Rosneft Oil Ojsc Annual Report 2019

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FY2019 Annual Report · Rosneft Oil Ojsc

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ANNUAL
REPORT

2019

“Rosneft” and the “Company” mean Rosneft Oil Company PJSC

either separately or together with its subsidiaries and affil-

iates, as the context may require. This report contains

forward-looking statements that are subject to risks

and uncertainties. The actual Rosneft results may differ mate-

rially from the information contained in the forward-looking

statements due to a number of factors. To convert tonnes

to barrels, a factor of 7.404 is used. To convert 1,000 cubic

metres of gas to barrels of oil equivalent, an average factor

of 6.09 is used. To convert Rospan’s gas condensate to barrels

of oil equivalent, a factor of 8.3 is used.

ANNUAL REPORT CONTAINING
INTEGRATED REPORTING ELEMENTS

Rosneft’s Annual Report for 2018 contains elements of integrated

reporting as defined in the International Integrated Reporting

Standard published by the International Integrated Reporting

Council (IIRC).

It aims to present the Company’s financial and non-financial

results and achievements in sustainable development, high-

lighting the existing links between the competitive environment,

the Company’s Strategy, business model, risk management,

and a clearly defined corporate governance structure.

Since 2017, Rosneft has been participating in the work

of The IIRC Business Network, the goal of which is to develop

the integrated reporting practice basics and to undertake other

activities aimed at the effective implementation and development

of the International Integrated Reporting System.

The Annual Report was approved by the General Shareholders

Meeting on June 02, 2020 (unnumbered Minutes).

ROSNEFT ANNUAL REPORT 2019Contents

Message from the Chairman of Rosneft’s Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Message from Rosneft’s Chief Executive Officer, Chairman of the Management Board . . . . . 6

Assets and Regions of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Mission and values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Business Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Company Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Strategy

Rosneft–2022 Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Long-Term Development Programme and Progress Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

KPI Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Investment Programme in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Operating Results

Key Operating and Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Rosneft’s Exploration and Reserve Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Production of Liquid Hydrocarbons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Overview of Production in Regions of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Greenfields Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

In-house Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Offshore Projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Gas Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Development of International Projects in Promising Oil and Gas Regions. . . . . . . . . . . . . . . . 82

Downstream (Refining and Commerce). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Market Overview and Competitive Environment

Macroeconomic Environment in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Global Oil and Gas Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Competitive analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

Overview of Key Taxation Changes in the Russian Federation with the Largest Impact
on the Company’s Financial and Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Sustainable Development

Health, Safety and Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Personnel and Social Programme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

Social and Economic Development of Regions and Charity in 2019 . . . . . . . . . . . . . . . . . . . . 172

Company Sponsorship Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

Energy Efficiency and Energy Saving . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

Localisation and Development of Industrial Clusters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Supplier and Contractor Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Research, Design and Innovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

Digital Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Corporate Governance

Message from the Chairman of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

Key Corporate Governance Principles and Improvements in 2019. . . . . . . . . . . . . . . . . . . . . 197

General Shareholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

Members of Rosneft’s Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

Executive Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

Remuneration of Members of the Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

Remuneration of the Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

Civil Liability for the Members of the Board of Directors and the Management . . . . . . . . . . 230

Managing Possible Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

Audit Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Risk Management and Internal Control System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

Information for Shareholders and Investors

Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

The Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Shareholder Relations, Key Events in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

Institutional Investor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254

Bonds and Credit Ratings of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

The Information Disclosure, Policy and Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

Appendix 1 Consolidated financial statements of Rosneft Oil Company for the year ended December 31, 2019 . . . . . . . . . 261
Appendix 2 Key Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
Appendix 3 Report on Compliance With the Principles and Recommendations

of the Corporate Governance Code the Bank of Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Appendix 4 Information on Compliance with Instructions Issued by the President of the Russian Federation

and the Government of the Russian Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

Appendix 5 Information on Basic Internal Regulations that Serve as a Basis for the Preparation

of the Current Annual Report, Including Key Internal Documents Regulating the Internal Audit Function
and the Functioning of the Ic&Rms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Appendix 6 Financial Statements and Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307

Message from the Chairman of Rosneft’s
Board of Directors

As the Chairman of the Board of Directors,
I think it is extremely important that the
Company is taking consistent steps to un-
lock its potential, placing a special em-
phasis on innovations and environmental
protection.

Gerhard Schroeder

Chairman of the Board of Directors

Dear shareholders and
investors,

Every year, we see businesses pay in-
creasing attention to environmental,
social and governance factors, which
have also become a key focus area for
the investment community. I can say
with certainty that 2019 was a break-
through year for Rosneft when it comes
to sustainable development. As the

Chairman of the Board of Directors, I am
convinced that it is extremely impor-
tant for the Company to take consistent
steps unlocking its potential, placing a
special emphasis on innovations and en-
vironmental protection.

Rosneft has joined the UN Global
Compact, an initiative that encourages
businesses to become more socially
responsible. Moreover, we annually

release a public statement regarding the
Company's contribution towards achiev-
ing the 17 UN Sustainable Development
Goals.

In line with our development strategy,
we aim to become one of the greenest
companies by 2022 and rank in the first
quartile among global peers in terms of
unit GHG emissions. We have already
delivered some tangible results. In 2019,

we cut fugitive methane emissions by
more than 70%. Importantly, this is not
a one-off reduction, but a sustainable
trend. We have been keeping up the
momentum for the last few years, which
makes us one of the industry's leaders in
minimising the GHG footprint.

Another milestone for both the industry
and the global community was our sign-
ing of the guidelines for reducing meth-
ane emissions across the natural gas
supply chain in June 2019. Together with
other industry majors supporting this in-
itiative, we will be able to cut these emis-
sions generated by production assets.

Our green investments totalled
RUB 35 bln in 2019 and approximately
RUB 240 bln over the past five years,
with another RUB 200 bln slated to be
spent in the coming years as part of our
ongoing efforts in this area.

We are encouraged to see our achieve-
ments in sustainable development rec-
ognised by the public as well as by rating
agencies. In 2019, we joined the ranks
of industry leaders in the major inter-
national sustainability ratings. Rosneft
was included in the FTSE4Good Index
and became the best Russian oil and gas
company in the global CDP Climate and
Water ratings, while also winning praise
from Bloomberg and Refinitiv for the
transparency of its disclosures.

Another driver of Rosneft's investment
appeal is its dividend policy, which
provides for at least 50% of its net in-
come to be distributed twice a year
as dividends. In 2019, the Company
paid record high interim dividends of
RUB 162.5 bln. Today, we offer our
shareholders one of the best returns in
the Russian oil and gas industry. Our ex-
cellent performance in 2019 will enable
us to further increase the size of final
dividends.

participation in this unique project run
jointly with global majors strengthens
our position as a cutting-edge high-
tech company, while also enabling us
to build up our offshore development
competencies.

That said, we are not going to stay
put and will continue moving forward.
Therefore, I am confident that in 2020
all our business lines will continue grow-
ing fast.

We are successfully growing our interna-
tional business, too. The reporting year
saw us start direct sales of petroleum
products in Germany, which marks an
important stage in our history. At pres-
ent, we make shipments from refineries
where the Company is a shareholder to
more than 500 customers in Germany,
Poland, Czech Republic, Switzerland,
Austria and France. But our ambitions go
beyond that. Going forward, we plan to
expand our sales geography, including
by benefiting from a deal to increase our
stake in Bayernoil Raffineriegesellschaft
to 28.57%. Rosneft remains the third
largest oil refining company in Germany,
with the total crude oil processing vol-
umes amounting to 12.8 mmtpa.

The development of Zohr, a natural gas
field in the Mediterranean Sea offshore
Egypt where Rosneft holds a 30% stake,
is advancing ahead of schedule. Put
on stream as early as in 2017, the field
produced 23.4 bcm of gas in 2019. Our

ROSNEFT ANNUAL REPORT 2019Message from Rosneft’s Chief
Executive Officer, Chairman
of the Management Board

2019 has been a successful year for the
Company. We kept working consistently
towards our 2022 strategic goals ap-
proved by the Board of Directors

Igor Sechin

Chairman of the Management Board and
Chief Executive Officer

Dear shareholders and
investors,

2019 has been a successful year for the
Company. We consistently worked to
implement the Rosneft-2022 Strategy
approved by the Board of Directors and
delivered strong results across a vari-
ety of business lines, which helped us
cement our leadership in the energy
market.

Notwithstanding the existing OPEC+
arrangement and limitations on oil in-
take by Transneft’s trunk pipelines,

we managed to maintain hydrocar-
bon production at a record high of
285.3 mmtoe, with the average daily out-
put standing at 5.8 mmboe.

These strong results were due to the
launch of greenfield projects, sustained
production at brownfields and the use of
cutting-edge technologies. At Bashneft's
Ilishevskoye field, we piloted Digital
Field, the industry's unique information
system covering all key oil production
and logistics processes. This project is
expected to have an annual economic

impact of some RUB 1 bln on Bashneft
alone, and will be further rolled out to
other assets.

In the reporting year, we also carried
on with the cluster development of our
fields. In June, we put on stream the
Zapadno-Erginskoye field (Erginsky clus-
ter) and started infrastructure develop-
ment and preparations for commercial
production at the Severo-Danilovskoye
oil and gas condensate field, the first of
four fields in the Danilovsky cluster.

Another important milestone was the
start of developing a new oil and gas
province on the Taimyr Peninsular in
Northern Russia, as part of the Vostok-
Oil project. Its reserve base amounts
to nearly 5 bt of crude oil. The key ad-
vantage of this project, which we plan
to develop together with partners, is its
close proximity to the unique Northern
Sea Route. This will enable us to sup-
ply crude oil to both Europe and Asia,
while also increasing cargo flow along
the Northern Sea Route in line with the
instructions of the Russian President.
Going forward, we plan to create a new
word-class cluster unmatched anywhere
else.

In 2019, oil refining volumes amounted
to 110 mmt, with more than 10 mmt at-
tributable to the Company’s foreign re-
fineries. These volumes were sufficient
to meet the domestic demand and hon-
our our commitments with respect to
stable and secure supply of petroleum
products. Wholesale shipments of motor
fuels grew almost 4% year-on-year, com-
ing close to 30 mmt. On the exchange,
we sold 2.3 times more motor gaso-
line and twice as much diesel fuel as re-
quired by the Government. Domestic
retail sales of motor fuels went up 6%
compared to 2018.

On a separate note, we started produc-
ing the first hydrotreating catalysts ca-
pable of fully replacing similar foreign
products to reduce the dependence
of the Russian refining industry on im-
ported technologies. Industrial tests on
the first batch of these catalysts proved
to be a success.

Our Rosneft–2022 Strategy efforts have
already yielded tangible results, which
is best illustrated by stronger financials,
in particular net income and dividends.
In 2019, our net income attributable
to shareholders increased by 29% to
RUB 708 bln. Our revenue went up by
5.3% to a record high of RUB 8.7 trln,
while operating profit before deprecia-
tion and amortisation grew by 1.2% to

RUB 2.1 trln. In 2019 our free cash flow
amounted to RUR 884 bn, remaining
in the positive territory for nearly eight
years running.

These achievements gave a boost to our
market capitalisation, which increased
by 17% in 2019 and by over 44% since
the launch of the Strategy. This proves
that we are on the right path.

We confirmed our role as Russia's larg-
est taxpayer and a systemically impor-
tant company, with contributions to
the national budget coming close to
RUB 3.6 trln over the year.

Maximising shareholder returns is a key
priority for the Company’s management.
For the full year, our dividends reached
an all-time high of roughly RUB 283 bln
(up 25% year-on-year), with nearly
RUB 141 bln attributable to the Russian
Government.

We are successfully developing our trad-
ing business. In 2019, we opened an
office in Singapore to trade in oil and
petroleum products. The new division
has already delivered impressive results,
with feedstock supplies to Asian coun-
tries in 2019 reaching 79.7 mmt. We
are strengthening our efforts in the tra-
ditional sales markets, too. In 2019, we
signed contracts to supply up to 12 mmt
and 15.1 mmt of oil to Poland and the
Czech Republic, respectively.

In the past 20 years Rosneft became
one of the global energy leaders and the
largest publicly-traded company in the
world by production and reserves vol-
umes. Our employees received awards
from the Government for their outstand-
ing achievements and contribution to
the national economy. I am confident
that this high-level recognition will help
us strengthen our position both in the
Russian and international markets.

ROSNEFT ANNUAL REPORT 2019Assets
and Regions
of Operation

Canada

countries of
operation

regions of operation
in Russia

Cuba

share in global oil
production

refineries
in Russia

Norway

Belarus

Germany

Russia

Ukraine

Kazakhstan

Mongolia

Italy

Georgia

Armenia

Kyrgyzstan

Egypt

Iraq

Qatar

China

Myanmar

India

Vietnam

Indonesia

Brazil

Mozambique

Average hydrocarbon production growth in 2009–2019, %

Hydrocarbon production in 2019, mmboe per day

Hydrocarbon production costs in 2019, USD per boe

АВ1С1+В2С2 hydrocarbon reserves, bboe as at 1 January 2020

9,3

2,7

1,6

1,3

0,9

0,7

0,6

0,1

–0,6

5,8

1,1

4,7

4,3

1,8

2,5

4,0

3,8

3,7

1,6

1,8

3,0

1,1

2,8
0,5

2,4

2,2

1,9

2,2

2,4

0,6

1,8

Hydrocarbon liquids
Gas

13,4

12,1

10,6

9,0

9,6

6,8

3,8

3,1

144

33
7

24
3

Sources: company reports; Wood Mackenzie (Gazprom).

Source: company reports for 2019.

Hydrocarbon liquids
Gas

Data on Rosneft is provided according to the Russian resource classifica-
tion system (АВ1С1+В2С2) as at 1 January 2020, data on other compa-
nies is based on Wood Mackenzie’s appraisal and includes commercial
and sub-commercial reserves.

ROSNEFT ANNUAL REPORT 2019ROSNEFT
ANNUAL REPORT 2019

Mission and values

Our mission is to unlock energy potential through the
development of projects in Russia and abroad, ensure
energy security, and promote the sustainable use of
natural resources

Business principles

SUSTAINABLE
DEVELOPMENT

FINANCE AND
INVESTMENTS

CORPORATE
GOVERNANCE

ADVANCING
TECHNOLOGY

Commitment to 17 UN Sustainable
Development Goals, with a focus on ﬁve
priority ones

Becoming a global leader that ensures
accident-free operations, protects health and
safety of its employees and local communities
in the regions of operation, and minimises its
environmental footprint

Preserving the environment for future
generations

Enhancing project
management

Maintaining operational
leadership

Ensuring high shareholder
returns

Developing organisational
capabilities and human
resources

Commitment to strong
business ethics

Digitalising the entire business

Creating a sustainable technological
advantage

Technology partnerships

Fostering in-house research
and development

Localising manufacturing

ROSNEFT
ANNUAL REPORT 2019

Business Model

Capital1
(resources)

Financial

RUB 0.9 trln
investments

>USD 25 bln
of foreign investments
since 2014

Social
and reputational

23
countries of operation

Human

335 thousand
qualiﬁed employees2

Intellectual

27
R&D and design institutes

World-class
resource base
and efﬁcient
production assets Modern reﬁneries

OIL
REFINING
In Russia:

100 mmt

Abroad:

10 mmt

PETROLEUM
PRODUCTS
In Russia:

97 mmt

Abroad:

11 mmt

282 mmt
of crude oil

PRODUCTION
230 mmt

l
i

o
e
d
u
r
C

9 mmt

petroleum products
purchase

Natural

RUB 35 bln
green investment

сa. 19%
share of gas in the
total hydrocarbon
production

52 mmt

purchase

Exploration

Productive

In Russia:
13 reﬁneries

Abroad:
6 reﬁneries

#1
public company
worldwide by
production
volume3

#1
largest
integrated
oilﬁeld services

1 Deﬁnition and list of capitals as per the
International Integrated Reporting Framework
published by the International Integrated
Reporting Council (IRCC).
2 Headcount as at 31 December 2019
3 Listed on Western stock exchanges

s
a
G

67 bcm
PRODUCTION

7 bcm

purchase

In 2019, unless otherwise speciﬁed

Extensive logistics
and distribution
network

PETROLEUM
PRODUCTS
SALES

In Russia:

Abroad:

42 mmt

70 mmt

116 mmt petroleum products and petrochemicals

3 mmt

petrochemicals

OIL SALES
In Russia:

6 mmt

Abroad:

149 mmt

170 mmt

Other,
including JVs

15 mmt

GAS SALES

In Russia:

57 bcm

Abroad:

5 bcm

74 bcm of gas

INTERNAL CONSUMPTION,
ETC.4
12 bcm

4 Including reservoir pressure maintenance
5 Including auxiliary services and other sales,
income from joint ventures and associated
businesses.

Revenue

TOTAL

RUB

8,676
bln

RUB

3,897
bln

RUB

100
bln

RUB

4,234
bln

RUB

259
bln

other5
RUB
186

bln

Capital
(results)

Financial

RUB 2.105 bln
EBITDA

RUB 708 bln
net income

24 %
EBITDA margin

RUB 283 bln
dividends

Social and reputational

RUB 3.5 trln
taxes

RUB 35 bln
allocated for social
projects

621 kt
production
of Euro 6 gasoline
with enhanced
environmental
properties

Human

1.9 х
salary vs.
the country’s
average

12 ﬁlling stations
retail sales of
compressed natural gas

#1
employer
in Russia’s oil
industry

Intellectual

>700
patents issued

>RUB 11 bln
innovations impact

Natural

>90 %
share of water
recycled and
re-used

–3 %
atmospheric emissions
other than GHG

Productive

185 %
reserve
replacement ratio

42 mmt
motor fuels output

1.7 mmt of CO2 eq.
reduction of GHG
emissions

88 %
high success rate of
onshore exploration
drilling in Russia

Company Structure

EXPLORATION AND PRODUCTION

Exploration

Services

Production

Russia
LLC RN-Exploration
LLC RN-Shelf Arktika
JSC Elvary Neftegaz
LLC Yermak Neftegaz

Brazil
Rosneft BRASIL E&P LTDA

Norway
RN Nordic Oil AS

Myanmar
Bashneft International B.V.

Iraq
Bashneft International B.V.
LLC RN BVK

Iraqi Kurdistan
RN-Qasrok Pte. Ltd.

Mozambique
RN Angoche Pte. Ltd.
RN Zambezi North Pte. Ltd.
RN Zambezi South Pte. Ltd.

Russia
LLC RN-Service
LLC RN-Bureniye
LLC RN-GRP
LLC Intellectualnye Sistemy
LLC Bashneft-Petrotest
LLC RN-Transport

Timan-Pechora
LLC RN-Severnaya Neft
LLC Bashneft-Polyus

Far East
Sakhalin-1
JSC RN-Shelf-Far East
LLC RN-Sakhalinmorneftegaz

Western Siberia
LLC RN-Yuganskneftegaz
LLC RN-Purneftegaz
JSC Tomskneft VNK
LLC RN-Uvatneftegaz
JSC Samotlorneftegaz
JSC Rospan International
JSC RN-Nyaganneftegaz
JSC Nizhnevartovsk Oil
and Gas Producing Company
JSC Sibneftegaz
LLC Kynsko-Chaselskoye
Neftegaz
JSC Tyumenneftegaz
JSC Messoyakhaneftegaz
PJSC Varyeganneftegaz

PJSC NGK Slavneft
LLC Sorovskneft
JSC Yugraneft Corporation
LLC Severo-Varyeganskoye
JSC Kondaneft
LLC Kharampurneftegaz
LLC SevKomNeftegaz
LLC SKN

Eastern Siberia
JSC Verkhnechonskneftegaz
JSC Vankorneft
JSC Vostsibneftegaz
LLC RN-Vankor
LLC Taas-Yuryakh
Neftegazodobycha
JSC Suzun
LLC Tagulskoye
JSC Bratskekogaz

Central Russia
JSC Samaraneftegaz
OJSC Udmurtneft
JSC Orenburgneft
LLC Bashneft-Dobycha

Southern Russia
LLC RN-Krasnodarneftegaz
OJSC Grozneftegaz
LLC RN-Stavropolneftegaz
PJSC Rosneft-Dagneft
JSC Dagneftegaz
OJSC RN-Ingushneft

Vietnam
Rosneft Vietnam B.V.

Canada
RN Cardium Oil Inc

Egypt
Upstream Projeсts Pte. Ltd.

Iraqi Kurdistan
RN-Batil Pte. Ltd.
RN-Zawita Pte. Ltd.
RN-Harir-Bejil Pte. Ltd.
RN-Darato Pte. Ltd.

REFINING AND SALES

Refining

Sales

Russia
JSC Angarsk Petrochemical
Company
JSC Achinsk Refinery VNK
LLC RN-Komsomolsk Refinery
JSC Novokuibyshevsk Refinery
JSC Kuibyshev Refinery
JSC Syzran Refinery
LLC RN-Tuapse Refinery
PJSC Saratov Refinery
JSC Ryazan Oil Refining
Company
LLC Nizhnevartovsk Oil
Refining Association
PJSC Slavneft-YANOS
Integrated Ufa Refinery
(Bashneft-Ufaneftekhim,
Bashneft-Novoil
and Bashneft-UNPZ)
LLC Krasnoleninsky Refinery
LLC Purneftepererabotka

Oil plants
LLC Novokuibyshevsk Oils
and Additives Plant
PJSC Rosneft –
MP Nefteprodukt

Petrochemicals
and catalysts
JSC Angarsk Polymer Plant
JSC Angarsk Plant of Catalysts
and Organic Synthesis
JSC Novokuibyshevsk
Petrochemical Company
LLC Novokuibyshevsk
Catalyst Plant
PJSC Ufaorgsintez
LLC RN-Kat

Gas processing
JSC Otradnensky Gas
Processing Plant

JSC Neftegorsky Gas
Processing Plant
LLC Tuimazinskoye Gas
Processing Plant
LLC Shkapovskoe Gas
Processing Plant
LLC RN-Buzulukskoye Gas
Processing Plant

Germany
Rosneft Deutschland
GmbH
PCK Raffinerie GmbH

Belarus
OJSC Mozyr Refinery

Ukraine
PRJSC LINIK

LLC RN-Morskoi Terminal
Nakhodka
LLC RN-Vostoknefteprodukt
LLC RN-Arkhangelsknefteprodukt
PJSC Rosneft-Kubannefteprodukt
JSC Rosneft-Stavropolye
LLC RN-Morskoi Terminal Tuapse
LLC RN-Krasnoyarsknefteprodukt
LLC RN-Novosibirsknefteprodukt
LLC RN-Chechennefteprodukt
PJSC Rosneft-Altainefteprodukt
PJSC Rosneft-Kurgannefteprodukt
PJSC Rosneft-
Smolensknefteprodukt
PJSC Rosneft-Kabardino-Balkaria
Fuel Company
OJSC Rosneft-Artag
LLC Bashneft-Roznitsa
PJSC Rosneft-
Murmansknefteprodukt
JSC RN-Moscow
JSC Bryansknefteprodukt
JSC Voronezhnefteprodukt
JSC Lipetsknefteprodukt

JSC Ulyanovsknefteprodukt
JSC Samaranefteprodukt
JSC Buryatnefteprodukt
JSC Tambovnefteprodukt
JSC Khakasnefteprodukt VNK
JSC RN-Tver
PJSC Rosneft-Karachaevo-
Cherkessknefteprodukt
LLC RN-Ingushnefteprodukt
PJSC Rosneft-
Yamalnefteprodukt
LLC RN-Severo-Zapad
JSC Belgorodnefteprodukt
JSC Irkutsknefteprodukt
JSC Orelnefteprodukt
JSC Penzanefteprodukt
JSC Tomsknefteprodukt VNK
LLC RN-Volgograd
LLC RN-Aero
PJSC Tulanefteprodukt
JSC RN-Rostovnefteprodukt
LLC RN-Bunker
JSC Kaluganefteprodukt
JSC Ryazannefteprodukt

JSC Karelianefteprodukt
PJSC Saratovnefteprodukt
JSC RN-Yaroslavl
LLC RN-Chernozemye
JSC Uralsevergaz
LLC PTK

Belarus
FLLC RN-Zapad

Mongolia
LLC Rosneft-Mongolia
LLC Mergevan

Kyrgyzstan
CJSC RN-Kyrgyznefteprodukt

Armenia
LLC Petrol Market
CJSC Rosneft-Armenia

Georgia
Petrocas Energy Group

ROSNEFT ANNUAL REPORT 201901

Strategy
of the Company

STRATEGY
ROSNEFT-2022

CORE STRATEGIC
PRIORITIES

ACHIEVEMENTS
IN 2019

Our Rosneft–2022 Strategy efforts are linked to the pri-
orities of Russia’s development and aligned with the UN
Sustainable Development Goals. In 2019, the Company
made progress against all the core strategic priorities
– increasing profitability, completing key projects, and
transforming the culture and technological capability.
We are also working on various projects designed for
employee development, contributing to social welfare
of regional communities and minimising our environ-
mental footprint.

И.И. Сечин

INCREASE
PROFITABILITY

and improve existing asset
performance

COMPLETE
KEY PROJECTS

strong project
management

PERFORM STRUCTURAL
AND TECHNOLOGICAL
TRANSFORMATION

and ensure continued
enhancement of competitive
advantages

+29 %

net income

3,1 USD/boe

continued global leadership
in unit production costs

22,5 mmt

liquid hydrocarbons production
at key projects

21 mmt

liquid hydrocarbons production
from hard-to-recover reserves

technology deployment

>RUB 11 bln

innovations impact

Achieve targets

Hydrocarbon liquids production, mmt

2019

2017

target - 2022

250

230

225

Production of motor fuels complying with the Technical Regulations, mmt

24.5

23.6

2019

2017

Diesel fuel
Gasoline
Kerosene

target - 2022

3.3

42.4

14.7

3.3

64.3

41.6

Production from hard-to-recover reserves, mmt

2019

2017

20.9

target - 2022

33.0

16.3

SUSTAINABLE
DEVELOPMENT

STRATEGIC OBJECTIVE

Ensuring global leadership in accident-free operations, safe workplace conditions,
protecting health of local residents in the regions where the Company operates,
and minimising environmental footprint.

An integrated approach
to sustainable development

GAS INVESTMENT PROGRAM.

APG utilisation facilities built in 2019

ENVIRONMENTAL EFFICIENCY
IMPROVEMENT PROGRAMME

73 %

reduction of fugitive methane emissions
in Exploration and Production operations

ENERGY SAVING PROGRAMME

0.9 mmtoe

energy savings within the programme

MARINE BIODIVERSITY
CONSERVATION PROGRAMME

>RUB 100 mln.

total investments within the programme in 2019

Advanced technology
powering sustainability
initiatives

▪ developing an integrated tech-
nology for the treatment of oil
sludge containing natural-occurring
radionuclides

▪ developing a comprehensive, scala-
ble technology for the prolonged-ac-
tion disposal of drilling waste

▪ developing chemical methods of oil
spill response with a focus on dis-
persants for offshore areas

▪ creating a microbial agent for elimi-
nating hydrocarbon pollution in the
Arctic seas

▪ testing a telemonitoring solution

to detect gas leaks using laser gas
sensors

▪ testing an APG desulphurisation
plant using a microporous mem-
brane technology

STRATEGIC OBJECTIVE

Strengthening environmental and social responsibility positions

▪ Rosneft has joined the Guiding Principles on

Reducing Methane Emissions across the Natural
Gas Value Chain – an initiative of leading interna-
tional oil and gas companies

▪ Rosneft regularly updates its public statement on
the Company’s contribution towards achieving the
17 UN Sustainable Development Goals (the docu-
ment can be found on the Company’s website)

>3.1 mmt СО2-eq.

greenhouse gas emissions avoided
since the strategy launch

The Company’s achievements are confirmed
by international ratings

▪ CDP ratings in Climate and Water categories

RUB 55 bln

contribution
to occupational health
and safety

the best score among
Russian companies,
two notches higher
than the average score
of European peers in
the Climate Change
category

B-

a leader among global
oil and gas majors in
the international Water
Security category

1 mln trees

planted in 2019
as part of forest conservation
initiatives

▪ Corporate Human Rights Benchmark: the best Russian

company

▪ ESG score from Refinitiv Rosneft among Top 5 in the

industry

▪ An industry leader according to Bloomberg

DIGITAL TRANSFORMATION
AND TECHNOLOGY

goal
2019 results

EXPLORATION AND PRODUCTION

Digital Field, remote drilling
and production control centres, IIoT,
Big Data

Enhance in-house technology capabilities, cable-free seismic systems,
advanced MSHF techniques with numerous stages; establish a tech park to test
technologies

Unique solutions

Industry’s first
Digital Field covering all major oil
production and logistics processes

Automated data collection
systems

99%

of drilling
rigs

89%

of wells

86%

of
production

▪ A pilot computer vision

▪ 15 downhole splitters built

project to detect personnel in
hazardous areas, monitor use of
personal protective equipment
and transmit emergency alerts

▪ Six detailed 3D models of

production assets have been
created for the common oilfield
monitoring environment

▪ A machine learning

technology successfully
deployed to predict pump
failures in production

in a single multilateral well with
the biggest metreage drilled in-
side a pay zone in Russia (over
10.3 thousand metres); the
well’s complex fishbone design
provides an initial flow rate of
over 400 t per day

▪ An innovative seismic ac-

quisition system developed
in cooperation with BP helps to
operate in hard-to-reach areas
and delivers geological data of
high informative value

>600 t per day

an initial flow rate of the multilateral
two-string horizontal fishbone well,
first of its kind in Yuganskneftegaz

7.4 days

a new industry record
for the fastest two-string horizontal
well construction

10 thousand
hydraulic fracturing
operations
carried out using the RN-GRID
simulator

>200 licences

for the RH-GRID hydraulic
fracture simulator sold to service
and petroleum companies

4 new software
modules
▪ an integrity monitoring system for

oilfield pipelines (RN-SMT)

▪ a hydrodynamic simulation unit

(RN-KIM)

▪ a geological simulation unit

(RN-Geosim)

▪ an oil and gas production process

simulation unit (RN-Simtep)

>RUB 36 bln

impact of innovative solutions introduced
over the last three years

152technologies tested

in 2019

116technologies implemented

and rolled out in 2019

OIL REINING AND PETROCHEMICALS

Digital Plant

12 units
at refineries
advanced process control systems
implemented

3 refineries

automated stock-taking systems

Automation and robotisation

▪ Digital twins of production pro-

cess engineering models are be-
ing introduced

▪ Digital solutions for comprehen-
sive personnel monitoring and
application of computer vision
are being developed

▪ A pilot project to introduce a

system for optimised blending
of petroleum products imple-
mented

▪ Work on the introduction of a
RN-Predix-based cloud system
for data collection, storage and
processing in progress

Global asset performance
management system to extend
functional operation times between
repairs

▪ A pilot project to improve the ef-
ficiency of process equipment
performance management in
progress

▪ Meridium-based predictive anal-
ysis systems for comprehensive
monitoring of critical equipment
being implemented

COMMERCE, LOGISTICS AND RETAIL

Digital Filling Station and Digital
Supply Chain programmes

▪ A Digital Core for Commerce and

Logistics developed

▪ A Digital Fleet prototype devel-

oped on the basis of the Failure
Detection in Vessel Operations
and Smart Monitoring of Cargo
Operations digital scenarios

▪ 100% of BP filling stations allow
payment from inside the car

▪ Rosneft's retail chain was first in
Russia to launch a fuel payment
service via a mobile app for cor-
porate customers

Automation and robotisation

>2,900
filling stations,
81 oil depots
Measurement automation1

99 %

of material flows at filling stations
and 79 % of material flows at oil
depots covered with measuring
equipment1

▪ A prototype of an automated in-
formation system keeping track
of petroleum product suppliers’
inventories developed

▪ Russia’s first-ever additive package

for all-season hydraulic oils patented

▪ Tests completed for streamlining

dispersant and depressor additives
for diesel fuels with a view to creat-
ing in-house production

▪ Tests on a pilot batch of hydrotreat-
ing catalysts for diesel mixtures
conducted

▪ A hydrogenation technology for con-
verting acetone into isopropanol
tested at a pilot facility

▪ A technology to produce isopropylb-
enzene using heterogeneous cata-
lysts developed

▪ A line of guard catalysts and materi-
als for catalytic reactors developed

Improve accounting systems
to reduce losses

▪ A pilot automated informa-

tion system for oil depot facilities
implemented

100%
of gasoline
tanker trucks
equipped with fuel level sensors
connected to the in-vehicle monitoring
system

1 at year-end 2019

Progress against strategic objectives
and priorities

EXPLORATION
AND PRODUCTION

target
fact in 2019

100% LIQUID HYDROCARBONS RESERVE REPLACEMENT RATIO AND ORGANIC
GROWTH

Increase the success rate of onshore
exploration drilling in Russia

88 %

record-high success rate of onshore
exploration drilling in Russia

143

exploration wells completed
and tested in Russia

Optimise Russian onshore field
development (increase the share
of new horizontal wells)

19.6 mmt

production increase due to new well
start-ups

57 %

share of horizontal wells (up 9%)

Commission large-scale projects
on time and on budget

1 field

started commercial operation

Preparation for launching large
projects in Western and Eastern
Siberia is in progress

Fast-track the development of new
reserves based on viability

22.5 mmt

liquid hydrocarbons production
at new large projects

Reduce declines in basic production

5 x

slowdown of the Samotlor production
decline rate1

12 mmt

recovered basic production volume

+9.8 %

increase in the impact of basic
production recovery measures (per
well)

MORE EFFICIENT
SERVICE

IMPROVED PERFORMANCE

Engage in partnerships for capital intensive and high risk projects

Equinor:

BP:

▪ decision to start the first stage
of the Severo-Komsomolskoye
full-scale development
approved

▪ siliceous-carbonate reservoirs
in Domanic deposits tested

▪ continuation of the Yermak

Neftegaz project

▪ intensified production
at the Samotlor field

Optimise opex (by 2–3% per year
on a comparable basis)

2.2 %

reduction of opex on a comparable
basis

Optimise capex (by 10% for similar
well design, by 10% for linear objects)

13.8 %

reduction of production well
construction costs on a comparable
basis since the strategy launch

Decrease non-productive time to 5%

<5 %

maintaining a low proportion
of the non-productive time

Increase technical availability
and speed up fleet upgrade

new hi-tech hydraulic fracturing
fleets since the strategy launch

Ensure a high share of in-house
drilling services used by the Company

56 %

share of in-house services
in the Company’s total drilling
metreage

1 Vs. production decline rates in 2008–2017

GAS

COMMISSIONING PROJECTS ON TIME
AND ON BUDGET

IN THE FUTURE

Produce over 100 bcm

76 mmcm per day

the strategic Zohr field offshore Egupt reached
the planned daily production rate ahead of schedule

Implement major gas production projects, including Rospan and Kharampur

Rospan
construction of key facilities
in the final phase

Kharampur
construction and installation
of major production facilities
in progress

Monetise gas reserves of Eastern
Siberia and the Far East, including
through petrochemicals development

Rosneft and Beijing Enterprises
Group are jointly exploring
the Verkhnechonskoye
oil and gas condensate
field in the Irkutsk Region
and studying the opportunities
for gas monetisation

INCREASING TECHNOLOGICAL EDGE

Develop Turonian deposits

15 bcm per year

production potential of the Kharampurskoye field's Turonian deposit,
pilot operation started

Increase APG utilisation, e.g. through the development of captive power
generation and petrochemicals

new APG utilisation facilities. The APG
utilisation rate reached 89.3%1

97%

APG utilisation rate
at the Verkhnechonskoye field

Develop liquid petroleum gas
(LPG) and natural gas liquids (NGL)
production

Construction of the Maysky gas
processing complex in Western
Siberia – positive opinions
of the state environmental expert
evaluation authority and the Main
Department of State Expert
Evaluation obtained

1 Not including fields in early development stages

OIL REFINING AND PETROCHEMICALS

SUBSTANTIAL PROFITABILITY GROWTH

Complete ongoing refinery development projects in Russia to substantially
increase profitability

• Refinery development projects in Russia continued

• The Novokuibyshevsk Refinery piloted a kerosene preparation unit

as part of the off-site facilities for hydrocracking plant.

Increase efficiency and optimise opex
(by 2–3% per year on a comparable
basis)

~3 %

decrease in opex

RUB 20 bln

cumulative net effect
of the operational efficiency
improvement programme

COMMERCE AND LOGISTICS

Improve the cost efficiency of sales
and increase access to end consumers
(domestic/export sales)

Expand and diversify distribution
channels (jet fuel, marine fuels,
and lubricants)

Adjust the product mix to market
trends by marketing new products
(bitumen, marine fuels)

5 %

growth in ‘wing-tip’ sales of jet fuel
for civil aviation

4 x

growth of jet fuel sales at foreign
airports

40 %

increase in lubricant shipments
to end users (direct contracts)

Refuelling of Russian airlines’ aircraft
started in Spain, the UAE and China

Sales of low-sulphur residual
marine fuel complying
with IMO 2020 standard started

+64 %

increase in the output
of improved road bitumen1

RETAIL

Improve performance
and optimise costs

3 %

decrease in unit opex

Promote strong brands and service excellence
at filling stations

6 %

growth in sales of petroleum
products through the retail channel

102 filling stations

migrated to the Rosneft brand

Develop customer proposition at filling stations (loyalty
programme and branded fuel)

Expand non-fuel business (introduce new categories
of goods and open new convenience stores)

13.6
mln people
engaged through
loyalty programme

▪

+113
filling stations
selling the Pulsar 95
branded gasoline

8% growth
in the number
of filling stations
with convenience
stores

▪

Sales of private
labels expanding

1 As per the new GOST 33133-201 standard.

Long-Term Development Programme
and Progress Report

Originally developed in 20141, the
Long-Term Development Programme
(the Programme) is subject to annual
update.2

In 2019, we revised the Programme,
taking into account the Company’s per-
formance results, granular action plans
to achieve certain long-term goals and
updated initiatives drafted pursuant to
the Russian Government directives3.
The updated Programme was approved
by the Company’s Board of Directors
(Minutes No. 11 dated 23 December
2019).

The Programme details the Company’s
strategic focus areas, targets and goals
for all business areas and corporate
functions. It also includes a list of key in-
itiatives to implement the strategy in the
medium term.

The main priorities, key performance in-
dicators (KPIs) and actions plans under
the current Innovation Development
Programme (Research, Design, and
Innovations section), the Import
Substitution and Equipment Localisation
Programme (Localisation and
Development of Industrial Clusters
section), the Energy Saving Programme

(Energy Efficiency and Energy
Saving section) take into account the
Programme provisions and are inte-
grated into the current version of the
document.

Performance indicators include an in-
tegrated KPI for innovations. Rosneft’s
Investment Programme aims to help
the Company achieve its strategic ob-
jectives in key business areas stipulated
in the Strategy and the Programme
(Investment Programme in 2019
section).

We completed the Programme's key in-
itiatives planned for core businesses
and functional units for 2019. For the
Programme outcomes in 2019, see the
Performance Results section.

Ernst & Young, an independent audi-
tor, reviewed the Programme results.
Based on the review, the independent
auditor issued an opinion on whether
the Progress Report fairly presents
the past year's performance under the
Programme, and whether the reasons
given therein to substantiate deviations
of actual results from the 2019 targets
are fair. The opinion was received on
21 April 2020.

The Programme envisages a reserve
replacement ratio of at least 100%,
efficient brownfield operation
and production ramp-up driven
by new projects in Eastern
Russia, development of hard-to-
recover reserves, cost-effective
offshore development, gas output
growth secured by a long-term
high-performing sales portfolio,
and stronger margins across
the entire value chain.

In implementing the Programme,
we focus on cost effectiveness
and KPI targets for all key
initiatives.

1 In accordance with Instruction of the President of the Russian Federation Vladimir

Putin No. Pr-3086 dated 27 December 2013; approved by Rosneft's Board of Directors
on 9 December 2014 (Minutes No. 12).

2 In accordance with the Russian Government Directive No. 4955-P13 dated 17 July 2014

and the Long-Term Development Programme.

3 No. 4955p-P13 dated 17 July 2014, No. 7558p-P13 dated 12 November 2014, No. 1346p-P13
dated 5 March 2015, No. 2303p-P13 dated 16 April 2015, No. 7389p-P13 dated 31 October
2014, No. 1472p-P13 dated 3 April 2016, No. 4531p-P13 dated 28 June 2016, No. 4750p-P13
dated 4 July 2016, No. 830p-P13 dated 6 February 2017, No. 276p-P13 dated 17 January 2019.

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsKPI Structure

The Company introduced KPIs to translate its strategy and the Long-Term Development Programme into specific day-to-day man-
agement performance indicators, evaluate progress against targets, and create a basis for efficient management decision-making.
A strong motivation tool for employees, KPIs ensure a step-by-step achievement of the Company’s strategic goals.

LONG-TERM DEVELOPMENT
PROGRAMME

STRATEGY

CONSOLIDATED
BUSINESS PLAN

▪ Corporate KPIs
▪ Individual KPIs of the Chief

Executive Officer

BUSINESS PLANS
OF BUSINESSES

BUSINESS PLANS
OF GROUP SUBSIDIARIES

▪ Collective KPIs of businesses
▪ Individual KPIs of the Company's

top managers responsible
for the performance of businesses

▪ Collective KPIs of the Group

Subsidiaries

▪ Individual KPIs of Group

Subsidiaries’ senior management

KPI PROGRESS

The Company’s KPI system seeks to de-
compose the Company’s strategy and
Long-Term Development Programme
into specific KPIs, cascade them to all
management levels, evaluate progress
against targets, and create incentives
for efficient management deci-
sion-making. The KPI system ensures:
▪ focus on implementing the strat-
egy and meeting the targets set
in the Long-Term Development
Programme;

▪ focus on consistently improving the
Company’s financial and operating
(industry-specific) results;

▪ compliance with directives and in-

structions of federal executive bod-
ies, including annual cost-cutting
targets;

▪ well-balanced integrated indicators
motivating employees to achieve
the Company’s main goals;

▪ transparency, measurability, min-
imum sufficiency, and consistency
of KPIs;

▪ a top-down approach to cascading

and breaking down KPIs.

There are both financial and indus-
try-specific KPIs in place.

The KPIs comprise:
▪ corporate KPIs based on the key
financial, economic, and indus-
try-specific indicators from the
Company’s consolidated busi-
ness plan and business plans of its
businesses;

▪ individual KPIs based on individ-
ual strategic goals for each top
executive.

approved in December 2018, and
adopted by the Board of Directors on
22 February 2019 (Minutes No. 16).

KPIs and targets for the senior man-
agement are set by Rosneft’s Board of
Directors subject to preliminary discus-
sion by the relevant committee on an
annual basis.

The 2019 KPIs for Rosneft’s top man-
agers are based on the business plan

Corporate KPIs and the individual KPIs
of the CEO for the year include:
▪ return on average capital employed

(ROACE);

▪ hydrocarbon production rate;
▪ accident rate;
▪ workforce productivity;

▪ TSR equal to or above the Russian

industry's average;

▪ cost reduction vs the previous re-
porting period on a comparable
basis;

▪ financial leverage (net debt /

EBITDA);

▪ integrated KPI for innovations;
▪ compliance ratio as regards instruc-
tions from the Board of Directors
and the Management Board.

KPI Progress

To calculate annual bonuses for manag-
ers and employees, the Company anal-
yses progress against KPIs following the
review of the annual performance based
on the management accounts and au-
dited public financial statements.

The Company’s Internal Audit Service
annually assesses the performance

against corporate and individual KPI set
for the reporting period to calculate an-
nual bonuses for the management of
the Company and Group Subsidiaries.
The audit results for top managers
are subject to review by the HR and
Remuneration Committee of the Board
of Directors. The Board of Directors
makes resolutions regarding annual bo-
nus payments and their size depending
on the management's progress against
their KPIs.

Target KPIs are normalised to reflect
the factors beyond the management’s
control, such as FX volatility and global
market prices in accordance with the
Regulations on the KPI Normalisation
Procedure Related to Management
Performance Review and Assessment in
the Reporting Period to Calculate Annual
Bonuses1 and the Guidelines for KPI
Normalisation Related to Performance
Review against Business Plan2.

Actual KPI progress

KPI

Return on average capital employed (ROACE)

Financial leverage (net debt / EBITDA)3

Injury rate, %

Integrated KPI for innovations4,%

2019 (actual)

Progress in 2019

Progress in 2018

15.7

1.4

98.8

100

Above target

On target

Above target

On target

1 Approved by the Board of Directors (Minutes No. 27 dated 6 April 2015).
2 Approved by Order No. 730 dated 12 December 2019.
3 In RUB.
4 Based on the management accounts.

Rosneft’s 2019+ investment programme was approved as part of the 2019–
2020 Business Plan at the Board of Directors meeting held on 20 December
2018 (Minutes No. 12 dated 20 December 2018).

The investment programme comprises
high-quality projects across all business
segments. These projects seek to help
the Company deliver on its strategic
goals, including an increase in profita-
bility, hydrocarbon production growth,
reserves addition, launching projects on
time and on budget, enhancing oper-
ational and investment efficiency, and
minimising the environmental footprint.

We rank, optimise and balance our port-
folio against the criteria established for
all business lines to incorporate high-po-
tential cost-effective projects with mini-
mum risk exposure.

ca RUB 0.9 trln

annual capex

We also have portfolio management
tools at our disposal to promptly re-
spond to macroeconomic changes.
Rosneft maintains its organic capex at
ca. RUB 0.9 trln per year.

A slight year-on-year decrease is mainly
due to drilling optimisation driven by a

strategic increase in the share of bet-
ter-performing horizontal wells at ma-
ture fields, and the balancing of the
capex profile for new projects to take
into account the extended OPEC+ pro-
duction quotas.

Rosneft’s Portfolio Ranking and
Rating Criteria:
▪ Economic efficiency
▪ Materiality
▪ Readiness for implementation
▪ Compliance with the strategy

CAPEX Financing, 2017–2019

922
37

936
19

798

840

854
14
67

773

Despite our extensive investment
programme, we retain leadership in
terms of exploration and produc-
tion unit capex, which amounted to
USD 6.1 per boe in 2019. At the same
time, we deliver on our targets of hydro-
carbon production growth and continue
to optimise our investment portfolio.

In 2019, Exploration and Production ac-
counted for ca. 91% of our investments,
including 6% going to gas projects, and
8% to Refining, Commerce and Logistics.

2017

2018

2019

Upstream, Gas, In-House Services
Downstream
Others

USD 6.1 per boe

Exploration and Production
unit capex

Over 92% of our investments are con-
centrated in Russia, with ca. 20% attrib-
utable to projects in Eastern Siberia and
the Far East.

Unit CAPEX, USD/boe

6.1

6.7

8.2

8.6

13.1

13.3

13.5

11.8

21.2

16.0

Compared to oil majors listed on Western stock exchanges.

Upstream, Gas, In-House Services
Downstream
Others

2019 Investment Programme Split

854

RUB bln

Upstream
Mature upstream projects
Major and new upstream projects
International projects

Downstream
(Reﬁning and Commerce)
Other

91 %
52 %
32 %
7 %

8 %

2 %

Exploration and Production

In 2019, Exploration and Production
capex totalled RUB 773 bln. These in-
vestments are aimed at maintaining and
developing mature and new oil and gas
assets to meet the strategic goals of
ramping up production to 250 mmt of
liquid hydrocarbons and over 100 bcm
of gas by 2022 and achieving a reserve
replacement ratio of at least 100%.

In 2019, capital investments in mature
onshore and offshore fields generating
a stable positive cash flow amounted
to ca. RUB 440 bln, or over 50% of the
Company’s capex.

Thanks to the commissioning and full-
scale development of major and new
offshore and onshore projects, we are
well-positioned to increase and replace
oil production at mature fields with high-
value added competitive barrels. We use
the industry's best management prac-
tices to implement our projects.

In 2019, our capex on major and
new onshore and offshore projects
amounted to ca. RUB 270 bln, or around
32% of total investments.

In the reporting year, the share of in-
ternational projects in our total hydro-
carbon output approached 14%, with
further growth possible depending on
exploration results.

International projects, especially those
on priority markets, account for about
7% of all our investments. They primar-
ily focus on establishing partnerships to
share risks, co-finance expenditures and
maximise the efficiency through technol-
ogy exchange.

Launch of major and new E&P projects

>22

>23

>6.5

Vankorskoye

East
Messoyakhsky

Zohr (Egypt)

Russkoye

Rospan

Sakhalin 1
(Arkutun-Dagi)

Chupalsky
Lisence Area

Yurubcheno-
Tokhomskoye

Taas-Yuryakh
Neftedobycha
(Phase 2)

>2.5

>4.5

Sakhalin 1 (Odoptu)

Suzunskoye

Kondinskoye

Tagulskoye

Kharampur

Erginsky

North Chaivo

~1
Labaganskoye

~1
Naulskoye

2009–2015

2016–2019

Kuyumbinskoye

North
Komsomolskoye

Lodochnoye

East Salymsky
License Area

North
Danilovskoye

2020–2022

ca. 32%

percentage of investments in new
and major oil and gas projects
in Russia in 2019

>35 mmtoe

production at greenfields and large
fields in 2019

Area of circle corresponds to plateau production, the figures inside circle are shown — for oil projects in million tonnes per annum; for gas projects in million
tonnes of oil equivalent per annum.
100% of production.

DELEGATING: INVESTMENT BODIES AND LIMITS OF AUTHORITY

In 2019, Refining, Сommerce and
Logistics capex totalled RUB 67 bln.

Investments in Refining, Сommerce
and Logistics focus on highly cost-effi-
cient projects to construct and upgrade
process units and facilities at refineries,

expansion of oil depots, marine termi-
nals and aircraft refuelling facilities (used
by the civil aviation and the Ministry of
Defence), continued efforts in import
substitution of catalysts and additives,
and the programme to maintain existing
capacities.

Current priority areas are the construc-
tion of hydrocracking and cat cracking
facilities along with efficiency improve-
ment. We expect these projects to give a
boost to our refining margins, light prod-
uct yield and the output of high-quality
petroleum products.

Investment Process

Our investment process hinges on the
following key principles and objectives:
▪ focus on the UN Sustainable

Development Goals (SDGs) in line
with our strategy to help achieve
meaningful progress in addressing
global economic, social and environ-
mental challenges;

▪ honouring the Company’s strong

social responsibility commitments
as regards health, safety and envi-
ronment, quality of life for employ-
ees and their families, support of
education, and contribution to the

social and economic development
of local communities;

optimising the project portfolio, and
mitigating investment risks;

▪ consistent improvement of

Rosneft’s performance across all
business lines through an in-depth
analysis of investment needs, bol-
stering the knowledge and exper-
tise of investment managers, and
business project monitoring;
▪ robust business growth by in-

vesting in competitive and high
value-added projects, increasing
investment returns, consistently

▪ strengthening investment discipline
through comprehensive project
screening and improving relevant
identification and classification
processes.

Rosneft's investment management
process is integrated with all related
processes, including strategic and
business planning, budgeting, re-
porting and financial control, project

Key Principles of Investment Management

Availability of all
required invest-
ment decisions

Performance above
the minimum
threshold for each
project

Two-key principle

Standardisation

Authority delegation

Comprehensive
due diligence

Project responsibility

Monitoring

Compatibility
with project stages

Alignment
with related
processes

Limits of authority

>USD 1,500 mln

USD 500–1,500 mln

USD 200–500 mln

USD 0–200 mln

Investment Bodies

Board of Directors

Management Board

Investment Committee

Segment Subcommittees

Exploration
and production

Refining, commerce
and logistics

Functional

management and corporate govern-
ance. It covers the following areas:
▪ discipline and responsibility: busi-

and supervisors for compliance with
timelines, budget, efficiency and
performance criteria;

ness projects are approved through
decision-making delegation within
the permitted limits as per the in-
vestment mandate following a regu-
lated comprehensive due diligence;

▪ investment decision-making:

sound investment decisions, shorter
periods of approval and review of
investment memoranda, responsi-
bility of investment project owners

▪ monitoring and control: regu-

lar and robust project monitoring
at all levels, change management
process; automated control of
investment decision availabil-
ity when assuming financial obli-
gations (the two-key principle) at
all stages of project planning and
implementation;

▪ portfolio analysis: building a bal-

anced portfolio of projects and flex-
ible management; comprehensive
project ranking and optimisation
based on established criteria, the
strategy and current priorities; use
of scenario analysis tools;

▪ IT development and automation:
automating the investment pro-
ject management and processes to
keep track of target, actual and pro-
jected metrics by project.

Portfolio Management

Strategic objectives and priorities

Ongoing projects

Investment initiatives

Individual project results

Overall portfolio results

Improvement
recommendations

election of p r o j e

Optimisatio

Macroeconomics
and external environment

Resource and financing
constraints

Threshold cost-efficiency
and profitability

PROJECT
PORTFOLIO

a
n

rin

e assessment

In v e s t m e

i m p le

g
n
ki
a

n t d ecision-m
m entatio

Investment distribution

Project approval,
cancellation, completion

Value creation (NPV)

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019

Operating
Results

Key Operating and Financial Results

Key Operating Results

Metric

Proved SEC reserves of liquid hydrocarbons, mmt

Proved PRMS reserves of liquid hydrocarbons, mmt

Proved SEC reserves of marketable gas, bcm

Proved PRMS reserves of marketable gas, bcm

PRMS hydrocarbon reserves-to-production ratio, years

Production of liquid hydrocarbons, mmt

Natural gas production, bcm

Oil exports, mmt

Oil refining, mmt

Petroleum product and petrochemicals output, mmt

Petroleum product and petrochemicals export, mmt

Domestic retail sales of petroleum products, mmt

Key Financial Results

Metric

Revenues and equity share in profits of associates and joint ventures, RUB bln

EBITDA, RUB bln

EBITDA margin

Taxes and customs duties, RUB trln

Net income, RUB bln

Net income margin

ROACE

ROAE

Capex, RUB bln

Unit capex in exploration and production, USD/boe

Unit opex in production, USD/boe

Free cash flow, RUB bln

Dividend per share, RUB

Total accrued dividends, RUB bln

2019

3,935

4,383

2,119

2,452

2018

3,899

4,377

2,065

2,420

230.2

67.0

149.4

110.2

107.5

71.1

14.5

67.3

123.7

115.0

111.7

73.7

13.7

∆

21%

-4%

-5%

2017

3,792

4,404

1,949

2,309

225.5

68.4

121.8

112.8

109.1

71.9

11.5

2019

8,676

2,105

2018

8,238

2,081

∆

2017

6,011

1,400

24.0%

24.8% –0.8 p.p.

22.6%

3.7

805

4.0

649

–8%

24%

2.6

297

9.3%

7.9% 1.4 p.p.

4.9%

15.7%

17.4% –1.7 p.p.

11.5%

14.3%

12.3%

2 p.p.

5.6%

854

6.1

3.1

884

33.411

354.11

936

6.8

3.1

1,133

25.91

274.6

–9%

–10%

–22%

29%

922

7.1

3.2

245

10.48

111.1

1 Including dividends for the first six months of 2019 and dividends recommended by the Board of Directors

to be approved at the General Shareholders Meeting in May 2020.

Proved Reserves of Liquid
hydrocarbons, mmb

Proved Reserves of Natural Gas, bcm

32.456

32.304

28.034

28.853

29.114

32.354

2.309

2.420

2.452

2.065

2.119

1.949

Hydrocarbon Reserve Replacement
Ratio, SEC, %

204 %

173 %

129 %

2017

2018

2019

Proved SEC reserves
Proved PRMS reserves

2017

2018

2019

2017

2018

2019

Proved SEC reserves
Proved PRMS reserves

Production of Liquid hydrocarbons,
mmt

Natural gas production,
bcm

Unit OPEX in hydrocarbon
production, RUB/boe

230.2

68.4

225.5

67.3

67.0

194

199

185

2017

2018

2019

2017

2018

2019

2017

2018

2019

In 2019, the Company produced
4.67 mmb per day (230.2 mmtpa) of
liquid hydrocarbons, flat year-on-year.
This was achieved despite external
restrictions such as compliance with the
extended OPEC+ agreement along with
the temporarily limited oil acceptance by
Transneft’s trunk pipelines.

In 2019, gas production amounted to
67.0 bcm, unchanged year-on-year (with
minor deviations).

Unit production opex for 12M 2019 was
RUB 199 per boe (USD 3.1 per boe),
up 2.6% year-on-year and below the
producer price inflation rate of 2.9%. The
increase is mainly due to higher costs of
electricity, related transportation costs
and payroll.

OPEX of Russian Refineries per Tonne
of Refined Oil, RUB per tonne

EBITDA and Net Profit, RUB bln

Revenue, RUB bln

162

4.097

186

3.997

3.979

4.493

134

3.122

2.755

1.493

2.081

2.105

1.364

1.261

1.400

297

649

805

2017

2018

2019

2017

2018

2019

2017

2018

2019

EBITDA
Net proﬁt

Oil and gas
Petroleum products
and petrochemicals
Other and aﬃliates

Opex at our Russian refineries and opex
per tonne of refined oil for 12M 2019
increased by 6.3% (unit opex up 9.5%)
year-on-year due to the growing tariffs
of natural monopolies and salary
indexation.

EBITDA for 12M 2019 grew by 1.2% year-
on-year due to an increase in oil sales,
mostly in eastern direction (+34.6%), and
effective cost control.

A 5.3% revenue increase in 12M 2019
was mainly caused by expanding oil sales
(+20.1%) against the backdrop of lower oil
prices globally (-6.2%).

A 24.0% year-on-year rise in net
income in rouble terms was driven by
positive changes in operating profit
and a decrease in financial and other
expenses.

ROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsRosneft’s Exploration and Reserve
Replacement

In 2019, Rosneft confirmed its leading
positions in resource base and exploration
efficiency. The Company continued to
increase hydrocarbon production, while also
ensuring full replacement of reserves.

13.1 bln tonnes
total oil and gas condensate
reserves in Russia

24.2 bln tonnes
offshore oil and gas
condensate resources

1.2tcm
onshore gas
resources

21.0 tcm
total gas reserves
in Russia

7.7 tcm
offshore gas
resources

3.4 bln tonnes
onshore oil and gas
condensate resources

Shelf of Russia

0.4
0.7

Western Arctic shelf

Kara Sea

Timan-Pechora

0.4
0.0

License areas
in Taimyr

144 bboe
(19.5 btoe)
AB1C1+В2C2 hydrocarbon
reserves in 2019

531 mmtoe

replacement of AB1C1
hydrocarbon reserves, including
acquisitions

185 %

hydrocarbon reserve replacement
ratio according to the Russian
resource classification system

23 fields and
258 new deposits

with total reserves of 352 mmtoe
discovered through successful
exploration activities

1,126 licences

in Russia
(including 55 offshore licences).

Eastern Arctic shelf

Moscow

Priazovneft

Southern Russia

0.1
0.2

Volga-Urals

1.8
0.3

Bashneft-Polyus

Severnaya Neft

License areas around
the Vankor field

Messoyakha

Suzunskoye
Vankor

Tagulskoye

Rospan

Russkoye

Sibneftegaz

Udmurtneft

Kynsko-Chaselskaya group

Krasnodarneftegaz

Samaraneftegaz

Bashneft - Production

Stavropolneftegaz

Dagneftegaz

Grozneftegaz

Caspian OC

Dagneft

Orenburgneft,
Buguruslanneft

Nyaganneftegaz

Sorovskneft

Kharampur

Purneftegaz

Yuganskneftegaz

Megionneftegaz

Uvat

Samotlor

Varyoganneftegaz

Obneftegazgeologia

Tomskneft

Oil assets, crude oil, gas condensate,
and liquid hydrocarbons production
Gas assets, gas production
Exploration assets
Oﬀshore
Oil and gas provinces
AB1C1+B2C2 oil and gas condensate
reserves by region, bln tonnes
AB1C1+B2C2 gas reserves by region, tcm

1,8

0,3

Western Siberia

8.1
4.6

Eastern Siberia and Far East

2.3
2.0

License areas
in the Irkutsk Region

License areas in Yakutia

Srednebotuobinskoye

Verkhnechonskoye

License areas
in the Krasnoyarsk Region

Kuyumba

Yurubcheno-Tokhomskoye

Far Eastern shelf

Sakhalinmorneftegaz

Sakhalin-1

Sakhalin shelf

Bratskekogaz

RN-Shelf Dalny Vostok

Under the SEC (U.S. Securities and
Exchange Commission) classification,
Rosneft’s proved hydrocarbon
reserves totalled 42,018 mmboe
(5,678 mmtoe) as at 31 December
2019. Hydrocarbon reserves grew by
587 mmboe (81 mmtoe), or 1%, year-
on-year. The audit to assess life-of-field
reserves was performed by DeGolyer &
MacNaughton.

In 2019, Rosneft’s SEC-proved reserve
life amounted to more than 20 years.
The SEC-proved reserve replacement
ratio stood at 129%.

As at 31 December 2019, the Company’s
reserves under the PRMS (Petroleum
Resources Management System)
standards, according to DeGolyer &
MacNaughton, totalled 47,289 mmboe
(6,400 mmtoe) of 1P reserves,
84,926 mmboe (11,504 mmtoe) of 2P
reserves, and 125,296 mmboe (16,976
mmtoe) of 3P reserves. In 2019, total
3P reserves grew by more than 4 bboe
(550 mmtoe).

Breakdown of Proved Hydrocarbon
Reserves (Oil, Gas Condensate,
Liquid hydrocarbons) under PRMS
Standards, mmt

Breakdown of Proved Reserves
of Marketable Gas under PRMS
Standards, bcm

4.383

mmt

2.452

bcm

Western Siberia

Volga-Urals

Eastern Siberia

Timan-Pechora

Foreign countries

Southern Russia

Oﬀshore

Far East

3.139

723

386

Western Siberia

Eastern Siberia

Volga-Urals

Southern Russia

Oﬀshore

Foreign countries

Timan-Pechora

Far East

2.137

150

Onshore exploration in Russia

Key activities and achievements

Exploration took place across all of Russia’s subsoil use regions,
including the Far East, Eastern and Western Siberia, Central Russia,
Timan-Pechora, and Southern Russia.

Key onshore achievements in Russia:

653 mmtoe

increase in АВ1С1 reserves
through exploration

143

exploration wells
completed
and tested

new
fields

148%

oil and gas condensate reserve
replacement ratio through
exploration

88%

record high success rate
of exploration drilling

and 257

new deposits discovered
with a total of 346 mmtoe
of АВ1С1+В2С2 reserves

The Company’s top priorities are
unlocking the resource potential and
sustainable use of mineral resources,
exercising strict compliance with
environmental safety standards, and
an extensive application of advanced
technologies.

The Rosneft–2022 Strategy, approved
by the Company’s Board of Directors,
sets out the key exploration targets: to
ensure 100% reserve replacement of
liquid hydrocarbons and to increase the
exploration drilling success rate to 95%

by 2022 through the use of advanced
technologies and innovative solutions.

The Company has developed and is
implementing a set of R&D projects
and is working to create its own
geophysical service. Finite difference
wave field simulations are used to
identify optimum parameters for seismic
surveys during the design stage. The
Company completed projects to model
surveillance systems in Eastern and
Western Siberia. Similar projects will be
implemented in the North Caucasus

and the Republic of Bashkortostan.
The Company continued its phased
deployment of advanced seismic
data processing and interpretation
technologies, detailed velocity-depth
modelling, and integration of seismic
and non-seismic methods to improve
the exploration drilling success rate.
In an effort to minimise errors during
structural modelling, Rosneft deployed
advanced near-surface anomaly
detection practices.

UNIQUE WIRELESS SEISMIC TECHNOLOGY

Rosneft and BP completed the devel-
opment of an innovative seismic acqui-
sition system, unrivalled in the world.
The system was piloted during seis-
mic surveys in Russia and large-scale
tests in the UAE. The tests confirmed
that the system ensures high level
of geologic accuracy and productivity,

and are capable of working in hard-to-
reach areas.

linear km and 3D seismic surveys
of 9 thousand sq km were completed.

In 2019, 143 exploration wells were com-
pleted and tested with a success rate
of 88%, a record high over the past years.
2D seismic surveys of 2.6 thousand

Successful exploration resulted
in the discovery of 22 fields
and 257 new deposits with a total
of 346 mmtoe in reserves.

Western Siberia

Rosneft’s reserve increases in Western
Siberia amounted to 243.9 mmt of
oil and gas condensate and 86.9 bcm
of gas. 58 exploration wells were
completed and tested with a success
rate of 92%. 3D seismic surveys totalled
over 4.2 thousand sq km. Four fields
and 73 new deposits were discovered
with a total of 54 mmtoe in АВ1С1+В2С2
reserves.

RN-Uvatneftegaz is consistently
implementing the strategy to develop
the Uvat project, including by ensuring
the annual growth rate target for
recoverable reserves. In the reporting
period, significantly more oil reserves
were discovered than extracted. In
2019, the increase in RN-Uvatneftegaz’s
АВ1С1 reserves (24.7 mmt) exceeded
production (10.3 mmt) by 240%.

In 2019, two new fields were booked in
the Russian State Register of Mineral
Reserves: Sosnovoye (Yugansky 12
licence area) and Matusevich
(Yugansky 11 licence area) with a total of
6.9 mmtoe in recoverable AB1C1+B2C2
reserves.

Drilling of an exploration well at the
Kirilkinskoye field (Tamarginsko-Severo-
Bolotny licence area) confirmed the
prospects of a new oil and gas pay in the
pre-Jurassic deposits of the Uvat project.

In 2019, RN-Nyaganneftegaz recorded
reserve replacement of 194% in the
licence areas of the Krasnoleninsk Code
of Fields.

In actively developing its gas business,
Rosneft carried out 3D seismic surveys
of 729 sq km at its Western Siberian gas

assets in 2019, as well as completed and
tested three wells. In 2019, Rosneft’s
gas reserves in Western Siberia grew by
86.9 bcm.

The Company continued study of the
unconventional gas-saturated reservoir
of the Berezovskaya suite in Western
Siberia. In 2019, Rosneft developed a
unique technology to tap into hard-
to-recover dry gas reserves in the
low-permeability opoka-like siliceous
reservoirs of the Berezovskaya suite.
Rosneft initiated the creation of a
working group under the auspices
of the State Commission for Mineral
Reserves (GKZ) of the Federal Subsoil
Resources Management Agency
(Rosnedra) and in partnership with major
Russian companies to prepare a Single
Interim Methodology for assessing the
volumetric estimations and gas recovery
rate for the deposits of the Berezovskaya
suite. Following well testing in the
Berezovskaya suite interval in 2019, the
increase in recoverable B1C1+B2C2 gas
reserves amounted to 30.5 bcm.

As part of the Gydan Peninsula study in
2019, the interpretation of 3D seismic
surveys of the Minkhovsky licence
area confirmed the field potential and
verified the location of prospecting and
exploration wells. Drilling preparations
are currently underway. A new gas
cluster will be created based on the
Minkhovskoye field.

Increase in reserves – 243.9 mmt of oil
and gas condensate and 86.9 bcm
of gas

58 exploration wells with a 92%
success rate

4 new fields and 73 new deposits
with a total of 54 mmtoe
in АВ1С1+В2С2 reserves

4.2 thousand sq km of 3D seismic
completed

Eastern Siberia and Far East

In 2019, total reserves growth in
Eastern Siberia and the Far East was
101.2 mmt of oil and gas condensate
and 185.4 bcm of gas.

18 exploration wells were completed
and tested with a success rate of 94%.
2D seismic surveys of 1.8 thousand
linear km and 3D seismic surveys of
1.2 thousand sq km were completed.
One new field and seven new deposits
were discovered with a total of 9 mmtoe
in АВ1С1+В2С2 reserves.

At Verkhnechonskneftegaz, testing of
eight exploration wells in licence areas
in the Katangsky district of the Irkutsk
Region confirmed the industrial oil and
gas bearing potential with an exploration
drilling success rate of 100%.

A well in the Preobrazhensky licence
area, drilled near the Severo-
Danilovskoye and Lisovsky fields,
demonstrated a record flow rate
of 582 cub m per day of waterless
oil. The location of exploration wells
was selected based on advanced
technologies to process 2D and 3D
seismic data. All wells were drilled
using a fundamentally new geological
approach. Based on the testing results
of exploration wells, the Company
will soon submit a report to the State
Commission for Mineral Reserves to
record the new field reserves in the
State Register of Mineral Reserves.

Rosneft expanded the AB1C1 reserves
of the Verkhnechonskoye oil and
gas condensate field (within the
Verkhnechonsky licence area) by a total
of 51.8 mmt of oil and gas condensate
and 66.4 bcm of gas. This was possible
due to effective exploration, advanced

Currently, the well is being sidetracked
subhorizontally to obtain more accurate
information on the extraction potential
of the area for subsequent drilling
through a grid of horizontal production
wells.

data processing system, and application
of innovative technologies.

In 2019, we determined the location
of the first exploration wells in the
Khatanga cluster on the Taimyr
Peninsula based on the results of large-
scale seismic surveys conducted in 2018.

In the reporting year, the Company
obtained a licence for the Zapadno-
Irkinski licence area, along with the
major fields of the Vankor cluster.

In 2019, Rosneft continued drilling
multilateral exploration wells in the
Krasnoyarsk Territory to confirm
productivity of structurally complicated
carbonate and fissured reservoirs and
increase the deposit area. Using more
sophisticated wells in complex geological
conditions made it possible to achieve
the target reserves growth, update
the geological model, and eliminate
geological risks for production drilling.
The Company decided to roll out the
technology for structurally complicated
carbonate reservoirs in Eastern Siberia.

In the Tersko-Kamovsky licence area
(north-eastern section), the vertical
shaft of the appraisal well was drilled,
completed and tested in 2019. Testing
in the Riphean dolomite stratum
resulted in the oil rim discovery of
the Madrinskaya deposit, Block 1. The
obtained flow helps estimate the oil
bearing capacity of the Madrinskaya
block 1 as a whole, which potentially
allows the Company to register
39.7 mmt of oil in the B1C1+B2C2
reserves in the State Register of
Mineral Reserves. The drilling results
will increase the resource base of
Slavneft-Krasnoyarskneftegaz and
Vostsibneftegaz.

Central Russia, Timan-
Pechora, and Southern Russia

In 2019, reserves in the Volga-Urals
Region, Timan-Pechora, and Southern
Russia increased by a total of 77.9 mmt
of oil and gas condensate and 7.8 bcm of
gas. 67 wells were completed and tested,
with a success rate of 84%. 3D seismic
surveys totalled 3.6 thousand sq km, while
2D seismic surveys totalled 0.8 thousand
linear km. 17 fields and 177 new deposits
were discovered with a total of 282 mmtoe
in АВ1С1+В2С2 reserves.

In the Samara Region, the Company
continued exploration of Domanic deposits
for siliceous limestones. At the Leshchevsky
and Neprikovsky licence areas, three pilot
wells were drilled and completed, with
one of them completed and tested. The
Company plans to drill additional wells to
prepare a conclusion on the commercial
potential of these deposits in the licence
areas in the Samara Region.

The new field discoveries were made
possible by the successful implementation
of the exploration programme by
Orenburgneft and Bashneft-Dobycha.
The Company discovered 15 fields and
123 new deposits. An important discovery
by Orenburgneft was the Zapadno-
Dolgovskoye field within the Buzuluk
subsoil area. Based on the drilling results
of appraisal well No. 444, the recoverable
B1C1+B2C2 reserves in the field are
estimated at 7.6 mmtoe.

Increase in reserves – 101.2 mmt of oil
and gas condensate and 185.4 bcm
of gas

Increase in reserves – 77.9 mmt of oil
and gas condensate and 7.8 bcm of gas

18 exploration wells with a 94 %
success rate

67 exploration wells with an 84% success
rate

1 new field and 7 new deposits
with a total of 9 mmtoe in АВ1С1+В2С2
reserves

17 new fields and 177 new deposits
with a total of 282 mmtoe in АВ1С1+В2С2
reserves

2D seismic surveys of 1.8 thousand
linear km and 3D seismic surveys
of 1.2 thousand sq km were completed

2D seismic surveys of 800 linear km
and 3D seismic surveys of 3.6 thousand
sq km were completed

The Company produced 4.67 mmb
per day (230.2 mmtpa, 81% of total
hydrocarbon production), flat year-on-
year. This was achieved despite such
external restrictions as compliance
with the OPEC+ agreement along with
the temporarily limited oil acceptance
by Transneft’s trunk pipelines. As
the Company achieved the planned
production in 2019, it greatly
contributed to Russia’s new post-Soviet
oil production record (560.3 mmt).

24 December 2019 was marked by a
new milestone in Rosneft’s history, as
the Company produced its 2.5 billionth
tonne of liquid hydrocarbons.

The production drilling totalled
10.0 mln m year-on-year with over
2.9 thousand wells commissioned. The

number of horizontal wells was up 1%
year-on-year, with a 9 p. p. increase –
to 57% of all new wells in commercial
operation. The production per horizontal
well was some 9 kt, up 11% year-on-year
or 2.4 times higher than per directional
well.

Rosneft is Russia’s leading petroleum
company in terms of launching new
high-margin projects. In 2019, the
Company's share in the total production
of liquid hydrocarbons as part of major
projects launched since 2016 totalled
18.9 mmt (384 kbpd), up 27% year-on-
year. At the same time, their share in the
total production of liquid hydrocarbons
increased by 8%.

Rosneft also gives high priority to
brownfield development: 2019 saw

RN-Yuganskneftegaz’s largest asset
hit an all-time high in terms of daily
production with more than 198 kt per
day. Investment incentives helped
the Samotlor field to overcome the
trend of decline in production, which
previously demonstrated an average
annual decrease of 5%. In 2018–2019,
the Company reduced the production
decline to some 1%, reaching 18.4 mmt
at the year end. The production trend
changed greatly in RN-Nyaganneftegaz
with a production increase by 17%,
reaching around 7 mmt.

Innovative technologies for stable
production

Commissioning of new
wells

The Company’s key driver for
maintaining stable levels of production
is the production drilling, which is
responsible for more than 8% of
the Company's crude oil and gas
condensate output.

Rosneft is focused on high-tech
wells: 57% out of the 2.9 thousand
wells commissioned in 2019 were
horizontal vs 48% in 2018. 986 new
horizontal wells drilled using multi-stage
hydraulic fracturing techniques were
commissioned, with their share reaching
34%. During the first year of operation,
the production per horizontal well was
some 9 kt, 11% year-on-year or 2.4 times
higher than per directional well.

Advanced planning, drilling, and
development technologies facilitated
new wells’ average annual flow rate
of 44.8 t per day, up 10.6% year-on-
year, and 19.6 mmt of incremental
production.

In 2019, RN-Yuganskneftegaz
commissioned more than 1 thousand
new wells producing over 6.5 mmt
and reached the five-years maximum
average annual flow rate of new wells
(39 t per day). These results were
attributable to innovative technologies
and streamlined development systems.
For example, the percentage of
horizontal wells in production drilling
increased by ca 50% (from 26% in 2018
to 39% in 2019). In 2019, the Group
Subsidiary continued to pilot horizontal
drilling and completion technologies,
commissioned 35 wells with multi-stage
hydraulic fracturing and horizontal
sections of 1.3–1.6 km, and successfully
expanded the use of multilateral wells.

In 2019, Samotlorneftegaz
commissioned 383 new wells, which
resulted in 1.2 mmt of incremental
oil production. The Group Subsidiary
makes consistent efforts to pinpoint
hidden deposits at the Samotlor field,
including through the implementation
of its appraisal sidetracking and well
deepening programme. Due to these

efforts, 14 horizontal wells were
commissioned in Jurassic deposits (YuV1
formation) with an average initial oil flow
rate of 84 t per day, which is two times
higher than the average of the field’s
new wells for the period.

Verkhnechonskneftegaz also succeeds in
implementing horizontal and multilateral
drilling. In 2019, the Group Subsidiary
commissioned 46 high-tech wells with
an average annual oil reserve increase
of 80 t per day (up 17% year-on-year).
The unique expertise gained when
developing complex collectors of the
Verkhnechonskoye field will be further
applied to drilling and developing new
licence areas in Eastern Siberia.

In 2019, RN-Uvatneftegaz continued
extensive drilling across the Uvat group
of fields. For optimising the development
of hard-to-recover reserves, the
subsidiary supports a consistent
transition to horizontal drilling with
multi-stage hydraulic fracturing (the
share of horizontal wells reached 71%
in 2019) with the average flow rate of
new wells up year-on-year, totalling 82 t
per day.

Varyeganneftegaz improved the
horizontal well design by raising the
number of multi-stage hydraulic
fracturing stages per well from five to
seven and optimised drilling locations,
reaching a five-years maximum annual
average flow rate of 40.9 t per day, up
21% year-on-year.

In 2019, Orenburgneft expanded its
horizontal drilling programme and
commissioned eleven horizontal wells,
including five with multi-stage acid
fracturing and two with multi-stage
proppant fracturing. These technologies
make such wells highly productive, with
horizontal wells having an initial flow
rate of 63.3 t per day, which is almost
1.5 times higher than the average for
production wells drilled in 2019 (46.7 t
per day).

Vostsibneftegaz commissioned
39 horizontal wells vs 21 wells in
2018. Due to the optimised strategy
of horizontal well placing and

2.9

thousand new wells
commissioned in 2019 of which
57% were horizontal

updated geological structure concept
of the Riphean formation in the
Yurubchenskaya deposit, new wells
produced the field's all-time highest
average oil flow rate of 186 t per day, up
21% year-on-year.

Multilateral wells

Multilateral wells are applied to improve
the recovery and reservoir penetration
quality for projects with high geological
complexity. This method of pay zone
penetration was successfully piloted
and implemented at the Company’s
fields with 135 multilateral wells
commissioned in 2019, up 84%
year-on-year.

To increase well productivity and
scope of reserves under development,
RN-Yuganskneftegaz introduced
fishbone wells at the Moskovtsev and
Sorovskoye fields. The Group Subsidiary
commissioned seven wells with three
and four sidetracks. The average
increase in the initial flow rate was
+159% compared to horizontal wells
drilled in similar conditions.

In 2019, RN-Vankor commissioned
54 multilateral wells, a record number
for the Vankor cluster since the
beginning of its development, up 38%
year-on-year.

At the Srednebotuobinskoye field, Taas-
Yuryakh Neftegazodobycha drilled
the longest multilateral well having
15 horizontal sidetracks with a total
drilling length exceeding 10 km across
a pay zone. The subsidiary successfully
replicates this technology with
27 multilateral wells drilled at the field in
the reporting year.

Along with drilling in new areas, the
Company conducts infill drilling to
augment production by transforming
and expanding the development system.

In 2019, RN-Yuganskneftegaz
continued its infill drilling programme
at the Priobskoye and Prirazlomnoye
fields and drilled 77 wells with an
average initial flow rate of 82.6 t per
day, including 42 horizontal wells drilled
using multi-stage hydraulic fracturing
techniques (five ports per well on
average). The Group Subsidiary has
plans to expand the programme at the
Priobskoye and Prirazlomnoye fields, as
well as implement similar programmes
at its other fields (Malobalykskoye,
Ombinskoye, and Vostochno-
Surgutskoye fields).

To maintain production and improve
the quality of reserves recovery at the
Samotlor field, Samotlorneftegaz
continues its infill drilling programme.
235 infill wells were commissioned in
2019 (65% of all wells commissioned at
the field). In addition, horizontal wells
with multi-stage hydraulic fracturing are
constructed.

The Vankor field has been successfully
implementing its infill drilling
programme. As at the end of 2019, the
incremental production attributable
to the commissioning of 41 new infill
wells totalled 910 kt. In harsh geological
conditions, advanced drilling and
horizontal well completion technologies
ensured an average flow rate of 136 t
per day, which is three times higher than
the average well flow rate across the
Company.

Tomskneft VNK pilots the
transformation of a Jurassic deposit
development system (YuV1 formation)
at the Krapivinskoye field. To enhance oil
recovery, infill horizontal wells are drilled
at the field, using multi-stage hydraulic
fracturing. In 2019, 18 wells of the kind
with an average flow rate of 28 t per day
were commissioned with new wells to
follow in future.

Use of inflow control device
in wells

To minimise the risks of early gas
blowout from the gas cap or underlying
water, the Company uses inflow control
devices to restrict fluid inflow to certain
horizontal well sections. In 2019,

Taas-Yuryakh Neftegazodobycha
successfully piloted inflow control
devices in horizontal and multilateral
wells at the Srednebotuobinskoye field.

In 2019, the Group Subsidiary continued
to use autonomous inflow control
devices and completion systems with
shiftable sleeves in horizontal wells
of SevKomNeftegaz (joint project
with Norway’s Equinor) as part of pilot
development of PK1 formation at the
Severo-Komsomolskoye field. The
pilot development also involved the
commissioning of 28 wells, including 25
with inflow control devices.

Sidetracking

For increasing production and achieving
target oil recovery factor, the Company
carries out sidetracking operations in
existing wells. In 2019, such operations
covered 1.3 thousand wells, up 3.5%
year-on-year, resulting in an incremental
production of 3.3 mmt of crude oil.
Improving the design of sidetracks due
to increasing the share of horizontal
drilling to 71% vs 68% in 2018 helped to
maintain the average well flow rate after
well workover by sidetracking at the level
of 2018.

Innovative approaches make
sidetracking effective for brownfields.
Horizontal sidetracks enable extraction
from formation intervals that have not
been reached by previously drilled
directional wells.

At RN-Yuganskneftegaz’s fields
394 sidetracking operations were carried
out in 2019, including 298 sidetracks
with horizontal completion. The active
application of horizontal sidetracks at
mature fields, for example in Cretaceous
formations of the Mamontovskoye and
Ust-Balykskoye fields, results in high
initial oil flow rates of up to 300 t per
day, though these fields have a more
than fifty-year history of development.
Due to the use of advanced
technologies, the average annual well
flow rate totalled 22.9 t per day, up 8%
year-on-year.

In 2019, Samotlorneftegaz
commissioned 424 wells following a
workover by sidetracking, a record
number for the whole Company. It is
also a five-year high for the subsidiary,
up 14% year-on-year. These measures
resulted in an additional crude oil
production of 0.8 mmt, up 30%
year-on-year.

RN-Nyaganneftegaz continues to
pilot and implement the technology
of horizontal sidetracking with MSHF
and liner packer systems. Following
the programme roll-out in the Talinsky
licence area (YuK2-9), 14 wells were
commissioned with an average initial
flow rate of 27.9 t. In 2020–2024, the
subsidiary plans to use similar technique
for drilling 100 wells that are expected
to produce 1.8 mmt.

Horizontal drilling also has a noticeable
effect from well workover in one of
Russia’s oldest oil-producing regions,
the Island of Sakhalin. Following
the drilling of horizontal sidetracks
to increase well productivity, RN-
Sakhalinmorneftegaz's doubled its
incremental production resulting from
these operations as compared to 2018.
In the next five years, the subsidiary
intends to replicate this approach across
its assets. For eleven fields, it will be the
first well workover with sidetracking.

Drilling geological support
centre

In 2019, Rosneft's drilling geological
support centre, the first in the Russian
oil and gas industry, celebrated its 10th

anniversary. Under its supervision the
Company drilled over 11 thousand
horizontal wells and horizontal
sidetracks. To improve employees’
professional skills, Rosneft held
its first geosteering championship
(championship in geological support
of high-tech horizontal drilling).
20 subsidiaries of the Company joined
the event to compete in the virtual
“drilling” of three horizontal wells with
different difficulty levels and penetrate
an oil reservoir as far as possible. All the
participants did their best to cope with
the task and gain unique experience in
supporting horizontal drilling in different
real geological environments across the
Company’s footprint.

Well interventions
for incremental (besides
new well commissioning
and sidetracking)
and recovered production

In line with its approved strategy, the
Company keeps improving the efficiency
of its well interventions. In 2019, the
Company increased the number of well
interventions for incremental production
(besides drilling) to 4,913, up 9.6%
year-on-year. The well interventions

The growth of well interventions in 2019
was mainly attributable to an increase
in the number of hydraulic fracturing
jobs to 2,657, up 20.6% year-on-year. In
2019, the incremental production due
to hydraulic fracturing was 3.4 mmt, up
17.5% year-on-year.

RN-Yuganskneftegaz, Bashneft-
Dobycha, and Samotlorneftegaz are
the Group Subsidiaries with the most
noticeable hydraulic fracturing growth
in 2019. In 2019, RN-Yuganskneftegaz
carried out 907 hydraulic fracturing
jobs, up 31.8% year-on-year, with an
incremental production of 1,465 k t, up
27.3% year-on-year, hitting a seven-
year high. For the first time over the last
four years, Bashneft-Dobycha carried
out 640 hydraulic fracturing jobs, up
23.4% year-on-year, with an incremental
production of 570 kt, up 37.4% year-
on-year. Udmurtneft, Samaraneftegaz,
and RN-Severnaya Neft, among others,
actively deploy acid and proppant
fracturing techniques in carbonate
formations of their fields.

Over 10 thousand well interventions
were performed in 2019, resulting in a

recovered production of 12.2 mmt. The
production per well attributable to basic
production recovery was up 9.8% year-
on-year, from 1,055 to 1,158 t per well.

The key production recovery efforts
include bottom-hole zone treatment and
well optimisation.

In 2019, the number of bottom-hole
zone treatment and well optimisation
operations hit a seven-year high. More
specifically, the Company performed
4,168 bottom-hole zone treatment
operations (up 13.3% year-on-year) with
a total production recovery of 3,233 kt
(up 25.3% year-on-year) and 4,042 well
optimisation operations (up 12.4% year-
on-year) with a total production recovery
of 6,405 kt (up 20.7% year-on-year).

The Company enhanced the use
of physical and chemical methods
of enhanced oil recovery by a half
compared to 2018. This included five
pilot projects involving the technology.
Samotlorneftegaz piloted sediment
generating agents and gellants, which
had previously proved to be efficient, in
its three new projects. The injection of
cross-linked polymer composition was
successfully piloted at the Suzunskoye
field. Samaraneftegaz used a Russian-
made innovative polymer composition,

which resulted in a quadrupled increase
in technological performance compared
to compositions used previously.

For the first time in Russia, Group
Subsidiaries operating in the Volga-Urals
Region deployed the proppant hydraulic
fracturing technology using acid gel to
deliver the acid to a significant distance
from the borehole for creating a set of
fractures and fixing them with proppant
in a carbonate formation. Following
successful piloting of the technology
in directional wells, Orenburgneft
effectively drilled carbonate Devonian
deposits (initial flow rates exceeded
100 t per day). After testing the
technology, Udmurtneft prepared areas
for horizontal drilling with multi-stage
acid and proppant hydraulic fracturing.
Bashneft-Dobycha started to apply acid-
gel hydraulic fracturing at Bashneft-
Dobycha's fields.

In 2019, the Company continued its
multi-stage hydraulic refracturing
operations in previously drilled
horizontal wells to increase the
performance of low-permeability
structurally complicated pay zones. For
example, RN-Yuganskneftegaz carried
out 23 jobs of the kind with an average
initial incremental oil rate of 25 t per day,
33% higher than the incremental rate in
directional wells.

Overview of Production in Regions
of Operation

Western Siberia

Western Siberia is Rosneft’s key oil-
producing region. In 2019, Western
Siberian assets increased oil and gas
condensate production by 1.8% year-
on-year, accounting for 60% of the
Company’s output. The Company’s key
producing assets in Western Siberia

RN-Yuganskneftegaz

RN-Yuganskneftegaz is the Company’s
largest asset operating 37 licence areas
with Rosneft as the subsoil user. The bulk
of proved reserves (80%) are concentrated
in the Priobskoye, Prirazlomnoye,
Mamontovskoye and Malobalykskoye
fields.

Despite the temporary limitations on oil
intake by Transneft’s trunk pipelines, RN-
Yuganskneftegaz produced 69.5 mmt
in 2019, virtually flat year-on-year. July 2019
saw oil production of 198 kt per day, an
all-time high since 1964. This was partly
due to the 1.5x increase in the share of
horizontal wells (38% of all new wells in
2019).

licence areas

include RN-Yuganskneftegaz (30% of
Rosneft's total oil and gas condensate
production), Samotlorneftegaz (8% of
total), and RN-Uvatneftegaz (5% of total).

To enhance oil recovery at its fields in
Western Siberia, the Company has been
monitoring and streamlining its existing
development systems by switching
from conventional directional wells
to horizontal wells drilled using multi-
stage hydraulic fracturing techniques
(MSHF HW). This technology significantly
increases the well productivity rate
and the scope of reserves under

RN-Yuganskneftegaz ensures stable
production both by drilling new wells
and performing well interventions for
incremental oil production and by
maintaining and enhancing its basic
production.

The drilling efforts resulted in a number of
industry records, including the first-ever
two-string horizontal multilateral well with
multiple branches built using the Fishbones
stimulation technology. The total length
of the well is 5,234 m, with the horizontal
wellbore at 2,161 m. The initial oil flow rate
exceeded 600 t per day, which is several
times higher compared to the neighbouring
standard horizontal wells. On top of that,
RN-Yuganskneftegaz set another industry
record for the fastest two-string horizontal
well construction. It took merely 7.44 days
to drill such a well at the Salymskoye field, a

development, while also reducing the
well stock and enhancing the project
economics. The Company massively
leverages MSHF HWs at its mature assets
in Western Siberia.

New projects are also underway, with the
Russkoye field and the Erginsky cluster
standing out as the largest plays.

Western Siberia is also a major gas-
producing region, with natural gas
production reaching 47 bcm in 2019.

20% improvement over the previous record.
At the same time, the commercial drilling rate
exceeded 14 thousand m per rig per month.

RN-Yuganskneftegaz made significant
progress in enhancing the efficiency of
well interventions with hydraulic fracturing,
which resulted in 1.5 mmt of incremental
production (up 27.3% year-on-year). This
was achieved by streamlining hydraulic
fracturing models, better use of downhole
pumping equipment, introducing new
software modules and modelling tools
(geomechanical modelling under varying
stress, proxy modelling, deployment of
Eurasia’s first-ever domestic hydraulic
fracturing simulator, RN-GRID), and
improvements in the reservoir flooding
system.

2.4 bt

of cumulative crude
oil production since
commencement date

198 kt of oil per day

all-time high production rate
since 1964 recorded in July 2019

80 %

of proved reserves concen-
trated in the Priobskoye,
Prirazlomnoye, Mamontovskoye
and Malobalykskoye fields

69.5 mmt

of liquid hydrocarbons
produced in 2019

Samotlorneftegaz operates nine
licence areas (including eight licence
areas as the subsoil user). Over 98%
of Samotlorneftegaz’s proved reserves
are concentrated within the Samotlor
field, one of the largest in the world.
Commercial production at the Samotlor
field began in 1969 and peaked at over
150 mmtpa in the 1980s.

In 2019, it produced 24.5 mmtoe of
hydrocarbons, with the output of liquid
hydrocarbons standing at 19.5 mmt
(including the Lodochnoye field).

The Samotlor field relies on government
support to continue drilling new wells
and performing well interventions.
The incentives put in place in 2018–
2019 helped overcome the decline in
production, which had demonstrated
an average annual decrease of 5% up

to 2018. In 2018–2019, the Company
brought down the annual rate of
production decline to ca. 1%.

The well interventions at
Samotlorneftegaz translated into
2.5 mmt of incremental production (up
5.6% year-on-year).

licence areas

>98 %

of proved reserves concentrated
within the Samotlor field

24.5 mmtoe

of hydrocarbons produced
in 2019, including 19.5 mmt
of liquid hydrocarbons

RN-Uvatneftegaz

RN-Uvatneftegaz operates 20 licence
areas (including 19 licence areas
as the subsoil user) in the Tyumen
Region, Omsk Region, and the Khanty-
Mansi Autonomous Area – Yugra. The
bulk of proved reserves (ca. 70%) are
currently concentrated in the Ust-
Tegusskoye, Zapadno-Epasskoye,
Urnenskoye, Severo-Tyamkinskoye,

licence areas in the Tyumen
Region, Omsk Region,
and the Khanty-Mansi
Autonomous Area – Yugra

Severo-Tamarginskoye and
Protozanovskoye fields, which are
being developed as part of the Eastern
Development Centre.

In 2019, RN-Uvatneftegaz also marked
a new milestone with 100 mmt of oil
produced since the commencement of
the Uvat project.

In 2019, RN-Uvatneftegaz produced
10.6 mmtoe of hydrocarbons, including
10.3 mmt of liquid hydrocarbons. It has
been maintaining a plateau of ca.10
mmtpa liquid hydrocarbons for six years
already.

In 2019, RN-Uvatneftegaz increased
well interventions for incremental oil
production (excluding drilling) by 49%
year-on-year and enhanced incremental
production by 8.5% to 2.9 kt per well.

70 %

of proved reserves concentrated
in the Ust-Tegusskoye, Zapadno-
Epasskoye, Urnenskoye,
Severo-Tyamkinskoye,
Severo-Tamarginskoye
and Protozanovskoye fields

10.6 mmtoe

of hydrocarbons produced
in 2019, including 10.3 mmt
of liquid hydrocarbons

Varyeganneftegaz

Varyeganneftegaz operates 18 licence
areas (including five licence areas as
the subsoil user) in the Khanty-Mansi
Autonomous Area – Yugra. The bulk
of proved reserves (over 80%) are
concentrated in the Verkhnekolik-
Eganskoye, Severo-Khokhryakovskoye,
Van-Eganskoye, Khokhryakovskoye,
Orekhovo-Ermakovskoye and Severo-
Varyeganskoye fields.

In 2019, Varyeganneftegaz produced
9.7 mmtoe of hydrocarbons, including
6.3 mmt of liquid hydrocarbons (up 5.8%
year-on-year).

Varyeganneftegaz successfully
completed pilot tests on horizontal
wells using a combination string
drilling technology. This innovative
approach facilitates well construction
by eliminating a number of extra
operations to accelerate the drilling rate
and enhance the project economics.

The tests resulted in a nearly twofold
increase in the drilling rate. It took
12.7 days to drill three combination
string horizontal wells vs the average
of 22 days required to drill similar wells
using the conventional process.

Varyeganneftegaz increased well
interventions for incremental oil
production (excluding production drilling
and sidetracking) by 19% to 138 and
enhanced incremental production by
38% from 899 to over 1 kt per well.

licence areas

>99 %

of proved reserves concentrated
in the Verkhnekolik-Eganskoye,
Severo-Khokhryakovskoye,
Van-Eganskoye,
Khokhryakovskoye, Orekhovo-
Ermakovskoye and Severo-
Varyeganskoye fields

9.7 mmtoe

of hydrocarbons produced
in 2019, including 6.3 mmt
of liquid hydrocarbons

RN-Nyaganneftegaz

RN-Nyaganneftegaz operates four
licence areas (including three licence
areas as the subsoil user) in the Khanty-
Mansi Autonomous Area – Yugra. The
bulk of proved reserves (over 99%) are
concentrated in the Krasnoleninskoye
field, including the Kamenny (western
part), Em-Egovsky + Palyanovsky and
Talinsky areas.

In 2019, RN-Nyaganneftegaz produced
8.7 mmtoe of hydrocarbons, including
6.9 mmt of liquid hydrocarbons (up
17.6% year-on-year). The growth was
driven by a range of initiatives, in
particular, intensified development
of hard-to recover reserves at the
Krasnoleninskoye field, with the
production volumes for this type of
reserves increasing by 21% year-on-year.

In 2019, RN-Nyaganneftegaz
commissioned 197 new wells (up 4.8%
year-on-year). RN-Nyaganneftegaz
increased well interventions for
incremental oil production, including
drilling new wells and sidetracking, by
10% year-on-year, which resulted in
1 mmt of incremental production.

licence areas

80 %

of proved reserves concentrated
in the Krasnoleninskoye field

8.7 mmtoe

of hydrocarbons produced
in 2019, including 6.9 mmt
of liquid hydrocarbons

The Company continues to expand its
operations in Eastern Siberia and the Far
East. In 2019, these regions produced
41.5 mmtoe of hydrocarbons, including
35.1 mmt of liquid hydrocarbons. The
bulk of production comes from the
Vankor cluster fields* (52% of total

production in these regions) and
Verkhnechonskneftegaz (22% of total)1.

In 2019, new projects developed by
Vostsibneftegaz and Taas-Yuryakh
Neftegazodobycha helped increase
production by more than 1.5 times
year-on-year.

183 mmt

of cumulative production
since 2009

23 mmtoe

of hydrocarbons produced
in 2019, including 18.2 mmt
of liquid hydrocarbons

8.8 mmtoe

of hydrocarbons produced
in 2019, including 7.8 mmt
of liquid hydrocarbons

existing wells and the commitment to
drill new wells.

RN-Vankor leverages horizontal wells
to develop the Vankor field. In 2019, it
commissioned 41 new wells (up 7.9%
year-on-year) which produced 0.9 mmt
of oil and gas condensate. RN-Vankor
increasingly relies on sidetracking, having
drilled a total of 41 sidetracks in 2019,
which resulted in 204 kt of incremental oil
and gas condensate production.

RN-Vankor continues to drill production
wells and build top-priority facilities and
infrastructure at new fields of the Vankor
cluster.

zone performance, and optimise
operation of infrastructure facilities.
The average annual flow rate across
new wells reached 80 t per day, up 17%
year-on-year.

In May 2019, Verkhnechonskneftegaz
started injecting gas into the
Preobrazhensky horizon as part of its
efforts to select an agent for reservoir
pressure maintenance. It continues
with well testing to monitor formation
pressure dynamics at adjacent
observation wells in order to assess
post-injection effects. The test results
will be produced as early as in 2020.

Vankor Cluster

RN-Vankor operates the development
project for the Vankor cluster fields,
including the Vankor (the largest
discovery in the last 20 years),
Suzunskoye, Tagulskoye and Lodochnoye
fields located in the Turukhansky and
Taymyrsky municipal districts in the
Krasnoyarsk Territory’s north.

In 2019, the Vankor cluster1 produced
23.2 mmtoe of hydrocarbons, including
18.2 mmt of liquid hydrocarbons.

