investor presentation - russneft...2013 –2016 significant decrease of debt burden glencore debt...

Investor Presentation

November 2016

1

2

Disclaimer The present Investor presentation contains the information about PJSC OC ”RussNeft” (hereinafter referred to as the “Company” or “RussNeft”) and has been prepared in connection with the possible public offering of the securities

of RussNeft. This Presentation intended to be used for the assistance in the analyzing process by the recipient in relation to RussNeft and has been provided for information purpose only and in connection with the possible public

offering of the securities of RussNeft. This Presentation is not a securities prospect, a decision on issuance of securities, an offer to purchase the securities or some assets or to subscribe the securities or to sell the securities or

some assets, is not an offer or an invitation to make offers, is not an advertisement of securities, guaranty or promise to sell securities or some assets or of the placement of securities or to enter to any contract and shall not be

construed in such capacity.

This Presentation is not a recommendation in relation of the securities of RussNeft or any other securities or some assets described in this Presentation. This Presentation is not to be used for the purpose to become a ground for the

adoption of investment decisions. The information contained herein has been provided by RussNeft and has not been verified by the consultants of RussNeft. This Presentation provided to the recipient for information purpose only

and subject to complete understanding that the present Presentation is to be used only for the purposes described above. The information contained herein may change significantly. This Presentation does not contain the complete

information of RussNeft neccessary for the investigation in relation to RussNeft and developing some conclusion. RussNeft, the possible selling shareholders and the organizators of the offering reserve the right to change any

information contained herein without explaining the reasons at any time in any part and without any notice. The delivery of this Presentation to the recipient does not constitute some obligation of the organizers of the offering, the

possible selling shareholders or RussNeft including the obligation to amend or update this Presentation or to correct the discrepancies. RussNeft, the possible selling shareholders and the organizers of the offering reserve the right to

amend or terminate the offering procedure at any time in any part and without notice. The delivery, contribution or publication of the present Presentation does not constitute any liabilities of making any transactions from the part of

the organizers of the offering, the possible selling shareholders or RussNeft. RussNeft, the possible selling shareholders, the organizers of the offering, their affiliates, employees, officers, representatives, agents, advisors and

consultants do not provide any representations and warranties and do not adopt no liability and no obligation in respect to the fairness, completeness and objectiveness of the information contained herein or in any other written or

spoken information provided to any interested parties or their advisors. The information provided herein is not a ground for some contractual obligation. RussNeft, the possible selling shareholders, the organizers of the offering, their

affiliates, employees, officers, representatives, agents, advisors and consultants are not liable for any direct or indirect losses occurred as a result of use of this Presentation or information contained herein. The information on plans

and any future events is uncertain and may significantly differ from the facts and the events that may arise in future. The person received this Presentation is aware that nothing in the present Presentation constitute the guaranty or

the representation or the warranty or the promise or the obligation in relation to the future events and facts and any future real results, events and facts may significantly differ from the information contained herein. Accordingly

RussNeft, the possible selling shareholders, the organizers of the offering, their affiliates, employees, officers, representatives, agents, advisors and consultants do and will not provide no guaranty, representation, promise or

obligation in relation to the occurrence, fairness, feasibility or achievability of such plans of any future events or facts.

This Presentation contain the forecast information in relation to specific operating rates of RussNeft. In particular, this Presentation contains the information on oil reserves including the oil reserves of the Orenburg assets the

consolidation of which in RussNeft is not finished at the moment.

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OR ANY OTHER JURISDICTION. THE SECURITIES OF RUSSNEFT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT (1933) AS AMENDED OR UNDER THE LAWS OF ANY STATE AND

MAY NOT BE OFFERED OR SOLD WITHIN THE USA.

The present Presentation is not a financial offer, an invitation or a promotion of the investment activity in according to the Financial Services and Markets Act 2000 (FSMA). This Presentation and the information contained herein

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Table of content

Offering Highlights 41

RussNeft Today 72

RussNeft Strategy 123

Investment Highlights 194

RussNeft Financials 305

3

Appendix 336

Offering Highlights

4

Issuer Public Joint Stock Oil and Gas Company “Russneft” ( hereafter “Russneft” or “The Company”)

Offer size Up to 20% of ordinary shares

Primary / secondary split 100% secondary

Selling Shareholders BELYRIAN HOLDINGS LIMITED and/or associated and affiliated companies, beneficiary owned by members of the

Gutseriev family

Offering structure Initial Public Offering of ordinary shares on MOEX via bookbuiding mechanism

Listing Ordinary shares are included into the first (highest quotation) list of MOEX

Joint Global Coordinators

and Bookrunners /

Co-lead managers

Joint Global Coordinators and Bookrunners : VTB Capital, Sberbank CIB

Joint Bookrunners: Aton, BCS

Co-lead managers: EFG Asset Management, Investment Company ITInvest

5

Key offering parameters

Type of offering Ordinary shares of PJSC “RussNeft”

Moscow exchange ticker: RNFT

Lock-up period 180 days for the Company, selling shareholder and Glencore

Price range RUB 540 – 600 per share

Bookbuilding period 18 – 24 November 2016

Price announcement /

settlement / start of trading 25 November 2016

6

Offering timetable

BookbuildingAllotment

(deals closing) settlement

Investors submit applications within a stipulated price range during the

period from 10:00 to 19:00 every working day from 18 till 23 November, 24

November from 10:00 to 17:00

During bookbuilding period bidders may submit applications indicating the

price and number of lots, moreover, they may modify or withdraw previously

submitted applications

The seller makes offsetting orders to those which

are to be satisfied, and rejects orders which are

not to be satisfied

Implementation of the settlement through the

transactions clearing concluded in the framework

of proposals

Parameters for Order Submission

Parameter Description

Broker PJSC “MDM Bank” (NC0072800000)

Lot 1 ordinary share

Mechanism Investor might submit applications for purchase of certain number of lots, indicating purchase price

Ticker RNFT (ISIN RU000A0JSE60)

Order submission «Placement: direct orders T0»

Settlement code T0

Other

Regulation of brokerage services and contracts with clients must anticipate possibility of making of client application in the “Placement: directed

orders“

Seller has a right to fulfill order partly or not accept it

Client name should be included in the application, which broker makes on behalf of the client

