Message from the Chairman of the Management Board

Александр Дюков
Alexander Dyukov Chairman of the Management Board,
CEO of Gazprom Neft PJSC

Dear Shareholders and Investors,

Gazprom Neft continued to actively develop all of its businesses in 2017.

Our production grew by 4.1% for the year. This was made possible due to the active development of the Company’s largest fields – Novoportovskoye, Prirazlomnoye, and East Messoyakha – and also as a result of increased production at our Iraqi projects. We have substantially expanded our resource base. In 2017, Gazprom Neft obtained the rights to develop the Tazovskoye, North Samburskoye, Novosamarskoye, and several other fields. We discovered a major new field – Neptune – at the Ayashsky section in the offshore area of the Sea of Okhotsk with reserves of 255 million tonnes of oil equivalent. The volume of hydrocarbons extracted in 2017 was offset by new reserves at a rate of 170% – one of the best indicators in the industry.

An optimal level of utilization at the Company’s oil refineries ensured the maximum profitability from refining in the current market conditions. We continued implementing a comprehensive programme to modernize our enterprises. The catalytic cracking unit was rebuilt at the Moscow Oil Refinery and the construction of a set of Euro+ oil refining units entered its final phase. Advanced oil refining projects are being implemented at the oil refineries in Omsk and Pancevo. Construction was completed on the Biosphera complex at the Moscow Oil Refinery, which increased the efficiency of wastewater treatment at the refinery to 99.9%. A similar project is now being implemented at the Omsk Oil Refinery.

We are also seeing growth in the sales segment. Average daily sales at our petrol stations in Russia were up by 4.2% in 2017. We launched a mobile app for the Gazpromneft petrol station chain last year, which is now used by more than 1 million customers. Lubricant sales expanded by 7%. The Company's products are represented in 72 countries. We entered new markets last year, including Thailand, Iran, Peru, Senegal, and South Africa. Sales of bitumen grew by 22%. The Company continued to develop its commercial presence at airports, which resulted in an 8% increase in sales of aviation fuel.

Gazprom Neft has made significant progress in implementing its technological strategy. Priorities include projects to develop low-permeability reservoirs and drilling high-tech wells. We are already competing with global leaders in terms of the pace of innovations in this area.

Last year we opened the Bazhen Technological Centre whose job is to create technologies and equipment for the development of the Bazhenov formation. The success of this project is of great importance to the entire Russian oil industry.

We are pushing ahead with digital transformation, which ensures we will remain competitive in the new economy of the 21st century. Big data and artificial intelligence have become an important part of our production activities: we opened the Upstream Control Centre in Khanty-Mansiysk and set up the unparalleled Downstream Efficiency Control Centre in St. Petersburg. Agile tools are being introduced into the day-today operations of regional sales. The Company is implementing a total of more than 50 digital projects.

Gazprom Neft has been a leader in the Russian oil industry in terms of efficiency for many years. In 2017, we generated record financial results. Gazprom Neft had the highest profit in its history at the end of the year. In addition, the Company has made it through the peak of investment and started generating a positive cash flow.

As always, one of the Company’s top priorities is ensuring a high dividend yield. In 2017, we not only ensured growth in dividends in absolute terms, but also resumed the payment of interim dividends. Our actions received high praise from investors, and Gazprom Neft share prices rose considerably in 2017 while setting new records. Once again, this demonstrates the investment community’s high level of interest in the Company.

In 2018, Gazprom Neft will continue pursuing the goals set forth in the Company’s long-term development strategy and will strive to maximize the efficiency of all business processes.