sustainability report 2011 - gazprom neft

THE GLOBAL OUTLOOKSUSTAINABLE DEVELOPMENT REPORT 2011

1JSC GAZPROM NEFTSUSTAINABILITY REPORT 2011

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Welcome to the latest Sustainable Development Report from Gazprom Neft. Our Company has published Sustainable Development Reports concurrently with Annual Reports each year since 2008. The purpose of the Reports is to improve transparency by complementing information on our operational and financial performance with an insight into the principles and practices which we use to address social and environmental issues, and into implementation by our Company of its social responsibilities.

The Report provides information about Gazprom Neft, its subsidiaries and associ-ates (‘Gazprom Neft’, ‘the Company’, or ‘the Group’) for the 2011 calendar year. The Report presents our Company’s financial situation and operating results based on consolidated data. The Report draws on management and audited financial accounts of JSC Gazprom Neft compiled using Russian Accounting and US GAAP standards. Data on the Company’s social and labour relations and its environmental protection activities comprise Gazprom Neft, its subsidiaries and its associates based in Russia and in the CIS countries, unless otherwise indicated. The data were gathered and organised using corporate information systems by specific areas of activities, based on information requests compiled in accordance with the GRI-G3 recommendations and also based on previous Company experience of drafting annual sustainable development reports.

Preparation of this Report has been guided by version G3.1 of the Sustainability Reporting Guidelines, provided by the Global Reporting Initiative (GRI), which represent the latest internationally accepted standards for reporting in the sphere of sustainable de-velopment. As in previous issues, this Report is guided by Level-B GRI requirements, which calls for broad disclosure including both stan-dard performance indicators and manage-ment approaches1.

Some indicators from the GRI Oil and Gas Sector Supplement were also used, and the Report covers all the areas of social responsibility that are required by ISO 26000:2010 Guidance on Social Responsibility.

Preparation of the Report was com-bined with an internal self-assessment by the Company of its compliance with the so-cial responsibility principles enshrined in ISO 26000:20102. The assessment consid-ered how the Company’s mission, strategy, corporate culture and policies measure up to the Standard, and the extent to which the Standard is applied in organising practical activities in specific fields. Application of the provisions of ISO 26000:2010 is high-lighted in the relevant sections of this Report.

Attention to sustainable development issues is important both for achieving the Company’s strategic objectives and for meeting the information needs of stake-holders concerning economic, social and environmental aspects of Company opera-tions. The reader is referred to the Table of Contents for the range of topics covered by the Report. Selection of subject matter for the Report was guided by the provisions of ISO 26000:2010, GRI Sustainability Reporting Guidelines, and understanding of informa-tion needs as a result of interaction with key stakeholders in 2011.

ABOUT THE REPORT

1 A table is provided in Appendix 2 specifying where information corresponding to the standard elements of GRI-G3 reporting can be found in this Report. 2 The self-assessment made use of recommendations by the Russian Union of Industrialists and Entrepreneurs regarding conduct of internal self-assessment of company

activities in accordance with the social responsibility principles of ISO 26000:2010 Guidance on Social Responsibility, published in 2011.

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2 JSC GAZPROM NEFTSUSTAINABILITY REPORT 2011

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In order to meet these needs the Report pays special attention to issues of access to management and specific stakeholder inter-action practices. The scope of the Report was broadened in a range of areas by the inclu-sion of data on associate companies.

The Report has undergone an indepen-dent expert review by an international group of leading specialists in social responsibility and sustainability reporting. Opinions of the independent experts are published in Appendix 1 to the Report.

The Report is published in Russian and in English. It is also available online via the Company’s website.

STRUCTURE OF CONTENTS OF THE REPORT ACCORDING TO ISO 26000:2010 REPORT RECOMMENDATIONS REGARDING CORE ISSUES AND ASPECTS OF COMPANY PRACTICE

Core issues to be addressedby an organisation accordingto ISO 26000

Main issues (aspects) of Company practice coveredby the Report

Organisational governance • Governance principles: accountability, transparency, ethical behaviour, respect for stakeholder interests, respect for the rule of law, respect for international norms of behaviour and respect for human rights

• Due diligence• Management, decision-making processes and structures

Human rights • Fundamental principles and rights at work• Economic, social and cultural rights• Resolving grievances• Civil and political rights

Labour practices • Employment and employment relationships• Conditions of work and social protection• Social dialogue• Health and safety at work

The environment • Prevention of pollution• Sustainable resource use• Climate change mitigation• Protection of the environment, biodiversity and restoration

of natural habitats

Fair operating practices • Anti-corruption• Responsible political involvement• Promoting social responsibility in the value chain

Consumer issues • Protecting consumers' health and safety• Consumer service, support, and complaint and dispute resolution• Education and awareness

Community involvementand development

• Community involvement• Education and culture• Employment creation and skills development• Technology development and access• Wealth and income creation • Health• Social investment

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TABLE OF CONTENTS

ABOUT THE REPORT 1

ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORS 4

ADDRESS BY THE CHAIRMAN OF THE MANAGEMENT BOARD 6

ABOUT THE COMPANY 9Mission & Strategy 10Core Business & Operating Geography 11Geography of Operations by Gazprom Neft 12Company’s Sales Activity 13Company Structure 14Operating & Financial Performance in 2011 18Main Events in 2011 19Key Performance Indicators of Gazprom Neft in 2009-2011 20Exploration & Productionof Crude Oil & Gas 23Crude Oil Refining, Sales & Marketing 23Innovation 26Outlook: Plans for 2012 27

SUSTAINABLE DEVELOPMENT STRATEGY 28Sustainable Development & Social Responsibility 28Strategic Challenges & Benchmarks in Sustainable Development 30

SUSTAINABLE DEVELOPMENT MANAGEMENT & STAKEHOLDER ENGAGEMENT 34Corporate Governance 34Risk Management 38Stakeholder Engagement 39Corporate Culture 48Corporate Communications 50Development of Sustainability Reporting 53

HUMAN RESOURCES DEVELOPMENT 56Description of Company Personnel 57Personnel Management 58Remuneration & Social Guarantees 61Working with Trade Unions 65Training & Development 66Creating a Succession Pool 69Working with Young Professionals 70Outlook: Plans for 2012 71

SECURE DEVELOPMENT: HEALTH SAFETY & ENVIRONMENT 72Management Approaches 73

IMPLEMENTATION OF MID-TERM HSE GOALS IN 2011 77Health & Safety 78Reduction of Negative Impact on the Environment & Efficient Use of Resources 79Energy Consumption & Energy Efficiency 89Outlook: Plans for 2012 90

REGIONAL POLICY & LOCAL COMMUNITY DEVELOPMENT 92Gazprom Neft & Russian Regions 92Governance 94Socio-economic Agreements with Russian Regions & Municipal Entities: Developing Strategic Partnership 97Greater Efficiency of Social Activities in Russian Regions 102Charity 106Development 106Public Recognition 108Outlook: Plans for 2012 109

APPENDIX 1 110OPINIONS BY INDEPENDENT EXPERTS ON THE GAZPROM NEFT 2011 SUSTAINABLE DEVELOPMENT REPORT

APPENDIX 2 114GRI CONTENT INDEX

APPENDIX 3 122SELECTED TERMS & ABBREVIATIONS

CONTACTS & FEEDBACK 124


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are helping to reduce our environmental footprint. The successful transition of Company refineries to production of top-grade eco-friendly fuels also marks an im-portant step forward in combatting pol-lution. Gazprom Neft worked to improve corporate transparency and disclosure of information to stockholders and inves-tors in 2011, and our practice in applying international standards of social responsi-bility reached new levels. I am convinced that all these efforts are of the greatest importance in achieving Gazprom Neft ’s plans and strategic goals.

ADDRESS BY THE CHAIRMAN OF THE BOARD OF JSC GAZPROM NEFT

Gazprom Neft ’s business results broke a number of records in 2011. Our rate of production growth, for example, was the highest in the Russian oil and gas industry. We made rapid progress in the refining segment and in sales of fuel, particularly through premium distribution channels, and we substantially broadened the geography of our operations. These results offer the best possible proof of our Company’s leadership potential. The achievements of 2011 represent a major step towards the goals set out in our long-term development strategy, and provide a f irm foundation for further business growth and increase of our capitalization.

While we were helped by the favorable market situation last year, our staff also made an equally important contribution to our success through their professional-ism, dedication and focus on results.

Gazprom Neft continued its system-atic work in developing the Company’s hu-man potential in 2011, installing the latest HR management systems, and adopting new programs for training and retrain-ing. We continued to accord the highest priority to issues of safety in the work-place. As a socially responsible Company, Gazprom Neft has agreements with regional authorities to implement large-scale social projects that offer major benefits in locations where the Company has operations. The environmental safety management system at Gazprom Neft ensures control over environment-related risks. Funds invested in innovative development programs for oil production and refining, and programs being carried out to upgrade our production capacity,

ALEXEY MILLERChairman of the Board of Directors of JSC Gazprom Neft

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Gazprom Neft raised all aspects of its business to new levels in 2011. Oil and gas production increased by 8%, refining vol-umes grew by 7%, and the volume of sales via premium channels was 38% greater than in 2010.

These achievements were made possible by favorable market conditions and consistent implementation of the Company’s long-term strategy to double key production indicators and to retain leadership in the Russian oil and gas industry as measured by operational and financial efficiency.

Our Company led the Russian industry in 2011 in terms of hydrocarbon production growth rate, and we expanded the geogra-phy of our business by entering a new pro-duction area — Orenburg Region. Work con-tinued upgrading our refining assets in order to improve the quality of our petroleum products and to produce engine fuels in higher environmental classes. The Company expanded its filling station chain in Russia and abroad, became the leader in gasoline and aviation fuel supplies in the domestic market, and substantially increased its presence in the lubricant and bunker fuel segments. These results reflect the profes-sionalism, efficiency and accountability of all the Company’s employees.

Gazprom Neft acknowledges the close relationship between business efficiency and social responsibility. Professional develop-ment and social protection of our employees, minimization of environmental impact from operations, and support for the socio-eco-nomic development of the regions where we operate are unconditional Company priorities. Our new projects undergo thorough environ-mental and social impact analyses in consulta-tion with all stakeholders at the planning and development stage.

The Company offers extensive profes-sional and career development opportuni-ties to its employees. In 2011, it designed and implemented five new professional training programs based on up-to-date training techniques. A program is underway to create a pool of executive employees who can succeed to top management positions. By the end of 2011, there were 1,373 such employees in this category. Total invest-ments in personnel rose by 11.5% in 2011 to a level of RUB 45.3 billion.

Organization of a large number of sports and recreation events provides further impor-tant evidence of Gazprom Neft’s concern for its employees: the number of Company em-ployees participating in such events increased by 14% in 2011 compared with 2010.

Gazprom Neft wants to become an international oil industry leader in terms of industrial and environmental safety. The Company carefully monitors the en-vironmental context of its operations, and implements a set of programs that seek to reduce negative impacts. Expenditures by Gazprom Neft on environmental secu-rity totaled RUB 3,656.7 million in 2011. The Company works particularly hard at raising levels of employee know-how in oc-cupational and environmental safety.

The principles of social responsibility and sustainable development are deeply ingrained in Gazprom Neft’s corporate culture. The Company’s employees share these prin-ciples and play an active part in implementing socially important programs and supporting social projects as volunteers. Over 3,000 of the Company’s employees took part in volun-teer programs during 2011.

Gazprom Neft has a tradition of holding corporate forums and informal dialogues between management and employees to address topical issues in Company business. The Company’s 2011 corporate forum gathered 350 delegates from all of the enterprises within Gazprom Neft Group. A number of the propos-als, which were put forward by employees at the forum, are already being implemented.

ADDRESS BY THE CHAIRMAN OF THE MANAGEMENT BOARD

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As a major employer and taxpayer, the Company makes a substantial contri-bution to socio-economic development of the regions in which it operates. Total tax payments by Gazprom Neft to federal, regional and local budgets were RUB 590 bil-lion in 2011. The Company cooperates with local authorities to address socio-economic and environmental problems. A total of 26 partnership agreements were signed between Gazprom Neft and Russian regional and municipal entities during 2011. The agreements will help to develop eco-nomic potential and social infrastructure,

and to resolve environmental issues in Russia’s regions. Gazprom Neft is also financing a number of socially important projects, including construction of sports centers in the towns of Noyabrsk and Tarko-Sale, a residential complex in Muravlenko, and a new type of pre-school center in Khanty-Mansiysk. The Company spent a to-tal of RUB 1,440 million on regional social projects in 2011.

Gazprom Neft has set highly ambitious targets for its operations. The Company intends to retain leading positions in oil field development in the northern territories of

ALEXANDER DYUKOVChairman of the Management BoardJSC Gazprom Neft

Yamalo-Nenets Autonomous District; to ensure rational sub-soil use in established production areas; to expand the scope of activities outside the Russian Federation; and to improve the quality of its crude oil product outputs and achieve greater depth of oil refining.

We will also maintain our efforts to en-sure a steady improvement in the welfare of the Company’s many stakeholders – includ-ing investors, employees, business partners, and residents of the regions in which we operate.


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ABOUT THE COMPANY

JSC Gazprom Neft, a subsidiary of OJSC Gazprom, is one of the larg-est Russian oil and gas companies. As of the end of 2011, Gazprom Neft was fifth largest in Russia by crude oil production and third larg-est by refining volumes and crude oil product supplies to the Russian market. Gazprom Neft is also one of the fastest growing oil and gas companies in Russia. 3 The rating is published annually by the Financial Times.

International comparisons place Gazprom Neft among the world’s 20 largest oil companies in terms of proven hydrocarbon reserves. An audit conducted by DeGolyer and MacNaughton found the Company to have proven reserves of 1 bn 130 mn tons of oil equivalent to PRMS standards as of year-end 2011, and our reserve replacement rate in 2011 exceeded 286%. The Company employs about 59,000 people. Gazprom Neft shares circulate in Russia on the main trading floors of OJSC MICEX-RTS: MICEX and RTS. Market capitalisation of the Company was USD 23.68 bn as of December 31, 2011. Gazprom Neft entered an annual rating of the world’s largest companies by market capitalisation for the first time in 20113.


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MISSION & STRATEGY

The Company has formulated its mission to reflect the expectations of all stakeholders (stakeholders, customers, partners, state and society, employees), with main emphasis on growth, efficiency, and responsibility.

The Development Strategy, which Gazprom Neft adopted in 2010, defines core business principles, goals, develop-ment directions and target performance results for the parent company and for Group subsidiaries and associates. Gazprom Neft aims to become a Russia-based, internationally present company with a geographically diversified asset portfolio across the entire value chain, taking an active part in the development of regions where it has operations, and adhering to principles of social and envi-ronmental responsibility.

The future of the Russian oil sector depends on the ability of companies to meet growing demand for their outputs in a context where crude oil production is be-coming more difficult and quality require-ments for refined products are becoming more exacting. The most urgent tasks in crude oil production are to boost recovery efficiency at established fields, where the resource base is already depleted, and to develop new fields in remote regions and offshore. The key tasks in refining are to upgrade capacities and achieve greater refining depth, boosting yields of light petroleum products. Gazprom Neft’s strategy is designed to address the chal-lenges which face the entire Russian oil industry, and thereby contribute to ensur-ing growth of the industry in the medium and long term.

THE MISSION OF GAZPROM NEFT

supply high-quality fuels to consum-ers, to conduct its business honestly and responsibly, to take care of its employees, and to achieve leadership by criteria of business efficiency, thus securing long-term and balanced growth.

BUSINESS TARGETS

Production 100 MN T OF CRUDE OIL PER YEAR• Reserves-production ratio – 20 years• Share of production at fields in initial stages of development – at least 50%• Share of production in foreign projects – 10%

Refining 70 MN T OF CRUDE OIL PER YEAR• Up to 40 mn t per year in the Russian Federation and up to 30 mn t per year abroad• Increasing depth of refining in Russia to 90%• Boosting the yield of light petroleum products in Russia to 77%

Sales to end-users 40 MN T PER YEAR IN RUSSIA & ABROAD, including: • 12 mn t in retail sales through filling stations (of which 8.2 mn t in Russia and CIS)• 18 mn t of aviation fuel, bunkering, lubricants, etc.• 10 mn t small wholesale batches to large end-users

Large-scale business expansion should achieve the highest total returns to shareholders of any Russian oil company by 2020 and ensure that Gazprom Neft remains one of the Top-3 Russian VIOCs by criteria of business eff iciency.


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HYDROCARBONS PURCHASE

PRODUCTIONIN RUSSIA

PRODUCTION ABROAD

SALES OFHYDROCARBONSREFINING

REFINING ABROAD(NIS)

RUSSIANFEDERATION

REFINING IN RUSSIA(Omsk refinery, Moscow

and Yanos refineries)

EXPORT

EXPORT

SALE OF PETROLEUM PRODUCTS

PURCHASE OF PETROLEUM

PRODUCTS

SALE OF PETROLEUM PRODUCTS

PRODUCT BUSINESS UNITSEXPORT OTHER CONSUMERS

IN RUSSIA

LARGE INDUSTRIALCONSUMERS & GOVERN-

MENT SUPPLIES

PETROLEUMPRODUCTS

LOCAL MARKET(Serbia)

BITUMENMATERIALS BUNKER FUELAVIATION FUELLUBRICANTS/OILSPETROCHEMICALS

The core business areas of Gazprom Neft are as follows:• exploration, development, production and

sales of crude oil and gas;• production and sales of petroleum

products.Gazprom Neft comprises over 70 crude

oil production, refining and sales enterpris-es in Russia, the CIS and other countries. The businesses of these enterprises are linked by a principle of vertical integration.

CORE BUSINESS & OPERATING GEOGRAPHY

STRUCTURE OF COMPANY BUSINESS

Gazprom Neft sells petroleum prod-ucts throughout Russia via an extensive network of sales and marketing enterprises in Company ownership. At the end of 2011 the Company’s filling station chain (owned, leased and franchised) consisted of 1,670 stations in Russia, the CIS and Europe.

Gazprom Neft Group is also a large ex-porter of crude oil and petroleum products.

Gazprom Neft enterprises operate in the largest oil-and-gas bearing regions of Russia: Khanty-Mansiysk and Yamalo-Nenets Autonomous Districts, and Tomsk and Omsk Regions. The Company’s principal refining capacities are located in Moscow and in Omsk and Yaroslavl Regions. Gazprom Neft’s foreign assets include companies in Serbia, Italy and Austria. The Company is implementing production projects in Iraq, Venezuela, Cuba and Equatorial Guinea.


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GEOGRAPHY OF OPERATIONSBY GAZPROM NEFT

24

14

38

89

86

23

77 50

76

83

7072

56

55

Angola

Italy

Serbia

GEOGRAPHY OF PRODUCTION

24 Krasnoyarsk territory55 Omsk region56 Orenburg region70 Tomsk region72 Tyumen region86 Khanty-Mansiysk Autonomous District – Yugra89 Yamalo-Nenets Autonomous District Serbia Angola

GEOGRAPHY OF SUBSOIL USE

38 Irkutsk region23 Krasnodar territory24 Krasnoyarsk territory83 Nenets Autonomous District55 Omsk region56 Orenburg region14 Republic of Sakha (Yakutia)70 Tomsk region72 Tyumen region86 Khanty-Mansiysk Autonomous District – Yugra89 Yamalo-Nenets Autonomous District

OIL REFINING

77 Moscow 50 Moscow region55 Omsk region76 Yaroslavl region Serbia

LUBRICANTS

50 Moscow region55 Omsk region76 Yaroslavl region Serbia Italy

PRODUCTION OF BITUMEN MATERIALS

50 Moscow region55 Omsk region76 Yaroslavl region Serbia


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COMPANY`SSALES ACTIVITY

Belarus

24

38

7575

2827

65

25

79

89

23

26

95

915

16

30

6

5

77 50

47 78

7635

43

59

44

5360

67

39

69

373352

1358

73

4032

57 7146

4862

68

6364

31

61

8329

51

10

11

14

70

42

19

72

66

4574

56

22

54

86

55

Kyrgyzstan

Tajikistan

Kazakhstan

RETAIL SALES

22 Altai territory37 Ivanovo region40 Kaluga region42 Kemerovo region23 Krasnodar region24 Krasnoyarsk territory77 Moscow50 Moscow region52 Nizhny Novgorod region53 Novgorod region54 Novosibirsk region55 Omsk region78 St. Petersburg 47 Leningrad region66 Sverdlovsk region69 Tver region70 Tomsk region72 Tyumen region86 Khanty-Mansiysk Autonomous District – Yugra74 Chelyabinsk region89 Yamalo-Nenets Autonomous District76 Yaroslavl region Belarus Serbia

GAZPROMNEFT MARINE BUNKER

29 Arkhangelsk region30 Astrakhan region34 Volgograd region39 Kaliningrad region23 Krasnodar territory51 Murmansk region25 Primorsk rerritory16 Republic of Tatarstan61 Rostov region78 St. Petersburg 47 Leningrad region27 Khabarovsk territory76 Yaroslavl region

LARGE WHOLESALE

22 Altai territory28 Amur region29 Arkhangelsk region30 Astrakhan region31 Belgorod region32 Bryansk region33 Vladimir region35 Vologda region36 Voronezh region79 Jewish Autonomous region37 Ivanovo region38 Irkutsk region39 Kaliningrad region40 Kaluga region9 Republic of Karachayevo-Cherkessia42 Kemerovo region43 Kirov region44 Kostroma region23 Krasnodar territory24 Krasnoyarsk territory45 Kurgan region46 Kursk region48 Lipetsk region77 Moscow50 Moscow region51 Murmansk region52 Nizhny Novgorod region53 Novgorod region54 Novosibirsk region55 Omsk region56 Orenburg region57 Oryol region58 Penza region59 Perm region25 Primorsk territory60 Pskov region3 Republic of Buryatia

5 Republic of Dagestan6 Republic of Ingushetia10 Republic of Karelia11 Komi Republic13 Republic of Mordovia14 Republic of Sakha (Yakutia)15 Republic of North Ossetia – Alania16 Republic of Tatarstan19 Republic of Khakassia61 Rostov region62 Ryazan region63 Samara region78 St. Petersburg 47 Leningrad region64 Saratov region65 Sakhalin region66 Sverdlovsk region67 Smolensk region26 Stavropol territory68 Tambov region69 Tver region70 Tomsk region71 Tula region72 Tyumen region73 Ulyanovsk region27 Khabarovsk territory86 Khanty-Mansiysk Autonomous District – Yugra74 Chelyabinsk region95 Chechen Republic75 Chita region21 Chuvash republic89 Yamalo-Nenets Autonomous District76 Yaroslavl region Belarus

GAZPROMNEFT-AERO

28 Amur region32 Bryansk region36 Voronezh region75 Chita region42 Kemerovo region23 Krasnodar region24 Krasnoyarsk territory77 Moscow50 Moscow region51 Murmansk region54 Novosibirsk region55 Omsk region78 St. Petersburg 47 Leningrad region64 Saratov region69 Tver region70 Tomsk region73 Ulyanovsk region27 Khabarovsk territory74 Chelyabinsk region Kyrgyzstan Kazakhstan Tajikistan


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Most of the Company’s crude oil production operations in Russia are carried out by its three subsidiary operators: OJSC Gazprom Neft-Noyabrskneftegaz; Gazprom Neft-Khantos LLC; and Gazprom Neft-Vostok LLC. These production companies develop fields in Yamalo-Nenets Autonomous District and Khanty-Mansiysk Autonomous District, and in Omsk, Tomsk, Tyumen, Orenburg and Irkutsk Regions.

In addition to its own production, Gazprom Neft has a 50% share in the output of three associate companies: Slavneft; Tomskneft; and Salym Petroleum Development (SPD).

The Company’s key refining asset is the Omsk Refinery, which is among Russia’s most advanced refineries and one of the largest in the world. Installed capacity of the Omsk Refinery is 21.07 mn t of crude oil per year. Core products at Omsk include automotive gasoline, diesel fuel, bitumen for the construction industry and road building, fuel oil, aviation fuel, as well as a range of aromatic hydrocarbons, liquefied crude oil gases, various lubricating oils, additives, catalysts and other products.

Other refineries and petrochemical enterprises of Gazprom Neft are as follows: • OJSC Gazprom Neft-Moscow Refinery

carries out deep refining of crude oil into fuels and has installed input capacity of 12 mn t crude per year.

The refinery produces a wide range of petroleum products: gasoline, diesel fuel, aviation fuel, liquefied petroleum gases and road bitumen.

• OJSC Slavneft-Yaroslavnefteorgsintez (YaNOS), which is owned and managed jointly with TNK-ВР, is a producer of fuel and lube oil with deep crude oil refining capability and installed input capacity 15.2 mn t per year. YaNOS ranks fifth among Russian refineries by volume of primary crude oil refining. The company makes a broad range of petroleum products, from high-octane gasoline to high-quality bitumen.

In November 2011, Gazprom Neft-Lubricants LLC acquired CJSC NK Selekt, the owner of a lubricant production facility at Fryazino in Moscow Region. The newly-acquired asset has been renamed ‘Gazprom Neft Moscow Lubricants Plant’ (‘Gazprom Neft MLP’). It has annual production capacity in excess of 40,000 tons of packaged products, including engine oils, transmission fluids, industrial lubricants and technical fluids.

The largest foreign asset of Gazprom Neft is the Serbian oil and gas

COMPANY STRUCTURE


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• Three companies – CJSC Gazprom Neft Orenburg, Center for Science- Intensive Technologies LLC, and CJSC Yuzhuralneftegaz – were acquired.

• A lubricant producing facility was acquired in Moscow Region. The newly-acquired asset has been renamed ‘Gazprom Neft Moscow Lubricants Plant’ (‘Gazprom Neft MLP’).

company, Naftna Industrija Srbije (NIS), which explores and produces oil and gas in Serbia and is a party to several production sharing agreements and projects in Angola, Iraq, Libya, Venezuela and Equatorial Guinea. Refining facility of NIS consists of two refineries in Pancevo and Novi Sad which produce a full range of petroleum products, from automotive gasoline and diesel fuel to engine oils and raw materials for the petrochemical industry. Total input capacity of the two refineries is 5.3 mn t of crude oil per year. NIS is the largest oil company in the Balkans and one of the largest in South-Eastern Europe.

Gazprom Neft sells petroleum products in Russia and CIS countries through 15 sales and marketing subsidiaries, which supply petroleum products via wholesale and retail (filling stations).

The Company has four foreign sales and marketing companies in countries of the CIS Customs Union: Gazprom Neft-Kazakhstan LLP; Gazprom Neft-Tajikistan LLC; Gazprom Neft-Asia LLC (in Kyrgyzstan); and Gazprom Neft-Belnefteprodukt LLC (in Belarus).

• Four Balkan subsidiaries of NIS were established in Romania, Bulgaria, Bosnia and Herzegovina, in order to expand sales of crude oil, liquefied petroleum gas, fuels and lubricants in South-Eastern Europe. A NIS subsidiary in Hungary will carry out crude oil produc-tion operations.

Main changes to Company structure in 2011 were as follows:

• Spin-off of oil f ield service business from the Company was completed through sale of a number of subsidiaries (Noyabrskaya Tsentralnaya Trubnaya Baza LLC, Service Drilling Company LLC, Muravlenko Transportation Company LLC, SpetsTransService LLC, Kapitalny Remont Skvazhin-Service LLC, YamalServiceTsentr LLC, and Servisnaya Transportnaya Kompaniya LLC).


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COMPANY STRUCTURE

PRODUCTION

JSC Gazprom Neft-Noyabrskneftegas

Gazprom Neft-Khantos LLC

Gazprom Neft-Vostok LLC

Archinskoye LLC

JSC Meretoyakhaneftegaz

Sibneft-Yugra LLC

Zapolyarneft LLC

Gazprom Neft-Angara LLC

Gazprom Neft-Sakhalin LLC

OJSC Magma Oil Company

CJSC Gazprom Neft Orenburg

CJSC Siberian Geological Company

JSC Yuzhuralneftegaz

CJSC Center for Science Intensive Technologies

Gazprom Neft North Africa B.V.

Gazprom Neft Equatorial B.V.

Gazprom Neft CDP B.V.

Gazprom Neft Badra B.V.

Gazprom Neft Finance B.V.

JSC Gazprom Neft-Omsk Refinery

JSC Gazprom Neft-Moscow Refinery

LLC Gazprom Neft-Lubricants

Gazprom Neft Lubricants Italia Sp.A.

LLC Gazprom Neft Lubricants Ukraine

CJSC Gazprom Neft MZSM

Gazprom Neft Trading GmbhJSC Gazprom Neft-Omsk

CJSC Gazprom Neft-Kuzbass

JSC Gazprom Neft-Altay

LLC Gazprom Neft-Center

CJSC Munai-Mirza

LLC Gazprom Neft-Asia

JSC Gazprom Neft-Tumen

JSC Gazprom Neft-Chelyabinsk

LLC Gazprom Neft-Krasnoyarsk

JSC Gazprom Neft-Ural

CJSC Gazprom Neft-Northwest

JSC Gazprom Neft-Yaroslavl

JSC Gazprom Neft-Ivanovo

JSC Gazprom Neft-Novosibirsk

LLC Gazprom Neft-Belnefteproduct

JSC Gazprom Neft-Tajikistan

LLC Gazprom Neft-Kazakhstan

LLC Alliance Oil Asia

LLC Gazprom Neft-Nizhny Novgorod

CJSC Gazprom Neft-Mobile Card

JSC Mosnefteprodukt

LLC Moskovskaya Toplivnaya Kompaniya

JSC Moskovskaya Neftegazovaya Kompaniya

FOREIGN HOLDING

REFINING SALES LUBRICANTS CRUDE EXPORTS


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JSC Gazpromneft-Noyzbrskneftegazgeophisica

LLC Gazprom Neft-Nefteservice

JSC Gazprom Neft-Aero

LLC Gazprom Neft-Aero Murmansk

LLC Gazprom Neft-Aero Kyrgyztan

LLC Gazprom Neft-Aero Ulyanovsk

CSJC Gazprom Neft-Aero Novosibirsk (JV)

LLC Gazprom Neft-Aero Bryansk (JV)

LLC Gazprom Neft-Aero Chita (JV)

LLC Gazprom Neft-Aero Sheremetyevo (JV)

LLC TEC Severo-Zapad (JV)

LLC Gazprom Neft-Tomsk (JV)

CJSC Sovex (JV)

LLC Gazprom Neft-Aero Dushanbe (JV)

LLC Gazprom Neft-Aero Astana (JV)

CJSC Social and Business Centre Okhta

Gazprom Neftfinance LLC

Gazprom Neftenergo LLC

Gazprom Neft – ZS LLC

Gazprom Neft – NTTS LLC

Gazprom Neft – Invest LLC

Gazprom Neft Business Service LLC

Complex Galernaya 5 LLC

Gazprom Neft-Razvitie LLC

LLC Gazprom Neft Logistics

Sibir Energy Ltd

Naftna Industrija Srbije (NIS)

JSC NGK Slavneft

JSC Tomskneft-VNK

LLC SeverEnergiya

Salym Petroleum Development (SPD)

JSC Messoyzkhaneftegaz

LLC Gazprom Neft Marine Bunker

LLC Gazprom Neft Shipping

LLC Gazprom Neft Terminal Spb

OILFIELD SERVICES AND EXPLORATION AIRCRAFT REFUELING BOAT BUNKERING OTHER OPERATIONS MULTI-BUSINESS COMPANIES

JOINT VENTURES


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Gazprom Neft significantly increased its output levels in 2011 through acquisition of new assets and improvement of development efficiency at existing fields. Compared to 2010, hydrocarbon production volumes grew by 8.4% and refining volume by 6.8%. Gazprom Neft’s financial performance in 2011 was unprecedented in the history of the Company: EBITDA grew by 40,30%, and net profit was 70% higher y-o-y. Company revenues in 2011 grew by 34.3%. The Company’s sales network also developed successfully. Petroleum product sales volumes on the domestic market grew by 18,3% in 2011 against 2010. Gazprom Neft became the leader in automotive gasoline and aviation fuel supplies to the domestic market and significantly increased its share of the lubricant and bunker fuel segments.

