GPN Annual Report 2010

ANNUAL REPORT 2010
Annual report 2010
CONTENTs
2 4 9 12 18 20 22 26
Key performance indicators message to shareholders highlights development strategy Company history Company structure Geography of operations Competitive state of the company
93 board of directors and management board 93 Governing bodies structure of JsC Gazprom Neft 94 Membership of the Board of Directors 101 Membership of the Management Board 106 Total compensation for members of Board of Directors and Management Board 107 environment and innovations 107 Environmental protection and safety 115 Innovation activity 121 energy and energy saving 124 social responsibility and regional policy 124 Personnel, occupational safety, and health management 129 social responsibility in areas of operations 131 to shareholders and investors 131 Authorised capital shareholder capital structure 132 share market and capitalisation 134 Participation in the Depositary Receipt Program 136 Dividend history 137 Observing the Corporate Code of Conduct 140 asset management and corporate structure 142 credit ratings and debt portfolio management 142 Credit rating 143 Debt obligations 144 glossary of Key terms and definitions 145 appendix. major deals and deals of interest addresses and contacts
31 company Key performance indicators by type of operation in 2010 31 Oil and gas exploration and production 41 Oil refining 45 Production of petroleum products 46 sales of petroleum products 48 Premium business segments 52 Export of crude oil and petroleum products 54 analysis of the companys financial results of activity by the management 54 Definitions and recalculation methodology 54 Forecast statements 55 Key performance indicators for 20082010 56 Key financial and performance indicators 57 Results of activities for 2010 compared to 2009 57 Production segments 58 Changes in structure of the group 60 Performance indicators and analysis 66 Results of activities 76 Financial appendices 77 Financial indicators 78 Additional information 84 investment program 86 Key risK factors
KEy PERFORMANCE INDICATORs
JsC GAZPROM NEFT
Key financial indicators sales revenue, mn UsD EBITDA, mn UsD Operating income, mn UsD Income before tax, mn UsD Net income*, mn UsD Net cash from operating activities, mn UsD Investments, mn UsD Dividends paid mn UsD Net financial debt, mn UsD Average capital employed, mn UsD Average shareholders equity, mn UsD Price per share at year-end, UsD RTs Price per share at year-end, RUB. MICEX
2010 32 772 7 226 4 658 4 277 3 346 5 392 4 925 728 5 246 24 858 19 728 4.19 128.27
2009 24 166 5 977 3 429 3 897 2 685 3 475 4 889 937 5 014 19 542 16 379 5.55 163.46
2008 33 870 8 610 6 249 6 161 4 658 5 483 3 399 792 1 312 14 245 12 268 2.05 62.67
2007 22 768 6 601 4 899 5 458 4 143 5 316 5 959 2 071 2 641 11 672 10 183 6.35 151.74
2006 20 176 6 091 4 366 4 854 3 661 3 320 1 649 602 336 9 541 8 793 4.56 119.9
2010/2009 36 % 21 % 36 % 10 % 25 % 55 % 1% 22 % 5% 27 % 20 % 25 % 22 %
Key financial ratios Base and diluted earnings per common share, UsD per share Dividend per share**, RUB Return on average capital employed, % EBITDA margin, % EBITDA per barrel, UsD per barrel Net income margin*, % Net income* per barrel, UsD per barrel Return on equity, % Gearing, % Current liquidity ratio
2010 0.67 15.96 % 22.05 % 18,55 10.21 % 13.48 18.41 % 20.88 % 1.46
2009 0.64 3.57 15.53 % 24.72 % 16.25 11.11 % 11.32 16.81 % 22.58 % 1.33
2008 0.98 5.40 36.30 % 25.42 % 23.85 13.75 % 19.42 38.29 % 10.29 % 1.48
2007 0.87 5.40 35.36 % 28.99 % 19.96 18.20 % 16.44 40.69 % 20.56 % 1.31
2006 0.77 8.08 39.83 % 30.32 % 18.00 18.15 % 14.43 41.64 % 3.27 % 1.99
2010/2009 4% 0.43 p.p. 2.67 p.p. 14 % 0.90 p.p. 19 % 1.60 p.p. 1.70 p.p. 10 %
sales revenue, mn usd

40 000 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 2006 2007 2008 2009 2010 22 768 20 176 24 166 33 870
36 %
ebitda, mn usd
10 000 8 610
21 %
net income, mn usd

5 000 4 658
4 % [25 %]*
32 772
8 000 6 601 6 091
4 000 3 661 3 000
4 153 3 013
7 226 6 000 5 977
3 346* 3 148 2 685*
4 000
2 000
2 000
1 000
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
* Corrected for non-recurring income and expenses: losses of 142 mn UsD due to the sale of sibneft-Chukotka in the fourth quarter of 2009. Income of 470 mn UsD due to acquiring sibir Energy in the second quarter of 2009. Reserve of 198 mn UsD to pay a penalty to the Federal Antimonopoly service in the fourth quarter of 2010. ** Not announced as at the date of signing the Dividends Report for 2010.
Annual report 2010
Key production indicators Proven reserves of oil, mn bbl of gas, bn ft

3
2010 6 441 6 511 7 526 230 366 3.1 4.0 1 067 30.8 7.2 15.9 3.0 0.01 5.2 14.9 1.7 20.5 1 596
2009 6 924 3 231 7 462 225 349 2.1 3.2 1 008 26.6 6.8 15.6 3.3 0.5 3.7 13.7 1.9 17.4 1 546
2008 6 303 3 033 6 808 229 343 1.9 3.1 987 18.4 10.0 16.3 3.3 0.9 3.7 11.4 1.8 15.6 865
2007 6 709 1 232 6 914 243 321 1.5 1.9 909 16.5 9.7 15.1 2.5 1.6 2.2 11.4 1.9 13.4 783
2006 5 845 1 263 6 056 243 329 1.8 2.2 938 16.3 8.0 18.2 2.6 0.1 3.0 12.2 1.3 11.9 776
2010/2009 7 % 102 % 1% 2% 5% 47 % 26 % 6% 16 % 5% 2% 9 % 97 % 41 % 9% 11 % 18 % 3%
Hydrocarbons, mn BOE Crude oil production by consolidated subsidiaries, mln bbl Crude production including share in equity investees, mln bbl Marketable gas production by consolidated subsidiaries, bn m Marketable gas production including share in equity investees (slavneft and Tomskneft), bn m Marketable hydrocarbon production, thousand BOE per day Oil refining at own refineries, mln t at equity oil refineries, mln t Crude exports, mln t Non-CIs countries CIs countries sales of crude oil in Russian Federation, mln t Gas, bn m Petroleum product exports to international market, mln t Non-CIs countries CIs countries Petroleum product sales in Russian Federation, mln t Number of active filling stations (own, leased and franchise)
net cash from operating activities, mn usd

6 000 5 000 4 000 3 000 2 000 1 000 0 3 320 3 475 5 316 5 483
55 %
net income per barrel, usd per barrel

20,00 19,42 18,00
gearing, %
25,00 20,56 20,00 20,88
1,70 p.p.
22,58
5 392
16,00
16,44
15,00
14,00
14,43
19 %
10,00
10,29
13,48 12,00 11,32 2006 2007 2008 2009 2010 10,00

0 5,00 3,27
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
MEssAGE TO sHAREHOLDERs
JsC GAZPROM NEFT
Annual report 2010
Dear shareholders and Investors, Characterising the results of activities of JsC Gazprom Neft in 2010, the Board of Directors notes with satisfaction stable growth in the company's key financial and performance indicators. Gazprom Neft has repeatedly confirmed its status as an effective company. This is a guarantee of realising its future plans and projects. Current activities focused on improving efficiency in the producing fields. Integrating new acquired assets has also allowed the company to increase performance indicators significantly. We note 2010 as a year of quality achievements for Gazprom Neft, not only in operational activities but also in its corporative and financial management. The Board of Directors approved the companys dividend policy, the debt portfolio of Gazprom Neft was optimised, and activity for further cost reduction is continuing. Last year, Gazprom Neft expanded its geography of operations significantly and continued to strengthen its vertical integration. This allowed the company to maintain its leading industry position, in such indicators as operating efficiency and profitability. Moreover, Gazprom Neft continues to employ a systematic approach in forming its strategic development concept. To improve managerial control efficiency at all levels, the company is adopting an integrated system for long-term strategy development and medium-term business plans. In the near-term, the company has defined the following strategic objectives for key business directions: z successfully implementing major projects and building up the resource base z effective activity on existing assets z improving the quality and extent of oil-refining z developing sales in premium segments. To conclude, I would like to remind you that every company measure to optimise production activities, financial policy and corporative management focuses on creating additional revenue for Gazprom Neft.
Alexey Miller Chairman of the Management Board, JsC Gazprom Chairman of the Board of Directors, JsC Gazprom Neft
JsC GAZPROM NEFT
Annual report 2010
Dear shareholders,
Pre-crisis oil prices and the global economic situation recovered during 2010. This allowed our company to advance significantly toward our strategic targets. In 2010, Gazprom Neft demonstrated stable growth in all business directions. Based on the results of reserves audit conducted by DeGolyer and MacNaughton, the company's proven reserves as per PRMs were 1 bn BOE as of the end of 2010 and the reserves recovery rate has exceeded 110 %. Resource base recovery is an essential foundation for further stable production growth. systematic work for optimising production field development, as well as new assets, allowed the company to increase hydrocarbon production to 52.8 mn t, compared to 50.2 mn t in 2009. Gas production increased by 26 %. This was mainly due to the start up of the Cenomanian gas project at Muravlenko and Novogodny fields. It was also due to the company's systematic work in the associated gas utilisation program. In 2010, refinery quantities increased by 13 %. The increase was due to actively realising the refining facilities modernisation program, combined with increasing the company share in authorised capital of the Moscow refinery. Gazprom Neft continues to increase premium sales, focusing on growing activity in the retail market segment. For example, in 2010, the company's retail sales increased faster than market growth, by 16 % while the Russian market demonstrated growth of 9 %. These figures have been achieved due to modernising the companys retail network and uniting filling stations under the 'Gazprom Neft' brand. The figures are also a result of the company expanding its own network through acquiring and constructing new filling stations. In 2010, the new G-Family brand for engine oils was marketed on the Russian and foreign markets. It includes more than 40 types of modern engine oil for the consumer and commercial markets. Furthermore, at the end of last year in the
North-West region of Russia, pilot sales of new premium-class high-octane fuel of the G-Drive brand began. Financial indicators of activities of the Gazprom Neft Group also demonstrate stable growth. In 2010, EBITDA was more than 7 bn UsD, and the internal rate of return was 16 %. The same year also saw the companys net income (not considering the influence of non-recurring incomes and expenses) increase by 25 %, totaling 3.346 mn UsD. In the area of corporate management and financial policy, we have optimised the structure and conditions for the companys credit portfolio and approved a new dividend policy. The effective interest rate for the debt portfolio has decreased from 5.11 % to 3.96 %, and the average credit payment period increased to 2.1 years. 2010 was successful for the company, not only in terms of its current activities, but in its many highlights for further business development. Last year, the geography of the Gazprom Neft exploration and production segment expanded significantly. The company became an operator for developing the eastern section of the Gazprom Orenburg field and soon became its owner. In November 2010, Gazprom Neft, in partnership with NOVATEK company, acquired 51 % of sever Energy shares. Acquiring this asset is another step in developing a strategically important region for the company: the north of yamal-Nenets Autonomous District. Two major projects are being undertaken in this region: developing the Messoyakha group of deposits (in partnership with TNK-BP) and Novoport deposit of Gazprom. In 2010, international projects of Gazprom Neft Group also developed rapidly. The work to increase operating efficiency of NIs has continued, resulting in a significant improvement in financial indicators for our serbian subsidiary. Additionally, we have entered new regions in the Middle East. In January 2010, Gazprom Neft signed a contract with the government of Iraq to develop the Badra deposit.
JsC GAZPROM NEFT
The company continues to accumulate offshore practical experience. We were involved in a production-sharing project in the offshore exploration phase in Equatorial Guinea. At the end of the year, the company also concluded an agreement to acquire a share in an offshore exploration project in Cuba. Moreover, Gazprom Neft became a leader in the Venezuelan project's Russian consortium to develop the Junin-6 deposit. The most important event in the refining segment was commissioning the Izomalk-2 light naphtha isomerisation complex at the Omsk refinery; the largest complex in Russia and Europe. Also at the Omsk refinery in 2010, construction of a complex for hydroforming cat-cracked gasoline and diesel fuel began. The complex will ensure production of
gasoline and diesel fuel in compliance with classes 4 and 5 of technical regulations. The company maintains a balanced financial policy. The cash flow from key operation activity is directed toward further business development. Furthermore, the dividend payout level is among the highest in the industry. We are looking to 2011 with certainty. Gazprom Neft Group management will continue to focus its efforts on maintaining stable production at existing fields, developing new projects, integrating new assets, modernizing refining facilities, and developing the retail network. This should, in turn, result in a further increase in company revenue for shareholders.
Alexander Dyukov Chairman of the Management Board, JsC Gazprom Neft
Annual report 2010
HIGHLIGHTs
JANUARy FEBRUARy MARCH
Gazprom Neft started crude oil deliveries from Kozmino port. Russian President Dmitry Medvedev made a working visit to the Omsk Refinery. At Omsk Refinery, construction of the complex for hydroforming of cat-cracked gasoline and diesel fuel began. Gazprom Neft won the tender for severoRomanovsky oil and gas site.
The company signed a contract for developing Badra deposit in Iraq. Gazprom Neft and Malka Oil closed a deal on acquiring sTs-servis. Gazprom Neft and yamal-Nenets Autonomous District local authorities signed socio-economic agreements for 2010.
APRIL
Gazprom Neft and Nippon Oil started a common project implementing blending of motor oils. IR Global Rankings recognised the company as the best in financial disclosure among global companies in the oil and gas industry.
The company introduced the new G-Energy brand of motor oils to the market. Gazprom Neft and the government of Omsk region concluded a cooperation agreement for 2010. Gazprom Neft expanded its share in sibir Energy by 25 %.
MAy
Gazprom Neft-Aero started aircraft fueling in Turkish Airports. Gazprom Neft has begun considering strategic alternatives for developing the oil and gas business.
JUNE
Gazprom Neft-Aero started fueling Russian aircraft in China and Jordan. The company started constructing a complex for light hydrocracking and hydrofinishing at the oil refinery in Panevo (serbia). The Annual Meeting of shareholders of JsC Gazprom Neft was held.
Gazprom Neft was recognised as the Best Taxpayer of st. Petersburg for the fourth time. Gazprom Neft and Equatorial Guinea signed a production sharing agreement for two offshore blocks.
JULy
The company implemented a filling station loyalty program for private individuals entitled 'Were going your way'. Construction of a plant for light naphtha isomerisation has begun at the Moscow Refinery.
Consolidated hydrocarbon production of Gazprom Neft has increased by 8% to 25 814 000 TOE. Gazprom Neft became a sponsor for serbian FC Crvena Zvezda. Gazprom Neft became a sponsor for the World Chess Olympiad.
AUGUsT
Gazprom Neft acquired a chain of 20 filling stations in Kazakhstan. Gazprom Neft, Mitsubishi Corporation and Nippon Oil Corporation received approval for a joint project within the framework of the Kyoto Protocol.
sEPTEMBER
Dealings with NIs shares began on the Belgrade stock Exchange. Gazprom Neft closed the bid book within the framework of a 5-year syndicated pre-export agreement to a total sum of 1.5 bn UsD.
The advertising campaign for G-Energy oil brand began, starring Jason statham. At Ety-Purov deposit, verification of the project for common implementation within the framework of the Kyoto Protocol was implemented.
10
JsC GAZPROM NEFT
OCTOBER
At Omsk lubricants plant, construction of a complex for blending, canning, storage and offloading oils began. Gazprom Neft received the status of leader of the Russian consortium in the Venezuelan project to develop Junin-6 deposit.
A plant for polymer-asphalt and asphaltic emulsion production was commissioned at Omsk Refinery. Gazprom Neft brought Ravninny deposit into production. Gazprom Neft-Lubricants and sibur Holding signed a long-term cooperation agreement. Gazprom Neft has summarised the first tenders in Iraq. The joint venture between Gazprom Neft and NOVATEK yamal Razvitie closed a deal on acquiring 51% shares of sever Energy from Gazprom.
NOVEMBER
Gazprom Neft Cup became the official Child Tournament of the Kontinental Hockey League. Gazprom Neft has started the winter phase of its major advertising campaign for the filling stations chain. Gazprom Neft was a winner in the category 'Best Corporate site' in the Annual Reports competition, conducted by RTs. Gazprom Neft-Aero started fueling Russian aircraft in Cyprus.
DECEMBER
The Board of Directors approved the investment program and budget for Gazprom Neft for 2011. Gazprom Neft and sIBUR selected a contractor for constructing a compressor station in the south licensed territory of Priobskoye deposit.
Gazprom Neft held the first Corporate Forum.
2011 JANUARy Gazprom Neft and TNK-BP reached an agreement on acquiring 50 % shares of CJsC Messoyakhaneftegaz, which held the licenses for developing the Messoyakha group of deposits in the north of yamal. The Moscow Refinery started production of Euro 4 standard diesel fuel. FEBRUARy Gazprom Neft successfully placed bonds for 30 bn RUB. The company and the government of KhantyMansiysk Autonomous District, yugra, concluded a cooperation agreement. The company closed a deal on selling the first enterprise of the oil service block within the framework of leaving the oil service business.
Gazprom Neft sent mandatory cash offers to NIs minority shareholders. Gazprom Neft has become the only shareholder of sibir Energy.
DEVELOPMENT sTRATEGy
GAZPROM NEFT TO 2020:
EXTENT OF PRODUCTION TO 2020 RAW MATERIAL PROCEssING
sALEs FOR END CONsUMERs
100 70 40
MN TOE
MN T PER yEAR MN T PER yEAR
Projects from exploration to production, refining and sales implemented across the world. Own technologies as well as scientific, engineering and technical centers in production and refining activities. Balanced business structure including Production-Refining-sales chain. High extent of refining, products according to the highest international standards, full range of fuels and lubricants of the brand. Powerful sales network with a powerful brand.
12
DEVELOPMENT sTRATEGy
JsC GAZPROM NEFT
Currently, Gazprom Neft is an important player in the energy market. The company manufactures and supplies a wide range of goods for various industries in many worldwide regions.
Our mission is to supply customers with high-quality energy resources, conduct business honestly and responsibly, take care of employees, and to be a leader in efficiency, assuring the company's longterm and balanced growth. Gazprom Nefts strategic aims are to become a large international market player of Russian origin, holding a regionally diversified portfolio of assets in the whole revenue chain. The company also aims to actively participat in developing regions, and act with high social and environmental sustainability. The expectations of all interested parties (shareholders, customers, partners, state, society and employees) establish the company's mission. This mission has two directions of development: growth and efficiency.
The development strategy of JsC Gazprom Neft was adopted at the beginning of 2010. It establishes the basic principles, targets, development directions and expected results of the companys activities, including subsidiary and dependent companies. Within the framework of creating an integrated system for developing long-term and mediumterm plans, this document is key when identifying targets for periods in the nearest future. In 2010, the company took a big step towards achieving targets established by the development strategy. Compared to last year, Gazprom Neft production indicators have grown in almost all directions. Production growth was 5 %, refining growth 13 %, and premium sales growth 18 %. This has been achieved due to the stability of the macroeconomic situation, characterised by the economy recovering after the crisis. Brent oil prices have increased from 62 UsD/barrel to 79 UsD/ barrel, the demand for oil products in the domestic market has increased from 7 % to 15 %, and the price rise totaled 18 %.
Vision of business targets:

Production Refining
100
mn TOE
70
mn t raw materials per year
z Reserves-to-production ratio 20 years. z Production ratio in fields in initial stages of developments minimum 50 %. z Production rate of foreign projects 10 %.
z Including Russian Federation up to 40 mn t per year, and foreign countries up to 30 mn t per year. z Increase of extent of refining in Russia to 90 %. z Increase in light oil products in Russia to 77 %.
Annual report 2010
13
The key financial indicators have also increased EBITDA by 21 %, and net income by 25 %. These figures are the results of growth in production and refining, improved structures for production and sales of oil products, and measures implemented for improving efficiency and cost savings. In 2010, growth of proven hydrocarbons reserves in the PRMs category for Gazprom Neft was 5.1 mn TOE, and the exploration works expansion was twofold. Additionally, another new field and 44 hydrocarbon deposits were discovered at deposits of associated companies and affiliates. Intensifying exploration works at existing fields, the start of the Cenomanian gas project on Muravlenko and Novogodny deposits, and new assets have allowed the company to increase its production to 52.8 mn TOE. This is more than 5 % of the 2009 level. In 2010, Gazprom Neft achieved record indicators for refining volumes: 37.9 mn t is the absolute maximum for the company. Furthermore, refining growth was noted in all refineries of the group.
Due to implementing a modernisation program for refineries, the volume of diesel fuel production has increased by 15.4 %. The growth of kerosene production by 15.2 % allowed the company to gain a leading position in the Russian aviation fuel market. Connected with optimising the product range, market demand and rising demand for premium gasoline by 12.7 %, the production volume of high-octane gasoline has increased. Maintaining a high refining margin during 2010 defined the main directions for the company's sales policy. sales of oil products in the domestic market, which is more profitable than the foreign market, has increased by 17%. Development of business units for retail segments continued. This included into-plane fueling, bunkering, production and sales of engine oils and lubricants. Compared to 2009, the company grew premium oil products sales via separate business units: jet fuel (by 19 %), bunker fuel by 17 % and motor oils by 29 %.
sales for end consumers
40
mn t in Russia and abroad, including:
z 12 mn t retail sales via filling stations (including 8.2 mn t in Russia and countries of the CIs). z 18 mn t jet fuel, bunkering, lubricants, etc. z 10 mn t individual wholesale retail to large end consumers.
By 2020, large-scale development of the business should ensure the highest total income for shareholders, compared to other Russian oil companies, while maintaining a top-three leadership position by efficiency among russian vertically integrated oil companies.
14
JsC GAZPROM NEFT
In 2010, the company achieved great success, not only in current activities, but in many highlights defining further business development. Gazprom Neft took management of the East Orenburg field of Gazprom and will soon become the owner of this asset. Gazprom Neft, in partnership with NOVATEK, acquired a 51% stake of sever Energy. Acquiring this asset is another step in developing a strategically important region the north of yamalo-Nenets Autonomous District where the company plans to start implementing large projects for Messoyakha group of deposits (in cooperation with TNK-BP) and Gazprom Neft's Novoport deposit. The most important event in the refining segment was commissioning the Izomalk-2 light naphtha isomerisation complex at the Omsk refinery: the largest complex in Russia and Europe and one of the three largest complexes in the world. The complex's capacity is 800,000 t per year. The complex produces a high-octane component for motor fuel isomerisate which is used in automobile gasoline production. In addition to improving the performance properties of engines, isomerisate in gasoline allows the company to lower significantly the content of harmful substances in automobile emissions. This is because the component does not contain sulfurous, olefinic and aromatic hydrocarbons. Also at the Omsk refinery in 2010, construction of a complex for hydroforming cat-cracked gasoline and diesel fuel began. The complex will ensure gasoline and diesel fuel production complies with classes 4 and 5 of technical regulations. In 2010, the total number of filling stations increased by 3.2 %. This was a result of expanding the retail network in Russia and countries of the CIs due to acquiring a filling station chain in Kazakhstan and retail network development in Russia. The filling station chain re-branding project entered the final phase. Re-branding has been completed for 950 filling stations in Russia, Tajikistan, Kyrgyzstan, and Belarus, including all filling stations in the sibneft chain.
In 2010, the new G-Family brand for engine oils was marketed in Russia and abroad. It includes more than 40 types of international level modern engine oil for the consumer and commercial markets. Foreign projects have been growing rapidly. Optimizing NIs management schemes has improved business efficiency of the serbian company. In 2010, NIs received a net income of 218.9 mn EUR compared with a loss of 58.4 mn EUR in 2009. 2010 was a key year for NIs development due to starting the active phase for investment project implementation. Within the modernisation framework for refining facilities at the refinery in Panevo (serbia), construction of a complex for hydrocracking and hydrofinishing has begun. By the end of 2010, the first Iraq tenders were summarised. This demonstrated the start of Gazprom Neft's practical activity in the Middle East. The company continues to accumulate offshore practical experience. Gazprom Neft entered a production sharing project in the offshore exploration phase in Equatorial Guinea, and at the end of the year, the company acquired a share in an offshore exploration project in Cuba. Gazprom Neft became a company leader in the consortium within the large foreign project to develop the Junin-6 deposit. All this could be considered elements of implementing long-term company strategy. successful activity has ensured a solid financial base for implementing the companys strategic tasks at a favorable time in the foreign economic situation during 2010. In 2010, the company continued to implement a systematic approach in forming its strategic development concept. To coordinate management activity for the company at all levels and in all directions, Gazprom Neft planned a gradual transition to an integrated scheme for developing a long-term strategy and defending medium-term plans.
Annual report 2010
15
In the near-term, the company has defined the following strategic objectives for key business types.
successful implementation of large projects and increasing the resource base: z Creating a new production center in the north of yamal-Nenets Autonomous District due to developing the sever Energy deposits as well as the Novoport deposit and Messoyakha group of deposits. Implementing these projects, along with the production increase of crude hydrocarbons, will allow JsC Gazprom Neft to enter a strategically important and prospective oil and gas region of yamal Peninsula; gain experience of deposit development in conditions of the far north and Arctic Circle; gain experience in oil marine transportation; and create an effective infrastructure for oil and gas transportation which can be connected to the undivided fund. z start of foreign projects in Iraq, Venezuela, Equatorial Guinea and Cuba. z Improving business processes and the management mechanism for large projects. z Lobbying for tax relief and infrastructural solutions. z Increasing the resource base, including acquiring new assets.
plans for 2011: active work implementing large projects is continuing.
Messoyakha project Exploration work program Export
Novoport project Test production start Closing the deal
Sever Energy project Concept design for asset development Orenburg project Closing the deal Concept design for asset development Badra project Seismic operations and mine clearance Contract signing for drilling Building of a company town Equator project Seismic 3D operations
Cuba project Exploration well drilling
Junin-6 project Drilling operation start Decision-making on the Early Production project
16
JsC GAZPROM NEFT
effective activity on existing assets z Optimizing deposit development. z Project supporting with geological and hydrodynamic analog simulations. z Implementing complex plans for deposit development. z Creating mechanisms for portfolio analysis, portfolio management and portfolio optimisation. z Implementing technologies. z Cost optimisation. z Increasing the use level of associated petroleum gas. z Improving infrastructure management. z Lobbying for tax relief. new techniques and
improving oil refinery efficiency z Implementing the motor fuels quality improvement program: production of Euro 4 and Euro 5, increasing high-octane gasoline production. z Implementing the increase in extent of refining program. z Implementing the operational improvements program and cost reduction for refineries. z Revenue increase for the oil products range.
increasing supply efficiency for crude oil and refined products z Optimizing export logistics. z Increase in trading operations efficiency. z Providing logistics for new production projects. z Obtaining access to refining facilities outside Russia.
developing and improving efficiency in premium segments z sales increase via small wholesale and retail. z Increasing operating efficiency for retailers and petroleum facilities. z Introducing and developing for highly effective retail brands. z Business development for product areas: jet fuel, lubricating oils, bitumen, petrochemistry products and bunkering.
Annual report 2010
17
Work on the companys strategy is based on detailed analysis of the industry and understanding the companys possibilities. A number of key
external and internal factors potentially affecting the achievement of set plans are monitored continuously. They include:
External factors:
z World economic forecast. z Energy-use pattern. z supply and demand balance. z Market specifics. z Government regulation. z Characteristics of competitors.
Internal factors:
z Resource-base condition. z Asset quality. z Financial capacity. z Organisational capacity. z Human resources.
Gazprom Neft in 2020:

z Projects from exploration to production, refining and sales implemented all over the world. z Human resources, which are capable of working with any assets both in complexity and in the 'vertical' business, and accounting for regional specifics, from traditional Russian markets to European, American and Asian Markets. z Own technologies as well as scientific, engineering and technical centers in production and refining activities. z Balanced business structure including Production-Refining-sales chain. z High extent of refining, products according to the highest international standards, full range of fuels and lubricants of the brand. z Powerful sales network with a powerful brand.
18
JsC GAZPROM NEFT
COMPANy HIsTORy
1995
open joint stock company siberian oil company was established by Decree of the President of the Russian Federation. Acting as the companys founder, the state passed on the government stake in the largest oil industry enterprises of Russia: OJsC Noyabrskneftegaz, OJsC Noyabrskneftegazgeophysica, OJsC Omsk Refinery and OJsC Omsknefteproduct.
in this report, such terms as gazprom neft, the company, and group in their different variants refer to jsc gazprom neft, its consolidated subsidiaries and affiliates.
2005
Gazprom Group bought a controlling interest in jsc sibneft (75.68 %) and subsequently, on May 13, 2006 the companys name was changed to Joint stock Company Gazprom Neft. The strategic objectives of the company were to ensure the position of a global company that had regionally diversified assets along the entire revenue chain.
1996-1997
The Russian Government implemented the sibneft privatisation plan with the aim of developing the market economy. At auctions in 1996, private investors bought some 49 % of sibnefts shares. In 1997, under the government 'shares for Loans' program, the Financial Oil Company won the auction to purchase the state-owned share in sibneft.
2006
gazprom neft entered the retail market of Central Asia by setting up an affiliate Gazprom Neft Asia to sell petroleum products of the company in Kyrgyzstan, Tajikistan and Kazakhstan. In the same year, the company joined, for the first time as a shareholder, international pipeline projects of state significance. specifically, this was the construction of the BurgasAlexandroupolis Transbalkan Oil Pipeline, jointly with JsC OC Rosneft and JsC Transneft.
1998-2004
Good resource potential, effective raw-material processing capacity and professional management ensured a high rate of company development. The sibneft management did much to modernise production, introduce the latest technology and optimise business processes. Thanks to implementing a proactive policy aimed at increasing assets, the geography of production expanded significantly (Tomsk region, Omsk region and Chukotka Autonomous District) and the sales network in Russias regions was also expanded (sverdlovsk region, Tyumen region, Krasnoyarsk territory, st. Petersburg and Moscow). One of the company's major purchases during this period was purchasing 49.9 % of shares of jsc ngK slavneft, which produced oil and gas in Western siberia and Krasnoyarsk territory.
2007
Business units were set up within the company for separate areas of operations: gazprom neftnefteservice, gazprom neft-marine bunker, gazprom neft-lubricants and gazprom neftaero. Looking to further expand its resource base, in December 2007, Gazprom Neft acquired a 50% stake in Tomskneft, a company producing oil and gas in Tomsk region and Khanty-Mansiysk Autonomous District.
Annual report 2010
19
2008
gazprom neft, Rosneft, Lukoil, TNK-BP and surgutneftegas signed a Memorandum of Understanding for cooperation and joint participation in projects in Venezuela and Cuba, as part of the National Oil Consortium.
2010
gazprom neft is expanding its presence in the global oil and gas market. The years milestones include: z Gazprom Neft and swedens Malka Oil closed a deal for purchasing sTs service, Malka Oils production unit. z Gazprom Neft signed a contract to develop the Badra field in Iraq, which contains more than 2 billion barrels of oil reserves. z Acquiring a retail network in Kazakhstan. z JsC Gazprom Neft became a participant for the project on deposit development, and sever Energy holds a development license for those deposits via associated companies. z JsC Gazprom Neft became a leader in the framework of the consortium of Russian vertically integrated oil companies for the Venezuelan project for developing the Junin-6 oil deposit block. z Acquiring a share in the offshore exploration project in Cuba. z The company entered a production sharing project in the offshore exploration phase in Equatorial Guinea.
2009
Gazprom Neft acquired new assets for its resource portfolio: NIs and a controlling stake in sibir Energy. This resulted in an increased ownership ratio of the Moscow refinery and access to the salym oil fields. In April 2009, the company closed a deal with Chevron Global Energy to purchase the chevron italia s.p.a. oils and lubricants production plant in the city of Bari (Italy). In an effort to enhance international partnership, Gazprom Neft and the National Iranian Oil Company (NIOC) signed a Memorandum of Understanding for developing the Azar and shangule fields. Another major event for the company was launching a large-scale rebranding program for the gazprom neft chain of filling stations.
20
JsC GAZPROM NEFT
COMPANy sTRUCTURE
GAZPROM NEFT
PRODUCTION
OJsC Gazprom Neft-Noyabrskneftegas Gazprom Neft-Khantos LLC Gazprom Neft-Vostok LLC Archinskoye LLC OJsC Meretoyakhaneftegaz sibneft-yugra LLC Zapolyarneft LLC Gazprom Neft-Angara LLC Gazprom Neft-sakhalin LLC OJsC NK-Magma
OIL sERVICE AND EXPLORATION

Gazprom Neft-Nefteservice LLC OJsC Gazprom Neft NNGF Kapitalny Remont skvazhin service LLC spetstransservice LLC Noyabrskneftegazsvyaz LLC Noyabrskteploneft LLC RMZ Gazprom Neft Omsk Refinery LLC Noyabrskneftespetsstroy LLC Noyabrskenergoneft LLC NoyabrskEPUservice LLC service Drilling Company LLC Neftekhimremont LLC yamalserviceTsentr (LLC) Noyabrskneftegazproekt LLC Noyabrskneftegazavtomatika LLC Avtomatika service LLC servisnaya Transportnaya Kompaniya LLC Noyabrskaya Tsentralnaya Trubnaya Baza LLC
MARKETING
OJsC Gazprom Neft-Omsk CJsC Gazprom Neft-Kuzbass OJsC Gazprom Neft-Altai Gazprom Neft-Tsentr LLC CJsC Munai-Myrza Gazprom Neft Marine Bunker LLC Gazprom Neft Asia LLC OJsC Gazprom Neft-Tyumen Gazprom Neft-Logistika LLC Gazprom Neft-Chelyabinsk LLC Gazprom Neft-Krasnoyarsk LLC OJsC Gazprom Neft-Ural CJsC Gazprom Neft-Aero CJsC Gazprom Neft-Aero Novosibirsk CJsC Gazprom Neft-severo-Zapad OJsC Gazprom Neft-yaroslavl OJsC Gazprom Neft-Ivanovo OJsC Gazprom Neft-Novosibirsk Gazprom Neft-Belnefteprodukt LLC Gazprom Neft-Aero Murmansk LLC Gazprom Neft-Tajikistan LLC Gazprom Neft-Kazakhstan LLP Alliance Oil Asia LLC Gazprom Neft-shipping LLC Gazprom Neft-Resurs LLC Gazprom Neft-Nizhniy Novgorod LLC CJsC Gazprom Neft-Mobilnaya Karta Gazprom Neft Lubricants Ukraine LLC
FOREIGN HOLDING
Gazprom Neft North Africa B.V. Gazprom Neft Equatorial B.V. Gazprom Neft Cuba B.V. Gazprom Neft Badra B.V.
Annual report 2010
21
REFINING
OJsC Gazprom Neft-Omsk Refinery Gazprom Neft-Lubricants LLC Gazprom Neft Lubricants Italia s.p.A. OJsC Moscow Refinery
CRUDE EXPORTs
Gazprom Neft Trading Gmbh
OTHER OPERATIONs
Gazprom Neftfinance LLC Gazprom Neftenergo LLC Gazprom Neft Zs LLC Gazprom Neft NTTs LLC Gazprom Neft Invest LLC Gazprom Neft Business service LLC CJsC social and Business Centre Okhta Complex Galernaya 5 LLC Gazprom Neft-Razvitie LLC
MULTI-BUsINEss COMPANIEs
Naftna Industrija srbije (NIs) sibir Energy
JOINT VENTUREs
JsC NGK slavneft JsC Tomskneft-VNK salym Petroleum Development (sPD) OOO severEnergiya
22
JsC GAZPROM NEFT
GEOGRAPHy OF OPERATIONs By GAZPROM NEFT GROUP

production and refining
italy angola belarus serbia
24 55 56 70 72 86 89
GEOGRAPHy OF PRODUCTION Krasnoyarsk territory Omsk region Orenburg region Tomsk region Tyumen region Khanty-Mansiysk Autonomous District yugra yamalo-Nenets Autonomous District serbia Angola
83
38 23 24 83 55 70 72 86 89
GEOGRAPHy OF sUBsOIL UsE Irkutsk region Krasnodar territory Krasnoyarsk territory Nenets Autonomous District Omsk region Tomsk region Tyumen region Khanty-Mansiysk Autonomous District yugra yamalo-Nenets Autonomous District
76 77, 50
OIL REFINING 77,50 Moscow and Moscow region 55 Omsk region 76 yaroslavl region serbia Belarus
72 23
55 76
LUBRICANTs Omsk region yaroslavl region serbia Italy
Annual report 2010
23
89
24
86
70 55 38
56
24
JsC GAZPROM NEFT
company`s sales activity
RETAIL sALEs 22 Altai territory 47, 78 st. Petersburg and Leningrad region 37 Ivanovo region 40 Kaluga region 42 Kemerovo region 24 Krasnoyarsk territory 77, 50 Moscow and Moscow region 52 Nizhny Novgorod region 53 Novgorod region 54 Novosibirsk region 55 Omsk region 66 sverdlovsk region 69 Tver region 70 Tomsk region 72 Tyumen region 86 Khanty-Mansiysk Autonomous District yugra 74 Chelyabinsk region 89 yamalo-Nenets Autonomous District 76 yaroslavl region LARGE WHOLEsALE 22 Altai territory 28 Amur region 29 Arkhangelsk region 30 Astrakhan region 31 Belgorod region 32 Bryansk region 75 Republic of Buryatia 33 Vladimir region 35 Volgograd region 36 Voronezh region 47, 78 st. Petersburg and Leningrad region 79 Jewish Autonomous region 37 Ivanovo region 6 Republic of Ingushetia 38 Irkutsk region 39 Kaliningrad region 40 Kaluga region 9 Republic of KarachayevoCherkessia 42 Kemerovo region 43 Kirov region 44 Kostroma region 23 Krasnodar territory 24 Krasnoyarsk territory 45 Kurgan region 46 Kursk region 48 Lipetsk region 13 Republic of Mordovia 77, 50 Moscow and Moscow region 51 Murmansk region 52 Nizhny Novgorod region 53 Novgorod region 54 Novosibirsk region
55 56 57 58 59 25 60 5 10 11 14 15 16 19 61 62 63 64 65 66 67 26 68 69 70 71 72 73 27 86 74 95 75 21 89 76
Omsk region Orenburg region Oryol region Penza region Perm region Primorsk territory Pskov region Republic of Dagestan Republic of Karelia Komi Republic Republic of sakha (yakutia) Republic of North Ossetia Alania Republic of Tatarstan Republic of Khakassia Rostov region Ryazan region samara region saratov region sakhalin region sverdlovsk region smolensk region stavropol territory Tambov region Tver region Tomsk region Tula region Tyumen region Ulyanovsk region Khabarovsk territory Khanty-Mansiysk Autonomous District yugra Chelyabinsk region Chechen Republic Chita region Chuvash republic yamalo-Nenets Autonomous District yaroslavl region GAZPROM NEFT MARINE BUNKER Primorsk rerritory Republic of Tatarstan Rostov region Khabarovsk territory yaroslavl region GAZPROM NEFT-AERO saratov region Tver region Tomsk region Ulyanovsk region Khabarovsk territory Chelyabinsk region Kyrgyzstan Kazakhstan Tajikistan
Kyrgyzstan Kazakhstan tajikistan
51
10 39 47, 78 60 83 53 69 67 32 57 40 71 62 48 31 68 58 73 63 74 45 16 13 59 66 77, 50 37 33 52 43 76 44 35 11 29
46
25 16 61 27 76
64 23 61
72
9 15 6
26 30 95 5
64 69 70 73 27 74
Annual report 2010
25
14
89
24 27
86
65
28 70 55 38 54 42 25 19 22 75 75 79
56
26
JsC GAZPROM NEFT
COMPETITIVE sTATE OF THE COMPANy

