STRIVING FOR MORE - Gazprom Neftir.gazprom-neft.com/fileadmin/user_upload/documents/shareholders... · 38 Competitive position of Company ... 42 Key strategic targets and business

2014 ANNUAL REPORT

STRIVING FOR MORE

OVERVIEW OF KEY INDICATORS

MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS

MESSAGE FROM THE CHAIRMAN OF THE MANAGEMENT BOARD

CONTENTS

4

6

BUSINESS MODEL 20

REGIONS OF OPERATION 22

INVESTMENT APPEAL

10 Leader in efficiency12 Future growth14 Implementation of declared strategy16 Opportunities for investors

8

26 Global oil and gas market26 Oil consumption26 Oil production 27 Production and consumption ratio27 Drop in prices28 Change in market prices for oil and

petroleum products29 Russian oil and gas market29 Stable growth in domestic oil

consumption30 Taxation37 Transportation of oil and petroleum

products 38 Competitive position of Company

MARKET OVERVIEW 2441 Strategy42 Key strategic targets and business

objectives of Gazprom neft until 2025 by operating segment

44 Plans for 2015

STRATEGY IN ACTION 40

47 Key financial results49 Sales revenue52 Expenses and other costs55 EBITDA and net profit56 Cash flows58 Capital investments59 Debt and liquidity59 Financial ratios

61 Hydrocarbon balance – Production

62 Raw materials base63 Hydrocarbon production69 Purchase of oil70 Oil refining72 Sales of oil and petroleum products72 Sale of petroleum products

on the domestic market73 Export of oil and petroleum products75 Filling station network sales77 Sales by product business unit85 Petrochemistry86 R&D and innovation86 Innovations in oil refining and

petrochemistry 87 Innovations in hydrocarbon production

OPERATING RESULTS 60

2

Online version of 2014 Annual Report

FINANCIAL RESULTS 46

136 Industrial, environmental and occupational safety

137 Industrial safety and occupational safety

138 Mitigating a negative environmental impact and the efficient use of resources

142 Energy efficiency143 Exploration and production unit144 Logistics, refining and sales unit145 Human resource development145 Profile of personnel146 Remuneration and social support

of personnel147 Training and development148 Internal communications149 External communications150 Regional policy and development

of local communitiesof local communities

153 Consolidated financial statements (IFRS)

213 Major transactions and related party transactions

APPENDIX 15289 Corporate governance system91 Meeting of shareholders91 Board of Directors100 Committees of the Board of Directors101 Management Board108 Remuneration for members

of the Board of Directors and Management Board

109 Internal Audit Department110 Compliance with the Corporate

Governance Code111 Interaction with investors and equity

capital111 Equity capital113 Listing

CORPORATE GOVERNANCE

114 Dividend history115 Participation in depository receipts

programme116 Debt portfolio management

and credit ratings119 Mechanisms of interaction

with investors120 Q&A122 Key risk factors122 Risk management system125 Market risks127 Country and regional risks128 Operational risks130 Financial risks131 Legal risks

88

LEGEND

Link to materials inside Annual Report

Link to interactive content

SCOPE OF CONSOLIDATION

In this report, the terms Gazprom Neft, the Company and the Gazprom Neft Group refer to Gazprom Neft and its consolidated subsidiaries. This report presents the Group's condition and operating results on a consolidated basis.

SUSTAINABLE DEVELOPMENT 1341

www.gazprom-neft.comGAZPROM NEFT 2014 ANNUAL REPORT

OVERVIEW OF KEY INDICATORS

Key operating indicators 2010 2011 2012 2013 2014 Change 2014/2013, %

Proved hydrocarbon reserves (PRMS-SPE), mn TOE11 1,023 1,130 1,200 1,343 1,443 7.45

Hydrocarbon reserve replacement ratio under category 1Р, % 110 291 222 336 254 –82.00 p.p.

Refining/production ratio, % 76 81 85 84 84 –

Production of marketable hydrocarbons by the Gazprom Neft Group, mn TOE

52.81 57.25 59.71 62.26 66.25 6.41

Oil refining, mn t 37.90 40.49 43.34 42.63 43.48 1.99

at own refineries, mn t 30.75 33.10 33.76 34.06 34.66 1.76

at contracted refineries, mn t 7.15 7.39 9.58 8.57 8.82 2.92

Oil exports, mn TOE 18.96 16.07 16.62 12.34 9.63 –21.96

Sales of petroleum products, mn t 37.20 41.50 44.03 45.74 48.30 5.60

Export of petroleum products, mn t 14.05 14.68 16.48 16.82 17.73 5.41

Number of active petrol stations (owned, leased and franchised) 1,596 1,670 1,609 1,747 1,810 3.55

Average sales of petroleum products per filling station2, tonnes per day 10.3 14.2 17.6 19.0 20.0 5.26

Key sustainable development indicators 2010 2011 2012 2013 2014 Change 2014/2013, %

Average number of personnel, persons 64,895 58,905 65,829 55,975 57,515 2.75

Cost of implementing “Hometowns” programme, bn RUB – – 2.4 3.7 4.5 21.62

Injury rate (LTIFR) 0.59 0.64 0.65 0.44 0.52 0.08

Tax payments to the consolidated budget of the Russian Federation3

2010 2011 2012 2013 2014 Change 2014/2013, %

Fiscal payments, mn RUB, including: 317,302 482,628 523,467 489,136 560,085 14.50

Federal budget 104,199 195,859 234,247 245,175 278,197 13.47

Regional budget 26,044 45,350 32,605 37,718 36,209 –4.00

Extra-budgetary funds 2,157 4,379 5,898 7,208 9,489 31.65

Export duties 184,902 237,041 250,717 199,035 236,190 18.67

Proved hydrocarbon reserves (PRMS-SPE), mn TOE1

2011

2012

2013

2014 1,443

1,343

1,200

2010

1,130

1,023

1,443 7.45%

Production of marketable hydrocarbons by the Gazprom Neft Group, mn TOE

2011

2012

2013

2014 66.25

62.26

59.71

2010

57.25

52.81

66.25 6.41%

Average sales of petroleum products per filling station, tonnes per day

2011

2012

2013

2014 20.0

19.0

17.6

2010

14.2

10.3

20.0 5.26%

2

Key financial indicators 2010 2011 2012 2013 2014 Change 2014/2013, %

Sales, mn RUB 999,498 1,291,596 1,519,450 1,504,037 1,690,557 12.40

Sales revenue, mn RUB 793,871 1,029,803 1,232,649 1,267,603 1,408,238 11.09

Adjusted EBITDA, mn RUB 220,812 300,077 323,106 336,752 342,614 1.74

Net profit attributable to Gazprom Neft, mn RUB 95,692 160,362 176,296 177,917 122,093 –31.38

Net cash generated from operations, mn RUB 163,718 180,871 247,748 276,736 283,965 2.61

Capital investments, mn RUB 100,247 29,157 169,213 208,611 271,330 30.07

Dividends paid, mn RUB 21,051 34,611 44,094 44,473 21,9054 –Net debt, mn RUB 165,398 191,628 156,922 185,922 433,602 133.22

Share price for the end of the year (MICEX), RUB 128.27 148.18 142.52 146.77 143.00 –2.57

Total shares, mn 4,741 4,741 4,741 4,741 4,741 –

including treasuries, mn 23 23 23 23 23 –

Base and diluted earnings per common share, RUB per share 20.35 33.99 37.37 37.71 25.88 –31.37

Dividend per share, RUB 4.44 7.30 9.30 9.38 4.624 –

Return on average capital employed, % 15.83 20.58 19.38 17.44 13.07 –4.37 p.p.

Adjusted EBITDA margin, % 27.81 29.14 26.21 26.57 24.33 –2.24 p.p.

Adjusted EBITDA per barrel produced, RUB/BOE 566.99 711.70 735.97 736.20 701.93 –4.65

Net profit margin, % 12.05 16.28 14.94 14.73 8.99 –5.74 p.p.

Net profit per barrel produced, RUB/BOE 268.16 397.67 419.46 408.20 259.48 –36.43

Return on equity, % 17.91 24.99 23.03 19.99 11.90 –8.09 p.p.

Leverage ratio (Gearing), % 20.48 20.81 15.28 15.70 27.73 12.03 p.p.

Current ratio 1.44 1.98 1.75 2.08 1.88 –0.20 p.p.

1 Excluding NIS a.d. Novi Sad.2 Calculation for filling stations in Russia.3 Consolidated data for OJSC Gazprom Neft and Russian subsidiaries, excluding joint ventures and proportionately consolidated enterprises.4 For the first half of 2014.

The text of the Report may contain inaccuracies in the calculation of proportions, percentages and amounts when rounding estimated values. The data cited in the Annual Report may differ slightly from previously published data due to the difference in rounding.

Sales, mn RUB

2011

2012

2013

2014 1,690,557

1,504,037

1,519,450

2010

1,291,596

999,498

1,690,557 12.40%

Adjusted EBITDA, mn RUB

2011

2012

2013

2014 342,614

336,752

323,106

2010

300,077

220,812

342,614 1.74%

Net cash generated from operations, mn RUB

2011

2012

2013

2014 283,965

276,736

247,748

2010

180,871

163,718

283,965 2.61%

3


MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS

Dear Shareholders and Investors,

Last year was a rather difficult one – a significant decline in global hydrocarbon prices could not help but impact the oil and gas sector. However, the internal potential of business reveals itself amidst challenging external conditions, and on behalf of the Company’s Board of Directors I would like to note that the operating results of Gazprom Neft clearly demonstrate this.

OPERATIONAL PERFORMANCEThe year 2014 was marked by significant achievements of Gazprom Neft in operating activities: the Company is the industry leader in terms of production growth dynamics and average daily sales of petroleum products via filling stations and it also holds leading positions on the market for innovative bituminous materials. A pioneer in the development of the Russian shelf, last year Gazprom Neft became the first company to introduce an Arctic blend of oil to the market that was produced at the Prirazlomnoye field in the Pechora Sea.

I am proud to note that today Gazprom Neft is the only oil company in Russia that has achieved growth in production at mature fields in Western Siberia. In just the last five years, production by Gazprom Neft has increased by more than a quarter, reaching 66.25 mn TOE last year. The Company is on track to meet the goal specified by the long-term development strategy – to produce 100 mn TOE per year.

The quantitative growth in the oil refining segment – the Company increased the volume of crude refined at oil refineries by 2% in 2014 – was accompanied by qualitative growth as well: Gazprom Neft refineries are already producing Euro-5 standard fuel for Russian consumers. In 2014, active preparations were made to implement large-scale projects for the next phase of the oil refinery modernisation programme, which aims to increase refinery yield indicators and the output of light petroleum products. I am certain that over the next few years Gazprom Neft refineries will be highly competitive with the world’s best oil refining enterprises in terms of technological equipment.

EFFECTIVE MANAGEMENTThe Company continued to improve corporate governance principles: last year Gazprom Neft paid shareholders interim dividends amounting to 25% of the Company’s net profit under IFRS. In 2014, Gazprom Neft maintained leading positions in the industry in terms of efficiency and ranked first among Russian companies in terms of return on invested capital, an indicator that is important to us.

The contribution by the Gazprom Neft team to the Company’s financial results deserves high praise. Despite the change in economic conditions, which was bound to affect the results of the Company’s operations in 2014, Gazprom Neft ensured a 12.4% increase in sales to more than 1.69 bn RUB. Adjusted for the loss from foreign exchange rate differences, the Company’s net profit also increased by 3.7% and totalled RUB 188 bn.

All these achievements are primarily the result of work performed by the professional Gazprom Neft team, which always ensures the highest efficiency and aims for the best results. The Company is demonstrating its readiness to face any challenges and solve problems of any complexity on the way to achieving its strategic goals.

ALEXEY MILLERCHAIRMAN OF THE BOARD OF DIRECTORS OF OJSC GAZPROM NEFT

5


MESSAGE FROM THE MANAGEMENT BOARD CHAIRMAN

Dear Shareholders and Investors,

Evaluating the Company’s work in 2014, I can state that Gazprom Neft adequately met the challenges of the changing macroeconomic situation and demonstrated steady growth in its production indicators. I believe that such difficult periods test the soundness of the strategies we have chosen. From the very beginning, we have relied on sustainable development and efficiency and we continue to build the Company based on these same principles.

STRONG OPERATING RESULTS2014 was a year full of big and important events. Gazprom Neft began providing European consumers with the first supplies of the new Arctic oil blends: ARCO, which is produced at the Prirazlomnaya platform, and Novy Port from the Novoportovskoye field on the Yamal Peninsula. Commercial operations were launched at the Badra field in Iraq, the Company’s largest foreign production project.

Given the changed macroeconomic conditions, Gazprom Neft management will focus on improving the efficiency of all the Company’s business processes. Our main objectives in 2015 will be to maintain high rates of production growth and operating efficiency at oil refineries, further develop premium sales channels and improve the level of the Company’s technological efficiency.

I am confident that we have already created a sufficient safety margin to continue to move forward towards our planned strategic goals.

PLANS TO IMPROVE EFFICIENCY OF BUSINESS PROCESSES

The development of projects in Russia and abroad has enabled Gazprom Neft to achieve record growth in oil production for the Russian oil industry of more than 6% and the Company has also replaced the production volume with new reserves five-fold. In 2014, Gazprom Neft had proved and probable reserves of 2.55 bn TOE, up by more than 11% compared with 2013.

PRODUCTION INNOVATIONSOne of the most important areas of work in 2014 was the introduction of new technologies at mature fields. This resulted in production growth at assets that have already been under development for decades. We managed to achieve such results thanks to an increase in the proportion of high-tech wells – the Company currently occupies leading positions among Russian oil industry enterprises in terms of this indicator.

MODERNISATION OF OIL REFINING ASSETSThe Company increased the volume of oil refining by 2% to 43.48 mn tonnes in 2014. After completing a quality programme and switching to the production of Euro-5 standard fuel, Gazprom Neft in 2014 began implementing the second phase of a programme to modernise its oil refineries with an increase in refinery yield and the output of light petroleum products. Omsk Oil Refinery, the largest refining asset of Gazprom Neft, maintained its commanding lead in the industry in 2014 by refining a one-year record of 21.3 mn tonnes of petroleum feedstock.

DEVELOPMENT OF SALES CHANNELSThe Company continued to modernise its tank farm facilities and actively developed premium sales of petroleum products: growth in sales in high-margin segments of the market totalled 7.5% in 2014.

Last year the Company took a serious step forward in the development of the bitumen business by establishing a specialised operator – Gazpromneft-Bituminous Materials. After purchasing Russia’s largest polymer-modified bitumen production asset – the Ryazan Petrochemicals Experimental Plant – and launching the production of new generation G-Way Styrelf jointly with France’s Total at the Moscow Oil Refinery, Gazprom Neft became a leader on the modern bituminous materials market in 2014.

We are entering new sales markets and forming our own technological strategy that is synchronised with the long-term business development strategy. This will enable us to more actively develop our own innovative potential and maximise the return on investments in high-tech areas of work. Despite growth in investment activity, the Company intends to maintain dividend payments to shareholders at the level of 25% of net profit.

ALEXANDER DYUKOVCHAIRMAN OF THE MANAGEMENT BOARD, CHIEF EXECUTIVE OFFICER OF OJSC GAZPROM NEFT

Watch a video message from the Chairman of the Management Board

7


STRIVING FOR MORE

INVESTMENT APPEAL

LEADER IN EFFICIENCY

FUTURE GROWTH

For details, see page 10


In 2014, the Company held leading positions on the Russian market in terms of several indicators. Leading analysts agree that Gazprom Neft has great potential for growth in value over the long term.

GREAT PROSPECTS

IMPLEMENTATION OF DECLARED STRATEGY

OPPORTUNITIES FOR INVESTORS



9

INVESTMENT APPEAL

LEADER IN EFFICIENCYIN 2014 THE COMPANY LEADED THE RUSSIAN MARKET IN TERMS OF SEVERAL KEY INDICATORS

ROACE, %

6.2

min max

Gazprom Neft

13.07

Specific adjusted EBITDA, USD/BOE

Gazprom Neft

12.2

min max

18.3 20.4

13.07%return on average capital employed (ROACE) in 2014

Average sales of petroleum products per filling station, t per day

min max

Gazprom Neft

20.0

Share of high-tech wells, %

8.7

min max

Gazprom Neft

39.5

Growth of hydrocarbon production, %

–3.2

min max

Gazprom Neft

6.41

20.0 t per dayAverage sales of petroleum products per filling station in 2014


11

Source: OJSC Gazprom Neft, OJSC Oil Company Rosneft, OJSC Lukoil, OJSC Surgutneftegas

6.41%growth of hydrocarbon production as compared to 2013

12

INVESTMENT APPEAL

FUTURE GROWTHASSETS ACQUIRED FROM OJSC GAZPROM

Gazprom Neft has become the trustee of a 50% stake in CJSC Northgas controlled by the OJSC Gazprom.

In May 2014, Gazprom Neft Shelf became a wholly owned subsidiary of Gazprom Neft.

73.2 mn TOEGrowth in 2Р SPE-PRMS reserves thanks to the acquisition of CJSC Northgas and LLC Gazprom Neft Shelf


13

C E A

I V

JUNIN-6

SERBIA

HUNGARYROMANIA

BOSNIAAND HERZEGOVINA

BADRASHAKAL

GARMIANHALABJA

PD

N P

SEK

C

M

Expansion of portfolio of new projects in 2014 SEVERENERGIA PRIRAZLOMNOYE NORTHGASMarch 2014 May 2014 July 2014 – Agreement reached on the final 50/50 ownership scheme with OJSC NOVATEK – First stage of ownership scheme restructuring completed, effective stake – 45.1%

– 100% consolidation of assets within the perimeter of Gazprom Neft

– Effective stake of 9.1% purchased in CJSC Northgas (North Urengoy field)


PORTFOLIO OF NEW PROJECTS

The portfolio of new projects ensure the Company's future growth.

14

INVESTMENT APPEAL

IMPLEMENTATION OF DECLARED STRATEGYNEW TECHNOLOGIES: MAINTAINING AND INCREASING PRODUCTION AT MATURE FIELDSIn 2014, Gazprom Neft increased production volume at mature fields as a result of: � the implementation of a programme for the high-tech development of

the oil and gas bearing strata (OJSC Gazpromneft-Noyabrskneftegaz, LLC Gazpromneft-Khantos): the number of wells drilled using the horizontal method increased by 17% from 184 to 215 wells, including a 4% increase in the number of wells drilled with multi-stage fracturing from 137 in 2013 to 142 in 2014;

� involvement in the development of 15 mn tonnes of hard-to-recover reserves.

OJSC Gazpromneft-Noyabrskneftegaz increased production 0.4%, the first time in nine years that production has not declined.

Oil production at OJSC Gazpromneft-Noyabrskneftegaz, mn t

0.4%

15.0

14.92013

2014

Oil production at the fields: Karamovskoye, Novogodneye, Kholmistoye and Yaraynerskoye, mn t

40.5%

0.8

0.52013

2014

Source: Company data



15

Key results of the Prirazlomnoye project in 2014: � Four oil tankers dispatched (total of approximately 300,000 tonnes). � Drilling completed on second injection well. � 100% asset consolidation within the perimeter of Gazprom Neft.

Key results of the Novy Port project in 2014: � August, Mys Kamenny village: the first summer shipment of Novy Port

oil (registered trademark), which is superior to the benchmark Brent blend in terms of its quality characteristics.

� A ceremony to mark the start of the first offshore oil shipment was timed to the 50th anniversary of the opening of the Novoportovskoye oil and gas condensate field.

� The oil was loaded onto the ship using a temporary procedure in accordance with a design that has undergone an environmental expert evaluation and has been approved at public hearings.

� Approximately 100,000 tonnes of oil shipped in total.

Key results of the Badra project in 2014: � Wells BD4 and BD5 were completed in August with a flow rate of over

15,000 barrels per day. � Oil production began at the field in May. � Oil started being pumped into the Iraqi oil pipeline system and a

ceremony was held to mark the opening of the field in July. � The field produced its one millionth barrel in October. � Commercial production was achieved in November for the start of cost

recovery.

THE FIRST ONES OFFSHORE

FIRST SUMMER SHIPMENT OF YAMAL OIL

BADRA ON TRACK

16

INVESTMENT APPEAL

OPPORTUNITIES FOR INVESTORS

PROSPECTS FOR GROWTH IN VALUE

LLC URALSIB CAPITAL

“Gazprom Neft remains our favorite in the oil and gas sector. Tax cuts for East Siberian projects make it more likely that its ambitious plans for geological exploration and production in 2014-2020 will turn into a reality. Gazprom Neft is currently trading at a discount versus the majority of comparable domestic companies despite its excellent growth prospects and the anticipated high dividend yield in 2013-2015. Getting the Prirazlomnoye and Dolginskoye fields from Gazprom, extending benefits on export duties for new fields in the Yamalo-Nenets Autonomous District and lowering the mineral extraction tax rate for oil in tight formations should become a catalyst for growth in share quotes in the long term”.

November 2014

OJSC SBERBANK

“We have already noted the stability of the operating margin of Gazprom Neft while maintaining quarterly EBITDA at a level of 2.0-2.3 bn USD for almost four years now. We believe that this trend will also continue until the end of 2015 after which production from new fields will begin contributing and facilitating growth in profit”.

September 2014

According to leading analysts from major investment companies, Gazprom Neft is one of the best companies in terms of its current position and potential for development within the Russian oil and gas industry compared with its competitors.

Stock market players have high praise for the Company’s strong profit margins and stable financial results.


17The market believes the Company’s investment history remains appealing despite the low liquidity of its shares and complicated geopolitical situation in 2014. The foundation for the Company’s future growth includes the new production projects Yamal, Messoyakha, Novy Port and Prirazlomnoye, which are capable of ensuring growth in production until 2025. In addition, the experience gained from stabilising production at mature fields and developing complex technologies for the development of fields lowers dependence on Western contractors and essential technological solutions. Along with a high level of operating efficiency, the favourable location and modernisation of oil refineries, strong market positions and high sales growth rates in the premium market segments are all factors that provide significant competitive advantages for the Company by creating considerable potential for growth in its value in the long term.

Gazprom Neft is trading at a significant discount versus its peers from developed and emerging markets and also versus Russian VIOC for such indicators as price/earnings ratio (P/E) and the enterprise value versus EBITDA ratio (EV/EBITDA). Almost all market players also acknowledge the Company’s leading positions in terms of dividend yield.

OJSC GAZPROMBANK

“Sanctions have caused moderate damage, but the investment history of Gazprom Neft remains attractive”.

November 2014

OJSC GAZPROMBANK

“Gazprom Neft is trading at a level of 3.3 for 2015 P/E and at a level of 2.3 for EV/EBITDA with discounts of 23% and 1% versus Russian VIOC; it’s 60% and 46% versus peers from emerging markets and 69% and 44% for peers from developed markets. The dividend policy, which involves payment of 25% of IFRS net profit, provided the second highest yield in 2014 on common shares in the Russian oil and gas sector at 6.4%.“Gazprom Neft is one of the main beneficiaries of tax benefits in terms of dividend yield”.

November 2014

LLC IC VELES CAPITAL

“In 2014, we expect growth in dividends, which suggests a dividend yield versus current quotes around the level of 7.1% and makes Gazprom Neft the second most attractive stock in the sector (after the preferred shares of Surgutneftegas) in terms of dividend yield”.

May 2014

Continued on next page

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100

120

140

160

180

200

220

40

50

60

70

80

90

100

110

120

Jan. 2014 Feb. 2014 Mar. 2014 Apr. 2014 May 2014 June 2014 July 2014 Aug. 2014 Sep. 2014 Oct. 2014 Nov. 2014 Dec. 2014 Jan. 2015 Feb. 2015 Mar. 2015 Apr. 2015

Price of one share of Gazprom Neft, RUB Consensus forecast for price of one share of Gazprom Neft, RUB Price for Brent oil, USD/BOE Company undervaluation

18

INVESTMENT APPEAL

OPPORTUNITIES FOR INVESTORS(continued)

The stock market also has high praise for the Company’s strong management.

According to several leading analysts, the Company is significantly undervalued by the market in 2014 compared with its competitors. Gazprom Neft shares are undervalued by more than 40% (as of 31 December 2014). This is largely due to the restricted liquidity of the Company’s shares. The potential for growth in hydrocarbon production, a high proportion of refining, expanded sales in premium segments and the active development of new production projects, along with a high level of operating efficiency, are all factors that provide significant competitive advantages for the Company by creating considerable potential for growth in its value in the long term.

OJSC GAZPROMBANK

Gazprom Neft management has earned an excellent reputation by developing a very ambitious strategy for the Company’s development back in 2006-2007. At the same time, the Company’s leadership has demonstrated the ability to achieve the goals it sets by fundamentally transforming the Company over the period from 2007 to 2014 via the effective development of existing assets, an effective mergers and acquisitions policy as well as establishing joint ventures with such key oil and gas sector players as OJSC Rosneft and OJSC NOVATEK.

November 2014

Analysts and investors believe that the incentives introduced by the government on the mineral extraction tax and export duties to stimulate growth in production at new fields will have a positive effect on the economic indicators of the Company’s projects and accelerate their return on investment.

Recommendations of analysts for Gazprom Neft shares

Investors and investment analysts offer a positive assessment of the Company’s history since it joined the Gazprom Group in 2006 until today.

Analysts Date Recommendation Tgt Px, RUR

Ak Bars Bank 11.08.2014 Buy 184.0

Alfa Bank 03.10.2014 Buy 190.4

JP Morgan 23.01.2015 Sell 175.0

Raiffeisenbank 27.01.2015 Buy 182.0

Investcafe 19.02.2015 Buy 232.0

BrokerCreditService 26.02.2015 Buy 256.5

BofAML 02.03.2015 Buy 175.0

Gazprombank 03.03.2015 Buy 201.2

Sberbank 03.03.2015 Buy 311.1

UBS 03.03.2015 Buy 187.1

UFS 03.03.2015 Hold 180.0

Deutsche Bank 04.03.2015 Buy 205.0

Goldman Sachs 04.03.2015 Hold 189.6

Citi 06.03.2015 Buy 201.8

1 Calculated on the basis of dividends declared in the corresponding year in RUB versus the value of one share in RUB on the Moscow Exchange as of 1 January.

Buy

Sell


19

Source: Bloomberg, bank data

Source: Bloomberg, Company data: OJSC Gazprom Neft,

OJSC Oil Company Rosneft, OJSC Lukoil, JSOC Bashneft,

JSC Tatneft

ASSESSMENT OF INVESTMENT APPEAL

A HIGH LEVEL OF INFORMATION TRANSPARENCY

DIVIDEND YIELD

20132012 2014

Коридор между максимальным и минимальным значениями на рынкеГазпром нефть

7.32 6.59

3.893.81

5.53

Газпром нефть

9.21

2012 2013 2014


1.6

7.24.8

6.7

9.3

4.1

10.6

3.0

11.9


20132012 2014


5.05 4.78

2.552.54

3.23


4.30

In 2014, Gazprom Neft shareholders and investors were able to get a close look at oil production processes at the Novoportovskoye field on the Yamal Peninsula and oil refining at the Moscow Oil Refinery.

In 2014, the Company was presented with several awards for its interaction with investors: � The Gazprom Neft IR website received

the Silver Award in the Stevie Awards international rating of corporate relations in the category of Best Investor Relations Site;

� The Company’s corporate Annual Report received six awards at prestigious national and international competitions of annual reports.

Ratio of the Company’s market capitalisation versus annual earnings (P/E)

Dividend yield1, %

Ratio of Company’s value versus earnings before taxes (EV/EBITDA)

Corridor between maximum and minimum values on marketGazprom Neft

BUSINESS MODEL

48.302 mn t

BALANCEOF PETROLEUM PRODUCTS

9.91 mn t

11.48 mn t

8.29 mn t

18.62 mn t

3.78 mn t

72.88 mn TOE

PURCHASE OF OILON INTERNATIONAL

MARKET

SALE OF CRUDE OILON INTERNATIONAL

MARKET

GAS SALESIN THE RF

PRODUCTIONABROAD1

PRODUCTIONIN THE RF

PURCHASEOF OIL IN THE RF

HYDROCARBONBALANCE

4.97 mn t 10.76 bn m3

1.66 mn t 9.76 mn t

64.51 mn TOE

1.74 mn TOE

58.69 mn t

17.68 bn m3

oilgas

CRUDE OIL SALESIN THE RF

4.90 mn t

0.13 bn m3

GAS SALESABROAD

PURCHASE OFPETROLEUM PRODUCTS

ABROAD

PREMIUM SALESCHANNELS3

FILLINGSTATIONS

PETROLEUMSTORAGEDEPOTS

DIRECTWHOLESALE


IN THE RF

2.39 mn t

41.64 mn t

YIELDOF PRODUCTS

Additional information on business models is available in the online version of the Annual Report

20

48.302 mn t

BALANCEOF PETROLEUM PRODUCTS

9.91 mn t

11.48 mn t

8.29 mn t

18.62 mn t

3.78 mn t

72.88 mn TOE

PURCHASE OF OILON INTERNATIONAL

MARKET

SALE OF CRUDE OILON INTERNATIONAL

MARKET

GAS SALESIN THE RF

PRODUCTIONABROAD1

PRODUCTIONIN THE RF

PURCHASEOF OIL IN THE RF

HYDROCARBONBALANCE

4.97 mn t 10.76 bn m3

1.66 mn t 9.76 mn t

64.51 mn TOE

1.74 mn TOE

58.69 mn t

17.68 bn m3

oilgas

CRUDE OIL SALESIN THE RF

4.90 mn t

0.13 bn m3

GAS SALESABROAD


ABROAD

PREMIUM SALESCHANNELS3

FILLINGSTATIONS

PETROLEUMSTORAGEDEPOTS

DIRECTWHOLESALE


IN THE RF

2.39 mn t

41.64 mn t

YIELDOF PRODUCTS

1 Excluding Nis a.d. Novi sad.2 Including own consumption/change in balances of 0.5 mn t.3 Sales through Gazprom Neft’s sales subdivisions in Russia and filling stations of Nis a.d. Novi sad.

21


REGIONS OF OPERATION

24

38

753

28 27

65

25

79

89

23

26915

1618

7 6

5

77

47

7635

43

59

44

5360

67

39

69

373352

211213

5873

4032

57 7146

48 62

68

6364

3136

61

8329

51

10

11

14

70

42

19

72

66

457456

2

4

54

86

55

78

50

30

34

GAZPROM NEFT AROUND THE WORLD

Angola

Bulgaria

Bosnia and Herzegovina

Hungary

Venezuela

Iraq

Italy

Kazakhstan

Kyrgyzstan

Latvia

Republic of Belarus

Romania

Serbia

Tajikistan

Ukraine

Estonia

24

38

753

28 27

65

25

79

89

23

26915

1618

7 6

5

77

47

7635

43

59

44

5360

67

39

69

373352

211213

5873

4032

57 7146

48 62

68

6364

3136

61

8329

51

10

11

14

70

42

19

72

66

457456

2

4

54

86

55

78

50

30

34

The online version of the Annual Report contains additional information about the distribution by region of: � new projects, � geological prospecting, � production projects, � refining and sales assets, � average number of employees.

22

Code

Region Prod

uctio

n

Subs

oil u

se

Gazp

rom

neft

M

arin

e Bu

nker

Gazp

rom

neft

-Ae

ro

Refin

ing

Lubr

ican

ts

Bitu

min

ous

mat

eria

ls

Reta

il sa

les

Who

lesa

le

4 Altai Territory ● ●

28 Amur Region ● ●

29 Arkhangelsk Region ● ●

30 Astrakhan Region ● ●

31 Belgorod Region ●

32 Bryansk Region ● ●

74 Chelyabinsk Region ● ● ●

21 Chuvash Republic ●

38 Irkutsk Region ● ● ●

37 Ivanovo Region ● ●

79 Jewish Autonomous District ●

7 Kabardino-Balkar Republic ●

39 Kaliningrad Region ● ● ●

40 Kaluga Region ● ●

9 Karachay-Cherkess Republic ●

42 Kemerovo Region ● ● ●

27 Khabarovsk Territory ● ● ●

86Khanty-Mansi Autonomous District-Yugra

● ● ● ●

43 Kirov Region ●

44 Kostroma Region ●

23 Krasnodar Territory ● ● ● ●

24 Krasnoyarsk Territory ● ● ● ● ●

45 Kurgan Region ● ●

46 Kursk Region ● ●

47 Leningrad Region ● ● ● ●

48 Lipetsk Region ● ●

12 Mari El Republic ●

77 Moscow ● ● ● ●

50 Moscow Region ● ● ● ● ●

51 Murmansk Region ● ● ●

83 Nenets Autonomous District ●

52 Nizhny Novgorod Region ● ● ●

53 Novgorod Region ● ●

54 Novosibirsk Region ● ● ● ●

55 Omsk Region ● ● ● ● ● ● ● ●

56 Orenburg Region ● ● ● ●

57 Orlov Region ●

58 Penza Region ●

59 Perm Territory ●

25 Primorye Territory ● ●

60 Pskov Region ● ● ●

2 Republic of Bashkortostan ●

3 Republic of Buryatia ●

5 Republic of Dagestan ●

6 Republic of Ingushetia ●

10 Republic of Karelia ● ●

Code

Region Prod

uctio

n

Subs

oil u

se

Gazp

rom

neft

M

arin

e Bu

nker

Gazp

rom

neft

-Ae

ro

Refin

ing

Lubr

ican

ts

Bitu

min

ous

mat

eria

ls

Reta

il sa

les

Who

lesa

le

19 Republic of Khakassia ●

11 Republic of Komi ●

13 Republic of Mordovia ●

15 Republic of North Ossetia-Alania ●

14 Republic of Sakha (Yakutia) ● ●

16 Republic of Tatarstan ● ●

61 Rostov Region ● ● ●

62 Ryazan Region ● ● ● ●

65 Sakhalin Region ●

63 Samara Region ● ●

64 Saratov Region ● ●

67 Smolensk Region ● ●

78 St Petersburg ● ● ● ●

26 Stavropol Territory ●

66 Sverdlovsk Region ● ● ●

68 Tambov Region ● ●

70 Tomsk Region ● ● ● ● ● ●

71 Tula Region ●

69 Tver Region ● ● ●

72 Tyumen Region ● ● ● ●

18 Udmurt Republic ●

73 Ulyanovsk Region ● ●

33 Vladimir Region ●

34 Volgograd Region ● ●

35 Vologda Region ● ●

36 Voronezh Region ● ●

89Yamalo-Nenets Autonomous District

● ● ● ●

76 Yaroslavl Region ● ● ● ● ● ●

75 Zabaykalsky Territory ● ●

International

Angola ●

Bosnia and Herzegovina1 ●

Bulgaria1 ●

Estonia ●

Hungary1 ●

Iraq ● ●

Italy ●

Kazakhstan ● ●

Kyrgyzstan ● ●

Latvia ●

Republic of Belarus ● ●

Romania1 ● ●

Serbia ● ● ● ● ●

Tajikistan ●

Ukraine ●

Venezuela ●

24

38

753

28 27

65

25

79

89

23

26915

1618

7 6

5

77

47

7635

43

59

44

5360

67

39

69

373352

211213

5873

4032

57 7146

48 62

68

6364

3136

61

8329

51

10

11

14

70

42

19

72

66

457456

2

4

54

86

55

78

50

30

34

1 Countries, where NIS a.d. Novi Sad concessions are located.

23


THE CHALLENGE OF THE CHANGING EXTERNAL ENVIRONMENT

MARKET OVERVIEW

RESULTS IN 2014:

Given the changed macroeconomic conditions, Gazprom Neft management is focusing on improving the efficiency of all the Company’s business processes.

NEW OPPORTUNITIES FOR DEVELOPMENT

10.62 mn barrels/day daily oil production level in Russia in December 2014

1.05 mn barrels/daydaily oil production level by the Gazprom Neft Group

A high level of economic efficiency, a balanced asset portfolio and an integrated business model are some of the competitive advantages of Gazprom Neft that ensure the sustainability of the Company’s strategy under different macroeconomic conditions. The current situation on the oil and petroleum product markets does not jeopardise the relevance of the Company’s strategic objectives and the prospects for their implementation. Despite the deterioration in macroeconomic conditions in 2014, which resulted in a decrease in certain financial indicators for Gazprom Neft, the Company maintained strong growth in its operating results. In 2015, Gazprom Neft will retain the growth rates in production and the high level of operating efficiency of oil refineries while meeting the objectives contained in the Company’s strategy until 2025.

The main factors affecting the results of the Company's operations are as follows: � change in market prices for oil and petroleum products � change in the RUB/USD exchange rate and inflation; � taxation; � change in the tariffs for the transportation of oil and

petroleum products.

MAIN MACROECONOMIC FACTORS AFFECTING PERFORMANCE RESULTS


2525

GLOBAL OIL AND GAS MARKET

Global oil consumption grew 1% in 2014. According to the International Energy Agency, the consumption of liquid hydrocarbons will grow by an average of 1.3% per year.

In 2013, oil consumption by emerging markets surpassed consumption by developed nations. The share of emerging markets in global oil consumption is expected to continue increasing.

Thanks to active growth in oil production from low-permeability rocks, the U.S. increased oil production by 1.21 mn barrels/day in 2014 and reached an average level of 8.65 mn barrels/day, meeting 45% of its demand for oil and significantly reducing imports.

In 2014, U.S. oil production exceeded the 2008 production level by more than 70%. Over the period from 2008 to 2014, U.S. oil production increased by 3.64 mn barrels/day, while over the same period global oil consumption grew by 6.58 mn barrels/day. This combined with other factors influenced the price situation on the oil market.

OIL CONSUMPTION

OIL PRODUCTION

Source: US EIA

Source: US EIA

Share of major oil producing countries in total production in 2014 (production calculated in mn TOE)

RussiaSaudi ArabiaU.S.ChinaCanadaOther

14%

13%

11%

6%

5%

51%

Share of major hydrocarbon consuming countries in total consumption in 2014 (consumption calculated in mn TOE)

U.S.ChinaJapanRussiaIndiaOther

19%

12%

5%

4%

4%

56%

26

MARKET OVERVIEW

Since 2004, rapidly growing consumption in China was the main factor determining the situation on the global oil market. In mid-2014, the Chinese economy experienced a slowdown that affected the dynamics of global oil consumption. At the same time, a decline in global economic growth rates was seen, which became particularly apparent in the third quarter of 2014. These factors had a negative effect on oil prices.

Price dynamics for Brent oil, USD/barrel

Annual change in oil production and hydrocarbon consumption, mn t

0

20

40

60

80

100

120

140

160

2001 2003 2005 2007 2009 2011 2013 2015

Production Consumption

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014–100

–50

0

50

100

150

200

DROP IN PRICES

4.63bn TOEPRODUCTION

4.59bn TOECONSUMPTION

PRODUCTION AND CONSUMPTION RATIO

GLOBAL LIQUID HYDROCARBONS IN 2014

Weekly crude oil production in the U.S., mn barrels/day

Source: US EIA Source: www.tradingeconomics.com

Source: US EIA

2

4

6

8

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

China business activity index (PMI)

Source: Markit Ltd.

48.5

49.5

51.0

51.5

52.0

50.5

49.0

50.0

Jan.2014

Jan.2014

Mar.2014

Apr.2014

May2014

June2014

July2014

Aug.2014

Sept.2014

Oct.2014

Nov.2014

Dec.2014

Jan.2015

Jan.2015


27

CHANGE IN MARKET PRICES FOR OIL AND PETROLEUM PRODUCTS

The price of oil and petroleum products on the global and Russian markets is the main factor that influences the results of the Company’s operations.

Petroleum product prices on the global market are primarily determined by the level of global oil prices, the supply of and demand for petroleum products and the level of competition on different markets.

Price dynamics on the international market, in turn, influence prices on the domestic market. The price dynamics vary for different types of petroleum products.

Price dynamics on petroleum products

2013 2014 Change, %

INTERNATIONAL MARKET (USD/BARREL)

Brent oil 108.66 98.95 –8.9

Urals oil (avg. Med and NWE) 107.71 96.94 –10.0

(USD/T)

Premium petrol (avg. NWE) 986.86 918.72 –6.9

Naphtha (avg. Med and NWE) 892.35 825.28 –7.5

Diesel fuel (avg. NWE) 938.47 854.41 –9.0

Gasoil 0.2 % (avg. Med and NWE) 920.54 837.77 –9.0

Fuel oil 3.5 % (avg. NWE) 583.80 518.48 –11.2

DOMESTIC MARKET (RUB/T)

High-octane petrol 28,344 31,948 12.7

Low-octane petrol 24,882 28,071 12.8

Diesel fuel 26,894 27,764 3.2

Fuel oil 8,732 9,014 3.2

Source: Platts (international market), Kortes (domestic market)

The Company’s management has decided that the Russian rouble shall be the Company’s reporting presentation currency. The functional currency of each subsidiary shall be the currency of the economic environment in which the company is engaged in operations, which is the Russian rouble for most companies.

The Company performed its operating activities in 2014 amidst a 5.9% increase in producer prices and a 21% increase in the value of the USD vs. the RUB.

CHANGE IN RUB/USD EXCHANGE RATE AND INFLATION

Dynamics of the RUB exchange rate vs. the USD and inflation

2013 2014

Change in consumer price index (CPI), % 6.5 11.4

Change in producer price index (PPI), % 3.7 5.9

RUB exchange rate vs. USD at the end of the period, RUB

32.73 56.26

Average RUB exchange rate vs. USD for the period, RUB

31.85 38.42

Source: Federal State Statistics Service

28

MARKET OVERVIEW

RUSSIAN OIL AND GAS MARKET

STABLE GROWTH IN DOMESTIC CONSUMPTION

Source: Autostat Source: Ministry of Transport of the RF, JSC Russian Railways data

Freight shipment dynamics in 2000–2014, bn tAvailability of vehicles in 2007–2014

The consumption of petroleum products in Russia is growing. The key drivers of this steady growth are: � industrial consumption, � growth in the number of vehicles

(commercial, private), � growth in freight shipments.

Ratio of oil production versus exports in Russia, mn t

0

200

300

400

100

500

600

2000 20052004200320022001 2006 20112010200920082007 201420132012

Export Domestic consumption

Production

Growth in oil production combined with a decline in exports suggests that domestic consumption is increasing in Russia.

Number of personal cars in Russia per 1,000 peopleTotal number of cars, mn

0

5

10

15

20

25

30

35

40

45

50

0

60

120

180

240

300

2007 2008 2009 2010 2011 2012 20142013

Road SeaRail Internal waters Air

0

2

4

6

8

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20142013

Source: Russian Ministry of Energy


29

CHANGES TO TAXATION FOR THE RUSSIAN OIL AND GAS SECTOR

Amendments to tax legislation

Excise taxes, RUB/t

Amendments that took effect in 2015 were made to tax legislation in the oil industry in November 2014 as part of Federal Law No. 366-FZ dated 24 November 2014. The amendments provide for a sharp increase in the base mineral extraction tax (MET) rate (to 919 RUB per tonne in 2017) and a decrease in export duties on crude oil and light petroleum products. The decrease in oil export duties will result in higher prices on the domestic market for raw oil refining commodities, but the decrease in excise taxes and export duties on petroleum products will compensate for the growth in production costs for the oil refining segment.

2014 2015 2016 2017

Base MET rate for oil, RUB/tonne 493 766 857 919

Coefficients used to calculate export duties:

in the oil duty, % 59 42 36 30

in the formula for calculating the duty on petrol, % 90 78 61 30

in the formula for calculating the duty on diesel, % 65 48 40 30

in the formula for calculating the duty on light PP, % 65 48 40 30

in the formula for calculating the duty on oil groups 1–3, % 66 48 40 30

in the formula for calculating the duty on naphtha, % 90 85 71 55

in the formula for calculating the duty on dark PP, % 66 76 82 100

in the formula for calculating the bitumen duty, % 0 76 82 100

in the formula for calculating the duty on coke, % 66 6.5 6.5 6.5

2014 2015 2016 2017

Low-octane petrol 11,110 7,300 7,530 5,830

EURO 3 high-octane petrol 10,725 7,300 7,530 5,830



Straight-run petrol 11,252 11,300 10,500 9,700

EURO 3 and lower diesel fuel 6,446 3,450 4,150 3,950

EURO 4 diesel fuel 5,427 3,450 4,150 3,950

EURO 5 diesel fuel 4,767 3,450 4,150 3,950

TAXATION30

MARKET OVERVIEW

AVERAGE RATES OF TAXES AND FEES IN EFFECT DURING THE REPORTING PERIODS FOR THE TAXATION OF OIL AND GAS COMPANIES IN RUSSIA

2013 2014 Change,%

EXPORT CUSTOMS DUTY

Oil, USD/t 392.20 366.14 –6.6

Light petroleum products, USD/t 258.82 241.63 –6.6

Diesel fuel, USD/t 258.82 237.93 –8.1

Petrol and naphtha, USD/t 352.97 329.48 –6.6

Dark petroleum products, USD/t 258.82 241.63 –6.6

MINERAL EXTRACT TAX

Oil, RUB/t 5,329 5,831 9.4

EXPORT CUSTOMS DUTY RATES FOR OIL AND PETROLEUM PRODUCTS

In accordance with Federal Law No. 239-FZ dated 3 December 2012, the procedure used to set the export customs duty on crude oil and petroleum products was changed starting from 1 April 2013.

Instead of export customs duty rates for oil and petroleum products being set monthly by resolutions of the Russian Government, Resolution No. 276 of the Russian Government dated 29 March 2013 approved the method for calculating export customs duties on crude oil and certain categories of goods produced from oil based on which the Russian Ministry of Economic Development calculates the rates of export customs duties for the subsequent calendar months.

EXPORT CUSTOMS DUTY ON CRUDE OIL

a) In accordance with clause 4 of Article 3.1 of Law of the Russian Federation No. 5003-1 dated 21 May 1993 “On the Customs Tariff” (as amended by Federal Law No. 263-FZ dated 30 September 2013), export customs duty rates on oil should not exceed the amount of the maximum duty rate.

Dependence of the maximum export customs duty rate on Urals oil price quotes

Urals price quotes (P), USD/t Maximum export customs duty rate

≤109.50 0%

109.50 < P ≤ 146.00 35.0% × (P – 109.50)

146.00< P ≤182.50 12.78 + 450% × (P – 146.00)

>182.50 29.20 + 59.0% × (P – 182.50) for 201429.20 + 57.0% × (P – 182.50) for 201529.20 + 55.0% × (P – 182.50) for 2016

Oil exported to CIS countries that are Customs Union members (Kazakhstan, Republic of Belarus) shall not be subject to the export customs duty for oil.


31

b) The aforementioned Federal Law No. 239-FZ dated 3 December 2012 legally settled the issue of the Russian Government establishing special formulas used to calculate reduced export customs duty rates on crude oil with special physical and chemical features classified under FEACN codes TS 2709 00 900 1 and 2709 00 900 3 for which the rates are set depending on the average price of Urals oil over the monitoring period in accordance with Resolution No. 276 of the Russian Government dated 29 March 2013 in the following amount.

Dependence of the reduced export customs duty rate on the average price of Urals oil

Urals price quotes (P), USD/t Export customs duty rate

≤365 0

>365 45.0% × (P – 365)

Resolution No. 846 of the Russian Government dated 26 September 2013 approved the procedure for preparing proposals on the use of the special formulas for calculating export customs duty rates for crude oil and monitoring of the validity of their application, including with respect to new projects located on the territory of the Republic of Sakha (Yakutia), the Irkutsk Region, the Krasnoyarsk Territory, areas located north of 65 degrees of the Yamalo-Nenets Autonomous District and on Russia’s continental shelf.

With Decree No. 868 dated 3 December 2013, the Russian Ministry of Energy approved the application form and guidelines for analysing the validity of the use of the special formulas for calculating export duty rates for crude oil.

EXPORT CUSTOMS DUTY FOR PETROLEUM PRODUCTS

In accordance with Article 3.1 of the Law of the Russian Federation “On the Customs Tariff”, the export customs duty rate for certain categories of goods produced from oil shall be set by the Government. Petroleum products exported to CIS countries that are members of the Customs Union (Kazakhstan, Republic of Belarus) shall not be subject to the export customs duty.

Starting from 1 January 2011, export customs duties for petroleum products exported to Kyrgyzstan shall also be abolished. Starting from 13 November 2013, supplies of petroleum products to Tajikistan were exempted from export customs duties within indicative balances.

According to Resolution No. 1155 of the Russian Government dated 27 December 2010, export customs duties for petroleum products shall be calculated using the following formula starting from 1 February 2011:

Rcod = К × Rco,

where Rco is the export customs duty rate on crude oil, and C is the estimated coefficient with respect to the category of petroleum products.

Coefficients used to calculate export customs duty rates for petroleum products1

from 1 October 2011 to 31 December 2014

Light and middle distillates 0,66

Fuel oil 0,66

Petrol 0,90

1 In effect from October 2011 in accordance with Resolution No. 1155 of the Russian Government dated 27 December 2010.

32

MARKET OVERVIEW

Resolution No. 276 of the Russian Government dated 29 March 2013 established a procedure for determining export customs duty rates on petroleum products that is similar to the one previously specified in Resolution No. 1155 of the Russian Government dated 27 December 2010.In accordance with Resolution No. 2 of the Russian Government dated 3 January 2014, an estimated coefficient (C) has been established for diesel fuel in the amount of 0.65 for 2014, 0.63 for 2015 and 0.61 for 2016.

EXCISE TAX FOR PETROLEUM PRODUCTS

Producers of petroleum products are recognised as taxpayers that pay excise taxes for petroleum products on the territory of the Russian Federation. In addition, the tax is paid by legal entities when importing excisable goods to the territory of Russia.

Excise tax rates for petroleum products, RUB/t1

2013 (01/01 – 30/06) 2013 (01/07 – 31/12) 2014

PETROL

Below Class 3 10,100 10,100 11,110

Class 3 9,750 9,750 10,725

Class 4 8,560 8,960 9,916

Class 5 5,143 5,750 6,450

Straight-run 10,229 10,229 11,252

DIESEL FUEL

Below Class 3 5,860 5,860 6,446

Class 3 5,860 5,860 6,446

Class 4 4,934 5,100 5,427

Class 5 4,334 4,500 4,767

HEATING OIL – 5,860 6,446

MOTOR OILS 7,509 7,509 8,260

1 In accordance with Article 193 of the Tax Code of the Russian Federation

MINERAL EXTRACTION TAX (MET)

Starting from 1 January 2014, the MET rate for oil (R) shall be calculated using the following formula:

R = 493 × Cp × Cd × Cr × Ce × Cdp, where:

Cp is the coefficient that describes the dynamics of global oil prices and is determined using the following formula:Cp = (P – 15) × R / 261, where P is the average monthly price of Urals on the Rotterdam and Mediterranean exchanges (USD/barrel) and R is the average monthly RUB exchange rate vs. the USD.

Cd – is the coefficient that describes the degree of depletion of a particular subsoil site. This coefficient envisages a reduction in the MET rate on oil for fields with a high degree of depletion. The degree of depletion of reserves is determined as N/V, where N is the amount of cumulative oil production at a particular subsoil site and V is the initial recoverable oil reserves under categories A, B, С1 and С2 for a particular subsoil site as of 1 January 2006. If the degree of depletion of the reserves of a particular subsoil site is greater than or equal to 0.8 and less than or equal to 1, Cd shall be calculated using the formula: Cd = 3.8 – 3.5 × N/V. If the degree of depletion of the reserves of a particular subsoil site is greater than 1, Cd shall be assumed as equal to 0.3. In other cases, Cd shall be assumed as equal to 1.


33

Cr is the coefficient that describes the size of the reserves of a particular subsoil site. This coefficient envisages a reduction in the MET rate for small fields. If the initial recoverable oil reserves (Vr – the initial recoverable oil reserves under categories A, B, С1 and С2 for a particular subsoil site as of 1 January of the year preceding the year of the tax period) are less than 5 mn tonnes and the degree of depletion of its reserves is determined to be less than or equal to 0.05 in accordance with the provisions of clause 5 of Article 342 of the Tax Code of the Russian Federation, Cr shall be calculated using the formula: Cr = 0.125 × Vr + 0.375.

Ce is the coefficient that describes the degree of difficulty of extracting oil. Its value varies from 0 to 1 depending on the difficulty of extracting oil from a particular deposit: � 0 – when extracting oil from a particular deposit of raw hydrocarbons falling under the Bazhenov, Abalak, Khadum or

Domanik productive deposits in accordance with the data of the State Register of Mineral Reserves; � 0.2 – when extracting oil from a particular deposit of raw hydrocarbons with an approved permeability index of no more

than 2 × 10-3 µm2 and formation net pay of no more than 10 m for the particular deposit; � 0.4 – when extracting oil from a particular deposit of raw hydrocarbons with an approved permeability index of no more

than 2 × 10-3 µm2 and formation net pay of more than 10 m for the particular deposit; � 0.8 – when extracting oil from a particular deposit of raw hydrocarbons falling under the Tyumen Formation productive

deposits in accordance with the data of the State Register of Mineral Reserves; � 1 – when extracting oil from other raw hydrocarbon deposits.

Cdp Cdp is the coefficient that describes the degree of depletion of a particular raw hydrocarbon deposit. This coefficient envisages a reduction in the MET rate on oil for deposits with a high degree of depletion. The degree of depletion of reserves is determined as Ndp/Vdp, where Ndp is the amount of cumulative oil production at a particular deposit and Vdp is the initial recoverable oil reserves under categories A, B, С1 and С2 for a particular deposit as of 1 January of the year preceding the year of the tax period. If the degree of depletion of the reserves of the deposit is greater than or equal to 0.8 and less than or equal to 1, Cdp shall be calculated using the formula: Cdp = 3.8 – 3.5 × Ndp/Vdp. If the degree of depletion of the reserves of a particular deposit is greater than 1, Cdp shall be assumed as equal to 0.3. In other cases, Cdp shall be assumed as equal to 1. For deposits containing difficult to recover oil reserves, Cdp shall be assumed as equal to 1.

Base MET rates for oil, RUB/t1

2013 2014

MET for oil 470 493

1 Established in accordance with Article 342 of the Tax Code of the Russian Federation

In addition, tax legislation establishes several “tax holidays” for the MET under which oil extracted in a number of Russian regions is subject to a zero tax rate provided compliance with the requirements established by the relevant provisions of the Tax Code of the Russian Federation.

34

MARKET OVERVIEW

Effective MET rate on oil for the Company

2013 2014 Change,%

Standard MET rate for oil 5,329 5,831 9.4

Effective MET rate for oil (taking into account Cd, Cr and Ce) 5,154 5,588 8.4

Deviation of the effective MET rate for oil from the standard rate, RUB/t 175 243 –

Deviation of the effective MET rate for oil from the standard rate, % 3.3 4.2 –

At the end of 2014, the effective MET rate for oil was 5,588 RUB/tonne, which is 243 RUB/tonne below the standard rate in accordance with Russian legislation. This deviation is due to the influence of the reduction coefficients on the MET rate for oil – Cd, Cr and Ce.

MET FOR NATURAL GAS AND GAS CONDENSATE

MET rates for flammable natural gas and gas condensate1

2013 (01/01 – 30/06) 2013 (01/07 – 31/12) 2014 (01/01 – 30/06)

Natural gas, RUB/1,000 m32652 4021 4711

582 622 700

Gas condensate, RUB/t 590 590 647

1 In accordance with Article 342 of the Tax Code of the Russian Federation.2 The reduced MET rate for gas is set for taxpayers that are not owners of facilities of the Unified Gas Supply System and are not organi-

sations in which the owners of facilities of the Unified Gas Supply System are not directly and/or indirectly involved and the share of such involvement exceeds 50%.

In accordance with the amendments made by Federal Law No. 263-FZ dated 30 September 2013, the formulaic procedure used to determine the MET for natural gas and gas condensate was established as of 1 July 2014.

The estimated MET rate for natural gas and gas condensate is determined as the product of the standard MET rate (35 RUB per 1,000 m3 for natural gas and 42 RUB/tonne for gas condensate) and two variables: the base value of the fuel equivalent unit (FEU) and the coefficient that describes the difficulty of extracting minerals from raw hydrocarbon deposits (Cd).

Starting from 2015, calculations of the MET for natural gas will also include an indicator that describes expenses on the transportation of natural gas (Tg).


35

TAX INCENTIVES

Current legislation on taxes and fees envisages various tax incentives utilised by the Company’s subsidiaries (including reduced tax rates and reduction coefficients on the MET rate for oil and natural gas).