Such results are a reflection of the favourable market environment, but they are also the fruit of further implementation of the Company’s long-term strategy to double key production indicators while retaining leadership

than in 2010. The growth was mainly due to refinery upgrade programmes, investments in development of NIS, and rapid expansion and rebranding of the f illing station chain.

Gazprom Neft made a number of acquisitions in 2011, the largest of which were shares in Sibir Energy, shares in Serbian NIS, and assets in Orenburg Region (the Tsarichanskoye and Kapitonovskoye f ields). A number of oil f ield service assets were sold. Total investments in asset acquisition net of proceeds from sale of the oil f ield service businesses were USD 1.0 bn. Investment in foreign projects and new asset development projects totalled USD 0.5 bn.

by operational and f inancial eff iciency. During the reporting year Gazprom Neft continued its work to create a platform for future development, investing in asset expansion and upgrading existing capacities.

In 2011 Gazprom Neft accounted for 9% of total Russian crude oil and gas production4 and 14.8% of the country’s refinery output5, as well as 6% of Russian crude oil exports via capacities of the national pipeline monopoly, Transneft6.

Investments by Gazprom Neft in 2011 totalled USD 5.5 bn. Capital investments in organic growth and asset maintenance were USD 4.0 bn in 2011, or 22% more

OPERATING & FINANCIAL PERFORMANCE IN 2011

4 Including production share in OJSC NGK Slavneft, OJSC Tomskneft VNK and SPD, but excluding foreign production (NIS). Data by INFOTEK.5 Including refinery share in OJSC NGK Slavneft, OJSC Gazprom Neft-Moscow Refinery, but excluding foreign refineries (NIS). Data by INFOTEK.6 Data by INFOTEK.


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MAIN EVENTS IN 2011

A new production cluster was created in Orenburg consisting of the eastern sec-tion of the Orenburg field (transferred to the Company by OJSC Gazprom) as well as the Tsarichanskoye and Kapitonovskoye fields.

The Omsk Refinery was the first refinery in Russia to process its billionth ton of crude oil.

A deal was closed to join an offshore project in Cuban territorial waters of the Gulf of Mexico.

Gazprom Neft refineries began production of fuels in Euro-4 and Euro-5 environmental classes.

Geography of the Company’s filling station chain was expanded by entry to a new region, the Southern Federal District of Russia. A total of 113 filling stations were acquired during the year in Novosibirsk, Chelyabinsk and Nizhny Novgorod Regions and in Krasnodar Territory.

Drilling operations began at the Badra field in Iraq.

Sales of premium motor fuels under the G-Drive brand started at filling stations in Company ownership.

The number of card holders in Gazprom Neft’s f illing station loyalty scheme rose to 1.9 mn.

3D seismic operations were carried out on the shelf of the Niger delta basin in Equatorial Guinea.


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Key financialindicators 2009 2010 2011

Change,2011/2010, %

Sales revenue, mn USD 24,305 32,912 44,172 34%

Adjusted EBITDA, mn USD 6,037 7,271 10,158 40%

Operating income, mn USD 3,461 4,673 6,979 49%

Income before tax, mn USD 3,915 4,279 6,831 60%

Net income, mn USD 3,026 3,151 5,352 70%

Net cash from operations, mn USD 3,499 5,391 6,001 11%

Capital investments, mn USD 2,635 3,301 4,029 22%

Dividends paid, mn USD 937 728 1,025 41%

Net debt, mn USD 5,445 5,427 5,775 6%

Average capital employed, mn USD 20,225 25,452 28,611 12%

Average stakeholders’ equity, mn USD 15,251 17,597 21,185 20%

Price per share at year-end, RUB (MICEX) 163.64 128.27 148.18 16%

Key financialratios 2009 2010 2011

Change,2011/2010, %

Base and diluted income per common share, USD per share 0.64 0.67 1.13 69%

Dividends per share*, RUB 3.57 4.44 – –

Return on average capital employed, % 15.44 15.83 20.98 5.15 pp

Adjusted EBITDA margin, % 24.84 22.09 23.00 0.91 pp

Adjusted EBITDA per barrel produced, USD per barrel 16.41 18.67 24.09 29%

Net income margin, % 12.76 10.45 12.65 2.2 pp

Net income per barrel produced, USD per barrel 8.43 8.83 13.25 50%

Return on equity, % 19.84 17.91 25.26 7.35 pp

Gearing, % 22.31 20.48 18.80 1.68 pp

Current liquidity ratio 1.15 1.44 2.05 43%

KEY PERFORMANCE INDICATORSOF GAZPROM NEFT IN 2009–2011

07 08 09 10 11

22,7

68

33,8

70

24,3

05

32,9

12

44,1

7244,172million USD

+34%

SALES REVENUE, mn USD

Source: Company data

07 08 09 10 11

5,31

6

5,48

3

3,49

9

5,39

1

6,00

16,001million USD

+11%

07 08 09 10 11

4,14

3

4,65

8

3,02

6

3,15

1

5,35

25,352million USD

+70%

Source: Company dataSource: Company data

NET CASH FROM OPERATIONS, mn USDNET INCOME, mn USD


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Key productionindicators 2009 2010 2011

Change,2011/2010, %

Proven reserves (including share in affiliates)

– oil, mn bbl 6,924 6,441 6,789 5%

– gas, bn ft3 3,231 6,511 9,182 41%

Hydrocarbon reserves, mn BOE 7,462 7,526 8,319 11%

Crude oil production by consolidated subsidiaries, mn bbl 225 230 233 1%

Crude oil production including share in production of associates, calculated by share in equity, mn bbl 349 366 368 1%

Marketable gas production by consolidated subsidiaries, bn m3 2.1 3.1 7.9 154%

Marketable gas production including sharein production of affiliates, calculated by share in equity(Slavneft and Tomskneft), bn m3 3.2 4.0 9.1 127%

Marketable hydrocarbon production, 000 BOE/day 1,008 1,067 1,.155 8%

Oil refining

– at own refineries, mn t 26.6 30.8 33.1 7%

– at contracted refineries, mn t 6.8 7.2 7.4 3%

Crude exports

– to non-CIS countries, mn t 15.6 15.9 13.1 18%

– to CIS countries, mn t 3.3 3.0 3.0 –

Sales of crude oil in Russia, mn t 0.25 0,01 0.20 –

Sales of gas, bn m 3.4 4.9 9.3 88%

Exports of petroleum products

– to non-CIS countries, mn t 13.7 14.9 15.1 1%

– to CIS countries, mn t 1.9 1.7 2.1 21%

Sales of petroleum products in Russia, mn t 17.4 20.5 24.3 18%

Number of filling stations (owned, leased and franchised) 1,546 1,596 1,670 5%

07 08 09 10 11

6,60

1

8,61

0

6,03

7

7,27

1

10,1

5810,158million USD

+40%

ADJUSTED EBITDA, mn USD


07 08 09 10 11

12.4

8

13.0

1

8.43

8.83

13.2

513.25USD per barrel

+50%


NET INCOME PER BARREL PRODUCED, USD per barrel

07 08 09 10 11

20.5

6%

10.0

8%

22.3

1%

20.4

8%

18.8

0%18.80persent

–1.68 pp

GEARING, %


* Dividends for 2011 had not been announced as of the Report signing date.


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NOVOPORT PROJECT

ORENBURG PROJECT

EQUATOR PROJECT

SEVER ENERGY PROJECT

BADRA PROJECT

JUNIN-6 PROJECT

CUBA PROJECT

MESSOYAKHA PROJECT

INTENSIVE WORK IS CONTINUING ON LARGE-SCALE PROJECTS

CUBA PROJECT• Drill first exploration well• Project review based on drilling

results

ORENBURG PROJECT• Integrate new assets• Drill pilot wells • Design a development concept

JUNIN-6 PROJECT• Geological survey, geological

studies• Pilot production• Technological scheme of OPR

development• Upgrader design

NOVIYPORT PROJECT• Prepare a test production

schedule • Begin test production drilling • Launch phase one of the central

oil collector

EQUATOR PROJECT• Preparations for drilling• 3D reservoir modelling

SEVERENERGIA PROJECT• Implement the geological

survey program • Launch a gas ttreatment unit• Drill test oil wells • Commence gas production

BADRA PROJECT• Drill wells• Design and build main rigs

and oil pipeline

MESSOYAKHA PROJECT• Prepare a test production

schedule• Carry out the geological survey

program• Field construction plans


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EXPLORATION & PRODUCTION OF CRUDE OIL & GAS

Gazprom Neft and its fully controlled subsidiaries completed construction of 25 appraisal, prospecting and exploration wells at their license areas during 2011, and 18 of the new wells gave commercial hydro-carbon inflows. Total exploration drilling in 2011 was 59,136 m (not including metres drilled by the Center for Science-Intensive Technologies), which is comparable with levels in 2010. Exploration drilling in 2011 led to discovery of the Myginskoye oil field with С

1+С

2 crude oil reserves of 2 mn t, and

the Ignyalinskoye oil and gas condensate field with С

1+С

2 crude oil reserves of over

40 mn t and gas reserves of 20 bn m3. Gazprom Neft and its subsidiaries also discovered 23 new oil and gas deposits at the Ety-Purovskoye, Vyngapurovskoye, Priobskoye, Urmanskoye, Vakunayskoye, and Tympuchikanskoye fields with recover-able С

1 crude oil reserves of 9.4 mn t and

С2 reserves of 17.2 mn t. Total increase of

the Company’s crude oil reserves in indus-trial categories was 62.7 mn t in 2011.

Gazprom Neft’s proven SPE hydrocar-bon reserves increased by 164 mn TPE in 2011 due to revision of reserves and new acquisitions by the Company (the Orenburg field group). Replacement of production by proven hydrocarbon re-serves was 214% in 2011.

Gazprom Neft retained its positions in 2011 as a Russian industry leader by levels of crude oil and gas production.

Gazprom Neft has a number of major ongoing production projects outside Russia. It is intended that international assets of the Company should account for about 10% of its consolidated hydrocar-bon production by 2020.

The Company is rapidly developing its gas production business in order to commercialize associated and natural gas reserves at oil f ields and thereby add value. In 2011, aggregate produc-tion/use of gas by Gazprom Neft Group (including shares in production by JVs) was 9,067 mn m3 (0.88 mn ft3/day). Deliveries by the Company of marketable gas (after own consumption, injection into strata and transport losses) stood at 8,544.5 mn m3 (0.663 mn ft3/day).

CRUDE OIL REFINING, SALES & MARKETING

Gazprom Neft showed one of the highest rates of growth in refining among Russian oil companies in 2011. Inputs to Company refin-eries grew by 6.8% in the reporting year, from 37.9 to 40.5 mn t of crude oil. The Company is implementing a large-scale program to upgrade and renovate capacities and to build new installations, with the target of increasing the depth of refining to 90-95% and raising yield of light petroleum products to 77%. The program will raise process technologies at Company refineries to best international levels by all main criteria, including environ-mental and safety criteria.

The Omsk Refinery completed the first stage of reconstruction of its KT-1/1 catalytic cracking facility in 2011. Work was also carried out at Omsk on hydrotreatment units for catalytic cracking gasoline and for diesel fuel, a project was launched to build a deep refining facility for crude oil, and the Refinery began production of polymer bitumen materials. The Moscow Refinery began construction work on isomerisation and gasoline hy-drotreatment units and reconstruction of a diesel fuel hydrotreatment unit. The YaNOS Refinery completed construction work on new isomerisation and gasoline hydrotreat-ment units in 2011. Completion of these projects will increase output of high-octane gasoline, which complies with the Russian Government’s Technical Regulations for fuel quality.

The Company production subsidiary, Gazprom Neft-Khantos, achieved particularly rapid growth of output in 2011, producing 10.849 mn t of oil, which is 10.6% more than in 2010 and 3.2% above the 2011 business target. Gazprom Neft’s foreign subsidiary, Naftna Industrija Srbije (NIS), also put in an outstanding performance in 2011, raising crude oil production by 16.7% to 1.133 mn t from 971,000 t in 2010.


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Upgrade of refining capacities is also continuing at the NIS refinery in Pancevo (construction of hydrotreatment and hydro-cracking facilities).

Gazprom Neft increased output of petro-leum products by 7.6% to 38.3 mn t in 2011.

Upgrade programs at Company refiner-ies and optimisation of the product range increased output of automotive gasoline by 11.7%, high-quality aviation fuel by 5.6%, and Euro-4 and -5 diesel fuel by 2.6 times in 2011. Gazprom Neft also joined the Top-3 Russian producers of bitumen in 2011 thanks to out-put growth by 24.8%.

The Company secured its positions on the retail market for petroleum products in 2011. The Company sells petroleum products both in Russia, where it has one of the most extensive sales networks in Russia, and in neighbouring states. Petroleum product sales volumes on the domestic market grew by 18.3% y-o-y to 24.29 mn t in 2011.

The Company’s sales and marketing subsidiaries added 74 new premises to their network of filling stations in 2011, raising the total number of stations to 1,670, in-cluding 1,245 in Russia and the CIS. Average sales per filling station in Russia rose by 40% to 14.2 t per day, and the Company had retail presence in 27 regions by the end of the year. All stations in the Company chain are standardised under the Gazprom Neft retail brand. According to an online survey by Romir Research Group, Gazprom Neft was among filling station brands with best recognition in Russia in 2011.

Gazprom Neft launched sales of premium-class engine fuel under the G-Drive brand in 2011. G-Drive accounted for 19% of total AI-95 gasoline sales in 2011 at stations where it was available. Pilot sales of G-Diesel began at the end of 2011, thus expanding the range of the Company’s premium retail motor fuels.

The value of sales of non-fuel goods and services at f illing stations rose to RUB 4.9 bn in 2011. Trading space for this business increased in the period to 32,100 m2, and sales per m2 rose to RUB 153,000. A uniform product range matrix was imposed at all outlets.

Gazprom Neft Lubricants was the leader in Russia in 2011 by the number of new products brought to the market (30 items), and its share of the packaged lube oil market increased from 8.2% to 10.5%. Volumes of packaged lube oil sales in Russia grew by 30% in 2011 and sale of G-Family products doubled in comparison with 2010. Recognition of the Company’s G-Energy premium brand rose by 18% in Russia, and new Russian sales channels were accessed (320 vehicle maintenance centres and 57 hypermarkets). Sales of packaged products on foreign markets (35 countries) rose by 27% in 2011 com-pared to 2010. A new site was acquired in Fryazino (Moscow Region) to produce packaged premium lubricants (40,000 t annual capacity), and work began on stage one of a packaged lube oil production fa-cility in Omsk (180,000 t annual capacity).

Development of fuel retail is a priority for Gazprom Neft. In 2011, fuel sales through our filling stations in Russia grew by 40% to 4.905 mn t. Sales of gasoline rose by 49% to 3.212 mn t and sales of diesel fuel rose by 97% to 1.620 mn t. Small wholesaling volumes in all regions of presence rose by 70.01% compared to 2010, reaching 7.9 mn t. Foreign sales and marketing enterprises within the CIS Customs Union sold 1.396 mn t of fuels in 2011, which is 20.15% more than in 2010.

STRUCTURE OF PETROLEUM PRODUCT OUTPUTS BY GAZPROM NEFT, mn t

09 10 11

38,339million tons

+7.6% +6.8%40,491million tons

Automotive gasoline

Straight-run gasoline

Diesel fuel

Aviation fuel

Furnace fuel

Fuel oil

Bitumen

Oils

Coke

Other

Refining

38,3

39

40,491

35,6

28

37,902

31,5

05

33,434

OUTPUT OF MARKETABLE PRODUCTS

REFINING


NUMBERS OF OPERATING FILLING STATIONS, SALES GROWTH PER STATION

09 10 11 20

1,54

6

1,59

6

1,67

0

2,10

0

9.1

Russia

CIS

Eastern Europe

Total

Average daily sales per fillingstation in Russia (t/day)

1,670stations

OPERATINGFILLING STATIONS

+4.6% +37.9% 14.2tons per day

AVERAGE DAILY SALESPER FILLING STATION

14.2

10.3


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Company strategy gives priority to increased sales of gas engine fuels – liquefied petroleum gas (LPG) and compressed natural gas (CNG), – main advantages of which include low environmental impact and cost effectiveness.

These advantages are particularly valuable for public transport and commercial vehicles in large cities. As of today, the share of LPG and CNG in total consumption of motor fuels in Russia is less than 4%. However, significant growth of the LPG market is expected as mass-production of gas-powered cars develops and more gas filling stations are built. Most of Russia’s LPG consumption potential is concentrated in large metropolises, particularly Moscow and Saint Petersburg, and could rise to 3 bn m3 per year, which 10 times more than current consumption. Gazprom Neft is rapidly developing its sales of gas fuels for vehicles. The Company had 131 gas filling units at its f illing stations by the end of 2011 when LPG sales volumes were over 90,000 tons. The Company is targeting increase in the number of its multi-fuel stations selling LPG to 285 stations by 2020, when total annual sales of gas fuel for vehicles should be in excess of 260,000 t. Supplies of liquefied gas for the retail network will come from the Company’s own refineries (in Omsk, Moscow, and Yaroslavl), and from facilities of Gazprom Group and SIBUR.

25


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Kazakhstan (Astana), Tajikistan (Dushanbe) and Kyrgyzstan (Bishkek). Sales geography on the external market expanded significantly dur-ing the year: by the end of 2011 Gazprom Neft-Aero was refuelling aircraft in 30 countries (49 cities) as compared with 11 countries (18 cities) in 2010.

Gazprom Neft Marine Bunker reinforced its leading positions on the Russian bunkering market in 2011, raising its market share to 18.5%. Direct-to-vessel sales of ma-rine fuel grew by 44% against 2010 to 1.3 mn t, and total annual sales of marine fuel increased by 1.5 times to 2.2 mn t. Gazprom Neft Marine Bunker entered new sales markets in Russia and abroad: the company now provides bunkering in the ports of Nizhny Novgorod, Samara, Sakhalin Island, and in the Baltic ports of Klaipeda, Tallinn and Riga.

Gazprom Neft is a major exporter of crude oil and petroleum products. Main export routes in 2011 were via Novorossiysk and Tuapse seaports on the Black Sea, the Baltic port of Primorsk, and through the Druzhba pipeline to the Czech Republic and Germany. Gazprom Neft Group exported 13.1 mn t of crude oil in absolute terms in 2011, or 2.8 mn t less than in 2010. Decline of crude oil exports by 17.9% in the reporting year was due to increase of crude oil refining at the Company’s refineries in 2011.

INNOVATION

Developing innovation in priority business areas is a prerequisite for the Company’s successful long-term growth. Increasing efficiency of oil production from depleted resources at estab-lished fields, developing new regions in Yamal, Eastern Siberia, and Orenburg Region, beginning offshore operations (including work beyond the Arctic Circle), implementing projects outside Russia, developing non-conventional hydrocar-bon sources, lowering environmental burden, energy saving – all these huge and complex tasks of crude oil exploration and production call for innovative solutions. The main objectives of R&D and innovation efforts in refining business are to improve product quality, lower production costs, and to develop and produce new kinds of technol-ogy, products and services.

In 2011, the Joint Scientific Research Centre for Innovation Technologies in Crude oil Production (JSRC) was jointly established by LLC Gazprom Neft Science and Technology Centre and Saint Petersburg State Mining University. The JSRC is centred on eight scientific research laboratories with the most up-to-date experimental tools and equipment.

The main themes of research work by the JRSC in 2011 were:• improvement of reservoir recovery and well

output;• research into crude oil composition and

properties, solid deposits and corrosion in crude oil production equipment;

• selection and testing of liquids used for bottom-hole treatment, well kill, repair and insulation work, hydraulic fracturing;

• development and adaptation of existing technologies;

• developing formulae for drilling muds and grouts.

The main goals of Gazprom Neft’s innovation and scientific research ef-forts in crude oil refining are to ensure competitiveness in technology, improve product quality, reduce production costs, to develop and produce new kinds of technology, products and services, and to resolve current production problems. In 2011, the Company's Management Board approved a Strategy for Development of Innovation and Scientific Research in Oil Refining and Petrochemical Processing up to 2020. The document defines principles and key performance indicators for inno-vation activities in logistics, refining and sales, as well as key directions for develop-ment of innovative technologies in crude oil refining and petrochemical processing.


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OUTLOOK: PLANS FOR 2012

R&D in crude oil refining and petrochemi-cal processing is being carried out in partnership with major Russian research entities, whose work has application in the main technology areas that are of importance to Gazprom Neft. Research institutes that are partners of Gazprom Neft include the Topchiyev Institute of Petrochemical Synthesis, the Gubkin Russian State University of Oil and Gas, the Institute for Hydrocarbon Refining, OJSC NPP Neftekhim, etc.

During 2011, the Company’s crude oil refining units implemented both large long-term innovative projects to develop strategically important technologies, and workshop-level R&D to meet the production needs of a specific refinery. One large-scale innovative project in 2011, carried out jointly with the Institute for Problems of Hydrocarbon Refining of the Siberian Branch of the Russian Academy of Science, was the development and production launch of a biceolyte catalyst for catalytic cracking at Gazprom Neft-Omsk Refinery. Use of the new catalyst helped the Omsk Refinery to increase its output of light petroleum products, achieve deeper refining, and lower sulphur content in products, while also cutting operating costs. Gazprom Neft is currently the only Russian manufacturer of cracking catalysts.

Gazprom Neft’s development strategy calls for increase of investments in organic growth to USD 4.8 bn in 2012, including increases of 13% in exploration and production, 58% in crude oil refining and 12% in sales of petroleum products. A further RUB 0.7 bn will be invested to develop new assets and to implement major oil production projects.

According to the approved Business Plan, hydrocarbon production should rise by 4.1% in 2012 to 59.6 mn TPE. Gazprom Neft will continue to increase its resource base and make efforts to stabilize production at exist-ing assets. Large fields will be developed, both in Russia (fields in the northern part of Yamalo-Nenets Autonomous District, Messoyakha group fields, Novoportovskoye) and internationally (Badra, Junin), and assets in Orenburg Region will be integrated.

Key Company objectives in refining are to increase process efficiency and product quality. In 2012 refineries will continue to implement programs for improvement of engine fuel quality, changeover to Euro-4 and Euro-5, and increase of high-octane gasoline output. Work will also be carried out to increase refining depth. Scheduled events include launch of hydrotreatment units for catalytic cracking gasoline and diesel fuel at the Omsk Refinery, and completion of a gasoline hydrotreatment unit and isomerisation unit, as well as re-construction an L-24/2000 hydrotreatment unit at the Moscow Refinery.

Further steps in the program for upgrade of NIS refining facilities in Serbia will include commissioning of a light hydrocracking facility at the Pancevo Refinery.

Expansion and efficiency improve-ments of the retail network in 2012 will include reconstruction and rebranding of filling stations, and further implementa-tion of customer loyalty programmes. The filling station chain will be expanded in the Southern Federal District, Nizhny Novgorod and Chelyabinsk Regions, Saint Petersburg and Krasnoyarsk, as well as in Kazakhstan. Special emphasis will be placed on sales of G-Drive fuel (both gasoline and diesel). Main actions will include pro-grams to promote G-Family products, launch of the new lube packaging facility in Omsk and achievement of capacity production there, creation of a distribution network for Gazprom Neft-Lubricants in Central Asia and Northern Europe, creation of a bunker terminal network (terminal construction in Saint Petersburg, Murmansk, Ust-Luga and Kaliningrad), and expansion of market pres-ence in the Baltic states and the Balkans. As regards overall efficiency of petroleum product sales, priority will be given to sales of aviation fuel, lubricants, bitumen, and to petrochemicals and bunkering (i.e. to all premium business segments). Main objec-tives are to boost sales efficiency, expand business geography, and increase market share in premium market segments.

Programs to increase operating ef-ficiency will be implemented in all core business areas.


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SUSTAINABLEDEVELOPMENT STRATEGY

SUSTAINABLE DEVELOPMENT & SOCIAL RESPONSIBILITY

Gazprom Neft does all it can to observe the principles of sustainable development and social responsibility in conduct of its business. These principles are understood by the Company in the way that they are understood by the international business community and as set forth in ISO 26000:2010 Guidance for Social Responsibility.

Sustainable development – development that meets the needs of the present without compromising the ability of future generations to meet their needs.

Social responsibility – responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that contributes to sustainable development, including health and the welfare of society:• takes into account the expectations of stakeholders;• is in compliance with applicable law and consistent with

international norms of behavior;• and is integrated throughout the organization and practiced

in its relationships.

Source: ISO 26000


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Infrastructure will be developed in parallel with industrial facilities: roads will be built, territories improved, and power supply units installed. The company is carefully assessing the potential social and environ-mental impact of implementing the new projects. Environmental audit is carried out when preparing investment decisions in order to identify the technologies that are best suited to local specifics. In 2011 a so-cial and environmental audit of this types was carried out for the Junin-6 project in Venezuela.

Strategy of Gazprom Neft in explora-tion and production is based on efficient implementation of major projects to develop new fields in Russia and abroad, together with increased operating ef-ficiency at existing assets in order to achieve the production target of 100 mn TOE (tons of oil equivalent) by 2020. The first three projects are focused on three very large assets in the northern part of Yamalo-Nenets Autonomous District, which will form a powerful new oil and gas production centre. The fourth project, focused on fields in Orenburg Region, has much growth potential, promising production increments of up to 3 mn TOE or more in the next three years. And two

other projects are being implemented by Gazprom Neft in the world’s largest oil and gas provinces: Iraq and Venezuela. In addition, the Company has assembled a portfolio of exploration projects, includ-ing several offshore. As it embarks on this large-scale program of major projects in various climatic, geological, geographi-cal and political contexts, the Company faces radically new challenges in the so-cial, labour and environmental spheres. These challenges have required the cre-ation of a new internationally compliant health, safety and environment system within Gazprom Neft-Razvitie7 and within the frameworks of the projects.

The Company has already clarified its prioritiesin this area by definition of six key major projects.

29

7 Gazprom Neft-Razvitie is a specialized organization within the Company’s exploration and production business division, serving as a centre for competencies and for the management and development of human resources in major projects.


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Priorities for sustainability are defined by the nature and scale of the Company’s core activities, as well as the chal-lenges which it faces in the course of its development. One of these challenges is the deteriorating quality of reserves and the resulting need to increase efficiency of development work at established fields, and to enter new and remote regions where issues of environmental vulnerabil-ity have to be addressed. More stringent requirements for the quality of petroleum products entail other challenges, includ-ing technology upgrades and innovation in oil refining. Finally, there is the issue of sourcing talented personnel for Company development, which is no easy task in a context of human resource shortages in Russia’s real sector, and therefore calls for a set of special programs.

Gazprom Neft’s development strat-egy takes account of a broad strategic context, where social and environmental factors are no less important than fac-tors of a f inancial and economic nature. Sustainable development is an inte-gral part of the Company’s long-term strategy. The tasks, which Gazprom Neft constantly sets and resolves, relate not only to financial and technology issues but also to the accumulation of social capital, rational use and preservation of natural wealth. These tasks are closely interlinked within the Company’s unified strategy.

Gazprom Neft acknowledges that oil companies, due to the great social significance and scale of environmental impact of their operations, bear significant social and environmental responsibility, requiring consistent, comprehensive work to manage the consequences of company opera-tions for society and the environment, and engagement with a wide range of stakeholders.

The key principle underlying the for-mulation and implementation of Gazprom Neft’s sustainable development strategy is the achievement of balance between the economic, social and envi-ronmental components of its business. The Company also takes full account of expectations regarding its responsible conduct as reflected in international and Russian law and in its contractual obliga-tions, as well as expectations identified in the course of interaction with stakehold-ers. The Company builds its strategy with due attention to priorities of national and regional development. In 2011, Gazprom Neft continued to implement a systematic approach to formulation of its strategic development concept. The Company plans a step-by-step transi-tion to an integrated system for long-term strategy design and protection of its mid-term business plans in order to ensure coordination of management actions at all levels and in all areas of business.

They include a range of issues that con-tribute to secure development: safety in the workplace, reduction of negative envi-ronmental impact, rational use of natural resources and of personnel, observance of labour rights and the need for professional development, and participation in local community development. Achievement of target benchmarks in crude oil production, refining and sales depends on finding solu-tions to a set of tasks in human resource development, and the implementation of new, more efficient and environmentally friendly technologies.

Implementation of the Company’s sustainable development strategy in 2011 was in conformity with mid-term goals for 2011–2013 as defined by the long-term strategy of Gazprom Neft. While in the previous period (2008–2010) Gazprom Neft laid foundations for rapid future growth8, the current period (2011–2013) envisages the launch of a number of major projects which will ensure long-term busi-ness development in all areas of Company business.

The Company’s mid-term sustainability goals for 2011–2013 mainly cover the prin-cipal issues of social responsibility set out in ISO 26000, including such issues as cor-porate governance, human rights, labour practices, the environment, fair business practices, consumer issues and involve-ment in community development.

STRATEGIC CHALLENGES & BENCHMARKSIN SUSTAINABLE DEVELOPMENT

8More details concerning goals and results in this period can be found in the Gazprom Neft Sustainable Development Report for 2010.


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SUSTAINABLE DEVELOPMENT PRIORITIES

Developing an integrated Health, Safetyand Environment system that ensures compliance

with statutory requirements in regions of Company presence, both in Russia and abroad, and conforming to the best

international practice.

Implementing a program of measures for reduction of employee injury rates, mitigating negative

environmental impacts.

Enhancing the incentive system

and loyalty of personnel.

Implementing target programs for personnel training.

Creating a succession pool.

Developing competenciesfor major project management.

Human resourcingfor technology upgrades.

Improving oilproduction eff iciency,

developing new fields.

Increasing the depthof oil refining, raising outputof light petroleum products.

Shifting to new standardsof engine fuel quality.

Developing a comprehensiveapproach to relationships

with regions, which gives dueconsideration to the Company’s

long-term sustainability priorities.

Increasing the eff iciencyof assistance to regions

in addressing socio-economicdevelopment issues.


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SUSTAINABLE DEVELOPMENT GOALS FOR 2011–2013

Sustainabledevelopment activities Main goals

Section of the Reportreviewing results in 2011

Sustainable development management

DEVELOP AN ORGANISATIONAL FRAMEWORK FOR SUSTAINABLEDEVELOPMENT MANAGEMENT:• approve the new version of the Code of Corporate Conduct;• develop an integrated risk management system; • develop an integrated system for management of occupational safety, labour,

environment and civil defence;• develop anticorruption procedures.