JsC Gazprom Neft is a subsidiary of JsC Gazprom, the activities of which focus on safe supply of crude oil and oil products to domestic and foreign consumers, implementing high-performance technologies of production and refining, and strengthening competitive positions in both Russian and foreign markets. According to the results of 2010, proven reserves of hydrocarbons of the company as per sPE (PRMs) classification exceed 1 bn TOE. This ranks the company among the 20 largest oil companies in the world. Gazprom Neft is currently one of the fastest-growing oil companies in Russia. Among Russian vertically integrated oil companies (VIOC), Rosneft, Gazprom Neft and TNK-BP demonstrated the largest growth of oil production: +6 %, +4 %, and +2 % respectively. Bashneft increased oil production volume by 16 % at old fields. The largest decline of equity production in Russia was demonstrated by slavneft (-3 %), Tomskneft (-2 %) and LUKOIL (-2 %). In 2010, total oil production of Gazprom Neft (accounting for share in equity investees) increased by 4 % to 49.6 mn t. This was mainly due to integrating assets acquired in the middle of 2009 (NIs and sibir Energy) as well as further modernisation of the system for developing own fields. In 2010, the volume of gas production in Russia also increased significantly. The growth was mainly stipulated by increasing Gazprom production by 10 %. The growth of production volumes resulted from starting the recovery process in the European gas market as well as profitability of gas deliveries to markets of CIs countries approaching that of gas deliveries to Europe. In Russia, total gas production increased by 12 % to 665 bn m.
Oil and gas production

According to the 2010 results, Gazprom Neft is the fifth-largest company in terms of volume of oil production among oil companies in Russia. In 2010, oil production in Russia increased by 2.2 % and totalled 505.1 mn t. Additionally, in the course of the year, the daily production rate increased to a record figure for the post-soviet period: 10.1 mn bbl. This allowed Russia to remain the leader in global oil production. In 2010, production growth was achieved due to developing new fields, and mainly through production growth at Vankor field.
oil and gas production of oil and gas companies in russia, thousand toe
Company Rosneft* LUKOIL TNK-BP** surgut NG Gazprom Neft*** Tatneft Other total excluding gas production by gazprom and novateK Production in 2010 132 066 104 041 92 225 70 756 51 548 26 783 123 001 600 419 share in 2010 22 % 17 % 15 % 12 % 9% 5% 20 % 100 % Production in 2009 123 950 104 049 90 681 70 901 49 295 26 718 109 968 575 623 share in 2009 21 % 18 % 16 % 12 % 9% 5% 19 % 100 %
source: infoteK
2010/2009 7% 0% 2% 0% 5% 0% 1-2 % 4 %
* 2010 production was adjusted to include Tomsknefts share. ** Including share of slavnefts production. *** Including share of slavnefts, Tomsknefts, salym Petroleums production, excluding production abroad (NIs).
Annual report 2010
27
oil and gas production in the russian federation in 2010 by oil and gas companies (excluding gas production by gazprom and novateK)
The dynamics of gas production (natural and associated) by the largest Russian oil and gas companies mostly grew in 2010. In 2010 in Russia, Gazprom Neft's marketable gas production grew by 23 %, compared to the same period in the previous year, and totalled 3.6 bn m. The growth was stipulated by starting natural gas production at Cenomanian deposits of Muravlenko and Novogodny fields in quarter 4 of 2010. In 2010 in Russia, Gazprom Neft's total oil production grew by 4.6 % to 51.5 mn TOE. Accounting for NIs production, Gazprom Neft's total consolidated production of hydrocarbons totalled 52.8 mn TOE in 2010.
Rosneft* LUKOIL TNK-BP**
2010, %
Surgutneftegas Gazprom Neft*** Tatneft Others
9 % 5 % 12 % 20 % 15 %
22 % 17 %
source: infoteK
* 2010 production was adjusted to include Tomsknefts share. ** Including share of slavnefts production. *** Including share of slavnefts, Tomsknefts, salym Petroleums production, excluding production abroad (NIs).
Refining
Refining in Russia has grown stably over recent years. According to data from Minenergo, in 2010 in Russia the volume of refining grew by 5.5 % compared to 2009 and totalled 249 mn t. The growth of refining volumes was mainly due to fiscal policy in Russia, which stimulates this direction of business, making it more efficient than crude oil export for Russian vertically integrated oil companies. In 2010, the volume of diesel fuel production increased by 4.3 % and totalled 70.2 mn t, residual oil 69.9 mn t (8.6 % growth) and petrol 35.9 mn t (0.5 % growth). Furthermore, utilisation of main refining facilities in Russia totalled 92.1 %, and increased by 41 percentage points compared to 2009. According to the results of 2010, Gazprom Neft increased its own share in total volume of oil refining in Russia from 13.2 % to 14.2 %. It also confirmed its third position among Russian oil companies. This was mainly due to fully consolidating the Moscow Refinery after acquiring sibir Energy. Beyond Russia, from February 2009, the refining volumes of serbian NIs began to be included in the Gazprom consolidation. Throughout 2010 in Russia and beyond, the company's consolidated refining totalled 37.9 mn t. This is more than 13 % of the indicator for the previous year. The production volume of high-octane petrol increased by 13 %, in connection with optimising the product range and increasing demand for highoctane petrol; kerosene production increased by 16 % and the volume of diesel fuel production increased by 15 %. This was due to implementing a modernisation program at the refinery. The company ranks third as per oil refining volumes and oil product delivery on the Russian market. The rate of growth of sales of light oils and retail sales is outstripping market growth.
28
JsC GAZPROM NEFT
oil refining in russia in 2010
oil refining in russia, thous. t

250
source: infoteK
249.95
Rosneft LUKOIL Gazprom Neft* TNK-BP** Surgutneftegas Ufa plants TAIF-NK Others
210 220 219.57 240 236.30 230 228.60 235.73
2010, %
9 % 3 % 9 % 12 % 15 %
14 % 20 % 18 %
source: infoteK
200
2006
2007
2008
2009
2010
oil refining in russia, mn t

Company Rosneft LUKOIL Gazprom Neft* TNK-BP** surgutneftegas Ufa plants TAIF-NK Others total Oil refining in 2010 50 763 45 214 35 048 31 160 21 237 21 193 8 100 37 239 249 953 share in 2010 20 % 18 % 14 % 12 % 8% 8% 3% 15 % 100 % Oil refining in 2009 50 222 44 147 31 026 28 303 20 484 20 746 7 791 33 009 235 728 share in 2009 21.3 % 18.7 % 13.2 % 12.0 % 8.7 % 8.8 % 3.3 % 14.0 % 100 %
source: infoteK
2010/2009 1% 2% 13 % 10 % 4% 2% 4% 13 % 6 %
* Including share in refinery of slavnefts, the Moscow Refinery, excluding refining abroad (NIs). ** Including share of slavnefts refining.
Exports
In 2010, volumes of oil export declined by 0.5 % to 250 mn t. This is due to the decline of raw material export to Belarus. At the same time, export to nonCIs countries grew by approximately 5 %. Last year, 213 mn t of Russian raw materials was exported to non-CIs counties via Transneft. Without Transneft, 37 mn t of oil and gas-condensate was delivered by rail, including 3.33 mn t from refineries. In 2010, Russia reduced the volume of export to CIs countries by 29.8 % to 26.3 mn t. In the same year, oil export to Belarus reduced by 40 % to 12.88 mn t, compared to the same indicator for 2009. The volume of export to Ukraine reduced by 5.8 %, compared to 2009, and totalled 5.95 mn t. Russian raw material export to Kazakhstan grew by 17.19 % and totalled 7.43 mn t.
Annual report 2010
29
crude exports by russian companies via the transneft system in 2010
During 2010, Rosneft oil company exported 54.4 mn t of crude oil to non-CIs countries via the Transneft system, LUKOIL 27.9 mn t, surgutneftegas 25.5 mn t, TNK-BP 31.5 mn t, Tatneft 16.3 mn t and Gazprom Neft 14.6 mn t.
Rosneft TNK-BP Surgutneftegas
2010, %
LUKOIL Tatneft Gazprom Neft Other
Compared to 2009, in 2010, the total share of Gazprom Neft oil export in Russian oil export to non-CIs countries changed slightly (a decrease of 0.2 percentage points). This was mainly due to high netback of refining compared to crude oil export netback.
8 % 7 % 13 % 20 % 12 %
25 % 15 %
source: infoteK
crude exports by russian companies via the transneft system, thous. t

Company Rosneft TNK-BP surgutneftegas LUKOIL Tatneft Gazprom Neft Others total
* Crude oil export via Transneft system.
source: infoteK
Oil export in 2010* 54 040 31 459 25 554 27 886 16 345 14 594 43 932 213 813
share in 2010 25.3 % 14.7 % 12.0 % 13.0 % 7.6 % 6.8 % 20.5 % 100 %
Oil export in 2009* 48 375 33 774 27 145 24 862 15 911 14 738 46 229 211 035
share in 2009 22.9 % 16.0 % 12.9 % 11.8 % 7.5 % 7.0 % 21.9 % 100 %
2010/2009 12 % 7 % 6 % 12 % 3% 1 % 5 % 1 %
PRODUCTION sTRATEGy
In 2010, Gazprom Neft became a wholly international oil and gas company. Active development of our foreign projects in Iraq, Venezuela, Equatorial Guinea and Cuba began. We are gaining new deep marine shelf competence, experience in working with heavy crude, as well as capacity as an operator and leader of an international consortium.
Boris Zilbermints Deputy Chairman of the Management Board Deputy Director General for Exploration and Production
Annual report 2010
COMPANy KEy PERFORMANCE INDICATORs By TyPE OF OPERATION IN 2010
31
Today, JsC Gazprom Neft is an actively developing company with the following aims: z Leading positions in developing northern areas of the yamalo-Nenets Autonomous District. z sustainable mining, specialising on works with exhausted resource bases in traditional mining areas. z Expanding exploration and production business abroad. z Quality improvement of oil products produced and the extent of oil-refining at existing facilities. z Developing premium sales channels for products under the powerful brand.
OIL AND GAs EXPLORATION AND PRODUCTION

In september 2009, the Board of Directors of Gazprom Neft approved the development strategy for the companys exploration and production block. In accordance with this, Gazprom Neft intends to increase oil production volumes to 100 mn TOE per year by 2020. The company will maintain the reserves-to-production ratio at this level for no less than 20 years, and the share of projects at the initial development stage by the stated period should ensure no less than 50% of production. The target volume of production will be reached due to existing assets and by means of projects with participating interest of Gazprom Neft, as well as transferring Gazprom oil fields to Gazprom Neft. Also the company plans to expand its asset portfolio through acquiring sites of the undivided fund, acquiring assets on the Russian market, and developing projects abroad. In 2010, consolidated production of Gazprom Neft totalled 52.8 mn TOE. For 2011, its increase is planned to 56.8 mn TOE. The company will achieve main growth by developing the Cenomanian gas deposits of Muravlenko and Novogodny fields. One of the key tasks for 2010 was reducing the cost of oil produced. The main base component of development was optimisation projects for the companys existing assets. Gazprom Neft defined its own strategy to become a leader in working with exhausted resource bases. In 2009-2010, a series of projects was initiated, covering almost the entire range of activity of the companys production assets, from scheduling procedure and the process control system to implementing projects creating the most progressive procedures for acquiring services and optimising warehouse remains. One of the largest and most important projects was implementing a medium-term program for cost cutting in the area of exploration and production, which proved its efficiency based on the results of 2010. This program is a part of a general task for vertically integrated oil companies to achieve their aim in optimising expenses.
Status of the raw materials base

For more than 10 years, the audit of company reserves has been conducted according to PRMs (sPE) standards and more sEC standards. The audit is conducted at all fields, based on evaluating the representative base of JsC Gasport Neft fields, which are 95 %-98 % of Russian category A+B+C1. Based on the independent assessment from engineers of DeGolyer & MacNaughton (in 2007 and 2006, the assessment company for the companys reserves was Miller & Lents) as of 31 December 2010, the total reserves of categories 'proven' and 'probable' for Gazprom Neft Group (including the company share in reserves of subsidiaries, accounting for the share included in equity of slavneft, Tomskneft, salym Petroleum Development and severEnergiya), according to PRMs international standards totalled 1 765 mn TOE hydrocarbons (13 052 mln BOE). The current indicator of Gazprom Neft production reserves with proven PRMs category levels of hydrocarbons is approximately 19 years. In 2010, growth of proven hydrocarbon reserves for Gazprom Neft in the PRMs category was
32
JsC GAZPROM NEFT
proven reserves of hydrocarbons as per prms (spe) classification (mn toe)

1 050
110 % recovery of resources

61 1 018 1 023
52.6 mn t. The growth of 23.3 mn t was due to supplementary exploration of the producing field, 26.1 mn t was due to production drilling, as well as reappraising reserves resulting from detailing of geological models of fields and the oil recoverability factor (3.2 mn t). In the reporting period, seismic surveys in the licensed plots of JsC Gazprom Neft and its subsidiaries were conducted: 3D surveys of 1 680 km and 2D surveys of 3 817 km. In 2010, of the 67 tested objects, 24 yielded commercial oil inflows, condensate and gas, 15 non-commercial oil and gas inflows, 11 yielded no inflow, and the remaining 17 objects yielded either reservoir water inflows or those slightly admixed with oil. The financing of exploration by JsC Gazprom Neft and its subsidiaries in 2010 totalled 4.694 bn RUB, which is 153 % of the financing provided in 2009. In 2010, the Gazprom Neft and NOVATEK joint venture yamal Razvitie LLC closed a deal on acquiring 51 % shares in severEnergiya LLC from Gazprom. severEnergiya holds 100 % of JsC Arktikgaz, CJsC Urengoi Inc and JsC Neftegaztekhnologia. Companies hold licenses for implementing development and production at oil and gas-condensate fields of yamalo-Nenets Autonomous District: samburgsky, yevo-yakhinsky, yaro-yakhinsky and severo-Chaselsky sites. According to PRMs, reserves of sites of 'proven' and 'probable' categories totalled 191 mn TOE.
1 000
950
900
53
850
800
01.01.2010
Production
Supplementary SeverEnergiya exploration and revision of precious estimations
01.01.2011
5.1 mn TOE. According to the 2010 results, proven reserves of hydrocarbons for Gazprom Neft totalled 110 %.
Exploration
In the reporting period, at licensed sites of JsC Gazprom Neft and its subsidiaries, testing of 19 prospecting and appraisal wells was completed. This included 11 wells where commercial inflows of hydrocarbons were obtained. Exploration meters drilled in 2010 totalled 63,720 m, which is 168% compared to 2009. This increase of drilling in 2010 compared to 2009 is connected with the increase in financing exploration. The exploration drilling success rate was 69 %, with an efficiency of 385.3 t of hydrocarbons per meter drilled and 167 RUB/TOE. The organic recovery of the resource base totalled 165.6 %. Based on the results of prospecting and exploration drilling and supplementary exploration performed by enterprises of the Group, severo-Vakunaiskoye deposit and 17 new deposits at Vyngayakhskoye, Vyngapurovskoye, Ety-Pur, Novogodny, and Tympuchikanskoye fields with recoverable reserves of hydrocarbons as per category C1 at 4 249 mn TOE and category C2 at 10 451 mn TOE were discovered. In 2010, total growth of oil reserves in the commercial category for the company totalled
Licensing
As of 31 December, 2010, JsC Gazprom Neft and its subsidiaries held subsoil licenses for 63 licensed sites located in 10 regions of the Russian Federation. Outside Russia, in serbia, the NIs subsidiary has 65 permits (similar to Russian licenses). By type of activity, 9 licenses entitle the company to conduct geological surveys, and 54 licenses grant the right to hydrocarbon exploration and production for 20 to 50 years. Eight subsidiaries hold JsC Gazprom Neft subsoil licenses. However, three operators manage these licenses: OJsC Gazprom NeftNoyabrskneftegaz, Gazprom Neft-Khantos LLC
Annual report 2010
33
and Gazprom Neft-Vostok LLC. OJsC Gazprom Neft-Noyabrskneftegaz performs the full cycle of hydrocarbon operations in 44 licensed plots, including 10 plots owned by 3 subsoil users. In 2010, the Licensing Commission of the Federal Agency for subsoil Use reviewed and approved additions to 16 additional subsoil licenses. For 7 sites, the geological survey period was extended, and for 9 sites, license agreement terms were made current. OJsC NGK slavneft and its subsidiaries hold oil and gas exploration and production licenses for 37 license sites on the territory of Western siberia and Krasnoyarsk territory. OJsC Tomskneft holds 33 licenses for developing hydrocarbon fields on the territory of the Tomsk region and Khanty-Mansiysk Autonomous District. sibir Energys subsidiaries OJsC NK Magma and siberian Geological Company LLC hold 8 licenses for exploration surveying (to search and assess raw hydrocarbon fields) and 2 licenses for exploration and oil production at licensed sites located in the territory of the Khanty-Mansiysk Autonomous District (yuzhnoye, Orekhovskoye and Koltogorsk deposits). Furthermore, sibir Energy has a 50 % share in the salym Petroleum Development joint venture that holds 3 licenses for exploring and developing the salym group of oil fields, also located in Khanty-Mansiysk Autonomous District. severEnergiya LLC including JsC Arktikgaz, CJsC Urengoi Inc, CJsC Arctic Gas Company, and Neftegaztekhnologia LLC hold 2 licenses for search, exploration and production of raw hydrocarbons, and 2 licenses for exploring and producing raw hydrocarbons. All licensed sites are located in the territory of yamalo-Nenets Autonomous District.
The foreign subsidiary company, NIs, is engaged in oil and gas exploration and production in serbia. The company also participates in several production sharing agreements and other production projects in Angola, Iraq, Venezuela, Equatorial Guinea and Cuba. Alongside its own production, Gazprom Neft holds 50 % shares in three subsidiaries, the production of which is accounted on a pro rata basis of equity participation: OJsC slavneft, OJsC Tomskneft and salym Petroleum Development. The largest hydrocarbon reserves in the yamaloNenets Autonomous District are found in: sugmutskoye, sutorminskoye, Vyngapurovskoye, sporyshevskoye and Muravlenko fields. In 2010, these fields accounted for 36.3 % of the company's total oil production (with no account of production on a pro rata basis of equity participation). Production in these fields is undertaken by oil and gas producing enterprise OJsC Gazprom Neft-Noyabrskneftegaz, its subsidiary Zapolyarneft LLC holding a license for developing Vyngapurovskoye, yarainerskoye and Novogodny deposits, and a Muravlenko branch of OJsC Gazprom Neft-Noyabrskneftegaz. In Khanty-Mansiysk Autonomous District, the JsC Gazprom Neft deposit with most prospects is the Priobskoye field. sibneft-yugra LLC a subsidiary of the company holds a development license for this, with Gazprom Neft-Khantos LLC acting as the operator. In the same region is the north-eastern part of the Palyanovskaya Area of Krasnoleninskoye field and a group of licensed sites acquired by the company in early 2005 (salymsky-2, salymsky-3, salymsky-5) and the Zimneye field in Tyumen region. The Priobskoye field is one of the company's largest and most promising oil deposits, and is the leader in terms of rate of production growth. Active development of this field began in 2004. As early as 2010, it accounted for 31 % of total oil produced by the company on its own fields. Therefore, the Priobskoye deposit is a key asset and strategically important for the companys future development. A regional group of fields in the Omsk and Tomsk Regions will become a second 'new' centre. Gazprom Neft-Vostok is the oil production
Hydrocarbon production
Gazprom Neft is engaged in oil and gas exploration and production in Russia as well as in non-CIs countries. In Russia, the companys oil production is mainly performed by three of its subsidiary operators: JsC Gazprom Neft - Noyabrskneftegaz, Gazprom Neft-Khantos LLC and Gazprom Neft-Vostok LLC. Key production companies are developing fields in yamalo-Nenets and Khanty-Mansiysk Autonomous Districts, Omsk, Tomsk, Tyumen and Irkutsk Regions.
34
JsC GAZPROM NEFT
operator of the Krapivinskoye field located in Omsk region and of Archinskoye, shinginskoye, and Urmanskoye fields in Tomsk region. Tomsk region is one of Gazprom Nefts production centres. In early 2010, Gazprom Neft's assets were increased in this region through the Luginetskie group of fields after acquiring the sTs-service enterprise from swedish company Malka Oil. All these fields form a new production centre providing annual growth of oil production. A significant part of the enterprise's reserves is in the early development phases. This creates potential for further production growth. From the end of 2007, on a parity basis with Rosneft, Gazprom Neft holds and, according to the shareholder agreement, manages Tomskneft on a rota basis. In 2010, the oil production volume of Tomskneft totalled 10.3 mn t (of which the share of Gazprom Neft totalled 5.15 mn t). This is 217,000 t more than the planned volume of marketable gas: 0.6 bn m. OJsC slavneft another joint venture of Gazprom Neft and TNK-BP is engaged in producing reserves in the Ural Federal District and exploring the siberian Federal District. For all of 2010, the enterprises of the company produced 18.36 mn t of oil. This complies with the business plan and is 3% below the previous years indicator. The share of Gazprom Neft in slavnefts oil production totalled 9.18 mn t, and marketable gas: 0.3 bn m. since June 2009, Gazprom Neft has held a 50 % share in a joint venture with Royal Dutch shell: salym Petroleum Development. In 2010, the total volume of oil production in the salym group of oil fields, which is developed by salym Petroleum Development, grew by 8 % compared to 2009, and totals 8.27 mn t, including the Gazprom Neft share of 4.13 mn t. The total production of Gazprom Neft in 2010 increased by 4.1 % from the same period a year earlier and amounted to 49.6 mn TOE. One of the leaders as per production growth rate was a production subsidiary of the company: Gazprom Neft-Khantos LLC. In 2010, its production volume totalled 9.8 mn t. This exceeds the extent of production in 2009 by 14.9 % and exceeds
indicators of the business plan for 2010 by 5 %. The average daily production for the year totalled 26,884 t. This exceeds 2009 indicators by 15 %. 514 geological and engineering operations were performed at the enterprise. This allowed it to produce an additional 2.08 mn t of oil. The enterprise succeeded in achieving high indicators in production due to an increase in well efficiency, daily production on Zimneye field, and over-fulfilling the plan to bring in 41 % new wells (396 wells were brought into production). Furthermore, deepening production drilling totalled 1,328,200 m in rock. This exceeds planned indicators by 64 %. The enterprise also put into service an industrial complex for diagnostics and repair of pump and compressor pipes, and an oil delivery and acceptance point. serbian Gazprom Neft enterprise NIs achieved significant production growth. During 2010, NIs oil production increased by 38 % (207 300 t) to 970 000 t. This exceeds business plan indicators by 11.4 %. sTs-service, acquired by Gazprom Neft at the beginning of 2010, exceeded the planned figure by 23.5 %. sibir Energy exceeded planned production indicators by 5.5 %. The companys enterprises exceeded planned indicators of production. This was mainly due to starting up new wells at fast rates and implementing measures to stimulate production. In 2010, the start-up of new wells increased by 229 % (136 wells), as compared to the business plan. The volume of added production totalled 4,809,790 t. In 2010, the company produced 4.0 bn m3 marketable gas (including the share in gas production of subsidiaries, and including share in equity investees). This is 26 % more than in 2009. The growth is mainly due to starting natural gas production at the Muravlenko and Novogodny deposits in Q4 of 2010. In Q4 2010, marketable gas production of these two fields totalled 0.473 bn m. In 2010, natural gas planned production totalled 4.2 bn m. The company continues to study the possibility of starting simultaneous exploitation of oil and gas
Annual report 2010
35
formations on its other fields, where this will assure production synergy. Within the framework of implementing the programme to increase the level of associated gas utilisation at Priobskoye field in Q4 of 2010, a turnkey contractor was selected for constructing the yuzhno-Priobskoye gas-compressor station. An EPC contract was included, and contracts for constructing a gathering system for associated gas were also concluded: construction of pipelines and delivery of vacuum compressor stations. Implemented measures will improve the effectiveness of associated gas use, minimise risk associated with environmental protection and taxation, and increase income through selling production drilling
Pcs. 1 200 1 050 1 000 2 610 919 2 500 800 2 033 600 1 623 1 500 2 000 Production drilling Gazprom Neft Associated companies 2 259 Commissioning of new wells Gazprom Neft Associated companies 1 153 Thous. m 3 000
additional volumes of associated gas and products from its processing. This programme will allow the company to utilise up to 500 mn m associated gas at the yuzhno-Balyksky gas treatment plant and achieve 95 % of associated gas utilisation at the Priobskoye field. At the end of Q4 2010, the Investment Committee of the company considered the medium-term investment programme of JsC Gazprom Neft to increase the level of associated gas use for 20112013. According to this programme, in Q1 2011, it is expected to approve the investment programme to increase the level of associated gas use in Noyabrsk region. JsC Gazprom Neft expects that by 2020, the share of gas in the production portfolio will total around 30 %. This will be due to developing combined fields (including the gas component) and the growth of the percentage of associated gas use. Developing small gas deposits as part of the production activity fields of Gazprom Neft will promote the increase in economic efficiency of the use of the companys reserves. It will also help raise the hydrocarbons production volume to 100 mn TOE. This is specified in the company's development strategy to 2020. In 2010, Gazprom Neft's hydrocarbon production increased by 5.3 % and totalled 52.8 mn TOE. In 2010, Gazprom Neft maintained its position as an industry leader by level of oil and gas production among Russian oil companies. In 2010, the commissioning of Gazprom Nefts new production wells, not considering its subsidiaries, totalled 746 wells (79 wells more than in 2009). Increasing the number of commissioned wells was possible due to expanding the production drilling programme. Meterage reached 2,619,000 m, which is 351,000 m more than the level of 2009. This was due to the increase of schedule speed and average rate per drilling crew. At the end of 2010, the company's production stock of oil wells (without regard to subsidiaries) increased by 96 wells and totalled 6,720. In 2011, according to preliminary conservative plans, Gazprom Neft plans to increase hydrocarbon production by 7.6 % to 56.8 mn TOE.
400 1 151 1 082 0 2008 2009
200
2010
1 000
source: company data
hydrocarbon production in 2008-2010 mn toe

60 52.81 50 48.72 50.17
40
Gazprom Neft Slavneft Tomskneft SPD Cenomanian gas
30
20
10

2008 2009 2010
36
JsC GAZPROM NEFT
In 2011, the planned profile of production includes: z developing existing assets of JsC Gazprom Neft: Gazprom Neft-Khantos LLC; Gazprom Neft-NNG LLC; Gazprom Neft-Vostok including acquired licenses of the undivided fund: Imilorskoye, Gavrikovskoye and Erginskoye z share of production in joint ventures OJsC NGK slavneft (50% in partnership with TNK-BP) and OJsC Tomskneft VNK (50 % in partnership with OJsC NK Rosneft) z obtaining and further developing JsC Gazprom fields: Novoport, Orenburg z producing Cenomanian natural gas on fields of Gazprom Neft-Noyabrskneftegaz: Novogodny and Muravlenko
z production share in enterprises of sibir Energy: salym Petroleum Development (50 %) and Magma (100 %) z developing Messoyakha fields in partnership with TNK-BP (50 %) z developing Kuyubvinskoye field of NGK slavneft in partnership with TNK-BP (50 %), implementing the active exploration work programme, and further developing Tympuchikanskoye group (Tympuchikanskoye, Vakunaiskoye and Ignyalinskoye sites) z entering foreign projects and acquiring sites and assets of the distributed fund in Russia.
INTERNATIONAL COOPERATION
In 2010, Gazprom Neft continued its development in world markets and entered an active phase of implementing a number of international projects. The current key tasks of Gazprom Nefts international business are expanding cooperation geographically, developing contacts with international oil companies, and forming effective interactions with countries government authorities and markets which are of interest to the company.
Vladislav Baryshnikov Member of the Management Board Deputy Director General for International Business Development
38
JsC GAZPROM NEFT
International projects
Gazprom Neft is consistently forming the portfolio of international assets; a share of which should include around 10 % of consolidated production of hydrocarbons by 2020.
cuba
At the end of 2010, Gazprom Neft and Malaysian company, Petronas, signed a transfer share agreement and principal provisions on cooperation. This covers the conditions of exploration and following the development of four blocks, located offshore of Cuba. The signed documents stipulate a transfer to Gazprom Neft of a 30 % share of the project. The company will compensate Petronas part of the expenditure incurred and participate in financing current activity on a pro rata basis. Gazprom Neft's Board of Directors considered the possibility of activity offshore Cuba at the beginning of October 2010. The Board took a favourable view of development prospects in this region. The agreement will come into operation following its approval by the authorities of the Republic of Cuba. In 2007, Malaysian Petronas and the Government of the Republic of Cuba signed a production sharing agreement on blocks of 44, 45, 50, and 51 located offshore of the Gulf of Mexico . Before entering the project, JsC Gazprom Neft Petronas was the only participant. The agreement stipulates that exploration is implemented at four sites, including subsequent oil production to 2037 and gas to 2042. Forecasting recoverable resources by blocks are estimated at 450 mn t. Within a framework of the current agreement, a 2D seismic survey was performed in sites for Q4 2011. Drilling of the first exploration well is also planned. Based on the results of exploration drilling, the partners will decide on the subsequent activities within the framework of the project. Implementing this project will allow the company to expand its geography of operations and strengthen its position in the international market. The company's experience in implementing offshore projects will promote the company's development, entering new regions and applying strategic plans for increasing production abroad.
iraq
In early 2010, the company became an operator for the development project of Badra field in Iraq. Gazprom Neft, as a member of a consortium including state-owned oil companies Kogas (Korea), Petronas (Malaysia), TPAO (Turkey), signed a contract with the Iraq government for developing the Badra field. As the operator of the project, Gazprom Neft holds a share interest of 30 %. Badra field is located in the territory of Wasit Province in the east part of Iraq and borders the Azar Iranian field. According to preliminary assessments, forecast recoverable resources of Badra totalled 3 bn bbl of oil. This Middle East project is the first large-scale foreign project of Gazprom Neft. Badras development project is planned for 20 years, with a possible extension for another 5 years. The maximum level of oil production is expected to be around 170,000 bbl per day, and will be achieved in 2016. Under the terms of contract, a bonus of 5.5 UsD per every barrel of oil produced (or corresponding volume of oil) will be paid to Gazprom Neft after achieving the initial production level of 15 000 bbl per day. The company plans to achieve this indicator in 2013, with the maximum level in 2016. At this time, the company Gazprom Neft Badra B.V., the project operator, has been created and is working. During 2010, all key organisational and legal issues were settled, and the preliminary arrangements with members of the consortium on terms and phases of the fields development were achieved.
Annual report 2010
39
equatorial guinea
JsC Gazprom Neft, the Ministry of Ore Mining, Industry and Energy of Equatorial Guinea, and National Oil Company Guinea Equatorial de Petroleos (GEPetrol) signed two production sharing agreements for exploring two exploratory offshore blocks. According to signed documents in the phase of exploration, the shares of participants are: 80 % - share of Gazprom Neft and 20 % - GEPetrol. Gazprom Neft is the operator of the project and incurs obligations for paying bonuses to the state, obtaining geological-technical information, and implementing the necessary exploration programme of full-scale. At the start of 2011, Gazprom Neft performed 3D seismic survey at block 'T' and proceeded with interpreting geological information for both blocks ('T' and 'U'). The company expects that forecast oil recoverable resources for the two blocks will total 110 mn t. Drilling the first exploration well at each block should start two years after the date of the agreement comes into force. The production period for oil is 30 years, and 35 years for gas. Entering the project in Equatorial Guinea will significantly enhance the company's experience in offshore production. It will also improve the company's experience of offshore project management, and in future, to form a production centre in West Africa.
the Bolivarian Republic of Venezuela signed an intergovernmental agreement on cooperation in implementing mutual strategic projects. Within the framework of this agreement, in spring 2010, NOC and Corporacion Venezolana del Petroleo (CVP), a subsidiary of the Venezuelan state-owned oil company PDVsA, set up a joint venture, Petrleos de Venezuela s.A. (PetroMiranda), for supplementary exploration and development of Junin-6 field. This field is located in the heavy oil basin of the Orinoco river in Venezuela. Forecast recoverable resources of the 'Junin-6' block totals 10.96 bn bbl. The area of the grid block is 447.85 km2. Previously, 14 wells were drilled in the territory of the 'Junin-6' block. According to Venezuelan law, a 60 % share of PetroMiranda belongs to PDVsA-CVP, and 40% to NOC. For the interest in the joined venture, NOC paid the first part of the 600 mn UsD bonus to the Bolivarian Republic of Venezuela. The Board of Directors of NOC assigned JsC Gazprom Neft as the company leader for coordinating operations and managing the 'Junin-6' project. The company's status as the project leader grants power to Gazprom Neft as the operation coordinator (from the Russian part) of the PetroMiranda Russian-Venezuela joint venture. The project leader fulfils the function of technical expert in the project and formulates directives by members of the Board of Directors of the joint venture (from the Russian part) on implementing the project. The leader's responsibilities include preparing a final investment decision following the development of the Junin-6 field (based on results obtained from supplementary exploration). This decision will be made in 2013.
venezuela
In June 2009, Gazprom Neft acquired a 20 % share of authorised capital in the National Oil Consortium (NOC). Large Russian oil companies formed the consortium to implement oil producing projects in Latin America: JsC Gazprom Neft, OJsC NK Rosneft, OJsC NK LUKOIL, OJsC TNK-BP Holding, and OJsC surgutneftegas with equal shares. In september 2009, the Government of the Russian Federation and Government of
REFINING sTRATEGy
To assess the results of the block of logistics, refining and sales in 2010, it is sufficient to look at key performance indicators. The company ranks third in Russia as per oil refining volumes and oil product delivery to the domestic market. The rate of retail sales also significantly exceeds average market growth. Furthermore, 2010 was marked by a number of highlights: commissioning the isomerisation plant at the Omsk Refinery; the start of manufacturing new bitumen materials; launching the G-Family brand on the international market; and completely rebranding the companys network of filling stations.
Anatoly Cherner Deputy Chairman of the Management Board Deputy Director General for Logistics, Processing and sales
Annual report 2010
41
OIL REFINING
The company's strategic aims in refining are increasing volumes of refining in Russia to 38-40 mn t per year; expanding refining capacities in Europe to 25-30 mn t per year; manufacturing production; meeting requirements of technical regulations, for example Classes 4 and 5; increasing the extent of refining to 90 %-95 % and the yield of light oils to 77 %. Additionally, the technological level of refineries should meet the requirements of world standards, including those relating to environment and safety. The company approved the programme for modernising and reconstructing facilities and constructing new plants. This programme began in 2009. At Omsk refinery and yaroslavnefteorgsintez (yANOs), the company implemented reconstruction of new units for diesel fuel hydrotreatment. At the Moscow refinery, this work started in 2010. Currently a large-scale modernisation programme is being implemented at the Omsk refinery. It is focusing on improving the environmental characteristics of manufactured fuels and expanding volumes and range of products. These include high-octane petrol, diesel fuels, aromatics, coke, modern bitumen materials and petrochemicals. The total investment for refining volume, mn t
40 33.4 30 28.4 Omsk renery 20 Moscow renery Slavneft-YANOS Naftna Industrija Srbije (NIS) 10
modernizing the Omsk refinery is planned at over 100 bn RUB over 10 years. In October 2010 at Omsk refinery, light naphtha isomerisation plant, Izomalk-2, was commissioned. This unique plant is the largest capacity plant of its type in Russia and Europe and is among the three largest capacity plants in the world. The capacity of the plant is 800,000 t per year. Izomalk-2 allows the production of the highoctane component of commercial petrol with a zero content of sulphur, aromatics and unsaturated hydrocarbons. In the project, engineering solutions are applied which allow the production of petrol with a high-octane rating, meeting Euro 4 and Euro 5 Class requirements. Due to introducing Izomalk-2 into the technological workflow of the refinery, the company will increase its oil refining and production levels. Also in 2010 at the Omsk refinery, construction of the plant for hydroforming diesel fuel and catcracked petrol began. similar projects will be implemented at yANOs and the Moscow refinery. The main part of the programme for improving oil product quality will be implemented by 2015. In 2010, the company maintained its status as a leader among Russian oil companies as per growth rate of oil refinery volumes. For the reported year, the company succeeded in increasing refining by 13.5 %, from 33.4 to 37.9 mn t. The company mainly achieved growth of refining volumes by increasing its share in sibir Energy, which is a shareholder of the Moscow refinery. omsk refinery. The company's main refining asset is the Omsk Refinery (share in refining is 100 %). The Omsk refinery is one of the most advanced refineries in Russia and one of the largest refineries in the world. The refinery has an installed capacity of 19.5 mn t of crude oil per year. In 2010, the Omsk refinery maintained a leading position in Russia in terms of volume of light petroleum products and aromatic hydrocarbons manufactured. In 2010, in terms of oil refining 18.98 mn t (7.6 % of volume of all Russian refineries) Omsk refinery ranked
37.9

