ENERGY FOR PEOPLE - JSC Gazprom Neft

JSC GAZPROM NEFTANNUAL REPORT2009Contents2 1. MESSAGE TO SHAREHOLDERS8 2. KEY PERFORMANCE INDICATORS10 3. 2009 HIGHLIGHTS16 4. COMPANY’S PROFILE18 COMPANY’S HISTORY19 COMPANY’S STRUCTURE20 GEOGRAPHY OF OPERATIONS30 HIGHLIGHTS OF THE YEAR32 COMPETITIVE STATE OF THE COMPANY36 5. KEY PERFORMANCE INDICATORS OF THE COM-PANY IN 2009 BY TYPE OF OPERATION38 OIL AND GAS EXPLORATION AND PRODUCTION40 RESOURCE BASE40 EXPLORATION41 LICENSING42 HYDROCARBON PRODUCTION44 REFINERIES & MARKETING REGIONS46 REFINING48 PRODUCTION OF PETROLEUM PRODUCTS52 PREMIUM BUSINESS SEGMENTS54 6. COMPANY’S GROWTH PROSPECTS60 7. INVESTMENT: TECHNICAL REEQUIPMENT ANDDEVELOPMENT OF THE COMPANY110 11. ENVIRONMENT, ENERGY SAVING, INNOVATION122 12. SOCIAL POLICY124 PERSONNEL, OCCUPATIONAL SAFETY ANDHEALTH128 13. To SHAREHOLDERS AND INVESTORS130 AUTHORIZED CAPITAL, SHAREHOLDER CAPITALSTRUCTURE130 STOCK MARKET AND CAPITALIZATION132 PARTICIPATION IN THE DEPOSITARY RECEIPTPROGRAM134 DIVIDEND HISTORY135 OBSERVING THE CORPORATE CODE OF CON-DUCT138 14. MAJOR TRANSACTIONS AND RELATED PARTYTRANSACTIONS144 15. ASSET MANAGEMENT AND IMPROVEMENT OFCORPORATE STRUCTURE148 16. CREDIT RATINGS AND DEBT PORTFOLIO MAN-AGEMENT154 17. GLOSSARY OF KEY TERMS AND DEFINITIONS156 18. ADDRESSES AND CONTACTS64 8. PERFORMANCE AND FINANCIAL INDICATORS66 PERFORMANCE AND FINANCIAL INDICATORS70 Management’s Discussion and Analysisof Financial Condition and Results ofOperations for 2009, 2008 and 200786 9. MAJOR RISK FACTORS94 10. Corporate Governance102 BOARD OF DIRECTORS’ ACTIVITIES IN 2009104 MEMBERSHIP OF THE MANAGEMENT BOARD108 TOTAL AMOUNT OF REMUNERATION TO MEM-BERS OF THE BOARD OF DIRECTORS ANDMANAGEMENT BOARD1

JSC GAZPROM NEFTANNUAL REPORT2009Dear ShareholdersThe oil business of Gazprom Group has successfully overcome the 2009 crisis. Despite the complicated externalfinancial and economic environment, in terms of operating efficiency JSC Gazprom Neft has secured the positionas one of the leaders of the Russian oil sector. The Company showed high results of operating revenue per barrelproduced and a high level of return on capital invested. This has resulted in the stockholders of Gazprom Neft receivingone of the highest returns in the sector.In 2009 the Company increased the volume of both oil production and refining, effectively managing its key enterprises.The geographic expansion of oil production due to new projects in the Near East, Africa, and Latin America, integrationof Serbia’s NIS, purchase of lubricants facility in Italy, consolidation of the controlling interest in Sibir Energy, launchof large-scale rebranding program of the chain of filling stations – these events of 2009 determined the developmentdirection of Gazprom Neft and therefore of the total business of the global energy company “Gazprom”.Alexey MillerChairman of the Management Board, JSC Gazprom,Chairman of the Board of Directors, JSC Gazprom Neft3

JSC GAZPROM NEFTANNUAL REPORT2009Dear ShareholdersAll over the world the previous year was affected by the economic crisis. However, despite the negative global economictrends Gazprom Neft showed stable operations throughout the year and good year-end financial and operating results.First of all, we are satisfied with the operational perfomance of The Company. Gazprom Neft’s hydrocarbon reserves ofABC1 category increased to 1.782 bn tons of oil equivalent, and oil and gas production increased up to 50.2 mln tonsof oil equivalent. The refining throughput grew by 17.6% and amounted to 33.4 mln tons.The year 2009 was a period of active development of our marketing business units. The Company achieved a leadingposition in Russia’s jet fuel and bunker market. Further in the development of the lubricants business there was a seriousbreakthrough plus the initiation of a large-scale rebranding program of the chain of filling stations. In summary 40%more petroleum products were sold through premium segments in 2009 than in 2008.These operational achievements are reflected in the year end financial results. In spite of the fact that in absoluteterms the revenue and net income of Gazprom Neft decreased, in estimates of comparable market environments theoperating income went up. Besides the year end results show that Gazprom Neft became one of the leaders of thesector in terms of total return for stockholders.The ambitious tasks that we now face will lead to further growth in the size of the business in tandem with internationalgeographic expansion while keeping the leading position in the sector in terms of operational efficiency. I am sure thatimplementation of the strategy aimed at transforming Gazprom Neft into a visible player on the global oil market willenable the company to show high operating results in future and to fully utilize its unique business potential.Alexander DyukovChairman of the Management Board, CEOJSC Gazprom Neft5

JSC GAZPROM NEFTANNUAL REPORT2009JULYAUGUSTSEPTEMBEROCTOBERAAA new filling station of Gazprom Neft-Aero Tomsk (JV of CJSC Gazprom Neft-Aero and TomskAirport LLC) commenced operation in Tomsk airportAAJSC Gazprom Neft repaid in advance the loan of 375 million USD to The Bank for Development andForeign Economic Affairs (Vnesheconombank)AAJSC Gazprom Neft concluded an agreement with the Ministry of Transport of the Russian Federationon cooperation in the sphere of production and use in Russia of a new-generation petroleum based roadbitumenAAProduction of the first product under the brand name “Gazprom Neft” — semisynthetic engine oilGazprom Neft Super Oil ESX 10W-40 — started at Gazprom Neft Lubricants Italia S.p.A. plant in the cityof Bari (Italy)AARenovation of a diesel hydrotreater was completed at Omsk Refinery resulting in the plant nowbeing able to produce hydrotreated diesel oil to the Euro 5 ecological standardAAThe Board of Directors of NIS elected Deputy Chairman of Gazprom Neft’s Management Board andDeputy Director General for Economics and Finance Vadim Yakovlev as the Chairman of the Company’sBoard of Directors.AAJSC Gazprom Neft bought a chain of filling stations (including 40 stations and two tank farms) in theChelyabinsk RegionAAThe level of daily oil production of Gazprom Neft-Khantos LLC in August reached a record of 25thousand tonsAAThe first stage of reconstruction of a fuel service complex of Gazprom Neft-Aero Novosibirskwas completed in Tolmachevo airport enabling the new jet fuel discharge pumping system to becommissionedAAJSC Gazprom Neft and the Administration of the Yamal-Nenets Autonomous District (YNAD)concluded a general agreement for cooperation for 2009-2011AAGazprom Neft’s Board of Directors approved the Exploration and Production Strategy of theCompany until 2020AAThe 30-millionth ton of oil was produced on the deposits of Gazprom Neft-KhantosAAJSC Gazprom Neft signed a general agreement for cooperation with the Government of the OmskRegion for 2009-2011AAThe Chairman of the Management Board of JSC Gazprom Neft Alexander Dukov held the fieldlaying ceremony at Muravlenkovskoye fieldAAThe federal rebranding campaign of Gazprom Neft chain of filling stations started with the officialceremony of opening of the first filling station under the new brand being held in OmskAASibiMotor Extra Synthetic engine oil passed Volkswagen’s specification testsAAGazprom Neft-Lubricants LLC and Nippon Oil Corporation signed a Memorandum of Understandingaccording to which the affiliate of JSC Gazprom Neft will start production of lubricants for Nippon OilCorporation on the territory of Russia13

2009 HIGHLIGHTSEnergy for lifeENERGY FOR PEOPLENovemberDECEMBERAAJSC Gazprom Neft launched a large-scale federal advertising campaign for the new retail brand offilling stations “Gazprom Neft”AAJSC Gazprom Neft and the National Iranian Oil Company (NIOC) signed a Memorandum ofUnderstanding reflecting the intentions of the sides in oil field development of the Azar and Shangulefields in IranAAThe annual report 2008 of JSC Gazprom Neft was declared the best product of nonfinancial sectorin the XI Annual Reports Contest held by Expert RA Rating AgencyAAAn affiliate of Gazprom Neft-Nefteservice LLC OJSC Noyabrskneftegazgeophysica won the OFS-AWARDS-2009 Prize in the nomination for “Strategy of the Year”AAAs part of an international consortium JSC Gazprom Neft won the tender in Iraq for the Badra oilfield development (reserves of 2 bn barrels)AAJSC Gazprom Neft and Sweden’s Malka Oil signed a binding protocol on the terms and procedureof selling a production unit of Malka Oil — STS Service LLC — to Gazprom Neft.AAJSC Gazprom Neft brought into operation Phase 1 of the gas turbine power plant at Yuzhno-Priobskoye field (KMAD)AAJSC Gazprom Neft sold sold its share of the authorized capital of JSC Sibneft-Chukotka to theAdministration of Chukotka. Operations of the Company in the Chukotka District have been ceased.SUBSEQUENT EVENTSJANUARYFEBRUARYAAJSC Gazprom Neft signed a contract for the development of the Badra field in IraqAAJSC Gazprom Neft started deliveries of oil from Kozmino port within the ESPO pipeline projectAAJSC Gazprom Neft’s Board of Directors approved the Regulations for the the Company’s DividendPolicy on January 25, 2010AAJSC Gazprom Neft and Sweden’s Malka Oil closed the deal for the purchase of STS ServiceAARussian President Dmitry Medvedev paid a working visit to Gazprom Neft-Omsk RefineryAAJSC Gazprom Neft won the case in the court of appeal canceling the FAS fineAAJSC Gazprom Neft approved its Development Strategy through to the year 2020MARCHAAAAJSC Gazprom Neft reported its financial results of 2009 according to US GAAP standardsConstruction of a fuel hydroforming complex started at the Omsk Refinery14

