Novatek Annual Report 2015

FY2015 Annual Report · Novatek

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Sustainability enables us to confidently
deliver our long-term strategy in challenging
macroeconomic environments.

We demonstrate solid Growth building up on
our competitive advantages and reaching
new levels of operational and financial
performance.

Transformation of our business, resulting
from rapid growth in our liquid hydrocarbons
and planned expansion into the global LNG
market, opens up new horizons for
long-term and efficient development.

CONTENTS

LETTER TO
SHAREHOLDERS

REVIEW OF OPERATING
RESULTS

Letter to Shareholders . . . . . . . . 8
Strategic priorities . . . . . . . . . . . 12
Key Events and
Achievements . . . . . . . . . . . . . . . 13
Key Indicators . . . . . . . . . . . . . . 14

REVIEW OF OPERATING
RESULTS . . . . . . . . . . . . . . . . . .52

Licenses . . . . . . . . . . . . . . . . . . . 52
Hydrocarbon Reserves. . . . . . . . 52
Geological Exploration . . . . . . . . 54
Field Development . . . . . . . . . . . 54
Hydrocarbon Production . . . . . . 55
Yamal LNG Project . . . . . . . . . . . 57
Processing
of Gas Condensate . . . . . . . . . . . 58
Natural Gas Sales . . . . . . . . . . . . 59
Liquid Hydrocarbon Sales . . . . . 60

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 produc-
tion, processing, transportation and marketing of natural
gas and liquid hydrocarbons. The Company’s primary
production assets are located in the Yamal-Nenets Au-
tonomous Region (YNAO), one of the largest gas regions
in the world.

The Company’s main strategic priorities are: ensuring
development of hydrocarbon resource base, including
eﬃ cient reserve management; growth in hydrocarbon
production; maintaining a low-cost structure; optimizing
and expanding existing marketing channels, and creating
new marketing channels; and expansion into the interna-
tional market for liqueﬁ ed natural gas.

ENVIRONMENTAL
AND SOCIAL
RESPONSIBILITY

MANAGEMENT
AND CORPORATE
GOVERNANCE

ADDITIONAL
INFORMATION

ENVIRONMENTAL
AND SOCIAL
RESPONSIBILITY . . . . . . . . . . .62

MANAGEMENT
AND CORPORATE
GOVERNANCE . . . . . . . . . . . . . .68

Environmental Protection . . . . . 62
Health and Safety . . . . . . . . . . . 63
Human Resources . . . . . . . . . . . 64
Social Policy and Charity . . . . . . 65

Corporate Governance
System . . . . . . . . . . . . . . . . . . . . 68
General Meeting
of Shareholders . . . . . . . . . . . . . 68
Board of Directors . . . . . . . . . . . 69
Board Committees . . . . . . . . . . . 70
Management Board . . . . . . . . . . 72
Remuneration to Members
of the Board of Directors
and Management Board . . . . . . 72
Internal Control and Audit . . . . . 73
Share Capital . . . . . . . . . . . . . . . 74
Dividends . . . . . . . . . . . . . . . . . . 74
Information Transparency . . . . . 76

ADDITIONAL
INFORMATION . . . . . . . . . . . . .77

Risk Management System . . . . . 77
Information on Members of
NOVATEK’s Board of Directors . . 82
Information on Members
of NOVATEK’s Management
Board . . . . . . . . . . . . . . . . . . . . . . 85
Major, Material and Related
Party Transactions . . . . . . . . . . . 88
Information (report) on the
observance by a joint stock
company of the principles
and the recommendations of
the Corporate Governance Code
recommended for application
by the Bank of Russia . . . . . . . . 90
Forward–Looking Statements . 100
Terms and Abbreviations . . . . . 101
Conversion Factors . . . . . . . . . . 101
Contact Information . . . . . . . . 102

bln boe of proved
hydrocarbon reserves
under SEC

bcm of natural gas
produced in 2015

of total Russian natural
gas production

globally among publicly
traded companies by proved
natural gas reserves

globally among publicly traded
companies by natural gas
production volumes

of the overall gas supply
to Russian market

Yamal-Nenets
Autonomous Region

RU SSI A

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. East-Tarkosalinskoye field
2. Khancheyskoye field
3. North-Khancheyskoye field1
4. North-Urengoyskoye field
5. Olimpiyskiy license area
6. Samburgskiy license area
7. Termokarstovoye field
8. Yaro-Yakhinskiy license area
9. Yarudeyskoye field
10. Yumantilskiy license area
11. Yurkharovskoye field

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12. Dorogovskoye field
13. East-Tambeyskiy license area
14. East-Tazovskoye field
15. Geofizicheskoye field
16. Malo-Yamalskoye field
17. North-Chaselskiy license area
18. North-Obskiy license area
19. North-Russkiy license area
20. North-Russkoye field
21. North-Tasiyskiy license area
22. North-Yubileynoye field

23. Raduzhnoye field
24. South-Tambeyskoye field
25. Trekhbugorniy license area
26. Ukrainsko-Yubileynoye field
27. Utrenneye field
28. West-Chaselskoye field
29. West-Urengoiskiy license area
30. West-Yurkharovskoye field
31. Yevo-Yakhinskiy license area

1. Since October 2014 — North-Khancheyskoye +

Khadyryakhinskoye field.

LEGEND

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 pipelines of NOVATEK.
Сonnect the producing fields with the
Purovsky plant.

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LETTER TO
SHAREHOLDERS

WE SUCCESSFULLY IMPLEMENTED

ALL OF OUR OPERATIONAL AND

INVESTMENT PLANS FOR 2015

AND CONTINUED DEVELOPING OUR

BUSINESS ACCORDING TO OUR LONG-

TERM STRATEGY, WHICH ONCE AGAIN

PROVED RESILIENT AND EFFICIENT.

growth in liquid
hydrocarbon
production

growth in throughput
volumes at the
Purovsky Plant

growth in EBITDA

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ALEXANDER
NATALENKO
Chairman of
NOVATEK`s
Board of
Directors

LEONID
MIKHELSON
Chairman of
NOVATEK`s
Management
Board

MARK
GYETVAY
Deputy
Chairman of
NOVATEK`s
Management
Board

Dear Shareholders,

TWO THOUSAND AND FIFTEEN was a challenging year
for the oil and gas industry. The macroeconomic envi-
ronment throughout the year, including the precipitous
drop in hydrocarbon prices and the significant volatility
in foreign exchange rates, tested the SUSTAINABIL-
ITY of NOVATEK’s business operations. Despite this
fact, we are pleased to report that we successfully
implemented all of our operational and investment
plans for 2015 and continued developing our business
according to our long-term strategy, which once again
proved resilient and efficient. In the reporting year, we
commissioned a number of major new fields, increas-
ing our natural gas production by 9% and our liquid
hydrocarbon production by a record GROWTH rate of
51%, thus enabling us to fully utilize our gas conden-
sate processing plants according to the facilities rated
capacities.

We achieved another important step in the ongoing
TRANSFORMATION of our business — the share of
liquid hydrocarbons in the Company’s overall production
and volumes of stable gas condensate processing into
high value-added products as well as the cash flows
generated therefrom grew significantly throughout the
year. One of the fundamental tenets of our corporate
strategy is sustainable business development. The dif-
ficult market conditions did not affect our key principle
of adhering to the highest standards in environmental
protection, occupational health and safety, social re-
sponsibility, corporate governance and transparency.

Many international oil and gas companies announced
significant reductions in capital investment programs,
staff layoffs, as well as postponing or cancelling
exploration and development projects and writing off
significant reserves. We have consistently highlighted
our key competitive edge — our low-cost structure,
including very low reserve development and lifting
costs. NOVATEK is traditionally ranked as one of the
lowest cost producers among the leading public oil and
gas companies globally. This enviable fact along with

THE GROWTH OF LIQUID

HYDROCARBON SHARE IN OUR

OVERALL PRODUCTION VOLUMES

COMBINED WITH THE FULL

UTILIZATION OF OUR VERTICALLY

INTEGRATED CHAIN FOR GAS

CONDENSATE CONTRIBUTED A

STRONG POSITIVE EFFECT ON

THE COMPANY’S FINANCIAL

PERFORMANCE.

the Company’s well-balanced business structure and
high operating flexibility underpin our strong SUSTAIN-
ABILITY and enables us to efficiently develop and grow
our business in various hydrocarbon commodity price
environments.

Despite the decline in hydrocarbon prices our SEC
proved hydrocarbon reserves grew by 1.4% in the
reporting year while the organic reserves replacement
ratio reached 148%. We demonstrated GROWTH in our
core financial indicators, enabling the Company’s Board
of Directors to recommend to the General Meeting of
Shareholders to approve dividends for 2015 at RR
13.5 per share, which exceeds the dividend paid out
for the previous year by 31%. Dividend growth high-
lights our confidence in the future SUSTAINABILITY
of our business and sufficiency of capital resources to
further implement our corporate strategy and vision.
Furthermore, our operating cash flow was more than
double the amount of our capital expenditures in the
reporting year, while our construction and drilling
works were carried out in full as planned.

Thanks to these efforts, we commissioned three major
new fields in 2015. In April, commercial production
started at the Yaro-Yakhinskoye oil and gas condensate

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field developed by the Arcticgas joint venture (JV).
In May, we commissioned the Termokarstovoye gas
condensate field operated by the Terneftegas JV. Both
of these new fields reached their plateau produc-
tion levels in June. In the beginning of December, we
launched the Yarudeyskoye crude oil field developed
by the Yargeo JV. This field ramped-up to its design
capacity within a record-short period of time for an
oil project — annualized oil production of 3.5 million
tons was achieved by the end of 2015. The launch of
the Yarudeyskoye field is another important milestone
in the Company’s history as it represents successful
completion of our first major crude oil development
project. The above mentioned three fields contributed
to record GROWTH in NOVATEK’s liquid hydrocarbons
in 2015, including a 55% increase in gas condensate
production.

we presented to the investment community in late
2011. Compared to 2010, our proved reserves grew
by 58%. We put on stream production facilities with
the aggregate capacity of 45 bcm of natural gas and
13 million tons of liquid hydrocarbons, which equals
to 7% of Russia’s total natural gas production and 3%
of liquid hydrocarbons production for 2010. Our gas
production increased by 82% while liquid hydrocar-
bon production grew by 2.5 times. NOVATEK’s share
in the total Russian natural gas production moved
up by 5 percentage points to 11%, our share in the
domestic gas market went up twofold to approximate-
ly 20% and the proportional share of end customers
in our overall gas sales volumes increased from 64%
to 93%. We grew our revenues and EBITDA by four
times and retained our lifting costs at approximately
$0.5 per BOE.

We have successfully achieved all of the ambitious
mid-term goals and successfully accomplished the first
phase of our business TRANSFORMATION. The rapid
growth in liquid hydrocarbon production provided a
much higher profitability per unit of sales as compared
with our natural gas sales, and has become a key driver
of our financial performance over recent years. We
have reinforced our SUSTAINABILITY, strengthened
our competitive advantages and considerably built
up the basis for a successful implementation of the
next important phase of our business TRANSFORMA-
TION — entering the international LNG market.

WE CONSIDERABLY BUILT UP

THE BASIS FOR A SUCCESSFUL

IMPLEMENTATION OF THE NEXT

IMPORTANT PHASE OF OUR

BUSINESS TRANSFORMATION —

ENTERING THE INTERNATIONAL

LNG MARKET

We also realized full year run rates on facilities com-
missioned in 2014, which positively impacted our
production dynamics during the year; namely, Phase
3 of the Samburgskoye field and two phases of the
Urengoyskoye field within the Samburgsky license area
developed by Arcticgas. Liquid hydrocarbons increased
by four percentage points as part of our overall produc-
tion as compared to 2014 and amounted to 15%. The
fields we commissioned in 2015 will generate dou-
ble-digit liquids production growth in 2016 as well.

With the timely capacity expansion at our Purovsky
Gas Condensate Stabilization Plant we fully covered the
steep growth in this feedstock production by relevant
processing capabilities. The Purovsky Plant raised its
processing volumes by 82% to fully utilize its design
capacity in the reporting year, as did the Ust-Luga
Stable Gas Condensate Fractionation Complex, which
increased its processing volumes by 43%. The Com-
plex’s high value added products accounted for one-
third of NOVATEK’s total revenue for 2015.

The GROWTH of liquid hydrocarbon share in our overall
production volumes combined with the full utilization
of our vertically integrated chain for gas condensate,
which positively impacts the unit profitability of our
liquids sales, contributed a strong positive effect on
the Company’s financial performance. As a result,
NOVATEK’s revenues grew by 33% year-on-year, while
our Normalized EBITDA rose to a record high of RR 214
bln. Meanwhile, our liquid revenues exceeded revenues
derived from natural gas for the first time in our cor-
porate history. Growing revenues from liquid hydrocar-
bon sales, denominated mainly in foreign currencies,
substantially reinforced our SUSTAINABILITY in the
challenging macroeconomic environment.

The formal launching of the Yarudeyskoye field at
the end 2015 marked the conclusion of the first five
years of our long-term development strategy that

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As of the end 2015, construction of the LNG plant’s
first train under our flagship Yamal LNG Project was
more than 56% complete. Yamal LNG is built on the
conventional resource base of the South-Tambeyskoye
gas condensate field, which underscores the project’s
key competitive advantage. Our field development
costs account for less than 15% of the project’s overall
capital expenditures, while lifting costs are estimated
to match the current weighted average level achieved
at NOVATEK. This distinction is important as it means
that Yamal LNG’s overall feedstock cost for liquefaction
will be considerably lower as compared to other LNG
projects currently implemented around the globe. The
very low upstream cost base more than compensates
for higher shipping costs due to the Arctic navigation
conditions and remoteness from the Asia-Pacific mar-
kets. This makes Yamal LNG economically feasible in
today’s low hydrocarbon price environment and highly
competitive in key importing markets.

Forty-one production wells have been drilled at the
South-Tambeyskoye field, representing approximate-
ly 70% of the well stock required for the plant’s first
train. Long-lead items, including the LNG plant mod-
ules, began arriving in Sabetta in September of the
reporting year. Among the items delivered as of the
year end are the full equipment package for compres-
sor lines of the plant’s first and second trains, the cry-
ogenic heat exchanger, the first seven plant modules,
a number of pipe rack modules, power plant turbines
and other pieces of equipment. Installation of the
equipment on ready foundations started. Thus, Yamal
LNG is progressing in full accordance with the project’s
schedule, with the intent to commence commercial LNG
production in 2017.

In December 2015, we signed binding definitive agree-
ments to sell a 9.9% equity stake in the Yamal LNG
project to China’s Silk Road Fund, including the receipt
of a 15-year loan for the purpose of financing of Yamal
LNG. This key transaction is another important step
toward executing our long-term development strate-
gy, as it enables us to achieve the appropriate target
shareholder structure and contributes to the planned
financing of the project and further facilitates the pro-
ject’s successful implementation.

Environmental protection and industrial safety remains
a core focus of our operations. One of our key pri-
orities is to protect the ecosystems of the Far North
where our fields are located. Applying state-of-the-art
technologies that both improve economic efficiency and
make HSE systems more reliable and minimize the envi-
ronmental impact is of particular interest for NOVATEK.

We take special care in preserving the cultural heritage
and traditional lifestyle of indigenous minorities of the
North. Working jointly with regional governments we

invest in social infrastructure and are implementing
several cultural, educational and charitable programs.
Alongside our operational and financial performance
indicators, we measure our business success by our
contribution to the development of regions where we
operate.

We would also like to take this opportunity to recog-
nize the contributions our highly qualified employees
make in implementing our long-term development
strategy focused on GROWTH and efficient TRANS-
FORMATION of our business and on ensuring the
Company’s high SUSTAINABILITY in the challenging
market conditions. We would not be able to achieve
these high-level goals without their dedication and
commitment to our mission.

On behalf of the Board of Directors and Management
Board, we are pleased to present to our valued stake-
holders the NOVATEK’s 2015 Annual Report, and
we would like to thank everyone for your continued
confidence in the Company and our strategic plans.
Although 2015 has been a challenging year for the oil
and gas industry, we remain committed to delivering
results according to our strategic goals and objectives
consistent with internationally recognized best practic-
es and sustainable development principles.

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

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STRATEGIC
PRIORITIES

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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 infrastruc-
ture to core producing fields; a well-developed custom-
er base for natural gas sales; its own facilities for gas
condensate processing and product exports; and a well
developed marketing channel for liquefied petroleum gas
(LPG). Our high level of operational flexibility and our

consistent and efficient use of leading edge technolo-
gies in production and processing practices as well as
our adherence to sound and prudent business manage-
ment support our competitive position.

Our commitment to social responsibility and to observ-
ing the latest environmental, health and safety stand-
ards are integral parts of NOVATEK’s development
strategy.

KEY EVENTS AND
ACHIEVEMENTS 2015

RECORD GROWTH IN

LIQUID HYDROCARBON

PRODUCTION OF 51% TO

MORE THAN 9 MMT

Launch of the Yarudeyskoye oil
field in the beginning of Decem-
ber. The field is developed by our
Yargeo joint venture and ramped
up to its full production capacity
by the end of 2015.

Launch of the Termokarstovoye
gas condensate field in May. The
field is developed by our Terneft-
egas joint venture and ramped
up to its full production capacity
in June 2015.

Increase in our Normalized EBITDA
by 34% to a record high of RUB
214 bln.

Signing of binding definitive
agreements with China’s Silk
Road Fund on the sale of a
9.9% equity stake in the Yamal
LNG project, including the receipt
of a 15-year loan for the purpose
of financing of Yamal LNG.

Record growth in our liquid hy-
drocarbon sales volumes by 82%,
contributing to an increase in its
respective share in total revenue
to 53%.

Conclusion of a number of long-
term contracts for domestic natural
gas sales and international LNG
sales.

Launch of the Yaro-Yakhinskoye
oil and gas condensate field in
April. The field is developed by
our Arcticgas joint venture and
ramped up to its full production
capacity in June 2015.

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KEY
INDICATORS

Units

2014

2015

Change

FINANCIAL INDICATORS

Total revenues

RR mln

357,643

475,325

32.9%

Normalized profit from operations1

RR mln

125,140

139,741

11.7%

Normalized EBITDA (including share in EBITDA of JVs)1

RR mln

159,631

214,466

34.4%

Profit attributable to shareholders of NOVATEK

RR mln

37,296

74,396

99.5%

Earnings per share, basic and diluted

12.34

24.63

99.6%

Net cash provided by operating activities

RR mln

111,241

132,864

19.4%

Net cash used for capital expenditures2

RR mln

62,040

50,584

(18.5)%

Free cash flow

RR mln

49,201

82,280

67.2%

OPERATING INDICATORS

Proved natural gas reserves (SEC)3

Proved liquid hydrocarbon reserves (SEC)3

bcm

mmt

1,751

1,775

1.4%

140

143

2.0%

Total proved hydrocarbon reserves (SEC)3

mmboe

12,643

12,817

1.4%

Marketable production of natural gas

Marketable production of liquid hydrocarbons

bcm

62.13

67.91

9.3%

6,036

9,094

50.7%

Total marketable production

mmboe

456.7

521.6

14.2%

POSITIONS IN THE RUSSIAN INDUSTRY

Share in natural gas production

Share in liquid hydrocarbon production

9.7%

10.8%

1.1 p.p.

1.1%

1.7%

0.6 p.p.

1. Adjusted for the effect on disposal of interests in joint ventures.

2. Cash used for capital expenditures represents purchases of property, plant and equipment, materials for construction and capitalized

interest paid per Consolidated Statement of Cash Flows net of payments for mineral licenses and acquisition of subsidiaries.

3. Proved reserves as at the end 2014 have been adjusted to include 100% of the Yarudeyskoye field reserves (previously accounted

for on a 51% basis).

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Total proved hydrocarbon reserves (SEC), mmboe

Proved natural gas reserves (SEC), bcm

12,394

12,537

12,643

12,817

1,758

1,740

1,751

1 ,775

9,393

1,321

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

Proved developed

Proved undeveloped

Proved developed

Proved undeveloped

Marketable natural gas production, bcm

Marketable liquids production, mmt

61.2

62.1

67.9

52.9

56.5

9.1

6.0

4.8

4.1

4.3

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

Crude oil

Gas condensate

Operating cash flow, RR bln

Dividends per share, RR

132.9

111.2

88.5

71.9

75.8

13.5

10.3

7.89

6.86

6.0

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015*

* Recommendation of the Board of Directors.

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RECORD GROWTH
IN LIQUID
HYDROCARBON
PRODUCTION

Our liquid hydrocarbon production increased by a record
growth rate of 51% year-on-year. The launch of three
major gas and gas condensate fields in 2014 and 2015
enabled us to achieve high growth rates of gas condensate
production, while implementation of the oil program and
launch of the Yarudeyskoye oil filed in 2015 resulted in
higher crude oil output.

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Marketable production of liquid
hydrocarbons, mmt

LIQUID HYDROCARBON
PRODUCTION GREW BY
1.5 TIMES AS COMPARED
TO 2014

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GAS INLET AND SEPARATION SHOP

The shop separates gas from gas
condensate, extracts water, connects
and disconnects flow lines from well
pads, reduces gas pressure and injects
methanol into the flow lines.

TERMOKARSTOVOYE
FIELD

Launched in May 2015 and achieved planned
daily production levels equivalent to approxi-
mately 2.4 bcm of natural gas and 0.8 mmt of
de-ethanized gas condensate per annum as early
as June 2015.

Natural gas and gas condensate is produced
from the Jurassic layers, which were developed
by horizontal wells with horizontal lengths of up
to 2.0 km. Twenty-two production wells were
drilled at the field by year-end.