Applicability of tax incentives for the Gazprom Neft Group in 2014

Tax Comments

MET FOR OIL

Cr reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Vorgenskoye, East Vyngayakhinskoye, North Karamovskoye, Valyntoyskoye) LLC Zhivoy Istok (Baleykinskoye)

Cd reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Pogranichnoye,Kholmogorskoye, Chatylkinskoye, Muravlenkovskoye, Sugmutskoye) LLC Gazpromneft-Vostok (West Lugineysky section)

Ce reduction coefficient on MET rate OJSC Gazpromneft-Noyabrskneftegaz (Vyngayakhinskoye)LLC Gazpromneft-Khantos (Krasnoleninskoye) LLC Archinskoye (Urmanskoye, Archinskoye)

Rate of 0 RUB for subsoil sites located fully or partially within the territory of the Nenets Autonomous District or Yamal Peninsula in the Yamalo-Nenets Autonomous District

LLC Gazpromneft Novy Port (Novoportovskoye)

Rate of 0 RUB for subsoil sites located fully or partially within the territory of the Republic of Sakha (Yakutia), Irkutsk Region or Krasnoyarsk Territory

LLC Gazpromneft-Angara (Tympuchikanskoye, Ignyalinskoye)

MET FOR GAS

Cs reduction coefficient on MET rate LLC Gazpromneft Novy Port (Novoportovskoye)CJSC Gazprom Neft Orenburg (Eastern section of Orenburg Oil and Gas Condensate Field)

PROFIT TAX OF ORGANISATIONS

Use of a reduced rate of 16% (4% benefit in accordance with regional legislation of Khanty-Mansi Autonomous District-Yugra)

LLC Gazpromneft-KhantosOJSC Gazpromneft-Noyabrskneftegaz

Use of a reduced rate of 17% (3% benefit in accordance with regional legislation of Khanty-Mansi Autonomous District-Yugra)

LLC Magma OC (prior to reorganization in the form of a merger with LLC Gazpromneft-Khantos)

Use of a reduced rate of 15.5% (4.5% benefit in accordance with regional legislation of Yamalo-Nenets Autonomous District)

OJSC Gazpromneft-Noyabrskneftegaz

PROPERTY TAX

Exemption from property tax for investment projects in Khanty-Mansi Autonomous District-Yugra announced before 1 January 2011 (in accordance with regional legislation of Khanty-Mansi Autonomous District-Yugra)

LLC Gazpromneft-Khantos

Exemption from property tax for fields under development after 1 January 2011 (in accordance with regional legislation of Khanty-Mansi Autonomous District-Yugra)

LLC Gazpromneft-Khantos

Use of a reduced rate of 1.1% for property created/acquired when implementing investment projects in the Yamalo-Nenets Autonomous District (in accordance with regional legislation of Yamalo-Nenets Autonomous District)

OJSC Gazpromneft-NoyabrskneftegazLLC Zapolyarneft

Exemption from property tax for property created/acquired when implementing investment projects in the Orenburg Region (in accordance with regional legislation of the Orenburg Region)

CJSC Gazprom Neft Orenburg


36

MARKET OVERVIEW

TRANSPORTATION OF OIL AND PETROLEUM PRODUCTS

The policy with respect to transportation tariffs is determined by the government authorities in order to ensure a balance of interests between the government and all parties involved in the transportation process.The transportation tariffs of natural monopolies are established by the FTS of Russia.Tariffs depend on the transportation direction, delivery volume, distance to the destination and several other factors. Changes to tariffs depend on inflation as projected by the Russian Ministry of Economic Development, the need of transport infrastructure owners for capital investments, other macroeconomic factors as well as the payback period of economically substantiated costs incurred by natural monopolies.Tariffs are revised by the FTS of Russia at least once a year, including tariffs for loading and unloading work, handling, shipment and other tariffs.

Average transportation cost per one tonne of oil for export to the Company’s refineries and for export from the Company’s refineries, RUB/t

2013 2014 Change,%

OIL

Export

Pipeline 1,644 1,681 2.3

CIS

Pipeline 1,057 1,204 13.9

Transportation to oil refineries

Omsk Oil Refinery 505 509 0.9

Moscow Oil Refinery 983 972 –1.2

Yaroslavl Oil Refinery 1,011 1,067 5.5

PETROLEUM PRODUCTS

Export from Omsk Oil Refinery

Petrol 3,206 2,401 –25.1

Fuel oil 3,833 4,121 7.5

Diesel fuel 3,362 3,288 –2.2

Export from Moscow Oil Refinery

Petrol 1,651 1,678 1.7

Fuel oil 1,444 1,523 5.5

Diesel fuel 1,792 1,720 –4.0

Export from Yaroslavl Oil Refinery

Petrol 1,126 1,210 7.4

Fuel oil 1,455 1,659 14.0

Diesel fuel 1,467 1,530 4.3


In 2014, the Companys hipped 33.5% (37.5% in 2013) of the overall volume of exported oil via � Baltic Sea port – Primorsk (31.4% via Primorsk and 6.2% via Ust-Luga in 2013); � Druzhba pipeline to the Czech Republic and Germany – 13.1% (22.8% in 2013); � Novorossiysk port – 22.9% (16.7% in 2013), including light oil – 10.5% (12.9% in 2013); � East Siberia-Pacific Ocean (ESPO) transit pipeline via Kozmino port – 30.5% (23% in 2013).

Among CIS countries oil was only exported to the Republic of Belarus in 2014 (37.2% to Belarus and 62.8% to Kazakhstan in 2013).


37

COMPETITIVE POSITION OF COMPANY

Oil and gas production in Russia1 by oil and gas companies in 2010–20142, mn TOE

Company Share of 2014, %

Change, 2014/2013, %

Rosneft3 37 0.2

LUKOIL 16 0.8

Surgutneftegas 11 –3.0

Gazprom Neft4 10 6.4

Tatneft 4 0.4

Other 22 0.2

TOTAL 100 0.6

PRODUCTION

Source: InfoTEK

Oil refining in Russia in 2010–2014, mn t


Change, 2014/2013, %

Rosneft1 30.0 0.8

LUKOIL 15.7 –0.2

Gazprom Neft2 13.7 1.9

Bashneft 7.5 1.2

Surgutneftegas 6.7 –2.6

Tatneft 3.0 11.1

TAIF-NK 2.9 1.9

Other 20.6 26.4

TOTAL 100 5.3

REFINING

Source: InfoTEK

1 Including the share in the refining of OJSC Slavneft OGC. The figures for 2010–2011 include the indicators of TNK-BP.2 Including the share in the refining of OJSC Slavneft OGC, but not including refining abroad.

1 Excluding the gas production of Gazprom and NOVATEK.2 Production of oil, gas condensate, petroleum (associated) and natural gas on the territory of the Russian Federation according to the monthly statistical data of InfoTEK.

For the comparability of data, gas production includes the entire volume of gas extracted from the fields of companies (gas resources), which may differ from official data on gas production by companies for which gas production may be shown minus the gas burned in flares (gas utilisation) or the gas sales volume (marketable gas).

3 Including the share in the production of OJSC Tomskneft and OJSC Slavneft OGC. The figures for 2010-2011 include the indicators of TNK-BP.4 Including the share in the production of OJSC Slavneft OGC, OJSC Tomskneft, Salym Petroleum Development N. V., LLC SeverEnergia and CJSC Northgas, excluding

production abroad.

2010 138 71104 53 27 207

2011 229 71100 57 27 127

2012 234 7199 60 27 140

2013 240 62 27 146102 71

SurgutneftegasGazprom Neft OtherLUKOIL

Rosneft Tatneft

647

600

611

632

2014 240 66 27 146102 69 651

2010 82 35 845 21 21 37

2011 83 3845 21 21 8 39

2012 84 3945 21 21 7 8 43

2013 86 21 20 8 8 4745 39

Gazprom NeftBashneft TatneftLUKOIL

Rosneft SurgutneftegasOtherTAIF-NK

275

250

258

268

2014 87 22 19 9 8 6045 40 290

2

0.23

38

MARKET OVERVIEW

SALES

Oil exports by Russian companies using the system of JSC Transneft in 2010–2014, mn t


Change, 2014/2013, %

Rosneft1 48.0 –0.5

Surgutneftegas 13.3 –9.8

LUKOIL 9.9 –5.1

Tatneft 4.3 –25.6

Gazprom Neft 3.9 –2.6

Other 20.7 –6.5

TOTAL 100 –5.0

EXPORT

Source: InfoTEK

1 Indicators for 2010-2011 include TNK-BP data.

1 Market share in regions where Gazprom Neft filling station network is present.

2010 85 26 1528 16 44

2011 89 27 24 16 13 44

2012 91 27 25 12 12 46

2013 94 20 11 8 4329

LUKOILTatneft OtherSurgutneftegas

Rosneft Gazprom Neft

206

214

212

212

2014 94 19 8 8 4026 196

23.7% 1 p.p.

retail sales1

18.6%marine fuel sales

24.5% 1.8 p.p.

jet fuel sales

13.6% 1 p.p.

oil and lubricant sales30.0%sales of bituminous products

COMPANY’S SHARE OF THE RUSSIAN MARKET BY SEGMENT:


39

STEADY PROGRESS TOWARDS OBJECTIVES

STRATEGY IN ACTION

STRATEGY

RESULTS IN 2014:

Achieving the plans set forth in the Strategy for the period until 2025 aims to create the most added value for the capital invested by shareholders in the oil and gas industry of the Russian Federation.

SUCCESS IN IMPLEMENTATION

The foundation of the operations of Gazprom Neft is the Company’s Development Strategy until 2025, which was approved by the Board of Directors in May 2013. This Strategy is a continuation of and improvement on the Development Strategy until 2020, which was approved in 2010 and updated in 2012 by the Company’s Board of Directors. The document contains the goals for 2020, elaborates on ways to achieve them in the main business segments – hydrocarbon production, oil refining and the sale of petroleum products – and also identifies the key objective for the period from 2020 to 2025 as maintaining the business scale achieved by 2020.

As part of the monitoring of the implementation of the Strategy in 2014, the goals and objectives for several business areas were clarified. The updating of the goals and targets was specific in nature and did not entail any large-scale revision of the Company’s Development Strategy as a whole. Today in the area of exploration and development Gazprom Neft continues to focus on the efficient development of the mature resource base and ensuring the maximum return on investment for new projects. In refining and sales, the focus remains on modernising refining facilities and maximising sales of petroleum products through its own sales channels.

GOAL-ORIENTED VISION OF BUSINESS

Implementing the plans set forth in the Strategy for the period until 2025 aims to create the most added value for the capital invested by shareholders in the oil and gas industry of the Russian Federation.

The reporting year was a successful one for Gazprom Neft. The Company improved its results for almost all production indicators: growth in reserves, an increase in production and refining volumes and an increase in premium sales.

In 2014, the following performance targets were updated: � 80% – Yield of light products in Russia

� 100% – Production volume of Russian oil refineries, sold through own high-margin distribution channels

� 5.6 mn t – Sales of jet fuel � 4.1 mn t – Sales of bunker fuel � 1.8 mn t – Sales of petrochemical products

41


KEY STRATEGIC TARGETS AND BUSINESS OBJECTIVES OF GAZPROM NEFT UNTIL 2025 BY OPERATING SEGMENT

GEOLOGICAL EXPLORATION WORK AND PRODUCTION

OIL REFINING

SALES

STRATEGIC GOALS:

STRATEGIC GOALS:

STRATEGIC GOALS:

2014 CONTRIBUTION TO THE IMPLEMENTATION OF STRATEGIC GOALS (MODIFIED WITH RESPECT TO 2013)



100 mn TOE hydrocarbon production volume

20 years reserve life (MR / production)

40 mn tOil refining in Russia

95%processing depth in Russia

80%output of light petroleum products in Russia

100%products from own Russian oil refineries sold via own high-margin sales channels

For results of activities in this segment, see page 63



Proved hydrocarbon reserves under SPE-PRMS standards – 1.443 bn TOE (+7.40%)

Production of marketable hydrocarbons – 66.25 mn TOE (+6.41%)

Oil reserves to production ratio (PRMS proved + probable) – 33 years

Total refining volume – 43.48 mn t (+1.99%)

Total production of marketable petroleum products – 41.64 mn t (+2.69%)

Output of light petroleum products in Russia – 61.01%

Oil refining depth in Russia – 81.53%

Sales volume via premium channels – 25.78 mn t (+7.51%)

42

STRATEGY IN ACTION

MOTOR FUEL SALES

SALES OF PETROLEUM PRODUCTS BY BUSINESS UNITS

STRATEGIC GOALS:

STRATEGIC GOALS:



24.7 mn tsales volume of motor oil in Russia and the CIS

1,880 number of retail chain stations in Russia and the CIS

5.6 mn tsales of jet fuel

8,2 mn t sales of bunker fuel

2.5 mn t sales of bitumen

1.8 mn t sales of petrochemical products

0.66 mn t sales of oils and lubricants


For results of activities in this segment, see page 77 and 85

Number of active filling stations in Russia, CIS countries and non-CIS countries – 1,810 (+3.6%)

Number of active filling stations in Russia and CIS countries – 1,389 (+3.7%)

Average sales of petroleum products per filling station – 20,0 tonnes per day (+5.26%)

Average sales of petroleum products via filling station network in Russia and CIS countries – 9.1 mn t (+9%)

Sales of jet fuel – 3.72 mn t (+11.04%)

Sales of marine fuel – 4.42 mn t (+46.36%)

Sales of bitumen – 1.75 mn t (–0.57%)

Sale of petrochemical products – 1.24 mn t (+5.98%)

Sales of oils and lubricants – 0.48 mn t (–2.04%)

43


PLANS FOR 2015

PRODUCTION AT MATURE FIELDS

IMPLEMENTATION OF MAJOR PROJECTS

� Completion of installation and preparation of terminal for the start of year-round oil shipments at Novoportovskoye field.

� Commissioning of the Yaro-Yakhinskaya Complex Gas Treatment Plant (capacity of 7 bn m3/g) and the Urengoy Complex Gas Treatment Plant (capacity of 14 bn m3/g) for the full treatment cycle

� Prirazlomnoye and Badra – continuation of production drilling and increasing extraction

� Commissioning of three new fields with total initial recoverable reserves of 14.5 mn t (Yuzhno-Pudinsky license area, Vostochno-Myginskoye and Valyntoyskoye fields)

� Production growth dynamics exceeding the 2014 level � Increased operational efficiency and rapid response to

changes in the macro environment

44

STRATEGY IN ACTION

REFINING PREMIUM SALES CHANNELS

� Continued development of the filling station network: acquisition of 21 stations, construction of 12 stations and rebranding of three stations (excluding Europe)

� Continued development: – for jet fuel – RCs network; – for bunkering – a terminal network and own fleet; – for motor oils – production modernisation and diversification;

– for bitumens – access to target markets

Omsk Oil Refinery � Completion of pre-design documentation and the start of

construction on the following facilities: – deep oil refining complex; – atmospheric vacuum desalting unit – delayed coking unit

Moscow Oil Refinery � Start of work under an EPC contract for a complex gas

treatment plant

45


FINANCIAL RESULTS

KEY FINANCIAL RESULTS

RESULTS IN 2014:

An increase in the production and sales volume of petroleum products, including via premium sales channels, led to growth in sales.

FINANCIAL SUSTAINABILITY

+11.09% growth in revenue

+1.74%growth in adjusted EBITDA

Revenue, bn RUB

EBITDA1, bn RUB

1 EBITDA includes the share of EBITDA of associated and jointly controlled

Revenue growth of 11.09% was achieved through growth in production and an increase in sales, primarily through premium channels.

The lag in the export duty limited the growth in EBITDA to 1.74%.

2013 2014

1,268

2012

1,2331,408

11.09%

2013 2014

337

2012

323 343

1.74%




47

Key financial indicators, mn RUB

2013 2014 Change, %

SALES REVENUE

Sales 1,504,037 1,690,557 12.4

Minus: export duties and excise taxes1 –236,434 –282,319 19.4

TOTAL SALES REVENUE 1,267,603 1,408,238 11.1

EXPENSES AND OTHER COSTS

Acquisition cost of oil, gas and petroleum products –319,051 –382,505 19.9

Production and operating expenses –144,552 –171,711 18.8

Selling, general business and administrative expenses –72,005 –86,318 19.9

Transportation expenses –107,837 –116,125 7.7

Depreciation, depletion and amortisation –76,785 –85,951 11.9

Taxes, except profit tax –316,070 –343,576 8.7

Expenses on geological exploration work –2,876 –936 –67.5

TOTAL OPERATING EXPENSES –1,039,176 –1,187,122 14.2

Other expenses –6,310 –8,471 34.2

OPERATING PROFIT 222,117 212,645 –4.3

Share of (loss) / profit of associated and joint venture companies 11,251 –6,306 –

Net foreign exchange loss –2,166 –52,265 2,313.0

Financial income 6,011 7,075 17.7

Financial expenses –11,233 –15,279 36.0

ADJUSTED EBITDA2 336,752 342,614 1.7

RUB/TOE 5,408.8 5,171.5 –4.4

USD3/BOE 23.1 18.3 –21.0

Adjusted EBITDA margin 26.57% 24.33% –2.2 p.p.

TOTAL OTHER (EXPENSES) / INCOME 3,863 –66,775 –

(LOSS) / PROFIT BEFORE TAX 225,980 145,870 –35.5

Income / (expense) on current profit tax –34,823 –17,518 –49.7

Income / (expense) on deferred profit tax –4,437 –1,696 –61.8

TOTAL INCOME / (EXPENSE) ON PROFIT TAX –39,260 –19,214 –51.1

(LOSS) / PROFIT FOR PERIOD 186,720 126,656 –32.2

Minus: profit attributable to non-controlling interest –8,803 –4,563 –48.2

(LOSS) / PROFIT ATTRIBUTABLE TO OJSC GAZPROM NEFT SHAREHOLDERS 177,917 122,093 –31.4

Net profit margin 14.73% 8.99% –5.7 p.p.

NET DEBT 185,922 433,602 133.2Source: Company data

1 Includes the excise tax calculated based on the volume of petroleum products sold by the Serbian subsidiary.

2 EBITDA is an additional financial indicator that is not defined by IFRS.

3 Converted into USD at average exchange rate for period.

An increase in the production and sales volume of petroleum products, including via premium sales channels, as well as growth in oil and petroleum product prices on the domestic market led to a 12.4% increase in sales in the reporting year.The 1.7% increase in adjusted EBITDA was held back by the negative influence of the temporary lag in export duties (delayed effect of duties). The negative effect of exchange rate differences as a result of the revaluation of loans and borrowings led to a 31.4% decrease in profit attributable to shareholders of OJSC Gazprom Neft in the reporting year.Net debt expanded by 133.2% from 185.9 bn to 433.6 bn RUB.

48

FINANCIAL RESULTS

1 Includes the excise tax calculated based on the volume of petroleum products sold by the Serbian subsidiary.

SALES REVENUETotal sales revenue, mn RUB

2013 2014 Change, %

OIL

Export 106,665 107,340 0.6

Export sales 208,125 229,065 10.1

Minus: export duties –101,460 –121,725 20.0

International market 1,323 4,036 205.1

Export to CIS 48,619 15,889 –67.3

Domestic market 19,258 42,624 121.3

TOTAL REVENUE FROM OIL SALES 175,865 169,889 –3.4

GAS


Domestic market 23,926 24,406 2.0

TOTAL REVENUE FROM GAS SALES 25,387 26,010 2.5

PETROLEUM PRODUCTS

Export 253,429 282,085 11.3

Export sales 352,990 400,346 13.4

Minus: export duties –99,561 –118,261 18.8


Sales on the international market 124,376 146,153 17.5

Minus: excise tax1 –32,060 –41,740 30.2

CIS 54,956 63,989 16.4

Export and sales to CIS 58,309 64,582 10.8

Minus: export duties –3,353 –593 –82.3

Domestic market 630,359 715,853 13.6

TOTAL REVENUE FROM PETROLEUM PRODUCT SALES 1,031,060 1,166,340 13.1

OTHER REVENUE 35,291 45,999 30.3

TOTAL REVENUE 1,267,603 1,408,238 11.1


Total revenue for 2014 grew by 11.1% from 1,267.6 bn to 1,408.2 bn RUB.Oil sales revenue for 2014 decreased by 3.4% from 175.9 bn to 169.9 bn RUB.Gas sales revenue increased by 2.5% from 25.4 bn RUB in 2013 to 26.0 bn RUB in 2014. Sales of petroleum products increased by 13.1% compared with 2013 from 1,031.1 bn RUB to 1,166.3 bn RUB.Other revenue grew 30.3% year-on-year. This was mainly due to growth in sales volumes. Other revenue primarily consists of revenue from transportation, construction, utility and other services.

Total sales revenue, mn RUB

2013 175,865 1,031,060

Revenue from petroleum product salesOther revenueRevenue from gas sales

Revenue from oil sales

1,267,603

2014 169,889 1,166,340 1,408,23845,99926,010

35,29125,387



49

Sales volumes

2013 2014 Change, %

OIL, MN T

Export sales 8.29 8.47 2.2

Sales on international market 0.05 0.13 160.0

Export to CIS 4.05 1.16 –71.4

Sales on domestic market 1.85 4.90 164.9

TOTAL OIL SALES 14.24 14.66 2.9

GAS, BN m3

Sales on international market 0.14 0.13 –7.1

Sales on domestic market 12.64 10.76 –14.9

TOTAL GAS SALES 12.78 10.89 –14.8

PETROLEUM PRODUCTS, MN T

Export sales 14.61 15.64 7.0

Sales on international market 3.08 3.03 –1.6

Export and sales to CIS 2.21 2.09 –5.4

Sales on domestic market 25.84 27.54 6.6

TOTAL PETROLEUM PRODUCT SALES 45.74 48.30 5.6


The 2.2% increase in oil export sales compared with the 2013 level is connected with the growth in production in Russia.A 71.4% decrease in oil export volumes to the CIS was caused by discontinued sales in Kazakhstan. The more than two-fold increase in sales on the domestic market is connected with the growth in production in Orenburg and the improved efficiency of operations with third party resources.Gas sales declined by 14.8% from 12.8 bn to 10.9 bn m3 in 2014.Petroleum product sales grew by 5.6% year-on-year from 45.7 tonnes to 48.3 tonnes.

Average sales prices, RUB/tonne

2013 2014 Change, %

OILExport sales 25,106 27,044 7.7

Export to CIS 12,005 13,697 14.1

Sales on domestic market 10,410 8,699 –16.4

PETROLEUM PRODUCTSExport sales 24,161 25,598 5.9

Sales on international market 40,382 48,235 19.4

Export and sales to CIS 26,384 30,900 17.1

Sales on domestic market 24,395 25,993 6.6


Oil sales prices grew by 7.7% compared with 2013 level for export sales, increased by 14.1% for exports to the CIS and decreased by 16.4% for sales on the domestic market. Average petroleum product prices showed growth ranging from 5.9% for export sales to 19.4% for sales on the international market.

50

FINANCIAL RESULTS

Export sales of petroleum products

2013 2014 Change, %

mn RUB mn t mn RUB mn t mn RUB mn t

High-octane petrol 7,855 0.27 2,564 0.08 –67.4 –70.4

Low-octane petrol 6,060 0.22 5,336 0.17 –12.0 –22.7

Naphtha 34,166 1.20 36,044 1.16 5.5 –3.3

Diesel fuel 142,134 4.80 148,502 4.59 4.5 –4.4

Fuel oil 125,195 6.71 137,816 7.12 10.1 6.1

Jet fuel 10,003 0.32 24,431 0.72 144.2 125.0

Marine fuel 14,258 0.57 26,505 1.03 85.9 80.7

Other 13,319 0.52 19,148 0.77 43.8 48.1

TOTAL 352,990 14.61 400,346 15.64 13.4 7.1


Export sales of petroleum products increased by 13.4% compared with 2013 from 353.0 bn to 400.3 bn RUB.The 125.0% increase in jet fuel sales and 80.7% increase in marine fuel sales is connected with the expansion in the geographic presence abroad.

Petroleum product sales in the CIS

2013 2014 Change, %


High-octane petrol 20,863 0.72 25,693 0.75 23.2 4.2


Diesel fuel 17,267 0.63 24,617 0.76 42.6 20.6

Fuel oil 2,541 0.22 688 0.07 –72.9 –68.2

Jet fuel 7,905 0.20 3,192 0.09 –59.6 –55.0

Other 5,419 0.26 6,508 0.29 20.1 11.5

TOTAL 58,309 2.21 64,582 2.09 10.8 –5.4


Petroleum product sales in the CIS declined by 5.4% in physical terms year-on-year, but grew by 10.8% in value terms.

Petroleum product sales on the domestic market

2013 2014 Change, %


High-octane petrol 241,733 8.06 285,311 8.60 18.0 6.7


Naphtha 305 0.02 – – – –

Diesel fuel 200,883 7.16 220,000 7.35 9.5 2.7

Fuel oil 19,168 1.66 18,271 1.74 –4.7 4.8

Jet fuel 68,808 2.83 76,108 2.91 10.6 2.8

Marine fuel 43,978 2.45 60,823 3.39 38.3 38.4

Other 49,958 3.46 51,736 3.42 3.6 –1.2

TOTAL 630,359 25.84 715,853 27.54 13.6 6.6


Petroleum product sales on the domestic market grew by 6.6% in physical terms year-on-year and by 13.6% in value terms.The year-on-year increase in sales of motor fuels is connected with growth in the sales network and the average daily sales per filling station. The 38.4% year-on-year increase in marine fuel sales on the domestic market is due to growth in the bunkering market in the Far East and Black Sea.


51

EXPENSES AND OTHER COSTS

PRODUCTION AND OPERATING EXPENSES

The acquisition cost of oil, gas and petroleum products in 2014 increased by 19.9% compared with the 2013 level from 319.1 bn to 382.5 bn RUB. The change was primarily due to an increase in the purchase of petroleum products on the domestic and international markets.

Production and operating expenses, mn RUB

2013 2014 Change, %

HYDROCARBON PRODUCTION EXPENSES 72,491 84,137 16.1

Subsidiaries 58,034 68,278 17.7

RUB/TOE 1,350 1,526 13.0

USD/BOE1 5.78 5.42 –6.3

Proportionally consolidated companies 14,457 15,859 9.7

RUB/TOE 1,543 1,750 13.5

USD/BOE1 6.61 6.22 –6.0

REFINING EXPENSES 37,293 45,393 21.7

Expenses on oil refining at the oil refineries of subsidiaries 21,558 25,681 19.1

RUB/t 633 741 17.1

USD/barrel1 2.71 2.63 –2.9

Expenses on oil refining at the oil refineries of joint ventures 11,139 14,145 27.0

RUB/t 1,300 1,602 23.2

USD/barrel1 5.57 5.69 2.2

Expenses on the production of oils and packaged products 4,596 5,567 21.1

TRANSPORTATION EXPENSES TO OIL REFINERIES 23,747 26,234 10.5

OTHER OPERATING EXPENSES 11,021 15,947 44.7

TOTAL 144,552 171,711 18.8

Source: Company data1 Converted to USD based on the average exchange rate for period.

Overall production and operating expenses grew by 18.8% in the reporting year from 144.6 bn to 171.7 bn RUB.

Hydrocarbon production expenses grew by 16.1% year-on-year from 72.5 bn to 84.1 bn RUB.

Specific operating expenses for hydrocarbon production at subsidiaries increased by 13.0% year-on-year as a result of: � an acquisition by LLC Gazprom Neft Shelf (the Prirazlomnoye field) and the start of production on the Badra project; � growth in expenses on the Novoportovskoye field due to high operating expenses during the pilot development stage,

the commissioning of part of the aboveground infrastructure and organising temporary arrangements for the production and transportation of oil;

� growth in the tariffs of natural monopolies and prices for oilfield services.

52

FINANCIAL RESULTS

Operating expenses on oil refining at the oil refineries of subsidiaries increased by 19.1% year-on-year due to growth in refining volumes, growth in material expenses related to an improvement in product quality, the launch of new rigs at the Omsk and Moscow Oil Refineries, repairs conducted at the Company’s oil refineries and growth in the tariffs of natural monopolies.

Operating expenses on oil refining at the oil refineries of joint ventures grew by 27.0% year-on-year due to growth in refining volumes, repairs and increased material costs related to an improvement in product quality.

Expenses on transporting oil to oil refineries grew by 10.5% year-on-year as a result of the termination of a contract for oil replacement with Rosneft, growth in refining volumes and an increase in supplies of oil and gas condensate to the Omsk Oil Refinery by rail transport.

OTHER EXPENSES

Commercial, general business and administrative expenses increased by 19.9% year-on-year from 72.0 bn to 86.3 bn RUB due to growth in premium sales and expansion in the Company’s business.

Transportation expenses grew by 7.7% from 107.8 bn to 116.1 bn RUB on account of an increase in sales of petroleum products.

Expenses on depreciation, depletion and amortisation increased by 11.9% year-on-year from 76.8 bn to 86.0 bn RUB due to an increase in the value of amortised assets resulting from the implementation of the Company’s capital investments programme.

The structure of production and operating expenses in 2013 The structure of production and operating expenses in 2014

Transportation expensesto oil refineries

Refining expenses

Other operating expenses

Hydrocarbon production expenses50%

26%

16%

8%

49%

27%

15%

9%

Transportation expensesto oil refineries

Refining expenses

Other operating expenses

Hydrocarbon production expenses

Source: Company data Source: Company data


53

TAXES, NOT INCLUDING INCOME TAX

Taxes except profit tax, mn RUB

2013 2014 Change, %

Mineral extraction tax 214,023 236,027 10.3

Excise tax 77,701 84,184 8.3

Property tax 7,938 9,477 19.4

Other taxes 16,408 13,888 –15.4

TOTAL TAXES EXCEPT PROFIT TAX 316,070 343,576 8.7


Total expenses on the mineral extraction tax (MET) increased by 10.3% year-on-year from 214.0 bn to 236.0 bn RUB. The growth resulted from increased oil production by subsidiary and proportionately consolidated companies and higher tax rates.

Despite a 10.0% year-on-year decline in Urals blend oil prices, the average MET rate for oil grew by 9.4% due to growth in the base rate from 470 RUB per tonne to 493 RUB per tonne and a 20.6% increase in the average RUB exchange rate versus the USD.

Excise taxes grew by 8.3% year-on-year due to growth in excise tax rates starting on 1 July 2013 and 1 January 2014, which was partially compensated by growth in the amount of high-class motor fuels produced that are subject to excise taxes at lower rates.

OTHER FINANCIAL ARTICLES

The revaluation of part of the Company’s loan portfolio denominated in foreign currency made up the bulk of the profit / (loss) from exchange rate difference.

SHARE OF THE PROFIT OF ASSOCIATED AND JOINT VENTURE COMPANIES

Share of the profit of associated and joint venture companies, mn RUB

2013 2014 Change, %

OJSC Slavneft OGC 9,538 –5,072 –

LLC SeverEnergia –131 –1,809 1,280.9

Other companies 1,844 575 –68.8

SHARE OF THE (LOSS) / PROFIT OF ASSOCIATED AND JOINT VENTURE COMPANIES

11,251 –6,306 –


OJSC Slavneft OGC and LLC SeverEnergia incurred losses in 2014 primarily due to exchange rate differences.

54

FINANCIAL RESULTS

EBITDA AND NET PROFIT

Calculation of EBITDA, mn RUB

2013 2014 Change, %

PROFIT FOR PERIOD 186,720 126,656 –32.2

Total income / (expense) for profit tax 39,260 19,214 –51.1

Financial expenses 11,233 15,279 36.0

Financial income –6,011 –7,075 17.7

Depreciation, depletion and amortisation 76,785 85,951 11.9

Net foreign exchange gains 2,166 52,265 2,313.0

Other expenses 6,310 8,471 34.2

EBITDA 316,463 300,761 –5.0

Minus: share in the (loss) / profit of associated and joint venture companies

–11,251 6,306 –

Plus: share in the EBITDA of associated and joint venture companies 31,540 35,547 12.7

TOTAL ADJUSTED EBITDA 336,752 342,614 1.7


Adjusted EBITDA increased by 1.7% year-on-year from 336.8 bn to 342.6 bn RUB.

Net profit, mn RUB

2013 2014 Change, %

(Loss) / profit for period 186,720 126,656 –32.2

Minus: profit attributable to non-controlling interest –8,803 –4,563 –48.2

(Loss) / profit attributable to the shareholders of OJSC Gazprom Neft 177,917 122,093 –31.4


Taking into account the portion of profit attributable to the non-controlling interest, net profit decreased by 32.2% in the reporting year from 186.7 bn to 126.7 bn RUB.

Profit attributable to the shareholders of OJSC Gazprom Neft declined by 31.4% from 177.9 bn to 122.1 bn RUB.


55

CASH FLOWS

Cash, mn RUB

2013 2014 Change, %

Net cash generated from operating activities 276,736 283,965 2.6

Net cash used for investment activities –255,725 –364,792 42.7

Net cash generated from / (used for) financial activities –13,010 10,573 –

NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS 8,001 –70,254 –


Net cash and cash equivalents decreased by 70.3 bn RUB over the reporting year.

Net cash generated from operating activities, mn RUB

2013 2014 Change, %

Net cash generated by operating activities before the effect of changes in working capital, profit tax, interest and dividends

306,929 334,742 9.1

Changes in working capital 8,329 –6,414 –

Profit tax paid –33,514 –30,122 –10.1

Interest paid –9,981 –16,624 66.6

Dividends paid 4,973 2,383 –52.1

NET CASH GENERATED FROM OPERATING ACTIVITIES

276,736 283,965 2.6


Net cash flow from operating activities totalled 284.0 bn RUB in the reporting year, up by 2.6% from 2013.

Net cash used for investment activities, mn RUB

2013 2014 Change, %

Capital expenditures –208,611 –271,330 30.1

Acquisition of subsidiaries, stakes in joint activities and investments recorded using the equity method

–5,857 –57,848 887.7

Cash deposits –29,425 –15,877 –46.0

Other transactions –11,832 –19,737 66.8

NET CASH USED FOR INVESTMENT ACTIVITIES –255,725 –364,792 42.7


Net cash used for investment activities increased by 42.7% year-on-year to 364.8 bn RUB primarily due to: � growth in capital expenditures; � payment for the increased stake in LLC SeverEnergia and the acquisition of a stake in LLC Gazprom Resource Northgas.

56

FINANCIAL RESULTS

Net cash used for financial activities, mn RUB

2013 2014 Change, %

Receipt of loans and credits 56,395 67,160 19.1

Dividend payments to Company shareholders –63,328 –46,755 –26.2

Acquisition of non-controlling interests –1,755 –4,118 134.6

Other transactions –4,322 –5,714 32.2

NET CASH GENERATED FROM / (USED FOR) FINANCIAL ACTIVITIES –13,010 10,573 –


Net cash generated from financial activities in 2014 totalled 10.6 bn RUB.

The Company increased its loan portfolio in 2014 by 67.16 bn RUB primarily due to: � the use of a club-deal credit line for 2,150 mn USD received in November 2013; � the receipt of 10 bn RUB as part of a credit line provided by OJSC Rosselkhozbank; � the receipt of 10 bn RUB as part of a credit line provided by OJSC Sberbank.

The reduction in the amount of dividends paid in 2014 is connected with the switch to the system of payment of interim dividends in 2013.

In 2013, the Company paid: � dividends for 2012 in the amount of 9.3 RUB per share; � dividends for the first half of 2013 in the amount of 4.09 RUB per share

In 2014, the Company paid: � dividends for the second half of 2013 in the amount of 5.29 RUB per share; � dividends for the first half of 2014 in the amount of 4.62 RUB per share.


57

CAPITAL INVESTMENTSCapital investments, mn RUB

2013 2014 Change, %

Exploration and production 144,035 192,739 33.8

Subsidiaries 132,178 178,330 34.9

Proportionately consolidated companies 11,857 14,409 21.5

Oil refining 27,264 26,765 –1.8

Marketing and sales 17,523 13,576 –22.5

Other 6,151 10,731 74.5

CAPITAL INVESTMENTS SUBTOTAL 194,973 243,811 25.0

Changes in the amount of advances issued and capital construction materials

13,638 27,519 101.8

TOTAL CAPITAL INVESTMENTS 208,611 271,330 30.1

Total capital investments grew by 30.1% in the reporting year from 208.6 bn to 271.3 bn RUB.A 33.8% year-on-year increase in capital investments in the exploration and production segment was primarily due to: � the development of fields in the Noyabrsk and Orenburg Region; � drilling at the Priobskoye field; � the active construction of major infrastructure facilities at

the Novoportovskoye field (Arctic terminal, oil gathering system and pressure-based oil pipeline);

� capital expenditures on the recently acquired fields: Dolginskoye (Q3 2013) and Prirazlomnoye (Q2 2014).

The dynamics of capital investments 2012–2014, mn RUB

20132012 2014

208,611169,213

271,330

30,1%



58

FINANCIAL RESULTS

DEBT AND LIQUIDITYDebt and liquidity indicators

31 Dec. 2013 31 Dec. 2014. Change, %

Short-term credits and loans, mn RUB 52,413 61,121 16.6

Long-term credits and loans, mn RUB 261,455 502,306 92.1

Cash and cash equivalents, mn RUB –91,077 –53,167 41.6

Short-term deposits, mn RUB –36,869 –76,658 –107.9

NET DEBT, MN RUB 185,922 433,602 133.2Short-term loans and credits / total debt, % 16.7 10.8 –5.9

Ratio of net debt to EBITDA in annual terms 0.59 1.44 0.85


The Company’s loan portfolio is diversified and includes syndicated and bilateral loans, bonds and other instruments. The growth of Company’s net debt is due to the decrease in rouble/dollar exchange rate in the second half of 2014.

FINANCIAL RATIOS Profit margin

2013 2014 Change, p.p.

Adjusted EBITDA margin, % 26.57 24.33 –2.2

Net profit margin, % 14.73 8.99 –5.7

Return on assets (ROA), % 12.91 6.92 –6.0

Return on equity (ROE), % 19.99 11.90 –8.1

Return on average capital employed (ROACE), % 17.44 13.07 –4.4


Liquidity

2013 2014 Change, p.p.

Current liquidity ratio 2.08 1.88 –9.8

Acid test ratio 1.13 0.94 –16.8

Absolute liquidity ratio 0.71 0.53 –25.5


Leverage

2013 2014 Change, p.p.

Net debt / total assets, % 11.89 20.67 8.8

Net debt / capital, % 18.63 38.37 19.7

Leverage, % 18.25 31.11 12.9

Net debt / market capitalisation, % 0.27 0.64 139.4

Net debt / EBITDA, % 0.59 1.44 144.9

Total debt / EBITDA, % 0.99 1.87 88.5Source: Company data


59

EFFICIENCY – A GUARANTEE FOR STRONG OPERATING RESULTS

OPERATING RESULTS

HYDROCARBON BALANCE – PRODUCTION

RESULTS IN 2014:

Gazprom Neft has demonstrated strong growth in all business segments and taken a leading position in the industry.

LEADING POSITIONS

254% 1P category resource base replacement ratio according to PRMS classification (proven)

43.48 mn t 1.99%

volume of oil refining in 2014

The Company has increased its reserves as well as the volume and efficiency of production at its own and shared assets.

20.0 t/day 5.26%

average petroleum products sales volume per one filling station

� high level of efficiency in geological exploration works � launch of commercial production at the South Shinginskoye field � increased stakes in the production enterprises LLC SeverEnergia, CJSC Northgas

and LLC Gazprom Neft Shelf � development of new projects abroad � high level of efficiency of geological and technical measures

KEY GROWTH FACTORS:

More detailed information about the hydrocarbon balance is available in the online version of the Annual Report

“The strategy of Gazprom Neft provides for growth in the Company’s production while maintaining a high reserve life. In this way we not only compensate for production each year, but also increase our resource base. Gazprom Neft is steadily moving towards its goal and demonstrating strong growth in its reserves each year.”

ALEXANDER DYUKOVCHAIRMAN OF THE GAZPROM NEFT MANAGEMENT BOARD


61

RAW MATERIAL BASE

Gazprom Neft proven hydrocarbon reserves have increased by 100 mn TOE according to PRMS standards. Among the factors that enabled the Company to significantly expand its resource base in 2014 were geological exploration work conducted by Gazprom Neft itself, joint ventures and the acquisition of increased stakes in LLC SeverEnergia, CJSC Northgas and LLC Gazprom Neft Shelf.

The resource base of subsidiaries is characterised by deterioration in the structure of the remaining commercial reserves due to the transition of most of the highly productive fields to late stage development and the opening of less efficient hydrocarbon fields. The efficiency of the development of these reserves can be improved, however, with the use of horizontal drilling technologies.

254%1P category resource base replacement ratio according to PRMS classification (proven)

Dynamics of the raw Gazprom Neft materials resource base for 2013–20141, mn TOE

TomskneftSPD

Slavneft

MessoyakhaSeverEnergia

Gazprom Neft

2012 Production Licenseacquisition

Revisionof previousestimates

Licenseacquisition

Production2013Revisionof previousestimates

2014

1,200

1,343

1,443

91

112

–60

–65

69

96

reserve replacement ratio

333%

reserve replacement ratio

254%

Revision of previous estimates

2013 2014

–2.40.7

4.1

5.69.6

94.4

120

23

128

31

112 96Total

* Запасы включают в себя долю в запасах Бадры рассчитанной на основе рабочей доли (working interest). которая отличается от экономической доли (economic entitlement). использованной в консолидированной финансовой отчетности Группы** Итого включая 49.9% долю участия в Славнефти.50% - в Томскнефти. SPD и Мессояханефтегазе. 9.1% в Нортгазе и 45.1% - в СеверЭнергии (40.2% и 25.5% на 31 декабря 2013 и 2012 гг. соответственно)

Source: Company data1 Data does not include reserves and production volume of NIS a.d. Novi Sad.

Additional information on assessment standards is available in the online version of the Annual Report

62

OPERATING RESULTS

HYDROCARBON PRODUCTION

Gazprom Neft is active in the exploration, development and production of oil and gas in Russia as well as abroad.

In 2014 Gazprom Neft increased its total production by 6.41% to 66.25 mn TOE.

The Company has achieved growth in production by acquiring new production assets in 2011–2012, including (CJSC Gazprom Neft Orenburg, LLC Advanced Technologies Centre, OJSC Yuzhuralneftegaz and LLC Zhivoy Istok, high efficiency workover implementation at West Siberian fields and through increasing its ownership stake in LLC SeverEnergia.

A total of 2,448 workover plans were carried out by the Company’s subsidiaries in 2014, including 1,497 plans that resulted in increased oil production and 951 measures aimed at supporting a base level of production. These measures resulted in additional oil production of 4.95 mn tonnes.

The Company’s subsidiaries managed to exceed planned production indicators by drilling horizontal wells, including those with multi-stage hydraulic fracturing, as well as by efficiently utilising production stimulation methods.

TOTAL HYDROCARBON PRODUCTION66.25 mn TOE 6.41%

hydrocarbon production by Gazprom Neft Group in 2014

Hydrocarbon production, mn TOE

2011 37.83 5.769.38

2012 40.32 5.789.27

2013 42.98 8.73 5.76 3.61

2014 44.75 4.005.68

Share in Tomskneft VNK hydrocarbon production

Share in SPD hydrocarbon productionShare in Slavneft hydrocarbon productionGazprom Neft hydrocarbon production

66.25

57.25

59.71

62.26

2010 33.60 9.45 5.62 52.81

Share in SeverEnergia and Northgas hydrocarbon production

8.44 3.38

3.92

4.27

4.13

0.42

1.18

Average daily hydrocarbon production by Gazprom Neft Group, 1,000 tonnes/day

181.51

170.58

163.15

156.85

144.69


� the development of existing Gazprom Neft assets: OJSC Gazpromneft-Khantos, OJSC Gazpromneft- Noyabrskneftegaz and OJSC Gazpromneft-Vostok with the acquisition of licenses for unallocated areas and production by the CJSC Gazprom Neft-Orenburg

� the realization of production shares in joint ventures: OJSC Slavneft OGC (50% jointly with OJSC Rosneft OC), OJSC Tomskneft VNK (50% jointly with OJSC Rosneft OC), Salym Petroleum Development N. V. (50% jointly with Shell Salym Development B.V.), LLC SeverEnergia (45.1% jointly with OJSC NOVATEK) и CJSC Northgas (50% jointly with OJSC NOVATEK)

� the further development of the Prirazlomnoye and Novoportovskoye fields

� the production of Cenomanian natural gas from the fields of OJSC Gazpromneft-Noyabrskneftegaz – Novogodneye and Muravlenkovskoye

� joining foreign projects and acquiring unallocated sites and assets

GAZPROM NEFT TARGET PRODUCTION PROFILE FOR 2015 INCLUDES:

Additional information about production drilling is available in the online version of the Annual Report

Additional information about geological exploration is available in the online version of the Annual Report


63

In 2014, Gazprom Neft maintained its positions among Russian oil companies as an industry leader in terms of oil and gas production.

Consolidated oil production by the Gazprom Neft Group totalled 52.06 mn tonnes in 2014, up by 2.9% from the production indicator for 2013.

In 2014, the Company consolidated its positions in the Russian seas off the northern coast of the Yamalo-Nenets Autonomous District. In April, a new blend of Arctic Oil was shipped from the Prirazlomnoye field – Russia’s first production project on the Arctic shelf. Drilling and the study of an exploration well were completed at the Dolginskoye field on the shelf of the Pechora Sea. This marks the first time that such significant work was conducted during the short ice-free period in the region and is a record for the industry. Preparations continue for the commercial development of major fields in the northern Yamalo-Nenets Autonomous District – the Messoyakha and Novoportovskoye groups of fields. The first season of sea-based oil shipments from the Novoportovskoye field concluded with more than 100,000 tonnes of new Novy Port blend oil being shipped by four tankers. In January 2015, Gazprom Neft obtained the first flow of shale oil from the South Priobskoye field in the Khanty-Mansi Autonomous District-Yugra.

At the Badra field in Iraq, the Company has begun the commercial shipment of oil and met its primary obligations to the Iraqi Government for the production of at least 15,000 barrels per day over the course of 90 days. A geological study of three projects is under way in Kurdistan.

OIL PRODUCTON

Oil production, mn t

2011 31.52 5.179.04

2012 32.87 5.118.93

2013 33.42 8.40 5.08 3.49

2014 34.78 4.97

Share in Tomskneft VNK oil production

Share in SPD oil productionShare in Slavneft oil productionGazprom Neft oil production

52.06

49.97

50.78

50.58

Добыча нефти. млн т

2010 31.15 9.18 5.15 49.62

8.09 3.28

3.81

4.23

4.13

0.94

0.18

0.06

142.62

138.57

138.75

136.90

135.93

Average daily oil production by Gazprom Neft Group, 1,000 tonnes/day

Share in SeverEnergia and Northgas oil production


52.06 mn t 2.92%

consolidated oil production of the Gazprom Neft Group in 2014

Additional information on oil production available in the online version of the Annual Report

“The Novy Port Arctic oil blend will be transported along a new sea route while maintaining its high quality characteristics. Establishing a major production centre in the north of the Yamalo-Nenets Autonomous District remains a strategic objective of Gazprom Neft. One of the projects of the new cluster is Novy Port, which is on par with the fields of the Messoyakha group and the assets of SeverEnergia. We have worked hard and invested substantial funds to make the commercial development of these Arctic reserves a reality. The projects continue to actively evolve – they will account for a substantial portion of Gazprom Neft production in just a few short years.”

VADIM YAKOVLEVDEPUTY CHAIRMAN OF THE MANAGEMENT BOARD AND FIRST CEO JSC GAZPROM NEFT

64

OPERATING RESULTS

The Company is actively developing gas production operations with a focus on the commercialisation of reserves of associate and natural gas produced at oil fields and increasing their value.

The gas programme of the Gazprom Neft Group provides for accelerated growth in gas production in Russia.

In 2014, the cumulative production/use of gas by the Gazprom Neft Group, including the share in production by joint ventures, totalled 17.68 bn m3. Natural gas production by subsidiaries totalled 5.72 bn m3. The overall level of associated petroleum gas (APG) utilisation, including joint ventures, totalled 81.4% in 2014 compared with 79.9% in 2013.

The development of small gas deposits that make up a part of the fields at which Gazprom Neft is already working will enhance the cost-effectiveness of using the Company’s reserves and help increase hydrocarbon production to 100 mn TOE per year as envisaged by the Company’s development strategy to 2025.

GAS PRODUCTION

17.68 bn m3 21.50%

cumulative production/use of gas by the Gazprom Neft Group in 2014

5.72 bn m3

production of natural gas by subsidiaries in 2014

81.4%overall level of APG utilisation in 2014

Production/use of gas, bn m3


2011 7.86

2012 9.28 0.84

2013 11.91 0.86 5.1

2014 12.42 3.81

Share in Tomskneft VNK gas production

Share in SPD gas productionShare in Slavneft gas productionGazprom Neft gas production

17.68

9.07

11.12

14.55

2010 3.06 3.98

Share in SeverEnergia and Northgas gas production

0.88

1.24

0.73

0.44 0.13

0.41 0.14

0.42 0.13

0.42 0.05

0.45

0.34

0.59

Additional information on gas production and APG utilisation is available in the online version of the Annual Report


65

Project Proven + probable hydrocarbonreserves under PRMS standards,mn TOE

Proven/probable Work stage Stake of Gazprom Neft,%

Projected start of industrial production

Major events of 2014 Plans for 2015

NOVY PORT

127.168.8

58.3Trial operation 2016

� Exploration wells test programme completed. � Initial field development plan defended. � First summer oil shipment by sea using the tanker fleet. 101,035 tonnes shipped. � Work to lay an underwater pipeline and install pilot poles during the summer

the summer period as part of the construction of an oil terminal.

� Launch of commercial operations of the field. � Depending on the geological structure of the formation, Jurassic deposits

(41% of the reserves) are to be developed using horizontal wells with multi-stage hydraulic fracturing. Neocomian deposits (strata of PP group – 36% of reserves) are to be developed with horizontal wells with the horizontal section ranging from 1,000 to 1,500 m in length.

MESSOYAKHA

72.66.4


� Winter oil exports. � Concepts approved for geological works and development of fields, ground

infrastructure and logistics. � Drilling completed on 17 production wells and 3 water wells. � Engineering preparations and a programme for the winter delivery of material and

technical resources fully completed.

� Advanced drilling of production wells set to start for the full-scale development of East Messoyakha.

PRIRAZLOMNOYE

51.115.7


� Revised operational estimate of reserves performed. � Work conducted for the reprocessing and reinterpretation of 2D and 3D seismic

materials. � Geodynamic monitoring conducted near the Prirazlomnaya offshore ice-resistant

fixed platform. � Complex underwater geotechnical measures implemented near the Prirazlomnaya

offshore ice-resistant fixed platform. � Work completed on additional studies of exploration well cores.

� Geodynamic monitoring near the Prirazlomnaya offshore ice-resistant fixed platform.

� Complex geotechnical measures for the underwater survey of abandoned and mothballed wells.

� Continued drilling of production wells.

KUYUMBA

114.25.7


� Project implemented for the reinjection of oil into the productive horizon. � New updated geological model coordinated for the Kuyumba field. � Drilling completed on 4 wildcat wells and 9 horizontal section wells at pilot

commercial development sites. � 2D and 3D seismic survey work (SSW) completed.

� Planned date for the submission of a new design document for the development of the Kuyumba field for consideration by the Central Development Commission of the Federal Agency on Subsoil Use – March 2015.

� Field SSW using the CDP method at the West Kuyumba site – 172.3 km2 and at the Kuyumba site – 197.8 km2.

� Preparation of documents to receive export duty preferences.

NORTHGAS

22.118.3

3.8Commercial operation –

� Northgas Condensate Deethaniziser Plant commissioned in December. � CDP and CGTP launched at the North Urengoy field.

� A CGTP set to be launched at the Yaro-Yakhinskoye field.

SEVERENERGIA

482.5308,9

173,6Commercial operation –

� Urengoy Complex Gas Treatment Plant built and put into operation. � 116 production wells drilled. � 3D seismic survey field work concluded at the Yevo-Yakhinskoye and Samburgskoye

fields. � Samburgskaya CGTP begins operating at full capacity. � Gas and condensate treatment and transportation facilities launched at the

Samburgskoye and Urengoy fields (Samburgskoye license area) at the end of 2014.

� Completion of construction and commissioning of main production facilities of LLC SeverEnegia.

� A CGTP is to be launched at the Yaro-Yakhinskoye field.

CHONA PROJECT

62.97.5

55.4Geological exploration work 2020

� 900 km2 of 3D seismic surveys conducted, including 600 km2 using UniQ technology.

� 5 exploration wells drilled and tested. � Overfulfillment of plan for growth in reserves.

� Updating of resource base and identification of effective technologies for the penetration of terrigenous and carbonate deposits.

� 1,050 km2 of 3D seismic survey work performed. � Drilling and testing of 4 exploration wells. � 5,200 linear km of electrical exploration work performed.

DOLGINSKOYE

Not estimated under PRMS – Geological

exploration work –

� 3-CD well drilled and tested. � Presence of gas condensate deposits identified.

� Updating of geological model of the Dolginskoye field. � Preparation of a geological exploration programme taking into account

changes to the project perimeter. � Search for a partner for the joint implementation of a project

Russian projects

Southern module

Northern module

10

100

100

50

100

90

50

9.1

45.1

66

OPERATING RESULTS

Project Proven + probable hydrocarbonreserves under PRMS standards,mn TOE

Proven/probable Work stage Stake of Gazprom Neft,%

Projected start of industrial production


NOVY PORT

127.168.8


� Exploration wells test programme completed. � Initial field development plan defended. � First summer oil shipment by sea using the tanker fleet. 101,035 tonnes shipped. � Work to lay an underwater pipeline and install pilot poles during the summer

the summer period as part of the construction of an oil terminal.

� Launch of commercial operations of the field. � Depending on the geological structure of the formation, Jurassic deposits

(41% of the reserves) are to be developed using horizontal wells with multi-stage hydraulic fracturing. Neocomian deposits (strata of PP group – 36% of reserves) are to be developed with horizontal wells with the horizontal section ranging from 1,000 to 1,500 m in length.

MESSOYAKHA

72.66.4


� Winter oil exports. � Concepts approved for geological works and development of fields, ground

infrastructure and logistics. � Drilling completed on 17 production wells and 3 water wells. � Engineering preparations and a programme for the winter delivery of material and

technical resources fully completed.

� Advanced drilling of production wells set to start for the full-scale development of East Messoyakha.

PRIRAZLOMNOYE

51.115.7


� Revised operational estimate of reserves performed. � Work conducted for the reprocessing and reinterpretation of 2D and 3D seismic

materials. � Geodynamic monitoring conducted near the Prirazlomnaya offshore ice-resistant

fixed platform. � Complex underwater geotechnical measures implemented near the Prirazlomnaya

offshore ice-resistant fixed platform. � Work completed on additional studies of exploration well cores.

� Geodynamic monitoring near the Prirazlomnaya offshore ice-resistant fixed platform.

� Complex geotechnical measures for the underwater survey of abandoned and mothballed wells.

� Continued drilling of production wells.

KUYUMBA

114.25.7


� Project implemented for the reinjection of oil into the productive horizon. � New updated geological model coordinated for the Kuyumba field. � Drilling completed on 4 wildcat wells and 9 horizontal section wells at pilot

commercial development sites. � 2D and 3D seismic survey work (SSW) completed.

� Planned date for the submission of a new design document for the development of the Kuyumba field for consideration by the Central Development Commission of the Federal Agency on Subsoil Use – March 2015.

� Field SSW using the CDP method at the West Kuyumba site – 172.3 km2 and at the Kuyumba site – 197.8 km2.

� Preparation of documents to receive export duty preferences.

NORTHGAS

22.118.3

3.8Commercial operation –

� Northgas Condensate Deethaniziser Plant commissioned in December. � CDP and CGTP launched at the North Urengoy field.

� A CGTP set to be launched at the Yaro-Yakhinskoye field.

SEVERENERGIA

482.5308,9

173,6Commercial operation –

� Urengoy Complex Gas Treatment Plant built and put into operation. � 116 production wells drilled. � 3D seismic survey field work concluded at the Yevo-Yakhinskoye and Samburgskoye

fields. � Samburgskaya CGTP begins operating at full capacity. � Gas and condensate treatment and transportation facilities launched at the

Samburgskoye and Urengoy fields (Samburgskoye license area) at the end of 2014.

� Completion of construction and commissioning of main production facilities of LLC SeverEnegia.

� A CGTP is to be launched at the Yaro-Yakhinskoye field.

CHONA PROJECT

62.97.5

55.4Geological exploration work 2020

� 900 km2 of 3D seismic surveys conducted, including 600 km2 using UniQ technology.

� 5 exploration wells drilled and tested. � Overfulfillment of plan for growth in reserves.

� Updating of resource base and identification of effective technologies for the penetration of terrigenous and carbonate deposits.

� 1,050 km2 of 3D seismic survey work performed. � Drilling and testing of 4 exploration wells. � 5,200 linear km of electrical exploration work performed.

DOLGINSKOYE

Not estimated under PRMS – Geological

exploration work –

� 3-CD well drilled and tested. � Presence of gas condensate deposits identified.

