Novatek Annual Report 2016

FY2016 Annual Report · Novatek

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DELIVERING
RESULTS

Annual Report

CONTENTS

NOVATEK is one
of the largest in-
dependent natural
gas producers in
Russia.
NOVATEK’s main
businesses are
the exploration
and production,
processing, trans-
portation and mar-
keting of natural
gas and liquid
hydrocarbons.

6 46

Letter to Shareholders ............... 6
Strategic Priorities.................... 10
Key Events
and Achievements 2016 .......... 11
Key Indicators .......................... 12

REVIEW OF OPERATING
RESULTS

Licenses ................................. 46
Hydrocarbon Reserves ............ 46
Geological Exploration ............ 48
Field Development ................... 48
Hydrocarbon Production .......... 49
Yamal LNG Project ................... 50
Processing of Gas
Condensate ............................. 52
Natural Gas Sales ..................... 53
Liquid Hydrocarbon Sales ....... 53

Annual Report 2016novatek.ru

Delivering Results

55 61 71

ENVIRONMENTAL AND
SOCIAL RESPONSIBILITY

MANAGEMENT AND
CORPORATE GOVERNANCE 61

ADDITIONAL
INFORMATION

Environmental Protection......... 55
Industrial Safety
and Occupational Health .......... 57
Human Resources ................... 57
Social Policy and Charity .......... 59

Corporate Governance
System .................................... 61
General Meeting
of Shareholders........................ 62
Board of Directors ................... 62
Board Committees .................. 63
Management Board ................ 65
Remuneration to Members of
the Board of Directors and
Management Board ................. 65
Internal Control and Audit ........ 66
Share Capital ............................ 67
Dividends ................................ 68
Information Transparency ........ 69

Risk Management System....... 71
Information on Members of
NOVATEK’s Board of Directors 76
Information on Members
of NOVATEK’s Management
Board ....................................... 80
Report on Major, and
Interested-Party Transactions
that the Company did in the
Reporting Year .......................... 83
Corporate Governance
Code Compliance Report ......... 90
Forward–looking Statements ... 108
Terms and Abbreviations ....... 109
Conversion Factors ................ 109
Contact Information ............... 110

Our production assets 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.
Our reserves allow us to maintain stable high growth
rates of hydrocarbon production.

Ust-Luga Complex

Yamal-Nenets
Autonomous Region

RUSSIA

production

prospective fields and license areas

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

12. South-Tambeyskoye field
13. West-Yurkharovskoye field
14. Raduzhnoye field
15. West-Urengoyskiy license

area

16. North-Yubileynoye field
17. North-Russkiy license area
18. North-Russkoye field
19. Dorogovskoye field
20. Ukrainsko-Yubileynoye field
21. Malo-Yamalskoye field
22. West-Chaselskoye field
23. Yevo-Yakhinskoye field
24. North-Chaselskiy license area
25. Utrenneye field

26. Geofizicheskiy license area
27. North-Obskiy license area
28. East-Tambeyskiy license area
29. North-Tasiyskiy license area
30. East-Tazovskoye field
31. Trekhbugorniy license area
32. Nyakhartinskiy license area
33. Ladertoyskiy license area
34. Nyavuyahskiy license area
35. West-Solpatinskiy license

area

36. North-Tanamskiy license area
37. Tanamskiy license area
38. Kharbeyskoye field
39. Syadorskiy license area

Annual Report 2016novatek.ru
novatek.ru

Delivering Results

5
5

Fields and license areas

Purovsky Gas Condensate Processing Plant.
Key element in the production chain used for gas
condensate stabilization.

Gas condensate pipelines of NOVATEK.

5324231472729281225263111311216152422810183017 92016193832333435363739PurovskyPlantNadymYamburgGydan РeninsulaYamal Рeninsula6

LETTER TO SHAREHOLDERS

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

DELIVERING RESULTS UNDERSCORES OUR VALUE
CREATION MODEL TO OUR SHAREHOLDERS.
WE REACHED IMPORTANT MILESTONES
IN OUR FIRST INTERNATIONAL LNG PROJECT
AND CONTINUED DELIVERING POSITIVE
OPERATIONAL AND FINANCIAL RESULTS TO OUR
SHAREHOLDERS.

+37%

growth in liquid hydrocarbon
production

88 %

completion rate on the first
LNG train

Annual Report 2016LETTER TO SHAREHOLDERS

novatek.ru

Delivering Results

dear shareholders,

TWO THOUSAND AND SIXTEEN was another
year of sustained growth in our operations and
earnings despite the challenging macro-eco-
nomic environment, the cyclicality in global hy-
drocarbon prices and the high volatility in for-
eign exchange rates. We reached important
milestones in our first international LNG project
and continued delivering positive operational
and financial results to our shareholders.

DELIVERING RESULTS underscores our val-
ue creation model to our shareholders. During
the past year, total hydrocarbon production in-
creased by 3% to 537 million barrels of oil
equivalent (mmboe), representing nine con-
secutive years of total hydrocarbon produc-
tion growth. Driving this growth was the re-
cord level of liquids production of 12.4 million
tons, an increase of 37%, allowing us to fully
load our gas condensate processing facilities
at Purovsky and Ust-Luga. The Yarudeyskoye
crude oil field launched in the end of 2015
reached its full rated capacity and became the
main source for NOVATEK’s more than three-
fold crude oil production growth for the year.
We experienced a natural decline in our core
gas production by 2.7%, but the next step for-
ward in growing gas production is expected
from the Yamal LNG project planned to come
on stream in 2017.

YAMAL LNG REMAINS OUR FLAGSHIP
PROJECT. At year-end 2016, construction of
the plant’s first LNG train was approximate-
ly 88% complete, which puts us on track to
launch the project on schedule in 2017.

We have reached our main goal for 2016 -
we successfully concluded the external financ-
ing package for Yamal LNG, achieving a very im-
portant milestone for the project. We spent a
significant amount of time ensuring the time-
ly completion of the external financing pack-
age and, accordingly, did not allow a single
delay in financing and constructing the pro-
ject. Loan agreements were signed with the
Russian banks Sberbank and Gazprombank,
China Development Bank and the Export-
Import Bank of China, the Italian bank Intesa
Sanpaolo with insurance coverage by the Italian
export credit agency SACE and the French ex-
port credit agency COFACE, and with the Japan
Bank for International Cooperation (JBIC). The

WE HAVE REACHED OUR MAIN GOAL
FOR 2016 – WE SUCCESSFULLY
CONCLUDED THE EXTERNAL FINANCING
PACKAGE FOR YAMAL LNG, ACHIEVING
A VERY IMPORTANT MILESTONE FOR
THE PROJECT.

successful participation of international banks
and export credit agencies demonstrates the
global significance and world scale nature of
the Yamal LNG project.

We also successfully closed the sale of a
9.9% equity stake in the Yamal LNG project to
China’s Silk Road Fund and reached the target-
ed shareholding structure with 50.1% stake
owned by NOVATEK.

Significant progress was made in all areas of

the project throughout the past year.

We continued our robust drilling at the
South-Tambeyskoye field and completed 73
production wells, exceeding the well stock of
58 wells required for the plant’s first LNG train.
The main cryogenic heat exchanger for LNG
train #1 was installed into the liquefaction mod-
ule, and the remaining two other main cryogen-
ic exchanges for LNG trains #2 and #3 were
delivered to the construction site. All four cry-
ogenic LNG tanks successfully passed hy-
dro-testing, and the sea port ice protection bar-
rier with the loading pipe rack and two shipping
berths were under construction.

The first Arc7 ice-class vessel was put on
water and fully equipped in 2016 and by year-
end the LNG carrier successfully passed sea ac-
ceptance tests.

The growth in our liquids production re-
mained the main driver of our financial results
in 2016, as we increased the liquids share in
our total production by 4 percentage points to
19%. The contribution from our liquid sales had
a strong positive effect on our profitability. Our
revenues increased by 13.1% to RR 537 bln
and our normalized EBITDA increased by 13.2%
to RR 242 bln. Based on the Company’s finan-
cial results, the Board of Directors recommend-
ed to the General Meeting of Shareholders
to approve dividends for 2016 at RR 13.9 per
share, exceeding the dividend paid out for the
previous year by 3%.

AT YEAR-END 2016, CONSTRUCTION
OF THE PLANT’S FIRST LNG TRAIN
WAS APPROXIMATELY 88% COMPLETE,
WHICH PUTS US ON TRACK TO LAUNCH
THE PROJECT ON SCHEDULE IN 2017.

As we delivered growth in our hydrocar-
bon production, we significantly decreased
our capital expenditures, benefitting from the
launches of several major fields in 2015. We
increased our free cash flow by RR 57 bln, a
record high for the Company, while our oper-
ating cash flow exceeded our capital expendi-
tures by five times. The increased cash flow
allows us to successfully repay outstanding
debt, pay out dividends and invest into new
prospective projects. In 2016, we fully repaid
our five-year USD 600 million Eurobond at its
maturity date.

We retained our core competitive advan-
tage being ranked among the lowest cost hy-
drocarbon producers globally, and our lifting
costs remained at a very low level of $0.57
per BOE. We created shareholder value in a
cyclical price environment whereas many in-
ternational companies cut capital expendi-
tures, laid off personnel and wrote down

significant oil and gas reserves. We remain
fully committed to our strategy providing for
strict cost control and conservative financial
policies while maintaining the highest stand-
ards of corporate governance and sustaina-
ble development – DELIVERING RESULTS in
challenging macro conditions.

For the past year, despite low hydrocar-
bon prices, we managed to achieve an or-
ganic reserve replacement ratio of 168%
and recorded a reserve to production ra-
tio of 24 years, a solid achievement among
the global oil and gas companies. We are in-
creasing our resource base having obtained
the exploration rights for the Nyakhartinskiy,
Ladertoyskiy, Nyavuyahskiy, West-
Solpatinskiy, Syadorskiy, North-Tanamskiy
and Tanamskiy license areas. The new li-
cense areas support our strategic objective
aimed at expanding our resource base in the
hydrocarbon rich Yamal and Gydan peninsu-
las as we actively study the region’s geolog-
ical potential for implementing future LNG
projects. We also explore additional opportu-
nities for supporting and expanding our hy-
drocarbons production in our current core
production region.

We diversified our exploration activities in

2016 by signing a concession contract with

Annual Report 2016novatek.ru

Delivering Results

ONE OF OUR MAIN SOURCES OF
GROWTH HAS ALWAYS BEEN AND
WILL ALWAYS REMAIN OUR HIGHLY
QUALIFIED AND DEDICATED TEAM OF
PROFESSIONALS CONTRIBUTING
THEIR EFFORT, KNOW-HOW AND
ENERGY INTO THE IMPLEMENTATION
OF OUR STRATEGY TO TRANSFORM OUR
BUSINESS INTO A GLOBAL LNG PLAYER.

sustainable manner despite challenging mac-
ro-economic environments. Their dedication and
persistence is much appreciated.

On behalf of the Board of Directors and

Management Board, we are pleased to present
to our valued stakeholders the NOVATEK’s 2016
Annual Report. We would like to thank every-
one for your continued support, as we remain
committed to growing our company in a new
strategic direction while implementing best in-
ternational practices and principles of sustaina-
ble development and corporate governance.

the Government of Montenegro for the explo-
ration and production of hydrocarbons on four
offshore blocks in the Adriatic Sea in partner-
ship with Italian energy company, Eni.

Our prolific hydrocarbon resource base,
the successful implementation of the Yamal
LNG project and our experience in navigating
the Northern Sea Route create a great plat-
form for developing mutually beneficial coop-
eration in LNG projects. In 2016, we conclud-
ed Memorandums of Understanding with the
Mitsubishi Corporation, Mitsui and Marubeni
Corporation aimed at strategic cooperation for
implementing LNG projects in Russia and sup-
plying LNG and liquid hydrocarbons. We also
signed a Memorandum of Understanding for
Strategic Partnership with JBIC confirming the
parties’ intentions to cooperate in the imple-
mentation of NOVATEK’s LNG projects, includ-
ing financing and investment. We continue to
consider opportunities of increasing our LNG
production and supplying projects.

We successfully completed the first trans-
formation stage of our business by evolving
from a pure domestic gas business to produc-
tion, processing and global marketing of liq-
uid hydrocarbons. Now, we enter a new trans-
formative stage with exciting prospects to
grow the Company into a global player in the
LNG market. We have achieved historical-
ly high growth rates and we aim to remain a
growth company with the portfolio of exciting
opportunities DELIVERING RESULTS and cre-
ating shareholder value.

Sustainable development practices re-

mains at the forefront of our business. Our as-
sets are located in the vulnerable and fragile
environment of the Arctic region and we are
strongly committed at preserving both the na-
ture and traditional lifestyle of the indigenous
minorities living in the areas where we oper-
ate. We also contribute to the development
of the local societies by supporting education
and sports programs as well as developing lo-
cal infrastructure.

Environment protection and industrial safety

Kind regards,

remain our core focus helping us minimize en-
vironmental impact and achieve economic effi-
ciencies by applying state-of-the art equipment
and technologies.

One of our main sources of growth has al-

ways been and will always remain our high-
ly qualified and dedicated team of profession-
als contributing their effort, know-how and
energy into the implementation of our strate-
gy to transform our business into a global LNG
player. Our valued employees have a prov-
en track record of DELIVERING RESULTS in a

ALEXANDER NATALENKO
Chairman of the Board of Directors

LEONID MIKHELSON
Chairman of the
Management Board

MARK GYETVAY
Deputy Chairman of the
Management Board

STRATEGIC PRIORITIES

The Company has a number of key competitive
advantages to successfully implement its strate-
gy: the size and structure of its hydrocarbon re-
source base; the close proximity of existing infra-
structure to core producing fields; a well-developed
customer base for natural gas sales; its own facili-
ties for gas condensate processing and product ex-
ports; and a well developed marketing channel for
liquefied petroleum gas (LPG). Our high level of

operational flexibility and our consistent and ef-
ficient use of leading edge technologies in pro-
duction and processing practices as well as our
adherence to sound and prudent business man-
agement support our competitive position.

Our commitment to social responsibility and
to observing the latest environmental, health and
safety standards are integral parts of NOVATEK’s
development strategy.

DEVELOPMENT OF HYDROCARBON RESOURCE BASEMaintaining a low-cost structureGrowth in hydrocarbon productionOptimizing and expanding marketing channelsExpansion into the international market for liquefied natural gasPrudent investment decisionsCorporate governanceConservative financial policySustainable developmentAnnual Report 2016novatek.ru

Delivering Results

KEY EVENTS
AND ACHIEVEMENTS 2016

USD 19 bln

Finalization of external financing pack-
age for the Yamal LNG project for the
total amount equivalent to USD 19 bln
with participation of Russian and inter-
national banks, the National Welfare
Fund of Russia and international export
credit agencies.

Obtaining the rights for the
Nyakhartinskiy, Ladertoyskiy,
Nyavuyahskiy, West-Solpatinskiy,
Syadorskiy, North-Tanamskiy and
Tanamskiy license areas as well
as for the Kharbeyskoye field.

9.9 %

Closing of the sale of a 9.9% equity
stake in the Yamal LNG project
to China’s Silk Road Fund.

Signing of Memorandums of
Understanding with the Mitsubishi
Corporation, Mitsui, Marubeni
Corporation and PTT, and a Memorandum
of Understanding for Strategic
Partnership with the Japan Bank for
International Cooperation (JBIC).

3.5 mmt

Successfully reaching the Yarudeyskoye
crude oil field’s full production capacity of
3.5 mmt annualized and launching an as-
sociated petroleum gas treatment unit at
the field.

Signing of a concession contract with
the State of Montenegro for the explora-
tion and production of hydrocarbons on
four offshore blocks in the Adriatic.

Strategic partnership

LNG projects

Development of the resource
base and hydrocarbon
production

KEY INDICATORS

Unit

2015

2016

Change

FINANCIAL INDICATORS

Total revenues

RR mln

475,325

537,472

13.1%

Normalized profit from operations

RR mln

139,741

152,194

8.9%

Normalized EBITDA (including share in EBITDA
of JVs)

RR mln

214,189

242,407

13.2%

Profit attributable to shareholders
of PAO NOVATEK

RR mln

74,396

257,795

246.5%

Earnings per share, basic and diluted

24.63

85.41

246.8%

Net cash provided by operating activities

RR mln

132,864

173,791

30.8%

Net cash used for capital expenditures

RR mln

50,584

34,413

(32.0%)

Free cash flow

RR mln

82,280

139,378

69.4%

OPERATING INDICATORS

Proved natural gas reserves (SEC)

Proved liquid hydrocarbon reserves (SEC)

bcm

mmt

1,775

143

1,755

(1.1%)

152

6.3%

Total hydrocarbon reserves (SEC)

mmboe

12,817

12,775

(0.3%)

Total hydrocarbon reserves excluding the effect
of sale of 9.9% stake in Yamal LNG

Marketable production of natural gas

Marketable production of liquid hydrocarbons

Total marketable production

POSITIONS IN RUSSIA

Share in natural gas production

Share in liquid hydrocarbon production

mmboe

12,817

13,182

2.8%

bcm

mmboe

67.9

9,094

521.6

66.1

(2.7%)

12,441

36.8%

537.0

3.0%

10.8%

10.5%

(0.3) p.p.

1.7%

2.3%

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.

64%

36%

40%

60%

12,394

12,537

12,643

12,817

12,775

1,758

1,740

1,751

1,775

1,755

63%

37%

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

Total proved hydrocarbon reserves

Proved natural gas reserves (SEC), bcm

Proved developed

Proved undeveloped

(SEC), mmboe

(cid:31)

56.5

61.2

62.1

67.9

66.1

Proved developed

Proved undeveloped

(cid:31)

4.3

4.8

6.0

12.4

9.1

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

(cid:31)

Marketable natural gas production, bcm

Marketable liquids production, mmt

Crude oil

Gas condensate

(cid:31)

173.8

13.5

13.91

132.9

111.2

10.3

7.89

6.86

88.5

75.8

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

(cid:31)

Operating cash flow, RR bln

(cid:31)

Dividends per share, RR

Annual Report 2016novatek.ru

Delivering Results

12,394

12,537

12,643

12,817

12,775

1,758

1,740

1,751

1,775

1,755

63%

37%

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

Proved developed

Proved undeveloped

(cid:31)

Total proved hydrocarbon reserves

(SEC), mmboe

61.2

62.1

56.5

67.9

66.1

Proved developed

Proved undeveloped

(cid:31)

Proved natural gas reserves (SEC), bcm

12.4

9.1

4.3

4.8

6.0

64%

36%

40%

60%

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

(cid:31)

Marketable natural gas production, bcm

(cid:31)

Marketable liquids production, mmt

Crude oil

Gas condensate

173.8

13.5

13.91

132.9

111.2

10.3

7.89

6.86

88.5

75.8

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

(cid:31)

Operating cash flow, RR bln

(cid:31)

Dividends per share, RR

1 Recommendation of the Board of Directors.

DELIVERING
RESULTS
YAMAL LNG PROJECT

Photo: the LNG plant construction site.

Annual Report 2016novatek.ru

Delivering Results

COMPLETION RATE
OF THE FIRST
LNG TRAIN AS
OF YEAR-END 2016

88%

LNG MODULES
INSTALLATION

In 2016 we significantly sped up the construction pro-
gress as the LNG modules constructed on contractor’s
shipyards were being delivered and installed.

78 modules

All of the first train LNG modules were
installed on the prepared foundations

22,000

workers on the construction site by year-
end 2016

Photo: installation of the main cryogenic heat
exchanger for train #1.

Annual Report 2016novatek.ru

Delivering Results

CONSTRUCTION
OF THE SHIPMENT
INFRASTRUCTURE

A two (2) km ice barrier was being constructed to pro-
tect the port harbor. LNG and stable gas condensate
shipment pipe rack with shipping berths was being built
at the ice barrier.

1st berth

LNG loading

2nd berth

LNG and stable gas condensate

Photo: construction of LNG and stable gas
condensate shipment pipe rack with shipping
berths.

Annual Report 2016novatek.ru

Delivering Results

FIRST ARC7 LNG
TANKER

The first Arc7 ice-class LNG carrier was placed
from dry-dock into water and by year-end it suc-
cessfully passed sea acceptance tests.

170,000 cm

the LNG tanker capacity

19.5 knots

The speed is 19.5 knots in open water and 7.2 knots
in ice 1.5 m thick

Photo: the first Arc7 LNG tanker.

Annual Report 2016novatek.ru

Delivering Results

YAMAL LNG PROJECT

At year-end the construction progress on the first train was 88% and the
construction progress of all three trains — 75%.

942 bcm

of natural gas

31 mmt

of liquid hydrocarbons

Proved and probable reserves of the South-Tambeyskoye
field under PRMS as of 31.12.16

Shareholders of Yamal LNG as of 31.12.16

Yamal LNG is the flagship project in NOVATEK
asset portfolio and is considered a transforma-
tional move for the Company into the interna-
tional gas market. Yamal LNG envisages the
construction of an LNG liquefaction plant with
annual capacity of 16.5 million tons per an-
num, 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 2016, the field was es-

timated to contain 607 bcm of proved natu-
ral gas reserves and 18 mmt of proved liquid

hydrocarbon reserves, under the SEC reserves
methodology. In 2016 the production drilling re-
sults allowed us to increase the proved natu-
ral gas SEC reserves at the South-Tambeyskoye
field by 85 bcm compared to year-end 2015.
Based on total proved hydrocarbon reserves,
the South-Tambeyskoye field is the largest field
in NOVATEK reserves portfolio. According to
the PRMS reserves standards, the proved and
probable reserves of the South-Tambeyskoye
field were appraised at 942 billion cubic me-
ters of natural gas and 31 mmt of liquid
hydrocarbons.

8122532263614183250.1%NOVATEK20%Total20%CNPC9.9%Silk Road FundAsian-Pacific Countries (summer route)Asian-Pacific Countries (winter route)Transshipment in EuropeNumber of travel days Latin AmericaEuropeRUSSIAYamal LNGAnnual Report 2016

novatek.ru

Delivering Results

At year-end the construction progress on the

first train was 88% and the construction pro-
gress of all three trains - 75%. The project’s in-
frastructure includes the sea port, the interna-
tional airport, automobile roads, power lines,
gas gathering lines and the living quarters.

As of 31 December 2016, all the first train
LNG modules were installed on the prepared
foundations, and hook up was underway. The
main cryogenic heat exchanger for LNG train
#1 was installed into the liquefaction mod-
ule. Compressor equipment for the first train
and the backup heater were installed on the

foundations, as well as over 67,500 tons of
steel work for pipe racks.

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 transportation, and the first tank-
er was placed from dry-dock into water in early
2016, fully equipped and by year-end the LNG
carrier successfully passed sea acceptance
tests. As of year-end 2016, five (5) other LNG
carriers and the two (2) Arc7 condensate tank-
ers to be chartered by the project were under
construction.

RECORD GROWTH OF
LIQUID HYDROCARBON
PRODUCTION

Marketable production of liquids increased by 37% as
compared with 2015. Our growth in liquids production
was mainly due to the launch of the Yarudeyskoye
crude oil field ramped up to its full capacity of 3.5 mmt
per annum.

12.4

9.1

6.0

4.8

4.3

2012

2013

2014

2015

2016

Marketable production of liquid hydrocarbons, mmt

Annual Report 2016
novatek.ru

Delivering Results

MARKETABLE PRODUCTION
OF LIQUIDS INCREASED
BY 37% AS COMPARED
WITH 2015

37% Photo: Yarudeyskoye

crude oil field.

Annual Report 2016novatek.ru

Delivering Results

SUCCESSFUL
GEOLOGICAL
EXPLORATION

9 deposits

Nine (9) new gas condensate deposits were

discovered at the Utrenneye, South-

Tambeyskoye and Yevo-Yakhinskoye fields

10.2

thousand meters of exploration drilling

Photo: exploration well at the Utrenneye field
on the Gydan Peninsula.

GEOLOGICAL EXPLORATION
AND PRODUCTION

The Yamal-Nenets Autonomous District of Russia where our producing
assets are located accounts for approximately 80% of Russian and 16%
of global natural gas production.

As of 31 December 2016, NOVATEK’s SEC
proved reserves, including the Company’s pro-
portionate share in joint ventures, aggregated
12,775 million barrels of oil equivalent (boe),
including 1,755 billion cubic meters (bcm) of
natural gas and 152 million metric tons (mmt)
of liquid hydrocarbons.

Excluding the decrease in the Company’s

proportional share in the Yamal LNG joint
venture, total proved reserves increased
by 2.8% year-on-year, with an organic re-
serve replacement rate of 168% due to suc-
cessful exploration works and drilling, which
amounted to reserves addition of 902 million
boe, inclusive of 2016 production. The pri-
mary contributors to reserves additions were
the Utrenneye, the South-Tambeyskoye, the
Kharbeyskoye, the Dorogovskoye and the
Yarudeyskoye fields.

the Utrenneye field. In total we have drilled five
exploration wells at the Utrenneye field in 2014
to 2016, and the well testing results allowed us
to increase the appraised reserves volumes and
confirm higher well flows at the field.

Exploration activities also continued at the

fields and license areas in the Nadym-Pur-
Taz region. Seismic studies were done at the
Yarudeyskoye field and the North-Russkiy and
Dorogovskiy license areas while exploration
drilling was performed at the Kharbeyskoye,
West-Yurkharovksoye and Yevo-Yakhinskoye
fields.

In 2016, NOVATEK carried out commer-

cial hydrocarbon production at 13 fields.
Marketable production from all fields (including
the Company’s share in production of joint ven-
tures) amounted to 537.0 mmboe, representing
an increase of 3.0% over the prior year.

At year-end 2016, the Company’s reserve to

Total marketable production of natural gas in-

production ratio (or R/P ratio) was 24 years.
In 2016, we continued full-scale explora-
tion 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 car-
ried out three-dimensional (3D) seismic studies
at the North-Obskiy offshore license area and
also completed drilling of an exploration well at

cluding the Company’s share in production of
joint ventures aggregated 66.10 bcm, repre-
senting 80.5% of our total hydrocarbon output.
Marketable production of liquid hydrocarbons
including the Company’s share in production of
joint ventures totalled a record 12,441 thousand
tons, of which 60.5% was unstable de-etha-
nized gas condensate and the remaining 39.5%
consisted of crude oil.