18 Novaround 10.00

Price range

announcement

25 Novc. 16.00

Start of

trading

25 Nov.around 10.00

Price

announcement

18 – 24 November (inclusive) 25 November

*Moscow time

RussNeft Today

7

0,6

2,3

5,2

6,87,9

Crude oil production (mt)(1)

70

140

193

221

(1) Including international assets in Azerbaijan; (2) Deal completion is expected before 1 April 2017; (3) RussNeft 2P oil reserves, including international assets in Azerbaijan on 100% basis, 2P oil reserves for other companies based on the

latest available data (C1 + C2 oil reserves for Nobel Oil); (4) Interest in the share capital; (5) Calculated as operating profit plus depreciation & amortization adjusted for one-off items; (6) Bloomberg data; (7) Preliminary estimates; (8)

Excluding ilisted independent oil companies; (9) Oil production, excluding international assets in Azerbaijan 8

Overview Key financials (IFRS)

Largest Russian independent

oil company by crude oil production… …As well as 2P reserves

RussNeft at a glance

RUBbn 2013 2014 2015 6M’15 6M’16

Revenue 135 114 105 58 50

EBITDA(5) 27 25 21 14 13

margin, % 20% 22% 20% 24% 26%

EBITDA/production(9) 3.06 2.92 2.84 3.70 3.84

Brent price, US$/bbl(6) 109 99 54 59 41

Net Debt is ca. RUB85bn as of 30 September 2016 (7)

RussNeft is the 6th largest Russian oil company by crude oil production

in Russia (CDU TEK data, excluding subsidiaries and JVs of Russian largest vertically

integrated oil and gas companies)

Total 2P reserves (SPE) as of 2015 exceeded 220 mt(1) with crude oil production in 2015

of 7.9 mt(1)

In October 2016, RussNeft signed a letter of intent with ForteInvest in relation to

acquisition of ForteInvest upstream assets in the Orenburg region with 2P reserves and

crude oil production in 2015 of 14 mt and 0.3 mt respectively

RussNeft strategy assumes significant growth of crude oil production up to 11 mt by

2025 coupled with a sizeable increase in gas production

RussNeft business model is focused on the upstream segment, the Company enjoys

unique experience of operating mature fields and possesses portfolio of assets with

significant growth potential

RussNeft shareholders are the Gutseriev family (75%) and Glencore (25%, the global oil

trader)(4)

Source: CDU TEK, Bloomberg, companies data, Miller & Lents as of 31 December 2015, Miller & Lents report for Tagrinskoye field as of 1 August 2016, Bloomberg, public data

2P reserves 2015 (mmboe)(2)

Notes:

(1) Excluding private oil companies, whose shares are listed

RussNeft history

2006 – 2007

Significant increase in

production drilling

volumes

Further reserve base

growth

Stabilization of oil

production and refining

volumes growth

Successful realization of

production enhancement

operations on mature

fields in Volga Urals

region

Organic growth

2008 – 2009

Realization of cost

savings initiatives

Further increase of

reserve base

(ca. 20 mt)

Growth of retail sales

(ca. 11%)

Anti-crisis program

2010 – 2012

Investment program

expansion (by 60% in

comparison with

2009)

Realization of

exploration program

Further growth in

crude oil production

Expansion

2013 – 2016

Significant decrease of debt

burden

Glencore debt conversion,

Glencore receives a 25%

stake in the share capital of

RussNeft

Successful realization of

gas program (associated

petroleum gas utilization

reached 95%)

Assets portfolio optimisation

2002 – 2005

Successful formation of

reserve base (growth by

70% during 3 years)

RussNeft joins top-10

Russian oil companies by

crude oil production

Commencement of

partnership with Glencore

(including equity

participation in RussNeft

subsidiaries)

Extensive growth

Company business-model

Vertically integrated oil company

Company business-model

Upstream

9

Today RussNeft is the largest private Russian oil company(1)

RussNeft business model is focused on the upstream segment

Successful partnership with Glencore provides RussNeft with access to premium export channels and industry best practices

73%

14%

8%

5%

Notes:

(1) Not including upstream assets of ForteInvest in the Orenburg region 10

Diversified asset portfolio in key oil and gas provinces

West Siberia

Production 2015 2P reserves (SPE)

5.0 mt 162 mtCentral Siberia


0.8 mt 18 mt

Volga Urals


1.5 mt 30 mt

Moscow

Tomsk

Raduzhnyi

NizhnevartovskKhanty-Mansiysk

Saratov

Ulyanovsk

Penza

Balanced portfolio of upstream assets in key Russian oil provinces as well as international assets in Azerbaijan with significant growth

potential

International assets


0.5 mt 11 mt

Azerbaijan

Production breakdown 2015(1)

Reserves breakdown 2015(1)

Total: 7.9 mt

Total (2P SPE): 221 mt

West Siberia

Central Siberia

Volga Urals

Source: Miller & Lents report as of 31 December 2015 , Miller & Lents report for Tagrinskoye field as of 1 August 2016 г, Miller & Lents report for international assets as of 1 January 2016

Orenburg

ForteInvest upstream assets


0.3 mt 14 mtInternational assets in Azerbaijan

65%19%

10%

6%

11

Diversification of distribution channels secures the top margins within a dynamic market environment:

- Western Siberia crude oil can be sold both to European and Asian markets

- Volga region assets have a minimal transportation leg to the European market

- Western & Central Siberia crude oil is priced with a premium compared to other Russian oil provinces

Cooperation with Glencore ensures access to premium sales channels, infrastructure and best industry business practices

Long-term contracts with Glencore secure stable cash flows and allows to raise external financing at attractive terms

Russian and CIS markets account for more than 60% of total crude oil sales

Sales channels, distributing 3.53 mt(1) as of 1H 2016

Key highlights

Purchased crude oil

and condensate

5%

Total hydrocarbons

volume sold

100%31%

Belarus market

9%

Export, excl. CIS

31%

Domestic market

60%Other refineries

41%

Gutseriev family

refineries

19%

Crude oil

8%

Processing

1%

Gutseriev family refineries are important counterparties for RussNeft securing

demand in the domestic market

Argus / Kortes based pricing for the agreed quotation period

Long-term contracts with conditions revised upon material market changes

Optimized logistic / transport costs through oil swap contracts with

Gazprom neft

Arm length basis sales contracts

Diversified sales geography

Prepayments at competitive rates account for up to 90% of the total amount of

export contracts

Diversification of sales channels through a processing arrangement

Access to the attractive regional oil products market

Sales in Belarus are fixed price / deferred payments based

Crude oil export contracts are fully prepaid and priced on the basis of Platt’s

quotes based formula with settlement in USD / EUR

Effective marketing channels

Notes:

(1) Excluding international assets and upstream assets of ForteInvest

(2) RussNeft crude oil production, excluding oil losses and own use

Produced crude oil(2)

95%

RussNeft Strategy

12

Application of new technologies allowed RussNeft to reverse production trend

in 2016

1,9

1,6

5,5

5,12016F

7,42015

7,10,4

25%

31%

Crude oil production with tax exemptions from Tagrinskoye /

Verkhne-Shapshinkoye fields

Crude oil production with tax exemptions from RussNeft core assets

Crude oil production without tax exemptions

20,1

18,5

21,6

21

19

17

20

22

18

Jul16Jan 16Jan 15 Jul 15

-13%

+17%19,7

Russneft was not able to launch development

of Achimov deposits of Tagrinskoye field and

AS 12-3-5 reservoir of Verkhne-

Shapshinkoye field before 2015 due to

technological issues

In the second half of 2015 RussNeft

successfully applied multi-stage hydraulic

fracturing, resulting in high initial flows of 70-

150 tons per day. Given significant tax

exemptions development of these fields has a

positive effect on RussNeft return on

investments

In 2016, the Company increased drilling

volumes (plan for Tagrinskoye field assumes

drilling of 74 wells, plan for Verkhe-

Shapshinskoye field assumes drilling of 33

wells)

Drilling of unconventional reserves at

Tagrinskoye and Verkne-Shapshinskoye fields

is the main driver of production levels

maintenance in the medium-term perspective

Production breakdown (mt per year)

Daily crude oil production (ths tons)

Share of tax exempt

oil

- Daily production dynamics, % per year

1 Excluding international assets in Azerbaijan and ForteInvest upstream assets in the Orenburg region 13

LONG-TERM GROWTH

POTENTIAL

MEDIUM-TERM

GROWTH POTENTIAL

CORE ASSETS

Notes:

(1) The amount of capital expenditures for gas production project in Azerbaijan is in discussion (project finance is possible). Natural gas to toe conversion ratio – 0,8 t/1000 bcm. APG is converted to natural gas on the basis of

difference between sale price (4.8 times lower).

Strategic initiatives Production profile in 2017-25 (mtoe)

Involvement of P3 reserves

Vostochno-Kamennoye

Exploration projects

Orenburg assets

Producing assets in Russia

GEA

Sredne-Shapshinskoye

CORE ASSETS

Producing assets in

RussNeft portfolio and

international assets in

Azerbaijan

Maintenance of oil production at current levels on the

back of applying efficient drilling techniques,

sidetracking as well as wellwork techniques

Further implementation of cost savings initiatives

Maintenance of the current level of production under

PSA in Azerbaijan

Growth of gas production, including both natural gas

and associated petroleum gas

MEDIUM-TERM

GROWTH

POTENTIAL

Sredne-Shapshinskoye

field / Orenburg assets /

Achimovs deposits

Development of highly productive Achimovsk

formations at Tagrinskoye field applying multi-stage

fracturing technology

Intensive development of Sredne-Shapshinskoye

field with significant tax exemptions

Realization of synergies with Orenburg upstream

assets on the back of efficient project management

and portfolio optimization

LONG-TERM

GROWTH

POTENTIAL

Vostochno-Kamennoye

field, P3 reserves,

exploration projects and

gas project in Azerbaijan

Development of Vostochno-Kamennoye field

following launch of commercial production at the

assets, securing medium-term growth potential

Development of sizeable P3 reserves at RussNeft

brownfields and prospective areas (exploration

projects) should crude oil prices demonstrate steady

recovery

Development of gas and condensate deposit in

Azerbaijan discovered in 2015

Gas production project in Azerbaijan

Gas production (1)

(1)

–

5,0

10,0

15,0

20,0

25,0

30,0

35,0

0

2

4

6

8

10

12

14

2017 2018 2019 2020 2021 2022 2023 2024 2025

Capital expenditures, RUB bn (RHS)

14

Current strategy assumes significant oil production growth up to

11 mt by 2025 as well as growth in gas production

(1)

Tagrinskoye (Achimovs deposits)

0

Core assets

Strategic initiatives Management projections

Highly profitable

investments to

maintain current

production levels

Development of sizeable P2 reserves should crude oil

prices demonstrate steady recovery

Maintenance of the number of efficient production

enhancement operations at 500 per year

Maintenance of the current level of production under

PSA in Azerbaijan

Intensive new

drilling and

sidetracking

Development of assets with significant tax exemptions

and high flow rates (up to 180 ths tons per day)

Wells development using multi-stage fracturing

technology (4-9 stages)

Implementation of sidetracking program

Drilling of more than 150 wells by 2020

Over 350 sidetracking works by 2025

Implementation

of gas program

Total 2Р gas reserves of 35 bcm, 3P reserves of over

40 bcm

Successful implementation of production enhancement

operations in Western Siberia and Saratov region would

lead to increase in APG and natural gas volumes

Cost

optimization

initiatives

Decrease in drilling costs (reduction potential of

ca.10%)

Personnel costs optimization

Optimization of contractual terms for utilities, increase in

wells interrepair periods, etc.Decrease in cost

of wells

construction

Personnel costs

optimization

Other Total

Cost optimization

program

approved by the

Company’s

President

Cost optimization potential (RUBm per year)

54

125

179

Planned production2017-2025

Remaining 2Р reserves

Total

0,46 0,46 0,57 0,60 0,70 0,64 0,60 0,56 0,54

1,77 1,81 1,76 1,77 1,76 1,74 1,70 1,63 1,58

2017 2018 2019 2020 2021 2022 2023 2024 2025

Natural gas APG

Projected gas sales, bcm

2P reserves(1), mt

15

920-960940-1,040

2,890-3,0701,030-1,070

1 RussNeft + GEA 2P reserves reduced by 7.5 mt of production in 2016 and not including 2P reserves for Sredne-Shapshinskoye, Vostochno-Kamennoye, Achimov deposits at Tagrinskoye

deposit and Orenburg assets

Medium-term growth potential

Strategic initiatives Production profile (mt)