ENERGY FOR LIFEENERGYFOR PEOPLE

4COMPANY’SPROFILE

4COMPANY’S PROFILEEnergy for lifeENERGY FOR PEOPLECOMPANY’SPROFILE ** In this report such terms as “Gazprom Neft”,“the Company”, and “Group” in different variantsrefer to JSC Gazprom Neft, its consolidatedsubsidiaries and affiliates.COMPANY’S HISTORYEvery year Gazprom Neft significantlyincreases its size and strengthens itspositions in the oil and gas sector bothin Russia and abroad.1995Open Joint Stock Company SiberianOil Company was established undera Decree of The President of theRussian Federation № 872 «OnEstablishment of Open Joint StockCompany Siberian Oil Company,»dated August 24, 1995, andResolution of the Government ofthe Russian Federation № 972 «OnOrganization of Open Joint StockCompany Siberian Oil Company,»dated September 29, 1995. Actingas the Company's founder, the Statepassed on the government stake inthe biggest oil industry enterprisesof Russia: OJSC Noyabrskneftegaz,OJSC Noyabrskneftegazgeophysica,OJSC Omsk Refinery, and OJSCOmsknefteproduct, to the authorizedcapital of the holding. The Companywas registered on October 6, 1995.1996–1997Plan of privatization of Sibneftwas implemented by the RussianGovernment with the purpose ofdeveloping the market economy.At auctions in 1996 private investorsbought some 49% of Sibneft’s shares.In 1997 under the governmentalprogram “Shares for Loans” theFinancial Oil Company won the auctionto purchase the State-owned sharein Sibneft.1998–2004Good resource potential, effectiveraw material processing capacity andprofessional management ensureda high rate of Company development.The management of Sibneft dida great deal to modernize production,introduce the latest technology andoptimize business processes. Thanksto the implementation of a proactivepolicy aimed at increasing assets thegeography of production expandedsignificantly (Tomsk Region, OmskRegion, and Chukotka AutonomousDistrict) and the sales network inRussia’s regions was also expanded(Sverdlovsk Region, Tyumen Region,the Krasnoyarsk Krai, Saint Petersburg,Moscow). One of the major purchasesof the Company during this period wasthe purchase of 49.9% of shares of JSCNGK Slavneft that produces oil and gasin Western Siberia and the KrasnoyarskKrai.2005A controlling interest in the JSC Sibneft(75.68%) was bought by GazpromGroup and subsequently on May 13,2006 the Company's name has beenchanged to the Joint Stock CompanyGazprom Neft. The strategic objectivesof the Company were to ensure theposition of a global company that hasregionally diversified assets along theentire revenue chain.2006Gazprom Neft entered the retailmarket of Central Asia by settingup an affiliate Gazprom Neft Asiato sell petroleum products of theCompany in Kyrgyzstan, Tajikistan,and Kazakhstan. The same year theCompany for the first time joined,as a shareholder, an internationalpipeline project of state significance;specifically the construction of theBurgas-Alexandroupolis Transbalkan OilPipeline jointly with JSC OC Rosneft andJSC Transneft.2008JSC Gazprom Neft completed theownership structure of Joint StockCompany Moscow Refinery. The projectpartners — JSC Gazprom Neft andJSC Moscow Oil and Gas Companyestablished on a parity basis a companycalled Moscow NPZ Holdings B.V.contributing to its authorized capital90.01% of voting shares or 77.25% ofthe authorized capital of the MoscowRefinery. Gazprom Neft and MNGKcame to an agreement to jointlymanage the Moscow Refinery andmake all decisions on a parity basis.2009Gazprom Neft expanded its presencein the global market — some of thehighlights of the year are summarizedbelow:AAAcquiring 51% of shares of NaftnaIndustrija Srbije (NIS);AAConsolidation of its controlling stakein Sibir Energy that ensured increasein oil production and growth ofeffective ownership ratio of theMoscow Refinery up to 59.75%;AAAcquiring 100% of the Chevron ItaliaS.p.A. oils and lubricants producingplant in the city of Bari (Italy) fromChevron Global Energy;AASigning a Memorandum ofUnderstanding with the NationalIranian Oil Company (NIOC) that18

JSC GAZPROM NEFTANNUAL REPORT2009envisages cooperation in thedevelopment of oil fields in Iran;AALaunch of a large-scale rebrandingprogram for the filling stations of theCompany. The new brand of thechain of filling stations was named“Gazprom Neft”;AAAcquiring STS Service company —a production affiliate of Sweden’sMalka Oil that develops sites that aregeographically close to the fields ofGazprom Neft-Vostok in the TomskRegion;AAIn December the Company acted asthe major member of the consortiumfor the development of the Badra fieldin Iran with the reserves of 2 billionbarrels of oil.Every year Gazprom Neft significantlyincreases its size and strengthens itspositions in the oil and gas sector bothin Russia and abroad.COMPANY’S STRUCTUREGazprom NEFTProduction Oil Service and Exploration MARKETINGOJSC Gazprom Neft-NoyabrskneftegasGazprom Neft-Khantos LLCGazprom Neft-Vostok LLCArchinskoye LLCOJSC MeretoyakhaneftegazSibneft-Yugra LLCSevernaya Taiga – Neftegaz LLCZapolyarneft LLCGazprom Neft-Yamal LLCGazprom Neft-Angara LLCGazprom Neft-Sakhalin LLCRefiningOJSC Gazprom Neft-Omsk RefineryGazprom Neft-Lubricants LLCGazprom Neft Lubricants Italia S.p.A.OJSC Moscow RefineryCrude ExportsGazprom Neft Trading GmbhJoint Ventures:SlavneftTomskneftMultibusiness Companies:«Naftna Industrija Srbije» (NIS)Sibir Energy Plc.Gazprom Neft-Nefteservice LLCOJSC Gazprom Neft NNGFKapitalny Remont Skvazhin – Service LLCSpetstransservice LLCNoyabrskneftegazsvyaz LLCNoyabrskteploneft LLCRMZ Gazprom Neft – Omsk Refinery LLCNoyabrskneftespetsstroy LLCNoyabrskenergoneft LLCNoyabrskEPUService LLCService Drilling Company LLCNeftekhimremont LLCOOO YamalServiceTsentr (LLC)Muravlenkovskaya TransportnayaKompaniya LLCNoyabrskneftegazproekt LLCYamalenergoremont LLCNoyabrskneftegazavtomatika LLCAvtomatika Service LLCServisnaya Transportnaya Kompaniya LLCNoyabrskaya Tsentralnaya TrubnayaBaza LLCOther OperationsGazprom Neftfinance LLCGazprom Neftenergo LLCGazprom Neft – ZS LLCGazprom Neft – NTTS LLCGazprom Neft – Invest LLCGazprom Neft Business Service LLCCJSC Social and Business Center OkhtaComplex Galernaya 5 LLCOJSC Gazprom Neft-OmskCJSC Gazprom Neft-KuzbassOJSC Gazprom Neft-AltaiGazprom Neft-Tsentr LLCCJSC Munai-MyrzaGazprom Neft Marine Bunker LLCGazprom Neft Asia LLCOJSC Gazprom Neft-TyumenGazprom Neft-Tsentr LLCGazprom Neft-Chelyabinsk LLCGazprom Neft-Krasnoyarsk LLCOJSC Gazprom Neft-UralCJSC Gazprom Neft-AeroCJSC Gazprom Neft-AeroCJSC Gazprom Neft-Severo-ZapadGazprom Neft-Kaluga LLCOJSC Sibneft-YaroslavnefteproductOJSC Gazprom Neft-NovosibirskCJSC Gazprom Neft-NoyabrskGazprom Neft-Aero Murmansk LLCGazprom Neft-Tajikistan LLCGazprom Neft-Kazakhstan LLPAlliance Oil Asia LLCGazprom Neft-Shipping LLCGazprom Neft-Resurs LLCGazprom Neft-Nizhniy Novgorod LLCGazprom Neft-Belnefteprodukt LLCCJSC Gazprom Neft-Mobilnaya KartaOJSC Gazprom Neft-Yaroslavl19

COMPANY’S PROFILEEnergy for lifeENERGY FOR PEOPLEGEOGRAPHY OF OPERATIONSGeography of Production1 Khanty-Mansi Autonomous Okrug2 Tyumen Region3 Omsk Region4 Yamalo-Nenets Autonomous Okrug5 Tomsk Region6 Krasnoyarsk KraiSerbiaAngola1Serbia23Angola20

JSC GAZPROM NEFTANNUAL REPORT200946521

COMPANY’S PROFILEEnergy for lifeENERGY FOR PEOPLEGEOGRAPHY OF OPERATIONSGeography of Subsoil Use1 Krasnodar Krai2 Khanty-Mansi Autonomous Okrug3 Nenets Autonomous Okrug4 Tyumen Region5 Omsk Region6 Tomsk Region7 Yamalo-Nenets Autonomous Okrug8 Krasnoyarsk Krai9 Irkutsk Region3214522


COMPANY’S PROFILEEnergy for lifeENERGY FOR PEOPLEGEOGRAPHY OF OPERATIONSRefiningREFINING1 Moscow & Moscow Region2 Yaroslavl Region3 Omsk Region4 Belarus5 SerbialubricANTS2 Yaroslavl Region3 Omsk Region5 Serbia6 Italy41236524


3COMPANY’S PROFILEEnergy for lifeENERGY FOR PEOPLEGEOGRAPHY OF OPERATIONSGeography of Sales retail sales1 Tver Region2 Kaluga Region3 Moscow andMoscow Region4 Leningrad Region5 Yaroslavl Region6 Ivanovo Region7 Nizhny NovgorodRegion8 Sverdlovsk Region9 Chelyabinsk Region10 Tyumen Region11 Omsk Region12 Novosibirsk Region13 Tomsk Region14 Kemerovo Region15 Altai Republic16 Krasnoyarsk Krai50 Kazakhstan51 Tadzhikistanlargewholesales17 Pskov Region18 Smolensk Region19 Bryansk Region20 Kursk Region21 Oryol Region22 Belgorod Region23 Rostov Region24 Stavropol Krai25 Tambov Region26 Novgorod Region27 Vladimir Region28 Republic ofMordovia29 Vologda Region30 Republic ofTatarstan31 Republic of Karelia32 Murmansk Region33 Archangelsk Region34 Komi Republic35 Perm Region36 Kurgan Region37 Khanty-MansiAutonomous Okrug38 Altai Krai39 Republic ofKhakassia40 Irkutsk Region41 Republic of Buryatia42 Chita Region43 Republic of Sakha(Yakutia)44 Amur Region45 Khabarovsk Krai46 Jewish AutonomousRegion47 Primorsky Krai48 Sakhalin Region49 Kaliningrad Region49171819 220 21222523242613429527 6 728303133323598363410371152 Kyrgyzstan5012Serbia525126


