5. APPLICATION OF NEW IFRS

A number of new IFRS standards and interpretation became effective for the periods beginning on or after January 1, 2013: IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interest in Other entities, IFRS 13 Fair Value Measurement, IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine, Annual improvements 2012. Additionally, the following amended standards also became effective for the periods beginning on of after January 1, 2013: IFRS 7 Financial Instruments: Disclosures, IAS 1 Presentation of Financial Statements, IAS 28 Investments in Associates.

The Group has applied these standards while preparing these Consolidated Financial Statements. The standards have no significant impact on the Group’s Consolidated Financial Statements, except for the application of IFRS 11 Joint Arrangements.

Under IFRS 11 joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. The Group has 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 with 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). The joint arrangements determined to be joint ventures will continue to be accounted for under the equity method of accounting.

In accordance with the transition provision of IFRS 11 the Group has applied the new policy for interests in joint operations occurring on or after January 1, 2012. The Group derecognized the investment that was previously accounted for using the equity method and recognized its share of each of the assets and the liabilities in respect of the interest in the joint operations, including any goodwill that might have been part of the carrying amount of the investment.

The Group measured the initial carrying amount of the assets and liabilities by disaggregationg them from the carrying amount of the investment as of January 1, 2012 on the basis of the information used in applying the equity method. Any differences arising from the investment previously accounted for using the equity method and the amount of the assets and liabilities recognized, including any goodwill, was adjusted against Retained Earnings.

Subsequently, participant of the joint arrangement accounts for the assets and revenue it controls and the liabilities and expenses to which it is obliged, including its share of any assets and liabilities held and incurred jointly.

Effect of the change in the accounting policy on the Statement of Financial Position as of January 1, 2012 and December 31, 2012 and Statement of Profit and Loss and Other Comprehensive Income for the year ended December 2012 is presented below:

RUB millions

Previously reported

Reconciliation of shareholders’ equity as of January 1, 2012

Adjustment due to change in accounting policy

Restated

ASSETS

CURRENT ASSETS

Cash and cash equivalents

29,435

371

29,806

Short-term financial assets

18,951

(3,440)

15,511

Trade and other receivables

70,780

201

70,981

Inventories

74,201

3,285

77,486

Current income tax prepayments

12,377

48

12,425

Other current assets

89,518

1,214

90,732

Assets classified as held for sale

2,029

2,029

TOTAL CURRENT ASSETS

297,291

1,679

298,970

NON-CURRENT ASSETS

Property, plant and equipment

574,982

90,072

665,054

Goodwill and other intangible assets

40,194

9,625

49,819

Investments in associates and joint ventures

175,315

(74,600)

100,715

Long-term trade and other receivables

219

2

221

Long-term financial assets

9,487

10

9,497

Deferred income tax assets

11,934

1,690

13,624

Other non-current assets

8,737

56

8,793

TOTAL NON-CURRENT ASSETS

820,868

26,855

847,723

TOTAL ASSETS

1,118,159

28,534

1,146,693

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Short-term debt and current portion of long-term debt

44,330

9,619

53,949

Trade and other payables

41,196

(761)

40,435

Other current liabilities

25,165

651

25,816

Current income tax payable

1,994

79

2,073

Other taxes payable

30,089

6,589

36,678

Provisions for liabilities and charges

6,888

302

7,190

Liabilities associated with assets classified as held for sale

667

667

TOTAL CURRENT LIABILITIES

150,329

16,479

166,808

NON-CURRENT LIABILITIES

Long-term debt

176,979

11

176,990

Other non-current financial liabilities

6,824

6,824

Deferred income tax liabilities

32,443

10,509

42,952

Provisions for liabilities and charges

17,458

4,606

22,064

Other non-current liabilities

1,956

5

1,961

TOTAL NON-CURRENT LIABILITIES

235,660

15,131

250,791

EQUITY

Share capital

98

98

Treasury shares

(1,170)

(1,170)

Additional paid-in capital

10,022

10,022

Retained earnings

676,947

(3,077)

673,870

Other reserves

(940)

1

(939)

EQUITY ATTRIBUTABLE TO THE COMPANY’S OWNERS

684,957

(3,076)

681,881

Non-controlling interest

47,213

47,213

TOTAL EQUITY

732,170

(3,076)

729,094

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

1,118,159

28,534

1,146,693

RUB millions

Reconciliation of shareholders’ equity as of December 31, 2012

Previously reported

Adjustment due to change in accounting policy

Restated

ASSETS

CURRENT ASSETS

Cash and cash equivalents

76,012

3,187

79,199

Short-term financial assets

15,863

26

15,889

Trade and other receivables

66,596

18

66,614

Inventories

88,284

2,930

91,214

Current income tax prepayments

8,384

9

8,393

Other current assets

106,265

817

107,082

Assets classified as held for sale

2,179

2,179

TOTAL CURRENT ASSETS

363,583

6,987

370,570

NON-CURRENT ASSETS

Property, plant and equipment

669,425

88,787

758,212

Goodwill and other intangible assets

40,162

9,716

49,878

Investments in associates and joint ventures

185,087

(79,444)