Since the commencement of
commercial production at the Vankor
field in August 2009, cumulative oil
and gas condensate production has
exceeded 183 mmt on the back of a well
intervention programme covering the

Verkhnechonskneftegaz

Verkhnechonskneftegaz explores and
develops the Verkhnechonskoye oil
and gas condensate field. Located
in the Irkutsk Region, the field is the
second largest in Eastern Siberia.
Verkhnechonskneftegaz also operates
12 Rosneft licence areas throughout
the Irkutsk Region and the Krasnoyarsk
Territory.

In 2019, it produced 8.8 mmtoe of
hydrocarbons, including 7.8 mmt
of liquid hydrocarbons. The
Verkhnechonskoye field is being
developed using advanced technologies.
There are also ongoing initiatives
to streamline well construction and
completion practices, monitor pay

1 Excluding the Lodochnoye field

East Siberian Oil and Gas
Company (Vostsibneftegaz)

East Siberian Oil and Gas Company
operates five licence areas (including
two licence areas as the subsoil user) in
the Krasnoyarsk Territory. The company
is currently running a project to develop
an expanded high-priority area of the
Yurubcheno-Tokhomskoye field, located
in the Evenki District of the Krasnoyarsk
Territory.

In 2019, East Siberian Oil and Gas
Company increased its oil production by
1.8 times year-on-year to over 4.1 mmt.

Taas-Yuryakh
Neftegazodobycha

Taas-Yuryakh Neftegazodobycha
operates 10 licence areas (including
two licence areas as the subsoil user) in
the Republic of Sakha (Yakutia).

Taas-Yuryakh Neftegazodobycha
is currently developing the Central
Block and the Kurungsky licence area
of the Srednebotuobinskoye oil and
gas condensate field, which is one of
Rosneft’s top-3 assets in the Eastern
Siberian oil cluster.

In 2019, Taas-Yuryakh
Neftegazodobycha increased its
production of liquid hydrocarbons
by 1.4 times to 4 mmt. The growth

Since the start of development at the
Yurubcheno-Tokhomskoye field, one of
the largest in the Krasnoyarsk Territory,
its cumulative production has exceeded
8 mmt.

4.1 mmt

of liquid hydrocarbons
produced in 2019

Vostsibneftegaz uses innovations to
increase exposure to deposits within the
pay zone and enhance the oil recovery
rate. Rosneft views the techniques and
approaches it tried and tested at the
Yurubcheno-Tokhomskoye field as its
core solutions, planning to roll them out
to other projects.

was driven by expansion of the
company’s production capacity under
Phase 2 development programme
and commissioning of a high-pressure
pipeline to transport crude oil from the
Srednebotuobinskoye field.

Taas-Yuryakh Neftegazodobycha
continues to build infrastructure and
on-site facilities and to drill horizontal
and multilateral wells, including using
Fishbones stimulation technology.
In December 2019, Taas-Yuryakh
Neftegazodobycha drilled a 12,792 m
long multilateral well with a record
10,310 m long section in the pay zone.

4 mmt

of liquid hydrocarbons
produced in 2019

In 2019, this region produced
48.2 mmtoe of hydrocarbons (including
46.4 mmt of liquid hydrocarbons),
accounting for 20% of Rosneft’s total
output. The Company’s key producing
assets include Bashneft-Dobycha,
Orenburgneft, Samaraneftegaz and
Udmurtneft.

Bashneft-Dobycha

Bashneft-Dobycha operates 261 licence
areas (with Bashneft as the subsoil
user) located in the Republics of
Bashkortostan and Tatarstan, the
Orenburg Region, and the Khanty-
Mansi Autonomous Area – Yugra. More
than 50% of its proved reserves are
concentrated in six major fields, including
the Arlanskoye, Yugomashevskoye and
Tuimazinskoye fields.

In 2019, Bashneft-Dobycha produced
16.7 mmtoe of hydrocarbons, including
16.3 mmt of liquid hydrocarbons.

Bashneft-Dobycha performs high-
impact well interventions and drills
new wells to maintain robust oil
production at its mature fields. In
2019, Bashneft-Dobycha completed

1,272 well interventions (up 5.6% year-
on-year), including drilling new wells
and sidetracking, with incremental
production increasing by 41 t per well.

261

licence areas

Bashneft-Dobycha is stepping
up production drilling. In 2019, it
commissioned 114 new wells (vs 106 wells
in 2018) with plans underway to increase
the annual commissioning rate going
forward. Bashneft-Dobycha implemented
a multi-stage hydraulic fracturing
technology for horizontal drilling, including
acid and proppant fracturing techniques
using polymer-free fluids, to get the most
out of new wells and sidetracks. The
company also seeks to achieve a higher
quality and shorten the time of well
construction by implementing advanced
logging technologies in the drilling process
and equipping well liners with burst port
systems (BPS).

>50%

of proved reserves concentrated
in six major fields, including
the Arlanskoye, Yugomashevskoye
and Tuimazinskoye fields

16.7 mmtoe

of hydrocarbons produced
in 2019, including 16.3 mmt
of liquid hydrocarbons

Orenburgneft

Orenburgneft operates 133 licence
areas (including 131 licence areas as the
subsoil user) in the Orenburg, Saratov
and Samara Regions. More than 50%
of its proved reserves are concentrated
in 10 major fields, including the
Rostashinskoye, Sorochinsko-Nikolskoye,
Garshinskoye and Pokrovskoye fields.

In 2019, Orenburgneft produced
15.5 mmtoe of hydrocarbons, including
14.5 mmt of liquid hydrocarbons. To
maintain production, the company
focuses on advanced well intervention
techniques and improvements in well

operations and reservoir pressure
maintenance.

In 2019, Orenburgneft increased
well interventions for incremental oil
production (excluding drilling) by 10%
year-on-year to 365, which resulted in
0.7 mmt of incremental production.

Orenburgneft drilled its first-ever 1 km
long MSHF HW targeting the Devonian
deposits with an initial oil flow rate of
ca. 100 t per day. It also performed tests
on gas formations and commissioned
seven wells with flow rates of up to
12 thousand cub m per day.

Samaraneftegaz

Samaraneftegaz runs 169 licence
areas (including one licence area as
the operator) located in the Samara
Region. More than 50% of its proved
reserves are concentrated in 12 major
fields, including the Barinovsko-
Lebyazhinskoye, Kuleshovskoye,
Mukhanovskoye, Mikhailovsko-
Kokhanskoye and Borovskoye fields.

In 2019, Samaraneftegaz increased its
production of hydrocarbons by 3.8%
year-on-year to 13.0 mmtoe, including
12.6 mmt of liquid hydrocarbons. The
growth was mainly driven by higher
basic production (up 4.5% year-on-year)
with an average oil flow rate reaching
9.3 t per day. On 8 March 2019, the
company’s production reached 34.6 kt
per day, an all-time high over the past
15 years.

133

licence areas

>50%

of proved reserves concentrated
in 10 major fields, including
the Rostashinskoye, Sorochinsko-
Nikolskoye, Garshinskoye
and Pokrovskoye fields

15.5 mmtoe

of hydrocarbons produced
in 2019, including 14.5 mmt
of liquid hydrocarbons

169

licence areas

>50%

of proved reserves concentrated
in 12 major fields, including
the Barinovsko-Lebyazhinskoye,
Kuleshovskoye, Mukhanovskoye,
Mikhailovsko-Kokhanskoye
and Borovskoye fields

13 mmtoe

of hydrocarbons produced
in 2019, including 12.6 mmt
of liquid hydrocarbons

Timan-Pechora Province

Rosneft’s assets in the Southern Federal District of Russia include RN-
Krasnodarneftegaz, RN Stavropolneftegaz, Grozneftegaz, Dagneftegaz, Rosneft-
Dagneft, RN-Ingushneft and several others.

RN-Krasnodarneftegaz

RN-Krasnodarneftegaz operates
30 licence areas (with Rosneft as
the subsoil user) in the Krasnodar
Territory, the oldest oil producing
region in European Russia. The bulk
of proved reserves are concentrated
in the Anastasievsko-Troitskoye and
Mechetsko-Chernoyerkovskoye fields.

In 2019, RN-Krasnodarneftegaz
produced 2.1 mmtoe of hydrocarbons,
including 0.7 mmt of liquid
hydrocarbons. To maintain production,
the company develops weakly drained
reserves by drilling new wells and
sidetracks.

2.1 mmtoe

of hydrocarbons produced
in 2019, including 0.7 mmt
of liquid hydrocarbons.

RN-Stavropolneftegaz

RN-Stavropolneftegaz operates
36 licence areas (with Rosneft as the
subsoil user) in the Stavropol Territory.
The bulk of proved reserves (70%)
are concentrated in the Velichaevsko-
Kolodeznoye, Zimne-Stavkinsko-
Pravoberezhnoye, Achikulakskoye and
Urozhaynenskoye fields.

In 2019, RN-Stavropolneftegaz produced
0.8 mmtoe of hydrocarbons, including

0.7 mmt of liquid hydrocarbons.
The company focused on improved
well management and production
recovery initiatives, bringing down the
rate of basic production decline by
0.6% year-on-year. Since 2012, RN-
Stavropolneftegaz has been developing
weakly drained reserves in the Jurassic
formations by drilling new wells while
also proceeding with its prospecting and
appraisal efforts.

0.8 mmtoe

of hydrocarbons produced
in 2019, including 0.7 mmt
of liquid hydrocarbons.

RN-Severnaya Neft

RN-Severnaya Neft, Rosneft’s key
producing asset in the Timan-Pechora
Province, operates 20 licence areas
(with Rosneft and RN-Nyaganneftegaz
as the subsoil users) in the Republic
of Komi and the Nenets Autonomous
Area. The bulk of proved reserves
(70%) are concentrated in five fields,
including the Labaganskoye, Naulskoye,
Khasyreyskoye, Srednemakarikhinskoye
and Cherpayuskoye fields.

In 2019, RN-Severnaya Neft produced
2.8 mmtoe of hydrocarbons, including
2.7 mmt of liquid hydrocarbons.

In 2019, RN-Severnaya Neft drilled and
commissioned 10 multilateral wells with
an average initial flow rate of 55 t per
day, which is two times higher than that
of similar horizontal wells. The share of
multilateral wells amounted to 20% of all
new wells in 2019 (vs 8% in 2018).

RN-Severnaya Neft continues hydraulic
fracturing operations on previously
drilled wells (12 operations in 2019
vs 2 in 2018). The average initial flow
rate amounted to 18.3 t per day, which
resulted in 29.8 kt of incremental
production.

RN-Severnaya Neft was ramping up
its squeeze cementing efforts with
17 operations to inject visco-elastic mud
into production wells (vs 2 in 2018),
which translated into 20 kt of recovered
production.

In March 2019, the Labaganskoye
field commissioned a modular cluster
pumping station as the final step
towards completion of the reservoir
pressure maintenance system. In 2019,
voidage replacement amounted to
115%.

Bashneft-Polyus

Bashneft-Polyus operates a
development project covering the Trebs
and Titov fields located in the Nenets
Autonomous Area.

In 2019, it produced 1.2 mmtoe of
hydrocarbons (up 2.2% year-on-year).
Bashneft-Polyus commissioned 23 new
wells (2.3x increase year-on-year) with
the average initial flow rate rising by 27%
to 195 t per day. In 2019, it also started
production drilling at the Obsedinskaya
area of the Trebs field.

Bashneft-Polyus successfully ran pilot
tests, including three drilling operations
using a 323.9 mm wide casing string
in the 45–512 m interval and two
controlled pressure drilling operations.

Progress on the Programme to Increase APG Utilisation Rates

The Company’s portfolio of assets with
hard-to-recover reserves currently
consists of more than 140 fields with
2.9 bt of oil in recoverable reserves. RN-
Yuganskneftegaz is Rosneft’s key asset of
this type boasting over 1 bt of hard-to-
recover reserves. It is followed by such
major players as RN-Nyaganneftegaz,
Verkhnechonskneftegaz, RN-
Uvatneftegaz and Kondaneft, which
together with RN-Yuganskneftegaz
account for over 80% of the Company’s
resource base.

In 2019, the Company added over
260 mmt to its hard-to-recover reserves,
a more than sixfold increase year-on-
year. The growth was driven by an
extensive exploration programme which
helped obtain detailed information
about formations with low-permeability
reservoirs. Successful completion of
exploration and pilot development
programmes at Rosneft’s licence areas
in the Samara Region was among the
key contributors to the increase.

The Company consistently develops
its hard-to-recover oil reserves. Oil
production from deposits classified as
hard-to-recover reserves under the
applicable laws rose by 12% year-on-
year to 20.9 mmt, more than a threefold
increase vs 2014. The share of hard-
to-recover reserves rose from 8.4% of
the Company’s output in 2018 to 9.2%
in 2019. In 2019, Rosneft increased the
number of production wells at fields with
hard-to-recover reserves by 20% year-
on-year to 4 thousand wells.

The Company’s recoverable reserves of
high-viscosity oil in Russia exceed 0.6 bt,
including more than 0.4 bt concentrated
within the Russkoye field, a unique
asset in terms of its resource base size.
Compared to 2018, Rosneft doubled its
production of high-viscosity oil reaching
1 mmt in 2019. Put on stream in the

fourth quarter 2019, the Russkoye field
became the key growth driver.

With a view to doubling production from
hard-to-recover reserves in 2017–2022,
the Company continued to improve its
development technologies, focusing
on well stimulation at low-permeability
formations, in particular using more
sophisticated and longer horizontal
wells with a higher number of hydraulic
fracturing stages. In 2019, Rosneft
drilled over 110 wells at fields with hard-
to-recover reserves using multi-stage
hydraulic fracturing techniques, with
horizontal sections exceeding 1 km (up
10% year-on-year). The use of longer
horizontal wells with a higher number
of hydraulic fracturing stages enables
the Company to effectively develop
previously unprofitable deposits.

Based on the current forecast, the bulk
of subsidised production from hard-to-
recover reserves will be concentrated
in the Western Siberian fields with
low-permeability formations of the
Tyumen suite and the Achimov deposits.
Beyond 2022, though, oil production
from hard-to-recover reserves will
largely depend on elimination of
geological and engineering uncertainties
related to appraisal and the choice of
best development solutions. To this
end, the Company implements an
exploration programme coupled with
pilot projects aiming to develop low-
permeability formations, the Bazhenov
suite and high-viscosity oil deposits as
part of the Target Innovative Projects
which will help develop an additional
1.6 bt of recoverable reserves. Target
Innovative Projects seek to develop
technologies to tackle silty sand
deposits (structurally complicated
undersaturated ultralow-permeability
reservoirs), to bring Bazhenov and
Domanic shale plays into production,
to introduce thermal recovery methods

+12%

20.9 mmt

of hydrocarbon production
from hard-to recover reserves
in 2019

2.9 bt

of total recoverable reserves
in the hard-to-recover
category at 140 fields

0.6 bt

of high-viscosity oil
in recoverable reserves
in Russia

fit for ultrahigh-viscosity oil fields in the
Samara Region, and to develop high-
viscosity oil reserves of the Pokurskaya
suite formations in Western Siberia.

In 2019, the Company drilled six
horizontal wells along with 11 directional
wells and sidetracks as part of the
Bazhen pilot development programme.
RN-Yuganskneftegaz performed a nine-
stage hydraulic fracturing operation on
the Salymskoye field’s well 921g with
a 950 m long horizontal wellbore. The
initial flow rate amounted to ca. 60 t
per day, on par with international
best practices for similar formations.
The Company intends to continue
exploration and multi-stage hydraulic
fracturing operations at the Bazhenov
suite in 2020.

In 2019, the APG utilisation rate for
mature assets, excluding greenfield
projects and fields under development
where gas infrastructure is yet to be
erected, reached 93.8%, up 1.0% year-
on-year. If greenfield projects at early
stages of development are excluded, the
APG utilisation rate stands at 89.3%. If
fields under development and greenfield
projects at early stages of development
are included, the APG utilisation rate
amounts to 77.8%.

23 APG utilisation facilities were
completed in 2019, including:
▪ 18 MW gas turbine power plant
commissioned at Kondaneft’s
Zapadno-Erginskoye field;

▪ compressor station at the oil
treatment unit and vacuum
compressor station at the preliminary
water discharge facility of the
Dvurechenskoye field operated by
Tomskneft VNK;

▪ compressor station at the

Pravdinskoye field, low-stage
compressor station at the
preliminary water discharge facility
of booster pump station No. 4
of the Malobalykskoye field, and
low-stage compressor station at
the booster pump station with
a preliminary water discharge
facility at well pad 354 operated by
RN-Yuganskneftegaz.

APG production in 2019

34.2 bcm

Other facilities provide for APG
gathering, treatment and transportation.

In 2019, APG utilisation improvement
projects at Bashneft-Dobycha helped
achieve a 95% utilisation rate.

Vankor cluster

RN-Purneftegaz

Varyeganneftegaz

4.7 bcm

of APG produced in 2019

2.9 bcm

of APG produced in 2019

3.9 bcm

of APG produced in 2019

Maintaining APG utilisation rate at
the Vankor field at 98.8%. 2019 saw
30 bcm of gas supplied to Gazprom
since April 2014

Maintaining APG utilisation rate at RN-
Purneftegaz at 99.2%

Gas production rose by 2.7% year-on-
year on the back of higher gas supplies
to processing facilities

Samotlorneftegaz

RN-Yuganskneftegaz

RN-Nyaganneftegaz

6.0 bcm

of APG produced in 2019

4.8 bcm

of APG produced in 2019

2.2 bcm

of APG produced in 2019

Production rose by 2.4% year-on-year
on the back of higher APG supplies to
processing facilities. Maintaining APG
utilisation rate at the Samotlor field at
98.4%

A compressor station with an
annual capacity of 500 mmcm
commissioned at the Pravdinskoye
field

Gas production rose by 21.4% year-on-
year on the back of well construction
and completion at the Em-Egovskoye
field and higher APG supplies to
processing facilities

We keep actively developing our key projects, including the Tagulskoye,
Russkoye, Kuyumbinskoye, Srednebotuobinskoye, Suzunskoye, Lodochnoye,
Vostochno-Messoyakhskoye, Chaprovskoye, Kondinskoye, Yurubcheno-
Tokhomskoye, Severo-Komsomolskoye and Severo-Danilovskoye fields.

Erginsky Cluster

The Company continues making progress on its strategic project in the Khanty-
Mansi Autonomous Area – Yugra in a bid to develop the Erginsky cluster which
consists of five licence areas (Kondinsky, Zapadno-Erginsky, Erginsky, Chaprovsky
and Novoyendyrsky).

Vankor cluster

The Company continues to build up its Vankor clus-
ter leveraging the Vankor field, with the Suzunskoye
and Tagulskoye fields up and running. Rosneft is also
getting ready to launch the Lodochnoye field, thus
completing the cluster integration.

18.8 mmt

of liquid hydrocarbons produced
at the Vankor cluster in 2019
(including the Lodochnoye field)

Production
of liquid hydrocarbons and gas
condensate at greenfields
in 2019

+74%

2.8 mmt

In 2019, the Company
commissioned

195

new wells across
the cluster

The Kondinskoye field
saw the annual capacity
of its central gathering facility
ramped up to

mmt of oil

2.8
>260

mmcm of gas

▪ The Erginsky licence area saw
completion of the first-phase
3D seismic field work covering
532 sq km. The Company is now
processing the field data while also
gathering and interpreting geological
and geophysical data. Core sampling
was conducted at five production
wells. The Company retested wells
using hydraulic fracturing techniques
to confirm formation productivity.

▪ Production drilling started at

the Erginsky licence area, with
40 production wells drilled, including
25 horizontal wells. The Company
continues to construct well pads
and oil and gas shipment pipelines,
to fill feeder roads, and to erect
engineering facilities.

▪ In 2019, Rosneft commissioned
195 new wells and increased
production of liquid hydrocarbons
from the greenfields of the Erginsky
cluster by 74% to 2.8 mmt.

▪ In 2019, the Company continued
exploration and well tests at the
Erginsky cluster. Development
activities are ongoing at the Erginsky
licence area and the Chaprovskoye
field. As part of its efforts to develop
the cluster, Rosneft brought on
stream the Kondinskoye and
Zapadno-Erginskoye fields.

▪ Since the start of the project, the
Kondinskoye field (the core asset
of Kondaneft) has seen 4.6 mmt
of oil produced, 438 wells from
across 23 well pads commissioned,
and key infrastructure facilities
launched. Additional expansion of
the Malokondinskaya deposit area
was confirmed, which will help bring
new well pads into development.
Moreover, the annual capacity of the
central gathering facility was ramped
up to 2.8 mmt of crude oil and over
260 mmcm of natural gas, with
marketable oil transported to trunk
pipelines via a 68 km long feeder
pipeline.

Suzunskoye Field Development

▪ In 2019, the Suzunskoye field
produced 2.8 mmt of liquid
hydrocarbons.

▪ Phase 2 of the Suzunskoye field

development is underway envisaging
the construction of gas facilities (gas
treatment unit with a compressor
station, the Suzun–Vankor interfield
gas pipeline, gas well pads).
▪ The Company commenced

construction of the Suzun–Vankor
interfield gas pipeline.

▪ Follow-up exploration is ongoing

on a new prospective target (Nkh-3
formation).

25 wells

drilled in 2019,
including 11 multilateral wells

The Company started
developing reserves
of the field’s northern part,
with new wells boasting
an average flow rate of

>400 t per day

Liquid hydrocarbons produced
in 2019

2.8 mmt

▪ In 2019, the Tagulskoye field
produced 1.3 mmt of liquid
hydrocarbons.

▪ The Company launched a pipeline
connecting the field’s oil treatment
unit to the Vankor–Purpe trunk
pipeline.

▪ Rosneft continues to build field

facilities, well pads, etc. The reservoir
pressure maintenance system is up
and running.

▪ The approved asset development

strategy provides for an exploration
programme aiming to bring
additional reserves into production,
including those of the Dolgan suite.

+17%

63 wells

drilled in 2019,
including 30 multilateral wells

1.3 mmt

of liquid hydrocarbons
produced using mobile
oil treatment units
at the Tagulskoye field in 2019

New Cluster Based on the Severo-Danilovskoye Field

The Company is working on its project to develop the Danilovsky oil and gas
production cluster which consists of four fields (Severo-Danilovskoye, Yuzhno-
Danilovskoye, Verkhneicherskoye and Lisovsky). The dense arrangement
of the license areas and the proximity of the Verkhnechosnkoye field will bring
meaningful synergies from shared use of the ground infrastructure.

As part of its pre-launch efforts on
the Severo-Danilovskoye field, the
Company is actively building well pads,
infield roads, and engineering facilities.
The field construction includes drilling

95 wells on 10 well pads, a reservoir
pressure maintenance system, and
other top-priority infrastructure facilities.
The Company commenced construction
of a 93 km long oil pipeline which is set

to connect the Severo-Danilovskoye
field and the Verkhnechosnkoye field to
transport crude oil to oil treatment units
and subsequently to trunk pipelines.

Lodochnoye Field Development

In 2019, Rosneft drilled and completed
14 wells at the Lodochnoye field,
including five multilateral wells. In
2019, it produced 0.64 mmt of liquid
hydrocarbons hydrocarbon lead. Drilling
operations started to develop the largest
plays (reserves of the Yakovlev suite).
The Company continues production
drilling and infrastructure construction
to start up key field facilities.

14 wells

drilled in 2019,
including 5 multilateral wells

Liquid hydrocarbons produced
in 2019

The use of multilateral wells at the
Vankor cluster fields enhances the
drilling efficiency and boosts the initial
flow rate by 40–50%.

0.64 mmt

Russkoye Field Development

to 2018, Rosneft nearly tripled its
production of liquid hydrocarbons
to 0.8 mmt in 2019. The Company
continues production drilling, getting
ready to launch the second phase of
the Zapolyarnoye metering station,
the oil pipeline connecting the central
gathering facility and the Zapolyarnoye
metering station, as well as an innovative
project for self-sufficient preliminary
water discharge unit.

The Company continues to develop the
Russkoye field. In 2019, it drilled and
completed 81 horizontal wells, including
23 multilateral and multihole wells. A
total of 279 wells have been drilled here,
including 49 multilateral wells. As part of
pilot tests on multilateral wells, Rosneft
conducted geological zoning to rank
complex wells to maximise the sweep
efficiency at laminated heterogeneous
formations. Having launched the
Zapolyarnoye metering station, the
Company started delivering crude oil
from the Russkoye field to Transneft’s
trunk pipelines. It also commissioned
an APG-fired power plant. Compared

Liquid hydrocarbons produced
in 2019

threefold increase

0.8 mmt

Vostochno-Messoyakhskoye Field Development

Vostsibneftegaz is running a project
to develop an expanded high-priority
area at the Yurubcheno-Tokhomskoye
field, located in the Evenki District of the
Krasnoyarsk Territory.

The choice of best development
solutions coupled with quick
construction of production facilities and
advanced drilling technologies helped
Vostsibneftegaz increase its production
of liquid hydrocarbons by 76% year-on-
year to 4.1 mmt in 2019.

In 2019, it drilled 39 new wells, up 26%
year-on-year. The Company relies on
horizontal drilling to effectively develop
vuggy fractured reservoir rocks with
highly heterogeneous porosity and
permeability both along the vertical axis
and across the floor area. Some wells
demonstrated record-high flow rates in
excess of 500 t per day. The Company
decided to expand this high-priority
area with a view to bringing additional
reserves into production.

Vostsibneftegaz continues well testing
and logging, keeps streamlining well
operations, installing telemetry systems
and switching to artificial lift wells with a
view to optimising the field development
and gathering additional information on
wells and deposits.

adm@zebra-group.ru

Liquid hydrocarbons produced
in 2019

+76%

4.1 mmt

Srednebotuobinskoye Field Development

Taas-Yuryakh Neftegazodobycha is
developing the Central Block and
the Kurungsky licence area of the
Srednebotuobinskoye oil and gas
condensate field, which is one of
Rosneft’s top-3 assets in Eastern Siberia.

In 2019, production of
liquid hydrocarbons at the
Srednebotuobinskoye field increased
by 1.4 times year-on-year to 4 mmt.
The growth was driven by the extensive
use of horizontal and multilateral wells,
including those leveraging the Fishbones
stimulation technology. Multilateral wells
proved to be successful in 2019 and the
Company decided to roll them out with a
view to developing under-gas-cap zones.

In 2019, the operator ramped up water
injection volumes for reservoir pressure
maintenance from 3.7 to 5.6 mmcm, a
51% increase year-on-year.

On 15 September 2019, the
Company marked a new milestone
with 100 mmt of oil produced since
the commencement of commercial
production.

Rosneft continues to construct a high-
pressure gas compressor for reservoir
pressure maintenance and better APG
utilisation while also building a gas
turbine power plant for internal needs
and preparing well pads for drilling.

Liquid hydrocarbons produced
in 2019

+37%

4.0 mmt

boost the well productivity rate and the
scope of reserves under development,
the Company massively leverages
multilateral wells, including using the
Fishbones stimulation technology, with
42 multilateral wells commissioned in
2019.

In 2019, the Vostochno-Messoyakhskoye
field, a joint project of Rosneft and
Gazprom Neft, increased its production
of crude oil by 22% year-on-year to
2.7 mmt (attributable to the Company’s
share). The growth was driven by
active drilling operations, new wells
going on stream, well interventions
on existing wells, and the reservoir
pressure maintenance system being
deployed. In 2019, 112 new wells were
commissioned with an average initial
flow rate of 100 t per day. In order to

Liquid hydrocarbons produced
in 2019

+22%

2.7 mmt

Kuyumbinskoye Field Development

The Kuyumbinskoye field is developed
by Slavneft-Krasnoyarskneftegaz, a joint
venture of Rosneft and Gazprom Neft.
In 2019, it drilled 53 new production
wells, up 71% year-on-year. The
Kuyumbinskoye field saw its first-ever
controlled pressure drilling operation
on a horizontal well. Compared to 2018,
the Kuyumbinskoye field doubled its
production of liquid hydrocarbons to
0.5 mmt in 2019 (attributable to the
Company’s share).

In April 2019, Slavneft-
Krasnoyarskneftegaz commissioned the
central gathering facility with an annual
capacity of 1.6 mmt and the oil and gas
collecting pipeline connecting the right
bank of the Podkamennaya Tunguska
River and the central gathering facility.
In December 2019, the central gathering
facility saw its capacity expanded
to 2.9 mmtpa. Rosneft continues to
build field facilities and supporting
infrastructure.

Liquid hydrocarbons produced
in 2019

>100%

0.5 mmt

Severo-Komsomolskoye Field Development

The Severo-Komsomolskoye field
proceeded with the pilot development
programme for the PK1 formation.
20 new horizontal wells were
commissioned with horizontal
sections of 1.5–2 km and an average
initial flow rate of 137 t per day. In
2019, the asset produced 0.4 mmt
of liquid hydrocarbons, up 83%
year-on-year. Following the analysis
of its pilot activities in 2018–2019
and amendments to its geological
hydrodynamic model, the Company
updated its full-scale development

strategy and targets for the PK1
formation, streamlined well completion
practices (with all wells to be equipped
with inflow control devices), adjusted
project implementation phases with
a view to bringing the most proven
reserves of the western and eastern
areas into production, and developed an
exploration and appraisal programme.

The Company and its partner, Equinor
ASA, decided to launch Phase 1 of the
full-scale Severo-Komsomolskoye field
development.

Liquid hydrocarbons produced
in 2019

+83%

0.4 mmt

The Company continues its drive for expansion and improvement of its in-house
services to deliver high quality of services and gain a competitive edge.

A greater share of horizontal
drilling, %

Drilling

In 2019, the Company’s drilling service
completed 5,753 thousand m of
drilling on-site (1,628 wells, including
27 exploration wells). The share of
horizontal drilling reached 62% (up 14%
from 2018).

The operating fleet of the Company’s
drilling service in 2019 stood at
267 drilling rigs with an average age of
11 years. The Company has 237 drilling
crews.

2017

2018

2019

KEY ACHIEVEMENTS

▪ Rosneft successfully progressed with its programme to scale up the technol-

ogy for drilling two-string horizontal wells with oil based mud.

▪ A drilling crew of the Khanty-Mansi branch of RN-Bureniye set a record when
drilling horizontal well No. 2406 from well pad No. 24 at the Kondinskoye
field. The well was drilled in 17.5 days at a commercial drilling speed
of 6,893 m per rig per month.

▪ A drilling crew of the Nefteyugansk branch of RN-Bureniye broke the industry
record for the fastest construction of a two-string horizontal well. The drilling
at the Salymskoye field took as little as 7.4 days, 20% faster than ever before.
The commercial drilling speed exceeded 14 thousand m per rig per month.

Well Workover and Servicing

Hydraulic Fracturing

Today, RN-Service is the largest company
for well workover and servicing, with
branches in 13 Russian regions. In 2019,
it provided well servicing to 21 Rosneft’s
upstream companies, covering 43% of
Rosneft’s needs for well workover and
servicing.

Well workover and servicing works
performed by RN-Service in 2019
totalled 38,330, exceeding the business
plan target by 1,191 (103%). Actual
orders processed per workover and

servicing crew amounted to 57.4 per
year (106.5% against the business plan
target). Average service time reduced
by 7.8% against the target.

704 crews

for well workover
and servicing

In 2019, the Company received and
put into operation four new hydraulic
fracturing fleets.

RN-GRP completed 4,905 hydraulic
fracturing operations at Rosneft’s fields,
exceeding the business plan target
by 312 operations (107%).

20 fleets

of RN-GRP are used in Group
Subsidiaries’ operations.

In-House Well Logging Service

RN-Service transferred 610 vehicles to RN-Transport as part of the establishment of
a service holding company based on RN-Transport that will provide transportation
services to Rosneft’s companies.

579 inefficient or unused machines were withdrawn from operation.
KEY ACHIEVEMENTS IN 2019

7,626.6

vehicles
is the average machine count

21,563

thousand machine hours
were spent to provide services

198 vehicles

for general and specialised use
were supplied

90%

of the rolling stock is technically
ready for operation

2.4%

of the operating fleet
was upgraded

70%

is the fleet utilisation
indicator

In January 2019, we launched an in-
house well logging service at Bashneft-
PetroTest and started well logging and
blasting and perforating operations
at Bashneft-Dobycha’s fields. This
project will help boost the efficiency
of the Company’s exploration and
development activities, reduce the cost
of well logging, optimise the amount of
log data, and enable import substitution
in this area.

In 2019, as part of the Rosneft–
Rosatom R&D cooperation, SMIS-
172-B multi-parameter logging while
drilling tool was tested on five wells
of the Severo-Khokhryakovskoye field
(Varyeganneftegaz). The system is
based on a technology-intensive and
environment-friendly induced gamma-
ray spectroscopy module, first of its
kind ever manufactured in Russia.
The tests produced important data
based on which the system will be

finalised for future commercialisation.
Following the tests completed in
wells of Samaraneftegaz and RN-
Krasnodarneftegaz in 2016–2017 as
part of the Company’s cooperation with
Rosatom, the Technology Expert Council
of the State Commission for Mineral
Reserves issued a positive opinion on
possibility of using log interpretation
data obtained from this logging tool
to substantiate the estimates of
hydrocarbon reserves.

Corporate Software Development

To improve the production planning
accuracy and select the most
appropriate hydrocarbon extraction
technologies, Rosneft makes extensive
use of field models created by its
proprietary RN-KIM hydrodynamic
simulator. This advanced software has
been widely exploited by the Company
for over three years and is adapted to
the geological and operating conditions
of the fields the Company is developing.

In 2019, the use of RN-KIM increased
to 77%. We released a new version
that allows us to quickly (using graphics
processing units or computer clusters)
perform modelling calculations for oil
and gas condensate fields that require
computation-intensive analysis.

In 2019, as part of the efforts to expand
its capabilities in solving the most
pressing operational issues related
to log interpretation, the Company
created a development concept and a
prototype for RN-PetroLog, proprietary
petrophysical modelling software that
supports integration with corporate
databases, multi-well data processing,
and computerised data interpretation.

In 2019, the use of RN-KIM
increased

to 77%

Rosneft sees hydrocarbon resource development on the continental shelf as a key
strategic direction for its growth.

19 licence areas

are located
in the Western Arctic
shelf seas

The Russian shelf
has the largest area
in the world

million sq km

Aggregate resource
potential as at 2019 –

btoe

licence areas
are located
on the Russian shelf

7 Rosneft’s licence areas

are located in the seas
of the south Russia

Rosneft owns 55 licence areas on
the Russian continental shelf, with an
aggregate resource potential of 41 btoe
as at 31 December 2019. 19 of these
licence areas are located in the waters of
the Western Arctic (the Pechora, Barents
and Kara seas), nine licence areas in the
Eastern Arctic (the Laptev, Chukchi and
East Siberian seas), 20 offshore areas
in the Russian Far East (the seas of
Okhotsk and Japan), and seven licence
areas in the seas of the south Russia
(the Black, Caspian and Azov seas) (see
Figure 1).

The Russian shelf has the largest area
in the world – over 6 million sq km.
Rosneft holds the biggest pool of
licences on the continental shelf and
carries out a full range of exploration
operations in the seas of the Russian
Arctic, Russian Far East, and the south
Russia. The Company’s offshore projects
lay the groundwork for the future of the
modern Russia, spurring sustainable
socio-economic development, propelling
industry modernisation, fostering
high-tech innovation and robotisation,
facilitating the upgrade of coastal and
transport infrastructure, and unlocking
new talent.

Offshore Exploration
in Russia

In 2019, in line with its licence
commitments, Rosneft continued
exploration and prospecting for oil and
gas in offshore areas in the Russian
Arctic, Far East, and in the seas of the
south Russia.

9 Rosneft’s

licence areas
are located
in the Eastern Arctic
shelf seas

20 Rosneft’s

licence areas
are located
of the Russian Far East
coast

Soil surveys

Soil surveys were performed on the site
selected for drilling of an exploration well at
the offshore Kaigansko-Vasyukanskoye Sea
field near Sakhalin.

The results of comprehensive marine surveys
provided full sets of data for well design and
construction in the licence areas, including for
engineering and environmental protection.
Detailed data on soil composition in the
area will allow experts to predict geological
and geological engineering processes and
address risks that might arise during the
drilling phase.

Exploration drilling

Environmental monitoring

The following environmental protection
activities were carried out under licence
obligations.

The mouths of previously drilled wells
were inspected in the Kara Sea, the
Sea of Okhotsk, and the Black Sea. All
work was carried out in line with the
requirements of the Russian HSE laws.
The technical condition of the inspected
wellheads was satisfactory, with no
hydrocarbon leakages detected.

Artificial reproduction of aquatic
biological resources was conducted
to compensate for any potential
damage to water life and its habitats.
While implementing the biodiversity
preservation programme for the
Company’s licenсe areas, we prepared
a reasonable list of indicator species
to assess the sustainability of Arctic
ecosystems and analysed the
occurrence rates for various species
existing in these areas.

The well construction at the
Vostochno-Pribrezhny licence area
was completed in December 2019.
The bottomhole depth is 3,047 m.
The entire scope of the planned well
surveys was carried out, including
cased-hole tests. The Dagi suite’s
oil and gas bearing capacity was
confirmed. The State Commission
for Mineral Reserves registered
the discovery of the Vostochno-
Pribrezhnoye field and booked
2.6 mmt of C1+C2 recoverable oil.

Field geology expeditions

The Company continues to develop
and update the regional models of
Russian and foreign offshore fields
located in the areas of its presence and
interest (Russia’s Arctic, Far Eastern
and Southern seas, as well as foreign
waters). Three onshore field geology
expeditions were organised to mitigate
the sub-surface risk related to certain
elements of petroleum systems (source
rocks for oil and gas, reservoir rocks,
and cap rocks) within the Company’s
offshore licence areas in the Far East
and the Arctic, including Sakhalin, the
Severnaya Zemlya Archipelago, and the
New Siberian Islands. Representative
rock samples were collected for
laboratory analysis, whose results are
used to update the geological model of
the region and the survey areas.

2D/3D SEISMIC SURVEYS

In the 2019 field season, Rosneft
completed 2D seismic surveys
of 250 linear km in the transition zone of
the Tsentralno-Tatarsky licence area off
Sakhalin Island. The works were carried
out ahead of the schedule stipulated by
the licence.

3D seismic surveys of 865 sq km were
conducted for the Sakhalin-1 Project. 2D
seismic surveys of 310 linear km were
completed on the Severo-Kaspiyskaya
licence area. The seismic findings will
provide the basis for informed decisions
on further exploration of the licence
areas.

Northern Tip
of the Chaivo Field

Odoptu-Sea Field
(Northern Dome)

Lebedinskoye Field

Novoye Field

from an onshore site and the Orlan
platform using wells with record-
length boreholes; while Arkutun-Dagi is
developed using Berkut, a fixed offshore
platform that features the world’s
heaviest upper structure.

Record-high output was achieved in
2019, when the Sakhalin-1 project
produced a total of over 13,0 mmt of
oil and gas condensate (Rosneft’s share
was 2.6 mmt). Nearly 2.4 bcm of gas
(with Rosneft’s share of 0.5 bcm) were
supplied to consumers.

Oil production at the northern tip of the
Chaivo field involves five wells that have
a unique, complex design and extended
horizontal displacement. The wells
are equipped with smart completion
systems with flow control devices to
limit gas breakthroughs and maximise
production.

In November 2019, Rosneft achieved a
milestone of 7 mmt of crude oil pumped
out from the Chaivo field’s northern tip
since the start of the project.

Oil from the Sakhalin-1 fields is delivered
to the Chaivo onshore oil treatment
facility on Sakhalin Island and then
transported by pipeline to the De-Kastri
oil export terminal in the Khabarovsk
Territory.

0.5 mmt
oil and condensate output
in 2019
0.07 bcm
the total amount of gas supplied
to consumers

Pilot operation of the offshore
Lebedinskoye field in the Sea of
Okhotsk began in 2015. It is operated
by the Company’s subsidiary RN-
Sakhalinmorneftegaz. Four production
wells are used. Crude oil extracted from
the Lebedinskoye field has a quality
grade similar to Sokol crude.

Rosneft started production testing of
its Novoye deposit in the Azov Sea in
2016. The field operator for both oil and
gas production is Priazovneft, in which
Rosneft holds 51%, while Lukoil owns a
49% stake. Field appraisal is underway
alongside production. The drilling of
Novaya-2 exploration well started in
October 2019.

0.3 mmt of crude oil produced
in 2019
0.12 bcm of APG produced
in 2019

The Odoptu-Sea field (the Northern
Dome) is Russia’s first offshore field
brought on stream, flowing oil since
1998. The operator of the oil and gas
field is RN-Sakhalinmorneftegaz.

The field’s infrastructure comprises
oil and gas gathering and treatment
facilities, a reservoir pressure
maintenance system, outbound
pipelines to transport oil, gas and water,
and power generation facilities.

We continued to drill new production
wells in 2019 in order to maintain the
field’s recovery rates. Three production
wells were drilled and put into
operation. One of them is the longest
horizontal well in this field. With a huge
horizontal displacement, it is 8,699
meter deep. The previous record for
well length at this field was set in 2011 at
8,119 meters.

0.4 mmt of crude oil produced
in 2019
0.14 bcm of APG produced
in 2019

Sakhalin-1 Project

Efficient implementation of the
Sakhalin-1 project continued in 2019.

Rosneft is a member of the project
within the consortium that includes
ExxonMobil (United States), SODECO
(Japan), and ONGC Videsh Ltd. (India).
The Company’s share is 20%, and the
project operator is Exxon Neftegas
Limited.

The Sakhalin-1 project involves the
development of four offshore fields:
Chaivo, Odoptu-Sea, Lebedinskoye
(within the Odoptu licence), and
Arkutun-Dagi, located in the Sea of
Okhotsk on Sakhalin Island’s north-
eastern continental shelf.

State-of-the-art technologies and
project management methods are
used to develop the Chaivo, Odoptu-
Sea, Lebedinskoye, and Arkutun-Dagi
fields. At the Odoptu-Sea field, oil is
produced from an onshore site using
super-extended reach horizontal wells;
at the Chaivo field, oil is extracted

13.0 mmt
Oil and Gas Condensate
Production (with Rosneft’s share
of 2.6 mmt).
~2.4 bcm
(with Rosneft’s share of 0.5 bcm)
were supplied to consumers.

Rospan and Kharampur are major gas projects viewed as the top contributors
to the Company's near-term hydrocarbon production growth.

The Company is developing vast gas
reserves in Western and Eastern
Siberia and holds a unique licence
portfolio for hydrocarbon development
on the Russian continental shelf.
As at 1 January 2020, АВ1С1+В2С2
recoverable gas reserves were estimated
at 7.7 tcm.

Rosneft produces gas through more
than 35 subsidiaries and joint ventures
in Western and Eastern Siberia, Central
Russia, the south of European Russia,
the Russian Far East, as well as in Egypt,
Vietnam, and Canada.

19%

share of gas in the Company’s
total hydrocarbon production
in 2019

Strategic Objectives of the Gas Business

THE FOLLOWING OBJECTIVES HAVE BEEN SET
IN THE ROSNEFT–2022 STRATEGY FOR THE GAS BUSINESS:

▪ Deliver the key gas produc-

tion projects, including Rospan
and Kharampur, on schedule
and within budget, thereby rais-
ing annual output to more than
100 bcm.

▪ Improve the gas sales econom-

ics in Russia through such meas-
ures as promoting a favourable
regulatory environment, includ-
ing equal access to infrastructure
and customers.

▪ Improve the Company's tech-
nological base for production

and expand its technological competence
to support:
– the development of the Turonian

deposit;

– the production of liquid petroleum gas
(LPG) and natural gas liquids (NGL);
– increased APG utilisation, including
through the development of captive
power generation and petrochemicals;
– in the longer term, gas reserve moneti-

sation in Eastern Siberia and the Russian
Far East, including through petrochemi-
cals development;

– LNG production and exports.

In December 2019, the Company's Board
of Directors reviewed the progress
against the Rosneft–2022 Strategy
in 2019 and confirmed the previously
approved strategic objectives and targets
for the gas business.

Meeting the strategic gas business
objectives will increase Rosneft’s
free cash flow in 2020–2022 and the
Company’s long-term shareholder value
while also securing a 20% share in the
Russian gas market.

67.0

bcm
total gas production in 20191

Rosneft’s strategic goal for gas business devel-
opment is to consistently grow its shareholder
value through increased gas output supported
by a high-performance long-term sales portfolio.

1 Recovered gas volume excluding flared gas and gas used in liquid hydrocarbons production.

1 LPG – liquefied petroleum gas.
2 NGL – natural gas liquids.

74
74

7575

▪ Construction of key facilities at
Rospan is in its final phase:
– core process equipment for
the CGTU1 in the Vostochno-
Urengoysky licence area
installed;

– major construction and
installation operations
completed to prepare the oil
treatment unit for launch;
– six out of seven gas turbine
units launched to cover the
electricity demand of all first-
stage facilities;

– the Korotchaevo railway terminal

almost completed.

▪ Construction of key facilities at
Kharampurneftegaz is in the
active phase:
– construction and installation

continues at the gas treatment
unit, gas shipment pipeline,
power facilities, and other
infrastructure;

– 57 out of 61 project wells drilled;
– geological data research and

collection continues for the first
well put into pilot operation at
the Turonian deposit.

1 CGTU – comprehensive gas treatment unit.

▪ The Zohr joint offshore

▪ Under the Far Eastern LNG

project, the Sakhalin-1 consortium
decided to proceed to the stage of
front-end engineering design (FEED)
and initiate competitive contractor
selection.

▪ In August, Rosneft signed

cooperation agreements with
Mozambique’s National Petroleum
Institute (INP) and state oil and
gas company ENH. Under these
agreements, Rosneft will have
the right to study the available
geological information to assess the
potential of onshore and offshore
blocks in Mozambique.

▪ At the St Petersburg International
Economic Forum, Rosneft and
Rostec signed an agreement to
support the gas motor fuel
market.
The parties agreed to upgrade
Rosneft’s filling stations with
liquefied natural gas (LNG) and
compressed natural gas (CNG)
equipment.

development project in Egypt
reached its full design capacity
of 76 mmcm per day ahead of
schedule. Since the project was
launched in December 2017,
13 production wells, eight gas
treatment trains, four subsea
pipelines, and an offshore
management platform had been
commissioned.

▪ A unique process was developed

to produce gas from the low-
permeability reservoirs of the
Berezovskaya suite. The distinctive
feature of the technology is that
it allows fissure logging while
drilling. The logging results can
be used to identify the optimal
layout of hydraulic fracturing ports,
contributing to more effective
development of such fields. A
patent application has been filed.

▪ For the first time in Russia, a

reserve estimation at Kharampur
resulted in the Berezovskaya
suite reserves being successfully
proved to the State Commission
for Mineral Reserves (GKZ) and
approved by the Federal Subsoil
Resources Management Agency
(Rosnedra).

Gas Production

Performance
in the Reporting Year

In 2019, Rosneft’s gas production both in
Russia and abroad totalled 66.951 bcm,
including 32.77 bcm of natural gas and
34.18 bcm of associated petroleum gas.
The Company’s international projects,
mostly in Egypt, Vietnam and Venezuela,
accounted for 4.97 bcm of the total gas

output, including 4.90 bcm of natural
gas, while its domestic output stood at
61.98 bcm. Some of the Russian gas
was processed into liquid hydrocarbons.
In 2019, the Company’s gas output in
Russia, including the gas processed into
liquid hydrocarbons, totalled 62.36 bcm.

Gas production was almost flat vs 2018.

8.5%

share in Russia’s
total gas production

Gas Production by Region

Gas Production in Key Regions
of Operation in Russia and Abroad,
bcm

66.95

bcm

Western Siberia
Eastern Siberia
Foreign Projects
Far East
Central Russia
Southern Russia
Other.
including Timan-Pechora

47.01
7.51
4.97
2.95
2.2
2.07

0.24

Rosneft’s largest gas-producing region
is Western Siberia, which contributed
47.01 bcm, or 70%, of the total gas
output in 2019, including 24.27 bcm
of natural gas produced mainly by
Sibneftegaz, Rospan International,
Purgaz and RN-Purneftegaz and
22.74 bcm of associated petroleum gas
produced mainly by Samotlorneftegaz,
RN-Yuganskneftegaz, Varyeganneftegaz
and RN-Purneftegaz.

In Eastern Siberia, gas was produced
at the Vankor group of fields, the

region's largest. Output there amounted
to 5.94 bcm of associated petroleum gas
and 1.57 bcm of natural gas.

Samaraneftegaz and Bashneft-Dobycha.
Output there amounted to 2.2 bcm.

In the Russian Far East, Rosneft mainly
produced associated petroleum and
natural gas from onshore fields and on
the shelf off Sakhalin, with RN-Shelf-Far
East accounting for the bulk of the 2.95
bcm gas production in 2019.

In the Volga-Urals Region, gas
was primarily produced from the
fields operated by Orenburgneft,

In Southern Russia, the Company's
key gas asset is RN-Krasnodarneftegaz,
which produces both natural and
associated petroleum gas. The region
brought in 2.07 bcm in 2019.

International projects, mainly the
Zohr offshore field in Egypt, produced
4.97 bcm. Our operations in Vietnam
and Canada also contributed.

1 Recovered gas volume excluding flared gas and gas used in liquid hydrocarbons production.

In line with its approved strategy, the Company focuses on high-ROI projects.
Our key priority is to launch such projects within budget and on schedule, so that
we can produce more than 100 bcm of gas annually by 2022 and increase the share
of gas in total hydrocarbon production.

Rospan

The launch of Rospan, the largest gas
project in the Company’s portfolio,
is key to achieving the mentioned
objectives. The full-scale development
of Rospan International's fields will be
the primary source of near-term growth
for both gas and other hydrocarbon
production.

Total recoverable reserves
(AB1C1+B2C2) as at 1 January 2020:
▪ 912 bcm of gas
▪ 169 mmt of gas condensate and

crude oil

Mid-term annual production outlook:
▪ over 21 bcm of gas
▪ over 5 mmt of gas condensate and

crude oil

▪ up to 1.3 mmt of industrial
propane/butane mixture

At the end of 2019, construction of key
facilities was in its final phase:
▪ core process equipment installed
as part of the CGTU's first start-up
complex in the Vostochno-
Urengoysky licence area, key
installation and testing tasks
completed on the process pipelines;
▪ major construction and installation

operations completed on the
oil treatment unit, core process
equipment being prepared for hot
commissioning;

▪ six out of seven gas turbine units

launched at the Vostochno-
Urengoysky licence block's gas
turbine power plant;

▪ at the Korotchaevo railway terminal,
most of the installation completed
on the process pipelines and shut-off
and control valves.

Russian and foreign cutting-edge
technologies ensure more efficient
production at Rospan. For the first time
in the Company's history, two horizontal
wells were drilled in 2019 using multi-
stage hydraulic fracturing and the
HiWAY technique to enable production
from reservoir edges and speed up the
overall development, effectively boosting
technical gas recovery by 2.1%.

Plans
Completion and launch in 2020.

Kharampur

Also vital to Rosneft’s gas business is
the project it runs together with BP at
the Kharampurskoye field. Its objectives
include conventional gas production
from the Cenomanian deposit and the
pilot and then full-scale development of
the Turonian deposit. The Company has
the expertise and experience to deliver
such complex projects efficiently.

As at 1 January 2020, the field's
АВ1С1+В2С2 recoverable natural
gas reserves, including the Turonian
deposit, were close to 1 tcm.

Once it reaches the design capacity,
annual gas production is expected to
be around 11 bcm, with a potential to
expand to 25 bcm later.

In 2019, construction of key facilities
remained in the active phase:
▪ construction and installation at the
gas treatment unit involved placing
foundation piles, pouring concrete,
and assembling steelwork;
▪ construction and installation

progressed at the gas shipment
pipeline, with drilling started for the
second Vasseyakha River crossing;

▪ 57 out of 61 project wells were

drilled;

▪ geological data research and

collection continued for a well put
into pilot operation at the Turonian
deposit;

▪ gas well cluster engineering facilities
and feeder roads were completed;
construction of gas gathering
networks and fit-up of well pads and
power facilities continued.

Plans
The near-term plans include:
▪ completion of gas production

infrastructure for the Cenomanian
deposit;

▪ completion of key facilities (the gas

treatment unit, gas shipment pipeline,
etc.);

▪ completion of the feasibility study

for the full-scale development of the
Turonian deposit and proceeding to
the FEED stage.

The project launch is scheduled for 2021.

Research was also in progress at the
Kharampurskoye field to study the
geological structure and production
potential of the Berezovskaya suite's low-
permeability gas reservoirs. The Company
has developed methodologies and

Gas supply regions

Gas production

Promising gas production projects

Gas processing plants (GPPs)

LNG production projects

1. Rospan
2. Sibneftegaz
3. Kharampurneftegaz
4. Kynsko-Chaselskoye Neftegaz
5. Vankor group
6. RN-Purneftegaz
7. RN-Yuganskneftegaz
8. Samotlorneftegaz
9. Varyeganneftegaz
10. RN-Nyaganneftegaz

11. RN-Krasnodarneftegaz
12. Orenburgneft
13. Bashneft-Dobycha
14. Bashneft-Polyus
15. Minkhovskoye
16. Yurubcheno-Tokhomskaya group
17. Agaleevsky license area
18. Verkhnechonskneftegaz
19. Taas-Yuryakh Neftegazodobycha
20. Bratskekogaz

21. RN-Shelf-Far East, RN-

Sakhalinmorneftegaz, Sakhalin-1

22. Far Eastern LNG (as part of Sakhalin-1)
23. Otradnensky and Neftegorsky GPPs in the

Samara Region

24. Buzulukskoye GPP in the Orenburg Region
25. Shkapovskoye and Tuimazinskoye GPPs
26. RN-YuganskGazPererabotka

techniques to explore the suite’s reserves
and estimate its resource potential.
In 2019, a comprehensive estimation at
Kharampur resulted in its Berezovskaya
suite's reserves being, for the first
time in Russia, approved to the State
Commission for Mineral Reserves (GKZ)
and protected by Rosnedra.

In 2019, we also finalised our unique
method of gas production from the
Berezovskaya suite. The distinctive
feature of this technology is that it
allows fissure logging while drilling. The
logging results can be used to identify
the optimal layout of hydraulic fracturing
ports, contributing to more effective
development of the Kharampurskoye
field. A patent application has been filed.

Sibneftegaz

This is our biggest gas-producing asset
for the moment.

It produced 11.4 bcm of natural gas
in 2019, with the cumulative gas
output reaching 125 bcm by the year
end.

As at 1 January 2020, its АВ1С1+В2С2
recoverable reserves amounted to
532 bcm of gas and 31 mmt of gas,
crude oil and gas condensate.

In 2019:
▪ production drilling continued;
▪ essential production facilities under

construction included:

– a gas and condensate treatment
unit and related infrastructure
for the development of the
Beregovoye field’s lower
horizons;

– a booster compressor station at

the Beregovoye field.

Plans
The facilities are to be launched in 2020.

Thanks to production maintenance
projects at the existing fields and the
non-capital-intensive development of
the Beregovoye field’s lower horizons,
annual gas output in the period until
2022 is expected to exceed 15 bcm.

In 2019, Rosneft continued to develop
prospective gas production centres at its
existing fields in Eastern Siberia and the
Republic of Sakha (Yakutia).

Verkhnechonskneftegaz

Rosneft and Beijing Enterprises Group
Company Limited1 were jointly exploring
the Verkhnechonskoye oil and gas
condensate field in the Irkutsk Region.
The project will involve establishing a
new gas production centre and building
transport infrastructure. Our strategic
partnership with Beijing Enterprises
Group Company Limited is expected
to open up new opportunities for
monetising gas reserves in Eastern
Russia.

Taas-Yuryakh

In the Republic of Sakha, Rosneft, BP
and an Indian consortium consisting of
Oil India Limited, Indian Oil Corporation
Limited and Bharat PetroResources
Limited continued to develop the
Srednebotuobinskoye oil and gas
condensate field,which in a long term is
set to become a basis for a major gas
production project.

Kynsko-Chaselsky
licence area

In the long term, we plan to use the
infrastructure of the Kynsko-Chaselsky
licence area to create a new gas
production centre in the south-east of

Gas Processing and Better APG Utilisation

the Yamal-Nenets Autonomous Area.
This will include the development of
seven previously acquired licence areas
and, in the longer run, the adjacent
areas in the eastern part of what is open
acreage today.

The project’s expected annual output
is 15.7 bcm, with a potential to grow to
19 bcm later. In 2019, the key design
solutions were fully developed for its
first stage, which targets an annual
output of up to 8.7 bcm. Engineering
surveys and the work on design
documentation are to start in 2020.

Our APG utilisation
programme helps reduce
the environmental footprint
and address environmental
issues in the producing
regions by utilising associated
petroleum gas.

In 2019, the Company's APG utilisation
rate, including fields under development
and greenfield projects at early stages of
development, stood at 77.8%, or 6 p.p.
lower than a year ago. If fields at early

LNG Projects

stages of development are excluded, the
rate was 89.3%.

and drafting design and cost estimate
documents.

The Company continued its full-scale
efforts to improve utilisation and
completed 23 APG facilities.

To further develop our gas processing
capabilities, we worked on a project to
build the Maisky gas processing complex
in Western Siberia. In 2019, positive
opinions of the Main Department of
State Expert Evaluation were obtained
after completing engineering surveys

In 2019, the Company's
APG utilisation rate2 stood at

89.3%

The Company is involved in the Far
Eastern LNG project as a member of the
Sakhalin-1 consortium to monetise the
natural gas reserves of the Russian Far

East. In 2019, the project’s shareholders
defined the marketing strategy and
decided to proceed to the FEED stage.
Competitive contractor selection

process was initiated, with designing and
planning done for the early preparations
to commence on the LNG plant site
in 2020.

International Gas Business Development

Expanding into gas markets abroad
and becoming a global player in the
world's LNG market are among Rosneft's
priorities. The Company’s involvement in

international gas projects will ensure a
significant and cost-effective increase in
natural gas reserves and a balanced risk
profile of its asset portfolio.

INTERNATIONAL GAS
ASSETS

Egypt: a 30% stake in the unique
project to develop the Zohr field
together with Eni, BP, Mubadala,
and Egypt’s state oil and gas com-
pany EGAS.

Vietnam: a 35% stake in Block 06.1
as the operator (current stage: natu-
ral gas and gas condensate produc-
tion), a 100% stake in Block 05.3/11
(current stage: exploration),
and a 32.67% stake in the Nam Con
Son gas pipeline.

Brazil: a 100 % stake in Solimões
Basin blocks as the operator (current
stage: exploration).

Mozambique: a 20% stake in three
offshore blocks (А5-В, Z5-C and Z5-D)
with a potential for large gas discov-
eries (current stage: exploration).

Latvia: a 10% stake in AS Latvijas
Gaze, a major natural gas supplier
in the Baltic markets.

1 Beijing Enterprises Group Company Limited holds a 20% stake in Verkhnechonskneftegaz.
2 Excluding fields at early stages of development.

1 See more in section Х.Х.

Iraq

Iraq (Kurdistan)

Development of International Projects
in Promising Oil and Gas Regions

Rosneft is a global energy company with
a diversified portfolio of international
assets. The Company’s mid-term
strategic objectives in international
expansion include managing its current
asset portfolio effectively. Over the
longer term, the Company seeks to
expand its international presence in
the world’s most promising oil and gas

regions, grow its resource base, and
improve overall performance.

Our main goal of building a sustainable
and profitable international presence
is the creation of additional value for
our shareholders while acquiring new
knowledge and expertise for more
effective project development both

in Russia and abroad. Operating in
regions such as South America, North
and East Africa, the Middle East, and
the Asia-Pacific Region, the Company
actively develops local partnerships
that are aimed at mutually beneficial
implementation of development
projects.

The Zohr Project in Egypt

In October 2017, Rosneft signed on as
a full partner with a 30% stake in the
project.

The Zohr field was discovered by Eni in
2015. It covers an area of 231 sq km,
with sea depths ranging from 1.2 to
1.7 km and a gas deposit located at
a depth of 3.4 to 4 km. Zohr is one
the biggest offshore fields in the
Mediterranean Sea. Gas production at
the field started in December 2017.

In 2019, Zohr commissioned four new
production wells, three gas treatment
unit trains and the third pipeline for gas
transportation from the field to the gas
treatment facilities, enabling it to reach
its production target of 76 mmcm per
day in August 2019, five months ahead
of the Development Plan.

Actual production in 2019 (100% of the
project) totalled 23.4 bcm of gas and
0.2 mmt of gas condensate (Rosneft’s
share: 4.1 bcm of gas and 0.04 mmt of
gas condensate).

The entire volume of gas production
goes to Egypt’s national gas system.

In December 2019, the partners
deemed practicable to carry out
exploration on the Shorouk Block in
2020–2021 by drilling an exploration
well with a view to enhancing the
project’s resource potential.

Actual production in 2019
(100% of the project)
totalled

23.4

bcm of gas

0.2

mmt of gas condensate

Through its subsidiary, Rosneft Brasil
E&P Ltda, Rosneft engages in a
prospecting and exploration project
at licence areas in the Solimões River
Basin (State of Amazonas), holding a
100% stake and operatorship in these
licences. Its efforts resulted in a number
of gas discoveries. In 2019, the Company
drilled the fourth prospecting well which
helped detail the geological structure
and the oil and gas bearing potential
of the basin. Rosneft is currently
considering monetisation options for the
newly discovered gas reserves.

Bashneft International B.V. is the project
operator and owns a 100% stake in
the hydrocarbon exploration and
production agreement for Block 12.

In December 2019, the second
exploration well, Salman-2, was
completed and tested by the Company
at Block 12 in Iraq’s south, which
confirmed the initial estimate of oil
reserves at the Salman field. In late
2019, the Company submitted to the
Iraqi side an application for potential
commercial discovery and a further
exploration programme for the next two
years.

Since 2017, Rosneft has been running
a hydrocarbon exploration and
production project in Iraqi Kurdistan.
The Company is the project operator,
holding an 80% stake in five production
sharing agreements (PSA).

In February 2019, oil production was
piloted at the Bejil field.

In 2019, the Company started
3D seismic surveys, getting ready for
exploration drilling.

Offshore Projects in Vietnam

Rosneft participates in the consortium
for exploration of three offshore blocks
(А5-В, Z5-C, Z5-D) in Mozambique
which were obtained following the
fifth licensing round. The consortium
includes Rosneft – 20%, ExxonMobil
(operator) – 40%, Mozambique’s state-
owned ENH – 20%, Qatar Petroleum –
10%, Eni – 10%.

In 2019, the consortium continued to
process and interpret seismic data
getting ready to drill prospecting wells.

Bashneft International B.V. is the project
operator at Block EP-4, holding a 90%
stake in the PSA.

Its efforts helped identify a number of
targets for prospecting drilling. The first
well is scheduled for 2020.

Myanmar

Actual production in 2019
(100% of the project)
totalled

4.16

bcm of gas

0.04

mmt of gas condensate

Rosneft participates in exploration projects and a joint gas and
condensate production project at Block 06.1 in the Socialist
Republic of Vietnam (Rosneft Vietnam B.V. as the project
operator holds 35%, ONGC – 45%, PVN – 20%). The project is
implemented in line with the PSA. Block 06.1 contains three
gas condensate fields, specifically Lan Tai, Lan Do, and PLD
(Wild Orchid). The fields are located 370 km offshore in the
Nam Con Son Basin.

Actual production in 2019 (100% of the project) totalled
4.16 bcm of gas and 0.04 mmt of gas condensate (Rosneft’s
share: 0.78 bcm of gas and 0.01 mmt of gas condensate).

In 2013, the Company signed a PSA for the development of
Block 05.3/11. The project is currently at the exploration stage.
The licence area is located in the region with confirmed oil and
gas bearing potential and extensive infrastructure, and borders
on the currently developed fields of Block 06.1.

Rosneft also participates in the offshore Nam Con Son pipeline
project (Rosneft Vietnam Pipelines B.V. – 32.67%, Perenco –
16.33%, PVN – 51%), which involves the transportation of gas
and gas condensate produced at offshore blocks in the Nam
Con Son Basin to the onshore processing facility and then to
gas turbine power plants for electricity generation.

The pipeline has a capacity of 7.7 bcm per year, carrying
ca. 7 bcm of gas in 2019, including the gas produced from
Block 06.1 and other operators in the Nam Con Son Basin. Its
operational efficiency is 100%.

On 22 June 2019, Rosneft Vietnam B.V., one of the Group
Subsidiaries operating in Vietnam, marked 17 years of safe
offshore operations with no lost-time injuries, an important
milestone in its activity.

1 Actual production in 2019 (100% of the project) totalled 23.4 bcm of gas and 0.2 mmt of gas condensate

(Rosneft’s share: 4.1 bcm of gas and 0.04 mmt of gas condensate).

The Company ranks No. 1 in Russia in terms of refining capacity and throughput. It
operates 13 large refineries, which processed over 100 mmt of oil in 2019.

100.1 mmt

oil processed by Rosneft’s Russian
refineries in 2019

74.4%

refining depth in 2019

57.6%

light product yield

Key Results of 2019
(Oil Refining)

In 2019, the Company’s oil refining
activities were aimed at satisfying
the demand for quality petroleum
products.

In the reporting year, Rosneft’s Russian
refineries processed 100.1 mmt of oil.
The total oil refinery throughput (including
foreign assets) stood at 110.2 mmt. In
the fourth quarter, Russian refineries’
throughput amounted to 25.5 mmt, with
the year-on-year change attributable to
the repair cycle.

The refining depth and light product
yield in 2019 was 74.4% and 57.6%,
respectively.

The Company continued to expand its
range of environmentally-friendly fuels. In
May 2019, the Ryazan Refinery launched
the production of AI-95-K5 Euro-6
gasoline to supply the Moscow Region
with greener fuel. The Komsomolsk and
Ufa refineries started producing RMLS, a
low-sulphur marine fuel compliant with
the IMO standards that went into effect
in early 2020. The fuel contributes to

Kaliningrad
Baltiysk

Primorsk

Ust-Luga

St. Petersburg

Murmansk

Arkhangelsk

YANOS

Moscow

RYAZAN OIL
REFINERY COMPANY

Retail coverage

Producing assets

Company’s reﬁneries

Petrochemical plants

Ports of presence

Company’s GPPs

VANKORNEFT

ROSPAN

SIBNEFTEGAZ

Taganrog

Yeysk

Caucasus
Taman
Novorossiysk
Gelendzhik

Tuapse

Sochi

SYZRAN
REFINERY

SAMARA GROUP REFINERIES

YUGANSKNEFTEGAZ

Azov

Volgodonsk
Basin

TUAPSE
REFINERY

OTRADNENSKY AND
NEFTEGORSKY GPPS

NPCC

UFA GROUP OF REFINERIES

UFAORGSINTEZ

SAMARANEFTEGAZ

BUZULUKSKY GPP

ORENBURGNEFT

SAMOTLORNEFTEGAZ

NIZHNEVARTOVSK OIL
REFINING ASSOCIATION

TAAS-YURYAKH
NEFTEDOBYCHA

Rivers in
Western Siberia

VERKHNECHONSKNEFTEGAZ

KOMSOMOLSK
REFINERY

De-Kastri

Vanino

and upgrade projects under IFRS in the
reporting year amounted to RUB 43.8 bln.
The Company remains focused on highly
efficient projects to debottleneck the
refinery configuration by overcoming
production and technical constraints, and
developing bitumen production, as well
as increasing operational efficiency and
reducing operating costs.

minimising the bunker’s environmental
footprint. The Ufa Refinery also began
the industrial production of AI-100 high
octane gasoline using a proprietary
technology.

The first batch of hydrotreating catalysts
suitable for Euro-5 compliant diesel fuel
underwent industrial tests at Rosneft’s
Ufa group of refineries. This is the first-
ever hydrotreating agent capable of
fully replacing its foreign analogues for
the Russian refining industry. The tests
proved that Rosneft’s proprietary catalyst
was fit for the production of diesel fuel
compliant with all the latest technical
requirements. The catalyst is on par with
the best foreign peers and even superior
to them in some aspects.

Rosneft continues to implement the
existing facility maintenance initiatives and
refinery upgrade programmes. The total
spending on Oil Refining maintenance

ACHINSK REFINERY

ANGARSK POLYMER PLANT

ANGARSK REFINERY

Marketable Product Mix (Russian Refineries), mmt

34.07

32.63

–4.2 %

23.99 23.96

–0.1 %

Prigorodnoye

Kholmsk

Korsakov

Vladivostok

Slavyanka

Kozmino
Nakhodka

Vostochny

15.08 15.13

0.3 %

15.06 14.55

–3.4 %

Diesel
Fuel1

Motor gasoline

Fuel oil

Naphtha

Kerosene

Petrochemicals

Other

6.40

5.62

–12.2 %

–5.9 %

3.56 3.35

–1.9 %

1.57

1.54

2018

2019

1 Including marine fuel.

Key Focus Areas in 2019

Russia

Foreign Assets

Rosneft operates the largest oil
refining capacities in Russia and
controls refineries in the key regions
of the country. In 2019, the Company's
domestic refineries processed
100.1 mmt of oil, while their average
Nelson Index stood at ca. 8.0.

In Germany, the Company’s subsidiary
Rosneft Deutschland GmbH holds
interest (24% to 54%) in three refineries,
controls more than 12% of the country's
oil refining capacities, and ranks third,
processing up to 12.8 mmtpa and having
the average Nelson Index of 9.0.

capacity of 20 mmtpa and the Nelson
Index of 11.8.

The Company joined effort with its
partners in the Asia-Pacific to design a
refinery with a petrochemical complex in
Indonesia and finalise a refinery project
in China.

8.0

Average Nelson Index
of Rosneft’s Russian refineries

In Belarus, Rosneft indirectly holds a
21% stake in the Mozyr Refinery.

The Company also holds a 49% stake in
India’s second-largest high-tech refinery
in Vadinar with a total processing

Rosneft’s Refining Capacities

17.1

15.8

12.0

9.0

10.2

8.9

8.3

7.2

7.5

6.3

7.5

7.9

7.0

5.6

8.5

6.1

7.0

5.1

23.5

18.7

Tuapse
Reﬁnery

Achinsk
Reﬁnery

Angarsk
Petrochemical
Company

Komsomolsk
Reﬁnery

Ryazan
Reﬁnery

Saratov
Reﬁnery

Slavneft-
YANOS (50%)

Novo-
kuibyshevsk
Reﬁnery

Kuibyshev
Reﬁnery

Syzran
Reﬁnery

Ufa Group
of Reﬁneries

Planned capacity for 01.01.2020, mmt

Crude input in 2019, mmt

Light products in %

49.6

53.9

62.2

55.2

57.5

51.8

54.5

55.5

58.8

57.7

65.4

1.9

Small
reﬁning
facilities1

Not
calculated

1 * Small refining facilities include Nizhnevartovsk Refinery, Krasnoleninsky Refinery, Purneftepererabotka, Strezhevskoy Refinery (50%); without

processable waste.

Refinery Upgrade Programme in Russia

The Company continued to implement
the refinery upgrade programme in the
Russian Federation, which involves the
construction and renovation of refining
units and facilities in order to increase
the depth of processing, light product
yield, and the output of high-quality
motor fuels and provide the Company's
sales channels with petroleum products
that meet the requirements of the
Technical Regulations of the Customs
Union.

When completed, the programme will
improve the product portfolio and boost
the competitiveness and profitability of
the Russian refineries.

Achievements in 2019
▪ The Novokuibyshevsk Refinery

piloted a kerosene preparation unit
as part of the off-site facilities for a
hydrocracking plant.

▪ The Tuapse Refinery completed

the construction of water disposal
(treatment) facilities and a jet fuel

filtration unit as part of its diesel pool
project.

▪ The Syzran Refinery commissioned a
central distribution substation as part
of the off-site facilities for the catalytic
cracking complex.

▪ The Yaroslavl Refinery developed

a basic project for its DCU process
and selected a designer for the basic
project for diesel fuel hydrotreating
process as part of the construction of
a deep conversion unit.

Refinery Maintenance Programme in Russia

Rosneft continued to pursue projects on
ensuring compliance with instructions
issued by the regulatory authorities,
minimising environmental risks, aligning
rules and regulations with the relevant
requirements, replacing worn-out
equipment, and implementing target
programmes at the Company’s refineries
in Russia.

In 2019, Rosneft continued to
implement:

▪ large-scale programme to comply
with instructions issued by the
Federal Service for Environmental,
Technological and Nuclear Oversight
(Rostekhnadzor) following the
inspections of production facilities;

▪ programme for measuring plant

internal material flows;

▪ projects for emergency recovery
of gas fractionation section
of Achinsk Refinery's LK-6Us
unit and hydrocracking unit of
Bashneft-Ufaneftekhim;

▪ measures aimed at reducing

unscheduled production stoppages:
replacement of worn-out equipment,
implementation of industrial and fire
safety projects, as well as targeted
pipeline replacement and reliability
improvement programmes.

In 2019, the product range of Russian
refineries was expanded to meet market
demand:
▪ In May 2019, the Ryazan Refinery
launched the production of AI-
95-K5 Euro-6 gasoline to supply
the Moscow Region with greener
fuel. The gasoline will help minimise
the footprint of road transport and

improve the environment, which is
especially relevant for large cities;

▪ the Ufa Refinery also began the

commercial production of AI-100
high octane gasoline using the
proprietary technology;

▪ the Komsomolsk and Ufa refineries
started producing RMLS, a low-
sulphur marine fuel compliant

with the IMO standards that went
into effect in early 2020. The fuel
contributes to minimising the
bunker’s environmental footprint.

Import Substitution, Development and Launch of New Products, and Product Approval
Processes

tests proved that Rosneft’s proprietary
catalyst was fit for the production of
diesel fuel compliant with all the latest
technical requirements. The catalyst is
on par with the best foreign peers and
even superior to them in some aspects.

Environment

In 2019, the Company continued to
implement a number of large-scale
projects to minimise the environmental
impact of Rosneft’s operations, including:
▪ the renovation/upgrade of

wastewater treatment facilities
of the Ryazan, Kuibyshev and

Novokuibyshevsk refineries, and oil
sludge disposal unit of Bashneft-
Ufaneftekhim branch of Bashneft;
▪ the construction of a new two-unit
desulphurisation system and an
elementary sulphur complex at the
Ryazan Refinery, and two additional

elemental sulphur production lines at
Bashneft-UNPZ.

Comprehensive Accelerated Digital Transformation Plan

In 2019, initiatives under the
comprehensive accelerated digital
transformation plan in Oil Refining
included:
▪ concept study of seven new digital
transformation initiatives in five
Group Subsidiaries;

▪ ten technological prototypes / test

runs in four Group Subsidiaries and
the Head Office of the Oil Refining
segment;

▪ System For Optimised Mixing Of

Heavy Petroleum Products piloted at
the Syzran Refinery;

▪ tender procedures to select a vendor
for the implementation of optimised
process control systems at 49 units
of Ryazan and Saratov refineries, and
Bashneft.

In 2019, the planned and additional
measures of the operational efficiency
improvement programme delivered the
economic effect of RUB 17.6 bln.

The energy saving initiatives contributed to:
▪ economic effect of over RUB 1.5 bln;
▪ 1.8 point improvement in Solomon
Energy Intensity Index in 2019.

In 2019, the Oil Refining segment saved
567.7 ktce, overachieving its energy
saving target of 510.0 ktce.

Main Areas
of Operational
Efficiency
Improvement
Programme

Capacity and product
yield optimisation

Key initiatives of 2019

• Reducing the output of fuel oil and implementing new solutions to optimise mixing of petro-

leum products

• Optimising flows to increase the output of high-margin petroleum products
•
• Replacing fractionation trays

Implementing advanced process management systems at refineries

Reducing energy
consumption

• Renovating facilities’ heat and steam condensate systems
•
•
•

Improving efficiency of waste heat boilers
Improving efficiency of process furnaces
Improving efficiency of heat exchangers

Refining Capacities in Russia

Novokuibyshevsk
Refinery

Kuibyshev Refinery

Syzran Refinery

Petroleum Product and Petrochemical
Output, kt

7,111

4,640

5,753

Motor gasoline
Diesel fuel1
Kerosene
Naphtha
Fuel oil
Other

1 * Including marine fuel.

1,465
2,534
317
30
1,911
854

Motor gasoline
Diesel fuel
Naphtha
Fuel oil
Other

746
1,584
537
1,628
145

Motor gasoline
Diesel fuel1
Naphtha
Fuel oil
Other

1,040
2,140
209
1,280
1,084

Refinery throughput

7.9 mmt

Refining depth

74.2%

5.1 mmt

Refining depth

66.1%

6.1 mmt

Refining depth

78.0%

Investments over the year were
aimed at maintaining the existing
facilities, building a hydrocracking and
hydrotreating complex with off-site
facilities, implementing operational
efficiency projects, and designing other
investment projects for the facility
upgrade.

In 2019, the refinery commissioned its
kerosene preparation unit.

In 2019, investments were focused
on further construction of a vacuum
gasoil hydrotreating unit, hydrogen
and sulphur production units, off-
site facilities, and FCC unit, as well as
maintenance and operational efficiency
projects.

Three monitoring stations were
commissioned in order to assess the
environment on a 24-hour basis. The
new equipment is part of the industrial
environmental monitoring system.

As part of the upgrade programme, a
35 kV central distribution station was
put into operation to receive, convert
and distribute electricity for processing
facilities covered by the programme.

The debottlenecking projects in 2019
included the replacement of the
fractionation trays for the K-10 vacuum
column of the crude oil distillation unit
as part of the project to increase the
vacuum gasoil extraction at ELOU-AVT-6
unit.

Saratov Refinery

Tuapse Refinery

Achinsk Refinery

Angarsk Petrochemical
Company

Komsomolsk Refinery

Petroleum Product and Petrochemical
Output, kt

15,207

5,428

8,928

6,083

7,985

7,088

Motor gasoline
Diesel fuel1
Kerosene
Naphtha
Fuel oil
Other

1 Including marine fuel.

3,374
4,247
1,085
247
4,268
1,986

Motor gasoline
Diesel fuel
Naphtha
Fuel oil
Other

976
1,739
140
952
1,621

Diesel fuel
Naphtha
Fuel oil
Other

2,702
1,695
3,030
1,501

Motor gasoline
Diesel fuel1
Kerosene
Naphtha
Fuel oil
Other

1 Including marine fuel.

905
2,161
118
156
1,876
867

Motor gasoline
Diesel fuel1
Kerosene
Naphtha
Fuel oil
Other

1,195
3,232
467
105
1,503
1,483

Motor gasoline
Diesel fuel1
Kerosene
Naphtha
Fuel oil
Other

566
2,609
189
626
1,709
1,389

Refinery throughput

15.8 mmt

Refining depth

72.4%

5.6 mmt

Refining depth

81.8%

9.0 mmt

Refining depth

66.1%

In 2019, the refinery focused on the
maintenance of existing facilities,
operational efficiency improvements,
highly efficient debottlenecking projects
related to facility configuration, as well as
projects to hone the refinery’s long-term
competitive edge.

In 2019, investments were focused
on the large-scale renovation
projects, including the construction
of a hydrocracking and hydrotreating
complex with off-site facilities. Other
implemented projects included the
maintenance of the existing facilities and
operational efficiency improvement.

The Tuapse Refinery completed
the construction of water disposal
(treatment) facilities and a jet fuel
filtration unit as part of its diesel pool
project.

The refinery launched commercial
production of AI-95-K5 Euro-6 motor
gasoline with improved environmental
and operational properties compliant
with STO 44905015-006-2017.

Investments over the year were aimed
at maintaining the existing facilities,
implementing operational efficiency
projects, and designing investment
projects for the facility upgrade.

The construction of a single laboratory
building was completed, followed by
the commissioning of a new high-tech
laboratory, and 19/5, GFU, L-35/6-
300, L-35/5-300, L-24/6 process units
were transitioned to cutting-edge
microprocessor-based distributed
control systems (DCS).

6.3 mmt

Refining depth

68.7%

8.9 mmt

Refining depth

80.5%

7.2 mmt

Refining depth

75.9%

In the reporting year, investments
were focused on the comprehensive
upgrade programme, including the
construction of a hydrocracking complex
with off-site facilities and a petroleum
coke production unit, as well as on
operational efficiency improvement and
the maintenance of the existing facilities,
including the restoration of a gas
fractionation section of LK-6Us unit.

In 2019, investments were focused
on the comprehensive upgrade
programme, including the construction
of sulphuric acid alkylation units and
diesel fuel hydrotreater with off-site
facilities, as well as on operational
efficiency improvement and the
maintenance of the existing facilities.

In 2019, investments were focused
on the comprehensive upgrade
programme, including the construction
of a hydrocracking and hydrotreating
complex with off-site facilities, as well as
on operational efficiency improvement
and the maintenance of the existing
facilities.

The Komsomolsk Refinery was
connected to the ESPO pipeline.

Small refining facilities

Novokuibyshevsk Oils
and Additives Plant

Petroleum Product Quality Control

In 2019, the throughput
amounted to

1.2 mmt

Marketable product output

0.5 mmt

In 2019, the facility continued to
implement the programme on
high-quality oil production for the
hydrogenation complex under
construction (Phase 1 and 2), as well
as proceeded with its environmental,
infrastructure and maintenance
initiatives.

16,561

1,858

Motor gasoline
Diesel fuel1
Kerosene
Naphtha
Fuel oil
Other

1 Including marine fuel.

3,639
7,152
202
551
3,250
1,767

Motor gasoline
Diesel fuel1
Kerosene
Naphtha
Other

49
654
134
926
95

In 2019, the throughput
stood at

In 2019, the throughput
amounted to

18.7 mmt

Refining depth

81.0%

In 2019, investments were largely
focused on maintenance of existing
capacities, aligning rules and regulations
with the relevant requirements, and
implementation of the comprehensive
upgrade programme.

1.9 mmt

The company holds interests in several
small refining facilities in Russia
(Nizhnevartovsk Refinery, Krasnoleninsky
Refinery, Purneftepererabotka and
Strezhevskoy Refinery 50%). In 2019,
these facilities processed a total of
1.9 mmt of oil, 1.5 mmt of which was
processed at the Nizhnevartovsk Oil
Refining Association.

The motor fuels produced by Rosneft’s
refineries have high performance and
environmental characteristics and meet
the K5 fuel class requirements outlined
in the Technical Regulations of the
Customs Union CU TR 013/2011 On
Requirements for Motor and Aviation
Gasoline, Diesel and Marine Fuels,
Fuels for Jet Engines, and Fuel Oil. The
quality of Rosneft’s motor fuels has been
confirmed by qualification and bench
tests run by specialised R&D centres,
and various awards and accolades.

Quality management systems at the
Company’s refineries comply with the
ISO 9000 international standards and
ensure high-quality production and a
minimum number of customer claims.

The Company’s refineries have a
multi-stage Quality Control system for
feedstock and marketable products,
including incoming control of feedstock,
chemicals, and additives supplied to the
plants, as well as multi-stage monitoring
and quality control of components
and marketable products throughout
the entire production cycle, i.e. from
feedstock delivery to a facility to product
sales.

In 2019, the Company introduced an
enhanced quality monitoring of oil
delivered for refining.

The testing laboratories at the refineries
are equipped with state-of-the-art
equipment and analytical instruments to
ensure highly accurate and reliable test
results.

Product compliance is confirmed
through certification performed with
the assistance of accredited testing
laboratories and leading research
institutes.

The Company’s refineries regularly
hold Quality Days attended by the
employees of relevant units to study the
best practices for improving production
efficiency and quality control, and share
experience in ensuring quality and safety
of petroleum products.

In 2019, the Company continued
expanding the range of additives that
improve performance characteristics
of motor fuel. Tests performed on the
additives helped reduce purchase costs
by increasing the number of available
alternatives.

As part of the import substitution
programme, the Company’s refineries
use anti-wear additives produced by the
Group Subsidiaries in Russia.

Consistent measures to improve
and control the quality of petroleum
products resulted in more stringent
requirements for AI-95-K5 Euro-6 motor
gasoline with improved environmental
and performance properties, which
contains less sulphur, benzene, aromatic
and olefinic hydrocarbons and resins,
and has a longer shelf life.

In addition to the launch of AI-95-K5
Euro-6 production at Bashneft,
Bashneft-Novoil (to be sold in the
Republic of Bashkortostan) and at the
Saratov Refinery (for sales across the
Krasnodar Territory) in 2018, the Ryazan
and Syzran refineries have also put this
motor gasoline into production. The
Ryazan Refinery has been supplying
Euro-6 to the Ryazan, Kaluga and
Tula regions since May 2019, and to
Moscow and the Moscow Region since
December 2019.

Mozyr Refinery

The Company indirectly holds a 21%
interest in Mozyr Refinery, Belarus,
through Slavneft. Rosneft’s share in
the throughput of the Mozyr Refinery

amounted to 2.1 mmt in 2019. In 2019,
the Company supplied a total of 5 mmt
of oil to the refinery, while completing its
investment project for the construction
of a heavy residue hydrocracking unit.

Promising Foreign Projects

In order to expand its presence in the growing high-margin markets, Rosneft
is carrying out a number of promising oil refining and petrochemicals projects
in Indonesia and China.

Refinery and Petrochemical
Complex Construction
in Tuban

The project is implemented in
cooperation with Pertamina, Indonesian
oil and gas company, through the
establishment of a joint venture named
РТ Pertamina Rosneft Pengolahan
dan Petrokimia (Rosneft holds 45%,
Pertamina – 55%) on 28 November
2017.

PT Pertamina Rosneft Pengolahan
dan Petrokimia, a joint venture by
Rosneft and Pertamina, Indonesian
state oil and gas company, signed
a contract with Spanish Tecnicas
Reunidas SA on the basic (BED) and
front-end engineering design (FEED)
for an oil refining and petrochemical
complex in Tuban, Java, Indonesia. The
final investment decision (FID) on the
project will probably be made after the
completion of BED and FEED and will

be based on the results of fundraising.
The plant is expected to become one of
the most hi-tech facilities globally (with a
Nelson Index of 13.1). Its design capacity
will be up to 15 mmtpa for primary oil
refining, over 1 mmtpa for ethylene
production and 1.3 mmtpa for aromatic
hydrocarbons production.

PetroChina-Rosneft Orient
Petrochemical Company,
Tianjin (joint venture)

The ownership structure of the Tianjin
Refinery includes:
▪ Rosneft – 49%;
▪ China National Petroleum

Corporation – 51%.

The refinery’s design capacity is
16 mmtpa.

The Board of Directors of PetroChina-
Rosneft Orient Petrochemical has
approved the technological structure of
the refinery and aromatic hydrocarbons
complex. Following a change in the
Chinese petroleum product market, the
parties agreed to update the project’s
feasibility study.

Nayara Energy Limited

In August 2017, Rosneft closed the deal
to acquire 49.13% of shares in Essar
Oil Limited (renamed as Nayara Energy
Limited in May 2018), an Indian company
that owns the country’s largest refinery
situated in Vadinar and a retail network
of filling stations across India.

The Vadinar refinery has achieved high
operational efficiency for its assets as 17
of its 28 Solomon benchmarks are in the
top 1st quartile.

The refinery owns a deep water port that
can accommodate VLCC supertankers,
while its power stations independently
provide ample power supply.

The Vadinar refinery has a capacity of
20 mmtpa and ranks second in the
Indian market by throughput. It is among
the world’s top ten most complex
refineries, with a Nelson Index of 11.8. It
is highly flexible as it can process heavy
and extra-heavy crudes, which account
for over 90% of its annual throughput.

Nayara Energy Limited runs a large
network of filling stations under the
Essar brand in India, which included
5,628 operating stations as at the end
of December 2019. The number of filling
stations more than doubled over the
period of four years. The company has
three own oil depots and 13 under rent.

Nayara Energy Limited operates in 27
out of 28 states of India, its market
share by sales being around 5.3%.
The company is planning to increase
the number of filling stations to
7.3 thousand by 2022 selecting the most
promising territories for development.

Nayara Energy Limited is implementing
a phased development programme
for its Vadinar refinery. During the first
phase, the company will reconstruct the
catalytic cracking facility and build new
polypropylene production units with an
annual capacity of up to 450 kt.

Kurdistan Pipeline
Company Pte. Ltd.

In January 2019, a concession
agreement on the operation of crude oil
export pipeline in Iraqi Kurdistan came
into effect. The pipeline’s design capacity

will be nearly 950 kbpd. The concession
term is 20 years with a 5-year extension
option. The Company's share in the
project is 60%.

Rosneft Deutschland
GmbH(RDG)

The Company entered the German
petroleum product market in 2011 when
it acquired a 50% stake in Ruhr Oel
GmbH (ROG) joint venture. Following
ROG reorganisation in 2016, Rosneft
gained direct control over more than
12% of Germany’s oil refining facilities
with a total throughput of about
12.8 mmtpa. The Company became a
shareholder in three major refineries:
Bayernoil (12.5%), MiRO (12%), and
PCK Schwedt (35.42%). It then doubled
its shares in the refineries’ equity to
25%, 24% and 54.17%, respectively. At
the same time, BP accumulated 100%
shares of the Gelsenkirchen refinery.

In December 2019, Rosneft Deutschland
closed the deal to acquire 3.57% of
shares in Bayernoil Raffineriegesellschaft
mbH Refinery from BP Europa SE,
increasing its stake to 28.57%. As a
result, the Company saw its share in
the refining capacities of the Bayernoil
Refinery grow to almost 3 mmtpa,
its total throughput in Germany
now reaching 12.8 mmtpa, which
strengthened its positions both in
Bavaria, one of the largest industrial
regions of Germany, and Austria.

Rosneft is the third largest player in the
German oil refining market. Operating
activities are carried out by its subsidiary,
Rosneft Deutschland GmbH, which was
established in 2017. Rosneft supplies
almost a quarter of crude oil imports to
Germany – ca. 23 mmtpa.

Apart from direct supplies from its
refineries, the Company uses over 30
export terminals to deliver petroleum
products by road, rail, and river. The
Company’s customer base includes
more than 500 enterprises in Germany,
Poland, the Czech Republic, Switzerland,
Austria, and France.

In 2019, Rosneft Deutschland increased
sales of polymer-modified bitumen
(PMB) Alfabit by 37.5% year-on-year.
Alfabit is a high-tech material featuring
high elasticity and wear resistance.
Rosneft Deutschland began supplying
Alfabit to German consumers in 2018,
shortly after the start of sales and
marketing of bitumen in the country.
The Company also established a
supply chain for PMB in Germany using
feedstock from the PCK, Bayernoil, and
MiRO refineries.

In 2019, Rosneft Deutschland supplied
Alfabit PMB and other bitumen products
to KUTTER GmbH & Co. KG for the
construction of an extended runway
at the Memmingen (Allgäu) Airport in
Bavaria. The products were used to lay
about 57 kt of asphalt on 165 thousand
sq m of airport land. Thanks to its
strategically located shipping terminals
and the flexibility of the logistics system,
Rosneft Deutschland was able to supply
bitumen within a very short time.

Over the past year, the company’s
customer base has grown by 30%, with
bitumen products delivered to Poland,
Austria, the Czech Republic, Switzerland,
France and other countries.

On 1 January 2019 Rosneft Deutschland
GmbH initiated the direct sales of
petroleum products manufactured at
the three German refineries partially
owned by Rosneft. The product mix
includes motor gasoline, diesel fuel, light
heating oil, jet fuel, LPG, bitumen, heavy
marine fuel and petrochemical products.
The Company is a leader in the German
petroleum wholesale market.

Apart from that, Rosneft Deutschland
signed contracts on into-plane fuelling
with airports in Munich and Berlin (Tegel
and Schönefeld) as part of its jet fuel
market share expansion in Germany.
Rosneft Deutschland owns a share in
the PCK Refinery in Brandenburg which
produces 300 ktpa of jet fuel, accounting
to almost a half of the total kerosene
consumed at Berlin airports.

MiRO GmbH & Co. Refinery KG
is located in Karlsruhe, Baden-
Wuerttemberg. This is the larg-
est oil refinery in Germany
and one of the biggest and most
innovative plants in Europe.
Capacity – 14.9 mmtpa
(Rosneft's share – 3.6 mmtpa),
the Nelson Index – 9.4.

The PCK Raffinerie GmbH
is located in Schwedt,
Brandenburg. Thanks to its
location it can supply Urals
through the Druzhba pipeline.
Capacity – 11.6 mmtpa (Rosneft's
share – 6.3 mmtpa), the Nelson
Index – 9.8. The company
is working on a mid-term devel-
opment programme to intro-
duce heavy residue processing
at the facility.

BAYERNOIL
Raffineriegesellschaft mbH
supplies fuel to Bavaria
and northern Austria. Capacity –
10.3 mmtpa (Rosneft's share –
2.9 mmtpa), the Nelson
Index – 6.8.

Petrochemicals

Petrochemical assets form a crucial
part of Rosneft’s production complex.
High product quality and continuous
improvement of production processes
provide the Company with a competitive
edge over other Russian and foreign
players in the domestic market.

Rosneft’s petrochemical complex
comprises:
▪ Angarsk Polymer Plant;
▪ Novokuybyshevsk Petrochemical

Company;
▪ Ufaorgsintez.

Rosneft also has petrochemical
production lines at Bashneft-
Ufaneftekhim (an aromatic hydrocarbon
production complex) and the Angarsk
Refinery (methanol, butyl alcohol, and
amine production units).

Angarsk Polymer Plant

The plant’s main products include
ethylene, high-density polyethylene,
propylene, benzene, butylene-divinyl
fraction, ethylbenzene, styrene,
polystyrene, etc.

As of now, the Angarsk Polymer Plant is
the only polystyrene and high-density

polyethylene manufacturer in Eastern
Siberia. The plant’s annual output
includes over 200 kt of ethylene, over
100 kt of propylene, and 60 kt of
benzene. Ethylene is partially supplied
to Sayanskkhimplast as feedstock,
while the remainder is used to produce
high-density polyethylene and other
petrochemicals. The plant uses straight-
run gasoline and hydrocarbon gases

mainly produced by the Angarsk
Refinery as feedstock.

In 2019, the Angarsk Polymer Plant
processed 719.3 kt of hydrocarbon
feedstock, while its output of high value-
added marketable products amounted
to 550.4 kt.

Novokuybyshevsk
Petrochemical Company

Novokuibyshevsk Petrochemical
Company is one of the largest gas
processing, petrochemical, and organic
synthesis companies in Russia and
Eastern Europe.

Its product mix comprises over 30 items,
including tert-amyl methyl ether (TAME),

synthetic phenol, synthetic ethanol, and
acetone for industrial application, LPG,
and para-tertiary butylphenol (PTBP).

The company produces 300 ktpa of
high-octane additives for TAME motor
fuels and has PTBP production facilities
unrivalled in Russia and the CIS. It is also
the only synthetic ethanol manufacturer
in the country.

In 2019, the company processed
1,013.3 kt of feedstock, while its output
amounted to 969.1 kt of marketable
products.

The company is carrying out a project
to build a pilot plant for the production
of synthetic polyalphaolefin base oils
(PAO) characterised by high viscosity and
low freezing point, the first of its kind in
Russia.

Ufaorgsintez

Ufaorgsintez is one of the largest
petrochemical enterprises in Russia
focusing on the production of phenol,
acetone, high-density polyethylene,
polypropylene and its copolymers,
synthetic rubber, and other organic
synthesis products. The plant produces
over 30% of Russia’s total phenol output
and is a leading producer of acetone.
Ufaorgsintez has a capacity of more than
850 ktpa.

The company’s products are widely
used to manufacture plexiglass, phenol
formaldehyde resins, alkylphenols,
plastic films, and other products for
industrial and agricultural application,
and industrial rubbers. Ufaorgsintez’s
products are of high demand in
mechanical engineering, consumer
goods, healthcare, electronics, and
electrical engineering sectors.

Some of its organic synthesis products
are unrivalled in Russia. The company’s

ethylene propylene diene monomer
rubber (EPDM) is a component of
various industrial rubber products,
including those used in the defence
industry, and wire and cable insulation in
electrical appliances.

In 2019, the company processed
685.3 kt of feedstock, its output being
617.3 kt of marketable products.

100

101

The Company’s gas processing assets
process the associated petroleum gas
from Rosneft’s oil and gas production
facilities, and their output is mainly
utilised as feedstock for Rosneft’s
petrochemical subsidiaries.

5 GPPs

integrated into
the Company

Rosneft’s gas processing assets include:
▪ Otradnensky Gas Processing Plant

(OGPP)

▪ Neftegorsky Gas Processing Plant

(NGPP)

▪ Tuymazinskoye Gas Processing Plant

(TGPP)

▪ Shkapovskoye Gas Processing Plant

(ShGPP)

▪ RN-Buzulukskoye Gas Processing

Plant (BGPP)

Otradnensky Gas
Processing Plant

Its main products are dry stripped
gas, natural gas liquids (NGLs), ethane
fraction, and industrial sulphur.

equipment with advanced modular
units, which will improve operational
efficiency and increase automation.

In 2019, the OGPP processed
255.5 mmcm of associated petroleum
gas derived from the oil and gas fields
of Samaraneftegaz and Orenburgneft.

The plant continues a comprehensive
programme involving the upgrade and
replacement of worn-out and obsolete

Neftegorsky Gas Processing
Plant

Its main products are dry stripped gas,
NGLs, ethane fraction, and industrial
sulphur.

equipment with advanced modular
units, which will improve operational
efficiency and increase automation.

In 2019, the NGPP processed
456.1 mmcm of associated petroleum
gas derived from the oil and gas fields
of Samaraneftegaz and Orenburgneft.

The plant continues a comprehensive
programme involving the upgrade and
replacement of worn-out and obsolete

Tuymazinskoye Gas
Processing Plant

In 2019, the TGPP, part of Bashneft,
processed 26.5 mmcm of associated

petroleum gas derived from the oil
and gas fields of Bashneft-Dobycha
(Oil and Gas Production Board (OGPB)
Tuymazaneft), and 92.5 kt of NGLs
using its own or third-party products.

Its main products are liquefied gases
such as industrial propane/butane
mixture, isobutane fraction, and normal
butane fraction, as well as stable natural
gasoline and industrial sulphur.