COMPANY’S PROFILEEnergy for lifeENERGY FOR PEOPLEGEOGRAPHY OF OPERATIONSRegions of Operations of JSC Gazprom Neft1 Pskov Region2 Smolensk Region3 Bryansk Region4 Kursk Region5 Oryol Region6 Belgorod Region7 Kaluga Region8 Rostov Region9 Krasnodar Krai10 Stavropol Krai11 Tver Region12 Moscow and MoscowRegion13 Novgorod Region14 Leningrad Region15 Yaroslavl Region16 Vladimir Region17 Ivanovo Region18 Nizhny NovgorodRegion19 Republic of Mordovia20 Tambov Region21 Kostroma Region22 Vologda Region23 Republic of Karelia24 Murmansk Region25 Archangelsk Region26 Republic of Tatarstan27 Nenets AutonomousOkrug28 Komi Republic29 Perm Region30 Sverdlovsk Region31 Chalyabinsk Region32 Kurgan Region33 Tyumen Region34 Khanty-Mansi AutonomousOkrug35 Yamalo-Nenets AutonomousOkrug36 Omsk Region37 Tomsk Region38 Novosibirsk Region39 Altai Krai40 Altai Republic41 Kemerovo Region42 Republic of Khakassia43 Krasnoyarsk Krai44 Irkutsk Region45 Republic of Buryatia46 Chita Region47 Republic of Sakha(Yakutia)48 Amur Region49 Jewish AutonomousRegion50 Primorsky Krai51 Khabarovsk Krai52 Sakhalin Region53 Kaliningrad Regiongazprom neftmarine bunkerBelarusSt.PetersburgMurmansk RegionMoscowYaroslavl RegionKrasnodar KraiFar Eastgazprom neftaeroBelarusSt.PetersburgMurmansk RegionMoscowTomsk RegionNovosibirsk RegionKrasnoyarsk KraiBryansk RegionKemerovo Region953Belarus3468105217242314132725112212 15282116 17 1820 192629303132KazakhstanKyrgyzstanTadzhikistan33343638328


COMPANY’S PROFILEEnergy for lifeENERGY FOR PEOPLEHIGHLIGHTS OF THE YEARThe year 2009 was very productive forGazprom Neft both in terms of businessexpansion and in terms of adjustingoperations according to externalfactors.The global economic crisis significantlyaffected the current financial resultsof the Company. Although the Rubledevaluation at the beginning of the year,delay in export duty rate, tax breaksand additional privileges to the sectordid have a certain positive economiceffect. These factors however did notcompensate for the negative effectcaused by, compared to 2008, thedrop of oil prices, the introduction oftechnical regulations for engine fuels(residual fuel oil and diesel fuel), thedrop of petroleum products due to; thereduction of consumption in Russia plusvarious other factors. As a result, againcompared to 2008, EBITDA and thenet income of the Company decreasedby more than 30% and the revenue by28%.Despite these financial results theoperating performance of the Companyin 2009 exceeded the figures of 2008 inall business spheres.ABC 1 hydrocarbon reserves increasedfrom 1.605 bn up to 1.782 bn tons ofoil equivalent. Oil and gas productiongrew by 3.1%: from 48.7 mln tons ofoil equivalent to 50.2 mln tons. Theincrease in refining amounts was 17.6%(from 28.4 mln tons to 33.4 mln tons).In 2009 9.8 mln tons of petroleumproducts were sold through premiumsegments 40% more than in 2008.The major trend and achievement ofGazprom Neft in 2009 was the growth inthe level of daily production. Specificallyby the end of the third quarter theaverage daily production in all 100%affiliates had reached 83.2 thousandtons which equates to an output of 2.5%more than at the beginning of the year.Giving consideration to the depletedstate of many fields, the myriad ofdifficulties of oil production in Russiaadded to the fact that the main trendfor oil companies was to decreaseproduction volumes; this is withoutdoubt a significant achievement.Serious attention was paid to raising theeffectiveness of geological modelingwith the result that by the end of 2009most of the major fields of the Companyhad been provided with detailedhydrodynamic modelsA center of space visualization wasopened in the science and technologycenter of JSC Gazprom Neft inSaint Petersburg. This center usesmodern technologies of geologicand hydrodynamic modeling thatsignificantly raise the effectiveness ofproduction enterprises and thus lead toincreased activity of servicing branches.In 2009 a new important operation —gas production — started to cometo fruition. Implementation of thedevelopment project of Senomanskayagas deposit at Muravlenkovskoye fieldwas launched, and the developmentproject of Senomanskaya gas depositof Novogodneye field was approved.The start of gas deliveries from thesedeposits to the unified gas supplysystems is planned for the fourthquarter of 2010. In 2009 Phase 1of thegas turbine power plant at Yuzhno-Priobskoye field was launched, andgas deliveries from Ety-Purovskoyefield to SiburTyumenGaz along a newpipeline started. Furthermore activitiesaimed at raising the efficient use ofassociated petroleum gas (AG) are alsoin progress.In principal improving efficiency intandem with the reduction of expenseswere among the primary objectivesof the Company in 2009. In light ofthe unfavorable external economicenvironment the need to achievethese two goals was absolutely critical.With this in mind strictly adhered toexpense reduction initiatives wereimplemented in all business units of theCompany. Significant organisational andmanagement changes were made tothe production facilities of the companyin the YNAD which ensured, throughan increase in the level of managementresponsibility, greater control over thenet results of all enterprises. As a resultthe year-end production indicators ofthe enterprise’s equity assets exceededthe predictions by about 1 million30

JSC GAZPROM NEFTANNUAL REPORT2009tons. The growth of the productionvolumes was also registered in ‘yearto-year’comparison, however this wasnot a direct result of natural growthbut due to the Company’s increasedM&A activities.In essence the Company’s strategywas to grow oil production throughthe purchase of new assets. In 2009a deal for the acquisition of Serbia’sNIS was closed, and consolidation ofthe controlling stake in Sibir Energytook place. Sibir Energy holds a 50%share in the development project ofSalymskiye fields, develops Yuzhnoyeand Orekhovskoye fields in the KhMAD,and carries out geologic explorationof the Koltogorskiye fields in WesternSiberia.Mainly due to this consolidation ofSibir Energy’s controlling stake (SibirEnergy is one of the shareholders ofthe Moscow Refinery) and the increaseof the effective share of the plant to59.75% the overall growth of oil refiningwas registered in the Company’sreport.In relation to increasing sales therewere also strategic purchases. In theChelyabinsk Region a chain of 39 fillingstations was bought, and in Tajikistan —19 filling stations. Additionally theconsolidation of NIS’s and Sibir Energy’sassets added a further 478 and 134more filling stations to the Company’sassets.Sales units of the Company —petroleum product supply enterprises:Gazprom Neft-Aero, Gazprom NeftMarine Bunker, Gazprom Neft-Lubricants — successfully conqueredthe market and increased both theirproduction and economic indicators.The level of sales for these companiesin the premium segments grew by 40%and by the end of 2009 had reached9.8 mln tons of petroleum products. Theamounts sold through the chain of tankfarms and filling stations on the territoryof Russia grew by 3% as compared to2008.In 2009 activities related to thehandover started for Gazprom’s fields(Novoportovskoye, Tazovskoye, anda part of Orenburgskoye field) toGazprom Neft. Active production at theNovoportovskoye field, the largest of theassets handed over, with reserves ofmore than 400 mln tons of oil equivalent,is scheduled for 2013. A significantshare of consolidated production of theCompany will be the development ofSlavneft’s Messoyakhskiye fields.At the end of 2009 another importantpurchase took place that of STS ServiceCompany, a production affiliate ofSweden’s Malka Oil that develops fieldsgeographically adjacent to the fieldsof Gazprom Neft-Vostok in the TomskRegion.At the end of 2009 two important eventsalso took place in the Near East market.In November Gazprom Neft signeda Memorandum of Understandingwith the National Iranian Oil Companyon exploration and development ofAzar and Shangule oil fields. While inDecember the Company acted as themajor member of the consortium for thedevelopment of the Badra field in Iranwhich has oil reserves of more than 2billion barrels.Judging by the results of 2009,Gazprom Neft retains its positions ofone of the leaders in the sector in termsof effectiveness.The results of 2009 encourageGazprom Neft to look into the futurewith optimism. The Company managednot only to keep stability and expandbusiness but also to set up a secureplatform for the development in 2010and make significant steps on the wayof achieving its strategic goals that havebeen planned through to 2020.31

COMPANY’S PROFILEEnergy for lifeENERGY FOR PEOPLECOMPETITIVE STATEOF THE COMPANYOIL AND GASPRODUCTIONJSC Gazprom Neft and its affiliatesare a vertically integrated oil companythat operates mainly in the RussianFederation. Operations of the Companyinclude exploration, development of oiland gas fields, oil and gas production,production of petroleum products andtheir retail sales. Proven hydrocarbonreserves of the Company as per SPE(PRMS) classification exceed 1 billiontons of oil equivalent, and due to thisthe Company is not only one of thetop twenty largest oil companies ofthe world but currently also GazpromNeft is one of the fastest growing oilcompanies of Russia.According to the results of 2009Gazprom Neft is the fifth largest oilcompany in Russia in terms of oilproduction.After the decrease in oil production in2008 (for the first time in many years)the year 2009 showed recovery inproduction growth – in fact duringthe year the level of daily productionreached a record point for the post-Soviet period. Compared to 2008, dailyproduction of oil grew by 1.5% to 9.9mln barrels a day while the total amountof production in Russia increased by1.2% up to 494 mln tons.The growth in production in 2009resulted from the simultaneous launchof several fields of large Russian oilholdings plus the start of all year rounduse of the Sakhalin-2 offshore project.The largest growth in equity productionin Russia in 2009,2.4% on average, wasregistered by Rosneft, Lukoil and TNK-BP: All three companies launched newlarge production projects that addedup to the growth, while the greatestdecrease in equity production in Russiawas registered in Surgutneftegaz(-3.1%) and Slavneft (-3.2%).The total consolidated oil production ofGazprom Neft in 2009 grew by 2.8% to47.6 mln tons. This was primarily dueto the purchase of Sibir Energy in themiddle of 2009, and the inclusion ofSerbia’s NIC in consolidation startingfrom February (the volume of itsProduction of Oil and Gas in Russia by Oil and Gas Companies, thousand tons of oil equivalentCompanyProduction2009Sharein 2009, %Production2008Sharein 2008, %Increasein 2009 to2008, %Rosneft* 120 858 21 117 924 21 2,5Lukoil 102 141 18 101 675 18 0,5TNK-BP** 88 960 16 87 080 16 2,2Surgutneftegaz 70 547 12 73 024 13 -3,4Gazprom Neft*** 49 295 9 48 724 9 1,2Tatneft 26 718 5 26 670 5 0,2Other 106 330 19 100 140 18 6,2* 2009 production was adjusted to include Tomskneft’s share** Including share of Slavneft’s production*** Including share of Slavneft’s, Tomskneft’s, Salym Petroleum’s production, excl. production abroad (NIS)Source: INFOTEK32

