Think
Green.
Think
Natural Gas.
Annual Report 2020
Contents
Letter to Shareholders ............................................... 4
Strategic Priorities ...................................................... 8
Environmental and Climate Change Targets .......... 9
Key Events and Achievements..................................10
Business Model ............................................................12
Key Indicators .............................................................14
Hydrocarbon Reserves ..............................................16
Yamal LNG ....................................................................18
Arctic LNG 2 ...............................................................20
Geological Exploration and Production ................. 22
Processing of GasCondensate ...............................24
Natural Gas Sales ...................................................... 25
LNG Sales .................................................................... 26
Liquid Hydrocarbons Sales ....................................... 28
Environmental and Social Responsibility ................30
Corporate Governance ............................................ 32
About the Company
Review of Operating Results
34
35
Licenses ..................................................................... 35
Hydrocarbon Reserves ............................................. 35
Geological Exploration ............................................. 37
Field Development ..................................................... 38
Hydrocarbon Production .......................................... 39
LNG Projects ...............................................................41
Processing of Gas Condensate ..............................43
Natural Gas Sales ......................................................44
Liquid Hydrocarbons Sales ...................................... 47
Environmental and Social Responsibility
49
Environmental Protection .........................................49
Industrial Safety and Occupational Health ...........51
Human Resources ......................................................54
Social Policy and Charity .......................................... 57
Management and Corporate Governance
62
Corporate Governance System .............................. 62
General Meeting of Shareholders ........................... 62
Board of Directors ................................................... 63
Board activities during the 2020 corporate
year .............................................................................. 63
Board Committees ...................................................64
Management Board .................................................. 66
Remuneration to Members of the Board
of Directors and Management Board .................... 67
Internal Control and Audit ....................................... 68
Share Capital ............................................................. 70
Dividends .................................................................... 71
Information Transparency ....................................... 72
Additional Information
74
Risk Management System ........................................ 74
Risk Insurance ............................................................ 87
Information on Members of NOVATEK’s
Board of Directors .................................................... 88
Information on Members of NOVATEK’s
Management Board ..................................................90
Report on major, and interested-party
transactions that the Company did in the
reporting year ........................................................... 95
Corporate Governance Code Compliance
Report ........................................................................ 95
Forward–looking Statements ............................... 120
Terms and Abbreviations ........................................ 121
Conversion Factors .................................................. 121
IFRS Consolidated Financial Statements
for 2020 .....................................................................122
Management’s Discussion and Analysis
of Financial Condition and Results
of Operations for 2020 ...........................................196
Contact Information ...............................................246
3
Annual Report 2020 Letter to Shareholders
NOVATEK’s Corporate Strategy considers the increasing role of LNG in the
future global energy mix by replacing other types of fossil fuels (coal, fuel
oil and diesel), thus reducing greenhouse gas emissions and harmful air
pollutants. Natural gas will play a fundamental role in decarbonizing the
global energy mix, as a low-carbon energy alternative to traditional fossil
fuels in the energy transition, while managing the intermittency of the
energy supply from renewables.
%32
Overall construction progress
on Arctic LNG 2
at the end of 2020
Alexander
NATALENKO
Chairman
of the Board
of Directors
Leonid
MIKHELSON
Chairman of the
Management
Board
Mark
GYETVAY
Deputy
Chairman of the
Management
Board
Dear Shareholders,
“THINK GREEN. THINK NATURAL GAS.” is our theme
for 2020 and beyond, as we formally established
and adopted our Environmental and Climate
Change targets up to 2030. As the defining topic
of this generation, the climate change agenda
is at the forefront of policy decisions globally
as world economies transition from traditional
sources of energy to some combination of
natural gas, renewables and hydrogen to meet
the increasing demands of electrification and
decarbonization.
NOVATEK’s Corporate Strategy considers the
increasing role of LNG in the future global energy
mix by replacing other types of fossil fuels (coal,
fuel oil and diesel), thus reducing greenhouse
gas emissions and harmful air pollutants. Natural
gas will play a fundamental role in decarbonizing
the global energy mix, as a low-carbon energy
alternative to traditional fossil fuels in the energy
transition, while managing the intermittency of the
energy supply from renewables.
Our LNG is already one of the greenest in the
world and we are developing operational solutions
to further reduce our CO2 emissions. Our present
level of greenhouse gas emissions per barrel of
production is already among the lowest globally
due to the use of state-of-the-art technologies
and a high share of natural gas in the Company’s
hydrocarbon production. As a confirmation of our
commitment to “THINK GREEN. THINK NATURAL
GAS.” we approved in August 2020 our climate
change targets, including atmospheric emissions
reduction, associated petroleum gas utilization
and waste utilization and disposal. We set
ambitious targets that will meaningfully contribute
to reducing greenhouse gas emissions, as well
providing affordable, secure and sustainable
natural gas to our customers for many decades.
Unlike most of our competitors, we control the
full LNG value chain – from our LNG Construction
facility in The Murmansk Region to our upstream
production at our fields, to our liquefaction
processing and finally to end-customer delivery
using our dedicated Arc7 ice-class tanker fleet.
To achieve a goal to continually reduce
methane emissions within our business
activities, increase reporting transparency
and implement more stringent regulations on
methane emissions, NOVATEK became one
of 23 signatories to the Methane Guiding
Principles Initiative in October 2020. We
recently submitted our first workplan under
this important initiative for the year 2021.
Our flagship Yamal LNG project continued
to perform above its operational nameplate
capacity and to expand its geography of LNG
deliveries. In 2020, the project loaded and
dispatched 255 cargos or 18.6 million tons of
LNG.
During the past year, we made great progress
with our second large-scale LNG project –
Arctic LNG 2. We are presently on schedule
with all construction activities at both the
Utrenneye field and the Utrenniy Terminal. Our
Arctic LNG 2 is being realized despite massive
delays and cancellations of other global
Our LNG is one of the
greenest in the world and we
are developing operational
solutions to further reduce
our CO2 emissions. Our
present level of greenhouse
gas emissions per barrel of
production is already among
the lowest globally due to
the use of state-of-the-art
technologies and a high share
of natural gas in NOVATEK’s
hydrocarbon production.
4
5
5
Annual Report 2020THINK GREEN. THINK NATURAL GAS. As the COVID-19 pandemic took much of the
headlines during 2020 year, we undertook many
precautionary measures to protect the safety
and wellbeing of our employees, our contractors
and their families against the spread of virus,
while maintaining our commitment to deliver natural
gas to our customers.
caused much financial and economic stress and
disruption to the global markets. We witnessed
extreme volatility in both natural gas and crude
oil prices and endured economic lockdowns
across many of our key markets. The pandemic
devastated the lives of many people and changed
the way we now interact with society. Most
importantly, we remained optimistic during this
extraordinary past year and are more committed
and determined to deliver up to 70 million tons
of LNG by 2030 in a tightening global LNG market
according to our corporate strategy.
As the climate change agenda gains momentum,
we must demonstrate that we are a responsible
operator and mitigate any harmful emissions to the
atmosphere. We are targeting carbon neutrality
with our future LNG platform and will work closely
with our partners to find viable technical solutions
for decarbonization. We are confident that natural
gas will play a major role in the Energy Transition
and remain a viable energy source to power the
world economies for many decades.
To achieve our ESG goals, the Company will deliver
new projects and programs with low greenhouse
gas emissions and implement environmental
standards for our activities in the Arctic Region
that meet the criteria of “Green Projects”. We
strive to fulfill our commitment to achieve the
global emission goals as outlined in the Paris
Climate Agreement and expand our joint activities
with our customers and suppliers.
“THINK GREEN. THINK NATURAL GAS.” redefines our
contribution to society by delivering low-carbon,
large-scale LNG projects to meet the challenges
of decarbonizing energy molecules and ensuring
a sustainable lifestyle for future generations.
On behalf of the Board of Directors and
Management Board, we are pleased to present to
all our valued stakeholders the Company’s 2020
Annual Report. We would like to thank everyone for
your support during a very difficult past year, and
especially, each and every one of our employees
for their commitment and dedication towards work
at our production fields, construction sites, offices
and at their “remote” locations.
Although challenges still remain, we are better
positioned to capitalize on the world’s growing
energy requirements with our low-cost resource
base and our world-class production facilities
to better serve humanity’s energy needs in a
environmentally and socially responsible manner.
LNG projects. Equally important, we expect no
delays in deliveries of LNG modules as the yards
are producing at full capacity and preventative
measures have been taken to reduce and/or
eliminate the impact of the COVID-19 virus on
specific work schedules. At the end of December
2020, the overall construction progress for Arctic
LNG 2 is estimated at 32%.
In 2020, the formation of Arctic LNG 2 ice-class
tanker fleet was completed and we signed
construction contracts for all 21 Arc7 ice-class
tankers – 15 ice-class tankers from the Zvezda
Shipyard in Russia and six ice-class tankers from
DSME in South Korea.
Another important aspect of our business is
ongoing exploratory works – geophysical and
geological – to increase our resource base for new
project development. Therefore, exploration is
fundamental to our future success. We continued
exploration activities on the Gydan Peninsula
in 2020 that will contribute to the successful
implementation of NOVATEK’s future large-scale
LNG projects in the Arctic zone and ensure
the maintenance of natural gas production
levels into the domestic pipeline network. As of
31 December 2020, NOVATEK’s total SEC proved
reserves(1) aggregated 16,366 million barrels of
oil equivalent (boe), including 2,244 billion cubic
meters (bcm) of natural gas and 197 million tons of
liquid hydrocarbons. Our reserve replacement rate
amounted to 117%, with the addition of 710 million
boe, inclusive of 2020 production.
Due to the successful launches of fields within
the North-Russkiy cluster at the end of 2019 and in
Q3 2020, and an increase in hydrocarbon production
from the Achimov horizons at Arcticgas’s
Urengoyskoye field, our 2020 hydrocarbon
production totaled 608.2 mln boe, including 77.4 bcm
of natural gas and 12,237 thousand tons of liquids
(gas condensate and crude oil). This increased our
total hydrocarbons produced by 18.3 million boe, or
by 3.1% as compared with 2019. The total natural
gas sales volumes, including volumes of LNG sold,
aggregated 75.6 bcm.
The uses of LNG as a transport fuel represents a
promising market segment that we are actively
developing both in Russia and abroad. In August,
we launched our first small-scale LNG plant in the
Chelyabinsk Region with a design capacity of 40
thousand tons per annum. As part of NOVATEK’s
long-term strategy, we plan to build a network
of LNG fueling stations in Europe and Russia to
provide heavy duty transport with clean fuel at
key transport connecting points. Currently, the
Company operates a network of 9 LNG fueling
stations in the European market as well as 21
regasification facilities. In December, we launched
our first carbon-neutral LNG fueling station in
Rostock, Germany that will utilize carbon offset
mechanisms.
Our Russian domestic gas business remained
resilient in 2020 despite the COVID-19 pandemic.
This business segment remains an important
cornerstone of our business strategy as it
insulates us from both price and volume volatility
in global markets and, more importantly, remains
stable and generates positive free cash flows.
In December, NOVATEK’s Board of Directors
approved amendments to the Regulations on
Company’s Dividend Policy, which increased the
minimum target payout level from 30% to 50% of
the adjusted consolidated net profit according to
the International Financial Reporting Standards.
The decision to amend the minimum payout level
was based on the Company’s strong operating and
financial results as well as significant growth in the
scale of the Company’s operations.
As the COVID-19 pandemic took much of the
headlines during the past year, we undertook many
precautionary measures to protect the safety
and wellbeing of our employees, our contractors
and their families against the spread of virus, while
maintaining our commitment to deliver natural
gas to our customers. We worked closely with
Federal, Regional and Local authorities, as well as
our partners, to contain the virus spread, and took
appropriate action, where necessary, to minimize
possible disruptions to our operations. NOVATEK
also provided direct help to the regions where we
have operations as a key element of our social
programs. It is important to unequivocally state
that we place the health, wellbeing and safety of
our employees above profits.
Despite the economic instability on the global
markets, the Company achieved strong operating
results and implemented its main investment
projects in accordance with NOVATEK’s approved
corporate strategy. In 2020, our revenues
amounted to RR 712 bln and our normalized
EBITDA(2) amounted to RR 392 bln. The year-on-
year decreases in revenues and normalized EBITDA
by 17.5% and 15.0% respectively were largely
due to a decline in global commodity prices for
hydrocarbons.
Based on the Company’s financial results, the
Board of Directors recommended to the General
Meeting of Shareholders to approve dividends for
2020 at RR 35.56 per share, exceeding the dividend
paid out for the previous year by 10%.
Two thousand and twenty has been an
unprecedented year, and definitely one for the
history books. The spread of the COVID-19 virus
Including the Company’s share in JVs.
1.
2. Excluding the effects from the disposal of interests in subsidiaries and joint ventures and including the share in EBITDA of JVs.
6
7
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Strategic Priorities
s
o li c i e
servative fin a n cial p
n
o
C
i
n
o
t
a
v
o
n
n
i
C
orp
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
Increase
hydrocarbon
production
Optimize
marketing
channels
technology
technology
RESOURCE BASE
GROWTH
Maintain
low cost
structure
i
n
o
t
a
v
o
n
n
i
Build low cost
scalable LNG
platform
S
u
s
t
a
i
n
a
b
l
e
d
e
v
e
l
o
p
m
e
n
t
s
n
n t in v e st m ent decisio
f fi c i e
E
Resourse base growth
Maintain low cost structure
• Organic resource growth from exploration and
development activities on the Yamal and Gydan
peninsulas
• Remain one of the lowest cost hydrocarbon
producers in the global oil & gas industry
• Optimize cost structure through strategic
• Strategic acquisitions and active participation in
investment of capital
license tenders
• Develop low cost LNG value chain
Sustainable development
Optimize marketing channels
• Reduce and prevent negative environmental
• Maximize use of Northern Sea Route and develop
impact
key transshipment points
• Increase the efficiency and rational use of
natural resources, energy efficiency
• Build diversified LNG trading portfolio
• Develop strategic partnerships with industry
partners in key markets
Increase hydrocarbon production
• Increase gas production through development of
projects within the UGSS and LNG projects in the
Arctic
• Development of deeper Jurassic and Achimov
layers
Build low cost scalable LNG platform
• Increase production through development of
scalable LNG projects
• Development of proprietary LNG technologies
• Integrated projects for production and
• Fully utilize processing capacity of Ust-Luga
liquefaction of natural gas
complex
8
Environmental and Climate
Change Targets
NOVATEK’s Strategy considers the increasing
role of LNG in the future global energy mix by
replacing other types of fossil fuels (coal, fuel oil
and diesel), which reduces greenhouse gas and
air pollutants emissions. The role of natural gas
will be fundamental in decarbonizing the global
energy mix, as a low-carbon energy alternative
to traditional fossil fuels in the energy transition.
NOVATEK fully subscribes to the tenets outlined
in the Paris Climate Agreement, which was
subsequently adopted by the Russian Federation
in September 2019.
On 25 August 2020, the Board of Directors of PAO NOVATEK approved
the following environmental and climate change targets
for the period up to 2030:
2019
2030
Reduce methane emissions
per unit of production in the
Production, Processing and LNG
segments by 4%
Reduce air pollutant emissions
per unit of production by 20%
Reduce greenhouse gas emissions
per unit of production in the
Upstream segment by 6%
Reduce greenhouse gas emissions
per ton of LNG produced by 5%
Increase the associated
petroleum gas utilization rate
to 99%
Increase the share of waste
directed to utilization and
disposal to 90%
tons/ mmboe
10.44
tons/ mboe
0.128
tons of CO2 equivalent
per 1 mboe
12.58
tons of CO2 equivalent
per ton of LNG
0.263
Legal requirement
in Russia
95%
75%
-4%
-20%
-6%
-5%
to
99%
to
90%
9
9
Annual Report 2020THINK GREEN. THINK NATURAL GAS.
THINK GREEN. THINK NATURAL GAS.
Annual Report 2020
Key Events
and Achievements
February
May
August
September
October
November
December
Condensate treatment
capacity expanded at the
Samburgskiy license area to
accommodate volumes of gas
condensate from developing
the Achimov horizons, which
allowed to increase both
gas and gas condensate
production volumes.
NOVATEK signed
Cooperation Agreement
with The Murmansk
Region covering social and
economic development in
the region and Agreement
with Far East Development
Corporation on operating
in the territory of the
Advanced Special
Economic Zone “Capital of
the Arctic”.
Yamal LNG Arc7 ice-
class tankers completed
unique voyages along the
Northern Sea Route in
May 2020 and January-
February 2021 opening
the navigation one month
before and ending two
months after the end of
the traditional navigation
season.
We approved Environmental and
Climate Change targets for
the period up to 2030 including
atmospheric emissions reduction,
associated petroleum gas utilization
and waste disposal.
We commenced production from
gas condensate bearing deposits
at the North-Russkiy cluster (North-
Russkoye and East-Tazovskoye fields)
which, together with the start of
natural gas production at the North-
Russkoye field at the end of 2019,
allowed the Company to increase
both gas and gas condensate
production volumes.
Our first small-scale LNG plant
was launched in the Chelyabinsk
Region (Magnitogorsk) with a design
capacity of 40 thousand tons per
annum. As of 31 December 2020,
NOVATEK operates 11 LNG stations in
Russia.
NOVATEK completed
the fleet formation
of ice-class tankers
for Arctic LNG 2. We
signed the long-term
charter agreements on
21 Arc7 ice-class LNG
tankers.
NOVATEK joined the
international oil and
gas industry Methane
Guiding Principles
Initiative to achieve
a goal to continually
reduce methane
emissions within
business activities,
increase transparency
and implementation of
regulations on methane
emissions.
18.8 mmt
of LNG
Yamal LNG produced in 2020
NOVATEK completed
Russia’s first
ship-to-ship LNG
transshipment
in the Kildin Strait
of the Barents Sea.
NOVATEK’s Board of
Directors approved the
new Dividend Policy to
increase the minimum
target payout level
from 30% to 50% of the
adjusted consolidated net
profit according to the
IFRS.
We launched our first
carbon-neutral LNG
fueling station in Germany
(Rostock). At the end of
January 2021, a network
of 9 NOVATEK LNG
fueling stations and 21
regasification stations is
operated in Europe.
10
11
Business Model
LNG projects
Producing fields
Separation
and treatment
Purovsky Plant
(nameplate
capacity –
12 mmtpa)
Stabilization of gas
condensate
LNG
Natural gas by pipeline
Crude oil by pipeline
Sales volume
international market
domestic market
12%
Natural gas
88%
35%
Crude oil
65%
19%
LPG
81%
75.6 bcm
4.5 mmt
3.0 mmt
Unstable gas
condensate
by pipeline
22% Stable gas
condensate
27%
Stable gas
condensate
73%
Petroleum
products
100%
tankers
24% LPG
76%
Stable gas
condensate
11.8
mmt
78% Stable gas condensate by rail
2.2 mmt
6.8 mmt
7.0
mmt
Ust-Luga Complex
(nameplate
capacity –
6 mmtpa)
Fractionation
of stable gas
condensate
64% Naphtha
15% Jet fuel
11% Fuel oil
10% Gasoil
12
13
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Key Indicators
Operating indicators(1)
Proved natural gas reserves (SEC)
Proved liquid hydrocarbon reserves (SEC)
Total hydrocarbon reserves (SEC)
Natural gas production
Liquid hydrocarbons production
Proportionate share in LNG production of JVs
Total production
Daily production
Positions in Russia
Share in natural gas production(2)
Share in liquid hydrocarbons production(2)
Unit
bcm
mmt
mmboe
bcm
mt
mt
mmboe
mmboe/day
%
%
2019
2020
Change
Unit
2019
2020
Change
2,234
193
16,265
74.7
12,148
11,228
589.9
1.62
10.1%
2.2%
2,244
197
16,366
77.4
12,237
11,553
608.2
1.66
0.4%
2.1%
0.6%
3.6%
0.7%
2.9%
3.1%
2.8%
11.0%
2.4%
0.9 p.p.
0.2 p.p.
Financial indicators
Total revenues(3)
Normalized profit from operations(4)
Normalized EBITDA (including share in EBITDA of JVs)(4)
Normalized profit attributable to shareholders of PAO NOVATEK(4)
excluding the effect of foreign exchange gains (losses)(5)
RR mln
RR mln
RR mln
RR mln
862,803
711,812
(17.5%)
221,398
160,766
(27.4%)
461,157
392,008
(15.0%)
245,002
169,020
(31.0%)
Normalized earnings per share, basic and diluted(4) excluding
the effect of foreign exchange gains (losses)(5)
RR
81.35
56.26
(30.9%)
Net cash provided by operating activities
Cash used for capital expenditures(6)
Free cash flow(7)
RR mln
RR mln
RR mln
307,433
171,896
(44.1%)
162,502
204,577
25.9%
144,931
(32,681)
n/a
Total proved hydrocarbon reserves (SEC),
mmboe
Proved natural gas reserves (SEC), bcm
Operating cash flow, RR bln
Normalized EBITDA(4), RR bln
13,402
15,120
15,789
16,265
16,366
1,848
2,098
39%
61%
2,177
2,234
2,244
38%
62%
173.8
180.4
216.3
307.4
171.9
242.4
256.5
415.3
461.2
392.0
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Proved developed
Proved undeveloped
Liquids production, mmt
Natural gas production, bcm
12.4
11.8
11.8
12.1
12.2
Normalized profit attributable to shareholders of
PAO NOVATEK(4) excluding the effect of foreign
exchange gains (losses)(5), RR bln
Dividends per share, RR
39.5%
60.5%
2016
2017
2018
2019
2020
Crude oil
Gas condensate
67.6
63.4
68.8
74.7
77.4
133.8
156.2
232.9
245.0
169.0
13.90
14.95
26.06
32.33
35.56(8)
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
1. Oil and gas production and reserves are calculated based on 100% of production and reserves of our subsidiaries and our
5. Excluding the effect of foreign exchange gains (losses) of subsidiaries and our proportionate share in foreign exchange gains (losses)
proportionate share in the production and reserves of our joint ventures including fuel gas. Production and reserves of the South-
Tambeyskoye field of Yamal LNG are reported at 60%.
2. According to CDU TEK information.
3. Net of VAT, export duties, excise and fuel taxes, where applicable.
4. Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal and
subsequent non-cash revaluation of contingent consideration).
of our joint ventures.
6. 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.
7. Free cash flow represents the difference between Net cash provided by operating activities and Cash used for capital expenditures.
8. Recommendation of the Board of Directors.
14
15
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Hydrocarbon Reserves
Our production and processing
assets are located in the Russian
Federation.
Annual Report 2020
72
Fields and license
areas
16.4
bln
boe
Total proved hydrocarbons
reserves (SEC)
Yamal-Nenets
Autonomous Region
As of 31 December 2020, NOVATEK’s subsidiaries
and joint ventures held a total of 72 subsoil licenses
for areas within Russia.
Producing fields
and license areas
Prospective fields and license areas
1. Yurkharovskoye field
2. East-Tarkosalinskoye field
3. Khancheyskoye field
4. Olimpiyskiy LA (Urengoyskoye,
Dobrovolskoye, Sterkhovoye fields)
5. West-Yurkharovskoye field
6. Samburgskiy LA (Samburgskoye,
Urengoyskoye, East-
Urengoyskoye+North-Esetinskoye
fields)
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-Yaroyakhinskiy license area
14. Beregovoy license area
15. North-Russkoye field
16. Syskonsynyinskiy LA
(located in KMAO)
17. South-Khadyryakhinskoye field
18. Dorogovskoye field
19. East-Tazovskoye field
20. Yumantilskiy license area
21. West-Urengoiskiy license area
22. North-Yubileynoye field
23. North-Russkiy license area
24. Ukrainsko-Yubileynoye field
25. Geofizicheskiy 1 license area
26. West-Chaselskoye field
27. Yevo-Yakhinskiy license area
28. North-Chaselskiy license area
29. Utrenneye field
30. Geofizicheskiy license area
31. North-Obskiy license area
32. East-Tambeyskiy license area
33. North-Tasiyskiy license area
34. Trekhbugorniy license area
35. Nyakhartinskiy license area
36. Ladertoyskiy license area
37. Nyavuyahskiy license area
38. West-Solpatinskiy license area
39. North-Tanamskiy license area
40. Syadorskiy license area
41. Tanamskiy subsoil area
42. Kharbeyskoye field
43. Gydanskiy license area
44. Shtormovoy license area
45. Verhnetiuteyskiy+
West-Seyakhinskiy LA
46. Osenniy license area
47. Chernichnoye field
48. Raduzhnoye field
49. Ust-Yamsoveyskiy license area
50. Payutskiy license area
51. Central-Nadoyakhskiy license area
52. Palkurtoiskiy license area
53. Ladertoyskiy 1 license area
54. Gydanskiy 1 license area
55. Dorogovskiy 1 license area
56. South-Leskinskiy license area
57. Dorofeevskiy license area
58. West-Dorofeevskiy license area
59. Khalmeriakhskiy license area
60. Shtormovoy 1 license area
61. Soletsko-Khanaveyskoye fields
62. South-Dorofeevskiy
license area
63. South-Khalmeriakhskiy license
area
64. East-Ladertoyskiy license area
65. South-Yamburgskiy license area
66. Bukharinskiy license area
67. East-Tazovskiy 1 license area
68. East-Tarkosalinskiy 1 license area
69. West-Urengoiskiy 1 license area
70. Syadorskiy 1 license area
71. West-Yurkharovskiy 1 license area
72. Yaro-Yakhinskiy 2 license area
31
33
44
60
29
12
32
40
70
45
57
58
62
59
63
56
Krasnoyarsk
Territory
41
51
54
53 36
43
37
64
38
52
54
61
39
50
25
30
34
66
Yamal peninsula
Gydan peninsula
35
5
1
71
7
65
46
6
13
49
Novy
Urengoy
22
27
21
24
69
Yamal-Nenets
Autonomous Region
4
2
18, 55
47
10
67
19
23
15
42
48
9, 72
28
14
20
68
3
26
8
17
11
Ust-Luga
Yamal LNG
NOVATEK’s gas
condensate pipelines
Purovsky Gas Condensate
Processing Plant
Arctic LNG 2
Ust-Luga Complex
Syskonsynyinskiy LA (located in KMAO)
16
17
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Yamal LNG
Yamal LNG is our first integrated project for
production, liquefaction and sales of natural gas.
South-Tambeyskoye field is the resource base
for the project.
Yamal-Nenets
Autonomous Region
South-Tambeyskoye
field
Yamal LNG
670 bcm
of natural gas and 21 mmt
of liquid hydrocarbons –
proved reserves (SEC) as
of 31 December 2020
Arc7
18.8
mmt
of LNG
produced by Yamal LNG
in 2020
255
LNG
cargos
(18.6 mmt) and 24 stable gas
condensate cargos (1.0 mmt) were
shipped in 2020 from Yamal LNG
29 countries
Unique ice-class LNG carriers were specifically designed for
the Yamal LNG project, capable of navigating the Northern
Sea Route without icebreaker support.
consumed natural gas molecules
from Yamal LNG since its launch
in December 2017.
May 2020 and January-February 2021
November 2020
Yamal LNG’s Arc7 ice-class tankers completed
unique voyages along the NSR opening the
navigation one month before and ending it two
months after the end of the traditional navigation
season. Eastbound transportation of LNG along
the NSR is not normally performed in May as this
represents one of the most difficult months for
navigation.
NOVATEK-Western Arctic, a wholly owned subsidiary,
completed Russia’s first ship-to-ship LNG
transshipment in the Kildin Strait of the Barents
Sea. The Arc7 ice-class LNG tanker “Nikolay
Yevgenov” successfully reloaded an LNG cargo
delivered from the Yamal LNG facility at Sabetta
to the conventional tanker “Yamal Spirit”.
LNG supplies via the NSR
to the Asia-Pacific region in 2020:
• a twofold increase in supplies
to the Asian Pacific market
• 34 cargos (2.4 mmt of LNG) were shipped
• allows us to reduce shipping times by
40% in comparison with the traditional
route through the Suez Canal
• allows us to reduce our carbon footprint
and decrease carbon emissions
by seven (7) thousand tons per round trip
Shareholder structure of Yamal LNG,%
NOVATEK
TOTAL
CNPC
Silk Road Fund
9.9
20
20
50.1
18
19
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Arctic LNG 2
Utrenneye field is the resource
base of the project.
LNG Construction Center
Belokamenka
Yamal-Nenets
Autonomous Region
Utrenneye field
Arctic LNG 2
513
bcm
of gas
and 20 mmt of liquid hydrocarbons –
proved reserves of the field (SEC) as
of 31 December 2020
19.8 mmtpa
Total design capacity
of the three LNG trains
Project status:
LNG Construction Center is the
world’s first facility for “mass
production” of natural gas
liquefaction trains on gravity-
based structures (GBS).
The LNG Construction Center
main parts:
• GBS yard including two dry docks
• Topsides yard
• Marine infrastructure
• Utilities
• Accommodation camp and administrative
facilities
Arctic LNG 2 participants, %
Key advantages:
NOVATEK
TOTAL
CNPC
CNOOC
Consortium of Mitsui&Co
and JOGMEC
60
10
10
10
10
• Optimize and reduce CAPEX per ton of
LNG liquefaction
• Low cost, onshore conventional natural gas
• Reduce construction and logistical costs
as main LNG equipment is built and
installed at the LNG construction center
• High local content
• Minimize scope of work in the Arctic area
• Minimize environmental impact
2018
2019
2020
32% Overall Project progress
100% Ice-class tanker fleet formation
completed
46% Completion progress
on the first GBS-based LNG train
32% of the well stock required for
Train 1 (23 production wells drilled)
74% Concrete casting of the first
GBS platform
69% Completion progress on the
Utrenniy Terminal
October 2018 - Front-end
engineering design (FEED)
was completed.
September 2019 -
Final investment decision
(FID) made.
October 2020 - Arctic LNG 2’s
ice-class tanker fleet formation
was completed and long-term
charter agreements were signed
for 21 Arc7 ice-class LNG tankers:
15 tankers to be built at the Zvezda
shipyard in Russia and 6 tankers to
be built at Daewoo Shipbuilding &
Marine Engineering in Korea.
20
21
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Geological Exploration
and Production
NOVATEK uses a systematic and comprehensive
approach to exploration and development of
its fields and license areas, beginning with the
collection and interpretation of seismic data to the
creation of 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 maximize the ultimate recovery of
hydrocarbons in a cost effective manner. With this
approach, we are able to carry out prospecting,
exploration and production in a cost effective and
environmentally prudent manner.
608 mmboe
Hydrocarbon production
77.4
bcm
Total natural gas
production
48 years
Proved and probable
reserve to production ratio
(PRMS)
91.7 RR bln
Investments in resource
base development
12.2 mmt
Total liquid hydrocarbon
production
198 %
PRMS proved and probable
hydrocarbon reserve
replacement ratio
Total proved hydrocarbon reserves
(SEC), mmboe
Hydrocarbon production(1), mmboe
13,402
15,120
15,789
16,265
16,366
547.0
513.3
549.1
589.9
608.2
16.4 bln
boe
Total proved hydrocarbons
reserves (SEC)
as of 31 December 2020
22%
64%
1,000 m
Cenomanian layers
“Dry” gas not containing liquid hydrocarbons
1,700 m
Valanginian layers
Gas containing liquid hydrocarbons — “wet” gas
14%
3,200 m
Achimov layers
“Wet” gas with high share
of liquid hydrocarbons.
The layers have low
permeability and require
special development
techniques.
Jurassic 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.
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Technologies to develop deep layers
Hydrocarbon production breakdown including share in production by JVs, %
NOVATEK YURKHAROVNEFTEGAS' fields
North-Urengoyskoye
NOVATEK TARKOSALENEFTEGAS' fields
ARCTICGAS' fields
South-Tambeyskoye
Termokarstovoye
Yarudeyskoye
Others
6 3
2
4
19
23
27
16
1.
Including share in production by JVs.
22
Technology previously
used
Achimov
layers
1,500 m
Jurassic
layers
> 4,000 m
600 m
m
0
0
1
,
4
—
0
0
5
,
3
m
0
5
9
,
3
-
0
0
7
,
3
m
0
0
1
,
4
Hydrofracking
New technology
Achimov
Mid-Jurassic
Low-Jurassic
1,500 — 2,000 m
Increase in wells productivity,
Including increase in low permeable formations
23
Annual Report 2020THINK GREEN. THINK NATURAL GAS.
Processing of Gas
Condensate
11,786
mt
Processing of de-ethanized
condensate
7,007
mt
Processing of stable gas
condensate
Total output of the Purovsky Plant in 2020, mt
Total output of the Ust-Luga Complex in 2020, mt
14
2,788
8,934
Stable gas condensate
NGL and LPG
Regenerated methanol
Heavy naphtha
Light naphtha
Jet fuel
Ship fuel
component
Gasoil
667
749
1,036
2,298
2,087
Our subsidiaries and JVs are producing natural gas
with a significant content of liquid hydrocarbons
(gas condensate). After being separated and
de-ethanized at the field, the main part of 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.
The Purovsky Plant provides us complete
operational control over our processing needs and
access to higher yielding marketing channels for
our stable gas condensate. The Purovsky Plant
processes unstable gas condensate into stable gas
condensate and natural gas liquids (NGL).
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 the remaining volume of stable
gas condensate sold directly from the plant to
the domestic market. All of the NGL volumes
(feedstock for LPG production) produced at the
plant are delivered by pipeline to SIBUR’s Tobolsk
Petrochemical Complex for further processing.
The Ust-Luga Complex processes stable gas
condensate into light and heavy naphtha, jet
fuel, ship fuel component (fuel oil) and gasoil, and
enables us to ship the value-added petroleum
products to international markets.
Natural Gas Sales
In 2020, natural gas sales volumes, including volumes of LNG sold,
aggregated 75.62 bcm. The total volume of natural gas sold in the
Russian Federation amounted to 66.69 bcm, increasing by 1.6%
compared to the previous year.
Our sales of natural gas in the Russian domestic
market are mainly through trunk pipelines and
regional distribution networks, as well as sales
of LNG produced at our small-scale LNG plant
in the Chelyabinsk Region through our refueling
complexes.
NOVATEK has a key role in ensuring supplies of
natural gas to the domestic market. During 2020,
the Company supplied natural gas to 41 regions
within the Russian Federation.
Total natural gas sales, bcm
Natural gas sales breakdown on the Russian domestic
market by customers in 2020, %
Sales
in the Russian Federation
Sales
on international markets
Power generation companies
Large industrial consumers
Wholesale traders, ex-field
Others
Households
2
10
15
%
41
32
8.93
75.62
bcm
66.69
16
Main regions
of gas sales
25
Other regions
of gas sales
Stable gas condensate
Ust-Luga
Complex
Fractionation and
transshipment
of stable gas condensate
Unstable
gas condensate
Purovsky Plant
Stabilization
of gas
condensate
NGL
SIBUR’s Tobolsk Petrochemical Complex
Production of marketable LPG
24
25
Annual Report 2020THINK GREEN. THINK NATURAL GAS. LNG Sales
During 2020, NOVATEK sold 8.9 bcm (6.4 mmt) of LNG. Our sales of natural
gas on international markets are sales of LNG purchased primarily from
our joint ventures, Yamal LNG and Cryogas-Vysotsk. In addition, we sell
on the European market regasified liquefied natural gas arising during the
transshipment of LNG (boil-off gas), as well as during the regasification of
purchased LNG at our own regasification stations in Poland and Germany.
LNG transportation
Unique Arc7 ice class LNG carriers are capable of
year-round navigating the Northern Sea Route (NSR)
Westbound without icebreaker support, as well as
Eastbound, in months with severe ice conditions –
with icebreaker support. The use of the NSR
Eastbound enables the Company to reduce shipping
times and decrease the transportation cost, a key
importance to develop our licenses and fields on the
Yamal and Gydan peninsulas.
Cryogas-Vysotsk
Delivery point
Transshipment
Small- and medium-scale LNG
Large-scale LNG
United Kingdom
Netherlands
Belgium
France
Spain
Honningsvog
Murmansk
Sweden
Finland
Estonia
Lithuania
Poland
Arctic
Ocean
Yamal LNG
Russia
Atlantic Ocean
85
Large-scale LNG cargos
were sold by NOVATEK
in 2020
Brazil
15 ARC7 ICE-CLASS TANKERS
were specifically built
for the Yamal LNG project
China
Japan
South
Korea
UAE
India
Indian Ocean
Thailand
Pacific Ocean
Arc7 ice-class LNG tankers
45 МWt
Vessel power
19.5 KNOTS
Speed in open water
172
MCM
LNG tanker capacity
26
27
Annual Report 2020THINK GREEN. THINK NATURAL GAS.
Liquid Hydrocarbons
Sales
NOVATEK sells liquid hydrocarbons (stable gas condensate, petroleum
products, light hydrocarbons, LPG and crude oil) domestically and
internationally. We strive to respond quickly to changing market
conditions by optimizing our customer base and supply geography,
as well as developing and maintaining an efficient and profitable
logistics liquids infrastructure.
16.4
Liquid hydrocarbons sales
volumes
mmt
Liquid Hydrocarbons Sales, %
Ust-Luga products
Crude oil
Stable gas condensate
Light hydrocarbons
LPG
Other <0.1 %
9
10
13
41
27
Norway
Sweden
Denmark
Finland
Estonia
Latvia
Netherlands
Poland
Belgium
Germany
Arctic Ocean
Purovsky Plant
Russia
United Kingdom
Ust-Luga Complex
Italy
France
USA
Atlantic Ocean
341
RR
bln
Liquid hydrocarbons sales
revenues
Turkey
Saudi
Arabia
UAE
Oman
China
South
Korea
Japan
Taiwan
Pacific Ocean
Thailand
Philippines
Indian Ocean
Malaysia
Singapore
Heavy naphtha
Light naphtha
Crude oil
Fuel oil
Stable gas
condensate
LPG
Jet fuel
Gasoil
Export markets
28
29
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Environmental and
Social Responsibility
In 2020, despite the COVID-19 pandemic, the
Company continued to pay close attention to
projects aimed at supporting the culture, preserving
and revitalizing national values and spiritual
legacy of Russia, and developing mass and high-
performance sports. One of the focal points in 2020
was contributing to local epidemic containment
efforts through setting up PCR laboratories,
and purchasing equipment and materials for
medical treatment, protective suits for medical
personnel, etc.
4.1 RR
bln
Social expenses and compensatory
payments directly invested by
NOVATEK and its subsidiaries on
charitable projects and activities,
cultural and educational programs,
and support for indigenous
communities, including RR
671.8 million to assist the regions in
their epidemic containment efforts
NOVATEK’s personnel structure
as of 31 December 2020, %
5 2
6
7
8
13
34
25
Exploration and production
LNG production
Marketing
Processing
Power supply
Administrative personnel
Transportation
Ancillary services
16,821 employees
at NOVATEK, its subsidiaries and joint ventures
as of 31 December 2020
2.4
RR
bln
Environmental protection and sustainable
nature management (Including NOVATEK’s
share in JVs)
Environmental expenses, %
Social expenses for employees, %
2 1
6
7.5
12
13
Protection and use
of water resources
Enviromental protection against
production and consumption waste
Land and soil protection
58
Measures for the protection of flora and
fauna and preservation of biodiversity
Environmental monitoring
and evaluation of the background
Atmospheric air protection and climate
mitigation change
Environmental management 1%
Subsurface protection 0.3%
Environmental damage
compensation 0.2%
Other <0.01%
Targeted Compensation and Socially
Important Payments
Repayable Financial Aid Program
Voluntary Medical Insurance
42
Pension Program
Health Resort Treatment and
Rehabilitation
State Guarantees Support Program
Culture and sports
NOVATEK-Veteran Program
Others
Rehabilitation of children with disabilities
5
7
8
14
3 2 2 1
16
August 2020
October 2020
December 2020
Board of Directors approved
Environmental and Climate
Change targets for the
period up to 2030 including
atmospheric emissions
reduction, associated
petroleum gas utilization and
waste disposal.
NOVATEK joined the
international oil and
gas industry Methane
Guiding Principles
Initiative to achieve a
goal to continually reduce
methane emissions
within business activities,
increase transparency
and implementation of
regulations on methane
emissions.
We launched our first carbon-
neutral LNG fueling station in
Germany (Rostock). Carbon
neutral offsets from a carefully
selected portfolio of emission
reduction projects will be
used to compensate for the
LNG’s carbon footprint sold to
end-customers.
Charity project “Health Territory”
Telemedicine Center project (TMC)
Under the project, leading doctors from the
Russian Children’s Clinical Hospital visited six
towns: Tarko-Sale, Novy Urengoy, Kostroma,
Chelyabinsk, Magnitogorsk, and Petropavlovsk-
Kamchatsky. The project allowed 457 critically ill
children to get medical help, and 97 children were
taken to the Russian Children’s Clinical Hospital
and other federal medical centers.
During examinations and consultations by the
Russian Children’s Clinical Hospital visiting teams,
the necessary safety measures were taken; the
Company also provided children, parents, and
doctors with personal protective equipment.
In 2020, the work under the TMC project to equip
and connect hospitals in Novy Urengoy, Tarko-
Sale, Murmansk, and Kostroma to the unified
telemedical network, was completed. Efforts were
made to expand the TMC by connecting hospitals
in Chelyabinsk and Tyumen to the Center. The TMC
helped to conduct 626 video consultations, a series
of five lectures on pediatric anesthesiology and
intensive care in December 2020, as well as regular
online meetings and medical councils with relevant
experts of the Russian Children’s Clinical Hospital.
As part of the Targeted Therapy project aimed at
helping children with cancer undergoing treatment
in the Dmitry Rogachev National Medical Research
Center of Pediatric Hematology, Oncology and
Immunology, 120 children received help in 2020.
30
31
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Corporate Governance
NOVATEK strives to commit to the highest standards of corporate
governance. We believe that such standards are an essential
prerequisite to business integrity and performance and provide
a framework for socially responsible management of our operations.
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. The activity of all these
bodies is governed by the applicable laws of
the Russian Federation, NOVATEK’s Articles of
Association and internal documents available on
our website http://www.novatek.ru.
The Board of Directors is comprised of nine (9)
members, of which eight (8) are non-executive
directors, including three (3) directors who are
considered to be independent.
Independent directors
In December 2020, NOVATEK’s Board
of Directors approved the new
Dividend Policy
Сonsidering sustainably strong operating and
financial results as well as significant growth
in the scale of the Company’s operations, the
new Dividend Policy increased the minimum
target payout level from 30% to 50% of the
adjusted consolidated net profit according to the
International Financial Reporting Standards (IFRS)
(Minutes No. 236 of 18 December 2020).
NOVATEK’s dividend policy is based on keeping the
balance between the Company’s business goals
and shareholder’s interests. A decision to pay
dividends as well as the amount of the dividend,
the payment deadline and form of the dividend
is passed by the Annual General Meeting of
Shareholders according to the recommendation of
the Board of Directors.
The Board of Directors
membership elected at the Annual
General Meeting of Shareholders
on 24 April 2020:
• Alexander E. Natalenko –
Chairman of the Board
• Andrei I. Akimov
• Arnaud Le Foll
• Michael Borrell
• Robert Castaigne(1)
• Leonid V. Mikhelson(2)
• Tatyana A. Mitrova (1)
• Victor P. Orlov(1)
• Gennady N. Timchenko
1. Independent
2. Executive
Corporate Governance Structure
Dividends per share, RR
13.90
14.95
26.06
32.33
35.56*
2016
2017
2018
2019
2020
*Recommendation of the Board of Directors
The Company’s website
was updated in 2020.
Supreme governing body
GENERAL MEETING
OF SHAREHOLDERS
Strategic
governance body
BOARDS
OF DIRECTORS
CHAIRMAN OF THE
MANAGEMENT BOARD
(CEO)
Financial and business
activity control bodies
REVISION COMMISSION
Board Committees
REMUNERATION
AND NOMINATION
COMMITTEE
STRATEGY
COMMITTEE
AUDIT
COMMITTEE
Collegial
executive body
MANAGEMENT BOARD
CORPORATE
SECRETARY
SUBDIVISIONS
INTERNAL
AUDIT DIVISION
32
33
Annual Report 2020THINK GREEN. THINK NATURAL GAS. About the Company
NOVATEK is one of the largest independent
natural gas producers in Russia.
Review
of Operating Results
The Company is ranked 3rd globally among publicly
traded companies in terms of proven natural
gas reserves under the Security and Exchange
Commission (SEC) reserves methodology and is
ranked among the 10 top companies globally in
terms of natural gas production. The Company is
also considered one of the lowest-cost producers
in the global oil and gas industry in key industry
metrics regarding “finding and development”,
“reserve replacement” costs and “lifting” costs.
NOVATEK plays a significant role in Russia’s energy
sector: in 2020, the Company accounted for 11%
of total Russian natural gas production. NOVATEK
sells its natural gas on the Russian domestic
market through the Unified Gas Supply System
(UGSS) and on international markets mainly in
the form of liquefied natural gas (LNG) since
December 2017.
NOVATEK’s main businesses are the exploration
and production, processing, transportation and
marketing of natural gas and liquid hydrocarbons.
The Company’s production assets are located
mainly in the Yamal-Nenets Autonomous Region
(YNAO), one of the largest and most prolific
natural gas regions in the world.
NOVATEK’s main strategic priorities are:
• Ensuring development of the Company’s
hydrocarbon resource base, including efficient
reserve management;
• Growing its hydrocarbon production;
• Maintaining a low-cost structure;
• Optimizing marketing channels;
• Building a low cost, scalable LNG platform; and
• Operating according to sustainable development
principles.
On 12 December 2017, we held our Corporate
Strategy Day that comprehensively outlined our
long-term strategy covering the period from
2018 up to 2030. We adhered to our goals and
objectives as outlined in our corporate strategy
for the year ended 31 December 2020.
The Company has a number of key competitive
advantages to successfully implement our
corporate strategy: the size and structure of its
hydrocarbon resource base; the close proximity
of existing infrastructure to core producing fields;
a well-developed customer base for natural gas
sales; natural gas liquefaction capacity and LNG
project execution experience; and facilities for
gas condensate processing and product exports.
The development of a low-cost LNG platform and
delivering cost-competitive LNG export sales to
key consuming regions are key strategic priorities
for the Company. Another core priority is to
increase production within the reach of the UGSS
through sustainable and responsible development
of new fields and exploration activities, targeting
lower producing horizons and complemented
by acquisitions meeting certain financial and
operational criteria. Our high level of operational
flexibility and our consistent and efficient use
of leading edge technologies in production and
processing practices as well as our adherence to
sound and prudent business management support
our competitive position.
Our commitment to the principles of sustaible
development, social responsibility and to
observing the latest environmental, health and
safety standards are integral parts of NOVATEK’s
development strategy and managerial philosophy.
Licenses
NOVATEK’s core fields and license areas are located
in the Yamal-Nenets Autonomous Region and in the
Kransoyarsk Territory. In 2020, we obtained new
licenses in the Yamal-Nenets Autonomous Region
where the Company operates, in close proximity to
existing licenses.
The Yamal-Nenets Autonomous Region is one of
the world’s largest natural gas producing regions
and accounts for approximately 80% of Russian
natural gas production and around 15% of global
natural gas production. The concentration of the
Company’s fields in this prolific gas-producing region
provides favorable opportunities for increasing
NOVATEK’s shareholder value with a minimum level
of risks, low finding cost, and efficient replacement
of reserves. With more than 25 years of operational
experience in the region, NOVATEK is in a good
position to efficiently monetize its resource base.
Exploration and production of hydrocarbons in
Russia is subject to federal licensing regulations.
As of 31 December 2020, NOVATEK’s subsidiaries
and joint ventures held a total 72 subsoil licenses
for areas within Russia. There are also exploration
and production agreements in place for four
offshore blocks in Montenegro and two offshore
blocks in Lebanon.
The duration of licenses for the Company’s core
fields exceeds 13 years. In particular, the license for
the Utrenneye field is valid until 2120, for the East-
Tarkosalinskoye – until 2043, for the Yurkharovskoye
field – until 2034, for the Samburgskiy license
area of Arcticgas – until 2130. In accordance with
standard practice, licenses are extended based on
design documents by the field development time.
In the reporting year, NOVATEK significantly
expanded its portfolio of licenses with 9 new
licenses obtained, including:
• geological study, exploration and production
licenses for the Bukharinskiy, East-Ladertoiskiy
and South-Yamburgskiy areas (following the
results of auctions);
•
•
geological study for flanks of the fields that
are under exploration, including the West-
Urengoyskiy 1, Syadorskiy 1, West-Yurkharovskiy 1,
East-Tazovskiy 1 and East-Tarkosalinskiy 1 areas;
geological study license for deeper formations
in the Yaro-Yakhinskoye field (Yaro-Yakhinskiy 2
area).
The Company boasts a vast resource base in
the Yamal-Nenets Autonomous Region. With new
licenses, NOVATEK is expanding its resources
to support LNG projects as well as its ability to
maintain the resource base for its existing fields to
ensure stable hydrocarbons production.
NOVATEK strives to strictly observe 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, or
can be developed from, onshore and fall into the
conventional hydrocarbon categories (capable of
being exploited using conventional technologies, in
contrast to unconventional gas deposits such as
shale gas or coal-bed methane).
DeGolyer and MacNaughton (“D&M”), an
independent petroleum engineers firm, estimates
the Company’s reserves on an annual basis
under both the SEC and PRMS reserves reporting
standards.
As of 31 December 2020, NOVATEK’s SEC proved
reserves, including the Company’s proportionate
share in joint ventures, aggregated 16,366 million
barrels of oil equivalent (mmboe), including
2,244 billion cubic meters (bcm) of natural
gas and 197 million metric tons (mmt) of liquid
hydrocarbons. The Company’s proved reserves
grew by 0.6% (excluding the 2020 production), and
the reserve replacement ratio stood at 117%, which
corresponds to the reserves addition of 710 mmboe
including production. At year-end 2020, the
Company’s proved reserves life (SEC) or reserves-
to-production ratio (R/P ratio) was 27 years.
34
35
Annual Report 2020THINK GREEN. THINK NATURAL GAS. As of 31 December 2020, the Company’s total
PRMS proved and probable reserves, including
the Company’s proportionate share in joint
ventures, aggregated 29,318 mmboe, including
3,981 bcm of natural gas and 380 mmt of liquid
hydrocarbons, with the total R/P ratio of 48 years.
PRMS proved and probable hydrocarbon reserve
replacement ratio reached 198%, which equals
reserves addition of 1,201 mmboe, including
production.
The reserves growth in 2020 was driven by positive
exploration results at the Geofizicheskoye,
Utrenneye, Nyakhartinskoye fields, production
drilling at the Urengoyskoye field (Samburgskiy and
Yevo-Yakhinskiy license areas), East-Tazovskoye,
North-Russkoye, Utrenneye, South-Tambeyskoye
fields, as well as recovery improvements at the
Yurkharovskoye and Yarudeyskoye fields.
For the first time, the Trekhbugorniy field was
included in the Company’s PRMS reserves estimate.
The Company continues intensive exploration on
the Gydan Peninsula with systematic introduction
of new fields into development, thus contributing
to successful implementation of future large-scale
LNG projects in the Arctic and maintaining pipe gas
production.
The high quality of the reserve base enables
NOVATEK to maintain its position as one of the
lowest cost producers in the global oil and gas
industry.
SEC proved reserves as of 31 December 2020
(based on the Company’s equity ownership interest in joint ventures) and duration of licenses
Field / license area
Total reserves
South-Tambeyskoye
Utrenneye
Urengoyskoye (ARCTICGAS)
Geofizicheskoye
Verkhnetiuteyskoye+West-Seyakhinskoye
Yurkharovskoye
North-Russkoye
Yaro-Yakhinskoye
Soletsko-Khanaveyskoye
Kharbeyskoye
North-Chaselskoye
East-Tarkosalinskoye
North-Urengoyskoye
Gydanskoye
Urengoyskoye (Ust-Yamsoveyskiy LA)
East-Tazovskoye
Beregovoy LA
Urengoyskoye (Yevo-Yakhinskiy LA)
Nyakhartinskoye
Olimpiyskiy license area
Samburgskoye
Yarudeyskoye
East-Urengoyskoye+North-
Yesetinskoye (West-Yaroyakhinskiy LA)
36
Participating
interest
Duration
of license
Natural gas
reserves, bcm
Liquids
reserves, mmt
50.1% (59.97%
of reserves)
60%
50%
100%
100%
100%
100%
50%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
50%
51% (100% of
reserves)
100%
2045
2120
2130
2034
2044
2034
2031
2119
2046
2036
lifetime
of the field
2043
2038
2044
2198
2033
2070
2034
2043
2059
2130
2029
2025
2,244
402
308
213
186
161
153
74
62
61
60
57
56
55
51
42
42
41
34
28
25
20
19
17
197
13
12
49
1
5
7
5
10
0.3
8
2
16
4
4
5
6
3
8
2
2
1
22
2
Field / license area
Termokarstovoye
East-Urengoyskoye+North-Yesetinskoye
fields (ARCTICGAS)
Khancheyskoye
Other
Participating
interest
Duration
of license
Natural gas
reserves, bcm
Liquids
reserves, mmt
51%
50%
100%
–
2097
2130
2044
–
17
11
6
43
5
1
1
3
Geological Exploration
NOVATEK aims to expand its resource base
through geological exploration at fields and
license areas not only in close proximity to existing
transportation and production infrastructure, but
also in new potentially prospective hydrocarbon
areas. The Company ensures the efficiency of
geological exploration work by deploying state-
of-the-art technologies and relying on the
experience and expertise of the specialists
in its geology department, and the Company’s
Scientific and Technical Center located in Tyumen.
The Company uses a systematic and comprehensive
approach to exploration and development of
its fields and license areas, beginning with the
collection and interpretation of seismic data to the
creation of 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 maximize the ultimate recovery of hydrocarbons
in a cost effective manner. With this approach, we
are able to carry out prospecting, exploration and
production in a cost effective and environmentally
prudent manner.
In 2020, NOVATEK mostly conducted geological
exploration in the Yamal and Gydan peninsulas
to ensure timely and efficient preparation of the
resource base for future LNG projects.
Following seismic surveys and exploration drilling,
the Utrenneye field’s reserves are now estimated
to be higher. The upside was primarily due to
successful exploration of deeper Jurassic deposits.
It was demonstrated the field’s southern dome
stretches further below the Ob Bay offshore
area at the Cenomanian and Aptian-Albian layers.
Our PRMS reserves (2P) increased by 1,919 million
boe and totaled 1,434.3 bcm of natural gas and
89.8 mmt of condensate.
We have fully ramped up the exploration
activities under the Obsky LNG Project at the
Verkhnetiuteyskiy+West-Seyakhinskiy license areas.
An exploration well and two exploration sidetracks
in production wells were drilled and tested. These
helped demonstrate the productivity of the
Aptian-Albian and Neocomian deposits with high
condensate content and allowed us to acquire
data on fluid composition for the purposes of LNG
plant design.
The Gydanskoye and Soletsko-Khanaveiskoye fields
remain in the active development stage. The fields
have been covered with 2,780 sq. km of 3D seismic
surveys. Data processing and interpretation
demonstrated high prospectivity of the Achimov
deposits. Three wells were drilled and tested to
demonstrate the prospectivity of the Gydanskoye
field’s Cretaceous deposits. Three new gas
condensate Cretaceous deposits and two gas
condensate Achimov deposits were discovered.
A prospecting well was spudded at the Soletsko-
Khanaveyskoye field with the testing results
confirming the field’s resource potential.
Exploration of deeper Jurassic deposits and
maturation of key development targets is ongoing
at the South Tambeyskoye field. We commenced
production for the first time from a Jurassic multi-
frac horizontal exploration well with the initial
gas flow rate of 453,000 cm/day and the initial
condensate flow rate of 108 t/day.
In order to maintain the pipeline gas production
level and the volumes sent to the Purovsky Plant,
we carried out exploration within the fields
and license areas located in the Purovskiy and
Tazovskiy districts of Yamal Nenets Autonomous
Region.
The Kharbeyskoye oil, gas and condensate field
was prepared for development activities following
the drilling and testing of two exploration wells.
Production at the field is scheduled to start in 2021.
Two onshore exploration wells drilled and tested at
the Geofizicheskoye field demonstrated significant
productivity of the Cenomanian and Aptian-
Albian deposits. The Geofizicheskoye field’s PRMS
reserves (2P) increased by 109 million boe and
totaled 314.2 bcm of natural gas and 4.5 mmt of
condensate. Exploration activities continue at the
field.
Further exploration is ongoing for target zones
in the Yurkharovskiy cluster, including the
Yurkharovskoye, West-Yurkharovskoye and
Nyakhartinskoye fields. We ran 1,004 sq. km at
these locations with 3D seismic surveys. The testing
of an exploration well in the Nyakhartinskoye field
demonstrated the productivity of the Neocomian
and Cenomanian deposits.
37
Annual Report 2020THINK GREEN. THINK NATURAL GAS.
Exploration is ongoing within the Samburgskiy
and Osenniy license areas for the purposes of
developing Achimov condensate-rich deposits.
In 2020, two exploration wells were completed
within the Samburgskiy LA and we also ran 504 sq.
km of 3D seismic surveys within the Osenniy LA.
Geological Exploration
2D seismic
• Subsidiaries
• Joint ventures
3D seismic
• Subsidiaries
• Joint ventures
Exploration drilling
• Subsidiaries
• Joint ventures
Units
2019
2020
Change
linear km
linear km
linear km
square km
square km
square km
'000 m
'000 m
'000 m
–
–
–
4,643
4,555
88
32.8
28.6
4.2
757
757
–
5,893
3,784
2,109
45.4
22.8
22.6
n/a
n/a
n/a
26.9%
(16.9%)
n/a
38.4%
(20.3%)
438%
the Yurkharovskoye field’s gas treatment unit to
remove residual LPG volumes from stripped gas.
The Purovsky Plant’s condensate stabilization
and fractionation unit was also renovated.
A booster compressor station was commissioned
at the Beregovoye field as well as an integrated
reinjection facility at the Yarudeyskoye field to
maintain formation pressure.
Construction of Dry Dock No. 2 was completed
at the LNG Construction Center in Belokamenka,
Murmansk region as well as 13 residential buildings
with 2,350 beds also started operation in
Belokamenka. The construction of the Utrenniy
airport for the Arctic LNG 2 project is near
completion, and a test flight was performed.
Construction of a 56-km-long road between
Sabetta and the West-Seyakhinskoye field’s gas
treatment plant is near completion. In 2020, we
continued construction of the hydrocracker unit at
the Ust-Luga Complex.
Field Development
In 2020, NOVATEK continued ongoing development
activities at producing and prospective fields as
well as building field infrastructure. In the reporting
year, the Company’s subsidiaries invested RR
91.7 bln in resource base development.
In 2020, production drilling, including joint
ventures, totaled 640,000 m, which is a 5%
decline year on year. Production drilling was
conducted at the Utrenneye, Yarudeyskoye,
South-Tambeyskoye, Urengoyskoye, Kharbeyskoye,
East-Tarkosalinskoye, Yurkharovskoye,
East-Urengoyskoye+North-Yesetinskoye,
Yaro-Yakhinskoye, East-Seyakhinskoye, West-
Yurkharovskoye, North-Urengoyskoye, Beregovoye,
East-Tazovskoye and South-Khadyryakhinskoye
fields.
A total of 144 production wells were brought
onstream, including 100 natural gas and gas and
condensate wells and 44 oil wells.
New facilities commissioned
In 2020, production began from the Valanginian
deposits of the North-Russkoye field and we
successfully launched the East-Tazovskoye
and Dorogovskoye fields. We continued the
development of the Kharbeyskoye field,
Yevo-Yakhinskiy and Ust-Yamsoveyskiy license
areas.
The third train of the gas condensate
de-ethanization unit was launched at the
Urengoyskoye field, and the third train of the
gas condensate de-ethanization unit was also
started at the Samburgskoye field. A pilot 3S
(Super Sonic) separation unit was launched at
38
Hydrocarbon Production
In 2020, NOVATEK carried out commercial
hydrocarbon production at 23 fields. The
Company’s production, including our attributable
share in the production of JVs, amounted to
608.2 mmboe, up 3.1% versus 2019. The key
contributors to the production increase were the
start of operations of North-Russkiy cluster of
fields in late 2019 and Q3 2020 (the Cenomanian
and Valanginian deposits of the North-Russkoye,
East-Tazovskoye and Dorogovskoye fields), as
well as the increased production of hydrocarbons
from the Achimov deposits of the Urengoyskoye
field by Arcticgas thanks to the expansion
of the condensate treatment facilities in January
2020.
The production decline at mature fields of our
subsidiaries and joint ventures was mainly due
to natural drop in formation pressure within the
current gas producing horizons.
Total production of natural gas including the
Company’s share in production of joint ventures
aggregated 77.37 bcm, representing 83.2% of
our total hydrocarbon output. The share of gas
produced from gas condensate bearing layers (or
“wet gas”) in proportion to total gas production
608 mmboe
Company’s production including
share in production by JVs
was 79.9%. Production of natural gas increased by
3.6%, as compared to 2019 volumes.
Production of liquid hydrocarbons including the
Company’s share in production of joint ventures
totaled 12.237 mmt, of which gas condensate
accounted for 60.5% of this volume and crude oil –
for the remaining 39.5%. Marketable production of
liquid hydrocarbons increased by 0.7%, as
compared to 2019, with gas condensate production
amounting to 7.407 mmt and crude oil production
totaling 4.830 mmt.
In 2020, we continued to achieve some of
the lowest lifting costs in the industry. The
Company’s lifting costs were RR 44.2 (USD 0.61)
per boe this year.
Hydrocarbon production (including share in production by joint ventures)
Total
Gas
Liquid hydrocarbons
Units
mmboe
mmcm
mmboe
mt
mmboe
2019
589.9
74,700
488.5
12,148
101.4
2020
608.2
77,367
506.0
12,237
102.2
Change
3.1%
3.6%
0.7%
Gross hydrocarbon production (including share in production by joint ventures)
Gas, mmcm
Change
Liquids, mt
Change
2019
2020
2019
2020
Total
74,700
77,367
3.6%
12,148
12,237
0.7%
NOVATEK-Yurkharovneftegas’ fields (100%)
26,247
23,857
(9.1%)
NOVATEK-Tarkosaleneftegas’ fields (100%)
9,036
12,890
42.7%
Arcticgas’ fields (50%)
13,787
15,383
South-Tambeyskoye (59.97%)
16,727
17,093
11.6%
2.2%
North-Urengoyskoye (50%)
3,529
2,931
(16.9%)
Termokarstovoye (51%)
Yarudeyskoye (100%)
Other
1,249
1,731
1,269
1.6%
1,648
(4.8%)
2,394
2,296
(4.1%)
1,253
1,692
4,166
826
284
392
3,311
224
1,112
(11.3%)
1,915
13.2%
4,479
7.5%
701
241
(15.1%)
(15.1%)
383
(2.3%)
3,139
(5.2%)
267
19.2%
39
Annual Report 2020THINK GREEN. THINK NATURAL GAS. LNG Projects
Yamal LNG Project
Yamal LNG is an integrated project including
production, liquefaction and sales of natural
gas and gas condensate. OAO Yamal LNG is the
operator and the owner of all the assets. The
shareholder structure of Yamal LNG: NOVATEK –
50.1%, TOTAL – 20%, CNPC – 20%, and the Silk Road
Fund – 9.9%.
The South-Tambeyskoye field located in the North-
East of the Yamal Peninsula is the resource base
of the Project. As of 31 December 2020, the field’s
SEC proved reserves totaled 670 bcm of natural
gas and 21 mmt of liquid hydrocarbons. According
to the PRMS standards, the proved and probable
reserves of the South-Tambeyskoye field as of the
end of 2020 totaled 939 bcm of natural gas and
33 mmt of liquid hydrocarbons. The field is being
developed with horizontal wells with total drilled
lengths up to 5,000 meters and horizontal sections
of up to 1,500 meters.
By the end of 2018, construction and start-up
of three trains with the total design capacity of
16.5 mmtpa (5.5 mmtpa each) was completed.
Yamal LNG was commissioned ahead of the initial
schedule and on budget, which is an outstanding
achievement in the global oil and gas industry. The
second and third trains of the plant were started
up six months and more than a year ahead of the
initial schedule, respectively.
The first train started production in fourth quarter
2017, with the second and third trains became
operational in July and November 2018, respectively.
Yamal LNG reached its full capacity as early as
in December 2018. In 2020, Yamal LNG produced
18.8 mmt of LNG, exceeding the three trains’ design
capacity by 14% or 2.3 mmt.
As of the end of 2020, the commissioning work of
the fourth train based on the patented proprietary
Arctic Cascade gas liquefaction technology with
the nameplate capacity of 0.9 mmtpa was in
progress. The fourth train provides for the use of
the main equipment manufactured in Russia. To
make the technology highly energy efficient, the
liquefaction process will extract maximum benefits
from the Arctic climate.
Fifteen unique Arc7 ice class LNG carriers were
specifically designed and built for the Yamal LNG
project, capable of navigating the Northern Sea
Route (NSR) without icebreaker support. In 2020,
255 LNG cargos (18.6 mmt) and 24 stable gas
condensate cargos (1.0 mmt) were shipped.
In May 2020 and January-February 2021, Yamal
LNG’s Arc7 ice-class tankers completed unique
voyages along the NSR opening the navigation one
18.8 mmt
of LNG
In 2020, Yamal LNG produced
18.8 mmt of LNG, exceeding
the three trains’ design capacity
by 14%
month before and ending it two months after the
end of the traditional navigation season.
In November 2020, NOVATEK-Western Arctic, a
wholly owned subsidiary, completed Russia’s first
ship-to-ship LNG transshipment in the Kildin Strait
of the Barents Sea. The Arc7 ice-class LNG tanker
“Nikolay Yevgenov” successfully reloaded an LNG
cargo delivered from the Yamal LNG facility at
Sabetta to the conventional tanker “Yamal Spirit”.
Arctic LNG 2 Project
Arctic LNG 2 is the our second large-scale LNG
project that we are presently constructing. The
Utrenneye field, the resource base for Arctic
LNG 2, is located in the Gydan Peninsula in YNAO
approximately 70 km across the Ob Bay from the
Yamal LNG project.
As of 31 December 2020, proved reserves of the
field under the SEC reserves methodology totaled
513 bcm of gas and 20 mmt of liquid hydrocarbons.
According to the PRMS reserve standards, the
proved and probable reserves totaled 1,434 bcm of
natural gas and 90 mmt of liquid hydrocarbons.
ООО Arctic LNG 2 is the project operator and
owner of all of the assets and holds the LNG export
license.
As of the end of 2020, the project’s participants
are NOVATEK (60%), TOTAL (10%), CNPC (10%),
CNOOC (10%), and Japan Arctic LNG, a consortium
of Mitsui & Co and JOGMEC (10%). In September
2019, the project participants made the Final
Investment Decision.
The Project involves the development of the field,
construction of the Utrenniy terminal and three
natural gas liquefaction trains on gravity-based
structures (GBS), with the capacity to produce
6.6 mmtpa of LNG each and cumulative stable
gas condensate capacity up to 1.6 mmtpa. The
total LNG capacity of the three trains will be
19.8 mmtpa. The GBS design concept as well as
extensive localization of equipment and materials
41
Russia’s first ship-to-ship LNG transshipment in the Kildin Strait of the Barents Sea.