A unique feature of the field is the low-tem-
perature (minus 60°С) gas treatment process,
involving adsorptive gas dehydration, gas
expansion turbines and special low-temperature
gas condensate de-ethanization columns. This
unique treatment process doesn’t require meth-
anol and enhances extraction of liquid hydrocar-
bons, improving the field’s economic efficiency.

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Termokarstovoye field. August 2015

GAS ADSORPTION
DRYING UNIT

LOW TEMPERATURE
SEPARATION SHOP

CONDENSATE
DE-ETHANIZATION UNIT

The unit extracts water vapors from
gas by using zeolites. It enables
drying natural gas to a water dew-
point of -60°С. Once dried in the
adsorption unit, the gas flows into
the low temperature separation shop
where light hydrocarbon fractions
are extracted from marketable gas.
Adsorption drying ensures high-
quality removal of water and improves
economic efficiency by enabling
best possible extraction of light
hydrocarbons in the separation process
and requiring no methanol.

This shop extracts light hydrocarbons
from natural gas. Turbo expansion
technology ensures separation
temperatures down to minus 55-60 °С.
Cooling the gas to low temperatures
enables better condensation of liquid
hydrocarbons and improves the
efficiency of marketable gas treatment
while ensuring that all quality
requirements are met.

The unit extracts methane and
ethane fractions that remain after
low temperature separation from gas
condensate. Extracted gas is fed into
the trunk pipeline while de-ethanized
(unstable) gas condensate is delivered
through a condensate pipeline to the
Purovsky Plant for further processing.

POWER PLANT

FIRE STATION

With a capacity of 12.5 MW (five
units 2.5 MW each), the power plant
generates electricity for the field needs.

The fire station includes two fire
brigades equipped with state-of-the-
art firefighting tools and machinery.

ADMINISTRATIVE AND
TECHNICAL BUILDINGS

An office and accommodation building,
a chemical laboratory, repairs and
maintenance area, storage facilities and
technical buildings

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GEOLOGICAL EXPLORATION
AND HYDROCARBON
PRODUCTION

THE YAMAL-NENETS AUTONOMOUS

REGION OF RUSSIA ACCOUNTS FOR

APPROXIMATELY 16% OF GLOBAL

NATURAL GAS PRODUCTION AND

80% OF RUSSIAN NATURAL GAS

PRODUCTION.

As of 31 December 2015, NOVATEK’s SEC proved
reserves, including the Company’s proportionate share
in joint ventures, aggregated 12,817 mmboe, includ-
ing 1,775 bcm of natural gas and 143 mmt of liquid
hydrocarbons. Despite the continued price decline
for benchmark crude oil prices on the international
hydrocarbon market, the Company’s proved reserves
increased by 1.4% compared to year-end 20141,
and our organic proved reserve replacement rate was
148%. At year-end 2015, the Company’s reserve to
production ratio (or R/P ratio) was 25 years.

studies were done at the North-Russkiy and Doro-
govskiy license areas while exploration drilling was
performed at the North-Russkiy and Malo-Yamalskiy
areas, as well as at the Samburgskiy and Yevo-Yakhins-
kiy license areas of the Arcticgas JV.

In 2015, NOVATEK carried out commercial hydrocarbon
production at 13 fields. Marketable production from all
fields (including the Company’s share in production of
joint ventures) amounted to 521.6 mmboe, represent-
ing an increase of 14.2% over the prior year.

In 2015, we continued full-scale exploration works at
our license areas located on the Gydan Peninsula and
offshore in the Gulf of Ob to properly assess the re-
source potential of this strategically important region.
We started three-dimensional (3D) seismic studies at
the North-Obskiy offshore license area and also con-
ducted 3D seismic and exploration drilling works at the
Utrenniy license area.

Exploration activities also continued at the fields and
license areas in the Nadym-Pur-Taz region. Seismic

Total marketable production of natural gas including
the Company’s share in production of joint ventures ag-
gregated 67.91 bcm, representing 85.1% of our total
hydrocarbon output.

Marketable production of liquid hydrocarbons including
the Company’s share in production of joint ventures
totalled 9,094 thousand tons, of which 83% was un-
stable de-ethanized gas condensate and the remaining
17% consisted of crude oil.

Marketable production of natural gas, bcm

61.2

62.1

67.9

56.5

52.9

Marketable production of liquid hydrocarbons,
mmt

9.1

6.0

4.1

4.3

4.8

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

1. Proved reserves as at the end 2014 have been adjusted to include 100% of the Yarudeyskoye field reserves (previously accounted

for on a 51% basis).

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SEC proved reserves of NOVATEK as of 31 December 2015

800 – 1,700 m

“Dry” gas not containing
liquid hydrocarbons.

CENOMANIAN
LAYERS

1,700 – 3,300 m

Gas containing liquid
hydrocarbons –
“wet” gas.

VALANGINIAN
LAYERS

3,300 – 3,950 m

>4,000 m

ACHIMOV
LAYERS

JURASSIC
LAYERS

“Wet” gas with high
share of liquid
hydrocarbons. The layers
have low permeability
and require special
development techniques.

“Wet” gas with high share
of liquid hydrocarbons. The
layers are characterized by
geological and drilling
complexity due to
abnormally high pressure
zones.

years —
SEC proved
reserve life as
of 31 December
2015

USD per boe —
Reserve
Replacement
Costs in
2011–2015

USD per boe —
Lifting Costs in
2015

Structure of marketable hydrocarbon production in 2015

48% 23% 13% 8%

mmboe

Yurkha-
rovskoye

Arcticgas
(NOVATEK’s
share)

East-
Tarkosalin-
skoye

Nortgas
(NOVATEK’s
share)

Khanchey-
skoye

Other fields

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FIRST AND SECOND SEPARATION
UNITS

Used for a three-phase separation of
oil from produced water and associated
petroleum gas. The first unit allows to
simultaneously separate oil from gas
and partially dehydrate crude oil. After
this process the water content in oil
shall not exceed 1%. The second unit
dehydrates crude oil to 0.1% water
content.

TERMINAL SEPARATION UNIT

OIL TANKS

Designed for final “hot” oil stripping
until desired values of saturated vapor
pressure are reached and associated gas
is scrubbed.

Six tanks with 5,000 cubic meters
capacity each.

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Yarudeyskoye oil field. February 2015

MMT PER ANNUM —
CRUDE OIL PRODUCTION
CAPACITY

OIL PUMPING STATION FOR
EXTERNAL TRANSPORTATION

METERING
STATION

CRUDE OIL
HEATERS

Consists of four electrically driven
pumping units; designed to transfer
treated oil to the trunk pipeline.

Used for automated measurement of
the oil parameters and volume.

Used to heat crude oil to 45°С. The
heated crude oil is then transferred to
the second separation unit.

YARUDEYSKOE OIL FIELD

Launched in the beginning of December 2015. The
field is developed by the Yargeo JV (NOVATEK holds
a 51% share). The field ramped up to its full pro-
duction capacity of 3.5 million tons per annum, or
9,700 tons of crude oil per day, by the end of De-
cember, which is a very short period of time for full
ramp up of a crude oil project. Only 21 wells were
required to achieve these production flow rates. As
of the end 2015, a total of 39 wells were drilled at
the field. The field’s infrastructure also includes a
central oil treatment facility, oil and gas gathering
systems, a pumping station, and gas and crude oil
pipelines. After treatment at the field, the

crude oil is transported via our crude oil pipeline
(approximately 350 km long) to Purpe, where it is
injected into the trunk pipeline system operated by
Transneft.

The Yarudeyskoye field is the largest oil asset in our
portfolio and is characterized by unique geology,
which combined with the application of state-of-
the-art drilling and completion technologies allowed
us to achieve the average production flow rate of
more than 400 tons per day per well, with the
potential flow rate of one of our most prolific wells
exceeding 1,200 tons per day.

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Gas treatment facility

GAS INLET AND
SEPARATION SHOP

GAS AND CONDENSATE
TREATMENT SHOPS

METHANOL RECEIVING
AND INJECTION UNIT

COMPRESSOR
STATION

The shop is used to connect
and disconnect flow lines
from well pads, inject
methanol into the flow lines,
reduce gas pressure, and
effect gas pre-separation by
removing liquid droplets and
condensate.

The shops separate gas
from liquid droplets and
condensate, dehydrate
gas by means of low
temperature separation,
separate condensate from
water-methanol mixture,
and degasify condensate.

The unit receives, stores and
supplies methanol to well
pads, flow lines, gas inlet
and separation shop, gas and
condensate treatment shops.

The station increases the
pressure of gas flowing from
the de-ethanization unit.

YARO-YAKHINSKOYE
FIELD

Commissioned in April 2015 and reached its
design capacity of 7.7 bcm of natural gas and more
than 1.3 mmt of de-ethanized gas condensate
on an annualized basis in June 2015. The field
produces from the Valanginian layers. As of the
end 2015, a total of 38 wells were drilled with
horizontal sections of up to 1 km and initial daily
flow rate of up to 1.2 mmcm of gas and 270 tons
of gas condensate.

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Gas condensate de-ethanization facility

CONDENSATE BUFFER
TANKS AND PUMPS SHOP

CONDENSATE DE-
ETHANIZATION SHOP

DEETHANIZATION
COLUMNS

The shop performs
automated metering of de-
ethanized gas condensate,
injects it into trunk pipeline
and keeps an inventory of
de-ethanized gas condensate
required for uninterrupted
operation of pumps.

The shop extracts methane-
ethane fractions from gas
condensate. Extracted
gas is fed into the trunk
pipeline, while de-ethanized
(unstable) gas condensate
is delivered through a
condensate pipeline to the
Purovsky Plant for further
processing.

Distillation columns (de-
ethanization columns) with
trays fractionate condensate
into de-ethanization gas and
de-ethanized condensate.
Hydrocarbons mixture is
heated in a furnace and
then flows into the columns,
where vapors enriched
with low-boiling cuts rise

while heavier cuts descend
through trays. As a result,
methane and ethane
(de-ethanization gas) are
separated from de-ethanized
condensate, the final
product of de-ethanization.

BCM PER ANNUM —
NATURAL GAS
PRODUCTION CAPACITY

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Yaro-Yakhinskoye field. August 2015

FULL
UTILIZATION
OF PROCESSING
CAPACITIES

Due to growth in gas condensate production volumes, in
June 2015 the Purovsky Plant reached full utilization of its
processing capacity of more than twelve (12) mmt on an
annualized basis. Stable gas condensate production growth
at the Purovsky Plant enabled us to fully utilize processing
capacity of the Ust-Luga Complex.

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Output of the Purovsky Plant in 2015

11.9 MMT –
MARKETABLE PRODUCT
OUTPUT OF THE
PUROVSKY PLANT
IN 2015

N
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U
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THE UST-LUGA
COMPLEX

The Ust-Luga Complex fractionates stable gas
condensate into light and heavy naphtha, jet fuel,
diesel, and fuel oil. In March 2015, the facility
reached its full processing capacity of approxi-
mately 7 mmt on an annualized basis.

High value-added petroleum products produced
at the Ust-Luga Complex have a significant
positive impact on the profitability of our liquid
hydrocarbon sales and the Company’s cash flow
generation.

FINISHED PRODUCTS
AND FEEDSTOCK
STORAGE TANKS

Twenty one vertical steel
tanks equipped with
pontoons with the total
capacity of 520,000 cubic
meters.
Height — from 15 to 18 m.
Diameter — from 21 to 46 m.

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LOADING BERTHS NO.1
AND NO.2

METERING STATION

AIR COMPRESSION
STATION

Each berth has 8 standers,
7 of which are 400 mm in
diameter and 1 stander
designed for loading heating
oil, 300 mm in diameter.
The maximum cargo
deadweight is 142,000 tons.
Maximum speed of loading
– 8,000 cm per hour. Water
depth at the berths is 17 m.

Includes individual metering
lines for each product.
Performance of a single
line is from 400 to 8,000
cubic meters per hour (light
products), and from 200 to
2,400 cubic meters per hour
(dark products).

The station compresses air
used to control pneumatic
valves of the plant.

The Ust-Luga Complex. August 2015

INCREASE
IN STABLE GAS
CONDENSATE
PROCESSING
VOLUMES

LPG TANKS

steam-stripping columns
for jet and diesel fractions,
stabilization column), three
blocks of furnaces, heat
exchangers, pumps and
tanks.

The tanks store liquefied
petroleum gases used as fuel
for the Complex.

FRACTIONATION
FACILITY

Used for fractionation of
stable gas condensate.
Consists of two processing
trains with capacity of about
3.5 million tons per annum
each. Each train is composed
of five distillation columns
(stripping column for gas
condensate, atmospheric
distillation column, two

CLOSED FIRE FLARING
SYSTEM

Used for disposal of
technological gases of the
Complex and loading berths.
The system has a large
firing area and allows to
minimize harmful emissions,
it meets the most stringent
environmental requirements.
Closed fire allows to minimize
the land area used by the unit.
The diameter of the flaring
system is 15 m, height – 43 m.

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UST-LUGA STABLE
GAS CONDENSATE
FRACTIONATION COMPLEX

IN 2015, THE UST-LUGA COMPLEX

REACHED FULL UTILIZATION OF

ITS PROCESSING CAPACITY OF

APPROXIMATELY SEVEN (7) MMT

ON AN ANNUALIZED BASIS. HIGH

VALUE-ADDED PRODUCTS PRODUCED

AT THE UST-LUGA COMPLEX HAVE A

SIGNIFICANT POSITIVE IMPACT ON THE

COMPANY’S CASH FLOW GENERATION.

Stable gas condensate
processing volumes, mt

The Gas Condensate Fractionation and Transshipment
Complex located at the port of Ust-Luga on the Baltic
Sea processes stable gas condensate into high val-
ue-added products like light and heavy naphtha, jet
fuel, fuel oil and gasoil. Finished products are shipped
to international markets and stable gas condensate
is transshipped to exports. The Complex expands our
vertically integrated chain, positively impacts the unit
profitability of our liquids sales, widens the variety of
products and allows to diversify our customer base.

4,706

1,873

6,727

2013

2014

2015

Commercial output, mt

Heavy
naphtha

Light
naphtha

Fuel oil

Jet fuel

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2,101

2,006

1,898

1,425

1,183

949

542

472

462

Gasoil

179

2014

2015

PUROVSKY GAS
CONDENSATE
STABILIZATION PLANT

AS A RESULT OF LAUNCHES OF NEW

FIELDS, IN JUNE 2015 THE PUROVSKY

PLANT REACHED FULL UTILIZATION

OF ITS PROCESSING CAPACITIES

AMOUNTING TO MORE THAN 12 MMT

OF UNSTABLE GAS CONDENSATE ON AN

ANNUALIZED BASIS.

The Purovsky Plant is the integral element in our
vertically-integrated production value chain that
enables us to process all the volumes of de-ethanized
gas condensate produced at our field into stable gas
condensate and light hydrocarbons (feedstock for LPG
production). Most of the stable gas condensate vol-
umes are delivered by rail to the Ust-Luga Complex for
further processing, light hydrocarbons are delivered by
pipeline to SIBUR’s Tobolsk Petrochemical Complex for
further processing.

Unstable gas condensate processing volumes, mt

12,021

6,600

3,869

4,034

4,862

2011 2012 2013 2014 2015

Commercial output, mt

Stable
gas
condensate

9,664

5,049

Light hydro-
carbons
and LPG

2,228

1,371

LEGEND

2014

2015

Railway transportation to Ust-Luga

Sea transportation from Ust-Luga

Light hydrocarbons transportation by pipeline

N
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Transportation by condensate pipeline

31
31

GROWTH
OF LIQUID
HYDROCARBONS
SHARE IN
REVENUES

Due to significant growth in liquid hydrocarbon production
and processing volumes, their share in our total revenues
reached 53%, representing an increase of 18 percentage
points as compared to 2014. This share exceeded 50% for
the first time in the Company`s corporate history.

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Liquid hydrocarbon sales volumes, mmt

82% (OR BY 5.8 MMT)
INCREASE IN THE SALES
VOLUMES OF LIQUID
HYDROCARBONS IN 2015

N
O
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T
A
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A
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NATURAL GAS
SALES

RUSSIA

NOVATEK PLAYS AN IMPORTANT ROLE IN

SUPPLIES OF NATURAL GAS TO THE RUSSIAN

DOMESTIC MARKET. DURING 2015, WE SUPPLIED

NATURAL GAS TO 33 CONSUMING REGIONS OF

THE RUSSIAN FEDERATION AND CONTRIBUTED

APPROXIMATELY 20% TO THE OVERALL NATURAL

GAS SUPPLIES TO THE DOMESTIC MARKET.

Our total revenues from natural gas sales totalled RR
222.2 billion, which is 3.6 % lower as compared to 2014.
The negative effect from the lower sales volumes on our
total revenues was partially offset by the growth in regu-
lated domestic tariffs by 7.5 % effective from 1 July 2015.
Our net revenues from gas sales (excluding transporta-
tion costs) demonstrated a minor decline of 1.3 % as gas
transportation tariff for independent producers increased
from 1 July 2015 by only 2 %.

During the reporting year, NOVATEK concluded several
major domestic natural gas supply contracts. In particular,
five-year contracts were signed with NLMK Group and
three-year contract was concluded with Enel Russia. We
also extended our gas supply contract with Mosenergo.

2015 natural gas sales volumes breakdown by customers

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bcm

61%

24%

Power generation
companies

Large industrial
consumers

Wholesale
traders, ex-field

Households

Others

Natural gas sales volumes, bcm

64.2

67.2

94%

89%

62.5

93%

58.9

53.7

69%

55%

2011 2012 2013 2014 2015

Share of end
customers

LEGEND

Main regions (with sales volumes
above 1 bcm each)

Other regions of gas sales
(about 3.0 bcm in 2015)

2015 natural gas sales volumes, bcm

% of total gas sales by NOVATEK

N
O
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A
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N
A
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U
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LIQUID
HYDROCARBON SALES

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 WELL AS

DEVELOPING AND MAINTAINING OUR OWN

LOGISTICS INFRASTRUCTURE.

2015 liquids sales volumes breakdown, mt

99%

47%

53%

USA

Ust-Luga products

Stable gas condensate

65%

35%

76%

24%

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Crude oil

LPG and light hydrocarbons

Domestic market

Exports

European market

Norway

Sweden

Spain

Netherlands

Denmark

Belgium

Germany

Finland

Estonia

Lithuania

Poland

RUSSIA

Italy

Slovakia

Hungary

Russia

Japan

South Korea

Taiwan

China

Singapore

Malaysia

Oman

Romania

Turkey

Total sales volumes of liquid hydrocarbons in 2015
aggregated 12,888 thousand tons, representing an
82 % increase over 2014 volumes. The record high
growth rate is due to higher gas condensate produc-
tion volumes and higher processing volumes at the
Purovsky Plant and the Ust-Luga Complex, as well as
to increase in crude oil production. Our export sales
of liquids grew by 70 % year-on-year to 9,004 thou-
sand tons.

High value-added petroleum products from the
Ust-Luga Complex accounted for 52 % share of our
overall liquids sales volumes. Export sales of sta-
ble gas condensate were resumed in March 2015
after the Ust-Luga Complex reached full capacity
utilization.

Our liquids sales revenues increased to RR 249.8
billion, or by 2 times as compared to 2014, mainly
driven by much higher sales volumes as well as the
growth in average prices in rouble terms due to higher
US dollar to Russian rouble exchange rate and lower
export duty rates. Liquid revenues exceeded reve-
nues derived from natural gas for the first time in our
corporate history.

LEGEND

Liquids export countries

Russia

N
O
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A
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N
A
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H
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Y
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I
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U
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SIGNIFICANT
PROGRESS AT
THE YAMAL LNG
PROJECT

At year-end 2015, 41 production wells were drilled at the
South-Tambeyskoye field, representing approximately 70%
of the well stock required to launch the first production
train of the LNG plant. Long-lead items, including the LNG
plant modules, began arriving to Sabetta in September
2015. Among the items delivered as of the year end
there is full equipment package for compressor lines of
the plant’s first and second trains, the cryogenic heat
exchanger, the first seven plant modules, a number of
pipe rack modules, power plant turbines and other pieces
of equipment. Installation of the equipment on prepared
foundations started.

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Completion of the first LNG train

BY 30 P.P. INCREASED
COMPLETION OF THE
FIRST LNG TRAIN IN 2015

N
O
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A
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F
S
N
A
R
T

H
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Y
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A
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I
A
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S
U
S

PLANT BACK-UP HEATER

POWER PLANT

Capacity - 85 MW.
The back-up heater
will be used to ensure
uninterrupted operations of
the heating, ventilation and
air conditioning systems of
the LNG plant.

Capacity - 376 MW (eight
gas turbine units of 47 MW
capacity each).
Will be used for power and
heat generation for the LNG
plant. Will be fueled by pre-
treated gas produced at the
field.

MAIN ELECTRICAL
SUBSTATION

Is a part of the power
transmission and
distribution system.

Length – 89 m; width – 35
m; height – 15 m.

WESTERN
INTERCONNECTING PIPE
RACK

Designed for gas
transportation from inlet
facilities to the technological
trains of the LNG plant.

The pipe rack consists of
modules bearing pipelines,
communication cables and
power lines.

YAMAL LNG
PROJECT PLAN

1. Plant back-up Heater
2. Power Plant
3. Main electrical substation
4. West Interconnecting Pipe Rack
5. SPP Assembly Shop
6. Sea Port
7. LNG tanks
8. Train 3
9. Plant support facilities
10. Train 2
11. Boil-off gas compressor
12. Inlet facilities
13. Train 1
14. Condensate storage area
15. Living area and support facilities
16. Flare system
17. Fractionation facility
18. Refrigerant storage area
19. Northwestern ice barrier
20. Southeastern ice barrier
21. LNG loading berth No. 1
22. LNG and stable gas condensate

loading berth No. 2

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Yamal LNG. February 2016

SPP ASSEMBLY SHOP

SEA PORT

LNG TANKS

The shop is used for
the assembly of site-
prefabricated pipe rack
modules (SPP) which
are then transported and
installed at their design
location.

