HYDROCARBON
PRODUCTION

Most of the Company’s crude oil in Russia is produced by its subsidiaries: OJSC Gazprom Neft-Noyabrskneftegaz, LLC Gazprom Neft-Khantos, LLC Gazprom Neft-East, and CJSC Gazprom Neft Orenburg (since October 2011). These companies are developing fields within the Yamal-Nenets Autonomous District (YaNAD) and the Khanty-Mansiysk Autonomous District (KhMAD), and within the Omsk, Tomsk, Tyumen, Orenburg, and Irkutsk regions.

The Company’s foreign subsidiary, NIS, explores and produces oil and gas in Serbia, Angola, Bosnia and Herzegovina, and Hungary.

Gazprom Neft is also party to a number of production sharing agreements and hydrocarbon exploration and production projects in Iraq and Venezuela.

In addition to its own production, OJSC Gazprom Neft holds production rights for three affiliates (in which the Company has a 50% interest) proportionate to its equity shareholding: OJSC Slavneft (50%), OJSC Tomskneft VNK (50%), Salym Petroleum Development (SPD) (50%) and LLC SeverEnergia (25.5%. In December 2013, the share increased to 40.2%).

The Company’s fields with the largest hydrocarbon reserves in the Yamal-Nenets Autonomous District are: Sugmutskoye, Sutorminskoye, Vyngapurovskoye, Sporyshevskoye, Vyngayakhinskoye and Muravlenkovskoye. The Company’s share of production at these fields represented 29.7% of its total crude oil production (net of output from the consolidated entities) in 2013. These fields are operated by the following oil and gas production companies: OJSC Gazprom Neft-Noyabrskneftegaz, its subsidiary LLC Zapoliar-Neft (holder of a development licence at the Vyngapurskoye, Yaraynerskoye, and Novogodneye fields), and the Gazprom Neft Muravlenko branch, OJSC Gazprom Neft-Noyabrskneftegaz.

In the Khanty-Mansiysk Autonomous District, the Company’s largest and most promising oil field is Priobskoye, with a development licence held by LLC Gazprom Neft-Khantos.

LLC Gazprom Neft-Khantos’s total output, including that of LLC Oil Company Magma, was 13.73 million tonnes in 2013, which is 12% higher than in 2012.

Oil production, mn t

Source: Company data

LLC Gazprom Neft-Khantos has the highest production growth rates. Intensive development began at Priobskoye in 2004, and the field produced more than 23% of Gazprom Neft’s total output in 2008, and increased to 37% in 2013. Priobskoye is a key asset that will play a strategic role in the Company’s future growth.

A total of 534 interventions were conducted by LLC Gazprom Neft-Khantos, resulting in 2,161.6 thousand tonnes of additional crude oil production.

The Company achieved this high level of performance by exceeding its new well commissioning target by 12.6% (with 366 new wells brought into operation), and as a result of efficiently organizing the formation pressure system.

The north-eastern section of the Palyanovskaya area of the Krasnoleninskoye field is also located within the KhMAD, as is a cluster of license areas which the Company bought in early 2005 (Salym-2, Salym-3, and Salym-5), and the Zimneye field in the Tyumen Region. In 2008, LLC Gazprom Neft-Khantos won an auction for the rights to the section of the Zimneye field located within the KhMAD.

A cluster of regional fields in the Omsk and Tomsk Regions represents another new production centre. Crude oil production operations at the Krapivinskoye field in the Omsk Region, and at the Archinskoye, Shinginskoye and Urmanskoye fields in the Tomsk Region, are conducted by LLC Gazprom Neft-East.

The Luginetskiye field cluster, purchased in 2010, has created a new production node which has yielded incremental crude oil production every year. Most of these reserves are at an early stage of development and offer great potential for future production growth.

In 2011, the Company acquired CJSC Gazprom Neft Orenburg in the Orenburg Region, which is developing the eastern section of the Orenburg oil and gas condensate field; CJSC Technology Research Center the license holder for the Tsarichanskoye field; OJSC Yuzhuralneftegaz, developer of the Kapitonovskoye field and, in late 2012, LLC Zhivoy Istok, which produces oil at the Baleykinskoye field. These assets accounted for 3.3% of OJSC Gazprom Neft’s total output in 2013, or 1.6 million tonnes. Production is estimated to reach 5 million tonnes by 2018.

Since late 2007, OJSC Gazprom Neft and OJSC Oil Company Rosneft have been equal joint venture partners, with alternating management, of OJSC Tomskneft VNK (in accordance with their shareholder agreement). Starting in January 2011, the operating control of OJSC Tomskneft VNK was transferred to Gazprom Neft for a three-year period.

OJSC Tomskneft VNK produced 10.152 million tonnes of oil, which is 0.6% lower than the Business Plan targets and 0.7% more than in the previous year. Gazprom Neft’s share was 5.075 million tonnes of oil.