� Updating of geological model of the Dolginskoye field. � Preparation of a geological exploration programme taking into account

changes to the project perimeter. � Search for a partner for the joint implementation of a project


67

Project Work stage Stake of Gazprom Neft, % Projected start of industrial production


IRAQ (BADRA)

Commercial operation

First phase – 2017

Second phase – 2019

� Oil production launched at field. � First phase of a central gathering plant with capacity of 45,000 barrels built

and commissioned. � Export oil pipeline put into operation. � 3 wells completed and commissioned. � Final development plan submitted to Iraq. � FCP reached (95 days of production of 15,000 barrels over a 120-day period).

� Continued production drilling. � Conclusion of contracts for the drilling of the next production wells. � Commissioning of three wells. � Commissioning of the second oil treatment line of the central gathering plant

and related infrastructure. � Conclusion of contract for construction of water pipeline for technical needs.

IRAQ (KURDISTAN)

Geological exploration work

Shakal – 2018

Halabja – 2018

Garmian – 2015

� Unexplored section of the Garmian block (93% of territory) delivered in accordance with the terms of a Product Sharing Agreement.

� Drilling of Shakal-2 and Shakal-3 wells completed at the Shakal block in December.

� Field 2D SSW launched at the Halabja block in September. � Flow rate of 1,500 t/day obtained based on testing results of Sarkal-1 well at

the Garmian block.

� Field 2D SSW to be completed at the Halabja block and the location of the first wildcat well to be selected.

� Operator function at Garmian block to be transferred from the Canadian company WesternZagros Resources Ltd. to Gazprom Neft Middle East B.V. Oil production to begin at the unit.

� Testing of Shakal-2 and Shakal-3 wells to be completed at the Shakal block. Based on testing results, decision to be made regarding the drilling of the Shakal-4 and Shakal-6 wells.

VENEZUELA (JUNIN-6)

Trial operation 2015

� Construction of 17 production wells completed as part of the “Early Extraction” project (trial commercial development stage).

� Operating well stock at the end of 2014 consisted of 22 wells with average daily oil production under the project totalling approximately 1,124 t/day, including the share of Gazprom Neft amounting to 90 t/day.

� Project management transferred to OJSC Rosneft OC within the Russian part of the Junin-6 project – LLC National Oil Consortium.

� In December 2014, OJSC LUKOIL withdrew from the project and sold its 20% stake to OJSC Rosneft OC.

� First stage of additional exploration of the unit to be completed with a transition to the second phase of additional exploration.

� Continued implementation of the “Early Extraction” project. � Continued work to design ground infrastructure. � Continued work to update Appendix N (Field Development Design) to

the Contract specifications for the establishment and management of the PetroMiranda JV.

International projects

40

80

80

Garmian

Shakal

Halabja

8

30

Additional information on Russian hydrocarbon production projects is available in the online version of the Annual Report

Additional information on international hydrocarbon production projects is available in the online version of the Annual Report

68

OPERATING RESULTS

Project Work stage Stake of Gazprom Neft, % Projected start of industrial production


IRAQ (BADRA)

Commercial operation

First phase – 2017

Second phase – 2019

� Oil production launched at field. � First phase of a central gathering plant with capacity of 45,000 barrels built

and commissioned. � Export oil pipeline put into operation. � 3 wells completed and commissioned. � Final development plan submitted to Iraq. � FCP reached (95 days of production of 15,000 barrels over a 120-day period).

� Continued production drilling. � Conclusion of contracts for the drilling of the next production wells. � Commissioning of three wells. � Commissioning of the second oil treatment line of the central gathering plant

and related infrastructure. � Conclusion of contract for construction of water pipeline for technical needs.

IRAQ (KURDISTAN)

Geological exploration work

Shakal – 2018

Halabja – 2018

Garmian – 2015

� Unexplored section of the Garmian block (93% of territory) delivered in accordance with the terms of a Product Sharing Agreement.

� Drilling of Shakal-2 and Shakal-3 wells completed at the Shakal block in December.

� Field 2D SSW launched at the Halabja block in September. � Flow rate of 1,500 t/day obtained based on testing results of Sarkal-1 well at

the Garmian block.

� Field 2D SSW to be completed at the Halabja block and the location of the first wildcat well to be selected.

� Operator function at Garmian block to be transferred from the Canadian company WesternZagros Resources Ltd. to Gazprom Neft Middle East B.V. Oil production to begin at the unit.

� Testing of Shakal-2 and Shakal-3 wells to be completed at the Shakal block. Based on testing results, decision to be made regarding the drilling of the Shakal-4 and Shakal-6 wells.

VENEZUELA (JUNIN-6)

Trial operation 2015

� Construction of 17 production wells completed as part of the “Early Extraction” project (trial commercial development stage).

� Operating well stock at the end of 2014 consisted of 22 wells with average daily oil production under the project totalling approximately 1,124 t/day, including the share of Gazprom Neft amounting to 90 t/day.

� Project management transferred to OJSC Rosneft OC within the Russian part of the Junin-6 project – LLC National Oil Consortium.

� In December 2014, OJSC LUKOIL withdrew from the project and sold its 20% stake to OJSC Rosneft OC.

� First stage of additional exploration of the unit to be completed with a transition to the second phase of additional exploration.

� Continued implementation of the “Early Extraction” project. � Continued work to design ground infrastructure. � Continued work to update Appendix N (Field Development Design) to

the Contract specifications for the establishment and management of the PetroMiranda JV.

PURCHASE OF OIL

Purchases of oil on the international market declined by 11.2% compared with 2013 due to a reduction in oil refining at the oil refinery in Panchevo, which belongs to NIS a.d. Novi Sad.

Purchases of oil, mn t

2010 2011 2012 2013 2014 Change 2014/2013, %

Purchases of oil in Russia1 5.28 5.77 7.82 4.94 4.97 0.6

Purchases of oil on the international market 2.38 1.68 3.24 1.87 1.66 –11.2

Total oil purchases 7.66 7.45 11.06 6.81 6.63 –2.6

1 Oil purchases in Russia do not include purchases from JVs (OJSC Slavneft OGC and LLC SeverEnergia).


69

OIL REFINING

In 2014, Gazprom Neft retained its position as one of the leading Russian oil companies in terms of oil refining.

43.48 mn t 1.99%

of oil refined in 2014

41.64 mn t 2.69%

of commercial petroleum products produced in 2014

Gazprom Neft oil refining by oil refinery, mn t Gazprom Neft petroleum products production structure, mn t

2010 7.25 11.41 7.80 3.502.43

2011 8.11 11.49 4.728.342.57

2012 8.96 11.51 6.088.782.67

2013 8.92 2.69 7.48 5.8012.09

Jet fuelFuel oil

Bitumen and cokeTechnological petrol Diesel fuel

Motor petrolOther

40.55

41.01

38.35

1.47 2.09

1.30 1.72

1.15 1.97

2014 8.84 2.99 7.39 6.88 12.15 41.641.36 2.03

35.631.621.62

2010 18.98 7.158.91 2.85

2011 19.95 7.3910.80

2012 20.95 7.6410.67 2.14

2013 20.23 2.7511.08 7.52

YANOSNISMoscow Oil Refinery

Omsk Oil Refinery Mozyr Oil Refinery

1.0542.63

37.90

40.49

43.34

2014 21.28 2.6110.76 7.651.17

43.48

1.94

2.36

Source: Company dataSource: Company data

� improving crude oil refining efficiency � improving the environmental performance of fuels � meeting the demands of the domestic market � safe production and environmental protection

KEY GAZPROM NEFT PRIORITIES WHEN PRODUCING PETROLEUM PRODUCTS:

Additional information on oil refining is available in the online version of the Annual Report

70

OPERATING RESULTS

1 The refining and output of petroleum products are given as the share of Gazprom Neft.

2 Gazprom Neft has a 50% share in the refining of Slavneft-YANOS.

3 Oil refining volume at the Mozyr Oil Refinery is determined by the oil supply schedule of Gazprom Neft approved by the Russian Ministry of Energy as well as the distribution of the oil for the internal refining of Gazprom Neft and sale to Mozyr Oil Refinery in accordance with an intergovernmental treaty between Russia and Belarus.

Oil refining assets

Omsk Oil Refinery Moscow Oil Refinery NIS Slavneft-YANOS Mozyr Oil Refinery

Installed capacity, mn t 21.57 12.15 7.31 15.002 12.03

Refining1, mn t 21.28 10.76 2.61 7.652 1.173

Commodity output1, mn t 20.20 10.27 2.85 7.24 1.08

Refining depth, % 93.02 71.77 84.17 63.31 73.60

Output of light petroleum products, %

67.32 53.57 74.87 53.92 60.00

Events Construction completed

on a terminal for unloading, storage and pumping for

processing of stable has condensate.

Reconstruction completed

on crude vacuum units, hydrogen

production units, sulphur production units to produce

granulated sulphur.

Scheduled maintenance completed on

basic technological installations.

Reconstruction of petrol pool installations completed.

Reconstruction completed on diesel fuel hydrotreatment

unit aimed to dewaxing.

First phase completed on project

to rebuild existing equipment to support work in vacuum gasoil hydrotreater mode.

Additional information about third-party oil refining is available in the online version of the Annual Report

Additional information about own refining is available in the online version of the Annual Report


71

SALE OF OIL AND PETROLEUM PRODUCTS

Gazprom Neft sells oil and petroleum products in bulk in Russia and abroad. Small-scale wholesale and retail sales, including via the Company’s filling stations, are handled by sales subsidiaries.

As of the end of 2014, the Company’s petroleum product supply enterprises operated 49 owned and leased petroleum storage depots. In 2014, 7.2 mn tonnes of petroleum products were sold in small-scale wholesale. The tank farms of petroleum storage depots had a turnover ratio of 16.2 per year. Sales of petroleum products via large-scale wholesale totalled 0.8 mn tonnes in 2014.

Petroleum product sales on the domestic market, mn t

2012 7.71

7.11

5.44 6.06 2.10 2.10 2.58

6.66 1.8 2.50 1.83 3.56

2.127.38 3.01

2013

2010

2011

8.06 2.837.16 1.660.20

25.84

25.15

24.29

20.54

2014 8.60 7.35 1.74

0.13

27.54

0.37

0.74

0.87 1.29Diesel fuelFuel oil Jet fuel

Low-octane petrolNaphtha

High-octane petrolOtherMarine fuel

1.91 2.65

2.45 3.46

2.91 3.39 3.42

0.02


Petroleum product sales on the domestic market, mn RUB

20101

2011

2012 214,569

180,123

121,622 94,632

139,954 49,305 47,900

183,501

2013 241,733 68,808200,883

5,526

630,359

572,082

478,172

324,548

2014 285,311 220,000

3,604

715,835

9,147

16,771

15,575 16,338 16,481

29,251

Diesel fuelFuel oil Jet fuel



49,958

60,82376,108 51,736

305

18,271

19,168

31,362 28,538

14,868

43,978

21,000

62,019

38,966

42,880


SALES OF PETROLEUM PRODUCTS ON THE DOMESTIC MARKET

27.54 mn tsales volume of petrochemical products on the domestic market in 2014

Sales of petroleum products on the domestic market grew by 6.6% in physical terms and by 13.6% in monetary terms. Growth in sales of motor fuels is connected with the expansion of the sales network and an increase in average daily sales per filling station. The increase in sales of marine fuel by 38.4% is due to growth in the bunkering market in the Russian Far East and Black Sea region.

1 US GAAP financial reporting indicator given in dollars. Annual indicators are converted to rubles based on the average exchange rate for 2010.

Average sales price for 1 t of petroleum products, thou RUB

26.08

24.42

23.552012

2013

2014


72

OPERATING RESULTS

EXPORT OF OIL AND PETROLEUM PRODUCTS

49 petroleum depotsowned and leased were operated by the Company’s petroleum product supply enterprises at the end of 2014

7.2 mn tof petroleum products sold via small-scale wholesale in 2014

0.8 mn tof petroleum products sold via large-scale wholesale in 2014

OIL EXPORTS

Gazprom Neft exported 9.63 mn tonnes of oil in absolute terms in the reporting year, a 21.96% decrease from 2013. This is due to growth in internal refining in Russia, the discontinuation of sales to Kazakhstan and increased sales on the domestic market of oil from the Orenburg field.

Oil export dynamics to CIS and non-CIS countries, 2010–2014, mn t

20101

13.08

15.94 3.02

2011

14.12 2.50

2.99

2012

8.29 4.052013

2014 8.47

CISNon-CIS

1.16

18.96

16.07

16.62

12.34

9.63

1 Including LLC SeverEnergia.


Structure of oil exports by transportation type to CIS and non-CIS countries, 2010–2014, %


6.2316.7531.2622.9722.80

31.05 31.10 22.2212.5

2010

2011

2012

2013

2014

PrimorskNovorossiysk Pipeline: East Siberia-Pacific

Ocean

Pipeline: Druzhba

Tuapse

Ust-LugaArctic oil (Novy Port, Prirazlomnoye)

25.00 13.69 47.93 9.69

50.22 9.14 12.55

14.20 8.316.4249.4021.67

24.570.84 2.68

3.69

3.13

9.63 mn tof exports in physical terms in 2014


73

2012

2013 58,309

59,177

2014 64,58225,693

6883,884

24,617 6,508

3,192

20,863 17,267 7,9054,314 5,419

18,928 14,346 9,074 8,1904,785

1,012

2,541

2,842

2011

20101

46,808

34,793

15,564 14,055 6,7444,401

2,396 952

Diesel fuelFuel oil

Jet fuelLow-octane petrolNaphtha

High-octane petrolOther

2,696

14,816 8,15 5,617

3,4612,398

455

EXPORT OF PETROLEUM PRODUCTS

Gazprom Neft exported 17.73 mn tonnes of petroleum products in 2014, including 15.64 mn tonnes to non-CIS countries and 2.09 mn tonnes to CIS countries. Exports to non-CIS countries increased 7.05% compared with 2013. The increase in exports of petroleum products was the result of entering new sales markets and an increase in trade activity.

Exports of petroleum products to CIS countries declined 5.43% compared with 2013. Overall exports of petroleum products grew 5.41% over the reporting year.

Export sales of petroleum products to non-CIS countries, mn t

2012

2011

2010

3.931.19

1.00 4.66 5.82

4.911.64 4.73

1.00

2013 4.801.20 6.71 14.61

14.13

12.63

12.31

2014 4.591.16 7.12 15.64




6.66

1.03

0.27

0.32 0.22 0.61

0.32 0.52

0.72 0.77

0.570.220.08

0.17

0.20

0.03 0.33

0.17 0.51

0.48

0.030.13 0.15

0.10 0.25


Export sales of petroleum products to non-CIS countries, mn RUB

2012

2011

20101

2013 352,990

349,049

287,753

216,042

2014 400,346




36,044

5,336

2,564

148,502 137,816

24,431

26,505

19,148

34,166

6,060

7,855

142,134 125,195

10,003

14,258

13,319

33,809

24,479

34, 337 96,514 64,508

126,351 104,281

5,585

9,827 800

3,444 425

1,973 2,436

6,326

117,812 129,435

7,545

4,660

5,495

27,042

17,994

10,353

14,412


Sales of petroleum products to CIS countries, mn t

2012

2013

2010

2011

2.21

2.35

2.05

1.74

2014 2.09

Diesel fuelFuel oil

Jet fuelLow-octane petrolNaphtha

High-octane petrolOther

0.750.07

0.11

0.03

0.11

0.06

0.09

0.08

0.76 0.290.13

0.72 0.63 0.220.18 0.20 0.26

0.65

0.57 0.23 0.58 0.37

0.62 0.42 0.22 0.33

0.54 0.23 0.23 0.450.19

0.12

Sales of petroleum products to CIS countries, mn RUB


Dynamics of petroleum product exports to non-CIS and CIS countries, 2010-2014, mn t

2010

11.83

12.07 2.16

2011

14.13 2.35

2.76

2012

14.61 2.212013

2014 15.64

CISNon-CIS

14.23

14.59

16.48

16.82

17.732.09



1 US GAAP financial reporting indicator given in dollars. Annual indicators are converted to roubles based on the average exchange rate for 2010.

74

OPERATING RESULTS

RETAIL SALES

With one of the most extensive distribution networks in Russia, Gazprom Neft continued to consolidate its position on the retail motor fuel market in 2014, increasing its market share in the regions where it operates by 1.1 percentage point to 2.37%.

The Gazprom Neft filling station network is represented in 28 Russian regions as well as countries of the CIS and Eastern Europe. As of the end of 2014, the Company had 1,389 filling stations in operation in Russia and the CIS, which is 50 stations more than at the end of the preceding year.

The Company sold 9.91 mn tonnes of petroleum products through its filling stations in 2014, up 9% compared with 2013 sales. The average daily sales per filling station totalled 20.0 tonnes per day, a 5.26% increase from 2013.

Sales of petroleum products via filling stations located in Russia increased by 9.5% in 2014 to 8.0 mn tonnes of petroleum products. Revenue from the sale of related goods and services at filling stations totalled 13.6 bn RUB in 2014, up 29% from 2013.

Key indicators for the Company's filling station network

FILLING STATION NETWORK SALES

9.91 mn t 9%

of petroleum products sold via the Company’s filling stations in 2014

20.0 t/day 5.26%

average daily sales per filling station in Russia in 2014

2011 1,043 425202

2012 1,060 344205

2013 1,111 228 408

2014 1,150 421

Number of filling stations in Eastern EuropeNumber of filling stations in the CISNumber of filling stations in Russia

1,810

1,670

1,609

1,747

2010 947 181 468 1,596

239

Average sales of petroleum products per filling station, t/day

20.0

19.0

17.6

14.2

10.3



Additional information on the retail sales of petroleum products is available in the online version of the Annual Report


75

BRANDED FUEL

During the reporting period, Gazprom Neft continued implementing projects aimed at selling premium branded fuel at its filling stations. In 2014, 509,000 tonnes of premium class G-Drive 95 fuel were sold. An average of 876 filling stations sold this type of fuel. Sales of G-Drive 95 accounted for 26% of the overall sales of Ai-95 fuel.

The Company continued selling G-Drive 98 premium class motor fuel in 2014. A total of 57,000 tonnes of this fuel was sold during the reporting period. An average of 363 filling stations sold this type of fuel.

REBRANDING OF THE FILLING STATION NETWORK

Developing the segment for retail petroleum product sales is one of the key areas of the Company’s activities. Having its own national brand with a high level of recognition and trust in the product quality helps the Company achieve one of its strategic goals to become one of the leaders in Russia and the CIS in terms of retail sales and the efficiency of its filling station network by 2025.

GAS ENGINE FUELS (LPG, CNG)

In recent times, the environmental friendliness and cost-effectiveness of transportation has become a much greater social issue and particularly important for municipal and commercial transportation in large cities. This makes these segments a pillar and an example for the widespread use of this type of fuel. Gazprom Neft has responded by paying close attention to developing sales of gas engine fuels, in particular LPG and CNG.

In Russia, the consumption of LPG and CNG within the motor fuel structure does not exceed 3%. Liquefied gas has withnessed the most development as a motor fuel and accounts for 2.4% of all fuel consumption. CNG consumption accounts for only 0.4%.

In 2014, there were a total of 143 vehicle filling stations (VFS) under the Gazprom Neft brand within multi-fuel filling complexes. A total of 10,000 tonnes of CNG and 98,000 tonnes of LPG were sold in 2014, up 6% cumulatively from 2013.

Rebranding the Company's filling station network

2010 2011 2012 2013 2014

Number of rebranded filling stations 428 507 562 568 578

Number of rebuilt and rebranded filling stations 99 163 255 365 427

Number of filling stations built 37 57 95 121 141

Number of filling stations using a temporary brand 341 345 367 292 247

Number of unbranded filling stations 119 178 25 8 7

578 1.76%

number of filling stations rebranded in 2014

Sales of CNG and LPG, 2010–2014

Number of filling stations (sale of CNG and LPG)Sales volume, 1,000 t

902011

792010

1012012

1032013

2014 108

131

106

121

121

143



76

OPERATING RESULTS

3.72 11.04%

jet fuel

1.75 0.57%

bitumen

1.24 5.98%

petrochemistry

4.42 46.36%

marine fuel

0.48 2.04%

oils and lubricants

SALES BY PRODUCT BUSINESS UNIT

In order to improve the sales efficiency of petroleum products, Gazprom Neft has set up individual business units that responsible for the sale of jet fuel, bunkering, lubricants, bitumen and petrochemical products. The Company has drawn up specific strategic development plans for each division. The main objectives for the product business units are improving sales efficiency, expanding the geography of business and increasing the Company’s share in premium market segments.

Total sales of petroleum products through premium channels amounted to 25.78 mn tonnes in 2014, including sales of automotive fuel that amounted to 18,51 mn tonnes. The key segments experiencing growth: bunkering and the sale of jet fuel and lubricants. Jet fuel sales increased due to an expansion of the airport network in Russia and abroad. Sales of marine fuel increased due to growth in the bunkering market in the Far East and Black Sea regions as well as an expanded customer base in Baltic ports.

BUNKERING

The Company’s subsidiary LLC Gazpromneft Marine Bunker handles sales of light and dark blends of marine fuel for sea and river transportation. Having its own infrastructure enables LLC Gazpromneft Marine Bunker to sell high-quality marine fuels produced by the Omsk and Moscow Oil Refineries at all key Russian sea and river ports.

One of the competitive advantages that makes it possible to implement the ambitious plans of LLC Gazpromneft Marine Bunker is the existence of a well-developed terminal network that was built by acquiring its own terminals and building long-term partnerships with third party terminals.

The clients of LLC Gazpromneft Marine Bunker are major Russian and foreign shipping companies. In particular, during the reporting year a series of long-term strategic contracts for the supply of marine fuels were signed with such key customers as: ZIM, MSC, Maersk, CSCL, Royal Caribbean and BashVolgotanker SC.

20 seaportsscale of operations LLC Gazpromneft Marine Bunker on Russian territory

LLC Gazpromneft Marine Bunker has the most extensive geography for operations among all national bunkering companies in Russia: 20 seaports and 13 river ports. Over the last year, the Company has launched bunkering at the ports of Novosibirsk and Tomsk as well as Latvian ports in order to consolidate its positions in the Baltic Sea region.


Premium sales by product business unit, mn t

2012

2011

2010

2013

2014

Oils and lubricants Bitumen and coke Jet fuelMarine fuel

4.20

3.22 2.39

2.45 2.07 4.67

3.91

2.58

5.81

7.272.84

0.19

0.04

0.03

0.17

0.15

2.15 1.64

0.12

1.50 1.00

0.08


TOTAL SALES BY PRODUCT BUSINESS UNITS IN 2014, MN T:


77

� LLC Gazpromneft Shipping manages a bunker fleet comprised of nine of its own bunkering ships: four ships in St Petersburg, four in the Black Sea and one in the Far East

� LLC Gazpromneft Terminal SPb operates a bunkering terminal with long-term lease rights on the territory of the Kirov Plant in St Petersburg

� Gazpromneft Marine Bunker Balkan S.A. sells marine fuel in Romania at Constanta port

� AS Baltic Marine Bunker sells marine fuel at the ports of Tallinn and Riga

� LLC Novorosnefteservice and the LLC Novorossiysk Oil Transshipment Complex handle the transshipment of petroleum products at their own bunkering terminal in Novorossiysk.

LLC GAZPROMNEFT MARINE BUNKER HAS NINE REGIONAL OFFICES AND SIX SUBSIDIARIES:

GAZPROMNEFT MARINE BUNKER

RUSSIAN PORTS PLANS TO EXPAND COMPANY’S GEOGRAPHY

OF OPERATIONS IN 2012–2015

Ports in the Russian FederationSeaports of Northern Europe

INTERNAL WATERWAYSAstrakhan Volgograd Kazan Kamskoye UstyeNizhny Novgorod Novosibirsk Rostov-on-Don SamaraTomsk Ust-KutCherepovets Sheksna Yaroslavl

FAR EASTVaninoVladivostokVostochnyZarubino, Posyet, SlavyankaKozminoPetropavlovsk-KamchatskyNakhodkaSakhalin

NORTHWESTArkhangelskBaltiyskKaliningradMurmanskPrimorskSt PetersburgUst-Luga

SOUTHNovorossiyskTamanTuapse

Port KavkazSochi

INTERNATIONAL PORTS

Constanta (Romania)Riga (Latvia)Tallinn (Estonia)

“Having a broad geography, its own fleet and terminal assets, high quality service standards and direct contracts with major consumers of bunker fuel are some of the advantages that enable our Company confident leadership on the Russian bunkering market. In the future, we plan to more than double our fleet. We will also increase investment in the modernisation of our terminal facilities.Starting in 2015, stringent standards for sulphur content in fuel will take effect in EU zones and demand will increase for low-sulphur fuel. In this regard, we are focused on developing a new bunkering market segment for liquefied natural gas. We anticipate having strong positions in this sphere by 2025.”

ANDREY VASILYEVCEO OF LLC GAZPROMNEFT MARINE BUNKER

78

OPERATING RESULTS

Performance results in 2014

3.4 mn t 43%

“direct to ship” bunkering in 2014

The Company holds leading positions on the Russian bunkering market with an 18.6% market share.

In 2014, “direct to ship” bunkering increased by 43% and totalled 3.4 mn tonnes. Total cumulative annual sales of petroleum products grew by 29.7% compared with 2013 to 4.2 mn tonnes.

In 2014, Gazpromneft Marine Bunker updated its long-term development strategy for the bunkering business to 2025.

The Company continues to implement strategic initiatives to establish a new segment on the bunkering market – LNG bunkering at Russian ports. There has been dynamic development of global scale projects to build LNG infrastructure with most of them concentrated in the European region. LNG bunkering infrastructure is set to be developed at key ports around the world located along major shipping routes.

The implementation of such large-scale plans requires the Company to continuously strengthen its competitive advantages, one of which is the availability of its own bunkering fleet. Gazpromneft Marine Bunker plans include further expansion of its fleet, increasing the number of ships in Russia and abroad to 29 by 2025.

The trend towards increased fleet tonnage dictates new bunkering standards: the need for large-capacity bunkering tankers in order to increase the volume of one-time “direct to ship” bunkering of large-capacity vessels. Responding to market demands, Gazpromneft Omsk acquired a new large-capacity bunkering tanker in the reporting year for the bunkering of vessels at Black Sea ports. The tanker is to be commissioned in February 2015.

Premium sales of marine fuel, mn t

2010

2011

2012

2013

2014 4.20

3.22

2.45

2.15

1.50

Market share of Gazpromneft Marine Bunker, %

2010

2011

2012

2013

2014 18.6

18.6

18.6

18.2

16.0


LLC Gazpromneft Marine Bunker supplied bunker fuel for cruise liners that were designed to accommodate client groups, spectators and personnel during the XXII 2014 Olympic Winter Games and XI Paralympic Winter Games in Sochi.


4.20 mn t 29.7%

premium sales of marine fuel in 2014


79

AIRCRAFT FUELLING

CJSC Gazpromneft-Aero provides small wholesale and retail sales of jet fuel as well as a range of services connected with the provision of aviation fuel and lubricants. Having its own infrastructure enables CJSC Gazpromneft-Aero to ensure uninterrupted supplies of jet fuel to airports with high fuel quality and modern aircraft fuelling technologies as well as flight safety.

GAZPROMNEFT-AERO

RUSSIAN AIRPORTS INTERNATIONAL AIRPORTSREGIONAL

DEVELOPMENT PLANS FOR GAZPROM

NEFT FUELLING COMPLEXES

TO 2025 Middle EastWestern EuropeCentral Asia

PROJECTS IN CENTRAL ASIA

Kyrgyzstan CIVILIAN VESSELSBarnaul Bryansk Vladivostok Vnukovo (Moscow) Voronezh Domodedovo (Moscow)Ivanovo Kazan Kemerovo Krasnoyarsk Murmansk Novosibirsk Omsk Orsk Ostafyevo (Moscow) St Petersburg Tomsk Ulyanovsk Sheremetyevo (Moscow)

MINISTRY OF DEFENCE VESSELSAkhtubinskBaltimor (Voronezh)BorisoglebskButurlinovkaDomna (Chita)DyagilevoKantKoltsovoKrymsk (Krasnodar) KurskLevashovo (St Petersburg)LipetskMigalovo (Tver)OrenburgPskovPushkin

TaganrogTambovTolmachevo (Novosibirsk)Ukrainka (Seryshevo)UlyanovskKhurba (Komsomolsk on-Amur) CheremushkiChernyakhovsk Chkalovsk Chkalovsky (Moscow Region)Shagol (Chelyabinsk)Engels (Saratov)

Austria Algeria Bulgaria Brazil UKVietnam Germany Hong Kong Greece Dominican Republic Egypt Israel India Indonesia Jordan Iraq Spain Italy Cameroon Canada Cyprus China Congo Ivory Coast Latvia Mauritius Malaysia Maldives Morocco Nigeria

Nicaragua Norway UAE Portugal Saudi Arabia Seychelles Serbia Singapore Slovakia U.S. Taiwan Thailand Tunisia Turkey Uganda Philippines Finland France Croatia Montenegro Czech Republic Sweden Sri Lanka Equatorial Guinea Ethiopia South Korea Jamaica Japan

“Last year we invested roughly 8 bn RUB in developing the jet fuel infrastructure of national airports, a three-fold increase from the 2013. This year we will continue modernising Russian fuelling complexes and introducing international standards and best practices there. CJSC Gazpromneft-Aero is also set to expand its pool of partner airlines in Russia and abroad. In the long term, we plan to grow our competitive advantages through a broader sales network and higher service standards which will enable us to become one of the leaders on the global jet fuel supply market. We are grateful to all our partners for the successful joint work we have accomplished over the past year and are confident that cooperation will develop just as dynamically in 2015.”

VLADIMIR YEGOROVCEO OF CJSC GAZPROMNEFT-AERO

80

OPERATING RESULTS


At the end of the year, CJSC Gazpromneft-Aero was the undisputed leader in retail jet fuel sales in Russia. Its share of the Russian retail market increased from 22.7% in 2013 to 24.5% in 2014. Retail sales of jet fuel grew by 20% in 2013.

In 2014, LLC Gazpromneft-Aero updated its long-term business development strategy to 2025. In order to consolidate its market positions on domestic and foreign markets, CJSC Gazpromneft-Aero plans to continue intensive development of its own network of modern refuelling complexes., The company expects to establish a network of 52 refuelling complexes located at domestic and foreign airports by 2025 and to increase total jet fuel sales to 5.6 mn tonnes and “into plane” sales to 4.5 mn tonnes. The company's distribution network around the world is expected to expand to 214 airports by 2025, while its share of the Russian market is expected to increase to 28% and investment in the development of the network is to surpass 23.5 bn RUB. Gazpromneft-Aero has set a strategic goal to become a top ten global jet fuel supply leader.

In 2014, a strategic partnership agreement on jet fuel supplies was signed with one of the world’s biggest players on the market – Shell-Aviation.

20%growth in retail jet fuel sales in 2014

Premium sales of jet fuel, mn t

2010

2011

2012

2013

2014 2.84

2.39

2.07

1.64

1.00

CJSC Gazpromneft-Aero share of the Russian retail market, %

2010

2011

2012

2013

2014 24.5

22.7

21.3

19.0

17.0

The distribution network of CJSC Gazpromneft-Aero is the largest among Russian VIOCs and consists of 40 RCs in Russia and the CIS. Subsidiaries of CJSC Gazpromneft-Aero provide aircraft refueling services at airports in Moscow, St Petersburg, Novosibirsk, Murmansk, Tomsk, Bryansk, Ulyanovsk, Kemerovo, Krasnoyarsk, Omsk, and Bishkek (Kyrgyzstan), among others.

Over the last year, the Company has considerably expanded its sales geography on domestic and foreign markets. Refuelling operations have begun at the Company’s own RC at the Omsk airport. In 2014 CJSC Gazpromneft-Aero refueled aircraft in 181 cities in 59 ountries compared with 170 cities in 49 countries in 2013. As part of its partnership programme, the Company provides aircraft refuelling services at 149 airports in Southeast Asia, Europe, Africa, Australia, North America and Latin America. Since 2008, CJSC Gazpromneft-Aero has been a strategic partner of the International Air Transport Association in matters of jet fuel supplies.




81

Premium sales of oils and lubricants, mn t

PRODUCTION AND SALE OF OILS AND LUBRICANTS

The Company devotes special attention to the production and sale of oils and lubricants. The importance of the sale and production of lubricants for Gazprom Neft is underscored by the existence of a separate vertically integrated oil company – LLC Gazpromneft-Lubricants.

LLC Gazpromneft-Lubricants sells its products using the Gazpromneft filling station network and also supplies products to retail chains, online stores, service stations and the assembly lines of automotive manufacturers. LLC Gazpromneft-Lubricants sells its products both in Russia and abroad.

The Company is certified under the integrated management system in accordance with the requirements of international standards

ISO 9001:2008, 14001:2004 and OHSAS 18001:2007. In 2014, the certification process was completed to meet the requirements of ISO/TS 16949 for suppliers of components to assembly lines of automotive manufacturers.


In 2014, LLC Gazpromneft-Lubricants updated its long-term business development strategy to 2025.

The Company has set a goal to establish an international lubricants company that is a recognised leader in the production of high-tech premium oils, lubricants and technical fluids under a global brand. As part of realising this goal, the Company plans to expand the range of modern premium products by 2025 as well as to increase its share of the Russian market and conduct further expansion on foreign markets.

LLC Gazpromneft-Lubricants increased premium sales by 11% in the reporting year compared with 2013, while growth in the G-Family brand totalled 17% despite a stagnating market and increased competition. Compared with 2013, the share of LLC Gazpromneft-Lubricants share on the Russian retail oils market increased by 1.1 percentage point to 13.6%. Total product sales by LLC Gazpromneft-Lubricants came to 475,000 tonnes in 2014, down by 3% from 2013 due to scheduled repairs at the Omsk Lubricants Plant and YANOS.

2010

2011

2012

2013

2014 0.19

0.17

0.15

0.12

0.08

LLC Gazpromneft-Lubricants has production assets in Western Siberia (Omsk), the European part of Russia (Yaroslavl), the Moscow region (Fryazino) as well as Western Europe – in Italy (Bari) and Serbia (Novi Sad).



“The commissioning of the new ultra modern production facility at the Omsk Lubricants Plant will enable Gazprom Neft to produce high-tech motor oil in Russia that is highly competitive with its Western analogues in terms of features and that will provide Russian consumers with products of the highest quality. We applied our accumulated experience in managing foreign assets at the new Russian site. The next major project, planned for implementation at the Omsk Lubricants Plant in 2018, is the launch of production of ultra-pure base oils. This will give us the opportunity to move away from raw material imports for the production of high-tech oils by strengthening our competitive positions in Russia and CIS countries.”

ANATOLY CHERNERDEPUTY CEO OF OJSC GAZPROM NEFT FOR LOGISTICS, REFINING AND SALES

82

OPERATING RESULTS

Two important achievements of the reporting year was the completion of the construction and commissioning of an automated oil mixing station at the Omsk Lubricants Plant with the capacity of 180,000 tonnes per year and the opening of a new lubricants production facility with the a capacity of 5,000 tonnes per year. An automated oil bottling line was also installed in the reporting year on the Mercedes Benz Trucks Vostok assembly line with full coverage of production needs in terms of variety and volume.

LLC Gazpromneft-Lubricants continued expansion on international markets in 2014 by broadening the foreign geography of lubricant sales. The number of foreign markets grew to 52 countries, including such new countries as Romania, Hungary, Taiwan, Egypt, Lebanon, Libya, Syria, Guyana, Israel, Bangladesh and Ghana, among others. Sales of premium products on foreign markets increased by 36% in 2013.

In 2014, the Company met 100% of the Gazprom Group’s needs for turbine oil and supplied 5,200 tonnes of turbine oil and an additional 1,200 tonnes of a wide range of premium oils, up 30% from 2013.

The Company continued to expand premium sales channels in the reporting year. Gazprom Neft began implementing the G-Energy Service international programme to develop independent service stations.

Nine branded G-Energy Service SSs were opened in 2014, four in Russia, three in Italy and one each in Georgia and Belarus.

As part of the Sochi-2014 International Investment Forum, strategic partnership agreements were signed with Rostselmash for supplies of ROSTSELMASH G-PROFI oils and with CJSC Siberian Business Union Holding Company. Agreements on marine oil supplies were concluded with major companies including: FSUE Rosmorport and Rosnefteflot, part of Sovcomflot. A contract was signed with John Deere Forester, a major supplier of logging equipment, for supply of premium products to 20 branches in Russia. Supply of premium products continued to key Russian industrial enterprises, including OJSC Severstal, OJSC CMP, OJSC KAMAZ, OJSC MMK, ILIM, SUEK as well as to enterprises of the Mechel Group – OJSC Yakutugol Holding Company and OJSC Southern Kuzbass.

In 2014, a nationwide advertising campaign including television, outdoor advertising, print and internet was conducted for the Gazpromneft oil brand in addition to the nationwide promotions “Your Victory Oil” and G-Club, which aim to stimulate demand for G-Energy products at 3,000 retail outlets and service stations.

IN 2014, LLC GAZPROMNEFT-LUBRICANTS SUPPLIED:

5,200 tof turbine oil

1,200 tof a wide range of premium oils

BITUMINOUS MATERIALS

Gazprom Neft is one of the largest manufacturers and suppliers of bituminous products. In order to strengthen its leading position on the market for bituminous materials, the decision was made in the reporting year to establish a subsidiary to manage the Company’s bituminous business – LLC Gazpromneft-Bituminous Materials. The new business unit unites all the business management functions of the Company’s bituminous materials. The primary objective of the new enterprise will be to implement the Company’s long-term strategy for the bitumen business that aims to improve the efficiency of asset management, achieve leading positions in Russia in terms of the use of leading production technologies and to develop promising business activities in accordance with the major industry trends.

Additional information about production and sale of oils and lubricants is available in the online version of the Annual Report

“Experts estimate that the consumption of polymeric bituminous materials for road construction in Russia will more than triple by 2025. Gazprom Neft, which today already holds leading positions on the domestic market for improved quality bitumen, is introducing the most modern technologies that will make it possible not only to build world-class highways in Russia, but also to significantly reduce their operating costs.”

ALEXANDER DYUKOVCHAIRMAN OF THE GAZPROM NEFT MANAGEMENT BOARD


83

� Rosavtodor Federal Road Agency (jointly with OJSC SIBUR Holding)

� Avtodor State Corporation � Moscow Government � Road Committee of the Kazakh Ministry of Transportation and

Communications

IN 2014, A SERIES OF STRATEGIC AGREEMENTS WAS SIGNED WITH KEY CUSTOMERS:


Based on its 2014 results, Gazprom Neft maintained leading positions on the Russian bitumen market with a 30% share of sales and 1.75 mn tonnes of total bituminous materials sold. Gazprom Neft increased sales of premium bituminous products by 16,000 tonnes to 42,000 tonnes.

Gazprom Neft launched the trial operation of Russia’s first new generation PMB unit under the G-Way Styrelf brand at the Moscow Oil Refinery in 2014. The unit, which was built by a joint venture of Gazprom Neft and France’s Total, is expected to produce 60,000 tonnes of PMB and 7,000 tonnes of bituminous emulsions per year.

In an effort to improve brand recognition, the Company continued to increase the volume of bitumen delivered in branded bitumen carriers. In 2014, shipments by branded vehicles increased by more than 50% compared with 2013 to over 100,000 tonnes.

In 2014, the long-term development strategy for the bitumen business was updated and goals were set for 2025. As part of this strategy, LLC Gazpromneft-Bituminous Materials is an active participant on the emerging market of premium bituminous products.

On 2 July 2014, Gazprom Neft and the Moscow Government signed a cooperation agreement to provide innovative bituminous materials for road construction in the Russian capital.

Premium sales of bituminous materials, mn t

2012

2013

2014 0.04

0.03

0

Bituminous materials production facilities are located in Moscow, the Omsk, Yaroslavl and Ryazan Regions, Kazakhstan as well as in Serbia.

For more than 15 years, the Moscow Oil Refinery has been a strategic supplier for the majority of asphalt plants in the Central Federal District, while the Omsk Oil Refinery is the leading supplier of high-quality bituminous materials in the Siberian, Far East and Urals Federal Districts and also exports its products to neighbouring regions. YANOS, which uses the “Biturox” advanced bitumen technology, is the leading manufacturer of high-quality bitumen for road organisations of the Northwest and Central Federal Districts. Thanks to EN certification, Gazpromneft-Bituminous Materials has entered the export market of Eastern and Southern Europe as well as Central Asia.


On 16 December, representatives of Rosavtodor, SIBUR and Gazprom Neft approved an action plan for the Cooperation Agreement signed on 15 October 2014 as part of the Road International Exhibition and Forum. The approved action plan contains specific objectives that are to be implemented in 2015-2016 and will increase the use of modern materials in the industry and improve the quality and durability of Russian roads.


84

OPERATING RESULTS

PETROCHEMISTRY

Gazprom Neft is a major Russian manufacturer of a number of basic petrochemical products – aromatic hydrocarbons, including benzene, paraxylene, orthoxylene and toluene and propane-propylene fraction products, including propylene liquefied petroleum gas. The Company’s products accounted for 17% of overall Russian consumption of aromatic hydrocarbons in 2014 and 32% of the Company’s cumulative exports.


In 2014, the development strategy for the petrochemical business of Gazprom Neft was updated and the target benchmark for petrochemical sales was set at 1.8 mn tonnes per year by or before 2025.

The niche targets for the Company’s petrochemical business are basic products and derivatives. In order to generate additional profit by refining products from its own raw materials, oil and gas, Gazprom Neft is planning to increase the degree of refining for basic petrochemical products by modernising existing refinery facilities and implementing major investment projects for the construction of large-capacity production.

Sales of aromatic hydrocarbons produced by the Company totalled 391,000 tonnes in 2014, including 302,000 tonnes sold on the domestic market.

LPG production by the Company totalled 706,000 tonnes in 2014, including more than 335,000 tonnes of propane-propylene fraction used for advanced refining into polypropylene.

A transaction was concluded during the reporting year for the acquisition on a parity basis with OJSC SIBUR Holding of a 50% stake in LLC Poliom and approximately 97,500 tonnes of polypropylene were produced over seven months of 2014. The conclusion of this transaction guarantees the sale of propane-propylene fraction for a long time under cost-effective conditions.

LLC Neftekhimia SPE, a joint venture of Gazprom Neft and OJSC SIBUR Holding, underwent repairs that made it possible to improve the reliability of the facility. In addition, as part of the repairs a project was concluded for the replacement of the automated technological process control system, which will lead the company to new and increased production volumes. In 2014, LLC Neftekhimia SPE facilities manufactured 102,000 tonnes of polypropylene. The brand assortment was significantly expanded, which has resulted in greater margins and competitiveness for the company’s products.

Gazprom Neft enterprises that manufacture petrochemical products are located at oil refineries in Russia (Omsk, Yaroslavl, Moscow) and in Serbia.


Production of basic petrochemical products, mn t

2012

2013

2010

2011

2014

SulphurSulphuric acidAromatics

LPG

1.12

1.17

1.24

1.36

1.35

0.62

0.58

0.11

0.10

0.090.39

0.39

0.39

0.05

0.05

0.06

0.78

0.81 0.41 0.10

0.110.40

0.71

0.05

0.05


“Joining the ownership structure of LLC Poliom will enable Gazprom Neft to provide stable supplies of raw materials for the production of high quality petrochemical products as well as to improve the efficiency of our oil refining operations by providing added value during all stages of production.”

ANATOLY CHERNERDEPUTY CEO OF OJSC GAZPROM NEFT FOR LOGISTICS, REFINING AND SALES

Additional information about production of basic petrochemical products is available in the online version of the Annual Report


85

R&D AND INNOVATION

In its long-term development strategy, Gazprom Neft emphasizes that one of the key factors for competitiveness is the maximum efficiency and adaptability of business.

In 2013, the Gazprom Neft Board of Directors approved the Company’s Innovative Development Programme to 2020, which specifies core areas of innovative development for Gazprom Neft, plans for cooperation with foreign organisations as well as key performance indicators correspondent with indicators in the Innovative Development Programme of the Company’s primary shareholder – JSC Gazprom. The main objectives are the efficient exploration and development of fields in complex geological and climatic conditions, the economically viable and energy efficient extraction of oil from depleted fields and the development of oil refining and petrochemistry operations.

R&D expenses, bn RUB

2011

2012

2013

2014 3.23

1.79

1.52

0.78Source: Company data

INNOVATIONS IN OIL REFINING AND PETROCHEMISTRY

The Company’s oil refining enterprises have implemented projects that aim to produce new types of products and improve the environmental friendliness of production.

Innovations introduced in oil refining

Area Key achievements

RECONSTRUCTION AND MODERNISATION OF MOSCOW OIL REFINERY

Transition of the Moscow Oil Refinery to the use of a cracking catalyst manufactured by Gazprom Neft. In 2014, the Moscow Oil Refinery switched to the use of the M biceolyte catalyst for catalytic cracking that was previously developed and manufactured at the Omsk Oil Refinery. Previously an imported catalyst had been used on catalytic cracking units at the Moscow Oil Refinery. Today the catalytic cracking units at the Moscow and Omsk Oil Refineries use catalysts manufactured by Gazprom Neft.The enterprise is set to rebuild its process furnaces and switch to eco-friendly gas fuel by 2020. As a result of improved equipment operating efficiency, emissions of sulphur oxides will decrease by more than 95%.

OUTPUT OF POLYMER MODIFIED BITUMEN

LLC Gazpromneft-Total PMB, a joint venture of Gazprom Neft and France’s Total S.A., has begun producing polymer modified bitumen under the G-Way Styrelf brand. This next generation product is unique to the Russian polymer and bitumen binders market. The final polymer-modified bitumen is of a superior quality to the usual producsts on the Russian market – G-Way Styrelf does not break down during transportation and its properties remain virtually unchanged during periods of prolonged storage.

CRYOGENIC TECHNOLOGY FOR OBTAINING NITROGEN

The Moscow and Omsk Oil Refineries of Gazprom Neft have fully switched to cryogenic technology to produce nitrogen used in oil refining for technological needs. This has made it possible to cut carbon dioxide emissions by 32% at the Omsk Oil Refinery and by 28% at the Moscow Oil Refinery. Previously natural gas had been burned to obtain nitrogen, forming carbon dioxide as a by product. The new eco-friendly method involves separating nitrogen from the air at super low temperatures. The purity of the gas obtained using the cryogenic method is almost 100%, which makes it possible to expand the scope of its use in technological processes, particularly those that have heightened requirements for the quality of gas.

86

OPERATING RESULTS

INNOVATIONS IN HYDROCARBON PRODUCTION

The development of the Gazprom Neft technological strategy in exploration and production was completed in 2014. Technological challenges have been identified, as have solutions for overcoming them. In order to ensure the effective implementation of the strategy, each core subdivision of the Exploration and Production Unit has allocated employees who are responsible for technological development in a specific area, including geological exploration work, production at current fields, new production, natural gas and energy projects.

Innovations introduced in hydrocarbon production

Area Key achievements

HYDRAULIC FRACTURING OPERATIONS AT FIELDS WITH UNCONVENTIONAL HYDROCARBON RESERVES

The first horizontal well was drilled to study the unconventional reserves of the Palyanovskaya area of the Krasnoleninskoye field and hydraulic fracturing was performed – the first such operation for Gazprom Neft at fields with unconventional hydrocarbon reserves.

INJECTION OF ASP MIXTURE INTO FORMATION AS PART OF PROJECT TO DEVELOP SODIUM CARBONATE SURFACTANT POLYMER FLOODING

Completion of drilling works for wells as part of a pilot project using chemical flooding based on the ternary ASP mixture (sodium carbonate, surfactant and polymer) at the Salym group of fields. Neccessary equipment to inject the mixture into the formation was delivered.The pilot injection of ternary ASP mixture planned for the second half of 2015 has begun at the Salym group of fields. After injection is completed, analysis will be conducted of the technology’s effectiveness and an assessment will be made of the feasibility of commercial introduction. The sodium carbonate, surfactant and polymer flooding technology is expected to be widely used at the fields of Western Siberia. The potential for growth in the oil recovery rate with this technology ranges from 8% to 25%.

DRILLING OF EXTRA-LONG HORIZONTAL WELLS

For the first time in Russia, an oil well has been drilled on the Yamal Peninsula with a horizontal shaft of more than 1,500 m in length and an overall length of roughly 4,200 m. In addition, 91% of the horizontal section is located in the oil-bearing formation of the Novoportovskoye field, which features a high level of rock permeability and makes it possible to obtain flows without using hydraulic fracturing.

INTRODUCTION OF WIRELESS SEISMIC TECHNOLOGY IN RUSSIA

The first seismic analysis project using innovative wireless seismic technology was implemented in Russia. This technology decreases the required amount of logging by 50% compared with conventional seismic exploration technologies. The results of the pilot project suggest that using the new method on an area of 400 km2 can save approximately 200 hectares of forest or roughly 60,000 trees.

INTRODUCTION OF ELECTRICAL EXPLORATION TECHNOLOGY

Field electrical exploration work completed on an area of 600 km2 at the Tympuchikano-Vakunaysky block. Thus, the world’s largest project involving electrical exploration using near-field transient electromagnetic sounding (NTES) has been implemented in terms of physical NTES points (over 7,600), the number of transmission loops, the volume of data obtained and project implementation time.

OPERATION OF GEOMATE INFORMATION SYSTEM

The Company has introduced its own innovation – the GeoMate information system. One of the system’s features is the ability to use advanced approaches when analysing geological field data. The information platform’s built-in algorithmic tool takes into account the effect on the development of more than 200 geological parameters. GeoMate consolidates roughly 80% of the operations required to analyse geological and geophysical information: seismic data, cards, well study results, cores and more. Access to the unified information environment provides employees of various Gazprom Neft subdivisions with the ability to quickly study all available indicators in order to build models of the fields as well as identify and detailing promising zones and formations. The thorough and comprehensive study of geological information helps geologists, geophysicists, petrophysicists and specialists from other areas to adopt integrated solutions for the study and development of fields based on a wide range of data. Establishing its own software product has made it possible to avoid using imported analogues.

Additional information on R&D and innovative activities is available in the online version of the Annual Report


87


CORPORATE GOVERNANCE SYSTEM

RESULTS IN 2014:

The hierarchical structure of corporate governance at Gazprom Neft meets the Company’s needs and ensures it works in a highly efficient manner.

MULTI-LEVEL STRUCTURE

GENERAL MEETING OF SHAREHOLDERS

The supreme governing body whose decision taking powers include resolving the most substantial issues involving the Company’s operations.

BOARD OF DIRECTORS

The governing body that handles the general management of the Company’s operations and is responsible for strategic management aimed at increasing the Company’s shareholder value. The Board of Directors ensures the Company’s executive bodies work efficiently and monitors such work.

MANAGEMENT BOARD

The collective executive body that oversees the Company’s day-to-day operations.

CEO The sole executive body that performs the functions of the Chairman of the Company’s Management Board.

INTERNAL AUDIT DEPARTMENT

The internal division that monitors the Company’s financial and business activities.

AUDIT COMMISSION

The oversight body that monitors the Company’s financial and business activities selected by the General Meeting of Shareholders. The Audit Commission’s powers include verifying and analysing the Company’s financial position, the operation of internal audit and risk management systems and verifying the lawfulness of business operations

EXTERNAL AUDITOR The oversight body approved by the General Meeting of Shareholders upon recommendation by the Board of Directors that performs an annual audit of financial statements in accordance with RAS and IFRS.

Basic definitions

22 meetings of the Management Board

65 meetings of the Board of Directors


89

The corporate governance system of OJSC Gazprom Neft is based on principles that aim to preserve and multiply assets, increase market value, maintain the Company’s financial stability and profitability as well as respect the rights and interests of shareholders and other interested parties.

The management of a complex multi-level VIOC structure that includes geological exploration, production, refining and sales both within the country and abroad, requires a professional team of managers and a highly efficient system of corporate governance and control. The Company currently has a well-defined and clear organisational structure with a high level of interaction between governing bodies and clear delineation of management and control duties to guarantee sustained growth of the Company’s value for shareholders in the long term.

The disclosure and transparency of financial information combined with preserving the Company’s interests regarding the protection of trade secrets and other confidential information play a significant role in the Gazprom Neft corporate governance system.

The most important information distribution channel available to the greatest number of stakeholders for Gazprom Neft is the Company’s official website (http://www.gazprom-neft.ru/) and in partucular the dedicated IR section of the website (http://ir.gazprom-neft.ru/). These resources can be used to view the latest Company news, financial and production indicators, reporting and other useful information about the Company’s operations as well as documents governing the activities of Gazprom Neft management and supervisory bodies, including the Charter, Regulation on the General Meeting of Shareholders, Regulation on the Board of Directors, Regulation on the Management Board, Regulation on the CEO and Regulation on the Audit Commission.

Adhering to the principle of equal access to information for all stakeholders, Gazprom Neft publishes information on its official website in both Russian and in English.

Structure of management and supervisory bodies of OJSC Gazprom Neft

GENERAL MEETING OF SHAREHOLDERS BOARD OF DIRECTORS MANAGEMENT BOARD

AUDIT COMMITTEE

CEOEXTERNAL AUDITOR


HUMAN RESOURCE AND REMUNERATION

COMMITTEEAUDIT COMMISSION

The Board of Directors appoints the head of the Internal

Audit Department

The Internal Audit Department is directly subordinate to the Audit Committee

90


MEETING OF SHAREHOLDERS

In 2014, the Company held its obligatory annual General Meeting of Shareholders and, in addition, one extraordinary General Meeting of Shareholders.

The annual General Meeting of Shareholders, which took place on 6 June 2014, approved the Company’s Annual Report and annual accounting statement for 2013. The annual General Meeting of Shareholders approved the distribution of profit based on 2013 results and decided to pay dividends based on 2013 results in the amount of 9.38 RUB per share. Taking into account previously paid dividends for the first half of 2013, payable dividends amounted to 5.29 RUB per share. In addition,

new versions of the Board of Directors and Audit Commission were elected. The Company’s external auditor for 2014 was approved and remuneration for members of the Board of Directors and Audit Commission was approved.

At the extraordinary General Meeting of Shareholders that took place on 30 September 2014, the Company for the second time in its history considered paying dividends based on the results of the first half of 2014 and decided to pay dividends based on the results of this period in the amount of 4.62 RUB per share.

BOARD OF DIRECTORS

The Board of Directors handles the general management of the Company’s operations. The powers of the Board of Directors include the strategic management of the Company’s operations. The Board of Directors is responsible for identifying priority areas for Company development and establishing its main performance targets. Taking into account the strategic importance of the challenges facing the Board of Directors, the board members must have the confidence of shareholders and ensure the duties entrusted to them are performed in the most efficient manner possible.

In accordance with amendments to the Gazprom Neft Charter approved by the extraordinary General Meeting of Shareholders on 12 November 2013, the Board of Directors shall be elected with 13 members. In accordance with the share capital structure, 95.68% of the total common shares directly or indirectly belonging to OJSC Gazprom, the vast majority of members of the Gazprom Neft Board of Directors are elected upon recommendation by the controlling shareholder – OJSC Gazprom. The Company’s Board of Directors includes members of the OJSC Gazprom Management Board who represent the interests of the controlling shareholder and are professionals in matters of asset management of oil and gas industry companies as well as two independent directors. The participation of key executives from the controlling company on the Gazprom Neft Board of Directors is indicative of the high level of professionalism and efficiency of this governing body of the Company.

The Gazprom Neft Board of Directors is largely independent from the Company’s management: the sole executive director within the Board of Directors is Gazprom Neft Management Board Chairman Alexander Dyukov.

All members of the Company’s Board of Directors have a solid professional reputation, substantial experience working at the Company and regularly interact with Company management, its structural units as well as the registrar and auditor in the performance of their functions.

� The Company provides shareholders with two months to nominate candidates for the Board of Directors, while legislation stipulates one month

� The Company discloses information about the current members of the Board of Directors and candidates for the Board of Directors in advance

� The Company regularly interacts with the depository bank that issues depository receipts

� When electing members of the Board of Directors, the Company employs the principle of cumulative voting and explains its procedures

� The Company announces voting results on matters with an indication of the quorum and the persons who voted for each voting option

� The Company publishes the minutes of its General Meeting of Shareholders on a publicly available resource – its official Internet website

GAZPROM NEFT HAS A TRANSPARENT PROCEDURE FOR ELECTING MEMBERS OF THE BOARD OF DIRECTORS:


91

Members of the Board of Directors as of 31 December 2014

Born in 1962, graduated from Voznesensky Leningrad Institute of Finance and Economics.