The port is used for the
year-round delivery of
construction cargo, steel
structures and equipment
for the LNG Plant, and will
be used for shipment by
sea tankers of LNG and gas
condensate to exports.

Four tanks with 160,000
cubic meters capacity each.
Diameter – 90 m; height –
50 m.
Will be used for storing
LNG at minus 164°C before
further loading into LNG
carriers.

Two tanks for the first
liquefaction Train, one tank
for each of the second and
third liquefaction trains.

Administrative area
of the Sea Port

Plant administrative area

Sea Port

LNG plant

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MODULAR APPROACH

Modular approach was selected for the LNG
plant construction. The LNG plant will consist of
173 large plant modules with the weight ranging
from 85 tons to 6,400 tons. The modules are
built at contractors` yards and delivered to the
Sabetta construction site by sea.

In September 2015 the first module was deliv-
ered to Sabetta which is a part of the pipe rack
of the first technological train. The module`s
height – 37 m, width – 41 m, length – 27 m,
weight – 1,440 tons.

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Yamal LNG. March 2016

PILING FOUNDATION FOR THE
INLET FACILITIES

The inlet facilities will be used for gas
preparation for the LNG plant and gas
condensate stabilization for export
deliveries.

MIXED/PROPANE REFRIGERANT
COMPRESSORS OF THE FIRST
TRAIN

A key element of the liquefaction
process – used for compression and
transmission of the refrigerant during
the process of natural gas cooling and
liquefaction.

SOUTHEASTERN ICE
BARRIER

The ice barrier is part of the Sabetta
sea port and is designed for protection
of the berths and port operations
from the negative impact of ice. A
loading pipe rack is being constructed
on the Southeastern ice barrier which is
designed for transporting of commercial
LNG and stable gas condensate from
the reservoirs to the tanker loading
berths.

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YAMAL
LNG PROJECT

AS OF THE END 2015,

CONSTRUCTION OF THE LNG

PLANT’S FIRST TRAIN UNDER

YAMAL LNG PROJECT WAS MORE

THAN 56 % COMPLETE

Shareholders of Yamal LNG as of 31.12.15

60%*

20%

NOVATEK

СNPC

Total

Yamal LNG is the flagship project in NOVATEK asset
portfolio and is considered a transformational move for
the Company into the international gas market. Yamal
LNG envisages the construction of an LNG liquefaction
plant with annual capacity of 16.5 million tons per
annum, utilizing the prolific feedstock resources of the
South-Tambeyskoye field located in the Northeast of
the Yamal Peninsula. The launch of the first LNG train
is planned for 2017.

As of 31 December 2015, the South-Tambeyskoye
field was estimated to contain 522 bcm of proved nat-
ural gas reserves and 15 mmt of proved liquid hydro-
carbon reserves, under the SEC reserves methodology.
The field development plan provides for the drilling
of 208 wells at 19 well drilling pads, with production
potential exceeding 27 bcm of natural gas and one (1)
million tons of stable gas condensate per annum.

At year-end 2015, 41 production wells were drilled
at the South-Tambeyskoye field, representing approx-
imately 70% of the well stock required to launch the
first production train of the LNG plant.

The LNG plant will consist of 173 plant modules with
the weight ranging from 85 tons to 6,400 tons. The
modules are built at contractors` yards and delivered
to the Sabetta construction site by sea. Approximately
25,000 people were involved in modules fabrication for
the Yamal LNG project at different construction yards.

The plant’s first module was delivered to the site in
September 2015, and delivery of other long-lead items
also started during the past year. Among the items
delivered to the Sabetta construction site by the end
of the year there were seven (7) LNG plant modules,
a cryogenic heat exchanger (key element of gas lique-
faction technology) and the full equipment package for
compressor lines of the plant’s first and second trains,
boil-off gas compressors, a backup heater, 46 packag-
es of steel work pipe racks, six (6) packages of piping
spools, power plant turbines and other equipment. The
unloading operations for oversized equipment in the
Sabetta port and its transportation to the installation
site were successfully streamlined.

By the end of the reporting year, over 20,000 foun-
dation piles for the LNG plant were installed, over
2,000 pile caps were installed on the piles, and more
than 17,000 cubic meters of concrete was poured for
the foundation. Compressor equipment for the first
train, seven (7) modules and the backup heater were
installed on the prepared concrete foundations, as
well as over 6,000 tons of steel work pipe racks. The
construction of a power plant with a rated capacity of
376 MW was underway: four (4) gas turbine units
with a capacity of 47 MW each were installed on the
concrete foundations. The outer concrete walls were
completed as well as the installation of the roof on the
project’s four (4) LNG tanks, and the work on installing
the internal multi-layer walls was underway.

* Binding definitive agreements were signed in December 2015 for selling a 9.9% equity stake

in the Yamal LNG project to China’s Silk Road Fund.

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

bcm
of gas

mmt
of liquid
hydrocarbons

Possible routes of LNG transportation from the Yamal peninsula

LEGEND

Latin America

Europe

Asian-Pacific Countries
(summer route)

Asian-Pacific Countries
(winter route)

Number of travel days

Transshipment in Europe

Port of Sabetta

South-Tambeyskoye field

Other NOVATEK license areas

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HIGH LEVEL OF
ENVIRONMENTAL
AND SOCIAL
RESPONSIBILITY

NOVATEK adheres to the highest standards of social
responsibility and is committed to environmental integrity
and industrial safety as well as supporting the regional
development in the Far North of Russia, where Company`s
core operational assets are located.

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Social Investments and Expenses on HSE
in 2015

RR 3.8 BLN OF
SOCIAL INVESTMENTS
AND EXPENSES ON HSE
IN 2015

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HSE AND
SOCIAL
RESPONSIBILITY

Environmental Expenditures
in 2015

RR mln

31%
Soil protection

28%
Enviromental protection against
production and consumption
waste

16%
Compensation payments

9%
Protection and use of water
resources

9%
Environmental monitoring and
evaluation of the background

5%
Subsurface protection

1%
Environmental management

1%
Atmospheric air protection

RR mln expenses on
Occupational Health and
Safety in 2015

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.

NOVATEK’s core producing as-
sets are located in the Far North,
a harsh Arctic region with vast
mineral resources and a fragile
and vulnerable eco-environment.
Throughout all of its operations
the Company is committed to
environment protection. In 2015
environmental expenditures of
NOVATEK, its subsidiaries and joint
ventures aggregated RR 776 mln.

NOVATEK has implemented a
corporate-wide Health, Safety
and Environmental (“HSE”) Policy
and all of the Company’s principal
subsidiaries and joint ventures
operate an Integrated Health,
Safety and Environment Man-
agement System (IMS), which
comply with the international
ISO 14001:2004 and OHSAS
18001:2007 standards. In 2015,
NOVATEK successfully passed
another IMS compliance audit.

As part of our HSE activities we
pay special attention to preventive
measures. In particular, the envi-
ronmental aspects are taken into
account in designing new produc-
tion 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 drilling waste treatment
units, sets up new sewage treat-
ment facilities and revamps older
ones.

All of NOVATEK’s subsidiaries and
joint ventures conduct periodic
safety training and briefings;
personnel training and develop-
ment programs are offered, among
others, by specialized training
centers; knowledge assessment is
implemented on a regular basis.

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NOVATEK`s personnel structure as of 31.12.15

Social Expenditures
on employees in 2015

7,265 people —
headcount of NOVATEK and its
subsidiaries as of 31.12.15

9%
Administrative personnel

6%
Power supply

40%
Exploration and production

27%
Transportation and marketing

18%
Processing

Workplace certification includes
evaluating measures to control
the harmful impact of hazardous
factors in the workplace.

The Company’s human resource
management system is based
on the principles of fairness,
respect, equal opportunities for

professional development, dia-
logue between management and
employees, as well as continu-
ous, comprehensive training and
development opportunities for the
Company’s employees at all levels.

RR mln

46%
Repayable Financial Aid Program

27%
Targeted Compensation and Socially
Important Payments

6%
Voluntary Medical Insurance

5%
State Guarantees Support Program

5%
Health Resort Treatment and
Rehabilitation

5%
Culture and sports

3%
Pension Program

2%
NOVATEK-Veteran Program

1%
Others

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

0.9

0.5

0.4

0.3

2011 2012 2013 2014 2015

comprehensive inspections
of NOVATEK subsidiaries
for occupational health,
industrial, fire and
environmental safety
requirements in 2015

operating workplaces were
certified in 2015

employees underwent HSE
training courses in 2015

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MANAGEMENT AND
CORPORATE GOVERNANCE

THE BOARD OF DIRECTORS MEMBERSHIP AS OF 31 DECEMBER 2015

THE COMPANY HAS ESTABLISHED AN EFFECTIVE

AND TRANSPARENT SYSTEM 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 COMMITTEES, AND THE MANAGEMENT

BOARD, AS WELL AS THE SYSTEM OF INTERNAL

CONTROL AND AUDIT BODIES.

INDEPENDENT

BOARD
*

MEMBERS

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MR. ROBERT CASTAIGNE
Born in 1946

• Independent Director
• Member of the Audit Committee
• Member of the Remuneration
and Nomination Committee

MR. VICTOR P. ORLOV
Born in 1940

MR. ANDREI V. SHARONOV
Born in 1964

• Independent Director
• Chairman of the Remuneration
and Nomination Committee

• Independent Director
• Chairman of the Audit Committee
• Member of the Remuneration and

• Member of the Audit Committee

Nomination Committee

* Independent Director as of 31 December 2015 in accordance with the Corporate Governance Code recommended by the

Central Bank of Russia and the UK Combined Code on Corporate Governance.

MR. ALEXANDER E. NATALENKO
Born in 1946

MR. LEONID V. MIKHELSON
Born in 1955

MR. ANDREI I. AKIMOV
Born in 1953

• Chairman of the Board of Directors
• Chairman of the Strategy

Committee

• Chairman of the Management

• Member of the Strategy

Board

Committee

DR. BURCKHARD BERGMANN
Born in 1943

MR. MICHAEL BORRELL
Born in 1962

MR. GENNADY N. TIMCHENKO
Born in 1952

• Member of the Strategy Committee

• Member of the Strategy

• Member of the Strategy Committee

Committee

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REVIEW
OF OPERATING
RESULTS

LICENSES

HYDROCARBON RESERVES

NOVATEK's fields and license areas are located in
the YNAO of the Russian Federation, which is one
of the world’s largest natural gas producing regions
and accounts for approximately 80 % of Russian
natural gas production and 16 % of global natural
gas production. The concentration of the Company’s
producing and prospective fields, license areas and
processing facilities in this prolific gas-producing region
combined with the Region’s vast oil and gas infra-
structure have allowed NOVATEK to minimize the risks
associated with developing its assets and expanding
its hydrocarbon resource base. The Company has over
20 years of operational experience working in the
YNAO, enabling us to effectively 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 2015, our subsidiaries and joint ventures
held 31 licenses for fields and license areas, of which
29 are classified as either production or combined
exploration and production licenses and two (2) are
classified as exploration licenses. The duration of
licenses for our core fields exceeds 15 years: the
license for the Yurkharovskoye field is valid until 2034,
the East-Tarkosalinskoye field expires in 2043, the
South-Tambeyskoye field in 2045, and the Samburgsky
license area of Arcticgas in 2034. The license for the
Termokarstovoye field was extended to 2097 in 2015
(before extension the license was valid through 2021),
while the license for the Olimpiysky area is now valid
through 2059 (previously through 2026).

NOVATEK is strictly observing all of its license obliga-
tions pursuant to current Russian legislation, and con-
ducts continuous monitoring of license tenders in order
to expand its resource base in strategically important
regions.

Most of the Company’s reserves are located onshore
or can be developed from onshore locations and are
attributed to the conventional hydrocarbon categories
(capable of being exploited using conventional technol-
ogies, 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 MacNaughton” (“D&M”), under both the SEC and
PRMS reserve reporting standards.

As of 31 December 2015, NOVATEK’s SEC proved
reserves, including the Company’s proportionate share
in joint ventures, aggregated 12,817 mmboe, includ-
ing 1,775 bcm of natural gas and 143 mmt of liquid
hydrocarbons. Despite the continued price decline
for benchmark crude oil prices on the international
hydrocarbon market, the Company’s proved reserves
increased by 1.4 % compared to year-end 2014*, and
our reserve replacement rate was 133 %. At year-end
2015, the Company’s reserve to production ratio (or
R / P ratio) was 25 years.

The reserves growth during the reporting period
was affected by the decrease in the Company’s
proportional share in the Arcticgas joint venture
from 54.9 % as at year-end 2014 to 53.3 % as at
31 December 2015 resulting from the execution
of an agreement with Gazprom Neft on the gradual
alignment of the ownership structure in Arcticgas
to parity. Excluding this effect, the proved reserves
grew by 2.0 %, with an organic reserve replacement
of 148 % due to successful exploration works and
drilling, which amounted to reserves addition of
774 million boe, inclusive of 2015 production.
The primary contributors to additions were our
successful ongoing exploration and development

* Proved reserves as at the end 2014 have been adjusted to include 100% of the Yarudeyskoye field reserves (previously accounted

for on a 51% basis).

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efforts at the Utrenneye, the North-Russkoye and the
South-Tambeskoye fields, as well as the Urengoyskoye
field within the Samburgsky license area of Arcticgas.

represents an increase of 48 mmboe compared with
year-end 2014.

Under the PRMS reserves reporting standards, the
Company’s total proved plus probable reserves, includ-
ing our proportionate share in joint ventures, totalled
23,117 mmboe, which includes 3,152 bcm of natural
gas and 298 mln tons of liquid hydrocarbons, and

The high quality of the reserve base enables NOVATEK
to maintain its competitive position as one of the low-
est cost producers in the global oil and gas industry.
Our average 2015 and five-year (2011-2015) reserve
replacement costs amounted to RR 127 (USD 2.1) per
boe and RR 78 (USD 2.2) per boe, respectively.

Proved reserves under the SEC standards as of 31 December 2015
(based on our equity ownership interest in the respective fields) and duration of licenses

Field / license area

Ownership

Duration of license,
year

Gas reserves,
bcm

Liquids reserves,
mln tons

TOTAL RESERVES

Yurkharovskoye

South-Tambeyskoye

Utrenneye

100%

60%

100%

Urengoyskoye («Arcticgas»)

53.3%

East-Tarkosalinskoye

Geofizicheskoye

North-Urengoyskoye

Yaro-Yakhinskoye

North-Russkoe

Samburgskoye

North-Chaselskoye

Khancheyskoye

Olimpiyskiy license area

East-Tazovskoye

Termokarstovoye

100%

50%

53.3%

100%

53.3%

100%

51%

Yarudeyskoye

51%
(100% of reserves)

Other

1,774.7

142.6

2034

2045

2031

2034

2043

2034

2038

2034

2031

2034

the lifetime
of the field

2044

2059

2033

2097

2029

321.3

312.9

307.0

180.6

148.8

125.6

93.8

79.5

52.6

30.2

28.9

24.0

21.8

17.1

15.2

6.5

8.9

14.0

9.2

11.3

39.8

18.6

0.4

8.9

7.5

2.5

4.1

1.4

2.6

2.5

4.3

12.8

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0.2 53

GEOLOGICAL EXPLORATION

NOVATEK aims to expand its resource base through
geological exploration at fields and license areas not
only in close proximity to existing transportation
and production infrastructure, but also in new po-
tentially prospective hydrocarbon areas. The Com-
pany ensures the efficiency of geological exploration
work by deploying state-of-the-art technologies
and relying on the experience and expertise of the
specialists in our geology department, and the
Company’s Scientific and Technical Center located
in Tyumen.

The Company uses a systematic and comprehensive
approach to exploration and development of its fields
and license areas, beginning with the collection and
interpretation of seismic data to the creation of dy-
namic field models for the placement of exploration
and production wells. We employ modern geological
and hydrodynamic modelling as well as new well
drilling and completion techniques to maximize the
ultimate recovery of hydrocarbons in a cost effective
manner.

In 2015, we continued full-scale exploration works
at our license areas located on the Gydan Peninsula
and offshore in the Gulf of Ob to properly assess the
resource potential of this strategically important region.
We started three-dimensional (3D) seismic studies at
the North-Obskiy offshore license area and also con-
ducted 3D seismic and exploration drilling works at the
Utrenniy license area.

Exploration activities also continued at the fields and
license areas in the Nadym-Pur-Taz region. Seismic
studies were done at the North-Russkiy and Doro-
govskiy license areas while exploration drilling was
performed at the North-Russkiy and Malo-Yamalskiy
areas, as well as at the Samburgskiy and Yevo-
Yakhinskiy license areas of the Arcticgas JV.

Exploration works

We completed 1,004 square km of 3D seismic works
in 2015. Exploration drilling (including drilling works
at our joint ventures) totalled 15.2 thousand meters
as well as completing the construction of five (5)
prospecting and exploration wells. As a result, nine (9)
new gas deposits were discovered at the Utrenneye,
North-Russkoye and North-Chaselskoye fields and
wet gas reserves were added at the Achimov deposits
(very rich in gas condensate) of the Urengoyskoye field
within the Samburgskiy and Yevo-Yakhinskiy license
areas.

FIELD DEVELOPMENT

During 2015, NOVATEK’s subsidiaries spent RR
56.6 billion on the development of hydrocarbon reserves
as part of our capital investment program in order to
achieve sustainable hydrocarbon production growth.

Production drilling in 2015, including joint ventures,
reached 336 thousand meters, representing 44 % less
production drilling than in 2014. The decrease was
anticipated due to the successful completion of the
main drilling programs at the North-Urengoyskoye and
Termokarstovoye fields, as well as a planned decline in
drilling volumes at the Arcticgas fields. Drilling volumes
increased at the Yurkharovskoye, Yarudeyskoye and
South-Tambeyskoye fields.

A total of 107 wells were commissioned into opera-
tions, including 49 gas and gas condensate wells and
58 oil wells.

New facilities commissioned at producing fields

A new 2.5 MW gas turbine power plant was launched
at the Yurkharovskoye field improving the field’s relia-
bility of power supply and achieving energy independ-
ence. We also actively developed the Cenomanian layer
at the Yurkharovskoye field — eight (8) new produc-
tion wells were drilled with average length of three

3D SEISMIC

Subsidiaries

Joint ventures

EXPLORATION DRILLING

Subsidiaries

Joint ventures

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Units

2014

square km

th. m

828

730

26.3

19.3

7.0

2015

1,004

Change

21.3%

37.5%

(100.0)%

15.2

(42.2)%

9.6

5.6

(50.2)%

(20.0)%

(3) km and vertical deviation of 2.4 km, achieving maxi-
mum initial flow rates of up to 2.2 mmcm of natural gas
per day. As part of the Cenomanian development pro-
gram we carried out construction of a 48 MW booster
compressor station (BCS) during the reporting year.

At the East-Tarkosalinskoye field we continued our
intensive drilling program by targeting the field’s
crude oil layers with 23 oil production wells completed
during 2015. A pumping station with an initial water
separation unit was launched to improve efficiency of
intra-field oil transportation and treatment. Second
phase of a BCS with 7.2 MW capacity was launched at
the central part of the field.

A crude oil treatment facility was commissioned at the
Khancheyskoye field as part of the field’s oil develop-
ment program. At year-end, 40 production wells were
in operation at the field, including producing crude oil
from 10 wells.

A condensate de-ethanization facility was commissioned
at the Western Dome of the North-Urengoyskoye
field to optimize the field’s production activities as
we previously utilized Gazprom’s de-ethanization
facilities. The launching our own de-ethanization
facility lowered processing costs and increased
product output. Two (2) production wells were
drilled at the field in 2015.

New fields commissioned in 2015

In April, we commissioned the Yaro-Yakhinskoye oil
and gas condensate field (developed by Arcticgas, a
joint venture between NOVATEK and Gazprom Neft).
Natural gas and gas condensate is produced from the
field’s Valanginian layers. As of the end 2015, a total
of 38 wet gas production wells were drilled at the field.
The wells have horizontal sections of up to one km long
and their initial daily flow rate is up to 1.2 mmcm of
gas and 270 tons of gas condensate. The field’s infra-
structure also includes a gas gathering network, a gas
treatment unit, and a gas condensate de-ethanization
facility. The field reached its design production capacity
of approximately 7.7 bcm of natural gas and more than
1.3 mmt of de-ethanized gas condensate on an annual-
ized basis in June 2015.

In May, the Termokarstovoye gas condensate field
was successfully launched ahead of schedule and is
developed by Terneftegas, a joint venture between
NOVATEK and TOTAL. The field achieved planned daily
production levels equivalent to approximately 2.4
bcm of natural gas and 0.8 mmt of de-ethanized gas
condensate per annum as early as June 2015. Nat-
ural gas and gas condensate are produced from the
Jurassic layers, which were developed by horizontal
wells with horizontal lengths of 1.2 to 2.0 km, with

initial daily flow rates of up to 700 mcm of natural
gas and 240 tons of de-ethanized gas condensate.
Twenty-two production wells were drilled at the field
by year-end. The field infrastructure includes a gas
gathering network, a gas treatment unit with adsorp-
tive gas dehydration setting, as well as a gas conden-
sate de-ethanization facility. A unique feature of the
field is the low-temperature (-60°С) gas treatment
process, involving adsorptive gas dehydration, gas
expansion turbines and special low-temperature gas
condensate de-ethanization columns. This unique
treatment process doesn’t require methanol and
enhances extraction of liquid hydrocarbons, improving
the field’s economic efficiency.