40
Annual Report 2020THINK GREEN. THINK NATURAL GAS. The project’s core facility is LNG production and
transshipment terminal in the port of Vysotsk,
located in the Leningrad Region. The 660 mmtpa
plant, consisting of two gas liquefaction trains
with a capacity of 330 mmtpa each, is located in
the North-West of Russia near the Gulf of Finland,
140 km away from St. Petersburg.
The project infrastructure also includes a 42 mcm
LNG storage tank and a loading terminal designed
to receive LNG carriers with a capacity of up to 30
mcm. The project targets small- and medium-scale
LNG deliveries to regional markets by LNG trucks
and gas carriers. The growing bunkering segment
in the Baltics region is another important sales
market.
In January 2021, Cryogas-Vysotsk produced
its one millionth ton of LNG since the project
commenced operations in 2019. During this period,
Cryogas-Vysotsk has dispatched more than
200 LNG carriers and 1,200 trucks to a diverse
geography including Finland, Sweden, Lithuania,
the Netherlands, Estonia, Poland and Spain. The
project supplied more than 80 trucks to the
Russian domestic market as part of NOVATEK’s
commercial activities to provide clean-burning LNG
for the consumers in the Murmansk Region and the
Company’s network of LNG fueling stations.
Obskiy LNG Project
The Company continued expanding its LNG portfolio:
in 2020, we continued developing our Obskiy LNG
project. Pre-FEED work has been carried out and the
possibility of increasing the processing capacity of
the LNG train is being studied.
The Verkhnetiuteyskoye+West-Seyakhinskoye
fields located in the north-eastern part of the
Yamal Peninsula are the project’s resource base.
As of 31 December 2020, proved reserves under
the SEC reserves methodology totaled 161 bcm
of gas and 5 mmt of gas condensate. According
to the PRMS standards, the proved and probable
reserves totaled 264 bcm of gas and 16 mmt of
gas condensate.
manufacturing in Russia will considerably reduce
the capital expenditures per ton of LNG produced;
thus ensuring a low liquefaction cost per ton of
LNG produced.
NOVATEK is building an LNG Construction Center
in Belokamenka near Murmansk to fabricate the
GBSs, and assemble and install topside modules.
The center’s infrastructure comprises two dry
docks and production facilities to build GBSs and
topside modules. The center is a state-of-the-art
technical foundation for LNG technologies in Russia,
creates new jobs, and contributes to the economic
development of the region. The plant’s first train
is scheduled to be launched in 2023, with trains
2 and 3 scheduled for launch in 2024 and 2026
respectively.
In 2020, Arctic LNG 2’s ice-class tanker fleet
formation was completed and long-term charter
agreements were signed for 21 Arc7 ice-class
LNG tankers: 15 tankers to be built at the Zvezda
shipyard in Russia and 6 tankers to be built at
Daewoo Shipbuilding & Marine Engineering in Korea.
The state-of-the-art Arc7 ice-class gas tanker fleet
together with Russia’s new nuclear icebreakers will
allow for year-round eastbound transport of LNG
along the NSR to the Asia-Pacific Region.
In June and November 2020, the Project’s partners
held virtual meetings to discuss the status of
Arctic LNG 2. Despite the COVID-19 pandemic, as
of year-end 2020, the overall Project progress
was estimated at 32%, with concrete casting
of the first GBS platform estimated to be 74%
completed. The module fabrication yards are
working at full capacity and modules are expected
to be completed and shipped according to
schedule. The completion progress on the first
GBS-based LNG train is estimated at 46%. In
addition, 23 production wells have already been
drilled at the Utrenneye field with three (3) drilling
rigs in operation. The estimated completion of
the Utrenniy Terminal is 69%. As of year-end 2020,
more than 7.5 billion US dollars were financed by
the Project’s participants.
Cryogas-Vysotsk Project
One of our LNG strategic initiatives is to develop
small- to medium-scale projects. This approach
allows us to build premium marketing channels to
sell our products in different markets. We see vast
prospects in using LNG as marine fuel and motor
fuel to substitute for fuel oil and diesel, that will
contribute to curbing emissions and improving the
environment.
Cryogas-Vysotsk is our first medium-scale LNG
project. The Cryogas-Vysotsk shareholders are
NOVATEK (51%) and Gazprombank (49%).
In 2019, Cryogas-Vysotsk commenced operations
and began regular shipments of LNG.
42
One of our LNG strategic initiatives is to develop
small- to medium-scale projects. This approach allows
us to build premium marketing channels to sell our
products in different markets. We see vast prospects
in using LNG as marine fuel and motor fuel.
Processing of Gas Condensate
Purovsky Plant
Our subsidiaries and joint ventures are producing
natural gas with a significant content of liquid
hydrocarbons (gas condensate). After being
separated and de-ethanized at the field the main
part of 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 located in the
YNAO in close proximity to the city of Tarko-Sale.
The Purovsky Plant is the central element in our
vertically integrated value chain that provides us
complete operational control over our processing
needs and access to higher yielding marketing
channels for our stable gas condensate.
The Purovsky Plant processes unstable gas
condensate into stable gas condensate and
natural gas liquids (NGL).
In the reporting period, the Purovsky Plant
processed 11,786 mt of de-ethanized gas
condensate, representing a 9.1% increase
compared to 2019. The processing capacity
of the Purovsky Plant is in line with the total
production capacity of NOVATEK and its joint
ventures fields that supply feedstock to the
Purovsky Plant. The 2020 output mix included
8,934 mt of stable gas condensate, 2,788 mt
of NGL and LPG and 14.0 mt of regenerated
methanol.
The Purovsky Plant is connected via its own
railway line to the Russian rail network at 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 the
remaining volume of stable gas condensate sold
directly from the plant to the domestic market.
All of the NGL 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, mt
Processing of de-ethanized condensate
10,802
11,786
9.1%
2019
2020
Change
Output:
• Stable gas condensate
• NGL and LPG
• Regenerated methanol
8,215
2,538
14.8
8,934
2,788
14.0
8.8%
9.9%
(5.4%)
43
Annual Report 2020THINK GREEN. THINK NATURAL GAS.
bcm
the export markets. After launching in 2013, the
complex improved our logistics and reduced
transportation costs.
75.6
Natural gas sales volumes,
including LNG
Ust-Luga Complex
The Gas Condensate Fractionation and
Transshipment Complex (the “Ust-Luga Complex”)
is located at the all-season port of Ust-Luga on
the Baltic Sea. The Ust-Luga Complex processes
stable gas condensate into light and heavy
naphtha, jet fuel, ship fuel component (fuel oil)
and gasoil, and enables us to ship the value-
added petroleum products to international
markets. The Ust-Luga Complex also allows for
transshipment of stable gas condensate to
In the reporting year, the Ust-Luga Complex
processed 7,007 mt of stable gas condensate
into 6,837 mt of end products, including 4,385 mt
of light and heavy naphtha, 1,036 mt of jet fuel
and 1,416 mt of ship fuel component (fuel oil) and
gasoil.
In 2019, the Ust-Luga Complex commenced
constructing a hydrocracker unit. The launch
will increase the depth of processing of stable
gas condensate into higher grade value-added
petroleum products.
High value-added petroleum products produced
at the Ust-Luga Complex have a significant
positive impact on the profitability of our liquid
hydrocarbons sales and the Company’s cash flow
generation.
As the Ust-Luga Complex reached full processing
capacity, we transshipped stable gas condensate
to the export markets by sea.
Sales in the Russian Federation
In 2020, the total volume of natural gas sold in
the Russian Federation amounted to 66.69 bcm,
increasing by 1.6% compared to the previous
year.
NOVATEK has a key role in ensuring supplies of
natural gas to the domestic market. During 2020,
the Company supplied natural gas to 41 regions
within the Russian Federation. Our end customers
and traders were located primarily in the following
regions: the Chelyabinsk, Moscow and Moscow
regions, the Khanty-Mansiysk Autonomous Region,
YNAO, Lipetsk and Tyumen regions, the Perm
territory, Vologda, Nizhny Novgorod, Smolensk,
Stavropol, Tula, Leningrad, Belgorod and Kostroma
regions. The above regions accounted for more
than 94% of our total gas sales in the Russian
Federation.
In order to manage seasonal gas demand,
NOVATEK has entered into an agreement with
Gazprom for underground storage services.
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 2020, our inventories
of natural gas amounted to 0.8 bcm.
NOVATEK, through its subsidiary NOVATEK-AZK, is
implementing a pilot project for the sale of LNG
as a motor fuel.
In August 2020, the first small-scale LNG plant
with a design capacity of 40 thousand tons per
annum was launched in Magnitogorsk, located in
the Chelyabinsk Region. The operator is our wholly
owned subsidiary NOVATEK-Chelyabinsk. The LNG
produced will be mainly used as motor fuel, and in
future for autonomous gasification.
At the end of 2020, 11 LNG refueling stations for
automobile transport were in operation in the
Urals, as well as North-Western, Central and
Volga Federal districts of Russia. These stations
are located on the main federal highways, in cities
and on the territory of industrial enterprises and
allow to provide clean-burning fuel to commercial
and municipal transport, as well as heavy haul
and highway trucks.
Processing volumes and output of the Ust-Luga Complex, mt
Natural gas sales, mmcm
Stable gas condensate processing
Output:
• Heavy naphtha
• Light naphtha
• Jet fuel
• Ship fuel component (fuel oil)
• Gasoil
2019
6,902
2,181
2,118
1,085
753
605
2020
7,007
2,298
2,087
1,036
749
667
Change
1.5%
5.4%
(1.5%)
(4.5%)
(0.5%)
10.2%
Natural Gas Sales
Our sales of natural gas in the Russian domestic
market are mainly through trunk pipelines
and regional distribution networks, as well as
sales of LNG produced at our small-scale LNG
plant in the Chelyabinsk Region through our
refueling complexes. Our sales of natural gas on
international markets are sales of LNG purchased
primarily from our joint ventures, OAO Yamal LNG
and OOO Cryogas-Vysotsk. In addition, we sell on
the European market regasified liquefied natural
gas arising during the transshipment of LNG (boil-
off gas), as well as during the regasification of
purchased LNG at our own regasification stations
in Poland and Germany.
In 2020, natural gas sales volumes, including
volumes of LNG sold, aggregated 75.62 bcm,
representing a decrease of 3.6% as compared
with 2019. The decline was mainly due to a
decrease in LNG sales volumes purchased from
our joint venture OAO Yamal LNG, as a result of
an increase in the share of Yamal LNG’s direct
LNG sales under long-term contracts and the
corresponding decrease in LNG spot sales to
shareholders, including NOVATEK. Our natural gas
revenues amounted to RR 359 billion, representing
a decrease of 13.5%, as compared to 2019,
largely due to a decline in LNG sales volumes
on international markets and global commodity
prices for hydrocarbons.
Total gas sales
International sales
Sales within the Russian Federation, including:
• End customers
• Traders
Share of end customers in domestic gas sales
2019
2020
Change
78,452
75,620
(3.6%)
12,799
65,653
62,653
3,000
95.4%
8,928
(30.2%)
66,692
63,632
3,060
95.4%
1.6%
1.6%
2.0%
0 p.p.
Sales on international markets
During 2020, NOVATEK sold 8.9 bcm (6.4 mmt)
of LNG. We sold 85 cargos of LNG (including
81 from Yamal LNG) with a total volume of
8.4 bcm (6.1 mmt). In the small- and medium-
scale LNG markets we sold 0.4 bcm (0.3 mmt)
of LNG, including 63 tanker shipments and
more than 2,000 cargos by trucks (of which 61
tanker shipments and about than 900 cargoes
by trucks were from Cryogas-Vysotsk). In 2019,
our LNG sales volume amounted to 12.8 bcm
(8.5 mmt), with 119 large-scale LNG tanker
shipments, including 110 cargoes from Yamal LNG
(8.2 mmt) and 65 tanker shipments and more than
400 cargoes by trucks in the small- and medium-
scale LNG markets (total volume of 0.3 mmt),
including 63 tanker shipments and 240 tanker
cargos from Cryogas-Vysotsk.
The decrease in sales volumes on international
markets was due to a decrease in purchases
from our joint venture Yamal LNG. The decrease in
LNG purchases resulted from an increase in the
share of Yamal LNG’s direct sales under long-term
contracts and the corresponding decrease in LNG
spot sales to shareholders, including NOVATEK.
One of our key priorities is to expand the geography
of supplies and enhance our presence in main
consumer markets. In the reporting year, Yamal
LNG supplied its first LNG cargo to the United Arab
Emirates market. NOVATEK also shipped its first
cargo of LNG to Japan transported eastbound via
the NSR by an Arc7 ice-class tanker. This LNG cargo
is the Company’s first successful experience of
entering and unloading an Arc7 ice-class LNG tanker
in a Japanese port, which allows us to increase the
volume of LNG supplies to this country.
44
45
Annual Report 2020THINK GREEN. THINK NATURAL GAS.
Expanding the navigational period along the NSR by almost
half the distance and time of LNG transport to the ports
of the Asia-Pacific region compared to the traditional route
through the Suez Canal allows us to reduce our carbon
footprint and decrease carbon emissions by seven (7)
thousand tons per round trip.
from the Yamal LNG facility at Sabetta to the
conventional tanker “Yamal Spirit”. The ship-to-
ship transfer was conducted at a temporary
LNG Offshore Transshipment Complex in the
Murmansk Region within the seaport of Murmansk.
The LNG Transshipment Complex will ensure
uninterrupted year-round LNG transshipment
from the ice-class tankers carrying LNG
produced in the Russian Arctic to conventional
LNG tankers.
The ship-to-ship transshipment complex in the
Murmansk Region represents another significant
milestone in developing NOVATEK’s LNG supply
chain from the LNG facilities located in the Russian
Arctic to the global natural gas consuming markets.
The creation of the transshipment infrastructure
allows the Company to develop its internal
competencies to perform LNG transshipment in
the Russian Federation, as well as optimizing the
Arctic tanker fleet.
LNG sales to the world’s main consumer markets,
development and optimization of logistics solutions
and the expansion of our supply geography confirm
the high competitiveness of LNG deliveries from
the Arctic all over the world. To date, according
to our estimates, 29 countries became the end
consumers of natural gas molecules from Yamal
LNG since the launch of the project.
In 2020, together with Saibu Gas Co., Ltd. of
Japan, we have successfully completed our first
joint trial delivery of LNG in ISO containers to
China’s Tiger Gas for subsequent sales of LNG
in China. The LNG was delivered by sea in Tiger
Gas-owned ISO containers from the Japanese
Hibiki container terminal to Shanghai, China
under a spot contract. It is forecasted that ISO
containers of LNG will exponentially increase over
the upcoming decades, allowing us to diversify
our customer base by including small-scale LNG
consumers and entering the downstream markets
in China and Japan.
In December 2020, our wholly owned subsidiary,
Novatek Green Energy(1), launched its first carbon-
neutral LNG fueling station in Rostock, Germany.
1. Novatek Polska prior to 3 February 2020.
Carbon neutral offsets from a carefully selected
portfolio of emission reduction projects, including
wind generation projects in developing countries,
will be used to compensate for the LNG’s carbon
footprint sold to end-customers. The certification
of emission reduction projects is performed
in accordance with the international standard
“Verified Carbon Standard”.
NOVATEK’s broader strategy as a natural gas
and LNG producer implies greater involvement
in the further development of natural gas as
a motor fuel both in Russia and abroad. This
market segment represents significant growth
potential in the context of increasingly stringent
environmental standards. Compared to diesel,
LNG provides for a significant reduction of
emissions of nitrogen oxides, carbon dioxide and
almost complete elimination of particulate matter
emissions.
As part of NOVATEK’s long-term strategy, the
Company plans to build a network of LNG fueling
stations in Europe to provide heavy duty transport
with clean fuel at key transport connecting points
between Germany and Poland. At the end of
January 2021, the Company owned a network of
9 LNG fueling stations in the European market as
well as 21 regasification facilities.
Liquid Hydrocarbons Sales
NOVATEK sells liquid hydrocarbons (stable
gas condensate, petroleum products, light
hydrocarbons, LPG and crude oil) domestically
and internationally. We strive to respond quickly
to changing market conditions by optimizing our
customer base and supply geography, as well
as developing and maintaining an efficient and
profitable logistics liquids infrastructure.
In 2020, NOVATEK’s liquids sales volumes
reached 16,387 mt, or 0.2% more than in 2019.
In 2020, our export sales volumes decreased
by 3% as compared to 2019 and amounted
to 9,269 mt.
In 2020, our first small-scale LNG plant was launched in the Chelyabinsk Region (Magnitogorsk).
In the reporting year, we increased LNG deliveries
to Asia-Pacific countries, including shipments
via the NSR. During the 2020 summer navigation
period, 34 cargos (2.4 mmt of LNG) were shipped
from Yamal LNG along the NSR to the Asia-Pacific
market, representing a twofold increase compared
with the previous year. The use of the NSR
eastbound in comparison with the traditional route
through the Suez Canal enables the Company to
reduce shipping times by 40% and decrease the
transportation cost, a key importance to develop
our licenses and fields on the Yamal and Gydan
peninsulas.
In the reporting year, we continued to work on
expanding the navigational season for LNG
shipments from our Arctic projects along the
Eastern route of the NSR. In May, the Arc7 ice-
class LNG tanker “Christophe de Margerie”
successfully transited the Eastbound ice-covered
part of the NSR and reached the Bering Strait
in only 12 days. The tanker passed the Ob Bay
and a part of the Kara Sea without ice-breaker
assistance and then met with Atomflot’s nuclear
icebreaker “Yamal”, which escorted the tanker
with ice navigation along the Eastern part of the
NSR. The tanker delivered an LNG cargo produced
at Yamal LNG to China. For the first time, the
voyage took place before the traditional start
of the summer navigation season in average ice
conditions. Eastbound transportation of LNG
along the NSR is not normally performed in May as
this represents one of the most difficult months
for navigation.
In January 2021, two months after the end of the
traditional navigation season in the Eastern part of
the Arctic, the Arc7 ice-class Arctic LNG tankers
“Christophe de Margerie” and “Nikolay Yevgenov”,
chartered by the Yamal LNG project, successfully
completed an independent passage along the
Eastbound part of the NSR, having reached the
Bering Strait in 11 days. Both LNG tankers delivered
approximately 140 thousand tons of LNG produced
at Yamal LNG to destinations in the Asia-Pacific
Region.
Expanding the navigational period along the NSR by
almost half the distance and time of LNG transport
to the ports of the Asia-Pacific region compared
to the traditional route through the Suez Canal
allows us to reduce our carbon footprint and
decrease carbon emissions by seven (7) thousand
tons per round trip.
In 2020, the first ship-to-ship LNG transshipment
on the territory of the Russian Federation was
completed in the Kildin Strait of the Barents Sea.
The Arc7 ice-class LNG tanker “Nikolay Yevgenov”
successfully reloaded an LNG cargo delivered
46
47
Annual Report 2020THINK GREEN. THINK NATURAL GAS. In 2020, our liquids sales revenues decreased to RR
341 billion, or by 22.1% as compared to 2019, mainly
driven by lower global benchmark prices.
NOVATEK’s customer base, while the rest of the
light hydrocarbons volumes are sold to SIBUR. We
sold 1,591 mt of light hydrocarbons in 2020.
High-value added petroleum products from the
Ust-Luga Complex accounted for a 41% share of
our overall liquids sales volumes. We sold a total
of 6,773 mt of stable gas condensate products,
including 4,294 mt of naphtha, 1,061 mt of jet fuel
and 1,418 mt of fuel oil and gasoil. The majority of
petroleum products (97%) were exported. Export
volumes were distributed as follows: Europe –
49%, Asia-Pacific – 34%, North America – 13%
and Middle East - 4%. Most of our heavy naphtha
was exported to Asia Pacific markets, light
naphtha – to Northwest Europe and North
America, and jet fuel, gasoil and fuel oil – to
Northwest Europe.
Export and domestic sales of stable gas
condensate continued in 2020. Condensate
volumes purchased from Yamal LNG, were exported.
Total stable gas condensate sales volumes
amounted to 2,169 mt.
A portion of light hydrocarbons produced at the
Purovsky Plant is processed on tolling terms
at SIBUR’s Tobolsk Petrochemical Complex into
marketable LPG, which is then delivered to
Liquid hydrocarbons sales, mt
Marketable LPG sales volumes totaled 1,368 mt in
2020, representing a 5% decrease compared to
2019. LPG export sales volumes amounted to 568 mt
or 42% of the total LPG sales volumes. Novatek
Green Energy(1), our wholly owned LPG trading
company in Poland, sold all of our LPG export
volumes.
In the domestic market, our LPG is sold through
large wholesale channels as well as through our
retail network and small wholesale stations. In 2020,
large wholesale supplies to the domestic market
stood at 632 mt, representing 79% of our domestic
LPG sales. We also sold 168 mt of LPG via our retail
network and small wholesale stations located
mainly in the Chelyabinsk, Volgograd, Rostov and
Astrakhan regions. As of the end of the year, sales
were made through 85 retail gas stations and 7 gas
filling stations.
Sales of crude oil in 2020 totaled 4,468 mt, which
is 7.6% lower compared with 2019. We sold 65% of
our crude oil volumes in the domestic market, with
the remaining volumes exported to international
markets.
2019
16,355
6,981
4,834
1,739
1,332
1,445
24
2020
16,387
6,773
4,468
2,169
1,591
1,368
18
Change
0.2%
(3.0%)
(7.6%)
24.7%
19.4%
(5.3%)
(25.0%)
Total
Petroleum products (Ust-Luga)
Crude oil
Stable gas condensate
Light hydrocarbons
LPG
Other
1. Novatek Polska prior to 3 February 2020.
48
Environmental
and Social Responsibility
NOVATEK adheres to the principles of effective and responsible business
conduct and considers the welfare of its employees and their families,
environmental and industrial safety, the creation of a stable and
beneficial social environment as well as contributing to Russia’s overall
economic development as priorities and responsibilities of the Company.
Environmental Protection
NOVATEK’s core producing assets are located
in the Far North, a harsh Arctic region with vast
mineral resources and a fragile and vulnerable
environment. The Company is committed to
environmental protection in its operations. In 2020,
the Company’s overall expenses on environment
protection and sustainable nature management
amounted to RR 2.4 billion (including NOVATEK’s
share in joint ventures).
In August 2020, the NOVATEK Board of Directors
approved the Company’s Environmental and
Climate Change targets for the period until 2030,
which include the reduction of specific emissions,
in particular methane emissions in upstream,
processing and LNG production segments as well
as greenhouse gas emissions in upstream and
LNG. Moreover, the Company intends to improve
its associated petroleum gas utilization rate
as well as waste disposal and neutralization. In
the reporting year, the Company continued its
participation in the Carbon Disclosure Project
(CDP), whereby information on greenhouse 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. Taking part in these projects, the
Company strives to achieve a balance between the
climate change risks and efficiency of investment
projects. The Company offers all stakeholders full
access to its environmental information, including
by publications in federal and local printed media,
on its website, and social media.
In October 2020, NOVATEK joined the Methane
Guiding Principles (MGP), one of the most
important global oil and gas initiatives in the
areas of climate neutrality and a low-carbon
49
Annual Report 2020THINK GREEN. THINK NATURAL GAS.
economy. Under this initiative, controlled entities
will implement a set of practices and procedures
to account for, monitor and reduce methane
emissions from production, transportation,
storage, processing and use of hydrocarbons, as
well as generate and disclose corporate reporting
under MGP.
program includes actions to identify areas with
intensifying cryogenic processes. In 2020, these
studies covered several license areas within the
Yamal and Taz Districts in YNAO. Combined with
the geotechnical monitoring results, the studies
confirmed the stability of permafrost within the
license areas.
In 2020, remedial fish stocking was performed in
rivers belonging to the Ob-Irtysh (within Khanty-
Mansiysk Autonomous Region and YNAO) and
North-Western basins. Several subsidiaries were
involved in releasing the fry of Siberian sturgeon,
salmon and whitefishes (including muksun) into the
water bodies to re-stock commercially important
fish. More than 3 million fish fry were released in
aggregate.
In 2020, the Company performed its first
reforestation activities within identified areas for
remedial forest plantation (mostly — thin forest
and burned-out forest), planting trees from forest
nurseries located in Khanty-Mansiysk Autonomous
Region and the Sverdlovsk Region. In 2020, a total
area of circa 120 hectares was covered with forest
plantation in the Tarko-Sale forestry.
One of the Company’s priorities is the rational
usage of resources, including energy resources.
The table below sets out the physical volumes and
the Russian ruble equivalent of energy resources
consumed by the Company in 2020.
While developing oil reserves at the Yarudeyskoye
field (operated by YARGEO), the reinjection of
associated petroleum gas into deep absorbing
horizons helped achieve major environmental
benefits. Specifically, more than 357 mmcm
were reinjected throughout 2020, reducing GHG
emissions by 1.2 mmt of CO2e.
The small-scale LNG plant in Magnitogorsk,
Chelyabinsk Region, that was started up in 2020
became one of the highlights for the Russian fuel
market and marked another milestone in replacing
diesel fuel with more environmentally friendly and
economical gas motor fuel.
Novatek Green Energy(1), a subsidiary of NOVATEK,
owns a network of LNG retail stations in Europe
designed to fuel trucks and in 2020 opened
its first carbon-neutral fueling station as the
carbon footprint of the LNG sold to consumers,
including during its consumption, is fully
compensated through carbon offsets. These
activities contribute to the Company’s long-
term strategy of developing an LNG distribution
network in Europe to provide heavy vehicles with
environmentally friendly fuel at key transportation
points. As of January 2021, Novatek Green Energy
owned a network of 9 LNG retail stations and 21
regasification units in the European market.
With the majority of the Company’s production
facilities located in Russia’s Arctic, the front-end
engineering, design, construction and operation
of buildings and facilities is performed with a
particular focus on research, evaluation, forecast
and monitoring of permafrost and cryogenic
processes. Site facilities and linear infrastructure
located within areas with confirmed presence
of permafrost are subject to dedicated actions
to preserve soil stability. In addition, we monitor
soil temperature as well as movement of soil to
monitor temperature and movement of both soil
mass and facilities themselves (geotechnical
monitoring). Across the lifecycle of its projects,
the Company focuses particular emphasis on
identifying and forecasting permafrost hazards
considering the global and regional climatic trends.
Advanced engineering technologies combined
with thermal calculations, which are subsequently
verified based on geotechnical monitoring
data, enable a top-notch assessment of the
permafrost and engineering facilities condition.
Moreover, the (local) environmental monitoring
1. Novatek Polska prior to 3 February 2020.
50
Energy Resource Consumption by NOVATEK in 2020 (including joint ventures)
Natural gas
Electricity
Heating energy
Oil
Motor gasoline
Diesel fuel
Butane
Other
Units
mmcm
MW*h
Gcal
tons
tons
tons
tons
tons
Volume
5,259
2,942,585
707,301
596
1,058
10,204
96,852
17,626
RR mln, net of VAT
5,441
15,150
1,440
7
51
551
1,997
661
Industrial Safety and Occupational
Health
NOVATEK is fully committed to putting the life and
health of its employees above its business results,
and is aware of its responsibility for ensuring
accident-free operations and safe labor conditions
for its employees, as well as protecting the
health of the population in the areas in which the
company operates.
In its pursuit to reduce the injury rate in production
activities, the Company continuously improves
approaches to occupational and industrial
safety management. This is achieved through
continuous analysis of production process to
prevent accidents and incidents that may lead to
emergencies on the job.
Below are the main principles that each and every
Company employee must accept:
1. Leadership of the Company management in HSE.
2. Involvement of personnel of all levels in efforts
to reduce operation risks.
3. Personal responsibility of each Company
employee for complying with the requirements
to minimize operation risks that may cause
personal injuries.
4. Personnel motivation to seek potential for
occupational safety improvements.
5. Priority of prevention over reaction.
Pursuant to effective legislation, workplaces
undergo special working conditions certification.
As of 31 December 2020, 9,254 workplaces were
covered by the assessments. The assessment
identified 7,947 (85.8%) workplaces to have
permissible conditions. At workplaces with harmful
working conditions, a set of measures to eliminate
or mitigate harmful factors has been implemented.
No workplaces with hazardous working conditions
were identified.
Controlled entities have in place an occupational
health and safety management system, which is
part of a wider management system and ensures
risk management based on the key principle of
prioritizing prevention over incident containment
and response.
The Company is engaged in exploration, production,
transportation, processing and sales of natural
gas and liquid hydrocarbons, which implies setting
up complex technological processes for operating
fire- and explosion hazardous facilities. Operation
of fire- and explosion hazardous industrial facilities
is carried out in compliance with industrial safety
laws. Group entities have licenses to operate
Hazard Class I, II and III fire, explosion and chemical
hazardous industrial facilities.
In 2020, regional branches of Rostechnadzor
registered 260 hazardous production facilities,
including:
• Class I (extremely high hazard) – 13 facilities;
• Class II (high hazard) – 51 facilities;
• Class III (medium hazard) – 174 facilities;
• Class IV (low hazard) – 22 facilities.
For Class I and II hazardous industrial facilities,
industrial safety management systems and
industrial safety declarations were developed
providing estimates and specifying actions for:
•
identifying, assessing and forecasting accident
risks;
• planning and implementing accident risk
mitigation measures;
• coordinating accident and incident prevention
measures;
industrial control procedures; and
•
• employees’ involvement in the development
and implementation of accident risk mitigation
measures.
51
Annual Report 2020THINK GREEN. THINK NATURAL GAS. To compensate for the damage inflicted to third
parties and the environment as a result of an
accident at a hazardous industrial facility, all
hazardous industrial facilities are insured in
accordance with Federal Law No. 225-FZ On
Mandatory Third Party Liability Insurance for
Owners of Hazardous Facilities for Damage
Inflicted by Accidents at Hazardous Facilities.
Executives and specialists of subsidiaries and
affiliates that are subject to Rostechnadzor
supervision undergo routine certification
on industrial safety rules performed by
Rostechnadzor’s regional commissions. From
among these employees, industrial safety
assessment commissions are set up to evaluate
staff and permit them to independently work at
hazardous production facilities using the Unified
Testing Portal information system.
Occupational health training is mandatory for
all categories of employees and is offered in
all subsidiaries and affiliates. Unit managers,
including top executives, take courses at training
centers. To offer in-house training to white-collar
employees, the Company has developed training
programs and set up certification commissions
to assess trainees’ knowledge of occupational
health regulations.
In 2020, 13,997 employees received HSE training and
were certified in industrial safety, which is in line
with the established training plan.
In 2020, standing safety and occupational health
control commissions carried out 409 compliance
checks in controlled entities. The results were
documented in relevant reports and special
measures were elaborated to eliminate
identified incompliances. Employees in charge
submit monthly remedial action reports to their
respective health and safety units to further
analyze risks of hazardous situations.
In 2020, NOVATEK continued its programs
of targeted audits of controlled entities for
compliance with occupational health, industrial,
fire and environmental safety requirements by
a Company committee. During the reporting
year, targeted audit of NOVATEK-Chelyabinsk
was performed. Based on the findings, a relevant
report was produced, and remedial actions were
developed.
At the Company level, data are collected and
analyzed regarding remediation of all findings of
both scheduled and unscheduled audits carried
out by the government supervisory authorities and
integrated and targeted audits of the Company’s
committee.
To prevent accidents and incidents at hazardous
operating facilities:
52
• each year the Company develops and
consistently implements technical inspection,
certification and test schedules for various
types of technical equipment (external and
internal inspection, hydrostatic and pneumatic
tests, and industrial safety audits). In 2020, the
Company performed industrial safety audits of
1,031 equipment items and extended their safe
operating life.
• The Company organizes drills and exercises on
possible accident containment and response
scenarios and actions for the personnel
involved in the maintenance of equipment items,
buildings, and structures within hazardous
production facilities. 5,782 training sessions
were held in 2020.
In 2020, there were:
• 2 incidents:
– there was a power outage at power lines,
which caused a partial shutdown (for a short
period of time) of technological and auxiliary
equipment. The power outage occurred
as a result of adverse weather conditions
(thunderstorm with sharp gusts of wind).
The shutdown did not affect production.
– a driver (consumer), while refueling, got into
the vehicle and, not having properly checked
the disconnection of the dispensing sleeve,
started driving. As a result, the dispenser’s
breakaway coupling was deformed. The
filling station was temporarily turned off. The
shutdown did not affect the sales volumes.
• 13 operations-related incidents, 8 of them
related to movement of personnel and climate
conditions (slipping and falling).
All incidents were investigated as required by law
in accordance with the Company’s Incident Root
Cause Analysis Standard; immediate and system
causes were identified; a Mitigation Plan was
developed.
Employees’ health protection
Healthcare management is an integral part of the
HSE management system.
The healthcare management system used for
NOVATEK employees’ health protection, including
prevention of diseases and promotion of the
health of employees, is continuously improving.
The system operates with the support of the
leadership of NOVATEK, its subsidiaries and
affiliates and rests on employees responsible for
health protection, occupational safety specialists
in subsidiaries and affiliates as well as medical
institutions, including 80 health stations in
subsidiaries, affiliates and contractors situated at
personnel accommodation and operation sites.
With the help of coordinated efforts of all stakeholders
in the healthcare management, the NOVATEK controlled
entities were able to maintain their high work efficiency
amid the COVID-19 pandemic during the reporting year.
With the help of coordinated efforts of all
stakeholders in the healthcare management, the
NOVATEK controlled entities were able to maintain
their high work efficiency amid the COVID-19
pandemic during the reporting year.
In February 2020, an Action Plan to safeguard
against the coronavirus was put in place at
NOVATEK and its controlled entities to protect
employees and prevent transmission and spread of
coronavirus at the Company’s facilities.
An emergency operations center was set up for
prompt response and coordination of actions; we
arranged cooperation with emergency operations
centers of Russian regional and local government
executive authorities at the location of the
Company operational facilities.
The COVID-19 control actions were implemented
in strict compliance with the Russian Government
Decree No. 601 dated April 28, 2020 On Approval
of Temporary Regulations for Rotation-Based
Work, directives by Russia’s Chief Public Health
Officer as well as decrees by heads of the
Russian Federation constituent entities.
Streamlined actions within NOVATEK as well as
cooperation with state authorities, medical
companies and various other entities all made
it possible to respond promptly to disruptions
caused by the pandemic:
• shift duration was extended;
• procedures for pre-shift observation were
developed for new rotational personnel
arriving to production sites as were logistics
arrangements to transport the personnel,
which enabled mitigating the risks of the
coronavirus spreading into sites of operations;
• for rotation personnel, temporary
accommodation along with medical observation
and COVID-19 testing was arranged;
• systemic campaigns were organized to raise
employees’ awareness on prevention of acute
respiratory viral infections, including COVID-19,
alongside briefings to educate workers about
the peculiarities of the novel infection;
• employee business trips were restricted;
• telecommuting procedure was defined
along with the introduction of electronic
interaction protocols and IT actions to enable
telecommuting;
• COVID-19 testing of employees was arranged;
and
• data on the epidemiological situation at
operation sites was collected and analyzed.
Employees of controlled entities were provided
with the necessary personal protective equipment
as well as means and devices for room disinfection,
hand sanitization and non-contact thermometers.
We made sure that our contractors complied with
the requirements.
Arranging medical response required reinforced
healthcare services provision. Additional contracts
were made with medical service providers to put in
place prevention and epidemic control actions.
A stock of medications to treat those who fell
ill has been created at production facilities in
accordance with the Temporary Methodological
Recommendations of the Ministry of Health of
Russia; treatment of the specified infections were
carried out. The number of doctors and nursing
staff was increased to provide medical treatment
and supervision.
NOVATEK was supporting municipal medical
facilities, inter alia by purchasing diagnostic
equipment (amplifier, CT scanner) for healthcare
facilities in YNAO, treatment equipment
(ventilators) as well as personal protective
equipment for medical personnel.
Under the circumstances of the pandemic, the
complete array of healthcare activities continued.
To prevent influenza, seasonal vaccination covered
15,376 employees, including 2,612 employees of
NOVATEK and 12,764 contractor and subcontractor
employees.
Emergency medical response plans for the
subsidiaries’ and affiliates’ facilities are developed
and timely updated, which include first aid and
medical aid, timely evacuation, and regular training
sessions to develop medical aid skills, to ensure
preparedness for emergencies.
Preventive medical examinations are carried
out to determine the employees’ fitness to
work and monitor the evolution of their health
status in accordance with the applicable
requirements.
53
Annual Report 2020THINK GREEN. THINK NATURAL GAS. During the reporting period 11,016 employees
underwent medical examination and 4,095 persons
took mental health examination.
To secure sanitary and epidemiological welfare
at the facilities of our subsidiaries and affiliates,
there is supervision over water supply and sewage,
the sanitary and hygienic condition of public
catering facilities, accommodation and industrial
premises as well as waste disposal. In the
reporting year, there were no cases of contagious
diseases among employees, related to catering
services or water supply.
Fire safety, civil defence and emergencies
Since the Group’s business directly involves
operation of facilities exposed to fire and
explosion risks, fire safety is a top priority for
NOVATEK. The Group’s IMS includes a fire safety
system compliant with the Russian law. The
system’s objective is to prevent fires and protect
people and property in case of a fire or an
emergency.
In 2020, 8 controlled entities held active licenses
to service firefighting equipment and 5 controlled
entities to perform firefighting as well as
emergency response and rescue operations,
a large share of licensed fire safety services
are outsourced to contractors. There are
27 professional emergency response and rescue
teams to ensure the safety of the controlled
entities operating hazardous production facilities
that produce, collect, process and manufacture
explosive and flammable substances. In addition,
we have decided to build fire stations and
establish emergency response and rescue
teams within prospective field development and
construction projects.
available to the emergency response and rescue
teams comply with all existing requirements.
The Company ensures timely re-equipment
of both basic and specialized fire vehicle
fleets.
Fire safety, civil defense and emergency response
training, as well as fire and emergency drills, are
an important element of the overall system of
fire safety and readiness to respond to fires and
emergencies. In 2020, the Company organized
25,973 fire safety briefings that featured guidance
materials and visual aids, as well as hands-on
presentations. Basic fire safety training was
provided to 8,735 people, with 2,416 tactical
fire exercises performed as part of the Oil Spill
Response Plan, Emergency Containment and
Response Action Plan as well as evacuation drills.
The emergency response and rescue teams are
made up of 490 certified rescue workers. The
number of certified rescue workers decreased
year on year by 130 due to changes in legislation
and non-professional emergency response teams
being excluded from the total number. The Oil Spill
Response Plan and Emergency Containment and
Response Action Plan have been developed and
implemented within the Company’s production
facilities. In 2020, a fire occurred at a non-
production facility (warehouse). The combustion
area was 15 sq. m, no one was injured as a result of
the accident.
The Company fully complies with fire safety, civil
defense and emergency response regulations:
all of its facilities are equipped with automatic
fire detection, alarm and extinguishing systems.
NOVATEK Group’s controlled entities are ready
for localization and responding to fires and
emergencies.
In 2020, the headcount of fire and emergency
brigades serving the facilities on a 24-hour basis
stood at 835 certified rescue workers. There were
38 engineers in the controlled entities who directly
monitored and supervised the fire safety and
emergency response preparedness at our facilities.
Inspections are regularly carried out at controlled
entities to assess the emergency response
preparedness of the Company’s business units
and personnel, and evaluate the capabilities of
in-house and external professional emergency
response and rescue teams. In 2020, there
were 24,243 patrols around facility areas in
order to continuously monitor safe operation
conditions and 733 checks of outdoor fire water
supply sources were carried out. Professional
emergency response and rescue teams
performed 18,053 control activities for safe hot
work, fire- and gas-hazardous operations. The
controlled entities’ facilities implement a full-
scale program to respond to oil, oil product, and
other hydrocarbon spills. Materials and equipment
Human Resources
Employees are NOVATEK’s most valuable resource,
allowing the Company to grow rapidly and
effectively. The Company’s human resource
management system is based on the principles
of fairness, respect, equal opportunities for
professional development, dialogue between
management and employees, as well as
continuous, comprehensive training and
development opportunities for the Company’s
employees at all levels.
As of the end of 2020, NOVATEK and its
subsidiaries had 16,821 employees, 33.6% of
whom work in exploration and production, 24.8%
in LNG production, 8.1% in processing, 13.4% in
marketing, 4.4% in transportation, 7% in power
supply, 6.3% are administrative personnel
and 2.4% engaged in ancillary services. The
predominant age of the personnel is between
30 and 50. The average age of the Company’s
employees is 40 years.
Personnel Training and Development
Amid the rapid development of technologies and
management systems, our multilevel training and
professional development program enable our
employees to contribute to raising the Company’s
competitiveness. In 2020, the primary activities of
training and professional development included:
implementing an In-house
•
• competencies program to improve the
•
competences of the Company’s employees;
implementing the “Steps in Discovering Talents”
program for young specialists targeted at
training highly qualified personnel whose
competence level fully meets business needs;
• developing and improving the Corporate System
for the Evaluation of Technical Competencies;
and
• engaging young specialists to take part in
research and practice conferences.
NOVATEK Scientific and Technical Center (NOVATEK
STC) has hosted an In-House Training Program
since 2016. Due to the COVID-19 pandemic, in
October 2020, our experts began converting 5 out
of 13 developed courses into an online format:
“General Course of Seismic Exploration”, “Design of
field development in conditions of low knowledge”,
“Complexing logging methods to address
geological tasks. Basics of log interpretation and
practical application (in NOVATEK Group projects)”,
“Complex interpretation of seismic and GIS data”
and “Basics of hydraulic fracturing”.
In 2020, NOVATEK continued its efforts to
advance the professional capabilities of its
employees, improve working conditions and train
its personnel on safe working practices at its
production facilities. A total of 46.7% of white-
and blue-collar workers upgraded their skills. In
2020, the Corporate System for the Evaluation of
Technical Competencies tested 429 employees
across the Group, including 32 persons who
were tested at recruitment and 67 persons at
promotion.
In 2020, 98 young specialists participated in the
Steps in Discovering Talents Program. We held
our eighth class and 39 specialists graduated
from the on-the-job adaptation and professional
development program, while 38 young specialists
guided by 33 mentors completed the first step of
the program. In autumn 2020, another 21 young
specialists and 20 mentors assigned to them
joined the program. Young specialists received
the Mentoring Culture training courses together
with their mentors. In total, 18 mentors attended
the training.
In December 2020, Moscow hosted the 15th
Interregional Research-to-Practice Conference
for the Company’s young specialists attended
by 86 employees from 16 subsidiaries and joint
ventures. 65 projects were submitted. Based on
the results of the competition, all the winners
received cash prizes, while twelve (12) first
place winners were also awarded a trip to visit
oil & gas companies in Norway and the
Netherlands.
In 2020, our subsidiary OOO YARGEO was awarded
the Laureate Diploma of the International
competition of scientific, technical and innovative
solutions for the energy and mining sectors “For
contribution to innovative development of the
fuel and energy industry”.
In 2017, the Innovator Corporate Idea
Management System, an automated framework
to collect and process employees’ proposals on
improving and developing business ideas including
labor-saving proposals, was launched in NOVATEK
and its 21 subsidiaries. More than 260 ideas on
improving business operations, reduction of
production costs and implementation of new
work methods were submitted by the employees
in 2020. More than 1,070 ideas have been
submitted over the four years, of which 200 were
approved for implementation and 89 ideas
were implemented. They generated a positive
economic effect of RR 4.3 million.
Social Programs
The focus in employee relations is on
implementing social programs. 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
The program includes full outpatient care,
dental care, and emergency and scheduled
hospitalization.
Therapeutic resort treatment
Employees and their families can purchase
health resort vouchers at a discount. Under this
program the NOVATEK employees may spend their
vacations in 49 health resorts located in Russia’s
most picturesque settings.
Repayable Financial Aid Program
The special-purpose loans program has two focus
areas:
• short-term special-purpose loans intended for
employees who experience economic hardship;
• special-purpose interest-free home loans to
employees residing in Tarko-Sale, Novy Urengoy,
Moscow, Nadym, Sosnovy Bor, Tyumen and
Vyborg.
54
55
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Targeted compensation and social support
payments
Pension Program
This program provides targeted free support
to the Company’s employees in specific life
circumstances, including childbirth, to large
families, the event of natural disasters or fire,
compensation for care of a child up to three years
of age, financial aid for care of disabled children,
financial aid for burial, compensation for sports
and recreation classes for employees, as well as
on the occasion of the jubilee.
Since 2007, NOVATEK has offered its retired
employees supplementary benefits in line with
the Regulations on Social Benefits for Retired
NOVATEK Group Employees. Employees with an
employment track record of at least five years
with the Company who resign at the full retirement
age are entitled to monthly benefit payments from
the Company (suspendable in case the retiree
gets a job). The benefit amount is subject to the
employee’s average salary, employment track
record and geographical location.
Along with providing an optimum social benefits
package, the Company is also committed to
creating opportunities for employees to play
sports and get involved in sports and cultural
events.
Social Policy and Charity
Cooperation with the regions
Social Policy and Charity make up an important
part of NOVATEK’s activities. In 2020, despite
the COVID-19 pandemic, the Company continued
to pay close attention to projects aimed at
supporting the culture, preserving and revitalizing
national values and spiritual legacy of Russia,
developing mass and high-performance sports.
NOVATEK continued to fulfill the Agreements
with local governments in the regions where the
Company operates, by further implementing the
plan for promoting living standards and preserving
distinctive cultural identity of indigenous
communities of the North. One of the focal
points in 2020 was contributing to local epidemic
containment efforts through setting up PCR
laboratories, purchasing equipment and materials
for medical treatment, protective suits for medical
personnel, etc.
In 2020, Social expenses and compensatory
payments directly invested by NOVATEK and its
subsidiaries on charitable projects and activities,
cultural and educational programs, and support for
indigenous communities amounted to RR4.1 billion,
including RUB 671.8 million to assist the regions in
their epidemic containment efforts.
Under the agreements signed with various
regions, the Company was investing in the Yamal
Nenets Autonomous Region and the Khanty Mansi
Autonomous Region, the Tyumen, Chelyabinsk,
Leningrad, Murmansk and Kostroma regions
throughout 2020. The Company allocated funds
for repairs and upgrades of social infrastructure
facilities, sports institutions, and pre-school
educational institutions, construction of a
contemporary playground for children, repairs
of a sewage pumping station in Tarko-Sale,
purchase of incinerators to burn waste, solar
panels including portable solar panels, and
adaptation of residential space and public
property in apartment blocks for people
with limited mobility to develop accessible
environment in Yamal Nenets Autonomous Region.
Low-income families, people with disabilities,
the elderly, veterans, critically ill and disabled
children, as well as people who faced hardships
received aid.
Since 2020, the Company together with the
Government of the Yamal-Nenets Autonomous
Region implements a unique “Teacher for Russia”
program aimed at engaging graduates of Russia’s
56
57
Annual Report 2020THINK GREEN. THINK NATURAL GAS. 4.1
RR
billion
Social expenses and
compensatory payments
directly invested by NOVATEK
and its subsidiaries on charitable
projects and activities, cultural
and educational programs,
and support for indigenous
communities
leading universities to teaching in small regional
schools and preparing young specialists for
teaching, as well as ensuring equal educational
opportunities for children in different regions of
Russia. Seven participants of the “Teacher for
Russia” program moved to the Yamal-Nenets
Autonomous Region to teach in local schools for
the next two years.
In order to further strengthen and expand
cooperation with the key regions where NOVATEK
operates and preserve existing economic ties,
long-term agreements were concluded in 2020
with the Government of the Yamal Nenets
Autonomous Region and the Government of
Murmansk Region on financing of major projects
aimed at improvement and development of the
regions’ integrated social and economic potential.
In 2020, NOVATEK financed renovation of the
Murmansk State Technical University. As part of
a pilot project for converting boiler houses in the
Murmansk Region to liquefied natural gas, the
supply of equipment for receiving, storing and
regasification of LNG was financed for two boiler
houses located in Murmansk and Severomorsk.
Cooperation with Indigenous Peoples
of the Far North
financed petroleum, oils and lubricants purchases
for air delivery of the nomadic population, food
and fuel to remote areas. Some dedicated areas
of support include taking part in organizing and
staging ethnic festivals of indigenous peoples,
supporting cultural heritage (financing of the
Limbya Nomad Camp), performing emergency
prevention archaeological activities at the Taz
Metal-Casting Workshop cultural heritage site,
as well as funding environmental campaigns.
NOVATEK also regularly provides financing for
activities under the Public Program of Indigenous
Minorities of the North in the Yamal-Nenets
Autonomous Region, initiated by the Yamal Nenets
Autonomous Region Governor based on the
proposals from the local population.
Educational Programs
NOVATEK continued to develop the Company’s
continuing education program, which provides
opportunities to gifted students, from the regions
where we operate, to further their education
at top rated universities, participate in NOVATEK
internships and, upon completion of their studies,
possible employment with the Company.
Recruitment and career guidance for promising
employees start with the “Gifted Children”
program implemented at School No. 8 in
Novokuybyshevsk, school No. 2 in Tarko-Sale,
school No. 81 in Tyumen and since 2018 – Secondary
School No. 2 in Salekhard. Special classes are
formed on a competitive basis from the most
talented grade 10 and 11 students with above-
average test scores.
In 2017, a resource center for industry-relevant
student training – the Natural Science Center
– was built and fully equipped in Tarko-Sale,
Purovsky District, Yamal-Nenets Autonomous
Region. The Center began to operate in 2018. The
curriculum for pupils of 5th-11th grades includes:
chemistry, biology, and physics. Activities in
all subjects include solving of problems at the
advanced level and training of pupils for national
contests and competitions.
The Company is also implementing two Grants
programs for schoolchildren and teachers living
in Purovsky District, Yamal-Nenets Autonomous
Region.
During the reporting year, NOVATEK provided
financial support to the Yamal for Descendants
Association of indigenous peoples and its district
branches.
We assisted indigenous peoples through
financing the purchase of snowmobiles, gas-
fired boilers and technical facilities and aids for
clans, equipment and materials required for the
work of fishermen and reindeer herders. NOVATEK
The Grants program for schoolchildren is aimed
at academic and creative development and
encouraging a responsible attitude towards
studies. Under the program, pupils of 5th-11th
grades are awarded grants from the Company.
In 2020, the Company awarded 59 grants to
students under this program. The Grants program
for teachers is intended to raise the prestige of
the teaching profession and create favorable
conditions for developing new and talented
58
teachers. In 2020, six teachers from the Purovsky
District received grants under this program.
In an effort to create conditions for more
effective use of university and college resources
in preparing students for future professional
activities, the Company has developed and
successfully implemented the NOVATEK-University
program. The program is an action plan for
focused, high-quality training for specialists with
higher education in key areas of expertise in order
to grow the Company’s business and meet its
needs for young specialists. The program is based
at the 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 additional monthly
payments. During their studies, the students are
offered paid internships. This experience allows
them to apply the knowledge obtained at lectures
and seminars to real-life situations and gain
experience in the professions they have chosen,
while the Company receives an opportunity to
meet potential employees.
Preserving Cultural Heritage
In 2020, NOVATEK traditionally cooperated with
Russia’s leading cultural institutions and creative
groups: the Moscow Museum of Modern Art
(MMOMA), the State Tretyakov Gallery, the Russian
State Museum, the Gogol-Center theater, and the
Moscow Soloists Chamber Ensemble.
Because of the country’s epidemic containment
efforts, only limited attendance was allowed for
the museum exhibitions. As a result, the museums
had to extensively use both existing and new
online technologies and innovative solutions. The
audience was encouraged to participate
in online lectures and meetings, video
conferences, interactive educational programs
and debates, virtual tours of museum spaces
that made the museum exhibitions open and
accessible.
The Seventh Moscow International Biennale of
Contemporary Art was held with the support of
the Company. The Biennale’s website offered a
video tour and a platform to discuss the event’s
educational program.
In cooperation with NOVATEK, MMOMA hosted
the “Pavel Leonov’s Fantasy” exhibition of Pavel
Leonov whose name is included in the World Naive
Art Encyclopedia as well as the “Countdown”
retrospective of Moscow conceptual art leaders
Igor Makarevich and Elena Elagina.
In St. Petersburg, the epidemic was contained
well enough for the museums to re-open already
in late 2020, and with the Company’s support,
the “Knowledge is Power” exhibition dedicated to
publishing and educating posters, opened in the
Russian Museum.
In autumn of 2020, NOVATEK participated in
organizing Russian Creative Week by supporting
the educational program dedicated to art. The
event offered a discussion platform for Russia’s
creative community.
The company rendered financial support to the
Gogol Center for the development of the theater,
which premiered new productions and organized a
benefit concert for the medical staff in gratitude
for their courage and service in saving lives.
In 2020, the Company remained a General Partner
of the Moscow Soloists Chamber Ensemble under
the direction of Yuri Bashmet.
Sports Projects
NOVATEK attaches great importance to
programs for the development of mass and
high-performance sports. The Company, its
subsidiaries and joint ventures regularly
hold tournaments in the most popular and
widespread sports: football, volleyball, swimming,
ski, etc. In 2020, all tournaments were held in
full compliance with the requirements of the
Russian Federal Service for Surveillance on
Consumer Rights Protection and Human Wellbeing
(Rospotrebnadzor).
In the reporting year, the Company continued
to promote the children and youth sports in
the regions where it operates, and supported
the pilot federal innovative project “Become a
Champion” intended for identifying children’s
predisposition to certain sports through testing.
In 2020, pitches for five-a-side football were built
and equipped for the schools whose teams won
the “NOVATEK – Step to Bigger Football” 2019
Indoor Football Cup among secondary school
teams: three in the Chelyabinsk Region and two in
the Kostroma Region. The 2020 championship was
held in Kostroma Region. In Chelyabinsk Region
and Kamchatka Territory, the competition had to
be postponed to a later date.
The Company continued to support the
Student Basketball Association. Because of
the restrictions associated with the COVID-19
pandemic, some of the competitions could not be
held in person, and online tournaments and events
had to be held instead.
With the support of the All-Russian Federation
of Dance Sports and Acrobatic Rock’n’roll, the
relevant corporate sport clubs continued their
activities in the regions of the Company’s
operations. However, the All-Russian competition
in Acrobatic Rock’n’roll among corporate clubs
59
Annual Report 2020THINK GREEN. THINK NATURAL GAS. “Rock’n’Roll & Co.” could not be held in 2020
because of the restrictions.
In the reporting period, NOVATEK continued
cooperation with the Russian Football Union
as the General Partner of the Russian National
Football Teams. The Company supported women’s
volleyball club Dinamo (Moscow) and the NOVA
Volleyball Club (Novokuybyshevsk).
Charity
In 2020, the Company continued to implement
the projects aimed at helping children in dire
need in the regions where the Company has its
operations, in pursuance of NOVATEK’s corporate
charity policy.
Under the “Health Territory” project, leading
doctors from the Russian Children’s Clinical
Hospital visited six towns: Tarko-Sale, Novy
Urengoy, Kostroma, Chelyabinsk, Magnitogorsk,
and Petropavlovsk-Kamchatsky. The project
allowed 457 critically ill children to get medical
help, and 97 children were taken to the Russian
Children’s Clinical Hospital and other federal
medical centers. During examinations and
consultations by the Russian Children’s Clinical
Hospital visiting teams, the necessary safety
measures were taken; the Company also provided
children, parents, and doctors with personal
protective equipment.
In 2020, the work under the Telemedicine Center
project (TMC) to equip and connect hospitals
in Novy Urengoy, Tarko-Sale, Murmansk, and
Kostroma to the unified telemedical network,
was completed. Efforts were made to expand
the TMC by connecting hospitals in Chelyabinsk
and Tyumen to the Center. In 2021, hospitals in
Petropavlovsk-Kamchatsky and Magnitogorsk
are also going to be equipped and connected
to the TMC. Currently, hospitals in these regions
are connected to the TMC under a temporary
arrangement, which also makes medical
consultations possible.
In 2020, the TMC helped to conduct 626 video
consultations, a series of five lectures on pediatric
anesthesiology and intensive care in December
2020, as well as regular online meetings and
medical councils with relevant experts of the
Russian Children’s Clinical Hospital.
As part of the Targeted Therapy project aimed at
helping children with cancer undergoing treatment
in the Dmitry Rogachev National Medical Research
Center of Pediatric Hematology, Oncology and
Immunology, 120 children received help in 2020.
The project to help children with vision
impairments has also moved forward. In 2020,
vision protection rooms were set up in specialized
kindergartens in Murmansk and Kostroma, where
159 children with visual impairments underwent
rehabilitation.
Throughout the year, the Company provided
targeted support to industry veterans, orphans
and disabled children, and people with disabilities.
In particular, the orphanages of Trinity Church in
Kolomna and “Dunno’s Town” in the Moscow Region,
as well as “Rodnik” orphanage in the Ulyanovsk
Region, received funds to purchase indoor air
recirculation units and necessary medications.
A muffle furnace was purchased for the Oktemsk
school in Yakutia, which is used to fire ceramic
products made by the students during classes. The
Deaf-Blind Support Foundation “Con-nection” was
allocated funds to improve the quality of life of its
care recipients and to develop an implant.
Throughout 2020, NOVATEK traditionally supported
projects aimed at preserving and increasing rare
animal populations: the Siberian tiger and Amur
leopard.
As part of the “High-Tech Equipment” project, the
Company provided charitable assistance to the
Mother and Child Health Center of Magnitogorsk in
purchasing equipment for the neonatal intensive
care unit.
In 2020, the key activities of the volunteer
movement “All Together” remained unchanged:
support for orphans and children with various
diseases, the elderly and the disabled.
60
61
Annual Report 2020THINK GREEN. THINK NATURAL GAS. 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 prerequisite
to business integrity and performance and
provide a framework for socially responsible
management of the Company’s operations.
The Company has established an effective and
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.
The activity of all these bodies is governed by
the applicable laws of the Russian Federation,
NOVATEK’s Articles of Association and internal
documents available on our website
(https://www.novatek.ru/en/).
NOVATEK strives to consider the principles of
corporate governance outlined in the Corporate
Governance Code recommended by the
Central Bank of Russia (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 depositary
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 also adheres to the internal Code of
Business Ethics approved by the Board of Directors
in 2011 (Minutes No. 133 of 24 March 2011). The
Code establishes general norms and principles
governing the conduct of members of the Board of
Directors, the Management Board and the Revision
Commission, as well as NOVATEK’s management
and employees, which were drafted on the basis
of moral and ethical values and professional
standards. The Code also determines the rules
governing mutual relationships inside the Company
62
and NOVATEK’s relationships with its subsidiaries
and joint ventures, shareholders, investors, the
government and public, consumers, suppliers, and
other stakeholders.
The Company monitors changes of the current
legislature and the Listing Rules of PAO Moscow
Exchange and harmonizes its internal documents
according to the changes. NOVATEK’s current
regulations on the Company’s corporate
bodies, Internal Audit Policy, Regulations on
Risk Management and Internal Control System,
Regulations on the Corporate Secretary, and
other regulations are up to date and do not
require any amendments.
NOVATEK’s corporate governance practices make
it possible for its executive bodies to effectively
manage ongoing operations in a reasonable and
good faith manner and to the benefit of the
Company and its stakeholders.
General Meeting of Shareholders
The General Meeting of Shareholders is NOVATEK’s
supreme governing body. The activity of the
General Meeting of Shareholders is governed
by the laws of the Russian Federation, the
Company’s Articles of Association, 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
responsible for the approval of annual reports,
annual financial statements, the distribution of
profit, including dividends payout, the election
of the Board of Directors and the Revision
Commission, approval of the Company’s Auditor
and other corporate and business matters.
On 24 April 2020, the Annual General Meeting of
Shareholders approved the annual report, annual
financial statements (in accordance with the
Russian Accounting Standards), distribution of
profit and the size of dividends based on the
results of FY2019. The meeting also elected the
Board of Directors and the Revision Commission
and approved remuneration to members of the
Board of Directors, Revision Commission and the
Company’s external auditor for 2020.
On 30 September 2020, the Extraordinary General
Meeting of Shareholders approved the amount of
interim dividend for the first half of 2020.
to participate in the Board meetings and make
balanced decisions in a timely manner.
Board of Directors
Directors’ Board’s (the Board) activity is
governed by the laws of the Russian Federation,
the Company’s Articles of Association and the
Regulations on the Board of Directors approved
by NOVATEK’s General Meeting of Shareholders in
2005 (Minutes No. 96 of 17 June 2005) with further
alterations and amendments.
The Board carries out the overall strategic
management of the Company’s activity on behalf
of and in the interests of all its stakeholders,
and ensures the Company’s efficient and
effective performance with the aim to increase
shareholder value in a prudent and responsible
manner.
The Board determines the Company strategy
and priority lines of business, endorses long-
term and annual business plans, reviews financial
performance, internal control, risk management
and other matters within its competence,
including optimization of corporate structure,
approval of major transactions, making decisions
on investment projects and recommendations
on the size of dividend per share and its
payment procedure, and convening the General
Meeting of Shareholders. The General Meeting of
Shareholders elects the members of the Board of
Directors.
The current members of the Board of Directors
were elected at the Annual General Meeting
of Shareholders on 24 April 2020. The Board of
Directors is comprised of nine (9) members, of
which eight (8) are non-executive directors,
including three (3) directors who are considered
to be independent. The Board Chairman
is Alexander 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
experience in strategic, operational, financial,
commercial and oil and gas activities. The
Board members hold regular meetings with
NOVATEK’s senior management to enable them to
acquire a detailed understanding of NOVATEK’s
business activities and strategy and the key
risks impacting the business. In addition to
these formal processes, Directors have access
to the Company’s medium-level managers for
both formal and informal discussions to ensure
the regular exchange of information needed
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 is endowed with
the necessary powers and resources to carry out
its tasks in accordance with the Regulations on
the Corporate Secretary (approved by the Board
of Directors, Minutes No. 168 of 28 April 2014 with
further alterations and amendments).
The Board of Directors membership
(elected at the Annual General Meeting
of Shareholders on 24 April 2020):
• Alexander E. Natalenko – Chairman of the Board
• Andrei I. Akimov
• Arnaud Le Foll
• Michael Borrell
• Robert Castaigne
• Leonid V. Mikhelson
• Tatyana A. Mitrova
• Victor P. Orlov
• Gennady N. Timchenko
Board activities during the
2020 corporate year(1)
To ensure the Company’s efficient performance,
the Board meetings are convened on a regular
basis at least once every two months. During
corporate year 2020, the Board of Directors
(BoD) met 13 times, of which three meetings
were held in the form of joint attendance.
The following key issues were discussed and
respective decisions made:
• reviewed and approved the Company’s 2020 full
year operating and financial results;
• recommended an interim dividend payment for
first half 2020, based on interim financial results
for the period, and a full year dividend payment
for 2020, based on full year financial results;
• made decisions to convene an Extraordinary and
Annual General Meeting of shareholders. During
the meetings in 2020, telecommunications
facilities were used to provide shareholders with
remote access to participate and to fill out an
electronic ballot form;
1. From the Annual General Meeting of Shareholders on 24 April 2020 until April 2021.
63
Annual Report 2020THINK GREEN. THINK NATURAL GAS. • approved amendments to NOVATEK’s
Regulations on Dividend Policy;
• reviewed and approved NOVATEK’s business plan
for 2021;
• as part of the Arctic LNG 2 project, the Board
of Directors made a number of decisions to
provide the project with Arc7 ice class tankers;
• reviewed information on the progress of the
implementation of the corporate strategy of
PAO NOVATEK until 2030 in terms of:
– markets analysis (internal and external),
logistics, risks and their assessment, and
targets;
– approved environmental and climate change
targets for the period up to 2030 within the
Corporate Strategy;
• changed the composition of the Management
Board;
• reviewed and approved NOVATEK’s Sustainability
Report 2019;
• reviewed the results of the Company’s activities
in Sustainable Development;
• made a decision on NOVATEK’s participation in
the Arctic Economic Council; and
• approved the plan of activities of the Internal
audit Department of NOVATEK for 2021.
In order to improve efficiency of corporate
governance, the Company carried out an
external assessment of the BoD and the BoD
Committees’ activities by engaging an external
independent consultant once every three years
and self assessment annually.
During corporate year 2020, a self assessment of
the BoD activities was performed in accordance
with the recommendations of the Russian
Corporate Governance Code. Self-assessment
of the BoD performance based on the results of
the corporate year is carried out by filling out a
questionnaire for each member of the Board of
Directors.
During the appraisal process the key areas of
the BoD and the Committees’ activities were
analyzed, including the formation of strategy,
supervisory and control functions, effectiveness
of interaction with the top management, risk
management, remuneration, succession and
development of key managers.
Based on the evaluation we determined
directions for increasing the Board of Directors’
performance efficiency.
Board and Committee Meetings Attendance in the 2020 Corporate Year
Member
Independence
Board
of Directors
Audit
Committee
Remuneration
and Nomination
Committee
Strategy
Committee
Alexander E. Natalenko
Andrei I. Akimov
Tatiana A. Mitrova
independent
Michael Borrell
Robert Castaigne
independent
Arnaud Le Foll
Leonid V. Mikhelson
executive
Victor P. Orlov
independent
Gennady N. Timchenko
13/13
13/13
13/13
13/13
13/13
13/13
13/13
13/13
13/13
Board Committees
The Company has three (3) Board Committees:
the Audit Committee, the Remuneration and
Nomination Committee and the Strategy
Committee. The Committees’ activities are
governed by the specific Committee Regulations
approved by the Board of Directors and are
available on our website.
The Committees play a vital role in ensuring that
the high standards of corporate governance
are maintained throughout the Company and
that specific decisions are analyzed and the
necessary recommendations are issued prior to
64
4/4
4/4
7/7
7/7
4/4
7/7
4/4
4/4
4/4
4/4
4/4
4/4
general Board discussions. The minutes of the
Committees meetings are circulated to the Board
members and are accompanied by necessary
materials and explanatory notes.
In order to carry out their duties, the Committees
may request information or documents from
members of the Company’s executive bodies or
heads of the Company’s relevant departments.
For the purpose of considering any issues being
within their competence, the Committees may
engage experts and advisers with necessary
professional knowledge and skills.
Committees membership
Audit Committee
Strategy Committee
Remuneration and Nomination
Committee
Chairman
Robert Castaigne
Tatyana A. Mitrova
Victor P. Orlov
Members
Tatyana A. Mitrova
Andrei I. Akimov
Tatyana A. Mitrova
Victor P. Orlov
Arnaud Le Foll
Robert Castaigne
Michael Borrell
Alexander E. Natalenko
Gennady N. Timchenko
Audit Committee
The primary function of the Audit Committee is
control over financial and operating activities
of the Company. In order to assist the Board in
performing control functions, the Committee
is responsible for but not limited to evaluating
accuracy and completeness of the Company’s
full year financial statements, the candidature of
the Company’s external auditor and the auditor’s
report, and the efficiency of the Company’s
internal control procedures and risk management
system.
The Audit Committee works actively with the
Revision Commission, the external auditor and the
Company’s executive bodies, inviting NOVATEK’s
managers responsible for the preparation of the
financial statements to attend the Committee
meetings.