2008 2009 2010
42
JsC GAZPROM NEFT
second among Russian refineries. The first position was taken by PO Kirishneftorgsintez LLC with 21.2 mn t, belonging to OJsC surgutneftegas. In 2010, the load of the Omsk refinery for primary crude oil processing was 97.4 % of the installed capacity. The extent of oil refining was 83.3 % compared to the industry average rate of 71.8 % in Russia. The key types of products include automobile petrol, diesel fuel, fuel oil (black oil), and jet propulsion fuel, alongside a range of aromatics, liquefied petroleum gases, various types of lubricants, additives, catalysts and other production. The yield of light oils is 67 %. On 16 February 2010, at the annual meeting of the board of the Federal Agency for Technical Regulation and Metrology, the Omsk refinery was awarded the honourable status 'Leader of the Quality' in the nomination 'Industrial and technology products'. For eight years, various types of production at Omsk refinery won prises and diplomas in the all-Russian competition '100 Best Products of Russia'. In 2010, unleaded petrol 'super Euro 98' and liquefied hydrocarbon gas type of PA for automobile transport were awarded diplomas. Additionally, the competition awarded diplomas for six types of production. In 2010, commissioning the light naphtha isomerisation plant, Izomalk-2, allowed the company to increase its refining and yield of automobile petrol, while meeting the requirements of Euro 4 and Euro 5. crude oil refining and production of oil products by gazprom neft group at omsk refinery, mn t
20 18.43 17.35 18.98 17.91
moscow refinery. OJsC Moscow Refinery is a fuelproducing plant with a deep oil refining scheme. The installed capacity is 12.15 mn t per year. According to the 2010 results, at the Moscow refinery, the volume of oil refining totalled 10.147 mn t, exceeding planned production indicators by 350,000 t. In connection with the start of a two-year repair cycle at the refinery, in terms of calendar time of processing plant operation, 2010 can be compared to 2008. For May-June of the previous year, full cycle repairs were performed at the refinery for large-tonnage processing plants of the 'big ring'. In 2010, the yield of light oils totalled 57.17 % or 5.801 mn t. In the structure of production of light oils, the share of high-octane petrol increased by 2.1 % compared to 2008. According to the results of previous year, Moscow refinery produced a total of 2.461 mn t petrol, including 2.01 mn t of high-octane petrol AI-95 and AI-92. Production of kerosene and winter diesel fuel increased by 13.5 % compared to 2008. In 2010, production of diesel fuel totalled 2.708 mn t, kerosene 624 000 t, bitumen 805 000 t, and marketable black oil 2.574 mn t. The volume of irrecoverable oil losses totalled 0.73 %. This is 12 % lower than in 2008. At the Moscow refinery, the extent of oil refining increased by 0.2 % and totalled 72.4 %, compared to 2008. In 2010, the share of Gazprom Neft in total volume of refining totalled 8.91 mn t (accounting for sibir Energy stock consolidation). In July 2010, at the Moscow refinery on the construction site of the light naphtha isomerisation plant, a time capsule was buried. This was a milestone marking the start of a large-scale modernisation programme for the Moscow refinery, planned up to 2020. The programme entails reconstructing existing assets, constructing new refining capacities, improving safety for operating procedures, and implementing environmental projects at the refinery. In total, more than 56 bn RUB will be invested in the refinery modernisation programme. The light naphtha isomerisation plant will produce the component of automobile petrol with an octane rating up to 90.5. It is planned that the plant will
18.37 17.24
15
Petrol Diesel fuel Jet engine fuel
10
Black oil Bitumen Other Oil rening

2008 2009 2010
Annual report 2010
43
be commissioned in 2012. The installed capacity will total 650,000 t per year. The main sales markets for the refinerys products are the city of Moscow and Moscow region. slavneft-yanos. OJsC slavneft-yaroslavnefteorgsintez (slavneft-yANOs) is a fuel and oilproducing plant with a deep oil refining scheme and an installed capacity of 15.2 mln tons a year. By oil-refining volumes, yANOs ranks fifth among Russian refineries. OJsC slavneft-yANOs produces a wide range of oil products, from high-octane petrol to high quality bitumen. In 2010, the extent of oil refining totalled 65.5 % and the yield of light crude oil refining and production of oil products by gazprom neft group at moscow refinery, mn t
10 8.91 8.51
oils totalled 56.8 %. Consumers include virtually all large enterprises of central and northwest Regions of Russia as well as airports, the administration of the North Railway, and defence industry facilities. In accordance with the share in OJsC NGK slavneft authorised capital, Gazprom Neft has access to the refining facilities of OJsC slavneft-yANOs. In 2010, at OJsC NGK slavneft, the primary crude oil processing volume totalled 14.3 mn t, of which Gazprom Neft's share of totalled 7.15 mn t. Along with Gazprom Neft's other refineries, a refining facilities modernisation programme began at yANOs,. The programme aims to improve oil product quality to meet Euro 4 and Euro 5, and increase the extent of refining. At the refinery, 21 investment projects are being implemented. In March 2010, a new crude unit was commissioned. In 2011, commissioning of isomerisation of light naphtha and hydrotreatment of cat-cracked petrol plants is planned. In 2010, two products by slavneft-yANOs were pronounced winners of the '100 Best Products of Russia' competition in the nomination 'Industrial and technology products'. Diesel fuel Euro, sort C, type III was pronounced the winner of the competition and awarded the 'Leader of Quality' prise. Viscous construction bitumen Euro BV 50/70, type II was awarded a diploma and the status 'Innovation of the year'. nis refinery. The NIs refining facility comprises two refineries in the towns of Panevo and Novi sad. The facility produces an entire range of petroleum products, from motor petrol and diesel fuel to machine oil and raw materials for the petrochemical industry. The maximum annual crude oil capacity of the production lines of the two enterprises is 7.3 mn t of crude oil per year: Panevo up to 4.8 mn t and Novi sad up to 2.5 mln t of crude oil per year. The average annual refining volume is more than 4 mln t. of crude oil. NIs refinery produces a wide range of oil products which meet international standards of quality and the specifications of the refinery. The range includes automobile fuel, liquefied hydrocarbon gas as motor fuel for automobile transport, unleaded motor fuel BMB 95 'Premium', BMB 92 'Regular', motor fuel MB 95 'Premium', Eurodiesel,
8 5.78 5.52 Petrol Diesel fuel Jet engine fuel Black oil 4 3.27 3.11 Bitumen Other Oil rening 2
2008
2009
2010
crude oil refining and production of oil products by gazprom neft group at slavneft-yanos, mn t
8 6.75 6.40 6 6.83 6.45 7.15 6.75
Petrol Diesel fuel Jet engine fuel
Black oil Bitumen Other Oil rening

2008 2009 2010
44
JsC GAZPROM NEFT
diesel fuel D2, associated gas, aviation fuel, oils, lubricants, and more. Apart from sales to the serbian market, NIs exports motor fuels, benzene, toluene, road and construction bitumen to EU countries, Ukraine, Croatia, Montenegro, and Bosnia-Herzegovina. In 2010, within the framework of modernising refining facilities at NIs in Panevo (serbia), construction of a facility for hydrocracking and hydrofinishing has begun. This will enable increasing refining volumes to a maximum refinery load of 4.8 mn t per year. This will not only meet serbian market demand, but provide conditions to ensure export of fuel supply to Balkan states. Up to 2012, Gazprom Neft's investments in projects for refinery modernisation in Panevo will total 540 mn EUR. This mainly accounts for constructing a hydrogen plant at the refinery site, modernizing and constructing facilities for the refinerys industrial infrastructure, and implementing various environmental projects. The company will assign 396 mn EUR of the total volume of financing to constructing the hydrocracking plant alone. In line with the modernisation programme, the plant's commissioning is planned for Q3 2012. Financing arrangements of Gazprom Neft for the NIs modernisation programme are formalised in an agreement with serbian government. The arrangements total 540 mn EUR. In 2010,
investments totalled approximately 140 mn EUR. In 2010, in total, NIs refinery processed 2.85 mn t (excluding customer-owned refining). successfully implementing the oil refining and sales strategy will allow JsC Gazprom Neft to increase the refining volume to 70 mn t of crude oil and therefore maintain its existing production-processing ratio. The target balance of oil reserve distribution will be: 40 % processing in Russia, 25-30 % processing abroad, 20-25 % direct oil sales. The company intends to focus its resources on priority areas of refining development, including: z improving Russian refinery efficiency z increasing refinery capacities in Russia and in Europe. The target result of development in the areas mentioned should be: z increasing processing capacities on a pro rata basis to planned production growth z improving the extent of raw material processing z improving motor fuel quality z meeting oil product market demands z technical and processing efficiency of facilities z process control system at a level that meets the highest global standards.
structure of output production of gazprom neft group at the nis refinery, mn t

3,0 2.85
2,5
2.39 2.18
2.46 Petrol Diesel fuel Jet engine fuel Black oil Bitumen Other Oil rening
2,0
1,5
0,5

2009 2010
Annual report 2010
45
PRODUCTION OF PETROLEUM PRODUCTs

In 2010, Gazprom Neft increased its volume of petroleum product production by 13 % to 35.6 mn t. The increase is connected with the expansion of the companys retail network, reducing the turnaround time at the Omsk refinery, and consolidating the Moscow and NIs refineries. structure of petroleum product production by gazprom neft group, mn t
40 35 30 25 20 15 10 5 0 28.39 26.74 Petrol Diesel fuel Jet engine fuel Black oil Bitumen Other Oil rening 33.43 31.51 37.90 35.63
Due to implementing the modernisation programme at the companys refinery and optimizing the production range, according to the 2010 results, petrol production volume increased by 9.4 %, high quality kerosene by 15.2 % and diesel fuel by 15.4 %. JsC Gazprom Neft became one of the top-three leaders in bitumen production and sales, with growth totalling 33.8 %. The company began large-scale modernisation of bitumen facilities at its refineries. In October 2010 at Omsk refinery, a plant was commissioned for producing modern highquality components for pavements based on paving bitumen. These included polymer-bitumen binders (PBB) and bitumen emulsions (BE) with a capacity up to 10,000 t of PBB and up to 3,000 t of BE per year. This will allow the company to make a profit through selling a new, more advanced product, compared with conventional paving bitumen.

2008 2009 2010
46
JsC GAZPROM NEFT
sALEs OF PETROLEUM PRODUCTs

Implementing the strategy in the share of oil product sales will allow JsC Gazprom Neft to become one of the top-three largest vertical integrated oil companies in Russia and CIs countries by retail sales volume in 2020. According to the companys strategic plans, in 2020, oil product sales for end consumers will total 40 mn t, both in Russia and abroad. This includes 12 mn t from filling stations, 18 mn t from aviation fuel, bunkering, lubricants etc, and 10 mn t from individual wholesale retail to large end consumers. In 2010, Gazprom Neft focused its resources on priority development areas and strengthened its positions in the oil product retail market. The company sells oil products in Russia and CIs countries, mainly through 20 subsidiaries (Gazprom Neft-Aero, Gazprom Neft Marine Bunker, Gazprom Neft-Lubricants, sibir Energy, NIs, and oil product supply companies). Of these, 16 are retail companies, effecting wholesale sales of oil products and retail trade via filling stations. In 2010, the volume of oil product sales in the domestic market grew by 17 % compared to 2009, totalling 20.54 mn t. In 2010, small wholesale grew by 15 % compared to 2009 and totalled 5,275 000 t. Wholesale (transit) due to redistribution to the more premium small wholesale segment grew insignificantly by 1% and totalled 4,536,000 t. The number of active filling stations, operated by sales subsidiaries grew by 50 units to 1,596, while the average sales volume per filling station grew by 11 %, totalling 10.1 t per day. During 2010, the company built 27 filling stations, renovated 42 and purchased 60. Within the framework of retail network optimisation, the company decommissioned 28 filling stations and reduced the number of leased filling stations by one. The filling station chain re-branding project entered its final phase. Re-branding has been completed for 950 filling stations in Russia, Tajikistan, Kyrgyzstan and Belarus, including all filling stations in the sibneft chain. From 1 November 2010, Gazprom Neft began the next phase of a large-scale advertising campaign, promoting a retail brand for the Gazprom Neft network of filling stations. Within the framework of this phase, the company
sales of oil products by gazprom neft group in the domestic market, mn t

25 20.54 20 17.43 15.64 15 High-octane petrol Low-octane petrol Diesel fuel Black oil 10 Kerosene Others 5

2008 2009 2010
number of active filling stations and average daily sales per filling station in russia, t per day
pcs. 2 000 9.1 1 546 10.1 1 596 10 Number of active filling stations 8 Russia CIS countries 1 000 865 6 Eastern Europe Average daily sales per lling station in Russia t per day 12
9.4 1 500
4 500 2
2008
2009
2010
Annual report 2010
47
introduced a new advertising clip entitled 'Winter Tale', which was broadcast on Russian federal television. Developing the retail segment for selling oil products is a priority activity for Gazprom Neft. The appearance of a highly recognizable and trusted national brand will enable the company to achieve a strategic aim: to be among the top leaders in oil product sales in Russia. In 2010, sales through filling stations in Russia increased by 18 % and totalled 3,047,000 t of oil products. sales of petrol grew by 10 % and totalled 2,161,000 t. Diesel fuel sales grew by 44 % and totalled 824,000 t.
The company has four foreign distribution enterprises in customs union countries: Gazprom Neft-Kazakhstan LLP, Gazprom Neft-Tajikistan LLC, Gazprom Neft Asia LLC in Kyrgyzstan, and Gazprom Neft-Belnefteprodukt FLLC in Belarus. During 2010, they sold 1,062,000 t of petroleum products. The motor fuel market in Kazakhstan is key for JsC Gazprom Neft's sales development in Central Asia. In 2010, Gazprom Neft acquired a network of 20 filling stations and 9 sites from ARNA Petroleum to construct filling stations in Kazakhstan. The company's attraction to this region is explained by the market capacity of the republic and the proximity to its Omsk refinery.
48
JsC GAZPROM NEFT
PREMIUM BUsINEss sEGMENTs

Within the framework of increasing efficiency of oil product sales, the individual lines of business involve selling the following oil products: jet fuel, lubricating oils, bitumen, petrochemistry products and bunkering. The company has developed separate strategic plans for every direction, which will assure a total sales gain of more than double by 2020. Prime objectives for business units are increasing sales efficiency, widening the geographical area of business, and increasing market share. Jordan, Norway, India and Cyprus. Novosibirsk Aircraft Fuelling Complex became the main site for seminars on aircraft fuelling activities for IATA. At sheremetyevo, construction of an aircraft fuelling complex has begun. In 2010, leading positions were maintained in retail trade of aviation fuel, compared to other distribution networks. The company kept second position in jet fuel supply for Russia's domestic market. CJsC Gazprom Neft-Aero has increased its retail sales volume of aviation fuel to 19 % in 2010, compared to 2009. Further plans include business development, both in increasing the business geography in Russian and foreign airports, and growing its own aircraft fuelling network.
Aircraft fuelling
CJsC Gazprom Neft-Aero performs business activities in jet fuel sales through its associated enterprises in Moscow, st. Petersburg, Novosibirsk, Murmansk, Tomsk, Bryansk, etc, as well as in countries of Central Asia: Kazakhstan (Astana), and Tajikistan (Dushanbe). Additionally, the aircraft fuelling activities for Russian air companies are performed in the airports of south-East Asia, Europe, Africa, and Latin America. In 2010, CJsC Gazprom Neft-Aero made great advances in the international market. CJsC Gazprom Neft-Aero subsidiaries began aircraftfuelling activities at airports in Turkey, China,
Bunkering
In 2010, Gazprom Neft Marine Bunker LLC gained a leading position in the Russian bunker market by increasing its own 'on board' bunkering by 17 %. In 2010, the total sales volume equalled 1,464,000 t, including 1,380,000 t sales for sea vessels and 84,000 t for river ships.
trend of aviation fuel retail sales in the russian domestic market in 2009-2010
30 %
trend of marine fuel retail sales in the russian domestic market in 20092010
30 %
20 %
14 %
19 %
20 %
17 %
10 %
10 %
9 %
Russian Federation in total
Gazprom Neft-Aero
Russian Federation in total
Gazprom Neft Marine Bunker
Annual report 2010
49
Currently, Gazprom Neft Marine Bunker LLC has the largest business area in Russia, compared to other Russian bunkering companies. It also offers marine fuel to ship owners in all sea and river ports within Russia: z northwest region: st. Petersburg, Kaliningrad, Murmansk, Arkhangelsk. z south region: Novorossiysk, Tuapse, Port Caucasus. z far-east region: Nakhodka, Vladivostok, Vostochny. z inland waterways: yaroslavl, Kazan, Volgograd, Rostov-on-Don, Astrakhan, Ust-Kut. The main share of sales volume was in the North-West region. The 17 % increase of own on board bunkering compared to 2009, was achieved by increasing market share in the ports of st. Petersburg, Murmansk, Kaliningrad and entering the prospective markets of the ports of Ust Luga and Archangel. In 2010, the company increased the geographical area of river ships bunkering activity, thanks to the ports of Volgograd, Astrakhan and Ust Kut. The bunkering volume for Russian inland waterways has increased significantly, by 23 %. New objectives of the renewed strategy for further development have been established. One of these is developing international bunkering activities in the markets of Europe, the Middle East and Asia. Gazprom Neft Marine Bunker LLC meets all conditions for entering foreign markets. These include having practical experience and a skilled and effective management crew. The sales activity in high-quality fuels produced by Gazprom Neft Oil Refinery Plant allows the company to create a positive image as a reliable partner. In 2010, partner agreements were signed with Turkish company, Petrol Ofici, for bunkering activities with our clients in the port of Istanbul. In autumn, an agreement was signed with a large Italian Mediterranean shipping company for bunkering activity in Turkey. Within the framework of these agreements, the first bunkering was performed in the port of Istanbul (Turkey).
In 2011, a continued increase of volume in bunkering is planned in Istanbul, alongside starting activities in Constanta (Rumania) and in ports of the Danube River,. The first bunkering activity is expected to be performed in ports of Baltic states. To execute large-scaled strategic plans, Gazprom Neft Marine Bunker LLC must strengthen its competitive advantages by increasing its base of own ships and terminals. At the beginning of 2011, a subsidiary of Gazprom Neft Marine Bunker, Gazprom Neft shipping, put two new ships into service Gazprom Neft south and Gazprom Neft North to perform bunkering activities in the ports of st. Petersburg and Murmansk. By 2015, the company plans that sales volumes will increase to 1.9 mn t in Russia. It is planned that the significant growth of volumes in bunkering will be fulfilled by increasing the share in the bunkering market in Russia and actively developing key bunkering activities in the regions of Europe and Asia (Mediterranean, south-East Asia, and Middle East). By 2020, the company plans to gain a significant share of the world market and be among the 20 largest international bunkering companies. The company aims to do this by increasing marine fuel sales volume four-fold, compared to 2010. The network effect will increase the client base and ensure long-term cooperation with large international shipping companies.
Production and sales of engine oils

Gazprom Neft-Lubricants LLC is a vertically integrated engine-oils company with productive assets in Western siberia (Omsk), European Russia (yaroslavl), and Western Europe (Bari, Italy). In 2010, the company produced and sold more than 434,000 t of engine-oil type production. The production range includes 200 lines of oil produced in Russia and Western Europe. In 2010, the new G-Family brand for engine oils was marketed in Russian and abroad. It includes more than 40 types of international-level modern engine oil for the consumer and commercial markets. Oils of the G-Family brand are produced at Gazprom Neft Lubricants Italia s.p.A. in the city of Bari. This advanced complex can produce 30,000 t of oils and 6,000 t of lubricants per year. The operating
50
JsC GAZPROM NEFT
procedures applied at the Bari plant will be introduced into production at Russian plants step by step. In 2010-2012, Gazprom Neft will invest 2 bn RUB in constructing a plant at Omsk refinery for low-tonnage blending, packing and offloading of oils with a capacity of 120,000 t. In 2010, the company increased its market share of oils in Russia from 11 % to 13 %. In 2010, the sales structure changed significantly. sales of pre-packaged oils increased by 29 %, and premium production, meeting international specifications, by 31 %. This is a result of the companys strategic transformation from raw-material producer to a customer-centric marketing company: a producer of high-marginal commercial oils. The company set itself the goal to implement a long-term investment programme, expand the modern production range, increase the Russian market share, and further expand into foreign markets.
buyers themselves to form market prices with open competition. since its launch, more than 1,100 companies have registered at the floor, and more than 250 companies have obtained trading access. Large and small traders and end consumers participate in trading. From summer 2010, products are traded on the ETF from three bases (free bases): Kemerovo base (Kuzbass), Turinsky base (Tyumen) and Volodarskaya Linear Operator Dispatcher system (LODs). At Volodarskaya LODs, oil-product trading began using a resource from OJsC NK Magma. The trading algorithm has been updated, reflecting experience accumulated and the requirements of the state bodies. 318,000 t of oil products costing more than 5.4 bn RUB have been sold via ETF since it began operations. JsC Gazprom Neft is a cofounder of CJsC saint Petersburg International Mercantile Exchange. since November 2009, it has been regularly submitting products for tender. In 2010, at the saint Petersburg International Mercantile Exchange, Gazprom Neft sold 1,033,000 t of oil products totalling more than 17.4 bn RUB. At the end of 2010, test trading was conducted on the NP Interregional Exchange of Oil and Gas Industry exchange, and the saint Petersburg Exchange (16,000 t of oil products sold). since the second half of 2010, JsC Gazprom Neft sold no less than 10 % of oil product of the companys volume of sales in the domestic market on a monthly basis. For the year ended,
electronic trading floor and stock exchange trade

For Gazprom Neft, the stock exchange trade with oil products is a form of wholesale trade allowing the company to form a universally recognised price market indicator (index). since 2008, the company has been actively developing a sales mechanism for oil products via the electronic trading floor (ETF). This allows trend of pre-packaged oil retail sales in russian domestic market in 2009-2010
30 %
29 %
share of exchange trading*

10 % 8%
8 %
9%
20 %
6%
11 %
10 %
4% 2%
Russia in total
Gazprom Neft-Lubricants
1% 2009 2010
* The share of exchange trading is indicated as a part of specific oil products sales in the domestic market.
Annual report 2010
51
the percentage of stock exchange sales of JsC Gazprom Neft totalled 8.2 % of sales on the domestic market. In 2011, the company envisages starting trade according to the common unified exchange specification on the saint Petersburg International Mercantile Exchange. This will allow the company to take an essential step towards fully anonymous
trading with exchange products. The company continues to play an active part in its discussion and introduction. In 2011, the company will consider the possibility of participating in trading with derivative securities (futures). Additionally, trading via the electronic trading floor of the company will be developed in future.
52
JsC GAZPROM NEFT
EXPORT OF CRUDE OIL AND OIL PRODUCTs

Gazprom Neft Group is a high-volume exporter of crude oil and oil products. The main routes of oil export shipments were the Black sea ports of Novorossiysk and Tuapse, the Baltic sea port of Primorsk, and the Czech Republic and Germany, via the Druzhba Pipeline. According to 2010 results, Gazprom Neft Group supplied 15.8 mn t of oil to the world market, in absolute terms. This is 1 mn t more than in 2010. Of this amount, 8.95 mn t was exported by sea, and 6.85 mn t via the Druzhba trunk pipeline. 3,019 mn t of crude oil was exported to the markets of CIs countries, which is less than the level of 2009. structure of crude oil export from russia by transport types (including cis countries) in 2010 In 2010, Gazprom Neft's export of oil products to non-CIs countries (accounting for NIs) increased by 9 % and totalled 14.9 mn t compared to 2009. Export to CIs countries fell by 10 % and totalled 1.7 mn t.
Pipeline transport
2010, %
Primorsk Novorossiysk Tuapse
47.9 % 3.7 % 9.7 %
38.7 %
structure of oil product export from russia (including cis countries) in 2010
trends of export of crude oil and oil products, mn t

20 Crude oil Oil products 18 16.7
Petrol Jet engine fuel

16
16.3
15.6 15.6 15.9
2010, %
Diesel fuel Black oil Bitumen Other

13.2 12 14
40 %
1% 4%
34 % 18 % 3 %

10 2008 2009 2010
FINANCIAL REsULTs OF ACTIVITy

In 2010, we achieved significant success in expanding the asset portfolio. We studied lessons in finding optimal decisions while working on the merger and acquisition market and successfully integrating and developing new enterprises. To gain a leading position for efficiency in the industry, we proceeded with quality changes in the approach to working with existing assets. Namely, management by change will become one key priority for the company to achieve its established strategic aims.
Vadim yakovlev Deputy Chairman of the Management Board First Deputy Director General, Financial Director
54
ANALysIs By THE MANAGEMENT OF THE COMPANys FINANCIAL REsULTs
JsC GAZPROM NEFT
DEFINITIONs AND RECALCULATION METHODOLOGy

The statements concern the review of the financial condition of JsC Gazprom Neft as of 31 December 2010 and shall be regarded jointly with financial statements of the company. These include its annotations, prepared in line with generally accepted accounting principles of the United states of America (Us GAAP), the financial statements presented in a separate appendix to the annual report, the 2010 Financial Report. The statements concern the financial conditions and performance results of JsC Gazprom Neft on a consolidated basis. Tonnes of produced crude oil were recalculated into barrels, using indexes of oil density for every field. Acquired oil, as well as other operational indicators, expressed in barrels was recalculated into barrels using an index of 7.3 bbl per 1 t. Cubic metres were recalculated into cubic ft using the index of 35.31 ft per 1 m. Oil was recalculated into BOE based on 1 barrel per 1 BOE and gas was recalculated on the basis of 6,000 ft per 1 BOE.
FORECAsT sTATEMENTs
This report contains forward-looking statements concerning the financial condition, results of operations and businesses of Gazprom Neft and its consolidated subsidiaries. All statements, other than statements of historical facts are, or may be deemed to be, forwardlooking statements. Forward-looking statements are statements of future expectations based on managements current expectations and assumptions, and involve known and unknown risks and uncertainties that could cause actual results, performance indicators or events to differ materially from those, expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of market risks on Gazprom Neft, and statements expressing managements expectations, beliefs, estimates, forecasts, projections and assumptions. These forwardlooking statements are identified by the presence of terms and phrases such as: anticipate, believe, could, estimate, expect, intend, may, plan, objectives, outlook, probably, project, will, seek, target, risks, goals, should, and similar terms and phrases. A number of factors could affect the future operations of Gazprom Neft and could cause those results to differ materially from those expressed in the forward-looking statements included in this report, including (without limitation): price fluctuations in crude oil and gas; changes in demand for the companys products; currency fluctuations; drilling and production results; reserve estimates; loss of market and industry competition; environmental and physical risks; risks associated with identifying suitable potential acquisition properties and targets, and successfully negotiating and completing such transactions; economic and financial market conditions in various countries and regions; political risks, project delay or advancement, approvals and cost estimates; and changes in trading conditions.
Annual report 2010
55
KEy PERFORMANCE INDICATORs FOR 2008-2010

Change, % (mn UsD) Revenues Income before tax EBITDA* UsD/BOE Net income of JsC Gazprom Neft UsD per common share UsD/BOE Net cash from operating activities UsD/BOE 2010 32 772 4 277 7 226 18,5 3 148 0.7 8.1 5 392 13.8 2009 24 166 3 897 5 977 16.2 3 013 0,6 8.2 3 475 9.4 2008 33 870 6 161 8 610 23.8 4 658 1.0 12.9 5 483 15.2 2010/2009 35.6 % 9.8 % 20.9 % 14.2 % 4.5 % 4.5 % 1.3 % 55.2 % 46.6 % 2009/2008 28.7 % 36.7 % 30.6 % 31.9 % 35.3 % 35.1 % 36.5 % 36.6 % 37.8 %
* EBITDA is an additional finance indicator not required by Us GAAP. The calculation is presented in the Appendix on page 76.
revenues, mn usd
40 000 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 24 166 33 870
36 %
ebitda, mn usd
10 000 8 000 6 000 4 000 2 000 0 8 610
net income of jsc gazprom neft, mn usd

5 000 4 658
21 %
32 772
4 000
5 %
7 226 5 977
3 000 2 000 1 000 0
3 013
3 148
2008
2009
2010
2008
2009
2010
2008
2009
2010
ebitda per boe, usd/boe

25 23,8 20 15 10 5 0 16,2
14 %
net cash from operating activities, mn usd

6 000 5 000 4 000 3 000 2 000 1 000 3 475 5 483
55 %
net income per boe, usd/boe

20,00 19,42 18,00 16,00 14,00 12,00 11,32 10,00
19 %
5 392
18,5
13,48
2008
2009
2010
2008
2009
2010
2008
2009
2010
56
JsC GAZPROM NEFT
KEy FINANCIAL AND PERFORMANCE INDICATORs

Change, % 2010 Revenues, mn UsD Adjusted EBITDA*, mn UsD Net income of JsC Gazprom Neft, mn UsD Hydrocarbon production including share in affiliates, mn BOE Oil production including share in affiliates, mn bbl Marketable gas production including share in affiliates, mn ft Refining throughput at own and affiliate refineries, mn t 32 772 7 226 3 148 389.57 366.13 140.53 35.66 2009 24 166 5 977 3 013 367.94 349.35 111.42 31.51 2008 33 870 8 610 4 658 361.07 342.97 108.65 26.74 2010/2009 35.6 % 20.9 % 4.5 % 5.9 % 4.8 % 26.1 % 13.2 % 2009/2008 28.7 % 30.6 % 35.3 % 1.9 % 1.9 % 2.5 % 17.8 %
* EBITDA is an additional finance indicator not required by Us GAAP. The calculation is presented in the Appendix on page 76.
Annual report 2010
57
2010 REsULTs COMPARED TO 2009

In 2010, the price rise on oil enabled financial indicators to improve. Thus, revenues grew by 35.6 %, adjusted EBITDA by 20.9 %, and net income by 4.5 %. Compared to the period a year earlier, oil production volume increased by 4.8 % and marketable gas by 26 %. This resulted in hydrocarbon production growth to 390 mn BOE. The strengthening of the ruble against the dollar by 4.4 % affected the growth of the companys operating expenses. Outstanding interest decreased in connection with the lowering of the effective interest rate, resulting from credit portfolio optimisation. The net income of JsC Gazprom Neft, adjusted for non-recurring events, totalled 3,346 mn UsD and increased by 24.6 % compared to 2009. Nonrecurring events include: z In 2010: reserve to pay 198 mn UsD penalty charge for a suit of the Federal Anti-Monopoly service. z In 2009: income from investments amounting to 470 mn UsD, due to acquiring sibir Energy, and losses of 142 mn UsD due to selling sibneft-Chukotka. The net income of JsC Gazprom Neft grew by 4.5 % and totalled 3,148 mn UsD, compared to 3,013 mn UsD in 2009.
PRODUCTION sEGMENTs
The companys activities are divided into two main production segments: z Exploration and extraction, including exploration, development and extraction of crude oil and gas. z Refining, marketing and distribution, which includes refining crude oil, acquisition, sales and transportation of crude oil and refined oil products. The companys operating segments are interdependent; a proportion of the revenues of one segment forms a part of the costs of the other segment. In most cases, it is difficult to assess market prices for crude oil in the domestic market. This is due to the significant intra-group turnover within the vertically integrated oil companies. The prices set for intra-group acquisition of crude oil reflect a combination of market factors, such as global crude pricing, transportation costs, crudeprocessing costs, capital investment for associated companies, and other factors. Accordingly, the results of operations in these individual segments do not necessarily reflect each segments underlying financial position and results of operations. For this reason, we do not analyse our segments separately.
58
JsC GAZPROM NEFT
CHANGEs IN GROUP sTRUCTURE

Severenergiya
In December 2010, yamal Razvitie LLC (a joint venture between JsC Gazprom Neft and OJsC NOVATEK) acquired 51% shares in shareholder capital of severEnergiya from Gazprom Neft for 1.9 bn UsD. The corresponding acquisition value, paid by the company, totalled 898 mn UsD. severEnergiya, via its subsidiaries, is engaged in developing the oil and gas fields of samburgsky and yevo-yakhinsky, and several oil and gas fields of lesser magnitude with a total volume of proven resources as per PRMs classification of more than 1.7 bn TOE.
NIS
In February 2009, JsC Gazprom Neft completed a deal on acquiring 51 % interest in the serbian oil company, NIs. The cost of the deal totalled 400 mn EUR. The agreement envisages a reconstruction and modernisation programme in the processing capacities of NIs totalling 547 mn EUR by 2012. Within the framework of this programme, the company will take measures to improve the quality of produced oil products to ensure they meet European standard Euro 5. On 31 January 2011, the company sent mandatory cash offers to buy back NIs shares. These are currently in free circulation (the maximum amount of interest in NIs that can be acquired is 19.12 % of authorised capital). The share price is equal to the share price at which Gazprom Neft acquired NIs shares in 2009.
Sibir Energy
In the period from 23 April 2009 the date of the companys first acquisition of shares in sibir Energy until 11 February 2011, the company invested 3.2 bn UsD to acquire 100 % of the ordinary shares of sibir Energy. As a result of acquiring sibir Energy, the company increased its effective interest in Moscow refinery from 38.86 % to 77.72 %. sibir Energys primary upstream assets include JsC Magma (95 %-owned by sibir Energy) and a 50% share of interest in the joint venture of salym Petroleum Development with Royal Dutch shell. sibir Energys total current production is over 80,000 bbl of oil per day. sibir Energy also holds a 38.86 % stake in the Moscow oil refinery. This is jointly managed by sibir Energy and Gazprom Neft, and a network of 134 filling stations in Moscow and the Moscow region via JsC Moscow Fuelling Company and JsC Mosnefteprodukt.
Malka Oil
On 4 February 2010, JsC Gazprom Neft completed a deal on acquiring 100 % of the share capital of sTs-service LLC. The cost of the deal totalled 820 mn swedish krona (approximately 114 mn UsD). sTs-service owns Block 87 in Tomsk region comprising Zapadno-Luginetskoye field (currently under development), Nizhneluginetskoye and a part of shinginskoye field. C1+C2 category reserves total 11.5 mn t, and there are 11 prospective structures within the area. These fields are located in the immediate vicinity of shinginskoye field, developed by the companys subsidiary, Gazprom Neft-Vostok LLC, which will integrate sTs-service into its own structure.
Annual report 2010
59
Iraq
In January 2010, Gazprom Neft, as a member of a consortium including state-owned oil companies Kogas (Korea), Petronas (Malaysia), (Turkey), signed a contract with the Iraq government for developing the Badra field. According to preliminary assessments, the geological reserves of Badra totalled over 2 bn bbl of oil. Gazprom Neft is the operator of the project and its share is 30 %. The shares of other participants are: Kogas - 22.5 %, Petronas - 15 %, TPAO - 7.5 %, Oil Exploration Company (OEC) representing the interests of Iraq Government - 25 %. Field development is planned to start in 2013. Badras development project is planned for 20 years with a possible 5-year extension. The maximum level of oil production is expected to be around 8.5 mn t per year and will be achieved in 2016.
The Board of Directors of NOC assigned JsC Gazprom Neft as the company-leader for coordinating operations and managing the 'Junin-6' project. In the first phase of the project (20112013), it is planned to start an agreement procedure for permit documentation and to hold tenders for selecting a contractor to perform the block's environment audit.
Equatorial Guinea
The Ministry of Ore Mining, Industry and Energy of Equatorial Guinea, national oil company Guinea Equatorial de Petrleos (GEPetrol), and JsC Gazprom Neft signed a production-sharing agreement on exploring two exploratory offshore blocks. JsC Gazprom Neft is an operator of this project. According to preliminary assessments, the oil reserves on the two offshore blocks may amount to 110 mn t. In 2011, it is planned to start the exploration phase with a possible extension of 4-5 years. The company envisages performing an additional 3D seismic survey on one of two offshore blocks and processing and interpreting historical data on both blocks. Based on the results of seismic survey, a decision will be made on exploration-well drilling.
Venezuela
In June 2009, Gazprom Neft acquired a 20 % share of authorised capital in the National Oil Consortium (NOC). Large Russian oil companies formed the consortium to implement oil-producing projects in Latin America. These companies are JsC Gazprom Neft, OJsC NK Rosneft, OJsC NK LUKOIL, OJsC TNK-BP Holding, and OJsC surgutneftegas in equal shares. In september 2009, the Government of the Russian Federation and Government of Bolivarian Republic of Venezuela signed an inter-government agreement on cooperating in implementing mutual strategic projects. Within the framework of this agreement, in April 2010, NOC and Corporacion Venezolana del Petroleo (CVP), a company of the stateowned oil company of Venezuela PDVsA, set up a joint venture (PetroMiranda). This was to engage in supplementary exploration and further development of Junin-6 field, which is located in the basin of the Orinoco river in Venezuela.
60
JsC GAZPROM NEFT
PERFORMANCE INDICATORs AND ANALysIs