2001, Chairman of the Management Board of OJSC Gazprom

2002, Deputy Chairman of the Board of Directors of OJSC Gazprom

Positions held at other organisations: � 2003, Chairman of the Board of Directors of OJSC Gazprombank � 2003, Chairman of the Board of Directors of OJSC SOGAZ � 2007, Chairman of the Board of the Gazfond Private Pension Fund � 2007, Chairman of the Board of Directors of OJSC Gazprom-Media Holding � 2008, Chairman of the Board of Directors of Shtokman Development AG � 2010, Chairman of the Supervisory Board of Gazprom Neft International S.A. � 2012, Chairman of the Board of Directors of OJSC Russian Hippodromes � 2012, Member of the Board of Directors of South Stream Transport B.V. � 2013, Member of the Supervisory Board of the Global Energy Non-profit Partnership

for the Development of International Research and Projects in Energy � 2013, Chairman of the Management Board of the New Technologies of

the Gas Industry Association of Equipment Manufacturers

Born in 1952, graduated from Ulyanov (Lenin) Leningrad Electrotechnical Institute and the Academy of National Economy under the Government of the Russian Federation.

2006, Deputy Chairman of the Management Board of OJSC Gazprom

Positions held at other organisations: � 2005, Chairman of the Board of Directors of OJSC Centrgaz � 2005, Chairman and Member of the Board of Directors of OJSC Volgogradneftemash � 2006, First Vice President and Member of the Supervisory Board of Russian Gas

Company Non-profit Partnership � 2006, Member of the Supervisory Board of LLP KazRosGaz � 2007, Chairman of the Supervisory Board of JSC Moldovagaz � 2007, Member of the Board of Directors of LLC International Gas Transportation

Consortium � 2007, Member of the Board of Directors of OJSC Mosenergo � 2007, Chairman of the Board of Directors of CJSC Gazprom Armenia � 2009, Co-chairman of the Supervisory Board for PSAs and Member of the Board

of Directors of Sakhalin Energy Investment Company Ltd � 2009, Member of the Board of Directors of LLC Gazprom Investproekt � 2009, Member of the Board of Directors of OJSC Gazprom-South Ossetia � 2012, Member of the Supervisory Board of Gazprom Neft Finance B.V.

ALEXEY BORISOVICH MILLERCHAIRMAN OF THE BOARD OF DIRECTORS

VALERY ALEXANDROVICH GOLUBEV

DATE OF FIRST ELECTION TO BOARD OF DIRECTORS

2005

INTEREST IN CHARTER CAPITAL (AS OF 31 DECEMBER 2014)

Does not own Company shares


2007



Member of the Audit Committee of the Board of Directors

92


Born in 1969, graduated from the St Petersburg Technological Institute of the Refrigerating Industry.

2004, Deputy Chairman of the Management Board and Head of the OJSC Gazprom Department for Finance and Economics

Positions held at other organisations: � 2003, Chairman of the Board of Directors of OJSC Belgazprombank � 2003, Member of the Board of Directors of OJSC Gazprombank � 2004, Member of the Board of Directors of OJSC Vostokgazprom � 2004, Member of the Board of Directors of OJSC Tomskgazprom � 2006, Member of the Board of Directors of OJSC SOGAZ � 2008, Member of the Board of Directors of OJSC Gazprom Repair Centre � 2009, Member of the Supervisory Board of GAZPROM Germania GmbH � 2009, Member of the Board of Directors of Gazprom Marketing and Trading Ltd. � 2009, Member and Chairman of the Supervisory Board of Gazprom EP

International B.V. � 2009, Member of the Board of Directors of LLC Gazprom Investproekt � 2010, Member of the Supervisory Board of Gazprom Neft Finance B.V. � 2010, Deputy Chairman of the Board of Directors of JSC Overgaz Inc.

Born in 1974, graduated from Ustinov Baltic State Technical University and St Petersburg State University.

2002, Head of the Gas and Liquid Hydrocarbons Marketing and Processing Department

2003, Member of the Management Board of OJSC Gazprom

2004, CEO of LLC Gazprom Mezhregiongaz

Positions held at other organisations: � 2003, Member and Chairman of the Board of Directors of JSC Latvijas Gāze � 2003, Member of the Supervisory Board of LPP KazRosGaz � 2003, Member of the Board of Directors of OJSC Vostokgazprom � 2004, Member of the Board of Directors of OJSC Tomskgazprom � 2006, Member of the Board of Directors of CJSC Football Club Zenit � 2006, Member of the Supervisory Board of Russian Gas Company

Non-profit Partnership � 2007, Chairman of the Board of Directors of OJSC Mosenergo � 2008, Chairman of the Board of Directors of OJSC Territorial Generating

Company No. 1 � 2010, Member of the Board of Directors of OJSC Gazprombank � 2011, Member of the Board of Directors of OJSC Rossiya Bank � 2011, Member of the Supervisory Board of Gazprom Neft Finance B.V. � 2013, Member of the Supervisory Board of OJSC Russian Regional Development Bank � 2013, Chairman of the Board of Directors of OJSC Moscow Unified Energy Company

ANDREY VYACHESLAVOVICH KRUGLOV

KIRILL GENNADYEVICH SELEZNEV


2005




2005



Member of the Human Resource and Remuneration Committee of the Board of Directors


93

Born in 1966, graduated from Lomonosov Moscow State University.

2010, Member of the Management Board of JSC Gazprom and Head of the Gas, Gas Condensate and Oil Production Department of OJSC Gazprom

Positions held at other organisations: � 2010, Chairman of the Board of Directors of LLC CentreKaspneftegaz � 2010, Member of the Board of Directors of CJSC Achimgaz � 2010, Member of the Supervisory Board of Wintershall AG � 2010, Member of the Board of Directors of Shtokman Development AG � 2010, Member of the Board of Directors of OJSC Severneftegazprom � 2010, Member of the Supervisory Board of Gazprom EP International B.V. � 2011, Chairman of the Board of Directors of LLC Gazpromviet � 2011, Non-executive Director of the Board of Directors of Sakhalin Energy

Investment Company Ltd. � 2012, Member of the Board of Directors of LLC Gazpromneft-Sakhalin � 2012, Member of the New Technologies of the Gas Industry Association

of Equipment Manufacturers

Born in 1971, graduated from Lomonosov Moscow State University.

2008, Head of the Legal Department of OJSC Gazprom and Member of the Management Board of OJSC Gazprom

Positions held at other organisations: � 2006, Member of the Supervisory Board of JSC Moldovagaz � 2008, Executive Director of RosUkrEnergo AG � 2008, Member of the Supervisory Board of JSC EuRoPolGAZ � 2008, Member of the Board of Directors of LLC Lazurnaya � 2008, Member of the Board of Directors of OJSC Gazprom-Media Holding � 2008, Member of the Board of Directors of Shtokman Development AG � 2009, Member of the Supervisory Board of OJSC Gazprom Transgaz Belarus � 2010, Member of the Supervisory Board of Gazprom Neft International S.A. � 2012, Member of the Board of Directors of LLC Gazpromneft-Sakhalin � 2013, Member of the Board of Directors of JSC Latvijas Gāze � 2014, Member of the Board of Directors of CJSC Gazprom Armenia � 2014, Member of the Board of Directors of LLC Gazprom Kyrgyzstan

VSEVOLOD VLADIMIROVICH CHEREPANOV

NIKOLAY NIKOLAYEVICH DUBIK


2011




2005



Member of the Human Resource and Remuneration Committee of the Board of Directors

Member of the Audit Committee of the Board of Directors

Chairman of the Human Resource and Remuneration Committee of the Board of Directors

Born in 1973, graduated from the St Petersburg State University of Economics and Finance with a degree in economics.

2002–2014, , Deputy Head of Department of Marketing, Gas and Liquid Hydrocarbons Processing, Head of the Industrial Products Marketing Department of the OJSC Gazprom

2014, First Deputy Head of Department of Marketing, Gas and Liquid Hydrocarbons Processing of the OJSC Gazprom

Positions held at other organisations: � 2003, Member of the Board of Directors of OJSC Gazprom Gas Energy Network � 2009, Member of the Board of Directors of Gazprom Sera Ltd � 2010, Member of the Board of Directors of OJSC Kazanorgsintez

MARAT MARSELEVICH GARAYEV


2014



94


Born in 1977, graduated from Moscow State Industrial University with a major in Jurisprudence and earned a Master’s Degree in Business Administration from the Academy of National Economy under the Government of the Russian Federation.

2003, Deputy CEO for Corporate and Property Relations of LLC Gazprom Mezhregiongaz

2011, Head of the Asset Management and Corporate Relations Department of OJSC Gazprom

2012, Member of the Management Board of OJSC Gazprom

Positions held at other organisations � 2009, Member of the Board of Directors of OJSC Gazprom Gas Energy Network � 2012, Member of the Board of Directors of LLC Gazprom Investproekt � 2012, Member of the Board of Directors of OJSC Mosenergo � 2012, Member of the Board of Directors of OJSC Severneftegazprom � 2012, Member of the Board of Directors of CJSC Leader � 2012, Member of the Board of Directors of LLC Gazprom Gas Engine Fuel � 2013, Member of the Board of JSC Latvijas Gāze

Born in 1967, graduated from Order of Lenin Leningrad Shipbuilding Institute.

2006, President of OJSC Gazprom Neft

2007, Chairman of the Management Board and CEO of OJSC Gazprom Neft

Positions held at other organisations: � 2005, Chairman and Deputy Chairman of the Board of Directors of SIBUR Holding � 2006, Chairman of the Board of Directors and President of Football Club Zenit � 2007, Member and Chairman of the Board of Directors of the Lakhta Center

Multifunctional Complex � 2009, Member of the Board of Directors of LLC National Oil Consortium � 2010, Member of the Board of Directors of CJSC Hockey Club SKA � 2012, Member of the Board of Directors of LLC Hockey City � 2012, Member of the Board of Directors of LLC LIGA-TV

ELENA VLADIMIROVNA MIKHAILOVA

ALEXANDER VALERYEVICH DYUKOV


2012




2008


0.005357244% (254,003 shares)

Born in 1960, graduated from the Legal Department of Zhdanov State University.

2008, First Deputy Head of the Legal Department of OJSC Gazprom. Member of the Russian Association of Lawyers, Member of the Expert Council on Corporate Governance under the Russian Federal Financial Markets Service

Positions held at other organisations: � 2007, Member of the Board of Directors of OJSC Gazprom Automation � 2008, Member of the Board of Directors of OJSC Kamchatgazprom � 2008, Member of the Board of Directors of OJSC Daltransgaz

VLADIMIR IVANOVICH ALISOV


2009

INTEREST IN CHARTER CAPITAL (AS OF 31 DECEMBER 2014



95

� M.M. Garayev joined the Board of Directors on 6 June 2014 based on the decision of the annual general meeting of shareholders (Minutes No. 101/01 dated 10 June 2014).

There were no other changes to the Company’s Board of Directors in 2014. During the election of the Gazprom Neft Board of Directors, all standing members of the Company’s Board of Directors were re-elected.

SINCE THE START OF 2014 THE FOLLOWING CHANGES ON THE BOARD OF DIRECTORS HAVE TAKEN PLACE:

Born in 1970, graduated from St Petersburg State University of Economics and Finance.

2002, Member of the Board of Directors of OJSC Gazprom

2004, Deputy Chairman of the Management Board and Head of the Administration of the Management Board of OJSC Gazprom

Positions held at other organisations: � 2002, Member of the Board of Directors of WIEH GmbH and Co KG � 2002, Member of the Board of Directors of Wingas GmbH � 2002, Member and Chairman of the Board of Directors of GAZPROM (U.K.) LIMITED � 2002, Member and Deputy Chairman of the Board of Directors of OJSC Gazprombank � 2002, Member and Chairman of the Board of Directors of OJSC Vostokgazprom � 2003, Member of the Board of CJSC Panrusgaz � 2003, Member and Chairman of the Board of Directors of SOJSC Centreenergogaz � 2004, Chairman of the Board of Directors of OJSC Tomskgazprom � 2005, Member and Chairman of the Board of Directors of OJSC Gazpromtrubinvest � 2007, Member of the Board of Directors of OJSC Gazprom Cosmic Systems � 2008, Member of the Board of Directors of LLC Gazprom Repair Centre � 2014, Member of the Board of Directors of OJSC Gazpromtrubinvest � 2014, Chairman of the Management Board of TSZ Sokhna

MIKHAIL LEONIDOVICH SEREDA


2013



Chairman of the Audit Committee of the Board of Directors

� The current Board of Directors as of 31 December 2014 was elected at the annual General Meeting of Shareholders on 6 June 2014 (Minutes No. 0101/01 dated 10 June 2014).

� Apart from Alexander Dyukov, the chairman and members of the Board of Directors did not own any Company shares during the reporting period. No members of the Board of Directors concluded any transactions for the acquisition or alienation of any Company shares during the reporting year.

� No claims were filed against members of the Board of Directors in 2014.

96


Born in 1972, graduated from Economic Department of State University of Management in Moscow.

He is responsible for the organisational and information support of the work performed by the Company’s Board of Directors and the general meeting of shareholders and monitors compliance by the Company’s bodies and officials with the corporate governance rules and procedures established by the legislation of the Russian Federation as well as the Company’s Charter and internal documents.

ALEXEY VLADIMIROVICH DVORTSOV

Born in 1945, graduated from Plekhanov Leningrad Mining Institute.

1999-2012, Governor of the Leningrad Region.

VALERY PAVLOVICH SERDYUKOV


2012



DATE OF FIRST ELECTION TO BOARD OF DIRECTORS2008



Secretary of the Board of Directors

Born in 1954, graduated from Leningrad Polytechnic Institute.

2011, Member of the Executive Committee of the Union of European Football Associations (UEFA)

2012, Member of the Presidential Council on the Development of Physical Education and Sport

Positions held at other organisations: � 2012, Chairman and Member of the Board of Directors of LLC Gazprom

Gas Engine Fuel

SERGEY ALEXANDROVICH FURSENKO


2013



Member of the Human Resource and Remu-neration Committee of the Board of Directors


97

REPORT ON THE ACTIVITIES OF THE GAZPROM NEFT BOARD OF DIRECTORS IN 2014

� on the structure of debt and management of the debt portfolio of the Gazprom Neft Group;

� on the Company’s strategic performance indicators; � report on the implementation of the Innovative Development

Programme for 2013; � on the status and effectiveness of the implementation of

the Gazprom Neft Investment Programme for 2014 based on the Company’s performance results in the first half of 2014 and on amendments to the Investment Programme;

� on the preliminary results of the implementation of the Gazprom Neft Investment Programme for 2014;

� approval of the Gazprom Neft Investment Programme for 2015;

� consideration of the projected investment plan for 2016-2017.

� amendments to the Budget of Gazprom Neft for 2014; � approval of the Budget of Gazprom Neft for 2015; � approval of the Cost Optimisation Programme of

Gazprom Neft for 2015; � projected indicators of the Budget and Cost Optimisation

Programme of Gazprom Neft for 2016-2017; � approval of a number of transactions to raise debt financing; � approval of transactions to provide collateral on

the obligations of Gazprom Neft Group participants.

THE FOLLOWING ISSUES WERE CONSIDERED IN STRATEGIC AND INVESTMENT PLANNING:

IN BUDGET PLANNING AND FUNDING OF THE COMPANY’S ACTIVITIES:

65meetings of the Board of Directors in 2014

142 mattersconsidered by the Board of Directors in 2014

Number of meetings of the Board of Directors in 2012-2014

In person In absentia

2012

2013

2014

59

63

659 56

51

55

8

8

2010

2011 35

42

31

35

4

7


Number of matters considered by the Board of Directors in 2012-2014 by area

Corporate governanceBudget planning and fundingPersonnel

Strategic Other

3 3

4

3

4

42012

2013

2014

141

112

14244 7616

21 64

5812

48

35

2 32011 89431427

2010 1095 7 26 4724


98


� a corporate governance audit report conducted by KPMG was considered;

� a new version of the Regulation on the Dividend Policy was approved;

� several decisions on corporate matters were adopted, including to convene an extraordinary general meeting of Gazprom Neft shareholders to approval new versions of the Regulation on the General Meeting of OJSC Gazprom Neft Shareholders and on the Board of Directors of OJSC Gazprom Neft as well as on the payment of interim dividends;

� remuneration was recommended for members of the Board of Directors and Audit Commission based on their work in 2013;

� the combination of positions in the management bodies of other organisations by members of the Management Board was considered.

� a number of related party transactions was approved; � several decisions were adopted as part of the corporate

restructuring programme on the Company’s participation/discontinuation of participation in other organisations;

� the merger of the Company’s companies to the consolidated group of taxpayers was considered;

� as part of sports seasons, the organisation of sponsorship for sports clubs in the regions of operation of Gazprom Neft was approved – FC Zenit, HC SKA and Avangard SC NP.

AS PART OF CORPORATE GOVERNANCE:

OTHER:

Member of the Board of Directors Number of meetings attended by the Member of

the Board of Directors

Total number of meetings the Member of the Board of

Directors could have attended

Miller Alexey BorisovichChairman of the Board of Directors, Non-executive Director

65 65

Alisov Vladimir IvanovichNon-executive Director

65 65

Garayev Marat MarselevichNon-executive Director

41 41

Golubev Valery AlexandrovichNon-executive Director

63 65

Dubik Nikolay NikolayevichNon-executive Director

65 65

Dyukov Alexander Valeryevich1 Executive Director

39 65

Kruglov Andrey VyacheslavovichNon-executive Director

65 65

Mikhailova Elena VladimirovnaNon-executive Director

65 65

Seleznev Kirill GennadyevichNon-executive Director

65 65

Serdyukov Valery PavlovichIndependent Director

65 65

Sereda Mikhail LeonidovichNon-executive Director

65 65

Fursenko Sergey Alexandrovich Independent Director

65 65

Cherepanov Vsevolod Vladimirovich Non-executive Director

65 65

Statistics of meeting attendance by Board of Directors members

1 Does not attend meetings of the Board of Directors at which related party transactions are discussed.


99

The Company has two committees operating under the Board of Directors:

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE HUMAN RESOURCES AND REMUNERATION COMMITTEE

The Audit Committee monitors the Company’s financial and business activities, is elected by the Board of Directors and acts on the basis of the Charter and internal regulations.

The Human Resources and Remuneration Committee contributes to the formation of the Company’s human resource policy and handles matters related to the remuneration of members of governing bodies and the Audit Commission. It is elected by the Board of Directors and acts on the basis of the Charter and internal regulations.

Committee members as of 31 December 2014 (elected by the decision of the Board of Directors of 11 June 2014)

Committee members as of 31 December 2014 (elected by the decision of the Board of Directors of 11 June 2014)

SEREDA MIKHAIL LEONIDOVICHCHAIRMAN

DUBIKNIKOLAY NIKOLAYEVICHCHAIRMAN

DUBIK NIKOLAY NIKOLAYEVICH

KRUGLOVANDREY VYACHESLAVOVICH

FURSENKOSERGEY ALEXANDROVICH

Since its establishment the Committee has considered the following matters: � the approval of the Company’s plan for

the Audit of the Gazprom Neft Board of Directors in the second half of 2014 and first half of 2015;

� the election of the Committee Secretary; � the preliminary consideration of

the Regulation on the Gazprom Neft Internal Audit Department;

� the results of an audit of the financial statements of Gazprom Neft in 2014;

� the organisational structure of the Gazprom Neft Internal Audit Department;

� the development of an integrated risk management system at Gazprom Neft.

Representatives of the external auditor and heads of the internal audit service were invited to the meeting of the Audit Committee.

Since its establishment the Committee has considered the following matters: � the performance evaluation results of

the Gazprom Neft Board of Directors; � the approval of the plan for the work of

the Human Resources and Remuneration Committee of the Gazprom Neft Board of Directors for the first half of 2015;

� the election of the Committee Secretary; � the participation of Gazprom Neft

Management Board members in the management bodies of other organisations.

GOLUBEVVALERY ALEXANDROVICH

CHEREPANOVVSEVOLOD VLADIMIROVICH

100


MANAGEMENT BOARD

The structure of the Gazprom Neft executive bodies is determined by the Charter and includes the Management Board and the CEO. The Gazprom Neft Management Board is the collective executive body that oversees its day-to-day operations. In accordance with the Charter of Gazprom Neft, the Management Board is formed by the Board of Directors upon recommendation by the Gazprom Neft CEO. The term of office of the Management Board is also determined by the decision of the Board of Directors. The requirements for the professional qualification of the Gazprom Neft Management Board members are established by the Company’s internal documents.

Company CEO Alexander Dyukov (who was the first to run the Company in December 2006 and was re-elected for another five years in December 2011) serves concurrently as the Chairman of the Management Board, whose functional duties include organising the activities of the Management Board. In the absence of the Management Board Chairman, his functions are performed by one of three Deputy Management Board Chairmen: V.V. Yakovlev (First Deputy), V.V. Baranov and A.M. Cherner. A deputy is elected upon recommendation by the Management Board Chairman by a majority vote of the elected Management Board members. If the Chairman and the deputies are absent, the functions of the Management Board Chairman may be performed by any member of the Management Board based on the decision of the Management Board.

As of 31 December 2014, the Gazprom Neft Management Board was comprised of 10 members: the CEO and his deputies who act in accordance with the powers allocated to them by the CEO.

Born in 1967, graduated from Order of Lenin Leningrad Shipbuilding Institute.

2006, President of OJSC Gazprom Neft

2007, Chairman of the Management Board and CEO of OJSC Gazprom Neft

Positions held at other organisations: � 2005, Chairman and Deputy Chairman of the Board of Directors

of OJSC SIBUR Holding � 2006, Chairman of the Board of Directors and President of Football Club Zenit � 2007, Member and Chairman of the Board of Directors of the Lakhta Center

Multifunctional Complex � 2009, Member of the Board of Directors of LLC National Oil Consortium � 2010, Member of the Board of Directors of Hockey Club SKA � 2012, Member of the Board of Directors of LLC Hockey City � 2012, Member of the Board of Directors of LLC LIGA-TV

ALEXANDER VALERYOVICH DYUKOVCHAIRMAN OF THE MANAGEMENT BOARD CEO OF OJSC GAZPROM NEFT


0.005357244% (254,003 shares)

Management Board members as of 31 December 2014

22 meetingsof the Gazprom Neft Management Board took place in 2014


101

Born in 1954, graduated from the Grozny Oil Institute.

2006–2007, Vice President of OJSC Sibneft for Processing and Sales

December 2007, Member of the Management Board of OJSC Gazprom Neft and Deputy CEO for Logistics, Processing and Sales

Responsible for oil refining and the logistics and sales of oil and petroleum products at the Company

ANATOLY MOISEYEVICH CHERNERDEPUTY CHAIRMAN OF THE MANAGEMENT BOARD AND DEPUTY CEO FOR LOGISTICS, PROCESSING AND SALES



Born in 1966, graduated from the St Petersburg University of Economics and Finance in 1993 with a major in Economy and Production Management.

2008, completed training at the London Business School Senior Executive Programme in London, UK

2003, successively held the positions of Advisor, President for General Affairs and Chief of the Presidential Administration at the SIBUR Group

May 2006, Vice President for Organisational Matters of LLC SIBUR

March 2009, Deputy CEO of Gazprom Neft for Organisational Matters

June 2009, Member of the Management Board of Gazprom NeftVITALY VITALYEVICH BARANOVDEPUTY CHAIRMAN OF THE MANAGEMENT BOARD AND DEPUTY GENERAL DIRECTOR FOR ORGANISATIONAL MATTERS


0.0032 % (149,880 shares)

102


Born in 1970, graduated from the Moscow Engineering Physics Institute and the Graduate School of Finance at the International University in Moscow. In 1999, he earned his Chartered Association of Certified Accountants qualification (ACCA). In 2009, he earned a diploma from the British Institute of Directors (ID).

2005–2006, Deputy CEO for Economics and Finance of LLC SIBUR-Russian Tyres

2006–2007, Head of the Budget Planning Department of OJSC Sibneft

September-December 2007, Vice President of Finances of OJSC Gazprom Neft

October 2007, Member of the Management Board of OJSC Gazprom Neft and Deputy CEO for Economics and Finance since December 2007

May 2010-August 2011, First Deputy CEO and CFO of OJSC Gazprom Neft

August 2011, First Deputy CEO of OJSC Gazprom Neft

The Company handles matters related to exploration and production, strategic planning as well as merger and acquisition transactions

VADIM VLADISLAVOVICH YAKOVLEVDEPUTY CHAIRMAN OF THE MANAGEMENT BOARD AND FIRST DEPUTY CEO


0.001051526% (49,856 shares)

Born in 1951, graduated from the Leningrad Aviation Instrumentation Institute

2000–2005, CEO of St Petersburg Unitary Enterprise Informatika

2005–2007, Vice President for Security at OJSC Sibneft

December 2007 to present, Deputy CEO for Security of OJSC Gazprom Neft

IGOR KONSTANTINOVICH ANTONOVMEMBER OF THE MANAGEMENT BOARD AND DEPUTY CEO FOR SECURITY




103

Born in 1966, graduated from Leningrad Electrotechnical Institute.

2005–2007, Chairman of the Board of Directors of OJSC Gazprom Media

February 2007, Vice President of OJSC Gazprom Neft and Advisor to the Chairman of the Gazprom Management Board

December 2007, Member of the Gazprom Neft Management Board and Deputy CEO for Corporate Communications

Responsible for regional and information policy as well as internal corporate and marketing communications at the Company

ALEXANDER MIKHAILOVICH DYBALMEMBER OF THE MANAGEMENT BOARD AND DEPUTY CEO FOR CORPORATE COMMUNICATIONS



Born in 1965, graduated from the Red Banner Military Institute.

2002–2009, Director of the Gazprom representative office in China and the regional representative office in Asia-Pacific Region countries

State Councillor of the Russian Federation, third class

April 2009, Deputy General Director for International Business Development and a member of the Gazprom Neft Management Board since November 2009

Handles matters related to international business development and interaction with foreign partners at the Company

VLADISLAV VALERYEVICH BARYSHNIKOVMEMBER OF THE MANAGEMENT BOARD AND DEPUTY CEO FOR INTERNATIONAL BUSINESS DEVELOPMENT



104


Born in 1969, graduated from the Ulyanov (Lenin) St Petersburg State Electrotechnical University and St Petersburg State University. Awarded PhD in Economic Sciences in 2001.

2001–2007, Deputy CEO of FSUE Rublevo-Uspensky LOK of the Russian Presidential Administration

Prior to appointment at OJSC Gazprom Neft, she served as Executive Director of LLC Northwest Investment Company

December 2007, Member of the Gazprom Neft Management Board and Deputy CEO for Legal and Corporate Affairs

Responsible for legal and corporate support for the Company operationsELENA ANATOLYEVNA ILYUKHINAMEMBER OF THE MANAGEMENT BOARD AND DEPUTY CEO FOR LEGAL AND CORPORATE AFFAIRS



Born in 1976, graduated from the Lomonosov Moscow State University, the Open University and IMD Business School. Doctor of Economic Sciences and a Professor.

2004–2007, Administrative Director of OJSC EuroChem MCC. Elected to the boards of directors of several major companies over the years

April 2007, Vice President of OJSC Gazprom Neft

December 2007, Member of the OJSC Gazprom Neft Management Board and Deputy CEO for Organisational Affairs

February 2009, General Director of NIS a.d. Novi Sad

March 2009, Deputy CEO of OJSC Gazprom Neft for Foreign Asset ManagementKIRILL ALBERTOVICH KRAVCHENKOMEMBER OF THE MANAGEMENT BOARD AND DEPUTY CEO FOR FOREIGN ASSET MANAGEMENT


0.000068462% (3,246 shares)


105

No. Item

1. Acquisition of a 100% stake in the charter capital of LLC Aero TO.

2. Performance results of the Logistics, Processing and Sales Unit for 2013 and the performance results of the Exploration and Production Unit for 2013.

3. Results of the audit of the reserves of the Gazprom Neft Group for 2013.

4. Implementation of the Investment Programme and Budget (financial plan) of Gazprom Neft for 2013 based on the Company’s performance results for 2013.

5. Approval of a new version of the Gazprom Neft Corporate Code.

6. Results of the Integrated Risk Management System (IRMS) operated by Gazprom Neft for 2013, areas of development for the IRMS and approval of the List of Key Risks for the Company for 2014.

7. Acquisition by NIS a.d. Novi Sad of stakes in the charter capital of newly established companies – Serbskaya Generaciya d.o.o.and Te-To Pancevo d.o.o.

8. Concept for the restructuring of the bitumen business of Gazprom Neft.

9. Acquisition of a 100% stake in the charter capital of LLC YUGRA-INTEK.

10. Increase in the charter capital of Pannon Naftagas Kft.

11. Termination of participation by NIS a.d. Novi Sad in Jubos d.o.o. Bor due to its liquidation.

12. Payment of dividends at the Gazprom Neft Group.

13. Status and effectiveness of the implementation of the Gazprom Neft Investment Programme for 2014 based on the Company’s performance results in the first half of 2014. Amendments to the Company’s Investment Programme and Budget (financial plan) for 2014.

14. Increase in the charter capital of Naftagas – Naftni servisi d.o.o. Novi Sad, Naftagas – tehnički servisi d.o.o. Zrenjanin, Naftagas – Transport d.o.o. Novi Sad and NTC NIS – Naftagas d.o.o. Novi Sad.

15. Reorganisation of CJSC Gazpromneft-Aero in the form of the absorption of LLC Gazpromneft-Aero Ulyanovsk.

16. Preliminary results of the implementation of the Gazprom Neft Investment Programme and Budget for 2014 and the projects of the Investment Programme and Budget (financial plan), including the Gazprom Neft Group’s financial borrowing programme, the Cost Optimisation (Reduction) Programme of Gazprom Neft for 2015 and the forecast for 2017.

17. Alienation by LLC Gazpromneft-Nefteservice of a 49% stake in the charter capital of LLC Noyabrskneftespetsstroy.

Main items on the Agenda of Management Board meetings

Born in 1973, graduated from the St Petersburg State Electrotechnical University and Leti-Lovanium International School of Management.

2004, earned the qualification of a Certified Management Accountant (CMA)

2005–2007, Deputy CFO of LLC LLK-International

2007–2011, Head of the Budget Planning Department and Head of the Directorate of Economics and Corporate Planning of OJSC Gazprom Neft

2011–2012, Acting Deputy CEO for Economics and Finance of OJSC Gazprom Neft

March 2012, Member of the Management Board and Deputy CEO for Economics and Finance of OJSC Gazprom NeftALEXEY

VIKTOROVICH YANKEVICHMEMBER OF THE MANAGEMENT BOARD AND DEPUTY CEO FOR ECONOMICS AND FINANCE



106


Member of the Board of Directors

Number of meetings

attended by a Management Board member

Number of meetings that

could have been attended

DyukovAlexander ValeryevichChairman of the Management Board

21 22

YakovlevVadim Vladislavovich

21 22

Yankevich Alexey Viktorovich

20 22

BaranovVitaly Vitalyevich

18 22

ChernerAnatoly Moiseyevich

22 22

IlyukhinaElena Anatolyevna

21 22

DybalAlexander Mikhailovich

20 22

Baryshnikov Vladislav Valeryevich

16 22

AntonovIgor Konstantinovich

21 22

KravchenkoKirill Albertovich

16 22

Attendance of meetings by Management Board members in 2014

In 2014, the following changes were made to the members of the Company’s Management Board: � Vitaly Baranov was re-elected for a new term due to

the expiration of his term as a member of the Management Board – five years starting from 24 June 2014 (decision of the Board of Directors in Minutes No. PT-0102/28 dated 24 June 2014);

� Vladislav Baryshnikov was re-elected for a new term due to the expiration of his term as a member of the Management

Board – five years starting from 18 November 2014 (decision of the Board of Directors in Minutes No. PT-0102/54 dated 18 November 2014);

No other changes in Management Board members took place.

No claims were filed against the General Director or members of the Management Board in 2014.

INFORMATION ON CHANGES TO MEMBERS OF THE COMPANY’S MANAGEMENT BOARD THAT TOOK PLACE IN 2014.

The Gazprom Neft Management Board considers matters on a scheduled basis taking into account the decisions of the general meeting of shareholders and the Board of Directors as well as matter submitted by the CEO and Management Board members. The Management Board’s work plan is also established based on the proposals of the heads of Gazprom Neft structural units.

As one of the tools used to additionally inform Board of Directors members about the Company’s performance results, the Charter and Regulation on the Gazprom Neft Management Board provide for MD&A management reports (management’s discussion and analysis of financial conditions and result of operation) to be sent to members of the Board of Directors on a quarterly basis.

In 2014, there were 22 meetings of the Gazprom Neft Management Board, including 7 in-person meetings and 15 voting surveys during which various issues of the day-to-day operations of the Company’s Management Board were considered.

ACTIVITIES OF MANAGEMENT BOARD IN 2014



107

REMUNERATION FOR MEMBERS OF THE BOARD OF DIRECTORS AND MANAGEMENT BOARD

The Company has a clearly structured and objective remuneration programme for top and senior executives that ensures a connection between short-term goals and the amount of bonus payments. In addition to bonuses tied to short-term results, the Company has a motivation system based on the dynamics of the Company’s market capitalisation over a three-year period.

The Board of Directors approved a remuneration programme that is based on the appreciation of share value (SAR). The programme is an integral component of the Company’s long-term growth strategy and envisages the payment of remuneration to management for increasing the value of Gazprom Neft for shareholders over a certain period. The Company’s value is determined on the basis of its market capitalisation. Remuneration depends on certain market conditions and responsibilities that are taken into account when determining the amount payable to such employees. The remuneration is assessed at fair value at the end of each reporting period and paid at the end of the programme term.

Total remuneration for 2014 with a breakdown by each type of payment, RUB

Board of Directors Management Board Total

Payments reflected in the 2-PIT statement 203,013,414.0 875,947,367.5 1,078,960,781.5

A. Remuneration for participation in governing bodies 203,013,414.0 0.0 203,013,414.0

B. Salary 0.0 451,549,134.5 451,549,134.5

C. Bonuses 0.0 424,398,233.0 424,398,233.0

Other payments 0.0 27,112,735.0 27,112,735.0

TOTAL 203,013,414.0 903,060,102.5 1,106,073,516.5

REMUNERATION FOR MEMBERS OF THE BOARD OF DIRECTORS

The amount of remuneration for members of the Board of Directors depends on the Company’s financial results and is approved annually by shareholders. The ability of shareholders to engage in discretionary intervention eliminates the risk of potential abuse of the remuneration programme. In accordance with the decision of the general meeting of shareholders, members of the Board of Directors who do not hold positions within the Company’s executive bodies (who are not executive directors) were paid remuneration in the amount of 0.005% of EBITDA for 2013 according to the consolidated financial statement of Gazprom Neft in accordance with IFRS standards for 2013.Besides the base portion of remuneration, members of the Board of Directors were paid additional remuneration for performing the functions of Chairman of the Board of Directors (50% of the remuneration for a member of the Board of Directors), a member of the Board of Directors (10% of the remuneration for a member of the Board of Directors) and Chairman of a committee under the Board of Directors (50% of the remuneration for a committee member).The total amount of remuneration paid to members of the Board of Directors in 2014 based on the results of 2013 amounted to 203 mn RUB (remuneration includes the income tax of individuals). No compensation was paid to members of the Board of Directors for expenses related to participation on the Board of Directors in 2014.

REMUNERATION FOR MEMBERS OF THE MANAGEMENT BOARD

Income accrued for members of the Management Board totalled 903 mn RUB in 2014. Payments included salary for the reporting period, taxes charged for such salary and other mandatory payments to the relevant budgets and extra-budgetary funds, the payment of annual paid leave for work during the reporting period and payment for treatment and medical care.

No additional remuneration is paid to members of the Management Board for work in the governing bodies of Gazprom Neft or its subsidiaries and affiliates. Members of the Management Board may be paid additional remuneration based on the decision of the Board of Directors.

Gazprom Neft provides directors and officers liability insurance. The policy covers all errors and omissions by directors and officials except for deliberate violations of legislation, fraud and other criminal activities. The total combined limit for all insurance policies and extensions is EUR 41 mn. The coverage territory includes the entire world.

The Company did not issue any loans (credits) to members of the Board of Directors or Management Board.


108


ACCOUNTABILITY OF THE INTERNAL AUDIT SERVICE, INTERACTION WITH THE EXECUTIVE MANAGEMENT BODIES OF THE ISSUER AND THE BOARD OF DIRECTORS (SUPERVISORY BOARD) OF THE ISSUER

The Internal Audit Department is functionally subordinate to the Audit Committee of the OJSC Gazprom Neft Board of Directors and administratively (linearly) subordinate to the Company’s CEO.

The Company’s Board of Directors coordinates the appointment and dismissal of the Head of the Internal Audit Department.

The Internal Audit Department regularly reports on its activities to the Audit Committee and Board of Directors and also provides information about significant shortcomings identified based on the results of audits of the risk management, internal management and corporate governance systems.

INTERACTION BETWEEN THE INTERNAL AUDIT SERVICE AND THE EXTERNAL AUDITOR OF THE ISSUER

The Internal Audit Department coordinates its work with the external auditor during all stages of the audit cycle. Information is continuously exchanged with the external auditor on the work plans, audit results, etc.


The Internal Audit Department performs internal monitoring of the Company’s financial and business activities.

Main functions of the Internal Audit Service

CONDUCTING INTERNAL AUDITS, INCLUDING:

� Assessments of the operating efficiency of business processes and the system of internal controls � Audits of construction activities � Audits of corporate level processes � IT audits � Audit of the effectiveness of the systems for the safeguarding of petroleum products at petroleum

storage depots and filling stations � Confirmation of compliance with the requirements of legislation and internal regulatory documents,

including the annual report on the compliance of corporate procedures with legislation on insider information

� Inspection of the safeguarding of the assets of OJSC Gazprom Neft � Monitoring of corrective action measures

ORGANISATION OF THE INTEGRATED RISK MANAGEMENT SYSTEM (IRMS), INCLUDING:

� Identifying, analysing, assessing, revising and updating risks faced by OJSC Gazprom Neft � The development and updating of the methodological framework of the IRMS (analysis of individual

and systemic risks, preparation of recommendations) � Monitoring and assessment of the effectiveness of measures to manage key risks and the risks of

business divisions (Units) of OJSC Gazprom Neft � The introduction of the IRMS to the core management business processes (business planning, project

risk management and target-specific management)

FRAUD PREVENTION ACTIVITIES, INCLUDING:

� Special audits that aim to uncover instances of fraud � Preparation of fraud prevention recommendations � Organisation and support of a fraud prevention hotline

Additional information about the activities of the Internal Audit Department is available in the online version of the Annual Report


109

Corporate governance at the Company is based on the principle of sustainable development and increasing the shareholder value of Gazprom Neft in the long term. The Company implements this principle through a system of responsible interaction that involves building trust with employees, suppliers, customers as well as residents in the regions of its operation.

In 2014, the Board of Directors considered information about the analysis of the corporate governance system of Gazprom Neft (Minutes No. 102/61 dated 5 December 2014). In accordance with recommendations from the Russian Central Bank, the Company conducted a self-assessment of corporate governance quality based on six components, following the procedure approved by Order No. 306 of the Federal Property Agency dated 22 August 2014.

The corporate governance of Gazprom Neft is characterised by the existence of one core shareholder in OJSC Gazprom, which directly and indirectly owns 95.68% of the former’s shares. Key positive aspects of corporate governance practices based on the results of the self-assessment include the Company’s allocation of extensive powers to the Board of Directors with respect to approving significant transactions, the competitive selection of suppliers of goods and services, a positive dividend history, the hiring of the universally recognised audit company CJSC PricewaterhouseCoopers Audit for the IFRS and RAS audit of the Company’s financial statements, the presence of independent directors on the Board of Directors, the existence of key Committees – on audit as well as human resources and remuneration, the existence of the Internal Audit Department as well as the regulatory and methodological framework of risk management. The Company demonstrates a good level of disclosure

of financial and non-financial information about its activities which is published in annual and quarterly reports on a regularly updated website. The Company implements a variety of social projects for its employees, their family members and the local population as well as charitable and sponsorship projects, has approved policies on corporate social responsibility and is preparing a social report in accordance with the GRI Sustainability Reporting Guidelines.

At the same time, the high concentration of share capital and the fact that the register of the Company’s securities is maintained by a registrar that is affiliated with the Company’s core shareholder, OJSC Gazprom, has a restraining influence on a better assessment of the observance of shareholder rights. Shortcomings in corporate governance practices include an small number of independent directors on the Board of Directors and its committees. Some members of the Gazprom Neft Board of Directors are on the boards of directors of more than five other companies. The Board of Directors has no committees on strategy or nominations.

The Company fully complies with the requirements of Russian legislation on corporate governance and generally follows the recommendations of the Russian Corporate Governance Code and certain recommendations from international best practices in corporate governance.

In December 2014, the Company approved an action plan to improve the corporate governance system that may be implemented at the Company’s management level. An analysis of the quality of corporate governance for 2015 is included in the work plan of the Board of Directors for the fourth quarter of 2015.

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

Results of self-assesment of Corporate Governance quality

ComponentsCalculation

Number of questions

Component weight im total calculation, %

Actual score Max. score Compliance level, %

I. Shareholders' rights 22 14 65 79 82II. The Board of Directors 56 37 115.5 202 57III. Executive manegement 5 7 25 38 66IV. Transparency and information disclosure 15 25 109 135 81V. Risk management, internal control

and internal audit16 11 52 63 83

VI. Corporate social responsibility, business ethics

6 6 23 31 74

Total calculation 120 100 389.5 548 71Source: Company data

Additional information about compliance with the principles and recommendations of the Corporate Governance Code according to the form recommended by CJSC MICEX SE is available in the online version of the Annual Report

110


INTERACTION WITH INVESTORS AND EQUITY CAPITAL

According to the Charter of Gazprom Neft, the Company’s charter capital consists of 4,741,299,639 common shares. As of the end of 2014, Gazprom Neft had no preferred shares.

The largest holder of OJSC Gazprom Neft shares is OJSC Gazprom, which directly and indirectly owns 95.68% of the Company’s total common shares.

The remaining common shares (4.32%) are distributed among minority shareholders – individuals and legal entities.

As of 31 December 2014, there were 8,844 personal accounts recorded in the shareholder register, including 13 legal entities, 8,826 individuals, 1 trustee and 4 nominal holders, including the nominal holder central depository.

EQUITY CAPITAL

List of registered entities whose accounts include a package of securities of at least 1% of charter capital

Entities recorded in the shareholder register

As of 31 December 2013 As of 31 December 2014

Number of shares

Share of charter capital, %

Number of shares

Share of charter capital, %

OJSC Gazprom 3,175,898,234 66.9837 3,175,898,234 66.9837

Gazprom Finance B.V. 269,261,275 5.6791 269,261,275 5.6791

LLC Deutsche Bank (Nominal holder) 948,271,442 20.0002 948,271,442 20.0002

NCO CJSC National Settlement Depository (Nominal holder)

334,460,721 7.0542 334,460,721 7.0542

«Overall, we give a very high grade to the activities of the investor relations department. The IR team of Gazprom Neft on the domestic market and even globally is very strong: it is open, competitive and efficiently provides access to management».

VLADIMIR BYALYKALLIANCE BERNSTEIN, L.P. (U.S.)

«The Company’s information disclosure is at a good level and the published information meets our needs. For us it is very pleasant that management is always involved with the presence of the CFO, heads of upstream and downstream and even strategy as represented by Sergey Vakulenko».

ALEXANDRA FALKOVASBERBANK ASSET MANAGEMENT COMPANY

4,741,299,639common shares – charter capital of OJSC Gazprom Neft as of the end of 2014.



111

Basic information about the shares and ADR of OJSC Gazprom Neft as of 31 December 2014

SHARE VALUE ON MICEX

Share value, RUB (closing price) 143.00

Share value, USD1 (closing price) 2.54

52-week maximum price, RUB 159.50

52-week minimum price, RUB 129.20

VALUE OF 1 ADR2 ON LONDON STOCK EXCHANGE

Value, USD (closing price) 11.27

52-week maximum price, USD 22.69

52-week minimum price, USD 10.5

TRADING VOLUME FOR YEAR

MICEX, bn RUB 8,167,636,266

London Stock Exchange (IOB system), mn USD 406,598,506

MARKET CAPITALISATION ON MICEX

mn RUB 678,006

mn USD1 12,052

Code in MICEX/RTS system/ ISIN code SIBN / RU0009062467

Number of common shares 4,741,299,639

Nominal value of common shares, RUB 0.0016

Size of charter capital, RUB 7,586,079,4224

Shares in free float, % 4.32

Number of ADR issued 26,590,170

Proportion of ADR in free float, % 65

Average monthly trading volume (IOB system), mn USD 33,883,209

Average monthly MICEX trading, mn RUB 680,636,266

1 Converted at the exchange rate of the Russian Central Bank as of 31 December 2014

2 1 ADR is equivalent to 5 common shares of OJSC Gazprom Neft

ADR

2010 2011 2012 2013 2014

Value, USD (closing price) 27.40 27.40 27.40 22.60 11.27

52-week average price, USD 17.74 17.74 17.74 21.32 19.29

52-week maximum price, USD 29.69 29.69 29.69 24.66 22.69

52-week minimum price, USD 9.20 9.20 9.20 16.90 10.50

Average daily trading volume, mn ADR 2.16 3.003 3.294 1.973 1.115

Market capitalisation, bn USD 19.955 21.821 22.248 21.262 12.052

Total number of ADR in circulation 16,536,755 18,669,113 23,530,268 23,709,554 26,590,170



112


The common shares of OJSC Gazprom Neft circulate in Russia on the main trading platforms of the unified exchange OJSC Moscow Exchange. Globally the Company’s shares trade in the form of ADRs, primarily in OTC trading in the UK via the LSE IOB system, in the U.S. via the OTCQx system as well as in Germany.

Trading volume with OJSC Gazprom Neft shares on all MICEX trading platforms totalled 8 bn RUB (215 mn USD) in 2014. The ADR issued for the Company’s shares amounted to 0.14% of the cumulative trading volume in 2014 among the ADR of foreign companies traded on the London Stock Exchange in the IOB system, or 407 mn USD. For the year 2014, a slight decrease was seen in the Company’s share value. Based on MICEX trading on the last trading day – 31 December 2014 – the Company’s share price stood at 143.00 RUB per 1 common share, which is down 2.6% compared with the start of the year. The capitalisation of OJSC Gazprom Neft stood at 678 bn RUB as of 31 December 2014.

LISTING

Trading volume dynamics of OJSC Gazprom Neft shares on the MICEX and LSE in 2014, mn USD

Price dynamics of OJSC Gazprom Neft shares in 2014 due to internal events at the Company, %

Trading dynamics of OJSC Gazprom Neft shares on the MICEX SE and MICEX index in 2014, %

Trading dynamics of OJSC Gazprom Neft shares on the MICEX SE in 20141, %

Trading dynamics of OJSC Gazprom Neft shares on the MICEX SE in 2014

0

20

40

80

60

100

MicexLSE

Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.

70

90

130

Gazprom Neft

120

110

100

80

IFRS results for 2013

AGMS2014

Register closure date

IFRS results for Q3


60

100

Gazprom Neft

120

80

MICEX


70

90

130

Gazprom NeftIndustry average

120

110

100

80

Динамика торгов акциями "Газпром нефти" на ФБ ММВБ


Share price of OJSC Gazprom Neft, RUBTrading volume of OJSC Gazprom Neft shares, mn USD

120125

145

135

160155150

140

130

010

50

30

807060

40

20


Source: MICEX, LSE

Source: MICEX

Source: MICEX

Source: MICEXSource: MICEX

1 For the calculation of average values, the indicators of the following companies were used:

OJSC Gazprom Neft, OJSC LUKOIL, OJSC Rosneft OC, OJSC Gazprom, OJSC Tatneft, OJSC Surgutneftegas, OJSC NOVATEK.


113

DIVIDEND HISTORY

The dividend policy is one of the most important components of corporate governance and a key indicator of the Company’s observance of the rights of its shareholders.

In 2013, the Board of Directors approved the payment of interim semi-annual dividends for the first time. The decision to pay interim dividends demonstrated the Company’s willingness to follow high corporate governance standards.

According to the decision of the Company’s annual general meeting of shareholders dated 6 June 2014, the amount of dividends accrued per one common share of OJSC Gazprom Neft totalled 9.38 RUB (taking into account dividends for the first half of 2013 in the amount of 4.09 RUB per share). The total amount of accrued dividends for 2013 is equal to 44,473,391,000 RUB.

The core principles of the dividend policy of Gazprom Neft are

Ensuring the maximum transparency of the mechanism used to determine the amount of dividends and the procedure for their payment

The Regulation on the Dividend Policy sets the minimum amount of annual dividends based on the Company’s shares – this amount must not be less than the greater of the following indicators: � 15% of the consolidated financial result of the Gazprom Neft Group determined in accordance with IFRS, � 25% of the Company’s net profit determined in accordance with RAS.

Compliance with the standards of the current legislation of the Russian Federation, the Charter and the Company’s internal documents

Each shareholder recorded in the shareholder register as of the date determined by the general meeting of shareholders at which the decision is made to pay dividends shall have the right to receive dividends. This date cannot be set earlier than 10 days from the date on which the decision is adopted (announced) to pay dividends and 20 days from the date such a decision is made.

A desire to meet high corporate governance standards

The Company adheres to the principle of ensuring positive dividend payment dynamics in the event of growth in the Company’s net profit; the approved Regulation on the Dividend Policy of OJSC Gazprom Neft is posted on the Company’s official website, where the history of the Company’s dividend payments are also presented.

1 Dividends not paid to shareholders who failed to provide data for the calculation of dividends in accordance with clause 5 of Article 44 of Federal Law No. 208-FZ dated 26 December 1995 “On Joint-Stock Companies”. Dividends accrued for shares belonging to unidentified holders are paid once the rights of the shareholders to the securities have been established.

Period 2010 2011 2012 2013 H1 2014

Amount of dividends accrued per one share, RUB 4.44 7.3 9.3 9.38 (including dividends for H1 2013)

4.62

Total dividends accrued per share of a particular category, RUB 21,051,370,397 34,611,487,364 44,094,086,642 44,473,390,613(payable 25,081,475,091)

21,904,804,332

Percentage of IFRS net profit (prior to 2012 – US GAAP), % 22 20.6 24 25 –

Compilation date of list of persons entitled to receive dividends 25.04.2011 24.04.2012 23.04.2013 23.06.2014 17.10.2014

Meeting date of issuer’s governing body at which the decision was made to pay dividends and the date and number of the minutes.

09/06/2011, Minutes No. 0101/01 of 14/06/2011

08/06/2012, Minutes No. 0101/02 of 14/06/2012

07/06/2013, Minutes No. 0101/03 of 10/06/2013

06/06/2014, Minutes No. 0101/01 of 10/06/2014

30/09/2014,Minutes No. 0101/02 of 30/09/2014

Deadline given for payment of declared dividends Before 08/08/2011

Before 07/08/2012

Before 06/08/2013

Before 28/07/2014

Before 25/11/2014

Form and other conditions of payment of declared dividends In cash form In cash form In cash form In cash form In cash form

Ratio of unpaid dividends to accrued dividends1, % 0.02 0.02 0.03 0.05 0.01

Dividend history dynamics for 2010–H1 2014

114


American and Global Depository Receipt programmes continued throughout 2014 for the Company’s shares trading on the OTC market of the U.S., UK, Germany and other countries. One ADR is equal to 5 common shares of OJSC Gazprom Neft. The depository bank for the depository receipt programme of OJSC Gazprom Neft is The Bank of New York Mellon.

As of the end of 2014, the total number of ADR issued for common shares was equal to 133 mn shares (2.8% of the Company’s charter capital).

Trading volume with the ADR of OJSC Gazprom Neft totalled 446 mn USD in 2014, including 407 mn USD on the IOB London Stock Exchange, 3 mn USD on the OTCQx and 4 mn USD on other platforms in Europe (primarily in Germany).

PARTICIPATION IN DEPOSITORY RECEIPTS PROGRAMME

Dynamics of ADR trading of OJSC Gazprom Neft, Russia FTSE IOB index and Urals oil prices in 2014, %

Source: LSE

446 mn USDin trading volume with the ADR of OJSC Gazprom Neft in 2014

Additional information about dividend history is available in the online version of the Annual Report

Gazprom Neft Urals Russia FTSE IBO Index

Jan. Feb. Mar. Apr. May June July Aug Sep. Oct. Nov. Dec.

Динамика торгов АДР ОАО Газпром нефть, индекса "Russia FTSE IOB" и цены на нефть марки Urals

80

40

120

100

60

Period 2010 2011 2012 2013 H1 2014

Amount of dividends accrued per one share, RUB 4.44 7.3 9.3 9.38 (including dividends for H1 2013)

4.62

Total dividends accrued per share of a particular category, RUB 21,051,370,397 34,611,487,364 44,094,086,642 44,473,390,613(payable 25,081,475,091)

21,904,804,332

Percentage of IFRS net profit (prior to 2012 – US GAAP), % 22 20.6 24 25 –

Compilation date of list of persons entitled to receive dividends 25.04.2011 24.04.2012 23.04.2013 23.06.2014 17.10.2014

Meeting date of issuer’s governing body at which the decision was made to pay dividends and the date and number of the minutes.

09/06/2011, Minutes No. 0101/01 of 14/06/2011

08/06/2012, Minutes No. 0101/02 of 14/06/2012

07/06/2013, Minutes No. 0101/03 of 10/06/2013

06/06/2014, Minutes No. 0101/01 of 10/06/2014

30/09/2014,Minutes No. 0101/02 of 30/09/2014

Deadline given for payment of declared dividends Before 08/08/2011

Before 07/08/2012

Before 06/08/2013

Before 28/07/2014

Before 25/11/2014

Form and other conditions of payment of declared dividends In cash form In cash form In cash form In cash form In cash form

Ratio of unpaid dividends to accrued dividends1, % 0.02 0.02 0.03 0.05 0.01



115

As far as funding for its activities, Gazprom Neft relies both on internal funding sources generated by income from operating activities as well as borrowed funds. When determining the ratio of debt and internal financing within the capital structure, the Company seeks to achieve an optimal balance between the overall value of capital, on the one hand, and ensuring long-term sustainable development, on the other hand.

CORE PRINCIPLES OF DEBT PORTFOLIO MANAGEMENT

The Company adheres to a rather conservative debt financing policy. One of the key principles of the debt policy is to ensure a high level of financial sustainability for which an important indicator is the “Net Debt/EBITDA” ratio and “Consolidated financial debt/consolidated EBITDA” ratio as calculated by the Gazprom Neft Group.

The Company is committed to maintaining the “Net Debt/EBITDA” ratio at a level not exceeding 1.5. According to the terms of the Company’s loan agreements, the value of the “Consolidated financial debt/consolidated EBITDA” ratio should not exceed 3. In the reporting period, the values of both ratios were lower than the specified thresholds.

Disclosing the results of activities for the management of the Gazprom Neft Group’s debt portfolio on the official corporate website on the Internet ensures the information transparency of the debt policy. During the reporting year, the Company kept the relevant section of its website updated.

DEBT PORTFOLIO MANAGEMENT AND CREDIT RATINGS


Dynamics of Debt/EBITDA and Net Debt/EBITDA

Name 2010 2011 2012 2013 2014

Net Debt / ЕBITDA 0.86 0.71 0.51 0.59 1.44

Net Debt Threshold / EBITDA

1.50 1.50 1.50 1.50 1.50

Debt / EBITDA 1.06 0.82 0.80 0.99 1.87

Debt threshold / EBITDA

3.00 3.00 3.00 3.00 3.00

� the drawdown of credit funds on 17 March as part of an agreement on a non-revolving syndicated credit line for 2,150 mn USD dated 29 November 2013 at a rate of LIBOR + 1.50% p.a. with an average term of 3.5 years;

� the drawdown of 10 bn RUB on 15 October as part of one of three agreements signed on 3 September with OJSC Sberbank of Russia to open non-revolving credit lines for a cumulative amount of 35 bn RUB at a rate of 11.98% p.a. wiith an average term of 5 years;

� the drawdown of 10 bn RUB on 30 September as part of an agreement signed on 23 September with OJSC Rosselkhozbank to open a non-revolving credit line for 30 bn RUB at a rate of 11.90% p.a. with an average term of 5 years.

As a result, during the reporting period the debt portfolio of the Gazprom Neft Group reached 563.4 bn RUB as of 31 December 2014 compared with 313.9 bn RUB as of 31 December 2013 (the main reason for growth was exchange rate differences). The borrowed funds raised in 2014 were used for general corporate purposes.

IN 2014, THE COMPANY HAD BORROWINGS AS FOLLOWS:

When raising debt financing, the Company takes into account the specifics of the activities being funded as well as conditions on debt capital markets.

Among other ways, the Company’s debt portfolio is optimised by diversifying its structure in terms of instruments and investors, which enables the Company to reduce its dependence on volatile debt capital markets. As of late 2014, the Company’s debt portfolio included such instruments as debt financing, credit under the guarantee of the Export Credit Agency (ECA), syndicated loans, local bonds, eurobonds and bilateral loans.