In corporate year 2020, the Audit Committee met
four (4) times, including two meetings in presentia,
where the members:
• held two meetings with the Company’s external
Auditor to discuss the Audit Plan and review an
audit report of the Company’s activities for the
year end;
• reviewed the risk register of NOVATEK group;
• reviewed the reports on compliance with the
Information policy and Anti-corruption policy;
• reviewed quarterly financial indicators of the
Company and the impact of the COVID-19
coronavirus on the operations and investments
of PAO NOVATEK;
• approved the reports on the activities of the
Company’s Internal Audit Department for the
first six months and full year;
• made recommendations to the Board of
Directors on approval of the Company’s Annual
Report and Internal Audit Plan;
• made recommendations on the Company’s
Auditor nominee and amount of remuneration;
• considered the conclusion of the Internal
Audit Department on assessing the reliability
and effectiveness of the risk management
system, internal control system, and corporate
governance; and
• considered other issues within the competence
of the Audit Committee.
Remuneration and Nomination Committee
The primary functions of the Remuneration and
Nomination Committee are the development of an
efficient and transparent compensation practice
of members of the Company’s management,
enhancement of the professional expertise
and improvement of the Board of Directors’
effectiveness.
In order to assist the Board, the Committee
performs the following functions:
• develop and regularly review the Company’s
policy on remuneration of the members of the
Board of Directors, members of the collective
executive body and the sole executive body of
the Company, oversee its implementation and
realization;
• preliminarily assess the work of the executive
body of the Company for the year in accordance
with the Company’s remuneration policy;
• 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 recommendations 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 executive
body and the sole executive body on the base of
continuity principles;
• supervision over disclosure of information on the
Company’s shares owned by the members of the
Board of Directors and Management Board, and
other key management employees; and
65
Annual Report 2020THINK GREEN. THINK NATURAL GAS. • annual review reports on industrial safety,
environmental protection, climate impact,
corporate governance and social activities, as
well as review the Company’s Sustainability
Reports.
In corporate year 2020, the Remuneration and
Nomination Committee met seven (7) times,
including two meetings in presentia, where the
members:
• reviewed NOVATEK’s 2019 Sustainability Report
and recommended for approval by the BoD;
• reviewed NOVATEK Group’s 2019 HSE
performance report;
• reviewed NOVATEK’s Sustainability Report 2019;
• made recommendations in accordance with
• considering the financial model and business
valuation of the Company and its business
segments in order to make recommendations
to the Board of Directors in making decisions
on the definition of business priorities of the
Company;
• providing recommendations to the Board of
Directors on transactions subject to approval by
the Board of Directors; and
• providing recommendations to the Board of
Directors with respect to the Company’s policy
on the use of its non-core assets.
In corporate year 2020, the Committee met
four (4) times, including two meetings in presentia,
where the members:
NOVATEK Group’s Executive Bodies and Other
Key Employees Remuneration and Expense
Reimbursement Policy;
• made recommendations regarding the amount
and form of dividend payment for the first half
and full year 2019;
• reviewed NOVATEK’s HR management policy
• preliminarily reviewed and made
performance report in 2020;
• reviewed the report on NOVATEK’s social
performance in the regions where the Company
operated in 2020;
• made recommendations to the Board of
Directors on the approval of environmental and
climate targets as part of the implementation
of the Corporate Strategy of PAO NOVATEK until
2030;
• made recommendations to the BoD to form
the BoD’s Committees in accordance with
recommendations of the Corporate Governance
Code a well as information about members of
the BoD;
• made recommendations to the General Meeting
of Shareholders on remuneration to the BoD
members;
• reviewed the report on self-appraisal of
NOVATEK’s Board of Directors and BoD
Committees’ Performance;
• and considered other issues within the
competence of the Committee.
Strategy Committee
The primary functions of the Strategy
Committee are the determination of strategic
objectives of the operations and control over
the implementation of the strategy, as well as
recommendations on the dividend policy.
In carrying out its responsibilities and assisting the
members of the Board in discharging their duties,
the Strategy Committee is responsible for but not
limited to:
• evaluating the effectiveness of the Company’s
operations in the long-term;
• preliminarily reviewing and making
recommendations on the Company’s
participation in other organizations;
• assessing voluntary and mandatory offers to
acquire the Company’s securities;
66
recommendations on approval of basic
parameters of the NOVATEK (consolidated)
business plan for 2021;
• reviewed information on the implementation of
the Corporate Strategy of PAO NOVATEK for the
period up to 2030 in terms of:
– analysis of domestic and international
markets, logistics, risks and their assessment,
targets;
– implementation of the Arctic LNG 2 project;
– status and preparation progress of the
hydrocarbon resource base for the Arctic
LNG 1 project;
– resource potential of the Jurassic deposits
and technological challenges in the reserves
preparation and fields’ development;
– formation and implementation of the
development strategy for the icebreaking and
tanker fleet and navigation management;
• made recommendations to the Board of
Directors on the approval of amendments to
NOVATEK’s Regulations on Dividend Policy; and
• considered other issues within the competence
of the Committee.
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 Articles of
Association, resolutions of the General Meetings
of Shareholders and the Board of Directors and
by other internal documents. More information
regarding the Management Board’s competence is
provided in NOVATEK’s Articles of Association.
Members of the Management Board are elected
by the Board of Directors from among the
Company’s key employees. The Management Board
is subordinated to the Board of Directors and the
General Meeting of Shareholders. The Chairman of
the Management Board is responsible for leading
the Board and ensuring its effectiveness as well as
organizing the Management Board meetings and
implementing decisions of the General Meeting
of Shareholders and the Board of Directors. The
Management Board was elected by the Board of
Directors on 25 August 2017 (Minutes No. 198 of
25 August 2017) with further amendments by
resolution of the Board of Directors on 12 July 2018,
21 September 2018, 14 November 2018, 14 December
2018, 19 March 2019, 2 November 2020.
Management Board Members from
1 January 2020 to 31 December 2020:
• Leonid V. Mikhelson – Chairman
Remuneration to Members of the Board
of Directors and Management Board
The procedure for calculating the remuneration
and compensations to members of NOVATEK’s
Board of Directors is governed by the Regulations
on 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)
with subsequent changes made by the decision
of the Annual General meeting of shareholders
on 23 April 2019. According to the Regulations, the
remuneration consists of the following types:
• fixed part of remuneration;
• remuneration for attending the Board of
• Lev V. Feodosyev – First Deputy Chairman
Directors meetings; and
• Alexander M. Fridman – First Deputy Chairman
committees of the Board of Directors.
• remuneration for attending the meetings of the
The fixed part of remuneration to a Board member
constitutes RR 15 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 30 million per corporate year.
Members of the Board of Directors are also paid
remuneration for attending the meetings of the
Board of Directors in the maximum amount of RR
4.5 million per corporate year and remuneration for
attending the meetings of the committees of the
Board of Directors in the maximum amount of RR
3 million per corporate year. The Board members are
also compensated for travel and lodging expenses
related to implementation of their functions as
NOVATEK’s 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,
the NOVATEK group Executive Bodies and other
Key Employees Remuneration And Expense
Reimbursement Policy (approved by the BoD on
17 December 2019, Minutes No. 226 of 17 December
2019) and the employment contracts they sign
with the Company.
(the authorities were terminated on 2 November
2020)
• Evgeniy N. Ambrosov — Deputy Chairman of
the Management Board — Director for Marine
Operations, Shipping and Logistics (elected
on 2 November 2020)
• Vladimir A. Baskov – Deputy Chairman of the
Management Board
• Viktor N. Belyakov – Deputy Chairman of the
Management Board for Economics and Finance
• Eduard S. Gudkov – Deputy Chairman of the
Management Board
• Mark A. Gyetvay – Deputy Chairman of the
Management Board
• Evgeny A. Kot – Deputy Chairman of the
Management Board — LNG Director
• Tatyana S. Kuznetsova – Deputy Chairman
of the Management Board
• Denis B. Solovyоv – Deputy Chairman
of the Management Board — Director of
Communications Development Department
• Sergey G. Solovyov – Deputy Chairman of the
Management Board — Director for Geology
•
Ilya V. Tafintsev – Deputy Chairman of the
Management Board
• Sergey V. Vasyunin – Deputy Chairman of the
Management Board — Operations Director
67
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Information on remuneration of members of NOVATEK’s Board of Directors and Management Board
in 2020, RR mln
Total paid, including:
Salaries
Bonuses
Fees
Other property advancements
Board of Directors(1)
Management Board
212.3
–
210.6
1.7
7,144.0
949.4
6,175.6
–
19.0
Internal Control and Audit
NOVATEK has a system of internal controls over
financial and business operations organized
taking into account the applicable requirements
of the Russian Federation legislation and best
international practices. The internal control
system is an integral part of the risk management
system and is in line with the relevant risks and
strategic objectives of NOVATEK.
The primary objectives of the internal control
system are ensuring the implementation of the
NOVATEK strategy, protecting the interests of the
shareholders, safeguarding the assets, ensuring the
efficiency of the financial and business operations,
and compliance with the applicable requirements of
the law and the Group internal regulations.
The internal control system is implemented on a
constant basis and covers all areas of activities
of the Company and business processes at all
management levels.
Defining the principles and approaches to
organizing the internal control system is vested
in the Board of Directors. The Chairman of
the Management Board ensures the efficient
functioning of the internal control system.
The Internal Audit Division evaluates the risk
management, internal control and corporate
governance system efficiency.
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 affiliates, their
subdivisions, as well as their ongoing business
processes.
In order to combat corruption, mitigate
compliance, operational and reputation risks,
the Company adopted the Anti-Corruption
Policy approved by the Board of Directors on
1 September 2014 (Minutes No. 170 of 1 September
2014) 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) with further
alterations and amendments.
In order to comply with the Code of Business
Conduct and Ethics approved by the the Board
of Directors on 24 March, 2011 (Minutes No.
133 of 24 March 2011), any interested person can
report known violations to the following address:
ethics@novatek.ru, which is stated in the
Contacts section of the Company’s website. All
applications are submitted to the Internal Audit
department.
Revision Commission
The Revision Commission consisting of four
members is elected at the Annual General
Meeting of Shareholders for a period of one year.
The competence of the Revision Commission is
governed by the Russian Federation Law On Joint
Stock Companies No. 208-FZ dated 26 December
1995 as well as the PAO NOVATEK Articles of
Association and the Regulations on the Revision
Commission Procedures approved by the General
Meeting of Shareholders in 2005 (Minutes No. 95
of 25 March 2005) for matters which are not set
out in the aforementioned law.
The Revision Commission is an internal control
body responsible for oversight of the 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 authorized in
accordance with Russian Federation law and the
Company’s Articles of Association. The results are
presented in the form of findings by the Revision
Commission.
In March 2021, the Revision Commission completed
the on-site audit revision of financial and business
1. Some members of NOVATEK’s Board of Directors are simultaneously members of the Management Board. Payments to such members in
relation to their activities as members of the Management Board are included in the total payments to members of the Management Board.
To improve the efficiency and optimize the costs,
the Internal Audit Division employees serve on the
revision commissions of the Company affiliates.
External Auditor
The Annual General Meeting of Shareholders
approved an external auditor to conduct an
independent review of NOVATEK’s financial
statements. The Audit Committee gives
recommendations to the Company’s Board of
Directors regarding the candidatures of external
auditors and the price of their services. Based
on the Committee’s recommendations, the
Board proposes the auditor’s candidature for
consideration and for approval by the Annual
General Meeting of Shareholders.
AO PricewaterhouseCoopers Audit (an
internationally recognized audit firm) was chosen
as the Company’s external auditor to conduct
the audit of the annual financial statements for
2020 under RAS, as well as independent reviews
of the Company’s quarterly consolidated financial
statements and audit of the annual consolidated
financial statements under IFRS.
In selecting the auditor’s candidature,
attention is paid to the level of their professional
qualifications, independence, possible risk of any
conflict of interest, terms of the contract, and
the 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 opinion 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 accepts
recommendations on the independence of the
external auditor by restricting such auditor’s
involvement in providing non-audit services.
In accordance with auditing standards, in order to
maintain independence, the Company’s External
Auditor regularly rotates its key audit partner, at
least once every seven years. The previous key
audit partner was rotated in 2018.
activities of the Company for the year 2020. As a
result, the conclusions about the reliability of the
data contained in the Company’s 2020 Financial
Statements (under the Russian accounting
standards), 2020 Annual Report and Report on
interested-party transactions 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 system
as well as corporate governance practices the
Company and its subsidiaries and affiliates
perform internal audits of their operations.
Performing audits in subsidiaries and affiliates
is centralized and performed by the NOVATEK
Internal Audit Division. The Internal Audit Division
is functionally subordinated to the Board of
Directors and administratively subordinated to
the Chairman of the Management Board.
In its activity, the Internal Audit Division is guided
by International Standards for the Professional
Practice of Internal Auditing. The NOVATEK Internal
Audit Policy is approved by the Board of Directors
(Minutes No. 192 of 26 August 2016) as amended
and supplemented, approved by the Board of
Directors (Minutes No. 212 of 17 December 2018).
The Division carries out its activities on the basis
of an annual plan of inspections prepared with
the use of a risk-oriented approach mainly and
approved by the Board of Directors. The working
plan for 2020 was completed in full within the
established time frame. According to the results
of audit inspections, it develops measures to
eliminate identified risks and optimize financial
and business activities. Implementation of the
measures is monitored on a regular basis.
The Quality Assurance and Improvement Program
is developed and implemented in the Internal
Audit Division. In accordance with this program,
the Internal Audit Division Self-Assessment is
carried out annually and the results are reported
to the Audit Committee. In 2018, the Division
initiated the external assessment recommended
by the International Institute of Internal
Auditors to be carried out every five years. The
assessment identified the compliance of the
NOVATEK Internal Audit Division activities with
International Standards for the Professional
Practice of Internal Auditing.
The Internal Audit Division interacts with an
external auditor: in sharing information related
to working plans, inspection results and other
matters of relevance to the parties.
68
69
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Auditor’s fees in 2020, RR mln
Audits of PAO NOVATEK
(audit of the Group’s consolidated financial statements and audit of statutory financial statements
of PAO NOVATEK)
Other services
Total auditor’s fees and services
37
11
48
As of
Evgeny A. Kot
31.12.2020
Equity
stake
–
Tatyana S. Kuznetsova
31.12.2020
0.1944
Denis B. Solovyov
31.12.2020
Sergey G. Solovyov
31.12.2020
Ilya V. Tafintsev
31.12.2020
–
0.0012
0.0012
Sergey V. Vasyunin
31.12.2020
0.0003
including GDRs certifying rights of ordinary shares
Number of ordinary shares,
–
5,903,035
–
37,660
35,000
9,320
Share Capital
Our share capital is RR 303,630,600 and consists of
3,036,306,000 ordinary shares, each with a nominal
value of RR 0.1. As of 31 December 2020, NOVATEK
did not have preference 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 2020, NOVATEK’s GDRs were issued on
567,447,540 ordinary shares comprising 18.69% 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(1)
As of
Equity
stake
including GDRs certifying rights of ordinary shares
Number of ordinary shares,
Board of Directors
Alexander E.Natalenko
31.12.2020
Andrei I. Akimov
31.12.2020
Burckhard Bergmann
24.04.2020
Michael Borrell
Robert Castaigne
31.12.2020
31.12.2020
–
–
–
–
–
Leonid V. Mikhelson
31.12.2020
0.0067
Victor P. Orlov
Gennady N.
Timchenko
31.12.2020
31.12.2020
Arnaud Le Foll
31.12.2020
Management Board
–
–
–
Vladimir A. Baskov
31.12.2020
0.0288
Viktor N. Belyakov
31.12.2020
Lev V. Feodosyev
31.12.2020
–
–
Alexander M. Fridman
02.11.2020
0.0817
Mark A. Gyetvay
31.12.2020
Eduard S. Gudkov
31.12.2020
–
–
–
–
–
–
–
202,238
–
–
–
874,408
–
–
2,481,049
–
–
1. 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.
70
In 2020, Leonid V. Mikhelson, member of NOVATEK’s
Board of Directors, made transactions with
NOVATEK’s shares:
1. acquisition of 1,000 GDRs under a securities
sales and purchase agreement (12 March 2020);
2. acquisition of 1,500 GDRs under a securities
sales and purchase agreement (18 March 2020).
1. disposal of 49,923 GDRs under a REPO
agreement (14 January 2020);
2. disposal of 21,894,162 shares under a REPO
Dividends
agreement (14 January 2020);
3. acquisition of 39,902 GDRs under a securities
sales and purchase agreement (9 March 2020);
4. acquisition of 160,450 shares under a securities
sales and purchase agreement (10 March 2020);
5. acquisition of 10,727 GDRs under a securities
sales and purchase agreement (11 March 2020);
6. acquisition of 12,291 GDRs under a securities
sales and purchase agreement (12 March 2020);
7. disposal of 62,920 GDRs under a REPO
agreement (17 March 2020);
8. disposal of 160,450 shares under a REPO
agreement (17 March 2020);
9. acquisition of 14,020 GDRs under a securities
sales and purchase agreement (2 November
2020);
10. acquisition of 27,507 shares under a securities
sales and purchase agreement (2 November
2020);
11. acquisition of 982 GDRs under a securities sales
and purchase agreement (3 November 2020);
12. acquisition of 24,711 shares under a securities
sales and purchase agreement (3 November
2020);
In 2020, Eduard S. Gudkov, member of NOVATEK’s
Management Board, made transactions with
NOVATEK’s shares:
1. acquisition of 1,000 GDRs under a securities
sales and purchase agreement (26 March 2020);
2. disposal of 1,000 GDRs under a securities sales
and purchase agreement (24 November 2020);
In 2020, Sergey G. Solovyov, member of NOVATEK’s
Management Board, made a transaction with
NOVATEK’s shares: acquisition of 20,000 shares
under a securities sales and purchase agreement
(30 April 2020);
In 2020, Ilya V. Tafintsev, member of NOVATEK’s
Management Board, made transactions with
NOVATEK’s shares:
The Company’s Dividend Policy is regulated by the
Regulations on Dividend Policy of PAO NOVATEK,
with its new amendments approved by the Board
of Directors on 18 December 2020 (Minutes No.
236 of 18 December 2020). The new Dividend
Policy increased the minimum target payout level
from 30% to 50% of the adjusted consolidated
net profit according to the International
Financial Reporting Standards (IFRS), considering
sustainably strong operating and financial results
as well as significant growth in the scale of the
Company’s operations. The changes are aimed
at strengthening NOVATEK’s investment case and
increasing total shareholder returns.
NOVATEK’s dividend policy is based on keeping the
balance between the Company’s business goals
and shareholder’s interests. A decision to pay
dividends as well as the amount of the dividend,
the payment deadline and form of the dividend
is passed by the Annual General Meeting of
Shareholders according to the recommendation
of the Board of Directors. Dividends are paid twice
a year. In determining the recommended amount
of dividend payments to be distributed the Board
of Directors consider the current competitive and
financial position of the Company, as well as its
development prospects, including operating cash
flow and capital expenditure forecasts, financing
requirements, debt servicing and other such
factors as it may deem relevant to maintaining
financial stability and flexible capital structure of
the Company. NOVATEK is strongly committed to
its dividend policy.
On 19 March 2021, the Board of Directors of
PAO NOVATEK recommended to the Annual General
Meeting of Shareholders to pay dividends for FY
2020 in the amount of RR 23.74 per ordinary share
or RR 237.4 per one Global Depositary Receipt
(GDR), exclusive of RR 11.82 of interim dividends per
ordinary share or RR 118.2 per one GDR paid for the
first six months of 2020.
71
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Center progress, start of operation of a small-
scale LNG plant in Magnitogorsk, development
of the domestic LNG market and the network of
retail stations, construction of Yamal LNG Train
4 based on the Arctic cascade process, entering
new sales markets, local manufacturing content
and Russian sourcing of LNG equipment, active
involvement of the Company in development
of the Arctic, and early start of navigation
via the Northern Sea Route. In addition to the
traditional topics, the 2020 agenda also included
the Company’s activities in the context of the
coronavirus. The Company’s social development
projects to support the regions in which it
operates were also widely covered in the media.
The support for the medical sector was one of
the focal points.
With new topics on the agenda, the number
of channels, through which the information is
circulated, increased. Main resources (federal,
local and international media, social networks,
etc.) were joined by the resources of local
governments in the regions of the Company’s
operations, their official accounts in social
networks as well as the contractors’ information
platforms.
In 2020, several in-person events were held
with the participation of the Chairman of the
Company’s Management Board and media
representatives: briefings following the World
Economic Forum in Davos, the grand opening of a
small-scale LNG plant in Magnitogorsk, and the
opening ceremony for the power transmission
line for the LNG Construction Center in Murmansk.
Some of the events, however, had to be
arranged online: the official signing ceremony
for the agreement on joining the Priority Social
and Economic Development Area with the Far
East Development Corporation; the signing of
agreements with the Government of the Murmansk
Region; workshops with the leadership of the
partners under the Arctic LNG 2 project; Leonid
Mikhelson’s online speech at the International LNG
Producer-Consumer Conference in Japan; Leonid
Mikhelson’s online speech at the 13th Eurasian
Economic Forum in Verona, and other events. Wider
coverage of the Company’s projects in all mass
media was achieved through active interaction
with federal, local and international journalists.
The Company’s website was updated in 2020. It
is now easier to use and navigate, contains more
information, and includes new sections with
detailed project descriptions. The new features
enable the Company to share information in a
more complete, transparent and convenient way.
The following corporate periodicals are published
to inform the Company employees, their family
members, and third parties of the Company’s
activities: the NOVATEK newspaper and the
NOVATEK PLUS magazine, containing materials on
production plans and results as well as on cultural,
sports and charity programs and projects.
The main events of NOVATEK are published on
the Company’s official website and intranet
portal. For interaction with public, NOVATEK
makes use of up-to-date channels of information
dissemination through social media. The Company
keeps its accounts in English and Russian on
Facebook, VKontakte, Twitter, Instagram, and
Youtube, where the channel subscribers stay
updated on the Company’s activities. Over
47,200 posts and comments with references to
NOVATEK were published in social media in 2020.
More than 500 posts appeared in the Company’s
social media. As of the year end, the number of
subscribers exceeded 33,700 people, which is a
25% increase year on year. NOVATEK also launched
its Telegram channel in 2020, enabling to promptly
circulate updates on the Company’s activities,
interact with different audiences, and post relevant
content related to the fuel and energy sector.
Thus, should the General Meeting of Shareholders
approve the recommended dividend, the
dividends for 2020 will total RR 35.56 per ordinary
share (RR 355.6 per one GDR), and the total
amount of dividends payable for 2020 will be RR
107,971,041,360. This will represent a 10% increase
in dividend per share compared to 2019.
Accrued and paid dividends on NOVATEK shares for the period 2015 to 2020
Dividend Accrual Period
Amount of dividends,
RR per share
2015
2016
2017
2018
2019
First half of 2020
13.50
13.90
14.95
26.06
32.33
11.82
Total amount
of dividends
accrued, RR
Total amount
of dividends paid,
RR
40,990,131,000
40,990,062,832
42,204,653,400
42,204,606,695
45,392,774,700
45,392,729,448
79,126,134,360
78,746,615,378
98,163,772,980
97,207,957,498
35,889,136,920
35,498,258,173
The amount of paid dividends accrued for the
years 2015 to 2019, and for the first six months of
2020 is reported as of 31 December 2020. Partial
payment of the accrued dividends was made
due to provision by shareholders of incorrect
postal and/or banking details and insufficient
information regarding banking or postal details of
shareholders.
Information Transparency
NOVATEK complies with the best practices
for information disclosure while adhering to a
maximum level of information transparency. The
Regulations on Information Policy approved by the
Board of Directors as amended and restated in
2017 (Minutes No. 198 of 25 August 2017), define
the 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 notification of material facts
through authorized disclosure channels and by
posting such information on the Company’s
website. The information is disclosed in full
compliance with Russian and foreign legal
requirements. 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.
greenhouse gas emissions and energy efficiency
of production – the Carbon Disclosure Project
(CDP), and on the use of water resources – the
CDP Water Disclosure Project, as well as other
industry publications and studies.
The Company maintains an ongoing dialog with
shareholders and investors in order to ensure full
awareness of the investment community about its
activities. The main channels of communication
with the investment community are through the
Chairman of the Management Board, Deputy
Chairman and the Investor Relations department.
The Company’s representatives meet on a regular
basis with key financial audiences to discuss
issues of interest to them.
In 2020, the effective implementation of the
Regulations on NOVATEK’s Information Policy
allowed NOVATEK to build a steady goodwill as
Russia’s largest independent natural gas producer
and one of the global leaders in LNG production.
Pursuant to the uniform information policy
principles, NOVATEK is actively involved in relations
with federal, foreign and regional media. In
2020, most of the news pieces with references
to the Company (57%) traditionally came from
the federal media. 32% of all pieces were
publications in local media, and 11% came from
the international media.
In 2020, NOVATEK was the center piece in 1 in
4 publications, which is a very good result for an
energy company.
The Company’s website provides detailed
information on all aspects of its activities,
including our Sustainability Report. The Company
regularly participates in information disclosure on
At the end of the reporting year, there were
more than 62 thousand publications about the
Company. The news topics included Arctic LNG
2 project development and LNG Construction
72
73
Annual Report 2020THINK GREEN. THINK NATURAL GAS. 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
management procedures are delegated to
different governance levels of the Company
depending 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 reliability
and efficiency of the risk management framework
and review of the risk management policy. In the
reporting year, the Audit Committee paid great
attention to risk management in the Company
and during the meetings after careful review and
analysis of the information provided, it recognized
NOVATEK’s risk management activities as compliant
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.
The Company undertakes all possible actions
to monitor and prevent such risks. However, it
cannot fully guarantee that the measures aimed
at risk management will bring the probability of
risk realization and potential impacts down to
zero. In this context, since 2018 the Company
has been developing business continuity plans
in the event of emergencies and incidents risks.
The plans define the most efficient measures
to restart production as soon as possible and
a procedure for the NOVATEK Group divisions
and employees to interact between each other
and with external stakeholders with a view to
maintaining critical operations at an acceptable
level and reducing possible costs in case of risk
realization. The first plans were approved in 2019.
In 2020, the development of business continuity
plans continued.
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, ship transport facilities
for the transportation of liquid
hydrocarbons and LNG, that may
result in harm to life or health of
employees or third parties, entail
business interruption, hazardous
emissions or spills, which in turn
may have a negative effect on the
Company's business reputation
and financial performance.
The Company monitors compliance with industrial safety
requirements on a continuous basis. The Company 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 in accordance with the requirements of
the OHSAS 18001 (ISO 45001:2018) standard. The Company holds
property and business interruption insurance policies, insures
transported cargo and the charterer’s liability.
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 functions is to ensure prompt response to production
incidents. The CDO ensures centralized monitoring of well
construction and workover on top of the control of production,
treatment and transportation processes.
74
Risk
Risk description
Risk management approaches used by the Company
Monopoly risks
Competitive risks
The Company depends on
monopoly suppliers of transport
services (such as Gazprom,
Russian Railways, 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 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 gas and LNG in the Russian
and global markets;
• selling liquid hydrocarbons in the
Russian and global markets;
• access to transportation
infrastructure which has
technological limitations;
• chartering of special-purpose
vessels for transportation of
liquid hydrocarbons and LNG;
• employment of highly qualified
specialists to work for the
Company, its subsidiaries and
joint ventures; and
• improvement of the investment
projects and production
processes efficiency.
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 on monopolies, 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).
NOVATEK is actively developing its own pipeline system for
transporting gas condensate.
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.
The Company pursues an active marketing policy and takes efforts
to monitor, expand and balance its customer base, and strives
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 expands its footprint in the global LNG market,
increases its customer base and makes spot, mid-term and long-
term LNG sale and purchase agreements, time charter parties
for carriers, optimizes its supplies through swaps and diversions,
which enables mitigating risks associated with a specific market or
counterparty.
The company continuously monitors supply and demand in the LNG
and special-purpose vessels market to be able to engage shipping
capacity or sub-charter the existing capacities in order to optimize
shipments and maximize profits.
In a changing market environment, based on data from a number
of internationally recognized analytical agencies, the Company’s
units develop plans to strengthen the Company’s marketing
strategy, coordinate activities of trading subsidiaries, update risk
management activities, develop and implement a risk hedging
policy.
Through its subsidiary Novatek Gas & Power Asia Pte. Ltd., the
Company is a member of the International Group of Liquefied
Natural Gas Importers (GIIGNL), which includes 88 major
international companies, whose activities are directly related to
LNG. Apart from access to annual LNG industry overviews and
information on the latest cutting-edge trends in LNG production,
delivery, and sales, membership in GIIGNL is a positive reputational
factor for the Company because of GIIGNL’s high credibility among
all participants in the global LNG market.
By participating in the development of integrated LNG projects in
the global markets, NOVATEK is able to secure guaranteed access
to LNG infrastructure and develop gas consumption markets,
ensuring direct access to the premium end consumer segment. The
ability to control the entire value chain of integrated LNG projects
helps mitigate competitive risks.
The Company implements an active HR policy and applies efficient
mechanisms to recruit and develop highly qualified employees.
75
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Risk
Risk description
Risk management approaches used by the Company
Risk
Risk description
Risk management approaches used by the Company
Risks in
Procurement of
Materials and
Equipment, Works
and Services
Failure by counterparties to
perform their obligations (quality
and timing of materials and
equipment supply, works execution
and services provision)
The Company applies state-of-the-art technologies, develops its
own technologies and implements innovative ones, which helps
in building up its competitive advantages. The Group’s research
and development center (NOVATEK NTC, LLC) has been active
since 2010 to improve the efficiency of geological exploration,
reserve replacement, drilling, field development, engineering
services during field development, establish a unified knowledge
and skills accumulation center and ensure constant professional
development of employees for the benefit of the Group.
The Company has introduced a procedure to qualify
counterparties and control performance of obligations. The
Company has put in place and is keeping up to date a Certified
Potential Contractors Database, contractors develop and
implement relevant mitigation plans if necessary in order to
systemically develop the suppliers’ markets. The Company
encourages its counterparties to improve their production
capabilities, while making long-term agreements with strategic
counterparties.
As part of the control over performance of contractors’
obligations under the contracts, the Company implemented
comprehensive approaches to control quality and schedule,
including inspections of fabrication plants during equipment
manufacturing and testing, as well as offloading control and
incoming inspection at the Company facility. The Company is
continuously monitoring potential risks that may affect the
contract performance.
Whenever appropriate, we use bank bonds as an additional
security under contracts.
To ensure control over the intended use of monetary funds
transferred to contractors as advance payments to purchase
Materials and Equipment, decrease their cost and obtain
updated information on the quantities of the ordered Materials
and Equipment, payments for fabrication and supply of
Materials and Equipment are made where appropriate through a
special account based on the payment control system provided
by a bank.
Procurement of Materials and
Equipment, works and services at
prices higher than the market ones
Competition restriction and
malpractice by employees
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.
In 2018, the Company introduced a set of measures to optimize
procurement activities, aiming to enhance control over the
efficiency of spending on investment and operations, as well as
to shorten counterparty selection procedures, and to ensure
completeness and quality of procurement documentation,
enabling prompt and efficient decisions.
Counterparties are as far as possible selected on a competitive
basis. Mechanisms have been implemented to control the
conformity of major equipment prices with market prices. The
company implements a strategic approach to the most critical
and expensive Materials and Equipment items, which includes long-
term contracting strategies that ensure maximum procurement
efficiency and timely satisfaction of needs. In its procurement
activities, the Company seeks to expand the competitive
environment.
To cut the supply chain and rule out overpricing, the procedure
to work directly with Materials and Equipment manufacturers has
been implemented and procurement procedures are performed
using an electronic bidding platform.
By consolidating the demands of its subsidiaries and affiliates,
the Company is able to obtain the most cost-effective
procurement terms and conditions.
The Company is developing and implementing company standards
(CSs) and technical specifications (TUs) for critical and high-cost
procurement items in order to harmonize technical requirements
for products and materials applied under investment projects and
in production activities, shorten the procurement and delivery
time, and ensure transparent pricing during products procurement.
Procedures are developed within the Company that provide for
an objective, timely and transparent process of counterparty
certification and selection. The Company develops certification
and technical requirements to counterparties and procurement
items without any discrimination or unwarranted restriction of
competition across the design and certification stages as well
as during counterparty selection. The internal regulations in place
provide for a maximum transparency procedure of counterparty
selection with an adequate system of control over the actions of
employees. Open competitive ways to select counterparties are
mostly used. Procurement procedures are performed using an
electronic bidding platform.
Given the volatility in international relations with the countries
providing sophisticated oil & gas equipment, the Company pursues
import substitution policies where it is appropriate.
State regulation of gas prices significantly reduces the risk of
price volatility on the Russian gas market.
76
77
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Risk
Risk description
Risk management approaches used by the Company
Risk
Risk description
Risk management approaches used by the Company
Moreover, the Company is exposed
to the current pricing environment
in the Russian and international
liquid hydrocarbons and LNG
markets as it has no power over
the global oil and gas prices, price
indexes which form the base price
of short- and long-term contracts.
A drop in prices for liquid
hydrocarbons and LNG may have a
negative effect on the Company’s
financial performance.
The Company monitors changes in the current Russian and global
pricing environment, and the forecast trends in the global oil,
gas and LNG markets, negotiates with buyers, and strives to
make efficient sale and purchase agreements with protective
pricing mechanisms (e.g., the presence of S-curves in oil-linked
contracts) in order to reduce the volatility of sales prices.
The Company constantly monitors LNG and gas prices on the
international energy market, carries out timely planning and
management of deliveries, continuously evaluates its portfolio and
analyzes its sensitivity to changes in macro-parameters, updates
risk management measures in a timely manner, and develops and
implements a risk hedging policy.
Risk of early
termination,
suspension
or restriction
of the right to
use subsurface
mineral resources
Environmental
risks
The Company is thus exposed
to the risk of early termination,
suspension or restriction of its
right to use subsurface mineral
resources.
The Company is subject to the
probability of events having
adverse consequences for the
environment and caused by a
negative impact of its economic
and other activities, as well as
natural and technology-related
emergencies.
Exploration and production of
hydrocarbons in Russia is subject
to licensing.
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.
Geological risks
Prospecting and exploration
drilling is associated with
multiple risks, including the
risk of non-confirmation of
commercial hydrocarbons
reserves. Information on the
Company’s hydrocarbons reserves
is estimated and depends
on a number of factors and
assumptions. Actual production
volumes across fields, along with
the cost-effectiveness of reserve
exploitation may deviate from
estimates.
From time to time, the Company may use derivative financial
instruments to reduce the risk of negative price movements.
Reduction of risks related to changes in liquid hydrocarbons and
LNG prices is ensured, among other things, by vertical integration
of the production chain.
The Company strives to maximize the output of high value added
products by using its hydrocarbon deeper conversion capacities
(the Purovsky Plant and Ust-Luga Complex).
Risk management in the Company includes stages of analysis of
geological and geophysical data, identification and elimination or
mitigation of geological risks.
Analysis is performed using a comprehensive approach based
on the review of regional and detailed study results, creation
of geotechnical models of fields using cutting-edge software
technologies and modern methodological approaches.
Uncertainty evaluation is performed for main geological and
geophysical parameters. Programs are prepared to study
and mitigate risks in the conditions of natural, technical and
technological restrictions.
Research programs are developed taking into account specific
features of each license area or field and aimed at obtaining
complete and high-quality source data.
To conduct geological exploration activities, those contractors
are engaged who meet the Company’s technical requirements
and use advanced technologies and equipment. Technical audits
of contractors are conducted annually.
Quality control and analysis of the data obtained is performed by
our own research and development (NOVATEK-NTC).
As part of the work, Russian and foreign experts in various areas
are involved.
The Company makes an annual assessment and evaluation of its
reserves based on the exploration and production drilling and
other research information. An independent international adviser
estimates the Company’s reserves according to international
standards on an annual basis.
The Company has an environmental management system
according to the ISO 14001 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, as
well as stays ready to react to emergencies.
Implementation of projects in the Russian Federation Arctic
area is accompanied with comprehensive monitoring of marine
and terrestrial ecosystems, as well as subsurface environment,
including permafrost soils and cryogenic processes, to confirm
efficiency and sufficiency of nature-protection design solutions
and to receive prompt information on changes of environmental
conditions in the Company’s regions of operation.
Environmental support of LNG projects with participation of
joint ventures is based on both Russian environmental laws and
international standards and best available practices in the industry.
As part of the Russian Federation Climate Doctrine, the Company
developed a corporate Greenhouse Gas Emission Management
System (to account for, and plan actions to reduce, greenhouse
gas emissions, inter alia by introducing innovative technologies
to curb greenhouse gas emissions). In particular, in August 2020,
the Company’s Board of Directors approved environmental and
climatic goals of the Company until 2030, including emission
reduction, rational use of associated petroleum gas and waste
disposal.
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 has been in place in the
Company since 2016. The project risks are evaluated at every stage
of its implementation.
The Company follows a strategy of LNG projects standardization
by developing its own standards based on the lessons learned from
the previously implemented projects.
When awarding contracts and supply agreements for oil&gas
equipment, all relevant documents are thoroughly checked and
field audits are performed at manufacturing facilities as necessary.
There are dedicated criteria in place to help understand whether
a supplier has the technical capability, technology and resources
to manufacture and deliver certain materials and equipment.
The Company also monitors suppliers’ operations, witnesses
manufacturing and testing of purchased process equipment,
and performs inspections during shipment and upon delivery.
Project risks
Volatile exchange rates of the
national currency and unstable
lending conditions, drop in
hydrocarbon demand and prices,
precarious financial position
of contractors and oil and gas
equipment suppliers, introduction
or modification of technical
requirements related to engineering,
construction and operation may
affect the Company's investment
program leading to delays in
project execution and/or rising
project costs.
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79
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Risk
Risk description
Risk management approaches used by the Company
Risk
Risk description
Risk management approaches used by the Company
Strategic risks
There is a risk that the Company
will fail to meet its strategic goals
and objectives due to significant
changes in external environment,
realization of individual, or a group
of, operational, financial and legal
risks.
The Company strives to prudently accomplish strategic goals and
objectives and applies the approaches described in this section to
manage each of the risks. In order to efficiently manage its project
portfolio and to ensure sustainable development, the Company reg-
ularly monitors market trends as well as takes into account risks and
opportunities of the current and anticipated external environment.
Country risk
The Company applies a scenario-based approach to financial
and economic forecasting to assess the possibility of achieving
strategic and operational goals and adherence to credit covenants.
The decision making process in strategic management includes such
elements as: assessment of project execution risks, evaluation of
resources required for their successful execution, including analysis
of whether additional financial, material and personnel resources
are sufficient and/or justified.
In 2011, in order to minimize ethical risks, the Company introduced
a Code of Business Conduct and Ethics.
To exclude ethical risks with respect to its shareholders and
investors, the Company is governed by the provisions of the
internal Code of Business Ethics and the applicable Russian
Federation and UK laws in terms of public company regulation.
To exclude ethical risks in its relations with third parties, the
Company carries out tender procedures to select counterparties
and has a well established internal control and audit system.
An Anti-Corruption Policy has been in place since 2014, which
established key principles and standards of anti-corruption
practices for employees and stipulates a set of corruption
prevention measures. As part of the Anti-Corruption Policy
implementation, a Security Hotline is in operation 24/7.
Since 2016, the Company has had a procedure for notification and
management of conflicts of interest that employees may come
across in performing their job duties.
In 2020, the Company adopted the NOVATEK Group’s Supplier
Code of Conduct, which contains recommendations and principles
related to business ethics and human rights that NOVATEK
expects its suppliers to follow.
The Company strives to ensure compliance of its social programs
with the industry’s average level and uses the most 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.
The Company implements all necessary measures to fully comply
with legislative requirements in the area of security and counter-
terrorism measures at fuel and energy facilities, transport and
other facilities (areas).
A complex of organizational and practical measures is constantly
in place to ensure security of facilities, including linear ones.
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, as well as the
risk of human rights violations.
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
communities living in proximity to
the production facilities.
The Company is subject to risks
of unlawful interference acts
and terrorist threat concerning
operation of fuel and energy
facilities, transport and other
facilities (areas).
Terrorism risks
80
NOVATEK is a Russian company
with its core operations 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
and is subject to external macro-
economic impacts.
The Company is involved in
foreign projects related to LNG
transportation and sales, and
in projects aimed at enlarging
its geographic footprint in
hydrocarbon exploration,
production and transportation.
Legislative and political changes in
the countries where the Company
operates may affect financial
performance and the cost of such
projects.
The Company produces and
processes hydrocarbons within
Western Siberia, a region with a
challenging climate.
The Company uses the Northern
Sea Route (NSR) for LNG and
gas condensate shipping. Severe
weather and ice conditions in
vessel voyage areas, ports, and
cargo transshipment points
may lead to longer vessel
return voyages, a disruption of
marketable products offtake, and
tank tops, as well as may result in
default on obligations to buyers in
terms of timely cargo delivery.
Regional risk
Risks of
information
technology and
information
security
(cyber-risks)
The Company is exposed to the
risks in the area of information
technology and information
security, such as
• the risk of confidential
information leaks;
• the risk of business interruption
and the risk of an emergency
situation as a result of computer-
generated incidents.
Active marketing and financial policies 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 continuously monitors legislative changes in the
countries where it operates, analyzes the political situation, takes
part in negotiations and builds up long-term partner relations with
state authorities and various stakeholders.
The Company’s vulnerability to region-specific impacts on the
shore is taken into account by the Company's management when
engineering and operating onshore upstream facilities by making
sure that equipment and personnel are protected from the
negative impact of harsh weather conditions.
To mitigate such risks, the Company implements the following
measures:
• coordinates day-to-day tanker management with structural
units in charge of fleet planning and positioning, operations
and sales, and adjusts production and supply schedules where
necessary;
• cooperates with Atomflot, Rosmorport, Northern Sea Route
Administration and government authorities to ensure necessary
icebreaker support along the NSR;
• incorporates requirements in all time charter parties that the
vessel’s officers have necessary experience in ice navigation and
that the crews take special training courses and programs with
regards to ice navigation; and
• engages ice pilots and representatives of special institutions
and companies when passing through difficult ice areas.
The Company pursues a policy aimed at continuous improvement of
the information security processes and ensuring their compliance
with law, international standards and best practices in order
to improve information protection and enhance the trust of
contractors, partners, and investors. One of the priorities is to
maintain confidentiality, security and reliability when handling
confidential information, including personal data, trade secret,
insider information, confidential information of partners and other
organizations that the Company has lawfully become aware of.
In accordance with the requirements of Federal Law No. 187-FZ
dated July 26, 2017, essential elements of the Company’s critical
information infrastructure were broken down into categories and
the relevant centralized information security system was designed.
The information technology development strategy of the NOVATEK
Group was developed and approved to ensure the Group’s
sustainable development.
81
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Risk
Risk description
Risk management approaches used by the Company
Risk
Risk description
Risk management approaches used by the Company
Climate risks
The Company’s business may be
affected by the following climate
risks:
• Transitional risks are risks arising
during transition to economic
activities with lower carbon
emissions, e.g due to changes in
stakeholder behavior, changes
in legislation, and other changes.
If they materialize, these risks
can cause additional expenses,
hydrocarbon prices below the
forecast, reduced revenue,
and limited development
opportunities;
• Physical risks are risks that
directly affect facilities and are
caused by a major short-term
impact (e.g an act of God)
and long-term climate change
(permafrost degradation, global
sea level change, periods of
abnormally high temperatures,
etc.).
Risks and opportunities associated with climate change are taken
into account in the Company’s Business Strategy. The Company
constantly monitors market trends, keeps track of changes in
legislation regulating greenhouse gas emissions, assesses the
impact of such changes and updates its plans accordingly, invests
into development of innovative energy-efficient zero-emission
technologies, considers risks and opportunities of current and
expected environmental conditions to efficiently manage the project
portfolio and maintain sustainable development.
The Company places much importance on risks related to climate
change and greenhouse gas emissions. The Company’s risk
management system allows to factor in climate risks both when
making management decisions and in routine activities.
The Company has developed the Standard for Greenhouse Gas
Emission Control System and follows it. Pursuant to the standard,
GHG emission qualification and reporting are included in the
Integrated Management System.
The Company develops a GHG emission reporting system and
uses efficient modern technologies for emission reduction during
production, processing and transportation of hydrocarbon gases
and liquids, natural gas liquefaction, power generation and other
processes. The Company sets ambitious targets, which when
achieved would help reduce GHG emissions in accordance with
the global initiatives, and climate change action is among the
Company’s sustainable development priorities. In August 2020, the
Company’s Board of Directors approved NOVATEK’s environmental
and climate targets until 2030, including emission reduction, rational
use of associated petroleum gas and waste disposal.
The Company assesses climate risks of physical impact and climate
change implications both at the engineering and the operation
phases, and makes appropriate provisions. NOVATEK constantly
performs cryological monitoring, which shows that the risk of
permafrost thawing and degradation is low at the moment and
has no significant impact on the Company’s operations. In order
to prevent potential negative implications of climate changes
and assess the condition of permafrost soil and the temperature
range at all of the Company’s facilities, NOVATEK uses advanced
technologies and equipment for thermal stabilization of soil where
foundation piles are driven already during the construction phase.
The Company holds property and business interruption insurance
policies in case of the specified risks materialization.
Epidemic risks /
COVID-19
The spread of the novel
coronavirus (COVID-19) caused
financial and economic tensions
in the markets around the world,
and this is beyond the Group
management's control. To ensure
uninterrupted operations in a
pandemic environment, specific
measures had to be introduced
to enable business continuity and
protect the health and safety of
the Company's employees and
other stakeholders. The magnitude
and duration of these events
remain indefinite and may continue
to affect the Group's revenues,
cash flows and financial standing.
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 assesses potential impact of COVID-19 on
employees and operations, and developed appropriate response
plans. For instance, the Company is investing in tools enabling
efficient remote work for the staff.
The Group’s management takes all necessary precautions to
preserve the health and safety of employees, counterparties
and families from the spread of the coronavirus and at the same
time fulfill its obligations to supply energy resources domestically
and internationally. The Group maintains close cooperation with
federal, regional, and local authorities, as well as with partners
to contain the spread of the coronavirus, and takes necessary
action to minimize potential disruptions.
NOVATEK implements all recommended measures to contain the
pandemic. Additional sanitary protection measures have been
implemented in the Company’s offices and facilities: frequent
sanitary cleaning is conducted at the Company’s premises, and
additional disinfectant dispensers are installed, the employees are
provided with masks and gloves for obligatory use at workplaces.
Many employees in the regions of our operation began working
remotely, business trips were limited, and all our employees
received detailed instructions on prevention measures. In the
regions of operation, the Company organizes regular testing of its
employees, purchases personal protective equipment, and helps
with providing diagnostic laboratories and hospitals with necessary
equipment, reagents, and medical supplies.
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 LNG and liquid sales are
made to major customers with independent external ratings.
Domestic sales of liquid hydrocarbons are made on a 100 percent
prepayment basis.
All long-, mid- and short-term LNG SPAs made in the international
markets include the provision of buyer credit support. Credit
support is usually provided in the form a parent company
guarantee, letter of credit and/or bank bond to be issued by
a bank with an acceptable credit rating.
All new counterparties undergo a mandatory Know Your Customer
procedure and creditworthiness assessment. All current
counterparties regularly provide updates under the KYC procedure
with the latest company information, including creditworthiness
status.
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
dividends and service its debt.
82
83
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Risk
Risk description
Risk management approaches used by the Company
Risk
Risk description
Risk management approaches used by the Company
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, the dynamics of
which are hard to predict. Volatile
interest rates may restrict the use
of borrowed capital as a source
of funding for the Company's
investment activity and may
increase interest expenses.
Part of the Company’s liabilities is
denominated in foreign currency,
which may lead to losses in the
event of ruble depreciation. On the
other hand, part of the Company’s
proceeds is also denominated in
foreign currency, which may lead
to losses in the event of ruble
appreciation.
Liquidity risk is the risk that the
Company will not be able to meet
its 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 and ability to pay on
liabilities and securities. Significant
currency depreciation can cause a
surge in inflation rates, which are
impossible to accurately predict.
The Company pursues a balanced fundraising 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.
LEGAL RISKS
Risk of law
changes
The liabilities expressed in foreign currency on the one hand, and
export proceeds on the other generally compensate each other
and are a natural mechanism of currency risk hedging.
As part of the currency risk assessment, scenario analysis is run.
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 permanent
basis, NOVATEK will normally raise long-term loans in the available
markets.
In order to be able to raise funds from capital markets on
beneficial terms and have more potential investors, the Group
has investment grade credit ratings assigned by three leading
international rating agencies (Moody’s, Standard & Poor’s and
Fitch) and the Russian rating agency Expert RA. To maintain and
improve the credit ratings, the Group has set financial targets
and coverage ratios that are regularly monitored.
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
ruble, the pricing conditions in liquid hydrocarbon and LNG 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.
As part of the inflation risk assessment, scenario analysis is run.
Litigation risks
The Company is subject to a risk of
facing consequences of changes
in legislation in the following areas:
• 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.
• competition laws (in areas
regulating natural gas sales
market);
• laws in fuel and energy complex
regulation;
• laws in corporate governance;
and
• laws in respect of business
operations in the Arctic and
greenhouse gas emissions
The Company may be involved
as a defendant or plaintiff in
a number of proceedings arising
in the normal course of its
business.
The company constantly monitors changes in legislation, is
a member of the Presidential Commission for Strategic
Development of the Fuel and Energy Sector and Environmental
Security, as well as a number of technical committees for
standardization, the Society for Gas as a Marine Fuel and the
SEA\LNG Association, develops proposals for and contributes
to the development of bills, implements regulations that are
beneficial for the Company, performs impact assessment for
such changes, and updates its plans accordingly.
When conducting its business, the Company adheres to the
principle of prudence. As of the approval date of the Annual
Report, the Company was not involved in any material litigation
and the associated risks are insignificant.
84
85
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Risk
Risk description
Risk management approaches used by the Company
Risk of sanctions
In 2014, the Company was included
in the US sectoral sanctions list.
As a result, US persons are
prohibited from participating in
the financing of the Company with
a maturity of over 60 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 the Company being included
in other countries’ sanctions
lists, which may undermine the
Company’s 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 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.
Given the volatility in international relations with the countries
providing sophisticated oil & gas equipment, the Company
pursues the policies of replacing imported technologies and
equipment where it is appropriate: invests in creating its own
technologies and localizing equipment in the Russian Federation,
contributes to the efforts of federal executive authorities in
identifying and achieving priority targets in terms of mastering
technology and equipment using state support mechanisms.
The key priority area of these programs is large-scale LNG
production. The Company uses proven LNG technologies
and equipment, so import replacement is subject to positive
references, or is used under pilot projects to gain necessary
experience.
The Company invests in setting up its own production facilities
to build liquefaction trains and in developing its proprietary
liquefaction technologies as well as works systematically
with Russian and foreign manufacturers to ensure transfer
of technology and mastering of equipment and materials
fabrication for LNG projects.
The risk of sanctions also affects IT hardware and software.
When considering new IT solutions, the Company examines
alternatives available in the market, including software from
the Unified Register of Programs for Electronic Computers
and Databases of the Ministry of Digital Development,
Communications and Mass Media of the Russian Federation.
Since 2013, the Company has implemented
a comprehensive program of property and
business risk insurance with respect to its and
its subsidiaries’ and joint venture’s key assets.
The cumulative insured amount for the risks
of property damage and business interruption
as at the end of 2020 was RR 910 billion. The
implemented program is viewed by the Company’s
management as an efficient measure for
mitigating the consequences of potential
accidents and provides additional guarantees for
the attainment of the expected net profit and
key indicators of the Company’s performance.
Beyond the scope of the comprehensive
program, given the project’s scale, Yamal LNG is
insured against property damage and business
interruption.
In the reporting year, no insured major accidents
or incidents occurred.
For more than 15 years the Company has
maintained directors’, officers’ and companies’
liability insurance (D&O insurance) covering the
Group, top management of the Company and
its subsidiaries against possible third-party
claims for any losses incurred through any wrong
action (or decision) made by its governance
bodies as well as in connection with claims
against the Company under its securities. The
overall insurance coverage limit is EUR 120 million.
The existing insurance coverage is in line with
international insurance standards in terms of the
scope of risk cover and limits of indemnity.
Risk Insurance
Risk insurance is an integral part of NOVATEK’s
risk management system. In 2020, the insurance
coverage guaranteed adequate protection
against the risks of damage to the business
of the Company or its subsidiaries and joint
ventures. Insurance is provided by reputable
insurance companies that have high ratings by
the leading rating agencies (Standard & Poor’s,
Fitch Ratings, Expert RA, A.M. Best,) with partial
reinsurance of risks by major international
insurance and reinsurance companies.
Obligatory Risk Insurance
The Company and its subsidiaries and joint
ventures fully meet the requirements of the
applicable laws in the Russian Federation for
maintaining obligatory insurance, such as civil
liability insurance of:
• owners of hazardous production facilities; and
• owners of transport vehicles.
The Group also fully complies with legislated
insurance requirements in the countries where it
operates.
Optional Risk Insurance
To reduce the risk of financial losses, the
Company and its subsidiaries and affiliates
maintain the following types of optional
insurance:
•
•
Insurance of the risk of property damage/loss,
including the risk of mechanical failures;
Insurance of the risk of damage from business
interruption;
• Construction risk insurance;
•
Insurance of risks related to prospecting,
exploration and production (risk of loss of
control over a well);
• Transport insurance;
• Cargo insurance;
• Directors’, officers’ and companies’ liability
insurance (D&O insurance);
• Charterers’ liability insurance; and
• Employees voluntary health insurance as a part
of the social benefits package.
86
87
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Information on Members of NOVATEK’s
Board of Directors
MR. ALEXANDER E. NATALENKO
Chairman of NOVATEK’s Board of Directors
Member of NOVATEK’s Strategy Committee
Born in 1946
Mr. Natalenko completed his studies at the
Irkutsk State University in 1969 with a primary
focus on Geological Engineering. Subsequently, he
worked with the Yagodinskaya, Bagdarinskaya,
Berelekhskaya, Anadirskaya and East-Chukotskaya
geological expeditions. In 1986, Mr. Natalenko
headed the North-East Industrial and Geological
Association and, in 1992, he was elected president
of ZАО “Magadan Gold & Silver Company”. He
subsequently held various executive positions
in Russian and foreign geological organizations.
From 1996 to 2001, Mr. Natalenko held the position
of Deputy Minister of Natural Resources of the
Russian Federation. From 2013 to 2015 he was
a member of the Board of Directors of AO
Rosgeologia. From 2004 to present he is the
Chairman of NOVATEK’s Board of Directors.
Mr. Natalenko is the recipient of the State Prize of
the Russian Federation and an Honored Geologist
of Russia.
MR. ANDREI I. AKIMOV
Member of NOVATEK’s Board of Directors
Member of NOVATEK’s Strategy Committee
Born in 1953
Mr. Akimov graduated from the Moscow
Financial Institute in 1975 where he specialized
in international economics. Between 1974 and
1987, Mr. Akimov held various executive positions
in the Bank for Foreign Trade of the USSR. From
1985 to 1987 he served as Deputy Chief General
Manager of the Bank for Foreign Trade branch in
Zurich (Switzerland) and between 1987 and 1990,
Mr. Akimov was the Chairman of the Management
Board of Donau Bank in Vienna (Austria). From 1991
to 2002 he was Managing Director of financial
company, IMAG Investment Management & Advisory
Group AG (Austria). Since 2003, Mr. Akimov has
been the Chairman of the Management Board, and
the Deputy Chairman of the Board of Directors of
Gazprombank (OAO). He is a member of the Board
of Directors of PAO Gazprom, AO Rosneftegaz.
MR. MICHAEL BORRELL
Member of NOVATEK’s Board of Directors
Member of NOVATEK’s Strategy Committee
Born in 1962
he held a number of senior management positions
in TOTAL. From 2003, he worked in the position of
Vice-President for Corporate Planning and Business
Development at 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 served as First Vice President of
Continental Europe and Central Asia. From January
2015 to September 2017, he worked as Senior
Vice-President of Europe and Central Asia. From
September 2017 to July 2020 he held the position of
Senior Vice President North Sea and Russia, which
comprises the United Kingdom, Norway, Denmark,
the Netherlands and Russia.
MR. ROBERT CASTAIGNE
Independent member of NOVATEK’s
Board of Directors
Chairman of NOVATEK’s Audit Committee
Member of NOVATEK’s Remuneration and
Nomination Committee
Born in 1946
Mr Castaigne graduated from the Ecole Centrale
de Lille in 1968 and the Ecole nationale supérieure
du pétrole et des moteurs, he holds a doctorate in
economics. He has spent his whole career at TOTAL
SA, first as an engineer, then in various positions.
From 1994 to 2008, he was Member of the Executive
Committee, Executive Vice-President and Chief
Financial Officer of TOTAL SA. From 2000 to 2018,
he was Member of the Board of Directors of Sanofi
and from 2009 to 2018 — Member of the Board of
Directors of Societe General. He is a Member of
VINCI’s Board of Directors. He is a Chevalier of the
National Order of the Legion of Honour.
MR. ARNAUD LE FOLL
Member of NOVATEK’s Board of Directors
Member of NOVATEK’s Strategy Committee
Born in 1978
A graduate of ‘École polytechnique’ and ‘École
des mines de Paris’ (France) Arnaud Le Foll began
his professional career in French ministries and
administrations. Between 2003 and 2006 he
was Head of Regional Industrial Environment
Inspectorate, Rhône-Alpes (Lyons, France), then
he moved to a position of Auditor at General
Inspectorate of Finance, Ministry of Finance, where
he served from 2006 to 2007. In 2007 he became an
Advisor on matters related to environment, energy
and industry in the offices of C. Lagarde, Minister
of Economy, and L. Chatel, Secretary of State in
charge of Industry.
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
Arnaud Le Foll joined Total in 2010 as Analyst
Strategy, Total Holding. In 2010 he was promoted
to the position of Vice-president strategy and
business development Asia-Pacific, Total Marketing
& Services (Singapore). From 2013 to 2016 he
headed Total Maroc affiliate as Managing Director.
88
In 2016 Arnaud Le Foll moved from the Marketing
& Services branch of Total to Exploration &
Production, and was appointed Strategy and
Portfolio Management Director, Total E&P Angola.
On January 1, 2018 Arnaud Le Fall became General
Director, Total E&P Russie. From July 2020, he has
been appointed Senior Vice President North Sea
and Russia, which comprises the United Kingdom,
Norway, Denmark, the Netherlands and Russia.
MR. LEONID V. MIKHELSON
Member of NOVATEK’s Board of Directors
Chairman of NOVATEK’s Management Board
Born in 1955
Mr. Mikhelson received his primary degree from
the Samara Institute of Civil Engineering in 1977,
where he specialized in Industrial Civil Engineering.
That same year, Mr. Mikhelson began his career
as foreman of a construction and assembling
company in Surgut, Tyumen region, where he
worked on the construction of the first section
of Urengoi-Chelyabinsk gas pipeline. In 1985,
Mr. Mikhelson was appointed Chief Engineer of
Ryazantruboprovodstroy. In 1987, he became
General Director of Kuibishevtruboprovodstroy,
which in 1991, was the first company in the region
to sell its shares and became a private company,
AO SNP NOVA. Mr. Mikhelson remained AO 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 was 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
Second Degree Order of Merit for the Fatherland
and the title of honor “Honored man of the gas
industry”, Medal “for the Arctic preservation” and
the First Degree “for development of the energy
sector”.
MS. TATYANA A. MITROVA
Independent member of NOVATEK’s Board
of Directors
Chairman of NOVATEK’s Strategy Committee
Member of NOVATEK’s Audit Committee
Member of NOVATEK’s Remuneration
and Nomination Committee
Born in 1974
In 1995, Ms. Mitrova graduated from the Department
of Economics, the Lomonosov Moscow State
University. From 1993 to 2002, Ms. Mitrova worked for
consulting companies in the energy sector. In 2002,
Ms. Mitrova joined the Energy Research Institute of
the Russian Academy of Science (ERI RAS) where she
held various positions from a researcher to the Head
of Research Group. Since 2011, she has led the Global
and Russian Energy Outlook Until 2040 Project. Since
2008, Ms. Mitrova has been an associate professor
at the Gubkin Russian State University of Oil and
Gas. Ms. Mitrova has been a Visiting Professor at the
Institute of Political Studies, School of International
Affairs (Sciences Po, France) since 2014. Ms. Mitrova
has been a Senior Researcher of Oxford Institute
of Energy Studies (OIES) since 2015. Since 2016, Ms.
Mitrova has been a Visiting Researcher of the Center
on Global Energy Policy, Columbia University (CGEP,
USA). In 2016-2017, she was a Visiting Researcher at
the King Abdullah Petroleum Studies and Research
Center (KAPSARC, Saudi Arabia).
Since 2017, she has held the position of Director,
Energy Centre, the Moscow School of Management
SKOLKOVO. From 2020 — Professor, Head of Research,
SKOLKOVO Energy Centre. Between 2014 and 2017,
Ms. Mitrova was a member of Unipro’s Board of
Directors (E.ON Russia before June 2016), and from
July 2018 she served on the Board of Directors of
Schlumberger NV, a global oilfield services company.
Ms. Mitrova has been member of the International
Supervisory Board of Energy Academy Europe since
2013. Ms. Mitrova has written more than 200 articles
in scientific and business journals and digests
focused on energy issues as well as co-authored
10 monographs.
Since July 2020, she has been the Chairman of the
Supervisory Board of the association of energy
industry professionals “WOMEN IN ENERGY”.
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 Tomsk State
University as a geological engineer with a degree
in “Geological survey and exploration of mineral
deposits”, and in 1986 from the Academy of
National Economy under the USSR Council of
89
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Ministers, with a specialty in “Economics and
Management of a National Economy”.
From 1957 to 1963, he worked at a coal mine and
served in the Soviet Army. From 1968 to 1975, he
was head of geological survey, prospecting and
exploration works in the geological organizations of
Western Siberia, held positions of geologist, chief
geologist, chief of geological exploration crew. 1975-
1978 — Consultant on geological exploration works
in Iran. 1979-1981 — Deputy Head of the Geological
Division of the Production Geological Association
of central 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 Protection.
From 1998 to present — President of “Russian
Geological Society” public organization. Author and
co-author of over 300 scientific publications.
Professor, Doctor of Economics (1991), Candidate of
geological-mineralogical sciences (1974), an Honored
Geologist of Russia. Laureate of the State Prize of
the Russian Federation in the field of science and
technology. He was awarded the Fourth Degree
Order of Merit for the Fatherland (2001), the Order
of Honor (2015), 18 non-governmental awards,
including 3 appreciation letters of the President of
the Russian Federation, and 2 Certificates of Merit
of the Government 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 industrial plant which made
components for the energy industry. Between 1982
and 1988, he was a Senior Engineer at the Ministry
of Foreign Trade. Mr. Timchenko has more than 20
years of experience in Russian and international
energy sectors and he has built interests in trading,
logistics and transportation related companies.
In 1988, Mr. Timchenko became a Vice President of
Kirishineftekhimexport, the export and trading arm
of the Kirishi refinery. In 1991, he worked for Urals
Finland which specialized in oil and petrochemical
90
trading. Between 1994 and 2001, Mr. Timchenko
was Managing Director of IPP OY Finland and
IPP AB Sweden. Between 1997 and 2014, he
co-founded Gunvor, a leading independent oil-
trading company. Mr. Timchenko was a member
of the Board of Directors of OOO Transoil and
OOO BalttransService, 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 of the Ice Hockey Club
SKA St. Petersburg, as well as the Chairman
of the Board of Directors of OOO Kontinental
Hockey League, a member of the Board of
Trustees of the All-Russian public organization
Russian Geographical Society, the Chairman of
the Supervisory Board of the Russian Chinese
Business Council, the Chairman of the Assistance
Council of the Olympic Committee of the Russian
Federation, Vice-President and member of the
Executive Committee of the Olympic Committee
of the Russian Federation, and Co-Chairman of the
Economic Council of the Franco-Russian Chamber
of Commerce (CCIFR).
ZULMIRA A. RAZAKOVA
NOVATEK’s Corporate Secretary
Ms. Razakova holds a higher legal education degree
and began working for NOVATEK in 2004. Between
2007 and 2012, Ms. Razakova held the position
of lead specialist of the Management Board and
Board of Directors staff. In April 2012, Ms. Razakova
was elected as Secretary of the Board of Directors.
Since 2014, Ms. Razakova has been NOVATEK’s
Corporate Secretary.
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. EVGENIY N. AMBROSOV
Deputy Chairman of NOVATEK’s Management
Board – Director for Marine Operations, Shipping
and Logistics
Born in 1957
In 1979, Mr. Ambrosov graduated from the
Navigation Department, Admiral Nevelskoy Far
Eastern Higher Marine Engineering College, where
he specialized in the operation of water transport.
After graduating, he was employed by the Far
Eastern Shipping Company where he rose through
the ranks from a cargo officer to Deputy General
Director – Director of the Core Operations
Department. In January 2000, Mr. Ambrosov
was appointed First Deputy General Director of
Sovcomflot. In September 2002, he was approved
as the General Director and Chairman of the
Management Board, Far Eastern Shipping Company.
In 2008-2009, Mr. Ambrosov worked as President
of the FESCO Transportation Group Management
Company and Chairman of the Management Board,
Far Eastern Shipping Company. Since 2009, he has
been the First Deputy General Director, Member
of the Management Board of Sovcomflot. Since
2014, Mr. Ambrosov has been Deputy Chairman
and Member of the Executive Committee of the
Arctic Economic Council. Mr. Ambrosov received
the following state and industry awards: Honorary
Maritime Fleet Worker; Honorary Transportation
Worker of Russia; Traditions and Standards badge
of honor from the Russian Chamber of Shipping, the
Star of Seafarers from the Russian Fleet Support
Foundation, the Russian Ministry of Transportation.
He was also awarded with the following medals:
300th Anniversary of the Russian Navy, Admiral
Gorshkov, Russian Shipowners Association medal,
the Medal For Maritime Excellence by the Russian
Government and the Russian Government Marine
Board; For Merits in Developing Russia’s Transportation
Industry, as well as the Order For Naval Merits
awarded by a Russian Presidential Executive Decree.
He was elected a member of the Management
Board of PAO NOVATEK in November 2020.
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 organizational
structures.
In 2003, he was appointed Director of the Business
Support Department for NOVATEK. In 2005, Mr.
Baskov was appointed Deputy Chairman of
NOVATEK’s Management Board and in 2007, he
became a member of NOVATEK’s Management
Board.
Mr. Baskov is a Ph.D. in Law. 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. Mr. Baskov also
has the awards of the Russian Orthodox Church
(Order of Holy Prince Daniel of Moscow, Order
of Saint Seraphim of Sarov and a medal of St.
Sergius).
MR. VIKTOR N. BELYAKOV
Deputy Chairman of NOVATEK’s 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 Kingston University
(UK). A holder of CMA (Certified Management
Accountant).
From 2004 until 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 appointed 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 U.S. independent oil and gas companies where
he specialized in financial and economic analysis for
both upstream and downstream segments of the
petroleum industry.
In 1994, Mr. Gyetvay began his work at Coopers
and Lybrand, as Director, Strategic Energy Advisory
Services. He subsequently moved to Moscow in
1995 with 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 engagement
partner, Utilities and Mining practice, based
in Russia (Moscow office). Mr. Gyetvay was an
engagement partner for various energy and mining
clients providing overall project management,
financial and operational expertise, maintaining
and supporting client service relationships as well
as serving as concurring partner on transaction
services to the petroleum sector.