Development of

Achimov deposits

at Tagrinskoye

field

70-150 tons per day flow rates achieved following commencement of drilling atAchimov deposits applying multi-stage fracturing technology in 2016

Sizeable 2P reserves – 15.1 mt with 3P reserves of 20.0 mt

ca. 55 wells and 15 sidetracking operations in 2017-2019. Wells development usingmulti-stage fracturing technology (4-9 stages) with horizontal barrel length of 500-700 m

Tax exemptions due to geological complexity

Annual production is expected to grow up to 1.0 mt by 2019

Highly profitable

development of

Sredne-

Shapshinskoye

field

Key parameters:

2Р reserves – 10.5 mt, 3P reserves – 24.2 mt

High starting flow rates (36 tons per day) as a result of geological endexploration works in 2016

Low drilling costs

MET exemptions (zero MET rate 0%)

Up to 60 exploration wells to be drilled annually reaching with peak production of0,9 mt to be reached in 2021

Peak production of up to 1.5 mt should P3 be confirmed

Commercial viability of horizontal drilling as well as application of multi-stagehydraulic fracturing to be assessed

Realization of

synergies with

Orenburg assets

Key parameters:

5 producing fields with growing production


High initial flow rates - 35-55 tons per day for directional wells, 70-160 tons perday for horizontal wells using multi-stage fracturing technology

Low geological risks

Low transportation costs given proximity to end customers (Orsky oil refinery)

Production volumes of 1.1 mt projected to reached by drilling of up to 40 wells perannum at all fields

0,0

0,5

1,0

1,5

2,0

2017 2018 2019 2020 2021 2022 2023 2024 2025

Production based on 3P reservesProduction based on 2Р reserves

2P scenario assumed

in strategy

0,0

0,5

1,0

1,5

2017 2018 2019 2020 2021 2022 2023 2024 2025

16

0,0

0,5

1,0

2017 2018 2019 2020 2021 2022 2023 2024 2025

Long-term growth potential

Strategic initiatives Management projections

Development of

Vostochno-

Kamennoye field

Key parameters:


Well-studied geology

From 2019, drilling of up to 80 wells annually is assumed

reaching peak of 1.5 mt in 2026

Development of

P3 reserves at

producing field /

exploration

projects

Development of possible reserves

Substantial P3 reserves at producing fields – ca. 86 mt

Production is projected to grow up to 1.0-1.5 mt

annually by 2025 due to the involvement of

prospective areas with P3 reserves

Exploration projects

Additional geological exploration works at 4

prospective areas would ensure additional production

growth of ca.1 mt by 2025

Gas project in

Azerbaijan

Gas and condensate deposits were discovered in 2014

and confirmed in 2015 following drilling of exploration well

Should exploration works prove to be successful, annual

gas production may reach 1-1.5 bcm with potential drilling

of 10 exploration wells with insignificant operating costs

without material taxes

0,0

0,5

1,0

1,5

2017 2018 2019 2020 2021 2022 2023 2024 2025

Exploration

projects3D seismic

Exploration

wells

Production

wells

W. Uzunskiy 2017 2 24

Pikoviy 2018 2 32

Kh-Frolovskiy 2019 7 64

Yasnoye - 2 50

Production profile (mt)

0,0

0,5

1,0

1,5

2017 2018 2019 2020 2021 2022 2023 2024 2025

Production profile (bcm)

171 Including GEA and Orenburg assets; exlcluding Vostochno-Kamennoye deposit

Prospective exploration projects and estimated amount of drilling

Implementation of the Company’s strategy is based on experience and

expertise throughout value chain

Expertise in oil reserves replacement –

one of the highest RRR in the market

Ability to fulfill entire potential by

developing prospective projects

Maintenance of stable cash flows from

producing fields

▪ Effective conversion of P3 reserves into

2P reserves

▪ Proven track record of exploration

– Efficient seismic operations

– Discovery and development of highly

productive oil deposits

ProductionField developmentExploration and appraisal

▪ Launch of commercial production at

large fields in line with initial timeline

and budget

▪ Application of technologies to develop

hard-to-recover reserves

– Experience in achieving high flow

rates using multi-stage fracturing

– Effective implementation of modern

production enhancement

technologies

▪ Effective maintenance of brownfield flow

rates

▪ Successful implementation of production

enhancements

– Well costs control

– 10% increase in labor efficiency in

2015-2016

– Successful implementation of

technological improvements at

certain fields

18

Investment Highlights

19

20

Investment highlights

III

IV

VVIII

VII VI

I

II

Private company focused on increasing

shareholder value

Prerequisites for attractive dividends

policy

High share of tax exempt oil in

production and tax breaks of E&P

segment

Significant reserves base with high

reserves replacement ratio

Robust financials bolstered by stable

cash flows

Substantial production growth potential

from new assets

Balanced shareholding structureExperienced management team and

high standards of corporate governance

183%

167%

(26%)

116%

292%

-50% 0% 50% 100% 150% 200% 250% 300%

162

30

1814

11 235

West Siberia Volga Urals CentralSiberia

ForteInvest Internationalassets

Total 2P

One of the highest reserves-to-production

ratios in the industry

20

19

19

19

16

-23 -18 -13 -8 -3 3

21

One of the highest reserves replacement ratios

in the industry

I. Significant reserves base with high reserves replacement ratio

Notes: Reserves data as of 2015, assuming 100% shareholding(1) ForteInvest producing assets in the Orenburg region to be acquired by 1 April 2017

(2) Excluding the ForteInvest assets and assets in Azerbaijan

(3) Excluding any acquisitions

2P reserves, mt

Source: Company data, Miller & Lents reserves report as of 31 December 2015, Miller & Lents reserves for Tagrinskoye oilfield and Geoprogress (the Orenburg based assets) as of 1 August 2016

Balanced portfolio of producing assets

1P reserves-to-production ratio2 as of 2015, years 2P reserves replacement ratio2 as of 2015

(3)

One of the highest reserves-to-production and reserves replacement ratios among Russian oil &

gas companies

Highly effective geotechnical operations and successful execution of exploration program allow

RussNeft to grow the proved reserves base (1P) replacing continuously at least 100% of an

annual production with new 2P reserves securing a foundation for the future production