Delivering Results

USD 2.3

per boe — 2012-2016 reserve
replacement costs

years – reserve to production
ratio at year-end 2016

(cid:31) Structure of marketable hydrocarbon production in 201644%Yurkharovskoye24%Arcticgas (NOVATEK’s share)12%East-Tarkosa-linskoye7%Nortgas (NOVATEK’s share)6%Yarudeyskoye2%Terneftegas (NOVATEK’s share)5%Other fields537mmboeJURASSIC LAYERS«Wet» gas with the highest share of liquid hydrocarbons. The deposits are characterized with complex geology and difficult drilling conditions due to abnormally high formation pressure.69%19%12%VALANGINIAN LAYERSGas containing liquid hydrocarbons — «wet» gas.ACHIMOV LAYERS«Wet» gas with high share of liquid hydrocarbons. The layers have low permeability and require special development techniques.CENOMANIAN LAYERS«Dry» gas not containing liquid hydrocarbons.DepositCollectorHydrofracturingSubhorizontal well1,000 m1,700 m3,200 m4,000 m1,700 m3,200 m4,000 m12.8 1,000 mbln boe of proved hydrocarbon reserves under SEC at 31.12.16.At the Urengoyskoye field, we successfully drilled a subhorizontal well with a six-stage hydrofracturing into the Achimov deposits. The length of the horizontal part is 1,497 m. This is an outstanding industry achievement considering the complex geology conditions.10 m(cid:31) Structure of marketable hydrocarbon production in 201644%Yurkharovskoye24%Arcticgas (NOVATEK’s share)12%East-Tarkosa-linskoye7%Nortgas (NOVATEK’s share)6%Yarudeyskoye2%Terneftegas (NOVATEK’s share)5%Other fields537mmboeJURASSIC LAYERS«Wet» gas with the highest share of liquid hydrocarbons. The deposits are characterized with complex geology and difficult drilling conditions due to abnormally high formation pressure.69%19%12%VALANGINIAN LAYERSGas containing liquid hydrocarbons — «wet» gas.ACHIMOV LAYERS«Wet» gas with high share of liquid hydrocarbons. The layers have low permeability and require special development techniques.CENOMANIAN LAYERS«Dry» gas not containing liquid hydrocarbons.DepositCollectorHydrofracturingSubhorizontal well1,000 m1,700 m3,200 m4,000 m1,700 m3,200 m4,000 m12.8 1,000 mbln boe of proved hydrocarbon reserves under SEC at 31.12.16.At the Urengoyskoye field, we successfully drilled a subhorizontal well with a six-stage hydrofracturing into the Achimov deposits. The length of the horizontal part is 1,497 m. This is an outstanding industry achievement considering the complex geology conditions.10 m30

LOADING
OUR PROCESSING
CAPACITIES

Utilization of our integrated value-added chain for gas
condensate allows us to maximize the economic effect
for the Company and is one of our priorities. The
Purovsky Plant’s processing capacity matches the
overall gas condensate production capacity of the
Company’s fields in operation.

12.3

11.9

6.4

4.8

2013

2014

2015

2016

Output of the Purovsky Plant, mmt

4.0

2012

Annual Report 2016
LOADING

OUR PROCESSING

CAPACITIES

novatek.ru

Delivering Results

12.3 MILLION TONS —

OUTPUT OF THE
PUROVSKY PLANT
IN 2016

Photo: Purovsky Plant.

UST-LUGA COMPLEX

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.

2015

2016

Fractionation and trans-
shipment of stable gas
condensate

Stable gas
condensate

Output, thousand tons

Ust-Luga
Complex

The Gas Condensate Fractionation and
Transshipment Complex located at the port of
Ust-Luga on the Baltic Sea processes stable
gas condensate into high value-added prod-
ucts like light and heavy naphtha, jet fuel, fuel
oil and gasoil. Finished products are shipped to

international markets and stable gas conden-
sate is transshipped to exports. The Complex
expands our vertically integrated chain, posi-
tively impacts the unit profitability of our liquids
sales, widens the variety of products and al-
lows to diversify our customer base.

+3%

stable gas condensate

2013

2014

2015

2016

processing volumes increase

Stable gas condensate processing volumes, thousand tons

in 2016

12,021 12,397 4,8624,0346,6001,8734,7066,7276,917Heavy naphthaLight naphthaJet fuelFuel oilGasoil2,0001,8982,1011,1481,1839989494434622,195 9,6672,5972,2289,664Stable gas condensateLight hydrocarbons and LPGAnnual Report 2016

novatek.ru

Delivering Results

PUROVSKY PLANT

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 operated by the Company for further stabilization
at our Purovsky Plant.

Railway transportation of stable gas condensate
to Ust-Luga

Sea transportation of petroleum products from
Ust-Luga

Transportation of unstable gas condensate by
pipeline

Light hydrocarbons transportation by pipeline

2015

2016

Producing
fields

Unstable
gas condensate

Stabilization of
gas condensate

Purovsky
Plant

Light
hydrocarbons

Producing of
marketable LPG

SIBUR’s Tobolsk Petro-
chemical Complex

Output, thousand tons

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 hy-
drocarbons (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 hydro-
carbons are delivered by pipeline to SIBUR’s
Tobolsk Petrochemical Complex for further
processing.

2012

2013

2014

2015

2016

condensate processing

volumes increase in 2016

Processing of de-ethanized condensate, thousand tons

+3%

the de-ethanized gas

GROWTH OF LIQUID
HYDROCARBONS
SHARE IN REVENUES

The share of liquid hydrocarbons in total production
increased by 4 p.p. to 19%, while their share in total
revenues increased to 57%, compared to 53% in 2015.

57%

53%

35%

31%

32%

2012

2013

2014

2015

2016

RR 211 bln

RR 298 bln

RR 358 bln

RR 475 bln

RR 537 bln

(cid:31)

Total revenues, including liquids share

Annual Report 2016novatek.ru

Delivering Results

INCREASE OF LIQUIDS
SALES VOLUMES
IN 2016

31%

57%

53%

35%

31%

32%

2012

2013

2014

2015

2016

RR 211 bln

RR 298 bln

RR 358 bln

RR 475 bln

RR 537 bln

(cid:31)

Total revenues, including liquids share

Photo: loading berth
at the Ust-Luga Complex.

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 35 gas consuming regions of the Russian Federation.

NOVATEK’s 2016 natural gas sales volumes to-
talled 64.7 bcm, representing an increase of
3.6% as compared to 2015 sales volumes of
62.5 bcm. The sales volumes growth was a re-
sult of restoring sales to one of our major cus-
tomers who did not take full contracted volumes
in 2015 due to technical reasons, as well as sales
of additional natural gas volumes to our end-cus-
tomers and wholesale traders. The proportional
share of natural gas sales to end-customers re-
mained practically unchanged compared to 2015
and amounted to 92.2% of our total natural gas
sales mix.

Our revenues from natural gas sales totalled

RR 229.7 billion, which is 3.4% higher as com-
pared to 2015. The sales volumes growth was
the main driver for the growth in natural gas
revenues.

Natural gas sales, bcm

Natural gas sales breakdown by customers
in 2016

6%7%15%2%4%6%3%13%22%1%10%5% Yamal-Nenets autonomous regionKhanty-Mansiysk autonomous regionChelyabinsk regionMoscow Moscow regionLipetsk regionStavropol regionVologda regionKostroma regionTatarstan regionPerm territoryTyumen region16%Others2%Households47%Power generation companies27%Large industrial consumers8%Wholesale traders, ex-fieldShare of end customers2012201320142015201662.564.764.258.969%89%94%93%92%67.22.32.20.98.66.74.53.83.19.71.23.714.3Annual Report 2016

novatek.ru

Delivering Results

64.7 bcm

natural gas sales volumes in 2016

RUSSIA

Main regions of gas sales

Other regions of sales
(3.9 bcm in 2016)

LIQUIDS SALES

NOVATEK sells liquid hydrocarbons (stable gas condensate, petroleum
products, light hydrocarbons, LPG and crude oil) domestically and
internationally.

Total sales volumes of liquid hydrocarbons in
2016 aggregated 16,850 thousand tons, repre-
senting a 30.7% increase over 2015 volumes.
The growth is mainly due to increase in crude
oil production. Our export sales of liquids grew
by 9.6% year-on-year to 9,869 thousand tons.

High value-added petroleum products from the

Ust-Luga Complex accounted for 40% share of
our overall liquids sales volumes.

Export sales of stable gas condensate contin-
ued in 2016 as we reached full capacity utilization
at the Ust-Luga Complex.

16.9 mmt

sales volumes of liquid
hydrocarbons in 2016

RR 304

liquids sales revenues in 2016

bln

201967108235491718161211132714 15212425222326 RussiaDenmarkNorwayFinlandSwedenBelgiumNetherlandsUKEstoniaSpainGreeceItalyRomaniaTurkeyGermanySlovakiaPolandHungaryUSACanadaOmanSingaporeSouth KoreaChinaTaiwanJapanNew Zealand123456789101112131415161718192021222324252627Crude oilSGCLPG and light hydrocarbonsJet fuelDiesel and fuel oilNaphthaUst-Luga productsStable gascondensate2,81254%46%LPG and lighthydrocarbons2,71380%20%Ust-Luga products6,66298%2%Crude oil4,65068%32%RUSSIA15%Jet fuel23%Fuel oil and gasoil62%NaphthaDomestic marketExports of Ust-Luga productsExports of LPG and light hydrocarbonsExports of crude oilExports of stable gas condensateExport marketsUst-Luga ComplexAnnual Report 2016novatek.ru

Delivering Results

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.

5.1

3.0

3.8

2.7

2.9

2012

2013

2014

2015

2016

Social investments and expenses on HSE, RR bln

Annual Report 2016
novatek.ru

Delivering Results

INVESTMENTS AND
EXPENSES ON HSE
IN 2016

5.1 RR 5.1 BLN OF SOCIAL

Photo: Purovsky Plant inventory tanks
equipped with state-of-the-art emergency
protection systems.

HSE AND SOCIAL
RESPONSIBILITY

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

NOVATEK’s core producing assets are located
in the Far North, a harsh Arctic region with vast
mineral resources and a fragile and vulnerable
environment. Тhe Company is committed to en-
vironmental protection in its operations. In 2016,
the Company’s overall expenses on environ-
ment protection amounted to RUB 1,199 mln.
In 2016, a revised version of NOVATEK’s
Health, Safety and Environmental (HSE) Policy
was approved, which included the Company’s
commitments consistent with the best Russian
and international practices. Our key controlled
entities are using an Integrated Management
System for Environment Protection,
Occupational Health and Safety (IMS) com-
pliant with ISO 14001:2004 and OHSAS
18001:2007. In 2016, NOVATEK successfully
passed the second follow-up IMS compliance
audit.

Special attention is paid to preventive meas-
ures in the area of environment protection. In par-
ticular, the environmental aspects are taken into
account in designing new production facilities:
modern technology and equipment is used to
considerably reduce the adverse environmental
impact and risk of environmental accidents.

Workplace certification includes evaluating
measures to control the harmful impact of haz-
ardous factors in the workplace. Measures to im-
prove working conditions are developed based
on the results of the certification process.

The Company’s human resource management

system is based on the principles of fairness, re-
spect, equal opportunities for professional devel-
opment, dialogue between management and em-
ployees, as well as continuous, comprehensive
training and development opportunities for the
Company’s employees at all levels.

7,515

people – headcount of

NOVATEK and its subsidiaries

as of 31.12.16

NOVATEK`s personnel structure as of 31.12.16

Delivering Results

Targeted Compensation and Socially
Important Payments

Repayable Financial Aid Program

Health Resort Treatment and Rehabilitation

Rational natural resources management

Enviromental protection against production and consumption waste

Measures for the protection of flora and fauna and preservation
of biodiversity

Voluntary Medical Insurance

Environmental monitoring and evaluation of the background

State Guarantees Support Program

Protection and use of water resources

Culture and sports

Pension Program

Soil protection

Subsurface protection

NOVATEK-Veteran Program

Atmospheric air protection

Others

Other

Social Expenditures on employees in 2016

Environmental Expenditures in 2016

RR 693 mln

expenses on Occupational Health and

Safety in 2016

NOVATEK`s personnel structure as of 31.12.16

Injury frequency rate (number of injuries per mil-
lion working hours)

43%17%10%9%7%6%4%2%2%45%23%10%6%4%8%3%1%<1%2012201320142015201639%Exploration and production27%Transporta-tion and marketing17%Processing10%Administrative personnel7%Power supply<1%Ancillary services0.9 0.40.40.50.3RR 1,199 mlnRR 1,324 mln43%17%10%9%7%6%4%2%2%45%23%10%6%4%8%3%1%<1%2012201320142015201639%Exploration and production27%Transporta-tion and marketing17%Processing10%Administrative personnel7%Power supply<1%Ancillary services0.9 0.40.40.50.3RR 1,199 mlnRR 1,324 mln43%17%10%9%7%6%4%2%2%45%23%10%6%4%8%3%1%<1%2012201320142015201639%Exploration and production27%Transporta-tion and marketing17%Processing10%Administrative personnel7%Power supply<1%Ancillary services0.9 0.40.40.50.3RR 1,199 mlnRR 1,324 mln43%17%10%9%7%6%4%2%2%45%23%10%6%4%8%3%1%<1%2012201320142015201639%Exploration and production27%Transporta-tion and marketing17%Processing10%Administrative personnel7%Power supply<1%Ancillary services0.9 0.40.40.50.3RR 1,199 mlnRR 1,324 mln

MANAGEMENT AND CORPORATE
GOVERNANCE

THE BOARD OF DIRECTORS MEMBERSHIP AS OF 31 DECEMBER 2016

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 comprises the Board of Directors, the Board Committees,
and the Management Board, as well as internal control
and audit bodies and the Corporate Secretary.

1
Independent Board Members

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

MR. ANDREI V. SHARONOV
Born in 1964
Independent Director
Chairman of the Audit Committee
Member of the Remuneration and
Nomination Committee

Independent Director as of 31 December 2016 in accordance with the Corporate Governance Code recommended by the Central Bank of Russia and
the UK Corporate Governance Code.

Annual Report 2016
novatek.ru

Delivering Results

MR. ALEXANDER E. NATALENKO
Born in 1946
Chairman of the Board of Directors
Chairman of the Strategy
Committee

MR. LEONID V. MIKHELSON
Born in 1955
Chairman of the Management
Board

MR. ANDREI I. AKIMOV
Born in 1953
Member of the Strategy
Committee

DR. BURCKHARD BERGMANN
Born in 1943
Member of the Strategy
Committee

MR. MICHEAL BORRELL
Born in 1962
Member of the Strategy
Committee

MR. GENNADY N. TIMCHENKO
Born in 1952
Member of the Strategy
Committee

REVIEW OF OPERATING RESULTS

licenses

NOVATEK’s core fields and license areas are
located in, or in close proximity to, the Yamal-
Nenets Autonomous District (YNAO) of the
Russian Federation, which is one of the world’s
largest natural gas producing regions account-
ing for approximately 80% of Russian and 16%
of global natural gas production. The concen-
tration of the Company’s fields in this prolific
gas-producing region provides favorable oppor-
tunities for increasing NOVATEK’s shareholder
value with a minimum level of risks, low find-
ing cost, and efficient replacement of reserves.
With more than 20 years of operational experi-
ence in the region, NOVATEK is in a good posi-
tion to efficiently monetize its resource base.

Exploration and production of hydrocarbons in
Russia is subject to federal licensing regulations.
As of December 31, 2016, NOVATEK’s sub-
sidiaries and joint ventures held 39 subsoil li-
censes in Russia, five (5) of them are classi-
fied as exploration licenses. The duration of
licenses for the Company’s core fields ex-
ceeds 15 years. In particular, the license for
the Yurkharovskoye field is valid until 2034, for
the East-Tarkosalinskoye – until 2043, for the
South-Tambeyskoye field – until 2045, and for
the Samburgsky license area of Arcticgas – un-
til 2034.

In 2016, NOVATEK significantly expanded its

portfolio of licenses.

The Company's subsidiary, NOVATEK –
YURKHAROVNEFTEGAS, obtained six (6) new
licenses:

Following the results of an auction,

NOVATEK – YURKHAROVNEFTEGAS obtained
exploration and production licenses for the
Nyakhartinsky, the Syadorsky and the Tanamsky
license areas. The Nyakhartinsky license area
is located in the YNAO in close proximity to the
Yurkharovskoye field. Acquisition of licenses for
the Syadorsky and the Tanamsky areas will en-
able the Company to enhance its resource base
in the northern part of the Yamal Peninsula and
in the Gydan Peninsula.

We obtained seven-year exploration licences

for the West-Solpatinsky, North-Tanamsky and
Nyavuyakhsky license areas. The license areas
are located in the central part of the Gydan
Peninsula.

In 2016, NOVATEK purchased Evrotek-Yuh,
a company that holds an exploration and produc-
tion license valid until 2032 for the Ladertoysky
area containing the Ladertoyskoye gas condens-
ate field. The license area is situated within the
YNAO in the central part of the Gydan Peninsula
in close vicinity to the new license areas.

In December 2016, upon the discovery of
a new field, a subsoil exploration and produc-
tion license valid until 2036 was obtained for
the Kharbeyskoye field. The area is located in
close proximity to the East-Tazovskoye, North-
Russkoye and Dorogovskoye fields.

In September, 2016, NOVATEK and Eni, the
Italian energy company, entered into a conces-
sionary agreement with the State of Montenegro
to explore and produce hydrocarbons on four
offshore blocks in the Adriatic Sea. Each of the
concessionaires holds 50% in the project, and
Eni was designated as the concession operator.
Participation in the concessionary agreement
contributes to expanding the Company's poten-
tial to implement joint foreign projects.

NOVATEK strives to strictly observe and
comply with all of its license obligations and
conducts continuous monitoring of license
tenders in order to expand its resource base in
strategically important regions.

hydrocarbon reserves

Most of the Company’s reserves are located on-
shore or can be developed from onshore loc-
ations and are attributed to the conventional
hydrocarbon categories (capable of being ex-
ploited using conventional technologies, in con-
trast 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 engin-
eers, “DeGolyer and MacNaughton” (“D&M”),
under both the SEC and PRMS reserve report-
ing standards.

As of 31 December 2016, NOVATEK’s SEC
proved reserves, including the Company’s pro-
portionate share in joint ventures, aggregated
12,775 million barrels of oil equivalent (boe), in-
cluding 1,755 billion cubic meters (bcm) of nat-
ural gas and 152 million metric tons (mmt) of li-
quid hydrocarbons.

Annual Report 2016novatek.ru

Delivering Results

Excluding the decrease in the Company’s
proportional share in the Yamal LNG joint ven-
ture, total proved reserves increased by 2.8%
year-on-year, with an organic reserve replace-
ment rate of 168% due to successful explor-
ation works and drilling, which amounted to
reserves addition of 902 million boe, inclus-
ive of 2016 production. The primary contribut-
ors to reserves additions were the Utrenneye,
the South-Tambeyskoye, the Kharbeyskoye, the
Dorogovskoye and the Yarudeyskoye fields.

Total proved reserves dynamics during the
reporting period was primarily affected by the
decrease in the Company’s proportional share
in the Yamal LNG joint venture from 60% as
at year-end 2015 to 50.1% as at 31 December
2016, resulting from the sale of a 9.9% equity
stake in Yamal LNG to China’s Silk Road Fund.
Therefore including the decrease in the equity

stake and 2016 production, our total proved re-
serves decreased by 0.3%, representing a re-
serve replacement rate of 92% for the year. At
year-end 2016, the Company’s reserve to pro-
duction ratio (or R/P ratio) was 24 years.

Under the PRMS reserves reporting meth-

odology, the Company’s total proved plus
probable reserves, including the Company’s
proportionate share in joint ventures, ag-
gregated 22,756 million boe, including 3,067
bcm of natural gas and 319 mmt of liquid
hydrocarbons.

The high quality of our reserve base en-

ables NOVATEK to maintain its competitive pos-
ition as one of the lowest cost producers in the
global oil and gas industry. Our average 2016
and five-year (2012-2016) reserve replacement
costs amounted to RR 120 (USD 1.8) per boe
and RR 88 (USD 2.3) per boe, respectively.

Proved reserves under the SEC standards as of 31 December 2016 (based on our equity ownership interest
in the respective fields) and duration of licenses

Field / license area

Ownership

Duration of license Gas reserves,
bcm

Liquids
reserves, mmt

TOTAL RESERVES

Yurkharovskoye

South-Tambeyskoye

Utrenneye

Urengoyskoye (“Arcticgas”)

East-Tarkosalinskoye

Geofizicheskoye

North-Urengoyskoye

Yaro-Yakhinskoye

North-Russkoe

Samburgskoye

North-Chaselskoye

Khancheyskoye

Olimpiyskiy license area

East-Tazovskoye

Kharbeyskoye

Dorogovskoye

Termokarstovoye

Yarudeyskoye

Other

100%

50.1%

100%

53.3%

100%

50%

53.3%

100%

53.3%

100%

51%

51% (100% of reserves)

2034

2045

2031

2034

2043

2034

2038

2034

2031

2034

the lifetime of the field

2044

2059

2033

2036

2033

2097

2029

1,754.6

152.5

258.0

304.1

388.5

184.0

110.8

125.6

88.0

75.7

52.6

28.1

28.9

22.5

20.4

17.1

9.0

7.0

14.7

8.5

11.1

10.9

8.9

15.1

43.7

18.6

0.4

8.1

8.7

2.5

3.8

1.4

2.5

2.3

2.5

1.1

4.0

17.5

0.5

geological exploration

NOVATEK aims to expand its resource base
through geological exploration at fields and li-
cense areas not only in close proximity to ex-
isting transportation and production infrastruc-
ture, but also in new potentially prospective
hydrocarbon areas. The Company ensures the
efficiency of geological exploration work by de-
ploying state-of-the-art technologies and re-
lying on the experience and expertise of the
specialists in our geology department, and the
Company’s Scientific and Technical Center loc-
ated in Tyumen.

The Company uses a systematic and com-
prehensive approach to exploration and devel-
opment of its fields and license areas, begin-
ning with the collection and interpretation of
seismic data to the creation of dynamic 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 max-
imize the ultimate recovery of hydrocarbons in a
cost effective manner.

In 2016, we continued full-scale explora-
tion 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 carried
out three-dimensional (3D) seismic studies at
the North-Obskiy offshore license area and also
completed drilling of an exploration well at the
Utrenneye field. In total we have drilled five (5)

exploration wells at the Utrenneye field in 2014
to 2016, and the well testing results allowed us
to increase the appraised reserves volumes and
confirm higher well flows at the field.

We also conducted 3D seismics in the Tazov
bay within the Nyakhartinskiy license area in or-
der to spot prospective targets for exploration
drilling.

Exploration activities also continued at the

In 2016, we completed 984 square km of 3D

seismic works and drilled approximately 10.2
thousand meters of exploration drilling.

We successfully discovered one (1) new gas

condensate deposit in the mid Jurassic layer
at the Kharbeyskoye gas condensate field,
and nine (9) new gas condensate deposits at
the Utrenneye, South-Tambeyskoye and Yevo-
Yakhinskoye fields. We managed to expand the
gas condensate potential of the Achimov layer
at Arcticgas’s Urengoyskoye field and confirmed
the crude oil potential at the Yarudeyskoye
and East-Tarkosalinskoye fields as well as con-
firmed the natural gas potential at the Malo-
Yamalskoye field.

Based on the results of seismic works we

have chosen a number of prospective struc-
tures for exploration drilling.

Exploration works

3D SEISMIC

Subsidiaries

Joint ventures

EXPLORATION DRILLING

Subsidiaries

Joint ventures

field development

In 2016, NOVATEK continued investing cap-
ital in developing our producing and prospect-
ive fields. In the reporting year, the Company's
subsidiaries invested RUB 23.6 billion in the re-
source base development.

Production drilling in 2016, including
joint ventures, reached 235,000 m, which
is 30% below the 2015 level. The decrease

Units

square km

th. m

2015

1,004

15.2

9.6

5.6

2016

Change

984

10.2

(2%)

(33%)

(100%)

in drilling activities is due to a success-
ful completion of the main drilling program
at the fields of Yurkharovneftegas, and the
Arcticgas, and Yargeo joint ventures. The
biggest drop in drilling activities was ob-
served at the Yurkharovskoye, Urengoyskoye,
Yaro-Yakhinskoye, and Yarudeyskoye fields,
whereas the drilling activities at the South-
Tambeyskoye field increased during the
year.

Annual Report 2016novatek.ru

Delivering Results

A total of 76 wells were put on production
in 2016, including 41 gas and gas condensate
wells and 35 crude oil wells.

New facilities commissioned at producing
fields
In January, a month after it was commissioned,
the Yarudeyskoye field, with 21 wells drilled and
completed, reached its design production capa-
city of 3.5 mmt of crude oil per year. The field's
infrastructure includes a central oil gathering fa-
cility, a gas treatment unit, a 350 km oil pipeline
and a 149 km gas pipeline. Completion of wa-
ter sourcing wells was finalized, as was com-
missioning of reservoir pressure maintenance
systems.

As part of the Yurkharovskoye field develop-
ment strategy, the Cenomanian production area
achieved its design capacity with 18 wells in oper-
ation, the 48 MW Cenomanian gas booster com-
pressor station was completed and launched. The
25 MW fourth phase of gas booster compressor
station was commissioned bringing the station's
aggregate capacity up to 300 MW.

The 10 MW third phase of the boost-
er compressor station was launched at the
Khancheyskoye field increasing the total com-
pressor equipment capacity to 40 MW.

Gas treatment plant and de-ethanizer unit re-

construction programs have been implemen-
ted at the East-Tarkosalinskoye field to enhance
production quality and improve process equip-
ment reliability.

A methanol production unit with a capa-
city of 50 mt per annum was launched at the
Urengoyskoye field resulting in a significant re-
duction of methanol purchasing costs.

hydrocarbon production

In 2016, NOVATEK carried out commercial hy-
drocarbon production at 13 fields. Marketable

production from all fields (including the
Company’s share in production of joint ven-
tures) amounted to 537.0 mmboe, representing
an increase of 3.0% over the prior year.

Total marketable production of natural gas
including the Company’s share in production of
joint ventures aggregated 66.10 bcm, repres-
enting 80.5% of our total hydrocarbon output.
The share of gas produced from the gas con-
densate bearing layers (or “wet gas”) in pro-
portion to total gas production was 79,1%. Our
marketable natural gas production decreased
by 2.7% or by 1.8 bcm, as compared to 2015
volumes.