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 industry topics
and was a former member of PwC’s Petroleum
91
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Thought Leadership team. He has been recognized
by Investor Relations Magazine as one of the best
CFO’s in Russia and the CIS, and by Institutional
Investor magazine as one of the Top Five CFO’s in
Europe’s Oil and Gas sector. Institutional Investor
voted him as the Best CFO in the EMEA Oil and
Gas category for 2017 and 2018. Finance Monthly
magazine named Mark Gyetvay the Best CFO in
Russia for the consecutive years of 2015 to 2019,
and he received the Game Changer 2017 and 2018
Award for Russia.
From 2003 to 2014, Mr. Gyetvay was a member of
NOVATEK’s Board of Directors and served on the
Investment and Strategy Committee. From 2003
to 2014, he was 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.
was appointed Assistant to Deputy Prime Minister
of the Russian Federation – Head of the Executive
Office of the Russian Federation Government.
Since September 2018, Mr. Gudkov has been Deputy
Chairman of NOVATEK’s Management Board. In 2018,
Mr. Gudkov was awarded the Medal of the Second
Degree Order for Merits and Dedicated Service to
the Country.
MR. EVGENY A. KOT
Deputy Chairman of NOVATEK’s Management
Board – Director for LNG
Born in: 1974
Mr. Kot graduated from the Tyumen State Academy
of Architecture and Civil Engineering. He received a
Ph.D. in Economics from the Saint Petersburg State
University of Engineering and Economics.
MR. SERGEY V. VASYUNIN
Deputy Chairman of NOVATEK’s Management
Board – Operations Director
Born in 1967
Between 1997 and 2001, Mr. Kot worked in the
Tyumen branch of Gazprombank. From 2001 to 2002,
he was employed by OAO SNP NOVA and OAO Oil
and Gas Company ITERA.
In 2002, Mr. Kot joined NOVATEK. Between 2009 and
2011, he held the position of Deputy Chairman of
the Management Board – Director of LNG Business
Development of NOVATEK. Between 2010 and 2014,
he was Chairman of the Board of Directors of
Yamal LNG. From 2014 to 2018, Mr. Kot was General
Director of Yamal LNG.
In December 2018, he was appointed Deputy
Chairman of the Management Board – Director for
LNG of NOVATEK.
MS. TATYANA S. KUZNETSOVA
Deputy Chairman of NOVATEK’s Management Board
Born in 1960
Ms. Kuznetsova graduated from the Far East
State University with a degree in Law. From 1986,
she was Senior Legal Advisor for a legal bureau.
In 1993, Ms. Kuznetsova became Deputy General
Director for Legal Issues and from 1996, Marketing
Director for OAO Purneftegasgeologiya. In 1998,
she was appointed Deputy General Director of
OAO Nordpipes. Since 2002, she has been Director
of the Legal Department at NOVATEK. Since 2005,
she has been the Deputy Chairman of NOVATEK’s
Management Board 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
Second Degree Order of Merit for the Fatherland.
In 1993, Sergey Vasyunin graduated from the
Ufa Oil Institute, specializing in the Development
and Operation of Oil and Gas Fields. Between
1993 and 1997, Mr. Vasyunin was employed with
Condor as deputy director, Stroykomplekt
as head of sales department, and with OAO
Spetsnefteenergomontazhavtomatika — as
marketing engineer. From 1998, he worked in the
Urengoygazprom industrial association of OAO
Gazprom where he served in the capacity of an oil,
gas and condensate production foreman. Between
2002 and 2017, Mr. Vasyunin was employed in the
positions of Gas Condensate Production Shop
Manager, Deputy General Director for operations,
and First Deputy General Director — Chief Engineer
of OOO NOVATEK-YURKHAROVNEFTEGAS. In April
2017, he was appointed Deputy Chairman of the
Management Board — Director for Operations of
NOVATEK.
In 2005, the Russian Ministry of Industry and Energy
issued a commendation to Sergey Vasyunin. He
holds the Honored Employee of NOVATEK title.
MR. EDUARD S. GUDKOV
Deputy Chairman of NOVATEK’s Management Board
Born in: 1980
In 2002, Mr. Gudkov graduated from the Penza
State University where he specialized in law. In 2006,
he received a Ph.D. in Law.
Between 1999 and 2003, Mr. Gudkov worked in the
Russian Ministry for Antitrust Policy and Support
of Entrepreneurship. In 2003, he joined the Russian
Supreme Arbitrazh Court where he held the position
of Assistant to the First Deputy Chairman. From
2012, Mr. Gudkov worked at the Executive Office
of the Russian Federation Government. In 2013, he
92
MR. DENIS B. SOLOVYOV
Deputy Chairman of NOVATEK’s Management
Board – Director of Corporate Communications
Department
Born in: 1978
In 2000, Mr. Solovyev graduated from the
Lomonosov Moscow State University (Philosophy
faculty) with a degree in Political Science. In
2003, he completed postgraduate studies at
the Lomonosov Moscow State University with
a degree in History. In 2000, he was appointed
Deputy General Director of Senat PR LLC. In 2004,
Denis Solovyov assumed the role of an adviser to
the Krasnoyarsk Territory Deputy Governor and
Assistant First Deputy Governor at the Krasnoyarsk
Territory Board of Administration. Between 2006
and 2008, he headed an election projects group
of the United Russia Central Electoral Commission
Directorate.
Mr. Solovyev has been working for NOVATEK since
2008: in the capacity of Public Relations Director
(until 2014), and Communications Director – Director
of Public Relations Department (from January
2014.).
In September 2018, Mr. Solovyev was appointed
Deputy Chairman of NOVATEK’s Management
Board and Director of Corporate Communications
Department.
Mr. Solovyev has received several letters of
recognition, honorable mentions from the Russian
Ministry of Natural Resources and the Environment
as well as from the Parliament of the Khanty-
Mansy Autonomous Region. In 2018, he received an
award from the Russian Ministry of Energy and an
honorable mention from the Governor of the Yamal
Nenets Autonomous Region.
MR. SERGEY G. SOLOVYOV
Deputy Chairman of the Management Board –
Director for Geology
Born in: 1977
Graduated from the Gubkin Russian State
University of Oil and Gas in 2001 with a degree in
the Oil and Gas Fields Development and Operation,
in 2003 – with a degree in Economics and
Management in Oil and Gas Industry. From 2002 to
2004, he worked at Nortgas as a well diagnostics
operator and well diagnostics foreman. From 2004
to 2005, he worked at Yurkharovneftegas as an
engineer and lead engineer in the Field Development
Group. In 2005, he was employed by NOVATEK where
he worked as chief specialist and the head of the
Field Development Analysis Group. In 2007, he was
transferred to NOVATEK-YURKHAROVNEFTEGAS to
the position of Deputy General Director – Chief
Geologist. From 2009, he held the position of
managing director of OOO NEU, in 2010 he became
the general director of ZAO Investgeoservis. In
2011, he was elected General Director of NOVATEK-
YURKHAROVNEFTEGAS. In 2014, he was elected
General Director of Arctic LNG 2. In 2017, he became
the General Director of Cryogas-Vysotsk.
In April 2019, Sergey Solovyov was appointed
NOVATEK’s Deputy Chairman of the Management
Board — Director for Geology.
MR. ILYA V. TAFINTSEV
Deputy Chairman of the NOVATEK’s Management
Board
Born in 1985
In 2006, Mr. Tafintsev obtained a BA in Economics
from the Higher School of Economics in Moscow. In
2007, he graduated from the University of London
(UK), where he majored in investment and finance.
From 2007 to 2011, Mr. Tafintsev held the position
of Deputy Director of NOVATEK’s Representative
Office in London. Between 2011 and 2014, he was a
Finance and Investment Advisor with United Bureau
of Consultants Limited.
From 2013 to 2015, he served as Strategic Projects
Director of NOVATEK. From 2013 to 2018, Mr.
Tafintsev was Member of the Board of Directors
of SIBUR Holding. Between 2014 and 2016, he held
the position of Chairman of the Board of Directors
of Yamal LNG. In December 2015, Mr. Tafintsev was
appointed Member of the Management Board –
Director for Strategic Projects of NOVATEK.
Since September 2018, he has been Deputy
Chairman of NOVATEK’s Management Board.
MR. LEV V. FEODOSYEV
First Deputy Chairman of NOVATEK’s Management
Board
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 section,
Deputy Director of Department at the Ministry of
Economic Development and Trade of the Russian
Federation. Since October 2007, Lev Feodosyev
has worked for NOVATEK. Before 2011, he worked
in NOVATEK as Director of the Strategic Planning
and Development Department. From 2011, he was
appointed as Deputy Commercial Director, Director
of the Marketing and Gas Sales Department of
NOVATEK. From February 2015, Mr. Feodosyev was
appointed Deputy Chairman of the Management
Board, Commercial Director of NOVATEK.
From February 2018, he was appointed First Deputy
Chairman of NOVATEK’s Management Board. In 2014,
Mr. Feodosyev was awarded NOVATEK’s Honorary
Certificate.
93
Annual Report 2020THINK GREEN. THINK NATURAL GAS. MR. ALEXANDER M. FRIDMAN
First Deputy Chairman of NOVATEK’s Management
Board (Authorities terminated from 2 November
2020)
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 employed by various Gazprom
companies: as Chief Engineer of Nadymgazprom,
Head of the Production and Technical Department
of the Industrial Association, and Chief Engineer
of Mostransgaz’s Kaluga Department for Gas
Transportation and Underground Storage. From 1992
to 2003, he was Technical Director and First Deputy
General Director of a joint venture established
by PAO Gazprom and DKG-EAST (Hungary). From
2003, Mr. Fridman was the Deputy General Director
of Novafininvest. In 2004, Alexander Fridman was
elected Deputy Chairman of the Management
Board of NOVATEK. In August 2007, he was elected
a member of NOVATEK’s Management Board. From
February 2015, he was First Deputy Chairman of the
Management Board of NOVATEK. Mr. Fridman is the
recipient of the title of honor “Honored Man of the
Oil and Gas Industry”.
Report on major, and interested-party
transactions that the Company did in the
reporting year
Corporate Governance Code Compliance
Report
The list of transactions made by the Company
in the reporting year, recognized in accordance
with the Federal Law “On Joint Stock Companies”
as major transactions and (or) interested-party
transactions, is not disclosed in accordance with
Resolution of the Government of the Russian
Federation No. 400 dated 4 April 2019.
This Corporate Governance Code Compliance
Report (hereinafter ”the Report”) was reviewed at
the meeting of PAO NOVATEK’s Board of Directors
on 19 March 2021 (Minutes No.240).
The Board of Directors certifies that data in this
Report contain full and reliable information on
compliance by the Company with the principles and
recommendations of the Corporate Governance
Code for 2020.
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.
Item
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
1.1
1.1.1
The Сompany should ensure equitable and fair treatment of every shareholder exercising their right to take part
in managing the Сompany.
This principle is
complied with.
–
The Сompany 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.
1. The Сompany’s internal
document approved by the
general meeting of shareholders
and governing the procedures
for holding the general meeting
is publicly available.
2. The Сompany 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
Сompany performed the above
actions in advance of each
general meeting held in the
reporting period.
94
95
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Item
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
Item
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
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.
1.1.3
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. 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.
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.
This principle is
complied with.
–
This principle is
complied with.
–
This principle
is not fully
complied with.
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 accordance with paragraph
1 of Art. 54 of the Russian Federal
Law “On Joint Stock Companies”,
the list of information (materials)
provided to shareholders in
preparation for the General
Meeting of Shareholders is
determined by the Board of
Directors. Accordingly, the Board
of Directors is entitled to include
its position on the issues on the
agenda of the general meeting
of shareholders, if it deems it
necessary.
The Company considers the
established procedure to be
balanced, not bearing any
risks for the Company and its
shareholders, and does not plan
to change the existing approach.
This principle is
complied with.
–
This principle is
complied with.
–
This principle is
complied with.
–
3. The Company gave duly
authorized 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. 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.
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.
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.
Each shareholder was
able to freely exercise
their voting right in
the simplest and most
convenient way.
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 ask
questions.
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.
This principle is
complied with.
–
1.1.4
1.1.5
1.1.6
This principle is
complied with.
–
This principle is
complied with.
–
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.
96
97
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Item
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status
Reasons for non-compliance
Item
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
1.2
Shareholders are given equal and fair opportunities to share profits of the Company in the form of dividends.
1.2.1
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.
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.
This principle is
complied with.
–
This principle is
complied with.
–
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.
This principle is
complied with.
–
This principle is
not complied
with.
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.
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 Company does not see any
risks in the established practice,
as the system of procurement
procedures introduced in the
Company ensures the conclusion
of contracts on market terms.
Corporate governance framework and practices should ensure equality for the shareholders owning the same
type (class) of shares, including minority and non-resident shareholders, and their equitable treatment by the
Company.
This principle is
complied with.
–
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.
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.
1.2.2
1.2.3
1.2.4
1.3
1.3.1
98
1.3.2
1.4
1.4.1
2.1
2.1.1
The Company does not
take any actions that
lead or may lead to
artificial redistribution of
corporate control.
1. No quasi-treasury shares were
issued or used to vote in the
reporting period.
This principle is
complied with.
–
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.
This principle is
complied with.
–
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.
1. The board of directors has
the authority stipulated in
the Articles of Association to
appoint and remove members of
executive bodies and to set out
the terms and conditions of their
contracts.
This principle
is not fully
complied with.
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.
The issue of determining the
amount of remuneration paid to
the Chairman of the Management
Board based on the results of
the work for the year, falls within
the authority of the Board of
Directors.
In accordance with the
Company’s Articles of
Association, the members of
the Management Board are
elected by the Board of Directors
from among the Company’s
employees, solely on the
recommendation of the Chairman
of the Management Board. The
amounts of official salaries and
other terms of employment
contracts with the Company’s
employees, including members
of the Management Board, are
determined by the Chairman of
the Management Board taking
into account the parameters
of the Company’s business
plan approved by the Board of
Directors in accordance with
the NOVATEK Group Executive
Bodies and other Key Employees
Remuneration And Expense
Reimbursement Policy approved
by the Board of Directors.
The Company considers the
established procedure to be
effective, balanced, not bearing
any risks for the Company and its
shareholders, and does not plan
to change the existing approach.
99
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Reasons for non-compliance
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.
This principle is
complied with.
–
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.
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.
This principle is
complied with.
–
2.1.3
The Board of Directors
defines the Company's
risk management and
internal control principles
and approaches.
1. The Board of Directors defined
the Company’s risk management
and internal control principles
and approaches.
This principle is
complied with.
–
2. The Board of Directors
assessed the company’s risk
management and internal control
system 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).
1. The board of directors plays a
key role in preventing, identifying
and resolving internal conflicts.
This principle is
complied with.
–
2. The company set up
mechanisms to identify
transactions leading to a conflict
of interest and to resolve such
conflicts.
1. The board of directors
approved the company’s
information policy regulations.
This principle is
complied with.
–
2. The company identified
persons responsible for
implementing the information
policy.
The board of directors
determines the
company’s remuneration
and reimbursement
(compensation) policy for
its directors, members
of executive bodies and
other key executives.
The board of directors
plays a key role in
preventing, identifying
and resolving internal
conflicts between the
company’s bodies,
shareholders and
employees.
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.
2.1.4
2.1.5
2.1.6
100
2.1.7
The board of directors
controls the company’s
corporate governance
practices and plays a key
role in material corporate
events of the company.
1. In the reporting period, the
board of directors reviewed
the company’s corporate
governance practices.
This principle is
complied with.
–
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.
2.2.2
The chairman of the
board of directors is
available to communicate
with the company’s
shareholders.
This principle is
complied with.
–
This principle is
complied with.
–
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.
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.
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.
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.
This principle is
complied with.
–
This principle is
complied with.
–
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.
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.
101
This principle is
complied with.
–
2.3
2.3.1
The board of directors manages the company in an efficient and competent manner and makes fair and
independent judgments and decisions in line with the best interests of the company and its shareholders.
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Item
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Item
No.
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Compliance
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Reasons for non-compliance
This principle is
complied with.
–
This principle is
complied with.
–
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.
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.
2.3.3
2.3.4
The board of directors
has a balanced
membership, including
in terms of directors’
qualifications,
experience, expertise and
business qualities, and
enjoys its shareholders’
trust.
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.
2.4
The board of directors includes a sufficient number of independent directors.
This principle is
complied with.
–
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.
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.
2.4.1
102
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.
2.4.3
2.4.4
Independent directors
make up at least one
third of the elected
board members.
Independent directors
play a key role in
preventing internal
conflicts in the company
and in ensuring that
the company performs
material corporate
actions.
This principle is
complied with.
–
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.
1. Independent directors make up
at least one third of the board
members.
This principle is
complied with.
–
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.
This principle
is not fully
complied with.
In accordance with the
Company’s Articles of
Association, the Regulations on
the Board of Directors and the
Regulations on the Committees
of the Board of Directors, a
large block of issues related to
significant corporate actions
is preliminarily considered by
the Audit Committee and the
Remuneration Committee
consisting of independent
directors. In addition, most of
such decisions shall be approved
by the Board of Directors, if
8 out of 9 directors voted for the
corresponding decision. Thus,
any two independent directors
may block the adoption of an
undesirable decision in their
opinion.
The Company believes that
independent directors have
sufficient capacity to assess
significant corporate actions.
103
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No.
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Reasons for non-compliance
The chairperson of the board ensures that the board of directors discharges its duties in the most effective and
efficient way.
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.
1.The board of directors is
chaired by an independent
director, or a senior independent
director is appointed from among
the independent directors.
This principle
is not fully
complied with.
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 role of independent
directors on the Company’s
Board of Directors is
very important, since the
Audit Committee and the
Remuneration and Nomination
Committee of the Board of
Directors are comprised of
independent directors only.
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 of the
Board members who is not an
independent director.
The Company considers the
established procedure to be
balanced and does not plan to
change the existing approach.
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.
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.
This principle is
complied with.
–
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. 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
This principle is
complied with.
–
2.5
2.5.1
2.5.2
2.5.3
104
2.6
2.6.1
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.
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.
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.
This principle is
complied with.
–
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.
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.
This principle is
complied with.
This principle is
complied with.
–
–
This principle is
complied with.
–
2.6.2
The rights and duties
of directors are clearly
stated and incorporated
in the company’s internal
documents.
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.
105
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No.
Corporate Governance
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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.
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.
2.7
2.7.1
2.7.2
2.7.3
Meetings of the board of directors, preparation for such meetings and participation of board members therein
ensure efficient performance by the board of directors.
2.7.4
Board meetings are held
as needed, taking into
account the scale of
operations and goals
of the company at a
particular time.
The company's internal
regulations stipulate the
procedure to prepare
for and hold the board's
meetings, enabling the
directors to make proper
preparations for them:
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.
This principle is
complied with.
–
This principle is
complied with.
–
This principle is
complied with.
–
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.
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.
Compliance
status
This principle
is not fully
complied with.
Reasons for non-compliance
The Company’s Articles of
Association do 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
Articles of Association
– review of material issues
relating to operations of legal
entities controlled by the
Company.
The Company deems sufficient
the existing norm stipulated in
the legislation and the Articles
of Association according to
which decisions on amendments
and additions in the Company’s
Articles of Association, including
approval of the latter in a new
wording, as well as on Company’s
liquidation, appointment of
a winding up commission and
approval of the interim and final
liquidation balance shall be made
by the general shareholders
meeting by the three-fourths
majority of the votes of
shareholders holding the voting
shares and taking part in the
general shareholders meeting.
The Company considers the
established procedure to be
balanced, not bearing any risks,
and does not plan to change the
existing approach.
106
107
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Item
No.
Corporate Governance
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Compliance
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Reasons for non-compliance
The board of directors sets up committees for preliminary consideration of the most important issues related to
the business of the company.
2.8.4
2.8
2.8.1
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.
2.8.2
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.
2.8.3
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.
This principle is
complied with.
–
This principle is
complied with.
–
This principle is
complied with.
–
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, analyzing, 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.
This principle is
complied with.
–
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.
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.).
2.8.5 Committees are
composed so as to
enable comprehensive
discussions of matters
under review, 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.
This principle is
complied with.
–
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.
This principle is
complied with..
–
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.
This principle is
complied with..
–
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 the 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.
108
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Corporate Governance
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Compliance
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Reasons for non-compliance
This principle is
complied with.
–
1. During the reporting period,
the remuneration committee
considered the remuneration
policy (policies) and the practical
aspects of its (their) introduction
and presented relevant
recommendations to the board
of directors as required.
This principle is
complied with.
–
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.
This principle is
complied with.
–
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.
4.1.2
4.1.3
4.1.4
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.
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.
This principle is
complied with.
–
Performance of the
board of directors,
its committees and
directors is assessed on
a regular basis at least
once a year. An external
organization (advisor) is
engaged at least once in
three years to conduct an
independent assessment
of the board of directors’
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.
1. The company has adopted and
published an internal document –
regulations on the corporate
secretary.
This principle is
complied with.
–
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.
The board of directors approves
the appointment, removal and
additional remuneration of the
corporate secretary.
This principle is
complied with.
–
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.
The corporate
secretary is sufficiently
independent of the
company’s executive
bodies and has the
powers and resources
required to perform his/
her tasks.
Remuneration paid by the company is sufficient to attract, motivate and retain persons who have competencies
and qualifications required by the company. Directors, executive body members and other key managers are
remunerated as per the company’s remuneration policy.
This principle is
complied with.
–
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 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.
2.9.2
3.1
3.1.1
3.1.2
4.1
4.1.1
110
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Principles
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Compliance
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Reasons for non-compliance
Item
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
Directors’ remuneration ensureS that their financial interests are aligned with long-term financial interests of
shareholders.
Remuneration of executive body members and other key managers is linked to the company’s results and their
personal contribution thereto.
This principle is
complied with.
–
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.
4.3
4.3.1
Remuneration due to
members of executive
bodies and other key
executives of the
company is determined
in a manner providing
for a 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. 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.
This principle is
complied with.
Not applicable, since the
Regulations on Remuneration
and Compensations Payable to
Members of PAO NOVATEK board
of directors do not provide for
remuneration of the directors
with company shares.
This principle is
complied with.
–
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.
4.3.2
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 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 the 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.
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.
4.2
4.2.1
4.2.2
4.2.3
112
This principle
is not fully
complied with.
The procedure for defining and
payment of bonuses to members
of the Management Board and
other key executives existing
in the Company does not allow
illegal receipt of bonus payments
by the persons named. The
Company believes the executive
bodies' members' civil liability
norms set out in the applicable
law to be sufficient.
This principle is
not complied
with.
Currently, the Company does not
consider necessary implementing
a long-term incentive program
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).
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
an 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.
1. The company has in place a
long-term incentive program 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
program 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 program
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.
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Principles
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Reasons for non-compliance
Item
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
This principle is
complied with.
–
5.2
5.2.1
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.
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 an effective risk management and internal control system to guarantee, in a
reasonable manner, fulfillment of the company’s goals.
5.2.2
4.3.3
5.1
5.1.1
5.1.2
5.1.3
5.1.4
114
The board of directors of
the Company has defined
the Company's risk
management and internal
control principles and
approaches.
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.
This principle is
complied with.
–
This principle is
complied with.
–
1. The company has in place an
approved anti-corruption policy.
This principle is
complied with.
–
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.
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.
This principle is
complied with.
–
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.
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 arranges for an internal audit, to assess reliability and performance of the risk management and
internal control system on a regular and independent basis.
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.
This principle is
complied with.
–
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.
This principle is
complied with.
–
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.
6.1
The company and its operations are transparent for its shareholders, investors and other stakeholders.
6.1.1
6.1.2
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.
This principle is
complied with.
–
This principle is
complied with.
–
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.
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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Annual Report 2020THINK GREEN. THINK NATURAL GAS. Item
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Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
Item
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
6.2
6.2.1
The company discloses up-to-date, complete and reliable information on its operations in due time, to enable its
shareholders and investors to make informed decisions.
The company discloses
information based
on the principles of
regularity, consistency
and promptness, as
well as availability,
reliability, completeness
and comparability of
disclosed data.
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.
This principle is
complied with.
–
6.3
6.3.1
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.
This principle
is not fully
complied with.
The Company’s Information
Policy determines an easy
procedure for providing
shareholders with access to
information, with the exception
of information on legal entities
controlled by the Company,
the provision of which is not
prescribed for by law.
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.
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.
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.
6.2.3
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.
This principle is
complied with.
–
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.
This principle
is not fully
complied with.
The Company discloses its
capital structure to the extent
required by the applicable laws.
7.1
7.1.1
This principle is
complied with.
–
Actions which will or may materially affect the company’s share capital structure and its financial position and
accordingly the position of its shareholders (“material corporate actions”) are taken on fair terms ensuring that
the rights and interests of the shareholders and other stakeholders are observed.
This principle
is not fully
complied with.
The Company’s Articles of
Association do not contain a
separate section with a list of
significant corporate actions. At
the same time, decision-making
on issues related to significant
corporate actions falls within
the authority of the Board of
Directors.
The Company does not see any
risks in this.
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.
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.
116
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Annual Report 2020THINK GREEN. THINK NATURAL GAS. Compliance
status
This principle
is not fully
complied with.
Reasons for non-compliance
Relevant comments are provided
in items 2.4.4. and 2.5.1 hereof.
This principle is
complied with.
–
Item
No.
Corporate Governance
Principles
Compliance criteria
1. The company has in place a
procedure enabling independent
directors to express their
opinions on material corporate
actions prior to approval thereof.
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.
7.1.2
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.
7.1.3 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.
Compliance
status
This principle is
not complied
with.
Reasons for non-compliance
The need to involve an appraiser
for the valuation of the purchase
price of the Company's shares
is provided by the current
legislation. There is no need to
duplicate this requirement in
the internal documents of the
Company.
Item
No.
Corporate Governance
Principles
Compliance criteria
7.2.2
Rules and procedures
related to material
corporate actions taken
by the company are set
out in the company’s
internal documents.
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 provides a procedure for taking material corporate actions that would enable its shareholders
to receive full information about such actions in due time and influence them, and also guarantee that the
shareholder rights are observed and duly protected when such actions are taken.
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.
This principle is
complied with.
–
7.2
7.2.1
118
119
Annual Report 2020THINK GREEN. THINK NATURAL GAS. Forward–looking Statements
• changes in the balance of oil and gas supply and
Terms and Abbreviations
Conversion Factors
This Annual Review includes ‘forward-looking
information’ within the meaning of Section 27A of
the US Securities Act of 1933, as amended, and
Section 21E of the US Securities Exchange Act of
1934, as amended. Certain statements included in
this Annual Report and Accounts, including, without
limitation, statements concerning plans, objectives,
goals, strategies, future events or performance,
and underlying assumptions and other statements,
which are other than statements of historical
facts. The words “believe,” “expect,” “anticipate,”
“intends,” “estimate,” “forecast,” “project,”
“will,” “may,” “should” and similar expressions
identify forward-looking statements. Forward-
looking statements include statements regarding:
strategies, outlook and growth prospects; future
plans and potential for future growth; liquidity,
capital resources and capital expenditures; growth
in demand for our products; economic outlook and
industry trends; developments of our markets;
the impact of regulatory initiatives; and the
strength of our competitors. The forward-looking
statements in this Annual Review are based upon
various assumptions, many of which are based, in
turn, upon further assumptions, including without
limitation, management’s examination of historical
operating trends, data contained in our records
and other data available from third parties.
Although we believe that these assumptions were
reasonable when made, these assumptions are
inherently subject to significant uncertainties and
contingencies, which are difficult or impossible to
predict and are beyond our control. As a result, we
may not achieve or accomplish these expectations,
beliefs or projections. In addition, important
factors that, in our view, could cause actual results
to differ materially from those discussed in the
forward-looking statements include:
demand in Russia and Europe;
• the effects of domestic and international oil and
gas price volatility and changes in regulatory
conditions, including prices and taxes;
• the effects of competition in the domestic and
export oil and gas markets;
• our ability to successfully implement any of our
business strategies;
• the impact of our expansion on our revenue
potential, cost basis and margins;
• our ability to produce target volumes in the
event, among other factors, of restrictions on
our access to transportation infrastructure;
• the effects of changes to our capital
expenditure projections on the growth of our
production;
• potentially lower production levels in the future
than currently estimated by our management
and/or independent petroleum reservoir
engineers;
• inherent uncertainties in interpreting geophysical
data;
Mentions in this Annual Report of “PAO NOVATEK”,
“NOVATEK”, “the Company”, “we” and “our” refer
to PAO NOVATEK and/or its subsidiaries (according
to IFRS methodology) and/or joint ventures
(accounted for on an equity basis according to
IFRS standards), depending upon the context, in
which the terms are used.
barrel
bcm
boe
km
one stock tank barrel, or 42 US gallons of
liquid volume
billion cubic meters
barrels of oil equivalent
kilometer(s)
mboe
thousand boe
mcm
thousand cubic meters
mt
thousand metric tons
• changes to project schedules and estimated
mmboe
million boe
1000 cubic meters of gas = 6.54 boe.
To convert crude oil and gas condensate reserves
from tons to barrels we used various coefficients
depending on the liquids density at each field.
mmcm
million cubic meters
mmt
million metric tons
mmtpa
million metric tons per annum
mtpa
thousand metric tons per annum
ton
SEC
metric ton
United States Securities and Exchange
Commission
PRMS
Petroleum Resources Management System
NSR
Northern Sea Route
YNAO
Yamal-Nenets Autonomous Region
RR
LPG
LNG
Russian rouble
liquified petroleum gases
liquified natural gas
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 standards
or practices.
This list of important factors is not exhaustive.
When relying on forward-looking statements, one
should carefully consider the foregoing factors
and other uncertainties and events, especially in
light of the political, economic, social and legal
environment in which we operate. Such forward
looking statements speak only as of the date
on which they are made. Accordingly, we do not
undertake any obligation to update or revise any
of them, whether as a result of new information,
future events or otherwise. We do not make
any representation, warranty or prediction that
the results anticipated by such forward-looking
statements will be achieved, and such forward-
looking statements 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 opinions contained in this
document are provided as at the date of this
review and are subject to change without notice.
120
121
Annual Report 2020THINK GREEN. THINK NATURAL GAS. PAO NOVATEK
IFRS CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
AND INDEPENDENT AUDITOR’S REPORT
IFRS Consolidat-
ed Financial State-
ments for 2020
122
CONTENTS
Page
Independent Auditor’s Report ................................................................................................................................. 3
Consolidated Statement of Financial Position ....................................................................................................... 10
Consolidated Statement of Income ........................................................................................................................ 11
Consolidated Statement of Comprehensive Income .............................................................................................. 12
Consolidated Statement of Cash Flows ................................................................................................................. 13
Consolidated Statement of Changes in Equity ...................................................................................................... 15
Notes to the Consolidated Financial Statements:
Note 1. Organization and principal activities .................................................................................................... 16
Note 2. Basis of preparation .............................................................................................................................. 16
Note 3. Critical accounting estimates and judgments ........................................................................................ 17
Note 4. Acquisitions and disposals.................................................................................................................... 19
Note 5. Property, plant and equipment .............................................................................................................. 23
Note 6. Investments in joint ventures ................................................................................................................ 26
Note 7. Long-term loans and receivables .......................................................................................................... 32
Note 8. Other non-current assets ....................................................................................................................... 33
Note 9. Inventories ............................................................................................................................................ 33
Note 10. Trade and other receivables .................................................................................................................. 33
Note 11. Prepayments and other current assets ................................................................................................... 34
Note 12. Cash and cash equivalents .................................................................................................................... 34
Note 13. Long-term debt ..................................................................................................................................... 35
Note 14. Pension obligations ............................................................................................................................... 35
Note 15. Trade payables and accrued liabilities .................................................................................................. 37
Note 16. Shareholders’ equity ............................................................................................................................. 37
Note 17. Oil and gas sales ................................................................................................................................... 38
Note 18. Purchases of natural gas and liquid hydrocarbons ................................................................................ 38
Note 19. Transportation expenses ....................................................................................................................... 39
Note 20. Taxes other than income tax ................................................................................................................. 39
Note 21. Materials, services and other ................................................................................................................ 39
Note 22. General and administrative expenses .................................................................................................... 40
Note 23. Finance income (expense) .................................................................................................................... 40
Note 24. Income tax ............................................................................................................................................ 41
Note 25. Financial instruments and financial risk factors ................................................................................... 44
Note 26. Contingencies and commitments .......................................................................................................... 54
Note 27. Principal subsidiaries and joint ventures .............................................................................................. 58
Note 28. Related party transactions ..................................................................................................................... 59
Note 29. Segment information ............................................................................................................................ 61
Note 30. Summary of significant accounting policies ......................................................................................... 62
Note 31. New accounting pronouncements ......................................................................................................... 68
Unaudited supplemental oil and gas disclosures ................................................................................................... 69
Contact Information .............................................................................................................................................. 74
THINK GREEN. THINK NATURAL GAS.
Independent Auditor’s Report
To the Shareholders and Board of Directors of PAO NOVATEK:
Our opinion
In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of PAO NOVATEK and its subsidiaries (together – the “Group”) as at
31 December 2020, and the Group’s consolidated financial performance and consolidated cash flows
for the year then ended in accordance with International Financial Reporting Standards (IFRS).
What we have audited
The Group’s consolidated financial statements comprise:
•
•
•
•
•
•
the consolidated statement of financial position as at 31 December 2020;
the consolidated statement of income for the year then ended;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of cash flows for the year then ended;
the consolidated statement of changes in equity for the year then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit
International Standards on Auditing (ISAs).
Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the consolidated financial statements section of our report.
in accordance with
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the International Code of Ethics for Professional
Accountants (including International Independence Standards) issued by the International Ethics
Standards Board for Accountants (IESBA Code) and the ethical requirements of the Auditor’s
Professional Ethics Code and Auditor’s Independence Rules that are relevant to our audit of the
consolidated financial statements in the Russian Federation. We have fulfilled our other ethical
responsibilities in accordance with these requirements and the IESBA Code.
Our audit approach
Overview
Materiality
Group
scoping
Key audit
matters
• Overall
group
materiality:
Russian Roubles (“RUB”)
6,200 million which represents 4% of adjusted profit before tax
excluding currency exchange differences, net gain on disposal
of interests in subsidiaries and joint ventures and the Group’s
share of joint ventures’ currency exchange differences net of
income tax.
• We conducted audit work covering all significant components in
Russia, Switzerland, Singapore and Republic of Cyprus.
• Our audit scope addressed more than 99% of the Group’s
revenues and more than 99% of absolute value of income and
expense items forming the Group’s underlying profit before tax.
•
Impairment of production assets and investments in joint
ventures.
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the consolidated financial statements. In particular, we considered where management
made subjective judgements; for example, in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. As in all of our audits,
we also addressed the risk of management override of internal controls, including among other matters
consideration of whether there was evidence of bias that represented a risk of material misstatement
due to fraud.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the consolidated financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually
or in aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the consolidated financial statements as a whole as set out in
the table below. These, together with qualitative considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, if any, both individually and in aggregate on the consolidated financial statements as a
whole.
AO PricewaterhouseCoopers Audit
White Square Office Center 10 Butyrsky Val Moscow, Russian Federation, 125047
T: +7 (495) 967-6000, F:+7 (495) 967-6001, www.pwc.ru
ii
Overall Group materiality
RUB 6,200 million
How we determined it
Rationale for the materiality benchmark
applied
4% of adjusted profit before tax excluding currency
differences, net gain on disposal of interests in
subsidiaries and joint ventures and share of joint
ventures’ currency differences net of income tax.
We chose profit before tax as the benchmark
because, in our view, it is the benchmark against
which the performance of the Group is most
commonly measured by users, and is a generally
accepted benchmark. The use of adjusted profit
before tax mitigates the effect of volatility (that could
be material) caused by non-recurring factors such as
gains on disposals of assets and foreign exchange
differences and provides a more stable basis for
determining materiality, focusing on the underlying
profitability of the Group.
We chose 4% which is consistent with quantitative
materiality
for profit-oriented
companies in this sector and prior year approach.
thresholds used
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Impairment of production assets and
investments in joint ventures
Due to the lower demand for crude oil, natural
gas and oil products and a fall in global
is a
hydrocarbon commodity prices
possibility that property, plant and equipment,
as well as investments in joint ventures may not
be recoverable.
there
We focused on this area due to the significance
of the carrying values of property, plant and
equipment and of the investments in joint
ventures for the Group, and due to the nature of
judgements and assumptions management is
required to make in determining whether there
are any impairment triggers or impairments.
We analyzed management’s assessment of the
impairment triggers, including decrease in estimated
hydrocarbon reserves for particular fields where
applicable, and agreed that impairment triggers
existed as of the reporting date. We engaged our
valuation experts to form our conclusion on the
assumptions and methodology that were used in the
impairment assessment.
We evaluated impairment models for production
assets and investments in joint ventures prepared by
management to identify recoverable amount as
value-in-use using discounted cash flows models.
Specific work
the
assessment of the impairment models prepared by
management included:
that we performed over
• evaluation of the methodology used by the Group
management for the impairment test;
Key audit matter
How our audit addressed the key audit matter
There was no impairment charge identified as a
result of the impairment test performed as
disclosed in Note 5 of the consolidated financial
statements.
• comparing the assumptions used within the
impairment review models to approved plans and
models of the Group, which we found to be
consistent;
• benchmarking some of the key assumptions
including commodity prices, discount rates and
inflation rates against available reliable external
industry-specific expertise,
sources and our
which we found to be consistent;
• performing
sensitivity analysis over
key
assumptions in the models in order to assess the
potential impact of reasonably possible changes
in key assumptions and of a range of possible
outcomes on the carrying value of underlying
assets / cash-generating units; and
• challenged management on inclusion of cash
flows from all appropriate assets and liabilities
in the cash-generating units.
For investments in joint ventures we also reconciled
adjustments for the Group’s share in carrying
amount of assets and liabilities of joint venture with
respective financial reporting items.
How we tailored our Group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion
on the consolidated financial statements as a whole, taking into account the structure of the Group, the
accounting processes and controls and the industry in which the Group operates.
In establishing the overall group audit strategy and plan, we determined the type of work that needed to
be performed at the reporting units by the group engagement team and by the component auditors from
other PwC network firms. For each reporting unit we issued specific instructions to the component
auditors within our audit scope. We determined the level of involvement for component auditors whom
we need to engage in the audit process at those reporting units so as to be able to conclude whether
sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated
financial statements as a whole. We determined whether we required an audit of full scope of financial
information or whether a defined scope of specified procedures was sufficient.
The Group’s consolidated financial statements disclosures and a number of financial statement line
items are audited directly by the PAO NOVATEK audit engagement team. Our procedures included,
among others, the assessment of accounting estimates and judgements applied by management in
respect of fair values and classification of financial assets and liabilities, deferred income tax asset
recognition, estimation of oil and gas reserves, expected credit loss allowance of financial assets and
impairment of non-financial assets, pension obligations and asset retirement obligations.
By performing the procedures described above at the individual component level, combined with the
additional procedures performed at the group level, we have obtained sufficient and appropriate audit
evidence regarding the financial information of the Group to provide a basis for our opinion on the
consolidated financial statements.
iii
iv
Other information
Management is responsible for the other information. The other information comprises report
“Management’s discussion and analysis of
results of operations
of PAO NOVATEK for the years ended 31 December 2020 and 2019” (but does not include the
consolidated financial statements and our auditor’s report thereon), which we obtained prior to the date
of this auditor’s report, and “Quarterly Issuer's Report of PAO NOVATEK for the first quarter of 2021”
as well as “Annual Report Review of PAO NOVATEK for 2020”, which are expected to be made available
to us after that date.
financial condition and
Our opinion on the consolidated financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information identified above and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
When we read the “Annual Report Review of PAO NOVATEK for 2020” and “Quarterly Issuer's Report
of PAO NOVATEK for the first quarter of 2021”, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the Group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
v
vi
PAO NOVATEK
Consolidated Statement of Comprehensive Income
(in millions of Russian roubles)
Profit
Other comprehensive income (loss)
Notes
2020
2019
Year ended 31 December:
78,586
883,461
Items that will not be reclassified subsequently to profit (loss)
Remeasurement of pension obligations
Share of remeasurement
of pension obligations of joint ventures
14
Items that may be reclassified subsequently to profit (loss)
Currency translation differences
Share of currency translation differences of joint ventures
Other comprehensive income (loss)
Total comprehensive income
Total comprehensive income attributable to:
Non-controlling interest
Shareholders of PAO NOVATEK
(92)
(80)
(172)
(43)
(1,119)
(1,162)
(1,334)
77,252
10,754
66,498
(976)
(205)
(1,181)
4,860
656
5,516
4,335
887,796
17,984
869,812
The accompanying notes are an integral part of these consolidated financial statements.
PAO NOVATEK
Consolidated Statement of Income
(in millions of Russian roubles, except for share and per share amounts)
Revenues
Oil and gas sales
Other revenues
Total revenues
Operating expenses
Purchases of natural gas and liquid hydrocarbons
Transportation expenses
Taxes other than income tax
Depreciation, depletion and amortization
Materials, services and other
General and administrative expenses
Exploration expenses
Impairment (expenses) reversals, net
Changes in natural gas,
liquid hydrocarbons and work-in-progress
Total operating expenses
Gain on disposal
of interests in subsidiaries and joint ventures, net
Other operating income (loss), net
Profit from operations
Finance income (expense)
Interest expense
Interest income
Change in fair value of non-commodity financial instruments
Foreign exchange gain (loss), net
Total finance income (expense)
Share of profit (loss) of joint ventures, net of income tax
Profit before income tax
Income tax expense
Current income tax expense
Deferred income tax benefit (expense), net
Total income tax expense
Profit
Profit attributable to:
Non-controlling interest
Shareholders of PAO NOVATEK
Basic and diluted earnings per share (in Russian roubles)
Weighted average number of shares outstanding (in millions)
Notes
2020
2019
Year ended 31 December:
17
18
19
20
5
21
22
5
4
25
23
23
25
23
6
24
699,750
12,062
711,812
(235,224)
(154,757)
(54,501)
(39,238)
(29,577)
(26,795)
(9,103)
(254)
(2,613)
(552,062)
69
(46,807)
852,232
10,571
862,803
(330,818)
(151,651)
(61,981)
(32,230)
(25,183)
(24,568)
(8,386)
(162)
(5,484)
(640,463)
682,733
(35,484)
113,012
869,589
(4,939)
25,440
(7,397)
147,461
160,565
(4,491)
20,699
12,827
(44,747)
(15,712)
(143,981)
149,238
129,596
1,003,115
(52,016)
1,006
(51,010)
(97,832)
(21,822)
(119,654)
78,586
883,461
10,754
67,832
22.58
3,004.5
17,984
865,477
287.39
3,011.5
The accompanying notes are an integral part of these consolidated financial statements.
11
12
PAO NOVATEK
Consolidated Statement of Cash Flows
(in millions of Russian roubles)
PAO NOVATEK
Consolidated Statement of Cash Flows
(in millions of Russian roubles)
Profit before income tax
129,596
1,003,115
Cash flows from financing activities
Notes
2020
2019
Year ended 31 December:
Notes
2020
2019
Year ended 31 December:
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from short-term debt
with original maturity more than three months
Repayments of short-term debt
with original maturity more than three months
Increase (decrease) in short-term debt
with original maturity three months or less, net
Loan commitment fee
Interest on debt paid
Dividends paid to shareholders of PAO NOVATEK
Dividends paid to non-controlling interest
Payments of lease liabilities
Purchases of treasury shares
16
16
45,395
(5,935)
441
(441)
36
(534)
(2,402)
(89,857)
(11,858)
(4,649)
(8,271)
-
(2,176)
1,000
(1,000)
-
-
(2,237)
(93,468)
(16,758)
(2,944)
(1,865)
Net cash used for financing activities
(78,075)
(119,448)
Net effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
20,518
66,467
53,240
119,707
(7,173)
11,768
41,472
53,240
The accompanying notes are an integral part of these consolidated financial statements.
Adjustments to profit before income tax:
Depreciation, depletion and amortization
Impairment expenses (reversals), net
Foreign exchange loss (gain), net
Gain on disposal of interests
in subsidiaries and joint ventures, net
Interest expense
Interest income
Share of loss (profit) of joint ventures, net of income tax
Change in fair value of non-commodity financial instruments
Revaluation of commodity derivatives and contingent
consideration through profit or loss
Other adjustments
Decrease (increase) in long-term advances given
Working capital changes
Decrease (increase) in trade and other receivables,
prepayments and other current assets
Decrease (increase) in inventories
Increase (decrease) in trade payables and accrued liabilities,
excluding interest and dividends payable
Increase (decrease) in taxes payable, other than income tax
Total effect of working capital changes
Dividends and cash received from joint ventures
Interest received
Income taxes paid excluding actual payments relating to
disposal of interests in subsidiaries and joint ventures
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Payments for mineral licenses
Purchases of materials for construction
Purchases of intangible assets
Capital contributions to joint ventures
Proceeds from disposal of interests in subsidiaries
and joint ventures, net of cash disposed
Actual income tax payments relating to disposal
of interests in subsidiaries and joint ventures
Interest paid and capitalized
Net decrease (increase) in bank deposits
with original maturity more than three months
Guarantee fees paid
Loans provided to joint ventures
Repayments of loans provided to joint ventures
4
6
25
24
5
5
6
4
4, 24
5
7
7
39,238
254
(147,461)
(69)
4,939
(25,440)
143,981
7,397
49,512
1,940
6,013
(13,766)
2,565
(8,615)
2,927
(16,889)
11,420
8,442
(40,977)
171,896
(181,195)
(434)
(17,039)
(1,264)
-
32,230
162
44,747
(682,733)
4,491
(20,699)
(149,238)
(12,827)
34,304
(294)
5,740
(21,498)
7,560
6,086
(2,115)
(9,967)
46,050
47,413
(35,061)
307,433
(144,186)
(7,827)
(12,413)
(1,146)
(298)
195,479
136,541
(23)
(6,343)
43,057
(855)
(120,798)
41,543
(64,540)
(5,903)
(58,945)
(1,427)
(29,664)
20,764
Net cash used for investing activities
(47,872)
(169,044)
13
14
l
a
t
o
T
y
t
i
u
q
e
5
9
5
,
6
8
8
5
3
3
,
4
1
6
4
,
3
8
8
-
n
o
N
t
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5
1
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
1
ORGANIZATION AND PRINCIPAL ACTIVITIES
PAO NOVATEK (hereinafter referred to as “NOVATEK” or the “Company”) and its subsidiaries (hereinafter jointly
referred to as the “Group”) is an independent oil and gas company engaged in the acquisition, exploration, development,
production, processing, and marketing of hydrocarbons with its oil and gas operations located mainly in the Yamal-
Nenets Autonomous District (hereinafter referred to as “YNAO”) of the Russian Federation. The Group delivers its
natural gas and its liquid hydrocarbons on both the Russian domestic and international markets.
The Group sells its natural gas on the Russian domestic market at unregulated market prices (except for deliveries to
residential customers); however, the majority of natural gas sold on the Russian domestic market by all producers is
sold at prices regulated by the governmental agency of the Russian Federation that carries out state regulation of prices
and tariffs for goods and services of natural monopolies in energy, utilities and transportation. The Group’s natural gas
sales volumes on the domestic market fluctuate on a seasonal basis mostly due to Russian weather conditions, with
sales peaking in the winter months of December and January and troughing in the summer months of July and August.
The Group’s joint ventures OAO Yamal LNG and OOO Cryogas-Vysotsk produce liquefied natural gas (“LNG”) at
their LNG plants. The Group purchases a portion of the LNG produced by Yamal LNG and Cryogas-Vysotsk and sells
it primarily on the international markets. The Group’s LNG sales volumes are not subject to significant seasonal
fluctuations.
In August 2020, the Group’s subsidiary OOO NOVATEK-Chelyabinsk launched its first small-scale LNG plant in the
Chelyabinsk Region with a nameplate capacity of 40 thousand tons per annum. The LNG produced is sold primarily as
natural gas motor fuel at the Group’s branded refueling complexes for passenger, cargo transport and mining equipment
in the Chelyabinsk Region and the neighboring areas.
The Group also purchases and sells natural gas on the European market under long-term and short-term supply contracts
to carry out its foreign commercial trading activities, as well as conducts LNG regasification in Poland.
The Group processes unstable gas condensate at its Purovsky Gas Condensate Processing Plant located in close
proximity to its fields into stable gas condensate and liquefied petroleum gas. The majority of stable gas condensate is
further processed at the Group’s Gas Condensate Fractionation and Transshipment Complex located at the port of Ust-
Luga on the Baltic Sea into higher-value refined products (naphtha, jet fuel, gasoil and fuel oil). The remaining stable
gas condensate volumes are sold on domestic and international markets. The Group sells its liquid hydrocarbons at
prices that are subject to fluctuations in underlying benchmark crude oil, naphtha and other gas condensate refined
products prices. The Group’s liquids sales volumes are not subject to significant seasonal fluctuations.
2
BASIS OF PREPARATION
The accompanying consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) under the historical cost convention, as modified by the initial recognition of financial
instruments based on fair value, and by the revaluation of financial instruments categorised at fair value through profit
or loss or other comprehensive income. In the absence of specific IFRS guidance for oil and gas producing companies,
the Group has developed accounting policies in accordance with other generally accepted accounting principles for oil
and gas producing companies, mainly US GAAP, insofar as they do not conflict with IFRS principles.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise judgment in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 3.
Functional and presentation currency. The consolidated financial statements are presented in Russian roubles, the
Group’s presentation currency and the functional currency for the Company and the majority of the Group’s
subsidiaries.
16
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PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
2
BASIS OF PREPARATION (CONTINUED)
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)
Transactions denominated in foreign currencies are converted into the functional currency of each entity at the exchange
rates prevailing on the date of transactions. Monetary assets and liabilities denominated in foreign currencies are
converted into the functional currency of each entity by applying the year end exchange rate. Non-monetary assets and
liabilities denominated in foreign currencies valued at cost are converted into the functional currency of each entity at
the historical exchange rate. Non-monetary assets that are remeasured to fair value, recoverable amount or realizable
value, are converted at the exchange rate applicable to the date of remeasurement. Exchange gains and losses resulting
from foreign currency remeasurement into the functional currency are included in profit (loss) for the reporting period.
On consolidation the assets and liabilities (both monetary and non-monetary) of the Group entities whose functional
currency is not the Russian rouble are translated into Russian roubles at the closing exchange rate at each balance sheet
date. All items included in the shareholders’ equity, other than profit or loss, are translated at historical exchange rates.
The financial results of these entities are translated into Russian roubles using exchange rates at the dates of the
transactions or the average exchange rate for the period when this is a reasonable approximation. Exchange adjustments
arising on the opening net assets and the profits for the reporting period are taken to other comprehensive income and
reported as currency translation differences in the consolidated statement of changes in equity and the consolidated
statement of comprehensive income.
Exchange rates for foreign currencies in which the Group conducted significant transactions or had significant assets
and/or liabilities in the reporting period were as follows:
Russian roubles to one currency unit
2020
2019
2020
2019
At 31 December:
Average rate for the year ended
31 December:
US dollar (USD)
Euro (EUR)
Polish zloty (PLN)
73.88
90.68
20.01
61.91
69.34
16.24
72.15
82.45
18.54
64.74
72.50
16.87
Significant accounting policies. The principal accounting policies are disclosed in Note 30. In 2020, the Group adopted
all IFRS, amendments and interpretations which are effective 1 January 2020 and relevant to its operations. None of
them had material impact on the Group’s consolidated financial statements. In particular, the following amendments to
standards were adopted by the Group starting from 1 January 2020:
Amendments to IFRS 3, Business Combinations. These amendments revise the definition of a business with the aim
to make its application less complicated. In addition, they introduce an optional “concentration test” that, if met,
eliminates the need for further assessment. Under this concentration test, where substantially all of the fair value of
gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not
represent a business. The Group will apply the new definition of a business in accounting for future transactions.
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Consolidated financial statements prepared in accordance with IFRS require management to make estimates which the
Group’s management reviews on a continuous basis, by reference to past experience and other factors considered as
reasonable. Adjustments to accounting estimates and assumptions are recognized in the period in which the estimate is
revised if the change affects only that period or in the period of the revision and subsequent periods, if both are affected.
The Group’s management also makes certain judgments, apart from those involving estimations, in the process of
applying the Group’s accounting policies.
Judgments and estimates that have the most significant effect on the amounts reported in these consolidated financial
statements are described below.
Fair value of financial instruments. The fair value of financial assets and liabilities, other than financial instruments
that are traded in active markets, is determined by applying various valuation methodologies. The Group’s management
uses its judgment to make assumptions primarily based on market conditions existing at each reporting date.
For commodity derivative contracts where observable information is not available, fair value estimations are determined
using mark-to-market analysis and other acceptable valuation methods, for which the key inputs include future prices,
volatility, price correlation, counterparty credit risk and market liquidity. Fair values of the Group’s commodity
derivative contracts and sensitivities are presented in Note 25.
In some cases, judgment is required to determine whether contracts to buy or sell commodities meet the definition of a
derivative. Contracts to buy or sell LNG are not considered to meet the definition of a derivative, as they are not
considered capable of being net settled. Therefore, such contracts are not within the scope of IFRS 9, Financial
Instruments, and are accounted for on an accruals basis.
Fair value estimation of shareholders’ loans to joint ventures is determined using benchmark interest rates adjusted for
the borrower credit risk and free cash flows from the borrower’s strategic plans approved by the shareholders of the
joint ventures. Fair values of the shareholders’ loans to joint ventures and sensitivities are presented in Note 25.
Discounted cash flow analysis is used for loans and receivables as well as debt instruments that are not traded in active
markets. The effective interest rate is determined by reference to the interest rates of financial instruments available to
the Group in active markets. In the absence of such instruments, the effective interest rate is determined by reference
to the interest rates of active market financial instruments available adjusted for the Group’s specific risk premium
estimated by management.
Deferred income tax asset recognition. Management assesses deferred income tax assets at each reporting date and
determines the amount recorded to the extent that realization of the related tax benefit is probable. In determining future
taxable profits and the amount of tax benefits that are probable in the future management makes judgments and applies
estimations based on prior years taxable profits and expectations of future income that are believed to be reasonable
under the circumstances.
Estimation of oil and gas reserves. Oil and gas reserves have a direct impact on certain amounts reported in the
consolidated financial statements, most notably depreciation, depletion and amortization, as well as impairment
expenses and asset retirement obligations. The Group’s principal oil and gas reserves have been independently
estimated by internationally recognized petroleum engineers whereas other oil and gas reserves of the Group have been
determined based on estimates of hydrocarbon reserves prepared by the Group’s management in accordance with
internationally recognized definitions.
Depreciation rates on oil and gas assets using the unit-of-production method are based on proved developed reserves
and total proved reserves estimated by the Group in accordance with rules promulgated by the Securities and Exchange
Commission (SEC) for proved reserves. The Group also uses estimated probable and possible reserves to calculate
future cash flows from oil and gas properties, which serve as an indicator in determining their economic lives and
whether or not property impairment is present.
A portion of the reserves estimated by the Group includes reserves expected to be produced beyond license expiry
dates. The Group’s management believes that there is requisite legislation and past experience to extend mineral
licenses at the initiative of the Group and, as such, intends to extend its licenses for properties expected to produce
beyond the current license expiry dates.
Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject
to change over time as additional information becomes available, such as from development drilling and production
activities or from changes in economic factors, including product prices, contract terms or development plans. In
general, estimates of reserves for undeveloped or partially developed fields are subject to greater uncertainty over their
future life than estimates of reserves for fields that are substantially developed and depleted.
Impairment of investments in joint ventures and property, plant and equipment. Management assesses whether there
are any indicators of possible impairment of investments in joint ventures and property, plant and equipment at each
reporting date based on events or circumstances that indicate that the carrying value of assets may not be recoverable.
Such indicators include changes in the Group’s business plans, changes in commodity prices leading to unprofitable
performances, changes in product mixes, and for oil and gas properties, significant downward revisions of estimated
proved reserves. When value in use calculations are undertaken, management estimates the expected future cash flows
from the asset or cash generating unit and chooses a suitable discount rate in order to calculate the present value of
those cash flows.
17
18
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)
Pension obligations. The costs of defined benefit pension plans and related current service costs are determined using
actuarial valuations. The actuarial valuations involve making demographic assumptions (mortality rates, age of
retirement, employee turnover and disability) as well as financial assumptions (discount rates, expected rates of return
on assets, future salary and pension increases). Due to the long-term nature of these plans, such estimates are subject to
significant uncertainty.
Asset retirement obligations. The Group’s exploration, development and production activities involve the use of wells,
related equipment and operating sites, oil and gas gathering and treatment facilities and in-field pipelines. Generally,
licenses and other regulatory acts set requirements to decommission such assets upon the completion of production, in
accordance with which the Group is obliged to decommission wells, dismantle equipment, restore the sites and perform
other related activities. The Group’s estimates of these obligations are based on current regulatory or license
requirements, as well as actual dismantling costs and other data.
The Group’s management believes that due to the limited history of gas and gas condensate processing plants activities,
the useful lives of these assets are indeterminable (while certain of the operating components and equipment have
definite useful lives). Because of these reasons, and the lack of clear legal requirements as to the recognition of
obligations, the present value of an asset retirement obligation for such processing facilities cannot be reasonably
estimated and, therefore, legal or contractual asset retirement obligations related to these assets are not recognized.
In accordance with the guidelines of IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar
Liabilities, the amount recognized as a provision is the best estimate of the expenditures required to settle the present
obligation at the reporting date based on current legislation where the Group’s respective operating assets are located,
and is subject to change because of modifications, revisions and changes in laws and regulations and their interpretation
thereof. Estimating future asset retirement obligations is complex and requires management to make estimates and
judgments with respect to removal obligations that will occur many years in the future.
Fair value assessment of investment in OOO Arctic LNG 2. As further discussed in Note 4, as a result of the sale of a
10 percent participation interest in Arctic LNG 2 to TOTAL S.A. in March 2019, the Group’s control over Arctic
LNG 2 was replaced by joint control.
In accordance with IAS 28, Investments in Associates and Joint Ventures, the Group recognized a gain resulting from
the remeasurement at fair value of the participation interest retained to the extent of the unrelated investor’s interest in
the new joint venture. The fair value of the investment in Arctic LNG 2 was calculated based on a discounted cash flow
model for the Arctic LNG 2 project including a number of key assumptions, the sensitivities of which are disclosed in
Note 4.
4
ACQUISITIONS AND DISPOSALS
Disposal of a 10 percent participation interest in OOO Arctic LNG 2 in March 2019
In March 2019, the Group sold a 10 percent participation interest in OOO Arctic LNG 2 to TOTAL E&P Salmanov, a
wholly owned subsidiary of TOTAL S.A. Arctic LNG 2 undertakes a project to construct a new LNG plant on the
Gydan peninsula based on the hydrocarbon resources of the Salmanovskoye (Utrenneye) field (the “Project”).
As a part of the transaction on the sale of a 10 percent participation interest in Arctic LNG 2, total consideration to be
paid by TOTAL E&P Salmanov comprises the following:
cash payments to the Group of USD 1,300 million equivalent, of which USD 600 million equivalent was paid upon
the transaction closing date and the remaining amount was paid within twelve months from that date, in the first
quarter of 2020;
contingent cash consideration to the Group consisting of tranches in total of up to USD 800 million equivalent
depending on average crude oil benchmark prices level for the year preceding each payment. The contingent
payments dates are linked to the dates of launching the Project’s LNG trains;
4
ACQUISITIONS AND DISPOSALS (CONTINUED)
capital contributions to OOO Arctic LNG 2 (in the form of contributions to the assets) ranging from USD 363
million to USD 863 million equivalent (these amounts are presented, in particular, taking into account revisions
made upon the entry of the three additional participants to the Project in July 2019, see below) with the terms and
payment amounts depending on the Project’s capital expenditure program determined upon the results of the Final
Investment Decision and the date of production launch at the Project’s first LNG train.
The Group retained a 90 percent participation interest in Arctic LNG 2 after closing the transaction; at the same time,
the terms of the transaction stipulate that key strategic, operational and financial decisions are subject to unanimous
approval by participants. As a result of these changes, upon closing the transaction, the Group’s control over Arctic
LNG 2 was replaced by joint control. The Group determined Arctic LNG 2 to be a joint venture and accounts for the
investment retained under the equity method.
The Group treated the transaction on the sale of a 10 percent participation interest in OOO Arctic LNG 2 as a
contribution of a non-monetary asset to a newly formed joint venture. In accordance with IAS 28, Investments in
Associates and Joint Ventures, the Group recognized within the gain on the transaction the part of a gain resulting from
the remeasurement at fair value of the participation interest retained only to the extent of the unrelated investor’s interest
in the new joint venture.
The following table summarizes the consideration details and shows the components of the gain on disposal of a
10 percent participation interest in Arctic LNG 2:
Cash payments
Contingent consideration (1)
Capital contributions (2) (at 90 percent)
Total consideration
Less: carrying amount of the Group’s 10 percent interest in the net assets
Add: fair value adjustment relating to the retained investment in joint venture
Less: elimination of a 90 percent of the fair value adjustment
Gain on the sale of a 10 percent participation interest
RR million
85,540
35,810
40,446
161,796
(3,382)
1,501,643
(1,351,479)
308,578
(1) – Estimated based on assumptions regarding a discount rate, long-term crude oil prices forecasts and the Project’s realization
schedule.
(2) – Estimated based on assumptions regarding a discount rate, future capital expenditure and the Project’s realization schedule.
Gain on the disposal of a 10 percent participation interest amounted to RR 308,578 million, before associated income
tax (current and deferred) of RR 37,372 million.
The fair value of the investment in Arctic LNG 2 was based on a discounted cash flow model for the Arctic LNG 2
project. The significant assumptions in the discounted cash flow model included: forecasted prices for liquefied natural
gas (“LNG”); anticipated production volumes; future capital expenditures required to build necessary infrastructure and
drill production wells; and the discount factor used in the fair value calculation. The key sensitivities in relation to the
discounted cash flows are:
•
•
future LNG prices were based on benchmark natural gas prices at the major natural gas hubs and benchmark crude
oil prices using forecasted growth rates. If these estimated future crude oil prices were to decrease by one percent
for each year in the cash flow projection then, assuming that other parameters remain unchanged, the fair value of
the retained interest in Arctic LNG 2 and the gain on the transaction would be reduced by RR 36,731 million and
RR 3,673 million, respectively;
future production was based on expected Project capacity. If production volumes were to be one percent lower in
the cash flow projection then, assuming that other parameters remain unchanged, the fair value of the retained
interest in Arctic LNG 2 and the gain on the transaction would be reduced by RR 17,719 million and RR 1,772
million, respectively;
19
20
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
ACQUISITIONS AND DISPOSALS (CONTINUED)
4
ACQUISITIONS AND DISPOSALS (CONTINUED)
4
•
•
future capital expenditure over the Project’s life has been estimated based on preliminary engineering and cost
estimates. If the level of capital expenditure were to be one percent higher in the cash flow projection then,
assuming that other parameters remain unchanged, the fair value of the retained interest in Arctic LNG 2 and the
gain on the transaction would be reduced by RR 8,871 million and RR 887 million, respectively; and
the discount rate was assumed to be 9.4 percent (in US dollar terms). If the discount rate was increased by half of
one percent (to 9.9 percent) then, assuming that other parameters remain unchanged, the fair value of the retained
interest in Arctic LNG 2 and the gain on the transaction would be reduced by RR 152,748 million and RR 15,275
million, respectively.
Below is a breakdown of major classes of assets and liabilities of OOO Arctic LNG 2 at the date of disposal:
Property, plant and equipment
Other non-current assets
Cash and cash equivalents
Other current assets
Long-term debt
Other non-current liabilities
Other current liabilities
Total identifiable net assets at disposal
RR million
73,102
4,486
15,990
5,714
(58,329)
(3,546)
(3,596)
33,821
The following table reconciles the carrying value of net assets of OOO Arctic LNG 2 at the date of disposal and the
carrying value of the retained investment in the entity recorded under the equity method of accounting:
Carrying value of the net assets at disposal
Add: Group’s proportion of proceeds from future capital contributions
Less: carrying amount of the Group’s 10 percent interest in the net assets
Add: fair value adjustment relating to the retained investment in joint venture
Less: elimination of 90 percent of the fair value adjustment
The carrying value of the retained 90 percent participation interest
Less: reclassification of a 30 percent participating interest to assets held for sale
The carrying value of equity investment at the transaction closing date
RR million
33,821
40,446
(3,382)
1,501,643
(1,351,479)
221,049
(73,683)
147,366
At the transaction closing date, the conditions for recognition of a 30 percent participation interest in Arctic LNG 2 as
an asset held for sale in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, have
been met.
The carrying value of the asset held for sale of RR 73,683 million was determined based on the carrying value of the
retained participation interest recognized upon closing the transaction as presented above. In accordance with IAS 12,
Income taxes, the Group recorded associated deferred tax liability in the amount of RR 13,510 million, calculated as
the difference between that carrying value and its tax base, included in the total income tax expense related to the
transaction disclosed above. No impairment of assets was identified as a result of the decision to sell an interest in this
entity.
Disposal of a 30 percent participation interest in OOO Arctic LNG 2 in July 2019
In June 2019, the Group signed agreements with CNPC, CNOOC Limited, Mitsui & Co., Ltd. and JOGMEC on entering
the Arctic LNG 2 project. In accordance with these agreements, CNODC Dawn Light Limited and CEPR Limited,
respective subsidiaries of CNPC and CNOOC Limited, and Japan Arctic LNG B.V., a joint venture of Mitsui & Co.
Ltd. and JOGMEC, each acquired a 10 percent participation interest in ООО Arctic LNG 2 on the terms similar to the
aforementioned terms for TOTAL S.A.’s entrance to the Project. The transactions were closed in July 2019.
As a result of these transactions, the Group’s interest in Arctic LNG 2 is 60 percent. As key strategic, operational and
financial decisions are subject to unanimous approval by the participants, the Group continues recognising the company
to be a joint venture and accounts for this investment under the equity method.
The following table summarizes the consideration details and shows the components of the gain on disposal of an
additional 30 percent participation interest in Arctic LNG 2 in July 2019:
Cash payments
Contingent consideration (1)
Capital contributions (2) (at 60 percent)
Total consideration
Less: carrying amount of the Group’s disposed 30 percent
participation interest classified as held for sale
Gain on the sale of 30 percent participation interest
RR million
245,331
101,689
93,053
440,073
(73,683)
366,390
(1) – Estimated based on assumptions regarding a discount rate, long-term crude oil prices forecasts and the Project’s realization
schedule.
(2) – Estimated based on assumptions regarding a discount rate, future capital expenditure and the Project’s realization schedule.
Gain on the disposal of a 30 percent participation interest amounted to RR 366,390 million, before associated income
tax (current and deferred) of RR 54,668 million.
The total gain on disposal of a 40 percent participation interest in Arctic LNG 2 in 2019 amounted to
RR 674,968 million, before associated income tax (current and deferred) of RR 92,040 million.