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Debt portfolio structure by maturity date, mn RUB

Debt repayment schedule of the Gazprom Neft Group1, mn RUB

2010 2011 2012 2013 2014

Short-term credits and loans1 53,030 41,114 77,193 52,413 61,121

Long-term credits and loans 150,617 174,503 166,447 261,455 502,306

TOTAL 203,646 215,617 243,640 313,868 563,427

Percentage of short-term credits and loans 26.04 19.07 31.68 16.70 10.85

Percentage of long-term credits and loans 73.96 80.93 68.32 83.30 89.15

Name Under 6 months 6-12 months 1-2 years 2-5 years 5 years or more

Bank loans 15,797 23,460 78,335 169,132 6,905

Local bonds 12,452 2,031 23,212 32,434 –

Loan participation notes 5,880 2,532 6,566 80,530 200,107

Other loans 14,362 311 220 1,219 2,006

TOTAL 48,491 28,334 108,333 283,315 209,018

1 Short-term credits and loans and the current portion of long-term credits and loans.

1 Calculations include debt and future interest, including interest not yet accrued.



Due to the imposition of sanctions on the Company by the U.S., EU and several other countries in 2014, substantial work was carried out to minimise the consequences of these sanctions: � two new loan agreements were concluded with Russian banks for

a total of 65 bn RUB under which 20 bn RUB had been drawn down as of 31 December 2014;

� drawdown of a non-revolving credit line for 300 mn USD in early 2015 from a syndicate of European and Asian banks;

� new opportunities for the Company to raise debt capital were analysed.

Company management has largely succeeded in neutralising the negative effects of the deteriorating situation on debt capital markets: � the weighted average interest rate declined: from 3.68% p.a. as of

31 December 2013 to 3.48% p.a. as of 31 December 2014; � the proportion of long-term borrowing increased: from 83% as of

31 December 2013 to 89% as of 31 December 2014; � the proportion of short-term borrowing in total debt fell

significantly: from 16.7% as of 31 December 2013 to 10.9% as of 31 December 2014;

� the average borrowing term declined slightly: from 5.15 years as of 31 December 2013 to 4.49 years as of 31 December 2014.

Depending on the Company’s need for debt financing, various instruments for raising it may be considered in 2015. In order to ensure the ability to quickly raise debt financing in the form of a local bond issue, the Company made changes to the prospectus and decision to issue exchange bonds (EB) series EB-01-04 and EB-07 due to the latest changes in legislation on the securities market. The EB prospectus has indefinite duration, which enables the Company to quickly arrange an EB issue for up to 50 bn RUB for a period of up to 30 years inclusive if the need arises. The Company is also actively involved in improvements to legislation on the securities market with respect to the placement and circulation of local bonds. In 2014, Gazprom Neft joined the Committee of Bond Issuers under the Moscow Exchange.

POSSIBLE INSTRUMENTS FOR RAISING FUNDING IN 2015


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Series Placement date Offer date1 / maturity Issue volume, mn RUB

Current coupon rate2

Issue organisers

04 21/04/2009 (secondaryplacement – 05/08/2011)

16/04/2018 / 09/04/2019 10,000 8.2% Gazprombank, Renaissance Capital

08 08/02/2011 – / 02/02/2016 10,000 8.5% Gazprombank, Troika Dialog IC,Sberbank, Globexbank

09 08/02/2011 08/02/2016 / 26/01/2021 10,000 8.5% Gazprombank, Troika Dialog IC,Sberbank, Globexbank

10 08/02/2011 05/02/2018 / 26/01/2021 10,000 8.9% Gazprombank, Troika Dialog IC,Sberbank, Globexbank

113 07/02/2012 09/02/2015 / 25/01/2022 10,000 8.25% VTB Capital, Gazprombank

12 05/12/2012 29/11/2017 / 23/11/2022 10,000 8.5% Gazprombank, UniCredit

Total bonds in circulation 60,000

Series Placement date / actual maturity date Volume, mn RUB Coupon rate at maturity

03 21/07/2009 / 15/01/2013 (early based on issuer’s decision) 8,000 1%

EB-05 13/04/2010 / 09/04/2013 10,000 7.15%

EB-06 13/04/2010 / 09/04/2013 10,000 7.15%

Total redeemed bonds 28,000

CREDIT RATINGS

OJSC Gazprom Neft has been assigned credit ratings by three international ratings agencies – Standard & Poor's, Moody's and Fitch and the Chinese agency Dagong Global Credit Rating Company Limited (Dagong).

In spring 2014, S&P, Moody’s and Fitch revised their outlooks on the Company to negative following a downgrade of Russia’s rating.

As of the end of 2014, all the Company’s credit ratings are at the same level as the country rating of the Russian Federation.

Source: ratings agency data

Credit ratings of OJSC Gazprom Neft as of 31 December 2014

Bonds in circulation as of 31 December 2014

Redeemed bonds as of 31 December 2014

1 Rating assignment date – 2 March 2015.

1 If the offer envisages issue documentation.

2 Semi-annual coupon period.3 Bonds purchased in the amount

of 9,568,681,000 RUB on 9/02/2015 as part of offer



Agency Scale Rating Outlook

Standard&Poor’s

International scale in foreign currency

BBB– Negative

National scale (Russia) ruAAA Negative

Moody’s International scale in foreign currency

Baa2 Negative

Fitch Long-term default rating of issuer in foreign and national currency

ВВВ Negative

Dagong Global Credit Rating Company Limited (Dagong)1

Long-term credit rating on obligations in the Russian currency

AA Stable

Long-term credit rating on obligations in the foreign currency

AA– Stable

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The Company attaches great importance to interaction with current and potential shareholders. In recent times, the information disclosure level for shareholders and investors of Gazprom Neft has improved significantly, as evidenced by a number of studies by independent agencies on investor relations as well as awards given to the Company in this area.

In 2014, Gazprom Neft shareholders and investors were able to get a vivid picture of the oil production processes at the Novoportovskoye field on Yamal Peninsula and oil refining at the Moscow Oil Refinery.

MECHANISMS OF INTERACTION WITH INVESTORS

� conference calls for investors involving Company executives;

� quarterly publication of the “Executive Analysis of the Company’s Financial Condition and Operations” – appendices to the financial statement of OJSC Gazprom Neft prepared in accordance with IFRS;

� publication of Databook and Datafeed for a detailed analysis of the Company’s operations;

� regular meetings with investors and shareholders; � participation in all major conferences of investment and

brokerage organisations; � the annual “Investor’s Day” event involving senior

Gazprom Neft executives at which analysts and investors from investment companies can get answers to all of their questions;

� arrangement of visits to production and extraction sites.

MECHANISMS OF INTERACTION WITH INVESTORS OF GAZPROM NEFT:

6 awardsgiven to the Company’s corporate Annual Report at prestigious national and international competitions of annual reports in 2014

� the IR website of Gazprom Neft received the Silver Award in the major international corporate communications rating Stevie Awards in the category of Best Investor Relations Site;

� the Company’s corporate Annual Report received 6 awards at prestigious national and international competitions of annual reports.

IN 2014, THE COMPANY WAS HONOURED WITH SEVERAL AWARDS IN INVESTOR RELATIONS:

Q2

Q4

Q2

Q1 67

94

77

82


Number of conference call participants in 2014 by quarter, persons


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Q&A

? Given the sanction restrictions, how is the Company functioning in terms of funding new projects and utilising advanced technologies and imported equipment when developing oil and gas fields?

An analysis of the existing contracts in the reporting year revealed that the average annual procurement of foreign-produced material and technical resources and services does not exceed 5% of the total volume. The average usage level of goods and services from the domestic market at Gazprom Neft is close to 95%.

The value of this parameter in a particular case depends on the stage of the project implementation. Foreign technologies are primarily used for the development of promising projects. At the same time, the technology owner is not required to order equipment from some specific manufacturer, but determines which international standards the manufacturer should meet. Part of the Russian and Asian equipment meets the declared international standards.

In addition, the Russian oil industry has made serious progress in recent years in the utilisation of high-tech operations when developing hydrocarbon fields (this includes horizontal drilling, multi-stage hydraulic fracturing, multi-stemmed injection, etc.). Many Russian oilfield service companies successfully utilise geological and technical measures at wells. Over the last two years, Gazprom Neft has increased the number of such operations by five or six times, thus Gazprom Neft currently regards the impact of technological sanctions on its operating activities as negligible.

As part of import substitution, Gazprom Neft is consulting with domestic manufacturers of various equipment about

Ratio of procurement volumes from domestic and foreign suppliers1 as of 31 December 2014

30% ProductionSpecial environment

and production conditions

Assurance of technological guarantees

70% Refining

95% Domestic

5% Import

1 The ratio of procurement volume from domestic and foreign suppliers is an approximation.

? What actions is Gazprom Neft taking given the deteriorating situation on the market?

In the current conditions, the Company is conducting a weekly assessment of what impact the macro environment is having on the medium-term plan. At present, this work focuses on: � the effectiveness of current assets and maximising operating

cash flow; � the proactive management of the investment portfolio in

order to minimise the negative effect of the current macro environment on the Company’s strategic goals;

� the proactive management of the investment portfolio in order to minimise the negative effect of the current macro environment on the Company’s strategic goals;

� seeking alternative sources of funding, including on the Russian and Asian debt capital markets;

� ensuring the stable work of contractor organisations on strategic projects and minimising the inflationary component on the cost of oil services and materials.

? How much does the Gazprom Neft Group plan to invest in 2015?

The Company’s Board of Directors has approved the Gazprom Neft Investment Programme for 2015 in the amount of 346.4 bn RUB1. Approximately 30% of the programme will be spent on the implementation of major projects in production: the Novy Port, Messoyakha and Prirazlomnoye fields. Investment in oil refining is planned at 49.2 bn RUB in 2015.

Planned investment in 2015

Investment area mn RUB

Exploration and production 256 Refining 49 Marketing and sales 19 Other 23 TOTAL 346

1 The funding amount for the 2015 Investment Programme may be revised in the event of significant changes to macroeconomic parameters.

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the feasibility of manufacturing products that are comparable in terms of technical and consumer features to the equipment of leading foreign manufacturers. The Company purchases reactor, tank and column equipment from domestic manufacturers as well as basic services for drilling, repair, well maintenance and hydraulic fracturing. Strategic partnership agreements have been concluded with Russian manufacturers on key material and technical resources that are the most capital intensive with one such area being R&D on the manufacturing of equipment for offshore projects.

An alternative substitution strategy for key areas of procured goods, work and services (over 25 areas total) is also under development as part of the import substitution programme. At present, substitution strategies for catalysts in oil refining and spare parts for offshore projects have been developed and approved by the Company’s Management Committee for Import Substitution and Production Localisation on Russian Territory. A key aspect of the strategies is the involvement of domestic manufacturers for the production of domestic substitutes. Preliminary negotiations have been held with potential manufacturers of such replacement products and an open list has been compiled of Russian enterprises that are potential manufacturers of analogues of the required material and technical resources.

Gazprom Neft has established a Department for Technological Partnerships and Import Substitution. A key task of the new division is the systemic monitoring of the Russian goods and materials market to seek out ways to replace imported products with domestic analogues.

Gazprom Neft is closely following the decisions concerning sanctions against the Russian oil and gas sector. When planning its further operations, the Company cannot ignore the new circumstances, however they are not expected to have a serious impact on future work. The investment plans of Gazprom Neft in 2015 remain unchanged. In addition, all factors that could impact the Company are being studied. Despite the growing cost of cash resources resulting from restricted access to the European capital market, the effectiveness of the projects implemented by the Company along with the existing abilities to raise funds on the Russian and Asian markets allow Gazprom Neft to keep its long-term plans intact.

? Does the Company need to attract additional funding for next year? What kind of funding sources is Gazprom Neft considering for 2015?

Debt repayment will total approximately 61 bn RUB in 2015. This refinancing is covered by loan agreements signed with major Russian banks: Rosselkhozbank and Sberbank. We plan to cover our remaining needs with borrowing on the domestic market, a possible bond placement and by raising credits and loans from Asian banks.

? Does Gazprom Neft plan to continue developing the reserves of the Bazhenov Formation?

The study and development of unconventional hydrocarbon reserves, above all the Bazhenov Formation, is one of the most important tasks facing the Russian oil industry. It has an unconventional solution. Success requires not only mastering innovative exploration and production technologies, but also developing a scientifically and practically sound geological model. This is precisely what the geological exploration programme for the study of unconventional reserves of Gazprom Neft in 2015-2017 aims to do.


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KEY RISK FACTORS

Gazprom Neft has a Risk Management Policy that identifies the goals and principles of risk management in order to improve the guarantees of reliability of the Company’s activities in the short and long term.

The Company has developed and formalised a unified approach to the risk management process within the framework of the Integrated Risk Management System (IRMS) standard. The IRMS at Gazprom Neft is a systematic continuous process of identifying, assessing and managing risks.

The key approach of the IRMS is the distribution of powers by management level at the Company depending on the financial impact of the risk.

In late 2011, the Company introduced the basic processes of the IRMS at most of its existing subsidiaries and affiliates, which made it possible to compile a detailed Corporate Risk Map for 2011 by consolidating the risk events from the level of individual subsidiaries and affiliates to the Company level as a whole. In 2012-2014, the portfolio of the IRMS perimeter was expanded and as of late 2014 the IRMS includes all the existing assets of Gazprom Neft. Further expansion is planned once new projects are launched or existing assets are acquired.

This approach made it possible to form zones of responsibility for risk management and monitor risks at all levels of the Company’s management as well as ensure the preparation of targeted response plans to substantial risks both at each subsidiary and affiliate as well as at Gazprom Neft as a whole.

The regulatory and methodological framework of the IRMS includes the following documents: � Risk Management Policy; � Company Standard “Integrated Risk Management System. Procedure

for identifying and assessing risks, preparing risk management measures and monitoring their fulfilment”;

� Methodological guidelines for the risk management process, including templates of the Risk Register, Risk Card and Risk Matrix.

The Company continuously improves its approach to the basic processes of the IRMS, including devoting special attention to improving the approach to risk assessment and the integration of the risk management process into such key processes as business planning, project management and M&A.

In order to improve the efficiency of IRMS processes, Gazprom Neft continued work in 2014 on a project to automate the IRMS, which began back in 2013. The first stage of the project was completed in late 2013 and made it possible to establish and put into commercial operation a unified Company risk database. Over the course of 2014, the database was filled with relevant information, users were trained and reporting formats were developed for Company executives.

RISK MANAGEMENT SYSTEM

� introducing a risk-oriented approach to all aspects of production and management activities;

� conducting a systematic analysis of identified risks; � building a system to control risks and monitor the effectiveness

of risk management activities; � an understanding by all Company employees of the basic

principles and approaches to risk management accepted at the Company;

� providing the required regulatory and methodological support; � allocating powers and responsibilities for risk management

among the Company’s structural divisions.

RISK MANAGEMENT CONSTITUTES AN INTEGRAL PART OF THE INTERNAL ENVIRONMENT OF OJSC GAZPROM NEFT AND INCLUDES:

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The Company’s goal in risk management is to improve the efficiency of management decisions by analysing related risks as well as ensuring the maximum effectiveness of risk management measures during the implementation of the adopted decisions.

This goal will be achieved by performing the following tasks: � establishing a risk management culture at the Company to

reach a common understanding among management and employees of the main principles and approaches to risk management.

� establishing and introducing a systematic approach to identifying and assessing risks that are inherent in the Company’s activities both as a whole and individual areas of activities;

� stimulating the exchange of information on risks between the Company’s structural divisions and the joint development of risk management actions;

� providing systematic information about risks to the Company’s governing bodies.

GOAL OF RISK MANAGEMENT

KEY STAGES OF IRMS INTRODUCTION

The introduction of the Integrated Risk Management System at Gazprom Neft began in August 2008 with the approval of the IRMS Introduction Concept by the Management Board.

2008–2012 2013–2014 2015 (goals)

� The IRMS Introduction Concept was developed and approved by the Management Board and the Company’s Policy and Standard on risk management took effect.

� The perimeter of the IRMS expanded to subsidiaries, affiliates, joint ventures and major projects. Risk management procedures were introduced in the management practice of major projects.

� Risk-oriented planning introduced in internal auditing.

� Analysis conducted of compliance with best practices (Ernst & Young). Risk management system recognised as approaching the best global practices for building Enterprise Risk Management (ERM) systems.

� Further expansion of the IRMS perimeter to new assets.

� Continued improvement to risk assessment methods, introduction of regulatory and methodological documentation on the quantitative assessment of individual risks.

� Integration of the IRMS with the Company’s business processes (business planning, project management, target-specific management and others).

� Development of an information system that supports IRMS processes.

� The use of the quantitative risk assessment results to determine the materiality of their impact on financial results.

� Further integration of the IRMS with the Company’s business processes (business planning, project management and others).

� Further development of the information system, including the development of risk reports for Company executives.

RISK ANALYSIS RISK-ORIENTED PLANNINGRISK CONTROL


123

Levels of financial impact of risk and distribution of powers within the IRMS

Schematic diagram of IRMS process at the Gazprom Neft Group

KEY

RISK

S

The Management Board adopts key decisions and assesses management. Units directly manage this risk category.

RISK

S O

F U

NIT

S

Management and monitoring at the Unit level

RISK

S O

F S&

A

Management and monitoring at the subsidiary and affiliate level

DISS

EMIN

ATIO

N OF

MET

HODO

LOGI

ES

CONS

OLID

ATIO

N OF

RIS

K IN

FORM

ATIO

N

UNIT UNIT

MANAGEMENT BOARD

S&A S&A S&A S&A

* Depending on risk severity.

INTEGRATION OF IRMS WITH BUSINESS PLANNING AND PROJECT MANAGEMENT

Risk assessment became an integral component of business planning in the reporting year. One of the main differences in the business plans for 2015–2017 is the more detailed approach to risk assessment: existing assessments and risk factor descriptions were revised at the subsidiary level taking into account the changed conditions and new plans, while information on the most significant risks faced by subsidiaries as well as measures to mitigate them were included in the relevant business plans.

As part of integrating risk management with the Company’s project management processes (above all major projects in exploration and production), the methodological framework for the analysis of project risks developed in 2013 was introduced on a full-scale basis in 2014. At the same time, a number of risk sessions were held to identify risks related to the management of the Company’s major projects. This made it possible to prepare project plans (primarily calendar schedules) that are balanced in terms of the correlation of the goals set and the level of uncertainty (risks).

IDENTIFICATION (REVISION) OF RISKS

ANNUALLY

QUALITATIVE AND QUANTITATIVE RISK

ASSESSMENTANNUALLY

DEVELOPMENT OF MANAGEMENT

MEASURESANNUALLY

MONITORING OF MEASURES

QUARTERLYSEMI-ANNUALLY

ANNUALLY*

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The main areas of operation of Gazprom Neft are oil and gas production, oil refining and the sale of oil and petroleum products, thus the Company is exposed to risks that are traditionally inherent to the oil and gas industry, namely: � risks associated with a possible change in prices for purchased raw materials and services; � risks associated with a possible change in oil and petroleum product prices; � risks associated with industry-wide competition; � risks caused by economic instability in the industry.

MARKET RISKS

Description of risks Risk management measures

RISKS ASSOCIATED A POSSIBLE CHANGE IN PRICES FOR PURCHASED RAW MATERIALS AND SERVICES

In the process of its business operations, Gazprom Neft uses the infrastructure of monopoly service providers for the transportation of oil and petroleum products and the supply of electricity.The Company has no control over the infrastructure of these monopoly service providers and the amount of tariffs charged. It should be noted that tariffs are regulated by the oversight authorities of the Russian Federation, however tariffs are increased each year despite this fact, which leads to increased costs for the Company.At the same time, additional expenses may arise as a result of the following factors: � during rail transportation – the incompatibility of Russia’s broad

gauge rail system with the rail systems of neighbouring countries; � during transportation by trunk pipeline – mixing of the Company’s

oil with that of other companies, which diminishes its quality and consequently its value;

� during transportation by marine vessels – violation of the vessel arrival and departure schedule as well as the loading and unloading deadlines in the event of icing during severe winters.

The Company is implementing a number of measures that aim to mitigate the impact of such risks: � long-term planning of commodity flows and the timely provisioning

of the cumulative flow of oil and petroleum products as well as the necessary rolling stock;

� the optimal redistribution of commodity flows by transportation type;

� measures to use alternative and internal sources of electricity generation.

These measures make it possible to reduce risks associated with the use of services and the acquisition of goods from monopoly providers to an acceptable level and ensure the Company’s continuity of operations.

RISKS ASSOCIATED WITH A POSSIBLE CHANGE IN OIL AND PETROLEUM PRODUCT PRICES

The Company’s financial indicators are directly related to the price level of crude oil and petroleum products. The price level depends on a number of factors which the Company cannot fully control. Such factors include: � the volume of oil reserves explored as well as global and regional

supply of and demand for crude oil and petroleum products; � Russian and foreign government requirements and actions; � the impact of global production levels and prices from oil exporting

countries (OPEC); � the military and political situation and/or instability resulting

from the escalation of hostilities or acts of terrorism, including in the United States, the Middle East, the CIS and other resource producing regions;

� prices and the availability of alternative and competing types of fuel; � prices and the availability of new technologies; � weather and climatic conditions, natural disasters and industrial

accidents.

Comprehensive measures were prepared to reduce the cost of extracting minerals.

The Company has a business planning system which at its core has a scenario-based approach when determining the Company’s key performance indicators depending on oil prices on the global market. This approach makes it possible to cut costs, including by reducing them or carrying them over to future periods of investment programmes.

These measures enable the Company to reduce risks to an acceptable level and fulfil the obligations it undertook.


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RISKS ASSOCIATED WITH INDUSTRY-WIDE COMPETITION

There is intense competition in the Russian oil and gas industry between the leading Russian oil and gas companies in the main areas of production and economic activities, including: � the acquisition of licenses for the right to use subsoil resources to

produce hydrocarbons at auctions organised by the government authorities;

� the acquisition of other companies that own licenses for the right to use subsoil resources to produce hydrocarbons or that own existing assets associated with production raw hydrocarbons;

� the implementation of foreign projects; � the hiring of leading independent service companies; � the acquisition of high-tech equipment; � the hiring of experienced and the most qualified specialists; � access to critical transportation infrastructure; � the acquisition of existing retail sales network enterprises and land

plots for the construction of new ones; � the expansion of sales markets and sales volumes.

In addition, there is competition from the suppliers of alternative energy sources, including eco-friendly sources such as solar energy and wind energy.

Gazprom Neft has extensive experience in geological exploration work and employing the latest geophysical methods of prospecting and exploring for hydrocarbons as well as advanced technologies in the drilling and development of fields, which will result in a decrease in the probability of such risks.

The implementation by management of the portfolio of strategic projects that aim to develop key areas of the activities of OJSC Gazprom Neft ensures the gradual strengthening of the Company’s positions in the oil and gas industry by ensuring a reduction in risks associated with competition.

RISKS CAUSED BY ECONOMIC INSTABILITY IN THE INDUSTRY

As a producer and exporter of large volumes of oil and natural gas, the Russian economy is particularly sensitive to price fluctuations for crude oil, natural gas and other raw commodities on the global market. Negative oil price dynamics on the global market and a slowdown in the Russian economy may have an adverse effect on the Company’s business.

Over the past decade, the Russian economy has at different times experienced: � a significant decline in GDP; � high inflation; � high levels of corruption; � a price slump on hydrocarbon markets; � instability on the currency market; � a high level of state debt versus GDP; � unstable lending terms and liquidity restrictions given the weakened

banking sector; � fictitious bankruptcies in the industry for the misappropriation of

property; � tax evasion practices; � weak diversification and a high dependency on global raw commodity

prices; � a significant increase in unemployment and underemployment; � ethnic and religious conflicts; � a low level of personal income for a significant portion of the Russian

population; � a high level of depreciation of the main infrastructural production

facilities

In order to mitigate the negative effect of these factors on the Company’s performance results, work is being conducted to expand sales markets and increase the volume of products sold in foreign countries. The Company’s companies also provide support to the country’s economy as major taxpayers and take part in large-scale infrastructure and socially significant projects. The Company is constantly improving production and working on improving performance efficiency, including by implementing investment projects and updating and modernising fixed assets.

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COUNTRY AND REGIONAL RISKSDescription of risks Risk management measures

RISKS ASSOCIATED WITH MORE SANCTIONS FROM THE EU AND U.S.

In 2014, the U.S., EU countries and certain other nations imposed sanctions on the Russian energy section that partially apply to the Company.

The failure to comply with the sanctions by members of the Company may lead to them being deprived of the ability to interact with the governments of the U.S. or EU or their agencies, the prosecution of the Company and/or its employees, significant fines and the worsening of the Company’s reputation and public image.

The sanctions have had a negligible effect on the Company’s business and financial condition, none of the Company’s members have been included in the list of specially designated nationals and the Company has no grounds to believe that it will be specifically targeted by any new sanctions.

At present, the Company continues to assess the impact of the sanctions, but does not believe that they will have a significant effect on the consolidated financial statement.

POLITICAL RISKS

The political situation in Russia is currently stable, which is characterised by the stability of the federal and regional branches.

OJSC Gazprom Neft is registered as a taxpayer in St Petersburg, which is the second largest city in the Russian Federation and the administrative centre of the Northwest Federal District with significant natural resource potential, highly developed industry and an extensive transportation network.

OJSC Gazprom Neft has subsidiaries in the Central, Northwest, Urals, Volga, Siberian and Far Eastern Federal Districts.

Overall, the Company regards the political situation within the country as stable and believes that there are currently no risks of negative changes.

RISKS ASSOCIATED WITH FOREIGN ASSETS

The Company is implementing a number of foreign projects that aim to expand the geography of production operations.

Entering new regions is associated both with the ability to obtain additional competitive advantages as well as the risks of underestimating the economic and political situation in countries where the Company’s assets are located, which subsequently may lead to the failure to achieve planned performance indicators.

At present, Gazprom Neft assesses the level of risks associated with foreign assets as acceptable, however it cannot guarantee the absence of negative changes since the risks described are beyond the Company’s control.

CORRUPTION RISKS

As the Company actively enters new international markets, the risk increases of U.S. or UK anti-corruption laws extending to it.

Gazprom Neft pursues a strategy of corruption risk management on an ongoing basis. The Company has an approved an anti-fraud and anti-corruption policy and all Gazprom Neft subsidiaries have been given recommendations to approve similar policies. All Gazprom Neft employees are required to review and comply with the policy requirements.

In order to monitor corruption risks when working with third-party contractors, standard forms of anti-corruption reservations have been prepared and approved by an order of the Gazprom Neft CEO for inclusion in Contracts with third parties (both Russian and foreign).

The Company also has a permanent anti-fraud and anti-corruption hotline. An internal inspection is conducted in response to hotline complaints.


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OPERATIONAL RISKSDescription of risks Risk management measures

RISKS ASSOCIATED WITH GEOLOGICAL EXPLORATION OPERATIONS

One of the Company’s key strategic objectives is growth in the raw hydrocarbon resource base in quantitative and qualitative terms in order to ensure the required level of production, which in turn largely depends on the success of geological exploration.

The main risk associated with geological exploration activities is the failure to confirm the planned level of hydrocarbon reserves. Another important factor is geological exploration work in different geographic regions, which often leads to the risk of increased costs.

Estimates depend on a number of variable factors and assumptions, including the following: � the correlation of the historical level of productivity in the region of

production with the productivity of other regions that are comparable in terms of characteristics;

� the interpretation of geological exploration data; � the effect of the requirements of government structures.

Gazprom Neft has considerable experience in conducting geological exploration work and employing the latest geophysical methods to prospect and explore hydrocarbons as well as advanced technologies in the drilling and development of fields, which results in the decreased probability of such risks.

The Company has hired the auditor DeGolyer & MacNaughton to perform an independent audit of reserves based on the estimates of the Gazprom Neft's subsidiaries.

PROJECT RISKS

The Company continuously develops and implements investment projects that aim to achieve strategic goals, in particular growth in the extraction of raw commodities and improvements in the quality of the products manufactured.

When implementing projects, the Company encounters a variety of risks that could lead to a violation of the deadlines and/or the increased cost of the project. The main factors behind such risks are poor planning, violations of the project terms by contractors as well as new circumstances (increased cost of materials, errors in the assessment of infrastructure conditions and switching equipment suppliers).

The Company manages these risks, while paying special attention to a project’s expert evaluation during the stage of its development and coordination. In 2014, a project was implemented to introduce a risk management system in the process of preparing and implementing major projects. The Company has also determined requirements for contractors and implemented a project monitoring system.

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RISKS ASSOCIATED WITH HUMAN RESOURCES

The Company's business depends on highly skilled key employees, and a lack of skilled labour, in particular in engineering and technical areas, may lead to risks associated with a shortage of personnel.

The Company's success largely depends on the efforts and abilities of key employees, including skilled technical personnel, as well as the Company's ability to recruit and retain such personnel. Competition for personnel in Russia and abroad may intensify due to the limited number of skilled specialists on the labour market. The inability to recruit new skilled personnel and/or retain existing skilled personnel could have a negative effect on the Company's appeal as an employer. Demand for skilled employees and the related expenses are expected to grow, thereby reflecting the considerable interest in such resources from other industries and social projects.

The Company offers competitive salaries and provides training for employees in specially designed programmes. In addition, the Company is improving personnel recruiting procedures and implementing measures that aim to reduce personnel turnover and encourage the self-development of personnel.

RISKS ASSOCIATED WITH INDUSTRIAL SAFETY

The Company is exposed to risks involving the safety of employees and the safety of their operations. Numerous factors may have a negative effect on the Company's core activities, including the breakdown or failure of equipment, natural disasters, political disputes or acts of terrorism.

Any of the risk factors may have a significantly adverse impact on the business, financial condition and results of the Company's activities.

In order to prevent risks, the Company strives to provide safe working conditions for its employees in order to avoid personal injury or death as well as prosecution or damage to its business reputation. Safety threats are under constant supervision and control and extra attention is paid to compliance with safety regulations.

ENVIRONMENTAL RISKS

The production activities of Gazprom Neft are fraught with the potential risk of environmental damage or pollution, which may result in civil liability and the need for work to eliminate such damage.

The Company is fully aware of its social responsibility to create safe working conditions and maintain a favourable environment, continuously monitors its activities to ensure compliance with the relevant environmental standards and is implementing an environmental protection programme.

In the future, costs associated with observing environmental requirements or obligations may increase.

The environmental protection policy of Gazprom Neft aims to ensure compliance with the requirements of current environmental legislation by investing substantial funds in environmental measures, including the use of technologies that ensure minimal negative impact on the environment. These activities have resulted in a significant decline in the probability of risks associated with environmental pollution.

The Company is also following the changes in environmental legislation in the different countries in which it operates.


129

FINANCIAL RISKS


CREDIT RATING OF COUNTERPARTIES

Company executives devote extra attention to the credit risk management process, particularly during crisis periods, since some of the Company’s counterparties may experience financial difficulties.

Gazprom Neft has implemented measures making it possible to manage risks, including: an assessment of the creditworthiness of counterparties, the establishment of individual limits depending on the financial condition of counterparties, control of advance payments and measures for working with recievables by business area, among others.

RISK ASSOCIATED WITH BORROWING

The imposition of sanctions on OJSC Gazprom Neft by the U.S. and EU has significantly narrowed the range of financing instruments available to the Company.

Gazprom Neft effectively manages risk associated with the borrowing of funds.

Despite the levying of sanctions against the Company by the U.S. and EU in September 2014, the Company fully implemented a programme to attract funding in 2014 and also signed agreements with Rosselkhozbank and Sberbank to raise loans that may be used in 2015.

The Company is searching for alternative sources of funding.

CURRENCY RISKS

The bulk of the gross revenue of OJSC Gazprom Neft comes from export transactions for the sale of oil and petroleum products. Consequently, fluctuations in currency exchange rates versus the rouble affect the results of the Company’s financial and business activities.

Government requirements for the mandatory sale of foreign exchange revenue on the domestic market could have a negative impact. No such requirements are in place now, but the Russian Government and Central Bank have resorted to such measures in the past.

The Company’s currency risk is significantly mitigated by the existence of liabilities denominated in foreign currency. The Company raised a considerable portion of its loans on the international credit market in U.S. dollars. The current liabilities for servicing these loans are also denominated in U.S. dollars.

The currency structure of revenue and liabilities acts as a hedging mechanism, whereby opposing factors compensate one another. A balanced structure of assets and liabilities minimises the impact of currency market factors on the results of the Company’s financial and business activities.

INTEREST RISK

As a major borrower, the Company is exposed to risks associated with changes in interest rates. Much of the debt portfolio consists of credits and loans denominated in U.S. dollars. The interest rate for servicing part of the existing credits (the percentage is not fixed and may vary) is based on interbank loan rates (primarily LIBOR). An increase in these interest rates may lead to higher debt servicing costs for the Company. Growth in the cost of credits for the Company may negatively impact creditworthiness and liquidity indicators.

The current structures of the OJSC Gazprom Neft debt portfolio and the interest rate level ensure a moderate level of interest risk impact on the Company.

Financial risks at the Company are managed by employees in accordance with their professional activities.The Financial Risk Management Committee determines the unified approach to financial risk management at the Company and subsidiaries. The activities of the employees of the Company and the Financial Risk Management Committee help to reduce potential financial damage and achieve stated goals.

130


LEGAL RISKS


RISKS ASSOCIATED WITH CHANGES TO TAX LEGISLATION

Gazprom Neft is one of the biggest taxpayers in the Russian Federation and pays federal, regional and local taxes, in particular VAT, the corporate profit tax, mineral extraction tax, corporate property tax and land tax.

In 2014, special attention was paid to the risk of the “tax maneuvering” effect on the Company’s performance results.

In its operating activities, Company specialists perform continuous monitoring of changes to tax legislation and changes to the practice of interpreting and applying the standards of existing tax legislation. The Company acts as an expert in the process of improvements to the regulatory framework and the development of new legal acts of tax legislation.

Risks caused by “tax maneuvering” were identified by the Company on time and taken into account when compiling the business plan for 2015.

RISKS ASSOCIATED WITH CHANGES TO THE RULES FOR CUSTOMS CONTROL AND DUTIES

The Company is involved in foreign economic relations and therefore exposed to risks associated with changes to legislation in the state regulation of foreign trade activities as well as customs legislation governing relations for establishing the procedure for the movement of goods across the customs border of the Russian Federation, establishing and applying customs regimes as well as establishing, introducing and collecting customs payments.

Another risk may be the ability of the Russian Government to change customs duty rates (both import and export) for certain goods for which Gazprom Neft concludes foreign trade transactions. The primary adverse effect from this risk is an increase in expenses and lower export efficiency.

OJSC Gazprom Neft meets the requirements of customs control, completes all documentation required for both export and import transactions in a timely manner and has sufficient financial and human resources to comply with the standards and rules in matters of customs regulation.

The risks were assessed as acceptable taking into the reduction in the customs duty on crude oil exports.

Gazprom Neft carries out its activities in strict compliance with the standards of Russian legislation as well as the legislation of the jurisdictions in which the Company performs its operations.Gazprom Neft cannot guarantee the absence of adverse changes in Russian legislation in the long term since most risk factors are out of its control. The negative impact of this risk category is mitigated by monitoring and timely reaction to changes made to various sections of legislation as well as active interaction with the legislative and executive authorities and public organisations on matters involving the interpretation, proper application and improvement of legislative norms.


131


RISKS ASSOCIATED WITH CHANGES TO THE REQUIREMENTS FOR LICENSING CORE ACTIVITIES

The development of modern legislation on subsoil resources is based on the detailed regulation of subsoil resource use processes by the government, the need to improve the rational use of subsoil resources and strict compliance with legislative environmental standards.

Gazprom Neft operates at license areas taking into account the stringent requirements of Russian legislation on subsoil resources while ensuring the updating of licensing agreements based on changes to existing legislation.

The Company is working on analysing and assessing legislative initiatives from concerned ministries and agencies in legislation on subsoil resources and the licensing of individual types of operations. The amendments to existing legislation that have been proposed and are under discussion will have an overall favourable effect on the subsoil resource regime and the performance of licensed activities in the Russian Federation.

No legal risks associated with the loss of the right to use subsoil resource sections or the violation of existing legislation due to such changes are directly foreseen for Gazprom Neft.

RISKS ASSOCIATED WITH CHANGES TO JUDICIAL PRACTICE ON MATTERS RELATED TO THE COMPANY’S OPERATIONS

In the existing law enforcement system in the Russian Federation, of greatest importance are the legal positions of the highest courts (Constitutional Court, Supreme Court and Supreme Arbitration Court of the Russian Federation), which may affect the conditions of the Company’s business activities.

Gazprom Neft regularly monitors the decisions adopted by the high courts and also evaluates trends in the law enforcement practice seen at the level of district arbitration courts while actively applying and using such practice not only to protect its rights and legitimate interests in court but also when resolving legal issues that arise during the process of its activities. In this regard, risks associated with changes to judicial practice are regarded as negligible.

132



RISKS ASSOCIATED WITH ANTIMONOPOLY REGULATION

If the Russian Federal Antimonopoly Service (FAS) concludes that the Company is operating in violation of antimonopoly legislation, this may results in administrative action being taken against the Company’s enterprises.

The oil industry in Russia operates under strict pricing control by the government authorities that monitor petroleum product prices and track coordinated actions by companies as well as price collusion.

As a result, even substantiated growth in prices for the products of oil companies may lead to complaints and accusations by the FAS concerning the violation of Russian antimonopoly legislation.

The FAS has fined the Company in the past in connection with allegations that it abused its dominant position on the market.

In accordance with the decisions of the FAS and with the support of the Presidium of the Supreme Arbitration Court of the Russian Federation, Gazprom Neft and other vertically integrated Russian oil companies were found to be dominating the motor and jet fuel markets in Russia.

In addition, the FAS has prepared draft laws “On the Price Market for Oil and Petroleum Products” and “On the Specific Details of Oil and Petroleum Product Turnover in the Russian Federation”, which contain other potential risks for the Company.

The Company devotes much attention to being in compliance with antimonopoly legislation and in this regard has established a division whose activities aim to manage antimonopoly risks at the Company and has also developed a pricing policy that is coordinated with the regulatory authorities.


133

THE SUSTAINABLE DEVELOPMENT STRATEGY IS PART OF THE COMPANY’S LONG-TERM STRATEGY

SUSTAINABLE DEVELOPMENT

When setting its global goals, Gazprom Neft seeks to ensure a balance of interests between society and business development, high growth rates and environmental protection.

BASE FOR GROWTH

Sustainable development is part of the Company’s long-term strategy. When setting its global goals, Gazprom Neft seeks to ensure a balance of interests between society and business development, high growth rates and environmental protection.

One of the Company’s top priorities is organising safe production as well as occupational safety and health protection. Gazprom Neft is committed to minimising the negative environmental impact of oil production and oil refining, ensuring that products have improved economic characteristics and utilising natural resources in the most careful manner.

In establishing a base for future growth, the Company invests in the development of human resource potential while establishing a system of professional development for employees and programmes for their social support.

The social activities of Gazprom Neft in the regions focus on improving the quality of life of the population and supporting sustainable development in the territory of the regions of the Company’s operations. These objectives are to be resolved by the social investment programme “Hometowns”, which is being implemented with active cooperation between the Company, government authorities and local communities.

When implementing its sustainable development strategy, Gazprom Neft relies on interaction with a wide range of concerned parties and views them as strategic partners in the resolution of economic, environmental and social objectives.

In this section, the Company presents programmes and the main results in matters of sustainable development. More detailed information is given in the Report of OJSC Gazprom Neft on sustainable development for 2014.

RESULTS IN 2014:

4.5 bn RUB 21.62% costs of implementing the “Hometowns” programme

3.8 bn RUBexpenses on environmental safety in 2014

84,775 RUB 26%

average monthly salary of Company employee in 2014


135

INDUSTRIAL, ENVIRONMENTAL AND OCCUPATIONAL SAFETY

Improving occupational safety levels and reducing the risk of negative effects on the environment are strategic goals for Gazprom Neft. The Company is committed to becoming one of the leading global oil companies in terms of industrial, environmental and occupational safety and is continuously improving its activities in these areas. Gazprom Neft is guided in its work by the requirements of Russian legislation and international standards in industrial, environmental and occupational safety as well as civil protection.

The Company has a corporate policy in matters of industrial, environmental and occupational safety as well as civil protection. In 2014, the Company updated a number of corporate standards in this area in accordance with changed requirements of legislation and structural changes at Gazprom Neft.

The management system in matters of industrial, environmental and occupational safety as well as civil protection in place at the Company complies with the international standards OHSAS 18001:2007 and ISO 14001:2004 and covers the entire perimeter of Gazprom Neft. The Company employs a unified integral index that offers a score for the activities of enterprises in matters of industrial, environmental and occupational safety as well as civil protection: accident and injury rate, the implementation of injury prevention programmes, fire, transport and environmental safety programmes as well as civil protection measures at subsidiaries and affiliates. The score results are taken into account when summarising the performance results of the Company’s subsidiaries for the year.

The start of the development of major projects in the north of the Yamalo-Nenets Autonomous District, the development of the Arctic shelf, entering new markets in Russia and abroad as well as modernising and developing the Company’s own infrastructure are all creating new requirements for risk management in matters of industrial, environmental and occupational safety. In 2014, Gazprom Neft began reorganising the management system in matters of industrial, environmental and occupational safety. The project resulted in improvements to the industrial safety level at the Company, increased its assets and production volume and brought the system into compliance with the most advanced approaches to management in this area.

The Company declared 2014 to be the Year of Environmental Culture and Industrial Safety. Throughout the year, Gazprom Neft subsidiaries implemented measures aimed at developing the industrial and environmental safety management system and improving the efficiency of processes used to identify hazards and manage professional risks. An Environmental Education Programme was implemented in order to develop the skills, responsibilities and motivation of personnel. One significant event was the corporate competition “Best initiative in matters of production safety” based on the production activity results of the Company’s subsidiaries in 2014. The competition judges received 96 applications with most of them being recommended to subsidiaries for implementation.

The corporate requirements of standards in matters of industrial, environmental and occupational safety as well as civil protection are taken into account when selecting contractors. Compliance of a contractor’s activities with the requirements of Gazprom Neft in this area is one of the most important criteria for pre-qualification selection. The Company devotes special attention to a contractor’s policy in industrial and environmental safety, the existence of management systems for industrial, environmental and occupational safety as well as civil protection that focus on managing the risks of the services provided as well as training programmes that take into account the specifics of production.

Online version of 2014 Sustainable Development Report

136


21.9 bn RUB 76.61%

expenses on industrial, environmental and occupational safety as well as civil protection measures in 2014 (excluding joint ventures and foreign assets)

INDUSTRIAL SAFETY AND OCCUPATIONAL SAFETY

The Company’s unconditional priorities in matters of industrial and occupational safety include continuous improvements to safety levels and reducing the rates of accidents, industrial injury and occupational disease.

In 2014, the Company continued work to monitor compliance with the production safety requirements at the facilities of subsidiaries. Production monitoring activities were carried out at 19 subsidiaries along with three inspections of the management systems for industrial, environmental and occupational safety as well as civil protection.

When incidents take place at the Company, an investigation is conducted and corrective actions are prepared and implemented. In order to minimise risks in matters of industrial, environmental and occupational safety as well as civil protection at subsidiaries, accident prevention programmes and measures are developed and implemented each year along with programmes for compliance with the standards and requirements of industrial, transportation and fire safety.

Number of incidents at hazardous production facilities

2011

2012

2013

2014 2,876

3,299

3,566

3,413

2010 4,321

Number of accidents at hazardous production facilities

0

0

2

12011

42010

2012

2013

2014

Number of people injured in accidents at work

43

33

47

572011

512010

2012

2013

2014

Number of deaths in accidents at work

2

1

3

22011

2012

32010

2013

2014

LTIFR injury rate

0.52

0.44

0.65

0.642011

0.592010

2012

2013

2014






Additional information on industrial and occupational safety at the Company is available in the online version of the Annual Report


137

MITIGATING A NEGATIVE ENVIRONMENTAL IMPACT AND THE EFFICIENT USE OF RESOURCES

Preserving a favourable environment and natural resources is one of the core principles in the business of Gazprom Neft and all its subsidiaries. The Company is committed to minimising the negative impact of production activities on the environment

Gazprom Neft conducts a thorough assessment of the environmental impact of planned and current production activities and takes into account all factors of its influence on the ecosystem as well as the specific features of these systems – vegetation periods as well as fish spawning and animal migration periods. The Company pays special attention to regions with environmentally sensitive territories that are exposed to significant environmental risks. Additional monitoring of the environment and scientific research work to reclaim oil contaminated soil are conducted in such territories along with rehabilitation measures.

Gazprom Neft employs an integrated environmental management system. In 2014, it underwent its annual certification audit to confirm compliance with the requirements of international standard ISO 14001:2004. Certification was also confirmed for the subsidiaries: OJSC Gazpromneft-Omsk Oil Refinery, OJSC Gazpromneft-Moscow Oil Refinery and LLC Gazpromneft-Sakhalin.In 2015, LLC Gazprom Neft Shelf plans to obtain certification in environmental management matters.

Gazprom Neft was the first among Russian companies to join the Arctic Oil Spill Response Technology Joint Industry Programmebeing implemented by major oil and gas companies from around the world.

The Company conducts training each year for the executives of subsidiaries and specialists who take decisions during activities that have or could have a negative environmental impact. In 2014, approximately 11,500 Company employees and executives underwent training.


Текущие затраты на обеспечение экологической безопасности, млн. руб.

2011

2010

3,843.5

3,953.9

3,380.6

3,656.7

2,617.6

2012

2013

2014

Current expenses on environmental safety1, mn RUB


Structure of environmental safety expenses in 20141

Protection and reclamation of land, surface water and ground water

Waste management

Other areas of environmental protection activities

Air protection

Wastewater collection and treatment

34.0%

35.7%

18.9%

3.8%

7.6%

1 Data presented excluding expenses of enterprises with equity participation. The 2013 Annual Report presented data including enterprises with equity participation. In this Report, the indicators for 2012-2014 are given without taking into account these enterprises.

1 Excluding expenses on the capital construction, reconstruction and repair of fixed assets that have a positive environmental impact.

138


AIR PROTECTION

In 2014, the Company continued implementing a programme to increase the utilisation of APG. The modernisation of flare structures and the diversion of APG flows has made it possible to increase the volume of utilisation. Thanks to that, the volume of gross emissions of hazardous pollutants on production sites reduced by 16.6%, a compared to 2013 (the amount of APG flared in 2014 increased by 4.8%, as compared to 2013, as a result of growth in oil production).


1 Data presented excluding greenhouse gas emissions of enterprises with equity participation.

Gross pollutant emissions to the atmosphere1, 1,000 tonnes

2012

2013

2010

2011

2014

NOХ

HC (no VOC) SolidCOSO2 OtherVOC

Валовые выбросы загрязняющих веществ в атмосферный воздух, тыс. т.

348.9

725.1

373.0

290.5

408.3

46.8 125.9

177.1

411.6 120.7 91.5 55.2

79.1 91.1

57.6 91.513.2

30.2

21.9 11.0

9.5 20.9

13.5

0.4

0.4

0.2

0.4

0.5

196.0 64.2 59.4

131.9 37.2 75.8

20.5 10.2 22.3

20.5 11.5 13.4


Greenhouse gas emissions into the atmosphere1, mn t СО2 – equivalent

CH4CO2 N20

12.4

2013

2014

13.3

9.7 1.4 1.3

10.0 1.9 1.4

14,55%decline in gross pollutant emissions compared with 2013

1 Data presented excluding greenhouse gas emissions of enterprises with equity participation. Calculation of grenhouse gas emission volume during 2013–2014 for the Report is made on the basis of the Calculation methodology for annual emission of greenhouse gas. Information on the volume of greenhouse gas emission during 2010–2012 is not available.

Gross emissions of harmful substances (pollutants) into the atmosphere by Company business area, 1,000 t

2010 2011 2012 2013 2014

Production 266.2 342.0 664.8 344.2 286.9

Refining 21.4 27.4 53.3 54.5 47.4

Oilfield services 0.2 0.2 0.3 0.3 0.2

Petroleum product supply 2.7 3.4 6.7 9.3 14.4

Total 290.5 373.0 725.1 408.3 348.9


Additional information about air protection is available in the online version of the Annual Report


139

WASTE MANAGEMENT

The Company’s activities in the management of production and consumption waste aim to comply with legislative requirements, mitigate environmental effects and reduce economic costs. The Company maintains primary accounting of waste, determines their properties and hazard class, certifies hazardous waste and organises routine production control over waste management and handling. Gazprom Neft conducts inventories of waste accumulation and storage facilities and ensures they comply with the requirements of regulatory legal and methodological documents. The Company conducts integrated services at its industrial oily waste landfill sites.

USE OF WATER RESOURCES

The Company performs production activities in accordance with the principles of the sustainable use and conservation of water resources and the requirements of Russian environmental legislation. Gazprom Neft implements a range of measures to mitigate environmental risks in this area and improve the environmental condition of bodies of water and coastal areas.

Due to growth in oil production, the amount of water drawn and obtained increased in 2014. The Company continued work during the reporting period to further increase the use of water in the water recycling and reuse systems.

Volume of water drawn and obtained from various sources2, mn m3

2 Data presented excluding water drawn and obtained by enterprises with equity participation. The 2014 Annual Report presented summary information on the volume of water drawn and collected compiled based on state statistical reporting form 2-TP (water). Information on the volume of water drawn and obtained presented in the Company’s Annual Report for 2013 was compiled based on the data of water metering units and estimated values that require additional adjustments, which caused the difference in the data for 2013 in this Report and the Company’s Annual Report for 2013.

177.2

174.1

167.8

95.60

102.60

2012

2013

20147.65

7.55

7.10

135.90

133.65 32.90

34.60

33.65

From surface sourcesFrom underground sources

From other organisations

2011

2010

126.10

47.00

49.90 38.20 14.50

34.90 13.70

Volume of water use1, mn m3 Generation of waste by Company business area1, 1,000 t

1 Data presented excluding water use by enterprises with equity participation.

406.5

180.3

179.3

166.6

396.7

381.42012

2013

2014

Объемы использования воды, млн. м3

In water resupply systemsIn recycled water supply systems

2011

2010

385.9

373.6

81.3

157.6



Waste generation1, 1,000 t

1 Total waste generation does not include enterprises with equity participation.

2012

2013

2014 657.2

530.9

424.2

2011

2010

343.1

232.7

1 Waste generation does not include enterprises with equity participation.


657.2

530.9

424.2

343.1

232.7

2012

2013

20141.1

1.1

1.3

28.9

24.9

17.2 1.0

0.9

493.2

380.4 96.0 53.4

34,60

99.3 63.6

2011

2010

237.8 156.2

274.4

167.2 47.4 14,50

42.8

Oilfield servicesPetroleum product supplyRefining

Production


140


LAND PROTECTION AND RECLAMATION

The Company conducts activities each year that aim to preserve and restore land resources taking into account the climatic, hydrological, soil and vegetational conditions of the areas of operations. Gazprom Neft devotes particular attention to the reclamation of contaminated lands and sludge pits. The reclamation programme includes an inventory of these territories and an assessment of the soil pollution level as well as the selection and implementation of the most effective rehabilitation technologies. The Company annually conducts an assessment of nature restoration work that includes chemical and analytical control over the process of restoring a section of land.

The set of land protection measures of Gazprom Neft includes work for the inhibitory protection of pipelines against corrosion, the monitoring of the pipeline corrosion rate and their diagnostics. The Company implements a targeted programme each year for the reclamation of oil polluted lands, sludge pits and the recycling of oily waste.

In 2014, OJSC Gazpromneft-Noyabrskneftegaz reclaimed the last 10 sludge pits remaining after drilling. In total, the company eliminated more than 300 “historical heritage” sludge pits over the last few years.

Reclamation of oil contaminated lands1, ha Reclamation of sludge pits1, number

2012

2013

2014 385.95

138.46

2011

2010

53.94

55.99

46.63

Объемы рекультивации шламовых амбаров, шт.

2012

2013

2014 90

124

106

2011

2010

138

132


1 Overall land reclamation does not include enterprises with equity participation. 1 Overall sludge pit reclamation does not include enterprises with equity participation.

Additional information about use of water resources is available in the online version of the Annual Report

Additional information about environmental activity is available in the online version of the Annual Report


141

ENERGY EFFICIENCY

The Company has an Energy Policy. The main purposes of this policy are to improve the energy efficiency of the Company’s enterprises while maintaining or improving the level of reliability, safety and productivity, mitigate the harmful impact on the environment and reduce the consumption of irreplaceable energy resource.

Since 2012, Gazprom Neft has been gradually introducing an energy management system (EMS) that meets the requirements of international standard ISO 50001:2011. In 2014, the system was fully introduced at OJSC Gazpromneft-Omsk Oil Refinery and OJSC Gazpromneft Noyabrskneftegaz. Both enterprises have undergone a certification audit for the compliance of the EMS with the requirements of ISO 50001:2011.

The Company devotes special attention to improving the reliability of energy supplies. The implementation of a reliability improvement programme and the modernisation of electrical equipment and networks of the Exploration and Production Unit during the reporting year made it possible to reduce oil losses during emergency electricity shutdowns by 14%. In the Logistics, Processing and Sales Unit, the number of downtime hours of technological installations during disruptions in the electricity supply system declined by 17% thanks to the implementation of measures to improve reliability and modernise electrical equipment and networks of oil refining enterprises.

The project “Introduction of an energy management system at OJSC Gazprom Neft” was presented with an award by the Russian Ministry of Energy for first place in the category “Best management system in energy conservation and energy efficiency and fuel and energy enterprises”.

An active energy conservation policy is one of the strategic priorities of Gazprom Neft. The Company actively works on improving energy efficiency and optimising the use of energy resources and is introducing a systematic approach to meeting energy conservation and energy efficiency objectives at its enterprises.

ENERGY POLICY ENERGY CONSERVATION AND ENERGY EFFICIENCY

ENERGY MANAGEMENT SYSTEM

142


EXPLORATION AND PRODUCTION UNIT

Electricity expenses make up a large portion of the operating expenses of oil producing enterprises. Therefore, efficient energy use and cost optimisation are among the priority objectives of the enterprises of the Exploration and Production Unit. Energy conservation measures carried out by the enterprises of the Exploration and Production Unit aim to reduce the proportion of the energy component in overall costs for the output of a product unit.

A key energy efficiency indicator at the enterprises of the Exploration and Production Unit is the specific consumption of electricity for the production of liquid hydrocarbons. In 2012–2014, there have been positive dynamics in the reduction of specific electricity consumption at the enterprises of the Exploration and Production Unit. In 2014, the decrease amounted to 0.2% of the 2013 level.

0.2% decrease in specific electricity consumption at enterprises of the Exploration and Production Unit in 2014

Specific electricity consumption for the production of liquid hydrocarbons by the Exploration and Production Unit, kWh/t

2012

2013

2014 28.94

29.00

29.07

2011

2010

29.06

31.65



Purchased energy: Oil Exploration and Production Unit

Energy resources supplied based on supply contracts (purchase and sale)

Measurement units

2010 2011 2012 2013 2014

Purchased electricity (minus electricity transferred to third parties)

1,000 MWh 4,886.4 4,578.0 4,902.2 5,179.8 5,183.4

Purchased thermal energy (minus electricity transferred to third parties)

GJ 111,738 85,913 122,059 132,406 129,902

� the import substitution of electric centrifugal pumps; � the introduction of permanent magnet motors; � the optimisation of submersible equipment modes; � the optimisation of pump operations at cluster and

booster pump stations and initial water separation units; � the decommissioning of unprofitable wells; � a reduction in power losses in the networks.

IN 2014, MORE THAN 70 ENERGY CONSERVATION MEASURES WERE IMPLEMENTED. THE MOST SIGNIFICANT MEASURES INCLUDED:


143

LOGISTICS, PROCESSING AND SALES UNIT

The main energy conservation measures implemented by subsidiaries of the Logistics, Processing and Sales Unit (LPSU) in 2014 included: � the modernisation of furnaces in order to improve KPI (energy saving

effect – 700.6 TJ); � the replacement of furnaces (434.9 TJ); � the recovery of heat from furnaces and process flows (343.9 TJ); � the optimisation of condensate recycling systems (278.8 TJ); � the reconstruction of economizers and superheaters of recovery

boilers (104.7 TJ); � the commissioning of heating system operating modes (190.7 TJ); � the equipping of pump motors, fans and compressors with variable

frequency drives (98.6 TJ); � the optimistion of compressor operations (79.8 TJ).

