UPDATE ON PROGRESS OF COMPANY STRATEGY IN THE REPORTING YEAR

This reporting year was a successful one for Gazprom Neft. The Company improved its performance against almost all operating and financial indicators: production, operating and net profits increased, despite the negative trend in market conditions (falling prices for crude oil and petroleum products, the increase in the mineral extraction tax and natural monopoly tariffs, and the rise in the excise tax on various types of fuel).

KEY FIGURES 2013

The Gazprom Neft Group’s proven hydrocarbon reserves as of 31 December 2013 totalled 1.34 billion TOE, a year-on-year growth of 11.9%. The current indicator for the Company’s reserves-to-production ratio for its proven hydrocarbon reserves as per the PRMS-SPE standards, is in excess of 20 years.

The resource base was expanded in 2013, mainly due to an increase in Gazprom Neft’s share of SeverEnergia and its exploration results. The Company’s subsidiaries achieved a high level of exploration drilling, with a success rate of 75% at the end of last year. In 2013, the East Myginskoe field was discovered in the Tomsk Region, along with another 31 oil deposits and one gas deposit. Through a targeted programme to develop hard to recover reserves, the Company has successfully increased its oil recovery rate at nine fields.

The Company’s production reached 62.26 million TOE in 2013, a year-on-year increase of 4.3%. These results are mainly due to growing production in the Orenburg Region and at the Priobskoye field (KhMAD-Yugra), the production and sale of Muravlenkovskoye field gas, the start of oil production in SeverEnergia’s Samburgskoye field, and the growth of APG utilisation, as well as the successful application of high technology operations at the Company’s mature assets.

Among the Group’s strategic achievements, a notable highlight is the start of oil production at the Prirazlomnoye field. The first oil from the field was dispatched in the first quarter of 2014, and total production of at least 300,000 tonnes of oil is planned for the year, with a potential production level of about 6 million tonnes. Thuis past year also saw the organisation of winter transportation of oil from the Novoportovskoye and East-Messoyakhskoye fields, and an increase in the Company’s share of the SeverEnergia project. As part of Gazprom Neft’s strategic goal to create growth centres at non-conventional reserves, a JV was established with Shell and the first commercial volumes were obtained from the Bazhenovskaya block.

Gazprom Neft’s volume of refining in 2013, including foreign refineries, totalled 42.63 million tonnes. The slight difference (—0.71) against 2012 was due to scheduled maintenance at the Company’s refineries. In 2013, all Company refineries switched over, ahead of the deadline set by the Russian Government’s technical regulations, to the production of fuels of the highest environmental standards — Euro 5. The Omsk refinery is still Russia’s largest by refining volume and output of light petroleum products (67.5%). The Moscow refinery moved up two rankings among Russian factories in terms of refining depth (up almost 5% in 2013, to 72.3%).

Sales in premium segments increased by almost 5%, reaching 23.9 million tonnes in 2013. The main growth segments are bunkering and the sale of jet fuel, motor fuels and lubricant materials, including growth through acquisitions. Another important trend in the premium segments is the change in the weighting of sales channels with a reallocation of volumes from small-scale wholesale to retail.

The growth of hydrocarbon production and the significant increase in sales through premium distribution channels led to a higher adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation), up 4.2% (RUB 336.8 billion). Net profit amounted to RUB 177.9 billion, a year-on-year increase of 0.9%. At the end of 2013, the Company became one of the industry leaders in terms of operating profit per BOE produced and adjusted operating profit (subject to performance of joint ventures). At year-end 2013, the dividend yield of OJSC Gazprom Neft shareholders also remained the highest among its industry peers. The results achieved confirm the Company’s status as an industry leader in terms of efficiency.

The Company leads the way in:

  • Net profit per 1 barrel of oil equivalent (BOE)
  • Operating cash flow per 1 BOE
  • Return on investment