Production of Catalysts

Shkapovskoye Gas
Processing Plant

In 2019, the ShGPP, part of Bashneft,
processed 46.2 mmcm of associated

petroleum gas derived from the oil and
gas fields of Bashneft-Dobycha (OGPB
Ishimbayneft and OGPB Ufaneft), and
72 kt of NGLs using its own or third-
party products. Its main products

are liquefied gases such as industrial
propane-butane, motor propane,
isobutane fraction, and normal butane
fraction, as well as stable natural
gasoline.

Buzulukskoye Gas
Processing Plant

In 2019, the BGPP, which includes
two standalone production facilities,
the Pokrovskaya Gas Treatment Unit
and the Zaykinskoye GPP, processed
1,054.8 mmcm of associated petroleum
gas and unstable gas condensate

102

derived from the oil and gas fields
of Orenburgneft. Its main products
are combustible natural dry stripped
gas, liquefied gases such as industrial
propane-butane, motor propane-
butane, industrial propane, and
industrial butane, as well as stable
natural gasoline and industrial sulphur.

Currently, an investment project
is under way to build a 1.2 mmcm
gas desulphurisation unit at the
Zaykinskoye GPP, which will enable the
BGPP to process additional volumes
of sulphur associated petroleum gas
from the prospective licence areas of
Orenburgneft.

Novokuibyshevsk
Catalysers Plant

In 2019, the Novokuibyshevsk Catalysers
Plant launched Russia’s first-ever
advanced pilot testing facility for
hydrotreating catalysts. The new facility
is aimed at testing technologies to
manufacture new catalysts designed by
Rosneft’s and Russian R&D providers

with a view to ramping up large-scale
production. Using the pilot facility’s
equipment, the plant can test both
specific production stages and the
complete production cycle of alumina-
based catalysts.

At present, there are eight pilot batches
of various types of new catalysts
(catalysts for diesel fuel hydrotreatment,

deep hydrodesulphurisation of vacuum
gasoil, isodewaxing, hydrofinishing of
diesel fractions, diolefin hydrogenation,
hydrodemetallisation, and silicon traps)
developed by corporate R&D units (RN-
TsIR and VNII NP) for the use in various
oil refining processes.

Angarsk Plant of Catalysts
and Organic Synthesis

Work is under way at the Angarsk
Plant of Catalysts and Organic
Synthesis to build a production unit for

platinum-containing reforming catalysts
and gasoline isomerisation catalysts.
Scheduled for commissioning in the first
quarter of 2021, the unit with a capacity
of 600 tonnes per year is designed to
improve the quality of reforming and

gasoline isomerisation catalysts. It also
intends to reduce platinum losses,
increase production reliability and
safety, and ultimately meet the need of
all Russian refineries for such catalysts.

103

Oil sales

Rosneft pursues a policy aimed
at ensuring a balanced mix of oil
monetisation channels, including
refining at its own facilities in Russia
and Germany, export sales under long-
term contracts, tender-based spot
transactions and domestic sales.

The Company continuously monitors
the cost efficiency of its oil monetisation
channels to maximise the share of high-
margin channels in its overall sales
structure.

In the reporting year, the Company
supplied about 100.1 mmt of oil to
Russian refineries. In addition to
shipments to its refineries in Russia
during 2019, the Company supplied
2.8 mmt of own oil to German refineries
where it holds a stake.

The total sales to third parties in 2019
amounted to 155.0 mmt, including
5.6 mmt of oil sold domestically.

Oil Exports to FSU
and Non-FSU Countries

In the reporting year, Rosneft’s FSU and
non-FSU oil exports totalled 149.4 mmt.
Eastbound exports, in particular pipeline
supplies to China and sales via the Kozmino
and De-Kastri ports, are the most profitable
for the Company. In 2019, supplies in
eastern direction, including international
trading, reached 79.7 mmt, up 35% year-
on-year. Oil produced in Russia accounted
for 53.9 mmt of these supplies (up 7%
year-on-year), with another 25.8 mmt
sold through international trading units,
which represents an almost threefold
increase year-on-year. In addition, the
Company exported 61.0 mmt of oil to

Northwestern, Central, and Eastern Europe,
the Mediterranean and other non-CIS
countries, while also shipping 8.7 mmt to
the CIS.

The bulk of crude oil is exported via
the Transneft system, including the
trunk pipeline network and ports. In the
reporting year, we primarily exported
crude oil via the following channels:
▪ Pipeline: approximately 114.4 mmt
(76.6% of total FSU and non-FSU
exports), with 49.5 mmt of this
volume shipped via ports, and
around 64.9 mmt through pipelines
to China, Belarus, and Central and
Eastern Europe;

▪ Rail and mixed transport: 2.2 mmt,

accounting for 1.5% of total exports,
excluding the effect of asset
acquisition. These were mainly
supplies via the Caspian Pipeline
Consortium (CPC) running from the
Tengiz field in Western Kazakhstan to
the port of Novorossiysk;

▪ Other, including shipments through

the De-Kastri export terminal:
4.0 mmt.

Rosneft joined the CPC in 1996. It
holds a 7.5% stake in the project
via Rosneft Shell Caspian Ventures
Ltd. , a joint venture between
the Company (51%) and Shell (49%).

Oil Supplies under Long-
Term Contracts

In 2019, the Company continued
supplying oil to China National
Petroleum Corporation (CNPC)
under the China-Russia government
agreement. The supplies, which total
40.0 mmtpa, including 10.0 mmt
transported through Kazakhstan, enable
Rosneft to retain its presence in this
strategic export market.

Breakdown of Exports, %

149.4

mmt

China (pipeline)
International trading
Primorsk (sea)
Central and Eastern Europe
(pipeline)
Kozmino (sea)
Ust-Luga (sea)
Belarus (pipeline)
Novorosskiysk (sea)
De-Kastri (sea)
Rail
Varandey (sea)

27 %
19 %
13 %
11 %

8 %
7 %
6 %
6 %
2 %
1 %
1 %

KEY ACHIEVEMENTS

▪ In 2019, eastbound oil supplies,
including international trad-
ing, soared 35% to 79.7 mmt,
with around 58.3 mmt shipped
to China, up 17% year-on-year.
▪ Shipments under a long-term
contract with CNPC, our key
counterparty, remained robust
at 40.0 mmtpa.

▪ Rosneft’s trading subsidiaries

shipped 28.7 mmt of third-party oil
to non-FSU countries, many times
more than in 2018.

Expanding Cooperation
with Oil and Petroleum
Product Consumers

In 2019, the Company continued to
focus on end-consumers, with exports
exceeding 72 mmt.

supply oil to Poland via the Druzhba
pipeline. We also obtained a three-year
extension for the existing contract with
this company to ship oil to refineries
in the Czech Republic. Furthermore,
Rosneft made an agreement with JXTG
Nippon to supply ESPO and Sokol crude
in 2020.

In 2019, we shipped 0.7 mmt of stable
natural gasoline to JXTG Nippon.

The Company steps up domestic sales
of vacuum gasoil processed at TANECO
and Orsknefteorgsintez refineries. Over
the year, we supplied 27.4 kt of this
product.

In an effort to maintain and strengthen
cooperation, we signed a two-year
contract with PKN Orlen S. A. to

We continue to foster collaboration with
end-consumers of petroleum products.

104

105

Gas sales

Export Sales of Petroleum
Products

Domestic Sales
of Petroleum Products

Sales of Petroleum Products
to FSU Countries

In 2019, export sales of petroleum
products totalled 70.1 mmt1.

Rosneft makes regular wholesale
shipments of light and dark oil products
to Mongolia. In 2019, we supplied
1.3 mmt of light petroleum products, up
0.2 mmt from the previous year.

The Company continues to focus on
expanding its international footprint
and diversifying its sales routes. During
the summer shipping season in 2019,
we used our fleet to export diesel fuel
directly from the Syzran and Saratov
refineries to a foreign port on CFR terms.
This arrangement helped us maximise
the use of its own tanker fleet and avoid
the cost of additional transshipment at
sea ports.

In 2019, domestic sales of petroleum
products totalled 42 mmt, up 2.2%
year-on-year2.

Rosneft is Russia’s largest motor fuel
exchange trader. In 2019, we traded
extensively in petroleum products.
The share of Rosneft (including the Ufa
group of refineries) in total sales during
the main session stood at:
▪ 47.7% for motor gasoline;
▪ 36.4% for diesel fuel;
▪ 51.9% for fuel oil.

The Company exceeded on-exchange
sales targets set by a joint order of the
Russian Federal Antimonopoly Service
and the Russian Ministry of Energy dated
12 January 2015. The reporting year
saw 24.8% of total motor gasoline, 9.8%
of diesel fuel, 14.7% of kerosene, and
3.4% of fuel oil from Rosneft refineries
(including the Ufa group) sold on the
exchange vs the required 10%, 5%, 10%,
and 2%, respectively.

As requested by our counterparties,
we supplied motor fuel in full and on
time under the Northern Supply Haul
programme.

In 2019, Rosneft maintained stable
and uninterrupted tanker supplies
of petroleum products to Armenia,
shipping 234.7 kt of high-quality gasoline
and diesel fuel to the country from its
Russian refineries (up 34% year-on-year).

We also supply gasoline and diesel fuel
to RN-Kyrgyznefteprodukt, our sales
subsidiary in the Kyrgyz Republic, for
resale via its own retail network and
wholesale channels. In 2019, petroleum
product shipments totalled 100.9 kt.

We continued to supply petroleum
products to the retail network in
Georgia, with volumes reaching 180.5 kt,
up 37 kt from the previous year.

Meeting federal customers'
demand

Meeting federal customers’ demand
for petroleum products is our key
priority under the corporate policy.
In 2019, Rosneft and its subsidiaries
fully delivered on their obligations to
supply petroleum products to federal
customers. Next year, we will continue
working in this area.

Rosneft supplies natural gas, dry stripped
gas, and associated petroleum gas to
consumers in Russia and abroad.

Associated petroleum gas is processed
at the Company’s own gas processing
plants and by third parties, such as SIBUR
Holding and Surgutneftegas.

Under the contact with Gazprom, we
use its transportation system to supply
the bulk of natural and dry stripped gas
to end-consumers and regional sales
companies in almost 40 Russian regions.
On international markets Rosneft mainly
sells natural gas in Egypt and Vietnam.

Our long-term goal is to become
a leading independent gas supplier
on the domestic market.

In 2019, Rosneft’s domestic natural gas
deliveries were 59.92 bcm while sales
amounted to RUB 200.4 bln.

The Sverdlovsk Region remains our key
region in terms of gas sales. Our supplies
cover approximately 82% of local gas

Gas Deliveries, bcm

Gas Revenue, RUB bln

61.77

bcm

258.8

RUB bln

In Russia
Abroad

56.92
4.85

In Russia
Abroad

200.4
58.4

demand from both industrial facilities
and residents.

International gas deliveries amounted to
4.85 bcm, with the bulk of the product
coming from the Zohr field.

In 2019, gas sales grew by 10.7% to
RUB 258.8 bln mainly due to increased
exports and a 1.4% indexation of gas
prices for industrial consumers from
1 July 2019.

To maximise gas monetisation, Rosneft
has developed a commodity transport
flow optimisation system used for
calculating the operational gas balance.

We continued trading in natural gas
at the St Petersburg International
Mercantile Exchange (the exchange
launched gas trading in 2014). In 2019,
we sold 0.06 bcm, which represents 0.5%
of the total trading volume.

1 Including export bunkering services
2 Including domestic bunkering services

106

107

As at the year-end, Rosneft’s retail sales
covered 66 Russian regions. We operate
the largest and most geographically
diverse retail chain in Russia, holding
a leading position in most regions. We
also have retail chains in Abkhazia,
Belarus, and Kyrgyzstan. Rosneft is a
leading Russian fuel brand in terms of
recognition and quality perception.

As at 31 December 2019, the Company’s
retail chain comprised 3,069 filling
stations, including 63 in Belarus,
Abkhazia, and Kyrgyzstan. Our own
and leased filling stations operated
2,079 shops. Over the same period,
the Company had 132 oil depots with
a combined capacity of 2.2 mmcm and
approximately a thousand gasoline
tanker trucks in operation.

In 2019, Rosneft closed a deal
to acquire a 100% equity stake
in Petersburg Fuel Company.
As a result, Rosneft established
itself as a leader in one of its key
regions, while also expanding its
retail chain to 3,069 filling stations
as at the year-end.

Petroleum product retail sales increased
by 6% year-on-year to 14.5 mmt, mostly
driven by the use of fuel cards (+16%),
and average sales per filling station
came in at 13.1 t per day.

In accordance with its retail business
strategy, the Company took the following
steps:
▪ expanded the Family Team and

BP Club loyalty programmes to cover
13.6 million people in 64 regions as
at 31 December 2019;

▪ launched virtual BP Club and Family
Team cards issued via a mobile app
to eliminate the need for a plastic
card;

▪ kicked off a service for exchanging
bonus points or miles between
the BP Club and Family Team
programmes and the Aeroflot Bonus
programme;

▪ held a survey of Family Team and

BP Club members, which showed a
satisfaction level of 98–99%;

▪ piloted fuel payments via Moscow
Credit Bank’s World of Privileges
mobile app. The service enables
BP customers in Moscow, the Moscow
Region, St Petersburg and Tver to pay
for fuel without leaving the car;
▪ launched a virtual B2B fuel card
across our entire retail chain;

▪ expanded sales geography for the

better performing eco-friendly Euro-6
motor gasoline, a Top 100 product in
Russia, to cover nine regions where
our retail networks operate;

▪ closed a deal to acquire a

100% equity stake in Petersburg Fuel
Company, the largest independent
motor fuel operator in St Petersburg;

▪ refurbished 102 filling stations in
the Rostov, Kursk and Belgorod
regions as part of the TNK-to-Rosneft
rebranding project;

▪ increased the number of CNG

modules at the existing filling stations
to a total of 12. These modules
service 2.5 thousand vehicles daily,
with monthly sales standing at
1,7–2 mmcm;

▪ continued to expand the food

▪ carried on with the Active Sales

programme, with sales targets set for
key product categories at each filling
station;

▪ staged over 100 nationwide promos
of various types at Rosneft, BP and
Bashneft filling stations to boost non-
fuel sales;

▪ completed a project to overhaul

14 existing BP filling stations with a
focus on the café offering, opened
five additional small-size filling
stations in the Moscow Region and
Tver. The refurbished filling stations
feature a single customer service
area which accommodates a Wild
Bean Café and a fuel section;

▪ arranged for private label products

(water, chocolate bars, wipes,
and screen wash) to be sold at
35 subsidiaries;

▪ performed over 9,000 checks at
the filling stations in 47 Russian
regions as part of the ongoing fuel
quality assessment using mobile
laboratories;

▪ In 2019, the Federal Agency
for Technical Regulation and
Metrology (Rosstandart) conducted
32 independent inspections
across Russia, which covered 4 oil
depots and 74 retail stations. The
inspections confirmed the high
quality of our motor fuel.

offering in cafés at filling stations
by creating self-service areas and
installing hot dog rollers. As at
31 December 2019, we served
coffee at 2,530 outlets and hot dogs
at 1,450 outlets, with self-service
areas and coffee corners available
at 780 outlets. Our retail stations
saw hot drink revenue and non-fuel
revenue for the year increase by 6%
and 2% year-on-year, respectively;

Improvements in Retail
Business Efficiency

In 2019, the Company continued with
phased automation of all material
flow measurements and introduction
of a monitoring system keeping track
of inventories at subsidiaries. As at
31 December 2019, we automated
measurements at 81 oil depots and
more than 2,900 filling stations and

depots that did not meet its
technical requirements. We also cut
transportation costs by optimising the
logistics of direct petroleum product
supplies from refineries using tanker
trucks. In 2019, we increased direct
supply volumes by 4% year-on-year.

provided measuring instruments for
99% of material flows at filling stations
and 79% at oil depots.

and merchandise from other FMCG
players;

▪ developing digital communication

To ensure sustainable demand and
maximise retail and wholesale customer
loyalty, we will focus on:
▪ developing a risk-based fuel quality
management system across the
supply chain, from refinery to
consumer;

▪ implementing an electronic system

to guarantee the quality and quantity
of petroleum products delivered in
gasoline tanker trucks;

▪ expanding the fuel offering in regions
where Rosneft operates its retail
chain;

▪ expanding the non-fuel offering,
including private label products

channels at filling stations to acquire
new customers and enhance
customer experience.

In 2019, the Company continued to
improve the efficiency of its retail
business by optimising administrative
costs and operating costs at filling
stations and oil depots. Despite an
increase in variable storage and
transportation costs driven by a 9% rise
in retail sales, we managed to reduce
unit operating costs by 3% year-on-year.

As part of our efforts to improve the
efficiency of oil depot facilities, we
shut down seven underperforming

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Production Planning and Logistics

▪ Krasnoleninsky Refinery started the

production of DMF-III distilled marine
fuel (max. 0.5% sulphur content) for
Central Russia;

▪ Nizhnevartovsk Refinery put DMF-
III distilled marine fuel (max. 0.5%
sulphur content) into production. The
fuel is intended to be sold at river
ports in the Volga and Don basins
and in Western Siberia.

▪ Bashneft-Ufaneftekhim began

manufacturing RMLS 40 bunker
fuel oil (E II category with max. 0.5%
sulphur content and E I category with
max. 0.1% sulphur content).

Sales of Bitumen Products

Sales of bitumen materials in 2019
reached 2.6 mmt. Sales of road bitumen
compliant with the new GOST 33133-
2014 standard amounted to 1 mmt, a
sizeable increase from 0.6 mmt in 2018.

The domestic market accounted for 98%
of total bitumen sales in the reporting
period.

Rosneft continues expanding production
of an innovative polymer-modified
bitumen (PMB), which substantially
improves the road surface quality. Sales
of PMB in 2019 grew 41% year-on-year
to 107 kt.

Sales of Lubricants

In 2019, sales of the Company’s oil
business totalled 1,075 kt, up 6% (70 kt)
year-on-year. Domestic sales accounted
for 712 kt (66% of total sales).

Sales of premium lubricants in the
reporting period reached 77 kt.

In 2019, sales of lubricants to end
consumers under direct contracts
increased by more than 40% (41 kt)
year-on-year.

Aircraft Refuelling Business

Bunkering Business

In 2019, sales of jet fuel reached
3.4 mmt. With a 31.2% share of
the Russian market in terms of jet
fuel output in 2019, the Company
maintained its leading position in the
country.

The sales structure in 2019 was as
follows:
▪ 2.2 mmt sold to airlines and refuelling

facilities;

▪ 1.2 mmt sold in bulk, including

commodity exchange sales (0.5 mmt).

In Russia, jet fuel is sold through a
chain of Rosneft's refuelling facilities at
21 airports and third-party refuelling
facilities at 22 airports. The Company
also sells jet fuel at seven airports in
Germany, Georgia and Mongolia.

Key customers of the Company are
Aeroflot Group, S7 Group, Ural Airlines,
Pegas Group, Volga-Dnepr Group,
Yamal Airlines, NordStar Airlines, Turkish
Airlines, and Lufthansa Group.

Rosneft’s bunker fuel is sold in all
major Russian sea and river ports
and a number of foreign destinations.
Bunker fuel sales in 2019 amounted
to 2.85 mmt, including bulk sales
to foreign consumers (operators of
transcontinental container shipping
lines) at sea ports in the Russian Far
East.

The sales structure was as follows:
0.6 mmt (20%) was sold in the domestic
market, and 2.3 mmt (80%) was sold to
non-resident shipping companies.

In 2019, the Company took action to
increase the output of environmentally
friendly marine fuels compliant with the
Russian and international standards,
including the marine fuel sulphur
content restrictions imposed by
MARPOL (Convention on the Prevention
of Marine Pollution by Dumping of
Wastes and Other Matter) in effect from
1 January 2020. In particular:
▪ RN-Komsomolsk Refinery began

manufacturing RMLS 40 low-sulphur
marine fuel (max. 0.5% sulphur
content) for the Russian Far East;

2019 Performance
Highlights

Performance Priorities
for 2020

▪ The Company met its targets for oil
and petroleum product shipments.
▪ Refineries’ production programmes

and petroleum product sales
destinations were chosen to
maximise consolidated netback.

▪ Rosneft and Russian Railways

extended their petroleum product
transportation contracts providing for
discounts on railway transportations
from the Saratov Refinery, Samara
group of refineries and refineries
in Eastern Siberia (Angarsk, Achinsk
and Komsomolsk), and signed a
contract for discounted railway
transportations from the Ufa group
of refineries.

▪ The Company launched an initiative
to synchronise daily production
and shipment plans and performed
factor analysis to identify deviations
across the branches of RN-Trans to
decrease the downtime of empty
freight cars.

The Company views improvement
of production programmes for its
refineries, optimisation of shipment
schedules and reduction of costs as its
top priorities. In 2020, the Company will
continue working to achieve the above
goals through:
▪ optimisation of production

programmes for the refineries and
sales of petroleum products to the
most profitable destinations;
▪ tendering out contracts for the

transportation and forwarding of
oil and petroleum products from all
of Rosneft's loading terminals, and
awarding five-year contracts to rolling
stock operators based on the bidding
results;

▪ reduction of logistics costs associated
with the transportation of petroleum
products by different modes of
transport, optimisation of costs
associated with the Company’s
own logistics assets, elimination of

bottlenecks in logistics, and finding
new and efficient logistics routes;
▪ fulfilment of commitments regarding
railway shipments of petroleum
products to extend the discounts
offered by Russian Railways to the
Company, and further negotiations
with Russian Railways on discounts;

▪ development of the Company’s
shipping services following the
commissioning of its new tanker fleet
(several Aframax tankers).

110

111

RN-Morskoi Terminal Nakhodka petroleum transshipment terminal

The terminal transships mostly
export petroleum products from
the Komsomolsk Refinery, Angarsk
Petrochemical Company, and Achinsk
Refinery. It is also used to ship
petroleum products to the domestic
market (Magadan, Chukotka, Kamchatka
and Sakhalin regions).

2019 Performance Highlights
▪ The terminal is upgrading its production assets to make them compliant with the

latest industrial, environmental and fire safety requirements.

▪ In 2019, the work continued to upgrade a tank farm, an oil tanker pier and
clean-up facilities to meet the requirements of applicable regulations.

▪ In the fourth quarter of 2019, the terminal commissioned a new fire station. A
segregated technology is adopted to transship DTl-Euro-K5 diesel fuel (for the
needs of the Russian Federal Security Service).

Target programmes of the Company
▪ Target programme for the petroleum product quality assessment and assurance:

– in the fourth quarter of 2019, the terminal piloted the first phase (petroleum

products at tank farms) of the online accounting system;

– in the fourth quarter of 2019, the terminal piloted the fourth phase

(petroleum products at unloading) of the online accounting system (rail
weighing scales for moving tank cars arriving at the terminal for unloading);

– in the fourth quarter of 2019, the terminal began construction and

installation for the second phase (petroleum products at the oil tanker
pier) of the online accounting system (installation of the petroleum product
measurement and quality assessment system at the loading pipelines to
measure the weight of petroleum products loaded onto the tanker).
▪ Target programme for the installation of protective equipment to prevent falls

from height at marine terminals of the Company:
– in the fourth quarter of 2019, the terminal commissioned safety equipment

to prevent falls of the personnel from unloading racks No. 1 and No. 2.

In 2019, the total transshipment
volume (including bunkering)
at the terminal in Nakhodka
amounted to

5.7 mmt,

including 0.22 mmt of third-
party products.

RN-Morskoi Terminal Tuapse petroleum transshipment terminal

RN-Arkhangelsknefteprodukt petroleum transshipment terminal

The terminal transships mostly export
petroleum products from the Tuapse
Refinery, Saratov Refinery, Samara group
of refineries, Nizhnevartovsk Refinery,
and Bashneft refineries.

2019 Performance Highlights

▪ In 2019, the terminal commissioned an additional fire fighting system for tank

farms No. 2 and No. 4 and a terminal-wide automatic measurement, stocktaking
and balancing system.

▪ The terminal is upgrading its production assets to make them compliant with the
latest industrial, environmental and fire safety requirements and carrying out
a production expansion programme to increase freight turnover at the Tuapse
Refinery.

▪ The work is underway to introduce a monitoring system for material flows in tanks
and pipelines and install stationary protective equipment to prevent falls from
loading/unloading racks and lighting tower ladders.

In 2019, the total transshipment
volume (including export
and domestic bunkering
services) at the terminal
in Tuapse amounted to

15.2 mmt

The Company’s deep-water
berth accounted for 9.3 mmt
of the total transshipment
volume.

RN-Morskoi Terminal Tuapse
transshipped an additional

0.95 mmt

of crude oil for the Tuapse
Refinery.

In 2019, the terminal was
upgraded to receive petroleum
products from sea-going ships,
with

>90 kt

of petroleum products
additionally delivered
by the Company's tankers
(Rosnefteflot).

2019 Performance Highlights

▪ The following systems were installed and commissioned at the terminal:

– APCS: control cables replaced in the TRL/2 system of the tank farm; level

gauges replaced in the petroleum product measuring (weighing) channels of
vertical steel tanks;

– Process Pipelines: four mass flow meters installed in the bunkering

system at piers, commissioned and integrated into the online accounting
information system;

– Video Surveillance System: a tank car video recording system, including
IR imagers, installed and commissioned. The unloading rack underwent
repairs to increase its bunker fuel unloading capacity.

▪ A mothballed pumping station was put back into operation at an increased

unloading capacity; the volume of bunker fuel stored at a time was increased;
10 th. cub m tank No. 30 and 1 th. cub m tank No. 28 underwent capital repairs.

The terminal transships mostly export
petroleum products from the Samara
group of refineries and Angarsk
Petrochemical Company and third-party
products, as well as provides bunker fuel
transshipment services. It is also used to
deliver fuel to the Far North and supply
wholesale buyers in the Arkhangelsk
Region.

In 2019, the total transshipment
volume (including export
and domestic bunkering
services) at the terminal
amounted to

1.2 mmt,

including 0.46 mmt of third-
party products.

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ROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and Investors03

Market Overview
and Competitive
Environment

Macroeconomic Environment in 2019

GDP

According to January 2020 estimates
from the International Monetary Fund
(IMF), global economic growth in 2019
(PPP1 GDP in constant 2011 prices)
slowed down to 2.9% year-on-year (3.6%
year-on-year in 2018). GDP growth rates
in developed economies dropped from
2.2% year-on-year in 2018 to 1.7% year-
on-year in 2019 while slipping in emerg-
ing markets from 4.5% year-on-year to
3.7% year-on-year.

The global GDP growth was largely
halted by a cyclical economic slowdown
in developed economies (above all in the
USA and the European Union) and esca-
lation of trade conflicts.

According to OECD data, GDP growth
in the USA slowed down to 2.3% year-
on-year in 2019 on the back of lower in-
vestment activity. As the economy was
slowing down, the U.S. Federal Reserve

started loosening its monetary policy by
cutting its key interest rate by 25 bps
three times in 2019 to 1.5–1.75% p. a. as
at the end of December 2019.

According to an initial assessment from
OECD as at the end of January 2020,
GDP growth rate in the Eurozone went
down from 1.9% year-on-year in 2018
to 1.2% year-on-year in 2019, driven by
weaker consumer spending and external
demand for European goods amid rising
protectionism in global trade.

As a result of slower economic growth
and inflation dropping from 1.8% to
1.2%, the European Central Bank (ECB)
lowered its deposit rate in September
2019 by 10 bps to –0.5% p. a., an-
nounced that it would resume purchas-
ing assets for EUR 20 bln per month
starting from November and extended
the maturity of targeted longer-term

refinancing operations (TLTRO) from two
to three years.

Export-oriented economies were ad-
versely affected by changes in trade
agreements and the newly imposed
trade restrictions. In particular, GDP
growth in Germany slowed down from
1.5% in 2018 to 0.6% in 2019.

According to OECD data, GDP growth in
the UK slightly accelerated to 1.4% (vs
1.3% in 2018). The growth was mainly
driven by consumer spending and gov-
ernment consumption. The effect from
capital investments remained very
marginal.

GDP growth rate in Japan rose from
0.3% in 2018 to 0.7% in 2019 on the
back of higher consumer spending and
government expenditures as well as pri-
vate investment in housing construction.

GDP Growth Rates in Developed Economies2,% year-on-year

3.6

3.4

3.3

2.9

2.3

2.2

1.7

1.6

2.1

1.9

1.5

1.3

1.2

0.8

1.5

1.7

1.3

1.4

1.3

0.9

0.8

0.6

0.3

0.7

0.3

0.2

Global

Developed economies

USA

Canada

Eurozone

Germany

France

Japan

2018
2019
2020 (F)
2021 (F)

Sources: International Monetary Fund (IMF), Organisation for Economic Co-operation
and Development (OECD), Eurostat

1 Purchasing power parity.
2 The data provided hereinafter is based on forecast figures for 2020 and 2021.

116

GDP Growth Rates in Emerging Markets, % year-on-year

6.8

5.6

5.3

5.1

6.6

6.1

6.4

4.9

4.5

4.6

4.4

3.7

2.5

2.4

1.7

1.8

1.3

1.1

1.3

1.2

1.3

1.0

0.6

0.8

0.2

1.0

0.6

Emerging markets

India

China

Brazil

Russia

South Africa

Saudi Arabia

2018
2019
2020 (F)
2021 (F)

Sources: IMF, OECD, Federal State Statistics Service (Rosstat)

In 2019, emerging markets demon-
strated the lowest GDP growth rates
since the global meltdown in 2008–
2009. Some of the emerging economies
suffered from a slump in commodity
prices and geopolitical tensions all over
the world.

The Chinese economy continued to slow
down as its growth rate dropped to 6.1%
year-on-year in 2019 (the lowest value
in the last 28 years), which was driven
by shrinking net exports of goods and
services amid the unfolding trade con-
flict with the USA and halted domestic
demand as a result of tougher financial
sector regulations.

GDP growth rate in India decelerated
from 6.8% in 2018 to 4.8% in 2019. The
sluggish economic growth was due to re-
duced investment activity.

GDP growth in Brazil slowed down
from 1.3% in 2018 to 1.1% in 2019.
Mexico was facing stagnation with a
zero GDP growth (2.1% year-on-year
in 2018). Overall, GDP growth rates
in Latin America and the Caribbean
fell from 1.1% year-on-year in 2018 to
0.1% in 2019, mainly due to downturns
caused by lingering structural challenges
in some countries.

The Middle East and Central Asia suf-
fered a major setback (with GDP growth
rates going down from 1.9% in 2018
to 0.8% in 2019, including Saudi Arabia
descending from 2.4% to 0.2%). So did
the European emerging markets (climb-
ing down from 3.1% in 2018 to 1.8%
in 2019).

In January 2020, the IMF cut its global
growth outlook for 2020 from 3.3% (vs
3.4% projected in October 2019). The
coronavirus pandemic caused the OECD
to review its global GDP growth forecast
for 2020 to 2.4% in the base-case sce-
nario. In 2021, GDP growth is expected
to recover to 3.3%.

Global Trade

According to IMF estimates, global trade
saw a major slowdown from 3.7% year-
on-year in 2018 to 1.0% year-on-year
in 2019, which was caused by heighten-
ing political and commercial contradic-
tions between the USA and China.

The growth rates of trade in goods
and services in developed econo-
mies dropped from 3.2% year-on-year
in 2018 to 1.3% year-on-year in 2019
while sinking in emerging markets from
4.6% year-on-year to 0.4% year-on-year.
As projected by the IMF, global trade will

accelerate to 2.9% year-on-year in 2020
and 3.7% year-on-year in 20211. The
growth will be mainly driven by a fur-
ther rise in domestic demand, with cap-
ital investments prompting investment
imports.

1 The forecast was completed before the coronavirus pandemic.

117

Market Overview and Competitive EnvironmentROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsExports of goods were also negatively af-
fected by metals and metalware (down
by USD 6.1 bln), lumber and pulp and
paper (down by USD 1.1 bln), machines,
equipment and vehicles (down by
USD 0.7 bln), food and soft commodities
(down by USD 0.2 bln).

2019 saw a steep increase in exports of
gems and jewellery (up by USD 5.1 bln).

Exports of crude oil in value
terms in 2019 shrank by 6.0% to
USD 121.4 bln, exports of petro-
leum products dropped by 14.5% to
USD 66.9 bln, exports of natural gas,
including liquefied natural gas (LNG),
slipped by 9.0% to USD 49.6 bln. In
2019, crude oil and petroleum products
accounted for 56.3% of total exports,
down 2.0 p.p. year-on-year.

As at 1 January 2020, Russia’s interna-
tional reserves rose by USD 85.9 bln

mainly through FX purchases in the do-
mestic market under the fiscal rule.

In 2019, the unemployment rate and the
number of those employed both con-
tinued on a descending trajectory. In
December 2019, employment amounted
to 72.4 mln people, down 0.2 mln year-
on-year. In the medium term, shrinking
manpower is likely to hinder the coun-
try’s economic growth.

In December 2019, the unemployment
rate dropped to 3.5 mln people, down
0.2 mln year-on-year.

As a result, the unemployment rate was
4.6% of economically active population,
down 0.2 p.p. year-on-year. Russia en-
joys the lowest unemployment rate in its
modern history.

In 2019, real household income grew
1.5% year-on-year (vs 1.1% year-on-year
in 2018) while real disposable income

added 0.8% year-on-year (vs 0.1% year-
on-year in 2018). According to Rosstat,
income growth continues to lag behind
real wages, which rose by 2.9% year-on-
year in 2019.

According to the Bank of Russia’s base-
case scenario as at February 2020,
Russia’s GDP will grow by 1.5–2.0%
in 2020. The growth will be mainly
driven by higher government investment
spending as national projects are gain-
ing traction.

The Russian economy is projected to
accelerate up to 1.5–2.5% in 2021 and
2.0–3.0% in 2022 on the back of grad-
ually accruing positive effects from
planned budget initiatives and national
projects, if successful. However, the
growth in 2021–2022 will be halted by a
potentially weaker external demand with
Russian exports struggling to increase by
2.0–2.5% in 2021 and 2.5–3.0% in 2022.

Russian Economy

In 2019, the Russian economy slowed
down. According to an initial assessment
from the Federal State Statistics Service
(Rosstat), the Russian GDP rose by 1.3%
year-on-year in 2019 (vs 2.5% year-on-
year in 2018).

mostly due to fewer residential proper-
ties going on stream. On top of that, the
GDP was impacted by lower activities
in healthcare and social services (down
0.1 p.p.) as a result of contracting federal
budget expenditures.

The slowdown was solely attributable to
shrinking exports, with the entire GDP
growth in 2019 driven by a 2.6% in-
crease in domestic demand for Russian-
made goods for both consumer and
investment purposes.

As a result, Russia’s economic growth
was mainly driven by private domes-
tic demand, which translated into more
jobs and higher real wages. Large-scale
government expenditures were key to
maintaining macroeconomic stability.

According to the Federal Customs
Service of Russia, exports of Russian
goods 1 in value terms in 2019 amounted
to USD 422.8 bln. As compared
to 2018, exports of goods declined by
USD 26.8 bln, or 6.0% year-on-year.

The Russian exports contracted in 2019
mainly due to exports of fuel and energy
resources dropping by USD 24.5 bln
amid decreasing prices for crude oil and
natural gas.

Russian Exports, USD bln

In addition, gross capital accumulation,
including both fixed and working capital,
was growing marginally and still strug-
gling to reach its pre-crisis state, also re-
sulting in a weaker economic growth.

Amid a stronger rouble and expanding
domestic demand, imports of both in-
vestment and consumer goods and ser-
vices increased by 2.2% in 2019 (vs 2.6%
in 2018).

In physical terms, export volumes
dropped by 2.1% (up 5% in 2018). The
OPEC+ agreement on production cuts
remained in effect, somewhat holding
down Russia’s exports.

According to Rosstat data, the follow-
ing sectors were the largest contribu-
tors to the GDP growth in 2019: financial
and insurance services (0.4 p.p.), natu-
ral resources (0.3 p.p.), manufacturing
industry and trade (0.2 p.p. each), and
transportation and storage (0.1 p.p.).

Investment demand was sluggish, which
resulted in a lower gross value added
(GVA) in construction (contributing
0.02 p.p.) and a shrinking GVA in ma-
chinery manufacturing.

In 2019, the country’s GDP was neg-
atively affected by a shrinking GVA in
real estate transactions (down 0.1 p.p.),

1 According to the customs statistics.

118

343.5

127.4

12.7
46.4

67.5

89.6

2015

285.8

119.6

12.2
34.2
46.1

73.7

2016

Crude oil
Petroleum products
Gas (including LNG)
Other fuel and energy resources
Other goods

449.6

162.6

25.2
54.4

78.2

129.2

422.8

160.3

24.6
49.6

66.9

121.4

2018

2019

357.3

145.3

18.5
41.9

58.2

93.4

2017

Source: Federal Customs Service of Russia

Unemployment in Russia (at Year-
End), % of Economically Active
Population

5.8

5.3

5.1

4.8

4.6

2015

2016

2017

2018

2019

Changes in Real Disposable Income
and Wages in Russia, % year-on-year

8.5

2.9

0.8

0.1

2.9

0.8

2015

2016

2017

2018

2019

-0.5

-3.2

-5.8

-9.0
Real disposable income
Real wages

Sources: Central Bank of the Russian
Federation (Bank of Russia), Rosstat

119

Market Overview and Competitive EnvironmentROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsSustainable DevelopmentCorporate GovernanceInformation for Shareholders and Investors

Energy Prices, Foreign Exchange Rates and Inflation in Russia

Annual Average Urals and Brent
Prices, USD/barrel

71.1

69.8

64.3

63.4

52.4

51.4

54.3

53.1

43.7

42.1

2015

2016

2017

2018

2019

Urals
Brent

Source: Platts

In 2019, the annual average Brent price
was USD 64.3 per barrel, down 9.5%
year-on-year1.

Throughout 2018, global oil prices
were driven by mixed trends. In January
through April 2019, oil prices were rising
(with the monthly average Brent price
increasing from USD 59.5 per barrel in
January to USD 71.3 per barrel in April)
on the back of production cuts by both
OPEC countries under the OPEC+ agree-
ment and. In May through August, oil
prices were declining (with the monthly
average Brent price slipping from
USD 71.1 per barrel in May to USD 59.0
per barrel in August) as risks were ris-
ing for global demand amid the escalat-
ing trade conflict between the USA and
China. In September, oil prices saw a
spike (with the monthly average Brent
price reaching USD 62.8 per barrel) as a
result of production cuts by Saudi Arabia
following a drone attack. However,
Saudi Arabia quickly restored oil pro-
duction and the Brent price dropped to
USD 59.7 per barrel in October against
the backdrop of concerns about a global
economic slowdown.

In November, the monthly average Brent
price bounced back to USD 63.0 per
barrel as the trade row between the
USA and China eased up. In December,
prices rose to USD 67.0 per barrel fol-
lowing the OPEC+ agreement on further
production cuts starting January 2020.

Amid continued geopolitical tensions
and new sanctions against Russia, the
Russian national currency was weaken-
ing in 2019. According to the Bank for
International Settlements, the annual av-
erage nominal USD/RUB exchange rate
declined by 3.0% to RUB 64.73 per USD
in 2019.

As at the end of December 2019, the
nominal USD/RUB exchange rate ap-
preciated by 11.8% year-on-year to
RUB 62.27 per USD as at 31 December
2019, driven by higher oil prices, the Fed
cutting its interest rate, and buoyant de-
mand for Russian financial assets (with
the share of non-residents in the federal
loan bonds market rising by 7.8 p.p. to
32.2% as at 1 January 2020, according to
the Bank of Russia).

Monthly Average Urals and Brent Prices in 2019, USD/barrel

January

February

March

April

May

June

July

August

September

October

November

December

Source: Platts

Changes in Annual Average Nominal Exchange Rates of the Largest Emerging Markets’ and Oil-Producing Countries’
National Currencies to USD in 2019, % year-on-year

0.7

Indonesia

0.0

Saudi
Arabia

-0.1

Mexico

Canada

India

Russia

China

Australia

Brazil

Norway

South Africa

Columbia

Kazakhstan

Turkey

Iran

-2.4

-2.8

-3.0

-4.2

-7.0

-7.3

-7.6

-8.3

-9.9

-14.5

-34.6

* “+” means currency appreciation while “–” means currency depreciation.
Source: Bank for International Settlements

Changes in Nominal Exchange Rates of the Largest Emerging Markets’ and Oil-Producing Countries’ National Currencies
to USD at the end of December 2019, % year-on-year

11.8

4.9

4.0

3.8

Russia

Canada

Mexico

Indonesia

2.4

0.8

South
Africa

Kazakhstan

0.0

Saudi
Arabia

Australia

Columbia

Norway

China

India

Iran

Brazil

Turkey

-0.5

-0.8

-1.0

-1.2

-2.4

-3.4

* “+” means currency appreciation while “–” means currency depreciation.
Source: Bank for International Settlements

-11.1

As at the end of December 2019, infla-
tion stood at 3.0% year-on-year (vs 4.3%
in 2018), which is below the 2019 target
of 5.0–5.5% set in the Monetary Policy
Guidelines for 2019–2021 published by
the Bank of Russia. The main driver be-
hind the declining inflation in 2019 was
the nominal rouble appreciation, given

a significant share of imported goods in
household consumption (ca. 36%). 2019
saw a certain slowdown in private con-
sumption, which was also driving down
inflation in Russia.

By contrast, the annual average con-
sumer price index rose to 4.5%

year-on-year in 2019 (vs 2.9% year-on-
year in 2018).

According to the Bank of Russia’s projec-
tions as at February 2020, inflation will
stand at 3.5–4.0% in 2020 and remain
at ca. 4% in 2021–2022 in line with the
Bank of Russia’s monetary policy.

1 In 2019, the annual average Urals price was USD 63.4 per barrel, down 9.1% year-on-year (USD 69.8 per barrel in 2018).

120

121

Annual Average Nominal USD/RUB

CHANGES
IN TRANSNEFT’S TARIFFS

Global Oil and Gas Market

▪ As at 1 January 2019, Transneft’s
crude oil transportation tariffs
via trunk pipelines increased
by 3.87%.

▪ As at 1 February 2019, tran-

sit tariffs for oil transportation
via the Republic of Belarus were
indexed by 7.6%.

CHANGES IN RUSSIAN
RAILWAYS’ TARIFFS

▪ As at 1 January 2019, railway

transportation tariffs increased
by 3.5%.

12.9

67.0

61.3

62.8

64.72

58.4

5.4

4.3

3.0

2.5

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

Sources: Bank of Russia, Bank for International Settlements

In 2019, the annual average indus-
trial producer price index in Russia
was 102.9% (vs 111.9% in 2018). As at
December 2019, producer prices went
down by 4.3% year-on-year (up 11.7%
year-on-year in 2018), mainly driven by
lower prices in the extractive industry,
which dropped by 9.2% year-on-year (up
20.7% year-on-year in 20181).

The freight rate index was 1.5% year-on-
year as at December 2019 while the an-
nual average index stood at 2.8%.

The Russian oil companies’ operat-
ing costs are very sensitive to changes
in natural monopolies’ transportation
tariffs.

1 December 2018 vs December 2017.

122

Global Oil Market

In 2019, the global market had an over-
supply of 0.5 mmb per day, accord-
ing to the International Energy Agency
(IEA). Amid strong growth in crude oil
production in the USA (driven mostly by
shale production) and sluggish growth
in global demand in the first and sec-
ond quarters of 2019, the global market
had 0.9 mmb per day of excess supply.
In the third and fourth quarters of 2019,
a slowdown in US production and rise
in consumption of liquid hydrocarbons1
caused the global oversupply to go
down to 0.1 mmb per day.

Global demand for liquid hydrocarbons
slowed down in 2019 alongside an in-
crease in global GDP and reached 0.8%,
according to the IEA (1.1% in 2018).
Global demand for liquid hydrocar-
bons came in at 100.0 mmb per day.
The growth in 2019 was driven by Asia
(85% of the increase) and FSU countries
(13%). These two regions accounted for
36% and 5% of global demand for liquid
hydrocarbons respectively.

According to the IEA, global produc-
tion of liquid hydrocarbons2 increased
by 0.2% year-on-year to 100.5 mmb per
day in 2019.

In the USA, production of liquid hydro-
carbons continued its strong momen-
tum (10.8% growth year-on-year) and
reached 17.2 mmb per day, with pro-
duction of crude oil and gas condensate
adding 11.3% year-on-year and hitting
12.2 mmb per day.

Demand for Liquid Hydrocarbons
by Region, mmb per day

Output of Liquid Hydrocarbons
by Region, mmb per day

98.1

11.7

8.4

34.4

4.5
14.4

24.7

99.2

11.7
8.3

35.1

4.7
14.3

100.0

11.7

8.4

35.8

4.7

14.1

25.2

2017

2018

2019

North America
OECD Europe
FSU countries3
Asia
Middle East
Others

Source: IEA
Source: IEA

97.5

13.9

37.4

7.7

14.3
3.6

20.5

2017

100.3

14.2

37.4

7.6

14.6
3.6

23.0

2018

100.5

14.6

35.5

7.6

14.6
3.5

24.7

2019

North America
Europe
FSU countries3
Asia
OPEC4
Others5

A considerable rise in production of
liquid hydrocarbons in 2019 was also
seen in Brazil (up by 6.8% year-on-year
to 2.9 mmb per day) as a result of con-
tinued development of subsalt offshore
fields. In Canada, the momentum of liq-
uid hydrocarbons production deceler-
ated to 2.6% year-on-year (compared
to more than 8% year-on-year in 2018),
with output totalling 5.5 mmb per day.

In China, 2019 production climbed 1.9%
year-on-year to 3.9 mmb per day.

Improved crude oil production in the
USA and other countries was mostly off-
set by lower output of liquid hydrocar-
bons in the OPEC countries 3 (both as
part of the OPEC+ agreement and as a
result of the sanctions). Total produc-
tion of liquid hydrocarbons in the OPEC
countries in 2019 went down by 5.0%
year-on-year to 35.5 mmb per day, with
crude oil production dropping by 5.8%
year-on-year to 30.0 mmb per day.

1 Demand for liquid hydrocarbons hereinafter refers to consumption of petroleum products from oil and gas condensate; consumption of oil as fuel;

and consumption of hydrocarbon components from unconventional sources (biofuel, GTL, CTL, etc.).

2 Output of liquid hydrocarbons hereinafter refers to production of crude oil, gas condensate, gas condensate liquids, and production

of hydrocarbon components from unconventional sources (biofuel, GTL, CTL, etc.). Global production of liquid hydrocarbons includes volume
growth during refining.

3 Excluding Estonia, Latvia and Lithuania.
4 14 member countries as at 31 December 2019.
5 Including production in other countries, global biofuel output, and volume growth during refining.

123

Market Overview and Competitive EnvironmentROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsAs part of the OPEC+ agreement to cut
production, Saudi Arabia reduced its
supply of liquid hydrocarbons by 4.2%
year-on-year to 11.8 mmb per day, with
crude oil production shrinking by 5.1%
year-on-year to 9.8 mmb per day. Lower
annual average output in Saudi Arabia
was also due to an attack of drones
and missiles on the country’s oil infra-
structure, causing a temporary suspen-
sion of 5.7 mmb per day of production.
According to IEA, Saudi Arabia’s produc-
tion of liquid hydrocarbons dropped by
8.2% month-on-month in September
2019 to 10.9 mmb per day, with crude
oil production declining by 7.9% month-
on-month to 9.0 mmb per day.

The UAE also delivered a considerable
growth in production of liquid hydrocar-
bons among the OPEC countries: the
increase totalled 5.5% year-on-year, to
4.0 mmb per day, with crude oil produc-
tion improving by 6.0% year-on-year to
3.2 mmb per day.

Mexico, which is also a party to the
OPEC+ agreement on production cuts,
saw its 2019 output of liquid hydrocar-
bons go down by 7.0% year-on-year to
1.9 mmb per day.

In December 2019, commercial crude
inventories in OECD1 countries totalled
around 1.1 bln barrels, which is a 0.2%
increase vs December 2018.

In its March report, the IEA expects
global demand for liquid hydrocar-
bons to go down by 0.1% year-on-year
in 2020 to 99.9 mmb per day as a result
of the coronavirus pandemic.

The US Energy Information
Administration (EIA) forecasts a 1.0 mmb
per day oversupply of liquid hydrocar-
bons globally in 2020 before the mar-
ket moves towards a state of shortage
(0.4 mmb per day) in 2021. According to
EIA estimates, global demand for liquid
hydrocarbons in 2020 will grow by 0.4%
year-on-year to 101.1 mmb per day,
with global output of liquid hydrocar-
bons improving by 1.5% year-on-year to
102.1 mmb per day.

EIA’s Forecast of Global Liquid
Hydrocarbons Demand and Output,
mmb per day

101.1

102.1

102.9

102.4

1.0

-0.4

2020 (F)

2021 (F)

Demand
Output
Surplus (RHS)

Source: forecast by U.S. Energy Information
Administration as at March 2020

Commercial Crude Inventories in OECD Countries, bln barrels

1500

1400

1300

1200

1100

1000

900

January

February

March

April

May

June

July

August

September

October

November

December

2010–2015

Global Gas Market

In 2019, global demand for gas went
up by 2.4% year-on-year to 3.93 tcm.2
Stronger gas consumption worldwide is
supported by toughened environmen-
tal policies adopted by many countries,
including as a way to curb CO2 emis-
sions, along with the development of gas
infrastructure and transportation solu-
tions, also as liquefied natural gas (LNG).
Lower prices in regional gas markets
contributed a lot to the gas consump-
tion growth across the globe.

The strongest rise in demand for gas
in 2019 was seen in the Asia-Pacific
Region and Europe. The Asia-Pacific
Region posted an increase in gas con-
sumption by 5.0% year-on-year in 2019
(an increase of 41.0 bcm) to 866.3 bcm
(22.1% of global gas consumption),
mainly driven by China, Indonesia, and
Australia. In Europe, consumption im-
proved by 4.2% year-on-year (up by
21.8 bcm) to 535.6 bcm (13.6% of global
gas consumption), which is attribut-
able to weaker gas prices in the re-
gion as a result of oversupply of both
LNG and pipeline gas. Demand for gas
in North America, which is the larg-
est gas consumer in the world, went
up by 2.3% year-on-year in 2019 and
reached 1.05 tcm (26.8% of global gas
consumption).

In Latin America, 2019 gas consumption
grew by 0.5% year-on-year to 179.9 bcm
(4.6% of global gas consumption), while
Africa saw a reduction of 0.5% year-on-
year to 150.9 bcm (3.8% of global gas
consumption).

Improved gas demand came on the
back of global natural gas production1
going up to 3.99 tcm. More than 27%

of global output was attributable to
North America, which delivered a 7.0%
increase year-on-year, taking 2019 gas
production to 1.13 tcm (as a result of a
record high gas output level in the USA).
Around 22% came from Russia and the
CIS, Middle East accounted for 17%, and
the Asia-Pacific Region had a share of
16% in global gas production. In Europe,
gas output went down by 3.6% year-on-
year to 222.5 bcm.

Every year approximately 33% of natu-
ral gas produced globally is exported.
In 2019, gas exports are estimated2 at

some 1.3 tcm. Around 65% of global gas
exports are transported by pipelines
and 35% as LNG. Russia, the world’s
largest gas exporter, accounted for ap-
proximately 20% of gas exports glob-
ally in 2019 (260.4 bcm according to
the Federal Customs Service of Russia
and CDU TEK; or around 242 bcm un-
der European standards; an increase of
5.2% year-on-year).

In 2020 and 2021, global growth in gas
demand3 will be down to 1.3% and 0.7%
respectively, with gas consumption
standing at 3.98 tcm and 4.01 tcm.

Gas Consumption by Region, bcm4

Gas Production by Region, bcm

2.4 %

4.4 %

Потребление газа
3 926
3 834
по регионам
180
179
151
152
536
514

825

528

162
445

866

530
166
445

1029

1052

2018

2019

3 671
180
145
529

765

513
158
438

943

2017

North America
Russia
Rest of FSU5
Middle East
Asia-Paciﬁc
Europe
Africa
Latin America

Source: IHS

5.2 %

3 861

185
237
231

625

661

187

675

3.2 %

3 986
182
251
222

652

662
197

687

1060

1134

2018

2019

3 669

185
228
244

601

627

178

643

963

2017

North America
Russia
Rest of FSU5
Middle East
Asia-Paciﬁc
Europe
Africa
Latin America

2016
2017
2018
2019
2010–2015

Source: IEA

1 Official national estimates of crude inventories, IEA data. The discrepancies in crude stock estimates for 2010–2018 as compared to the previous

annual report of the Company are due to the IEA’s updates and revisions made during the year.

1 IHS Markit preliminary estimates.
2 Rosneft’s estimates based on data by IHS Markit, IEA and BP.
3 IHS Markit estimates.
4 Data of Russian and European (international) statistics on gas include discrepancies because of the differences in the measurement standards:

1 European cub m of gas = 1.074 Russian cub m of gas

5 Excluding Estonia, Latvia and Lithuania.

124

125

Long-Term Forecast for Hydrocarbon Demand

In 2019, global LNG exports increased
by 12.7% year-on-year and reached
358.5 mmt (or 494.4 bcm)1. LNG ac-
counted for 12.5% of global gas con-
sumption in 2019 (vs 11.2% in 2018)2.

fully self-sufficient in gas and ceased
LNG imports in October 2018. The field
is being developed by an international
consortium, where Rosneft has a share
of 30%.

Stronger demand for LNG in 2019 was
mostly driven by Europe, where LNG
exports went up by 75.3% year-on-
year to 87.4 mmt, with the UK posting
a growth of 2.7 times year-on-year to
13.3 mmt and France of 92.9% year-
on-year to 16.3 mmt. In the Asia-Pacific
Region, LNG imports expanded by 2.9%
year-on-year to 247.8 mmt, including a
13.9% year-on-year growth in China (to
62.5 mmt). Japan, the world’s largest im-
porter of LNG, reduced its purchases by
6.8% year-on-year to 77.3 mmt.

The Middle East and North Africa3 saw
a notable reduction in its demand for
LNG, which was down by 27.5% year-
on-year to 7.0 mmt as a result of gas
fields developed in Egypt and also higher
imports of pipeline gas to Jordan from
Egypt and Israel. Following the commis-
sioning of the Zohr field, Egypt became

A major component of the export
growth in 2019 were new LNG trains
coming on stream:
▪ first and second trains of the

Corpus Christi LNG plant with a ca-
pacity of 4.5 mmtpa, first train of
the Freeport LNG facility with a ca-
pacity of 5.1 mmtpa, fifth train of
the Sabine Pass LNG plant with a
capacity of 4.5 mmtpa, and first
train of the Cameron LNG project
with a capacity of 4.0 mmtpa in the
USA. As a result, the USA became
the leader by absolute growth in
LNG exports in 2019 (an increase
of 13.8 mmt to 34.8 mmt, or 65.4%;
9.7% of global LNG exports);

▪ commissioning of the second train
of Ichthys LNG with a capacity of
4.45 mmtpa, and the Prelude float-
ing liquefied natural gas (FLNG) fa-
cility with a capacity of 3.6 mmtpa.

In 2019, Australia considerably in-
creased its output (by 11.4% year-
on-year to 76.5 mmt; 21.3% of
global LNG exports), coming close
to Qatar, the market’s long-stand-
ing leader;

▪ ramp-up to full capacity of the third
train of the Yamal LNG plant with
a total capacity of 5.5 mmtpa4 in
Russia (in 2019, LNG production in
Russia grew by 54.7% year-on-year
to 29.3 mmt; 8.2% of global LNG
exports).

Qatar’s export volumes recovered (by
1.4% year-on-year to 78.3 mmt) to the
2016 level, making up 21.8% of global
LNG exports.

2019 saw a record-breaking number
of final investment decisions5 on LNG
plant projects: FIDs were approved
for total capacities of 70.4 mmtpa, in-
cluding Golden Pass LNG in the USA
(15.6 mmtpa), Arctic LNG 2 in Russia
(19.8 mmtpa) and Mozambique LNG in
Mozambique (12.9 mmtpa).

Increase in LNG Exports and Imports in 2019 by Country, mmt

13.8

10.4

318.1

7.8

2.4

6.2

358.5

7.2

4.1

5.3

7.6

7.8

8.4

318.1

exports

imports

2018

USA

Russia

Australia

Algeria

Others

2019

Others

Netherlands

Spain

China

France

2018

Source: IHS

1 IHS Markit preliminary estimates
2 IHS Markit estimates.
3 Egypt, Israel, Jordan, Kuwait, and UAE.
4 The first train of the Yamal LNG plant with a capacity of 5.5 mmtpa was put into operation in December 2017.
5 Final investment decision (FID) is the decision to proceed with a project. As a rule, FID is taken after the design stage is completed, necessary

permits obtained, an EPC (Engineering, Procurement, and Construction) contract signed, and financing sources and target markets for the project
products identified.

Technological progress has been open-
ing up new opportunities for the energy
sector and energy needs of humankind
at large. Energy transition and climate
change are reshaping the way we think
about the global energy sector going
forward. All sources of energy, includ-
ing renewable energy, have inherent
limitations. The potential to replace fos-
sil fuels with renewable energy sources
is limited by considerable technological
weaknesses of the latter, i.e. low energy
flux density and intermittency. According
to top global energy agencies, oil and
gas producers, consulting companies1,
and forecasts by Rosneft, until 2040, hy-
drocarbons will remain the pillar of the
global energy industry, with their share
in the world’s energy mix staying largely
unchanged. While oil2 will continue dom-
inating other resources in the energy
mix worldwide, its share, along with that
of coal, will be declining in favour of nat-
ural gas, nuclear energy, and renewable
energy sources.

By 2040, global demand for oil will grow
by more than 700 mmt vs 2018, ex-
ceeding 5.2 bt. Key growth drivers will
be countries of the Asia-Pacific Region,
which in 2040 are expected to account
for some 37% of the world’s demand for
oil, or over 1.9 bt.

Global Energy Consumption by Fuel
Type in 2018, %

Global Energy Consumption by Fuel
Type in 2040, %

14 314

mmtoe

18 015

mmtoe

Oil
Gas
Coal
Nuclear
Hydro
Other renewables

31.4
22.9
26.7
5.0
2.5
11.5

Oil
Gas
Coal
Nuclear
Hydro
Other renewables

28.9
25.3
21.1
5.2
2.9
16.5

Source: IEA

Sources: forecasts by the IEA, OPEC, U.S.
Department of Energy, IHS Markit, BP,
ExxonMobil and Rosneft

1 This section contains forecasts based on data by the IEA, OPEC, U.S. Department of Energy, IHS Markit, BP, ExxonMobil and Rosneft.
2 Oil demand indicates the consumption of petroleum products from oil and gas condensate and consumption of oil as fuel.

126

127

Gas Demand by Region, bcm

4 553

427
207
199
267
605
319

998

4 941

525
206
247
292
571
377

956

1530

1766

5 204

601
207
302
316
527
432

896

1923

2020

2030

2040

Asia-Paciﬁc
North America
Middle East
Europe
Central and South America
Africa
CIS
International aviation and bunkering

4 884

673
228
226
596

683

1231

1248

5 476

709
290
282
576

785

1265

1570

2030

2040

3977

615
156
178
548
531

1060

890

2020

Asia-Paciﬁc
North America
Middle East
Europe
Central and South America
Africa
CIS

of 1.9% year-on-year to 14.6 mmt (2.6%
of Russia’s total production) due to im-
proved output in the Astrakhan Region
(including offshore production, up by
5.3% year-on-year to 11.3 mmt; 2.0% of
Russia’s total production).

In 2019, production in the Northwestern
Federal District continued to de-
cline (down by 1.3% year-on-year to
31.2 mmt; 5.6% of Russia’s total pro-
duction), mostly as a result of dwin-
dling output in the Nenets Autonomous
Area (down by 3.2% year-on-year to
16.0 mmt; 2.9% of Russia’s total produc-
tion) and the North Caucasian Federal
District (down by 6.2% year-on-year to
1.0 mmt; 0.2% of Russia’s total produc-
tion) predominantly as a result of lower
output in the Stavropol Territory (down
by 8.1% year-on-year to 0.7 mmt; 0.1%
of Russia’s total production). Production

also went down in the Siberian Federal
District (down by 3.5% year-on-year to
51.3 mmt; 9.1% of Russia’s total pro-
duction), mostly due to lower output
in the Krasnoyarsk Territory (down by
2.8% year-on-year to 23.9 mmt; 4.3%
of Russia’s total production), Irkutsk
Region (down by 3.1% year-on-year to
17.9 mmt; 3.2% of Russia’s total pro-
duction), and Tomsk Region (down by
5.6% year-on-year to 9.1 mmt; 1.6% of
Russia’s total production).

In 2019, Russian oil and gas conden-
sate refining volumes decreased by
0.6% year-on-year to 285.1 mmt, while
oil exports increased by 3.3% year-on-
year to 266.2 mmt. The export share
in total oil and gas condensate produc-
tion totalled 47.5% in 2019 (up by 1 p.p.
year-on-year).

Sources: forecasts by the IEA, OPEC, U.S. Department of Energy, IHS Markit, BP, ExxonMobil
and Rosneft

Evolution of Oil and Gas Condensate Production by Federal District, mmt

natural gas production (1.6 tcm of gas
in 2050, 30% of global production). The
most considerable rise in gas output
(around 25% of the global increase) in

the forecast period will be seen in the
Middle East (over 930 bcm in 2040).

555.9

-1.9

-0.4

-0.1

0.3

1.6

1.8

3.1

560.3

Oil and Gas Condensate Production
in Russia, mmt

1.7 %

0.8 %

546.8

555.9

560.3

2017

2018

2019

Source: CDU TEK

Russian Oil and Gas Condensate
Exports and Refining, mmt

280.6

280.0

287.0

285.1

254.2

257.0

257.7

266.2

Oil demand will go down in North
America (to 896 mmt in 2040) and
Europe (to 527 mmt in 2040), with these
two regions making up approximately
17% and 10% of global demand for oil
respectively.

Until 2030, natural gas
will be outperforming all other
energy sources in terms of increase
in global demand in absolute terms.

Global demand for gas will be adding an
average of 1.5% a year, reaching almost
5.5 tcm by 2040 and accounting for
more than a quarter of the global energy
mix. Strong growth in demand for gas
will be supported by its superior envi-
ronmental performance as compared to
other fossil fuels.

Gas consumption is expected to in-
crease in all regions except Europe.
In the forecast period, the Asia-Pacific
Region will be the largest region by
oil consumption, with its demand go-
ing up by 756 bcm vs 2018 to almost
1.6 tcm, exceeding the level of consump-
tion in North America (1.3 tcm in 2040,
an increase of 198 bcm against 2018).
North America will remain the leader in

Russian Oil Industry

Russia is a top three oil producer glob-
ally (alongside the USA and Saudi
Arabia). In 2019, oil and gas con-
densate production in Russia stood
at 560.3 mmt, up by 0.8% year-on-
year. The growth was due to the
December 2018 decision of the OPEC+
agreement to increase oil output tar-
get. For Russia, the production target
was raised from 10.96 mmb per day to
11.22 mmb per day.

The main contributors to the produc-
tion growth were the Ural Federal
District (up by 1.0% year-on-year to
310.1 mmt; 55.3% of Russia’s total pro-
duction), Far Eastern Federal District (up
by 5.8% year-on-year to 33.3 mmt; 5.9%

of Russia’s total production), and Volga
Federal District (up by 1.4% year-on-year
to 118.9 mmt; 21.2% of Russia’s total
production). In the Ural Federal District,
crude oil production increased in the
Yamal-Nenets Autonomous Area (up by
6.1% year-on-year to 61.5 mmt; 11.0%
of Russia’s total production) and de-
clined in the Khanty-Mansi Autonomous
Area (down by 0.2% year-on-year to
236.0 mmt; 42.1% of Russia’s total pro-
duction) and the Tyumen Region (down
by 0.2% year-on-year to 12.5 mmt; 2.2%
of Russia’s total production). In the Far
Eastern Federal District, oil and gas
condensate production went up in the
Republic of Sakha (up by 10.7% year-
on-year to 13.5 mmt; 2.4% of Russia’s

total production) and the Sakhalin
Region (including offshore production,
up by 2.6% year-on-year to 19.8 mmt;
3.5% of Russia’s total production). In the
Volga Federal District, oil and gas con-
densate production increased in the
Orenburg Region (up by 3.9% year-on-
year to 21.7 mmt; 3.9% of Russia’s to-
tal production), Samara Region (up by
2.6% year-on-year to 16.1 mmt; 2.9%
of Russia’s total production), Republic
of Tatarstan (up by 0.8% year-on-year
to 36.7 mmt; 6.5% of Russia’s total pro-
duction), and the Perm Territory (up by
1.8% year-on-year to 16.0 mmt; 2.9%
of Russia’s total production). In the
Southern Federal District, oil and gas
condensate production saw an increase

2018

SibFD

NWFD

NCFD

SFD

VFD

FEFD

UFD

2019

2016

2017

2018

2019

Source: CDU TEK

The increase in oil and gas condensate
exports was driven by supplies to coun-
tries outside the CIS growing by 3.7%
year-on-year to 248.6 mmt. Almost 64%
of export volumes to countries out-
side the CIS were transported by sea
(around 158.9 mmt), including 19.1% via
Primorsk and 13.3% via the Kozmino oil

port. Oil and gas condensate exports to
CIS countries declined by 2.4% year-on-
year to 17.6 mmt in 2019 as a result of
reduced supplies to Belarus (down by
2.2% year-on-year to 17.6 mmt) and dis-
continuation of shipments to Uzbekistan
(vs 36 kt in 2018).

Oil exports
Oil reﬁning

Source: CDU TEK

128

129

Russia is the world’s No. 2 gas producer
(surpassed only by the USA) and the
world’s largest gas exporter.

while supplies to CIS countries totalled
38.2 bcm (up by 4.4% year-on-year, or
1.6 bcm).

Exports of LNG4 grew by 13.6 bcm
in 2019 (by 50.3% year-on-year) and
reached 40.5 bcm.

Major gas consumers in Russia in-
clude power generation companies,
households, utilities, and companies
in the oil, metals, and agrochemical
industries, which taken together ac-
count for around 80% of Russia’s total
gas consumption.

In 2019, natural and associated gas pro-
duction in Russia increased by 1.7%
year-on-year and reached 737.7 bcm1.
Rosneft accounted for around 8.5%
of the nation’s total production, or
62.36 bcm2.

Gas produced in Russia is sold domesti-
cally and exported.

According to the Federal Customs
Service of Russia and CDU TEK,
Russia’s natural gas exports totalled
260.4 bcm in 2019, going up by 5.2%
year-on-year, or 12.9 bcm. Export vol-
umes via Gazprom’s pipelines3 stood
at 219.9 bcm, including 181.8 bcm ex-
ported to countries outside the CIS
(down by 1.2% year-on-year, or 2.3 bcm),

Natural and Associated Gas
Production in Russia, bcm

725.4

737.7

691.1

635.5

640.2

Metric, bcm

Natural gas
production

Natural gas exports

including to countries
outside the CIS

including to the CIS

LNG

2015

635.5

200.4

144.7

40.8

14.9

2016

640.2

213.4

164.7

34.0

14.7

2017

691.1

228.7

178.7

34.3

15.7

2018

725.4

247.5

184.0

36.6

26.9

2019

737.7

260.4

181.8

38.2

40.5

Natural Gas Exports from Russia, bcm

200.4

14.9
40.8

213.5

14.7
34.0

144.7

164.7

228.7

15.7
34.3

247.5

26.9

36.6

260.4

40.5

38.2

178.7

184.0

181.8

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

Source: CDU TEK

Countries outside the CIS
CIS
LNG

Sources: Federal Customs Service of Russia, CDU TEK

1 Data by CDU TEK is based on temperature of 20 °C and pressure of 101,325 Pa. Data by international agencies: temperature of 15 °C and pressure

of 101,325 Pa.

2 Including gas used in liquid hydrocarbons production.
3 Pursuant to Federal Law of the Russian Federation No. 117-FZ on Gas Export dated 18 July 2006, the exclusive right to gas export shall be granted

to the owner of the Unified Gas Supply System or to its wholly-owned subsidiary.

4 Large-scale production of LNG in Russia is based at the Sakhalin-based LNG plant built as part of Sakhalin-2, a project operated by Sakhalin Energy,

and the Yamal LNG plant (Yamal-Nenets Autonomous Area) controlled by Novatek.

5 The Federal Tariff Service was abolished by Presidential Executive Order No. 373 dated 21 July 2015, and was succeeded by the Federal

Antimonopoly Service (FAS).

130

Rosneft supplies gas to industrial con-
sumers, households, and municipal
utilities.

Antimonopoly Service of the Russian
Federation (regulated gas price).

Rosneft’s selling prices for end con-
sumers are not regulated by the
Government and are based on agree-
ments with customers. Wholesale prices
of gas produced by Gazprom and its
affiliates and sold to domestic consum-
ers are used as a benchmark. The prices
are determined by orders of the Federal

Current wholesale prices of gas for
all categories of Russian consum-
ers were set by Order of the Federal
Antimonopoly Service No. 583/19 dated
13 May 2019 (for consumers other than
households) and No. 580/19 dated
13 May 2019 (for households). In ac-
cordance with the Orders, gas prices for
all categories of consumers were subject
to indexation of 1.4%.

Regulated gas prices in Russia differ by
region, generally depending on the dis-
tance from the gas production hub in
the Yamal-Nenets Autonomous Area.

The indexation benchmark for regulated
gas prices is the Forecast of Social and
Economic Development of the Russian
Federation published by the Ministry of
Economic Development of the Russian
Federation.

Indexation of Regulated Prices (Tariffs) for Infrastructure Sector Products (Services) for 2020–2021, %

Metric

Wholesale price indexation for all categories of con-
sumers other than households

2020

July 0.3%

Wholesale price indexation for households

July 0.3%

2021

July 0.3%

Source: Forecast of Social and Economic Development
of the Russian Federation for the Period Until 2024

As the owner of the Unified Gas Supply
System, Gazprom provides independent
companies with services of gas trans-
portation via trunk gas pipelines. The
transportation charges are set by the
FAS (previously by the FTS)5. Gas trans-
portation service prices are based on a
tariff consisting of two fees, one for the
use of gas pipelines and the other for
gas pumping. The pipeline usage fee is
set for the distance between the pipe
inlet and outlet points, while the pump-
ing fee depends on Gazprom’s handling
and transportation costs. Current tar-
iffs were approved by Order of the FTS
No. 216e/1 dated 8 June 2015 and were
not indexed in 2016–2019.

Gazprom also provides independent gas
producers with underground gas stor-
age services. The main gas consumption
regions currently have 25 under-
ground gas storage facilities. Their us-
age fees are non-regulated and are set
by Gazprom on a case-by-case basis for
each facility for the duration of the stor-
age season (from 1 April to 31 March of
the next year). Rosneft relies on under-
ground gas storage facilities to offset
fluctuations in gas consumption by end
consumers.

The St Petersburg International
Mercantile Exchange (SPIMEX) was
launched on 24 October 2014 pursu-
ant to an instruction of the Presidential
Commission for Strategic Development
of the Fuel and Energy Sector and
Environmental Safety. In 2019, the
Exchange continued to develop or-
ganised trade in natural gas. Trading
is based on three balancing points
(Nadym, 622.5 Km (Lokosovo), and
Parabel) with next month deliveries of
natural gas.

In recent years, the domestic gas market
has seen increased competition for con-
sumers and a gradually expanding share
of independent gas producers in the to-
tal volume of domestic gas sales.

In 12M 2019, natural gas sales un-
der exchange-traded contracts stood
at 12.9 bcm, with total sales since
the launch of SPIMEX now exceeding
70 bcm.

131

Hydrocarbon Exploration and Production

Rosneft is the largest oil and gas com-
pany in Russia and a leader in terms of
reserves and hydrocarbon liquid pro-
duction among global peers whose
shares or depositary receipts trade on
international stock exchanges. Resource
sustainability, including the size of re-
serves, reserves-to-production ratio and
efficient reserves management, is one
of the key investment highlights of an oil
and gas company.

For many years, we have been steadily
building up our reserves of commercially
recoverable hydrocarbons. This was pos-
sible thanks to our consistent efforts to
increase production from brownfields
and launch new fields and prospects,
as well as to our successful exploration
operations. We pay special attention to
exploration and sustainable reserves
growth at the existing licence areas, with
resource base integration and expan-
sion being key focus areas at our new
assets.

Under the SEC (U.S. Securities and
Exchange Commission) classification,
Rosneft’s proved hydrocarbon reserves
totalled 42,018 mmboe (5,678 mmtoe)
as at 31 December 2019. Compared to
the end of 2018, our hydrocarbon re-
serves grew by 587 mmboe (81 mmtoe),
or 1%. We engaged DeGolyer &
MacNaughton to conduct a life-of-field
audit of the reserves.

As at the year-end, Rosneft’s SEC-proved
reserve life exceeded 20 years, and the
SEC-proved organic reserve replacement
ratio stood at 129% in 2019 and 163% in
2017–2019.

For several years now, Rosneft has sur-
passed the world's public oil and gas
majors in terms of SEC-proved reserve
replacement ratio. At the same time, we
boast high exploration and production
efficiency and maintain traditionally low
finding and development costs.

Global oil production

77 566

kbpd

Saudi Arabia
Rosneft
Russia (excl. Rosneft)
Canada
USA
Norway
Brazil
China
Other OPEC countries
Venezuela
Iraq
Iran
Others

13 %
6 %
7 %
5 %
16 %
2 %
3 %
5 %
16 %
1 %
6 %
3 %
17 %

Reserve Replacement and F&D Costs

Source: Wood Mackenzie.

As at 31 December 2019, the
Company’s reserves under the PRMS
(Petroleum Resources Management
System) standards, according to
DeGolyer & MacNaughton, totalled
47,289 mmboe (6,400 mmtoe) in
the 1P category, 84,926 mmboe
(11,504 mmtoe) in the 2P category, and
125,296 mmboe (16,976 mmtoe) in the
3P category. In 2019, total 3P reserves
grew by over 4 bboe (550 mmtoe).

An upward revision of reserves esti-
mates and the full replacement of hy-
drocarbon production in 2019 were due
to successful exploration and produc-
tion drilling and the use of advanced
recovery enhancement techniques
to extract hard-to-recover reserves,
among others. The key contributors to
the reserves base were the fields of RN-
Yuganskneftegaz, RN-Nyaganneftegaz,
and Varyeganneftegaz along with assets
in Eastern Siberia.

For years, Rosneft has invariably main-
tained a high reserve replacement ratio
(reserve replacement cost in 2017–2019
was USD 0.3 per boe). In 2020–2022,
we intend to replace no less than 100%
of our hydrocarbon production. The
Company also plans to fast-track the de-
velopment of new reserves by reducing

Reserves-to-production ratio (SEC) in 2019, years1

20.6

18.2

13.7

15.1

15.4

10.2

10.5

8.0

8.6

Source: company reports.

Organic reserves growth (SEC), bboe2

9.9

6.3

4.2

3.7

3.6

3.2

3.0

1.8

2017
2018
2019

Source: company reports.

250 %

200 %

150 %

100 %

50 %

0 %

)
r
a
e
y
-
3
(

*
9
1
0
2
–
7
1
0
2
n

Rosneft
Gazprom neft
Equinor
ExxonMobil
BP
LUKOIL

Shell
Chevron
Petrobras
PetroChina

42,018

mmboe

Proved hydrocarbon
reserves (SEC)

)
R
R
R
(
o
i
t
a
r

t
n
e
m
e
c
a
p
e
r
e
v
r
e
s
e
r
c
n
a
g
r
O

Organic finding and development (F&D) costs in 2017–2019*, USD/boe

Source: company reports.
* Including affiliates. PetroChina data for 2016–2018 does not include affiliates.

1 Including affiliates. PetroChina data for 2018 does not include affiliates.
2 Including affiliates. PetroChina data for 2016–2018 does not include affiliates.

132

133

Market Overview and Competitive EnvironmentROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsSustainable DevelopmentCorporate GovernanceInformation for Shareholders and Investors

key oil production and logistics pro-
cesses at the Ilishevskoye field in the
Republic of Bashkortostan. The exper-
tise gained in the course of the pilot
project will be rolled out at all of our
fields. RN-UfaNIPIneft, part of Rosneft's
research and design cluster, developed
the first commercial software suite for
geomechanical modelling of drilling
operations – RN-Sigma. It enables the
Company’s engineers to capitalise on
wider applications of geomechanical
calculations for borehole stability and
reduce the risk of complications while
drilling directional and horizontal wells.

Pursuant to our plans to diversify our
portfolio of production assets and imple-
ment international upstream projects,
we are expanding production outside
Russia. In particular, we keep developing
production blocks in Iraqi Kurdistan un-
der the Production Sharing Agreements
signed in October 2017. In the first quar-
ter of 2019, we piloted production at
Block 11 of the Bejil field. By taking part
in the development of the unique Zohr
field together with Eni (a 50% stake) and
BP (a 10% stake) – global energy majors
and our strategic partners – we were
able to promptly step up gas production
abroad and penetrate the Egyptian mar-
ket with a view to further strengthening
our foothold both in the country and the
entire region. June 2018 saw Mubadala
Petroleum join the project. The field was
put on stream in December 2017, and
in August 2019, five months ahead of
schedule, it reached the full design ca-
pacity of 76 mmcm per day.

Hydrocarbon production in 2019, mmboe per day

5.8

1.1

4.7

4.3

1.8

4.0

1.6

2.5

2.4

3.8

1.6

2.2

3.7

1.8

3.0

1.1

1.9

2.8

0.5

2.2

2.4

0.6

1.8

Liquids
Gas

Source: company reports for 2019.

Average production growth for ten years, %

Rosneft
PetroChina
Shell
Chevron
Petrobras
LUKOIL
Gazprom
ExxonMobil

Sources: company reports; Wood Mackenzie (Gazprom).

9.3%
2.7%
1.6%
1.3%
0.9%
0.7%
0.6%
0.1

-0.6%

preparation timelines, accelerate viabil-
ity-based resources to reserves conver-
sion, and make exploration drilling in
Russia more successful.

The Company accounts for 41% of the
total oil production of Russia and for ap-
proximately 6% of the global oil output.
On top of that, we boast the highest 10-
year average production growth among
peers.

Rosneft is Russia’s leading petroleum
company in terms of launching new
projects. In 2016, we put on stream
a number of large fields, including
Suzunskoye, Yurubcheno-Tokhomskoye,
Kondinskoye, Tagulskoye, Russkoye,
Srednebotuobinskoye (Phase 2),
Zapadno-Erginskoye, Vostochno-
Messoyakhskoye and Kuyumbinskoye.
We also made great progress in de-
veloping RN-Yuganskneftegaz mature
fields, our key asset, and the fields of
Samaraneftegaz, RN-Nyaganneftegaz
and Varyeganneftegaz. At Samotlor,
we optimised production decline
rates. In the medium term, we plan
to enhance production from mature
fields and develop new high-poten-
tial oil and gas projects, including the
Vankor, Erginsky and Danilovsky clus-
ters, Rospan, Kharampurskoye and

Severo-Komsomolskoye fields to in-
crease the output through organic
growth.

Oil and gas condensate production
in Russia, mmb per day

In furtherance of the Russian President's
instruction to increase the cargo flow
along the Northern Sea Route, we are
preparing for a large-scale hydrocarbon
production project, which will set the
stage for a comprehensive development
of the new oil and gas province in the
Krasnoyarsk Territory’s north (Vostok-
Oil project). Together with our partners,
we will build a unique world-class oil and
gas cluster in this location.

To ensure production growth in the long
run, we create an optimal portfolio of
major greenfield projects, while also us-
ing advanced production technologies at
our existing fields. Technology advance
is a key focus area of the Rosneft–2022
Strategy and a powerful driving force be-
hind our competitiveness.

To develop our technological capabil-
ities, we keep rolling out cutting-edge
techniques that help expand the pay
zone coverage, increase flow rates,
and optimise well and infrastructure
construction. As part of our digitalisa-
tion efforts, we launched the Digital
Field information system covering all

11.1

1.9

1.2

1.7

0.6

4.5

1.2

2017

11.3

11.4

2.0

1.2

1.7

0.6

4.6

1.2

2018

2.1

1.2

1.7

0.6

4.6

1.2

2019

Gazprom Neft
Rosneft
Tatneft
LUKOIL
CIS
Others

Source: CDU TEK

77,566

kbpd

global oil production in 2019

134

135

Rosneft is the largest refiner in
Russia. Its refining business includes
13 large refineries, as well as petro-
chemical and gas processing plants in
five federal districts – Central, Volga,
Southern, Siberian, and Far Eastern. The
Company’s oil refining operations are fo-
cused on the strategic task of supplying
high-quality petroleum products to the
Russian domestic market, including re-
mote regions. The Achinsk, Komsomolsk,
and Angarsk Refineries are the key sup-
pliers of motor fuels for the Eastern
Siberian and the Far Eastern regions,
ensuring uninterrupted supply and curb-
ing price growth that would inevitably
be the case if petroleum products were
delivered from Central Russian refiner-
ies. In 2019, as the largest supplier of
motor fuels to the Far Eastern Federal
District, Rosneft ensured stability of
small-scale wholesale and retail prices
in the region through building up its
supplies (+15% vs. 2018). However, the
Far Eastern increment to the damper
was not introduced after all since there
were no executive orders by Russia’s
Government and Federal Antimonopoly
Service that would set forth the proce-
dure for its application.

In general, unlike those of most of the
Russian producers, the Company’s oil re-
fineries are located far from export mar-
kets, which limits the economic efficiency
of oil refining. Meanwhile, the Company
continues its efforts to connect the re-
fineries to Transneft’s oil trunk pipeline
system. In the third quarter of 2019, a
8 mmt oil pipeline section between the
ESPO and the Komsomolsk Refinery was
commissioned. The completion of this
project will enable he Company to en-
hance the reliability of petroleum prod-
uct supplies to the Far Eastern Federal
District. The project was financed un-
der a long-term tariff agreement with
Transneft, with the total investment for
connecting the Komsomolsk Refinery to

the trunk pipeline system amounting to
RUB 50 bln.

The oil refineries continue upgrade and
maintenance projects related to their
existing capacities. In March 2019, the
Ryazan Refinery, a subsidiary of Rosneft,
completed the upgrade of a catalytic
reforming unit, replacing reactors on
the reformer. As a result, the octane
grade of the motor gasoline compo-
nent increased to 97 according to the
research method. Moreover, the unit
was switched to a three-year run be-
tween repairs, significantly improving
its economic, environmental and safety
performance.

As an environmentally responsible com-
pany, Rosneft is consistent in improving
and expanding the development and
output of high-tech petroleum prod-
ucts with enhanced environmental
performance.

The Company was the first in Russia to
start the production and sale of Euro 6
gasoline in 2018, gradually expanding
the sales geography in 2019. Currently,
Euro 6 gasoline is offered at 727 fill-
ing stations of Rosneft in the Republic
of Bashkortostan, Krasnodar Territory,
Republic of Adygeya, Tula, Kaluga,
Ryazan and Vladimir Regions,in Moscow
and the Moscow Region, as well as in
small-scale wholesale quantities. The
Ufa Refinery launched the production
of AI-100 motor gasoline. Retail sales
of AI-100 gasolines have started in the
Republic of Bashkortostan, Republic
of Mordovia, Orenburg, Sverdlovsk,
Bryansk, Voronezh, Lipetsk, Orel,
Penza, Rostov, Archangelsk, Samara
and Ulianovsk Regions, and also in the
Krasnodar Territory.

In 2019, the Komsomolsk Refinery
started the production of RLMS, a
low-sulphur marine fuel compliant with
the IMO 2020 requirements.

In March 2019, RN-TsIR (a Rosneft R&D
unit), with the help of RN-Lubricants,
patented a know-how to produce eco-
friendly technical TDAE (treatment distil-
lated aromatic extract) oil, which is used
for the production of synthetic rubbers,
tyres, and industrial rubber products.
This know-how will enable the Company
to become a leading producer and sup-
plier of safe and high-quality TDAE oil
for the production of synthetic rubbers,
tyres and industrial rubber products.

Rosneft’s Innovation Development
Programme is aimed at substituting im-
ported technologies for the production
of high-quality petroleum products. Its
key objective is for the Company’s refin-
eries to start using catalysts produced
in-house in order to mitigate the expo-
sure to foreign-made products, cut refin-
ing costs and boost the competitiveness
of Rosneft’s refining segment.

Currently, the Company’s specialist en-
terprises play a key role in the import
substitution programme for additives
and catalysts. In particular, the Angarsk
Plant of Catalysts and Organic Synthesis,
the Novokuibyshevsk Catalyst Plant, RN-
Kat and corporate R&D units (RN-TsIR
and VNII NP) develop and manufacture
samples of high-tech products for the oil
refining industry.

In 2018, the Company started using
catalysts made by the Angarsk Plant of
Catalysts and Organic Synthesis at hy-
drogen units of the Kuibyshev Refinery
and the Ryazan Refinery. Before that,
Angarsk Plant’s catalysts replaced for-
eign-made steam methane reform-
ing analogues at hydrogen units of
Bashneft-Ufaneftekhim Bashneft-Novoil
and Syzran Refinery. The share of own
steam reforming catalysts in the produc-
tion of hydrogen at the Company’s refin-
eries reached 77% in 2019.

The Ryazan Refinery has started using
Angarsk Plant’s catalysts to produce
Euro 5 gasoline, as well as innovative
Euro 6 and AI-100 gasoline grades.

In 2019, RN-Kat, Rosneft’s specialist cat-
alyst production subsidiary, conducted
industrial tests at the Company’s Ufa
refineries on the first batch of hydro-
treating catalysts suitable for Euro 5
compliant diesel fuel. This is a unique
hydrotreating agent capable of fully re-
placing its foreign peers for the Russian
refining industry.

The Digital Plant system is being rolled
out as part of Rosneft–2022 Strategy
with a focus on qualitative changes
across all business segments. In
2019, the Digital Plant was tested and

implemented on units and systems at
the refineries in Komsomolsk-on-Amur,
Novokuibyshevsk, Ryazan, and Syzran.

Rosneft is an active player in the do-
mestic and foreign oil and petroleum
product markets and Russia’s largest
oil exporter. Its crude oil is exported to
European, Asia-Pacific, and CIS coun-
tries, sold on international markets, and
supplied to the Company’s own refiner-
ies in Russia and abroad.

In general, the Company continues di-
versifying its oil supply channels, while
increasing crude oil exports to the
east. Amid growing competition in the
oil market, the Company is focused on
boosting export volumes under long-
term contracts, including oil supplies to

China National Petroleum Corporation
(CNPC) and supplies to Europe under di-
rect contracts. In 2018, Rosneft signed
long-term contracts with Grupa Lotos
to supply from 6.4 mmt to 12.6 mmt of
oil to Poland and with Total Oil Trading
to supply from 4.8 mmt to 10.8 mmt
of oil to Germany. The Company also
captures opportunities of expanding
partnerships through short-term con-
tracts. In November 2018, Rosneft and
China National Chemical Corporation
(ChemChina) signed a contract to supply
up to 2.4 mmt of ESPO crude annually
via the port of Kozmino. Thanks to the
contract, the Company can increase di-
rect oil supplies to China, which is a stra-
tegic market for Rosneft. It also signed
annual contracts with Shell and Eni to
export 3.9 mmt of crude oil to Germany,

136

137

Market Overview and Competitive EnvironmentROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsSustainable DevelopmentCorporate GovernanceInformation for Shareholders and Investorsand with Socar Trading to supply up to
1 mmt of oil to Socar’s Turkish refinery.
The Company continues its coopera-
tion with the Republic of Belarus, and
in 2019 it signed contracts with Naftan,
Belarusian Oil Company and Mozyr
Oil Refinery to supply them with up to
8.7 mmt of oil. In February 2017, Rosneft
also signed a contract with the govern-
ment of Iraqi Kurdistan for sale and pur-
chase of oil in 2017–2019. This contract
expands the Company’s trading oppor-
tunities and bolsters the efficiency of
supplying feedstock to Rosneft’s refiner-
ies abroad.

The Company is consolidating its com-
petitive position in the European market
through the operation of its German re-
fineries. As of 1 January 2017, follow-
ing the restructuring of the ROG joint
venture with BP Plc Rosneft’s indirect
interest in the Bayernoil Refinery in-
creased from 12.5% to 25%, in the MiRO
Refinery from 12% to 24%, and in the
PCK Refinery (Schwedt) from 35.42%
to 54.17%. The Gelsenkirchen Refinery
is now fully controlled by BP Plc. In
December 2019, Rosneft Deutschland
closed the deal to acquire 3.57% of
shares in Bayernoil Raffineriegesellschaft
mbH oil refinery from BP Europa SE, in-
creasing its stake to 28.57%. As a result,
the Company saw its share in the refin-
ing capacities of Bayernoil Refinery grow
to almost 3 mmtpa, its total throughput
in Germany now reaching 12.8 mmtpa,
which strengthened its positions both
in Bavaria, one of the largest indus-
trial regions of Germany, and in Austria.
Rosneft is currently the third largest
player in the German refining market. Its
capacities provide, on average, oil refin-
ing depth of 93% and refinery complex-
ity of 9.0, according to the Nelson Index.

The local operator is Rosneft
Deutschland GmbH. This subsidiary
manages the supply of crude to Rosneft-
owned refineries (PCK Raffinerie GmbH,
MiRO, Bayernoil) and the sales of petro-
leum products.

Rosneft is consistent in its expansion ef-
forts in the Asia-Pacific Region. Rosneft
closed a strategic deal to acquire a 49%
stake in Essar Oil Limited in August 2017
(Nayara Energy Limited since June 2018).

The acquisition of a stake in the best-in-
class asset with a significant upside po-
tential enabled the Company to enter
the oil refining market of India, one of
the fastest growing emerging markets.
The Vadinar Refinery strategy is currently
being shaped, with a focus on the setup
of petrochemical production and en-
try to the Indian petrochemical market.
In March 2019, Nayara Energy Limited
launched its first high-tech railway ter-
minal for fuels and lubricants. Located
in Wardha, the state of Maharashtra, it
has an area of over 200 thousand sq m
and a capacity of about 16 mln litres.
Petroleum products will be supplied
from the Vadinar Refinery, the state of
Gujarat. Thanks to the unique location of
the railway terminal, Nayara Energy will
be able to meet the needs of customers
and partners operating in the eastern
Vidarbha region of Maharashtra. As an
environmentally responsible company,
Nayara Energy has launched a 300 kVA
solar power plant at the terminal. The
power plant is designed to generate
450 thousand kWh per year.

Rosneft’s main competitors in Russian
oil exports are vertically integrated com-
panies such as LUKOIL, Surgutneftegas,
Gazprom Neft, and Tatneft. Meanwhile,
all Russian oil producers have their own
export schedule for oil transportation
outside the Russian customs zone based
on equal access to the oil trunk pipeline
system and seaport terminals. Key com-
petitors supplying other crude oil grades
to export markets are international and
national oil companies such as Shell, ВР,
ExxonMobil, Chevron, Total, Equinor,
Saudi Aramco, NIOC, etc.

The Company consistently supplies pe-
troleum products to the domestic mar-
ket in required quantities. Rosneft is a
major player in the Russian wholesale
motor gasoline and diesel fuel market.
The Company expanded its Russian re-
tail chain to 3,006 filling stations at year-
end 2019, offering petroleum products
in all federal districts. The Company
relies on extensive proprietary and
third-party infrastructure to market and
distribute petroleum products (oil de-
pots, filling stations), which takes into ac-
count the capacity of regional markets
and consumer demand. The Rosneft

trademark is one of the most recognis-
able for petroleum products across the
regions where the Company operates
and is associated with quality fuel on
sale at filling stations.

In 2019, despite a year-on-year decrease
in refining volumes in Russia due to ma-
jor overhauls at the refineries in Saratov,
Syzran, Kuibyshev, Tuapse and Achinsk,
Rosneft increased supplies of Euro 5
gasoline to the domestic market against
a backdrop of a negative domestic gaso-
line premium. Other Russian oil refining
companies mostly cut their volumes of
Euro 5 gasoline supply to the domestic
market.

The Company exports its petroleum
products, just like crude oil, to European,
Asia-Pacific, and CIS countries. Its com-
petitive advantage lies in its ability to
maintain stable relations with foreign
partners, and, specifically, expand and
renew petroleum product supply con-
tracts. In partnership with Petrocas
Energy JV, in which Rosneft holds a 49%
stake, the Company ships petroleum
products to the Mediterranean mar-
ket, primarily to Turkey and Greece. In
the first quarter of 2017, Rosneft and
Turkey’s Demiroren Group Companies
signed a product supply agreement for
2018–2020. In 2019, the actual supply
volume amounted to 0.6 mmt of diesel
fuel with ultra low sulphur content of
10 ppm. As the Company seeks to ex-
pand cooperation with end consumers,
it signed a contract with Japan’s JXTG
Nippon for the supply of over 0.7 mmt of
gasoline and gas mixture in 2019. In the
first half of 2018, the Company signed
long-term contracts for the supply of
gasoline and diesel fuel with Mongolia’s
largest importers of petroleum products.
The total value of contracts amounts
to USD 2.1 bln. For over 10 years on
the Mongolian fuel market, Rosneft has
boosted its share to 80%.

On 1 January 2019, Rosneft Deutschland
GmbH initiated the direct sales of pe-
troleum products manufactured at the
three German refineries partially owned
by Rosneft. The product mix includes
gasoline, diesel, heating oil, jet fuel,
LPG, bitumen, fuel oil and petrochemi-
cal products. The company is a leader in

138

the German petroleum product whole-
sale market. The company supplies pe-
troleum products directly from three
German oil refineries partially owned by
Rosneft, as well as from over 30 German
terminals by road, rail, and river. The
company’s customer base includes
more than 500 enterprises in Germany,
Poland, the Czech Republic, Switzerland,
Austria, and France.

Over the past year, the company’s cus-
tomer base has grown by 30%, with bi-
tumen products delivered to Poland,
Austria, the Czech Republic, Switzerland,
France and other countries.

Apart from that, Rosneft Deutschland
has signed contracts on into-plane
fuelling with airports in Munich and
Berlin (Tegel and Schönefeld) as part
of its jet fuel market share expan-
sion in Germany. Rosneft Deutschland
owns a stake in the PCK Refinery

in Brandenburg, which produces
ca. 300 ktpa of jet fuel, accounting for
almost a half of the total kerosene con-
sumed at Berlin airports.

Alongside Rosneft, Russian oil majors
LUKOIL, Surgutneftegas, Gazprom Neft,
Tatneft and other oil companies offer
petroleum products in the domestic
market. Key competitors in export mar-
kets include transnational oil companies
Shell, ВР, Total, ExxonMobil, Chevron,
etc.

The Company is also developing its gas
business, with a focus on production
technologies, efficient gas monetisation
by building a portfolio of long-term sup-
ply contracts and participating in LNG
production projects as well as in Russia’s
gas motor fuel development pro-
gramme, and the work to create equal
conditions for access to infrastructure
facilities and consumers.

Developing an NGV filling station net-
work in Russia is one of Rosneft’s key
priorities in the retail business and one
of the most important focus areas, since
it enables the Company to expand its
competitive advantages in the domes-
tic market. In November 2018, Rosneft
and Beijing Gas Group Company Limited
(Beijing Gas) signed a joint venture
agreement for construction and oper-
ation of an NGV filling station network
in Russia based on Vankorskoye UTT.
Under the terms of this agreement,
Beijing Gas will own a 45% stake in the
JV. The parties are planning to build
about 170 NGV filling stations in Russia.
They will also be considering options for
using LNG as a motor fuel.

Rosneft is also building up its trading po-
tential and trading competencies in the
international LNG market.

Russia’s Oil Refining Dynamics, mmt

103.3

100.6

100.1

43.3

44.1

39.4

38.3

36.7

18.2

18.6

18.2

13.0

13.4

8.8

10.3

8.1

6.9

4.7

4.9

4.7

40.6

39.6

38.5

Rosneft

LUKOIL

Gazprom Neft

Surgutneftegaz

Gazprom

Tatneft

Novatek

2017
2018
2019

Source: CDU TEK, Rosneft’s reports

Novokuibyshevsk
Petrochemical
Company

Independent
refineries

7.9 9.6 10.2

Mini-refineries

139

Russia’s motor fuel production*, mmt

285.2

mmt

39.2

39.5

5.3
2.5
8.1
8.0

15.3

2017

5.5
2.5
8.3

8.0

15.1

2018

Motor gasoline

40.2

7.2
2.5
7.6

7.9

15.2

2019

Rosneft
LUKOIL
Gazprom Neft
Surgutneftegaz
Gazprom
Tatneft
Novatek
NNK
Independent reﬁneries
Mini-reﬁneries

100.1
44.1
38.3
18.6
13.4
10.3
6.9
4.7
38.5
10.2

Rosneft
LUKOIL
Gazprom Neft
Surgutneftegaz
Other

Source: CDU TEK

76.9

77.5

14.3

6.5

10.0

16.0

13.0

7.0

10.8

16.5

78.4

14.5

7.1

10.4

16.8

30.0

30.3

29.6

2017

2018

Diesel fuel

2019

Operational and Financial Efficiency

The reporting year was marked by a
number of events that had a signifi-
cant impact on the Company's produc-
tion volumes, including the extension
of OPEC+ agreement, as well as the in-
cident with high levels of organic chlo-
rides found in Transneft’s network in
April, leading to major failures in trunk
pipeline operation. In spite of that, high
efficiency and rational allocation of ex-
ploration and production capex in 2019
ensured a balanced output growth
through new projects and stimulating
production at mature fields.

Rosneft is highly efficient in its explo-
ration and production operations and
maintains traditionally low finding and
development costs. Rosneft's average
F&D costs over the last five years stood

at USD 4.56 per barrel, while the RRR of
SEC1P reserves in 2014–2018 reached
151%.

