per year hectare 1,687.06 160.7 155.51

7. Expenses for environmental protection – total mln.rub 384.7 103.5 208.58

8.Current expenses for environmental protection measures – total

thous. rub. 103,837 103,502 205,574

9.Expenses for development and approval of environmental documents

thous. rub. 93.76 1,182 758

10.Expenses for production environmental monitoring and production ecological control

thous. rub. 6,772.36 6,006 3,612

11.Expenses for major repairs of fixed assets involved in environmental protection

thous. rub. 10,320.3 0 0

12. Payment for negative environmental impacts – total thous. rub. 1,423.68 1,108.4 365.39

Including:

environmental impact within permitted limits (emissions, discharges, waste disposal)

-«- 1,423.68 1,026.6 351.97

environmental impact above permitted limits (emissions, discharges, waste disposal)

-«- 0 81.8 13.42

Fines imposed for breaking of environmental regulations thous. rub. 0 0 0

Legal actions for recovery of compensation of damage caused to environment, including resulting from accidents

thous. rub. 0 0 0

13.Investments into Fixed capital, directed to environmental protection – total

mln. rub. 280.94 0 3.036

14. Number of inspections by state environmental agencies Number 0 0 0

15.Number of violations of environmental regulations (according to inspection acts of state environmental agencies)

Number 0 0 0

Main indicators of environmental protection activities (continued overleaf)

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• timely notification of interested parties;• regular interaction;• preserving the natural environment and ensuring envi-

ronmental safety.

Within the framework of these agreements, OJSC Sever-neftegazprom implements activities aimed at the social and economic development of these territories, including helping to sustain the cultural traditions of local minorities, providing charitable assistance to fishermen and reindeer herders, pro-viding funding for the development of national settlements, procuring vehicles, fuel, lubricants and equipment, supporting traditional sectors of agriculture, providing funding to the asso-ciation of indigenous people of the Far North “Yamal – for the future generations!” to carry out statutory activities.

Sustainable development of the Company is inextricably linked with maintaining the long-term partnership with opera-

tions areas and interacting with interested parties through the implementation of mutual projects in accordance with the prin-ciple of the observance of the common obligations undertaken and the requirement to observe them by the interested parties.

In order to determine key interested parties and social in-tegration links, which can influence, or on the contrary, can be influenced in the process of implementing production activi-ties, and to define channels of interaction with such people and organisations, the Company has developed an internal docu-ment – the Public Consultation and Disclosure Plan (PCDP).

The document describes the procedures of information disclosure in accordance with the requirements of the Rus-sian Law and international standards, of carrying out Company consultations with interested parties, as well as describing the mechanism for recording the responses and opinions of the population and Company employees on a regular basis during the entire life cycle of the project.

Being aware of its responsibility for the development of operation areas, the Company strives to develop the areas where its industrial and economic activities are carried out. The traditional areas of OJSC Severneftegazprom activities include the Krasnoselkup and Pur districts of the Yamal-Ne-nets Autonomous Area – the lands originally inhabited by the

indigenous peoples of the Russian North. Mutual relations with native citizens, government bodies and local government bodies are regulated by the General Agreements on coopera-tion, concluded between the Company and the Administra-tion of the Pur and Krasnoselkup districts, as well as regular updates hereto.

External interested partyScope of finance as part

of the General Agreements, RUB Other charity, RUB

Krasnoselkup District 31,000,000 5,281,912

Pur District 10,000,000 1,284,490

Novy Urengoy 10,000,000 155,977

TOTAL 51,000,000 6,722,379

OJSC Severneftegazprom interaction with external interested parties in 2012

ACKNOWLEDGEMENT

Dear Stanislav Evgenievich!I would like to express you our gratitude for the great contribution into

social-economic and cultural development of the Krasnoselkup Municipal District.We highly appreciate your attention and support for children, financing various types of educational, cultural and artistic development, organisation of information visits

to the field and trips to Germany.I wish you robust health, well, good-luck and prosperity!

Head of Administration of the Krasnoselkup District

Vasily Parshakov


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Key Risks Associated with the Company’s Business

Operational risksThe Company is exposed to operational risks when conduct-

ing its business, the most important being prices for raw hydro-carbons and technological risks associated with the particulars of the production process. Moreover, general operational risks include transport restrictions of a technological nature, which may become a serious obstacle to achieve the long-term objec-tives of the Energy Strategy of Russia. Search and development of deposits, transportation and processing of gas and liquid hy-drocarbons represents a complicated and capital-intensive pro-cess bearing technological and ecological risks. The company strictly observes industry requirements and standards, and im-plements new technologies and equipment at all stages of the production process, thus minimising these risks.