Volumes produced by our subsidiaries at ma-

ture fields decreased mainly due to natural de-
clines in the reservoir pressure at the current
gas producing horizons.

Marketable production of liquid hydrocar-
bons including the Company’s share in produc-
tion of joint ventures totalled a record 12,441
thousand tons, of which 60.5% was unstable
de-ethanized gas condensate and the remain-
ing 39.5% consisted of crude oil. Marketable
production of liquids increased by 36.8%, or by
3,347 thousand tons as compared with 2015,
with gas condensate production level almost
unchanged at 7,526 thousand tons and crude
oil production growing by more than three-
fold to 4,915 thousand tons. Liquids production
share in our overall production increased by
four (4) percentage points to 19% as compared
with 2015 .

Our record growth in liquids produc-
tion was mainly due to the launch of the
Yarudeyskoye crude oil field in December
2015 and the Yaro-Yakhinskoye and the
Termokarstovoye gas condensate fields in
the first half 2015.

We continued to achieve some of the low-
est lifting costs in the industry. The Company’s
lifting costs were RR 38.4 (USD 0.57 ) per boe
in 2016.

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

TOTAL PRODUCTION

Gas

Liquid hydrocarbons

Units

mmboe

2015

521.6

2016

537.0

mmcm

67,905

66,103

Change

3.0%

(2.7%)

mmboe

444.1

9,094

77.5

432.4

12,441

36.8%

104.6

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

Gas, mmcm

Liquids, mt

2015

2016

Change

TOTAL

67,905

66,103

(2.7)%

Yurkharovskoye (100%)

35,979

33,766

(6.2%)

Arcticgas fields (53.3%)

12,624

13,682

8.4%

East-Tarkosalinskoye (100%)

North-Urengoyskoye (50%)

Khancheyskoye (100%)

Termokarstovoye (51%)

Yarudeyskoye (100%)

9,075

5,395

2,510

714

8,015

(11.7%)

5,023

2,473

1,163

427

(6.9%)

(1.5%)

62.9%

Other

1,608

1,554

(3.4%)

2015

9,094

2,126

4,016

1,365

622

392

258

184

131

2016

Change

12,441

36.8%

1,813

(14.7%)

4,300

1,354

519

353

428

7.1%

(0.8%)

(16.6%)

(9.9%)

65.9%

3,556

n/a

118

(9.9%)

yamal lng project

Yamal LNG is the flagship project in NOVATEK
asset portfolio and is considered a transform-
ational move for the Company into the inter-
national gas market. Yamal LNG envisages the
construction of an LNG liquefaction plant with
annual capacity of 16.5 million tons per an-
num, 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.

Yamal LNG is the operator of the project,
the license holder and owner of all the assets.
In March 2016 NOVATEK successfully closed
the transaction of sale of a 9.9% equity stake
in the Yamal LNG project to China’s Silk Road
Fund. At year-end, the shareholder structure
comprised NOVATEK (50.1%), Total (20%),
CNPC (20%) and Silk Road Fund (9.9%).

At year-end the construction progress on
the first train was 88% and the construction
progress of all three trains – 75%. The pro-
ject’s infrastructure includes the sea port, the
international airport, automobile roads, pow-
er lines, gas gathering lines and the living
quarters.

The South-Tambeyskoye field was discov-
ered in 1974 and comprises 42 gas bearing
layers with depths ranging from 900 to 3,730
meters and includes three domes. There are
112 Valanginian gas and gas condensate de-
posits, 10 Jurassic gas and gas condensate
deposits, and two (2) Cenomanian dry gas de-
posits. The productive formations have a wide
range of permeability and hydrostatic reservoir
pressure. The field is being developed with
horizontal wells with lengths up to 5,000 me-
ters and horizontal parts up to 1,500 meters

The license for exploration and production

at the South-Tambeyskoye field owned by
Yamal LNG is valid until 2045.

As of 31 December 2016, the field was es-

timated to contain 607 bcm of proved nat-
ural gas reserves and 18 mmt of proved li-
quid hydrocarbon reserves, under the SEC
reserves methodology. In 2016 the produc-
tion drilling results allowed us to increase the
proved natural gas SEC reserves at the South-
Tambeyskoye field by 85 bcm compared to
year-end 2015. Based on total proved hydro-
carbon reserves, the South-Tambeyskoye field
is the largest field in NOVATEK reserves port-
folio. According to the PRMS reserves stand-
ards, the proved and probable reserves of the
South-Tambeyskoye field were appraised at
942 billion cubic meters of natural gas and 31
mmt of liquid hydrocarbons.

The South-Tambeyskoye field has already
been thoroughly studied with a complex suite
of exploration activities, including running 3D
seismic and exploration drilling, creation of the
fields’ geological model and annual reserves
appraised by the independent petroleum en-
gineers, D&M. The field development plan
provides for the drilling of 208 wells on 19
well drilling pads, with production potential ex-
ceeding 27 bcm of natural gas and one (1) mil-
lion tons of stable gas condensate per annum.
Natural gas produced at the field will be de-

livered to the international markets as lique-
fied natural gas, or LNG, which requires the
construction of a liquefaction plant consisting
of three (3) production trains of 5.5 mmt an-
nual capacity each. The shipping infrastruc-
ture will include a jetty with two tanker-load-
ing berths at the port of Sabetta.

At year-end 2016, 73 production wells were

drilled at the South-Tambeyskoye field, ex-
ceeding the well stock required to launch the

Annual Report 2016novatek.ru

Delivering Results

first production train of the LNG plant (58
wells).

At year-end, there were more than 3,600

construction vehicles and 22,000 construc-
tion workers on site. The Sabetta international
airport services regular flights from Novy
Urengoy, Moscow and Samara, ensuring high
efficiency of shift workers logistics. Regular
flights served approximately 365,000 people
in 2016.

To minimise on site construction activities due

to challenging climate conditions, a modular ap-
proach to the LNG plant construction was select-
ed. The LNG plant will consist of 142 large plant
modules with weights 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 19,000 people were
involved in modules fabrication for the Yamal
LNG project at different construction yards.

At year-end 2016 all 78 modules of the first

LNG train were delivered to the construction
site. Ten (10) of the 64 modules necessary for
the second and third LNG trains were in transit
and three (3) were delivered on site. All three
main cryogenic heat exchangers (key element
of gas liquefaction technology) for trains #1,#2
and #3 were delivered to the construction site
by year-end, as well as the full equipment pack-
age for compressor lines of the plant's first and
second trains, boil-off gas compressors, a back-
up heater, packages of steel work pipe racks,
power plant turbines and other equipment.

steel work for pipe racks. By the end of 2016,
over 37,000 foundation piles for the LNG plant
were installed, about 3,900 pile caps were in-
stalled on the piles, and more than 53,000 cu-
bic meters of concrete was poured for the
foundation.

The project requires four (4) LNG tanks in-
cluding two (2) LNG tanks for the first train.
The outer walls of the tanks are made of con-
crete while the internal walls are multi-layer
made of steel and insulating materials ensur-
ing leak integrity and thermal insulation. All
four (4) LNG tanks successfully passed hy-
dro-testing in 2016.

In 2016, dredging was performed in the port
harbor, approach and sea channels. Overall vol-
umes of dredged sand totalled about 19 mil-
lion cubic meters. The year-round use of the
Sabetta port received more than six (6) mil-
lion tons of cargoes (two-fold increase year-on-
year), delivered by 259 marine ships and 304 riv-
er barges. A two (2) km Southeastern ice barrier
was being constructed to protect the port har-
bor. LNG and stable gas condensate shipment
pipe rack with shipping berths was being built at
the ice barrier. During the reporting year two (2)
new cargo berths for module and equipment un-
loading were added to the four (4) cargo berths
built earlier. There are now six (6) cargo berths
in full operations at the sea port area.

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 transportation, and the
first tanker was placed from dry-dock into wa-
ter in early 2016, fully equipped and by year-
end the LNG carrier successfully passed sea
acceptance tests. As of year-end 2016, five
(5) other LNG carriers and the two (2) Arc7
condensate tankers to be chartered by the
project were under construction.

processing of gas condensate

Purovsky Plant
Our subsidiaries and joint ventures are pro-
ducing wet gas – a mixture of natural gas and
gas condensate. After being separated and
de-ethanized at the field the unstable (de-eth-
anized) gas condensate is delivered via a sys-
tem of condensate pipelines owned and oper-
ated 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 production value chain that provides us
complete operational control over our process-
ing needs and access to higher yielding mar-
keting channels for our stable gas condensate.
The Purovsky Plant produces stable gas con-
densate and light hydrocarbons after process-
ing our unstable gas condensate.

During the reporting year, the de-ethanized

gas condensate processing volumes at the

Purovsky Plant increased by 3.1% to 12,397
mt. The Purovsky Plant’s processing capacity
matches the overall gas condensate produc-
tion capacity of the Company’s fields in oper-
ation. The structure of 2016 output included
9,667 mt of stable gas condensate, 2,597 mt
of light hydrocarbons and LPG and 10 mt of
regenerated methanol.

The Purovsky Plant is connected via its own

railway line to the Russian rail network at the
Limbey rail station. Subsequent 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. 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.

Processing volumes and output of the Purovsky Plant, thousand tons

PROCESSING OF DE-ETHANIZED CONDENSATE

OUTPUT:

Stable gas condensate

Light hydrocarbons and LPG

Methanol

2015

12,021

9,664

2,228

2016

12,397

9,667

2,597

Change

3.1%

0.03%

16.6%

(9.1%)

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 petrole-
um products to international markets. The Ust-
Luga Complex also allows for transhipment of
stable gas condensate to the export markets.

The Ust-Luga Complex processed 6,917
mt of stable gas condensate into 6,784 mt of
end products, including 4,195 mt of light and
heavy naphtha, 998 mt of jet fuel and 1,591
mt of ship fuel component (fuel oil) and gasoil.
High value-added petroleum products pro-
duced at the Ust-Luga Complex have a signi-
ficant positive impact on the profitability of our
liquid hydrocarbon sales and the Company’s
cash flow generation.

As the Ust-Luga Complex reached full pro-
cessing capacity we transshipped stable gas
condensate to the export markets by sea.

Annual Report 2016novatek.ru

Delivering Results

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

STABLE GAS CONDENSATE PROCESSING

OUTPUT:

Heavy naphtha

Light naphtha

Ship fuel component (fuel oil)

Jet fuel

Gasoil

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 nat-
ural gas to 35 key consuming regions of the
Russian Federation. Our customers were loc-
ated primarily in the following: the Chelyabinsk,
Lipezk, Perm, Stavropol, Moscow, Kostroma,
Vologda, and Tyumen regions, the Khanty-
Mansiysk Autonomous Region, YNAO, the
Republic of Tatarstan and the city of Moscow.
The above-mentioned regions accounted for
more than 94% of our total gas sales.

NOVATEK's 2016 natural gas sales volumes to-
talled 64.7 bcm, representing an increase of 3.6%
as compared to 2015 sales volumes of 62.5 bcm.
The sales volumes growth was a result of restor-
ing sales to one of our major customers who did
not take full contracted volumes in 2015 due to
technical reasons, as well as sales of addition-
al natural gas volumes to our end-customers and

Natural gas sales, mmcm

2015

6,727

2,101

1,898

1,183

949

462

2016

6,917

2,195

2,000

1,148

998

443

Change

2.8%

4.5%

5.4%

(3.0%)

5.2%

(4.1%)

wholesale traders. The proportional share of natu-
ral gas sales to end-customers remained practical-
ly unchanged compared to 2015 and amounted to
92.2% of our total natural gas sales mix.

Our revenues from natural gas sales totalled

RR 229.7 billion, which is 3.4% higher as com-
pared to 2015. The sales volumes growth was the
main driver for the growth in natural gas revenues.
In order to maintain production levels during
periods of seasonal demand NOVATEK has en-
tered into an agreement with PAO 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 2016, our inventories of nat-
ural gas in underground gas storage facilities and
pipelines amounted to approximately 0.8 bcm.
As part of our international marketing strate-
gy, we supplied our first LNG cargo sourced from
the Trinidad & Tobago LNG plant to the port of
Quintero, located in Chile.

TOTAL GAS SALES, INCLUDING:

End customers

Traders

Share of end-customers in total gas sales

2015

62,465

58,054

4,411

92.9%

2016

64,709

59,646

5,063

92.2%

Change

3.6%

2.7%

14.8%

(0.7) p.p.

liquid hydrocarbon sales

NOVATEK sells liquid hydrocarbons (stable gas
condensate, petroleum products, light hydrocar-
bons, LPG and crude oil) domestically and inter-
nationally. We strive to respond quickly to chang-
ing 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 conden-
sate and LPG are transported by rail, finished petro-
leum 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 PAO Transneft.

Total sales volumes of liquid hydrocarbons

in 2016 aggregated 16,850 thousand tons,

representing a 30.7% increase over 2015 vol-
umes. The growth is mainly due to increase in
crude oil production. Our export sales of liquids
grew by 9.6% year-on-year to 9,869 thousand
tons.

Our liquids sales revenues increased to RR
304.1 billion, or by 21.7% as compared to 2015,
mainly driven by higher sales volumes.

Petroleum products from the Ust-Luga
Complex accounted for 40% share of our over-
all liquids sales volumes and amounted to 6,662
thousand tons. We sold 4,113 thousand tons
of naphtha, 985.6 thousand tons of jet fuel and
1,563.7 thousand tons of fuel oil and gasoil.
The main share of stable gas condensate pro-
cessing products (98%) was sold for exports.
Sales to the European markets accounted for
53% of total petroleum product sales volumes,
29% were sold to the Asian-Pacific region, 14%
to North America and 4% to the Middle East.
Naphtha was mainly exported to the Asian-
Pacific countries, while jet fuel, fuel oil and gas-
oil was shipped to North-Western Europe.

Export sales of stable gas condensate contin-

ued in 2016 as we reached full capacity utiliza-
tion at the Ust-Luga Complex. Total stable gas
condensate sales volumes grew by 1% to 2,812
thousand tons compared to 2015.

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

Liquid hydrocarbon sales, thousand tons

TOTAL

Petroleum products (Ust-Luga)

Crude oil

Stable gas condensate

Light hydrocarbons

LPG

Other

NOVATEK’s customer base, while the rest of the
light hydrocarbons volumes are sold to SIBUR.
We sold 1,468 thousand tons of light hydrocar-
bons in 2016.

LPG sales volumes totaled 1,245 thousand
tons in 2016, representing a 2.7% decrease com-
pared to 2015. LPG export sales volumes amoun-
ted to 549 thousand tons or 44% of the total LPG
sales volumes. Novatek Polska, our wholly owned
LPG trading company in Poland, sold 507 thou-
sand tons of LPG, representing 92% of our total
LPG export sales. Other export markets for LPG
were Finland, Hungary and Slovakia.

On the domestic market, our LPG is sold
through large wholesale channels, as well as
through our network of retail and small whole-
sale stations. In 2016, large wholesale supplies
to the domestic market accounted for 560 thou-
sand tons, representing 80% of commercial
LPG domestic sales volumes. We also sold LPG
via our 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 136 thousand tons.

Sales of crude oil in 2016 totaled 4,650 thou-

sand tons, representing an increase by more
than four-fold times over 2015 volumes. We sold
68% of our crude oil volumes on the domestic
market with the remaining volumes supplied to
export markets.

2015

12,888

6,693

1,090

2,786

1,026

1,280

2016

16,850

6,662

4,650

2,812

1,468

1,245

Change

30.7%

(0.5%)

326.6%

0.9%

43.1%

(2.7%)

0.0%

Annual Report 2016novatek.ru

Delivering Results

ENVIRONMENTAL AND
SOCIAL RESPONSIBILITY

NOVATEK adheres to the principles of effect-
ive and responsible business conduct and con-
siders the welfare of its employees and their
families, environmental and industrial safety,
the creation of a stable and beneficial so-
cial environment as well as contributing to
Russia’s overall economic development as pri-
orities and responsibilities 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 vul-
nerable environment. Тhe Company is com-
mitted to environmental protection in its
operations. In 2016, the Company’s overall ex-
penses on environment protection amounted
to RUB 1,199 mln.

In 2016, a revised version of NOVATEK’s

Health, Safety and Environmental (HSE)
Policy was approved, which included the
Company's commitments consistent with the
best Russian and international practices. Our
key controlled entities are using an Integrated
Management System for Environment
Protection, Occupational Health and Safety
(IMS) compliant with ISO 14001:2004 and
OHSAS 18001:2007. In 2016, NOVATEK suc-
cessfully passed the second follow-up IMS
compliance audit.

Special attention is paid to preventive
measures in the area of environment protec-
tion. In particular, the environmental aspects
are taken into account in designing new pro-
duction facilities: modern technology and
equipment is used to considerably reduce the
adverse environmental impact and risk of en-
vironmental accidents. The Company builds
and rebuilds its waste disposal sites, equips
its facilities with state-of-the-art oil sludge
treatment units, new sewage treatment facilit-
ies are built and older ones are revamped.

Environmental monitoring was performed
throughout the reporting year at all of the li-
cense areas and production facilities of the
Company. During the monitoring process the

condition of the environment components is
studied, soil, ground, snow cover, water and
bed deposit samples are taken. Air contamina-
tion level is inspected. The status of fish stock
and fodder resources in water areas is studied
as are hydrologic and hydrochemical paramet-
ers. The samples taken are tested in certified
laboratories. Based on the laboratory analysis
the condition of the environment components
is evaluated as well as its dynamic pattern
over the year. The monitoring revealed that
the condition of the environment components
in the Company's production facility locations
is evaluated as stable.

During 2016, NOVATEK rose by five po-
sitions in the oil and gas environmental re-
sponsibility rating under the Common Sense
Project. Thus, it became an absolute leader
in terms of annual dynamics. NOVATEK has
eventually ranked seventh among 21 oil and
gas companies in Russia. The project was im-
plemented by the World Wildlife Fund (WWF)
Russia and CREON Energy with the support of
the Russian Ministry of Energy and Ministry of
Natural Resources.

In the reporting year, the Company contin-
ued its participation in the Carbon Disclosure
Project (CDP), whereby information on green-
house gas emissions and operations energy
efficiency is disclosed, as well as in the CDP
Water Disclosure Project to disclose data on
the use of water resources. By taking part
in these projects the Company intends to
achieve a balance between the climate change
risks and efficiency of investment projects.
The Company offers all stakeholders full ac-
cess to its environmental information, includ-
ing by publications in federal and local printed
media, on its website, etc.

In 2016, the Company started developing its

corporate Greenhouse Gas Emission Control
System. This action became part of the Russian
national set of actions delivered in the Year
of Environment, and NOVATEK signed a rele-
vant quadripartite agreement with the Russian
Ministry of Natural Resources and Environment,
YNAО Government, and the Federal Supervisory
Natural Resources Management Service.

The Company together with NOVATEK Ust-

Luga won the 2016 National Environmental
Prize in the Innovative Eco-efficient
Technologies for Industrial Application catego-
ry (introduction of a smokeless flare technology
in NOVATEK Ust-Luga). A total of 247 projects

from 50 constituent entities of the Russian
Federation have submitted entries for the prize.
The prize celebrates projects that offer practi-
cal solutions to energy- and resource saving,
clean operations, preservation of a favorable
environment, and environmental safety.

Key environmental indicators of NOVATEK, its subsidiaries and joint ventures

Water consumption

Unit

th. cubic
meters

2015

1,716

Atmospheric emissions

th. tons

66.2

121.2

2016

Change

2,701

57%

83%

1 The increase in water consumption is due to the formation pressure maintenance program on the oil part of the East-Tarkosalinskoye

field and increase in water production for industrial use from Aptian-Cenomanian wells for the pressure maintenance program.
Increase in atmospheric emissions is due to the Yarudeiskoye oil field achieving its designed capacity (oil production and treatment
volume increased from 0.19 mmt in 2015 to 3.56 mmt in 2016) which led to a natural increase in associated gas production and flaring.

One of the Company’s environmental pri-
orities is the rational usage of resources, in-
cluding energy resources. The table below
sets out the physical volumes and the Russian
rouble equivalent of energy resources con-
sumed by the Company, its subsidiaries and
joint ventures in 2016.

Energy resource consumption by NOVATEK, its subsidiaries and joint ventures

Natural gas

Electricity

Heating energy

Oil

Motor gasoline

Diesel fuel

Other

Units

mmcm

MW*h

Gcal

tons

Volume

RR mln, net of VAT

1,918

656,149

272,663

858

882

5,145

620

2,648.0

3,236.1

509.3

5.4

35.8

188.0

5.9

Annual Report 2016novatek.ru

Delivering Results

industrial safety and occupational
health

Our strategic goal is to achieve a leading po-
sition 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, im-
proves employees’ qualification and applies
advanced technologies.

In accordance with the requirements of

the Federal Law “On Industrial Safety of
Hazardous Production Facilities” and the
“Rules on the Organization and Implementation
of Industrial Control over Compliance with
Industrial Safety Requirements at Hazardous
Production Facilities”, all of our subsidiaries
have adopted “Regulations on the Organization
and Implementation of Industrial Compliance
Control”. As part of the monitoring and com-
pliance process, we have established industrial
control compliance commissions, who carry out
regular audits of departments and production fa-
cilities to check adherence to health and safety
requirements.

Workplace certification includes evaluat-
ing 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 pro-
cess. In the reporting year, we certified 4,830
workplaces. The were no hazardous condi-
tions found during the inspection.

In 2016, a NOVATEK commission continued
comprehensive audits of NOVATEK subsidiaries
for occupational health, industrial, fire and envi-
ronmental safety requirements. In the reporting
year, we conducted OHS due diligence checks
on four subsidiaries and joint ventures. Based
on their findings, relevant reports were pro-
duced, and remedial measures were developed.
All of NOVATEK’s subsidiaries and joint ven-

tures conduct periodic safety training and
briefings; personnel training and develop-
ment programs are offered, among others, by
specialized training centers; knowledge as-
sessment is implemented on a regular basis.
During 2016, all entities undertook scheduled
and unscheduled Health and Safety knowl-
edge tests; within this period, 6,852 employ-
ees underwent occupational health training
courses and certification, and 3,018 employ-
ees underwent safety training courses. In
2016, the financing of Occupational Health
and Safety totaled approximately RR 693
million.

Key health and safety indicators of NOVATEK, its subsidiaries and joint ventures

Incident frequency rate (number of incidents per million working hours)

Accidents at hazardous production facilities

Incidents at hazardous production facilities

2015

0.53

2016

0.33

Change

(38%)

human resources

Employees are NOVATEK’s most valuable re-
source, 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 pro-
fessional development, dialogue between man-
agement and employees, as well as continuous,
comprehensive training and development op-
portunities for the Company’s employees at all
levels.

As of the end of 2016, NOVATEK and its sub-
sidiaries had 7,515 employees, 38.7% of whom
work in exploration and production, 17.0% in
processing, 26.9% in transportation and mar-
keting, 6.8% in power supply and less than
1.0% in ancillary services. The remaining 9.7%
are administrative personnel. The middle age

group (25 to 44 years old) is the predominate
age range in our personnel composition. The av-
erage age of the Company's employees is 39
years.

Personnel Training and Development
Amid the rapid development of technologies
and management systems, our multilevel train-
ing and professional development program en-
ables our employees to contribute to making
the Company more competitive. In 2016, the
primary goals of training and professional devel-
opment included:
— implementing an In-house Training pro-

gram to improve the competences of the
Company's employees;

— implementing the Steps in Discovering

Talents program for young specialists tar-
geted at training highly qualified personnel

whose competence level fully meets busi-
ness needs;

— developing and improving the Corporate
System for the Evaluation of Technical
Competencies; and

— engaging young specialists to take part in re-

search-to-practice conferences.

To ensure targeted professional upgrade, an
In-house Training program was launched in 2016
hosted by NOVATEK Scientific and Technical
Center (NOVATEK STC). Its employees have de-
veloped courses and trained their colleagues on
such topics as “Seismic Exploration Basics”,
“Practical Aspects of Modelling Foundation:
Theory and Practice”, “Integrated Engineering
of Gas Condensate Fields”, “Geological 3D
Modelling Basics”, “Complex Logging Methods
to Address Geological Tasks: Basics of Log
Interpretation”, “Hydrocarbon Fluid Properties
for Modelling their Production, Treatment, and
Transportation”, to name a few. A total of 147
employees of NOVATEK and the Company's
subsidiaries received training under this pro-
gram in 2016.

NOVATEK continued its efforts to advance
the professional capabilities of its employees,
improve working conditions and train its per-
sonnel on safe working practices at its produc-
tion facilities. A total of 44.8 % of white- and
blue-collar workers upgraded their skills. In
2016, the Corporate System for the Evaluation
of Technical Competencies tested 613 employ-
ees across the Group, including 20 persons
who were tested at recruitment and 91 persons
– at promotion.

We had our fourth class of graduates un-
der the Steps in Discovering Talents Program.
Twenty young specialists graduated from the
on-the-job adaptation and professional devel-
opment program. By autumn 2016, another 32
young specialists joined the program.

Young specialists received the Mentoring
Culture training courses together with their
mentors. In total, 24 mentors attended the
training.

To improve financial awareness of young

specialists, a new unit on Value Creation
Mindset was included in the program in 2016.
The graduating young specialists participated in
the new training course.

In November 2016, Tarko-Sale hos-

ted the 2nd Interregional Professional Skills
Contest among field workers. NOVATEK-
TARKOSALENEFTEGAS provided its facilities
for the contest. The number of companies and
participants in the contest doubled to 67 em-
ployees from eight NOVATEK Group companies

as compared to 2015. In addition to the four
jobs, which participants competed in during the
first contest, namely oil and gas production op-
erator, process unit fitter, electrical equipment
fitter, and instrument and automation fitter, this
year’s contest included two more professional
categories: process unit operator and chem-
ical analysis technician. All participants received
valuable gifts and the winners in each profes-
sional category were awarded bonuses and per-
sonal salary allowances in recognition of their
professional excellence.

In September 2016, Moscow hosted
the 11th Interregional Research-to-Practice
Conference for the Company’s young special-
ists attended by 46 employees. Following the
competition, all winners received bonuses,
while seven of the most successful participants
and the Best Implemented Project winner were
also awarded a trip to petroleum training cen-
ters in Australia.