Low unit production costs is yet an-
other indicator of Rosneft’s operational
efficiency. In the reporting period, we
maintained undisputed leadership in
production costs in Russia through the
use of most suitable technologies and
stringent cost controls. Rosneft's current
operating costs per barrel are signifi-
cantly lower than those of international
majors, and 15–25% lower than the
lifting costs of Russian peers. This gap
could be bigger if we factored in tem-
porary decrease or slowdown of growth
in the costs of Russian competitors in
2018–2019 due to the shutdown of
low-margin wells and limited production

at mature fields in Russia, and increased
production at greenfields with tax
breaks, while the production is limited
by OPEC+ decisions.

Over many years, Rosneft has demon-
strated a positive free cash flow, which
makes us stand out among most com-
petitors, whose performance tends to
be highly volatile and sometimes neg-
ative as a result of asset acquisition
or at the start of investment projects.
In 2018–2019, Rosneft was in the middle
of the investment cycle and bore consid-
erable capital expenditures for construc-
tion and launch of new projects, and
still demonstrated unit free cash flow of
USD 6–8 per boe.

Source: CDU TEK, Rosneft’s reports

* Reporting data. Rosneft’s diesel fuel volumes do not include marine fuel.

Unit capex in exploration and production1, USD/boe

12.8

11.7

13.3

12.8

11.8

14.4

13.5

13.1

14.2

12.8

13.3

14.2

13.5

17.4

21.2

19.6

16.6

16.0

14.8

11.8

9.5

7.0

6.7

8.2

7.3

8.2

8.6

7.1

6.8

6.1

2017
2018
2019

1 Petrobras unit capex in exploration and capex in Brasil

140

141

7.2

7.1

6.8

5.2

5.7

5.8

3.2

3.1

4.1

3.6

3.7

4.5

4.1

3.8

10.6

9.7

9.0

11.3

10.9

9.6

11.4

10.8

10.6

11.5

13.3 13.4

12.3

12.1

12.3

2017
2018
2019

1 Petrobras data, unit capex in Brazil

Free cash flow 2017–2019, comparative analysis (majors) in USD/boe

22.5

14.4

11.1

16.3

12.3

7.2

2017
2018
2019

8.5

6.5

7.5

4.6

1.8

2.0

11.1

11.8

10.1

4.9

4.0

3.7

*Per boe of liquid hydrocarbons production, including subsidiaries

142

Climate Agenda and Carbon Management

Before the UN Climate Action Summit
that was held during the 74th ses-
sion of the UN General Assembly in
September 2019, Russia’s Prime Minister
signed Government Resolution No. 1228
On the Adoption of the Paris Agreement
dated 21 September 2019, de facto rat-
ifying it.

Russia’s Intended Nationally-Determined
Contribution (INDC) suggests a long-
term target of limiting anthropogenic
greenhouse gases in the country to 70–
75% of the 1990 levels by 2030, subject
to the maximum possible account of ab-
sorbing capacity of forests.

In December 2019, the Russian
Government's Resolution No. 3183-r
introduced a "first-stage" national ac-
tion plan of adapting to climate change
until 2022. The plan states that based
on years of observation by the Federal
Service for Hydrometeorology and
Environmental Monitoring, the average
surface air temperature in Russia has
been growing 0.47°C every ten years
since the mid-1970s, which is 2.5 times
higher than the global average of 0.18°C
per ten years. A significant part of the
Russian territory is subject to (observed
and predictable) climate changes. The

negative consequences of the expected
climate changes in Russia include more
frequent, intense and lasting droughts
in some regions; extreme precipitation
and floods in others; an increased risk
of forest fires; melting of permafrost in
the northern regions causing damage
to buildings and communication lines;
disruption of the ecological balance (in-
cluding some species replacing others);
and increased energy consumption for
air conditioning in the warm season.
Potential benefits include reduced en-
ergy consumption during the heating
season; more favourable ice conditions
and hence easier Arctic cargo transpor-
tation; better access to Russian con-
tinental shelf in the Arctic Ocean; and
increased productivity of boreal forests.

With climate change climbing higher on
the global agenda, environmental, so-
cial and governance (ESG) criteria are
becoming a key factor in determining a
company's investment appeal. Investors
have come to rely on ESG ratings from
international agencies when making allo-
cation decisions, and companies' climate
change initiatives are starting to repre-
sent a major competitive advantage.

Rosneft fully recognises the importance
of the climate agenda and makes sure
to assess the systemic, environmental,
infrastructural and economic risks asso-
ciated with climate change. Most human
activities involving the burning or oxi-
dation of carbon/hydrocarbon produce
greenhouse gas emissions. Reducing
GHG emissions and climate change as-
sociated with them involves burning less
of certain fuels. Over the last decades,
Rosneft has structured its GHG initia-
tives around reducing associated petro-
leum gas (APG) flaring, improving energy
efficiency, and decreasing hydrocar-
bon losses in the key production pro-
cesses. This is an area of ongoing focus
for the Company. In 2006, we launched
and have since been expanding our Gas
Investment Programme, which is aimed
at increasing the level of APG utilisa-
tion. During 2006–2012, Rosneft com-
bined forces with the World Bank and
a number of European state funds to
carry out three joint implementation
projects under the Kyoto Protocol. The
projects aimed to reduce APG flaring
and resulted in a 2 mmt decrease in an-
nual CO2 emissions. Rosneft’s Energy
Efficiency Programme was approved
in 2009 and is regularly updated with di-
rect input from the Board of Directors.

143

Market Overview and Competitive EnvironmentROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsIn 2013, Rosneft started a systemic
assessment and monitoring of its
GHG emissions. In 2017, we launched
a programme to regularly monitor and
optimise production losses, and to en-
sure sustainable use of energy by our
facilities.

This ongoing initiative will enable us to
achieve lower GHG intensity compared
to peers. For any oil and gas company,
exploration and production opera-
tions are the key source of emissions.
Traditionally, these operations account
for 40–70% in the carbon footprint
of the vertically integrated oil and gas
producers.

On 20 December 2018, the Board of
Directors approved the Company's
ESG initiatives and announced its com-
mitment to the 17 UN Sustainable
Development Goals. In June 2019,
we joined the Guiding Principles on
Reducing Methane Emissions across the
Natural Gas Value Chain.

In August 2019, we set up a Carbon
Management Subcommittee under
the Health, Safety, and Environment
Committee. Its aim is to coordinate our
work towards strategic goals of reduc-
ing GHG emissions. At its meeting in
December 2019, the Board of Directors
reviewed the approaches and a phased

action plan to develop carbon manage-
ment (for details see the Health, Safety,
and Environment section).

As a result of our efforts over the year,
we became one of the leading global
oil and gas companies in the CDP's car-
bon disclosure rating rating1. Following
an independent review, Rosneft re-
ceived a “B”, which is the best grade
among Russian oil and gas producers,
two notches higher than the average of
European peers.

1 CDP (Carbon Disclosure Project) is the most reputable non-profit organisation that assesses companies’ environmental, strategic, governance

and risk management effort as regards battling climate change. Climate ratings assigned by CDP following the disclosure assessment are published
by the leading analytical agencies along with financial data and used by investors to screen investments. CDP works with 525 institutional investors
managing USD 96 trln worth of assets. In 2019, over 8.4 thousand companies, including 62 from Russia, with more than 50% of the global market
capitalisation disclosed environmental data through CDP.

Overview of Key Taxation Changes
in the Russian Federation with the Largest
Impact on the Company’s Financial
and Business Operations

Tax policy in the oil industry: tax manoeuvre completion and AIT
introduction

Completion
of the tax manoeuvre
in the oil industry

On 1 January 2019, the Russian Tax
Code and Russian Law on the Customs
Tariff were amended to effect a phased
reduction in export duties on oil, gas
condensate and petroleum products un-
til they are reduced to zero in 2024, with
an equivalent increase in MET for oil and
gas condensate.

Additionally, the tax manoeuvre ended
with the adoption of the so-called re-
verse excise tax on petroleum feed-
stock, a scheme providing for an excise
tax to be levied when crude oil is sent
to a refinery with increased deduc-
tions received. The right to receive the

reverse excise tax and to have relevant
amounts reimbursed by the government
is granted to the owners of petroleum
feedstock sent for refining (including un-
der tolling arrangements) in Russia.

Introduction of reverse
excise tax on petroleum
feedstock

The excise tax rate per tonne of petro-
leum feedstock to be refined depends
on the actual past-month macroeco-
nomic performance (Urals price and
USD rate) and the refinery's product
portfolio. An increased rate applies to
refineries located in certain regions.
For example, the highest multipliers
are used in the excise tax calculation

formulas for the Krasnoyarsk Territory
(1.5) and Irkutsk Region (1.4).

The reverse excise tax also contains the
so-called damping component (damper),
which increases (in case of a positive
damper) or decreases the final amount
of excise tax reimbursed by the govern-
ment, depending on the volume of mo-
tor gasoline and diesel fuel produced
and supplied by the taxpayer to the do-
mestic market, as well as the difference
between the export alternative and no-
tional domestic prices. Simultaneously,
the MET calculation formula for oil was
changed to include CMGDF, an additional
summand increasing the rate in case of
a positive damper.

Formula of reverse excise tax on petroleum feedstock

Excise tax due

Tax deduction amount

Amount to be reimbursed by the gov-
ernment (reverse excise tax)

EPF × VPF

EPF × VPF × 2 + СDAMP

EPF is the excise tax rate depending on
the actual past-month macroeconomic
performance, the portfolio of prod-
ucts made at the refinery and refinery
location;

VPF is the volume of petroleum feedstock
sent for refining;

CDAMP is a damping component deter-
mined depending on the volume of mo-
tor gasoline and class 5 diesel fuel sold

domestically and the difference between
the domestic and international prices for
these petroleum products (can be either
positive or negative). The CDAMP calcu-
lation formula effective since 1 January
2019, was adjusted on 1 July 2019.

144

145

With effect from 1 January 2019, a lim-
ited number of oil production projects in
Russia (see below for applicability crite-
ria) are subject to a tax on additional in-
come from hydrocarbon extraction (AIT).

Excise on Petroleum Products

With effect from 1 January 2019, excise
duties on petroleum products increased
as planned (excise duties grew by 50%
for Euro5 motor gasoline and diesel
fuel, and by 39% for middle distillates,
compared to the rates applied from

June 2018) and a reverse excise tax was
introduced for dark marine fuel with an
increased tax deduction (with rate 2) al-
lowed when it is used as fuel for marine
vessels and installations (structures).

VAT and Corporate
Property Tax

On 1 January 2019, the generally applica-
ble VAT rate increased from 18% to 20%,
and movable property ceased to be sub-
ject to corporate property tax.

AIT applicability

Excise rates for petroleum products in 2018–2019, RUB per tonne

Group

Geographic location of subsoil
areas

Depletion level
as at 1 January 2017

Notes

Sakha Republic (Yakutia), Irkutsk
Region, Nenets Autonomous Area,
Yamal-Nenets Autonomous Area,
north of the 65th parallel north,
Krasnoyarsk Territory, Caspian
Sea

Below 5%

Right of one-time exemption from AIT
payment

No applicable limitations

Khanty-Mansi Autonomous Area –
Yugra, Yamal-Nenets Autonomous
Area, Komi Republic, Tyumen
Region

20%–80% (10%–80%
if the depletion level
as at 1 January 2011
is below 1%)

Subsoil areas include reserves of the fields
specified in Note 8 to the EAEU Commodity
Nomenclature of Foreign Economic Activity
as at 1 January 2018.

Voluntary transition to AIT

The subsoil areas are listed in the law

Khanty-Mansi Autonomous Area –
Yugra, Yamal-Nenets Autonomous
Area, Komi Republic, Tyumen
Region

Below 5%

The subsoil areas are listed in the law

The AIT rate is 50% of the tax base determined individually for each
subsoil area using the following formula:

Tax base

Estimated
revenue

Actual
expenses

Estimated
export duty

Estimated
transportation
expenses

Historical
losses

For the purpose of AIT tax base calcu-
lation, the estimated revenue is deter-
mined based on the market prices for
hydrocarbons, the capital expenditures
are recognised when paid, and losses
(including historical losses incurred in
the development of subsoil areas of
groups 1, 2 and 4) are carried forward
with an annual indexation of 16.3%.

Given the specifics of tax base calcula-
tion, AIT is actually paid after the start
of commercial production in the sub-
soil area and reimbursement of losses
incurred.

Transition to AIT does not exempt from
MET, though payable at a much lower
rate than usual, and export customs

duties. Besides, subsoil areas belong-
ing to groups 1 and 2 are expected to
be exempt from oil export duties at
the initial development stage (seven
years from the beginning of commercial
production).

Excisable goods

Motor gasoline

Non-compliant with EURO-5

EURO-5 compliant

Straight-run gasoline

Diesel fuel

Jet fuel

Motor oils

Benzene, paraxylene, orthoxylene

Middle distillates

Dark marine fuel

1 January to 31 May
2018

1 June to 31 December
2018

1 January
to 31 December 2019

13,100

11,213

13,100

7,665

2,800

5,400

2,800

8,662

–

13,100

8,213

13,100

5,665

2,800

5,400

2,800

6,665

–

13,100

12,314

13,9121

8,541

2,800

5,400

2,9291

9,241

2,1002

Further changes in tax legislation

A number of laws adopted in 2019 pro-
vide for further changes in the oil in-
dustry's fiscal regime. Some of the new
tax measures with the greatest impact
on the Company include:
▪ adjustment of MET on oil due to the

changing damper mechanism
to compensate for additional
budget expenses arising out of
the changing damper mechanism,
which is used as part of the reverse
excise tax on petroleum feedstock,
from 1 January 2020, the CMGDF coef-
ficient used to increase MET rate for
oil will be supplemented with a new

increment in the amount commen-
surate with the new damper (the
new damper calculation formula
has been in use since 1 July 2019
and is generally meant to increase
excise deductions compared to the
previously used formula);

▪ changes in middle distillate excise

taxation
From 1 April 2020, the middle dis-
tillates category used for excise
calculation and payment purposes
will be significantly expanded to in-
clude nearly all heavy petroleum

products, with certain exceptions
listed in Article 181 of the Russian
Tax Code.

From the said date, a new middle distil-
late excise rate formula will apply. The
formula is linked to the excise rate for
diesel fuel and prices for diesel fuel. An
increased tax deduction (with coeffi-
cient 2) will be introduced for middle dis-
tillates used as fuel for electricity and/or
heat generation, and the tax deduction
will increase for the sale of middle dis-
tillates as a bunker fuel taken outside of
the Russian Federation as supplies.

1 The rates are determined using the following formulas: ESRG = 100 + 865 × Cadj for straight-run gasoline; EBPO = 800 + 774 × Cadj, where

Cadj= 0.167, for benzene, paraxylene, orthoxylene.

2 For fuel sold by an organisation registered as an entity engaged in petroleum feedstock refining, and produced at the refining facilities located

in the Khabarovsk Territory; in other cases of sale (receipt) of dark marine fuel, the excise is equal to zero.

146

147

Market Overview and Competitive EnvironmentROSNEFT ANNUAL REPORT 2019Strategy of the CompanyOperating ResultsSustainable DevelopmentCorporate GovernanceInformation for Shareholders and Investors04

Sustainable
Development

Health, Safety and Environment

Responsible HSE Governance

In December 2018, the Rosneft Board
of Directors approved the strategic
guidelines for the company linked to
implementation of the UN Sustainable
Development Goals. The Company’s
mission, values, objectives, and strategic
guidelines are therefore aligned with
these 17 United Nations Sustainable
Development Goals.

More specifically, the Board identified
five SDGs of strategic priority for
Rosneft’s core businesses, including SDG
3 on Good Health and Well-Being; SDG 7
on Affordable and Clean Energy; SDG 8
on Decent Work and Economic Growth;
SDG 13 on Climate Action and SDG 17
on Partnerships for the Goals.

Since the announcement of these
commitments, governance has been
strengthened across a number of
key HSE risk areas through more
robust management processes and
procedures, increased capability
and improved monitoring of HSE
performance across the company.

HSE Performance Goals

Rosneft-2022 strategy is aimed at
continuous improvement of HSE
performance equivalent to top quartile

amongst our industry peers, and
including targets of a 5% reduction of
Greenhouse gas emissions on a per unit

basis and 8 million tonnes of avoided
CO2 equival ent emissions by 2022.

From Commitment to Action

The Strategic Planning Committee of
the Board of Directors reviews HSE
performance, updates of the corporate
HSE strategy implementation and
progress against the Company’s strategic
goals on a quarterly basis. These goals
form part of the performance KPIs of the
Executive Team.

The Company’s HSE Committee is
an advisory body to the CEO and the
Management Board and is led by
senior Executives and includes senior
management representatives from

across the company. In 2019, the
Committee met six times to review
progress on a number of HSE programs
including contractor management,
aviation safety, integrity management
and environmental performance.

In 2019, a Carbon Management Sub-
Committee was established and is also
led by a Senior Executive to oversee
the development of the carbon
management agenda, as well as monitor
delivery of annual carbon reduction and
energy efficiency plans.

STRATEGIC HSE AREAS

▪ Leadership and Safety Culture
▪ Competency and Capability

development

▪ Safety Management System
▪ Internal Controls
▪ Risk and Integrity Management
▪ Reporting and Performance

Analysis

Strategic Intent

Rosneft understands its responsibility
for the Health, Safety and well-
being of our employees, contractors,
communities and stakeholders and the
protection of the environment around
which the Company operates. This
responsibility encompasses the activities
conducted by over 300 thousand
company employees and about 200
thousand contractor employees.

We assess, prioritize and eliminate
HSE risks in our workplace and strive
for the highest standards of care for
our workforce and contractors while
minimizing the environmental footprint
from Company operations. We also
continue to remediate and eliminate
historical environmental impacts in a
systematic way.

In the area of carbon management and
energy transition, we analyze risks to
the company and identify opportunities
for our portfolio, including conducting
scenario analyses and stress testing to
inform further management actions.

150

151

vehicles
are equipped
with on-board
monitoring systems

Lost Time Injury Frequency
(LTIF)1

18 %

14 %

0.36

0.34

12 %

0.36

Operational Risk
Assessments

Building on the work done in 2018, and
as part of a formal company procedure,
a number of systematic improvements
in risk management have been
implemented to assess and strengthen
operational safety barriers. These
actions are expected to both contribute
to the prevention of potential accidents
in key risk areas as well as reduce the
severity of their consequences across
the Company. In 2019, this process was
implemented across 72 Rosneft Group
Subsidiaries.

2017

2018

2019

Lost time injury frequency (LTIF)
Share of severe injuries in the
total amount of lost time injuries

1 across the Company

Process Safety and Integrity
Management

Managing the work
of our contractors

The implementation of targeted well
control management programs has
resulted in preventing well blowouts or
uncontrolled releases from exploration
and development drilling for over two
years (11 million meters drilled). There
were also no process safety incidents
involving over 61,000 high-pressure
operating vessels. Rosneft has also
introduced a new company procedure
on energy isolation for safely conducting
repairs or maintaining equipment.

In 2019, the Company introduced new
contractor management requirements
to improve conformance with Rosneft’s
safe work practices. These requirements
included HSE standards and procedures
for contractor selection, mandatory risk
assessment processes, performance
monitoring and contractor personnel
capability and training. In 2019, over 10
contractor safety leadership conferences
were held across Russia to share best
practices, lessons learned and to
develop safety leadership competencies.

Driving safety and road
transport

Due to the scale of Rosneft’s operations,
our employees & contractors drive
over 2 billion kilometers annually. A
Vehicle Safety Management System
is in place and sets requirements for
both vehicles and drivers to reduce
the risks to employees, contractors
and third parties. As a result, over
50 thousand drivers were trained in
defensive driving, and over 52 thousand
vehicles were equipped with in-vehicle
monitoring systems. In addition, we
work with the regional authorities near
to the Company’s operations and the
State Road Traffic Safety Inspection
Department in Russia to reduce
transport accidents in these regions.

Improved Incident
Investigation System

The Company has initiated a program
to improve its incident investigation
process and investigation capability to
address root causes and sustainable
corrective actions. Over 1.1 thousand
employees have been trained on these
investigative techniques.

The overall LTIF trend shows
a decrease in the percentage
of severe injuries.

153

Safety of our people is our top priority

were trained on the Golden Safety Rules
to manage the performance of high-risk
activities across the organization.

The Company continues to invest
significant resources in the development
of its safety management activities,
training of its personnel and
improvement of operational safety
barriers, with about 55 billion rubles
spent on these activities in 2019.

> 83

thousand employees
completed the Golden
Safety Rules course in 2019

Our 2019 survey involving
over 3.5 thousand employees
showed that our safety culture
continues to improve with 94%
of respondents understanding
the importance of personal
responsibility in adhering
to the Golden Safety Rules
in their jobs.

RUB 55 bln

has been spent
on occupational
health and safety

Our highest priority is the safety of our
employees, contractors, operations and
the communities in which we operate.
We focus on creating a culture where
employees are strongly encouraged to
report any hazards or incidents.

The Company’s Safety Leadership
objective is to embed the principles of
the revised corporate HSE Policy and
HSE Leadership standard launched
in 2018. These principles focus on
improving direct communication
between management and employees
to create a safer working environment.
In 2019, over 83 thousand employees

HSE Training
(number of employees)

83,069

5,699

1,156

18,343

285
90

2018

2019

Golden Safety Rules
Incident investigation
HSE risk management

152

Green Investment

The Company implements a number
of organizational and technical
environmental improvement activities
as well as ecological and investment
projects to improve environmental
performance. The Rosneft-2022 strategy
commits to investing RUB 300 bln in
these “Green investments” aimed at

reducing flaring of associated petroleum
gas (APG), improving pipeline integrity,
water and waste management and
increasing land remediation.

A total of around 80 billion rubles was
spent in 2018 and 2019 on these ‘Green
Investments’ projects.

In the 2020-2022 period,
Rosneft’s “Green Investments”
will average

of the Company’s annual
capital expenditure

Carbon Management –
Managing Сlimate-related Risks and Opportunities

Rosneft has continued to strengthen its
carbon-management processes as the
Company seeks opportunities to reduce
its operational carbon footprint.

The Carbon Management Sub-
Committee leads the development
of annual and longer-term carbon-
management plans and tracks progress
of existing programs, in particular, the
Gas Investment Program and Energy
Saving Program. Rosneft’s energy
efficiency performance improved by
14% in the last two years resulting in
3.1 million tonnes of CO2 equivalent
avoided emissions over this period.

As part of its commitment to work
across industry groups, Rosneft joined
the Methane Guiding Principles industry
initiative with one of its senior Executives
on its Steering Team.

The Company has developed a methane
management plan in alignment with
its peers and in 2019, Rosneft reduced
its known fugitive emissions by 73%
compared to 2018, benefitting from its
major operational improvements.

Greenhouse gas emissions avoided
in 2018 and 2019 (mln t CO2 eq.)

3.1

1.7

2.3

1.4

73 %

0.6

2018

2019

2018

2019

In 2019, Rosneft was awarded a B
rating by CDP on climate change
resilience, the highest among
the participating Russian oil
and gas companies

In 2019 Rosneft reduced
known fugitive methane
emissions from its upstream
operations by

73%

(year-on-year)

Environmental Management –
Minimizing Our Environmental Footprint

The Company aims at having the lowest
possible footprint across its operations
and has implemented organizational
and technical improvements to drive its
environmental agenda.

Water Stewardship

One of Rosneft’s strategic priorities is
the sustainable use of water resources
involving infrastructure upgrade projects
and application of the best available
technologies.

In 2019

>90%

of water used in Company
operations was recycled,
minimizing freshwater
withdrawal

WASTEWATER DISCHARGES WERE
REDUCED BY 4% IN 2019

The Bashneft-Ufaneftekhim biolog-
ical water treatment complex, one
of the most advanced water treat-
ment facilities in Russia and Eurasia,

went into full operational in 2019.
This resulted in significant wastewater
quality improvement and greater than
a twofold increase in recycled water.

In 2019, Rosneft participated
in the CDP water rating
for the first time and was
awarded a

B- rating

by CDP

154

155

In 2019, the Company recorded a 3%
reduction in non-GHG air emissions into
the atmosphere.

Increasing the efficiency
of oil spill management

The Company’s oil spill response system
reduces potential oil spill impacts from
incidents once they occur and we work
closely with responsible government
agencies for transparent reporting and
immediate response to incidents.

Rosneft’s in-field pipelines span over 120
thousand km and, in 2019, the Company
completed implementation of the 2015-
2019 Pipeline Reliability Improvement
Program to increase pipeline reliability.
This program led to a decrease in the
pipeline failure rate by 30% compared to
2013 and a further reduction in oil spill
volumes from pipeline failures in 2019.

Legacy Contamination
and treatment of oil
contaminated waste

In 2019, legacy oil-contaminated land
was reduced by 16% year-on-year with
a 6% improvement in the efficiency of
treatment of oil-contaminated waste.

~ 1
million

of forest plants set out
in 2019 as part of the forest
preservation initiatives.

Biodiversity Conservation

The Company has also invested over 870
million rubles over the past five years for
conserving biodiversity across Russia. In
addition, Rosneft signed an Agreement
in 2019 to cooperate with the Russian
Ministry of Natural Resources on a
national Ecology project. This project
focuses on biodiversity conservation,
primarily in the Arctic. The planned
budget for this work is approximately
250 million rubles.

There is also focus on environmental
activities within Rosneft’s international
operations, such as Brazil, where
waste management practices, water
conservation efforts and reforestation
activities have all been improved.

>37
million

fish fingerlings
of different species were
released in support
of ecosystems sustainability
in 2019.

In 2019, Rosneft and the Russian
Arctic National Reserve launched
comprehensive restoration
of the protected Frantz Josef Land
Archipelago, Russia’s northernmost
territory, involving the country’s
best experts in geology, chemistry,
biology and geography.

Personnel and Social Programme

Our core asset is highly qualified personnel motivated to work effectively
and achieve the goals. In 2019, the average headcount of Rosneft Group
Subsidiaries was 315.4 thousand employees, which is up 7.4 thousand compared
to 2018 (308.0 thousand employees).

The increase was primarily due to a
higher average headcount in Group
Subsidiaries driven by business
expansion and the acquisition or
inclusion of new assets in the perimeter
of the Company’s business plan1.

The average employee age remained
mostly unchanged at 40.3 years vs
40.2 years as at the end of 2018.
40.8 thousand employees held
managerial positions vs 38.1 thousand
as at the end of 2018. Employees
categorised as managers made
up 12.2% of the headcount as at
31 December 2019 (vs 12.4% as at the
end of 2018).

Average headcount in 2019
(as per the business plan)

Average headcount as at 31 December
2019
(as per the business plan)

315.4

th. employees

334.6

th. employees

Exploration and Production,
including gas
In-House Services
(Oilﬁeld Services)
Oil Reﬁning and
Petrochemicals
Commerce and Logistics
Corporate Services
Other
Research
Head Ofﬁce (Rosneft)

27%

19%

17%
19%
11%
2%
4%
1%

Exploration and Production,
including gas
In-House Services
(Oilﬁeld Services)
Oil Reﬁning and
Petrochemicals
Commerce and Logistics
Corporate Services
Other
Research
Head Ofﬁce (Rosneft)

27%

18%

17%
19%
11%
2%
5%
1%

Workforce Productivity and Organisational Effectiveness

Improvement of workforce productivity
remains a key priority for the Company.
As at the end of 2019, the Company
achieved its overall productivity target
on a comparable basis. We developed a
list of relevant improvement initiatives,
which we update annually as part of our
Long-Term Development Programme.
Workforce productivity metrics are
used as an individual KPI to assess the

performance of some of the Company’s
top executives, including the CEO and
senior management of the Group
Subsidiaries within Rosneft's major
businesses.

In 2019, we designed five standard
organisational structures for functional
areas and communicated them to
the Group Subsidiaries. Their phased

implementation is planned until the end
of 2022. Also, we had the organisational
structure of the Chief Engineer and
Prospective Development units at our oil
and gas producing assets aligned with
the standard.

To capitalise on the automation of
methodologically streamlined HR
business processes, we continued

1 NizhnevartovskNIPIneft, Bashgiproneftekhim, Petersburg Fuel Company, PTK-Terminal, Trans-Time, Samaraneftegeofizika, Alaniyanefteprodukt (ca.

2 thousand employees).

156

157

from exploration and production
facilities in the following jobs: drilling
supervisor and engineer, oilfield
chemist, offshore drilling supervisor,
offshore drilling specialist, seismic
surveyor, petrophysicist and project
manager (198 people trained);

▪ training of shop managers from the
exploration and production facilities
under the professional retraining
programme to improve performance
and production methods (40 people
trained);

▪ professional retraining in oil refining
and petrochemicals for 23 managers
and specialists in Refining, Commerce
and Logistics;

▪ training of specialists involved in

coaching line personnel at oil depots

and filling stations of R&D and
manufacturing facilities (51 in-house
coaches);

▪ in HSE: training in corporate

approaches to carbon management
for vice presidents and heads of
departments; courses in leadership,
internal incident investigation, risk
assessment and management for
heads of the Group Subsidiaries
(1,474 people trained).

The reporting year saw us stage for the
first time the following corporate events
on request from relevant businesses:
▪ an RN-StroyForum for 232 heads of

capital construction functions;
▪ a workshop for 119 internal audit

heads;

▪ training of 88 employees of the
combined Legal Support and
Government Relations unit.

▪ We run a range of corporate

training programmes in partnership
with Lomonosov Moscow State
University, Moscow State Institute
of International Relations (MGIMO),
Graduate School of Management of
St Petersburg University, and Gubkin
Russian State University of Oil and
Gas. We also cooperate with some
of foreign universities, including
Polytechnic University of Turin (Italy),
NOVA University Lisbon (Portugal),
Qatar branch of HEC Paris (France,
Qatar).

Over 18,000 Rosneft employees
completed anti-corruption, anti-fraud
and compliance training, both in
classroom and online.

to roll out uniform corporate HR,
compensation and social development
standards based on SAP and 1C.
The latter was in use at 129 Group
Subsidiaries as at 1 January 2020.

To take advantage of streamlined and
automated HR business processes,
we started to phase out the personnel
accounting function from the Group
Subsidiaries. The project piloted at

the Angarsk site proved to be efficient
from the economic and organisational
perspective, and will continue in 2020
and beyond.

Talent Pool Management

As part of the talent pool man-
agement plan for 2019, HR
committees across business seg-
ments held meetings chaired
by the Company's senior manag-
ers. Work is ongoing to strengthen
the talent pool for target first-
and second-level management
positions in the Company’s Head
Office and first-level positions
in the Group Subsidiaries.

To ensure HR security, we continu-
ously develop our management tal-
ent pool, which includes a multi-tier
competency assessment to select
candidates, identify their priority
growth areas and design related
individual plans.

As part of individual develop-
ment planning, we evaluated
successor candidates for the first-
and second-level management
positions using the assessment
and development centre method.
The evaluation covered 214
and 1,010 candidates, respectively.

Personnel Training and Development

The corporate training system covers
all business areas and staff categories,
and serves to provide information
on the Government requirements,
corporate policies, procedures
and best Russian and international
practices. Training also helps build the
skills needed to perform effectively.

We engage experts from leading
educational and consulting companies
and universities, both Russian and
international, to train our people in line
with our business needs.

In 2019, we provided
635.9 thousand man-courses as part
of the mandatory vocational and
management training, overachieving
the 2019 target by 33%.

On top of that, we significantly
expanded the range of management
courses to include
▪ MBA programmes for managers,
talent pool and high-potential
employees of the Head Office
and Group Subsidiaries, with
75 employees enrolled in 2016–2019
completing their training and
98 employees enrolled in 2019–2021
embarking on three corporate
programmes;

▪ a series of Director Club workshops
attended by 34 top managers from
the Head Office's structural units;

▪ The University of CEO and the

School of Management attended by
190 CEOs of the Group Subsidiaries
and their deputies;

▪ Leader of the Future (Strategic Level,
Operational Level, Young Talents), a
programme designed for 91 high-
potential employees, including
the winners and participants of
the Leaders of Russia nationwide
competition. The initiative runs as
part of talent pool development
under the Rosneft–2022 Strategy.

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Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019

Development of In-House Training

Cooperation with Foreign Partners

We leverage our in-house training
centres, coaches, experts and workplace
mentors to provide 63% of training
(395.8 thousand man-courses).

All in all, there are 63 training centres
operating as part of the Group
Subsidiaries or local educational
institutions across our footprint. They
have testing sites and offer hands-on
vocational training, including mandatory
courses, to help blue-collar employees
and specialists develop professionally.

In 2019, we set up corporate training
centres in RN-Tuapse Refinery (Tuapse),
RN-Uchet (Samara) and Rosneft-Termneft
(Krasnodar).

Additionally, we are working to create the
following facilities:
▪ an electrical engineering and testing
site at the Samaraneftegaz training
centre;

▪ a Bashneft corporate training centre

at Bashneft-PROFI;

▪ a training centre at Zvezda
Shipbuilding Complex.

Worldskills movement

We are also developing an internal
training system to preserve and transfer
knowledge within the Company.

In 2019, the Head Office's coaches
conducted 688 training sessions
(15,570 man-courses).

We also staged the Best Mentor 2019
competition in the Group Subsidiaries
(the first round) and across Exploration
and Production, Oil Refining, Gas
Processing and Petrochemicals, In-
House Services and Corporate Services
segments (the second round).

The first round welcomed 5,226 mentors
of blue-collar employees and
649 mentors of young specialist from
74 Group Subsidiaries, with 53 and
47 mentors from the above groups as
well as 40 HR managers in charge of
mentoring making it to the second round.

The third company-wide round to be held
in 2020 will see 33 competitors.

We launched a targeted training
programme for in-house coaches made
of 15 modules. In 2019, the programme
covered 163 groups (2,126 man-courses).

On top of that, over 71 thousand man-
courses were available in the distance
learning format.

As a result of the corporate mentoring
programme, we compiled an integral
rating to assess the efficiency of relevant
initiatives implemented by the Group
Subsidiaries in 2019. The assessment
covered 74 Group Subsidiaries in
Exploration and Production, Oil Refining,
Gas Processing and Petrochemicals,
In-house Services, Corporate Services
(research and design institutes), with
winners named for each businesses.

Rosneft has joined Worldskills, a global
movement promoting vocational skills.

During the reporting year, we provided
methodological support for the fourth
Worldskills corporate championship held
in September, at the Novokuibyshevsk
Refinery (Laboratory Chemical Analysis
and Occupational Safety categories).

The participants were 40 technicians
and 44 experts in chemical analysis
from 44 Group Subsidiaries, along with
11 specialists and 11 senior experts
in occupational safety from 11 Group
Subsidiaries.

Rosneft supported the training
and participation of its team in the

6th WorldSkills Competition of High-Tech
Cross-Industry Blue-Collar Professionals
in Yekaterinburg.

The Rosneft team represented by
21 contestants and 17 experts from
16 Group Subsidiaries and the Head
Office competed in eight categories and
won prizes in six of them.

As a global company, Rosneft is
fostering partnerships with foreign
oil and gas producers and the world’s
best educational institutions to provide
comprehensive training to its employees
and enable them to perform well in any
international project.

Office and Group Subsidiaries received
training in India, which covered the
following domains:
▪ Health, Safety and Environment
(February–March 2019, Goa,
20 people);

▪ Offshore Production and Technology

In 2019, Rosneft carried on with
educational projects run jointly with
international educational providers. We
also helped our partner universities to
arrange for Master's programmes for
86 professionals from other countries.

Our foreign partners, such as BP,
ExxonMobil, Equinor, ONGC Videsh Ltd.,
Nayara Energy, China National
Petroleum Corporation (CNPC) and
Beijing Gas Group Company Limited,
took part in the International Day held
on 10 April 2019 as part of Rosneft's
HR Conference in Moscow. The event
saw the participants share their
experience and discuss challenges in the
field of personnel management.

Management (November 2019,
Mumbai, 21 people).

We also arranged for a number of
training sessions in line with the
educational and training cooperation
agreement between Rosneft and
CNPC and in accordance with the 2019
action plan / roadmap issued by the
educational working group under the
Joint Coordination Committee:
▪ on 21 October – 1 November 2019,
20 CNPC employees participated
in an internship course to study
practices in development and
production management, integrated
field management, and oil recovery
enhancement technologies at Group
Subsidiaries in Samara;

▪ on 2–6 December 2019, 20 Rosneft

Under the educational cooperation
agreement between Rosneft and ONGC
Videsh Ltd., employees of the Head

employees took internship in
China to learn about ways to boost
efficiency in energy management.

Under the agreement on the scientific
and educational cooperation between
Rosneft and the Qatar Foundation,
49 employees of the Company took
training on the use, construction,
completion, performance monitoring
and productivity of horizontal wells
in October 2019. The training was
given by an expert from the Qatar
National Research Fund (part of Qatar
Foundation) at Gubkin Russian State
University of Oil and Gas.

In 2019, Rosneft and BP took the
following steps to strengthen their ties:
▪ signed an agreement on cooperation
in the field of HR management and
social responsibility;

▪ created a joint working group in this

area;

▪ developed and approved a road map

of initiatives for 2019-2020.

In December 2019, BP and Rosneft
staged events to exchange experience
in personnel assessment and HR
e-workflow management.

160

161

Youth Policy

In 2019, the Company continued to
implement professional standards.

In pursuance of the Directive of the
Russian Government No. 5119p-P13
dated 14 July 2016, Rosneft’s Board
of Directors held two meetings in the
reporting year to discuss the roll-
out of professional standards across
Rosneft and the Group Subsidiaries.
According to the latest monitoring,
more than a fourth of almost 1,300

approved professional standards can
be implemented in the Company, with
54 of them classified as mandatory
qualification requirements (depending
on the subsidiary's type of operations).
The qualification standards apply
to over 44 thousand employees, of
whom over 95% have an educational
background meeting the requirements.

In 2015, Rosneft and other oil and gas
producers joined the National Council

for Professional Qualifications in the
Oil and Gas Industry. Pursuant to the
Council’s action plan, the Nefteyugansk
Corporate Institute, Rosneft's
Professional Expertise Centre, drafted
four industry standards and submitted
them for approval by the Ministry of
Labour and Social Protection. In 2019,
the Ministry approved three industry
standards developed earlier by Rosneft.

Rosneft’s youth policy aims to ensure
a steady influx of young, qualified
specialists from among the top
graduates of educational institutions,
and their fast and effective onboarding
at the Company's facilities. To this
end, Rosneft is working hard to build
an external talent pool comprised of
students of local educational institutions.

The youth training system targets
three groups: attendees of Rosneft
engineering classes (grade 10 and 11),
students of industry-specific universities,
and young Company specialists. In
accordance with its Youth Policy, Rosneft
consistently implements a school-to-
workplace approach to training in all
domains.

In 2019, the Policy focused on pre-
university training (Rosneft classes) and
work with young talents, in line with the
Rosneft–2022 Strategy.

Personnel Skill Assessment

Pre-University Training

Our comprehensive personnel
assessment framework establishes
uniform knowledge and skill
requirements for employees across all
business segments, including the Head
Office and Group Subsidiaries.

We assess employees when planning
competencу training, creating a talent
pool and expert communities, recruiting
or changing job descriptions. The
assessments helps check managerial,
corporate, professional and technical
skills across all personnel categories:
managers, specialists and blue-collar
employees.

Its aim is to identify knowledge gaps,
determine priority development areas,
optimise training costs, and improve
qualifications and performance.

In 2019, we launched a corporate
training and development portal to
collect personnel assessment results
and integrate them into the shared HR
database of Rosneft Group Subsidiaries,
Head Office, and training resources.

The corporate and managerial skills
assessment relies on the dedicated
model approved by the Chief Executive
Officer. The model takes into account
the Company’s culture, values and the
description of managerial competencies.
In 2019, the Company applied the model
to evaluate 23.65 thousand employees.

The assessment of professional skills
uses materials drafted in the course
of the target innovative project (TIP)
to introduce a skills-based approach
to personnel development across all
business segments.

the following areas: offshore projects,
oil refining, oil and gas production,
marketing and distribution, logistics
and transport, capital construction,
economics and finance, procurement,
energy efficiency, gas, design and survey
at research institutes, oil refining, gas
processing, petrochemicals and energy
at corporate research and design
institutes. In 2019, Rosneft started
implementing relevant projects across
some functions (internal audit, HR
management and social programmes)
and in the Oil Refining, Gas Processing
and Petrochemicals business.

The TIP participants include Gubkin
Russian State University of Oil and
Gas (oil refining and procurement
projects) and Tomsk Polytechnic
University (oil and gas production and
offshore projects) along with leading
Russian and foreign consulting firms.

In 2019, we assessed over
20.83 thousand people based on the
TIP materials as well as those used to
evaluate the professional competencies
of the key blue-collar staff in Oil Refining
and Petrochemicals, Exploration and
Production, and In-House Services.

As part of the initiative, we developed
and introduced professional
competencies along with employee
assessment and development tools in

We organise Rosneft classes at
top-ranking schools, colleges, and
gymnasiums in regions where we
operate. The initiative is supported
by the Group Subsidiaries that have
a strong need for qualified labour to
implement contemplated growth plans
and capacity ramp-ups.

Rosneft classes offer school students a
high-quality secondary education with a
strong focus on technology and natural
sciences to enable them to continue
engineering studies at universities. After
graduation, young talents are employed
at the Company.

The project has a significant positive
impact on the Company's reputation,
promoting the image of Rosneft as
a socially responsible partner of the
national education system. Rosneft
classes help digitalise education at
partner schools, upgrade facilities and
equipment, boost the efficiency of
training and career guidance activities,
and enhance qualifications required to
teach the core subjects.

In 2019, the Company supported
122 classes in partnership with
64 secondary schools in 57 towns
and settlements located in

27 Russian regions. The classes saw
some 2,839 attendees.

We keep expanding the project
geography and launching new classes
each year. In 2019, Rosneft classes
opened in Moscow and in Oktyabrsky
(Republic of Bashkortostan). The
Moscow class aims to supply talent for
the projects related to the Arctic and
offshore exploration and development,
while the one in Oktyabrsky focuses
on training personnel for producing
facilities in Bashkortostan.

162

163

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019First and foremost, the project seeks to
identify, support and provide education
to the gifted youth. The attendees of
Rosneft classes take an active part in
various academic contests. In the school
year 2018–2019, 939 student became
winners and runners-up in a widerange
of olympiads, with 480 winning the
top awards and other prizes at various
stages of the National Olympiad of
Schoolchildren.

To reach out to more young talents in
the country’s regions, we continued to
organise Rosneft classes in cooperation
with the Sirius Educational Centre in
Sochi. The programme runs under
the cooperation agreement between
Rosneft and the Talent and Success
Educational Foundation. The selection
stage and online competition brought
together 604 school students, with
108 students of Rosneft classes from
35 Russian towns and settlements
taking part in the face-to-face round
at the Sirius Educational Centre. The
programme aimed to provide career

guidance and training as part of projects
run jointly by young scientists and
engineers from Rosneft's corporate
research and design institutes.

To improve the efficiency of pre-
university education provided to
students of Rosneft classes, we make
consistent efforts to develop the
qualifications of school principals and
teachers of core subjects.

In 2019, the Company trained heads
of partner secondary educational
organisations on how to manage
systemic changes in specialised schools,
and developed roadmaps to introduce
early career guidance. The workshop
was attended by 54 school principals
from 46 towns located in 22 Russian
regions.

To integrate modern digital technology
in the educational process, Rosneft and
Lomonosov Moscow State University
launched a project providing distance
learning opportunities for teachers. The

project leveraged the digital education
platform of the University Gymnasium to
stage four online development courses
for teachers of chemistry, mathematics,
physics and the Russian language. All in
all, the courses saw 96 participants from
42 schools located in 41 Russian towns
(21 regions).

To provide better career guidance
to Rosneft-class students, the HR
Department's personnel development
function updated and reissued the
brochure titled “I want to work in the
oil industry”. The document lists the
industry's most valued skills.

The project proved to be a success
as evidenced by the number of
Rosneft-class graduates who received
relevant higher education and signed
employment contracts with the
Company. In 2019, 107 graduates
started work at 32 Group Subsidiaries,
with a total of 786 employed in
60 Group Subsidiaries.

Work with Young Talent

In 2019, a total of 4,001 young
specialists worked in 105 Group
Subsidiaries, with 1,360 of them hired
during the year.

Steps programme, Rosneft offers the
young talent training and professional
growth opportunities aligned with their
individual development plans.

The programmes for young specialists
are based on the Company's Regulations
on Organising Work with Young
Specialists, which covers the following
areas:
▪ onboarding;
▪ training and development;
▪ identifying and development of

potential leaders;
▪ progress assessment;
▪ financial support and social

protection of young specialists.

To fast-track the onboarding of the
young talent, we have put in place
dedicated courses, set up 71 young
specialist councils and introduced
mentorship programmes across the
Group Subsidiaries. As part of the Three

In the reporting year, we took the
following steps to develop the
professional, corporate and managerial
competencies of young specialists:
▪ organised 3,964 man-courses as part
of professional and managerial skills
development programmes;

▪ arranged for 2,607 young specialists
to take part in regional and cluster
R&D conferences. The Inter-
Regional Research and Development
Conference was attended by
359 young specialists, with 105 of
them winning prizes. The conference
also saw 102 projects recommended
for implementation.

In an effort to build up a strategic talent
pool, we staged assessment business

games for prospective young leaders
in their third year of employment.
The games took place from June to
September 2019 and brought together
374 employees from 74 Group
Subsidiaries. Based on the results, we
selected 189 participants from 58 Group
Subsidiaries who had demonstrated
strong corporate and managerial skills,
and recommended including them in
the strategic pipeline of young talent.
As game winners, these employees will
receive further training under the Three
Steps programme. In 2019, we trained
114 young specialists who had topped in
the 2018 assessment games.

In December 2019, we held an
annual conference for chairs of young
professionals’ councils to help boost the
efficiency of their work. The event saw
some 58 participants.

164

165

Support for Educational Institutions

In 2019, Rosneft worked together with
61 universities from the majority of
regions where it operates (including 57
Russian and four foreign institutions).
Of these, 26 universities are partners
of Rosneft. Cooperation agreements
with higher education institutions allow
the Company to actively engage in joint
efforts focused on employee training
and retraining, and research and
innovation, as well as help develop the
research and education capabilities of
universities so that their graduates are
qualified enough to meet our current
business needs. Below are some of the
highlights in 2019:

▪ 24 university departments continued
to operate and one new specialised
department was established, with
74 employees of the Company
involved in their activities in 2019;
▪ work continued on projects aimed
at enhancing curriculum via more
sophisticated university infrastructure
(the Marine Engineering Scientific and
Educational Centre at St Petersburg
State Marine Technical University, a
Rosneft drilling laboratory at Tyumen
Industrial University, the Rosneft –
Ufa State Oil Technical University
research and education centre, etc.);
▪ more financial support was provided
to establish an interdisciplinary and

convergent education research
cluster under the Russian Academy
of Education development
programme for 2017–2020;

▪ Rosneft Days were held to provide

carrier guidance to, and improve the
Company’s image among more than
20 thousand students;

▪ 7,088 students and 47 university

academics completed internships at
the Company’s assets;

▪ In 2019, the Head Office arranged a

long-term internship for 179 Master's
students of Rosneft's partner
universities.

DOUBLE-DEGREE MASTER'S PROGRAMME IN OIL ENGINEERING

In 2019, Rosneft partnered
with BP Russia, Kazan (Volga) Federal
University and Imperial College London
to create a double-degree Master's pro-
gramme in Oil Engineering.

The course was targeting graduates
of Russian universities and young tal-
ent with experience in the oil and gas
industry seeking to acquire new knowl-
edge and skills.

The Master's programme allows enroll-
ees to gain advanced knowledge
of oil production, development system
streamlining, and well and oilfield man-
agement. The Company's relevant units
contributed to it.

In October 2019, 10 students enrolled
on this Master’s programme, having
passed a complex selection procedure
that included testing and interviewing

to assess their professional competen-
cies, and confirmed their English pro-
ficiency by submitting an international
certificate.

This course was commissioned by eight
Group Subsidiaries that will give
the students work experience in sum-
mer 2020 and hire them upon complet-
ing the programme in 2021.

Rosneft and the Group Subsidiaries
provide charitable assistance to
educational institutions of various
levels offering courses relevant to
the Company's needs and taking part
in projects and programmes of the
corporate School–University–Company
framework for continuing education.

Some of this aid is devoted to class
programmes supported by Rosneft
Group Subsidiaries. The funding targets
include:
▪ additional education in relevant
subjects involving lecturers from
partner universities;

▪ class programmes supported by

Rosneft Group Subsidiaries, including
materials and equipment for
dedicated classrooms and distance

learning equipment for teachers and
schoolchildren;

▪ training for teachers;
▪ career-guidance and team-building

events for schoolchildren.

In 2019, RUB 237.9 mln was given to
partner schools.

Vocational and higher education
institutions receive financial support for
the following:
▪ improving and developing their hard

and soft capabilities;

▪ to maintain their specialised

▪ to provide corporate scholarships
and grants to talented students
looking for professional development
within the Company's perimeter,
Master’s students doing internships
at Rosneft's Standalone Business
Units, as well as promising educators.

▪ 792 corporate scholarships and

161 corporate grants were provided
in 2019.

In 2019, Rosneft issued its first-ever
grants for relevant exploratory research
by academics at its partner universities.

departments and Master’s courses as
required by the Company’s strategic
projects;

The aid provided to vocational and
higher education institutions for the said
purposes totalled RUB 1,126.8 mln.

▪ to help finance large-scale
infrastructure projects;

166

167

Corporate Pensions and Social Support for Veterans

questions of some trade union
leaders requiring the Company’s
attention.

▪ Industrial social partnership –

liaising with the Russian Association
of Oil and Gas Employers. In 2019,
33 Rosneft Group Subsidiaries
joined the Industry Agreement on
the Companies of the Oil and Gas
Industry and the Construction
of the Oil and Gas Industry
Facilities, effectively gaining certain
advantages in implementing
the Russian Labour Code. In the
reporting year, the Company's
active involvement resulted in a new
industry agreement incorporating
most of its suggestions.

The corporate pension programme is an
integral part of the Company’s HR and
social policy, as it is aimed at improving
the social protection of retired
employees. Pension contributions made
by Rosneft and Group Subsidiaries
under private pension schemes totalled
RUB 11.4 bln in 2019.

The corporate pension programme
includes the following elements:

Private Pension Schemes
for Employees

The programme covers more than
280 thousand employees of Rosneft and
Group Subsidiaries who entered into
a pension agreement with Non-State
Pension Fund (NPF) Evolution1. In 2019,
the programme funding amounted to
RUB 8.4 bln. Based on the 2019 results,
Rosneft approved dedicated spending,
while Group Subsidiaries concluded

pension agreements with the fund which
will remain effective until the end of
2024 and determine mid-term strategies
under the programme.

retirees. In 2019, the programme
received RUB 2.5 bln in funding,
making it possible to:

▪ apply one-time indexation to

ca. 18 thousand pensions awarded
in or before 2010, with the average
pension amount increasing by
17.5 %;

▪ top up personal pension accounts of
ca. 41 thousand retirees to ensure
annual indexation of pensions
financed through the investment
income of NPF Evolution starting
from 2020.

The above programmes help enhance
social security not only for the
employees of Rosneft and Group
Subsidiaries, but also for pensioners
who retired earlier.

Social Support for Veterans

The Company has been running a
veteran support programme for over
15 years. As at the end of 2019, the
number of people benefiting from
monthly pension payments under the
programme totalled 25.3 thousand.
In 2019, NPF Evolution received
RUB 461.6 mln in funding, which it used
to raise pensions by more than 5 % as
part of annual indexation adjustments.

Active Longevity Programme

▪ As part of the Rosneft–2022 Strategy,

in 2019 we launched the Active
Longevity Programme designed
to improve the social security of

Rosneft pays special attention to its
social partnership programme with two
focus areas.
▪ Corporate social partnership –
strengthening our meaningful
cooperation with the Interregional
Trade Union Organisation of Rosneft
(ITUO Rosneft), which represents
most of the trade unions of Group
Subsidiaries. In 2019, the Company
carried on with its traditional activities
in this domain:
– discussion and decision-

making on the improvement
of the Standard Collective
Agreement of Rosneft Group
Subsidiaries. In 2019, more than
30 amendments and additions
were made to the Agreement

Social Programmes

For many years, Rosneft has been
one of the most socially responsible
employers in Russia. In 2019, the
Company continued to implement the
Rosneft–2022 Strategy to ensure better
motivation and social security for its
employees and retirees.

In 2019, the Company allocated
RUB 35.4 bln for creating optimal
working conditions, promoting healthy
lifestyles, and providing healthcare and
social guarantees for its employees.
Rosneft’s management has always been
committed to maintaining high social
security standards for our employees.

to enhance social security for
employees;

– annual meetings between a wide
range of Company managers,
its HR and social service
representatives, and leaders
of trade union organisations
affiliated with ITUO Rosneft.
A meeting held in Moscow in
November 2019 discussed
pressing matters that worried
people employed by Group
Subsidiaries, including those
related to key goals and projects
along with issues of immediate
concern, such as wage indexation
and increases, incentive
programmes, and workwear
Exploration and Production,
including gas
availability, as well as specific
In-House Services
(Oilﬁeld Services)
Oil Reﬁning and
Petrochemicals
Commerce and Logistics
Corporate Services
Other
Research
Head Ofﬁce (Rosneft)

Key Social Policy Costs in 2019,
RUB mln, %

35.4

RUB bln

Optimal workplace
conditions and social
infrastructure
maintenance
Healthcare, healthy
lifestyle promotion, and
other social contributions
Housing
Private pension schemes

30%

36%
2%
32%

168

169

1 Formerly known as NPF NEFTEGARANT.

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019As part of the Rosneft–2022 Strategy
approved by the Board of Directors, the
Company continued to run a number of
designated programmes aiming to:
▪ supply industrial healthcare facilities
with modern training equipment
for the development of emergency
medical care skills;

▪ establish a corporate telemedicine
network that will bring together
90 healthcare facilities from remote
production sites of 18 Group
Subsidiaries and large regional
consultation centres to improve the
availability and quality of medical care
in the hard-to-reach regions of the
Company’s operation;

▪ perform preventive medical

examination of the Company's
employees focusing on early
detection of cardiovascular and
oncological diseases (in 2019,
31 thousand employees of Rosneft
underwent such examination).

Since 2017, the Company has been
successfully implementing its corporate
programme for the prevention of
cardiovascular diseases aimed at
boosting professional longevity and
reducing the risks of lost-time injuries,
permanent disability and early death.
In 2019, more than 110 thousand

employees from 140 Group Subsidiaries
participated in the programme.

The Company keeps running its Live
Longer! programme, which promotes
healthy living by offering medical
screening to expose disease risk factors,
supporting sports initiatives and helping
the Company’s employees develop
healthy lifestyle habits.

cooperation in December 2013, more
than 13 thousand employees and their
family members have visited the resorts
in Cuba.

In the reporting year, personal insurance
programmes (voluntary health and
accident insurance) covered more
than 330 thousand employees of the
Company.

Resort treatment and rehabilitation
opportunities aimed at preserving
employees' health, extending their
careers and preventing diseases are an
integral part of the social security net
offered to the Company’s employees,
their families and retirees (veterans of
labour).

Accessibility of medical assistance for
employees at their place of residence
or workplace, inclusion of high-
tech multidisciplinary clinics into the
insurance programmes, and high quality
of medical care provided to employees
remain the Company's key priorities in
the realm of voluntary health insurance.

In 2019, Rosneft offered resort
treatment services to over
78 thousand employees, members
of their families and retirees both in
the Company’s own health resorts
and wellness centres and third party
organisations.

Group Subsidiaries continued to execute
voluntary insurance agreements which
cover employee accidents both during
and outside working hours and provide
an additional source of support for
employees or their families in case of a
materialised insured event.

The Company continued to implement
a wellness and recreation programme
for its employees in the Republic of
Cuba. Over the past year, more than
2.5 thousand people underwent medical
treatment in Cuba. Since the start of

Corporate healthcare and personal
insurance programmes help support
and build on the Healthcare national
project.

Corporate Housing Programme

For over 14 years, the Company
has been successfully running a
comprehensive housing programme,
a crucial incentive included in the
corporate social policy. The initiative
enables the Company to attract and
retain highly qualified and ensure
long-term engagement of valuable
professionals by providing housing
through the following arrangements:
▪ mortgage lending;
▪ provision of corporate housing.

The living conditions of 1,112 families
were improved through mortgages
provided by Rosneft in 2019.

In addition, relocated professionals are
provided with corporate housing, with
the total number of apartments available
in the Company’s regions of operation
exceeding 1.5 thousand.

With its corporate housing programme,
Rosneft also contributes to the
implementation of the national Housing
and Mortgage programmes.

1,112

families
of the Company’s
employees improved
their living conditions

Working Conditions and Recreation

In the reporting year, Rosneft continued
implementing an integrated programme
to create favourable working conditions
for its employees. The programme’s key
focus is the development and fit-up of
349 shift camps (including 119 shift and
trailer camps, and 230 trailer camps
for the drilling crews of RN-Bureniye),

which in 2019 accommodated close to
52 thousand employees of the Company
and its contractors.

The maintenance costs for the social
facilities at production sites totalled
RUB 8.7 bln in 2019.

Capital investment in the construction,
reconstruction, development and fit-up
of shift camps, field support bases,
sites and workshops amounted to
RUB 8.1 bln in 2019.

Healthcare and Personal Insurance

The healthcare and personal insurance
initiatives implemented by the Company
help achieve several important
goals such as maintaining long-term
professional engagement, strengthening
health and promoting a healthy lifestyle
among employees.

The key initiatives include:
▪ provision of emergency and routine
medical services for employees,
including those stationed at remote
and hard-to-access production
facilities of the Company;
▪ introduction of a brand new

programme for preventive medical
examination of employees aimed at
early detection of life-threatening
conditions;

▪ voluntary health insurance for the
Company's employees providing
access to the necessary healthcare
services at the finest Russian medical
institutions as an add-on to the
mandatory government healthcare
scheme;

▪ provision of resort and rehabilitation

treatment opportunities for
employees;

▪ implementation of disease
prevention and mitigation
programmes, promotion of a healthy
lifestyle and arrangement of sports
and health activities;

▪ reimbursement of membership fees
at therapeutic and sports groups.

The Company has adopted uniform
standards for on-site medical treatment
and emergency aid, while also putting
in place uniform guidelines for the
evacuation of injured or sick employees
from its remote production facilities by
medical aircraft.

All of Rosneft’s healthcare facilities are
now provided with modern medical
equipment, with a special emphasis
laid on improving the skills of medical
personnel and conducting large-scale
medical drills to develop practical skills
of tackling healthcare emergencies,
including those involving the use of
medical aircraft and telemedicine
devices.

170

171

The Company consistently implements initiatives that contribute to sustaina-
ble social and economic development of the regions. In 2019, Rosneft continued
to develop a systemic approach to resolving social issues and managing social
investments, while contributing to social risk mitigation, ensuring successful long-
term relations with our regions of operation and strengthening Rosneft's reputa-
tion as a socially responsible business. While implementing charity and support
programmes in the regions of operation, the Company strictly observes the princi-
ple of non-involvement in corruption activities.

In accordance with Federal Law No. 135-
FZ On Charitable Activity and Charitable
Organisations dated 11 August 1995,
which governs charity matters, the
Company supports diverse projects
addressing social issues in the regions of
its operation.

At that, when determining recipients
and social areas for charitable support,
the Company aims at social and
infrastructural projects that would
have the largest social impact and
immediately benefit the community
(including the Company employees and
their families).

In its charitable activities, the Company
prioritises social investments in the
regions as per cooperation agreements
with regional authorities.

In 2019, the agreements on social and
economic cooperation with the regional
authorities allocated funds for the
development of social services in the
Republic of Bashkortostan, Republic
of Sakha (Yakutia), Irkutsk, Kostroma,
Orenburg, and Tyumen Regions, Khanty-
Mansi Autonomous Area – Yugra, and
Yamal-Nenets Autonomous Area.

Within the cooperation agreements
involving the Company’s financing, the
infrastructure of municipal districts and
settlements is improved, a comfortable
urban environment created; municipal
territories upgraded, engineering and
transportation system equipment,
power and heat supply facilities repaired
or replaced, and measures taken to
protect the community and territories
from emergencies and to ensure fire
safety.

A key area of Rosneft's charity is still
the support of physical training and
mass sports. Rosneft strives to provide
all kinds of opportunities and allocates
funds for local residents to engage
in sports and physical training and
promote a healthy lifestyle among them.

The Company traditionally contributes
to the development and promotion
of mass and children's sports, work of
sports organisations, construction of
sports and fitness facilities, as well as
improvement of technical infrastructure
and purchase of equipment for sports
schools catering for children and young
people, and educational institutions.

Allocation of Funds in 2019, %

8,175.8

RUB mln

Physical education
and sports, including
children’s, promotion
of healthy lifestyles
Infrastructure development
in regions, districts, and
municipalities
Education and science
Healthcare
Culture
Support for veterans,
the disabled, and people
in need
Charities, NGOs,
humanitarian aid
Revival of cultural heritage
Support for indigenous
peoples of the North
Orphanages
Kindergartens
Other1

42,8%

28,3%
11,0%
6,0%
4,8%

2,4%

1,4%
0,1%

0,4%
0,4%
1,0%
1,6%

1 Other (incluing pensioners, low-income families, youth organisations, municipal events, social

and agricultural institutions, environmental projects)

172

Yet another focus of Rosneft's charity is
support of indigenous minorities of the
North.

In 2019, as part of its charity activities,
the Company sponsored the distinctive
cultures and traditional industries, and
supported improvement of the housing
conditions of indigenous minorities in
the regions of its operation.

In the areas inhabited by those
indigenous minorities, Rosneft supports
the improvement of infrastructure,
purchase of tools for traditional
subsistence activities, purchase of fuel
and lubricants, summer resort health
treatment programmes, and finances
of participation in exhibitions, trade
fairs, contests and sporting events, as

well as other activities dedicated to the
indigenous culture of the North.

Charity funding in 2018, RUB mln

Significant support is provided for
indigenous children and young people
to take part in various educational
(including payment of student tuition
fees) and health improvement
programmes.

In line with its annual charity plans, in
2019 the Company also focused on
development of culture, healthcare,
education and science, support of pre-
school and social institutions, public
associations uniting disabled people,
war and labour veterans (e.g. financial
aid), as well as of celebratory events held
on the occasion of the Victory in the
Great Patriotic War..

8,175.8

RUB mln

Social ﬁnancing under
signed agreements

Individual charitable
projects

7,137.8

1,038

173

Rosneft traditionally makes a significant contribution to the social and economic
development of Russia through its sponsorship activities. As part of these activities,
Rosneft is supporting large-scale projects aimed at reviving spiritual and national
values, protecting the environment, developing of science, culture, industry, educa-
tion, and sports.

Sponsorship projects of the Company
and Group Subsidiaries confirm
Rosneft’s reputation as a socially
responsible business.

In 2019, Rosneft financed seven Russian
business forums and conferences held
in Russia and abroad, including: the
St Petersburg International Economic
Forum and the Eastern Economic
Forum attended by the President of the
Russian Federation, the Russian Energy
Week International Forum, the Arctic:

Territory of Dialogue International Arctic
Forum, etc.

Reviving and building up the tradition of
partnership between business and culture
is an important element of the Company’s
operations. In 2019, with the support of
Rosneft, the Pushkin State Museum of
Fine Arts in Moscow arranged a unique
exhibition of the British artist Thomas
Gainsborough, while the State Hermitage
Museum hosted the permanent historical
display Ancient Colonisation of the

In 2019, Rosneft spent

RUB 1,842 mln

on sponsorship activities.

Northern Black Sea Region, as well as an
exhibition of paintings by the Italian artist
Piero della Francesca.

in Doha at the premises of the Qatar
Foundation for Education, Science and
Community Development.

Rosneft continues its cooperation with
the D. D. Shostakovich St Petersburg
Academic Philharmonia. The Company
also supported the BraVo International
Music Award, the White Nights Festival
and other cultural events. Rosneft
acted as the general sponsor of the
final episode of the legendary Umka
animation film (New Year's edition).

Rosneft takes an active part in the
development of international cultural
ties. In 2019, as part of the Cross-Year
of Russia and Japan, the Company
sponsored the Russian Culture Festival.
Rosneft supported performances
of the St Petersburg Eifman Ballet,
the Chamber Choir of the Moscow
Conservatory, the Mariinsky Orchestra
conducted by Valery Gergiev, as well as
many other shows in cities across Japan.

With the support of Rosneft, the Eifman
Ballet also performed Anna Karenina

Sea. In 2019, an aerial survey of the
cetaceans was carried out. In addition,
the Company supports a number of
projects on studying the reindeer, sable,
endangered geese, and Atlantic walrus.

The Company is a supporter of
professional and amateur sports. It
finances the CSKA Moscow Hockey Club
and is a sponsor of the Arsenal Tula
Football Club. Rosneft supports the
domestic automakers and contributes
to the development of motor sports
in Russia, funding the LADA Sport
ROSNEFT racing team. The Company is
the general sponsor of the International
SAMBO Federation.

During the UK-Russia Year of Music,
Rosneft and BP sponsored the first
concert tour of the unique UK-Russian
Britten-Shostakovich Festival Orchestra
in Russian and British cities.

HSE is also among the Company’s
priorities. Rosneft makes a strong
contribution to environmental safety
and protection, with a special focus on
protecting endangered species and
studying marine mammals. In 2019, the
Company continued its comprehensive
programme to protect polar bears living
in Russian zoos, which has been running
since 2013.

With the support of Rosneft, the
P. P. Shirshov Institute of Oceanology of
the Russian Academy of Sciences studies
the Black Sea dolphins. The research
is the first of its kind since the early
1980s and is essential for acquiring
data on the overall state of the Black

To date, Rosneft provides
sustenance for

36 polar bears

in 16 zoos across
the country

174

175

Fuel and Energy Consumption

Energy Saving Programme

Rosneft is a major fuel and energy
consumer in the Russian Federation,
accounting for 4.8% of the country’s
energy mix. In 2019, the Company’s1

fuel and energy consumption totalled
20 million tonnes of coal equivalent
(mmtoe)2, or RUB 236,963 mln.

For energy consumption and costs by
business segment in 2019, see the table
below.

In 2019, the Company embarked on its
2019–2023 Energy Saving Programme
approved by the Board of Directors in
March 2019. The Programme aims at a
more efficient use of electricity and heat,

as well as boiler and furnace fuel across
key business lines. For actual fuel and
energy savings in 2019, see the table
below.

To update the Programme, Rosneft
developed a 2020–2024 Energy Saving
Programme expected to deliver
2.6 mmtoe, or RUB 38,753 mln in total
energy savings over five years.

Segment

Fuel and Energy Consumption

In ktce / RUB mln

electricity, th. kWh /
RUB mln

heat, th. Gcal /
RUB mln

Fuel, kt /
RUB mln

Oil and gas production

41,050,481 / 140,843

2,759 / 6,878

1,801 / 3,210

7,848 / 150,931

Oil refining

6,161,367 / 19,698

20,405 / 19,957

4,328 / 22,174

10,324 / 61,828

2,569,257 / 6,608

7,483 / 6,180

427 / 1,122

2,004 / 13,910

Share,
%

38.4

50.5

9.8

Petrochemicals and gas
processing

Gas production
and distribution

59,949 / 344

26 / 64

15 / 25

32 / 432

0.2

Marketing and distribution

376,687 / 1,941

89 / 96

5 / 34

Services

Total

597,274 / 5,683

329 / 502

33 / 1,605

50,815,016 / 175,117

31,090 / 33,677

6,609 / 28,170

20,438 / 236,963

65 / 2,071

166 / 7,790

0.3

0.8

100

Segment

Savings in 2019

In ktce

Share, %

Oil and gas production

Oil refining

Petrochemicals and gas
processing

Gas production
and distribution

Marketing and distribution

Services

Total

electricity, th.
kWh

heat, th. Gcal

Fuel, tce

1,826,693

159,580

36,281

575

12,092

1,428

1,118

325

8,702

392,154

15,246

746

278

399

2,036,650

1,536

417,526

240

568

877

27.4

64.8

7.4

0.1

0.2

0.1

100

Energy Efficiency and Energy Saving Policy

In accordance with its Energy Efficiency
and Energy Saving Policy and the Energy
Management System: Requirements and
Use Guidance Standard, the Company
took the following steps in 2019:
▪ amended the list of Group
Subsidiaries covered by the
2020–2024 Energy Efficiency
Programme, adding the following
assets: Kharampurneftegaz,
Rospan International and
RN-Arkhangelsknefteprodukt. Given
asset combinations and divestments
and with no new energy saving
initiatives planned for 2020–2024,
two assets were excluded from the
Programme;

▪ updated the standard organisational
structure of energy efficiency units in
oil and gas production subsidiaries

to take into account the need for
regular on-site audits in this area;

▪ arranged for corporate training
in energy efficiency. In 2019,
352 employees took training in
the dedicated corporate training
centre, with another 61 educated
by an external provider with
an international track record in
launching and developing energy
management systems at productions
sites;

▪ drafted and put into effect the
Regulations on Planning and
Measuring the Actual Energy
Saving Effect from Energy Saving
Programmes at In-House Service and
Marketing and Distribution Group
Subsidiaries and Marine Terminals;

▪ performed an internal energy

efficiency assessment at 19 oil and
gas production and oil refining
Group Subsidiaries, with individual
roadmaps drafted to address the
identified gaps in 2019–2021.
Another assessment is scheduled for
2020;

▪ had Sorovskneft, Bashneft-Polyus,

Ufaorgsintez, and integrated refinery
in Ufa (Ufaneftekhim, Bashneft-
Novoil, and Bashneft-UNPZ) certified
for compliance with ISO 50001
(Energy Management Systems). All in
all, 41 Group Subsidiaries accounting
for over 95% of the Company's total
energy consumption in 2019 hold
ISO 50001 certificates.

1 Information on the most energy-intensive assets operated directly by Rosneft, for 2019.
2 Natural units of electricity and heat are converted into tonnes of coal equivalent in accordance with GOST R 51750-2001, and those of fuel –

in accordance with Resolution of the Federal State Statistics Service (Rosstat) No. 46.

176

177

110 kV grid facilities:

Power Generation Development

The reporting year saw the
following generating facilities built
or commissioned to help meet the
projected Group energy needs:

In-house power plants:

▪ an 18 MW gas turbine power plant
commissioned at Kondaneft's
Zapadno-Erginskoye field;

▪ main construction and installation
operations completed and pre-
commissioning started at:
– a 105 MW gas turbine power

plant at the Vostochno-
Urengoysky licence area of
Rospan International;

– a 50 MW gas turbine power plant
at the Srednebotuobinskoye
field of Taas-Yuryakh
Neftegazodobycha;

– a 153 MW gas turbine and
thermal power plant at the
Tuapse Refinery (Phase 2).

▪ three 220 kV substations and
a 220 kV power transmission
line built and commissioned at
RN-Uvatneftegaz;
– a 320 km 220 kV overhead line;
– a 220/110/10 kV 2×63 MVA

Pikhtovaya substation;

– a 220/110/10 kV 2×125 MVA
Lyantinskaya substation;
– a 220/110/35 kV 2×63 MVA
Protozanovskaya substation.

The project helped eliminate the
capacity shortage, reduce energy
costs through no further use of diesel
generators, improve the reliability of
energy supply to the existing oil and gas
production facilities of RN-Uvatneftegaz
and Slavneft-Megionneftegaz, and
ensure the required capacity margin to
put on stream new oil and gas fields.

Improved Energy Supply Reliability

Every year, the Company takes a number
of steps to ensure uninterrupted energy
supply of the existing and prospective
production assets. In 2019, as part of its
efforts to improve the supply efficiency
and reliability, the Company conducted
eight technical audits to check the
quality of power facility management
and drafted a remedial action plan to

eliminate the gaps. The reporting year
saw 908 remedial actions completed,
with deadlines for another 916 not yet
expired. This helped achieve a 5% year-
on-year reduction of oil production
shortages caused by power failures in
in-house electricity networks.

▪ commissioned:

– a 14 km 110 kV Protozanovskaya –

Taltsiyskaya overhead line at
RN-Uvatneftegaz;

– a 60 km 110 kV Donetsko–
Syrtovskaya – Rybkinskaya
overhead line at Orenburgneft.

In 2019, the Company commissioned
220 kV 502 MVA transformer capacities
and a 394 km 220/110 kV overhead line,
adding 18 MW of generating capacities.

Rosneft also completed the construction
and started pre-commissioning of
10 kV main substations (distribution
station No. 55 and central distribution
station No. 2) with a design load of
22.6 MW to supply energy to Phase 2
and extended Phase 2 production
facilities of the Zvezda Shipyard.

On top of that, the Company
reconstructed a 0.8 km CHP – Okha heat
main, a socially important facility for the
Sakhalin Region.

As part of technical audits, the
Company also checks if its sites operate
equipment in compliance with health
and safety requirements.

Localisation and Development
of Industrial Clusters

Import Substitution and Equipment Localisation
for Rosneft’s Needs

In 2015, Rosneft launched an Import
Substitution and Equipment Localisation
Programme (the Programme).

Aligned with strategic goals and
objectives set forth in the Rosneft–2022
Strategy and the Company’s Long-Term
Development Programme,

the Programme aims to:
▪ facilitate the development of Rosneft
as a high-tech oil and gas company;
▪ foster technological leadership in its
core competencies, such as oil and
gas production, oil refining and gas
processing;

▪ secure the Company’s technologically

sustainable position in the
hydrocarbons market by increasing
the share of Russian-made products
and implementing projects to
localise the manufacturing of foreign
oil and gas equipment in Russia
in cooperation with leading global
producers;

▪ facilitate the development of

infrastructure supporting exploration
and production and refining,
commerce and logistics projects as
part of localisation efforts.

To this end, Rosneft keeps investing in
proprietary solutions and products with
a view to sustaining its technological
self-sufficiency.

Given a bigger share of horizontal wells
and rising geological and engineering
complexities, there is a growing need for
advanced well logging techniques along
with other prospecting, exploration
and development technologies of
critical importance. Rosneft focuses
on developing domestic capabilities in
advanced well logging. Currently, the
Company partners with Rosatom to
develop instruments for measuring
mineral composition of formations and

logging while drilling horizontal wells.
This will help provide for high-quality
insights into complex reservoirs and
ensure independence from expensive
foreign services.

Also, Rosneft and Rostec developed
a technology to produce synthetic
proppants. The Company’s R&D efforts
were successful resulting in batches
of these proppants for pilot testing
at Rosneft’s oil production sites. The
parties are considering mass production
of synthetic proppants at Rostec
industrial sites.

Russian-made catalysts are key
to sustaining the technological self-
sufficiency of the Company’s refining
segment reducing its reliance on
foreign technologies. In 2019, RN-Kat
specialising in catalyst production and
the Ufa Refinery conducted industrial
tests on the first batch of hydrotreating
catalysts suitable for Euro5 compliant
diesel fuel. This is a unique hydrotreating
agent capable of fully replacing its
foreign peers for the Russian refining
industry. The tests proved that Rosneft’s
proprietary catalyst was fit for the
production of diesel fuel compliant with
all the latest technical requirements.

In 2019, the Novokuibyshevsk
Catalysers Plant launched Russia’s
first-ever advanced pilot testing facility
for hydrotreating catalysts. The new
facility will help test technologies to
manufacture catalysts for oil refining and
petrochemical processes with a view
to ramping up large-scale production.
Until now, Russia has been lacking
such technological capabilities. The
cutting-edge platform will fast-track the
implementation and commercialisation
of Rosneft’s R&D initiatives focusing
on catalysis and catalysts for the said
processes.

The development of proprietary
research-intensive specialist
software is another strategic focus area
for the Company. As of now, Rosneft’s
production assets operate five software
suites which model field geology (RN-
Geosim, RN-KIM), simulate hydraulic
fracturing operations (RN-GRID), manage
field development (RN-KIN) and model
drilling operations of any complexity
(RN-Sigma).

In 2019, RN-Geosim added software
modules to build simple geological
models while RN-KIM designed modules
for hydrodynamic modelling at large
fields.

Over the year, RN-Yuganskneftegaz
leveraged RN-GRID models to perform
another multi-stage hydraulic fracturing
operation on a horizontal well in an
ultralow-permeability reservoir at
the Bazhenov suite. With 610 tonnes
of proppant injected, the Company
obtained oil flow of ca. 6.5 t per day
per stage, which is unprecedented in
the Russian oil and gas industry. By
now, RN-GRID has designed more than
8 thousand full-scale hydraulic fracturing
operations, with R&D efforts ongoing to
develop new functionalities in line with
the newest challenges.

RN-KIN software suite covers 100%
of operational tasks related to field
development. The Group Subsidiaries
are now testing the industrial version
of RN-Sigma suite (geomechanical
modelling of borehole stability while
drilling). This software enables the
Company’s engineers to capitalise on
wider applications of geomechanical
calculations for borehole stability and
reduce risks while drilling directional and
horizontal wells.

178

179

To ensure its technology self-sufficiency
and implement localisation projects,
Rosneft formed the Industrial Assets
group (the Industrial Cluster) having
technological and logistics capabilities
to manufacture, maintain and repair
equipment (including that designated to
substitute imports) for the Company’s
needs in a timely manner.

In 2020–2025, the Industrial Cluster will
be focusing on:
▪ establishing R&D and manufacturing

infrastructure to support re-
engineering, innovations, and import
substitution;

▪ running pilot projects and tests in line
with the Company’s Target Innovative
Projects;

▪ supplying capacities to support

localisation projects in cooperation
with foreign technology partners as
well as joint ventures with Russian
R&D centres and enterprises.

Industrial and Shipbuilding Cluster in the Russian Far East

Upon instruction from the Russian
President, Rosneft is ramping up a
shipbuilding cluster in the Far East
to foster the domestic shipbuilding
industry and energise the development
of the country’s continental shelf. Zvezda
Shipbuilding Complex in Bolshoy Kamen
will be the core shipyard and Russia’s
first-ever facility for the construction of
large-capacity vessels.

Importantly, the shipyard will be
manufacturing icebreakers and
reinforced ice-class vessels, along with
LNG-powered vessels. The shipyard
boasts a unique set of competencies
unparalleled among both domestic and
leading global peers.

To cater to the needs of import
substitution and equipment localisation,
an industrial cluster for shipboard
equipment and components is emerging
around the shipbuilding complex.

In 2019, the first and the second phases
of the shipyard construction saw a huge
volume of works:
▪ 6.5 mcm dredged to deepen the

waterways;

▪ over 700 th. cub m of soil dumped;
▪ over 36 th. cub m of concrete

poured;

▪ over 16.5 th. sq m of construction

sites developed;

▪ ca. 12 kt of steelworks assembled;
▪ 3.2 kt of sheet piles and 7 kt of piles

installed.

In June 2019, the second Goliath giant
crane with a lifting capacity of 1.2 kt
was delivered and assembled at the dry
dock, a unique hydraulic structure sized
485 x 114 x 14 m. The giant crane will
help build the majority of existing and
prospective vessel types with virtually
unlimited tonnage and launching weight.
With the construction works being
ahead of schedule, the dry dock will

be commissioned in 2020, three years
earlier than planned.

In 2019, Zvezda and Samsung Heavy
Industries Co. Ltd. (Republic of Korea)
established a joint venture to manage
projects for the construction of shuttle
tankers with a deadweight from 42 to
120 kt at Zvezda Shipbuilding Complex.
The joint venture relies on the agreement
on exchanging experience in the design
and construction of shuttle tankers signed
in 2018. Samsung Heavy Industries will
hand over base and detailed design
documentation to the Zvezda Shipyard,
and give a helping hand in developing
working design documentation for shuttle
tankers together with Lazurit Central
Design Bureau.

In 2019, Zvezda signed contracts for
the construction of nine vessels, thus
providing for large-capacity vessels to be
made in the Primorye Territory.

Sapphire Applied Engineering and Training Centre

Steerable Thrusters

An industrial cluster for shipboard
equipment and components is emerging
around Zvezda Shipbuilding Complex.
The cluster accommodates a workshop
to manufacture steerable thrusters for
ice-class vessels, including gas carriers.

VRK Sapphire Plant, a joint venture of
Rosneft and General Electric, manages
the project to develop and localise
the production of steerable thrusters,
a key component of marine electric
propulsion systems.

With the first construction phase
completed, VRK Sapphire Plant was

approved for commissioning in 2019
and started manufacturing 7.5 MW
steerable thrusters for the third and
fourth reinforced ice-class support
vessels which are being built for the
Company at Zvezda Shipbuilding
Complex.

180

181

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019control and streamline the Company’s
internal business processes as well as
those of the Group Subsidiaries leading
to shorter times, lower operating costs
and lower procurement prices due
to a better competitive environment.
As a result, the Company managed
to attract new counterparties (mostly
small and medium-sized enterprises
(SMEs)). The Corporate Internet Shop
has more than 14 thousand suppliers
registered, including over 10 thousand
SMEs. In 2019, the Company published
more than 29 thousand procurement
procedures with completed
procurement worth over RUB 2 bln.

The Company is committed to
promoting cooperation with SMEs.
Rosneft consistently implements
initiatives prescribed by the Russian
Government to provide SMEs with
a wider access to its procurement
procedures. The Company met the
target for the share of procurement
from SMEs as stipulated by Resolution
of the RF Government No. 1352 dated
11 December 2014. In 2019, the total
value of contracts made between
Rosneft and SMEs (including those made
by the Group Subsidiaries on behalf
of Rosneft), including payments due in
2019, amounted to RUB 16.3 bln, with

RUB 4.1 bln worth of contracts awarded
as a result of direct procurement from
SMEs.

It is worth noting that SMEs account
for over 76% of potential suppliers
accredited with Rosneft.

The Company continues with the Import
Substitution and Equipment Localisation
Programme for Rosneft’s Needs for
2019–2021 with an outlook for 2028.
The Regulations on Procurement of
Goods, Works and Services provide
for the Company’s right to prioritise
Russian-made goods, works and services
where and as required by the applicable
laws.

The Company is setting up a Shared
Service Centre with a view to centralising
and pipelining routine procurement
operations and category management
functions. Starting from 2019, regional
inventory management and quality
control functions have been transferred
to the Shared Service Centre in line with
the approved approach.

The Company engaged both
experienced experts and young
specialists to form a talent pool for the
Centre. The Company partnered with

the Samara State Technical University,
Samara’s flagship in higher education,
to develop a training course in
Procurement Chain Management for the
Oil and Gas Industry seeking to attract
and teach young professionals.

As part of the Rosneft–2022 Strategy, the
Company is establishing a blockchain-
based framework for engagement
with its suppliers. During the first
half of 2019, Rosneft developed and
approved target business processes,
a roadmap for the implementation of
a supplier engagement framework, a
project schedule and an IT prototype.

The Company successfully robotised its
accounting and inventory management
processes. Rosneft relies on automation
tools to unlock resources previously
engaged in routine and algorithm-driven
operations so as to:
▪ refocus its employees on more

sophisticated tasks

▪ mitigate risks of errors (human
factor) while managing big data
▪ exponentially accelerate routine
operations supporting a 24/7
continuous workflow. The Company
seeks to further develop robotic
technologies.

Supplier and Contractor Relationships

Rosneft is one of the largest consumers of goods, works and services among
Russian private and state-owned companies. The annual spend by the Company
(Rosneft and Group Subsidiaries) on externally procured goods, works and services
amounted to RUB 2.6 trln.

The Company has persistently high need
for goods, works and services, which is
a powerful growth driver for the Russian
economy.

The Company’s success is therefore
largely underpinned by long-term
relationships with suppliers and
contractors. Long-term contracts
provide an important foundation for
building long-lasting relationships.
In 2019, long-term contracts accounted
for over 70% of the Company’s
production programme.

Placing long-term orders facilitates
stable development of the oil and gas
industry, the machine building industry,
the maintenance services market, help
create jobs in all industries and drive
innovation.

The Company keeps implementing the
category management in procurement,
including by leveraging category/
procurement strategy as its key enabler.

In 2019, Rosneft developed and adopted
18 category/procurement strategies as
part of its continued efforts to increase
the share of its needs covered by
category/procurement strategies. The
business plan for 2020 provides for 48%
of its needs to be covered by existing
strategies.

As part of its work to implement the
category management in procurement
and develop a framework for long-term
qualification of reliable counterparties,
the Company systematically reviewed
all inventories, which helped identify

key expensive and critical inventories
based on the materiality, importance for
business and procurement frequency.

Rosneft applied common definitions and
approaches to harmonise and organise
qualifications and requirements, and
introduce basic criteria for all inventories
as well as specific criteria and individual
requirements for certain product types
as the case may be.

To establish long-standing relationships
with suppliers, the Company’s internal
regulations provide for long-term (up to
18 months) accreditation which helps
considerably reduce costs incurred
by potential suppliers participating in
procurement procedures. Suppliers may
obtain accreditation both prior to and in
the course of procurement procedures.

As a vertically integrated holding
company, Rosneft relies on the
consolidated procurement of goods,
works and services for the Group
Subsidiaries with a view to enhancing
its procurement efficiency, all in line
with recommendations of the federal
executive bodies. Rosneft’s procurement
is centralised at 59.4%, including 49.3%
handled by the Head Office and 10.1%
sourced regionally.

When choosing suppliers and
contractors, the Company adheres
to the principles of openness,
competitiveness, reasonableness,
effectiveness, and non-discrimination.
These principles are set forth in the
applicable Russian laws (specifically
Federal Law No. 223-FZ on Procurement

of Goods, Works and Services by
Certain Types of Legal Entities dated
18 July 2011) and laid down in the
Regulations on Procurement of Goods,
Works and Services binding on both the
Company and the Group Subsidiaries.

To ensure procurement transparency,
increased competition and equal access
for market participants, the Company
manages its procurement procedures
electronically via TEK-Torg’s electronic
trading platform. The Company conducts
virtually all competitive procurement
procedures electronically.

Rosneft achieves maximum
transparency by publishing its
procurement plans, information on
procurement procedures and their
outcomes, as well as on contracts
awarded and performed (information
on over 99% of the Company’s
procurement procedures is made
publicly available on the Internet).

To increase procurement transparency
via TEK-Torg’s electronic trading platform
(Rosneft’s section), in 2019 the Company
and the Group Subsidiaries initiated
more than 102 thousand procurement
procedures with a total initial
(maximum) value of RUB 2.1 trln and
over 203 thousand suppliers registered
(cumulatively since the platform's
inception).

To enhance transparency and efficiency
of minor procurement (worth below
RUB 500 thousand), TEK-Torg’s
electronic trading platform launched
Corporate Internet Shop. It helps boost,

182

183

Research and Innovations

Rosneft carries out its innovative
activities in accordance with the
Innovation Development Programme
approved by its Board of Directors.

The Programme aims to achieve the
Company’s strategic goals drawing on
its strategic priorities, such as efficiency,
sustainable growth, transparency, social
responsibility, and innovations.

▪ development and deployment of new

technologies;

▪ development, production, and

launch of new world-class innovative
products and services;
▪ support of the Company’s

modernisation and technological
advancement through high-impact
improvements in key performance
indicators for business processes;

▪ enhancement of the Company’s

The Programme provides for a range of
activities with a focus on:

shareholder value and competitive
edge in the global market.

Target Innovative Projects

In the reporting year, Rosneft continued
with the implementation of R&D results
and the protection of intellectual

property rights. The R&D efforts in 2019
resulted in 61 intellectual property
applications submitted by the Company.

Key Achievements in 2019

Total R&D costs in 2019
amounted to

RUB 30 bln

Exploration and Production

▪ The Company successfully tested

the technology for using horizontal
production and injection wells with
multi-stage hydraulic fracturing to
develop low-permeability reservoirs
at a pilot area of the Prirazlomnoye
field. The use of horizontal wells as
injection ones (for reservoir pressure
maintenance) proved to be effective:
– injectivity index of horizontal wells

was, on average, three times
higher than that of vertical wells;
– the fluid flow rate in the horizontal

wells (for reservoir pressure
maintenance) in the pilot area
decreased at a slower pace as
compared with the standard
development technology.

Unlike the standard development
scheme (one horizontal production well
and two directional injection wells), the
new scheme is based on one horizontal
injection well instead of two directional

184

injection wells. This results in both cost
savings and higher oil production. RN-
Yuganskneftegaz continued to deploy
this technology at the Priobskoye field,
with over 80 wells drilled in total.

▪ RN-Yuganskneftegaz continued to
deploy the newly developed multi-
stage hydraulic fracturing technology
at the Salymskoye field, having
performed a nine-stage hydraulic
fracturing operation on a horizontal
well in an ultralow-permeability
reservoir at the Bazhenov suite
(YuS0 formation). With 610 tonnes
of proppant injected, the oil flow
was recorded at 6.5 t per day per
stage, which is a significant result
for the Bazhenov suite. In 2019,
RN-Yuganskneftegaz also updated
the map of development potential
categories for the Bazhenov suite
based on which it plans to drill over
30 horizontal wells with multi-stage
hydraulic fracturing in 2020–2022.

▪ In 2019, we finalised our unique
technology for gas production
from the Berezovskaya suite. The
distinctive feature of the technology
is that it allows fissure logging
while drilling. The logging results
can be used to identify the optimal
layout of hydraulic fracturing ports,
contributing to more effective
development of the Kharampurskoye
field. A patent application has been
filed.

▪ Rosneft partnered with the National
Intellectual Development Foundation
to test the integration technology
for multi-scale studies of the Jurassic
high-carbon formation which helped
discover a new gas deposit at the
Vostochno-Unlorsky licence area
and estimate movable oil resources
of the Severo-Demyanskaya area
amounting to over 100 mmt.

▪ The Company developed

technologies for core analysis on
hard-to-recover reserves which help

determine relative permeabilities
and displacement efficiencies
in low-permeability reservoirs,
relative permeabilities in poorly
consolidated core samples, and
residual oil saturation in gas zones
(oil fringes). Once implemented,
the economic effect is expected
to exceed RUB 10 bln for gas and
gas condensate deposits in the
Yamalo-Nenets Autonomous Area
and the Khanty-Mansi Autonomous
Area – Yugra.

Research-intensive Technology
Software

▪ New software modules were added
to RN-SMT, an integrity monitoring
system for oilfield pipelines. The
system aims to fully digitalise all
processes related to pipeline
operations, reduce operating risks
and inform management action.
Going forward, RN-SMT will make
into a single corporate software suite
capable of fully supporting pipeline
operations.

▪ To improve the field design accuracy
and select the most appropriate

hydrocarbon extraction technologies,
Rosneft makes extensive use of field
models created by its proprietary
RN-KIM hydrodynamic simulator.
This advanced software has been
widely exploited by the Company
for over five years and is adapted
to the geological and operating
conditions of the fields the Company
is developing. In 2019, we released a
new version that allows us to quickly
(using graphics processing units or
computer clusters) create models
for oil and gas condensate fields
that require computation-intensive
analysis. As a result, about 80% of
digital field modelling works were
performed using RN-KIM. Going
forward, the proprietary simulator
will not only cover 90–95% of the
Company’s needs for hydrodynamic
modelling, it will also provide for
artificial intelligence applications in
field development planning.
▪ RN-KIM hydrodynamic simulator
added software modules for
multicomponent filtration,
optimisation algorithms for
autoadaptive hydrodynamic
modelling, and support for graphics

processing units (GPUs). In 2019,
over 70% of hydrodynamic models
in the Company were created with
RN-KIM. Moreover, the system was
provided to the relevant departments
of the leading universities which offer
training to Rosneft’s employees. The
proprietary simulator is expected
not only to cover 90–95% of the
Company’s needs for hydrodynamic
modelling, but also to provide for
artificial intelligence applications in
field development planning.

▪ RN-Geosim added software modules
for building vertical and tilted faults
for structural surfaces, visualising
seismic cubes, multipoint statistics,
basic reports on geological models,
and parallel computations. RN-
Geosim is anticipated to cover up
to 80% of the Company’s needs for
geological modelling.

▪ RN-Simtep added software modules
for modelling oil and gas production
processes. Going forward, RN-
Simtep will cover up to 80% of the
Company’s needs for production
process modelling and eventually tap
into oil refining and petrochemicals
processes.

185

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019 ▪ The Company developed a concept
for RN-PetroLog, corporate software
suite for interpretation of core
samples and well log data, together
with a RN-PetroLog prototype. The
Company intends to drastically
reduce its dependence on foreign
vendors by developing proprietary
petrophysical software and
integrating it into its digital space.
▪ Another important highlight was
Rosneft Seismic Challenge, an
open championship in seismic
data analysis based on machine
learning. The event attracted about
500 teams from nine countries.
The task was to offer an automatic
method for correlating reflecting
horizons throughout the seismic
cube based on image segmentation.
The solutions developed by the
participants will help automate
manual processes in seismic
exploration. The best algorithms and
concepts will be prepared for pilot
testing as a seismic module of the
corporate software.

Arctic Shelf

▪ The Kara Summer 2019 research
expedition covered the Barents,
Kara, Laptev and Chukchi seas
providing for the maintenance of
measuring infrastructure deployed
by the Company in the Arctic, and

hydrometeorological observations.
The Company will rely on its results
to design facilities and perform
operations across its license areas on
the Arctic shelf.

▪ Meteorological surveys were
conducted in the area of the
Khastyr temporary field base (the
Khatanga Bay, the Laptev Sea).
The data collected in the course of
meteorological and actinometric
observations will be used to develop
provisional operating conditions for
the Khatanga licence area.

▪ The Company developed a concept
for a dome-type special-purpose
facility to contain and clean up
emergency oil spills on the shelf,
including in deep-sea areas and in
the Arctic. It is intended to gather oil
leaking from damaged equipment
and to pump it to surface. It excels in
containing subsea oil spills virtually
everywhere, within a wide range
of depths and ice conditions. The
project won an award from the
International Contest for R&D and
Innovations for the Development of
the Arctic and the Continental Shelf.

▪ The Company developed surface-
active agents, unprecedented in
Russia, which can be used to clean
up emergency oil spills at sea due to
their oil dispersing capacity. These
consist of low-toxic components
made in Russia.

Associated Petroleum Gas
Monetisation

▪ Rosneft developed a laboratory-

level GTL technology which allowed
for mixing synthetic and mineral oil
to produce commercial petroleum
products compliant with the existing
quality standards. The Company
engaged international expertise to
attest the GTL feasibility and produce
recommendations for its pilot testing.
▪ Rosneft partnered with the National
Intellectual Development Foundation
to design, manufacture and deliver a
pilot APG desulphurisation unit based
on microporous membranes for
the Garshinskaya preliminary water
discharge facility at Orenburgneft,
with pilot testing commenced and
continuing into 2020.

Oil Refining and Petrochemicals

▪ Rosneft developed a laboratory-level
technology to regenerate xylenol and
butylated fire-resistant oil wastes
intended for high-powered turbines,
including at nuclear power plants.
Following regeneration, fire-resistant
oil can be used to wash lubrication
systems of both new and repaired
turbines.

▪ The Company successfully tried

the hydrogenation technology for
converting acetone into isopropanol

at its pilot testing facility and ran
endurance tests on a catalyst batch
used in the process.

▪ Rosneft developed a laboratory-
level suspension technology to
produce EPDM rubbers, including
the composition and specifications
of a catalyst used in the process.
Once implemented, the project will
help optimise the existing EPDM
production in terms of operating
costs and product quality.
▪ The Company arranged for

independent tests at its refineries
with a view to streamlining dispersant
and depressor additives for
diesel fuels. It also developed the
composition thereof and a process to
produce the same.

▪ Rosneft developed a laboratory-
level technology to produce
isopropylbenzene using
heterogeneous catalysts. It also
developed the composition and a
process to produce heterogeneous
catalysts for benzene alkylation with
propylene and transalkylation. The
Company intends to revamp its
existing isopropylbenzene facilities to
reduce production costs and increase
margins.

▪ Rosneft ran endurance tests on a

pilot batch of hydrotreating catalysts
for diesel mixtures which proved Ht-
120RN catalyst’s high capacity while
converting diesel mixtures with a
sulphur content of 1.45% into diesel
fuel containing less than 10 ppm of
residual sulphur.

▪ The Company developed and

patented Russia’s first-ever additive
package for all-season hydraulic oils.
The heavy-loaded pumping tests
proved that Rosneft Gidrotec HVLP 46
hydraulic oil with this additive
package was on par with foreign
peers in terms of quality. Rosneft
Gidrotec HVLP 46 with a domestic
additive package became Russia’s
first hydraulic oil certified by a foreign
equipment manufacturer, Bosch
Rexroth. The additive package is set
to substitute for imports currently
used by the Company and give it a
competitive edge as a producer of
energy-efficient HVLP hydraulic oils
for industrial and mobile machinery.

Polymeric Materials
for Oil Production

▪ The Company continued to test its
newly developed proppant made
of polymeric materials, with four
full-scale (equal in volumes to
the use of conventional ceramic
proppant at adjacent wells) hydraulic
fracturing operations performed
at the Samotlor field. These tests
affirmed the high performance of
ultra-lightweight polymeric proppant
based on polydicyclopentadiene
(PDCPD) without causing fractures to
move upward (without breaking thin
barriers between water-saturated
formations and the target formation),
also proving that the PDCPD-based
proppant could be injected with low-
viscosity fluids (linear gel, salting
liquid) to the formations at the
Samotlor field. The Company will
rely on this proppant to effectively
develop previously unprofitable and
thus undeveloped hydrocarbon
deposits.

186

187

As part of its efforts to adopt promising
efficient technologies developed
by Russian and foreign companies,
the Company arranged for testing,
adaptation, and adoption of innovations
while running pilot projects in 2019.
These tests helped evaluate their key
features and conduct feasibility studies
as to their fitness for the geological and
operating environment of the Company’s
exploration and poduction subsidiaries.

In 2019, 152 technologies were put on
test by 22 Group Subsidiaries. A total
of 511 tests were conducted as part
of pilot projects, resulting in 299 kt
of incremental oil production. The
Company and its relevant business units
review the results, assess the economic
viability of implementing proposed
solutions, and prepare plans for their
roll-out and implementation.