Reorganization of AO Arcticgas
At the end of 2018, the Group and PAO Gazprom Neft agreed on series of transactions on reorganizing its joint venture
AO Arcticgas aimed at obtaining by the Arcticgas’ shareholders the full ownership over certain assets.
Under this agreement, in February 2019, the Group made a contribution of 100 percent participation interest in
OOO NOVATEK-Yarsaleneftegas, the holder of the license for exploration and production of hydrocarbons within the
Malo-Yamalsky license area, to the capital of Arcticgas. The carrying value of the net assets of NOVATEK-
Yarsaleneftegas at the disposal date was RR 2.2 billion.
Three subsidiaries were then carved out from Arcticgas: two subsidiaries, to which licenses for North-Chaselskiy and
Yevo-Yakhinskiy license areas were transferred, in favor of the Group, and one subsidiary, the holder of the license for
Malo-Yamalskiy license area, in favor of Gazprom Neft.
Reorganization transactions were completed in October 2019. The Group recognized a gain of RR 7.8 billion from the
reorganization recorded in the line item “Gain on disposal of interests in subsidiaries and joint ventures” in the
consolidated statement of income:
Fair value of investments in new subsidiaries
Less: carrying value of the net assets of NOVATEK-Yarsaleneftegas
Less: Group’s share in a decrease in the net assets of Arcticgas
Gain on reorganization
RR million
19,650
(2,163)
(9,722)
7,765
The fair value of investments in new subsidiaries has been allocated to property, plant and equipment, primarily to the
licences cost, and respective deferred tax liabilities (See Note 5).
21
22
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
4
ACQUISITIONS AND DISPOSALS (CONTINUED)
5
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Disposal of OOO Chernichnoye
In the fourth quarter of 2020, the Group sold a 100 percent participation interest in OOO Chernichnoye to the Group’s
joint venture ZAO Terneftegas for RR 730 million. Chernichnoye is a holder of the license for exploration and
production of hydrocarbons within the Chernichniy license area located in YNAO. The carrying value of the net assets
of Chernichnoye at the disposal date was RR 591 million. The Group’s gain on the disposal after the elimination of an
unrealized gain on the consolidation level amounted to RR 69 million, before associated income tax of RR 23 million.
5
PROPERTY, PLANT AND EQUIPMENT
Movements in property, plant and equipment for the reporting periods are as follows:
Oil and
gas properties
and equipment
Assets under
construction
and advances
for construction
Other
Total
Cost
Accumulated depreciation,
depletion and amortization
525,089
77,953
17,949
620,991
(208,179)
-
(4,611)
(212,790)
Net book value at 1 January 2019
316,910
77,953
13,338
408,201
Additions
Transfers
Reorganisation (see Note 4)
Change in asset retirement costs
Depreciation, depletion and amortization
Reclassification to assets held for sale (see Note 4)
Disposals, net
Currency translation differences
6,676
58,000
18,605
3,552
(30,805)
-
(489)
(1,124)
170,309
(62,993)
3,165
-
-
(18,761)
(893)
(37)
-
4,993
-
-
(1,066)
(386)
(119)
(30)
176,985
-
21,770
3,552
(31,871)
(19,147)
(1,501)
(1,191)
Included within assets under construction and advances for construction are advances to suppliers for construction and
equipment of RR 66,415 million and RR 44,070 million at 31 December 2020 and 2019, respectively.
In 2019, as a result of the reorganization of AO Arcticgas, the Group consolidated the assets relating to the North
Chaselsky and Yevo Yakhinsky license areas and recorded a disposal of assets relating to the Malo Yamalsky license
area. The respective net increase in the carrying value of property, plant and equipment amounted to RR 21,770 million
(see Note 4).
In December 2019, the Group purchased through auctions oil and gas exploration and production licenses for the South-
Yamburgskiy, East-Ladertoyskiy and Bukharinskiy license areas located in the YNAO for the total amount of
RR 3,493 million, of which RR 3,176 million was paid in 2019 as the auction’s participation fees and included within
assets under construction and advances for construction at 31 December 2019. The remaining amount of RR 317 million
was paid after the state registration of the licenses in 2020.
In August 2019, the Group won an auction for oil and gas exploration and production license for the license area
including the Soletskoye-Khanaveyskoye field located on the Gydan peninsula in the YNAO for a payment of
RR 2,586 million, which was included within oil and gas properties and equipment.
In November 2018, the Group won an auction for an oil and gas exploration and production license for the South-
Leskinskiy license area located on the Gydan peninsula in the YNAO for the total amount of RR 2,041 million, of
which RR 35 million was paid in 2018 as the auction’s participation fee and included within assets under construction
and advances for construction at 31 December 2018. The remaining amount of RR 2,006 million was paid after the
state registration of the license in January 2019.
The table below summarizes the Group’s carrying values of total acquisition costs of proved and unproved properties
included in oil and gas properties and equipment:
609,958
168,743
22,294
800,995
(238,633)
-
(5,564)
(244,197)
Total acquisition costs
Proved properties acquisition costs
Less: accumulated depreciation, depletion and
amortization of proved properties acquisition costs
Unproved properties acquisition costs
Cost
Accumulated depreciation,
depletion and amortization
Additions
Transfers
Disposal of subsidiary (see Note 4)
Change in asset retirement costs
Depreciation, depletion and amortization
Disposals, net
Currency translation differences
Cost
Accumulated depreciation,
depletion and amortization
Net book value at 31 December 2019
371,325
168,743
16,730
556,798
The Group’s management believes these costs are recoverable as the Group has plans to explore and develop the
respective fields.
Reconciliation of depreciation, depletion and amortization (DDA):
3,267
124,504
(613)
1,352
(36,852)
(5)
1,962
206,770
(130,369)
(19)
-
-
(1,739)
230
-
5,865
(1)
-
(1,691)
(108)
56
210,037
-
(633)
1,352
(38,543)
(1,852)
2,248
737,953
243,616
28,107
1,009,676
Depreciation, depletion and amortization of property, plant and equipment
Add: DDA of intangible assets
Less: DDA capitalized in the course of intra-group construction services
(273,013)
-
(7,256)
(280,269)
DDA as presented in the consolidated statement of income
Net book value at 31 December 2020
464,940
243,616
20,851
729,407
Included in additions to property, plant and equipment for the year ended 31 December 2019 are costs of
RR 19,147 million related to the Arctic LNG 2 project and incurred until the date of the disposal of a 10 percent
participation interest in OOO Arctic LNG 2 to TOTAL S.A. group (see Note 4).
Included in additions to property, plant and equipment for the years ended 31 December 2020 and 2019 are capitalized
interest and foreign exchange differences of RR 10,624 million and RR 5,903 million, respectively.
At 31 December 2020 and 2019, no property, plant and equipment were pledged as security for the Group’s borrowings.
No impairment was recognized in respect of oil and gas properties and equipment for the years ended 31 December
2020 and 2019.
Capital commitments are disclosed in Note 26.
23
24
At 31 December 2020 At 31 December 2019
103,002
100,495
(21,856)
10,924
92,070
(20,463)
10,997
91,029
Year ended 31 December:
2020
2019
38,543
1,091
(396)
39,238
31,871
714
(355)
32,230
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
5
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
6
INVESTMENTS IN JOINT VENTURES
Leases. Included in property, plant and equipment at 31 December 2020 and 2019 are the right-of-use assets primarily
related to long-term agreements on time chartering of marine tankers. Movements in the carrying amounts of the right-
of-use assets are as follows:
Net book value at 1 January 2019
Additions
Depreciation, depletion and amortization
Other movements
Net book value at 31 December 2019
Additions
Depreciation, depletion and amortization
Other movements
Net book value at 31 December 2020
Oil and gas properties
and equipment
8,996
4,196
(2,278)
(1,169)
9,745
547
(2,864)
1,755
9,183
Other
574
95
(180)
(23)
466
409
(264)
45
656
Total
9,570
4,291
(2,458)
(1,192)
10,211
956
(3,128)
1,800
9,839
The maturity analysis of lease liabilities is disclosed in Note 25.
Included in property, plant and equipment at 31 December 2020 and 2019 are the assets subject to operating lease
agreements where the Group is a lessor with cost of RR 39,328 million and accumulated depreciation, depletion and
amortization of RR 1,415 million (2019: cost of RR 3,618 million, accumulated depreciation, depletion and
amortization of RR 235 million). These operating lease agreements primarily relate to leasing of facilities of the Group’s
LNG construction center located in the Murmansk region, used for the construction of LNG plants, as soon as these
facilities become ready for their intended use.
Revenues from operating lease are recognized in the line item “Other revenues” in the consolidated statement of income,
and for the years ended 31 December 2020 and 2019 were RR 5,668 million and RR 2,941 million, respectively.
At 31 December 2020, future undiscounted lease payments under the Group’s operating lease agreements, where the
Group is a lessor, for period up to their maturity (mainly up to the end of 2025) amount to RR 73 billion (2019: RR 75
billion).
Exploration for and evaluation of mineral resources. The amounts of assets, liabilities, expense and cash flows arising
from the exploration and evaluation of mineral resources comprise the following:
Net book value of assets at 1 January
Additions
Write off to exploration expenses
Reorganisation (see Note 4)
Reclassification to proved properties and development expenditures
Net book value of assets at 31 December
Liabilities
Cash flows used for operating activities
Cash flows used for investing activities
Year ended 31 December
2020
2019
20,382
10,998
(1,372)
-
(14,698)
15,310
190
8,466
10,453
19,311
18,526
-
(1,176)
(16,279)
20,382
1,375
8,807
17,944
For the years ended 31 December 2020 and 2019, the Group has recognized exploration expenses within operating
expenses in the amount of RR 9,103 million and RR 8,368 million, respectively. These expenses included employee
compensations in the amount of RR 621 million and RR 431 million, respectively.
Joint ventures:
OOO Arctic LNG 2
AO Arcticgas
ZAO Nortgas
ZAO Terneftegas
Rostock LNG GmbH
OOO SMART LNG
OAO Yamal LNG
OOO Cryogas-Vysotsk
Total investments in joint ventures
At 31 December 2020 At 31 December 2019
250,470
151,886
43,805
4,157
286
28
-
-
450,632
247,450
132,399
44,372
6,394
225
46
150,943
3,511
585,340
The Group considers that Arctic LNG 2, Arcticgas, Nortgas, Terneftegas, Rostock LNG GmbH, SMART LNG, Yamal
LNG and Cryogas-Vysotsk constitute jointly controlled entities based on existing contractual arrangements. The
charters and/or participants’ agreements of these entities stipulate that strategic and/or key decisions of a financial,
operating and capital nature require effectively the unanimous approval by all participants or by a group of participants.
The Group accounts for its interests in joint ventures under the equity method.
OOO Arctic LNG 2. In March 2019, the Group sold a 10 percent participation interest in OOO Arctic LNG 2, a Group’s
subsidiary at that time, to TOTAL S.A.
In July 2019, the Group sold a 30 percent participation interest in OOO Arctic LNG 2 to CNPC, CNOOC Limited and
Japan Arctic LNG B.V. (10 percent each) (see Note 4).
The Group retained a 60 percent participation interest in Arctic LNG 2 upon the completion of the transactions and
exercises joint control over the entity. The Group has determined Arctic LNG 2 to be a joint venture and accounts for
this investment under the equity method.
In accordance with the equity method of accounting, investment in Arctic LNG 2 at 31 December 2020 was reduced
for the Group’s share of loss of the joint venture for the year ended 31 December 2020 in the amount of RR 17,955
million. This loss was generated mainly as a result of negative exchange rate differences of the joint venture, in which
the Group’s share amounted to RR 24,314 million.
AO Arcticgas. The Group holds a 50 percent ownership in Arcticgas, its joint venture with PAO Gazprom Neft.
Arcticgas operates the Samburgskoye, Urengoyskoye and Yaro-Yakhinskoye fields and the East-Urengoiskoye+North-
Esetinskoye field (within the Samburgskiy license area), located in the YNAO.
ZAO Nortgas. The Group holds a 50 percent ownership in Nortgas, its joint venture with PAO Gazprom Neft. Nortgas
operates the North-Urengoyskoye field, located in the YNAO.
ZAO Terneftegas. The Group holds a 51 percent ownership in Terneftegas, its joint venture with TOTAL S.A.
Terneftegas operates the Termokarstovoye field, located in the YNAO.
Rostock LNG GmbH. The Group holds a 49 percent ownership interest in Rostock LNG GmbH, its joint venture with
Fluxys Germany Holding GmbH. The joint venture plans to construct a mid-scale LNG transshipment terminal with
capacity of approximately 300 thousand tons per annum located in the port of Rostock in Germany.
OOO SMART LNG. The Group holds a 50 percent participation interest in OOO SMART LNG, its joint venture with
PAO Sovcomflot. SMART LNG will lease Arctic ice-class LNG tankers to transport LNG from the Arctic LNG 2
project.
At 31 December 2020, the Group’s 50 percent participation interest in SMART LNG was pledged in connection with
lease agreements for Arctic ice-class LNG tankers entered into by SMART LNG.
25
26
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
OAO Yamal LNG. The Group holds a 50.1 percent ownership in Yamal LNG, along with TOTAL S.A. (20 percent),
CNPC (20 percent) and Silk Road Fund Co. Ltd. (9.9 percent). Yamal LNG undertakes a project on natural gas
production, liquefaction and shipping based on the feedstock resources of the South-Tambeyskoye field located in
YNAO (the “Yamal LNG project”). Annual nameplate capacity of the liquefaction plant after the launch of the first
three LNG trains is 16.5 million tons of LNG (5.5 million tons each) and up to 1.2 million tons of stable gas condensate.
In addition, the fourth liquefaction train with an annual nameplate capacity of 0.9 million tons is currently in the
commissioning phase.
At 31 December 2020 and 2019, the Group’s 50.1 percent ownership in Yamal LNG was pledged in connection with
credit line facility agreements signed by Yamal LNG with a number of Russian and foreign banks to obtain external
project financing.
The Group’s investment in Yamal LNG at 31 December 2020 was valued at RR nil in the consolidated statement of
financial position due to the Group’s proportionate share of accumulated losses exceeding the Group’s cost of
investment. The unrecognized share of loss of Yamal LNG for the year ended 31 December 2020 was
RR 27,763 million and resulted from significant non-cash foreign exchange losses.
OOO Cryogas-Vysotsk. The Group holds a 51 percent participation interest in Cryogas-Vysotsk, its joint venture with
AO Gazprombank group. Cryogas-Vysotsk operates a medium-scale LNG plant with annual capacity of 660 thousand
tons, located at the port of Vysotsk on the Baltic Sea.
In March 2019, Cryogas-Vysotsk commenced initial LNG production and in April 2019 reached nameplate capacity.
At 31 December 2020 and 2019, the Group’s 51 percent participation interest in Cryogas-Vysotsk was pledged in
connection with credit line facility agreements signed by the joint venture with a Russian bank to obtain external project
financing.
The Group’s investment in Cryogas-Vysotsk at 31 December 2020 was valued at RR nil in the consolidated statement
of financial position due to the Group’s proportionate share of accumulated losses exceeding the Group’s cost of
investment. The unrecognized share of loss of Cryogas-Vysotsk for the year ended 31 December 2020 was RR 2,483
million and resulted mainly from significant non-cash foreign exchange losses.
The table below summarizes the movements in the carrying amounts of the Group’s joint ventures:
At 1 January
Share of profit from operations
Share of finance income (expense)
Share of total income tax benefit (expense)
Unrecognized share of losses of joint ventures
Year ended 31 December:
2020
2019
585,340
113,952
(325,707)
37,529
30,245
244,500
139,065
40,432
(30,259)
-
Share of profit (loss) of joint ventures, net of income tax
(143,981)
149,238
Share of other comprehensive income (loss) of joint ventures
Group’s costs capitalized in investments
Effect from initial measurement of loans provided by the Group to joint
ventures (see Note 25) net of deferred income tax
Effect from other changes in joint ventures’ net assets
Capital contributions
Dividends and cash from joint ventures
Sale of interests in subsidiaries resulting in the recognition
of investments in joint ventures (see Note 4)
Sale of interests in joint ventures (see Note 4)
Reorganization (see Note 4)
Elimination of the Group’s share in unrealized profits of joint ventures
from balances of hydrocarbons purchased from joint ventures
At 31 December
(1,198)
1,173
17,418
3,892
-
(10,920)
(71)
-
-
451
1,457
1,992
4,774
298
(46,550)
147,366
93,053
(9,722)
(1,021)
(1,517)
450,632
585,340
For the years ended 31 December 2020 and 2019, the Group recorded commission fees in the amount of RR 1,173
million and RR 1,457 million, respectively, for the guarantee received from the State Corporation VEB.RF
(see Note 26) as an increase to the investment in Yamal LNG.
For the year ended 31 December 2020, the capital of OOO Arctic LNG 2 was increased by RR 57,647 million through
the cash contributions made by the other participants in the form of contributions to the assets representing a part of the
consideration for the disposal of a 40 percent participation interest in OOO Arctic LNG 2 (see Note 4). The difference
between the Group’s share in the contributions made and the amount previously recognized within the investment in
OOO Arctic LNG 2 comprised RR 4,512 million and was recorded as an increase in the investment in OOO Arctic
LNG 2, with the corresponding effect recognized in the consolidated statement of changes in equity in accordance with
the Group’s accounting policy. The Group’s participation interest in OOO Arctic LNG 2 did not change as a result of
these transactions.
For the year ended 31 December 2019, the capital of OOO Arctic LNG 2 was increased by RR 107,938 million through
the cash contributions made by other participants in the form of contributions to the assets representing a part of the
consideration for the disposal of a 40 percent participation interest in OOO Arctic LNG 2 (see Note 4). The difference
between the Group’s share in the contributions made and the amount previously recognized within the investment in
OOO Arctic LNG 2 comprised RR 1,789 million and was recorded as an increase in the investment in OOO Arctic
LNG 2, with the corresponding effect recognized in the consolidated statement of changes in equity in accordance with
the Group’s accounting policy. The Group’s participation interest in OOO Arctic LNG 2 did not change as a result of
these transactions.
For the years ended 31 December 2020 and 2019, the Group recorded a decrease in equity in the amount of RR 949
million and an increase in the amount RR 2,985 million, respectively, from initial measurement of the loans (net of
deferred income tax) provided to OOO Arctic LNG 2 by the other participants.
In 2019, the capital of Rostock LNG GmbH was increased through proportional contributions by its participants totaling
RR 506 million, of which RR 248 were contributed by the Group.
In 2020, Arcticgas declared and paid dividends in the total amount of RR 20.5 billion, of which RR 10.25 billion were
attributable to NOVATEK.
In 2019, Arcticgas declared dividends in the total amount of RR 92 billion, of which RR 46 billion were attributable to
NOVATEK. Dividends in the amount of RR 91 billion, of which RR 45.5 billion were attributable to NOVATEK, were
paid in 2019, and the remaining amount was paid in January 2020.
For the year ended 31 December 2020, Terneftegas transferred cash in the amount of RR 670 million distributed in
favor of the Group.
In 2019, Nortgas declared and paid dividends in the amount of RR 1,100 million, of which RR 550 million were
attributable to NOVATEK.
The Group eliminates its share in unrealized profits of joint ventures from the balances of natural gas and liquid
hydrocarbons purchased from the joint ventures.
The summarized statements of financial position and statements of comprehensive income (loss) for the Group’s
principal joint ventures as at and for the year ended 31 December 2020 are as follows (100 percent base):
27
28
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
At 31 December 2020
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Reconciliation of the summarized financial information presented to the Group’s share in net assets of the joint ventures:
Property, plant and equipment
and materials for construction
Other non-current non-financial assets
Non-current financial assets
Total non-current assets
Cash and cash equivalents
Other current financial assets
Current non-financial assets
Total current assets
Non-current financial liabilities
Non-current non-financial liabilities
Total non-current liabilities
Trade payables and accrued liabilities
Other current financial liabilities
Current non-financial liabilities
Total current liabilities
802,388
118
937
803,443
2,001
1,551
14,180
17,732
(373,463)
(40,436)
(413,899)
(29,934)
(4,359)
(478)
(34,771)
411,279
6
63
411,348
6,123
22,581
14,930
43,634
(30,000)
(55,991)
(85,991)
(14,479)
(36,151)
(14,590)
(65,220)
2,470,727
27,561
12,619
2,510,907
22,812
24,813
34,137
81,762
(2,339,045)
(4,421)
(2,343,466)
(13,795)
(290,541)
(313)
(304,649)
120,307
28
12
120,347
81
1,699
343
2,123
(3,860)
(23,057)
(26,917)
(975)
(5,821)
(1,147)
(7,943)
Net assets
372,505
303,771
(55,446)
87,610
For the year ended 31 December 2020
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Revenues
Depreciation, depletion and amortization
Profit (loss) from operations
Interest expense
Change in fair value of
non-commodity financial instruments
Foreign exchange gain (loss), net
Profit (loss) before income tax
Income tax benefit (expense)
330
(20)
(2,015)
(103)
(681)
(40,523)
(43,268)
13,343
171,076
(30,645)
328,640
(109,950)
73,677
151,821
(3,061)
(162,618)
-
(45)
70,923
(11,376)
31,172
(444,213)
(423,780)
66,976
15,296
(6,938)
(485)
(980)
-
-
(1,393)
260
Profit (loss), net of income tax
(29,925)
59,547
(356,804)
(1,133)
Ownership
60%
50%
50.1%
Total based on ownership interest
(17,955)
29,774
(178,662)
Elimination of the Group’s share in unrealized profits
of joint ventures from balances of hydrocarbons
purchased from joint ventures
Unrecognized share of losses of joint ventures
Share of profit (loss)
of joint ventures, net of income tax
-
-
819
-
(1)
27,763
(17,955)
30,593
(150,900)
(460)
50%
(567)
107
-
As at and for the year ended 31 December 2020
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Net assets at 1 January 2020
Profit (loss), net of income tax
Other comprehensive income (loss)
Capital contributions
Other equity movements
Dividends
317,347
264,798
301,446
88,744
(29,925)
(11)
57,647
27,447
-
59,547
(74)
-
-
(20,500)
(356,804)
(2,430)
-
2,342
-
(1,133)
(1)
-
-
-
Net assets at 31 December 2020
372,505
303,771
(55,446)
87,610
Ownership
60%
50%
50.1%
50%
Group’s share in net assets
223,503
151,886
(27,763)
43,805
Unrecognized share of losses of joint ventures
Future capital contributions (see Note 4)
-
26,967
-
-
27,763
-
-
-
Investments in joint ventures
250,470
151,886
-
43,805
At 31 December 2020, the Group’s investment in OOO Arctic LNG 2 totaled RR 250,470 million, which differed from
its share in the net assets of Arctic LNG 2. This difference of RR 26,967 million related to the Group’s share in the
future cash payments in the form of capital contributions by other participants representing a part of the consideration
for the disposal of a 40 percent interest in OOO Arctic LNG 2 (see Note 4).
The summarized statements of financial position and statements of comprehensive income (loss) for the Group’s
principal joint ventures as at and for the year ended 31 December 2019 are as follows (100 percent base):
At 31 December 2019
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Property, plant and equipment
and materials for construction
Other non-current non-financial assets
Non-current financial assets
Total non-current assets
Cash and cash equivalents
Other current financial assets
Current non-financial assets
Total current assets
Non-current financial liabilities
Non-current non-financial liabilities
Total non-current liabilities
Trade payables and accrued liabilities
Other current financial liabilities
Current non-financial liabilities
Total current liabilities
415,122
122
-
415,244
58,601
125
19,561
78,287
400,614
13
69
400,696
5,265
21,737
9,625
36,627
2,392,117
1,341
-
2,393,458
23,281
25,821
33,470
82,572
(126,606)
(39,823)
(166,429)
(66,197)
(51,296)
(117,493)
(1,958,446)
(44,542)
(2,002,988)
(9,579)
(75)
(101)
(9,755)
(15,760)
(28,804)
(10,468)
(55,032)
(15,386)
(152,757)
(3,453)
(171,596)
125,638
34
13
125,685
1,266
2,146
374
3,786
(9,654)
(23,186)
(32,840)
(551)
(5,821)
(1,515)
(7,887)
Net assets
317,347
264,798
301,446
88,744
29
30
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
7
LONG-TERM LOANS AND RECEIVABLES
For the year ended 31 December 2019
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
The following table presents long-term loans (including interest accrued) and receivables:
-
1,207
18
142
Total long-term loans receivable
Revenues
Depreciation, depletion and amortization
Profit (loss) from operations
Interest expense
Change in fair value of
non-commodity financial instruments
Foreign exchange gain (loss), net
Profit (loss) before income tax
Income tax benefit (expense)
Profit (loss), net of income tax
Ownership
Total based on ownership interest
Elimination of the Group’s share in unrealized profits
of joint ventures from balances of hydrocarbons
purchased from joint ventures
Share of profit (loss)
of joint ventures, net of income tax
36
-
(485)
(77)
(581)
1,702
574
(120)
454
60%
272
196,191
(22,523)
324,018
(102,403)
103,573
164,106
(5,389)
(126,627)
-
1
99,400
(16,337)
(9,231)
213,509
242,139
(41,309)
21,137
(7,893)
3,765
(1,709)
-
-
2,216
(447)
83,063
200,830
1,769
50%
50.1%
41,532
100,561
50%
885
272
42,739
100,579
1,027
Reconciliation of the summarized financial information presented to the Group’s share in net assets of the joint ventures:
As at and for the year ended 31 December 2019
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Net assets at 1 January 2019
-
293,263
Profit (loss), net of income tax
Other comprehensive income (loss)
Sale of interests in subsidiaries (see Note 4)
Capital contributions
Reorganization (see Note 4)
Other equity movements
Dividends
454
(11)
200,673
107,938
-
8,293
-
83,063
(84)
-
-
(19,444)
-
(92,000)
96,614
200,830
1,092
-
-
-
2,910
-
88,128
1,769
(53)
-
-
-
-
(1,100)
Net assets at 31 December 2019
317,347
264,798
301,446
88,744
Ownership
60%
50%
50.1%
50%
Group’s share in net assets
190,408
132,399
150,943
44,372
Future capital contributions (see Note 4)
57,042
-
-
-
Investments in joint ventures
247,450
132,399
150,943
44,372
At 31 December 2019, the Group’s investment in OOO Arctic LNG 2 totaled RR 247,450 million, which differed from
its share in the net assets of Arctic LNG 2. This difference of RR 57,042 million related to the Group’s share in the
future cash payments in the form of capital contributions by other participants representing a part of the consideration
for the disposal of a 40 percent interest in OOO Arctic LNG 2 (see Note 4).
Long-term loans receivable
Other long-term receivables
Total
Less: current portion of long-term loans receivable
At 31 December 2020 At 31 December 2019
431,880
426
432,306
(41,253)
282,310
403
282,713
(50,815)
Total long-term loans and receivables
391,053
231,898
The Group’s long-term loans receivable by borrowers are as follows:
OOO Arctic LNG 2
OAO Yamal LNG
OOO Cryogas-Vysotsk
ZAO Terneftegas
At 31 December 2020 At 31 December 2019
215,336
209,637
6,907
-
431,880
76,085
199,623
6,521
81
282,310
OOO Arctic LNG 2. The Group provided Euro credit line facilities to Arctic LNG 2, the Group’s joint venture. The
loans interest rates are set based on market interest rates and interest rates on borrowings of participants. The repayment
schedules are linked to free cash flows of the joint venture.
Subsequent to the balance sheet date, in January 2021, the Group provided RR 37,547 million to Arctic LNG 2 under
these credit line facilities.
OAO Yamal LNG. In prior years the Group provided US dollar and Euro credit line facilities to Yamal LNG, the
Group’s joint venture. The loans interest rates are set based on market interest rates, interest rates on borrowings of
shareholders and/or combination thereof. The repayment schedules are linked to free cash flows of the joint venture.
For the years ended 31 December 2020 and 2019, Yamal LNG repaid to the Group a part of the loans and accrued
interest in the total amount of RR 48,297 million and RR 65,210 million, respectively.
OOO Cryogas-Vysotsk. The Group provided Russian rouble denominated loans under agreed credit line facilities to
Cryogas-Vysotsk, the Group’s joint venture. The loans are repayable not later than 2033 and bear variable interest rates.
ZAO Terneftegas. The Group provided US dollar denominated loans to Terneftegas, the Group’s joint venture. In
January 2020, the loans and accrued interest were fully repaid.
No provisions for expected credit losses for long-term loans and receivables were recognized at 31 December 2020 and
2019. The carrying values of long-term loans and receivables approximate their respective fair values.
31
32
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
8 OTHER NON-CURRENT ASSETS
10
TRADE AND OTHER RECEIVABLES (CONTINUED)
At 31 December 2020 At 31 December 2019
Movements in the Group’s provision for expected credit losses for trade receivables are as follows:
Financial assets
Contingent consideration (see Note 25)
Commodity derivatives
Other financial assets
Non-financial assets
Deferred income tax assets
Materials for construction
Long-term advances
Intangible assets, net
Other non-financial assets
76,918
13
13
22,694
18,341
3,536
2,820
817
101,391
749
8
14,800
12,552
9,549
2,644
642
At 1 January
Additional provision recorded
Receivables written off as uncollectible
Provision reversed
At 31 December
Year ended 31 December:
2020
2019
362
295
(115)
(36)
506
349
113
(72)
(28)
362
Total other non-current assets
125,152
142,335
At 31 December 2020 and 2019, the “Long-term advances” line item represented advances to OAO Russian Railways.
The advances were paid in accordance with the Strategic Partnership Agreement signed with Russian Railways in
2012.
9 INVENTORIES
Natural gas and liquid hydrocarbons
Materials and supplies (net of provision of
RR 4 million and RR 5 million at 31 December 2020 and 2019)
Other inventories
Total inventories
At 31 December 2020 At 31 December 2019
7,055
3,609
59
8,685
3,550
28
10,723
12,263
No inventories were pledged as security for the Group’s borrowings or payables at both dates.
10
TRADE AND OTHER RECEIVABLES
Trade receivables (net of provision of RR 506 million and RR 362 million
at 31 December 2020 and 2019, respectively)
Other receivables (net of provision of RR 305 million and RR 317 million
at 31 December 2020 and 2019, respectively)
Total trade and other receivables
At 31 December 2020 At 31 December 2019
64,073
7,182
71,255
48,539
181,042
229,581
Trade receivables in the amount RR 14,568 million and RR 16,996 million at 31 December 2020 and 2019,
respectively, are secured by letters of credit, issued by banks with investment grade ratings. The Group does not hold
any other collateral as security for trade and other receivables (see Note 25 for credit risk disclosures).
At 31 December 2019, other receivables included RR 173,336 million of receivables in relation to the sale of a
40 percent participation interest in OOO Arctic LNG 2 (see Note 4). These receivables were fully paid in 2020.
At 31 December 2020, other receivables included RR 575 million of receivables in relation to the sale of
OOO Chernichnoye.
The carrying values of trade and other receivables approximate their respective fair values. Trade and other receivables
were categorized as Level 3 in the fair value measurement hierarchy described in Note 25.
The provision for expected credit losses for trade and other receivables has been included in the consolidated statement
of income in “Impairment (expenses) reversals, net” line item.
11 PREPAYMENTS AND OTHER CURRENT ASSETS
At 31 December 2020 At 31 December 2019
Financial assets
Current portion of long-term loans receivable (see Note 7)
Commodity derivatives
Other financial assets
Non-financial assets
Value-added tax receivable
Recoverable value-added tax
Prepayments and advances to suppliers
Deferred transportation expenses for liquid hydrocarbons
Deferred transportation expenses for natural gas
Deferred export duties for liquid hydrocarbons
Prepaid customs duties
Other non-financial assets
Total prepayments and other current assets
12 CASH AND CASH EQUIVALENTS
41,253
13,041
1,316
15,703
10,767
9,088
1,996
1,779
649
616
1,863
98,071
50,815
16,966
622
22,401
6,026
9,879
1,784
2,064
1,218
530
1,536
113,841
Cash at current bank accounts
Bank deposits with original maturity of three months or less
Total cash and cash equivalents
At 31 December 2020 At 31 December 2019
41,247
78,460
119,707
22,736
30,504
53,240
All deposits are readily convertible to known amounts of cash and are not subject to significant risk of change in value
(see Note 25 for credit risk disclosures).
33
34
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
13
LONG-TERM DEBT
14
PENSION OBLIGATIONS (CONTINUED)
Eurobonds – Ten-Year Tenor
(par value USD 1 billion, repayable in 2022)
Eurobonds – Ten-Year Tenor
(par value USD 650 million, repayable in 2021)
Loan from Silk Road Fund
Bank loans
Total
Less: current portion of long-term debt
Total long-term debt
At 31 December 2020 At 31 December 2019
73,820
48,012
46,076
54,232
222,140
(53,152)
168,988
61,833
40,209
42,115
7,941
152,098
(12,246)
139,852
Defined benefit plan. The Group operates a post-employment benefit program for its retired employees. Under the
current terms of the pension program, employees who are employed and retire from the Group on or after the statutory
retirement age will receive from the Group pension benefits in the form of a lump sum retirement benefit and/or monthly
life payments unless they are reemployed. The type and amounts of payments to be disbursed depend on the employee’s
average salary, duration and location of employment.
The program represents an unfunded defined benefit plan and is accounted for as such under provisions of IAS 19,
Employee Benefits. The present value of the defined benefit obligation is included in “Other non-current liabilities” line
item in the consolidated statement of financial position. The impact of the program on the consolidated financial
statements is disclosed below.
The movements in the present value of the defined benefit obligation are as follows:
Eurobonds. In December 2012, the Group issued US dollar denominated Eurobonds in the amount of USD 1 billion.
The US dollar denominated Eurobonds were issued with an annual coupon rate of 4.422 percent, payable semi-annually.
The Eurobonds have a ten-year tenor and are repayable in December 2022.
In February 2011, the Group issued US dollar denominated Eurobonds in the amount of USD 650 million.
The US dollar denominated Eurobonds were issued with an annual coupon rate of 6.604 percent, payable
semi-annually. The Eurobonds have a ten-year tenor and were fully repaid according to their maturity schedule after
the reporting date in February 2021.
Loan from Silk Road Fund. In December 2015, the Group obtained a loan from China’s investment fund Silk Road
Fund that is repayable until December 2030 by semi-annual equal installments starting from December 2019 and
includes the maintenance of certain restrictive financial covenants.
Bank loans. In December 2016, the Group obtained EUR 100 million under a revolving credit line facility from the
Russian subsidiary of a foreign bank. The loan was initially repayable until April 2020. In March 2020, it was extended
to March 2022. The loan includes the maintenance of certain restrictive financial covenants.
In June 2020, the Group obtained a credit line facility from a Russian bank in the amount up to EUR 1.5 billion with a
variable interest rate available to withdraw until March 2022. Interest is paid on a quarterly basis. At the reporting date
EUR 500 million were withdrawn under the credit line facility, repayable until September 2025. The credit line facility
includes the maintenance of certain restrictive financial covenants.
At 31 December 2019, bank loans also included a credit line facility obtained by a Group’s subsidiary from a Russian
bank in the amount of RR 1,007 million repayable until December 2020. In January 2020, the credit line facility was
fully repaid ahead of its maturity schedule.
The fair value of long-term debt including its current portion was RR 235,473 million and RR 164,310 million at
31 December 2020 and 2019, respectively. The fair value of the corporate bonds was determined based on market quote
prices (Level 1 in the fair value measurement hierarchy described in Note 25). The fair value of other long-term loans
was determined based on future cash flows discounted at the estimated risk-adjusted discount rate (Level 3 in the fair
value measurement hierarchy described in Note 25).
Scheduled maturities of long-term debt are disclosed in Note 25.
Available credit line facilities. In addition to disclosed above, at 31 December 2020, the Group had available long-term
bank credit line facilities with credit limits for the total amount of RR 160 billion, as well as a short-term bank credit
line facility with credit limit of RR 20 billion. The facilities include the maintenance of certain restrictive financial
covenants.
14
PENSION OBLIGATIONS
Defined contribution plan. For the years ended 31 December 2020 and 2019, total amounts recognized as an expense
in respect of payments made by employer on behalf of employees to the Pension Fund of the Russian Federation were
RR 3,907 million and RR 3,190 million, respectively.
At 1 January
Interest cost
Current service cost
Past service cost
Benefits paid
Actuarial gains (losses) arising from:
- changes in financial assumptions
- changes in demographic assumptions
- experience adjustments
At 31 December
Defined benefit plan costs were recognized in:
Year ended 31 December:
2020
2019
5,111
242
423
-
(181)
(238)
(91)
421
5,687
Year ended 31 December:
2020
2019
Materials, services and other (as employee compensation)
General and administrative expenses (as employee compensation)
Other comprehensive loss
390
275
92
4,174
269
340
(496)
(152)
1,064
68
(156)
5,111
76
37
976
The principal actuarial assumptions used are as follows:
Weighted average discount rate
Projected annual increase in employee compensation
Expected increases to pension benefits
At 31 December 2020
At 31 December 2019
6.4%
5.1%
5.0%
5.6%
4.0%
4.0%
The discount rate was determined by reference to Russian rouble denominated bonds issued by the Government of the
Russian Federation chosen to match the duration of the post-employment benefit obligations.
The assumed average salary and pension payment increases for Group employees have been calculated on the basis of
inflation forecasts, analysis of increases of past salaries and the general salary policy of the Group.
Mortality assumptions are based on the Russian mortality tables published by the Federal State Statistics Service from
the year 2018 adjusted for estimates of mortality improvements in the future periods.
The Group’s management has assessed that reasonable changes in the principal significant actuarial assumptions will
not have a significant impact on the consolidated statement of income or the consolidated statement of comprehensive
income or the liability recognized in the consolidated statement of financial position.
35
36
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
15 TRADE PAYABLES AND ACCRUED LIABILITIES
16
SHAREHOLDERS’ EQUITY (CONTINUED)
At 31 December 2020 At 31 December 2019
The Group declares and pays dividends in Russian roubles. Dividends declared in 2020 and 2019 were as follows:
Financial liabilities
Trade payables
Commodity derivatives
Interest payable
Other payables
Non-financial liabilities
Advances from customers
Salary payables
Other liabilities and accruals
Total trade payables and accrued liabilities
55,149
14,278
1,529
3,786
4,245
1,042
3,966
83,995
50,048
16,450
1,291
3,188
4,253
915
10,583
86,728
The carrying values of trade payables and accrued liabilities approximate their respective fair values. Trade and other
payables were categorized as Level 3 in the fair value measurement hierarchy described in Note 25.
During the years ended 31 December 2020 and 2019, advances from customers in the amount of RR 4,194 million
and RR 4,570 million, respectively, remained at the beginning of the respective period were recognized as revenue.
16
SHAREHOLDERS’ EQUITY
Ordinary share capital. Share capital issued and paid in consisted of 3,036,306,000 ordinary shares with a par value of
RR 0.1 each at 31 December 2020 and 2019. The total authorized number of ordinary shares was 10,593,682,000 shares
at both dates.
Treasury shares. In accordance with the Share Buyback Programs authorized by the Board of Directors, the Group’s
wholly owned subsidiary, Novatek Equity (Cyprus) Limited, purchases ordinary shares of PAO NOVATEK in the form
of Global Depository Receipts (GDRs) on the London Stock Exchange (LSE) and ordinary shares on the Moscow
Exchange through the use of independent brokers. NOVATEK also purchases its ordinary shares from shareholders
where required by Russian legislation.
During the years ended 31 December 2020 and 2019, the Group purchased 8.4 million and 1.7 million ordinary shares
at a total cost of RR 8,078 million and RR 1,863 million, respectively. At 31 December 2020 and 2019, the Group held
in total 33.5 million and 25.1 million ordinary shares at a total cost of RR 20,386 million and RR 12,308 million,
respectively. The Group has decided that these shares do not vote.
Dividends. Dividends (including tax on dividends) declared and paid were as follows:
Dividends payable at 1 January
Dividends declared (*)
Dividends paid (*)
Dividends payable at 31 December
Dividends per share declared during the year (in Russian roubles)
Dividends per GDR declared during the year (in Russian roubles)
(*) – excluding treasury shares.
Year ended 31 December:
2020
2019
-
89,857
(89,857)
-
29.92
299.20
-
93,468
(93,468)
-
31.04
310.40
Final for 2019: RR 18.10 per share or RR 181.00 per GDR declared in April 2020
Interim for 2020: RR 11.82 per share or RR 118.20 per GDR declared in September 2020
Total dividends declared in 2020
Final for 2018: RR 16.81 per share or RR 168.10 per GDR declared in April 2019
Interim for 2019: RR 14.23 per share or RR 142.30 per GDR declared in September 2019
Total dividends declared in 2019
54,957
35,889
90,846
51,040
43,207
94,247
Distributable retained earnings. The basis for distribution of profits of a company to shareholders is defined by Russian
legislation as net profit presented in its statutory financial statements prepared in accordance with the Regulations on
Accounting and Reporting of the Russian Federation, which may differ significantly from amounts calculated on the
basis of IFRS. At 31 December 2020 and 2019, NOVATEK’s closing balances of the accumulated profit including the
respective year’s net statutory profit totaled RR 981 billion and RR 695 billion, respectively.
17 OIL AND GAS SALES
Natural gas
Naphtha
Crude oil
Other gas and gas condensate refined products
Liquefied petroleum gas
Stable gas condensate
Total oil and gas sales
Year ended 31 December:
2020
2019
359,040
112,963
78,381
58,913
48,725
41,728
699,750
414,844
144,541
114,641
88,010
47,668
42,528
852,232
18 PURCHASES OF NATURAL GAS AND LIQUID HYDROCARBONS
Natural gas
Unstable gas condensate
Other liquid hydrocarbons
Reverse excise
Total purchases of natural gas and liquid hydrocarbons
Year ended 31 December:
2020
2019
125,844
102,568
12,221
(5,409)
235,224
175,023
138,092
21,775
(4,072)
330,818
The Group purchases not less than 50 percent of the natural gas volumes produced by its joint venture ZAO Nortgas,
some volumes of natural gas produced by its joint venture AO Arcticgas, all volumes of natural gas produced by its
joint venture ZAO Terneftegas and some volumes of liquefied natural gas produced by its joint ventures OAO Yamal
LNG and OOO Cryogas-Vysotsk (see Note 28).
The Group purchases all volumes of unstable gas condensate produced by its joint ventures Nortgas, Arcticgas and
Terneftegas at ex-field prices primarily based on benchmark reference crude oil prices, as well as some volumes of
stable gas condensate produced by its joint venture Yamal LNG (see Note 28).
In accordance with tax legislation, the Group accrues excise tax on raw oil (blend of hydrocarbons comprised of one or
more components of crude oil, stable gas condensate, vacuum gasoil, tar, and fuel oil sent by the owner for processing)
and at the same time claims for deduction at a double rate. The net result from these operations is reported as a deduction
to expense for purchases of natural gas and liquid hydrocarbons in the “Reverse excise” line item, as the Group obtains
most of its raw oil from unstable gas condensate purchased from its joint ventures.
37
38
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
19 TRANSPORTATION EXPENSES
22
GENERAL AND ADMINISTRATIVE EXPENSES
Year ended 31 December:
2020
2019
Natural gas transportation by trunk and low-pressure pipelines
Stable gas condensate and liquefied petroleum gas transportation by rail
Stable gas condensate and refined products,
crude oil and liquefied natural gas transportation by tankers
Crude oil transportation by trunk pipelines
Other
100,594
34,198
10,283
8,042
1,640
97,371
32,674
8,589
9,639
3,378
Total transportation expenses
154,757
151,651
20 TAXES OTHER THAN INCOME TAX
The Group is subject to a number of taxes other than income tax, which are detailed as follows:
Unified natural resources production tax
Property tax
Other taxes
Total taxes other than income tax
21 MATERIALS, SERVICES AND OTHER
Employee compensation
Repair and maintenance
Preparation and processing of hydrocarbons
Materials and supplies
Electricity and fuel
Liquefied petroleum gas volumes reservation expenses
Fire safety and security expenses
Transportation services
Labor safety expenses
Rent expenses
Insurance expenses
Other
Total materials, services and other
Year ended 31 December:
2020
2019
50,204
3,929
368
54,501
Year ended 31 December:
2020
2019
14,027
3,294
2,323
1,833
1,702
1,205
1,152
1,140
703
592
462
1,144
29,577
57,935
3,658
388
61,981
11,273
2,778
2,431
1,945
1,551
1,157
1,051
924
91
591
366
1,025
25,183
Employee compensation
Social expenses and compensatory payments
Legal, audit, and consulting services
Repair and maintenance expenses
Advertising expenses
Fire safety and security expenses
Business travel expense
Rent expenses
Other
Total general and administrative expenses
Year ended 31 December:
2020
2019
17,849
4,128
1,289
947
599
581
187
184
1,031
26,795
17,905
2,503
975
228
531
509
720
189
1,008
24,568
Auditor’s fees. AO PricewaterhouseCoopers Audit has served as the independent external auditor of PAO NOVATEK
for each of the reported financial years. The independent external auditor is subject to appointment at the Annual
General Meeting of shareholders based on the recommendations from the Board of Directors. The aggregate fees for
audit and other services rendered by PricewaterhouseCoopers Audit to the parent company of the Group included within
legal, audit, and consulting services are as follows:
Audits of PAO NOVATEK
(audit of the Group’s consolidated financial statements and
audit of statutory financial statements of PAO NOVATEK)
Other services
Total auditor’s fees and services
23 FINANCE INCOME (EXPENSE)
Interest expense (including transaction costs)
Interest expense on fixed rate debt
Interest expense on variable rate debt
Total
Less: capitalized interest
Interest expense on debt
Provisions for asset retirement obligations:
effect of the present value discount unwinding
Interest expense on lease liabilities
Other interest expense
Total interest expense
Year ended 31 December:
2020
2019
37
11
48
Year ended 31 December:
2020
2019
9,879
172
10,051
(6,641)
3,410
960
566
3
4,939
37
12
49
9,079
33
9,112
(5,903)
3,209
738
544
-
4,491
39
40
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
23 FINANCE INCOME (EXPENSE) (CONTINUED)
24
INCOME TAX (CONTINUED)
The Group recognizes in profit before income tax its share of net profit (loss) from joint ventures, which influences the
consolidated profit of the Group but does not result in additional income tax expense (benefit) at the Group’s level. Net
profit (loss) of joint ventures was recorded in their financial statements on an after-tax basis. The dividend income
received from the joint ventures in which the Group holds at least a 50 percent interest is subject to a zero withholding
tax rate according to the Russian tax legislation.
Without the effect of net profit (loss) from joint ventures and effects from disposal of interests in subsidiaries and joint
ventures (initial recognition of gain on disposal and subsequent non-monetary revaluation of contingent consideration),
the effective income tax rate for the years ended 31 December 2020 and 2019 was 18.8 percent and 16.7 percent,
respectively.
For the year ended 31 December 2019, the Group paid income tax in the amount of RR 99.6 billion, inclusive of a
payment of RR 40 billion to a government-controlled entity under an agreement to finance infrastructure facilities in
federal ownership in YNAO, to which an investment tax credit was applied.
In respect of PAO NOVATEK and the majority of its Russian subsidiaries, the Group submits a single consolidated
income tax return in accordance with Russian tax legislation (see Note 30).
Deferred income tax. Differences between IFRS and tax regulations give rise to certain temporary differences between
the carrying value of certain assets and liabilities for financial reporting purposes and for income tax purposes.
Deferred income tax balances are presented in the consolidated statement of financial position as follows:
Long-term deferred income tax assets (other non-current assets)
Long-term deferred income tax liabilities
Net deferred income tax liabilities
At 31 December 2020 At 31 December 2019
22,694
(64,132)
(41,438)
14,800
(62,146)
(47,346)
Deferred income tax assets expected to be realized within twelve months as at 31 December 2020 and 2019 were
RR 6,194 million and RR 4,031 million, respectively. Deferred tax liabilities expected to be reversed within twelve
months as at 31 December 2020 and 2019 were RR 1,420 million and RR 1,521 million, respectively.
Interest income
Interest income on loans receivable classified
as at amortised cost
Interest income on loans receivable classified
as at fair value through profit or loss
Interest income on cash,
cash equivalents, deposits and other assets
Total interest income
Foreign exchange gain (loss)
Gains
Losses
Total foreign exchange gain (loss), net
24
INCOME TAX
Year ended 31 December:
2020
2019
936
20,329
4,175
25,440
963
15,319
4,417
20,699
Year ended 31 December:
2020
2019
340,662
(193,201)
147,461
37,683
(82,430)
(44,747)
Reconciliation of income tax. The table below reconciles actual income tax expense and theoretical income tax,
determined based on the applicable rates for each of the Group’s entities and their accounting profit before income tax.
Profit before income tax
Theoretical income tax expense at applicable rate of the Group’s entities
Increase (decrease) due to:
Permanent differences in respect
of the Group’s share of loss (profit) of joint ventures
Permanent differences in respect
of disposal of interests in subsidiaries and joint ventures
Other differences
Total income tax expense
Domestic and foreign components of current income tax expense were:
Russian Federation income tax
Foreign income tax
Total current income tax expense
Year ended 31 December:
2020
2019
129,596
21,079
1,003,115
192,157
29,000
-
931
(29,544)
(44,507)
1,548
51,010
119,654
Year ended 31 December:
2020
2019
50,602
1,414
52,016
95,590
2,242
97,832
Effective income tax rate. The Russian statutory income tax rate for 2020 and 2019 was 20 percent. A number of the
Group’s investment projects were included by the government authorities in the list of priority projects, in respect of
them the Group was able to apply a reduced income tax rate. Profits of the Group’s foreign subsidiaries are taxed at
rates applicable in accordance with legislation of the respective jurisdiction.
41
42
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
24
INCOME TAX (CONTINUED)
24
INCOME TAX (CONTINUED)
Movements in deferred income tax assets and liabilities during the years ended 31 December 2020 and 2019 were as
follows:
At 31 December
2019
Statement of
Income effect
Other
Comprehensive
Income effect
Statement of
Financial
Position effect
At 31 December
2020
Property, plant and equipment
Contingent consideration
Other
(44,931)
(20,278)
(1,845)
(9,345)
4,895
510
Deferred income tax liabilities
(67,054)
(3,940)
Less: deferred tax assets offset
4,908
Total deferred income tax liabilities
(62,146)
Tax losses carried forward
Property, plant and equipment
Asset retirement obligations
Inventories
Trade payables and accrued liabilities
Loans receivable
Other
Deferred income tax assets
Less: deferred tax liabilities offset
Total deferred income tax assets
Net deferred income tax liabilities
8,241
3,545
2,542
1,950
1,412
1,349
669
19,708
(4,908)
14,800
(47,346)
2,053
(1,887)
2,686
299
352
3,681
(1,257)
(451)
(364)
4,946
(2,053)
2,893
1,006
(4)
-
(85)
(89)
-
(89)
2
-
-
(4)
20
2,414
87
(10)
-
-
(54,290)
(15,383)
(1,420)
(10)
(71,093)
-
6,961
(10)
(64,132)
(7)
-
1
-
-
2,488
-
10,922
3,844
2,895
5,627
175
5,800
392
29,655
(6,961)
22,694
(41,438)
2,519
2,482
-
2,519
2,430
-
2,482
2,472
At 31 December
2018
Statement of
Income effect
Other
Comprehensive
Income effect
Statement of
Financial
Position effect
At 31 December
2019
Property, plant and equipment
Contingent consideration
Other
(36,895)
-
(1,483)
(3,732)
(20,278)
(405)
Deferred income tax liabilities
(38,378)
(24,415)
Less: deferred tax assets offset
8,451
(3,543)
Total deferred income tax liabilities
(29,927)
(27,958)
Tax losses carried forward
Property, plant and equipment
Asset retirement obligations
Inventories
Trade payables and accrued liabilities
Loans receivable
Other
Deferred income tax assets
Less: deferred tax liabilities offset
Total deferred income tax assets
4,943
3,509
1,708
2,304
1,234
1,009
230
14,937
(8,451)
6,486
3,634
(33)
843
(24)
190
(2,460)
443
2,593
3,543
6,136
-
-
34
34
-
34
-
-
-
2
(13)
989
(3)
975
-
975
(4,304)
-
9
(44,931)
(20,278)
(1,845)
(4,295)
(67,054)
-
4,908
(4,295)
(62,146)
(336)
69
(9)
(332)
1
1,811
(1)
1,203
-
8,241
3,545
2,542
1,950
1,412
1,349
669
19,708
(4,908)
1,203
14,800
Net deferred income tax liabilities
(23,441)
(21,822)
1,009
(3,092)
(47,346)
At 31 December 2020, the Group had recognized deferred income tax assets of RR 10,922 million (31 December 2019:
RR 8,241 million) in respect of unused tax loss carry forwards of RR 54,752 million (31 December 2019:
RR 41,456 million). In accordance with tax legislation of Russian Federation effective 1 January 2017, taxable profits
can be reduced in the amount of tax losses carried forward for relief during unlimited period of time, at the same time
in 2017 to 2021 tax losses carried forward cannot exceed 50 percent of taxable profits. In determining future taxable
profits and the amount of tax benefits that are probable in the future, the Group’s management makes judgments
including expectations regarding the Group’s ability to generate sufficient future taxable income and the projected time
period over which deferred tax benefits will be realized.
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS
The accounting policies and disclosure requirements for financial instruments have been applied to the line items below:
Financial assets
At amortised cost
Long-term loans receivable
Trade and other receivables
Short-term bank deposits
with original maturity more than three months
Cash and cash equivalents
Other
At fair value through profit or loss
Long-term loans receivable
Contingent consideration
Commodity derivatives
At 31 December 2020
At 31 December 2019
Non-current
Current
Non-current
Current
11,558
426
-
-
13
379,069
76,918
13
6,017
71,255
62,876
119,707
1,316
35,236
-
13,041
11,408
403
2,878
229,581
-
-
8
220,087
101,391
749
83,752
53,240
622
47,937
-
16,966
Total financial assets
467,997
309,448
334,046
434,976
Financial liabilities
At amortised cost
Long-term debt
Long-term lease liabilities
Interest payable
Trade and other payables
At fair value through profit or loss
Commodity derivatives
168,988
6,670
-
-
53,152
3,798
1,529
58,935
139,852
7,516
-
-
12,246
2,947
1,291
53,236
880
14,278
1,680
16,450
Total financial liabilities
176,538
131,692
149,048
86,170
Fair value measurement. The Group evaluates the quality and reliability of the assumptions and data used to measure
fair value in accordance with IFRS 13, Fair Value Measurement, in the three hierarchy levels as follows:
i.
ii.
iii.
quoted prices in active markets (Level 1);
inputs other than quoted prices included in Level 1 that are directly or indirectly observable in the market
(externally verifiable inputs) (Level 2); or
inputs that are not based on observable market data (unobservable inputs) (Level 3).
Commodity derivative instruments. The Group conducts natural gas foreign trading in active markets under long-term
and short-term purchase and sales contracts, as well as purchases and sells various derivative instruments (with
reference to the European natural gas hubs) for delivery optimization and to decrease exposure to the risk of negative
changes in natural gas prices. In addition, from time to time, the Group enters into commodity derivative contracts to
manage price risks relating to the Group’s own use liquid hydrocarbons purchase agreements.
43
44
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
These contracts include pricing terms that are based on a variety of commodities and indices, and/or volume flexibility
options that collectively qualify them under the scope of IFRS 9, Financial Instruments , although the activity
surrounding certain contracts involves the physical delivery of hydrocarbons. All contracts mentioned above are
recognized in the consolidated statement of financial position at fair value with movements in fair value recognized in
the consolidated statement of income.
The fair value of long-term commodity derivative contracts involving the physical delivery of hydrocarbons is
determined using internal models and other valuation techniques (the mark-to-market and mark-to-model analysis) due
to the absence of quoted prices or other observable, market-corroborated data, for the duration of the contracts. Due to
the assumptions underlying their fair value, the commodity derivative contracts are categorized as Level 3 in the fair
value hierarchy, described above.
The fair value of short-term commodity derivative contracts involving the physical delivery and likewise contracts used
for the price risk management and delivery optimization is determined based on available futures quotes in the active
market (mark-to-market analysis) (Level 1).
The amounts recognized by the Group in respect of the natural gas derivative contracts measured in accordance with
IFRS 9, Financial Instruments, are as follows:
Commodity derivatives
At 31 December 2020 At 31 December 2019
Within other non-current and current assets
Within other non-current and current liabilities
Included in other operating income (loss)
Operating realized income (loss)
Change in fair value
13,054
(15,158)
17,715
(18,130)
Year ended 31 December:
2020
2019
1,479
(1,689)
(1,072)
238
The table below represents the effect on the fair value estimation of commodity derivative contracts that would occur
from hydrocarbon prices changes by ten percent in 12 months after the reporting date:
Effect on the fair value
Increase by ten percent
Decrease by ten percent
Year ended 31 December:
2020
2019
(985)
985
(1,478)
1,478
Recognition and remeasurement of the shareholders’ loans to joint ventures. Terms and conditions of certain
shareholders’ loans provided by the Group to its joint ventures OAO Yamal LNG, OOO Arctic LNG 2 and
ZAO Terneftegas contain certain financial (benchmark interest rates adjusted for the borrower credit risk) and non-
financial (actual interest rates on the borrowings of shareholders, expected free cash flows of the borrower and expected
maturities) variables and in accordance with the Group’s accounting policy were classified as financial assets at fair
value through profit or loss.
The following table summarizes the movements in the carrying amounts of shareholders’ loans provided to joint
ventures, which are accounted for at fair value through profit or loss:
At 1 January
Loans provided
Repayment of loans and accrued interest
Initial measurement at fair value allocated
to increase the Group’s investments in joint ventures (see Note 6)
Recognition of loans, classified previously
as intercompany, due to disposal of a subsidiary (see Note 4)
Subsequent remeasurement
at fair value recognized in profit or loss as follows:
– Interest income (using the effective interest rate method)
– Foreign exchange gain (loss), net
– Remaining effect from changes in fair value
(attributable to free cash flows of the borrowers and interest rates)
At 31 December
Year ended 31 December:
2020
2019
268,024
120,552
(48,380)
(19,906)
-
20,329
81,083
(7,397)
414,305
263,345
24,441
(66,352)
(3,803)
58,329
15,319
(36,082)
12,827
268,024
Fair value measurement of shareholders’ loans to joint ventures is determined using benchmark interest rates adjusted
for the borrower credit risk and internal free cash flows models based on the borrower’s strategic plans approved by the
shareholders of the joint ventures. Due to the assumptions underlying fair value estimation, shareholders’ loans are
categorized as Level 3 in the fair value hierarchy, described above.
The fair value of the shareholders’ loans is sensitive to benchmark interest rates changes. The table below represents
the effect on fair value of the shareholders’ loans that would occur from one percent changes in the benchmark interest
rates.
Effect on the fair value
Increase by one percent
Decrease by one percent
Year ended 31 December:
2020
2019
(15,975)
16,909
(7,752)
8,142
Contingent consideration. According to the terms of the transactions on the sale of a 40 percent participation interest
in OOO Arctic LNG 2, total consideration comprises, inter alia, contingent cash payments in total of up to
USD 3,200 million equivalent depending on average crude oil benchmark prices level for the year preceding each
payment (see Note 4). The contingent payments dates are linked to the dates of launching the Arctic LNG 2 project’s
LNG trains.
Under IFRS 9, Financial Instruments, this contingent consideration contains a commodity based embedded derivative
and was classified as a financial asset measured at fair value through profit or loss. Interest income, foreign exchanges
differences and the remaining effect from fair value remeasurement of the contingent consideration (included in “Other
operating income (loss)” line item) are disclosed separately in the consolidated statement of income.
45
46
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
The following table summarizes the movements in the carrying amounts of the contingent consideration:
At 1 January
Initial recognition of the contingent consideration (see Note 4)
Subsequent remeasurement
at fair value recognized in profit or loss as follows:
– Interest income (using the effective interest rate method)
– Foreign exchange gain (loss), net
– Remaining effect from changes in fair value
(attributable to crude oil benchmark prices forecast)
At 31 December
Year ended 31 December:
2020
2019
101,391
-
2,730
20,620
-
137,499
2,269
(3,835)
(47,823)
(34,542)
76,918
101,391
Fair value measurement of the contingent consideration is determined based on cash flow model using a discount rate,
internal projections of the crude oil benchmark price dynamics and the Arctic LNG 2 project’s realization schedule.
Due to the assumptions underlying fair value estimation, the contingent consideration is categorized as Level 3 in the
fair value hierarchy, described above.
The table below represents the effect on the fair value estimation of the contingent consideration that would occur from
crude oil price changes throughout the valuation period:
Effect on the fair value
Increase by one percent
Decrease by one percent
Year ended 31 December:
2020
2019
5,048
(5,321)
4,492
(4,551)
Financial risk management objectives and policies. In the ordinary course of business, the Group is exposed to market
risks from fluctuating prices on commodities purchased and sold, prices of other raw materials, currency exchange rates
and interest rates. Depending on the degree of price volatility, such fluctuations in market prices may create volatility
in the Group’s financial results. To effectively manage the variety of exposures that may impact financial results, the
Group’s overriding strategy is to maintain a strong financial position.
The Group’s principal risk management policies are established to identify and analyze the risks faced by the Group,
to set appropriate risk limits and controls, and to monitor risks and adherence to these limits. Risk management policies
and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.
Market risk. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and
commodity and equity prices, will affect the Group’s financial results or the value of its holdings of financial
instruments. The primary objective of mitigating these market risks is to manage and control market risk exposures,
while optimizing the return on risk.
The Group is exposed to market price movements relating to changes in commodity prices such as crude oil, oil and
gas condensate refined products and natural gas (commodity price risk), foreign currency exchange rates, interest rates,
equity prices and other indices that could adversely affect the value of the Group’s financial assets, liabilities or expected
future cash flows.
(a) Foreign exchange risk
The Group is exposed to foreign exchange risk arising from various exposures in the normal course of business,
primarily with respect to the US dollar and Euro. Foreign exchange risk arises primarily from future commercial
transactions, recognized assets and liabilities when assets and liabilities are denominated in a currency other than the
functional currency.
The Group’s overall strategy is to have no significant net exposure in currencies other than the Russian rouble, the US
dollar and Euro. The Group may utilize foreign currency derivative instruments to manage the risk exposures associated
with fluctuations on certain firm commitments for sales and purchases, debt instruments and other transactions that are
denominated in currencies other than the Russian rouble, and certain non-Russian rouble assets and liabilities.
The carrying amounts of the Group’s financial instruments are denominated in the following currencies:
At 31 December 2020
Financial assets
Non-current
Long-term loans receivable
Trade and other receivables
Contingent consideration
Commodity derivatives
Other
Current
Russian
rouble
6,907
348
-
-
-
US dollar
Euro
Other
Total
14,227
-
76,918
-
-
369,493
-
-
13
-
-
78
-
-
13
390,627
426
76,918
13
13
Trade and other receivables
Current portion
of long-term loans receivable
Commodity derivatives
Short-term bank deposits with original
maturity more than three months
Cash and cash equivalents
Other
33,089
26,963
9,758
1,445
71,255
-
-
-
13,056
908
35,166
-
62,876
78,812
-
6,087
13,041
-
26,519
408
-
-
-
1,320
-
41,253
13,041
62,876
119,707
1,316
Financial liabilities
Non-current
Long-term debt
Long-term lease liabilities
Commodity derivatives
Current
Current portion of long-term debt
Current portion
of long-term lease liabilities
Interest payable
Trade and other payables
Commodity derivatives
-
(276)
-
(114,755)
(3,706)
-
(54,233)
(2,367)
(880)
-
(321)
-
(168,988)
(6,670)
(880)
-
(53,152)
-
-
(53,152)
(260)
-
(47,568)
-
(2,220)
(1,528)
(4,487)
-
(1,162)
(1)
(6,500)
(14,278)
(156)
-
(380)
-
(3,798)
(1,529)
(58,935)
(14,278)
Net exposure
6,204
115,114
345,898
1,999
469,215
47
48
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
At 31 December 2019
Financial assets
Non-current
Long-term loans receivable
Trade and other receivables
Contingent consideration
Commodity derivatives
Other
Current
Russian
rouble
US dollar
Euro
Other
Total
6,521
339
-
-
-
28,037
1
101,391
-
-
196,937
-
-
749
-
-
63
-
-
8
231,495
403
101,391
749
8
Trade and other receivables
Current portion
of long-term loans receivable
Commodity derivatives
Short-term bank deposits with original
maturity more than three months
Cash and cash equivalents
Other
25,561
192,947
10,057
1,016
229,581
-
-
-
13,375
622
47,843
-
83,752
27,498
-
2,972
16,966
-
11,598
-
-
-
-
769
-
50,815
16,966
83,752
53,240
622
Financial liabilities
Non-current
Long-term debt
Long-term lease liabilities
Commodity derivatives
Current
Current portion of long-term debt
Current portion
of long-term lease liabilities
Interest payable
Trade and other payables
Commodity derivatives
-
(264)
-
(139,852)
(4,661)
-
-
(2,529)
(1,680)
-
(62)
-
(139,852)
(7,516)
(1,680)
(1,007)
(4,305)
(6,934)
-
(12,246)
(21)
(3)
(43,232)
-
(1,981)
(1,287)
(3,253)
-
(866)
(1)
(6,496)
(16,450)
(79)
-
(255)
-
(2,947)
(1,291)
(53,236)
(16,450)
Net exposure
1,891
326,130
204,323
1,460
533,804
The Group chooses to provide information about market risk and potential exposure to hypothetical loss from its use of
financial instruments through sensitivity analysis disclosures in accordance with IFRS requirements.
The sensitivity analysis depicted in the table below reflects the hypothetical profit (loss) that would occur assuming a
ten percent increase in exchange rates and no changes in the portfolio of instruments and other variables at 31 December
2020 and 2019, respectively:
Effect on profit before income tax
Increase in exchange rate
2020
2019
RUB / USD
RUB / EUR
10%
10%
11,511
34,590
32,613
20,432
Year ended 31 December:
The effect of a corresponding ten percent decrease in exchange rate is approximately equal and opposite.
(b) Commodity price risk
The Group’s overall commercial trading strategy in natural gas and liquid hydrocarbons is centrally managed. Changes
in commodity prices could negatively or positively affect the Group’s results of operations. The Group manages the
exposure to commodity price risk by optimizing its core activities to achieve stable price margins.
Natural gas supplies on the Russian domestic market. As an independent natural gas producer, the Group is not subject
to the Government’s regulation of natural gas prices, except for those volumes sold to residential customers.
Nevertheless, the Group’s prices for natural gas sold are strongly influenced by the prices regulated by the governmental
agency of the Russian Federation that carries out state regulation of prices and tariffs for goods and services of natural
monopolies in energy, utilities and transportation.
Wholesale natural gas prices for sales to all customer categories (excluding residential customers) on the domestic
market were increased by the Regulator by 1.4 percent effective 1 July 2019 and further by 3 percent effective 1 August
2020.
Management believes it has limited downside commodity price risk for natural gas in the Russian Federation and does
not use commodity derivative instruments for trading purposes. The Group’s natural gas purchase and sales contracts
in the domestic market are not considered to meet the definition of a derivative and are not within the scope of IFRS 9,
Financial Instruments. However, to effectively manage the margins achieved through its natural gas trading activities,
management has established targets for volumes sold to wholesale traders and end-customers.
