Novatek Annual Report 2014

← All annual reports

FY2014 Annual Report · Novatek

Loading PDF…

K
E
T
A
V
O
N
O
A
O

H
T
W
O
R
G
F
O
Y
T
I
L
A
U
Q
W
E
N

4
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A

OF GROWTH

QUALITY

NEW

Annual report
2014

WWW.NOVATEK.RU/EN

NEW
QUALITY
OF GROWTH

ANNUAL REPORT 2014

NOVATEK is Russia’s largest independent natural
gas producer and the second – largest natural
gas producer in Russia

NOVATEK’s main businesses
are exploration and production, processing,
transportation and marketing of natural gas and liquid
hydrocarbons. The Company’s primary production
assets are located in the Yamal-Nenets Autonomous
Region (YNAO), one of the largest gas regions in the
world.

The Company’s main strategic priorities are:
growth of the resource base and efficient reserve
management, maintaining sustainable rates of
growth of hydrocarbon production, maintaining a
low-cost structure, and optimizing and expanding
existing marketing channels, and creating new
marketing channels, including the future entry into the
international market for liquefied natural gas.

globally among
publicly traded
companies by
proved natural gas
reserves

globally among
publicly traded
companies by
natural gas
production
volumes

12.6

bln boe of proved
hydrocarbon reserves
under SEC

19%

of total natural gas
deliveries to the
domestic market
via the UGSS

62.1

bcm of natural gas
produced in 2014

10%of total Russian

natural gas
production

CONTENTS

Letter to Shareholders ...............................................................................................................................6
Strategic priorities ...................................................................................................................................10
Key Events and Achievements 2014 .......................................................................................................11
Key Indicators ...........................................................................................................................................12
Main Achievements by Businesses 2014 ................................................................................................14

Review of Operating Results ..............................................38
Licenses .....................................................................................................................................................38
Hydrocarbon Reserves .............................................................................................................................38
Geological Exploration .............................................................................................................................39
Field Development ...................................................................................................................................40
Hydrocarbon Production .........................................................................................................................41
Yamal LNG Project ....................................................................................................................................42
Processing of Gas Condensate ................................................................................................................43
Natural Gas Sales ......................................................................................................................................44
Liquid Hydrocarbon Sales ........................................................................................................................44

Environmental
and Social Responsibility ....................................................46
Environmental Protection .......................................................................................................................46
Health and Safety .....................................................................................................................................47
Human Resources .....................................................................................................................................47
Social Policy and Charity ..........................................................................................................................48

Management
and Corporate Governance .................................................51
Corporate Governance .............................................................................................................................51
General Meeting of Shareholders ...........................................................................................................51
Board of Directors ....................................................................................................................................52
Board Committees ...................................................................................................................................53
Management Board .................................................................................................................................54
Remuneration to Members of the Board of Directors and Management Board ................................54
Internal Control and Audit ......................................................................................................................55
Share Capital ............................................................................................................................................56
Dividends ..................................................................................................................................................57
Information Transparency ......................................................................................................................57

Additional
Information ..........................................................................59
Major Risk Factors ....................................................................................................................................59
Risk Insurance ..........................................................................................................................................63
Information on Members of NOVATEK’s Board of Directors and Management Board .......................63
Major Transactions and Interested Party Transactions ........................................................................68
Contact Information.................................................................................................................................72

Ust-Luga

Yamal-Nenets
Autonomous Region

RUSSIA

Our license areas are located in the Yamal-
Nenets Autonomous Region of the Russian
Federation – one of the largest regions
in the world in terms of gas reserves and
production volumes.

We have a large conventional reserve base
with high reserves concentration and high
potential of new geological discoveries.

FIELDS AND LICENSE AREAS WITH
COMMERCIAL PRODUCTION

PROSPECTIVE FIELDS
AND LICENSE AREAS

1. Yurkharovskoye field

main
production asset

9. South-Tambeyskoye field

reserve base for the
Yamal LNG project

2. East-Tarkosalinskoye field

first field of NOVATEK launched into
commercial production

10. Termokarstovoye field

11. West-Yurkharovskoye field

12. Yarudeyskoye field

13. Raduzhnoye field

14. West-Urengoyskiy license area

15. North-Yubileynoye field

16. North-Russkiy license area

17. North-Russkoye field

18. Dorogovskoye field

19. East-Tazovskoye field

20. Malo-Yamalskoye field

21. West-Chaselskoye field

22. Yevo-Yakhinskiy license area

23. Yaro-Yakhinskiy license area

24. North-Chaselskiy license area

25. Ukrainsko-Yubileynoye field

26. Utrenneye field

27. Geofizicheskoye field

28. North-Obskiy license area

29. East-Tambeyskiy license area

30. North-Tasiyskiy license area

31. Trekhbugorniy license area

large crude
oil field

new prospective
production cluster

reserve base for
potential expansion of
LNG production

geological exploration
in the Gulf of Ob

license acquired
in 2014

ultra-high content of gas
condensate in the
Achimov layers

3. Samburgskiy license area

4. Olimpiyskiy license area

5. Yumantilskiy license area

6. Khancheyskoye field

7. North-Urengoyskoye field

7а. Eastern Dome

7b. Western Dome

8. North-Khancheyskoye field*

Purovsky Gas
Condensate
Processing Plant

key element in the
production chain
used for gas condensate
stabilization

Ust-Luga
Complex

processes stable gas
condensate into
higher value
added products

gas condensate pipeline of
NOVATEK

trunk gas pipelines of
Gazprom

* Since October 2014 – North-Khancheyskoye + Khadyryakhinskoye field.

Yamal Peninsula

Gydan Peninsula

Yamburg

7б

Nadym

NEW QUALITY OF GROWTH 28

Yamal Peninsula

Gydan Peninsula

Nadym

Yamburg

7б

Purovsky
Plant

ANNUAL REPORT 2014LETTER TO
SHAREHOLDERS

Dear Shareholders,

TWO THOUSAND AND FOURTEEN (2014) ushered
in a new period of transition for NOVATEK as well
as representing our 20th anniversary of operations.
We are extremely proud of the many valued em-
ployees who have played a pivotal role in making
the Company one of the largest natural gas pro-
ducers in the world from our humble beginnings
in 1994. Throughout this period, we remained
focused on delivering exceptional operational and
financial results, while adhering to international
best practices of corporate governance, financial
transparency, environmental excellence and sus-
tainable development.

Our transition to a NEW QUALITY OF GROWTH
underscored our mid-term strategy of increasing
our liquid hydrocarbon production and the sub-
sequent processing of hydrocarbons into value-
added sales. In 2014, our marketable production
of gas condensate and crude oil increased by
27% year-on-year, our throughput volumes at the
Purovsky Plant grew by 36%, while the recently
constructed Ust-Luga Complex increased its out-
put by 2.5 times. As part of our strategic plans, we
launched, expanded capacities and prepared for
launching several large new fields that are ex-
pected to drive the growth of our gas condensate
and natural gas production for the foreseeable
future.

The production of natural gas and the marketing
of natural gas sales on the Russian domestic mar-
ket has traditionally been our core business. Since
our inception, we have been actively expanding
our hydrocarbon resource base through successful
exploration and development activities, and cur-
rently rank amongst the Top Five globally among
publicly traded companies in terms of proven

ALEXANDER
NATALENKO
Chairman of the
Board of Directors

LEONID
MIKHELSON
Chairman of the
Management Board

MARK
GYETVAY
Deputy Chairman of the
Management Board

NEW QUALITY OF GROWTH natural gas reserves and 7th worldwide in terms of
gas production volumes. Over the past 20 years,
NOVATEK grew from a business idea to one of the
world’s largest natural gas producers with leading
efficiency indicators.

Production, processing and sales of liquid hydro-
carbons, including the exports of petroleum
products with high added value, such as naphtha
and jet fuel, are continuously gaining importance
for us. These ongoing changes in our production
output and sales structure are transformational for
NOVATEK and the structure of our business.

During 2014, our production of liquids represent-
ed 11% of our total marketable output, whereas
the share of liquids in the Company’s consolidated
revenues aggregated 35%, and their correspon-
ding share in the Company’s EBITDA – approxi-
mately 50%.

Our NEW TRANSITION TO QUALITY GROWTH,
namely the increased production of liquid hydro-
carbons, provides a much higher profitability per
unit of sales as compared with our natural gas
sales as well as a broader exposure to international
sales and hard currency earnings. Moving forward,
we consider gas condensate and oil production
growth a key driver for increasing our financial
results.

The past year was not without challenges as the
oil and gas industry witnessed a dramatic fall in oil
prices in the second half of 2014, forcing many oil
and gas companies to proceed revise their plans,
capital budgets and strategies. Our main competi-
tive advantage has always been low “finding and
development” and “lifting” cost structure ensuring
sufficient flexibility and enabling us to continue
implementing our strategy even in a sustained
low oil-price environment. In particular, despite
the drop in energy commodity prices, our proved
reserves increased to 12.6 billion barrels of oil
equivalent, while our year-on-year organic reserve
replacement ratio exceeded 150%. We continued
to fully fund our capital investment program with
internally generated cash flows with the strate-
gic aim of further developing of our production
capacities.

In April 2014, we launched the Urengoyskoye gas
condensate field within the Samburgsky license
area at our joint venture, SeverEnergia, which is
characterized by ultra-high content of gas con-
densate in the hydrocarbon production flow, and
in December, we launched the second develop-
ment phase of this field. In September 2014, we
launched the third phase at the Samburgsky gas
condensate field and in December – the North-
Khancheyskoye gas field. During the reporting
year, we were very busy preparing several other
new fields for the start of commercial production,
including the Yaro-Yakhinskoye, Termokarstovoye
and Yarudeyskoye fields with construction and
equipment installation works largely completed at
the first two fields as at year-end. All three of these
new fields will be launched in 2015, ensuring
further growth of liquid hydrocarbon production
and the successful completion of our Five-Year
Strategy as outlined in 2011.

We continued to demonstrate high-rates of pro-
duction growth throughout 2014. In particular,
the growth of our marketable gas production,
excluding our share in Sibneftegas production in
2013, totaled 11.3%, while the overall production
volumes exceeded 62 billion cubic meters, or bcm.
Our crude oil and gas condensate production
increased by 1.3 million tons, which increased the
proportional share of liquid hydrocarbons in our
overall production by 2.2 percentage points. With
the field launches in the fourth quarter 2014 alone,
we recorded a 42% growth in liquids production.

The successful implementation of our field de-
velopment program and the rapid growth of gas
condensate production will enable us, already in
2015, to fully utilize the processing capacities of
our Purovsky Plant and the Ust-Luga Complex put
into operation in 2013. During 2014, throughput
volumes of stable gas condensate at the Ust-Luga
complex increased to 4.7 million tons, while the
expanded Purovsky Plant achieved 85% capacity
utilization by year-end. The Ust-Luga Complex
had a substantial positive impact on our financial
results in 2014 by creating value added petroleum
products by processing stable gas condensate
into naphtha, jet fuel, fuel oil and gasoil alongside

NOVATEK ANNUAL REPORT 2014the savings we achieved on transportation costs
due to the facility’s convenient location on the
Baltic Sea.

We continued to successfully implement our
marketing strategy. Our natural gas sales volume
exceeded 67 bcm, whereas the share of end-
customers in our overall gas sales volumes mix
increased from 89% to 94%. Total sales volumes
of liquid hydrocarbons increased to seven million
tons, or by 30% over 2013 volumes, and, in the
fourth quarter, we recorded a 53% growth. Due to
high quality of our petroleum products we suc-
cessfully increased our international sales, diversi-
fied our customer base and expanded our sales
geography.

Due to our growing production volumes and
despite a rapid deterioration in the macroeco-
nomic environment in the second half of 2014, we
continued to demonstrate robust growth in our
financial indicators. Our total revenues increased
by 20% to RR 357.6 bln. The Company’s norma-
lized EBITDA (including the share in EBITDA of joint
ventures) increased by 23% and the free cash flow
grew by 1.6 times. As a result, the Board of Direc-
tors recommended the General Meeting of Share-
holders to approve dividends for the reporting
year at RUR 10.3 per share, representing a growth
of 31% compared with 2013.

We continued to implement our long-term stra-
tegy of expanding our eventual gas sales into
the international gas markets via the LNG plant
construction based on the hydrocarbon resource
base of the South-Tambeyskoye field in the Yamal
peninsula. The Yamal LNG Project is a unique and
challenging project considering its geographical
location in arctic climatic conditions. However,
these challenges are offset by the substantial
onshore conventional natural resources located
on the prolific Yamal peninsula. One of the main
competitive advantages of the Yamal LNG Project
relative to other LNG projects globally is its high
quality reserve base resulting in low cost deve-
lopment and production, while the Arctic climate

One of the main competitive
advantages of the Yamal LNG
Project relative to other LNG
projects globally is its high
quality reserve base resulting
in low cost development
and production, while the
Arctic climate substantially
enhances the efficiency of the
liquefaction process.

NEW QUALITY OF GROWTH

substantially enhances the efficiency of the lique-
faction process. The combination of these factors
makes the Yamal LNG project highly competitive in
the end-consumer markets implying a low break-
even price. We consider the reduction of energy
prices in the second half of 2014 as an opportu-
nity for natural gas to further grow its share in the
global energy balance.

As part of the ongoing construction activities at
the Yamal LNG Project, we completed the cast-
ing works for the external concrete walls on two
LNG tanks for the plant’s first train in 2014. We also
contracted for the fabrication of LNG plant mo-
dules and, during the year, the steel cutting was
done for the first modules and first LNG carriers
of special Arctic design. We completed the first
phase of construction at the International Sabetta
Airport, where the milestone landing of the first
Boeing 737 flight took place in December. At year-
end 2014, 26 production wells were drilled at the
South-Tambeyskoye field and the share of LNG
volumes contracted exceeded 95%.

Our strong operating and financial results along
with successful implementation of the Company’s
strategic projects would never be possible without
adherence to the highest standards of corporate
and social responsibility and commitment to envi-
ronmental integrity and industrial safety. Since our
core producing assets are located in the Far North,
we support development in this region and coo-
perate with local administrations and organizations
promoting the interests of indigenous minorities
of the North. We also pay particular attention to
the protection of the fragile environment of the
North, employ world-class technologies enabling
us to minimize the impact of our operations on the
region’s ecosystem, as well as actively participate in
biodiversity conservation projects.

We would like to highlight the contribution of our
employees, whose diverse expertise enables the
Company to successfully implement its growth
strategy, improve operating performance and rea-
lize our most challenging and advanced projects.

We recognize the current macro- and micro-eco-
nomic environment will be quite challenging for
us in the upcoming year but we believe we have
the financial resources and operational capacity to
withstand a period of market volatility, and it is our
primary focus to steer the Company according to
our long-term strategic objectives.

On behalf of the Board of Directors and Manage-
ment, we are pleased to present the Annual Report
of NOVATEK for 2014 and would like to thank our
valued shareholders for your continued confidence
in the Company and our long-term strategic plans.

Kind regards,

Alexander Natalenko
Chairman of the Board of Directors

Leonid Mikhelson
Chairman of the Management Board

Mark Gyetvay
Deputy Chairman of the Management Board

NOVATEK ANNUAL REPORT 2014STRATEGIC
PRIORITIES

Prudent Investment Decisions

Maintain sustainable
growth rates
of production

Maintain low-cost
structure

GROWTH OF RESOURCE
BASE AND EFFICIENT
RESERVE MANAGEMENT

Optimize and expand
existing marketing channels,
and create new marketing
channels, including the future
entry into the international
market for liquefied natural gas

Expand processing
capacities*

Conservative Financial Policies

H
g
h
S
t
a
n
d
a
r
d
s
o
f

C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e

t
n
e
m
p
o
e
v
e
D
e
b
a
n
i
a
t
s
u
S

The Company has a number of key competitive
advantages to successfully implement its strategy.
Namely: the size and structure of its hydrocarbon resource
base; the close proximity of existing infrastructure to
core producing fields; a well-developed customer base
for natural gas sales; its own facilities for gas condensate
processing and product exports; and a well developed
marketing channel for liquefied petroleum gases (LPG).

Our high level of operational flexibility and our consistent
and efficient use of leading edge technologies in
production and processing practices as well as our
adherence to sound and prudent business management
support our competitive position.
Our commitment to social responsibility and to observing
the latest environmental, health and safety standards are
integral parts of NOVATEK’s development strategy.

* Fully accomplished in 2014.

NEW QUALITY OF GROWTH

NOVATEK

KEY EVENTS
AND ACHIEVEMENTS
2014

Launch of the
third stage of the
Samburgskoye
fi eld of the
SeverEnergia joint
venture enabling
the fi eld to achieve
full production
capacity

Launch of the fi rst and
second stages of the
Urengoyskoye fi eld
development (within
the Samburgsky license
area of the SeverEnergia
joint venture), which
is characterized by
ultra-high content of
gas condensate in the
hydrocarbon production
fl ow

Despite the drop in
energy commodity
prices, our year-on-
year organic proved
reserve replacement
ratio was 152%

Construction
progress on the
EPC contract as part
of the Yamal LNG
project exceeded
20%

Liquids exports
increased by
20.5%, and the
share of exports
in the overall sales
revenues grew to
28.2%

EBITDA increased
by 23.4% to a
historical record of
RR 159.6 bln

Our marketable
production of liquid
hydrocarbons
increased by a
record 27% to six
(6) million tons,
including crude oil
production growth
by 55%

The Yaro-
Yakhinskoye
(SeverEnergia
joint venture) and
Termokarstovoye
(Terneftegas joint
venture) gas and
gas condensate
fi elds were in
advanced stages of
preparation to be
launched in the fi rst
half 2015

ANNUAL REPORT 2014

KEY INDICATORS

Unit

2013

2014

Change

FINANCIAL INDICATORS

Total revenues

Normalized profit from operations (1)

Normalized EBITDA (including share in EBITDA of JVs) (1)

Normalized profit attributable to shareholders of OAO NOVATEK (1)

Normalized earnings per share (1)

Net cash provided by operating activities

Capital expenditures (2)

Free cash flow

Net debt

OPERATING INDICATORS

Proved natural gas reserves (SEC)

Proved liquid hydrocarbon reserves (SEC)

RR mln

bcm

mmt

298,158

357,643

106,277

125,140

129,370

159,631

20.0%

17.7%

23.4%

35,197

(55.9)%

11.65

(55.8)%

79,825

26.35

88,525

59,254

29,271

110,253

63,179

47,074

157,732

204,361

1,740

134

1,747

135

Total hydrocarbon reserves (SEC)

mmboe

12,537

12,578

Marketable production of natural gas

Marketable production of liquid hydrocarbons

Total marketable production

POSITIONS IN THE RUSSIAN INDUSTRY

Share in natural gas production

Share in gas deliveries to the domestic market via UGSS

bcm

mmboe

61.22

4,751

439.0

9.3%

18.4%

62.13

6,036

456.7

9.7%

18.8%

(1) Adjusted for the effect on disposal of interests in joint ventures.
(2) Capital expenditures represent additions to property, plant and equipment excluding payments for mineral licenses.

NEW QUALITY OF GROWTH

24.5%

6.6%

60.8%

29.6%

0.4%

0.7%

0.3%

1.5%

27.0%

4.0%

0.4 p.p.

NOVATEK

Total proved hydrocarbon reserves (SEC), mmboe

Proved natural gas reserves (SEC), bcm

12,394

12,537

12,578

1,758

1,740

1,747

9,393

8,088

60%

1,144

1,321

40%

59%

41%

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Proved
developed

Proved
undeveloped

Proved
developed

Proved
undeveloped

Marketable natural gas production, bcm

Marketable liquids production, mmt

52.9

56.5

61.2

62.1

37.3

4.1

4.3

3.6

6.0

4.8

19%

81%

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Gas condensate

Crude oil

Operating cash flow, RR bln

Dividends per share, RR

110.3

88.5

71.9

75.8

6.0

6.86

7.89

10.3*

44.9

4.0

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

(1) Скорректировано на эффект от выбытия доли владения в совместных предприятиях.
* Recommendation of the Board of Directors.

ANNUAL REPORT 2014

27%

LIQUID
HYDROCARBON
PRODUCTION
GROWTH

Liquid hydrocarbon production growth was due to the
launch of the two stages of the Urengoyskoye field and the
third stage of the Samburgskoye field of the SeverEnergia
joint venture, drilling of crude oil production wells at the
East-Tarkosalinskoye field and production growth at the
Eastern dome of the North-Urengoyskoye field of the Nortgas
joint venture (launched in 2013).

We continued preparing the Yaro-Yakhinskoye,
Termokarstovoye and Yarudeyskoye fields for the launch
scheduled for 2015.

NEW QUALITY OF GROWTH

а
н
и
ж
а
в
к
с
я
а
н
т
а
с
н
е
д
н
о
к
о
з
а
Г

.
l
l

e
w
e
t
a
s
n
e
d
n
o
c

s
a
G

d
e
fi
e
y
o
k
s
y
e
b
m
a
T
-
h
t
u
o
S

NOVATEK

ANNUAL REPORT 2014

GEOLOGICAL EXPLORATION
AND HYDROCARBON
PRODUCTION

Yamal Nenets
Autonomous Region
accounts for

of Russian gas
production

79%

of global gas
production

16%

years – reserve to
production ratio at
year-end 2014

2.4

USD per boe – reserve
replacement costs
in 2012-2014

costs in 20140.5

USD per boe – lifting

As of 31 December 2014, NOVATEK’s SEC
proved reserves, including the Company’s
proportionate share in joint ventures,
aggregated 12,578 mmboe, including
1,747 bcm of natural gas and 135 mmt of
liquid hydrocarbons. Despite the price
decline for benchmark crude oil prices on
the international hydrocarbon market,
the Company’s reserve replacement rate
was 109%. Excluding decrease in the
Company’s share in SeverEnergia, organic
reserve replacement rate was 152% due
to successful exploration works and
production drilling, which amounted to
reserves addition of 733 million boe. At
year-end 2014, the Company’s reserve to
production ratio was 28 years.

In 2014, NOVATEK continued full-scale
exploration works at license areas located
on the Gydan Peninsula and offshore in
the Gulf of Ob – assessment of the
resource potential of the license areas
was completed and exploration drilling
on the Utrenneye field was conducted.
Exploration work activities also continued

at the fields and license areas in the
Nadym-Pur-Taz region, including the
license areas of the SeverEnergia joint
venture. Supplementary exploration
works were carried out at the
Malo-Yamalskoye field located on the
Yamal Peninsula.