As part of the implementation
programme, the Company implemented
and rolled out 116 new technologies
which proved their viability following
prior tests. Rosneft spent RUB 3.2 bln
to deploy and roll out 6.7 thousand
solutions.

Pilot projects

Technology testing

Technology deployment

Quantity

297

Total incremental
oil production, kt

Total economic effect,
RUB mln

130

283

463

659

As part of its efforts to implement the
Target Innovative Projects, the Company
signed over 50 licence and sublicence
agreements for the transfer of its
software and solutions (RN-KIN, RN-
GRID) and the manufacturing process

for produced water treatment units
worth over RUB 90 mln, including to
provide training to students at the
industry-related departments of the
leading Russian universities.

In 2019, the combined proven economic
effect from the Target Innovative
Projects implemented over the last three
years exceeded RUB 36 bln.

Corporate Research
and Design Complex

Rosneft includes 29 corporate
research and design institutes
with over 16 thousand highly
qualified professionals, of which
5% hold Ph.D. and research
degrees. The institutes opened
43 specialised establishments
that act as centres of competence
for specific and complex operations.

The amount of work performed
by these institutes more than
doubled, driven by the growing
need of the Company’s businesses
for their services. The number
of designs and estimates
provided for the Company’s
capital construction projects
increased significantly, the number

of innovation patents rose by 30%
while the quality of services
improved consistently (by 5%
annually).

To ensure technological security,
systematic import substitution
and cost reduction, the corporate
institutes develop a full
range of proprietary research
software solutions in geology
and exploration (RN-KIM, RN-KIN,
RN-GRID, RN-Sigma and more)
that are now used both within
and beyond the Company. The share
of the Company’s projects that
rely on its proprietary software has
doubled to 50% compared to 25%
in 2016.

The development and roll-out
of a standard design system

enabled the Company to provide
standard design solutions to 83%
of its facilities (35% in 2016).
As a result, the Company expects
to save over RUB 31 bln in capital
expenditure in 2018-22.

Thanks to the in-house service
that was built from scratch using
the resources of the corporate
institutes, Rosneft has become
the largest Russian company
providing geological support
for drilling operations both
by the number of wells supported
annually and by the quality
of geosteering service (including
for multilateral complex wells).
As a result, the Company moved
away from using third-party services
and saved more than RUB 1.2 bln.

Digital Transformation
Focus on Digital Transformation and Technology

Achievements in 2019

2019 saw a total of 24 concepts and 18 prototypes developed and 28 digital solutions tested by the Company’s
businesses and functions, specifically Exploration and Production, Oil Refining, Commerce and Logistics,
Regional Sales, Gas Business, Petrochemicals, HR Management, and Capital Construction. Some of these solu-
tions are now up and running.

Exploration and Production

▪ The Company launched the

▪ Rosneft created detailed

Digital Field project at Bashneft’s
Ilishevskoye field, the industry’s first
solution covering all core processes
from oil production to logistics. The
newest digital technologies will make
a real difference at the Ilishevskoye
field in terms of production and
economic gains. The project will help
increase the number of remotely
controlled facilities by nearly 60% and
energy efficiency by 5%, and reduce
logistics costs by 5%.

▪ Varyeganneftegaz successfully
deployed a computer vision
technology based on artificial
intelligence algorithms which
automatically scans hazardous areas
in real time to identify whether
people are present there and
whether they use personal protective
equipment, and immediately notifies
of emergencies, if any. Rosneft
arranged for its live demonstration at
the 5th Exploration and Production
Technologies Conference.

3D models for six production
assets (RN-Uvatneftegaz, Slavneft-
Krasnoyarskneftegaz, RN-Vankor,
Kondaneft, Verkhnechonskneftegaz,
and Vostsibneftegaz). The models
will help create a common oilfield
monitoring environment using
advanced visualisation and digital
3D twins of physical assets. Its
prototype was also presented at
the 5th Exploration and Production
Technologies Conference.
▪ The newly developed drone

monitoring system successfully
passed flight tests, including in
adverse climatic conditions. It
consists of a proprietary unmanned
aerial vehicle which can be equipped
with a video camera, IR imager or
gas sensor, as well as a charging
and heating station and flight
management software. The system
helps inspect infrastructure facilities
and pipelines in a safer and easier
way. It relies on a computer vision

technology to automatically scan
protected areas to identify whether
people or machinery are present
there, and notify of oil spills, if any.

▪ Samotlorneftegaz successfully
deployed a machine learning
technology to predict electrically-
driven centrifugal pump failures so
as to better manage supply chain
and optimise inventory. The solution
based on artificial intelligence and
neural networks will contribute to
much more accurate prediction of
equipment failures so as to better
plan procurements.

▪ New promising technologies were

also identified and tested, including
a prototype to manage repair teams
which was titled the Digital Well
Servicing and Workover Teams. The
Company ran preliminary tests on a
telemonitoring solution to detect gas
leaks using cutting-edge laser gas
sensors.

188

189

Petrochemicals

▪ The Gas Business Digital

Transformation Programme includes
17 initiatives and consists of two
parts: 12 gas-specific initiatives and
five Exploration and Production
initiatives to be adapted for its
needs. Sibneftegaz and Rospan
International were assigned to test
new technologies. The Company’s
first digital gas field concept was
developed and approved in 2019.

▪ Sibneftegaz successfully tried an
integrated solution to optimise
gas production at the Pyreynoye
gas condensate deposit using
machine learning techniques. It

also developed a prototype of an
integrated field model (Odin), getting
ready for pilot testing.

▪ Sibneftegaz successfully tried an
IT platform supporting a digital
twin for the Pyreynoye field. It also
developed a prototype allowing for
3D visualisation (Mitra), getting ready
for pilot testing.

▪ Sibneftegaz approved the concepts

and started testing initiatives focused
on real-time control over wells and
infrastructure facilities, with an IR
imager installed at a gas well pad to
detect gas leaks (Atlas), online control
over well operations and real-time

processing of gas well surveys
using machine learning techniques
(Boreas), maintenance based on
predictive analytics for gas gathering
and pre-transport treatment
equipment (Thor), a smart analysis
prototype for gas assets (Amun),
which provide for the management’s
access to up-to-date production
information and advanced and
predictive analytics tools via mobile
devices.

▪ Rospan International started testing
unmanned aerial vehicles to monitor
abandoned and suspended wells
(Hermes).

▪ Novokuybyshevsk Petrochemical

Company tested a safety monitoring
and employee control technology
using a combination of computer
vision, neural networks and
conventional video analytics. It
intends to develop this initiative in
cooperation with HSE teams.

▪ Ufaorgsintez tested a hardware and

software system to control personnel

whereabouts, personal protective
equipment, employee health and
physical activity, and environmental
conditions. It intends to develop this
initiative in cooperation with HSE
teams.

▪ Novokuybyshevsk Petrochemical

Company developed a mathematical
model of a gas fractionation unit
to assess efficiency improvement

initiatives, also contributing to better
production planning.

▪ Novokuybyshevsk Petrochemical
Company developed and tested
software robots to manage
inventories and procurement
procedures, which proved to be
a real time saver. In 2020, it plans
to robotise other labour-intensive
routines.

Oil Refining

Regional Sales

▪ Saratov Refinery implemented

prototypes of a multi-faceted energy
efficiency monitoring and control
system and a solution computing
energy mix for better energy
consumption. To enhance health and
safety, it also prototyped personnel
monitoring technologies to detect
and control personnel whereabouts
within the refinery in real time.
▪ Bashneft-Ufaneftekhim created a
prototype of a business process
monitoring and analytics system
to facilitate prompt and informed
management decisions.

▪ Syzran Refinery successfully put into
operation a system for optimised

mixing of heavy petroleum products.
It also prototyped technologies
using computer vision and
unmanned aerial vehicles to scan
the refinery premises to detect leaks,
unauthorised persons, fires, and
emergencies.

▪ Ryazan Refinery tested explosion-
proof mobile devices to control
equipment health, detect failures
and monitor inspection routes. It also
prototyped 3D scanning technologies
for maintenance and repair
visualisation.

▪ As part of its pilot project to

implement GE Smart Signal, Fleet
Management and GE Meridium,

Ryazan Refinery completed design
and development, getting ready for
pilot testing.

▪ Rosneft developed digital solution
concepts for predictive monitoring
and computation of corrosion rates,
smart leak control, on-site wireless
data transfer solution template,
virtual boardrooms, centralised
monitoring and optimisation of alarm
systems, industrial 3D printing, video
surveillance of facilities and pipelines
using IR images to control operating
environment and failures.

▪ As part of its Retail Mobility:

Development of New Payment
Technologies project, Rosneft
launched a service of fuel payments
via a mobile app at more than 120 of
its BP-branded oil depots. To enhance
its retail services, the Company
partnered with banks to introduce a
mobile app allowing customers to pay
for fuel without leaving their car.
▪ RN-Moscow launched a dedicated
self-service terminal to improve
customer experience, save their time
while paying for fuel and increase
the efficiency of its automatic filling
stations, which was part of the project
titled the Automatic Filling Station:
Development of a Solution to Upgrade

Low-Efficiency Filling Stations to be
Transformed into Automatic Filling
Stations.

▪ RN-Card introduced a virtual fuel card
for all B2B customers to offload its
offices and optimise its costs. This
solution allowing customers to issue
a virtual fuel card via their personal
account was deployed by more
than 40 marketing and distribution
companies.

▪ Rosneft developed a prototype of a

dedicated self-service terminal issuing
fuel cards which performs customer
identification and keeps track of
issued fuel cards.

▪ The Company developed a prototype
of an automated monitoring system

keeping track of fuel suppliers’
inventories on top-end digital
platforms to ensure end-to-end
supply chain control from oil depot
to fuel nozzle, promote fail-safe
controls over petroleum product
losses and reduce fraud risks related
to petroleum product management at
filling stations and oil depots.

▪ Rosneft implemented a blockchain-

based electronic workflow prototype
to better manage relationships with
B2B customers and suppliers. It
relies on a trusted EDI environment.
This solution provides for better
management of complementary
goods supplies to its oil depots/filling
stations.

190

191

Capital Construction

In 2019, the Company developed the
IT Strategy based on the Programme
of IT Projects for Capital Construction
Automation within the Remit of the
Department of Methodology and Control
in Capital Construction in 2019–2021.
It sets out the digital transformation
priorities to improve the accuracy of

project planning and risk assessment.
As part of the strategy, the major focus
was on the two digital initiatives: (1) the
End-to-End Project Planning Efficiency
Monitoring and (2) the Construction
Delay Risk Prediction. The initiatives
will help the Company identify schedule
risks in a timely manner and predict

delays in construction and installation
operations by contractors based on the
contractor’s history with the Company.

Following the review, the Company
decided to deploy the technology, with
pilot testing to commence in 2020.

▪ As part of its efforts to digitalise

its fleet, Rosnefteflot successfully
implemented a Digital Fleet
prototype based on digital scenarios,
specifically Failure Detection in Vessel
Operations, Smart Monitoring of
Cargo Operations, following which it
decided to initiate the respective pilot
project.

▪ The Company created the Digital
Core for Commerce and Logistics

and developed description of
target business processes with
a book of flowcharts, the list of
milestones, matrix of business
roles, register of process and policy
changes, design concept, prototype
documentation package, and the
list of improvements required for
the second phase of the Full-Scale
Web Resource for Commerce and
Logistics project.

▪ As part of the Implementation of
a Digital CRM Solution for Trading
digital scenario, the Company
initiated the respective project,
established financial and technical
requirements, selected the target
platform, and approved the Terms of
Reference.

HR Management

▪ The Company is finalising tests on
the Employee’s Personal Account
digital scenario based on a mobile
app which is set to enhance and
facilitate online interactions between
employees and the HR function.

▪ The tests on the HR Bot digital

scenario were completed. Rosneft’s
employees can now use their
workstations and mobile corporate
devices to engage in Q&A sessions

on HR matters via a dedicated
software application, thus providing
for fast and efficient communication
in a consistent manner.

▪ The Company continues to test a
digital scenario of a modular and
contextual self-education platform.
Currently, the solution is available in
the form of a mobile app for Android
and iOS, as well as a web version. It
provides employees with uniform

content in the form of advisory
videos.

▪ The Company started working on the
Digital Tools for Headcount Control
digital scenario to source analytics
to better manage headcount across
its business units. It aims to develop
headcount limits using smart systems
which process big data in real time.

192

193

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 201905

Corporate
Governance

Key Corporate Governance Principles
and Improvements in 2019

The Company’s leading market position, both domestically and globally, and its
commitment to long-term sustainable value creation make it of the utmost
importance to build a corporate governance framework which will ensure efficient
communication and cooperation between the Board members, top managers,
employees, business partners, and local communities across the Company's
footprint.

The Company’s corporate governance aim is the long-term
sustainable growth of its shareholder value.

Message from the Chairman
of the Board of Directors

In 2019, the Company maintained its
focus on shareholder return growth,
paying out record-high dividends while
also reducing leverage.

Amid volatility in international financial
markets and elevated uncertainty in
global affairs, the Board of Directors
and the Company’s management
are committed to ensuring Rosneft’s
ongoing value appreciation in the long
term and to helping the shareholders
thrive and prosper.

On 19 December 2019, the Board of
Directors approved Rosneft’s financial
and business targets for 2020–2021.
The key objectives are to develop
production and diversify markets while
ensuring a balanced financial structure
and an unwavering focus on social
responsibility.

We have plans to launch major oil
and gas exploration and production
projects, upgrade oil refining capacities,
and move forward with digitalisation
and innovations. Operating efficiency
improvements and expansion of our
sales geography remain our priorities.

Responsibility is a pillar of sustainable
development, so the Company takes
active part in global discussions on
reducing greenhouse emissions and
liaises with government bodies and
industry peers. In 2019, we developed
corporate approaches to carbon
management, making sure they were
aligned with the UN Sustainable
Development Goals. Rosneft also joined
the Guiding Principles on Reducing
Methane Emissions across the Natural
Gas Value Chain – an initiative of
international oil and gas majors. Social
responsibility is an ongoing area of focus
for the Board of Directors.

We aim to continue providing social
guarantees for our personnel, improving

our health, safety and environment
performance, and fostering relations
with local communities across our
geographies.

Last year, the Board of Directors
engaged Ernst & Young as an
independent advisor to look into the
Company’s management practices.
The professionalism of Rosneft’s Board
of Directors won strong recognition
from the external advisor, but our
team still sees areas for improvement.
In particular, we intend to hold
more in-person meetings of the
Board Committees and enhance our
succession policy.

Doing well by our shareholders and
growing the Company in a sustainable
manner remain the long-term
priorities for the Board of Directors
and the management. To this end,
we are targeting a rise in shareholder
return vs 2019 as one of our goals in
financial and business performance
for 2020–2021.

I have every confidence that with diligent
planning, ongoing review of internal
efficiency, and a focus on business,
counterparties, employees and partners,
the Company is perfectly positioned to
continue delivering on the Rosneft–2022
Strategy.

196

197

Key Achievements in 2019

А third-party assessment of the Board of
Directors’ performance was conducted
and its results were announced.

The Company fully executed the
roadmap for incorporating key
provisions of the Bank of Russia’s Code
in Rosneft’s operations.

The Company’s compliance
with provisions of the Bank
of Russia’s Code improved
since 2014 to reach

10.1%

95.2%

The minimum threshold
as recommended
by the Federal Agency
for State Property Management
(Rosimushchestvo) is

65%

(for evaluation of compliance
with the Bank of Russia’s Code
see Appendix 3 to this Annual
Report).

The Company approved new Internal
Control Rules for the Prevention,
Detection and Suppression of Illegal
Use of Insider Information in Rosneft
and/or Market Manipulation and held
training sessions for employees.

The Company also launched the
Corporate Governance analytical
information system, a cutting-edge
Russian software that is already
helping shareholders exercise their
key rights.

2.7 %

1.7 %

89.7

0.8 %

2.0 %

92.4

93.2

95.2

2.9 %

85.1

Baseline

2014

2015

2016

2017

2018

2019

COMMITMENT TO SHAREHOLDERS

The Company has implemented the best corporate governance practices
and complies with the Bank of Russia’s Corporate Governance Code,
ensuring:
▪ equal and fair opportunities for its shareholders to exercise their legal

rights;

▪ strategic management by an efficient and competent Board

of Directors, accountable to shareholders, with a sufficient number
of independent directors sitting on it;

▪ efficient risk management and oversight over material corporate

actions, including those in controlled entities;

▪ full disclosure of the Company’s activities most relevant

to shareholders and investors.

A substantial share of the Company’s net
income is distributed as dividends,

RUB 283 bln

was paid to the shareholders
in 2019

To support efficient communication
with shareholders, the Company has launched
Shareholder's Personal Account.

INNOVATION AND GLOBAL LEADERSHIP

PARTNERSHIP WITH NON-GOVERNMENTAL
ORGANISATIONS AND COOPERATION
WITH STATE INSTITUTIONS

As part of its continuous improvement framework,
the Company increases its technological capabilities,
invests in new technology, and strives to become a global
leader.

In 2019, Rosneft demonstrated new developments in IT,
refining, exploration, and production.

The Company is a party to the UN Global Compact.

In 2019, it joined the global initiative on methane
emission reduction.

The Company is among Russia’s largest taxpayers.

FAVOURABLE ENVIRONMENT
FOR SUSTAINABLE GROWTH

PROTECTION OF SHAREHOLDERS
AND KEY STAKEHOLDERS

The Company implements the best internal control and risk
management practices, develops technologies for industrial
safety and information security, and ensures product safety,
protecting its customers and contractors.

The Company cares about its people – employees,
their families, members of local communities across its
footprint.

The Company takes care of the environment
by introducing carbon management initiatives
and implementing best waste management practices.

The Company supports scientific research, culture,
and sports.

In its relationships with contractors and employees,
the Company observes high ethical standards and respects
human rights and freedoms, in accordance with generally
accepted principles and international law.

198

199

The Company operates a two-tier management model where management
functions are split between the Board of Directors and executive bodies.

Board of Directors

Executive Bodies

The Board of Directors performs the two key functions:
▪ oversight of the executive bodies;
▪ strategic management of a joint stock company, which
includes approving strategic documents and material
transactions.

▪ The law requires companies to have a sole executive body

(Chief Executive Officer) who, in dealing with third parties, is
authorised to act on behalf of Rosneft without a power of
attorney.

▪ The Company has established a collective executive body

(Management Board) which is chaired by the sole executive
body. Pursuant to the laws of the Russian Federation, the
Management Board and its members are not authorised to
enter into transactions and execute legal acts on behalf of
the Company without a power of attorney.

Reporting

n
o
i
t
c
e
l
E

g
n
i
t
r
o
p
e
R

GENERAL SHAREHOLDERS MEETING

Rosneft’s supreme governing body responsible for decision-making on key matters
of the Company’s business.

Reporting

Reporting, set-up,
assessment

BOARD OF DIRECTORS

Board of Directors provides strategic management of the Company’s activities; it is accountable
to the General Shareholders Meeting and acts for the benefit of the Company and all shareholders within its
remit.

COMMITTEES OF THE BOARD OF DIRECTORS

Set-up

EXECUTIVE BODIES

Manage the day-to-day operations for the benefit of the Company and are accountable
to the Board of Directors and the General Shareholders Meeting

Chief Executive Officer

Sole executive body

Management Board

Collective executive body

COORDINATING AND CONSULTATIVE BODIES

Coordinating and consultative
bodies of the Chief Executive Officer,
established to conduct preliminary
review of matters, address specific
tasks, and implement new projects:

▪ Technological Council;
▪ Investment Committee;
▪ Budget Committee;
▪ Council for Business Ethics;
▪ Central Procurement Committee;
▪ Information Technology Expert

Council;

▪ Expert Council for Quality and Safety

of Oil Products;

▪ other coordinating and consultative

bodies of the Company.

Head of Internal Audit and Corporate Secretary are appointed by the Board
of Directors

Administrative subordination

INTERNAL AUDIT SERVICE

CORPORATE SECRETARY

Assesses the robustness
and effectiveness of the Company’s
business processes, identifies internal
potential for improving the Company’s
financial and business performance,
including that of the Group
Subsidiaries.

Ensures the Company’s compliance with the applicable laws, the Company
Charter and internal regulations, which guarantee protection of shareholders’
rights and legitimate interests. Organises the work of the Board of Directors
and is responsible for efficient communication between the Company’s
shareholders, governing and supervisory bodies, and management.

CORPORATE GOVERNANCE DEPARTMENT

A separate business unit exercising functions of the Corporate Secretary
Head Office.

Audit Committee

HR and Remuneration Committee

Strategic Planning Committee

Functional subordination

Prepares recommendations
for overseeing the Company’s
accounting (financial) statements
and other reports; ensuring reliability
and effectiveness of internal control
and risk management systems,
compliance, and corporate governance;
and safeguarding the independence
and objectivity of the internal
and external audit functions.

Prepares recommendations for assessing
effectiveness of the Company’s HR
and succession policies and the appointment
and remuneration system; evaluating Board
and management candidates; reviewing
independence of independent directors;
and conducting performance assessments
of the Board of Directors, the executive
bodies, and top managers of the Company.

Prepares recommendations
on sustainable strategic
development, the Company’s
long-term performance,
strategic and business planning,
and the Company’s business
priorities and growth targets.

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i
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e
t
n

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d
a
e
H

e
e
t
t
i

m
m
o
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e
h
t
h
t
i

t
c
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t
n
o
c

t
c
e
r
i
d
n

s
i

EXTERNAL AUDITOR

AUDIT COMMISSION

A commercial organisation selected through
a procurement process and approved by the General
Shareholders Meeting upon recommendation
of the Board of Directors based on the Audit
Committee’s assessment.

Oversees the Company’s financial and business operations
and performance of its governing bodies, executives, business
units and functions, branches and representative offices.

Reporting

Election

200

201

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019

General Shareholders Meeting

In 2019, the Company’s supreme governing body
met twice – for one Annual and one Extraordinary
General Shareholders Meeting.

As at 31 December 2019,
all resolutions of the 2019
shareholders meetings were
implemented in full.

Annual General Shareholders Meeting

On 4 June 2019, Rosneft’s Annual
General Shareholders Meeting was
held in St Petersburg and was attended
by holders of 91.39% of the Company
shares.

Speaking on the agenda items were the
Chairman and members of the Board of
Directors, Chief Executive Officer, senior
management representatives, and
external analysts.

The meeting reviewed the performance
for the period, approved the Annual
Report, annual accounting (financial)
statements and net income distribution
for 2018 (including for dividend
payment), elected the Board of Directors
and the Audit Commission, determined
their remuneration for the period, and
approved the Company’s Auditor.

The Chairman of the Board of Directors
and the Chief Executive Officer
answered questions coming from the
shareholders and commented on the
Company’s position on key business
matters.

The procedure
for convening,
preparing for, holding
and following up
on the General
Shareholders Meeting
is set forth by Rosneft’s
Regulations
on the General
Shareholders Meeting.

For shareholders located in Rosneft’s cities of operation and at the Company’s production facilities,
the meeting was broadcast live, enabling viewers to ask questions.

The broadcast was available in the cities and towns of Gubkinsky, Komsomolsk-on-Amur, Krasnodar,
Krasnoyarsk, Moscow, Nakhodka, Neftekumsk, Nefteyugansk, Novy Urengoy, Samara, Tyumen, Tuapse,
Usinsk, Ufa, Khabarovsk, Yuzhno-Sakhalinsk, and the Vankor field.

Extraordinary General Shareholders Meeting

As part of implementing its dividend
policy, on 30 September 2019 the
Company held an Extraordinary General
Shareholders Meeting by absentee

voting, which resolved to pay dividends
for the first six months of 2019. The
holders of 91.89% of the Company
shares took part in the voting.

202

Rosneft’s Board of Directors

Composition and structure of the Board of Directors

Age

Board of Directors

46–55 years
56–65 years
66 or over

1
7
3

Independent
Non-executive
Executive

36 %
55 %
9 %

The Board of Directors is responsible
for strategic management of the
Company’s operations for the benefit
of all shareholders, and can exercise
significant authority in the key areas of
the Company’s business in line with best
practices.

The Board is made up of eleven
directors from different countries.
Foreign directors representing the
Board perfectly fit the Company's
international profile and bring a global
perspective and broader set of skills and
competences. The Board of Directors
is diverse in terms of professional
experience and qualifications and
includes directors with background in
public service as well as oil and gas,
financial and other sectors.

Four out of eleven directors are
independent, as recommended by the
Corporate Governance Code of the Bank
of Russia. The impartiality and balance of
the Board are also ensured by directors
nominated by significant minority
shareholders – BP and Qatar Investment
Authority.

Key competencies of directors

Director

Competencies

Strategy Oil

and gas

Corporate
governance
and M&A

Law

Finance
and audit

Risk
management

Politics/GR HSE HR

Gerhard Schroeder

Igor Sechin

Matthias Warnig

Faisal Alsuwaidi

Hamad Rashid
Al-Mohannadi

Andrey Belousov

Oleg Viyugin

Robert Dudley

Guillermo Quintero

Alexander Novak

Hans-Joerg Rudloff

Ivan Glasenberg1

1 Resigned from the Board of Directors on 4 June 2019.

203

as at 31 December 2019

Born in 1944.
Graduated from the University of Goet-
tingen (Germany), the Department of
Law, in 1976.
Foreign fellow of the Russian Academy
of Sciences.
1998–2005: Chancellor of Germany.
Elected to the Board in Septem-
ber 2017.

Involvement in other companies
Chairman of the Shareholders’ Commit-
tee of Nord Stream AG (Switzerland),
Chairman of the Board of Directors at
Nord Stream 2 AG (Switzerland), and
Deputy Chairman of the Supervisory
Board at Herrenknecht AG (Germany).

Holds no shares of Rosneft.

IGOR SECHIN
Deputy Chairman, Chief Executive
Officer, Chairman of the Management
Board

Gerhard
SCHROEDER
Chairman, Independent Director

Born in 1960.
Graduated from the Leningrad State
University in 1984, holds a PhD in
Economics.
2000–2004: Deputy Head of the Russian
Presidential Head Office.
2004–2008: Deputy Head of the Russian
Presidential Head Office, Aide to the
President.
2008–2012: Deputy Prime Minister of
the Russian Federation.
2012–present: Chief Executive Officer,
Chairman of the Management Board of
Rosneft.
First elected to the Company's Board
of Directors in 2004. Chairman of the
Board of Directors in 2004–2011. In No-
vember 2012, he was re-elected to the
Board of Directors, and from June 2013
holds the position of the Deputy Chair-
man.

Involvement in other companies
Chairman of Boards of Directors of
ROSNEFTEGAZ, National Oil Consor-
tium, and Inter RAO, Chairman of the
Supervisory Board of CSKA Professional
Hockey Club1.

Involvement in non-profit
organisations
Active in the areas of social, scientific,
sport and education development;
serves as Chairman of the Board of
Trustees of SPbAU RAS, Deputy Chair-
man of the Supervisory Board of the
Russian Volleyball Federation, member
of the Board of Trustees of Lomonosov
Moscow State University, Chairman of
the Boards of Trustees of the Rus-
sian Research Centre for Radiology
and Surgical Technologies, National
Intellectual Development Foundation,
St Petersburg State University, Graduate
School of Management of St Petersburg
State University, St Petersburg Mining
University, Church Construction Support
Fund in Moscow, Russian Federal Public
Academy of Education, Moscow State
Institute of International Relations, Rus-
sian Geographical Society, Lomonosov
Moscow State University High School,
and Primakov Gymnasium, member of
the Supervisory Board of the Global En-
ergy Association (international research
and energy projects), and member of
the Supreme Supervisory Board of the
Boxing Federation of Russia.

Holds 13,489,350 shares of Rosneft
(0.1273% of the charter capital).

204

205

1 For more information about the positions held in the governing bodies of other organisations, see the Management Board section

and the Company's official website.

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019Involvement in other companies
Member of the Supervisory Board of
VTB Bank, member of the Administra-
tive Council of GAZPROM Schweiz AG
(Switzerland), member of the Board of
Directors of Transneft, Chairman of the
Administrative Council of Gas Project
Development Central Asia AG (Swit-
zerland) and Interatis Consulting AG
(Switzerland).

Holds 92,633 shares of Rosneft
(0.0009 % of the charter capital).

Born in 1955.
Graduated from the Bruno Leuschner
Higher School of Economics (Berlin)
in 1981.
1990–2006: was engaged in the financial
activities of Dresdner Bank Group AG in
Frankfurt, St Petersburg, and Moscow
and held the positions of President,
Chairman of the Board of Directors, and
Chief Coordinator of Dresdner Bank AG
in Russia.
2006–2016: Managing Director of Nord
Stream AG (Switzerland).
2008–present: Director of Interatis AG
(Switzerland).
2015–present: Executive Director of
Nord Stream 2 AG (Switzerland).
Elected to the Board in June 2011.

Matthias WARNIG
Deputy Chairman of the Board
of Directors, Chairman of the HR
and Remuneration Committee, member
of the Audit Committee,
independent director

Andrey BELOUSOV
Member of the Strategic Planning
Committee

2018–present: Representative of Qatar
Investments Authority.
Elected to the Board in June 2017.

Holds no shares of Rosneft.

Born in 1954.
Graduated from Merton Technical Col-
lege (UK) in 1978.
Between 1997 and 2010, he held the
following positions: Chief Managing
Director and Deputy Chairman of the
Board of Directors at Qatargas; Manag-
ing Director at Qatar Fertilizer Compa-
ny (QAFCO); Administrative Director at
Qatar Petroleum.
2012–2018: President of Research and
Development at Qatar Foundation.
2018–present: member of the Qatar
University Board of Trustees.

Faisal ALSUWAIDI
Member of the Strategic Planning
Committee

Oleg VIYUGIN
Member of the Strategic Planning
Committee, Member of the Audit
Committee,
independent director

Born in 1959.
Graduated from Lomonosov Moscow
State University in 1981, Doctor of
Economics.
2006–present: Chief Researcher
(part-time) at the Institute of Economic
Forecasting of the Russian Academy of
Sciences.
2008–2013: Director of the Department
of Economics and Finance of the Russian
Government.
2012–2013: Minister of Economic Devel-
opment of the Russian Federation.
2013–2020: Aide to the President of
Russia.
2020–present: First Deputy Prime Minis-
ter of the Russian Federation.
Elected to the Board in June 2015.
Chairman of the Board of Directors from
June 2015 to September 2017.

Involvement in other companies
Member of the Board of Directors of
ROSNEFTEGAZ.

Involvement in non-profit
organisations
Active in the areas of social and business
development, clergy and culture; serves
as a member of the Supervisory Board of
Roscosmos, member of the Supervisory
Board of VEB.RF, Chairman of the Supervi-
sory Board of Digital Economy, member of
the Supervisory Board of Agency for Stra-
tegic Initiatives to Promote New Projects,
Deputy Chairman of the Board of Trustees
of the So-edinenie Support Fund for the
deaf-blind, State Tretyakov Gallery and
Holy Trinity Seraphim-Diveyevo Convent
Eparchy of Nizhny Novgorod of the Rus-
sian Orthodox Church (Moscow Patriar-
chate) of The Holy Trinity-St. Sergius Lavra,
and member of the Board of Trustees for
the revival of the Sarov Hermitage and the
Diveevo cloister of Holy Assumption Mon-
astery of the Sarov Hermitage in Sarov, the
Nizhny Novgorod diocese of the Russian
Orthodox Church (Moscow Patriarchate).

Holds no shares of Rosneft.

Involvement in non-profit
organisations
Active in the areas of entrepreneurship,
corporate governance and education;
serves as a member of the Board of the
Centre for Strategic Research, Agate
Youth Entrepreneurship Foundation,
member of the Board of Trustees of
EUSP Endowment Fund, NES Endowment
Fund and Forum Analytical Centre, and
member of the Praesidium of National
Corporate Governance Council.

Holds no shares of Rosneft.

Born in 1952.
Graduated from Lomonosov Moscow
State University in 1974, holds PhD in
Physics and Mathematics.
2004–2007: Head of the the Federal
Service for Financial Markets.
2007–present: Professor at the School
of Finance, Department of Economic
Sciences, National Research University
Higher School of Economics (starting
2019 – on a part-time basis).
2013–2015: Senior Advisor for Russia
and CIS at Morgan Stanley Bank (contrac-
tor agreement).
Elected to the Board in June 2015.

Involvement in other companies
Chairman of the Supervisory Board of
the Moscow Exchange, Chairman of the
Board of Directors of NAUFOR, Chairman
of the Board of Directors and Advisor to
CEO of SAFMAR Financial Investments,
member of the Board of Directors of Un-
ipro, member of the Supervisory Board
of National Settlement Depository and
SF Holdings Co PLC.

1 For more information about the positions held in the governing bodies of other organisations, see the Company's official website.

206

207

Involvement in non-profit
organisations
Active in the areas of geography and
related sciences; member of the Board
of Trustees of the Russian Geographical
Society.

Holds no shares of Rosneft.

Born in 1955.
Graduated from the University of Illinois
(USA) in 1977.
Holds Master of Science’s Degree
in International Management from
Thunderbird School of Management
(USA) and MBA from Southern
Methodist University (USA).
2003–2008: Chairman of the
Management Board, President, CEO at
TNK BP Management.
2009–2020: Director and member of the
Board of Directors at BP p.l.c.
2010–2020: CEO of BP Group.
2016–2020: Chairman of the Oil and
Gas Community of the World Economic
Forum.
2016–present: Chairman of the Oil and
Gas Climate Initiative.

Robert DUDLEY
Chairman of the Strategic Planning
Committee

Alexander NOVAK
Deputy Chairman of the Strategic
Planning Committee

2016–present: Director at
GQO Consultants LTD.
Elected to the Board in June 2015.

Holds no shares of Rosneft.

Born in 1957.
Graduated from the University of
Southern California in 1979.
2010–2015: Regional President Brazil,
Uruguay, Venezuela and Columbia, BP
Energy do Brasil Ltda, and Director of
BP Brasil Ltda.
2011–2015: President of BP Exploration
do Brasil Ltda.
2011–2016: Director at BP Petroleo
y Gas S. A.
2014–2016: President of BP Exploracion
de Venezuela S. A.

Guillermo
QUINTERO
Member of the HR and Remuneration
Committee

Hans-Joerg
RUDLOFF
Chairman of the Audit Committee,
member of the HR and Remuneration
Committee,
independent director

Born in 1971.
Graduated from Norilsk Industrial
Institute in 1993 and from Lomonosov
Moscow State University in 2009.
2008–2012: Deputy Minister of Finance
of the Russian Federation.
2012–present: Minister of Energy of the
Russian Federation.
First elected to the Board of Directors
in June 2015 and served as a director
until June 2017. Re-elected to the
Board in September 2017.

Involvement in other companies
Chairman of Boards of Directors of
Rosseti and Transneft, member of the
Board of Directors of Gazprom.

Involvement in non-profit
organisations
Active in the areas of education and
sports development, and energy sector;
member of the Supervisory Board

of Rosatom and the Global Energy
Association (international research
and energy projects), Chairman of the
Board of Trustees of Moscow Power
Engineering Institute, member of the
Board of Trustees of Siberian Federal
University, Gubkin Russian State
University of Oil and Gas and Motorcycle
Federation of Russia, Chairman of WEC
RNC, Russian Basketball Federation and
Solovki Archipelago Preservation and
Development Foundation, Chairman
of the International Sustainable Energy
Development Centre under UNESCO
auspices and the Chairman of the Board
of Trustees of the All-Russian Athletics
Federation.

Holds no shares of Rosneft.

Involvement in other companies
Member of the Foundation Board of
International Centre for Monetary
and Banking Studies (ICMB), advisor to
the Board of TBG Holdings NV (Thys-
sen-Bornemisza Group) and director at
Decolef and Guardian Capital.

Holds no shares of Rosneft.

Born in 1940.
Graduated from the University of Bern
(Switzerland) in 1965.
1998–2014: Chairman of the Manage-
ment Board at Barclays Capital.
2002–present: Chairman of the Man-
agement Board at Marcuard Holding.
2003–present: Executive Director at
ABD Capital S. A.
2015–present: President of ABD Capital
Eastern Europe S. A.
Member of the Board of Directors from
June 2006 to June 2013. Re-elected to
the Board of Directors in June 2018.

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Energy and Sustainable Development.
2017–present: Chairman of the Board
of Trustees at The Community College
of Qatar.
Representative of Qatar Investments
Authority.
Elected to Rosneft’s Board of Directors
in June 2019.

Holds no shares of Rosneft.

Born in 1958.
Graduated from Portland State Universi-
ty (USA) in 1981.
Between 1985 and 2018, he held the
following positions:
Head of the downstream business of
Qatar Petroleum;
Chief Executive Officer of Qatar Petro-
chemical Company (QAPCO);
Chairman of Qatar Shipping Company;
Chief Executive Officer of RasGas Com-
pany;
Member of the Board of Directors of
Qatar Petroleum and RasGas Company;
Member and Chairman of the Board of
Trustees of Qatar University.
2015–present: member of the Board
of Trustees at the Abdullah Bin Hamad

Hamad Rashid
AL-MOHANNADI
Member of the Strategic Planning
Committee

Changes to the composition of the Board of Directors in 2019.

In 2019, Ivan Glasenberg, CEO of Glencore International AG and Glencore plc,
retired from the Board of Directors.

Statement of Ivan Glasenberg, CEO of Glencore International AG
and Glencore plc:

It was a great pleasure to work with an esteemed and highly competent
team of Rosneft’s directors. I wish all the best to the Company, the Board,
and the employees.

Holds no shares of Rosneft.

Born in 1957.
Graduated from Wits University (South
Africa) in 1981 and University of South-
ern California (USA) in 1983.
2002–present: CEO of Glencore Inter-
national AG.
2011–present: CEO of Glencore plc.
2017–2019: Member of the Board of
Directors of Rosneft.

Ivan GLASENBERG

Directors' Attendance at Board and Committee Meetings in 2019

Board of Directors

Status (executive/
non-executive/
independent)

Attendance

Audit
Committee

HR
and Remuneration
Committee

Strategic
Planning
Committee

Director

Gerhard Schroeder

Igor Sechin

Matthias Warnig

Faisal Alsuwaidi

Andrey Belousov

Oleg Viyugin

Independent

Executive

Independent

Non-executive

Independent

Hamad Rashid Al-Mohannadi

Non-executive

Robert Dudley

Guillermo Quintero

Alexander Novak

Hans-Joerg Rudloff

Ivan Glasenberg 1

Non-executive

Independent

Non-executive

24/24

12/12

24/24

23/24

24/24

12/12

18/18

12/13

18/18

13/13

18/18

13/13

10/10

6/6

10/10

4/4

Note: the first number stands for the number of meetings attended by the director, the second number stands for the total number
of meetings they were entitled to attend.
For reference: Gerhard Schroeder, Chairman of the Board, and Igor Sechin, Matthias Warnig, Robert Dudley, Guillermo Quintero,
and Hans-Joerg Rudloff, directors, did not vote on a number of agenda items that could involve a potential legal and/or commercial con-
flict of interests.

Induction

To achieve effective use of the skills and
expertise of newly elected directors,
the Company ensures their prompt
onboarding in line with the established
induction procedure.

In 2019, Hamad Rashid Al-Mohannadi,
a representative of Qatar Investment
Authority, joined the Board of
Directors for the first time. The
Company's management explained the

confidentiality and insider information
requirements, and the procedure for
Mr Al-Mohannadi's participation in the
meetings of the Board of Directors
and its committees. It also promptly
introduced the newly elected director to
the Company’s day-to-day operations, its
strategy, corporate and organisational
structure, and corporate governance
practices.

The induction procedure for Board
members is described in Rosneft
Regulations on the Induction
of Rosneft Board Members.

Activities of the Board of Directors

In 2019, the Board of Directors held
24 meetings (4 in person and 20 in the
form of absentee voting) and considered
130 items (23 at in-person meeting and
107 at meetings held in the form of
absentee voting).

Matter considered

The Board
of Directors is governed
by the Regulations
on the Board
of Directors of Rosneft
Oil Company.

1 Resigned from the Board of Directors on 4 June 2019.

HR and Remuneration
Directives of the Russian
Government
Transactions
Corporate governance
Report reviews
Finance, business projects
Audit, risks
Approving/amending
internal regulations
Strategy items
Other

8
38
33
10
8
7

6
3
10

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Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019

Board Resolutions in Key Focus Areas

Review of the Rosneft–2022 Strategy
performance. The Board of Directors
noted achievement of the Strategy’s
goals for 2019.

Approval of Accounting Function
Development Strategy to 2024. It
sets out new priorities in improving the
efficiency of the Company's accounting
function, including higher quality of
services and customer focus of shared
services centre while keeping the cost of
services below or at the market level.

Review of the audit results for
Rosneft's Long-Term Development
Programme performance in 2018.

The Long-Term Development
Programme was updated to
reflect new strategic targets and its
performance in 2018.

Approval of the Company's
business plan for 2020–2021. Its
goal is to meet the key objectives of
the Rosneft–2022 Strategy, deliver on
hydrocarbon production targets while
maintaining opex and capex efficiency
leadership, strong HSE performance,
and a balanced financial position. The
Board of Directors took notice of the
preliminary results of the business plan
performance and normalisation in 2019.

External assessment of the
performance of the Board of
Directors and its committees with
Ernst & Young as an independent
consultant.

To ensure compliance with the
orders of the Russian President
and the Russian Government, the
following items were considered:
▪ informing relevant federal

executive bodies about the value
of procurement contracts signed
with defence companies for civilian
products for the fuel and energy
sector not included in the state
defence order;

▪ updating the long-term development

programme;

▪ import substitution of radiation,

chemical and biological protection
equipment;

▪ introduction of professional

standards in the Company’s activities;

▪ developing (updating) internal

documents regulating the KPIs and
remuneration of the Company’s top
management;

▪ improving procurement

management.

Approval of business projects to
develop Yurubcheno-Tokhomskoye
and Tagulskoye fields, Erginsky
licence area, the Russkoye and North
Komsomolskoye fields (PK1 formation).

Approval of the Succession Plan
for Directors and the Members
of the Management Board to
ensure succession in the Company’s
management bodies, preservation of the
best practices and consistency with the
Company’s development strategy.

Evaluation of the independent
directors against independence
criteria (Gerhard Schroeder, Matthias
Warnig, Oleg Viyugin and Hans-Joerg
Rudloff).

In 2019, the Board of Directors
conducted the first independent
assessment of its performance.

It was based on questionnaires
and individual interviews
with the Board members
and Corporate Secretary, as well
as on the analysis of publicly
available and internal documents,
meeting minutes and materials
of the Board of Directors and its
committees.

The consultant praised the Board’s
practices and presented a report
where it identified potential areas
for improvement.

In the report, the consultant noted:
▪ high qualifications of the Board

members;

▪ effective balance of power

between independent directors
and directors who represent
major shareholders;

▪ strong organisation of the Board

and committee meetings.

The procedure for assessing
the performance of the Board
of Directors is described in Rosneft
Oil Company's Regulation
on Evaluation of Rosneft Board
of Directors Performance.

The following documents and
criteria related to remuneration
were approved:
▪ performance indicators of Rosneft's

top managers for 2019;

▪ normalised KPIs of top managers for
the 2018 annual bonus calculation,
and their performance and bonus
amount for 2018.

Approval of amendments to the
terms of the mandate agreement
for maintaining the register of
Rosneft securities holders.

The Board of Directors approved
and reviewed around 100 related
party transactions.

Review of the progress of the Action
Plan to Improve the Performance of
Rosneft’s Board of Directors.

The following programmes and
reports were reviewed/approved:
▪ reports on the Board's committees

Review of the roadmap status for
incorporating the key provisions
of the Bank of Russia’s Code in the
Company’s operations.

The roadmap for incorporating
the key provisions of the Bank
of Russia’s Code in the Company’s
operations was completed.

The following internal documents
were approved/amended:
▪ Rosneft's Corporate Governance

Code;

▪ Policy on Offshore Hydrocarbon
Exploration and Production;

▪ Rosneft’s Procedure for Classifying

Group Subsidiaries as key
Subsidiaries;

▪ Procedure for Appointment and
Activities of Rosneft Board of
Directors Committees;

▪ Rosneft's Regulations on the

activities in 2018–2019;

▪ report on the progress of Energy
Saving Programme 2018–2022
in 2018;

▪ progress report on the Non-Core
Assets Disposal Programme in the
fourth quarter of 2018 and the first
three quarters of 2019;

▪ reports on related party transactions
entered into by Rosneft in 2018;
▪ reports on the Company's HSE

activities;

▪ report on the internal audit

performance in 2018 and first six
months of 2019;

▪ report on the Company’s compliance
with legislative requirements for
countering the abuse of insider
information and market manipulation
for the second half of 2018 and the
first six months of 2019;
▪ report on the Innovative

Development Programme progress
in 2018;

Induction of Rosneft Board Members;

▪ report on the status of the

Comprehensive Plan for the
Enhancement of the Risk
Management and Internal Control
System in 2018;

▪ report on Introducing Professional

Standards in the Company’s
Operations as of 1 November 2019;

▪ reporting on the identification
of company-wide financial and
operational risks for 2020.

▪ Rosneft’s Regulations on Internal
Control Rules for the Prevention,
Detection and Suppression of Illegal
Use of Insider Information in Rosneft
and/or Market Manipulation;
▪ Rosneft’s Regulations on Annual

Bonus to Top Managers and Heads
of Standalone Business Units;
▪ Rosneft’s Regulations on Annual
Bonus to Middle Managers,
Specialists and Employees of the
Company’s Head Office;

▪ Rosneft’s Regulations on Annual

Bonus to the CEO and Top Managers
of Rosneft Group Subsidiaries.

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Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019

Plans for 2020

The Board of Directors approves its
work plans and meeting schedule
semi-annually.

▪ results/updates of the Long-Term

Development Programme;

▪ approval of management’s collective

The work plan takes into account the
proposals of members of the Board,
executive bodies and top management,
and always includes the following
matters:
▪ oversight of the Strategy

performance;

▪ reviewing the business plans and

results;

and individual KPIs;

▪ assessment of the Board

performance;

▪ preparations for the General
Shareholders Meetings, etc.

The Board of Directors considers
strategic matters determined by the
Charter at in-person meetings.

The Company’s Corporate Governance
Code defines the list of additional issues
that the Board of Directors seeks to
consider in person.

The committees of the Board of
Directors plan their activities taking into
account the schedule of the Board of
Directors’ meetings.

Committees of the Board of Directors

The Board of Directors has three
committees:
▪ Audit Committee;
▪ HR and Remuneration Committee;
▪ Strategic Planning Committee.

The Board of Directors sets up the
committees and elects committee chairs
at the first in-person meeting.

The committees
are appointed
and perform
their functions
in accordance
with Procedure
for Formation and Work
of Rosneft Board
of Directors Committees

COMMITTEES OF THE BOARD OF DIRECTORS

Members of the Audit
Committee

Members of the HR
and Remuneration Committee

Members of the Strategic
Planning Committee

Hans-Joerg Rudloff – Chairman,
independent director

Matthias Warnig – Chairman,
independent director

Robert Dudley – Chairman

Matthias Warnig – independent
director

Hans-Joerg Rudloff – independent
director

Oleg Viyugin – independent director

Guillermo Quintero

Alexander Novak – Deputy Chairman

Faisal Alsuwaidi

Andrey Belousov

Oleg Viyugin – independent director

Hamad Rashid Al-Mohannadi 1.

1 Hamad Rashid Al-Mohannadi was elected to the Strategic Planning Committee on 4 June 2019.

Activities of the Board Committees

Audit Committee

Statement of Hans-Joerg Rudloff,
Chairman of the Audit Committee:

In 2019, the Company’s management improved control procedures,
risk management system, internal control and audit. The quality
of materials provided to the Board also gets better all the time.

In 2019, the Audit Committee
held 18 meetings (3 in person
and 15 in the form of absentee voting)
and considered 40 items (8 at in-person
meeting and 32 at meetings held
in the form of absentee voting).

The auditor’s fees for 2019 recommended to the General
Shareholders Meeting:
▪ audit of Rosneft’s RAS accounting (financial) statements –

RUB 7,200,000, including VAT;

▪ audit of Rosneft’s IFRS consolidated financial statements – up

to RUB 83,151,780, including VAT.

The activities of the Audit
Committee are governed
by Rosneft Regulation
on the Rosneft Board
of Directors Audit
Committee.

The external auditor’s actual remuneration for the audit of financial
statements and other services is disclosed on the Company’s website
in the Corporate governance – Internal control and audit – Company
auditor section.

Key resolutions

The Committee recommended that
the Board of Directors approves the
proposal to the General Shareholders
Meeting regarding the distribution of
the Company's profit for 2018, the
amount of dividends for 2018 and the
first six months of 2019, and the payout
procedure.

To ensure proper preparation of
accounting (financial) statement
and impartiality and independence
of the external audit, the Committee:
▪ reviews the consolidated financial

results, financial statements and the
relevant audit reports (on a quarterly
basis);

▪ recommended Ernst & Young as the
Company’s auditor and the amount
of the auditor’s fees.

To ensure efficiency of the risk
management and internal control
system, the Committee conducted
preliminary review of the following:

▪ report on the status of the

Comprehensive Plan for the
Enhancement of the Risk
Management and Internal Control
System in 2018 and on approval of
the Plan for 2019–2021;

▪ reporting on the company-wide
financial and operational risks
materialised in 2018;

▪ report on internal investigations
conducted by Rosneft in 2018;

▪ results of the survey on strategic risks

in 2019.

To ensure the impartiality and
independence of the internal audit,
the Committee reviewed:
▪ reports on the internal audit

performance in 2018 and first six
months of 2019;

▪ information on assessment and
monitoring of potential conflicts
of interest in case of the Head
of Internal Audit serving on the
Management Board (on a quarterly
basis).

In the area of corporate governance,
the Committee:
▪ reviewed and recommended for

approval amendments to Rosneft’s
Corporate Governance Code;
▪ reviewed Rosneft’s Regulations
on Internal Control Rules for
the Prevention, Detection and
Suppression of Illegal Use of Insider
Information in Rosneft and/or Market
Manipulation and recommended
it for approval by the Board of
Directors;

▪ analysed Rosneft’s Dividend Policy
against the global economic trends.

The matters related to financial
statements and information provided
by the auditor were first discussed
during conference calls between the
Committee members, management, and
representatives of internal and external
auditors.

214

215

Strategic Planning Committee

In 2019, the HR and Remuneration
Committee held 13 meetings
(1 in person and 12 in the form
of absentee voting) and considered
28 items (1 at an in-person meeting
and 27 at meetings held in the form
of absentee voting).

The activities
of the HR and Remuneration
Committee are governed
by Rosneft Regulations
on Human Resources
and Remuneration
Committee of Rosneft
Board of Directors.

Statement of Matthias Warnig,
Chairman of the HR and Remuneration Committee

The HR and Remuneration Committee and Corporate Secretary have
had the performance of the Board of Directors assessed for the first
time. The Company’s independent consultant, Ernst & Young, praised
strong organisation and high qualifications of the Board members,
as well as efficient administrative and information support pro-
vided to it. The Committee’s agenda for 2019 also included changes
to the Management Board’s composition as part of the scheduled
rotation. After performing an analysis of the necessary professional
skills, the Committee submitted recommendations to the Board
of Directors on new Management Board membership.

Key resolutions

To attract skilled talent to the
Company’s management and create
conditions for high performance, the
Committee:
▪ reviewed proposals regarding the
remuneration of the members of
the Board of Directors and Audit
Commission for 2018–2019, as well
as the compensation of the expenses
related to their functions;

▪ provided recommendations for

▪ results of external assessment

of the Board and its committees’
performance;

▪ report on introducing professional

standards in the Company’s
operations;

▪ action plan for introducing

professional standards in the
operations of Rosneft and Group
Subsidiaries.

appointments to the Management
Board;

▪ verified the compliance of candidates

To ensure sustainable development,
the Committee approved Rosneft’s
Sustainability Report for 20181.

Key matters related to the Committee
activities were discussed in person
and during conference calls attended
by the Committee members and the
Company’s management.

to the Board of Directors with
independence criteria.

To assess the performance of
the Company’s management and
governing bodies, the Committee
reviewed:
▪ top management's collective and
individual KPIs for 2019, their
normalised KPI performance criteria
for 2018, and the results considered
in the 2018 annual bonus calculation;

▪ Rosneft’s Regulations on Annual

Bonus to Top Managers and Heads
of Standalone Business Units,
Regulations on Annual Bonus to
Middle Managers, Specialists and
Employees of the Company’s Head
Office, and Regulations on Annual
Bonus to the CEO and Top Managers
of Rosneft Group Subsidiaries;

Statement of Robert Dudley,
Chairman of the Strategic Planning Committee

In 2019, the Strategic Planning Committee reviewed key matters
related to strategy performance, the Company’s long-term efficiency,
as well as strategic and business planning. We continued to focus
on HSE matters in line with the ESG approach, which we regard
as our priority.

To promote innovation, the
Committee:
▪ approved the Report on Innovative

Development Programme
performance in 2018.

When reviewing the key matters, the
Chairman and Committee members
consulted the Company’s management,
requested additional information and
received written and oral clarifications.

In 2019, the Strategic Planning
Committee held 10 meetings
(3 in person and 7 in the form
of absentee voting) and considered
21 items (8 at in-person meetings
and 13 at meetings held in the form
of absentee voting).

The activities
of the Strategic
Planning Committee
are governed
by Rosneft Regulation
on the Rosneft Board
of Directors Strategic
Planning Committee.

Key resolutions

To determine the Company’s
priorities, the Committee reviewed:
▪ status of the Rosneft–2022 Strategy;
▪ updated Long-Term Development

Programme;

▪ business plan for 2020–2021, as well
as the results of implementation and
normalisation of the business plan
for 2019.

To promote HSE initiatives, the
Committee approved:
▪ reports on the Company's HSE

activities;

▪ Policy on Offshore Hydrocarbon
Exploration and Production.

To run the Company's business
projects, the Committee
recommended that the Board of
Directors approves key metrics and
budgets for a number of business
projects.

1 The Report is available on the Company's official website.

216

217

ROSNEFT’S EXECUTIVE BODIES ARE:

Chief Executive Officer

Management Board

As per the Charter, the person
performing the functions of the sole
executive body and Chairman of
the Management Board is the Chief
Executive Officer.

Since 2012, the position of the Chief
Executive Officer has been held by Igor
Sechin. He manages the Company’s
day-to-day operations, formulates the
Management Board’s agenda, and chairs
the Board’s meetings.

The Management Board comprises
the heads of key business lines,
operation service and support function
segments of the Company. The size
of the Board totals 11 members. The
procedure for Management Board
formation, the rights, duties and liability
of Management Board members, and
proceedings of the Management Board
are governed by the Regulations on the
Collective Executive Body (Management
Board) of Rosneft.

The activities of the Company’s executive
bodies are governed by the Regulations
On the Sole Executive Body (Chief Executive
Officer) and Regulations on the Collective
Executive Body (Management Board) of Rosneft
Oil Company.

Changes in the Management Board
composition in 2019
Zeljko Runje, Management Board
member and First Vice President
for Oil, Gas, and Offshore Business
Development, was appointed Deputy
Chairman of the Management Board.

The two newly appointed members
of the Management Board are Ural
Latypov, Vice President – Head of
Security Service, and Andrey Polyakov,
Vice President – Chief Geologist.

Board
composition

as at 31 December 2019

Igor
SECHIN
Chairman of the Management Board,
Chief Executive Officer

Born in 1960.

In 1984, graduated from Leningrad State University. PhD
in Economics.

Holder of government and ministerial awards.

2000–2004: Deputy Head of the Russian Presidential Head
Office.

2004–2008: Deputy Head of the Russian Presidential Head
Office, Aide to the President.

2004–2011: Chairman of Rosneft’s Board of Directors.

2008–2012: Deputy Prime Minister of the Russian Federation.

From 2012: Chief Executive Officer, Chairman
of the Management Board, member of the Board of Directors
of Rosneft.

From 2013: Deputy Chairman of Rosneft’s Board of Directors.

Holds positions in various non-profits and takes part in social,
scientific, sport and education development (for the full
list of positions in non-profit organisations, see the Board
of Directors section).

Holds 13,489,350 shares of Rosneft (0.1273%
of the Company’s charter capital).

218

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Strategy of the CompanyOperating ResultsMarket Overview and Competitive LandscapeSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019Zeljko
RUNJE

Deputy Chairman
of the Management Board,
First Vice President for Oil,
Gas, and Offshore Business
Development

Eric Maurice
LIRON

Vice President
for In-House Services
of Rosneft

Gennady
BUKAEV

Vice President, Head
of Internal Audit

Didier
CASIMIRO

Vice President
for Refining,
Petrochemical,
Commerce
and Logistics

Born in 1954.

Born in 1947.

Born in 1966.

Graduated with honours from the University of Alaska in 1979.

Holder of government awards.

1979–1993: held various management positions in Arctic
Alaska drilling and production projects.

1993–1997: worked on oil projects in Yemen, Algeria, Australia,
Thailand, Japan, Angola, Azerbaijan and Turkmenistan.

1997–2012: held various executive positions in the Sakhalin-1
project in his capacity as Vice President of ExxonMobil
Russia Inc.

2012–2019: Vice President of Rosneft for Offshore Projects.

From December 2019: First Vice President for Oil, Gas,
and Offshore Business Development of Rosneft.

Member of Rosneft’s Management Board since 2012.

Chairman of the Supervisory Board at PJSC Rosneft-Sakhalin,
Chairman of the board of directors at LLC RN-Foreign Projects
and JSC RN-Shelf-Far East, member of the Board of Directors
at PJSOC Bashneft, CJSC Rosshelf, JSC FESRC, LLC RN-GAZ,
and LLC RN-Commerce.

Holds 377,318 shares of Rosneft (0.0036% of the Company’s
charter capital).

Graduated from the School of Radio Engineering, Electronics
and Computer Science (Paris, France) in 1980.

1980–2000: held various executive positions at Schlumberger
managing complex projects in the Middle East, Africa,
and the Asia-Pacific Region.

2000–2005: Manager of Complex Projects in Russia, managing
the oilfield services project for Sibneft at Schlumberger Oilfield
Services (Russia).

2006–2013: held various executive positions at TNK-BP
Management, was Vice President of the Wells Division.

2013–2019: First Vice President of Rosneft overseeing the pro-
duction business.

From December 2019: Vice President for In-House Services
at Rosneft.

Member of Rosneft’s Management Board since 2013.

Chairman of the Boards of Directors
at JSC Verkhnechonskneftegaz, LLC RN-Upstream, OJSC NGK
Slavneft, LLC RN-GAZ, LLC RN-Resource, and LLC RN-Foreign
Projects.

Holds 543,804 shares of Rosneft (0.0051% of the Company’s
charter capital).

Graduated from Ufa State Oil Technical University in 1971. PhD
in Economics.

Holder of government and ministerial awards.

2000–2004: Minister of the Russian Federation for Taxes
and Levies.

2004–2012: Assistant to the Prime Minister of the Russian
Federation.

2012–2013: Advisor to the President of the Republic
of Bashkortostan.

From 2013: Advisor to the President of Rosneft.

Graduated with distinction from Ghent University (Belgium)
in 1991, and from Ghent University (Belgium) / Lisbon
University (Portugal) in 1992.

1996–2005: held executive positions at BP.

2005–2012: held executive positions at TNK-BP.

From May 2012: Vice President of Rosneft.

From March 2013: Vice President for Commerce
and Logistics at Rosneft.

From January 2015: Vice President for Refining,
Petrochemical, Commerce and Logistics at Rosneft.

From March 2015: Head of Internal Audit at Rosneft.

Member of Rosneft’s Management Board since 2012.

Chairman of the Board of Directors at PJSC Saratov
Refinery, Rosneft – MP Nefteprodukt, CJSC Rosneft-Armenia,
LLC RN-Yerevan, LLC RN-Commerce, LLC RN-Refining,
Chairman of the Supervisory Board at PRJSC LINIK, mem-
ber of the Board of Directors at OJSC NGK Slavneft,
PJSC Slavneft-YANOS, Rosneft Global Trade S.A., JSC SPIMEX,
PJSOC Bashneft, LLC RN-Foreign Projects.

Holds 457,598 shares of Rosneft (0.0043% of the Company’s
charter capital).

From June 2016: Vice President – Head of Internal Audit
at Rosneft.

Member of Rosneft’s Management Board since 2016.

General Director, member of the Board of Directors
at JSC ROSNEFTEGAZ, member of the Board of Directors
at PJSOC Bashneft, Chairman of the Supervisory Board
of Gubkin National University of Oil and Gas, Chairman
of the Audit Commission of PJSC Inter RAO and Internet
Initiatives Development Fund, member of the Audit
Commission of Agency for Strategic Initiatives to Promote New
Projects, member of the Club Council at Autonomous Non-
Profit Organisation Hockey Club Salavat Yulaev.

Holds no shares of Rosneft.

Gennady Bukaev is not authorised to participate in vot-
ing on matters within the Management Board’s competence
related to the Company’s operations, which may potentially be
objects of audit / managerial decisions with regard to audited
entities (subject to Board of Directors review).

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221

Yuri
KURILIN

Vice President, Chief
of Staff of Rosneft

Elena
ZAVALEEVA

State Secretary, Vice
President

Peter
LAZAREV

Financial Director

Andrey
SHISHKIN

Vice President
for Informatisation,
Innovation
and Localisation

Born in 1972.

Born in 1981.

Born in 1967.

Born in 1959.

Graduated from Lomonosov Moscow State University
in 1994 and from California State University (Hayward)
with an MBA degree in 1998.

2003–2008: Head of Head Office of the Office
of the President and Chief Executive Officer, Head
of the Office of the President at TNK-BP Management.

2008–2011: Commercial Director at BP Group companies.

2011–2014: worked in procurement performance planning
and management at BP America (Houston, USA).

2014–2017: Director for Corporate Affairs and Interaction
with Business Partners at BP Exploration Operating
Company Ltd. (UK), Moscow Branch.

March 2017–present: Vice President, Chief of Staff
of Rosneft.

Member of Rosneft’s Management Board since 2017.

Member of the Supervisory Board at RRDB Bank (JSC),
member of the Boards of Directors at LLC RN-GAZ,
LLC RN-Upstream.

Holds no shares of Rosneft.

Graduated from the Moscow State Social University
of the Ministry of Labour and Social Development in 2003,
majoring in Legal.

Holder of government awards.

Works at Rosneft since 2008.

2013–2017: held a number of positions, includ-
ing Deputy Director – Head of Federal Authorities
Relations of the Government and Management Relations
Department; First Deputy Director of the Government
and Management Relations Department, Acting Director
of the Department, Director of the Government
and Management Relations Department.

From September 2017: State Secretary, Vice President
of Rosneft.

Member of Rosneft’s Management Board since 2018.

Chairwoman of the Board of Directors at LLC Reestr-RN,
member of the Boards of Directors at PJSOC Bashneft,
LLC RN-Refining, LLC RN-Upstream.

Holds 6,250 shares of Rosneft (0.00006% of the Company’s
charter capital).

Graduated from the Plekhanov Moscow Institute of National
Economy in 1990.

1990–1993: held various positions at the Soviet Ministry
of Finance and the Russian Ministry of Economy and Finance.

1993–1995: held various positions in the Office of Securities
of the International Joint-Stock Bank of Savings Banks.

1995–1996: member of the Management Board, Head
of the Office of Securities of the International Joint-Stock Bank
of Savings Banks.

Graduated from the Gubkin Moscow Institute of the Petrochemical
and Gas Industry in 1985, from Financial Academy under the Government
of the Russian Federation in 1996, and from Moscow International Higher
Business School MIRBIS in 2002.

Holder of government and ministerial awards.

1992–2005: held executive positions in various credit and finance
organisations.

2005–2010: General Director of OJSC Ural Energy Management Company,
OJSC TGK-10, OJSC Tyumen Energy Selling Company.

1996–1999: held senior positions in ACB Center, CJSC Finance
Company Finko Investment and Russian Industrial Bank.

2008–2009: First Vice President of OJSC Integrated Energy Systems (IES
Holding).

2000–2004: Head of the Promissory Note and Investment
Programmes in the Finance Department of Rosneft, Deputy
Departmental Director, Head of Securities in the Finance
Department.

2004–2012: Head of Treasury at Rosneft.

February 2013 – present: Financial Director of Rosneft.

Member of Rosneft’s Management Board since 2011.

Chairman of the Board of Directors at LLC RN-Resource,
Deputy Chairman of the Board of Directors at JSC DSRC,
member of the Boards of Directors at PJSC NC Rosneft –
МP Nefteproduct, JSC FESRC, JSC TEK-Torg, LLC RN-Upstream,
LLC RN-Commerce, LLC RN-Assets, LLC RN-Foreign Projects,
General Director at LLC RN-Foreign Projects, JSC RN Holding,
Executive Financial Director at JSC RN Management.

Holds 448,066 shares of Rosneft (0.0042% of the Company’s
charter capital).

2010–2012: Deputy Minister of Energy of the Russian Federation.

From July 2012: Vice President of Rosneft.

From March 2013: Vice President of Rosneft for Energy, Health, Safety
and Environment.

From August 2014: Vice President of Rosneft for Energy and Localisation.

From April 2016: Vice President of Rosneft for Energy, Localisation
and Innovation.

From November 2019: Vice President of Rosneft for Informatisation,
Innovation and Localisation.

Member of Rosneft’s Management Board since 2015.

Chairman of the Board of Directors at JSC FESRC, JSC 82 SRF, LLC Zvezda-
Hyundai, JSC Lazurit CDB, PJSC Ufaorgsintez, LLC Zvezda-SHI, Deputy
Chairman of the Board of Directors at PJSOC Bashneft, member
of the Boards of Directors at RIG Research Pte. Ltd., PJSC RusHydro,
JSC USC, LLC SNGT, LLC Zvezda Marine Technology, Antares Singapore
Pte. Ltd., LLC RN-Assets, LLC RN-Upstream, LLC RN-Commerce,
LLC RN-Refining, OJSC SPA Burovaya Technika, General Director
at LLC RN-Assets, member of the Supervisory Board at NATT, member
of the Board of Trustees at Gubkin National University of Oil and Gas.

Holds 377,114 shares of Rosneft (0.0036% of the Company’s charter
capital).

222

223

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT
ANNUAL REPORT 2019

Ural
LATYPOV

Vice President, Head
of Security Service
of Rosneft

Andrey
POLYAKOV

Vice President – Chief
Geologist of Rosneft

Born in 1972.

Born in 1976.

Graduated from the Bashkir State University in 1997.

Graduated from Lomonosov Moscow State University in 2002.

1996–2016: employee of law enforcement agencies.

2016–2019: Deputy Head of Security Service of Rosneft,
Acting Vice President – Head of Security Service of Rosneft.

From June 2019: Vice President – Head of Security Service
of Rosneft.

Member of Rosneft’s Management Board since 2019.

Member of the Board of Directors of PJSOC Bashneft,
SLAVNEFT.

Holds no shares of Rosneft.

2002–2004: Geologist, Chief Geologist, Geological Group
Leader at CJSC Modelling and Monitoring of Geological Objects.

2004–2005: Senior Specialist, Geology and Geophysics Section,
EP Analysis and Forecast Centre, CJSC YUKOS Exploration &
Production.

2005–2013: Deputy Director, Director of the Corporate
Research and Development Centre, Division of Scientific
and Technical Development and Innovation, Department
of Exploration and Licensing, Department of Resource Base
and Reserves, Audit Department, Rosneft.

2013–2017: Division Head, Deputy Director, Director
of the Exploration and Licensing Department, Vice President
for Subsurface and Reservoir Management, JSC Independent
Oil and Gas Company.

2017–2019: Vice President for Subsurface and Reservoir
Management, JSC Neftegazholding.

From December 2019: Vice President – Chief Geologist
of Rosneft.

Member of Rosneft’s Management Board since 2019.

Does not hold positions in governance and control bodies
of other organisations.

Holds 147 shares of Rosneft (0.000001% of the Company’s
charter capital).

224

Chairman of the Management Board Yuri Kalinin and Board member Vlada Rusakova
have retired and left office.

Age Diversity on the Management
Board

Yuri KALININ
Born in 1946.

Graduated from the Saratov Institute
of Law in 1979.

Holder of government and ministerial
awards.

1998–2004: Deputy Minister of Justice
of the Russian Federation.

2004–2009: Director of the Federal
Penitentiary Service (FPS) of Russia.

2009–2010: Deputy Minister of Justice
of the Russian Federation.

2010–2012: representative
of the Penza Region Legislative Assembly
in the Federation Council of the Federal
Assembly of the Russian Federation.

2012–2019: Vice President for HR
and Social Policy of Rosneft.

2013–2019: member
of the Management Board of Rosneft,
Deputy Chairman of the Management
Board of Rosneft.

January 2020–present: Assistant
to the Chief Executive Officer of Rosneft.

Holds 203,916 shares of Rosneft
(0.0019% of the Company’s charter
capital).

persons

Under 45 years
46–55 years
56–65 years
66 or over

2
4
4
1

Gender Diversity on the Management
Board

Vlada RUSAKOVA
Born in 1953.

Graduated from and completed
a post-graduate programme
at the Gubkin Moscow Institute
of the Petrochemical and Gas Industry
in 1977 and 1984 respectively.

Holder of government and ministerial
awards.

1998–2003: Head of the Prospective
Development Forecasts Directorate
at the Prospective Development,
Science and Ecology Department
of PJSC Gazprom.

2003–2012: Head of the Prospective
Development, Science and Ecology
Department, Head of the Strategic
Development Department, Head
of the Prospective Development
Department of PJSC Gazprom.

2013–2019: Vice President of Rosneft
in charge of the gas business.

2017–2019: member of Rosneft’s
Management Board.

Holds 4,071 shares of Rosneft (0.00004%
of the Company’s charter capital).

Men
Women

91 %
9 %

Management Board Tenure

Management Board member

Membership start date

Igor Sechin

Zeljko Runje

Eric Maurice Liron

Gennady Bukaev

Didier Casimiro

Yuri Kurilin

Petr Lazarev

Elena Zavaleeva

Andrey Shishkin

Ural Latypov

Andrey Polyakov

2012

2013

2016

2012

2017

2011

2018

2015

2019

The members of the Management
Board know Russian, English, French,
German, Spanish, Portugal, Dutch
and Croatian.

Period

7 years

6 years

3 years

7 years

2 years

8 years

1 year

4 years

Less than a year

225

195

158

163

159

2016

2017

2018

2019

Meetings held
Matters reviewed

regulations, including new versions of
internal regulations on:
– information technologies;
– insurance of corporate risks;
– staff skill assessment and

– Company’s coordinating and
consultative bodies activities;

– managing the internal audit

function, etc.;

▪ reviewed results of the Company

development;

– planning of the best distribution
of hydrocarbons, oil and gas
and petrochemical products,
preparing their production plans;

– offshore asset and project

management;

management activities for 2018 and
approved KPIs for heads of Rosneft
business units and heads of key
Group Subsidiaries for 2019;

▪ approved nominees to the boards of
directors and executive bodies of key
Group Subsidiaries.

Management Board’s Activities in 2019

In 2019, the Management Board held
57 meetings, reviewed 159 matters
and adopted a number of decisions,
including the following:
▪ approved establishing a corporate

entity for Vostok Oil project;

▪ approved works to develop a retail

distribution network of compressed
natural gas to be used as motor fuel,
which Rosneft views as one of its key
priorities;

▪ approved the acquisition of a

100% stake in Petersburg Fuel
Company;

– 73 transactions for oil and oil
products deliveries to foreign
and domestic markets, supply
of gas, proppant, refining of oil,
petroleum and other hydrocarbon
feedstock, sale of hydrocarbons,
oil sale consignment services, gas
sale agent services, etc.;
– seven charity transactions;

▪ approved amendments to

22 transactions for oil and petroleum
products deliveries, well drilling,
construction and installation
operations, etc.;

▪ approved three field development

▪ liquidated / reorganised four Group

Subsidiaries as part of the Company’s
corporate structure optimisation;
▪ approved Rosneft's participation /
termination of participation (direct
and indirect) in 22 profit and two
non-profit organisations;

▪ approved the Company’s internal

and construction business projects;

▪ approved internal regulations on
the procedures of the Company’s
collective/consultative bodies:
Business Continuity Commission,
Commission on Energy Efficiency,
Metrology Board, Command
Staff of Civil Defense, Evacuation
Commission, Residential Mortgage
Commission, Commission for
Critical Information Infrastructure
Categorisation, etc.;

▪ approved Rosneft’s organisational

structure (as amended);
▪ approved entering into:

– two transactions for increasing
business projects’ profitability;

Management Board Work Planning

The Management Board prepares its
work plans quarterly taking into account
the Board of Directors’ resolutions and
proposals of the Board members, top
managers and heads of functional units,
including the following matters:
▪ implementation of business projects,
investment programmes, entering
into transactions / amending
transaction terms, including non-core
assets and real estate transactions;
▪ overseeing the priority areas of the

Company’s business;

▪ Rosneft's participation / termination
of participation in profit and non-
profit organisations;

▪ winding up and reorganisation of the

Group Subsidiaries;

▪ appointment and termination of the
sole executive body and members of
the collective executive bodies of the
Group Subsidiaries.

In 2020, the Management Board will
continue implementing the Company's
Development Strategy in accordance
with the Board of Directors’ resolutions.

Corporate Secretary

Since 2014, the Corporate Secretary has
been Corporate Governance Director
Svetlana Gritskevich1.

The Corporate Secretary’s function is
supported by the Company’s separate
business unit – Corporate Governance
Department.

The Corporate Secretary is functionally
accountable to the Board of Directors,
appointed and dismissed by the CEO
on the basis of the Board of Directors’
resolution.

Key functions:
▪ improving the corporate governance

system;

▪ arranging and holding general

▪ Managing the compliance with

regulatory and internal requirements
for countering the illegal use of
insider information;

shareholders’ meetings;

▪ managing the compliance with

▪ supporting the activities of the Board
of Directors and its committees,
acting as the Management Board
Secretary;

▪ preventing corporate conflicts;
▪ facilitating the exercise of

shareholders' rights;

▪ implementing the disclosure policy;

regulatory and internal requirements
for countering the illegal use of
insider information;

▪ communicating with the registrar,
the government bodies and the
corporate relations and securities
market regulatory authorities;

The Corporate
Secretary’s activities
are governed
by the Regulation
On the Corporate
Secretary.

The Corporate Governance analytical information system was put into
operation in 2019.

The Company automated the control rules for prevention, detection
and suppression of illegal use of Rosneft’s insider information.

Shareholders gained access to personal accounts – a handy tool to obtain
relevant personal accounts data and to exercise rights under Rosneft
securities online.

The use of advanced information technology in automating the corporate
governance processes allows enhancing the Corporate Secretary’s work
efficiency for protection and exercise of shareholders’ rights.

Born in 1974.

Graduated from the Institute of Modern
Knowledge, Belarus State University
(Minsk, Belarus) in 1996 and the Russian
Presidential Academy of Public Head
Office in 2011.

Has an MBA degree (Moscow
International Business School, 2011),
extensive corporate governance
experience (since 1998) and expertise
in fuel and energy companies’ business
(since 1996), as well as managerial
experience (since 2003) and experience
of working as a Board member in a
number of joint stock companies.

Rosneft's Corporate Governance
Department Director since 2013.

Member of the Moscow Exchange Share
Issuers Committee.

Holds 393 shares of Rosneft (0.000004%
of the Company’s charter capital).

Winner of the Corporate
Governance Director / Corporate
Secretary 2019 category
of the Director of the Year national
award held by the Independent
Directors Association
and the Russian Union
of Industrialists and Entrepreneurs
jointly with PwC.

Svetlana
GRITSKEVICH

1 Resolution of Rosneft’s Board of Directors dated 28 April 2014 (Minutes No. 34 of 5 May 2014).

226

227

In 2015, the Board of Directors approved Rosneft’s Regulations on Remunerations
and Compensations Payable to Members of the Board of Directors drawing
on the recommendations of the Bank of Russia’s Corporate Governance
Code which lists all types and terms of payments to directors, thus ensuring
a transparent remuneration process.

Since 2015, the Company has been
paying the following amounts to
members of its Board of Directors as
fixed remuneration and additional
compensation:
▪ fixed remuneration payable to each
Board member and amounting to
USD 500,000;

▪ additional compensation payable for:
– chairing the Board of Directors
and amounting to USD 100,000;

– membership in the Board

committees and amounting to
USD 30,000;

– chairing the Board committees
and amounting to USD 50,000.

The remuneration is payable to directors
pro rata to the time served and
performance of additional duties.

Rosneft’s Regulations
on Remunerations
and Compensations
Payable to Members
of the Board of Directors
sets out amounts
payable to directors
as fixed remuneration
and additional
compensation.

Total remuneration payable
to members of the Board of Directors
over time

Before the increase
in quantity

After the increase
in quantity

4 000

3 500

3 000

2 500

2 000

1 500

1 000

500

3,385

3,380

2,270 2,270

2015–
2016

2016–
2017

2017–
2018

2018–
2019

Total remuneration, USD
Number of directors
(including paid directors)
Average pay per director

The total remuneration paid to
members of the Board of Directors for
2017–2018 corporate year rose after the
membership of the Board of Directors
increased from nine to eleven directors.
Though, the average pay per director
remained flat at USD 565,000.

On 4 June 2019, the Annual General
Shareholders Meeting acting on the
recommendation of the Board of
Directors, pre-approved by the HR and
Remuneration Committee, resolved to
pay the following amounts to members
of its Board of Directors pro rata to the
time served:
▪ Gerhard Schroeder – USD 600,000

(including compensation for chairing
the Board of Directors);

▪ Faisal Alsuwaidi – USD 530,000
(including compensation for
membership in the Strategic Planning
Committee);

▪ Matthias Warnig – USD 580,000
(including compensation for
chairing the HR and Remuneration
Committee and membership in the
Audit Committee);

▪ Oleg Viyugin – USD 560,000
(including compensation for
membership in the Strategic
Planning Committee and the Audit
Committee);

▪ Ivan Glasenberg – USD 530,000
(including compensation for
membership in the Strategic Planning
Committee);

▪ Hans-Joerg Rudloff – USD 580,000

(including compensation for
chairing the Audit Committee
and membership in the HR and
Remuneration Committee).

No remuneration for 2018–2019
corporate year was paid to Andrey
Belousov, Robert Dudley, Guillermo
Quintero, Alexander Novak, Igor Sechin.

The total remuneration paid to
members of the Board of Directors for
2018–2019 corporate year amounted to
USD 3,380,000.

Remuneration
of the Management

The existing complex incentive system for the top management is described
in Rosneft’s Standard for Rewards and Compensations to Top Managers
and ensures their focus on results and commitment to achieving the Company’s
strategic goals.

INCENTIVE SYSTEM

cash remuneration

fringe benefits

non-financial incentives

Top managers’ remuneration depends
on the Company’s performance and
implementation of major projects,
provided that team-based and individual
key performance indicators (KPIs) are
met.

The KPIs, actual performance and annual
bonuses are approved by the Board
of Directors on an annual basis with
input from the HR and Remuneration
Committee.

The KPI framework and its integration
with the Company’s Strategy are detailed
in Section Company KPIs of this Report.

No loans or borrowings were issued to
members of the Board of Directors and
the Management Board in the reporting
year.

Total remuneration payable
to members of the Management
Board, RUB mln

The total remuneration paid to
members of the Management Board in
2019 amounted to RUB 3.57 bln1, down
by 7.4% year-on-year.

Since 2017, the total remuneration
payable to members of the
Management Board went down by
9%, or RUB 357 mln.

3,927

3,854

3,570

2017

2018

2019

1 Information on remuneration and reimbursement of expenses paid to the collective executive body (the Management Board) in 2018 was
published on 5 February 2019 in accordance with the Russian regulatory requirements for information disclosure by issuers of issue-grade
securities as part of Rosneft’s Quarterly Report for Q4 2018.

228

229

In accordance with the internal
regulations, members of the
Management Board and the Chief
Executive Officer:
▪ shall refrain from any actions that
may cause a conflict of interest
and, should such a conflict arise,
immediately notify the Chairman
of the Management Board / the
Chairman of the Board of Directors
and/or the Corporate Secretary;
▪ while in office, may not hold and/or

control 20 or more percent of voting
shares (interests or stakes) in any
entity competing with the Company
or having any business interest
in maintaining relations with the
Company;

▪ may not accept any gifts from

persons interested in resolutions
passed as part of their duties or
otherwise benefit from such persons.

The Board of Directors reviews,
on a quarterly basis, information
on assessment and monitoring
of potential conflicts of interest
in case of the Head of Internal
Audit serving on the Management
Board and considers the Company’s
efforts to minimise this risk
as adequate.

Top Managers
and Employees

The rules for the avoidance and
prevention of conflicts of interest are
governed by the Code of Business
and Corporate Ethics which defines
the terms “conflict of interest” and
“corruption” and sets out the procedure
for preventing corporate fraud. The
Company’s Council for Business Ethics
also contributes to managing conflicts of
interest.

The rules for the avoidance and
prevention of conflicts of interest are
set forth in the Corporate Governance
Code, the Code of Business and
Corporate Ethics, and the Regulations on
Managing Conflicts of Interest in Rosneft
and Group Subsidiaries.

Special rules for the prevention of
corporate fraud are laid down in
the Company’s Policy on Combating
Corporate Fraud and Involvement
in Corruption Activities. This Policy
establishes the key principles and the
organisational structure for combating
corporate fraud, monitoring procedures,
and anti-corruption training for the
employees, including response protocols
in case of threatened violation of anti-
corruption rules.

Special rules aiming to prevent the
securities market manipulation and the
illegal use of insider information are
laid down in Rosneft’s Regulations on
Internal Control Rules for the Prevention,
Detection and Suppression of Illegal
Use of Insider Information in Rosneft,
which determine the rules for disclosing
insider information and the rules for
conducting transactions in financial
instruments by persons included in the
insider list.

Special rules for the prevention
of corporate fraud are governed
by the Company’s Policy
on Combating Corporate Fraud
and Involvement in Corruption
Activities.

Civil Liability for the Members of the Board
of Directors and the Management

The liability of members of the
Board of Directors, executive bodies,
employees of the Company and all the
Group Subsidiaries is insured by the
contract signed with SOGAZ in 2017
and approved by the Annual General
Shareholders Meeting.

This third-party liability insurance policy covers all possible risks during the reporting
year with a total liability limit of USD 150 mln.

Additional liability limits apply to:
▪ all independent directors capped at USD 6 mln and each independent director

capped at USD 1 mln;

▪ protection against environmental pollution capped at USD 2.5 mln and

environmental management capped at USD 5 mln.

Managing Possible Conflicts of Interest

Possible conflicts of interest are addressed at all corporate
governance levels.

Shareholders

For the avoidance of any potential
conflicts among its shareholders, the
Company provides equal opportunities
for exercising shareholder rights
established by the applicable laws.

The Corporate Secretary is responsible
for shareholder relations of the
Company and also contributes to
preventing corporate conflicts. The
Corporate Secretary has to promptly
notify the Board of Directors of any
threatened violation of the applicable
laws or shareholder rights and any
possible conflicts of interest. The
Company manages shareholder
relations, including shareholders’
requests for explanation.

Board of Directors

The Board of Directors is responsible
for managing any conflicts of interest in
the Company. The Charter sets out the
procedure for considering interested-
party transactions by the Board of

Directors. The Regulations on the Board
of Directors determine the duties of
Board members related to prevention
and management of any conflicts of
interest.

When considering agenda items,
members of the Board of Directors
assess potential conflict between their
interests and those of the Company.
With respect to any issue that may, in
the opinion of a Board member, result
in such a conflict of interest, the director
shall not participate in voting and, where
necessary, in the discussion of such
issue. Board members must report any
actual/potential conflicts of interest to
the Chairman of the Board of Directors
or the Corporate Secretary.

For the avoidance of any potential
conflicts among the Company’s
employees, the Board of Directors
introduced rules for conducting
transactions in financial instruments by
persons included in the insider list and
rules for disclosing insider information,
and monitors compliance on a regular
basis.

Rosneft’s Regulations
on Internal Control
Rules for the Prevention,
Detection and Suppression
of Illegal Use
of Insider Information
in Rosneft and/or Market
Manipulation.

The Corporate Secretary,
Svetlana Gritskevich, is in charge
of compliance with regulatory
and internal requirements
for countering the illegal use
of insider information.

230

231

1 In accordance with the Guidelines on Prosecution of Officers for the Failure to Prevent and/or Manage a Conflict of Interest developed

by the Russian Ministry of Labour in pursuance of Clause 10 of the National Anti-Corruption Plan.

In 2019, Rosneft continued to focus on
countering corruption and corporate
fraud and ensuring compliance by the
Company’s employees with international
and Russian anti-corruption laws, and its
internal regulations.

Rosneft was consistently improving its
framework for building anti-corruption
elements of the corporate culture and
organisational structure, as well as rules
and procedures intended to prevent
corporate fraud and corruption and
mitigate reputational risks and risks
of sanctions for bribery that might be
imposed on the Company.

To this end, Rosneft’s Council for
Business Ethics put together and
introduced the Comprehensive Anti-
Fraud and Anti-Corruption Programme
for 2019–20201. In 2019, programme
activities included:
▪ adopting Rosneft’s Guidelines on
Prosecution of the Company’s
Officers/Employees for the Failure to
Prevent and/or Manage a Conflict of
Interest2;

▪ drafting and communicating to all
employees the Concise Guide to
Compliance, including anti-fraud and
anti-corruption provisions governing,
inter alia, exchange of business gifts
and hospitality;

▪ arranging for and collecting ethical
declarations, analysing them and
doing selective fact-checking.
Rosneft’s Council for Business Ethics
approved3 the outputs;

▪ quarterly updating the Company’s
employees on typical violations of
anti-fraud and anti-corruption rules
(including management of conflicts of
interest);

▪ drafting recommendations on anti-

fraud and anti-corruption measures

and communicating the same to
the Group Subsidiaries and joint
ventures;

▪ conducting 405 anti-corruption audits

of draft internal regulations and
implementation documents;

▪ publishing the All about Compliance
information bulletin (quarterly) and
an article devoted to the International
Anti-Corruption Day;

▪ arranging for and conducting an
employee survey on combating
corporate fraud and involvement in
corruption activities;

▪ developing and launching the new

distance learning course – Business
Ethics Compliance: Corporate Gifts
and Hospitality;

▪ developing and implementing
the Company’s Regulations on
Coordinating Anti-Fraud and Anti-
Corruption Processes, including the
following procedures:
– assessment of corporate fraud

and corruption risks;

– protection of whistleblowers;
– reporting of suspected corporate

frauds or corruption and
investigations;

– training and communications in
combating corporate fraud and
corruption;

– monitoring and control of anti-
fraud and anti-corruption
processes.

In pursuance of Clause 22 and
Subclause b of Clause 28 of the National
Anti-Corruption Plan, the Company
continued to provide anti-corruption
training to its employees, including newly
hired staff.

including members of the Board of
Directors / supervisory boards of the
Group Subsidiaries. The Company held
in-person trainings for representatives
of overseas Group Subsidiaries in Anti-
Corruption Compliance: Managing
Conflicts of Interest in the context of
local anti-corruption laws.

In the reporting year, the Company kept
on updating the Executive Office of the
Russian Government on its progress
towards Instruction of the Russian
Government No. DM-P17-4575 dated
23 July 2018 on the implementation of
the National Anti-Corruption Plan for
2018–2020 approved by Presidential
Executive Order No. 378 dated
29 June 2018 (5 July 2019, 18 July 2019,
22 November 2019, 25 November 2019,
2 December 2019).

The Company attended the Participation
of Organisations in Combating
Corruption conference held by the
Prosecutor General’s Office and the
Ministry of Labour and Social Protection
of the Russian Federation which focused
on anti-corruption law enforcement
practices by organisations tasked with
supporting federal executive authorities.

The Company has in place the Code
of Business and Corporate Ethics (the
Code) and the Policy on Combating
Corporate Fraud and Involvement
in Corruption Activities (the Policy),
both approved by Rosneft’s Board of
Directors, which outline Company-wide
principles and approaches aiming to
ensure compliance with anti-corruption
requirements.

The Company’s in-house coaches held
in-person trainings in Managing Conflicts
of Interest for heads of business units,

The Code reflects the Company’s culture,
while underlining its commitment to the
highest standards of business ethics

THE CORRUPTION CONTROL
SECTION ON THE OFFICIAL
CORPORATE WEBSITE HAS:

▪ the Company’s statement
on its zero tolerance
for corruption;
▪ key provisions
of international
and Russian anti-
corruption laws;
▪ internal corruption
control regulations
of the Company (Rosneft’s
Code of Business
and Corporate Ethics
and Policy on Combating
Corporate Fraud
and Involvement
in Corruption Activities);
▪ Security Hotline contact

details;
▪ information

on cooperation with law
enforcement authorities.

Corruption Control
section

and imposing the responsibility for
compliance with ethical standards on
all employees regardless of their status
and position. The Code explains the key
terms on how to manage conflicts of
interest and exchange corporate gifts.

The Policy imposes the responsibility
on all employees and members of the
Company’s governing bodies, regardless
of their position, for compliance
with anti-corruption principles and
requirements as well as for actions
(omissions) of their subordinates. The
Policy also requires employees to report
any inducement to corruption offences
to the authorised officers and functions.

The Company also has in place
the Regulations on Managing
Conflicts of Interest in Rosneft and
Group Subsidiaries which set out
a framework to classify conflicts of
interest, including conflicts of interest
between shareholders and members
of the Company’s governing bodies
(e.g. decisions made by corporate
governing bodies that might adversely
affect the Company’s financial and
operating performance; the Company
failing to make a statutory disclosure
or members of corporate governing
bodies underreporting on their positions
in governing bodies of other entities,
on interests (stakes) held in other
entities, or other information required
to be disclosed by the applicable laws,
the Company’s Charter or internal
regulations).

The Company has set up conflict of
interest commissions.

The Company makes organisational
arrangements to meet the requirements
for hiring former government officials,

collect and verify information on
income, property, and property-related
obligations for certain categories of
employees; enhance the commitment
of the Company’s management to
preventing corruption, including conflicts
of interest, by adding relevant provisions
into employment contracts, and
amending employee job descriptions
with provisions on liability for failure
to comply with anti-fraud and anti-
corruption requirements of the
Company’s internal regulations.

The Company operates a 24/7 Security
Hotline to report on cases of corporate
fraud and corruption

which gathers and analyses incoming
information on corporate frauds,
corruption and conflicts of interest.

In 2019, the Security Hotline received
35,106 calls amounting to RUB 40.46 mln
of damage identified/prevented. The
Company terminated 34 employment
contracts and took disciplinary actions
against 92 employees. In 19 cases, the
investigation findings were submitted to
law-enforcement authorities.

Members of the Company’s Board of
Directors are updated on the Security
Hotline operation on a quarterly basis.

The analysis of the Security Hotline
operation proved its high efficiency in
preventing and deterring employees
from offending against the Company’s
internal regulations or engaging in other
abusive practices.

1 Approved by the Council for Business Ethics on 10 December 2018 (Minutes No. 7).
2 In accordance with the Guidelines on Prosecution of Officers for the Failure to Prevent and/or Manage a Conflict of Interest developed

by the Russian Ministry of Labour in pursuance of Clause 10 of the National Anti-Corruption Plan.

3 Minutes No. 10 dated 16 August 2019.

232

233

The objectives of the Risk Management and Internal Control System (RM&ICS)
are set out in the Company’s Policy on the Risk Management and Internal Control
System
management, internal control and audit services. These are intended to provide
reasonable assurance that the Company will achieve its goals in four focus areas:

1
drawing on recommendations of international firms engaged in risk

Strategic goals contributing to the accomplishment of the Company’s mission

Operational goals relating to the Company’s financial and operating performance and asset integrity

Goals of maintaining compliance with applicable laws and local regulations, including HSE requirements
and requirements for information and personal security

Goals of preparing reliable financial statements or non-financial reports and non-financial reports
for internal and/or external users in a timely manner

Audit Commission

The Audit Commission comprises five members elected annually
and monitors the Company’s financial and business activities.

The Audit Commission audits the
Company’s financial and business
operations, verifies the accuracy and
reliability of data included in Rosneft’s
annual reports and annual accounting
(financial) statements, and prepares
proposals and recommendations for
improving the asset management
efficiency and streamlining the risk
management and internal control
system.

In 2019, the Audit Commission held
two meetings that, among other things,
adopted its action plan, approved an
audit programme and reviewed audit
results.

The findings of the Audit Commission
were communicated in the form of an
opinion of the Audit Commission on the
accuracy and reliability of data included
in Rosneft’s Annual Report and annual
accounting (financial) statements as at
31 December 2019, and in the report on
interested-party transactions entered
into in the reporting period.

The annual compensation awarded
by the Annual General Shareholders
Meeting to the members
of the Audit Commission amounted
to RUB 440,000 in 2019.

No compensation was paid to public
officers serving on the Audit
Commission.

The Audit Commission
is governed
by the Regulations
on Rosneft’s Audit
Commission.

The procedure
for calculating
and paying remunerations
and compensations
to the members
of the Audit Commission
is described
in Rosneft’s Regulations
on Remunerations
and Compensations
Payable to Rosneft's Audit
Commission Members.

ON 4 JUNE 2019, THE ANNUAL GENERAL SHAREHOLDERS MEETING
RESOLVED TO ELECT THE AUDIT COMMISSION AS FOLLOWS:

Chairman

Zakhar Sabantsev

Born in 1974.

Members of the Audit Commission

Olga Andrianova

Born in 1958.

Sergey Poma

Born in 1959.

Graduated from the Moscow State
University of Economics, Statistics,
and Informatics.

Graduated from the All-Russian State
Distance-Learning Institute of Finance
and Economics (ARDLIFE).

Graduated from Nakhimov Black
Sea Higher Naval School and Saint
Petersburg State University.

Section Head, Bank Sector Monitoring,
Consolidated and Analytical Work
Section, Financial Policy Department,
Ministry of Finance of the Russian
Federation.

Holder of a ministerial award –
Certificate of Merit of the Russian
Ministry of Energy.

Vice President of the National
Association of Securities Market
Participants (NAUFOR).

Chief Accountant – Head of Finance
and Economics at JSC ROSNEFTEGAZ.

Alexander Bogashov

Born in 1989.

Graduated from the State University
of Management.

Minister of Properties
of the Chelyabinsk Region.

Pavel Shumov

Born in 1978.

Graduated from the Moscow State
University of Economics, Statistics,
and Informatics.

Acting Deputy Department Director,
Ministry of Economic Development
of the Russian Federation.

234

235

1 Rosneft’s Policy on the Risk Management and Internal Control System No. P4-01 P-01 approved by the Company’s Board of Directors, Minutes

No. 8 dated 16 November 2015.

I. GOAL-SETTING AND CONTROL

BOARD OF DIRECTORS AND AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

▪ Approve RM&ICS focus areas

▪ Approve corporate reports

▪ Monitor the RM&ICS reliability

and follow up on their progress

on financial and business risks

and performance

▪ Approve risk appetite

II. RISK MANAGEMENT AND DECISION-MAKING

CHIEF EXECUTIVE OFFICER

RISK
MANAGEMENT
COMMITTEE

MANAGEMENT

▪ Validates RM&ICS focus areas
▪ Validates RM&ICS reports
▪ Validates risk appetite

▪ Validates the RM&ICS issues

▪ Distributes roles and responsibilities

reported to the Chief Executive
Officer

▪ Resolves RM&ICS operational

among employees
▪ Risk management
▪ Develops and implements control

disputes

procedures

▪ Conducts self-assessment of internal

controls

III. RISK MANAGEMENT AND IMPLEMENTATION OF DECISIONS

JVS PROVIDING CERTAIN
RM&ICS FUNCTIONS

EMPLOYEES

RISK AND INTERNAL
CONTROL EXPERTS

▪ Prepare and consolidate RM&ICS

▪ Implement risk management

reports

controls and initiatives

▪ Steer risk management and internal
control processes in business units

▪ Manage the roll-out of RM&ICS

▪ Assist the Company’s management

▪ Identify, assess, and develop risk

elements and develop proposals
for the risk management
methodology

▪ Assist the Company’s management

in conducting self-assessment
of internal controls

in managing risks

▪ Help identify, assess and report
on risks and internal controls,
and conduct self-assessment
of internal controls

management initiatives

▪ Develop, implement, and update

business process controls

▪ Develop, implement and monitor

initiatives to bridge gaps in business
process controls

IV. RM&ICS INDEPENDENT MONITORING AND PERFORMANCE ASSESSMENT

INTERNAL AUDIT FUNCTION

AUDIT COMMISSION

▪ Assesses the RM&ICS reliability and performance
▪ Conducts audits
▪ Monitors the implementation of RM&ICS improvement

proposals made by internal auditors

▪ Assists the Company’s executive bodies in investigating

abusive/unlawful practices by the Company’s employees
and third parties

▪ Audits the Company’s financial and business operations,

verifies the accuracy and reliability of data included
in Rosneft’s annual reports and annual accounting
(financial) statements

V. STEERING AND GUIDELINES

RISK AND INTERNAL
CONTROL DEPARTMENT

▪ Plans RM&ICS focus areas
▪ Develops, implements and updates Company-wide

RM&ICS guidelines

▪ Prepares reports on risks and internal controls
▪ Manages the RM&ICS roll-out and operation across
Rosneft’s business units and Group Subsidiaries

▪ Provides guidelines to key RM&ICS stakeholders, trains

them in risk management and internal controls
▪ Develops, implements and supports insurance

programmes

▪ Reinsures the Company’s risks in Russian

and international insurance markets

▪ Settles insurance claims on risks materialised

SECURITY SERVICE

▪ Develops, updates, and introduces internal anti-fraud
and anti-corruption regulations and implementing
documents

▪ Participates in ensuring compliance with internal
regulations and implementing anti-fraud and anti-
corruption initiatives taken by Rosneft’s executive bodies

▪ Manages the Security Hotline
▪ Conducts inspections/investigations into abusive/unlawful
practices by the Company’s employees and third parties

236

237

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019

Enhancement of the Risk Management and Internal Control System

To achieve the ICS objectives, the Company needs to:

Owing to ongoing improvements in its
RM&ICS, the Company can promptly
and adequately respond to changes in
the external and internal environment,
achieve better performance, and
maintain and increase its shareholder
value.