Exploration, production and development
Under the oil price increase, the company doubled its extent of exploration work by consolidated subsidiaries and affiliates. exploratory drilling, thous. m
150 128 120 90 63 60 30 0 Subsidiaries Afliates 140
Another new field and 44 hydrocarbon deposits were discovered on the fields of consolidated subsidiaries and affiliates. Exploration-drilling efficiency totalled 89.5 % in subsidiaries and 86.7 % in affiliates.
Reserves
As of 31 December 2010, the companys proven reserves totalled 5,279 mn BOE, including proven reserves of oil totalling 4,663 mn bbl and proven reserves of natural gas totalling 3.7 trillion ft3. As of 31 December 2010, the companys proven reserves, including share in subsidiaries, totalled 7,526 BOE, including 6,441 mn bbl of oil and 6.5 trillion ft. Independent field development experts from DeGolyer & MacNaughton have estimated these reserves based on PRMs sPE. According to PRMs, indicators of reserves shown in the table differ from those represented in the groups consolidated statements in the section for additional information on oil and gas exploration and production. The indicators, represented as additional information, were prepared in accordance with sEC (securities and Exchange Commission), which during calculation requires applying the 12-month average price as of the first of every month in the reporting period. According to PRMs, reserves in the table below were prepared using the most optimistic management expectation of future prices for crude oil and natural gas.
2008
2009
2010
number of drilled exploration wells

50 40 34 30 22 20 10 0 Afliates Subsidiaries 44
2008
2009
2010
number of oil and gas deposits discovered

50 44 40 30 20 10 0 9 38
Subsidiaries Afliates
2008
2009
2010
Annual report 2010
61
oil and gas reserves

share in affiliates (mn BOE) Proven reserves on 31 December 2008 Production Revision of previous estimations Obtaining licences Proven reserves on 31 December 2009 Production Revision of previous estimations Obtaining licences Proven reserves on 31 December 2010 groups probable reserves in total groups possible reserve in total Gazprom Neft 4 847 (237) 362 17 4 989 (249) 539 5 279 2 598 2 120 slavneft 1 369 (72) 192 1 489 (69) (494) 926 1 460 1 349 Tomskneft 592 (45) 154 701 (42) (43) 616 382 232 salym Petroleum (14) 297 283 (30) (3) 250 121 57 severEnergiya 455 455 965 917 Total 6 808 (368) 708 314 7 462 (390) (1) 455 7 526 5 526 4 675
stock turnover of hydrocarbon reserves, mn toe

2 250 2 025 13 % 1 787
2 000 1 750
1 500 1 250 73 1 000 750 1 018 0 53 70 6 61 1 023 0,5 %
500 250 ABC1

0
01.01.2010
Oil production
Gazprom Neft
Slavneft
Tomskneft
SPD
Acquisition of SeverEnergiya
01.01.2011
SPE
Production drilling
The company increased the extent of production drilling in conditions of recovering oil prices at the end of 2009-2010. The number of new wells drilled on fields of consolidated subsidiaries increased by 11.8 % to 746 wells, connected with actively developing Priobskoye field. Number of new wells, drilled on fields of affiliates, increased by 22.2 % to 407 wells.
62
JsC GAZPROM NEFT
production drilling
Change, % 2010 Consolidated subsidiaries Production drilling, thousand m Number of drilled production wells, pcs. Average flow rate of operating wells, t per day Water cut, % Affiliates Production drilling, thousand m Number of drilled production wells, pcs. 1 623 407 1 151 333 1 082 308 41.0 % 22.2 % 6.4 % 8.1 % 2 610 746 15.92 82.44 2 259 667 16.34 82.11 2 033 611 16.93 81.94 15.5 % 11.8 % 2.6 % 0.4 % 11.1 % 9.2 % 3.5 % 0.2 % 2009 2008 2010/2009 2009/2008
Production
Change, % 2010 crude oil Noyabrskneftegaz yugra Gazprom Neft NIs Others Oil production by subsidiaries in total share in slavnefts production share in Tomsknefts production share in sPDs production share in affiliates production in total production in total gas Gazprom Neft Group share in slavnefts production share in Tomsknefts production gas production in total hydrocarbons Gazprom Neft Group share in slavnefts production share in Tomsknefts production share in sPDs production hydrocarbon production in total Average daily hydrocarbon production by Gazprom Neft Group, thousand BOE per day 248.19 69.32 42.18 29.88 389.57 1 067 237.14 71.56 44.90 14.34 367.94 1 008 107.93 11.91 20.69 140.53 73.22 13.25 24.95 111.42 129.12 69.25 11.10 7.17 13.56 230.20 67.33 38.72 29.88 135.93 366.13 138.05 60.82 12.97 5.14 7.95 224.93 69.35 40.73 14.34 124.42 349.35 2009 2008 (mn bbl) 154.27 54.13 15.38 4.81 228.59 71.94 42.44 114.38 342.97 (bn ft3) 67.87 13.10 27.68 108.65 (mn boe) 239.90 74.12 47.05 361.07 987 4.7 % 3.1 % 6.1 % 108.4 % 5.9 % 5.9 % 1.2 % 3.5 % 4.6 % 1.9 % 1.9 % 47.4 % 10.1 % 17.1 % 26.1 % 7.9 % 1.1 % -9.9 % 2.5 % 6.5 % 13.9 % 14.4 % 39.5 % 70.6 % 2.3 % 2.9 % 4.9 % 108.4 % 9.3 % 4.8 % 10.5 % 12.4 % 15.7 % 65.3 % 1.6 % 3.6 % 4.0 % 8.8 % 1.9 % 2010/2009 2009/2008
Annual report 2010
63
oil and gas condensate production in 2008-2010, mn toe
In 2010, the volume of oil production by the company increased by 4.8 %, due to: z production growth on Priobskoye field (KhantyMansiysk Autonomous District), connected with extending meterage drilled and increasing hydrofrac operations
60 52.81 50 48.72 50.17
40
Gazprom Neft Slavneft Tomskneft SPD Cenomanian gas
z fully consolidating production at the salym Petroleum Development. In 2010, gas production increased by 26.1 %. This was connected with starting natural gas production on Muravlenko and Novogodny fields in Q4 2010. For the 12 months of 2010 compared with the 12 months of 2009, the bulk volume of the group's hydrocarbon production increased by 5.9 %
30
20
10

2008 2009 2010
Oil acquisition
Change, % (mn bbl) Oil acquisition in Russia* Oil acquisition on the international market total 2010 38.62 17.42 56.04 2009 24.76 16.11 40.87 2008 11.95 15.18 27.13 2010/2009 56.0 % 8.1 % 37.1 % 2009/2008 107.2 % 6.1 % 50.6 %
* Oil acquisition in Russia does not include acquisition from affiliates slavneft, Tomskneft and salym Petroleum Development, taking into account the share included in equity.
In 2010, acquisitioned oil volume grew by 37.1 % (by 50.6 % in 2009). This was driven by increasing volumes of commercial activities.
Oil balance (%)

53 % 60 % 61 % 70 % 76 %
Refining
In 2010, the total volume of refining grew by 13.5 %. Growth was also observed in all the groups refining assets. The refining volume grew mainly at the Moscow refinery by 54.2 % for the year. This was linked to increasing the share in sibir Energy after acquisition. The volumes of high octane petrol production increased by 12.7 %. This was due to growing demand for this oil product and modernisation measures at the refinery.
Production 47 % 40 % 39 % 30 % 24 % Rening and marketing
source: companys data

2006 2007 2008 2009 2010
64
JsC GAZPROM NEFT
refining
Change, % (mn t) crude-oil refining Omsk refinery Moscow refinery NIs share in yaroslavl refinery refining in total production of oil products High-octane petrol Low-octane petrol Naphtha Diesel fuel Black oil Kerosene Others production of oil products in total 6.40 0.86 1.63 11.47 7.80 2.43 5.06 35.66 5.68 0.95 2.12 9.94 6.01 2.11 4.70 31.51 4.33 1.14 1.91 9.01 5.75 1.81 2.79 26.74 12.7 % 9.5 % 23.1 % 15.4 % 29.8 % 15.2 % 7.7 % 13.2 % 31.2 % 16.7 % 11.0 % 10.3 % 4.5 % 16.6 % 68.5 % 17.8 % 18.98 8.91 2.85 7.15 37.89 18.43 5.78 2.39 6.83 33.43 18.37 3.27 6.75 28.39 3.0 % 54.2 % 19.2 % 4.7 % 13.3 % 0.3 % 76.8 % 1.2 % 17.8 % 2010 2009 2008 2010/2009 2009/2008
High-quality kerosene production increased by 15.2 %. This strengthened the company's leading positions in the Russian aviation fuel market.
The volume of diesel fuel production increased by 15.4 %. This was due to implementing the modernisation programme for the refinery.
Acquisition of oil products

2010 mn UsD High-octane petrol Low-octane petrol Naphtha Diesel fuel Black oil Kerosene Others total 203 63 109 380 113 115 79 1 062 mn t 0.28 0.10 0.16 0.71 0.37 0.20 0.32 2.14 mn UsD 217 47 25 323 85 70 35 802 2009 mn t 0.44 0.10 0.06 0.79 0.36 0.18 0.13 2.06 Change, % mn UsD 6.5 % 34.0 % 336.0 % 17.6 % 32.9 % 64.7 % 125.7 % 32.4 % mn t 36.4 % 2.0 % 166.7 % 10.1 % 2.8 % 11.1 % 146.2 % 4.0 %
Annual report 2010
65
2009 mn UsD High-octane petrol Low-octane petrol Naphtha Diesel fuel Black oil Kerosene Others total 217 47 25 323 85 70 35 802 mn t 0.44 0.10 0.06 0.79 0.36 0.18 0.13 2.06 mn UsD 239 67 32 994 287 179 67 1 865
2008 mn t 0.30 0.10 0.04 1.19 0.83 0.28 0.09 2.83
Change, % mn UsD 9.2 % 29.9 % 21.9 % 67.5 % 70.4 % 61.0 % 47.8 % 57.0 % mn t 46.7 % 50.0 % 33.6 % 56.6 % 35.7 % 44.4 % 27.2 %
Marketing and distribution

In 2010, the total amount of filling stations increased by 3.2 %. The company acquired a filling station chain in Kazakhstan and implemented a construction and reconstruction programme for filling stations in Russia.
Change, % (pcs.) Active filling stations Russia CIs countries Eastern Europe total Average daily sales per filling station in Russia, t per day 947 181 468 1 596 10.10 921 152 473 1 546 9.10 763 102 865 9.40 2.8 % 19.1 % 1.1 % 3.2 % 11.0 % 20.7 % 49.0 % 78.7 % 3.2 % 2010 2009 2008 2010/2009 2009/2008
66
JsC GAZPROM NEFT
REsULTs OF ACTIVITIEs
Change, % (mn UsD) revenues Refined products and oil and gas sales Other sales total costs and other deductions Cost of purchased oil, natural gas and oil products Operating expenses selling, general and administrative expenses Transportation expenses Depreciation, depletion and amortisation Export duties Taxes other than profit tax Exploration expenses Cost of other sales Loss on sale of assets, net total Operating revenue other (expense) / income Income from equity affiliates Investment income Interest receivable Outstanding interest Other (expense) income, net Foreign exchange (loss) gain, net total income before tax Provision for profit tax Deferred profit tax expense (benefit) total Net profit Less: Net income attributable to non-controlling interest net income of jsc gazprom neft 229 9 48 (336) (309) (22) (381) 4 277 884 (40) 844 3 433 (285) 3 148 212 470 108 (369) (1) 48 468 3 897 804 12 816 3 081 (68) 3 013 407 100 (167) 89 (517) (88) 6 161 1 425 39 1 464 4 697 (39) 4 658 8.0 % 98.1 % 55.6 % 8.9 % 30 800.0 % 145.8 % 181.4 % 9.8 % 10.0 % 433.3 % 3.4 % 11.4 % 319.1 % 4.5 % 47.9 % 8.0 % 121.0 % 101.1 % 109.3 % 631.8 % 36.7 % 43.6 % 69.2 % 44.3 % 34.4 % 74.4 % 35.3 % 7 459 2 111 1 649 2 886 1 619 6 631 5 240 91 428 28 114 4 658 5 335 1 883 1 280 2 262 1 475 3 948 3 982 147 283 142 20 737 3 429 8 022 2 015 1 046 2 046 1 309 7 328 5 353 193 309 27 621 6 249 39.8 % 12.1 % 28.8 % 27.6 % 9.8 % 68.0 % 31.6 % 38.1 % 51.2 % 35.6 % 35.8 % 33.5 % 6.6 % 22.4 % 10.6 % 12.7 % 46.1 % 25.6 % 23.8 % 8.4 % 24.9 % 45.1 % 32 044 728 32 772 23 648 518 24 166 33 205 665 33 870 35.5 % 40.5 % 35.6 % 28.8 % 22.1 % 28.7 % 2010 2009 2008 2010/2009 2009/2008
Annual report 2010
67
Revenues
Change, % (mn UsD) crude oil Export and sales on international markets Export to CIs countries sales on the domestic market total crude oil sales gas Export and sales in international markets sales in the domestic market total gas sales oil products Export sales sales in the international market Export and CIs sales sales on the domestic market total oil product sales Other sales total revenues 7 115 2 590 1 147 10 690 21 542 728 32 772 5 149 2 095 907 7 531 15 682 518 24 166 8 381 1 288 10 332 20 001 665 33 870 38.2 % 23.6 % 26.5 % 41.9 % 37.4 % 40.5 % 35.6 % 38.6 % 29.6 % 27.1 % 21.6 % 22.1 % 28.7 % 117 190 307 68 107 175 148 148 72.1 % 77.6 % 75.4 % 27.7 % 18.2 % 8 941 1 252 2 10 195 6 749 990 52 7 791 11 349 1 410 297 13 056 32.5 % 26.5 % 96.2 % 30.9 % 40.5 % 29.8 % 82.5 % 40.3 % 2010 2009 2008 2010/2009 2009/2008
structure of 2010 revenues by gazprom neft group

Oil export to international markets Oil export to CIS countries Gas sales Oil product export to international markets Sales of oil products from NIS Oil product export to CIS countries Sales on the domestic market Other 33 % 4 % 8 % 2 % 22 % 27 % 1 % 3 %
2010, %
68
JsC GAZPROM NEFT
Sales volumes
Change, % 2010 crude oil, mn t Export and sales in international markets Export to CIs countries sales in the domestic market total crude oil sales gas sales in the domestic market, bn m3 oil products mn t Export sales sales in the international market Export and CIs sales sales in the domestic market total oil product sales* 15.94 3.02 0.01 18.97 4.88 12.31 2.61 1.74 20.54 37.20 2009 15.57 3.32 0.52 19.41 3.43 11.36 2.29 1.90 17.43 32.98 2008 16.30 3.30 0.90 20.50 3.70 11.40 1.79 15.64 28.83 2010/2009 2.4 % 9.0 % 98.1 % 2.3 % 42.3 % 8.4 % 14.0 % 8.4 % 17.8 % 12.8 % 2009/2008 4.5 % 0.6 % 42.2 % 5.3 % 7.3 % 0.4 % 6.1 % 11.4 % 14.4 %
* Here and hereinafter, the sales in Gazprom Neft Group are indicated (including NIs, sibir Energy and acquisition of oil products).
Average sales prices realised

In 2010, compared to 2009, the increase of revenues by 35.6 % was connected to the growth in oil prices and the increases in sales and production volumes.
Change, % (UsD/t) crude oil Export and sales in international markets Export to CIs countries oil products Export sales sales in the international market Export to CIs countries sales in the domestic market 577.99 992.34 659.20 520.45 453.26 914.85 477.37 432.07 735.2 719.6 660.6 27.5 % 8,5 % 38.1 % 20.5 % 38.3 % 33.7 % 34.6 % 560.92 414.57 433.46 298.19 696.3 427.3 29.4 % 39.0 % 37.7 % 30.2 % 2010 2009 2008 2010/2009 2009/2008
Crude oil export sales

In 2010, compared to 2009, the 32.5 % increase in export revenues was connected to a 29.4 % growth in oil prices and the 2.4 % increase in sales volumes. In 2009, compared to 2008, the 40.5 % decrease in export revenues was connected to a drop in oil prices by 37.7 % along with the 4.5 % decrease in sales volumes.
Oil export to CIS countries

In 2010, compared to 2009, the 26.5 % increase of oil export to CIs countries was mainly connected to the 30.9 % increase in oil prices. In 2009, compared to 2008, the 29.8 % decrease in revenues of exports to the CIs was mainly connected to the 30.2 % decrease in oil prices. This was compensated partly by the 0.6 % growth in sales volumes.
Annual report 2010
69
Oil products export sales

In 2010, compared to 2009, the 38.2 % increase in export of oil products was mainly connected to the 8.4 % increase in sales volumes, and the 27.5 % price rise. The increase was conditioned by a 13.3 % growth in refining. In 2009, compared to 2008, the 38.6 % decrease in export revenues of oil products was connected to the 38.3 % drop in oil prices, and 0.4 % decrease in sales volumes.
2010 mn UsD High-octane petrol Low-octane petrol Naphtha Diesel fuel Black oil Kerosene Others total 65 14 1 131 3 179 2 205 181 340 7 115 mn t 0.09 0.02 1.64 4.73 5.08 0.25 0.50 12.31 mn UsD 224 20 873 2 477 1 249 13 293 5 149
2009 mn t 0.45 0.04 1.70 4.93 3.61 0.02 0.61 11.36
Change, % mn UsD 71.0 % 30.0 % 29.6 % 28.3 % 76.5 % 16.0 % 38.2 % mn t 80.0 % 50.0 % 3.5 % 4.1 % 40.7 % 8.0 % 8.4 %
Oil product sales on the international market

In 2010, compared to 2009, the total 23.6 % growth of revenues of sales of oil products on the international market was connected to the 14.0 % growth of sales volume and price rises of 8.5 %.
Oil product sales in CIS countries

2010 mn UsD High-octane petrol Low-octane petrol Naphtha Diesel fuel Black oil Kerosene Others total 488 79 15 264 1 114 186 1 147 mn t 0.62 0.12 0.03 0.42 0.22 0.33 1.74 mn UsD 366 61 86 109 5 166 114 907 2009 mn t 0.60 0.12 0.23 0.22 0.02 0.44 0.27 1.90 Change, % mn UsD 33.3 % 29.5 % 82.6 % 142.2 % 80.0 % 31.3 % 63.2 % 26.5 % mn t 3.3 % 0.0 % 87.0 % 90.9 % 100.0 % 50.0 % 22.2 % 8.4 %
In 2010, compared to 2009, the total 26.5 % growth of revenues of oil product sales in CIs countries was connected to price rises of 38.1 %. However, this growth was partly offset by an 8.4 % sales volume decrease.
In 2009, compared to 2008, the total 29.6 % decrease in export revenues of oil products to CIs countries was connected to the 33.7 % drop in price. This partly compensated for by a 6.1 % increase in sales volumes.
70
JsC GAZPROM NEFT
Oil product sales on the domestic market

In 2010, compared to 2009, the total 41.9 % growth of revenues of sales of oil products on the domestic market was connected to the 17.8 % growth of sales volume and price rises of 20.5 %. In 2009, compared to 2008, the total 27.1 % decrease in export revenues of oil products on the domestic market was connected to the drop in prices by 34.6 %. This was partly compensated for by an 11.4 % increase in sales volumes..
2010 mn UsD High-octane petrol Low-octane petrol Diesel fuel Black oil Kerosene Others total 4 006 513 3 117 1 081 1 033 940 10 690 mn t 5.44 0.87 6.06 3.49 2.10 2.58 20.54 mn UsD 2 772 449 2 050 750 774 736 7 531
2009 mn t 4.51 0.84 4.73 3.26 1.88 2.21 17.43
Change, % mn UsD 44.5 % 14.3 % 52.0 % 44.1 % 33.5 % 27.7 % 41.9 % mn t 20.6 % 3.6 % 28.1 % 7.1 % 11.7 % 16.7 % 17.8 %
Other sales
Other revenues primarily comprise sales of services such as processing services, transportation, construction, utilities and others. In 2010, compared to 2009, the total 40.5 % growth of other sales was driven by price rises and an increase in sales volumes. In 2009, compared to 2008, the total 22.1 % decrease of other sales was driven by a decrease in price and sales volumes.
In 2009, compared to 2008, the cost price of acquired oil, gas and oil products decreased by 33.5 %. This was connected to a price drop for crude oil and oil products. It was compensated for by an increase in volumes due to the companys acquisitions.
expenses: production and refining

In 2010, production expenses increased insignificantly due to the strengthening of the ruble against the dollar by 4.4 % and a 4.7 % increase in hydrocarbon production volumes. The companys production expenses decreased from 5.13 to 4.98 UsD per BOE or by 2.9 %. The 31.4 % growth of refining expenses was driven by routine maintenance in the middle of 2010 at Omsk and Moscow refineries, and the growth of refining volumes at all refineries. In 2010, compared to 2009, the companys refining expenses per 1 barrel of oil increased from 2.71 to 3.15 UsD, or by 16.3 %.
Costs and other deductions

cost price of acquired crude oil, gas and oil roducts
In 2010, compared to 2009, the cost price of acquired crude oil, gas and oil products increased by 39.8 %. This was connected to the price rises for crude oil and oil products, and the corresponding increase in volumes.
Annual report 2010
71
production and refining expenses

Change, % (mn UsD) Hydrocarbon production expenses Refining expenses at own refineries and refineries of affiliates, including share in equity investees operating expenses in total 2010 1 236 875 2 111 2009 1 217 666 1 883 2008 1 371 644 2 015 2010/2009 1.6 % 31.4 % 12.1 % 2009/2008 11.2 % 3.4 % 6.6 %
selling, general and administrative expenses

Commercial, general and administrative expenses include general business expenses, wages, salaries and social benefits (except for wages and salaries at the production and refining subsidiaries), insurance, banking commissions, legal fees, consulting and audit services, charity, allowances for doubtful accounts and other expenses. In 2010, commercial, general and administrative expenses increased by 28.8 % due to the strengthening of the ruble against the dollar, and the growth of sales volumes and inflation. In 2009, compared to 2008, commercial, general and administrative expenses increased by 22.4 % and totalled 1,280 mn UsD. The increase is connected to the company's expansion of activities and recent acquisitions.
depreciation, depletion and amortisation

Depreciation, depletion and amortisation expenses include depletion of oil and gas-producing assets and amortisation of other fixed assets. In 2010, compared to 2009, depreciation, depletion and amortisation expenses increased by 9.8 %. The growth was driven by the increase in the value of amortised assets due to implementing the companys capital-expenditure programme. In 2010, compared to 2009, depreciation, depletion and amortisation expenses increased by 12.7 %. The growth was driven by the increase in the value of amortised assets. This was due to implementing the companys capital expenditure programme and recent acquisitions.
export customs duties

In 2010, compared to 2009, the amount of paid export duties increased due to the growth in exporting crude oil and oil products, and the crude oil price rise. This resulted in export duties growing by 68 %. In 2009, compared to 2008, the amount of export duties decreased due to the price drop for crude oil and changes in the duty calculation formula. In 2010, mineral extraction tax increased due to the rise in crude oil prices used in tax calculation and the growth of production volume by 2.3 %. In 2009, mineral extraction tax decreased due to the price drop for crude oil and adjustment of the formula for tax calculation.
transportation expenses
Transportation expenses include costs to transport crude oil to refineries and oil products to end customers. These costs comprise pipeline transportation, sea freight, railway, shipping, handling and other transportation costs. In 2010, the increase of transportation expenses occurred due to the growth of transportation tariffs, the strengthening of the ruble against the dollar, and the companys acquisitions. In 2009, as compared to 2008, the increase of transportation expenses reflects the growth of transportation tariffs within Russia, and the growth of corresponding transportation volumes due to NIs and sibir Energy acquisitions.
72
JsC GAZPROM NEFT
export customs duties

Change, % (mn UsD) Export customs duties for crude oil Export customs duties for oil products total 2010 4 631 2 000 6 631 2009 2 790 1 158 3 948 2008 5 316 2 012 7 328 2010/2009 66.0 % 72.7 % 68.0 % 2009/2008 47.5 % 42.4 % 46.1 %
In 2010, excise grew due to an increase in refining volumes at the companys refineries and 10 % growth of rates of excise.
In 2009, the growth of rates of excise was driven by the increase of refining volume at the companys refineries, and the influence of acquiring control at Moscow refinery.
taxes excluding profit tax

Change, % (mn UsD) Mineral-extraction taxes Excise Property tax Other taxes total 2010 3 051 1 743 177 269 5 240 2009 2 215 1 412 123 232 3 982 2008 4 202 828 107 216 5 353 2010/2009 37.7 % 23.4 % 43.9 % 15.9 % 31.6 % 2009/2008 47.3 % 70.5 % 15.0 % 7.4 % 25.6 %
Other spending
Change in revenues of participation interest in affiliates is mainly driven by the change in crude oil prices. Change in interest receivable is stipulated by the change in the amount of finance on bank deposits. The decrease of interest to be paid was driven by the decrease of the companys effective interest rate. In 2010, effective profit tax rate totalled 19.7 %, which corresponds to the current effective profit tax rate.
Liquidity and capital resources

cash flows
Change, % (mn UsD) Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities 2010 5 392 (4 852) (309) 2009 3 475 (4 880) 185 2008 5 483 (3 502) (566) 2010/2009 55.2 % 0.6 % 267.0 % 2009/2008 36.6 % 39.3 % 132.7 %
Annual report 2010
73
net cash from operating activities In 2010, net cash received from operation activities totalled 5,392 mn UsD, compared to 3,475 mn UsD in 2009 (growth of 55.2 %). The growth resulted from the operating income and optimising working capital control. In 2009, compared to 2008, net cash provided by operating activities decreased by 2,008 mn UsD, or by 36.6 %. The price drop for crude oil and oil products and increase in working capital volume drove the decrease. net cash used in investing activities In 2010, net cash used in investment activities decreased by 0.6 % to 4,852 mn UsD, compared to 4,880 mn UsD in 2009. The decrease was driven by the decrease in M&A activity (by 658 mn UsD less than in 2009), and was partly compensated for by a 26.6 % growth of capital expenditure.
In 2009, net cash used in investing activities grew by 39.3 % or by 1,378 mn UsD. Compared to 2008, the growth was driven by acquiring NIs and sibir Energy and was partly compensated for by a decrease in capital expenditure. net cash provided by (used in) financing activities In 2010, net cash used in financing activities totalled 309 mn UsD. In 2009, it totalled 185 mn UsD. Change was driven by a 703 mn UsD decrease of net cash inflow from loans. This was partly compensated for by a decrease in the dividend payout by 209 mn UsD. In 2009, net cash received from financing activities totalled 185 mn UsD. (566 mn UsD in 2008). Change was driven by the 851 mn UsD increase of net cash inflow from loans. This was partly compensated for by an increase in the dividend payout by 145 mn UsD.
Capital investments
Change, % (mn UsD) Exploration and production Oil refining Marketing and distribution NIs Others capital investments in total 2010 2 351 414 304 161 71 3 301 2009 2 000 306 180 67 54 2 607 2008 2 979 189 159 39 3 366 2010/2009 17.6 % 35.3 % 69.0 % 140.3 % 30.4 % 26.6 % 2009/2008 32.9 % 61.9 % 13.1 % 39.6 % 22.5 %
74
JsC GAZPROM NEFT
capital investments in 2008-2010, mn usd

3 500 3 000 2 607 2 500 2 000 1 500 1 000 500 0 Exploration and production Oil rening Marketing and distribution NIS Others 3 366
26,6 %
In 2010, capital expenditure increased by 26.6 %. The increase was driven by the following factors: z The 11.8 % increase in the number of new drilled wells and strengthening of the ruble against the dollar by 4.4 % resulted in the 17.6 % growth of capital expenditure in exploration and production. z The 35.3 % growth of capital expenditure in refining by was connected to implementing the modernisation programme at the companys refineries. z The 69 % growth of capital expenditure in the marketing and distribution sector was connected to implementing the rebranding programme for filling stations. In 2009, compared to 2008, the 22.5 % decrease in capital expenditure was driven by the following factors: z The weakening of the ruble against the dollar by 21.6 % and the decrease of contract price, which was partly compensated for by an increase in the volume of work, resulted in the 32.9 % decrease of capital expenditure in exploration and production. z The growth of capital expenditure in the refining segment by 61.9 % was connected to implementing the modernisation programme at the companys refineries.
3 301

2008 2009 2010
net debt and ebitda in 2008-2010, mn usd

6 000 0.91 5 442 0.76 5 490 1,00
5 000
0,80
4 000 0,60 3 000 0.19 1 618 0,40 Net debt Net debt / EBITDA
2 000
1 000
0,20
2008
2009
2010
z The 13.1 % growth of capital expenditure in the marketing and distribution sector was connected to implementing the rebranding programme for filling stations.
Debt obligations
(mn UsD) short-term loans Long-term loans Cash assets and its equivalents net debt Net debt / EBITDA short-term loans / Debt in total, %
2010 1 694 4 942 (1 146) 5 490 0.76 25.5 %
2009 2 148 4 162 (868) 5 442 0.91 34.0 %
2008 2 085 1 608 (2 075) 1 618 0.19 56.5 %
Annual report 2010
75
share of short-term loans in the companys total debt

60 % 50 % 40 % 30 % 20 % 10 % 0 34.0 % 25.5 % 56.5 %
Due to successfully refinancing short-term debt and the balanced policy of participation, the weighted average maturity for credit portfolio increased by 22.5 % in 2010, and the average weighted rate for loans decreased by 1.15 points to 3.96 %, compared to 2009. A major part of the companys debt is expressed or hedged in UsD. In 2009, the debt increase is mostly connected to acquiring NIs and sibir Energy.
2008
2009
2010
In 2010, the company confirmed long-term ratings assigned by standard & Poors 'BBB-' and Moodys Investors 'Baa3', forecast 'stable'. In accordance with the companys financial policy, the net debt/EBITDA ratio must not exceed 1.5 and the minimum amount of dividend payout must total 15 % of net income (Us GAAP).
A 55.2 % increase of net cash received from operating activities was invested in capital expenditure and M&A projects. The companys credit portfolio was diversified and included pre-export financing, syndicated and bilateral loans, ruble bonds and other financial instruments.
76
JsC GAZPROM NEFT
FINANCIAL APPENDICEs
EBITDA
Change, % mn UsD adjusted ebitda Company share in EBITDA of affiliated companies Income from investment Income from share in affiliated companies business Foreign exchange gain/loss, net Miscellaneous (expenses)/income, net Interest payable Interest receivable Wear, depletion and amortisation income before tax 2010 7 226 (949) 9 229 (22) (309) (336) 48 (1 619) 4 277 2009 5 977 (931) 470 212 48 (143) (369) 108 (1 475) 3 897 2008 8 610 (1 052) 407 (517) 89 (167) 100 (1 309) 6 161 2010/2009 20.9 % 1.9 % 98.1 % 8.0 % 145.8 % 116.1 % 8.9 % 55.6 % 9.8 % 9.7 % 2009/2008 30.6 % 11.5 % 47.9 % 109.3 % 260.7 % 121.0 % 8.0 % 12.7 % 36.7 %
Annual report 2010
77
FINANCIAL PERFORMANCE
Profitability
Change, p.p.
2010 Adjusted EBITDA profitability, % Net profit profitability, % Profitability on assets, % Profitability on equity, % Income on capital employed, % 22.05 % 10.48 % 11.08 % 17.40 % 15.93 % 2009 24.73 % 12.75 % 12.29 % 18.81 % 14.92 % 2008 25.42 % 13.87 % 25.51 % 38.29 % 36.20 % 2010/2009 2.7 % 2.3 % 1.2 % 1.4 % 1.0 % 2009/2008 0.7 % 1.1 % 13.2 % 19.5 % 21.3 %
Efficiency
Change, % 2010 Trade receivables turnover, days Inventory turnover, days 19 47 2009 20 47 2008 11 27 2010/2009 2009/2008 0.8 % 0.7 %
Liquidity
Change, % 2010 Current liquidity ratio Quick assets ratio Absolute liquidity ratio 1.46 0.81 0.28 2009 1.17 0.68 0.18 2008 1.42 1.02 0.56 2010/2009 0.2 % 0.2 % 0.6 % 2009/2008 0.2 % 0.3 % 0.7 %
Leverage
2010 Net debt/total assets, % Net debt/owners equity, % Leverage, % Net debt/market capitalisation Net debt/EBITDA Total debt/EBITDA 17.12 % 26.40 % 20.88 % 27.51 0.76 0.90 2009 18.19 % 29.17 % 22.58 % 21.21 0.59 0.84 2008 8.01 % 11.48 % 10.29 % 16.00 0.25 0.41 2010/2009 0.1 % 0.1 % 0.1 % 0.3 % 0.3 % 0.1 % 2009/2008 1.3 % 1.5 % 1.2 % Change, % 0.3 % 1.4 % 1.0 %
Change, p.p.
78
JsC GAZPROM NEFT
ADDITIONAL INFORMATION
Main macroeconomic factors affecting results of operations
The main factors affecting the companys results of operations include: z changes in market prices of crude oil and petroleum products z Russian Ruble (RUB) exchange rate versus the Us Dollar ('UsD') and inflation z taxation z changes in transportation tariffs of crude oil and petroleum products.
Changes in market prices of crude oil and petroleum products

The prices for crude oil and petroleum products in the international and Russian markets are the primary factors affecting the companys results of operations. In 2010, the average Brent oil price increased by 28.9 % to UsD 79.50 per barrel, compared to 2009. Company management expects stable oil prices in 2011. Petroleum product prices on international and Russian markets are mainly defined by the level of international oil prices, demand and supply of oil products, and competition level at various markets. Price dynamics is different for various types of petroleum products.
Change, % 2010 international market Brent Urals spot (average Med + NWE) Premium petrol (average NWE) Naphtha (average Med + NWE) Diesel fuel (average NEW) Gas oil 0.2 % (average Med + NWE) Fuel oil 3.5 % (average NWE) domestic market High-octane petrol Low-octane petrol Fuel oil Black oil 715.05 569.15 507.28 250.73 600.06 494.07 419.88 204.38 79.50 78.28 735.26 704.68 689.65 672.65 436.17 61.67 61.22 578.99 527.28 536.98 512.67 341.66 2009 2008 97.26 94.79 (usd per tonne) 841.55 779.84 948.49 903.81 452.55 (usd per tonne) 1 023.15 803.38 880.67 329.05 19.2 % 15.2 % 20.8 % 22.7 % 41.4 % 38.5 % 52.3 % 37.9 % 27.0 % 33.6 % 28.4 % 31.2 % 27.7 % 31.2 % 32.4 % 43.4 % 43.3 % 24.5 % 2010/2009 28.9 % 27.9 % 2009/2008 36.6 % 35.4 %
(usd per barrel)
source: platts (international market), Kortes (domestic market)
Annual report 2010
79
brent oil price, usd/barrel

100 97.26 80 60 40 20 0
28.9%
rate of exchange, rub/usd

35 30 25 20 15 10 5 29.4 31.7
4.1%
30.4
79.50 61.67
2008
2009
2010
2008
2009
2010
Russian ruble versus US dollar exchange rate and inflation

Company management established that the Us dollar is the functional currency and the company reporting currency, as a major portion of income, financial and trade liabilities have been estimated, charged and are subject to payment
or otherwise expressed in Us dollars. Therefore, the strengthening (weakening) of the exchange rate of the ruble affects company performance. To mitigate the effects of the fluctuation in the ruble Us dollar exchange rate, the company uses derivative instruments as shown in 2010 Consolidated Financial statements.
2010 Consumer Price Index, % Producer Price Index, % Ruble/Us dollar exchange rate as of the end of the period Average ruble/Us dollar exchange rate for the period Real appreciation (depreciation) of the ruble against the Us dollar, % Nominal period average appreciation (depreciation) of the ruble against the Us dollar, % 8.8 % 16.7 % 30.48 30.37 7.9 % 4.4 %
2009 8.8 % 13.9 % 30.24 31.72 5.7 % 21.6 %
2008 13.3 % 7.0 % 29.38 24.86 5.3 % 2.9 %
consumer price index, %

