Additional Information

Key macroeconomic drivers influencing performance

The main factors that influence the Group’s performance include:

  • Changes of market prices of crude oil and petroleum products;
  • Changes of the RUB to USD exchange rate and inflation rate;
  • Taxation;
  • Changes in transportation tariffs of crude oil and petroleum products.

Changes of market prices of crude oil and petroleum products

Prices of crude oil and petroleum products on the global and Russian markets are the main factors that affect the Group’s performance.

Prices of petroleum products on the global market depend primarily on the global crude oil market, demand and supply of petroleum products, and competition in individual markets. Price changes on the global market, in turn, affect domestic market prices, which differ depending on the type of petroleum product.

2013

2012

∆, %

International market

(USD/bbl)

Brent oil

108.66

111.67

(2.7)

Urals oil (cp. Med and NWE)

107.87

110.43

(2.3)

(USD/tonne)

Premium Gasoline (cp. NWE)

985.21

1 036.40

(4.9)

Naphtha (cp. Med and NWE)

889.28

926.84

(4.1)

Diesel fuel (cp. NWE)

937.27

980.17

(4.4)

Gas-oil 0.2% (cp. Med and NWE)

919.51

953.79

(3.6)

Fuel oil 3.5% (cp. NWE)

583.81

623.48

(6.4)

Domestic market

(rub/tonne)

High-octane gasoline

28,344

26,205

8.2

Low-octane gasoline

24,882

23,239

7.1

Diesel fuel

26,894

24,270

10.8

Fuel oil

8,732

9,167

(4.7)

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

Changes of the RUB to USD exchange rate and inflation rate

The Group’s management uses the Russian rouble as the base currency for its financial statements and reports. The functional currency for each subsidiary is the currency used in its business environment. However, the majority of subsidiaries still use the Russian rouble as their base currency.

2013

2012

Change of the Consumer Price Index (CPI), %

6.5

6,6

Change of the Manufacturer Price Index (MPI), %

3.7

5,1

Rouble to USD rate at the end of period, RUB

32.73

30,37

Period average rouble to USD rate, RUB

31.85

31,09

Taxation

Average tax and duty rates effective during the reporting period for oil and gas companies in Russia:

2013

2012

∆, %

Export customs duty (USD/tonne)

Crude oil

392.20

404.26

(3.0)

Light petroleum products

258.82

266.78

(3.0)

Gasoline and naphtha

352.97

363.82

(3.0)

Dark petroleum products

258.82

266.78

(3.0)

Mining tax

Crude oil (RUB/tonne)

5,329

5,066

5.2

Natural gas: for Unified Gas Supply System owners and subsidiaries, RUB/thousand cubic metres

602

509

18.3

Natural gas: for other categories, RUB/thousand cubic metres

334

251

32.9

Customs duty rate for crude oil exports

Under Federal Law No. 239-FZ of 3 December 2012, starting from 1 April 2013, the procedure for setting customs duties for the exports of crude oil and petroleum products was changed. Previously, oil and petroleum product export customs duty rates were fixed by the Russian Government on a monthly basis. Following the introduction of the RF Government Regulation No. 276 of 29 March 2013, which endorses the “Methodology to Calculate Export Customs Duties for Crude Oil and Specific Categories of Petroleum Products”, the Federal Ministry of Economic Development now calculates the rates of export customs duties for the following calendar month.

Export customs duty for crude oil

а) According to par. 4, article 3.1 of RF Federal Law of May 21, 1993, No. 5003-1 “Customs Tariff”, customs duty rates for crude oil exports may not exceed the maximum duty rates, calculated as follows:

Price quotation of Urals (P), USD per tonne

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 + 45.0% * (P – 146.00)

>182.50

29.20 + 65.0% * (P – 182.50)

Crude oil export customs duty is not charged on crude oil exported to the CIS member states that are also members of the Customs Union (Kazakhstan and Belarus).