The Comprehensive RM&ICS
Enhancement Plan covers the short and
medium terms. The Plan sets key targets
and objectives and outlines critical
steps towards the achievement of the
Company’s goals for the RM&ICS.

The Comprehensive RM&ICS
Enhancement Plan for 2019–2021
was endorsed by the Company’s
Risk Management Committee
and Chief Executive Officer
and approved by Rosneft’s Board
of Directors.

RM&ICS Enhancement Initiatives in 2019

RM&ICS focus areas

Key results

Improving RM&ICS guidelines.
Employee trainings

Developing the Company’s risk
management and internal control
infrastructure and procedures

The Company’s internal regulations governing the RM&ICS were updated, including:
•
•

the Company’s Standard on Insurance of Corporate Risks;
the Company’s Regulations on Development, Implementation and Maintenance
of the Internal Control System.

245 employees of Rosneft and Group Subsidiaries were trained in the RM&ICS.

The Company’s quantitative risk assessment models were verified (back-tested).

The Company-wide Register of Risks and Control Procedures is maintained
and updated.

A model (algorithm) was developed to evaluate risks of adverse judgements
in litigations against the Company.

Implementing and maintaining
the Internal Control System

The Company keeps on developing, implementing and streamlining its business
process controls.

Internal controls were self-assessed in the Retail Sales of Petroleum Products
and Complementary Goods and Small-scale Wholesale of Petroleum Products business
process and the Accounting Management and Financial Reporting business process.

Improving the RM&ICS processes
across Group Subsidiaries

The corporate-wide risk management system was implemented by 15 Group
Subsidiaries.

Developing information
resources to support and main-
tain the RM&ICS

Risk and internal control experts from the Company and Group Subsidiaries were
given access to the Risk Management and Internal Control information resources.

Risk and internal control experts were trained in using the Risk Management
and Internal Control information resources.

Internal Control System

THE INTERNAL CONTROL SYSTEM (ICS) IS AN INTEGRAL PART OF THE RM&ICS

▪ The both systems have aligned goals.
▪ The ICS is governed

and Maintenance of the Internal
Control System.

by the Company’s Policy on the Risk
Management and Internal Control
System, Standard on the Internal
Control System, and Regulations
on Design, Implementation

▪ The Company relies on these

regulations to identify risks inherent
in its business processes
and implement controls, thus
improving manageability

and efficiency across business
processes, reliability of financial
statements, and compliance
with the applicable laws and internal
regulations.

Define and update key ICS focus areas in alignment with the Company’s needs and stakeholder
requirements

Develop, adopt and follow controls, including the development of uniform guidelines to support efficient ICS
operations

Identify shortcomings in existing controls, develop and implement initiatives to address the same; streamline
and upgrade controls

Develop and implement tools to facilitate communication and information sharing among all RM&ICS
stakeholders, including via information systems

Corporate-Wide Risk Management System (CWRMS)

Key CWRMS components

A N N UAL PLANNING

RISK MANAGEMENT
PROCESS

NITO RIN

O
K M
IS
6. R

ONGOING
ENHANCEMENT
OF THE CWRMS
INFRASTRUCTURE
AND PROCESS

REGULATIONS
AND POLICIES1

INTERFACES
BETWEEN THE CWRMS
AND OTHER PROCESSES

DISTRIBUTION
OF ROLES WITHIN
THE CWRMS

O
N

T
N
E
M
S

3. RISK ASSES

4. RESPONDING TO R I S K S

A combination of risk management
elements supported by the existing
organisational structure, internal
policies and regulations, risk
management procedures
and techniques that are applied
across all management levels
and functions of the Company
to make its risks acceptable
in the context of achieving Rosneft’s
strategic goals

RISK MANAGEMENT
INFRASTRUCTURE

A set of elements that provide
a Company-wide basis,
tools, and framework for risk
management

1 Key CWRMS regulations and policies are:
▪ the Company’s Policy on the Risk Management and Internal Control System
▪ the Company’s Standard on the Corporate-Wide Risk Management System (CWRMS)
▪ the Company’s Standard on Insurance of Corporate Risks
▪ the Company’s Regulations on the Risk Management Committee
▪ the Company’s Regulations on Market Risk Management

238

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Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019

Risk management at Rosneft is governed
by the Company’s Policy on the Risk
Management and Internal Control
System and Standard on the Corporate-
Wide Risk Management System
(CWRMS).

The CWRMS is a combination of
interrelated elements embedded
into various business processes of
the Company (including strategic and
business planning processes) and

Rosneft’s Risks1

implemented at all management levels
by all employees of the Company.

of Directors and communicated to the
management.

EXTERNAL CONSTRAINTS

All key risks of the Company are
reported within the CWRMS, including
the risks affecting the implementation of
its Long-Term Development Programme
and the risks related to day-to-day
financial and business operations.
Risk reports are delivered for review/
approval to the members of the
Board’s Audit Committee / the Board

Heads of the Company’s business units
arrange for and steer risk management
processes within their remit. When
choosing a risk response and specific
mitigants, risk owners seek to find an
optimal trade-off while maintaining an
acceptable risk level (risk appetite).

Since 2014, the USA, EU and some
other countries have been imposing
various economic constraints
on the Russian Federation, among
other things, affecting operations
of certain companies in the Russian
energy and other industries (including
Rosneft and some of its subsidiaries).

Rosneft factors in and continuously
monitors existing constraints
to minimise their adverse effects,
and consistently implements its
Import Substitution and Equipment
Localisation Programme in Russia.

INDUSTRY-WIDE RISKS

FINANCIAL RISKS

Risk of occupational
injuries

Risk of lower quality
of refinery feedstock

Market risks

Risk Appetite of the Company

IN 2018, ROSNEFT’S BOARD OF DIRECTORS
APPROVED THE COMPANY’S RISK APPETITE FOR 2019:

FINANCIAL AND ECONOMIC
PERFORMANCE

HEALTH, SAFETY
AND ENVIRONMENT

The Company strictly complies with its
financial covenants. The Company
ensures that all its short- and long-
term commitments are fulfilled as they
fall due.

Recognising the nature and scale
of the footprint of its business,
products and services, the Company
feels responsible for safe and accident-
free operation and protects health
and safety of its employees and local
residents in regions of its operation.

As part of its commitment to prevent
any potential adverse impact
on the environment, the Company
makes every effort to protect, preserve
and restore natural resources.

Risk of failure to achieve
natural gas sales targets

Risk of counterparties
using unconventional
pricing terms

Risk of lower EBITDA
from harbour services

Risk of accidents

Risk of failure
to achieve natural gas
price targets

Risk of failure to achieve
natural gas and gas
condensate production
targets

Risk related to rising
purchase prices
for electric power

Risk of failure to comply
with the repair plan
in Oil Refining

Risk of price
restrictions resulting
in a lower gross margin
from petroleum
product sales through
Rosneft’s own filling
stations and oil depots
in Russia

Risk of failure to achieve
oil and gas condensate
production targets

Credit risk related to crude oil, petroleum products, natural
gas, petrochemicals and gas processing products supply
contracts

Counterparty risk related to long-term advance payment
crude oil and petroleum products supply contracts

Risk of tax claims
and risk of losing tax benefits

Risk of default/cross-default

LEGAL RISKS

Risk of adverse
judgements in legal
proceedings to which
the Company is a party

Risk of breach
of competition laws

COUNTRY AND REGIONAL RISKS

Risk related to international projects

Corporate functions

Exploration
and production

Gas business

Refining, petrochemicals,
commerce and logistics

Occupational health
and safety

1 For Rosneft’s key risks see Appendix 2 to this Annual Report.

240

CHANGES IN LEGISLATION
AND REGULATORY
ENVIRONMENT

The Company’s operating results
are very sensitive to changes
in the applicable laws, including
tax, currency and customs
regulations, etc. Rosneft
continuously monitors and assesses
such changes, and makes
projections as to their likely effect
on the Company’s operations.
Rosneft’s experts are regular
members of working groups drafting
bills in various fields of law.

CORPORATE GOVERNANCE

The Company has zero tolerance
for any form or manifestation
of corporate fraud and corruption.

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Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 2019

Corporate Insurance

Rosneft relies on insurance as a
risk management tool enabling it to
pass financial losses from the risks
materialised on to insurers.

Rosneft’s corporate insurance
programme covers:
▪ fixed assets of the Company;
▪ civil liability;
▪ business risks.

Rosneft has insurance coverage in
place for its fixed assets against the
risk of damage to (loss of) property and
potential losses resulting from business
interruption due to accidents and other
accidental exposures, as well as liability
insurance against the risk of legal action
by third parties arising out of its onshore
and offshore operations.

The most material risks are reinsured
with international firms rated A– or
higher by S&P, AM Best or Fitch.

Rosneft insures its liability as required
by federal laws, including Federal Law
No. 225-FZ On Compulsory Insurance
of Owners of Hazardous Facilities
against Civil Liability for Damage Caused
by Accidents at Hazardous Facilities.
Clause 1 of Article 1 of the above Law
provides for the compulsory insurance
of property interests of the facility’s
owner and its obligation to indemnify for
damage caused to the affected party.

Rosneft’s internal audit function
is performed by the Vice
President – Head of Internal Audit
and the Company’s functional units,
specifically the Operational Audit
Department, the Corporate Audit
Department, the Regional Audit
Department, the Internal Audit
Methodology and Management
Division, and the Economic
and Organisational Analysis Division.
In accordance with Rosneft’s
organisational structure approved
by the Board of Directors, units
of the Internal Audit Service report
directly to the Head of Internal
Audit.

Internal Audit

The Company’s internal audit is
governed by the following internal
regulations:
▪ the Company’s Policy on Internal

Audit (No. P4-01 P-02);

▪ the Company’s Standard on the
Organisation of Internal Audit
(No. P4-01 S-0021);

▪ the Company’s Regulations on the
Internal Audit Quality Assurance
and Improvement Programme
(No. P4-01 R-0038);

▪ the Company’s Regulations on
the Procedure for Cooperation
between the Internal Audit Service
and Business Units of Rosneft and
Group Subsidiaries When Performing
Internal Audit (No. P4-01 R-0041);

▪ Rosneft’s Instruction on the

Annual Planning of Internal Audits
(No. P4-01 I-01016 YuL-001);
▪ Rosneft’s Instruction on the

Procedure for Internal Audits
(No. P4-01 I-01013 YuL-001);
▪ Rosneft’s Instruction on the
Procedure for In-house Self-
assessment of Internal Audit Quality
(No. P4-01 I-01014 YuL-001);

▪ other internal regulations governing

the Company’s internal audit
operations.

The Internal Audit Service assists
Rosneft’s Board of Directors and its
executive bodies in enhancing the
Company’s management efficiency and
improving its financial and business
performance, including through a
systematic and consistent approach
to the analysis and evaluation of the
risk management and internal control
system (RM&ICS) as well as corporate
governance, therefore providing
reasonable assurance that the Company
will achieve its goals. It also helps
ensure:
▪ accuracy, reliability, and integrity
of information on the Company’s
financial and business operations,
including those of Group
Subsidiaries;

▪ efficiency and effectiveness of the
Company’s operations, including
those of Group Subsidiaries;
▪ room for improvement available

across the Company’s financial and
business operations, including those
of Group Subsidiaries;
▪ integrity of the Company’s

assets, including those of Group
Subsidiaries.

ROSNEFT’S INTERNAL AUDIT SERVICE
IS MAINLY RESPONSIBLE FOR:

▪ developing an internal audit plan
prioritising internal audit activities
based on the risk-oriented
approach;

▪ assessing the RM&ICS reliability

and performance as well
as its adequacy given the scale
and complexity of the Company's
business;

▪ assessing corporate governance;
▪ conducting audits and activities
in line with the internal audit
plan approved by Rosneft’s Chief
Executive Officer and endorsed
by the Board’s Audit Committee;

▪ performing other inspections

and tasks as instructed by Rosneft’s
Board of Directors (its Audit

Committee) and/or the Company’s
Chief Executive Officer;

▪ analysing audit targets to look

into and evaluate specific aspects
of their activity;

▪ developing recommendations

for streamlining business processes,
including their integrity, risk
management and internal controls;

▪ advising the Company’s executive

bodies on risk management, internal
controls, and corporate governance
(provided that the internal audit
remains independent and impartial);

▪ monitoring the Company’s

progress in addressing breaches
and shortcomings identified during
audits;

▪ assisting the Company’s executive
bodies in investigating abusive/
unlawful practices by the Company’s
employees and third parties,
including negligence, corporate
fraud, corrupt practices, abuses
and various wrongdoings
detrimental to the Company;
▪ cooperating with the Company’s
business units on internal audit
matters;

▪ implementing the Internal Audit

Quality Assurance and Improvement
Programme;

▪ performing other functions essential

to meet the tasks assigned.

Reporting and Accountability Lines of Internal Audit

Functionally, the Internal Audit Service
reports to Rosneft’s Board of Directors.
This implies:
▪ approving Policy-level internal
regulations on internal audit
(specifically, the Policy on Internal
Audit that sets out its goals,
objectives, and roles);

▪ deciding on the appointment and

removal of the Head of Internal Audit;

▪ reviewing internal audit plans and

performance reports;

▪ approving the Internal Audit’s budget
and remuneration of the Head of
Internal Audit;

▪ the Board’s Audit Committee

reviewing material limitations of
authority and other restrictions likely
to adversely affect performance of
the Internal Audit Service.

Administratively, the Internal Audit
reports to Rosneft’s Chief Executive
Officer. This implies:
▪ allocating necessary funds within the

approved budget;

▪ approving internal audit plans;
▪ reviewing internal audit performance

reports;

▪ facilitating the cooperation with

Rosneft’s and Group Subsidiaries’
business units;

▪ administering internal audit policies
and procedures (e.g. approving
internal regulations on internal
audit and amendments thereto,
approving organisational documents
of Rosneft’s Internal Audit, validating
business trips, and endorsing the
engagement of external experts to
work on internal audits).

The existing reporting lines whereby the
Head of Internal Audit reports to the
Board of Directors and the Company’s
executive bodies provide sufficient
independence for performing internal
audit functions.

Heads of the Internal Audit functional
units do not participate in managing
functional areas of the Company’s
business requiring management
decisions on audited entities.

The Head of Internal Audit was
appointed by Rosneft’s Board of
Directors to its Management Board in

July 2016 and was also appointed by
Bashneft’s Annual General Shareholders
Meeting to Bashneft’s Board of Directors
in June 2019. The Head of Internal
Audit is not entitled to vote on matters
requiring management decisions on
audited entities.

The internal auditors provide written
confirmation of their personal
impartiality to the heads of the Internal
Audit functional units and to the Head
of Internal Audit at least once a year,
thereby raising awareness among
the Internal Audit employees about
potential conflicts of interest and related
issues, as well as response procedures
to situations which may influence
the independence and impartiality of
internal audit.

The Head of Internal Audit provides
Rosneft’s Chief Executive Officer, Board
of Directors (its Audit Committee) with
confirmation of the organisational
independence of the Internal Audit
Service and individual impartiality of
internal auditors at least once a year, as
part of the internal audit performance
report.

242

243

The internal audit plan is based on
an audit model and uses information
and requests received from Rosneft’s
executive bodies and Board of Directors,
as well as its risk evaluation results. It
includes audits and other activities and
is subject to approval by Rosneft’s Chief
Executive Officer and endorsement by
the Board’s Audit Committee. Details of
the plan are presented to the Company’s
Board of Directors as part of the internal
audit report for the previous period.

At least twice a year, the Head of
Internal Audit procures to prepare and
submit this report to Rosneft’s Board
of Directors and its executive bodies
(including information about material
risks, breaches and shortcomings,
results and effectiveness of internal
auditors’ proposals for eliminating the
same, delivery of the internal audit
plan, as-is assessment, reliability and
performance of the Company’s RM&ICS
and corporate governance).

The internal audit reports for the first six
months and the full year of 2019 were
reviewed by the Chief Executive Officer,

the Board’s Audit Committee and the
Board of Directors of Rosneft.

The Internal Audit Service completed all
planned activities in line with its internal
audit plan for 2019.

In the reporting period, internal audits
covered most of the Company’s
corporate risks as well as financial and
operational risks, and 56% of Group
Subsidiaries’ asset value.

In 2019, the Internal Audit Service
ran 11 projects and initiatives seeking
to improve the control environment
and enhance the efficiency of both
the Company and its internal audit.
Since 2019, the Internal Audit Service
has been implementing preventive
independent inspections with a
view to making the Company’s
procurement processes more efficient.
In the reporting period, it focused on
monitoring crude oil and petroleum
products inventory management, well
cost accounting, disposal of overseas
assets, as well as on fostering process
management and corporate culture.

Based on results from the risk
management and internal control
system efficiency assessment,
the Internal Audit Service
concluded that the RM&ICS
ensured overall support of the risk
management process and efficient
internal control operations,
providing reasonable assurance
that the Company would achieve
its goals.

The assessment results were reviewed
by the Board’s Audit Committee and the
Board of Directors of Rosneft.

In 2019, Rosneft fully automated its
internal audit function across all focus
areas ranging from annual planning to
monitoring the Company’s progress in
addressing breaches and shortcomings
identified during audits.

In the reporting period, the Internal
Audit Service updated the Assurance
Map representing a risk and control
matrix across business process broken
down in three lines of defence.

Key Focus Areas in 2019

Core processes
(64% of audits)

Supporting processes
(36% of audits)

Exploration and production
of oil and gas
Commerce and logistics
Capital construction
and investments
Oil and gas reﬁning
and petrochemicals

36 %
24 %

23 %

18 %

Procurement
Energy, localisation,
and innovations
HSE
Corporate services
Industrial automation
and IT

21 %

19 %
15 %
40 %

5 %

In September 2019, the Financial
Management Department at Gubkin
Russian State University of Oil and Gas
launched master’s curriculum in Internal
Audit and Control, both intra- and
extramural, aiming to train internal audit
specialists for the oil and gas industry. The

graduates who successfully passed the
corporate selection procedures became
interns at Rosneft’s Internal Audit Service.

All the employees of Rosneft’s Internal
Audit Service undergo training in their
core business areas.

In the reporting period, the Internal
Audit Service conducted regular in-
house self-assessment on its internal
audit quality. It was concluded
following the self-assessment that the
internal audit function was generally
in line with the requirements of the
Company’s Policy on Internal Audit
and other regulations on internal
audit, the International Standards for
the Professional Practice of Internal
Auditing, and the Code of Ethics of
the International Institute of Internal
Auditors.

The Internal Audit Service ensures
effective communication with the
Board’s Audit Committee (including
face-to-face meetings with its
Chairman without attendance by the
Company’s management), Rosneft’s
Chief Executive Officer (including
through personal reports on material
audit results), and the management of
Rosneft and Group Subsidiaries.

The Head of Internal Audit cooperates
with Rosneft’s Audit Commission,
external auditor, and audit
commissions of Group Subsidiaries.

244

245

Strategy of the CompanyOperating ResultsMarket Overview and Competitive EnvironmentSustainable DevelopmentCorporate GovernanceInformation for Shareholders and InvestorsROSNEFT ANNUAL REPORT 201906

Information
for Shareholders
and Investors

Share Capital

The Dividend Policy

The Company’s share capital is divided into 10,598,177,817 ordinary shares
with a par value of RUB 0.01 each.

Rosneft shares are traded on the
Moscow Exchange. Outside Russia,
Company shares are listed on the
London Stock Exchange as Global
Depositary Receipts (GDRs). As at

31 December 2019, J.P. Morgan, acting
as depositary bank, issued GDRs
for 5.6% of ordinary shares in the
Company1.

The Company has over 120 thousand
individual and corporate
shareholders and more than
500 GDR holders.

Key Shareholders of the Company2

Share Capital Structure
as at 31 December 2019, %

2018

2019

31.12.2018

31.12.2019

JSC ROSNEFTEGAZ (shareholder)
BP Russian Investments Limited (shareholder)
QH Oil Investments LLC (shareholder)
The Russian Federation represented by the
Federal Agency for State Property Management
(shareholder)
National Settlement Depository
(Nominee Central Depository)
Other individuals and legal entities
Total

50,00000001 %
19,75 %
18,93 %

< 0,01 %

10,40 %
0,92 %
100 %

10,98 %
0,34 %
100 %

JSC ROSNEFTEGAZ
and the Russian
Federation
BP Russian
Investments Limited
QH Oil Investments
LLC
Free ﬂoat
Total

50,00000001 %

19,75 %

18,93 %
11,32 %
100 %

The Dividend Policy approved by the Board of Directors formalises the Company’s
key principles of, and approaches to, dividend payouts to shareholders and intro-
duces transparent decision-making processes for paying out (declaring) dividends
and determining their amount and payment procedure.

Principles of the Dividend Policy:
▪ ensuring compliance with the

requirements of the Russian laws,
the Company’s Charter and internal
regulations when paying out
(declaring) dividends;

▪ maximising the transparency of the

In 2019, the Company discharged
99.98% of its obligation to pay out
dividends. Dividends were paid to all
shareholders of record, except for
persons who failed to timely notify the
issuer’s registrar of changes in the data
recorded on their profile.

dividend calculation process;

▪ increasing the Company’s

investment appeal;

▪ maintaining the balance of

short- and long-term interests of
shareholders;

▪ supporting shareholder

commitment to improving the
Company’s profitability;

▪ ensuring that the dividend payout
pattern comfortably reflects an
increase in Rosneft’s net profit;
▪ making dividend payouts in a
way most convenient for our
shareholders;

▪ paying out dividends as soon as

practicable.

The decision to pay dividends is made by
the General Shareholders Meeting of the
Company upon recommendation of the
Board of Directors.

The Company’s Charter provides
for a five-year period during which
shareholders may claim dividends
declared but not paid due to missing
address or banking details, which is
longer than required by the applicable
laws.

On 21 April 2020, Rosneft’s Board
of Directors recommended that the
General Shareholders Meeting approve
RUB 18.07 per share as dividend for
FY2019. The total amount of dividends
for FY2019, including dividends
for the first six months of 2019, is
RUB 354.1 bln or RUB 33.41 per share3.
The dividend payout ratio (dividends /
non-consolidated net profit under RAS)
for 2019 is 89.3%, while the dividend
payout ratio (dividends / consolidated
net profit under IFRS) is 50%.

In 2019, the Company made no
changes to its Dividend Policy.

In 2019, the Company continued
to increase the amount of annual
dividend payout and paid RUB
120,1 bln as final dividend
for FY2018 and RUB 162.6 bln
as dividend for the first six
months of 2019. The total amount
of dividends declared was
RUB 283 bln.

Rosneft Dividend
Policy

1 One Global Depositary Receipt certifies the right to one ordinary registered share.
2 Based on data from Rosneft’s Shareholder Register. Monthly updates on shareholders owning over 5% of Rosneft's charter capital are posted

on the Company’s official website.

248

1 Including the dividend for the first six months of 2019 and the dividend recommended by the Board of Directors to be approved at the Annual

General Shareholders Meeting in 2020.

249

RUB mln

400 000

350 000

300 000

250 000

200 000

150 000

100 000

50 000

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2,76

7,53

8,05

12,85

8,21

11,75

5,98

10.48

25.91

33.41

Total Dividends Paid,
RUB mln

1 half year dividends,
RUB mln

Dividend Payout Ratio under RAS, %

Dividend per Share, RUB

The dividends recommended by
the Board of Directors to be approved
at the General Shareholders Meeting
in May 2020

Interim dividends, RUB

Full-year dividends , RUB

100
90
80
70
60
50
40
30
20
10
0

Shareholder Relations,
Key Events in 2019

The Company has established a multi-level system
to protect the rights of its shareholders.

Shareholder Rights Guaranteed by Law
and the Listing Rules

Pursuant to the laws of the
Russian Federation, the Company’s
shareholders have the right to:
▪ vote at the General Shareholders

Meeting on one-share-one-vote basis;
▪ propose items for the agenda of the
General Shareholders Meeting and
nominate candidates to the Board
of Directors (if a shareholder owns
at least 2% of voting shares);

▪ exercise pre-emptive right to buy
shares in any future issue and
issue-grade securities convertible
into shares;

▪ receive dividends declared by the
Company, in proportion to the
number of shares held;

▪ review information and materials
provided in preparation for the
General Shareholders Meeting;

▪ obtain information on the

Company’s operations upon
request and as established by
Russian law;

▪ freely dispose of Rosneft’s shares;
▪ exercise other rights granted under

Russian law.

Additional Rights Guaranteed by the Company’s
Charter and Internal Regulations

The Company offers equal and fair
opportunities for its shareholders
to exercise their legal rights, e.g.
by securing additional rights and

procedures in the Charter and internal
regulations, including the right to:
▪ receive part of the Company’s profit

▪ receive necessary information on the
Company on a timely and regular
basis;

as dividend;

▪ participate in managing the

Company’s affairs.

Independent and Professional Board of Directors

The composition of the Board of
Directors and the number of Board
members reflect the Company’s
shareholding structure. Electing

Board members by cumulative voting
guarantees the rights and legitimate
interests of shareholders.

The Board of Directors consists of four
independent directors of internationally
recognised business standing.

250

251

Protecting Shareholders’ Title to Shares

The Company has established efficient
means of communication with its
shareholders.

The Company has several
communication channels in place to
facilitate the exercise of corporate
rights and promote efficient
shareholder relations, including:
▪ 24 hour hotline for Rosneft

shareholders (a multichannel phone
line to receive and handle calls):
8 800 500 1100 (toll-free within
Russia); +7 495 987 3060;

▪ mailing address for letters: 26/1

Sofiyskaya Embankment, Moscow,
117997, Russian Federation

▪ E-mail for requests:

shareholders@rosneft.ru;

▪ fax: +7 499 517 8653;
▪ shareholder account on the

Company’s website.

SHAREHOLDER’S PERSONAL ACCOUNT

In 2019, the Company launched
Shareholder's Personal Account –
a convenient and safe online
information service for shareholders,
which provides real-time access
to information and facilitates
the exercise of rights granted
by securities. The new service can be
used to:
▪ participate in the General

Shareholders Meeting via online
registration, vote on items
on the agenda, read materials

for the Meeting and submit
questions to speakers;

▪ gain access to one's personal

account in the register
of Rosneft shareholders1 to obtain
information on the number
of shares held, personal data,
and bank details for the payment
of dividends;

▪ monitor dividend payouts1

and promptly claim any unpaid
dividends;

▪ submit questions and obtain

advice.

To gain access to their personal
accounts, shareholders shall request
login and password from the Moscow
Head Office or regional branches of the
Company’s registrar, LLC Reestr-RN.

For clients of nominee shareholders,
access to shareholder accounts is
granted by the registrar upon the
disclosure of information thereon by
relevant nominee shareholders.

The rules governing the procedure of
registering a personal account can be
found on the website of LLC Reestr-RN
or on the Company’s website.

Any questions concerning access to
personal accounts shall be addressed
to:
▪ LLC Reestr-RN call centre

at: phone: +7 495 411 7911
(email: support@reestrrn.ru);
▪ hotline for Rosneft shareholders

at: 8 800 500 1100 (toll-free within
Russian) and +7 495 987 3060
(email: shareholders@rosneft.ru).

In 2019, the Corporate Governance
Department acting as the
Corporate Secretary Office handled
5,257 applications, including:
▪ 4,065 phone calls;
▪ 480 letters;
▪ 87 e-mails;
▪ 625 requests claiming unpaid
dividends for prior periods.

Shareholder requests in 2019, %

Phone calls
Letters
E-mails
Requests on dividend payout

77
9
2
12

The Company practices reliable and safe methods of recording title to its shares
and has engaged a professional registrar to maintain its Shareholder Register.

The registrar is LLC Reestr-RN acting
under a perpetual licence to register
security holders.

LLC Reestr-RN has been operating in the
registrar services market for 18 years
and ranks among the top ten Russian
registrars. The company keeps registers
for more than 2 thousand issuers, with
an inventory of 545 thousand personal

accounts to record the rights of their
shareholders. Shareholder service
offices and transfer agent offices of
LLC Reestr-RN operate in the regions
where the majority of Company
shareholders reside and include the
Head Office, 13 branches, 44 transfer
agent offices at regional branches of
LLC Reestr-RN’s partner registrars,
5 transfer agent offices at Rosneft’s

partner banks, and a contact and service
centre for Rosneft shareholders.

The Company, together with LLC
Reestr-RN, regularly notifies its
shareholders of the need to update
their personal data recorded in the
Shareholders Register of Rosneft.

Shareholders can log
into their personal
accounts at:
https://lka.rosneft.ru/
auth/?authLg=en

Answers to frequently
asked questions can be
found on the Company’s
website.

Resolutions
of the General
Shareholders
Meeting

Rosneft Regulation
on Provision
of Information to Rosneft
Shareholders

Contact Details
of the Registrar and its
Service Offices

252

1 For shareholders of record.

253

2019 IR Highlights

Rosneft shares are among the most
attractive investment instruments in the
Russian stock market. The Company
has a free float of 11.32%, including
5.6% in the form of Global Depositary
Receipts (GDR) traded on the London
Stock Exchange (LSE). Rosneft enjoys a
diversified investor base of around 500
institutional investors.

International institutional shareholders
of the Company are based in major
business and financial hubs, such as
New York, Boston, Los Angeles, London,
Frankfurt, Stockholm, Hong Kong,
Singapore, and Tokyo. For over ten years
since its IPO, Rosneft shares have been
steadily growing in value. Between 19 July
2006 and 31 December 2019, Rosneft
share price on the Moscow Exchange
more than doubled.

Relations with the Company’s investors,
both existing and potential, are
maintained by the Chairman of the
Management Board of Rosneft, First
Vice President, heads of businesses,
and the Investor Relations Department.
In 2019, the Company completed an
extensive IR Programme, including a
number of strategic speeches by the
Chairman of the Management Board at
major international investment forums,
and approximately 180 one-on-one
and group meetings between Company
executives and top investment funds.

Feedback from investors is reported
to Rosneft’s management on a regular
basis.

Currently, 21 investment banks provide
analytical coverage of the Company.
The Chairman of the Management
Board of Rosneft and heads of
relevant core functions maintain
regular communications with the
investor community. At such meetings,
investors, analysts, and representatives
of international rating agencies are
updated on strategic trends in the

Company’s development, its operations,
and financial management directly by
the Company’s executives. Rosneft holds
quarterly conference calls for investors
involving heads of economics, finance,
and operations who provide detailed
coverage of the Company’s performance
in the reporting period. Shareholder
and investor materials, such as press
releases, presentations, Rosneft’s Annual
Report and Sustainability Report, as well
as material facts on resolutions of the
Company’s Board of Directors are posted
on the Company’s website.

As at February 2020, 19 major
investment banks recommended to buy
or hold Rosneft shares/GDRs.

In 2019, the Company continued
building up resources and interacting
with its investors on the environmental,
social and governance (ESG) investing
matters. In April 2019, Rosneft released
an updated public statement on its
contribution towards achieving the
17 UN Sustainable Development Goals
approved by the Company’s Board of
Directors in December 2018. During
the reporting year, Rosneft maintained
regular communication with investors
supporting the Climate Action 100+
initiative. The Company held nearly
50 investor calls on ESG matters. In
June 2019, Rosneft became the first
Russian company to take part in a ESG
workshop that was held in Copenhagen
and attended by representatives of
31 investment funds and Sustainalytics
and ISS-Ethix ESG rating agencies.
Rosneft maintains an ongoing dialogue
with 16 international ESG analytical and
rating agencies.

Transparency and openness of the
Company’s ESG disclosure have gained
international recognition. In 2019,
Rosneft was included in the FTSE4Good
Index of companies demonstrating
strong ESG practices. Rosneft was
named the best Russian oil and gas

In 2019, the Company’s market
capitalisation increased by

17%

(The London Stock Exchange)

company and became one of the leading
oil and gas companies globally, with the
B and B- CDP ratings assigned in Climate
and Water. It is also among the oil and
gas giants with high ESG ratings from
Bloomberg and Refinitiv. In 2019, Rosneft
was one of the leaders in terms of
improving the Corporate Human Rights
Benchmark (CHRB) rating.

JANUARY

MAY

OCTOBER

J. P. Morgan – CEEMEA Opportunities
Conference (London)

Morgan Stanley – EEMEA
Conference 2019, London

FEBRUARY

Credit Suisse – 24th Annual Energy
Summit, Vail

Disclosure of the Company’s
performance for Q1 2019

Investor conference call involving
heads of finance, economics,
and operations

Goldman Sachs – Investor Meetings,
Hong Kong, Zurich, Milan

Goldman Sachs – CEEMEA Corporate
Day, Singapore

HSBC – Rosneft UAE Non-Deal
Roadshow, Dubai, Abu Dhabi (UAE)

J. P. Morgan – GEM Corporate
Conference, Miami

JUNE

NOVEMBER

HSBC – Non-Deal Roadshow, Miami

Disclosure of the Company’s
performance for 2018

Investor conference call involving
heads of finance, economics,
and operations

Sberbank CIB – Russia: The Inside track,
One-on-One Conference, Moscow

Renaissance Capital – Annual Russia
Investor Conference, Moscow

MARCH

AUGUST

HSBC – Rosneft Saudi Arabia and UAE
Non-Deal Roadshow, Dubai, Abu
Dhabi (UAE), Riyadh (Saudi Arabia)

APRIL

Raiffeisen Bank – Institutional
Investor Conference, Zürs (Austria)

UBS – Russia Investors Day,
Stockholm, Frankfurt

Disclosure of the Company’s
performance for Q2 2019

Investor conference call involving
heads of finance, economics,
and operations

DECEMBER

Goldman Sachs – Global Natural
Resources Conference, London

Goldman Sachs – 11th Annual
CEEMEA One-on-One Conference,
London

Moscow Exchange, Shanghai
Session – Russian Capital Market
Forum, Shanghai

Disclosure of the Company’s
performance for Q3 2019

Investor conference call involving
heads of finance, economics,
and operations

2020 PRIORITIES

▪ Improve disclosure standards
▪ Enhanced interaction
with shareholders
and investors

▪ Promote fast, high-

quality, and skilful financial
communications

Bank of America Merrill Lynch –
Energy & Utilities Conference,
London

SEPTEMBER

WOOD & Company, EME Conference
in Prague 2019, Prague

Moscow Exchange, BCS – Moscow
Exchange Forum 2019, Moscow

HSBC – GEMS Investor Forum 2019,
London

Renaissance Capital, Rosneft Non-
Deal Roadshow, New York, Boston

254

255

Comparative Performance of Rosneft Stocks, the MICEX Index and Brent Quotes (Base Value – 100)

Index

MSCI Russia

FTSE Russia IOB

IMOEX

* As at February 2020

3.57*

4.24

4.45

List of the Largest Institutional Equity and GDR Investors
as at January 2020

Free float,1 %

Capital funds

The Vanguard Group, Inc.

BlackRock Fund Advisors

SAFE Investment Co. Ltd.

SSgA Funds Management, Inc.

GIC Pte Ltd. (Investment Management)

Macquarie Investment Management Business Trust

Pzena Investment Management LLC

JPMorgan Asset Management (UK) Ltd.

Amundi Asset Management SA (Investment Management)

6.33

3.91

3.60

2.36

2.00

1.84

1.74

1.48

1.3

1.27

Recommendation, early 2019

Recommendation, late 2019

Buy

Hold

Buy

Put on review

Buy

Hold

Buy

Hold

Put on review

Buy

Hold

Put on review

Bank

Citi

BCS

Renaissance Capital

ATON

Veles Capital

SOVA Capital

HSBC

Raiffeisen Bank

Credit Suisse

UBS

Gazprombank

Deutsche Bank

Merrill Lynch

J. P. Morgan

Morgan Stanley

Wood & Company

Goldman Sachs

Sberbank

URALSIB

Alfa Bank

VTB Capital

1 Except for strategic investors.

256

130

125

120

115

110

105

100

January

February March

April

May

June

July

August

September October November December

MOEX Russia Index

Brent

Rosneft stock price on the Moscow Exchange

Rosneft Stock Price and Trading Volumes at LSE and MOEX2

USD mln

1000

800

600

400

200

January

February March

April

May

June

July

August September October November December

Trading volumes on the Moscow Exchange

Trading volumes on the LSE

Rosneft stock price on the Moscow Exchange

2 Stock price is quoted as of the end of month.

RUB

500
450
400
350
300
250
200
150
100
50

257

Par Value,
mln

Eurobonds

500 USD

Currency

Coupon Series / Issue

Issue Date

Maturity Date

Issuer

Number

7.25%

Series 8

February 2010

February 2020

Rosneft Finance S. A.

2,000

USD

4.199% Series 2

December 2012 March 2022

Rosneft International
Finance DAC

BBB–

credit rating by S&P Global

Baa3

credit rating by Moody’s

In February 2019, following
the Company’s deleveraging, S&P
Global upgraded its credit rating.

Ruble bonds

20,000

30,000

40,000

RUB

As at the end of 2019, Rosneft’s credit ratings by S&P Global
and Moody’s international rating agencies were at an investment grade
and on par with the sovereign rating of the Russian Federation: BBB-,
stable outlook, and Baa3, stable outlook. On top of that, the Company
had the highest creditworthiness rating (ruAAA) with a stable outlook
from Expert RA rating agency.

In 2012, Rosneft placed two Eurobond
issues as part of its Eurobond
Programme for a total of USD 10 bln:
USD 1 bln maturing in 2017 and
USD 2 bln maturing in 2022. Between
2006 and 2010, former subsidiaries of
TNK-BP Group placed eight Eurobond
issues for a total of USD 5.5 bln maturing
in 2011–2020. Two Eurobond series for
a total of USD 2.5 bln, issued by Rosneft
and its Subsidiaries that had previously

been part of TNK-BP Group, remained
outstanding as at 31 December 2019.

In 2012–2017, Rosneft launched four
Ruble Bond Programmes and completed
41 issues of corporate and exchange-
traded ruble bonds for a total of
RUB 2,261 bln.

In November 2017, the Company
registered its fifth multi-currency

Exchange-Traded Bond Programme
with a total par value of RUB 1.3 trln.
As part of the Programme, Rosneft
completed three ruble bond issues for a
total of RUB 630 bln in December 2017,
two ruble bond issues for a total of
RUB 70 bln in the first quarter of 2018,
and four ruble bond issues for a total of
RUB 80 bln in 2019.

7.90%

Series 04, 05

October 2012

October 2022

7.30%

Series 07, 08

March 2013

March 2023

7.00%

Series 06, 09, 10

June 2013

May 2023

Rosneft

6,65%1

35,000

RUB

8,90%1

225,000

RUB

9.40%

400,000

RUB

7.85%

400,000

RUB

8,50%1

December 2013 December 2023

Rosneft

February 2014

February 2024

Rosneft

December 2014 November 2024

Rosneft

December 2014 December 2020

Rosneft

January 2015

January 2021

Rosneft

Series BO-05,
BO-06

Series BO-01,
BO-07

Series BO-02,
BO-03, BO-04,
BO-08, BO-09,
BO-10, BO-11,
BO-12, BO-13,
BO-14

Series BO-15,
BO-16, BO-17,
BO-24

Series BO-18,
BO-19, BO-20,
BO-21, BO-22,
BO-23, BO-25,
BO-26

600,000

30,000

20,000

40,000

15,000

266,000

100,000

600,000

30,000

50,000

20,000

10,000

20,000

25,000

RUB

6,60%1

001Р-01

December 2016 November 2026

Rosneft

9.39%

001Р-02

December 2016 December 2026

Rosneft

9.50%

001Р-03

December 2016 December 2026

Rosneft

8.65%

001Р-04

8.60%

001Р-05

May 2017

8.50%

001Р-06, 001Р-07

July 2017

April 2027

May 2025

July 2027

Rosneft

7,10%1

001Р-08

October 2017

September 2027

Rosneft

6,60%1

002Р-01, 002Р-02

December 2017 November 2027

Rosneft

7.75%

002Р-03

December 2017 December 2027

Rosneft

7.50%

002Р-04

February 2018

February 2028

7.30%

002Р-05

March 2018

February 2028

8.70%

002Р-06

8.70%

002Р-07

7.95%

002Р-08

April 2019

July 2019

March 2029

July 2029

7.10%

002Р-09

October 2019

October 2029

Rosneft

258

259

1 Coupon rate as at 31 December 2019.

Rosneft is committed to prompt and
reliable disclosure of information. The
Board of Directors has approved the
Company’s Information Policy and
monitors compliance therewith to
assist its shareholders, investors, and
stakeholders with making informed
investment and management decisions.

The Company relies on various
disclosure channels and methods
to ensure free and easy access to
information disclosed in accordance with
the applicable laws, rules of the Moscow
Exchange and the London Stock
Exchange, and internal regulations.

To ensure that Russian and foreign
shareholders and investors are treated
equally, the Company simultaneously
discloses all information in Russian and
English.

The Company uses its official website
and the website of Interfax Corporate
Information Disclosure Centre1 to
publish the Company’s Charter and
other internal regulations, annual and
quarterly reports, sustainability reports,
annual and quarterly RAS financial
statements, IFRS consolidated financial
statements and relevant Management
Discussion and Analysis (MD&A), the
analyst handbook, presentations, press
releases, information on affiliates, and
other data that may have an impact on
the performance of Rosneft securities.

The Company has established a reliable
system of preventing and curbing the
misuse of insider information and
regularly monitors persons with access
thereto.

The Company is committed to
promoting information disclosure by its
controlled entities through continuous
methodological support and regular
training sessions.

The Company also discloses additional
information that is not required by law
or stock exchange rules:
▪ data on operating and financial
performance with notes of the
Company’s top management to
annual reports and interim financial
statements;

▪ the Company’s policy on sustainable
development, health and safety;

▪ the Company’s operational

structure.

The Company holds conference calls
and meetings with institutional investors.
Rosneft sends its representatives to
investment conferences and roadshows
in major international financial hubs and
arranges visits to its production sites for
members of the investment community.

THE COMPANY PUBLISHED
AND HELD:

▪ 358 press releases and news

on its official website;
▪ 8 media interviews of its
top managers and Board
members;

▪ 9 press conferences, media

scrums and briefings
of the Company’s management
and representatives of its
major shareholders;

▪ 4 regular financial

performance presentations.

2019 Disclosure Items
(298 disclosures)

298

Meetings and resolutions
of Rosneft’s governing bodies
Completed transactions
and projects, including stakes
held in other entities
Disclose of, and access to,
the Company’s reports (annual
report, quarterly reports,
accounting statements,
consolidated ﬁnancial
statements, list of aﬃliates)
Bond issues
Accrued and paid income on
bonds and shares
Others

27
28

148
30

Key principles of the Information
Policy are prompt disclosure,
accessibility, reliability, and relevance
of information.

Rosneft’s Information
Policy

1 For details see the website at: http://www.e-disclosure.ru/portal/company.aspx?id=6505.

260

Appendix 1
(Consolidated financial
statements of Rosneft Oil Company
for the year ended December 31, 2019)

ROSNEFT ANNUAL REPORT 2019Equity

Share capital

Additional paid-in capital

Other funds and reserves

Retained earnings

Rosneft shareholders’ equity

Non-controlling interests

Total equity

Total liabilities and equity

Notes

2019

2018

As of December 31,

635

(154)

4,035

4,517

635

5,152

12,950

633

(191)

3,610

4,053

624

4,677

13,163

Chief Executive Officer

___________________________

I.I. Sechin February______, 2020

Rosneft Oil Company Consolidated balance sheet
(in billions of Russian rubles)

Notes

2019

2018

As of December 31,

ASSETS

Current assets

Cash and cash equivalents

Restricted cash

Other short-term financial assets

Accounts receivable

Inventories

Prepayments and other current assets

Total current assets

Non-current assets

Property, plant and equipment

Right-of-use assets

Intangible assets

Other long-term financial assets

Investments in associates and joint ventures

Bank loans granted

Deferred tax assets

Goodwill

Other non-current non-financial assets

Total non-current assets

Total assets

LIABILITIES AND EQUITY

Current liabilities

Accounts payable and accrued liabilities

Loans and borrowings and other financial liabilities

Income tax liabilities

Other tax liabilities

Provisions

Prepayment on long-term oil and petroleum products supply agreements

Other current liabilities

Total current liabilities

Non-current liabilities

Loans and borrowings and other financial liabilities

Deferred tax liabilities

Provisions

Prepayment on long-term oil and petroleum products supply agreements

Other non-current liabilities

Total non-current liabilities

228

501

750

438

469

832

633

642

393

510

2,396

3,022

8,713

8,445

160

229

803

291

171

10,554

12,950

1,162

795

379

332

–

239

735

239

295

10,141

13,163

1,130

978

327

354

2,755

2,874

3,033

844

343

750

3,413

837

244

1,072

5,043

5,612

262

263

Appendix No.1ROSNEFT ANNUAL REPORT – 2019Rosneft Oil Company Consolidated statement of profit or loss
(in billions of Russian rubles, except earnings per share data,
and share amounts)

For the years ended December 31,

Notes

2019

2018*

Net income attributable to:

Rosneft shareholders

non-controlling interests

Revenues and equity share in profits of associates and joint ventures

Net income attributable to Rosneft per common share (in RUB) – basic and diluted

For the years ended December 31,

Notes

2019

2018*

708

66.81

549

100

51.80

Oil, gas, petroleum products and petrochemicals sales

8,490

8,076

Weighted average number of shares outstanding (millions)

10,598

Support services and other revenues

Equity share in profits of associates and joint ventures

Total revenues and equity share in profits of
associates and joint ventures

Costs and expenses

Production and operating expenses

Cost of purchased oil, gas, petroleum products, goods for retail and refining costs

General and administrative expenses

Transportation costs and other commercial expenses

Exploration expenses

Depreciation, depletion and amortization

23-25

Taxes other than income tax

Export customs duty

Total costs and expenses

Operating income

Finance income

Finance expenses

Other income

Other expenses

Foreign exchange differences

Realized foreign exchange differences on hedge instruments

Income before income tax

Income tax expense

Net income

100

8,676

8,238

715

1,566

200

733

687

2,666

793

7,371

1,305

143

(227)

(153)

(146)

997

(192)

805

626

1,115

167

638

635

2,701

1,061

6,954

1,284

122

(290)

(294)

107

(146)

832

(183)

649

Rosneft Oil Company Consolidated statement of other
comprehensive income (in billions of Russian rubles)

Net income

Other comprehensive income – to be reclassified
to profit or loss in subsequent periods

Foreign exchange differences on translation of foreign operations

Foreign exchange cash flow hedges

Income/(loss) from changes in fair value of debt financial assets at fair value through other
comprehensive income

Increase in allowance for expected credit losses on debt financial assets at fair value through
other comprehensive income

Equity share in other comprehensive (loss)/income of associates

Income tax related to other comprehensive income - to be reclassified to profit or loss
in subsequent periods

Total other comprehensive income – to be reclassified to profit or loss in subsequent
periods, net of tax

Other comprehensive income – not to be reclassified to profit or loss in subsequent periods

Income from changes in fair value of equity financial assets at fair value through other
comprehensive income

Income tax related to other comprehensive income - not to be reclassified to profit or loss
in subsequent periods

Total comprehensive income – not to be reclassified to profit or loss in subsequent periods,
net of tax

Notes

For the years ended
December 31,

2019

805

2018

649

(88)

146

(4)

(29)

(1)

146

(2)

(30)

126

(1)

Total comprehensive income, net of tax

842

780

Total comprehensive income, net of tax, attributable to:

Rosneft shareholders

non-controlling interests

745

680

100

1 Some amounts for the twelve months ended December 31, 2018 have been reclassified for compliance with the current period presentation.

264

265

Appendix No.1ROSNEFT ANNUAL REPORT – 2019Rosneft Oil Company Consolidated statement of changes
in shareholders’ equity (in billions of Russian rubles,
except share amounts)

Number
of shares
(millions)

Share
capital

Additional
paid-in
capital

Other
funds and
reserves1

Retained
earnings

Rosneft
share-
holders’
equity

Non-
controlling
interests

Total equity

Balance at January 1, 2018

10,598

Net income

Other comprehensive income

Total comprehensive income

Dividends declared (Note 36)

Change of interest in subsidiaries

Other movements (Note 16)

–

Balance at December 31, 2018

10,598

Net income

Other comprehensive income

Total comprehensive income

Dividends declared (Note 36)

Change of interest in subsidiaries

Other movements (Note 16)

–

Balance at December 31, 2019

10,598

–

627

(322)

3,286

3,592

–

131

–

549

–

549

131

680

(225)

–

633

(191)

3,610

4,053

–

708

–

708

745

(283)

–

635

(154)

4,035

4,517

563

100

–

100

(61)

624

–

(99)

635

4,155

649

131

780

(286)

4,677

805

842

(382)

5,152

Rosneft Oil Company Consolidated statement of cash flows (in
billions of Russian rubles)

Operating activities

Net income

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation, depletion and amortization

Loss on disposal of non-current assets

Dry hole costs

Offset of prepayments received on oil and petroleum products long term supply agreements

Offset of prepayments made on oil and petroleum products long term supply agreements

For the years ended
December 31,

Notes

2019

2018

23-25

805

687

(344)

138

649

635

(283)

205

1 Other funds and reserves include a reserve for foreign exchange differences on translation of foreign operations, a reserve for changes in fair value

of equity and debt financial assets at fair value through other comprehensive income, a reserve for expected credit losses on such debt financial

assets, a reserve for equity share in other comprehensive income of associates and joint ventures, and a reserve for foreign exchange cash flow

hedges.

266

Foreign exchange gain on non-operating activities

Realized foreign exchange differences on hedge instruments

Offset of other financial liabilities

Equity share in profits of associates and joint ventures

Non-cash income from acquisitions, net

Loss from disposal of non-production assets

Changes in provisions for financial assets

Loss from changes in reserves and impairment of assets

Finance expenses

Finance income

Income tax expense

Changes in operating assets and liabilities

(Increase)/decrease in accounts receivable, gross

Increase in inventories

Decrease in restricted cash

Increase in prepayments and other current assets

Increase in long-term prepayments made on oil and petroleum products supply agreements

Increase/(decrease) in accounts payable and accrued liabilities

Increase in other tax liabilities

Decrease in other current liabilities

Increase in other non-current liabilities

Increase in current reserves

Interest paid on long-term prepayment received on oil and petroleum products supply
agreements

Net increase in operating assets of subsidiary banks

Net increase in operating liabilities of subsidiary banks

Notes

For the years ended
December 31,

2019

(91)

146

(172)

(100)

–

105

227

(143)

192

(139)

(43)

(58)

(67)

(9)

(8)

(61)

2018

(77)

146

(164)

(82)

(26)

238

290

(122)

183

215

(68)

(74)

(72)

(29)

(8)

–

(6)

(139)

144

Net cash provided by operating activities before income tax and interest

1,199

1,640

Income tax payments

Interest received

Dividends received

Net cash provided by operating activities

Investing activities

Capital expenditures

Acquisition of licenses and auction fee payments

(216)

(221)

1,110

1,502

(854)

(936)

(11)

(3)

267

Appendix No.1ROSNEFT ANNUAL REPORT – 2019For the years ended December
31,

Notes

2019

Acquisition of short-term financial assets

Proceeds from sale of short-term financial assets

Proceeds from sale of long-term financial assets

Acquisition of long-term financial assets

Acquisition of interest and additional capital contribution to the associates and joint ventures

Acquisition of interest in subsidiaries, net of cash acquired, and joint arrangements

Proceeds from sale of investments in joint ventures

Proceeds from sale of interest in subsidiaries, net of cash acquired

Proceeds from sale of property, plant and equipment

(93)

240

(18)

(4)

(12)

–

2018

(419)

189

466

(73)

(2)

(35)

–

(729)

(799)

401

(689)

393

(540)

185

(57)

(280)

–

(283)

(99)

(957)

(576)

832

(28)

228

429

(1,366)

1,311

(289)

338

(64)

(284)

(40)

(225)

(65)

(228)

475

322

832

Net cash used in investing activities

Financing activities

Proceeds from short-term loans and borrowings

Repayment of short-term loans and borrowings

Proceeds from long-term loans and borrowings

Repayment of long-term loans and borrowings

Proceeds from other financial liabilities

Repayment of other financial liabilities

Interest paid

Repurchase of bonds

Proceeds from sale of non-controlling share in subsidiary

Other financing received

Dividends paid to Rosneft shareholders

Dividends paid to non-controlling shareholders

Net cash (used in) / provided by financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Effect of foreign exchange on cash and cash equivalents

Cash and cash equivalents at the end of the year

For the full version
of consolidated financial statements
of Rosneft as at 31 December 2019
and the independent auditor’s
opinion, see the Company’s website
at:

https://www.rosneft.com/
upload/site2/document_
cons_report/Rosneft_
FS_12m2019_ENG.pdf

268

Appendix 2
(Key Risk Factors)

ROSNEFT ANNUAL REPORT – 2019No.

Business area

Risk

Risk description

Rosneft’s risk management practice

No.

Business area

Risk

Risk description

Rosneft’s risk management practice

Industry-wide risks

Occupational
health and safety

Risk of occupational
injuries

The risk is related
to lost-time inju-
ries of the Company’s
employees or contractors

Rosneft has a dedicated HSE management system, which
brings together resources and procedures essential to both
prevent, and respond to, hazardous occurrences. The risk man-
agement measures include:

Exploration
and production

Risk of failure
to achieve oil and gas
condensate produc-
tion targets

The risk is related
to the failure to achieve
oil and gas condensate
production targets spec-
ified in the Company’s
business plan

Rosneft is a global leader in terms of oil reserves and has sig-
nificant potential to increase its resource base. For many years,
our replacement ratio for proven SEC hydrocarbon reserves
has remained over 100%. Rosneft is committed to maintain-
ing the ratio at 100% and above by growing its proven SEC
reserves.

Gas business

Risk of failure
to achieve natural gas
and gas condensate
production targets

The risk is related
to the failure to achieve
natural gas and gas
condensate produc-
tion targets specified
in the Company’s busi-
ness plan;

Risk related to ris-
ing purchase prices
for electric power

Gas business

Exploration
and production

Refining, pet-
rochemicals,
commerce
and logistics

Risk of failure to com-
ply with the repair
plan in Oil Refining

The risk
is related to the vola-
tility of the purchase
prices for electric power
in the wholesale market
price zones, indexation
of electricity transmis-
sion tariffs, and new sur-
charges to the capacity
price

The risk of a decline
in financial and operat-
ing performance caused
by delays in the mainte-
nance works at the Oil
Refining production
facilities

Refining, pet-
rochemicals,
commerce
and logistics

Risk of price restric-
tions resulting
in a lower gross mar-
gin from petroleum
product sales through
Rosneft’s own filling
stations and oil depots
in Russia

Risk of price restrictions
resulting in a lower gross
margin from small whole-
sale and retail sales
of petroleum products

270

holding occupational safety trainings;

exercising control over the safety of fire, gas hazardous
and excavation works when approving the work permits;
assessing the related risks;

exercising control over equipping vehicles of the Group
Subsidiaries and contractors with in-vehicle monitoring sys-
tems and two-way dashboard cameras;

providing support to the key development funds and projects

Key measures to manage the risk of failure to achieve gas
and gas condensate production targets include:

carrying out regular well logging;

planning and executing well interventions;

monitoring the financials of Gas Business’ contractors for signs
of bankruptcy;

ensuring timely updates of the routine preventive overhaul
plans and budgets and exercising control over preventive
repairs

Promoting the need to restrict the price/tariff growth during
the energy price discussions with the federal executive bodies,
the Market Council and the expert community

The risk management measures include:

monitoring the contractual delivery times; considering
the purchases of available alternatives; ensuring the minimum
emergency stock;

organising inspections at the manufacturer's site during
the production of equipment;

preparing the procurement and maintenance requests, includ-
ing the selection criteria (equipment, the availability of quali-
fied personnel, the availability of own repair facilities, etc.)

The risk is taken into account due to the limited impact
on the decision-making regarding fixing (freezing) retail prices
for oil products

Refining, pet-
rochemicals,
commerce
and logistics

Risk of lower quality
of refinery feedstock

Refining, pet-
rochemicals,
commerce
and logistics

Risk of failure
to achieve natural gas
sales targets

Refining, pet-
rochemicals,
commerce
and logistics

Risk of counterparties
using unconventional
pricing terms

Refining, pet-
rochemicals,
commerce
and logistics

Risk of lower EBITDA
from harbour services

Occupational
health and safety

Risk of accidents

Refining, pet-
rochemicals,
commerce
and logistics

Gas business

Risk of failure
to achieve natural gas
price targets

Adverse changes
in the Company's
financial and oper-
ating performance
as a result of lower qual-
ity of feedstock supplied
for refining

The risk
is related to the decline
in gas and gas con-
densate sales below
the levels projected
in the approved business
plan;

The risk stems
from the probability that
the pricing terms chosen
by certain counterpar-
ties for the concluded
contracts will differ
from the Company’s
approved business plan

The risk is related
to potential restric-
tions of the towboats’
operations in Primorsk
and Novorossiysk ports
in 2020

The risk of the break-
down of the facilities
and/or equipment used
at a hazardous indus-
trial facility, uncontrolled
explosion and/or pollut-
ant emissions

The risk is related
to potential lack
of gas price indexa-
tion in the second half
of 2020

The risk management measures include:

ensuring continuous monitoring and timely adjustment
of the production drilling Programme;

monitoring well interventions, including timely proposal
of candidates; the availability of resources (approved funding,
the availability of workers); the use of technologies, etc.;

monitoring the preparation of engineering design
documentation;

ensuring continuous monitoring and timely adjustment
of the oil delivery schedule; continuous monitoring of oil availa-
bility in the tank fleets of the Group's producing Subsidiaries;

exercising control over the changes in design solutions dur-
ing the construction, analysis of the impact the changes
in the approved design and estimate documentation would
have on the completion date and cost of the construction,
and accounting for these changes

The Company has limited influence on the quality of feedstock
supplied to refineries through the Transneft's trunk pipelines.
The Company’s response includes the following risk manage-
ment measures:

stopping the receipt of a given batch of oil and/or its redirec-
tion to storage facilities; filing complaints;

making adjustments to the processing unit’s operation mode;
adjusting the production Programme

The risk is taken into account due to the limited impact
on potential new restrictions on the supply of natural gas
to the pipeline network

The risk is taken into account due to the limited impact
on the counterparties’ pricing choice under the concluded
crude oil and petroleum products supply contracts

To compensate for lost profit caused by restrictions
of the towboats’ operations in Primorsk and Novorossiysk
ports, the following actions will be taken:

using towboats on alternative routes to service vessels carry-
ing non-liquid cargo

Rosneft has a dedicated HSE management system, which
brings together resources and procedures essential to both
prevent, and respond to, hazardous occurrences. The manage-
ment measures for accident risks include:

providing support to the key development funds and projects

implementing the insurance Programme for the main produc-
tion assets (reparation of damages)

Supporting the indexation of regulated gas prices when
discussing pricing matters with government bodies
and the expert community

271

ROSNEFT ANNUAL REPORT 2019Appendix No.2.Наименование риска

Описание риска

Практика управления риском в Компании

Наименование риска

Описание риска

Практика управления риском в Компании

№
п/п

Направление
деятельности

Financial risks

Corporate
functions

Exploration
and production

Gas business

Refining, pet-
rochemicals,
commerce
and logistics

Market risks

Market risks include
price, currency and inter-
est rate risks

Refining, pet-
rochemicals,
commerce
and logistics

Credit risk related
to crude oil, petro-
leum products, natural
gas, petrochemicals
and gas process-
ing products supply
contracts

Refining, pet-
rochemicals,
commerce
and logistics

Counterparty risk
related to long-term
advance payment
crude oil and petro-
leum products supply
contracts

Risk of losses due
to a counterparty’s
default on, or failure
to timely or completely
fulfil its obligations
owed to the Company
under any revenue
or expenditure contract
entered into by Rosneft
or any of the Group
Subsidiaries

Risk of losses due
to a counterparty’s
default on, or failure
to timely or completely
fulfil its obligations
owed to the Company
under any advance
payment expenditure
contract

Rosneft has sufficient capability to redistribute its commod-
ity flows in case of a significant price difference between
the domestic and international markets and can promptly cut
its capex and opex to meet its commitments and obligations if
prices for oil, gas, and petroleum products should plummet.

Given the FX component of its revenue and liabilities,
the Company is also exposed to currency risk. We manage
this risk by using an integrated approach enabling the use
of natural (economic) hedging. For short-term management
of its currency risk, the Company selects a currency for free
cash balances from among the Russian ruble, the U.S. dollar
and other foreign currencies.

The Company analyses exposure to interest rate changes,
including the development of various scenarios to assess
the influence of interest rate changes on financial indicators

The Company manages its credit risk by implementing the fol-
lowing risk management measures:

using security interests to cover its credit risks (via bank guar-
antees, letters of credit, etc.);

performing more frequent checks to assess the financial posi-
tion of counterparties to major transactions posing credit risk
under unsecured contracts;

implementing controls to authorise shipments and shipping
orders and ensure that all sales contracts are backed properly
by financial instruments

The risk management measures include:

monitoring the coverage of outstanding amounts against
the planned supplies;

discussing and monitoring shipment schedules

Corporate
functions

Risk of tax claims
and risk of losing tax
benefits

Corporate
functions

Risk of default/
cross-default

Exploration
and production

Gas business

Refining, pet-
rochemicals,
commerce
and logistics

Risk of financial losses
due to concerns brought
forward by tax authori-
ties or of the Company
being no longer eligible
for tax benefits

Rosneft continuously monitors amendments to tax laws, eval-
uates and forecasts the degree of their potential impact on its
operations, follows the latest legal precedents and adapts
to changes in the legislation. The Company’s experts are reg-
ularly involved in various working groups responsible for draft-
ing tax legislation

Risk of being unable
to timely and/or fully
meet the Company’s
obligations under its
debt financing agree-
ments or long-term
advance payment crude
oil and petroleum prod-
ucts supply contracts

The risk management measures include:

considering alternative (unconventional) financing oppor-
tunities in accordance with the extended set of instruments
specified in the Company's Standard on Managing Idle
Cash and Short-Term Financing at Rosneft and the Group
Subsidiaries;

keeping track of payment schedules within the debt and finan-
cial derivatives portfolios;

monitoring the level of debt covenants specified in the out-
standing loan agreements

№
п/п

Направление
деятельности

Legal risks

Corporate
functions

Risk of adverse judge-
ments in legal pro-
ceedings to which
the Company is a party

Risk of financial losses
due to adverse court
rulings in proceedings
to which the Company
is a party

Refining, pet-
rochemicals,
commerce
and logistics

Risk of breach of com-
petition laws

Rosneft has a significant
share in Russian whole-
sale markets for petrols,
diesel and aviation fuel,
and fuel oil and therefore
is subject to additional
competitive require-
ments and risks associ-
ated with amendments
to, and potential viola-
tions of anti-trust laws

Rosneft continuously monitors laws, judicial practice and legal
precedents, drawing on them heavily to resolve legal issues
arising in the course of its business, including protecting its
rights and legal interests in court. Rosneft is involved in a num-
ber of legal proceedings that arise in the course of its busi-
ness. If new legal precedents are set for, and any adverse
judgements are made in proceedings to which the Company
is a party, the outcomes of these litigations will likely have
a minor impact on the Company’s financial and business
performance

The risk management measures include:

updating internal regulations on pricing and selling petroleum
products based on anti-trust laws and regulations and amend-
ments thereto (if necessary);

ensuring non-discriminating access of independent market
participants to direct supplies of Rosneft petroleum products
(creating a level playing field for Group Subsidiaries and third
parties, including advance payments for the former), selling
required volumes of petroleum products on the exchange,
addressing customer requests/complaints;

fulfilling necessary requirements to mitigate the risk of being
accused of setting non-competitive bulk wholesale prices (sell-
ing on the exchange not less than required by a joint order
of the Federal Antimonopoly Service and the Russian Ministry
of Energy, meeting the criteria for regular and evenly distrib-
uted on-exchange sales);

if being accused, working out a rationale for the Federal
Antimonopoly Service; if the rationale is rejected, considering
court action; defending the Company's position with govern-
ment bodies

Country and regional risks

Exploration
and production

Risk related to interna-
tional projects

Refining, pet-
rochemicals,
commerce
and logistics

Rosneft is involved
in different projects
all around the world,
and in some regions,
there are material risks
related to the political,
social and economic
uncertainty. Should
these risks materialise,
they might adversely
impact such projects’
implementation.

In case of political, economic, or social risks arising in Rosneft’s
regions of operation, the Company’s management will take
every reasonable step to minimise their potential adverse
impact.

The actual profile of such measures will be decided on a case-
by-case basis and may include conducting negotiations
with government bodies, reducing operating costs, opti-
mising the investment Programme, introducing restructur-
ing initiatives, as well as ensuring the safety of the Company’s
employees.

272

273

ROSNEFT ANNUAL REPORT 2019Appendix No.2.Appendix 3
(Report on Compliance
With the Principles
and Recommendations
of the Corporate
Governance Code
the Bank of Russia)

Report on compliance with the principles and recommendations
of the Corporate Governance Code

This report on compliance with the principles and recommendations of the Corporate Governance Code (the Report) was re-
viewed by Rosneft’s Board of Directors at a meeting held on 21 April 2020 (Minutes No.22 dated 22 April 2020) as part of the
2019 Annual Report.

The Board of Directors certifies that this Report contains complete and reliable information on Rosneft’s compliance with the prin-
ciples and recommendations of the Corporate Governance Code in 20191.

Rosneft assesses its compliance with the Corporate Governance Code as per the guidelines recommended by the Bank of Russia
in Letter No. IN-06-52/8 on Disclosure of Compliance with the Principles and Recommendations of the Corporate Governance
Code in the Annual Report of a Public Joint Stock Company dated 17 February 2016. Key aspects of the Company’s corporate gov-
ernance model and practice are outlined in Section Corporate Governance of Rosneft’s 2019 Annual Report.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

The Company shall ensure equitable and fair treatment of all shareholders exercising their right to participate in managing
the Company.

To maintain effective relations with shareholders,
Rosneft provides the following communication
channels: a shareholder hotline, mail and email,
fax.

The Company does not consider setting up
a dedicated online forum, as it has other com-
munication channels in place, as well as pro-
vides for the opportunity to discuss agenda
items at General Shareholders Meetings and, if
relevant, using Rosneft’s social networks, which
are mentioned on Rosneft’s official website.

The Corporate Governance analytical infor-
mation system was put into operation. It ena-
bles shareholders to vote online and interact
with the Company and the registrar via share-
holder’s personal account.

1.1.1

The Company provides
the best possible con-
ditions for shareholders
to participate in General
Shareholders Meetings,
make informed decisions
on agenda items, coordinate
their actions and express
their opinions on matters
under consideration.

1.1.2

The procedure to notify
shareholders of a General
Shareholders Meeting
and provide them with rele-
vant materials enables them
to get well-prepared.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

1. The Company’s internal reg-
ulation on conducting General
Shareholders Meetings approved
by the General Shareholders
Meeting is publicly available.

2. The Company provides an easily
accessible communication channel,
such as a hotline, email or online
forum, for shareholders to express
their opinions and put questions
regarding the agenda in preparation
for a General Shareholders Meeting.
The Company provided such com-
munication channels before every
General Shareholders Meeting held
in the reporting period.

1. The notice of a General
Shareholders Meeting is posted
on the Company’s website
at least 30 days prior to the date
of the Meeting.

2. The notice specifies the venue
of the Meeting and documents
required for admission to the venue.

3. Shareholders are informed of who
proposed agenda items and nomi-
nated candidates to the Company’s
Board of Directors and Audit
Commission.

1 Specifies either the reporting year or, if the report on compliance with the principles and recommendations of the Corporate Governance Code

contains data related to the post reporting period up to the date of the Report, the date of the Report.

2 The “complied with” status is assigned only if the Company meets all of the criteria for compliance with a corporate governance principle.

Otherwise, the “complied with in part” or “not complied with” status is assigned.

3 Explanations are given for each criterion for compliance with a corporate governance principle if the Company meets only some of the criteria

or none of them. If the Company indicates the “complied with” status, no explanations are required.

275

Appendix No.3.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

1.1.3 When preparing

for and participating
in a General Shareholders
Meeting, shareholders have
unrestricted and timely
access to any relevant
information and materials,
and are able to put ques-
tions to the Company’s
executive bodies and direc-
tors, as well as communicate
with one another.

1.1.4

1.1.5

1.1.6

There are no unjustified dif-
ficulties preventing share-
holders from exercising
their rights to convene
a General Shareholders
Meeting, nominate can-
didates to the governing
bodies and propose items
for the agenda.

Each shareholder is able
to exercise their voting
right without hindrance,
in the simplest and most
convenient way.

The procedure for hold-
ing a General Shareholders
Meeting established
by the Company pro-
vides all persons present
at the Meeting with equal
opportunities to express
their opinions and ask
questions.

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

1. In the reporting period, share-
holders had the opportunity to put
questions to the Company’s exec-
utive bodies and directors both
before and during the Annual
General Shareholders Meeting.

2. The Board of Directors’ opin-
ions (including dissenting opinions
recorded in the minutes) on each
of the agenda items of the General
Shareholders Meetings held
in the reporting period were added
to the materials for the General
Shareholders Meeting.

3. The lists of persons enti-
tled to participate in each
General Shareholders Meeting
in the reporting period were made
available to the shareholders eli-
gible to review such lists as soon
as the Company received those.

1. In the reporting period, share-
holders had the opportunity
to propose items for the agenda
of the Annual General Shareholders
Meeting during at least 60 days
after the end of the respective cal-
endar year.

2. In the reporting period,
the Company rejected no item pro-
posed for the agenda and no candi-
date nominated to the Company’s
bodies due to misprints or other
minor flaws in shareholders’
proposals.

1. The Company’s internal regula-
tion (corporate policy) authorises
each General Shareholders Meeting
participant to request a copy
of their completed ballot certified
by the ballot committee before
the end of the respective meeting.

1. In the reporting period, sufficient
time for reporting on and discuss-
ing agenda items was provided
at General Shareholders Meetings
held in the form of a meeting (joint
presence of shareholders).

Ѵ Complied with
Complied
with in part

Not complied
with

2. Candidates nominated
to the Company’s governing
and supervisory bodies were avail-
able for answering shareholders’
questions at the Meeting where
they were voted upon.

3. When making decisions
on the preparation and holding
of General Shareholders Meetings
in the reporting period, the Board
of Directors considered using
telecommunications equip-
ment to provide shareholders
with remote access to participate
in the Meetings.

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

1.2. Shareholders are provided with an equitable and fair opportunity to receive a share of the Company’s profits in the form
of dividends.

1.2.1

The Company has devel-
oped and implemented
a transparent and clear
procedure to determine
the amount of dividends
and pay them out.

1. The Company’s Dividend Policy
has been developed, approved
by the Board of Directors
and disclosed.

2. If, in accordance
with the Company’s Dividend Policy,
the amount of dividends is deter-
mined based on the Company’s
results recorded in its financial
statements, the Dividend Policy
shall employ the consolidated finan-
cial statements.

1. The Company’s Dividend Policy
clearly stipulates financial/eco-
nomic circumstances under which
the Company should not pay
dividends.

The Company does
not resolve to pay out
dividends if such resolu-
tion, though not in breach
of the legislation, is not eco-
nomically viable and may
lead to false assumptions
about the Company’s
operations.

1.2.2

1.2.3

1.2.4

The Company does
not allow any nega-
tive changes in the divi-
dend rights of its current
shareholders.

1. In the reporting period,
the Company did not perform any
actions causing negative changes
in the dividend rights of its current
shareholders.

The Company makes every
effort to prevent sharehold-
ers from receiving profit
(gain) from the Company
other than in the form of div-
idends and liquidation value.

1. In order to prevent sharehold-
ers from receiving profit (gain)
from the Company other than
in the form of dividends and liqui-
dation value, the Company’s inter-
nal regulations provide for controls
that ensure timely identifica-
tion and approval of transactions
with affiliates (related parties)
of substantial shareholders (per-
sons entitled to exercise votes
attached to voting shares), where
the law does not formally recognise
such transactions as related-party
transactions.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

1.3. Corporate governance framework and practices ensure equality of all shareholders owning shares of the same class (type),
including minority and foreign shareholders, and their equitable treatment by the Company.

1.3.1

1.3.2

The Company ensures fair
treatment of each share-
holder by its governing bod-
ies and controlling persons,
specifically allowing no
abuse of minority sharehold-
ers by major shareholders.

1. In the reporting period,
the procedures to manage poten-
tial conflicts of interest between
substantial shareholders were effec-
tive, and the Board of Directors paid
due attention to conflicts between
shareholders, if any.

The Company does not per-
form any actions that will
or may result in artificial
redistribution of corporate
control.

1. The Company has no quasi-treas-
ury shares, or no quasi-treasury
shares were used in voting during
the reporting period.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

276

277

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

1.4. Shareholders are provided with reliable and effective methods of registering their ownership of shares and the opportunity
to dispose of their shares freely and without hindrance.

1.4.1

Shareholders are provided
with reliable and effec-
tive methods of registering
their ownership of shares
and the opportunity to dis-
pose of their shares freely
and without hindrance.

1. The quality
and reliability of the work per-
formed by the Company’s regis-
trar to keep the register of security
holders meet the Company’s and its
shareholders’ needs.

Ѵ Complied with
Complied
with in part

Not complied
with

2.1. The Board of Directors is responsible for the strategic management of the Company, formulating key principles
of and approaches to risk management and internal controls in the Company, supervising the work of the Company’s executive
bodies and performing other core functions.

2.1.1

2.1.2

The Board
of Directors is respon-
sible for the appoint-
ment of executive bodies
and their dismissal, including
as a result of failure to per-
form properly. The Board
of Directors also ensures
that the Company’s execu-
tive bodies act in accord-
ance with the approved
development strategy
and the Company’s business
profile.

1. The Board of Directors has
the powers stated in the Charter
to appoint and dismiss members
of executive bodies and to deter-
mine the terms and conditions
of their contracts.

2. The Board of Directors has
reviewed the report (reports)
of the sole executive body
and members of the collective exec-
utive body on the implementation
of the Company’s strategy.

The Board of Directors sets
major long-term targets
for the Company, as well
as assesses and approves its
key performance indicators
and primary business goals,
along with the Company’s
strategy and business plans
with regard to its core
operations.

1. In the reporting period, the Board
of Directors addressed matters
related to the strategy imple-
mentation and revision, approval
of the Company’s financial and busi-
ness plan (budget), and review
of criteria and indicators (includ-
ing interim ones) as regards deliv-
ering on the Company’s strategy
and business plans.

2.1.3

The Board of Directors for-
mulates the principles
of and approaches to risk
management and internal
controls in the Company.

The Board of Directors has
formulated the principles
of and approaches to risk man-
agement and internal controls
in the Company.

2.1.4

The Board of Directors
determines the Company’s
policy on remuneration
and/or reimbursement
of expenses (compensa-
tions) to its directors, exec-
utive bodies and other key
managers.

In the reporting period,
the Board of Directors assessed
the Company’s risk management
and internal control system.

1. The Company has developed
and implemented the policy (pol-
icies) approved by the Board
of Directors on remuneration
and reimbursement of expenses
(compensations) to its directors,
executive bodies and other key
managers.

2. In the reporting period, the Board
of Directors addressed mat-
ters related to the above policy
(policies).

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Ѵ Complied with
Complied
with in part

Not complied
with

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

The Board of Directors
plays a key role in prevent-
ing, identifying and resolv-
ing internal conflicts
between the Company’s
bodies, shareholders
and employees.

The Board of Directors
plays a key role in ensur-
ing the Company’s trans-
parency, full
and timely information
disclosure, and unhin-
dered access of share-
holders to the Company’s
documents.

The Board of Directors
oversees the Company’s
corporate governance prac-
tices and plays a key role
in the Company’s material
corporate events.

2.1.5

2.1.6

2.1.7

2.2.

2.2.1

1. The Board of Directors plays
a key role in preventing, identifying
and resolving internal conflicts.

2. The Company has developed
a framework for identifying transac-
tions involving a conflict of interest
and a set of measures for resolving
such conflicts.

1. The Board of Directors
has approved a regulation
on Information Policy.

2. The Company has determined
persons responsible for the imple-
mentation of the Information Policy.

Ѵ Complied with
Complied
with in part

Not complied
with

1. In the reporting period,
the Board of Directors reviewed
the Company’s corporate govern-
ance practices.

Ѵ Complied with
Complied
with in part

Not complied
with

The Board of Directors is accountable to the Company’s shareholders.

Information
on the performance
of the Board of Directors
is disclosed and provided
to shareholders.

Ѵ Complied with
Complied
with in part

Not complied
with

1. The Company’s Annual Report
for the reporting period includes
information on attendance of meet-
ings of the Board of Directors
and Committees by individual
directors.

2. The Annual Report includes infor-
mation on key results of the Board
of Directors’ performance assess-
ment carried out in the reporting
period.

2.2.2

The Chairman
of the Board of Directors
is available for con-
tact with the Company’s
shareholders.

1. The Company has a transparent
procedure enabling shareholders
to submit their questions and opin-
ions thereon to the Chairman
of the Board of Directors.

Ѵ Complied with
Complied
with in part

Not complied
with

The Board of Directors manages the Company in an effective and competent manner, and is able to make objective and inde-
pendent judgements and decisions in the best interests of the Company and its shareholders.

2.3.1

Elected to the Board
of Directors are only those
individuals who have
an impeccable business
and personal reputation,
as well as the knowledge,
skills and experience
required for making deci-
sions within the remit
of the Board of Directors
and performing its functions
effectively.

1. The Company’s procedure
for assessing the Board of Directors’
performance includes, among other
things, the assessment of directors’
professional expertise.

2. In the reporting period, the Board
of Directors (or its Nomination
Committee) assessed candidates
to the Board of Directors in terms
of their required experience, knowl-
edge, business reputation, lack
of conflict of interest, etc.

Ѵ Complied with
Complied
with in part

Not complied
with

278

279

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Ѵ Complied with
Complied
with in part

Not complied
with

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

2.3.2

The Company’s directors
are elected through a trans-
parent procedure providing
shareholders with suffi-
cient information on can-
didates to form an opinion
about their personal
and professional qualities.

1. In all cases where the agenda
of a General Shareholders Meeting
held in the reporting period
included election to the Board
of Directors, the Company pro-
vided shareholders with bio-
graphical details of all candidates
to the Board of Directors, results
of their assessment by the Board
of Directors (or its Nomination
Committee), informa-
tion on their compliance
with the independence criteria
as per Recommendations 102-107
of the Code, and their written con-
sent to be elected to the Board
of Directors.

2.3.3

2.3.4

The composition
of the Board of Directors
is balanced, including
in terms of directors’ exper-
tise, experience, knowledge
and business skills, and wor-
thy of shareholders’ trust.

The number of directors
ensures the most effec-
tive arrangement of activ-
ities of the Company’s
Board of Directors,
including by way
of establishing Committees,
and enables a candidate
voted for by the Company’s
substantial minority share-
holders to be elected
to the Board of Directors.

1. As part of the Board of Directors’
performance assessment
in the reporting period, the Board
of Directors reviewed its own needs
for professional expertise, experi-
ence and business skills.

Ѵ Complied with
Complied
with in part

Not complied
with

1. As part of the Board of Directors’
assessment carried out
in the reporting period, the Board
of Directors reviewed whether
the number of directors was
in line with the Company’s needs
and shareholders’ interests.

Ѵ Complied with
Complied
with in part

Not complied
with

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

2.4.2 Candidates

to the Board of Directors
are assessed for compli-
ance with the independence
criteria, with Independent
Directors being regularly
checked against these crite-
ria. Such assessments should
be in line with the substance
over form principle.

1. In the reporting period, the Board
of Directors (or its Nomination
Committee) formed an opin-
ion regarding the independence
of each candidate to the Board
of Directors and submitted the rele-
vant report to shareholders.

2. In the reporting period, the Board
of Directors (or its Nomination
Committee) at least once reviewed
the independence of current direc-
tors specified in the Company’s
Annual Report as Independent
Directors.

3. The Company has developed
procedures determining actions
to be taken by a director if they
cease to be independent, includ-
ing their obligation to notify
the Board of Directors accordingly
and in a timely manner.

2.4.3

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

1. Independent Directors make
up at least one third of the Board
of Directors.

2.4.4

Independent Directors
play a key role in pre-
venting internal conflicts
in the Company and taking
material corporate actions
by the Company.

1. Independent Directors (with no
conflict of interest) make a prelimi-
nary assessment of material corpo-
rate actions involving a potential
conflict of interest and submit
the results thereof to the Board
of Directors.

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

The Board of Directors includes a sufficient number of Independent Directors.

The Chairman of the Board of Directors ensures that the Board of Directors performs its functions in the most effective way.

1. In the reporting period, all
Independent Directors met all
of the independence criteria
as per Recommendations 102-
107 of the Code or were recog-
nised as independent by the Board
of Directors.

Ѵ Complied with
Complied
with in part

Not complied
with

2.4.1

An Independent Director
is a person with sufficient
professional skills, experi-
ence and independence
to form their own opinions
and make objective and fair
judgements not influenced
by the Company’s execu-
tive bodies, certain groups
of shareholders or other
stakeholders. Under nor-
mal circumstances a can-
didate (elected director)
may not be consid-
ered independent if they
are related to the Company,
its substantial share-
holder, its substantial coun-
terparty or competitor,
or the government.

2.5.1

2.5.2

2.5.3

The Chairman of the Board
of Directors has been
elected from among
Independent Directors,
or a Senior Independent
Director has been appointed
from among the elected
Independent Directors
to coordinate their work
and liaise with the Chairman
of the Board of Directors.

1. The Chairman of the Board
of Directors is an Independent
Director, or a Senior Independent
Director has been appointed
from among Independent Directors.

2. The role, rights and responsibil-
ities of the Chairman of the Board
of Directors (and, if applicable,
of the Senior Independent Director)
are duly specified in the Company’s
internal regulations.

Ѵ Complied with
Complied
with in part

Not complied
with

The Chairman of the Board
of Directors ensures con-
structive atmosphere dur-
ing meetings, facilitates
open discussion of agenda
items and oversees imple-
mentation of the Board
of Directors’ resolutions.

The Chairman of the Board
of Directors ensures that
directors are provided
with information required
to make informed decisions
on agenda items in a timely
manner.

1. In the reporting
period, the performance
of the Chairman of the Board
of Directors was assessed as part
of the Board of Directors’ perfor-
mance assessment.

Ѵ Complied with
Complied
with in part

Not complied
with

1. The responsibility of the Chairman
of the Board of Directors to ensure
timely provision to directors
of materials on agenda items
is specified in the Company’s
regulations.

Ѵ Complied with
Complied
with in part

Not complied
with

280

281

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

Directors act reasonably and in good faith in the best interests of the Company and its shareholders, based on sufficient aware-
ness and with due diligence and care.

The Board of Directors establishes Committees for preliminary consideration of the most important matters related
to the Company’s operations.

2.6.1

Directors make decisions
taking into account all avail-
able information, having no
conflict of interest, ensur-
ing equitable treatment
of the Company’s share-
holders and keeping within
the limits of common busi-
ness risks.

2.6.2 Directors’ rights

and responsibilities
are clearly stated and set
forth in the Company’s inter-
nal regulations.

2.6.3 Directors have sufficient

time to perform their duties.

2.6.4 All directors have equal

access to the Company’s
documents and information.
Newly elected directors
are provided with sufficient
information on the Company
and the Board of Directors’
activities as soon
as practicable.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

1. The Company’s internal regula-
tions specify that directors shall
notify the Board of Directors of any
conflict of interest they might
have in relation to any agenda
item prior to the discussion of that
item at a meeting of the Board
of Directors or its Committee.

2. The Company’s internal reg-
ulations specify that a director
shall abstain from voting on any
item where they have a conflict
of interest.

3. The Company has established
a procedure enabling the Board
of Directors to get professional
advice on matters within its remit
at the Company’s expense.

1. The Company has adopted
and published an internal regulation
clearly specifying directors’ rights
and responsibilities.

1. Individual attendance of meet-
ings of the Board of Directors
and Committees and the time
spent to prepare for such meet-
ings were taken into account during
the Board of Directors’ assessment
in the reporting period.

2. As per the Company’s internal
regulations, directors shall notify
the Board of Directors of their inten-
tion to join the governing bod-
ies of other companies (excluding
those controlled by or affiliated
with the Company) and of the fact
of such an appointment.

1. As per the Company’s internal
regulations, directors have the right
to access documents and make
enquiries related to the Company
and its controlled entities,
and the Company’s executive bod-
ies are obliged to provide the rele-
vant information and documents.

2. The Company has a formalised
induction programme for newly
elected directors.

1
2 The Company specifies which of the two suggested approaches it uses and why.

2.7.1

2.7.2

2.7.3

2.7.4

Meetings of the Board
of Directors are held as nec-
essary, given the Company’s
scope of operations
and objectives at any given
time.

1. The Board of Directors held
at least six meetings in the report-
ing year.

The Company’s internal reg-
ulations set out a proce-
dure to prepare and hold
meetings of the Board
of Directors enabling
directors to make proper
preparations.

1. The Company has approved
an internal regulation setting out
the procedure to prepare and hold
meetings of the Board of Directors
and specifying, among other things,
that the notice of a meeting shall be
generally given at least 5 days prior
to the date of the meeting.

The format of a meeting
of the Board of Directors
is determined taking into
account the importance
of agenda items. Resolutions
on the most important mat-
ters are adopted at in-per-
son meetings.

1. The Company’s Charter
or another internal regulation
specifies that the most impor-
tant matters (as per the list set
out in Recommendation 168
of the Code) shall be reviewed
at in-person meetings of the Board
of Directors.

Resolutions on the most
important matters related
to the Company’s oper-
ations are adopted
at meetings of the Board
of Directors by a qualified
majority vote or by a major-
ity vote of all elected
directors.

1. The Company’s Charter
specifies that resolutions
on the most important mat-
ters, as per Recommendation 170
of the Code, shall be adopted
at meetings of the Board
of Directors by a qualified major-
ity of at least three quarters
of the votes or by a majority vote
of all elected directors.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Complied with

Ѵ Complied
with in part

Not complied
with

Paragraph 10.5.5 of Rosneft’s Charter specifies
the range of matters to be resolved by the Board
of Directors by a qualified majority vote.

Given the scope of Rosneft’s operations,
the number of matters reviewed by the Board
of Directors, the composition of the Board
of Directors and the economic sanctions
the Company is exposed to, expanding
this range to include all matters set out
in Recommendation 170 of the Code may materi-
ally impede or prevent the resolution of matters
material to the Company.

Therefore, setting a higher quorum as recom-
mended by the Code may result in the Board
of Directors not being able to resolve a number
of key matters.

At the same time, the number of directors,
the structure of the Board of Directors, includ-
ing four Independent Directors, the procedure
to prepare for meetings, discuss matters thereat
and disclose information thereon guarantee
the protection of rights of all shareholder groups
and reflect the Company’s shareholding struc-
ture. The Company has no intention to change
its approach in the medium term.

282

283

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

1. The board of directors has
a standing nomination committee
(or its objectives specified in rec-
ommendation 186 of the Code
are implemented by a differ-
ent committee) with the majority
of its members being independent
directors.

2. The Company’s internal reg-
ulations specify the objectives
of the Nomination Committee
(or another relevant Committee
with combined functionality),
including, among others, those
set out in Recommendation 186
of the Code.

1. During the reporting period,
the company’s board of direc-
tors reviewed the relevance of its
standing committees to the board's
functions and the company’s objec-
tives. Additional committees have
been either established or found
unnecessary.

2.8.3

For preliminary consider-
ation of matters related
to human resources (suc-
cession) planning, exper-
tise and performance
of the Board of Directors,
a Nomination (Appointment,
HR) Committee mostly
composed of Independent
Directors has been
established.

2.8.4 Given the scope

of operations and risk lev-
els, the Company’s Board
of Directors has ensured
that the composition of its
Committees is fully in line
with the Company’s objec-
tives. Additional com-
mittees have been either
established or found
unnecessary (a Strategy
Committee, a Corporate
Governance Committee,
an Ethics Committee,
a Risk Management
Committee, a Budget
Committee, a Health,
Safety and Environment
Committee, etc.).

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

The Board of Directors establishes Committees for preliminary consideration of the most important matters related
to the Company’s operations.

2.8.1

For preliminary con-
sideration of matters
related to the monitoring
of the Company’s finan-
cial and business opera-
tions, an Audit Committee
composed of Independent
Directors has been
established.

2.8.2

For preliminary consider-
ation of matters related
to the development
of an effective and transpar-
ent remuneration frame-
work, a Remuneration
Committee com-
posed of Independent
Directors and chaired
by an Independent Director
not being the Chairman
of the Board of Directors has
been established.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

1. The board of directors has
a standing audit committee com-
prised entirely of independent
directors.

2. The Company’s internal regula-
tions specify the Audit Committee’s
objectives, including those set
out in Recommendation 172
of the Code.

3. At least one member of the audit
committee, who is an independent
director, has knowledge and exper-
tise in the preparation, analysis,
evaluation and audit of accounting
(financial) statements.

4. The audit committee held at least
one meeting per quarter during
the reporting period.

1. The board of directors has
a standing remuneration committee
comprised entirely of independent
directors.

2. The remuneration commit-
tee is chaired by an independent
director who is not the chairman
of the board of directors.

3. The Company’s internal regu-
lations specify the Remuneration
Committee’s objectives, includ-
ing, among others, those set
out in Recommendation 180
of the Code.

The principle is not complied with inasmuch
as the HR and Remuneration Committee
of the Board of Directors is not exclusively com-
posed of Independent Directors.

The HR and Remuneration Committee
of the Board of Directors is mostly made up
of Independent Directors. The elected Chairman
of the HR and Remuneration Committee
of the Board of Directors is an Independent
Director.

The remit of the HR and Remuneration
Committee of the Board of Directors
includes matters reserved for a Nomination
Committee and a Remuneration Committee
by the Corporate Governance Code.

Taking into account the three Committees
established by the Company (the Audit
Committee, the HR and Remuneration
Committee, the Strategic Planning Committee)
and the recommendations and restrictions set
out in the Corporate Governance Code (on
the minimum number of Committee members
(three), on the maximum number of Committees
a director may sit on, on the minimum number
of Independent Directors on a Committee (two),
and on the composition of Committees based
on directors’ relevant expertise), compliance
with the principle of the Corporate Governance
Code requiring independence of all mem-
bers of the HR and Remuneration Committee
is impracticable.

At the same time, the Company’s internal regu-
lations, including the Regulations on the Board
of Directors, specify procedures to prevent any
conflict of interest and eliminate the risk of rec-
ommendations by the HR and Remuneration
Committee of the Board of Directors being
affected by the controlling shareholder or execu-
tive bodies.

The Company has no intention to change its
approach in the medium term.

284

285

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

2.8.5

The composition
of Committees enables
comprehensive discussion
of matters subject to prelim-
inary consideration with due
regard to varying opinions.

1. Committees of the board of direc-
tors are chaired by independent
directors.

2. The company's by-laws (poli-
cies) contain provisions that pro-
hibit the non-members to attend
meetings of the audit, nomination
or remuneration committees, unless
they are invited by the chairman
of a respective committee.

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Complied with

Ѵ Complied
with in part

Not complied
with

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

As recommended by the Code, the Audit
Committee and the HR and Remuneration
Committee of the Board of Directors are chaired
by Independent Directors. Taking into account
the recommendations and restrictions set out
in the Code (on the minimum number of members
(three), on the maximum number of Committees
a director may sit on, on the minimum number
of Independent Directors on an Audit Committee
and an HR and Remuneration Committee,
and on the composition of Committees based
on directors’ relevant expertise), compliance
with the recommendation to have all Committees
chaired by Independent Directors is imprac-
ticable. The Strategic Planning Committee
is not chaired by an Independent Director.
At the same time, the Strategic Planning
Committee arranges independent reviews
and engages external experts for the Board
of Directors to consider varying opinions when
discussing the Committee’s recommendations.

Together with independent directors’ involve-
ment with the Strategic Planning Committee,
these procedural guarantees ensure the diversity
of opinions it takes into account before issuing
recommendations.

The Company has no intention to change its
approach in the medium term.

2.8.6 Committee Chairmen report

on their Committees’ per-
formance to the Board
of Directors and its Chairman
on a regular basis.

1. In the reporting period,
Committee Chairmen regularly
reported to the Board of Directors
on their Committees’ performance.

Ѵ Complied with
Complied
with in part

Not complied
with

The Board of Directors arranges performance assessment of the Board of Directors, its Committees and directors.

2.9.1

The Board of Directors’
performance assess-
ment is aimed at evalu-
ating the effectiveness
of the Board of Directors, its
Committees and directors,
checking their performance
against the Company’s
development needs,
enhancing their activi-
ties and identifying areas
for improvement.

In the reporting period, self-as-
sessment or external assessment
of the Board of Directors’ per-
formance included performance
assessment of Committees, indi-
vidual directors and the Board
of Directors as a whole.

Results of the self-assess-
ment or external assessment
of the Board of Directors carried
out in the reporting period were
reviewed at an in-person meeting
of the Board of Directors.

Ѵ Complied with
Complied
with in part

Not complied
with

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

1. To assess the Board of Directors’
performance on an independ-
ent basis, the Company engaged
an external organisation (consult-
ant) at least once over the last three
reporting periods.

Ѵ Complied with
Complied
with in part

Not complied
with

At a meeting held on 19 December 2019,
the Company’s Board of Directors reviewed
the results of the Board of Directors’ inde-
pendent performance assessment carried
out by an external consultant, Ernst & Young
Valuation and Advisory Services LLC.

2.9.2

Performance assessment
of the Board of Directors,
its Committees and direc-
tors is carried out on a reg-
ular basis at least once
a year. To assess the Board
of Directors’ performance
on an independent basis,
an external organisation
(consultant) is engaged
at least once every three
years.

3.1. The Company’s Corporate Secretary ensures effective day-to-day interaction with shareholders, coordinates the Company’s
efforts to protect shareholder rights and interests, and contributes to the Board of Directors’ efficient work.

3.1.1

3.1.2

The Corporate Secretary has
sufficient knowledge, expe-
rience and expertise to per-
form their duties, as well
as impeccable reputation,
and enjoys shareholders’
trust.

The Corporate Secretary
is sufficiently independ-
ent from the Company’s
executive bodies and has
the powers and resources
required to perform
their duties.

1. The Company has adopted
and disclosed an internal regulation
on Corporate Secretary.

2. The Company’s website
and Annual Report provide bio-
graphical details of the Corporate
Secretary comparable to those
of the Company’s directors
and executives.

1. The Board of Directors approves
the appointment and dismissal
of the Corporate Secretary
and their additional remuneration.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

4.1. Remuneration paid by the Company is sufficient to attract, motivate and retain employees with the required competence
and expertise. Remuneration is paid to the Company’s directors, executive bodies and other key managers in accordance
with the remuneration policy adopted by the Company.

1. The Company has adopted
an internal regulation (regulations)
in the form of a remuneration policy
(remuneration policies) for its direc-
tors, executive bodies and other
key managers clearly stating
approaches to their remuneration.

Ѵ Complied with
Complied
with in part

Not complied
with

4.1.1

Remuneration paid
by the Company to direc-
tors, executive bodies
and other key manag-
ers is sufficient to ensure
their efficient work
and enables the Company
to attract and retain com-
petent and qualified spe-
cialists. At the same time,
the Company avoids pay-
ing higher-than-required
remuneration or creating
unreasonably wide remu-
neration gaps between
any of the above persons
and Company employees.

286

1 If the functions of the Nomination Committee are performed by another Committee, the Company specifies its name.

287

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Ѵ Complied with
Complied
with in part

Not complied
with

1. In the reporting period,
the Remuneration Committee
reviewed the remuneration policy
(policies) and its (their) implemen-
tation and, where necessary, sub-
mitted relevant recommendations
to the Board of Directors.

4.1.2

4.1.3

4.1.4

The Company’s remunera-
tion policy has been devel-
oped by the Remuneration
Committee and approved
by the Board of Directors.
The Board of Directors, sup-
ported by the Remuneration
Committee, monitors
the introduction and imple-
mentation of the remunera-
tion policy in the Company,
and revises and amends
it as necessary.

The Company’s remu-
neration policy provides
for transparent mechanisms
to determine the amount
of remuneration payable
to its directors, execu-
tive bodies and other key
managers, and covers all
types of payments, bene-
fits and privileges provided
to them.

The Company develops
a policy on reimbursement
of expenses (compensa-
tions) specifying reimburs-
able expenses and service
levels that its directors,
executive bodies and other
key managers are entitled
to. This policy may form part
of the Company’s remunera-
tion policy.

1. The Company’s remuneration
policy (policies) provides (pro-
vide) for transparent mechanisms
to determine the amount of remu-
neration payable to its direc-
tors, executive bodies and other
key managers, and covers (cover)
all types of payments, benefits
and privileges provided to them.

Ѵ Complied with
Complied
with in part

Not complied
with

1. The Company’s remuneration
policy (policies) or other inter-
nal regulations specify procedures
to reimburse its directors, execu-
tive bodies and other key managers
for the expenses incurred.

Ѵ Complied with
Complied
with in part

Not complied
with

4.2. Remuneration system for directors ensures alignment of their financial interests with the long-term financial interests
of shareholders.

The Company pays fixed
annual remuneration to its
directors. The Company
does not pay remuner-
ation for participation
in individual meetings
of the Board of Directors
or its Committees.

Long-term ownership
of the Company’s shares
ensures best alignment
of directors’ financial inter-
ests with the long-term
interests of sharehold-
ers. At the same time,
the Company does not link
the right to sell shares
to achieving certain perfor-
mance indicators, and direc-
tors do not participate
in options plans.

The Company does not pro-
vide any additional pay-
ments or compensations
to directors in the event
of early termination of office
due to a transfer of control
over the Company or any
other circumstances.

1. Fixed annual remuneration was
the only form of cash remunera-
tion paid to directors for their work
in the reporting period.

