Financial risks

The management of the Company’s financial risks is the responsibility of employees acting within the scope of their respective professional activities.

The Company’s Financial Risk Management Panel defines a uniform approach to financial risk management at the Company and its subsidiaries. Risk management activities carried out by Company employees and the Financial Risk Management Panel minimise potential financial losses and help to achieve corporate targets.

Risks

Description

Risk management activities

Credit risk

Risk related to the failure of the Company’s counterparties to meet their financial obligations in full or in part.

Gazprom Neft has taken a number of steps to manage credit risk, including: counterparty solvency evaluation; individual lending limits depending on the counterparty’s financial situation; control of advance payments; activities on handling accounts receivable by lines of business, etc.

Debt financing risk

Risk related to the inability to obtain a loan on favourable terms (scope, timeframe, and cost) to implement the Company’s investment programme.

The Company’s debt portfolio is highly diversified in terms of both the pool of creditors and investors and the use of different financing facilities. The Company’s stable financial situation (as confirmed by investment ratings from international rating agencies) helps it to find opportunities to mobilise sufficient funds in the capital markets on favourable terms.

Currency risk

Gazprom Neft generates most of its gross revenues from the export sales of crude oil and petroleum products. This means that fluctuations in the rouble exchange rates may impact the Company’s financial and business performance.

The Company’s currency risk is considerably mitigated by its foreign currency liabilities. The Company holds a large part of its loans on the international credit market in US dollars, and associated debt servicing costs are also in US dollars.

The currency structure of revenues and liabilities acts as a hedging mechanism where opposite factors offset each other. A balanced structure of currency claims and liabilities minimises the impact of currency risk factors on the Company’s financial and business performance.

Interest risk

As a major borrower, the Company is exposed to the risk of changing interest rates. The international financial market remains the main source of loans. Most of the Company’s debt portfolio is denominated in US dollars. The interest rates on a portion of the Company’s debt (this exact share is not fixed and may vary) are based on LIBOR rates. Increases in LIBOR may cause the cost of debt servicing to increase for the Company. Higher borrowing costs could potentially have a negative impact on the Company’s ability to meet its liabilities and on its liquidity.

The LIBOR rate has recently increased slightly; however, the need to stimulate more growth in the global economy makes the probability of significant increases (over 1%) negligible. Therefore, taking account of OJSC Gazprom Neft’s current loan portfolio structure, the Company believes it faces low interest risks at present.