Develop a dialogue with internal and external stakeholders as part of established interaction mechanisms.

SUSTAINABILITY REPORTING:• apply the new version of the Sustainability Reporting Guidelines issued by the Global

Reporting Initiative;• apply international industry standards for disclosure of information on activities

in the area of sustainable development;• arrange external certification of corporate sustainable development reports.

Sustainable development management and stakeholder engagement

Development of operations OIL AND GAS PRODUCTION:• implement major oil production projects, integrate new acquisitions;• step up exploration work and start developing new fields; • maintain stable yield at existing fields.

OIL REFINING:• upgrade of refining capacities and changeover to new engine fuel standards.

PETROLEUM PRODUCT SALES:• expand and complete rebranding of the filling station chain;• raise petroleum product sales through high-margin sales channels; • develop exchange trading.

About the Company9

Labour practicesand human resource development

ENHANCE THE INCENTIVE SYSTEM AND INCREASE PERSONNEL LOYALTY:• implement a unified remuneration system for all enterprises; • implement a unified system of social benefits and enhance non-material incentives; • approve the Corporate Code10, develop mechanisms to establish effective corporate culture. RAISE THE PROFESSIONAL LEVEL OF EMPLOYEES:• organise programs to train specialists for foreign projects and filling-station personnel;• implement a system of training in competencies that are new for the Company,

with the necessary organisational and technical support.

STAFFING:• create a unified recruitment infrastructure;• recruit to support strategic objectives;• create a management succession pool;• development of young specialists.

Human resourcedevelopment

9 Operating performance is also considered in detail in the Annual Report of JSC Gazprom Neft for 2011.10 The Corporate Code is a summary of corporate values, ethical norms and rules of employee conduct at the Company.


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Sustainabledevelopment activities Main goals

Section of the Reportreviewing results in 2011

Contribution to development in regions of presence, promotion of local community development

DEVELOP STRATEGIC PARTNERSHIPS WITH REGIONS OF PRESENCE USING A SYSTEMATIC APPROACH AND WITH DUE ACCOUNT OF THE COMPANY’S LONG-TERM SUSTAINABILITY PRIORITIES:• enter into comprehensive socio-economic agreements with the administrations of

constituent entities of the Russian Federation.

INCREASE THE EFFICIENCY OF ASSISTANCE TO REGIONS IN ADDRESSING SOCIO-ECONOMIC DEVELOPMENT ISSUES:• monitor the socio-economic situation in regions;• consider regional specif ics when implementing major investment projects;• provide charity assistance and take part in programs by reputable independent

organisations, with due account for the Company’s regional policy and the social priorities of regions;

• give Company employees the opportunity for self-fulf ilment through voluntary activities; • take part in national identity and national culture support programmes for small

indigenous peoples in regions of Company presence;• develop a stakeholder engagement system in regions.

About the Company.Regional policy and local community development

Health, safety and environment (HSE) and civil defence

DEVELOP AN INTEGRATED SYSTEM OF HSE AND CIVIL DEFENCE MEASURES:• develop comprehensive programs and projects based on regular analysis of the current

situation and enhance their management through assessment of their eff iciency;• develop auditing of HSE management systems at all subsidiaries;• develop a software product to support processes under the Standard, ‘Integrated

In-Process Control of Compliance with the Requirements of Regulatory Legal Acts and Standards in Industrial Safety’ and carry out pilot application of the product.

REDUCE THE EMPLOYEE INJURY RATE:• implement corrective actions based on the result of inspections, audits and risk

assessment;• develop a system to train employees in occupational safety.

REDUCE THE NEGATIVE ENVIRONMENTAL IMPACT OF OPERATIONS:• regularly monitor the situation at Company facilities, implement standards covering waste

management, reclamation of polluted and disturbed land, and risk management;• promote corporate training programs in environmental safety;• promote interaction with Government, expert and public organisations to address

environmental protection issues;• implement a program to eliminate sludge pits and reclaim oil-polluted and disturbed land;• increase eff icient utilization of associated gas; • implement energy saving and energy eff iciency programs.

Secure development: Health, safety and environment


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SUSTAINABLE DEVELOPMENTMANAGEMENT & STAKEHOLDERENGAGEMENT

CORPORATE GOVERNANCE

The sustainable development strategy of Gazprom Neft and its principles of social responsibility are implemented through the governance mechanisms which the Company has in place, with a central role being accorded to the Company’s system of corporate governance. Gazprom Neft’s corporate governance system is compliant with applicable Russian legislation, the Company’s Articles of Association and internal corporate regulations. Gazprom Neft also takes full account of best international practice in this sphere. Gazprom Neft’s Corporate Code of Conduct is designed to ensure proper protection of the rights and interests of stakeholders, transparency of decision-making by governing bodies, and the professional and ethical responsibility of the Company’s management and internal controllers to the Company, its employees and its counterparties.


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SUSTAINABLE DEVELOPMENTMANAGEMENT & STAKEHOLDERENGAGEMENT

• compliance with the norms of applicable Russian legislation, the Company Articles and internal corporate regulations, as well as adherence to generally accepted standards and principles of corporate conduct;

• respect and efficient protection of the rights of Company stakeholders in accordance with the norms of applicable Russian legislation;

• respect for the rights of the Company’s stakeholders and employees;

• ensuring that Company stakeholders are genuinely able to exercise their right to participate in Company activities;

• ensuring equal treatment of Company stakeholders who hold shares of one and the same type (category);

• ensuring a high level of business ethics in relationships with stakeholders, investors, employees, contractors and other market participants;

• prevention of corruption both within the Company and in relationships with third parties;

• observing high standards of social responsibility in Company business;

• exercise by the Company’s Board of Directors of strategic management of the Company’s activities and effective control over the work of the Company’s executive bodies, as well as accountability of the members of the Board to the General Meeting of Stakeholders;

• reasonable, fair and efficient management of the Company’s activities by executive bodies, and their accountability to the Board of Directors and the General Meeting of Stakeholders;

• effective control over the Company’s business activities;

• efficiency of the internal control and audit system;

• timely and full disclosure of accurate information on the Company, including its financial standing, economic performance, ownership and management structure.

Sustainable development issues were at the focus of attention of the Company’s Board of Directors in 2011. In particular, the Board of Directors reviewed progress in implementation of Gazprom Neft’s Development Strategy up to 2020, approved the Company’s Investment Program for 2011-2012, and re-viewed information on energy supply arrangements at Gazprom Neft facili-ties. The Board of Directors approved the new version of the Corporate Code of Conduct in 2011.

11 The Corporate Code of Conduct establishes a system of principles, norms and rules regulating management and control in the Company. This system governs the relationships between stakeholders, the Board of Directors, executive bodies of the Company as well as other participants of corporate relationships.

12 The names of members of the Board of Directors, biographical data describing their qualifications, and the number of Board meetings in person that were attended by each member are provided in Gazprom Neft’s Annual Report for 2011.

Gazprom Neft’s Corporate Code of Conduct11 includes a commitment to the following principles:

The General Meeting of Stakeholders is the highest governing body, and bears responsibility for the most substantial matters of Company business. In accordance with the Company Articles, the General Meeting of Stakeholders elects the Board of Directors. The Board of Directors exercises general management of the Company and is responsible for strategic guidance to increase stakeholder value. The Board of Directors oversees effective functioning of the Company’s executive bodies. Board members are duly qualified and experienced to meet these challenges12.

According to the Company Articles, the Board of Directors of JSC Gazprom Neft

is elected with 10 members. Gazprom Neft’s Board of Directors includes members of the Management Committee of OJSC Gazprom, and the Board of Directors is headed by Alexey Miller, who is the Chairman of the Management Committee of OJSC Gazprom.

The Board of Directors of Gazprom Neft is to a great extent independent of the Company’s management: the only executive director who serves on the Board of Directors is Alexander Dyukov, the Chairman of the Management Board.

Gender composition: in 2011, one out of 10 seats on the Board of Directors was held by a woman.


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who is a member of the Management Board and Deputy CEO for Management of International Assets.

The Management Board of Gazprom Neft held 24 meetings in 2011, where the following main issues were considered:• the Innovation and Technology

Development Strategy in Refining and Petrochemistry up to 2020;

• the Strategy on Foreign Oil and Petroleum Product Markets;

• the Information Technology Strategy;• increasing the efficiency and priority of

occupational safety at Gazprom Neft;• efficiency in implementation of

Gazprom Neft’s Investment Program and the investment programs of largest subsidiaries;

• a concept for oil service business restructuring;

• measures to improve Gazprom Neft’s investment attractiveness;

• the Company’s system for prevention of corruption;

• the Consolidated Business Plan for 2012–2014.

Gazprom Neft’s Management Board also heard reports by the heads of structural sub-divisions of the Company in 2011.

In order to oversee the Company’s business activities, the General Meeting of Stakeholders elects an Audit Commission which is responsible for inspecting and reviewing the Company’s financial situation and the functioning of the internal control and risk management system, and also for verifying the legality of business operations. Gazprom Neft engages an external auditor to conduct an annual audit of financial statements according to Russian Accounting Standards (RAS) and Generally Accepted Accounting Principles (US GAAP).

The Chief Executive Officer and the Management Board report to the Board of Directors and the General Meeting of Stakeholders. The Chief Executive Officer of the Company is Alexander Dyukov. As of 31 December, 2011, the Management Board of Gazprom Neft consisted of 10 members13. Gender composition of the Management Board in 2011: one out of 10 seats on the Management Board was held by a woman.

Management Board oversight of sustainability activities in the health and safety sphere are supervised by Alexander Dyukov, the Chief Executive Officer and Chairman of the Management Board. Human resources are the responsibility of Vitaly Baranov, who is the Deputy Chairman of the Management Board and Deputy CEO for Administrative Issues. Regional socio-economic development programs are coordinated by Alexander Dybal, who is a member of the Management Board and the Deputy CEO for Corporate Communications. Sustainable develop-ment issues in the Company's international assets are supervised by Kirill Kravchenko,

Gazprom Neft’s Board of Directors has two Committees: the Audit Committee and the Committee on Human Resources and Remuneration. The purpose of the Committees is to carry out preliminary in-depth consideration of matters in their competence. The procedure for the forma-tion and activity of the Committees is gov-erned by relevant Regulations. The Audit Committee at the Board of Directors of Gazprom Neft facilitates participation of the Board in overseeing the Company’s business activities by evaluating the ef-ficiency of internal control systems. The Audit Committee also monitors the risk management system. The main task of the Committee on Human Resources and Remuneration is preliminary analysis and preparation of recommendations to support decision-making by the Board in the area of human resource policy and remuneration of the members of governing bodies and of the Audit Commission.

Performance of the Board of Directors is assessed annually, with due consid-eration of their actual contribution to Company business results. The assess-ment in 2011 noted a positive trend in work by the Board, as shown by an increase in the number of matters submitted for discussion, active participation of Board members in the work of the Board, and ef-ficient functioning of Board Committees.

The executive bodies of Gazprom Neft responsible for implementing its goals, strat-egy and policy are the Management Board (collegial executive body) and the General Director (Chief Executive Officer), who is also the Chairman of the Management Board ex officio. The executive bodies operate in accordance with the Articles of Gazprom Neft and Regulations on the Chief Executive Officer and the Management Board.

ELENA ILYUKHINA, a member of Gazprom Neft’s Management Board and Deputy CEO for Legal and Corporate Affairs, ranked among the Top-50 most influential business women in Russia in 2011 as rated by Finance magazine. Elena Ilyukhina has worked for Gazprom Neft since December 2007, and has been a mem-ber of the Management Board since January 2008.

13 Membership of the Management Board and background data describing the qualifications of Management Board members are provided in Gazprom Neft’s Annual Report for 2011.


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Thus, mature assets are handled by the Production Directorate, implementation of major new projects is the responsibil-ity of the Major Projects Directorate, while expansion of the exploration and resource base is the responsibility of the Exploration and Resource Base Development Directorate. The growth of gas production, both through greater utilisation of associated oil gas and through entering projects with a significant gas component, justified the creation of a special Gas Directorate. A newly created organisation, Gazprom Neft-Razvitie, will serve as a centre for competences, manage-ment and development of human resources in major projects, supporting the implemen-tation of major development projects at new fields in Russia.

In 2011, Gazprom Neft continued integration of new assets into its corporate governance structure. Unified corporate governance standards were implemented and governing bodies were formed at the new assets. Spin-off of the Company’s oil field service business was also completed in 2011 by the sale of a number of subsidiaries. Gazprom Neft’s disposal of its oil field service assets should both reduce costs and encour-age greater competition in this business segment, thus raising the quality of oil field services. The Company has made efforts to ensure stable development of the assets in the future and acceptance by the new owner of the terms and conditions of collective agreements which were in place when the as-sets were part of Gazprom Neft.

The Company made a number of organi-sational changes in 2011 to improve business efficiency. The most important of these changes were in exploration and production operations. E&P is the key business unit of Gazprom Neft and rapid growth of business scale and increase in the number of produc-tion subsidiaries have necessitated various organisational changes. Special directorates were established within the unit during 2011, each containing large portfolios of important projects. The new structure of the unit uses a principle of asset development stages (exploration, major project implementation, production and development of gas busi-ness), which will help personnel of the cor-porate centre to achieve maximum focus on high-quality management through the entire life cycle of assets.

The candidate for the role of independent auditor is approved annually by the General Meeting of Stakeholders at the proposal of the Board of Directors.

The Company has a structured, objec-tive remuneration program for top and senior managers establishing a link between short-term goals, including those related to sustainable development, and the amount of remuneration14.

The Company implements mechanisms aimed at eliminating possible conflicts of interest in senior management bodies15.

Gazprom Neft strives to maintain a high level of informational transparency. The Company publishes financial statements to international standards, as well as manage-ment reporting and sustainable development reports. Since 2010, preparation of these documents has been synchronised and they are published simultaneously. These documents are also available for viewing on the Company’s website. In this way access to data reflecting all aspects of the Company’s activities is provided to all stakeholders and the general public. The mechanisms by which Gazprom Neft’s stakeholders can influence the actions of the Company’s manage-ment bodies are set out in the Company’s Corporate Code of Conduct. Information on compliance with the Corporate Code of Conduct is published in the Company’s Annual Report for 2011.

The Company works closely with stakeholders and develops relationships with the investment community in order to ensure a high level of transparency. The high level of information disclosure to Gazprom Neft’s stakeholders and inves-tors has been noted in a number of studies by independent investor relations agen-cies and is also proved by awards, which the Company has won in this f ield16.

14 Information on the amount of remuneration to members of the Board of Directors and members of the Management Board of the Company is provided in Gazprom Neft’s Annual Report for 2011.

15 More detailed information on compliance with the Corporate Code of Conduct is provided in Gazprom Neft’s Annual Report for 2011.16 This is described in more detail in the next section of the present Chapter.

The spin-off of oil field service as-sets in 2011 included the sale of SpetsTransService transport com-pany, which was bought by Service Logistics Company. According to terms of the sale, SpetsTransService will retain long-term contracts with Gazprom Neft Group enterprises and corresponding guaranteed volumes of work until the end of 2013. The agreement also requires the new owner to comply with the terms and conditions of collective agreements at SpetsTransService.


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RISK MANAGEMENT

Effective risk management is a key component of sustainability management. Gazprom Neft has a risk management policy, which determines the goals and principles of risk management to ensure the robustness of Company business in the short and the long term. The Company’s goals in risk management are early identification and prevention of risks and effective risk mitigation measures in order to ensure that strategic business objectives are achieved. The scope of risk management in the Company includes both financial risks and risks of an environmental and social nature. Corporate policies and management systems have been put in place for the health, safety and environment spheres and also for the Company’s regional relationships. The Company has developed and implemented a uniform approach to the risk management process, which is documented in the Integrated Risk Management System (IRMS) corporate standard.

The Company implemented basic IRMS processes in 2011 at most part of its larg-est subsidiaries and associates. This en-abled creation of a detailed corporate risk map for 2011, from the level of individual subsidiaries and associates to the level of the whole Company. The risk map enables definition of areas of responsibility for risk management and risk monitoring at all management levels, and develop-ment of plans to respond to existing risks at each subsidiary and associate and across the whole of Gazprom Neft. Risk management is now an integral part of Gazprom Neft’s internal environment.

Gazprom Neft is designing a program to manage corruption risks and to mitigate them through preventive procedures. The program includes determining the po-sition of corruption risk in the Company’s risk management system, developing a lo-cal regulatory document, and formulating a strategy for communication support and personnel training. The program is based on Russian legislation but also takes account of the requirements of US and UK anti-corruption laws.

RISK MANAGEMENT INCLUDES:

• incorporating a risk-oriented approach to all aspects of operating and manage-ment activities;

• systematic analysis of identified risks;• building a system for monitoring of risk

control and risk management efficiency;• understanding by all the Company’s

employees of the basic risk management principles and approaches, which have been adopted by the Company;

• providing the necessary regulatory and methodical support;

• allocating authority and responsibility for risk management among the Company’s business units.

The sustainable management prin-ciples adhered to by Gazprom Neft and set out in the Company’s corpo-rate governance documents, including the Corporate Code of Conduct and Corporate Code, conform to the social responsibility principles contained in ISO 26000 (Guidance on Social Responsibility).

Social responsibility principles ac-cording to ISO 26000 are as follows:• accountability;• transparency;• ethical behaviour; • respect for stakeholder interests;• respect for the rule of law;• respect for international norms of

behaviour;• respect for human rights.


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Gazprom Neft views stakeholder engagement as a key element of corporate social responsibility. Stakeholders include organisations and individuals with interests that are in any way connected with the decisions or activities of a company. Gazprom Neft distinguishes a number of key stakeholder groups, whose interests are particularly connected with its business and who, in their turn, may have the most significant influence on the Company’s ability to realise its strategic goals. These are stakeholders and investors, the Company's staff, government authorities, business partners, local communities, and the general public. In formulating its approaches to engagement and interaction, the Company bears in mind the level and scale of relationships (federal, regional and local) and their nature (whether they are informal or documented by contracts and/or other instruments).

STAKEHOLDER ENGAGEMENT

MAIN STAKEHOLDER ENGAGEMENT AREAS IN 2011

Stakeholders and investors

• Increasing Company value and investment attractiveness. • Improving corporate governance quality. • Strengthening the Company’s brand and reputation.

Government • Addressing the tasks of sustainable industry development.• Responsible and efficient use of human and natural resources.• Contribution to the socio-economic development of regions.• Innovation.

Personnel • Efforts to improve work safety.• Creating the conditions for professional growth and social welfare of employees. • Enhancing material and non-material incentive systems. Social support for workers

and veterans. • Human resourcing for major projects and professional growth opportunities

associated with them.• Developing a dialogue with trade unions.• Creating an effective corporate culture.• Approval and implementation of the new version of the Corporate Code.

Business partners, suppliers and customers

• Implementing programs to improve the quality of products and services. • Developing long-term mutually beneficial relationships.• Extending the scope of industrial and environmental safety standards to contractors.

Local communities • Developing the practice of socio-economic agreements with regions. • Implementing youth and sports programs.• Preservation and development of cultural and historical heritage.• Supporting small indigenous peoples.• Environmental activities.


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For example, a distinction is made among the Company’s personnel between operating personnel, various levels of management, and young specialists, while the local communities’ category is sub-divided into such groups as school leavers and students, veterans of war and labour, small indigenous peoples in Northern Russia, and public associations specialising in environmental and social work.

The Company’s stakeholder engage-ment mechanisms ensure feedback, allow timely identif ication of both risks and opportunities, and expand and improve business eff iciency.

Gazprom Neft strives to develop interac-tive forms of engagement in conformity with the recommendation of ISO 26000:2010. During 2011 the Company continued its practice of investor meetings, corporate forums and conferences held jointly with business partners, government author-ity representatives and representatives of the expert community, as well as public hearings on social and environmental issues of concern to stakeholders. Gazprom Neft makes full use of up-to-date information and communication technologies in order to develop a dialogue with stakeholders.

Stakeholder engagement principles and priorities are reflected in corporate documents (Corporate Code of Conduct, Corporate Code, documents regulating specif ic areas of Company business). Development of the engagement system is reflected in the Company's sustainable development reports for 2007–2010.

The main areas of engagement in 2011 were determined by the tasks of the Company’s strategy implementa-tion and the priorities of its stakehold-ers. According to the recommendations of ISO 26000:2010 (Guidance on Social Responsibility), the Company placed special emphasis on stakeholder inter-ests, which may relate not only its own interests but to the interests of society as a whole.

Gazprom Neft constantly studies the internal and external social environ-ment, refining the agenda for stakeholder engagement in a way that takes account of the strategic benchmarks and priorities of stakeholders. In 2011, the Company started work on a detailed ‘stakeholder map’ which will help to distinguish stakeholder groups of special impor-tance for Company strategy more clearly. Segments are distinguished within each key group, whose interests and roles may differ to some degree.

MAIN STAKEHOLDER ENGAGEMENT MECHANISMS:

• interaction with business partners, regional administrations, trade unions, public and expert organisations as part of business contracts, cooperation agreements and conventions;

• a system of corporate communication channels;

• regular employee and consumer surveys;

• public opinion studies both within the Company and in its regions of presence;

• negotiations and meetings; • public hearings;• joint work groups;• ‘hot lines’ for employees and

customers; • presentations to investors;• membership of public and expert

associations;• conferencing.


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STAKEHOLDERS & INVESTORS

Principles of engagement with stakeholders and investors:• responsible performance of

obligations;• fair operating practice and respect of

business ethics;• transparency and accessibility of

the information required to make investment decisions.

The Company strictly observes the norms of existing legislation designed to ensure respect and effective protection of the rights of stakeholders. Dividends dis-tributed in 2011 on business results in 2010 totalled RUB 21.1 bn or 22% of consolidated net profit according to US GAAP, which is one of the highest figures in the industry. The Company strives to pay dividends as quickly as possible. In 2011 Gazprom Neft transferred dividends to the accounts of its minority stakeholders in July.

As of December31, 2011, the stakeholder register of Gazprom Neft contains 9,339 ac-counts, including 16 legal entities, 9,312 in-dividuals, 1 trustee and 10 nominee holders. The largest stakeholder is OJSC Gazprom17.

The procedures for preparing and holding General Meetings of Stakeholders18 include an opportunity for all stakeholders to review all necessary information, freely register to participate in the Meeting, and take part in voting.

Gazprom Neft held about 300 meetings with investors in 2011, and the Company’s investment re-lations unit took part in 17 f inancial conferences.

The Company has held Investor Days once a year since 2010, enabling investors and invest-ment company analysts to obtain answers to their questions at f irst hand.

In 2011 Investis, a European leader in website development, ranked Gazprom Neft ’s website in f irst place among websites of the 30 largest Russian companies (measured by capitalisation in the RTS Standard Index). Also in 2011 the Company was the winner of the 5th Saint-Petersburg Contest for Corporate Websites and Annual Reports in the nomination ‘Best IR-Section of a Corporate Website’.

Regulations on General Meetings of Stakeholders secure equal opportunities for stakeholders to express their opinions and ask questions regarding the agenda (including questions to members of the Company's Management Board).

The Company strives to improve the transparency of its business to stake-holders and investors. Regular telephone conferences with the Company’s manage-ment team are organised for stakeholders and investors, and management discussion and analysis of the Company’s financial situation and business results is pub-lished as a supplement to Gazprom Neft’s quarterly US GAAP financial statements. The Company also publishes a Databook and Datafeed providing comprehensive insight into the Company’s activities for investment analysts. Meetings with investors and stake-holders are held regularly. Gazprom Neft’s representatives take part in all major invest-ment conferences.

17 As of December 31, 2011, OJSC Gazprom had 66.9837% interest in the Company and Gazprom Finance B.V. had 5.6791%.18 For more details see the Annual Report of Gazprom Neft for 2011.


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PERSONNEL

Personnel engagement principles:

• respect for the individuality and rights of employees, including non-discrimination, observance of rights to liberty of association and conduct of collective negotiations in the framework of existing legislation;

• transparency of human resource policy;

• economic justification and fairness in performance evaluation;

• openness to dialogue.

Relations between the Company and its personnel are governed by the Corporate Code of Conduct and the Corporate Code, and by mutual obligations set out in collec-tive agreements. Collective agreements contain provisions related to the preven-tion and settlement of labour disputes. Interaction between Gazprom Neft and trade unions is based on principles of social partnership.

Gazprom Neft enterprises carry out studies of the social and psychological climate among their personnel on an an-nual basis using questionnaire surveys, interviews and focus group discussions. The results of these studies help to obtain

19 For more details see the next section of this Report.

a comprehensive view of the sentiments and expectations of personnel, so that rel-evant engagement issues can be identified and Company policies can be adjusted in order to eliminate existing problems.

Gazprom Neft’s corporate com-munications system was further devel-oped in 201119. The practice of meetings between labour collectives and manage-ment was continued and new forms of communication were developed, including the Gazprom Neft Corporate Forum, which combines face-to-face interaction with

a broad corporate discussion of strategic issues via corporate media (the Forum has been held annually since 2010). The system of internal corporate communications channels enables each employee to convey his or her view to the Company’s senior management. Special events are also held for the benefit of the Company’s young specialists, at which senior managers provide insights regarding Gazprom Neft’s development strategy and the career growth opportunities which are available at the Company.


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In April 2011, Gazprom Neft-Noyabrsk- neftegaz held an extended meeting between company management, specialists of Gazprom Neft’s Occupational Safety Department and the management teams of contractor firms. Issues discussed at the meeting related to interaction with suppliers taking account of Gazprom Neft’s new corporate standard. A special-ist was appointed within the HSE and Fire Safety Department at Noyabrskneftegaz to oversee work by contractors to implement the require-ments of Gazprom Neft’s standard. Special monitoring and monthly reporting by contractors ensures objective assessment of progress in this work.

Customer engagement principles:

• stability and reliability; • implementation of programs to

improve the quality and environmental safety of products;

• responsible marketing information; • regular engagement and satisfaction

analysis.

Gazprom Neft is one of Russia’s largest pro-ducers and suppliers of petroleum products for companies in a wide range of industries and also for the general public. Responsibility for product quality, attention to customer feedback and development of customer rela-tions are seen by the Company as indispens-able for improving its service to customers and thereby increasing its competitiveness on an ever more demanding market. Thanks to the upgrading program at Gazprom Neft refineries, the Company doubled its output of Euro-4 and Euro-5 diesel fuel in 2011 and began production of gasoline in these classes. The quality of products at Company refineries has been repeatedly confirmed by awards and prizes. In 2011, six products from Gazprom Neft-Omsk Refinery won prizes and diplomas in the competition ‘100 Best Russian Goods’ (the products were: premium Euro-95 gasoline, high-purity petroleum paraxylene, petroleum orthoxylene, catalytic gas oil (a raw material for grade A techni-cal carbon), TS-1 aviation fuel, and Regular Euro-92 unleaded gasoline). Various products of the YaNOS Refinery also won awards in the same competition. The grade Е, type 3 Euro diesel fuel produced at YaNOS for winter use in vehicle engines fully conforms to the ЕН 590, Euro-5 European standard and to the latest environmental and performance requirements.

SUPPLIERS & CUSTOMERS

Supplier engagement principles:

• stability and reliability; • ethical behaviour;• cooperation to improve operating

efficiency and occupational and environmental safety;

• transparency and competitiveness of partner selection mechanisms;

• mutual responsibility.

Gazprom Neft is committed to developing long-term mutually beneficial relationships with suppliers of products and services. As a major customer for their goods and ser-vices, the Company contributes to the sus-tainable development of enterprises in vari-ous industries and to levels of employment at those enterprises. The Company strives to build constructive relationships with suppli-ers and contractors based on the principles of business ethics, and on unified approaches to production tasks and product quality man-agement. These approaches are specified in the course of negotiations and documented in contracts.

By consistently strengthening control over compliance with health, safety and environment (HSE) rules, the Company ex-tends compliance to third party organisa-tions which provide various services to oil companies (installation, repair, construc-tion, cleaning) on a contractual basis.

In 2011, the Company implemented a corporate standard, ‘Procedure for Management of Contractors and the Organisation of Relations in HSE and Civil Defence’. Implementation of this stan-dard involves the development of a regular dialogue with business partners, f inding practical solutions to help contractors raise levels of occupational and environmental safety.


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Traditional forms of consumer engagement, such as quality satisfaction surveys, were supplemented in 2011 by a special action: the ‘Open Expert Review of Service Quality’, which was held at Gazprom Neft filling stations across Russia between May and September. The action gave every motorist the opportunity to express an ‘expert opinion’ on the level of service at Company’s filling stations.

A total of 50,000 people took part in the action, sending over 100,000 mes-sages to the Company. The 6000 cus-tomers who submitted the most useful comments were rewarded with branded souvenirs, and the finalists were invited on a ‘expert tour’ across Russia. The tour was organized on a regional basis: a Central Russia team visited the Urals, the Urals team visited Siberia, and the Siberians visited Central Russia.

The average share of positive as-sessments in all comments on the quali-ty of service, employee friendliness, fuel quality, service speed, and cleanliness at Gazprom Neft f illing stations reached 85% in 2011.

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Grade 2, type 2 Euro diesel fuel produced at YaNOS and intended for use in Arctic condi-tions won the ‘New Product of the Year’ award and a special diploma at the ‘100 Best Russian Goods’ competition. The prod-uct meets requirements of the European ЕН 590, Euro-4 standard.

Sales of premium products conforming to international specifications (G-Family products) doubled in 2011, reflecting the strategic transformation of Gazprom Neft from a raw materials producer into a customer-oriented marketing company, manufacturing high-margin lube oils for re-tail and industry markets. Russian consumer recognition of the G-Energy premium brand grew by 18% in the reporting year.

As it expands its sales network and de-velops new sales channels, the Company endeavours to build relations of trust and mutual advantage with customers, sharing full information on product features and strictly complying with laws that govern advertising. Promotion of the Company’s consumer brand through advertising is being supported by the introduction of unified standards for f illing station service and regular monitoring of compliance with the standards by reference to the Gazprom Neft Filling Facilities Personnel Operating Rules Book and the Filling Station Chain Functional Quality Book.

20 The loyalty program, “We are going the same way”, is based on a bonus system that awards discounts on goods and services at Gazprom Neft filling stations by means of a loyalty card. Cardholders accumulate points awarded for their purchases and use them to pay for further goods and services. The program currently functions in 23 regions where Gazprom Neft filling stations operate, including Moscow, Saint Petersburg, Tver, Omsk, Ekaterinburg, Chelyabinsk, and others. The program was started in 2010.

A unified product range matrix has been introduced at all of the Company’s petro-leum product supply enterprises. Customer reaction to these efforts has been positive (Gazprom Neft’s filling stations were among the Top-3 brands in Russia by levels of con-sumer recognition in 2011). Revenue from sales of non-fuel goods and services at filling stations rose to RUB 4.9 bn in the reporting year, and the number of individual custom-ers who had joined the filling station loyalty program, “We are going the same way”20, exceeded 1.9 mn by the end of 2011.