15 % 13.3 % 10 % 8.8 % 5% 8.8 %
novorossiysk netback, rub/t

7 500
7 000
5.3 %
6 969 6 740 6 500 6 597
2008
2009
2010
6 000
2008
2009
2010
80
JsC GAZPROM NEFT
Taxation
Change, % 2010 export customs duty Crude oil Light and medium distillates Fuel oil excise taxes straight-run petrol High-octane petrol Low-octane petrol Diesel fuel Oils mineral extraction tax Oil, RUB per tonne Oil, UsD per barrel Natural gas, RUB per 1 000, m 3 074 13.81 147 2 299 9.89 147 3 329 18.27 147 33.7 % 39.6 % 30.9 % 45.9 % 4 290 3 992 2 923 1 188 3 246 3 900 3 629 2 657 1 080 2 951 273.61 196.66 105.94 179.93 133.54 71.92 2009 2008 355.08 251.53 135.51 (rub per tonne) 3 900 3 629 2 657 1 080 2 951 10.0 % 10.0 % 10.0 % 10.0 % 10.0 % 2010/2009 52.1 % 47.3 % 47.3 % 2009/2008 49.3 % 46.9 % 46.9 %
(usd per tonne)
crude oil export customs duty rate. Export customs duty rate per tonne of crude oil is established on a monthly basis by the Government of the Russian Federation. The actual rate is based on the average Urals price in the period from the 15th calendar day in the month to the 14th
calendar day of the following month (monitoring period). The rate is effective on the first day of the coming month after the monitoring period. The Government sets export custom duty rates according to the following formulae:
Urals Price Quotation (P), UsD per tonne 0 109.50 109.50 146.00 146.00 182.50 >182.50
Maximum export customs duty rate 0% 35.0 % (P 109.50) Us Dollar 12.78 + 45.0 % (P 146.00) Us Dollar 29.20 + 65.0 % (P 182.50)
Oil exported to CIs countries. The members of the Custom Union (Kazakhstan, Tajikistan, Kyrgyzstan) - are not subject to oil customs duty. Until 2010, oil export to Belarus was subject to decreased export customs duty, which was defined based on special factor. The following factors were established in 2007-2009: 2007 0.293, 2008 0.335, 2009 0.356.
since January 2010, the reduction factor for customs duty on oil export to Belarus has been cancelled. According to provisions of the interGovernment agreement 'On Regulation of Trade and Economic Cooperation for Oil and Petroleum Products Export' as of 12 January 2007, oil exported from Russia to Belarus required for national consumption was not subject to export duty.
Annual report 2010
81
In January 2011, an inter-Governmental agreement was reached between Russia and Belarus according to which oil exported to Belarus is not subject to customs duty, starting from 1 January 2011. export customs duty rate on petroleum products. The Government determines the export customs duty rate on oil products, based on the prices for crude on international markets, which is set separately for light and middle distillates and for fuel oil. Oil products exported to CIs countries - the members of the Custom Union (Kazakhstan, Tajikistan, Kyrgyzstan) - are not subject to oil customs duty. Export customs duty rate for light and medium distillates is calculated according to the formula:
where the price is the average monthly Urals price at Rotterdam and Mediterranean exchange (dollar/barrel). Export customs duty rate for dark oil products is calculated according to the formula: 0.236 (price 7.3 109.5). According to the Resolution of the Russian Government No.1155 as of 27 December 2010, export customs duty rates on petroleum products were changed. since 1 February 2011, export customs duty rates on petroleum products are calculated according to this formula: r=roil, where Roil = export customs duty rate per tonne of oil, K = design factor with respect to certain category of petroleum products defined in the following table:
0.438 (price 7.3 109.5),
2011 Light and medium distillates Fuel oil 0.67 0.47
2012 0.64 0.53
2013 0.60 0.60
excise tax rate on petroleum products. The tax agent to pay petroleum products excise tax in the Russian Federation is petroleum product producers (except for straight-run petrol producers). In other countries where the company operates, producers or sales companies pay the excises, depending on local legislation.
In accordance with Federal Law No.306 as of 27 November 2010, the following petroleum products excise rates are established from 1 January, 2011 (RUB/t):
2011 Petrol: Euro-3 Euro-4, -5 Naphtha Other Fuel oil: Euro-3 Euro-4, -5 Other Motor oil 2 485 2 247 2 753 4 681 5 672 5 143 6 089 5 995
2012 7 382 6 822 7 824 7 725 3 814 3 562 4 098 6 072
2013 9 151 8 560 9 617 9 511 5 199 4 934 5 500 7 509
82
JsC GAZPROM NEFT
mineral extraction tax (met) rate on oil. starting from 1 January 2007, mineral extraction tax rate on crude oil (R) is calculated using the following general formula: r = 419 ( 9) d / 261, where P is the average monthly Urals oil price on the Rotterdam and Mediterranean markets (UsD/ bbl) and D is the actual RUB/UsD average exchange rate. Effective from 1 January 2009, the formula was amended to incorporate a higher threshold oil price: r = 419 ( 15) d/ 261. Depleted oil assets are subject to lower MET. Depleted oil assets are those that have a depletion rate exceeding 80%. Depletion rate is calculated by dividing the accumulated production volume from the oil field (N) by the fields total reserves (V, where V is ABC1 + C2 reserves volume as per Russian classification). should the fields depletion
rate exceed 80 % general, the MET formula is multiplied by coefficient C, which is calculated as follows: = 3,5 n / v + 3,8. Thus every marginal percent of depletion exceeding 80 % reduces the MET payable by 3.5 %. natural gas mineral extraction tax rate. The rate of mineral extraction tax for natural gas has remained stable since 1 January 2006, and equals 147.00 RUB per thousand cubic meters of natural gas. Associated gas is not subject to mineral extraction tax. The Company started to produce natural gas in Q4 2010. Gas production volume in 2011 is estimated at 4 bn m3. In accordance with Federal Law No.307 as of 27 November 2010, the following mineral extraction tax rates were established for oil and natural gas:
2011 Oil, RUB/t Natural gas, RUB/1 000 m 419 237
2012 446 251
2013 470 265
Transporting crude oil and petroleum products

The state authorities define the transportation tariff policies to ensure the balance of interests of the state and all participants in the transportation process. The Federal Tariffs service of the Russian
Federation ('FTs') set transportation tariffs of natural monopolies. The tariffs depend on transport destination, delivery volume, distance of transportation, and several other factors. The FTs are to revise the tariffs at least annually, comprising a dispatch tariff, loading, transhipment, pumping and other tariffs.
Annual report 2010
83
tariff rates applicable at companys main transportation routes:
Change, % 2010 oil Export Pipeline CIs Pipeline Transportation to refineries Omsk refinery Moscow refinery yaroslavl refinery petroleum products Export Transportation from Omsk refinery Petrol Fuel oil Diesel fuel Transportation from Moscow refinery Petrol Fuel oil Diesel fuel Transportation from yANOs Petrol Fuel oil Diesel fuel 1 729.82 1 266.42 911.74 1 574.17 1 130.93 1 005.33 1 258.19 1 022.82 820.96 9.9 % 12.0 % 9.3 % 25.1 % 10.6 % 22.5 % 1 602.30 1 686.39 1 343.00 1 263.82 1 075.39 1 347.11 1 107.70 994.40 1 124.56 26.8 % 56.8 % 0.3 % 14.1 % 8.1 % 19.8 % 1 965.91 3 037.08 2 527.73 1 718.86 2 717.20 2 056.74 1 680.04 1 941.52 14.4 % 11.8 % 22.9 % 2.3 % 5.9 % 414.14 832.79 860.18 351.51 629.22 705.57 282.39 504.05 574.97 17.8 % 32.4 % 21.9 % 24.5 % 24.8 % 22.7 % 973.36 749.33 629.79 29.9 % 19.0 % 273.61 1 245.61 179.93 937.19 2009 2008 (rub/t) 355.08 753.17 52.1 % 32.9 % 49.3 % 24.4 % 2010/2009 2009/2008
In 2010, the company supplied 48.0 % of overall export oil volume (45.2 % in 2009) via the Primorsk port on the Baltic sea; 24.9 % of oil was exported via Druzhba pipeline (20.4 % in 2009), mainly to Germany, the Czech Republic and Gdansk port (Poland); 3.7 % of oil was transported via Novorossiysk port (18.8 % in 2009) and 9.7 %
via Tuapse sea port (7.8 % in 2009); 13.7 % of oil was transported via the recently commissioned East siberia Pacific Ocean transit pipeline via Kozmino terminal. In 2009, the remaining portion of oil was transported to China via pipeline across Kazakhstan territory (5.1 %) and via yuzhny port on the Black sea (2.7 %).
84
INVEsTMENT PROGRAMME
JsC GAZPROM NEFT
JsC Gazprom Nefts investment activity aims to maximise the company's value, improve business efficiency and achieve its strategic goals.
Implementing the investment programme in 2010 and further in 2011-2012 will solve the following key tasks: z Increasing production at JsC Gazprom Neft assets by 5.3 % (in tonnes of oil equivalent) in 2010 compared to 2009, and by 7.6 % in 2011. z star ting geological exploration and development of new fields Ravninnoye, NorthRomanovsky, Vorgenskoye and Messoyakha group of fields, Novoportov field; implementing international projects Venezuela, Iraq, Cuba and Equatorial Guinea to reach production of 100 mn t of oil equivalent by 2020. z Reconstructing refineries to meet technical regulation requirements: transition to Euro-4 from 2012 and to Euro-5 from 2015, as well as maximizing production of high-octane petrol. z Reconstructing NIs refinery in accordance with acquisition bargain provisions: implementing environmental projects, reaching Euro-5 quality for produced motor fuel. z Optimising sales network, including sibir Energy and NIs, and bringing filling stations to corporate standard and closing unprofitable stations. Far-reaching business development plans in all business directions require significant investment. The total amount of funds invested by 2020, both to support current activities and for development, including assets purchased on the market, will total up to 80 bn UsD. Total investment volume in 2010 was 4.9 bn UsD. JsC Gazprom Neft capital investment into organic growth and maintaining conventional assets in 2010 totalled 3.3 bn UsD. This is 25 % more than the capital investment in 2009: z Capital investment into oil production increased by 17.6 % and was 2.4 bn UsD. The company increased commissioning of new wells by 12 % compared to 2009, and implemented a project of bringing Cenomanian deposits of Muravlenko and Novogodny fields.
The main principles of JsC Gazprom Nefts investment activity are: z conforming investment plans to approved company strategy z implementing the most effective projects and building optimum investment portfolio z collegial decision-making and delegating investment decision-making according to an accountability matrix z minimising risks of project implementation z differential approach to decision-making for projects and monitoring implementation depending on project type and complexity z mandatory regular monitoring of project implementation. Implementing investment plan conformance to approved company strategy is achieved through a process of building a three-year Medium Term Investment Programme (MTIP). MTIP focuses on achieving distinct and detailed medium-term goals as a stage for implementing long-term company goals. MTIP comprises investment projects for which the scope of required financing, economic and operational objectives has been predefined and balanced with company investment opportunities. capital expenditure by business segment, mn usd
4 000 3 301 3 000 2 607 Exploration and production 2 000 Rening Marketing and sales NIS Other 1 000 3 836
2009
2010
2011 (plan)
Annual report 2010
85
z 414 mn UsD was invested into oil refining, which is 35.3 % more than the amount allocated for developing this business in 2009. Investment growth is explained by the transition of the Motor Fuel Quality Programme into the active phase of constructing new plants and reconstructing existing ones. At Omsk refinery in 2010, the company completed constructing and commissioning a 500,000 t isomerisation plant. This will enable an increase of high-octane petrol production conforming to environmental class 5 quality in 2011. Construction of a petrol and diesel fuel hydrofinishing complex began. At Moscow refinery, construction of light naphtha isomerisation facility started as the first project of the Plant Reconstruction and Modification Programme. z For the oil products sales programme, the company invested 69 % more, compared to the previous year. 304 mn UsD Investment growth is due to new projects aimed at starting fuel retail in Kazakhstan, acquiring filling station chains and land for filling stations construction; and purchasing Lentransgaz assets. z The volume of investment into NIs increased by 140 % compared to 2009 and was 161 mn UsD. This considerable growth is due to starting a large oil refinery project implementation at the refinery in Panevo: constructing a MHC/DHT light hydrocracking unit. z Other investment totalled 71 mn UsD. In 2010, the company implemented a range of large projects to purchase companies shares/stocks. The most important of these were acquiring the share in charter capital of LLC severEnergiya (25.5 %), consolidating sibir Energy stocks increasing company share to 77.35 % and purchasing
45.3 % of JsC Gazprom Neft-Novosibirsk stocks (that will allow the company to increase its share to 100 %, with respect to purchasing stocks from minority shareholders). The company invested 1.5 bn UsD in 2010 to implement these projects. Total investment into non-organic growth was 1.6 bn UsD. In 2011, the company plans to increase investment into 'organic growth' by up to 3.8 bn UsD. This growth is due to increasing investment into oil refining by 67 %. This is conditioned by continuing implementation of the large-scale motor fuel quality improvement programme: constructing two large petrol and diesel fuel hydrofinishing plants at Omsk refinery, and an isomerisation plant at Moscow refinery. The company plans to increase investment in oil products sales by 57 %. This is in connection with the sibir Energy sales network optimisation programme, which includes bringing the external appearance of filling stations to company standards, closing unprofitable stations, and starting the active phase of logistics and bulk plants optimisation. The volume of investment into NIs will grow by 244 % and total 555 mn UsD. This is explained by the transition of the MHC/DHT light hydrocracking unit construction to the active phase. For exploration and production projects, the company plans to decrease investment by 13 %. This is due to toughening investment project efficiency requirements and minimisation of specific investment per tonne of production. Also of note in 2011 is the company's plan to invest in purchasing stocks of a range of assets, among which is purchasing 22.39 % of sibir Energy stocks from Central Fuel Company. This will allow consolidation of 100 % of stocks of this company and the purchase of Gazprom Neft Orenburg stocks. In total, the company plans to invest 1.6 bn UsD into non-organic growth.
86
MAJOR RIsK FACTORs
JsC GAZPROM NEFT
Company Risk Management Policy

In 2008, JsC Gazprom Neft developed a Risk Management Policy. This set out the riskmanagement principles and objectives for enhancing the efficiency of the companys operations in the short and long-term. The company's key risk-management objective is assuring the continuous production process and business stability against threats, preventing and limiting the impact of external and internal negative factors on company operations. Risk management is an integral part of the JsC Gazprom environment, including: z introducing a risk-oriented approach into all aspects of production and management activities z systematic analysis of identified risks z building a risks-control system and monitoring risk management efficiency z understanding basic principles and approaches to risk management adopted in the company by all company employees z ensuring necessary normative and procedural support z distributing risk-management authorities and accountability among company divisions. The company's risk-management objective is to ensure additional guarantees for the company to achieve strategic goals by preventing and indentifying risks earlier, and to ensure maximum efficiency of management activities.
Industry risks
JsC Gazprom Neft's main areas of operations are producing oil and gas, oil refining, and selling oil and petroleum products. This is why the company is exposed to risks typical for the oil and gas industry. The company is particularly exposed to risks caused by: z a potential change in purchased raw materials and service prices z potential changes in oil and petroleum products prices z industry competition z exploration.
risks associated with potential changes in purchased raw materials and service prices
In the course of its business, JsC Gazprom Neft uses the infrastructure of monopoly providers of oil, petroleum product transportation and energy supply services. The company has no control over the infrastructure of such monopoly providers and the amount of rates they charged. It is important to note that although the controlling bodies of the Russian Federation regulate the amount, the rates grow annually. This leads to an increase in expenses for the company. To reduce exposure to these risks, the company: z performs long-term planning of commodity flows, reserves oil and petroleum product throughput volumes, and required rolling stock z conducts optimal redistribution of commodity flows by transport type z takes measures to use alternative and own power generation sources. These measures allow the company to reduce the risks associated with using services and goods acquired from monopoly providers to an acceptable level, and to ensure the company's continuing operation.
Annual report 2010
87
risks associated with potential changes in oil and petroleum products prices
The financial performance indicators of the company relate directly to the level of oil and petroleum product prices. The company cannot control prices for its products, which depend on global and domestic changes to the supply and demand balance, the volume of consumption of these markets, and the actions of regulatory authorities. To reduce adverse exposure to the above risks, the company has: z developed comprehensive measures for reducing the cost of mineral production z introduced a flexible commodity-flow distribution system. This allows the company to redistribute commodity flows in a prompt and timely manner, should a gap in oil and petroleum product prices between foreign and domestic markets occur. z a business-planning system based on a scenario approach to identifying the company's key performance indicators, depending on the level of world oil prices. This approach enables the company to, among other activities, reduce costs, by scaling back or postponing its investment programmes. These measures allow the company to reduce risks to an acceptable level and perform the obligations assumed.
z acquiring other companies that hold subsoil licenses for hydrocarbon production or existing assets associated with hydrocarbon production z implementing foreign projects z engaging leading independent service companies z purchasing high-tech equipment z purchasing existing retail network enterprises and land plots for constructing new ones z expanding sales markets and volumes. Implementing a portfolio of strategic projects aimed at developing JsC Gazprom Neft across key operations areas enables the company to strengthen its competitive positions in the oil and gas industry step by step, and reduce industry competition risks.
exploration risks
The company's key strategic goal is to increase the quantity and quality of its hydrocarbon resource base to ensure an adequate production level. This, in turn, depends largely on the success of exploration activities. The major exploration risk is failing to confirm the estimated hydrocarbon reserves. An important factor is exploring in different geographical regions, including areas with adverse climates, which often incurs the risk of cost growth. At the same time, JsC Gazprom Neft has extensive experience in conducting exploration work, using advanced hydrocarbon prospecting and exploration methods, and advanced drilling and field infrastructure development technologies. This reduces the probability of such risks.
industry competition risks

The oil-and-gas industry is known for tough competition between the leading Russian oil and gas companies in the main areas of production and economic operations. These include: z obtaining subsoil licenses for hydrocarbon production at the biddings organised by Russian government authorities
88
JsC GAZPROM NEFT
Country and regional risks

political risks
As of now, the political situation in Russia is stable. This is characterised by the sustainability of the federal and regional branches of power. JsC Gazprom Neft is registered as a taxpayer in st. Petersburg; the second-biggest city of the Russian Federation and the administrative centre of the North-Western Federal District. st. Petersburg has considerable nature and resource potential, highlydeveloped industry and an extensive transport network. JsC Gazprom Neft is represented by subsidiaries in the siberian and Central Federal Districts. On the whole, the company assesses the political situation in Russia as stable and believes that, currently, there are no signs of probable adverse risks.
Financial risks
Company employees perform financial risk management at the company in accordance with their professional fields of activity. The Financial Risk Management Committee outlines a uniform approach to managing financial risk at the company and its subsidiaries. The work performed by company employees and the Financial Risk Management Committee is instrumental in reducing potential financial damage to the company and meeting its objectives.
credit risks
The management of the company pays increasing attention to credit risk management. The company has implemented a range of measures providing for effective monitoring and management this risk. These include evaluating partners creditworthiness, setting individual limitations depending on the financial state of the partner, controlling advance payments, dealing with debts receivable by line of business, and other measures. These actions assure the management of the company that, currently, there are no significant risks of damage exceeding the amount of accumulated reserves. The company places funds on deposit with a number of Russian banks. The company uses a policy to regularly evaluate the creditworthiness of the banks holding its deposits and to rank these banks by reliability.
foreign asset risks

Expanding into new regions creates the possibility of gaining a commercial advantage and a risk of misjudging the political and economic situation in countries where the company holds assets. This may result in the loss of assets and failing to meet the target efficiency indicators. The company has implemented a number of foreign projects aimed at expanding production operations geographically. Presently, JsC Gazprom Neft views the level of its foreign asset risks as acceptable. However, the company cannot rule out negative changes, as such risks are beyond its control.
borrowing risk
The company effectively manages the risk associated with borrowing. In addition to bank credit, the company actively employs alternative sources of borrowing. Furthermore, the company's stable financial state, as confirmed by international rating agencies, enables it to freely attract necessary credit resources from Russian and foreign banks.
Annual report 2010
89
currency risk
The major part of JsC Gazprom Nefts gross revenues comprises export operations for sales of oil and petroleum products. Therefore, fluctuations in currency rates against the ruble affect the results of the companys financial and economic operations. The company's currency risk is significantly lower due to expenses denominated in foreign currencies. The company takes a considerable share of the loans in Us dollars from the international credit market. Current obligations of these loans are also denominated in dollars. The currency structure of revenues and obligations function as a hedging mechanism, where differently directed factors compensate each other. Balanced arrangement of foreign currency claims and obligations minimise currency risk exposure on the results of the companys financial and economic operations. With a share of these claims and obligations unbalanced, the company hedges these risks. Additionally, in each specific situation, the company draws upon internal instruments and reserves. This allows it to manage the currency risk effectively and guarantee the company's performance of obligations.
Legal risks
JsC Gazprom Neft operates in strict compliance with the civil, tax, customs and currency legislation. The company cannot guarantee there will be no adverse changes in Russian legislation in the long-term, as most risk factors are beyond the companys control. The company reduces adverse exposure to this category of risks by monitoring and responding in a timely way to changes to different sections of legislation. It also reduces these risks by actively interacting with legislative and executive authorities, and public organisations over interpreting and improving legislation.
risks associated with tax legislation changes

JsC Gazprom Neft is one of the top taxpayers in the Russian Federation. The company bears the burden of paying federal, regional and local taxes, particularly mineral extraction tax, value-added tax, income tax, unified social tax, property tax and land tax. The process of Russian tax law amendment can be considered as almost complete. The legislation has been codified. The general part of the Tax Code, applicable as of 1999, formalised basic taxation principles and introduction of new taxes. Applying those principles and applicability to protect property interests of tax-payers is now implemented in law practice. A specific part of the Tax Code establishes taxes that form the tax burden of the emitter and defines taxation elements. In the last 10 years, the VAT rate has been reduced by 2 % and income tax by 15 %. The regressive scale of unified social tax rates has been set, and sales tax and other mandatory taxes were cancelled. The results of the tax reform can be assessed positively. The taxation system has been structured, taxation mechanisms and procedures are now simplified, and tax rates have been cut. Regarding the experience of reviewing cases in the constitutional court of the Russian Federation, the statements of the basic law affect the taxation laws of economic entities and protect tax-payers from ill-founded and sudden increases of tax burden.
interest rate risk

As a major borrower, the company is exposed to interest rate risks. The main source of borrowing is the international financial market. The debt portfolio mainly comprises credits and loans denominated in Us dollars. The interest rate for a small portion of these loans (the share is not fixed and may vary) is based on interbank LIBOR rates, which, if raised, may result in higher debt-servicing costs for the company. An increase in the company's loan costs may adversely affect the creditworthiness and liquidity indicators. However, the LIBOR rate is currently at a relatively low historical level and has a medium-term tendency for stabilising. This, along with a relatively small share of LIBOR-based loans, gives the company a low exposure to interest rate risk.
90
JsC GAZPROM NEFT
The aforementioned factors enable us to conclude that Russias tax system is becoming more stable, and the operations of economic entities in the Russian Federation are becoming more predictable. In the course of its business, the company performs online monitoring of tax-legislation changes and changes in applying current provisions. The company also acts as an expert in the law-making process by assessing and developing draft laws, including tax laws.
JsC Gazprom Neft analyses and evaluates the legislative initiatives of the interested ministries and departments concerning subsoil legislation and licensing specific operations. The proposed and discussed amendments to the current legislation will have an overall positive effect on the regime of subsoil use and on the performance of licensable operations in the Russian Federation. JsC Gazprom Neft does not appear to be directly exposed to any legal risks associated with losing the right to use subsoil plots or violating the current legislation, resulting from the above changes.
risks associated with changes in customs regulations and duties

JsC Gazprom Neft participates in foreign economic relations. Therefore, it is exposed to risks associated with changes in the legislation governing foreign economic activities. It is also exposed to risks regarding customs legislation governing relations with respect to establishing the procedure of transferring goods through the customs border of the Russian Federation, imposing and applying customs regimes, and imposing, introducing and collecting customs payments. One can single out as a risk the possibility that the Government of the Russian Federation will change customs duty rates (both export and import) for specific goods, in respect of which JsC Gazprom Neft signs foreign trade deals. The major adverse consequence of this risk, if realised, will be higher costs and lower export efficiency. The company complies with the customs control requirements, executes all documents necessary for performing export and import operations in a timely way, and has sufficient financial and personnel resources to observe the customs rules and regulations.
risks from changes in court practices with issues related to companys activity
JsC Gazprom Neft performs monitoring, on a regular basis, of decisions by supreme courts and assessment of law enforcement trends as shown by local arbitration courts. The Company uses its findings not just to protect its legal rights and interests in court, but also to settle any legal issues arising from Companys ongoing activity. Risks from changes in court practices can therefore be considered as minor risks.
Environmental risks
JsC Gazprom Nefts operations involve a potential risk of environmental damage or contamination. This may result in civil liability and the need to perform works to eliminate such damage. The company is fully aware of its social responsibility to create safe working conditions and preserve the environment. JsC Gazprom Neft continuously controls its operations to ensure it complies with the appropriate environmental standards and implements environmental protection programmes. JsC Gazprom Neft's environmental policy is designed to ensure the company complies with the requirements of the current environmental legislation. It does this by investing considerable funds in implementing environmental protection measures, including employing technologies that minimise negative environmental impact. Through such activities, the company has significantly reduced the probability of environmental contamination risks.
risks associated with changes in licensing requirements for core business

Developing modern subsoil legislation is based on the state's detailed regulation of the subsoil use processes, on the need to enhance the rational use of subsoil plots, and the need for strict compliance with environmental legislation. JsC Gazprom Neft conducts its operations in the license plots in compliance with the strict requirements of the Russian subsoil legislation. The company updates its license agreements subject to changes in the current legislation.
CORPORATE GOVERNANCE
In 2010, we focused on improving corporate management practices in Gazprom Neft in accordance with international standards. Our key focus was on developing procedures to ensure steadfast adherence to shareholders rights and to maintain a high level of company informational transparency. Activities of the Board of Directors as a centre of decision-making in strategic and investment planning have been significantly intensified.
Elena Ilyukhina Member of the Management Board Deputy Director General for Legal and Corporate Affairs
92
BOARD OF DIRECTORs AND MANAGEMENT BOARD
JsC GAZPROM NEFT
JsC GAZPROM NEFT GOVERNANCE sTRUCTURE

the general shareholders meeting is the company's supreme governing body, which is competent in the most critical issues of company operations. the board of directors is the governing body. Its main functions are to ensure general guidance of the company operations and be responsible for strategic management aimed at increasing company shareholder value. The Board of Directors ensures and monitors effective performance of the company executive bodies. the management board is the collegial executive body managing the company's day-to-day operations. the director general is the chief executive officer exercising functions of the company Management Board Chairman. To monitor finances and business operations, the General shareholders Meeting elects the Internal Audit Committee to ensure control over and analysis of the company's financial and economic activities, functioning of the internal audit system and risk management system; and to review the legality of business transactions. For the annual audit of financial reporting in accordance with Russian Accounting standards (RAs) and in accordance with the Generally Accepted Accounting Principles (Us GAAP), JsC Gazprom Neft involves an external auditor. The General shareholders Meeting annually approves the candidate of independent auditor, based on the proposal of the Board of Directors. Establishing, competency and organisation of the governing and regulating bodies activities are defined by the Charter of JsC Gazprom Neft and respective internal documents: z Regulations for JsC Gazprom Neft General shareholders Meeting. z Regulations for JsC Gazprom Neft Board of Directors. z Regulations for JsC Gazprom Neft Management Board. z Regulations for JsC Gazprom Neft General Director. z Regulations for JsC Gazprom Neft Auditing Commission. All interested parties can view JsC Gazprom Neft's Charter and internal regulations at th e comp any s of ficial websi te: http://ir.gazprom-neft.om/corporate-governance/.
Annual report 2010
93
MEMBERsHIP OF THE BOARD OF DIRECTORs

Corporate legislation requires the Board of Directors to define priorities in the companys development, establishing the key focuses of business. Accounting for the strategic importance of the tasks faced by the Board of Directors, membership of the board should be trusted by shareholders and ensure effective execution of its functions. z gives shareholders the opportunity to nominate candidates for the companys Board of Directors for a period of two months. This term is longer than the one month required by the law. z provides the Board of Directors with timely information on the current Board of Directors and candidates. The Board of Directors of JsC Gazprom Neft comprises 10 members. The members of the Board of Directors of JsC Gazprom Neft are members of the Management Board of JsC Gazprom. The Board of Directors is headed by the Chairman of the Management Board of JsC Gazprom, A.B. Miller. Membership of key managers of the parent company in the Board of Directors lay witness to its complete professionalism. Accounting for the structure of the companys share capital, 95.68 % of which is owned by JsC Gazprom, top executive management membership by majority stakeholders in the company Board of Directors is completely justified. The Board of Directors of JsC Gazprom Neft is largely independent of the company management. The sole executive director in the Board of Directors' structure is the Chairman of the Management Board of JsC Gazprom Neft, A.V. Dyukov. JsC Gazprom Neft maintains transparency of the Board of Directors election procedure. The company: z performs ongoing communication with the depository bank, the issuer of depository receipts z utilises obligatory cumulative voting when electing members of the Board of Directors, and explains this procedure z announces the results of voting on issues and specifies the quorum and parties who voted for each voting option z publishes the minutes of the General shareholders Meeting on the companys official website. As at 31 December 2010, the Board of Directors elected as of 29 June 2010 has been functioning at the General shareholders Meeting of the company. The Chairman and members of the Board of Directors did not hold company shares during the reporting year. Members of the Board of Directors did not enter into any transactions for purchasing or selling company shares in the reporting year. In 2010, no legal action was brought against the members of the Board of Directors.
94
JsC GAZPROM NEFT
Information on changes in the membership of the Board of Directors in the reporting year
From the beginning of 2010 to the annual General shareholders Meeting of JsC Gazprom Neft conducted on 29 June 2010, the Board of Directors of the company comprised: miller, alexey borisovich Chairman of the Board of Directors 2. golubev, valery alexandrovich 3. Kruglov, andrey vyacheslavovich 4. dubik, nikolay nikolaevich 5. pavlova, olga petrovna 6. podyuk, vasily grigorievich 7. seleznev, Kirill gennadievich 8. dyukov, alexander valerievich 9. mikheev, alexander leonidovich 10. alisov, vladimir ivanovich. No other changes were made in the membership of the Board of Directors prior to 29 June 2010. As at 31 December 2010, the Board of Directors has been functioning, elected as of 29 June 2010 has been functioning at the annual General shareholders Meeting of the company. 1.
miller, alexey borisovich Chairman of the Board of Directors Born in 1962, graduated from N. A. Voznesensky Leningrad Finance and Economics Institute. Ph.D. in Economics. since 2001 Chairman of the Management Board, JsC Gazprom. since 2003 Deputy Chairman of the Board of Directors, JsC Gazprom.
golubev, valery alexandrovich Born in 1952, graduated from V. I. Ulyanov (Lenin) Leningrad Electrotechnical Institute and the Academy of National Economy under the aegis of the Government of the Russian Federation. 2003-2006 Member of the Management Board of JsC Gazprom. 2005-2006 Head of the Department for Investments and Construction, JsC Gazprom, General Director, Gazkomplektimpex LLC. since 2006 Deputy Chairman of the Management Board of JsC Gazprom.
Annual report 2010
95
Kruglov, andrey vyacheslavovich Born in 1969, graduated from the st. Petersburg Technological Institute of the Refrigeration Industry specialising in Low Temperature Machinery and Physics. Ph.D. in Economics. since 2004 Deputy Chairman of the Management Board of JsC Gazprom, Head of the Financial and Economic Department, JsC Gazprom.
pavlova, olga petrovna Born in 1953, graduated from the Far Eastern state University. Candidate of legal sciences. since 2003 Head of the Property Management and Corporate Relations Department, JsC Gazprom. since 2004 Member of the Management Board of JsC Gazprom.
dubiK, nikolay nikolaevich Born in 1971, graduated from the Lomonosov Moscow state University. 2005-2008 Deputy Head of the Legal Department, JsC Gazprom. 2008 First Deputy Head of Legal Department, JsC Gazprom. since 2008 Head of Legal Department, JsC Gazprom, member of the Management Board of JsC Gazprom. Honoured lawyer of the Russian Federation.
KalinKin, alexander vyacheslavovich Born in 1957, graduated from Moscow Gubkin Institute of Oil and Gas. since 2002 Deputy Head of Gas, Gas Condensate and Oil Production Department in JsC Gazprom.
96
JsC GAZPROM NEFT
seleZnev, Kirill gennadievich Born in 1974, graduated from D.F. Ustinov Baltic state Technical University, and st. Petersburg state University. Ph.D. in Economics. since 2002 Head of the Department for Marketing and Processing of Gas and Liquid Hydrocarbons. since 2003 Member of the Management Board of JsC Gazprom. since 2004 - JsC Gazprom, Director General, LLC Mezhregiongaz (from 2010 LLC Gazprom Mezhregiongaz).
miKheev, alexander leonidovich Born in 1944, graduated from the Oil and Gas Department of the Gubkin state University of Oil and Gas. since 2003 First Deputy Head of Gas and Liquid Hydrocarbons Processing and Marketing Department at OJsC Gazprom.
dyuKov, alexander valerievich Born in 1967, graduated from the Leningrad Order-of-Lenin shipbuilding Institute. In 2001, obtained an IMIsP MBA degree. 2005-2006 President of JsC sIBUR Holding. 2006 - Director General, sibur LLC. since 2006 Chairman of the Board of Directors, JsC sIBUR Holding. 2006-2008 President of JsC Gazprom Neft. since January 2008 Chairman of the Management Board, Director General, JsC Gazprom Neft.
alisov, vladimir ivanovich Born in 1960, graduated from the Law Faculty of the A.A. Zhdanov Leningrad state University. 2004-2007 Head of the Legal Directorate of JsC Gazpromregiongaz. 2007-2008 Deputy Head of the Legal Department of JsC Gazprom. since 2008 First Deputy Head of the Legal Department of JsC Gazprom. Member of the Russian Lawyers Association, Member of the Expert Committee for Corporate Governance at FFMs of Russia. In 2010, by the Order of the President of the Russian Federation, awarded with title of honour 'Honoured Lawyer of the Russian Federation'.
Annual report 2010
97
JSC GAZPROM NEFT BOARD OF DIRECTORS ACTIVITIES IN 2010

2010 was a year of active work for JsC Gazprom Nefts Board of Directors. Compared to 2009, twice as many meetings of the Board of Directors were held in the period under report. From 2010, meetings in presentia are held at least once every two months, according to best practices of corporate guidance. This allows the Board of Directors exercise its duties most efficiently. The number of questions considered by the Board of Directors has increased in proportion to the number of meetings. In the Quarter 1 of 2010, the Board of Directors approved the Transaction settlements Procedure, which significantly broadened the competency of the Board of Directors. This was a result of considering the company's most critical and challenging transactions.. the main activities of the board of directors in 2010 are: z strategic and investment planning: Approved JsC Gazprom Nefts strategic Development Concept until 2020. Approved JsC Gazprom Nefts Investment Programme in 2010 and 2011. Reviewed forecast investment plan until 2013. Reviewed the progress status of the 'Associated Gas Recovery and Usage Efficiency Improvement' medium-term investment programme for 2008-2010. Approved the concept of JsC Gazprom Neft quitting the oil-related services business. Reviewed information on JsC Gazprom Nefts operations in the Middle East and Cuba. Approved the proposed list of JsC Gazprom Nefts strategic targets until 2020. Reviewed the principles and procedure of JsC Gazprom Nefts investment decision-making. Analysed the financial and economic efficiency of JsC Gazprom Nefts participation in investees charter capital. Approved JsC Gazprom Nefts Petroleum Products and Liquefied Gas Marketing strategy. Reviewed the report on preliminary results of activity, current positions, future plans and JsC Gazprom Nefts strategy to strengthen markets of petroleum product sales in CIs countries in the Central Asian Region.
z Company budget planning and financing: Approved JsC Gazprom Nefts budget plan for 2010 and 2011. Approved JsC Gazprom Nefts Costs Optimisation Programme for 2010 and 2011. Reviewed forecasted indices of JsC Gazprom Nefts Budget and Costs Optimisation Programme until 2013. Approved a number of borrowing transactions. Approved transactions providing surety for the liabilities of JsC Gazprom Neft Group companies. Approved the issue of JsC Gazprom Nefts exchange and corporate bonds. z Corporate sphere: Approved JsC Gazprom Nefts Dividend Policy. Approved the Transactions settlement Procedure and JsC Gazprom Neft s Communication Procedure with companies and organisations where JsC Gazprom Neft holds stocks and shares. Approved the Procedure on Remuneration and Compensation to JsC Gazprom Nefts Board of Directors. Made a range of decisions on corporate matters. Recommended remuneration to members of the Board of Directors and Auditing Committee based on 2009 performance. z Miscellaneous: Approved a range of transactions of interest. Reviewed the question of JsC Gazprom Nefts Management Board members participating in governing bodies of other organisations. As part of corporate restructuring, made a number of decisions concerning adding/ withdrawing the company's participation in other organisations. As part of the sports season, approved sponsor support to sport clubs in areas of sC Gazprom Neft's presence : FC Zenit and HC sKA. The company sends MD&A management reports (managements discussion and analysis of financial conditions and results of operation) to members of the Board of Directors every quarter. This is an efficient additional tool that informs members of the Board of Directors about results of the companys operations, envisaged by the Charter and Regulation of JsC Gazprom Neft Management.
98
JsC GAZPROM NEFT
Committees of the Board of Directors