LNG supplies. The Group sells liquefied natural gas purchased primarily from its joint ventures Yamal LNG and
Cryogas-Vysotsk on international markets under short- and long-term contracts at prices based on benchmark natural
gas prices at the major natural gas hubs and benchmark crude oil prices. The Group sells liquefied natural gas produced
at the small-scale LNG plant in the Chelyabinsk Region on domestic market under short-term contracts at prices
depending on oil products prices on the domestic market. The Group’s LNG purchase and sales contracts are not
considered to meet the definition of a derivative and are not within the scope of IFRS 9, Financial Instruments.
LNG regasification activity in Europe. The Group purchases and sells regasified LNG in Europe primarily at prices
linked to natural gas prices at major European natural gas hubs. Regasified LNG purchase and sales contracts are not
considered to meet the definition of a derivative and are not within the scope of IFRS 9, Financial Instruments.
Natural gas trading activities on the European and other foreign markets. The Group purchases and sells natural gas
on the European and other foreign markets under short- and long-term supply contracts, as well as purchases and sells
different derivative instruments based on formulas with reference to benchmark natural gas prices quoted for the North-
Western European natural gas hubs, crude oil and oil products prices and/or a combination thereof. Therefore, the
Group’s results from natural gas foreign trading and derivative instruments foreign trading are subject to commodity
price volatility based on fluctuations or changes in the respective benchmark prices.
Liquid hydrocarbons supplies. The Group sells its crude oil, stable gas condensate and gas condensate refined products
under spot contracts. Naphtha and stable gas condensate volumes sold to the Asian-Pacific Region, European and North
American markets are primarily based on benchmark crude oil prices of Brent and Dubai and/or naphtha prices, mainly
of Naphtha Japan and Naphtha CIF NWE or a combination thereof, plus a margin or discount, depending on current
market situation. Other gas condensate refined products volumes sold mainly to the European market are based on
benchmark jet fuel prices of Jet CIF NWE and gasoil prices of Gasoil 0.1 percent CIF NWE plus a margin or discount,
depending on current market situation. Crude oil sold internationally is based on benchmark crude oil prices of Brent,
or Dubai, plus a premium or a discount, and on a transaction-by-transaction basis or based on benchmark crude oil
prices of Brent and Urals or a combination thereof for volumes sold domestically.
As a result, the Group’s revenues from the sales of liquid hydrocarbons are subject to fluctuations in the crude oil and
gas condensate refined products benchmark prices. The Group’s liquid hydrocarbons purchase and sales contracts are
mainly concluded to meet supply requirements to fulfill contract obligations or for own consumption and are not within
the scope of IFRS 9, Financial Instruments. From time to time, the Group also enters into commodity derivative
contracts to manage price risks relating to the Group’s own use liquid hydrocarbons purchase agreements. Such
commodity derivative contracts are accounted for in accordance with IFRS 9.
49
50
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
(c) Cash flow and fair value interest rate risk
The Group is subject to interest rate risk on financial liabilities with variable interest rates. Changes in interest rates
impact primarily debt by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt).
To mitigate this risk, the Group’s treasury function performs periodic analysis of the current interest rate environment
and depending on that analysis management makes decisions whether it would be more beneficial to obtain financing
on a fixed-rate or variable-rate basis. In cases where the change in the current market fixed or variable interest rates is
considered significant management may consider refinancing a particular debt on more favorable interest rate terms.
The interest rate profiles of the Group’s interest-bearing financial instruments are as follows:
At 31 December 2020
At 31 December 2019
RR million
Percentage
RR million
Percentage
176,623
45,517
80%
20%
152,098
-
100%
-
At fixed rate
At variable rate
Total debt
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated
statement of financial position.
The table below highlights the Group’s trade and other receivables to published credit ratings of its counterparties
and/or their parent companies:
Moody’s, Fitch and/or Standard & Poor’s
At 31 December 2020
At 31 December 2019
Investment grade rating
Non-investment grade rating
No external rating
Total trade and other receivables
47,210
205
23,840
71,255
199,446
328
29,807
229,581
The table below highlights the Group’s cash, cash equivalents and short-term bank deposits with original maturity more
than three months to published credit ratings of its banks and/or their parent companies:
222,140
100%
152,098
100%
Moody’s, Fitch and/or Standard & Poor’s
At 31 December 2020
At 31 December 2019
The Group centralizes the cash requirements and surpluses of controlled subsidiaries and the majority of their external
financing requirements, and applies, on its consolidated net debt position, a funding policy to optimize its financing
costs and manage the impact of interest rate changes on its financial results in line with market conditions. In this way,
the Group is able to ensure that the balance between the floating rate portion of its debt and its cash surpluses has a low
level of exposure to any changes in interest rates over the short-term. This policy makes it possible to significantly limit
the Group’s sensitivity to interest rate volatility.
The Group’s financial results are sensitive to changes in interest rates on the floating rate portion of the Group’s debt
portfolio. If the interest rates applicable to floating rate debt were to increase by 100 basis points (one percent) at the
reporting dates, assuming all other variables remain constant, it is estimated that the Group’s profit before taxation
would decrease by the amounts shown below:
Effect on profit before income tax
Increase by 100 basis points
Year ended 31 December
2020
2019
455
-
The effect of a corresponding 100 basis points decrease in interest rate is approximately equal and opposite.
Credit risk. Credit risk refers to the risk exposure that a potential financial loss to the Group may occur if a counterparty
defaults on its contractual obligations.
Credit risk is managed on a Group level and arises from cash and cash equivalents, other bank deposits, as well as credit
exposures to customers, including outstanding trade receivables and committed transactions. Cash, cash equivalents
and deposits are placed only with banks that are considered by the Group during the whole deposit period to have
minimal risk of default.
The Group’s trade and other receivables consist of a large number of customers, spread across diverse industries and
geographical areas. The Group has developed standard credit payment terms and constantly monitors the status of trade
and other receivables and the creditworthiness of the customers.
Most of the Group’s international natural gas and liquid hydrocarbons sales are made to customers with independent
external ratings; however, if the customer has a credit rating below BBB-, the Group requires the collateral for the trade
receivable to be in the form of letters of credit from banks with an investment grade rating. Most of domestic sales of
liquid hydrocarbons are made on a 100 percent prepayment basis.
As a result of the domestic regional natural gas trading activities, the Group is exposed to the risk of payment defaults
of small and medium-sized industrial users and individuals. To minimize credit risk the Group monitors the
recoverability of these debtors by analyzing ageing of receivables by type of customers and their respective prior
payment history.
Investment grade rating
Non-investment grade rating
No external rating
Total cash, cash equivalents and short-term bank
deposits with original maturity more than three months
182,542
34
7
131,049
5,915
28
182,583
136,992
Investment grade ratings classification referred to as Aaa to Baa3 for Moody’s Investors Service, and as AAA to BBB-
for Fitch Ratings and Standard & Poor’s.
In addition, the Group provides long-term loans receivable to its joint ventures for development, construction and
acquisitions of oil and gas assets. Required amount of loans and their maturity schedules are based on the budgets and
strategic plans approved by the shareholders of the joint ventures.
Liquidity risk. Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group’s approach to managing liquidity 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
Group’s reputation. In managing its liquidity risk, the Group maintains adequate cash reserves and debt facilities,
continuously monitors forecast and actual cash flows and matches the maturity profiles of financial assets and liabilities.
The Group prepares various financial plans (monthly, quarterly and annually) which ensures that the Group has
sufficient cash on demand to meet expected operational expenses, financial obligations and investing activities for a
period of 30 days or more. The Group has entered into a number of short-term credit facilities. Such credit lines and
overdraft facilities can be drawn down to meet short-term financing needs. To fund cash requirements of a more
permanent nature, the Group will normally raise long-term debt in available international and domestic markets.
The following tables summarize the maturity profile of the Group’s financial liabilities, except for natural gas derivative
contracts, based on contractual undiscounted payments, including interest payments:
At 31 December 2020
Debt
Principal
Interest
Lease liabilities
Trade and other payables
Less than
1 year
Between
1 and 2 years
Between
2 and 5 years
More than
5 years
Total
53,159
8,322
3,949
58,935
88,083
6,416
3,819
-
60,758
7,690
3,436
-
25,696
3,194
71
-
227,696
25,622
11,275
58,935
Total financial liabilities
124,365
98,318
71,884
28,961
323,528
51
52
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
25
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
At 31 December 2019
Debt
Principal
Interest
Lease liabilities
Trade and other payables
Less than
1 year
Between
1 and 2 years
Between
2 and 5 years
More than
5 years
Total
12,246
7,572
3,153
53,236
44,545
5,965
2,959
-
74,827
7,269
5,610
-
25,839
3,796
-
-
157,457
24,602
11,722
53,236
Total financial liabilities
76,207
53,469
87,706
29,635
247,017
The following tables represent the maturity profile of the Group’s derivative commodity contracts based on
undiscounted cash flows:
At 31 December 2020
Cash inflow
Cash outflow
Net cash flows
At 31 December 2019
Cash inflow
Cash outflow
Net cash flows
Less than
1 year
Between
1 and 2 years
Between
2 and 5 years
155,732
(156,944)
18,975
(19,843)
(1,212)
(868)
-
-
-
Total
174,707
(176,787)
(2,080)
113,918
(113,402)
43,034
(43,649)
15,146
(15,462)
172,098
(172,513)
516
(615)
(316)
(415)
Reconciliation of liabilities arising from financing activities. The movements in the Group’s liabilities arising from
financing activities were as follows:
At 1 January 2019
Cash flows
Non-cash movements
Non-cash additions
Interest accrued
Foreign exchange movements
At 31 December 2019
Cash flows (*)
Non-cash movements
Non-cash additions
Interest accrued
Foreign exchange movements
Long-term debt and
interest payable
Long-term lease
liabilities
173,614
(10,316)
-
9,112
(19,021)
153,389
30,751
-
10,051
29,478
9,798
(2,944)
4,291
544
(1,226)
10,463
(3,849)
956
566
2,332
Total
183,412
(13,260)
4,291
9,656
(20,247)
163,852
26,902
956
10,617
31,810
At 31 December 2020
223,669
10,468
234,137
(*) – Excluding prepayments under lease agreements, in respect of which lease liabilities were not recognized.
Capital management. The primary objectives of the Group’s capital management policy are to ensure a strong capital
base to fund and sustain its business operations through prudent investment decisions and to maintain investor, market
and creditor confidence to support its business activities.
At 31 December 2020, the Group had investment grade ratings of BBB by Standard & Poor’s, BBB by Fitch Ratings
and Baa2 by Moody’s Investors Service. The Group has established certain financial targets and coverage ratios that it
monitors on a quarterly and annual basis to maintain its credit ratings.
The Group manages its capital on a corporate-wide basis to ensure adequate funding to sufficiently meet the Group’s
operational requirements. The majority of external debts raised to finance NOVATEK’s wholly owned subsidiaries are
centralized at the parent level, and financing to Group entities is facilitated through inter-company loan arrangements
or additional contributions to share capital.
The Group has a stated dividend policy that distributes not less than 50 percent of the Group’s consolidated net profit
determined according to IFRS, adjusted for one-off profits or losses (until December 2020, the minimum dividend
payout level was set at 30 percent of the Group’s adjusted consolidated net profit). The dividend payment for a specific
year is determined after taking into consideration the Group’s development strategy. Dividends are recommended by
the Board of Directors of NOVATEK and approved by the NOVATEK’s shareholders.
The Group defines the term “capital” as equity attributable to PAO NOVATEK shareholders plus net debt (total debt
less cash and cash equivalents and bank deposits with maturity more than three months). There were no changes to the
Group’s approach to capital management during 2020. At 31 December 2020 and 2019, the Group’s capital totaled
RR 1,660 billion and RR 1,663 billion, respectively.
26
CONTINGENCIES AND COMMITMENTS
Operating environment. The Russian Federation continues to display some characteristics of an emerging market. In
addition, the Russian economy is particularly sensitive to world oil and gas prices. The tax, currency and customs
legislation is subject to varying interpretations and frequent changes. The Group’s business operations are primarily
located in the Russian Federation and are thus exposed to the economic and financial markets of the Russian Federation.
The spread of a new coronavirus COVID-19 in 2020 has caused financial and economic stress to the global markets
that is out of the Group’s management control. In particular, the COVID-19 pandemic has led to lower demand for
crude oil, natural gas and oil products, which combined with the increase in the supply of crude oil due to the
cancellation of the OPEC+ production agreement in March 2020 has led to a fall in global hydrocarbon commodity
prices. Global economic activity has begun a gradual recovery during the second quarter following the partial removals
of restrictions aimed at preventing the epidemic spread, as well as a partial recovery in benchmark crude oil prices
following the new OPEC+ production agreement reached and the compliance to the target cuts. This recovery has
continued throughout the second half of 2020. Nevertheless, the scale and duration of these events remain uncertain
and may continue to influence our future earnings, cash flows and financial position.
The Group’s management is taking necessary precautions to protect the safety and well-being of employees, contractors
and their families against the infectious spread of COVID-19, while maintaining commitment to meet the growing
energy needs of valued customers domestically and internationally. The Group’s management continues to work closely
with federal, regional and local authorities, as well as partners, to contain the spread of the coronavirus and to take
appropriate actions, where necessary, to minimize the possible disruptions of the Group’s business operations.
Sectoral sanctions imposed by the U.S. government. On 16 July 2014, the Office of Foreign Assets Control (OFAC)
of the U.S. Treasury included PAO NOVATEK on the Sectoral Sanctions Identification List (the “List”), which
prohibits U.S. persons or persons within the United States from providing new financing to the Group for longer than
60 days. Whereas all other transactions, including financial, carried out by U.S. persons or within the United States
with the Group are permitted. The inclusion on the List has not impacted the Group’s business activities, in any
jurisdiction, nor does it affect the Group’s assets and debt.
Management has reviewed the Group’s capital expenditure programs and existing debt portfolio and has concluded that
the Group has sufficient liquidity, through internally generated (operating) cash flows, to adequately fund its core oil
and gas business operations including finance of planned capital expenditure programs of its subsidiaries, as well as to
repay and service Group’s short-term and long-term debt existing at the current reporting date and, therefore, inclusion
on the List does not adversely impact the Group’s operational activities.
The Group together with its foreign partners currently raises necessary financing for our joint ventures from
non-US debt markets and lenders.
53
54
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
CONTINGENCIES AND COMMITMENTS (CONTINUED)
26
CONTINGENCIES AND COMMITMENTS (CONTINUED)
The outflow of resources embodying economic benefits required to settle the obligations under the aforementioned
guarantees issued by the Group is not probable; therefore, no provision for these liabilities was recognized in the
consolidated financial statements.
Taxation. Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can
occur frequently. Correspondingly, the relevant regional and federal tax authorities may periodically challenge
management’s interpretation of such taxation legislation as applied to the Group’s transactions and activities.
Furthermore, events within the Russian Federation suggest that the tax authorities may be taking a more assertive
position in its interpretation of the legislation and assessments, and it is possible that transactions and activities that
have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest
may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years
preceding the year of review. Under certain circumstances reviews may cover longer periods.
Management believes that its interpretation of the relevant legislation is appropriate and that it is probable that the
Group’s tax, currency and customs positions will be sustained. Where management believes it is probable that a position
cannot be sustained, an appropriate amount has been accrued in the consolidated financial statements.
Mineral licenses. The Group is subject to periodic reviews of its activities by governmental authorities with respect to
the requirements of its mineral licenses. Management cooperates with governmental authorities to agree on remedial
actions necessary to resolve any findings resulting from these reviews. Failure to comply with the terms of a license
could result in fines, penalties or license limitation, suspension or revocation. The Group’s management believes any
issues of non-compliance will be resolved through negotiations or corrective actions without any material adverse effect
on the Group’s financial position, results of operations or cash flows.
Contractual commitments. At 31 December 2020, the Group had contractual capital expenditures commitments
aggregating approximately RR 248 billion (at 31 December 2019: RR 223 billion) mainly for development of LNG
projects (through 2025), and for development at the Kharbeyskoye field (through 2023), the Ust-Yamsoveyskiy
(through 2023), the North-Russkiy (through 2021), the Yevo-Yakhinskiy (through 2023) license areas and the
Yarudeyskoye field (through 2023) all in accordance with duly signed agreements as well as for construction of a
hydrocracker unit at the Gas Condensate Fractionation and Transshipment Complex located at the port of Ust-Luga on
the Baltic Sea (through 2022).
At 31 December 2020 and 31 December 2019, the Group was a participant of joint operations on exploration and
production in Montenegro (50 percent participation interest) and in Republic of Lebanon (20 percent participation
interest) under the agreements concluded with the State of Montenegro and the Ministry of Energy and Water of
Republic of Lebanon, respectively. Jointly with other participants of these agreements, the Group committed to conduct
mandatory work program exploration activities during the established periods, as stipulated by these agreements. The
maximum amount to be paid by the Group in case of non-performance of work program exploration activities at
31 December 2020 is EUR 42.5 million to the State of Montenegro and EUR 5.8 million to the Republic of Lebanon
(at 31 December 2019: EUR 42.5 million and EUR 12.7 million, respectively). The Group expects that mandatory
exploration work programs under its joint operations will be performed and, therefore, no provision for these contingent
liabilities was recognized in the consolidated financial statements.
The Group has entered into a number of agreements, relating to time chartering of marine tankers and bareboat
chartering of floating gas storage units with service terms from 20 to 29 years under which provision of the services
has not yet commenced. At 31 December 2020, the Group’s future minimum payments under these charter agreements
amounted to RR 234 billion (at 31 December 2019: RR 110 billion). Of this amount RR 196 billion relate to agreements
which management plans to transfer to Group’s joint ventures involved into LNG projects (at 31 December 2019:
RR 81 billion).
Guarantees issued. At 31 December 2019, the aggregated amount of non-financial guarantees in respect of the Yamal
LNG project issued by the Group to a number of third parties totaled USD 1.4 billion and EUR 8.5 billion. At
31 December 2020, these guarantees have been withdrawn after passing the tests proving successful project completion.
Simultaneously, in accordance with the project financing agreements of OAO Yamal LNG, the Group issued new
guarantees, financial and non-financial, which cover only limited specific risks of the project. Non-financial guarantees
represent undertakings to provide repayable funds to the project to the extent necessary for the project to fulfil its
obligations to creditors, upon occurrence of limited events, and may not exceed USD 5.9 billion. Payments under
financial guarantees may be claimed only upon Yamal LNG’s default on its obligations to creditors, and the amount of
these financial guarantees in most cases depends on macroeconomic factors (benchmark hydrocarbon prices, foreign
exchange rates), but may not exceed USD 2.4 billion and EUR 1.0 billion. At 31 December 2020, based on the current
estimations and long-term macroeconomic forecasts of the Group’s management, the likelihood of claims under these
financial guarantees is remote.
At 31 December 2019, with regard to the Group’s obligations under the non-financial guarantee issued to the banks
providing project financing to Yamal LNG, the State Development Corporation VEB.RF issued in favor of the banks a
counter guarantee for the amount not exceeding the equivalent of USD 3 billion. The guarantee was terminated in
September 2020 simultaneously with the termination of the Group’s non-financial guarantee.
The aggregated amount of non-financial guarantees issued by the Group to a Russian bank in respect of the Group’s
joint venture Cryogas-Vysotsk totaled EUR 276 million at 31 December 2020 (at 31 December 2019: EUR 277
million).
The aggregated amount of non-financial guarantees issued by the Group in respect of its joint venture Arctic LNG 2
relating to LNG tanker time charter agreements, under which provision of the services has not yet commenced, totaled
USD 2.0 billion at 31 December 2020.
In 2020, the Group issued non-financial performance guarantees to OOO Arctic LNG 2 in respect of the obligations of
the joint venture OOO SMART LNG relating to provision of services under long-term LNG tanker time charter
agreements, to the extent of the Group’s participation interest in OOO SMART LNG.
55
56
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
CONTINGENCIES AND COMMITMENTS (CONTINUED)
26
CONTINGENCIES AND COMMITMENTS (CONTINUED)
The major of the Group’s oil and gas fields and license areas are located in the YNAO. Licenses are issued by the
Federal Agency for the Use of Natural Resources of the Russian Federation and the Group pays unified natural resources
production tax to produce crude oil, natural gas and unstable gas condensate from these fields and contributions for
exploration of license areas. The principal licenses of the Group and its joint ventures and their expiry dates are:
Field
License holder
License expiry date
Geofizicheskoye
Soletskoye+Khanaveyskoye
Gydanskoye
Verhnetiuteyskoye and West Seyakhinskoye
Yurkharovskoye
Urengoyskoye (within the Yevo-Yakhinsky
and Ust-Yamsoveysky license areas)
Nyakhartinskoye
East Urengoyskoye+North Yesetinskoye
(within the Yevo-Yakhinsky and
West Yaro Yakhinsky license areas)
West Yurkharovskoye
Yevo-Yakhinskoye
North Russkoye
East Tarkosalinskoye
Kharbeyskoye
East Tazovskoye
Urengoyskoye (within the
Olimpiyskiy license area)
Dorogovskoye
Khancheyskoye
Dobrovolskoye (within the
Olimpiyskiy license area)
South Khadyryakhinskoye
North Khancheyskoye + Khadyryakhinskoye
Sterkhovoye (within the Olimpiyskiy license area)
North Chaselskoye
Beregovoye
Syskonsyninskoye
Yarudeyskoye
South-Tambeyskoye
Salmanovskoye (Utrenneye)
Urengoyskoye
(within the Samburgskiy license area)
Yaro-Yakhinskoye
Samburgskoye
East Urengoyskoye +North Esetinskoye (within
the Samburgskiy license area)
North Urengoyskoye
Termokarstovoye
Subsidiaries:
OOO Arctic LNG 1
OOO Arctic LNG 1
OOO Arctic LNG 1
OOO Obskiy LNG
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
AO NOVATEK-Pur
AO NOVATEK-Pur
AO NOVATEK-Pur
OOO Yargeo
Joint ventures:
OAO Yamal LNG
OOO Arctic LNG 2
AO Arcticgas
AO Arcticgas
AO Arcticgas
AO Arcticgas
ZAO Nortgas
ZAO Terneftegas
2034
2046
2044
2044
2034
2034/2198
2043
2034/2025
2029
2034
2031
2043
2036
2033
2059
2033
2044
2059
2031
2029
2059
Life of field
2070
2027
2029
2045
2120
2130
2119
2130
2130
2038
2097
Management believes the Group has the right to extend its licenses beyond the initial expiration date under the existing
legislation and intends to exercise this right on all of its fields.
Environmental liabilities. The Group operates in the oil and gas industry in the Russian Federation and abroad. The
enforcement of environmental regulation in the Russian Federation and other countries of operation is evolving and the
enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its
obligations under environmental regulations and, as obligations are determined, they are recognized as an expense
immediately if no future benefit is discernible. Potential liabilities arising as a result of a change in interpretation of
existing regulations, civil litigation or changes in legislation cannot be estimated. Under existing legislation,
management believes that there are no probable liabilities, which will have a material adverse effect on the Group’s
financial position, results of operations or cash flows.
Legal contingencies. The Group is subject of, or party to a number of court proceedings (both as a plaintiff and a
defendant) arising in the ordinary course of business. In the opinion of management, there are no current legal
proceedings or other claims outstanding, which could have a material effect on the result of operations or financial
position of the Group and which have not been accrued or disclosed in the consolidated financial statements.
27
PRINCIPAL SUBSIDIARIES AND JOINT VENTURES
The principal subsidiaries and joint ventures of the Group and respective effective ownership in the ordinary share
capital at 31 December 2020 and 2019 are set out below:
Ownership percent
at 31 December:
2019
2020
Country of
incorporation
Principal activities
Subsidiaries:
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO Yargeo
AO NOVATEK-Pur
OOO Arctic LNG 1
OOO Arctic LNG 3
OOO NOVATEK-NTC
OOO NOVATEK-Murmansk
OOO NOVATEK-Purovsky ZPK
OOO NOVATEK-Transervice
OOO NOVATEK-Ust-Luga
OOO NOVATEK-AZK
OOO NOVATEK-Chelyabinsk
OOO NOVATEK-Kostroma
OOO NOVATEK-Perm
OOO NOVATEK Moscow Region
OOO Arctic Transshipment
Novatek Gas & Power GmbH
Novatek Gas & Power Asia Pte. Ltd.
Novatek Green Energy Sp. z o.o.
(before February 2020
Novatek Polska Sp. z o.o.)
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Switzerland
Singapore
Exploration and production
Exploration and production
Exploration, development
and production
Exploration and production
Exploration and development
Exploration and development
Scientific and
technical support of
exploration and development
Construction of
large-scale offshore structures
Gas Condensate
Processing Plant
Transportation services
Fractionation
and Transshipment Complex
Wholesale and retail trading
Trading and marketing
Trading and marketing
Trading and marketing
Trading and marketing
Construction of offshore
LNG transshipment
complexes
Trading and marketing
Trading and marketing
100
100
Poland
Trading and marketing
57
58
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
27
PRINCIPAL SUBSIDIARIES AND JOINT VENTURES (CONTINUED)
28
RELATED PARTY TRANSACTIONS (CONTINUED)
Ownership percent
at 31 December:
2019
2020
Country of
incorporation
Principal activities
The terms and conditions of the loans receivable from the joint ventures are disclosed in Note 7.
The Group issued guarantees in favor of its joint ventures as described in Note 26.
Joint ventures:
OAO Yamal LNG
OOO Arctic LNG 2
(subsidiary until March 2019)
AO Arcticgas
ZAO Nortgas
ZAO Terneftegas
ООО Cryogas-Vysotsk
OOO SMART LNG
Rostock LNG GmbH
50.1
50.1
Russia
60
50
50
51
51
50
49
60
50
50
51
51
50
49
Russia
Russia
Russia
Russia
Russia
Russia
Germany
Exploration and development,
production of LNG
Exploration and development,
construction of LNG plant
Exploration and production
Exploration and production
Exploration and production
Operation of
medium-scale LNG plant
Leasing of LNG tankers
Construction of LNG
transshipment terminal
28
RELATED PARTY TRANSACTIONS
Transactions between NOVATEK and its subsidiaries, which are related parties of NOVATEK, have been eliminated
on consolidation and are not disclosed in this Note.
For the purposes of these consolidated financial statements, parties are generally considered to be related if one party
has the ability to control the other party, is under common control, or can exercise significant influence or joint control
over the other party in making financial and operational decisions. Management has used reasonable judgments in
considering each possible related party relationship with attention directed to the substance of the relationship, not
merely the legal form. Related parties may enter into transactions, which unrelated parties might not, and transactions
between related parties may not be affected on the same terms, conditions and amounts as transactions between
unrelated parties.
Related parties – joint ventures
Transactions
Revenues from oil and gas sales
Other revenues
Purchases of natural gas and liquid hydrocarbons
Transportation expenses
Materials, services and other
Materials, services and other
(capitalized within property, plant and equipment)
Purchases of property, plant and equipment
and materials for construction
Interest income
Dividends declared and cash received
Related parties – joint ventures
Balances
Long-term loans receivable
Current portion of long-term loans receivable
Trade and other receivables
Trade payables and accrued liabilities
Year ended 31 December:
2020
2019
4,136
7,375
(214,228)
(283)
(214)
(437)
(160)
21,170
10,920
3,210
5,304
(296,442)
(73)
(164)
(60)
(4)
16,158
46,550
At 31 December 2020 At 31 December 2019
390,627
41,253
2,974
27,532
231,495
50,815
1,426
27,034
Related parties – entities with significant influence and their subsidiaries
Year ended 31 December:
2020
2019
Transactions
Revenues from oil and gas sales
Other revenues
Purchases of natural gas and liquid hydrocarbons
Gain on disposal of interests
in subsidiaries and joint ventures, net
Other operating income (loss), net
Interest income
36,436
-
(443)
-
(10,789)
741
38,325
106
-
308,578
(7,842)
899
Related parties – entities with significant influence and their subsidiaries
At 31 December 2020 At 31 December 2019
Balances
Trade and other receivables
Contingent consideration
Trade payables and accrued liabilities
Related parties – parties under control of key management personnel
Transactions
Purchases of construction services
(capitalized within property, plant and equipment)
Transportation expenses
8,943
21,470
114
43,910
26,513
359
Year ended 31 December:
2020
2019
(18,268)
(10,815)
(14,555)
(10,114)
Related parties – parties under control of key management personnel
At 31 December 2020 At 31 December 2019
Balances
Advances for construction
Prepayments and other current assets
Trade payables and accrued liabilities
4,768
585
2,126
4,773
487
1,898
Key management personnel compensation. The Group paid to key management personnel (members of the Board of
Directors and the Management Committee) short-term compensation, including salary, bonuses and excluding
dividends, in the following amounts:
Related parties – members of the key management personnel
Board of Directors
Management Committee
Total compensation
Year ended 31 December:
2020
2019
211
7,125
7,336
166
4,134
4,300
Such amounts include personal income tax and are net of payments to non-budget funds made by the employer. Some
members of key management personnel have direct and/or indirect interests in the Group and receive dividends under
general conditions based on their respective shareholdings.
59
60
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
29
SEGMENT INFORMATION
30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Group’s activities are considered by the chief operating decision maker (hereinafter referred to as “CODM”,
represented by the Management Committee of NOVATEK) to comprise one operating segment: “exploration,
production and marketing”.
The Group’s management reviews financial information on the results of operations of the reporting segment prepared
based on IFRS. The CODM assesses reporting segment performance based on profit comprising among others revenues,
depreciation, depletion and amortization, interest income and expense, income tax and other items as presented in the
Group’s consolidated statement of income. The CODM also reviews capital expenditures of the reporting segment for
the period defined as additions to property, plant and equipment (see Note 5).
Geographical information. The Group operates in the following geographical areas:
•
•
•
•
•
Russian Federation – exploration, development, production and processing of hydrocarbons, and sales of natural
gas, stable gas condensate, other gas and gas condensate refined products, liquefied petroleum gas and crude oil;
Countries of Europe (primarily, the Netherlands, France, Poland, Denmark, Belgium, the United Kingdom,
Finland, Spain, Estonia, Germany, Sweden, Norway, Lithuania, Italy, Latvia and Montenegro) – sales of natural
gas, naphtha, stable gas condensate, gas condensate refined products, liquefied petroleum gas, crude oil and
exploration activities within joint operations;
Countries of the Asia-Pacific region (primarily, China, including Taiwan, South Korea, Japan, Malaysia,
Singapore, Philippines, Thailand and India) – sales of natural gas, naphtha, stable gas condensate and crude oil;
Countries of North America (primarily, the USA) – sales of naphtha, stable gas condensate refined products and
crude oil;
Countries of the Middle East (primarily, the United Arab Emirates, Saudi Arabia, Oman, Turkey and Lebanon) –
sales of natural gas, naphtha, crude oil and exploration activities within joint operations.
Geographical information of the Group’s oil and gas sales for the years ended 31 December 2020 and 2019 is as follows:
Russia
Europe
Asia-Pacific Region
North America
The Middle East
Other
Less: export duties
Total outside Russia
Total oil and gas sales
Year ended 31 December:
2020
2019
393,358
178,245
108,142
25,434
12,133
2
(17,564)
306,392
699,750
403,639
303,564
120,802
41,205
16,217
-
(33,195)
448,593
852,232
Revenues pertaining to geographical information are prepared based on the products geographical destination. For
products
the port of
discharge/transshipment designated by the Group’s customer. Substantially all of the Group’s operating assets are
located in the Russian Federation.
is determined based on
transported by
the geography
location of
tankers,
the
Major customers. For the years ended 31 December 2020 and 2019, the Group had one major customer to whom
individual revenue exceeded 10 percent of total external revenues, which represented 16 percent (RR 113.7 billion) and
13.4 percent (RR 115.9 billion) of total external revenues, respectively. The Group’s major customer resides within the
Russian Federation.
Principles of consolidation. These consolidated financial statements present the assets, liabilities, equity, income,
expenses and cash flows of PAO “NOVATEK” and its subsidiaries as those of a single economic entity. Subsidiaries
are all entities (including structured entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvements with the entity and has the ability to affect
those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is
transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated.
Accounting policies of the Group’s subsidiaries have been changed where necessary to ensure consistency with the
Group’s policies.
Joint arrangements. The Group undertakes a number of business activities through joint arrangements, which exist
when two or more parties have joint control. Joint arrangements are classified as either joint operations or joint ventures,
based on the contractual rights and obligations between the parties to the arrangement.
Interests in joint ventures are accounted for using the equity method. With regard to joint operations, the Group records
its share of assets, liabilities, revenues and expenses of its joint operations in the consolidated financial statements on a
line-by-line basis.
Under the equity method, an investment in a joint venture is initially recognized at cost. The difference between the
cost of an acquisition and the share of the fair value of the joint venture’s identifiable net assets represents goodwill
upon acquiring the joint venture.
Post-acquisition changes in the Group’s share of net assets of a joint venture are recognized as follows: (a) the Group’s
share of profits or losses is recorded in the consolidated profit or loss for the year as share of financial result of joint
ventures; (b) the Group’s share of other comprehensive income or loss is recognized in other comprehensive income or
loss and presented separately; (c) dividends received or receivable from a joint venture are recognized as a reduction in
the carrying amount of the investment; (d) all other changes in the Group’s share of the carrying value of net assets of
a joint venture are recognized within retained earnings in the consolidated statement of changes in equity.
After application of the equity method, including recognizing the joint venture’s losses, the entire carrying amount of
the investment is tested for impairment as a single asset whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, the Group does
not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. The
interest in a joint venture is the carrying amount of the investment in the joint venture together with any long-term
interests that, in substance, form part of the Group’s net investment in the joint venture, including receivables and loans
for which settlement is neither planned nor likely to occur in the foreseeable future.
Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s
interest in joint ventures; unrealized losses are also eliminated unless the transaction provides evidence of an impairment
of the asset transferred.
Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Business combinations. The acquisition method of accounting is used to account for acquisitions of subsidiaries.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at
their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.
Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred
for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held
immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognized in profit or loss,
after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities
assumed and reviews appropriateness of their measurement.
61
62
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The consideration transferred for the acquiree is measured at the fair value of the assets transferred, equity instruments
issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration
arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar professional services.
Disposals of subsidiaries, associates or joint ventures. When the Group ceases to control a subsidiary as a result of its
contribution to a joint venture, a joint operation or an associate, the subsidiary is deconsolidated and the retained interest
in the entity is remeasured to its fair value only to the extent of the unrelated investors’ interest in the joint venture, the
joint operation or the associate, with the change in carrying amount recognized in profit or loss.
If the ownership interest in a joint venture is reduced but joint control is retained or replaced with significant influence,
the Group continues to apply the equity method and does not remeasure the retained interest.
Extractive activities. The Group follows the successful efforts method of accounting for its oil and gas properties and
equipment whereby property acquisitions and development costs are capitalized, and exploration costs (geological and
geophysical expenditures, expenditures associated with the maintenance of non-proven reserves and other expenditures
relating to exploration activity), excluding exploratory drilling expenditures and exploration license acquisition costs,
are recognized within operating expenses in the consolidated statement of income as incurred.
Exploration license acquisition costs and exploratory drilling costs are recognized as exploration assets within property,
plant and equipment until it is determined whether proved reserves justifying their commercial development have been
found. If no proved reserves are found, the relevant costs are charged to the consolidated statement of income. When
proved reserves are determined, exploration license acquisition costs are reclassified to proved properties acquisition
costs and exploratory drilling costs are reclassified to development expenditure categories within property, plant and
equipment. Exploration license acquisition costs and exploratory drilling costs recognized as exploration assets are
reviewed for impairment on an annual basis.
The costs of 3-D seismic surveys used to assist production, increase total recoverability and determine the desirability
of drilling additional development wells within proved reservoirs are capitalized as development costs. All other seismic
costs are expensed as incurred.
Production costs and overheads are charged to expense as incurred.
Property, plant and equipment. Property, plant and equipment are carried at historical cost of acquisition or
construction and adjusted for accumulated depreciation, depletion, amortization and impairment.
The cost of self-constructed assets includes the cost of direct materials, direct employee related costs, a pro-rata portion
of depreciation of assets used for construction and an allocation of the Group’s overhead costs.
Depreciation, depletion and amortization of oil and gas properties and equipment is calculated using the unit-of-
production method for each field based upon total proved reserves for costs associated with acquisitions of proved
properties and common infrastructure facilities, and proved developed reserves for other development costs, including
wells. Where unit-of-production method does not reflect useful life and pattern of consumption of particular oil and gas
assets, such as processing facilities serving several properties, those assets are depreciated on a straight-line basis.
Property, plant and equipment, other than oil and gas properties and equipment, are depreciated on a straight-line basis
over their estimated useful lives. Land and assets under construction are not depreciated.
The estimated useful lives of the Group’s property, plant and equipment depreciated on a straight-line basis are as
follows:
Machinery and equipment
Processing facilities
Buildings
Years
5-15
20-30
25-50
At each reporting date management assesses whether there is any indication of impairment in respect of property, plant
and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as
the higher of an asset’s fair value less selling costs and its value in use. For the purposes of assessing impairment, assets
are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent
of the cash inflows from other assets or groups of assets (cash generating units). The carrying amount is reduced to the
recoverable amount and the impairment loss is recognized in profit or loss for the respective period. An impairment
loss recognized for an asset in prior years is reversed if there has been a change in the estimates used to determine the
asset’s recoverable amount.
Borrowing costs. Interest costs on borrowings and exchange differences arising from foreign currency borrowings (to
the extent that they are regarded as an adjustment to interest costs) used to finance the construction of property, plant
and equipment are capitalized during the period of time that is required to complete and prepare the asset for its intended
use. All other borrowing costs are recognized in the consolidated statement of income.
Asset retirement obligations. An asset retirement obligation is recognized when the Group has a present legal or
constructive obligation to dismantle, remove and restore items of property, plant and equipment whose construction is
substantially completed. The obligation is recognized when incurred at the present value of the estimated costs of
dismantling the assets, including abandonment and site restoration costs, and are included within the carrying value of
property, plant and equipment.
Changes in the asset retirement obligation relating to a change in the expected pattern of settlement of the obligation,
or in the estimated amount of the obligation or in the discount rates, are treated as a change in an accounting estimate
in the current period. Such changes are reflected as adjustments to the carrying value of property, plant and equipment
and the corresponding liability. Changes in the obligation resulting from the passage of time are recognized in the
consolidated statement of income as interest expense.
Leases. A contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of
time in exchange for consideration.
Right-of-use assets are initially measured at cost and depreciated by the earlier of the end of the useful life of the right-
of-use asset or the end of the lease term. The cost of right-of-use assets comprises of initial measurement of the lease
liability, any lease payments made before or at the commencement date and initial direct costs. After the commencement
date, the right-of-use assets are carried at cost less accumulated depreciation and impairment losses in accordance with
IAS 16, Property, Plant and Equipment.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date and subsequently measured at amortised cost with the interest expense recognized within finance income (expense)
in the consolidated statement of income.
In accordance with IFRS 16, Leases, the Group elected not to apply accounting requirements under this standard to
short-term leases.
Lease contracts where the Group acts as the lessor are classified as operating leases when substantially all the risks and
rewards incidental to ownership do not transfer to the lessee. Lease payments under such contracts are recognized on a
straight-line basis within other revenue in the consolidated statement of income.
Non-current assets held for sale. Non-current assets are classified as held for sale if their carrying amount will be
recovered principally through a sale transaction rather than through continuing use, and the sale within a year from the
date of classification is highly probable. They are measured at the lower of their carrying amount and fair value less
costs to sell.
Property, plant and equipment are not depreciated once classified as held for sale.
The Group ceases to use the equity method of accounting in relation to an interest in a joint venture or an associate
classified as an asset held for sale.
63
64
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories. Natural gas, gas condensate, crude oil and gas condensate refined products are valued at the lower of cost
or net realizable value. The cost of natural gas and liquid hydrocarbons includes direct cost of materials, direct operating
costs, and related production overhead expenses and is recorded on weighted average cost basis. Net realizable value
is the estimate of the selling price in the ordinary course of business, less selling expenses.
Materials and supplies are carried at amounts which do not exceed their respective recoverable amounts in the normal
course of business.
Financial instruments. Financial assets are classified in the following measurement categories: those to be measured
subsequently at amortised cost, those to be measured at fair value through profit or loss, and those to be measured at
fair value through other comprehensive income. The classification depends on the Group’s business model for
managing the financial assets and the contractual terms of the cash flows. If a hybrid contract contains a host that is a
financial asset, the classification requirements apply to the entire hybrid contract.
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position
only when there is a legally enforceable right to offset the recognized amounts, and there is an intention to either settle
on a net basis, or to realize the asset and settle the liability simultaneously.
Provisions for liabilities and charges. Provisions are recognized when the Group has a present legal or constructive
obligation as a result of past events; when it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
Provisions are reassessed at each reporting date, and those changes in the provisions resulting from the passage of time
are recognized in the consolidated statement of income as interest expense. Where the Group expects a provision to be
reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.
Financial assets are classified as at amortised cost only if both of the following criteria are met: the asset is held within
a business model with the objective of collecting the contractual cash flows, and the contractual terms give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.
Pension obligations. The Group performs mandatory contributions to the Pension Fund of the Russian Federation on
behalf of its employees based on gross salary payments. These contributions represent a defined contribution plan, are
expensed when incurred and are included in the employee compensation in the consolidated statement of income.
Certain shareholders’ loans provided by the Group to its joint ventures include embedded derivatives that modify cash
flows of the loans based on financial (market interest rates) and non-financial (interest rate on borrowings of the lender
and free cash flows of the borrower) variables. The risks relating to these variables are interrelated; therefore, terms and
conditions of each of these loans related to those variables were defined as a single compound embedded derivative.
The Group classified these loans as financial assets at fair value through profit or loss (see Note 25).
The difference between the loans provided and the fair value at initial recognition is recorded as the Group’s investment
in the joint ventures. Subsequently, the loans are measured at fair value at each reporting date with recognition of the
revaluation through profit or loss. Interest income (calculated using the effective interest method), foreign exchanges
differences and the remaining effect from fair value remeasurement of such loans are disclosed separately in the
consolidated statement of income.
Other shareholders’ loans provided by the Group, trade and other financial receivables, and cash and cash equivalents,
are classified as at amortised cost. The Group does not have financial assets classified as at fair value through other
comprehensive income.
The Group’s non-derivative financial liabilities are measured at amortised cost. Derivatives are classified as at fair value
through profit or loss. The Group does not apply hedge accounting.
Where there is an active market for a commodity, commodity contracts are accounted for as derivatives except for
contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a commodity in
accordance with the Group’s expected purchase, sale or usage requirements. Gains or losses arising from changes in
the fair value of commodity derivatives are recognized within other operating income (loss) in the consolidated
statement of income (see Note 25).
An allowance for expected credit losses (“ECL”) shall be recorded for financial assets classified as at amortised cost.
Loss allowances are measured on either of the following bases: 12-month ECLs that result from possible default events
within the 12 months after the reporting date; and lifetime ECLs that result from all possible default events over the
expected life of a financial instrument.
For trade receivables, the Group measures loss allowances applying a simplified approach at an amount equal to lifetime
ECLs. To measure the expected credit losses, expected loss rates are applied to trade receivables grouped based on the
days past due. For other financial assets classified as at amortised cost, including some shareholders’ loans provided,
loss allowances are measured as 12-month ECLs unless there has been a significant increase in credit risk since
origination, in which case the allowance is based on the lifetime ECLs.
The effective interest rate is the rate that exactly discounts future cash payments and receipts through the expected life
of the financial instrument or, when appropriate, a shorter period to the net carrying value of the financial asset or
financial liability.
The Group also operates a non-contributory post-employment defined benefit plan based on employees’ years of service
and average salary (see Note 14).
The liability recognized in the consolidated statement of financial position in respect of the defined benefit pension plan
is the present value of the defined benefit obligations at the balance sheet date. The defined benefit obligations are
calculated annually by independent actuaries using the projected unit credit method.
Actuarial gains and losses on assets and liabilities arising from experience adjustments and changes in actuarial
assumptions are charged or credited to other comprehensive income in the period in which they arise. They are not
reclassified to profit or loss in subsequent periods. Past-service costs are recognized in profit or loss in the period when
a plan is amended or curtailed.
Guarantees issued. The Group issued a number of guarantees, financial and non-financial, for the obligations of its
joint ventures.
Non-financial guarantees contracts issued by the Group meet the definition of insurance contracts and are accounted in
accordance with IFRS 4, Insurance Contracts. Liabilities in respect of non-financial guarantee contracts are recognized
when an outflow of funds (economic benefits) required to settle the liability is probable. Liabilities are recognized based
on the best estimate of such an outflow.
Financial guarantees contracts issued are initially recognized as a liability at fair value. They are subsequently measured
at the higher of two amounts: the amount of the loss allowance determined in accordance with IFRS 9, Financial
Instruments, and the amount initially recognized less, where applicable, the accumulated income recognized in
accordance with IFRS 15, Revenue from Contracts with Customers.
Income taxes. The income tax charge or benefit comprises current tax and deferred tax and is recognized in the
consolidated statement of income unless it relates to transactions that are recognized, in the same or a different period,
in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to or recovered from the tax authorities in respect of taxable profits or
losses for the current and prior periods. Russian tax legislation allows to prepare and file a single, consolidated income
tax declaration by the taxpayers’ group comprised of a holding company and any number of entities with at least 90
percent ownership in each (direct or indirect). Eligible taxpayers’ group must be registered with tax authorities and
meet certain conditions and criteria. The tax declaration can be submitted then by any member of the group. The Group
prepares a consolidated tax return for the taxpayers’ group including the Company and majority of its subsidiaries in
Russia.
65
66
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred tax assets and liabilities are recognized on temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax base. Deferred tax balances are measured at tax rates
enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary
differences will reverse or when the tax loss carry forwards will be utilized. The Group applies a net-basis accounting
in respect of temporary differences arising from right-of-use assets and long-term lease liabilities. Deferred tax assets
for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that
future taxable profit will be available against which the deductions can be utilized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes balances relate to the same taxation authority and the
same taxable entity, consolidated tax group of entities or different taxable entities where there is an intention to settle
the balances on a net basis. Deferred tax assets and liabilities are netted only with respect to individual companies of
the Group (for companies outside the consolidated tax group of companies) and within the consolidated tax payers’
group of companies.
The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or
on gains upon their disposal. The Group does not recognize deferred tax liabilities on such temporary differences except
to the extent that management expects the temporary differences to reverse in the foreseeable future.
Treasury shares. Where any Group company purchases PAO NOVATEK’s equity share capital (treasury shares), the
consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity
attributable to PAO NOVATEK shareholders until the shares are cancelled or reissued or disposed. Where such shares
are subsequently reissued or disposed, any consideration received, net of any directly attributable incremental
transaction costs and the related income tax effects, is included in equity attributable to PAO NOVATEK shareholders.
Treasury shares are recorded at weighted average cost. Gains or losses resulting from subsequent sales of shares are
recorded in the consolidated statement of changes in equity, net of associated costs including taxation.
Dividends. Dividends are recognized as a liability and deducted from equity at the balance sheet date only if they are
declared before or on the balance sheet date. Dividends are disclosed when they are proposed or declared after the
balance sheet date but before the consolidated financial statements are authorized for issue.
Revenue recognition. Revenues represent the fair value of consideration received or receivable for the sale of goods
and services in the normal course of business, net of discounts, export duties, value-added tax, excise and fuel taxes.
Revenues from oil and gas sales are recognized when control over such products has transferred to a customer, which
refers to ability to direct the use of, and obtain substantially all of the remaining benefits from the products. The Group
considers indicators of the transfer of control, which include, but are not limited to the following: the Group has a
present right to payment for the products; the Group has transferred physical possession of the products; the customer
has legal title to the products; the customer has the significant risks and rewards of ownership of the products; the
customer has accepted the products. Not all of the indicators have to be met for management to conclude that control
has transferred and revenue could be recognized. Management uses judgment to determine whether factors collectively
indicate that the customer has obtained control over the products. Revenues from services are recognized in the period
in which the services are rendered.
When the consideration includes a variable amount, minimum amounts must be recognized that are not at significant
risk of reversal. If sales contract includes the variability associated with market price it represents a separated embedded
derivative that is treated as part of revenue. Accordingly, at the date of sale the sales price is determined on a provisional
basis, and the fair value of the final sales price adjustment is re-estimated continuously with changes in fair value
recognized as an adjustment to revenue.
Trade receivables are recognized when the goods are transferred as this is the point in time that the consideration is
unconditional and only the passage of time is required before the payment is due. No significant element of financing
is deemed present as the sales are made with short-term credit terms consistent with market practice.
General and administrative expenses. General and administrative expenses represent overall corporate management
and other expenses related to the general management and administration of the business unit as a whole. They include
management and administrative compensation, legal and other advisory expenses, insurance of administrative
buildings, social expenses and compensatory payments of general nature not directly linked to the Group’s oil and gas
activities, charity and other expenses necessary for the administration of the Group.
Earnings per share. Earnings per share are determined by dividing the profit or loss attributable to
PAO NOVATEK shareholders by the weighted average number of shares outstanding during the reporting period.
Consolidated statement of cash flows. Cash and cash equivalents comprises cash on hand, cash deposits held with
banks and short-term highly liquid investments which are readily convertible to known amounts of cash and which are
not subject to significant risk of change in value and have an original maturity of three months or less.
The Group reports cash receipts and the repayments of short-term borrowings which have a maturity of three months
or less on a net basis in the consolidated statement of cash flows.
31
NEW ACCOUNTING PRONOUNCEMENTS
The following amendments to standards have been issued, and the Group has decided to early adopt them starting from
the annual period beginning on 1 January 2021:
Amendments to IAS 16, Property, Plant and Equipment (issued in May 2020 and effective for annual periods beginning
on or after 1 January 2022). These amendments prohibit deducting from the cost of an item of property, plant and
equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended
use. The proceeds from selling such items, together with the costs of producing them, are now recognized in profit or
loss. The Group assessed that the adoption of these amendments did not have a material impact on the Group’s
consolidated financial position as at the date of transition.
The following amendments to standards have been issued, which the Group has not early adopted:
Amendments to IFRS 10, Consolidated Financial Statements, and IAS 28, Investments in Associates and Joint Ventures
(issued in September 2014, in November 2015 the effective date was postponed indefinitely). These amendments
address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or
contribution of assets between an investor and its associate or joint venture. The amendments stipulate that a full gain
or loss is recognized when a transaction involves a business. A partial gain or loss is recognized when a transaction
involves assets that do not constitute a business, even if these assets are held by a subsidiary. The Group is considering
the implications of these amendments for the Group’s consolidated financial statements, and the timing of their adoption
by the Group.
67
68
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED)
The accompanying consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”). In the absence of specific IFRS guidance for the oil and gas industry, the Group has
reverted to other relevant disclosure standards, mainly US GAAP, that are consistent with norms established for
companies in the oil and gas industry. While not required under IFRS, this section provides unaudited supplemental
information on oil and gas exploration and production activities but excludes disclosures regarding the standardized
measures of discounted cash flows related to oil and gas activities.
The Group’s exploration and production activities are mainly within the Russian Federation; therefore, the majority of
the information provided in this section pertains to this country. The Group operates through various oil and gas
production subsidiaries, and also has an interest in oil and gas companies that are accounted for under the equity method.
Oil and Gas Exploration and Development Costs
The following tables set forth information regarding oil and gas acquisition, exploration and development activities.
The amounts reported as costs incurred include both capitalized costs and costs charged to expense, and are presented
comprising amounts classified as assets held for sale and amounts allocated to fair values of the identified assets in
acquisitions of subsidiaries (see Note 4), except for the effects from non-monetary transactions. These costs do not
include LNG liquefaction and transportation operations (amounts in millions of Russian roubles).
Costs incurred in exploration and development activities
Acquisition of unproved properties
Acquisition of proved properties
Exploration costs
Development costs
Total costs incurred in exploration and development activities
The Group’s share in joint ventures’
cost incurred in exploration and development activities
Capitalized costs relating to oil and gas producing activities
Proved and unproved properties
Wells, related equipment and facilities
Support equipment and facilities
Uncompleted wells, related equipment and facilities
Total capitalized costs relating to oil and gas producing activities
Less: accumulated depreciation, depletion and amortization
Net capitalized costs relating to oil and gas producing activities
The Group’s share in joint ventures’
capitalized costs relating to oil and gas producing activities
Year ended 31 December:
2020
2019
317
58
21,156
112,213
133,744
52,630
5,217
3,420
25,604
68,681
102,922
47,563
At 31 December 2020 At 31 December 2019
113,926
348,900
176,171
106,086
745,083
(246,111)
498,972
565,843
111,492
287,447
158,732
86,758
644,429
(218,316)
426,113
536,413
Results of Operations for Oil and Gas Producing Activities
Results of operations for oil and gas producing activities of the Group’s subsidiaries and the Group’s share in the
results of operations of joint ventures are shown below (amounts in millions of Russian roubles).
Subsidiaries
Revenues from oil and gas sales (less transportation)
Lifting costs
Taxes other than income tax
Depreciation, depletion and amortization
Exploration expenses
Social expenses and charity (1)
Other operating expenses (2)
Total operating expenses
Results of operations for oil and gas
producing activities before income tax
Less: related income tax expenses
Results of operations for oil and gas
producing activities of the Group’s subsidiaries
Group’s share in joint ventures
Revenues from oil and gas sales (less transportation)
Lifting costs
Taxes other than income tax
Depreciation, depletion and amortization
Exploration expenses
Social expenses and charity (1)
Other operating expenses (2)
Total operating expenses
Results of operations for oil and gas
producing activities before income tax
Less: related income tax expenses
Year ended 31 December:
2020
2019
204,417
(18,732)
(54,024)
(30,235)
(9,103)
(1,926)
(537)
(114,557)
89,860
(16,987)
235,156
(16,045)
(61,225)
(25,280)
(8,386)
(268)
(433)
(111,637)
123,519
(23,088)
72,873
100,431
167,334
(7,193)
(34,994)
(25,959)
(2,225)
(32)
(433)
(70,836)
96,498
(16,049)
192,421
(5,897)
(39,237)
(23,620)
(731)
(42)
(113)
(69,640)
122,781
(20,415)
Group’s share in results of operations for oil and gas
producing activities of joint ventures
Total results of operations for oil and gas producing activities
of the Group’s subsidiaries and joint ventures
80,449
102,366
153,322
202,797
(1) Represent social expenses and compensatory payments related mainly to continued support of charities and social programs
in the regions where production and development activities are performed.
(2) Represent mainly materials, services and other expenses, as well as administrative expenses being by nature operating
expenses relating to fields in exploration and development stage.
The results of operations for hydrocarbons producing activities are presented only for volumes produced by the Group’s
subsidiaries and joint ventures and do not include general corporate overheads, processing costs incurred after saleable
hydrocarbons are received, such as stable gas condensate processing costs and natural gas liquefaction costs. Revenues
from oil and gas sales are calculated based on hydrocarbons production volumes and netback prices determined at the
point of marketable products production and do not include export duties, transportation expenses to customers, storage,
sales and other similar expenses.
69
70
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED)
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED)
Operating expenses include only the amounts directly related to the extraction of natural gas, gas condensate and crude
oil, such as lifting costs (materials, services and other expenses, as well as administrative expenses being by nature
operating expenses of oil and gas producing activities), taxes other than income tax, depreciation, depletion and
amortization and other expenses. Income tax expense is calculated based on income tax rates applicable to each Group’s
subsidiary and joint venture.
Proved Oil and Gas Reserves
The following information presents the quantities of proved oil and gas reserves and changes thereto as at and for the
years ended 31 December 2020 and 2019.
The Group estimates its oil and gas reserves in accordance with rules promulgated by the Securities and Exchange
Commission (SEC) for proved reserves.
The Group’s oil and gas reserves estimation and reporting process involves an annual independent third party reserve
appraisal as well as internal technical appraisals of reserves. The Group maintains its own internal reserve estimates
that are calculated by qualified engineers and technical staff working directly with the oil and gas properties. The
Group’s technical staff periodically updates reserve estimates during the year based on evaluations of new wells,
performance reviews, new technical information and other studies.
The oil and gas reserve estimates reported below are determined by the Group’s independent petroleum reservoir
engineers, DeGolyer and MacNaughton (“D&M”). The Group provides D&M annually with engineering, geological
and geophysical data, actual production histories and other information necessary for the reserve determination. The
Group’s and D&M’s technical staffs meet to review and discuss the information provided, and upon completion of this
process, senior management reviews and approves the final reserve estimates issued by D&M.
The following reserve estimates were prepared using standard geological and engineering methods generally accepted
by the petroleum industry. The method or combination of methods used in the analysis of each reservoir is tempered
by experience with similar reservoirs, stages of development, quality and completeness of basic data, and production
history.
Extensions of production licenses are assumed to be at the discretion of the Group. Management believes that proved
reserves should include quantities which are expected to be produced after the expiry dates of the Group’s production
licenses. The principal licenses of the Group for exploration and production expire between 2029 and 2130. Legislation
of the Russian Federation states that, upon expiration, a license is subject to renewal at the initiative of the license
holder provided that further exploration, appraisal, production or remediation activities are necessary and provided that
the license holder has not violated the terms of the license. Management intends to extend its licenses for properties
expected to produce beyond the license expiry dates.
Proved reserves are defined as the estimated quantities of oil and gas which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known reservoirs under existing economic conditions.
In some cases, substantial new investment in additional wells and related support facilities and equipment will be
required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir data,
estimates of underground reserves are subject to change over time as additional information becomes available.
Proved developed reserves are those reserves which are expected to be recovered through existing wells with existing
equipment and operating methods. Undeveloped reserves are those reserves which are expected to be recovered as a
result of future investments to drill new wells, to re-complete existing wells and/or install facilities to collect and deliver
the production.
Net reserves exclude quantities due to others when produced.
The reserve quantities below include 100 percent of the net proved reserve quantities attributable to the Group’s
consolidated subsidiaries and the Group’s ownership percentage of the net proved reserves quantities of the joint
ventures including volumes of natural gas consumed in hydrocarbons production and development activities.
Production and reserves of the South-Tambeyskoye field of Yamal LNG are reported at 60 percent including an
additional 9.9 percent interest not owned by the Group, since the Group assumes certain economic and operational risks
related to this interest.
For convenience, reserves estimates are provided both in English and Metric units.
Net proved reserves of natural gas are presented below:
Net proved reserves
Group’s share in
joint ventures
Billions of
cubic feet
Billions
of cubic
meters
Billions of
cubic feet
Billions
of cubic
meters
Total net proved reserves
Billions of
cubic feet
Billions
of cubic
meters
At 31 December 2018
47,707
1,351
29,174
826
76,881
2,177
Changes attributable to:
Revisions of
previous estimates
Extension and discoveries
Acquisitions (1)
Disposals (2)
Reclassifications (3)
Production
(1,296)
5,030
3,698
(5,884)
(7,267)
(1,391)
(37)
143
105
(167)
(206)
(40)
494
2,611
-
-
7,267
(1,247)
14
74
-
-
206
(35)
(802)
7,641
3,698
(5,884)
-
(2,638)
(23)
217
105
(167)
-
(75)
At 31 December 2019
40,597
1,149
38,299
1,085
78,896
2,234
Changes attributable to:
Revisions of
previous estimates
Extension and discoveries
Acquisitions (1)
Production
471
1,075
138
(1,435)
13
30
4
(40)
(603)
2,018
-
(1,297)
(17)
57
-
(37)
(132)
3,093
138
(2,732)
(4)
87
4
(77)
At 31 December 2020
40,846
1,156
38,417
1,088
79,263
2,244
Net proved developed reserves (included above)
At 31 December 2018
At 31 December 2019
At 31 December 2020
12,187
11,527
12,128
345
326
343
Net proved undeveloped reserves (included above)
At 31 December 2018
At 31 December 2019
At 31 December 2020
35,520
29,070
28,718
1,006
823
813
14,103
18,612
17,922
15,071
19,687
20,495
399
527
508
427
558
580
26,290
30,139
30,050
50,591
48,757
49,213
744
853
851
1,433
1,381
1,393
(1) Relate to an additional 50 percent interest in reserves of the North-Chaselskiy and Yevo-Yakhinskiy license areas acquired
by the Group as a result of the reorganization of Arcticgas in 2019 (part of reserves was estimated in 2020). In 2019 also relate
to reserves of the Soletskoye-Khanaveyskoye field acquired in the third quarter of 2019.
(2) Represent reserves attributable to the disposal of a 40 percent participation interest in OOO Arctic LNG 2 in 2019.
(3) Represent reclassification of reserves attributable to the Group’s retained 60 percent participating interest in Arctic LNG 2,
which after the sale of a 40 percent participating interest in 2019 is accounted for as an investment in a joint venture. This
item also includes reclassification of a 50 percent interest in reserves of the North-Chaselskiy and Yevo-Yakhinskiy license
areas which were transferred to the Group as a result of the reorganization of Arcticgas in 2019.
The net proved reserves of natural gas reported in the table above included reserves attributable to a non-controlling
interest in a Group’s subsidiary of 337 billion cubic feet (10 billion cubic meters) and 231 billion cubic feet (seven
billion cubic meters) at 31 December 2020 and 2019, respectively, and reserves attributable to an additional 9.9 percent
interest in Yamal LNG not owned by the Group (see above) of 2,341 billion cubic feet (66 billion cubic meters) and
2,413 billion cubic feet (68 billion cubic meters) at 31 December 2020 and 2019, respectively.
71
72
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
PAO NOVATEK
Contact Information
PAO NOVATEK was incorporated as a joint stock company in accordance with the Russian law and is domiciled in
the Russian Federation.
The Group’s registered office is:
Ulitsa Pobedy 22a
629850 Tarko-Sale
Yamal-Nenets Autonomous District
Russian Federation
The Group’s office in Moscow is:
Ulitsa Udaltsova 2
119415 Moscow
Russian Federation
Telephone:
Fax:
7 (495) 730-60-00
7 (495) 721-22-53
www.novatek.ru
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED)
Net proved reserves of crude oil, gas condensate and natural gas liquids are presented below:
Net proved reserves
Millions
of barrels
Millions of
metric tons
Group’s share in
joint ventures
Millions
of barrels
Millions of
metric tons
Total net proved reserves
Millions
of barrels
Millions of
metric tons
At 31 December 2018
792
93
759
88
1,551
181
Changes attributable to:
Revisions of
previous estimates
Extension and discoveries
Acquisitions (1)
Disposals (2)
Reclassifications (3)
Production
At 31 December 2019
Changes attributable to:
Revisions of
previous estimates
Extension and discoveries
Acquisitions (1)
Production
At 31 December 2020
(4)
150
39
(56)
(47)
(52)
822
30
50
5
(52)
855
-
17
5
(6)
(5)
(6)
98
3
6
1
(6)
102
Net proved developed reserves (included above)
At 31 December 2018
At 31 December 2019
At 31 December 2020
340
335
349
Net proved undeveloped reserves (included above)
At 31 December 2018
At 31 December 2019
At 31 December 2020
452
487
506
42
42
43
51
56
59
(7)
82
-
-
47
(49)
832
(16)
66
-
(50)
832
387
457
439
372
375
393
(1)
9
-
-
5
(6)
95
(2)
8
-
(6)
95
44
52
50
44
43
45
(11)
232
39
(56)
-
(101)
(1)
26
5
(6)
-
(12)
1,654
193
14
116
5
(102)
1,687
727
792
788
824
862
899
1
14
1
(12)
197
86
94
93
95
99
104
(1) Relate to an additional 50 percent interest in reserves of the North-Chaselskiy and Yevo-Yakhinskiy license areas acquired
by the Group as a result of the reorganization of Arcticgas in 2019 (part of reserves was estimated in 2020). In 2019 also relate
to reserves of the Soletskoye-Khanaveyskoye field acquired in the third quarter of 2019.
(2) Represent reserves attributable to the disposal of a 40 percent participation interest in OOO Arctic LNG 2 in 2019.
(3) Represent reclassification of reserves attributable to the Group’s retained 60 percent participating interest in Arctic LNG 2,
which after the sale of a 40 percent participating interest in 2019 is accounted for as an investment in a joint venture. This
item also includes reclassification of a 50 percent interest in reserves of the North-Chaselskiy and Yevo-Yakhinskiy license
areas which were transferred to the Group as a result of the reorganization of Arcticgas in 2019.
The net proved reserves of crude oil, gas condensate and natural gas liquids reported in the table above included
reserves attributable to a non-controlling interest in a Group’s subsidiary of 82 million barrels (11 million metric tons)
and 75 million barrels (10 million metric tons) at 31 December 2020 and 2019, respectively, and reserves attributable
to an additional 9.9 percent interest in Yamal LNG not owned by the Group (see above) of 19 million barrels
(two million metric tons) and 20 million barrels (two million metric tons) at 31 December 2020 and 2019, respectively.
73
74
CONTENTS
Page
General provisions ................................................................................................................................................... 3
Overview ................................................................................................................................................................. 3
Recent developments ............................................................................................................................................... 4
Basis of presentation ............................................................................................................................................... 6
Selected data ............................................................................................................................................................ 7
Selected macro-economic data ................................................................................................................................ 9
Certain factors affecting our results of operations ................................................................................................. 10
Current economic environment ......................................................................................................................... 10
Natural gas prices .............................................................................................................................................. 11
Stable gas condensate and refined products, crude oil and liquefied petroleum gas prices ............................... 12
Transportation tariffs ......................................................................................................................................... 13
Our tax burden and obligatory payments ........................................................................................................... 15
Oil and gas reserves ............................................................................................................................................... 19
Operational highlights ........................................................................................................................................... 22
Results of operations for the year ended 31 December 2020 compared to the year ended 31 December 2019 .... 28
Total revenues ................................................................................................................................................... 29
Operating expenses ............................................................................................................................................ 32
Net gain on disposal of interests in subsidiaries and joint ventures ................................................................... 37
Other operating income (loss) ........................................................................................................................... 37
Profit from operations and EBITDA ................................................................................................................. 37
Finance income (expense) ................................................................................................................................. 38
Share of profit (loss) of joint ventures, net of income tax ................................................................................. 39
Income tax expense ........................................................................................................................................... 40
Profit attributable to shareholders and earnings per share ................................................................................. 40
Liquidity and capital resources .............................................................................................................................. 42
Cash flows ......................................................................................................................................................... 42
Liquidity and working capital ............................................................................................................................ 45
Capital expenditures .......................................................................................................................................... 46
Quantitative and qualitative disclosures and market risks ..................................................................................... 48
Terms and abbreviations........................................................................................................................................ 50
PAO NOVATEK
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 2020
Management’s
Discussion and
Analysis of Fi-
nancial Con-
dition and
Results of Op-
erations for
2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
GENERAL PROVISIONS
You should read the following discussion and analysis of our financial condition and results of operations as of
31 December 2020 and for the year then ended in conjunction with our audited consolidated financial statements
as of and for the year ended 31 December 2020. The consolidated financial statements and the related notes thereto
have been prepared in accordance with International Financial Reporting Standards (IFRS).
The financial and operating information contained in this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” comprises information of PAO NOVATEK, its consolidated subsidiaries
and joint ventures (hereinafter jointly referred to as “we” or the “Group”).
OVERVIEW
We are Russia’s second largest natural gas producer and one of the world leaders in terms of proved natural gas
reserves under the Petroleum Resources Management System (“PRMS”) and the Securities and Exchange
Commission (“SEC”) reserve reporting methodologies.