Gazprom Neft actively supports devel-opment of exchange trading in petroleum products in Russia as a mechanism for effec-tive, fair and transparent pricing. Gazprom Neft is a co-founder of the Saint-Petersburg International Mercantile Exchange (SPIMEX), and has been trading in petroleum products on a regular basis at the Exchange since November 2009. The Company’s Exchange sales volumes grew by 2.5 times y-o-y in 2011 when Gazprom Neft sold over 2.5 mn t of petroleum products on SPIMEX (14.4% of total petroleum products supplied by the Company to the domestic market). The Company’s share in the total volume of petro-leum products sold via SPIMEX was above 22% in 2011. Gazprom Neft ranks second among Russian vertically integrated oil com-panies by the volume of its exchange sales.

Gazprom Neft-Aero acted as the of-ficial refueller for pilot groups at the 10th International Air Show, MAX-2011, held at Zhukovsky (Moscow Region) in 2011. The Company sup-plied fuel for the aircraft of various pilot groups: the Russian Knights, the Swifts, Falcons of Russia, Rus, as well as the Baltic Bees (Latvia) and others. Selection of Gazprom Neft as the official refueller at MAX-2011 is an acknowledgement of the busi-ness quality and leadership status of Gazprom Neft-Aero on the Russian aviation fuel market.

The Company has provided refu-elling services, including sales of fuel ‘into-plane’, since January 1, 2008. Since December 2008, Gazprom Neft-Aero has been a strategic part-ner of the International Air Transport Association (IATA) in refuelling services. Gazprom Neft-Aero is one of the three leaders on the Russian aviation fuel market by volume of sales.


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GOVERNMENT

Government authorities engagement principles

• compliance with legislation;• fulfilment of tax liabilities and

responsible use of labour and natural resources;

• partnership in addressing the challenges of sectoral and regional competitiveness.

As one of the country's largest companies, Gazprom Neft engages with both federal and regional government authorities. The Company strives to be a reliable partner for government in addressing the tasks of Russia’s socio-economic development.

The Company takes part in the work of expert organisations21 that develop ap-proaches to issues of sustainable develop-ment in the oil industry. Company specialists work with representatives of government agencies and other major Russian companies on such matters as rational sub-soil use, es-tablishment of a well functioning gas market, and industry regulation.

• On July 8, 2011 in Kirishi (Leningrad Region), Prime Minister Vladimir Putin chaired a meeting with industry representatives to discuss the situation on the Russian refining and petroleum product market. The CEO of Gazprom Neft, Alexander Dyukov, described progress in Gazprom Neft’s refinery upgrade program and presented a review of the current state of the Russian motor fuel market and related development issues. Mr Dyukov noted periodic imbalances between supply and demand on the motor fuel market, caused by rapid post-crisis recovery of de-mand, pronounced seasonality of demand and new requirements of the Technical Regulations for motor fuel quality. The Gazprom Neft CEO proposed a number of measures to improve market efficiency, including creation of a motor fuel reserve system, coordination of repair schedules at refineries, and permission for sales of some fuel classes to be continued after 2012. Other measures suggested by Mr Dyukov to increase market transparency and prevent unreasonable price increases included development of fuel trading via exchanges and the introduction of flexible excise rates for petroleum products.

• In 2011, Gazprom Neft was made responsible for developing new technical regulations on the safety of oil refining and petrochemical facilities for purposes of the CIS Customs Union. The Company has prepared a draft and submitted it to the Russian Ministry of Energy.

• A cooperation agreement between Gazprom Neft and the Ministry of Transport calls for the parties to hold regular work-ing meetings and discussions to share information and provide consultation on development of bitumen production, road construction, and the production and use of road bitumens in Russia. The Ministry of Transport gave a positive assessment of Gazprom Neft’s contribution to the work.

The Company’s regional policy is designed to take account of the tasks of regional development. Gazprom Neft cooper-ates with regional and municipal authorities through socio-economic partnership agree-ments in order to help address these tasks22.

The company strictly complies with all laws related to political activities and does not participate in political movements or organisations. Gazprom Neft may cooper-ate with public authorities in developing legislation that can affect its interests, and reserves the right to state its position con-cerning any matters related to its business, including the interests of its employees, customers, stakeholders or local communi-ties. In accordance with the Corporate Code, the Company does not place any restrictions on the political activities of its employees.

21 National Sub-soil Experts Association, Russian Gas Society, Oil Refinery and Petrochemistry Association, Russian Oil Exporters' Union, etc.

22 These activities are considered in detail in the chapter ‘Regional Policy and Local Community Development’ in the present Report.


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23 For more detail see the Chapters, ‘Secure Development: Health, Safety and Environment’ and ‘Regional Policy and Local Community Development’.

LOCAL COMMUNITIES

Local communities engagement principles

• achieving a balance between the Company’s development strategy and regional development priorities;

• constructive engagement with local authorities and the general public to address urgent socio-economic and environmental issues.

A favourable social climate in regions of presence is an important factor for successful implementation of the Company’s strategic goals. Gazprom Neft cares for the interests and expectations of local communities, and engages in a constant dialogue with them to ensure early identification of problems and development of constructive cooperation. Subjects of this dialogue include environmental protection issues, social infrastructure tasks, and preserving cultural traditions23.

Most of these issues are then taken into account in socio-economic agreements with regional and municipal authorities. The Company also cooperates with non-profit organisations and the expert community in addressing these issues. An example of such cooperation is the project to create municipal sports infrastructure in the towns of Noyabrsk and Muravlenko.

When developing new refining projects, Gazprom Neft conducts environmental and social risk analysis, and discusses potential impact on the natural and social environment with the local community in order to find optimal solutions in common.

The Company has started design of infrastructure facilities in preparation for development of the Novoportovskoye field. Storage tanks, an oil treatment plant, and personnel facilities need to be built at the field. Transport infrastructure will include a pipeline to Cape Kamenny and an on-shore reservoir tank farm. Discussions to secure consent of the local population to the construction plans are being pursued in parallel with technical work. The local population at Novoportovskoye consists of several dozen reindeer herding families and fishing communities in small settlements along the Gulf of the River Ob. Contacts began in the form of information meetings with Gazprom Neft specialists. Public hearings were held in summer 2011, at which the locals expressed their views concerning the construction of key facilities at the field. Technical solutions have been agreed, includ-ing crossing places for reindeer herds along the pipeline to Cape Kamenny (there are 270,000 rein-deer on the Yamal Peninsula and in neighbouring Gydan, representing the largest concentration of these animals in Russia).


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We striv

e to be

the best

Our key values are self-develop-

ment and self-m

astery

LEADERSHIP WINNER

MENTALITY

RE

SP

ON

SIBLE

OW

NER

ME

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GR

ITY

MUTUAL RESPECT

& TRUSTWe put faith in professionalism,

We

keep

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we respect the opinions of colleagues

We use the resources

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pany,

country and planet responsibly

These tools are being actively implemented in the Company. Main results of efforts to develop corporate culture in 2011 included:• development of interactive communication

platforms (the Corporate Forum, discussion sections on the Company’s intranet portal and in corporate media);

• development of work site attendance by man-agers of all levels and communication with employees across levels within the Company;

• implementation of the ‘Gemba’ project (man-agers spend time carrying out the functions of an ordinary employee in order to identify areas requiring improvement);

• inclusion of discussion of corporate values in agendas for meetings between managers and workers and in agendas for quarterly meetings of business units.

The tasks of corporate team building and creation of corporate culture are increasingly important as the scale of Gazprom Neft’s business grows. Meeting the challenges of our Company’s development strategy depends on the existence of a professional team with common values, common understanding of the tasks involved, and focus on efficiency and results. Development of corporate culture is a strategic priority for Gazprom Neft. The Corporate Code approved by the Company in 2011 defines key values as part of this culture.

Issues in this sphere figured on agendas at the Company’s Management Board meetings in 2011, including the extended meeting of the Management Board in September 2011.

A concept was designed in 2011 for further development of Gazprom Neft’s corporate culture, based on the Company’s mission and values and tailored to support the Company’s strategic goals. A study of corporate culture within the Company found that Gazprom Neft employees perceived corporate values as mean-ingful and relevant. These values are supported by corporate employee relations and internal communications practices. The study also identified areas for development. In particular, employees said that it would be desirable to pro-mote corporate values and relevant behaviour standards more broadly among personnel, and to show how they can be implemented in every-day business at all levels of the Company.

It is important to instil a positive attitude towards leadership values, and to increase motivation and commitment to achieving results (not merely to corporate loyalty and rule follow-ing). Evaluating the potential of employees and the match between their performance and Gazprom Neft’s corporate values must become an important part of the personnel assessment and development system.

Results of the study and interactive dialogue with personnel identified main tools for further development of the Company's corporate culture, including democratisation of corporate practices, development of goal-specific management and internal competition, encouragement of initiatives ‘from below’, management through presence (regular at-tendance at work sites by top managers), and personal involvement of the management team in transmitting corporate values.

CORPORATE CULTURE

THE GAZPROM NEFT CORPORATE VALUE SYSTEM


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The outcome of the workshop took the form of conclusions and proposals by the man-ager-participants based on what they had learnt in their working day. These included ideas to address the problem of excessive workload and ways of improving communi-cation between the operator and the filler. The participants noted that the experience gave them an understanding of how to opti-mise the work process and motivate station employees to comply better with service standards, as well as a valuable direct contact with customers and an understanding of what additional services should be offered to motorists.

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24 The Japanese term ‘gemba’ means ‘the real place’. Today, the term is used in management to mean the work place or the place where value is created. The idea of ‘gemba’ practice is continuous improvement of any processes: if a need for changes arises, specialists should collect relevant data on site and suggest optimal changes.

In summer and autumn 2011 a workshop was held at Gazprom Neft fuel supply enterprises using the ‘Gemba’24 methodology: heads of 13 Company sales enterprises from various Russian regions and CIS countries took the work places of fillers, operators, deputy managers and managers a filling stations. The purpose of the workshop was to develop proposals on optimising the work of filling station employees and improving customer service quality. The workshop participants competed with each other on a range of cri-teria to win nominations for ‘Best Idea’, ‘Best Participant’ and ‘Best Team’. The Gemba technique, which was devised in Japan and has won broad recognition worldwide, helps managers to obtain an objective picture of the situation at production sites, understand the problems faced by employees in their routine work, and unlock potential for better performance.


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The system of corporate media available to stakeholders includes the Company’s website and websites of its subsidiaries and affiliates, as well as the corporate maga-zine, Siberian Oil. The Company uses all standard communication tools, including press releases, press tours, conferences and round tables, competitions, exhibi-tions, presentational events and materials about the Company, with special emphasis on the latest communication technologies. The corporate website was rebuilt in 2011, expanding its content and functionality and making it into a versatile tool for commu-nication with various target audiences – media, the industry community, investors, stakeholders, financial analysts, suppliers, job applicants and others.

Corporate communications are a key mechanism of stakeholder engagement. Gazprom Neft’s internal corporate communications system allows a constant dialogue with employees on topics and issues of relevance for the Company’s devel-opment and of importance for its employees. The Company’s external communications contribute to devel-oping a dialogue with external audiences for whom information on Gazprom Neft’s business is interesting or important and with whom the Company strives to build relation-ships of trust and cooperation.

The internal communication system includes corporate media, regular meetings between Gazprom Neft management and employees, organisation of communal lei-sure activities for employees (sports events, creative contests, festivals, etc., which help to develop team spirit). Up-to-date commu-nication technologies within the Company enabling regular interactive conversation and prompt reaction to urgent issues. The content of internal corporate media is chosen to take account of the Company’s strategic priorities and the information needs of audiences.

Surveys in 2011 showed that employees highly appreciate the work of Gazprom Neft corporate media, and the scope and timing of information provision. However, there were also suggestions that issues should be discussed with a greater level of openness.

In response to this request, the Company’s newspaper, Neftegazeta, began publication in 2011 of full responses by management to employee questions regarding a wide range of topics, from the Company’s strategy to specific managerial solutions. Amendments were made to the format of the Company’s 2nd Corporate Forum in response to em-ployee suggestions. In particular, open discussion time was increased by reduction of the time allocated for presentations by managers.

Key tasks for the Company's external communications are brand promotion and information support for Gazprom Neft busi-ness in various regions. The Company uses a wide range of tools to communicate with external audiences.

CORPORATE COMMUNICATIONS


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51JSC GAZPROM NEFTSUSTAINABILITY REPORT 2011 51

The practice of a Corporate Forums, which Gazprom Neft introduced in 2010, was continued in 2011. The Forums represent a new dialogue format: an informal meeting where management and employees discuss matters of importance and share opinions. The Forum is part of the Company’s new internal communications system based on a principle of “two-way traffic” – unhindered horizontal and vertical flow of information that allows everyone at the Company to receive information and to be heard.

The Forum has a special place in the internal communications system, because it is attended by representatives from all Group enterprises and employee groups, allowing them to obtain information ‘at first hand’ and discuss any problem directly with senior management of the Company.

Open and sincere dialogue at the first Forum was highly appreciated by employees. But what they appreciated most, and what ensured commitment to continuing the dialogue was prompt action by Company managers in response to the critical remarks and suggestions put forward at the Forum. Activity by employees in the ‘Questions to Management’ section of the corporate intranet portal came alive after the Forum and the practice of ‘cascade briefings’ to convey corporate information to employees has been rapidly developed at many Company subsidiaries and affiliates. There was much interest in preparations for the next Forum in 2011 and employees used all available channels – the intranet portal, e-mail, and suggestion boxes installed in the workplace – to propose questions for discussion.

Questions were collected during a period of two months, ensuring that topics with most relevance to employees would be aired at the Forum and helping to make it successful. Delegations to the 2011 Forum came from all levels of management, and from all of the Company’s engineering and technical profiles, ensuring that information delivered at the Forum would be disseminated throughout the Company. The Forum gathered 350 delegates representing all Company enterprises and all regions of presence. Several of the proposals heard by the managers at the Forum are already being implemented, including ‘tours’ for employees to other enterprises within the Group. Changes will be made to arrangements for the third Forum based on the experience of the firsts two, including greater worker and engineer representation in Forum delegations.

JSC GAZPROM NEFTSUSTAINABILITY REPORT 2011


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Information support for Gazprom Neft activities in its regions of presence remains a key priority for corporate communications. The Company worked closely with regional media in the re-porting year. Company managers met with journalists and press tours were organised (to the Ety-Purovskoye field of Gazprom Neft-Noyabrskneftegaz and to the Gazprom Neft-Omsk Refinery, where the new Izomalk-2 facility was displayed). The Company’s media group, Blagovest, which comprises a number of print media, as well as TV and radio channels, completed expansion of its coverage from the town of Noyabrsk to the whole of the Company’s production region in Yamalo-Nenets Autonomous District. The Company’s openness at regional level ensured broad media coverage: Gazprom Neft and its subsidiaries were discussed in a total of 5,412 articles published by media in Omsk, Tomsk, Tyumen and Orenburg regions and in Khanty-Mansiysk and Yamalo-Nenets districts.

Advertising activities and sponsorship programs are designed to promote the im-age of Gazprom Neft as a fast-growing, high-performing and socially responsible company, and to strengthen its market po-sitions. In 2011, Gazprom Neft developed its advertising campaigns in the media and street advertising. The Company also continued its sponsorship of professional sports clubs, which offers a valuable tool for reaching target consumer audiences while helping sportsmen to achieve best results and promoting healthy lifestyles throughout society.

A new record for monthly traffic on the Gazprom Neft website was set in November 2011, when Google Analytics counted more than 100,000 unique visitors (106,761 for the Russian version of the site). Total number of visits (197,397) and the number of pages viewed (544,769) set new records in the same month. Overall website traffic increased by more than 1.5 times in 2011 against 2010.

Gazprom Neft is also implementing sponsorship programmes outside Russia. An exhibition of photographs by young Russian artists entitled ‘Russia, New View 2011’ was held at Belgrade Fortress (Kalemegdan) with the support of Gazprom Neft, its Serbian subsidiary NIS and the Russian Embassy in Serbia. The exhibition is a part of a charity project to renovate the fortress, which is the principal symbol of the Serbian capital. The exhibition opening was timed to coincide with Serbia’s celebration of ‘Russia Day’. Gazprom Neft and NIS, together with Gazprom Export, also supported a concert in Belgrade by the New Russia State Symphonic Orchestra, at which works by Tchaikovsky, Prokofiev, and Shostakovich were performed under the baton of Yury Bashmet.


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Applicability of the core subjects defined by ISO 26000 to Company practice were assessed using these criteria: • relevance for the Company;• relevance for key stakeholders;• relevance in terms of social context and

business commitments, including those set out in Russian and international documents (respectively, the Social Charter of Russian Business and the UN Global Compact).

The structure of the Report takes ac-count of the set of core subjects defined by ISO 26000.

DEVELOPMENT OFSUSTAINABILITY REPORTING

The Sustainable Development Report has become an important corporate communications tool for Gazprom Neft in recent years. The Company has published such Reports annually since 2007 and since 2008 their preparation cycle has been synchronised with preparation of the Annual Report. The Company now has a joint working group for preparation of all its annual public reporting, which ensures the integration of reporting processes, consistent improvement of information quality, and a broad strategic context, showing the link between sustainability and economic value. Following global trends in corporate reporting and using the experience we have already gained in reporting integration, the Company plans to start publication of a single integrated Corporate Report in the near future.

The Company has studied and implement-ed the sustainability reporting principles set out in the Sustainability Reporting Guidelines of the Global Reporting Initia-tive25. The Company strives to consistently improve the quality of this reporting. The methodical correctness of apply-ing ‘Level B’ GRI Guidelines in preparing the Sustainable Development Report 2010 was confirmed by GRI. When preparing the 2011 Report, the Company working group made an assessment of conformity of the Company’s sustainable development position with the provisions of ISO 26000 and of application by the Company of the ethical aspects described in the Stan-dard. Such internal assessment based on ISO 26000 is seen by the Company as indispensable for further improvement of our sustainability practice.

25 For more details about application of these principles see Gazprom Neft’s Sustainable Development Report 2010.

HOW TOPICS FOR THE REPORT WERE CHOSEN

COMPANY MISSION & STRATEGY

IMPACT OF COMPANY BUSI-NESS ON SOCIO-ECONOMIC & ENVIRONMENTAL SYSTEMS

STAKEHOLDER INTERESTS, EXPECTATIONS, OPINIONS

SOCIAL CONTEXT

DUTIES OF BUSINESS

RELEVANTTOPICS


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Issues of corporate communications development, social investment eff i-ciency, horizontal rotation opportunities and new forms of education, support for small indigenous peoples in the Russian North, and preservation of biodiversity in offshore operations were also found to be important. These issues were also highlighted in the Report.

The 2011 Report gives more attention to sustainability governance and manage-ment, as well as stakeholder engagement issues, and offers examples of Company response to the requests of specif ic groups. Presentation of the Company’s long-term goals is supplemented in the Report by the description of concrete and measurable goals.

Priority issues for stakeholders were identif ied based on the analysis of feedback material, sociological studies and media monitoring, as well as through direct dialogue in specif ic spheres of Company business. Substantial priority issues in the reporting period included:• the Company’s development strategy and

development outlook; • competitiveness of products and services; • development of the corporate gover-

nance system, approaches to sustainabil-ity management;

• social aspects of the Company’s reorgani-sation, upgrade of production facilities, new employment and career growth opportunities;

• work safety;• reduction of impact from operations on

the environment;• engagement of public authorities to

increase industry competitiveness and regional development.

Gazprom Neft experienced major organi-sational changes in 2011, and the Report has not aimed to extend consolidated informa-tion. However, in some cases, the scope of Report indicators has been broadened. For example, the section ‘Secure Development: Health, Safety and Environment’ contains a number of environmental indicators which include data for Gazprom Neft’s associate companies. Such instances are expressly stated and data for the previous scope are also given to ensure comparability.

The 2011 Report underwent an inde-pendent expert review in preparation for sustainability reporting audits, which will be introduced in the medium term.


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Gazprom Neft’s Serbian subsidiary, NIS, also published a Sustainable Development Report in 2011. The NIS Report was also prepared using the GRI Guidelines and it covers operational, f inancial, social and en-vironmental aspects of NIS business. Representatives of all NIS business units contributed to the Report. NIS was the first company in Serbia to prepare a Sustainable Development Report in conformity with interna-tional standards.


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HUMAN RESOURCESDEVELOPMENT

Building a world-class team is crucial for successful implementa-tion of the Company’s strategy. Gazprom Neft invests in people, and supports initiatives and innovation that boost operating performance and management efficiency. The Company acts as a responsible employer, offering competitive pay, development opportunities and good working conditions. Personnel management at Gazprom Neft is designed to create an atmosphere of inclusion, where each employee feels his or her contribution to realising common strategy. In dealing with its personnel the Company takes careful account of evolution of the labour market through regular analysis by Company specialists. Labour relations at Gazprom Neft are founded on the respect and observance of human rights.

CHIEF GOALS OF HR MANAGEMENT AT GAZPROM NEFT IN 2011-2013

• boosting labour performance and quality, enhancing the in-centive system and loyalty, raising the quality of personnel management;

• human resourcing for Company business: recruitment and per-sonnel development, creation of a succession pool, training of young specialists;

• raising the professional compe-tence of personnel.


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As of today, the headcount at Gazprom Neft enterprises is about 59,000 people working in more than 24 regions of Russia, and also in Kyrgyzstan, Kazakhstan, Tajikistan, Ukraine, Belarus, Serbia, Austria, and Italy. Ordinary workers represent 62% of personnel, while managers, specialists and office employees are 38%. Average age of employees is 38.

The biggest share of Gazprom Neft personnel – a little under one third of the Company’s total headcount (29%) – work in Yamalo-Nenets Autonomous District, where they are mainly employed at oil and gas production enterprises. Omsk Region accounts for 14% of Company personnel (38% of them work at the Omsk Refinery). The share of employees work-ing in Saint Petersburg almost doubled in the reporting year compared with 2010 due to relocation of the Group’s Corporate Centre from Moscow to Saint Petersburg. Some 5.5% of Company employees now work in Russia’s northern capital. Serbian NIS accounts for 16% of the Gazprom Neft headcount. Average headcount declined by 9% in 2011 y-o-y due to business restructur-ing and focus on core personnel: the Group partially disposed of its oil field service units and outsourced some of its production and refining functions, which reduced numbers of Gazprom Neft’s own employees. Much higher staff turnover rate in 2011 compared with 2010 (15.8% against 1.9%) is explained by these actions.

DESCRIPTION OF COMPANYPERSONNEL

09 10 11

50,1

53

64,8

95

58,9

0558,905people

–9.2%

Russia

CIS

Non-CIS

AVERAGE HEADCOUNT, 2009-2011, people


Gazprom Neft aims to match the num-bers and functionality of its personnel to the Company’s business objectives. This involves elimination of role duplica-tion, raising qualifications (and therefore performance) of employees, implement-ing innovative technologies, and achiev-ing substantial reduction of labour costs. At the same time, the strategy calls for rapid business growth through the development of new fields, expansion of geography and other tasks, which will depend on drawing new talent to the Company.


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Main principles of the Company’s staff policy are reflected in Gazprom Neft’s Corporate Code. The Company respects personal liberty, human rights and dignities, excludes any forms of discrimination and harassment and demands the same of its employees. Gazprom Neft consistently implements an equal opportunities policy, respects employee rights and provides equal opportunities for development of skills and abilities. All employees and job applicants are given equal opportunities to prove themselves. Human resource decisions are made purely on the basis on an employee’s qualifications, professional qualities, work achievements and the needs of the business.

All of the Company’s regulatory documents and programmes of social and employment relations as well as collective agreement are designed in strict compliance with the Constitution of the Russian Federation and Russian laws, includ-ing the Russian Labour Code, and do not contain any provisions that allow unequal opportunities by gender, age or any other criteria that are not permitted by legislation (restrictions exist on employment of women and young people aged under 18 for heavy and hazardous work).

Company officials monitor and control compliance with labour law, and the Company exercises control over implementation of obliga-tions under its Collective Agreement.

The Company has adopted a Personnel Management Strategy up to 2020, which ensures alignment of human resource issues with general corporate strategy.

PERSONNEL MANAGEMENT

Sales units (aviation fuel and petro-leum product supply enterprises) expe-rienced strong growth in 2011, including purchase of new assets. New staff were recruited to sales enterprises purchased by Gazprom Neft in 2011.

There will also be much opportunity for hori-zontal career paths by Company employees (migration to other business divisions and learning of new skills). Internal candidates are prioritised when filling new jobs and internal rotation programs are among main activities of the Personnel Department: new deployment of employees who already have experience in the Company reduces recruit-ment costs and adaptation periods.

Production

Production-related services

Research & development

Oil field service & geological exploration

Oil refining

Petroleum product sales

Multi-profile businesses(NIS, Sibir Energy)

Product-oriented subsidiaries

Aviation fuel supplies

Other

12.2%

4.5%

1.5%

7.6%

8.5%

33.6%

16.6%

2.4%

2.2%

11.0%

PERSONNEL STRUCTURE IN CORE BUSINESS SEGMENTS AT THE END OF 2011, %

64%

36%

Men

Women

23%

58%

19%

Under 30

30-50

Over 50


AGE & GENDER OF PERSONNEL IN 2011, %


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Goals Implementation

Boosting efficiency and quality at work, enhancing the incentive scheme and loyalty building

Improving personnel management quality

• A system was developed and approved for regular personnel evaluation, includ-ing both performance evaluation and evaluation using a set of universal criteria

• An Employer Value Proposition has been developed• A grade system was implemented at all core enterprises. A grade system was

also implemented at new Group enterprises in 2011• A unif ied social benefit system was approved. Plans were approved for transi-

tion to this system by Gazprom Neft enterprises in 2012–2014

Raising the professional level of employees

• 5 modular corporate training programs were developed and introduced, and the corporate training matrix was extended

• 13% of corporate trainings used a remote format• The employee proficiency rate in 2011 stood at 0.85%, which is 0.1% above

the 2010 figure

Staffing • a uniform mobile personnel concept was developed and launched at a number of subsidiaries and affiliates

• a new version of the corporate standard concerning the unified succession pool was enacted, and 1,373 succession candidates were included in the pool

IMPLEMENTATION OF MID-TERM PERSONNEL RELATIONS GOALS IN 2011.

Gazprom Neft understands the importance of coordinating Company actions with the actions of employees in order to ensure successful work and appreciates the contribution which each employee makes to achievement of the goals set by the Company. The key values and principles which make it possible to build an efficient and well-coordinated business are set out in the Company’s Corporate Code and can be summarised as follows:• respect and cooperation – the Company

strives to establish a corporate atmosphere of mutual respect, which motivates employees to achieve common goals;

• efficiency and results – the Company encourages its personnel to find optimal paths to best results;

• leadership and dynamic growth – by setting ambitious goals, the Company strives to realise its potential and provide growth and development opportunities for its employees;

• initiative and responsibility – the Company encourages innovative ideas, solutions and methods and understands their importance for making the most of business opportunities.


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The specifics of work with personnel vary between operating units.

Strategy implementation is based on in-troduction and step-by-step extension to all Group enterprises of a unified system of poli-cies and standards governing the Company’s personnel management processes (staffing, personnel records, motivation and remu-neration, development and training).

Work continued in 2011 to enhance the incentive and remuneration system and to develop the personnel performance management system.

The Personnel Management Strategy is designed to combine optimal use of personnel for achievement of the Company’s goals with a system of tools to meet the socio-econom-ic expectations, requirements and interests of employees. Mechanisms to implement the Strategy include recruitment and hiring, creation of a succession pool, management of benefit packages, employee performance evaluation, training and development cours-es, and improving the efficiency of personnel management practices. At the same time, the Company tries to organise these activi-ties in a way that ensures clear links between employee evaluation, development, hiring and staff rotation processes.

PERSONNEL PERFORMANCE MANAGEMENT SYSTEM

In 2011, a large-scale project was implemented to relocate the Company’s Corporate Centre from Moscow to Saint Petersburg. The Company arranged the move to a tight schedule: organisational changes and new local regulatory documents were designed and approved as necessary, and a schedule for relocation of organisational units was prepared. Special attention was given to design of a relocation compensation system. The Company was therefore able to retain its most valuable staff, minimising the stress associated with inevitable replacement of a part of Corporate Centre personnel.Recruitment in Saint Petersburg was carried out quickly in order to ensure business continuity at all of the Company’s business divisions. The move was completed without delays within the target timeframes, and the new team had already started work in Saint Petersburg by December 2011.

EMPLOYEETARGET SETTING

EMPLOYEE PERFORMANCEEVALUATION

INCENTIVE, REMUNERATION & CAREER DEVELOPMENT SYSTEM

STANDARDS DEFININGPERSONNEL & PERFORMANCE

REQUIREMENTS

EMPLOYEE WORKPLANNING & CONTROL

The personnel performance manage-ment system uses a set of indicators for various management levels and a number of individual targets for each employee, enabling prompt evaluation and control of performance. A system has been devel-oped and approved for regular personnel evaluation, supplementing the perfor-mance management system with an an-nual evaluation of employee activities by universal criteria: professional, ethical and managerial.

Exploration and Production

Boost competences in development of fields with depleted resources, in areas with severe climatic conditions or complex geology, as well as international project management competences

Refining Train personnel capable of efficient work with state-of-the-art refining technologies

Sales Develop competences for more rapid expansion of market share, ensuring efficiency and service quality improvement

STAFF STRATEGY PRIORITIES


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26 For more details on the program and its implementation at the Company, see Gazprom Neft’s 2010 Sustainable Development Report .

An efficient incentive scheme encourages good performance by personnel, helping to achieve the Company’s business objectives.The Company is therefore committed to developing and implementing a comprehensive incentives system based on competitive wage levels, result-driven remuneration, and a social welfare component.

REMUNERATION

The Company maintains the market-aver-age level of remuneration for the Russian oil and gas industry, and salaries are reviewed each year. Total average wage growth in the last three years was 50%. The average monthly wage per employee in 2011 was RUB 59,989. Personnel ex-penditures grew by 11.5% in 2011 against 2010 to RUB 45.3 bn.

REMUNERATION& SOCIAL GUARANTEES

2009 2010 2011

Total 28,156,201 40,595,796 45,277,839

Payroll (net of social payments) 26,617,333 39,025,207 42,403,326

Social payments 1,538,868 1,855,155 2,874,520

PERSONNEL EXPENDITURES, 2009-2011, thousand RUB


Gazprom Neft-Omsk Refinery was among prize winners in the national contest, ‘Best Insurance Policy Holder’, held by the Russian Pension Fund. The enterprise was judged best in the category ‘Policyholder Employing over 500 Personnel’.

AVERAGE MONTHLY WAGES, 2009-2011, RUB

09 10 11

44,2

27

50,0

95

59,9

8959,989rubles

+19.8%

Professional criteria are used to evaluate employee work quality, ethical criteria assess an employee’s attitude towards his or her work, and special managerial criteria are to evaluate managerial competences. Implementation of the program is sched-uled for 2012, following an extensive infor-mation campaign reaching all employees.

A grade system26 has been introduced at all of Gazprom Neft’s core enterprises, which will establish clear and transparent principles for remuneration, training and evaluation. In 2011, the grading system was implemented at the Company’s new enterprises.