The risk of reduction in sales

The risk of reduction in sales is associated with the possi-bility of a long-term decline in the demand for hydrocarbons, which may adversely affect project indicators. However, ac-cording to long-term gas supply contracts, the purchaser pays for the entire volume of contracted gas notwithstanding the ac-tual intake, which excludes the considered risk for the Compa-ny until expiration of such contracts.

The riskof reduction of sales

Operational risks Financial risks Legal risks

The riskof material change

in the market price for gas

Risks associatedwith validity of licenses

Environmental risks

Technological risks

Risksassociated with application

and possible changesin Russian tax laws

Legal RisksAssociated

with Applicationand Possible Change

of Currency Laws

Risksof Legal Proceedings

and Restrictionsof the Company’s Business

Inflation risks

Interest risk

Currency risk

Low Level of Risk

Medium Level of Risk

High Level of Risk

Structure and assessment of the Company’s risks

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Financial risks

Inflation Risks

The inflation rate in 2012 was 6.7%. According to observa-tions, inflation rates are relatively stable and the Russian Minis-try of Finance forecasts that inflation in 2013 will correspond to forecasts of about 5-6%. On the basis of this, the conclusion can be made that inflation will not cause any material impact on the financial and economic indicators of the Company in the foreseeable future.

Interest Risk

Being a large borrower, the Company is exposed to risks associated with changes in interest rates. The debt portfolio of the Company within the framework of the raised project fa-cility is mainly presented by loans denominated in USD and EUR. The interest rate for the service of such loans is based on internal credit rates (LIBOR/Euribor). An increase in such interest rates may render the service of the Company’s debt more expensive. An increase in the cost of loans for the Com-

pany may affect solvency and liquidity indicators. However, LIBOR is currently at a relatively low historical level and has a medium-term tendency towards stabilisation. Taking into consideration gas supply contracts, in which the gas price is determined according to the formula, which also considers the compensatory component, the risk is deemed as low.

Currency Risk

Since the debt portfolio of the Company includes liabilities, which are assessable, accruable and repayable in foreign cur-rencies, fluctuations of exchange rates to the ruble materially affect the result of financial and business operations of the Company. Due to the absence of any revenues in foreign cur-rency, the balanced currency structure of claims and liabilities, used as a hedging mechanism, is not applicable to the Compa-ny, taking into consideration that according to gas supply con-tracts, the gas price is determined according to the formula, which also considers the compensatory component, the risk is deemed as moderate.

The risk of significant change in the market price for gas

A significant decrease in the market price for gas may affect the cash flows required for stable production and business operations of the Company. The risk is considered low since, ac-cording to gas supply contracts, the price of gas is determined according to the formulae taking into account the Company’s expenses and the required rate of return.

Risks associated with validity of licences

The Company undertakes activities in relation to the Yuzhno-Russkoye oil and gas condensate field pursuant to the licences for the use of subsoil and other licensed activities. Applicable laws of the Russian Federation and/or licenses pro-vide for possible limitation, suspension or early termination of the right to use the subsoil/exercise a licensed activity in the case of non-observance of conditions of licence agreements or violation of the requirements of applicable Russian laws in the area of licensing.

The Company has completely fulfilled the requirements of licence agreements and has taken all the necessary steps to observe the applicable laws governing licensing, in order to minimise this risk.

Environmental Risks

The Company’s activities, associated with the development of the Yuzhno-Russkoye oil and gas condensate field, are po-tentially exposed to the risk of environmental impact. There-fore, one of the priority directions of the Company’s efforts is environmental protection. Key project solutions applied in the course of constructing infrastructural and operational facilities at the deposit comply with Russian environmental standards.

Technological Risks

The Company’s production activities, associated with the operation of the Yuzhno-Russkoye oil and gas condensate field, may be exposed to the impact of negative factors asso-ciated with failure of equipment. Meanwhile, technologies used for mining, treatment and transportation of gas comply with up-to-date requirements for reliability and safety in operation of the equipment, which enables minimisation of such risks.

In addition, the Company conducts training and certifica-tion of staff in the area of occupational health, industrial, fire and well-kill safety, based on the course “Well Control. Control of Wells at Oil, Gas and Water Show”, which also reduces the above risks.

For the purpose of resolving the primary objectives asso-ciated with planning of efforts for prevention and liquidation of extraordinary situations for hazardous production facilities at the Yuzhno-Russkoye oil and gas condensate field, the fol-lowing documents were prepared: the Plan for the Liquidation of Possible Accidents, the Plan for the Prevention and Liqui-dation of Oil Spills at the Site of Technological Capacities of Reagents and Oils at the gas treatment unit of the Yuzhno-Russkoye oil and gas condensate field of OJSC Severneft-egazprom, the Plan for the Prevention and Liquidation of Oil Spills at Fuelling Stations (stations for the fuelling of motor transport) of OJSC Severneftegazprom, and the Technological regulations “On the operation of the gas treatment unit of the Yuzhno-Russkoye oil and gas condensate field 05.125-TP” with Amendments No.1 and No.2. Pursuant to the above plans, emergency response drills are carried out to train staff on how to respond in an emergency.