Social Programs
Employee relations primary focus is on imple-
menting social programs, and according to the
Core Concept of the Company’s social policy
which was adopted in 2006, the social benefits
package for employees includes the following
programs:
— voluntary medical insurance for employees;
— therapeutic resort treatment for employees

and members of their families;

— provision of special-purpose short-term

loans;

— special-purpose compensation and social

support payments;

— provision of special-purpose interest-free

loans to purchase housing, and

— pension program.

Along with providing an optimum social be-
nefits package, the Company is also committed
to creating opportunities for employees to play
sports and get involved in sports and cultural
events. In 2016, our employees and their fam-
ily members visited exhibitions at Russia’s na-
tional museums, classical music concerts, and
attended sporting events like football (soccer)
games and acrobatic rock'n'roll competition
with the Company’s assistance.

The Company publishes its corporate news-

letter “NOVATEK” and corporate magazine
“NOVATEK Plus” to inform employees, their
family members, and third parties about the
Company’s activities, production results, cul-
tural, sports, and charitable programs. The
main events of NOVATEK are published in the
Company’s portal.

Annual Report 2016novatek.ru

Delivering Results

social policy and charity

Social Policy and Charity make up an import-
ant part of NOVATEK’s activities. In 2016, the
Company continued to pay close attention to pro-
jects aimed at supporting the culture, preserving
and revitalizing national values and spiritual leg-
acy of Russia, promoting and integrating the
Russian art into the international cultural space,
and developing amateur and professional sports.
NOVATEK entered into agreements with regional
governments across the Company’s footprint and
implements programs to improve living standards
and preserve the distinctive cultural identity of
the indigenous peoples of the Far North.

In 2016, NOVATEK and its subsidiaries inves-
ted about RR 1,9 billion in projects and activities
related to the support of indigenous peoples,
charitable contributions, cultural and educational
programs.

Cooperation with the regions
Within the framework of agreements signed
with various regions, the Company made in-
vestments in the Yamal-Nenets Autonomous
Area, and the Leningrad, Chelyabinsk, Tyumen,
Samara and Kostroma Regions throughout
2016. The Company also financed the construc-
tion, repairs and upgrades of social infrastruc-
ture facilities as well as earmarked significant
funds for implementing educational, cultural,
children and youth programs and projects and
was supporting low-income families, people
with disabilities and the elderly.

Cooperation with Indigenous Peoples of the
Far North
During 2016, NOVATEK provided financial sup-
port to the Yamal for Descendants Association
of indigenous peoples and its district branches.
We assisted indigenous peoples through finan-
cing the purchase of equipment and materials
required for the work of fishermen and reindeer
herders. NOVATEK financed fuel purchases for
air delivery of the nomadic population and food
to remote areas.

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

Recruitment and career guidance for
promising employees start with the “Gifted

Children” program implemented at School
No. 8 in Novokuybyshevsk and School No. 2
in Tarko-Sale. In 2016, the “Gifted Children”
class was opened in Tyumen vocational school
№81. Special classes are formed on a com-
petitive 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 the 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 2016, the Company awarded 36
grants to students under this program.

The “Grants” program for teachers is inten-
ded to raise the prestige of the teaching profes-
sion and create favorable conditions for devel-
oping new and talented teachers. In 2016, five
(5) teachers from the Purovsky District received
grants under this program.

In an effort to create conditions for more ef-
fective use of university and college resources
in preparing students for future professional
activities, the Company has developed and suc-
cessfully implemented the NOVATEK-VUZ pro-
gram. The program is an action plan for fo-
cused, high-quality training for specialists with
higher education in key areas of expertise in or-
der to grow the Company’s business and meet
its needs for young specialists. The program
is based at the Saint-Petersburg University of
Mines, the Gubkin Russian State University
of Oil and Gas in Moscow and the Tyumen
Industrial University.

Students, who have passed their exams
with good and excellent results, receive addi-
tional monthly payments. During their studies,
the students are offered paid field, engineer-
ing and directed internships. This experience al-
lows 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 oppor-
tunity to meet potential employees.

Preserving Cultural Heritage
In 2016, NOVATEK continued its coopera-
tion with Russia’s leading cultural and edu-
cational institutions, charity foundations, and
creative groups. These include the Moscow
Kremlin Museum, the Russian State Museum,
the Moscow Museum of Modern Art, and the
Multimedia Art Museum of Moscow.

The Moscow Kremlin Museum, with assis-
tance from NOVATEK, prepared and hosted the
exhibition titled “Elegance and Splendor of Art
Deco. The Kyoto Costume Institute, Jewelry
Houses Cartier and Van Cleef & Arpels”.
The Company supported the exhibition

“Wassily Kandinsky and Russia” in the Russian
State Museum to mark the 150th anniversary
of the artist, one of the founders of the ab-
stract art, and continued supporting the annual
International Imperial Gardens of Russia Festival
in St. Petersburg.

In partnership with NOVATEK, the Moscow

Museum of Modern Art presented the exhib-
ition “Little Golden America: based on a true
story” devoted to Ilya Ilf’s and Evgeny Petrov’s
travels as well as a solo exhibition of Stephan
Balkenhol “Sculptures and Reliefs”.

Starting in late 2015, the education division

of the Moscow Museum of Modern Art has
been delivering a special course of lectures on
the history of the 20th century Russian and for-
eign art, photography, architecture and cinema
to the Company’s employees and their family
members. To expand this activity, in 2016 the
Company for the first time supported the edu-
cational program of the Fifth Moscow Biennale
of Contemporary Art.

For several years, NOVATEK has been sup-
porting the History of Russia in Photographs, a
major program of the Multimedia Art Museum.
In 2016, with the Company's assistance, ex-
hibitions “Sergey Shimansky. Leningrad” and
“Alexander Rodchenko. Experiments for the
Future” took place.

In 2016, NOVATEK traditionally cooperated as

the General Partner with the Moscow Soloists
Chamber Ensemble and acted as the General
Partner of the tour across Russia and Europe of
the Russian Youth Symphony Orchestra led by
Yuri Bashmet.

Sports Projects
NOVATEK attaches great importance to pro-
grams for the development of amateur and pro-
fessional sports. The Company, its subsidiaries

and joint ventures regularly hold tournaments in
the most popular and wide-spread sports, such
as football, volleyball, swimming, ski, etc.

Tht company supported the children and

youth sports in the regions of its operations. The
“NOVATEK – Step to Bigger Football” Indoor
Football Cup among secondary school teams
expanded its geographical presence in 2016.
Besides the competition in the Chelyabinsk
Region that were attended by several thousand
boys and girls, the tournament was held in sev-
eral cities and towns of the Kostroma Region
and included more than one hundred teams.

The Company supported Figure Skating and

Ice Hockey Federations of the Yamal-Nenets
Automonous Region, and Student Basketball
Association with more than 800 teams and
10,000 boy and girls participating in com-
petitions. The Russian Acrobatic Rock'n'roll
Federation and the Company set up corpo-
rate acrobatic rock'n'roll clubs in the regions
where the Company operates, and their stu-
dents will take part in the Federation’s compe-
titions as early as in the first half of 2017. In
the reporting year, NOVATEK continued cooper-
ation with the Football Union of Russia as the
General Partner of the Russian National Football
Team. The company supported woman’s volley-
ball club Dinamo and the NOVA Volleyball Club
(Novokuybishevsk).

Charity
The Company has continued its cooperation
with Chulpan Khamatova’s Gift of Life charit-
able foundation in 2016. The Company held
two blood donor sessions for children from
the Russian Children’s Clinical Hospital at its
Moscow headquarters, in collaboration with the
foundation.

The scope of activities undertaken by the All
Together volunteer movement, which NOVATEK
founded in 2008, expanded. Assistance to or-
phans and children with various illnesses,
seniors, as well as support for the blood do-
nor movement remained the main volunteer
activities.

Annual Report 2016novatek.ru

Delivering Results

MANAGEMENT AND
CORPORATE GOVERNANCE

corporate governance system

NOVATEK strives to commit to the highest
standards of corporate governance. We believe
that such standards are an essential prerequis-
ite to business integrity and performance and
provide a framework for socially responsible
management of the Company’s operations.
The Company has established an effect-
ive and transparent system of corporate gov-
ernance complying with both Russian and in-
ternational standards. NOVATEK’s supreme
governing body is the General Meeting of
Shareholders. The corporate governance sys-
tem comprises the Board of Directors, the
Board Committees, and the Management
Board, as well as internal control and audit bod-
ies and the Corporate Secretary. 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 prin-
ciples of corporate governance outlined in
the Corporate Governance Code recommen-
ded by the Central Bank of Russia (Information
Letter № 06-52/2463 dated 10 April 2014). The
Company follows the recommendations of the
Code, as well as 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 depos-
itary receipts, NOVATEK places great emphasis
on the UK Corporate Governance Code and the
Regulation of the European Parliament and of
the Council on market abuse and follows their
recommendations as far as practicable.
The Company adheres to the internal

Corporate Governance Code approved by the
Board of Directors in 2005 (Minutes No. 60 of
15 December 2005).

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 gen-
eral norms and principles governing the con-
duct of members of the Board of Directors,

the Management Board and the Revision
Commission, as well as NOVATEK’s manage-
ment and employees, which were drafted on
the basis of moral and ethical values and pro-
fessional standards. The Code also determines
the rules governing mutual relationships inside
the Company and NOVATEK’s relationships with
its subsidiaries and joint ventures, sharehold-
ers, investors, the government and public, con-
sumers, suppliers, and other stakeholders.
In order to increase the effectiveness of

the Company’s corporate governance sys-
tem and bring it into compliance with the cur-
rect legislature, the Listing Rules of PAO
Moscow Exchange and the requirements of
the Corporate Governance Code, the following
changes were made in the reporting year:
— the Board of Directors held on 5 February

2016 approved amendments to the
Regulations on the Corporate Secretary;
— the Board of Directors held on 26 August
2016 approved NOVATEK’s Internal Audit
Policy, amendments to the Regulations
on NOVATEK’s Risk Management and
Internal Control System and to the
Regulations on NOVATEK’s Board of
Directors Remunerations and Nominations
Committee;

— following the resolution of NOVATEK’s

General Meeting of Shareholders held on 30
September 2016 amendments were made
to NOVATEK’s Charter, the Regulations on
the General Meeting of Shareholders of
NOVATEK, the Regulations on the Board of
Directors of NOVATEK, the Regulations on
the Management Board of NOVATEK; and

— due to amendments to the Company’s

Charter, following the resolution
of NOVATEK’s General Meeting of
Shareholders held on 30 September 2016
the company name OAO NOVATEK has
changed to PAO NOVATEK.

NOVATEK’s corporate governance practices
make it possible for its executive bodies to ef-
fectively manage ongoing operations in a reas-
onable 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 activ-
ity 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.

The General Meeting of Shareholders is re-

sponsible for the approval of annual reports,
annual financial statements, the distribution
of profit, including dividends payout, the elec-
tion of the Board of Directors and the Revision
Commission, approval of the Company’s Auditor
and other corporate and business matters.

On 22 April 2016, the Annual General Meeting

of Shareholders approved the annual report, an-
nual financial statements (in accordance with
the Russian Accounting Standards), distribution
of profit and the size of dividends based on the
results of FY2015. The meeting also elected the
Board of Directors and the Revision Commission,
as well as approved remuneration to members of
the Board of Directors, Revision Commission and
the Company’s external auditor for 2016 and ap-
proved interested-party transactions.

On 30 September 2016, the Extraordinary
General Meeting of Shareholders approved the
amount of interim dividend for the first half of
2016 and amendments to NOVATEK’s Charter
and internal documents regulating the activities
of NOVATEK’s bodies.

board of directors

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

The Board carries out the overall strategic
management of the Company’s activity on be-
half of and in the interests of all its shareholders,
and ensures the Company’s efficient and effect-
ive performance in order to increase shareholder
value in a prudent and responsible manner.
The Board determines the Company’s
strategy and priority lines of business, en-
dorses long-term and annual business plans, re-
views financial performance, internal control,
risk management and other matters within its

competence, including optimization of corporate
and capital structure, approval of major transac-
tions, making decisions on investment projects
and recommendations on the size of dividend
per share and its payment procedure, and con-
vening General Meeting of Shareholders. The
General Meeting of Shareholders elects the
members of the Board.

The current members of the Board were

elected at the Annual General Meeting of
Shareholders on 22 April 2016. The Board of
Directors is comprised of nine (9) members, of
which eight (8) are non-executive directors. Three
(3) directors are considered to be independent in
accordance with the Corporate Governance Code
recommended by the Central Bank of Russia
and the UK Corporate Governance Code. The
Board Chairman is Alexander E. Natalenko. The
Chairman is responsible for leading the Board and
ensuring its effectiveness.

The members of NOVATEK’s Board have a
wide range of expertise as well as significant ex-
perience in strategic, operational, financial, com-
mercial 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 impact-
ing the business. In addition to these formal pro-
cesses, Directors have access to the Company’s
medium-level managers for both formal and in-
formal discussions to ensure the regular ex-
change 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 supported by the Corporate Secretary, who
has sufficient independence (appointed and
dismissed by the Board of Directors) and en-
dowed 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 2016:
— Alexander E. Natalenko – Chairman of the

Board

— Andrei I. Akimov
— Burckhard Bergmann
— Michael Borrell
— Robert Castaigne
— Leonid V. Mikhelson
— Victor P. Orlov
— Andrei V. Sharonov
— Gennady N. Timchenko

Annual Report 2016novatek.ru

Delivering Results

During 2016, there were no changes to the
composition of NOVATEK’s Board of Directors.
In accordance with the recommendations of
the Corporate Governance Code and the Listing
Rules of PAO Moscow Exchange, three (3) of the
nine (9) elected members of the Board are con-
sidered independent directors.

Board activities during the 2016 corporate
year
To ensure the Company’s efficient performance,
the Board meetings are convened on a regular ba-
sis at least once every two months. During 2016,
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 2016

full year operating and financial results;
— raised external financing for Yamal LNG;
— recommended an interim dividend for first

half 2016, based on interim financial results
for the period, and a full year dividend for
2016, based on full year financial results;
— reviewed and approved NOVATEK’s busi-

ness plan for 2017;

— submitted the following issues to the con-
sideration of NOVATEK’s Extraordinary
General Meeting of Shareholders: amend-
ments to NOVATEK’s Charter and internal
documents regulating the activities of
NOVATEK’s bodies; and

— approved NOVATEK’s Internal Audit Policy.

Board and Committee meetings attendance in the 2016 corporate year

Member

2
Independence

Board of
Directors

Audit
Committee

Remuneration and
Nomination Committee

Strategy
Committee

Alexander E. Natalenko

Andrei I. Akimov

Burckhard Bergmann

Michael Borrell

Robert Castaigne

independent

Leonid V. Mikhelson

executive

Victor P. Orlov

independent

Andrei V. Sharonov

independent

Gennady N. Timchenko

10/10

4/4

3/4

4/4

board committees

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

The Committees play a vital role in ensur-
ing that the high standards of corporate govern-
ance are maintained throughout the Company
and that specific decisions are analyzed and the

necessary recommendations are issued prior
to general Board discussions. The minutes of
the Committees meetings are circulated to the
Board members and are accompanied by neces-
sary materials and explanatory notes.
In order to carry out their duties, the

Committees may request information or docu-
ments from members of the Company’s executive
bodies or heads of the Company’s relevant depart-
ments. For the purpose of considering any issues
being within their competence, the Committees
may engage experts and advisers having neces-
sary professional knowledge and skills.

1 From the Annual General Meeting of Shareholders on 22 April 2016 until the Annual General Meeting of Shareholders on 21 April 2017.
Independent Director as of 31 December 2016 in accordance with the Corporate Governance Code recommended by the Central Bank
2
of Russia and the UK Corporate Governance Code.

Committees membership as of 31 December 2016

Chairman

Members

Audit Committee

Strategy Committee

Remuneration and
Nomination Committee

Andrei V. Sharonov

Alexander E. Natalenko

Victor P. Orlov

Robert Castaigne
Victor P. Orlov

Andrei I. Akimov
Burckhard Bergmann
Michael Borrell
Gennady N. Timchenko

Robert Castaigne
Andrei V. Sharonov

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 recom-

mendations 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
valuation of the Company and its business
segments in order to make recommenda-
tions to the Board of Directors in making de-
cisions on the definition of business priorit-
ies 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 2016, the Strategy Committee
met four (4) times.

Remuneration and Nomination Committee
The primary functions of the Remuneration and
Nomination Committee is the development of
an efficient and transparent compensation prac-
tice of members of the Company’s manage-
ment, enhancement of the professional expert-
ise and improvement of the Board of Directors’
effectiveness.
In order to assist the Board, the Committee per-
forms 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 accord-
ance with the Company’s remuneration policy;
— annual detailed and formalized performance
self-appraisal or external appraisal of the
Board of Directors and its members, as well
as of BoD Committees, determination of the
priority areas for reinforcing the Board of
Director’s composition;

— interaction with shareholders, which shall
not be limited to major shareholders only,
with a view to generate recommenda-
tions to the shareholders with respect to
voting on the election of nominees to the
Company’s Board of Directors;

— plan appointments of members of the exec-
utive body and the sole executive body on
the base of continuity principles; and
— supervision over disclosure of informa-

tion on the Company's shares owned by
the members of the Board of Directors and
Management Board, and other key manage-
ment employees.

In corporate year 2016, the Remuneration and
Nomination Committee met four (4) times.

Audit Committee
The primary function of the Audit Committee
is control over financial and operating activit-
ies of the Company. In order to assist the Board
in performing control functions the Committee
is responsible for but not limited to evaluating
accuracy and completeness of the Company’s
full year financial statements, the candid-
ature 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 Company’s executive bodies, inviting
NOVATEK’s managers responsible for the pre-
paration of the financial statements to attend
the Committee meetings.

Annual Report 2016novatek.ru

Delivering Results

In corporate year 2016, the Audit Committee

— Ilya V. Tafintsev – Director for Strategic

met four (4) times.

Projects

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 re-
garding the Management Board’s competence
is provided in NOVATEK’s Charter.

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 meet-
ings and implementing decisions of the General
Meeting of Shareholders and the Board of
Directors. The Management Board acting as of
31 December 2016 is comprised of twelve (12)
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) and 10 March 2016 (Minutes
No. 184 of 10 March 2016).

Management Board Members as of 31
December 2016:
— Leonid V. Mikhelson – Chairman
— Alexander M. Fridman – First Deputy

Chairman

— Vladimir A. Baskov – Deputy Chairman
— Viktor N. Belyakov – Deputy Chairman of

the Management Board for Economics and
Finance

— Mark A. Gyetvay – Deputy Chairman
— Oleg V. Karpushin – Deputy Chairman of the
Management Board - Operations Director
— Tatyana S. Kuznetsova – Deputy Chairman –

Director of Legal Department

— Igor A. Plesovskikh – Deputy Chairman of the
Management Board - Director for Geology

— Lev V. Feodosyev – Deputy Chairman –

Commercial Director

— Denis G. Khramov – Deputy Chairman
— Kirill N. Yanovskiy – Director for Finance

remuneration to members of
the board of directors and
management board

The procedure for calculating the remu-
neration and compensations to members
of NOVATEK’s Board of Directors is gov-
erned by the Regulations on Remuneration
and Compensations payable to members of
NOVATEK’s Board of Directors approved by
the Annual General Meeting of Shareholders
(Minutes No. 122 of 24 April 2015). According
to the Regulations the remuneration consists of
the following types:
— fixed part of remuneration;
— remuneration for attending the Board of

Directors meetings; and

— remuneration for attending the meetings of
the committees of the Board of Directors.

The fixed part of remuneration to a Board
member constitutes 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 attend-
ing the meetings of the Board of Directors in
the maximum amount of RR 3 million per cor-
porate year and remuneration for attending the
meetings of the committees of the Board of
Directors in the maximum amount of RR 2 mil-
lion per corporate year. The Board members are
also compensated for travel and lodging expens-
es related to implementation of their functions
as NOVATEK Board of Directors members.

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

Information on remuneration of members of NOVATEK’s Board
of Directors and Management Board in 2016, RR mln

TOTAL PAID, INCLUDING:

Salaries

Bonuses

Fees

Other property advancements

internal control and audit

The Company has a system of internal control
over financial and business operations in ac-
cordance with international best practices. The
process of internal control is an integral part of
the risk management process.

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

The primary objects of internal control are
PAO NOVATEK, its subsidiaries and joint ven-
tures, and their subdivisions, as well as their on-
going business processes.

In order to combat corruption, mitig-
ate compliance, operational and reputa-
tion risks, the Company adopted 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).

Revision Commission
The Revision Commission consisting of four
(4) members 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 Commission approved by the General
Meeting of Shareholders in 2005 (Minutes No.
95 of 25 March 2005).

The Revision Commission is an internal
control body responsible for oversight of the

3
Management Board
Board of Directors

133.38

132.4

0.98

1,996.5

682.0

1,274.3

40.2

Company’s financial and business activities. The
Revision Commission performs 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 au-
thorized in accordance with Russian Federation
law and the Company’s Charter. The results of
these audits are presented in the form of find-
ings by the Revision Commission.

In March 2017, the Revision Commission
completed the on-site audit revision of finan-
cial and business activity of the Company for
the year 2016. As a result, the conclusions
about the reliability of the data contained in the
Company’s 2016 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
evaluation of the reliability and effectiveness of
the risk management and internal control sys-
tem as well as corporate governance practices
the Company performs internal audits of the
Company’s operations. The internal audit func-
tion is implemented by the independent Internal
Audit Division, which has operated continuously
since 2005.

The Internal Audit Division is functionally
subordinate to the Board of Directors and is
guided by International professional internal
audit standards of Institute of Internal Auditors.
The Division also adheres to the principles
and rules of conduct stated in internal aud-
itor's Code of Business Conduct of the Institute
of Internal Auditors. In 2016, the Board of
Directors approved NOVATEK’s Internal Audit
Policy (Minutes No. 192 of 26 August 2016).

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

Annual Report 2016novatek.ru

Delivering Results

The Division carries out its activities on the
basis of an annual plan of inspections approved
by the Audit Committee and uses a combin-
ation of risk-based and cyclic approaches.
According to the results of inspections it de-
velops measures to eliminate identified risks
and optimize 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 inform-
ation 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 subsidiar-
ies and joint ventures.

External Auditor
The Annual General Meeting of Shareholders
appoints an external auditor to conduct in-
dependent review of NOVATEK’s financial
statements. The Audit Committee gives re-
commendations to the Company’s Board of
Directors regarding the candidatures of external
auditors and the price of their services. Based
on the Committee’s recommendations, the
Board proposes the auditor’ candidature for the
consideration and for approval by the Annual
General Meeting of Shareholders.

AO PricewaterhouseCoopers Audit (an in-
ternationally recognized audit firm) was chosen
as the Company’s external auditor to conduct
the audit of the annual financial statements for
2016 under RAS, as well as independent re-
views of the Company's quarterly financial
statements and audit of the annual financial
statements under IFRS.

In selecting the auditor’s candidature, atten-

tion is paid to level of their professional qual-
ifications, independence, possible risk of any
conflict of interest, terms of the contract, and

an amount of remuneration requested by the
candidates.

The Audit Committee oversees the external
auditor’s 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 opin-
ion regarding the Company’s financial statements.
The Audit Committee meets with the auditor’s
representatives at least twice per year.

NOVATEK’s management is aware of and ac-
cepts recommendations on the independence
of the external auditor by restricting such aud-
itor's involvement in providing non-audit ser-
vices. Remuneration paid to the principle audit-
ors for auditing and other services is specified
in Note 24 to the consolidated financial state-
ments prepared in accordance with IFRS stand-
ards for 2016.

share capital

Our share capital is RR 303,630,600 and con-
sists of 3,036,306,000 ordinary shares, each
with a nominal value of RR 0.1. As of 31
December 2016, NOVATEK did not have prefer-
ence shares.

Our shares are traded in Russian roubles on

the Moscow 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 2016, NOVATEK’s
GDRs were issued on 910,574,600 ordinary
shares comprising 29.99% of the Company’s
share capital.

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 2016, %

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

Gennady N. Timchenko

Management Board

Vladimir A. Baskov

Viktor N. Belyakov

Mark A. Gyetvay

Oleg V. Karpushin

Tatyana S. Kuznetsova

Igor A. Plesovskikh

Ilya V. Tafintsev

Lev V. Feodosyev

Alexander M. Fridman

Denis G. Khramov

Kirill N. Yanovskiy

0.7152

21,717,112

9.1583

278,073,034

0.0288

874,408

0.1944

5,903,035

0.0817

0.1051

2,481,049

3,192,530

In 2016, Gennady Timchenko, member of
NOVATEK Board of Directors, made the follow-
ing transactions with NOVATEK shares:
— transfer of 34,167,892 shares under a secur-
ities lending agreement (22 January 2016);
— transfer of 400,934,172 shares under a se-
curities lending agreement (29 April 2016);
— receipt of 277,303,034 shares under a se-
curities lending agreement (22 December
2016); and

— acquisition of 770,000 shares under a se-

curities sales and purchase agreement (23
December 2016).

dividends

The Company’s Dividend Policy is regulated
by the Regulations on Dividend Policy of PAO
NOVATEK approved by the Board of Directors
on 28 April 2014 (Minutes No. 168 of 28 April
2014). According to the regulations, consolid-
ated net income under IFRS is applied for calcu-
lation of the dividend size.

NOVATEK’s dividend policy is based on keep-
ing the balance between the Company’s business
goals and shareholder’s interests. A decision to
pay dividends as well as the amount of the divi-
dend, the payment deadline and form of the divi-
dend is passed by the Annual General Meeting of
Shareholders according to the recommendation

4 The equity stakes are given based on the records in the register of NOVATEK’s shareholders and notification received from members of

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

Annual Report 2016
novatek.ru

Delivering Results

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 com-
petitive and financial position of the Company, as
well as its development prospects, including op-
erating cash flow and capital expenditure fore-
casts, 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.