A uniform mobile personnel concept has been developed to address the chal-lenges of expanding business geography, creating a personnel resource for imple-menting major projects, including foreign projects. The concept defines the proce-dure for seconding employees to work sites in Russian regions and abroad, as well as the list and procedure for providing reim-bursements and benefits to serve as addi-tional incentives for relocated employees. A number of subsidiaries and affiliates are already using this approach in practice.

Human resource management includes a Staff Relations Department at the Corporate Centre, staff manage-ment offices at operating divisions and staff relations units at subsidiaries and affiliates. These organisational units are responsible, each at its own level, for implementing strategic personnel develop-ment programmes and support for current activity across all areas of human resource management.


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Gazprom Neft places much emphasis on non-financial forms of employee motivation. The company has developed a non-financial motivation concept, and uses various approaches to ensure that employees feel valued by the Company, and that they understand the importance of their contribution to the success of the business.

Such approaches include proficiency contests, sports competitions and recreational activities, as well as corporate communication sessions.

The Company annually awards two kinds of labour distinctions: ‘Distinguished Employee of Gazprom Neft’ and ‘Gazprom Neft Veteran’. These titles are awarded as part of the corporate awards schedule and they are regulated by a special corporate standard.

An important part of Gazprom Neft’s incentives system and HR brand27 is the Employer Value Proposition – a set of f inancial, professional and social benefits offered by the Company to its employees. The Value Proposition was developed through a dialogue, which identified the main value orientations and expectations of employees.

Its key components are the opportunity to work for a stable and fast-developing company offering excellent prospects for professional development and with a comprehensive corporate culture.

27 An HR brand is a company’s image as an attractive and responsible employer, its reputation among job applicants and employees. The HR brand reflects a company's corporate culture, its basic principles and values.



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SOCIAL GUARANTEES

The Company’s business units apply collective agreements and other rules and standards, which make various social benefits and pay-ments available to employees over and above what they are entitled to under Russian law. Social benefits at most business units include voluntary medical insurance, insurance against accidental injury, meal payments, financial as-sistance in case of urgent need, and other items. In 2011, the Company adopted a uniform system of social benefits that harmonized the list of ben-efits and related procedures. Under the system, practically all business units in the Group will practice accident insurance starting from 2012. It is also intended that business units will switch to a uniform system of benefits in 2012-2014.

The collective agreement referring to vol-untary medical insurance ensures that Company employees receive qualified consultations by doctors and treatment in the country's leading clinics. A corporate mortgage program has been set up in several regions to help employees purchase their own housing. The program offers reimbursement to the employee of a portion of mortgage loan interest.

Gazprom Neft is committed to team-build-ing and encouragement of a healthy life style among its employees. A wide range of sports and recreational events are held every year at Company enterprises for this purpose, includ-ing competitions between the sports teams of various subsidiaries. About 1,800 employees took part in such sports events in 2011, which is 14% more than in 2010 . Events included tra-ditional festivals of summer and winter sports (‘Spartakiada’), a football tournament between teams from Company refineries, and many others. In 2011 Gazprom Neft also took part for the first time in the Summer Spartakiada of OJSC Gazprom.

Concern for veterans – both war vet-erans and retirees with many years of service at the Company – is a tra-ditional part of Gazprom Neft’s corporate culture. Veterans benefit from financial assistance, as well as involvement in cultural and sports events. In 2011 the management and trade union committee of Gazprom Neft-Noyabrskneftegaz delivered a package of New Year presents to veterans (a money pay-ment of RUB 35,000, various food goods and commemorative souve-nirs). Gazprom Neft-Omsk Refinery celebrated the 45th anniversary of its ‘Fakel’ veterans club in 2011, and held a sports and culture event for its veterans under the title ’Health and Vigour’.

CORPORATE SPORTS EVENTS:

• Gazprom Neft Boxing Championship• Gazprom Neft Winter Spartakiada• Gazprom Neft Mini-Football Tournament

(production units)• Gazprom Neft Football Tournament (refinery

units)• Qualifiers for the Gazprom Neft Summer

Spartakiada (petroleum product units)• Gazprom Neft Summer Spartakiada

INTER-CORPORATE & SECTORAL SPORTS COMPETITIONS

• Gazprom Summer Spartakiada• Oil and Gas Industry Balkan Games• SportTEK International Games

Free and subsidised meals 509,864

Voluntary medical insurance 438,862

Vacation payments 101,722

Payments to retiring employees 623,067

Housing programme 118,413

Sports and cultural events 314,003

MAIN ITEMS OF THE GAZPROM NEFT EMPLOYMENT BENEFIT SCHEME IN 2011, thousand RUB


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The administrative and residential complex No. 1 in the south-western section of the Krapivinskoye field was fully renovated: living quarters were redecorated, new shower units were installed, and the gym, kitchen, canteen and medical centre were upgraded. Flooring in the common-use hall was replaced at complex No. 2.

In May 2011 repair work was carried out on living quarters and social facilities at shift camps, which accommodate workers at various fields operated by Gazprom Neft-Vostok.

The kitchen and dining hall were repaired at another workers’ residential site and various accommodation and utility issues were resolved at new Company fields – Nizhneluginetskoye and Zapadno-Luginetskoye. At the former the canteen was repaired and extended, and at the latter the bakery was relocated to

the canteen premises, which will optimise the work of service staff and improve service quality. A gym was also opened for use by workers at Zapadno-Luginetskoye.



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Design and implementation of social programs at Gazprom Neft is assisted by trade union organisations, which cooperate with the Company to address issues of professional, social and labour rights and protection of employees’ interests. The Company has an inter-regional trade union organisation, which transmits employee response to the Company’s social and economic policies and helps in policy design. HR managers at subsidiaries hold regular meetings with trade union leaders, and a large gathering of HR managers and trade union representatives from subsidiaries and affiliates was held in Moscow Region in June 2011 to discuss relevant issues in all areas of personnel relations. The participants discussed development of the social benefit system, the ‘mobile personnel’ concept, development of professional competences, internal rotation opportu-nities for specialists within the Company, and a number of other issues. The event included a meeting between trade union leaders and Vitaly Baranov, the Deputy Chairman of the Management Board with responsibility for administrative issues, to discuss interaction between trade unions and Company managers, new corporate policies in various regions and the Company’s HR standards.

Mutual obligations of employees and the Company with respect to social and economic issues, industrial safety and employment matters are regulated by collective agreements. Standard collec-tive agreements at Company subsidiaries contain a work safety section, which defines the responsibilities of employers and trade unions to put in place and oversee work safety measures and to monitor them. The section defines the responsibilities of work safety commissioners, members of commissions (committees) for work safety and trade union officials for creation of safe working conditions and prevention of inju-ries and illness in the workplace. Collective agreements also regulate the balance between employer and employee interests during reorganisations and staff cuts, includ-ing a minimum notice period28 before such actions are carried out.

Trade union organisations at Company enterprises devote much attention to youth issues, setting up youth commis-sions to involve young employees in improvement of work conditions, accom-modation and social conditions. The com-missions design programs and proposals concerning the interests of young workers, which can be written into the relevant sections of collective agreements, as well as preparing and implementing adap-tation programs for young recruits to the Company. The commissions also help to organise leisure activities for young workers, including entertainment, sport and recreational events.

WORKING WITH TRADE UNIONS

The trade union’s youth relations commission at Gazprom Neft-Omsk Refinery won a contest in 2011 for youth councils at regional enterprises organised by the Omsk Trade Union Federation. Criteria applied in the competition included the number of young employees in a company’s trade union, social guarantees provided to young specialists, and involvement of the youth association in major events held both by the enterprise and by the Omsk Trade Union Federation.

28 No later than two months before the relevant actions take place, and no later than three months if mass layoffs are foreseen.


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TRAINING & DEVELOPMENT

The Company’s personnel development programs use common standards throughout Russia. Work continued in 2011 to build a system of personnel training and development based on a corporate model of competences, and aligned with business objectives. Five modular corporate training programs were designed and launched during the year (a total of 25 have been implemented to date) and the corporate training matrix was extended.

Unique target programs that match strategies of the Company’s business units represent a new direction in corporate training at Gazprom Neft. Such programs include:• Development of Fields with Complex

Geological Structure (25 persons trained, jointly with Shell Corporate University);

• Supervising in Drilling (26 persons trained at the Schlumberger Training Center);

• FivePlus (developing the competence of high-potential employees to fill top executive positions at Group subsidiaries: 17 persons trained (jointly with ECOPSI Consulting));

• Project Academy Program (40 persons trained at Skolkovo Moscow School of Management);

• Project Management in Oil Refining (40 persons trained jointly with the French Institute of Petroleum).

GAZPROM NEFT TRAINING & DEVELOPMENT SYSTEM

SEMINARS & TRAININGS

ROTATION, TRAINING & SUCCESSION PROGRAMS

DISTANCE LEARNING

EXCHANGE PROGRAMS

LONG-TERM TRAINING PROGRAMS

PROFESSIONAL CONTESTS

MENTORING


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67JSC GAZPROM NEFTSUSTAINABILITY REPORT 2011 67JSC GAZPROM NEFTSUSTAINABILITY REPORT 2011

Gazprom Neft’s Project Academy opened at the Skolkovo School of Management in Moscow on April 18, 2011. 50 specialists from Gazprom Neft involved in major Company projects were the first participants in the program.

Managers and specialists from Gazprom Neft's corporate centre and staff from company sub-sidiaries will take part in specialised training at the Skolkovo Academy. Shell, Gazprom Neft's partner in development of the Salym field, is also a partner in the program, and the Shell specialists will share their experiences in op-erations around the globe with the specialists from our Company.

The aim of the multi-module integrated training program is to educate Gazprom Neft staff in project-management best practice, application of unified methodolo-gies for large projects, and strengthening of cooperation processes. Over the course of one year students undergo training in five modules: ‘Leadership in Large Project Management’, ‘Negotiations, Contractors and Procurement’, ‘Financial Management’,

‘Human Resources Management’ and ‘Portfolio Management’. Special emphasis is placed on dealing with real situations that arise during implementation of major projects.


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The Company continued to develop its system of technical competence monitoring, which uses the results of employee testing to help plan future technical training programs. During the year, more than 200 position profiles were prepared in the oil refining seg-ment, bringing the total number of profiles to 500. Increasing use is made of distance learning techniques. The share of employees who underwent some form of training in the course of the year grew by 0.1% in 2011 to 0.85%, which is above the industry average.

New cooperation and partnership links have been forged with training providers in Saint Petersburg following relocation of the Company’s Corporate Centre to the city. Four Petersburg providers were added to the corporate program list in 2011.

The high level of qualif ication of Gazprom Neft specialists is con-f irmed by the results of prestigious professional competitions. In 2011, specialists at the Gazprom Neft subsidiary, Muravlenkovskneft, were among winners in the 12th na-tional competition, ‘Engineer of the Year 2011’: the title ‘Professional Engineer of Russia’ was awarded to Marat Azamatov, the Company’s Deputy Chief Geologist (Head of the Department for Design and Monitoring of Well Interventions and Overall Production Planning); and Alexey Shorokhov, the Deputy Head of the Company Division for Formation Stimulation, won a prize in the ‘Youth Engineering’ category.

2009 2010 2011

Total employees who received training 1,290 1,461 1,786

incl.:

• managers and specialists 1,290 1,461 1,786

• workers 0 0 0

2009 2010 2011

Overall length of training (hours) 51,600 58,440 71,440

incl.:

• managers and specialists 51,600 58,440 71,440

• workers 0 0 0

PERSONNEL TRAINING

29 The data here and in the table below refer only to the Company’s Corporate Centre.

Interaction with higher education in Saint Petersburg is also growing: the Unified Scientific Research Centre for Innovation Technologies in Oil Production was opened at Saint Petersburg State Mining University in conjunction with the Gazpromneft-Science and Technology Centre, and agreement was reached with Saint Petersburg State University on internships at the Company for University students.

RUB 148.6 mn were spent on personnel training in 201129.


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It enables rapid appointment of well-qualified candidates to key posts and increases the share of internal appointments, which is a desirable outcome as internal candidates understand the Company and share its values.

The succession pool ensures career op-portunities for Company employees through individually-tailored programs for develop-ment of their managerial and professional skills. A project is now being implemented for unified management of succession pools across all Company subsidiaries us-ing common principles and rules and in 2011 Gazprom Neft enacted a new version of the corporate standard, ‘Formation of a Common Succession Pool for Key Positions’, which establishes a more flexible and ef-ficient approach to pool formation, includ-ing optimisation of candidate nomination and appointment procedures. The revised standard allows employees to put themselves forward to join the succession pool: whereas previously an employee could only join the pool at the recommendation of a manager, the employee can now submit a request to be considered for specific jobs via the corpo-rate portal. The succession pool contained 1,373 employees in 2011.

CREATING A SUCCESSION POOL

Creation and development of a high-quality succession pool is a priority in HR management at Gazprom Neft. The Russian oil and gas industry faces very acute human resource issues at present, with a deficit of specialists throughout the management and value chain, from production to refining and sales. The succession pool uses career planning mechanisms to ensure that the Company has sufficient high-quality personnel and that jobs of key importance for Company development are appropriately filled.

Special emphasis is placed on training and development of employees in the succession pool at the Company’s Serbian subsidiary, NIS, where financing of these activities more than doubled in 2011 compared with 2010. NIS also attributes much importance to cooperation with Serbian higher education establishments: the company has provided internship opportunities to students at relevant faculties of Belgrade and Novy Sad universities since 2010. More than 100 young professionals have joined NIS in the last two years.


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Students in Omsk received scholarship certificates from Gazprom Neft-Omsk Refinery at an award ceremony held in Omsk State Technical University on November 18, 2011. Two scholar-ships are awarded: the Litskevich Scholarship for university students, and the Maluntsev Scholarship for vocational school students. The schol-arships were taken by 30 students from Omsk State Technical University, Omsk State University, Omsk Chemical and Mechanical Technical School and Omsk State Industrial and Economic College.

YOUNG PROFESSIONALS BY MAIN BUSINESS AREAS, 2011, %

50%

2%

13%

35%

Oil production

Oil field service

Research & development

Oil refining

In 2011, Gazprom Neft hired 147 young professionals, including graduates from Tyumen State Oil and Gas University, Ufa State Petroleum Technical University, Tomsk Polytechnical University, Omsk State Technical University and other establishments. The number of young professionals working for the Company reached 365 by year-end 2011.

Policy with regard to young profes-sionals is governed by the relevant corporate standard, and is designed to attract the best university graduates to the Company’s enterprises, to build loyalty and to create a succession pool for positions of responsibility30.

Each young professional receives specialised training to address tasks at each stage of his or her development, based on a corporate model of manage-ment competences. Young profession-als highly appreciate this development program, which scored nine out of ten points in feedback ratings by young employees who benefit from it.

The Company works closely with higher and vocational education es-tablishments to source highly-qualified specialists for its enterprises in the future.

WORKING WITH YOUNG PROFESSIONALS

30 Procedure Governing Work with Young Professionals.


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DEVELOPMENT CYCLE OF A YOUNG PROFESSIONAL AT GAZPROM NEFT

ADAPTATION SKILL DEVELOPMENT

CORPORATEINVOLVEMENT

REALISATIONOF INNOVATION

POTENTIAL

ASSESSMENTOF POTENTIAL

STRATEGIC

• Saint Petersburg State Mining University

• Gubkin Russian State University of Oil and Gas

• Lomonosov Moscow State University

TERRITORIAL

• Tyumen State Oil and Gas University

• Ufa State Petroleum Technical University

• Tomsk Polytechnical University

• Omsk State Technical University

PARTNER UNIVERSITIES OF GAZPROM NEFT

A program is being implemented in 2012 for regular personnel evaluation using an extended set of criteria. Professional criteria are complemented by others of an ethical nature, and dedicated management criteria are used to evaluate managerial competences.

Gazprom Neft enterprises will begin changeover to a unified social benefit system in 2012, as approved in 2011. This transition is planned during 2012-2014. The system will serve as a basis for introduction of employee accident insurance at enterprises throughout the Company.

Work with young professionals and cooperation with specialised educational establishments are being continued in 2012.

The Company will develop relationships with trade union organisations in 2012 to create favourable conditions for the Company’s human resource development and employee working conditions.

The Company’s HR efforts in 2012 will be focused on human resourcing for the Company’s development programmes, in accordance with approved Strategy, as well as on raising the professional level of employees, enhancing the incentive system and improving staff loyalty. Priority tasks include extension and quality improvement of the succession pool, development of professional competences for efficient implementation of major Company projects in Russia and abroad, recruitment, personnel evaluation and motivation, and employee training and development systems.



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SECURE DEVELOPMENT:HEALTH SAFETY & ENVIRONMENT

The leadership strategy implemented by Gazprom Neft goes beyond the achievement of excellent operating and financial indicators. Expansion of Company business and new horizons for our industrial activities call for environmental management and improvement of working conditions. Gazprom Neft aspires to rank alongside leading international petroleum companies by health, safety and environment criteria.

KEY HSE GOALS OF GAZPROM NEFT, 2011-2013

• developing an integrated HSE and civil defence system;

• minimising the accident rate among employees;

• securing consistent and effective reduction of adverse environmental impacts from Company operations.


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MANAGEMENT APPROACHES

The Company’s HSE work is in conformity with its corporate Policy on Industrial Safety, Labour and Environmental Protection and is coordinated at the level of the Corporate Centre by the Occupational Safety Department. The Department includes sections specialising in industrial and fire safety, work conditions, environmental issues, and special programs for civil defence and emergency management. Since June 2011 the Department has reported directly to the CEO of Gazprom Neft and relevant changes in subordination of HSE functions were also effected at all Company subsidiaries and affiliates. Company management believes that the reorganisation will improve the quality of HSE risk management.

The Company has a collective body, the Industrial Safety, Labour and Environmental Protection Council, to enable discussion of the most important occupational safety issues, formulation of new strategic objectives and adjusting of current objectives. Council members are the managers of functional sub-divisions of the Occupational Safety Department and managers responsible for HSE at the Company’s major assets. An extended meeting of the Council was held in 2011 with participation by the heads of services at various Company subsidiaries and repre-sentatives from core business segments. The meeting discussed a plan for revision of the current occupational safety standards and development of new standards, based on suggestions for improvement which have been made. It was decided to revise eight standards and seven standards were put on a ‘to be developed’ list. The Council approved main criteria for evaluating HSE performance by subsidiaries in 2012.

Scheduled work was continued in 2011 for the establishment of an HSE management system in compliance with the approved corporate strategy.

Progress can only be achieved through the assessment of current efficiency and the setting of goals. Therefore in 2011 the Company developed and successfully applied an Integral HSE Indicator, which tracks development of accident and injury rates, as well as success in implementation of f ire safety, transport and environmental programs at subsidiaries. Indicators levels and progress was measured on a quarterly basis using the Azimut IT control system. This comprehensive approach gives a real-istic picture of the HSE situation at an en-terprise and enables timely correction by management when necessary. It was decided to continue use of the Integral Indicator in 2012.

WORK TO IMPLEMENT AN INTEGRATED INDUSTRIAL SAFETY, LABOUR & ENVIRONMENTAL PROTECTION MANAGEMENT SYSTEM

2008 2009 2010 2011 2012Building a statistics database

Improving completeness of accident reporting

Developing a regulatory base

Training

Analysis of accidents, exchange of information

Raising the quality of investigation

Production control and audits

Risk assessment

Analysis of the state of the control system

Making adjustments to the system

Developing comprehensive projects and programs

Analysis of system efficiency and further adjustments

Launch of a regime for ongoing improvement of the system and of work processes


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The Company makes a continuous effort to improve its HSE performance:• Consistently reducing the number of

industrial injuries, occupational diseases, accidents, and adverse environmental impacts.

• Ensuring production safety and environmental protection by implementing a single integrated HSE management system to international standards at Gazprom Neft production facilities. The system will employ key processes for hazard identification, occupational risk assessment and management.

• Introducing the best global practices related to HSE methods, technology and management at all Gazprom Neft production facilities on an ongoing basis.

Commitments to industrial and environmental safety, labour and civil protection:• Creating conditions for HSE activities,

including methods of motivation and involvement, so that each employee of Gazprom Neft is aware of and responsible for his/her own safety and the safety of others and has the right to stop and/or refuse the performance of any activity if it poses a threat to the life or health of the employee or others.

• Introducing, supporting and continuously improving efficient HSE management systems at the Company in compliance with international and national standards.

• Consistently implementing a wide range of preventative measures to reduce the likelihood of accidents, based on the understanding that any planned or current business operation of Gazprom Neft or its subsidiaries or affiliates involves potential hazards.

• Continuous improvement of working conditions, industrial and environmental safety, and monitoring of such improvements.

• Complying with applicable legal requi -rements and using all available economically feasible possibilities to mitigate risks beyond the scope of legal requirements

• Ongoing efforts to increase employees’ level of knowledge, competence and awareness with regard to health, safety and environment using different types of training and guidance.

• Providing the resources necessary for implementation of the HSE Policy

• Introducing relevant management methods with respect to third parties and business partners of Gazprom Neft to enforce compliance with the Policy’s requirements when they are engaged in operations at Gazprom Neft companies and facilities.

• Transparency of, and easy access to, HSE figures through appropriate exchange of information and dialogue with all stakeholders.

• Timely updates and communication of corporate HSE Policies to all Gazprom Neft Group employees and third-party stakeholders.

Gazprom Neft management believes that the HSE management system is a crucial element of efficient production control and is committed to the successful management of occupational risks related to impacts on employees' life and health, equipment, property, and the environment. No economic, technical or other considerations shall be taken into account at the expense of the safety of workers, the general community, or the environment.



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Gazprom Neft began to hold confer-ences on occupational safety issues in 2010 and a positive outcome encouraged the Company to make such conferences into regular events. Three corporate con-ferences were held in 2011: on industrial safety and labour protection (March), f ire safety (June), and environmental safety (November). Participants agreed that the conferences are an efficient means of exchanging information and experi-ence, and for discussing relevant issues and plans. Representatives of Government supervisory agencies, other oil and gas companies, equipment manufacturers and suppliers always attend the conferences.

Contractors that pass selection and win tenders must enter into an HSE agreement with Gazprom Neft detailing the rights and obligations of the parties regarding safety and security measures throughout the pe-riod when work will be performed and ser-vices provided, and defining coordination procedures for this period. At the end of the contract, the customer (Gazprom Neft) conducts a comprehensive assessment of the contractor’s occupational safety performance, which makes it possible to rank contractors and use the results for se-lection purposes in the future. Accounting of contractor occurrences was carried out using the Azimut IT control system.

Successful HSE management depends on regular audit to appraise the current state of the system and success in apply-ing new mechanisms, and to design rec-ommendations for improving the system. In 2011, the Company underwent an audit of the HSE management system audit at key oil production, refining and supply enterprises. The audit was conducted by groups of appropriately qualif ied auditors from various subsidiaries and affiliates operating in the Company’s core business segments. Subsidiaries and affiliates are took steps to improve management sys-tems based on recommendations given after the audit. This work will be continued in 2012.

Sustainable functioning of the environ-mental protection management system re-quires appropriate staffing and Gazprom Neft takes professional training of employees in this sphere very seriously. The Company carries out regular workshops for managers and professionals who are responsible for environmental safety and waste manage-ment. In 2011, 551 managers and specialists were trained in environmental safety and over 60,000 Company workers took classes in HSE standards.

The Company has implemented the corporate standard, ‘Procedure for Managing Contractors and Interactions in HSE and Civil Defense’, which was adopted in 2010. HSE issues are prioritised from the stage of selection of potential contrac-tors. By using questionnaires and request-ing information the Company defines the current HSE situation at a potential counterparty, identifies potential risks and screens any contractor, which ap-pears inadequate by HSE criteria before any contractual relations are established.


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Protecting the environment and natural resources is an important objective of Gazprom’s business, and this applies to all the Company’s subsidiaries in all segments. Use of an integrated environmental management system enables enterprises to adhere to this principle in all aspects of their activities.

The environmental management system of Gazprom Neft Shipping LLC was certif ied in 2011, confirming that company’s cur-rent environmental management system conforms to ISO 14001:2004 in respect of petroleum product transportation by sea and inland waterways, and cargo handling operations. Gazprom Neft-Omsk Refinery also underwent an audit to certify confor-mity with the requirements of ISO 9001 and ISO 14001. Based on the inspection, auditors concluded that the Refinery’s integrated management system was designed, implemented and maintained in accordance with the requirements of international standards.

HSE management systems at Tomskneft VNK underwent a regular audit in 2011. A commission from Russian Certification Technologies, an authorised certif ication body, checked conformity of the enterprise with the requirements of ISO 14001:2004 and OHSAS 18001:2007 by inspecting its f ields and facilities in the town of Strezhevoy. Technical facilities at Tomskneft oilf ields were examined, documents were reviewed, and conversa-tions were held with managers and employ-ees at various levels. The auditors visited Tomskneft’s industrial safety, capital con-struction and energy departments, as well

as the environmental safety centre, civil defence division, oil production and treat-ment facilities and other organisational units. The inspectors also visited the town of Strezhevoy, the Sovetsko-Sosninskoye, Zapadno-Poludennoye fields, and the Pionerny and Vakh shift camps. The audit confirmed that the HSE management system at Tomskneft VNK meets interna-tional standards. The audit was the fourth since international management standards were introduced at the company. The next audit will take place in a year.



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Developing an integrated HSE system

• An integral HSE performance indicator was developed and successfully applied• Indicator levels and progress in program implementation are monitored on

a quarterly basis• The standard, ‘Procedure for managing contractors and the organisation of relations

in health, safety, environment and civil defence’ is being implemented. The standard is applied to contractors

• An audit of the HSE management system was carried out at key production, refin-ing and supply enterprises

• 551 managers and specialists were trained in environmental safety. Over 60,000 Company employees took classes in HSE standards

Reducing employee injury rates

• Implementation of a corporate HSE and civil defence management system and action programs under the Company’s HSE Policy led to a major decline in the rate of fatal injury (by 38%) in 2011

Reducing adverse environmental impact caused by operations

• Regular environmental monitoring is carried out at the Company’s facilities• Efforts were made to ensure rational use of water resources and reduction of

atmospheric emissions. The rate of utilisation of associated gas32 (including joint ventures) stood at 64.5% in 2011 compared with 60.4% in 2010

• Programs were implemented to eliminate sludge pits, and to reclaim disturbed and oil-polluted land. 135 hectares of oil-polluted land were reclaimed, work was carried out for reclamation of 5,374 hectares of disturbed land, and 138 sludge pits were eliminated

• Energy eff iciency programs gave savings of RUB 771 mn and RUB 963 mn in the refining and oil production segments, respectively

• Various actions were carried out to develop stakeholderstakeholder engagement

IMPLEMENTATION OF MID-TERMHSE GOALS IN 2011

32 Share of produced/utilised gas in the total amount of gas extracted from formations. The remaining gas is flared.

IMPLEMENTATION OF MID-TERM HSE GOALS IN 2011


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ROAD SAFETY

Gazprom Neft continues to implement measures for road safety, including the devel-opment of regulatory documents, holding of road safety months at Company enterprises and staff trainings. This approach has yielded results in the form of rapid year-on-year declines in the number of traffic accidents, by 24% in 2010 and 34% in 2011.

EMERGENCY READINESS

Gazprom Neft’s HSE Policy and standards are

designed to minimise risks and prevent accidents.

Priorities include creation of posts (staffing) for

supervision of civil defence, improving manage-

ment team qualifications, individual response

training for emergencies, and maintaining

a high level of emergency readiness. Emergency

prevention and response activities are based on

action plans, which have already been developed,

approved and implemented by subsidiaries and

associates. Financial and material provisions in

case of emergency are in place at subsidiaries and

associates, and their levels of readiness for emer-

gency management is checked through regular

exercises and training.

The Company seeks to achieve ongoing improvement in levels of safety at work, consistently reducing rates of accident, injury and work-related illness.

INJURY PREVENTION

Implementation of a corporate HSE manage ment system and programs under the Company’s HSE Policy led to a major decline in the rate of fatal injury (by 38%) in 2011. The Company has a corporate standard de fining the procedure for providing workers with personal protective equipment. Special clothing bought by the Company meets domes-tic and European safety requirements. In 2011, the Company spent RUB 13,000 per employee to buy personal protective equipment.

Health and safety is an area of mutual responsibility and constructive relationships between the Company and trade unions. Mutual obligations regarding these issues are reflected in collective agreements and employee health programs. In the last three years, there has been a reduction in the number of employee evacuations from the work place due to illness requiring hospitalisation.

09 10 11

0.7

0.6

0.60.6

09 10 11

101 67 4949–26.9%

incidents

09 10 11

269

209

141141–32.5%

incident

INJURY RATE, LTIFR NUMBER OF INSTANCES WHEN PERSONNEL WERE EVACUATED FOR HEALTH REASONS

NUMBER OF ROAD ACCIDENTS

HEALTH & SAFETY

Gazprom Neft-Omsk Refinery took first place in a regional competition for occupational health management at industrial enterprises, highlight-ing the special efforts made by the Refinery to reduce injuries at work and work-related diseases, and to ensure that workers use high-qual-ity protective equipment.

FATAL INJURY RATE, AAR

2.2AAR

–37.1%

07 09 09 10 11

3.3

3.5

2.2


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Rapid organisational and technical development, expansion of the opera-tional assets of Company subsidiaries and associates, reassignment of tasks, functions and responsibility between them, and various other external and internal factors make it important to strengthen the management system for environmental safety and protection, and to implement approaches that comply with international best practice.

It is published on the Company’s website and is available at all subsidiaries and af-filiates. Information on Policy realisation is also provided to external stakeholders.

In 2011, information on environmental aspects of operations by Gazprom Neft-Omsk Refinery was presented to the First Regional Environmental Forum in Omsk Region. Refinery managers responded to the questions of local residents about measures to ensure environmental safety of operations.

REDUCTION OF NEGATIVE IMPACT ONTHE ENVIRONMENT & EFFICIENT USE OF RESOURCES

The environmental protection model, which the Company strives to achieve, addresses the tasks in Gazprom Neft’s HSE Policy in order to ensure a socially accept-able level of environmental risk. Key prin-ciples and mechanisms are defined as part of corporate environmental programs and projects. Control over risks associated with negative environmental impact of Company production facilities is exer-cised at all stages, from risk identification to monitoring and control of preventive and corrective measures. Information on environmental security, implementation of environmental activities and changes to key environmental indicators are included in routine and regular reporting.

Enhancing competences, awareness and involvement of personnel across the entire production chain is an important driver for successful realisation of HSE pro-grams. The Company’s Policy in this f ield has been communicated to all employees.

A rating by Interfax International Information Group of enterprises in Russia and Kazakhstan found the Yaroslavl Refinery, Slavneft-YaNOS, to be the leader in its region by criteria of environmental and energy transparency. Slavneft-YaNOS received an index score of 99.5%, putting it in first place among 49 production enterprises in Yaroslavl Region and among the Top-10 enterprises in Russia. The rating compares enterprises using essential indicators of environmental friendliness and energy efficiency of their production processes. Voluntary information disclosure by the companies for purposes of the rating shows willingness and ability to take responsibility for their environmental performance and to engage in a dialogue with the public.