1. If the Company’s internal reg-
ulation (regulations), namely
its remuneration policy (poli-
cies), allows (allow) distribution
of the Company’s shares to direc-
tors, clear rules on share ownership
by directors aimed at encouraging
their long-term ownership shall be
introduced and disclosed.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

1. The Company does not pro-
vide any additional payments
or compensations to directors
in the event of early termination
of office due to a transfer of con-
trol over the Company or any other
circumstances.

Ѵ Complied with
Complied
with in part

Not complied
with

4.2.1

4.2.2

4.2.3

288

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

4.3. Remuneration system for members of executive bodies and other key managers of the Company links their remuneration
to the Company’s performance and their personal contribution thereto.

4.3.1

Remuneration paid to mem-
bers of executive bodies
and other key managers
of the Company ensures
a reasonable and justified
balance between the fixed
and variable components,
with the latter depending
on the Company’s perfor-
mance and an employee’s
personal (individual) contri-
bution thereto.

4.3.2

The Company has intro-
duced a long-term incen-
tive plan for members of its
executive bodies and other
key managers involving its
shares (options or other
derivatives with its shares
as underlying assets).

4.3.3

The amount of severance
pay (golden parachute)
payable by the Company
to members of its execu-
tive bodies or key managers
in the event of early termina-
tion of office, provided that
such termination is initiated
by the Company with no
misconduct on the part
of the respective employee,
does not exceed twice
the size of the fixed com-
ponent of their annual
remuneration.

Ѵ Complied with
Complied
with in part

Not complied
with

1. In the reporting period, the var-
iable remuneration for members
of executive bodies and other key
managers of the Company was
linked to annual performance indi-
cators approved by the Board
of Directors.

2. During the latest assess-
ment of the remuneration sys-
tem for members of executive
bodies and other key manag-
ers of the Company, the Board
of Directors (the Remuneration
Committee) ensured that
the Company maintained
an effective balance between
the fixed and variable components
of remuneration.

3. The Company has a procedure
ensuring that bonuses wrongfully
received by members of its execu-
tive bodies and other key managers
are returned to the Company.

1. The Company has intro-
duced a long-term incentive plan
for members of its executive bod-
ies and other key managers involv-
ing its shares (financial instruments
with its shares as underlying assets).

Complied with

Complied
with in part

Ѵ Not complied

with

As recommended by the HR and Remuneration
Committee, the Company is piloting a long-
term incentive plan in the controlled entities.
Implementation of such plan in the Company
will be considered after the results of the pilot
are processed.

2. The long-term incen-
tive plan for members
of executive bodies and other
key managers of the Company
specifies that the right to sell
shares and other financial instru-
ments used in this plan may be
exercised no earlier than three
years after the date of granting.
Moreover, the right to sell them
is subject to the achievement
by the Company of certain perfor-
mance indicators.

1. In the reporting period,
the amount of severance
pay (golden parachute) paid
by the Company to members of its
executive bodies or key manag-
ers in the event of early termi-
nation of office, provided that
such termination was initiated
by the Company with no miscon-
duct on the part of the respective
employee, did not exceed twice
the size of the fixed component
of their annual remuneration.

Ѵ Complied with
Complied
with in part

Not complied
with

289

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

5.1. The Company has put in place an effective risk management and internal control system to provide reasonable assurance
that it will achieve its goals.

5.1.1

5.1.2

5.1.3

5.1.4

The Board of Directors has
formulated the principles
of and approaches to risk
management and internal
controls in the Company.

1. Risk management and internal
control functions of the Company’s
governing bodies and units
are clearly set out in the Company’s
internal regulations / relevant
policy approved by the Board
of Directors.

Ѵ Complied with
Complied
with in part

Not complied
with

The Company’s executive
bodies ensure the estab-
lishment and maintenance
of an effective risk manage-
ment and internal control
system in the Company.

1. The Company’s executive bodies
have ensured the distribution of risk
management and internal control
functions and powers among heads
of units and divisions accountable
to them.

Ѵ Complied with
Complied
with in part

Not complied
with

The Company’s risk man-
agement and internal
control system provides
an accurate, fair and clear
view of the Company’s
current situation
and prospects, and ensures
integrity and transparency
of the Company’s state-
ments, as well as a reason-
able and acceptable level
of risk-taking.

The Company’s Board
of Directors takes the nec-
essary steps to ensure that
the Company’s risk man-
agement and internal
control system functions
effectively and is in line
with the relevant principles
and approaches formulated
by the Board of Directors.

1. The Company has approved
an anti-corruption policy.

2. The Company has established
an easily accessible channel
to inform the Board of Directors
or its Audit Committee about vio-
lations of law, internal procedures
or the Code of Corporate Ethics.

Ѵ Complied with
Complied
with in part

Not complied
with

1. In the reporting period,
the Board of Directors or its Audit
Committee assessed the per-
formance of the Company’s risk
management and internal control
system. Key results of this assess-
ment are included in the Company’s
Annual Report.

Ѵ Complied with
Complied
with in part

Not complied
with

5.2. The Company conducts internal audits to assess the reliability and effectiveness of its risk management, internal controls
and corporate governance on a regular and independent basis.

5.2.1

5.2.2

For the internal audit pur-
poses, the Company has
established a dedicated unit
or engaged an independ-
ent external organisation.
Functional accountability
and administrative account-
ability of the internal audit
unit are separated. The inter-
nal audit unit is functionally
accountable to the Board
of Directors.

The internal audit unit
assesses the effectiveness
of the internal control, risk
management and corpo-
rate governance systems.
The Company applies gener-
ally accepted internal audit
standards.

1. For the internal audit purposes,
the Company has established
a dedicated internal audit unit func-
tionally accountable to the Board
of Directors or its Audit Committee,
or engaged an independent exter-
nal organisation with the same
accountability principle.

Ѵ Complied with
Complied
with in part

Not complied
with

1. In the reporting period, as part
of internal audit, the effectiveness
of the internal control and risk man-
agement system was assessed.

2. The Company uses generally
accepted approaches to internal
controls and risk management.

Ѵ Complied with
Complied
with in part

Not complied
with

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

6.1. The Company and its operations are transparent to shareholders, investors and other stakeholders.

6.1.1

6.1.2

The Company has devel-
oped and implemented
an Information Policy ensur-
ing effective exchange
of information between
the Company, its share-
holders, investors and other
stakeholders.

The Company discloses
information on its corpo-
rate governance system
and practices, including
detailed information on its
compliance with the princi-
ples and recommendations
of the Code.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

1. The Company’s Board of Directors
has approved its Information
Policy developed in accordance
with the Code’s recommendations.

2. The Board of Directors (or one
of its Committees) reviewed mat-
ters related to the Company’s
compliance with its Information
Policy at least once in the reporting
period.

1. The Company discloses informa-
tion on its corporate governance
system and on the general corpo-
rate governance principles it uses,
including by disclosing such infor-
mation on the Company’s website.

2. The Company discloses infor-
mation on the composition
of its executive bodies and Board
of Directors, on the independence
of directors and their membership
in the Committees of the Board
of Directors (as defined in the Code).

3. If there is a person controlling
the Company, the Company pub-
lishes a memorandum on behalf
of such controlling person detail-
ing their plans as regards corporate
governance in the Company.

6.2. The Company discloses complete, up-to-date and accurate information on the Company in a timely manner to ensure that
its shareholders and investors are able to make informed decisions.

6.2.1

The Company discloses
information on a regular
basis and in a consistent
and timely manner, in line
with the principles of data
accessibility, accuracy, com-
pleteness and comparability.

Ѵ Complied with
Complied
with in part

Not complied
with

1. The Company’s Information Policy
specifies approaches and crite-
ria used to identify information
that may have a material effect
on the valuation of the Company
and its securities, and procedures
ensuring timely disclosure of such
information.

2. If the Company’s securities
are traded in established foreign
markets, disclosures of material
information during a reporting year
are made in Russia and in such mar-
kets on a concurrent and equal
basis.

3. If foreign shareholders own
a substantial number of shares
in the Company, disclosures dur-
ing the reporting year were made
in Russian and in one of the most
widely used foreign languages.

290

291

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

7.1. Actions that have or may have a material effect on the Company’s shareholding structure and financial position and, con-
sequently, on the shareholders’ position (material corporate actions) are taken on fair terms ensuring that rights and interests
of the shareholders and other stakeholders are respected.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

6.2.2

The Company avoids for-
mal approach to information
disclosures and discloses
material information on its
operations even if such dis-
closures are not required
by law.

6.2.3 As a key communication

tool to liaise with sharehold-
ers and other stakeholders,
the Annual Report pro-
vides information needed
to assess the Company’s
performance for the year.

1. In the reporting period,
the Company disclosed its
IFRS financial statements
for the full year and for the six
months. The Company’s Annual
Report for the reporting period
includes its full-year IFRS financial
statements and auditor’s report.

2. In accordance
with Recommendation 290
of the Code, the Company discloses
full information on its capital struc-
ture in the Annual Report and on its
website.

1. The Company’s Annual Report
contains information on the key
aspects of its operations and its
financial results.

2. The Company’s Annual Report
contains information on environ-
mental and social aspects of its
operations.

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

6.3. The Company provides shareholders with equal and unhindered access to information and documents as per their request.

6.3.1

The Company provides
shareholders with equal
and unhindered access
to information and docu-
ments as per their request.

6.3.2 When providing infor-

mation to shareholders,
the Company maintains
a reasonable balance
between the interests
of individual shareholders
and those of the Company,
as it is in the Company’s
best interests to keep con-
fidential any sensitive com-
mercial information that may
have a material effect on its
competitive position.

1. The Company’s Information
Policy stipulates procedures ensur-
ing shareholders’ unhindered
access to information, including
information on legal entities con-
trolled by the Company, as per
their request.

1. In the reporting period,
the Company did not refuse to pro-
vide shareholders with requested
information, or such refusals were
justified.

2. If and when required
by the Company’s Information
Policy, shareholders are informed
of the sensitive nature of the infor-
mation provided and undertake
to keep it confidential.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

1. The Company’s Charter sets out
a list of transactions or other actions
deemed to be material corpo-
rate actions and specifies their rel-
evant criteria. Decision-making
with regard to material corporate
actions is reserved to the Board
of Directors. If and when the law
expressly reserves such corporate
actions to the General Shareholders
Meeting, the Board of Directors pro-
vides shareholders with relevant
recommendations.

2. Material corporate actions spec-
ified in the Company’s Charter
include, but are not limited
to, the following: reorganisation
of the Company, acquisition of 30%
or more of the Company’s voting
shares (takeover), major transactions
made by the Company, increase
or reduction in the Company’s char-
ter capital, listing and delisting
of the Company’s shares.

1. The Company has established
a procedure for Independent
Directors to express their opin-
ions on material corporate actions
before their approval.

1. Given the specific nature
of the Company’s operations, its
Charter sets out lower than statu-
tory minimum criteria for classify-
ing the Company’s transactions
as material corporate actions.

2. In the reporting period, all
material corporate actions
were duly approved prior
to their implementation.

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

Ѵ Complied with
Complied
with in part

Not complied
with

7.1.1

Material corporate actions
include reorganisation
of the Company, acqui-
sition of 30% or more
of the Company’s vot-
ing shares (takeo-
ver), major transactions
made by the Company,
increase or reduction
in the Company’s charter
capital, listing and delisting
of the Company’s shares,
and other actions that may
result in a material change
in the rights of shareholders
or be against their interests.
The Company’s Charter sets
out a list (criteria) of trans-
actions or other actions
deemed to be material cor-
porate actions and reserved
to the Company’s Board
of Directors.

7.1.2

The Board of Directors
plays a key role in making
decisions or recommenda-
tions with regard to mate-
rial corporate actions
and relies on the opinion
of the Company’s Independent
Directors.

7.1.3 When taking material cor-

porate actions affecting
the rights and legitimate
interests of shareholders,
the Company ensures equi-
table treatment of all of its
shareholders, and, where
statutory mechanisms pro-
tecting shareholder rights
are insufficient, takes addi-
tional steps to protect
the rights and legitimate
interests of the Company’s
shareholders. In doing so,
the Company is guided
not only by the formal regu-
latory requirements, but also
by the corporate govern-
ance principles specified
in the Code.

292

293

ROSNEFT ANNUAL REPORT 2019Appendix No.3.

No.

Corporate governance
principles

Criteria for compliance with a cor-
porate governance principle

Status1 of compli-
ance with a cor-
porate govern-
ance principle

Explanations2 on the failure to meet criteria
for compliance with a corporate governance
principle

7.2. The Company ensures that material corporate actions are taken in a manner enabling shareholders to receive full informa-
tion on such actions in due time and influence them, and guarantees respect and due protection of shareholder rights when
such actions are taken.

Information on material
corporate actions is dis-
closed, with an explanation
of the relevant reasons, con-
ditions and consequences.

1. In the reporting period,
the Company disclosed information
on its material corporate actions
in a timely and detailed manner,
including their rationale and imple-
mentation timelines.

Ѵ Complied with
Complied
with in part

Not complied
with

Rules and procedures
for taking material corpo-
rate actions are set forth
in the Company’s internal
regulations.

Complied with

Ѵ Complied
with in part

Not complied
with

The Bank of Russia’s Corporate Governance
Code was approved at the time when Article 81
of the Federal Law On Joint Stock Companies
allowed joint stock companies to include
in their charters additional criteria for directors
and other persons to be recognised as related
parties in transactions. Article 81 of the Federal
Law On Joint Stock Companies effective
from 1 January 2017 has an exhaustive list
of related-party criteria. Therefore, compliance
with the Code’s recommendation to specify
additional related-party criteria is impracti-
cable until the Russian legislation is changed
accordingly.

1. The Company’s internal regula-
tions set out a procedure for engag-
ing an independent appraiser
to determine the value of the prop-
erty to be sold or purchased
in a major transaction or a relat-
ed-party transaction.

2. The Company’s internal reg-
ulations set out a procedure
for engaging an independent
appraiser to determine the value
of the Company’s shares to be pur-
chased or bought back.

3. The Company’s internal regu-
lations specify additional criteria
for its directors and other persons
stipulated by law to be recognised
as related parties for the purposes
of the Company’s transactions.

7.2.1

7.2.2

294

Appendix 4
(Information on compliance
with instructions issued
by the President of the Russian
Federation and the Government
of the Russian Federation)

ROSNEFT ANNUAL REPORT 2019

2.2. Improving efficiency of procurements from small and medium-sized enterprises, including procurement of innovative
and hi-tech products

Resolution of the Government
of the Russian Federation No. 867-r dated
29/05/2013

Instruction of the Government
of the Russian Federation No. DM-P13-77
dated 13 January 2018 to provide infor-
mation under subparagraph c, para-
graph 1 of Instruction of the President
of the Russian Federation No. Pr-2763
dated 31 December 2017

Directives of the Government
of the Russian Federation No. 4252p-P13
dated 16 June 2016

Directives of the Government
of the Russian Federation No. 4111p-P13
dated 8 May 2019

The Company implemented a set of measures to improve procurement efficiency. These meas-
ures include:

• establishment of the standing Advisory Board; relevant information about the Board

is posted on Rosneft’s official website (more details are available at http://zakupki.rosneft.
com/consult);

• development and approval of the following internal documents:

1. Regulations on Procurement of Goods, Works and Services,

2. Regulations on Activity of Advisory Board Carrying Out Public Audit of Efficiency of Purchases

From Small and Medium-Sized Business Entities,

3. Regulations on the Procedure and Rules of the One-Stop-Shop System for the Introduction

of Innovative Products,

4. Innovation Classification Principles setting out uniform rules and criteria for classifying

the Company’s goods, works and services as innovations subject to Order of the Ministry
of Energy of the Russian Federation No. 1026 dated 25 December 2015,

5. Rosneft’s Guidelines for Assessing the Life Cycle of Procured Goods, Works and Services
establishing the procedure for applying the ‘product life cycle cost’ assessment criterion;

• amendments to the corporate procurement regulations specifying the procedure for SMEs

•

to bid for procurement contracts of the Company;
invitation to vendors (including SMEs) to propose innovative solutions through the One-Stop-
Shop System on Rosneft’s website (more details are available at https://www.rosneft.com/
Development/Scienceandinnovation/Innovation_management/One-Stop-Shop_System/);
• development and approval of the Innovative Product Procurement Plan for 2018–2022 (the

Plan is posted in the Integrated Information System at http://zakupki.gov.ru);

• approval and introduction of KPIs (including the Share of Procurements from SMEs KPI)

for the procurement service managers;

• as provided for in applicable procurement laws of the Russian Federation, all procurements
from SMEs are organised online on the TEK-Torg Electronic Trading Platform (and posted
in Rosneft’s section);

• pursuant to Directives of the Government of the Russian Federation No. 4111p-P13 dated

8 May 2019, the Company’s Regulations on Procurement of Goods, Works and Services was
amended to provide for the possibility of factoring as a means of financing the procurement
of goods, works or services from SMEs, regardless of how such procurements are organised.

Following 2019:

•

the total value of contracts made between Rosneft and SMEs (including those made
by the Group Subsidiaries on behalf of Rosneft), including payments due in 2019, amounted
to RUB 16.3 bln, or 60.9%, (attributable to the 18% target) and RUB 4.1 bln, or 15.2% (attribut-
able to the 15% target).
the total value of contracts for the procurement of innovative products amounted
to RUB 2.47 bln (up 10.9% y-o-y), including RUB 0.67 bln (up 12.5% y-o-y) in procurements
from SMEs.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

Information on compliance with instructions issued
by the President of the Russian Federation and the Government
of the Russian Federation

1. Non-core asset divestment

Subparagraph j, paragraph 1 of Instruction
of the President of the Russian Federation
No. Pr-3668 dated 6 December 2011

Subparagraph b, paragraph 1 of Instruction
of the President of the Russian Federation
No. Pr-1092 dated 27 April 2012

Item 4, subparagraph c, paragraph 2
of Decree of the President of the Russian
Federation No. 596 dated 7 May 2012
On the Long-Term National Economic
Policy

Instruction of the First Deputy Prime
Minister of the Russian Federation
Igor Shuvalov No. ISh-P13-6768 dated
13 November 2012

Directives of the Government
of the Russian Federation No. 4863p-P13
dated 7 July 2016

Resolution of the Government
of the Russian Federation No. 894-r dated
10 May 2017

Directives of the Government
of the Russian Federation No. 6604p-P13
dated 18 September 2017

Rosneft is continuously optimising the portfolio of assets owned by the Company and its
subsidiaries.

The Company has developed and is consistently implementing a non-core and non-performing
asset divestment programme in accordance with the Company Policy on Corporate Property
Management and the Company Standard on Non-Core and Inefficient Assets Management devel-
oped by the Company and approved by the Board of Directors.

The programme outlines key principles of non-core and non-performing asset management, rel-
evant procedures, stages and deadlines for implementation.

The Company annually identifies assets conforming to the criteria of non-core and non-perform-
ing assets and performs their appraisal, technical audit, and economic and legal expert analysis.

The registers of non-core and non-performing assets of Rosneft and the Group Subsidiaries
are maintained and updated on a regular basis in compliance with the non-core and non-per-
forming asset divestment programme.

In 2019, Rosneft’s Board of Directors approved the updated registers of the non-core
and non-performing assets scheduled to be divested in 2019-2022 (Minutes No. 6 dated
1 October 2019).

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

2. Procurement of goods, works and services

2.1. Approval of the Regulation on Procurement. Procurement transparency improvement

Federal Law No. 223-FZ On Procurement
of Goods, Works and Services by Certain
Types of Legal Entities dated 18 July 2011

Instruction of the Government
of the Russian Federation No. ISh-P13-
8685 dated 17 December 2012

Paragraph 2 of List of Instructions
of the Government of the Russian
Federation No. DM-P9-8413 dated
12 December 2015

Instruction of the Government
of the Russian Federation No. DM-P13-
1100 dated 1 March 2016 (paragraph 89
of the Government Action Plan for Stable
Social and Economic Development
of the Russian Federation in 2016)

Directives of the Government
of the Russian Federation No. 2793p-P13
dated 19 April 2016

Directives of the Government
of the Russian Federation No 7704p-P13
dated 11 October 2016

Directives of the Government
of the Russian Federation No. 1519p-P13
dated 20 February 2019

Directives of the Government
of the Russian Federation No. 10464p-P13
dated 18 November 2019

On 30 November 2018, Rosneft’s Board of Directors resolved to approve a revised version
of the Company’s Regulations on Procurement of Goods, Works and Services (the full version
of the Regulations is posted on the Company’s official website at http://zakupki.rosneft.com/
node/459132 and in the Integrated Information System at http://zakupki.gov.ru) that:

•

sets out the Company’s procurement principles: information openness and transparency,
equality, fairness and non-discrimination, no unwarranted restrictions on bidders, targeted
and cost-efficient expenditures, prevention of corruption or any abuse in the procurement
process;

• describes key elements of the procurement process for goods, works and services, includ-
ing procedures for preparing and carrying out procurements and procedures for signing
and performing procurement contracts;
sets out certain provisions regulating the participation of small and medium-sized enter-
prises (SMEs) in procurements;

•

• provides for the possibility of online procurement.

In 2016, the Company developed procurement standards for goods, works and services to set
price limits on, and define requirements for the quantity, consumer properties and other speci-
fications of, the said goods, works and services. The list of products regulated by the corporate
standards is posted on the Company’s official website (the full version of the document is avail-
able at http://zakupki.rosneft.com). The Company also monitors the compliance with applicable
standards and annually reviews procurement results for their compliance with the standards.

Pursuant to Directives of the Government of the Russian Federation No. 7704p-P13 dated
11 October 2016, the Company’s Regulations on Procurement of Goods, Works and Services pro-
vides for the possibility of factoring as a means of financing the procurement of goods, works
or services (paragraph 10.4.7.6).

Pursuant to Directives of the Government of the Russian Federation No. 10464p-P13 dated
18 November 2019, the Company updated its standard procurement documents to allow
for specific means of securing vendor obligations under procurement contracts, including
suretyship.

Pursuant to Directives of the Government of the Russian Federation No. 1519p-P13 dated
20 February 2019, the Company developed and approved internal documents providing
for a continuous improvement of procurement management procedures.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

296

297

ROSNEFT ANNUAL REPORT 2019Appendix No.4.2.3. Increasing procurements of Russian-made products

Instructions of the President of the Russian
Federation following the meeting
of the State Council Presidium dated
20 February 2009

Paragraph 4 of List of Instructions
of the President of the Russian Federation
No. Pr-2821 dated 5 December 2014

Instructions of the Government
of the Russian Federation No. AD-P9-9176
dated 8 December 2014 and No. ISh-P13-
1419 dated 5 March 2015

Instruction of the Government
of the Russian Federation No. ISh-P13-1872
dated 1 April 2016

Paragraph 4, section II of the Minutes
of the Meeting of the Government
Commission on the Use of Information
Technologies for the Improvement
of Welfare and Business Environment No. 1
dated 9 February 2018

Directives of the Government
of the Russian Federation No. 1346p-P13
dated 5 March 2015

Directives of the Government
of the Russian Federation No. 3425p-P13
dated 1 June 2015

Directives of the Government
of the Russian Federation No. 4972p-P13
dated 11 July 2016

Directives of the Government
of the Russian Federation No. 6558p-P13
dated 5 September 2016

Directives of the Government
of the Russian Federation No. 830p-P13
dated 6 February 2017

Directives of the Government
of the Russian Federation No. 2602p-P7
dated 17 April 2017

Directives of the Government
of the Russian Federation No. 7923p-P13
dated 26 September 2018

Directives of the Government
of the Russian Federation No. 10068p-P13
dated 6 December 2018

Directives of the Government
of the Russian Federation No. 584p-P13
dated 26 January 2019

Directives of the Government
of the Russian Federation No. 9984p-P13
dated 1 November 2019

Directives of the Government
of the Russian Federation No. 9712p-P13
dated 25 October 2019

3. Dividend recommendations

Resolution of the Government
of the Russian Federation No. 774-r
dated 29 June 2006 (as amended
by Resolution of the Government
of the Russian Federation No. 2083-r
dated 12 November 2012)

The Company’s Board of Directors developed and approved an action plan (a set of measures)
aimed at consistent substitution of imported products (including works and services) with equiv-
alent and technically similar products, works and services of Russian origin to be used in invest-
ment projects and day-to-day operations provided that such substitution is economically
feasible and technologically justified (Minutes No. 35 dated 5 June 2015).

The Company’s Regulations on Procurement of Goods, Works and Services are fully compliant
with Directives of the Government of the Russian Federation No. 3425p-P13 dated 1 June 2015,
No. 4972p-P13 dated 11 July 2016 and No. 830p-P13 dated 6 February 2017, enable the Company
to make long-term contracts for the supply of any products and provide for the procurement
of competitive Russian software for Rosneft’s activities.

The Company’s Regulations on Procurement of Goods, Works and Services contain section 13.1
Priority of Goods, Works and Services Supplied by Russian Vendors that provides for:

•

the priority of goods, works and services supplied by Russian vendors as set out in the appli-
cable laws;
the customer’s discretion to specify certain priorities and conditions for the tendered con-
tract if such conditions are expressly stated in the procurement documents or directly set
out in applicable laws.

Additionally, the Company developed and implemented the Import Substitution and Equipment
Localisation Programme for Rosneft’s Needs for 2019-2021 with an outlook for 2028.

Pursuant to Resolution of the Government of the Russian Federation No. 925 dated
16 September 2016 On Priority of Goods, Works and Services Supplied by Russian Vendors
Over Goods, Works and Services Supplied by Foreign Vendors (Resolution No. 925),
the Company amended its procurement documents accordingly and added Russian origin con-
firmation forms for the goods, works and services supplied by Russian vendors.

The Company updated its action plan (a list of measures) for import substitution and localisa-
tion to comply with Directive of the Government of the Russian Federation No. 830p-P13 dated
6 February 2017 and the Guidelines approved by Order of the Russian Ministry of Economic
Development No. 219R-AU dated 11 August 2016. Key actions (measures) were included
in Rosneft’s Long-Term Development Programme as updated and approved by resolution
of the Board of Directors (Minutes No. 11 dated 23 December 2019).

Relevant resolutions (Minutes No. 6 dated 24 August 2018) were made by the Company’s Board
of Directors to comply with Directives of the Government of the Russian Federation No. 2602p-
P7 dated 17 April 2017.

Pursuant to Directives of the Government of the Russian Federation No. 7923p-P13 dated
26 September 2018, the Board of Directors (Minutes No. 14 dated 25 January 2019) instructed
the Management Board to inform, annually and in due time, federal executive bodies
(Ministry of Industry and Trade, Ministry of Energy and Ministry of Economic Development)
and the Government of the Russian Federation of the total value of contracts made by Rosneft
and the Group Subsidiaries with defence industry companies for the procurement of civil-
ian products (including works and services) for the Fuel Producing Industries, other than
those under defence procurement contracts, no later than 30 days prior to Rosneft’s Annual
General Shareholders Meeting. Relevant reports were sent to the federal executive bodies
on 15 May 2019.

Provisions of Directives of the Government of the Russian Federation No. 584p-P13 dated
26 January 2019 and No. 9984p-P13 dated 1 November 2019 were incorporated into
the Company’s Regulations on Procurement of Goods, Works and Services, which provides, pur-
suant to Resolution No. 925, for the priority of Russian-made products, including (i) those used
in the implementation of national projects and the trunk pipeline upgrade and expansion plan;
and (ii) advanced Russian-made means of protection against radiation, chemical and biological
hazards. Additionally, the Company adopted and regularly updates a list of goods to be stocked
by Rosneft and the Group Subsidiaries for the purpose of civil defence and employee protection
in case of natural and man-made disasters.

Pursuant to Directives of the Government of the Russian Federation No. 10068p-P13 dated
6 December 2018 and No. 9712p-P13 dated 25 October 2019, the Board of Directors (Minutes
No. 13 dated 3 February 2020) instructed the Management Board to report, annually and in due
time, to the Ministry of Digital Development, Communications and Mass Media of the Russian
Federation on the priority use of Russian software in a form approved by the Company. Relevant
information is regularly posted on the online interdepartmental portal of the Federal Agency
for State Property Management.

According to the Dividend Policy approved by the Company’s Board of Directors on 5 June 2015
(Minutes No. 35 dated 5 June 2015) as amended by Rosneft’s Board of Directors (Meeting Minutes
No. 15 dated 9 December 2016, No. 29 dated 22 June 2017 and No. 5 dated 31 August 2017),
the Board of Directors, when recommending a dividend to the General Shareholders Meeting,
is guided by the amount of net income as per Rosneft's Russian Accounting Standards (RAS)
financial accounts and International Financial Reporting Standards (IFRS) consolidated financial
statements.

Rosneft’s Board of Directors recommends a dividend based on Rosneft’s annual financial perfor-
mance. The target dividend is no less than 50% of Rosneft’s net income as per IFRS; the target
dividend frequency is no less than twice a year.

The history of dividend payments is available on the Company's official website at https://www.
rosneft.com/Investors/Dividends/

4. Annual Report structure

Resolution of the Government
of the Russian Federation No. 1214 dated
31 December 2010 On Improvement
of the Governance Procedures at Open
Joint-Stock Companies in Federal
Ownership and Federal State Unitary
Enterprises

Paragraph 3 of List of Instructions
of the President of the Russian Federation
No. Pr-3013 dated 27/12/2014

Directives of the Government
of the Russian Federation No. 2007p-P13
dated 6 April 2015

Paragraph 2 of Minutes of the Meeting
Convened by First Deputy Prime Minister
of the Russian Federation Igor Shuvalov
No. ISh-P13-47pr dated 2 June 2015

Directives of the Government
of the Russian Federation No. 5024p-P13
dated 31 July 2015

Rosneft’s Annual Report 2019 was prepared in accordance with the annual reporting require-
ments of Regulations of the Bank of Russia No. 454-P dated 30 December 2014 and an annual
report template for joint-stock companies in federal ownership as approved by Resolution
of the Government of the Russian Federation No. 1214 dated 31 December 2010 On Improvement
of the Governance Procedures at Open Joint-Stock Companies in Federal Ownership and Federal
State Unitary Enterprises (Resolution No. 1214) and Directives of the Government of the Russian
Federation No. 2007p-P13 dated 6 April 2015 and No. 5024p-P13 dated 31 July 2015.

As for specific sections of the annual report template for joint-stock companies in federal owner-
ship approved by Resolution No. 1214, it should be noted that:

• Rosneft did not enter into any major transactions in 2019 (paragraph 10 of Resolution

•

No. 1214);
In compliance with paragraph 70.3 of Regulations of the Bank of Russia No. 454-P dated
30 December 2014, the list of related party transactions entered into by Rosneft in 2019
is posted on Rosneft’s official website ( the full version is available at https://www.rosneft.
ru/Investors/information/transactions/) (paragraph 11 of Resolution No. 1214).

• Rosneft received no subsidies from the federal budget (paragraph 13 of Resolution No. 1214)

in 2019.

5. Strategy development and update, efficiency, and long-term planning

5.1. Formulation and approval of the Innovation Development Programme

Subparagraph b, paragraph 1
of List of Instructions of the President
of the Russian Federation No. Pr-307 dated
7 February 2011

Pursuant to subparagraph b, paragraph 1 of List of Instructions of the President of the Russian
Federation No. Pr-307 dated 7 February 2011 and Directives of the Government of the Russian
Federation, the Board of Directors approved Rosneft’s Innovation Development Programme
for 2016-2020 with an outlook for 2030 (Minutes No. 13 dated 3 November 2016).

The Programme is structured to meet the requirements for innovative development pro-
grammes of state-owned joint-stock companies, state corporations and federal state unitary
enterprises and the recommendations approved by resolution of the Government Commission
for Advanced Technology and Innovation.

Major focus areas, key performance indicators and activities of the Innovation Development
Programme are integrated in the updated Long-Term Development Programme approved
by Rosneft’s Board of Directors (Minutes No. 11 dated 23 December 2019).

The list of the Long-Term Development Programme KPIs and KPIs for Rosneft’s top managers,
including the Chief Executive Officer, were supplemented with an integrated KPI of innovation
efficiency.

In 2018, the Company benchmarked its technology (innovation) level and relevant KPIs against
peers (leading Russian and international companies) as recommended by the cross-department
task group (Minutes No. 2 dated 19 September 2017).

The Ministry of Energy and the Ministry of Economic Development of the Russian Federation
were presented with:

• benchmarking results for Rosneft’s technology level;
• proposals for adjustments to Rosneft's Innovation Development Programme to be later incor-

porated into Rosneft’s Long-Term Development Programme;

• proposals for the structure and values of the integrated KPI of innovation efficiency for 2019.

In 2019, the Board of Directors considered a report on the progress of Rosneft's Innovation
Development Programme in 2019 (Minutes No. 23 dated 29 April 2019). The Company met
its action plan and targets for innovation efficiency KPIs as set out in Rosneft’s Innovation
Development Programme for 2018.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

Directives of the Government
of the Russian Federation No. 1221p-P13
dated 24 March 2011

Presidential Address to the Federal
Assembly dated 12 November 2010

Meeting Minutes of the Government
Commission for Advanced Technology
and Innovation No. 1 dated
30 January 2012

Subparagraphs 32, 33 and 34, paragraph
1 of List of Instructions of the President
of the Russian Federation No. Pr-3086
dated 27 December 2013

Summary of the meeting
of the Government of the Russian
Federation dated 30 January 2014, Minutes
No. 3

Subparagraph b, paragraph 2, sec-
tion 2 of Minutes of the Meeting
of the Presidential Council for Economic
Modernization and Innovation
Development No. 2 dated 17 April 2015

Instruction of the Government
of the Russian Federation No. DM-P36-
7563 dated 7 November 2015

Directives of the Government
of the Russian Federation No. 1471p-P13
and No. 1472p-P13 dated 3 March 2016

Directives of the Government
of the Russian Federation No. 3262p-P13
dated 27 April 2018

298

299

ROSNEFT ANNUAL REPORT 2019Appendix No.4.5.2. Intellectual property rights management

5.3. Development and approval of the Company’s strategy and Long-Term Development Programme

Instruction of the Government
of the Russian Federation No. ISh-P8-5594
dated 25 August 2017

Directives of the Government
of the Russian Federation No. 9177p-P13
dated 12 December 2017

Recommendations as to intellectual property rights management are fully integrated into
the Company’s Regulations on Intellectual Property Rights (Inventions, Utility Models, Software,
Databases and Know-How) Management (approved and enacted by Order No. 429 dated
25 July 2017) and Rosneft’s Innovation Development Programme for 2016-2020 (approved
by the Company’s Board of Directors).

These Regulations establish a general procedure and requirements for the following processes:

Instruction of the Government
of the Russian Federation No. ISh-P13-1925
dated 5 April 2018

• creation and identification of protectable intellectual property;
• assignment of intellectual property rights in Rosneft’s best interest
• patent research, including patent landscaping, to plan and conduct world-class research

Directives of the Government
of the Russian Federation No. 7050p-P13
dated 30 August 2018

•

and development and to create new and upgrade existing technologies;
registration of intellectual property rights and keeping records of exploration and develop-
ment rights (patents, utility models, software and know-how).

As part of the Innovation Development Programme, Rosneft adopted an intellectual property
rights management programme.

In 2018, Rosneft’s Board of Directors considered matters related to intellectual property rights
management as required by Directives of the Government of the Russian Federation No. 9177p-
P13 dated 12 December 2017 and No. 7050p-P13 dated 30 August 2018.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

Recommendations for Innovation
Development Programmes approved
by resolution of the Government
Commission for Advanced Technology
and Innovation (Minutes No. 4 dated
3 August 2010)

Item 2, paragraph 2 of Minutes
of the Meeting Convened by First Deputy
Prime Minister of the Russian Federation
Igor Shuvalov No. ISh-P13-98pr dated
3 October 2013

Subparagraphs 32 and 34, para-
graph 1 of Instructions of the President
of the Russian Federation No. Pr-3086
dated 27 December 2013

Instruction of the Government
of the Russian Federation No. DM-P13-
9589 dated 30 December 2013

Directives of the Government
of the Russian Federation No. 4955p-P13
dated 17 July 2014

Directives of the Government
of the Russian Federation No. 3984p-P13
dated 24 June 2015

Paragraph 6, section 2 of the Action Plan
for Labour Productivity Improvement
approved by Resolution
of the Government of the Russian
Federation No. 1250-r dated 9 July 2014

Directives of the Government
of the Russian Federation No. 7389p-P13
dated 31 October 2014

Paragraph 2.3, section I of Minutes
of the Meeting of the Military and Industrial
Commission with the Government
of the Russian Federation No. 4 dated
25 April 2014

Directives of the Government
of the Russian Federation No. 3666p-P13
dated 11 June 2015

Subparagraph b, paragraph 2
of List of Instructions of the President
of the Russian Federation No. Pr-1627
dated 1 July 2014

Instructions of the Government
of the Russian Federation No. ISh-P8-6196
dated 15 August 2014 and No. OG-P8-5496
dated 22 July 2014

Directives of the Government
of the Russian Federation No. 7439p-P13
dated 5 November 2014

Directives of the Government
of the Russian Federation No. 4531p-P13
dated 28 June 2016

Directives of the Government
of the Russian Federation No. 276p-P13
dated 17 January 2019

In 2017, Rosneft’s Board of Directors approved the Rosneft-2022 Strategy (Minutes No. 8 dated
21 December 2017) aimed at major changes in the Company’s business through advanced man-
agement approaches and new technologies while increasing returns on the Company’s existing
assets.

The Rosneft–2022 Strategy responds to all of the current challenges faced by the energy indus-
try. The Strategy aims to improve business profitability and increase returns through a more
intensive development of core assets, concentration on key projects, accelerated roll-out of new
technology and new management models, and transformations necessitated by digital era
challenges.

While developing the Rosneft-2022 Strategy, the Company conducted an in-depth analysis
of external environment and challenges faced by each business segment. The Company formu-
lated strategic initiatives across all business segments enabling development and accomplish-
ment of its growth priorities. The fundamental messages of the Rosneft-2022 Strategy were
announced by Rosneft’s Chief Executive Officer Igor Sechin at the Annual General Shareholders
Meeting on 22 June 2017 and posted on Rosneft’s official website. For key information and provi-
sions of the Rosneft-2022 Strategy, see section __ of the Annual Report.

In 2018, Rosneft's Board of Directors approved additional initiatives to support the Rosneft-2022
Strategy in view of the Address of President of the Russian Federation Vladimir Putin
to the Federal Assembly (Minutes No. 17 dated 28 April 2018). In December 2018, the Board
of Directors reviewed Rosneft’s strategic performance and concluded that the goals
of the Rosneft-2022 Strategy for 2018 were achieved.

Rosneft’s Long-Term Development Programme was originally established in 2014 pursu-
ant to Instruction of the President of the Russian Federation Vladimir Putin No. Pr-3086 dated
27 December 2013 and Directives of the Government of the Russian Federation No. 4955p-
P13 dated 17 July 2014. On 9 December 2014 (Minutes No. 12), the Board of Directors approved
the Long-Term Development Programme, Rosneft’s Standard on the Long-Term Development
Programme Implementation Audit and the Regulations on the Company’s KPI System.

As provided for in the employment contract of Rosneft’s Chief Executive Officer, he is obliged
to ensure the implementation of the approved Strategy and Long-Term Development
Programme of the Company.

Starting from 2015, the Company annually prepares a report on the implementation of the Long-
Term Development Programme for the previous period and employs an independent audi-
tor to audit its implementation. Audit results are annually reviewed by the Company’s Board
of Directors and presented at the Annual General Shareholders Meeting.

The Long-Term Development Programme is updated annually.

In 2019, the Long-Term Development Programme was updated to account for:

•

the Company's performance in 2018 and an independent auditor's recommendations fol-
lowing a limited audit on the implementation of the Long-Term Development Programme
in 2018;

• changes in the tasks and initiatives for the development of Rosneft’s businesses and cor-

porate functions under the influence of external factors, including the macro environment
in global energy markets and its influence on long-term goals of the Company;
resolutions made by the Board of Directors in respect of the Company’s development plans.

•

The Long-Term Development Programme contains initiatives developed pursuant
to the Directives of the Government of the Russian Federation (No. 4955p-P13 dated 17 July 2014,
No. 7558p-P13 dated 12 November 2014, No. 1346p-P13 dated 5 March 2015 and No. 2303p-P13
dated 16 April 2015, No. 7389p-P13 dated 31 October 2014, No. 1472p-P13 dated 3 April 2016,
No. 4531p-P13 dated 28 June 2016, No. 4750p-P13 dated 4 July 2016, No. 830p-P13 dated
6 February 2017) and includes a set of measures to increase labour productivity, information
about demand for human resources, and a section dedicated to the development initiatives
in the Russian Far East.

Efficiency improvement indicators aimed at introducing the lean production methodology
are integrated into the existing KPI system for the Company’s top managers and heads of busi-
ness units. Provisions of the Long-Term Development Programme is aligned with key provisions
of Russian government programmes pertaining to the Company’s lines of business.

The Company met the requirements of Directives of the Government of the Russian Federation
No. 276p-P13 dated 17 January 2019. Its current Long-Term Development Programme
accounts for key provisions of the Address of President of the Russian Federation Vladimir
Putin to the Federal Assembly and Decree of the President of the Russian Federation No. 204
of 7 May 2018. Provisions of strategic and national programmes of the Russian Federation
are taken into account in annual updates of the Long-Term Development Programme (Minutes
of the Meeting of Rosneft's Board of Directors No. 19 dated 1 April 2019).

For information on the Long-Term Development Programme and audited results of its implemen-
tation in 2019, see section __ of the Annual Report.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

300

301

ROSNEFT ANNUAL REPORT 2019Appendix No.4.5.4. Reduction of operating expenses

Subparagraph 5, paragraph 1
of Instructions of the President
of the Russian Federation No. Pr-2821
dated 5 December 2014

Directives of the Government
of the Russian Federation No. 2303p-P13
dated 16 April 2015

Item 4, paragraph 2 of Minutes
of the Meeting Convened by Prime
Minister of the Russian Federation
No. DM-P13-2pr dated 18 January 2016

Instruction of the Government
of the Russian Federation No. ISh-P13-2047
dated 11 April 2016

Directives of the Government
of the Russian Federation No. 4750p-P13
dated 4 July 2016

Rosneft fully complies with Instructions of the President of the Russian Federation
and the Government of the Russian Federation regarding annual reduction of operating
expenses.

The Company developed an action plan (a list of initiatives) aimed at reaching the expense
(cost) reduction target and included this plan in Rosneft’s Long-Term Development Programme.

The relevant indicator is integrated in the KPI system for Rosneft’s top managers.

The progress of operating expense reduction initiatives was audited as part of the audit
of the Long-Term Development Programme (independent auditor’s opinion by LLC Ernst
and Young dated 16 April 2019) and reviewed at the meeting of the Company’s Board
of Directors.

In 2019, operating expenses were reduced by 2.4% year-on-year through energy savings,
improvement of procurement procedure efficiency, reduction of procurement and administrative
costs, and optimisation of employee headcount1.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

5.5. Development of internal regulations

Paragraph 2 of List of Instructions
of the President of the Russian Federation
No. Pr-3013 dated 27 December 2014

In accordance with the guidelines approved by the Government of the Russian Federation
(No. ISh-P13-4148 dated 24 June 2015), the Company developed, approved and enacted the fol-
lowing documents:

Instructions of the Government
of the Russian Federation No. ISh-P13-1818
dated 23 March 2015 and No. ISh-P13-4148
dated 24 June 2015

Directives of the Government
of the Russian Federation No. 3984p-P13
dated 24 June 2015

Paragraph 2 of Instruction of the President
of the Russian Federation No. Pr-769 dated
26 April 2016

Paragraph 6 of Instruction
of the Government of the Russian
Federation No. AD-P36-4292 dated
20 July 2016

Letter of the Federal Agency for State
Property Management No. RB-11/9968
dated 20 March 2017

Paragraph 2 of Minutes of the Meeting
Convened by First Deputy Prime Minister
of the Russian Federation Igor Shuvalov
No. ISh-P13-47pr dated 2 June 2015

Directives of the Government
of the Russian Federation No. 5024p-P13
dated 31 July 2015

• Policy on Internal Audit;
• Policy on Operational and Investment Efficiency Improvement;
• Policy on Risk Management and Internal Control System;
• Policy on Onshore Oil Production;
• Policy on Offshore Hydrocarbon Exploration and Production;
• Policy on Gas Business;
•
the Company’s Standard on the Corporate-Wide Risk Management System (CWRMS)
• Regulations on the Procedure for Developing (Updating) and Implementing Rosneft’s

Innovation Development Programme;

• Regulations on the Procedure and Rules of the One-Stop-Shop System for the Introduction

of Innovative Products;

• Standard on Innovation Efficiency Management;
• Regulations on the Petroleum Product Quality Management System.

Rosneft complies with the provisions of the Directives in full.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

As resolved by the Company's Board of Directors pursuant to Directives of the Government
of the Russian Federation No. 5024p-P13 dated 31 July 2015 and in accordance with the guide-
lines approved by Resolution of the Ministry of Economic Development No. 400R-AU dated
22 December 2015 pursuant to Instruction of the Government of the Russian Federation No. ISh-
P13-5231 dated 31 July 2015, the Company's Management Board approved and enacted the fol-
lowing documents:

• Regulations on the Procedure for Charitable Activities in Rosneft and Group Subsidiaries;
• Regulations on Sponsorship in Rosneft and Group Subsidiaries;

Information on compliance with instructions and directives of the President and the Government
of the Russian Federation is regularly posted on the online interdepartmental portal
of the Federal Agency for State Property Management.

5.6. Performance optimisation through integration

In 2015, treasury functions of Rosneft’s Group Subsidiaries were centralised and merged into
the Integrated Treasury supported by the Company’s financial department and JSC Russian
Regional Development Bank (RRDB).

Business processes pertaining to solvency management, budgeting and acceptance of finan-
cial transactions in the Group Subsidiaries were formalised and set out in respective policies
and internal regulations of the Company.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

Paragraph 4 of Minutes of the Meeting
Convened by Deputy Prime Minister
of the Russian Federation Dmitry Rogozin
No. RD-P13-45pr dated 15 June 2012

Paragraph 1 of List of Instructions
of the President of the Russian
Federation No. Pr-1032 dated 7 May 2014,
Instruction of the Government
of the Russian Federation No. ISh-P13-
3464 dated 13 May 2014 and Paragraph 4
of List of Instructions of the President
of the Russian Federation No. Pr-2821
dated 5 December 2014

Directives of the Government
of the Russian Federation No. 5110p-P13
dated 8 August 2014 and No. 1796p-P13
dated 26 March 2015

1 The figure is an estimate only and subject to change after the KPI achievement is audited by the Internal Audit Service.

5.7. Alignment of corporate activities with the Bank of Russia’s Corporate Governance Code

Instruction of the Government
of the Russian Federation No. DM-P36-
46pr dated 28 August 2014

Instruction of the Government
of the Russian Federation No. ISh-P13-5859
dated 31 July 2014

Based on the analysis of Rosneft’s corporate governance standards and provisions of the Bank
of Russia’s Corporate Governance Code, the Company developed and approved an action plan
(roadmap) to align its activities with key provisions of the Code. The roadmap was implemented
consistently throughout 2019.

The basic principles of Rosneft’s corporate governance framework are set out in Rosneft’s
Corporate Governance Code and aligned with the best global practices.

Directives of the Government
of the Russian Federation No. 5667p-P13
dated 2 September 2014

The roadmap status was reviewed by Rosneft’s Board of Directors on 20 December 2017
((Minutes No. 9 dated 25 December 2017), 24 December 2018 (Minutes No. 13 dated
24 December 2018) and 13 December 2019 (Minutes No. 10 dated 16 December 2019).

Directives of the Government
of the Russian Federation No. 989p-P13
dated 20 February 2015

All the initiatives scheduled for 2019 by the roadmap were implemented in full.

Information on compliance with the principles and recommendations of the Bank of Russia’s
Corporate Governance Code, including the list of recommendations not incorporated
in the Company’s internal documents, reasons preventing the Company from implementing
these recommendations and description of alternative mechanisms and instruments of corpo-
rate governance, is disclosed in the Company’s annual report.

5.8. New export contracts providing for rouble as a settlement currency

Subparagraph 1, paragraph 1, section I
of Minutes of the Meeting of the National
Financial Stability Board No. 7 dated
10 April 2015

Directives of the Government
of the Russian Federation No. 4807p-P13
dated 23 July 2015

On 30 September 2016 (Minutes No. 7 dated 3 October 2016), the Company’s Board of Directors
considered that new export contracts should provide for the possibility of using Russian rou-
ble as a settlement currency and decided on a reasonable minimum share of export transac-
tions denominated in roubles in accordance with Directives of the Government of the Russian
Federation No. 807p-P13 dated 23 July 2015.

The possibility of rouble settlements is provided for in most of petroleum sale contracts signed
by the Group Subsidiaries with buyers from the CIS countries.

As for contracts with buyers from other jurisdictions, the possibility of rouble settlements is pro-
vided for with due assessment of customer loss and sales reduction risks (customers refusing
to sign contracts due to extra costs associated with currency conversion) and the risk of Russian
rouble devaluation that might lead to a reduction in total revenue from petroleum product
exports.

5.9. Remuneration of the Company’s management and employees and KPI system development

Instruction of the President of the Russian
Federation No. Pr-825 dated 6 April 2009

Instructions of the Government
of the Russian Federation No. VP-P13-
1823 dated 6 April 2009, No. VP-P13-2099
dated 20 April 2009, No. VZ-P13-4252
dated 28 July 2009, No. ISh-P13-2232
dated 8 April 2010 and No. KA-P13-8297
dated 4 December 2010

Item 3, paragraph 2 of Minutes
of the Meeting Convened by First Deputy
Prime Minister of the Russian Federation
Igor Shuvalov No. ISh-P13-98pr dated
3 October 2013

Paragraph 5 of List of Instructions
of the President of the Russian Federation
No. Pr-1474 dated 05/07/2013

Directives of the Government
of the Russian Federation No. 2579p-P13
dated 25 April 2014

Instruction of the Government
of the Russian Federation No. ISh-P13-2043
dated 27 March 2014

Directives of the Government
of the Russian Federation No. 3984p-P13
dated 24 June 2015

Subparagraph 5, paragraph 1
of List of Instructions of the President
of the Russian Federation No. Pr-2821
dated 5 December 2014

Instruction of the Government
of the Russian Federation No. DM-P13-
9024 dated 4 December 2014

Directives of the Government
of the Russian Federation No. 2303p-P13
dated 16 April 2015

Directives of the Government
of the Russian Federation No. 9054p-P13
dated 2 October 2019

The Company introduced a KPI-based incentive system for its management in 2009. Also
enacted were the Regulations on Annual Bonuses for Rosneft’s Top Managers and Heads
of Independent Business Units.

On 9 December 2014 (Minutes No. 12), Rosneft’s Board of Directors approved the Regulations
on the Company’s KPI System in strict compliance with the Guidelines of the Federal Agency
for State Property Management on the Application of Key Performance Indicators by State
Corporations, State Companies, State Unitary Enterprises and Business Entities Where
the Aggregate Share of the Russian Federation or a Constituent Entity of the Russian Federation
Exceeds 50%.

Rosneft’s KPI system includes:

• financial and economic indicators (EBITDA, ROACE, TSR, Net Debt / EBITDA, and cost reduc-

•

tion indicators);
industry-wide indicators (hydrocarbon production, reserve replacement, light product yield,
an integrated KPI of innovation efficiency, etc.).

Management bodies of the Company (Board of Directors, Management Board and Chief
Executive Officer) annually revise and approve performance indicators for each category
of the Company’s managers.

Other employees of Rosneft’s Head Office receive bonuses based on collective KPIs for Rosneft
and its businesses, and personal performance evaluation (an individual performance factor).

Target KPIs and personal performance of the top management are reviewed annu-
ally and approved by the Board of Directors based on the recommendations of the HR
and Remuneration Committee of the Board of Directors.

Pursuant to Directives of the Government of the Russian Federation No. 9054p-P13 dated
2 October 2019, the Company analysed its Regulations on the Company’s KPI System
and Standard on Payments and Compensations to Top Managers, which set out key performance
indicators and remuneration for Rosneft's top management, for compliance with the guide-
lines approved by Resolution of the Government of the Russian Federation No. 1388-r dated
27 June 2019. The analysis showed that the said documents did not need to be updated in 2019
(Minutes of the Meeting of Rosneft’s Board of Directors No. 12 dated 30 December 2019).

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

302

303

ROSNEFT ANNUAL REPORT 2019Appendix No.4.5.10. Fulfilment of Resolution of the Government of the Russian Federation No. 232 dated 6 March 2018 with regard
to the procedure for approval of plans and programmes by the Ministry for development of the Russian Far East
and approval of said documents by the Ministry

Directives of the Government
of the Russian Federation No. 8860p-P13
dated 29 October 2018

6. Sustainable development

6.1. Adoption of professional standards

Paragraph 3, Section I of Minutes
of the Meeting of the Government
of the Russian Federation No. 9-dsp dated
24 March 2016 in accordance with Federal
Law No. 122-FZ dated 2 May 2015
On Amendments to the Labour Code
of the Russian Federation and Articles 11
and 73 of the Federal Law on Education
in the Russian Federation

Directives of the Government
of the Russian Federation No. 5119p-
P13 dated 14 July 2016 On the Adoption
of Professional Standards in Joint-Stock
Companies

On 24 December 2018, pursuant to Directives of the Government of the Russian Federation
No. 8860p-P13 dated 29 October 2018, Rosneft's Board of Directors considered the fulfilment
of Resolution of the Government of the Russian Federation No. 232 dated 6 March 2018 that
requires to introduce a procedure for approval of corporate plans and target programmes
by the Ministry for Development of the Russian Far East and to have these documents approved
by the said Ministry. It was noted, among other things, that the projects initiated by Rosneft
in the Russian Far East as instructed by the President and Government of the Russian Federation
are coordinated with the Ministry for Development of the Russian Far East.

Pursuant to the said directive, Rosneft and the Ministry for Development of the Russian Far East
signed an agreement on 26 October 2019 to establish a procedure for confidential informa-
tion exchange. In addition, Rosneft developed and approved the Regulations on the Provision
of Summary Information about the Company's Plans and Target Programmes to the Ministry
for Development of the Russian Far East and enacted them on 1 January 2020.

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

In 2019, Rosneft and Group Subsidiaries took measures to adopt professional stand-
ards in accordance with the Action Plan approved by Rosneft’s Board of Directors
on 24 December 2018 (Minutes No. 13).

Rosneft’s Board of Directors was twice updated (as at 1 May 2019 and 1 November 2019)
on the implementation of the Action Plan in Rosneft and the Group Subsidiaries (Minutes No. 2
dated 1 July 2019 and Minutes No. 12 dated 30 December 2019).

By resolution of the Board of Directors, Rosneft approved the Action Plan for Adoption
of Professional Standards at Rosneft and the Group Subsidiaries for 2020 (Minutes No. 12 dated
30 December 2019).

Relevant information is regularly posted on the online interdepartmental portal of the Federal
Agency for State Property Management.

6.2. Creation of professional and amateur sports organisations

Subparagraph b, paragraph 2
of List of Instructions of the President
of the Russian Federation No. Pr-2179
dated 09/11/2016

Paragraph 1 of Instruction
of the Government of the Russian
Federation No. ISh-P13-8690 dated
26 December 2017

Letter of the Federal Agency for State
Property Management No. RB-11/1520dsp
dated 22 January 2018

In accordance with paragraph 17.1, Article 65 of the Federal Law on Joint-Stock Companies,
matters related to the establishment of, participation in, and withdrawal from commercial
and non-commercial organisations fall within the remit of the board of directors or another exec-
utive body of a joint-stock company as is provided for in the company’s charter.

Rosneft places special emphasis on the support and development of sports and considers them
one of the top priorities of its social policy.

In particular, the Company supports sports through charitable activities under social and eco-
nomic cooperation agreements with regional authorities and by delivering individual charity
projects.

For this purpose, the Company traditionally provides finance to support and develop sports
organisations, develop and promote mass and children’s sports, build and upgrade ice are-
nas, ice rinks and recreation centres, and buy sports equipment for children’s sports schools
and other educational institutions.

As part of its sponsorship agenda, Rosneft also provides financial support to help organise
and hold important international sports competitions. Its initiatives are aimed at supporting
and developing hockey, football, biathlon, sambo, boxing, motor racing and other sports.

6.3. Advertising contracts between Rosneft and top russian athletes

Instruction of the President
of the Russian Federation No. Pr-223
dated 9 February 2018 and Instruction
of the Government of the Russian
Federation No. VM-P12-1271 dated
7 March 2018

Since Rosneft promotes sports, it provides finance to support and develop sports organisations.

Rosneft is a title sponsor of the International SAMBO Federation (FIAS) and finances the official
schedule of annual sambo competitions.

The Company supports motor racing and prioritises national teams and car manufacturers, while
intending to cover the maximum number of regions with the races organised.

The Company also provides full financial support to the Russian ice hockey club CSKA.

Since 2017, Rosneft has been a title sponsor of the Arsenal Tula Football Club in the Russian foot-
ball championship.

304

Appendix 5
(Information on basic internal
regulations that serve
as a basis for the preparation
of the current annual report,
including key internal
documents regulating
the internal audit function
and the functioning
of the IC&RMS)

ROSNEFT ANNUAL REPORT 2019This Annual Report has been prepared based on the following local
(internal) regulations of Rosneft:

Charter;

Rosneft's Corporate Governance Code;

Code of Business and Corporate Ethics of Rosneft;

Regulations on the General Shareholders Meeting of Rosneft;

Regulations on the Board of Directors of Rosneft;

Rosneft Regulation on the Rosneft Board of Directors Audit Committee;

Rosneft Regulations on Human Resources and Remuneration Committee of Rosneft Board of Directors;

Rosneft Regulation on the Rosneft Board of Directors Strategic Planning Committee;

Rosneft Regulation on Payment of Remuneration and Compensation of Expenses of the Members of Rosneft Board of Directors;

Rosneft Regulation Procedure for Formation and Work of Rosneft Board of Directors Committees;

Regulations on the Collective Executive Body (Management Board) of Rosneft;

Regulations on the Sole Executive Body (Chief Executive Officer) of Rosneft;

Company Standard on Payments and Сompensations to Top-managers;

Regulations on the Audit Commission of Rosneft;

Rosneft Regulation on Remuneration and Compensation to Rosneft Audit Commission Members;

Rosneft Regulation On Rosneft Corporate Secretary;

Company Information Policy;

Rosneft Regulation on Provision of Information to Rosneft Shareholders;

Rosneft Regulations on Insider Information;

Rosneft Dividend Policy;

Company Policy on Combating Corporate Fraud and Involvement in Corruption Activities;

Company Policy on Internal Audit;

Company Policy on Risk Management and Internal Control System;

Company Policy on Environmental Protection;

Company Policy on Health and Safety.

306

Appendix 6
(Financial Statements
and Auditor’s Report)

ROSNEFT ANNUAL REPORT 2019Independent auditor’s report

To the Shareholders and Board of Directors of

PJSC Rosneft Oil Company

Opinion
We have audited the financial statements of PJSC Rosneft Oil Company (the “Company”), which comprise the balance sheet as of
31 December 2019, the income statement for 2019, and appendices thereto.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company
as of 31 December 2019 and its financial performance and its cash flows for 2019 in accordance with the rules on preparation of
financial statements established in the Russian Federation.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are
independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants (including International Independence Standards) (IESBA Code) together with the ethical requirements
that are relevant to our audit of the financial statements in the Russian Federation, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements of the current period. These matters were addressed in the context of the audit of the financial statements as a whole,
and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For each matter below,
our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section
of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to
respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial statements.

Key audit matter

How our audit addressed the key audit matter

Contributions to the charter capital of subsidiaries related to restructuring

The Company made a number of new investments of shares/units of entities
that the Company owns and holds on its balance sheet, to the charter
capital of its other subsidiaries in 2019 in order to create and spin-off
management sub-holdings. In accordance with Accounting statement
19/02, Financial Investments, where it is impossible to determine the cost
of assets transferred or transferable by the organization, the value of financial
investments received by the organization under agreements providing
for non-monetary compensation (settlement) is based on the price at which
the organization normally purchases similar assets under comparable
circumstances. As a result, the value of financial investments received should
be determined based on the fair value of assets transferred as a contribution
to the charter capital.

This matter is one of the most significant in our audit as the respective
transactions are significant for financial statements and the calculation
of the value of the transferable financial investments requires management
to make significant judgments.

Information on the above-mentioned transactions is provided in Note 11
to the financial statements.

We engaged our business valuation experts to review the models
prepared to determine the value of the assets transferred
to the charter capital. We analyzed assumptions used in the models
to verify the value of the assets. We compared discount rates
and projected long-term growth rates with general market
indicators and other available data. We verified arithmetic accuracy
of the models and sensitivity analysis of the models to changes
in key assumptions. In addition, we compared the amounts
in accounting postings to the respective value calculations
and analyzed the approach to fair value measurement of financial
investments.

Other information included in the Annual Report
Other information consists of the information included in the Annual Report for 2019, other than the financial statements and our
auditor’s report thereon. Management is responsible for the other information. The Annual Report is expected to be provided to
us after the date of this auditor’s reportOur opinion on the financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information specified above when it
is provided to us and, in doing so, consider whether the other information is materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise appears to be materially misstated.

Responsibilities of management and the Audit Committee of the Board of Directors for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with the rules
on preparation of financial statements established in the Russian Federation, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due
to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’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 Company or to cease its operations, or has no realistic alternative but to do so.

The Audit Committee of the Board of Directors is responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the 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 ISA 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 financial
statements.

As part of an audit in accordance with ISA, we exercise professional judgment and maintain professional skepticism throughout
the audit. We also:
▪ Identify and assess the risks of material misstatement of the 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 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 Company’s internal control.

▪ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates made by

management and related disclosures.

▪ 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
Company’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 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 Company to cease to continue as a going concern.

▪ Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the

financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Audit Committee of the Board of Directors 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 the Audit Committee of the Board of Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and have communicated with it all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.

308

309

ROSNEFT ANNUAL REPORT 2019Appendix No.6.From the matters communicated with the Audit Committee of the Board of Directors, we determine those matters that were
of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The partner in charge of the audit resulting in this independent auditor’s report is D. E. Lobachev.

D. E. Lobachev
Partner
Ernst & Young LLC
19 February 2020

Details of the audited entity

Name: PJSC Rosneft Oil Company

Record made in the State Register of Legal Entities on 12 August 2002, State Registration
Number 1027700043502.

Balance sheet At 31 December2019

Explanatory Note

Item

Line code

At 31 December 2019

At 31 December 2018

At 31 December 2017

3.11

3.21

ASSETS

I. NON-CURRENT ASSETS

Intangible assets

Research and development
results

Intangible exploration
assets

Tangible exploration assets

Fixed assets

Income-bearing
investments in tangible
assets

Financial investments

Deferred tax assets

Other non-current assets

Total for Section I

II. CURRENT ASSETS

Inventories

Value added tax
on purchased assets

1110

1120

1130

1140

1150

1160

1170

1180

1190

1100

1210

1220

1230

1231

44,331,957.00

44,599,532.00

23,468,759.00

8,950,122.00

6,728,123.00

4,890,365.00

107,173,666.00

99,214,115.00

111,303,011.00

31,140,877.00

20,222,627.00

26,179,268.00

1,325,676,684.00

1,269,210,761.00

1,186,529,970.00

0.00

5,833,160,665.00

6,159,574,705.00

6,003,776,788.00

118,633,694.00

94,841,893.00

95,062,970.00

33,452,714.00

31,951,119.00

32,318,324.00

7,502,520,379.00

7,726,342,875.00

7,483,529,455.00

138,889,747.00

151,426,199.00

142,388,555.00

48,808,809.00

72,718,694.00

72,598,729.00

3,543,076,666.00

2,653,803,215.00

2,531,306,562.00

1,411,354,476.00

1,005,017,767.00

1,119,929,274.00

1232

2,131,722,190.00

1,648,785,448.00

1,411,377,288.00

1240

985,762,573.00

1,100,833,573.00

728,055,665.00

1241

2,243,018.00

0.00

97,398,766.00

598,541,224.00

116,638,660.00

4,797,785.00

5,052,039.00

8,400,746.00

0.00

1242

1250

1260

1261

Address: Russia 115035, Moscow, Sofiyskaya nab., 26/1.

3.15.18

Accounts receivables

Details of the auditor

Name: Ernst & Young LLC

Record made in the State Register of Legal Entities on 5 December 2002, State Registration
Number 1027739707203.

Address: Russia 115035, Moscow, Sadovnicheskaya nab., 77, building 1.

Ernst & Young LLC is a member of Self-regulated organization of auditors
Association“Sodruzhestvo” (“SRO AAS”). Ernst & Young LLC is included in the controlled copy
of the register of auditors and audit organizations, main registration number 12006020327.

including:

Accounts receivable
expected to be settled
within 12 months after
the reporting date

Accounts receivable
expected to be settled
in over 12 months after
the reporting date

Financial investments (other
than cash equivalents)

Short-term derivative
financial instruments at fair
value through profit or loss

Long-term derivative
financial instruments at fair
value through profit or loss

Cash and cash equivalents

Other current assets

including:

3.11

Unbilled accrued revenue under construction contracts

Total for Section II

BALANCE

1200

1600

4,820,977,364.00

4,582,374,944.00

3,599,388,917.00

12,323,497,743.00

12,308,717,819.00

11,082,918,372.00

310

311

ROSNEFT ANNUAL REPORT 2019Appendix No.6.1.19

3.20

15.18

Explanatory Note

Item

Line code

At 31 December 2019

At 31 December 2018

At 31 December 2017

LIABILITIES

III. CAPITAL AND RESERVES

Charter capital (pooled
capital, authorized capital,
partners’ contributions)

Treasury shares

Revaluation of non-current
assets

Additional capital (without
revaluation)

Reserve capital

Other funds and reserves

Retained earnings
(uncovered loss)

1310

105,982.00

1320

1340

1350

1360

1365

1370

118,168,244

113,279,890

113,278,538

5,299

1,389,427

5,299

-115,062,581

-231,748,689

2,142,102,123

2,028,141,822

1,802,733,923

Total for Section III

1300

2,261,771,078

2,026,470,417

1,684,375,058

IV. NON-CURRENT LIABILITIES

Loans and borrowings

Deferred tax liabilities

Provisions

Long-term derivative
financial instruments at fair
value through profit or loss

Other liabilities

Total for Section IV

V. CURRENT LIABILITIES

Loans and borrowings

Accounts payable

Deferred income

Provisions

Short-term derivative
financial instruments at fair
value through profit or loss

Other liabilities

Total for section V

BALANCE

1410

1420

1430

1440

1450

1400

1510

1520

1530

1540

1545

1550

1500

1700

5,397,760,107

5,792,741,747

5,083,998,328

106,176,347

76,836,351

91,808,512

56,345,080

91,105,397

61,023,750

799,125,852

1,134,390,419

1,419,426,029

6,379,898,657

7,075,285,758

6,655,553,504

946,067,618

817,935,056

860,270,860

2,699,900,722

2,333,146,921

1,785,522,679

2,865,382

2,740,157

2,651,115

32,444,291

19,582,179

20,059,244

33,058,044

74,073,303

549,995

499,287

412,609

3,681,828,008

3,206,961,644

2,742,989,810

12,323,497,743

12,308,717,819

11,082,918,372

V. A. Surkov
General Directorof
LLC RN-Uchet _________________

(Contract No. 100019/05992D dated 2 January 2020)

“____”_________________ 2020

I. I. Sechin
Chief Executive Officer of
PJSC Rosneft Oil Company _________________

Income statement for 2019

Explanatory
Note

Item

20.26

Revenue

16.20

Cost of sales

Oil and gas reserves exploration and estimation expenses

Gross income (loss)

Selling expenses

General and administrative expenses

Income (loss) from sales

Income from equity participation in other entities

Interest receivable

Interest payable

Gains from changes in the fair value of derivative financial instruments

Losses from changes in the fair value of derivative financial instruments

17.20

Other income

13.17.20

Other expenses

Income (loss) before tax

Current income tax

Including permanent tax assets (liabilities)

Change in deferred tax liabilities

Change in deferred tax assets

Other

Tax on prior year income

Imputed income tax

Income tax re-distribution within consolidated taxpayer group

Tax effect of the results of other operations not included in net income (loss)
for the period

Line
code

January-December
2019

January-December
2018

2110

2120

2130

6,827,526,407.00

6,968,248,044.00

(4,782,222,071)

(4,815,224,782)

(6,559,819)

(24,065,226)

2100

2,038,744,517.00

2,128,958,036.00

2210

2220

2200

2310

2320

2330

2333

2334

2340

2350

(1,196,815,437)

(1,422,676,475)

(83,302,902)

(80,583,478)

758,626,178.00

625,698,083.00

0.00

176,844,160.00

186,773,202.00

(445,059,171)

(451,851,788)

35,301,062.00

51,966,086.00

0.00

(10,950,827)

124,722,952.00

328,328,022.00

(302,893,537)

(296,124,690)

2300

347,541,644.00

433,838,088.00

2410

2421

2430

2450

2460

2461

2464

2465

2466

9,648,441.00

431,697.00

89,179,905.00

81,505,569.00

(14,367,835)

(703,115)

23,791,801.00

(2,835,837)

29,912,158.00

30,053,176.00

703,325.00

(204,996)

0.00

95,831.00

1,086,645.00

29,113,002.00

29,171,527.00

Net income (loss)

2400

396,526,209.00

460,784,009.00

I. I. Sechin
Chief Executive Officer of
PJSC Rosneft Oil Company _________________

V. A. Surkov
General Directorof
LLC RN-Uchet _________________

(Contract No. 100019/05992D dated 2 January 2020)

“____”_________________ 2020

312

313

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Statement of changes in equity for 2019

1. Changes in equity

Item

Line
code

Charter
capital

Treasury
shares

Additional
capital

Reserve
capital

Other funds
and reserves

Retained earnings
(uncovered loss)

3100

105,982.00

Equity at 31 December
2017

For 2018

Total increase in equity:

including:

Net income

Revaluation of property

Earnings directly
increasing equity

Additional issue of shares

Increase in the par value
of shares

Legal entity reorganization

Total decrease in equity:

including:

Loss

Revaluation of property

Expenses directly
decreasing equity

Decrease in the par value
of shares

Decrease in the number
of shares

Legal entity reorganization

Dividends

Change in additional
capital

Change in reserve capital

Equity at 31 December
2018

For 2019

Total increase in equity:

including:

Net income

Revaluation of property

Earnings directly
increasing equity

Additional issue of shares

Increase in the par value
of shares

Legal entity reorganization

Total decrease in equity:

including:

Loss

3210

3211

3212

3213

3214

3215

3216

3220

3221

3222

3223

3224

3225

3226

3227

3230

3240

3200

3310

3311

3312

3313

3314

3315

3316

3320

3321

105,982.00

Revaluation of property

3322

314

113,278,543.00

5,299.00

(231,748,689)

1,802,733,923.00

5,921.00

(4,569)

116,686,108.00

460,866,255.00

460784009

116,686,108.00

82,246.00

(235,458,356)

(10,459,041)

(224,999,315)

113,279,895.00

5,299.00

(115,062,581)

2,028,141,822.00

4,891,328.00

(2,974)

116,452,008.00

396,613,701.00

396,526,209.00

116,452,008.00

87,492.00

(282,653,402)

Item

Expenses directly
decreasing equity

Decrease in the par value
of shares

Decrease in the number
of shares

Legal entity reorganization

Dividends

Change in additional
capital

Change in reserve capital

Equity at 31 December
2019

Line
code

3323

3324

3325

3326

3327

3330

3340

3300

Charter
capital

Treasury
shares

Additional
capital

Reserve
capital

Other funds
and reserves

Retained earnings
(uncovered loss)

105,982.00

(2,974)

0.00

(2)

(282,653,402)

2.00

118,168,247.00

5,299.00

1,389,427.00

2,142,102,123.00

2. Adjustment due to changes in the accounting policy
and correction of errors

Item

Total equity

Before adjustments

Adjustment due to:

Changes in the accounting policy

Correction of errors

After adjustments

including:

Retained earnings (uncovered loss):

Before adjustments

Adjustment due to:

Changes in the accounting policy

Correction of errors

After adjustments

Line code

At 31 December
2017

Change in equity for 2018

Through net income (loss)

Due to other
factors

At 31 December
2018

3400

1,684,375,058.00

460,784,009.00

(118,688,650)

2,026,470,417.00

3410

3420

3500

1,684,375,058.00

460,784,009.00

(118,688,650)

2,026,470,417.00

3401

1,802,733,923.00

460,784,009.00

(235,376,110)

2,028,141,822.00

3411

3421

3501

1,802,733,923.00

460,784,009.00

(235,376,110)

2,028,141,822.00

Other equity items that have been
adjusted:

3402

(118,358,865)

3412

3422

3502

(118,358,865)

116,687,460.00

(1,671,405)

116,687,460.00

(1,671,405)

(By item)

Before adjustments

Adjustment due to:

Changes in the accounting policy

Correction of errors

After adjustments

3. Net assets

Item

Net assets

Code

3600

I. I. Sechin
Chief Executive Officer of
PJSC Rosneft Oil Company _________________

Line code

At 31 December 2019

At 31 December 2018

At 31 December 2017

3600

2261771078

2026470417

1684375058

V. A. Surkov
General Directorof
LLC RN-Uchet _________________
(Contract No. 100019/05992D dated 2 January 2020)
“____”_________________ 2020

315

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Statement of cash flows for 2019

Item

Cash flows from operating activities

Total proceeds

including:

From the sale of products, goods, work and services

Lease payments, license payments, royalties, commissions and other similar payments

From resale of financial investments

Other proceeds

Total cash disbursements

including:

Payments to suppliers (contractors) for raw materials, work and services

Payroll-related payments

Interest on debt obligations

Income tax

Other taxes and levies

Exploration costs

Other payments

Net cash flows from operating activities

Cash flows from investing activities

Total proceeds

including:

From sale of non-current assets (except for financial investments)

From sale of shares (interests) in other entities

From repayment of loans issued and sale of debt securities (receivables from other
parties)

Dividends, interest on debt financial instruments and similar proceeds from equity
participation in other entities

Other proceeds

Total payments

including:

Purchase, creation, upgrading, reconstruction and preparation for use of non-current
assets

Purchase of shares (interests) in other entities

Purchase of debt securities (receivables from other parties), issue of loans to other parties

Interest on debt obligations included in the value of the investment asset

Exploration assets

Other payments

Net cash flows from investing activities

Cash flows from financing activities

Total proceeds

including:

Loans and borrowings received

Cash contributions of shareholders (participants)

Issue of shares, increase in interests

Issue of bonds, promissory notes and other debt securities, etc.

Other proceeds

Total payments

316

Line code

For 2019

For 2018

4110

6179070239

6949361784

4111

5498167192

5962431089

4112

4113

4119

4120

4121

4122

4123

4124

4125

4128

4129

4100

4210

150978981

151987590

529924066

834943105

-6780339685

-6898554475

-4708441513

-4820693835

-41823850

-41438562

-372122046

-347701977

-10184117

-15390346

-904235818

-944055998

-6582553

-15091557

-736949788

-714182200

-601269446

50807309

1304175862

2448010068

4211

10762256

18649588

4212

4213

23371

28723

886376455

1772649402

4214

368230520

580793533

4219

4220

4221

4222

4223

4224

4228

4229

4200

4310

38783260

75888822

-831287612

-2080505380

-188557971

-203655854

-374023314

-148272795

-207069417

-1639041928

-23773804

-37863106

-15993209

-73541594

472888250

367504688

3502514309

3401044264

4311

3417634273

3331053021

4312

4313

4314

4319

4890000

79990036

69991243

4320

-3824224290

-3338428524

Item

including:

Payments to shareholders (participants) due to the buyback of shares (interests)
in the entity or due to their withdrawal

Dividends and other distributions of income among shareholders (participants)

Repayment (redemption) of promissory notes and other debt securities, repayment
of loans and borrowings

Other payments

Net cash flows from financing activities

Net cash flows for the reporting period

Balance of cash and cash equivalents at the beginning of the reporting period

Balance of cash and cash equivalents at the end of the reporting period

Effect of changes in the exchange rate of foreign currency to the ruble

I. I. Sechin
Chief Executive Officer of
PJSC Rosneft Oil Company _________________

Line code

For 2019

For 2018

4321

4322

4323

4329

4300

4400

4450

4500

4490

-274265540

-218156115

-3549958750

-3120272409

-321709981

62615740

-450091177

480927737

598541224

116638660

97398766

-51051281

598541224

974827

V. A. Surkov
General Directorof
LLC RN-Uchet _________________

(Contract No. 100019/05992D dated 2 January 2020)

“____”_________________ 2020

These Explanatory Notes to the balance sheet and the income statement constitute an integral part of the financial statements
of PJSC Rosneft Oil Company for the 2019 reporting year prepared in accordance with the applicable legislation of the Russian
Federation.

317

ROSNEFT ANNUAL REPORT 2019Appendix No.6.I. I. Sechin
Chief Executive Officer of
PJSC Rosneft Oil Company _________________

V. A. Surkov
General Directorof
LLC RN-Uchet _________________
(Contract No. 100019/05992D dated 2 January 2020)
“____”_________________ 2020

The reporting date of these financial
statements, as of which they are prepared,
is 31 December 2019.

1. Entity and types of activity

1.1 Company description

Public joint-stock company Rosneft Oil Company (the “Company”, “Rosneft Oil Company”) was established in accordance with
Decree No. 327 of the President of the Russian Federation, On Priority Measures for Improving the Activities of Oil Companies,
dated 1 April 1995 and pursuant to Resolution No. 971 of the Government of the Russian Federation, On the Transformation of
State Enterprise Rosneft into Open Joint-Stock Company Rosneft Oil Company, dated 29 September 1995. On 8 July 2016, the
Company was transformed into public joint-stock company.

The Company is a legal entity that operates on the basis of its Charter and the laws of the Russian Federation.
Location of the Company: Moscow, Russian Federation.
Address of the Company specified in the Unified State Register of Legal Entities:
26/1 Sofiyskaya nab., Moscow, Russian Federation, 115035.

Governing bodies of the Company

General Shareholders’ Meeting of the Company

The General Shareholders’ Meeting is the supreme governing body of the Company. The scope of authority of the General
Shareholders’ Meeting of the Company, the procedure for convening and holding it and its proceedings are determined in
accordance with federal laws, the Charter of the Company and the Regulation on the General Shareholders’ Meeting of the
Company.

The address of the place for holding the General Shareholders Meeting is determined by the Company’s Board of Directors.

The annual General Shareholders’ Meeting is held not earlier than two months and not later than six months after the end of the
financial year.

The General Shareholders’ Meeting is chaired by the Chairman of the Company’s Board of Directors or, in his absence, a member
of the Board of Directors selected by the decision of the Board of Directors.

Board of Directors of the Company

The Company’s Board of Directors is responsible for the general management of the Company’s activities, except for the matters that fall
within the authority of the General Shareholders’ Meeting according to federal laws and the Charter of the Company.

The members of the Company’s Board of Directors are elected by the General Shareholders’ Meeting to serve until the next annual
General Shareholders’ Meeting.

The Board of Directors of Rosneft Oil Company that served as of 31 December 2019 was formed by the decision of the extraordinary
General Shareholders’ Meeting of the Company held on 4 June 2019.

As of 31 December 2019, the Board of Directors of Rosneft Oil Company comprised:

Faisal Alsuwaidi

Member of the Board of Directors of Rosneft Oil Company, representative of Qatar Investments
Authority

Hamad Rashid Al-Mohannadi

Member of the Board of Directors of Rosneft Oil Company, Member of the Board of Trustees
at The Abdullah Bin Hamad Al-Attiyah International Foundation for Energy & Sustainable Development
of Qatar, Chairman of the Board of Trustees at The Community College of Qatar, representative
of the Qatar Investment Authority

Andrey Removich Belousov

Member of the Board of Directors of Rosneft Oil Company, First Deputy Prime Minister of the Russian
Federation 1

Matthias Arthur Warnig

Deputy Chairman of the Board of Directors of Rosneft Oil Company, Independent Director, Director
of Interatis AG (Switzerland), Executive Director of Nord Stream 2 AG (Switzerland)

Oleg Vyacheslavovich Viyugin

Member of the Board of Directors of Rosneft Oil Company, Independent Director, professor
of the Finance Department of the Economic Faculty of the National Research University Higher School
of Economics

Robert Warren Dudley

Member of the Board of Directors of Rosneft Oil Company, Director and member of the Board
of Directors of BP p.l.c., Chief Executive Officer of BP Group

Guillermo Ordonez Quintero

Member of the Board of Directors of Rosneft Oil Company, Director of GQO Consultants LTD

Alexander Valentinovich Novak

Member of the Board of Directors of Rosneft Oil Company, Minister of Energy of the Russian Federation

Hans-Joerg Rudloff

Member of the Board of Directors of Rosneft Oil Company, Independent Director, Chairman
of the Management Board of Marcuard Holding, Executive Director of ABD Capital S. A., President
of ABD Capital Eastern Europe S. A.

10.

Igor Ivanovich Sechin

Chief Executive Officer, Chairman of the Management Board,

Deputy Chairman of the Board of Directors of Rosneft Oil Company

11.

Gerhard Schroeder

Chairman of the Board of Directors of Rosneft Oil Company, Independent Director

In accordance with clause 2 of Article 64 of the Federal Law, On Joint-stock Companies, and the Regulation On Payment of
Remuneration and Compensation for Expenses to the Members of the Board of Directors of PJSC Rosneft Oil Company,
remuneration to the members of the Board of Directors during the period when they perform their duties is paid on the basis of a
decision of the General Shareholders’ Meeting.

On 4 June 2019, the annual General Shareholders’ Meeting (meeting minutes w/o number dated 7 June 2019) approved
remuneration to the following members of the Board of Directors of the Company for the period during which they performed
their duties:
▪ Gerhard Schroeder – USD600,000
▪ Faisal Alsuwaidi – USD530,000
▪ Matthias Warnig – USD580,000
▪ Oleg Vyacheslavovich Viyugin – USD560,000
▪ Ivan Glasenberg – USD530,000
▪ Hans-Joerg Rudloff – USD580,000

In addition, on 4 June 2019, the annual General Shareholders’ Meeting (meeting minutes w/o number dated 7 June 2019)
approved compensation for all expenses and costs incurred by the members of the Board of Directors of the Company when
performing their duties.

As of 31 December 2019, the Company fulfilled its obligation to pay the remuneration to the above members of the Board of
Directors of Rosneft Oil Company for the period during which they performed their duties.

In 2019, no remuneration was paid to the members of the Board of Directors of Rosneft Oil Company, namely Andrey Removich
Belousov, a government official at the date of the adoption of the decision to pay remuneration by the General Shareholders’
Meeting, Aleksander Valentinovich Novak, who held a public office, and Igor Ivanovich Sechin, the Chairman of the Management
Board of Rosneft Oil Company, for performing their duties as members of the Board of Directors of Rosneft Oil Company. In
addition, in 2019, no remuneration was paid to the members of the Board of Directors of Rosneft Oil Company representing BP,
a shareholder of Rosneft Oil Company, namely Robert Dudley and Guillermo Quintero, for performing their duties as members of
the Board of Directors of Rosneft Oil Company, in accordance with their applications filed.Sole executive body of the Company

The matter of forming the Board of Directors was not included in the agenda of the annual General Shareholders’ held on 30 September
2019. The current members of the Board of Directors were approved by the General Shareholders’ Meeting on 4 June 2019.

As of 31 December 2019, Andrey Removich Belousov held the position of the Assistant to the President of the Russian Federation.

318

319

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Chief Executive Director of Rosneft Oil Company is its sole executive body.

Control of the Company’s financial and business operations

Igor Ivanovich Sechin was appointed as the sole executive body of the Company (Minutes No. 22 of the Board of Directors’
meeting dated 23 May 2012) and took office on 24 May 2012. Igor Ivanovich Sechin was appointed as the sole executive body of
the Company for a new 5-year period by decision of the Board of Directors of Rosneft Oil Company dated 30 April 2015 (Minutes
No. 32 dated 30 April 2015).

Collegial executive body of the Company

Pursuant to the Charter, the Management Board is the collegial executive body of the Company.

As of 31 December 2019, members of the Management Board of the Company included:

10.

11.

Igor Ivanovich Sechin

Zeljko Runje

Chief Executive Officer, Chairman of the Management Board, Deputy Chairman of the Board
of Directors of Rosneft Oil Company

Deputy Chairman of the Management Board, First Vice President for Oil, Gas, and Offshore Business
Development at Rosneft Oil Company

Eric Liron

Vice President for In-House Services at Rosneft Oil Company

Gennady Ivanovich Bukaev

Vice President – Head of Internal Audit at Rosneft Oil Company

Didier Casimiro

Vice President for Refining, Petrochemical, Commerce and Logistics at Rosneft Oil Company

Peter Ivanovich Lazarev

Financial Director of Rosneft Oil Company

Zavaleeva Elena Vladimirovna

State Secretary – Vice President at Rosneft Oil Company

Yury Igorevich Kurilin

Vice President, Chief of Staff at Rosneft Oil Company

Andrey Nikolaevich Shishkin

Vice-President for Informatization, Innovation and Localization at Rosneft Oil Company

Andrey Aleksandrovich Polyakov

Vice President – Chief Geologist at Rosneft Oil Company

Ural Alfretovich Latypov

Vice President – Head of Security Service at Rosneft Oil Company

The Board of Directors of Rosneft Oil Company made the following decisions with respect to the Management Board of the
Company:
▪ To appoint Gennady Ivanovich Bukaev, Vice President – Head of Internal Audit at Rosneft Oil Company, as a member of the

Management Board of Rosneft Oil Company for three (3) years from 1 July 2019 (Minutes No. 2 dated 1 July 2019).

▪ To terminate the powers as a member of the Management Board of Rosneft Oil Company of Yuri Ivanovich Kalinin, Deputy
Chairman of the Management Board, and Vlada Vilorikovna Rusakova, member of the Management Board of Rosneft Oil
Company from 26 December 2019.

▪ To appoint Ural Alfretovich Latypov, Vice President – Head of Security Service at Rosneft Oil Company, and Andrey

Aleksandrovich Polyakov, Vice President – Chief Geologist at Rosneft Oil Company, as members of the Management Board of
Rosneft Oil Company for three (3) years, and to appoint Zeljko Runje, First Vice President for Oil, Gas, and Offshore Business
Development at Rosneft Oil Company, as Deputy Chairman of the Management Board from 27 December 2019 (Minutes No.
12 dated 30 December 2019).

Control of the Company’s financial and business operations is exercised by the Audit Commission. The Audit Commission’s
operating procedure is specified in the Regulation on the Audit Commission of the Company, as approved by the General
Shareholders’ Meeting of the Company.

The Audit Commission of the Company comprises five (5) members who are elected by the General Shareholders’ Meeting to
serve until the next annual General Shareholders’ Meeting.

As of 31 December 2019, the Audit Commission of the Company comprised:

Chairman of the Audit Commission:

1. Zakhar Borisovich Sabantsev

Audit Commission members:

2. Olga Anatolyevna Andrianova

3. Alexander Yevgenievich Bogashov

Head of the Bank Sector Monitoring, Consolidated and Analytical Work Section, Financial
Policy Department, Ministry of Finance of the Russian Federation

Chief Accountant - Head of Finance and Economics Service of JSC ROSNEFTEGAZ,
General Director of LLC Vostokgazinvest

Director of the Department for Corporate Governance, Price Environment, Control
and Audit Activity in the Energy Sector, Ministry of Energy of the Russian Federation

4. Sergey Ivanovich Poma

Vice President of the National Association of Securities Market Participants (NAUFOR)

5. Pavel Gennadyevich Shumov

Acting Deputy Director of the Department for State Regulation of Tariffs and Infrastructure
Reforms, Ministry of Economic Development of the Russian Federation

On 4 June 2019, the annual General Shareholders’ Meeting (meeting minutes w/o number dated 7 June 2019) approved
remuneration to the members of the Audit Commission of the Company for the period during which they performed their duties:
▪ Olga Anatolyevna Andrianova – RUB220,000
▪ Sergey Ivanovich Poma – RUB220,000

As of 31 December 2019, the Company fulfilled its obligation to pay the remuneration.1.2 Structure of the Company’s charter
capital*

Information about the shareholders of Rosneft Oil Company as of 31 December 2019 is presented below:

No.

Name of legal entity or individual

Number of common (voting) shares and interest in the charter capital

JSC ROSNEFTEGAZ

BP Russian Investments Limited

QH Oil Investments LLC

Non-banking Credit Organization Joint Stock
Company National Settlement Depository (nominal
holder central depository)

Other legal entities

5,299,088,910 common shares representing 50.00000001 % of the total number
of common shares and the charter capital of the Company

2,092,900,097 common shares representing 19.75 % of the total number of common
shares and the charter capital of the Company

2,006,045,126 common shares representing 18.93 % of the total number of common
shares and the charter capital of the Company

1,163,626,202 common shares representing 10.98 % of the total number of common
shares and the charter capital of the Company

1,182,555 common shares representing 0.01 % of the total number of common
shares and the charter capital of the Company

The Russian Federation, acting through the Federal
Property Management Agency

1 common share, representing 0.000000009 % of the total number of common
shares and the charter capital of the Company

Individuals

35,180,243 common shares representing 0.33 % of the total number of common
shares and the charter capital of the Company

Account of unidentified individuals

154,683 common shares representing less than 0.01 % of the total number
of common shares and the charter capital of the Company

320

321

1 * Information is based on the data of Rosneft shareholders’ register.

ROSNEFT ANNUAL REPORT 2019Appendix No.6.1.3 Description of the Company’s activities

In accordance with clause 3.4 of Article 3 of Rosneft Oil Company’s Charter (revised version) approved by the annual General
Shareholders’ Meeting of the Company on 27 June 2014 (meeting minutes w/o number) with the amendments approved by the
General Shareholders’ Meeting of the Company on 15 June 2016 (meeting minutes w/o number), amendments approved by the
General Shareholders’ Meeting of the Company on 22 June 2017 (meeting minutes w/o number), amendments approved by the
General Shareholders’ Meeting of the Company on 29 September 2017 (meeting minutes w/o number), the Company prospects,
explores, extracts and processes oil, gas and gas condensate, sells oil, gas, gas condensate, and oil and gas products to customers
in and outside the Russian Federation, conducts any related activities, and works with precious metals and precious stones. The
Company is engaged, in particular, in the following principal activities:
▪ Geological prospecting and exploration to find the deposits of oil, gas, coal and other minerals; extraction, transportation and
processing of oil, gas, coal and other minerals, and timber; production of oil products, petrochemicals and other products,
including liquefied natural gas, gas products and gas chemicals, electric power, wood products, consumer goods, and provision
of services to the public; storage and sale (including domestic and export sales) of oil, liquefied and gaseous gas, oil products,
gas products and gas chemicals, coal, electric power, wood products, and other products from hydrocarbons and other raw
materials

▪ Investing, including transactions with securities
▪ Managing the fulfillment of orders placed by the federal government and regional consumers of the products made by the

Company and its subsidiaries, including deliveries of oil, gas and oil products

▪ Investment management, construction, engineering, technological and other services for upstream and downstream projects,

and research and development, procurement and distribution, economic, foreign economic and legal support for the
Company, its subsidiaries and third-party customers. Surveying the commodity and services markets, and the securities market,
conducting sociological and other research. Regulating and coordinating the activities of subsidiariesLeasing out immovable
and other property, using leased property

▪ Assisting in securing the interests of the Russian Federation when it prepares and implements production-sharing agreements

for subsurface areas and hydrocarbon deposits

▪ Managing advertising and publishing activities, conducting exhibitions, fairs, auctions, etc.
▪ Intermediary, consulting, marketing and other activities, including foreign economic activities (including export/import

operations), performing work and providing services on a contractual basis

▪ Ensuring the protection of the Company’s employees and property
▪ Using precious metals and precious stones in technological processes as elements of equipment and materials
▪ Arranging and holding mobilization training and civil defense events, working with state secrets and protecting them

At the end of 2019, the average headcount of the Company was 4,537 employees.

2. Basis of preparation

The accounting records are maintained in accordance with Federal Law No. 402-FZ, On Accounting, dated 6 December 2011 and
the Statute On Accounting and Reporting in the Russian Federation, approved by Order No. 34n of the Russian Ministry of Finance
dated 29 July 1998 (including Information No. PZ-10/2012 of the Russian Ministry of Finance), as well as applicable Accounting
Statements. The Company’s financial statements for the 2019 reporting year were prepared in accordance with the Law, the
Statute and the Accounting Statements.

3. Changes in opening balances in the financial statements
for the 2019 reporting year

To ensure the comparability of the financial statements (paragraph 10 of Accounting Statement 4/99), the following
reclassifications were made to the data for 2018 due to amendments introduced to the accounting policy for 2019 in terms of
presentation of the statement of cash flows:
▪ In 2019, the approach to presenting data in the statement of cash flows was changed requiring that interest-free loans issued

be recognized within other payments on operating activities less the amount repaid in the reporting period.

Table 1. Changes in the statement of cash flows (kRUB)

Item

Line

As previously
reported for 2018

As currently
reported for 2018

Changes Reason

Cash flows from operating activities

4120

(6,762,778,931)

(6,898,554,475)

(135,775,544)

Total cash disbursements

Including other payments

Net cash flows from operating activities

Cash flows from investing activities
Total proceeds

including
from repayment of loans issued and sale
of debt securities (receivables from other
parties)

4129

4100

4210

(578,406,656)

(714,182,200)

(135,775,544)

186,582,853

50,807,309

(135,775,544)

2,877,879,280

2,448,010, 068

(429,869,212)

4213

2,202,518,614

1,772,649,402

(429,869,212)

Cash flows from investing activities

4220

(2,646,150,136)

(2,080,505,380)

565,644,756

Total payments

including
purchases of debt securities (receivables
from other parties), provision of loans
to other parties

4223

(2,204,686,684)

(1,639,041,928)

565,644,756

Net cash flows from investing activities

4200

231,729,144

367,504,688

135,775,544

Transactions
to provide and repay
interest-free loans
were reclassified
from investing
activities to operating
activities and were
recognized on a net
basis

4. Information about the accounting policy

The Company developed its accounting policy in accordance with the principles established by Accounting Statement 1/2008,
Accounting Policies of an Organization, approved by Oder No. 106n of the Russian Ministry of Finance dated 6 October 2008:
▪ Economic entity assumption according to which the Company’s assets and liabilities are accounted for separately from the

assets and liabilities of other legal entities and individuals

▪ Going concern assumption according to which the Company will continue its business in the foreseeable future and it neither

intends nor has to liquidate or significantly curtail its activities, and, therefore, its liabilities will be duly discharged

▪ Consistency assumption according to which the Company will consistently apply the adopted accounting policy in its activities
▪ Time period assumptionMaterial accounting methods provided for by the Company’s accounting policy in 2019 are reflected

below in the respective Explanatory Notes to the balance sheet and the income statement for the 2019 reporting year.

322

323

ROSNEFT ANNUAL REPORT 2019Appendix No.6.5. Fixed assets and capital construction in progress

Table 2. Information on fixed assets (kRUB)

Assets intended for use in the manufacturing of products, performance of work and provision of services, or for administrative
needs over their useful lives of more than 12 months are accounted for as fixed assets.

Fixed assets include buildings, structures, machinery, equipment, measuring and control instruments and devices, computers,
vehicles, tools, fixtures and fittings, etc. Fixed assets also include land plots and natural resources. The Russian Classifier of Fixed
Assets approved by Order No. 2018-st of the Federal Agency on Technical Regulation and Metrology (Rosstandart) dated 12
December 2014 is used to determine the structure and grouping of fixed assets.

Items intended to be leased out are recorded in line 1150, Fixed assets. The net book value of such items was:
▪ kRUB597,600,420 at the end of the period
▪ kRUB566,447,177 at the beginning of the period

An asset is recognized as a fixed asset on the date it is ready for operation. Fixed assets the rights to which are subject to state
registration are included in the fixed assets at the date of delivery to their final destination, if the asset it ready for operation. Using
the substance-over-form principle, the completed capital construction projects and purchased real estate items that are actually
in operation are also included in fixed assets, regardless of whether the documents for their state registration have actually been
submitted. Such items are depreciated in accordance with the established procedure.

For accounting purposes, fixed assets are depreciated using the straight-line method:
▪ Assets put into operation before 1 January 2002: at the depreciation rates set by Resolution No. 1072 of the Council of

Ministers of the USSR dated 22 October 1990

▪ Assets put into operation after 1 January 2002: at the depreciation rates calculated based on the useful lives set by Resolution

No. 1 of the Government of the Russian Federation dated 1 January 2002

▪ Assets put into operation after 1 January 2018: at the depreciation rates calculated based on the useful lives set by Resolution
No. 1 of the Government of the Russian Federation dated 1 January 2002 as well as based on useful lives indicated in the
technical documentation, manufacturers’ recommendations, or based on other relevant information that determines the
period during which an item of fixed assets is expected to generate economic benefits

The main groups of fixed assets have the following useful lives:

Buildings

Structures

Machinery and equipment

30 to 100 years

10 to 15 years

5 to 7 years

Assets with a value of not more than kRUB40 per unit have been recorded and reported as inventories since 1 January 2014. To
ensure the safety of the assets during production or operation, the Company makes arrangements to control their movements.
Fixed assets include the following assets (irrespective of their value):

▪ Land plots
▪ Buildings
▪ Structures
▪ Transfer devices
▪ Downhole equipment
▪ Vehicles
▪ Assets held as joint shared property or joint property
▪ Assets held for leasing

Fixed assets are reported in the balance sheet at their net book value.

Fixed assets are not revalued following the completion of the mandatory revaluation of fixed assets in accordance with the
Resolutions of the Russian Government.