In addition, in order to minimise and avoid emergen-cy situations, a contract was concluded with LLC “Gazprom Gazobezopasnost” to ensure well-kill safety on the Yuzhno- Russkoye oil and gas condensate field wells, and with LLC “Gazprom Transgaz Surgut” for operating the Yuzhno-Russkoye oil and gas condensate field sales gas pipeline. Administrative and production control of occupational health, industrial, and fire and well-kill safety has been organized and undertaken. This procedures allow to reduce the aforemen-tioned risks.

Certified equipment and technical devices meeting up-to-date safety and reliability requirements are applied at hazardous production facilities of the Yuzhno-Russkoye oil and gas con-densate field. The equipment and technical devices are main-tained in a timely manner by the Company’s personnel or spe-cialised organizations, which also reduces the aforementioned risks.

Recuperators of the boosting compressor station at Yuzhno-Russkoye oil and gas condensate field

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legal risks

Risks associated with the application and possible changes in tax laws of the Russian Federation

Some laws have been adopted during recent years which introduce significant amendments to tax laws.

Amendments introduced into the Russian tax system are aimed at eliminating its deficiencies, and therefore some provi-sions of the Russian Tax Code may be amended, which may result in a future increase or reduction of the tax burden versus the accounting year.

Amendments of Russian Federation tax laws, which nega-tively affect the taxpayer, do not apply retrospectively as a rule (unlike various interpretations of some provisions of tax laws).

Since interpretations of some tax law norms by tax authori-ties (the Ministry of Finance of the Russian Federation and ju-dicial authorities) may not match interpretations by the Com-pany’s management, the amount of tax liabilities following the results of tax audits at the Company, both in the accounting year and preceding periods, may change and cause tax risks (in particular, additional taxes, penalties and fines may be im-posed on the Company).

In order to avoid tax risks, the Company regularly monitors any amendments made to the Russian Tax Code and law en-forcement practice with further application of the same in its activities.

Pursuant to Russian accounting rules, any change in tax liabilities over preceding periods is accounted for in statements over that period when such changes were actually effected.

Risks of legal proceedings and restrictions of the company’s business

No change in legal practice in regard to matters associated with the Company’s activities as well as rules of legal proceed-ings will have a material impact on the Company’s business since the Company tries to settle any disputes extra judicially.

At present, the Company is not involved in any significant legal proceedings and does not bear any liability for debts of third parties.

Legal risks associated with the application and possible change in currency laws

The Company concludes foreign economic transactions and executes currency operations with non-residents, and therefore changes in currency regulation may affect the fulfil-ment of the Company’s liabilities to foreign counteragents. In particular, changes in currency regulation which may concern enforcement of control over execution of currency transactions and introduction of restrictions, may lead to losses under foreign trade contracts and/or delays in the fulfilment thereof. Due to the existence of foreign economic transactions, the Company is exposed to risks of bringing to administrative liability for vio-lations of currency laws of the Russian Federation and acts of currency regulators, including without limitation, violation of the established unified rules of execution (re-execution) of transac-tion passports and non-observance of the established proce-dure or terms of submission of accounting forms and reports on currency transactions. For the purpose of observing the cur-rency laws of the Russian Federation, within the framework of re-lations with non-resident companies, structural subdivisions of the Company take measures of control over timely and quality sub-missions of documentation required for the execution of cur-rency transactions.



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Code of Corporate Governance Compliance Report

Code of Corporate Governance Compliance Report

OJSC Severneftegazprom, as an open joint stock company, strives to comply with the following provisions of the Code of Corporate Conduct, recommended by the Order issued by the Federal Commission for the Securities Market of Russia under No. 421/r on April 4, 2002:

• The shareholders must have access to the list of per-sons entitled to take part in the general meeting of share-holders, beginning from the date when information about holding the general meeting of shareholders was pub-lished, and until the closure of the general meeting of shareholders held in person, and in case of an absentee general meeting of shareholders – prior to the deadline fixed for accepting voting bulletins;

• The shareholder must have the opportunity to bring in items for the agenda of a general meeting of shareholders or re-quire the convocation of a general meeting of share-holders without presenting an extract from the regis-ter of shareholders if the shareholder’s right to shares is registered with the maintenance system of the register of shareholders;

• The Charter of the Company must provide for authorities of the Board of Directors related to the annual approval of the Company’s financial and economic plan;