In early December, commercial production started at
the Yarudeyskoye oil field (NOVATEK holds a 51 %
share). The field ramped up to its full production
capacity of approximately 3.5 million tons per annum,
or 9,700 tons per day by the end of 2015, which is a
very short period of time for full ramp up of a crude oil
project. Only 21 wells were required to achieve these
production flow rates. As of the end 2015, a total of
39 oil production wells were drilled at the field. The
field’s infrastructure also includes a central oil treat-
ment facility, oil and gas gathering systems, a pump-
ing station, and gas and crude oil pipelines. After
treatment at the field, the crude oil is transported via
our crude oil pipeline (approximately 350 km long) to
Purpe, where it is injected into the trunk pipeline sys-
tem operated by Transneft.

The Yarudeyskoye field is the largest oil asset in
our portfolio and is characterized by unique geology,
which combined with the application of state-of-the-
art drilling and completion technologies allowed us
to achieve the average production flow rate of more
than 400 tons per day per well, with the potential
flow rate of one of our most prolific wells exceeding
1,200 tons per day.

HYDROCARBON PRODUCTION

Total marketable production of natural gas including
the Company’s share in production of joint ventures
aggregated 67.91 bcm, representing 85.1 % of our
total hydrocarbon output. The share of gas produced
from the gas condensate bearing layers (or “wet gas”)
in proportion to total gas production was 82.5 %.
As a result, our marketable natural gas production
increased by 9.3 % or by 5.8 bcm, as compared to
2014 volumes.

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Marketable production of liquid hydrocarbons including
the Company’s share in production of joint ventures
totalled 9,094 thousand tons, of which 83 % was
unstable de-ethanized gas condensate and the remain-
ing 17 % consisted of crude oil. Marketable production
of liquids increased by 50.7 %, or by 3,058 thousand
tons as compared with 2014, with gas condensate
production demonstrating a 54.6 % increase to 7,526
thousand tons and crude oil production growing by
34.2 % to 1,568 thousand tons. We achieved record
levels of liquids production in 2015, and their share
in our overall production increased by four percentage
points as compared to 2014 and amounted to 15 %.

Our record growth in gas condensate production and
the higher natural gas output was mainly due to the
successful launches of the third stage of the Sam-
burgskoye field, the Urengoyskoye field within the

Samburgsky license area and the North-Khancheyskoye
field in 2014, as well as the launch of the Yaro-Yakhin-
skoye and Termokarstovoye fields in the first half 2015.

The increase in our crude oil production was due to produc-
tion drilling at the East-Tarkosalinskoye field and launch
of the Yarudeyskoye field in early December 2015, which
ramped up to its full production capacity of 9,700 tons of
crude oil per day or 3.5 million tons per annum as early as
the end of 2015. The successful launch and quick ramp up
of the Yarudeyskoye field will have a major positive impact
on our liquids production dynamics in 2016 as its crude oil
production capacity is more than two (2) times higher com-
pared to NOVATEK’s overall crude oil production in 2015.

We continued to achieve some of the lowest lifting
costs in the industry. The Company’s lifting costs were
RR 30.1 (USD 0.49) per boe in 2015.

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

TOTAL PRODUCTION

Gas

Liquid hydrocarbons

Units

mmboe

mmcm

mmboe

2014

2015

456.7

521.6

62,129

67,905

406.3

444.1

Change

14.2 %

9.3 %

6,036

9,094

50.7 %

50.4

77.5

Gas, mmcm

Liquids, mt

2014

2015

Change

2014

2015

Change

TOTAL

62,129

67,905

9.3 %

6,036

9,094

50.7 %

Yurkharovskoye (100 %)

38,154

35,979

(5.7) %

2,496

2,126

(14.8) %

Arcticgas fields (54.9 % until August
2015, 53.3 % from August 2015)

4,129

12,624

205.7 %

1,063

4,016

277.8 %

East-Tarkosalinskoye (100 %)

10,348

9,075

(12.3) %

1,293

1,365

5.6 %

North-Urengoyskoye (50 %)

5,402

5,395

(0.1) %

633

622

(1.7) %

Khancheyskoye (100 %)

2,933

2,510

(14.4) %

445

392

(11.9) %

Termokarstovoye (51 %)

Yarudeyskoye (100 %)

714

258

184

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Other

1,163

1,608

38.3 %

106

131

23.6 %

YAMAL LNG PROJECT

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 %). In December 2015,
NOVATEK entered into a final binding agreement to
sell a 9.9 % share in Yamal LNG to the Silk Road Fund
(SRF), a Chinese infrastructure investment fund.
NOVATEK’s share in the project will decrease to
50.1 % after the deal is closed.

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 2015, the field was estimated to
contain 522 bcm of proved natural gas reserves and
15 mmt of proved liquid hydrocarbon reserves, under
the SEC reserves methodology. Based on total proved
hydrocarbon reserves, the South-Tambeyskoye field is
the largest field in NOVATEK reserves portfolio. Ac-
cording to the PRMS reserves standards, the proved
and probable reserves of the South-Tambeyskoye field
were appraised at 926 billion cubic meters of natural
gas and 30 mmt of liquid hydrocarbons.

The South-Tambeyskoye field has already been thor-
oughly studied with a complex suite of exploration
activities, including running 3D seismic and exploration
drilling, creation of the fields’ geological model and an-
nual reserves appraised by the independent petroleum
engineers, D&M. The field development plan provides
for the drilling of 208 wells at 19 well drilling pads,
with production potential exceeding 27 bcm of natural
gas and one (1) million tons of stable gas condensate
per annum.

Natural gas produced at the field will be delivered to
the international markets as liquefied 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-loading berths at
the port of Sabetta.

At year-end 2015, 41 production wells were drilled
at the South-Tambeyskoye field, representing approx-
imately 70 % of the well stock required to launch the
first production train of the LNG plant. Construction
progress on the first train exceeded 56 %.

At year-end, there were approximately 2,500
construction vehicles and 13,000 construction
workers on site. In February 2015, the Sabetta
Airport started servicing regular flights from Novy
Urengoy, Moscow and Samara, which significantly
improved the efficiency of shift workers logistics.
Regular flights served approximately 130,000
people in 2015.

To minimise on site construction activities due to
challenging climate conditions, a modular approach
to the LNG plant construction was selected. The
LNG plant will consist of 173 large plant modules
with the weight ranging from 85 tons to 6,400 tons.
The modules are built at contractor’s yards and
delivered to the Sabetta construction site by sea.
Approximately 25,000 people were involved in
modules fabrication for the Yamal LNG project
at different construction yards.

The plant’s first module was delivered to the site in
September 2015, and delivery of other long-lead items
also started during the past year. Among the items
delivered to the Sabetta construction site by the end
of the year there were seven (7) LNG plant modules,
a cryogenic heat exchanger (key element of gas lique-
faction technology) and the full equipment package
for compressor lines of the plant’s first and second
trains, boil-off gas compressors, a backup heater, 46
packages of steel work pipe racks, six (6) packages of
piping spools, power plant turbines and other equip-
ment. The unloading operations for oversized equip-
ment in the Sabetta port and its transportation to the
installation site were successfully streamlined.

By the end of the reporting year, over 20,000 foun-
dation piles for the LNG plant were installed, over
2,000 pile caps were installed on the piles, and more
than 17,000 cubic meters of concrete was poured
for the foundation. Compressor equipment for the
first train, seven (7) modules and the backup heater
were installed on the prepared concrete foundations,
as well as over 6,000 tons of steel work pipe racks.
The construction of a power plant with a rated
capacity of 376 MW was underway: four (4) gas
turbine units with a capacity of 47 MW each were
installed on the concrete foundations. The outer
concrete walls were completed as well as the instal-
lation of the roof on the project’s four (4) LNG tanks,
and the work on installing the internal multi-layer
walls was underway.

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In 2015, dredging was performed in the port harbor,
approach and sea channels. Overall volumes of dredged
sand totalled more than 16 million cubic meters. The
year-round use of the Sabetta port received more than
three (3) million tons of cargoes (up 50 % year-on-
year), delivered by 190 marine ships and 317 river
barges. A two (2) km Southeastern ice barrier was
being constructed to protect the port harbor. LNG and
stable gas condensate shipment pipe rack was being
built at the ice barrier.

More than 95 % of the LNG plant output has been
contracted on a long-term basis. Specially designed
Arc7 ice-class LNG carriers will be used for LNG trans-
portation, and the first tanker was placed from dry-
dock into water in early 2016. In December 2015, the
steel-cutting process for the second LNG tanker began.

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 separated and de-ethanized at the field the
unstable (de-ethanized) gas condensate is delivered
via a system of condensate pipelines owned and op-
erated by the Company for further stabilization at our
Purovsky Plant located in the YNAO in close proximity
to the East-Tarkosalinskoye field.

The Purovsky Plant is the central element in our pro-
duction value chain that provides us complete opera-
tional 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 after processing
our unstable gas condensate.

As a result of launches of the Termokarstovoye and the
Yaro-Yakhinskoye fields in June 2015, the Purovsky
plant reached full utilization of its processing capacities

amounting to more than 12 mmt of unstable gas con-
densate on an annualized basis. The Purovsky Plant’s
processing capacity matches the overall gas conden-
sate production capacity of the Company’s fields in
operation as of the second half of 2015.

During the reporting year, the de-ethanized gas con-
densate processing volumes at the Purovsky Plant in-
creased by 82.1 % to 12,021 mt. The structure of this
output included 9,664 mt of stable gas condensate,
2,228 mt of light hydrocarbons and LPG and 11 mt
of regenerated methanol. Our feedstock composition
changed following the launches of new fields in 2015
resulting in a higher share of stable gas condensate
in the total output of the plant, which increased from
78.5 % in 2014 to 81.2 % in the reporting year.

The Purovsky Plant is connected via its own railway line to
the Russian rail network at the Limbey rail station. Sub-
sequent to the launch of the Ust-Luga Complex in 2013,
most of the stable gas condensate volumes produced at
the Purovsky Plant are delivered by rail to Ust-Luga for
further processing or transshipment to exports, with most
of the remaining small volume of stable gas condensate
sold directly from the plant to the domestic market. Com-
mencing from the second quarter 2014 all of the light
hydrocarbon volumes (feedstock for LPG production)
produced at the plant are delivered by pipeline to SIBUR’s
Tobolsk Petrochemical Complex for further processing.

Ust-Luga Stable Gas Condensate Transshipment and
Fractionation Complex

The Gas Condensate Fractionation and Transshipment
Complex (the “Ust-Luga Complex”) launched in 2013
is located at the all-season port of Ust-Luga on the
Baltic Sea. The Ust-Luga Complex processes stable gas
condensate into light and heavy naphtha, jet fuel, ship
fuel component (fuel oil) and gasoil, and enables us to
ship the value-added petroleum products to international
markets. The Ust-Luga Complex also allows for transship-
ment of stable gas condensate to the export markets.

Processing volumes and output of the Purovsky Plant, thousand tons

2014

2015

PROCESSING OF DE-ETHANIZED CONDENSATE

6,600

12,021

OUTPUT:

Stable gas condensate

5,049

9,664

Light hydrocarbons and LPG

1,371

2,228

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82.1%

91.4%

62.5%

Methanol

(21.4)%

Due to growth in stable gas condensate production
at the Purovsky Plant, in March 2015, the Ust-Luga
Complex reached full utilization of its processing
capacity of approximately seven (7) mmt on an
annualized basis. In 2015, the Ust-Luga Complex
processed 6,727 mt of stable gas condensate into
6,593 mt of end products, including 3,999 mt of light
and heavy naphtha, 949 mt of jet fuel and 1,645 mt
of ship fuel component (fuel oil) and gasoil. The share
of heavy fractions like jet fuel, fuel oil and gasoil
increased from 26 % in 2014 to 39 % in 2015 due
to the change in the feedstock composition following
launches of new fields.

NATURAL GAS SALES

NOVATEK plays an important role in ensuring supplies of
natural gas to the Russian domestic market. During the
past year, we supplied natural gas to 33 key consuming
regions of the Russian Federation. Our customers were
located primarily in the following regions (with natural 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 more than 95 % of our total gas sales.

High value-added petroleum products produced at the
Ust-Luga Complex have a significant positive impact on
the profitability of our liquid hydrocarbon sales and the
Company’s cash flow generation.

The Ust-Luga Complex reached full processing ca-
pacity and as such we began to transship stable gas
condensate to the export markets by sea. During
2015, the volume of such export supplies amounted
to 1.2 mmt.

NOVATEK’s 2015 natural gas sales volumes totalled
62.5 bcm, representing a decrease of 7.1 % as compared
to 2014 sales volumes of 67.2 bcm. Lower natural gas
sales volumes resulted from one of our major customers
temporarily not taking its full contracted volumes due to
technical reasons and warmer weather in the Russian
Federation in 2015 as compared to 2014. The pro-
portional share of natural gas sales to end-customers
remained practically unchanged compared to 2014 and
amounted to 93 % of our total natural gas mix.

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

STABLE GAS CONDENSATE PROCESSING

4,706

6,727

42.9%

2014

2015

Change

OUTPUT:

Heavy naphtha

Light naphtha

Ship fuel component (fuel oil)

Jet fuel

Gasoil

Natural gas sales, mmcm

2,006

1,425

542

472

179

2,101

1,898

1,183

949

462

4.8%

33.2%

118.3%

101.1%

158.1%

2014

2015

Change

TOTAL GAS SALES, INCLUDING:

67,231

62,465

(7.1)%

End customers

Traders

63,281

58,054

3,950

4,411

(8.3)%

11.7%

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Share of end-customers in total gas sales

94.1%

92.9%

(1.2) p.p. 59

Our total revenues from natural gas sales totalled
RR 222.2 billion, which is 3.6 % lower as compared
to 2014. The negative effect from the lower sales
volumes on our total revenues was partially offset
by the growth in regulated domestic tariffs by 7.5 %
effective from 1 July 2015. Our net revenues from gas
sales (excluding transportation costs) demonstrated
a minor decline of 1.3 % as gas transportation tariff for
independent producers increased from 1 July 2015
by only 2 %.

During the reporting year, we concluded several major
domestic natural gas supply contracts. In particular, five-
year contracts were signed with NLMK Group with annual
natural gas supply volume of 2.8 bcm starting from 2016,
which fully cover the needs of all Russian entities of NLMK.
Another contract was signed with Enel Russia for natural
gas supply to the Nevinnomysskaya GRES with annual vol-
ume of approximately 2 bcm starting from 2016. We also
extended a gas supply contract with Mosenergo for a
period of four (4) years and with the annual supply
volumes of nine (9) bcm of natural gas.

In order to maintain production levels during periods
of seasonal demand NOVATEK has entered into an
agreement with OAO 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. At year-end 2015, our inventories of natural
gas in underground gas storage facilities and pipelines
amounted to approximately 1.2 bcm.

As part of our international marketing strategy, we
concluded several long-term contracts for the supply of
LNG which we will purchase from the Yamal LNG project
in accordance with the previously signed agreement. The
contracts were concluded with Shell, ENGIE and Gunvor.

LIQUID HYDROCARBON SALES

NOVATEK sells liquid hydrocarbons (stable gas conden-
sate, 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 well as developing and maintaining our own logistics
infrastructure.

The logistical supply chain varies according to location
and type of product — stable gas condensate and LPG
are transported by rail, finished petroleum products
produced at the Ust-Luga Complex are exported by sea,
while crude oil produced from our fields is transported
through the trunk pipelines owned and operated by
OAO Transneft.

Total sales volumes of liquid hydrocarbons in 2015
aggregated 12,888 thousand tons, representing a
82 % increase over 2014 volumes. The record high
growth rate is due to higher gas condensate production
volumes and higher processing volumes at the Purovsky
Plant and the Ust-Luga Complex, as well as to increase
in crude oil production. Our export sales of liquids grew
by 70 % year-on-year to 9,004 thousand tons.

Our liquids sales revenues increased to RR 249.8 billion,
or by 2 times as compared to 2014, mainly driven by
much higher sales volumes as well as the growth in
average prices in rouble terms due to higher US dollar
to Russian rouble exchange rate and lower export duty
rates. Liquid revenues exceeded revenues derived from
natural gas for the first time in our corporate history.

Petroleum products from the Ust-Luga Complex
accounted for 52 % share of our overall liquids sales
volumes. Petroleum product sales volumes grew by

Liquid hydrocarbon sales, thousand tons

TOTAL

7,089

12,888

81.8%

2014

2015

Change

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Petroleum products (Ust-Luga)

Stable gas condensate

LPG

Crude oil

Light hydrocarbons

Other

4,438

303

930

903

504

6,693

2,786

1,280

1,090

1,026

50.8%

819.5%

37.6%

20.7%

103.6%

18.2%

1.5 times to 6,693 thousand tons. This increase in high
value-added product sales volumes had a very positive
impact on the financial results of the Company. We
sold 4,120 thousand tons of naphtha, 935 thousand
tons of jet fuel and 1,638 thousand tons of fuel oil
and gasoil. The main share of stable gas condensate
processing products (99 %) was sold for exports. Sales
to the European markets accounted for 56 % of total
petroleum product sales volumes, 35 % were sold to the
Asian-Pacific region, 8 % to North America and 1 % to
the Middle East. Naphtha was mainly exported to the
Asian-Pacific countries, while jet fuel, fuel oil and gasoil
was shipped to North-Western Europe.

Export sales of stable gas condensate were resumed
in March 2015 after reaching full capacity utilization
at the Ust-Luga Complex. During the reporting year
1,477 thousand tons of stable gas condensate were
delivered for exports by sea and railway as compared
to no volumes exported in 2014. Total stable gas
condensate sales volumes grew nine-fold year-on-year
to 2,786 thousand tons.

A portion of light hydrocarbons produced at the Purovsky
Plant is processed on tolling terms at SIBUR’s Tobolsk
Petrochemical Complex to commercial LPG, which is then
delivered to NOVATEK’s customer base, while the rest
of the light hydrocarbons volumes are sold to SIBUR.
We sold 1,026 thousand tons of light hydrocarbons in
2015.

LPG sales volumes totaled 1,280 thousand tons in 2015,
representing a 37.6 % increase compared to 2014.
LPG export sales volumes amounted to 551 thousand
tons or 43 % of the total LPG sales volumes. Novatek
Polska, our wholly owned LPG trading company in
Poland, sold 415 thousand tons of LPG, representing
75 % of our total LPG export sales. Other export markets
for LPG were Finland, Lithuania, Hungary, Slovakia
and Turkey.

On the domestic market, our LPG is sold through large
wholesale channels, as well as through our network
of retail and small wholesale stations. In 2015, large
wholesale supplies to the domestic market accounted
for 602 thousand tons, representing 83 % of com-
mercial LPG domestic sales volumes. We also sold LPG
via the network of 65 retail stations and seven (7)
small wholesale stations in the Chelyabinsk, Volgograd,
Rostov and Astrakhan regions. The total amount of LPG
sold through our domestic network of retail and small
wholesale stations amounted to 127 thousand tons.

Sales of crude oil in 2015 totaled 1,090 thousand tons,
representing a 21 % increase over 2014 volumes. We
sold 65 % of our crude oil volumes on the domestic
market with the remaining volumes supplied to export
markets.

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ENVIRONMENTAL
AND SOCIAL
RESPONSIBILITY

NOVATEK adheres to the principles of effective and re-
sponsible 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 respon-
sibilities 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 eco-environment. Through-
out all of its operations the Company is committed
to environment protection. In 2015 environmental

Key environmental indicators of NOVATEK, its subsidiaries and joint ventures

Units

2014

2015

Change*

Water consumption

th. cubic meters

1,347

1,716

Atmosphere emissions

th. tons

51.4

66.2

27%

28%

Energy resources consumption by NOVATEK, its subsidiaries and joint ventures in 2015

Natural gas

Electricity

Heating energy

Crude Oil

Motor gasoline

Diesel fuel

Other

Units

mmcm

MW•h

Gcal

tons

Volume

RR mln, net of VAT

1,780

610,230

254,206

878

1,069

7,634

2,189

2,314.5

2,051.2

389.9

3.0

42.1

246.4

12.4

* The increase in key environmental indicators is largely due to the commissioning of production facilities as well as a significant

increase in the hydrocarbon production and processing volumes.

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expenditures of NOVATEK, its subsidiaries and joint
ventures aggregated RR 776 mln.

NOVATEK has implemented a corporate-wide Health,
Safety and Environmental (“HSE”) Policy and all of the
Company's principal subsidiaries and joint ventures
operate an Integrated Health, Safety and Environ-
ment Management System (IMS), which comply
with the international ISO 14001:2004 and OHSAS
18001:2007 standards. In 2015, NOVATEK success-
fully passed another IMS compliance audit.

As part of our HSE activities we pay special attention
to preventive measures. In particular, the environ-
mental aspects are taken into account in designing
new production facilities: cutting-edge technology and
equipment are used to considerably reduce the ad-
verse 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 drilling waste treatment units, sets
up new sewage treatment facilities and revamps older
ones.

The Heritage Environmental Damage Remediation
Program included actions to remediate land, surface
and ground water. In order to preserve biodiversity
when developing our Yarudeyskoye oil field, we
released muksun and peled young fishes into the
river Northern Sosva of the Ob-Irtysh basin.

Throughout 2015, we performed environmental
monitoring at all of the license areas and production
facilities of the Company. This monitoring process
includes surveys into the condition of environment
components and collecting samples of soil, ground,
snow covering, water, and river-bed deposit. Air
contamination levels are inspected. The status of fish
stock and fodder resources in water areas is monitored
as are hydrologic and hydro-chemical 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 excess permissible levels of pollution in
environmental components in the monitored locations
were not registered.

In 2015, under the Company's flagship Yamal LNG
project, actions were taken to evaluate and mitigate the
negative impact on the Atlantic walrus in and around
the South-Tambeyskoye field. The field area site was
cleared of scrap metal, residential and industrial waste.
In the reporting year, Yamal LNG remediated 310
hectares of land and relinquished them to the Yamal
district government. In order to compensate for the
water resource damage, peled fry was released into the
Ob-Irtysh basin river.