In 2014, NOVATEK carried out commercial
hydrocarbon production at 10 fields.
Marketable production from all fields
(including the Company’s share in
production of joint ventures) amounted
to 457 mmboe, representing an increase
of 4.0% over 2013.

Total marketable production of natural
gas including the share in production of
joint ventures amounted to 62 bcm,
representing 89% of our total
hydrocarbon output. Marketable
production of liquid hydrocarbons
including the Company’s share in
production of joint ventures totalled
6 mmt, of which 81% was gas condensate
and 19% – crude oil.

NEW QUALITY OF GROWTH

Proved reserves as

of 31 December 2014 (SEC)

12.6

1,000

billion boe

Cenomanian layers

«Dry» gas not containing

liquid hydrocarbons

23.4%

of total natural

gas reserves

1,700

Valanginian layers

Gas containing liquid

hydrocarbons – «wet» gas

65.4%

of total natural

gas reserves

3,300

Achimov layers

«Wet» gas with the highest share

of liquid hydrocarbons

11.2%

of total natural

gas reserves

100

% of total natural gas reserves

Marketable hydrocarbon production

in 2014, mmboe

5% 2%

17%

457

59%

Yurkharovskoye

field

SeverEnergia JV

(NOVATEK’s share)

East-Tarkosalinskoye

Khancheyskoye

field

Other

fields

Nortgas JV

(NOVATEK’s share)

Marketable production of natural gas,

bcm

Marketable production of liquid

hydrocarbons, mmt

56.5

52.9

62.1

61.2

+1.5%*

37.3

4.3

4.1

3.6

6.0

4.8

+27%

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

* +11.3% excluding natural gas produced by Sibneftegas.

GEOLOGICAL EXPLORATION

AND HYDROCARBON

PRODUCTION

Yamal Nenets

Autonomous Region

accounts for

of Russian gas

production

79%

of global gas

production

16%

years – reserve to

production ratio at

year-end 2014

2.4

USD per boe – reserve

replacement costs

in 2012-2014

costs in 20140.5

USD per boe – lifting

As of 31 December 2014, NOVATEK’s SEC

proved reserves, including the Company’s

proportionate share in joint ventures,

aggregated 12,578 mmboe, including

at the fields and license areas in the

Nadym-Pur-Taz region, including the

license areas of the SeverEnergia joint

venture. Supplementary exploration

1,747 bcm of natural gas and 135 mmt of

works were carried out at the

liquid hydrocarbons. Despite the price

Malo-Yamalskoye field located on the

decline for benchmark crude oil prices on

Yamal Peninsula.

the international hydrocarbon market,

the Company’s reserve replacement rate

was 109%. Excluding decrease in the

Company’s share in SeverEnergia, organic

reserve replacement rate was 152% due

to successful exploration works and

production drilling, which amounted to

reserves addition of 733 million boe. At

year-end 2014, the Company’s reserve to

production ratio was 28 years.

In 2014, NOVATEK continued full-scale

exploration works at license areas located

on the Gydan Peninsula and offshore in

the Gulf of Ob – assessment of the

resource potential of the license areas

was completed and exploration drilling

on the Utrenneye field was conducted.

Exploration work activities also continued

In 2014, NOVATEK carried out commercial

hydrocarbon production at 10 fields.

Marketable production from all fields

(including the Company’s share in

production of joint ventures) amounted

to 457 mmboe, representing an increase

of 4.0% over 2013.

Total marketable production of natural

gas including the share in production of

joint ventures amounted to 62 bcm,

representing 89% of our total

hydrocarbon output. Marketable

production of liquid hydrocarbons

including the Company’s share in

production of joint ventures totalled

6 mmt, of which 81% was gas condensate

and 19% – crude oil.

Proved reserves as
of 31 December 2014 (SEC)

12.6

1,000

billion boe

Cenomanian layers
«Dry» gas not containing
liquid hydrocarbons

23.4%

of total natural
gas reserves

1,700

m
h
t
p
e
D

Valanginian layers
Gas containing liquid
hydrocarbons – «wet» gas

65.4%

of total natural
gas reserves

3,300

Achimov layers
«Wet» gas with the highest share
of liquid hydrocarbons

11.2%

of total natural
gas reserves

50
% of total natural gas reserves

100

NOVATEK

Marketable hydrocarbon production
in 2014, mmboe

5% 2%

17%

457

59%

Yurkharovskoye
field

SeverEnergia JV
(NOVATEK’s share)

East-Tarkosalinskoye
field

Khancheyskoye
field

Nortgas JV
(NOVATEK’s share)

Other
fields

Marketable production of natural gas,
bcm

Marketable production of liquid
hydrocarbons, mmt

56.5

52.9

62.1

61.2

+1.5%*

37.3

4.3

4.1

3.6

6.0

4.8

+27%

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

* +11.3% excluding natural gas produced by Sibneftegas.

ANNUAL REPORT 2014

153%

PRODUCT OUTPUT
GROWTH AT THE
UST-LUGA COMPLEX

Growth in gas condensate production resulted in
substantial throughput increase at the Purovsky Gas
Condensate Stabilization Plant leading to higher
output of stable gas condensate. This enabled
higher capacity utilization of the Ust-Luga Stable Gas
Condensate Fractionation Complex and growth in
output of higher value-added products.

NEW QUALITY OF GROWTH

.
t
i
n
u
n
o
i
t
a
n
o
i
t
c
a
r
f
e
t
a
s
n
e
d
n
o
c

s
a
g
e
b
a
t
S

.
x
e
p
m
o
C
a
g
u
L
-
t
s
U

ANNUAL REPORT 2014

PUROVSKY GAS
CONDENSATE
STABILIZATION
PLANT

Due to the estimated ramp up in gas
condensate production, in early 2014 we
completed the project for expanding the
processing capacity of the Purovsky Plant
from five (5) to 11 million tons. As a
result, we have achieved a balance
between our gas condensate production
potential and processing capacity.
The Purovsky Plant is the central element in our production value chain
that provides us complete operational control over our processing
needs and access to higher yielding marketing channels for our stable
gas condensate. The Purovsky Plant produces stable gas condensate
and light hydrocarbons (the feedstock for the production of marketable
LPG). By the end of 2014, the capacity utilization rate at the Purovsky
Plant reached 85%.

Vitino

Ust-Luga

Purovsk – Ust-Luga
since Q3 2013
3,795 km

8 k

till Q

3 2

4 , 1

Purovsky

Plant

e 2

since Ju

Tobolsky

Plant

of SIBUR

UST-LUGA STABLE

GAS CONDENSATE

FRACTIONATION

COMPLEX

The Ust-Luga Complex expands our

vertically integrated chain and

increases sales of higher value

added products as well as

diversifying the geographical

markets and expanding the

customer base for our products.

The Gas Condensate Fractionation and Transshipment Complex located

at the all-season port of Ust-Luga on the Baltic Sea processes stable gas

condensate into petroleum products like light and heavy naphtha, jet

fuel, fuel oil and gasoil, and enables us to ship the value-added

petroleum products to international markets. The overall gas

condensate processing capacity of the Ust-Luga Complex is six (6)

million tons per annum. The launch of the Ust-Luga Complex in 2013

allowed us to improve logistics and reduce transportation costs due to a

more favorable geographical location of Ust-Luga as compared to the

port of Vitino, which was previously used for gas condensate exports.

Unstable gas condensate processing
volumes, th. tons

11 mmt per annum
8 stabilization trains

Third stage

Commercial output in 2014,
th. tons

Commercial output, th. tons

Capacity 5 mmt
per annum
4 stabilization trains

Second stage

3,869

3,401

+36%

4,862

4,034

7,000

6,000

5,000

4,000

3,000

2,000

1,000

6,600

16%

6,420

1,873

79%

2,006

1,425

836

686

542

472

190

179

2010

2011

2012

2013

2014

SGC

Light
hydrocarbons

LPG

2013

2014

Heavy naphtha

Light naphtha

Fuel oil

Jet fuel

Gasoil

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

NEW QUALITY OF GROWTH

Product pipeline of SIBUR

Railway transportation

Purovsk – Ust-Luga

Railway transportation

Purovsk – Vitino

Transportation by sea

Stable gas condensate

processing volumes,

th. tons

4,706

+151%

PUROVSKY GAS

CONDENSATE

STABILIZATION

PLANT

Due to the estimated ramp up in gas

condensate production, in early 2014 we

completed the project for expanding the

processing capacity of the Purovsky Plant

from five (5) to 11 million tons. As a

result, we have achieved a balance

between our gas condensate production

potential and processing capacity.

The Purovsky Plant is the central element in our production value chain

that provides us complete operational control over our processing

needs and access to higher yielding marketing channels for our stable

gas condensate. The Purovsky Plant produces stable gas condensate

and light hydrocarbons (the feedstock for the production of marketable

LPG). By the end of 2014, the capacity utilization rate at the Purovsky

Plant reached 85%.

Vitino

Ust-Luga

Purovsk – Ust-Luga

since Q3 2013

3,795 km

8 k

till Q
ii

3
7

3 2

4 , 1

Purovsky
Plant

4
1
0
e 2
n

since Ju

Tobolsky
Plant
of SIBUR

Product pipeline of SIBUR

Railway transportation
Purovsk – Ust-Luga

Railway transportation
Purovsk – Vitino

Transportation by sea

NOVATEK

UST-LUGA STABLE
GAS CONDENSATE
FRACTIONATION
COMPLEX

The Ust-Luga Complex expands our
vertically integrated chain and
increases sales of higher value
added products as well as
diversifying the geographical
markets and expanding the
customer base for our products.
The Gas Condensate Fractionation and Transshipment Complex located
at the all-season port of Ust-Luga on the Baltic Sea processes stable gas
condensate into petroleum products like light and heavy naphtha, jet
fuel, fuel oil and gasoil, and enables us to ship the value-added
petroleum products to international markets. The overall gas
condensate processing capacity of the Ust-Luga Complex is six (6)
million tons per annum. The launch of the Ust-Luga Complex in 2013
allowed us to improve logistics and reduce transportation costs due to a
more favorable geographical location of Ust-Luga as compared to the
port of Vitino, which was previously used for gas condensate exports.

Unstable gas condensate processing

volumes, th. tons

11 mmt per annum

8 stabilization trains

Third stage

Commercial output in 2014,

th. tons

6,600

16%

+36%

4,862

6,000

Capacity 5 mmt

per annum

4 stabilization trains

Second stage

3,869

3,401

4,034

7,000

5,000

4,000

3,000

2,000

1,000

Commercial output, th. tons

Stable gas condensate
processing volumes,
th. tons

4,706

+151%

6,420

1,873

79%

2,006

1,425

836

686

542

472

190

179

2010

2011

2012

2013

2014

SGC

Light

hydrocarbons

LPG

2013

2014

Heavy naphtha

Light naphtha

Fuel oil

Jet fuel

Gasoil

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

ANNUAL REPORT 2014

30%

LIQUIDS SALES
VOLUMES GROWTH

In 2014 we sold 7.1 mmt of liquids compared with 5.4 mmt
in 2013. The growth was due to higher volumes processed
at the Purovsky Plant and the Ust-Luga Complex as well as
higher crude oil production volumes.

Petroleum product sales volumes grew by 2.8 times
to 4.4 mmt, and their share in total liquids sales increased
to 63%.

NEW QUALITY OF GROWTH

NOVATEK

е
г
у
Л
-
ь
т
с
У
а
н
ы
р
е
д
н
е
т
с
е
и
к
с
р
о
М

h
t
r
e
b
r
e
t
a
w
-
p
e
e
d
e
h
t

t
a
s

m
r
a
g
n
d
a
o
L

.
x
e
p
m
o
C
a
g
u
L
-
t
s
U

ANNUAL REPORT 2014

Geography of sales

LIQUID
HYDROCARBON
SALES

The replacement of stable gas
condensate exports by the sales of
petroleum products with higher
value added margins positively
impacted the financial results of the
Company.

NOVATEK sells liquid hydrocarbons (stable gas condensate,
petroleum products, light hydrocarbons, LPG and crude oil)
domestically and internationally. We strive to respond quickly to
changing market conditions by optimizing the customer base and
supply geography.

As a result of the launch of the Gas Condensate Fractionation and
Transshipment Complex in the port of Ust-Luga in 2013 the
Company ceased export deliveries of stable gas condensate and
started exporting naphtha, jet fuel, fuel oil and gasoil.

We changed our LPG sales scheme since the second quarter 2014 –
we started delivering all the volumes of light hydrocarbons
(feedstock for marketable LPG production) produced at the
Purovsky Plant to SIBUR’s Tobolsky Petrochemical Complex.

Russia

Europe

Belgium

Denmark

Estonia

Finland

Germany

Hungary

Latvia

Lithuania

Netherlands

Norway

Poland

Romania

Slovakia

Sweden

China

Indonesia

Japan

Malaysia

Singapore

South Korea

Taiwan

Thailand

America

Brazil

Canada

USA

Asian-Pacific Region

North and South

Liquids sales volumes, mmt

2014 liquids sales volumes breakdown, th. tons

3.4

2.8

0.6

4.1

4.2

3.5

0.6

3.4

0.8

5.4

4.4

1.0

7.1

5.3

75%

25%

1.8

Ust-Luga products

LPG and light hydrocarbons

Crude oil

Stable gas condensate

100%

4,438

1,434

903

303

39%

35%

99%

61%

65%

2010

2011

2012

2013

2014

Exports

Domestic market

Exports

Domestic
market

NEW QUALITY OF GROWTH

Geography of sales

LIQUID

HYDROCARBON

SALES

The replacement of stable gas

condensate exports by the sales of

petroleum products with higher

value added margins positively

impacted the financial results of the

Company.

NOVATEK sells liquid hydrocarbons (stable gas condensate,

petroleum products, light hydrocarbons, LPG and crude oil)

domestically and internationally. We strive to respond quickly to

changing market conditions by optimizing the customer base and

supply geography.

As a result of the launch of the Gas Condensate Fractionation and

Transshipment Complex in the port of Ust-Luga in 2013 the

Company ceased export deliveries of stable gas condensate and

started exporting naphtha, jet fuel, fuel oil and gasoil.

We changed our LPG sales scheme since the second quarter 2014 –

we started delivering all the volumes of light hydrocarbons

(feedstock for marketable LPG production) produced at the

Purovsky Plant to SIBUR’s Tobolsky Petrochemical Complex.

NOVATEK

Russia

Europe
Belgium
Denmark
Estonia
Finland
Germany
Hungary
Latvia
Lithuania
Netherlands
Norway
Poland
Romania
Slovakia
Sweden

Asian-Pacific Region
China
Indonesia
Japan
Malaysia
Singapore
South Korea
Taiwan
Thailand

North and South
America

Brazil
Canada
USA

Liquids sales volumes, mmt

2014 liquids sales volumes breakdown, th. tons

3.4

2.8

0.6

4.1

4.2

3.5

0.6

3.4

0.8

7.1

5.3

5.4

4.4

1.0

1.8

75%

25%

Ust-Luga products

LPG and light hydrocarbons

Crude oil

Stable gas condensate

100%

4,438

1,434

903

303

39%

35%

99%

61%

65%

2010

2011

2012

2013

2014

Exports

Domestic market

Exports

Domestic

market

ANNUAL REPORT 2014

NATURAL
GAS SALES

The share of natural gas sales to end
customers in 2014 grew from 89% to 94%
compared with 2013, which is fully in line
with our marketing strategy aimed at
diversifying sales, maximizing margins and
increasing the stability of our business.
NOVATEK's 2014 natural gas sales volumes
totaled 67 bcm, representing an increase of
4.8% as compared to 2013 sales volumes of
64 bcm.

The growth in sales volumes was due
to an increase in natural gas supplies
to the Khanty-Mansiysk Autonomous
Region and the Stavropol Region.
Deliveries to these regions increased
by 7.7 bcm as compared to 2013 due
primarily to higher volumes delivered
on existing contracts. During 2014,
our total revenues from natural gas
sales increased to RR 230 billion or by
12.4%, as compared to 2013, due to
the combination of higher volumes
sold, and an increase in year-average
regulated gas prices in 2014 as
compared to 2013, and the increase in
the share of sales to end-customers.

Natural gas sales volumes, bcm

2014 natural gas sales volumes breakdown by
customers, bcm

64.2

67.2

58.9

53.7

37.1

94%

89%

69%

64%
Share of
end
customers

55%

24%

67.2

2010

2011

2012

2013

2014

63%

Power generation
companies

Large industrial
consumers

Wholesale traders,
ex-field

Others

Households

NEW QUALITY OF GROWTH

Regional breakdown of 2014 natural gas sales volumes, bcm

Regions of

natural gas sales

in 2014

Natural gas sales, bcm

67.2

64.2

+5%growth

2013

2014

Main Regions

(with sales volumes

above 1 bcm each)

Other Regions of

gas sales

(3.0 bcm in 2014)

14.6

14.7

11.9

10.7

8.2

7.8

7.9

4.6

4.9

4.8

2.7

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

Chelyabinsk

Region

Moscow City

and Moscow

Region

Khanty-Mansiysk

Autonomous Region

Kostroma Region

Yamal-Nenets

Autonomous Region

(mainly sales to traders)

2013

2014

Perm Territory

3.6

3.4

2.2

2.4

2.3

0.1

2.1

2.0

1.8

1.3

1.2

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

Orenburg Region

Vologda Region

Stavropol Region

Sverdlovsk Region

Tyumen Region

St-Petersburg

NATURAL

GAS SALES

The share of natural gas sales to end

customers in 2014 grew from 89% to 94%

compared with 2013, which is fully in line

with our marketing strategy aimed at

diversifying sales, maximizing margins and

increasing the stability of our business.

NOVATEK's 2014 natural gas sales volumes

totaled 67 bcm, representing an increase of

4.8% as compared to 2013 sales volumes of

64 bcm.

The growth in sales volumes was due

to an increase in natural gas supplies

to the Khanty-Mansiysk Autonomous

Region and the Stavropol Region.

Deliveries to these regions increased

by 7.7 bcm as compared to 2013 due

primarily to higher volumes delivered

on existing contracts. During 2014,

our total revenues from natural gas

sales increased to RR 230 billion or by

12.4%, as compared to 2013, due to

the combination of higher volumes

sold, and an increase in year-average

regulated gas prices in 2014 as

compared to 2013, and the increase in

the share of sales to end-customers.

Natural gas sales volumes, bcm

2014 natural gas sales volumes breakdown by

customers, bcm

64.2

67.2

58.9

53.7

37.1

94%

89%

69%

64%

Share of

end

customers

55%

24%

67.2

2010

2011

2012

2013

2014

63%

Power generation

companies

Large industrial

consumers

Wholesale traders,

ex-field

Others

Households

NOVATEK

Regional breakdown of 2014 natural gas sales volumes, bcm

Regions of
natural gas sales
in 2014

Natural gas sales, bcm

67.2

64.2

+5%growth

2013

2014

Main Regions
(with sales volumes
above 1 bcm each)

Other Regions of
gas sales
(3.0 bcm in 2014)

14.6

14.7

11.9

10.7

8.2

7.8

7.9

4.6

4.9

4.8

2.7

2013

2014

2013

2014

2013

2014

Chelyabinsk
Region

Moscow City
and Moscow
Region

Khanty-Mansiysk
Autonomous Region

2013

2014

Perm Territory

2013

2014

2013

2014

Kostroma Region

Yamal-Nenets
Autonomous Region
(mainly sales to traders)

3.6

3.4

2.2

2.4

2.3

0.1

2.1

2.0

1.8

1.3

1.2

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

Orenburg Region

Vologda Region

Stavropol Region

Sverdlovsk Region

Tyumen Region

St-Petersburg

ANNUAL REPORT 2014

20%

PROGRESS OF THE
YAMAL LNG PLANT
CONSTRUCTION

The Yamal LNG project envisages the construction of an LNG
plant with annual capacity of 16.5 million tons per annum
based on the feedstock resources of the South-Tambeyskoye
field located in the north-east of the Yamal Peninsula.

LNG will be delivered to the export markets of the Asian-
Pacific region and Europe by ice-class LNG carriers. In the
summer navigation the Northern Sea Route will be used to
transport the LNG to the Asian-Pacific countries.

NEW QUALITY OF GROWTH

NOVATEK

5
1
0
2

l
i
r
p
A

,
s
k
n
a
t
G
N
L
e
h
t

f
o
n
o
i
t
c
u
r
t
s
n
o
C

G
N
L

a
m
a
Y

ANNUAL REPORT 2014

YAMAL LNG
PROJECT

Entry into the international gas market
as a result of the Yamal LNG project
implementation will become another
significant change in our quality of
growth.

South-Tambeyskoye
field

Other NOVATEK license
areas

Yamal
Peninsula

Sabetta

Gydan
Peninsula

Shareholders of Yamal LNG :

20%

Possible routes of LNG transportation from the Yamal Peninsula

Natural gas produced at the South-Tambeyskoye ﬁeld will
be delivered to the international markets in a form of LNG
which requires construction of a liquefaction plant
consisting of three (3) production trains of 5.5 mmt annual
capacity each.

The shipping infrastructure will include a jetty with two
tanker loading berths at the port of Sabetta equipped with
ice protection facilities. Ice-class LNG carriers of special
ARC-7 design will be used to transport the LNG.

With the opening of the ﬁrst winter navigation season at the
Sabetta port in 2013, the port facilities handled 2.1 million
tons of construction materials and equipment in the
reporting year. Casting works for the external concrete walls
on two LNG tanks for the plant’s ﬁrst train were completed
as well as rooﬁng on the ﬁrst tank. The ﬁrst phase of
construction at the International Sabetta Airport was
ﬁnalized and the milestone landing of the ﬁrst Boeing 737
ﬂight took place in December 2014. Long-term contracts for
more than 95% of LNG volumes were placed.

Proved and probable reserves of
the South-Tambeyskoye field
under PRMS

bcm of gas

926
30mmt of liquid

hydrocarbons

LNG plant workflow

3х

Gas

Gas treatment

Gas liquefaction

LNG tanks

LNG

Latin America

Europe

Asian-Pacific countries

(summer route)

Asian-Pacific countries

(winter route)

Approximate number of travel days

Transshipment in Europe

Port of Sabetta

3х

4х

5х

Condensate

Stabilization

unit

Stable gas

condensate tanks

SGC

Separation of

propane-butane fraction

50,000 cubic m

each

60%

Production
wells

Gas
separation
unit

Acid gases removal,

drying, mercury removal,

separation of LPG

Compressors and heat

exchangers

160,000 cubic m

each

NOVATEK

CNPC

Total

The development
project of the
South-Tambeyskoye
field envisages
drilling of

208

wells

NEW QUALITY OF GROWTH

YAMAL LNG

PROJECT

Entry into the international gas market

as a result of the Yamal LNG project

implementation will become another

significant change in our quality of

growth.