JSC GAZPROM NEFTANNUAL REPORT2009Production of Oil and Gasin the Russian Federation in2009 by Oil and Gas Companies(excl. Production of Gas byGazprom and NOVATEK)9512192009, %16SOURCE:INFOTEK1821production within Gazprom Neft in 2009amounted to 0.7 mln tons).Gas production in Russia in 2009 shrankby a significant extent. This was mainlycaused by the decrease in Gazprom’sproduction due to the falling level of gasconsumption in Europe and escalatingcompetition with other gas producerson external markets. As compared to2008 Gazprom’s production reducedby 16% to 462 billion cubic meterswhile total gas production in Russiadecreased by 10% to 596 billion cubicmeters.The dynamics of gas production(natural and associated) by the majorRussian oil and gas companies ischanging in various ways.Gazprom Neft’s gas production on theterritory of Russia in 2009 decreasedto a small extent: from 3.1 in 2008 to2.9 billion cubic meters in 2009. Gasproduction of Serbia’s NIS that is a partof Gazprom Neft’s structure amountedto 0.2 billion cubic meters.Total hydrocarbon production ofGazprom Neft on the territory of Russiagrew from 48.7 mln tons of oil equivalentin 2008 to 49.3 mln tons in 2009. Takinginto account NIS’s production, the totalconsolidated hydrocarbon production ofGazprom Neft in 2009 amounted to 50.2mln tons of oil equivalent.RosneftLUKOILTNK-BPGazprom NeftSurgutNeftegazTatneftOther33

JSC GAZPROM NEFTANNUAL REPORT2009EXPORTSRussian oil exports to non-CIS countriesin 2009 totaled 211.9 mln tons (4.3mln bpd) which is 0.9% more than in2008. 185.6 mln tons were exportedto non-CIS countries via the Transneftsystem and around 26.3 mln tons — byother routes. In 2009 via the Transneftsystem 44.4 mln tons (including transitvolumes) were shipped through theport of Novorossiysk, 4.2 mln tons —through Tuapse, 2.3 mln tons — throughOdessa, 74.8 mln tons — Primorsk,9.4 mln tons — Yuzhny Marine Oil.Enterprises not affiliated with verticallyintegrated oil companies in 2009supplied 8.8 mln tons of oil to non-CIScountries via the Transneft system.In 2009 Russia reduced exports to CIScountries by 1% — to 34.1 mln tons.The volume of supplies to the Ukrainewas up by 5.2%, compared to 2008,totaling 6.3 mln tons. Deliveries ofRussian raw materials to Kazakhstandecreased to 6.3 mln tons (–11.4%).Exports of oil to Belorussia in 2009 grewby 0.7% as compared to 2008 andreached 21.4 mln tons.Actual volume of oil exports in 2009increased by 7.1%, including: thevolume of gasoline — by 8%, of dieselfuel — by 9.7%, and of jet fuel — by96%.According to the Customs, in the exportpattern to non-CIS the share of fueland energy goods last year amountedto 69.5% of the entire export to thesecountries (in 2008 it was 72.6%).Rosneft oil company in 2009 supplied48.4 mln tons to non-CIS countries viathe Transneft system, LUKOIL — 24.9mln tons, Surgutneftegaz — 27.1 mlntons, TNK-BP– 33.8 mln tons, Tatneft —15.9 mln tons, Gazprom Neft — 14.7mln tons.The share of Gazprom Neft’s oil exportsin the total amount of Russian oilexports to non-CIS in 2009 changedslightly as compared to 2008 (+3.4%) —mainly due to the proportional increasein production and refining inside Russiacaused by the purchase of Sibir Energy.Crude Exports by RussianCompanies via the TransneftSystem in 20098713222009, %RosneftLUKOILTNK-BPSurgutNeftegazGazprom NeftTatneftOtherSOURCE:INFOTEK162212Crude Exports by Russian Companies via the Transneft System in 2008, TH. tonsCompanyOil Exports2009*Oil Exports2008*Share2009, %Share2008, %Increase2009 to2008, %Rosneft 48 375 45 758 22,9% 21,9% 5,7%TNK-BP 33 774 31 272 16,0% 15,0% 8,0%Surgutneftegaz 27 145 32 081 12,9% 15,3% -15,4%Lukoil 24 862 28 103 11,8% 13,4% -11,5%Tatneft 15 911 14 797 7,5% 7,1% 7,5%Gazprom Neft 14 738 14 256 7,0% 6,8% 3,4%Other 46 229 42 885 21,9% 20,5% 7,8%Total 211 035 209 152 0,9%* oil exports via the Transneft systemSource: INFOTEK35

5KEY PERFORMANCEINDICATORS OFTHE COMPANY IN2009 BY TYPE OFOPERATION

5KEY PERFORMANCE INDICATORSOF THE COMPANY IN 2009 BY TYPEOF OPERATIONEnergy for lifeENERGY FOR PEOPLEKEY PERFORMANCEINDICATORS OF THECOMPANY IN 2009BY TYPE OF OPERATIONOIL AND GAS EXPLORATION AND PRODUCTIONPRODUCTIONS & RESERVES1 Nenets Autonomous Okrug2 Khanty-Mansi Autonomous Okrug3 Omsk Region4 Tomsk Region5 Khanty-Mansi Autonomous Okrug6 Yamalo-Nenets Autonomous Okrug7 Krasnoyarsk Krai8 Serbia9 AngolaRESERVES10 Irkutsk Region11 Republic of Sakha (Yakutia)12 The Sea of Okhotsk aquatory(Lopukhovsky Block)13 Sakhalin Region12Serbia36Angola38


KEY PERFORMANCE INDICATORSOF THE COMPANY IN 2009 BY TYPEOF OPERATIONEnergy for lifeENERGY FOR PEOPLERESOURCE BASEGazprom Neft Group’sHydrocarbon Reserves’Growth by SPE (PRMS)2019,51918,51817,51716,51615,51514,5SOURCE:COMPANYDATA2005 2006 2007 2008 2009For more than 10 years the Company’sreserves have been audited by SPE(Society of Petroleum Engineers)standards and more conservative SEC(US Securities and ExchangeCommission) standards. The audit hasbeen conducted for all fields based onthe estimates of a representativesample of JSC Gazprom Neft’s fieldsaccounting for 95–98% of RussianABC1 category.According to independent reservoirengineers, DeGolyer and MacNaughton(Miller and Lents in 2007 and 2006), asof December 31, 2009 JSC GazpromNeft had total reserves of “proven” and“probable” categories (including theCompany’s share in equity investees) bySPE standards of 1 568 mln t ofhydrocarbons (11 531 mln bbl).The current reserves-to-production ratioof Gazprom Neft’s SPE provenhydrocarbons is 20 years.In 2009 additions to Gazprom Neft’sSPE proven hydrocarbon reserves (nottaking into account the newacquisitions) totaled 97 mln TOE. By theresults of 2009, the replacement ofGazprom Neft’s proven hydrocarbonreserves amounted to 265%.Additions to Gazprom Neft’s SPEproven hydrocarbon reserves entailedby the new acquisitions amounted to 41mln TOE in 2009.EXPLORATIONIn the reporting period 11 explorationand-appraisalwells were completed inthe license plots of JSC Gazprom Neftand its subsidiaries, of which 10 yieldedcommercial hydrocarbon inflows. Totalexploration meters drilled in 2009 —17 037 line m, which is 26% comparedto 2008. This decrease in explorationdrilling metreage in 2009 as comparedto 2008 was connected with theprogram on reducing capital expensesand with less investment in explorationactivities in particular.The exploration drilling success ratewas 90.9% with efficiency of 561 tonsof hydrocarbons per meter drilled and121.6 rub/TOE.The conducted exploration workresulted in the discovery ofNizhnevyngapurovskoye oil andgas condensate deposit in theVyngapurovskoye license plot and 3new oil reservoirs in the existing fieldswith total recoverable C1 and C2 oilreserves of 4.070 mln tons and 4.145mln tons, respectively.Overall in 2009 additions to theCompany's reserves of commercialcategory totaled 105.6 mln tons,resulting mostly from additionalexploration in the fields underdevelopment (65.9 mln tons) as wellas from re-estimation of reservesdue to the revision of the geologicalmodels of the fields and oil recoveryfactors, primarily for the Priobskoye andSutorminskoye fields (39.7 mln tons).In the reporting period 3D and 2Dseismic surveys of 2 200 sq km and1 234 line km, respectively, wereconducted in the license plots of JSCGazprom Neft and its subsidiaries.In 2009 of the 60 tested zones 35yielded commercial oil inflows,condensate and gas, 6 — noncommercialoil and gas inflows, 9yielded no inflow, the remaining 10zones yielded either reservoir waterinflows or those slightly admixed with oil.The financing of exploration by JSCGazprom Neft and its subsidiaries in2009 totaled 3.6 bn rub, which is 65% ofthe financing provided in 2008.In the reporting period on the licenseplots OJSC NGK Slavneft conductedexploration costing 2.4 bn rub (excl.VAT), including exploration drilling of 13960 meters costing 1.9 bn rub, 3D and2D seismic data processing for 0.05bn rub; research and other types ofactivities for 0.5 bn rub.In the reporting period on the licenseplots OJSC Tomskneft VNK conductedexploration costing 0.4 bn rub (excl.VAT). Exploration drilling metreage in2009 totaled 2 800 meters, the amountof 3D seismic exploration work was233 sq km, the amount of 2D seismicexploration work — 414 line km.In 2009 Gazprom Neft boughtrecoverable reserves of crudehydrocarbons of OJSC OC Magma andNIS-Naftagas (Serbia) totaling 25.7 mlntons (C1+C2 taken together), including9.5 mln tons of NIS-Naftagas.40