OJSC NGK Slavneft is a joint venture between Gazprom Neft and OJSC RN Holding (formerly TNK-BP). The company is developing reserves in the Khanty-Mansiysk Autonomous District and carrying out exploration and production in the Krasnoyarsk Territory.

The company produced 16.802 million tonnes of oil in 2013, which is 5.9% less than in 2012; Gazprom Neft’s share was 8.401 million tonnes of oil and 0.41 billion cubic metres of gas.

Since June 2009, OJSC Gazprom Neft has held a 50% interest in Salym Petroleum Development, a joint venture with Royal Dutch Shell. In 2013, Salym Petroleum Development produced 6.987 million tonnes, of which a share of 3.494 million tonnes was attributed to Gazprom Neft, an 8.1% reduction compared to 2012.

Gazprom Neft’s overseas business, through Serbia-based NIS, succeeded in considerably increasing its oil output. In 2013, NIS produced 1.255 thousand tonnes, which is 2.5% more than in 2012 (1.223 thousand tonnes).

Gazprom Neft maintained its leading position among Russian producers by oil and gas volume output in 2013.

Gazprom Neft’s consolidated crude oil production was 50.575 million tonnes of oil in 2013, a 0.4% decrease compared to 2012, and also 0.65% lower than its 2013 Business Plan targets.

The Company is rapidly developing its gas business, which is focused on commercialising associated and natural gas reserves at oil fields and realising the maximum value of gas.

The Gazprom Neft Group’s gas production programme envisions a rapid growth of gas production in Russia. The target is to increase gas production and utilisation from 14.5 billion cubic metres in 2013 to 22.0 billion cubic metres in 2016.

In 2013, the total production and utilisation of gas by Gazprom Neft Group (including its share of production from joint ventures) was 14.55 billion cubic metres.

Total natural gas produced by subsidiaries and affiliates was 5.96 billion cubic metres, including 5.91 billion cubic metres of marketable gas. The supply of natural gas increased due to the expansion of the Muravlenkovskoye gas field in Q4 2012.

Peak annual natural gas production at Muravlenkovskoye rose from 3.2 billion cubic metres to 4.6 billion cubic metres per year. In 2013, an additional 1.3 billion cubic metres of gas was placed on the market, which resulted in a production increase of 1.0 million tonnes of oil equivalent.

Compared to 2011, the average daily supply of marketable gas increased by 30%.

This increase was due both to the successful implementation of production at the Muravlenkovskoye field and projects for utilising associated gas, including the Noyabrsky Integrated Project, which completed its initial phase in October 2012. In addition, a compressor station went into operation in the southern licence area of the Priobskoye field in the middle of 2013, bringing additional APG utilisation up to over 100 million cubic metres in 2013.

As part of the APG utilisation improvement project at the Yuzhno-Priobskaya area, the optimal options and configuration were approved for the construction of a new Gas and/or condensate refining plantgas processing plant (GPP) with an annual processing capacity of 900 million cubic metres, based at the existing Yuzhno-Priobskaya compressor station. In December 2013, Gazprom Neft and SIBUR signed an agreement for the construction of this GPP in the Khanty-Mansi Autonomous District.

Source: Company data

As part of the Noyabrsk Integrated Project, vacuum gas compressor stations (Vacuum compressor stationVCS) were put into operation at BS-2 of the Yety-Purovskoye field. A VCS at BS of the Romanovskoye field and a pipeline at the Umseyskoye field also went into operation.

As part of the flare unit reconstruction project at the Chatylkinskoye field, a smokeless flare tip was installed to reduce pollutant emissions. The gas infrastructure was expanded in Orenburg; and at the Western field cluster, an agreement was reached on the terms of supply of APG to the Orenburg GPP.

Compared to 2012, average utilisation increased by 14 p.p. (from 65.7% to 79.5%).

OJSC Tomskneft VNK produced 1.7 billion cubic metres of gas, and Gazprom Neft’s share was 0.85 billion cubic metres.

OJSC Slavneft produced 0.82 billion cubic metres of gas, and Gazprom Neft’s share was 0.41 billion cubic metres.

The total APG utilisation rate (including joint venture operations) was 79.9% in 2013, compared with 69.3% in 2012. (If the full-year effect with respect to the projects implemented in 2013 is included, the utilisation rate is projected to reach about 81% in 2014). This improvement reflects the full-year effect of the compressor station that was put into operation at the Priobskoye field.

The development of small gas deposits in fields where Gazprom Neft has production operations will contribute to a more efficient utilisation of the Company’s reserves, helping to raise annual hydrocarbon output to 100 million tonnes of oil equivalent, in line with the Company’s 2025 Development Strategy.

The Company has developed a 2014-2016 programme for associated petroleum gas utilisation by subsidiaries and affiliates, which it approved in 2013. The programme includes a project portfolio that will ensure the achievement of a 95% target utilisation rate across all of the Company’s key assets, with the exception of remote fields with inherently negative economic conditions, where the level of associated gas utilisation will be set by Government regulation.