Natural gas produced at the South-Tambeyskoye ﬁeld will

be delivered to the international markets in a form of LNG

which requires construction of a liquefaction plant

consisting of three (3) production trains of 5.5 mmt annual

capacity each.

The shipping infrastructure will include a jetty with two

tanker loading berths at the port of Sabetta equipped with

ice protection facilities. Ice-class LNG carriers of special

ARC-7 design will be used to transport the LNG.

With the opening of the ﬁrst winter navigation season at the

Sabetta port in 2013, the port facilities handled 2.1 million

tons of construction materials and equipment in the

reporting year. Casting works for the external concrete walls

on two LNG tanks for the plant’s ﬁrst train were completed

as well as rooﬁng on the ﬁrst tank. The ﬁrst phase of

construction at the International Sabetta Airport was

ﬁnalized and the milestone landing of the ﬁrst Boeing 737

ﬂight took place in December 2014. Long-term contracts for

more than 95% of LNG volumes were placed.

South-Tambeyskoye

field

areas

Other NOVATEK license

Yamal

Peninsula

Sabetta

Gydan

Peninsula

926

bcm of gas

30mmt of liquid

hydrocarbons

Possible routes of LNG transportation from the Yamal Peninsula

NOVATEK

Proved and probable reserves of

the South-Tambeyskoye field

under PRMS

Latin America

Europe

Asian-Pacific countries
(summer route)

Asian-Pacific countries
(winter route)

Approximate number of travel days

Transshipment in Europe

Port of Sabetta

Shareholders of Yamal LNG :

20%

LNG plant workflow

3х

Gas

3х

4х

Gas treatment

Gas liquefaction

LNG tanks

LNG

60%

Production

wells

separation

Gas

unit

Acid gases removal,
drying, mercury removal,
separation of LPG

Compressors and heat
exchangers

160,000 cubic m
each

s
t
r
o
p
x
E

NOVATEK

CNPC

Total

The development

project of the

South-Tambeyskoye

field envisages

drilling of

208

wells

Condensate

Stabilization
unit

5х

Stable gas
condensate tanks

SGC

Separation of
propane-butane fraction

50,000 cubic m
each

ANNUAL REPORT 2014

637RR mln

ENVIRONMENTAL
EXPENDITURES
IN 2014

NEW QUALITY OF GROWTH

NOVATEK

d
e
fi
e
y
o
k
s
v
o
r
a
h
k
r
u
Y
e
h
t

f
o
a
e
r
a
e
h
t
n

i
e
p
a
c
s
d
n
a
L

ANNUAL REPORT 2014

NOVATEK’s headcount, people

Social Expenditures on employees, RR mln

ENVIRONMENTAL
AND SOCIAL
RESPONSIBILITY

NOVATEK adheres to the principles of effective
and responsible business conduct and considers
the welfare of its employees and their families,
environmental and industrial safety, the creation
of a stable and beneficial social environment as
well as contributing to Russia’s overall economic
development as priorities and responsibilities of
the Company.

2,554

operating workplaces were
certified in 2014

11comprehensive inspections of

NOVATEK subsidiaries for
occupational health, industrial,
fire and environmental safety
requirements in 2014

168RR mln expenses on

Occupational Health and
Safety in 2014

38%

18%

6,749

29%

Administrative

personnel

Power supply

Exploration

and production

Transportation

and marketing

Processing

NOVATEK has implemented an
Environment, Health and Safety Policy
and all of the Company’s principal
subsidiaries and joint ventures operate
an Integrated Health, Safety and
Environment Management System (IMS)
that comply with the international ISO
14001:2004 and OHSAS 18001:2007
standards. In 2014, NOVATEK
successfully passed another IMS
compliance audit.

In our Health, Safety and Environment
(HSE) activities we pay special attention to
preventive measures. In particular, the
environmental aspects are taken into
account in designing new production
facilities: cutting-edge technology and
equipment are used to considerably
reduce the adverse environmental impact
and risk of environmental accidents. The
Company builds new and upgrades its
existing waste disposal sites, equips its

facilities with state-of-the-art oil sludge
treatment units, sets up new sewage
treatment facilities and revamps older ones.

All NOVATEK’s subsidiaries and joint
ventures conduct safety training and all
types of briefings; personnel training and
development programs are offered,
among others, by specialized training
centers, and a proper knowledge
assessment system is in place.

Employees are NOVATEK’s most valuable resource, allowing

the Company to grow rapidly and effectively. The Company’s

human resource management system is based on the

principles of fairness, respect, equal opportunities for

professional development, dialogue between management

and employees, as well as continuous, comprehensive

training and development opportunities for the Company’s

employees at all levels.

Repayable Financial Aid Program

Targeted Compensation

and Socially Important Payments

Culture and sports

Health Resort Treatment

and Rehabilitation

Voluntary Medical Insurance

State Guarantees Support

Program

Own Pension Program

NOVATEK-Veteran Program

Corporate Awards Program

Environmental Expenditures in 2014, RR mln

Injury frequency rate

(number of injuries per million working hours)

Water consumption by subsidiaries

and joint ventures, th. cubic m

12%

14%

637

NEW QUALITY OF GROWTH

Enviromental protection against
production and consumption waste

Compensation payments

Soil protection

Environmental management

Protection and use of
water resources

Atmospheric air protection

0.8

0.6

0.4

0.2

0.9

1,425

1,347

0.5

0.3

0.4

857

884

715

58%

Environmental monitoring
and evaluation of the background

Subsurface protection

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

528

526

106

1,500

1,200

900

600

300

Downstream

Upstream

ENVIRONMENTAL

AND SOCIAL

RESPONSIBILITY

NOVATEK adheres to the principles of effective

and responsible business conduct and considers

the welfare of its employees and their families,

environmental and industrial safety, the creation

of a stable and beneficial social environment as

well as contributing to Russia’s overall economic

development as priorities and responsibilities of

the Company.

2,554

operating workplaces were

certified in 2014

11comprehensive inspections of

NOVATEK subsidiaries for

occupational health, industrial,

fire and environmental safety

requirements in 2014

168RR mln expenses on

Safety in 2014

Occupational Health and

NOVATEK’s headcount, people

Social Expenditures on employees, RR mln

NOVATEK

38%

18%

6,749

29%

Administrative
personnel

Power supply

Exploration
and production

Transportation
and marketing

Processing

NOVATEK has implemented an

In our Health, Safety and Environment

facilities with state-of-the-art oil sludge

Environment, Health and Safety Policy

(HSE) activities we pay special attention to

treatment units, sets up new sewage

and all of the Company’s principal

subsidiaries and joint ventures operate

an Integrated Health, Safety and

preventive measures. In particular, the

environmental aspects are taken into

account in designing new production

Environment Management System (IMS)

facilities: cutting-edge technology and

that comply with the international ISO

equipment are used to considerably

14001:2004 and OHSAS 18001:2007

standards. In 2014, NOVATEK

successfully passed another IMS

compliance audit.

reduce the adverse environmental impact

and risk of environmental accidents. The

Company builds new and upgrades its

existing waste disposal sites, equips its

treatment facilities and revamps older ones.

All NOVATEK’s subsidiaries and joint

ventures conduct safety training and all

types of briefings; personnel training and

development programs are offered,

among others, by specialized training

centers, and a proper knowledge

assessment system is in place.

Employees are NOVATEK’s most valuable resource, allowing
the Company to grow rapidly and effectively. The Company’s
human resource management system is based on the
principles of fairness, respect, equal opportunities for
professional development, dialogue between management
and employees, as well as continuous, comprehensive
training and development opportunities for the Company’s
employees at all levels.

528

526

106

Repayable Financial Aid Program

Targeted Compensation
and Socially Important Payments

Culture and sports

Health Resort Treatment
and Rehabilitation

Voluntary Medical Insurance

State Guarantees Support
Program

Own Pension Program

NOVATEK-Veteran Program

Corporate Awards Program

Environmental Expenditures in 2014, RR mln

12%

14%

637

Enviromental protection against

production and consumption waste

Compensation payments

Soil protection

Environmental management

Protection and use of

water resources

Atmospheric air protection

58%

Environmental monitoring

and evaluation of the background

Subsurface protection

Injury frequency rate
(number of injuries per million working hours)

Water consumption by subsidiaries
and joint ventures, th. cubic m

0.9

0.5

0.3

0.4

0.8

0.6

0.4

0.2

1,500

1,200

900

600

300

1,425

1,347

857

884

715

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Downstream

Upstream

ANNUAL REPORT 2014

CORPORATE GOVERNANCE

The Board of Directors membership as of 31 December 2014

MR. ALEXANDER Y.
NATALENKO

Born in 1946
Chairman of the Board of Directors

Chairman of the Strategy Committee

MR. ANDREI I.
AKIMOV

MR. LEONID V.
MIKHELSON

Born in 1953
Member of the Strategy Committee

Born in 1955
Chairman of the Management Board

MR. YVES LOUIS CHARLE JUSTIN
DARRICARRERE

MR. VLADIMIR A.
DMITRIEV

MR. GENNADY N.
TIMCHENKO

Born in 1951
Member of the Strategy Committee

Born in 1953
Member of the Strategy Committee

Born in 1952
Member of the Strategy Committee

NEW QUALITY OF GROWTH

DR. BURCKHARD
BERGMANN

Born in 1943
Independent Director

Member of the Remuneration and Nomination Committee

Member of the Audit Committee

Member of the Strategy Committee

MR. ANDREI V.
SHARONOV

Born in 1964
Independent Director

Chairman of the Audit Committee

Member of the Remuneration and Nomination Committee

MR. VICTOR P.
ORLOV

Born in 1940
Independent Director

Chairman of the Remuneration and Nomination Committee

Member of the Strategy Committee

Member of the Audit Committee

NOVATEK

The Company has established
an effective and transparent
system of corporate governance
complying with both Russian
and international standards.
The Company adheres to the
internal Corporate Governance
Code and the internal Code
of Business Ethics and has a
well-established and efficient
internal control and audit
system.

INDEPENDENT
BOARD
MEMBERS

ANNUAL REPORT 2014

REVIEW OF OPERATING
RESULTS

Licenses

NOVATEK’s ﬁ elds and license areas are located in the YNAO
of the Russian Federation, which is one of the world’s larges t
natural gas producing regions and accounts for approximately
16% of global natural gas production and 80% of Russian
natural gas production. The concentration of the Company’s
producing and prospective ﬁ elds, license areas and process-
ing facilities in this proliﬁ c gas-producing region combined
with the Region’s vast oil and gas infrastructure have allowed
NOVATEK to minimize the risks associated with developing
its assets and expanding its hydrocarbon resource base. The
Company has many years of experience working in the YNAO,
enabling us to eﬀ ectively capitalize on growth opportunities to
increase shareholder value.

Exploration and production of hydrocarbons in Russia is subject
to State licensing regulations. As of 31 December 2014, our
subsidiaries and joint ventures held 31 licenses for ﬁ elds and
license areas, of which 29 are classiﬁ ed as either production or
combined exploration and production licenses and two (2) are
classiﬁ ed as exploration licenses. The duration of licenses for our
core ﬁ elds exceeds 20 years: the license for the Yurkharovskoye
ﬁ eld is valid until 2034, the East-Tarkosalinskoye ﬁ eld expires
in 2043, and the South-Tambeyskoye ﬁ eld in 2045. NOVATEK is
strictly observing all of its license obligations pursuant to current
Russian legislation, and conducts continuous monitoring of
license tenders in order to expand its resource base in strategi-
cally important regions.

In December 2014 “Arctic LNG 1” (the Company’s subsidiary) won
an auction for exploration and production at the Trekhbugorniy
license area located on the Gydan Peninsula and bordering the
Company’s Geoﬁ zicheskiy license area. Estimated natural gas
reserves of the Trekhbugorniy license area under the Russian
C1+C2 reserve classiﬁ cation amount to 5.9 bcm, while the ﬁ eld’s
broader recoverable resources classiﬁ cation exceed one (1) tcm
of natural gas and 90 mln tons of liquid hydrocarbons. Payment
for the license amounted to RR 435 mln.

Hydrocarbon Reserves

Most of the Company’s reserves are located onshore or can be
developed from onshore locations and are attributed to the con-
ventional hydrocarbon categories (capable of being exploited
using conventional technologies, in contrast to unconventional
gas deposits such as shale gas or coal-bed methane).

The Company’s reserves are appraised on an annual basis by
independent petroleum engineers, “DeGolyer and MacNaugh-
ton” (“D&M”), under both the SEC and PRMS reserve reporting
standards.

As of 31 December 2014, NOVATEK’s SEC proved reserves,
including the Company’s proportionate share in joint ventures,
aggregated 12,578 mmboe, including 1,747 bcm of natural gas
and 135 mmt of liquid hydrocarbons. Despite the price decline
for benchmark crude oil prices on the international hydrocarbon
market, the Company’s proved reserves increased by 0.3% com-
pared to year-end 2013, and the reserve replacement rate was
109%. At year-end 2014, the Company’s reserve to production
ratio (or R/P ratio) was 28 years.

The reserves growth during the reporting period was aﬀ ected
by the decrease in the Company’s proportional share in the
SeverEnergia joint venture from 59.8% as at year-end 2013 to
54.9% as at 31 December 2014 resulting from an agreement
with “Gazprom Neft” concluded in March 2014, and provid-
ing for the gradual alignment of the ownership structure in
“SeverEnergia”. Excluding this eﬀ ect, the proved reserves grew
by 2%, with an organic reserve replacement of 152% due to
successful exploration works and production drilling, which
amounted to reserves addition of 733 million boe, inclusive of
2014 production.

As a result of large-scale development and construction works
at a number of large ﬁ elds, our proved developed reserves grew
by 623 mmboe or 14%, and their share in overall proved reserves
increased to 40.4% from 35.5% as at the end 2013.

Under the PRMS reserves reporting standards, the Com-
pany’s total proved plus probable reserves, including our
proportionate share in joint ventures, totalled 22,886 mmboe,
which includes 3,122 bcm of natural gas and 293 mln tons of
liquid hydrocarbons, and represents a decline of 199 mmboe
compared with year-end 2013. Excluding the effect from the
reduction of our ownership in “SeverEnergia” as described
above, our proven plus probable reserves increased by 203
mmboe, or by 0.9%.

The high quality of the reserve base enables NOVATEK to
maintain its position as one of the lowest cost producers in
the global oil and gas industry. Our three-year (2012-2014) and
ﬁ ve-year (2010-2014) reserve replacement costs amounted
to RR 78.4 (USD 2.37) per boe and RR 69.8 (USD 2.16) per boe,
respectively.

NEW QUALITY OF GROWTH

NOVATEK

Geological Exploration

NOVATEK aims to expand its resource base through geological
exploration at ﬁ elds and license areas not only in close proximity
to existing transportation and production infrastructure, but also
in new potentially prospective hydrocarbon areas. The Company
ensures the eﬃ ciency of geological exploration work by deploy-
ing state-of-the-art technologies and relying on the experience
and expertise of the specialists in its geology department, and the
Company’s Scientiﬁ c and Technical Center located in Tyumen.

The Company uses a systematic and comprehensive approach
to exploration and development of its ﬁ elds and license areas,
beginning with the collection and interpretation of seismic data
to the creation of dynamic ﬁ eld models for the placement of
exploration and production wells. We employ modern geologi-
cal and hydrodynamic modelling as well as new well drilling and
completion techniques to maximize the ultimate recovery of
hydrocarbons in a cost eﬀ ective manner.

In 2014, we continued full-scale exploration works at our license
areas located on the Gydan Peninsula and oﬀ shore in the Gulf of
Ob – assessment of the resource potential of the license areas
was completed and exploration drilling on the Utrenneye ﬁ eld

was conducted. Exploration work activities also continued at the
ﬁ elds and license areas in the Nadym-Pur-Taz region, including
the license areas of the SeverEnergia joint venture. Supplemen-
tary exploration works were carried out at the Malo-Yamalskoye
ﬁ eld located on the Yamal Peninsula.

In 2014, NOVATEK completed 828 square km of three-dimen-
sional (3D) seismic, including seismic activities run at our joint
ventures. Seismic works were conducted at the North-Russkiy,
Yarudeyskiy and Samburgskiy license areas, and seismic studies
were completed at the oﬀ shore part of the Geoﬁ zicheskoye ﬁ eld
in the Gulf of Ob.

Exploration drilling amounted to 26.3 thousand meters, the
construction of six (6) prospecting and exploration wells was
completed. As a result, Harbeyskoye oil and gas field with
recoverable reserves (under the Russian reserve classification
C1 + C2) of 26.7 bcm of natural gas and 7.8 mln tons of liquid
hydrocarbons was discovered at the North-Russkiy license
area. New hydrocarbon deposits were also discovered in
the Jurassic sediments of the South-Tambeyskoye field, and
wet gas reserves were increased in the Achimov deposits of
the Urengoyskoye field at the Samburgskiy and Olympiyskiy
license areas.

Proved reserves under the SEC standards as of 31 December 2014 (based on our equity ownership interest in
the respective ﬁ elds) and duration of licenses

Field / license area

Ownership

Duration of license

Gas reserves,
bcm

Liquids reserves,
mln tons

Yurkharovskoye

South-Tambeyskoye

Utrenneye

East-Tarkosalinskoye

Urengoyskoye (OAO “ARCTICGAS”)

Geofi zicheskoye

North-Urengoyskoye

Yaro-Yakhinskoye

Samburgskoye

North-Chaselskoye

Khancheyskoye

North-Russkoye

Olympiyskiy license area

East-Tazovskoye

Termokarstovoye

Yarudeyskoye

Other

Total

100%

60%

100%

54.9%

100%

50%

54.9%

100%

51%

—

2034

2045

2031

2043

2034

2038

2034

the lifetime of the fi eld

2044

2031

2026

2033

2021

2029

—

363.4

294.8

259.8

163.9

153.1

125.6

99.6

84.8

55.7

29.2

26.7

22.5

21.4

17.1

15.6

4.4

9.2

17.2

8.3

9.6

15.2

38.3

0.4

9.0

8.3

7.9

1.3

3.1

1.9

2.1

2.5

4.5

5.1

0.2

1,746.7

135.0

ANNUAL REPORT 2014

Exploration works

3D seismic

Subsidiaries

Joint ventures

Exploration drilling

Subsidiaries

Joint ventures

Units

square km

th. m

2013

2,677

1,821

856

37.3

10.6

26.7

2014

828

730

26.3

19.3

7.0

Change

(69)%

(60)%

(89)%

(29)%

82%

(74)%

Field Development

During 2014, NOVATEK’s subsidiaries spent RR 57.8 billion on
the development of hydrocarbon reserves as part of our capital
investment program in order to achieve sustainable hydrocar-
bon production growth.

Production drilling in 2014, including joint ventures, reached
595 thousand meters which amounted to 17% less production
drilling than in 2013. The decrease was due to the development
of the Yurkharovskoye and North-Urengoyskoye ﬁ elds nearing
completion. A total of 85 wells were put on stream, including
56 gas and gas condensate wells and 29 oil wells.

NEW FACILITIES COMMISSIONED AT PRODUCING FIELDS

In July 2014, the third stage of compressor booster station,
which included ﬁ ve compressor units, was launched at the
Yurkharovskoye ﬁ eld, thus increasing the overall compressor ca-
pacity at the station to 300 MW. The compressor booster station
is required to keep the plateau production level at the ﬁ eld. To
develop the Eastern part of the ﬁ eld and ensure even depletion
of reservoirs, we continued drilling long-reach horizontal wells
in 2014. Three (3) new gas condensate wells were put on stream
and work over activities was performed on two (2) previously
drilled wells. Wells at the Yurkharovskoye ﬁ eld reach 8.5 km in
length with a vertical deviation of over seven (7) km and hori-
zontal sections of up to 1.5 km.

In September 2014, the third phase of the Samburgskoye gas
condensate ﬁ eld developed by SeverEnergia (a joint venture
between NOVATEK and GazpromNeft) was commissioned.
The launch of the third stage, which exceeds two (2) bcm of
natural gas per annum, will enable the ﬁ eld to achieve peak
production capacity of approximately seven (7) bcm of natural
gas and more than 900 thousand tons of gas condensate per
annum. A total of 19 new production wells were commissioned
at this ﬁ eld in 2014.

At the East-Tarkosalinskoye ﬁ eld intensive drilling was performed
targeting the ﬁ eld’s crude oil layers with 29 oil production wells

1 North-Khancheyskoye+Khadyryakhinskoye from October 2014.

completed during the reporting year. The associated petroleum
gas recovered during oil treatment is compressed at a booster
compression station, which capacity was expanded from 3.5 to
10.5 MW as a result of launching two new compressor units in
2014. To maintain gas production capacity at the ﬁ eld, two new
compressor units with a capacity of 16 MW each were launched
at the natural gas booster compression station, thus increasing
the overall capacity of the station to 128 MW.

In September 2014, the second train of the booster compres-
sion station including two compressor units with a capacity of
10 MW each was launched at the Western Dome of the North-
Urengoyskoe ﬁ eld (developed by the Nortgas joint venture), thus
increasing the station’s overall capacity to 40 MW. The compres-
sor booster station enables maintaining production capacity
of the ﬁ eld. Seven (7) new production wells were drilled at the
North-Urengoyskoe ﬁ eld in 2014.

NEW FIELDS COMMISSIONED IN 2014

The ﬁ rst phase of the Urengoyskoye ﬁ eld development (the
SeverEnergia joint venture) was launched in April 2014, and the
second phase followed in December 2014. Overall production
capacity of the two phases is approximately 13 bcm of natural
gas and 4.7 mmt of de-ethanized gas condensate per annum.
Production drilling targets the Achimov deposits which are
relatively deep (approximately 3,700 m) and are characterized
by an ultra-high content of gas condensate in the hydrocarbon
ﬂ ow. As of the end of 2014, a total of 36 production wells were in
operation at the ﬁ eld.

In December 2014, the North-Khancheyskoye1 gas ﬁ eld was
commissioned with a total capacity of 0.4 bcm of natural gas
per annum. Three (3) wells were in operation at the ﬁ eld as at
year-end.

NEW FIELDS PREPARED FOR COMMISSIONING

During the reporting year the Company continued its develop-
ment and construction activities at a number of large ﬁ elds
planned for commissioning in 2015.