The Company systematically works to decrease its
harmful greenhouse gas emissions into the atmosphere.
In 2015, the Program for Rational Use of Associated
Petroluem Gas (“APG”) enabled the Company to reach
a 96 % APG utilization rate at the Samburgskoye and
East-Tarkosalinskoye fields. A booster compressor
station to be commissioned at the central oil gathering
facility in 2016 will ensure rational utilization of 95 %
of APG at our Yarudeyskoye field.

The Company continued its participation in the Carbon
Disclosure Project (CDP) in 2015 whereby information
on greenhouse gas emissions and operational energy
efficiency 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 important projects the
Company intends to achieve a balance between the
climate change risks and efficiency of investment pro-
jects. The Company offers all stakeholders full access
to its environmental information and reports, including
via publications in federal and local media, our corpo-
rate website, amongst other communication channels.

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 2015.

HEALTH AND SAFETY

Our strategic goal is to achieve a leading position
amongst oil and gas companies on all key indicators
concerning Occupational Health and Safety. In order to
accomplish this goal, the Company continually updates
its IMS, improves employees' qualification 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 adopted Regulations on the
organization and implementation of industrial control
for compliance with these requirements. As part of the
monitoring and compliance process, we have established
industrial control compliance commissions, who carry
out periodic audits of departments and production
facilities to check adherence to our HSE requirements.

Workplace certification includes evaluating measures
to control the harmful impact of hazardous factors in
the workplace. Measures to improve working conditions
are developed based on the results of the certification
process. In the reporting year, we certified 1,078
operating workplaces. No workplaces were identified
with unacceptable working conditions.

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

2014

2015

Change

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

0.41

0.53

29%

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

(43)%

In 2015, the NOVATEK commission continued com-
prehensive inspections of NOVATEK subsidiaries for
occupational health, industrial, fire and environmental
safety requirements. In the reporting year, NOVATEK's
commission performed comprehensive inspections
on six (6) entities, and, as a result, internal policy
documents were developed to address the noted
violations.

All of NOVATEK's subsidiaries and joint ventures
conduct periodic safety training and briefings;
personnel training and development programs are
offered, among others, by specialized training centers;
knowledge assessment is implemented on a regular
basis. During the year, all entities undertook scheduled
and unscheduled Health and Safety knowledge tests
and 4,324 employees underwent HSE training courses.
In 2015, the financing of Occupational Health and
Safety totaled approximately RR 665 million.

HUMAN RESOURCES

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.

As year-end 2015, NOVATEK and its subsidiaries
had a total of 7,265 employees, of which 40.1 %
work in exploration and production, 17.5 % in
processing, 27.3 % in transportation and marketing,
6.3 % in power supply with the remaining 8.8 %
classified as administrative personnel. The middle-aged
group (25–44 years) represents the largest age
demographics in NOVATEK's personnel structure,
with an average age of 40 years.

Personnel Training and Development

In an environment of rapidly developing technologies
and management systems, our multilevel training and
professional development program enables our employ-
ees to contribute to raising the Company's competi-
tiveness. In 2015, the primary goals of training and
professional development included:

• implementing an In-house Training program

to improve the competences of the Company's
employees;

• implementing the “Steps in Discovering Talents”

program for young specialists targeted at training
highly qualified personnel whose competence level
fully meets business needs;

• developing and enhancing the “Corporate Technical
Competency Assessment System” program; and

• involving young specialists in NOVATEK's

“Research-to-Practice conference”.

To ensure targeted professional upgrade, an In-house
Training program started in 2015.

NOVATEK's and subsidiaries' employees provided train-
ing to their colleagues in “well workover emergency
operations and equipment”, “penetrating and testing
producing horizons while drilling”, “complications and
emergencies while drilling”, “gas and gas condensate
wells equipment”, “well logging”, “structural geology”,
et cetera. A total of 185 employees received training
under this program in 2015.

In 2015, NOVATEK continued its efforts to enhance
employee skills and improve working conditions to
ensure a safe environment at its production facilities.
During the reporting year, 39.6 % of our specialists and
line workers have upgraded their respective qualifica-
tions. During 2015, 751 people were tested under the
Corporate Technical Competency Assessment System,
including 28 people during the hiring process to fill
vacant positions and 57 employees promoted to more
senior positions.

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We also had our second class of graduates completing
the “Steps in Discovering Talents” program, whereby
25 young specialists participated in training activities
aimed at the development of their professional skills.
By the autumn of 2015, 23 new young specialists
joined the program.

In 2015, the young specialists participated in the
“Mentoring Culture” training courses together with the
mentors. In total, 17 mentors attended the training.

In November 2015, Novy Urengoy hosted the 1st
Interregional Professional Skills Contest among field
workers. Over 30 participants from various NOVATEK
subsidiaries demonstrated their skills and expertise in
the contest. NOVATEK-YURKHAROVNEFTEGAS pro-
vided its facilities for the contest to take place. The
participants competed in four professional categories,
namely, oil and gas production operator, process unit
fitter, electrical equipment fitter, and instrument and
automation fitter. All participants received valuable
gifts and the winners were awarded cash prizes and
personal salary allowances for their professional skills.

The 10th Interregional Research-to-Practice Confer-
ence for the Company's young specialists attended
by 56 employees was held in Moscow in September
2015. Based on the results of the competition, all of
the winners received cash prizes, while seven (7) of
the prize-winners and the winner in the “Best Imple-
mented Project” category, were offered to study in the
international oil and gas training centers in China.

Social Programs

Employee relations primary focus is mainly on imple-
menting social programs, and according to the Core
Concept of the Company's social policy adopted in
2006, the social benefits package for employees in-
cludes 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.

In addition to providing an optimum social benefits
package, the Company is also committed to creating
opportunities for employees to play sports and get
involved in sports and cultural events. In 2015, our
employees and their family members visited exhibitions
at Russia's national museums, classical music concerts,
and attended sporting events like football (soccer)

games and acrobatic “rock and roll” competition with
the Company's assistance.

The Company publishes its corporate newsletter “NOVATEK”
and corporate magazine “NOVATEK Plus” to inform
employees about the Company's activities, production
results, cultural, sports, and charitable programs.

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 implements programs to
facilitate improvement in local populations' living
standards and preserve the distinctive cultural identity
of the Far North indigenous peoples.

In 2015, NOVATEK and its subsidiaries directly
invested approximately RR one billion in charitable,
cultural and educational projects and activities to
support the Far North indigenous peoples.

Cooperation with the regions

During the year, the Company invested funds in the
Yamal-Nenets Autonomous District, and the Leningrad,
Chelyabinsk, Tyumen, and Samara Regions under social
agreements reached with regions where the Company
maintains operations. The Company allocated funds for
repairs and upgrades of social infrastructure facilities,
financing of educational, cultural and children and
youth programs and projects, and provided support to
low-income families, disabled and elderly people.

Cooperation with Indigenous Peoples of the Far
North

NOVATEK provided financial support to the “Yamal for
Descendants” association and its district branches.
We assisted indigenous peoples through financing
arrangements for purchasing equipment and goods
required by fishermen and reindeer herdsmen, as well
as fuel for air delivery of the nomadic population and
food in remote areas.

In addition, the Company provided the following
sponsorship in 2015:

• Nadym district — for organizing and holding the Open
Reindeer Herders Contest for the Yamal-Nenets
Autonomous Region Governor's Cup, as well as for
building a kindergarten for 50 kids in the village of Nori; 65

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• Tazovsky district — for the construction of a gym

and a ski lodge in the village of Gyda;

• Yamal district — for giving medical treatment and
financial aid to the persons among the indigenous
minorities of the North who faced various hardships,
as well as for targeted training programs for
indigenous minorities; and

• Purovsky district — for supporting the local
movement to protect the rights and interests of
indigenous population.

The Company provides additional monthly payments
to students in these programs who have passed
their exams with good and excellent results. During
their studies, the students are offered paid field,
engineering and directed internships. This experi-
ence 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 Company receives an opportunity to meet
potential employees.

Educational Programs

Support of Cultural Traditions

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 em-
ployees start with the “Gifted Children” program
implemented at School No. 8 in Novokuybyshevsk
and School No. 2 in Tarko-Sale. In 2015, the “Gifted
Children” class was opened in Tyumen lyceum No 81.
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 schoolchildren 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 attitude towards studies. Under the program,
students in grades five (5) through 11 are awarded
grants from the Company. In 2015, the Company
awarded 57 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 2015, six (6) teachers from the Purovsky
District received grants under this program.

In an effort to create conditions for more effective use of
university and college resources in preparing students for
future professional activities, the Company 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 University (University of
Mines), Gubkin Russian State University of Oil and Gas in
Moscow and the Tyumen Oil and Gas University.

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The strengthening of partnership relationships
between the Company and Russia's leading cul-
tural and educational institutions, creative groups
and charity funds continued in 2015, namely
the Russian State Museum (St-Petersburg),
the Moscow Museum of Modern Art, the Jewish
Museum & Tolerance Centre and the Multime-
dia Art Museum, Moscow (Moscow House of
Photography).

The Company continued its partnership with the
Imperial Gardens of Russia, an annual international
festival organized by the Russian State Museum.
Supported by NOVATEK, the Multimedia Art Museum
hosted such exhibitions as “Russia. The twentieth
century in photos. 1946 – 1964”, “Antarctic. His-
tory. Antrectomy”. Moscow Museum of Modern Art
held the solo exhibition of Peter Weibel, the Austrian
artist and media art theorist.

In the reporting year, the Company became a first-
time partner of the Jewish Museum & Tolerance
Center and supported the exhibition of one of the
world's most acclaimed modern sculptors Anish Ka-
poor, who presented his works at the Sixth Moscow
Biennale of contemporary art.

NOVATEK became a partner of the Federal Arctic
forum “The Arctic Days in Moscow”, organized by the
Ministry of natural resources and environment of the
Russian Federation. The forum hosted the II Inter-
national scientific conference “The Open Arctic”, “The
Business climate in the Arctic” business session, as
well as multimedia exhibition “The Arctic”, presented
at the Museum of Moscow.

NOVATEK also continued as a General Partner of
the Moscow Soloists Chamber Ensemble led by Yuri
Bashmet.

Sports Projects

NOVATEK continued its support for popular and
high-level sports programs. The Company, its subsidiaries
and joint ventures organize regular tournaments in some
of the most popular sports, including football (soccer),
volleyball, swimming to name a few. The Company
continued its long-term partnership with the NOVA
Volleyball Team (Novokuybyshevsk). In 2015, NOVATEK
also was a General Partner of the Russian national
football team and supported the Russian Federation
of acrobatic “rock and roll”, the Student Basketball
Association, the Figure Skating Federation of Russia and
the Hockey Federation of the Yamal-Nenets Autonomous
area.

Charity

The Company continued its cooperation with Chulpan
Khamatova's “Gift of Life” charitable foundation in
2015. Jointly with the foundation, NOVATEK held two
sessions at its Moscow headquarters whereby 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.

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MANAGEMENT
AND CORPORATE
GOVERNANCE

CORPORATE GOVERNANCE SYSTEM

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

The Company has established an effective and trans-
parent system 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 com-
prises the Board of Directors, the Board Committees,
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 (www.novatek.ru).

NOVATEK strives to consider the principles of corpo-
rate governance outlined in the Corporate Governance
Code recommended by the Central Bank of Russia
(Information Letter No. 06 – 52 / 2463 dated 10 April
2014). The Company follows the recommendations of
the Code, as well as offering 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 Exchange in the form of depositary receipts,
NOVATEK places great emphasis on the UK Finan-
cial Reporting Council’s Combined Code on Corporate
Governance and follows its recommendations as far as
practicable.

The Company adheres to the internal Corporate Gov-
ernance Code approved by the Board of Directors in
2005 (Minutes No. 60 of 15 December 2005).

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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 govern-
ing the conduct of members of the Board of Directors,
the Management Board and the Revision Commission,
as well as NOVATEK’s management and employees,
which were drafted on the basis of moral and ethi-
cal values and professional standards. The Code also
determines the rules governing mutual relationships
inside the Company and NOVATEK’s relationships with
its subsidiaries and joint ventures, shareholders, inves-
tors, the government and public, consumers, suppliers,
and other stakeholders.

In order to increase the effectiveness of the Compa-
ny’s corporate governance system and bring it into
compliance with the requirements of the Corporate
Governance Code following changes were made in the
reporting year:

• NOVATEK’s General Meeting of Shareholders held on
24 April 2015 approved the Regulations on Remu-
neration and Compensations payable to members of
NOVATEK’s Board of Directors; and

• the Board of Directors held on 12 March 2015
approved amendments to the Regulations on
NOVATEK’s Risk Management and Internal Control
System.

NOVATEK’s corporate governance practices make it
possible for its executive bodies to effectively manage
ongoing operations in a reasonable and good faith
manner and solely to the benefit 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 Shareholders is governed by the laws of
the Russian Federation, the Company’s Charter, and
the Regulations on the General Meetings approved by
NOVATEK’s General Meeting of Shareholders in 2005

(Minutes No. 95 of 28 March 2005) with further
alterations and amendments.

of Shareholders. The General Meeting of Shareholders
elects the members of the Board.

The General Meeting of Shareholders is responsible
for the approval of annual reports, annual finan-
cial statements, the distribution of profit, including
dividends payout, the election of the Board of Direc-
tors and the Revision Commission, approval of the
Company’s Auditor and other corporate and business
matters.

On 24 April 2015, the Annual General Meeting of
Shareholders approved the annual report, annual
financial statements (in accordance with the Russian
Accounting Standards), distribution of profit and the
size of dividends based on the results of FY2014, the
amended version of the Regulations on Remuneration
and Compensations payable to members of NOVATEK’s
Board of Directors. The meeting also elected the Board
of Directors (comprising eight (8) members due to ex-
clusion of one of the candidates nominated by share-
holders following withdrawal by this candidate of his
consent to be elected) and the Revision Commission,
as well as approved remuneration to members of the
Board of Directors, Revision Commission and the Com-
pany’s external auditor for 2015.

On 25 September 2015, the Extraordinary General
Meeting of Shareholders approved the amount of in-
terim dividend for the first half of 2015, early termi-
nated the authority of the Board of Directors, elected a
new Board of Directors and approved interested-party
transactions.

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 Sharehold-
ers 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 inter-
ests of all its shareholders, and ensures the Company’s
efficient and effective performance in order to increase
shareholder value in a prudent and responsible manner.

The Board determines the Company’s strategy and pri-
ority lines of business, endorses long-term and annual
business plans, reviews financial performance, internal
control, risk management and other matters within
its competence, including optimization of corporate
and capital structure, approval of major transactions,
making decisions on investment projects and recom-
mendations on the size of dividend per share and its
payment procedure, and convening General Meeting

The current members of the Board were elected at the
Extraordinary General Meeting of Shareholders on 25
September 2015. The Board of Directors is comprised
of nine (9) members, of which eight (8) are non-exec-
utive directors. Three (3) directors are considered to be
independent in accordance with the Corporate Govern-
ance Code recommended by the Central Bank of Russia
and the UK Combined Code on Corporate Governance.
The Board Chairman is Alexander E. Natalenko. The
Chairman is responsible for leading the Board and en-
suring its effectiveness.

The members of NOVATEK’s Board have a wide range
of expertise as well as significant experience in
strategic, operational, financial, 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 impacting the business. In addition to these
formal processes, Directors have access to the Com-
pany’s medium-level managers for both formal and
informal discussions to ensure the regular exchange
of information needed to participate in the Board
meetings and make balanced decisions in a timely
manner.

Efficient operation of the Board of Directors is sup-
ported by the Corporate Secretary, who has sufficient
independence (appointed and dismissed 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
(Minutes No. 168 of 28 April 2014 with further
alterations and amendments).

The Board of Directors membership as of
31 December 2015:

• Alexander E. Natalenko – Chairman of the Board
• Andrei I. Akimov
• Burckhard Bergmann
• Michael Borrell
• Robert Castaigne
• Leonid V. Mikhelson
• Victor P. Orlov
• Gennady N. Timchenko
• Andrei V. Sharonov

On 24 April 2015, the following changes took place in
the Board of Directors membership: Yves-Louis Dar-
ricarrère, Vladimir A. Dmitriev, Victor P. Orlov ceased
their Board membership, and one independent director,
Robert Castaigne, and one shareholder representative,
Michael Borrell, joined the Board.

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On 25 September 2015, the following changes took
place in the Board of Directors membership: one inde-
pendent director, Victor P. Orlov, joined the Board.

Board activities during the 2015 corporate year1

To ensure the Company’s efficient performance, the
Board meetings are convened on a regular basis at
least once every two months. During 2015, the Board
met 10 times, of which six (6) meetings were held in
absentia. The following key issues were discussed and
respective decision made:

• reviewed and approved the Company’s 2015 full

year operating and financial results;

• recommended an interim dividend for first half

2015, based on interim financial results for the pe-
riod, and a full year dividend for 2015, based on full
year financial results;

• reviewed and approved NOVATEK’s business plan for

2016; and

• approved the transaction for the sale of 9.9% equity

stake in Yamal LNG.

BOARD COMMITTEES

The Company has three (3) Board Committees: the
Audit Committee, the Strategy Committee and the
Remuneration and Nomination Committee. The Commit-
tees’ activities are governed by the specific Committee
Regulations approved by the Board of Directors and are
available on our website.

The Committees play a vital role in ensuring that the
high standards of corporate governance are main-
tained throughout the Company and that specific de-
cisions are analyzed and the necessary recommenda-
tions are issued prior to general Board discussions.
The minutes of the Committees meetings are circu-
lated to the Board members and are accompanied by
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 executive bodies or heads of the
Company’s relevant departments. For the purpose of
considering any issues being within their competence,

Board and Committee meetings attendance in the 2015 corporate year

Member

Independence2

Board of
Directors

Audit
Committee

Remuneration
and Nomination
Committee

Strategy
Committee

Alexander E.
Natalenko

Andrei I. Akimov

10/10

Burckhard Bergmann

10/10

2/2

Michael Borrell

10/10

Robert Castaigne

Independent

10/10

5/5

4/4

Leonid V. Mikhelson

Executive

10/10

Victor P. Orlov

Independent

6/6

Andrei V. Sharonov

Independent

10/10

3/3

5/5

2/2

4/4

Gennady N. Timchenko

10/10

4/4

1. From the Annual General Meeting of Shareholders on 24 April 2015 until the Annual General Meeting of Shareholders on 22 April

2016.

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Independent Director as of 31 December 2015 in accordance with the Corporate Governance Code recommended by the Central
Bank of Russia and the UK Combined Code on Corporate Governance.

Committees membership as of 31 December 2015

Audit Committee

Strategy Committee

Remuneration
and Nomination Committee

Chairman

Andrei V. Sharonov

Alexander E. Natalenko

Victor P. Orlov

Members

Robert Castaigne

Andrei I. Akimov

Robert Castaigne

Victor P. Orlov

Burckhard Bergmann

Andrei V. Sharonov

Michael Borrell

Gennady N. Timchenko

the Committees may engage experts and advisers
having necessary professional knowledge and skills.

Remuneration and Nomination Committee

Strategy Committee

The primary functions of the Strategy Committee
are the determination of strategic objectives of the
operations and control over the implementation of the
strategy, as well as recommendations 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 effectiveness of the Company’s

operations in the long-term;

• preliminarily reviewing and making recommen-

dations on the Company’s participation in other
organizations;

• assessing voluntary and mandatory offers to acquire

the Company’s securities;

• considering the financial model and business val-

uation of the Company and its business segments
in order to make recommendations to the Board of
Directors in making decisions on the definition 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 2015, the Strategy Committee met
four (4) times.

The primary functions of the Remuneration and Nom-
ination Committee is the development of an efficient
and transparent compensation practice of members
of the Company’s management, enhancement of the
professional expertise and improvement of the Board
of Directors’ effectiveness.

In order to assist the Board, the Committee performs
the following 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 profes-
sional expertise, experience of 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 objec-
tives of the Company;

• analysis of professional qualifications and independ-
ence of the candidates to the Board of directors;
• plan appointments of members of the executive
body and the sole executive body on the base of
continuity principles; and

• supervision over disclosure of information on the
Company’s shares owned by the members of the
Board of Directors and Management Board, and
other key management employees.

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In corporate year 2015, the Remuneration and Nomi-
nation Committee met four (4) times.

Audit Committee

The primary function of the Audit Committee is control
over financial and operating activities of the Company.
In order to assist the Board in performing control func-
tions the Committee is responsible for but not limited
to evaluating accuracy and completeness of the Com-
pany’s full year financial statements, the candidature
of the Company’s external auditor and the auditor’s
report, and the efficiency of the Company’s internal
control procedures and risk management system.

The Audit Committee works actively with the Revision
Commission, the external auditor and the Compa-
ny’s executive bodies, inviting NOVATEK’s managers
responsible for the preparation of the financial state-
ments to attend the Committee meetings.

In corporate year 2015, the Audit Committee met five
(5) 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 Management 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) with further
alterations and amendments.

Members of the Management Board are elected by
the Board of Directors from among the Company’s key
employees. The Management Board is subordinated
to the Board of Directors and the General Meeting of
Shareholders. The Chairman of the Management Board
is responsible for leading the Board and ensuring its
effectiveness 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 2015 is comprised of nine (9) members
elected by the Board of Directors on 30 August 2012
(Minutes No. 150 of 30 August 2012) and 12 March
2015 (Minutes No. 173 of 12 March 2015).