Our exploration and development, production and processing of natural gas, gas condensate and crude oil are
conducted mainly within the Russian Federation.
Most of our stable gas condensate is sent for further processing to our Gas Condensate Fractionation and
Transshipment Complex located at the port of Ust-Luga on the Baltic Sea (the “Ust-Luga Complex”). The Ust-
Luga Complex processes our stable gas condensate into light and heavy naphtha, jet fuel, gasoil and fuel oil, nearly
all of which we sell to the international markets allowing us to increase the added value of our liquid hydrocarbons
sales. The Ust-Luga Complex allows us to process about seven million tons of stable gas condensate annually.
The excess volumes of stable gas condensate received from the processing at the Purovsky Plant over volumes
sent for further processing to the Ust-Luga Complex are sold on both the domestic and international markets (by
rail and from the port of Ust-Luga on the Baltic Sea by tankers).
A significant part of our NGL volumes produced at the Purovsky Plant is dispatched via pipeline for further
processing at the Tobolsk petrochemical complex of PAO SIBUR Holding group (the “Tobolsk Refining
Facilities”). The remaining volumes are sold directly from the Purovsky Plant without incurring additional
transportation expenses. After processing at the Tobolsk Refining Facilities we receive liquefied petroleum gas
(“LPG”) with higher added value, the majority of which are transported by rail to our end-customers in the
domestic and international markets with the remaining portion sold directly from the Tobolsk Refining Facilities
without incurring additional transportation expenses. NGL sold directly from the Purovsky Plant and sales of LPG
received from the processing at the Tobolsk Refining Facilities are presented within LPG sales in this report.
We deliver our crude oil to both domestic and international markets.
The natural gas assets of our subsidiaries and joint ventures include projects where we sell natural gas through the
Unified Gas Supply System in the Russian domestic market and liquefied natural gas (“LNG”) delivered mainly
to international markets.
RECENT DEVELOPMENTS
Arctic LNG 2 project
The Group’s LNG producing projects are Yamal LNG, Cryogas-Vysotsk and an LNG plant in the Chelyabinsk
region.
The Group through its joint venture OAO Yamal LNG undertakes a project on natural gas production, liquefaction
and shipping based on the feedstock resources of the South-Tambeyskoye field located in YNAO (the “Yamal
LNG project”). Annual nameplate capacity of the LNG plant after the launch of the first three LNG trains
aggregates 16.5 million tons of LNG (5.5 million tons each) and up to 1.2 million tons of stable gas condensate.
In addition, the fourth train with annual nameplate capacity of 0.9 mln tons of LNG is in the commissioning phase.
Yamal LNG is one of the largest suppliers of LNG to international markets and one of the lowest in greenhouse
gas emissions per ton of produced LNG globally. We purchase a part of the LNG volumes produced by Yamal
LNG and sell these volumes to international markets via tankers under long-term contracts and on a spot basis.
In 2019, our joint venture OOO Cryogas-Vysotsk commissioned its medium-scale LNG plant located at the
Russian port of Vysotsk on the Baltic Sea. We purchase a part of the LNG volumes produced at the project and
sell these volumes mainly to international markets via tankers and trucks, as well as sell LNG used for marine
bunkering.
In the third quarter 2020, we launched our first small-scale domestic LNG plant in the Chelyabinsk region. The
LNG is sold through the Group’s refueling complexes in the Chelyabinsk region and neighboring areas, as well as
directly from the LNG plant without incurring additional transportation expenses.
In addition, through our joint venture OOO Arctic LNG 2 we are presently constructing an LNG plant on the
Gydan peninsula that will eventually utilize the hydrocarbon resources of the Salmanovskoye (Utrenneye) field
(the “Arctic LNG 2 project”). The project includes the construction of an LNG plant built on gravity-based
platforms with an annual capacity of 19.8 million tons of LNG per annum (three processing trains of 6.6 million
tons of LNG each) and up to 1.6 million tons of stable gas condensate. The launch of the first train is expected to
be in 2023, with the launches of the second and third trains – in 2024 and 2026, respectively.
We deliver unstable gas condensate produced by our subsidiaries and our joint ventures Arcticgas, Nortgas and
Terneftegas to our Purovsky Gas Condensate Plant (the “Purovsky Plant”) for processing into stable gas
condensate and natural gas liquids (“NGL”). The Purovsky Plant allows us to process more than 12 million tons
of unstable gas condensate per annum.
The Group, jointly with international partners TOTAL S.A., China National Petroleum Corporation (“CNPC”),
CNOOC Limited and Japan Arctic LNG B.V. (a joint venture of Mitsui & Co., Ltd and Japan Oil, Gas and Metals
National Corporation (“JOGMEC”)), through its joint venture OOO Arctic LNG 2 undertakes an integrated project
on natural gas production, liquefaction and shipping based on the hydrocarbon resources of the Salmanovskoye
(Utrenneye) field on the Gydan peninsula (the “Arctic LNG 2 project”).
The Arctic LNG 2 plant will be built on gravity-based platforms and consist of three processing trains with an
annual capacity of 6.6 million tons of LNG each, or an aggregated capacity of 19.8 million tons of LNG per annum,
and up to 1.6 million tons of stable gas condensate. The final investment decision (FID) on the Arctic
LNG 2 project was made in September 2019. The launch of the first train is expected to be in 2023, the launches
of the second and third trains – in 2024 and 2026, respectively.
Gravity-based platforms and other major units for the plant will be produced at our own LNG construction center
in the Murmansk region (the “Murmansk yard”), which will also be used for the Group’s subsequent LNG projects.
At present, facilities of workshop complex and the concrete plant necessary to produce gravity-based platforms
are completed. Two dry docks, where the casting of gravity-based platforms is performed, were constructed. The
topsides fabrication complex for LNG plants is in process of construction.
The use of gravity-based platforms technology for the plant construction, as well as localizing production in the
Russian Federation will contribute to lower LNG liquefaction costs compared to other LNG projects and allows
to minimize the impact on the environment.
The Salmanovskoye (Utrenneye) field’s development is ongoing. Two power plants were completed with initial
production wells drilled to supply their operation. The fuel depot was launched. Construction of the first gas
treatment plant necessary for the launch and ongoing exploitation of the first train of the LNG plant, was
commenced. Construction of two of the three sites for berthing facilities necessary for installation of gravity-based
platforms is completed. These berthing facilities are currently used to unload the supplies simultaneously from six
vessels.
In 2020, despite the challenging international LNG markets conditions, the Group signed the first series of long-
and short-term agreements with Asian and European customers to supply LNG from the Arctic LNG 2 project. At
present, we continue active negotiations on long-term LNG supply contracts with major players in the LNG
industry.
3
4
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
To ensure LNG deliveries from the Arctic LNG 2 project, at present, construction contracts for 21 Arc7 ice-class
tankers were signed: 15 tankers will be built by the Shipbuilding Complex Zvezda in Russia and six – by Daewoo
Shipbuilding & Marine Engineering in South Korea.
Yamal LNG project
The Group, through its joint venture OAO Yamal LNG, undertakes a project on natural gas production,
liquefaction and shipping based on the feedstock resources of the South-Tambeyskoye field located in YNAO (the
“Yamal LNG project”). The total annual nameplate capacity of the liquefaction plant is 17.4 million tons of LNG,
including first three LNG trains with an annual capacity of 5.5 million tons for each and the fourth train with an
annual capacity of 0.9 million tons, and up to 1.2 million tons of stable gas condensate. The first three LNG trains
of the liquefaction plant were launched in 2017 and in 2018. The fourth train is currently commissioning.
In total, during the reporting period, 18.8 million tons of LNG were produced (18.6 million tons were shipped
from the port of Sabetta) exceeding the project capacity of the first three trains in aggregate by 2.3 million tons, or
13.9%. Volumes of stable gas condensate produced and shipped aggregated to 1.0 million tons.
In 2020, Yamal LNG delivered 2.4 million tons of LNG eastbound via the Northern Sea Route to the Asia-Pacific
Region utilizing our Arc7 ice-class LNG tankers. In addition, in January 2021, three voyages were completed via
the Northern Sea Route without icebreaker escort: two voyages eastbound from the port of Sabetta laden with
LNG and one in the opposite direction to the port of Sabetta in ballast. These voyages took place in average ice
conditions, two months after the end of the traditional navigation season in the Eastern part of the Arctic Ocean,
which usually ends in November. Shipping via the Northern Sea Route reduces the LNG voyage period by more
than one third as compared to the traditional route via the Suez Canal and the Strait of Malacca.
Obskiy LNG project
In 2019, the Group established OOO Obskiy LNG, a wholly owned subsidiary, to implement an LNG project
based on the feedstock resources of the Verhnetiuteyskoye and the West-Seyakhinskoye fields located in YNAO
(the “Obskiy LNG project”). The Obskiy LNG project envisages the construction of an LNG plant near the port
of Sabetta. Currently, the Group is preparing infrastructure for the field development and the front-end engineering
design (FEED) for the LNG plant construction.
Small-scale LNG production at the Chelyabinsk region
In August 2020, we launched our first small-scale domestic LNG plant in the Chelyabinsk region with a nameplate
capacity of 40 thousand tons per annum. The LNG produced is used primarily as natural gas motor fuel and is
delivered through the Group’s refueling complexes for passenger, cargo transport and mining machinery in the
Chelyabinsk region and neighboring areas.
Increasing our production facilities
In December 2019, the Group launched the North-Russkoye field and commenced natural gas production from the
Cenomanian deposits and, in August 2020, started exploitation of the gas condensate deposits. In August 2020,
we also launched the East-Tazovskoye field and commenced natural gas and gas condensate production at this
field. In addition, in 2020, we launched the Dorogovskoye field and commenced natural gas production. The
estimated annual production capacity of these three fields will total approximately eight billion cubic meters of
natural gas and about one million tons of gas condensate. The North-Russkoye, East-Tazovskoye and
Dorogovskoye fields belong to the North-Russkiy cluster, which also includes the Kharbeyskoye field scheduled
for launch in 2021. It is expected that the cumulative gas production capacity from the North-Russkiy cluster will
total more than 13 billion cubic meters per annum.
In the first quarter 2020, our joint venture AO Arcticgas expanded the gas condensate treatment facility by
1.2 million tons per annum, thereby increasing natural gas and gas condensate production at the Achimov horizons
of the Urengoyskoye field.
Disposal of OOO Chernichnoye to a joint venture
In the fourth quarter 2020, the Group sold a 100% participation interest in OOO Chernichnoye to our joint venture
ZAO Terneftegas for RR 730 million and recognized profit on disposal in the amount of RR 69 million before
associated income tax of RR 23 million. Chernichnoye is a holder of the license for exploration and production of
hydrocarbons within the Chernichniy license area located in YNAO, which will be developed using infrastructure
of the Termokarstovoye field of Terneftegas.
Approval of a new Dividend Policy
In December 2020, the Board of Directors of PAO NOVATEK approved a new version of the Regulations on
Dividend Policy, which increased the minimum target dividend payout level from 30% to 50% of the adjusted
consolidated net profit under IFRS. The new Dividend Policy is aimed to strengthen the Group’s investment case
and increase total shareholder returns.
Negative macro-economic environment and COVID-19
The spread of the COVID-19 virus in 2020 has caused financial and economic stress to the global markets that is
out of the Group’s management control. In particular, the COVID-19 pandemic has led to lower demand for crude
oil, natural gas and oil products, which combined with the increase in the supply of crude oil due to the cancellation
of the OPEC+ production agreement in March 2020 has led to a fall in global hydrocarbon commodity prices.
Global economic activity had begun a gradual recovery during the second quarter 2020 following the partial
removals of restrictions aimed at preventing the epidemic spread, as well as a partial recovery in benchmark crude
oil prices following the new OPEC+ production agreement reached and the compliance to the target cuts. This
recovery has continued throughout the second half of 2020. Nevertheless, crude oil benchmark prices still have
not reached their pre-crisis levels, the scale and duration of these events remain uncertain and may continue to
influence our future earnings, cash flows and financial position.
The Group’s management is taking necessary precautions to protect the safety and well-being of our employees,
our contractors and our families against the infectious spread of COVID-19, while maintaining our commitment
to meet the energy needs of our valued customers domestically and internationally. We continue working closely
with federal, regional and local authorities, as well as our partners, to contain the spread of the virus and will take
appropriate actions, where necessary, to minimize the possible disruptions of our operations.
BASIS OF PRESENTATION
Oil and gas production and reserves in the current report are calculated based on 100% of our subsidiaries
production and reserves and our proportionate share in the production and reserves of our joint ventures including
volumes of natural gas consumed in oil and gas producing and development activities. Meanwhile, production
costs per barrel of oil equivalent are calculated based on production volumes net of the volume of consumed natural
gas. Production and reserves of the South-Tambeyskoye field developed by the Group’s joint venture OAO Yamal
LNG are reported at 60% including an additional 9.9% interest not owned by the Group, since the Group assumes
certain economic and operational risks related to this interest.
Our oil and gas revenues and average realized net prices are presented net of VAT, export duties, and fuel taxes,
where applicable, and excise on fuel oil sales on the domestic market and hydrocarbons sales in Poland. The Group
also accrues excise tax on raw oil and claims the double excise tax deduction. The net result, or so-called “reverse
excise”, is reported as a deduction to our “Purchases of natural gas and liquid hydrocarbons” in our consolidated
statement of income (see “Our tax burden and obligatory payments” below).
5
6
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
SELECTED DATA
millions of Russian roubles except as stated
Financial results
Total revenues (1)
Operating expenses
Normalized EBITDA (2),(3)
Normalized profit attributable to
shareholders of PAO NOVATEK (3)
Normalized profit attributable to
shareholders of PAO NOVATEK (3),
excluding the effect of foreign exchange gains (losses) (4)
Normalized earnings per share (3) (in Russian roubles)
Normalized earnings per share (3), excluding the effect of
foreign exchange gains (losses) (4) (in Russian roubles)
Net debt (5)
Production volumes (6)
Year ended 31 December:
2019
2020
Change
%
711,812
(552,062)
392,008
862,803
(640,463)
461,157
(17.5%)
(13.8%)
(15.0%)
106,044
302,418
(64.9%)
169,020
35.30
56.26
39,557
245,002
100.42
81.35
15,106
(31.0%)
(64.9%)
(30.9%)
161.9%
Hydrocarbons production (million barrels of oil equivalent)
Daily production (million barrels of oil equivalent per day)
608.2
1.66
589.9
1.62
3.1%
2.8%
Sales volumes
Natural gas sales volumes (million cubic meters)
Crude oil sales volumes (thousand tons)
Naphtha sales volumes (thousand tons)
Liquefied petroleum gas sales volumes (thousand tons)
Other stable gas condensate refined products (thousand tons)
Stable gas condensate sales volumes (thousand tons)
Oil and gas SEC reserves (6)
Total proved reserves (billion barrels of oil equivalent)
Total natural gas proved reserves (trillion cubic meters)
Total liquids proved reserves (million tons)
Cash flow results
Net cash provided by operating activities
Cash used for capital expenditures (7)
Free cash flow (8)
75,620
4,468
4,294
2,959
2,479
2,169
16.4
2.24
197
78,452
4,834
4,511
2,777
2,470
1,739
16.3
2.23
193
(3.6%)
(7.6%)
(4.8%)
6.6%
0.4%
24.7%
0.6%
0.4%
2.1%
171,896
204,577
(32,681)
307,433
162,502
144,931
(44.1%)
25.9%
n/a
(1) Net of VAT, export duties, excise and fuel taxes, where applicable.
(2) EBITDA represents profit (loss) adjusted for the add-back of depreciation, depletion and amortization, net impairment
expenses (reversals), finance income (expense), income tax expense, as well as income (loss) from changes in fair value
of derivative financial instruments. EBITDA includes EBITDA from subsidiaries and our proportionate share in the
EBITDA of our joint ventures.
(3) Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on
disposal and subsequent non-cash revaluation of contingent consideration).
(4) Excluding the effect of foreign exchange gains (losses) of subsidiaries and our proportionate share in foreign exchange
gains (losses) of our joint ventures (see “Profit attributable to shareholders and earnings per share” below).
(5) Net debt represents our total debt net of cash, cash equivalents and bank deposits with original
maturity more than three months.
(6) Oil and gas production and reserves are calculated based on 100% of production and reserves of our subsidiaries and our
proportionate share in the production and reserves of our joint ventures including fuel gas. Production and reserves of the
South-Tambeyskoye field of Yamal LNG are reported at 60% (see “Basis of presentation” above).
(7) 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.
(8) Free cash flow represents the difference between Net cash provided by operating activities and Cash used for capital
expenditures. For the analysis of factors that impacted our free cash flow, please refer to “Net cash provided by operating
activities” and “Capital expenditures” below.
The Groups’ financial results in 2020 were negatively impacted by the financial and economic stress in the global
markets caused by the COVID-19 pandemic that is out of the Group’s management control. This resulted in a
decrease in our hydrocarbon sales prices and the recognition of substantial foreign exchange effects due to the
Russian rouble depreciation relative to the US dollar and Euro by 19.3% and 30.8%, respectively. Foreign
exchange losses primarily related to the revaluation of foreign currency denominated loans in our joint venture
Yamal LNG. We assess that the impact of foreign currency risk relating to the debt portfolio of Yamal LNG is
largely mitigated by the fact that all produced LNG and stable gas condensate are delivered to international markets
and its revenues are denominated in foreign currencies.
In addition, in both years, we recorded the effects from the disposal of interests in the Arctic LNG 2 project by
recognizing a gain in the aggregate amount of RR 675.0 billion from the disposal of a 40% participation interest
in the Arctic LNG 2 project in 2019 and recognizing in 2019 and 2020 losses in the amount of RR 34.5 billion and
RR 47.8 billion, respectively, related to the subsequent non-cash revaluation of contingent consideration on these
transactions. In 2019, we also recognized a gain from the reorganization of our joint venture AO Arcticgas in the
amount of RR 7.8 billion.
As a result, in 2020, we recorded a profit attributable to shareholders of PAO NOVATEK in the amount of
RR 67,832 million while in 2019 we recorded a profit of RR 865,477 million. Excluding the effects from the
disposal of interests in subsidiaries and joint ventures and foreign exchange gains (losses), our normalized profit
attributable to shareholders of PAO NOVATEK amounted to RR 169,020 million in 2020 compared to
RR 245,002 million in 2019.
Reconciliation of normalized EBITDA is as follows:
millions of Russian roubles
Profit
Depreciation, depletion and amortization
Impairment expenses (reversals), net
Loss (income) from changes in fair value
of commodity derivative instruments
Total finance expense (income)
Total income tax expense
Share of loss (profit) of joint ventures,
net of income tax
Year ended 31 December:
2019
2020
Change
%
78,586
39,238
254
1,689
(160,565)
883,461
(91.1%)
32,230
162
(238)
15,712
21.7%
56.8%
n/a
n/a
51,010 119,654 (57.4%)
143,981 (149,238)
n/a
EBITDA from subsidiaries
154,193
901,743
(82.9%)
Net gain on disposal of interests
in subsidiaries and joint ventures
Changes in fair value of contingent consideration
reported within the “Other operating income (loss)”
(69)
(682,733)
(100.0%)
47,823
34,542
38.4%
Normalized EBITDA from subsidiaries
201,947
253,552
(20.4%)
Share in EBITDA of joint ventures
190,061 207,605 (8.5%)
including:
OAO Yamal LNG
AO Arcticgas
others
131,085 133,478 (1.8%)
52,885 64,088 (17.5%)
6,091 10,039 (39.3%)
Normalized EBITDA
392,008
461,157
(15.0%)
7
8
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
SELECTED MACRO-ECONOMIC DATA
CERTAIN FACTORS AFFECTING OUR RESULTS OF OPERATIONS
1Q
2Q
3Q
4Q
Year
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Change
Y-o-Y, %
Current economic environment
Exchange rate, RR for one
foreign currency unit (1)
US dollar (USD)
Average for the period
At the beginning of the
66.38 66.13 72.36 64.56 73.56 64.57 76.22 63.72
72.15 64.74
11.4%
period
61.91 69.47 77.73 64.73 69.95 63.08 79.68 64.42
At the end of the period 77.73 64.73 69.95 63.08 79.68 64.42 73.88 61.91
Depreciation
61.91 69.47
73.88 61.91
(10.9%)
19.3%
(appreciation)
of RR to US dollar
Euro
Average for the period
At the beginning of the
25.6% (6.8%) (10.0%) (2.5%) 13.9% 2.1% (7.3%) (3.9%)
19.3% (10.9%)
n/a
73.23 75.17 79.65 72.52 85.97 71.83 90.81 70.54
82.45 72.50
13.7%
period
69.34 79.46 85.74 72.72 78.68 71.82 93.02 70.32
At the end of the period 85.74 72.72 78.68 71.82 93.02 70.32 90.68 69.34
Depreciation
69.34 79.46
90.68 69.34
(12.7%)
30.8%
(appreciation)
of RR to Euro
23.7% (8.5%) (8.2%) (1.2%) 18.2% (2.1%) (2.5%) (1.4%)
30.8% (12.7%)
n/a
(1) Based on the data from the Central Bank of Russian Federation (CBR). The average rates for the period are calculated as
the average of the daily exchange rates on each business day (rate is announced by the CBR) and on each non-business
day (rate is equal to the exchange rate on the previous business day).
● ● ●
Average for the period
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
1Q
2Q
3Q
4Q
Year
Change
Y-o-Y, %
Benchmark natural gas prices, USD per mmbtu (2)
NBP (National
Balancing Point)
TTF (Title Transfer
Facility)
3.2
6.3
1.6
4.1
2.7
3.4
5.4
4.1
3.2
4.4
(27.3%)
3.1
6.1
1.7
4.3
2.7
3.3
5.1
4.1
3.2
4.5
(28.9%)
Benchmark crude oil prices (3)
Brent, USD per barrel
Urals, USD per barrel
Urals, RR per barrel
50.1
48.0
63.1
61.4
3,186 4,179 2,287 4,384 3,163 3,958 3,392 3,912
63.1
63.2
29.6
31.6
68.9
67.9
42.9
43.0
62.0
61.3
44.2
44.5
Benchmark crude oil prices excluding export duties (4)
Urals, USD per barrel
Urals, RR per barrel
37.8
49.2
2,509 3,392 2,062 3,460 2,722 3,119 2,942 3,135
51.3
28.5
53.6
37.0
48.3
38.6
41.8
41.9
64.2
63.4
3,023 4,105
(34.9%)
(33.9%)
(26.4%)
35.6
50.6
2,569 3,276
(29.6%)
(21.6%)
Benchmark oil products (5) and liquefied petroleum gas (6) prices, USD per ton
519
497
625
586
396
363
Naphtha Japan
Naphtha CIF NWE
Jet fuel
Gasoil
Fuel oil
Liquefied petroleum gas
276
240
242
281
196
240
542
527
646
603
414
404
397
376
336
353
268
362
495
477
629
578
387
339
437
411
484
467
348
322
408
393
374
365
301
388
539
519
627
579
408
446
381
357
360
367
279
331
524
505
632
586
401
387
(27.3%)
(29.3%)
(43.0%)
(37.4%)
(30.4%)
(14.5%)
Export duties, USD per ton (7)
Crude oil, stable gas
condensate
Naphtha
Jet fuel, gasoil
Fuel oil
Liquefied petroleum gas
74.2
40.7
22.2
74.2
1.3
87.0
47.8
26.1
87.0
0.0
22.4 104.1
57.2
12.3
6.7
31.2
22.4 104.1
0.0
0.0
44.1
24.2
13.2
44.1
0.0
95.0
52.2
28.5
95.0
0.0
43.2
23.7
12.9
43.2
0.0
88.7
48.7
26.5
88.7
0.0
46.0
25.2
13.7
46.0
0.4
93.7
51.5
28.1
93.7
0.0
(50.9%)
(51.1%)
(51.2%)
(50.9%)
n/a
(2) Based on spot natural gas prices at natural gas hubs in the United Kingdom (NBP) and the Netherlands (TTF).
(3) Based on Brent (dtd) and Russian Urals CIF Rotterdam spot assessments prices.
(4) Export duties per barrel were calculated based on export duties per ton divided by the coefficient 7.3.
(5) Based on Naphtha C+F (cost plus freight) Japan, Naphtha CIF NWE, Jet CIF NWE, Gasoil 0.1% CIF NWE,
Fuel Oil 1.0% CIF NWE prices.
(6) Based on spot prices for propane-butane mix at the Belarusian-Polish border (DAF, Brest).
(7) Export duties are determined by the Russian Federation government in US dollars and are paid in Russian roubles
(see “Our tax burden and obligatory payments” below).
Commodity price volatility continues to exert significant influence on financial and operational results in the global
oil and gas industry. Our financial results are obviously impacted by these global developments as our export sales
are linked to the specific underlying benchmark commodity prices, but we believe our business model, representing
one of the lowest cost producers in the world, insulates us from severe financial and operational stress. In each
reporting period, the Group demonstrated sustainable operating and financial results.
The declines in hydrocarbon prices on commodity markets in 2020 have negatively impacted oil and gas
companies. The main reasons for the financial and economic stress on the global commodity markets were the
spread of COVID-19 and its negative effect on economic activities, as well as the cancellation of the OPEC+
production agreement in the first quarter 2020. Starting from the second quarter, following the partial removals of
restrictions aimed at preventing the epidemic spread of the COVID-19 virus, there has been a gradual recovery in
global economic activity. Moreover, the new OPEC+ production agreement and the members compliance with
these production targets has resulted in a partial recovery of benchmark crude oil prices. Nevertheless, hydrocarbon
benchmark prices remain lower than their pre-crisis levels. These factors are out of the Group’s management
control, and their scale and duration are difficult to assess. Currently, the Group’s management is taking necessary
precautions to provide the uninterrupted delivery of our hydrocarbons to our customers and to protect the safety
and well-being of our employees, contractors and families (see “Recent developments” above).
Management continues to closely monitor the economic and political environment in Russia and abroad, including
the domestic and international capital markets, to determine if any further corrective and/or preventive measures
are required to sustain and grow our business. We also closely monitor the present commodity price environment
and its impact on our business operations. We do not expect any asset impairments or write-offs resulting from a
lower commodity price environment.
We conduct regular reviews of our capital expenditure program and existing debt obligations. In our opinion, the
Group’s financial position is stable and expected operating cash flows are sufficient to service and repay our debt,
as well as to execute our planned capital expenditure programs.
Political events in Ukraine in the beginning of 2014 have prompted a negative reaction by the world community,
including economic sanctions levied by the United States of America, Canada and the European Union against
certain Russian individuals and legal entities. In July 2014, NOVATEK was included on the OFAC’s Sectoral
Sanctions Identification List (the “List”), which imposed sanctions that prohibit individuals or legal entities
registered or working on the territory of the United States from providing new credit facilities to the Group for
longer than 60 days.
Despite the inclusion on the List, the Group may conduct any other activities, including financial transactions,
with U.S. investors and partners. NOVATEK was included on the List even though the Group does not conduct
any business activities in Ukraine, nor does it have any impact on the political and economic processes taking
place in this country. Management has assessed the impact of the sanctions described above on the Group's
activities taking into consideration the current state of the world economy, the condition of domestic and
international capital markets, the Group’s business, and long-term projects with foreign partners. We have
concluded that the inclusion on the List does not significantly impede the Group’s operations and business
activities in any jurisdiction, nor does it affect the Group’s assets and debt, and does not have a material effect on
the Group’s financial position.
We together with our international partners are undertaking all necessary actions to implement our joint investment
projects on time as planned, including, but not limited to, attracting financing from domestic and non-US capital
markets.
9
10
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
In 2020, our aggregate average price for natural gas in Russian roubles decreased by 10.2% due to a decrease in
LNG prices on international markets, as well as a decrease in the share of LNG sales volumes in our total natural
gas sales volumes, which was partially offset by Russian rouble average exchange rate depreciation relative to the
US dollar and Euro and an increase in the regulated Russian domestic price (by 1.4% effective 1 July 2019 and by
3.0% effective 1 August 2020). The decrease in our share of LNG sales volumes was primarily due to a decrease
in LNG purchases from our joint venture Yamal LNG resulting from an increase in the share of Yamal LNG direct
sales under long-term contracts and the corresponding decrease in LNG spot sales to shareholders, including the
Group.
Stable gas condensate and refined products, crude oil and liquefied petroleum gas prices
Crude oil, stable gas condensate, LPG and oil products prices on international markets have historically been
volatile depending on, among other things, the balance between supply and demand fundamentals, the ability and
willingness of oil producing countries to sustain or change production levels to meet changes in global demand
and potential disruptions in global crude oil supplies due to war, geopolitical developments, terrorist activities,
natural disasters or pandemics.
The actual prices we receive for our liquid hydrocarbons on both the domestic and international markets are
dependent on many external factors beyond the control of management. Among many other factors volatile
movements in benchmark crude oil and oil products prices can have a positive and/or negative impact on the
contract prices we receive for our liquids sales volumes.
In addition, our actual realized net export prices for crude oil, stable gas condensate and its refined products are
affected by the so-called “export duty lag effect”. This lag effect is due to the differences between actual crude oil
prices for a certain period and crude oil prices based on which export duty rate is calculated for the same period
(see “Our tax burden and obligatory payments” below). In periods when crude oil prices are rising, the duty lag
effect normally has a positive impact on the Group's financial results, as the export duty rates are set on the basis
of lower crude oil prices compared to the actual prices. Conversely, in periods of declining crude oil prices, the
export duty rate is calculated based on higher prices compared to the actual prices, resulting in a negative financial
impact.
Most of our liquid hydrocarbons sales prices on both the international and domestic markets include transportation
expenses in accordance with the specific terms of delivery. The remaining portion of our liquids volumes is sold
without additional transportation expenses (ex-works sales of liquefied petroleum gas from the Purovsky Plant and
the Tobolsk Refining Facilities, as well as certain other types of sales).
We commonly sell our stable gas condensate and refined products, as well as liquefied petroleum gas to the
international markets with a premium to the respective international benchmark reference products prices. We
export SILCO (low-sulfur “Siberian Light Crude Oil”) and ESPO (“East Siberia – Pacific Ocean”) grades of crude
oil to international markets with a premium or a discount to the benchmark Brent and Dubai crude oil depending
on current market situation.
Natural gas prices
Our sales of natural gas in the Russian domestic market are mainly natural gas sales through trunk pipelines and
regional distribution networks, as well as sales of LNG produced at our small-scale LNG plant in the Chelyabinsk
region through our refueling complexes. Our sales of natural gas on international markets are sales of LNG
purchased primarily from our joint ventures, OAO Yamal LNG and OOO Cryogas-Vysotsk. In addition, we sell
on the European market regasified liquefied natural gas arising during the transshipment of LNG (boil-off gas), as
well as during the regasification of purchased LNG at our own regasification stations in Poland and Germany.
The Group’s natural gas prices in Russia are strongly influenced by the prices set by the Federal Anti-Monopoly
Service, a federal executive agency of the Russian Federation that carries out governmental regulation of prices
and tariffs for products and services of natural monopolies in energy, utilities and transportation (the “Regulator”),
as well as present market conditions.
In 2019, wholesale natural gas prices for sales to all customer categories (excluding residential customers) on the
domestic market were increased by the Regulator by 1.4% effective 1 July 2019 and remained unchanged through
the end of July 2020. The wholesale prices increased by 3.0% effective 1 August 2020.
In September 2020, the Ministry of Economic Development of the Russian Federation published the “Forecast of
Socio-economic Development of the Russian Federation for 2021 and the planned period 2022 and 2023” stating
that wholesale natural gas prices for sales to all customer categories (excluding residential customers) will be
increased from July 2021 to 2023 by an average of 3.0% on an annual basis. The Russian Federation government
continues to discuss various concepts relating to the natural gas industry development, including natural gas prices
and transportation tariffs growth rates on the domestic market.
The specific terms for delivery of natural gas affect our average realized prices. The majority of our natural gas
volumes on the domestic market are sold directly to end-customers in the regions of natural gas consumption, so
transportation tariff to the end-customer’s location is included in the contract sales price. The remaining volumes
of natural gas are sold “ex-field” to wholesale gas traders, in which case the buyer is responsible for the payment
of further gas transportation tariff. Sales to wholesale gas traders allow us to diversify our natural gas sales without
incurring additional commercial expenses.
We deliver natural gas to residential customers in the Chelyabinsk and Kostroma regions of the Russian Federation
at regulated prices through our subsidiaries OOO NOVATEK-Chelyabinsk and OOO NOVATEK-Kostroma,
respectively. We disclose such residential sales within our end-customers category.
In addition, we periodically sell natural gas at the Saint-Petersburg International Mercantile Exchange based on
market conditions. We disclose such sales within our sales to end-customers category.
The Group’s prices for LNG sold in Russia are based on oil products prices on the domestic market.
The Group’s natural gas prices on international markets are influenced by many factors, such as the balance
between supply and demand fundamentals, weather, the geography of sales, and the delivery terms to name a few.
The Group sells LNG on international markets under short- and long-term contracts with prices based on the prices
for natural gas at major natural gas hubs and on benchmark crude oil prices. We sell boil-off gas in Europe at
prices linked to natural gas prices at major European natural gas hubs. The Group’s prices for regasified LNG sold
as natural gas on the Polish market are based on the prices regulated by the Energy Regulatory Office of Poland.
The following table shows our aggregate average realized natural gas sales prices on the domestic and international
markets (excluding VAT, where applicable):
Average natural gas price, RR per mcm
Average natural gas price, USD per mcm (1)
Year ended 31 December:
2019
2020
Change
%
4,748
65.9
5,288
81.6
(10.2%)
(19.2%)
(1) Operations initially priced in Russian roubles were translated into US dollars using the average exchange rate for the
period.
11
12
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
The following table shows our average realized net stable gas condensate and refined products, crude oil and LPG
sales prices. Average realized net prices are shown net of VAT, export duties, excise and fuel taxes, where
applicable:
Russian roubles or US dollars per ton (1)
Naphtha
Average net price, RR per ton
Average net price, USD per ton
Other stable gas condensate refined products
Average net price, RR per ton
Average net price, USD per ton
Crude oil
Average net price, RR per ton
Average net price, USD per ton
LPG
Average net price, RR per ton
Average net price, USD per ton
Stable gas condensate
Average net price, RR per ton
Average net price, USD per ton
Year ended 31 December:
2019
2020
Change
%
26,311
368
23,426
328
17,541
245
16,467
228
19,239
264
32,043
494
35,213
543
23,716
367
17,166
265
24,452
379
(17.9%)
(25.5%)
(33.5%)
(39.6%)
(26.0%)
(33.2%)
(4.1%)
(14.0%)
(21.3%)
(30.3%)
(1) Operations initially priced in Russian roubles were translated into US dollars using the average exchange rate for the
period.
In 2020, our weighted-average realized net prices for our liquid hydrocarbons decreased compared to the prior
year period due to a decrease in the underlying benchmark prices for these products excluding export duties (see
“Selected macro-economic data” above).
The dynamics of our weighted average realized net prices for each product category also reflects changes in
volumes sold within periods and changes in the geography of shipments that may significantly impact our average
prices in periods of high benchmark prices volatility on international markets. In addition, the specifics of pricing
mechanism for each particular product (such as time lag of international benchmark crude oil prices and export
duty rates used in price calculation, price setting on an individual transaction basis for some deliveries and other
factors) also have an impact on the dynamics of our weighted-average realized net prices.
Transportation tariffs
Natural gas by pipelines
We transport our natural gas within the Russian Federation territory through our own pipelines into the Unified
Gas Supply System (“UGSS”), which is owned and operated by PAO Gazprom, a Russian Federation Government
controlled monopoly. Transportation tariffs charged to independent producers for the use of the Gas Transmission
System (“GTS”), as part of the UGSS, are set by the Regulator (see “Terms and abbreviations” below).
In accordance with the existing methodology of calculating transportation tariffs for natural gas produced in the
Russian Federation for shipments to consumers located within the customs territory of the Russian Federation and
the member states of the Customs Union Agreement (Belarus, Kazakhstan, Kyrgyzstan and Tajikistan), the
transportation tariff consists of two parts: a rate for the utilization of the trunk pipeline and a transportation rate
per mcm per 100 kilometers (km). The rate for utilization of the trunk pipeline is based on an “input/output”
function, which is determined by where natural gas enters and exits the trunk pipeline and includes a constant rate
for end-customers using Gazprom’s gas distribution systems. The constant rate is deducted from the utilization
rate for end-customers using non-Gazprom gas distribution systems.
In 2019 and 2020, the average tariff for natural gas transportation through the trunk pipeline did not change. The
transportation rate amounted to RR 13.04 per mcm per 100 km (excluding VAT), and the rate for utilization of the
trunk pipeline was set in the range from RR 62.57 to RR 2,014.16 per mcm (excluding VAT).
According to the Forecast of the Ministry of Economic Development of the Russian Federation published in
September 2019, the increase in tariffs for natural gas transportation through the trunk pipeline beginning in
2021 through 2024 will not exceed the growth rate for wholesale natural gas prices (see “Natural gas prices”
above). The Russian Federation Government continues to discuss various concepts relating to the natural gas
industry development, including natural gas prices and transportation tariffs growth on the domestic market.
Stable gas condensate and LPG by rail
Substantially all of our stable gas condensate and LPG (excluding volumes sold ex-works from the Purovsky Plant
and the Tobolsk Refining Facilities) we transport by rail owned by Russia’s state-owned monopoly railway
operator – OAO Russian Railways (“RZD”).
The railroad transportation tariffs are set by the Regulator and vary depending on the type of product, and the
direction and the length of the transport route. In addition, the Regulator sets the range of railroad tariffs as a
percentage of the regulated tariff within which RZD may vary railroad transportation tariffs within the Russian
Federation territory based on the type of product, direction and length of the transportation route taking into
account current railroad transportation and market conditions.
Effective January 2020, railroad freight transportation tariffs for all types of hydrocarbons were increased by 3.5%
relative to the 2019 tariffs and did not change until the end of 2020. In January 2021, the Regulator increased the
aforementioned tariffs by 3.7% relative to the 2020 tariffs.
In 2019 and 2020, we applied the discount coefficient of 0.94 to the existing railroad transportation tariffs for
stable gas condensate deliveries from the Limbey rail station to the port of Ust-Luga and to end-customers on the
domestic and international markets. The discount coefficient is set by the decision of the Management Board of
RZD as part of the Strategic Partnership Agreement between the Group and RZD.
Effective April 2020, we started applying discount coefficients to the existing railroad transportation tariffs for
LPG deliveries within the Russian Federation territory from the Tobolsk rail station. These discount coefficients
were introduced to maintain freight volumes in the current unfavorable macroeconomic environment and were in
effect until the end of 2020. During the second quarter, these discount coefficients were initially set at 0.75 and
0.872 depending on the transportation distance and, from mid-June, a single discount coefficient of 0.6 was set to
the existing railroad tariffs.
Stable gas condensate, refined products and liquefied natural gas by tankers
We deliver part of our stable gas condensate and substantially all stable gas condensate refined products, as well
as liquefied natural gas (excluding volumes purchased and sold to customers in the same location) to international
markets by chartered tankers. In addition to time chartering expenses, we also may incur transshipment, bunkering,
port charges and other expenses depending on the delivery terms, which are included in the transportation by
tankers expense category. The distance to the final port of destination, tanker availability, seasonality of deliveries
and other factors also influence our tanker transportation expenses.
Crude oil
We transport nearly all of our crude oil through the pipeline network owned by PAO Transneft, Russia’s state-
owned monopoly crude oil pipeline operator. The Regulator sets tariffs for transportation of crude oil through
Transneft’s pipeline network, which includes transport, dispatch, pumping, loading, charge-discharge,
transshipment and other related services. The Regulator sets tariffs for each separate route of the pipeline network,
so the overall expense for the transport of crude oil depends on the length of the transport route from the producing
fields to the ultimate destination, transportation direction and other factors.
Effective 1 January 2020, crude oil transportation tariffs through the pipeline network within the Russian
Federation territory were increased by an average of 3.4% relative to the 2019 tariffs and remained unchanged
until the end of 2020. Effective 1 January 2021, transportation tariffs were increased by an average of 3.6% relative
to the 2020 tariffs.
13
14
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Our tax burden and obligatory payments
We are subject to a wide range of taxes imposed at the federal, regional, and local levels, many of which are based
on revenue or volumetric measures. In addition to income tax, significant taxes and obligatory payments to which
we are subject include VAT, unified natural resources production tax (“UPT”, commonly referred as “MET” –
mineral extraction tax), export duties, excise, property tax and social contributions to non-budget funds.
In practice, Russian tax authorities often have their own interpretation of tax laws that rarely favors taxpayers, who
have to resort to court proceedings to defend their position against the tax authorities. Differing interpretations of
tax regulations exist both among and within government ministries and organizations at the federal, regional and
local levels, creating uncertainties and inconsistent enforcement. Tax declarations and other documentation such
as customs declarations, are subject to review and investigation by a number of authorities, each of which may
impose fines, penalties and interest charges. Generally, taxpayers are subject to an inspection of their activities for
a period of three calendar years immediately preceding the year in which the audit is conducted. Previous audits
do not completely exclude subsequent claims relating to the audited period. In addition, in some instances, new
tax regulations may have a retroactive effect.
We have not employed any tax minimization schemes using offshore or domestic tax zones in the Russian
Federation.
Detailed information regarding UPT, export duties, excise and social contributions to non-budget funds is
described below based on the current versions of the Tax Code of the Russian Federation and the law “On Customs
Tariff”.
In 2019, the completion stage of the tax maneuver in the oil and gas industry in the Russian Federation began and
will continue until the end of 2024. The tax maneuver envisages a gradual decrease in export duties for crude oil
and oil products with a respective increase in unified production taxes for crude oil and gas condensate, as well as
the introduction of excise tax for raw oil and the double deductions for this tax.
The legislation changes aimed at the completion of the tax maneuver, with other factors being equal, influence line
items in our consolidated financial statements by increasing our liquids net prices and revenues due to a gradual
decrease in export duties, increasing our UPT expenses and our hydrocarbons purchases. The increase in our UPT
expenses and cost of hydrocarbons purchases is offsetting by excise tax deductions for raw oil.
Export duties
Procedure for calculation and payment of export duties is set in the Law of the Russian Federation “On Customs
Tariff”. According to this law, we are subject to export duties on our exports of liquid hydrocarbons (stable gas
condensate and refined products, LPG and crude oil).
Crude oil export duty rate formulas are set by the Russian Federation Government and are based on the average
Urals crude oil price (Mediterranean and Rotterdam) for the so called “monitoring period” (the period from the
15th calendar day in the previous month to the 14th calendar day of the current month):
Average Urals crude oil price
for the monitoring period, USD per ton (Р)
less 109.5 (inclusive)
between 109.5 and 146 (inclusive)
between 146 and 182.5 (inclusive)
above 182. 5
К – adjusting coefficient
Formula for export duty rate calculation
Zero rate
К × [0.35 × (Р – 109.5)]
К × [0.45 × (Р – 146) + 12.78]
К × [0.3 × (Р – 182.5) + 29.2]
The adjusting coefficient (K) will gradually decrease on an annual basis from 0.833 in 2019 to zero in 2024, thus
gradually decreasing the export duty rate for crude oil to zero by 2024. For 2020, the adjusting coefficient was set
at 0.667; in 2021, the coefficient is set at 0.5.
We pay export duties for our stable gas condensate export sales volumes at the export duty rate for crude oil.
The export duty rates for oil products are calculated based on the export duty rate for crude oil adjusted by a
coefficient (discount) set for each category of oil products. The export duty rates for our exported stable gas
condensate refined products as a percentage of the crude oil export duty rate are presented below:
Naphtha
Jet fuel
Gasoil
Fuel oil
% from the crude oil export duty rate
55%
30%
30%
100%
The export duty rate for LPG for the next calendar month is calculated based on the average LPG price at the
Polish border (DAF, Brest) for the current monitoring period and is calculated using the formula presented in the
table below:
Average LPG price, USD per ton (P)
less 490 (inclusive)
between 490 and 640 (inclusive)
between 640 and 740 (inclusive)
above 740
Formula for export duty rate calculation
Zero rate
0.5 × (Р – 490)
75 + 0.6 × (Р – 640)
135 + 0.7 × (Р – 740)
We record export duties as a deduction to our revenues in the consolidated statement of income.
UPT – natural gas
We pay UPT for natural gas on a monthly basis. The UPT rate for natural gas is set in Russian roubles per one
mcm of extracted natural gas.
The UPT rate for natural gas is calculated as a product of the base UPT rate (RR 35 per mcm), the base value of a
standard fuel equivalent and a coefficient characterizing the difficulty of extracting natural gas and gas condensate
from each particular field. The result is then increased by a parameter characterizing natural gas transportation
costs (was set at zero in both reporting periods).
The base value of a standard fuel equivalent is calculated by a taxpayer based on a combination of factors including
natural gas prices, Urals crude oil prices and crude oil export duty rate.
UPT – crude oil
We pay UPT for crude oil on a monthly basis. The UPT rate for crude oil is set in Russian roubles per ton of
extracted crude oil.
The UPT rate is calculated as a product of a coefficient characterizing the dynamics of world crude oil prices and
the base UPT rate (RR 919 per ton) adjusted for parameters characterizing crude oil production peculiarities (the
reserves’ depletion, complexity of extraction, the region, crude oil properties). The result is then increased by a
fixed amount (RR 428 per ton in both reporting periods). Further, the UPT rate for crude oil is gradually increased
by the amount of the corresponding decrease in the crude oil export duty rate due to the completion of the tax
maneuver (see “Export duties” above).
In both reporting periods, we applied a reduced UPT rate for crude oil produced at our East-Tarkosalinskoye,
Khancheyskoye and Yarudeyskoye fields since these fields are located fully or partially to the north of the 65th
degree of the northern latitude fully or partially in the YNAO. Therefore, the adjusted base UPT rate for crude oil
produced at these fields for the Group amounted to RR 360 per ton.
Where the average export alternative prices for petrol and diesel fuel exceed the regulated wholesale prices for
these products on the Russian domestic market, the UPT rate for crude oil is also increased by the so called “petrol
and diesel fuel premiums” (set at RR 125 and RR 110 per ton, respectively, from 1 January to 30 September 2019,
at RR 200 and RR 185 per ton, respectively, from 1 October to 31 December 2019, and at RR 105 and RR 92 per
ton, respectively, starting from 1 January 2020). The petrol and diesel fuel premiums are payable by all crude oil
producers regardless of whether the extracted crude oil volumes will be further sold or refined.
15
16
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
UPT – gas condensate
Social contributions
The Group makes contributions to the Pension Fund, the Federal Compulsory Medical Insurance Fund and the
Social Insurance Fund on behalf of employees in Russia. The base for social contributions accrual is the amount
of salaries and similar employee compensation stipulated by the employment contracts.
The rates for social contributions depend on the fund and the employee’s annual income:
Pension Fund of the
Russian Federation
Federal Compulsory
Medical Insurance Fund
Social Insurance Fund of
the Russian Federation
2019
Base,
2020
Base,
2021
Base,
RR thousand Rate, %
RR thousand Rate, %
RR thousand Rate, %
less 1,150
above 1,150
22.0%
10.0%
less 1,292
above 1,292
22.0%
10.0%
less 1,465
above 1,465
22.0%
10.0%
No limit
less 865
above 865
5.1%
2.9%
0.0%
No limit
less 912
above 912
5.1%
2.9%
0.0%
No limit
less 966
above 966
5.1%
2.9%
0.0%
We pay UPT for gas condensate on a monthly basis. The UPT rate for gas condensate is set in Russian roubles per
ton of extracted gas condensate.
The UPT rate for gas condensate is calculated as a product of the base UPT rate (RR 42 per ton), the base value of
a standard fuel equivalent, a coefficient characterizing the difficulty of extracting natural gas and gas condensate
from each particular field and an adjusting coefficient of 6.5. The base value of a standard fuel equivalent is
calculated by a taxpayer based on the combination of factors including natural gas prices, Urals crude oil prices
and crude oil export duty rate.
The Group reduces its overall UPT expense accrued for gas condensate production volumes by applying a UPT
tax deduction on gas condensate volumes produced for processing into NGL. The amount of the tax deduction is
calculated monthly by multiplying a coefficient of NGL recovery from gas condensate processing, the quantity of
gas condensate produced and processed, and the tax deduction rate in Russian roubles per ton of NGL derived.
The tax deduction rate was set at RR 147 per ton for January 2018 and since then was increasing monthly by the
same amount until the end of 2020. Starting from December 2020, the tax deduction rate is fixed at RR 5,280 per
ton of produced NGL.
The UPT rate for gas condensate is increased by 75% of the decrease in the crude oil export duty rate. The share
of 75% is deemed to represent volumes of produced gas condensate excluding the share of NGL received from
gas condensate processing.
Excise for raw oil
Starting from January 2019, a new excisable type of product was introduced in the Russian Federation – “raw oil”,
which represents a mixture of hydrocarbons composed of one or more components of crude oil, stable gas
condensate, vacuum gasoil, tar, and fuel oil. The tax base for raw oil excise tax is the volume of raw oil sent by
the owner for processing.
The amount of excise tax accrued on raw oil volumes may be claimed for deduction at a double rate. This deduction
is introduced to compensate economic losses of oil and gas refining companies arising as a result of the tax
maneuver and the transfer of tax burden from export duties to the UPT in the amount of full export duty rate for
crude oil while export duties for oil products are paid at a discount to crude oil export duty rate.
The excise tax rate for raw oil is calculated based on the average Urals crude oil prices, the mix of processed
products, region of processing, and the adjusting coefficient, which will be gradually increased on an annual basis
from 0.167 in 2019 to 1.0 in 2024 as part of the completion stage of the tax maneuver in the oil and gas industry.
For 2020, the adjusting coefficient was set at 0.333; in 2021, the coefficient is set at 0.5.
We accrue excise tax on volumes of stable gas condensate sent for processing to our Ust-Luga Complex on a
monthly basis and simultaneously claim the double excise tax deduction. The net result, or so called “reverse
excise”, is reported as a deduction to our “Purchases of natural gas and liquid hydrocarbons” in our consolidated
statement of income as most of our unstable gas condensate volumes used to produce stable gas condensate we
purchase from our joint ventures.
17
18
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
OIL AND GAS RESERVES
We do not file with the Securities and Exchange Commission (“SEC”) nor we are obliged to report our reserves
in compliance with these standards. However, we have consistently disclosed proved oil and gas reserves as
unaudited supplemental information in the Group’s IFRS audited consolidated financial statements. The Group’s
total proved reserves, comprised of proved developed and proved undeveloped reserves, as of 31 December
2020 and 2019, are provided using the SEC reserves reporting classification. We also provide additional
information about our hydrocarbon reserves based on the widely-industry accepted PRMS reserves reporting
classification, which in addition to total proved reserves discloses information on our probable and possible
reserves.
The Group’s reserves are located in the Russian Federation, primarily in the Yamal-Nenets Autonomous Region
(Western Siberia), thereby representing one geographical area.
The Group’s oil and gas estimation and reporting process involves an annual independent external appraisal, as
well as internal technical appraisals of reserves. The internal technical appraisals of reserves are performed by the
Group’s qualified technical staff working directly with the oil and gas reserves and are periodically updated during
the year based on evaluations of new wells, performance reviews, new technical information and other studies.
The annual independent external appraisal of our reserves is performed by independent petroleum engineers,
DeGolyer and MacNaughton (“D&M”). The Group provides D&M annually with engineering, geological and
geophysical data, actual production histories and other information necessary for reserves appraisal. The method
or combination of methods used in the analysis of each reservoir is tempered by experience with similar reservoirs,
stages of development, quality and completeness of basic data, and production history. Our reserves estimates
were prepared using standard geological and engineering methods generally accepted in the oil and gas industry.
The Group and D&M’s technical staffs meet to review and discuss the information provided, and upon completion
of the process, senior management reviews and approves the final reserves estimates issued by D&M.
The Reserves Management and Assessment Group (“RMAG”) is comprised of qualified technical staff from
various departments responsible for geology and geophysics, gas and liquids commercial operations, engineering
and capital construction, production, and long-term financial planning, and also includes representatives from the
Group’s subsidiaries, which are the principal holders of the mineral licenses for geological research works,
exploration and production of hydrocarbons. The person responsible for overseeing the work of the RMAG is a
member of the Management Board.
The approval of the final reserve estimates is the sole responsibility of the Group’s senior management.
The information below about the Group’s oil and gas production and reserves under SEC and PRMS reserve
classifications is presented based on 100% of production and reserves attributable to all consolidated subsidiaries
(whether or not wholly owned) and our proportionate share in the production and reserves in companies accounted
for by the equity method based on our equity ownership interest, including volumes of natural gas consumed in
oil and gas production and development activities (primarily, as fuel gas). Production and reserves of the South-
Tambeyskoye field of Yamal LNG are reported at 60% including an additional 9.9% interest not owned by the
Group, since the Group assumes certain economic and operational risks related to this interest (see “Basis of
presentation” above).
The table below provides proved oil and gas reserves under SEC reserve classification and the change in reserves
in metric units and on a total barrel of oil equivalent basis:
As of and for the year
ended 31 December:
2020
2019
Change
%
Natural gas, billions of cubic meters
Subsidiaries
Share in joint ventures
Liquids, millions of metric tons
Subsidiaries
Share in joint ventures
2,244
1,156
1,088
197
102
95
2,234
1,149
1,085
193
98
95
Combined reserves, millions of boe
16,366
16,265
Change in total reserves, millions of boe
Production
Acquisitions (1)
Disposals (2)
Organic growth (3)
Reserves replacement ratio (4), %
Normalized reserves replacement ratio (4), (5), %
101
(608)
31
-
678
117%
112%
476
(590)
724
(1,145)
1,487
181%
252%
0.4%
0.6%
0.3%
2.1%
4.1%
0.0%
0.6%
(1) In both reporting periods include the effect from changes in the Groups’ reserves due to the reorganization of Acticgas
conducted in 2019 (a part of these reserves were appraised in 2020) and, in 2019, also include reserves of the acquired
Soletskoye-Khanaveyskoye field.
(2) Represent reserves attributable to the sale of a 40% participation interest in Arctic LNG 2 project in 2019.
(3) Represent change due to extensions and discoveries, revisions of previous estimates.
(4) The reserves replacement ratio is calculated as the change in reserves increased for the production for the year divided by
production for the year.
(5) Excluding reserves acquisitions and disposals.
The Groups’ total proved reserves under the SEC reserve classification methodology as at the end of
2020 increased by 101 million boe, or 0.6%, to 16,366 million boe, representing a reserve replacement ratio of
117%.
The increase in total proved hydrocarbons reserves under the SEC reserve classification was primarily due to
successful exploration works and production drilling at our subsidiaries and joint ventures.
Our subsidiaries obtained positive exploration results at the Geofizicheskoye and Nyakhartinskoye fields,
successfully performed production drilling at the Urengoyskoye field of the Yevo-Yakhinskiy license area, East-
Tazovskoye and North-Russkoye fields, as well as increased recovery rates at the Yurkharovskoye and
Yarudeyskoye fields. Additions to the reserves of our joint ventures were due to successful exploration and
production drilling at the Salmanovskoye (Utrenneye) field of OOO Arctic LNG 2, as well as production drilling
at the Urengoyskoye field of the Samburgskiy license area of Arcticgas and South-Tambeyskoye field of Yamal
LNG.
19
20
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
The following table provides for the Group’s PRMS proved, proved and probable, and proved, probable and
possible reserves in metric units and on a total barrel of oil equivalent basis:
Natural gas,
billions of cubic meters
Liquid hydrocarbons,
millions of metric tons
Combined reserves,
millions of boe
31 December
2020
31 December
2019
31 December
2020
31 December
2019
31 December
2020
31 December
2019
Proved reserves (1P reserves)
Proved and probable reserves
(2P reserves)
Proved, probable and
2,477
2,390
3,981
3,901
possible reserves (3P reserves)
5,257
5,065
227
380
529
213
373
514
18,148
17,456
29,318
28,725
38,986
37,581
As we continue to invest capital into the development of our fields, we anticipate that we will increase our resource
base, as well as migrate reserves among the reserve categories.
The below table contains information about reserve to production ratios as of 31 December 2020 and 2019 under
both reserves reporting methodologies:
Number of years
Total proved reserves to production
Total proved and probable reserves to production
Total proved, probable and possible reserves to production
SEC
At 31 December:
2020
2019
27
-
-
28
-
-
PRMS
At 31 December:
2020
2019
30
48
64
30
49
64
OPERATIONAL HIGHLIGHTS
Oil and gas production costs per unit of production
Oil and gas production costs on a barrel of oil equivalent basis are calculated by dividing oil and gas production
costs by the barrel of oil equivalent of hydrocarbons produced during the year.
Oil and gas production costs include only the amounts directly related to the extraction of natural gas, gas
condensate and crude oil and exclude processing costs incurred after saleable hydrocarbons are received, such as
stable gas condensate processing costs and natural gas liquefaction costs, as well as transportation and other
marketing expenses. Oil and gas production costs comprise of lifting costs (materials, services and other expenses,
as well as administrative expenses being by nature operating expenses of oil and gas producing activities), taxes
other than income tax and depreciation, depletion and amortization which are disclosed in the “Unaudited
Supplemental Oil and Gas Disclosures” in the consolidated financial statements.
Natural gas, gas condensate and crude oil volumes produced are converted to a barrel of oil equivalent based on
the relative energy content of each fields’ hydrocarbons. Natural gas production volumes used for calculation of
production costs per boe differ from the volumes presented in the section “Natural gas production volumes” as the
former excludes volumes of natural gas consumed in oil and gas production and development activities (see “Basis
of presentation” above).
The following tables set forth information with respect to oil and gas production costs on a barrel of oil equivalent
basis of our subsidiaries and joint ventures, as well as combined weighted average oil and gas production costs for
the Group’s subsidiaries and joint ventures for the reporting periods in Russian roubles and US dollars.
RR per boe
Subsidiaries
Production costs per boe:
Lifting costs
Taxes other than income tax
Total production costs before DDA per boe
Depreciation, depletion and amortization
Total production costs of subsidiaries per boe
Joint ventures
Production costs per boe:
Lifting costs
Taxes other than income tax
Total production costs before DDA per boe
Depreciation, depletion and amortization
Total weighted average production costs
of joint ventures per boe (1)
Subsidiaries and joint ventures
Production costs per boe:
Lifting costs
Taxes other than income tax
Total production costs before DDA per boe
Depreciation, depletion and amortization
Total weighted average production costs
of subsidiaries and joint ventures per boe (2)
Year ended 31 December:
2019
2020
Change
%
61.2
176.0
237.2
97.4
334.6
26.1
121.9
148.0
94.6
53.6
204.5
258.1
83.9
14.2%
(13.9%)
(8.1%)
16.1%
342.0
(2.2%)
22.1
141.4
163.5
90.2
18.1%
(13.8%)
(9.5%)
4.9%
242.6
253.7
(4.4%)
44.2
149.8
194.0
96.0
38.5
174.1
212.6
86.9
14.8%
(14.0%)
(8.7%)
10.5%
290.0
299.5
(3.2%)
(1) Calculated based on the Group’s share in the production of each joint venture.
(2) Calculated based on 100% of the Group’s subsidiaries production and our share in the production of each joint venture.
21
22
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Year ended 31 December:
2019
2020
Change
%
Natural gas production volumes
USD per boe (1)
Subsidiaries
Production costs per boe:
Lifting costs
Taxes other than income tax
Total production costs before DDA per boe
Depreciation, depletion and amortization
Total production costs of subsidiaries per boe
Joint ventures
Production costs per boe:
Lifting costs
Taxes other than income tax
Total production costs before DDA per boe
Depreciation, depletion and amortization
Total weighted average production costs
of joint ventures per boe (2)
Subsidiaries and joint ventures
Production costs per boe:
Lifting costs
Taxes other than income tax
Total production costs before DDA per boe
Depreciation, depletion and amortization
Total weighted average production costs
of subsidiaries and joint ventures per boe (3)
0.85
2.44
3.29
1.35
4.64
0.36
1.69
2.05
1.31
3.36
0.61
2.08
2.69
1.33
4.02
0.83
3.16
3.99
1.29
5.28
0.34
2.18
2.52
1.40
2.4%
(22.8%)
(17.5%)
4.7%
(12.1%)
5.9%
(22.5%)
(18.7%)
(6.4%)
3.92
(14.3%)
0.59
2.69
3.28
1.35
3.4%
(22.7%)
(18.0%)
(1.5%)
4.63
(13.2%)
(1) Production costs in US dollars per boe were translated from Russian roubles amounts using the average exchange rate
for the period (see “Selected macro-economic data” above).
(2) Calculated based on the Group’s share in the production of each joint venture.
(3) Calculated based on 100% of the Group’s subsidiaries production and our share in the production of each joint venture.
Hydrocarbon production and sales volumes
Our total natural gas and liquids production including the proportionate share in the production of our joint ventures
increased by 3.6% and 0.7%, respectively. The main factors positively impacting our production growth were the
launch of the fields within the North-Russkiy cluster at the end of 2019 and in the third quarter 2020 (the
Cenomanian and Valanginian horizons of the North-Russkoye field, and the East-Tazovskoye and Dorogovskoye
fields), as well as an increase in hydrocarbon production from the Achimov horizons at Arcticgas’s Urengoyskoye
field. An increase in the production at these fields completely offset a decline in production at mature fields of our
subsidiaries and joint ventures.
In 2020, our total natural gas sales volumes decreased by 2,832 mmcm, or 3.6%, primarily due to a decrease in
LNG sales volumes purchased mainly from our joint venture OAO Yamal LNG for subsequent sale on
international markets. We reduced our purchases of spot LNG volumes as Yamal LNG increased direct sales under
long-term contracts. Natural gas volumes sold on the domestic market increased by 1.6% due to the launch of
additional production facilities.
In 2020, our liquids sales volumes insignificantly increased by 32 thousand tons, or 0.2%.
The following table presents natural gas production of the Group’s subsidiaries by major production fields and our
proportionate share in natural gas production of joint ventures by entities:
millions of cubic meters if not stated otherwise
Production by subsidiaries from:
Yurkharovskoye field
East-Tarkosalinskoye field
North-Russkiy cluster (1)
Beregovoye field
Yarudeyskoye field
Khancheyskoye field
Olimpiyskiy license area (2)
East-Urengoyskoye + North-Esetinskoye field
(West-Yaroyakhinskiy license area)
Other fields
Year ended 31 December:
2019
2020
Change
%
23,104
5,305
4,831
1,905
1,648
1,312
1,055
530
957
25,590
5,956
84
1,927
1,731
1,581
1,097
613
810
(9.7%)
(10.9%)
n/a
(1.1%)
(4.8%)
(17.0%)
(3.8%)
(13.5%)
18.1%
Total natural gas production by subsidiaries (3),(4)
40,647
39,389
3.2%
Group’s proportionate share in the production of joint ventures:
Yamal LNG (5)
Arcticgas
Nortgas
Terneftegas
Arctic LNG 2
17,093
15,383
2,931
1,269
44
16,727
13,787
3,529
1,249
19
Total Group’s proportionate share
in the natural gas production of joint ventures (3),(4)
36,720
35,311
Total natural gas production including
proportionate share in the production of joint ventures
77,367
74,700
Average daily natural gas production including
proportionate share in the production of joint ventures
Total LNG production including proportionate share
in the production of joint ventures (thousands of tons) (5)
211.4
204.7
11,553
11,228
2.2%
11.6%
(16.9%)
1.6%
131.6%
4.0%
3.6%
3.3%
2.9%
(1) Including production at the North-Russkoye, the East-Tazovskoye and the Dorogovskoye fields.
(2) Including production at the Urengoyskoye, the Dobrovolskoye and the Sterkhovoye fields.
(3) Excluding natural gas volumes injected to maintain reservoir pressure.
(4) Natural gas production includes natural gas volumes consumed in oil and gas production and development activities
(primarily, as fuel gas):
in subsidiaries
in joint ventures (Group’s proportionate share)
1,635
378
(5) Natural gas and LNG production at Yamal LNG are reported at 60% (see “Basis of presentation” above).
1,785
491
9.2%
29.9%
In 2020, our total natural gas production (including our proportionate share in the production of joint ventures)
increased by 2,667 mmcm, or 3.6%, to 77,367 mmcm from 74,700 mmcm in 2019.
The main factors positively impacting our production growth were the field launches within the North-Russkiy
cluster at the end of 2019 and in the third quarter 2020 (the Cenomanian and Valanginian horizons of the North-
Russkoye field, the East-Tazovskoye and Dorogovskoye fields), as well as an increase in the production of
hydrocarbons from the Achimov horizons at Arcticgas’ Urengoyskoye field due to the expansion of the gas
condensate treatment facility in January 2020 (see “Recent developments” above). These factors fully
compensated the production declines at mature fields of our subsidiaries (the Yurkharovskoye, the East-
Tarkosalinskoye and the Khancheyskoye fields) and at our joint venture Nortgas, which resulted mainly from
natural declines in the reservoir pressure at the current gas producing horizons.
23
24
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Natural gas sales volumes
Liquids production volumes
In 2020, our total natural gas sales volumes decreased by 2,832 mmcm, or 3.6%, to 75,620 mmcm from
78,452 mmcm in 2019.
The following table presents liquids production of the Group’s subsidiaries by major production fields and our
proportionate share in the liquids production of joint ventures by entities:
millions of cubic meters
Production by subsidiaries
Purchases from the Group’s joint ventures
Other purchases
Total production and purchases
Own usage (1)
Decrease (increase) in natural gas inventory balance
Total natural gas sales volumes
Sold to end-customers
Sold ex-field
Subtotal sold in the Russian Federation
Sold on international markets
Year ended 31 December:
2019
2020
Change
%
40,647
28,870
7,597
77,114
(1,920)
426
75,620
63,632
3,060
66,692
8,928
39,389
31,296
8,544
3.2%
(7.8%)
(11.1%)
79,229
(1,763)
986
78,452
62,653
3,000
65,653
12,799
(2.7%)
8.9%
(56.8%)
(3.6%)
1.6%
2.0%
1.6%
(30.2%)
(1) Own usage represents volumes of natural gas consumed in oil and gas producing and development activities (primarily,
as fuel gas), as well as used to maintain the refining process at the Purovsky Plant and production of LNG and methanol.
In 2020, natural gas purchases from our joint ventures decreased by 2,426 mmcm, or 7.8%, to 28,870 mmcm from
31,296 mmcm in 2019 primarily due to a decrease in spot LNG purchases from our joint venture Yamal LNG. The
decrease in LNG purchases resulted from an increase in the share of Yamal LNG’s direct sales under long-term
contracts and the corresponding decrease in LNG spot sales to shareholders, including the Group.
Other natural gas purchases are included in our natural gas volumes for sale, which allows us to coordinate sales
across geographic regions as well as to optimize our end-customers portfolios. In the years ended 31 December
2020 and 2019, we purchased from third parties 7,169 mmcm and 7,613 mmcm of natural gas, respectively, on
the Russian domestic market, and 428 mmcm and 931 mmcm, respectively, on international markets.
At 31 December 2020, our cumulative natural gas inventory balance, mainly representing our inventory balances
of natural gas in the UGSF, aggregated 797 mmcm and decreased by 426 mmcm during the year as compared to
a decrease by 986 mmcm in 2019. Natural gas inventory balances tend to fluctuate period-to-period depending on
the Group’s demand for natural gas withdrawal from the UGSF for the sale in the subsequent periods.