Targets of Energy Conservation Programme and results achieved in 2014

Subsidiary or affiliate Cost savings, mn RUB Energy resource savings, TJ

Plan Actual Plan Actual

Omsk Oil Refinery 365.2 548.7 2,064.7 2,253.1

Moscow Oil Refinery 72.2 117.3 456.3 369.4

YANOS 250 281 1,295.7 1,278.3

Total 687.4 947 3,816.7 3,900.8

Consumption of energy purchased: Logistics, Processing and Sales Unit

Energy resources supplied based on supply contracts (purchase and sale)

Measurement units

2010 2011 2012 2013 2014

Purchased electricity (minus electricity transferred to third parties)

1,000 MWh 2,882.7 2,998.1 3,121.1 3,338.4 3,262.6

Purchased thermal energy (minus electricity transferred to third parties)

GJ 15,061,319.9 16,308,920.8 16,854,981.1 17,313,244.8 16,581,708.9



Additional information on the improved energy efficiency performance results of the Logistics, Processing and Sales Unit is available in the online version of the Annual Report

144


Gazprom Neft ranked third in the “Russian Employers – 2014” rating compiled by the recruitment holding HeadHunter. Compared with the results of 2013, the Company rose two positions and achieved the best results over its entire involvement in the rating.

HUMAN RESOURCE DEVELOPMENT

Employees are the Company’s greatest asset and the key to successfully achieving its strategic objectives. Gazprom Neft provides its employees with a competitive salary and benefits as well as opportunities for professional and career growth. The Company continuously makes improvements to its human resource development and social support programmes.

PROFILE OF PERSONNEL

As of the end of 2014, Gazprom Neft enterprises employed over 61,000 people with workers making up 60% of personnel and executives, specialists and office employees making up the remaining 40%.

Large clusters of the Company’s personnel are concentrated: � in the Yamalo-Nenets Autonomous District and Khanty-Mansi

Autonomous District-Yugra, where the main oil production assets are located (~19%);

� in St Petersburg and the Leningrad Region, where a management company and a number of subsidiaries in charge of petroleum product sales operate (~21%);

� in the Omsk Region, where the Omsk Oil Refinery, the Omsk Lubricants Plant and a number of supply, logistics and sales enterprises are located (~13%);

� in CIS countries, where the Company’s sales companies and trade representative offices are located (~8%);

� in Serbia, where NIS a.d. Novi Sad is located (~10%).

The average number of employees grew by 2.8% in 2014 compared with the previous year. The increase was due to the addition of new assets and business development. The turnover rate declined from 18.9% in 2013 to 15.7% in 2014 due to the completion of the restructuring of sales subdivisions.

Structure of Company personnel by core activity as of 31 December 2014, persons

4,211

9,425

840

6,081

2,0602,355

8,237

23,054

5,202

Oilfield service and geological explorationOil refining

Research

Multi-profile enterprises(NIS, Siberia Energy)Product subsidiaries (Lubricants, Bunkering, Bitumens)

Petroleum product sales

Jet fuel supplyOther

Production

61,465people


� the systematic recruitment and rotation of personnel; � talent management, the development of skills and training; � the development of motivation systems and creating

a culture of engagement; � development of productivity and organisational efficiency; � improving the effectiveness of human resource functions.

STRATEGIC GOALS IN HUMAN RESOURCE MANAGEMENT PRIOR TO 2020:

Additional information about human resource development is available in the online version of the Annual Report

Additional information about profile of personnel is available in the online version of the Annual Report


145

REMUNERATION AND SOCIAL SUPPORT FOR PERSONNEL

The integrated remuneration system in effect at Gazprom Neft is closely tied to the Company’s strategic goals and business objectives. The value proposition that Gazprom Neft offers its employees includes a range of material, professional and social benefits.

The remuneration level at the Company corresponds to the average market level for the labour market in the specific industry. Employee salaries are reviewed each year taking into account their individual performance. An employee’s work results are assessed based on the goal management system adopted by the Company. A system has been introduced for the annual assessment of employee performance based on professional, ethical and management criteria. The assessment results are taken into account during career planning and inclusion in the talent pool and affect the review of salaries and the amounts of annual bonuses.

The average monthly salary of Company employees in 2014 totalled 84,775 RUB, which is 26% higher than in 2013 and 160% higher than the average salary level in the Russian Federation1.

One important aspect of work with personnel at Gazprom Neft is improvements to the system of non-financial motivation for employees. Its programmes include professional skills competitions, sport competitions, leisure and recreational activities, corporate communications sessions, public recognition of employees and the awarding of corporate marks of distinction.

The Company’s enterprises have collective bargaining agreements and other provisions and standards that provide a variety of social benefits and payments to employees in addition to the ones prescribed by legislation. The social package of most enterprises includes voluntary medical insurance, accident insurance, meal allowances, financial aid, voucher payments and other benefits. As part of the corporate voluntary medical insurance agreement, Company employees receive medical consultations from doctors and treatment at the country’s leading clinics, if necessary. The Company also organizes periodic medical examinations (routine check-ups).

Several regions have a corporate mortgage programme to provide employees aid in the purchase of housing. The programme provides compensation by the enterprise for a portion of the interest paid by an employee to a bank for the use of a loan or provides a loan to make the initial down payment.

1 The calculation uses the average salary level in Russia in accordance with the official data of the Federal State Statistics Service.

36,500 RUBexpenses on social payments per one employee in 2014

84,775 RUB 26%

average monthly salary of Company employee in 2014

Dynamics of average monthly salaries at the Company, RUB

84,775

67,054

59,8282012

59,988

50,0952010

2011

2013

2014


146


TRAINING AND DEVELOPMENT

The Company has uniform standards for the training and development of personnel at all enterprises. Corporate employee development programmes are put together taking into account the Company’s strategic objectives and the assessment results of the management and professional skills of employees.

In 2014, 50,939 Company employees underwent training. Training expenses totalled 580.5 mn RUB.

Expenses on social package and benefits in 2010-2014, 1,000 RUB

2010 2011 2012 2013 2014

Free and subsidised meals 573,546 509,864 493,052 522,774 526,988

Voluntary medical insurance 535,239 438,862 529,623 650,709 719 561

Voucher payments 128,924 101,722 109,761 115,705 166,522

Payments on support programmes for retired employees

91,018 113,610 143,907 119,900 137,885

Housing programme 103,179 118,413 124,132 121,329 181,038

Sporting and cultural events 248,498 314,003 290,222 317,599 125,537

Total 1,680,404 1,596,474 1,690,697 1,848,016 1,857,531

Personnel expenses, mn RUB

2010 2011 2012 2013 2014

Wage fund for employees on payroll

39,025 42,403 39,364 45,040 58,510

Social payments 1,855 2,875 2,896 3,186 2,097

Total 40,880 45,278 42,260 48,226 60,607

580.5 mn RUB 8.50%

training expenses on Company employees in 2014

50,939 employeesunderwent training in 2014

When developing and implementing its social programmes, the Company actively cooperates with unions. Professional organisations that unite more than two-thirds of the Company’s employees are involved in the resolution of issues that concern the professional, social and labour rights and interests of employees.Source: Company data


Additional information about personnel training and development is available in the online version of the Annual Report


147

10,000 employeesof Gazprom Neft took part in the annual study of the socio-psychological climate in 2014

INTERNAL COMMUNICATIONS

The Gazprom Neft internal communications system is a tool that is used to improve the work efficiency of the Company’s employees by creating an open communication space as well as opportunities to demonstrate initiative and maintain a dialogue between employees at all levels.

The communication process is comprised of three stages – informing employees, engagement and feedback. A wide range of tools is used for this – both traditional ones such as a corporate newspaper, magazine or meetings of management with teams as well as tools adapted to specific enterprises such as internal portals, television panel systems, online radio and discussion platforms (forums, conferences, roundtables). Given the Company’s introduction of a functional management model in 2014, the need for horizontal communication as part of a single function between the employees of different enterprises became relevant. For this purpose, electronic communication platforms were set up as part of the existing corporate intranet portal along with the development of content and moderation methods.

Special attention is devoted to the involvement of employees in the formation of content for corporate media. To this end, the Company actively resorts to the use of interactive tools such as discussions, competitions and involving employees as authors.

Each employee has the opportunity to convey his/her opinion to management or propose an idea concerning the improved efficiency of production processes. For these purposes, the following tools are used: a hotline, special “questions for management” and “I have an idea” columns on the intranet portal and feedback boxes for employees who do not have computer access.

A key feedback tool is the annual study of the socio-psychological climate, which covers all the Company’s assets. In 2014, more than 10,000 Gazprom Neft employees took part in the study. In surveys, interviews and focus groups, employees were given the opportunity to express their opinions on a wide range of issues concerning key aspects of their employment, starting with the organisation of labour and an assessment of the motivation system and ending with opportunities for development and the effectiveness of social programmes. Indices displaying employee engagement are prepared separately. The data obtained in the study serves as the foundation for planning activities in an area of personnel management or communication and becomes the basis for the adoption of management decisions.

148


EXTERNAL COMMUNICATIONS

In 2014, Gazprom Neft continued active cooperation with public interest groups based on the principles of dialogue and partnership.

Adhering to the principles of transparency, the Company informs stakeholders about all aspects of its activities. In particular, the Gazprom Neft website in 2014 presented 148 official reports and 17 interviews with Company managers published in major business and sociopolitical Russian and foreign media outlets. Over the course of the entire year, senior executives regularly held press conferences and briefings at which they answered questions about operations, development plans and the performance results of Gazprom Neft.

The following topics were among the main information themes of the previous year: the development of the Company’s major projects in new regions; the start of the second stage of oil refinery modernisation that aims to increase the depth processing and output of light petroleum products; and the implementation of environmental programmes at Gazprom Neft enterprises. The media provided detailed coverage of the launch of the first new generation G-Way Styrelf polymer-modified bitumen production unit at the Moscow Oil Refinery.

Particular attention was paid to information support for the project to develop the Prirazlomnoye field in the Pechora Sea – the first oil production project on Russia’s Arctic shelf. Russian President Vladimir Putin gave the command to ship the first batch of oil from the Prirazlomnaya offshore ice-resistant fixed platform in April 2014. A documentary about the Prirazlomnaya platform was broadcast by the Russia-24 television channel and a special project called “Our Arctic” devoted to the work of Gazprom Neft on Russia’s Arctic shelf was implemented jointly with Kommersant newspaper. Leading international and Russian information agencies took part in a press tour of the Prirazlomnaya platform.

For better awareness about its projects, Gazprom Neft has also offered journalists the opportunity to take part in press tours at other production facilities such as the Omsk Lubricants Plant and the Company’s new bitumen plant in Shymkent (Kazakhstan).

In 2014, Gazprom Neft updated the design and structure of the corporate website www.gazprom-neft.com. The comprehensive modernisation was conducted taking into the best practices of international companies. Significant improvements were made to the functional capabilities of the resource as well as its structure and the navigation system between pages and sections. One of the key innovations was the creation of a section that collects information about all the Company’s products and services. In 2014, traffic to the Gazprom Neft website increased by 26% compared with the previous year. Gazprom Neft and the Gazpromneft filling station network have registered pages on social networks that are updated daily for more effective interaction with different target audiences.

“When developing the new Gazprom Neft website, we thoroughly took into account the requests of different audiences. Key information on the Company’s products and services is now available to consumers and business clients on a case-to-case basis. We are consciously moving away from the outdated idea of providing all users with the same type of information and are focusing on improving its personalisation and relevance for each visitor. This approach allows for conveying key points and messages in less time. This is an important step in work to improve the convenience and speed of communications as part of the use of our corporate Internet resource”.

ALEXANDER DYBALDEPUTY CEO OF OJSC GAZPROM NEFT FOR CORPORATE COMMUNICATIONS


149

REGIONAL POLICY AND DEVELOPMENT OF LOCAL COMMUNITIES

Gazprom Neft is a responsible partner of the government authorities and local communities in addressing the socioeconomic development problems facing the regions in which the Company operates.

The social activities of Gazprom Neft in the regions aim to improve the quality of life and create a comfortable living social environment for residents of the regions, including Company employees and their families.

The selection of areas for social investment and compilation of a portfolio of the Company’s social and charitable projects takes place based on a dialogue with stakeholders (the public and representatives of the regional government authorities) as well as the monitoring of social well-being in the regions.

The Company’s social and charitable projects are implemented as part of the “Hometowns” general corporate programme of social investments.

Company's investment in regional development in the reporting year amounted to 4.543,9 mn rub.

Structure of the “Hometowns” social investment programme

CITIES FOR PEOPLE

Urban development (housing construction, improvement of urban areas)

FIELDS OF VICTORY

Establishment and development of children’s and sport infrastructure, support for sporting institutions and hosting sporting events

NEW HORIZONS Support and development of educational areas

CULTURAL CODE

Preservation and development of the cultural potential of the regions

KEEPING TRADITIONS

Cooperation with indigenous minorities of the North

38 cities

7,500 people

188 events

MOVEMENT OF GAZPROM NEFT VOLUNTEERS:

Exist in

Include more than

Volunteers took part in

150


The main tools for implementing the “Hometowns” social investment programme are socioeconomic agreements with regional and municipal government authorities, charitable projects, grant competitions for social initiatives and volunteer campaigns.

Gazprom Neft has launched a website for the “Hometowns” social investment programme that consolidates all relevant information about socially significant projects that the Company is implementing in the regions of its operation.

In 2014, the Company entered into socio-economic agreements with authorities of Yamalo-Nenets autonomous district, Omsk, Orenburg, and Tyumen regions. In the reporting year, the Company had effective agreements with nine constituent entities of the Russian Federation and administrations of sixteen municipal districts.

When implementing its social activities in the regions, Gazprom Neft seeks to actively involve local residents and non-profit organisations in the social development of the regions. As part of this objective, the Company introduced a new tool in 2013 to support the social projects of regional residents – the grant competition. In 2014, such competitions took place at the Company’s main oil producing regions: Orenburg Region, Yamalo-Nenets Autonomous District, Khanty-Mansi Autonomous District-Yugra, the Tomsk and Omsk Regions as well as the City of Omsk, where the Omsk Oil Refinery is located. Applicants filed a total of 297 applications of which 71 were supported with grants in the amount of 50,000 to 300,000 RUB. The total amount of grants allocated came to 16.5 mn RUB.

16.5 mn RUBtotal amount of grants allocated in 2014

IN 2014, THE “HOMETOWNS” PROGRAMME RESULTED IN

350 projects Implementation of over

23 Russian regionsProjects implemented in

Additional information available at the website: www.rodnyegoroda.ru

In 2014, the Company launched an internet portal for the “Hometowns” programme at http://www.rodnyegoroda.ru, which contains information about the programme, its main areas and projects implemented. The portal won the “Runet Prize 2014” competition in the category “State and Society” and received the special prize of the XIV “Golden Website: National Internet Competition in the category “Thematically social project at the federal level”.

Expenses on the implementation of the “Hometowns” programme, bn RUB

4.5

3.7

2.4

0,64

0,59

2012

2013

2014


Additional information about implementing the "Hometowns" programme is available in the online version of the Annual Report


151

APPENDIX


CONTENTS

CONSOLIDATED FINANCIAL STATEMENTS (IFRS)154 Independent Auditor’s Report on 2014156 Consolidated Statement of Financial Position158 Consolidated Statement of Profit and Loss and Other

Comprehensive Income160 Consolidated Statement of Changes in Shareholders’ Equity 162 Consolidated Statement of Cash Flows164 Notes to the Consolidated Financial Statements

213 MAJOR TRANSACTIONS AND RELATED PARTY TRANSACTIONS

Information about major transactions, related party transactions is available in the online version of the Annual Report

Information about Company’s history is available in the online version of the Annual Report

Information about structure of Gazprom Neft Group is available in the online version of the Annual Report

153

APPENDIX

INDEPENDENT AUDITOR’S REPORT ON 2014154


155

* The accompanying notes are an integral part of these Consolidated Financial Statements

APPENDIX

Notes December 31, 2014 December 31, 2013

Assets

CURRENT ASSETS

Cash and cash equivalents 7 53,167 91,077

Short-term financial assets 8 78,844 55,870

Trade and other receivables 9 103,014 87,348

Inventories 10 102,658 90,223

Current income tax prepayments 17,315 7,671

Other current assets 11 115,927 100,882

TOTAL CURRENT ASSETS 470,925 433,071

NON-CURRENT ASSETS

Property, plant and equipment 12 1,293,800 895,543

Goodwill and other intangible assets 13 71,240 55,386

Investments in associates and joint ventures 14 150,727 120,358

Long-term trade and other receivables 265 106

Long-term financial assets 16 37,631 22,406

Deferred income tax assets 17 31,460 18,508

Other non-current assets 18 41,676 18,255

TOTAL NON-CURRENT ASSETS 1,626,799 1,130,562

TOTAL ASSETS 2,097,724 1,563,633

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONCurrency – RUB millions

156



Notes December 31, 2014 December 31, 2013

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Short-term debt and current portion of long-term debt 19 61,121 52,413

Trade and other payables 20 83,817 68,035

Other current liabilities 21 40,921 26,650

Current income tax payable 520 3,872

Other taxes payable 22 45,788 46,783

Provisions for liabilities and charges 23 18,564 10,158

TOTAL CURRENT LIABILITIES 250,731 207,911

NON-CURRENT LIABILITIES

Long-term debt 24 502,306 261,455

Other non-current financial liabilities 25 105,944 7,028

Deferred income tax liabilities 17 81,032 59,729

Provisions for liabilities and charges 23 25,876 25,881

Other non-current liabilities 2,050 3,608

TOTAL NON-CURRENT LIABILITIES 717,208 357,701

EQUITY

Share capital 26 98 98

Treasury shares (1,170) (1,170)

Additional paid-in capital 50,074 19,293

Retained earnings 1,005,642 930,304

Other reserves 11,104 4,087

EQUITY ATTRIBUTABLE TO GAZPROM NEFT SHAREHOLDERS 1,065,748 952,612

Non-controlling interest 38 64,037 45,409

TOTAL EQUITY 1,129,785 998,021

TOTAL LIABILITIES AND EQUITY 2 097 724 1 563 633

A. V. DyukovChief Executive OfficerJSC Gazprom neft

A. V. YankevichChief Financial OfficerJSC Gazprom neft

157


APPENDIX

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME Currency – RUB millions (except per share data)

Notes Year ended

December 31, 2014 Year ended

December 31, 2013

SALES 1,690,557 1,504,037

Less export duties and sales related excise tax (282,319) (236,434)

TOTAL REVENUE FROM SALES 39 1,408,238 1,267,603

COSTS AND OTHER DEDUCTIONS

Purchases of oil, gas and petroleum products (382,505) (319,051)

Production and manufacturing expenses (171,711) (144,552)

Selling, general and administrative expenses (86,318) (72,005)

Transportation expenses (116,125) (107,837)

Depreciation, depletion and amortisation (85,951) (76,785)

Taxes other than income tax 22 (343,576) (316,070)

Exploration expenses (936) (2,876)

TOTAL OPERATING EXPENSES (1,187,122) (1,039,176)

Other loss, net 28 (8,471) (6,310)

OPERATING PROFIT 212,645 222,117

Share of (loss) / profit of associates and joint ventures 14 (6,306) 11,251

Net foreign exchange loss 29 (52,265) (2,166)

Finance income 30 7,075 6,011

Finance expense 31 (15,279) (11,233)

TOTAL OTHER (EXPENSE) / INCOME (66,775) 3,863

PROFIT BEFORE INCOME TAX 145,870 225,980

Current income tax expense (17,518) (34,823)

Deferred income tax expense (1,696) (4,437)

TOTAL INCOME TAX EXPENSE 32 (19,214) (39,260)

PROFIT FOR THE PERIOD 126,656 186,720

OTHER COMPREHENSIVE INCOME / (LOSS)

Currency translation differences 79,669 12,739

Cash flow hedge, net of deferred tax (55,265) (3,221)

Other comprehensive income / (loss) 139 (37)

Other comprehensive income for the period 24,543 9,481

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 151,199 196,201

158



Notes Year ended


December 31, 2013

PROFIT ATTRIBUTABLE TO:

– Gazprom neft shareholders 122,093 177,917

– Non-controlling interest 4,563 8,803

PROFIT FOR THE PERIOD 126,656 186,720

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

– Gazprom neft shareholders 129,110 183,406

– Non-controlling interest 22,089 12,795

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 151,199 196,201

Earnings per share attributable to Gazprom neft shareholders

Basic earnings (RUB per share) 25.88 37.71

Diluted earnings (RUB per share) 25.88 37.71

Weighted-average number of common shares outstanding Basic and Diluted (millions) 4,718 4,718

159


APPENDIX

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY Currency – RUB millions

Attributable to Gazprom neft shareholders

Share capital

Treasury shares

Additional paid-in capital

Retained earnings

Other reserves Total

Non-controlling

interest Total equity

BALANCE AS OF JANUARY 1, 2014 98 (1,170) 19,293 930,304 4,087 952,612 45,409 998,021

Profit for the period – – – 122,093 – 122,093 4,563 126,656


Currency translation differences – – – – 62,143 62,143 17,526 79,669

Cash flow hedge, net of deferred tax – – – – (55,265) (55,265) – (55,265)

Other comprehensive income – – – – 139 139 – 139

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD – – – 122,093 7,017 129,110 22,089 151,199

TRANSACTIONS WITH OWNERS, RECORDED IN EQUITY

Dividends to equity holders – – – (46,755) – (46,755) (2,824) (49,579)

Transaction under common control – – 33,700 – – 33,700 – 33,700

Acquisition of non-controlling interest – – (2,919) – – (2,919) (637) (3,556)

TOTAL TRANSACTIONS WITH OWNERS – – 30,781 (46,755) – (15,974) (3,461) (19,435)

BALANCE AS OF DECEMBER 31, 2014 98 (1,170) 50,074 1,005,642 11,104 1,065,748 64,037 1,129,785

160



Attributable to Gazprom neft shareholders

Share capital

Treasury shares

Additional paid-in capital

Retained earnings

Other reserves Total

Non-controlling

interest Total equity

BALANCE AS OF JANUARY 1, 2013 98 (1,170) 16,125 815,731 (1,402) 829,382 40,547 869,929

Profit for the period – – – 177,917 – 177,917 8,803 186,720


Currency translation differences – – – – 8,747 8,747 3,992 12,739

Cash flow hedge, net of deferred tax – – – – (3,221) (3,221) – (3,221)

Other comprehensive loss – – – – (37) (37) – (37)

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD – – – 177,917 5,489 183,406 12,795 196,201

TRANSACTIONS WITH OWNERS, RECORDED IN EQUITY

Dividends to equity holders – – – (63,344) – (63,344) (3,561) (66,905)

Acquisition of non-controlling interest – – 3,168 – – 3,168 (4,372) (1,204)

Total transactions with owners – – 3,168 (63,344) – (60,176) (7,933) (68,109)

BALANCE AS OF DECEMBER 31, 2013 98 (1,170) 19,293 930,304 4,087 952,612 45,409 998,021

161


APPENDIX

CONSOLIDATED STATEMENT OF CASH FLOWS Currency – RUB millions

Year ended December 31, 2014


CASH FLOWS FROM OPERATING ACTIVITIES

Profit before income tax 145,870 225,980

ADJUSTMENTS FOR:

Share of loss / (profit) of associates and joint ventures 14 6,306 (11,251)

Loss on foreign exchange differences 82,670 9,350

Finance income 30 (7,075) (6,011)

Finance expense 31 15,279 11,233

Depreciation, depletion and amortisation 12,13 85,951 76,785

Allowance for doubtful accounts 34 343 (413)

Other non-cash items 5,398 1,256

CHANGES IN WORKING CAPITAL:

Accounts receivable 21,110 (16,632)

Inventories 5,072 4,056

Other assets (9,114) 9,228

Accounts payable (5,633) 15,681

Taxes payable (4,643) 3,111

Other liabilities (13,206) (7,115)

Income taxes paid (30,122) (33,514)

Interest paid (16,624) (9,981)

Dividends received 2,383 4,973

NET CASH PROVIDED BY OPERATING ACTIVITIES 283,965 276,736

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of subsidiaries and joint operations, net of cash acquired (12,493) (4,657)

Acquisition of associates and joint ventures (45,355) (1,200)

Bank deposits placement (129,917) (74,295)

Repayment of bank deposits 114,040 44,870

Acquisition of other investments (2,480) (283)

Proceeds from sales of other investments – 890

Short-term loans issued (2,100) (2,829)

Repayment of short-term loans issued 1,867 863

Long-term loans issued (23,142) (19,848)

Repayment of long-term loans issued 1,374 1,004

162





Capital expenditures (271,330) (208,611)

Proceeds from sale of property, plant and equipment 1,743 3,847

Interest received 3,001 4,524

NET CASH USED IN INVESTING ACTIVITIES (364,792) (255,725)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from short-term borrowings 26,750 18,930

Repayment of short-term borrowings (24,601) (31,249)

Proceeds from long-term borrowings 109,078 119,032

Repayment of long-term borrowings (44,067) (50,318)

Transaction costs directly attributable to the borrowings received (2,342) (1,074)

Dividends paid to Gazprom neft shareholders (46,755) (63,328)

Dividends paid to non-controlling interest (3,372) (3,248)

Acquisition of non-controlling interest in subsidiaries (4,118) (1,755)

NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES 10,573 (13,010)

(Decrease) / increase in cash and cash equivalents (70,254) 8,001

Effect of foreign exchange on cash and cash equivalents 32,344 3,877

CASH AND CASH EQUIVALENTS AS OF THE BEGINNING OF THE PERIOD 91,077 79,199

CASH AND CASH EQUIVALENTS AS OF THE END OF THE PERIOD 53,167 91,077

163

APPENDIX

1. GENERAL

DESCRIPTION OF BUSINESSJSC Gazprom neft (the “Company”) and its subsidiaries (together referred to as the “Group”) is a vertically integrated oil company operating in the Russian Federation, CIS and internationally. The Group’s principal activities include exploration, production and development of crude oil and gas, production of refined petroleum products and distribution and marketing operations through its retail outlets.

The Company was incorporated in 1995 and is domiciled in the Russian Federation. The Company is a joint stock company and was set up in accordance with Russian regulations. JSC Gazprom (“Gazprom”, that is a state controlled entity), the Group’s ultimate parent company, owns 95.68% shares in the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATIONThe Group maintains its books and records in accordance with accounting and taxation principles and practices mandated by legislation in the countries in which it operates (primarily the Russian Federation). The accompanying Consolidated Financial Statements were primarily derived from the Group’s statutory books and records with adjustments and reclassifications made to present them in accordance with International Financial Reporting Standards («IFRS»).

Subsequent events occurring after December 31, 2014 were evaluated through February 27, 2015 the date these Consolidated Financial Statements were authorised for issue.

BASIS OF MEASUREMENTThe Consolidated Financial Statements are prepared on the historical cost basis except that derivative financial instruments, financial investments classified as available-for-sale, and obligations under the Stock Appreciation Rights plan (SARs) are stated at fair value.

FOREIGN CURRENCY TRANSLATIONThe functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. In accordance with IAS 21 the Group has analysed several factors that influence the choice of functional currency and, based on this analysis, has determined the functional currency for each entity of the Group. For the majority of the entities the functional currency is the local currency of the entity.

Monetary assets and liabilities have been translated into the functional currency at the exchange rate as of reporting date. Non-monetary assets and liabilities have been translated at historical rates. Revenues, expenses and cash flows are translated into functional currency at average rates for the period or exchange rates prevailing on the transaction dates where practicable. Gains and losses resulting from the re-measurement into functional currency are included in profit and loss, except when deferred in other comprehensive income as qualifying cash flow hedges.

The presentation currency for the Group is the Russian Ruble. Gains and losses resulting from the re-measurement into presentation currency are included in a separate line of equity in the Consolidated Statement of Financial Position.

For the period ended December 31, 2014Currency – RUB millions

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

164


The translation of local currency denominated assets and liabilities into functional currency for the purpose of these Consolidated Financial Statements does not indicate that the Group could realise or settle, in functional currency, the reported values of these assets and liabilities. Likewise, it does not indicate that the Group could return or distribute the reported functional currency value of capital to its shareholders.

PRINCIPLES OF CONSOLIDATIONThe consolidated financial statements include the accounts of subsidiaries in which the Group has control. Control implies rights or exposure to variable returns from the involvement with the investee and the ability to affect those returns through the power over the investee. An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee’s returns. An investor is exposed, or has the rights to variable returns from its involvement with investee when the investor’s return from its involvement have the potential to vary as a result of the investee’s performance. The financial statements of subsidiaries are included in the Consolidated Financial Statements of the Group from the date when control commences until the date when control ceases.

In assessing control, the Group takes into consideration potential voting rights that are substantive. Investments in entities that the Group does not control, but where it has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method except for investments that meet criteria of joint operations, which are accounted for on the basis of the Group’s interest in the assets, liabilities, expenses and revenues of the joint operation. All other investments are classified either as held-to-maturity or as available for sale.

BUSINESS COMBINATIONSThe Group accounts for its business combinations according to IFRS 3 Business Combinations. The Group applies the acquisition method of accounting and recognises assets acquired and liabilities assumed in the acquiree at the acquisition date, measured at their fair values as of that date. Determining the fair value of assets acquired and liabilities assumed requires Management’s judgment and often involves the use of significant estimates and assumptions. Non-controlling interest is measured at fair value (if shares of acquired company have public market price) or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets (if shares of acquired company do not have public market price).

Goodwill Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“bargain purchase”) is recognised in profit or loss, after Management identified all assets acquired and all liabilities and contingent liabilities assumed and reviewed the appropriateness of their measurement.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Non-Controlling InterestOwnership interests in the Group’s subsidiaries held by parties other than the Group entities are presented separately in equity in the Consolidated Statement of Financial Position. The amount of consolidated net income attributable to the parent and the non-controlling interest are both presented on the face of the Consolidated Statement of Profit and Loss and Other Comprehensive Income.

Changes in Ownership Interests in Subsidiaries without Change of controlTransactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

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Disposal of SubsidiariesWhen the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount of the investment to the entity recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

Acquisitions from Entities under Common ControlBusiness combinations involving entities under common control are accounted for by the Group using the predecessor accounting approach from the acquisition date. The Group uses predecessor carrying values for assets and liabilities, which are generally the carrying amounts of the assets and liabilities of the acquired entity from the consolidated financial statements of the highest entity that has common control for which consolidated financial statements are prepared. These amounts include any goodwill recorded at the consolidated level in respect of the acquired entity.

Investments in Associates An associate is an entity over which the investor has significant influence. Investments in associates are accounted for using the equity method and are recognised initially at cost. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity accounted investees, after adjustments to align accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

Joint Operations and Joint VenturesA joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Where the Group acts as a joint operator, the Group recognises in relation to its interest in a joint operation: � Its assets, including its share of any assets held jointly; � Its liabilities, including its share of any liabilities incurred jointly; � Its revenue from the sale of its share of the output arising from the joint operation; � Its share of the revenue from the sale of the output by the joint operation; and � Its expenses, including its share of any expenses incurred jointly.

With regards to joint arrangements, where the Group acts as a joint venturer, the Group recognises its interest in a joint venture as an investment and accounts for that investment using the equity method.

Transactions Eliminated on ConsolidationIntra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

CASH AND CASH EQUIVALENTSCash represents cash on hand and in bank accounts, that can be effectively withdrawn at any time without prior notice. Cash equivalents include all highly liquid short-term investments that can be converted to a certain cash amount and mature within three months or less from the date of purchase. They are initially recognised based on the cost of acquisition which approximates fair value.

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NON-DERIVATIVE FINANCIAL ASSETSThe Group has the following non-derivative financial assets: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.

The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Financial Assets at Fair Value through Profit or Loss A financial asset is classified at fair value through profit or loss category if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit and loss.

Held-to-maturity Financial Assets If the Group has the positive intent and ability to hold to maturity debt securities that are quoted in an active market, then such financial assets are classified to held-to-maturity category. Held-to-maturity financial assets are recognised initially at fair value. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Group from classifying investment securities as held-to-maturity for the current and the following two financial years.

Loans and ReceivablesLoans and receivables is a category of financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Allowances are provided for estimated losses and for doubtful debts based on estimates of uncollectible amounts. These estimates are based on the aging of the receivable, the past history of settlements with the debtor and current economic conditions. Estimates of allowances require the exercise of judgment and the use of assumptions.

Available-for-sale Financial Assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the above categories of financial assets. Such assets are recognised initially at fair value. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented within equity in the other reserves line. When an investment is derecognised or impaired, the cumulative gain or loss in equity is reclassified to profit and loss. Unquoted equity instruments fair value of which cannot be measured reliably are carried at cost less any impairment losses.

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NON-DERIVATIVE FINANCIAL LIABILITIES The Group initially recognises debt securities issued and liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date on which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.

DERIVATIVE FINANCIAL INSTRUMENTSA substantial portion of the Group’s revenues are received in US Dollars. Additionally, a significant portion of the Group’s financing activities is also undertaken in US Dollars. However, the Group has also significant long-term debt in Russian Ruble. Accordingly, a change in the value of the US Dollar against the Russian Ruble will impact the Group’s operating results and cash flows. The Group’s policy is to hedge anticipated cash flows from revenues received in USD up to the amount of expected redemption of loans denominated in Russian Roubles. These anticipated cash flows represent highly probable forecast transactions. For the purpose of managing its USD/Rouble foreign currency exposure, the Group enters into deliverable forward contracts to sell the notional amount of US Dollar matching the amount of loans due for redemption.

Derivative instruments are recorded at fair value on the Consolidated Statement of Financial Position in either financial assets or liabilities. Realised and unrealised gains and losses are presented in profit and loss on a net basis, except for those derivatives, where hedge accounting is applied.

The estimated fair values of derivative financial instruments are determined with reference to various market information and other valuation methodologies as considered appropriate, however considerable judgment is required in interpreting market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts that the Group could realise in a current market situation.

Hedge AccountingThe Group applies hedge accounting policy for those derivatives that are designated as a hedging instrument.

The Group has designated only cash flow hedges – hedges against the exposure to the variability of cash flow currency exchange rates on a highly probable forecast transaction. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. Changes in the fair value of certain derivative instruments that do not qualify for hedge accounting are recognised immediately in profit and loss.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity until the forecast transaction occurs. Any ineffective portion is directly recognised in profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss on any associated hedging instrument that was reported in equity is immediately transferred to profit and loss.

The fair value of the hedge item is determined at the end of each reporting period with reference to the market value, which is typically determined by the credit institutions.

INVENTORIESInventories, consisting primarily of crude oil, refined oil products and materials and supplies are stated at the lower of cost and net realisable value. The cost of inventories is calculated on a weighted average basis, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

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ASSETS CLASSIFIED AS HELD FOR SALE Assets are classified in the Consolidated Statement of Financial Position as ‘assets held for sale’ if their carrying amount will be recovered principally through a sale transaction (including loss of control of a subsidiary holding the assets) within twelve months after the reporting period in which they were reclassified. These assets are measured at the lower of the carrying amounts and fair value less costs to sell. Assets classified as held for sale in the current period’s statement of financial position are not reclassified or re-presented in the comparative statement of financial position to reflect the classification at the end of the current period.

INTANGIBLE ASSETS Goodwill that arises on the acquisition of subsidiaries is included in intangible assets. Subsequently goodwill is measured at cost less accumulated impairment losses.

Goodwill is tested annually for impairment as well as when there are indicators of impairment. For the purpose of impairment testing goodwill is allocated to the cash generating units that are expected to benefit from synergies from the combination.

Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment loss.

Intangible assets that have limited useful lives are amortised on a straight-line basis over their useful lives. Useful lives with respect to intangible assets are determined as follows:

Intangible Asset Group Average Life

Licenses and software 1–5 years

Land rights 25 years

PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment is stated at historical cost, net of accumulated depreciation and any impairment. The cost of maintenance, repairs and replacement of minor items of property, plant are expensed when incurred; renewals and improvements of assets are capitalised. Costs of turnarounds and preventive maintenance performed with respect to oil refining assets are expensed when incurred if turnaround do not involve replacement of assets or installation of new assets. Upon sale or retirement of property, plant and equipment, the cost and related accumulated depreciation and impairment losses are eliminated from the accounts. Any resulting gains or losses are recorded in profit and loss.

Advances made on property, plant and equipment and construction in progress are accounted for within other non-current assets as a part of non-current non-financial accounts receivable.

OIL AND GAS PROPERTIESExploration and Evaluation assetsAcquisition costs include amounts paid for the acquisition of exploration and development licenses.

Exploration and evaluation assets include: � Costs of topographical, geological, and geophysical studies and rights of access to properties to conduct those studies, that are directly attributable to exploration activity; � Costs of carrying and retaining undeveloped properties; � Bottom hole contribution; � Dry hole contribution; and � Costs of drilling and equipping exploratory wells.

The costs incurred in finding, acquiring, and developing reserves are capitalised on a ‘field by field’ basis. On discovery of a commercially-viable mineral reserve, the capitalised costs are allocated to the discovery. If a discovery is not made, the

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expenditure is charged as an expense. Exploratory drilling costs and dry and bottom hole contributions are temporarily capitalised and treated as oil and gas assets within property, plant and equipment.

Costs of topographical, geological, and geophysical studies, rights of access to properties to conduct those studies are considered as part of oil and gas assets until it is determined that the reserves are proved and are commercially viable.

If no reserves are found, the exploration asset is tested for impairment. If extractable hydrocarbons are found and, subject to further appraisal activity, that may include drilling of further wells, are likely to be developed commercially; then the costs continue to be carried as oil and gas asset as long as some sufficient/continued progress is being made in assessing the commerciality of the hydrocarbons. All such carried costs are subject to technical, commercial and Management review as well as review for impairment at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off.

Other exploration costs are charged to expense when incurred.

An exploration and evaluation asset is no longer classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Exploration and evaluation assets are assessed for impairment, and any impairment loss is recognised, before reclassification.

Development CostsDevelopment costs are incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing oil and gas. They include the costs of development wells to produce proved reserves as well as costs of production facilities such as lease flow lines, separators, treaters, heaters, storage tanks, improved recovery systems, and nearby gas processing facilities.

Expenditures for the construction, installation, or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells are capitalised within oil and gas assets.

DEPRECIATION, DEPLETION AND AMORTISATIONDepletion of acquisition and development costs of proved oil and gas properties is calculated using the unit-of-production method based on proved reserves and proved developed reserves, respectively. These costs are reclassified as proved properties when the relevant reserve reclassification is made. Acquisition costs of unproved properties are not amortised.

Depreciation and amortisation with respect to operations other than oil and gas producing activities is calculated using the straight-line method based on estimated economic lives. Depreciation rates are applied to similar types of buildings and equipment having similar economic characteristics, as shown below:

Asset Group Average Life

Buildings and constructions 8–35 years

Machinery and equipment 8–20 years

Vehicles and other equipment 3–10 years

Catalysts and reagents mainly used in the refining operations are treated as other equipment. The assets are depreciated based on the straight-line method.

CAPITALISATION OF BORROWING COSTS Borrowing costs directly attributable to the acquisition, construction or production of assets (including oil and gas properties) that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets. Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs eligible for capitalisation.

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IMPAIRMENT OF LONG-LIVED ASSETSThe carrying amounts of the Group’s long-lived assets, other than goodwill, inventories, long-term financial assets and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss.

IMPAIRMENT OF NON-DERIVATIVE FINANCIAL ASSETS Financial assets are assessed at each reporting date to determine whether there is any objective evidence of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

The Group considers evidence of impairment for loans and receivables and held-to-maturity investments at both a specific asset and collective level. All individually significant loans and receivables and held-to-maturity investments are assessed for specific impairment. Loans and receivables and held-to-maturity investments that are not individually significant are collectively assessed for impairment by grouping together loans and receivables and held-to-maturity investments with similar risk characteristics.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investments.

DECOMMISSIONING OBLIGATIONSThe Group has decommissioning obligations associated with its core activities. The nature of the assets and potential obligations is as follows:

Exploration and Production: the Group’s activities in exploration, development and production of oil and gas in the deposits are related to the use of such assets as wells, well equipment, oil gathering and processing equipment, oil storage tanks and infield pipelines. Generally, licenses and other permissions for mineral resources extraction require certain actions to be taken by the Group in respect of liquidation of these assets after oil field closure. Such actions include well plugging and abandonment, dismantling equipment, soil recultivation, and other remediation measures. When an oil field is fully depleted, the Group will incur costs related to well retirement and associated environmental protection measures.

Refining, Marketing and Distribution: the Group’s oil refining operations are carried out at large manufacturing facilities that have been operated for several decades. The nature of these operations is such that the ultimate date of decommissioning of any sites or facilities is unclear. Current regulatory and licensing rules do not provide for liabilities related to the liquidation of such manufacturing facilities or of retail fuel outlets. Management therefore believes that there are no legal or contractual obligations related to decommissioning or other disposal of these assets.

Management makes provision for the future costs of decommissioning oil and gas production facilities, wells, pipelines, and related support equipment and for site restoration based on the best estimates of future costs and economic lives of the oil and gas assets. Estimating future asset retirement obligations is complex and requires Management to make estimates and judgments with respect to removal obligations that will occur many years in the future.

Changes in the measurement of existing obligations can result from changes in estimated timing, future costs or discount rates used in valuation.

The amount recognised as a provision is the best estimate of the expenditures required to settle the present obligation at the reporting date based on current legislation in each jurisdiction where the Group’s operating assets are located, and is

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also subject to change because of revisions and changes in laws and regulations and their interpretation. As a result of the subjectivity of these provisions there is uncertainty regarding both the amount and estimated timing of such costs.

The estimated costs of dismantling and removing an item of property, plant and equipment are added to the cost of the item either when an item is acquired or as the item is used during a particular period for the purposes other than to produce inventories during that period. Changes in the measurement of an existing decommissioning obligation that result from changes in the estimated timing or amount of any cash outflows, or from changes in the discount rate are reflected in the cost of the related asset in the current period.

INCOME TAXESCurrently eight Group companies including JSC Gazprom neft exercise the option to pay taxes as a consolidated tax-payer and are subject to taxation on a consolidated basis. The majority of the Group companies do not exercise such an option and current income taxes are provided on the taxable profit of each subsidiary. Most subsidiaries are subject to the Russian Federation Tax Code, under which income taxes are payable at a rate of 20% after adjustments for certain items, that are either not deductible or not taxable for tax purposes. In some cases income tax rate could be set at lower level as a tax concession stipulated by regional legislation. Subsidiaries operating in countries other than the Russian Federation are subject to income tax at the applicable statutory rate in the country in which these entities operate.

Deferred income tax assets and liabilities are recognised in the accompanying Consolidated Financial Statements in the amounts determined by the Group using the balance sheet liability method in accordance with IAS 12 Income Taxes. This method takes into account future tax consequences attributable to temporary differences between the carrying amounts of existing assets and liabilities for the purpose of the Consolidated Financial Statements and their respective tax bases and in respect of operating loss and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to reverse and the assets recovered and liabilities settled. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.

The Group controls the reversal of temporary differences on dividends from subsidiaries or on gains upon their disposal. The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that Management expects the temporary differences to reverse in the foreseeable future.

MINERAL EXTRACTION TAX AND EXCISE DUTIESMineral extraction tax and excise duties, which are charged by the government on the volumes of oil and gas extracted or refined by the Group, are included in operating expenses. Taxes charged on volumes of goods sold are recognised as a deduction from sales.

COMMON STOCKCommon stock represents the authorised capital of the Group, as stated in its charter document. The common shareholders are allowed one vote per share. Dividends paid to shareholders are determined by the Board of Directors and approved at the annual shareholders’ meeting.

TREASURY STOCKCommon shares of the Company owned by the Group as of the reporting date are designated as treasury shares and are recorded at cost using the weighted-average method. Gains on resale of treasury shares are credited to additional paid-in capital whereas losses are charged to additional paid-in capital to the extent that previous net gains from resale are included therein or otherwise to retained earnings.

EARNINGS PER SHAREBasic and diluted earnings per common share are determined by dividing the available income to common shareholders by the weighted average number of shares outstanding during the period. There are no potentially dilutive securities.

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STOCK-BASED COMPENSATIONThe Group accounts for its best estimate of the obligation under cash-settled stock-appreciation rights (“SARs”) granted to employees at fair value on the date of grant. The estimate of the final liability is re-measured to fair value at each reporting date and the compensation charge recognised in respect of SARs in profit and loss is adjusted accordingly. Expenses are recognised over the vesting period.

RETIREMENT AND OTHER BENEFIT OBLIGATIONSThe Group and its subsidiaries do not have any substantial pension arrangements separate from the State pension scheme of the Russian Federation, which requires current contributions by the employer calculated as a percentage of current gross salary payments; such contributions are charged to expense as incurred. The Group has no significant post-retirement benefits or other significant compensated benefits requiring accrual.

LEASESLeases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position. The total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term.

RECOGNITION OF REVENUES Revenues from the sales of crude oil, petroleum products, gas and all other products are recognised when deliveries are made to final customers, title passes to the customer, collection is reasonably assured, and the sales price to final customers is fixed or determinable. Specifically, domestic crude oil sales and petroleum product and materials sales are recognised when they are shipped to customers, which is generally when title passes. For export sales, title generally passes at the border of the Russian Federation and the Group is responsible for transportation, duties and taxes on those sales.

Revenue is recognised net of value added tax (VAT), excise taxes calculated on revenues based on the volumes of goods sold, customs duties and other similar compulsory payments.

Sales include revenue, export duties and sales related excise tax.

BUY/SELL TRANSACTIONSPurchases and sales under the same contract with a specific counterparty (buy-sell transaction) are eliminated under IFRS. The purpose of the buy-sell operation, i.e. purchase and sale of same type of products in different locations during the same reporting period from / to the same counterparty, is to optimise production capacities of the Group rather than generate profit. After elimination, any positive difference is treated as a decrease in crude oil transportation to the refinery costs and any negative difference is treated as an increase in crude oil transportation costs to the refinery.

TRANSPORTATION COSTSTransportation expenses recognised in profit and loss represent expenses incurred to transport crude oil and oil products through the Transneft pipeline network, costs incurred to transport crude oil and oil products by maritime vessel and railway and all other shipping and handling costs.

OTHER COMPREHENSIVE INCOME/LOSSAll other comprehensive Income/Loss is presented by the items that are or may be reclassified subsequently to profit or loss, net of related deferred tax.

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3. CRITICAL ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGMENTS

Preparing these Consolidated Financial Statements in accordance with IFRS requires Management to make judgements on the basis of estimates and assumptions. These judgements affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the reporting date, and the reported amounts of revenues and expenses during the reporting period.

Management reviews the estimates and assumptions on a continuous basis, by reference to past experiences and other factors that can reasonably be used to assess the book values of assets and liabilities. Adjustments to accounting estimates are recognised in the period in which the estimate is revised if the change affects only that period or in the period of the revision and subsequent periods, if both periods are affected.

Actual results may differ the judgements, estimates made by the management if different assumptions or circumstances apply.

Judgments and estimates that have the most significant effect on the amounts reported in these Consolidated Financial Statements and have a risk of causing a material adjustment to the carrying amount of assets and liabilities are described below.

ESTIMATION OF OIL AND GAS RESERVES Engineering estimates of oil and gas reserves are inherently uncertain and are subject to future revisions. The Group estimates its oil and gas reserves in accordance with rules promulgated by the US Securities and Exchange Commission (SEC) for proved reserves. Oil and gas reserves are determined with use of certain assumptions made by the Group, for future capital and operational expenditure, estimates of oil in place, recovery factors, number of wells and cost of drilling. Accounting measures such as depreciation, depletion and amortisation charges and impairment assessments that are based on the estimates of proved reserves are subject to change based on future changes to estimates of oil and gas reserves.

Proved reserves are defined as the estimated quantities of oil and gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic conditions. In some cases, substantial new investment in additional wells and related support facilities and equipment will be required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change over time as additional information becomes available.

Oil and gas reserves have a direct impact on certain amounts reported in the Consolidated Financial Statements, most notably depreciation, depletion and amortisation as well as impairment expenses. Depreciation rates on oil and gas assets using the units-of-production method for each field are based on proved developed reserves for development costs, and total proved reserves for costs associated with the acquisition of proved properties. Moreover, estimated proved reserves are used to calculate future cash flows from oil and gas properties, which serve as an indicator in determining whether or not property impairment is present.

USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENTManagement assesses the useful life of an asset by considering the expected usage, estimated technical obsolescence, residual value, physical wear and tear and the operating environment in which the asset is located. Differences between such estimates and actual results may have a material impact on the amount of the carrying values of the property, plant and equipment and may result in adjustments to future depreciation rates and expenses for the period.

Goodwill is tested for impairment annually.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. The estimated future cash flows include estimation of future costs to produce reserves, future commodity prices, foreign exchange rates, discount rates etc.

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CONTINGENCIESCertain conditions may exist as of the date of these Consolidated Financial Statements are issued that may result in a loss to the Group, but one that will only be realised when one or more future events occur or fail to occur. Management makes an assessment of such contingent liabilities that is based on assumptions and is a matter of judgement. In assessing loss contingencies relating to legal or tax proceedings that involve the Group or unasserted claims that may result in such proceedings, the Group, after consultation with legal and tax advisors, evaluates the perceived merits of any legal or tax proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a loss will be incurred and the amount of the liability can be estimated, then the estimated liability is accrued in the Group’s Consolidated Financial Statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed. If loss contingencies can not be reasonably estimated, Management recognises the loss when information becomes available that allows a reasonable estimation to be made. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee is disclosed. However, in some instances in which disclosure is not otherwise required, the Group may disclose contingent liabilities of an unusual nature which, in the judgment of Management and its legal counsel, may be of interest to shareholders or others.

JOINT ARRANGEMENTS Upon adopting of IFRS 11 the Group applied judgement when assessing whether its joint arrangements represent a joint operation or a joint venture. The Group determined the type of joint arrangement in which it is involved by considering its rights and obligations arising from the arrangement including the assessment of the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances.

4. APPLICATION OF NEW IFRS

A number of amendments to current IFRS and new IFRIC became effective for the periods beginning on or after January 1, 2014: � amendments regarding offsetting rules to IAS 32 Financial Instruments: Presentation, � amendments in respect of investment entities to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other entities and IAS 27 Separate Financial Statements, � amendments to IAS 36 Impairment of Assets, regarding additional disclosure, � amendments to IAS 39 Financial Instruments: Recognition and Measurement regarding novation of derivatives and hedge accounting, � IFRIC 21 – Levies, � Annual improvements 2013.

The Group has initially applied amended standards and new IFRIC while preparing these Consolidated Financial Statements. It has no significant impact on the Group’s Consolidated Financial Statements.

5. NEW ACCOUNTING STANDARDS

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2015 or later, and that the Group has not early adopted.

IFRS 9, Financial Instruments Part 1: Classification and Measurement. IFRS 9, issued in November 2009, replaces those parts of IAS 39 relating to the classification and measurement of financial assets. IFRS 9 was further amended in October 2010, November 2013 and July 2014 to address the classification and measurement of financial liabilities. Key features of the standard:

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� Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value (either through Profit and loss or through Other comprehensive income), and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. � An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss. � All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment. � Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. The amendment made to IFRS 9 in November 2013 allows an entity to continue to measure its financial instruments in accordance with IAS 39 but at the same time to benefit from the improved accounting for own credit in IFRS 9. � A substantial overhaul of hedge accounting was introduced that will enable entities to better reflect their risk management activities in their financial statements. In particular amendments to IFRS 9 increase the scope of hedged items eligible for hedge accounting (risk components of non-financial items may be designated provided they are separately identifiable and reliably measurable; derivatives may be included as part of the hedged item; groups and net positions may be designated hedged items, etc). The amendments to IFRS 9 also increase eligibility of hedging instruments allowing financial instruments at fair value through profit or loss to be designated as hedging instruments. A fundamental difference to the IAS 39 hedge accounting model is the lack of the 80–125 per cent bright line threshold for effective hedges and the requirement to perform retrospective hedge effectiveness testing. Under the IFRS 9 model, it is necessary for there to be an economic relationship between the hedged item and hedging instrument, with no quantitative threshold. � Increased disclosures about an entity’s risk management strategy, cash flows from hedging activities and the impact of hedge accounting on the financial statements.

The mandatory effective date of IFRS 9 is January 1, 2018. IFRS 9 (2014) supersedes IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (2013), but these standards remain available for application if the relevant date of initial application is before February 1, 2015. The Group does not plan to adopt the standard before the mandatory effective date and is currently assessing the impact of the new standard on its Consolidated Financial Statements.

Amendments to IFRS 11 – Joint Arrangements (issued in May 2014 and effective for annual periods beginning on or after January 1, 2016) on accounting for acquisitions of interests in joint operations. This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business.

Amendments to IAS 16 – Property, Plant and Equipment and IAS 38 Intangible Assets (issued in May 2014 and effective for annual periods beginning on or after January 1, 2016) on clarification of acceptable methods of depreciation and amortisation. In this amendment the IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The Group is currently assessing the impact of the amendments on its Consolidated Financial Statements

IFRS 15 – Revenue from Contracts with Customers (issued in May 2014 and effective for annual periods beginning on or after January 1, 2017). The new standard introduces the core principle that revenue must be recognised when the goods and services are transferred to the customer, at the transaction price. Any bundled goods and services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant

176


risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed.

The Group is currently assessing the impact of the new standard on its Consolidated Financial Statements.

The amendments to IAS 19 – Employee Benefits (issued in November 2013 and effective for annual periods beginning on or after July 1, 2014) on contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service. The amendment has no significant impact on Group’s Consolidated Financial Statements.

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint ventures (issued in September 2014 and December 2014 and effective for annual periods beginning on or after January 1, 2016) on the accounting for acquisitions of an interest in a joint venture. Full gain or loss will be recognised by the investor where the non-monetary assets constitute a ‘business’. If the assets do not meet the definition of a business, the gain or loss is recognised by the investor to the extent of the other investors’ interests. The amendments will only apply when an investor sells or contributes assets to its associate or joint venture, not to a joint operation. The December 2014 amendments was made to clarify that an investment entity should measure at fair value through profit or loss all of its subsidiaries that are themselves investment entities.

Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s Consolidated Financial Statements.

Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016). The Standard was amended to clarify the concept of materiality and explains needs of the Group in disclosure preparation. The Standard also provides new guidance on subtotals in financial statements and add additional examples of possible ways of ordering the notes. The amendments also introduce a clarification that the list of line items to be presented in Statement of financial position, Statement of profit or loss and Other comprehensive income can be disaggregated and aggregated as relevant and additional guidance on subtotals in these statements and clarify that an entity’s share of OCI of equity-accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss.

The Group is currently assessing the impact of the initiative on its Consolidated Financial Statements.

6. ACQUISITION OF SUBSIDIARIES AND NON-CONTROLLING INTEREST

ACQUISITION OF LLC GAZPROM NEFT SHELFOn May 22, 2014 the Group acquired 100% share of LLC Gazprom neft shelf from JSC Gazprom for RUB 2.7 billion. The acquired company holds exploration and production licenses for Prirazlomnoye oil field. As of the acquisition date LLC Gazprom neft shelf had 18.31% share in joint operation with JSC Gazprom. The arrangement was designed for joint exploration and production on Prirazlomnoye oil field located in the Russian Federation. According to the agreement each partner was assigned for the respective share in profit. The share of the Group in joint arrangement with Gazprom was considered to be joint operation under IFRS 11 Joint Arrangements as decisions abount relevant activities required the unanimous consent of both participants. The joint operation was not structured as a separate legal entity.

After acquisition of share in LLC Gazprom neft shelf the Group made additional contribution to joint operation with JSC Gazprom of RUB 4.9 billion that increased the Group’s share up to 21.64%.

On October 31, 2014 JSC Gazprom made a decision to fully withdraw from the joint operation. All assets owned by the joint operation were transferred to LLC Gazprom neft shelf while JSC Gazprom will be compensated for its share in assets.

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Transactions occurring on May 22, 2014 and October 31, 2014 were treated as common control transactions and accounted for using predecessor accounting method. The difference between net assets acquired on October 31, 2014 of RUB 86.9 billion and the consideration being the discounted value of the obligation of RUB 53.7 billion (included in Other non-current financial liabilities) was accounted for as increase in additional-paid-in-capital for the period ended December 31, 2014.

The following table presents information of LLC Gazprom neft shelf as of acquisition date (including share in assets and liabilities of joint operation) and information of acquired share of 78.36% in joint operation as of the date of JSC Gazprom withdrawal:

As of May 22,

2014As of October 31,

2014

ASSETS

Cash and cash equivalents 109 1,072

Trade and other receivables 768 465

Inventories 1,611 2,495

Other current assets 2,448 2,936

Property, plant and equipment 23,007 81,035

Other non-current assets 986 1,276

TOTAL ASSETS ACQUIRED 28,929 89,279LIABILITIES AND SHAREHOLDERS’ EQUITY

Short-term debt and current portion of long-term debt (15,297) (115)

Trade and other payables (2,973) (589)

Taxes payable (29) (198)

Long-term debt (5,894) (113)

Deferred income tax liabilities (746) (451)

Provisions for liabilities and charges (939)

TOTAL LIABILITIES ASSUMED (24,939) (2,405)Net assets acquired 3,990 86,874

ACQUISITION OF AERO TOIn March 2014, the Group acquired 100% share in Aero TO LLC. Aero TO provides retail sales of jet fuel as well as a range of services for the provision of aviation fuel and lubricants. The Group measured its interest held before the transaction at fair value and, as a result, profit of RUB 3.4 billion was recognized in Other loss, net line in the Consolidated Statement of Profit and Loss and Other Comprehensive Income.