In October 2011, following the adoption of the 60/66/90 tax regime, the customs duty rate for crude oil exports is set based on a new formula that assumes a reduced ratio from 65% to 60%. It should be noted that this change was not directly part of the effective customs regulation but instead was stated in the aforementioned RF Government Decree No. 276 of 29 March 2013. Federal Law No. 263-FZ envisages a further reduction of the percentage ratio formula as follows: 59% in 2014, 57% in 2015, and to 55% in 2016.

b) The above Federal Law No. 239-FZ of 3 December 2012 regulates how the RF Government can introduce special formulas to calculate reduced customs duty rates for exported crude oil with specific physical and chemical properties as classified by codes TN VED TS 2709 00 900 1 and 2709 00 900 3, the level of which, under RF Government Decree No. 276 of 29 March 2013, is established depending on the actual average price of Urals crude oil in the period, specifically:

Urals Quotation (P), USD per tonne

Customs duty export rate

≤365

0

>365

45.0% * (P– 365)

By Decree No. 846 of 26 September 2013, the federal government approved the procedure to prepare proposals on the usage of specific formulas to calculate duty rates for crude oil exports, and on the monitoring of their correct use, regarding the Group’s new projects based in the Republic of Sakha (Yakutia), Irkutsk Oblast, Krasnoyarsk Territory, above 65 degrees latitude north in the Yamal-Nenets Autonomous District, and the continental shelf of the Russian Federation.

By Executive Order No.868 of 3 December 2013, the RF Ministry of Energy approved the application procedures and analysis methods for the valid use of the specific formulas used to calculate duty rates for crude oil exports.

Export customs duty for petroleum products

In accordance with Clause 3.1 of the Federal Law On Customs Tariff, the export customs duty rate for certain categories of petroleum products is fixed by the Russian Government. Petroleum products exported to CIS country members of the Customs Union (Kazakhstan and Republic of Belarus) are not subject to the export customs duty. On 1 January 2011, export duties were also abolished for petroleum products exported to Kyrgyzstan.

Until 1 February 2011, the following formula was used to calculate the export customs duty rate for light and medium distillates: 0.438 * (Price * 7.3 – 109.5), where the Price is the average monthly price of Urals in US dollars per barrel. Export customs duty rates for dark petroleum products were calculated as: 0.236 * (Price * 7.3 – 109.5).

The RF Government Decree No. 1155 of 27 December 2010 ruled that starting from February 01, 2011, export customs duties for petroleum products should be calculated using the following formula: Стнп = К * Стн, where Стн is the export customs duty rate for crude oil, and К is the adjustment coefficient for a specific category of petroleum products, as defined in the table below:

2011

2012

2013

Light and medium distillates

0.67

0.64

0.60

Fuel oil

0.467

0.529

0.60

From May 2011, the adjustment coefficient (К) for commodity gasoline was set at 0.9. Starting from June 2011, the same coefficient value was also set for straight-run gasoline.

In August 2011, the RF Government Decree No. 1155 of December 27, 2010 enforced changes and, since October 2011, the coefficients used to calculate customs duty rates for exported petroleum products have been established as follows:

Between October 01, 2011 and December 31, 2014

Light and medium distillates

0.66

Fuel oil

0.66

Gasoline

0.90

RF Government Decree No. 276 of 29 March 2013 established the procedure to determine customs duty rates for exported petroleum products that is similar to the one described earlier in RF Government Decree No. 1155 of 27 December 2010.

Excise on petroleum products

Taxpayers who pay excise on petroleum products in the Russian Federation are manufacturers of petroleum products. Tax is also paid by corporate entities when they import excisable commodities into Russia.