Diversified asset portfolio in key oil

provinces of Russia and in Azerbaijan

Significant reserves base upside potential

on the back of an effective exploration

program

(2) (2)

(1)

7,0 6,0 5,2

1,33,2

5,8

7,9 8,39,2

11,0

2015 2017F 2021F 2025F

22

II. Substantial production growth potential from new assets

Source: Company data, Miller & Lents reserves report as of 31 December 2015, Miller & Lents reserves for Tagrinskoye oilfield, Miller & Lents report for assets in Azerbaijan as of 1 January 2016

Core assets Mid-term growth potentialLong-term growth

potential

21 3 41

7.9 mt of crude oil produced in 2015 (3)

Maintaining production levels with new drilling, side-tracking and production

enhancement operations

More than 54 mt of crude oil to be produced in 2017-2025 out of 2P reserves and

3.5 mnt in 2022-2025 out of P3 reserves

More than 124 mt of 2P reserves to be involved into production additionally should

commodity markets demonstrate steady recovery

7

Production growth potential of 1 mnt by 2025 on the back of geological and

exploration works at Khantymansiysko-Frolovsky, Pikovy, West-Uzunsky licensee

areas and Yasny field (1)

4

Current production of 19 ths tonnes

Expected 2P reserves based production peak at 0.9 mnt in 2021

Production to reach a peak of 1.5 mnt should possible reserves be confirmed

5

Acquisition of ForteInvest producing assets to be completed before 1 April 2017

Expected production level of 0.5 mt in 2016, 0.34 mt in 2015

Expected 2Р reserves based peak production of 1.1 mt is expected in 2020

6

Current production of 3 ths tonnes

Field development to start in 2019 with expected production peak of 1.5 mn within

seven years

65

2

1.8 bcm of natural and associated gas were sold in 2015

2.3 bn rubles of gas revenues in 2015

Expected production plateau at 2.7 bcm per annum in 2021

3Р reserves, mtoe

(1) Potential production based on the management expectations

(2) Including production from Sredne-Shapshinskoye and Vostochno-Kamennoye fields, ForteInvest producing assets in the Orenburg region, expected production from exploration projects, development of P3 reserves and an expected production from drilling of the Achimov

deposits at Tagrinskoye field

(3) Including production of RussNeft, excluding Vostochno-Kamennoye, Sredne-Shapshinskoye oilfields and the expected production from drilling of the Achimov deposits on Tagrinskoye oilfield) and production from international assets in Azerbaijan

(4) Excluding gas projects in Azerbaijan

0,5 0,50,7 0,6

1,6 1,9

1,9 1,7

2,0

2,42,7

2,3

2015 2017F 2021F 2025F

Natural gas Associated gas

Oil & gas production outlook

Gas4, bcmOil, mnt

245

20

20

24

Sredne-

Shapshinskoye

Gas

program

2329

Additional

resource

potential1

Tagrinskoye,

Achimov

deposits

Forte

Invest

East-

Kamennoye

Currently

producing

assets

35

7

3 Expected peak production of 1.0 mnt in 2019 on the back of 55 drilled wells and 15

side-tracking jobs completed in 2017-2019

(3)

(2)

Notes:

(1) Operating and capital expenditures

(2) Calculation on the base of LTM EBITDA; net banking debt / EBITDA LTM calculation according to VTB facility agreement

Combined CAPEX and OPEX cost per tonne is 10% lower than the industry

average for Russian oil companies

Cost optimization program in place is aiming to decrease costs by 2.9-3.1 bn

rubles per annum till 2021 on the back of:

Reduction in drilling CAPEX by 10% or 920-960 mn roubles p.a.

Optimization of administrative costs by 20-30% or 940-1 040 mn roubles

p.a.

Service contracts terms improvement and liquidation of non-performing

wells, contributing together 1 030-1 070 mn roubles p.a.

One of the lowest marginal costs (1) per tonne in the Russian Oil &

Gas industry (rub./tonne)Focus on delevereging

III. Robust financials bolstered by stable cash flows

6 315

4 618 4 304 4 149

3 561

-

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

0

1000

2000

3000

4000

5000

6000

7000

8000

Лукойл Башнефть Газпром нефть Русснефть Роснефть

Effective debt management boosted the Company financial standing,

allowing to deleverage its balance sheet securing the Net Debt/EBITDA

ration of 3.1x:

In 2016: a US$1 bn debt conversion into equity

In 2015: a US$1.3 Glencore debt facility repayment

E&P segment as of 2015

Average 4 589 rub. /tonne

Source: Company data

23

Net bank debt/ EBITDA LTM(2) on financial covenants

1,6 1,5 1,9 1,2

3,0

4,5

2,5 1,6

1,6x2,0x

4,3x3,1x

2013 2014 2015 1H 2016Net banking debt Non-banking debt

13% 13%

23% 25%

87% 87%

77% 75%

2012 2013 2014 2015

24

IV. Tax exempt oil in production and tax breaks for E&P segment

Focus on the E&P segment allows the Company to maximize the tax maneuver

advantages to be crystallized in a 4bn RUB p.a. increase in operational cash

flows starting from 2017

7.5% savings in the MET due to the relevant tax breaks as of 2015

Netback is to grow in 2017 due to a decrease in an export duty from 42% to

30% and the corresponding decrease in the weighted-average export duty &

MET tax rate from 61% to 57% in the oil price

Under the tax regime in force, a share of tax breaks in the current oil price is to

grow by 3% by 2021

Note:(1) As of 2015

Share of production from oilfields with tax breaksTax regime

Reduction in MET due to the tax breaks (1), mn RUB

Source: Company data

Production with no tax breaks Production with tax breaks

46 566 1 483 1 072

952 12 43 047

MET Saratovskyblock

Ulyanovskyblock

Nizhnevartovskyblock

Tomskyblock

MET with taxbreaks

7.5% cost optimization of MET due to tax breaks

25

V. Private company focused on increasing shareholder value

Largest Russian private non-public oil company1

7.9 mnt of crude oil produced in 2015(1)

2P reserves of 221(1) mnt and a high reserves-to-production ratio

Regions of operations: Volga Urals, the Orenburg region(2), Western and Central Siberia in Russia and Azerbaijan

High financial discipline with OPEX and CAPEX3

CAPEX and OPEX cost per tonne is 10% lower than the industry average for Russian oil companies