105,643

Long-term trade and other receivables

159

1

160

Long-term financial assets

23,253

3

23,256

Deferred income tax assets

10,670

1,994

12,664

Other non-current assets

7,769

58

7,827

TOTAL NON-CURRENT ASSETS

936,525

21,115

957,640

TOTAL ASSETS

1,300,108

28,102

1,328,210

RUB millions

Reconciliation of shareholders’ equity as of December 31, 2012

Previously reported

Adjustment due to change in accounting policy

Restated

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

Short-term debt and current portion of long-term debt

66,195

10,998

77,193

Trade and other payables

51,348

(1,341)

50,007

Other current liabilities

31,128

(49)

31,079

Current income tax payable

2,631

527

3,158

Other taxes payable

35,908

7,116

43,024

Provisions for liabilities and charges

6,987

314

7,301

Liabilities associated with assets classified as held for sale

42

42

TOTAL CURRENT LIABILITIES

194,239

17,565

211,804

NON-CURRENT LIABILITIES

Long-term debt

166,417

30

166,447

Other non-current financial liabilities

5,232

5,232

Deferred income tax liabilities

38,759

10,145

48,904

Provisions for liabilities and charges

18,062

5,833

23,895

Other non-current liabilities

1,968

31

1,999

TOTAL NON-CURRENT LIABILITIES

230,438

16,039

246,477

EQUITY

Share capital

98

98

Treasury shares

(1,170)

(1,170)

Additional paid-in capital

16,125

16,125

Retained earnings

818,808

(3,077)

815,731

Other reserves

1,023

(2,425)

(1,402)

EQUITY ATTRIBUTABLE TO THE COMPANY’S OWNERS

834,884

(5,502)

829,382

Non-controlling interest

40,547

40,547

TOTAL EQUITY

875,431

(5,502)

869,929

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

1,300,108

28,102

1,328,210

RUB millions

Reconciliation of comprehensive income for the year ended December, 31 2012

Previously reported

Adjustment due to change in accounting policy

Restated

SALES

1,517,067

2,383

1,519,450

Less export duties and sales related excise tax

(286,801)

(286,801)

TOTAL REVENUE FROM SALES

1,230,266

2,383

1,232,649

COSTS AND OTHER DEDUCTIONS

Purchases of oil, gas and petroleum products

(430,485)

90,032

(340,453)

Production and manufacturing expenses

(113,624)

(13,015)

(126,639)

Selling, general and administrative expenses

(66,115)

(2,274)

(68,389)

Transportation expenses

(103,556)

(103,556)

Depreciation, depletion and amortization

(58,461)

(10,702)

(69,163)

Taxes other than income tax

(251,128)

(46,696)

(297,824)

Exploration expenses

(3,263)

(168)

(3,431)

TOTAL OPERATING EXPENSES

(1,026,632)

17,177

(1,009,455)

Other loss, net

(4,891)

(377)

(5,268)

OPERATING PROFIT

198,743

19,183

217,926

Share of profit of associates and joint ventures

28,281

(15,514)

12,767

Net foreign exchange gain

953

89

1,042

Finance income

3,174

101

3,275

Finance expense

(11,160)

71

(11,089)

TOTAL OTHER INCOME

21,248

(15,253)

5,995

PROFIT BEFORE INCOME TAX

219,991

3,930

223,921

Current income tax expense

(30,085)

(4,023)

(34,108)

Deferred income tax expense

(5,754)

93

(5,661)

TOTAL INCOME TAX EXPENSE

(35,839)

(3,930)

(39,769)

PROFIT FOR THE PERIOD

184,152

184,152

OTHER COMPREHENSIVE (LOSS) / INCOME:

Currency translation differences

(4,299)

(2,426)

(6,725)

Cash flow hedge

5,156

5,156

OTHER COMPREHENSIVE INCOME / (LOSS) FOR THE PERIOD

857

(2,426)

(1,569)

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

185,009

(2,426)

182,583

PROFIT ATTRIBUTABLE TO:

Gazprom Neft shareholders

176,296

176,296

Non-controlling interest

7,856

7,856

PROFIT FOR THE PERIOD

184,152

184,152

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Gazprom Neft shareholders

178,259

(2,426)

175,833

Non-controlling interest

6,750

6,750

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

185,009

(2,426)

182,583

The application of IFRS 11 has no effect on the Group’s earnings per share data previously reported. The effect of retrospective application of IFRS 11 to the cash flow statement for the year ended 2012 previously reported, is an increase of net cash provided by operating activity in amount of RUB 16.7 billion and an increase of net cash used in investing activity in amount of RUB 13.8 billion.