Assessment of the environmental impact of enterprise operations, evaluation of management systems and of the efficiency of environ-mental activities is an integral part of work to improve environmen-tal security. One such program is the ‘Comprehensive environmen-tal survey of site and facilities at Gazprom Neft-Moscow Refinery’, which began in August 2011 and aims to obtain reliable and objective information on the environmental situation at the Moscow Refinery. The program is identifying past and present ecological problems and obtaining necessary information for development of the ‘Gazprom Neft-Moscow Refinery integrated envi-ronmental safety program’. Actions include assessment of the natural environment (groundwater, industrial effluents, soil, air and waste manage-ment) at and around the Refinery and evaluation of potential environmental risks and the environmental manage-ment system. Recommendations for improvements will be given.

Information on environmental aspects of operations by Gazprom Neft sub sidiaries and affiliates is published regularly in regional mass media. A total of 14 articles on the Company’s environmental perfor-mance were published in 2011.


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* Not including capital construction, retrofitting and repair of fixed assets with positive environmental effect.

CJSC Gazprom Neft-Kuzbass in Kuzbass Region; Gazprom Neft-Chelyabinsk LLC in Chelyabinsk Region; and Gazprom Neft-Omsk in Omsk Region).

The Company spent RUB 979.2 mn on disposal of production and consumption waste in 2011. The money was spent on integrated maintenance and management of industrial and household waste landfills, elimination of sludge pits and reclamation of oil-contaminated land, collection and disposal of waste, and transfer of waste for disposal and decontamination by other organisations.

Statutory payments for negative impact on the environment were reduced by RUB 211.1 mn in 2011 compared with 2010 thanks to environmental protection measures carried out by the Company.

SPENDING ON ENVIRONMENTAL SAFETY & PROTECTION

Gazprom Neft is implementing a set of actions for consistent reduction of nega-tive impacts on the environment, guided by an integrated policy with emphasis on conformity to environmental require-ments, effective planning, and integration of environmental measures with Company operations throughout the production chain. The Company’s subsidiaries and aff iliates have approved their own envi-ronmental safety programs that include various activities for rational use of natural resources and environmental protection.

Realisation of these programs in 2011 required considerable spending on devel-opment and implementation of innova-tive technologies, upgrade of production equipment, preparation of environmental, regulatory and procedural documents, conduct of environmental control and monitoring, management of production

and consumption waste, raising qualif ica-tions and providing training for specialists, making statutory payments to compen-sate negative impact on the environment, as well as other environment-related activities.

A large part of capital costs were spent on construction and renovation of landfill sites for industrial and household solid waste (Gazprom Neft-Vostok LLC in Tomsk Region; Slavneft-Megionneftegaz and Gazprom Neft-Khantos LLC in Khanty-Mansiysk Autonomous District), installation of f loating roof equipment at reservoirs (Gazprom Neft-Omsk Refinery in Omsk Region; Slavneft-YaNOS in Yaroslavl Region) and construction and renovation of wastewater treat-ment facilities (Gazprom Neft-Vostok LLC in Tomsk Region; Slavneft-YaNOS, the Mendeleyev Refinery and Gazprom Neft-Yaroslavl in Yaroslavl Region;

07 08 09 10 11

3,656.7million RUB

+39.7%

607.

6

2,07

2.8

1,27

9.6

2,61

7.6

3,65

6.7

ENVIRONMENTAL SAFETY SPENDING, mn RUB TRUCTURE OF ENVIRONMENTAL SAFETY SPENDING, %

Capital costs* 27.7%

Wastemanagement

26.8%

Operating expenses 15.4%

Treatment ofcontaminatedwaste water

10.4%

Air purification 6.7%

Environmentalpayments

5.5%

Water use 7.5%

ENVIRONMENTAL PAYMENTS, mn RUB

09 10 11

603.

1

609.

0

397.9397.9 –34,7%

million RUB

For disposal of industrial waste

For discharges intothe environment

For atmosphericemissions


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Projects as part of the Company’s associ-ated gas program include construction of gas-collecting systems and gas-processing plants, and development of transport. The Noyabrsk integrated project, which began in 2011, will enable utilisation of an extra 1–1.2 bln m3 of associated gas per year through simultaneous expansion of gas transportation capacities by Company subsidiaries and of gas refining capacities by SIBUR Holding in the Noyabrsk area. A gas pipeline from the Severo-Yangtinskoye field to the Muravlenko Gas-processing Plant has been completed and is ready for launch, and will enable additional utilisation of about 20 mn m3 of gas in 2012. Construction of a 35-km gas pipeline for associated gas supply from the Shinginskoye field to Luginetskaya Gas Compressor Station was completed in December 2011 and will en-able delivery of up to 55 mn m3 per year by Gazprom Neft-Vostok LLC.

Increase of payments for harmful atmo-spheric emissions compared to 2010 reflected the start of operations by Muravlenkovskneft (a branch of Gazpromneft-Noyabrskneftegaz) at new fields, where levels of associated gas utilisation were below targets, as well as acquisition and construction of new assets in the sales segment.

Gazprom Neft processes project environ-mental documents in a timely fashion, and carries out industrial control and environmen-tal impact monitoring to ensure compliance with environmental legislation, and with the Company’s own regulatory and proce-dural documents, and to achieve consistent reduction of negative environmental impact. Programs for preventive and corrective mea-sures are updated on the basis of environmen-tal monitoring results.

ATMOSPHERIC EMISSIONS

Expansion of operations, new field launches and acquisition of new industrial assets tend to increase gross atmospheric emissions. Technologies for minimising such emissions are therefore highly relevant.

Gazprom Neft’s exploration and produc-tion enterprises implement various ongoing measures to reduce emissions of pollutants into the atmosphere. Measures include as-sociated gas utilisation programs, overhaul of fixed assets (pumping equipment, gas pipelines, tanks, flares and furnaces), use of special measurement equipment to gauge emissions from stationary sources, etc. Associated gas utilisation in 2011 (including joint ventures) stood at 64.5%, compared with 60.4% in 2010. The increase reflects implementation of investment projects in associated gas transportation and utilisation as well as expanding refinery capacities of Company partners.

11 11

175.

4

193.

7

09 09

103.

6

118.

1

10 10

119.

2

132.

3369.1million RUB

+46.8%

Design of projectdocumentation

Environmentalmonitoring

CURRENT SPENDING ON DEVELOPMENT OF PROJECT DOCUMENTATION, PRODUCTION CONTROL AND ENVIRONMENTAL MONITORING, mn RUB

GROSS ATMOSPHERIC EMISSIONS OF POLLUTANTS, thou t

2008 2009 2010* 2011*

Gross atmospheric emissions of pollutants, thou t 157.2 201.5 678.7(290.2)

781.4(376.5)

incl.:

CO 69.3 73.6 300.86 303.9

NOx 10.4 12.0 15.9 14.3

SO2

12.2 20.0 25.3 23.2

CH4

17.1 21.7 69.9 87.3

VOC 32.1 61.4 252.9 119.9

Gas flaring (associated gas), mn m3 2,403.5 2,222.4 2,416.1**(1,988.4)

2,310.4**(1,886.7)

* Aggregate emission volumes include the following associates: Slavneft, Tomskneft. Figures shown inparentheses are without these associates.

** Aggregate emission volumes include the following associates: Slavneft, Tomskneft, Salym Petroleum Development. Figures shown in parentheses are without these associates.


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USE OF WATER RESOURCES

The Company took various steps to raise the efficiency of water resource utilisa-tion in 2011. Facilities with treatment capacity of 125 m3/hour were built and commissioned in stage one of a program to upgrade treatment facilities at Gazprom Neft-Omsk Refinery (purif ied and decon-taminated residential sewage is useable as a water input for industrial processes). Work was also carried out to retrofit treatment facilities at the Mendeleyev Refinery in Yaroslavl, and cooling towers at the YaNOS Refinery underwent a major overhaul. The measures improved water supply arrangements at these business units and helped to reduce their water intake.

Exploration and production enterpris-es took measures to increase the safety of underwater pipeline crossings and pipe-lines installed above water courses. R&D work was carried out to justify adjustment of regional standards for permissible re-sidual oil content in soils with usable water resources, as well as adjustment of maxi-mum permissible oil and petroleum prod-uct content in the beds of surface water bodies in Khanty-Mansiysk Autonomous District. This work will provide a scientif ic rationale for maximum permitted oil and petroleum product content in soils and the beds of surface water bodies, which will help to improve the efficiency of envi-ronmental actions.

Another utilisation project is being implemented jointly with SIBUR Holding at the southern license area of the Priobskoye field (Gazprom Neft-Khantos LLC). The whole facility consisting of four units is scheduled for start-up in Q4 2012.

Lowering of atmospheric emissions from refineries in 2011 was due to: installa-tion of up-to-date floating-roof equipment at the product storage facilities of Gazprom Neft-Omsk Refinery and Slavneft-YaNOS (reduction of benzol and xylene emissions); upgrade of units for utilisation of coke drum steam (reduction of hydrogen sulphide emissions) and covering of oil remov-ers at the recirculated water supply unit (reduced emissions of hydrogen sulphide, benzol, xylene, phenol and amylenes) at Gazprom Neft-Omsk Refinery. Design work was carried out for an automatic air

monitoring station at the Gazprom Neft-Moscow Refinery. Gazprom Neft sales enterprises of the Company carried out work to prepare project documents and obtain permits, licenses, and approvals for newly acquired, constructed and renovated assets. They also deployed a new system for gasoline vapour recirculation during vehicle refuelling by customers, fitted filters to breather valves on reservoirs, and carried out laboratory and aerodynamic testing of ventilation systems.

Gazprom Neft-North-West developed and manufactured a prototype for a petroleum product vapour recovery unit with high ab-sorption efficiency to be used at filling stations as part of work by the Company to analyse the environmental and economic impact of vapour recovery systems at retail facilities.

In 2011, Gazprom Neft became the first Russian oil company to transfer emission reduction units (ERUs, each representing 1 t of СО2), obtained in conformity with the established procedure for implemen-tation of the Kyoto Protocol mechanism in Russia, from the Russian national register to that of another country. This occurred when the Company transferred about 295,000 ERUs, obtained in August-December 2009, from the Russian Carbon Unit Registry to Japan’s National Carbon Unit Registry as part of a joint project under the Kyoto Protocol at the Ety-Purovskoye field. The ERUs will be purchased by a major European energy company. The work started in 2010 and the project partners are Mitsubishi Corporation and Nippon Oil Corporation (Japan).

A gas-turbine power plant with 12 mW capacity was brought into operation in 2011 by Tomskneft at the Igolsko-Talovoye field. The plant, which cost about RUB 870 mn to build, will ensure sustainable power supply for company facilities at f ields of the Vasyuganskaya group and will be fuelled by associated gas from the Igolsko-Talovoye, Karayskoye and Tagayskoye fields in Tomsk Region. Completion of repair work at two other existing gas turbine units will raise associated gas use in the Region to 79 mn m3 per year and the utilisation rate will increase.


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As prescribed by environmental safety programs, Company subsidiaries and aff ili-ates carry out laboratory control of surface and subsurface water quality, develop proj-ects for water-well protection zones, buy boom containments and prepare moorings for loading activity, carry out construction, repair and maintenance of local treatment facilities, as well as other activities.

The Gazprom Neft-Moscow Refinery has developed a reclamation pro-gram for oil-contaminated land to address problems in the Moscow River conservation zone associated with negative impact from accu-mulated production waste. Project documents have been developed and work has begun on recycling of waste containing oil, reclama-tion of oil-contaminated land, and localisation of oil contamination in the conservation zone.

2009 2010 2011*

Total water consumption, mn m3 105.1 87.8 144.5(95.6)

of which:

– sub-surface water 58.8 49.8 53.3

– surface water 46.3 38.0 34.8

– from other organisations 0.002 0.007 7.6

Water consumption in recirculating water supply systems, mn m3

357.7 293.5 689.6

Water consumption in recycled water supply systems, mn m3 1.04 1.5 301.1

Share of water re-use in recirculating and recycled water supply systems, %

81.4% 81.2% 91.2%

Waste water disposal, mn m3 29.3 14.2 27.8

of which:

– contaminated and untreated 3.6 0.16 0.24

– clean within the tolerance range 15 0 1.08

Transferred to other consumers (without use), mn m3 23.2 196 31.9

Transferred to other consumers (after use) mn m3 10.7 13.6 26.8

* Including indicators for the following associates in 2011: Slavneft, Tomskneft. Figures shown in parentheses are without these associates.

USE OF WATER RESOURCES


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Government Technical Regulations, ‘On requirements for automotive and aviation gasoline, diesel and marine fuel, jet fuel and heating oil’ were enacted in 2008. According to the Regulations, Russian refineries must fully change to production of fuels complying with environmental Class 4 (corresponds to Euro-4) from 2015, and Class 5 (corresponds to Euro-5) from 2016. All of Gazprom Neft’s refineries in Russia were producing Class-4 fuel in 2011 (a year ahead of the Government deadline).

The Omsk Refinery started production of fuel conforming to Class 4 under the Technical Regulations at the beginning of 2011. All of the Refinery’s SuperEuro-98 gasoline now fully conforms to Euro-5 requirements. Annual output of SuperEuro-98 gasoline is more than 88,000 t.

Commissioning of the catalytic cracking gasoline and diesel fuel hydrotreatment facility at Omsk will enable changeover of other fuel grades to higher environmental classes (Premium-Euro-95 and AI-92), which match the Technical Regulations and are in strong demand on the market.

The Omsk Refinery will make a complete transition to gasoline and diesel production in conformity with Classes 4 and 5 as early as 2012, when the new units reach design capacity. This will improve the environmental situation in regions, which are supplied by the Omsk Refinery (mainly the Siberian and Ural Federal Districts), and will help to increase the market share of Omsk Refinery products.

OMSK REFINERY



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Gazprom Neft's third Russian refinery, Slavneft-Yaroslavnefteorgsintez (YaNOS), operated by the Company in conjunction with TNK-ВР, was the first in Russia to start production of Euro-4 diesel fuel: the Refinery began production of diesel fuel with 50 ppm sulphur content in 2005 and production of environmentally friendly diesel fuel with ultra-low 10 ppm sulphur content began in January 2007.

Construction of two new process installations was completed in 2011: an isomerisation unit for straight-run gasoline fractions and a hydrotreatment unit for catalytic cracking gasoline. They will enable production of high-octane components, such as isomerate and catalytic cracking gasoline with low sulphur content conforming to Class-4 and Class-5 requirements. The isomerisation unit has annual input design capacity of 480,000 t, and capacity of the gasoline hydrotreatment unit is 870,000 t. YaNOS expects to complete construction of the first block of a new 3 mn t diesel fuel hydrotreatment unit 1.5 mn t annual capacity at the start of 2013. The block is designed to produce Class-5 diesel fuel.

The Moscow Refinery began producing Class-4 gasoline and diesel fuel in 2011 following equipment upgrades. Catalyst reactivation in the LCh-35–11/1000 Catalytic Reforming Unit enabled steady production of high-octane gasoline components, and loading of the hydrotreatment unit with a catalyst made by the company Haldor Topsoe enabled production of diesel fuel with sulphur content below 50 ppm. The Moscow Refinery now produces about 180,000 t of high-octane gasoline per month, of which more than 60,000 t is in Class 4, as well as 100,000 t of graded diesel fuels. Construction of a Penex light gasoline fractions isomerisation unit and a hydroforming unit for catalytic cracking gasoline is now in progress and their launch in 2013 will make all engine gasoline outputs compliant with Classes 4 and 5. Changeover to Class-5 standards in diesel fuel production is happening in two stages: all diesel supplies to the Moscow market are already Class-4 compliant, and completion of the new diesel fuel hydroforming unit in 2014 will make all diesel outputs comply with Class 5.

85

SLAVNEFT-YANOSMOSCOW REFINERY


The upgrade program being implemented at the three refineries will enable changeover to production of Class-4 and -5 motor fuels within the set time limits as well as increasing the depth of refining and reducing environmental impact of operations Total cost will be about RUB 346 bn in the period up to 2020.

Similar programs are also being implemented at the Company’s foreign subsidiaries. In 2011, the Pancevo Refinery in Serbia started work on a hydrocracking and hydrotreatment complex, which is scheduled for launch in 2012. It will boost refining output and depth at Pancevo, producing more environmentally friendly fuel with low sulphur content.


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ACCIDENTS & SPILLAGES, 2009-2011

2009 2010 2011*

Disturbed land, hectares

start of year 11,551.85 22,529.81 79,732.82(44,756.0)

end of year 22,529.81 48,922.70 87,142.44(51,968.0)

Disturbed during the year, hectares 11,125.92 26,988.14 12,665.37(9,205.0)

Reclaimed during the year, hectares 147.96 595.25 5,374.25(1,637.0)

of which, oil-contaminated land, hectares start of year 141.64 145.86 381.36(214.0)

of which, oil-contaminated land, hectares end of year 145.86 131.80 328.62(173.0)

Contaminated during the year, hectares 60.68 34.58 82.15(12.0)

Reclaimed during the year, hectares 65.45 48.64 134.89(54.0)

LAND USE & RECLAMATION, 2008-2011

* The following associates are included in figures for 2011: Slavneft, Tomskneft. Figures shown in parentheses are without these associates.

2009 2010 2011*

Oil and petroleum product spillages,barrels, of which:

3,466.0 646.45 425.0(425.0)

Crude oil and heavy petroleum products 1,349.0 444.8 425.0

Recovered petroleum and petroleum products, barrels,of which:

3,171.0 3,857.83 506.0(473.0)

Crude oil and heavy petroleum products 715.0 429.0 506.0

Total number of leakages from pipelines 4,135 3,413 3,257(3,257)

LAND USE & RECLAMATION

Organisational and preventive measures for land protection take account of the spe-cific climatic, hydrological, permafrost, soil and vegetation conditions in areas where Company subsidiaries and associates oper-ate. Measures include reclamation of land for further use after return to its owner. Reclamation work gives priority to preser-vation of natural environmental systems, natural landscapes and natural complexes.

The Company’s exploration and production units carried out a detailed land inventory in 2011, obtaining detailed data on areas of oil-contaminated land. The Company has been implementing a strategic corporate program for reclama-tion of oil-contaminated land since 2009, and 135 hectares were reclaimed in 2011. Reclamation work was also carried out on 5,374 hectares of land disturbed by con-struction of oil production facilities.

R&D work has developed new tech-nology solutions and efficient means of reclaiming contaminated lands, which take account of specifics of terrain and soil composition, as well as the economic costs incurred by regions where the contamina-tion has occurred. This will improve the ef-ficiency and quality of land reclamation efforts by Gazprom Neft.


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NUMBER OF SLUDGE PITS

2009 2010 2011*

Number of sludge pits

– start of year 380 313 391(224)

– end of year 324 280 253(121)

Reclaimed during the year 138 132 138(138)

* The following associates are included in figures for 2011: Slavneft, Tomskneft. Figures shown in parentheses are without these associates.

GENERATION & DISPOSAL OF PRODUCTION AND CONSUMPTION WASTE

2008 2009 2010 2011*

Waste generation, thou t 263.0 693.0 392.0 638.6(191.0)

Waste from other organisations, thou t 247.0 n/a 316.0 340.7(337.0)

Waste disposal (including transfer for decontamination and burial by other organisations), thou t

88.0 39.0 86.0 272.5(30.0)

Decontamination and burial of waste (including transfer for decontamination and burial by other organisations), thou t

319.0 370.2 1,000.0 668.1(385.0)

Amount of waste by year-end, thou t 423.0 870.0 492.0 2,143.9(598.0)

Waste management work by the Company is designed to comply with legal requirements, developing and ap-plying methods for processing of drilling sludge which are economical and minimize environmental impact, with maximum possible use of approaches that incorpo-rate the waste into natural processes and reduce reclamation costs. Scientific solu-tions that can achieve these objectives are of great importance: in 2011, the Company

began work on a document that details future work to design, construct and oper-ate sludge pits and to develop a technol-ogy for conversion of drilling waste into soil material. Criteria are being developed to identify locations and instances where breakdown and disappearance of waste can be allowed to occur naturally. These documents will contribute to the efficien-cy of work for elimination and reclamation of sludge pits.

WASTE MANAGEMENT

Most of the waste generated by explora-tion and production operations is drilling sludge, and eff icient management of this waste is one of the Company’s main envi-ronmental tasks. A comparative analysis of the eff iciency of various biological agents was carried out in 2011 to deter-mine the best technology for elimination of sludge.

Company subsidiaries carry out obligatory work for reclamation of land disturbed and contaminated by their operations. Gazprom Neft has set the goal of removing all long-standing sludge pits in its operating regions by 2013. As part of this program 138 sludge pits were reclaimed in Yamalo-Nenets Autonomous District, Khanty-Mansiysk Autonomous District and Tomsk Region during 2011. Also, starting from 2011, new sludge pits will be eliminated immediately after completion of drilling work.

The Company strives to ensure the transparency of its environmen-tal programs for all stakeholders. In August 2011 Gazprom Neft-Noyabrskneftegaz invited journal-ists to learn more about its land reclamation program: journalists visited the West-Noyabrskoye and Sporyshevskoye f ields to see how the work is carried out and assess its results.


chapter

88 JSC GAZPROM NEFTSUSTAINABILITY REPORT 201188 JSC GAZPROM NEFTSUSTAINABILITY REPORT 2011

Gazprom Neft pays much attention to stakeholder engagement in design and implementation of its environmental programs and activities. Engagement formats include regular conferences, business meetings and joint projects.

• A meeting was held on June 15, 2011 at the premises of the administration of Uvat District in Tyumen Region concerning the efficiency of environmental programs, new waste treatment technologies, and recent trends for development and im-provement of performance by oil industry enterprises in Uvat District. The meeting organised by the Department of the Federal Environmental Authority (Rosprirodnadzor) for Tyumen Region, in conjunction with the periodical, Industry and Ecology of the North, and with the assistance of the Tyumen Oil and Gas Companies Association. Representatives of the larg-est oil & gas enterprises in the Region were present at the meeting. Gazprom Neft-Khantos was represented by Yury Myasnikov, the Head of Industrial Safety and Environmental Protection at the company. Mr. Myasnikov presented the experience of Gazprom Neft-Khantos in environmentally responsible business management, and his presentation was highly appreciated by the Rosprirodnadzor representative, jour-nalists and municipal authorities.

• In April, the Shirshov Institute of Oceanology at the Russian Academy of Sciences held a regular meeting of its ex-pert advisory group for preservation and study of walrus populations in the south-eastern part of the Barents Sea. The group was set up by the Marine Mammals Council with the assistance of World Wildlife Fund (WWF) Russia in 2009. The group is comprised of representatives from environmental and scientific organ-isations, public authorities, and oil and gas companies which are carrying out or plan to carry out offshore operations in this region. Specialists of Gazprom Neft’s Industrial Safety Department are active participants in the group. Joint efforts by the Marine Mammals Council, Gazprom Neft and WWF Russia have enabled stud-ies on the habitats of the Atlantic Walrus, which is considered to be a particu-larly vulnerable species and is listed in the Russian ‘Red Book’ of endangered wildlife.

A comprehensive evaluation was carried out of the state of ecosystem compo-nents and marine mammal populations in the Pechora Sea, vulnerable species and main anthropogenic factors were identified, and proposals were developed for minimising environmental impact from Company activities in the region. During the meeting, the expert advisory group gave a positive evaluation of its relationship with Gazprom Neft, and it was decided to continue the cooperation with the objectives of minimising anthro-pogenic impact on the environment, and of preserving marine mammal popula-tions and their habitats in the Company’s operating areas.


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Company expansion and the launch of new capacities entail increasing needs for electricity. The Company is working to improve oil recovery and upgrade refining capacities, while making opera-tions less electricity-intensive. Company business units have initiated programs to develop their own power generating infrastructure and rational use of energy as a part of Gazprom Neft’s unified strategy for development of operations.

Energy saving is a strategic priority of Gazprom Neft, and the energy compo-nent in unit production costs is being reduced through medium-term programs to raise energy efficiency.

ENERGY CONSUMPTION & ENERGY EFFICIENCY

MAIN RESULTS OF ENERGY PROGRAMS

Key program

objectives

Energy savings,

planned/actual

Effect, mn RUB.

planned/actual

Increase of thermal exchange processes,and improved fuel consumption in furnaces 71/34,000 tons RUB 326/577 mn

Optimised recovery system during primary crude refining and use of secondary energy resources 76/155,000 GCal RUB 53/111 mn

Reduced electric power consumptionby pumps, air cooling devices,transformer substations andcompressors thanks to installationof energy-saving equipment,including frequency-adjusted drives

3,335,000/3,300,000 kWh planned/actual RUB 5.0/4.6 mn

Use of energy-efficient electric centrifugal pump units 13,713,000/18,370,000 kWh RUB 35.3/42.9 mn

Optimised operating regimes for submersible equipment and booster pump stations 7,485,000/24,039,000 kWh RUB 13.8/47.0 mn

Total economic effect from energy efficiency projects at Company enterprises in 2011 was RUB 771 mn and RUB 963 mn in the refining and oil production segments, respectively.

CONSUMPTION OF ELECTRIC ENERGY BY GAZPROM NEFT ENTERPRISES, mn kWh

09 10 11

8,33

9

8,33

9

8,36

28,362million kWh

+0.3%

Supply

Refining

Oil Production


Gazprom Neft enterprises are work-ing on an energy management system, which will ensure consistent savings in the future through progress from single interventions to comprehensive solutions in both the technology and management of energy efficiency.


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Various environmental safety actions are planned for 2012 to develop and implement new technology solutions, reclaim oil-polluted land (taking account of the specifics of terrain and soil composition), and address the problem of sludge pits. Efforts to reduce air pollution will be focused on reduction of associated gas flaring: increase of associated gas utilisation will be attained through a portfolio of projects, some to be implemented in 2012, including launch of new facilities at the South-Priobskaya Compressor Station and a new gas pipeline from the North-Yangtinskoye field to the Muravlenko Gas-processing Plant.

Reduction of negative environmental impact from refinery operations will be achieved through upgrading programs and improvement of existing processes at all of the Company’s refineries, increasing the share of more environmentally friendly fuels in total outputs, as well as implementing up-to-date gas emission and sewage water treatment technologies, and disposing of generated and accumulated waste.

Gazprom Neft plans to pursue its programs to improve performance in HSE and civil defence during 2012.

Scheduled work for implementation of the integrated HSE management system in 2012 includes activities to review efficiency and to adjust the system, as well as establishment of a mechanism for making adjustments and improvements to the system and to work processes in the future. Comprehensive evaluation of the HSE situation at enterprises will be carried out using (among other tools), the integral HSE performance indicator, which was developed in 2011. Work will continued in 2012 for audit of HSE management systems at oil production, refining and supply enterprises, and to revise the current and design new HSE standards. Development of seven new standards is scheduled for 2012.

Further reductions in rates of injury and work-related disease will be achieved by a set of corrective activities based on the results of inspections, audits and risk assessments, and also through development of industrial safety training for personnel.


• As one of Russia’s leading oil compa-nies Gazprom Neft makes every effort to improve energy efficiency. About 65% of total energy consumption by production enterprises is for oil production by means of submersible centrifugal pumps (SCPs), so improv-ing the energy characteristics of SCPs can deliver huge savings. Specialists of Gazprom Neft-Noyabrskneftegaz have therefore made use of an energy-sav-ing submersible pump unit: pilot tests promised energy efficiency improve-ments by 20-25% in oil production and the new unit was put to work at a well in the Mid-Iturskoe field in April 2011, where it provided a substantial cut in energy consumption without reducing production levels. The technology was developed by a Russian company, NOVOMET. By the end of 2011, 69 wells were using these energy efficient valve-driven pumps, and average energy savings per well were 22%. Gazprom Neft-Noyabrskneftegaz plans to deploy 200 more of the new SCPs at its Muravlenkovskneft operat-ing unit in 2012.

• NIS has established a new Energy business unit in order to develop company potential in the hydropower, biofuel and other renewable energy segments. A number of highly-quali-fied EU specialists have been hired to work in the new business unit.


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Gazprom Neft will continue to engage with governmental, expert and public organisations as part of its HSE efforts, and will call on representatives of these groups to gauge the success of the Company’s efforts to reduce environmental impacts and to assess the Company’s own methods for measuring progress.

Work will also continue in the field of energy saving and efficiency to create a constantly functioning mechanism, consisting of an energy management system, external and internal power supply systems, and various energy-saving measures as part of medium-term energy efficiency programs.


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REGIONAL POLICY & LOCALCOMMUNITY DEVELOPMENT

Gazprom Neft’s enterprises operate in 24 regions of Russia. Its main production enterprises are located in Siberia, while major refining capacities are located in Omsk and Yaroslavl Regions and in Moscow. The Company’s filling station chain has national extent. The Russian regions of most significance to the Company in terms of business scale and headcount are Yamalo-Nenets Autonomous District, Khanty-Mansiysk Autonomous District (Yugra), the city of Moscow, and Omsk, Tomsk, Tyumen and Yaroslavl Regions.

GAZPROM NEFT & RUSSIAN REGIONSREGIONAL POLICY GOALS IN 2011-2013:

• developing a comprehensive approach to relationships with regions taking account of the Company’s long-term regional development strategies;

• increasing the efficiency of assistance to regions in addressing socio-economic development issues.


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Saint Petersburg, where the Company’s Corporate Centre was relocated in 2011, also has strategic importance for Gazprom Neft and the Company is rapidly developing its business in the city: the Gazprom Neft Scientif ic and Technical Centre is located there, and sales enterprises of Gazprom Neft-North-West and Gazprom Neft-Marine Bunker operate in the city and at its port. The Company has been a major taxpayer in the city for many years and is implementing various social and cultural projects to help promote the city on the Neva as a leading international business and cultural centre.

The Company does much to assist development in the territories where it has business presence. First and foremost, Gazprom Neft is a major taxpayer and employer in many Russian regions. The Company also invests in upgrade of production facilities and improvement of employee qualif ications, acts as a customer for products made by local manufacturers, and makes a signif icant contribution to sustainable development by acting as a strong partner for local government in programs to support healthcare, education and culture, and to build social infrastructure. Total expenditures of Gazprom Neft for implementing social projects in Russian regions were RUB 1,440 mn in 2011, of which RUB 1,403 mn were spent on charity programs under socio-economic agreements with regional administrations and RUB 37 mn on the Company’s targeted assistance program.

33 Distribution by regions is based on legal registration of enterprises.

* Regions where the Company’s headcount in 2011 was less than 200 people: Nizhny Novgorod Region, Krasnodar Territory, Murmansk Region, Krasnoyarsk Territory, Ulyanovsk Region, Sakhalin Region, Bryansk Region.