The following table summarises fair value of the assets and liabilities acquired:

As of the acquisition

date

ASSETS

Cash and cash equivalents 189

Trade and other receivables 669

Inventories 530

Other current assets 528

Property, plant and equipment 1,882

Intangible assets 7,266

Other non-current assets 46

TOTAL ASSETS ACQUIRED 11,110

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As of the acquisition

date

LIABILITIES AND SHAREHOLDERS’ EQUITY

Trade and other payables (654)

Taxes payable (21)

Other current liabilities (147)

Long-term debt (1,011)

Deferred income tax liabilities (1,552)

TOTAL LIABILITIES ASSUMED (3,385)TOTAL IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED 7,725Cash consideration 3,926

Fair value of the Group's investment in Aero TO held before the business combination 4,110

TOTAL 8,036GOODWILL 311

ACQUISITION OF NON-CONTROLLING INTEREST IN SUBSIDIARIESIn 2014 the Group has accounted for the acquisition of the additional interest in several subsidiaries in the amount of RUB 4.1 billion. As a result of these transactions the Group decreased additional paid-in-capital by RUB 2.9 billion for the period ended December 31, 2014. This amount represents the excess of consideration paid over the carrying value of the non-controlling interests acquired of RUB 1.2 billion.

In 2013 the Group has accounted for the acquisition of the additional interest in several subsidiaries in the amount of RUB 1.2 billion. As a result of these transactions the Group increased additional paid-in-capital by RUB 3.2 billion for the period ended December 31, 2013. This amount represents the excess of the carrying value of the non-controlling interests acquired of RUB 4.4 billion over the consideration paid.

7. CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of December 31, 2014 and 2013 comprise the following:

December 31, 2014 December 31, 2013

Cash on hand 791 504

Cash in bank 41,106 21,034

Deposits with original maturity of less than three months 8,928 66,463

Cash equivalents 2,342 3,076

TOTAL CASH AND CASH EQUIVALENTS 53,167 91,077

8. SHORT-TERM FINANCIAL ASSETS

Short-term financial assets as of December 31, 2014 and 2013 comprise the following:


Deposits with original maturity more than 3 months less than 1 year 76,658 36,869

Short-term loans issued 2,184 18,991

Forward contracts – cash flow hedge – 10

Financial assets held to maturity 2 –

TOTAL SHORT-TERM FINANCIAL ASSETS 78,844 55,870

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9. TRADE AND OTHER RECEIVABLES

Trade and other receivables as of December 31, 2014 and 2013 comprise the following:


Trade receivables 108,447 94,860

Other financial receivables 7,543 1,479

Less impairment provision (12,976) (8,991)

TOTAL TRADE AND OTHER RECEIVABLES 103,014 87,348

Trade receivables represent amounts due from customers in the ordinary course of business and are short-term by nature.

10. INVENTORIES

Inventories as of as of December 31, 2014 and 2013 consist of the following:


Crude oil and gas 22,619 20,328

Petroleum products and petrochemicals 41,787 44,836

Materials and supplies 34,422 21,280

Other 7,243 6,359

Less inventory provision (3,413) (2,580)

TOTAL INVENTORY 102,658 90,223

As part of the management of crude inventory the Group may enter transactions to buy and sell crude oil from the same counterparty. Such transactions are referred to as buy / sell transactions and are undertaken in order to reduce transportation costs or to obtain alternate quality grades of crude oil. The total value of buy / sell transactions undertaken for the period ended December 31 is as follows:

2014 2013

Buy / sell crude oil transactions for the period ended December 31 41 450 64 281

11. OTHER CURRENT ASSETS

Other current assets as of December 31, 2014 and 2013 consist of the following:


Prepaid custom duties 18,178 22,530

Advances paid 39,782 31,618

Prepaid expenses 594 311

Value added tax receivable 42,281 35,223

Other assets 32,043 21,661

Less impairment provision (16,951) (10,461)

TOTAL OTHER CURRENT ASSETS 115,927 100,882

The impairment provision mainly relates to other assets represented by other receivables of Group’s Serbian subsidiary.

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12. PROPERTY, PLANT AND EQUIPMENT

Movement in property, plant and equipment for the periods ended December 31, 2014 and 2013 is below:

O&G properties

Refining assets

Marketing and distribution Other assets

Assets under construction Total

COSTAS OF JANUARY 1, 2014 865,828 217,000 102,443 10,706 60,271 1,256,248Additions 206,799 843 279 4,100 48,950 260,971

Acquisitions through business combinations and increase of share in joint operations 106,025 – 1,823 25 634 108,507

Changes in decommissioning obligations 757 – – – – 757

Capitalised borrowing costs 8,405 – – – 2,193 10,598

Transfers – 26,850 14,386 1,987 (43,223) –

Internal movement 2,878 (1,630) (1,885) (26) 29 (634)

Disposals (9,633) (1,148) (1,724) (201) (1,293) (13,999)

Translation differences 116,408 18,246 19,608 (64) 3,382 157,580

AS OF DECEMBER 31, 2014 1,297,467 260,161 134,930 16,527 70,943 1,780,028DEPRECIATION AND IMPAIRMENT AS OF JANUARY 1, 2014 (281,435) (56,211) (21,829) (1,230) – (360,705)Depreciation charge (63,405) (9,163) (8,866) (735) – (82,169)

Impairment (4,116) – – – – (4,116)

Acquisitions through business combinations and increase of share in joint operations (1,990) – – – – (1,990)

Internal movement (88) (370) 1,066 26 – 634

Disposals 3,453 488 944 55 – 4,940

Translation differences (35,787) (3,094) (3,908) (33) – (42,822)

AS OF DECEMBER 31, 2014 (383,368) (68,350) (32,593) (1,917) – (486,228)NET BOOK VALUE AS OF JANUARY 1, 2014 584,393 160,789 80,614 9,476 60,271 895,543AS OF DECEMBER 31, 2014 914,099 191,811 102,337 14,610 70,943 1,293,800

O&G properties

Refining assets



COSTAS OF JANUARY 1, 2013 709,528 183,290 84,292 7,757 59,278 1,044,145Additions 141,463 1,256 105 1,542 50,875 195,241

Acquisitions through business combinations 35 740 1,619 2,033 122 4,549

Changes in decommissioning obligations 2,538 – – – – 2,538

Capitalised borrowing costs 1,671 166 – – 373 2,210

Transfers – 28,397 19,006 1,574 (48,977) –

Internal movement 5,249 (122) (2,232) (1,529) (1,366) –

Reclassification from assets classified as held for sale 1,217 – – – – 1,217

Disposals (6,973) (695) (3,537) (816) (691) (12,712)

Translation differences 11,100 3,968 3,190 145 657 19,060

AS OF DECEMBER 31, 2013 865,828 217,000 102,443 10,706 60,271 1,256,248

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APPENDIX

O&G properties

Refining assets



DEPRECIATION AND IMPAIRMENT AS OF JANUARY 1, 2013 (221,754) (48,021) (15,604) (554) – (285,933)Depreciation charge (58,409) (7,840) (7,503) (773) – (74,525)

Internal movement (991) 1 783 207 – –

Reclassification from assets classified as held for sale (1,017) – – – – (1,017)

Disposals 3,895 112 950 13 – 4,970

Translation differences (3,159) (463) (455) (123) – (4,200)

As of December 31, 2013 (281,435) (56,211) (21,829) (1,230) – (360,705)

NET BOOK VALUE AS OF JANUARY 1, 2013 487,774 135,269 68,688 7,203 59,278 758,212AS OF DECEMBER 31, 2013 584,393 160,789 80,614 9,476 60,271 895,543

Capitalisation rate for the borrowing costs related to the acquisition of property, plant and equipment comprised of 8.72% for the period ended December 31, 2014 (2013: 3.99%).

The information regarding Group’s exploration and evaluation assets (part of O&G properties) are presented below:

2014 2013

As of January 1 53,514 31,709

Additions 35,361 23,605

Acquisitions through business combinations and increase of share in joint operations 24,495 –

Impairment (4,116) –

Unsuccessful exploration expenditures derecognised (810) (975)

Transfer to proved property (66,573) (1,253)

Disposals (183) (1,637)

Translation differences 33,606 2,065

AS OF DECEMBER 31 75,294 53,514

13. GOODWILL AND OTHER INTANGIBLE ASSETS

The information regarding movements in Group’s intangible assets is presented below:

Goodwill Licenses Software Land rights Other IA Total

COSTAS OF JANUARY 1, 2014 27,972 1,160 14,617 17,108 4,540 65,397Additions 44 88 3,736 346 1,607 5,821

Acquisitions through business combinations 311 – 13 – 7,267 7,591

Internal movement 72 743 (185) 25 (653) 2

Disposals – (261) (579) – (136) (976)

Translation differences 5,236 – 1,725 34 526 7,521

182



AS OF DECEMBER 31, 2014 33,635 1,730 19,327 17,513 13,151 85,356AMORTISATION AND IMPAIRMENT AS OF JANUARY 1, 2014 – (744) (5,382) (3,143) (742) (10,011)Amortisation charge – (82) (2,002) (685) (708) (3,477)

Impairment (188) – – – – (188)

Internal movement – (1) (41) – 40 (2)

Disposals – 152 282 – 13 447

Translation differences (8) – (635) (1) (241) (885)

AS OF DECEMBER 31, 2014 (196) (675) (7,778) (3,829) (1,638) (14,116)NET BOOK VALUE AS OF JANUARY 1, 2014 27,972 416 9,235 13,965 3,798 55,386AS OF DECEMBER 31, 2014 33,439 1,055 11,549 13,684 11,513 71,240


COSTAS OF JANUARY 1, 2013 25,945 1,381 10,853 17,072 2,133 57,384Additions – 63 3,687 36 912 4,698Acquisitions through business combinations 776 – 30 – 1,727 2,533Internal movement (2) (138) 429 – 48 337Disposals (41) (146) (684) – (370) (1,241)Translation differences 1,294 – 302 – 90 1,686AS OF DECEMBER 31, 2013 27,972 1,160 14,617 17,108 4,540 65,397AMORTISATION AND IMPAIRMENT AS OF JANUARY 1, 2013 – (640) (3,722) (2,472) (672) (7,506)Amortisation charge – (189) (1,246) (671) (154) (2,260)Internal movement – (3) (436) – 102 (337)Disposals – 88 68 – 34 190Translation differences – – (46) – (52) (98)AS OF DECEMBER 31, 2013 – (744) (5,382) (3,143) (742) (10,011)NET BOOK VALUE AS OF JANUARY 1, 2013 25,945 741 7,131 14,600 1,461 49,878AS OF DECEMBER 31, 2013 27,972 416 9,235 13,965 3,798 55,386

Goodwill acquired through business combination has been allocated to Upstream and Downstream (as of December 31, 2014 RUB 26.5 billion and RUB 6.9 billion, and as of December 31, 2013 RUB 21.4 and RUB 6.6 respectively) related groups of cash generating units.

14. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The carrying value of the investments in associates and joint ventures as of December 31, 2014 and 2013 is summarised below:

Ownership percentage December 31, 2014 December 31, 2013

Slavneft Joint venture 49.9% 74,177 85,015

SeverEnergy Joint venture 45.1% 60,215 24,165

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Others 16,335 11,178

TOTAL INVESTMENTS 150,727 120,358The principal place of business of the most significant joint ventures and associates disclosed above is the Russian Federation. The reconciliation of carrying amount of investments in associates and joint ventures as of the beginning of the reporting period and as of the end of the reporting period is shown below:

2014 2013

CARRYING AMOUNT AS OF JANUARY 1 120,358 105,643Share of (loss) / profit of associates and joint ventures (6,306) 11,251

Dividends declared (7,453) (4,405)

Increase in associates and joint ventures 44,526 7,858

Other changes in cost of associates and joint ventures (398) 11

CARRYING AMOUNT AS OF DECEMBER 31 150,727 120,358

The total amount of dividends received from associates in 2013 equals to RUB 578 million. The total amount of dividends received from joint ventures in 2014 equals to RUB 7,453 million (2013: RUB 3,827 million).

SLAVNEFTThe Group’s investment in JSC Slavneft and various minority stakes in Slavneft subsidiaries (“Slavneft”) are held through a series of legal entities. Slavneft is engaged in exploration, production and development of crude oil and gas and production of refined petroleum products. The control over Slavneft is divided equally between the Group and Rosneft.

SEVERENERGYThe Group’s investment in SeverEnergy LLC (SeverEnergy) is held through Yamal Razvitie LLC (Yamal Razvitie, a 50%:50% joint venture between the Group and JSC Novatek) owning initially a 51% equity interest in SeverEnergy. In December 2013 and March 2014 Yamal Razvitie acquired 60% interest and 20% interest, respectively, in Artic Russia B.V. owning 49% stake in SeverEnergy. As a result Yamal Razvitie LLC owns 90.2% share in SeverEnergy LLC. The effective share of the Group in SeverEnergy increased from 25.5% to 40.2% and 45.1% respectively. SeverEnergy is developing the Samburgskoye, Urengoiskoe and Yaro-Yakhinskoye oil fields and some other small oil and gas fields located in the Yamalo-Nenetskiy autonomous region of the Russian Federation.

The Group and Novatek negotiated a series of linked transactions that aim to simplify ownership structure and achieve parity shareholdings in SeverEnergy upon completion. The Group provided several long-term loans to Yamal Razvitie of which Yamal Razvitie financed RUB 34.9 billion on acquisition of additional 20% share in Artic Russia B.V. The loans will form the Group’s contribution in equity of Yamal Razvitie upon completion of the restructuring of the joint venture. The carrying amount of the Group’s investment exceeds the Group’s share in the underlying net assets of SeverEnergy by RUB 19.8 billion as of December 31, 2014 due to complex holding structure, current financing scheme and goodwill arising on acquisition.

The summarised financial information for the significant joint ventures as of December 31, 2014 and 2013 and for the period ended December 31, 2014 and 2013 is presented in the table below. The summarised financial information refers to the amounts included in the IFRS financial statements of the joint ventures. Summarised financial information on SeverEnergy includes assets and liabilities of Yamal Razvitie LLC as holding company. Other change of net assets of SeverEnergy relates to fair value adjustments on acquisition of additional share in March 2014.

Slavneft SeverEnergy

December 31, 2014

December 31, 2013

December 31, 2014

December 31, 2013

Cash and cash equivalents 13,709 28,208 698 3,321

Other current assets 17,568 18,630 9,413 11,585

Non-current assets 269,667 235,420 369,502 309,204

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Slavneft SeverEnergy

December 31, 2014

December 31, 2013

December 31, 2014

December 31, 2013

Current financial liabilities (68,967) (43,758) (112,478) (123,167)

Other current liabilities (20,109) (20,617) (2,289) (486)

Non-current financial liabilities (46,592) (33,271) (126,172) (78,232)

Other non-current liabilities (24,973) (23,816) (49,065) (44,045)

NET ASSETS 140,303 160,796 89,609 78,179

Year ended




December 31, 2013

Revenue 197,453 193,038 32,110 15,832

Depreciation, depletion and amortisation (30,637) (26,024) (5,966) (6,782)

Finance income 1,472 1,623 75 57

Finance expense (1,530) (1,478) (14,263) (3,300)

Total income tax benefit / (expense) 1,999 (4,731) 1,152 (774)

(Loss) / profit for the period (10,282) 17,085 (4,341) (501)

Total comprehensive (loss) / income (9,876) 17,085 (4,341) (501)

Current and non-current financial liabilities of SeverEnergy include RUB 130 billion Yamal Razvitie payables to Sberbank and the Group under the loan agreements.

As of December 31, 2014 the Group has contingent liabilities and commitments in relation to its associates and joint ventures in amount of RUB 22.5 billion (2013: RUB 13.1 billion).

OTHERSThe aggregate carrying amount of all individually immaterial joint ventures and associates as well as the Group’s share of those joint ventures’ and associates’ profit or loss and other comprehensive income are not significant.

Other investments include effective 9.1% share in CJSC Northgas (Northgas), where the Group has a significant influence due to presence in the Board of Directors. On July 1, 2014 the Group acquired 18.2% share in LLC Gazprom Resource Northgas from Gazprombank for consideration of RUB 8.6 billion providing the Group with significant influence. LLC Gazprom Resource Northgas owns 50% share in Northgas.

In May 2014 LLC Sibgazpolimer (a 50%:50% joint venture between the Group and JSC Sibur Holding) acquired 50% in LLC Omskiy zavod polipropilena (Poliom). As a result of the transaction the Group has 25% effective share in Poliom. Main activity of Poliom is production of polypropylene.

15. JOINT OPERATIONS

Under IFRS 11 Joint Arrangements the Group assessed the nature of its 50% share in joint arrangements and determined investments in Tomskneft and Salym Petroleum Development (SPD) as Joint operations. Tomskneft and Salym Petroleum Development are engaged in production of oil and gas in the Russian Federation and all of the production is required to be sold to the parties of the joint arrangement (that is, the Group and its partner).

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16. LONG-TERM FINANCIAL ASSETS

Long-term financial assets as of December 31, 2014 and 2013 comprise the following:


Long-term loans issued 28,229 15,335

Forward contracts - cash flow hedge – 283

Financial assets held to maturity 112 –

Available for sale financial assets 10,266 7,478

Less impairment provision (976) (690)

TOTAL LONG-TERM FINANCIAL ASSETS 37,631 22,406

17. DEFERRED INCOME TAX ASSETS AND LIABILITIESА

RECOGNISED DEFERRED TAX ASSETS AND LIABILITIESRecognised deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

AS OF DECEMBER 31, 2014

Property, plant and equipment 8,612 (72,655) (64,043)

Intangible assets 7 (4,144) (4,137)

Investments 2,220 (505) 1,715

Inventories 342 (858) (516)

Trade and other receivables 428 (98) 330

Loans and borrowings – (1,132) (1,132)

Provisions 3,029 (40) 2,989

Tax loss carry-forwards 13,958 – 13,958

Other 2,864 (1,600) 1,264

TAX ASSETS / (LIABILITIES) 31,460 (81,032) (49,572)AS OF DECEMBER 31, 2013

Property, plant and equipment 4,847 (53,461) (48,614)

Intangible assets 14 (2,889) (2,875)

Investments 1,863 (505) 1,358

Inventories 324 (757) (433)

Trade and other receivables 313 (27) 286

Loans and borrowings – (545) (545)

Provisions 2,911 – 2,911

Tax loss carry-forwards 6,062 – 6,062

Other 2,174 (1,545) 629

TAX ASSETS / (LIABILITIES) 18,508 (59,729) (41,221)

186


Movement in temporary differences during the period:

As of January 1,

2014 Recognised in

profit or loss

Recognised in other compre-

hensive income Acquired/

disposed of As of December

31, 2014

Property, plant and equipment (48,614) (9,774) (4,785) (870) (64,043)

Intangible assets (2,875) 191 – (1,453) (4,137)

Investments 1,358 195 162 – 1,715

Inventories (433) (83) – – (516)

Trade and other receivables 286 (86) 130 – 330

Loans and borrowings (545) (490) (97) – (1,132)

Provisions 2,911 38 40 – 2,989

Tax loss carry-forwards 6,062 7,821 71 4 13,958

Other 629 492 149 (6) 1,264

(41,221) (1,696) (4,330) (2,325) (49,572)

As of January 1,

2013 Recognised in

profit or loss

Recognised in other compre-

hensive income Acquired/

disposed of As of December

31, 2013

Property, plant and equipment (40,362) (7,094) (806) (352) (48,614)

Intangible assets (3,153) 278 – – (2,875)

Investments 1,779 (794) 373 – 1,358

Inventories 275 (703) (5) – (433)

Trade and other receivables 1,113 (860) 33 – 286

Loans and borrowings (170) (365) (10) – (545)

Provisions 3,291 (391) 11 – 2,911

Tax loss carry-forwards 686 5,371 – 5 6,062

Other 301 121 207 – 629

(36,240) (4,437) (197) (347) (41,221)

18. OTHER NON-CURRENT ASSETS

Other non-current assets are primarily comprised of advances provided on capital expenditures (RUB 38,400 million and RUB 15,867 million as of December 31, 2014 and 2013, respectively).

19. SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT

As of December 31, 2014 and 2013 the Group has short-term loans and current portion of long-term debt outstanding as follows:


Bank loans 4,875 119

Other borrowings 14,251 17,706

Current portion of long-term debt 41,995 34,588

TOTAL SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT 61,121 52,413

Current portion includes interest payable on long-term borrowings.

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APPENDIX

20. TRADE AND OTHER PAYABLES

Accounts payable as of December 31, 2014 and 2013 comprise the following:


Trade accounts payable 65,624 61,003

Dividends payable 2,509 1,943

Other accounts payable 5,762 3,999

Other current financial liabilities 9,922 1,090

TOTAL TRADE AND OTHER PAYABLES 83,817 68,035

21. OTHER CURRENT LIABILITIES

Other current liabilities as of December 31, 2014 and 2013 comprise the following:


Advances received 28,863 16,607

Payables to employees 2,180 1,844

Other non-financial payables 9,878 8,199

TOTAL OTHER CURRENT LIABILITIES 40,921 26,650

22. OTHER TAXES PAYABLE

Other taxes payable as of December 31, 2014 and 2013 comprise the following:


Mineral extraction tax 16,270 19,608

VAT 12,933 15,649

Excise tax 9,276 5,826

Property tax 2,389 2,425

Other taxes 4,920 3,275

TOTAL OTHER TAXES PAYABLE 45,788 46,783

Taxes other than income tax expense for the period ended December 31, 2014 and 2013 comprise the following:

Year ended


December 31, 2013

Mineral extraction tax 236,027 214,023

Property tax 9,477 7,938

Excise tax 84,184 77,701

Other taxes 13,888 16,408

TOTAL TAXES OTHER THAN INCOME TAX 343,576 316,070

188


23. PROVISIONS FOR LIABILITIES AND CHARGES

Movement in Provisions for liabilities and charges for the period ended December 31, 2014 and 2013 is below:

Decommissioning

provision Other Total

CARRYING AMOUNT AS OF JANUARY 1, 2013 20,447 10,749 31,196Short-term part 34 7,267 7,301

Long-term part 20,413 3,482 23,895

New obligation incurred 2,872 2,200 5,072

Provision assumed in a business combination – 22 22

Utilisation and other changes of provision (3,933) 1,050 (2,883)

Change in estimates (334) 687 353

Unwind of discount 1,396 – 1,396

Translation differences 325 558 883

CARRYING AMOUNT AS OF DECEMBER 31, 2013 20,773 15,266 36,039Short-term part 33 10,125 10,158

Long-term part 20,740 5,141 25,881

New obligation incurred 1,596 657 2,253

Provision assumed in a business combination – 420 420

Utilisation and other changes of provision (1,963) (778) (2,741)

Change in estimates (839) 3,260 2,421

Unwind of discount 1,422 – 1,422

Translation differences 2,467 2,159 4,626

CARRYING AMOUNT AS OF DECEMBER 31, 2014 23,456 20,984 44,440Short-term part 168 18,396 18,564

Long-term part 23,288 2,588 25,876

24. LONG-TERM DEBT

As of December 31, 2014 and 2013 the Group has long-term outstanding loans as follows:


Bank loans 258,087 98,397

Bonds 61,609 61,583

Loan Participation Notes 221,107 132,534

Other borrowings 3,498 3,529

less current portion of debt (41,995) (34,588)

TOTAL LONG-TERM DEBT 502,306 261,455

In September 2014 the Group signed an agreement to obtain a long-term loan facility from JSC Rosselkhozbank in the amount of RUB 30 billion at an interest rate of 11.9% due in 2019. In September 2014 the Group obtained RUB 10 billion under this agreement.

In September 2014 the Group singed agreements to obtain long-term loans facilities from JSC Sberbank of Russia in the amount of RUB 22.5 billion and RUB 12.5 billion at interest rates of 11.98% and 12.08%, respectively, due in 2019. In October 2014 the Group obtained RUB 10 billion under one of the agreements.

189

APPENDIX

In March 2014 the Group drew down USD 2,150 million (RUB 78,774 million) club term facility from a group of international banks with a final maturity date falling five years from the date of the first utilisation and two-year grace period. The interest rate under the facility is LIBOR plus 1.50% per annum.

In March 2014 the Group early repaid amount outstanding under the five-year Pre-Export Finance Facility for USD 731 million (RUB 26,514 million). The facility was obtained in August 2010 and bore interest rate of LIBOR plus 1.6% per annum.

The loan agreements contain financial covenants that require the Group’s ratios of Consolidated EBITDA to Consolidated Interest Payable, Consolidated Indebtedness to Consolidated Tangible Net Worth and Consolidated Indebtedness to Consolidated EBITDA. The Group is in compliance with these covenants as of December 31, 2014 and 2013.

25. OTHER NON-CURRENT FINANCIAL LIABILITIES

Other non-current financial liabilities as of December 31, 2014 are primarily comprised of RUB 53.7 billion of deferred consideration to JSC Gazprom (see note 6) and of RUB 48.4 billion of cash flow hedge under forward contracts (RUB 3.1 billion as of December 31, 2013). The discounted liability is non-interest bearing and the timing of the redemption will occur from the future free cash flows of the Prirazlomnoye project, estimated repayment until the 2020 year.

26. SHARE CAPITAL

Share capital as of December 31, 2014 and 2013 comprise of the following:

Ordinary shares Treasury shares

December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013

Number of shares (million) 4,741 4,741 23 23

Authorised shares (million) 4,741 4,741 23 23

Par value (RUB per share) 0.0016 0.0016 0.0016 0.0016

ON ISSUE AS OF DECEMBER 31, FULLY PAID (RUB MILLION) 8 8 (1,170) (1,170)

The nominal value of share capital differs from its carrying value due to effect of the inflation.

On September 30, 2014 the general shareholders’ meeting of JSC Gazprom neft approved interim dividend on the ordinary shares for the six months ended June 30, 2014 in amount of RUB 4.62 per share.

On June 6, 2014 the annual general shareholders’ meeting of JSC Gazprom neft approved dividend on the ordinary shares for 2013 in amount of RUB 9.38 per share including amount of interim dividends for the six months ended June 30, 2013 of RUB 4.09 per share approved on September 30, 2013.

On June 7, 2013 the annual general shareholders’ meeting of JSC Gazprom neft approved dividend on the ordinary shares for 2012 in amount of RUB 9.3 per share.

190


27. PERSONNEL COSTS

Personnel costs for the period ended December 31, 2014 and 2013 comprise of the following:



Wages and salaries 56,006 47,029

Stock appreciation rights (SAR) 594 519

Other costs 3,655 5,487

TOTAL EMPLOYEE COSTS 60,255 53,035Social security contributions (social taxes) 11,886 10,633

TOTAL EMPLOYEE COSTS (WITH SOCIAL TAXES) 72,141 63,668

28. OTHER LOSS, NET

Other losses for the period ended December 31, 2014 and 2013 comprise of the following:

Year ended


December 31, 2013

Penalties (1,826) (442)

Provisions (legal, environmental, etc.) (1,460) (1,671)

Impairment (4,116) –

Other (1,069) (4,197)

TOTAL OTHER EXPENSE (8,471) (6,310)

29. NET FOREIGN EXCHANGE LOSS

Net foreign exchange loss for the periods ended December 31, 2014 and 2013 comprise of the following:

Year ended


December 31, 2013

NET FOREIGN EXCHANGE LOSS ON FINANCING ACTIVITIES, INCLUDING: (122,299) (9,803)foreign exchange gain 74,755 3,810

foreign exchange loss (197,054) (13,613)

Net foreign exchange gain on operating activities 70,034 7,637

NET FOREIGN EXCHANGE LOSS (52,265) (2,166)

The exchange losses in the amount of RUB 4.8 billion arising from foreign currency borrowings were capitalised as borrowing costs to the extent that they are regarded as an adjustment to interest costs.

Net foreign exchange gain on operating activities does not include significant amount of losses for the periods ended December 31, 2014.

191

APPENDIX

30. FINANCE INCOME

Finance income for the period ended December 31, 2014 and 2013 comprise of the following:

Year ended


December 31, 2013

Interest income on cash and cash equivalents 1,550 862

Interest on bank deposits 2,346 3,271

Interest income on loans issued 3,170 1,771

Other financial income 9 107

TOTAL FINANCE INCOME 7,075 6,011

31. FINANCE EXPENSE

Finance expense for the period ended December 31, 2014 and 2013 comprise of the following:

Year ended


December 31, 2013

Interest expense 19 661 12 047

Decommissioning provision: unwinding of the present value discount 1 422 1 396

Less: capitalised interest (5 804) (2 210)

TOTAL FINANCE EXPENSE 15 279 11 233

32. INCOME TAX EXPENSE

The Group’s applicable income tax rate for the companies located in the Russian Federation is 20%.

Year ended


December 31, 2013

CURRENT INCOME TAX EXPENSE

Current year 15,879 36,581

Adjustment for prior years 1,639 (1,758)

17,518 34,823DEFERRED TAX EXPENSE Origination and reversal of temporary differences 1,769 5,777

Change in tax rate (73) (1,340)

1,696 4,437TOTAL INCOME TAX EXPENSE 19,214 39,260Share of tax of associates and joint ventures (1,070) 2,556

TOTAL INCOME TAX EXPENSE INCLUDING SHARE OF TAX OF ASSOCIATES AND JOINT VENTURES 18,144 41,816

192


Reconciliation of effective tax rate:

Year ended December 31, 2014 Year ended December 31, 2013

млн руб. % млн руб. %

TOTAL INCOME TAX EXPENSE 18,144 12.5 41,816 18.5Profit before income tax excluding share of of profit associates and joint ventures 152,176 214,729

Profit before income tax of associates and joint ventures (7,267) 10,806

PROFIT BEFORE INCOME TAX 144,909 225,535 Tax at applicable domestic tax rate (20%) 28,982 20.0 45,107 20.0

Effect of tax rates in foreign jurisdictions (659) (0.5) (1,596) (0.7)

Difference in statutory tax rate in domestic entities (1,894) (1.3) (2,009) (0.9)

Non-deductible income and expenses (3,034) (2.1) 3,737 1.7

Adjustment for prior years (2,146) (1.5) (1,758) (0.8)

Change in tax rate (73) (0.1) (1,340) (0.6)

Foreign exchange income/losses (3,032) (2.1) (325) (0.1)

TOTAL INCOME TAX EXPENSE 18,144 12.5 41,816 18.5

33. CASH FLOW HEDGES

The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the fair value of the related hedging instrument:

Fair valueLess than 6

monthFrom 6 to 12

monthsFrom 1 to 3

years Over 3 years


Forward exchange contracts

Liabilities (58,312) (8,576) (1,345) (28,433) (19,958)

TOTAL (58,312) (8,576) (1,345) (28,433) (19,958)AS OF DECEMBER 31, 2013

Forward exchange contracts

Assets 293 9 1 1 282

Liabilities (3,177) (17) (29) (890) (2,241)

TOTAL (2,884) (8) (28) (889) (1,959)

As of December 31, 2014 and 2013 the Group has outstanding forward currency exchange contracts for a total notional value of US$ 1,642 million and US$ 1,769 million respectively. During the period ended December 31, 2014 the amount of RUB 827 million was reclassified from equity to a gain in the statement of income (for the period ended December 31, 2013 RUB 376 million was reclassified to a gain in the statement of income).

The Group uses estimation of fair value of forward currency exchange contracts prepared by independent financial institutes. Valuation results are regularly reviewed by the Management. No significant ineffectiveness occurred during the reporting period.

193

APPENDIX

34. FINANCIAL RISK MANAGEMENT

RISK MANAGEMENT FRAMEWORKGazprom neft Group has a risk management policy that defines the goals and principles of risk management in order to make the Group’s business more secure in both the short and the long term.

The Group’s goal in risk management is to increase effectiveness of Management decisions through detailed analysis of related risks.

The Group’s Integrated Risk Management System (IRMS) is a systematic continuous process that identifies, assesses and manages risks. Its key principle is that responsibility to manage different risks is assigned to different management levels depending on the expected financial impact of those risks. The Group is working continuously to improve its approach to basic IRMS processes, with special focus on efforts to assess risks and integrate the risk management process into such key corporate processes as business planning, project management and mergers and acquisitions.

FINANCIAL RISK MANAGEMENTManagement of the Group’s financial risks is the responsibility of employees acting within their respective professional spheres. The Group’s Financial Risk Management Panel defines a uniform approach to financial risk management at the Company and its subsidiaries. Activities performed by the Group’s employees and the Financial Risk Management Panel minimise potential financial losses and help to achieve corporate targets.

In the normal course of its operations the Group has exposure to the following financial risks: � market risk (including currency risk, interest rate risk and commodity price risk); � credit risk; and � liquidity risk.

MARKET RISKCurrency RiskThe Group is exposed to currency risk primarily on sales and borrowings that are denominated in currencies other than the respective functional currencies of Group entities, which are primarily the local currencies of the group companies, for instance the Russian Ruble for companies operating in Russia. The currency in which these transactions are denominated is mainly US Dollar.

The Group’s currency exchange risk is considerably mitigated by its foreign currency assets and liabilities: significant share of the Group’s borrowings is US dollars. The currency structure of revenues and liabilities acts as a hedging mechanism with opposite cash flows offsetting each other. A balanced structure of currency assets and liabilities minimises the impact of currency risk factors on the Group’s financial and business performance.

Furthermore, the Group applies hedge accounting to manage volatility in profit or loss with its cash flows in foreign currency.

The carrying amounts of the Group’s financial instruments by currencies they are denominated are as follows:

194


As of December 31, 2014

Russian Rouble USD EURO Serbian dinar

Other currencies

FINANCIAL ASSETS

CURRENT

Cash and cash equivalents 17,543 21,780 4,661 2,058 7,125

Bank deposits 630 66,558 1,146 – 8,324

Loans issued 2,162 22 – – –

Trade and other financial receivables 39,287 33,673 1,988 26,789 1,277

NON-CURRENT

Trade and other financial receivables 265 – – – –

Loans issued 25,680 2,544 5 – –

Held to maturity financial assets – 109 – – –

Available for sale financial assets 9,276 – – 14 –

FINANCIAL LIABILITIES

CURRENT

Short-term debt (25,918) (30,211) (4,980) – (12)

Trade and other financial payables (46,170) (17,195) (1,442) (7,198) (1,891)

Forward exchange contracts – (9,921) – – –

Payables and accruals to employees (11,179) (224) (12) (1,969) (336)

NON-CURRENT – – – – –Long-term debt (69,858) (365,559) (66,613) (1) (275)


Other non-current financial liabilities (57,553) – – – –

Payables and accruals to employees (7) – – – –

NET EXPOSURE (115,842) (346,815) (65,247) 19,693 14,212

As of December 31, 2013


Other currencies

FINANCIAL ASSETS

CURRENT


Bank deposits 10,804 25,031 794 – 240

Loans issued 18,434 556 – 1 –

Forward exchange contracts – 10 – – –

Trade and other financial receivables 32,897 32,939 580 20,232 700

NON-CURRENT

Trade and other financial receivables 106 – – – –

Loans issued 15,287 48 – – –

Forward exchange contracts – 283 – – –

Available for sale financial assets 6,009 – – 779 –

FINANCIAL LIABILITIES

CURRENT

Short-term debt (19,002) (29,871) (3,305) (228) (7)

Trade and other financial payables (36,555) (23,889) (546) (5,649) (1,350)

195

APPENDIX


Other currencies

Forward exchange contracts – (46) – – –

Payables and accruals to employees (7,294) (213) (4) (964) (198)

NON-CURRENT

Long-term debt (61,034) (155,452) (44,799) (1) (169)


Other non-current financial liabilities (3,897) – – – –

Payables and accruals to employees (1,982) – – – (42)

NET EXPOSURE 408 (115,370) (44,085) 15,386 840

The following exchange rates applied during the period:

Average rate Reporting date spot rate


Year ended December 31, 2013 December 31, 2014 December 31, 2013

USD 1 38.42 31.85 56.26 32.73

EUR 1 50.82 42.31 68.34 44.97

RSD 1 0.43 0.37 0.57 0.39

Sensitivity analysisThe Group has chosen to provide information about market and potential exposure to hypothetical gain/loss from its use of financial instruments through sensitivity analysis disclosures.

The sensitivity analysis showed in the table below reflects the hypothetical effect on the Group’s financial instruments and the resulting hypothetical gains/losses that would occur assuming change in closing exchange rates and no changes in the portfolio of investments and other variables at the reporting dates.

Weakening of RUB

Equity Profit or loss

DECEMBER 31, 2014

USD/RUB (70% increase) (24,159) (225,022)

EUR/RUB (70% increase) 149 (46,606)

RSD/RUB (70% increase) 61,837 –

DECEMBER 31, 2013

USD/RUB (10% increase) (3,834) (12,680)

EUR/RUB (10% increase) 21 (4,434)

RSD/RUB (10% increase) 8,030

Decrease in the exchange rates will have the same in the amount, but the opposite effect on Equity and Profit and loss of the Group.

INTEREST RATE RISKThe significant part of the Group’s borrowings is at variable interest rates (linked to the LIBOR or EURIBOR rate). To mitigate the risk of unfavourable changes in the LIBOR or EURIBOR rates, the Group’s treasury function monitors interest rate in debt markets and based on it decides whether it is necessary to hedge interest rate or to obtain financing on a fixed-rate or variable-rate basis.

196


Changes in interest rates primarily affect debt by changing either its fair value (fixed rate debt) or its future cash flows (variable rate debt). However, at the time of any new debts Management uses its judgment and information about current/expected interest rates on the debt markets to decide whether it believes fixed or variable rate would be more favourable over the expected period until maturity.

The interest rate profiles of the Group are presented below:

Carrying amount


FIXED RATE INSTRUMENTS

Financial assets 160,238 162,272

Financial liabilities (319,395) (214,800)

(159,157) (52,528)Variable rate instruments

Financial liabilities (244,032) (99,068)

(244,032) (99,068)

Cash flow sensitivity analysis for variable rate instrumentsThe Group’s financial results and equity are sensitive to changes in interest rates. If the interest rates applicable to floating debt increase by 100 basis points (bp) at the reporting dates, assuming all other variables remain constant, it is estimated that the Group’s profit before taxation will change by the amounts shown below:

Profit or loss

DECEMBER 31, 2014

Increase by 100 bp (2,440)

DECEMBER 31, 2013

Increase by 100 bp (991)

Decrease by 100 bp in the interest rates will have the same in the amount, but the opposite effect on Profit and loss of the Group.

COMMODITY PRICE RISKThe Group’s financial performance relates directly to prices for crude oil and petroleum products. The Group is unable to fully control the prices of its products, which depend on the balance of supply and demand on global and domestic markets for crude oil and petroleum products, and on the actions of supervisory agencies.

The Group’s business planning system calculates different scenarios for key performance factors depending on global oil prices. This approach enables Management to adjust cost by reducing or rescheduling investment programs and other mechanisms.

Such activities help to decrease risks to an acceptable level.

CREDIT RISKCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and in connection with investment securities.

The Group’s trade and other receivables relate to a large number of customers, spread across diverse industries and geographical areas. Gazprom neft has taken a number of steps to manage credit risk, including: counterparty solvency

197

APPENDIX

evaluation; individual lending limits and payment conditions depending on each counterparty’s financial situation; controlling advance payments; controlling accounts receivable by lines of business, etc.

The carrying amount of financial assets represents the maximum credit exposure.

TRADE AND OTHER RECEIVABLESThe Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Any excess of receivables over approved credit limit is secured by either letter of credit from bank with external credit rating not less than A or advance payment. Management believes that not impaired trade receivables are fully recoverable.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.

Impairment lossesAs of December 31, 2014 and 2013, the analysis of financial receivables is as follows:

Gross

December 31, 2014Impairment

December 31, 2014Gross

December 31, 2013Impairment

December 31, 2013

Not past due 87,434 (88) 76,049 (15)

Past due 0–180 days 9,291 (93) 6,047 (56)

Past due 180 –365 days 799 (623) 1,822 (502)

Past due 1–3 year 11,075 (5,101) 7,588 (3,621)

Past due more than three years 7,656 (7,071) 4,939 (4,797)

116,255 (12,976) 96,445 (8,991)

The movement in the allowance for impairment in respect of trade and other receivables during the period was as follows:

2014 2013

Balance at beginning of the year 8,991 8,189

Increase during the year 662 403

Amounts written off against receivables 104 48

Decrease due to reversal (284) (378)

Other movements (239) (149)

Translation differences 3,742 878

BALANCE AT END OF THE YEAR 12,976 8,991

INVESTMENTS The Group limits its exposure to credit risk mainly by investing in liquid securities. Management actively monitors credit ratings and does not expect any counterparty to fail to meet its obligations.

The Group does not have any held-to-maturity investments that were past due but not impaired at December 31, 2014 and 2013.

198


Credit quality of financial assetsThe credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:

A BBB Less than

BBB Without

rating Total



Deposits with original maturity more than 3 months less than 1 year 65,758 5,739 1,719 3,442 76,658



Derivative financial assets 151 4 61 77 293

Deposits with original maturity more than 3 months less than 1 year – 33,211 1,399 2,259 36,869

The credit quality of trade and other receivables is assessed regularly by the Management of the Group. For this purposes the customers are individually analysed based on the number of characteristics, such as: � legal form of the entity; � duration of relationships with the Group, including ageing profile, maturity and existence of any financial difficulties; � whether the customer is a final customer or not, related party or not.

One of the major factors that is considered while taking decision is ageing profile. The most significant current customers do not have any breakage of payment history.

LIQUIDITY RISK Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. In managing its liquidity risk, the Group maintains adequate cash reserves and actively uses alternative sources of loan financing in addition to bank loans. The Group’s stable financial situation helps it to mobilise funds in Russian and foreign banks with comparative ease.

The following are the contractual maturities of financial liabilities, including estimated interest payments:

Carrying amount

Contractual cash flows

Less than 6 months 6–12 months 1–2 years 2–5 years Over 5 years


Bank loans 262,962 293,629 15,797 23,460 78,335 169,132 6,905

Bonds 61,609 70,129 12,452 2,031 23,212 32,434 –

Loan Participation Notes 221,107 295,615 5,880 2,532 6,566 80,530 200,107

Other borrowings 17,749 18,118 14,362 311 220 1,219 2,006

Other non-current financial liabilities 57,553 85,171 – – 1,031 67,951 16,189

Trade and other payables 73,896 73,896 71,188 2,708 – – –

Payables and accruals to employees 13,727 13,727 13,720 – 7 – –

708,603 850,285 133,399 31,042 109,371 351,266 225,207

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APPENDIX

Carrying amount

Contractual cash flows

Less than 6 months 6–12 months 1–2 years 2–5 years Over 5 years


Bank loans 98,516 104,339 9,014 23,556 27,158 38,833 5,778

Bonds 61,583 73,526 921 2,476 14,483 55,646 –

Loan Participation Notes 132,534 177,739 848 1,067 4,921 49,557 121,346

Other borrowings 21,235 22,638 17,706 2,114 1,098 444 1,276

Other non-current financial liabilities 3,897 4,123 – – 1,031 3,092 –

Trade and other payables 67,989 67,989 66,381 1,608 – – –

Payables and accruals to employees 10,697 10,697 8,673 – 2,024 – –

396,451 461,051 103,543 30,821 50,715 147,572 128,400

CAPITAL MANAGEMENT The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, to provide sufficient return for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure the Group may revise its investment program, attract new or repay existing loans or sell certain non-core assets.

On the Group level capital is monitored on the basis of the net debt to EBITDA ratio and return on the capital on the basis of return on average capital employed ratio (ROACE). Net debt to EBITDA ratio is calculated as net debt divided by EBITDA. Net debt is calculated as total debt, which include long and short term loans, less cash and cash equivalents and short term deposits. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortisation, foreign exchange gain (loss), other non-operating expenses and includes the Group’s share of profit of equity accounted investments. ROACE is calculated in general as Operating profit adjusted for income tax expense divided by average for the period figure of Capital Employed. Capital employed is defined as total equity plus net debt.

The Group’s net debt to EBITDA ratios at the end of the reporting periods were as follows:

Year ended


December 31, 2013

Long-term debt 502,306 261,455

Short-term debt and current portion of long-term debt 61,121 52,413

Less: cash, cash equivalents and deposits (129,825) (127,946)

NET DEBT 433,602 185,922TOTAL EBITDA 300,761 316,463NET DEBT TO EBITDA RATIO AT THE END OF THE REPORTING PERIOD 1.44 0.59Operating profit 212,645 222,117

Operating profit adjusted for income tax expenses 185,796 181,506

Share of (loss) / profit of associates and joint ventures (6,306) 11,251

Average capital employed 1,373,665 1,105,397

ROACE 13.07% 17.44%

There were no changes in the Group’s approach to capital management during the period.

200


FAIR VALUE MEASUREMENTFair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date.The different levels of fair value hierarchy have been defined as follows: � Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities � Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) � Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following assets and liabilities are measured at fair value in the Group’s Consolidates Financial Statements: � Derivative financial instruments (forward exchange contracts used as hedging instruments), � Stock Appreciation Rights plan (SARs) � Financial investments classified as available for sale except for unquoted equity instruments whose fair value cannot be measured reliably that are carried at cost less any impairment losses.

Derivative financial instruments and SARs refer to Level 2 of the fair value measurement hierarchy, i.e. their fair value is determined on the basis of inputs that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices). There were no transfers between the levels of the fair value hierarchy during the period ended December 31, 2014 and 2013. There are no significant assets or liabilities measured at fair value categorised within Level 1 or Level 3 of the fair value hierarchy. The fair value of the foreign exchange contracts is determined by using forward exchange rates at the reporting date with the resulting value discounted back to present value.

As of December 31, 2014 the fair value of bonds and loan participation notes is RUB 232,210 million (as of December 31, 2013 – RUB 189,693 million). The fair value is derived from quatations in active market and related to Level 1 of the fair value hierarchy. Carrying value of other financial assets and liabilities approximate their fair value.

The table below analyses financial instruments carried at fair value, which refer to Level 2 of the fair value hierarchy.

Level 2


Forward exchange contracts (58,312)

Other financial liabilities (2,228)

TOTAL LIABILITIES (60,540)AS OF DECEMBER 31, 2013

Forward exchange contracts 293

TOTAL ASSETS 293Forward exchange contracts (3,177)

Other financial liabilities (1,631)

TOTAL LIABILITIES (4,808)

During 2010 the Board of Directors approved the implementation of a cash-settled stock appreciation rights (SAR) compensation plan. The plan forms part of the long term growth strategy of the Group and is designed to reward Management for increasing shareh older value over a specified period. Shareholder value is measured by reference to the Group’s market capitalisation. The plan is open to selected Management provided certain service conditions are met. The awards are fair valued at each reporting date and are settled in cash at the conclusion of the three years vesting period. The awards are subject to certain market and service conditions that determine the amount that may ultimately be paid to eligible employees. The expense recognised is based on the vesting period.

The fair value of the liability under the plan is estimated using the Black-Scholes-Merton option-pricing model by reference primarily to the Group’s share price, historic volatility in the share price, dividend yield and interest rates for periods comparable to the remaining life of the award. Any changes in the estimated fair value of the liability award will be recognised in the period the change occurs subject to the vesting period.

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APPENDIX

The following assumptions are used in the Black-Scholes-Merton model as of 2013:

December 31, 2013

Volatility 3.7%

Risk-free interest rate 6.12%

Dividend yield 4.69%

As of December 31, 2014 no assumption required to be made by the Group as SAR accrual based on actual calculation is accounted for in these Consolidated Financial Statements.

In the consolidated statement of comprehensive income for the period ended December 31, 2014 and 2013 the Group recognised compensation expense of RUB 594 million and RUB 519 million respectively. This expense is included within selling, general and administrative expenses. A three years provision of RUB 2,228 million has been recorded in respect of the Group’s estimated obligations under the plan as of December 31, 2014. As of December 31, 2013 the amount of the two years provision was equal to RUB 1,631 million.

35. OPERATING LEASES

Non-cancellable operating lease rentals are payable as follows:


Less than one year 15,425 2,659

Between one and five years 24,211 4,905

More than five years 69,062 20,472

108,698 28,036

The Group rentals mainly land plots under pipelines and office premises.

36. COMMITMENTS AND CONTINGENCIES

TAXESRussian tax and customs legislation is subject to frequent changes and varying interpretations. Management’s treatment of such legislation as applied to the transactions and activity of the Group, including calculation of taxes payable to federal and regional budgets, may be challenged by the relevant authorities. The Russian tax authorities may take a more assertive position in their treatment of legislation and assessments, and there is a risk that transactions and activities that have not been challenged in the past may be challenged later. As a result, significant additional taxes, penalties and interest may be accrued. Fiscal periods remain open to review by the authorities in respect of taxes for the preceding three calendar years from the year when the tax authorities make decision regarding tax reviews. Under certain circumstances reviews by tax authorities may cover longer periods. The years 2012, 2013 and 2014 are currently open for review. Management believes it has adequately provided for any probable additional tax accruals that might arise from these reviews.

Russian transfer pricing legislation was amended starting from January 1, 2012 to introduce significant reporting and documentation requirements regarding market environment at the date of transaction. Compared to the old rules the new transfer pricing rules appear to be more technically elaborate and better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). The new legislation allows the tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controllable transactions (transactions with a related party and some types of transactions with an unrelated party), if the transaction pricing was not at arm’s length. The Group’s transactions with related parties are subject to constant internal review for compliance with the new transfer pricing rules. The Group believes that the transfer pricing documentation that the Group

202


has prepared to comply with the new legislation provides sufficient evidence to support the Group’s tax positions and related tax returns. In addition in order to mitigate potential risks, the Group negotiates pricing approaches for major controllable transactions with tax authorities in advance. Nine pricing agreements between the Group and tax authorities regarding some significant intercompany transactions have been concluded in 2012-2014. Given that the practice of implementation of the new transfer pricing rules has not yet developed and some clauses of the new law have contradictions and cannot be called unambiguous, the impact of any challenge to the Group’s transfer prices cannot be reliably estimated.

ECONOMIC ENVIRONMENT IN THE RUSSIAN FEDERATIONThe Russian Federation displays certain characteristics of an emerging market. Tax, currency and customs legislation is subject to varying interpretations and contributes to the challenges faced by companies operating in the Russian Federation. The political and economic instability, uncertainty and volatility of the financial markets and other risks may have negative effects on the Russian financial and corporate sectors. The future economic development of the Russian Federation is dependent upon external factors and internal measures undertaken by the government to sustain growth, and to change the tax, legal and regulatory environment. Management believes it is taking all necessary measures to support the sustainability and development of the Group’s business in the current business and economic environment.

In 2014 the U.S., the EU and certain other countries imposed sanctions on the Russian energy sector that partially apply to the Group.

The U.S. sanctions prohibit any U.S. person, and U.S. incorporated entities (including their foreign branches) or any person or entity in the United States from (1) transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity for a number of Russian energy companies, including JSC Gazprom neft, and (2) from providing, exporting, or reexporting, directly or indirectly, goods, services (except for financial services), or technology in support of exploration or production for deep water, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory to Russian companies, including JSC Gazprom neft. These sanctions also apply to any entity if 50% or more of its capital is owned, directly or indirectly, separately or in the aggregate, by sanctioned entities.

The EU sanctions, imposed in July 2014, prohibit: (1) the sale, supply, transfer or export of the equipment or technology for projects pertaining to deep water oil exploration and production, Arctic oil exploration and production, or shale oil projects in the Russian Federation; (2) technical assistance or brokering services related to such technologies; (3) financing or financial assistance related to any sale, supply, transfer or export of such technologies.

The sanctions, imposed by the EU and several other countries in September 2014, additionally prohibit: (4) provision of drilling, well testing, logging and completion services and supply of specialized floating vessels necessary for deep water oil exploration and production, Arctic oil exploration and production, or shale oil projects in Russia, (5) purchasing, selling, providing investment services for or assistance in the issuance of, or other dealings with transferable securities, money-market instruments and new loans or credit with a maturity exceeding 30 days, issued by / extended to a number of Russian companies, including JSC Gazprom neft and any legal person, entity or body established outside the Union which are directly or indirectly owned for more than 50% by JSC Gazprom neft.

In November 2014 Switzerland imposed the following restrictions: (1) authorisation is required for issuance and trade in financial instruments, issued by JSC Gazprom neft, with a maturity exceeding 30 days and for the granting of loans with a maturity exceeding 30 days in favor of Gazprom neft; (2) notification of the Swiss competent authority is required in case of trade in financial instruments with a maturity exceeding 30 days, issued by JSC Gazprom neft outside Switzerland and EU; (3) notification of the Swiss competent authority is required for provision of drilling, well testing, logging and completion services and supply of specialized floating vessels necessary for deep water oil exploration and production, Arctic oil exploration and production, or shale oil projects in Russia.

The Group continues to assess the impact of the sanctions but currently does not believe they have a significant impact on the Consolidated Financial Statements.

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APPENDIX

ENVIRONMENTAL MATTERSThe enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its potential obligations under environmental regulation. Management is of the opinion that the Group has met the government’s requirements concerning environmental matters, and the Group does not therefore have any material environmental liabilities.

CAPITAL COMMITMENTSAs of December 31, 2014 the Group has entered into contracts to purchase property, plant and equipment for RUB 230,578 million (December 31, 2013: RUB 109,314 million).

37. GROUP ENTITIES

The most significant subsidiaries of the Group and the ownership interest are presented below:

SubsidiaryCountry of incorporation

Ownership interest


OJSC "Gazpromneft-Omsk" Russian Federation 100% 100%

OJSC "Gazpromneft-Tumen" Russian Federation 100% 100%

OJSC "Gazpromneft-Ural" Russian Federation 100% 100%

OJSC "Gazpromneft-Novosibirsk" Russian Federation 100% 100%

OJSC "Gazpromneft-Yaroslavl" Russian Federation 93% 93%

OJSC "Gazpromneft-Noyabrskneftegaz" Russian Federation 100% 100%

OJSC "Uzhuralneftegaz" Russian Federation 88% 88%

OJSC "Gazpromneft-ONPZ" Russian Federation 100% 100%

OJSC "Gazpromneft-MNPZ" Russian Federation 100% 96%

OJSC "CNT" Russian Federation 100% 100%

CJSC "Gazpromneft-Severo-Zapad" Russian Federation 100% 100%

CJSC "Gazpromneft-Kuzbass" Russian Federation 100% 100%

CJSC "Gazpromneft-Aero" Russian Federation 100% 100%

CJSC "Gazprom neft Orenburg" Russian Federation 100% 100%

LLC "Gazpromneft Marin Bunker" Russian Federation 100% 100%

LLC "Gazpromneft-Center" Russian Federation 100% 100%

LLC "Gazpromneftfinance" Russian Federation 100% 100%

LLC "Gazpromneft-Invest" Russian Federation 100% 100%

LLC "Gazpromneft -Regionalnye prodazhy" Russian Federation 100% 100%

LLC "Gazpromneft-smazochnye materialy" Russian Federation 100% 100%

LLC "Gazpromneft-Vostok" Russian Federation 100% 100%

LLC "Zapolyarneft" Russian Federation 100% 100%

LLC "Gazpromneft-Hantos" Russian Federation 100% 100%

LLC "Gazpromneft-Bitumnye materialy" Russian Federation 100% 100%

LLC "Gazpromneft-NTC" Russian Federation 100% 100%

LLC "Gazprom neft Novy Port" Russian Federation 90% 90%

LLC "Gazprom neft shelf" Russian Federation 100% –

Gazprom Neft Trading GmbH Austria 100% 100%

Naftna industrija Srbije A.D. Serbia 56% 56%

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The following table summarises the consolidated information relating to the significant Group’s subsidiary Naftna industrija Srbije A.D. and its subsidiaries. The carrying amount of non-controlling interests of all other subsidiaries are not significant individually.

Carrying amount of non-

controlling interest

Profit attributable

to non-controlling

interest Current

assets Non-current

assets Current

liabilities Non-current

liabilities

As of December 31, 2014 58,536 25,225 62,066 192,646 (42,726) (62,027)

As of December 31, 2013 38,600 22,724 44,486 134,987 (39,816) (31,453) Revenue Profit

Year ended December 31, 2014 153,706 11,053

Year ended December 31, 2013 129,568 16,733

Dividends paid in 2014 by Naftna industrija Srbije A.D. to non-controlling share comprised RUB 2.3 billion (2013: RUB 2.0 billion).

38. RELATED PARTY TRANSACTIONS

For the purpose of these Consolidated Financial Statements parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operational decisions as defined by IAS 24 Related Party Disclosures. Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.

The Group has applied the exemption as allowed by IAS 24 not to disclose all government related transactions, as the parent of the Company is effectively being controlled by the Russian Government. The table below summarises transactions in the ordinary course of business with either the parent company or associates and joint ventures.

