Trends and Developments on Oil and Gas Markets 53 last year, supplies of LNG started to come from Papua New Guinea and Algeria and in 2016–2020, new LNG projects will come online in Australia and the United States. At the same time, a sharp decline in oil prices in the second half of 2014 pushed down LNG prices in the global market, making less obvious the viability of LNG supplies from new projects at the United States at contract prices pegged to gas price indices. Against this background, <strong>Gazprom</strong> Group estimates the competitive ability of its own LNG projects (Baltic LNG and a number of projects in the Russian Far East) as fairly strong and intends to proceed with their implementation. OAO <strong>Gazprom</strong> Annual Report 2014
54 Performance Results Exploration and Production The world’s largest reserves and powerful production capabilities enable <strong>Gazprom</strong> to successfully operate conventional fields and build new gas production centres that will become the backbone of the Russian gas sector in the future. Through its active involvement in international exploration and production projects, <strong>Gazprom</strong> Group is gaining invaluable experience for the future development of fields in Russia and abroad. OAO <strong>Gazprom</strong> and its subsidiaries own 72% of Russia’s explored gas reserves. <strong>Gazprom</strong> Group’s mineral resources are the foundation of its operations and serve as a vital indicator of the Company’s production and financial growth potential and its ultimate value. <strong>Gazprom</strong> Group controls around 17% of the world’s gas reserves. OAO <strong>Gazprom</strong> and its subsidiaries own 72% of Russia’s explored gas reserves, with 23% attributed to oil companies and independent gas producers and 5% remaining in the unallocated fund. This makes <strong>Gazprom</strong> the global leader among oil and gas companies in terms of explored gas reserves. The bulk of the Group’s hydrocarbon reserves is concentrated in its license blocks across Russia. According to DeGolyer and MacNaughton, <strong>Gazprom</strong> Group’s proved and probable PRMS reserves as of 31 December 2014 were 23,487.7 bcm of gas, 848.6 mm tonnes of gas condensate, and 1,210.2 mm tonnes of oil. The current NPV of reserves is USD 309.6bn. Audited projects included <strong>Gazprom</strong> Group’s reserves totalling 94% of gas reserves, 92% of condensate reserves, and 90% of oil reserves attributed to grades A+B+C 1 . The increase in PRMS reserves against last year has been due to the audit of reserves at the Khandinsky block of the Kovyktinskoye field and exploration performed at the Chayandinskoye and Semakovskoye fields and <strong>Gazprom</strong> neft Group’s fields in Eastern Siberia (Ignyalinsky, Tympuchikansky, Vakunaisky license blocks). Besides, proved and probable reserves owned by entities where <strong>Gazprom</strong> has investments classified as joint operations were estimated at 23.1 bcm of gas and 164.2 mm tonnes of oil (within <strong>Gazprom</strong> Group’s share) and evaluated at USD 6.7bn. Operations in Russia Increments to reserves As of 31 December 2014, <strong>Gazprom</strong> Group’s A+B+C 1 hydrocarbon reserves in Russia were 36,074.8 bcm of natural gas, 1,443.9 mm tonnes of gas condensate, and 1,850.9 mm tonnes of oil. The Group’s interest in its affiliates’ A+B+C 1 hydrocarbon reserves as of the above date was: 998.4 bcm of gas; 100.1 mm tonnes of gas condensate; and 777.7 mm tonnes of oil, including the share in the reserves of entities where <strong>Gazprom</strong> has investments classified as joint operations — 26.7 bcm of gas, 3.1 mm tonnes of gas condensate and 202.3 mm tonnes of oil. The gas reserves of <strong>Gazprom</strong> Group and Russia as a whole allow the required volumes of gas to be produced at discovered fields in the vicinity of well-established infrastructure until 2018 or 2020. In the future, to compensate for falling production at giant major fields resulting from natural depletion and to reverse the negative trend, the Group can expand its development operations to include reserves in the Yamal Peninsula (entirely), the Gydan Peninsula, Eastern Siberia, the Far East, Ob and Taz Bays, the near offshore of the Kara Sea, as well as find and explore onshore and offshore large and giant hydrocarbon fields. A large-scale replacement of the oil resource base requires new centres to be established. Exploration will be concentrated mostly in Eastern Siberia, in the Gydan Peninsula, and in the Orenburg Region in the medium term, and in the north of YNAA, in the south of KMAA – Yugra, in the Tyumen Region, and on the Arctic offshore in the long term. The Group has adopted and is implementing the Technological Exploration Strategy to work out methods for preparing economically viable hard-to-recover reserves (Achimovsk layer, Tyumen formation, basement) and unconventional reserves (Bazhen project). OAO <strong>Gazprom</strong> Annual Report 2014
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