On 14 March 2017, the Board of Directors
of PAO NOVATEK recommended to the Annual

General Meeting of Shareholders to pay div-
idends for FY 2016 in the amount of RR 7.0
per ordinary share or RR 70 per one Global
Depositary Receipt (GDR), exclusive of RR 6.9 of
interim dividends per ordinary share or RR 69 per
one GDR paid for the first six months of 2016.
Thus, should the General Meeting of

Shareholders approve the recommended divi-
dend, the dividends for 2016 will total RR 13.9
per ordinary share (RR 139 per one GDR), and
the total amount of dividends payable for 2016
will be RR 42,204,653,400. This will represent a
3.0% increase in dividend per share compared
to 2015.

Accrued and paid dividends on NOVATEK shares for the period 2011 to 2016

Dividend accrual period

Amount of
dividends,
RR per share

Total amount of dividends
accrued, RR

Total amount of dividends
paid, RR

2011

2012

2013

2014

2015

First half 2016

6.00

6.86

7.89

10.30

13.50

6.90

18,217,836,000

20,829,059,160

23,956,454,340

31,273,951,800

40,990,131,000

20,950,511,400

18,217,661,018

20,829,057,901

23,956,346,951

31,273,849,601

40,989,939,487

20,950,494,606

The amount of paid dividends accrued for the
years 2011 to 2015, and for the first six months
2016 is reported as of 31 December 2016.
Partial payment of the accrued dividends was
made due to provision by shareholders of in-
correct postal and/or banking details and insuf-
ficient information regarding banking or postal
details of shareholders.

information transparency

NOVATEK is committed to providing object-
ive, reliable, and consistent information about
the Company and its activities to all stakehold-
ers and also complies with best practices for in-
formation disclosure while adhering to a max-
imum level of transparency. The Regulations
on Information Policy approved by the Board
of Directors (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 notifications
through authorized disclosure in accordance
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 Standards (“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 in-
formation on all aspects of its activities, includ-
ing our Sustainability Report. We regularly parti-
cipate in information disclosure on greenhouse
gas emissions and energy efficiency of produc-
tion – 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 en-
sure full awareness of investment community
about its activities. The main channels of com-
munication with the investment community
are through the Chairman of the Management
Board, Deputy Chairman and the Investor
Relations department. The Company’s repre-
sentatives meet on a regular base with key fi-
nancial audiences to discuss issues of interest
to them.

Pursuant to the uniform information policy
principles, NOVATEK is actively involved in re-
lations with federal, foreign and regional me-
dia. In 2016, the topics covered in mass media
related to the Company's activities. As at the
end of 2016, the number of publications on the
Company's activities increased by 20%, and the
number of TV spots on federal channels went
up by 40%.

In 2016, the Public Relations Department
hosted 10 meetings between the Company
management and journalists of foreign and fed-
eral periodicals resulting in more than 25,000
publications. Among the topics covered were
disposal and raising of LNG project-related in-
vestments, the Company's plans of business ex-
pansion, entering new markets and cooperation
with European and Asian financial institutions.

Twelve tours were arranged for the
Russian mass media journalists to visit the
Company's regional production facilities and
the areas involved in the Yamal LNG Project
implementation.

The number of publications in foreign media
increased, TV spots on the Yamal LNG Project
implementation were issued on the TV channels

of France, Germany, Austria, Italy, Great Britain,
China, Japan, and South Korea. More than
four thousand publications were issued in for-
eign media in 2016. In May 2016, a dedicated
press-tour was arranged for foreign journalists
to visit the Yamal LNG site that was attended
by 60 people from approximately 35 publica-
tions. Separate visits of camera units from Italy,
Austria, Germany, France, United Kingdom and
Japan to the company facilities Yamal LNG and
NOVATEK-Yurkharovneftegas were arranged
during the year.

NOVATEK takes active part in industrial exhi-
bitions and conferences. In 2016, NOVATEK's
managers and employees participated in more
than 15 exhibitions, conferences and round ta-
bles. In 2016, the Company took part in the
St. Petersburg International Economic Forum,
Eastern Economic Forum, as well as govern-
mental delegations within foreign business
events. NOVATEK delegation also took part in
the work of major international industry events
– International Conference & Exhibition on
Liquefied Natural Gas in Australia, V Eurasian
Investment Forum in Verona, LNG Producer-
Consumer Conference in Tokyo, etc.

Annual Report 2016novatek.ru

Delivering Results

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 implemented at the Company. Powers,
duties and responsibilities for specific risk man-
agement procedures are delegated to differ-
ent governance levels of the Company depend-
ing on the assessment of financial impact of
risk. The Company's risk management policy is
laid out in the Regulations on OAO 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 re-
liability and efficiency of the risk manage-
ment framework and review of the risk man-
agement policy. In the reporting year, the
Audit Committee after careful review and ana-
lysis of the information provided, recognized
NOVATEK's risk management activities as com-
pliant with the risk management policy of the
Company.

Below is the list of risks and approaches
to risk management 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.

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 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.
The Central Dispatch Office (CDO) operates in the
Company, one of its function is to ensure prompt
response to production incidents. Since 2017, the
functionality of the CDO was expanded by adding
centralized control of well construction and workover
on top of the control of production, treatment and
transportation processes.

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 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).

Competitive 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 equipment and

services

• access to transportation infrastructure,
which has technological limitations

• employment of highly qualified specialists

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

Commodity price risks As an independent natural gas producer,

NOVATEK is not subject to state regulation
of natural gas prices. Nevertheless, the
Company’s prices are strongly 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.

Geological risks

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.
Since 2015, the Company has been employing foreign
experts in geology and field development. Individual
focused training programs have been implemented for
the employees with due regard to periodic testing.
The Company makes annual assessment and
evaluation of its reserves based on the results of
exploration and production drilling and other research
information. An independent international adviser
evaluates the Company's reserves according to
international standards on annual basis.

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

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

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

Annual Report 2016novatek.ru

Delivering Results

Environmental 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.

Project risks

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.

Ethical risks

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.

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

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.

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 Regulation on Investment Projects Preparation,
Coordination, Approval, Monitoring and Updating
was approved in the Company in 2016. The project
risks are evaluated at every stage.
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.

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.
In 2016, the Company established the procedure for
notification and managing the conflicts of interest
employees may come across in performing their job
duties.

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.

Terrorism risks

The Company is subject to a risk of terrorist
threat.

Country risk

Regional 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.

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

Risks of information
technology and
information security
(cyber-risks)

The Company is exposed to the risks in
the area of information technologies and
information security, such as unauthorized
access and changing or destroying digital
assets.

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

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.

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.

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.

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.

The Company uses a multilevel system for digital
assets protection, namely: all information systems
are classified, owners and terms for provision of
access rights are defined in relation to each of
them, information storage and archiving terms are
regulated. The Company makes use of licensed
software only.
The information technology development strategy
of NOVATEK has been developed and approved to
ensure the Company's sustainable development.

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
the 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.

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Delivering Results

Interest risks

Currency risks

Liquidity risk

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.

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

Inflation risk

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.

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.

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.

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.

LEGAL RISKS

Risk of law changes

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

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

• currency laws (in areas concerning export/

import and borrowing operations)
• tax laws (in areas regulating taxation
systems and rates applicable to
companies in general, and to companies
producing and marketing natural gas and
liquid hydrocarbons, 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.

Risk Insurance
Risk insurance is an integral part of NOVATEK’s
risk management system. In 2016, the insur-
ance coverage guaranteed adequate protection
against the risks of damage to the business of
the Company or its subsidiaries and joint ven-
tures. Insurance is provided by reputable insur-
ance companies that have high ratings by lead-
ing rating agencies (Standard & Poor`s, Expert
RA, A.M. Best) with partial reinsurance of risks
by major international insurance and reinsur-
ance companies.

Obligatory Risk Insurance
The Company and its subsidiaries and joint ven-
tures fully meet the requirements of the applic-
able 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 affili-
ates maintain the following types of optional
insurance:
— Insurance of the risk of property dam-

age/loss, including the risk of mechanical
failures;

— Insurance of the risk of damage from busi-

ness interruption;

— Insurance of risks related to prospecting, ex-
ploration and production (risk of loss of con-
trol over a well); and

— Management liability insurance.

Since 2013, the Company implemented a
comprehensive program of property and busi-
ness risk insurance with respect to its and its
subsidiaries’ and joint venture’s key assets. The
cumulative insured amount for the risks of prop-
erty damage and business interruption as at the

end 2016 was RR 512 billion. The implemen-
ted program is viewed by the Company’s man-
agement as an efficient measure for mitigating
the consequences of potential accidents and
provides additional guarantees for the attain-
ment of the expected net profit and key indicat-
ors of the Company's performance.

In the reporting year, no insured major acci-

dents or incidents occurred.

At the end of 2016, one of NOVATEK's sub-
sidiaries entered into a one-year contract for in-
surance of receivables of an approved natural
gas consumer list with a view to assess how
efficiently this instrument is used to manage
risks.

For more than 11 years the Company has
maintained a management liability insurance for
the top management of the Company and its
subsidiaries against possible third-party claims
for any losses incurred through any wrong ac-
tion (or decision) made by its management bod-
ies. The overall limit of all insurance coverage is
Euro 120 mln.

information on members of
novatek’s board of directors

MR. ALEXANDER E. NATALENKO

— Chairman of NOVATEK’s Board of Directors
and Chairman of its Strategy Committee

— Born in 1946

Mr. Natalenko completed his studies at the
Irkutsk State University in 1969 with a primary
focus in Geological Engineering. Subsequently,
he worked with the Yagodinskaya,
Bagdarinskaya, Berelekhskaya, Anadirskaya
and East-Chukotskaya geological expeditions.
In 1986, Mr. Natalenko headed the North-
East Industrial and Geological Association

Annual Report 2016novatek.ru

Delivering Results

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 pos-
ition 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.

MR. ANDREI I. AKIMOV

— Member of NOVATEK’s Board of Directors
and Member of its Strategy Committee

— Born in 1953

Mr. Akimov graduated from the Moscow
Financial Institute in 1975 where he special-
ized in international economics. Between 1974
and 1987, Mr. Akimov held various execut-
ive 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 fin-
ancial company, IMAG Investment Management
& Advisory Group AG (Austria). Since 2003,
Mr. Akimov has been the Chairman of the
Management Board, the Deputy Chairman of
the Board of Directors of Gazprombank (OAO).
He is a member of Board of Directors of PAO
Gazprom, Gazprombank (AO), PAO Rosneft, AO
Rosneftegaz, ООО Gazprom gas motor fuel,
Bank GPB International S.A. and other.

DR. BURCKHARD BERGMANN

— Member of NOVATEK’s Board of Directors,
and Member of its Strategy Committee

— Born in 1943

Dr. Bergmann studied physics at the Freiburg

and Aachen Universities from 1962 to 1968
and was awarded a Doctorate in Engineering
by Aachen University of Technology in 1970.
From 1968 to 1969, Dr. Bergmann worked
at the German Federal Ministry for Research
and Technology and from 1969 to 1972 – at
the J
lich Nuclear Research Center. In 1972,
Dr. Bergmann joined Ruhrgas AG (from 1 July
2004 – E.ON Ruhrgas AG), heading the LNG
Purchasing Department. In 1978, he be-
came Head of the Gas Purchasing Division

responsible for gas purchasing, commer-
cial aspects of gas transmission and stor-
age. 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 mem-

ber of the Boards of Directors (Supervisory
Boards) of: Allianz Lebensversicherungs-AG,
Commerzbank AG, Contilia GmbH. At pres-
ent, he is a Chairman of the Supervisory Board
of Accumulatoren-werke Hoppecke GmbH,
a member of the Advisory Boards of Contilia
Gmbh and Dana Gas and a member of the
Board of Trustees of RAG Stiftung.

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

MR. MICHAEL BORRELL

— Member of NOVATEK’s Board of Directors
and Member of its Strategy Committee

— Born in 1962

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-President for Corporate Planning and
Business Development in Total E&P Indonesia.
In July 2006, he was appointed 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

— 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

— Born in 1946

rieure du p

Mr Castaigne graduated from the Ecole
Centrale de Lille in 1968 and the Ecole nation-
ale sup
trole et des moteurs, he
holds a doctorate in economics. He has spent
his whole career at TOTAL SA, first as an en-
gineer, 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 Committee, 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 Chevalier of the National Order of the
Legion of Honour.

MR. LEONID V. MIKHELSON

— Member of NOVATEK’s Board of Directors
— Chairman of NOVATEK’s Management Board
— Born in 1955

Mr. Mikhelson received his primary degree
from the Samara Institute of Civil Engineering
in 1977, where he specialized in Industrial Civil
Engineering. That same year, Mr. Mikhelson
began his career as foreman of a construction
and assembling company in Surgut, Tyumen re-
gion, where he worked on the construction of
the first section of Urengoi-Chelyabinsk gas
pipeline. In 1985, Mr. Mikhelson was appoin-
ted 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 company “Novafininvest”.
Since 2003, Mr. Mikhelson has served
as a member of the Board of Directors and
Chairman of the Management Board of
NOVATEK. From March 2008 to December
2010, he has been a member of the Board of
Directors and the Chairman of the Board of
Directors of AO 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 man of the gas
industry”.

MR. VICTOR P. ORLOV

— Independent member of NOVATEK’s Board

of Directors

— Chairman of NOVATEK’s Remuneration and

Nomination Committee

— Member of NOVATEK’s Audit Committee
— Born in 1940

In 1968, Mr. Orlov graduated from the Tomsk

State University as a geological engineer with
a degree in “Geological survey and explora-
tion 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, pros-
pecting and exploration works in the geological
organizations of Western Siberia, held positions
of the geologist, chief geologist, chief of geo-
logical exploration crew. 1975-1978 - Consultant
on geological exploration works in Iran. 1979-
1981 - Deputy Head of the Geological Division
of the Production Geological Association of cen-
tral areas of Russia (Tsentrgeologiya). 1981-
1986 - Deputy Head of Geology and Production
departments of the Ministry of Geology of the
RSFSR. 1986-1990 - CEO of Tsentrgeologiya.
1990-1992 - Deputy Minister of Geology of the
USSR, First Deputy Chairman of the RSFSR
State Committee for Geology and Use of
Energy and Mineral Resources. 1992-1996 -
Chairman of the Russian Federation Committee
on Geology and Mineral Resources. 1996-
1999 - Minister of Natural Resources of the
Russian Federation. 2001-2012 - Member
of the Federation Council of the Federal
Assembly of the Russian Federation. 2001-
2004 - First Deputy Chairman of the Federation
Council Committee on Natural Resources
and Environmental Protection. 2004-2011 -
Chairman of the Federation Council Committee
on Natural Resources and Environmental

Annual Report 2016novatek.ru

Delivering Results

Protection. From 1998 to present - President of
“Russian Geological Society” public organiza-
tion. Author and co-author of over 300 scientif-
ic publications.

Professor, Doctor of Economics (1991),

Candidate of geological-mineralogical sci-
ences (1974), an Honored Geologist of Russia.
Laureate of the State Prize of the Russian
Federation in the field of science and techno-
logy. He was awarded the Order of Merit for
the Fatherland 4 degree (2001), the Order of
Honor (2015), 18 non-governmental awards, in-
cluding 3 appreciation letters of the President of
the Russian Federation, 2 Certificates of Merit
of the Government of the Russian Federation.

MR. ANDREI V. SHARONOV

— Independent member of NOVATEK’s Board

of Directors

— Chairman of NOVATEK’s Audit Committee
— Member of NOVATEK’s Remuneration and

Nomination Committee

— Born in 1964

Mr. Sharonov graduated from the Ufa

Aviation Institute and the Russian Academy of
State Service at the President of the Russian
Federation.

1989-1991 - Member of the USSR Parliament,
until 1996 he headed the Committee for Matters
Concerning Young Persons of the Russian
Federation. From 1996 to 2007 - Head of
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 budg-
eting, procurement, industrial policy and busi-
ness support, regulated market of trade and ser-
vices. 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
member of ALROSA’s Supervisory Board (PAO);
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; Chairman of
the Board of Directors of PAO Management

Company Eko-sistema; a member of the Board
of Directors of AO Rosgeologia, a member of
the Supervisory Board of the Bank VTB (PAO).
Candidate of sociological sciences, an

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

MR. GENNADY N. TIMCHENKO
— Member of NOVATEK’s Board of Directors
— Member of NOVATEK’s Strategy Committee
— Born in 1952

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 Leningrad, an indus-
trial plant which made components for the en-
ergy 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, lo-
gistics and transportation related companies.

In 1988, Mr. Timchenko became a vice pres-

ident of Kirishineftekhimexport, the export
and trading arm of the Kirishi refinery. In 1991,
he worked for Urals Finland which special-
ized in oil and petrochemical trading. Between
1994 and 2001, Mr. Timchenko was manag-
ing Director of IPP OY Finland and IPP AB
Sweden. Between 1997 and 2014, he co-found-
ed Gunvor, a leading independent oil-trading
company. Mr. Timchenko was a member of the
Board of Directors of OOO Transoil and OOO
BalttransService, and Airfix Aviation OY. Since
2009, he is a member of the Board of Directors
of PAO 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 mem-
ber 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).

information on members of
novatek’s management board

MR. LEONID V. MIKHELSON

— Chairman of NOVATEK’s Management Board
— Member of NOVATEK’s Board of Directors
— Born in 1955

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

MR. VLADIMIR A. BASKOV
— Deputy Chairman of NOVATEK’s

Management Board

— Born in 1960

In 1986, Mr. Baskov graduated from
the Moscow Higher Police School of the
USSR. In 2000, he completed courses at the
Management Academy at the Russian Ministry
for Internal Affairs. From 1981 to 2003, he
served in various departments within the
Russian Ministry for Internal Affairs. From 1991
to 2003, Mr. Baskov held managerial positions
within the aforementioned Ministry’s organi-
zational structures. In 2003 he was appointed
Director of the Business Support Department
for NOVATEK. In 2005 he was appointed
Deputy Chairman of NOVATEK’s Management
Board and in 2007 he became a member of
NOVATEK’s Management Board. Candidate of
legal Sciences. He was awarded the Order For
Personal Courage, the Russian Federation’s
Order of the Badge of Honor and other state
and departmental awards: Honorary Diplomas
of the President of the Russian Federation, the
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. VIKTOR N. BELYAKOV
— Deputy Chairman of the Management Board

for Economics and Finance

— Born in 1973

Mr. Belyakov graduated from Tver State
Technical University majoring in Automated
Data Processing and Management Systems
(1995) and in Information Systems in
Economics (1997). In 2000, he completed an
MBA degree program with Kingstone University
(UK). A holder of CMA (Certified Management
Accountant).

From 2004 till 2014 Mr. Belyakov worked
for PAO Uralkali, where he successively held

the positions of Head of Division, Deputy Chief
Financial Officer, Chief Financial Officer, Vice
President for Finance, Deputy General Director,
Executive Director. In 2015 he was appoint-
ed Vice President for Economics and Finance
of PAO Far East Shipping Company (FESCO
group). In February 2016, Viktor Belyakov
joined PAO NOVATEK in the position of Deputy
Chairman of the Management Board for
Economics and Finance.

MR. MARK A. GYETVAY

— Deputy Chairman of NOVATEK’s

Management Board

— Born in 1957

Mr. Gyetvay studied at Arizona State

University (Bachelor of Science, Accounting,
1981) and later at Pace University, New York
(Graduate Studies in Strategic Management,
1995). After graduation, Mr. Gyetvay worked
in various capacities at a number of inde-
pendent oil and gas companies (Champlin
Petroleum Co., Texas, Ensource Inc. and MAG
Enterprises, Colorado, and Amerada Hess
Corporation, New Jersey) where he specialized
in financial and economic analysis for both up-
stream and downstream segments of the pet-
roleum industry.

In 1994, Mr. Gyetvay began his work

at Coopers and Lybrand, as Director,
Strategic Energy Advisory Services. He sub-
sequently moved to Moscow in 1995 with
Coopers & 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 engage-
ment partner, Utilities and Mining practice,
based in Russia (Moscow office). Mr. Gyetvay
was an engagement partner on various en-
ergy and mining clients providing overall project
management, financial and operational expert-
ise, maintaining and supporting client service
relationships as well as serving as concurring
partner on transaction services to the petro-
leum sector.

Mr. Gyetvay is a Certified Public Accountant

(inactive status), a member 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 indus-
try 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,

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Delivering Results

and more recently by Institutional Investor mag-
azine 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 for the years 2015 and 2016.

From 2003 to 2014, Mr. Gyetvay was a
member of NOVATEK’s Board of Directors
and served on the Investment 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.

MR. OLEG V. KARPUSHIN

— Deputy Chairman of the Management

Board - Operations Director

— Born in 1968

From 1986, she was Senior Legal Advisor for
a legal bureau. In 1993, Ms. Kuznetsova be-
came Deputy General Director for Legal Issues
and from 1996, Marketing Director for OAO
Purneftegasgeologiya. In 1998, she was ap-
pointed 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 employee of PAO NOVATEK”,
and is awarded the Order of Merit for the
Fatherland 2 degree.

MR. IGOR A. PLESOVSKIKH

— Deputy Chairman of the Management

Board - Director for Geology

In 1993, graduated from Moscow University

— Born in 1970

of Oil and Gas named after I.M. Gubkin with
distinction majoring in Oil and Gas Fields
Exploration and Development. In 2013, received
an MBA degree from the Duke University
(USA).

In 1993, he started his career as a Field

Engineer with Schlumberger, worked as
well cementing technical instructor in the
Kellyville Training Centre (USA), HSE Manager
and Fracturing Field Service Manager in the
Western Siberia, Business Development
Manager in Central Asia, GeoMarket Operations
Manager for Russia and Belarus for fractur-
ing, cementing and coiled tubing services. In
2004, he joined Shell Corporation and com-
menced working in its joint venture Sakhalin
Energy Investment Company Ltd. where he
worked as Astokh field Operations Manager
and then as Offshore Asset Manager respons-
ible for offshore oil and gas production. In 2010,
he moved to the position of Asset Manager
for Shell Petroleum Development Company of
Nigeria Ltd responsible for oil and gas produc-
tion in its western division. In 2013, he became
Chief Executive Officer at Salym Petroleum
Development N.V.

In 1993, Mr. Plesovskikh graduated from
Tyumen Industrial Institute specialising in Oil
and Gas Geology.

He has over 20 years of experience in the
oil and gas industry. He started his career as
Assistant Driller at Noyabrskneftegaz, sub-
sequently holding the positions of General
Director at Urengoyneftegazgeologia,
General Director at YARGEO, Deputy General
Director — Chief Geologist at NOVATEK-
TARKOSALENEFTEGAZ, Deputy General
Manager of the Federal Agency for Subsoil
Use Rosnedra and Deputy General Director —
Chief Geologist at ITERA Oil & Gas Company.
In December 2015, he joined PAO NOVATEK

in the capacity of Deputy Chairman of the
Management Board – Director for Geology.
Igor Plesovskikh has been awarded the
Certificate of Merit of the Ministry of Natural
Resources and Environment of the Russian
Federation.

MR. ILYA V. TAFINTSEV

— Member of the Management Board -

Director for Strategic Projects

In September 2015, he joined PAO NOVATEK

— Born in 1985

in the position of Deputy Chairman of the
Management Board — Director for Operations.

MS. TATYANA S. KUZNETSOVA
— Deputy Chairman of NOVATEK’s

Management Board

— Director of NOVATEK’s Legal Department
— Born in 1960

Ms. Kuznetsova graduated from the Far
East State University with a degree in Law.

In 2006 Mr. Tafintsev obtained a BA in

Economics from the Higher School of Economics
in Moscow. In 2007 graduated from University
of London, where he majored in Investment and
Finance. From 2007 to 2011 Mr. Tafintsev held
the position of Deputy Head of PAO NOVATEK’s
Representative Office in London. In 2011-2014,
he was a Finance & Investment Advisor with
United Bureau of Consultants Limited.

Since 2013 he has served as a Strategic
Projects Director of PAO NOVATEK, a mem-
ber of the Board of Directors at SIBUR Holding.
From 2014 to 2016 he was Chairman of the
Board of Directors of OAO Yamal LNG. In
December 2015, Mr. Tafintsev was appointed
Member of the Management Board — Director
for Strategic Projects of PAO NOVATEK.

MR. LEV V. FEODOSYEV

— Deputy Chairman of NOVATEK’s

Management Board – Commercial Director

— Born in 1979

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 specialist, adviser, deputy head of sec-
tion, Deputy Director of Department at the
Ministry of Economic Development 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 appoin-
ted as Deputy Commercial Director, Director
of the Marketing and Gas Sales Department
of NOVATEK. Since February 2015, he has
been appointed Commercial Director, Deputy
Chairman of the Management Board of
NOVATEK.

In 2014, Mr. Feodosyev was awarded

NOVATEK’s Honorary Certificate.

MR. ALEXANDER M. FRIDMAN
— First Deputy Chairman of NOVATEK’s

Management Board

— Born in 1951

In 1973, Mr. Fridman graduated from the
Gubkin Institute of Oil and Gas in Moscow, with
a degree in Oil and Gas Fields Development
and Exploitation. Since 1973, he was em-
ployed 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 ven-
ture established by PAO 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 PAO
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 PAO NOVATEK. Mr.
Fridman is the recipient of the title of honor
“Honored man of the oil and gas industry”.

MR. DENIS G. KHRAMOV

— Deputy Chairman of the Management Board
— Born in 1975

Graduated in 1997 from the Urals State Law

Academy with a degree in Law. In 1999 com-
pleted a master’s course in Private Law with the
Russian School of Private Law. In 2004, he ob-
tained his candidate degree in Law.

From 1995 he was an in-house counsel at

Transneftegaz CJSC. In 1997, he joined the
Legal Center for Northern Territories as a law-
yer and was subsequently appointed Chief
Specialist and Deputy Head of Department with
the Russian Ministry of Fuel and Energy in 1999.
In 2001, he was appointed Deputy Head of
Department and Head of Department with the
Russian Ministry of Economic Development and
Trade.

In 2002, he joined Zarubezhneft JSC as

Deputy Head of Division with the responsibility
of supervising subsoil use, economic and finan-
cial affairs. In 2007 he became Senior Lawyer at
LeBoeuf, Lamb, Greene & MacRae LLP.

From 2008 he held a number of positions

with the Ministry of Natural Resources and
Environment of the Russian Federation, includ-
ing Chief Officer for State Policy and Regulation
in Geology and Subsoil Use and Deputy
Minister of Natural Resources and Environment
of the Russian Federation, and was appointed
First Deputy Minister of Natural Resources and
Environment of the Russian Federation in 2014.
During his service with the Russian Ministry of
Natural Resources and Environment, he was in
charge of economic and financial affairs, geo-
logy and subsoil use.