GAZPROM NEFT PERSONNEL STRUCTURE BY REGIONS OF PRESENCE IN RUSSIA33, 2009-2011, average headcount

2009 2010 2011

YaNAD 22,911 21,515 16,795

Omsk Region 8,386 8,294 8,276

Moscowand Moscow Region 5,523 9,053 6,344

Saint Petersburg and Leningrad Region 1,319 1,854 3,295

Sverdlovsk Region 1,822 1,844 1,937

Kemerovo Region 1,774 1,914 1,854

Tyumen Region 1,576 1,700 1,700

Novosibirsk Region 1,631 1,639 1638

KhMAD 989 1,130 1,388

Yaroslavl Region 1,081 1,221 736

Tomsk Region 561 675 665

Chelyabinsk Region 237 385 440

Ivanovo Region 400

Altai territory 234 235 221

Other* 362 200 359

The Company worked on the following main tasks in 2011 in order to realise these goals:• entering into socio-economic agreements

with regional administrations in Russia;• monitoring the socio-economic situation

in regions;• participating in development of human

resources in regions of presence, supporting professional training programs in the oil industry;

• charity provision taking account of the Company’s regional policy and charity policy, and the social priorities of regions;

• giving Company employees the oppor-tunity for self-fulfilment through voluntary activities;

• taking part in support programs for national identity and national culture of small indigenous peoples in areas of Company presence;

• developing the stakeholder engagement system in regions, communication support for the Company’s participation in socio-economic development.


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Activities of the Commission are governed by Russian legislation, the Company’s Charter, and its internal regulations. The mains objective of the Commission is to coordinate activities of all the Company’s organisational units, subsidiaries and associates in implementing the Company’s regional policy. The Commission holds its meetings as necessary, but no less often than twice a year.

The Commission for Regional Policy carries out the following functions:• arranges collection, aggregation

and systematisation of proposals for implementing the Company’s regional policy;

• considers proposals by the Company’s organisational units, subsidiaries and associates regarding issues of regional policy implementation and designs recommendations to address such issues;

• makes decisions on current issues submitted for consideration by the Company’s organisational units, subsidiaries or associates;

• issues instructions or recommendations, based on these decisions, to the heads of Company business units, subsidiaries and affiliates regarding current issues arising in the course of the Company’s business;

• submits decisions and issues for consideration by the Company’s Management Board, when necessary.

Detailed information on the Company’s involvement in local community development is contained in this Report.

Gazprom Neft views sustainable development of regions as a strategic factor in the Company’s sustainable development. The Company’s regional policy builds on the Energy Strategy of Russia, socio-economic development strategies of Russian regions, and the current laws and regulatory legal acts of the Russian Federation and its regions. Gazprom Neft’s regional policy aims to create a social environment which is favourable for realising its own corporate strategy and the development priorities of the oil industry, strengthening mutually beneficial relationships with regional authorities and local communities, and developing a constructive dialogue with all stakeholders to address specific social issues. The Company’s regional activities and regional policy implementation is coordinated by the Gazprom Neft Commission for Regional Policy.

GOVERNANCE

The Company works consistently to improve the quality of management of its regional programs, adhering to standards of international corporate social responsibility. When prepar-ing this Report, the project group conducted an assessment of Gazprom Neft’s social responsibility manage-ment system in regions based on the provisions of ISO 26000:2010 Guidance on Social Responsibility. The assessment found that the Company's practice of community involvement and development mainly conforms to the requirements of this standard, for the following reasons:• appropriate definitions, terms,

and general and specific principles relevant to this sphere have been adopted;

• all of the core social responsibility issues in regional policy as defined by the standard have been incor-porated among the key areas of activities in this sphere;̀

• relevance of these issues for the Company and its stakeholders has been defined;

• programs are being implemented aimed at addressing these issues;

• regulatory framework and gover-nance mechanisms in this sphere have been established;

• a complex of communication chan-nels enabling exchange of informa-tion on relevant issues between the Company and stakeholders has been created.


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KEY ACTIVITIES AND MANAGEMENT APPROACHES TO REGIONAL POLICY IN THE CONTEXT OF ISO 26000:2010 RECOMMENDATIONS

Core social responsibility issues according to ISO 26000:2010

Relevance for the Company and its stakeholders has been defined

Programs are being implemented to address relevant issues

Governance mechanisms exist

Information exhange is developing

Sections of the Report containing the relevant information

Community involvement (engagement and partnership)

• • • • Regional Policy and Local Community Development

Education and culture• • • • Regional Policy and Local

Community Development

Employment creation and skills development

• • • •

Human Resources Development;Regional Policy and Local Community Development

Technology development and access

• • • •About the Company

Wealth and income creation

• • • •

About the Company;Regional Policy and Local Community Development;Human Resources Development

Health

• • • •

Human Resources Development; Secure Development: Health, Safety and Environment

Social investment• • • • Regional Policy and Local

Community Development


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IMPLEMENTATION OF MEDIUM-TERM GOALS IN REGIONAL POLICY IN 2011


Develop strategic partnerships with regions of presence based on comprehensive approach with due consideration for the Company’s long-term sustainability priorities

• 26 socio-economic agreements with were made with Russian regions and municipal entities

Increase efficiency of assistance to regions in addressing socio-economic development issues

• A system was implemented for regular monitor-ing of the socio-economic situation in regions of the Russian Federation, in order to identify the most urgent issues, events and problems. A program for monitoring of regional laws was approved

• Company enterprises took part in oil industry professional training programs

• Charity programs were implemented taking account of the Company’s regional policy and the social priorities of regions

• Company employees implemented a number of voluntary initiatives

• Company enterprises took part in national iden-tity and national culture support programs for small indigenous peoples in areas of Company presence

• The stakeholder engagement system in regions was actively developed, communication support for Company participation in socio-economic development was enhanced


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In 2011, Gazprom Neft signed 26 socio-economic partnership agreements with Russian regions and municipal entities, including Yamalo-Nenets Autonomous District, Khanty-Mansiysk Autonomous District (Yugra), Omsk, Ulyanovsk and Orenburg Regions, Nenets Autonomous District, and municipal entities in Tomsk and Tyumen Regions.

Under the agreements, engagement programs are implemented with Russian regions in order to create favourable con-ditions for investment projects, encourage R&D and innovation activities, and improve the quality of life in those regions.

Main activities by the Company under socio-economic agreements with regions, where the Company has operations, are as follows:• construction and renovation of educa-

tional and healthcare institutions, sports and recreational facilities, housing;

• support for programs which preserve cultural and historical heritage;

• facilitating socially significant and cul-tural projects, child and youth support programs;

• implementation of programs to support indigenous peoples of the Russian Far North.

Progress in implementation of pro-grams under the agreements is subject to regular control and discussion by the Company’s management and regional authorities. Over 100 such meetings took place in 2011.

SOCIO-ECONOMIC AGREEMENTS WITH RUSSIAN REGIONS& MUNICIPAL ENTITIES: DEVELOPING STRATEGIC PARTNERSHIP

SOCIAL PROJECTS UNDER GAZPROM NEFT’S SOCIO-ECONOMIC AGREEMENTS WITH KEY REGIONS

YaNAD NOYABRSK• construction of Zenit sports complex in honour of Yury Morozov with total area of

7,800 m2

• construction of open multi-purpose sports grounds close to residential areas• social projects and events (Town Day, Day of Oil and Gas Workers)

MURAVLENKO• construction of a residential apartment complex with total floor area of 9,000 m2

• construction of open multi-purpose sports grounds close to residential areas

TARKO-SALE• construction of Zenit sports and recreational complex• social activities, repair of infrastructure facilities• construction of a youth centre

NADYM DISTRICT• construction of housing in villages where small northern indigenous peoples live• holding a local festival (Day of the Reindeer Herder)

KRASNOSELKUP DISTRICT• organisation of meals for pupils of 1-4 forms• purchase of children playgrounds• improvement of house-yard areas• purchase and installation of artificial lights, ozone water purification systems in

kindergartens

KhMAD • construction of a new-type pre-school facility in Khanty-Mansiysk• help to finance construction of pre-school facilities in Novoagansk settlement

(for 200 children) and in Lokosovo village (for 95 children)• financing the ‘Spirit of Fire’ international film festival• support for agriculture• support for culture, youth and sports projects

Omsk Region • financing the Avangard ice-hockey team• holding cultural and sports events• helping to finance construction of a pre-school facility in the town of Tara• capital repairs to social buildings and roads, purchase of equipment for boiler facilities

Tomsk Region • construction of a civic centre in Novoseltsevo village• construction of employee accommodation in Parabel village• construction of a station to remove iron from water in Novoseltsevo village • capital repairs to the Berezka kindergarten• capital repairs to a comprehensive school in the town of Staroyugino

Tyumen Region • purchase of houses and apartments for social workers in Uvat District


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In 2011, Gazprom Neft signed socio-economic cooperation agreements with Khanty-Mansiysk Autonomous District and with Yamalo-Nenets Autonomous District. These regions are of strategic importance for the Company’s development: KhMAD accounts for about a half of the Company’s consolidated crude oil production, and Yamal is where Gazprom Neft’s new major production projects are focused. Building stable and long-term relationships with the Governments of Khanty-Mansiysk and Yamalo-Nenets Autonomous Districts is an important driver of the Company’s success. Under the agreements, Gazprom Neft will continue to assist projects for socio-economic development of these regions and improvement of the quality of life of local people.

Gazprom Neft and KhMAD are working together to stimulate investment activity in the District and to create favourable conditions for further geological survey-ing. An understanding has been reached to carry out joint work for implementation of environmental programs and proj-ects to develop scientif ic and technical potential in the District. The agreement with KhMAD calls for Gazprom Neft to help f inance construction of educational institutions and develop social infrastruc-ture in the District. Specif ic objects of f inancing include pre-school institutions and major cultural events.

Measures under the socio-economic development agreement between Gazprom Neft and YaNAD contribute to sustainable development of the Company and strengthening the region’s com-petitiveness. In 2012, a skills centre will be created on the basis of production enterprises in the towns of Noyabrsk and Muravlenko for work with diff icult and depleting reserves.



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The YaNAD development strategy also calls for District authorities to organ-ise a training centre in Noyabrsk and Muravlenko to train specialists for the oil production industry. Under its socio-economic agreement with the District, Gazprom Neft will participate in imple-menting social projects and programs of federal and regional signif icance. The agreement with the Government of YaNAD calls for implementation of a number of joint projects and f inancing of a range of socially important construc-tion projects. The Company will work to build sports facilities in Noyabrsk and Tarko-Sale, and a residential complex in Muravlenko, and will also continue its tra-ditions of support to municipal entities in YaNAD, with which the Company has addi-tional agreements (Krasnoselkup, Nadym, and Pur Districts, as well as the towns of Noyabrsk and Muravlenko). Sports activi-ties for children and young people are among priorities for Company assistance. Gazprom Neft also has special arrange-ments in place to assist small indigenous peoples in YaNAD.

Orenburg Region is a new area of special interest to Gazprom Neft, since the Company has production projects there. As it develops operations in these new territories, Gazprom Neft will take account of their priorities and specif ics and will establish long-term constructive partnerships. In 2011, at the 10th International Investment Forum Sochi-2011, Gazprom Neft and the Government of Orenburg region entered into an agreement on socio-economic partnership for 2011–2013. The agreement calls for a mutually beneficial partnership on a long-term and stable basis, by which Gazprom Neft and the Orenburg Government will jointly implement investment and social projects to support further economic develop-ment in the Region. In the document the parties confirm their commitment to support hydrocarbon exploration and pro-duction, refining and transportation using progressive technologies and ensuring environmental safety, as well as involve-ment in social and charity programs.


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NUMBER OF TEAMS ENTERING THE GAZPROM NEFT CUP

09 10 11 8 1212

teams

+50%

create capacity for professional training of industry specialists and improvement of their qualif ications (beneficiaries will include employees of Gazprom Neft-Aero), and will serve as a base for R&D and design of educational materials with input from Gazprom Neft.

Work with future employees begins in the school classroom. The Company’s specialists give instruction to schoolchil-dren in their regions, including information on job opportunities in the industry and the business of Gazprom Neft enterprises, as well as excursions to Company fields. Company enterprises also hold open days for young people.

Engagement in sport and pursuit of a healthy life style are of key importance for enhancing the quality of life. Gazprom Neft implements a variety of programs in this sphere. The Company supports professional sport, f inancing the Avangard ice-hockey club in Omsk region, as well as the football club Zenit and SKA ice-hockey club in Saint Petersburg. Gazprom Neft

Human resource development in re-gions is a priority of the Company’s region-al policy, since hiring of qualif ied special-ists and young employees is essential for the Company’s sustainable development. The Company supports educational institu-tions in the regions and is also setting up its own educational centres. Examples include a training centre for oil industry special-ists, which is being established in YaNAD, and a joint project between Gazprom Neft and Ulyanovsk Higher Civil Aviation School for development of educational programs and human resource training in aircraft fuel procurement (the Company subsid-iary, Gazprom Neft-Aero Ulyanovsk, is based in Ulyanovsk). The latter project will

On September 23, 2011, Gazprom Neft-Noyabrskneftegaz held an open day for schoolchildren to celebrate the company’s 30th anniversary. Schoolchildren from the second and eleventh classes of Secondary School No. 2 visited the company to mark the occasion. The open day started with a visit to an anniver-sary exhibition at the company’s museum resource centre, where schoolchildren learnt the history of the oldest oil-producing enterprise in Yamal, and of the people who contributed to the development of Noyabrskneftegaz and the towns of Noyabrsk and Muravlenko. The chil-dren and their teachers commented that such excursions both add to their knowledge and help them to choose future professions. After vis-iting company production facilities several schoolchildren confirmed their plans to enroll at higher educa-tion establishments, which offer training in oil-sector skills.

NUMBER OF PEOPLE PARTICIPATING IN THE GAZPROM NEFT CUP

09 10 11

200

300300

people

+50%


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Vyborg is a unique town in Leningrad region, famous for its ancient castle and other medieval buildings. But until recently very few people knew that a wooden town dating from the 15th-17th centuries – complete with houses, streets, household goods, coins and decorations – lies buried beneath the Vyborg we see today. Archaeologists discovered a zone near a medieval house where layers from the beginning of the 15th to the 19th were particularly well preserved, offering a rare opportunity to explore the yard of a house at the time when the house was built in the 16th century, and also in previous and subsequent periods. Usual practice at that time was to build town houses without intervening space, making it virtually impossible to find another such medieval yard in Europe. Thanks to Gazprom Neft, which sponsored the excavations in 2011, the archaeologists found a number of interesting artefacts, including household items, clasps and rare coins. Medieval trading seals – the first ever found in the town – are of particular interest from a scientific point of view. Items of Swedish and German origin found by the archaeologists in Vyborg prove that the town was actively involved in the Baltic trading system and represented a cultural cross-roads. The findings call for revision of previous assessments of the town’s early history and suggest that Vyborg should be ranked with such medieval urban centres as Tallinn, Tartu, Riga, Hamburg and Lubeck.

of Company business in Saint Petersburg, which is one of the leading centres of Russian and world culture, makes it natural that the Company should support cultural heritage and research initiatives in that city. As part of its cooperation with Saint Petersburg and Leningrad Region in 2011 Gazprom Neft supported restoration projects for the Commandant's Pier (part of the Peter and Paul Fortress) and the build-ing of the Russian Geographical Society, as well as providing funds to the Institute for the History of Material Culture (part of the Russian Academy of Sciences) for archaeological excavations in the town of Vyborg.

Support for traditional life styles of indigenous peoples in the Russian North is another important aspect of the Company’s regional policy. In the framework of socio-economic agree-ments, Gazprom Neft enterprises provide ethnic populations and households with building materials and workwear, transfer funds for purchase of food stuffs, and provide outboard engines, chain saws and snowmobiles. The Company’s subsidiar-ies – Gazprom Neft-Noyabrskneftegaz and Muravlenkovskneft – are the tradi-tional sponsors for the ‘Day of the Reindeer Herder’, which is a traditional national holiday for the local peoples in Yamalo-Nenets and Khanty-Mansiysk Autonomous Districts. Traditional sports at the celebra-tions in 2011 included reindeer racing, jumping over sledges, and tug of war. Prizes to contest winners were Buran snowmobiles provided by Gazprom Neft enterprises.

Another important project that received Company financing in 2011 was repair of the road between Tara, Egorovka, and Litovka, which is an important part of the infrastructure of the Russian North and

also spends substantial amounts to build sports and recreational facilities and mini-stadiums, which make physical culture and sport into a part of everyday life for its employees and the general public in regions of Company operations. The sports complexes in Noyabrsk and Tarko-Sale and the program for construction of open-access sports grounds in Yamalo-Nenets Autonomous District offer excellent ex-amples of such social investments. These sports grounds have high-tech surfaces, which have been specially developed for year-round use: the hard surface for sum-mer sports is resistant to rain and snow, and can be covered with water for ice sports in the winter. The sports grounds are equipped for 12 sports, ranging from mini-football to badminton. The Company’s program for creation of sports grounds began with the opening in September 2011 of the first all-purpose ground with an artif icial surface in Microdistrict No. 7 in Noyabrsk.

The Company gives special attention to children’s sport and is the organiser of the Gazprom Neft Cup, which is an annual tournament of children’s ice-hockey teams as part of the Continental Ice-hockey League (KHL). The tournament received the status of the official KHL children’s tournament in 2011, so children’s teams representing the strongest KHL clubs congregated in Omsk in the reporting year to take part in it. Master classes for young ice-hockey players, meetings with profes-sional clubs stars, and contests for best technical and physical preparedness take place alongside official matches as part of the tournament.

Preservation and care for historical and cultural monuments are also im-portant components of Gazprom Neft’s corporate culture. Strong development


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GREATER EFFICIENCY OF SOCIAL ACTIVITIES IN RUSSIAN REGIONS

financed the purchase of ozone water treatment systems for kindergartens and creation of a recreation area on the River Taz embankment in Krasnoselkup. Shortage of places in pre-school facilities is another key social problem in Khanty-Mansiysk Autonomous District, and the District has been implementing a special program since the second half of 2010 to address the problem.

Efficiency of the Company’s social activity in the regions depends on fine tuning of its social programs and projects to match priority regional development objectives and compliance with regulatory require-ments. The Company has a system for regular monitoring of the socio-economic situation in Russian regions, which keeps track of the most urgent issues, events and problems, as well as a program for monitoring of regional legislation. These mechanisms enable efficient management of social and legal risks and identify priority social objectives that will assist development of Company business in specific regions.

Monitoring of the situation in the regions was carried out daily in 2011 and the results enabled timely adjustment of current projects and design of new proposals. For example, monitoring results in the second half of 2011 justified amendments to the list of social projects being imple-mented in the territory of Krasnoselkup district of Yamalo-Nenets Autonomous District under the relevant socio-economic agreement: Gazprom Neft additionally

However, additional efforts have proved necessary and meetings were held between the Deputy CEO of Gazpromneft, Alexander Dybal, and the District Governor to find a solution as part of the Company-District cooperation agreement: construction of a modern pre-school education centre is now planned in the city of Khanty-Mansiysk at the expense of Gazprom Neft.


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Communication support for Company participation in regional socio-economic development was broadened in 2011. Main activities of Gazprom Neft in this sphere are regularly highlighted by the Company’s media outlets, including materials on the Company’s social policy and other programs reflecting the Company’s assumption of its social responsibilities.

Gazprom Neft also uses its media capacity in regions to obtain and carefully analyse feedback. Stakeholder engagement in the regions has also been developed through intensive cooperation to resolve socially relevant issues.


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Stakeholder engagement is an important component of social project development and implementation. The Company has created and tested a model for involvement of stakeholders in implementation of regional sustainable development initiatives.

This model includes:• diagnostics of the situation and identifying

the relevant circle of stakeholders;• involvement of the stakeholders in

dialogue, and in the design, promotion and implementation of decisions;

• joint assessment of results and planning of further initiatives.

The example of the project for creation of healthy life-style infrastructure in Noyabrsk can serve as an example of model implementation, as shown below.

Project results:• The project had strong support from

residents: polling showed that 91% of Noyabrsk residents are in favour of the development.

• The new sports grounds were used to capacity in 2011. The average number of persons training in the mini-stadiums is 130 per day (about 46,000 single visits per year).

• Based on data of the town Sports Committee on usage levels, the number of people involved in sports will increase by 9,000, that is by 75%, from 12,000 to 21,000 residents or from 12% to 20% of the population within one year and solely at the facilities, which have been launched to date.

• A joint program of the Company and the town administration has been prepared for the development of town sports infrastructure.



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DIALOGUE WITH STAKEHOLDERS

ENGAGEMENT FORMATS

Projectobjectives Stakeholders

Content ofthe dialogue

To increase the share of town residents involved in sports from 12% to 15-18%

• Local community at large• Parents and school• Town residents involved in sports in their leisure time

and/or wishing to be involved in sports• Company employees• The sports community (trainers, heads of sport institutions

and societies)• The town administration and sports committee • Mass media

• Understanding sport infrastructure development as a priority part of the town’s social infrastructure development, making the town more socially attractive and assisting its sustainable development

• Presenting the project to residents• Forming a consistent users group• Project development: from the construction of separate facilities

to an integrated program of sports infrastructure development in the future

To quickly enhance availability of sports facilities, particularly for mass sport

• Residents associations• Local authorities

• The town administration and sports committee

• Cooperation in establishing the framework for operating sports grounds, ensuring that they are used and that user management is effective

Contribute to reviving team-sport sections for children and adults

• Local authorities• Town residents taking part in sports in their leisure time and/or wish-

ing to take part in sports• Parents and school• Sports community• The town administration and sports committee

• The need for creation of healthy life-style infrastructure in the town• Arrangement of work by trainers, including sport sections in

the town’s system of sports infrastructure for competitions, etc• Presenting the project to residents

Interactionwith residents

Interaction with sports groupsand social core groups

Interaction with the townadministration

• Including questions about social/sports infrastruc-ture in annual social monitoring questionnaires

• Special-purpose polling in Noyabrsk prior to the project launch to establish attitudes and wishes, and to identify areas in need of sports infrastructure

• Creation of awareness about the construction work by notices in apartment blocks and on boards at the construction sites

• Branding of the sites

• An ad hoc meeting of the town youth council. Cooperation with the NGO, ‘Outstanding Children of Noyabrsk’, including development of a joint concept for a ‘Sports Avenue’ in Microdistrict No. 7 in Noyabrsk

• Working with the trainers and voluntary assistants, and supporting the creation and training of child teams (the Gazprom Neft Cup for mini-football in the pilot mini-stadium)

• Providing the teams and the sections with special sports equipment (footballs with the insignia of Zenit Football Club, with the signatures of players, etc.) and sportswear

• Joint analysis of the poll data and selection of construction sites

• Joint arrangement of competitive selection of the building contractor; assistance to the town administration in its role as building owner

• Joint work with public utilities on issues of sports ground operation

• Development of a further construction program and a unified package of documents for its implementation


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The program is based on a balanced ap-proach, which connects the Company’s regional policy priorities and the regions’ own social priorities.

CHARITY DEVELOPMENT

APPLYING THE MODERN METHODS OF CHARITY ORGANISATION

The Company encourages employee participation in charity actions, both in fund raising and by taking part individu-ally in donor and volunteer programs and the activities of the Company’s Charity Commission.

The practice of corporate volunteer-ing developed rapidly at Gazprom Neft in 2011. Voluntary participation by employees in social programs increases the impact of corporate charity: volunteer support gives more than welfare assis-tance, since it offers the additional value of a caring human attitude. Volunteer programs are also important for the volun-teers and the Company.

A ceremony to market completion of the Federal Scientific-Clinical Centre of Paediatric Haematology, Oncology and Immunology was held in Moscow on June 1 (Children’s Day) with the assistance of the Gift of Life Fund. Gazprom Neft rendered finan-cial assistance to the Fund for pur-chase of medical equipment (a BN ProSpec analyser and incubators). The Prime Minister of the Russian Federation Vladimir Putin took part in the opening ceremony.

THE CHARITY PROGRAM OF GAZPROM NEFT

CHARITY POLICY: PRINCIPLES & PRIORITIES

General approaches to charity organisation

• The Company carries out its charity activities pursuant to its Charity Policy (approved by Order No. 212-P dated 13.08.2007) and the Company’s Standard Charity Procedure (SC-09.01.03)

• Compliance with the principles set out in the Policy and the Standard: choice of programs in accordance with the charity priorities determined in the Policy

• Applying modern methods for organisation of charity

Principles Priorities

• taking account of special features of the region• potential• efficiency• availability and transparency• uniqueness

• projects for children• social infrastructure support• sport support

Organisation of charity management

• The management body is the Charity Commission (Order No. 17-P dated 06.03.2008)• Resources: combining employee activities (donor program, volunteer activities, mutual assistance)

with the Company capacities (targeted social aid)

Main Charity Programs

• ‘Donor Days’ voluntary program at the Corporate Centre and the Company’s subsidiary and associate companies in association with the Blood Centre of the Federal Medico-Biological Agency (FMBA). Held twice a year

• A program of targeted aid to children’s centres (volunteer actions, ‘Letter to Father Frost’, ‘Prepare a Child for School’, ‘Children’s Protection Day’)

• A program of targeted aid in response to public requests in operating regions (charity support from the Company’s budget, based on charity commission decisions).

• A program of mutual assistance offers practical help to employees and their families in case of specific hardship

The Charity Program developed and adopted in 2011 is aimed at enhancing the efficiency of the Company’s charity activities.


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Volunteer projects enable employees to manifest qualities, which are not al-ways called for at work, to receive moral satisfaction from acts of kindness, and to develop additional team skills. For the Company volunteer programs are valu-able as a tool for promoting responsibility and team work, strengthening corporate culture and for enhancing motivation and creativity. Participation in such programs by Company top management is a particu-larly important motivational factor.

The employees of the Corporate Centre and of all subsidiary and associ-ate companies took part in volunteer and donor programs in 2011. The following events were held:• ‘Prepare a Child for School’ (purchase of

books and stationery for orphanages);• ‘Letter to Father Frost’ (New Year gifts

from Father Frost in response to letters from orphanage children: in 2011 em-ployees at the Corporate Centre made the wishes of 178 children at Orphanage No. 11 in Saint Petersburg come true);

• ‘The Last Bell’ (gifts to orphanage school leavers);

• Donor Day is held simultaneously at the Corporate Centre and at subsidiary and associate companies in association with the corporate donor program of the Federal Medico-Biological Agency of Russia. Money which is collected is transferred to the Gift of Life Fund.

TARGETED AID

Funds were provided in 2011 as part of the Company’s targeted aid program for construction of a sports ground in the town of Muravlenko and construc-tion of a football pitch with an artif icial surface in the town of Noyabrsk. Pre-school institutions in Tomsk Region, the NGO Yamalo-Nenets Autonomous District Innovation Development Fund, and the Peter and Paul Fortress Culture and Educational Programs Fund also re-ceived assistance.

Employees at Gazprom Neft’s Corporate Centre have established a volunteer group for cooperation with orphanages and rehabilitation centres. In May 2011 a charity action was carried out to help children at the Dolzhansky and Rzhevsky social and rehabilitation centres for children, located in Orel and Tver regions, respectively. The centres are located far from Moscow and there-fore tend to be neglected. Volunteers from Gazprom Neft got to know the children, presented them with gifts and gained an understanding of the children’s needs and the needs of their teachers. Money and other items needed by children were then collected. More than 100 people from the Corporate Centre took part in the action. A playground was built for children at the Rzhevsky Centre, and the premises at the Dolzhansky rehabilitation centre were repaired. Toys, summer sports equipment, clothes, household goods, needle-work sets, roller-skates, medicines and stationery were bought for children.


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Regional activities of the Company were also acknowledged by the business com-munity. In 2011 Sergey Bilkey, the Head of Gazprom Neft ’s Regional Policy Department, was singled out as one of the best Russian managers in a rating by the Russian Managers Association and Kommersant Publishing House.

PUBLIC RECOGNITION

Public recognition of Gazprom Neft’s social programs is a tribute to their success. In 2011, the Company received dozens of letters of gratitude from regional and local administrations, and from public organisations.


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In 2012 Gazprom Neft plans to extend its list of projects implemented under socio-economic agreements with the regions of Company presence. Additional projects will be implemented in Yamalo-Nenets Autonomous District and Omsk Region. A leisure centre will be built in Noyabrsk, sports facilities will be upgraded in Muravlenko and Khanymey settlement (these works are in addition to the YaNAD sports facility initiative described above). In Omsk region, the Company will finance repairs to secondary education institutions and healthcare facilities, landscape microdistricts, and carry out construction and reconstruction of sports grounds.

Gazprom Neft will implement a number of social infrastructure projects in key regions of presence during 2012. These will include completion of the Zenit multi-purpose sports centre in Noyabrsk (YaNAD), and of 120 apartments at a housing complex in Muravlenko (YaNAD). In Khanty-Mansiysk, construction of the District’s largest pre-school education centre with state-of-the-art equipment will be completed in autumn 2012. Social infrastructure facilities will also be built and upgraded in Tyumen and Tomsk Regions.

The Company will continue to support the ‘Spirit of Fire’ international film festival in KhMAD and the Avangard ice-hockey club in Omsk region. In April, Omsk will once again hold the annual Gazprom Neft Cup Ice-Hockey Tournament between children's teams of the Continental Ice-Hockey League, and work under a cooperation agreement for support of the Tom’ football club (signed in February 2012) will be continued.


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The final draft text of this Report was, at the Company’s request, reviewed by a group of leading independent experts in sustainable development, including: Dr. Teodorina Lessidrenska, GRI Associate and the GRI’s Ambassador for Russia, CIS and CEE; Elena Feoktistova, Director of the Centre for Corporate Social Responsibility and Non-Financial Reporting at the Russian Union of Industrialists and Entrepreneurs; and Veronika Kabalina, Professor and Head of the Department of Human Resources Management at the Faculty of Management of the National Research University Higher School of Economics. These expert opinions are published below.

In comparison with the 2010 report, the presentation of the company’s organiza-tional profile is improved in terms of its clarity and detail. The overview of the company’s op-erational and financial results and its economic performance for 2011 is clear and extensive. Projections for 2012 set a forward-looking tone that is also present in all other sections of the report, and this is an important character-istic seen in the best sustainable development reports. The comprehensive description of the company’s business mission, strategy and goals includes the company’s principles of social and environmental responsibility as part of its business strategy.

The section on Sustainable Development Strategy is one of the best achievements of the 2011 Report. The outline of the company’s definition of sustainable development and so-cial responsibility (the two pillars of its sustain-ability strategy); the brief review of the com-pany’s challenges, directions and priorities in the area of sustainable development; and the detailed presentation of the company’s sustainability goals for the period 2011–2013 mark significant progress in development of the company’s sustainability strategy in comparison with the 2010 Report.

Further in the same section, the chapter on Management in the Areas of Sustainable Development and Stakeholder Engagement presents a good review of the company’s corporate governance structure, including general information on members of the highest governance body responsible for the company’s sustainability aspects. The chapter gives a good general review of the integration of sustainable development issues, such as anticorruption and environmental and operational safety, into the company’s risk management. It highlights the systemic thinking and significant progress

APPENDIX 1 OPINIONS BY INDEPENDENT EXPERTS ON THE GAZPROM NEFT2011 SUSTAINABLE DEVELOPMENT REPORT

TEODORINA PENTCHEVA LESSIDRENSKA,

Independent Expert, GRI Associate and the GRI’s Ambassador for Russia, NIS and CEE34

The present statement and recommenda-tions are based on my review of the Russian version of the JSC Gazprom Neft Sustainable Development Report 2011 (‘the Report’). I used the Global Reporting Initiative (GRI) G3-1 Guidelines as a basis for evaluating the informa-tion presented in the Report. During my review of the Report, I also applied my knowledge of ISO 26000, and where appropriate I took into account the AA1000APS (2008) principles of inclusivity, materiality and responsiveness. The observations and recommendations in this statement represent my personal independent opinion. I was not involved in the preparation of any part of the Report. Prior to this assignment, I reviewed the 2010 Report and submitted recommendations for improvement in an unof-ficial capacity.