• Absence of people found guilty of committing crimes in the field of economic activities or crimes against state authorities, interests of state service and local authorities, on which administrative punishments were imposed for civil injuries in the field of entrepreneurial activities, finances, taxes, charges or securities market, among the members of the Company’s Board of Directors;

• Persons holding the position of general director, a mem-ber of the management board or an employee of a legal person competing with the Company must not occupy positions in the Company’s Board of Directors;

• The Charter of the Company must provide for the require-ment to elect the Board of Directors by cumulative voting;

• The sessions of the Company’s Board of Directors must be held at least once every six weeks during the year of preparing the annual report;

• The presence of the Company’s internal documents ap-proved by the Board of Directors, providing for the proce-dure of forming and operating standing committees of the Board of Directors;

• The procedure of approving operations exceeding the limits of the Company’s financial and economic plan must be provided in the Company’s inner documents;

• A special official (the Company’s secretary) in charge of compliance with the procedural requirements guarantee-ing the implementation of rights and legal interests of the Company’s shareholders by the Company’s bodies and officials, must be employed by the Company;

• The Charter of the Company or internal documents must provide for the requirement of approval of a large-scale transaction prior to it being implemented;

• The Charter of the Company must not exempt the trans-feree from the obligation to offer shareholders to sell the ordinary shares held by them in the Company upon re-demption;

• The presence of a special department in the Company ensuring compliance with the internal control procedures (internal audit department);

• Absence of people found guilty of committing crimes in the field of economic activities or crimes against state authorities, interests of state service and local govern-ments or people, on which administrative punishments were imposed for civil injuries in the field of entrepreneurial activities, finances, taxes, charges or securities market, among members of the audit service;

• Persons, occupying positions as the Company’s execu-tive authorities as well as a general director, member of the management bodies or employee of a legal person competing with the Company, must not occupy positions in the audit service.


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General Information

10registration Details Full company name:Severneftegazprom Open Joint Stock Company.Short business name of the Company in Russian:ОАО «Севернефтегазпром».Full business name of the Company in English:Open Joint Stock Company Severneftegazprom.Short business name of the Company in English:OJSC Severneftegazprom.

Legal and postal address:Legal address: 22 Lenin St, Krasnoselkup, Krasnoselkup District, 629380, Yamal-Nenets Autonomous Area.Postal address: PO Box 1130, Novy Urengoy, 629300, Yamal-Nenets Autonomous Area.E-mail: [email protected].

Information sources, in which the Company discloses information in compliance with securities law requirementsOJSC Severneftegazprom website at http://www.severneftegazprom.com/. News feed, an information resource updated in real time and provided to the Company by the Interfax Information Agency (CJSC Interfax is a news agency for the securities market) at http://www.e-disclosure.ru/index.aspx.

State Registration Date and Registration Number Certificate No. R-16625.16 of registration and entry in the state register of commercial entities, issued to OJSC Severneftegaz-prom in connection with the reorganization of LLC Severnefte-gazprom based on Minutes No. 5 of the extraordinary General Meeting of Company Members dated June 1, 2001. Issued on June 15, 2001 by the State Registration Chamber at the Ministry of Justice of the Russian Federation.

Certificate of entry made in the Unified State Register of Le-gal Entities of the legal entity registered before July 1, 2002, under Main State Registration Number 1028900699035 dated 19 December, 2002 was issued by the Interdistrict Inspecto- rate of the Ministry of Taxation No. 3 for the Yamal-Nenets Autonomous Area.

Information on the Company’s RegistrarCJSC “Specialised Registrar – Gas Industry Shareholders’ Registrar” (CJSC SR-DRAGa)Location and postal address: 31/72 Novocheremuskinskaya St, Moscow, 117420 Tel: +7 (495) 719-40-44, Fax: +7 (495)719-45-85.Register maintenance operations licence dated December 26, 2003 No. 10-000-1-00291, issued by the Federal Securities Market Commission of Russia for an indefinite term.

Core operations• Yuzhno-Russkoye oil and gas condensate field develop-

ment and construction of facilities;• recovery, collection, disposition and sales of natural

gas;• prospecting and exploration work;• construction management.

The Company holds the following main licenses:• a licence for the exploration and production of raw

hydrocarbons within the Yuzhno-Russkoye mining site situated in the Krasnoselkup District of Yamal-Nenets Autonomous Area of the Tyumen Region. Series SLKh No. 11049 NE. Issued on June 22, 2001. Valid until December 31, 2043;

• a licence for operating explosion-hazardous production facilities, No. EV-00-007716 (DK). Active from August 7, 2007. Valid until August 7, 2012.

Moreover, the Company holds over 10 permits (licenses) for other kinds of operations and is a member of Associa-tion of Gas and Oil Industry Constructors Non-Commercial Partnership.