NEW QUALITY OF GROWTH

NOVATEK

At the Yaro-Yakhinskoye ﬁ eld (developed by the SeverEnergia
joint venture) gas and gas condensate pipelines connecting the
ﬁ eld to the trunk pipeline system were completed, construction
of gas treatment facility was almost completed and the equip-
ment testing commenced. A total of 17 production wells were
drilled at the ﬁ eld in 2014 and the total well stock increased to
41 wells by the year end.

In the reporting year, gas and gas condensate pipelines linking
the Termokarstovoye ﬁ eld (developed by Terneftegas, a joint
venture between NOVATEK (51%) and Total (49%)) were com-
pleted, as well as gas gathering lines. The gas treatment facility
and gas condensate de-ethanization unit were almost complet-
ed by the year end – the equipment was installed and piping
works were underway. There were 20 production wells drilled at
the ﬁ eld as of the end of 2014. Production drilling targets Juras-
sic deposits and the wells have long horizontal sections between
1.2 km and 2 km.

At the Yarudeyskoye oil ﬁ eld developed by YARGEO (NOVATEK
holds a 51% share) a central oil separation facility and a gas treat-
ment unit were under construction. The construction of oil and
gas pipelines linking the oil ﬁ eld to the trunk pipeline system
were completed by more than 60%. Thirteen (13) production
wells were drilled and two previously drilled exploration wells
were side-tracked.

Hydrocarbon Production

In 2014, NOVATEK carried out commercial hydrocarbon
production at 10 ﬁ elds. Marketable production from all ﬁ elds
(including the Company’s share in production of joint ventures)
amounted to 456.7 mmboe, representing an increase of 4.0%
over the prior year.

Total marketable production of natural gas including the
Company’s share in production of joint ventures amounted to
62.13 bcm, representing 89% of our total hydrocarbon output.
The share of gas produced from the Valanginian layers (or “wet

gas”) in proportion to total gas production was 83%. Marketable
production of natural gas increased by 1.5% or by 0.9 bcm, as
compared to 2013 volumes.

The production growth is attributable to the Eastern Dome of
the North-Urengoyskoye ﬁ eld, Urengoyskoye and Dobrovols-
koye ﬁ elds within the Olympiyskiy license area launched in 2013,
Urengoyskoye ﬁ eld within the Samburgskiy license area and
the third stage of Samburgskoye ﬁ eld both launched in 2014, as
well as the growth of production at Yurkharovskoye ﬁ eld, and
the growth of our eﬀ ective share in SeverEnergia from 25.5% in
2013 to 54.9% in 2014. Natural gas production was aﬀ ected by
the disposal of the Company’s equity share in Sibneftegas at the
end of 2013. Excluding the natural gas produced by Sibneftegas,
NOVATEK’s natural gas production increased by 11.3% or by
6.3 bcm.

Marketable production of liquid hydrocarbons including the Com-
pany’s share in production of joint ventures totalled 6,036 thou-
sand tons, of which 81% was unstable de-ethanized gas conden-
sate and the remaining 19% consisted of crude oil. Marketable
production of liquids increased by 27.0% or 1,285 thousand tons
as compared with 2013, whereas crude oil production increased
by 55.1% and amounted to 1,168 thousand tons.

Gas condensate production growth was due to the launch of
the Urengoyskoye ﬁ eld (within the Samburgskiy license area)
in 2014, the growth of our eﬀ ective share in SeverEnergia, the
launch of the third stage of the Samburgskoye ﬁ eld in 2014, and
the launch of Dobrovolskoye ﬁ eld and the Eastern dome of the
North-Urengoyskoye ﬁ eld in 2013.

The overall increase in crude oil production was mainly due to
production drilling eﬀ orts at the East-Tarkosalinskoye ﬁ eld.

We continued to achieve some of the lowest lifting costs in
the industry (expenses directly related to the extraction and
processing of natural gas, gas condensate and crude oil from the
reservoir). The Company’s lifting costs were RR 18.9 (USD 0.49)
per boe in 2014.

Marketable hydrocarbon production (including share in production by joint ventures)

Gas

Liquid hydrocarbons

Total production

Units

mmcm

mmboe

mmt

mmboe

2013

61,216

400.4

4,751

38.6

439.0

2014

62,129

406.3

6,036

50.4

456.7

Change

1.5%

27.0%

4.0%

ANNUAL REPORT 2014

Marketable hydrocarbon production in 2014 (including share in production by joint ventures)

Gas, mmcm

Liquids, mt

Yurkharovskoye (100%)

East-Tarkosalinskoye (100%)

North-Urengoyskoye (49% from 28 November
2012, 50% from 2 July 2013)

ARCTICGAS fi elds (59.8% until 31 March 2014,
54.9% from 1 April 2014)

Khancheyskoye (100%)

North Khancheyskoye (100%)

Urengoyskoye and Dobrovolskoye within the
Olimpiyskiy license area (100%)

Sterkhovoye (100%)

2013

37,775

10,946

2014

Change

38,154

10,348

1.0%

(5.5)%

2,382

5,402

126.8%

1,224

3,256

—

131

106

4,129

237.3%

2,933

(9.9)%

—

1,066

713.7%

—

(21.7)%

—

1.5%

2013

2,712

1,094

250

174

483

—

2014

2,496

1,293

Change

(8.0)%

18.2%

633

153.2 %

1,063

510.9%

445

(7.9)%

—

962.5%

(30.0)%

—

4,751

6,036

27.0%

Sibneftegas fi elds (51% until 26 December 2013)

5,396

Total

61,216

62,129

Yamal LNG Project

The Yamal LNG project envisages the construction of an LNG
plant with annual capacity of 16.5 million tons per annum based
on the feedstock resources of the South-Tambeyskoye ﬁ eld
located in the north-east of the Yamal Peninsula.

Yamal LNG is the operator of the project, the license holder and
owner of all the assets. At year-end, the shareholder structure
comprised NOVATEK (60%), Total (20%) and CNPC (20%). The
launch of the ﬁ rst LNG train is planned for 2017.

The South-Tambeyskoye field was discovered in 1974 and
comprises five (5) shallow gas horizons and 37 deeper gas
condensate horizons. The depth of the horizons varies from
between 900 to 2,850 meters. The license for exploration
and production at the South-Tambeyskoye field is valid
until 2045.

As of 31 December 2014, the ﬁ eld was estimated to contain
491 bcm of proved natural gas reserves and 14 mmt of proved
liquid hydrocarbon reserves, under the SEC reserves methodol-
ogy. Based on total proved hydrocarbon reserves, the South-
Tambeyskoye ﬁ eld is the largest ﬁ eld in NOVATEK reserves
portfolio. According to the PRMS reserves standards, the proved
and probable reserves of the South-Tambeyskoye ﬁ eld were ap-
praised at 926 billion cubic meters of natural gas and 30 mmt of
liquid hydrocarbons.

The South-Tambeyskoye ﬁ eld has already been thoroughly
studied with a complex of exploration activities, including run-
ning 3D seismic and exploration drilling, creation of the ﬁ elds’
geological model and reserves appraisal.

The ﬁ eld development plan provides for the drilling of 208 wells
at 19 well drilling pads, and the production potential of the ﬁ eld
exceeds 27 bcm of natural gas per annum.

Natural gas produced at the ﬁ eld will be delivered to the inter-
national markets in a form of liqueﬁ ed natural gas, or LNG, which
requires the construction of a liquefaction plant consisting of
three (3) production trains of 5.5 mmt annual capacity each. The
shipping infrastructure will include a jetty with two tanker load-
ing berths at the port of Sabetta equipped with ice protection
facilities. Ice-class LNG carriers of special Arc-7 design will be
used to transport the LNG to international markets.

At year-end 2014, 26 production wells were drilled at the South-
Tambeyskoye ﬁ eld. Backﬁ lling and piling for the ﬁ rst train of the
LNG plant was underway, fabrication of LNG plant modules was
contracted and, during the year, the steel cutting was done for
the ﬁ rst modules. Casting works for the external concrete walls
on two LNG tanks for the plant’s ﬁ rst train were completed as
well as rooﬁ ng on the ﬁ rst tank. EPC-contract progress exceeded
20% by the year-end. Steel was cut for the ﬁ rst Arc-7 ice class
LNG carriers, and more than 20 million cubic meters of soil were
dredged at the approach channel to the Sabetta port.

With the opening of the ﬁ rst winter navigation season at the
Sabetta port in 2013, the port facilities handled 2.1 million tons
of construction materials and equipment (2.6 times more than in
2013) delivered by 95 marine ships and 351 river barges. The ﬁ rst
phase of construction at the International Sabetta Airport was
ﬁ nalized and the milestone landing of the ﬁ rst Boeing 737 ﬂ ight
took place in December 2014. Long-term contracts for more
than 95% of LNG volumes were placed as of the year-end and
work continued on the external ﬁ nancing.

NEW QUALITY OF GROWTH

NOVATEK

There were approximately 6,800 construction workers and 1,350
construction machinery units at the site as of the year end 2014.

Processing of Gas Condensate

PUROVSKY PLANT

Our subsidiaries and joint ventures are producing wet gas – a
mixture of natural gas and gas condensate. After being sepa-
rated at the field the unstable (de-ethanized) gas condensate
is delivered via a system of condensate pipelines owned by
the Company for further stabilization at our Purovsky Plant
located in the YNAO in close proximity to the East-Tarkosalin-
skoye field.

The Purovsky Plant is the central element in our production
value chain that provides us complete operational control over
our processing needs and access to higher yielding marketing
channels for our stable gas condensate. The Purovsky Plant pro-
duces stable gas condensate, and light hydrocarbons.

Due to the estimated ramp up in gas condensate production, in
early 2014 we completed the project for expanding the process-
ing capacity of the Purovsky plant from ﬁ ve (5) to 11 million
tons. As a result, we have achieved a balance between our gas
condensate production potential and processing capacity.

Previously, the Purovsky Plant was producing marketable LPG
which was shipped to customers by railway. Beginning in the
second quarter 2014 all of the light hydrocarbon volumes
(feedstock for LPG production) are delivered by pipeline to
SIBUR’s Tobolsky Petrochemical Complex for further processing.
The agreements executed with SIBUR on supplying the light
hydrocarbons to the Tobolsky Petrochemical Complex enabled
NOVATEK to reduce costs on expanding the Purovsky Plant
capacities by eliminating the need to build additional units
for LPG production and additional railway capacities for LPG
transportation. Moreover, the railway capacities earlier used for
LPG transportation, are currently used for transporting stable gas
condensate.

UST-LUGA STABLE GAS CONDENSATE TRANSSHIPMENT
AND FRACTIONATION COMPLEX

The Gas Condensate Fractionation and Transshipment Com-
plex located at the all-season port of Ust-Luga on the Baltic Sea
(the Ust-Luga Complex) processes stable gas condensate into
petroleum products like light and heavy naphtha, jet fuel, fuel oil
and gasoil, and enables us to ship the value-added petroleum
products to international markets. The Ust-Luga Complex also
allows for transshipment of stable gas condensate to exports.
The overall gas condensate processing capacity at the Ust-Luga
Complex is six (6) million tons per annum. The ﬁ rst stage was
launched in June 2013 and the second stage in October 2013.

As a result of increasing wet gas production at our ﬁ elds, the de-
ethanized gas condensate processing volumes at the Purovsky
Plant increased by 35.7% to 6.60 mmt in 2014. The correspond-
ing output structure included 5,049 mt of stable gas condensate,
1,032 thousand tons of light hydrocarbons, 339 thousand tons
of LPG and 14 thousand tons of regenerated methanol. By the
end of 2014, the capacity utilization rate at the Purovsky Plant
reached 85%.

The Ust-Luga Complex expands our vertically integrated chain
and increases sales of higher value added products as well
as diversifying the geographical markets and expanding the
customer base for our products. The successful implementation
of the project also allowed us to improve logistics and reduce
transportation costs due to a more favorable geographical loca-
tion of Ust-Luga as compared to the port of Vitino, which was
previously used for gas condensate exports.

The Purovsky Plant is connected via its own railway line to
the Russian rail network at the Limbey rail station. Since the
launch of the Ust-Luga Complex in June 2013, most of the
stable gas condensate volumes produced at the Purovsky
Plant are delivered by rail to Ust-Luga for further processing
(stable gas condensate was formerly exported via the Port
of Vitino).

In 2014, the Ust-Luga Complex processed 4,706 thousand tons
of stable gas condensate into 4,624 thousand tons of end prod-
ucts, including 3,431 thousand tons of light and heavy naphtha,
472 thousand tons of jet fuel and 721 thousand tons of fuel oil
and gasoil. By the end of the reporting year, the Ust-Luga Com-
plex reached its full design capacity as a result of the processing
volumes growth at the Purovsky Plant.

Processing volumes and output of the Purovsky Plant, thousand tons

Processing of de-ethanized condensate

Output:

Stable gas condensate

Light hydrocarbons

Marketable LPG

Methanol

2013

4,862

3,712

—

1,088

2014

6,600

5,049

1,032

339

Change

35.7%

36.0%

n/a

(68.8)%

(12.5)%

ANNUAL REPORT 2014

Processing volumes and output of the Ust-Luga Complex, thousand tons

Stable gas condensate processing

Output:

Light naphtha

Heavy naphtha

Jet fuel

Gasoil

Fuel oil

2013

1,873

686

836

190

2014

4,706

1,425

2,006

472

179

542

Change

151.3%

107.7%

140.0%

148.4%

616.0%

476.6%

Natural Gas Sales

During 2014, NOVATEK supplied natural gas to 30 regions of the
Russian Federation. Our customers were located primarily in
the following regions (with gas sales of more than one (1) bcm
per annum per region): Chelyabinsk, Perm, Stavropol, Moscow,
Kostroma, Orenburg, Vologda, Sverdlovsk and Tyumen regions,
Khanty-Mansiysk and Yamal-Nenets Autonomous Regions, and
the cities of Moscow and St-Petersburg. The above-mentioned
regions accounted for 96% of our total gas sales. The Com-
pany accounted for 18.8% of total natural gas deliveries to the
domestic market through the Uniﬁ ed Gas Supply System (UGSS),
representing an increase of 0.4 percentage points as compared
to 2013.

NOVATEK’s 2014 natural gas sales volumes totalled 67.2 bcm,
representing an increase of 4.8% as compared to 2013 sales
volumes of 64.2 bcm. The growth in sales volumes was due to
an increase in natural gas supplies to the Khanty-Mansiysk Au-
tonomous Region and the Stavropol Region. Deliveries to these
regions increased by 7.7 bcm as compared to 2013 due primarily
to higher volumes delivered on existing contracts.

During 2014, our total revenues from natural gas sales increased
to RR 230.4 billion or by 12.4%, as compared to 2013, due to the
combination of higher volumes sold, and an increase in year-
average regulated gas prices in 2014 as compared to 2013, and
the increase in the share of sales to end-customers.

The share of natural gas sales to end customers in 2014 grew
by 5.2 percentage points compared to 2013, which is fully
in line with the marketing strategy of the Company aimed
at diversifying sales, maximizing margins and increasing the

stability of our business. In order to maintain production levels
during periods of seasonal demand NOVATEK has entered into
an agreement with Gazprom for underground storage services.
Typically, natural gas inventories are accumulated during
warmer periods when demand is lower and then used to meet
increased demand during periods of colder weather. As at
the end of 2014 our inventories of natural gas in gas storages
amounted to 1.0 bcm.

Liquid Hydrocarbon Sales

Liquid hydrocarbons produced at the Purovsky Plant are trans-
ported by rail, products produced at the Ust-Luga Complex are
exported by sea, while crude oil is transported through the trunk
pipelines owned and operated by Transneft.

Total sales volumes of liquid hydrocarbons in 2014 aggregated
7,089 thousand tons, representing a 30.4% increase over 2013
volumes. The growth is attributed to higher processing volumes
at the Purovsky Plant and Ust-Luga Complex, and to increased
crude oil production. Our export deliveries in 2014 grew by
20.5% to 5,287 thousand tons.

Liquids sales revenues in 2014 increased to RR 125.2 billion, or by
35.3%, as compared to 2013. Revenue growth was mainly driven

Natural gas sales, bcm

Total gas sales, including:

end customers

traders

Share of end-customers in total gas sales

NEW QUALITY OF GROWTH

2013

64,152

57,021

7,131

88.9%

2014

67,231

63,281

3,950

94.1%

Change

4.8%

11.0%

(44.6)%

5.2 p.p.

NOVATEK

by the increase in sales volumes as well as the growth of the
share of higher value added products.

the remaining part is sold to SIBUR. In the reporting year, sales of
light hydrocarbons to SIBUR amounted to 504 thousand tons.

As a result the launch of the Gas Condensate Fractionation and
Transshipment Complex in the port of Ust-Luga in 2013 the
Company ceased export deliveries of stable gas condensate and
started exporting naphtha, jet fuel, fuel oil and gasoil. During
2014, stable gas condensate sales volumes decreased by 85.7%
to 303 thousand tons with all the volumes sold on the domestic
market.

Petroleum product sales volumes grew by 2.8 times to
4,438 thousand tons, and their share in total liquids sales
increased to 62.6% as compared to 29.5% in 2013. We sold
3,319 thousand tons of naphtha, 433 thousand tons of jet fuel,
686 thousand tons of fuel oil and gasoil. Sales to Asian-Paciﬁ c
region accounted for 46.9% of total product sales volumes,
40.6% were sold to the European markets and 12.5% to North
and South America. Naphtha was mainly exported to the Asian-
Paciﬁ c countries, while jet fuel, fuel oil and gasoil was shipped to
North-Western Europe.

The replacement of stable gas condensate exports by the sales
of petroleum products with higher value added margins posi-
tively impacted the ﬁ nancial results of the Company.

From the second quarter 2014 the LPG sales scheme changed –
we started delivering all the volumes of light hydrocarbons
(feedstock for marketable LPG production) produced at the
Purovsky Plant to SIBUR’s Tobolsky Petrochemical Complex. A
portion of these volumes is processed at the Tobolsky Petro-
chemical Complex into marketable LPG on tolling terms, while

LPG sales volumes totaled 930 thousand tons in 2014, repre-
senting a decrease of 13.7% compared to 2013. The start of LPG
deliveries from SIBUR’s Tobolsky Petrochemical Complex allowed
us to reduce per-unit transportation costs due to a more favor-
able geographical location of the Tobolsky Complex compared
to the Purovsky Plant.

In 2014, LPG export sales volumes amounted to 559 thousand
tons or 60.1% of the total LPG sales volumes. Novatek Pol-
ska, our wholly owned LPG trading company in Poland, sold
355 thousand tons of LPG, representing 63.5% of our total
LPG export sales. Other export markets for LPG were Finland,
Hungary, Lithuania, Slovakia and Romania.

On the domestic market, our LPG is sold through large whole-
sale channels, as well as through our network of retail and small
wholesale stations. In 2014, large wholesale supplies to the
domestic market were 244 thousand tons, representing 26.2%
of total LPG sales volumes. We were also selling LPG via the net-
work of 63 retail stations and seven (7) small wholesale stations
in Chelyabinsk, Volgograd, Rostov and Astrakhan regions. The
total amount of LPG sold through our domestic network of retail
and small wholesale stations increased to 126 thousand tons or
by 16.6% as compared to 2013.

Sales of crude oil in 2014 totaled 903 thousand tons, represent-
ing a 44% increase over 2013 volumes. We sold 65% of our crude
oil volumes on the domestic market with the remaining volumes
supplied to export markets.

Liquid hydrocarbon sales, thousand tons

Petroleum products (Ust-Luga)

LPG

Crude oil

Light hydrocarbons

Stable gas condensate

Other

Total

2013

1,606

1,078

627

2,117

5,438

2014

4,438

930

903

504

303

7,089

Change

176.3%

(13.7)%

44.0%

n/a

(85.7)%

10.0%

30.4%

ANNUAL REPORT 2014

ENVIRONMENTAL
AND SOCIAL RESPONSIBILITY

NOVATEK adheres to the principles of eﬀ ective and responsible
business conduct and considers the welfare of its employees and
their families, environmental and industrial safety, the creation of a
stable and beneﬁ cial social environment as well as contributing to
Russia’s overall economic development as priorities and responsi-
bilities of the Company.

Environmental Protection

NOVATEK’s core producing assets are located in the Far North,
a harsh Arctic region with vast mineral resources and a fragile
and vulnerable environment. Throughout all of its operations
the Company is committed to environment protection. In 2014
environmental expenditures of NOVATEK, its subsidiaries and
joint ventures amounted to RR 637 mln.

NOVATEK has implemented an Environment, Health and Safety
Policy and all of the Company’s principal subsidiaries and joint
ventures operate an Integrated Health, Safety and Environment
Management System (IMS) that comply with the international
ISO 14001:2004 and OHSAS 18001:2007 standards. In 2014,
NOVATEK successfully passed another IMS compliance audit.

In our HSE activities we pay special attention to preventive
measures. In particular, the environmental aspects are taken into
account in designing new production facilities: cutting-edge tech-
nology and equipment are used to considerably reduce the adverse
environmental impact and risk of environmental accidents. The
Company builds new and upgrades its existing waste disposal sites,
equips its facilities with state-of-the-art oil sludge treatment units,
sets up new sewage treatment facilities and revamps older ones.

Environmental monitoring was performed throughout 2014
at all of the license areas and production facilities of the
Company. The monitoring process includes surveys into
the condition of environment components and collecting
samples of soil, ground, water, and river bed deposit. Plants,
animals, and microorganisms that share the same habitats are
checked. Air contamination level is inspected. The status of
fish stock and fodder resources in water areas is studied as are
hydrologic and hydrochemical parameters. The samples taken
are later tested in certified laboratories, and based on the
laboratory analysis the condition of the natural environment
components is assessed and trends are observed over the
year. The monitoring revealed that the natural environment
components in the monitored locations were predominantly
in a good condition.

The Company systemically works to decrease harmful green-
house gas emissions into the environment. In 2014, the Program
for Rational Use of Associated Petroleum Gas enabled us to
reach a 96% petroleum gas utilization rate at the Samburgskoye
ﬁ eld and 95% at the East-Tarkosalinskoye ﬁ eld.

In the reporting year, the Company continued its participation
in the Carbon Disclosure Project (CDP) whereby information on
greenhouse gas emissions and operational energy eﬃ ciency is
disclosed. We also disclose data on the use of water resources as
part of the CDP Water Disclosure Project. By taking part in these
projects the Company intends to achieve a balance between the
climate change risks and eﬃ ciency of investment projects. The
Company oﬀ ers all stakeholders full access to its environmental
information, including by publications in federal and local media,
its website, etc.