Total production by OJSC Gazprom Neft rose by 4.3% in 2013, to 62.26 million tonnes of oil equivalent. Oil-equivalent production growth has been achieved as a result of the production assets purchased in 2011-2012 (CJSC Gazprom Neft Orenburg, LLC Technology Research Centre, OJSC Yuzhuralneftegaz, and LLC Zhivoy Istok) and highly efficient interventions at the Western Siberian fields.

Hydrocarbon production, TOE million

Source: Company data

The Company’s subsidiaries outperformed targets by drilling new horizontal wells, including multi-stage fracturing, and utilising effective techniques to improve production.

In 2013, Company subsidiaries performed 2,567 well interventions, of which 1,486 increased oil production and 1,081 were aimed at maintaining base production. This resulted in the production of 718.5 thousand tonnes more than foreseen in the Business Plan, and enabled the additional production of more than 5 million tonnes of crude oil.

The subsidiary resource base is characterised by a deteriorating structure of remaining reserves, as the majority of high-yielding fields are now in a mature development phase, with some less efficient reserves now being developed. It may be possible improve the efficiency of these reserves through horizontal drilling.

In 2013, horizontal drilling technologies and multilateral wells were utilised in more geologically complex deposits.

Gazprom Neft subsidiaries commissioned 767 wells in 2013, of which 233 were horizontal wells (compared with 144 in the Business Plan, that is, 62% more than planned). Multi-stage fracturing was utilised for 148 horizontal wells located in drilling areas with low porosity and permeability, which resulted in an average of 46.4 tonnes per day. In addition, 24 multilateral wells were completed in 2013.

This increase in the number of new wells reflects the expansion of the production drilling programme to 2,963.951 thousand metres, 977 thousand metres above the Business Plan, including a 2.8 times increase in the drilling of horizontal wells (of 750.3 thousand metres).

By the end of 2013, the Company subsidiaries’ high performing oil production wells had risen by 476, to a total of 8,335 wells.

Gazprom Neft’s approved Business Plan for 2014 has set a 3.6% increase in hydrocarbon production, to 64.5 tonnes of oil equivalent.

In order to slow down the decline in production and achieve targets, the following measures have been planned: drilling new wells, using new technology to maximise yield from strata, reopening idle wells, improving the water injection system at mature fields, and implementing measures to maintain formation pressure in new production areas.

The plan for 2014 is to drill 754 new wells, with a target yield of 28.1 tonnes per day. This will include 282 horizontal wells, with the multi-stage fracturing technique used at 167 wells, which is 21% higher than the reported horizontal drilling in 2013.

Most of the drilling will be carried out at the Priobskoye, Novoportovskoye, Vyngapurskoye, Vyngayakhinskoye, Sugmutskoye, Kraineye, Zimneye, Shinginskoye, Archinskoye, Zapadno-Luginetskoye, Umseyskoye, and Yety- Purovskoye fields. CJSC Messoyakhaneftegaz will continue with pilot commercial drilling at fields under development.

The rates of hydrocarbon output growth in the coming years will remain at 4-5%.

This performance will be achieved by the phased commissioning of explored oil fields belonging to OJSC Gazprom Neft, following the commissioning of the Yamal fields, and the expansion of the resource base by the commissioning oil field assets of other companies within the Group.

The main challenge over the next two to three years will be the updating of the Group’s hydrocarbon production strategy to improve operations from a depleted resource base.

THE TARGET PRODUCTION SCOPE FOR 2014 INCLUDES:
  • Development of existing Gazprom Neft assets: OJSC Gazprom Neft- Khantos (including LLC Oil Company Magma); OJSC Gazprom Neft- Noyabrskneftegaz, OJSC Gazprom Neft-East; with the acquisition of open acreage licences;
  • Shares of production in joint ventures with OJSC NGK Slavneft (50% Joint ventureJV with OJSC Oil Company Rosneft), OJSC Tomskneft VNK (50% JV with OJSC Oil Company Rosneft), and SPD (50% JV with Shell Salym Development B.V.);
  • Further development of OJSC Gazprom Neft’s fields: Orenburgskoye, Prirazlomnoye;
  • Production of Cenomanian natural gas at OJSC Gazprom Neft- Noyabrskneftegaz fields: Novogodneye and Muravlenkovskoye; development of NGK Slavneft’s Kuyumbinskoye field jointly with OJSC Oil Company Rosneft (50%);
  • Participating in foreign projects and acquiring land and assets of open acreage of the Russian Federation.

The 36.8% decline in crude oil purchases in Russia is due to the termination of an oil supply contract with TNK BP.

Year-on-year changes in the volume of international crude oil purchases can be explained by changes in the volume of trading operations.

Million tonnes

2013

2012

Change
2013/2012, %

Crude oil purchases, Russia Crude oil purchases in Russia exclude purchases from the Group’s joint ventures (Slavneft and SeverEnergia).

4,94

7,82

(36,8)

Crude oil purchases, international

1,87

3,24

(42,3)

Total crude oil purchases

6,81

11,06

(38,4)