JSC GAZPROM NEFTANNUAL REPORT2009LICENSINGAs of 31.12.2009 JSC Gazprom Neftand its subsidiaries held sub¬soillicenses for 66 license plots located in9 regions of the Russian Federation.By type of operation, 12 licenses entitlethe Company to a five year period ofgeological survey and 54 licenses grantthe right to hydrocarbon explorationand production for a period of 20 to 50years.Subsoil licenses are held by 10subsidiaries; however these licensesare managed by three operators: OJSCGazprom Neft - Noyabrskneftegaz,Gazprom Neft-Khantos LLC andGazprom Neft-Vostok LLC. OJSCGazprom Neft – Noyabrskneftegazcarries out a full cycle of hydrocarbonoperations in 46 license plots owned by4 subsoil users.In 2009 the Licensing Committee ofthe Federal Agency for Subsoil Usereviewed and approved additions to 16subsoil licenses of the Company: forfive plots – the geological survey periodwas extended, for seven plots licenseagreement terms were actualized, theterm of geological exploration wasextended for the Srednetaimurinskyplot, for the Sugmutsky plot the right forinjection of bottom water, wastewater,surface water and undergroundsaltwater for pressure maintainingwas registered, for the Shinginskyplot belonging of a part of subsoil wasspecified, and a new survey layout wasapproved for the Vorgensky plot.In 2009 the license on discovery of theVorgenskoye oil field was issued.Outside Russia, in Serbia, NIS Companyhas 65 resolutions (the same asRussia’s licenses).Licenses of equity investees as of31.12.2009OJSC NGK Slavneft and its subsidiarieshold oil and gas exploration andproduction licenses on 38 license plotson the territory of Western Siberia andthe Krasnoyarsk Krai.OJSC Tomskneft holds 31 licensesfor the development of more than 30oil and gas deposits on the territoryof the Tomsk Region and the Khanty-Mansi Autonomous District. Additionallya subsidiary of Tomskneft, TomskPetroleum und Gaz, holds licenses forexploration and development of 2 moreplots in the Tomsk Region.Sibir Energy’s subsidiaries, OJSCOC Magma and Siberian GeologicalCompany LLC, hold 10 licensesfor exploration and development oflicense plots located on the territoryof the Khanty-Mansi AutonomousDistrict (Yuzhnoye, Orekhovskoye andKoltogorskiye fields). Moreover, SibirEnergy has a 50% share in SalymPetroleum Development JV that holds 3licenses for additional exploration anddevelopment of the Salym group of oilfields, also located in the Khanty-MansiAutonomous District.41

KEY PERFORMANCE INDICATORSOF THE COMPANY IN 2009 BY TYPEOF OPERATIONEnergy for lifeENERGY FOR PEOPLEHYDROCARBON PRODUCTIONGazprom Neft is engaged in oil and gasexploration and production primarilyin the fields located in the Yamal-Nenets and Khanty-Mansi AutonomousDistricts, Omsk, Tomsk and IrkutskRegions.The Company’s oil production iscarried out predominantly by threeof its subsidiary operators: OJSCGazprom Neft-Noyabrskneftegaz,OJSC Gazprom Neft-Khantos, andGazprom Neft — Vostok LLC. In 2007the Company set up two new operators:Gazprom Neft-Yamal LLC engaged inthe exploration and development ofJSC Gazprom’s oil fields and GazpromNeft-Angara LLC engaged in theexploration and development of theCompany’s new oil deposits in EasternSiberia.The largest hydrocarbon reserves in theYamal-Nenets Autonomous District arefound in: Sugmutskoye, Sutorminskoye,Vyngapurovskoye, Sporyshevskoyeand Muravlenkovskoye fields. In 2009these fields accounted for 39.2% oftotal oil production by the Company.Production in these fields is carried outby oil and gas producing enterprises:OJSC Gazprom Neft-Noyabrskneftegaz,its subsidiary Zapolyarneft LLCholding a license for the developmentof Vyngapurovskoye, Yarainerskoyeand Novogodneye deposits, anda Muravlenkovsky branch of OJSCGazprom Neft-Noyabrskneftegaz.In the Khanty-Mansi AutonomousDistrict the most prospective depositof JSC Gazprom Neft is the Priobskoyefield, a development license for whichis held by a subsidiary of the Company,Sibneft-Yugra LLC, with Gazprom Neft-Khantos LLC acting as the operator.Located in the same region is thenortheastern part of the PalyanovskayaArea of Krasnoleninskoye field anda group of license plots acquired by theCompany in early 2005 (Salymsky-2,Salymsky-3, Salymsky-5) and theZimneye field in the Tyumen Region.In 2008 Gazprom Neft-Khantos wonthe bidding for a part of the Zimneyefield located in the Khanty-MansiAutonomous District.The Priobskoye field is one of thelargest and most promising oil depositsof the Company and is the leader interms of rate of production growth.Active development of this fieldbegan in 2004 and as early as 2008it already accounted for 23% of totaloil produced by the Company, and in2009 it accounted for 27.3% of totaloil produced by the Company. ThePriobskoye field is therefore a key assetwhich is strategically important for theCompany’s future development.Production at PriobskoyeField, mln tons10987654321SOURCE:COMPANYDATA2005 2006 2007 2008 2009 2010(forecast)A regional group of fields in the Omskand Tomsk Regions will becomea second “new” center. Gazprom Neft-Vostok is the oil production operatorof the Krapivinskoye field located inthe Omsk Region, and of Archinskoye,Shinginskoye, and Urmanskoye fields inthe Tomsk Region. All these fields arebuilding up a new production centeradding up to the annual growth of oilproduction.Own production by JSC Gazprom Neftin 2009 was 32 441 th. TOE, which is122 th. TOE more than in 2008 (+0.4%).It is explained by the acquisition of NISand Sibir Energy (OJSC Magma).The main achievement of 2009 isprobably that the Company managedto find additional oil recovery reservesat existing assets with decreasingproduction. In the second half of2009 due to active developmentof the Priobskoye field, renovationand restructuring of Gazprom Neft-Noyabrskneftegaz the daily productionof Gazprom Neft started to increase withthe figures for August showing a 2.5%growth compared on January. On thewhole judging by year-end results, onecan see that total production exceededthe business plan by more than 1 mlntons.In addition to its own productionGazprom Neft holds shares inproduction of OJSC Slavneft, OJSCTomskneft and Salym PetroleumDevelopment (SPD), and thereforeGazprom Neft consolidates theirproduction output on a pro rata basis ofthe equity participation.OJSC Tomskneft that is managed byGazprom Neft and Rosneft on a paritybasis holds licenses for developmentof fields in the Tomsk Region andKhanty-Mansi Autonomous District.Another joint venture of Gazprom Neftand TNK BP, OJSC Slavneft, developsreserves in the Urals Federal Districtand conducts exploration in the SiberianFederal District.The share in oil production by OJSCSlavneft and OJSC Tomskneft in 2009decreased by 4% and amounted to15 750 th. TOE, out of those: OJSCSlavneft — 9 748.0 th. TOE and OJSCTomskneft — 6 002 th. TOE.As a result of acquiring Sibir Energyin 2009, the Company at the sametime obtained 50.0% of the asset ofSalym Petroleum Development, a jointventure of Sibir Energy and Royal DutchShell. In 2009 Gazprom Neft’s sharein the production of Salym PetroleumDevelopment amounted to 1 984 th.TOE.The total production of Gazprom Neft in2009 went up by 3.0% and amountedto 50 174 th. TOE. As a result of theCompany’s development strategy theamounts of oil production grew due tothe purchase of new assets, NIS andSibir Energy., The total additions to theCompany’s production caused by this42

JSC GAZPROM NEFTANNUAL REPORT2009newly acquired assets amounted to 3.0mln TOE.In 2009 Gazprom Neft retained itspositions as one of the leaders of thesector among Russia’s oil companiesin terms of the amount of oil and gasproduction.In 2009 some 656 new developmentwells of Gazprom Neft were put onproduction (not taking into accountthe equity investees), which is 45wells more than in 2008. This increasewas possible due to an expansionof the development drilling programand secondly as a result of increasedcommercial drilling speed and averagemetreage drilled per crew. Specificallythe meters drilled reached 2 158.1 th.m, which is 125 th. m. more than in2008. By the end of 2009 the numberof operating oil wells of the Company(excluding equity investees) had risenby 205 wells to a total of 5 729 wells.In 2010, as per the preliminaryconservative plans, Gazprom Neftintends to raise hydrocarbon productionon the territory of Russia by 2.2% more:up to 51.3 mln TOE.HYDROCARBONS Productionin 2007-2009, mln TOEPRODUCTION Well STOCKPRODUCTION Drilling,th. m.SOURCE:COMPANYDATASOURCE:COMPANYDATASOURCE:COMPANYDATA60504030201002007 2008 2009140001200010000800060004000200002007 2008 2009400035003000250020001500100050002007 2008 2009Sibir EnergyTomskneftSlavneftGazprom NeftGazprom NeftMagmaNISSlavneftTomskneftSPDGazprom NeftMagmaNISSlavneftTomskneftSPD43

12KEY PERFORMANCE INDICATORSOF THE COMPANY IN 2009 BY TYPEOF OPERATIONEnergy for lifeENERGY FOR PEOPLEREFINERIES & MARKETING REGIONS(INCL. SUBSIDIARIES & AFFILIATES)REGIONS WITH RETAIL SALES1 Moscow and Moscow Region2 Saint-Petersburg & Leningrad Region3 Kaluga Region4 Samara Region5 Yaroslavl Region6 Ivanovo Region7 Chelyabinsk Region8 Sverdlovsk Region9 Tyumen Region10 Krasnoyarsk Krai11 Omsk Region12 Novosibirsk Region13 Tomsk Region14 Kemerovo Region15 Republic of Altai16 Kazakhstan17 Kyrgyzstan18 TadzhikistanBelarus2212223REGIONS WITH LARGE WHOLESALES ONLY19 Tula Region20 Chelyabinsk Region21 Republic of Karelia22 Arkhangelsk Region23 Murmansk Region24 Irkutsk Region25 Primorsky Krai26 Khabarovsk Krai27 Belarus319156420821911KazakhstanKyrgyzstanTadzhikistan44