The Company’s Representative OfficesOJSC Severneftegazprom has representative offices in Novy Urengoy, the settlement of Urengoy, Tyumen and Moscow. The Company has no subsidiaries and affiliates.


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Summary

report parameters

The Contents of the Report

The report for 2012 provides an analysis of the corporate activity in connection with the exploration and production of natural gas, economic activities, social policy, industrial safety and environment protection. This is the second time that the Company has disclosed information pursuant to the provisions of the GRI and has integrated them into its Annual Report. The cycle of the report’s development is one calendar year.

The Limits and Scope of the Report

The report records the activities of the Company in the Rus-sian Federation as well as its relationship with international part-ners. The information used herein has been prepared using con-sistent methods as applied in the previous reporting periods.

The Company’s management statements and audited fi-nancials, developed per Russian Accounting Standards, were used when preparing this Report. Information, presented in the Report, was filed as part of the corporate information systems per lines of activity based on information requests, taking into account GRI recommendations (G3.1 version) and the require-ments for complete disclosure. In addition, the results of inter-action with key interested parties were also taken into account when determining the key topics. All this enabled the Report to cover a wide range of aspects, which may be interesting to the maximum number of people. The Company tried to balance out the information, when developing the Report. The Report reflects advantages and disadvantages, providing an adequate outlook for the potential users of the Report on the Company’s impact on the economy, environment and society.

Principles Applied to Ensure the Quality of the Report

In its Report, the Company has tried to provide a ba-lanced presentation of items required by Russian law and of interest to interested parties. The Report includes data offi-cially recognised by the Company and supported by inter-nal documents and publicly available information. The Report generally does not contain either specific terms or data requir-ing special knowledge. One of the purposes of the Report is to explain to interested parties the nature of the Company’s activi-ties and the characteristics of its decision making.

Contact Information for Issues Regarding the Report

Anatoliy Anatolyevich VecherkaDeputy General Director for Legal Issues and Corporate Management Telephone: +7 (495) 620 63 33E-mail: [email protected]

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1. STRATEGY AND ANALYSIS

1.1Statement from the most senior decision-maker of the organization about the relevance of sustainability to the organization and its strategy.

4-7

1.2 Key impacts, risks and opportunities 73-76

2. ORGANIZATIONAL PROFILE

2.1 Name of the organization 81

2.2 Primary brands, products and services 37, 81

2.3 Operational structure 19-24

2.4 Location of organization’s headquarters and operations 81

2.5Number of countries in which the organization operates and name of countries where its main operations are located or are especially relevant to the questions of sustainability covered by the report

14-16

2.6 Nature of ownership and legal form 27-28, 81

2.7 Markets served 14-15, 81

2.8 Scale of the organization (headcount, sales, revenue) 13, 59-60

2.9 Significant changes regarding size, structure or ownership during the reporting period No significant changes

2.10 Awards received in the reporting period 8-11, 71

3. REPORT PARAMETERS

3.1 Reporting period (such as fiscal/calendar year) for the information provided 83 Calendar year

3.2 Date of most recent previous report (if any) June 2012

3.3 Reporting cycle (annual, biennial, etc.) 83

3.4 Contact information for issues related to the Report or its contents 83

3.5 Defining report content (essentiality, subjects priorities, needs of interested parties) 2, 83

3.6 Boundary of the report (organizations which the Report have effect on). 2, 83

3.7 Statement about any specific limitations on the scope or boundary of the report No limitations

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3.8Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations.

No activities to be disclosed

3.9Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the Indicators and other information in the report.

3.10Explanation of the effect of any re-statements of information provided in earlier reports, and the reasons for such re-statement.

No re-statements were performed

3.11Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report.

No changes were introduced

3.12 Table identifying the location of the Standard Disclosures in the report. 84-89

3.13 Policy and current practice with regard to seeking external assurance for the report.

4. GOVERNANCE, COMMITMENTS AND ENGAGEMENT

4.1Governance structure of the organization, including main committees within the highest governance body, responsible for specific tasks

19-23

4.2 Indicate whether the Chair of the highest governance body is also an executive officerGeneral Director is not the Chairman of the Board of Directors

4.3For organizations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members.

There are no independent members

4.4Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body.

21-22, 61, 70

4.14 List of stakeholder groups engaged by the organization. 69

4.15 Basis for identification and selection of stakeholders with whom to engage. 69-70, 83

ECONOMIC PERFORMANCE INDICATORS

EC1Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments.

38-40

EC2Financial implications and other risks and opportunities for the organization's activities due to climate change.

EC3 Coverage of the organization's defined benefit plan obligations.

EC4 Significant financial assistance received from government. 11, 41

EC5Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation.