The Report is based on the GRI Guidelines (version G3-1). The company has declared that the Report applies Level B of this standard, which implies expanded disclosure including both standard performance indicators and governance. In the process of preparation of the Report, the company has implemented an internal self-assessment of its activities in the sphere of sustainability and social respon-sibility based on ISO 26000:2010

Observations and conclusionsThe Report gives a detailed and thorough presentation of the business results of Gazprom Neft and its subsidiaries and as-sociates in 2011, including financial indica-tors and ESG performance.

34 Dr. Lessidrenska is authorized by the GRI Secretariat to represent GRI in Russia, the CIS, and the countries of Eastern and Central Europe, in order to support and promote the principles of sustainable growth and GRI methodologies, as well as to develop a network of GRI experts and users. Dr. Lessidrenska is a founder of the Global Reporting Initiative (GRI), with more than 20 years experience in the field of sustainable growth in various national environments. Dr. Lessidrenska currently resides in Geneva (Switzerland).


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made toward development of a company-wide comprehensive approach in management of all material aspects and issues of sustainability performance.

There is also a very good overview of the company’s different types of stakehold-ers, and of the relevance to each of them of principles and areas of engagement – the pre-sentation is extensive and generally satisfies the GRI principle for stakeholder inclusive-ness. Stakeholder engagement mechanisms are also described well and in detail.

At the end of the first section, the newly introduced chapter on Corporate Culture brings valuable additional details about the cur-rent system of corporate values, the results achieved in the process of its improvement, and its importance for development and imple-mentation of the sustainability strategy.

The company’s sustainability performance is presented in three sections of the Report: Development of Workforce Potential; Secure Development: Health, Safety and Environment; and Regional Policy and Community Development. These sections include extensive information on a wide range of sustainability is-sues in the environmental, social and economic areas of company performance. Quantitative data for the 2011 reporting period is presented in comparison with relevant data from previous reporting periods, and in most places is backed up with good analysis. Cases are used to bring depth to the analysis of important issues and to give a perspective on developments and prog-ress made with respect to certain sustainability issues by various business units of the company. Each section provides extensive description of governance and systems relevant to the sustain-ability aspects addressed in the section.

RecommendationsBased on the level of sustainability report-ing reflected in Gazprom Neft Sustainable Development Report 2011 and the level of its

integration with the annual financial reporting cycle, it appears that Gazprom Neft is ready to make the next step forward in line with the latest trends toward a more integrated and analytical approach in presentation of financial, environmental, social and governance aspects of the company’s performance and impacts. Therefore, it is recommended that in the next reporting cycle Gazprom Neft considers development of an Integrated Report in line with the recommendations of the International Integrated Reporting Committee (IIRC) and current best practices in integrated reporting worldwide.

An Integrated Report requires further work on deepening the alignment and linkages between the company’s busi-ness strategy and sustainability strategy, with the goal of presenting them as one integrated strategy. The integrated report-ing model would also present an effec-tive platform for further improvement in the recommended areas below: • In the 2012 Report the broader sustain-

ability context should be addressed. The next report should expand on how key sustainability challenges and opportuni-ties determine sustainability goals and targets for innovation, finding technologi-cal solutions, and main business objectives. The 2012 Report should include a more elaborate description of risks and oppor-tunities arising from wider sustainability trends, and prioritize them in accordance with their relevance for the company’s strategy, competitiveness, financial perfor-mance and core business risks, opportuni-ties, and targets. Challenges and negative developments should be presented and discussed more openly. An integrated approach will also provide a stronger base for detailed analysis and description of the process used in selection of issues to be addressed in the Report.

• An integrated approach will also help to build a comprehensive set of measurable targets linked to development direc-tions and priorities in each key area of the sustainable development strategy. The 2011 Report contains description of planned activities and tasks for 2012 at the end of each performance section, but measurable indicators do not cover all the areas of sustainability strategy.

• The reporting on environmental perfor-mance will benefit from further expansion of the scope and depth of coverage of the GRI environmental indicators, to include, for example, climate change initiatives. There is also a need for specific quantitative targets in minimization of negative impacts and risks.

• It is recommended that the company should consider participation and reporting in the Carbon Disclosure Project (CDP). The company should develop and report on its processes and controls to measure, monitor and report carbon emissions. Environmental effects and impacts of offshore and onshore oil and gas activ-ity need to be presented in more detail in the Gazprom Neft 2012 report.

• The 2011 Report is written in a manner that is understandable and accessible to a wide circle of stakeholders. It will be available in two languages - Russian and English. A glos-sary of technical terms is provided. However, further work needs to be done on better dis-tribution of the volume of reported informa-tion between different formats and channels, including maximum use of the Internet. Such distribution is a prerequisite for integrated reporting.

March 24, 2012


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While noting the merits of the Report, I recommend attention to some issues which offer scope for further improvement in the quality of the reported information: • it would be useful to accompany the infor-

mation on sustainable develop ment goals, which is clearly set out in the Report, with details of specific plans to achieve those goals in the next reporting period and to present relevant indicators for evaluating the expected results;

• information on the results attained would be better perceived if they were compared with the target parameters, since this would enable a more complete evaluation of the progress made and of issues, and draw attention to areas of rapid growth;

• there should be more analysis of problem areas;

• stakeholder engagement aspects would be better presented if they were complemented with more specific examples and results of the engagement.

The practice of independent confirmation of the Report should also be consistently followed and further developed, including a public certification procedure, which will contribute to further development and enhancement of the reporting process at the Company, and which is in conformity with best practice in this area.

March 26, 2012

The innovative approach used in preparing the Report is worth special notice: the Company analysed its responsible business practices on the basis of the provisions of ISO 26000:2010 and recommendations of the Russian Union of Industrialists and Entrepreneurs for self-assessment of a company’s activities in accordance with the social responsibility principles based on this standard.

Gazprom Neft was among the first Russian companies to conduct an internal self-assessment in a number of important aspects of its business organisation in accordance with the requirements set out in ISO 26000:2010, and the Company draws attention to this in the 2011 Report. An essential step was thus made in the development of sustainability management and in improving the culture of corporate non-financial reporting. The Company demonstrates understanding and recognition of social responsibility and sustainable development principles that have been assumed at international level, offering the stakeholders clear coordinates for evaluating its activities and a platform for dialogue.

It appears that the Company will further expand the scope of its self-assessment in conformity with the provisions of ISO 26000:2010 and move consistently towards integrating social responsibility principles into its business processes, including all governance levels and areas of responsibility.

ELENA FEOKTISTOVA

Director of the Centre for Corporate Social Responsibility and Non-Financial Reporting of the Russian Union of Industrialists and Entrepreneurs

The JSC Gazprom Neft 2011 Sustainable Development Report has been prepared to a good level of quality, displaying consistency and progress in development of the reporting process at the Company.

The Report shows that sustainable development and corporate social responsibility issues are considered by the Company as matters of strategic importance. The information provided reflects the Company’s position regarding the stated priorities and goals of sustainable development, covers governance in this sphere, as well as strategy and main results achieved in the reporting period in key business areas, including economic, environmental and social components. Expanded coverage is given to approaches to stakeholder engagement.

The information provided offers continuity with the previous Report. The data in the Company’s Sustainable Development Report and the Annual Report, which are synchronised in terms of preparation, complement each other, providing the stakeholders with a more complete and comprehensive insight into the Company’s business and its impacts it makes on the external community.


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has shared its approaches to conducting an in-ternal self-assessment based on this standard.

What directions should be pursued in the future? This question is partially answered by the Company itself, which has supplemented each section of the Report with an outlook for 2012. It should also be noted that the 2011 Report discloses Company plans regarding the development of non-financial information, in which the Company relies both on previous ex-perience and international trends established in recent years. And the Company has demonstrat-ed its commitment to best practices by declaring its intent to move to preparation and publication of an integrated corporate report in the future.

I see two opportunities for development of the Company’s non-financial reporting in the near future. The 2011 Report gives a much bigger insight then the previous report into stakeholder engagement. However, it would be desirable to see more detailed coverage of the process of information exchange with inter-nal stakeholders and its outcome. Such exam-ples are present in the Report, but they appear to require expansion. This would raise the issue of stakeholder engagement to a higher quality level and enable a clearer presentation of the role of stakeholder engagement mecha-nisms in implementing development strategy, including new mechanisms for integrating stakeholder interests into the management decision-making process.

The Report gives much attention to issues of work with personnel. However, the Report might benefit from incorporating the live voices of employees, and opinions and wishes of real people.

March 26, 2012

the Company applies an integrated approach to building its management system, incorpo-rating mechanisms that respond to the most urgent social issues. It is reported that Gazprom Neft is implementing an Integrated Risk Management System (IRMS) and devel-oping a program to control corruption risks.

A response to relevant social demands can be found in the section of the Report covering re-gional policy and local community development, where new forms of organisation of charitable activities are highlighted. The Report incor-porates information on topical environmental issues and discloses the experience of individual companies within Gazprom Neft. The principal provisions of the corporate health, safety and environment policy and the Company’s com-mitments in these areas are presented in more detail as compared with the previous report.

On the whole, the information in the 2011 Report is rendered in a more struc-tured and specific manner and the reporting scope on a number of indicators has been expanded. Sustainability reporting prac-tices have also been extended to foreign subsidiaries of the Company: a Gazprom Neft entity, NIS, was the first company in Serbia to prepare a sustainable development report in conformity with international standards.

For the first time, the Company engaged independent experts to review and render a public evaluation of the Company’s Report. The Company continues its efforts to improve the quality of reporting prepared according to GRI Guidelines. When preparing the Report, the latest version of this standard, G3.1, was used. The Report also employed a number of indicators from the GRI Oil and Gas Sector Supplement. The Company was among the first Russian companies to start using the new international social responsibility standard, ISO 26000:2010, and in the Report the Company

VERONIKA KABALINA

Professor, Head of Department of Human Resources Management,Faculty of Management, National Research University Higher School of Economics,Director, Institute for Comparative Studies in Labour Relations (autonomous non-profit organisation)

When a company issues a non-financial report which is not the first one — the Report in ques-tion by Gazprom Neft (‘the Report’) is already the sixth Sustainable Development Report by this company – a concerned reader will have a question: what new things has the Company done in the past year and has information about these things become more interesting and comprehensible in the Report?

Answering this question, we should note that the 2011 Report both extends the range of information provided and offers new approaches to information presentation, reflecting development of the Company’s sustainability practices.

The Report contains information not only on successful operating and financial results in the reporting year, but on establishment of conditions for sustainable development, which include capital investment in upgrade of production facilities, investment in foreign projects and projects to develop new assets. As compared to the previous Report, broader coverage is provided on matters of sustainabil-ity management, and more attention is given to the role of the Board of Directors. Changes in the management system are also reflected, including organisational changes which testify to the flexible response of the Company to evolving business conditions.

Based on the information provided in the Report, one can conclude that


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This Report makes use of indicators recommended by GRI Sustainability Reporting Guidelines (version G3.1). Also, some indicators from GRI Oil and Gas Sector Supplement were used in the Report (marked by OG in the table).

APPENDIX 2 GRI CONTENT INDEX

Profile disclosure Description

Level of disclosure*

Location in the Report,other remarks Page

1.1 Statement from the most seniordecision-maker of the organization.

• Address of the Chairman of the Board of Directors.Address of the Chairman of the Management Board.

4-5, 6-8

1.2 Description of key impacts, risks, and opportunities.

•

Address of the Chairman of the Board of Directors.Address of the Chairman of the Management Board.About the Company. Sustainable Development Strategy. Human Resources Development. Sustainable Development Management and Stakeholder Engagement. Secure Development: Health, Safety and Environment. Regional Policy and Local Community Development.

4-5, 6-7, 10, 30, 38, 58, 73, 94

2.1 Name of the organization.

•

Full name:Joint Stock Company Gazprom Neft.Short name:JSC Gazprom Neft.

2.2 Primary brands, products, and/or services. • About the Company. 11, 14

2.3 Operational structure of the organization, including main divisions, operating companies, subsidiaries, and joint ventures.

•About the Company. 14-16

2.4 Location of organization's headquarters. • 3-5, Pochtamtskaya str., Saint Petersburg, 190000, Russia

2.5 Number of countries where the organization operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report.

•

About the Company. 11-13

2.6 Nature of ownership and legal form.•

About the CompanySustainable Development Management and Stakeholder Engagement.

9, 34

2.7 Markets served (including geographic breakdown, sectors served, and types of customers/beneficiaries). •

About the Company.Sustainable Development Management and Stakeholder Engagement

14-16, 41-47

2.8 Scale of the reporting organization.

•

About the Company.Human Resources Development Sustainable Development Management and Stakeholder Engagement.Sales stats in money terms (earnings) are disclosed in total for the Company. The Company considers breakdown of sales revenues by regions to be confidential. Information about overall expenses of the Company is disclosed in the Annual Report 2011, p. 85. The Company considers breakdown of expenses by regions to be confidential.

18, 20-21, 41, 57

2.9 Significant changes during the reporting period regarding size, structure, or ownership.

•About the Company. 15

* Meaning of colours and marks: Level of information disclosure in accordance with GRI Guidelines requirements: • – completely, • – partially, – information is not available; Indicators: 1.1 – main, 1.1 – additional.


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Level of disclosure


2.10 Awards received in the reporting period.

•

About the Company. Sustainable Development Management and Stakeholder Engagement. Human Resources Development. Secure Development: Health, Safety and Environment. Regional Policy and Local Community Development.

41, 43, 45, 61, 79, 108

3.1 Reporting period. • About the Report. 1

3.2 Date of most recent previous report. • 2010

3.3 Reporting cycle. • Annual.

3.4 Contact point for questions regarding the report or its contents. •

Contacts and feedback. 124

3.5 Process for defining report content.•

About the Report. Sustainable Development Management and Stakeholder Engagement.

2, 53-54

3.6 Boundary of the report. •

About the Report. Sustainable Development Management and Stakeholder Engagement.

1-2, 53-54

3.7 Any specific limitations on the scope or boundary of the report. •

About the Report. 1-2

3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can signif icantly affect comparability from period to period and/or between organizations.

•

The Report includes information about enterprises where the Company’s interest is over 50%. In some environmental impact indicators information on 50% equity investees is also included. These cases are specifically mentioned in the Report.

3.9 Data measurement techniques and the bases of calculations. •

About the Report. 1-2

3.10 Explanation of the effect of any re-statements of information provided in earlier reports, and the reasons for such re-statement

•The Report does not contain re-statements of information from previous reports.

3.11 Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report.

•About the Report. Sustainable Development Management and Stakeholder Engagement.

1-2, 53-54

3.12 Table identifying the location of the Standard Disclosures in the report. •

GRI Content Index. 114-121

3.13 Policy and current practice with regard to seeking external assurance for the report. •

About the Report.Sustainable Development Management and Stakeholder Engagement.

1-2, 53-54

4.1 Governance structure of the organization, including committees under the highest governance body responsible for specific tasks, such as setting strategy or organizational oversight.

•Sustainable Development Management and Stakeholder Engagement.

34-37

4.2 Indicate whether the Chair of the highest governance body is also an executive officer. •

No.

4.3 For organizations that have a unitary board structure, state the number and gender of members of the highest governance body that are independent and/or non-executive members.

•

At present the Company’s Board of Directors does not include independent directors. 9 of 10 members of the Board of Directors are non-executive directors. Gender composition: one seat out of 10 on the Board of Directors is occupied by a woman.


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Level of disclosure


4.4 Mechanisms for stakeholders and employees to provide recommendations or direction to the highest governance body. •

Sustainable Development Management and Stakeholder Engagement.

34-37, 41-42

4.5 Linkage between compensation for members of the highest governance body, senior managers, and executives (including departure arrangements), and the organization's performance (including social and environmental performance).

•


36

4.6 Processes in place for the highest governance body to ensure that conflicts of interest are avoided. •


37

4.7 Process for determining the composition, qualifications, and expertise of the members of the highest governance body and its committees, including any consideration of gender and other indicators of diversity.

•

Sustainable Development Management and Stakeholder Engagement. See also Gazprom Neft Annual Report 2011, p. 118.

35-36

4.8 Internally developed statements of mission or values, codes of conduct, and principles relevant to economic, environmental, and social performance and the status of their implementation.

•Sustainable Development Strategy. Sustainable Development Management and Stakeholder Engagement.

10, 35-37

4.9 Procedures of the highest governance body for overseeing the organization's identif ication and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles.

•


35-38

4.10 Processes for evaluating the highest governance body's own performance, particularly with respect to economic, environmental, and social performance.


36

4.11 Explanation of whether and how the precautionary approach or principle is addressed by the organization. •

Secure Development: Health, Safety and Environment.For expanded explanation see: Gazprom Neft 2010 Sustainable Development Report , p.99.

4.12 Externally developed economic, environmental, and social charters, principles, or other initiatives to which the organization subscribes or endorses. •

At present the Company has not formally subscribed to any such initiatives. The Company follows the principles set forth in ISO 26000 (Guidance on Social Responsibility) and publishes sustainability reporting adhering to GRI Reporting Guidelines.

4.13 Memberships in associations (such as industry associations) and/or national/international advocacy organizations


46

4.14 List of Stakeholder groups engaged by the organization. •


39

4.15 Basis for identification and selection of Stakeholders with whom to engage. •

Sustainable Development Strategy. Sustainable Development Management and Stakeholder Engagement.

39

4.16 Approaches to stakeholder Stakeholderengagement, including frequency of engagement by type and by Stakeholder group.


40-47

4.17 Key topics and concerns that have been raised through stakeholder Stakeholderengagement, and how the organization has responded to those key topics and concerns, including through its reporting.

•


54


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Level of disclosure


EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments.

•

About the Company.Human Resources Development. Secure Development: Health, Safety and Environment. Regional Policy and Local Community Development. See also Gazprom Neft Annual Report 2011, p. 89).

18, 20-21, 61, 80, 93

EC2 Financial implications and other risks and opportunities for the organization's activities due to climate change. •

Secure Development: Health, Safety and Environment. 82

EC3 Coverage of the organization's defined benefit plan obligations. •

Gazprom Neft Financial Report 2011, p.12.

EC4 Significant financial assistance received from government.

•

In 2011, the Company did not receive any direct donations from the government. However, JSC Gazprom Neft is a subsidiary of OJSC Gazprom in which 50.002% of shares are controlled by the government.

EC5 Range of ratios of standard entry level wage by gender compared to local minimum wage at significant locations of operation.

•

EC6 Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation. •

EC7 Procedures for local hiring and proportion of senior management hired from the local community at significant locations of operation.

•

EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement.

•Regional Policy and Local Community Development. 93, 96-97

EC9 Understanding and describing significant indirect economic impacts, including the extent of impacts.

•

About the Company. Sustainable Development Strategy.Sustainable Development Management and StakeholderStakeholder EngagementRegional Policy and Local Community Development.

10, 30-31, 92-94

OG11 Volume and type of estimated proved reserves and production. •

About the Company. 9

EN1 Materials used by weight or volume. • About the Company. 21

EN2 Percentage of materials used that are recycled input materials. •

EN3 Direct energy consumption by primary energy source. •

EN4 Indirect energy consumption by primary source.

•Secure Development: Health, Safety and Environment.The data is provided without indication of primary energy sources.

89

EN5 Energy saved due to conservation and efficiency improvements. •

Secure Development: Health, Safety and Environment. 89-90

EN6 Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiatives.

•Sustainable Development Management and StakeholderStakeholder Engagement. Secure Development: Health, Safety and Environment.

35, 82, 89-90


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EN7 Initiatives to reduce indirect energy consumption and reductions achieved. •

Secure Development: Health, Safety and Environment.

EN8 Total water withdrawal by source. • Secure Development: Health, Safety and Environment. 83

EN9 Water sources significantly affected by withdrawal of water. •

EN10 Percentage and total volume of water recycled and reused. • Secure Development: Health, Safety and Environment. 83

EN11 Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas.

•

EN12 Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas.

•Secure Development: Health, Safety and Environment. 88

EN13 Habitats protected or restored. • Secure Development: Health, Safety and Environment. 86

EN14 Strategies, current actions, and future plans for managing impacts on biodiversity. •


EN15 Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk.


EN16 Total direct and indirect greenhouse gas emissions by weight. • Secure Development: Health, Safety and Environment.

EN17 Other relevant indirect greenhouse gas emissions by weight. • Secure Development: Health, Safety and Environment. 81

EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved. •

Secure Development: Health, Safety and Environment. 81-82

EN19 Emissions of ozone-depleting substances by weight. • Secure Development: Health, Safety and Environment. 81

EN20 NOx, SOx, and other significant air emissions by type and weight. • Secure Development: Health, Safety and Environment. 81

EN21 Total water discharge by quality and destination. • Secure Development: Health, Safety and Environment. 82-83

EN22 Total weight of waste by type and disposal method. • Secure Development: Health, Safety and Environment. 87

EN23 Total number and volume of significant spills. • Secure Development: Health, Safety and Environment. 86

EN24 Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally.

•

EN25 Identity, size, protected status, and biodiversity valueof water bodies and related habitats signif icantly affected by the reporting organization's dischargesof water and runoff.

•

EN26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation. •


43-45

EN27 Percentage of products sold and their packaging materials that are reclaimed by category. •


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EN28 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations.


EN29 Significant environmental impacts of transporting products and other goods and materials used for the organization's operations, and transporting members of the workforce.

•

EN30 Total environmental protection expenditures and investments by type. •


LA1 Total workforce by employment type, employment contract, and region, broken down by gender. •

Human Resources Development. 57-58, 93

LA2 Total number and rate of new employee hires and employee turnover by age group, gender, and region. •

Human Resources Development 61, 63-64

LA3 Benefits provided to full-time employees that are not provided to temporary or part-time employees, by major operations. •

Human Resources Development

LA4 Percentage of employees covered by collective bargaining agreements. •

LA5 Minimum notice period(s) regarding significant operational changes, including whether it is specified in collective agreements. •

Human Resources Development 65

LA6 Percentage of total workforce represented in formal joint management-worker health and safety committees that help monitor and advise on occupational health and safety programs.

•

LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by region and by gender.


LA8 Education, training, counselling, prevention, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases.

•Secure Development: Health, Safety and Environment. 65, 73, 75

LA9 Health and safety topics covered in formal agreements with trade unions. •

Human Resources Development. 65

LA10 Average hours of training per year per employee by gender, and by employee category. •

Human Resources Development. 68

LA11 Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings.

•Human Resources Development. 66-68

LA12 Percentage of employees receiving regular performance and career development reviews, by gender.

•

Human Resources Development.The Company’s staff strategy and the Corporate Code offer no possibility of gender discrimination. Gender characteristics are not relevant for participation in performance evaluation procedures.

59-61

LA13 Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity.

•Human Resources Development. 35-36, 58

LA14 Ratio of basic salary and remuneration of women to men by employee category, by significant locations of operation. •

The basic salary for women and men does not differ.


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LA15 Return to work and retention rates after parental leave, by gender. •

HR1 Percentage and total number of significant investment agreements and contracts that include clauses incorporating human rights concerns, or that have undergone human rights screening.

•

HR2 Percentage of significant suppliers, contractors and other business partners that have undergone human rights screening, and actions taken.

•

HR3 Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained.

•

HR4 Total number of incidents of discrimination and actions taken. • In 2010 no incidents of discrimination were recorded.

HR5 Operations and significant suppliers identified in which the right to exercise freedom of association and collective bargaining may be violated or at significant risk, and actions taken to support these rights.

•

No operations in which the right to exercise freedom of association and collective bargaining may be at significant risk were identified.

HR6 Operations and significant suppliers identified as having significant risk for incidents of child labor, and measures taken to contribute to the effective abolition of child labor.

•No operations as having significant risk for incidents of child labour were identified.

HR7 Operations and significant suppliers identified as having significant risk for incidents of forced or compulsory labor, and measures to contribute to the elimination of all forms of forced or compulsory labor.

•

No operations as having significant risk for incidents of forced or compulsory labour were identified.

HR8 Percentage of security personnel trained in the organization's policies or procedures concerning aspects of human rights that are relevant to operations.

•All employees of security services are subjected to an obligatory briefing on compliance with Russian human rights legislation.

HR9 Total number of incidents of violations involving rights of indigenous people and actions taken. •

No violations were recorded in 2011.

HR10 Percentage and total number of operations that have been subject to human rights reviews and/or impact assessments. •

The relevant matters were contained in the annual study of the social and psychological climate at Company enterprises.

OG9 Operations where indigenous communities are present or affected by activities and where specific engagement strategies are in place.

•Regional Policy and Local Community Development. 97, 101

HR11 Number of grievances related to human rights filed, addressed and resolved through formalgrievance mechanisms.

•Not recorded.

SO1 Percentage of operations with implemented local community engagement, impact assessments, and development programs. •

All the Company’s subsidiaries.

SO2 Percentage and total number of business units analyzed for risks related to corruption.

•

Gazprom Neft is currently developing a program to manage corruption risks designed to mitigate them by implementing preventive procedures. The scope of the program includes determining the position of corruption risk in the Company’s risk management system, developing a local regulatory document, formulating a strategy for communication support of the project and personnel training.


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SO3 Percentage of employees trained in organization's anti-corruption policies and procedures. •

SO4 Actions taken in response to incidents of corruption. •

SO5 Public policy positions and participation in public policy development and lobbying. •

Sustainable Development Management and StakeholderStakeholder Engagement.

46

SO6 Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country. •

SO7 Total number of legal actions for anti-competitive behavior, anti-trust, and monopoly practices and their outcomes. •

SO8 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with laws and regulations. •

SO9 Operations with significant potential or actual negative impacts on local communities. •

All oil and gas producing and refining enterprises have significant potential for negative environmental impact.

SO10 Prevention and mitigation measures implemented in operations with significant potential or actual negative impacts on local communities.

•Secure Development: Health, Safety and Environment 47

OG10 Number and description of significant disputes with local communities and indigenous peoples. •

No significant conflicts noted in the reporting period.

PR1 Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of signif icant products and services categories subject to such procedures.

•

PR2 Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes.

•

PR3 Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements.

•

PR4 Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labelling, by type of outcomes.

•

PR5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction. •

Sustainable Development Management and StakeholderStakeholder Engagement.

43-45

PR6 Programs for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship.

•Marketing communications are checked by respective divisions of the Company for compliance with Russian legislation.

PR7 Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by type of outcomes.

•

PR8 Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data. •

PR9 Monetary value of signif icant f ines for non-compliance with laws and regulations concerning the provision and use of products and services.

•


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AdditivesSubstances added in small quantities to fuels and technical oils to improve their performances.

Assets, EnterprisesIn the context of the Report, subsidiaries and associates of JSC Gazprom Neft.

Associated Petroleum Gas, APGThe mixture of various gaseous hydrocarbons dissolved in crude oil and emitted during its production.

CFDCentral Federal District.

CGTPComprehensive gas treatement plant.

CharitiesVoluntary activity for the transfer of property, including money, performance of work, provision of services and other support to individuals or legal entities on a selfless basis (gratuitously or on preferential terms).

CompanyIn this Report, JSC Gazprom Neft and all of its subsidiaries and associates.

Corporate CommunicationsInteraction, including information exchange, between the Company and its stakeholders.

EBITDAEarnings before interest, depreciation and amortisation.

EPDExperimental Production Development.

EPOExperimental Production Operation.

GradeA group of positions of approximately the same value to the Company, i.e. close by the level of functionality, competence, experience and responsibility requirements.

GRI-G3.1The third updated version of the internationally recognized sustainable development reporting guidelines developed by the Global Reporting Initiative (GRI).

GRIGlobal Reporting Initiative, an international organisation with the principal purpose of developing and implementing an authoritative and trusted sustainable development reporting system that may be used by organisations regardless of their size, activity and location.

GSGeological survey.

Head Office/HeadquartersThe managing company, JSC Gazprom Neft.

HSEHealth, Safety and Environment.

IPGIndividual Protective Gear.

IRMSIntegrated Risk Management System. Risk management is a continuous regular process covering risk identification, assessment, monitoring and response at all levels within the Company.

ISO 14001The International Standardisation Organisation’s standard ‘Environmental Management Systems. Requirements with Guidance for Use’, 2004, which is one of the most widely used environmental management standards.

KhMADKhanty-Mansiysk Autonomous District (Yugra).

Non-Financial ReportingSee Sustainability Reporting.

NOX

Nitric oxides.

Oil ServiceOil and gas field development service, including drilling of wells, assembly of rigs, arrangement of well pads, repairs of wells and drilling equipment etc.

APPENDIX 3 SELECTED TERMS & ABBREVIATIONS


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OPFOil packing facility.

PEPetroleum equivalent (a reference fuel).

Petroleum Product Vapour RecoveryRecovering and returning petroleum product vapours to storage tanks.

Sludge PitThe place where drilling wastes are stored.

SO2

Sulphur oxide.

StakeholdersAll individuals and legal entities interested in the Company’s activity, which affect, or are affected by, the Company’s performance.

SubsidiariesSubsidiaries of the company.

Sustainability Reporting (Non-Financial Reporting)The aggregate of systems and processes for collecting, consolidating and submitting information reflecting the balance between financial, operational, social and environmental aspects of the Company’s business, principles and mechanisms for taking account of the interests of a wide range of stakeholders, managing the interaction with them in attaining goals important for the Company and the society.

Sustainable DevelopmentDevelopment which meets the needs of the present without compromising the ability of future generations to meet their own needs. (definition formulated by the UN International Commission for Environment and Development in the ‘Our Common Future’ Report. Quoted from the Sustainability Reporting Guidelines. Version 3.0. GRI, 2006.)

Technical Regulations [in the Russian Federation]A document (regulatory legal act) establishing mandatory requirements to items liable to technical regulation (products, including buildings, constructions and structures, production, operation, storage, transportation, sale and disposal processes).

VIOCVertically integrated oil company.

YaNADYamalo-Nenets Autonomous District.


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CONTACTS & FEEDBACKWe are keen to receive feedback concerning the present Report: your opinions on the issues discussed in this publication are very important to the Company. By taking part in discussion of this Report, you can help to increase the efficiency of Gazprom Neft’s activities.

To comment on the Report or ask any questions, please contact us by phone, mail, e-mail or fax using the following contact details:

JSC Gazprom Neft3-5, Pochtamtskaya str., Saint Petersburg, 190000, RussiaTel: +7 (812) 363-31-52, 8 800 700-31-52Fax: +7 (812) 363-31-51, 8 800 700-31-51Corporate Communications [email protected] Other contacts are available on the Company’s web-site:http://www.gazprom-neft.com/company/contacts/

You can also send an e-mail from the Company’s feedback page:http://www.gazprom-neft.com/company/feedback.php

All questions you ask and all opinions you express will be taken into account for preparation of the Company’s next Sustainable Development Report .

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