Management Board Members as of 31 December
2015:

• Leonid V. Mikhelson — Chairman
• Alexander M. Fridman — First Deputy Chairman
• Vladimir A. Baskov — Deputy Chairman
• Mark A. Gyetvay — Deputy Chairman
• Tatyana S. Kuznetsova — Deputy Chairman —

Director of Legal Department

• Iosif L. Levinzon — Advisor on Geology
• Lev V. Feodosyev — Deputy

Chairman — Commercial Director

• Sergey V. Protosenya — Deputy Chairman
• Kirill N. Yanovskiy — Director for Finance

REMUNERATION TO MEMBERS OF THE BOARD OF
DIRECTORS AND MANAGEMENT BOARD

The procedure for calculating the remuneration and
compensations to members of NOVATEK’s Board of
Directors is governed by the Regulations on Remu-
neration and Compensations payable to members of
NOVATEK’s Board of Directors approved by the Annual

Information on remuneration of members of NOVATEK’s Board of Directors and Management Board
in 2015, RR mln

TOTAL PAID, INCLUDING:

148.9

2,053.2

Board of Directors*

Management Board

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Salaries

Bonuses

Fees

Other property advancements

147.0

1.9

625.5

1,416.1

11.6

* 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.

General Meeting of Shareholders (Minutes No. 122
of 24 April 2015). According to the Regulations the
remuneration consists of the following types:

Anti-Corruption Policy. All necessary inspections have
been promptly made in response to the complaints
reported to the Hotline.

• fixed part of remuneration;
• remuneration for attending the Board of Directors

Revision Commission

meetings; and

• remuneration for attending the meetings of the

committees of the Board of Directors.

The fixed part of remuneration to a Board member con-
stitutes RR 10 million per corporate year. The Chairman
of the Board of Directors is paid a fixed remuneration
for the performance of its functions in the amount of
RR 20 million per corporate year. Members of the Board
of Directors are also paid remuneration for attending
the meetings of the Board of Directors in the maximum
amount of RR 3 million per corporate year and remu-
neration for attending the meetings of the committees
of the Board of Directors in the maximum amount of
RR 2 million per corporate year. The Board members are
also compensated for travel and lodging expenses re-
lated to implementation of their functions as NOVATEK
Board of Directors members.

The procedure for and criteria of calculating remu-
neration 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.

INTERNAL CONTROL AND AUDIT

The Company has a system of internal control over financial
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 Revi-
sion Commission and the Internal Audit Division.

The primary objects of internal control are OAO
NOVATEK, its subsidiaries and joint ventures, and
their subdivisions, as well as their ongoing business
processes.

In order to combat corruption, mitigate compliance,
operational and reputation risks, the Company adopt-
ed the Anti-Corruption Policy and the Regulation on
NOVATEK Risk Management and Internal Audit System
approved by the Board of Directors on 1 September,
2014 (Minutes No. 170 of 1 September 2014).

Throughout the reporting year, the Company main-
tains a Security Hotline in accordance with the

The Revision Commission consisting of four (4) mem-
bers who are 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
Charter and the Regulations on the Revision Commis-
sion 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 financial
and business activities. The Revision Commission per-
forms audits of the Company’s financial and business
performance for the year, as well as 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 of these audits
are presented in the form of findings by the Revision
Commission.

In March 2016, the Revision Commission completed
the on-site audit revision of financial and business
activity of the Company for the year 2015. As a result,
the conclusions about the reliability of the data con-
tained in the Company’s 2015 Financial Statements
(under the Russian accounting standards) and Annual
Report were prepared and submitted to the Annual
General Meeting of Shareholders.

Internal Audit Division

In order to conduct a systematic, independent eval-
uation of the reliability and effectiveness of the risk
management and internal control system as well as
corporate governance practices the Company performs
internal audits of the Company’s operations. The inter-
nal audit function is implemented by the independent
Internal Audit Division, which has operated continu-
ously since 2005.

The Internal Audit Division is functionally subordinate
to the Board of Directors and is guided by Interna-
tional professional internal audit standards of Insti-
tute of Internal Auditors. The Division also adheres to
the principles and rules of conduct stated in internal
auditor’s Code of Business Conduct of the Institute of
Internal Auditors.

The Division carries out its activities on the basis of an
annual plan of inspections approved by the Audit Com-
mittee and uses a combination of risk-based and cyclic 73

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approaches. According to the results of inspections it
develops measures to eliminate identified risks and op-
timize financial and business activities. Implementation
of the measures is monitored on a regular basis.

The Internal Audit Division regularly interacts with the
external auditor by exchanging information on action
plans, audit results and other matters of significance to
ensure the effective discharge of their responsibilities.

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

External Auditor

The Annual General Meeting of Shareholders appoints
an external auditor to conduct independent review of
NOVATEK’s financial statements. The Audit Committee
gives recommendations to the Company’s Board of Di-
rectors regarding the candidatures of external auditors
and the price of their services. Based on the Commit-
tee’s recommendations, the Board proposes the audi-
tor’ candidature for the consideration and for approval
by the Annual General Meeting of Shareholders.

AO PricewaterhouseCoopers Audit (an internationally
recognized audit firm) was chosen as the Company’s
external auditor to conduct the audit of the annu-
al financial statements for 2015 under RAS, as well
as independent reviews of the Company’s quarterly
financial statements and audit of the annual financial
statements under IFRS.

In selecting the auditor’s candidature, attention is paid
to level of their professional qualifications, independ-
ence, possible risk of any conflict of interest, terms of
the contract, and an amount of remuneration request-
ed by the candidates.

The Audit Committee oversees the external auditor’s
independence 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 Compa-
ny’s financial statements. The Audit Committee meets
with the auditor’s representatives at least twice per
year.

NOVATEK’s management is aware of and accepts
recommendations on the independence of the exter-
nal auditor by restricting such auditor’s involvement
in providing non-audit services. Remuneration paid to
the principle auditors for auditing and other services is
specified in the Note 23 to the consolidated financial
statements prepared in accordance with IFRS stand-
ards for 2015.

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 December 2015, NOVATEK
did not have privileged shares.

Our shares are traded in Russian roubles on the Mos-
cow Exchange and have a first grade 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 Company’s share capital.

Our Global Depositary Receipts (GDR) are listed on
the London Stock Exchange (symbol: NVTK), with
each GDR representing 10 ordinary shares. As of
31 December 2015, NOVATEK’s GDRs were issued
on 906,782,300 ordinary shares comprising 29.86 %
of the Company’s share capital.

On 24 December 2015, the Member of the Board of
Directors of OAO NOVATEK, Gennady N. Timchenko
made the transaction on the purchase of NOVATEK’s
shares in the amount of 435,102,064 shares.
In 2015, the Member of the Board of Directors
of OAO NOVATEK, Burckhard Bergmann made the
transaction on the sale of NOVATEK’s shares (in
a form of GDRs) in the amount of 200,000 shares.

DIVIDENDS

The Company’s Dividend Policy is regulated by the
Regulations on Dividend Policy of OAO NOVATEK
approved by the Board of Directors on 28.04.2014
(Minutes No. 168 of 28.04.2014). According to the
Regulations, consolidated net income under IFRS is
applied for calculation of the dividend size.

NOVATEK’s dividend policy is based on keeping the
balance between the Company’s business goals and
shareholder’s interests. A decision to pay dividends
as well as the amount of the dividend, the payment
deadline and form of the dividend is passed by the An-
nual 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
financial position of the Company, as well as its devel-
opment prospects, including operating cash flow and
capital expenditure forecasts, financing requirements,
debt servicing and other such factors as it may deem
relevant to maintaining financial stability and flexible
capital structure of the Company. NOVATEK is strongly
committed to its dividend policy.

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

Equity stake as of 31 December 2015, %

Number of shares

BOARD OF DIRECTORS

Alexander E. Natalenko

Andrei I. Akimov

Burckhard Bergmann

Michael Borrell

Robert Castaigne

Leonid V. Mikhelson

Victor P. Orlov

Andrei V. Sharonov

0.7152

20,717,112

Gennady N. Timchenko

14.33

435,102,064

MANAGEMENT BOARD

Vladimir A. Baskov

Lev V. Feodosyev

Alexander M. Fridman

Mark A. Gyetvay

Tatyana S. Kuznetsova

Iosif L. Levinzon

Sergey V. Protosenya

Kirill N. Yanovskiy

0.0288

0.0817

0.1944

0.0765

0.1051

874,408

2,481,049

5,903,035

2,323,223

3,192,530

Accrued and paid dividends on NOVATEK shares for the period 2010 to 2015

Dividend accrual period

Amount of dividends,
RR per share

Total amount
of dividends accrued, RR

Total amount
of dividends paid, RR

2010

2011

2012

2013

2014

First half 2015

4.00

6.00

6.86

7.89

10.30

6.60

12,145,224,000

12,144,967,156

18,217,836,000

18,217,661,063

20,829,059,160

20,829,058,569

23,956,454,340

23,956,347,687

31,273,951,800

31,273,843,933

20,039,619,600

20,039,504,550

The amount of paid dividends accrued for the years 2010 to 2014, and for the first six months 2015 is reported as of 31 December
2015. Partial payment of the accrued dividends was made due to provision by shareholders of incorrect postal and / or banking details
and insufficient information regarding banking or postal details of shareholders.

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* The equity stakes are given based on the records in the register of NOVATEK’s shareholders and notifications received from

members of the Board of Directors and Management Board, in accordance with the Russian Federation laws.

In accordance with the principles of its unified informa-
tion policy, NOVATEK is engaged in an active, ongoing
dialog with representatives of media. Information
disclosed to mass media comprises all aspects of the
Company’s activities, including financial and operating
results and projects under development, as well as
socially or environmentally important matters.
The Public Relations Department of the Company
frequently holds press conferences, briefings, and
press tours.

NOVATEK actively involves in a variety of industry
exhibitions and conferences. In 2015, NOVATEK’s
management and employees participated in more than
15 exhibitions, conferences and round tables. The
Company annually takes part in St Petersburg Inter-
national Economic Forum (SPIEF). In the reporting
year, NOVATEK’s delegation participated in the largest
international events such as 26th World Gas Confer-
ence and WGC 2015 in Paris as well as Gastech 2015
in Singapore.

On 10 March 2016, the Board of Directors of
OAO NOVATEK recommended to the Annual General
Meeting of Shareholders to pay dividends for FY 2015
in the amount of RR 6.9 per ordinary share or RR 69.0
per one Global Depositary Receipt (GDR), exclusive of RR
6.60 of interim dividends per ordinary share or RR 66.0
per one GDR paid for the first six months of 2015.

Thus, should the General Meeting of Shareholders
approve the recommended dividend, the dividends for
2015 will total RR 13.5 per ordinary share (RR 135.0
per one GDR), and the total amount of dividends
payable for 2015 will be RR 40,990,131,000. This
will represent a 31 % increase in dividend per share
compared to 2014.

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 Direc-
tors (Minutes No. 45 of 10 May 2005), define 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 accord-
ance with the applicable laws of Russian Federation
and United Kingdom. The Company discloses quarterly
financial statements in accordance with the Russian
(“RAS”) and International Financial Reporting Stand-
ards (“IFRS”), Management’s Discussion and Analysis
of Financial Condition and Results of Operations as well
as presentations for investors.

The Company’s website provides detailed information
on all aspects of its activities, including our Sustainability
Report. We regularly participate in information disclosure
on greenhouse gas emissions and energy efficiency
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.

The Company maintains an ongoing dialogue with
shareholders and investors in order to ensure full
awareness of investment community about its
activities. The main channels of communication 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
financial audiences to discuss issues of interest to
them.

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ADDITIONAL
INFORMATION

RISK MANAGEMENT SYSTEM

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

A multilevel system of risk management has been im-
plemented at the Company. Powers, duties and respon-
sibilities for specific risk management procedures are
delegated to different governance levels of the Com-
pany depending on the assessment of financial impact
of risk. The Company’s risk management policy is laid
out in the Regulations on NOVATEK Risk Management
and Internal Control System approved by the Board of
Directors on 1 September 2014 (Minutes No. 170 of
1 September 2014) with amendments.

The Board of Directors’ Audit Committee is responsible
for the supervision over the reliability and efficiency of
the risk management framework and review of the risk
management policy. In the reporting year, the Audit
Committee after careful review and analysis of the
information provided, recognized NOVATEK’s risk man-
agement activities as compliant with the risk manage-
ment policy of the Company.

Below is the list of risks and approaches to risk man-
agement applied by the Company. The risks described
herein are not exhaustive and reflect the opinion on
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

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 effect on
the Company's business reputation
and financial 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
certified 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 significantly mitigate accident risks.

Monopoly risks

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

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 finished
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).

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Risk

Risk description

Risk management approaches used by the Company

Competitive risks

Commodity price
risks

Geological risks

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 equip-

ment and services;

• access to transportation infra-

structure, which has technological
limitations;

• employment of highly qualified
specialists to work for the Com-
pany and its subsidiaries and joint
ventures.

As an independent natural gas
producer, NOVATEK is not subject to
state regulation of natural gas prices.
Nevertheless, the Company’s prices
are strongly influenced by the prices
established by a Federal body.

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
effect on the Company’s financial
performance.

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 fields,
along with the cost-effectiveness
of reserve development may deviate
from estimates.

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 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 benefit 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
efforts 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
efficient mechanisms of attracting and retaining highly qualified
employees.

State regulation of gas prices significantly reduces the risk of
price volatility on the Russian gas market.

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

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.

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.

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Risk

Risk description

Risk management approaches used by the Company

Environmental
risks

Project 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
effect 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.

Volatile exchange rates of the national
currency and unstable lending
conditions, growing funding costs,
drop in hydrocarbon prices, precarious
financial position of contractors and
oil and gas equipment suppliers may
affect the Company's Investment
Program leading to delays in project
execution and / or rising project costs.

The Company implements expert review of projects at the project
development stage. Investments are only channeled into the
projects that are most likely to help the Company achieve its
strategic objectives.

The Company has tightened its selection requirements for
contractors and suppliers of oil and gas equipment. There is
ongoing monitoring of their performance, including on-site
visits to the oil and gas equipment plants involved in production
and testing of the equipment for the Company.

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 conflict of interest.

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

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. This mitigates ethical risk
to stakeholders and investors.

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’s Anti-
Corruption Policy that established key principles and standards
of anti-corruption practices for employees and includes a set of
corruption prevention measures.

As part of the Anti-Corruption Policy implementation a Security
Hotline is in a 24 / 7 operation.

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 conflicts, announcement of a state of
emergency, or strikes, are insignificant, as the Company operates
in economically and socially stable regions.

Social risks

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;

• external risks associated with

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

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.

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Risk

Risk description

Risk management approaches used by the Company

Active marketing and financial policy enable the Company to
mitigate the country risk.

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

Country risk

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

In 2015, a precipitous decline in crude
oil prices and international sanctions
caused volatility in foreign currencies,
growing inflation rates, an increase in
interest rates and an economic growth
slowdown.

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

Regional risk

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

The Company’s vulnerability to region-specific impacts is
insignificant and is entirely taken into account by the Company's
management at the facilities design and operation stage.

FINANCIAL RISKS

Credit risk

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

Reinvestment risk

Interest risks

Currency risks

The Company’s business requires
substantial investments into field
exploration and development, followed
by the production, transportation,
and processing of natural gas, oil, gas
condensate and petroleum products.
Insufficient funding for these and other
expenditures may affect the Company’s
financial standing and performance.

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 floating international and
Russian base rates which dynamics are
hard to predict. Volatile interest rates
may restrict the use of borrowed capital
as a financing 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 Russian rouble 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 Russian rouble appreciation.

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When selling natural gas on the domestic market, the Company
continuously monitors the financial 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 bank's
reliability confirmed by international ratings.

The Company’s capital investment plans are defined 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 flow from operations taking into account the need to pay
dividend and service its debt.

The Company pursues a balanced debt policy and strives to
maximize the share of long-term liabilities with fixed rates in its
debt portfolio. The Company strives to maintain flexibility in its
investment program.

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

Risk

Risk description

Risk management approaches used by the Company

Liquidity risk

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

The Company’s approach to managing liquidity risk is to ensure
that it will always have sufficient 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 flows and matches the
financial assets and liabilities maturity profiles.

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

Inflation risk

LEGAL RISKS

Risk of law
changes

Changes in the consumer price
index have an impact on NOVATEK’s
profitability and, as a consequence,
its financial standing. The significant
currency depreciation in 2015 caused
a surge in inflation rates, which are
impossible to accurately predict.

NOVATEK may not be able to predict the inflation 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 rouble,
the pricing conditions in liquid hydrocarbon export markets, and
government policy in relation to tariffs 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 to
evaluate the consequences of such changes and to take them
into account in its plans.

• currency laws (in areas concern-

ing export / import and borrowing
operations);

• tax laws (in areas regulating taxa-
tion systems and rates applicable
to companies in general, and to
companies producing and market-
ing natural gas and liquid hydrocar-
bons, specifically);

• 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 insignificant.

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 financing to
the Company for more than 90 days.
The sanctions imposed restrict the
Company’s ability to refinance 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 financial 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 effort to minimize the
negative impact on the Company’s business operations and
financial standing.

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Risk Insurance

INFORMATION ON MEMBERS OF NOVATEK’S
BOARD OF DIRECTORS

Risk insurance is an integral part of NOVATEK’s risk
management system. In 2015, the insurance coverage
guaranteed adequate protection against the risks of
damage to the business of the Company or its subsid-
iaries and joint ventures. Insurance is provided by rep-
utable insurance companies that have high ratings by
leading rating agencies (Standard & Poor`s, Expert RA,
A. M. Best) with partial reinsurance of risks by major
international insurance and reinsurance companies.

Obligatory Risk Insurance

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

• owners of hazardous production facilities; and
• owners of transport vehicles.

Optional Risk Insurance

To reduce the risk of financial losses, the Company and
its subsidiaries and affiliates maintain the following
types of optional insurance:

Mr. Alexander E. Natalenko
Born in 1946

• Chairman of NOVATEK’s Board of Directors
• Chairman of its Strategy Committee

Mr. Natalenko completed his studies at the Irkutsk
State University in 1969 with a primary focus in
Geological Engineering. Subsequently, he worked with
the Yagodinskaya, 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 positions in
Russian and foreign geological organizations. From 1996
to 2001, Mr. Natalenko held the position of Deputy
Minister of Natural Resources of the Russian Federation.
From 2013 to 2015 he was a member of the Board of
Directors of AO Rosgeologia. From 2004 to present he is
the Chairman 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.

• Insurance of the risk of property damage / loss,

including the risk of mechanical failures;

• Insurance of the risk of damage from business

interruption;

Mr. Andrei I. Akimov
Born in 1953

• Insurance of risks related to prospecting, exploration

and production (risk of loss of control over a well); and

• Member of NOVATEK’s Board of Directors
• Member of its Strategy Committee

• Management liability insurance.

Since 2013, the Company implemented a comprehensive
program of property and business risk insurance with
respect to its and its subsidiaries’ and joint venture’s
key assets. The cumulative insured amount for the risks
of property damage and business interruption as at the
end 2015 was RR 482 billion. The implemented program
is viewed by the Company’s management as an efficient
measure for mitigating the consequences of potential
accidents and provides additional guarantees for the
attainment of the expected net profit and key indicators
of the Company's performance.

In the reporting year, no insured major accidents or
incidents occurred.

For more than ten (10) years the Company has main-
tained a management liability insurance for the top
management of the Company and its subsidiaries
against possible third-party claims for any losses in-
curred through any wrong action (or decision) made by
its management bodies. The overall limit of all insurance
coverage is Euro 120 mln.

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
financial company, IMAG Investment Management &
Advisory Group AG (Austria). Since 2003, Mr. Akimov
has been the Chairman of the Management Board of
Gazprombank (OAO). He is a member of Board of Directors
of PAO Gazprom, Gazprombank (AO), OAO Rosneft,
OAO Rosneftegaz, Gazprom Germania GmbH, ООО Gazprom
gas motor fuel, GPB International S. A. and other.

Dr. Burckhard Bergmann
Born in 1943

• Member of NOVATEK’s Board of Directors
• Member of its Strategy Committee

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Dr. Bergmann studied physics at the Freiburg and
Aachen Universities from 1962 to 1968 and was
awarded a Doctorate in Engineering by Aachen Uni-
versity of Technology in 1970. From 1968 to 1969,
Dr. Bergmann worked at the German Federal Minis-
try 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 Pur-
chasing 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.

Till 2013 Dr. Bergmann was a member of the Boards
of Directors (Supervisory Boards) of: Allianz Lebens-
versicherungs-AG, Commerzbank AG, Contilia GmbH.
At present, he is a member of the Advisory Boards
for Dana Gas International, Vice Chairman of the
Advisory Board of Accumulatoren-werke Hoppecke
GmbH and a member of the Board of Trustees of
RAG AG and a member of the Board of Directors of
Telenor ASA.

Dr. Bergmann holds the following distinctions: Com-
mander 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);
Officer’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
significant contribution in development of the Rus-
sian-German relations.

Mr. Michael Borrell
Born in 1962

• Member of NOVATEK’s Board of Directors
• Member of its Strategy Committee

Mr. Borrell graduated from the University of Cambridge
with a degree in Chemical and Mechanical Engineering
(Master of Science — 1993, Bachelor — 1984). He
joined TOTAL in 1985. Mr. Borrell worked with the
affiliated companies of the concern; from 1995 he held
a number of senior management positions in TOTAL.
From 2003, he worked at the position of Vice-Presi-
dent for Corporate Planning and Business Development

in Total E&P Indonesia. In July 2006, he was ap-
pointed President and CEO of TOTAL E&P Canada in
Calgary. From September 2009 to June 2010, he was
Vice President of the Caspian Area and Central Asia for
TOTAL Exploration and Production. From July 2010, he
worked as First Vice President of Continental Europe
and Central Asia. Since 1 January 2015, he has been
appointed Senior Vice-President of Europe and Central
Asia.