EC6Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation.

69, 44

EC7Procedures for local hiring and proportion of senior management hired from the local community at significant locations of operation.

EC8Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement.

Global Reporting Initiative (GRI) Content Index

Global Reporting Initiative (GRI) Content Index (continued overleaf)Information Disclosure

Appendix 1. Global Reporting Initiative (GRI) Content Index

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ENVIRONMENTAL PERFORMANCE INDICATORS

EN1 Materials used by weight or volume.

EN2 Percentage of materials used that are recycled input materials.

EN3 Direct energy consumption by primary energy source.

EN4 Indirect energy consumption by primary source.

EN5 Energy saved due to conservation and efficiency improvements

EN6Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiatives.

EN7 Initiatives to reduce indirect energy consumption and reductions achieved

EN8 Total water withdrawal by source.

EN9 Water sources significantly affected by the removal of water

EN10 Percentage and total volume of water recycled and reused

EN11Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas.

EN12Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas.

EN13 Habitats protected or restored

EN14 Strategies, current actions, and future plans for managing impacts on biodiversity

EN15Number of IUCN Red List species and national conservation lists species with habitats in areas affected by operations, by level of extinction risk

EN16 Total direct and indirect greenhouse gas emissions by weight. 65-66, 68

EN17 Other relevant indirect greenhouse gas emissions by weight.

EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved.

EN19 Emissions of ozone-depleting substances by weight.

EN20 NOx, SOx, and other significant air emissions by type and weight. 65, 68

EN21 Total water discharge by quality and destination.

EN22 Total weight of waste by type and disposal method.

EN23 Total number and volume of significant spills. 66

EN24Weight of transported, imported, exported or treated waste deemed hazardous under the terms of the Basel Convention - Annex I, II , III and VIII , and percentage of transported waste shipped internationally

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EN25Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the reporting organization’s discharges of water and runoff

EN26Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation.

EN27 Percentage of products sold and their packaging materials that are reclaimed by category.

EN28Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations.

EN29Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce

EN30 Total environmental protection expenditures and investments by type.

PERFORMANCE INDICATORS ON APPROACHES TO LABOR PRACTICES AND DECENT WORK

LA1Total workforce by employment type, employment contract, and region, broken down by gender

59-60

LA2 Total number and rate of employee turnover by age group, gender, and region. 60

LA3Benefits provided to full-time employees that are not provided to temporary or part-time employees, by major operations.

LA4 Percentage of employees covered by collective bargaining agreements. 61

LA5Minimum notice period(s) regarding significant operational changes, including whether it is specified in collective agreements.

LA6Percentage of total workforce represented in formal joint management-worker health and safety committees that help monitor and advice on occupational health and safety programmes.

LA7Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by region.

62-63

LA8Education, training, counseling, prevention, and risk-control programmes in place to assist workforce members, their families, or community members regarding serious diseases.

LA9 Health and safety topics covered in formal agreements with trade unions.

LA10 Average hours of training per year per employee by employee category. 61-62

LA11Programmes for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings

LA12 Percentage of employees receiving regular performance and career development reviews.

LA13Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity.

LA14 Ratio of basic salary of men to women by employee category.

Global Reporting Initiative (GRI) Content Index (continued overleaf) Global Reporting Initiative (GRI) Content Index (continued overleaf)

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HUMAN RIGHTS PERFORMANCE INDICATORS

HR1Percentage and total number of significant investment agreements that include human rights clauses or that have undergone human rights screening

HR2Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken

HR3Total hours of employee training on policies and procedures concerning aspects of human rights relevant to operations, including the percentage of employees trained

HR4 Total number of incidents of discrimination and actions taken.

HR5Operations identified in which the right to exercise freedom of association and collective bargaining may be at significant risk and actions taken to support these rights

61

HR6Operations identified as having significant risk for incidents of child labour, and measures taken to contribute to the elimination of child labour

61

HR7Operations identified as having significant risk for incidents of forced or compulsory labour, and measures taken to contribute to the elimination of forced or compulsory labour

HR8Percentage of security personnel trained in the organization’s policies or procedures concerning aspects of human rights that are relevant to operations

HR9Total number of incidents of violations involving rights of indigenous people and actions taken

SOCIETY PERFORMANCE INDICATORS

SO1Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures.

69-71

SO2Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes

SO3Type of product and service information required by procedures,procedures and percentage of significant products and services subject to such information requirements.

SO4Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labelling by type of outcomes

SO5Practices related to customer satisfaction, including results of surveys measuring customer satisfaction.

SO6Programmes for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship.

SO7Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship, by type of outcomes

SO8Total number of substantiated complaints regarding breaches of privacy and loss of customer data

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PRODUCT RESPONSIBILITY PERFORMANCE INDICATORS

PR1Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures.