His outstanding service was recognized with

awards at different levels.

In December 2015, he was appointed Deputy

Chairman of the Management Board at PAO
NOVATEK.

MR. KIRILL N. YANOVSKIY

— Member of NOVATEK’s Management Board
— Director for Finance
— Born in 1967

In 1991, Mr. Yanovskiy graduated from the

Gubkin Institute of Oil and Gas in Moscow.
From 1992, he headed a department of the

Annual Report 2016
novatek.ru

Delivering Results

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 PAO NOVATEK.

report on major, and interested-
party transactions that the
company did in the reporting year

I. Transaction type: a major interested-party

transaction.
Type and subject matter of the transaction:
Debt Service Undertaking and interrelated trans-
actions – Guarantee Agreement, Subordination
Deed and Transfer Restrictions Agreement.
Subject matter of the transaction, includ-
ing civil rights and obligations, which the trans-
action was intended to establish, modify or
terminate:

Debt Service Undertaking (the “Debt Service
Undertaking”) between:
(1) OAO NOVATEK, Total S.A., and China
National Oil & Gas Exploration and
Development Corporation ("CNODC") as
sponsors (the "Sponsors");

(2) OAO Yamal LNG as borrower (hereinafter

the "Borrower");

(3) Lenders' agents, including the Intercreditor

Agent ("the Intercreditor Agent"), the
Offshore Security Agent, the Joint and
Several Creditor, the Credit Agents of CDB
and CEXIM (if applicable), in which capac-
ities one of the Lenders may act, and oth-
er persons nominated by the Lenders as
well as, if applicable, Gazprombank and the
Gazprombank and Sberbank Facility Agent
and the EXIAR Facility Agent (hereinafter
collectively referred to as the "Agents");
(4) Other persons that may become party to it
according to the Debt Service Undertaking,
on the following material terms and condi-
tions related to NOVATEK's obligations:
(a) If the Borrower fails to pay any amount pay-
able to the Lenders under the Secured
Obligations (as defined below), OAO
NOVATEK undertakes to pay the Lenders
represented by the Intercreditor Agent such
a part of the Borrower's debt under the
Secured Obligations (as defined below), the

maximum size of which in percentage shall
correspond to the aggregate interest of OAO
NOVATEK and Yaym Limited (and their sub-
sidiaries) in OAO Yamal LNG share capi-
tal as of the Debt Service Undertaking sign-
ing date (unless this part has been increased
on the initiative of OAO NOVATEK and with
the Intercreditor Agent consent) on the
terms and conditions stipulated by the Debt
Service Undertaking;

(b) In any OAO NOVATEK default event list-
ed in the Debt Service Undertaking,
OAO NOVATEK undertakes to pay the
Lenders represented by the Intercreditor
Agent such a part of the Borrower's debt
under the Secured Obligations the max-
imum size of which in percentage shall
correspond to the aggregate interest of
OAO NOVATEK and Yaym Limited (and their
subsidiaries) in OAO Yamal LNG share cap-
ital as of the Debt Service Undertaking
signing date (unless this part has been in-
creased on the initiative of OAO NOVATEK
and with the Intercreditor Agent consent),
regardless of whether the performance of
Secured Obligations by the Borrowers is
due or not, on the terms and conditions
stipulated by the Debt Service Undertaking

amounts payable to the Lenders and (or)
the Agents and (or) another person in
line with the Debt Service Undertaking,
the amount of OAO NOVATEK payment
shall be increased so that the Lenders re-
ceive the full amount due under the Debt
Service Undertaking on the terms and
conditions stipulated by the Debt Service
Undertaking;

(d) OAO NOVATEK shall compensate the

Lenders and (or) the Agents for their ex-
penses connected with making claims to
OAO NOVATEK or maintaining the rights
related to OAO NOVATEK obligations un-
der the Debt Service Undertaking on the
terms and conditions stipulated by the Debt
Service Undertaking;

(e) OAO NOVATEK's obligations to pay the
Lenders and (or) Agents and (or) oth-
er persons in line with the Debt Service
Undertaking any amounts under the Debt
Service Undertaking terminate when the
conditions provided for by the Debt Service
Undertaking occur;

(f) the Debt Service Undertaking secures
the Borrower's obligations under the
International Financing (the "Secured
Obligations") that arise, among others, under
the following documents:

(I) Common Terms Agreement (the "Common
Terms Agreement") entered into on the fol-
lowing material terms and conditions:
(a) Parties: (1) Borrower as the borrower; (2)
Yamal Trade Pte. Ltd. (the "Yamal Trade")
and OOO Sabetta International Airport
(the "Airport") as Permitted Subsidiaries
and Guarantors of the Borrower's obliga-
tions, (3) the Lenders; (4) the Agents; (5)
other persons specified in the Common
Terms Agreement as well as persons that
may become party thereto according to the
Common Terms Agreement.

(b) The Common Terms Agreement provides for
the key terms and conditions of International
Financing, including the provisions that stip-
ulate the parties' key obligations, default
events, warranties and representations and
others. At the same time, specific financ-
ing conditions, including the amount of fi-
nancing, maximum tenor, repayment of
loans extended under the financing arrange-
ments, payment of interest, interest rates,
the amount and procedure for payment of
fees and other commissions, reimbursable
expenses and other amounts payable by the
Borrower (and, if applicable, its subsidiaries)
shall be determined in accordance with the
terms of the agreements and other docu-
ments listed in clauses (II) to (IX) below.

(II) CDB Term Loan Facilities Agreement (the

"CDB Facility Agreement") and CEXIM Term
Loan Facilities Agreement (the "CEXIM
Facility Agreement") executed on 29
April 2016, hereinafter referred to as the
"Chinese Banks Facility Agreements" (as
these may be amended, modified and re-
stated) on the following material terms and
conditions:

(a) Parties: (1) Borrower as the borrow-

er; (2) Yamal Trade and Airport as the
Permitted Subsidiaries and Guarantors
of the Borrower's obligations; (3) CDB as
the Senior Lender under the CDB Facility
Agreement; (4) CEXIM as the Senior Lender
under the CEXIM Facility Agreement; and (5)
other persons that may become party to the
Chinese Banks Facility Agreement, including
Agents or any of them.
(b) Amount of the facilities:
— under the CDB Facility Agreement: not more
than Five billion fifty-seven million eight hun-
dred thousand (5,057,800,000) euro and not
more than Five billion two hundred eighty-six
million (5,286,000,000) RMB;

seventy-nine million seven hundred thousand
(4,279,700,000) euro and not more than Four
billion four hundred seventy-two million five
hundred thousand (4,472,500,000) RMB.
(c) Maximum loan term: Until 15 June 2031.
(d) Facility repayment: (1) euro facility - in

semi-annual installments starting on 15
December 2019, (2) RMB facility - in semi-an-
nual installments starting on 15 December
2019. Options of mandatory and voluntary
prepayment are provided for.

(e) Interest payment: In semi-annual installments
with the last interest payment to be made on
the final repayment date.

(f) Interest rate:

(1) Under the euro facilities:
Interest rate on each of the euro facil-
ities under the Chinese Banks Facility
Agreements is equal to the aggregate of:
(i) A EURIBOR margin; and
(ii) EURIBOR (to be determined in line with
the Chinese Banks Facility Agreement).

The EURIBOR margin equals:
(i)

in relation to any part or any Interest Period
before the Debt Service Undertaking
Release Date – 3.30% per annum; and
(ii) in relation to any part or any Interest

Period as of the Debt Service
Undertaking Release Date and after such
date – 3.55% per annum.
(2) Under the RMB facilities:
Interest rate on each of the RMB facil-
ities under the Chinese Banks Facility
Agreements is equal to the aggregate of:
(i) A SHIBOR margin; and
(ii) SHIBOR (to be determined in line with
the Chinese Banks Facility Agreement).

A SHIBOR margin equals:
(i)

in relation to any part or any Interest
Period before the Debt Service
Undertaking Release Date – 3.30% per
annum; and

(ii) in relation to any part or any Interest

Period as of the Debt Service
Undertaking Release Date and after such
date – 3.55% per annum.

(g) Default interest payable by the Borrower un-
der the Chinese Banks Facility Agreements
in case of overdue debt and incurred on the
overdue amount: not more than 1.5% per
annum over the facilities' interest rate;
(h) Upfront fee (or similar fee): equals 2% of
the loans provided in euro and 2% of the
loans provided in RMB and is payable ac-
cording to the CDB Upfront Fee Letter and
the CEXIM Upfrom Fee Letter.

— under the CEXIM Facility Agreement:

(i) The Commitment Fee (or a similar fee) un-

not more than Four billion two hundred

der the Chinese Banks Facility Agreements

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Delivering Results

payable semi-annually on 15 June and 15
December after 15 December 2016 dur-
ing the Funds Availability Period under the
Chinese Banks Facility Agreements and
on the last day of the Funds Availability
Period under the Chinese Banks Facility
Agreements (the first accrued payment for
utilizing the limit under the Chinese Banks
Facility Agreements shall be paid on 15
December 2016): in the amount of 1.5%
per annum of the total amount of non-uti-
lized funds in euro under the Chinese Banks
Facility Agreements and 1.5% per annum of
the total amount of non-utilized facility funds
in RMB under the Chinese Banks Facility
Agreements.

(j) Expenses: expenses incurred by the Parties
in connection with entering into the Chinese
Banks Facility Agreements and/or any other
agreement to be entered into in connection
with the Chinese Banks Facility Agreements
or otherwise in respect thereof shall be re-
imbursed by the Borrower.

(c) Maximum loan term: Not more than 16
years from the date when the condi-
tions precedent for the first drawdown are
fulfilled.

(d) Loan repayment: In semi-annual installments
starting on December 15, 2019. Options of
mandatory and voluntary prepayment are
provided for.

(e) Interest payment: In semi-annual install-

ments with the last interest payment to be
made on the final repayment date.

(f) Interest rate: EURIBOR 6М (indicative inter-
est rate for six-month loans) provided that if
EURIBOR rate is negative it shall be deemed
to be zero, plus a margin of not more than
4,7 percent per annum.

(g) Default interest payable by the Borrower in
case of overdue debt and incurred on the
overdue amount: Not more than 1.5% per
annum over the loan interest rate.

(h) Credit account upfront and maintenance fee
(or similar fee): Not more than 1.5% of the
total loan amount.

(k) Other amounts: Other amounts, includ-

(i) Commitment fee payable on interest pay-

ing the prepayment fee, shall be payable
by the Borrowers and other persons in the
events and on the terms and conditions
provided for by the Chinese Banks Facility
Agreements and other financing documents
related thereto.

(III) Facility Agreement executed on 11 April

2016 (as amended by the Amendment dat-
ed 29 April 2016) between, among others,
Sberbank and Gazprombank as lenders and
the Borrower, the materials terms and condi-
tions of which were approved by NOVATEK
Annual General Meeting of Shareholders
dated 22 April 2016 in Minutes No. 124
("Minutes No. 124"), as further on amend-
ed and modified and restated as of 24 June
2016 in connection with the International
Financing (the "Russian Banks Facility
Agreement") on the following material terms
and conditions:

(a) Parties: (1) Borrower; (2) Yamal Trade and
Airport as the Permitted Subsidiaries and
Guarantors of the Borrower's obligations;
(3) Sberbank and Gazprombank as lenders
and arrangers; (4) Gazprombank as the fa-
cility agent and EXIAR facility agent; (5) the
Agents or any one of them; (6) other per-
sons specified in the Russian Banks Facility
Agreement as well as other persons that
may become party thereto according to the
Russian Banks Facility Agreement.

(b) Loan amount: Not more than Three billion
six hundred million (3,600,000,000) euro.

ment dates: Not more than 1% per annum
of the total amount of non-utilized facility
funds.

(j) Expenses: Expenses incurred by the fi-

nancing parties shall be reimbursed by the
Borrower.

(k) Other amounts: Other amounts, including

the prepayment fee, shall be payable by the
Borrower and other persons in the events
and on the terms and conditions provided
for by the Russian Banks Facility Agreement
and other financing documents related
thereto.

(IV) Commission and fee letter and agree-

ments entered into by the Borrower and teh
Agents in connection with the International
Financing, including (but not limited to) the
Intercreditor Agent Fee Letter, the Offshore
Security Agent Fee Letter, the Joint and
Several Creditor Fee Letter, the CDB and
CEXIM Facility Agents Fee Letter, the
Gazprombank as Gazprombank and Sberbank
Agent Fee Letter, the EXIAR Facility Agent
Fee Letter, and other letters and agree-
ments on fees to any other Agent, account
bank and (or) other fees payable under the
Common Terms Agreement and other docu-
ments under the International Financing.

(V) Accounts Agreement (the "Accounts

Agreement") entered into or, if applicable,
restated on the following main terms and
conditions:

(a) Borrower as the borrower, Airport and Yamal
Trade as the Permitted Subsidiaries and
Guarantors of the Borrower's obligations,
Lenders as the lenders, account banks, Agents
and/or in other capacities provided for by the
Accounts Agreement as well as other persons
specified in the Accounts Agreement and per-
sons that may become party thereto according
to the Accounts Agreement; and

(b) The Borrower, the Airport and Yamal Trade
shall open and maintain specific bank ac-
counts in the account banks that will be
specified in the Accounts Agreement and
use them in accordance with the terms and
priority of payments set out in the Accounts
Agreement.

(VI) Any facility agreement that is to be entered
into in the future within the International
Financing (the "Future Facility Agreement")
on the following materials terms and
conditions:

(a) Parties (in respect of each party – if ap-
plicable in line with each Future Facility
Agreement): (1) Borrower; (2) Yamal Trade;
(3) Airport; (4) banks and (or) other finan-
cial institutions; and (4) other persons that
may become party to each Future Facility
Agreement, including the Agents or anyone
of them – each in the capacity(-ies) provided
for by each Future Facility Agreement.
(b) Loan amount: to be determined in line with
each Future Facility Agreement but not
more than an equivalent to Six hundred mil-
lion (600,000,000) U.S. dollars. At the same
time, the total amount of financing available
under the CDB Facility Agreement, CEXIM
Facility Agreement, Russian Banks Facility
Agreement, and Future Facility Agreements
will not exceed a 19 billion USD equivalent.

each Future Facility Agreement but in any
case will not exceed 15 years after the first
drawdown date under each of the Future
Facility Agreements.

(d) The loan repayment and interest payment

procedure will be stipulated by each Future
Facility Agreement.

(e) The interest rate (including, if applicable,
the possibility of changing it) will be stipu-
lated by each Future Facility Agreement but
in case will exceed EURIBOR 6M (the indic-
ative interest rate for 6 month euro loans)
plus not more than 3.55%.

(f) Default interest payable by the Borrower in
case of overdue debt and incurred on the
overdue amount: shall be determined in ac-
cordance with terms and conditions of each

Future Facility Agreement but in any case
it will not exceed 1.5% per annum over the
loan interest rate.

(g) The amount and procedure for payment of
fees and other commissions shall be deter-
mined in accordance with the terms of each
Future Facility Agreement and/or fee letter
(or other similar agreements) to be entered
into by virtue of and/or under each Future
Facility Agreement.

(h) Expenses: expenses incurred by the Parties
in connection with entering into each Future
Facility Agreement and/or any other agree-
ment to be entered into in relation to each
Future Facility Agreement or otherwise in
respect thereof, including lenders' expens-
es for ECAs premium payment, shall be re-
imbursed by the Borrower and/or by another
entity specified in such an agreement.
(i) Other amounts: other amounts, including

any commissions, the prepayment fee (if ap-
plicable), shall be payable by the Borrower
and other persons in the events and on the
terms and conditions provided for by each
Future Facility Agreement and other financ-
ing documents related thereto.

(VII) Any Secured Hedging Agreement entered

into between the Borrower and/or Yamal
Trade, including for the purposes of interest
rate-related risks, currency risks and risks
associated with changes in the goods cost,
and as it is further detailed in the Common
Terms Agreement (the "Secured Hedging
Agreement").

(VIII) Any Additional Term Loan Facility Agreement,

Project Bond Documents and other
Additional Debt Finance Documents to be
entered into by the Borrower or the Project
Bonds Issuer in order to raise Additional Debt
covered under the Debt Service Undertaking
as established by and in accordance with
the terms set out in the Common Terms
Agreement.

(IX) Other agreements and documents entered
into (signed) based on the contracts (agree-
ments) specified in this item 1 in connec-
tion or in accordance therewith.

Guarantee Agreement between:
(1) Bank for Development and Foreign
Economic Affairs, a State Corporation
(Vnesheconombank) (the "Guarantor") and
(2) OAO NOVATEK (the "Principal") (hereinafter
referred to as the "Guarantee Agreement") in re-
spect of the Principal's obligations under the

Annual Report 2016novatek.ru

Delivering Results

Debt Service Undertaking on the following ma-
terial terms and conditions:
• in respect of the guarantee:
(i) Guarantee amount: a USD 3 billion

(viii) penalty in the event the Principal fails to per-

form its payment obligations – in the amount
specified by the Guarantee Agreement.
Term for the discharge of obligations under

equivalent;

the transaction:

(ii) Term of the Guarantee: Until 15 December
2025 with an automatic renewal in case
NOVATEK obligations under the Debt
Service Undertaking are renewed; and
(iii) Guarantee fee: 0.75 % per annum of the

Guarantee amount, but not less than USD
1,000 from the Guarantee effective date.
The rate may be increased by 0.5% in the
event the Principal fails to perform its obli-
gations to agree the following amendments
with the Guarantor:
(a) the definition of fundamental event of
default and Sponsor's event of default;
(b) amendments envisaging the increase

of the Principal's share under the Debt
Service Undertaking above 59.973% and/
or the overall amount of International
Financing exceeding the equivalent of
20 billion USD, if such amendments in-
crease the Guarantor's liability and signif-
icantly increase the probability of initiat-
ing claims under the guarantee;

(iv) penalty in the event the Principal fails to per-
form its payment obligations – in the amount
specified by the Guarantee Agreement.

• in relation to recourse under the Guarantee:
(i)

in the vent it is impossible for the Guarantor
to have recourse to the Principal, such re-
course shall be novated as the Principal's
commitment to the Guarantor;

(ii) Loan amount: the Guarantor's debt amount
resulting from the performance of the
Guarantor's obligations under the guarantee
calculated under the formula specified by
the Guarantee Agreement;

(iii) Loan currency: Euro;
(iv) Loan interest: cost of Vnesheconombank
long-term unsecured financial borrow-
ing in euro determined in line with the
Guarantee Agreement increased by 0.75%
per annum;

(v) Term of the loan: not more than 10 years.
(vi) Interest payment: on a quarterly basis, with
a possible partial capitalization in line with
the Guarantee Agreement;

(vii) Loan repayment: The loan is to be repaid

with a lump sum on the earlier of the follow-
ing dates: (1) 10 years after the Guarantor
makes a payment under the guarantee, and
(2) on the date when the Principal's obliga-
tions under the Debt Service Undertaking
terminate;

Debt Service Undertaking; approximately 7

years.

Guarantee Agreement: 10 years after the
Guarantor makes a payment under the guaran-
tee, should there be such a payment.

The size of the transaction is comprised of the
amount of Secured Obligations and exceeds 50%
of NOVATEK assets value as of 31 March 2016.
Value of the issuer's assets as of the last
day of the last full reporting period preceding
the transaction (agreement execution): RUR
568,315,453,000 as of 31 March 2016.

Transaction date (date of the Agreement): 24

June 2016.

Last name, first name, and patronymic (if
any) of the individual who is deemed interested
in the issuer making the transaction accord-
ing to the Russian Federation legislation; the
reason (reasons) why the individual is deemed
interested in the transaction; the interested in-
dividual's share in the authorized share (joint-
stock) capital (the portion of shares held by the
interested individual) of the issuer and the legal
entity that is party to the transaction:

The transactions are interested-party trans-

actions as Andrei I. Akimov, member of
NOVATEK Board of Directors is also Chairman
of the Management Board and member of the
Board of Directors of Gazprombank (Joint-Stock
Company) that is party to and (or) beneficiary
under the Agreements To Be Approved. Andrei
I. Akimov holds no shares in the issuer of entit-
ies that are party to the transaction.

Information on the transaction approv-

al: NOVATEK Extraordinary General Meeting of
Shareholders approved the transaction on 20 June
2016 (Minutes No. 125 dated 20 June 2016).

Subordination Deed (the “Subordination
Deed”) between:
(a) (1) Borrower, (2) Airport and Yamal Trade,

(3) Sponsors; (4) OAO NOVATEK, Total E&P
Yamal, CNODC and Yaym Limited as share-
holders (the “Shareholders”); (5) Polyshine
Holding B.V., Total E&P Yamal, Novatek
Equity (Cyprus) Limited, and (or) other per-
sons that have extended subordinated loans
to OAO Yamal LNG as subordinated lend-
ers (the “Subordinated Lenders”), (6) the
Agents; and (7) other persons stipulated in
the Subordination Deed, as well as persons
that may become party thereto under the
Subordination Deed.

(b) OAO NOVATEK’s claims to the Borrower, the
Airport, Yamal Trade and other OAO Yamal
LNG subsidiaries (the “Project Obligors”)
shall be subordinated vis-a-vis the claims of
the Lenders on the terms and conditions set
out in the Subordination Deed.

(c) The Project Obligors are entitled to make
payments in relation to the subordinated
loans and other subordinated debt only in the
events and in the form and manner set out
in the Subordination Agreement; should the
Project Obligors be in breach of these obliga-
tions, OAO NOVATEK undertakes to pay the
Intercreditor Agent, at the latter's demand,
the respective amount (which may not ex-
ceed the amount of Secured Obligations) it
received from the Project Obligors.

(d) In the event of enforcement by Lenders
of shares or equity interest in Project
Obligors, such Project Obligors shall be re-
leased from a number of obligations in re-
spect of OAO NOVATEK set out in the
Subordination Deed.

(e) OAO NOVATEK shall also assume other obli-
gations in line with the terms and conditions
of the Subordination Deed.

(f) Term: OAO NOVATEK obligations shall re-
main in force as long as the Secured
Obligations remain outstanding and/or there
are Lenders' obligations to provide loan
moneys to the Borrower.

Transfer Restrictions Agreement (the

“Transfer Restrictions Agreement”) between:
(1) Borrower; (2) Agents; (3) China National
Petroleum Corporation; (4) PetroChina Company
Limited; (5) Sponsor; (6) Shareholders (except
for Yaym Limited),

on the following material terms and condi-
tions related to OAO NOVATEK’s obligations:
(a) OAO NOVATEK undertakes to directly or in-
directly hold at least 50% plus one share of
OAO Yamal LNG;

(b) Restrictions are put in place in respect of

the transfer of, and creation of security in re-
lation to, the OAO Yamal LNG shares held
by OAO NOVATEK as well as a procedure
is established for application of funds re-
ceived by OAO NOVATEK as compensation
from the Russian Federation or a Russian
Federation government body in relation to
nationalization, confiscation, expropriation
or compulsory acquisition of the shares of
OAO Yamal LNG (if applicable);

obligations in accordance with the terms
and conditions of the Transfer Restrictions
Agreement;

(d) Term: OAO NOVATEK obligations shall re-
main in force as long as the Secured
Obligations remain outstanding and/or there
are Lenders' obligations to provide loan
moneys to the Borrower.

Transaction date (date of the Deed): 24 June

2016.

These transactions are considered to be in-
terested-party transactions as Andrei I. Akimov,
member of NOVATEK Board of Directors is also
Chairman of the Management Board and mem-
ber of the Board of Directors of Gazprombank
(Joint-Stock Company) that is party to and
(or) beneficiary under the Agreements To Be
Approved. Andrei I. Akimov holds no shares
in the issuer of entities that are party to the
transaction.

Information on the transaction approv-

al: NOVATEK Extraordinary General Meeting of
Shareholders approved the transaction on 20 June
2016 (Minutes No. 125 dated 20 June 2016).

These transactions are considered to be in-
terested-party transactions as Andrei I. Akimov,
member of NOVATEK Board of Directors is also
Chairman of the Management Board and mem-
ber of the Board of Directors of Gazprombank
(Joint-Stock Company) that is party to and (or) ben-
eficiary under the Agreements To Be Approved.
Andrei I. Akimov holds no shares in the issuer of
entities that are party to the transaction.

Information on the transaction approval:
NOVATEK Extraordinary General Meeting of
Shareholders approved the transaction on 20
June 2016 (Minutes No. 125 dated 20 June
2016).

Annual Report 2016novatek.ru

Delivering Results

II. Transaction type: an interested-party

transaction.

Type and subject matter of the transaction:
suretyship.

Subject matter of the transaction, includ-
ing civil rights and obligations, which the trans-
action was intended to establish, modify or
terminate:

Suretyship towards the Guarantor for the
Principal’s obligations arising from bank guaran-
tees provided by the Guarantor on behalf of the
Principal.

Fee rates for issuing, increasing and renew-
ing the Guarantees shall not exceed 1.5% per
annum from the amount of each Guarantee, but
shall not be less than USD 100.

Guarantee limit: Forty billion (40,000,000,000)

Russian rubles.

Term of the suretyship: Until 31 August 2021.
Term for the discharge of obligations under

interested in the transaction; the interested in-
dividual's share in the authorized share (joint-
stock) capital (the portion of shares held by the
interested individual) of the issuer and the legal
entity that is party to the transaction:

These transactions are considered to be

interested-party transactions as Andrei V.
Sharonov, member of NOVATEK Board of
Directors is a member of the Supervisory Board
of VTB Bank (PAO), a party to the transac-
tion. Mr. Andrei V. Sharonov owns no equity in-
terests in the authorized share capital or shares
in the issuer and persons that are a a party to
the transaction.

Information on the transaction ap-

proval: NOVATEK Annual General Meeting of
Shareholders approved the transaction on 22
April 2016 (Minutes No. 124 dated 22 April
2016)

Corporate Governance Code Compliance

the transaction: Until 31 August 2021.

Report

Parties:
Surety: OAO NOVATEK; Guarantor: VTB Bank

(PAO); Principal: NOVATEK – Ust-Luga

The size of the transaction is comprised
of the amount of the Principal’s obligations
arising from bank guarantees provided by the
Guarantor on behalf of the Principal and ex-
ceeds 1% of NOVATEK assets value as of 30
June 2016.