KEY PERFORMANCE INDICATORSOF THE COMPANY IN 2009 BY TYPEOF OPERATIONEnergy for lifeENERGY FOR PEOPLEREFININGIn 2009 the Company retained itspositions, in terms of the additionsrate of oil refining amounts, as oneof the leaders among Russia’s oilcompanies. Over the reported periodthe Company managed to increaserefining by 17.6%: from 28.4 to 33.4mln tons of oil.The increase in oil refining amountswas mainly caused by the acquisitionof new assets: Serbia’s NIS anda share in Sibir Energy which is oneof the shareholders of the MoscowRefinery.The main refining asset of theCompany is the Omsk Refinery (itsshare in refining is 100%).The Omsk Refinery is one of the mostadvanced refineries in Russia and oneof the largest in the world with theinstalled capacity of the Omsk Refinerybeing 19.5 mln tons of crude oil a year.In 2009 the Refinery maintained itsleadership in Russia in lighthydrocarbon and aromatic hydrocarbonproduction. In terms of oil refiningvolumes -18.4 mln tons (7.8% of total oilrefined in Russia), in 2009 the OmskRefinery finished second amongRussian refineries (next to POKirishinefteorgsintez LLC (20.4 mln tons)that belongs OJSC Surgutneftegaz). In2009 the utilization rate of primaryrefining capacities at the Omsk Refinerywas 94.5% of the total capacity withprocessing depth being 86.7% againstthe Russian industry average of 71.8%.The staple products of the refinery are:motor gasolines, diesel oil, fuel oil, jetoil, as well as a variety of aromatichydrocarbons, liquefied hydrocarbongases, different types of lubricants,additives, catalysts and other products.The output of light petroleum productsis 70%.Moscow Refinery. OJSC MoscowRefinery is a fuel producing plant witha deep oil refining scheme (the installedcapacity is 12.15 mln tons a year). Theamount of primary refining at theMoscow Refinery in 2009 was 10.0 mlntons which is 2.03% higher than in 2008.The oil processing depth was 74.32%.Gazprom Neft’ share in 2009 (taking intoaccount the consolidated controllingstake in Sibir Energy) amounted to 5.8mln tons.The output products comprise morethan 15 titles and 40 brands, includingAI-92 and AI-95 unleaded motorgasoline with ecology class 3; TS-1 jetfuel of highest quality with antioxidantand wear-proof additives; summertimeand wintertime diesel fuels withimproved features of brands C, E, F andDEKp3-0.035, Euro 3 class; DTL 0.1diesel fuel; 100 fuel oil with sulfur contentStructure of OutputProducts of the OmskRefinery in 2009Structure of OutputProducts of the MoscowRefinery in 200911951212SOURCE:COMPANYDATA25SOURCE:COMPANYDATA352009, %312009, %627828GasolineJet fuelDiesel fuelFuel oilBitumensOilsOther productsGasolineJet fuelDiesel fuelFuel oilBitumensOther products46

JSC GAZPROM NEFTANNUAL REPORT2009of up to 2.5%; road and constructionbitumen; liquefied gases; technical sulfur(liquid and solid). The output of lightpetroleum products is 59%.The main sales markets for the refinery’sproducts are the city of Moscow and theMoscow Region.Slavneft-YANOS. OJSC Slavneft-YANOS is a fuel and oil producing plantwith a deep oil refining facility, with aninstalled capacity of 15.2 mln tonsa year for the production of light anddark petroleum products for varioustechnological and household uses. Thedepth of oil refining in 2009 amountedto 65.6%, and the output of lightpetroleum products was 57%.Gazprom Neft has access to therefining capacities of OJSC Slavneft-Yaroslavnefteorgsintez in proportion toits equity interest in the authorizedcapital of JSC Slavneft. In 2009 thevolume of primary oil refining at OJSCNGK Slavneft totaled 13.6 mln tons, ofwhich the share of Gazprom Neft was6.83 mln tonsNaftna Industrija Srbije (NIS). NISrefining complex consists of tworefineries located in the towns ofPancevo and Novi Sad and producesan entire range of petroleum products:from motor gasoline and diesel fuel tomachine oil and raw materials for thepetrochemical industry.The maximum annual crude oil capacityof the production lines of the twoenterprises is 7.5 mln tons withPancevo — up to 5.0 mln tons and NoviSad — up to 2.5 mln tons. The averageannual refining volume is more than 4mln tons of crude oil.Since joining Gazprom Neft Group(February 2009), NIS Refinery has,excluding raw material processing,refined 2.396 mln tons of oil while thetotal oil refined in 2009 at the NISRefinery was 2.872 mln tons.Structure of the Outputproducts of YANOS in 2009Structure of the Outputproducts of NIS in 2009Development of PrimaryRefining in 2005–2009(mln tons)35 2 2 22254SOURCE:COMPANYDATA2009, %SOURCE:COMPANYDATA236392009, %SOURCE:COMPANYDATA2724035302520151050302005 2006 2007 2008 2009GasolineJet fuelDiesel fuelFuel oilBitumensOilsOther productsGasolineJet fuelDiesel fuelFuel oilBitumensOther productsOmsk RefineryMoscow RefineryYANOSNIS47

KEY PERFORMANCE INDICATORSOF THE COMPANY IN 2009 BY TYPEOF OPERATIONEnergy for lifeENERGY FOR PEOPLEPRODUCTION OF PETROLEUM PRODUCTSProduction BY Main TypeSof Petroleum Products, %100%90%80%70%60%50%40%30%20%10%0%2008 2009SOURCE:COMPANYDATAIn 2009 Gazprom Neft increasedthe volume of petroleum products’production by 18% up to 31.6 mln tonsfrom 26.7 mln tons in 2008.The increase took place due to theexpansion of the Company’s retailnetwork, reduction of the turnaroundtime at the Omsk Refinery, andconsolidation of the Moscow andNIS Refineries. The Company mainlyrefines oil produced or purchased onGasolinesJet fuelDiesel fuelFuel oilBitumensOther productsthe domestic market at its own OmskRefinery and at the Moscow and YANOSRefineries. As a result of acquiring SibirEnergy, the Company obtained controlof the Moscow Refinery thus raising theeffective share in the Moscow Refineryfrom 38.6% to 59.75%. In addition theCompany owns a share in refining ofthe NIS company (Serbia) located in thetowns of Pancevo and Novi Cad whichhave a total capacity of 7.5 mln tonsa year.Both the oil supplied to these refineriesand refined petroleum products areowned by Gazprom Neft, which paysthe cost of refining services to eachrefinery.DISTRIBUTION OF PETROLEUM PRODUCTSIn 2009 Gazprom Neft, having one ofthe most extensive distribution networksin Russia, consolidated its position in theretail petroleum product market.The Company mainly sells petroleumproducts in Russia and CIS countriesthrough 25 subsidiaries. Fourteen ofthem are retail distribution companiesengaged in both wholesale distributionand in retail sales of petroleum productsthrough filling stations.SHARE OF RETAIL SALES IN TOTAL AMOUNT OF SALESOF PETROLEUM PRODUCTSSOURCE:PFC Energy calculationsand estimatesRetail sales (thou tons)8 0007 0006 00020205 000RosneftLukoil4 0003 000 Gazpromneft2 000TNK-BP1 000SurgutNGTatneft00Russneft10203040 50%Share of retail sales in total amount of sales of petroleum productsIn 2009 petroleum product sales in thedomestic market went up by 13.0%,compared to 2008 and reached 18.3mln tons.Over 2009 small wholesales, comparedto 2008, were up by 28% and reached3 808 th. tons. Wholesale (transit)distribution dropped by 6% to 2 935th. tons due to moving of the rest tothe more premium segment of ‘smallwholesales’The total number of filling stationsoperated by the Company's distributionenter¬prises increased from 865 to950. Additionally the acquisition of SibirEnergy and NIS added a further 612retail stations.During 2009 11 filling stations werebuilt, 58 renovated and 61 werebought.As part of the retail networkoptimization, the Companydecommissioned 25 filling stations andThe circle size shows the retail network size48

JSC GAZPROM NEFTANNUAL REPORT2009reduced the number of leased fillingstations by one.Active implementation of the project ofcreating a single brand name “GazpromNeft” to all filling stations. In 2009387 filling stations were rebranded,including partial rebranding of 179 fillingstations where stelae were installed andtemporary banners erected.In 2009 sales through the filling stations(excluding Sibir Energy) located on theterritory of Russia grew by 3% to reach2 860 th. tons of petroleum products.Gasoline sales increased by 9% up to 2186 th. Tons while diesel sales droppedby 12% to 619 th. tons.In 2009 the Company continuedworking under the program forunification of its distribution enterprisesuntil 2010, the principal objective ofwhich is to enhance the efficiency ofGazprom Neft’s distribution network.In 2009 the Company implementedunification projects of accountingpolicies for distribution companiesconcerning accounting procedures andbudget planning.The Company has four foreigndistribution enterprises in the customs’union countries: Gazprom Neft-Kazakhstan LLP, Gazprom Neft-Tajikistan LLC, Gazprom Neft AsiaLLC in Kyrgyzia and Gazprom Neft-Belnefteprodukt FLLC in Belorussia.During 2009 they sold 1 071 th. tons ofpetroleum products.Gazprom Neft continued with the activedevelopment of projects to enter themarkets of the Yaroslavl, Ivanovo andChelyabinsk Regions through OJSCGazprom Neft-Yaroslavl and GazpromNeft-Chelyabinsk LLC. A project toenter the market of Belarus startedthrough a new subsidiary GazpromNeft-Belnefteprodukt FLLCGazprom Neft-Belnefteprodukt FLLCwas founded as a result of the propertydistribution procedure of CJSC Slavneft-Start JV with TNK-BP. Operating inBelarus after handover of the propertyis completed in 2010, the Companywill have 38 filling stations and 5 tankfarms in the region with the total amountof sales of about 150 th. tons a year.According to the 2009 long-termdevelopment strategy of petroleumproduct supply enterprises, the amountof sales by 2020 should grow to 17.7mln tons.REBRANDING OF THE FILLING STATION NETWORKAt present Gazprom Neft managesfilling station network under differentbrands. In autumn 2009 a large-scalerebranding project of the Company’snetwork of filling stations started. Thefirst filling station under the new brandwas opened in Omsk on September 4,2009. This grand project of establishinga single network of filling stations withone brand name “Gazprom Neft”envisages the renovation of morethan 1000 filling stations in 17 regionsof Russia within 2009-2011. Theinvestments in implementation of theprogram are expected to total some7 bn rubles over the period of threeyears. To date experience has shownthat, after the rebranding activities,the sales at the filling stations grew by15–20%.Comprehensive preparation activitieswere carried out before the launchof the project, including unificationof management principals andorganization of all regional GazpromNeft’s distribution companies. GazpromNeft filling stations are of several formatstandards depending on their size andfunctions. The distinctive feature ofthe stations will be the extended set ofadditional services rendered and thenational customer loyalty programs.Through the use of Gazprom Neftfuel cards a corporate system of noncashtransactions operates at thefilling stations for rendering services tobusinesses. This system also helps thecustomer calculate the money spentand the amount of petroleum productsbought, set fuel consumption limits andregister the time and place the vehicleis refilled. Thus services rendered tocorporate clients via this system area convenient and effective way ofbuying fuel.Individuals can use discount cards withfixed discount rates at Gazprom Neft’sfilling stations. In the near future underthe rebranding project the Companyplans to introduce a loyalty programfor individuals. The new system willallow customers to accrue discountsfor fuel and related goods bought:they accumulate at the clients’ cardsas a bonus. The bonus can be usedfor paying for a service or a productthat are available at Gazprom Neft’sfilling stations or at the trading unitsof the program’s partners. Whereverit is practically possible a wide rangeof additional services will be on offer:change of oil and lubricants, technicalservicing, tyre fitting, watering, carwash, additional services: from shopsand cafes to ATM’s, Internet access andso on.In November 2009 Gazprom Neftstarted a federal advertising campaignfor the “Gazprom Neft” retail brand ofits filling station network. The creativeconcept of the campaign was called49