The Board of Directors of JsC Gazprom Neft has set up two committees to ensure the Board's effective activity: the Audit Committee and the Human Resources and Remuneration Committee. The purpose of establishing the committees is preliminary and in-depth study of issues falling within their competence. The set-up procedure and committees activities are regulated by the regulations on each of these committees.
The Audit Committee ensures constructive communication with the external auditor, bodies supervising the company's financial and economic activities, and the company's internal audit units. In 2010, the Audit Committees activities were performed in accordance with a plan. The Committee's activities are directly related with the Work Plan of the Board of Directors, and include consideration of financial activities and investment planning issues. In 2010, the Audit Committee: z made decisions on attracting external financing for JsC Gazprom Neft z reviewed a number of issues relating to the company's issue of borrowing, surety and guarantees under obligations of subsidiary and affiliated structures z analysed conditions of a number of transactions where interest is held z reviewed the JsC Gazprom Neft Investment Programme and forecast for 2013 and recommended it for approval by the Board of Directors z analysed the company's business plan and budget draft (financial) for 2011. This included Gazprom Neft Group's financial borrowing programme forecast for 2013. The Board of Directors approved the budget, based on the Committee's recommendation z preliminarily reviewed the draft of the JsC Gazprom Neft Cost Optimisation (Reduction) Programme in 2011 and forecast indices until 2013 z analysed execution of the financial borrowing programme and debt-portfolio management of Gazprom Neft Group in 2010 z reviewed a number of corporate issues: preliminary review of the Annual Report draft for 2009 analysed the JsC Gazprom Neft 2009 annual financial statements
the audit committee of the board of directors of jsc gazprom neft

The Audit Committee assists the Board of the Directors in monitoring the companys financial and economic performance. It does this by evaluating an internal control system, including mechanisms of control over preparing and presenting financial statements and other statements, assessing their completeness and fairness, and monitoring the risk management system.
statistics of the board of directors members' participation in meetings

Member of the Board of Directors Number of meetings in presentia in which the member of the Board of Directors participated/total number of meetings in presentia 7/7 7/7 7/7 5/7 7/7 6/7 7/7 7/7 7/7 3/4 (total number of meetings in presentia held until 29 June 2010) 3/3 (total number of meetings in presentia held since 29 June 2010)
Alexey Borisovich Miller Chairman of the Board of Directors Valery Alexandrovich Golubev Andrey Vyacheslavovich Kruglov Nikolay Nikolaevich Dubik Olga Petrovna Pavlova Kirill Gennadievich seleznev Alexander Valerievich Dyukov Alexander Leonidovich Mikheev Vladimir Ivanovich Alisov Vasily Grigorievich Podyuk Member of the Board of Directors until 29 June 2010 Alexander Vyacheslavovich Kalinkin Member of the Board of Directors since 29 June 2010
Annual report 2010
99
assessed the external auditors report concerning JsC Gazprom Nefts 2009 annual financial statements recommended an external auditor and made recommendations concerning his fee reviewed the project of profit allocation based on the results of the activity in 2009, and recommended a part of net profit to be allocated to dividend payout. As of 31 December 2010, the Audit Committee comprised: 1. Kruglov, andrey vyacheslavovich Chairman of the Committee 2. pavlova, olga petrovna 3. dubik, nikolay nikolaevich. In 2010, the Audit Committee's composition remained the same.
z reviewed the draft of the companys 2009 Annual Report z recommended the amount of remuneration to members of the Board of Directors and the Audit Committee of JsC Gazprom Neft z reviewed procedures for holding the General shareholders Meeting. Based on the Human Resources and Remuneration Committee's recommendation, the company adopted a procedure to define the amount of remuneration and compensation for members of the Board of Directors. The most significant project implemented by the Human Resources and Remuneration Committee in 2010 was approving the procedure for appraising of the Board of Directors performance efficiency. The Committee recognised that it was necessary to annually appraise JsC Gazprom Nefts Board of Directors performance. Over the entire period under report, the Human Resources and Remuneration Committee comprised: 1. pavlova, olga petrovna Chairman of the Committee 2. Kruglov, andrey vyacheslavovich 3. dubik, nikolay nikolaevich. Following election at the Annual General Meeting, the new Board of Directors resolved not to change the composition of the Human Resources and Remuneration Committee.
human resources and remuneration committee of jsc gazprom nefts board of directors
In accordance with the regulation on Human Resources and Remuneration Committee, the Committee's main purpose is to perform a preliminary in-depth study of issues referred to the competency of the Board of Directors. It also prepares recommendations for decision-making by the Board of Directors, regarding the companys activity in human resources management and remunerating members of the management body and the Audit Committee. To prepare for the annual General shareholders Meeting in 2010, the members of the Human Resources and Remuneration Committee:
100
JsC GAZPROM NEFT
MEMBERsHIP OF THE MANAGEMENT BOARD

The Charter defines the structure of JsC Gazprom Nefts executive bodies and is composed of the Management Board and Director General. JsC Gazprom Nefts Management Board is a collective executive body that manages the company's day-to-day operations. In accordance with JsC Gazprom Nefts Charter, the Board of Directors establishes the Management Board, upon assignment of JsC Gazprom Nefts Director General. The company Board of Directors shall determine the Management Board members term of tenure. Internal documents of JsC Gazprom Neft define professional qualification requirements for members of JsC Gazprom Nefts Management Board . The company Director General, A.V. Dyukov (elected in December 2006) is also the Chairman of the Management Board which organises his activity. In the absence of the Chairman of the Management Board, his functions are exercised by one of four elected deputies of Chairman of the Management Board (V.V. yakovlev (First Deputy), V.V. Baranov, B.s. Zilbermints, and A.M. Cherner). As of 31 December 2010, JsC Gazprom Nefts Management Board comprised 10 members: the Director General and his deputies, exercising their activities in accordance with the competence the Director General allocated between them. During the year under report, the composition of JsC Gazprom Nefts Management Board remained unchanged. In 2010, no legal action was brought against the Director General or members of the Management Board. dyuKov, alexander valerievich Chairman of the Management Board, Director General of JsC Gazprom Neft Born in 1967, graduated from the Leningrad Order-of-Lenin shipbuilding Institute. In 2001, he obtained an IMIsP MBA degree. 2005-2006 President of JsC sIBUR Holding 2006 Director General of sIBUR LLC since 2006 Chairman of the Board of Directors, JsC sIBUR Holding 2006-2008 President of JsC Gazprom Neft since January 2008 Chairman of the Board of Directors, Director General of JsC Gazprom Neft
Annual report 2010
101
yaKovlev vadim vladislavovich Deputy Chairman of the Management Board, First Deputy Director General Financial Director Born in 1970, graduated from Moscow Engineering Physics Institute, Higher school of Finance at the International University in Moscow. In 1999, he qualified as a Member of the Association of Chartered Certified Accountants (ACCA). In 2009, he obtained a diploma from the British Institute of Directors (ID). 2005-2006 Deputy Director General for Economics and Finance, LLC sIBUR-Russian Tyres. 2006-2008 Head of the Budget Planning Department, JsC Gazprom Neft. since January, 2008 Deputy Chairman of the Management Board, JsC Gazprom Neft, Deputy Director General for Economics and Finance. In charge of economics and finance. since May 2010 First Deputy Director General - Financial Director. In charge of economics and finances in the company.
Zilbermints boris semenovich Deputy Chairman of the Management Board, Deputy Director General for Exploration and Production Born in 1967, graduated from the Geology Faculty of Gubkin Russian state University of Oil and Gas in 1997. Was awarded a Masters Degree in economics by southern Methodist University (Dallas, UsA). In 2007, he completed programme for general managers in business school at Harvard University. 2002 -2008 Regional Director of LUKOIL Overseas service Ltd. in Kazakhstan. since February 2008 Deputy Director General for Exploration and Production, JsC Gazprom Neft. In charge of reserves, geology, exploration and production.
cherner anatoliy moiseevich Deputy Chairman of the Management Board, Deputy Director General for Logistics, Refining and Distribution Born in 1954, graduated from Groznyy Oil Institute. Positions held over the past five years: since 2006 Vice-President of JsC Gazprom Neft for Refining and Distribution. since January 2008 Deputy Chairman of the Management Board, JsC Gazprom Neft, Deputy Director General for Logistics, Refining and Distribution. In charge of oil refining, logistics and sales of oil and petroleum products.
102
JsC GAZPROM NEFT
baranov vitaly vitalyevich Deputy Chairman of the Management Board, Deputy Director General for Administration Born in 1966, graduated from st. Petersburg University of Economics and Finance with a degree in Economics and Production Management. 2008 London Business school (London, UK), MBA, senior Executive Programme. since 2003 employed with sIBUR Group first as Advisor to President for General Matters, Head of the Presidents Administration. since May 2006 Vice-President for Managerial Matters at sIBUR. since March 2009, employed as Deputy Director General for Managerial Matters at JsC Gazprom Neft. In June 2009, he was elected Member of the Management Board of JsC Gazprom Neft.
baryshniKov vladislav valerievich Member of the Management Board, Deputy Director General for International Business Development Born in 1965, graduated from the Military Krasnoznamenny Institute. 2002-2009 Director of JsC Gazprom rep office in China, the regional rep office in the Asia-Pacific Region. Third Class Counsellor of state of the Russian Federation. since April 2009 Deputy Director General for International Business Development. since November 2009 Member of the Management Board of JsC Gazprom Neft. supervises matters related to international business development and relations with international partners.
dybal alexander mikhailovich Member of the Management Board, Deputy Director General for Corporate Communications Born in 1966, graduated from Leningrad Electrotechnical Institute. 2005-2007 Chairman of the Board of Directors of OJsC Gazprom-Media. 2007-2008 Vice-President of JsC Gazprom Neft. since January 2008 Member of the Management Board of JsC Gazprom Neft, Deputy Director General for Corporate Communications. Responsible for information and regional policy, interior corporate and marketing communications.
Annual report 2010
103
ilyuKhina elena anatolievna Member of the Management Board, Deputy Director General for Corporate and Legal Matters Born in 1969, graduated from Ulyanov (Lenin) saint Petersburg state Electrotechnical University and from saint Petersburg state University. In 2001 was awarded a Ph.D. in economics. 2001-2007 Deputy Director General, FGUP Rublevo-Uspensky LOK (medical and recreational complex) of the Property Management Department of the President of the Russian Federation. Prior to employment with JsC Gazprom Neft, he held the position of Executive Director of Northwestern Investment Company LLC. since January 2008 Member of the Management Board of JsC Gazprom Neft, Deputy Director General for Corporate and Legal Matters. Responsible for providing legal and corporate support to the companys activities.
KravchenKo Kirill albertovich Member of the Management Board, Deputy Director General for Foreign Assets Management Born in 1976, graduated from the Lomonosov Moscow state University, the Open British University, IMD Business school. Doctor of science in Economics, Professor. 2004-2007 Administrative Director, OJsC MCC Eurochem. Elected many times as member of the boards of directors of major companies. 2007-2008 Vice-President of JsC Gazprom Neft. 2008-2009 Deputy Chairman of the Management Board of JsC Gazprom Neft, Deputy Director General for Managerial Matters, JsC Gazprom. since February 2009 Director General of the serbian oil company NIs. since March 2009 Deputy Director General for Foreign Assets Management at JsC Gazprom Neft.
antonov igor Konstantinovich Member of the Management Board Deputy Director General for security
Born in 1951, graduated from the Leningrad Aeronautic Engineering Institute. 2000-2005 Director General of the st. Petersburg state Unitary Enterprise Informatika. 2005-2007 Vice-President for security at JsC sibneft. since 2007 Deputy Director General for security at JsC Gazprom Neft.
104
JsC GAZPROM NEFT
Activities of JSC Gazprom Nefts Management Board in 2010

JsC Gazprom Nefts Management Board considers matters according to a plan with respect to decisions of the General shareholders Meeting, the company Board of Directors, and matters introduced by Director General and members of the Management Board. The work plan of the Management Board is also developed based on proposals by heads of JsC Gazprom Nefts structural divisions. In 2010, the Management Board of JsC Gazprom Neft held 22 meetings and 7 votes discussing the following key issues: z Updated versions of strategies per direction of activity (in accordance with the Development strategy of JsC Gazprom Neft until 2020). z Proposals for developing the General Oil Industry Development scheme until 2020. z Optimizing the corporate centre organisational structure. z JsC Gazprom Nefts consolidated Business Plan for 2011-2013. z Risk management system. z Programme of non-government pension coverage in the companies. z Corporate culture development. z Corporate rebranding. z Internal communications. JsC Gazprom Nefts Management Board also heard reports from heads of structural divisions in 2010.
Additionally, two extended meetings of JsC Gazprom Nefts Management Board were held. Heads of the companys structural divisions and representatives of subsidiary and affiliated companies participated. The meetings aimed to analyse the companys activities based on the results of 2009 and objectives for 2010 (during the first meeting in March 2010) and six months of 2010 (during the second meeting in september 2010). There is a structured, objective programme for remunerating top and senior company managers. This ensures a link between short-term goals and the amount of remuneration. The system for remunerating company management in general follows market principles of remuneration and comprises three components: z Monthly remuneration for work duties in accordance with the work contract and the companys staff schedule. This is based on a system of grades, in accordance with which, each grade corresponds to a certain range of official salary, specific amount of bonus and additional compensations. z Annual remuneration based on results of achieved key performance indicators (KPI). A range of KPI is approved for each manager with the final amount of annual remuneration depending on performance. Individual objectives include a balanced combination of indicators where EBITDA is the main indicator in the chart of every top manager. z Long-term motivation. The company approved a long-term motivation programme based on the companys stock value increment in a threeyear period applicable to top managers.
information on jsc gazprom neft shares held by members of the board of directors and management board (as of 31 december 2010)
Members of the Board of Directors and Management Board, JsC Gazprom Neft Dyukov, Alexander Valerievich yakovlev, Vadim Vladislavovich Zilbermints, Boris semenovich Number of Common shares 123 943 4 896 20 000 share in Authorised Capital, % 0.002614114 % 0.000103262 % 0.000421825 %
Annual report 2010
105
TOTAL AMOUNT OF REMUNERATION TO THE MEMBERs OF THE BOARD OF DIRECTORs AND MANAGEMENT BOARD
In accordance with the decision made by the General shareholders Meeting, members of the Board of Directors who do not hold positions in the companys executive bodies (are not executive directors), based on results in 2009, were granted remuneration to the amount of 0.005 % of EBITDA according to data of JsC Gazprom Nefts consolidated financial statements. This was in accordance with Us GAAP standards in 2009. In addition to the base portion of remuneration, the members of JsC Gazprom Nefts Board of Directors received additional remuneration for executing functions of the Chairman of the Board of Directors (50 % of the amount for remuneration of a member of the Board of Directors), member of the Committee of the Board of Directors (10 % of the amount for remuneration of a member of the Board of Directors) and Chairman of the Committee of the Board of Directors (50 % of the amount for remuneration of a member of the Board of Directors). The total amount of remuneration paid to members of the Board of Directors in 2010, based on results of work in 2009, was 81 mn RUB. The remuneration amount includes individual income tax. Income earned by the members of the Management Board in 2010 was 484 mn RUB. Payments included salary for the reporting period; taxes assessed on salary and other mandatory payments to the relevant budgets and extrabudgetary funds; payment for annual paid leave for work in the reporting period; and treatment and medical expenses. No additional remuneration was paid to the members of the Management Board for work in management bodies of JsC Gazprom Neft or its affiliated entities.
106
ENVIRONMENT AND INNOVATIONs
JsC GAZPROM NEFT
HEALTH, sAFETy AND ENVIRONMENT

Gazprom Neft's leadership strategy not only includes operational and financial indicators. Expanding its operations and achieving new production goals also means improving its environmental management quality and work-safety activities. The company set the objective to become one of the leading worldwide oil brands in industrial and environmental safety and occupational safety.
Strategy and management

Key tasks in the company's approach to health, safety and environment are: z developing and introducing an integrated system for complying with environmental legislation requirements in regions of the company's presence in Russia and abroad z creating a unified regulatory and procedural base and effective introduction into the companys affiliated companies z ensuring systematic and effective minimisation of negative environmental impact resulting from operations, and removing the negative impact of previous activities. The above tasks are complex closely interrelated. Their success requires precise coordination of all company blocks, divisions and affiliated companies. Implementing unified health, safety and environment (HsE) policy is ensured by the organisational governance structure and integrated health, safety and environment management system.
Today, the company has created the basis for achieving this objective. There is now a unified corporate health, safety and environment policy. Environmental safety, the Company Operations standard, was developed and introduced, alongside procedural documents for implementing the standard. This applies when re-cultivating disturbed and oil-contaminated land, handling production waste, and assessing the environmental safety of purchased assets. The company is successfully implementing the integrated management system in this area. A set of regulatory and procedural guidelines reflecting this innovative approach to environmental management is also being introduced. Additionally, the company is developing mechanisms for actively involving company employees in this work, and interacting with the state and society. The company purposefully implements projects aimed at minimising the environmental impact of its oil producing, oil refining and sales companies. successfully implementing these projects enables the company to consistently minimise the negative environmental impact of its operations and maximise its use of natural resources.
Annual report 2010
107
In 2008, the company began realising a programme for implementing the requirements of the policy and Integrated Management system in the area of the health, safety and environment (HsE) programme. The programme aims to build an up-to-date management system to ensure effective compliance with legislation and minimize incidents. In accordance with this programme, in 2010, the company achieved the following tasks:
z Improve quality of incidents investigation. z Organise production monitoring over compliance with industrial safety requirements and auditing health, safety and environment systems. z Improve quality of risks assessment and analysis of the management systems status.
introducing the health, safety and environment integrated management system
2008
statistical base formation improving incident reporting discipline
2009
normative base development training incident analysis, information exchange
2010
investigation quality improvement production monitoring and audit risk assessment
201 1
introducing corrective action plans developing integrated projects and programmes
2012
analysing system efficiency and correction launching continuous improvement of the system and work processes
management system condition analysis
Achieving these tasks became possible based on the results of previous periods, detailed in JsC Gazprom Nefts 2010 report on sustainable growth. These included improving discipline and transparency of reporting incidents, and creating a normative base that allowed systematisation of work and a unified approach to safety problems at all company enterprises . Compliance with legislative and corporate requirements at the companys facilities is regulated based on a unified approach. This was established in 2010, under the corporate standard 'Integrated Production Monitoring over Compliance with Requirements of Normative Legal Acts and Corporate standards in sphere of Industrial safety'. The standard reflects the innovative approach to monitoring production and defining safety assurance as a business process aimed ultimately at reducing cost and maximising business economic efficiency. The standard was subjected to a range of expert reviews and approved by supervisory authorities. In 2011, the company plans to develop software that supports the standards processes
and organise its pilot introduction at several large enterprises of the company. Auditing is an integral part of introducing the HsE management system. Regular audits allow the company to evaluate its current status and situation with new developments and establish justified recommendations to improve the system. For the first time in 2010, the company conducted the HsE management system audit in four subsidiary companies. The audit was performed by groups of auditors comprising representatives of subsidiary companies of various company operation profiles with respective certification. The audit results allowed the company to reflect clearly on the condition of current systems. Based on recommendations from audit results, measures to improve management systems were developed in affiliated companies. The audit also became a platform to exchange experience between affiliated companies. The company plans to continue this work in 2011.
108
JsC GAZPROM NEFT
Ensuring the environmental management system functions stably requires respective staffing. Gazprom Neft devotes special attention to improving professional and qualification knowledge of employees working in this area. The company organises regular training of managers and specialists responsible for environmental safety and production waste disposal. In 2010, 749 managers and specialists took environmental safety training. The HsE management system applies to third-party organisations providing services to the company. Therefore, Gazprom Neft promotes developing environmental accountability, following high industrial safety requirements for the companys suppliers. In 2010, Gazprom Neft adopted the standard 'Procedure of Contractors' Management and Organisation of Interaction on Health, safety and Environment Issues'.
lost time injury frequency rate (ltifr)

1,5 1.36 1,2
0,9 0.76 0,6 0.76
0,3
0.36
2007
2008
2009
2010
Industrial and occupational safety

The company strives to continuously improve safety levels and consistently lower risks of injuries, occupational diseases and accidents at work. since 2008, the company developed and introduced the 'Health, safety and Environment Risks Identification, Assessment and Minimisation Procedure' corporate standard. This supplements the corporate integrated risk management system and allows risk minimisation measures in such situations where the human factor, which cannot always be quantified, comes to the fore. The process proposed in this document is based on qualitative risk assessment. The companys specialists compiled risk assessment analysis cards for all types of works and operations performed. Results of this assessment allowed the company to develop specific measures to minimise and exclude risks. Managers use card information when briefing those performing work, while drawing up written permits for extremely hazardous work and developing instructions. The process of risk-assessment analysis and compiling respective cards became a tool to improve the safety culture. The companys employees are involved in this process. Participating in the process allows them to clearly see their role and accountability in improving industrial safety.
Protecting employees work and health requires mutual responsibility and structural interaction between the company management and trade unions. Mutual obligations on these matters are reflected in collective agreements. minimising injuries at work. Thanks to introducing safety standards and programmes to implement the HsE Policy, in 2010 indicators of occupational injuries decreased. Developing safety culture is a prerequisite for the company to achieve its HsE goals. Managers should play the leading the role in this area. safety depends on their compliant decisions and behaviour at production facilities. so in 2010, Gazprom Neft organised 'HsE Leadership for Managers' workshops. More than 200 top and medium-level managers in the corporate centre and subsidiary companies took part. Workshop participants reviewed key components of efficient management behaviour as HsE leader and developed plans to improve safety culture in their divisions. transport safety. since 2009, the company has been implementing a number of measures to ensure transport safety. These include developing normative documents, conducting safety months and organising personnel training under various
Annual report 2010
109
programmes. This approach has proved successful. In 2009, the number of injured in traffic incidents halved, and in 2010, the company saw a decrease in traffic incidents. The relative incident rate also indicates improvements in transport safety. personal protective equipment. The company has a corporate standard that defines the procedure of providing employees with personal protective equipment (PPE). PPE purchased by the company complies with Russian and European safety requirements. Costs for PPE in 2010 were 13,000 RUB per person. accidents prevention. Gazprom Nefts HsE policy and standards focus on minimising risks and preventing accidents. Maintaining a high level of readiness for emergencies is also a critical consideration. For this purpose, the company took emergency prevention and response measures, based on action plans. The subsidiary companies developed and introduced these plans. To be ready to act in emergencies, subsidiary companies created financial and material resource reserves. The readiness of subsidiary companies for emergency responses is checked during regular training and drills.
industrial waste generation and disposal. As a socially responsible organisation, JsC Gazprom Neft understands the impact of its operations on the environment and strives to ensure the best possible preservation and restoration of natural resources. The company also endeavours to comply with every requirement of environmental law, fulfil its licence obligations and minimise its environmental impact in all areas of oil production, oil refining and in the sales system. The company devotes much attention to indirect environmental impact, by producing goods with improved environmental characteristics. Gazprom Neft actively develops and introduces innovative technologies to achieve productive, economic and environmental efficiency at the same time. The company is closely monitoring the quality of land, atmospheric air and water to identify problems and follow up in an expedient manner.
Environmental expenditure
Gazprom Neft spends significant resources on implementing environmental programmes and measures. In 2010, environmental expenditure remained at the 2009 level. It included financing environmental measures to protect water from contamination, modernising effluent treatment facilities, conservation (recultivation) of waste tank, and other environmental measures. Current costs also include expenses for developing regulatory documents, environmental monitoring, industrial environmental control, improving environmental competence, and environmental training of specialists.
Managing environmental safety

Oil companies have an inevitable anthropogenic impac t on the environment, including atmospheric emissions, discharges into water,
traffic incident rate (aar)

2,0

1.63 1.43
1,5
1,0
0,5
2009
2010
110
JsC GAZPROM NEFT
The companys expenditure on environmental measures, including using technologies that minimise adverse environmental impact, significantly exceeds the company payments for environmental contamination.
Atmospheric emissions
When acquiring new assets and developing the companys existing enterprises, the scope of environmental activities also increases. Minimizing atmospheric emissions is especially critical for producing facilities, which contribute to the major part of such emissions. In 2010, the companys total atmospheric emissions increased, compared to 2009. This relates to purchasing new assets (CJsC Gazprom Neft Orenburg, OJsC Moscow Refinery, OJsC NK-Magma) and increasing the number of filling stations. The company minimizes greenhouse gas emissions by implementing an associated gas disposal programme. This provides for constructing gascollecting systems and gas treatment plants, including power generating capacities. Additionally, minimising greenhouse gas emissions became an item of income for the company, while implementing a joint project with Mitsubishi Corporation on Ety-Pur field of Muravlenkovskneft in the framework of the Kyoto Protocol.
Lower emissions in refining can be attributed to environmental measures. These include renovating refining capacities, replacing burner units, equipping reservoirs with modern emission lowering devices, and introducing an installation ensuring precise and leak-proof oil loading. Implementing a large project of OJsC Gazprom Neft-Omsk Refinerys mediumterm investment programme and constructing a new fuel hydrotreatment facility, will minimise the environmental impact of the companys products. Commissioning this facility will ensure the company produces high-quality fuel and significantly minimises atmospheric emissions. The company arranged comprehensive analysis of environmental and economic efficiency of using light oil vapour recovery systems at filling stations of affiliated companies. This included integrated assessment of capabilities of existing and future recovery systems to minimise power costs and ensure a high level of capturing and process safety, self-sustainment of work, objective recording and recovery of captured hydrocarbons. This will help the company plan introducing such systems into fuelling station construction and renovation projects. These measures allow the company to practically prevent atmospheric emissions of fuel gases at filling stations by 95 %-98 %.
Utilizing water resources

The companys enterprises seek to utilise water resources with maximum efficiency. In 2010,
environmental expenditure, mn rub

3 000 2 617.6 2 500 2072.8 2 000 Efuent-treatment expenditure Waste-management expenditure Water -use expenditure 1279.6 Regulatory-impact expenditure Environment-protection investment Other
total atmospheric emission, K t

300
290.2
250
200
201.5 159.4 161.8 157.2
1 500
150
1 000 607.6 500
100
50

2007 2008 2009 2010
2006
2007
2008
2009
2010
Annual report 2010
111
water consumption for the companys own needs reduced by 16 % compared to 2009. The companys enterprises carefully monitor the impact of production on the condition of water bodies. Modernising facilities and reconstructing treatment plants enables consistent quality improvement of industrial effluents.
Water consumption, mn m3
120

105.1 87.8 79.8 73.9 82.0
100
80
Waste treatment
90 % of waste generated in the companys activities account for low hazard and essentially non-hazardous waste (IV and V class). Drilling waste represents the largest share of accumulated waste. When Gazprom Neft-Khantos LLC introduced pitless technology in drill production wells, this decreased waste generation in 2010. It also transferred drilling waste into the ownership of drilling contractors. Minimising waste that would inevitably have a negative environmental impact is a key environmental task and critical component of production efficiency improvement. Waste minimisation tasks in Gazprom Neft Group are settled by reducing generation and disposal volumes. Therefore, a unique drilling waste processing plant at Gazprom Neft-Khantos processes the waste into non-hazardous liquid. This is then injected under pressure into the bed at around 2,000 m depth.
60
40
20
2006
2007
2008
2009
2010
The company works to restore soil fertility at oilcontaminated land disturbed through pipeline breakages at the companys fields and return such for designated utilisation. Preventing accidents is also a priority task. In 2010, the amount of spilled oil decreased compared to 2009. This is a result of overhaul, anticorrosion coating and inhibiting pipeline systems in the framework of the Pipeline Integrity Improvement programme.
Preserving biodiversity
The companys development strategy provides for a significant increase in exploration and production activities, including developing oil fields in the Russian Arctic shelf. To effectively minimise negative impact from offshore operations and to include additional environmental requirements in field development projects, the company assesses the potential impact of operations related to exploration, production and transporting hydrocarbons on marine ecosystems.
Land utilisation and remediation

Remediation of land disturbed during production activities aims to minimise the company's environmental impact. Gazprom Neft must solve tasks relating to current activities and accumulated waste. Programmes for remediating disturbed land, slurry ponds, and sites where industrial waste is collected, include providing an inventory of disturbed land, assessing land contamination level, and selecting of the most effective technology for disturbed land remediation. Independent experts assess the efficiency of the company's remediation operations. In 2010, 696 ha of contaminated land were remediated.
112
JsC GAZPROM NEFT
share of waste generation by directions of activities, 2009-2010

100 %
land remediation per year, 2006 2010, ha
700 600 639.7
696.3
80 %
500
60 %
Oil production Rening Sales
400 300 200 213.5 180.2 100 148.0
40 %
Services
20 %
2009
2010
2006
2007
2008
2009
2010
The data on remediation at slurry ponds and oil-contaminated land is provided with respect to the amount of purchased assets. The amount of disturbed land, including oil-contaminated land increased in 2010 due to acquiring new assets: CJsC Gazprom Neft Orenburg, OJsC Moscow Refinery, and OJsC NK-Magma.
With participating specialists from the Russian representation of the World Wildlife Fund (WWF), in 2010, the company assessed the condition and impact on the marine mammal population in the Pechora sea. The assessment: z identified the most sensitive rare marine mammal species z assessed the condition of ecosystem components (including baseline studies) which are key for identifying rare marine mammals species z defined main anthropogenic impact factors on sensitive marine mammal species, resulting from planned hydrocarbons production and transportation operations on marine ecosystems z prepared proposals to minimise anthropogenic impact on sensitive marine mammal species and inhabitation z prepared analytical materials regarding species composition and the status of marine mammals
in the south-eastern part of the Barents sea and adjacent areas of the Kara and White seas z Developed proposals to minimise impact on sensitive marine mammal species and inhabitation, and to include in plans environmental activities in the period of licence validity during the companys offshore operations.
Utilizing associated gas (AG)

In February 2008, the companys Investment Committee adopted a medium-term investment programme for 2008-2010 on AG utilisation and more efficient use. During this period in the framework of the programme, the company financed measures aimed at implementing AG collection and transport projects at Ety-Pur field, shinginskoye field and yuzhno-Priobskoye licence area; and constructing power generation facilities at Chatylkinskoye, Zimneye, Kholmistoye fields and yuzhno-Priobskoye licence area.
Annual report 2010
113
level of ag disposal in jsc gazprom neft, %

60

54.6 % 48.1 %
50 46.8 % 40 35.7 % 30
In 2010, the companys AG resources were around 4.2 bn m and the level of AG utilisation was 54.6 %, compared to the planned 49.3 %. The increase of actual level versus the plan was mainly achieved by optimising CJsC sIBUR Holdings gas-processing capacity loading and connecting the Ety-Pur field to the AG transport and processing system. To maximise AG utilisation and minimise reputation risks, the company developed a medium-term investment programme to increase the efficiency of AG utilisation in 2011-2013. This comprised three regional projects: z Project for yuzhno-Priobskoye licence area. z Noyabrsk integrated project. z Tomsk integrated project.
20
10
2006
2008
2009
2010
In the framework of MIP implementation in 2011-2013, JsC Gazprom Neft is strengthening cooperation with CJsC sIBUR Holding. In particular, at Noyabrsk region fields, the company plans to expand AG collection and the external transport system. In turn, CJsC sIBUR Holding will modernise and expand its gas-processing capacities.
114
JsC GAZPROM NEFT
INNOVATIVE ACTIVITIEs
Developing innovative activities in priority directions is vital to the companys successful long-term development. JsC Gazprom Neft's strategic goal is to produce 100 mn TOE by 2020. Achieving the planned target increment of reserves from the current 1.5 bn t to 22.2 bn t should be ensured in the foreseeable future. Taking into account the scope of the target, the sphere of Gazprom Nefts specialists efforts in innovative activities is quite wide. This includes improving oil production efficiency at the depleted resource base of traditional fields; developing new regions on yamal, East siberia; starting offshore operations, including the Arctic shelf offshore of the Pechora, Kara and Barents seas; implementing overseas projects; acquiring competence in developing non-conventional hydrocarbons sources: bitumen, bituminous sand, bituminous shale and high-viscosity oil. The companys innovative development strategy until 2020 includes adopting a number of programmes that provide for more efficient exploration. Featuring the latest advances in geology and geophysics, the programmes will help minimize the company's environmental impact. Taking into account that only 14 % of Gazprom Nefts extracted reserves refer today to the uncomplicated category, the company would have to create and adopt technologies to increase oil production at prematurely flooded fields and fields with hard-to-recover reserves and low oil saturation. The company will continue introducing the latest horizontal drilling, multilateral well -construction and sidetracking technologies. At the same time, due to introducing the latest innovative technologies, overall expenditure should be reduced and well workover efficiency should improve significantly. At the companys active fields, Gazprom Neft will begin introducing an energy-saving technologies package. The total amount of Gazprom Nefts investment for developing innovative exploration and production projects will be around 300 mn RUB. The anticipated effect of implementation will be a threefold increase on investment. According to the companys medium-term strategy in 2010-2013, Gazprom Neft will spend 760 mn RUB more on research and development (R&D).
Exploration and production innovations

The main objective in the area of science and technology is to accelerate implementing and introducing new technologies and equipment. This will ensure dynamic development of production. The priority science and technology areas for Gazprom Neft are: z using geographic methods to discover potential gas and oil deposits z conducting production log tests in pioneer, exploration and development wells to dissect the geological cross-section, find productive horizons, assess the technical conditions of the well, and monitor field development z conducting research, experimental and methodological, pilot-plan work, to increase the geological and economic efficiency of geophysical research, improving its methods and techniques z developing, testing and implementing new technical equipment and technologies for studying the subsurface and natural completion, lowering expenses per tonne of produced oil z creating science and technology products: design and technological documents, plans for developing fields and producing oil, technicaleconomic proposals and justifications (TEP, TEJ), including geological and hydrodynamic models, other documents needed for developing new fields of hydrocarbons z further improving design methods and control over field development at later stages, creating permanent geological and mathematical models.
Annual report 2010
115
By the end of 2007, the companys analytical department became Gazprom Neft-NTC LLC: an independent corporate science production centre focused on geological exploration, design, control and oil and gas production. Establishing Gazprom Nefts science and technical centre has a vital objective: to transfer science and its generating innovations into practical enhancements. In september 2009, Gazprom Neft-NTC LLC adopted a concept for protecting the companys intellectual property and innovations. This concept defines the main goals, objectives and principles of the companys policy on managing protection of intellectual property created by the companys own means or with attracted resources. In 2010, Gazprom Neft-NTC LLC spent the following on science and technology: z geology and exploration 947.6 mn RUB (136 % increase compared to 2009) z design and control over development 628.1 mn RUB (120 % increase) z planning and surveying 291.7 mn RUB (266 % increase) z engineering 492.8 mn RUB (170 % increase). Including 271.1 mn RUB (118 % increase compared to 2009) spent on JsC Gazprom Nefts R&D expenditure.
The main aims of innovating in exploration are to develop efficient survey complexes, improve reserves-estimation methods, lower geological risks, and achieve precision in identifying exploration targets. In 2010, JsC Gazprom Neft conducted geotechnical operations (GTO) at 1,236 wells. This resulted in extra production of 4,789,500 t oil. Among the most important results of the companys technology improvements are extensive use of oil production intensification and enhanced oil recovery (EOR) methods. In 2010, total production from the EOR operations conducted in the reporting year (without the carryover effect) was 1.355 mn t or 4.5 % of the companys total output. These methods allow Gazprom Neft to substantially increase recoverable reserves and bring into production low-quality reserves (high viscosity, in impermeable reservoirs). The company uses physical, chemical, hydrodynamic and thermal recovery stimulation methods. The bulk of additional production was attributable to physical methods first and foremost to hydraulic fracturing (HF) 476 470 t. Hydrodynamic and chemical field-development methods used in difficult geological conditions to achieve fuller reserve recovery yielded additional oil production of 483 500 t and 248 100 t respectively. In 2009, Gazprom Neft launched 715 new wells; 232 HF were created (without HF at the new wells); 31 wells were sidetracked; and 49 deepened into lower beds. The key factor for innovative development in any industry is an ability to create and use new technical solutions, technologies and methods. Applying the latest technologies becomes the most important criteria for a companys competitive abilities. At Gazprom Nefts request, specialists from Gazprom Neft-NTC LLC developed the Iskender Programme and Industrial Complex. This is an instrument for analysing 'strata-well-pump' threecomponent system application efficiency. In 2010,
geotechnical operations in 2007-2010