RF Federal Law No. 203-FZ of 29 November 2012 established the following excise rates for petroleum products by making relevant changes to the RF Tax Code:

2012
(January 01 –June 30)

2012
(July 01 – December 31)

2013
(January 01 –June 30)

2013
(July 01 – December 31)

Gasoline

Below class 3

7,725

8,225

10,100

10,100

Class 3

7,382

7,882

9,750

9,750

Class 4

6,822

6,822

8,560

8,960

Class 5

6,822

5,143

5,143

5,750

Straight-run

7,824

7,824

10,229

10,229

Diesel fuel

Below class 3

4,098

4,300

5,860

5,860

Class 3

3,814

4,300

5,860

5,860

Class 4

3,562

3,562

4,934

5,100

Class 5

3,562

2,962

4,334

4,500

Furnace fuel

5,860

Motor oil

6,072

6,072

7,509

7,509

Mineral extraction tax (MET)

The MET rate for crude oil (R) from 1 January 2013, is calculated using the formula:

R = 470 * Кц * Кв * Кз,

where: КЦ is the coefficient that describes global price dynamics of crude oil, calculated using the formula: Кц = (Ц – 15) * P / 261, where Ц is the average monthly price of Urals at the Rotterdam and Mediterranean Exchanges (USD/barrel), and P is the average monthly rouble to USD exchange rate.

Кв is the coefficient that describes the extent of depletion of deposits in the specific sub-soil area. The coefficient envisages reduced MET rates for crude oil from highly exhausted deposit fields. The extent of deposit depletion is calculated as N/V, where N is the cumulative total produced oil in the specific mining area, and V is the initial recoverable deposits of А, В, С1, and С2 crude oil in the specific deposit area as of 1 January 2006. If the extent of depletion of deposits in the specific sub-soil area is greater than or equal to 0.8 and is less than or equal to 1, the Кв coefficient is calculated using the formula: Кв = 3.8 – 3.5 * N/V. If the extent of depletion of deposits in the specific sub-soil area is greater than 1, the Кв coefficient is assumed as 0.3. For other cases, the Кв coefficient is assumed as 1.

Кз is the coefficient that describes deposits available in the specific sub-soil area. The coefficient envisages reduced MET rates for small fields. If initial recoverable oil deposits (Vз being initial recoverable deposits of А, В, С1, and С2 crude oil in the specific sub-soil area as of January 01 of the year before the tax period) are less than 5 million tonnes, and the extent of sub-soil area depletion (N / Vз, where N is cumulative total produced oil in the specific sub-soil area) is less than or equal to 0.05, then the coefficient Кз is calculated using the formula: Кз = 0.125 х Vз + 0.375.

From September 01, 2013, under Federal Law No. 213-FZ of 23 July 2013, the formula to calculate MET rates for crude oil (R) also includes coefficients Кд and Кдв that reduce the MET rate for hard-to-recover oil deposits, and therefore the formula now appears as:

R = 470 * Кц * Кв * Кз * Кд * Кдв,

where: Кд is the coefficient that describes the level of difficulty of petroleum extraction, ranging from 0 to 1 depending on how difficult it is to extract oil from specific deposits:

  • 0 – when oil is extracted from a specific hydrocarbon pool that is part of the Bazhenov, Abalak, Khadum and Domanik production deposits according to the federal balance registry of mineral deposits;
  • 0.2 – when oil is extracted from a specific hydrocarbon pool with a confirmed permeability level not exceeding 2 * 10-3 mcm2 and the effective oil-saturated layer thickness of the pool not above 10
  • 0.4 – when oil is extracted from a specific hydrocarbon pool with a confirmed permeability level not exceeding 2 * 10-3 mcm2 and the effective oil-saturated layer thickness of the pool is over 10
  • 0.8 – when oil is extracted from a specific hydrocarbon pool that is part of the Tyumen suite production deposits according to the federal balance registry of mineral deposits;
  • 1 – when oil is extracted from other hydrocarbon pools.