The Heritage Environmental Damage Remediation Program
included actions to remediate land, surface and ground water
and treat drilling sludge. In order to preserve biodiversity when
developing our Yarudeyskoye oil ﬁ eld, we released muksun
young ﬁ shes into the Ob-Irtysh basin rivers.

One of the Company’s environmental priorities is the rational
usage of resources, including energy resources. The table below
sets out the physical volumes and the Russian rouble equivalent
of energy resources consumed by the Company, its subsidiaries
and joint ventures in 2014.

Key Environmental Indicators of NOVATEK, its subsidiaries and joint ventures

Water consumption

Atmosphere emissions

Unit

th. cubic meters

th. tons

2013

1,425

29.4

2014

1,347

51.4

Change

(5.5)%

74.8%*

* The increase is due to commissioning of the stable gas condensate transshipment and fractionation complex at the port of Ust-Luga, third stage of the Purovsky Gas
Condensate Stabilization Plant, Eastern Dome of the North-Urengoyskoye ﬁ eld, Urengoyskoye ﬁ eld within the Samburgskiy license area, as well as third stage of the
Samburgskoye ﬁ eld.

NEW QUALITY OF GROWTH

NOVATEK

Energy Resource Consumption by NOVATEK, its subsidiaries and joint ventures in 2014

Natural gas

Electricity

Heating energy

Oil

Motor gasoline

Diesel fuel

Other

Units

mmcm

MW*h

Gcal

tons

Volume

RR mln, net of VAT

1,219

449,461

257,880

2,218

861

3,403

2,060

1,377.1

1,351.4

294.0

7.2

37.5

123.7

10.8

Health and Safety

Our strategic goal is to achieve a leading position amongst oil
and gas companies on all key indicators in terms of Occupa-
tional Health and Safety. In order to accomplish this goal, the
Company continually updates its IMS, improves employees’
qualiﬁ cation and applies advanced technologies.

In accordance with the requirements of the federal law «On
Industrial Safety of Hazardous Production Facilities» and «Rules
on the Organization and Implementation of Industrial Control for
Compliance with Requirements of Industrial Safety at Hazardous
Production Facilities» all of our subsidiaries have developed their
own rules for the organization and implementation of industrial
control for compliance with these requirements. We have also
established industrial control compliance commissions, which
carry out periodic audits of departments and production facili-
ties to comply with the HSE requirements.

Workplace certiﬁ cation includes evaluating measures to control
the harmful impact of hazardous factors in the workplace. Mea-
sures on improving working conditions are developed on the
basis of the results of the certiﬁ cation process. In the reporting
year, we certiﬁ ed 2,554 operating workplaces. No workplaces
with unacceptable working conditions were identiﬁ ed.

In 2014, the NOVATEK commission continued comprehensive
inspections of NOVATEK subsidiaries for occupational health,
industrial, ﬁ re and environmental safety requirements. In the
course of comprehensive inspections, occupational health,
industrial, ﬁ re and environmental safety control systems are
audited for compliance with international standards. In the re-

porting year, NOVATEK’s commission performed comprehensive
inspections of 11 entities, and, as a result, internal documents
have been developed to address the violations noted.

All NOVATEK’s subsidiaries and joint ventures conduct safety
training and all types of brieﬁ ngs; personnel training and de-
velopment programs are oﬀ ered, among others, by specialized
training centers, and a proper knowledge assessment system is
in place. Due to changes in the number of legislative and regula-
tory acts of the Russian Federation, extra knowledge tests were
organized in all entities and 4,880 employees underwent HSE
training courses. In 2014, the ﬁ nancing of Occupational Health
and Safety amounted to 168 million rubles.

Human Resources

Employees are NOVATEK’s most valuable resource, allowing the
Company to grow rapidly and eﬀ ectively. The Company’s human
resource management system is based on the principles of fair-
ness, respect, equal opportunities for professional development,
dialogue between management and employees, as well as
continuous, comprehensive training and development opportu-
nities for the Company’s employees at all levels.

As of the end of 2014, NOVATEK and its subsidiaries had a total
of 6,749 employees, of which 38.0% work in exploration and
production, 18.6% in processing, 28.7% in transportation and
marketing, 5.9% in power supply with the remaining 8.8%
classiﬁ ed as administrative personnel. The middle-aged group
(25–44 years) prevails in the structure of NOVATEK’s personnel,
with the average age of 39 years.

Key Health and Safety Indicators of NOVATEK, its subsidiaries and joint ventures

Injury frequency rate (number of injuries per million working hours)

Accident severity rate (total number of employee working hours lost per
accident / number of accidents)

2013

0.41

922

2014

0.41

Change

(94.5)%

ANNUAL REPORT 2014

PERSONNEL TRAINING AND DEVELOPMENT

In an environment of rapidly developing technologies and
management systems, our multilevel training and professional
development program enables our employees to contribute
to raising the Company’s competitiveness. In 2014, the primary
goals of training and professional development included:

■ implementing a program aimed at providing the Company

with a talent pool of senior managers;

■ implementing the “Steps in Discovering Talents” program
for young specialists targeted at training highly qualiﬁ ed
personnel whose competence level fully meets business
needs;

■ implementing the “Technical Training” program based on

the results of tests in the Corporate Technical Competency
Assessment System for various lines of business; and
■ involving young specialists in NOVATEK’s “Research-to-

Practice Conference”.

Ten of the Company’s top managers continued participating in
training activities aimed at developing a common understand-
ing of the goals and strategy of NOVATEK in order to prepare
for higher level positions within the Company. During 2014,
Higher School of Management (on the base of the Higher
School of Economics in Moscow) provided training program
for managers, the main goal of the program is to systematize
participants’ knowledge of management principles of an oil and
gas company. The managers took part in the following training
courses: “Personal Eﬀ ectiveness and HR”, “Project Management”,
“Principles of Financial Management”, “Decision Making and
Management of Oil and Gas Resources: International and Russian
Practices”. The training was completed by presenting individual
projects to the Company`s senior management.

In 2014, NOVATEK continued its eﬀ orts to enhance employee
skills, improve working conditions and ensure a safe environ-
ment at its production facilities. During the reporting year, 36.9%
of our specialists and line workers have upgraded their respec-
tive qualiﬁ cations, and 68% of the Company’s engineers and
technicians completed employee certiﬁ cation and industrial
safety courses.

Specialized training courses for employees of production divi-
sions under the Technical Training Program were conducted at
the Gubkin State University, the Petroleum Education Center at
Tomsk Polytechnic University, Petersburg Engineering Institute
of Professional Development, NExT Schlumberger educational
center and other centers. In 2014, 183 employees underwent
training under the program.

During 2014, 231 people were tested under the Corporate Tech-
nical Competency Assessment System, including 39 people dur-
ing the hiring process to ﬁ ll vacant positions and 104 employees
promoted to more senior positions.

In 2014, we had our second class of graduates of “Steps in
Discovering Talents” program, whereby 20 young specialists
participated in training activities. By the autumn of 2014, 33 new
young specialists joined the program.

In 2014, for the ﬁ rst time young specialists participated in the
«Mentoring Culture» training courses together with the mentors.
In total, 15 mentors attended the training.

The 9th Interregional Research-to-Practice Conference for the
Company’s young specialists attended by 58 employees was
held in Moscow in September 2014. Based on the results of the
competition, all of the winners received cash prizes, while ﬁ fteen
(15) prize-winners, who were nominated in the “Best Implement-
ed Project” category, were oﬀ ered to study in the international oil
and gas training centers in the UAE and Qatar.

SOCIAL PROGRAMS

Employee relations primary focus is on implementing social
programs, and according to the Core Concept of the Company’s
social policy which was adopted in 2006, the social beneﬁ ts
package for employees includes the following programs:

■ voluntary medical insurance for employees;
■ therapeutic resort treatment for employees and members

of their families;

■ provision of special-purpose short-term loans;
■ special-purpose compensation and social support

payments;

■ provision of special-purpose interest-free loans to purchase

housing, and
■ pension program.

Along with providing an optimum social beneﬁ ts package,
the Company is also committed to creating opportunities for
employees to play sports and get involved in sports and cultural
events. In 2014, our employees and their family members visited
exhibitions at Russia’s national museums, classical music con-
certs, and attended sporting events like hockey, basketball and
football (soccer) games in their free time with the Company’s
assistance.

The Company publishes its corporate newsletter “NOVATEK”,
including the “NOVATEK Family” feature and corporate maga-
zine “NOVATEK Plus” to inform employees about the Company’s
activities and get employees, specialists and managers actively
involved in business, cultural, sports, charitable and corporate
activities.

Social Policy and Charity

NOVATEK attaches considerable importance to social policy and
charity. The Company pays close attention to projects intended
to support culture, preserve and revive the national values and
intangible legacy of Russia, promote and integrate Russian art in
the international cultural space, as well as advance “sports for all”
and “high-performance sports”. NOVATEK enters into agreements
with local regional governments where it operates and imple-
ments programs to facilitate improvement in local populations’
living standards and preserve the distinctive cultural identity of
the Far North indigenous peoples.

NEW QUALITY OF GROWTH

NOVATEK

In 2014, NOVATEK and its subsidiaries directly invested 727 mil-
lion rubles in charitable, cultural and educational projects and
activities to support the Far North indigenous peoples.

COOPERATION WITH THE REGIONS

During the year, the Company was investing funds in the
Yamal-Nenets Autonomous District, the Leningrad, Chely-
abinsk, Tyumen, and Samara Regions under social agree-
ments reached with regions where the Company maintains
operations. The Company conducted children and youth
educational programs, provided support to low-income
families and allocated funds for repairs and upgrades of social
infrastructure facilities.

COOPERATION WITH INDIGENOUS PEOPLES
OF THE FAR NORTH

NOVATEK provided ﬁ nancial support to the “Yamal for Descen-
dants” association and its district branches. We assisted indig-
enous peoples through ﬁ nancing arrangements for purchasing
equipment and goods required by ﬁ shermen and reindeer
herdsmen, as well as fuel for air delivery of the nomadic popula-
tion and food in remote areas.

In particular, the Company provided the following sponsorship
in 2014:

■ “The Association of Minority Indigenous Peoples of the

Far North, Siberia, and Far East of the Russian Federation” –
information and legal services, training and educational
workshops, and printed media;

■ Nadym District – purchase of a hovercraft to transport

people across the Nadym river during transitional seasons;

■ Tazovsky District – construction of the road to transport

products from the cold storage facility in the village of Gyda
to the bank of the Yuntose river; and

■ Yamal District – ﬁ nancial aid to the persons among

the indigenous people of the North who faced various
hardships.

EDUCATIONAL PROGRAMS

NOVATEK continued to develop and support the Company’s
continuing education program, which provides opportunities to
gifted students, from the regions where we operate, to further
their education at top rated universities, participate in NOVATEK
internships and, upon completion of their studies, possible
employment with the Company.

Recruitment and career guidance for promising employees
start with the “Gifted Children” program implemented at School
No. 8 in Novokuybyshevsk and School No. 2 in Tarko-Sale.
Special classes are formed on a competitive basis from the
most talented grade 10 and 11 students with above-average
test scores.

The Company also implemented two “Grants” programs for school-
children and teachers living in Purovsky District of the YNAO.

The “Grants” program for schoolchildren is aimed at academic
and creative development and encouraging a responsible at-
titude towards studies. Under the program, students in grades
ﬁ ve (5) through 11 are awarded grants from the Company. In
2014, the Company awarded 56 grants to students under this
program.

The “Grants” program for teachers is intended to raise the prestige
of the teaching profession and create favorable conditions for
developing new and talented teachers. In 2014, four (4) teachers
from the Purovsky District received grants under this program.

In an eﬀ ort to create conditions for more eﬀ ective use of univer-
sity and college resources in preparing students for future pro-
fessional activities, the Company has developed and successfully
implemented the NOVATEK-VUZ program. The program is an
action plan for focused, high-quality training for specialists with
higher education in key areas of expertise in order to grow the
Company’s business and meet its needs for young specialists.
The program is based at the National Mineral Resources Univer-
sity (University of Mines), Gubkin Russian State University of Oil
and Gas in Moscow and the Tyumen Oil and Gas University.

Students, who have passed their exams with good and excellent
results, receive additional monthly payments. During their stud-
ies, the students are oﬀ ered paid ﬁ eld, engineering and directed
internships. This experience allows them to apply the knowledge
obtained at lectures and seminars to real-life situations and gain
experience in the professions they have chosen, while the Com-
pany receives an opportunity to meet potential employees.

SUPPORT OF CULTURAL TRADITIONS

The strengthening of partnership relations between the Com-
pany and Russia’s leading cultural and educational institutions,
creative groups and charity funds continued in 2014, namely the
Russian State Museum (St.Petersburg), the Moscow Kremlin Mu-
seum, the Multimedia Art Museum (Moscow House of Photogra-
phy), the Moscow Museum of Modern Art, the State Hermitage
Museum (St.Petersburg).

In 2014, NOVATEK continued its partnership with the Imperial
Gardens of Russia, an annual international festival organized by
the Russian State Museum, as well with “Manifesto 10” European
biennial of contemporary art held in St. Petersburg. Supported
by NOVATEK, the Multimedia Art Museum hosted such exhibi-
tions as “Arkady Shaikhet. Photographs 1932-1941”, “Arctic” (as
part of “Days of the Arctic in Moscow” festival), “New Orleans
in Photography”, and “Vsevolod Tarasevich. Episode 2. Lenin-
grad”. The Company’s support enabled the Moscow Museum
of Modern Art to hold the “Detective” exhibition with works by
contemporary Russian artists created through the prism of the
popular literary genre. In 2014, NOVATEK became a partner of a
major cultural event, the “MONUMENTA” modern art exhibition.
Grand Palais (Paris, France), one of Europe’s leading cultural and
exhibition centers, hosted the exhibition that featured the works
of internationally celebrated Russian-born conceptual artists Ilya
and Emilia Kabakov.

ANNUAL REPORT 2014

Another landmark cultural event of 2014 was the “2.0” exhibi-
tion co-organized by NOVATEK, the Multimedia Art Museum
and the Moscow Museum of Modern Art and dedicated to
NOVATEK’s 20th anniversary. The exhibition featured works by
contemporary artists and photographers that looked into the
evolution of Russian art in the 1990s and 2000s. The exhibi-
tion toured all of the regions where the Company operates,
namely Novy Urengoy, Kostroma, Tyumen, Chelyabinsk, and
Samara.

In 2014, NOVATEK supported the “Week of American dance”
project of the Moscow Music Theatre of Stanislavsky and
Nemirovich-Danchenko. During ﬁ ve evenings dancing groups
from the United States headed by Azure Barton and Shen Wei
gave performances for Russian audience.

NOVATEK also continued as a General Partner of the Moscow
Soloists Chamber Ensemble led by Yuri Bashmet. NOVATEK
supported a European tour of the Russian Youth Symphony
Orchestra during which they visited Geneva, Brussels, and
Paris. To celebrate its 20th anniversary the Company organized
concerts by the Moscow Soloists Chamber Ensemble in Moscow,
Kostroma, Chelyabinsk, and Novy Urengoy.

SPORTS PROJECTS
NOVATEK continued its support for popular and high-level sports
programs. The Company, its subsidiaries and joint ventures orga-
nize regular tournaments in the most popular sports, including
soccer, volleyball, swimming to name a few. The Company is the
General Partner of the NOVA Volleyball Team (Novokuybyshevsk).
In 2014, NOVATEK also was a General Partner of the Russian
national football team. In 2014, the Company supported the Rus-
sian Federation of acrobatic rock ‘n’ roll and Student Basketball
Association.

CHARITY

The Company continued its cooperation with Chulpan Khama-
tova’s Gift of Life charitable foundation in 2014. Jointly with the
foundation, NOVATEK held two sessions at its Moscow head-
quarters during which the Company employees donated blood
for the children treated in the Russian Children’s Clinical Hospital.

The All Together volunteer movement founded in 2008 carried
on with its activities. The movement focuses on supporting
orphans, children with various diseases, and the elderly as well as
promoting blood donation.

NEW QUALITY OF GROWTH

NOVATEK

MANAGEMENT AND
CORPORATE GOVERNANCE

Corporate Governance

NOVATEK strives to commit to the highest standards of corpo-
rate governance. We believe that such standards are an essential
prerequisite to business integrity and performance and provide
a framework for socially responsible management of the Com-
pany’s operations.

The Company has established an eﬀ ective and transparent sys-
tem of corporate governance complying with both Russian and
international standards. NOVATEK’s supreme governing body is
the General Meeting of Shareholders. The corporate governance
system also includes the Board of Directors, the Board Com-
mittees, and the Management Board, as well as the system of
internal control and audit bodies. The activity of all these bodies
is governed by the applicable laws of the Russian Federation,
NOVATEK’s Charter and internal documents available on our
website (ww.novatek.ru).

NOVATEK strives to consider the principles of corporate gov-
ernance outlined in the Corporate Governance Code recom-
mended by the Central Bank of Russia (Information Letter
№ 06-52/2463 dated 10 April 2014). The Company follows
the recommendations of the Code, as well as oﬀ ering to our
shareholders and investors other solutions that are intended to
protect their rights and legitimate interests.

Since the Company’s shares are listed on the London Stock Ex-
change in the form of depositary receipts, NOVATEK places great
emphasis on the UK Financial Reporting Council’s Combined
Code on Corporate Governance and follows its recommenda-
tions as far as practicable.

The Company adheres to the internal Corporate Governance
Code approved by the Board of Directors in 2005 (Minutes
No. 60 of 15 December 2005). This Code has been elaborated
on in accordance with best Russian and international practices
in corporate governance, ethical norms and speciﬁ c conditions
of the Company’s operations and in accordance with Russian
legislation and the Company’s Charter.

The Company also adheres to the internal Code of Business
Ethics approved by the Board of Directors in 2011 (Minutes
No. 133 of 24 March 2011). The Code establishes general norms
and principles governing the conduct of members of the Board
of Directors, Management Board and Revision Commission, as
well as NOVATEK’s management and employees, which were
elaborated on the basis of moral and ethical values and profes-
sional standards. The Code also determines the rules which
govern mutual relationships inside the Company and NOVATEK’s
relationships with its subsidiaries and joint ventures, sharehold-

ers, investors, the government and public, consumers, suppliers,
and other stakeholders.

In order to increase the eﬀ ectiveness of the Company’s corpo-
rate governance system and bring it into compliance with the
new requirements of the Russian legislation, the new listing rules
of Moscow Stock Exchange and the Corporate Governance Code
following changes were made in the reporting year:

■ the General Meeting of Shareholders held on 18 April 2014
approved amendments to the Charter, the Regulations
on the General Meeting of Shareholders and the Board of
Directors;

■ the Board of Directors held on 18 April 2014 elected the
members of the Audit Committee, the Remuneration
and Nomination Committee and the Strategy Committee
(previously the committees included the Audit Committee,
the Strategy and Investment Committee, the Corporate
Governance and Remuneration Committee), and
inaugurated a Corporate Secretary position;

■ the Board of Directors held on 28 April 2014 approved
the Regulations on the Board of Directors’ Committees,
the Regulations on the Corporate Secretary, and the
Regulations on Dividend Policy;

■ the Board of Directors held on 1 September 2014 approved
the Regulations on the Risk Management System and
Internal Control, and the Anti-corruption Policy.

NOVATEK’s corporate governance practices make it possible for
its executive bodies to eﬀ ectively manage ongoing operations in
a reasonable and good faith manner and solely to the beneﬁ t of
the Company and its shareholders.

General Meeting of Shareholders

The General Meeting of Shareholders is NOVATEK’s supreme
governing body. The activity of the General Meeting of Share-
holders is governed by the laws of the Russian Federation, the
Company’s Charter, and the Regulations on the General Meet-
ings approved by NOVATEK’s General Meeting of Shareholders in
2005 (Minutes No. 95 of 28 March 2005) with further alterations
and amendments.

The General Meeting of Shareholders is responsible for the
approval of annual reports, annual ﬁ nancial statements, the
distribution of proﬁ t, including dividends payout, the election
of Board of Directors and Revision Commission, approval of the
Company’s Auditor and other corporate and business matters.

On 18 April 2014, the Annual General Meeting of Shareholders
approved the annual report, annual ﬁ nancial statements (in ac-

ANNUAL REPORT 2014

cordance with the Russian Accounting Standards), distribution of
proﬁ t and the size of dividends based on the results of FY2013,
amendments to the Charter, to the Regulations on the General
Meeting of Shareholders and the Regulations on the Board of
Directors. The meeting also elected the Board of Directors and
the Revision Commission, as well as approved remuneration to
members of the Board of Directors, Revision Commission and
the Company’s external auditor for 2014.

On 14 October 2014, the Extraordinary General Meeting of
Shareholders approved the amount of interim dividend for the
ﬁ rst half of 2014.

participate in the Board meetings and make balanced decisions
in a timely manner.

In order to support eﬃ cient operation of the Board of Directors the
Corporate Secretary position was inaugurated in the reporting year.
The Secretary has suﬃ cient independence (appointed and dis-
missed by the Board of Directors) and endowed with the necessary
powers and resources to carry out its tasks in accordance with the
Regulations on the Corporate Secretary. The Corporate Secretary
appointed by the Board of Directors in 2014 has the knowledge,
expertise and skills suﬃ cient to perform assigned duties.

Board of Directors

The Board of Directors (the Board) activity is governed by the
laws of the Russian Federation, the Company’s Charter and the
Regulations on the Board of Directors approved by NOVATEK’s
General Meeting of Shareholders in 2005 (Minutes No. 96 of
17 June 2005) with further alterations and amendments.

The Board carries out the overall strategic management of the
Company’s activity on behalf of and in the interests of all its
shareholders, and ensures the Company’s eﬃ cient performance
in order to increase its shareholder value.

The Board determines the Company’s strategy and priority lines
of business, endorses long-term and annual business plans,
reviews ﬁ nancial performance, internal control, risk management
and other matters within its competence, including optimization
of corporate and capital structure, approval of major transac-
tions, making decisions on investment projects and recom-
mendations on the size of dividend per share and its payment
procedure, and convening General Meeting of Shareholders.
The members of the Board are elected by the General Meeting
of Shareholders.

The current members of the Board were elected at the Annual
General Meeting of Shareholders on 18 April 2014. The Board of
Directors is comprised of nine (9) members, of which eight (8)
are non-executive directors. Three (3) directors are considered to
be independent as at the election date in accordance with the
Corporate Governance Code recommended by the Central Bank
of Russia and the UK Financial Reporting Council’s Combined
Code on Corporate Governance. The Board Chairman is Alex-
ander E. Natalenko. The Chairman is responsible for leading the
Board and ensuring its eﬀ ectiveness.