Ea. 1 500 4 919,3 1 200 1 003 4 705,8 900 4 649,3 4 600 Additional production, thous. t Number of wells, ea. 1 194 1 088 1 228 4 800 4 789,5 Thous. t 5 000
600
4 400
300
4 200
2007
2008
2009
2010
4 000
116
JsC GAZPROM NEFT
Iskender PIC successfully passed pilot development on Priobskoye and sugmutskoye fields. Utilizing Iskender PIC with the adapted multi-phase flow model will help reduce early equipment failures, due to optimally selecting pump equipment for well stock with complicated geological conditions. Iskender can be also applied for feasibility studies and field development projects, analysing new production technologies risks, and a number of other scientific and application tasks. Iskender PIC's large-scale introduction in the company may be evaluated by reducing labour costs five-fold, totalling an annual 12.8 mn RUB. In 2010, the company developed a permanent database of idle wells. The company can use this for creating ranked lists of wells to be returned to production, including those based on economic performance, the reason the well is idle, defining GTO required to return the well into operation, creating additional reports, selecting submersible equipment, and online working with maps and data. Further software development will be based on connecting to corporate databases for faster information access and analysis. On introducing the permanent idle stock database at OJsC Gazprom Neft-NNG and the branch of Muravlenkovskneft, idle wells analysis will be speeded up 4.5 times, saving 14.9 mn RUB per year. The company studied and indentified the reasons for accelerated corrosion on downhole equipment in production wells at Urmanskoye field of Gazprom Neft-Vostok LLC. Pilot testing of corrosion protection technologies and methods was planned, as well as development of the procedural base to ensure TBR from 176 to 246 (38 % increase), and if possible, to achieve TBR increase up to 365 days (135 % increase) in 2011. In 2010, specialists of Gazprom Neft-NTC LLC developed and approved the integrated squeezecementing programme at JsC Gazprom Nefts fields. The company tested squeeze cementing using technologies which had not previously been applied at fields of OJsC Gazprom Neft-Noyabrskneftegas and a branch of Muravlenkovskneft. Four technologies for various squeeze-cementing purposes were tested. Efficiency of technology application ranged
from 60 % to 100 %. squeeze cementing was performed in 90 wells and additional production was 72,600 t oil. In 2010, production companies of JsC Gazprom Neft worked jointly with specialists of Gazprom Neft-NTC LLC on conformance control. 433 tasks were performed and additional production was 259 000 t. of oil. Energy savings due to jobs done was 18 mn kW, while the total economic gain from introducing this technology was, 846 mn RUB. In 2010, in the framework of the surfactant Water Flooding on the Pilot Area of Vyngapurovskoye field project, the company performed laboratory tests to select optimum chemicals and concentrations; economic and geologicalproduction justification of surfactant water flooding on a pilot area of Vyngapurovskoye field; the pilot area for surfactant water flooding was selected where the first injection with a volume of 20,000 m of 0.75 % surfactants solution was conducted. Additional oil production resulting from the project was 1,700 t, revenue from oil sales 10.5 mn RUB. From December 2009 to December 2010, at fields of OJsC Gazprom Neft-Noyabrskneftegas and the branch of Muravlenkovskneft, jointly with Gazprom Neft-NTC LLC, non-productive injection reduction operations were performed. At OJsC Gazprom Neft-NNG: z technological injection reduced by 6.4 % z productive injection increased by 4.7 % or 249,000 m z non-productive injection reduced by 27.1 % or 771,000 m At the branch of Muravlenkovskneft: z technological injection reduced by 5 % or 367,000 m z productive injection reduced by 1 % or 61,000 m z non-productive injection reduced by 31.8 % or 306,000 m.
Annual report 2010
117
Non-productive injection reduction was achieved due to injection front shift, squeeze cementing, shutting down injection wells with injection beyond external boundaries, and reducing fresh-water injection. The company is continuing to develop well field tests. Trialling stationary remote control downhole metering system technologies is a real step in creating 'intelligent wells' at Priobskoye and some other fields. The expected effects are reliable online information about downhole parameters, well mode optimisation and an oil recovery increase of 2 %3 %. Tuning up the model based on well test results helped overcome the tendency in production decline (Priobskoye field). Actual growth of production on sector 8 of Priobskoye field was about 24 %, and the design increase of final oil recovery was 4.7 %. In 2010, the company introduced 2D-modelling software for regional projects. Training and workshops involving leading Russian and foreign specialists were arranged. Key performance indicators of introduction were defined. Based on results of regional operations, the company discovered future reserves totalling 250 mn t of oil. The increase of C1+C2 oil reserves was 4,200,000 t (six exploration wells). The Geology and Exploration department of Gazprom Neft-NTC LLC implemented a number of projects: among which the most important can be identified. The Caspian project a seismic model of the Central and south Caspian was created basin planning was performed, and prospects were identified. In the framework of the project, the prospects for the Turkmen shelf were evaluated (as requested by JsC Gazprom Zarubezhneftegaz) and gained high appraisal from the customer. The Noyabrsk project included a forecast of areal development of exploration targets within Jurassic oil/gas play (based on own procedure) and quantitative assessment, and licence areas for oil production were recommended. The Frolovsk project included recommending licence areas for oil production. The East-siberian project included assessing the resources base of Vakunaiskoye, Ignyalinskoye and Tympuchikanskoye licence areas. This was based on results of completed re-processing and
re-interpretation of geological and geophysical materials, promoting significant growth in the attractiveness of investment.
Oil refining and petroleum chemistry innovations

A number of factors contribute to the need to improve oil refining and petroleum chemistry technologies. These include technical regulations regarding fuel quality improvement, aligning duties on dark and light oil products, new oil refining and petroleum chemistry products (premium brand fuels, oil, new bitumen grades, charred coal), the need to optimise and reduce operating expenditure, the growth of dependence on foreign catalytic agents and technologies, etc. The main tasks of innovative research and development activities in JsC Gazprom Nefts oil refining include ensuring a competitive capability in engineering, improving product quality, reducing operating costs, developing and producing new technologies, solving current engineering problems and developing the companys positive innovative image. The main directions of R&D in 2010 relate to safety and the environment, production technologies and product quality conformance, rational use of resources including inspecting plants, and providing recommendations to optimise operation modes. The company pays special attention to modernisation and new construction for meeting the technical regulations 'On Requirements for Motor and Aviation Gasoline, Diesel and Marine Fuel, Jet Fuel and Residual Fuel Oil', which came into force in 2009. To meet legislative requirements, a motor fuel quality upgrade programme was developed for the OJsC Gazprom Neft-Omsk Refinery and the OJsC Moscow Refinery. The Omsk refinery is currently undergoing a large-scale modernisation programme. This aims to improve the environmental properties of fuel produced by the plant, extend the refining level significantly, and expand the volume and range of products produced: high-octane gasoline, diesel fuel, aromatic hydrocarbons, charred coal, modern bituminous materials, and petroleum chemistry
118
JsC GAZPROM NEFT
products. According to the plan, the overall investment into modernising Omsk refinery over 10 years will exceed 100 bn RUB. In October 2010, an isomerisation unit for light naphtha 'Isomalk 2' was commissioned at Omsk refinery. This unit will produce the most valuable component for high octane fuel, free from olefin and aromatic hydrocarbons. The project includes engineering solutions allowing production of gasoline with a high octane level conforming to Euro 4 and Euro 5 standards. Introducing the 'Isomalk 2' isomerisation unit will enable processing of oil at deeper levels and increase production of high-octane petrol. In July 2010, a time capsule was placed at the construction site of the light naphtha isomerisation unit at Moscow refinery. This marked the start of a large-scale modernisation programme, lasting up to 2020. The programme envisages reconstructing existing assets and constructing new refining capacities, improving process safety, and implementing environmental projects at the enterprise. In total, the company will invest over 56 bn RUB into the refinery modernisation programme. Installing the light naphtha isomerisation unit will enable the company to produce motor gasoline component with up to 90.5 grade octane number. Commissioning of this unit is planned in 2012. The unit capacity will be 650,000 t per year. From January 2010, Moscow refinery began producing diesel fuel corresponding to Euro 4 standard for supplying the domestic market.
Haldor Topsoe catalytic agent was loaded at the hydrocracking unit to ensure production of diesel fuel with sulphur content less than 50 mg/kg. Using Euro 4 diesel fuel in vehicles will significantly extend the engines service life, improve the vehicles technical characteristics, and help minimise combustion products emissions into the environment. In the framework of upgrading NIs refining capacities at the oil refinery in Panevo (serbia), construction of the light hydrocracking and hydrotreatment plant began in 2010. This construction will permit an increase in refining volumes up to maximum plant load: 4.8 mn t per year. This would not only cover the serbian market demands, but would create conditions to satisfy fuel export supply to the Balkan countries. Gazprom Nefts total investment into Panevo refinery modernisation projects equals 500 mn EUR up to 2012. In particular, this involves constructing the hydrogen unit at Panevo refinery and modernising and constructing the plants industrial infrastructure and various environmental projects. The company will allocate 396 mn EUR for the hydrocracking unit construction alone in the framework of overall financing. In accordance with the modernisation programme, unit commissioning will be in the third quarter of 2012.
Annual report 2010
ENERGy AND ENERGy EFFICIENCy
119
Gazprom Neft is working on ensuring efficient use of energy. The company introduces energy consumption control and reduction measures, and develops and implements efficient energy use programmes.
To reduce oil production energy supply costs in 2010, the company began implementing a programme of oil production energy efficiency enhancement aimed at minimising power costs for oil production processes. This resulted in minimisation of specific energy consumption equal to 3.3 % (from 32.8 to 31.7 kW) in 2010 versus 2009. Overall energy consumption by oil producing companies in 2010 was 5,377 mn kW/h which is 107 mn kW (2 %) more than in 2009, while liquid production volumes increased by 1.6 %. The monitoring system and energy efficiency promotion minimised oil losses from 96,000 to 22,000 t per year, while respective revenue increased by 365 mn RUB in four years. Gazprom Neft is actively developing its own generation. As of the end of 2010, 11 % of the companys power demand was satisfied by power generation from internal generators (IG).
The main directions in enhancing energy efficiency at JsC Gazprom Nefts group of companies include implementing a programme for minimising energy consumption and costs of electricity purchase by optimizing the energy-preservation scheme. Implementing the programme for energy saving in oil production in 2006-2010 saved 3,538 mn RUB, including 1,401 mn RUB in 2010. since 2006, energy consumption by oil production companies increased from 4.8 bn kW to 5.4 bn kW in 2010. At the same time, the electricity rate increased 1.8 times, from 0.9 RUB/kW in 2006 to 1.71 RUB/kW in 2010.
use of purchased energy

2005 Purchased power (minus transferred to third parties), mW Purchased thermal energy (minus that transferred to third parties), mW GJ Gcal 5 246 1 253 5 024 1 200 6 678 1 595 3 546 847 3 584 856 4 036 964 4 025 062 2006 4 746 331 2007 5 104 650 2008 5 378 749 2009 2010
5 307 669 4 886 405
The project aims to reduce power costs and thus reduce production costs. As of today, Gazprom Neft operates six power plants. The largest plant is located on yuzhno-Priobskoye field Gazprom Nefts key asset providing over 20 % to the companys production structure. IGs total capacity to the end of 2010 was 140 mW. In December 2010, the company commissioned the second unit of yuzhno-Priobskoye gas turbine electrical plant with a capacity of 96 mW at Priobskoye field of Gazprom Neft-Khantos LLC. From 2009, energy consumption by refining enterprises rose from 2,774 mn kW to 2,982 mn kW. Consumption increased by 7.5 %, including by 2.5 % due to an oil refining volume increase, and
by 5 % due to commissioning new process plants (Isomalk at Omsk refinery in November 2010, ELOU-AT-4 at yANOs in March 2010, and gasoline isomerisation and gasoline hydrocracking catalytic cracking units). At the same time, the energy rate in 2010 increased in Omsk region by 13 %, in Moscow by 29 % and in yaroslavl region by 13 %. OJsC Gazprom Neft-Omsk Refinery (December 2010) and OJsC Moscow Refinery (January 2011) received statuses of subjects of the wholesale electricity market, which completes the preparatory technical stage for further re-issue of supply contracts. This would enable minimisation of expenses for electricity purchase on the electricity and power wholesale market.
120
JsC GAZPROM NEFT
electricity consumption by gazprom neft group enterprises, mn kW

10 000 8 337 8 000 8 338 8 404
146 mn RUB. The programme implemented by JsC Moscow Oil Refinery aims to ensure a reliable and continuous power supply, due to replacing worn out equipment and introducing respective measures with an economic effect equal to 47 mn RUB. In 2010, power consumption by oil product suppliers was 0.089 bn kW. Energy tariffs are defined in accordance with the regional location of the oil product supplier. Planned power consumption in 2011 will increase by 14.6 %, due to expanding the number facilities and scope of services, and will be 0.102 bn kW. The company will save up to 50 mn RUB in 2011 after taking measures to minimise power consumption at filling stations. Typical fuelling stations will undergo a power audit in 2011. Based on results, the company will develop a number of unified measures to be implemented by oil product supplies. This will optimise power consumption. Thermal energy consumption increased from 334,000 Gcal in 2009 to 359,000 Gcal in 2010 due to commissioning boiler plants at three fields: Priobskoye, Kholmistoye and Chatylkinskoye. Thermal energy costs in 2010 were 535 mn RUB.
6 000
Oil production Rening Oil product suppliers
4 000
2 000
2008
2009
2010
To limit increasing energy costs, oil refineries are implementing energy-efficiency enhancement programmes. Gazprom Neft Omsk refinery power consumption will drop by 4.8 % to 2013. This will provide an additional economy to the amount of
PERsONNEL DEVELOPMENT
The Companys growing scale of business and the growing portfolio of projects and assets call for effective and high-quality human resource support, which is why a lot of attention is being paid to personnel development programmes and to HR reserves. In 2010, we also made a big step towards enhancing the corporate culture, by launching and introducing the Companys Code of Ethics.
Vitaly Baranov Deputy Chairman of the Management Board Deputy General Director for Organisational Issues
122
sOCIAL REsPONsIBILITy AND REGIONAL POLICy
JsC GAZPROM NEFT
PERsONNEL, OCCUPATIONAL sAFETy AND HEALTH

Personnel development within Gazprom Neft Group is a key to successfully implementing its business strategy until 2020. Gazprom Neft invests in personnel, support initiatives and innovations designed to enhance operation and management efficiency. The company acts as a responsible employer, maintaining equal relations with the employees, ensuring decent wages, career opportunities and comfortable working conditions. levels of management to appraise and promptly monitor personnel performance. The company began reviewing the bonus system (production enterprises, Gazprom Neft-Lubricants, refining enterprises). The company designed the main directions to develop intangible incentives and social support. Due to expanding the business geography, the company is developing a concept of mobile personnel for transferring personnel in Russia and abroad. A grading system continued to be introduced in production enterprises, oil products suppliers, product lines and a number of other sACs. In total, the grading system was introduced in 32 sACs. The system defines unified, clear, and transparent personnel remuneration, training and appraisal principles for all enterprises. In 2010, work began to introduce a uniform social benefit concept to Gazprom Neft Group. The concept includes creating an integrated 'corporate portfolio' standard, which would be provided to all JsC Gazprom Nefts employees, and an additional range of benefits. This would be selected by the enterprise depending on needs, the enterprises productivity and efficiency level ('cafeteria'). The typical portfolio will include such benefits as voluntary medical insurance, accident insurance, childcare allowance, death allowance, etc. Currently, a list of benefits to be included in the companys social programme has been defined and benefit rates are being developed. In 2010, the company paid on average approximately 29,000 RUB of social benefits per employee, which is 6 % less than in 2009. This insignificant decrease relates to optimizing social benefits in a number of sACs. At the same time, all key programmes, such as voluntary medical insurance, accident insurance, free meals, etc. were retained.
Personnel management policy and standards

In 2010, in the framework of the personnel strategy, the company continued developing its personnel incentives and social welfare standards. The standards regulate procedures for assessing and grading positions; the procedure for setting compensation packages and individual grades for employees of the company and subsidiaries and associates of the company [sAC]; the procedure for calculating, depositing and paying bonuses to sACs employees for their contribution to implementing corporate projects; and the procedure for paying annual bonuses to employees and other issues. The standards form a procedural and normative base to create a uniform wage and social benefit management system. The company developed, approved and recommended standards for adoption by sACs. These include establishing and modifying organisational structure and making changes in the payroll plan; new versions of standards for preparing and approving job descriptions; selecting and approving candidates for vacant positions, sending employees on business trips; planning and providing vacations; a new version of internal regulations; and a new labour agreement template. In 2010, we continued a large-scale project to improve the incentives and wages system and to develop the performance management system. Using indicators, this enables various
Annual report 2010
123
average number of personnel, employees

70 000 60 000 50 000 45 775 40 000 30 000 20 000 10 000 0 47 686 48 339
64 895
50 153
In connection with integrating NIs and sibir Energy into Gazprom Nefts structure, the average number of personnel has increased by 29 %, while the portion of serbian personnel equals 16.4 %. The largest part of Gazprom Neft personnel around a third of the company's total headcount (33 %) is concentrated in the yamalo-Nenets Autonomous District. The share of Omsk and Omsk region is 13 % of company employees (40 % of them employed at the Omsk Refinery). Moscow and Moscow region account for around 14 % of the employees, and approximately 14 % of them work at the Head Office.
Personnel costs and wage growth

2006 2007 2008 2009 2010
The company ensures competitive wages and decent social benefits to its employees in line with the market trends. Average wages in the companys enterprises grow continuously on average by 10 %15 % per year. The 2010 average wage amounted to 50,095 RUB, which is 13.3 % higher than the year before. The overall average wage increase amounts to 72.2 % for the period 2006-2010. Personnel costs in 2010 increased 44.2 % compared to the year before, and totalled 40.6 bn RUB. A perfect employee incentive system, providing for effective work by personnel, enables the company to achieve its business objectives. Therefore, the company continues to develop and introduce a comprehensive incentive system based on competitive wages, performance bonuses and intangible elements.
Under a corporate contract of voluntary medical insurance, the companys employees receive doctors qualified consultations and treatment in the countrys leading clinics, if necessary. Today, Gazprom Neft enterprises employ over 65,000 people working in more than 20 regions of the Russian Federation, as well as Kyrgyzstan, Kazakhstan, Tajikistan, Belarus, serbia, Austria and Italy.
distribution of gazprom neft personnel by region in 2010

1.9 % 0.6 % 1.1 % 16.3 % 1.4 % 14.0 % 2.8 % 2.9 % 12.8 % Moscow and Moscow region St. Petersburg and Leningrad region Khanty-Mansiysk Autonomous District Tyumen region Kemerovo region Omsk region Yekaterinburg & Sverdlovsk region Tomsk region Yamalo-Nenets Autonomous District Novosibirsk region Kyrgyzstan Yaroslavl region Chelyabinsk region Serbia Belarus Other regions (less than 300 employees)
Social package
Collective contracts and other provisions and regulations providing for various social benefits and payments to employees exceeding those established by law are applicable in the companys enterprises. The social package in most enterprises includes voluntary medical insurance, accident insurance, free meals, material aid for certain occasions, payment for business trips, and other allowances.
2010, %
3.0 % 2.2 % 1.0 % 33.2 % 2.5 % 2.6 % 1.7 %
124
JsC GAZPROM NEFT
total personnel costs, mn rub

50 000
average monthly wages, rub

60 000

40 595.8

50 095 44 227 40 060 33 655 29 094
40 000
50 000
40 000 30 000 28 156.2 24 817.7 20 000 16 477.6 10 000 19 957.8 30 000
20 000
10 000
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
set up in 2009, the Trade Unions and Labour Collectives Coordinating Committee, last year reviewed at four meetings the most urgent questions proposed by the chairmen of trade union committees. These committees represent the interests of enterprises labour collectives in all key business directions of the company. Based on the Committees initiative during session of the companys Management Board, such issues like providing employees with a second set of PPE and overalls, establishing a non-state pension insurance fund and introducing a mortgage programme were discussed. Respective guidance was given to further study, and introducing and settling recommendations of the Committee were discussed at the Management Board. In 2010, the social package payments increased by 21.5 % compared to the previous year, due to an increase in the staff of Gazprom Neft Group (on average, 29,000 RUB per employee).
According to this document: z a list was defined of higher education institutions (partners divided into two categories) comprising strategic higher education institutions and territorial higher education institutions z the template of a contract for cooperating with higher education institutions was developed and approved z directions and programmes for financial support were defined. Last year, Gazprom Neft company was awarded in two categories of the first rating of the Russian higher educational institutions business partners, which was arranged by the Russian Rectors Union: the 'Largest youth Employer' and the 'Largest Investor in Higher Education'. Opening the base department, the Hydrocarbon systems Department, in the Gubkin Russian state University of Oil and Gas, was an important event of the year. In 2010, the company recruited 309 young specialists. Traditionally, young specialists are graduates of such higher education institutions as Tyumen state Oil and Gas University, Ufa Technical Oil and Gas University, Tomsk Polytechnic
Cooperation with educational institutions and recruitment of young specialists

In 2010, the companys management approved Principles of Interaction with Partner Higher Educational Institutions. This aimed to improve the efficiency of the companys cooperation with specialised higher education institutions.
Annual report 2010
125
University, Omsk Technical University and other specialised higher education institutions. The step to the Future programme was developed and launched for young specialists in the final year. According to the programme, each young specialist takes target training aimed at developing their competency in accordance with the corporate management competency model. In the framework of the step to the Future programme, a second corporate workshop of young specialists was held in Moscow region. such events are a critical component in the young specialists motivation system developed by Gazprom Neft.
coaches. In 2010, six such programmes were developed. Two programmes previously developed by Gazprom Neft NTC LLC were uploaded into the corporate technical programmes matrix. A project to develop the technical competencies system in Oil Refining was launched. Last year, the company developed professional competency programmes for six main modules of the Oil Refining Directorate Omsk refinery, pilot testing of employees was conducted to assess target directions of development. The professional competency matrix for the design office of Business service LLCs economics and finances block was designed and introduced to assess the level of employees professional competence and define development needs. In 2010, in the framework of the companys management, potential development modular programmes for almost all key categories of employees were developed and implemented. The programmes aim to develop key managerial skills, create a common management culture, improve the quality of managerial decisions and strengthen the companys leadership potential. Around 300 employees were trained under modular programmes during the year. Heads of departments/head office directorates, sACs general directors, sACs deputy general directors, heads of sACs directorates/departments, managers of personnel departments and employees reserved to such positions participated in the programme. Corporate training was also arranged in the form of short-term training, aimed at satisfying needs in certain competencies. Approximately 500 employees took part in this training.
Employees professional development

Gazprom Neft is traditionally committed to the professional development of its personnel. In 2010, 1,461 employees received training. The training coefficient has remained high (over 1.1) in the last three years. In 2010, training and professional development costs totalled 106.5 mn RUB. In 2010, in the framework of professional training and development, the companys employees participated in more than 750 programmes (open programmes in various directions of activities). The company continued developing professional (technical) competence system-building. In the Exploration of Production competency, models were reviewed in accordance with organisational and structural changes. Knowledge assessments using tests were also conducted systematically and the needs of employees' development were defined. Based on revealed needs, the Expert Review Centre at Gazprom Neft NTC LLC develops and arranges employee training programmes using internal
REGIONAL POLICy
Gazprom Neft is establishing a regional policy led by principles of social responsibility towards territories where it conducts operational and commercial activities. In 2010, we strengthened cooperation with administrations of our key regions: yamalo-Nenets Autonomous District, Khanty-Mansiysk Autonomous District, Omsk, Tomsk and Leningrad regions. At the same time, due to our presence in new regions, we have expanded the geography of our social-economic agreements. All this is a real social responsibility, resulting in growth of loyalty to the company, increased recognisability of Gazprom Nefts brands, and ultimately, business efficiency and risk minimisation.
Alexander Dybal Member of the Management Board Deputy Director General for Corporate Communications
Annual report 2010
127
sOCIAL REsPONsIBILITy IN REGIONs OF PREsENCE

Gazprom Nefts activities have a perceptible effect on developing territories of presence. In some regions, it bears a system-forming character. sustainable development and social modernisation of territories on which Gazprom Nefts oil producing, refining and sales affiliates operate is a key condition for successfully implementing large-scale strategic plans. Gazprom Neft contributes to the social and economic development of Russian regions as an economic entity, large taxpayer and employer, partner of local authorities and local communities in solving priority regional tasks. The company is gradually building partner relations with regional administrations and local communities, based on Russian legislation devoting much attention to tasks of industry and regional development. and yamalo-Nenets Autonomous Districts, Omsk, Tomsk and Leningrad regions. The Regional Policy Committee coordinates the implementation of JsC Gazprom Nefts divisions and affiliates activities related to regional policy. This is organised by the companys corporate communications department. The Committee comprises representatives from operational departments of the head office and Gazprom Nefts largest affiliates. The Committee defines the procedure for charity, sponsorship, grant programmes, and develops recommendations to the companys Management Board on interacting with regions of presence. The company actively participates in forming a favourable social climate and human capital development in regions through corporate charity and sponsorship programmes. Regional specifics, profile and guidelines for developing the companys specific enterprises are taken into account when designing such programmes. Priority directions of social activities in the regions of the companys presence include: z constructing and repairing educational and medical institutions, sports and fitness complexes, and apartment buildings z supporting cultural and historical heritage preservation programmes z assisting in implementing socially critical sports and cultural projects, children and youth support programmes z implementing special programmes for supporting Russias indigenous people in the far north.
The Corporate Regional Policy Concept, adopted by the companys Management Board in 2010, defines a range of principles and mechanisms. These put cooperation with regions on a systematic basis, focus it on solving Gazprom Nefts strategic tasks, and enhance the efficiency of social investment. The companys implements its regional policy mainly in the form of socio-economic agreements with the territories of presence: constituent entities of Russia and municipal formations. The process of preparing and concluding socio-economic agreements is regulated by the companys standard 'socioEconomic Agreements Preparation and Conclusion Procedure'. Agreements include mutual obligations of the company and the regions, describe principles of cooperation in solving social and economic tasks, and develop the scientific and technical potential of the region. In 2010, Gazprom Neft signed socio-economic agreements at the level of constituent entities of the Russian Federation and at the level of municipal formations with the authorities of Khanty-Mansiysk
128
JsC GAZPROM NEFT
The following important social programmes implemented by JsC Gazprom Neft in the framework of socio-economic agreements with regions in 2010 include: z completing a sports and fitness centre in Purpe settlement of Purov District in yamalo-Nenets Autonomous District z completing a multifunctional gym in Muravlenko in yamalo-Nenets Autonomous District z supporting the 'spirit of Fire' 9th International Cinema Festival in Khanty-Mansiysk
z constructing the Chess Academy and sponsoring the World Chess Olympiad in Khanty-Mansiysk z completely overhauling the district surgery, and building the arts school and secondary school in Tarsky District in Omsk region z continuing construction of large sports and fitness complexes in Noyabrsk and Tarko-sale in yamalo-Nenets Autonomous District. In total in 2010, the company spent 1.213 bn RUB on programmes under the aegis of socio-economic agreements within regions of the companys presence.
Annual report 2010
TO sHAREHOLDERs AND INVEsTORs
129
AUTHORIZED CAPITAL, sHAREHOLDER CAPITAL sTRUCTURE

The company s authorised capital is 7,586,079.4224 RUB and it is accrued through placing 4,741,299,639 ordinary registered shares. The face value per share is 0.0016 RUB. The state registration number of JsC Gazprom Nefts issue of ordinary registered shares is 1-01-00146-A. As of 31 December 2009, JsC Gazprom Neft does not have any preference shares. As of 31 December 2009, the shareholder register contains 9,512 accounts, including 16 legal entities, 9,485 individuals, 1 trustee and 10 nominee holders.
list of registered entities that carry on their accounts the block of securities worth of no less than 1 % of the authorised capital
As of 31 December 2010 Entities registered in the shareholder register JsC Gazprom Gazprom Finance B.V. OOO Deutsche Bank (nominee holder) ZAO Depository Clearing Company (nominee holder) ING Bank (Eurasia) ZAO (nominee holder) 'National Depository Centre' Non-for-Profit Partnership (nominee holder) share in authorised capital, % 66.9837 % 5.6791 % 20.0138 % 3.1208 % 2.1306 % 1.2413 % Number of shares 3 175 898 234 269 261 275 948 915 442 147 967 444 101 018 537 58 853 227 As of 31 December 2009 share in authorised capital, % 66.9837 % 5.6791 % 20.0002 % 3.3742 % 2.0960 % 1.2865 % Number of shares 3 175 898 234 269 261 275 948 271 442 159 982 715 99 379 791 60 997 170
130
JsC GAZPROM NEFT
sTOCK MARKET AND CAPITALIZATION

Background information on the outstanding securities of JSC Gazprom Neft:
Ordinary registered shares, state Registration Number 1-01-00146-A of 17 June 2003. The face value per issued share: 0.0016 RUB. Number of issued securities: 4 741 299 639 shares. Issue value: 7 586 079.4224 RUB. Issuer code: sIBN.
Stock trading information

JsC Gazprom Neft shares are traded on the main trading floors in Russia: CJsC MICEX, where, as of 31 December 2010, they accounted for 0.51 % of the index and 0.9 % of OJsC RTs stock Exchange. The volume of trading in JsC Gazprom Neft shares on the MICEX Exchange totalled 76 bn RUB (2,481 mn UsD) in 2010, compared to 77 bn RUB (2,468 mn UsD) in 2009. At the end of 2010, the American Depository Receipts (ADR) issued for JsC Gazprom Neft shares accounted for 0.3 % of total trading volume among foreign company ADRs quoted on the London stock Exchange in the IOB system (827 mn UsD).
changes in the price of jsc gazprom neft shares, micex oil and gas index and price of urals in 2010-2011
130 %
source: micex
Gazprom Neft MICEX Urals
120 %
110 %
100 %
90 %
80 %
70 %
60 %
Jan10
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan11
Annual report 2010
131
changes in the price of jsc gazprom neft shares, micex stock exchange
Mn USD 800 700 600 500 400 80 300 200 100 60 40 20 0
source: micex
JSC Gazprom Nefts share trading volume, mn USD JSC Gazprom Nefts share price, RUB
RUB 180 160 140 120 100
31.01.2010
31.02.2010
31.03.2010
31.04.2010 31.05.2010 31.06.2010
31.07.2010
31.08.2010 31.09.2010
31.10.2010
31.11.2010
31.12.2010
A year-end 2010 decrease in the price of company shares was recorded. In quarters 1 and 2 of 2010, the price dropped but the first drop was immediate and by the end of March, the quote was at the level of the beginning of the year. After the second drop (April-May), a long gradual corrective quotation shift was observed which did not reach the maximum values of the beginning of the year. The companys share price dropped by 21.6 % during the year (based on trading results at CJsC MICEX) and was 128.3 RUB at the end of the year. JsC Gazprom Neft capitalisation as of 31 December 2010 was 19.95 bn UsD. Among the major external factors that negatively affected the price of company shares, the investment community singled out the following:: z The indefinite future of fiscal policy in the Russian oil and gas industry. z A general negative attitude of investors to perspectives of the Russian oil and gas industry development.
Despite a decrease in capitalisation in 2010, there were serious fundamental prerequisites for further growth of the companys shareholder value. It is the best 'value-added' business among Russian companies in terms of the extent of refining, the availability of distribution capacities, and plans for further developing the distribution business which, under the current tax regime, create considerable value for the company. Judging by commonly accepted market value indicators, the market underestimated JsC Gazprom Neft in 2010, compared to international oil companies and Russian competitors. All these factors provide a significant competitive edge for the company, creating considerable value growth potential in the long-term.
132
JsC GAZPROM NEFT
changes in the price of jsc gazprom neft shares in 2010, micex stock exchange
160 % 150 % 140 % 130 % 120 % 110 % 100 % 90 % 80 % 70 % 60 % Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
source: micex
Industry average Gazprom Neft
PARTICIPATING IN THE DEPOsITORy RECEIPT PROGRAMME

During 2010, the American and Global Depository Receipt Programmes for company shares traded in the Us, UK, German and other over-thecounter markets were still operating. One ADR is the equivalent of 5 JsC Gazprom Neft ordinary shares. At the end of 2010, the total number of ADRs issued for ordinary shares was equivalent to 83 mn shares (1.7 % of the companys authorised capital). Gazprom Nefts trading in 2010 amounted to 918 mn UsD, including 827 mn UsD at IOB London stock Exchange, 48 mn UsD at OTCQX, and 43 mn UsD at other markets in Europe (mainly Germany). The depository of JsC Gazprom Nefts receipts is The Bank of New york Mellon.
Ticker CUsIP Ratio Effective as of sEDOL IsIN Depository bank
gZpfy (gaZ, scf) 36829g107 1 adr: 5 ordinary shares 20 april 1999 5109407 ru0009062467 bny mellon
Closing price as of 31 December 2010 52 week maximum price 52 week minimal price Average monthly trading volume (IOB)
usd 20.80 usd 16.95 usd 16.30 69 mn usd
Annual report 2010
133
changes in trading volumes of jsc gazprom neft in 2010 on micex, rts, lse and otcQx, mn usd
450 400 350 300 250 200 150 100 50 0
source: bloomberg, rts, micex
LSE MICEX RTS OTCQX
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
trading volumes of jsc gazprom neft adrs, russia ftse iob index and urals oil price in 2010-2011
130 %
source: micex
Gazprom Neft Russia FTSE IOB Index Urals
120 %
110 %
100 %
90 %
80 %
70 %
60 %
Jan10
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan11
134
JsC GAZPROM NEFT
DIVIDEND HIsTORy
The dividend policy is one of key elements in corporate guidance and a key indicator in maintaining the balance of shareholders interests. The main principles of JsC Gazprom Nefts dividend policy are: z ensuring the greatest transparency of the dividend allocation mechanism and procedure for its payment. The company formalised its dividend policy, which it had been implementing in recent years within the Provision on Dividend Policy. In the provision, the company fixed a minimum amount of annual dividends on shares: 15 % of the companys net profit, calculated in accordance with Us GAAP z observing legislation in force in the Russian Federation, the Articles of Association and the companys bylaws. The right to receive dividends is granted to all shareholders of the register as of the date of compiling the list of shareholders entitled to participate in the General shareholders Meeting, at which the resolution to pay dividends was adopted. The registration date for holders of company ADRs is set separately by the depository bank, which is The Bank of New york Mellon
2006 Dividend per share (RUB): Total dividend per class of shares (RUB): as % of Us GAAP net income Name of the issuers governing body which adopted the resolution to pay dividends: Date of the meeting of the issuers governing body, at which the resolution to pay dividends was adopted, date and no. of the minutes: Dividend payment period: Method of payment and other terms: Unpaid/accrued dividend* ratio,% 8.0822 38 320 131 942 38 % General shareholders Meeting 22 June 2007 Minutes No.42 of 27 June 2007 By 31 May 2008 In cash 0.012 %
z striving to commit to high standards of corporate governance. The company secured the principle of ensuring positive dynamics of dividend payment values subject to the companys net profit growth. The approved JsC Gazprom Nefts Provision on Dividend Policy is posted on the companys official website, where the history of the companys dividend payment can be also viewed z commitment to pay dividends within a short time-span. In september 2010, JsC Gazprom Neft transferred money to the full amount to accounts of its minority shareholders. The resolution of the Annual General shareholders Meeting of the company, dated 29 June 2009, established the dividend amount per JsC Gazprom Nefts ordinary share at 3.57 RUB. The total amount of accrued dividends for the 2009 financial year was 16,926,440,000 RUB.
2007 5.40 25 603 018 051 24 % General shareholders Meeting 20 June 2008 Minutes No.45 of 30 June 2008 By 31 May 2009 In cash 0.016 %
2008 5.40 25 603 018 051 21 % General shareholders Meeting 22 June 2009 Minutes No.47 of 3 July 2009 By 31 May 2010 In cash 0.017 %
2009 3.57 16 926 439 711 20 %** General shareholders Meeting 29 June 2010 Minutes No.0101/01 of 01 July 2010 By 31 May 2011 In cash Obligation term has not yet expired
* Dividends were not paid to the shareholders who failed to provide the data required for dividend transfer under Cl.5 of Article 44 of Federal Law 208-FZ 'On Joint stock Companies', dated 26 December 1995. Dividends accrued on shares of unidentified holders are paid as the shareholders rights to their securities are established. ** Of net profit corrected by one-off revenue and expenditure.
Annual report 2010
135
OBsERVING THE CORPORATE CONDUCT CODE