Mr. Robert Castaigne
Born in 1946

• Independent member of NOVATEK’s Board of

Directors

• Member of the Remuneration and Nomination
Committee of NOVATEK’s Board of Directors
• Member of the Audit Committee of NOVATEK’s

Board of Directors

Mr. Castaigne graduated from the Ecole Centrale
de Lille in 1968 and the Ecole nationale supérieure
du pétrole et des moteurs, he holds a doctorate in
economics. He has spent his whole career at TOTAL
SA, first as an engineer, then in various positions.
From 1994 to 2008, he was Member of the Executive
Committee, Executive Vice-President and Chief Financial
Officer of TOTAL SA. He is Member of SANOFI’s
Board of Directors and Chairman of its Audit Com-
mittee, Member of VINCI’s Board of Directors and
its Audit and Remuneration Committees, Member of
Societe Generale’s Board of Directors and its Risk,
Audit and Internal Control Committees. He is Cheva-
lier of the National Order of the Legion of Honour.

Mr. Leonid V. Mikhelson
Born in 1955

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

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 construc-
tion of the first 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 first company 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 compa-
ny “Novafininvest”.

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Since 2003, Mr. Mikhelson has served as a member
of the Board of Directors and Chairman of the Man-
agement Board of NOVATEK. From March 2008 to
December 2010, he has been a member of the Board
of Directors and the Chairman of the Board of Directors
of OAO Stroytransgas. 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 PAO SIBUR
Holding and from 2011 to 2013 he was a member of
the Supervisory Board of the OAO Russian Regional
Development 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 person of the gas industry”.

Committee on Natural Resources and Environmen-
tal Protection. From 1998 to present — President
of “Russian Geological Society” public organiza-
tion. Author and co-author of over 300 scientific
publications.

Professor, Doctor of Economics (1991), Candidate of
geological-mineralogical sciences (1974), an Honored
Geologist of Russia. Laureate of the State Prize of the
Russian Federation in the field of science and technolo-
gy. He was awarded the Order of Merit for the Father-
land 4 degree (2001), the Order of Honor (2015),
18 non-governmental awards, including 3 appreciation
letters of the President of the Russian Federation,
2 Certificates of Merit of the Government of the Rus-
sian Federation.

Mr. Victor P. Orlov
Born in 1940

Mr. Andrei V. Sharonov
Born in 1964

• Independent member of NOVATEK’s Board

• Independent member of NOVATEK’s Board of

of Directors

Directors

• Chairman of NOVATEK’s Remuneration

and Nomination Committee

• Chairman of NOVATEK’s Audit Committee
• Member of NOVATEK’s Remuneration

• Member of NOVATEK’s Audit Committee

and Nomination Committee

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 Academy 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 explora-
tion works in Iran. 1979 – 1981 — Deputy Head of
the Geological Division of the Production Geological
Association of central areas of Russia (Tsentrgeologi-
ya). 1981 – 1986 — Deputy Head of Geology and
Production departments of the Ministry of Geology
of the RSFSR. 1986 – 1990 — CEO of Tsentrgeologi-
ya. 1990 – 1992 — Deputy Minister of Geology of
the USSR, First Deputy Chairman of the RSFSR State
Committee for Geology and Use of Energy and Mineral
Resources. 1992 – 1996 — Chairman of the Russian
Federation Committee on Geology and Mineral Re-
sources. 1996 – 1999 — Minister of Natural Resourc-
es of the Russian Federation. 2001 – 2012 — Mem-
ber 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

Mr. Sharonov graduated from the Ufa Aviation Insti-
tute 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 Department, Deputy
Minister, State Secretary in the Ministry of Economic
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 Regional Energy Commission. From
September 2013 — President of the Moscow School
of Management SKOLKOVO and Adviser to the Mayor
of Moscow.

From 2011 to 2015 at various times he was a mem-
ber of ALROSA’s Supervisory Board (OAO); member
of the Board of Directors of OAO Bank of Moscow and
of “National Research University “Higher School of
Economics”.

He is currently a member of the Board of Directors of
PAO Sovcomflot; Chairman of the Board of Directors,
an Independent member of the Board of Directors
of OOO Management Company NefteTransService;

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Chairman of the Board of Directors of OAO Manage-
ment Company Eko-sistema; a member of the Board of
Directors of AO Rosgeologia, a member of the Super-
visory Board of PAO Moscow Stock Exchange and the
Bank VTB (PAO).

Candidate of sociological sciences, an Honored Econ-
omist of the Russian Federation. He is the recipient
of the “Aristos” Award in the “Independent Direc-
tor” 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
Born in 1955

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

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

Mr. Vladimir A. Baskov
Born in 1960

Mr. Gennady N. Timchenko
Born in 1952

• Member of NOVATEK’s Board of Directors
• Member of NOVATEK’s Strategy Committee

In 1976, Mr. Timchenko graduated with a Master’s of
Science from the Mechanical University in Leningrad.
He began his career at the Izjorskii Factory in Lenin-
grad, 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
Kirishineftekhimexport, the export and trading arm
of the Kirishi refinery. 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. Timchenko was a member of the Board of
Directors of OOO Transoil and OOO BalttransService,
Airfix 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 PAO 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 Committee of the
Russian Federation, the Chairman of the Economic
Council of the Franco-Russian Chamber of Commerce
(CCIFR).

• Deputy Chairman of NOVATEK’s Management Board

In 1986, Mr. Baskov graduated from the Moscow High-
er Police School of the USSR. In 2000, he completed
courses at the Management Academy at the Russian
Ministry for Internal Affairs. From 1981 to 2003, he
served in various departments within the Russian Minis-
try for Internal Affairs. 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 Chair-
man of NOVATEK’s Management Board and in 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 departmen-
tal awards: Honorary Diplomas of the President of the
Russian Federation, the Minister of Internal Affairs, 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. Lev V. Feodosyev
Born in 1979

• Deputy Chairman of NOVATEK’s Management

Board — Commercial Director

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In 2002, Mr. Feodosyev graduated from the Bauman
Moscow State Technical University with a degree in
Machinery and Foundry Engineering Technologies. In
2002, Mr. Feodosyev was appointed lead specialist at
the Ministry of Energy of the Russian Federation. From
2003, he has served as lead specialist, senior special-
ist, adviser, deputy head of section, Deputy Director
of Department at the Ministry of Economic Devel-
opment and Trade of the Russian Federation. From
October 2007, Mr. Feodosyev worked in NOVATEK as
Director of the Strategic Planning and Development
Department. From 2011, he was appointed as Deputy
Commercial Director, Director of the Marketing and Gas 85

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Sales Department of NOVATEK. Since February 2015,
he has been appointed Commercial Director, Deputy
Chairman of the Management Board of NOVATEK.

providing overall project management, financial and
operational expertise, maintaining and supporting client
service relationships as well as serving as concurring
partner on transaction services to the petroleum sector.

In 2014, Mr. Feodosyev was awarded NOVATEK’s
Honorary Certificate.

Mr. Alexander M. Fridman
Born in 1951

• First Deputy Chairman of NOVATEK’s

Management Board

In 1973, Mr. Fridman graduated from the Gubkin
Institute of Oil and Gas in Moscow, with a degree in
Oil and Gas Fields Development 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
Department for Gas Transportation and Underground
Storage. From 1992 to 2003, he was Technical
Director, 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 Novafininvest. In 2004, Mr. Fridman was elected
Deputy Chairman of the Management Board of OAO
NOVATEK. In August 2007, he was appointed a member
of NOVATEK’s Management Board. From February 2015
First Deputy Chairman of the Management Board of
OAO NOVATEK. Mr. Fridman is the recipient of the title
of honor “Honored man of the oil and gas industry”.

Mr. Mark A. Gyetvay
Born in 1957

• Deputy Chairman of NOVATEK’s Management Board

Mr. Gyetvay studied at Arizona State University (Bache-
lor of Science, Accounting, 1981) and later at Pace Uni-
versity, New York (Graduate Studies in Strategic Man-
agement, 1995). After graduation, Mr. Gyetvay worked
in various capacities at a number of independent oil and
gas companies (Champlin Petroleum Co., Texas, En-
source Inc. and MAG Enterprises, Colorado, and Amerada
Hess Corporation, New Jersey) where he specialized in
financial and economic analysis for both upstream and
downstream 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 Coop-
ers & Lybrand to lead the oil and gas practice. He was
admitted as a partner of PricewaterhouseCoopers Global
Energy where he assumed the role of client service
engagement partner, Utilities and Mining practice, based
in Russia (Moscow office). Mr. Gyetvay was an en-
gagement partner on various energy and mining clients

Mr. Gyetvay is a Certified Public Accountant, a mem-
ber of the American Institute of Certified Public
Accountants and an associate member of the Society
of Petroleum Engineers. He is a recognized expert in
the oil and gas industry, a frequent speaker at various
industry and investor conferences, has published
numerous articles on various oil and gas industry
topics and was a former member of PwC’s Petroleum
Thought Leadership team. He has been recognized
by Investor Relations Magazine as one of the best
CFO’s in Russia and the CIS, and more recently by
Institutional Investor magazine as one of the Top Five
CFO’s in Europe’s Oil and Gas sector. Finance Monthly
magazine recently named Mark Gyetvay the Best CFO
in Russia 2015.

From 2003 to 2014, Mr. Gyetvay was a member of
NOVATEK’s Board of Directors and served on the In-
vestment and Strategy Committee. In 2003 – 2014, he
has been Chief Financial Officer and, in August 2007,
Mr. Gyetvay was elected to NOVATEK’s Management
Board. In July 2010, he became Deputy Chairman of
NOVATEK’s Management Board.

Ms. Tatyana S. Kuznetsova
Born in 1960

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

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 appoint-
ed 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. Ms. Kuznetsova has the title “Honored employ-
ee of OAO NOVATEK”, and is awarded the Order of
Merit for the Fatherland 2 degree.

Mr. Iosif L. Levinzon
Born in 1956

• Member of NOVATEK’s Management Board
• Advisor on Geology

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Mr. Protosenya holds Honorary Certificate awarded
by the Ministry of Energy of the Russian Federation.

Mr. Kirill N. Yanovskiy
Born in 1967

• Member of NOVATEK’s Management Board
• Director for Finance

In 1991, Mr. Yanovskiy graduated from the Gubkin In-
stitute of Oil and Gas in Moscow. From 1992, he head-
ed 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, since February 2015
he is Director for Finance of OAO NOVATEK.

Mr. Levinzon graduated from the Tyumen Industrial
Institute specializing in geology of oil and gas fields.
From 1978 to 1987, he was the operator and then Head
of the Urengoy oil expedition. 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 Advisor 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 Deputy Chairman of NOVATEK’s
Management Board and in December 2009 he was
elected a member of NOVATEK’s Management Board.

Mr. Levinzon is an Honored Geologist of Russia,
a recipient of the Order of the Badge of Honor
and the Order of the Friendship of Peoples awards
and has been awarded the Certificate of Merit from
the Governor of the Yamal-Nenets Autonomous
Region.

Mr. Sergey V. Protosenya
Born in 1966

• Deputy Chairman of NOVATEK’s Management Board

In 1991, Mr. Protosenya graduated from the
Moscow Institute of Engineering and Construction
named after Kuybyshev with a degree in Engineering
and Economics. From 1991 to 1992, he was Chief
Accountant of a small enterprise RESTEPP and from
1992 to 1993 worked as Deputy Chief Accountant
in the Moscow branch of Uzinbank. In 1993, Mr.
Protosenya took a position of Deputy Head of
Division for Analysis, Accounting and Reporting in
Lefko-Bank (joint-stock commercial bank). From 1995
to 1997, he held a position of Deputy Director of
AOOT SNP Nova. From 1997, Mr. Protosenya was
Deputy Director General for Economics of OAO FIK
Novafininvest (financial and investment company)
and then took a position of Finance Director of OAO
NK Tarkosaleneftegas. In 2001, he was appointed
Head of Accounting, Reporting, Analysis and Business
Planning Department of OAO Pur-Land. In 2002, Mr.
Protosenya worked as First Deputy Chief Accountant
of OOO NK ITERA.

In 2002 – 2014 — Chief Accountant of OAO NOVATEK,
Deputy Chairman of the Management Board — Chief
Accountant of OAO NOVATEK. From February
to December 2015 — Deputy Chairman of the
Management Board of OAO NOVATEK.

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MAJOR, MATERIAL AND RELATED PARTY
TRANSACTIONS

A material transaction that is not a major
transaction

In 2015, no related party transactions were entered
into by NOVATEK.

The Company entered into one major transaction as
follows:

Transaction type and scope: associated transactions,
including the Share Purchase Agreement (the
“Agreement”) and Parent Company Guarantee (the
“Guarantee”).

Scope of the Agreement: sale and purchase of three
hundred fifty seven thousand four hundred and fifteen
(357,415) ordinary registered shares of OAO Yamal
LNG with a nominal value of one hundred roubles (RUB
100) each (the issue’s state registration number —
1-01-10428-A), comprising nine point nine percent
(9.9 %) of OAO Yamal LNG’s issued share capital (the
“Shares”). The transaction shall be closed following
the effective date of the Protocol to the Agreement
between the Government of the Russian Federation
and the Government of the People’s Republic of China
on Cooperation in the Implementation of the Yamal
LNG Project.

Scope of the Guarantee: provision of collateral for all of
NOVATEK EQUITY (CYPRUS) LIMITED’s obligations to
the Lender under the Loan Agreement totaling approx-
imately 730,000,000 euro for a period of 15 years
(the “Secured Loan Agreement”).

Parties to the Agreement:
• Sellers: OAO NOVATEK, NOVATEK Moscow Region

LLC and NOVATEK-Perm LLC;

• Buyer: YAYM LIMITED.

Parties to the Guarantee:
• Guarantor: OAO NOVATEK;
• Beneficiary: YAYM LIMITED (Lender under the Se-

cured Loan Agreement).

Transaction size: comprises the price of the Shares and
the total of the secured obligations (loan principal and
interest) exceeding 25 % of NOVATEK’s assets value as
at 30 September 2015.

Transaction date: 17 December 2015.

The transaction was approved by OAO NOVATEK’s
Board of Directors on 10 December 2015 (Min-
utes No. 181 of 10 December 2015).

Transaction type and scope: National Wealth Fund
Debt Service Undertaking (the “DSU”).

Parties:
• DSU Guarantors: OAO NOVATEK, TOTAL S. A., China
National Oil and Gas Exploration and Development
Corporation and OAO Yamal LNG;

• DSU Beneficiary: Ministry of Finance of the Russian
Federation acting for and on behalf of the Russian
Federation.

DSU scope: with OAO Yamal LNG (“Yamal LNG”)
issuing bonds to be purchased by the Ministry of
Finance of the Russian Federation (the “Ministry”),
OAO NOVATEK (“NOVATEK”), TOTAL S. A. (“Total”)
and China National Oil and Gas Exploration and
Development Corporation (the “CNODC”) undertake
that, in case of Yamal LNG’s failure to pay any amount
due to the Ministry under the bonds (or under any
other document signed by the Ministry in respect of
such bonds, including those signed with the project
finance lenders), they shall pay the pro rata share of
the amount owed by Yamal LNG to the Ministry.

NOVATEK’s obligations under the DSU end on the earli-
er of (provided there are no outstanding obligations as
at the said date):

(1) completing the construction of all the three process
trains at the LNG plant and passing a defined set of
tests confirming the successful completion of such
construction;
(2) NOVATEK fulfilling its obligations under the DSU in
full; or
(3) Yamal LNG repaying its debt under the bonds in full.

NOVATEK’s liabilities under the DSU: 59.9738 %
(inclusive of an adjustment in line with the DSU and
contracts related thereto) of the bonds’ principal
amount of up to one hundred and fifty billion roubles
(RUB 150,000,000,000) as at the date of issue,
the interests payable on the above principal and
other amounts payable in connection with the bonds.
NOVATEK’s liability totals 16.9833 % of the issuer’s
assets value.

Transaction date (DSU date): 5 August 2015.

The transaction was approved by OAO NOVATEK’s
Board of Directors on 22 July 2015 (Minutes No. 177
of 22 July 2015).

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NOVATEK also entered into several material transac-
tions that are not major transactions.

A material transaction that is not a major
transaction:

Transaction date (date of the Agreement):
14 October 2015.

The transaction has not been approved yet.

On top of that, a material entity controlled by the
Company entered into a major transaction in 2015
as follows:

Transaction type and scope: LNG Sale and Purchase
Agreement between OAO Yamal LNG (the “Seller”)
and Yamal Trade PTE. LTD. (the “Buyer”). The Seller
shall supply 100 % of LNG produced at the Yamal LNG
facilities to meet its LNG supply obligations under the
LNG Sale and Purchase Agreement to the effect that
the Buyer in its turn could meet its obligations under
agreements on subsequent LNG sales entered into
with the next buyers.

The LNG Sale and Purchase Agreement shall be effec-
tive until 31 December 2045 (except if early terminat-
ed or if the Parties agree to extend the Agreement).

Transaction date (date of the Agreement): 31 March
2015.

The transaction was approved by OAO Yamal LNG’s
Board of Directors on 17 March 2015 (Minutes No.
163 of 17 March 2015).

Transaction type and scope: an agreement to supply
2.6 bcm per annum of combustible natural gas from
1 January 2016 to 31 December 2020.

The term of the gas supply obligations extends from
the date PAO Gazprom’s consent to sign an agreement
with the Supplier to transport gas to the Buyer to
31 December 2020.

Parties:
• Joint Stock Company NOVATEK as the Supplier;
• Open Joint Stock Company NLMK as the Buyer.

The estimated transaction value exceeds seventy billion
roubles (RUB 70,000,000,000), i. e. more than 13 %
of NOVATEK’s assets value as at 30 June 2015.

Transaction date (date of the Agreement):
21 August 2015.

The transaction has not been approved yet.

A material transaction that is not a major
transaction:

Transaction type and scope: Master Agreement for a
Framework Revolving Credit Facility with Differentiated
Interest Rates signed by OAO NOVATEK (the “Borrow-
er”) and PAO Sberbank of Russia (the “Lender”).

The Lender shall open for the Borrower a framework
revolving credit facility to finance the Borrower’s on-
going operations, including provision of loans, for the
period up until 24 September 2018 and with a financ-
ing limit of fifty billion roubles (RUB 50,000,000,000).

Under the Agreement, the Lender and the Borrower
shall enter into separate Credit Transactions on terms
and conditions agreed by the Parties, including:

• loan amount;
• loan issue and maturity dates;
• interest rate or criteria used to determine and
change such interest rates, interest periods;

• commitment and early repayment fees.

Full loan repayment date: on or prior to 24 September
2018.

Transaction size: comprises credit facilities (with a financ-
ing limit of fifty billion roubles (RUB 50,000,000,000)),
commitment fee, early repayment fee and interest; may
exceed 10 % of NOVATEK’s assets value.

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INFORMATION (REPORT) ON THE OBSERVANCE BY A JOINT STOCK

COMPANY OF THE PRINCIPLES AND THE RECOMMENDATIONS OF THE

CORPORATE GOVERNANCE CODE RECOMMENDED FOR APPLICATION

BY THE BANK OF RUSSIA

Corporate governance system, including the model and
corporate governance practices, are described in detail
in the “Corporate Governance” section of this Annual
Report. The Company complies with the basic principles
of the Corporate Governance Code recommended for
application by the Bank of Russia. Some principles are
not formally respected due to the absence of relevant
rules in the internal documents, but are complied with
in our actual activities.

In assessing our compliance with the corporate
governance principles we used a form received from

ZAO “MICEX Stock Exchange” (Information let-
ter No 31 – 14 / 236 of 13.03.2015) and placed
on the website of ZAO “MICEX Stock Exchange” at
http://moex.com / s22.

In order to improve the Company’s corporate governance
system it is planned to amend the Regulation on the Gen-
eral Meeting of Shareholders of OAO NOVATEK in 2016,
as well as implement additional analysis of the Corporate
Governance system in connection with the changing cor-
porate law with a view to planning the measures aimed at
further development of our corporate governance system.

PRINCIPLE

OBSERVANCE

COMMENT

No.

Corporate governance principle(s) or key
criterion (recommendation)

A brief description
of non-compliance
with the corporate
governance principle
or key criterion

The explanation of the key rea-
sons, factors and circumstances
due to which the principle or key
criterion is not complied with or is
complied with in part, the de-
scription of alternative corporate
governance mechanisms and tools

I. SHAREHOLDER RIGHTS AND EQUITABLE TREATMENT OF SHAREHOLDERS

1.1.

The company should ensure equitable and fair treatment of every shareholder exercising their right to take
part in managing the company. Corporate governance framework and practices should ensure equality for the
shareholders owning the same type (class) of shares, including minority and non-resident shareholders, and
their equitable treatment by the company.

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PRINCIPLE

OBSERVANCE

COMMENT

1.1.1. The company has an approved internal regulation

setting forth key procedures to prepare
for, convene and hold general meetings of
shareholders in compliance with recommendations
of the Corporate Governance Code, including the
company's obligations to:

• notify shareholders of general meetings and
provide access to the relevant materials, in-
cluding by posting the notice and materials at
the corporate website, at least 30 days prior
to such meeting, unless a longer time period is
required by the applicable Russian law;

• announce the record date at least seven days

prior to such date;

• provide additional information and materials on
the general meeting agenda as recommended
by the Corporate Governance Code.

1.1.2. The company undertakes to enable its shareholders

to put questions on the company's operations to
members of the management and control bodies, audit
committee, chief accountant, company's auditors, and
nominees to management and control bodies, during
the general meeting and in the course of respective
preparations. The said obligations are set forth in the
company's articles of association or internal regulations.

1.1.3. The company observes the principle of preventing

any action that may result in an artificial redistribution
of corporate control (for example, voting with
quasi-treasury shares, decision to pay dividends
on preferred shares regardless of limited financial
capacities, decision not to pay dividends on preferred
shares as required by the articles of association
regardless of sources being sufficient for payment).
The said obligations are set forth in the company's
articles of association or internal regulations.