Period

At the beginning
of the period

Changes for the period

At the end of the period

Historical
cost

Accumulated
depreciation

Additions

Disposals Depreciation
charge

Accumulated
depreciation

Historical
cost

Accumulated
depreciation

2019

1,569,277,962

(931,460,440)

172,208,186

(4,442,659)

3,329,206

(135,595,035)

1,737,043,489

(1,063,726,269)

2018

1,434,802,008

(819,931,051)

182,429,326

(47,953,372)

29,655,898

(141,185,287)

1,569,277,962

(931,460,440)

2019

1,380,721,200

(801,688,141)

167,139,699

(3,853,124)

2,772,680

(123,857,447)

1,544,007,775

(922,772,908)

2018

1,253,588,915

(701,088,374)

171,128,379

(43,996,094)

26,649,133

(127,248,900)

1,380,721,200

(801,688,141)

2019

2018

2019

2018

2019

2018

183,346,891

(128,016,586)

5,037,447

(503,857)

470,965

(11,652,378)

187,880,481

(139,197,999)

176,942,695

(117,144,438)

10,323,503

(3,919,307)

2,969,973

(13,842,121)

183,346,891

(128,016,586)

5,209,871

(1,755,713)

31,040

(85,678)

4,270,398

(1,698,239)

977,444

(37,971)

3,209,893

2,349,824

860,970

(60)

(901)

85,561

36,792

(85,210)

5,155,233

(1,755,362)

(94,266)

5,209,871

(1,755,713)

3,209,846

3,209,893

Group
of fixed
assets

Total fixed
assets

Buildings
and
structures

Machinery,
equipment,
vehicles

Other fixed
assets

Including
fixed
assets that
are not
depreciated

Table 3. Information on fixed assets requiring state registration (kRUB)

Fixed assets whose title has not yet been registered

212,947,138

216,700,282

242,504,069

Including fixed assets whose registration documents have not yet been
accepted by the state authorities

210,138,389

208,464,386

232,630,158

At 31 December
2019

At 31 December
2018

At 31 December
2017

Table 4. Information on the use of fixed assets (kRUB)

Group of fixed assets

At 31 December
2019

At 31 December
2018

At 31 December
2017

Total assets leased out (historical cost), including

1,557,316,383

1,425,671,402

1,313,143,006

• Buildings

• Structures

48,462,125

46,838,617

47,879,783

1,332,392,306

1,207,948,158

1,098,760,374

Mothballed fixed assets (historical cost)

60,412,857

52,526,131

37,787,491

Total fixed assets leased (contract or cadastral value),
including

100,963,500

84,246,854

74,235,887

• Land plots

• Other fixed assets

Change in the value of fixed assets as a result of supplementary
construction, retrofitting, refurbishment, modernization or partial liquidation

69,523,734

31,439,766

21,277,842

74,304,769

9,942,085

22,425,172

66,337,376

7,898,511

23,019,002

324

325

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Table 5. Information on capital investments in progress (kRUB)

Capital investments in progress by type of asset

Equipment for installation

Construction in progress, including

Advances issued for construction, acquisition, manufacturing of fixed assets
(net of VAT)

Other assets

Total

At 31 December
2019

At 31 December
2018

At 31 December
2017

15,897,385

634,303,095

50,198,285

15,431,560

613,815,168

45,491,528

17,828,175

551,066,851

46,294,428

2,158,984

2,146,511

2,763,987

652,359,464

631,393,239

571,659,013

When an intangible asset is created in-house, the related costs are to be capitalized beginning from the development stage, i.e.
when the Company can demonstrate:
▪ The technical feasibility of creating the intangible asset
▪ Its intention and ability to create the intangible asset and use it
▪ How the intangible asset will generate probable economic benefits
▪ The availability of sufficient technical, financial and other resources to complete development and use the intangible asset
▪ Ability to reliably estimate costs related to the intangible asset during its development

Costs incurred at the research stage are not capitalized and are treated as either expenses related to ordinary activities or other
expenses, depending on the purpose of research.

In 2019, the value of work performed under capital construction projects amounted to kRUB183,624,014 (net of VAT). Investments
in the purchase of equipment, both requiring and not requiring installation, fixed assets and land plots, and in appraisal and
exploration drilling amounted to kRUB8,800,503 (net of VAT).

Intangible assets created in-house mean:
▪ Intangible assets created by the Company’s employees when performing their job duties
▪ Intangible assets resulting from the work performed by contractors under contracts in which the risks of negative results are

Advances issued for construction, acquisition and manufacturing of fixed assets include the share of advances paid to purchase
fixed assets with a value of up to kRUB40 per unit included in inventories. It is impossible to determine the final value of assets
before the completion of the work performed to render them fit for use. Therefore, as of the reporting date, advances for
acquisition are recognized within capital expenditures.

6. Intangible assets

Intangible assets include:
▪ Exclusive right of a patent holder to an invention, industrial design or utility model
▪ Exclusive right to computer software and databases
▪ Exclusive right to integrated circuit topologies
▪ Exclusive right to a trademark, service mark, or appellation of origin
▪ Exclusive right to selection achievements
▪ Exclusive right to trade secrets (know-how)
▪ Oil and gas production licenses
▪ Exclusive subsoil use rights when entering into international agreements that give the right to implement oil and gas

exploration and production projects in a foreign jurisdiction or in the Russian Federation (licenses, concession agreements,
subsoil use contracts, agreements on the provision of a participating interest, etc.)

▪ Geological exploration and production licenses (combined licenses), provided that the production of mineral resources in the
license area is commercially viable; such licenses are accounted for in the same way as costs arising in connection with the
exploration and appraisal of fields until it is confirmed that production is commercially viable

borne by the Company

The Company created the following intangible assets in the reporting period:
▪ Exclusive right to computer software and databases with a historical cost of kRUB296,046
▪ Exclusive rights to an invention with a historical cost of kRUB7,025
▪ Digital forest management maps with a historical cost of kRUB10,800
▪ Multimedia products, websites with a historical cost of kRUB1

The actual (historical) cost of an intangible asset acquired under a contract providing for non-monetary compensation (settlement)
is determined on the basis of the cost of assets transferred or transferable by the Company. The cost of assets transferred or
transferable by the Company is determined on the basis of the price it would normally use to determine the cost of similar assets
under comparable circumstances.

Where it is impossible to determine the cost of assets transferred or transferable by the Company under such contracts, the
cost of an intangible asset received by the Company is determined on the basis of the price at which similar intangible assets are
purchased under comparable circumstances.

Intangible assets are amortized using the straight-line method or the unit-of-production method:
▪ Exclusive right of a patent holder to an invention, industrial design or utility model: straight-line method
▪ Exclusive right to computer software and databases: straight-line method
▪ Exclusive right to integrated circuit topologies: straight-line method
▪ Exclusive right to a trademark, service mark, or appellation of origin: straight-line method
▪ Oil and gas production licenses, provided that the production of mineral resources in the license area is commercially viable:

unit-of-production method

▪ Other mineral licenses (for the construction of underground gas storage facilities, the production of commonly occurring

▪ Exclusive subsoil use rights when entering into international agreements that give the right to implement oil and gas

mineral resources and the abstraction of underground water)

▪ Deliverables of 3D and 4D seismic surveys (including designing, field works, supervising, processing, interpretation, lease of

forest plot) in support of the development at commercially recoverable oil and gas fields

▪ Information received as the result of drilling the offshore appraisal and exploration wells abandoned as successful due to

technological reasons at commercially recoverable fieldsDigital and electronic maps, as well as other spatial data

▪ Complex items comprising several protected intellectual properties (including those combining exclusive and non-exclusive

rights):

▪ Multimedia product
▪ Audiovisual works (cinematic works or works involving media similar to those used in cinema (TV movies, videos, etc.))
▪ Website, etc.
▪ Other intangible assets

Geological exploration and production licenses (combined licenses) are accounted for in the same way as costs arising in
connection with the exploration and appraisal of fields until it is confirmed that production is commercially viable.

Intangible assets are recognized at their actual (historical) cost determined in accordance with Accounting Statement 14/2007,
Intangible Assets, approved by Order No. 153n of the Russian Ministry of Finance dated 27 December 2007.

▪ Geological exploration and production licenses (combined licenses), provided that the production of mineral resources in
the license area is commercially viable: unit-of-production method. Proved oil and gas reserves are defined in accordance
with Petroleum Resources Management System (PRMS). For the purposes of evaluation of the reserves as of 31 December
2019, the Company used proved oil and gas reserves data prepared by DeGolyer and MacNaughton, independent reservoir
engineers.

▪ Other mineral licenses (for the construction of underground gas storage facilities, the production of commonly occurring

mineral resources and the abstraction of underground water): straight-line method

▪ Deliverables of 3D and 4D seismic surveys in support of the development at commercially recoverable oil and gas fields: unit-

of-production method

▪ Information received as the result of drilling successful onshore appraisal and exploration wells abandoned due to

technological reasons at commercially recoverable oil and gas fields: unit-of-production method

▪ Digital and electronic maps, as well as other spatial data: straight-line method
▪ Other intangible assets: straight-line method

326

327

ROSNEFT ANNUAL REPORT 2019Appendix No.6.The Company determines the useful life of an intangible asset upon its recognition.

Table 6. Information on intangible assets (kRUB)

The useful life of an intangible asset is determined on the basis of:
▪ The term of the Company’s rights to intellectual property or means of individualization, and the period of control over the asset
▪ The period during which the Company is expected to use the asset and receive economic benefits

The Company annually reviews the useful life of an intangible asset in order to determine whether or not it should be revised. In
the event of a significant change in the period, during which the company expects to use the asset, the asset’s useful life should be
revised. The resulting adjustments are recorded and reported as changes in estimates.

The main groups of intangible assets have the following useful lives:

Trademarks

Patents

Exclusive rights to computer software and databases

Exploration and production licenses *

Geological prospecting, exploration and production licenses (combined licenses)1

Other mineral licenses (for the abstraction of underground water, construction of gas storage facilities, etc.)

4.1 to 13.6 years

1.1 to 24.1 years

1.1 to 10 years

3 to 173 years

10 to 166 years

7 to 25 years

Intangible assets are not amortized if their useful lives cannot be determined.

The Company annually reviews the amortization method for an intangible asset during inventory counts in order to determine
if it should be revised. If the calculation of the expected flow of future economic benefits from an intangible asset has changed
significantly, the amortization method for that asset is also changed. The resulting adjustments are recorded and reported as
changes in estimates.

If the timing for receiving future economic benefits is not reliably estimated during inventory counts, no changes are made to the
amortization method.

Intangible assets are not revalued and are not tested for impairment by the Company.

The Company determined that there was no need to revise the amortization method and the useful lives of intangible assets in the
reporting period.

The Company has determined useful lives for all intangible assets.

Intangible assets are reported in the balance sheet at their net book value.

Groups
of intangible
assets

Total intangible
assets

Trademarks

Exclusive rights
to an invention,
utility model
or industrial
design

Exclusive rights
to computer
software
and databases

Oil
and gas production
licenses (including
combined
exploration
and production
licenses issued
after commercial
viability
is confirmed)

Other licenses

Information
received
as the result
of drilling successful
onshore appraisal
and exploration
wells
abandoned due
to technological
reasons

Results of 3D
and 4D seismic
surveys at sites
after commercial
viability
is confirmed

Other intangible
assets

Period

At the beginning
of the period

Changes for the period

At the end of the period

Historical
cost

Accumulated
amortization

Additions

Disposals Amortization
charge

Accumulated
amortization

Historical
cost

Accumulated
amortization

2019

47,940,031

(7,471,211)

1,704,071

(7,456)

7,332

(1,583,491)

49,636,646

(9,047,370)

2018

25,688,938

(5,683,766)

22,253,141

(2,048)

789

(1,788,234)

47,940,031

(7,471,211)

2019

2018

2019

2018

21,306

19,235

(11,374)

(9,128)

750,705

(352,283)

750,695

(211,358)

2,661

2,071

7,025

–

(1,749)

(2,246)

23,967

21,306

(13,123)

(11,374)

(146,430)

757,730

(498,713)

(140,925)

750,705

(352,283)

2019

2,277,299

(1,281,842)

296,046

(6,949)

6,949

(285,343)

2,566,396

(1,560,236)

2018

1,507,484

(1,163,715)

769,815

2019

42,772,552

(5,527,300)

66,180

–

(118,127)

2,277,299

(1,281,842)

(1,056,037)

42,838,732

(6,583,337)

2018

22,311,222

(4,048,198)

20,462,364

(1,034)

636

(1,479,738)

42,772,552

(5,527,300)

2019

2018

2019

2018

814

911

555,770

38,482

(563)

(597)

(6,663)

–

(2,732)

517,288

2019

2018

2019

2018

1,347,653

(99,032)

1,321,358

849,993

(65,026)

497,660

213,932

(192,154)

210,916

(183,012)

10,801

3,933

(507)

(97)

383

–

(917)

–

(25)

(43)

(14,960)

(3,931)

307

814

555,770

(205)

(563)

(21,623)

(6,663)

(71,001)

2,669,011

(170,033)

(34,006)

1,347,653

(99,032)

(7,946)

(9,218)

224,733

(200,100)

213,932

(192,154)

1 Provided that the production of mineral resources in the license area is commercially viable

328

329

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Table 7. Information on intangible assets created by the Company (kRUB)

Historical cost by group of intangible assets

At 31 December 2019

At 31 December 2018

At 31 December 2017

Total, including

Exclusive rights to computer software and databases

Exclusive rights to an invention, utility model or industrial design

Other

3,542,467

2,566,396

751,338

224,733

3,235,544

2,277,299

744,313

213,932

2,462,703

1,507,484

744,303

210,916

Table 8. Information on investments in progress made to create intangible assets (kRUB)

Investments in progress

At 31 December 2019

At 31 December 2018

At 31 December 2017

Total investments in the creation of individual intangible assets,

3,742,681

4,130,712

3,463,587

including by type:

Exclusive rights to computer software and databases

3D and 4D seismic surveys

Exclusive rights to an invention, utility model or industrial design

Trademarks

Other intangible assets

3,709,159

17,522

872

2,947

12,181

2,808,226

1,304,261

897

5,103

12,225

1,940,991

1,507,340

6,087

3,877

5,292

Intangible assets received for use are recorded off the balance sheet and are measured on the basis of the amount of
remuneration specified in the contract.

Table 9. Information on intangible assets received by the Company for use (kRUB)

Cost by group of intangible assets

At 31 December 2019

At 31 December 2018

At 31 December 2017

Total, including

Non-exclusive rights to software programmes, rights of access
to information resources

9,201,500

8,870,210

7,417,358

Table 10. Information on fully amortized intangible assets (kRUB)

At 31 December 2019

At 31 December 2018

At 31 December 2017

Intangible assets

Total, including

Exclusive rights to computer software and databases

Patents

Oil and gas production licenses

Trademarks

Other licenses

Other

1,327,933

1,064,121

79,003

5,483

7,808

171,497

1,266,602

1,071,022

13,715

5,373

6,361

1,115,886

1,023,677

10,012

623

535

7. Oil and gas reserves exploration and estimation costs

Oil and gas reserves exploration and evaluation expenses are recognized using the successful efforts method of accounting,
according to which only those costs are capitalized that are directly incurred in the discovery of new fields that will result in future
economic benefits, while exploration costs (both direct and indirect), including geological and geophysical costs, are charged to
expenses as incurred.

The following oil and gas reserves exploration and evaluation costs should be capitalized:
▪ Costs related to acquiring of subsoil use rights for oil and gas reserves (geological prospecting and exploration licenses,

geological exploration and production licenses)

▪ Costs related to appraisal/exploration drilling
▪ Information on the results of drilling successful abandoned appraisal/exploration wells

Capitalized exploration and evaluation costs lead to the creation of exploration assets:
▪ Appraisal/exploration wells – tangible exploration assets
▪ Licenses, information on the results of drilling successful abandoned appraisal/exploration wells – intangible exploration assets

Expenses related to the construction of offshore appraisal/exploration wells abandoned as successful in the license areas that did
not prove to be commercially viable to recover oil and gas are capitalized as follows:
▪ Expenses related to the construction of offshore appraisal/exploration wells are initially recognized as tangible exploration
assets and then transferred to intangible exploration assets in the event that the discovery of hydrocarbon reserves is
confirmed and there is a possibility that these reserves will be approved by the State Committee on Reserves both with regard
to the well (current reserves estimation) and the subsurface area (reserves estimation based on geological results of the well)

▪ Until the decision on commercial viability has been reached, expenses related to the construction of successful abandoned

offshore appraisal/exploration wells are recognized as intangible exploration assets in the form of information received as the
result of drilling the offshore appraisal/exploration wells

As of the reporting date, the Company annually tests exploration assets for any indication of impairment when making the
decision on the commercial viability of oil and gas production in a licensed area. Impairment testing is performed by field (licensed
area). Where there is evidence of impairment, the Company writes down the exploration assets by the amount of the carrying
value of the licenses, wells and 3D seismic surveys during the stage of exploration and prospecting at a field (licensed area) or, in
the event of the recoverability of exploration assets, to the realizable value.

Once the commercial viability of the subsurface area has been established, exploration assets in this area are subject to
reclassification:
▪ Exploration and production licenses, as well as information on the results of drilling successful abandoned appraisal/

exploration wells become intangible assets

▪ Appraisal/exploration wells become fixed assets (development wells construction in progress)

If production proves to be impractical, exploration assets are subject to impairment and are subsequently written off to other
expenses of the Company.

170,070

80,978

Exploration assets are not depreciated.

The following costs are not capitalized in the value of assets and are taken to current-period expenses as oil and gas exploration
and evaluation expenses:
▪ Costs incurred at the regional stage
▪ Exploration costs not related to drilling of appraisal/exploration wells or 3D and 4D seismic surveys at commercially recoverable

oil and gas fields, including costs for the follow-up exploration of fields which have been put on stream and considered
commercially developed

▪ Costs related to the maintenance of subsurface areas where exploration is being carried out and of fields which are not

commercially operated

▪ Costs related to the preparation of project technical documentation for developing fields which are not commercially operated

The Company derecognizes exploration assets at the respective subsurface area if it proves to be commercially viable or if
production is considered impractical.

330

331

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Table 11. Information on exploration assets (kRUB)

Groups of licenses

Period

At the beginning
of the period

Changes for the period

At the end of the period

Historical
cost

Accumulated
impairment
losses

Additions

At historical
cost

Disposals

Accumulated
impairment
losses

Historical
cost

Accumulated
impairment
losses

Tangible exploration assets

2019

20,170,757

2018

26,126,691

9,604,440

(544,342)

12,321,977

(18,277,911)

29,230,855

20,170,757

Intangible exploration assets,
including

2019

99,214,265

(150)

8,975,984

(1,016,575)

142

107,173,674

2018

111,303,164

(153)

8,387,854

(20,476,753)

License to use subsurface
resources with the right
of extraction

2019

56,623,639

2018

76,083,997

License to use subsurface
resources without the right
of extraction

2019

2018

2,421

2,409

Information on the results
of drilling of successful
abandoned appraisal/
exploration wells

Costs related to acquiring
of subsoil use rights for oil
and gas reserves

2019

42,548,639

2018

35,193,583

2019

2018

39,566

23,175

–

(150)

(153)

–

7,437,552

(1,003,948)

994,151

(20,454,509)

84,520

472,973

7,355,056

(173)

(3)

–

980,939

(12,454)

38,632

(22,241)

(8)

(150)

–

(8)

(150)

–

142

–

99,214,265

63,057,243

56,623,639

86,768

2,421

43,021,612

42,548,639

1,008,051

39,566

Information on tangible exploration assets as of 31 December 2019 is disclosed in line 1140, Tangible exploration assets, including
advances issued of kRUB1,865,867 and materials of kRUB44,155 intended for creating tangible exploration assets in the balance
sheet.

Change in tangible exploration assets was due to the completion of exploratory drilling in 2019 amounting to kRUB9,604,440,
reclassification to intangible exploration assets of information on the results of drilling a successful abandoned appraisal/
exploration well in the amount of kRUB472,973, realization of the exploration well in the amount of kRUB69,019 and write-off of
expenses due to other expenses in the amount of kRUB2,350, as the Company has no intention to continue 3D seismic surveys.

In 2019, change in intangible exploration assets was primarily due to the acquisition of licenses to use subsurface resources
with the right of extraction in the amount of kRUB7,437,552, and without the right of extraction in the amount of kRUB84,520,
reclassification to intangible exploration assets of information on the results of drilling a successful abandoned appraisal/
exploration well in the amount of kRUB472,973, and disposal of geological exploration and production licenses in the amount of
kRUB1,003,948 due to reissue of licenses to use subsurface resources.

8. Research and development results

Research and development results include costs incurred during the stage of development of R&D work in progress (recorded as
investments in non-current assets) and completed (recognized as intangible assets/R&D).

The Company’s costs are recognized in the accounts as R&D in progress if all of the following conditions are met:
▪ R&D contracts indicate that in the course of work new scientific knowledge is expected to be produced and/or used

(information which is unknown, given the current level of technology)

▪ It is assumed that the positive result of R&D activities will create an opportunity for future economic benefits
▪ It is assumed that the positive completion of R&D activities will make it possible to demonstrate the use of its results in

production for management requirements

▪ The amount of expenses can be defined and confirmed

When R&D projects are developed in-house, the related costs are capitalized from the beginning of the project stage if the
Company is able to demonstrate:
▪ The technical feasibility of developing such R&D projects
▪ Its intention and ability to develop and use an R&D project
▪ How the R&D project is likely to generate economic benefits

The availability of sufficient technical, financial and other resources to complete the development of and use the R&D projects
▪ The ability to reliably measure costs related to the development of the R&D project

R&D projects developed in-house include:
▪ R&D projects developed by Company employees in the course of performing their job duties
▪ R&D projects resulting from contractor work under contracts in respect of which the Company bears the risk of negative results

R&D costs incurred at the research stage are not capitalized and are recognized as expenses relating to ordinary activities or other
expenses depending on the purpose of the research.

R&D costs are written off to expenses relating to ordinary activities on the first day of the month following the month in which the
actual use of the obtained results began.

Upon the completion of R&D activities, in the event of a positive result, the costs related to R&D in progress form the value of R&D
project. In the event of a negative result, R&D costs are written off to other expenses.

The R&D project value is written off on a monthly basis using the straight-line method in the amount of 1/12 of the annual amount.

In the event that the use of an R&D project is suspended, the related costs in the form of a monthly write-off amount are to be
recognized as other expenses during the period for which the use of the R&D project has been suspended.

Where the Company early terminates using the results of R&D activities in accordance with Order, On writing off R&D expenses,
R&D expenses are taken to other expenses.

The write-off period for R&D costs is determined by the Company based on the expected period of use of the results from these
activities. This period may not exceed 5 years.

This period for most significant R&D deliverables is as follows:
▪ Technology for production of highly dearomatized white oils
▪ Technology for production of oil bases with low chilling temperatures
5 years
▪ Technology for production of synthetic high-viscosity-index base waxy oils 5 years

5 years

Table 12. R&D results profile (kRUB)

R&D type

Period

At the beginning
of the period

Change for the reporting period

At the end of the period

Historical
cost

R&D

2019

2018

550,847

523,335

Part
of the value
written off
to expenses

(360,890)

(184,634)

Additions

Disposals

Part
of the value
written off
to expenses

Historical
cost

Part
of the value
written off
to expenses

535,911

27,512

(7,000)

(177,302)

1,079,758

(538,192)

–

(176,256)

550,847

(360,890)

332

333

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Changes in R&D project value written-off in the amount of kRUB7,000 in 2019 was due to reclassification of R&D projects to
intangible assets at net book value upon receipt of protection documents. No reclassification of R&D to intangible assets was
made in 2018.

Table 13. R&D in progress and pending registration (kRUB)

R&D type

Period

At the beginning
of the period

Change for the reporting period

Costs
for the period

Costs expensed
as unsuccessful

Recognized
as intangible
assets, R&D
or fixed assets

At the end
of the period

Costs of R&D in progress

2019

2018

6,538,166

4,551,664

2,406,301

2,014,038

–

(535,911)

8,408,556

(27,536)

6,538,166

9. Other non-current assets

Other non-current assets include assets which are assumed to produce economic benefits over a period exceeding 12 months.
This line includes prepaid expenses, fixed assets and tangible exploration assets retirement obligations (discounted) (hereinafter,
the “ARO asset”), and other assets.

Other non-current assets are valued based on actual costs, except for ARO assets that are subject to accounting estimates.

Prepaid expenses relating to several periods are written off using the straight-line method.

10. Inventories, value added tax, excise duties on self-produced oil
products

Inventories are accounted for at their actual cost calculated based on the amount of actual acquisition/ production costs, net of
value added tax and other recoverable taxes (except in instances stipulated by Russian law).

Upon disposal, inventories are depreciated using the following methods:
▪ Oil, construction materials, equipment, spare parts, fuel, packaging, fixtures and fittings, instruments and tools, other

inventories – by the cost of every inventory unit (inventory unit is a consignment)

▪ Oil products – by the average cost of production broken down by refinery
▪ In-house semi-finished products – by the average cost of production broken down by refinery
▪ In-house oil and gas – by the average cost of production broken down by operator

Special protective clothes handed over for use are accounted for as materials. The value of special protective clothes with the
service life of more than 12 months is depreciated using the straight-line method over the specified period of its use. The value of
special protective clothes with the service life of less than 12 months is written off when the clothes are handed over for use.

Materials, fuel, spare parts and other material resources are recorded at their actual acquisition cost.

Work in progress and finished products are recorded at their actual cost; goods are recorded at their acquisition cost.

Shipped finished products and shipped goods, the title to which is not yet transferred to the buyer, are recorded within
inventories.

Inventories also comprise transportation and procurement costs attributable to the balance of goods at the warehouse and
shipped but unsold goods.

The amount of the ARO assets (with regard to sites or facilities which, when abandoned, require disposal of materials and/or
remediation of a land plot) is determined based on the estimated costs at the reporting date, which the Company is expected to
incur when dismantling fixed assets and remediating natural resources on occupied land plots.

Costs to sell (transportation costs, storage costs, intermediary service costs, customs duties etc.) are recorded within inventories
where it is possible to relate them to certain consignments of finished products and goods recognized in accounting records
before the sale of consignments to which they relate.

The ARO asset is depreciated using the unit of production method. Proved developed oil and gas reserves are defined in
accordance with Petroleum Resources Management System (PRMS). For the purposes of evaluation of the reserves as of 31
December 2019, the Company used proved oil and gas reserves data prepared by DeGolyer and MacNaughton, independent
reservoir engineers.

The rate is applied to the book value at the beginning of the reporting month and reserves in denominator are adjusted to the
production volume from the beginning of the year to the beginning of the reporting month.

The amounts of VAT related to the acquired goods, work, services and property rights to be deducted and not included in the cost
of the assets acquired, or in expenses, are recorded in line 1220 of the balance sheet.

This line also includes the excise duty assessed by Rosneft Oil Company upon accounting for straight-run gasoline, benzene,
orthoxylene, paraxylene subject to appropriate certificate and deductible during their refining/disposal.

If there is any indication of impairment, the Company recognizes the decrease in value of inventories in the financial statements.

The ARO asset related to the retirement of tangible exploration assets at the fields where it is not confirmed that the production is
commercially viable is not depreciated.

In accordance with the requirement of prudence, the Company accounts for the impairment of inventories using the method of
provisioning.

Table 14. Information on other non-current assets (kRUB)

Other non-current assets by type

Total prepaid expenses with the write-off period exceeding 12
months

At 31 December
2019

At 31 December
2018

At 31 December
2017

Tax

12,157,493

9,812,024

7,365,761

Input value added tax charged

At 31 December
2019

At 31 December
2018

43,878,882

66,860,529

Table 15. Information on VAT and excise duties (kRUB)

including by type:

Software

ARO asset

Other non-current assets

Total

12,157,493

9,812,024

7,365,761

20,962,554

332,667

33,452,714

21,814,156

324,939

31,951,119

24,160,025

792,538

32,318,324

Excise duty assessed upon accounting for straight-run gasoline, benzene, orthoxylene, paraxylene

4,929,927

5,858,165

Table 16. Information on inventories (kRUB)

Inventories by type

At 31 December 2019

At 31 December 2018

At 31 December 2017

Cost

Allowance
for impairment

Cost

Allowance
for impairment

Cost

Allowance
for impairment

Total inventories

138,946,748

(57,001)

151,463,844

(37,645)

142,439,261

Raw and other materials

15,838,148

(57,001)

18,883,705

(37,426)

18,575,428

Costs related to work in progress

11,722,717

Finished products and goods

111,385,883

11,326,184

121,253,955

9,706,137

(219)

114,157,696

(22,895)

(50,706)

(27,811)

334

335

Decrease in inventories was due to the fact that most of the inventories were used in production and shipped to customers. In
2017–2019, inventories were not pledged.

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Table 17. Information on the movements in allowances for impairment of inventories (kRUB)

The Company did not have in accounting records any financial investments pledged or transferred to third parties (except for sale).

Item

Period

Allowance
at the beginning
of the period

Total allowance

2019

2018

37,645

50,706

Change in the allowance for the reporting
period

Allowance at the end
of the period

Accrued
(additionally
accrued), +

20,330

19,142

Reversed (adjusted), –

(974)

(32,203)

57,001

37,645

11. Financial investments

inancial investments are initially recognized at their actual acquisition cost. Subsequently, financial investments whose market
value can be determined are remeasured at market value; and financial investments whose market value cannot be determined
are not remeasured, but tested for impairment. When a sustained material decline in the value of financial investments is
supported by impairment tests, the Company creates (adjusts) an allowance for impairment of such financial investments as of
the last day of the quarter (last day of the reporting year). As of 31 December 2019, the allowance for impairment of financial
investments amounts to kRUB44,802,708.

The valuation of financial investments whose market value can be determined is adjusted to the current market value on a
quarterly basis. Long-term shares and short-term bonds include investments whose market value can be determined. The
difference between current market value at the reporting date and previous valuation of financial investments whose market value
can be determined as of 31 December 2018 is kRUB1,078,147 (income). The amount of adjustment was taken to the financial
result and recorded as other income.

In general, the current market value may be determined if the relevant quotations are available in the securities market. In this
case, the current market value of financial investments is their market value determined as appropriate by an organizer of the
trade in the securities market.

Financial investments in the form of shares of PJSOC Bashneft (“Bashneft”) quoted in the securities market are accounted for
following the procedure provided for financial investments, for which the current market value is not determined. It is due to
the fact that quotes in the securities market do not represent a market price (control premium). The volume of shares available
for free circulation in the market is insignificant and their sales are not representative for appraising the value of the majority
shareholding since they are easily manipulated by stock players.

The historical cost of debt securities whose current market value cannot be determined is not adjusted for the difference between
the historical cost and nominal value.

Where it is impossible to determine the cost of assets transferred or transferable by the Company, the value of financial
investments received by the Company under contracts providing for non-monetary compensation (settlement) is based on the
price at which the Company normally purchases similar financial investments under comparable circumstances.

Debt securities and loans issued are not measured at present value.At disposal of assets recognized as financial investments, for
which the current market value is determined, the value of such assets is based on their most recent valuation.

Financial investments whose current market value cannot be determined are measured at historical cost of each unit disposed.

Deposits with the maturity period not exceeding 91 days are not considered to be financial investments and are recorded within
cash in the financial statements.

Short-term debt related to financial investments is reclassified to long-term debt in cases when the payment terms envisaged by
the agreement are revised and increased to exceed 365 days after the reporting date.

Long-term debt related to financial investments is reclassified to short-term debt when the term to maturity under the agreement
remains 365 days or less after the reporting date.

The value of all financial investments previously remeasured at market value is recorded at the current market value as of the
reporting date. The Company did not have in accounting records any financial investments measured at market value with
undetermined market value at the reporting date.

From 1 January 2016, contributions to assets and other investments to improve the financial position of the Group’s entities
(financial aid, free of charge transfer of assets, etc.) were subject to capitalization in the cost of the financial investments in the
entities in which additional investments were made.

Table 18. Information on financial investments (kRUB)

Financial investments by type

At 31 December 2019

At 31 December 2018

At 31 December 2017

Total

Total long-term investments

Units and shares (interests), including:

Shares (interests) in subsidiaries and associates

Long-term loans issued

Other long-term financial investments

Total short-term investments

Short-term loans issued

Deposits

Promissory notes and bonds received

Accounts receivable acquired under assignment agreements

Other short-term financial investments

6,818,923,238

7,260,408,278

5,833,160,665

4,409,568,942

4,403,720,303

1,220,410,862

203,180,861

6,159,574,705

3,946,983,553

3,942,196,509

1,954,261,188

258,329,964

6,731,832,453

6,003,776,788

3,662,042,158

3,657,753,129

1,712,770,543

628,964,087

985,762,573

1,100,833,573

728,055,665

712,067,647

55,642,502

119,019,389

–

99,033,035

655,165,832

216,368,210

130,282,140

456

99,016,935

572,777,685

37,440,130

64,444,958

1,056

53,391,836

In 2019, change in the value of long-term financial investments from kRUB6,159,574,705 to kRUB5,833,160,665 was primarily
due to the decrease in loans issued of kRUB733,850,326, including due to repayment, revaluation and reclassification of debt;
decrease in other financial investments of kRUB55,149,103, including due to repayment and revaluation of credit notes and long-
term deposits; increase in interests and investments in the charter capital of subsidiaries of kRUB461,523,868, including as part of
creating sub-holding asset management structure.

When calculating the value of interests and investments of sub-holdings by adding up the transferred interests and shares of
other subsidiaries, the value is based on the price at which the Company normally purchases similar assets under comparable
circumstances. The market value of the transferred interests and shares calculated by an independent appraiser is deemed to
be the indicator of such value. The difference between the carrying amount and the market value of the transferred interests and
shares is taken to other income (expenses).

In 2019, the value of investments in LLC RN-Inostranniye Proekty increased by kRUB181,344,462, in LLC RN-Kommerciya –
by kRUB172,694,698, in LLC RN-Aktiv – by kRUB43,050,00, in LLC RN-Pererabotka – by kRUB28,815,311, in LLC RN-Gaz – by
kRUB22,829,296 and in LLC RN-Razvedka i Dobycha – by kRUB10,758,173.

In 2019, change in the value of short-term financial investments from kRUB1,100,833,573 to kRUB985,762,573 was primarily due
to repayment of short-term deposits, reclassification of loans and revaluation of short-term promissory notes.

12. Derivative financial instruments at fair value through profit
or loss

Derivatives are financial instruments that simultaneously meet the following criteria:The value of a financial instrument is changed
in line with the changes in the applied interest rate, security rate, price of goods, foreign currency exchange rate, price or interest
rate index, credit rating or credit index or other “basic” variables
▪ The acquisition of a financial instrument does not require any investments or requires initial net investments but in amounts
lower than for other instruments, the price of which has a similar response to market factor changes; and other types of
contracts that are expected to have a similar response to market factor changes

▪ Financial instrument calculations are performed subsequently

336

337

ROSNEFT ANNUAL REPORT 2019Appendix No.6.In managing foreign currency and interest rate risks, the Company entered into cross currency and interest rate swaps to sell US
dollars and euro that help match the currency of revenue and the currency of liabilities, and reduced absolute interest rates for
the debt financing raised.

Derivative financial instruments are measured at fair value.

The method for determining the fair value of transactions is based on the assessment of the present discounted value of future
cash flows using the consensus projections of foreign exchange rates. The consensus projections comprise forecasts of key
international banks and agencies. The Bloomberg system is the key source of information for making projections.

Profit or losses arising during the period as adjustments upon change in the fair value are recognized in the income statement.

The change in the fair value of the derivative financial instrument means the difference between the fair value at the beginning of
the reporting period (or at the date of acquisition, whichever is more recent) and at the end of the reporting period.

Derivative financial instruments at fair value through profit or loss are recorded as assets (liabilities) in the balance sheet in similar
lines depending on their maturity.

As of the reporting date, short-term liabilities on derivative financial instruments include liabilities related to cross currency and
interest rate swaps.

Transactions with derivative financial instruments are presented below:

Table 19. Information on transactions with derivative financial instruments

Financial instrument

Period

Nominal amount
at 31 December 2019

Interest rate
type

Fair value of asset (liability)
at 31 December (kRUB)

Issue

Repayment

kEUR/ kUSD

kRUB1

2019

2018

According to the strategy for managing foreign currency risk related to cash flows from future proceeds in foreign currency, export
revenue should be hedged in the amount of net monetary position denominated in US dollars. The Company regularly aligns the
nominal amount of hedging and net monetary position in US dollars. As of 31 December 2019 and 31 December 2018, there were
no designated hedging instruments.

Table 20. Information on amounts recognized in other funds and reserves on hedging transactions (kRUB)

Item

Recognized in other funds and reserves at the beginning
of the year

Foreign exchange differences on cash flow hedges before tax

Reclassified to profit or loss

Difference between the accounting profit (loss) and the taxable
profit (loss) resulting from recognition of hedging transactions1

2019

2018

2017

(115,062,581)

(231,748,689)

(348,012,103)

–

145,565,010

(29,113,002)

333,196

145,524,439

(29,171,527)

(317,589)

145,646,857

(29,065,854)

Recognized in other funds and reserves at the end of the year

1,389,427

(115,062,581)

(231,748,689)

The forecast of reclassification of amounts from the revaluation of hedges accumulated in other funds and reserves into profit or
loss as of 31 December 2019 is presented below:

Table 21. Forecast of revaluations reclassified to profit or loss (kRUB)

Year

Reclassifications

Income tax

Total net of income tax

2020

1,900,006

(380,001)

1,520,005

2021

(163,222)

32,644

(130,578)

Total

1,736,784

(347,357)

1,389,427

Swaps

2014

2019

2020

–

Floating

–

(33,058,044)

EUR985,718

68,350,278

Floating

2,243,018

–

14. Cash and cash equivalents

In 2019, the Company completed transactions with derivative financial instruments entered into in 2014 in the nominal amount of
kUSD1,009,518 (kRUB62,494,918 at the CBR official exchange rate as of 31 December 2019).

13. Information on hedging transactions

Managing currency risk related to changes in cash flows from future proceeds in foreign
currency

Hedging transactions are operations (set of operations) with term transaction financial instruments (including those of different
types), performed to minimize (compensate for) adverse effects, fully or partially, caused by the loss incurred, income deficiency,
decrease in revenue, decrease in market value of the property, including property rights (rights of claim), increase in the
Company’s liabilities due to change in price, interest rate, currency exchange rate, including the rate of a foreign currency to the
rate of the currency of the Russian Federation, or another indicator (set of indicators) of a hedged item (items).

In the reporting year, the Company performed transactions to hedge the cash flows from the Company’s future exports due to
foreign currency risks attributed to export revenue denominated in foreign currency mainly in US dollars. The Company raises
borrowings in the same currency as the future revenue to economically hedge the foreign currency risk exposure.The Company
designated part of its USD-denominated borrowings as a hedging instrument for export revenue which is likely to be received.

A portion of the future monthly export revenue expected to be received in US dollars was designated as a hedged item. The
nominal amounts of the hedged item and the hedging instrument are equal. To the extent that a change in the foreign currency
rate impacts the hedging instrument, the effects were recorded in other funds and reserves in accordance with the Company’s
accounting policy; subsequently these effects should be transferred into profit or loss for the period, in which the hedged revenue
is recognized.

Cash and cash equivalents include the Company’s amounts with banks and credit institutions, in operational and other cash
offices, as well as deposits and other cash equivalents with the maturity period not exceeding 91 days.

For the purposes of the statement of cash flows, cash flows are classified based on the criteria specified in clauses 9–11 of
Accounting Statement 23/2011.

Cash flows that cannot be reliably classified are recognized as cash flows from operating activities.

Foreign currency cash flows are translated into Russian rubles at the official rate of the foreign currency to Russian ruble set by the
Central Bank of the Russian Federation at the date of payment or receipt. The average exchange rate is not applied to translate
cash flows. There is no cash unavailable for use by the Company.

Table 21. Information on cash and cash equivalents (kRUB)

Cash

At 31 December
2019

At 31 December
2018

At 31 December
2017

46,481,256

504,118,733

115,167,670

including restricted cash

2,333,436

3,366,005

Deposits with the maturity period not exceeding 91 days and other cash equivalents

50,917,510

94,422,491

8,269,529

1,470,990

1 Equivalent of the nominal amount at the CBR official exchange rate as of 31 December 2019.

1 Recognized in line 2466 of the income statement.

338

339

ROSNEFT ANNUAL REPORT 2019Appendix No.6.15. Accounts receivable and accounts payable

Accounts receivable and payable are accounted for and recorded in financial statements in accordance with the respective existing
agreements. Net result is recognized in the financial statements if there are advances issued/received and accrued accounts receivable/
payable under the same agreement.

Accounts receivable from suppliers and contractors include advances issued that are recorded in the balance sheet less VAT deductible
or deducted at the reporting date in accordance with the Tax Code of the Russian Federation. VAT on advances (deductible but not
claimed for deduction at the reporting date) is recorded in the balance sheet within other current assets.

Accounts payable to suppliers and contractors include advances received that are recorded in the balance sheet less VAT on advances
received.

Accounts receivable include non-income-bearing financial investments within Rosneft Oil Company Group.

The Company receives no government financing.

Allowance for impairment of accounts receivable is made on the basis of settlements with other organizations and individuals for
products, goods, work and services, advances issued and other accounts receivable, and is recorded in the income statement as other
expenses.

Short-term accounts receivable and payable are reclassified into long-term in cases where payment periods under existing contracts are
revised and increased to exceed 365 days.

Long-term accounts receivable and payable are reclassified into short-term where the term to maturity under existing contracts
becomes 365 days or less.

Similarly, part of long-term accounts receivable and payable is reclassified into short-term if the existing contract provides for repayment
by installments in different periods.

Table 23. Information on accounts receivable (kRUB)

Accounts receivable by type

Total accounts receivable

Long-term accounts receivable

Including:

Trade accounts receivable

Advances issued

Other receivables, including

At 31 December
2019

At 31 December
2018

At 31 December
2017

3,543,076,666

2,653,803,215

2,531,306,562

2,131,722,190

1,648,785,448

1,411,377,288

63,543

53,330

89,808

571,607

592,718

443,736

2,131,087,040

1,648,139,400

1,410,843,744

Loans issued to companies within Rosneft Oil Company Group

1,869,506,975

1,330,769,489

1,164,327,102

Interest on long-term loans, promissory notes

234,673,280

288,968,440

226,058,312

Short-term accounts receivable

Including:

Trade accounts receivable

Advances issued

Other receivables, including

Receivables from the budget and state non-budgetary funds

Loans and promissory notes issued to companies within Rosneft Oil Company
Group

1,411,354,476

1,005,017,767

1,119,929,274

453,183,557

490,499,629

548,535,766

42,524,293

37,565,998

38,208,836

915,646,626

476,952,140

533,184,672

110,217,319

197,716,914

96,014,921

109,168,244

53,345,166

139,691,819

Interest (discount) on deposits, loans, promissory notes

240,049,474

126,541,234

194,144,515

Settlements under commission agreements, other receivables

90,050,833

80,463,919

79,157,929

As of 31 December 2018, the Company’s accounts receivable amounted to kRUB2,653,803,215, including the allowance for
impairment of accounts payable in the amount of kRUB30,518,051. In 2019, accounts receivable increased by kRUB889,273,451 and
amounted to kRUB3,543,076,666 as of 31 December 2019, including the allowance for impairment of accounts payable in the amount
kRUB54,377,152. The increase in accounts receivable was primarily attributed to the increase in amounts due from companies within
Rosneft Oil Company Group:On interest-free loans to finance operating activities
▪ As dividends accrued to Rosneft Oil Company

Table 24. Information on accounts payable (kRUB)

Accounts payable by type

Accounts payable

Trade accounts payable

Payables to the Company’s employees

Payables to the budget and non-budgetary funds

Advances received

Settlements under commission agreements, other payables

At 31 December 2019

At 31 December 2018

At 31 December 2017

2,699,900,722

2,333,146,921

1,867,264,817

1,526,096,089

34,712

100,730,066

384,794,432

347,076,695

35,661

72,371,917

394,999,901

339,643,353

1,785,522,679

1,120,734,835

34,690

71,118,709

306,953,478

286,680,967

In 2019, accounts payable increased by kRUB366,753,801 year-on-year, and as of 31 December 2019 amounted to
kRUB2,699,900,722. The increase in accounts payable was primary attributed to settlements with the companies within Rosneft Oil
Company Group for purchased products and operator services relating to production and processing.

16. Long-term and short-term loans and borrowings, other liabilities
and collateral pledged

Loans and borrowings payable are accounted for and recorded in financial statements in accordance with the respective existing
agreements.

The Company reclassifies short-term loans and borrowings payable into long-term payables if the repayment period under the
existing agreement is revised and increased to exceed 365 days. The Company reclassifies long-term payables into short-term
payables where the outstanding period to maturity becomes 365 days or less.

The interest amounts payable under loans and borrowings received are accrued on a straight-line basis regardless of the
conditions of loans (borrowings). Additional expenses for loans (borrowings), other than commissions on loans (borrowings) raised,
such as bank commissions for using loan funds, originating a loan, obtaining and maintaining a line of credit, and other bank
commissions (fees) related to raising loans (borrowings) are recorded as a lump sum in other expenses.

Where commissions on loans (borrowings) are material, they are included in other expenses on a straight-line basis over the loan
(borrowing) maturity period.

The commissions on loans (borrowings) that are not written off as of the reporting date are shown on the balance sheet as other
non-current assets or other current assets depending on their remaining period of recognition as expenses (more than 12 months
or less than 12 months, respectively).

For the purposes of capitalizing interest on loans and borrowings into the cost of acquired assets, such investment assets shall be
assets that necessarily take a substantial period of time (over 12 months) to get ready for their intended use through acquisition,
construction or production.Investment assets consist of items of non-current assets, work-in-progress and construction-in-
progress which will subsequently be accounted for by the borrower and/or customer (investor, buyer) as fixed assets (including
land), intangible assets, exploration and evaluation costs or other non-current assets.

In 2019, the Company raised loans from Russian banks at floating and fixed rates to replenish working capital. Loans were repaid
under relevant agreements both early and in accordance with the schedule.

Loans payable recorded in the financial statements as of the reporting date include the accrued interest.

Borrowing costs included in other expenses amounted to kRUB146,674.

Total interest of kRUB81,825,457 was accrued on the Company’s loans for the reporting period. Interest payable increased by
kRUB4,709,567 year-on-year.

Interest capitalized in the cost of investment assets created (acquired) was kRUB17,336,510. The amount of interest included
in the cost of an investment asset and payable to the lender (creditor) on loans received for purposes other than acquisition,
construction and/or production of the investment asset totaled kRUB17,274,260.

340

341

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Table 25. Information on long-term and short-term loans and borrowings (kRUB)

Type of bonds

Series number

Issue date

Loans and borrowings by type

Balance at 31
December 2018

Change for the reporting period

Repaid (paid)

Reclassified

Balance at 31
December 2019

Received
(accrued)

Long-term loans and borrowings

5,792,741,747

1,743,783,462

(1,633,912,268)

(504,852,834)

5,397,760,107

including

• Long-term loans

1,243,781,168

104,500,000

(200,291,382)

(242,238,929)

905,750,857

• Long-term borrowings

1,605,977,044

1,518,123,913

(1,410,107,948)

31,181,483

1,745,174,492

91,605,440

40,941,545

(23,512,938)

62,746,424

171,780,471

• Long-term interest accrued

under loan and borrowing
agreements

• Long-term promissory notes issued

• Long-term interest accrued

on promissory notes

3,018,422

1,748,705

–

218,004

–

(1,097,608)

(681,023)

1,920,814

1,285,686

(354,763,181)

2,571,847,787

• Long-term bonds issued

2,846,610,968

80,000,000

Short-term loans and borrowings

817,935,056

2,143,422,417

(2,520,142,689)

504,852,834

946,067,618

including

• Short-term loans

324,400,000

200,000,000

(464,400,000)

20,000,000

80,000,000

• Short-term borrowings

235,968,391

1,601,981,103

(1,609,496,352)

(31,181,483)

197,271,659

• Current portion of long-term loans

86,392,518

–

(89,340,077)

222,238,929

219,291,370

and borrowings

• Current portion of long-term interest
accrued under loan and borrowing
agreements

• Short-term interest accrued
under loan and borrowing
agreements

1,183,669

69,898,633

(69,819,573)

–

1,262,729

91,056,384

35,498,447

(52,647,725)

(62,746,424)

11,160,682

• Short-term bonds issued

45,236,819

• Current portion of long-term bonds

–

(45,236,819)

–

400,000,000

•

Interest accrued on bonds issued
(coupon income)

• Short-term promissory notes issued

• Long-term interest accrued

on promissory notes

33,058,990

235,967,477

(233,777,574)

–

35,248,893

333,904

304,381

–

76,757

(333,904)

(327,484)

1,097,608

681,023

1,097,608

734,677

Information on RUB-denominated interest-bearing non-convertible bearer bonds issued as of 31 December is provided below:

Table 26. Information on RUB-denominated interest-bearing non-convertible bearer bonds (kRUB)

Type of bonds

Series number

Issue date

Total nominal
value,
kRUB

Coupon
rate1

At 31 December

2019

2018

Bonds

04, 05

07, 08

October 2012

20,000,000

7.90 %

20,000,000

March 2013

30,000,000

7.30 %

30,000,000

062, 092, 102

June 2013

40,000,000

7.00 %

610,968

Exchange-traded bonds

BO-052, BO-062

December 2013

40,000,000

6.65 %

10,236,819

Exchange-traded bonds

BO-01, BO-07

February 2014

35,000,000

8.90 %

35,000,000

Exchange-traded bonds

BO-02, BO-03, BO-04,

December 2014

225,000,000

9.40 % 225,000,000

225,000,000

BO-08, BO-09, BO-10,

BO-11, BO-12, BO-13,

BO-14

Total nominal
value,
kRUB

Coupon
rate1

At 31 December

2019

2018

Exchange-traded bonds

BO-18, BO-19, BO-20,

January 2015

400,000,000

8.50 % 400,000,000

400,000,000

BO-21, BO-22, BO-23,

BO-25, BO-26

Exchange-traded bonds

001R-01

001R-02

001R-03

001R-04

001R-05

001R-06

001R-07

001R-08

002R-01

002R-02

002R-03

002R-04

002R-05

002R-06

002R-07

002R-08

002R-09

December 2016

600,000,000

6.60 % 600,000,000

600,000,000

December 2016

30,000,000

9.39 %

30,000,000

December 2016

20,000,000

9.50 %

20,000,000

May 2017

40,000,000

8.65 %

40,000,000

May 2017

15,000,000

8.60 %

15,000,000

July 2017

90,000,000

8.50 %

90,000,000

July 2017

176,000,000

8.50 %

176,000,000

October 2017

100,000,000

7.10 % 100,000,000

100,000,000

December 2017

300,000,000

6.6 % 300,000,000

300,000,000

December 2017

300,000,000

6.60 % 300,000,000

300,000,000

December 2017

30,000,000

7.75 %

30,000,000

February 2018

50,000,000

7.50 %

50,000,000

March 2018

20,000,000

7.30 %

20,000,000

April 2019

10,000,000

8.70 %

10,000,000

April 2019

20,000,000

8,70 %

20,000,000

July 2019

25,000,000

7.95 %

25,000,000

October 2019

25,000,000

7.10 %

25,000,000

–

Total long-term RUB-denominated bonds

2,971,847,787

2,891,847,787

All these bond series have maturity of six, eight or ten years.

Early purchase/buyback of the bonds does not mean their early repayment.

On 24 July 2012, the Company issued and sold 40 promissory notes with a nominal value kRUB274,401.98 each and a total
amount of kRUB10,976,079.12, which have consecutive (quarterly) maturity dates over a ten-year period, and bear an interest rate
of 9 % p.a. These promissory notes were partly paid in 2012 to 2019.

The repayment schedule of long-term debt as of 31 December 2019 is as follows:

Table 27. The repayment schedule of long-term debt as of 31 December 2019 (kRUB)

2020

2021

2022

2023

2024 and after

Total long-term debt

619,291,370

1,543,235,165

729,583,010

635,695,636

2,316,180,139

5,843,985,320

Table 28. Information on other long-term liabilities (kRUB)

Amounts of loan facilities provided to and not used

At the beginning of the period

At the end of the period

Restrictions on use of loan facilities
(including required minimum balances)

10,000,000

–

None

Exchange-traded bonds

BO-15, BO-16, BO-17,

December 2014

400,000,000

7.85 % 400,000,000

400,000,000

Loans are partially secured by crude oil export contracts.

BO-24

1 As of 31 December
2 Part of the issue was repurchased by the issuer as of 31 December 2019. 2019.

342

As of 31 December 2019, guarantees and sureties issued by the Company totaled kRUB65,298,765 and included collateral
provided in foreign currency in the amount of kUSD466,672 and kEUR7,888 at the CBR exchange rate at the transaction date.
Items pledged as collateral were as follows:

343

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Table 29. Information on items pledged as collateral by type of pledge

Items pledged as collateral

Revenue from sales of oil and oil products

Sureties

Share in the total collateral amount,%

37.81

62.19

In the course of operating activities, Rosneft Oil Company follows the unconditional, unlimited and indefinite guarantee (surety)
provided to the government of Norway and Norwegian government authorities in 2013, which fully covers the contingent
obligations of RN Nordic Oil AS that this company may incur as a result of its operations on the Norwegian continental shelf.
Provision by the parent company of a guarantee to cover RN Nordic Oil’s obligations arising from environmental risks is an
imperative requirement of Norwegian legislation and is a prerequisite for RN Nordic Oil AS to be granted a license for operating on
the Norwegian continental shelf jointly with Equinor (before July 2018 – Statoil ASA).

The cooperation between Rosneft Oil Company, Eni S. p. A and Equinor (before July 2018 – Statoil ASA) related to the projects on
the Russian continental shelf is governed by mutual unlimited, unconditional and indefinite guarantees provided in 2013.

The cooperation between Rosneft Oil Company and Equinor (before July 2018 – Statoil ASA) to develop tight oil and gas reserves is
governed by mutual unlimited, unconditional and indefinite guarantees of affiliates’ liabilities provided in 2015.

Table 30. Information on other long-term liabilities (kRUB)

Other long-term liabilities, by type

Balance
at the beginning
of the year

Received
(accrued)

Repaid (reclassified
to short-term debt)

Balance at the end
of the year

Other long-term liabilities, including:

1,134,390,419

(335,264,567)

Long-term prepayments under crude oil and oil product
supply contracts

1,058,520,678

3,267,967

(317,414,137)

799,125,852

744,374,508

In 2013 and 2014, the Company signed a number of long-term oil and oil product supply contracts that provide for receipt of a
prepayment. The total minimum amount of future supplies under these contracts is around 400 million tons.

The contracts include the following main terms:
▪ Prepayment shall not exceed 30 % of the cost of the total contracted amount of crude oil
▪ The oil price shall be based on current market quotes
▪ Prepayment is settled through physical deliveries of crude oil

From 1 January 2015, scheduled oil supplies started under the long-term contracts that provide for prepayments. In 2019 and
2018, offset of prepayments under these contracts amounted to RUB344 billion and RUB283 billion (USD7.08 billion and USD7.03
billion at the CBR official exchange rate at the dates of prepayments, not subject to revaluation at the current exchange rate).

In the course of performing functions under the technical customer agreements, construction agreements are concluded, one
of the terms of which is provisioning by the customer of part of the cost of construction work to be paid to the contractor after
acceptance of completed facility. As of 31 December 2019, liabilities totaling kRUB1,649,983 are reclassified to long-term accounts
payable under the agreements whose terms provide for repayment of the reserved amounts in one year and later.

17. Assets and liabilities denominated in foreign currencies

Changes in foreign exchange rates, particularly in US dollar and euro rates, have a significant effect on the Company’s financial and
business performance.

Table 31. Information on changes in RUB/USD and RUB/EUR exchange rates

As at 31 December

Exchange rate

2019

2018

2017

2016

2015

344

USD

61.91

69.47

57.60

60.66

72.88

EUR

69.34

79.46

68.87

63.81

79.70

For financial reporting purposes, foreign exchange differences are all operations to translate the value of assets and liabilities
denominated in foreign currency and are to be recorded as other income or other expenses. The total (net) amount of all
operations to translate the value of assets and liabilities denominated in foreign currency was kRUB41,638,090 in the reporting
period and was recorded as other income of the Company.

Foreign exchange differences from the Company’s operations outside the Russian Federation taken to additional capital in the
reporting period included: foreign exchange gains of kRUB1,328 and foreign exchange losses of kRUB2,974.

Foreign exchange differences arising in the reporting period from operations involving assets and liabilities denominated in foreign
currency, and from translation of such assets and liabilities as of the reporting date, were taken to the other income and expense
account, except for liabilities designated as hedging instruments (refer to Note 13).

Currency conversion transactions are recorded separately on a net basis in the income statement; the financial result is recorded
either in other income or in other expenses depending on the net amount of income (expense) for each such transaction.

Table 32. Income and expenses from dealing in foreign currency (kRUB)

Income and expenses

Income

Expenses

For 2019

7,650,755

(34,464,085)

For 2018

14,849,072

(64,297,345)

18. Taxes and levies, customs duties

The Company’s tax liabilities are recorded in accounting using the periodicity convention.

In 2019, statutory rates of the main taxes were as follows:
▪ Income tax – 20 %
▪ Value added tax – 20 %

Since 1 January 2012, Rosneft Oil Company and its 21 subsidiaries were combined into the consolidated taxpayer group. Rosneft
Oil Company was appointed responsible participant of the consolidated taxpayer group.

Currently, in accordance with the provisions of the agreement, the number of participants of the consolidated taxpayer group
increased to 64 entities.

The mineral extraction tax to be included in the cost of products, goods, work and services sold amounted to kRUB851,463,520 in
2019 (2018: kRUB921,936,275.)

In 2019, the accrued export duty amounted to kRUB702,733,622 (2018: kRUB993,501,181).

Information on settlements with the budget and non-budgetary funds is presented in the table below:

Table 33. Settlements with the budget and state non-budgetary funds (kRUB)

At 31 December
2019

At 31 December
2018

At 31 December
2017

110,217,319

96,014,921

53,345,166

Total receivables from the budget and state non-budgetary
funds

Value added tax (VAT)

Excise duty

Income tax

Other taxes and levies receivable

Receivables from state non-budgetary funds

95,094,406

15,043,880

–

62,225

16,808

Total payables to the budget and state non-budgetary funds

100,730,066

Mineral extraction tax (MET)

Tax on additional income from extraction of hydrocarbons (additional income
tax, AIT)

70,443,836

21,752,473

91,483,038

50,870,082

11,611

4,433,051

66,945

20,276

72,371,917

65,315,239

–

512,004

–

1,928,016

35,064

71,118,709

64,819,580

–

345

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Income tax

Excise duty

Property tax

Other taxes and levies payable

Payables to state non-budgetary funds

At 31 December
2019

At 31 December
2018

At 31 December
2017

952,179

3,141,026

3,273,315

122,613

1,044,624

–

4,115,943

2,826,990

112,463

1,282

206,319

2,860,598

3,075,984

155,013

1,215

As of 31 December 2019, taxes and levies receivable increased by kRUB14,202,398 year-on-year, primarily due to the introduction
of the reverse (negative) excise duty mechanism from 1 January 2019, applied to crude oil refined at local refineries.

As of 31 December 2019, taxes and levies payable increased by kRUB28,358,149 year-on-year, primarily due to the introduction of
the tax on additional income from the extraction of hydrocarbons (AIT).

As of 31 December 2019, 2018 and 2017, the Company did not have any overdue taxes and levies payable.

According to provisions of the Russian Tax Code, desk-top and field tax audits may cover three calendar years preceding the year
in which a decision to hold the tax audit is taken. The Company’s management believes that the results of tax audits will not have a
material impact on the Company’s financial position because tax liabilities are determined in accordance with requirements of the
tax legislation.

19. Equity

Charter capital

As of 31 December 2019, the Company’s charter capital amounts to RUB105,981,778.17 and is divided into 10,598,177,817
common shares with a par value of RUB0.01 each.

Reserve and additional capital

20. Income and expenses, retained earnings

Revenue from sales of goods, work and services is recognized as and when the goods are shipped, work is performed and services
are rendered, and settlement documents are presented to customers (clients).

To ensure timely reflection of business events, if necessary, the Company uses the accrual method in accordance with Accounting
Statement 9/99, Revenues of an Organization, provided that the criteria for revenue recognition are met. In this case, revenue is
recognized based on updates provided by Company’s business units.

The Company applies a method that involves calculating incomplete cost of goods (direct costing), and therefore general and
administrative expenses are fully debited to the “Sales” account, i.e. are fully recognized in the reporting period without allocating
them to balances of work in progress and finished goods (except for general expenses directly related to acquisition, construction
and production of assets, which are included in the cost of assets).

From 1 January 2019, the Company realizes its right to refund the excise duty applied to its locally refined crude oil (reverse
excise duty). This excise duty was recognized in the income statement within cost of sales by decreasing the cost of sales for the
reporting period.

From 1 January 2019, tax on additional income from the extraction of hydrocarbons was introduced with respect to certain license
areas of the Company and is subject to recognition within costs included in the cost of sales, without inclusion in the unit cost of
finished goods.

Selling expenses are allocated between sold products (goods) and products (goods) that were shipped but not sold, including
finished products (goods) at the warehouse.

The Company’s total advertising expenses (not broken down by type of products) are recognized in selling expenses.

The use of profit is recognized in accounting records and financial statements in the year following the reporting years pursuant
to the decision of the shareholders’ meeting. A portion of the profit that was not paid out as dividends pursuant to the decision
of the shareholders, is recognized in the financial statements in retained earnings (uncovered loss). If this profit is used for capital
investments, the total balance of the retained earnings (uncovered loss) is not decreased.

As of 31 December 2019, retained earnings of prior years amounted to kRUB1,908,151,961 (31 December 2018:
kRUB2,028,141,822).

Changes in the profit of prior years resulted mainly from accrued dividends in the amount of kRUB120,077,355.

The Company’s equity also includes reserve and additional capital. The Company’s reserve capital represents reserve capital
formed in accordance with constituent documents and is equal to 5 % of the charter capital. As of 31 December 2019, the reserve
capital is fully formed and amounts to kRUB5,299.

The following income and expenses affected the retained earnings for the reporting year:

Table 34. The Company’s income and expenses (kRUB)

As of 31 December 2019, the Company’s additional capital (without revaluation) amounts to kRUB118,168,244 (31 December
2018: kRUB113,279,890).Treasury shares

The Company may acquire common shares in Rosneft Oil Company in accordance with the Programme for purchasing shares in
the open market, including in the form of depositary receipts which certify rights to such shares, in the maximum amount of USD2
billion, approved by the Board of Directors in August 2018 (hereinafter, the “Programme”). The Programme will be implemented
from the date of the approval by the Board of Directors through 31 December 2020.

The maximum number of shares and global depositary receipts that may be purchased under the Programme will not exceed
340,000,000. The Programme is aimed at securing high returns for the shareholders in case of significant market volatility.

In 2019, there were no transactions to purchase treasury shares.

Net assets

As of 31 December 2019, the Company’s net assets amounted to kRUB2,261,771,078. The net assets increased by
kRUB235,300,661 or 12 % compared with the prior reporting date (kRUB2,026,470,417). As of 31 December 2019, the Company’s
net assets exceed its charter capital by kRUB2,261,665,096.

346

Item

2019

2018

Revenue (net) from the sale of goods, products, work, services (net of value added tax)

6,827,526,407

6,968,248,044

Including: Principal activities

Trading and procurement

Income from shareholdings in other entities

Intermediation

Cost of goods, products, work and services sold

Including: Principal activities

Trading and procurement

Oil and gas reserves exploration and estimation expenses

Gross profit

Selling expenses

General and administrative expenses

Profit (loss) from the sale of goods, work and services

Profit (loss) from other income and expenses

Including:

Interest receivable

4,351,246,655

4,721,264,040

1,954,897,814

1,866,340,138

516,331,673

5,050,265

375,223,648

5,420,218

(4,782,222,071)

(4,815,224,782)

(3,230,653,508)

(3,364,749,974)

(1,551,568,563)

(1,450,474,808)

(6,559,819)

(24,065,226)

2,038,744,517

2,128,958,036

(1,196,815,437)

(1,422,676,475)

(83,302,902)

(80,583,478)

758,626,178

625,698,083

(411,084,534)

(191,859,995)

176,844,160

186,773,202

347

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Item

Interest payable

Including: Expenses on unwinding of the ARO asset discount

Gains from changes in the fair value of derivative financial instruments

Losses from changes in the fair value of derivative financial instruments

Gains from the sale and other disposal of other assets

Including:

Gains from the sale of long-term securities

Gains from the sale of geological and technical documentation

Gains from the sale of fixed assets and capital construction in progress

2019

2018

(445,059,171)

(451,851,788)

(4,193,305)

35,301,062

(4,122,532)

51,966,086

–

(10,950,827)

5,807,645

29,397,843

2,255

3,062,933

2,317,813

32,022

62,668

28,582,222

Losses from the sale and other disposal of other assets

(5,956,251)

(30,025,792)

Including:

Losses from the sale of long-term securities

Losses from the sale of fixed assets and capital construction in progress

Losses from write-off of capital construction in progress

Losses from write-off of exploration assets

Other income

Including: Difference between the carrying amount of financial investments of shares (interests)
transferred as a contribution to the charter capital and their market value

Translation differences

Refund of excise duty

Other expenses

(3,246)

(1,985,202)

(2,061,116)

(1,006,321)

118,915,307

88,083,562

–

6,484,435

(6,635)

(27,082,940)

(985,473)

(366,015)

298,930,179

145,759,461

97,724,202

6,786,182

21. Deferred tax assets and liabilities, permanent tax assets
and liabilities

Permanent and temporary differences between the accounting profit and the taxable profit for the reporting period are
recognized in the accounting records. Temporary and permanent differences, which are calculated by comparing financial and tax
accounting data on income and expenses, result in permanent tax liabilities and assets and deferred tax liabilities and assets.

Current income tax is determined in the accounting records through recognizing the following indicators:
▪ Contingent income (expense)
▪ Permanent tax asset
▪ Permanent tax liability
▪ Deferred tax asset
▪ Deferred tax liability

The Company prepares indicators representing the accounting for income tax settlements on a monthly basis.

The Company recognizes deferred income tax assets and deferred income tax liabilities on a gross basis as non-current assets
and non-current liabilities, respectively.

Provision for doubtful debt recognized in the accounting records is a source of temporary difference.

The net amount of permanent tax assets (liabilities) is provided in the income statement for reference only.A 20 % income tax rate
is used to calculate deferred and permanent tax assets and liabilities.

(296,937,286)

(266,098,898)

Table 36. Deferred and permanent tax assets and liabilities (kRUB)

Including: Recognition of the deferred effect of hedging within other expenses

(145,565,010)

(145,524,439)

Description

Change for 2019

Change for 2018

Translation differences

Dividend income tax

(41,638,090)

–

(370,537)

(5,384,349)

Table 35. Allocation of the Company’s expenses recognized in the income statement by type (kRUB)

Item

Material costs

Payroll

Social charges

Depreciation and amortization*

Other costs*, including reverse excise duty, AIT, MET and oil and gas reserves exploration
and estimation expenses

2019

2018

5,062,926,686

5,186,702,859

37,053,917

6,832,450

149,353,651

812,733,525

39,822,391

6,477,812

131,827,944

977,718,955

Total for types of expenses

6,068,900,229

6,342,549,961

Change (increase [-], decrease [+]) in balances of work in progress, finished products, etc.

(12,599,481)

29,410,920

Total expenses related to ordinary activities**

6,068,900,229

6,342,549,961

1 * Recalculation of the effect of the revised estimates:
2 For the HSE that due to their nature were recognized:
3 In expenses related to ordinary activities – the total amount is included in the expenses for the period in other costs (cost of sales); in exploration

costs – in other costs (oil and gas reserves exploration and estimation expenses)

4 In the cost of finished products (sand) – the total amount is included in the expenses for the period in material costs (cost of sales)
5 In fixed assets and tangible exploration assets – the total amount is included in expenses for the period in depreciation and amortization

or in other costs (oil and gas reserves exploration and estimation expenses) respectively

6 **Including general and administrative expenses, selling expenses and oil and gas reserves exploration and estimation expenses.

Deferred tax asset

Deferred tax liability

Permanent tax asset

Permanent tax liability

Accrued
(charged)

57,591,738

(27,880,942)

136,388,071

(47,208,166)

Repaid
(written off)

(33,799,937)

13,513,107

Accrued
(charged)

52,330,419

(12,055,007)

128,128,492

(46,622,923)

Repaid
(written off)

(52,551,496)

11,351,892

In 2019, contingent income tax expense amounted to kRUB69,508,329 (2018: kRUB86,767,618).

Movement in deferred taxes for the reporting period recorded in line 2430, Change in deferred tax liabilities, and line 2450,
Change in deferred tax assets, includes deferred taxes written off and/or accrued due to filing updated tax returns and written-
off deferred tax liabilities and assets that will never be realized.The deferred tax asset includes the Company’s losses carried
forward, which are not used to reduce income tax in the reporting (tax) period but which will be recognized for taxation purposes
in subsequent reporting (tax) periods.

The permanent and temporary differences that led to the adjustment of the contingent income tax expense are presented in the
table below.

Table 37. Permanent and temporary differences that led to the adjustment of the contingent income tax
expense (kRUB)

Description

Change for 2019

Change for 2018

Accrued
(charged)

Repaid
(written off)

Accrued
(charged)

Repaid
(written off)

Deductible temporary differences

287,958,690

(168,999,685)

261,652,095

(262,757,480)

Taxable temporary differences

Negative permanent differences

Positive permanent differences

(139,404,710)

681,940,355

(236,040,830)

67,565,535

(60,275,035)

640,642,460

(233,114,615)

56,759,460

348

349

ROSNEFT ANNUAL REPORT 2019Appendix No.6.22. Dividends

Number of shares and their par value

According to constituent documents, charter capital represents the Company’s capital. The holders of common shares are entitled
to one vote per share at shareholders’ meetings.

The Company issued 10,598,177,817 common shares with a par value of RUB0.01 each, for the total amount of
RUB105,981,778.17.

Amount of dividends

In 2019, the Company’s net income amounted to kRUB396,526,209, and net earnings per share amounted to RUB37.41.

In the first half of 2020, the Board of Directors will provide recommendations to the General Shareholders’ Meeting on the amount
of dividends on the Company’s shares for 2019.

Based on the Company’s result for 2018, the annual General Shareholders’ Meeting that took place on 4 June 2019 (meeting
minutes w/o number of 7 June 2019) decided that dividends should be paid on Rosneft Oil Company’s common shares in the
amount of kRUB120,077,355 or RUB11.33 per share. As of 31 December 2019, the Company paid dividends in the amount of
kRUB120,050,531. Dividends were paid to all of the issuer’s registered shareholders except for shareholders who did not promptly
notify the issuer’s registrar of changes in relevant data.

Based on the Company’s result for the first half of 2019, the extraordinary General Shareholders’ Meeting that took place on
30 September 2019 (meeting minutes w/o number of 3 October 2019) decided that dividends should be paid on Rosneft Oil
Company’s common shares in the amount of kRUB162,576,048 or RUB15.34 per share.

As of 31 December 2019, the Company paid dividends in the amount of kRUB162,539,622. Dividends were paid to all of the
issuer’s registered shareholders except for shareholders who did not promptly notify the issuer’s registrar of changes in relevant
data.

23. Subsequent events

There were no economic events after 31 December 2019 that have had or may have an effect on the financial position, cash flows
or operating results of the Company.

24. Provisions. Contingencies

The Company is involved in litigations, which arise from time to time in the course of its business activities. Management of the
Company believes that the ultimate result of those litigations will not materially affect the performance or financial position of
Rosneft Oil Company.

Due to the pollution of oil in the trunk pipeline “Druzhba” in April 2019 a number of claims from the customers were submitted
to Rosneft Oil Company during 2019, stating that the supplied oil substantially exceeded maximum permitted levels of
organochlorine compounds (compared to the levels determined by the relevant technical regulations and standards). However,
Rosneft Oil Company delivered oil to the system of oil trunk pipelines of PJSC Transneft in compliance with the requirements of
technical regulations and standards.

In addition, the Company received claims from customers that did not receive the contracted amounts of oil due to the oil
pumping interruption in the trunk oil pipeline “Druzhba” resulting from the pollution.

Calculation of losses incurred by Rosneft Oil Company can be finalized after the completion of the comprehensive assessment
of the impact of the incident on the Company’s activities (including the forced reduction in oil production due to the reduced oil
intake into the system of PJSC Transneft), obtaining a complete and legally supported claims from all counterparties and their re-
submission to PJSC Transneft for compensation.

A provision is an obligation of the Company with an indefinite amount and/or time of settlement. A provision may arise:
▪ From laws and other regulations, court rulings or agreements
▪ As a result of the Company’s activities which indicate, based on the existing practices or statements of the Company, that the

Company undertakes certain obligations and, consequently, is reasonably expected to settle these obligations

A provision is recognized in accounting records when all of the following criteria are met:
▪ The Company has an obligation resulting from its past business operations that cannot be avoided In case of doubt concerning
such liability, the Company shall recognize an estimated liability if, based on the results of analysis of all circumstances and
conditions, including expert opinions, it is more likely than not that a liability exists.

▪ It is likely that settling the provision will result in an outflow of the Company’s economic benefits (the likelihood is > 50 %)
▪ The amount of the provision can be reliably estimated

Provisions, contingencies and commitments are not absolute legal obligations of Rosneft Oil Company.

Pursuant to Accounting Statement 8/2010, Provisions, Contingent Liabilities and Contingent Assets (effective from the date of issue
of the financial statements in 2011), the Company has environmental provisions.

An environmental provision arises from the environmental impact resulting from the Company’s operations.

The amount of the environmental provision is determined based on the estimated expenditures (planned expenditures) of the
Company that are expected to be incurred for settling the provision during restoration of the impacted lands and water bodies as
of the reporting date. The estimation is performed based on the Company’s internal (management) reports that form the system
of environmental information.

The information about the Company’s provisions is presented in the table below.

Table 38. Provisions (kRUB)
ц

Provision

Description

Period

Balance
at the
beginning
of the period

Recognized
(accrued)
for the
reporting
period

Written off

(repaid)
against costs
or accounts
payable
recognized

as excessive
or if
recognition
criteria
are no
longer met

Balance
at the end
of the period

Increase (+) /
decrease (-)
of provision,
when
expense/
income
(reversal
of expense)
is recognized
upon
recognition
of provisions

Total provisions created from expenses on ordinary activities, including by type of provisions:

Total

2018

2019

22,176,271

29,837,142

(17,677,979)

(719,991)

(741,349)

32,874,094

22,648,964

17,403,103

(16,875,356)

(607,167)

(393,273)

22,176,271

2019

10,594,452

14,437,851

(13,923,971)

9,835,675

13,796,537

(13,037,760)

–

2019

2,821,660

2,914,341

(3,285,480)

3,412,562

2,427,965

(3,018,728)

(139)

–

11,108,332

10,594,452

–

2,450,521

2,821,660

Provision
for annual
year-end
bonuses

Provision
for future
vacation
payments

Planned amount
of annual year-
end bonuses
to employees,
with insurance
contributions
at the effective
interest rate

2018

The Company’s
obligation
for vacation
payments based
on the number
of unused vacation
days at the end
of the reporting
period, with insurance
contributions
at the effective
interest rate

2018

350

351

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Provision

Description

Period

Balance
at the
beginning
of the period

Recognized
(accrued)
for the
reporting
period

Written off

(repaid)
against costs
or accounts
payable
recognized

as excessive
or if
recognition
criteria
are no
longer met

Balance
at the end
of the period

Increase (+) /
decrease (-)
of provision,
when
expense/
income
(reversal
of expense)
is recognized
upon
recognition
of provisions

Other
provisions
created
from
expenses

Provisions related
to environmental
issues, legal claims
and other relations
with third parties
Created by type
of obligation.

2018

2019

8,760,159

12,484,950

(468,528)

(719,991)

(741,349)

19,315,241

9,400,727

1,178,601

(818,868)

(607,028)

(393,273)

8,760,159

Provisions created by increasing the value of assets:

Total

2018

2019

53,750,988

8,482,687

(2,376,729)

(221,413)

16,771,015

76,406,548

25. Related party transactions

In the normal course of its business, Rosneft Oil Company enters into transactions with entities which are related parties in
accordance with Russian law.

The list of related parties was developed based on the relationships between the entities, taking into account the substance over
form requirement.Rosneft Oil Company’s related parties also include entities that are not affiliates according to Russian law, but
meet the definition of an affiliate in accordance with IFRS24, Related Parties Disclosures.

The total amounts of transactions and balances with related parties are disclosed separately for the following groups of related
parties that have different relationships with Rosneft Oil Company:
▪ Subsidiaries (entities consolidated by Rosneft Oil Company as subsidiaries)
▪ Associates (legal entities consolidated by Rosneft Oil Company using the equity method and proportionate consolidation

method)

▪ Principal owners (shareholders holding more than 10 % of the voting shares, or having significant impact based on other

reasons) and state-controlled entities

▪ Joint venture participants (that are not a legal entity and proportionately consolidated)
▪ Other related parties

The Cash flows section of the Table discloses information in the event of significant cash flows by group of related parties (more
than 10 % of any item of the cash flow statement).

58,434,030

5,975,705

(1,555,852)

(11,148)

(9,091,747)

53,750,988

2019

52,094,640

6,042,093

(1,548,844)

–

16,947,422

73,535,311

Subsidiaries

56,750,608

4,752,086

(1,168,407)

(11,148)

(8,228,499)

52,094,640

This section discloses information concerning transactions with those subsidiaries in which Rosneft Oil Company holds, directly or
through other entities, more than 50 % of the common voting shares, or which are controlled by other means.

Provision
for fixed asset
liquidation

Environmental
provisions

Formed on all
immovable oil
and gas assets.
The estimation
is made
by field.
Recognized
at present
value.

2018

Obligations
to be included
in the value
of assets (08*)

2018

2019

1,656,348

2,440,594

(827,885)

(221,413)

(176,407)

2,871,237

1,683,422

1,223,619

(387,445)

–

(863,248)

1,656,348

The provision for fixed asset liquidation presented in the column Recognized (accrued) for the reporting period in Table 38
includes the provision and expenses on discount amortization (interest) recognized as a result of nearing the settlement date of
the provision. The increase in the provision for the reporting period (interest) as a result of nearing the provision settlement date
should be recognized as expenses for the reporting period in the accounting records and financial statements. The effects from
changes in the provision for liquidation, the rate and the discount period are presented in the column Increase (+)/decrease (–) of
provision when expense/income (reversal of expense) is recognized upon recognition of provisions in Table 38.

The environmental provision presented in the column Increase (+) /decrease (–) of provision when expense/income (reversal of
expense) is recognized upon recognition of provisions in Table 38 includes effects from the revised estimations of value and the
extent to which an obligation is settled, effects of discount rate change, reclassification between types of provisions created from
expenses on ordinary activities and by increasing asset value.

352

Table 39. Information on transactions with subsidiaries (kRUB)

Transactions

Sales revenue and other income

Oil and gas sales

Petroleum products and petrochemicals sales

Income from leasing out property

Income from shareholdings in other entities

Other income

Costs and expenses

Oil and gas purchases

Petroleum products and petrochemicals purchases

Logistics and transportation

Oil and gas production services

Cost of processing

Leases of assets

Other expenses

Other transactions

Loans and borrowings issued

Repayment of loans and borrowings issued

Proceeds from short-term loans and borrowings

Repayment of short-term loans and borrowings

Proceeds from long-term loans and borrowings

2019

2018

1,036,105,402

1,054,417,117

1,420,121,766

1,527,326,855

149,161,243

514,872,917

102,839,512

150,594,846

159,247,612

187,852,911

3,223,100,840

3,079,439,341

2,357,618,751

2,322,042,045

5,516,359

146,469,209

346,374,644

166,537,773

655,035

67,222,778

4,920,810

159,564,621

342,257,716

157,157,311

510,392

73,466,823

3,090,394,549

3,059,919,718

1,285,097,529

1,975,502,995

1,209,323,653

1,737,331,936

1,576,442,009

1,180,046,505

1,580,578,845

1,476,368,478

1,165,256,127

1,176,457,487

353

ROSNEFT ANNUAL REPORT 2019Appendix No.6.Transactions

Repayment of long-term loans and borrowings

Deposits placed

Deposits repaid

Interest receivable

Interest payable

Cash flows

Cash flows from operating activities

Proceeds

2019

1,289,364,023

541,381,292

561,700,338

136,096,049

58,806,165

2018

992,263,560

374,798,640

352,850,000

159,618,232

45,983,108

From Sale of products, goods, work and services

2,424,042,134

2,526,310,943

From Lease payments, license payments, royalties, commissions and other similar payments

150,188,103

151,213,150

Payments

To Suppliers (contractors) for raw materials, work and services

(3,003,608,814)

(2,810,471,452)

Of interest on debt obligations

Exploration costs

Other payments

Cash flows from investing activities

Proceeds

From sale of non-current assets (other than financial investments)

From repayment of loans issued, receivables from other parties, etc.

From dividends, interest on debt financial instruments and similar proceeds from equity
participation in other entities

Payments

(51,069,686)

(6,061,861)

(23,928,758)

(14,607,056)

(633,340,385)

(240,714,561)

10,580,966

714,872,671

355,362,963

18,527,152

1,307,778,172

355,312,656

To purchase, create, upgrade, reconstruct and prepare non-current assets for use

(169,023,407)

(184,480,474)

To purchase shares (interest) in other entities

To issue loans to other parties

Exploration assets

Cash flows from financing activities

Proceeds

From loans and borrowings received

Payments

(374,023,314)

(148,272,795)

(164,513,879)

(1,409,858,239)

(12,968,542)

(14,552,151)

3,052,860,148

2,356,503,992

Repayment of loans and borrowings, repayment (redemption) of promissory notes, etc.

(2,870,276,820)

(2,232,786,629)

354

Table 40. Assets and liabilities under transactions with subsidiaries (kRUB)

Assets and liabilities

Assets

Cash and cash equivalents

Accounts receivable, including

• Long-term accounts receivable

• Advances issued for capital construction and equipment for installation

• Short-term advances issued

• Allowance for impairment of accounts receivable

Short-term and long-term financial investments,

Including long-term

Liabilities

Accounts payable

Short-term and long-term loans and borrowings (including interest),

Including long-term

Balance
at 31 December 2019

Balance
at 31 December 2018

23,903,215

59,038,002

2,970,447,681

2,085,545,419

2,098,170,151

1,610,680,068

14,467,016

7,303,321

1,679,073

14,910,443

7,568,489

2,999,318

6,267,338,712

6,489,566,357

5,571,861,514

5,836,049,136

9,261,689,608

8,634,149,778

1,927,536,974

1,560,159,472

1,951,309,008

1,869,749,149

1,732,886,115

1,542,979,725

3,878,845,982

3,429,908,621

Associates

This section discloses information concerning transactions with those associates in which Rosneft Oil Company holds, directly
or through other entities, more than 20 % but less than 50 % of the ordinary voting shares (or no control is provided for other
reasons), and which Rosneft Oil Company holds significant influence over.

Table 41. Information on transactions with associates (kRUB)

Transactions

Sales revenue and other income

Oil and gas sales

Petroleum products and petrochemicals sales

Income from leasing out property

Income from shareholdings in other entities

Other income

Costs and expenses

Oil and gas purchases

Logistics and transportation

Leases of assets

Cost of processing

Other expenses

Other transactions

Loans and borrowings issued

Repayment of loans and borrowings issued

Proceeds from short-term loans and borrowings

Repayment of short-term loans and borrowings

Proceeds from long-term loans and borrowings

2019

2018

9,824,798

9,895,428

200,590,043

256,901,420

339,993

1,247,139

1,756,420

267,982

6,385

874,885

213,758,393

267,946,100

370,590,472

32,394,201

239,032

15,352,240

1,467,546

370,758,918

21,706,524

227,202

14,357,449

9,014,113

420,043,491

416,064,206

4,615,969

2,197,300

26,351,823

25,235,622

33,577,913

3,806,525

1,476,200

13,570

64,830

9,773,280

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ROSNEFT ANNUAL REPORT 2019Appendix No.6.Transactions

Repayment of long-term loans and borrowings

Interest receivable

Interest payable

Cash flows

Cash flows from operating activities

Proceeds

Other proceeds

Table 42. Assets and liabilities under transactions with associates (kRUB)

Assets and liabilities

Assets

Accounts receivable, including

• Long-term accounts receivable

• Advances issued for capital construction and equipment for installation

• Short-term advances issued

• Allowance for impairment of accounts receivable

Short-term and long-term financial investments,

Including long-term

Liabilities

Accounts payable

Short-term and long-term loans and borrowings (including interest),

Including long-term

2019

671,596

2,399,869

5,577,670

2018

5,794,060

2,141,534

1,114,412

94,455,926

294,284,172

Balance
at 31 December 2019

Balance
at 31 December 2018

34,347,960

1,190,904

153

1,900,177

9,390,197

51,214,855

40,217,926

85,562,815

330,970,899

50,271,297

33,414,515

33,863,180

4,148,305

4,979

1,470,657

9,473,083

48,984,585

47,338,161

82,847,765

317,267,080

15,405,438

15,394,669

381,242,196

332,672,518

Information on compensation paid to key management personnel

For information disclosure purposes, key management personnel include members of the Management Board and members of
the Board of Directors of Rosneft Oil Company.

In 2019 and 2018, short-term compensation to the members of the Management Board taking in account the rotation of
the management staff, including salary, bonuses and compensations and considering personal income tax, amounted to
kRUB3,570,285 and kRUB3,853,586, respectively (social insurance contributions paid to the budget of the Russian Federation
under the law, which are not income of the members of the Management Board, amounted to kRUB513,128 and kRUB567,000,
respectively). The amount of short-term compensation to members of the Management Board and members of the Board of
Directors for 2019 is disclosed in accordance with the Russian legal requirements for disclosure of information by issuers of
securities.

Principal owners and entities controlled by principal owners

This section discloses the information about transactions with principal owners (legal entities and individuals) that hold more
than 10 % of the total number of votes that relate to voting shares, and entities controlled by principal owners, including state-
controlled entities.

Table 43. Information on transactions with principal owners and entities controlled by principal owners
(kRUB)

Transactions

Sales revenue and other income

Oil and gas sales

Petroleum products and petrochemicals sales

Income from transactions involving term transaction financial instruments

Income from shareholdings in other entities

Other income

Costs and expenses

Oil and gas purchases

Oil products purchases

Logistics and transportation

Customs duties

Leases of assets

Expenses from transactions involving term transaction financial instruments

Other expenses

Other transactions

Loans and borrowings issued

Proceeds from short-term loans and borrowings

Repayment of short-term loans and borrowings

Proceeds from long-term loans and borrowings

Repayment of long-term loans and borrowings

Deposits placed

Deposits repaid

Interest payable

Interest receivable

Cash flows

Cash flows from operating activities

Payments

Interest on debt obligations

Other payments

Cash flows from investing activities

Proceeds

Sale of debt securities (receivables from other parties)

Other proceeds

Payments

2019

2018

264,219,112

134,202,571

729,800

211,618

321,792

280,452,006

108,595,740

402,203

135,628

1,323,127

399,684,893

390,908,704

124,248,816

1,386,417

362,053,540

728,078,630

112,808

31,832,282

2,817,216

139,160,281

2,910,840

360,400,484

973,983,183

122,474

35,677,914

3,222,426

1,250,529,709

1,515,477,602

4,572,586

105,000,000

252,000,000

–

374,600,000

319,600,000

–

100,000,000

112,500,000

–

3,046,277,335

4,304,803,257

3,114,766,129

4,669,493,457

34,313,321

9,756,564

38,047,139

11,274,669

(35,602,786)

(75,352,050)

(37,467,323)

(87,748,686)

95,911,693

36,553,233

462,927,962

49,897,794

Related to purchase of debt securities (receivables from other parties), issue of loans to other
entities

(37,939,569)

(68,814,789)

Exploration assets

Cash flows from financing activities

Payments

(8,406,471)

(1,001,301)

Dividends and other distributions of income among shareholders (participants)

(242,388,808)

(193,330,982)

Repayment of loans and borrowings

(364,500,000)

(319,600,000)

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ROSNEFT ANNUAL REPORT 2019Appendix No.6.Table 44. Assets and liabilities under transactions with principal owners and entities controlled by principal
owners (kRUB)

26. Segment information

Assets and liabilities

Assets

Cash and cash equivalents

Accounts receivable, including

• Long-term accounts receivable

• Advances issued for capital construction and equipment for installation

• Short-term advances issued

• Allowance for impairment of accounts receivable

Short-term and long-term financial investments,

Including long-term

Liabilities

Accounts payable

Short-term and long-term loans and borrowings (including interest),

Including long-term

Balance
at 31 December 2019

Balance
at 31 December 2018

33,562,166

126,154,406

4,936,200

32,809,682

35,002,026

10,345

93,254,267

87,663,843

475,694,965

97,499,791

5,132,184

28,237,506

29,803,656

9,136

165,693,636

96,324,663

252,970,839

738,888,392

6,755,387

360,518,892

180,477,410

367,274,279

10,170,206

605,153,497

408,917,660

615,323,703

Joint venture participants

There are no transactions with companies involved in joint activities with Rosneft Oil Company for the period of 2018–19.Other
related parties

Other related parties include a non-state pension fund operating in the interests of the Company’s employees.

The Company, its subsidiaries and associates (hereinafter, the “Rosneft Oil Company Group”) operate as a vertically integrated
business. The Rosneft Oil Company Group is principally engaged in the exploration, development, production and sales of
oil and gas, as well as the production, transportation and sales of petroleum products in the Russian Federation and abroad.
Management information, which is regularly analyzed by those persons with the power to make decisions on resource allocation
in the Company and further performance evaluation, is prepared for the business purposes of Rosneft Oil Company Group
as a whole. Given the fact that the business of the Company as a legal entity is an integral part of the Group management,
management decision-making and resource allocation is performed by the duly authorized persons at the level of Rosneft Oil
Company Group; certain management reports reflecting financial performance, the amount of assets and liabilities by segment,
which refer only to the Company’s operations and are not related to the Group in general, are not prepared for business lines.
Therefore, segment information is fully disclosed in the consolidated financial statements of the Rosneft Oil Company Group.

Information on revenue broken down by segment is presented in the explanatory notes below, as this data is provided to the
Company’s authorized representatives on a regular basis. Segment information was prepared taking into account the economic,
foreign currency, credit and price risks the Company may be exposed to.

Table 47. Information on sales revenue by segment (kRUB)

Segment

Oil

Gas

Oil products and petrochemicals

Other sales

Total

Oil includes sales of oil and gas condensate.

Net revenue for the reporting year

Total

External
market

3,517,288,489

2,894,549,444

173,831,586

–

2,461,297,168

1,183,586,787

675,109,164

–

Domestic
market

622,739,045

173,831,586

1,277,710,381

675,109,164

6,827,526,407

4,078,136,231

2,749,390,176

Gas includes sales of natural gas, APG and DSG.Oil products and petrochemicals include sales of oil and gas refinery products.

Other sales include the sales of other goods, public catering products, rendering of services, dividends, lease of fixed assets, etc.

Table 45. Information on transactions with other related parties (kRUB)

Related information

Transactions

Sales revenue and other income

Other income

Costs and expenses

Expenses under non-state pension agreements

2019

182

2018

345

1,100,112

4,590,389

Table 46. Assets and liabilities under transactions with other related parties (kRUB)

Assets and liabilities

Assets

Accounts receivables

Liabilities

Accounts payable

Balance
at 31 December 2019

Balance
at 31 December 2018

–

3,804,684

27. Related information

27.1 Environmental matters

The activities of oil and gas companies are always subject to environmental risks. The Company’s management believes that its
activities comply with legislative requirements regarding environmental protection, and, therefore, the Company has no risk of
significant liabilities in this area, except for those already disclosed and recorded in these financial statements.

27.2 Insurance

The Company continues to insure its property, motor vehicles, cargoes, shipments, construction works and the liability of its
officials.27.3 Energy resources

Information on the total costs related to energy resources used is given below1

In the reporting period, Rosneft Oil Company mainly used the monetary form of settlements with related parties.

1 The requirement of Article 22 of Federal Law No. 261-FZ On Saving Energy and Increasing Energy Efficiency, and on Amendments to Certain

Legislative Acts of the Russian Federation dated 23 November 2009.

2 In accordance with Article 2 of Federal Law No. 261-FZ, an energy resource is an energy carrier that is used or can be used for both economic

and other activities, as well as a type of energy (atomic, heat, electrical, electromagnetic or other type).

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ROSNEFT ANNUAL REPORT 2019Appendix No.6.Table 48. Information on resources used (kRUB)

No.

Energy resource

Electric energy

Heat energy

27.4 Risk management

Business environment

2019

36,475

4,508

2018

33,805

4,704

Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market
economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the
effectiveness of economic, financial and monetary measures undertaken by the Russian government.

The Russian economy has been negatively affected by sanctions imposed on Russia by a number of countries. The ruble interest
rates remain high. The combination of the above resulted in reduced access to capital, a higher cost of capital and increased
uncertainty regarding economic growth, which could negatively affect the Company’s future financial position, operating results
and business prospects.

Management is taking appropriate measures to support the sustainability of the Company’s business in the current circumstances.

Risks and opportunities associated with climate change

Within the framework of its corporate risk management system, the Company on an annual basis identifies and evaluates risks and
opportunities relevant to its business activities, including those related to climate change.

In the process of investment decision making, the risks associated with health, safety and environment (HSE), ecology, and climate
change are analyzed. For large projects, the analysis of the alignment with the Company’s strategic goals, environmental standards
and requirements of the Russian legislation and international organizations is performed, as well as the analysis and assessment
of external risks related to the impact on the environment (changes in legislation, changes in technologies, market risks,
reputational risks, etc.). In addition, the risks and opportunities associated with climate change and the transition to low-carbon
energy are considered in the Company’s strategic management and business planning processes (especially for projects located in
climate-sensitive regions: marine projects, Arctic projects, etc.) as well as in preparing various development scenario for the world
energy industry.

GENERAL INFORMATION

about Rosneft

▪ Date of state registration and registration number of Oil Company Rosneft:

▪ Date of state registration of the Company as a legal entity: December 7, 1995;

▪ Number of State Registration Certificate of the Company: 024.537;

▪ Date of entry in the Uniform State Register of Legal Entities about a legal entity established prior to

July 1, 2002: August 12, 2002;

▪ Series and number of Certificate of Entry in the Uniform State Register of Legal Entities about a legal

entity established prior to July 1, 2002: Series 77 No. 004856711;

▪ Primary State Registration Number under which entry about establishment of the Company is made

in the Uniform State Register of Legal Entities: 1027700043502.

Constituent entity of the Russian Federation in whose territory the Company is registered: Moscow.
Main types of operations of the Company: geological prospecting and geological exploration work aimed
at oil, gas, coal and other minerals search; extraction, transportation and processing of oil, gas, coal and
other minerals and timber; production of oil products, petrochemicals and other products, including electric
power, woodworking products, fast moving consumer goods and provision of services to the public; storage
and sale (including sale in the domestic market and export sale) of oil, gas, oil products, coal, electric power,
woodworking products, and other hydrocarbon and other derivatives.
Pursuant to Decree of the Government of the Russian Federation dated August 20, 2009, No. 1226-r, Rosneft
has been included into the list of strategic enterprises charged with implementation of uniform public policy
in those branches of economy where such entities operate.
Pursuant to Decree of the President of the Russian Federation dated May 21, 2012, No. 688, Rosneft has
been included into the list of strategic enterprises and strategic joint stock companies.

360

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ROSNEFT ANNUAL REPORT 2019For notes

CONTACT DETAILS

Full Name:

Public Joint-Stock Company
Rosneft Oil Company

Abbreviated Name:

PJSC Rosneft Oil Company

Location of the Company:

26/1 Sofiyskaya Embankment,
Moscow, 117997, Russia

Post address:

26/1 Sofiyskaya Embankment,
Moscow, 117997, Russia

Information Service:

Telephone: +7 (499) 517-88-99
Facsimile: +7 (499) 517-72-35
Telex: 114405 DISVO.RU
E-mail: postman@rosneft.ru

For Shareholders:

Shareholder Relations Division,
Corporate Governance Department, Rosneft
Telephone: +7 (495) 987-30-60;
8-800-500-11-00
(calls from Russia toll-free)
Facsimile: +7 (499) 517-86-53
E-mail: shareholders@rosneft.ru

For Institutional Investors:

Investor Relations Department,
Rosneft
Telephone: +7 (495) 411-05-04
E-mail: ir@rosneft.ru

IFRS Auditor of the Company:

LLC Ernst & Young
77 Sadovnicheskaya Embankment,
Bldg. 1, Moscow, 115035, Russia
Telephone: +7 (495) 705-97-00;
+7 (495) 755-97-00
Facsimile: +7 (495) 755-97-01

RAS Auditor of the Company:

LLC Ernst & Young 77
Sadovnicheskaya Embankment,
Bldg. 1, Moscow, 115035, Russia
Telephone: +7 (495) 705-97-00;
+7 (495) 755-97-00
Facsimile: +7 (495) 755-97-01

Registrar of the Company:

LLC Reestr-RN 2/6, Podkopaevsky sidest.,
Bldg. 3-4, Moscow 109028, Russia
Telephone: +7 (495) 411-79-11
Facsimile: +7 (495) 411-83-12
E-mail: support@reestrrn.ru
Website: www.reestrrn.ru

GDR Depositary:

J. P. Morgan
Moscow Office:
10, Butyrskiy Val, Bldg. A,
13th Floor, Moscow,
125047, Russia
Telephone: +7 495 967-71-13

London Office:

25 Bank Street, Canary Wharf, 17th Floor, London E14 5JP, UK
Telephone: +44 207 134-55-18

Website of the Company:

Russian Version: www.rosneft.ru
English Version: www.rosneft.com

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ROSNEFT ANNUAL REPORT 2019