Cost optimization program is in place aiming to decrease costs by 2.9-3.1 bn rubles per annum till 2021 on the back of an optimizing drilling CAPEX,

administrative costs and service contracts terms improvement

Strategic decision making and conservative investment policy coupled with detailed and balanced approach to new acquisitions4

More than 15 years of experience in oil assets consolidation

Recently approved a mid-term Company development strategy

Acquisition of the ForteInvest producing assets is a transaction of a strategic nature for RussNeft. Based on the 1H 2016 results, a positive gain will amount to:

+6% in production, +7% in revenue, +7% in EBITDA

Flexibility and efficiency in decision making with the best interest of shareholders2

Corporate structure conforms to the best international practices

Board of Directors includes non-executive directors – representatives from business and academic circles

Shareholders: the Gutseriev family and Glencore are actively involved in the management of the Company to insure its stable future

Focus on increasing shareholder value as the key point of development5

Dynamic growth of the Company and an effective capital management

Dividends policy complies with the best industry practices of oil & gas companies in Russia

Note:

(1) Excluding producing assets of ForteInvest, expected to be acquired by 1 April 2017

(2) Following the acquisition of ForteInvest producing assets in the Orenburg region

26

15 years of Glencore and RussNeft(1) partnership

VI. Balanced shareholding structure: Gutseriev family and Glencore

Assurance of financial discipline and

shareholder value creation2

Additional source of funding on

flexible competitive terms3

Adherence to the best standards of

corporate governance4

Additional assurance for protection

of minorities5

Access to the premium international

sales channels and best industry

practices1

From 2015 г. – present time

Glencore becomes a shareholder of RussNeft

2002 – 2005

Option for the

buyback of shares

in subsidiaries

Loan to

RussNeft

Control over the

Company by the

Gutseriev family

Gutseriev Family

Control of the Company by the

Gutseriev family and their

partners excluding the period

of 2007 – 2009

42-49%

shares

Loan to

RussNeft

Subsidiaries

51-58%

shares

2005 – 2015Gutseriev Family

46%

shares

54%

shares

01.2016 – 07.2016Gutseriev Family

25%

shares

75%

shares

from 07.2016Gutseriev Family

From 2004 – present time

Exclusive long term export agreement between RussNeft and Glencore

Capital structure

75%

25%

Equity capital

67%

33%

Ordinaryshares

Gutseriev family

294 mn of ordinary and 98 mn of preferred shares in the equity capital of RussNeft

Shareholders of RussNeft are represented by two groups: the Gutseriev family through a number

of legal entities and Glencore, an international trader

Gutseriev family is a selling shareholder at the IPO

Glencore supports the Gutseriev family decision to sell a stake in the Company and backs up

RussNeft to go public

Notes:

(1) The diagram represents share ownership in the equity capital of RussNeft

Corporate structure conforms with the

best practices and fully complies with the

MOEX corporate governance

requirements assigned for the Tier I

quotation list

Board of Directors

– Four non-executive directors

– All of the non-executive directors

approved by the MOEX

– BoD committees are incorporated in

accordance with the MOEX

requirements

IR-department is in charge of

communications with the investment

community

– Application of best information

disclosure practices to commence

an open dialogue with the

investment community and to build

up credibility with investors

27

Corporate structure

VII. Experienced management team and high standards of corporate

governance (1/2)

General Shareholder Meeting

Comments

Corporate Secretary

Internal Audit

Investor Relations

Board of Directors

Mikhail Gutseriev

Chairman of the Board

Oleg Gordeev

First Vice-President, RussNeft

Said Gutseriev

CEO, ForteInvest

Andrey Zarubin

CEO, Neftisa

Alexander Beard

Director, Glencore Energy UK

Vladimir Scherbak

Head of Representative Office,

Glencore Int.

Dmitry Romanov

Vice-President, RussNeft

Audit Committee

Compensation Committee

Andrey Derekh

Chairman of the Board, Investment

company Uniter

Viktor Martinov

Rector of Gubkin Russian State

University of Oil and Gas

Robert Skidelski

Professor, Political Economy at

University of Warwick

Sergei Stepashin

Russian public official

Independent directors

Mikail Shishhanov

President

PAO BINBANK

Sait-Salam Gutseriev

Co-owner of BIN Group

President

Senior Vice-President,

Economics and Finance

28

VII. Experienced management team and high standards of corporate

governance (2/2)

Management of RussNeft

Experience: 38+ years, 10+ years in the Company

Previously: Deputy Director of Federal Energy

Agency, Deputy Minister of Energy of the Russian

Federation

Oleg GordeevFirst Vice-President

Experience: 29+ years,

14+ years in the Company

Previously: Deputy Director of Monetary and

Finance Department of Slavneft

Olga ProzorovskayaSenior Vice-President

for Economics and Finance


2 years in the Company

Previously: Chief Geologist of Belkamneft

Mikhail SukhoparovVice-President for Geology and

Development


1 year in the Company

Previously: Deputy General Director for

Capital Construction of PAO Belkamneft

Alexandr PermyakovVice-president for Capital

Construction

Experience: 19+ years, 14+ years in the

Company

Ранее: Head of International Business

Department at Slavneft

Magomed-Ali EvloyevVice-President for Commerce


Company

Previously: the director of the Financial

Department at Sistema

Dmitry UstinovVice-President for Finance


Company

Previously: Director for Economy and

Finance at Slavneft

Andrei DokhlovVice-President for Economy and

Budgeting



Previously: Head of Corporate Relations

and Assets Management at Slavneft

Dmitry RomanovVice-President for Corporate Relations



Previously: Ministry of Internal Affairs of

the Russian Federation

Yuri DubrovskyVice-President for Security

Comments

One of the best

management teams in

the market with a long-

term experience in oil

& gas industry

High focus on

performance

excellence and deep

operational

understanding of

running oil & gas

companies

Proven experience

developing oil & gas

assets with complex

geology and tight

reserves

Source: the Company’s data


1 year in the Company

Previously: Senior Vice-president for

Production and Geology

Evgeny TolochekPresident, RussNeft

Experience: 14+ years

Previously: First Deputy General Director

− Chief Engineer at Bashneft-Dobycha

Alexander MalyshevVice-President for Production

29

Comments

VIII. Prerequisites for attractive dividends policy

CAPEX / Cash Flow from Operations (2015)