The Company’s internal
regulation setting forth key
procedures to prepare for,
convene and hold general
meetings of shareholders
does not formalize the
obligations to:

• provide access to the
relevant materials at
the Company’s website;

• announce the record

date at least seven days
prior to such date;
• provide additional in-

formation and materials
on the general meeting
agenda as recommend-
ed by the Corporate
Governance Code.

As per Clause 2, Article 24 of
NOVATEK’s Regulations on General
Meeting of Shareholders, the Company
may post information (materials) to be
made available to the persons entitled
to attend general meetings at its
corporate website (www.novatek.ru).
As a matter of fact, in preparing the
general meeting of shareholders the
Company posts such information
(materials) at its corporate website no
later than 30 days prior to the meeting.

Under the applicable Russian law,
public joint-stock companies are
required to announce the record date
at least nine days prior to such date
(see Paragraph 2, Clause 1, Article 51
of the Federal Law On Joint-Stock
Companies). Hence, this Corporate
Governance Code recommendation is
not up to date any longer.

This principle is complied
with.

The Company’s articles
of association and other
internal regulations do
not impose restrictions on
voting with quasi-treasury
shares.

In fact, the Company does not vote
with quasi-treasury shares during
general meetings of shareholders,
as required by international best
practices.

1.1.4. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

1.2

Shareholders should be given equal and fair opportunities to receive a share of the company's profit in the form
of dividends.

The Company’s internal
regulation governing
its dividend policy does
not require a mandatory
disclosure of this document
at its corporate website.

NOVATEK’s Regulation on Dividend
Policy is disclosed through the
Company's website.

1.2.1. The company has an approved internal regulation
stipulating its dividend policy in compliance with
recommendations of the Corporate Governance
Code, including, inter alia:

• procedures to determine a portion of the

company's net profit (for companies issuing
consolidated financial statements — a minimum
portion (share) of consolidated net profit) to
be distributed in the form of dividends, and
conditions to declare dividends;

• minimum dividends payable on different types

(classes) of shares;

• mandatory disclosure of the document gov-
erning the company's dividend policy at its
corporate website.

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PRINCIPLE

OBSERVANCE

COMMENT

1.2.2. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

II. THE COMPANY'S BOARD OF DIRECTORS

2.1

The board of directors' core responsibilities should include determining the company's long-term strategic
targets, key performance indicators (KPIs), key risk management and internal control principles and approaches,
strategic governance, exercising control over the company's executive bodies, articulating the company's policy
on remunerating its directors and executive body members, etc.

2.1.1. The company has a board of directors to:

This principle is complied
with.

• determine the company's long-term strategic

targets and KPIs;

• control the company's executive bodies;
• determine the company's risk management and

internal control principles and approaches;

• articulate the company's policy on remunerating
its directors, executive body members and other
key managers.

2.1.2 Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

2.2.

The board of directors should manage the company in an efficient and competent manner and make fair and
independent judgments and decisions in line with the best interests of the company and its shareholders. The
chairperson of the board should ensure that the board of directors discharges its duties in the most effective
and efficient way. The board of directors should ensure proper discharge of its duties by conducting meetings
attended by directors and making the respective preparations.

2.2.1. The board is chaired by an independent director,
or a senior independent director supervising the
activities of other independent directors and
interacting with the board's chairperson should be
appointed from among the elected independent
directors.

This principle is not
complied with.

2.2.2. The company's internal regulations stipulate the

procedure to prepare for and hold the board's
meetings, enabling the directors to make proper
preparations, including, inter alia:

The Company’s internal
regulations do not provide
for audio / video conference
debates and voting at the
Board’s meetings.

• meeting notice period;
• deadlines for circulating voting ballots and sub-
mitting the completed ones in case of in-absen-
tia meetings;

• option to submit and consider a director's writ-
ten opinion on the agenda items if they are not
present at an in-person meeting;

• option to participate in a meeting and voting via

an audio or video conference.

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For chairmanship purposes,
the directors elected the most
experienced of the Board members
who is not an independent director.

No senior independent director was
appointed to supervise the activities
of other independent directors and
interact with the board's chairperson.

Due to the efficient planning of
Board meetings held in person and in
absentia and directors’ commitment
to attend any such meeting, the
Company does not need to arrange
for audio / video conferencing during
the debates and voting at the Board’s
meetings. Should the need arise,
the Company will be able to provide
audio / video conference solutions to
support debates and voting at the
Board’s meetings.

PRINCIPLE

OBSERVANCE

COMMENT

2.2.3. Resolutions on the most important matters are

passed at the board's in-person meetings. The list
of such matters is compliant with the Corporate
Governance Code.1

This principle is not fully
complied with, as the Board
of directors considered
some of the matters
specified in Clause 168,
Part B of the Corporate
Governance Code at in-
absentia meetings.

2.2.4. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

In preparing its meeting schedule,
the Board of directors is guided by
this corporate governance principle.
Some urgent matters however might
be arising in the normal course of
the Company’s business throughout
the year. For the purposes of quick
decision-making, the Board of
directors brings up such matters at
in-absentia meetings providing the
directors with materials required to
perform thorough analysis and make
well-informed decisions.

2.3.

The board of directors should include a sufficient number of independent directors.

2.3.1.

Independent directors make up at least one third
of the elected board members.

This principle is complied
with.

2.3.2.

Independent directors fully meet the
independence criteria set forth in the Corporate
Governance Code.

This principle is complied
with.

2.3.3. The board of directors (nomination / HR committee)
verifies a board nominee's compliance with the
independence criteria.

This principle is complied
with.

2.3.4. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

2.4.

The board of directors should set up committees for preliminary consideration of key matters related to the
company's operations.

2.4.1. The board of directors has set up an audit

committee made up of independent directors.
Its responsibilities are set forth in the company's
internal regulations and are compliant with
recommendations of the Corporate Governance
Code2.

2.4.2. The board of directors has set up a remuneration

committee made up of independent directors
(it may be combined with the nomination / HR
committee). Its responsibilities are compliant with
recommendations of the Corporate Governance
Code3.

2.4.3. The board of directors has set up a nomination / HR
committee predominantly made up of independent
directors (it may be combined with the
remuneration committee). Its responsibilities are
compliant with recommendations of the Corporate
Governance Code4.

This principle is complied
with.

1. See Clause 168, Part B of the Corporate Governance Code

2. See Clause 172, Part B of the Corporate Governance Code

3. See Clause 180, Part B of the Corporate Governance Code

4. See Clause 186, Part B of the Corporate Governance Code

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PRINCIPLE

OBSERVANCE

COMMENT

2.4.4. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

2.5.

The board of directors should assess its own, along with its members' and committees', performance.

2.5.1. The board's performance is assessed regularly
at least once a year, and at least once in three
years the company engages an external advisor to
conduct such assessment.

This principle is not
complied with.

The Board of directors is currently
considering the possibility of applying
this Corporate Governance Code
recommendation.

2.5.2. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

III. THE COMPANY'S CORPORATE SECRETARY

3.1

The company's corporate secretary (or a dedicated business unit headed by such) should ensure efficient
ongoing interaction with shareholders, coordinate the company's efforts to protect shareholder rights and
interests and support the board's activities.

3.1.1. The corporate secretary reports to the board of

directors and is appointed or removed from office
by the board's resolution or approval.

This principle is complied
with.

3.1.2. The company has an approved internal regulation

setting forth the corporate secretary's rights
and obligations (Regulation on the Corporate
Secretary) as recommended by the Corporate
Governance Code1.

This principle is complied
with.

3.1.3. The corporate secretary holds no concurrent

positions in the company. His / her responsibilities are
compliant with recommendations of the Corporate
Governance Code2. The corporate secretary has
sufficient resources to discharge his / her duties.

This principle is complied
with.

3.1.4. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

IV. REMUNERATION OF DIRECTORS, EXECUTIVE BODY MEMBERS AND OTHER KEY MANAGERS

4.1. Remuneration paid by the company should be sufficient to attract, motivate and retain persons who have

competencies and qualifications required by the company. Directors, executive body members and other key
managers should be remunerated as per the company's remuneration policy.

4.1.1. Payments, benefits and privileges available to

directors, executive body members and other key
managers are governed by the company's internal
regulations.

This principle is complied
with.

4.1.2. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

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1. See Clause 217, Part B of the Corporate Governance Code

2. See Clause 218, Part B of the Corporate Governance Code

PRINCIPLE

OBSERVANCE

COMMENT

4.2. Directors' remuneration should ensure that their financial interests are aligned with long-term financial interests

of shareholders.

4.2.1. The company pays no cash remuneration
to directors other than their fixed annual
remuneration.

This principle is complied
with.

Board members are paid a fixed fee for
attending the Board of directors, as
well as a fixed fee for attending each
meeting of the Board of directors or
the Board Committee.

The remuneration of the Board
members is independent of the
Company’s performance targets.

4.2.2. Directors are not entitled to participate in the

company's stock option plans, and their right to
dispose of the company shares owned by them is
not linked to their performance targets.

This principle is complied
with.

4.2.3. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

4.3. Remuneration of executive body members and other key managers should be linked to the company's results and

their personal contribution thereto.

4.3.1. The company has in place a long-term incentive
programme for the executive body members and
other key managers.

This principle is complied
with.

4.3.2. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

V. RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM

5.1.

The company should put in place an effective risk management and internal control system to guarantee, in a
reasonable manner, fulfilment of the company's goals.

5.1.1. The Board of Directors has defined the Company's

risk management and internal control principles
and approaches.

This principle is complied
with.

5.1.2. The company has established a standalone risk

management and internal control unit.

This principle is complied
with.

5.1.3. The company has drafted and implemented an
anti-corruption policy specifying measures to
develop anti-corruption elements of its culture and
organisational structure as well as respective rules
and regulations.

This principle is complied
with.

5.1.4. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

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OBSERVANCE

COMMENT

5.2.

The company should arrange for an internal audit, to assess reliability and performance of the risk management
and internal control system on a regular and independent basis.

5.2.1. The company has set up a standalone internal
audit unit functionally reporting to the Board
of Directors. The said unit's functions are
compliant with recommendations of the Corporate
Governance Code and include:

This principle is complied
with.

• assessing internal control performance;
• assessing risk management performance;
• assessing corporate governance framework
(in case there is no Corporate Governance
Committee).

5.2.2. Head of Internal Audit reports to the Board of

Directors and is appointed or removed from office
by the Board's resolution.

This principle is complied
with.

5.2.3. The company has an approved internal audit policy

(Regulation on Internal Audit) defining internal
audit goals, objectives and functions.

This principle is complied
with.

5.2.4. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

VI. DISCLOSURE OF INFORMATION ABOUT THE COMPANY AND ITS INFORMATION POLICY

6.1.

The company and its operations should be transparent for its shareholders, investors and other stakeholders.

6.1.1. The company has an approved internal regulation

defining its information policy as recommended by
the Corporate Governance Code. The company's
information policy provides for the following ways
of liaising with investors and other stakeholders:

This principle is complied
with.

• a dedicated page at the corporate website

featuring FAQs from investors and shareholders
and respective replies, a regularly updated cor-
porate calendar, and other useful information;
• regular meetings between executive body mem-
bers and other key managers and analysts;
• regular presentations, including via teleconfer-
ences and webcasts, and meetings attended
by governance body members and other key
managers, including those related to the release
of financial statements or the company's key
investment projects and strategic plans.

6.1.2. The company's executive bodies are in charge
of implementing its information policy. Control
over proper disclosure and compliance with the
information policy is exercised by the company's
Board of Directors.

This principle is complied
with.

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COMMENT

6.1.3. The company has in place procedures to align all its
functions and structural units whose activities are
related to or may require information disclosure.

This principle is complied
with.

6.1.4. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

6.2.

The company should, in due time, disclose up-to-date, complete and reliable information on its operations, to
enable its shareholders and investors to make informed decisions.

6.2.1.

If foreign investors hold a substantial share of
the company’s capital, the company discloses,
along with disclosure of information in Russian,
key information about itself (including an
announcement of a general meeting to be held,
its annual report) in a foreign language generally
accepted on the financial market

This principle is complied
with.

6.2.2. The company discloses information both about
itself but also about legal entities controlled by
and material to the company

This principle is complied
with.

6.2.3. The company discloses annual and interim

(half-year) consolidated or individual financial
statements prepared in accordance with the
International Financial Reporting Standards
(IFRS). The company's annual consolidated or
individual financial statements are disclosed
together with the auditor's report, while its interim
(half-year) consolidated or individual financial
statements are disclosed together with the
auditor's review report or the auditor's opinion.

6.2.4. The company discloses a special memorandum

setting out the controlling person's plans for the
company. The said memorandum complies with the
recommendations of the Corporate Governance
Code*.

Not applicable as there is
no controlling person in
respect of the Сompany.

6.2.5. The company ensures disclosure of biographical

details of its directors, including information as to
whether they are independent directors and timely
disclosure of information as to whether a director
has lost their independent status.

This principle is complied
with.

6.2.6. The company discloses information on its capital
structure in compliance with recommendations of
the Corporate Governance Code.

This principle is not fully
complied with.

* See Clause 279, Part B of the Corporate Governance Code

The Company discloses information on
the persons who directly or indirectly
dispose votes on shares constituting
five or more percent of the share
capital, in the form of material facts,
and in the quarterly report on the
basis of the notifications received
from such persons.

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COMMENT

Information on the remuneration of
the Chairman of the Management
Board is included into the information
on the remuneration paid to the
members of the Management Board

Information on indirect ownership of
the Board of directors or members of
the executive bodies of the Company's
shares is disclosed as a material fact
on the basis of the notifications
received from such persons.

The annual report does not
contain information on the
remuneration for the year
of the sole executive body,
which he has received
or is to receive from the
company (legal entity from
the group of companies,
which includes company)
broken down by each type
of remuneration as for the
performance of his duties
as the sole executive body,
and for other reasons.

The annual report discloses
information only about
the direct ownership of
the Board of directors or
members of the executive
bodies of the Company's
shares.

6.2.7. The company's annual report includes the following
additional information recommended by the
Corporate Governance Code:

1. a brief review of the most significant transac-

tions entered into by the company and by legal
entities controlled by it, including associated
transactions, during the past year;

2. a report by the board of directors and its

committees for the year, containing, inter alia,
information on the number of meetings held
in person (in absentia), attendance of each
director, the most important and complicated
matters discussed by the board and its com-
mittees, and principal recommendations by the
committees to the board;

3. information on shares in the company directly
or indirectly owned by its directors and / or
executive body members;

4. information on whether the company's directors
and / or executive body members have conflicts
of interest (including those linked to their mem-
bership in competitors' governance bodies);

5. a description of remuneration of directors,

including the amount of individual remunera-
tion payable to each director based on annual
performance (broken down into the base fee,
additional remuneration for the chairing of the
board of directors and chairing of / membership
in its committees, the extent of participation in
a long-term incentive program, the amount of
each director's participation in an option plan, if
any), reimbursement of related expenses, and
costs incurred by the company in connection
with liability insurance for its directors in their
capacity of governance body members;

6. information on the total remuneration for the

year:

•

in respect of a group of at least five top paid
executive body members and other key man-
agers of the company, broken down by type of
remuneration;
in respect of all executive body members and
other key managers covered by the company's
remuneration policy, broken down by type of
remuneration;

7. information on the sole executive body's remu-
neration for the year, which they have received
or are to receive from the company (legal entity
from a group that includes the company),
broken down by type of remuneration, both for
performing their duties of the sole executive
body and on other grounds.

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COMMENT

6.2.8. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

6.3.

The company should provide information and documents requested by its shareholders in accordance with the
principle of equal and unhindered accessibility.

6.3.1.

In accordance with the company's information
policy, its shareholders with equal quantity of the
company's voting shares are given equal access to
the company's information and documents.

This principle is complied
with.

6.3.2. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

VII. MATERIAL CORPORATE ACTIONS

7.1. Actions which will or may materially affect the company's share capital structure and its financial position and

accordingly the position of its shareholders ("material corporate actions") should be taken on fair terms ensuring
that the rights and interests of the shareholders and other stakeholders are observed.

This principle is largely
complied with.

The Company's Articles of
Association do not reserve
matters related to disposal
by the Company of its
treasury or quasi-treasury
shares to the authority of
the Board of directors.

The remit of the Company’s Board
of directors as described in the
Articles of Association is compliant
with the Federal Law On Joint-Stock
Companies No. 208-FZ dated 26
December 1995 and covers most
of the matters stipulated in this
recommendation of the Corporate
Governance Code.

7.1.1. The company's articles of association include a list
(criteria) of transactions or other actions deemed
to be material corporate actions the consideration
of which is reserved to the jurisdiction of the
Board of directors, including:

• reorganization of the company, acquisition of
at least 30 % of its voting shares (takeover),
increase or reduction of the company's author-
ized capital, listing and delisting of its shares;

• sale of shares (interests) in legal entities

controlled by and material to the company, as a
result of which the company loses control over
such legal entities;

• transactions, including associated transactions,
with the property of the company or legal enti-
ties controlled by the company, where the value
of such assets exceeds the amount specified
in the company's articles of association or is
material to the business of the company;

• creation of a legal entity controlled by and ma-

terial to the business of the company;

• disposal by the company of its treasury or qua-

si-treasury shares.

7.1.2. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

7.2.

The company should provide a procedure for taking material corporate actions that would enable its shareholders
to receive full information about such actions in due time and influence them, and also guarantee that the
shareholder rights are observed and duly protected when such actions are taken.

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COMMENT

This principle is not fully
complied with.

The Company engages an
independent appraiser in cases
required by the Russian law.

All transactions (except for
transactions within the framework of
charitable activities) are made by the
Company solely on market principles,
based on the objective of maximizing
profits and increasing shareholder
value.

The grounds on which the Board
members and other persons
stipulated by law are deemed
interested in the transactions of
the Company under the law, to fully
allow for a balance of interests of all
categories of shareholders and the
Company.

7.2.1. The company's internal regulations provide for

equitable treatment of all the shareholders of the
company when taking material corporate actions
affecting their rights and legitimate interests, and
establish additional measures to protect rights and
legitimate interests of the company's shareholders
stipulated by the Corporate Governance Code,
including:

• engagement of an independent appraiser with
an impeccable reputation and relevant expe-
rience, or justification if otherwise, to esti-
mate the value of the property disposed of or
acquired pursuant to a major transaction or a
related-party transaction;

• valuation of the company's shares at their

repurchase or redemption by an independent
appraiser with an impeccable reputation and
relevant experience, taking into account the
weighted average share price over a reasonable
period of time, ignoring potential effect of the
transaction (including potential changes in the
share price resulting from the relevant informa-
tion disclosure), and ignoring minority discount;
introduction of additional related party criteria
for the company's directors and other persons
as per the applicable law, to assess their actual
relationships.

•

7.2.2. Other criteria (recommendations) of the Corporate
Governance Code considered by the company
as key and pertaining to the said corporate
governance principle(s).

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 statements, which
are other than statements of historical facts. The words
“believe”, “expect”, “anticipate”, “intends”, “estimate”,
“forecast”, “project”, “will”, “may”, “should” and similar
expressions identify forward-looking statements. For-
ward-looking statements include statements regarding:
strategies, outlook and growth prospects; future plans
and potential for future growth; liquidity, capital resourc-
es and capital expenditures; growth in demand for our
products; economic outlook and industry trends; develop-
ments 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, including without limitation, man-
agement’s examination of historical operating trends, data

contained in our records and other data available from
third parties. Although we believe that these assumptions
were reasonable when made, these assumptions are
inherently subject to significant uncertainties and contin-
gencies, which are difficult or impossible to predict and
are beyond our control. As a result, we may not achieve or
accomplish these expectations, beliefs or projections. In
addition, important factors that, in our view, could cause
actual results to differ 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 effects of domestic and international oil and gas
price volatility and changes in regulatory conditions,
including prices and taxes;

• the effects of competition in the domestic and ex-

port oil and gas markets;

• our ability to successfully implement any of our

business strategies;

• the impact of our expansion on our revenue poten-

tial, cost basis and margins;

• our ability to produce target volumes in the event,

among other factors, of restrictions on our access to
transportation infrastructure;

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• the effects of changes to our capital expenditure

TERMS AND ABBREVIATIONS

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 comple-

tion dates;

Mentions in this Annual Report of “OAO NOVATEK”,
“NOVATEK”, “the Company”, “we” and “our” refer to
OAO NOVATEK and / or its subsidiaries (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.

• our success in identifying and managing risks to our

businesses;

barrel

• the effects of changes to the Russian legal frame-
work concerning currently held and any newly
acquired oil and gas production licenses;

• changes in political, social, legal or economic condi-

tions in Russia and the CIS;

• the effects of technological changes;
• the effects of changes in accounting standards or

practices.

This list of important factors is not exhaustive. When re-
lying 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 obli-
gation to update or revise any of them, whether as a result
of new information, future events or otherwise. 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.

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

bcm
boe
km
mboe
mcm
mt
mmboe million boe
mmcm million cubic meters
mmt
ton
SEC

million metric tons
metric ton
United States Securities and Exchange
Commission

PRMS Petroleum Resources Management System
YNAO Yamal-Nenets Autonomous Region
RR
LPG
LNG

Russian rouble
liquified petroleum gases
liquified natural gas

CONVERSION FACTORS

1000 cubic meters of gas = 6.54 boe

To convert crude oil and gas condensate reserves from
tons to barrels we used various coefficients depending
on the liquids density at each field.

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CONTACT
INFORMATION

LEGAL ADDRESS

INDEPENDENT AUDITOR

AO PricewaterhouseCoopers Audit
White Square Office 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)

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

OFFICE 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

AO “Independent Registrar Company”
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

The Bank of New York Mellon
Depositary Receipts
101 Barclay Street, 22W, New York, NY 10286, USA
New York +1 212 815-4158
London +44 207 163-7512
Moscow +7 495 967-3110

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