The Group enters into transactions with related parties based on market or regulated prices. Short-term and long-term loans provided as well as debt are based on market conditions available for not related entities.

As of December 31, 2014 and 2013 the outstanding balances with related parties were as follows:

December 31, 2014 Parent company Parent's subsidiaries

and associates Associates and joint

ventures

Cash and cash equivalents – 13,780 –

Short-term financial assets – 1,719 1,295

Trade and other receivables 1,257 3,038 13,190

Other assets 38 3,762 1,889

Long-term financial assets – – 23,541

TOTAL ASSETS 1,295 22,299 39,915Short-term debt and other current financial liability – – (981)

Trade and other payables (1,096) (2,217) (1,956)

Other current liabilities (2,108) (507) (328)

Long-term debt and other non-current financial liability (57,552) – –

TOTAL LIABILITIES (60,756) (2,724) (3,265)

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APPENDIX

December 31, 2013 Parent company Parent's subsidiaries


ventures

Cash and cash equivalents – 32,965 –

Short-term financial assets – 16,248 2,869

Trade and other receivables 2,760 3,178 3,497

Other assets 635 3,010 1,326

Long-term financial assets – 2,587 6,494

TOTAL ASSETS 3,395 57,988 14,186Short-term debt and other current financial liability – – 1,246

Trade and other payables 1,277 3,432 2,488

Other current liabilities 1 761 413

Long-term debt and other non-current financial liability 3,897 – 1,000

TOTAL LIABILITIES 5,175 4,193 5,147

For the period ended December 31, 2014 and 2013 the following transactions occurred with related parties:

Year ended December 31, 2014 Parent company Parent's subsidiaries


ventures

Crude oil, gas and oil products sales 14,259 22,523 42,790

Other revenue 16 414 10,830

Purchases of crude oil, gas and oil products – 38,825 84,599

Production related services – 14,737 19,092

Transportation costs 8,176 1,519 2,717

Interest income – 821 1,772

Year ended December 31, 2013 Parent company Parent's subsidiaries


ventures

Crude oil, gas and oil products sales 9,929 21,994 48,156

Other revenue 158 321 6,420

Purchases of crude oil, gas and oil products – 31,250 84,618

Production related services 145 13,597 17,089

Transportation costs 4,727 2,025 6,120

Interest income – 788 486

TRANSACTIONS WITH KEY MANAGEMENT PERSONNELFor the periods ended December 31, 2014 and 2013 the Group recognized RUB 1,420 million and RUB 1,181 million, respectively, as compensation for key management personnel (members of the Board of Directors and Management Committee). The compensation consists of salaries, bonuses including SAR and other contributions.

39. SEGMENT INFORMATION

Presented below is information about the Group’s operating segments for the period ended December 31, 2014 and 2013. Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM), and for which discrete financial information is available.

The Group manages its operations in 2 operating segments: Upstream and Downstream.

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Upstream segment (exploration and production) includes the following Group operations: exploration, development and production of crude oil and natural gas (including joint ventures results), oil field services. Downstream segment (refining and marketing) processes crude into refined products and purchases, sells and transports crude and refined petroleum products (refining and marketing). Corporate centre expenses are presented within the Downstream segment.

Eliminations and other adjustments section encompasses elimination of inter-segment sales and related unrealised profits, mainly from the sale of crude oil and products, and other adjustments.

Intersegment revenues are based upon prices effective for local markets and linked to market prices.

Adjusted EBITDA represents the Group’s EBITDA and its share in associates and joint ventures’ EBITDA. Management believes that adjusted EBITDA represents useful means of assessing the performance of the Group’s ongoing operating activities, as it reflects the Group’s earnings trends without showing the impact of certain charges. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortisation, foreign exchange gain (loss), other non-operating expenses and includes the Group’s share of profit of associates and joint ventures. EBITDA is a supplemental non-IFRS financial measure used by Management to evaluate operations.

Year ended December 31, 2014 Upstream Downstream Eliminations Total

SEGMENT REVENUESRefined products, oil and gas sales and other revenues :

External customers 24,226 1,384,012 – 1,408,238

Inter-segment 454,755 10,114 (464,869) –

TOTAL REVENUES 478,981 1,394,126 (464,869) 1,408,238SEGMENT RESULTSAdjusted EBITDA 160,320 182,294 – 342,614

Depreciation, depletion and amortisation 64,223 21,728 – 85,951

CAPITAL EXPENDITURE 208,796 62,534 – 271,330

Year ended December 31, 2013 Upstream Downstream Eliminations Total

SEGMENT REVENUESRefined products, oil and gas sales and other revenues :

External customers 24,284 1,243,319 – 1,267,603

Inter-segment 445,356 7,287 (452,643) –

TOTAL REVENUES 469,640 1,250,606 (452,643) 1,267,603 SEGMENT RESULTS Adjusted EBITDA 175,474 161,278 – 336,752

Depreciation, depletion and amortisation 59,095 17,690 – 76,785

CAPITAL EXPENDITURE 154,489 54,122 – 208,611

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APPENDIX

The geographical segmentation of the Group’s revenue and capital expenditures for the period ended December 31, 2014 and 2013 is presented below:

Year ended December 31, 2014 Russian

Federation CIS

Export and international

operations Total

Sales of crude oil 42,624 15,889 233,101 291,614

Sales of petroleum products 715,854 64,582 546,498 1,326,934

Sales of gas 24,406 – 1,604 26,010

Other sales 40,695 1,430 3,874 45,999

Less custom duties and sales related excises – (593) (281,726) (282,319)

REVENUES FROM EXTERNAL CUSTOMERS, NET 823,579 81,308 503,351 1,408,238Year ended December 31, 2013

Sales of crude oil 19,257 48,620 209,449 277,326

Sales of petroleum products 630,359 58,309 477,365 1,166,033

Sales of gas 23,926 – 1,461 25,387

Other sales 31,266 1,065 2,960 35,291

Less custom duties and sales related excises – (3,355) (233,079) (236,434)

REVENUES FROM EXTERNAL CUSTOMERS, NET 704,808 104,639 458,156 1,267,603

Russian

Federation CIS

Export and international

operations Total

Non-current assets as of December 31, 2014 1,288,625 15,332 253,751 1,557,708

Capital expenditures for period ended December 31, 2014 235,337 1,737 34,256 271,330

Non-current assets as of December 31, 2013 935,843 10,233 143,572 1,089,648

Capital expenditures for period ended December 31, 2013 168,085 2,783 37,743 208,611

Adjusted EBITDA for the period ended December 31, 2014 and 2013 is reconciled below:

Year ended


December 31, 2013

Profit for the period 126,656 186,720

Total income tax expense 19,214 39,260

Finance expense 15,279 11,233

Finance income (7,075) (6,011)

Depreciation, depletion and amortisation 85,951 76,785

Net foreign exchange loss 52,265 2,166

Other loss, net 8,471 6,310

EBITDA 300,761 316,463add share of loss / (profit) of associates and joint ventures 6,306 (11,251)

add share of EBITDA of associates and joint ventures 35,547 31,540

TOTAL ADJUSTED EBITDA 342,614 336,752

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The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). In the absence of specific IFRS guidance, the Group has reverted to other relevant disclosure standards, mainly US GAAP, that are consistent with practices established for the oil and gas industry. While not required under IFRS, this section provides unaudited supplemental information on oil and gas exploration and production activities.

The Group makes certain supplemental disclosures about its oil and gas exploration and production that are consistent with practices. While this information was developed with reasonable care and disclosed in good faith, it is emphasised that some of the data is necessarily imprecise and represents only approximate amounts because of the subjective judgments involved in developing such information. Accordingly, this information may not necessarily represent the current financial condition of the Group or its expected future results.

The Group voluntarily uses the SEC definition of proved reserves to report proved oil and gas reserves and disclose certain unaudited supplementary information associated with the Group’s consolidated subsidiaries, share in joint operations, associates and joint ventures.

The proved oil and gas reserve quantities and related information regarding standardised measure of discounted future net cash flows do not include reserve quantities or standardised measure information related to the Group’s Serbian subsidiary, NIS, as disclosure of such information is prohibited by the Government of the Republic of Serbia. The disclosures regarding capitalised costs relating to and results of operations from oil and gas activities do not include the relevant information related to NIS.

Presented below are capitalised costs relating to oil and gas producing activities:


CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONSUnproved oil and gas properties 70,295 48,191

Proved oil and gas properties 1,163,584 778,836

Less: Accumulated depreciation, depletion and amortisation (373,218) (275,369)

NET CAPITALISED COSTS OF OIL AND GAS PROPERTIES 860,661 551,658GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES

Proved oil and gas properties 366,771 242,134

Less: Accumulated depreciation, depletion and amortisation (80,870) (62,613)

Net capitalised costs of oil and gas properties 285,901 179,521

TOTAL CAPITALISED COSTS CONSOLIDATED AND EQUITY INTERESTS 1,146,562 731,179

Presented below are costs incurred in acquisition, exploration and development of oil and gas reserves for the period ended December 31:


CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONSExploration costs 936 3 159

Development costs 179 461 132 907

COSTS INCURRED 180 397 136 066GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES

Exploration costs 583 1 034

Development costs 51 676 43 143

TOTAL COSTS INCURRED CONSOLIDATED AND EQUITY INTERESTS 232 656 180 243

209

APPENDIX

Results of operations from oil and gas producing activities for the period ended:


CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONSRevenues:

Sales 100,567 115,460

Transfers 396,928 325,942

TOTAL REVENUES 497,495 441,402Production costs (84,089) (71,847)



Taxes other than income tax (245,484) (220,032)

PRETAX INCOME FROM PRODUCING ACTIVITIES 103,581 86,295Income tax expenses (12,058) (16,561)

RESULTS OF OIL AND GAS PRODUCING ACTIVITIES 91,523 69,734GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURESTotal revenues 98,849 87,976

Production costs (20,311) (13,368)



Taxes other than income tax (50,604) (46,456)

PRETAX INCOME FROM PRODUCING ACTIVITIES 11,058 14,517Income tax expenses 1,979 (2,803)

RESULTS OF OIL AND GAS PRODUCING ACTIVITIES 13,037 11,714TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESULTS OF OIL AND GAS PRODUCING ACTIVITIES 104,560 81,448

PROVED OIL AND GAS RESERVE QUANTITIES Proved reserves are defined as the estimated quantities of oil and gas, which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. In some cases, substantial new investment in additional wells and related support facilities and equipment will be required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change over time as additional information becomes available.

Proved developed reserves are those reserves, which are expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those reserves which are expected to be recovered as a result of future investments to drill new wells, to recomplete existing wells and/or install facilities to collect and deliver the production from existing and future wells.

210


As determined by the Group’s independent reservoir engineers, DeGolyer and MacNaughton, the following information presents the balances of proved oil and gas reserve quantities (in millions of barrels and billions of cubic feet respectively):

Proved Oil Reserves Quantities – in MMBbl December 31, 2014 December 31, 2013

CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONSBEGINNING OF YEAR 4,981 4,870Production (307) (300)

Purchases of minerals in place 105 –

Revision of previous estimates 272 411

END OF YEAR 5,051 4,981Minority’s share included in the above proved reserves (16) (17)

Proved reserves, adjusted for minority interest 5,035 4,964

Proved developed reserves 2,747 2,614

Proved undeveloped reserves 2,304 2,367

GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURESBEGINNING OF YEAR 1,189 982Production (77) (67)

Purchases of minerals in place 58 87


END OF YEAR 1,362 1,189Proved developed reserves 614 472

Proved undeveloped reserves 748 717

TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESERVES – END OF YEAR 6,413 6,170

Proved Gas Reserves Quantities – in Bcf December 31, 2014 December 31, 2013

CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONSBEGINNING OF YEAR 6,323 6,092Production (455) (436)

Purchases of minerals in place 23 –


END OF YEAR 6,321 6,323Minority’s share included in the above proved reserves (29) (38)

Proved reserves, adjusted for minority interest 6,292 6,285

Proved developed reserves 3,821 3,781


GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURESBEGINNING OF YEAR 7,069 3,951Production (150) (58)

Purchases of minerals in place 1,677 1,014

Revision of previous estimates 1,592 2,162

END OF YEAR 10,188 7,069Proved developed reserves 4,357 493


TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESERVES – END OF YEAR 16,509 13,392

211

APPENDIX

STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES Estimated future cash inflows from production are computed by applying average first-day-of-the-month price for oil and gas for each month within the 12 month period before the balance sheet date to year-end quantities of estimated proved reserves. Adjustment in this calculation for future price changes is limited to those required by contractual arrangements in existence at the end of each reporting period. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end proved reserves based on year-end cost indices, assuming continuation of year end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates. These rates reflect allowable deductions and tax credits and are applied to estimated future pre-tax cash flows, less the tax bases of related assets. Discounted future net cash flows have been calculated using a 10% discount factor. Discounting requires a year-by-year estimate of when future expenditures will be incurred and when reserves will be produced.

The information provided in tables set out below does not represent Management’s estimate of the Group’s expected future cash flows or of the value Group’s proved oil and gas reserves. Estimates of proved reserves quantities are imprecise and change over time, as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The calculations should not be relied upon as an indication of the Group’s future cash flows or of the value of its oil and gas reserves.


CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONSFuture cash inflows 12,756,212 7,690,400

Future production costs (7,734,833) (4,723,691)

Future development costs (938,935) (612,498)

Future income tax expenses (665,167) (354,004)

Future net cash flow 3,417,277 2,000,207

10% annual discount for estimated timing of cash flow (1,936,851) (1,197,686)

STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW 1,480,426 802,521GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURESFuture cash inflows 3,593,104 2,084,265

Future production costs (2,003,356) (1,085,733)

Future development costs (254,790) (151,527)

Future income tax expenses (228,982) (153,455)

Future net cash flow 1,105,976 693,550

10% annual discount for estimated timing of cash flow (668,192) (407,796)

STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW 437,784 285,754TOTAL CONSOLIDATED AND EQUITY INTERESTS IN THE STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW 1,918,210 1,088,275

212

MAJOR TRANSACTIONS AND RELATED PARTY TRANSACTIONS

List of related party transactions concluded in 2014 approved by OJSC Gazprom Neft management bodies

No. Name of party to the transaction Subject of transaction and essential terms Entity interested in the transaction

No. of minutes, date

TRANSACTIONS APPROVED BY THE BOARD OF DIRECTORS

1 OJSC Gazprom Neft – Buyer; OJSC NOVATEK – Supplier

Contract for the supply of stable gas condensate and additional agreements thereto, volume of 506,000 tonnes, transaction price of up to 9.0 bn RUB, including 18% VAT, before 31/12/2014.

Board of Directors member K.G. Seleznev

PT-0102/02 dated 31/01/2014

2 OJSC Gazprom Neft – Supplier; OJSC Gazpromneft-Moscow Oil Refinery – Processor

Contract for oil refining not exceeding 8 mn tonnes with value not exceeding 15.0 bn RUB from 01/06/2013 to 01/02/2014.

Company’s shareholder – OJSC Gazprom

PT-0102/02 dated 31/01/2014

3 OJSC Gazprom Neft; LLC Gazpromneftfinance; OJSC SIBUR Holding; Lengville Limited, Cyprus Lensey Limited; Cyprus LLC Poliom

Framework agreement on a joint venture for polypropylene production on the core of LLC Omsk Polypropylene Plant.

Company’s shareholder – OJSC Gazprom; Board of Directors member and CEO A.V. Dyukov

PT-0102/03 dated 14/02/2014

4 OJSC Gazprom Neft – Assignor; CJSC Sibgazpolimer – Assignee

Assignment of rights of claim of OJSC Gazprom Neft to CJSC GK Titan (hereinafter the transaction) on the following terms:Subject of the transaction: accounts receivable of CJSC GK Titan to OJSC Gazprom Neft under Contract No. 04/P-0131 dated 11/11/2004 and under Contract No. GPN-11/27110/02066/D dated 08/09/2011 (hereinafter Accounts Receivable);Amount of the assigned rights of claim: the actual amount of Accounts Receivable determined as of the acquisition date by CJSC Sibgazpolimer of a 50% stake in the charter capital of LLC Poliom, but no more than 1,250,000,000 (one billion two hundred fifty million) RUB;Remuneration payment deadline for the assignment of rights of claim: no more than 30 days from the transfer date of the rights of claim from the assignor to the assignee.


PT-0102/03 dated 14/02/2014

5 LLC Gazpromneftfinance – Borrower;OJSC Gazprom Neft – Lender

Provision of an interest-bearing loan for no more than 1.4 bn RUB with repayment no later than 31/12/2018; interest rate to be set according to the MIBID (Moscow InterBank Bid) rate for a period of 181 days to 1 year published by the Bank of Russia on its official website www.cbr.ru/mkr_base/main.asp and in effect as of the loan issuance date with respect to the first year and the first business day of the second and each subsequent year


PT-0102/03 dated 14/02/2014

213

www.gazprom-neft.ruGAZPROM NEFT 2014 ANNUAL REPORT



6 OJSC Gazpromneft-Noyabrskneftegaz – Borrower;OJSC Gazprom Neft – Lender

Provision of an interest-bearing loan for no more than 9.0 bn RUB with repayment no later than 31/12/2018; interest rate to be set according to the MIBID (Moscow InterBank Bid) rate for a period of 181 days to 1 year published by the Bank of Russia on its official website www.cbr.ru/mkr_base/main.asp and in effect as of the loan issuance date with respect to the first year and the first business day of the second and each subsequent year


PT-0102/08 dated 12/03/2014

7 Seller – OJSC Gazprom Neft;Buyer – LLC Gazpromneft-Khantos

Property sale contracts, total amount of transaction – 594,448,600 RUB, including VAT of 90,678,600 RUB. The value of the immoveable property is 476,566,600 RUB, including VAT of 72,696,600 RUB; the value of the moveable property is 117,882,000 RUB, including VAT of 17,982,000. The transaction price is determined based on the market value of the alienated property as calculated by LLC Stroyexpertservice;Payment form: cash or mutual settlement of counter claims by the Parties.Sold property: list of immovable and moveable property belonging to OJSC Gazprom Neft located at the South Kinyaminsky license area.


PT-0102/08 dated 12/03/2014

8 OJSC Gazprom Neft, Gazprom Neft Projects B.V., OJSC Sberbank of Russia

Contract on the preferential satisfaction of the rights of claim of OJSC Sberbank of Russia as a creditor under Non-Revolving Credit Line Agreement No. 5688 dated 24/12/2013 with LLC Yamal Development, acting as the Borrower, with respect to the rights of claim of OJSC Gazprom Neft and Gazprom Neft Projects B.V., which are the lenders under unnumbered loan agreement dated 29/11/2013 between OJSC Gazprom Neft and LLC Yamal Development.


PT-0102/13 dated 09/04/2014

9 LLC Yamal Development – Borrower;OJSC Gazprom Neft – Lender;Gazprom Neft Projects B.V. – Subsidiary Lender

Additional agreement to unnumbered loan agreement dated 29/11/2013 – accession to the Loan Agreement of the Subsidiary Lender, which agrees to provide the Borrower with the Loan envisaged by the Loan Agreement if the Lender fails to meet its obligations to provide the Borrower with the loan in the manner and by the dates envisaged by the Loan Agreement, and the Borrower agrees to repay the Loan and accrued interest to the Subsidiary Lender by the date stipulated in the Loan Agreement.


PT-0102/13 dated 09/04/2014

10 OJSC Gazprom Neft – Customer; NP SC Avangard – Executor

Contract on the provision of advertising services for the placement of advertising materials of the OJSC Gazprom Neft retail brands at games of the KHL and MHL as well as other hockey tournaments. Services provided from 01/08/2014 to 30/04/2015. Price of 920,400,000 RUB.

Management Board members A.M. Dybal and Y.A. Ilyukhina

PT-0102/19 dated 19/05/2014

11 OJSC Gazprom Neft and LLC Gazprom Mezhregiongaz

Additional Agreement No. 4 to Supply Contract No. 1-016/13 dated 12/12/2012. Services provided from 01/01/2013 to 31/12/2016.

Company’s shareholder – OJSC Gazprom, Board of Directors member K.G. Seleznev

PT-0102/19 dated 19/05/2014

214

APPENDIX



12 OJSC Gazprom Neft and LLC Gazprom Mezhregiongaz

Additional Agreement No. 5 to Supply Contract No. 1-016/13 dated 12/12/2012.


PT-0102/20 dated 20/05/2014

13 Seller – OJSC Gazprom, Buyer – OJSC Gazprom Neft;

Sale contract for a 100% stake in the charter capital of LLC Gazprom Neft Shelf with nominal value of 1,000,000 (one million) RUB; Price: 2,682,300,000 (two billion six hundred eighty-two million three hundred thousand) RUB; Payment form: cash.

Company’s shareholder – OJSC Gazprom, Board of Directors members A.B. Miller, K.G. Seleznev, Y.V. Mikhailova, A.V. Kruglov, M.L. Sereda, N.N. Dubik, V.V. Cherepanov and V.A. Golubev

PT-0102/21 dated 21/05/2014

14 OJSC Gazprom Neft and NP Avangard IC

Additional Agreement No. 1 to Contract No. GPN-13/09000/02467/R dated 17/12/2013 on the provision of advertising services in the period from 01/08/2014 to 30/04/2015. The total cost of advertising services provided (advertising work performed) by the Executor over the entire validity of the Contract is 798,860,000 RUB, including VAT of 121,860,000 RUB.


PT-0102/24 dated 04/06/2014

15 OJSC Gazprom Neft – Advertiser, CJSC Hockey Club SKA – Club.

Contract on the provision of advertising services and advertising campaign for OJSC Gazprom Neft retail brands by CJSC Hockey Club SKA under instructions of the Advertiser as part of which OJSC Gazprom Neft is given the status of “Sponsor of Hockey Club SKA” and a sponsorship package of advertising services that are provided, among other reasons, in connection with the participation of the Club’s team in games of the Kontinental Hockey League and Russian Hockey Championship season in 2013-2014 and 2014-2015. Over the period from 01/12/2013 to 31/12/2014. Price: 1.18 bn RUB, including VAT of 180 mn RUB.

Board of Directors member and CEO A.V. Dyukov

PT-0102/24 dated 04/06/2014

16 OJSC Gazprom Neft and CJSC Football Club Zenit

Additional Agreement No. 1 to Contract No. GPN-13/09000/01179/R dated 28/06/2013 on the provision of advertising services in the period from 01/07/2013 to 30/06/2014, including services during home games according to the schedule posted on the Club’s website: www.fc-zenit.ru, on the terms agreed in the Appendices to this Contract. Transaction price of 622,232.820.00 RUB, including 18% VAT of 94,916,870.85 RUB.

Board of Directors member and CEO A.V. Dyukov, Board of Directors member K.G. Seleznev

PT-0102/27 dated 16/06/2014

17 OJSC Gazprom Neft – Customer, OJSC Gazpromneft-Moscow Oil Refinery – Processor

Contract for the refining of 8,726,365 tonnes of oil with a refining cost per 1 tonne of oil and other raw commodities totalling 1,827 RUB, excluding VAT, for the period from 01/02/2014 to 01/12/2014.

Company’s shareholder – OJSC Gazprom, Management Board member A.M. Cherner

PT-0102/30 dated 27/06/2014

18 OJSC Slavneft OGC – Supplier; OJSC Gazprom Neft – Buyer;

Oil supply contract for 252,231 tonnes with value of up to 3,531,234,000 RUB, including VAT. Contract validity: from 01/01/2014 to 31/12/2014.

Management Board members A.M. Cherner, V.V. Baranov, A.V. Yankevich and V.V. Yakovlev, Board of Directors member and CEO A.V. Dyukov

PT-0102/30 dated 27/06/2014

215




19 OJSC Gazprom Neft - Guarantor, Gazprom Neft Trading Gmbh or another subsidiary of OJSC Gazprom Neft – Principal; Tempio Shipping Company Limited or another wholly owned subsidiary of OJSC Sovcomflot – Beneficiary

Provision of surety to OJSC Gazprom Neft for the obligations of Gazprom Neft Trading Gmbh to OJSC Sovcomflot for an amount not exceeding 5 mn USD for the period until 31/12/2028.


PT-0102/31 dated 01/07/2014

20 OJSC Gazprom Neft – Guarantor, Gazprom Neft Trading Gmbh or another subsidiary of OJSC Gazprom Neft – Principal; Aizar Shipping Company Limited or another wholly owned subsidiary of OJSC Sovcomflot – Beneficiary



PT-0102/31 dated 01/07/2014

21 OJSC Gazprom Neft – Guarantor, Gazprom Neft Trading Gmbh or another subsidiary of OJSC Gazprom Neft – Principal; Yssar Shipping Company Limited or another wholly owned subsidiary of OJSC Sovcomflot – Beneficiary



PT-0102/31 dated 01/07/2014

22 OJSC Gazprom Neft – Guarantor, Gazprom Neft Trading Gmbh or another subsidiary of OJSC Gazprom Neft – Principal; OJSC Sovcomflot, a wholly owned subsidiary of OJSC Sovcomflot or a partner company nominated by OJSC Sovcomflot acting as a ship owner – Beneficiary



PT-0102/31 dated 01/07/2014




PT-0102/31 dated 01/07/2014




PT-0102/31 dated 01/07/2014

216

APPENDIX



25 OJSC Gazprom Neft – Company, CJSC Football Club Zenit – Club

Contract on the provision of advertising services in the period from 01/07/2014 to 30/06/2019, including services during home games according to the schedule posted on the Club’s website: www.fc-zenit.ru, on the terms agreed in the Appendices to this Contract. Over the period from 01/07/2014 to 30/06/2019. Price: 1. Over the period from 01/07/2014 to 30/06/2015: 14.4 mn EUR, including 18% VAT. 2. Starting from 01/07/2015, services provided as part of Appendix No. 2 amounting to 19 mn EUR, including 18% VAT.


PT-0102/32 dated 11/07/2014

26 LLC Yamal Development – Borrower; OJSC Gazprom Neft – Lender; Gazprom Neft Projects B.V. – Subsidiary Lender

Provision of an interest-bearing loan for no more than 10.5 bn RUB with an interest rate not exceeding 10.90% p.a. and a repayment date no later than 31/12/2021.


PT-0102/35 dated 29/08/2014

27 LLC Yamal Development- Borrower;OJSC Gazprom Neft – Lender; Gazprom Neft Projects B.V. – Subsidiary Lender

Provision of an interest-bearing loan for no more than 10 bn RUB with an interest rate not exceeding 11.10% p.a. and a repayment date no later than 31/07/2022.


PT-0102/35 dated 29/08/2014

28 OJSC Gazprom Neft – Principal; GPB (OJSC) – Bank/Guarantor; Legal entities (residents and non-residents of the Russian Federation) – Beneficiary

Additional Agreement No. 3 to Bank Guarantee Contract No. 4789GS/12-R dated 30/07/12 (hereinafter the Contract), which was concluded, among other reasons, due to an extension in the validity of the bank guarantees issued by GPB (OJSC) under the Contract and the extension of the period for issuing such guarantees by a maximum amount not exceeding the equivalent of 5.5 bn RUB with the deadline for bank guarantees issued until 31/07/2015 inclusive; Validity of guarantees until 31/12/2018 inclusive with a commission fee for the Guarantor amounting to 0.35% p.a. of the guarantee amount over the validity of the guarantee, but no less than the RUB equivalent of 300 USD per calendar quarter or part thereof. The Guarantor may revise the amount of remuneration for the guarantees in the manner prescribed by the Contract.

Company’s shareholder – OJSC Gazprom, Board of Directors members A.B. Miller, K.G. Seleznev, A.V. Kruglov and M.L. Sereda

PT-0102/39 dated 17/09/2014

29 OJSC Gazprom Neft – Principal; GPB (OJSC) – Bank; Non-resident legal entities of the Russian Federation – Beneficiary, Resident legal entities of the Russian Federation – Recipients

Additional Agreement No. 1 to Letter of Credit Agreement No. IMP/2012/498 dated 30/07/12 between OJSC Gazprom Neft and GBP (OJSC) (hereinafter the Contract), which was concluded, among other reasons, due to an extension in the letters of credit provided by GPB (OJSC) under the Contract and an extension in the period for providing such letters of credit. The maximum amount of concurrent obligations under the letters of credit is no more than the equivalent of 2.0 bn RUB with the maximum validity of the letters of credit until 31/12/2018 inclusive. The period for providing letters of credit/increasing the amount of the letters of credit is until 31/07/2015 inclusive, Bank’s fee for providing the letter of credit is 0.4% p.a. of the actual amount of the letter of credit, but no less than 300 USD per calendar quarter or part thereof.


PT-0102/39 dated 17/09/2014

217




30 OJSC Gazprom Neft – Guarantor; GPB (OJSC) – Bank; LLC Gazprom Neft Novy Port – Payer

Surety agreement to secure the obligations of LLC Gazprom Neft Novy Port to GPB (OJSC) under a letter of credit agreement for 2,395,725,679.98 RUB for the period until 31/03/2016 (inclusive) with the fee for providing the letter of credit totalling 0.4% p.a. of the actual amount of the letter of credit, but no less than 300 USD per calendar quarter or part thereof of the validity of the letter of credit. The surety agreement is valid until 31/03/2019 inclusive.


PT-0102/39 dated 17/09/2014

31 OJSC Gazprom Neft – Supplier; OJSC Slavneft OGC – Buyer

Methyl tert-butyl ether (MTBE) supply contract in the amount of 5,000 tonnes (option of +/- 3%); price per tonne of 42,119.0 RUB. Total value of MTBE supplied under Contract: 248,502,100.00 RUB, including 18% VAT; supply period: from 07/04/2014 to 31/12/2014.


PT-0102/39 dated 17/09/2014

32 OJSC Gazprom Neft and LLC Magma OC

Additional Agreement No. 5 to Oil Supply Contract No. GPN-11/28000/00282/Р/MGM-2011/48 dated 21/02/2011 under which starting from 01/01/2014: in addition to the product quantity that the supplier is transferring in accordance with the Contract terms, the supplier shall provide the buyer with a product in the amount of 425,400 tonnes +/- 5% over the course of 2014 at the supplier’s option. The validity of the Contract shall be extended until 31/12/2014 inclusive, and with respect to unfulfilled and/or improperly fulfilled obligations – until they are met in full. Additional Agreement No. 7 to the Contract under which: the product price shall be determined at the end of the supply month, no later than one business day after the end of the quotation period and shall be documented by the parties by signing the relevant addendum to the Contract no later than the second business day after the end of the supply month; the validity of Additional Agreement No. 7 shall extend to the relations of the parties arising as of 01/01/2014.


PT-0102/39 dated 17/09/2014

33 OJSC Gazprom Neft and LLC Archinskoye

Additional Agreement No. 6 to Oil Supply Contract No. GPN-09/28000/01742/R dated 10/11/2009 under which starting from 01/01/2014 in addition to the product quantity that the supplier is transferring in accordance with the Contract terms, the supplier shall provide the buyer with a product in the amount of 171,840 tonnes +/- 5% over the course of 2014 at the supplier’s option; the validity of the Contract shall be extended until 31/12/2014 inclusive, and with respect to unfulfilled and/or improperly fulfilled obligations – until they are met in full. Additional Agreement No. 7 to the Contract under which the product price shall be determined at the end of the supply month, no later than one business day after the end of the quotation period and shall be documented by the parties by signing the relevant addendum to the Contract no later than the second business day after the end of the supply month; the validity of Additional Agreement No. 7 shall extend to the relations of the parties arising as of 01/01/2014.


PT-0102/39 dated 17/09/2014

218

APPENDIX



34 OJSC Gazprom Neft and OJSC Slavneft OGC

Signing of Appendix No. 2 to Methyl Tert-Butyl Ether (MTBE) Supply Contract No. 64537-2014-100/GPN 14/27130/00804/D dated 07/04/2014 under which: supply volume – 2,100 tonnes (option +/- 3%), price per tonne – 45,424.00 RUB, excluding VAT; total cost: 112,560,672.00 RUB, including 18% VAT; supply period from 01/072014 to 31/08/2014.


PT-0102/40 dated 19/09/2014

35 OJSC Gazprom Neft and CJSC Hockey Club SKA

Additional Agreement No. 1 to Contract No. GPN-14/09000/01186/R dated 11/06/2014 on the provision of advertising services: to word clause 3.3 of the Contract as follows: “3.3. The Advertiser shall make payment for the services provided in the amount of 1,180,000,000 (one billion one hundred eighty million) RUB, including VAT, by transferring funds to the Club’s settlement account no later than 18/06/2014”.

Board of Directors member and CEO A.V. Dyukov

PT-0102/41 dated 22/09/2014

36 OJSC Gazprom Neft – Customer, NP SC Avangard – Contractor

Contract No. GPN-13/09000/01302/R/145/13 dated 09/07/2013 on the provision of advertising services in the period from 01/08/2013 to 30/04/2014; price – 114,259,400 RUB, including VAT of 17,429,400 RUB.


PT-0102/42 dated 23/09/2014

37 OJSC Gazprom Neft – Seller; LLC Gazpromneft-Vostok – Buyer

Sale contracts for immoveable and moveable property located in the southwest part of the Krapivinskoye field; total transaction amount – 631,648,100 RUB, including VAT of 96,353,100 RUB.


PT-0102/46 dated 03/10/2014

38 OJSC Gazprom Neft – Seller; OJSC Gazpromneft-Noyabrskneftegaz – Buyer

Sale contracts for immoveable and moveable property belonging to OJSC Gazprom Neft located at the Romanovskoye, Vorgenskoye and Valyntoyskoye fields; total transaction amount – 2,127,203,700 RUB, including VAT of 324,488,700 RUB.


PT-0102/46 dated 03/10/2014

39 OJSC Gazprom Neft – Seller; LLC Gazpromneft-Khantos – Buyer

Sale contracts for property belonging to OJSC Gazprom Neft located at the South Kinyaminsky license area; total transaction amount – 1,066,720,000 RUB, including VAT of 162,720,000 RUB.


PT-0102/46 dated 03/10/2014

40 OJSC Gazprom Neft – Borrower; LLC OJSC Sberbank of Russia – Creditor

Contract on the opening of a non-revolving credit line for 12.5 bn RUB with availability of 6 months from the payment date of the reservation fee; Lending period: from the Contract signing date (03/09/2014) to 02/09/2019 (inclusive); Loan repayment: lump sum at the end of the lending period (02/09/2019); Interest rate: – over the period from the loan issuance date (not including this date) until 28/01/2015 (inclusive) – at a rate of 11.98 (eleven point nine eight) per cent p.a.; over the period from 29/01/2015 (inclusive) to the date of the full repayment of the loan (02/09/2019) – at a variable interest rate that is determined depending on the amount of revenue under contracts (agreements) on the domestic and foreign market(s)


PT-0102/47 dated 07/10/2014

219





Contract on the opening of a non-revolving credit line for 12.5 bn RUB with availability of 6 months from the payment date of the reservation fee; Lending period: from the Contract signing date (03/09/2014) to 02/09/2019 (inclusive); Loan repayment: lump sum at the end of the lending period (02/09/2019); Interest rate: the Borrower shall pay the Creditor interest for using the loan on the following terms: over the period from the loan issuance date (not including this date) until 28/01/2015 (inclusive) – at a rate of 12.08 (twelve point zero eight) per cent p.a.; over the period from 29/01/2015 (inclusive) to the date of the full repayment of the loan (02/09/2019) – at a variable interest rate that is determined depending on the amount of revenue under contracts (agreements) on the domestic and foreign market(s).


PT-0102/47 dated 07/10/2014


Contract on the opening of a non-revolving credit line for 10.0 bn RUB with availability of 6 months from the payment date of the reservation fee; Lending period: from the Contract signing date (03/09/2014) to 02/09/2019 (inclusive); Loan repayment: lump sum at the end of the lending period (02/09/2019); Interest rate: the Borrower shall pay the Creditor interest for using the loan on the following terms: over the period from the loan issuance date (not including this date) until 28/01/2015 (inclusive) – at a rate of 11.98 (eleven point nine eight) per cent p.a.; over the period from 29/01/2015 (inclusive) to the date of the full repayment of the loan (02/09/2019) – at a variable interest rate that is determined depending on the amount of revenue under contracts (agreements) on the domestic and foreign market(s).


PT-0102/47 dated 07/10/2014

43 OJSC Gazprom Neft, LLC Gazpromneft-Bituminous Materials

Agreement No. 2 to Contract on the Establishment of a Consolidated Group pf Taxpayers No. GPN-12/33000/01921 dated 26/10/2012, which approves a new list of organisations participating in the consolidated group of taxpayers.


PT-0102/50 dated 31/10/2014

44 OJSC Gazprom Neft, GPB (OJSC) – Bank

Contract on the provision of consulting services. OJSC Gazprom Neft shall pay the Bank a fee amounting to 60,000 USD, not including VAT, each month for each calendar month during which services are provided over the period during which services are provided. OJSC Gazprom Neft shall pay the Bank a fee amounting to 240,000 USD, not including VAT, for the period during which services are provided from 01/10/2013 to 31/03/2014.


PT-0102/51 dated 07/11/2014

45 OJSC Gazprom Neft; LLC Gazprom Mezhregiongaz

Additional Agreement No. 7 to Gas Supply Contract No. 1-016/13 dated 12/12/2012, Table 1.2 of the Contract amended.


PT-0102/52 dated 11/11/2014

220

APPENDIX



46 OJSC Gazprom Neft; LLC Gazprom Mezhregiongaz

Additional Agreement No. 8 to Gas Supply Contract No. 1-016/13 dated 12/12/2012, Table 1.2 of the Contract amended.


PT-0102/52 dated 11/11/2014

47 OJSC Gazprom Neft – Seller; CJSC Gazpromneft-Northwest – Buyer

Sale contract of filling station, description: road transport facility, 2 storeys (underground storeys – 1), total area of 181.1 sq. m., cadastral number 78:10:0005223:1363, located at the address: St Petersburg, ul. Rustaveli, d. 45, korp. 2, lit. A, as well as moveable property located at the facility belonging to the Seller under ownership rights and intended for the facility’s operation and use for its intended purpose; transaction price – 64,116,784 RUB, including VAT.


PT-0102/52 dated 11/11/2014

48 OJSC Gazprom Neft – Principal; Gazprom Neft Trading GmbH – Agent

Agency contract for an agent to perform actual and legal actions in the interests of, under the instructions of and at the expense of the Principal involving the construction of properties both on its own behalf and on behalf of the Principal that aim to ensure year-round uninterrupted transportation of oil from the Novoportovskoye field; the agency fee shall not exceed 50,000 USD for a period of 3 years.


PT-0102/55 dated 24/11/2014

49 OJSC Gazprom Neft, GPB (OJSC) – Bank

Receipt by OJSC Gazprom Neft of a loan in the form of an overdraft in the amount of up to 8 bn RUB, interest rate of MOSPRIME 1М + 1.25% p.a. until 06/02/2016 (inclusive), penalty of 0.05% of the outstanding amount for each day of delay of payment of the principal and/or interest.


PT-0102/58 dated 01/12/2014

50 OJSC Gazprom Neft – Guarantor, GPB (OJSC) – Bank, LLC Gazprom Neft Novy Port – Payer; REP-Holding – Recipient

Surety agreement to secure obligations. The guarantor agrees jointly and severally with the Payer to be fully liable to the Bank for the Payer’s performance of its obligations to the Bank under the Letter of Credit Contract as well as the Payer’s obligations to the Bank arising from court decisions on the invalidation of the transaction. Based on written requests from the Payer, the Bank agrees to open irrevocable uncovered (guaranteed) letters of credit for the Recipient as part of Industrial Product Supply Contract No. 2014/57-GPN-NP dated 05/03/2014 between the Recipient and Payer, hereinafter referred to as the “Contract”. Letter of Credit 1 is provided for the amount of 4,979,215,218.48 RUB; Letter of Credit 2 is provided for an amount equal to 80,013,638.88 RUB with a surety period until 28/02/2020 (inclusive).


PT-0102/58 dated 01/12/2014

51 OJSC Gazprom Neft – Guarantor, OJSC AKB ROSBANK – Bank, LLC Gazpromneft-Lubricant Materials – Principal; Inspectorate of the Russian Federal Tax Service for the Sovetsky Administrative District of Omsk – Beneficiary

Surety contract to secure obligations under a bank guarantee issuance contract. The issuance limit is 220,000,000.00 RUB with usage period until 28/03/2017 inclusive, commission for issuing the Guarantee amounting to 0.2% p.a. of the issued Guarantee amount with a surety period until 28/04/2019 (inclusive).


PT-0102/58 dated 01/12/2014

221




52 OJSC Gazprom Neft; CJSC Football Club Zenit

Additional Agreement No. 1 and Appendix No. 6 to Contract No. GPN-14/09000/01279/R dated 27/06/2014 on the provision of advertising services; the cost of services provided by the Club as part of Appendix No. 6 to this Contract amounts to 100,000,000 RUB, including 18% VAT of 15,254,237 RUB.


PT-0102/59 dated 02/12/2014

53 OJSC Gazprom Neft – Buyer; OJSC Gazprom Gazenergoset – Supplier

Contract for the supply of stable gas condensate in the amount of 174,000 tonnes for a maximum of 3.1 bn RUB for the period until 31/12/2014.


PT-0102/62 dated 08/12/2014

54 OJSC Meretoyakhaneftegaz – Supplier; OJSC Gazprom Neft – Buyer;

Oil supply contact for 500 tonnes +/- 5% at the Supplier’s option from 01/07/2014 for the amount of 7,000,000 RUB, including 18% VAT; Contract validity from 01/07/2014 until 31/12/2014.


PT-0102/62 dated 08/12/2014

55 OJSC Gazprom Neft – Proxy; OJSC Gazpromneft-Omsk Oil Refinery – Trustee

Surety contract for the preparation, coordination and conclusion of contracts for the supply of material and technical resources to implement a project to build a deep oil refining complex (DORC) at the Omsk Oil Refinery. The total maximum value of the services provided by the Proxy over the validity of the surety contract is no more than 353,740.00 RUB, including 18% VAT of 63,673.20 RUB prior to 31/12/2016.

Company’s shareholder – OJSC Gazprom, Management Board members A.M. Cherner and V.V. Baranov

PT-0102/63 dated 09/12/2014


Surety contract for the preparation, coordination and conclusion of contracts for the supply of material and technical resources to implement a project to build a delayed coking unit (DCU) complex at the Omsk Oil Refinery. The total maximum value of the services provided by the Proxy over the validity of the surety contract is no more than 353,740.00 RUB, including 18% VAT of 63,673.20 RUB prior to 31/12/2016.


PT-0102/63 dated 09/12/2014


Surety contract for the preparation, coordination and conclusion of contracts for the supply of material and technical resources to implement a project to build a crude and vacuum distillation unit complex at the Omsk Oil Refinery. The total maximum value of the services provided by the Proxy over the validity of the surety contract is no more than 353,740.00 RUB, including 18% VAT of 63,673.20 RUB prior to 31/12/2016.


PT-0102/63 dated 09/12/2014


Surety contract for the preparation, coordination and conclusion of contracts for the supply of material and technical resources to implement a project to build a combined oil refining unit (CORU). The cost of services shall be 70,748 RUB prior to 31/12/2015.

Company’s shareholder – OJSC Gazprom, Management Board members A.M. Cherner

PT-0102/63 dated 09/12/2014

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59 OJSC Gazprom Neft; OJSC Gazpromneft-Moscow Oil Refinery

Additional Agreement No. 5 to Oil Refining Contract No. MNZ-14/00000/00032/D. The value of services for the refining of 1 tonne of oil and other raw commodities shall be 2,177 RUB, excluding VAT, and includes, among other things, the cost of the Refinery’s fee for organising the provision of services by third parties for the loading/unloading of marketable petroleum products and services associated with the receipt of cargo delivered to the Refinery for the Company’s needs as well as expenses associated with the receipt of a bank guarantee by the Refinery. The cost of refining 1 tonne of oil and other raw commodities is subject to VAT at a rate of 18%. Takes effect starting 01/10/2014.

Company’s shareholder – OJSC Gazprom, Management Board members A.M. Cherner

PT-0102/63 dated 09/12/2014

The overall amount of related party transactions concluded in 2014 totalled approximately 188.7 bn RUB.

In 2014, Gazprom Neft did not conclude any transactions that are recognised as major transactions in accordance with the current legislation of the Russian Federation.

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ADDRESSES AND CONTACTS

FULL NAME OF THE COMPANYOpen Joint-Stock Company Gazprom Neft

SHORT NAME OF THE COMPANYJSC Gazprom Neft

REGISTERED OFFICELet. A. Galernaya, 5 Saint Petersburg, ul, 190000,Russian Federation The Company was registered on 6 October 1995 by the Registration Chamber of the City of Omsk. Statutory Registration Certificate No. 38606450. Main Federal Registration Number 1025501701686.

MAILING ADDRESSUl. Pochtamtskaya, 3-5Saint Petersburg, 190000,Russian Federation

WEB ADDRESShttp://www.gazprom-neft.com/

INFORMATION SERVICETel: +7 (812) 363-31-52Tel: +7 (800) 700 31 52 (free call in Russia)Fax: +7 (812) 363-31-51E-mail: [email protected]

PRESS SERVICEMedia enquiriesTel: +7 (812) 363-31-52Fax: +7 (812) 363-31-51E-mail: [email protected]

SHAREHOLDER RELATIONSCorporate Regulation DepartmentTel: +7 (812) 363-31-52Fax: +7 (812) 363-31-51E-mail: [email protected]

INVESTOR RELATIONSvestor Relations AdministrationTel: +7 (812) 358-95-48E-mail: [email protected]

AUDITORThe Company’s accounting (financial) reports in 2013 were audited by CJSC PricewaterhouseCoopers Audit (CJSC PwC Audit).Address: Belaya Ploschad Business CenterButirskiy Val, 10, Moscow, ul. 125047, Russian Federation, Tel: +7 (495) 967-60-00Fax: +7 (495) 967-60-01Web address: www.pwc.ru

SHARE REGISTRARClosed Joint-Stock Company, Specialised Registrar – Register-Keeper for Gas Industry Shareholders (CjSC SR-DRAGa)Address: Novocheriomushkinskaya, 71/32 Moscow, ul. 117420 Russian Federation Tel: +7 (495) 719-40-44Fax: +7 (495) 719-45-85Web address: http://www.draga.ruE-mail: [email protected]

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KEY TERMS, DEFINITIONS AND ACRONYMS

Shortening Definition

1P Proved reserves according to international standards SPE-PRMS

2D, 3D Seismic exploration

ADR OF JSC GAZPROM NEFT American depositary receipt issued on shares of JSC Gazprom Neft. 1 ADR equals five ordinary shares of JSC Gazprom Neft

APG Associated petroleum gas

Arctic oil (ARCO) Grade of Russian oil produced at Prirazlomnoye field

ASSOCIATE COMPANY, ASSOCIATE

A company in which Gazprom Neft Group holds at least 20% of voting shares (for a joint-stock company) or 20% of registered capital (for a limited liability company)

BALTIC STATES Estonia, Latvia and Lithuania

BOE Barrels of oil equivalent

Brent Benchmark crude produced in the North Sea

CATALYTIC CRACKING Thermal catalytic refining of petroleum fractions to produce high-octane gasoline

CENTRAL ASIA Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan

CFO Chief Financial Officer

CGTP Complex gas treatment plant

CIS Commonwealth of Independent States: all former Republics of the USSR, except Estonia, Latvia and Lithuania

CNG Compressed natural gas

COKING Refining of liquid and solid fuels by heating them in the absence of air. As the fuel decomposes, it produces solid coke and volatile particles

CP Civil Protection

DOLLARS US dollars

Domestic market Russian market of commodities, services, etc.

Domestic market Russian market of goods, services, etc.

EBIT Earnings before income tax

EBIT margin Operational return on sales.

EBITDA Net profit before interest, tax, depreciation and amortization

EN certification Certification according to European standards

EUR Euro

EV/EBITDA Ratio of the company’s value versus earnings before taxes. Used to assess investment appeal (length of the payback period for investments)

FTS OF RUSSIA Federal Tariff Service

GAS PROCESSING PLANT Gas and/or condensate refining plant

GAZPROM NEFT GROUP, THE GROUP, GAZPROM NEFT

All companies of the Group that comprise JSC Gazprom Neft (the parent company) and its subsidiaries

GCS Gas-compressor station

Gearing Ratio to indicate the proportion of borrowed funds.

GEO Geological and engineering operations

GEOLOGICAL SURVEY Geological surveying for exploration purposes

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APPENDIX


HYDROCARBON RESERVES IN CATEGORIES A+B+C1

Explored reserves according to the Russian classification. Represents the part of geological reserves that it would be economically efficient to extract at the date of the estimate, based on the market situation and rational use of modern equipment and technologies, and taking into account requirements for the protection of mineral deposits and the natural environment. Explored reserves of gas in categories А+В+С1 are viewed as fully recoverable. For reserves of oil and gas condensate, an extraction coefficient based on geological and technical factors is used

HYDROCARBON RESERVES IN CATEGORIES С1+С2

Category С1 represents reserves of oil and gas proven to exist in standalone wells, with favorable industrial and geological data for other wells. Category С2 represents reserves of oil and gas, the existence of which is suggested by geological and geophysical information within known gas-producing areas. Reserves of category С2 are preliminary estimates that are used to plan detailed survey work at specific fields

HYDROCRACKING A cracking technique used in refining of crude oil fractions with a high boiling point, fuel oils or tar oil to make gasoline, diesel fuel and jet fuel, lubricant oils etc.

HYDROTREATMENT Purification of petroleum products to remove organic sulphuric, nitric, and oxygen-based compounds using molecules of hydrogen. Hydrotreatment improves the quality of petroleum products

IFRS International Financial Reporting Standards

IR Investor relations

IRMS Integrated risk management system

ISO 14001 STANDARD International standard for environmental protection that sets requirements for environment management quality and is used to work out legally compliant environmental policies. The standard regulates environmental aspects of corporate activities that are controllable and require monitoring. This is a voluntary standard that does not supersede legislated requirements

ISO 50001 STANDARD International standard established by the International Organisation for Standardisation to manage power systems that specifies requirements for establishing, implementing, maintaining and improving an energy management system, whose purpose is to enable an organisation to follow a systematic approach in achieving continual improvement of energy performance, including energy efficiency, energy use and consumption.

ISO 9001 STANDARD International standard for quality management systems. It establishes the requirements for the quality management system that may be used internally by organisations for the purpose of certification or concluding contracts. The standard aims to make the quality management system effective while meeting customer demands.

ISO/TS 16949 STANDARD International industry standard as well as technical specifications established by the International Organisation for Standardisation. The standard defines the quality management system requirements for enterprises that design, develop, produce, install and service automotive-related products.

JSC GAZPROM NEFT REPLACEMENT RATIO

Gross increment of proven reserves, divided by total production in the period

JV Joint Venture

LHG Сжиженные углеводородные газы

LNG Liquefied natural gas

LTIFR Lost time injury frequency rate

M&A Merger and acquisition

M3 Cubic meter of natural gas, measured at the pressure of one atmosphere and temperature of 20°С

MET Mineral extraction tax

MICEX Moscow Interbank Currency Exchange

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Middle East Armenia, Azerbaijan, Bahrain, Egypt, Georgia, Israel, Jordan, Cyprus, Lebanon, Palestine, Syria, Turkey, Iraq, Iran, Yemen, Qatar, Kuwait, UAE, Oman, Saudi Arabia

MNPZ Moscow Refinery

NIS NIS a.d. Novi Sad

NON-CIS COUNTRIES Foreign countries with the exception of CIS and the Baltic states

Novy port Grade of oil produced at Novoportovskoye field

NPZ Refinery

OE Oil equivalent

OHSAS 18001 STANDARD International industry standard as well as technical specifications established by the International Organisation for Standardisation. The standard defines the quality management system requirements for enterprises that design, develop, produce, install and service automotive-related products.

ONPZ Omsk Refinery

ORF Oil recovery factor

P/E The price/earnings ratio that is equal to the ratio of a company’s market capitalization versus its annual earnings. One of the main indicators used for a comparative assessment of the investment appeal of joint-stock companies.

PMB Polymer modified bitumen

PMI Purchasing managers index that reflects the condition of a certain industry or the economy or provides a competitive assessment

POL Petroleum, oil and lubricants

POSSIBLE RESERVES Unproven reserves, which are less likely to be extracted than probable reserves, based on the analysis of engineering and geological data. There must be at least 10% probability that actual production will be equal to or more than the estimate of proven, probable and potential reserves

Premium market segments High-margin market segments: small wholesale, own chain of filling stations, sales of jet fuel, bitumen, oils and lubricants, bunkering

PRMS INTERNATIONAL STANDARD

International classification and estimate of hydrocarbon reserves by the standards of the Petroleum Resources Management System (PRMS). These standards include not only the estimate of hydrocarbon reserves, but also provide the estimate of the commercial practicability of extraction and the justifiability of its availability. The period of economically viable reserve development (period of validity of the development license) is taken into account as well

PROBABLE RESERVES Unproven reserves, which are most likely to be extracted based on the analysis of engineering and geological data. There must be at least a 50% probability that actual production will be equal to or greater than the estimate of proven and probable reserves

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PROVEN RESERVES Quantities of liquid, gaseous and solid hydrocarbons, which, according to engineering and geological information, are most likely to be produced by industrially available methods from known deposits starting from a specific date, under the existing economic conditions, with generally accepted operating techniques, and in compliance with applicable effective national regulations

PSA Production sharing agreement

Q&A Questions and answers

R&D Research and development

RAS Russian Accounting Standards

REFINING DEPTH A refining indicator defined as the percentage ratio of obtained petroleum products, not including bulk fuel oil, to the original quantity of crude oil. Measured in %

REFINING OUTPUT CAPACITY Maximum possible output by a plant unit in a specific period

ROACE Return on average capital employed

ROE Return on equity

RUB Roubles

SAA Surface-active agent

SPD Salym Petroleum Development N. V.

SS Service station

SUBSIDIARY Subsidiaries and Affiliates

Urals A Russian brand of an exported oil blend. It is a mix of Urals and Volga heavy sour crude oil with the light western Siberian crude oil Siberian Light within the pipeline system of AK Transneft.

US GAAP Generally Accepted Accounting Principles

USD US Dollars

VAT Value added tax

VCS Unproven reserves, which are less likely to be extracted than probable reserves, based on the analysis of engineering and geological data. There must be at least 10% probability that actual production will be equal to or more than the estimate of proven, probable and potential reserves

VIOC Vertically integrated oil company

Western Europe Austria, Belgium, France, Germany, Ireland, Liechtenstein, Luxembourg, Monaco, the Netherlands, France, Switzerland

WTI Grade of oil produced in Texas

YANOS Yaroslavl Refinary Slavneft-YANOS

ЕU European Union

228


DISCLAIMER

This Annual Report was prepared based on information known to Open Joint-Stock Company Gazprom Neft and its subsidiaries (‘Gazprom Neft’) on the date of reporting. This Report contains forward-looking statements that represent the expectations of the Company’s executive management. Such estimates are not based on any actual circumstances, and they include all statements concerning the Company’s intentions, opinions or current expectations as regards its activities, financial situation, liquidity, future growth, strategy, and the industry in which Gazprom Neft operates. By their very nature, such forward-looking statements are exposed to risks and factors of uncertainty because they describe events and depend on circumstances that may or may not occur in the future.

Such words as ‘assume’, ‘believe’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘surmise’, ‘examine’, ‘might’, along with other similar words and phrases, also expressed as negations, typically mark forward-looking statements. Such assumptions contain risks and uncertainties, both expected and unforeseeable. Therefore, future performance may differ from current expectations, and the users of this information must not base their own estimates solely on the information contained herein.

Apart from the official information on the activities of Gazprom Neft this Annual Report includes information acquired from third parties. Such information was obtained from sources viewed by Gazprom Neft as reliable.

Nevertheless, we cannot guarantee the accuracy of such information, which may be abbreviated or incomplete.

Gazprom Neft does not guarantee that actual results, scope or indicators of its performance or performance of the industry in which the Company operates will exactly match the results, scope or indicators contained explicitly or implicitly in any forward-looking statement included herein or elsewhere. Gazprom Neft cannot be held responsible for any losses that a party may sustain as a result of reliance of such forward-looking statements. Except in cases directly regulated under the applicable law, the Company shall not assume any obligation to distribute or publish any updates or adjustments to its forward-looking statements that would reflect any changes of expectation or contain new information, or describe any subsequent events, conditions or circumstances.

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JSC GAZPROM NEFT

ADDRESSES & CONTACTS

Office:3–5 Pochtamtskaya St., Saint Petersburg, Russian Federation, 190000

Tel.: +7 (812) 363-31-52 Tel.: 8 (800) 700-31-52 (free call in Russia) Fax: +7 (812) 363-31-51

www.gazprom-neft.com

Investor relations:Tel.: +7 (812) 385-95-48 E-mail: [email protected]

Online version of 2014 Annual Report

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