Financial risks

Financial risks at Gazprom Neft are managed by the Company’s employees in accordance with their professional activities.

The Financial Risk Management Committee determines the unified approach to financial risk management at Gazprom Neft and its subsidiaries. This approach is based on mitigating the degree of risk impact and the probability of such risks occurring by implementing the relevant measures and control procedures.

The activities of the employees of the Company and the Financial Risk Management Committee help to reduce potential financial damage and achieve stated goals

Description Risk management measures
3.1. Credit risk of counterparties
Credit risk is the risk of the Group incurring financial losses caused by the failure of a customer or counterparty to perform its contractual obligations. This risk is primarily associated with the Group’s existing accounts receivable of customers with investment securities Trade and other accounts receivable are made up by the large number of counterparties working in different industries and geographic segments. Gazprom Neft is implementing a number of measures that allow for managing credit risk, including the following: assessing the creditworthiness of counterparties, establishing individual limits and payment conditions depending on the financial condition of counterparties, controlling advance payments, and measures to work with accounts receivable by business, among other things
3.2. Risk associated with borrowing
The imposition of sanctions on Gazprom Neft by the U.S., EU, and a number of other countries has significantly narrowed the range of financing instruments available to the Company Gazprom Neft effectively manages risk associated with the borrowing of funds. Despite the levying of sanctions against the Company by the U.S., EU, and a number of other countries in 2014, the Company fully implemented a programme to attract funding in 2017 and also signed credit agreements for financing that may be used in 2018–2020, including revolving facilities, which will provide the Company’s financial policy with additional flexibility and improve liquidity management efficiency The Company is also searching for alternative sources of funding
3.3. Foreign exchange risk
The Group is exposed to foreign exchange risk primarily due to the availability of borrowed funds that are denominated in a currency other than the functional currencies of the Group’s corresponding entities, which are mainly the local currencies of the Group’s companies. For example, the functional currency for companies operating in the Russian Federation is the Russian rouble. A significant portion of the aforementioned borrowings are denominated in the U.S. dollar and the euro The Group’s foreign exchange risk is significantly mitigated due to the availability of assets and liabilities that are denominated in foreign currency: the current structure of revenue and liabilities acts as a hedging mechanism in which multidirectional cash flows compensate for one another. The Group employs accounting using the hedging method for cash flows denominated in foreign currencies to prevent the volatility of profit and losses
3.4. Interest risk
Part of the Group’s loans and borrowings were raised under contracts with a variable interest rate (tied to LIBOR, Euribor, or the Bank of Russia’s key rate). To minimize the risk of adverse changes in LIBOR and Euribor rates, the Group’s Treasury conducts a periodic analysis of current interest rates on the capital market and, depending on the results of this analysis, decides whether to hedge the interest rate or borrow money at fixed or variable rates Changes in the interest rate primarily affect the principal of debt, altering either its fair value (at a fixed interest rate) or the amount of future cash outflows using the instrument (at a variable rate). When attracting new loans or borrowings, the Group’s management decides on the basis of its own professional judgments and information on current and expected interest rates on long-term lending markets whether to raise borrowed funds at fixed or variable rates depending on which rate (in conjunction with other parameters of the loan or borrowing) will be more profitable for the Group