RussNeft plans to adhere by the best industry practices of oil &

gas companies in Russia

Growing cash flows from operations may allow the Company to

distribute a significant part of the generated cash flow among its

shareholders

Current reduction in debt burden to the Net Debt / EBITDA ratio

of 3.1x provides an additional confidence in the size of dividend

payments

RussNeft intends to reserve not less than 50% of its Net

Income remaining past financing of the investment program and

a repayment of the existing debt for the distribution of dividends

Size of Net Income shall be determined based on the financial

results according IFRS

0,3

0,4

0,7

0,7

0,7

1,2

0,00 0,20 0,40 0,60 0,80 1,00 1,20 1,40Source: Company data

Average: 0.65

RussNeft Financials

30

36 31

(26)

3 8

2013 2014 2015 1H 2015 1H 2016

27 2521

14 13

54

2

1 1

3229

23

15 14

2013 2014 2015 1H 2015 1H 2016

135

114105

5850

109 99

54 59

41

2013 2014 2015 1H 2015 1H 2016

31

Comments Revenue dynamics (RUB bn)

EBITDA(1) dynamics (RUB bn) Net income dynamics (RUB bn)

Financial results

27% 27% (25%) 5% 18%

Revenue reached RUB 50 bn (1H 2016), demonstrating a slight decrease

against 1H2015 despite the fact that Brent price fell by more than 30%

Successful implementation of the operational efficiency program would allow

to increase EBITDA margin in the medium-term

Net loss in 2015 was driven by foreign exchange losses (1H 2016 net income

margin was 10%)

RussNeft accumulated RUB 18 bn of deferred tax assets which will be used

against tax on future earnings bringing a positive effect on net income

Notes:

(1) Calculated as a sum of EBIT, depletion, depreciation and amortization without accounting for nonrecurring items (including foreign exchange differences)

Source: IFRS, BloombergNet income (loss) margin

20%24%

22%26%

20%22%

24%26%

26%29%

Margin (RussNeft)

Margin (incl. GEA)

EBITDA (GEA)

EBITDA (RussNeft)

Brent (US$ per barrel)

Notes:

(1) Includes commercial papers (165,4 mn US$) converted in 2016 in 1 common and 15 683 preferred shares (2) Net banking debt as of June 30 2016 (3) Calculation on the base of LTM EBITDA; net banking debt /

EBITDA LTM calculation according to VTB facility agreement 32

Comments

RussNeft implements successive policy of gradual deleveraging and debt

portfolio optimization:

- Currently 98% of total debt portfolio is a long-term debt

- Due to the restructure completed in 2016 net debt / EBITDA ratio

decreased to 3,1x (net banking debt / EBITDA LTM as of 1H 2016)

- Starting from July 2016 interest rate is determined as 3M LIBOR + 5%

RussNeft debt portfolio historically consisted of foreign currency debt which

had a material impact on debt burden in 2014-2015 because of rouble

devaluation against major currencies

VTB Group is a key lender and long-term partner of the Company

Debt structure

Weighted average interest rate dynamics Financial debt dynamics (US$ bn)

Debt portfolio

Total:

US$1.4 bn(1)

Net banking debt / EBITDA LTM(3) according to financial covenantsSource: IFRS, Company data

(2)

99%

1%

US$ RUB

98%

2%

Non-current debt

Current debt

1,6 1,5 1,9 1,2

3,0

4,5

2,5 1,6

1,6x2,0x

4,3x3,1x

2013 2014 2015 1H 2016

Net banking debt Non-banking debt

6,4%

7,0%

8,4% 8,1%

6,1%

2013 2014 2015 1H 2016 9M 2016

Appendix

33

34

Consolidated statement of profit or loss and other comprehensive

income

Metric, RUB mn 2013(1) 2014 2015 1H 2015 1H 2016

Revenue 135,322 113,503 104,790 58,403 49,955

Cost of sales (96,117) (81,071) (79,237) (40,704) (35,044)

Gross profit 39,205 32,432 25,553 17,699 14,911

Exploration expenses (350) (990) (946) (661) (375)

Commercial expenses (13,758) (10,495) (9,663) (4,938) (4,709)

General and administrative expenses (5,605) (4,525) (4,123) (2,631) (1,679)

Other operating expenses, net (3,949) (5,013) (1,117) (1,139) (797)

Operating profit 15,542 11,409 9,704 8,330 7,351

Finance income 5,510 11,531 21,101 11,036 2,297

Finance costs (11,593) (11,965) (22,561) (10,770) (7,685)

Foreign exchange (loss)/gain 2,898 16,549 (31,671) (1,072) 10,569

Share of loss of joint ventures and associates – (1,012) (2,558) (929) –

Profit before income tax 12,357 26,512 (25,985) 6,595 12,532

Income tax (1,815) 4,864 25 (3,528) (4,062)

Profit for the period from continuing operations 10,542 31,376 (25,960) 3,067 8,470

Discontinued operations

Profit for the period from discontinued operations after income tax 25,606 – – – –

Income/(loss) for the period 36,147 31,376 (25,960) 3,067 8,470

Other comprehensive income

Exchange difference on translation to presentation currency (4,140) (87,616) 49 2,859 390

Total comprehensive (loss)/income for the period 32,007 (56,240) (25,911) 5,926 8,860

Profit/(loss) for the period attributable to

Owners of the company 29,905 30,672 (27,650) 1,703 9,206

Non-controlling interests 6,242 704 1,690 1,364 (736)

Total comprehensive income/(loss) for the year attributable to

Owners of the company 28,982 (56,022) (26,779) 4,526 11,940

Non-controlling interests 3,026 (218) 868 1,400 (3,080)

Notes:

(1) Converted to RUB with an average exchange rate US$/RUB for 2013 of 31,8480 per 1 US$

Source: IFRS

35

Consolidated statement of financial positions (1/2)

