Supplementary Information on Oil and Gas Activities (Unaudited)

For the year ended December 31, 2013

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 emphasized 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.

Information for year ended and as of 31 December 2012 and 2011 was restated to reflect the effect of IFRS 11 application.

The proved oil and gas reserve quantities and related information regarding standardized 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.

RUB millions

December 31, 2013

December 31, 2012

Consolidated subsidiaries and share in joint operations

Unproved oil and gas properties

48,191

25,056

Proved oil and gas properties

778,836

658,708

Less: Accumulated depreciation, depletion and amortization

(275,369)

(217,725)

NET CAPITALIZED COSTS OF OIL AND GAS PROPERTIES

551,658

466,039

GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES

Proved oil and gas properties

191,620

143,359

Less: Accumulated depreciation, depletion and amortization

(62,613)

(50,726)

Net capitalized costs of oil and gas properties

129,007

92,633

TOTAL CAPITALIZED COSTS CONSOLIDATED AND EQUITY INTERESTS

680,665

558,672

Presented below are cost incurred in acquisition, exploration and development of oil and gas reserves.

RUB millions

December 31, 2013

December 31, 2012

CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS

Exploration costs

3,159

3,082

Development costs

132,907

97,509

COSTS INCURRED

136,066

100,591

GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES

Exploration costs

1,034

664

Development costs

43,143

17,374

TOTAL COSTS INCURRED CONSOLIDATED AND EQUITY INTERESTS

180,243

118,629

RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
в млн руб.
For the period ended December 31

December 31, 2013

December 31, 2012

CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS

Revenues:

Sales

115,460

125,860

Transfers

325,942

326,127

TOTAL REVENUES

441,402

451,987

Production costs

(71,847)

(63,955)

Exploration expenses

(3,159)

(3,082)

Depreciation, depletion and amortization

(60,069)

(52,381)

Taxes other than income tax

(220,032)

(209,940)

PRETAX INCOME FROM PRODUCING ACTIVITIES

86,295

122,629

Income tax expenses

(16,561)

(23,124)

RESULTS OF OIL AND GAS PRODUCING ACTIVITIES

69,734

99,505

GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES

TOTAL REVENUES

87,976

89,091

Production costs

(13,368)

(8,807)

Exploration expenses

(1,034)

(664)

Depreciation, depletion and amortization

(12,601)

(12,779)

Taxes other than income tax

(46,456)

(47,067)

PRETAX INCOME FROM PRODUCING ACTIVITIES

14,517

19,774

Income tax expenses

(2,803)

(3,908)

RESULTS OF OIL AND GAS PRODUCING ACTIVITIES

11,714

15,866

TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESULTS OF OIL AND GAS PRODUCING ACTIVITIES

81,448

115,371

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.

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):

in MMBbl

Proved Oil Reserves Quantities – in MMBbl

December 31, 2013

December 31, 2012

CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS

BEGINNING OF YEAR

4,870

4,815

Production

(300)

(299)

Purchases of minerals in place

1

Revision of previous estimates

411

353

END OF YEAR

4,981

4,870

Minority’s share included in the above proved reserves

(17)

(115)

Proved reserves, adjusted for minority interest

4,964

4,755

Proved developed reserves

2,614

2,660

Proved undeveloped reserves

2,367

2,210

GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES

BEGINNING OF YEAR

982

940

Production

(67)

(66)

Purchases of minerals in place

48

Revision of previous estimates

185

108

END OF YEAR

1,148

982

Proved developed reserves

472

471

Proved undeveloped reserves

676

511

TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESERVES – END OF YEAR

6,129

5,852

in Bcf

Proved Gas Reserves Quantities – in Bcf

December 31, 2013

December 31, 2012

CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS

BEGINNING OF YEAR

6,092

4,903

Production

(436)

(342)

Purchases of minerals in place

Revision of previous estimates

667

1,531

END OF YEAR

6,323

6,092

Minority’s share included in the above proved reserves

(38)

(396)

Proved reserves, adjusted for minority interest

6,285

5,696

Proved developed reserves

3,410

3,662

Proved undeveloped reserves

2,913

2,430

GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES

BEGINNING OF YEAR

3,951

3,182

Production

(58)

(31)

Purchases of minerals in place

1,014

Revision of previous estimates

2,162

800

END OF YEAR

7,069

3,951

Proved developed reserves

493

97

Proved undeveloped reserves

6,576

3,854

TOTAL CONSOLIDATED AND EQUITY INTERESTS IN RESERVES — END OF YEAR

13,392

10,043

STANDARDIZED 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.

RUB millions

December 31, 2013

December 31, 2012

CONSOLIDATED SUBSIDIARIES AND SHARE IN JOINT OPERATIONS

Future cash inflows

7,690,400

7,724,434

Future production costs

(4,723,691)

(4,036,226)

Future development costs

(612,498)

(578,391)

Future income tax expenses

(354,004)

(488,647)

Future net cash flow

2,000,207

2,621,170

10% annual discount for estimated timing of cash flow

(1,197,686)

(1,540,776)

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW

802,521

1,080,394

GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES

Future cash inflows

2,084,265

1,635,948

Future production costs

(1,085,733)

(881,730)

Future development costs

(151,527)

(121,689)

Future income tax expenses

(153,455)

(117,171)

Future net cash flow

693,550

515,358

10% annual discount for estimated timing of cash flow

(407,796)

(291,537)

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW

285,754

223,821

TOTAL CONSOLIDATED AND EQUITY INTERESTS IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOW

1,088,275

1,304,215