Value of the issuer's assets as of the last day of

the last full reporting period preceding the trans-
action (agreement execution): 573,092,345,000
Russian rubles as of 30 June 2016.

Transaction date (date of the Agreement):

5 August 2016

Last name, first name, and patronymic (if
any) of the individual who is deemed interest-
ed in the issuer making the transaction accord-
ing to the Russian Federation legislation; the
reason (reasons) why the individual is deemed

This Corporate Governance Code Compliance

Report was reviewed at the meeting of PAO
NOVATEK’s Board of Directors on 14 March
2017 (Minutes No. 195).

The Board of Directors certifies that data in
this Report contain full and reliable information
on compliance by the Company with the prin-
ciples and recommendations of the Corporate
Governance Code for 2016.

When assessing our compliance with cor-
porate governance principles as set out in the
Code we were guided by the Guidelines for
Reporting on Compliance with the Corporate
Governance Code recommended by the Bank
of Russia in its Letter No. IN-06-52/8 dated 17
February 2016.

An overview of the most relevant aspects of
the corporate governance model and practices
in the Company is presented in the Corporate
Governance section of this Annual Report.

CORPORATE GOVERNANCE
CODE COMPLIANCE REPORT

This Corporate Governance Code Compliance
Report was reviewed at the meeting of PAO
NOVATEK’s Board of Directors on 14 March
2017 (Minutes No. 195).

When assessing our compliance with

corporate governance principles as set out in
the Code we were guided by the Guidelines for
Reporting on Compliance with the Corporate
Governance Code recommended by the Bank
of Russia in its Letter No. IN-06-52/8 dated 17
February 2016.

An overview of the most relevant aspects of
the corporate governance model and practices
in the Company is presented in the Corporate
Governance section of this Annual Report.

No.

Corporate governance
principles

Compliance criteria

Compliance
status

Reasons for non-
compliance

1.1.

THE COMPANY ENSURES FAIR AND EQUITABLE TREATMENT OF ALL SHAREHOLDERS IN EXERCISING
THEIR CORPORATE GOVERNANCE RIGHT.

1.1.1

The company ensures the
most favorable conditions
for its shareholders
to participate in the
general meeting, develop
an informed position
on agenda items of
the general meeting,
coordinate their actions,
and voice their opinions on
items considered.

Full

1. The company’s internal document
approved by the general meeting
of shareholders and governing the
procedures for holding the general
meeting is publicly available.
2. The company provides accessible
means of communication via
hotline, e-mail or an online forum for
shareholders to voice their opinions
and submit questions on the agenda in
preparing for the general meeting. The
company performed the above actions
in advance of each general meeting
held in the reporting period.

In preparing for the General
Meeting of shareholders the
Company posts a dedicated
e-mail address on its website
for shareholders to submit their
opinions and questions on the
agenda.
Historically, when preparing
for General Meetings,
shareholders have no or few
questions on the agenda of a
forthcoming General Meeting.
Should the Company’s
shareholders need
communication means other
than those specified in the
Code, the Company is prepared
to provide such means as
necessary.

Full

–

1.1.2

The procedure for giving
notice of, and providing
relevant materials for, the
general meeting enables
shareholders to properly
prepare for attending the
general meeting.

1. The notice of an upcoming general
meeting of shareholders is posted
(published) online at least 30 days
prior to the date of the general
meeting.
2. The notice of an upcoming meeting
specifies the meeting venue and
documents required for admission.
3. Shareholders were given access
to the information on who proposed
the agenda items and who proposed
nominees to the company’s board of
directors and the revision commission.

Annual Report 2016novatek.ru

Delivering Results

1.1.3

In preparing for, and holding
of, the general meeting,
shareholders were able to
receive clear and timely
information on the meeting
and related materials, put
questions to the company’s
executive bodies and the
board of directors, and to
communicate with each
other.

1. In the reporting period, shareholders
were able to put questions to
members of executive bodies and
members of the board of directors
before and during the annual general
meeting.

2. The position of the board of
directors (including dissenting opinions
entered into the minutes) on each
agenda item of general meetings held
in the reporting period was included in
the materials to the general meeting of
shareholders.

Full

–

Partial

When convening General
Meetings of Shareholders, the
Board of Directors reviews all
agenda items of the relevant
meeting and presents them to
the Meeting for consideration
or provides necessary advice.
Materials to the General
Meeting of Shareholders
include recommendations
of the Board of Directors as
required by law. In other cases,
the position of the Board of
Directors is not included in
the Meeting materials to avoid
any influence on shareholders’
voting.

Full

–

3. The company gave duly authorised
shareholders access to the list of
persons entitled to attend the general
meeting, as from the date of its
receipt by the company, for all general
meetings held in the reporting period.

1.1.4

Partial

There were no unjustified
difficulties preventing
shareholders from
exercising their right to
request that a general
meeting be convened,
to propose nominees to
the company’s governing
bodies, and to make
proposals for the agenda of
the general meeting.

1. In the reporting period, shareholders
were able to submit, within at least
60 days after the end of the relevant
calendar year, proposals for the agenda
of the annual general meeting.
2. In the reporting period, the company
did not reject any proposals for the
agenda or nominees to the company’s
governing bodies due to misprints
or other insignificant flaws in the
shareholder’s proposal.

In the reporting period,
shareholders were not able to
submit, within at least 60 days
after the end of the relevant
calendar year, proposals for
the agenda of the Annual
General Meeting, since the
Company’s Charter valid until
12 October 2016 provided for
such items to be submitted
within 30 days after the end of
the financial year.
The Extraordinary General
Meeting of the issuer’s
shareholders that was held
on 30 September 2016
approved amendments
to the issuer’s Charter on
extending the deadline for
shareholders to submit
proposals for the agenda of
the Annual General Meeting to
60 days after the end of the
relevant calendar year; these
amendments were registered
on 12 October 2016.

1.1.5 Each shareholder was able

to freely exercise their
voting right in the simplest
and most convenient way.

Full

–

1. An internal document (internal
policy) of the company provides that
each participant of the general meeting
may request a copy of the ballot
filled out by them and certified by the
counting commission before the end
of the relevant meeting.

1.1.6

The procedure for holding a
general meeting set by the
company provides equal
opportunities for all persons
attending the meeting to
voice their opinions and
asks questions.

Full

None

1. General meetings of shareholders
held in the reporting period in the form
of a meeting (i.e. joint presence of
shareholders) provided for sufficient
time for making reports on and for
discussing agenda items.

2. Nominees to the Company’s
governing and control bodies were
available to answer questions of
shareholders at the meeting at which
their nominations were put to vote.

3. When passing resolutions on
preparing and holding general
meetings of shareholders, the
board of directors considered using
telecommunication means for remote
access of shareholders to general
meetings in the reporting period.

–

When passing resolutions on
preparing and holding general
meetings of shareholders,
the Board of Directors
did not consider using
telecommunication means for
remote access of shareholders
to general meetings in the
reporting period, since the
Company had no reasons to
believe that many shareholders
would be interested in this
service.
The non-compliance with
this provision of the Code
is temporary. The Company
intends to achieve compliance
with this Code provision
in 2017. The Extraordinary
General Meeting of
Shareholders of the issuer
held on 30 September 2016
added a provision to the
issuer’s Charter authorising
the Board of Directors to
adopt resolutions on using
telecommunication means
to enable remote access
of shareholders to general
meetings; these amendments
were registered on
12 October 2016.

1.2

1.2.1

1.2.2

SHAREHOLDERS ARE GIVEN EQUAL AND FAIR OPPORTUNITIES TO SHARE PROFITS OF THE COMPANY
IN THE FORM OF DIVIDENDS.

Full

1. The company has drafted and
disclosed a dividend policy approved
by the board of directors.
2. If the company’s dividend policy
uses reporting figures to determine
the dividend amount, then relevant
provisions of the dividend policy take
into account the consolidated financial
statements.

1. The company’s dividend policy
clearly identifies financial / economic
circumstances under which the
company shall not pay out dividends.

Full

–

The company has
designed and put in place
a transparent and clear
mechanism to determine
the dividend amount and
payout procedure.

The company does
not resolve to pay out
dividends if such payout,
while formally compliant
with law, is economically
unjustified and may lead
to a false representation
of the company’s
performance.

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Delivering Results

1.2.3

1.2.4

1.3

1.3.1

1.3.2

1.4

2.1

2.1.1

The company does not
allow for dividend rights of
its existing shareholders to
be impaired.

1. In the reporting period, the
company did not take any actions
that would lead to the impairment
of the dividend rights of its existing
shareholders.

Full

–

The company makes
every effort to prevent its
shareholders from using
other means to profit
(gain) from the company
other than dividends and
liquidation value.

None

1. To prevent shareholders from using
other means to profit (gain) from
the company other than dividends
and liquidation value, the company’s
internal documents provide for
controls to timely identify and approve
deals with affiliates (associates) of the
company’s substantial shareholders
(persons entitled to use votes attached
to voting shares) where the law does
not formally recognize such deals as
related-party transactions.

This principle is not complied
with as the Company believes
that statutory controls
are sufficient for relevant
purposes. The Company does
not transact with persons
under control by substantial
shareholders, which prevents
substantial shareholders from
profiting (gaining) from the
Company.

THE CORPORATE GOVERNANCE FRAMEWORK AND PRACTICES ENSURE EQUAL CONDITIONS FOR ALL
SHAREHOLDERS OWNING THE SAME TYPE (CLASS) OF SHARES, INCLUDING MINORITY AND NON-
RESIDENT SHAREHOLDERS, AND THEIR EQUAL TREATMENT BY THE COMPANY.

The company has
created conditions for
fair treatment of each
shareholder by the
company’s governing
and control bodies,
including conditions that
rule out abuse by major
shareholders against
minority shareholders.

The company does not take
any actions that lead or may
lead to artificial redistribution
of corporate control.

Full

–

1. In the reporting period, procedures
for management of potential conflicts
of interest among substantial
shareholders were efficient, while the
board of directors paid due attention to
conflicts, if any, between shareholders.

1. No quasi-treasury shares were
issued or used to vote in the reporting
period.

Full

–

SHAREHOLDERS ARE PROVIDED WITH RELIABLE AND EFFICIENT MEANS OF RECORDING THEIR RIGHTS
TO SHARES AND ARE ABLE TO FREELY DISPOSE OF THEIR SHARES WITHOUT ANY HINDRANCE.

Shareholders are provided
with reliable and efficient
means of recording their
rights to shares and are
able to freely dispose of
their shares without any
hindrance.

1. The company’s registrar maintains
the share register in an efficient and
reliable way that meets the needs of
the company and its shareholders.

Full

–

THE BOARD OF DIRECTORS PROVIDES STRATEGIC MANAGEMENT OF THE COMPANY, DETERMINES KEY
PRINCIPLES OF, AND APPROACHES TO, SETTING UP A CORPORATE RISK MANAGEMENT AND INTERNAL
CONTROL FRAMEWORK, MONITORS PERFORMANCE BY THE COMPANY’S EXECUTIVE BODIES, AND
PERFORMS OTHER KEY FUNCTIONS.

The board of directors is
responsible for appointing
and dismissing executive
bodies, including for
improper performance of
their duties. The board of
directors also ensures that
the company’s executive
bodies act in accordance
with the company’s
approved development
strategy and core lines of
business.

Partial

1. The board of directors has the
authority stipulated in the charter
to appoint and remove members
of executive bodies and to set out
the terms and conditions of their
contracts.

2. The board of directors reviewed the
report(s) by the sole executive body or
members of the collective executive
body on the implementation of the
company’s strategy.

Full

The authority of the Board of
Directors under the Company’s
Charter does not include the
right to set out the terms and
condition of contracts with
members of the Company’s
Management Board.

2.1.2

The board of directors sets
key long-term targets for
the company, assesses
and approves its key
performance indicators and
key business goals, as well
as the strategy and business
plans for the company’s core
lines of business.

Full

1. At its meetings in the reporting
period, the board of directors reviewed
strategy implementation and updates,
approval of the company’s financial
and business plan (budget), and criteria
and performance (including interim) of
the company’s strategy and business
plans.

2.1.3

The board of directors
defines the company’s
principles and approaches
to risk management and
internal controls.

The board of directors
determines the
company’s remuneration
and reimbursement
(compensation) policy for
its directors, members of
executive bodies and other
key executives.

1. The board of directors defined the
company’s principles and approaches
to risk management and internal
controls.
2. The board of directors assessed
the company’s risk management
and internal controls in the reporting
period.

1. The company developed and
put in place a remuneration and
reimbursement (compensation) policy
(policies), approved by the board of
directors, for its directors, members
of executive bodies and other key
executives.
2. At its meetings in the reporting
period, the board of directors
discussed matters related to such
policy (policies).

The board of directors
plays a key role in
preventing, identifying and
resolving internal conflicts
between the company’s
bodies, shareholders and
employees.

1. The board of directors plays a key
role in preventing, identifying and
resolving internal conflicts.
2. The company set up mechanisms
to identify transactions leading to a
conflict of interest and to resolve such
conflicts.

The board of directors plays
a key role in ensuring that
the company is transparent,
timely and fully discloses
its information, and
provides its shareholders
with unhindered access to
the company’s documents.

The board of directors
controls the company’s
corporate governance
practices and plays a key
role in material corporate
events of the company.

1. The board of directors approved
the company’s information policy
regulations.
2. The company identified persons
responsible for implementing the
information policy.

1. In the reporting period, the board
of directors reviewed the company’s
corporate governance practices.

None

2.1.4

2.1.5

2.1.6

2.1.7

Full

Partial

Full

The Company did not put in
place any remuneration and
reimbursement (compensation)
policy for the Company’s
directors, members of
executive bodies and other key
executives.

–

In the reporting period, the
Board of Directors did not
review the Company’s corporate
governance practices at its
meetings. The non-compliance
with this provision of the Code
is temporary. The Company
intends to achieve compliance
with this Code provision in 2017.
The Board of Directors intends
to discuss this matter in 2017.

2.2

THE BOARD OF DIRECTORS IS ACCOUNTABLE TO THE COMPANY’S SHAREHOLDERS.

2.2.1 Performance of the board

of directors is disclosed
and made available to the
shareholders.

Full

1. The company’s annual report for
the reporting period includes the
information on individual attendance
at board of directors and committee
meetings.
2. The annual report discloses key
performance assessment results of
the board of directors in the reporting
period.

Annual Report 2016novatek.ru

Delivering Results

2.2.2

The chairman of the board
of directors is available
to communicate with the
company’s shareholders.

Full

1. The company has in place a
transparent procedure enabling
shareholders to forward questions
and express their position on such
questions to the chairman of the board
of directors.

In preparing for the General
Meeting, the Company posts
a dedicated e-mail address on
its website for shareholders
to submit their opinions and
questions on the agenda.
Besides, at General Meetings
of Shareholders held in person,
shareholders may personally
ask questions of the Chairman
of the Board of Directors.

2.3

THE BOARD OF DIRECTORS MANAGES THE COMPANY IN AN EFFICIENT AND PROFESSIONAL MANNER
AND IS CAPABLE OF MAKING FAIR AND INDEPENDENT JUDGEMENTS AND ADOPTING RESOLUTIONS IN
THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS.

Partial

2.3.1 Only persons of impeccable
business and personal
reputation who have
knowledge, expertise and
experience required to
make decisions within the
authority of the board of
directors and essential to
perform its functions in an
efficient way are elected to
the board of directors.

1. The procedure for assessing the
board of directors` performance
established in the company includes,
inter alia, assessment of professional
qualifications of the board members.
2. In the reporting period, the board of
directors (or its nomination committee)
assessed nominees to the board of
directors for required experience,
knowledge, business reputation,
absence of conflicts of interest, etc.

2.3.2

The company’s directors
are elected via a
transparent procedure
that enables shareholders
to obtain information on
nominees sufficient to
judge on their personal and
professional qualities.

Partial

1. Whenever the agenda of the
general meeting of shareholders
included election of the board of
directors, the company provided
to shareholders the biographical
details of all nominees to the board
of directors, the results of their
assessment carried out by the
board of directors (or its nomination
committee), and the information
on whether the nominee meets
the independence criteria set forth
in Recommendations 102–107 of
the Code, as well as the nominees’
written consent to be elected to the
board of directors.

2.3.3

The board of directors has
a balanced membership,
including in terms of
directors’ qualifications,
experience, expertise and
business qualities, and
enjoys its shareholders’
trust.

None

1. As part of assessment of the
board of directors’ performance run
in the reporting period, the board of
directors reviewed its requirements to
professional qualifications, experience
and business skills.

The Company did not assess
the performance of the Board
of Directors.
The Remuneration and
Nomination Committee
advises the Board of
Directors on nominees
proposed by shareholders
to the Board of Directors
based on such criteria as the
nominee’s independence and
professional qualifications, and
also appraises such nominees
for having required experience,
expertise, business reputation
and absence of conflicts of
interest.

In preparing and holding
General Meetings of
Shareholders in the reporting
period, the Company did not
provide shareholders with
nominee assessment results
obtained by the Board of
Directors (or its Nomination
Committee).
The Company intends to
achieve compliance with this
principle in 2017.

The Company did not run
any assessment of the Board
of Directors’ performance
in the reporting period. The
Company believes that such
assessment is unnecessary
as the Company’s directors
are highly skilled experts with
long track records, including in
management.

2.3.4

None

1. As part of assessment of the board
of directors’ performance run in the
reporting period, the board of directors
considered whether the number of
directors met the company’s needs
and shareholders’ interests.

The company has a
sufficient number of
directors to organize the
board of directors’ activities
in the most efficient way,
including ability to set up
committees of the board
of directors and enable
the company’s substantial
minority shareholders to elect
a nominee to the board of
directors for whom they vote.

The Company did not run any
assessment of the Board of
Directors’ performance in the
reporting period.
The Company believes that the
current number of Directors
(nine) is optimal and enables
representing all shareholders,
including minority shareholders,
in the Board of Directors with
the necessary number of
Independent Directors.

2.4

THE BOARD OF DIRECTORS INCLUDES A SUFFICIENT NUMBER OF INDEPENDENT DIRECTORS.

2.4.1 An independent director is
a person who is sufficiently
professional, experienced
and independent to develop
their own position, and
capable of making unbiased
judgements in good faith,
free of influence by the
company’s executive
bodies, individual groups
of shareholders or other
stakeholders. It should
be noted that a nominee
(elected director) who is
related to the company,
its substantial shareholder,
substantial counterparty
or competitor of the
company, or related to
the government, may
not be considered as
independent under normal
circumstances.

2.4.2

The company assesses
compliance of nominees
to the board of directors
and reviews compliance
of independent directors
with independence criteria
on a regular basis. In such
assessment, substance
should prevail over form.

Full

1. In the reporting period, all
independent directors met all
independence criteria set out in
Recommendations 102–107 of the
Code or were deemed independent by
the board of directors.

Full

1. In the reporting period, the board of
directors (or its nomination committee)
made a judgement on independence
of each nominee to the board of
directors and provided its opinion to
shareholders.
2. In the reporting period, the board of
directors (or its nomination committee)
reviewed, at least once, the
independence of incumbent directors
listed by the company as independent
directors in its annual report.
3. The company has in place
procedures defining the actions to
be taken by a member of the board
of directors if they cease to be
independent, including the obligation
to timely notify the board of directors
thereof.

2.4.3

2.4.4

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

1. Independent directors make up at
least one third of directors.

Full

Independent directors play
a key role in preventing
internal conflicts in the
company and in ensuring
that the company performs
material corporate actions.

1. Independent directors (with no
conflicts of interest) run a preliminary
assessment of material corporate
actions implying a potential conflict of
interests and submit the results to the
board of directors.

None

The Company intends to
achieve compliance with this
principle in 2017

Annual Report 20162.5

2.5.1

2.5.2

2.5.3

novatek.ru

Delivering Results

THE CHAIRMAN OF THE BOARD OF DIRECTORS ENSURES THAT THE BOARD OF DIRECTORS
DISCHARGES ITS DUTIES IN THE MOST EFFICIENT WAY.

Formally, the Chairman of
the Board of Directors is not
an Independent Director.
However, the Chairman of the
Board of Directors meets all
independence criteria, except
for his tenure on the Board of
Directors. For chairmanship
purposes, the directors
elected the most experienced
director who is not an
Independent Director.
No senior independent
director was elected from
among independent directors.

The Company did not run any
assessment of the Board of
Directors’ performance in the
reporting period.

The board of directors is
chaired by an independent
director, or a senior
independent director
supervising the activities
of other independent
directors and interacting
with the chairman of the
board of directors is chosen
from among the elected
independent directors.

Partial

1. The board of directors is chaired by
an independent director, or a senior
independent director is appointed from
among the independent directors.
2. The role, rights and duties of the
chairman of the board of directors
(and, if applicable, of the senior
independent director) are duly set out
in the company’s internal documents.

The chairman of the board
of directors maintains a
constructive environment
at meetings, enables free
discussion of agenda
items, and supervises the
execution of resolutions
passed by the board of
directors.

The chairman of the board
of directors takes all steps
necessary for the timely
provision to members of
the board of directors of
information required to
pass resolutions on agenda
items.

1. Performance of the chairman of
the board of directors was assessed
as part of assessment of the board of
directors’ performance in the reporting
period.

None

Full

–

1. The company’s internal documents
set out the duty of the chairman of
the board of directors to take all steps
necessary for the timely provision to
members of the board of directors
with materials on agenda items of the
board meeting.

2.6

DIRECTORS ACT REASONABLY AND IN GOOD FAITH IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS, ON A FULLY INFORMED BASIS AND WITH DUE CARE AND DILIGENCE.

2.6.1 Directors pass resolutions
on a fully informed
basis, with no conflict of
interest, subject to equal
treatment of the company’s
shareholders, and
assuming normal business
risks.

2.6.2

The rights and duties
of directors are clearly
stated and incorporated
in the company’s internal
documents.

1. The company’s internal documents
provide that a director should notify
the board of directors of any existing
conflict of interest as to any agenda
item of the meeting of the board of
directors or its committee, prior to
discussion of the relevant agenda
item.
2. The company’s internal documents
provide that a director should abstain
from voting on any item in connection
with which they have a conflict of
interest.
3. The company has in place a
procedure enabling the board of
directors to get professional advice on
matters within its remit at the expense
of the company.

1. The company adopted and published
an internal document that clearly
defines the rights and duties of
directors.

Full

–

Full

–

2.6.3 Directors have sufficient

time to perform their
duties.

2.6.4 All directors shall have

equal access to the
company’s documents and
information. Newly elected
directors are furnished
with sufficient information
about the company and
performance of the board
of directors as soon as
possible.

1. Individual attendance at board and
committee meetings, as well as time
devoted to preparation for attending
meetings, was recorded as part of the
procedure for assessing the board of
directors in the reporting period.
2. Under the company’s internal
documents, directors notify the board of
directors of their intentions to be elected
to governing bodies in other entities
(apart from the entities controlled by, or
affiliated to, the company), and of their
election to such bodies.

1. Under the company’s internal
documents, directors are entitled to
access documents and make requests
on the company and its controlled
entities, while executive bodies of the
company should furnish all relevant
information and documents.
2. The Company has in place a
formalized onboarding program for
newly elected Directors.

Partial

The Company did not run any
assessment of the Board of
Directors’ performance in the
reporting period

None

The Company intends to
formalize its onboarding
procedure for newly elected
Directors in 2017.

2.7

MEETINGS OF THE BOARD OF DIRECTORS, PREPARATION FOR SUCH MEETINGS AND PARTICIPATION OF
BOARD MEMBERS THEREIN ENSURE EFFICIENT PERFORMANCE BY THE BOARD OF DIRECTORS.

2.7.1 Board meetings are held as
needed, taking into account
the scale of operations and
goals of the company at a
particular time.

2.7.2

2.7.3

Internal regulations of
the company provide
a procedure for the
preparation and holding
of the board meetings,
enabling members of
the board of directors to
prepare for such meetings
in a proper manner.

The format of the meeting
of the board of directors
is determined taking into
account the importance of
items on the agenda. The
most important matters are
dealt with at meetings of
the board of directors held
in person.

1. The board of directors held at least
six meetings in the reporting year.

Full

1. The company has an approved
internal document that describes the
procedure for arranging and holding
meetings of the board of directors and
sets out, in particular, that the notice of
the meeting shall be given, as a rule, at
least five days prior to such meeting.

–

Partial

1. The company’s charter or internal
document provides for the most
important matters (as per the list
set out in Recommendation 168 of
the Code) to be passed at in-person
meetings of the board of directors.

The list of matters to be
resolved at the Board’s in-
person meetings does not
fully match the list specified in
Recommendation 168 of the
Code.

2.7.4 Resolutions on most

important matters
relating to the company’s
operations are passed at
a meeting of the board
of directors by a qualified
majority or by a majority of
all elected board members.

Partial

1. The company’s charter provides for
the most important matters set out in
Recommendation 170 of the Code to
be passed at a meeting of the board of
directors by a qualified majority of at
least three quarters or by a majority of
all elected board members.

The Company’s Charter does
not provide for resolutions
of the Board to be passed
by qualified majority on the
following matters:
– submission to the General
Meeting of matters relating to
the Company’s liquidation
– submission to the General
Meeting of matters relating to
amendments to the Company’s
Charter
– review of material issues
relating to operations of legal
entities controlled by the
Company

Annual Report 20162.8

2.8.1

2.8.2

2.8.3

2.8.4

novatek.ru

Delivering Results

THE BOARD OF DIRECTORS SETS UP COMMITTEES FOR PRELIMINARY CONSIDERATION OF THE MOST
IMPORTANT ISSUES RELATED TO THE BUSINESS OF THE COMPANY.

Full

–

Full

–

Full

–

None

In 2005, the Board of Directors
set up an additional committee,
the Strategy Committee.
Each newly elected Board
of Directors forms this
Committee in accordance with
the Regulations on the Strategy
Committee of the Company’s
Board of Directors.

1. The board of directors has set up an
audit committee comprised solely of
independent directors.
2. The company’s internal documents
set out the tasks of the audit
committee, including those listed in
Recommendation 172 of the Code.
3. At least one member of the
audit committee represented by an
independent director has experience
and knowledge of preparing, analysing,
assessing and auditing accounting
(financial) statements.
4. Meetings of the audit committee
were held at least once a quarter
during the reporting period.