Metric, RUB mn 2013(1) 2014 2015 1H 2015 1H 2016

Assets

Non-current assets

Property, plant and equipment 74,586 94,852 99,947 95,374 103,687

Other property, plant and equipment 4,942 4,754 5,107 4,747 4,641

Goodwill 13,552 13,726 13,730 13,726 13,545

Deferred tax assets 6,284 13,164 19,515 10,617 18,223

Exploration and evaluation assets 3,633 44 – 42 –

Other long-term financial assets 2,193 52,464 59,543 93,888 54,322

Investments in joint ventures and related financial assets – 2,361 – 1,431 –

Other non-current assets 491 141 302 292 224

Total non-current assets 105,681 181,506 198,144 220,117 194,642

–

Current assets –

Inventories 5,368 5,949 6,050 6,649 6,575

Trade and other receivables 6,317 5,929 5,082 5,166 5,173

Income tax prepayment 1,015 1,261 820 805 336

VAT prepayment 2,717 1,971 1,792 2,423 2,005

Other current financial assets – 310 – 10 –

Cash and equivalents 1,735 2,063 1,943 1,657 3,049

Other current assets 98 82 31 81 28

Total current assets 17,250 17,565 15,718 16,791 17,166

–

Total assets 122,931 199,071 213,862 236,908 211,808

Source: IFRS

Notes:

(1) Converted to RUB with an 2013 year-end US$/RUB exchange rate of 32,7292 per 1 US$

36

Consolidated statement of financial positions (2/2)

Metric, RUB mn 2013(1) 2014 2015 1H 2015 1H 2016

Equity attributable to owners of the company

Share capital 100 100 100 100 180

Additional paid-in capital – – – – 49,435

Reserve on exchange differences on translation to presentation currency (15,396) (102,090) (2,051) (99) 683

Retained loss (53,053) (22,469) (19,001) (119,771) (23,002)

Total equity attributable to owners of the company (68,349) (124,459) (20,952) (119,770) 27,296

Non-controlling interest 21,653 22,660 (1,680) 23,873 19,186

Total equity (46,696) (101,799) (22,632) (95,897) 46,482

Non-current liabilities

Borrowings 90,824 163,011 175,716 279,724 90,323

Deferred tax liabilities 4,869 5,366 5,546 5,359 5,927

Decommissioning provisions 2,618 2,967 4,973 3,932 8,239

Other non-current liabilities 65 135 1 6 –

Total non-current liabilities 98,376 171,479 186,236 289,021 104,489

–

Current liabilities

Borrowings 6,153 87,764 3,221 2,666 12,655

Trade and other payables 57,603 34,881 41,191 32,505 41,376

Tax payable (except for income tax) 7,397 6,098 5,000 8,203 6,621

Income tax payable 33 90 8 39 5

Other current liabilities 65 558 838 371 180

Total current liabilities 71,251 129,391 50,258 43,784 60,837

Total equity and liabilities 122,931 199,071 213,862 236,908 211,808

Source: IFRS

Notes:

(1) Converted to RUB with an 2013 year-end US$/RUB exchange rate of 32,7292 per 1 US$

Consolidated statement of cash flows (1/2)

Metric, RUB mn 2013(1) 2014 2015 1H 2015 1H 2016

Cash flows from operating activities

Profit from continuing operations before income tax 12,357 26,512 (25,985)

Profit from discontinued operations before income tax 25,701

Profit before tax 38,058 26,512 (25,985) 6,595 12,532

Adjustments for:

Depletion, depreciation and amortization 7,994 9,533 10,581 5,699 5,423

Loss (profit) on disposal of property, plant and equipment (159) (9) 59 42 141

Goodwill impairment 1,656 – – – –

Impairment of financial investments – 23 35 14 71

Impairment / (reversal of an impairment loss) of property, plant and equipment (796) 4,561 566 864 (40)

Impairment of exploration and evaluation assets – – – – –

Change in provisions 159 (141) (361) (243) 153

Gain from bargain purchase – (236) – – –

Loss of joint ventures and associates – 1,012 2,558 929 –

Gain of disposal of subsidiary (15,287) 4 – – 183

Finance income (5,510) (11,531) (21,101) (11,036) (2,297)

Finance costs 11,593 11,965 22,561 10,770 7,685

Foreign exchange difference (2,898) (16,549) 31,671 1,072 (10,569)

Other operating expenses (622) (1,154) 494 (384) 9

Operating cash inflows before working capital adjustments 34,141 23,990 21,078 14,322 13,291

Working capital adjustments

Change in inventories (318) 403 84 (690) (705)

Decrease in trade and other receivables 223 3,059 1,305 84 (477)

Increase in trade and other payables 1,688 9,185 5,329 (1,607) (1,590)

Decrease in other current assets – 133 54 (15) 10

Income tax paid (6,370) (2,537) (1,155) (326) (786)

Net cash flows (used in)/from operating activities 29,364 34,233 26,695 11,768 9,743

Notes:


Source: IFRS

37

Consolidated statement of cash flows (2/2)

Metric, RUB mn 2013(1) 2014 2015 1H 2015 1H 2016

Cash flows from investing activities

Payments for acquisition of property, plant and equipment (16,147) (16,147) (10,077) (5,262) (5,449)

Proceeds from disposal of property, plant and equipment 223 143 103 7 51

Acquisition of subsidiaries, net of cash (2,643) (1,941) (933) (356) –

Acquisition of associates and joint-ventures, net of cash – – – – –

Proceeds from disposals of subsidiaries 62,836 – – – –

Loans provided (2,102) (8,556) (37,321) (37,229) (18)

Loans received – 174 75,050 – 26

Interests received 733 544 14,178 – –

Net cash used in investing activities 42,899 (25,783) 41,000 (42,840) (5,390)

Cash flows from financing activities

Share repurchases by subsidiaries from non-controlling shareholders (382) (113) (5,488) (8) –

Proceeds from loans and borrowings 54,715 1,672 136,466 115,125 48,869

Repayments of loans and borrowings (120,768) (4,371) (184,068) (79,769) (46,346)

Interest paid (7,389) (6,465) (15,089) (5,659) (4,452)

Dividends to non-controlling equity (32) (34) (13) – 0

Net cash generated from/(used in) financing activities (73,856) (9,311) (68,192) 29,689 (1,929)

Effect of exchange rate changes on cash and cash equivalents (64) 1,189 377 977 (1,318)

Net decrease in cash and cash equivalents (1,656) 328 (120) (406) 1,106

Cash and cash equivalents at the beginning of the period 3,344 1,735 2,063 2,063 1,943

Cash and cash equivalents at the end of the period 1,735 2,063 1,943 1,657 3,049

Notes:


Source: IFRS

38

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