The members of NOVATEK’s Board have a wide range of ex-
pertise as well as signiﬁ cant experience in strategic, ﬁ nancial,
commercial and oil and gas activities. The Board members
hold regular meetings with NOVATEK’s senior management to
enable them to acquire a detailed understanding of NOVATEK’s
business activities and strategy and the key risks. In addition to
these formal processes, Directors have access to the Company’s
medium-level managers for both formal and informal discus-
sions to ensure regular exchange of information they need to

THE BOARD OF DIRECTORS MEMBERSHIP AS
OF 31 DECEMBER 2014:

■ Alexander E. Natalenko – Chairman of the Board
■ Andrei I. Akimov
■ Burckhard Bergmann
■ Yves-Louis Darricarrère
■ Vladimir A. Dmitriev
■ Leonid V. Mikhelson
■ Victor P. Orlov
■ Gennady N. Timchenko
■ Andrei V. Sharonov

On 18 April 2014 the following changes took place in the Board
of Directors membership: Mark A. Gyetvay and Kirill G. Seleznev
ceased their Board membership, and independent directors Vic-
tor P. Orlov and Andrei V. Sharonov joined the Board.

BOARD ACTIVITIES DURING THE 2014 CORPORATE YEAR1

To ensure the Company’s eﬃ cient performance, the Board meet-
ings shall be convened on a regular basis at least once every two
months. In corporate year 2014, the Board met eight (8) times, of
which four (4) meetings were held in absentia. The following key
issues were discussed and respective decision made:

■ reviewed and approved the Company’s 2014 full year

operating and ﬁ nancial results;

■ recommended an interim dividend for ﬁ rst half 2014, based
on interim ﬁ nancial results for the period, and a full year
dividend for 2014, based on full year ﬁ nancial results;
■ reviewed and approved NOVATEK’s business plan for 2015;
■ approved the following internal documents:

— the Regulations on the Audit Committee of the Board of

Directors;

— the Regulations on the Remuneration and Nomination

Committee of the Board of Directors;

— the Regulations on the Strategy Committee of the Board

of Directors;

— the Regulations on Dividend Policy;
— the Regulations on the Corporate Secretary;
— the Regulations on Risk Management and Internal

Control System;

— the Anti-corruption Policy.

1 From the date of election on 18 April 2014 until the Annual General Meeting of Shareholders on 24 April 2015.

NEW QUALITY OF GROWTH

NOVATEK

Board and Committee Meetings Attendance in the 2014 Corporate Year

Member

Independence

Alexander E. Natalenko

Andrei I. Akimov

Burckhard Bergmann

independent *

Yves-Louis Darricarrère

Vladimir A. Dmitriev

Leonid V. Mikhelson

Victor P. Orlov

Andrei V. Sharonov

Gennady N. Timchenko

executive

independent *

Board of
Directors

Audit
Committee

Remuneration
and Nomination
Committee

Strategy
Committee

8/8

7/8

8/8

5/5

4/4

3/4

4/4

3/4

* Independent Director as at the election date in accordance with the Corporate Governance Code recommended by the Central Bank of Russia and the UK Financial
Reporting Council’s Combined Code on Corporate Governance.

Board Committees

The Company has three Board Committees: the Audit Committee,
the Strategy Committee and the Remuneration and Nomina-
tion Committee. The Committees’ activities are governed by the
Committees Regulations approved by the Board of Directors and
available on our website.

The Committees play a vital role in ensuring that the high
standards for corporate governance are maintained throughout
the Company and that speciﬁ c decisions are analyzed and the
necessary recommendations are issued prior to general Board
discussions. The minutes of the Committees meetings are
circulated to the Board members and are accompanied by any
necessary materials and explanatory notes.

In order to carry out their duties, the Committees may request
information or documents from members of the Company’s ex-
ecutive bodies or heads of the Company’s relevant departments.

For the purpose of considering any issues being within their
competence, the Committees may engage experts and advisers
having necessary professional knowledge and skills.

STRATEGY COMMITTEE

The primary functions of the Strategy Committee are the deter-
mination of strategic objectives of the operations and control
over the implementation of the strategy, as well as recommen-
dations on the dividend policy.

In carrying out its responsibilities and assisting the members of
the Board in discharging their duties, the Strategy Committee is
responsible for but not limited to:

■ evaluating the eﬀ ectiveness of the Company’s operations in

the long-term;

■ preliminarily reviewing and making recommendations on

the Company’s participation in other organizations;

Committees membership as of 31 December 2014:

Audit Committee

Strategy Committee

Remuneration and Nomination
Committee

Chairman

Andrei V. Sharonov

Alexander E. Natalenko

Victor P. Orlov

Deputy Chairman

Victor P. Orlov

Andrei V. Sharonov

Members

Burckhard Bergmann

Andrei I. Akimov
Burckhard Bergmann
Yves-Louis Darricarrère
Vladimir A. Dmitriev
Gennady N. Timchenko

Burckhard Bergmann

ANNUAL REPORT 2014

■ assessing voluntary and mandatory oﬀ ers to acquire the

Company’s securities;

■ considering the ﬁ nancial model and business valuation of
the Company and its business segments in order to make
recommendations to the Board of Directors in making
decisions on the deﬁ nition of business priorities of the
Company;

■ providing recommendations to the Board of Directors on
transactions subject to approval by the Board of Directors;
and

■ providing recommendations to the Board of Directors with
respect to the Company’s policy on the use of its non-core
assets.

In corporate year 2014, the Strategy Committee met four times.

REMUNERATION AND NOMINATION COMMITTEE

The primary functions of the Remuneration and Nomination
Committee is development of an eﬃ cient and transparent com-
pensation practice of members of the Company’s management,
enhancement of the professional expertise and improvement of the
Board of Directors’ eﬀ ectiveness.

In order to assist the Board, the Committee performs the follow-
ing functions:

■ develop and regularly review the Company’s policy
on remuneration of the members of the Board of
Directors, members of the collective executive body and
the sole executive body of the Company, oversee its
implementation and realization;

■ preliminarily assess the work of the executive body of the
Company for the year in accordance with the Company’s
remuneration policy;

■ assess the Board of Directors in terms of professional

expertise, experience, independence and involvement of its
members in the work of the Board of Directors, determine
the priority areas for strengthening the Board of Directors;

■ interact with shareholders in order to form the Board of

Directors that best meets the goals and objectives of the
Company; and

■ plan appointments of members of the executive body
and the sole executive body on the base of continuity
principles.

In corporate year 2014, the Remuneration and Nomination Com-
mittee met four times.

AUDIT COMMITTEE

The primary function of the Audit Committee is control over
ﬁ nancial and operating activities of the Company. In order to
assist the Board in performing control functions the Committee
is responsible for but not limited to evaluating accuracy and
completeness of the Company’s full year ﬁ nancial statements,
the candidature of the Company’s external auditor and the
auditor’s report, the eﬃ ciency of the Company’s internal control
procedures and risk management system.

The Audit Committee works actively with the Company’s
executive bodies, inviting NOVATEK’s managers responsible

for the preparation of the financial statements to attend the
Committee meetings.

In corporate year 2014, the Audit Committee met ﬁ ve times.

Management Board

NOVATEK’s Management Board is a collegial executive body
responsible for the day-to-day management of the Company’s
operations. The Management Board is governed by the laws of the
Russian Federation, NOVATEK’s Charter, decisions of the General
Meetings of Shareholders and the Board of Directors and by other
internal documents. More information regarding the Manage-
ment Board’s competence is provided in the Regulations on the
Management Board approved by NOVATEK’s General Meeting of
Shareholders in 2005 (Minutes No. 95 of 28 March 2005).

Members of the Management Board are elected by the Board of
Directors from among the Company’s key employees. The Man-
agement Board is subordinated to the Board of Directors and
the General Meeting of Shareholders. Chairman of the Manage-
ment Board is responsible for leading the Board and ensuring
its eﬀ ectiveness as well as organizing the Management Board
meetings and implementing decisions of the General Meeting of
Shareholders and the Board of Directors. The Management Board
acting as of 31 December 2014 is comprised of eight members
elected by the Board of Directors on 30 August 2012 (Minutes
No. 150 of 30 August 2012).

MANAGEMENT BOARD MEMBERS AS
OF 31 DECEMBER 2014:

■ Leonid V. Mikhelson – Chairman
■ Vladimir A. Baskov – Deputy Chairman
■ Mark A. Gyetvay – Deputy Chairman
■ Tatyana S. Kuznetsova – Deputy Chairman – Director of

Legal Department

■ Iosif L. Levinzon – Deputy Chairman
■ Mikhail V. Popov – First Deputy Chairman – Commercial

Director

■ Alexander M. Fridman – Deputy Chairman
■ Kirill N. Yanovskiy – Director for Finance and Strategy

Remuneration to Members of the
Board of Directors and Management
Board

The procedure for and criteria of calculating remuneration to
members of NOVATEK’s Board of Directors, as well as the com-
pensation of their expenses, are prescribed in the Company’s
Charter and Regulations on NOVATEK’s Board of Directors.

The procedure for and criteria of calculating remuneration to the
Chairman and members of NOVATEK’s Management Board, as
well as the compensation of their expenses, are prescribed in the
Regulations for the Management Board and the employment
contracts they sign with the Company.

NEW QUALITY OF GROWTH

NOVATEK

Information on Remuneration of Members of NOVATEK’s Board of Directors and Management Board in 2014, RR mln

Total paid, including:

Salaries

Bonuses

Fees

Other property advancements

Board of Directors1

Management Board

106.0

—

106.0

—

1,662.9

504.1

1,135.7

—

23.1

Internal Control and Audit

The Company has a system of internal control over ﬁ nancial
and business operations in accordance with international best
practices. The process of internal control is an integral part of the
risk management process.

The system of internal control consists of the Board of Directors,
the Audit Committee, the Chairman of the Management Board,
the Management Board, the Revision Commission and the
Internal Audit Division.

The objects of internal control are OAO “NOVATEK”, its subsidiar-
ies and joint ventures, and their subdivisions, as well as their
ongoing business processes.

In accordance with the Corporate Governance Code recom-
mended by the Central Bank of the Russian Federation (Informa-
tion Letter № 06-52/2463 dated 10 April 2014) at the meeting
held on 1 September 2014 the Board of Directors approved the
Anti-corruption Policy and the Regulations on the Risk Manage-
ment System and Internal Control establishing goals, objectives,
limitations and internal control principles (Minutes No. 170 of
01 September 2014). As part of the Anti-corruption Policy the
Company established a “Hot Security Line”. The measures taken
are aimed at ﬁ ghting corruption, reducing the regulatory, opera-
tional and reputational risks for the Company.

REVISION COMMISSION

Revision Commission consisting of four members is elected at
the Annual General Meeting of Shareholders for a period of one
year. The competence of the Revision Commission is governed
by the Russian Federation Law On Joint Stock Companies No.
208-FZ dated 26 December 1995 as well as the Company’s Char-
ter and the Regulations on the Revision Commission approved
by the General Meeting of Shareholders in 2005 (Minutes No. 95
of 25 March 2005).

The Revision Commission is an internal control body responsible
for oversight of the Company’s ﬁ nancial and business activities.

The Revision Commission audits the Company’s ﬁ nancial and
business performance for the year, as well as for any other period
as may be decided by its members or other persons authorized
in accordance with Russian Federation law and the Company’s
Charter. The results are presented in the form of ﬁ ndings by the
Revision Commission.

In March 2015, the Revision Commission completed the on-site
audit revision of ﬁ nancial and business activity of the Company for
the year 2014. As a result, the conclusions about the reliability of the
data contained in the Company’s 2014 Financial Statements and
Annual Report were prepared and submitted to the Annual General
Meeting of Shareholders.

INTERNAL AUDIT DIVISION

In order to conduct a systematic, independent evaluation of the
reliability and eﬀ ectiveness of the risk management and internal
control system as well as corporate governance practices the
Company carries out internal audit. The internal audit function is
implemented by the independent Internal Audit Division, which
has operated continuously since 2005.

The Internal Audit Division is functionally subordinate to the
Board of Directors and is guided by International professional
internal audit standards of Institute of Internal Auditors.

The Division carries out its activities on the basis of a strategic
plan of inspections approved by the Audit Committee and uses
a combination of risk-based and cyclic approaches. According
to the results of inspections it develops measures to eliminate
identiﬁ ed risks and optimize ﬁ nancial and business activities.

To improve the eﬃ ciency and optimize the costs the Internal
Audit Division employees serve on the revision commissions of
subsidiaries and joint ventures.

In March 2015, the Audit Committee considered the report on
the activities of the Internal Audit Division in 2014. The members
of the Audit Committee unanimously resolved that the results of
the Internal Audit Division activities were positive.

1 Some members of NOVATEK’s Board of Directors are simultaneously members of the Management Board. Payments to such members in relation to their activities as
members of the Management Board are included in the total payments to members of the Management Board.

ANNUAL REPORT 2014

EXTERNAL AUDITOR

The Annual General Meeting of Shareholders appoints an exter-
nal auditor to conduct independent review of NOVATEK’s ﬁ nan-
cial statements. The Audit Committee gives recommendations
to the Company’s Board of Directors regarding the candidatures
of external auditors and the price of their services. Based on the
Committee’s recommendations, the Board proposes the auditor’
candidature for the consideration and for approval by the An-
nual General Meeting of Shareholders.

ZAO PricewaterhouseCoopers Audit was approved as the
Company’s external auditor to conduct independent audit of the
Company’s ﬁ nancial statements for 2014.

In selecting the auditor’s candidature, attention is paid to
level of their professional qualifications, independence, pos-
sible risk of any conflict of interest, terms of the contract, and
an amount of remuneration requested by the candidates.
The Audit Committee oversees the external auditor’s inde-
pendence and objectivity as well as the quality of the audit
conducted. The Committee annually provides to the Board
of Directors the results of review and evaluation of the audit
opinion regarding the Company’s financial statements. The
Audit Committee meets with the auditor’s representatives at
least once per year.

NOVATEK’s management is aware of and accepts recommenda-
tions on independence of the external auditor by restricting
such auditor’s involvement in providing non-audit services.
Remuneration paid to the principle auditors for auditing and
other services is speciﬁ ed in the Note 23 to the consolidated ﬁ -
nancial statements prepared in accordance with IFRS standards
for 2014.

Share Capital

Our share capital is RR 303,630,600 and consists of 3,036,306,000
ordinary shares, each with a nominal value of RR 0.1. As of 31 De-
cember 2014, NOVATEK did not have privileged shares.

Our shares are traded in US dollars and Russian roubles on the
Moscow Stock Exchange and have an A1 listing (symbol: NVTK).

The Federal Financial Market Service issued to NOVATEK a
permit for circulation of shares beyond the Russian Federation of
910,589,000 ordinary shares comprising 29.99% of the Com-
pany’s share capital.

Our Global Depositary Receipts (GDR) are listed on the London
Stock Exchange (symbol: NVTK), with each GDR representing

Equity stakes in NOVATEK’s share capital and the number of shares owned by members
of the Board of Directors and Management Board1

Equity stake as of 31 December 2014, %

Number of shares

Board of Directors

Alexander E. Natalenko

Andrei I. Akimov

Burckhard Bergmann

Yves-Louis Darricarrère

Vladimir A. Dmitriev

Leonid V. Mikhelson

Victor P. Orlov

Gennady N. Timchenko

Andrei V. Sharonov

Management Board

Vladimir A. Baskov

Tatyana S. Kuznetsova

Iosif L. Levinzon

Mark A. Gyetvay

Mikhail V. Popov

Alexander M. Fridman

Kirill N. Yanovskiy

* In the form of GDRs.

—

0.0007

—

0.7152

—

0.0288

0.1944

—

0.1440

0.0817

0.1051

—

20,000*

—

21,717,112

—

874,408

5,903,035

—

4,372,038

2,481,049

3,192,530

1 The equity stakes are given based on the records in the register of NOVATEK’s shareholders in accordance with the Russian Federation laws.

NEW QUALITY OF GROWTH

NOVATEK

10 ordinary shares. As of 31 December 2014, NOVATEK’s GDRs
were issued on 906,637,970 ordinary shares comprising 29.86%
of the Company’s share capital.

In 2014 the Member of the Board of Directors and the Chairman
of the Management Board of OAO “NOVATEK”, L.V. Mikhelson
made the following transactions on purchases of NOVATEK’s
shares:

Transaction date

Number of acquired shares

11.03.2014

17.03.2014

29.04.2014

Dividends

199,850

272,400

362,110

In order to improve the transparency of the dividend policy, in
2014, the Board of Directors approved the Regulations on Divi-
dend Policy of OAO “NOVATEK” (Minutes No 168 of 28.04.2014).
The main change compared with the previous dividend policy
is application of consolidated net income under IFRS (instead
of unconsolidated net income under RAS) for calculation of the
dividend size.

NOVATEK’s dividend policy is based on keeping the balance be-
tween the Company’s business goals and shareholder’s interests.
A decision to pay dividends as well as the size, payout time and
form of the dividend is passed by the Annual General Meeting
of Shareholders according to the recommendation of the Board
of Directors. Dividends are paid twice a year. In determining the
recommended amount of dividend payments to be distributed
the Board of Directors consider the current competitive and
ﬁ nancial position of the Company, as well as its development
prospects, including operating cash ﬂ ow and capital expendi-
ture forecasts, ﬁ nancing requirements, debt servicing and other
such factors as it may deem relevant to maintaining ﬁ nancial
stability and ﬂ exible capital structure of the Company. NOVATEK
is strongly committed to its dividend policy.

On 12 March 2015, the Board of Directors of OAO NOVATEK
recommended to the Annual General Meeting of Sharehold-
ers to pay dividends for FY 2014 in the amount of RR 5.2 per
ordinary share or RR 52 per one Global Depositary Receipt (GDR),
exclusive of RR 5.1 of interim dividends per ordinary share or RR
51 per one GDR for the ﬁ rst six months of 2014.

Thus, should the General Meeting of Shareholders approve the
above recommended dividend, the dividends for 2014 will total
RR 10.3 per ordinary share (RR 103 per one GDR), and the total
amount of dividends payable for 2014 will be RR 31,273,951,800.
This will represent a 30.5% increase in dividend per share com-
pared to 2013.

Information Transparency

NOVATEK is committed to providing objective, reliable, and
consistent information about the Company and its activities to all
stakeholders and also complies with best practices for information
disclosure while adhering to a maximum level of transparency.
The Regulations on Information Policy approved by the Board of
Directors (Minutes No. 45 of 10 May 2005), deﬁ ne main principles for
disclosing information and increasing information transparency.

Material information about the Company is disclosed in a timely
manner in the form of press releases and material facts through
authorized disclosure in accordance with the applicable laws of
Russian Federation and United Kingdom. The Company discloses
quarterly ﬁ nancial statements in accordance with the Russian
(“RAS”) and International Financial Reporting Standards (“IFRS”),
Management’s Discussion and Analysis of Financial Condition
and Results of Operations as well as presentations for investors.

In addition to press releases and material facts, the Company’s
website provides detailed information on all aspects of its activi-
ties, including our Sustainability Report. We regularly participate in
information disclosure on greenhouse gas emissions and energy
eﬃ ciency of production – the Carbon Disclosure Project (CDP),
and on the use of water resources – the CDP Water Disclosure
Project, as well as other industry’s publications and studies.

Accrued and paid dividends on NOVATEK shares for the period 2009 to 2014

Dividend Accrual Period

Amount of dividends,
RR per share

Total amount
of dividends accrued, RR

Total amount
of dividends paid, RR

2009

2010

2011

2012

2013

First half 2014

2.75

4.00

6.00

6.86

7.89

5.10

8,349,841,500

12,145,224,000

18,217,836,000

20,829,059,160

23,956,454,340

15,485,160,600

8,349,681,894

12,144,967,156

18,217,663,073

20,829,052,028

23,956,348,044

15,485,113,250

The amount of paid dividends accrued for the years 2009 to 2013, and for the ﬁ rst six months 2014 is reported as of 31 December 2014. Partial payment of the accrued
dividends was made due to provision by shareholders (nominee holders) of incorrect postal and/or banking details and insuﬃ cient information regarding banking or postal
details of shareholders.

ANNUAL REPORT 2014

The Company maintains an ongoing dialogue with sharehold-
ers and investors in order to ensure full awareness of investment
community about its activities. The main channels of com-
munication with the investment community are through the
Chairman of the Management Board, Deputy Chairman and the
Investor Relations department. The Company’s representatives
meet on a regular base with key ﬁ nancial audiences to discuss
issues of interest to them.

In accordance with principles of its uniﬁ ed information policy,
NOVATEK conducts an active, ongoing dialog with representa-

tives of media outlets. The information disclosed to mass media
comprises all aspects of the Company’s activities, including
ﬁ nancial and operating results and projects under development,
as well as socially or environmentally important aspects.

NOVATEK actively involves in a variety of outside Exhibitions
and Conferences. During 2014, representatives of the Company
participated in more than 20 exhibitions, conferences and round
tables. One of the most important events of the past year was
NOVATEK’s participation in the 21st World Petroleum Congress
and the WPC Exhibition 2014 held in Moscow.

NEW QUALITY OF GROWTH

NOVATEK

ADDITIONAL INFORMATION

Major Risk Factors

The Company’s activities are subject to risks inherent only to
the Company or associated with the Company’s core business-

es. The risks described herein are not exhaustive and reﬂ ect an
opinion about the most material risks based on the estimates
of the Company’s management.

Risk

Risk description

Risk management approaches used by the Company

OPERATIONAL RISKS

Risks of emergencies and
incidents

Monopoly risks

Competitive risks

The Company’s subsidiaries and joint
ventures are subject to the risks of
emergencies and incidents at hazardous
production facilities that may entail
business interruption, hazardous
emissions or spills, which in turn may
have a negative eff ect on the Company’s
business reputation and fi nancial
performance.

The Company performs continuous monitoring of industrial safety
compliance, develops and implements organizational and technical
measures aimed at mitigating the risks of emergencies and incidents
and reducing potential losses as part of its existing integrated
industrial safety management system that is certifi ed under the
OHSAS 18001:2007 standard. The Company holds property and
business interruption insurance policies.
The Company adheres to the principle of responsible investments
which implies that new design solutions, technologies and
equipment installed help signifi cantly mitigate accident risks.

The Company depends on monopoly
suppliers of transport services (such
as Gazprom, RZD, or Transneft). The
Company has no infl uence on the
capacity of transport facilities of the
above monopolies and rates established
by the Federal Tariff Service.