Кдв – is the coefficient that describes the extent of depletion of a specific hydrocarbon pool. The coefficient envisages reduced MET rates for crude oil from highly exhausted deposits. The extent of deposit depletion is calculated by Nдв/Vдв, where Nдв is the cumulative total produced oil in the specific pool and Vдв represents the initial recoverable deposits of А, В, С1, and С2 crude oil in the specific pool as of January 01 of the year before the tax year. If the level of the deposit depletion specific pool is greater than or equal to 0.8 and is less than or equal to 1, the coefficient Кдв is calculated using the formula: Кдв = 3.8 – 3.5 * Nдв/Vдв. If the level of the deposit depletion specific pool is greater than 1, the coefficient Кдв is assumed as 0.3. For other cases, the coefficient Кдв is assumed as 1. For pools with hard-to-recover oil deposits, the Кв coefficient is assumed as 1.

Federal Law No. 307-FZ of 27 November 2010 sets the following base MET rates for crude oil:

2011

2012

2013

MET for crude oil (RUB per tonne)

419

446

470

The tax legislation also provides for some MET exemptions, where a zero rate is applicable to crude oil extracted in certain Russian regions, provided the Company meets the respective requirements stipulated in the RF Tax Code.

Effective MET rate for crude oil in the Group

Q4 2013

Q3 2013

∆, %

2013

2012

∆, %

5,471

5,631

(2.8)

Base applicable MET rate for crude oil

5,329

5,066

5.2

5,302

5,449

(2.7)

Effective MET rate for crude oil (with Кв and Кз applied)

5,154

4,901

5.2

169

182

Deviation of the effective MET rate for oil from the generally established rate, RUB/t

175

165

3.1%

3.2%

Deviation of the effective MET rate for oil from the generally established rate, %

3.3%

3.3%

After 2013, the effective MET rate for crude oil was 5,154 RUB/tonne, or 175 RUB/tonne less than the legislated base rate. The difference was due to the impact of the step-down change in the coefficients (Кв, Кз and Кд) applied to the crude oil MET calculation

MET rates for natural gas and gas condensate

RF Federal Law No. 204-FZ of 29 November 2012 sets the following MET rates for natural gas and gas condensate:

2012

2013
(January 01 – June 30)

2013
(July 01 – December 31)

Natural gas (roubles/‘000 m3)

Reduced MET rate for gas exists for taxpayers who are not owners of the facilities that form the United Gas Supply System, and who are not entities directly and/or indirectly owned (through a stakeholding) by the owners of the facilities that form the United Gas Supply System, whose holdings in such entities are greater than 50%.251

265

402

509

582

622

Gas condensate (roubles / tonne)

556

590

590

According to changes introduced by Federal Law No.263-FZ of 30 September 2013, after 1 July 2014, companies were required to use a formula to calculate the MET for natural gas and gas condensate. Calculated MET rates for natural gas and gas condensate are the product of the MET base rate (35 roubles per 1,000 m3 of natural gas, and 42 roubles per 1 tonne of gas condensate), and the two following variables: base value of conventional fuel unit (Еут), and the coefficient ascribed to the difficulty of extracting the mineral from the hydrocarbon pool (Кс). From 2015, in order to calculate the MET for natural gas, companies will also need to factor in a figure that describes the transportation cost of natural gas (Тг).

Changes in transportation tariffs of crude oil and petroleum products.

The transportation tariffs policy is regulated by the government in an effort to balance the interests of the government and other parties involved in the process of transportation. Transportation tariffs for natural monopolies are set by the Federal Service for Tariffs (“FST”) of the Russian Federation. Tariffs depend on transportation routes, volume of supplies, distances to destination, and other factors. Changes in tariffs depend on inflation rate estimates by the RF Ministry of Economic Development, the level of capital investment required by the owners of the transportation infrastructure, other macroeconomic factors, and on the compensation of economically reasonable costs incurred by natural monopolies. The FST reviews the tariffs at least once every year; such reviews include tariffs for handling, transshipment, and carrying.