PR2Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes

PR3Type of product and service information required by procedures,procedures and percentage of significant products and services subject to such information requirements.

37-38

PR4Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labelling by type of outcomes

PR5Practices related to customer satisfaction, including results of surveys measuring customer satisfaction.

PR6Programmes for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship.

PR7Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship, by type of outcomes

PR8Total number of substantiated complaints regarding breaches of privacy and loss of customer data

PR9Monetary value of significant fines for non-compliance with laws and regulations concerning the provision and use of products and services.

Global Reporting Initiative (GRI) Content Index (continued overleaf) Global Reporting Initiative (GRI) Content Index (end)

fully disclosed

partially disclosed

not disclosed

GRI Application Levels communicate the extent to which the content of the G3.1 Guidelines has been used in the submitted sustainability reporting. The Check confirms that the required set and number of disclosures for that Application Level have been addressed in the reporting and that the GRI Content Index demonstrates a valid representation of the required disclosures, as described in the GRI G3.1 Guidelines.

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Appendix 2. List of Company’s Transactions in the Year 2012 Considered As Major Transactions In Accordance with the Federal Law “On Joint Stock Companies”

No transactions considered to be major transactions under the Federal Law “On joint stock companies” were completed in the accounting year.

List of Company’s Transactions in the Year 2012 Considered As Interested Party Transactions In Accordance with the Federal Law “On Joint Stock Companies”

№ Essential conditionsPersons interested in settlement of the transaction

Management body that took the decision on approval of the transaction

8.

Agreement No. 237/SNGP-2012-P-E of September 3 2012 concluded with SOJSC Gazproektengineering for conducting the design and survey on the basis of TOR ‘Upgrade and further equipping of the technical security equipment set implemented at the Yuzhno- Russkoye oil and gas field’. The agreement amount is 25 696 084.86 incl. VAT. Implementation time from September 3, 2012 to June 30 2013

JSC Gazprom, shareholder of the Company

Board of Directors, Minutes No.63/2012of August 7, 2012

9.

Agreement No. 339-2012 of May 12 2012 concluded with LLC TyumenNIIgiprogaz for development of works based on TOR ‘Design supervision of development of Turonian gas deposit of the Yuzhno- Russkoye oil and gas field’ in the amount of RUB 2 999 973 incl. VAT. Implementation time from 02 April and until November 30 , 2012.


General Meeting, Minutes No.19/2011 of June 30, 2011

10.

Agreement No. 340-2012 of May 12 2012 concluded with LLC TyumenNIIgiprogaz for development of works based on TOR ‘Design supervision of development of Cenomanian gas deposit of the Yuzhno- Russkoye oil and gas field’ in the amount of RUB 4 999 660 incl. VAT. Implementation time from 02 April and until November 30, 2012.



11.

Agreement No. 101/SNGP-2012-P-K of April 24, 2012 concluded with OJSC Georesurs for performance of geophysical exploration and works in wells during development control of Yuzhno- Russkoye oil and gas field. The agreement amount is RUB 86 ,522,961.45 incl. VAT. Implementation time from April 24, 2012 and until February 15, 2013.


General Meeting, Minutes No.19/2011 of June 30 2011

12.

Agreements of deposits in Rubles and foreign currency with the maximum amount on each transaction not exceeding RUB 1,000,000,000 pursuant to General Agreement No. 34/SNGP-2009 of March 11, 2009 concluded with Gazprombank (Open Joint Stock Company).


General Meeting, Minutes No. 19/2011 of June 30, 2011

13.

Agent commission No.38-АD-010/46-8 of November 19, 2012, according to which the Company (principal) commissions, and LLC Gazprom komplektatsiya (agent) concludes supply contracts of chemicals for the Company from its own name but at the cost of the principal in the amount of 50,185, 400. Time of delivery 1-4 Q of 2013.



14.

Supplementary Agreement No. 8 of December 10, 12.2012 to Agreement No.13/SNGP-2007 of March 12, 2007 concluded with JSC Gazprom SOJSC Tsentrenergogas, according to which JSC Gazprom SOJSC Tsentrenergogas conducts manufacturing and repair of standard and non-standard equipment of Yuzhno- Russkoye oil and gas field’. Cost of works according to the price list. The agreement amount is 800 000 RUB incl. VAT. Implementation time is extended until December 31, 2013.



15.

Agreement No. 218/SNGP-2012-P-O of July 25, 2012 concluded with LLC ‘Firma Gazenergonaladka’ OJSC Gazenergoservis for operational tuning of gas burner units BOR-30-1/2 of Yuzhno- Russkoye oil and gas field. The agreement amount is 490,303.05 RUB incl. VAT. Implementation time from 01 September 2012 to November 30, 2012.