The Company enters into long-term agreements and in a timely
manner arranges for interaction with monopolies regarding
hydrocarbon transportation by pipeline and railway transport.
To reduce its dependency, the Company implements investment
projects that reduce the length of transportation of fi nished products,
and concludes agreements enabling it to use alternative methods of
product transportation (an agreement with SIBUR for the supply of
light hydrocarbons to Tobolsk Petrochemical Complex).

The Company operates in an
environment of tough competition with
Russian and international oil and gas
companies in the following areas:

■ obtaining of subsoil licenses and
acquisition of companies holding
subsoil licenses

■ selling natural gas on the Russian

market

■ selling liquid hydrocarbons in the

Russian and global markets

■ acquisition of oil and gas
equipment and services

■ employment of highly qualifi ed

specialists to work for the Company
and its subsidiaries and joint
ventures.

The Company monitors commercially available assets with regard
to the objectives of its long-term development strategy, enabling
the Company to make an objective assessment of its competitive
positions and to take the maximum benefi t of its competitive
advantages that include extensive regional work experience and
synergy with the existing producing, transport, processing and
distribution infrastructure.

When acquiring equipment and services, the Company holds public
tenders allowing it to diversify the suppliers and to ensure the best
conditions. The Company works continuously to structure its relations
with key service providers. Given the volatility in international
relations with certain countries that are providers of sophisticated oil
& gas equipment, the Company pursues import replacement policies
where it is appropriate.

The Company pursues an active marketing policy and takes eff orts to
expand its customer base, and to enter into long-term agreements
with buyers. To diversify its natural gas marketing portfolio,
throughout the reporting period the Company was engaged in
trading in the Natural Gas Section of the St. Petersburg International
Mercantile Exchange.

The Company implements an active HR policy and applies effi cient
mechanisms of attracting and retaining highly qualifi ed employees.

ANNUAL REPORT 2014

Risk

Risk description

Risk management approaches used by the Company

Commodity price risks

As an independent natural gas
producer, NOVATEK is not subject to
state regulation of natural gas prices.
Nevertheless, the Company’s prices
are strongly infl uenced by the prices
established by the Federal Tariff Service
(FTS).

Moreover, the Company is exposed to
the current pricing environment on
the Russian and international liquid
hydrocarbon markets as it has no power
over the contracts’ base prices. Reduction
of prices for liquid hydrocarbons may
have a negative eff ect on the Company’s
fi nancial performance.

State regulation of gas prices signifi cantly reduces the risk of price
volatility on the Russian gas market, but does not exclude potential
price reduction.

In view of the vertically integrated production chain for liquid
hydrocarbons and taxation peculiarities, the Company does not use
commodity derivative fi nancial instruments to reduce the risk of price
changes for such type of products.

Geological risks

Exploration drilling is associated with
multiple risks, including the risk of
non-discovery of commercial reserves.
Information on the Company’s reserves
depends on a number of factors and
assumptions. Actual production volumes
at the fi elds, along with the cost-
eff ectiveness of reserve development
may deviate from estimates.

To minimize geological risks, the Company relies on the geological
modeling and engages major contractors that apply state-of-the-art
exploration technologies and methods.

The Company makes annual assessment and evaluation of its
reserves based on the results of exploration and production drilling
and other research information. An independent international
adviser evaluates the Company’s reserves according to international
standards on annual basis.

Risk of early termination,
suspension or restriction
of the right to use
subsurface mineral
resources

Exploration and production of
hydrocarbons in Russia is subject
to licensing. The Company is thus
exposed to the risk of early termination,
suspension or restriction of its right to
use subsurface mineral resources.

The Company strives to comply, and maintains a continuous
monitoring of its compliance with the license agreements and the
subsoil use laws, and submits timely requests for adjusting the terms
of its license agreements.

Environmental risks

Ethical risks

The Company is subject to the probability
of events having adverse consequences
for the environment and caused by a
negative impact of its industrial and
other activities, as well as natural and
technology-related emergencies.

The Company and its key subsidiaries have an environmental
management system according to ISO 14001:2004 standard to ensure
rational use of resources and to minimize the adverse eff ect the
Company’s operation may have on the environment.

The Company adheres to the principle of responsible investment in
operations which implies that new design solutions, technologies
and equipment installed help minimize environmental impact.

The Company is exposed to the risks
of disturbed relationships within the
Company and with its subsidiaries and
joint ventures, shareholders, investors,
the government, the public, consumers
or suppliers or other corporate entities
or individuals, including the risk of fraud,
corruption, and confl ict of interest.

In 2011 in order to minimize ethical risks, the Company introduced a
Code of Business Conduct and Ethics.

To exclude ethical risks with respect to its shareholders and investors,
the Company is governed by the provisions of the internal Code of
Business Conduct and Ethics and Code of Corporate Conduct, as well
as the applicable Russian and English law in terms of public company
regulation.

To exclude ethical risks in its relations with third parties, the Company
carries out tender procedures to select counterparties and has a well
established internal control and audit system.

In 2014 the Board of Directors approved NOVATEK Anti-Corruption
Policy that establishes key principles and standards of anti-corruption
practices for employees and includes a set of corruption prevention
measures.

NEW QUALITY OF GROWTH

NOVATEK

Risk

Social risks

Risk description

Risk management approaches used by the Company

The Company is subject to the following
risks of a social nature:

■ internal risks associated with a
possible incompliance of social
programs implemented by the
Company with the industry’s
average level that may lead to a
higher labor turnover;

■ internal risks associated with

potential impediments in normal
production activities caused by the
public living in proximity to the
production facilities

The Company strives to ensure compliance of its social programs with
the industry’s average level and uses the up-to-date mechanisms for
attracting and retaining highly professional employees.

The Company’s production facilities are located outside densely
populated territories, and the Company monitors compliance with
the rules and regulations while operating its facilities. The risks related
to possible military confl icts, announcement of a state of emergency,
or strikes, are insignifi cant, as the Company operates in economically
and socially stable regions.

Terrorism risks

The Company is subject to a risk of
terrorist threat.

The Company takes measures required to ensure strict compliance
with Federal Law No. 256-FZ of 21 July 2011 concerning the Fuel and
Energy Complex Security.
A complex of organizational and practical measures is constantly in
place to ensure security of facilities, including linear ones.

Export of liquid hydrocarbons, a balanced fi nancial policy and an
active marketing policy enable the Company to mitigate the potential
eff ect of the country risk.

Moreover, the Company’s management continuously analyzes the
macro-economic environment and makes prompt decisions to
mitigate potential risks.

NOVATEK is a Russian company operating
in a number of Russian regions. Country
risk is defi ned by the fact that Russia is
still an emerging economy, the economic
environment of which is not suffi ciently
stable.

In 2014, dropping oil prices and
international sanctions caused volatility
in foreign currencies, growing infl ation
rates, an increase in interest rates and an
economic growth slowdown.

The said factors may have a negative
impact on the Company’s operational
and fi nancial performance.

The Company produces and processes
hydrocarbons within Western Siberia,
a region with a challenging climate.

The Company’s vulnerability to region-specifi c impacts is insignifi cant
and is entirely taken into account by the Company’s management
when carrying out fi nancial and production operations.

The Company is exposed to a risk
of losses related to a failure by
counterparties to perform their
contractual fi nancial obligations when
due, and in particular depends on the
reliability of banks in which the Company
deposits its available cash.

The Company’s business requires
substantial investments into fi eld
exploration and development, followed
by the production, transportation,
and processing of natural gas, oil, gas
condensate and petroleum products.
Insuffi cient funding for these and other
expenditures may aff ect the Company’s
fi nancial standing and performance.

When selling natural gas on the domestic market, the Company
continuously monitors the fi nancial soundness of its consumers and
takes actions in case there are overdue payments.

Most of NOVATEK’s international liquid sales are made to major
customers with independent ratings. Almost all domestic sales of
liquid hydrocarbons are made on a 100 percent prepayment basis.

When selecting banks, the Company is governed by the bank’s
reliability confi rmed by international ratings.

The Company’s capital investment plans are defi ned in its long-
term development strategy, are revised on an annual basis and are
generally in line with the Company’s ability to generate cash fl ow
from operations taking into account the need to pay dividend and
service its debt.

ANNUAL REPORT 2014

Country risk

Regional risk

FINANCIAL RISKS

Credit risk

Reinvestment risk

Risk

Risk description

Risk management approaches used by the Company

Interest risks

Currency risks

Liquidity risk

Infl ation risk

LEGAL RISKS

Risk of law changes

As a major borrower, the Company
is subject to risks associated with an
increase in interest rates. Interest rates
on some of the Company’s loans may
be linked to fl oating international and
Russian base rates which dynamics is
hard to predict. Growth of the interest
rates may restrict the use of borrowed
capital as a fi nancing source for the
Company’s investment activity and may
increase interest rate expenses.

Part of the Company’s liabilities is
denominated in foreign currencies
which may lead to losses in the event of
ruble depreciation. On the other hand,
part of the Company’s proceeds is also
denominated in foreign currencies which
may lead to losses in the event of ruble
appreciation.

Liquidity risk is the risk that the Company
will not be able to meet its fi nancial
obligations as they fall due.

The Company pursues a balanced debt policy and strives to maximize
the share of long-term liabilities with fi xed rates in its debt portfolio.
The Company works to maintain the fl exibility of its investment
program and to fund its capital expenditures mainly with its own
funds.

The liabilities expressed in foreign currency on the one hand, and
export proceeds on the other generally off set each other and serve as
a natural mechanism to hedge currency risks.

The Company’s approach to managing liquidity risk is to ensure
that it will always have suffi cient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Company’s reputation.
In managing its liquidity risk, NOVATEK maintains an adequate ratio
between cash reserves and debt, monitors forecast and actual cash
fl ows and matches the fi nancial assets and liabilities maturity profi les.

The Company uses various short-term borrowings. The Company
may use credit facilities and bank overdrafts to satisfy its short-term
fi nance needs. To satisfy its needs for cash on a more permanent
basis, the Company will normally raise long-term loans in the
available markets.

Changes in the consumer price
index have an impact on NOVATEK’s
profi tability and, as a consequence, its
fi nancial standing. The signifi cant ruble
depreciation in 2014 caused a surge in
infl ation rates which are impossible to
accurately predict.

NOVATEK may not be able to predict the infl ation level, since, apart
from the consumer price level, it is necessary to take into account the
change in the real purchasing power of the Russian ruble, the pricing
conditions in liquid hydrocarbon export markets, and government
policy in relation to tariff s for natural gas.

NOVATEK monitors the consumer price index and accordingly acts to
mitigate its costs.

The Company is subject to a risk of facing
consequences of changes in Russian laws
in the following areas:

The Company is constantly monitoring draft laws enabling it to
evaluate the consequences of such changes and to take them into
account in its plans.

■ currency laws (in areas concerning
export/import and borrowing
operations)

■ tax laws (in areas regulating
taxation systems and rates
applicable to companies in general,
and to companies producing and
marketing natural gas and liquid
hydrocarbons, specifi cally)

■ customs laws (in areas concerning
the export of liquid hydrocarbons,
including petroleum products); and

■ licensing requirements for natural

resource extraction.

Litigation risks

The Company may be involved as a
defendant or plaintiff in a number of
proceedings arising in the normal course
of its business.

When conducting its business, the Company adheres to the principle
of prudence. Due to this fact, as of the approval date of the Annual
Report, the Company was not involved in any material litigation and
the associated risks are insignifi cant.

NEW QUALITY OF GROWTH

NOVATEK

Risk

Risk description

Risk management approaches used by the Company

Risk of sanctions

In 2014, the Company was included into
the US sectoral sanctions list whereby the
US persons are prohibited to participate
in providing fi nancing to the Company
for more than 90 days. The sanctions
imposed restrict the Company’s ability to
refi nance its debt.
Furthermore, there is a risk of tougher
US sanctions and risk of including the
Company into other countries’ sanctions
lists, which may undermine the Company
performance.

The Company follows a balanced fi nancial policy enabling it to
minimize its fundraising needs. Moreover, the Company still has a
full access to the Russian capital market and a limited access to the
international market.

In case the US sanctions are toughened and the Company is included
in other countries’ sanctions lists, the Company management will
make every possible eff ort to minimize the negative impact on the
Company’s business operations and fi nancial standing.

Risk Insurance

Risk insurance is an integral part of NOVATEK’s risk management
system. In 2014, the insurance coverage guaranteed adequate
protection against the risks of damage to the business of the
Company or its subsidiaries and joint ventures. Insurance is
provided by reputable insurance companies that have high rat-
ings by leading rating agencies (Expert RA, M. Best, Standard &
Poor`s) with the risks reinsured by major international insurance
companies.

OBLIGATORY RISK INSURANCE

The Company and its subsidiaries and joint ventures fully meet
the requirements of the applicable laws for maintaining obliga-
tory insurance, such as civil liability insurance of:

■ owners of hazardous production facilities;
■ owners of transport vehicles.

OPTIONAL RISK INSURANCE

To reduce the risk of ﬁ nancial losses, the Company and its sub-
sidiaries and aﬃ liates maintain the following types of optional
insurance:

■ Insurance of the risk of property damage/loss, including the

risk of mechanical failures;

■ Insurance of the risk of damage from business interruption;
■ Management liability insurance.

On 1 May 2014, the Company restructured and implemented a
comprehensive program of property and business risk insurance
with respect to its and its subsidiaries’ and joint venture’s key
assets. The program makes it possible to reduce potential losses
resulting from the materialization of technology-related risks at
gas production, processing and marketing facilities, including
possible losses from reduced volumes of hydrocarbon produc-
tion and processing and, as a result, reduced sales proceeds. The
cumulative insured amount for the risks of property damage and
business interruption is RR 309 bln. Full cost recovery is in place.
The program meets all current international standards for oil and

gas insurance, takes into account the technological character-
istics of NOVATEK enterprises and the business processes of the
Company. The implemented program is viewed by the Com-
pany’s management as an additional measure for mitigating the
consequences of potential accidents and provides additional
guarantees for the attainment of the expected net proﬁ t and key
indicators of the Company’s performance.

During the comprehensive insurance program validity period,
an incident occurred that was recognized as an insured event.
The cost of restoring the property reached RR 106 mln and was
reimbursed by the insurance company less the deductibles,
within the contractual deadlines. The claims settlement process
was completed in 2014 without any disputes arising.

For more than nine (9) years the Company has maintained a
management liability insurance for the top management of the
Company and its subsidiaries against possible third-party claims
for any losses incurred through any wrong action (or decision)
made by its management bodies. The overall limit of all insur-
ance coverage is Euro 120 mln.

Information on Members of
NOVATEK’s Board of Directors

MR. ALEXANDER Y. NATALENKO

■ Chairman of NOVATEK’s Board of Directors and Chairman of

its Strategy Committee

Born in 1946

Mr. Natalenko completed his studies at the Irkutsk State University in
1969 with a primary focus in Geological Engineering. Subsequently,
he worked with the Yagodninskaya, Bagdarinskaya, Berelekhskaya,
Anadirskaya and East-Chukotskaya geological expeditions. In 1986,
Mr. Natalenko headed the North-East Industrial and Geological
Association and, in 1992, he was elected president of АО “Magadan
Gold & Silver Company”. He subsequently held various executive po-
sitions in Russian and foreign geological organizations. From 1996 to

ANNUAL REPORT 2014

2001, Mr. Natalenko held the position of Deputy Minister of Natural
Resources of the Russian Federation. He is a member of the Board of
Directors of OAO Rosgeologia. From 2004 to present he is the Chair-
man of NOVATEK’s Board of Directors.

Mr. Natalenko is the recipient of the State Prize of the Russian
Federation and an Honored Geologist of Russia.

MR. ANDREI I. AKIMOV

■ Member of NOVATEK’s Board of Directors and Member of its

Strategy Committee

Born in 1953

Mr. Akimov graduated from the Moscow Financial Institute in
1975 where he specialized in international economics. Between
1974 and 1987, Mr. Akimov held various executive positions
in the Bank for Foreign Trade of the USSR. From 1985 to 1987
he served as Deputy Chief General Manager of the Bank for
Foreign Trade branch in Zurich (Switzerland) and between 1987
and 1990, Mr. Akimov was the Chairman of the Management
Board of Donau Bank in Vienna (Austria). From February 1991 to
January 2003 he was Managing Director of ﬁ nancial company,
IMAG Investment Management & Advisory Group AG (Austria).
Since 2003, Mr. Akimov has been the Chairman of the Manage-
ment Board of Gazprombank (OAO). He is a member of Board of
Directors of OAO Gazprom, Gazprombank (OAO), OAO Rosneft,
OAO Rosneftegaz, Gazprom Germania GmbH, ООО Gazprom
gas motor fuel, GPB International S.A. and other.

DR. BURCKHARD BERGMANN

■ Member of NOVATEK’s Board of Directors, its Remuneration
and Nomination Committee, its Audit Committee and its
Strategy Committee

Born in 1943

Dr. Bergmann studied physics at the Freiburg and Aachen Univer-
sities from 1962 to 1968 and was awarded a Doctorate in Engi-
neering by Aachen University of Technology in 1970. From 1968
to 1969, Dr. Bergmann worked at the German Federal Ministry for
Research and Technology and from 1969 to 1972 – at the Jülich
Nuclear Research Center. In 1972, Dr. Bergmann joined Ruhrgas AG
(from 1 July 2004 – E.ON Ruhrgas AG), heading the LNG Purchas-
ing Department. In 1978, he became Head of the Gas Purchasing
Division responsible for gas purchasing, commercial aspects of gas
transmission and storage. In 1980, he was elected as a member of
the Management Board of E.ON Ruhrgas AG, serving from June
1996 as its Vice-Chairman and from June 2001 to February 2008
as its Chairman. From March 2003 to February 2008 he was also a
member of the Management Board of E.ON AG.

Dr. Bergmann is also a member of the Board of Directors (Su-
pervisory Board) of: Allianz Lebensversicherungs-AG, (till 2013),
Commerzbank AG, (till 2013), Contilia GmbH, Telenor ASA. In ad-
dition, he is a member of the Advisory Boards for Dana Gas Inter-
national, IVG Immobilien AG. He has been elected as Chairman
of the Advisory Board of Jaeger Beteiligungsgesellschaftmb H &
Co KG, Vice Chairman of the Advisory Board of Accumulatoren-

werke Hoppecke GmbH and is elected a member of the Board of
Trustees of RAG AG.

Dr. Bergmann holds the following distinctions: Commander of
the Royal Norwegian Order of Merit (1997); Honorary Consul of
the Russian Federation in the State of North Rhine-Westphalia
a Foreign Member of the Academy of Technological Sciences
of the Russian Federation (2003); Order of Merit of the State of
North Rhine-Westphalia (2004) as well as a winner of Director of
the Year, Moscow (2007); Oﬃ cer’s Cross of the Order of Merit of
the Federal Republic of Germany (2008). In June 2011, by means
of presidential Decree he became a recipient of the Order of
the Friendship of Peoples award for signiﬁ cant contribution in
development of the Russian-German relations.

MR. YVES-LOUIS CHARLE JUSTIN DARRICARRÈRE

■ Member of NOVATEK’s Board of Directors and its Strategy

Committee

Born in 1951

After lecturing at the Ecole des Mines de Paris for 3 years, Yves-
Louis Darricarrère began his career in Elf Aquitaine in 1978, ﬁ rst
in the Mining Division in Australia and later in the Exploration
& Production Branch, where he was appointed successively
Country Representative for Australia and Egypt at head oﬃ ce;
Managing Director of the subsidiaries in Egypt and then in Co-
lombia; Director Business development and new ventures, then
Finance Director of the Exploration & Production Branch and of
the Oil and Gas directorate. In 1998, he was appointed Deputy
Director-General of Elf Exploration-Production responsible for
Europe and the United States and was nominated a member of
the Management Board of Elf-Aquitaine.

In 2000, he was appointed Senior Vice-President for Exploration
& Production Northern Europe and became a member of the
Total Group Management Board.

On 1st September 2003, Yves-Louis Darricarrère was nominated
to the Group’s Executive Committee and was appointed Presi-
dent of Total Gas & Power. On 14th February 2007, he became
President of Total Exploration & Production. On 1st July 2012, he
became President of Total Upstream regrouping Total Explora-
tion & Production and Total Gas & Power.

Yves-Louis Darricarrère is a graduate of the Ecole Nationale
Supérieure des Mines and the Institut d’Etudes Politiques in Paris
and holds a master’s degree in economic science. He is chevalier
de la Légion d’Honneur (Knight of the French Legion of Honour).

MR. VLADIMIR A. DMITRIEV

■ Member of NOVATEK’s Board of Directors and Chairman of

its Strategy Committee

Born in 1953

In 1975, graduated from the Moscow Finance Institute, special-
ty – “International Economic Relations”. Doctor of Economics.
Corresponding member, Russian Academy of Natural Sciences.

NEW QUALITY OF GROWTH

NOVATEK

1975-1979 – State Committee of USSR Council of Ministers for
Foreign Economic Relations, engineer. 1979-1986 – Attache,
third secretary, USSR Foreign Ministry Department. 1986-1987 –
Institute of World Economics and International Relations, USSR
Academy of Sciences, research worker. 1987-1992 – USSR Em-
bassy of USSR Ministry for Foreign Aﬀ airs, Second, First Secretary.
1992-1993 – Russian Embassy of Russian Ministry for Foreign
Aﬀ airs, First Secretary. 1993-1997 – Deputy Chief Executive Of-
ﬁ cer, Russian Finance Ministry Department. 1997-2002 – Bank
for Foreign Economic Aﬀ airs of the USSR, First Deputy Chairman.
2002-2004 – Bank for Foreign Trade of the USSR (OJSC), Deputy
President – Chairman of the Board. 2004-2007 – Bank for Foreign
Economic Aﬀ airs of the USSR, Chairman. From June 2007 – State
Corporation “Bank for Development and Foreign Economic Af-
fairs (Vnesheconombank)”, Chairman.

For outstanding contribution to the development of the ﬁ nan-
cial and banking system of Russia, long-standing and dedicated
work he was awarded the Order of Alexander Nevsky, the Order
“For Merits and Dedicated Service to the Country”, IV Degree,
the Order of Honor, the Order of Saint Sergiy Radonezhsky, II
Degree, the Order of Blessed Prince Daniil Moskovsky, II Degree,
the Medal of the Order “For the Merits and Dedicated Service to
the Country”, the Order of the Banner of the Republic of Serbia
with Golden Wreath, the Order of Merit of the Italian Republic,
Grand Oﬃ cer Grade, the Russian Association of Banks Decora-
tion of Honor “For Merits and Dedicated Service to the Banking
Community”, “Excellent Employee of Vnesheconombank” Badge,
his name is recorded in Vnesheconombank’s Book of Honor, he
was also oﬃ cially thanked by the President and the Government
of the Russian Federation.