JsC Gazprom Nefts corporate guidance is characterised by strict compliance with shareholders rights, high-quality investment planning, aligned internal audit and risk management system, high level of financial and informational transparency, and the professional and effective Board of Directors. English) to meet the timeframe stipulated by the effective legislation of the Russian Federation) ensuring the most simple and unobstructed registration procedure for participants of the General shareholders Meeting. A high percentage of the companys minority shareholders participation in General shareholders Meeting proves absence of technical barriers for this providing the opportunity to vote under power of the attorney at the General shareholders Meeting voting by using voting papers using cumulative voting during the Board of Directors selection before the vote, explaining to shareholders the voting procedure for the question including detailed clarification of the cumulative voting principle. A 'filling in' sample is shown on the reverse side of each voting paper counting votes at the General shareholders Meeting by a professional registrar regulating the General shareholders Meeting guarantees equal opportunity for shareholders to voice their opinion and ask questions of interest on the agenda (including to members of the companys Management Board, who take part in the General shareholders Meeting from year to year) declaring the voting outcome at the General shareholders Meeting posting protocols based on results of General shareholders Meetings on the companys official website and making them available to interested parties for acknowledgement.
The company adheres strictly to the norms of legislation in force, focused mainly on compliance and effective protection of shareholders rights: z JsC Gazprom Neft is ensuring equal treatment of company shareholders holding the same class (type) of shares: All companys issued shares belong to one category. Each share provides one vote to its holder. z JsC Gazprom Neft is giving shareholders the opportunity to manage their shares at their own discretion, quickly and at will. z JsC Gazprom Neft is providing a reliable and effective system for recording stock ownership rights. This is ensured by the company cooperating with an independent registrar. z JsC Gazprom Neft is ensuring the effectiveness of preparing and holding General shareholders Meeting procedures: notifying shareholders about the Annual General shareholders Meeting not later than 30 days before its date in two ways: sending a notice to each shareholder and publishing it in Rossiyskaya Gazeta newspaper giving shareholders the opportunity to read the information (materials) subject to disclosure during preparation for the General shareholders Meeting via the internet (the information should be published online in bilingual format (Russian and
136
JsC GAZPROM NEFT
z JsC Gazprom Neft is ensuring shareholders right to receive profit: In the reporting year, the companys Board of Directors approved the Provisions of Dividend Policy. This defines the procedure to establish the amount and dividend payment practice. The company is responsible for incomplete and/or inappropriate dividends payment. JsC Gazprom Neft set the minimal dividend payment limit: 15% of the companys net profit in accordance with Us GAAP principles. The company executes a quick dividend payment policy for its minority shareholders (the company transfers dividends to minority shareholders accounts within three months after the decision on payment). z JsC Gazprom Neft is ensuring effective control over financial and economic activities: The largest worldwide auditing services company, PWC, is invited for the annual audit of financial documents. Establishing the Audit Commission composed of internal auditors from the holding company. Effective work of the Internal Audit Department comprising professional and qualified specialists. The companys subsidiaries comprise auditors reporting to JsC Gazprom Nefts Internal Audit Department. Establishing the Audit Committee at the Board of Directors in charge of the Internal Audit Department. The Audit Committee holds regular meetings on issues of the companys activities in accordance with its competence reflected in the Regulation on the Audit Committee.
z JsC Gazprom Neft is striving to ensure maximum transparency of information by: determining the companys information policy by the Board of Directors publishing information about the company in Russian and English on its corporate website (www.gazprom-neft.ru) not avoiding negative disclosures about the company and its operations regularly disclosing information on the most important events and facts of the companys operations affecting the interests of its shareholders and other interested parties, using the communication means available to the company, including online press-release publishing ensuring disclosures about its operations are made as soon as possible to avoid reducing the relevance of such disclosures using such information dissemination methods that provide its shareholders and other interested parties with free, easy and least expensive access to disclosures not giving preference to meeting the interests of one audience over another when making disclosures disclosing information (documents) on shareholders requests in accordance with the law.
Annual report 2010
137
z JsC Gazprom Neft is creating an efficient system of the company governing bodies, based on: highly professional executives in the governing bodies clearly stated competence of the governing bodies set out in the company Articles of Association absence of persons employed by competitive entities in the companys governing bodies absence of persons in the companys governing bodies that have been found guilty of economic crimes or crimes against the state authorities, or state service interests or local governance interests, or those that were imposed administrative penalties for wrongdoing in entrepreneurship, finance, tax and duties, or the stock market responsibility of governing body members set forth by the company bylaws to refrain from actions that may cause a conflict of interests, and to inform the company about any situations (transactions) that may potentially cause a conflict of interests Accountability of the Board members to General shareholders Meeting Creating Board of Directors committees: Audit Committee and HR and Remuneration Committee. Collegial executive body (Management Board) with accountability to the General shareholders Meeting and the Board of Directors. setting forth the procedure for holding Board of Directors meetings in the bylaws.
z JsC Gazprom Neft is following international social responsibility standards tasks in the social sphere are integrated into the companys long-term strategy: JsC Gazprom Neft has been producing and publishing sustainable development reports for several years. Implementing large-scale programmes focused on environmental and industrial safet y, and occupational safet y improvement. JsC Gazprom Neft is participating in the regions socio-economic development. Implementing personnel incentives and professional development improvement policy.
138
AssET MANAGEMENT AND CORPORATE sTRUCTURE
JsC GAZPROM NEFT
Improving the companys corporate governance structure is designed to enhance the efficiency of Gazprom Nefts operations as a vertically integrated company and optimise the core business management structure at the level of subsidiaries.
West-Messoyakha and East Messoyakha fields in 1+2 categories amount to 560 mn t, and gas reserves of 230 bn m. In 2010, the company continued integrating sibir Energy into Gazprom Neft Group. sibir Energys minority interest (0.35% of charter capital) was paid, followed by its transformation from a public company into a private company. As a result of an audit, in 2010, sibir Energy liquidated 11 non-operational companies. In February 2011, sibir Energys charter capital was reduced by paying interest to the second shareholder OAO CTK (Tsentralnaya Toplivnaya Kompaniya), representing the Moscow Government. Therefore, in early 2011, Gazprom Neft became the sole shareholder of sibir Energy. Fulfilling the contract for NIs (serbia) shares acquisition, in January 2011, JsC Gazprom Neft sent an offer to buy out a minority interest (19 % of shares) from NIs, for completion on 16 March 2011. NIs is one of the largest VIOCs (vertically integrated oil companies) in south-east Europe. In 2010, it transformed into JsC Gazprom Neft and was put on the exchange market. Currently, NIs is the only company in the world with the number of shareholders equalling 4.7 mn people practically all the citisens in serbia. Based on the 2010 results, the serbian Chamber of Commerce and Industry acknowledged NIs as the best serbian company, regarding corporate guidance performance. In 2010, the company continued working on acquiring oil fields of JsC Gazprom; coordinated and approved the transfer plan for Novoportovsky and Orenburg oil fields; and obtained a portion of corporate coordination and approvals. During the year under report, Gazprom Neft entered the active phase of separating the oil service block from the companys structure. The Board of Directors approved the strategy for separating the oil service assets from the companys business, and the company took the main preparatory measures. This should
2010 was a year of serious organisational modifications for the company. The company continued operational integration of new assets into the companys corporate management structure. Unified corporate guidance standards have been adopted in new organisations of Gazprom Nefts Group. By-Laws have also been developed, while governing bodies have been formed. In 2010, on a parity basis with JsC NOVATEK, JsC Gazprom Neft established a joint venture LLC yamal Razvitie which has completed acquiring a 51 % stake in OOO severEnergiya from Gazprom. The remaining 49 % is owned by Arctic Russia B.V. a joint venture of Italian ENI (60 %) and Enel (40 %). OOO severEnergiya holds blocks of shares totalling 100% of charter capital in JsC Arktikgaz, CJsC Urengoil Inc., and JsC Neftegaztekhnologia, which have development and production licenses for oil and gas condensate fields in yamalo-Nenets Autonomous District. OOO severEnergiya controls licenses to develop the samburgsky, yevo-yakhinsky, yaro-yakhinsky, and severo-Chaselsky areas. The areas harbour 919 bn m of gas, 330 mn t of oil and 9 mn t of gas condensate (category ABC1 + 50 % C2). In 2010, JsC Gazprom Neft, jointly with its partner TNK-BP, continued dividing the assets of the slavneft Group. From December 2010 to February 2011, transfer of ownership was completed with respect to shares of CJsC Messoyakhaneftegaz on a parity basis. CJsC Messoyakhaneftegaz is the owner of development licenses for the group of Messoyakha oil and gas fields located in the Gydan Peninsula, Tazovsky Administrative Area, and yamalo-Nenets Autonomous District. Recoverable oil and condensate reserves of
Annual report 2010
139
contribute to minimising Gazprom Neft Groups expenditure, developing competency on specialised markets, and therefore improving oil service quality. Programme implementation should be complete by the end of 2011. In January 2011, the sale of Muravlenko Transport Company was completed. One of the companys strategic tasks is to maximise production with international projects. International projects management from the viewpoint of forming corporate structure is quite different to Russian projects. It requires the company to form principally different corporate control tools. This is conditioned by a foreign element, utilised legislation, taxation and, in particular, specific features of the project. In the framework of the general task set in 2010, the company formed a structure an international
holding allowing Gazprom Neft to execute its functions in projects in Iraq, Equatorial Guinea and Cuba. A company was registered for each of these international projects within the jurisdiction of the Netherlands: Gazprom Neft International s.A. (Luxemburg), Gazprom Neft Badra B.V. for the international project in Iraq Gazprom Neft Equatorial B.V. for international project in Equatorial Guinea, Gazprom Neft Cuba B.V. for international project in Cuba. Currently, this structure is subject to various levels of corporate control: the supervisory boards and the Boards of Directors, which started managing the companies in 2010.
140
CREDIT RATINGs AND DEBT PORTFOLIO MANAGEMENT
JsC GAZPROM NEFT
CREDIT RATINGs
information on the credit ratings assigned to jsc gazprom neft in 2010
Agency standard & Poors scale International scale in foreign currency International scale in national currency National scale (Russia) Moodys International scale in foreign currency Rating ruAA+ 3 Outlook stable stable stable stable
changes in the companys credit ratings

BBB/Baa2
BBB-/Baa3
Invenstment Grade
BB+/Ba1
BB/Ba2
BB-/Ba3
B+/B1 Standart & Poors B/B2 Moodys
B-/B3
2003
2004
2005
2006
2007
2008
2009
Standard & Poors Ratings Services

On 7 December 2010, standard & Poors (s&P) Ratings services changed the outlook on JsC Gazprom Neft ratings from Negative to stable and affirmed all the companys ratings: a 'BBB'corporate credit rating and a ';ruAA+' Russia national scale rating. The change reflects the opinion of s&P Ratings services that the high free cash-flow would allow the company to finance recent acquisitions of large assets without negatively affecting its credit worthiness or liquidity. s&P continues to rate the company's business risks as 'acceptable' and its financial risks as 'significant'. The s&P expectations of parental support from JsC Gazprom (BBB/Negative/A-3) holding a 96 % interest in Gazprom Neft remain unchanged, accounting for a one-point upgrade in the rating. JsC Gazprom Nefts credit ratings on investment level extend opportunities for attracting financing and reducing loan value.
Annual report 2010
141
DEBT OBLIGATIONs
major borrowing in 2010
Lender Nordea RBA stock bonds Credit Agricole syndicated pre-export loan PXF Loan amount UsD 100 000 000.00 UsD 100 000 000.00 RUB 20 000 000 000 UsD 250 000 000.00 UsD 1 500 000 000.00 Date of agreement Due date 15 February 2010 23 March 2010 13 April 2010 31 May 2010 30 July 2010 February 2014 March 2013 April 2013 June 2013 July 2015 Interest rate Libor+3.15 % Libor+2.75 % 7.15 % Libor+2.15 % Libor+2.1 %*
* On 22 February 2011 an additional agreement was signed to reduce the interest rate from 2.1 % p.a. to 1.6 % p.a.
2011 credit portfolio change plans, mn USD

8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Debt as of 1 January 2011 Main debt payment New funds Debt as of 1 January 2012 1 415** 6 357 2 142*** 7 084
The loan agreements contain financial covenants that set requirements for the companys ratios of Consolidated EBITDA to Consolidated Interest Payable, Consolidated Indebtedness to Consolidated Tangible Net Worth and Consolidated Indebtedness to Consolidated EBITDA. Management believes that the company was in compliance with these covenants as of 31 December 2010.
Borrowing plans in 2011

In 2011, the company plans to borrow over 2 bn UsD with the following financial facilities: z Ruble bonds. z Bilateral loans. z Club-deal credit. z syndicated loan. z ECA financing. z Other. On 8 February 2011, the company successfully completed allocating bond issues 08 (5-year circulation period), 09 and 10 (10-year circulation period) to the total amount 30 bn RUB (about 984 mn UsD). The 08-09 bond coupon rate was defined by bookbuilding results at the level of 8.5 %, 10 issue 8.9 %. In the framework of the 09 issue, 5 years after allocation, the investors will receive an offer for earlier acquisition of bonds. In the framework of the 10 series, the offer will be made in 7 years.
** Information from 2010 GAAP reports. *** Information from 2011 business plan
JsC Gazprom Nefts long-term credits and loans as of the end 2010 increased by 18.7 % and amounted to 6,357 bn UsD. The current share of long-term debt in 2010 was 1,415 bn UsD. At the same time, the companys short-term debt decreased 2.4 times to 279 mn UsD in 2010. In 2010, the company used such financing facilities as bilateral loans, stock bonds and pre-export financing.
142
GLOssARy OF KEy TERMs, DEFINITIONs AND ABBREVIATIONs
JsC GAZPROM NEFT
adr of jsc gazprom neft

An American depositary receipt issued for JsC Gazprom Neft shares. It is equivalent to four ordinary shares of JsC Gazprom Neft.
ge
Geological exploration.
gazprom neft group, group, gazprom neft

JsC Gazprom Neft (parent) and its subsidiaries taken as a whole.
fs
Filling station.
geo boe
Barrel of oil equivalent. Geological and engineering operations.
non-cis probable reserves

Unproven reserves which, based on geotechnical data analysis, are much more likely to be extracted. In this sense, if a probabilistic approach is used, a probability of at least 50% should exist that actually extracted volumes would equal or exceed the amount of evaluation of proven and probable reserves. Foreign countries, other than the CIs and Baltic states.
sac
subsidiaries and associates of the company.
proven reserves
Amount of liquid, gaseous and solid hydrocarbons, which, based on geotechnical data, with sufficient certainty, can be extracted using an industrial method from known deposits starting on a definite date under existing economic conditions, utilised operating procedures and applicable governmental regulations.
vioc
Vertically integrated oil company.
possible reserves
Unproven reserves which, based on geotechnical data analysis, are less likely to be extracted as compared to probable reserves. In this sense, if the probabilistic approach is used, a probability of at least 10% should exist that actually extracted volumes would equal or exceed the amount of evaluation of proven, probable and possible reserves.
dollars, usd
Us dollars.
dnem
Differentially-normalised electrical measurements.
eu hydrocracking
One of the cracking methods, processing of high-boiling oil fraction, oil fuel or goudron to produce petrol, diesel and jet fuel, lubricants, etc. European Union.
ebitda
Earnings before interest, taxes, depreciation and amortisation.
hydrofining
Removing organic sulphur, nitrogen and oxygen compounds from petroleum products using hydrogen molecules. The quality of petroleum products improves following hydrofining.
associate
A company in which Gazprom Neft Group holds more than 20 % of voting shares (if a joint-stock company) or 20 % of the authorised capital (if a limited liability company).
extent of refining
Analytical indicator, which is a ratio of quantity of products produced from oil except for gross oil fuel and amount of processed petroleum raw stock. Measured in percent. Explored reserves by Russian classification standards. They represent the part of geological reserves, extraction of which, as of the date of assessment, is cost-effective, taking into account the market conditions and rational use of modern equipment and technologies, and subject to complying with the subsoil and environmental protection requirements. Explored gas reserves (categories A1+B1+C1) are deemed fully recoverable. For oil and gas condensate reserves, a special extraction factor is used, calculated on the basis of geotechnical factors.
a1+b1+c1 hydrocarbon reserves
gpp
Gas and/or condensate processing plant.
frac
Hydraulic fracturing.
Annual report 2010
143
C1 category oil or gas reserves established to be present in specific wells, with favourable production and geological data also available for other wells. C2 category oil or gas reserve expected to be present within certain known gas-bearing areas, based on geological and geophysical data. C2 reserves are treated as preliminary estimates and serve as the basis for organising exploration at a specific field.
c1+c2 hydrocarbon reserves
met
Mineral extraction tax.
vat
Value-added tax.
r&d
Research and development.
npZ catalytic cracking

Catalytic thermal treatment of petroleum fractions to produce high-octane petrol. Refinery.
netback
selling price, excluding transportation expenses.
coking
Process of liquid and solid-fuel processing by heating without air entry. A solid product coke and volatile products are formed while fuel decomposes.
ep
Environmental protection.
ogf jsc gazprom nefts reserves recovery ratio

Gross increase of proven reserves divided by volume of products received in the period. Own generation facility.
saa
surface-active agents.
la
Licence area.
pbc
Polymer-bituminous cement.
cs
Compressor station.
primary distillation
Petroleum refining using an atmospheric-and-vacuum distillation unit. Oil passes to the distillation tower for atmospheric distillation (distillation under atmospheric pressure). Here, it is separated into several fractions: light and heavy gasoline fraction, kerosene fraction, diesel oil fraction and residue of atmospheric distillation fuel oil. The quality of the fraction produced does not conform to requirements of commercial oil, so the fractions are subject to further (secondary) processing.
m3
Cubic meter of natural gas as measured at a pressure of one atmosphere and 20C.
prms and sec international standards

International classification and estimation of hydrocarbon reserves by PRMs (Petroleum Reserves Management system) and sEC (securities and Exchange Commission) standards. The standards not only assess the presence of hydrocarbons. They also provide estimates as to the economic practicability of their extraction and the justification of their presence, while accounting for the economic life of a field (term of the licenses for its development).
ag
Associated gas.
prospecting and exploratory drilling

The volume of prospecting and exploratory drilling in the reporting period. This includes the number of meters drilled in wells, completed and being drilled, but completed in the next reporting period.
micex
Moscow Interbank Currency Exchange.
processing plants capacity

Maximum possible products output at the plant in a given period.
jp
Joint project
ogcf
Oil and gas condensate field.
sc
squeeze cementing.
144
JsC GAZPROM NEFT
rts
Russian Trading system stock exchange.
fc
Filling complex.
mip
Medium-term investment program.
cc
Charter capital.
cis
Commonwealth of Independent states former republics of the UssR, other than Latvia, Lithuania and Estonia.
fts of russia
Federal Tariff service of Russia.
ffms of russia
Federal Financial Markets service.
jv
Joint venture.
Khmad
Khanty-Mansiysk Autonomous District.
lng
Liquefied natural gas.
central asia
Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan.
psa
Production sharing agreement.
etf iso 14001 standard

International environmental standard. It identifies the environmental quality management system's requirements and is used to develop environmental policies subject to legislative requirements. It applies to the environmental aspects of an organisations activities that can be controlled and should be influenced. The standard is voluntary and does not replace legislative requirements. Electronic-trading floor.
ynad
yamalo-Nenets Autonomous District.
2d, 3d
seismic survey.
silco (siberian light)

siberian light crude oil.
baltic states
Latvia, Lithuania and Estonia.
toe
Ton of oil equivalent (carbon equivalent). Equal to 877 m of natural gas.
Annual report 2010
APPENDIX
145
MAJOR TRANsACTIONs AND RELATED PARTy TRANsACTIONs

In 2009, JsC Gazprom Neft did not enter into any major transactions as defined by current legislation of the Russian Federation.
List of Related Party Transactions in 2010, Approved by JSC Gazprom Nefts Governing Bodies.
No. Party to transaction
subject and material terms of transaction
Related party
Minutes no., Date
TRANsACTIONs APPROVED By THE BOARD OF DIRECTORs 1 CJsC Football Club Zenit Advertising services Agreement GPN09/09000/02314/P of 1 Jan 2010. Buyer: JsC Gazprom Neft, Executor: CJsC FC Zenit. Contract value 1.014,2 mn RUB. 1. 1. JsC Gazprom, holding through its affiliates OJsC GPB and Gazprom Transgaz sankt-Peterburg, more than a 20 % interest in CJsC FC Zenit 2. Member of the Board of Directors, General director of JsC Gazprom Neft, holding the position of Member of the Board of Directors and President of CJsC FC Zenit: A.V. Dyukov 3. 3. Member of the Board of Directors of JsC Gazprom Neft, concurrently Member of the Board of Directors CJsC FC Zenit: K.G. seleznev 1. JsC Gazprom, holding through its affiliates OJsC GPB and Gazprom Transgaz sankt-Peterburg, more than a 20 % interest in CJsC FC Zenit 2. Member of the Board of Directors, General director of JsC Gazprom Neft, holding the position of Member of the Board of Directors and President of CJsC FC Zenit: A.V. Dyukov 3. Member of the Board of Directors of JsC Gazprom Neft, concurrently Member of the Board of Directors CJsC FC Zenit: K.G. seleznev Member of JsC Gazprom Nefts Management Board, member of supervisory Committee on NP Avangard HC, A.M. Dybal PT-0102/03, 24.02.2010
CJsC FC Zenit
Additional agreement No.1 to Advertising services Agreement GPN09/09000/02314/P of 1 Jan 2010. Buyer: JsC Gazprom Neft, Executor: CJsC FC Zenit. scope of advertising services changed without change to the total agreement value
No. PT-0102/24 1 sep 2010
NP Avangard Hockey Club
Advertising services Agreement of 1 Jan 2010. Buyer: JsC Gazprom Neft, Executor: NP Avangard Hockey Club. Contract value 5.7 mn RUB.
No. PT-0102/03 24 Feb 2010
NIs a.d., Novi sad
special Purpose Loan Agreement 1. JsC Gazprom as its affiliate JsC Gazprom Neft owns No. PT-0102/08 of GPN-09/12100/00611 of more than 20 % in charter capital of a party to the 26 Mar 2010 28 Apr 2010. transaction Borrower: NIs a.d. , Novi sad 2. Members of the Management Board of JsC Gazprom, Lender: JsC Gazprom Neft holding positions in the governing bodies (Board Contract value is 80.0 mn EUR. Interest of Directors) of Nis a.d. Novi sad: K.A. Kravchenko, rate: Libor+2 % p.a. Maturity date: A.M. Cherner, A.M. Dybal, V.V. Baranov, I.K. Antonov, 31 Dec 2024 V.V. yakovlev special Purpose Loan Agreement 3. JsC Gazprom as its affiliate JsC Gazprom Neft owns No. PT-0102/08 of GPN-09/12100/00612 of more than 20 % in charter capital of a party to 26 Mar 2010 28 Apr 2010. transaction Borrower: NIs a.d. , Novi sad 4. Members of the Management Board of JsC Gazprom, Lender: JsC Gazprom Neft holding positions in the governing bodies (Board Contract value is 76.8 mn EUR. Interest of Directors) of Nis a.d. Novi sad: K.A. Kravchenko, rate: Libor+2 % p.a. Maturity date: A.M. Cherner, A.M. Dybal, V.V. Baranov, I.K. Antonov, 31 Dec 2024 V.V. yakovlev
NIs a.d., Novi sad
146
JsC GAZPROM NEFT
No. Party to transaction 6 LLC National Oil Consortium
subject and material terms of transaction special Purpose Loan Agreement of GPN-09/12100/00375 of 26 Mar 2010. Borrower: JsC Gazprom Neft Lender: LLC NOC Contract value is 3 700 mn RUB. Agreement to prepare emission documents for registration of JsC Gazprom Nefts 06-10 series bonds issue. Parties to transaction: Issuer - JsC Gazprom Neft Consultant OJsC Gazprombank. Consultants remuneration 30 000 RUB. Agreement for initial offering and further circulation of JsC Gazprom Nefts 06-10 series bonds issue. Parties to transaction: Issuer - JsC Gazprom Neft Organiser OJsC Gazprombank. Organisers remuneration up to 1 % of total nominal value of offered bonds. Agreement for purchase of documentary inconvertible interest bearer bonds, 06-10 series, under public offer. Parties to transaction: Issuer - JsC Gazprom Neft. Purchaser - OJsC Gazprombank. Total transaction value (several related transactions) to purchase by OJsC Gazprombank while offering of JsC Gazprom Nefts bonds at least 2 % of JsC Gazprom Nefts balance sheet assets according to data of accounting reporting on the last reporting date preceding transaction date. Advertising services Agreement of 1 sep 2010. Buyer: JsC Gazprom Neft, Executor: NP Avangard Hockey Club. Contract value 5.64 mn RUB. Agency contract to print advertising materials in saint Petersburg mass media. Parties to transaction: Principal JsC Gazprom Neft Agent LLC Gazprom Neft Lubricants Agents remuneration 0.1 % including VAT of cost services in relation to which Agent made transaction for Principal Loan to Gazprom Neft Cuba B.V. Borrower - Gazprom Neft Cuba B.V. Lender JsC Gazprom Neft Loan value up to 50.0 mn UsD Maturity period 1 Jul 2015
Related party 1. JsC Gazprom as its affiliate JsC Gazprom Neft owns 20 % in LLC NOC which is a party to the transaction 2. Director General of JsC Gazprom Neft (A.V. Dyukov) who is a member of LLC NOCs Board of Directors
Minutes no., Date No. PT-0102/12 26 Apr 2010
Gazprombank (Open Joint stock Company)
1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva)
No. PT-0102/18 18 Jun 2010
1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva) 1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva)
No. PT-0102/18 18 Jun 2010
No. PT-0102/18 18 Jun 2010
10
NP Avangard Hockey Club
Member of JsC Gazprom Nefts Management Board, member of supervisory Committee on NP Avangard HC, A.M. Dybal
No. PT-0102/03 24 Feb 2010
11
LLC Gazprom Neft - Lubricants
3. JsC Gazprom as its affiliate JsC Gazprom Neft owns 20 % in LLC Gazprom Neft - Lubricants which is a party to transaction 4. Member of JsC Gazprom Nefts Management Board being the member of LLC Gazprom Neft Lubricants Board of Directors, A.M. Cherner
No. PT-0102/24 1 sep 2010
12
Gazprom Neft Cuba B.V.
JsC Gazprom as its affiliate (Gazprom Neft Finance B.V.) will be the sole participant in established Gazprom Neft Cuba B.V. which is a party to transaction
No. PT-0102/27 4 Oct 2010
Annual report 2010
147
No. Party to transaction 13 OJsC Gazprombank
subject and material terms of transaction Loan on overdraft to JsC Gazprom Neft. Borrower - JsC Gazprom Neft Lender - OJsC Gazprombank Loan value at least 8 bn RUB. Maturity period 25 Jul 2011 Interest rate: MOsPRIME 1M + 2.5 % p.a. on actual debt
Related party 1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva)
Minutes no., Date No. PT-0102/29 7 Oct 2010
14
OJsC Gazprombank
Bank guarantees for JsC Gazprom Neft 1. Members of the Board of Directors of JsC Gazprom on obligations towards legal entities. Neft, concurrently Members of the Board of Directors Principal - JsC Gazprom Neft of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in surety - OJsC Gazprombank OJsC GPB, and having its affiliates taking positions Guarantee value at least 3 bn RUB in the Banks Board of Directors (A.B. Miller, A.B. Guarantee period 15 Dec 2013 Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva) Bank commission 0.5 % p.a. of issued guarantee Opening of letter of credit for JsC Gazprom Neft Applicant - JsC Gazprom Neft Bank - OJsC Gazprombank Letter of credit value at least 2 bn RUB Maturity period 15 Dec 2013 Bank commission 0.9 % Provision of guarantee surety - JsC Gazprom Neft Bank - OJsC Gazprombank Principal LLC Gazprom Neft Lubricants Limit of liability at least 150 mn RUB Guarantee period 14 Dec 2013 Provision of guarantee surety - JsC Gazprom Neft Bank - OJsC Gazprombank Principal JsC Gazprom Neft Tyumen Limit of liability at least 76.8 mn RUB Guarantee period 31 Jul 2013 Provision of guarantee surety - JsC Gazprom Neft Bank - OJsC Gazprombank Principal JsC Moscow Refinery Limit of liability at least 3.0 bn RUB Guarantee period 15 Dec 2013 1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva) 1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva) 1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva) 1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva)
No. PT-0102/29 7 Oct 2010
15
OJsC Gazprombank
No. PT-0102/29 07 Oct 2010
16
OJsC Gazprombank
No. PT-0102/29 7 Oct 2010
17
OJsC Gazprombank
No. PT-0102/29 7 Oct 2010
18
OJsC Gazprombank
No. PT-0102/29 7 Oct 2010
19
OJsC Gazprombank
Provision of JsC Gazprom Nefts 1. Members of the Board of Directors of JsC Gazprom guarantee under CJsC Gazprom Neft Neft, concurrently Members of the Board of Directors Orenburgs obligations. of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova surety - JsC Gazprom Neft 2. JsC Gazprom, holding a more than 20 % interest in Borrower - OJsC Gazprombank OJsC GPB, and having its affiliates taking positions Lender - CJsC Gazprom Neft Orenburg in the Banks Board of Directors (A.B. Miller, A.B. Limit of liability at least 45.5 mn RUB Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva) Guarantee period 30 Jun 2015 special-Purpose Loan Agreement of GPN-09/12100/01672 of 13.10.2010. Borrower: LLC NOC Lender: JsC Gazprom Neft Contract value is 156.7 mn RUB. Maturity period 31 Dec 2013 1. JsC Gazprom as its affiliate JsC Gazprom Neft owns 20% in LLC NOC which is a party to transaction 2. Director General of JsC Gazprom Neft (A.V. Dyukov) who is a member of LLC NOCs Board of Directors
No. PT-0102/31 19 Nov 2010
20
LLC National Oil Consortium
No. PT-0102/33 24 Nov 2010
148
JsC GAZPROM NEFT
No. Party to transaction 21
subject and material terms of transaction
Related party JsC Gazprom as its affiliate (sibir Energy) owns more than 20 % in JsC Oil Company Magmas charter capital which is a party to transaction
Minutes no., Date No. PT-0102/33 24 Nov 2010
JsC Oil Company Magma Loan Agreement Borrower: JsC Gazprom Neft Lender: JsC OC Magma Contract value is 15 bn RUB. Maturity period not more than 183 days from date of loan provision or each its portion OJsC Gazprombank Provision of JsC Gazprom Nefts guarantee under JsC Gazprom Neft Omsk Refinerys obligations. surety - JsC Gazprom Neft Borrower - OJsC Gazprombank Lender - CJsC Gazprom Neft Omsk Refinery Limit of liability 105 bn RUB Guarantee period 30 Jun 2015 Integrated project management agreement for development of Khunin-6 oil block development. Customer JsC Gazprom Neft Contractor LLC NOC Contractors remuneration 801.04 mn RUB Contract validity 31 Dec 2013 Purchase of share in LLC NOCs charter capital by JsC Gazprom Neft Contribution to charter capital 3.52 bn RUB Advertising services agreement. Advertiser JsC Gazprom Neft Advertising distributor CJsC Hockey Club sKA Contract value 413 mn RUB Validity from 3 Dec 2010 until 30 Apr 2011
22
1. Members of the Board of Directors of JsC Gazprom Neft, concurrently Members of the Board of Directors of OJsC GPB: A.B. Miller, A.B. Kruglov, O.P. Pavlova 2. JsC Gazprom, holding a more than 20 % interest in OJsC GPB, and having its affiliates taking positions in the Banks Board of Directors (A.B. Miller, A.B. Kruglov, O.P. Pavlova, M.L. sereda, E.A. Vasilieva)
No. PT-0102/33 19 Nov 2010
23
3. JsC Gazprom as its affiliate JsC Gazprom Neft owns 20 % in LLC NOC which is a party to transaction 4. Director General of JsC Gazprom Neft (A.V. Dyukov) who is a member of LLC NOCs Board of Directors
No. PT-0102/36 8 Dec 2010
24
1. JsC Gazprom as its affiliate JsC Gazprom Neft owns 20 % in LLC NOC which is a party to transaction 2. Director General of JsC Gazprom Neft (A.V. Dyukov) who is a member of LLC NOCs Board of Directors A.V. Dyukov, who is concurrently Member of the Board of Directors, single-member executive body of JsC Gazprom Neft and Chairman of the Board of Directors of CJsC Hockey Club sKA.
No. PT-0102/36 8 Dec 2010
25
CJsC Hockey Club sKA
No. PT-0102/42 29 Dec 2010
26
CJsC FC Zenit
Advertising services Additional 1. JsC Gazprom, holding through its affiliates OJsC GPB Agreement No.2 to Agreement and Gazprom Transgaz sankt-Peterburg LLC, a more No. GPN-09/09000/02314/P of than a 20 % interest in CJsC FC Zenit 28 Dec 2009. 2. Member of the Board of Directors, General director of Buyer: JsC Gazprom Neft, JsC Gazprom Neft, holding the position of Member of Executor: CJsC FC Zenit. Change the Board of Directors and President of CJsC FC Zenit: of services cost under agreement A.V. Dyukov depending on success of Zenit team in 3. Member of the Board of Directors of JsC Gazprom Russias Football Championship among Neft, concurrently Member of the Board of Directors premier league clubs teams CJsC FC Zenit: K.G. seleznev Advertising services Additional Agreement No.3 to Agreement No. GPN-09/09000/02314/P of 28 Dec 2009. Increase of services cost under agreement to 1.08 bn RUB 1. JsC Gazprom, holding through its affiliates OJsC GPB and Gazprom Transgaz sankt-Peterburg LLC, a more than a 20 % interest in CJsC FC Zenit 2. Member of the Board of Directors, General director of JsC Gazprom Neft, holding the position of Member of the Board of Directors and President of CJsC FC Zenit: A.V. Dyukov 3. Member of the Board of Directors of JsC Gazprom Neft, concurrently Member of the Board of Directors CJsC FC Zenit: K.G. seleznev
No. PT-0102/42 29 Dec 2010
27
CJsC FC Zenit
No. PT-0102/42 29 Dec 2010
ADDREssEs AND CONTACTs
full name Joint stock Company Gazprom Neft abbreviated name JsC Gazprom Neft legal address 5A Galernaya ul., saint-Petersburg, 190000, Russian Federation Company registered on 6 October, 1995 by the Omsk state Registration Chamber state Registration Certificate # 38606450 Primary state Registration Number 1025501701686. mailing address 125A Profsoyuznaya ul., Moscow, 117647, Russian Federation internent address http://www.gazprom-neft.ru/ information service Tel: +7 (495) 777-31-52 Tel: 8-800-700-31-52 (toll free in Russia) Fax: +7 (495) 777-31-51 Email: info@gazprom-neft.ru press service media relations Tel: +7 (495) 777-31-43 Fax: +7 (495) 777-31-42 Email: pr@gazprom-neft.ru shareholder relations corporate governance department Irina Chubarova Tel: +7 (495) 961-13-24 Fax: +7 (495) 961-27-59 Email: Chubarova.IV@gazprom-neft.ru
investor relations investor relations department Tel: +7 (495) 662-75-48 Email: ir@gazprom-neft.ru head of the consolidation and international reporting department Andrey shvetsov Email: shvetsov.As@gazprom-neft.ru head of the investor relations board Anna sidorkina Email: sidorkina.AV@gazprom-neft.ru head of the investor relations department Alexey Kamenskiy Email: Kamenskiy.AN@gazprom-neft.ru auditor The 2010 accounting (financial) statements were audited by independent auditing firm CJsC PricewaterhouseCoopers Audit (CJsC PwC Audit). Address: 10 Butyrsky Val, 'Belaya Ploschad' Office Centre, 125047, Moscow, Russian Federation Tel: +7 (495) 967-60-00 Fax: +7 (495) 967-60-01 www.pwc.ru registrar Closed Joint stock Company specialised Registrar Holder of the Gas Industry shareholder Register (ZAO spetsializirovanny Registrator Derzhatel Reestra Aktsionerov Gazovoy Promyshlennosti) (ZAO sP-DRAGa). Address: 71/32 Novocheremushkinskaya st., 117420, Moscow, Russian Federation Phone: +7 (495) 719-40-44 Fax: +7 (495) 719-45-85 Web: www.draga.ru Email: info@draga.ru
This Annual Report was preliminarily approved by the Board of Directors of JsC Gazprom Neft on 15 April 2011 (Minutes No. PT-0102/07 on 19 April 2011).
A.V. Dyukov Director General
O.N. Makretskaya Chief Accountant
www.gazprom-neft.ru

GPN Annual Report 2010

Transféré par

Informations du document

Description originale:

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

GPN Annual Report 2010

Transféré par

Droits d'auteur :

Formats disponibles

ANNUAL REPORT 2010

Annual report 2010

KEy PERFORMANCE INDICATORs

JsC GAZPROM NEFT

sales revenue, mn usd

net income, mn usd

8 000 6 601 6 091

4 000 3 661 3 000

7 226 6 000 5 977

3 346* 3 148 2 685*

Annual report 2010

Key production indicators Proven reserves of oil, mn bbl of gas, bn ft

net cash from operating activities, mn usd

net income per barrel, usd per barrel

13,48 12,00 11,32 2006 2007 2008 2009 2010 10,00

JsC GAZPROM NEFT

Annual report 2010

JsC GAZPROM NEFT

Annual report 2010

JsC GAZPROM NEFT

Alexander Dyukov Chairman of the Management Board, JsC Gazprom Neft

Annual report 2010

JANUARy FEBRUARy MARCH

JsC GAZPROM NEFT

Gazprom Neft held the first Corporate Forum.

EXTENT OF PRODUCTION TO 2020 RAW MATERIAL PROCEssING

sALEs FOR END CONsUMERs

MN T PER yEAR MN T PER yEAR

JsC GAZPROM NEFT

Vision of business targets:

mn t raw materials per year

Annual report 2010

sales for end consumers

mn t in Russia and abroad, including:

JsC GAZPROM NEFT

Annual report 2010

plans for 2011: active work implementing large projects is continuing.

Messoyakha project Exploration work program Export

Novoport project Test production start Closing the deal

Cuba project Exploration well drilling

JsC GAZPROM NEFT

Annual report 2010

Gazprom Neft in 2020:

JsC GAZPROM NEFT

Annual report 2010

JsC GAZPROM NEFT

OIL sERVICE AND EXPLORATION

Annual report 2010

JsC GAZPROM NEFT

GEOGRAPHy OF OPERATIONs By GAZPROM NEFT GROUP

italy angola belarus serbia

LUBRICANTs Omsk region yaroslavl region serbia Italy

Annual report 2010

JsC GAZPROM NEFT

company`s sales activity

Kyrgyzstan Kazakhstan tajikistan

Annual report 2010

JsC GAZPROM NEFT

COMPETITIVE sTATE OF THE COMPANy

Oil and gas production

Annual report 2010

Rosneft* LUKOIL TNK-BP**

Surgutneftegas Gazprom Neft*** Tatneft Others