16.

Supplementary Agreement No. 15 of December 29, 2012 to Gas Supply Agreement No.25 Pk-2007 of December 13, 2007 concluded with JSC Gazprom on setting the price of gas supplied in the first half of the year of 2013 in the amount of RUB 1,360.27 per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom, shareholder of the Company, Members of the Board of Directors: A. I. Medvedev, O. P. Pavlova, V. V. Cherepanov

General Meeting, Minutes No.26/2012 of December 27, 2012

17.

Supplementary Agreement No. 12 of 29.12.2012 to29.12.2012 to Gas Supply Agreement No.28 Pk-2007 of December 13, 2007, 2007 concluded with CJSC Gazprom YRGM Trading on setting the price of gas supplied in the first half of the year of 2013 in the amount of RUB 1,360.27 per1,360.27 per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom, shareholder of the Company, Member of the Board of Directors: М. Mehren

General Meeting, Minutes No. 26/2012 of December 27, 2012

18.

Supplementary Agreement No. 8 of December 29, 2012 to2012 to Gas Supply Agreement No.144/SNGP-2009 of 29.10.2009 concluded with CJSC Gazprom YRGM Development on setting the price of gas supplied in the first half of the year of 2013 in the amount of RUB ,of RUB, 360.27 per360.27 per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom, shareholder of the Company, Members of the Board of Directors: F.Sivertsen, A.Weatherill

General Meeting, Minutes No. 26/2012 of December 27, 2012

List of Company’s Transactions in the Year 2012 Considered As Interested Party Transactions In Accordance with the Federal Law “On Joint Stock Companies” (end)

№ Essential conditionsPersons interested in settlement of the transaction

Management body that took the decision on approval of the transaction

1.

Supplementary Agreement No. 16 of March 21, 2012 to Agreement for maintenance of the inscribed stock holders register No. Э-203-2005 of August 15 2005 concluded with CJSC SR-DRAGa on the change of the Registrar services starting from January 1 2012. The agreement amount is RUB 145,350 per year VAT included.


Board of Directors, Minutes No.59/2012of March 12, 2012

2.

Supplementary Agreement No. 13 of April 19, 2012 to Gas Supply Agreement Pk-2007 of December 13, 2007 concluded with JSC Gazprom, according to which the change affects the gas supply location (location of gas handover and the change of ownership) from the Supplier (the Company) to the Buyer (JSC Gazprom).


Board of Directors, Minutes No.59/2012of March 12 2012

3.

Supplementary Agreement No. 14 of June 29, 2012 to Gas Supply Agreement No.25 Pk-2007 of December 13, 12.2007 concluded with JSC Gazprom, on setting the price of gas supplied in the second half of the year of 2012 in the amount of RUB 1,413.25 per 1,000 cu.m. of gas (excl. VAT).


General Meeting, Minutes No. 24/2012 ofJune 15, 2012

4.

Supplementary Agreement No. 11 of June 29, 2012, 2012 to Gas Supply Agreement No.28 Pk-2007 of December 13, 2007 concluded with CJSC Gazprom YRGM Trading, on setting the price of gas supplied in the second half of the year of 2012 in the amount of RUB 1,413.25 per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom, shareholder of the Company, Member of the Board of Directors: M.Mehren


5.

Supplementary Agreement No. 7 of June 29th, .2012 to Gas Supply Agreement No.14/SNGP- 2009 of October 29, 10.2009 concluded with CJSC Gazprom YRGM Trading, on setting the price of gas supplied in the second half of the year of 2012 in the amount of RUB 1,413.25 per 1, 000 cu.m. of gas (excl. VAT).

JSC Gazprom, shareholder of the Company,Members of the Board of Directors F.Sivertsen, A.Weatherill


6.

Agreement No. 12026 of September 3rd, 2012 concluded with OJSC YUZHNIIGIPROGAZ for conducting the design and exploration work for subject ‘Development of the Yuzhno- Russkoye oil and gas field. Gas plant. Booster compressor department No.1 (2 stage)’ in the amount of RUB 182,000,000 incl. VAT. Implementation time from June 28, and until December 31, 2013



7.

Agreement No. 196/SNGP-2012-P-E-8960 of August 10, 2012 concluded with SOJSC Gazproektengineering for developing the single-stage design ‘System of information security of Yuzhno- Russkoye oil and gas field information-management system’. The agreement amount is RUB 14,226,070.56 incl. VAT. Implementation time from August 15, to June 30, 2013



List of Company’s Transactions in the Year 2012 Considered As Interested Party Transactions In Accordance with the Federal Law “On Joint Stock Companies”

Documents

AnnuAl RepoRt - Severneftegazprom