KEY PERFORMANCE INDICATORSOF THE COMPANY IN 2009 BY TYPEOF OPERATIONEnergy for lifeENERGY FOR PEOPLE“A Reliable Landmark/Reference Point”.The renovation of the filling stationsenvisages turning them into a kind ofa landmark/reference point for driverson the road, a place where they canfind not only gasoline of high quality, butimpeccable service, reliable support,that will make their journey easier. Thatis why the structural concept includesa special ‘lighthouse’ stela. The visualgraphics of the new brand unites themain Gazprom’s brand identity elements(the logo, ‘lighter’ symbol, typicalcolours) and the dynamic graphics.Active diagonal graphical shapesymbolizes movement, leadership, andpower, and is associated with positiveenergy, dynamics, and development.Together with the integration of newstandards for the stations’ interior andexterior Gazprom Neft conducts thefollowing activities within the rebrandingprogram:AArenovation of filling stations;AAimprovement of the quality ofservicing (training and educationalprograms for the staff; control overthe quality of servicing);AAdevelopment of unique product offer;AAextended offer of related goods andservices;AAintegration of the updated paymentsystem;AAfederal advertising campaign;AAlaunch of national loyalty program;The development of the petroleumproduct retail distribution segment isone of the operational priorities of theCompany. The launch on the marketof a national brand with a high brandawareness related to ‘trust in quality’(product and service) will serve thestrategic goal of the Company: tobecome one of the leaders in petroleumproducts’ sales in Russia.ELECTRONIC TRADING FLOORAND EXCHANGE TRADEGazprom Neft is interested indevelopment of exchange trading andsupport of other projects for compilingobjective market indicators. Since2008 the Company has been activelydeveloping the mechanism of salesthrough electronic trading floor (ETF),allowing buyers themselves to formmarket prices for Company productswith open competition.Since its launch more than 240companies have registered at the floor.Large and small traders as well asend consumers taking part in trading.Products are traded on the ETF fromfour bases – the Omsk Refinery,Moscow Refinery, YANOS (plants of thecompany) and Sokur station. The salesalgorithm has been updated taking intoaccount the experience accumulatedand the requirements of the statebodies.286 th. tons of petroleum productscosting more than 4.7 bn rubles havebeen sold via ETF since it startedoperations.Since April 2009 JSC Gazprom Nefthas been selling petroleum productsat Saint Petersburg InternationalMercantile Exchange. JSC GazpromNeft is a cofounder of CJSC SaintPetersburg International MercantileExchange and since November 2009 ithas been submitting products for tenderon a regular basis. The Company sellsabout 20 th. tons of petroleum productsper month at the exchange.50

JSC GAZPROM NEFTANNUAL REPORT2009EXPORTS OF Crude AND PETROLEUM PRODUCTSOver 2009 the Company exportedoil and petroleum products throughits exclusive trading subsidiary —Gazprom Neft Trading GmbH, whichwas registered in Vienna (Austria) in2005. The main routes of oil exportshipments were the Black Sea ports ofNovorossiysk and Tuapse, the BalticSea port of Primorsk, as well as CzechRepublic and Germany — via theDruzhba Pipeline.In 2009 Gazprom Neft Group suppliedto the world market, in absolute terms,15.6 mln tons of oil, a 3.7% decreasecompared to 2008. Of this amount 11.3mln. tons were exported by sea, 3.6 mlntons — via the Druzhba Oil Pipeline and0.7 mln tons via the Atasu-AlashankouPipeline to China (transited throughKazakhstan).3.3 mln tons of oil were exported to theCIS markets, which is the same amountas in 2008.Currently Gazprom Neft does not makeany significant oil sales in Russia.CRUDE EXPORT, 2005–2009 (MLN TONS)20181614121086420Crude exports to non-CISCrude exports to CISCrude sales in RF2005 200620072008 2009PETROLEUM PRODUCTS EXPORT, 2005–2009(MLN TONS)SOURCE:COMPANYDATAIn 2009 petroleum product exports byGazprom Neft to non-CIS countrieswent up by 21% as compared to 2008,and totaled 13.2 mln tons. Exports to theCIS and Baltic countries also went up by21% and totaled 2.3 mln tons.201816141210864202005 200620072008 2009SOURCE:COMPANYDATAPetroleum products exports to non-CISPetroleum products exports to CISPetroleum products sales in RF51

KEY PERFORMANCE INDICATORSOF THE COMPANY IN 2009 BY TYPEOF OPERATIONEnergy for lifeENERGY FOR PEOPLEPREMIUM BUSINESS SEGMENTSSHIP BUNKERINGGazprom Neft Marine Bunker LLC isa subsidiary of JSC Gazprom Neftthat supplies bunker fuel for sea- andriver-going vessels. The company wasestablished in October 2007. SinceFebruary 2008 Gazprom Neft MarineBunker has been a member of RussianAssociation of Marine and River BunkerSuppliers and by the results of 2009 thecompany is one of the leaders amongRussian bunker companies.Bunkering is a premium sales market forfuel oils and diesel fuel. The ambitiousobjectives of Gazprom Neft is by 2020to take up one third of the bunker marketwith its own port infrastructure, enterinternational markets and sell 77% fueloil and 5% of diesel fuel produced bythe Company at a premium comparedto traditional exports. In order to achieveits strategic objectives the Companyintends to ensure the production of notless than 2.7 mln tons of marine fuel thatwill comply with international standards;to create its own port infrastructure offive terminals and to have a bunker fleetof 28 bunker tankers.Gazprom Neft Marine Bunker ensuresguaranteed all-year-round suppliesof petroleum products (fuel oil, oils,and marine fuel) to ship owners andcharterers. The enterprise operatesin Saint Petersburg, Novorossiysk,Murmansk, and Russia’s Far Easternports.Marine fuel is mostly supplied by theOmsk Refinery while deliveries alsocome from the Moscow and YaroslavlRefineries.In 2009 Gazprom Neft Marine Bunkerwas operating in more than 22 ports,including all major sea ports. TheCompany established two subsidiaries:Gazprom Neft-Shipping LLC formanaging its own fleet (9 ships werebought in 2008) and Gazprom NeftTerminal SPb LLC for using theCompany’s own and leased terminals(currently the operator of the Kirovskyplant’s terminal in Saint Petersburg).AIRCRAFT FUELINGSale of jet fuel produced at JSCGazprom Neft’s refineries and operationof fuel service complexes at the airportswithin the Russian Federation are thekey operational priorities of CJSCGazprom Neft-Aero.As per the results of 2009, GazpromNeft-Aero became one of the leadersin retail sales of aircraft fuel (aircraftfueling) at airports in the RussianFederation.The business development objectiveof CJSC Gazprom Neft-Aero is furthergrowth of retail sales and expansionof a distribution network of fuel servicecomplexes both affiliated (own) andon a partnership basis, growth ofpresence in airports on the basis ofstorage agreements, and expansion ofgeography of aircraft fueling abroad.The Development Strategy of CJSCGazprom Neft-Aero until 2020 providesfor establishing a corporate networkof 15 modern fuel service complexesat Russian airports and for phasedregional development currently fromRussian airports to CIS airports inthe near term and to airports in otherregions of the world by 2020.In 2009 the amount of jet fuel sold byGazprom Neft-Aero reached 1 mln tonsand from this figure it can be confidentlystated that Gazprom Neft’s subsidiaryis a leader in the aircraft fuel market inRussia. By 2010 the Company intendsto occupy a significant share of themarket with the volume of retail salesestimated to amount to about 1.5 mlntons of aircraft fuel a year.Availability of own capacities at theairports will allow the company toensure good competitive positions inthe distribution markets and get a retailmargin on jet fuel sales.Currently CJSC Gazprom Neft-Aerooperates under direct contractswith airlines selling jet fuel withoutintermediaries. Among the principalcounterparties of the company areJSC Aeroflot — Russian Airlines, FGUPState Customs Committee of Russia,JSC Transaero, JSC Sibir Airlines, CJSCSky Express, CJSC Nordavia -RegionalAirlines, OJSC Donavia and others.The enterprise provides aircraft fuelingservices at the following airports:Sheremetyevo (Moscow), Domodedovo(Moscow), Pulkovo (Saint-Petersburg),and at the airports of Novosibirsk,Krasnoyarsk, Murmansk, Tomsk,Kemerovo, Bryansk and Chita.PRODUCTION AND SALEOF MOTOR FUELSGazprom Neft-Lubricants LLC(Gazprom Neft-SM) is a subsidiaryof Gazprom Neft established in2007. Currently, the enterprise holdsproduction assets in Western Siberia(Omsk), the European part of Russia(Yaroslavl), and in Western Europe(Bari, Italy). In 2009 Gazprom Neft-SMincreased, as compared to 2008, thevolume of standard goods’ segmentsales 2.7-fold, and of premiumgoods — 3.4-fold.In 2009 Gazprom Neft-SM activelydeveloped sales of lubricants of theCompany’s existing brands. The rangeof products contains some 90 titlesof oils sold under Gazprom Neft andSibiMotor brand names. During thepast two years the Company has builtan effective distribution structure whichenabled it to take 3% of the Russianconsumer oils market (SibiMotor brand),12% of the market of oils for commercialtransport, and 18% of industrial oilsmarket (Gazprom Neft brand). In2009 the Company also started activedevelopment of export sales: in Europeand CIS.In April 2009 Gazprom Neft-SM closedthe deal with Chevron Global Energyto purchase an oil and lubricantsproduction plant in Italy. The Italiancompany that joined Gazprom Neft has52