MR. LEONID V. MIKHELSON

■ Member of NOVATEK’s Board of Directors
■ Chairman of NOVATEK’s Management Board

Born in 1955

Mr. Mikhelson received his primary degree from the Samara
Institute of Civil Engineering in 1977, where he specialized
in Industrial Civil Engineering. That same year, Mr. Mikhelson
began his career as foreman of a construction and assembling
company in Surgut, Tyumen region, where he worked on the
construction of the ﬁ rst section of Urengoi-Chelyabinsk gas
pipeline. In 1985, Mr. Mikhelson was appointed Chief Engineer of
Ryazantruboprovodstroy. In 1987, he became General Director of
Kuibishevtruboprovodstroy, which in 1991, was the ﬁ rst compa-
ny in the region to sell its shares and became private company,
AO SNP NOVA. Mr. Mikhelson remained SNP NOVA’s Managing
Director from 1987 through 1994. Subsequently, he became a
General Director of the management company “Novaﬁ ninvest”.

Since 2003, Mr. Mikhelson has served as a member of the
Board of Directors and Chairman of the Management Board
of NOVATEK. From March 2008 to December 2010, he has
been a member of the Board of Directors of OAO Stroytrans-
gas. From 2009 to 2010 he was the Chairman of the Board of
Directors of ОАО Yamal LNG and from 2008 to 2011 he was a
member of the Board of Directors of OOO Art Finance. From
2011 he is the Chairman of the Board of Directors of PJSC

SIBUR Holding and from 2011 to 2013 he was a member of
the Supervisory Board of the OAO Russian Regional Devel-
opment Bank. Mr. Mikhelson is the recipient of the Russian
Federation’s Order of the Badge of Honor, the Order of Merit
for the Fatherland 2 degree and the title of honor “Honored
man of the gas industry”.

MR. VICTOR P. ORLOV

■ Member of NOVATEK’s Board of Directors
■ Chairman of NOVATEK’s Remuneration and Nomination

Committee

■ Member of NOVATEK’s Strategy Committee
■ Member of NOVATEK’s Audit Committee

Born in 1940

In 1968, Mr. Orlov graduated from the Tomsk State University as
a geological engineer with a degree in “Geological survey and
exploration of mineral deposits”, and in 1986 from the Acad-
emy of National Economy under the USSR Council of Ministers,
with a specialty in “Economics and Management of a National
Economy”.

From 1957 to 1963, he worked at coal mine and served in the
Soviet Army. From 1968 to 1975, he was head of a geological
survey, prospecting and exploration works in the geological
organizations of Western Siberia, held positions of the geologist,
chief geologist, chief of geological exploration crew. 1975-1978 –
Consultant on geological exploration works in Iran. 1979-1981 –
Deputy Head of the Geological Division of the Production Geo-
logical Association of central areas of Russia (Tsentrgeologiya).
1981-1986 – Deputy Head of Geology and Production depart-
ments of the Ministry of Geology of the RSFSR. 1986-1990 – CEO
of Tsentrgeologiya. 1990-1992 – Deputy Minister of Geology
of the USSR, First Deputy Chairman of the RSFSR State Com-
mittee for Geology and Use of Energy and Mineral Resources.
1992-1996 – Chairman of the Russian Federation Committee on
Geology and Mineral Resources. 1996-1999 – Minister of Natural
Resources of the Russian Federation. 2001-2012 – Member of
the Federation Council of the Federal Assembly of the Russian
Federation. 2001-2004 – First Deputy Chairman of the Federation
Council Committee on Natural Resources and Environmental
Protection. 2004-2011 – Chairman of the Federation Council
Committee on Natural Resources and Environmental Protection.

Professor, Doctor of Economics, Candidate of geological-miner-
alogical sciences, an Honored Geologist of Russia. Laureate of
the State Prize of the Russian Federation in the ﬁ eld of science
and technology. He was awarded the Order of Merit for the
Fatherland 4 degree, 18 non-governmental awards, including
3 appreciation letters of the President of the Russian Federa-
tion, the Certiﬁ cate of Merit of the Government of the Russian
Federation.

MR. GENNADY N. TIMCHENKO

■ Member of NOVATEK’s Board of Directors
■ Chairman of NOVATEK’s Strategy Committee

Born in 1952

ANNUAL REPORT 2014

In 1976, Mr. Timchenko graduated with a Master’s of Science
from the Mechanical University in Leningrad. He began his ca-
reer at the Izjorskii Factory in Leningrad, an industrial plant which
made components for the energy industry. Between 1982 and
1988, he was a Senior Engineer at the Ministry of Foreign Trade.
Mr. Timchenko has more than 20 years of experience in Russian
and International energy sectors and he has built interests in
trading, logistics and transportation related companies.

In 1988, Mr. Timchenko became a vice president of Kirishineft-
ekhimexport, the export and trading arm of the Kirishi reﬁ nery in
the Leningrad region. In 1991, he worked for Urals Finland which
specialized in oil and petrochemical trading. Between 1994 and
2001, Mr. Timchenko was managing Director of IPP OY Finland
and IPP AB Sweden. Between 1997 and 2014, he co-founded
Gunvor, a leading independent oil-trading company. Mr. Tim-
chenko was a member of the Board of Directors of OOO Transoil
and OOO BalttransService, Airﬁ x Aviation OY. Since 2009, he is
a member of the Board of Directors of OAO NOVATEK. He is a
member of the Board of Directors of PJSC SIBUR Holding, the
Chairman of the Board of Directors, President of the Ice Hockey
Club SKA St-Petersburg, as well as the Chairman of the Board of
Directors of OOO Kontinental Hockey League, a member of the
Board of Trustees of the All-Russian public organization Russian
Geographical Society, the Chairman of the Russian Council of
the NPO Russian Chinese Business Council, the Chairman of the
Board to promote OCD, Vice- President of the Olympic Commit-
tee of the Russian Federation, the Chairman of the Economic
Council of the Franco-Russian Chamber of Commerce (CCIFR).

MR. ANDREI V. SHARONOV

■ Member of NOVATEK’s Board of Directors
■ Chairman of NOVATEK’s Audit Committee
■ Member of NOVATEK’s Remuneration and Nomination

Committee

Born in 1964

Mr. Sharonov graduated from the Ufa Aviation Institute and the
Russian Academy of State Service at the President of the Russian
Federation.

1989-1991 – Member of the USSR Parliament, until 1996 he
headed the Committee for Matters Concerning Young Persons of
the Russian Federation. From 1996 to 2007 – Head of Depart-
ment, Deputy Minister, State Secretary in the Ministry of Eco-
nomic Development and Trade of the Russian Federation. From
2007 to 2010 – Managing Director and Chairman of the Board of
Directors of ZAO Investment Company Troika Dialog, head of the
investment banking sector. From 2010 to 2013 – Deputy Mayor
of Moscow for economic policy, was responsible for budgeting,
procurement, industrial policy and business support, regulated
market of trade and services. Served as a Chairman of the Re-
gional Energy Commission. From September 2013 – President of
the Moscow School of Management SKOLKOVO and Adviser to
the Mayor of Moscow.

of Committee on Innovative Development and Technology
Policy of OAO Sovkomﬂ ot; Chairman of the Board of Directors, an
Independent Member of the Board of Directors of OOO Manage-
ment Company NefteTransService; Chairman of the Board of
Directors of OAO Management Company Eko-sistema.

Candidate of sociological sciences, an Honored Economist of
the Russian Federation. He is the recipient of the “Aristos” Award
in the “Independent Director” category in 2009, the National
Award “Director of the Year – 2009” in the “Independent Director”
category and the International Award “Person of the Year – 2012”
in the “Business reputation” category. He was awarded the Order
of Honor of the Russian Federation.

Information on Members of
NOVATEK’s Management Board

MR. LEONID V. MIKHELSON

■ Chairman of NOVATEK’s Management Board
■ Member of NOVATEK’s Board of Directors

Born in 1955

Details on Mr. Leonid V. Mikhelson are available in the “Informa-
tion on Members of NOVATEK’s Board of Directors” section.

MR. VLADIMIR A. BASKOV

■ Deputy Chairman of NOVATEK’s Management Board

Born in 1960

In 1986, Mr. Baskov graduated from the Moscow Higher Police
School of the USSR. In 2000, he completed courses at the Man-
agement Academy at the Russian Ministry for Internal Aﬀ airs.
From 1981 to 2003, he served in various departments within
the Russian Ministry for Internal Aﬀ airs. From 1991 to 2003,
Mr. Baskov held managerial positions within the aforementioned
Ministry’s organizational structures. In 2003 he was appointed
Director of the Business Support Department for NOVATEK.
In 2005 he was appointed Deputy Chairman of NOVATEK’s
Management Board and in August 2007 he became a member
of NOVATEK’s Management Board. Candidate of legal Sciences.
He was awarded the Order For Personal Courage, the Russian
Federation’s Order of the Badge of Honor and other state and
departmental awards: Honorary Diplomas of the President of the
Russian Federation, the Ministry of Internal Aﬀ airs, the Governor
of the Moscow Region. He also has the awards of the Russian
Orthodox Church (Order of Holy Prince Daniel of Moscow and a
medal of St. Sergius).

MR. MARK A. GYETVAY

■ Deputy Chairman of NOVATEK’s Management Board

Member of ALROSA’s Supervisory Board (OAO); Member of the
Board of Directors of OAO Bank of Moscow; Member of the
Board of Directors, Member of the Strategy Committee, Member

Mr. Gyetvay studied at Arizona State University (Bachelor of Sci-
ence, Accounting, 1981) and later at Pace University, New York

Born in 1957

NEW QUALITY OF GROWTH

NOVATEK

(Graduate Studies in Strategic Management, 1995). After gradu-
ation, Mr. Gyetvay worked in various capacities at a number
of independent oil and gas companies (Champlin Petroleum
Co., Texas, Ensource Inc. and MAG Enterprises, Colorado, and
Amerada Hess Corporation, New Jersey) where he specialized in
ﬁ nancial and economic analysis for both upstream and down-
stream segments of the petroleum industry.

In 1994, Mr. Gyetvay began his work at Coopers and Lybrand, as
Director, Strategic Energy Advisory Services. He subsequently
moved to Moscow in 1995 with Coopers & Lybrand to lead the
oil and gas practice. He was admitted as a partner of Pricewa-
terhouseCoopers Global Energy where he assumed the role of
client service engagement partner, Utilities and Mining practice,
based in Russia (Moscow oﬃ ce). Mr. Gyetvay was an engage-
ment partner on various energy and mining clients providing
overall project management, ﬁ nancial and operational expertise,
maintaining and supporting client service relationships as well
as serving as concurring partner on transaction services to the
petroleum sector.

Mr. Gyetvay is a Certiﬁ ed Public Accountant, a member of the
American Institute of Certiﬁ ed Public Accountants and an associ-
ate member of the Society of Petroleum Engineers.

From 2003 to 2014, Mr. Gyetvay became a member of NOVATEK’s
Board of Directors. Since 2004-2008, he has been Chief Finan-
cial Oﬃ cer and, in August 2007, Mr. Gyetvay was elected to
NOVATEK’s Management Board. Since July 2010, he became
Deputy Chairman of NOVATEK’s Management Board.

MS. TATYANA S. KUZNETSOVA

■ Deputy Chairman of NOVATEK’s Management Board
■ Director of NOVATEK’s Legal Department

Born in 1960

Ms. Kuznetsova graduated from the Far East State University
with a degree in Law. From 1986, she was Senior Legal Advisor
for a legal bureau. In 1993, Ms. Kuznetsova became Deputy
General Director for Legal Issues and from 1996, Marketing
Director for OAO Purneftegasgeologiya. In 1998, she was
appointed Deputy General Director of OAO Nordpipes. Since
2002, she has been Director of the Legal Department for
NOVATEK. Since 2005, she has been the Deputy Chairman of
NOVATEK’s Management Board – Director of NOVATEK’s Legal
Department and in August 2007, she became a member of
NOVATEK’s Management Board. Has the title “Honored em-
ployee of OAO NOVATEK”, awarded the Order of Merit for the
Fatherland 2 degree.

MR. IOSIF L. LEVINZON

■ Deputy Chairman of NOVATEK’s Management Board

Born in 1956

Mr. Levinzon graduated from the Tyumen Industrial Institute
specializing in geology and is a Candidate of Geological and
Mineralogical Science. He continued postgraduate studies in

Perm State Technical University. From 1978 to 1987, he was the
Head of the Urengoy oil expedition and from 1987 to 1996 he
was the General Director of Purneftegasgeologiya. From 1996
to 2005, Mr. Levinzon was the Deputy Governor, 1st Deputy
Governor and Vice-Governor of the Yamal-Nenets Autonomous
Region. From 2005 to 2006, Mr. Levinzon he has been an Advi-
sor to the Chairman of the Federation Council of the Federal
Assembly of the Russian Federation. From 2006 to 2009, Mr.
Levinzon has been an Advisor on Corporate and Strategic
Development at ZAO OSTER and also at ZAO Investgeoservis.
Since August 2009, Mr. Levinzon has held the position of Depu-
ty Chairman of NOVATEK’s Management Board and in Decem-
ber 2009 he was elected a member of NOVATEK’s Management
Board. Mr. Levinzon is a recipient of the Honored Geologist
of Russia, the Order of the Badge of Honor and the Order of
the Friendship of Peoples awards and has been awarded the
Certiﬁ cate of Merit from the Governor of the Yamal-Nenets
Autonomous Region.

MR. MIKHAIL V. POPOV

■ First Deputy Chairman of NOVATEK’s Management Board
■ Commercial Director

Born in 1969

Mr. Popov studied at the Gubkin State Academy of Oil and
Gas until 1992 and in 1994, graduated from the Kiev Insti-
tute of National Economy. In 1992, he held the position of
Deputy Chairman of AO Bankomsvyaz’s Managing Commit-
tee (Kiev). In 2002, he was appointed Director of the Capital
Construction Department and Deputy General Director of
OAO Novafininvest. From 2003, Mr. Popov served as Director
of Crude Oil and Oil Products Department of OAO NOVATEK.
In 2004, Mr. Popov was elected First Deputy Chairman of
NOVATEK’s Management Board. Since August 2007, he has
been a member of the Management Board and since May
2011, he has been NOVATEK’s First Deputy Chairman-Com-
mercial Director.

MR. ALEXANDER M. FRIDMAN

■ Deputy Chairman of NOVATEK’s Management Board

Born in 1951

In 1973, Mr. Fridman graduated from the Gubkin Institute of Oil
and Gas in Moscow, with a degree in Oil and Gas Fields Develop-
ment and Exploitation. Since 1973, he was employed by various
Gazprom companies: as Chief Engineer of Nadymgazprom, Head
of the Production and Technical Department of the Industrial
Association, and Chief Engineer of Mostransgaz’s Kaluga Depart-
ment for Gas Transportation and Underground Storage. From
1992 to 2003, he was First Deputy General Director of a joint
venture established by OAO Gazprom and DKG-EAST (Hungary).
Since 2003 Mr. Fridman was the Deputy General Director of No-
vaﬁ ninvest. In 2004, Mr. Fridman was elected Deputy Chairman
of the Management Board of OAO NOVATEK. In August 2007, he
has been a member of NOVATEK’s Management Board. Mr. Frid-
man is the recipient of the title of honor “Honored man of the oil
and gas industry”.

ANNUAL REPORT 2014

MR. KIRILL N. YANOVSKIY

■ Member of NOVATEK’s Management Board
■ Director for Finance and Strategy

Born in 1967

In 1991, Mr. Yanovskiy graduated from the Gubkin Institute of Oil
and Gas in Moscow. From 1992, he headed a department of the
Yugorsky Joint-Stock Bank. From 1995, he headed the Securities
Department at the Neftek Joint-Stock Commercial Bank. Since
2002, he has been Director of NOVATEK’s Financial Planning,
Analysis and Control Department. In August 2007, Mr. Yanovskiy
was elected to NOVATEK’s Management Board and in 2007 was
appointed Deputy Director for Finance and Strategy. Since May
2011 he has been Director for Finance and Strategy.

Major Transactions and Interested
Party Transactions

In 2014, NOVATEK consummated no interested party and major
transactions.

Forward–looking Statements

This Annual Review includes ‘forward-looking information’ within
the meaning of Section 27A of the US Securities Act of 1933, as
amended, and Section 21E of the US Securities Exchange Act of
1934, as amended. Certain statements included in this Annual
Report and Accounts, including, without limitation, statements
concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other state-
ments, which are other than statements of historical facts. The
words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,”
“project,” “will,” “may,” “should” and similar expressions identify for-
ward-looking statements. Forward-looking statements include
statements regarding: strategies, outlook and growth prospects;
future plans and potential for future growth; liquidity, capital
resources and capital expenditures; growth in demand for our
products; economic outlook and industry trends; developments
of our markets; the impact of regulatory initiatives; and the
strength of our competitors. The forward-looking statements in
this Annual Review are based upon various assumptions, many
of which are based, in turn, upon further assumptions, includ-
ing without limitation, management’s examination of historical
operating trends, data contained in our records and other data
available from third parties. Although we believe that these as-
sumptions were reasonable when made, these assumptions are
inherently subject to signiﬁ cant uncertainties and contingencies,
which are diﬃ cult or impossible to predict and are beyond our
control. As a result, we may not achieve or accomplish these ex-
pectations, beliefs or projections. In addition, important factors

that, in our view, could cause actual results to diﬀ er materially
from those discussed in the forward-looking statements include:

■ changes in the balance of oil and gas supply and demand

in Russia and Europe;

■ the eﬀ ects of domestic and international oil and gas price
volatility and changes in regulatory conditions, including
prices and taxes;

■ the eﬀ ects of competition in the domestic and export oil

and gas markets;

■ our ability to successfully implement any of our business

strategies;

■ the impact of our expansion on our revenue potential, cost

basis and margins;

■ our ability to produce target volumes in the event, among
other factors, of restrictions on our access to transportation
infrastructure;

■ the eﬀ ects of changes to our capital expenditure
projections on the growth of our production;

■ potentially lower production levels in the future than
currently estimated by our management and/or
independent petroleum reservoir engineers;

■ inherent uncertainties in interpreting geophysical data;
■ changes to project schedules and estimated completion

dates;

■ our success in identifying and managing risks to our

businesses;

■ the eﬀ ects of changes to the Russian legal framework

concerning currently held and any newly acquired oil and
gas production licenses;

■ changes in political, social, legal or economic conditions in

Russia and the CIS;

■ the eﬀ ects of technological changes;
■ the eﬀ ects of changes in accounting standards or practices.

This list of important factors is not exhaustive. When relying on
forward-looking statements, one should carefully consider the
foregoing factors and other uncertainties and events, especially
in light of the political, economic, social and legal environment
in which we operate. Such forward looking statements speak
only as of the date on which they are made. Accordingly, we do
not undertake any obligation to update or revise any of them,
whether as a result of new information, future events or other-
wise. We do not make any representation, warranty or prediction
that the results anticipated by such forward-looking statements
will be achieved, and such forward-looking statements rep-
resent, in each case, only one of many possible scenarios and
should not be viewed as the most likely or standard scenario.
The information and opinions contained in this document are
provided as at the date of this review and are subject to change
without notice.

NEW QUALITY OF GROWTH

NOVATEK

Terms and Abbreviations

Conversion Factors

Mentions in this Annual Report of “OAO NOVATEK”, “NOVATEK”, “the
Company”, “we” and “our” refer to OAO NOVATEK and/or its sub-
sidiaries (according to IFRS methodology) and/or joint ventures
(accounted for on an equity basis according to IFRS standards),
depending upon the context, in which the terms are used.

1000 cubic meters of gas = 6.54 boe.

To convert crude oil and gas condensate reserves from tons to
barrels we used various coeﬃ cients depending on the liquids
density at each ﬁ eld.

one stock tank barrel, or 42 US gallons of liquid
volume
billion cubic meters
barrels of oil equivalent
kilometer(s)
thousand boe
thousand cubic meters
thousand metric tons

barrel

bcm
boe
km
mboe
mcm
mt
mmboe million boe
mmcm million cubic meters
mmt
ton
SEC
PRMS
YNAO
RR
LPG
LNG

million metric tons
metric ton
United States Securities and Exchange Commission
Petroleum Resources Management System
Yamal-Nenets Autonomous Region
Russian rouble
liquiﬁ ed petroleum gases
liquiﬁ ed natural gas

ANNUAL REPORT 2014

NOTES

NEW QUALITY OF GROWTH

NOTES

NOVATEK

ANNUAL REPORT 2014

CONTACT INFORMATION

Legal address
22 A Pobedy Street, Tarko-Sale,
Yamal-Nenets Autonomous Region, 629850, Russia

Ofﬁ ce in Moscow
2, Udaltsova Street, 119415, Moscow, Russia

Central Information Service
Tel: +7 495 730-6000
Fax: +7 495 721-2253
E-mail: novatek@novatek.ru

Press Service
Tel: +7 495 721-2207
E-mail: press@novatek.ru

Investor Relations
Tel: +7 495 730-6013
Fax: +7 495 730-6000
E-mail: ir@novatek.ru

Registrar
ZAO “Computershare Registrar”
8 Ivana Franko Street, Moscow, Russia 121108
Tel: +7 (495) 926-8160
Fax: +7 (495) 926-8178
E-mail: info@nrcreg.ru

GDR program Administrator
Deutsche Bank Trust Company Americas
60 Wall Street, New York, New York
100056, USA
London +44 20 7547 6500
New York +1 212 250 9100
Moscow +7 495 797 5209

Independent Auditor
ZAO PricewaterhouseCoopers Audit
White Square Oﬃ ce Center, Butyrsky Val 10,
125047 Moscow, Russia
Tel: +7 495 967-6000
Fax: +7 495 967-6001

Independent Reserves Auditor
DeGolyer and MacNaughton
5001 Spring Valley Road, Suite 800, East Dallas
Texas 75244, USA
Tel: +1 214 368-6391
Fax: +1 214 369-4061
E-mail: degolyer@demac.com

Website:
www.novatek.ru (Russian version)
www.novatek.ru/eng (English version)

NEW QUALITY OF GROWTH

K
E
T
A
V
O
N
O
A
O

H
T
W
O
R
G
F
O
Y
T
I
L
A
U
Q
W
E
N

4
1
0
2
T
R
O
P
E
R
L
A
U
N
N
A

OF GROWTH

QUALITY

NEW

Annual report
2014