1. The board of directors has set up a
remuneration committee comprised
solely of independent directors.
2. The remuneration committee is
headed by an independent director
who is not the chairman of the board
of directors.
3. The company’s internal documents
set out the tasks of the remuneration
committee, including those listed in
Recommendation 180 of the Code.

1. The board of directors has set up a
nomination committee (its tasks listed
in Recommendation 186 of the Code
are fulfilled by another committee,
the Remuneration and Nomination
Committee) predominantly comprised
of independent directors.
2. The company’s internal
documents set out the tasks of the
nomination committee (or the tasks
of the committee with combined
functions), including those listed in
Recommendation 186 of the Code.

1. In the reporting period, the board
of directors considered whether the
composition of its committees was
in line with the board’s tasks and the
company’s business goals. Additional
committees were either set up or not
deemed necessary.

To preview matters
related to controlling the
company’s financial and
business activities, it is
recommended to set up an
audit committee comprised
of independent directors.

To preview matters related
to adopting an efficient and
transparent remuneration
scheme, a remuneration
committee is set up,
comprised of independent
directors and headed by an
independent director who
is not the chairman of the
board of directors.

To preview matters related
to talent management
(succession planning),
professional composition
and efficiency of the board
of directors, a nomination
(HR) committee is set up,
predominantly comprised
of independent directors.

Taking into account the
company’s scope of
business and level of
risks, the company’s board
of directors made sure
that the composition of
its committees is fully
in line with company’s
business goals. Additional
committees were either
set up or not deemed
necessary (strategy
committee, corporate
governance committee,
ethics committee, risk
management committee,
budget committee, health,
safety and environment
committee, etc.).

100

2.8.5 Committees are

composed so as to enable
comprehensive discussions
of matters under preview,
taking into account the
diversity of opinions.

2.8.6 Committee chairmen

inform the board of
directors and its chairman
on the work of their
committees on a regular
basis.

1. Committees of the board of
directors are headed by independent
directors.
2. The company’s internal documents
(policies) include provisions
stipulating that persons who are not
members of the audit committee,
the nomination committee and the
remuneration committee may attend
committee meetings only by invitation
of the chairman of the respective
committee.

1. During the reporting period,
committee chairmen reported to the
board of directors on the work of
committees on a regular basis.

Partial

The Strategy Committee is
headed by a director who is not
an independent director.

Full

–

2.9

2.9.1

THE BOARD OF DIRECTORS ENSURES PERFORMANCE ASSESSMENT OF THE BOARD OF DIRECTORS, ITS
COMMITTEES AND MEMBERS OF THE BOARD OF DIRECTORS.

None

The Board’s performance
was not assessed during the
reporting period.

The board of directors’
performance assessment
is aimed at determining the
efficiency of the board of
directors, its committees
and members, consistency
of their work with the
company’s development
requirements, as well
as bolstering the work
of the board of directors
and identifying areas for
improvement.

1. Self-assessment or external
assessment of the board of directors’
performance carried out in the
reporting period included performance
assessment of committees, individual
members of the board of directors and
the board of directors in general.
2. Results of self-assessment or
external assessment of the board of
directors’ performance carried out in
the reporting period were reviewed at
the in-person meeting of the board.

2.9.2 Performance of the

board of directors, its
committees and directors
is assessed on a regular
basis at least once a year.
An external advisor is
engaged at least once in
three years to conduct an
independent assessment
of the board of directors’
performance.

1. The company engaged an external
advisor to conduct an independent
assessment of the board of directors’
performance at least once over the last
three reporting periods.

None

Over the past three reporting
periods the Company has
not engaged an external
entity (advisor) to conduct
an independent assessment
o fthe Board of Director’s
performance.

THE COMPANY’S CORPORATE SECRETARY ENSURES EFFICIENT ONGOING INTERACTION WITH
SHAREHOLDERS, COORDINATES THE COMPANY’S EFFORTS TO PROTECT SHAREHOLDER RIGHTS AND
INTERESTS AND SUPPORTS THE ACTIVITIES OF THE BOARD OF DIRECTORS.

3.1

3.1.1

The corporate secretary has
the knowledge, experience
and qualifications sufficient
to perform his/her duties,
as well as an impeccable
reputation and the trust of
shareholders.

3.1.2. The corporate secretary is
sufficiently independent of
the company’s executive
bodies and has the powers
and resources required to
perform his/her tasks.

1. The company has adopted and
published an internal document –
regulations on the corporate secretary.
2. The biographical data of the
corporate secretary are published
on the corporate website and in the
company’s annual report with the
same level of detail as for members
of the board of directors and the
company’s executives.

1. The board of directors approves the
appointment, removal and additional
remuneration of the corporate
secretary.

Partial

Neither the Company’s website
nor the annual report contains
biographical data of the
corporate secretary.

Full

–

Annual Report 20164.1

4.1.1

4.1.2

4.1.3

4.1.4

novatek.ru

Delivering Results

101

REMUNERATION PAYABLE BY THE COMPANY IS SUFFICIENT TO ATTRACT, MOTIVATE, AND RETAIN
PEOPLE WITH COMPETENCIES AND QUALIFICATIONS REQUIRED BY THE COMPANY. REMUNERATION
PAYABLE TO THE MEMBERS OF THE BOARD OF DIRECTORS, EXECUTIVE BODIES AND OTHER KEY
EXECUTIVE OFFICERS OF THE COMPANY IS IN COMPLIANCE WITH THE APPROVED REMUNERATION
POLICY OF THE COMPANY.

Partial

1. The company has in place
an internal document (internal
documents) – the policy (policies) on
remuneration of members of the board
of directors, executive bodies and
other key executives, which clearly
defines (define) the approaches to
remuneration of the above persons.

The Company does not have
in place a policy (policies) on
remuneration of executives and
other key managers.

Full

–

1. During the reporting period, the
remuneration committee considered
the remuneration policy (policies)
and the practical aspects of its (their)
introduction and presented relevant
recommendation to the board of
directors as required.

Partial

The Company does not have
in place a policy (policies) on
remuneration of executives and
other key managers.

1. The company’s remuneration policy
(policies) includes (include) transparent
mechanisms for determining the
amount of remuneration due to
members of the board of directors,
executive bodies and other key
executives of the company, and
regulates (regulate) all types of
expenses, benefits and privileges
provided to such persons.

Full

–

1. The remuneration policy (policies)
defines (define) the rules for
reimbursement of costs incurred by
members of the board of directors,
executive bodies and other key
executives of the company.

The amount of
remuneration paid by the
company to members of
the board of directors,
executive bodies and
other key executives
creates sufficient
incentives for them to
work efficiently, while
enabling the company
to engage and retain
competent and qualified
specialists. At the same
time, the company
avoids unnecessarily high
remuneration, as well as
unjustifiably large gaps
between remunerations of
the above persons and the
company’s employees.

The company’s
remuneration policy
is developed by the
remuneration committee
and approved by the
board of directors. The
board of directors,
assisted by the
remuneration committee,
ensures control over
the introduction and
implementation of the
company’s remuneration
policy, revising and
amending it as required.

The company’s
remuneration policy
includes transparent
mechanisms for
determining the amount
of remuneration due to
members of the board of
directors, executive bodies
and other key executives of
the company, and regulates
all types of expenses,
benefits and privileges
provided to such persons.

The company defines a
policy on reimbursement
(compensation) of
costs detailing a list of
reimbursable expenses and
specifying service levels
that members of the board
of directors, executive
bodies and other key
executives of the company
can claim. Such policy can
make part of the company’s
remuneration policy.

102

4.2

4.2.1

4.2.2

The company pays fixed
annual remuneration to
members of the board of
directors.
The company does not pay
remuneration for attending
particular meetings of the
board of directors or its
committees.
The company does
not apply any form of
short-term motivation
or additional financial
incentive for members of
the board of directors.

Long-term ownership of
the company’s shares helps
align the financial interests
of members of the board
of directors with long-term
interests of shareholders
to the utmost. At the same
time, the company does
not link the right to dispose
of shares to performance
targets, and members of
the board of directors do
not participate in stock
option plans.

REMUNERATION SYSTEM OF MEMBERS OF THE BOARD OF DIRECTORS ENSURES ALIGNMENT OF
FINANCIAL INTERESTS OF THE DIRECTORS WITH LONG-TERM FINANCIAL INTERESTS OF SHAREHOLDERS.

Full

–

1. Fixed annual remuneration was the
only form of monetary remuneration
payable to members of the board
of directors for their service on the
board of directors during the reporting
period.

1. If the company’s internal
document(s) – the remuneration policy
(policies) stipulates (stipulate) provision
of the company’s shares to members
of the board of directors, clear rules for
share ownership by board members
are defined and disclosed, aimed at
stimulating long-term ownership of
such shares.

–

Not applicable,
since the
Regulations on
Remuneration
and
Compensations
Payable to
Members of
PAO NOVATEK
Board of
Directors does
not provide for
remuneration
of the directors
with company
shares.

Full

–

4.2.3

The company does not
provide for any extra
payments or compensations
in the event of early
termination of office of
members of the board of
directors resulting from the
change of control or any
other reasons whatsoever.

1. The company does not provide for
any extra payments or compensations
in the event of early termination of
office of members of the board of
directors resulting from the change
of control or any other reasons
whatsoever.

4.3

THE COMPANY CONSIDERS ITS PERFORMANCE AND THE PERSONAL CONTRIBUTION OF EACH EXECUTIVE
TO THE ACHIEVEMENT OF SUCH PERFORMANCE, WHEN DETERMINING THE AMOUNT OF REMUNERATION
PAYABLE TO MEMBERS OF THE EXECUTIVE BODIES AND OTHER KEY EXECUTIVES OF THE COMPANY.

None

–

4.3.1 Remuneration due to

members of executive
bodies and other key
executives of the company
is determined in a manner
providing for reasonable
and justified ratio of the
fixed and variable parts of
remuneration, depending
on the company’s
performance and the
employee’s personal
contribution.

1. In the reporting period, annual
performance results approved by
the board of directors were used to
determine the amount of the variable
part of remuneration due to members
of executive bodies and other key
executives of the company.
2. During the latest assessment of the
system of remuneration for members
of executive bodies and other key
executives of the company, the board
of directors (remuneration committee)
made sure that the company applies
efficient ratio of the fixed and variable
parts of remuneration.
3. The company has in place a procedure
that guarantees return to the company
of bonus payments illegally received by
members of executive bodies and other
key executives of the company.

Annual Report 2016novatek.ru

Delivering Results

103

None

–

Full

–

1. The company has in place a
long-term incentive programme for
members of executive bodies and
other key executives of the company
with the use of the company’s shares
(financial instruments based on the
company’s shares).
2. The long-term incentive programme
for members of executive bodies and
other key executives of the company
implies that the right to dispose of
shares and other financial instruments
used in this programme takes effect
at least three years after such shares
or other financial instruments are
granted. The right to dispose of such
shares or other financial instruments is
linked to the company’s performance
targets.

1. In the reporting period, the
compensation (golden parachute)
payable by the company in case of
early termination of the powers of
executive bodies or key executives
at the company’s initiative, provided
that there have been no actions in bad
faith on their part, did not exceed the
double amount of the fixed part of
their annual remuneration.

4.3.2

The company put in place
a long-term incentive
programme for members
of executive bodies and
other key executives of
the company with the
use of the company’s
shares (options and other
derivative instruments
where the company’s
shares are the underlying
asset).

The compensation (golden
parachute) payable by the
company in case of early
termination of powers of
members of executive
bodies or key executives
at the company’s initiative,
provided that there have
been no actions in bad
faith on their part, does not
exceed the double amount
of the fixed part of their
annual remuneration.

THE COMPANY PUT IN PLACE EFFECTIVE RISK MANAGEMENT AND INTERNAL CONTROLS FRAMEWORK
PROVIDING REASONABLE ASSURANCE IN THE ACHIEVEMENT OF THE COMPANY’S GOALS.

Full

The board of directors has
determined the principles
of, and approaches to, risk
management and internal
controls in the company.

1. Functions of different
management bodies and divisions of
the company in the risk management
and internal controls are clearly
defined in the company’s internal
documents /relevant policy approved
by the board of directors.

The company’s
executive bodies ensure
establishment and
continuous operation of
efficient risk management
and internal controls in the
company.

1. The company’s executive
bodies ensured the distribution of
functions and powers related to risk
management and internal controls
between the heads (managers) of
divisions and departments accountable
to them.

The company’s risk
management and internal
controls ensure an
objective, fair and clear
view of the current state
and future prospects of
the company, the integrity
and transparency of the
company’s reporting, as
well as reasonable and
acceptable risk exposure.

1. The company has in place an
approved anti-corruption policy.
2. The company established an
accessible method of notifying the
board of directors or the board’s
audit committee of breaches of any
violations of the law, the company’s
internal procedures and code of ethics.

–

4.3.3

5.1

5.1.1

5.1.2

5.1.3

104

5.1.4

5.2

5.2.1

5.2.2

6.1

6.1.1

6.1.2

Full

–

1. In the reporting period, the board
of directors or the board’s audit
committee assessed the efficiency
of the company’s risk management
and internal controls. Key results of
this assessment are included in the
company’s annual report.

The company’s board
of directors shall take
necessary measures
to make sure that
the company’s risk
management and internal
controls are consistent
with the principles of, and
approaches to, its setup
determined by the board
of directors, and that the
system is functioning
efficiently.

THE COMPANY PERFORMS INTERNAL AUDIT FOR REGULAR INDEPENDENT ASSESSMENT OF THE
RELIABILITY AND EFFICIENCY OF THE RISK MANAGEMENT AND INTERNAL CONTROLS AND THE
CORPORATE GOVERNANCE PRACTICE.

The company set up a
separate business unit or
engaged an independent
external organization to
carry out internal audits.
Functional and
administrative reporting
lines of the internal audit
department are delineated.
The internal audit unit
functionally reports to the
board of directors.

The internal audit division
assesses the performance
of the internal controls,
risk management, and
corporate governance. The
company applies generally
accepted standards of
internal audit.

Full

–

1. To perform internal audits, the
company set up a separate business
unit – internal audit division,
functionally reporting to the board of
directors or to the audit committee,
or engaged an independent external
organization with the same line of
reporting.

Full

–

1. In the reporting period, the
performance of the internal controls
and risk management was assessed as
part of the internal audit procedure.
2. The company applies generally
accepted approaches to internal audit
and risk management.

THE COMPANY AND ITS OPERATIONS ARE TRANSPARENT FOR ITS SHAREHOLDERS, INVESTORS AND
OTHER STAKEHOLDERS.

The company has
developed and
implemented an
information policy ensuring
an efficient exchange
of information by the
company, its shareholders,
investors, and other
stakeholders.

The company discloses
information on its
corporate governance and
practice, including detailed
information on compliance
with the principles and
recommendations of the
Code.

Partial

1. The company’s board of directors
approved an information policy
developed in accordance with the
Code’s recommendations.
2. The board of directors (or its
committee) reviewed the company’s
compliance with its information policy
at least once in the reporting period.

The Board of Directors or its
Committees did not review the
Company’s compliance with
its Information Policy in the
reporting period.

Full

–

1. The company discloses information
on its corporate governance and
general principles of corporate
governance, including disclosure on its
website.
2. The company discloses
information on the membership
of its executive bodies and board
of directors, independence of the
directors and their membership in
the board’s committees (as defined
by the Code).
3. If the company has a controlling
person, the company publishes a
memorandum of the controlling person
setting out this person’s plans for the
company’s corporate governance.

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105

THE COMPANY MAKES TIMELY DISCLOSURES OF COMPLETE, UPDATED AND RELIABLE INFORMATION
TO ALLOW SHAREHOLDERS AND INVESTORS TO MAKE INFORMED DECISIONS.

6.2

6.2.1

The company discloses
information based
on the principles of
regularity, consistency
and promptness, as well
as availability, reliability,
completeness and
comparability of disclosed
data.

6.2.2

The company avoids a
formalistic approach to
information disclosure
and discloses material
information on its
operations, even if
disclosure of such
information is not required
by law.

The company’s annual
report, as one of the
most important tools of
its information exchange
with shareholders and
other interested parties,
contains information
enabling assessment of
the company’s annual
performance results.

6.2.3

6.3

6.3.1

Full

–

Partial

The Company’s annual report
for the reporting period did
not include annual financial
statements prepared under
the IFRS or the auditor’s
report. These statements are
disclosed on the Company’s
official website earlier than the
annual report is prepared (in
February of the year following
the reporting year).

The Company discloses its
capital structure to the extent
required by the applicable laws.

Full

–

1. The company’s information policy
sets out approaches to, and criteria
for, identifying information that
can have a material impact on the
company’s evaluation and the price of
its securities, as well as procedures
ensuring timely disclosure of such
information.
2. If the company’s securities are
traded on foreign organized markets,
the company ensured concerted
and equivalent disclosure of material
information in the Russian Federation
and in the said markets in the reporting
year.
3. If foreign shareholders hold a
material portion of the company’s
shares, information was disclosed both
in the Russian language and one of the
most widely used foreign languages in
the reporting period.

1. In the reporting period, the company
disclosed annual and 6M financial
statements prepared under the IFRS.
The company’s annual report for
the reporting period included annual
financial statements prepared under
the IFRS, along with the auditor’s
report.
2. The company discloses
full information on its capital
structure in accordance with
Recommendation 290 of the Code
both in the annual report and on the
company’s website.

1. The company’s annual report
contains information on the key
aspects of its operating and financial
performance.
2. The company’s annual report
contains information on the
environmental and social aspects of
the company’s operations.

THE COMPANY PROVIDES INFORMATION AND DOCUMENTS REQUESTED BY ITS SHAREHOLDERS IN
ACCORDANCE WITH PRINCIPLES OF FAIRNESS AND EASE OF ACCESS.

The company provides
information and documents
requested by its
shareholders in accordance
with principles of fairness
and ease of access.

1. The company’s information
policy establishes the procedure for
providing shareholders with easy
access to information, including
information on legal entities controlled
by the company, as requested by
shareholders.

None

Access to information and
copies of documents are
provided to the shareholders
at their request in the manner
set out in the Federal Law on
Joint-Stock Companies.

106

Full

–

6.3.2 When providing information
to shareholders, the
company shall ensure
reasonable balance
between the interests of
particular shareholders
and its own interests
consisting in preserving the
confidentiality of important
commercial information
which may materially affect
its competitiveness.

1. In the reporting period, the company
did not refuse any shareholder
requests for information, or such
refusals were justified.
2. In cases defined by the information
policy, shareholders are warned of the
confidential nature of the information
and undertake to maintain its
confidentiality.

7.1

ACTIONS THAT MATERIALLY AFFECT OR MAY AFFECT THE COMPANY’S SHARE CAPITAL STRUCTURE
AND ITS FINANCIAL POSITION AND ACCORDINGLY THE POSITION OF ITS SHAREHOLDERS (”MATERIAL
CORPORATE ACTIONS”) ARE TAKEN ON FAIR TERMS ENSURING THAT THE RIGHTS AND INTERESTS OF
THE SHAREHOLDERS AND OTHER STAKEHOLDERS ARE OBSERVED.

7.1.1 Material corporate actions

include restructuring of
the company, acquisition
of 30% or more of the
company’s voting shares
(takeover), execution by
the company of major
transactions, increase or
decrease of the company’s
authorised capital, listing or
de-listing of the company’s
shares, as well as other
actions which may lead
to material changes in the
rights of shareholders or
violation of their interests.
The company’s charter
provides a list (criteria)
of transactions or other
actions classified as
material corporate actions
within the authority of
the company’s board of
directors.

The board of directors
plays a key role in passing
resolutions or making
recommendations on
material corporate actions,
relying on the opinions of
the company’s independent
directors.

7.1.2

Partial

The Company’s Charter does
not contain a specific list of
corporate actions; however,
matters classified as material
corporate actions fall within the
competence of the Board of
Directors.

1. The company’s charter includes a
list of transactions or other actions
deemed to be material corporate
actions, and their identification criteria.
Resolutions on material corporate
actions are referred to the jurisdiction
of the board of directors. When
execution of such corporate actions
is expressly referred by law to the
jurisdiction of the general shareholders
meeting, the board of directors
presents relevant recommendations to
shareholders.
2. According to the company’s charter,
material corporate actions include
at least: company reorganization,
acquisition of 30% or more of the
company’s voting shares (in case
of takeover), entering in major
transactions, increase or decrease of
the company’s charter capital, listing or
de-listing of the company’s shares.

1. The company has in place a
procedure enabling independent
directors to express their opinions
on material corporate actions prior to
approval thereof.

None

The Company does not have
in place a formal procedure
enabling independent directors
to express their opinions on
material corporate actions prior
to approval thereof, however
independent directors take
an active part in discussions
on material corporate actions
and within such discussions
express their position on them.

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107

Partial

1. Due to specifics of the company’s
operations, the company’s charter
contains less stringent criteria for
material corporate actions than
required by law.
2. All material corporate actions in the
reporting period were duly approved
before they were taken.

Not all material corporate
actions in the reporting period
were duly approved before
they were taken.

7.1.3 When taking material

corporate actions which
would affect rights or
legitimate interests of
shareholders, equal
terms and conditions
are guaranteed for all
shareholders; if the
statutory procedure
designed to protect
shareholders’ rights proves
insufficient, additional
measures are taken to
protect their rights and
legitimate interests. In
doing so, the company is
guided by the corporate
governance principles set
forth in the Code, as well
as by formal statutory
requirements.

7.2

7.1.2

THE COMPANY PERFORMS MATERIAL CORPORATE ACTIONS IN SUCH A WAY AS TO ENSURE THAT
SHAREHOLDERS TIMELY RECEIVE COMPLETE INFORMATION ABOUT SUCH ACTIONS, ALLOWING THEM
TO INFLUENCE SUCH ACTIONS AND GUARANTEEING ADEQUATE PROTECTION OF THEIR RIGHTS WHEN
PERFORMING SUCH ACTIONS.

Information about
material corporate
actions is disclosed
with explanations of the
grounds, circumstances
and consequences.

1. In the reporting period, the company
disclosed information about its
material corporate actions in due time
and in detail, including the grounds for,
and timelines of, such actions.

Full

–

7.2.2 Rules and procedures

related to material
corporate actions taken by
the company are set out
in the company’s internal
documents.

None

1. The company’s internal documents
set out a procedure for engaging an
independent appraiser to estimate the
value of assets either disposed of or
acquired in a major transaction or a
related-party transaction.
2. The company’s internal documents
set out a procedure for engaging an
independent appraiser to estimate
the value of shares acquired and
redeemed by the company.
3. The company’s internal documents
provide for an expanded list of
grounds on which the company’s
directors and other persons as per
the applicable law are deemed to
be related parties to the company’s
transactions.

The company’s internal
documents do not set out a
procedure for engaging an
independent appraiser to
estimate the value of assets
either disposed of or acquired
in a major transaction or a
related-party transaction
because the need to engage
an independent appraiser is
stipulated by the Federal Law
on Joint-Stock Companies.

108

forward–looking statements

This Annual Review includes ‘forward-looking in-
formation’ 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 includ-
ed in this Annual Report and Accounts, includ-
ing, without limitation, statements concerning
plans, objectives, goals, strategies, future events
or performance, and underlying assumptions and
other statements, which are other than state-
ments of historical facts. The words “believe,”
“expect,” “anticipate,” “intends,” “estimate,”
“forecast,” “project,” “will,” “may,” “should”
and similar expressions identify forward-look-
ing statements. Forward-looking statements in-
clude statements regarding: strategies, outlook
and growth prospects; future plans and potential
for future growth; liquidity, capital resources and
capital expenditures; growth in demand for our
products; economic outlook and industry trends;
developments of our markets; the impact of reg-
ulatory initiatives; and the strength of our com-
petitors. The forward-looking statements in this
Annual Review are based upon various assump-
tions, many of which are based, in turn, upon fur-
ther assumptions, including without limitation,
management’s examination of historical operat-
ing trends, data contained in our records and oth-
er data available from third parties. Although we
believe that these assumptions were reasonable
when made, these assumptions are inherently
subject to significant uncertainties and contingen-
cies, 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 fac-
tors 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 regu-
latory conditions, including prices and taxes;

— the effects of competition in the domestic

and export oil and gas markets;

— our ability to successfully implement any of

our business strategies;

— the impact of our expansion on our revenue

potential, cost basis and margins;

— our ability to produce target volumes in
the event, among other factors, of re-
strictions on our access to transportation
infrastructure;

— the effects of changes to our capital ex-

penditure projections on the growth of our
production;

— potentially lower production levels in the fu-
ture than currently estimated by our man-
agement and/or independent petroleum
reservoir engineers;

— inherent uncertainties in interpreting geo-

physical data;

— changes to project schedules and estimated

completion dates;

— our success in identifying and managing

risks to our businesses;

— the effects of changes to the Russian legal
framework concerning currently held and
any newly acquired oil and gas production
licenses;

— changes in political, social, legal or economic

conditions in Russia and the CIS;
— the effects of technological changes;
— the effects of changes in accounting stand-

ards or practices.
This list of important factors is not exhaust-

ive. When relying on forward-looking state-
ments, one should carefully consider the fore-
going factors and other uncertainties and
events, especially in light of the political, eco-
nomic, social and legal environment in which
we operate. Such forward looking statements
speak only as of the date on which they are
made. Accordingly, we do not undertake any
obligation to update or revise any of them,
whether as a result of new information, fu-
ture events or otherwise. We do not make
any representation, warranty or prediction that
the results anticipated by such forward-look-
ing statements will be achieved, and such for-
ward-looking statements represent, in each
case, only one of many possible scenarios and
should not be viewed as the most likely or
standard scenario. The information and opin-
ions contained in this document are provided
as at the date of this review and are subject to
change without notice.

Annual Report 2016novatek.ru

Delivering Results

109

terms and abbreviations

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

barrel

bcm
boe
km
mboe
mcm
mt
mmboe
mmcm
mmt
ton
SEC

PRMS

YNAO

RR
LPG
LNG

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
million boe
million cubic meters
million metric tons
metric ton
United States Securities and
Exchange Commission
Petroleum Resources
Management System
Yamal-Nenets Autonomous
Region
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 re-

serves from tons to barrels we used various
coefficients depending on the liquids density at
each field.

110

CONTACT
INFORMATION

office in tarko-sale

gdr program administrator

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

office in moscow

2, Udaltsova Street, 119415, Moscow, Russia

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

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)

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

Annual Report 2016