Year ended 31 December:
2019
2020
Change
%
thousands of tons
Production by subsidiaries from:
Yarudeyskoye field
East-Tarkosalinskoye field
Yurkharovskoye field
North-Russkiy cluster (1)
Beregovoye field
Khancheyskoye field
Other fields
Total liquids production by subsidiaries
including crude oil
including gas condensate
Group’s proportionate share in the production of joint ventures:
Arcticgas
Yamal LNG (2)
Terneftegas
Nortgas
3,139
1,294
1,021
392
267
162
158
6,433
4,355
2,078
4,479
701
383
241
3,311
1,438
1,178
-
223
176
154
6,480
4,696
1,784
4,166
826
392
284
Total Group’s proportionate share
in the liquids production of joint ventures
Total liquids production including
5,804
5,668
proportionate share in the production of joint ventures
12,237
12,148
Average daily liquids production including
proportionate share in the production of joint ventures
33.4
33.3
(1) Including production at the North-Russkoye and the East-Tazovskoye fields.
(2) Production at the South-Tambeyskoye field of Yamal LNG is reported at 60% (see “Basis of presentation” above).
In 2020, our total liquids production (including our proportionate share in the production of joint ventures)
increased by 89 thousand tons, or 0.7%, to 12,237 thousand tons from 12,148 thousand tons in 2019.
An increase in the production at Arcticgas combined with the commencement of gas condensate extraction at the
North-Russkiy cluster (see above) fully offset a decrease in production at mature fields of our subsidiaries and
joint ventures, which was mainly due to natural declines in the concentration of liquids as a result of decreasing
reservoir pressure at the current producing horizons. The increase in the production at Arcticgas was due to the
expansion of gas condensate treatment facility for further development of the Achimov horizons at the
Urengoyskoye field in January 2020.
(5.2%)
(10.0%)
(13.3%)
n/a
19.7%
(8.0%)
2.6%
(0.7%)
(7.3%)
16.5%
7.5%
(15.1%)
(2.3%)
(15.1%)
2.4%
0.7%
0.5%
25
26
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Liquids sales volumes
In 2020, our total liquids sales volumes increased marginally by 32 thousand tons, or 0.2%, to 16,387 thousand
tons from 16,355 thousand tons in 2019.
thousands of tons
Production by subsidiaries
Purchases from the Group’s joint ventures
Other purchases
Total production and purchases
Losses (1) and own usage (2)
Decreases (increases) in liquids inventory balances
Total liquids sales volumes
Naphtha export
Other stable gas condensate refined products export (3)
Other stable gas condensate refined products domestic (3)
Subtotal stable gas condensate refined products
Crude oil export
Crude oil domestic
Subtotal crude oil
LPG export
LPG domestic
Subtotal LPG
Stable gas condensate export
Stable gas condensate domestic
Subtotal stable gas condensate
Other oil products
Year ended 31 December:
2019
2020
Change
%
6,433
10,028
141
6,480
9,566
242
16,602
16,288
(215)
-
(201)
268
16,387
16,355
4,294
2,259
220
6,773
1,559
2,909
4,468
568
2,391
2,959
589
1,580
2,169
18
4,511
2,268
202
6,981
1,869
2,965
4,834
591
2,186
2,777
332
1,407
1,739
24
(0.7%)
4.8%
(41.7%)
1.9%
7.0%
n/a
0.2%
(4.8%)
(0.4%)
8.9%
(3.0%)
(16.6%)
(1.9%)
(7.6%)
(3.9%)
9.4%
6.6%
77.4%
12.3%
24.7%
(25.0%)
(1) Losses associated with processing at the Purovsky Plant, the Ust-Luga Complex and the Tobolsk Refining Facilities, as
well as during railroad, trunk pipeline and tanker transportation.
(2) Own usage associated primarily with the maintaining of refining process at the Ust-Luga Complex, as well as bunkering
of chartered tankers.
(3) Other stable gas condensate refined products include jet fuel, gasoil and fuel oil received from the processing of stable
gas condensate at the Ust-Luga Complex.
Our sales volumes of naphtha and other stable gas condensate refined products fluctuate from period-to-period
depending on changes in inventory balances, with volumes of the products received from processing at the Ust-
Luga Complex staying relatively flat. Our sales volumes of stable gas condensate represent the volumes remaining
after we deliver most of our stable gas condensate for further processing to our Ust-Luga Complex, as well as
volumes purchased by the Group for subsequent sale on international markets, including purchases from our joint
venture Yamal LNG.
As of 31 December 2020 and 2019, our cumulative liquid hydrocarbons inventory balances, recognized as
inventory in transit or in storage, did not change and amounted to 801 thousand tons.
RESULTS OF OPERATIONS FOR THE YEAR ENDED 31 DECEMBER 2020
COMPARED TO THE YEAR ENDED 31 DECEMBER 2019
The following table and discussion are a summary of our consolidated results of operations for the years ended
31 December 2020 and 2019. Each line item is also shown as a percentage of our total revenues.
millions of Russian roubles
Total revenues (1)
including:
natural gas sales
liquids sales
Operating expenses
Gain on disposal of interests
in subsidiaries and joint ventures, net
Other operating income (loss)
Profit from operations
Normalized profit from operations (2)
Finance income (expense)
Share of profit (loss) of joint ventures,
net of income tax
Profit before income tax
Total income tax expense
Profit
Less: profit (loss) attributable to
non-controlling interest
Profit attributable to
shareholders of PAO NOVATEK
Normalized profit attributable to shareholders
of PAO NOVATEK (2), excluding the effect of
foreign exchange gains (losses)
Year ended 31 December:
2020
% of total
revenues
2019
% of total
revenues
711,812
100.0%
862,803
100.0%
359,040
340,710
50.4%
47.9%
414,844
437,388
48.1%
50.7%
(552,062)
(77.6%)
(640,463)
(74.2%)
69
(46,807)
113,012
160,766
160,565
n/a
(6.6%)
15.9%
22.6%
22.6%
682,733
(35,484)
869,589
221,398
(15,712)
(143,981)
(20.2%)
149,238
129,596
(51,010)
78,586
18.2%
1,003,115
(7.2%)
11.0%
(119,654)
883,461
79.1%
(4.1%)
100.8%
25.7%
(1.8%)
17.3%
116.3%
(13.9%)
102.4%
(10,754)
(1.5%)
(17,984)
(2.1%)
67,832
9.5%
865,477
100.3%
169,020
23.7%
245,002
28.4%
(1) Net of VAT, export duties, excise and fuel taxes, where applicable.
(2) Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on
disposal and subsequent non-cash revaluation of contingent consideration).
27
28
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Total revenues
The following table sets forth our sales (excluding VAT, export duties, excise and fuel taxes, where applicable)
for the years ended 31 December 2020 and 2019:
millions of Russian roubles
Natural gas sales
Stable gas condensate refined products sales
Naphtha
Other refined products
Crude oil sales
Year ended
31 December:
2020
2019
Change
%
Total
Change (1)
Due to
volume (2)
Due to
price (3)
359,040 414,844
(13.5%)
(55,804)
(14,974)
(40,830)
171,038 231,536
112,963 144,541
86,995
58,075
(26.1%)
(21.8%)
(33.2%)
(60,498)
(31,578)
(28,920)
(6,667)
(6,970)
303
(53,831)
(24,608)
(29,223)
78,381 114,641
(31.6%)
(36,260)
(8,669)
(27,591)
Liquefied petroleum gas sales
48,725
47,668
2.2%
1,057
3,125
(2,068)
Stable gas condensate sales
41,728
42,528
(1.9%)
(800)
10,507
(11,307)
Other products sales
838
1,015
(17.4%)
(177)
n/a
n/a
Total oil and gas sales
699,750 852,232
(17.9%)
(152,482)
12,062
10,571
14.1%
1,491
n/a
n/a
n/a
n/a
711,812 862,803
(17.5%)
(150,991)
n/a
n/a
Other revenues
Total revenues
(1) The figures reflect the impact of sales volumes and average realized net prices factors on the change in total revenues
from hydrocarbons sales in millions of Russian roubles for the respective periods.
(2) The amount of the change in total revenues due to sales volumes is calculated for each product category as a product of
the average realized net price for the previous reporting period and the change in sales volumes.
(3) The amount of the change in total revenues due to average realized net prices is calculated for each product category as a
product of the volume sold in the current reporting period and the change in average realized net prices.
Natural gas sales
Revenues from natural gas sales represent our revenues from natural gas sales in the Russian Federation (to end-
customers and wholesale traders), and revenues from LNG sales to international and domestic markets, as well as
revenues from sales of regasified LNG to customers in Europe.
In 2020, our total revenues from natural gas sales decreased by RR 55,804 million, or 13.5%, compared to
2019 primarily due to a decrease in LNG sales volumes and lower gas prices on international markets. The decrease
in our LNG sales volumes was due to a decrease in LNG purchases from our joint venture Yamal LNG resulting
from an increase in the share of Yamal LNG direct sales under long-term contracts and the corresponding decrease
in LNG spot sales to shareholders, including the Group. The impact of these factors was partially offset by an
increase in sales prices and volumes in the Russian domestic market (see “Natural gas prices” and “Natural gas
sales volumes” above).
Stable gas condensate refined products sales
Stable gas condensate refined products sales represent revenues from sales of naphtha, jet fuel, gasoil and fuel oil
produced from our stable gas condensate at the Ust-Luga Complex.
In 2020, our revenues from sales of stable gas condensate refined products decreased by RR 60,498 million, or
26.1%, to RR 171,038 million from RR 231,536 million in 2019 mainly due to a decrease in average realized
prices (see “Stable gas condensate and refined products, liquefied petroleum gas and crude oil prices” and “Liquids
sales volumes” above).
Revenues from sales of naphtha decreased by RR 31,578 million, or 21.8%, as compared to 2019. In the years
ended 31 December 2020 and 2019, we exported 4,294 thousand tons and 4,511 thousand tons of naphtha,
respectively, mainly to the APR, and the European and North American markets. Our average realized net price,
excluding export duties, where applicable, decreased by RR 5,732 per ton, or 17.9%, to RR 26,311 per ton from
RR 32,043 per ton in 2019.
Revenues from sales of jet fuel, gasoil and fuel oil decreased by RR 28,920 million, or 33.2%, as compared to
2019. In the years ended 31 December 2020 and 2019, we exported in aggregate 2,259 thousand tons and
2,268 thousand tons of these products mainly to the European markets, or 91.1% and 91.8% of total sales volumes
(on both the domestic and export markets), respectively. Our average realized net price, excluding export duties,
where applicable, decreased by RR 11,787 per ton, or 33.5%, to RR 23,426 per ton from RR 35,213 per ton in
2019.
Crude oil sales
In 2020, our revenues from crude oil sales decreased by RR 36,260 million, or 31.6%, compared to 2019 mainly
due to a decrease in average realized prices and, to a lesser extent, a decrease in sales volumes.
We sold 2,909 thousand tons, or 65.1% of our total crude oil sales volumes, domestically as compared to sales of
2,965 thousand tons, or 61.3%, in 2019 (see “Liquids sales volumes” above). The remaining 1,559 thousand tons
of crude oil, or 34.9% of our total crude oil sales volumes, in 2020, and 1,869 thousand tons, or 38.7%, in
2019 were sold to customers with destination points in the APR, the European, the Middle East and the North
American (only in 2019) markets.
Our average realized net price, excluding export duties, where applicable, decreased by RR 6,175 per ton, or
26.0%, to RR 17,541 per ton from RR 23,716 per ton in 2019 (see “Stable gas condensate and refined products,
liquefied petroleum gas and crude oil prices” above).
Liquefied petroleum gas sales
In 2020, our revenues from sales of LPG increased by RR 1,057 million, or 2.2%, compared to 2019 due to an
increase in sales volumes, the effect of which was offset by a decrease in average realized prices.
We sold 2,391 thousand tons of LPG, or 80.8% of our total LPG sales volumes, on the domestic market compared
to sales of 2,186 thousand tons, or 78.7%, in 2019 (see “Liquids sales volumes” above). The remaining
568 thousand tons of LPG, or 19.2% of our total LPG sales volumes, in 2020 and 591 thousand tons, or 21.3%, in
2019 were sold primarily to the Polish market.
Our average realized LPG net price, excluding export and import duties, excise and fuel taxes expense, where
applicable, in 2020 decreased by RR 699 per ton, or 4.1%, to RR 16,467 per ton from RR 17,166 per ton in
2019 (see “Stable gas condensate and refined products, liquefied petroleum gas and crude oil prices” above).
Stable gas condensate sales
In 2020, our revenues from sales of stable gas condensate decreased by RR 800 million, or 1.9%, compared to
2019 due to a decrease in average realized prices that was almost offset by an increase in volumes sold.
We sold 1,580 thousand tons of stable gas condensate, or 72.8% of our total stable gas condensate sales volumes,
on the domestic market as compared to sales of 1,407 thousand tons, or 80.9%, in 2019 (see “Liquids sales
volumes” above). The remaining 589 thousand tons of stable gas condensate, or 27.2% of our total stable gas
condensate sales volumes, in 2020, and 332 thousand tons, or 19.1%, in 2019 were sold to the European, APR and
Middle East (only in 2020) markets.
Our average realized net price, excluding export duties, where applicable, decreased by RR 5,213 per ton, or
21.3%, to RR 19,239 per ton from RR 24,452 per ton in 2019 (see “Stable gas condensate and refined products,
liquefied petroleum gas and crude oil prices” above).
29
30
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Other products sales
Operating expenses
Other products sales represent our revenues from sales of purchased oil products (diesel fuel and petrol) through
our retail stations, as well as sales of other liquid hydrocarbons, including methanol from our own production. In
2020, our revenues from other products sales decreased by RR 177 million, or 17.4%, to RR 838 million from
RR 1,015 million in 2019.
Other revenues
Other revenues include revenue from transportation, geological and geophysical research services, repair and
maintenance of energy equipment services, rent and other services.
In 2020, other revenues increased by RR 1,491 million, or 14.1%, to RR 12,062 million from RR 10,571 million
in 2019 primarily due to an increase in revenues from leasing of facilities of our LNG construction center located
in the Murmansk region, used for the construction of the LNG plant at our Arctic LNG 2 project.
In 2020, our total operating expenses decreased by RR 88,401 million, or 13.8%, to RR 552,062 million compared
to RR 640,463 million in 2019 mainly due to a decrease in average purchase prices for hydrocarbons resulted from
a decline in commodity prices on international markets and a decrease in volumes of LNG purchased from our
joint venture Yamal LNG due to the reallocation of Yamal LNG sales volumes in favor of long-term contracts
sales (see “Purchases of natural gas and liquid hydrocarbons” below).
millions of Russian roubles
Purchases of natural gas and liquid hydrocarbons
Transportation expenses
Taxes other than income tax
Depreciation, depletion and amortization
Materials, services and other
General and administrative expenses
Exploration expenses
Impairment expenses (reversals), net
Changes in natural gas, liquid hydrocarbons
and work-in-progress
Year ended 31 December:
2020
235,224
154,757
54,501
39,238
29,577
26,795
9,103
254
2,613
% of total
revenues
33.0%
21.7%
7.7%
5.5%
4.2%
3.8%
1.3%
n/a
0.4%
2019
330,818
151,651
61,981
32,230
25,183
24,568
8,386
162
5,484
% of total
revenues
38.3%
17.6%
7.2%
3.7%
2.9%
2.8%
1.0%
n/a
0.6%
Total operating expenses
552,062
77.6%
640,463
74.2%
Purchases of natural gas and liquid hydrocarbons
In 2020, our purchases of natural gas and liquid hydrocarbons decreased by RR 95,594 million, or 28.9%, to
RR 235,224 million from RR 330,818 million in 2019.
millions of Russian roubles
Natural gas
Unstable gas condensate
Other hydrocarbons
Reverse excise
Year ended 31 December:
2019
2020
Change
%
125,844
102,568
12,221
(5,409)
175,023
138,092
21,775
(4,072)
(28.1%)
(25.7%)
(43.9%)
32.8%
Total purchases of natural gas and liquid hydrocarbons
235,224
330,818
(28.9%)
Purchases of natural gas decreased by RR 49,179 million, or 28.1%, as compared to 2019 due to a decrease in
LNG purchase prices that are based on natural gas prices at major natural gas hubs and benchmark crude oil prices
(see “Selected macro-economic data” above) and a decrease in volumes of LNG purchased from our joint venture
OAO Yamal for subsequent sale on international markets. The decrease in LNG purchase volumes from Yamal
LNG was due to an increase in the share of direct sales of Yamal LNG under long-term contracts and the
corresponding decrease in the share of LNG spot sales to shareholders, including the Group.
Purchases of unstable gas condensate from our joint ventures decreased by RR 35,524 million, or 25.7%, as
compared to 2019 due to a decrease in purchase prices, which are primarily impacted by international crude oil
and LPG prices excluding export duties (see “Selected macro-economic data” above). The impact of this factor
was partially offset by an increase in volumes purchased from Arcticgas due to an increase in hydrocarbon
production from the Achimov horizons at the Urengoyskoye field (see “Liquids production volumes” above).
Other hydrocarbon purchases represent our purchases of crude oil, LPG, stable gas condensate, oil products and
methanol for subsequent resale depending on the demand for these types of products. Purchases of other
hydrocarbons decreased by RR 9,554 million, or 43.9%, as compared to 2019 mainly due to a decrease in volumes
of stable gas condensate purchased from Yamal LNG for subsequent sale on international markets, as well as a
decrease in hydrocarbon purchase prices resulted from a decline in commodity prices on international markets (see
“Selected macro-economic data” above).
31
32
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
We accrue excise tax on volumes of stable gas condensate sent for processing to our Ust-Luga Complex on a
monthly basis and simultaneously claim the double excise tax deduction (see “Our tax burden and obligatory
payments” above). The net result from these operations is reported as a deduction to our purchases of natural gas
and liquid hydrocarbons expenses in the line “Reverse excise” above as most of our unstable gas condensate
volumes used to produce stable gas condensate we purchase from our joint ventures.
Transportation expenses
In 2020, our total transportation expenses increased by RR 3,106 million, or 2.0%, to RR 154,757 million as
compared to RR 151,651 million in 2019.
millions of Russian roubles
Natural gas transportation
by trunk and low-pressure pipelines
Stable gas condensate and
liquefied petroleum gas transportation by rail
Stable gas condensate and refined products,
crude oil and liquefied natural gas transportation by tankers
Crude oil transportation by trunk pipelines
Other
Year ended 31 December:
2019
2020
Change
%
100,594
34,198
10,283
8,042
1,640
97,371
32,674
8,589
9,639
3,378
3.3%
4.7%
19.7%
(16.6%)
(51.5%)
Taxes other than income tax
In 2020, taxes other than income tax decreased by RR 7,480 million, or 12.1%, to RR 54,501 million from
RR 61,981 million in 2019 due to a decrease in unified natural resources production tax expense.
millions of Russian roubles
Unified natural resources production tax (UPT)
Property tax
Other taxes
Year ended 31 December:
2019
2020
Change
%
50,204
3,929
368
57,935
3,658
388
(13.3%)
7.4%
(5.2%)
Total taxes other than income tax
54,501
61,981
(12.1%)
Unified natural resources production tax expense decreased by RR 7,731 million, or 13.3%, to RR 50,204 million
from RR 57,935 million in 2019 primarily due to a decline in benchmark crude oil prices, which are used for UPT
rates calculation.
Property tax expense increased by RR 271 million, or 7.4%, to RR 3,929 million from RR 3,658 million in
2019 due to the launch of new production assets at the end of 2019 and in the third quarter 2020 (see “Recent
developments” above).
Total transportation expenses
154,757
151,651
2.0%
Depreciation, depletion and amortization
Expenses for natural gas transportation by trunk and low-pressure pipelines increased by RR 3,223 million, or
3.3%, to RR 100,594 million from RR 97,371 million in 2019 due to an increase in the proportion of sales to our
end-customers located at more distant regions from our production fields in the current reporting period as
compared to the previous year and a 1.6% increase in our natural gas sales volumes to our end-customers, for
which we incurred transportation expenses.
Expenses for stable gas condensate and LPG transportation by rail increased by RR 1,524 million, or 4.7%, to
RR 34,198 million from RR 32,674 million in 2019 mainly due to a 4.8% increase in volumes of liquids sold and
transported via rail.
Transportation expenses for our hydrocarbons delivered by tankers to international markets increased by
RR 1,694 million, or 19.7%, to RR 10,283 million from RR 8,589 million in 2019. The increase was due to a
11.4% depreciation of the Russian rouble average exchange rate relative to the US dollar since all our tankers
transportation expenses are US dollar denominated, as well as changes in the LNG delivery terms and points of
destination.
Expenses for crude oil transportation to customers by trunk pipeline decreased by RR 1,597 million, or 16.6%, to
RR 8,042 million from RR 9,639 million in 2019 due to an increase in the proportion of sales to our domestic
customers located at closer regions from our production fields in the current reporting period as compared to the
previous year and a 7.6% decrease in sales volumes.
Other transportation expenses mainly include our short-term vessels time charter expenses related to our revenues
from hydrocarbons transportation by tankers rendered to our joint ventures and third parties (see “Other revenues”
above), as well as expenses for hydrocarbons transportation by trucks. Short-term vessels time charter expenses
decreased to RR 1,436 million from RR 3,078 million in 2019 in line with a dynamics of our revenues from tanker
transportation.
In 2020, our depreciation, depletion and amortization (“DDA”) expense increased by RR 7,008 million, or 21.7%,
to RR 39,238 million from RR 32,230 million in 2019 primarily due to additions of new assets: launch of the fields
within the North-Russkiy cluster and production facilities of our LNG construction center located in the Murmansk
region, used for construction of LNG plant at our Arctic LNG 2 project. We accrue depreciation and depletion on
oil and gas assets using the “units-of-production” method and straight-line method for other facilities.
Materials, services and other
In 2020, our materials, services and other expenses increased by RR 4,394 million, or 17.4%, to RR 29,577 million
compared to RR 25,183 million in 2019.
millions of Russian roubles
Employee compensation
Repair and maintenance
Preparation and processing of hydrocarbons
Materials and supplies
Electricity and fuel
Liquefied petroleum gas
volumes reservation expenses
Fire safety and security expenses
Transportation services
Labor safety expenses
Rent expenses
Insurance expense
Other
Year ended 31 December:
2019
2020
Change
%
14,027
3,294
2,323
1,833
1,702
1,205
1,152
1,140
703
592
462
1,144
11,273
2,778
2,431
1,945
1,551
1,157
1,051
924
91
591
366
1,025
24.4%
18.6%
(4.4%)
(5.8%)
9.7%
4.1%
9.6%
23.4%
n/a
0.2%
26.2%
11.6%
Total materials, services and other
29,577
25,183
17.4%
Employee compensation relating to operating personnel increased by RR 2,754 million, or 24.4%, to
RR 14,027 million compared to RR 11,273 million in 2019 due to an increase in average number of employees
resulting from the launch of new production assets and servicing new assets of our joint ventures (mainly, Arctic
LNG 2, and Arcticgas).
33
34
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Repair and maintenance services expenses increased by RR 516 million, or 18.6%, to RR 3,294 million compared
to RR 2,778 million in 2019 mainly due to an increase in current repair works performed on production facilities
at our core production subsidiaries. Repair expenses fluctuate period-to-period depending on the assets repair
schedule at our production subsidiaries.
Electricity and fuel expenses increased by RR 151 million, or 9.7%, to RR 1,702 million compared to
RR 1,551 million in 2019 due to higher electricity prices in 2020, and an increase in the consumption at our core
production subsidiaries, resulted, inter alia, from the launch of the fields within the North-Russkiy cluster.
Transportation services and fire safety and security expenses also increased mainly due to the recent launch of new
fields.
Labor safety expenses increased by RR 612 million to RR 703 million compared to RR 91 million in 2019 due to
necessary precautions taken to protect the safety and well-being of our employees in light of the COVID-19 virus
spread.
Other items of our materials, services and other expenses changed marginally.
Exploration expenses
In 2020, our exploration expenses amounted to RR 9,103 million, of which the major part related to exploration
works at the Gydanskiy, Shtormovoy, Nyakhartinskiy, and North-Russkiy license areas, as well as at the
Soletskoye-Khanaveyskoye field and on an offshore block in Lebanon. In 2019, our exploration expenses
amounted to RR 8,386 million and related to exploration works performed at the Gydanskiy, Verhnetiuteyskiy and
West-Seyakhinskiy, and Nyakhartinskiy license areas.
Exploration works ensure timely preparation of reserves at our promising fields for development and further
progress of the Group’s hydrocarbons production projects in line with our long-term strategy. Exploration
expenses fluctuate period-to-period in accordance with the approved exploration work schedule at our production
subsidiaries.
In accordance with our accounting policies, exploration expenses include geological and geophysical research
services, expenditures associated with the maintenance of license areas with non-proven reserves, expenses of our
science and technology center associated with the exploration activities at our fields, costs related to exploratory
wells drilling when reserves are not found, and other expenditures relating to exploration activity.
General and administrative expenses
Impairment expenses
In 2020, our general and administrative expenses increased by RR 2,227 million, or 9.1%, to RR 26,795 million
compared to RR 24,568 million in 2019.
In 2020 and 2019, we recognized net impairment expenses of RR 254 million and RR 162 million, respectively,
which in both periods related to impairments of trade accounts receivables.
millions of Russian roubles
Employee compensation
Social expenses and compensatory payments
Legal, audit and consulting services
Repair and maintenance expenses
Advertising expenses
Fire safety and security expenses
Business travel expense
Rent expense
Other
Year ended 31 December:
2019
2020
Change
%
17,849
4,128
1,289
947
599
581
187
184
1,031
17,905
2,503
975
228
531
509
720
189
1,008
(0.3%)
64.9%
32.2%
n/a
12.8%
14.1%
(74.0%)
(2.6%)
2.3%
Total general and administrative expenses
26,795
24,568
9.1%
Social expenses and compensatory payments increased by RR 1,625 million, or 64.9%, to RR 4,128 million
compared to RR 2,503 million in 2019 primarily due to an increase in compensatory payments. In 2020, these
payments mainly related to the development of the Yurkharovskoye and West-Yurkharovskoye fields, and the
Nyakhartinskiy and West-Yaroyakhinskiy license areas, and amounted to RR 1,602 million. In 2019,
compensatory payments amounted to RR 237 million and mainly related to the development of the
Geofizicheskoye and North-Obskoye fields. The remaining expenses represented our social expenses and related
to continued support of charities and social programs in the regions where we operate. Social expenses and
compensatory payments fluctuate period-on-period depending on the implementation schedules of specific
programs we support.
Legal, audit, and consulting services expenses increased by RR 314 million, or 32.2%, to RR 1,289 million
compared to RR 975 million in 2019 primarily due to an increase in consulting services related to the expansion of
the Group’s activities.
Repair and maintenance expenses increased by RR 719 million, or 4.2 times, to RR 947 million from
RR 228 million in 2019 mainly due to settling in and furnishing of a new office building for our subsidiaries in
Novy Urengoy and due to maintenance and operation of other administrative assets.
Business travel expenses decreased by RR 533 million, or 74.0%, to RR 187 million from RR 720 million in
2019 due to COVID-19 travel restrictions and the precautions taken by the Group to protect safety and health in
light of the spread of the coronavirus (see “Recent developments” above).
Other items of our general and administrative expenses changed marginally.
Changes in natural gas, liquid hydrocarbons and work-in-progress
In 2020, we recorded a charge of RR 2,613 million to changes in inventory expense mainly due to a decrease in
the cost of hydrocarbons purchases as a result of a decrease in benchmark crude oil prices, as well as a decrease in
natural gas inventory balances. In 2019, we recorded a charge of RR 5,484 million to changes in inventory expense
due to a decrease in our hydrocarbons inventory balances.
In 2020 and 2019, our cumulative natural gas inventory balance decreased by 426 mmcm and 986 mmcm,
respectively, due to a seasonal withdrawal of natural gas during the period of higher demand to fulfill our
contractual sales obligations. Natural gas inventory balances tend to fluctuate period-to-period depending on the
Group’s demand for natural gas withdrawals for the sale in the subsequent periods.
In the current year, our cumulative liquid hydrocarbons inventory balances, recognized as inventory in transit or
in storage, did not change, while in 2019 they decreased by 268 thousand tons mainly due to a decrease in inventory
balances of stable gas condensate refined products in storage at our Ust-Luga Complex and in tankers in transit
not realized at the reporting date. Inventory balances of stable gas condensate and refined products tend to fluctuate
period-to-period depending on shipment schedules and final destination of our shipments.
The following table highlights movements in our hydrocarbons inventory balances:
Inventory balances in
transit or in storage
At
31 December
At
1 January
Increase /
(decrease)
At
31 December
At
1 January
Increase /
(decrease)
2020
2019
Natural gas (millions of cubic meters)
incl. Gazprom’s UGSF
Liquid hydrocarbons (thousand tons)
incl. stable gas condensate
refined products
stable gas condensate
crude oil
797
698
801
380
238
81
1,223
982
801
331
272
94
(426)
(284)
-
49
(34)
(13)
1,223
982
801
331
272
94
2,209
2,106
1,069
578
276
109
(986)
(1,124)
(268)
(247)
(4)
(15)
35
36
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Net gain on disposal of interests in subsidiaries and joint ventures
Finance income (expense)
In the fourth quarter 2020, the Group sold a 100% participation interest in OOO Chernichnoye to the its joint
venture ZAO Terneftegas and recognized a gain on the disposal in the amount of RR 69 million before income
tax. Chernichnoye is a holder of the license for exploration and production of hydrocarbons within the Chernichniy
license area located in YNAO.
In 2019, we recognized a gain on the disposal of a 40% participation interest in OOO Arctic LNG 2 in the amount
of RR 674,968 million before income tax.
In addition, in 2019, the Group recognized a gain from the reorganization of our joint venture AO Arcticgas in the
amount of RR 7,765 million.
Other operating income (loss)
Other operating income (loss) includes realized income (loss) from hydrocarbons trading on the international
markets, income (loss) from the change in the fair value of the aforementioned contracts, as well as other income
(loss) relating to penalty charges, disposal of materials, fixed assets and other transactions. In 2020, we recognized
other operating loss of RR 46,807 million compared to other operating loss of RR 35,484 million in 2019.
In both periods, other operating loss was primarily due to recognizing the non-cash revaluation of fair value of
contingent consideration related to the sale of a 40% participation interest in OOO Arctic LNG 2 in 2019,
resulting from a decrease in long-term crude oil benchmark prices forecast, which may be revised subject to world
market conditions and may or may not reflect actual future cash inflows. We recognized a loss of
RR 47,823 million and RR 34,542 million in 2020 and 2019, respectively.
In 2020, we purchased and sold approximately 11.3 bcm of natural gas, as well as various derivative commodity
instruments within our trading activities, and recognized an aggregate realized income from trading activities of
RR 1,479 million as compared to a loss of RR 1,072 million in 2019. At the same time, we recognized non-cash
loss of RR 1,689 million in 2020 as a result of a decrease in the fair value of the aforementioned contracts as
compared to a non-cash income of RR 238 million in 2019. The effect of the change in fair value of the
commodity contracts fluctuates from period-to-period depending on the forecast prices for hydrocarbons on
international markets and other macroeconomic parameters and may or may not reflect actual future cash flows
from trading activities.
Profit from operations and EBITDA
Our profit from operations in the current reporting period was negatively impacted by unfavorable
macroeconomic conditions that are out of the Group’s management control, which led to a decrease in our
hydrocarbon prices.
In 2020, our profit from operations and EBITDA including our proportionate share of joint ventures, but excluding
the effects from the disposal of interests in subsidiaries and joint ventures (mainly, a net gain on disposal and
subsequent non-cash revaluation of fair value of contingent consideration related to the transactions on the sale
of a 40% participation interest in OOO Arctic LNG 2 in 2019), amounted to RR 274,718 million and
RR 392,008 million, respectively, compared to RR 360,463 million and RR 461,157 million in 2019.
In 2020, we recorded net finance income of RR 160,565 million compared to net finance expense of
RR 15,712 million in 2019.
millions of Russian roubles
Accrued interest expense on loans received
Less: capitalized interest
Provisions for asset retirement obligations:
effect of the present value discount unwinding
Interest expense on lease liabilities and other expenses
Interest expense
Interest income
Change in fair value of non-commodity financial instruments
Foreign exchange gain (loss), net
Year ended 31 December:
2019
2020
Change
%
(10,051)
6,641
(960)
(569)
(4,939)
25,440
(7,397)
147,461
(9,112)
5,903
(738)
(544)
(4,491)
20,699
12,827
(44,747)
10.3%
12.5%
30.1%
4.6%
10.0%
22.9%
n/a
n/a
Total finance income (expense)
160,565
(15,712)
n/a
Interest expense increased by RR 448 million, or 10.0% primarily due to depreciation of the average exchange rate
of the Russian rouble relative to the US dollar and Euro by 11.4% and 13.7%, respectively.
Interest income increased by RR 4,741 million, or 22.9%, to RR 25,440 million from RR 20,699 million in
2019 primarily due to loans provided to our joint venture OOO Arctic LNG 2.
In 2020, we recognized a non-cash loss of RR 7,397 million compared to a non-cash gain of RR 12,827 million in
2019 due to the remeasurement of the shareholders’ loans issued by the Group to our joint ventures in accordance
with IFRS 9 “Financial instruments”. The effect of the fair value remeasurement of shareholders’ loans may
change period-to-period due to the change in market interest rates and other macroeconomic parameters and does
not affect real future cash flows of loans repayments.
The Group continues to record non-cash foreign exchange gains and losses each reporting period due to
movements between currency exchange rates. In 2020, we recorded a net foreign exchange gain of
RR 147,461 million compared to a net foreign exchange loss of RR 44,747 million in 2019 due to the revaluation
of our foreign currency denominated borrowings and loans received and provided, trade receivables and contingent
consideration related to the transactions on the sale of participation interests in Arctic LNG 2, as well as cash
balances in foreign currency.
Profit from operations and EBITDA of our subsidiaries, excluding the effects from the disposal of participation
interests,
to
RR 221,398 million and RR 253,552 million in 2019.
and RR 201,947 million,
to RR 160,766 million
respectively,
compared
amounted
37
38
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Share of profit (loss) of joint ventures, net of income tax
In 2020, the Group’s proportionate share of loss of joint ventures amounted to RR 143,981 million as compared
to the share of profit in the amount of RR 149,238 million in 2019.
millions of Russian roubles (Group’s share)
Year ended 31 December:
2019
2020
Change
%
Share of profit from operations
113,952
139,065
(18.1%)
Share of finance income (expense)
excluding foreign exchange effects
Interest income (expense), net
Change in fair value of
non-commodity financial instruments
Share of income tax excluding foreign exchange effects
Share of profit (loss) of joint ventures, net of income tax
and excluding foreign exchange effects
Share of foreign exchange gain (loss), net
Share of income tax
related to foreign exchange gain (loss)
Total
(71,685)
(85,502)
13,817
(5,303)
(71,301)
(67,770)
(3,531)
0.5%
26.2%
n/a
(11,740)
(54.8%)
36,964
56,024
(34.0%)
(254,022)
111,733
42,832
(18,519)
(174,226)
149,238
n/a
n/a
n/a
n/a
n/a
Unrecognized share of losses of joint ventures (1)
30,245
-
Total share of profit (loss) of joint ventures,
net of income tax
(143,981)
149,238
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
In the current year, our proportionate share of profit (loss) of joint ventures was significantly impacted by
unfavorable macroeconomic conditions, which led to a decrease in hydrocarbons sales prices and a recognition of
substantial foreign exchange effects in our joint ventures. In 2020, our proportionate share of profit of joint
ventures excluding foreign exchange effects amounted to RR 36,964 million compared to RR 56,024 million in
2019.
Our proportionate share in the profit from operations of our joint ventures decreased by RR 25,113 million, or
18.1%, from RR 139,065 million to RR 113,952 million mainly due to decreases in LNG and liquids average
realized prices.
Our proportionate share in interest expense increased by RR 17.7 billion, or 26.2%, due to the Russian rouble
depreciation relative to the US dollar and Euro by 11.4% and 13.7%, respectively, and the finalized process of the
marine tankers fleet formation in Yamal LNG with the remaining vessels being received during 2019-2020 under
long-term time charter agreements. According to IFRS 16 “Leases”, a portion of expenses under such agreements
is recognized within interest expense.
In 2020, our share in foreign exchange losses amounted to RR 254.0 billion as compared to our share in foreign
exchange gains of RR 111.7 billion in 2019. These foreign exchange gains (losses) in both reporting periods were
mainly non-cash and primarily related to the revaluation of foreign currency denominated loans in our joint venture
Yamal LNG. We assess that the impact of foreign currency risk relating to the debt portfolio of Yamal LNG is
largely mitigated by the fact that all of its products are delivered to international markets and its revenues are
denominated in foreign currencies.
As a result of the recognition of foreign exchange losses, the Group’s proportionate share of accumulated losses
in OAO Yamal LNG and OOO Cryogas-Vysotsk exceeded our cost of investment and the Group’s investment in
these joint ventures was valued at RR nil in the consolidated statement of financial position. The unrecognized
share of losses in 2020 amounted to RR 30.2 billion.
(1) Represents the excess of the Group’s proportionate share of accumulated losses in the joint venture over the Group’s cost
of investment.
Income tax expense
The following table presents the Group’s proportionate share of profit (loss) of our joint ventures by entities:
millions of Russian roubles (Group’s share)
Yamal LNG
Arcticgas
Others
2020
2019
2020
2019
2020
2019
Share of profit from operations
76,020
82,190
37,657
52,994
275
3,881
Share of finance income (expense)
excluding foreign exchange effects
Interest income (expense), net
Change in fair value of
(65,789)
(81,398)
(67,836)
(63,214)
(1,355)
(1,355)
(2,087)
(2,087)
(4,541)
(2,749)
(1,378)
(2,469)
non-commodity financial instruments
15,609
(4,622)
-
-
(1,792)
1,091
The Russian statutory income tax rate for both reporting periods was 20%.
The Group recognizes in profit before income tax its share of net profit (loss) from joint ventures, which influences
the consolidated profit of the Group but does not result in additional income tax expense (benefit) at the Group’s
level. Net profit (loss) of joint ventures was recorded in their financial statements on an after-tax basis. The Group’s
dividend income from the joint ventures in which it holds at least a 50% interest is subject to a zero withholding
tax rate according to the Russian tax legislation, and also does not result in a tax charge.
Without the effect of net profit (loss) from joint ventures and excluding the effects from the disposal of interests
in subsidiaries and joint ventures, the effective income tax rate (total income tax expense calculated as a percentage
of profit before income tax) for the years ended 31 December 2020 and 2019 was 18.8% and 16.7%, respectively.
(3,163)
(3,044)
(5,691)
(8,169)
3,551
(527)
Profit attributable to shareholders and earnings per share
Share of income tax
excluding foreign exchange effects
Share of profit (loss) of joint ventures,
net of income tax and excluding
foreign exchange effects
Share of foreign exchange gain (loss), net
Share of income tax
related to foreign exchange gain (loss)
7,068
11,310
30,611
42,738
(715)
1,976
(222,431)
106,910
(22)
1
(31,569)
4,822
36,700
(17,641)
4
-
6,128
(878)
Total
(178,663)
100,579
30,593
42,739
(26,156)
5,920
Unrecognized share of losses of joint ventures (1)
27,763
-
-
-
2,482
-
Total share of profit (loss) of joint ventures,
net of income tax
(150,900)
100,579
30,593
42,739
(23,674)
5,920
(1) Represents the excess of the Group’s proportionate share of accumulated losses in the joint venture over the Group’s cost
of investment.
As a result of the factors discussed in the respective sections above, profit attributable to shareholders of
PAO NOVATEK decreased by RR 797,645 million
to
RR 865,477 million in 2019.
to RR 67,832 million
in 2020 compared
The Group’s financial results in the current reporting period were significantly impacted by unfavorable
macroeconomic conditions, which led to a decrease in our hydrocarbons sales prices and a recognition of
substantial foreign exchange effects.
In addition, in both reporting periods, we recorded the effects from the disposal of interests in the Arctic
LNG 2 project by recognizing a gain in the aggregate amount of RR 675.0 billion from the disposal of a 40%
participation interest in the Arctic LNG 2 project in 2019 and recognizing in 2019 and 2020 losses in the amount
of RR 34.5 billion and RR 47.8 billion, respectively, related to the subsequent non-cash revaluation of contingent
consideration on these transactions. In 2019, we also recognized a gain from the reorganization of our joint venture
AO Arcticgas in the amount of RR 7,8 billion.
39
40
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Excluding the effects from the disposal of interests in subsidiaries and joint ventures and foreign exchange gains
(losses), our profit attributable to shareholders of PAO NOVATEK decreased by RR 75,982 million, or 31.0%,
and amounted to RR 169,020 million in 2020 compared to RR 245,002 million in 2019.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows
Reconciliation of normalized profit attributable to shareholders of PAO NOVATEK is as follows:
millions of Russian roubles
Profit attributable to shareholders of PAO NOVATEK
Gain on disposal of interests in subsidiaries and joint ventures, net
Income tax expense related to the disposal of
interests in subsidiaries and joint ventures
Changes in fair value of contingent consideration
reported within the “Other operating income (loss)”
Income tax expense (benefit) related to changes in
fair value of contingent consideration
Normalized profit attributable to
shareholders of PAO NOVATEK
including:
profit from subsidiaries
share of profit (loss) of joint ventures
Year ended 31 December:
2019
2020
Change
%
67,832
(69)
23
865,477
(682,733)
(92.2%)
(100.0%)
92,040
(100.0%)
47,823
34,542
(9,565)
(6,908)
38.4%
38.5%
106,044
302,418
(64.9%)
250,025
(143,981)
153,180
149,238
63.2%
n/a
Reconciliation of normalized profit attributable to shareholders of PAO NOVATEK excluding the effect of foreign
exchange gains (losses) is as follows:
millions of Russian roubles
Normalized profit from subsidiaries
attributable to shareholders of PAO NOVATEK
Year ended 31 December:
2019
2020
Change
%
Foreign exchange (gains) losses, net
Income tax expense relating to foreign exchange (gains) losses
(147,461)
29,492
44,747
(8,949)
n/a
n/a
Normalized profit from subsidiaries
attributable to shareholders of PAO NOVATEK
excluding the effect of foreign exchange gains (losses)
Share of profit (loss) of joint ventures,
132,056
188,978
(30.1%)
net of income tax and excluding foreign exchange effects (1)
36,964
56,024
(34.0%)
Normalized profit attributable to
shareholders of PAO NOVATEK,
excluding the effect of foreign exchange gains (losses)
(1) See “Share of profit (loss) of joint ventures, net of income tax” above.
169,020
245,002
(31.0%)
Our weighted average basic and diluted earnings per share, calculated from the profit attributable to shareholders
of PAO NOVATEK decreased by RR 264.81 per share to RR 22.58 per share in 2020 from RR 287.39 per share
in 2019. Excluding the effects from the disposal of interests in subsidiaries and joint ventures and foreign exchange
gains (losses), our weighted average basic and diluted earnings per share decreased by RR 25.09, or 30.9%, to
RR 56.26 per share in 2020 from RR 81.35 per share in 2019.
The following table shows our net cash flows from operating, investing and financing activities for the years ended
31 December 2020 and 2019:
millions of Russian roubles
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Net cash provided by operating activities
Year ended 31 December:
2019
2020
Change
%
171,896
(47,872)
(78,075)
307,433
(169,044)
(119,448)
(44.1%)
(71.7%)
(34.6%)
Our net cash provided by operating activities decreased to RR 171,896 million compared to RR 307,433 million
in 2019 due to a decrease in profit from operations, excluding the effects from the disposal of interests, net of
related income tax, as well as a decrease in interest on loans and dividends received from our joint ventures.
millions of Russian roubles
Profit from operations, excluding the effects
from the disposal of interests in subsidiaries and joint ventures
Non-cash adjustments (1)
Changes in working capital and long-term advances given
Dividends and cash received from joint ventures
Interest received
Income taxes paid excluding actual payments
Year ended 31 December:
2019
2020
Change
%
160,766
43,121
(10,876)
11,420
8,442
221,398
31,860
(4,227)
46,050
47,413
(27.4%)
35.3%
157.3%
(75.2%)
(82.2%)
Total net cash provided by operating activities
171,896
307,433
(44.1%)
(1) Include adjustments for depreciation, depletion and amortization, net impairment expenses (reversals), change in fair
value of non-commodity financial instruments and some other adjustments.
In 2020, profit from operations excluding the effects from the disposals of interests in subsidiaries and joint
ventures (recognition of a net gain on disposal and subsequent non-cash revaluation of contingent consideration),
adjusted for non-cash items decreased due to a decline in hydrocarbon prices on international markets compared
to 2019.
Income tax payments, on the contrary, increased in 2020 as a result of the recognition of significant foreign
exchange gains in our subsidiaries as compared to foreign exchange losses in 2019.
In the year ended 31 December 2020, we received RR 10,750 million and RR 670 million of dividends and cash
distributed in favor of the Group from our joint ventures Arcticgas and Terneftegas, respectively. In the year ended
31 December 2019, we received RR 45,500 million and RR 550 million of dividends from our joint ventures
Arcticgas and Nortgas, respectively.
In 2020 and 2019, we received approximately RR eight billion and RR 47 billion, respectively, of interest on loans
provided to our joint ventures Yamal LNG and Terneftegas.
250,025
153,180
63.2%
1
relating to disposal of interests in subsidiaries and joint ventures
(40,977)
(35,061)
16.9%
41
42
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Net cash used for investing activities
In 2020, our net cash used for investing activities decreased by RR 121,172 million, or 71.7%, to
RR 47,872 million compared to RR 169,044 million in 2019.
millions of Russian roubles
Cash used for capital expenditures
Proceeds from disposal of interests in subsidiaries
and joint ventures, net of cash disposed
Actual income tax payments relating to disposal
of interests in subsidiaries and joint ventures
Payments for mineral licenses
Loans provided to joint ventures
Repayments of loans provided to joint ventures
Net decrease (increase) in bank deposits
with original maturity more than three months
Capital contributions to joint ventures
Other
Year ended 31 December:
2019
2020
Change
%
(204,577)
(162,502)
195,479
136,541
(23)
(434)
(120,798)
41,543
43,057
-
(2,119)
(64,540)
(7,827)
(29,664)
20,764
(58,945)
(298)
(2,573)
25.9%
43.2%
(100.0%)
(94.5%)
307.2%
100.1%
n/a
n/a
(17.6%)
Net cash used for investing activities
(47,872)
(169,044)
(71.7%)
In 2020, cash used for capital expenditures increased by RR 42,075 million, or 25.9%, as compared to 2019. A
significant part of the capital investments related to our LNG projects (the Arctic LNG 2 project prior to March
2019, the LNG construction center located in the Murmansk region and the Obskiy LNG project), ongoing
development of our producing fields, preparation for the commencement of commercial production at our new
fields, as well as exploratory drilling (see “Capital expenditures” below).
In 2019, the Group sold a 40% participation interest in OOO Arctic LNG 2 to four new participants. Consideration
under these transactions includes cash payments of USD 5.2 billion equivalent (USD 1.3 billion by each
participant). The first part of these cash payments in the aggregate amount of RR 152,531 million (the equivalent
of USD 2.4 billion) was received in 2019. Excluding the cash balance in OOO Arctic LNG 2 as at the first
transaction closing date, the net cash inflow from the transactions amounted to RR 136,541 million. The second
part of cash payments in the aggregate amount of RR 195,324 million (the equivalent of USD 2.8 billion) was
received in 2020. Income tax accrued in relation to these transactions in the amount of RR 64,540 million was paid
in 2019.
In the current year, we also received the first payments in the amount of RR 155 million for the sale of a 100%
participation interest in OOO Chernichnoye to our joint venture ZAO Terneftegas and paid income tax accrued in
relation to this transaction in the amount of RR 23 million (see “Recent developments” above).
In 2020, we made final payments in the aggregate amount of RR 317 million for the acquisition of the licenses for
the East-Ladertoyskiy, the South-Yamburgskiy and the Bukharinskiy license areas, and also made a one-time
payment fee to expand the borders of our Ust-Yamsoveyskiy license area in the amount of RR 58 million. In
addition, in both periods, we paid a part of a one-time payment fee for the exploration and production license for
our discovered Kharbeyskoye field in the amount of RR 59 million. In 2019, we made a final payment in the
amount of RR 2,006 million for the acquisition of a license for the South-Leskinskiy license area, paid
RR 2,586 million for the acquisition of a license for the license area, which includes the Soletskoye-
Khanaveyskoye field, as well as paid RR 3,176 million for participation in the auctions for the right to use the
East-Ladertoyskiy, the South-Yamburgskiy and the Bukharinskiy license areas.
In 2020, we provided loans in the aggregate amount of RR 120,798 million compared to RR 29,664 million in
2019. In both reporting periods, we provided loans to our joint ventures for developing their activities, mainly to
OOO Arctic LNG 2 and Yamal LNG (only in 2019). At the same time, in both years, the Group received partial
repayments of the loans provided to our joint ventures Yamal LNG and Terneftegas in the aggregate amount of
RR 41,543 million in 2020 and RR 20,764 million in 2019.
The Group’s cash management involves periodic cash placement on bank deposits with different maturities.
Deposits are reported in “Cash and cash equivalents” if opened for three months or less, or otherwise in “Short-
term bank deposits with original maturity more than three months”. Transactions with bank deposits with original
maturity more than three months are classified as investing activities in the Consolidated Statement of Cash Flows.
In 2020, the net decrease in bank deposits with original maturity more than three months amounted to
approximately RR 43 billion compared to the net increase in the amount of RR 59 billion in 2019.
In 2019, we made capital contributions to our joint venture Rostock LNG GmbH in the amount of RR 248 million
and to our joint venture OOO SMART LNG in the amount of RR 50 million.
Net cash used for financing activities
In 2020, our net cash used for financing activities decreased by RR 41,373, or 34.6%, to RR 78,075 million as
compared to RR 119,448 million in 2019.
millions of Russian roubles
Dividends paid to shareholders of PAO NOVATEK
Dividends paid to non-controlling interest
Proceeds from (repayments of) long-term debt, net
Net increase (decrease) in short-term debt
with original maturity three months or less
Loan commitment fee
Purchase of treasury shares
Payments of lease liabilities
Interest on debt paid
Year ended 31 December:
2019
2020
Change
%
(89,857)
(11,858)
39,460
36
(534)
(8,271)
(4,649)
(2,402)
(93,468)
(16,758)
(2,176)
-
-
(1,865)
(2,944)
(2,237)
(3.9%)
(29.2%)
n/a
n/a
n/a
343.5%
57.9%
7.4%
Net cash used for financing activities
(78,075)
(119,448)
(34.6%)
In both reporting periods, our major financing cash flows related to payment of dividends.
In addition, in 2020, the Group obtained a long-term loan from a Russian bank under a non-revolving credit line
facility in the amount of RR 45,395 million (EUR 500 million). In both periods, the Group also partially repaid a
loan obtained from China’s investment fund Silk Road Fund in the amount of RR 4,928 million (USD 70 million)
and RR 2,176 million (USD 35 million), respectively, and, in 2020, fully repaid a long-term loan obtained under
a credit line facility from a Russian bank in the amount of RR 1,007 million.
Other cash flows from financing activities related primarily to purchase of treasury shares and payments of lease
liabilities.
43
44
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Liquidity and working capital
Capital expenditures
The following table shows the Group’s liquidity and credit measures as of 31 December 2020 and 2019:
Absolute amounts, RR million
Net debt (1)
Net working capital position (2)
Liquidity and credit ratios
Current ratio (3)
Total debt to total equity
Long-term debt to long-term debt and total equity
Net debt to total capitalization (4)
Net debt to normalized EBITDA from subsidiaries (5)
Interest coverage ratio (6)
31 December 2020
31 December 2019
Change, %
39,557
202,938
15,106
379,383
2.27
0.14
0.09
0.02
0.20
20
4.24
0.09
0.08
0.01
0.06
28
161.9%
(46.5%)
(46.5%)
55.6%
12.5%
100.0%
233.3%
(28.6%)
(1) Net debt represents total debt less cash, cash equivalents and bank deposits with original maturity more than three
months.
(2) Net working capital position represents current assets less current liabilities.
(3) Current ratio is calculated as current assets divided by current liabilities.
(4) Total capitalization represents total debt, total equity and deferred income tax liability.
(5) Net debt to normalized EBITDA from subsidiaries ratio is calculated as Net debt divided by EBITDA from subsidiaries
excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal
and subsequent non-cash revaluation of contingent consideration) for the last twelve months.
(6) Interest coverage ratio is calculated as normalized EBITDA from subsidiaries divided by accrued interest on debt,
including capitalized interest.
The Group has consistently demonstrated sustainable operating and financial results and had generated cumulative
positive free cash flow. Thus, in 2020, the Group had sufficient liquidity to increase investments in our main
projects despite unfavorable macroeconomic conditions (see “Current economic environment” above). The
Group’s management believes that it presently has and will continue to have the ability to generate sufficient cash
flows (from operating and financing activities) to repay all its current liabilities as they become due and to finance
the Group’s capital construction programs.
In both reporting periods, our capital expenditures represent our investments primarily relating to developing our
oil and gas assets. The following table shows capital expenditures at our main fields, processing facilities and other
assets:
millions of Russian roubles
Infrastructure for future LNG projects (1)
Arctic LNG 2 project (2)
North-Russkiy cluster (3)
Obskiy LNG project
Ust-Luga Complex
Yarudeyskoye field
Geofizicheskoye field
Yurkharovskoye field
Beregovoye field
Gydanskiy license area
West-Yurkharovskoye field
Ust-Yamsoveyskiy license area
East-Tarkosalinskoye field
Yevo-Yakhinskiy license area
Gas condensate pipeline expansion
Novatek Green Energy (4)
Nyakhartinskiy license area
NOVATEK-Chelyabinsk
West-Yaroyakhinskiy license area
NOVATEK-AZK
South-Khadyryakhinskiy license area
Administration facilities
Other
Year ended 31 December:
2019
2020
72,838
-
39,692
15,816
7,781
5,769
5,723
5,398
5,143
4,318
4,121
4,066
3,951
2,741
1,607
1,402
1,097
986
846
770
752
10,147
13,742
43,013
19,147
37,843
7,766
3,288
7,013
3,506
3,484
5,923
2,618
5,213
539
6,333
-
4
875
960
1,236
716
1,034
1,806
7,132
5,477
Capital expenditures
208,706
164,926
(1) Mainly includes expenditures related to the project for the LNG construction center located in the Murmansk region.
(2) Capital expenditures are reported before the sale of a 10% participation interest in OOO Arctic LNG 2 to TOTAL S.A.
group in March 2019.
(3) Includes expenditures related to the North-Russkoye, the East-Tazovskoye, the Dorogovskoye and the Kharbeyskoye
fields.
(4) Prior to February 2020 was named Novatek Polska Sp. z o.o.
Total capital expenditures on property, plant and equipment in 2020 increased by RR 43,780 million, or 26.5%, to
RR 208,706 million from RR 164,926 million.
In both reporting periods, a significant part of our capital expenditures related to the development of our LNG
projects, in particular the Arctic LNG 2 project (before the disposal of a 10% participation interest in March 2019),
the LNG construction center located in the Murmansk region and the Obskiy LNG.
In addition, we invested in the development and launch of the fields within the North-Russkiy cluster: further
development of the North-Russkoye field, the launch and the development of the East-Tazovskoye and
Dorogovskoye fields, as well as the preparation for production commencement at the Kharbeyskoye field (see
“Recent developments” above). We also continued the ongoing development of our producing fields (the
Beregovoye, Yurkharovskoye and West-Yurkharovskoye fields, development activities at
the East-
Tarkosalinskoye and the Yarudeyskoye fields’ crude oil deposits), the development of the Ust-Yamsoveyskiy
license area and exploratory drilling, which in 2020 was mainly conducted at the Kharbeyskoye and
Geofizicheskoye fields, as well as at the Gydanskiy and Yevo-Yakhinskiy license areas.
In both reporting periods, we continued to invest in the project for construction of a hydrocracker unit at our Ust-
Luga Complex, which will allow us to increase the depth of processing of stable gas condensate and output of light
oil products.
45
46
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
In 2020, we invested in “Yurkharovskoye field – Purovsky Plant” gas condensate pipeline expansion to increase
its capacity for gas condensate transportation from the North-Russkiy cluster fields.
We also continued to expand the filling stations network at our subsidiary NOVATEK-AZK and to develop our
LPG and LNG wholesale and retail network through our subsidiary Novatek Green Energy Sp. z o.o. (prior to
February 2020 Novatek Polska Sp. z o.o.).
Capital expenditures of our subsidiary NOVATEK-Chelyabinsk in both reporting periods mainly related to the
construction of a small-scale LNG plant in the Chelyabinsk region.
The “Administration facilities” line in the table above represents our capital expenditures of an administrative
nature, of which a significant part related to construction of our new office buildings in Moscow and Novy Urengoy
(in 2019).
The “Other” line represents our capital expenditures related to other fields and processing facilities of the Group,
as well as unallocated capital expenditures as of the reporting date. The allocation of capital expenditures by fields
or processing facilities takes place upon the completion of the fixed assets construction stages and depends on the
approved fixed assets launch schedule.
The following table presents the reconciliation of our capital expenditures and additions to property, plant and
equipment per Note “Property, plant and equipment” in the Group’s IFRS Consolidated Financial Statements, and
cash used for capital expenditures:
millions of Russian roubles
Total additions to property, plant and equipment per
Note “Property, plant and equipment” in the Group’s
IFRS Consolidated Financial Statements
Less: acquisition of mineral licenses
Less: right-of-use assets (1) additions
Capital expenditures
Less: advance payments under lease agreements
Add (less): change in accounts payable, capitalized
Year ended 31 December:
2019
2020
Change
%
210,037
176,985
(375)
(956)
(7,768)
(4,291)
208,706
164,926
(801)
-
18.7%
(95.2%)
(77.7%)
26.5%
n/a
37.3%
foreign exchange losses and other non-cash adjustments
(3,328)
(2,424)
Cash used for capital expenditures (2)
204,577
162,502
25.9%
(1) Related mainly to long-term agreements on energy equipment leases and office premises rentals in 2020 and to long-term
agreements on time chartering of marine tankers in 2019.
(2) 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 and joint
ventures.
In 2020, we made final payments in the aggregate amount of RR 317 million for the auctions won in December
2019 for the right to use the East-Ladertoyskiy, South-Yamburgskiy and Bukharinskiy license areas (an advance
payment of RR 3,176 million was made in the end of 2019). In addition, we paid a one-time fee in the amount of
RR 58 million to expand the borders of the Ust-Yamsoveyskiy license area (see “Net cash used for investing
activities” above).
In 2019, the Group won auctions for geological research works, exploration and production of hydrocarbons at the
Soletsko-Khanaveyskiy, South-Yamburgskiy, East-Ladertoyskiy and Bukharinskiy license areas and paid in the
aggregate RR 5,762 million. In addition, in 2019, we made a final payment of RR 2,006 million for the auction
won in November 2018 for the right to use the South-Leskinskiy license area.
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
QUANTITATIVE AND QUALITATIVE DISCLOSURES AND MARKET RISKS
We are exposed to market risk from changes in commodity prices, foreign currency exchange rates and interest
rates. We are exposed to commodity price risk as our prices for crude oil, stable gas condensate and refined
products destined for export sales are linked to international crude oil prices and other benchmark price references.
We are exposed to foreign exchange risk to the extent that a portion of our sales, costs, receivables, loans and debt
are denominated in currencies other than Russian roubles. We are subject to market risk from changes in interest
rates that may affect the cost of our financing. From time to time we may use derivative instruments, such as
commodity forward contracts, commodity price swaps, commodity options, foreign exchange forward contracts,
foreign currency options, interest rate swaps and forward rate agreements, to manage these market risks, and we
may hold or issue derivative or other financial instruments for trading purposes.
Foreign currency risk
Our principal exchange rate risk involves changes in the value of the Russian rouble relative to the US dollar and
the Euro. As of 31 December 2020, all our debt was denominated in foreign currencies. Changes in the value of
the Russian rouble relative to foreign currencies will impact the value in Russian rouble terms of our foreign
currency-denominated costs, debt, receivables at our foreign subsidiaries and loans provided to our joint ventures.
We believe that the risks associated with our foreign currency exposure are partially mitigated by the fact that
43.5% of our total revenues in 2020 was denominated in foreign currencies.
In addition, our share of profit (loss) of joint ventures is also exposed to foreign currency exchange rate movements
due to the significant amount of foreign currency-denominated borrowings in our joint ventures, mostly in Yamal
LNG. We assess that the impact of foreign currency risk relating to the debt portfolio of Yamal LNG is to a large
extent mitigated by the fact that all of its products are delivered to international markets and its revenues are
denominated in foreign currencies.
As of 31 December 2020, the Russian rouble depreciated by 19.3% and 30.8% against the US dollar and the Euro,
respectively, compared to 31 December 2019.
Commodity risk
Our export prices for natural gas, stable gas condensate and refined products, LPG and crude oil are primarily
linked to international natural gas, crude oil and oil products prices and/or a combination thereof. External factors
such as geopolitical developments, natural disasters and the actions of the Organization of Petroleum Exporting
Countries affect crude oil prices and thus our export prices.
The weather is another factor affecting demand for natural gas. Changes in weather conditions from year to year
can influence demand for natural gas and to some extent stable gas condensate and refined products.
From time to time we may employ derivative instruments to mitigate the price risk of our sales activities. In our
consolidated financial statements, all derivative instruments are recognized at their fair values. Unrealized gains
or losses on derivative instruments are recognized within other operating income (loss), unless the underlying
arrangement qualifies as a hedge.
Within our trading activities, the Group purchases and sells natural gas on the European market under long-term
contracts based on formulas with reference to benchmark natural gas prices quoted for the North-Western
European natural gas hubs, crude oil and oil products prices and/or a combination thereof. Therefore, the Group’s
financial results from natural gas foreign trading activities are subject to commodity price volatility based on
fluctuations or changes in the respective benchmark reference prices.
47
48
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2020
Pipeline access
TERMS AND ABBREVIATIONS
We transport substantially all of our natural gas within the Russian Federation territory through the Gas
Transmission System (“GTS”) owned and operated by PAO Gazprom, which is responsible for gathering,
transporting, dispatching and delivering substantially all natural gas supplies in the domestic market. Under
existing legislation, Gazprom must provide access to the GTS to all independent suppliers on a non-discriminatory
basis provided there is capacity available that is not being used by Gazprom. In practice, Gazprom exercises
considerable discretion over access to the GTS because it is the sole owner of information relating to capacity.
There can be no assurance that Gazprom will continue to provide us with access to the GTS; however, we have
not been denied access in prior periods.
Ability to reinvest
Our business requires significant ongoing capital expenditures in order to grow our production and meet our
strategic plans. An extended period of reduced demand for our hydrocarbons available for sale and the
corresponding revenues generated from these sales would limit our ability to maintain an adequate level of capital
expenditures, which in turn could limit our ability to increase or maintain current levels of production and
deliveries of natural gas, gas condensate, crude oil and other associated products; thereby, adversely affecting our
financial and operating results.
Forward-looking statements
This report includes forward-looking statements concerning future possible events that can impact operational and
financial results of the Group. Forward-looking statements can be identified by words such as “believes”,
“anticipates”, “expects”, “estimates”, “intends”, “plans” and similar expressions. Forward-looking statements are
made based on the current situation with definite and indefinite risks and uncertainties. Actual future results could
differ materially from those discussed in the forward-looking statements as they are dependent on various factors
beyond and under the control of management.
Off balance sheet activities
As of 31 December 2020, we did not have any relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose entities, which are typically established
for the purpose of facilitating off-balance sheet arrangements.
APR
bbl
bcm
boe
btu
CBR
CIF
DDA
FEED
FID
Forecast of the
Ministry of
Economic
Development
GTS
IFRS
List
LNG
LPG
mcm
MET
Murmansk yard
NBP
NGL
OFAC
PRMS
Purovsky Plant
Regulator
Asian-Pacific Region
barrel
billion cubic meters
barrels of oil equivalent
British thermal unit
Central Bank of Russian Federation
“Cost, insurance and freight”
depreciation, depletion and amortization
Front-End Engineering Design
Final Investment Decision
The document “Forecast of Socio-economic Development of the Russian Federation
for the period till 2024” prepared by the Ministry of Economic Development of the
Russian Federation or the similar document prepared for another period
Gas Transmission System part of the UGSS
International Financial Reporting Standards
the OFAC’s Sectoral Sanctions Identification List
liquefied natural gas
liquefied petroleum gas
thousand cubic meters
mineral extraction tax
LNG construction center located in the Murmansk region
National Balancing Point
natural gas liquids
U.S. Treasury Department’s Office of Foreign Assets Control
Petroleum Resources Management System
Purovsky Gas Condensate Plant
A federal executive agency of the Russian Federation that carries out governmental
regulation of prices and tariffs for products and services of natural monopolies in
energy, utilities and transportation. Effective July 2015, Federal Anti-Monopoly
Service fulfills the Regulator’s role.
Russian rouble(s)
OAO Russian Railways, Russia’s state-owned monopoly railway operator
Securities and Exchange Commission
Tobolsk petrochemical complex of PAO SIBUR Holding group
RR
RZD
SEC
Tobolsk Refining
Facilities
TTF
UGSF
UGSS
UPT
USD, US dollar
Ust-Luga Complex Gas Condensate Fractionation and Transshipment Complex located at the port of Ust-
Title Transfer Facility
Underground Gas Storage Facilities
Unified Gas Supply System owned and operated by PAO Gazprom
unified natural resources production tax
United States Dollar
VAT
YNAO
Luga on the Baltic Sea
value added tax
Yamal-Nenets Autonomous Region
49
50
Contact Information
Office in Tarko-Sale
Independent Auditor
22-A, Pobedy Street, 629850, Tarko-Sale, Purovsky
District, Yamal-Nenets Autonomous Region, Russia
Office in Moscow
2, Udaltsova Street, 119415, Moscow, Russia
AO PricewaterhouseCoopers Audit
White Square Office Center, Butyrsky Val 10, 125047
Moscow, Russia
Tel: +7 495 967-6000
Fax: +7 495 967-6001
APPROVED
by a resolution of the Annual General Meeting
of Shareholders of PAO NOVATEK
on 23 April 2021 Minutes No. 136
PRE-APPROVED
by a resolution of the Board of Directors
of PAO NOVATEK
on 19 March 2021 Minutes No. 240
DATA ACCURACY CERTIFIED
by PAO NOVATEK’s Revision Commission
on 2 March 2021
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/en/ (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
IRC – R.O.S.T.
18/5B, Stromynka Street, Moscow,
Russia 107076
Tel: +7 495 989-76-50
Fax: +7 495 780-73-67
E-mail: info@rrost.ru
GDR program Administrator
The Bank of New York Mellon, Depositary Receipts
240 Greenwich Street, New York, NY 10286, USA
New York +1 212 815 4158
London +44 207 163 7512
Moscow +7 495 967 3110
246
THINK GREEN. THINK NATURAL GAS.