JSC GAZPROM NEFTANNUAL REPORT2009an office in Rome and an oil producingplant in the town of Bari with a capacityof 30 thousand tons of oils and 6thousand tons of lubricants a year.The range of goods produced at theplant — oils for cars and commercialtransport and industrial oils — are soldunder 150 brand names. Additionallythanks to its specific capacities theplant produces 25 kinds of high-techlubricants that are used for manypurposes, including drilling. Thereforeby this acquisition the Companyobtained ownership not only ofa modern European production facilitybut also access to new distributionmarkets.In 2009 Gazprom Neft-SM launchedthe manufacture of more than 37 newproducts primarily within the premiumindustrial range: lines of oils of GazpromNeft Hydraulics, Gazprom NeftReductor, Gazprom Neft Compressor,Gazprom Neft Slide Way, and GazpromNeft Paper Machine, approved by theworld’s leading equipment producers.In July 2009 the first products under theGazprom Neft brand were made at theGazprom Neft Lubricants Italia S.p.A.plant. Currently, 20 titles of products areunder production including synthetic,polysynthetic, and mineral oils forcars (Gazprom Neft Motor Oil productline), polysynthetic and mineral oils forcommercial transport (Gazprom NeftSuper Oil product line), industrial oils(Gazprom Neft Hydraulic, Reductor,and Circulating Oils) and lubricants(Grease L, Grease L Moly, MetalGrease product lines).Despite the overall 20% decrease indemand for lubricants as compared to2008, the sales of Gazprom Neft-SM’scommercial and industrial oils grewby 2%.Two large-scale advertising campaignswere conducted in 2009, and asa result, the brand exposure in Russiahas now increased from 250 to 1000retail outlets with regional distributorshaving the main responsibility for thepromotion of new products. . In 2009the regional distribution network grewfrom 27 to 51 companies.According to the development strategyof JSC Gazprom Neft-Lubricants, by2015 the enterprise plans to take upa significant share of Russia’s marketof packaged oils and become one ofthe leading players on the market withfocus on the high tech packaged oils forcars and commercial transport marketsegment.53


6COMPANY’SGROWTHPROSPECTS

6COMPANY’S GROWTHPROSPECTSEnergy for lifeENERGY FOR PEOPLECOMPANY’S GROWTHPROSPECTSThe strategic objective of JSC GazpromNeft is to become a major internationalplayer of Russian origin, proud of itsregionally diversified package of assetsalong the entire revenue chain, activelyparticipating in the development ofregions and having high social andenvironmental responsibility.JSC Gazprom Neft is a subsidiary ofOJSC Gazprom whose operations areaimed at providing a reliable supply ofoil and petroleum products to nationaland international consumers, integratinghigh technologies of production andrefining which help to raise theeffectiveness of operations andconsolidate competitive positions bothon the Russian and global markets.The Company’s philosophy is to buildmaximum return for shareholders intandem with actively participating in thedevelopment of regions and havinghigh social and environmentalresponsibility.The development strategy of JSCGazprom Neft until 2020 will determinethe major principles, objectives,directions and expected results of theoperations of JSC Gazprom Neft,including that of subsidiaries and equityinvestees.In 2009 the Company’s Board ofDirectors approved the DevelopmentStrategy for exploration and production,of oil refining and the Strategy for salesof petroleum products until 2020. In2010 the Company will continueapplying a systematic approach to theconcept of continuous strategicdevelopment. In order to coordinate themanagement’s actions at all levels andin all directions a gradual transition tothe integrated system of long-termstrategy development and defense ofmedium-term business plans are alsobeing planned.Strategy until 2020: increasing the size andexpanding geographical coverage whileretaining a leading position in terms ofefficiencyGROWTH IN SCALEGEOGRAPHIC BUSINESSEXPANSIONMAINTAINING AND RAISINGBUSINESS EFFICIENCYProven oil reserves —2 200 mln tOil and gas production —90–100 mln TOE per yearRefining —70—80 mln t per yearSales through premiumsegments40 mln t per yearProduction – RF (YNAD, KhMAD,Eastern Siberia, the shelf),Central Asia, Near East,Africa Latin AmericaRefining – RF, EuropeSales of petroleumproducts — European partof Russian Federation,Western Siberia, Europe,Central Asia, CISEnsure the highest totalshareholder return (TSR)among Russia’s oil companiesBe one of the three leaders inefficiency among Russia’svertically integrated oilcompanies56

JSC GAZPROM NEFTANNUAL REPORT2009EXPLORATIONAND PRODUCTIONAABy 2020 the Company, includingits subsidiaries and associatedcompanies, intends to increaseoil production to 100 mln TOE peryear. Reserves-to-production ratioshould be maintained on the samelevel for not less than 20 years, andthe share of projects at an initialdevelopment stage should accountfor not less than 50% of productionby the year 2020. These indicatorsshould be achieved thanks to thephased launch of Gazprom Neft’sexplored oil fields and Slavneft’s andTomskneft’s fields where GazpromNeft controls 50% of the equity andalso of Gazprom’s oil assets. Thetarget level will be reached withthe help of the existing assets andGazprom Neft’s equity projects.Furthermore the Company also plansto expand the asset portfolio byacquiring plots of open acreage andpurchasing assets on the Russianmarket.AAThe share of foreign projects shouldaccount for 10% of the total GazpromNeft Group’s production.AAAn important task in raising theefficiency of the operations is rationaluse of gas resources, includingraising the level of recovery ofassociated gas up to 95%.REFININGAAThe amount of oil refining of JSCGazprom Neft will reach 70 mlntons a year by 2020. This will beachieved as a result of the increasein the Company’s own oil refiningcapacities in Russia of up to 40 mlntons plus an increase in capacitiesabroad of up to 25-30 mln tons.Therefore, the target ratio ofallocation of oil resources will be thefollowing: 40% — refining in Russia,25-30% — refining abroad, 20-25%direct sales of oil.AAThe priorities of JSC Gazprom Neftis to implement programs focusedon raising the quality of motorfuels, oil processing depth, andoperational improvements at all ofthe Company’s Russian refineries.The task of raising the revenuecapacity of the existing refineries willbe achieved by making changes tothe regulatory and legal frameworkthat are under review by the RussianGovernment and additionally thoughtaking into account the anticipatedchanges in the market environment.AAThe implementation of the qualityprogram meets the requirementsof the technical regulations that by2015, will forbid the circulation ofmotor fuels lower than class 5 on theterritory of the Russian Federation.The program of raising oil processingdepth will allow an increase to thecost of the basket of petroleumproducts made from one ton of oil toa significant extent due to raising thetechnology level of the Company’s oilrefineries to the European level.AAWith due regard to key efficiencyindicators (level of the operationalavailability, dead weight losses,etc) the operational improvementsprograms will help reach the levelof the leading European refineriesand will increase the competitiveperformance of the Company on thedomestic market.AAThe growth of refining in Russiawill be reached by completingconsolidation and increasingcapacity of the Moscow Refinery.The level of refining in Russia, some40 mln tons a year, is an optimum forthe Company in terms diversifyingthe risks of deliveries of oil, and theproduction volume planned to meetRussia’s domestic and externalmarkets.AAThe basis of growth of refiningand sales business outside Russiais the task of reducing risks andraising effectiveness of allocation ofcrude oil. It should be achieved notonly through equity participation inrefining capacities, but also throughlong-term contracts, includingprocessing agreements.57

COMPANY’S GROWTHPROSPECTSEnergy for lifeENERGY FOR PEOPLEMARKETING AND SALESAs far as marketing of petroleumproducts is concerned, the strategicobjectives of the Company until 2020are: selling 40 mln tons of petroleumproducts through marginal distributionchannels in Russia and abroad, creatinga strong retail brand, increasingaverage circulation at filling stations by20% and doubling the share of relatedgoods and services within the revenuestream.Within the Russian and CIS marketssources of retail network growth willcome from the following:AAExpansion of the retail network untilthe quantity of motor fuels sold totals8.1 mln tons a year — through theCompany’s own network of fillingstations, together with wholesale tosmaller outlets — 13 mln tons a year;AAdeveloping dedicated businesses forthe promotion of jet fuel, lubricants,bitumens, petrochemicals andbunkering raising total sales up tomore than 11 mln tons a year.Each product sphere has its ownseparate strategic development plan.The increase of oil refining outsideRussia will form the basis fordevelopment of the respective retailingbusiness and will help reach thementioned level of 40 mln tons of totalretail sales.Priorities of the salesstrategy development:extension of the value chain;retail development under thenew brand;search, estimation, acquisitionand integration of fillingstations of independentnetworks and tank farms;effective major constructionwork.58

JSC GAZPROM NEFTANNUAL REPORT2009STRATEGY IMPLEMENTATIONThe investment program of 80 bnUSD (including investments of 100%of subsidiaries and equity investeesin proportion to the share of JSCGazprom Neft) has been drawn upfor implementation of the investmentprojects aimed at achieving thestrategic objectives by 2020.In addition to this, the Company needsto carry out joint work with state bodiesto reform the existing fiscal systemwhich currently provides no stimulusto long-term development either of thesector as a whole, or JSC GazpromNeft in particular.Setting up joint ventures by poolingassets with international oil companiesis another key tool for successfuldevelopment. In addition to solvingthe tasks of financing and unbundlingof risks, it enables the use of leadingedgetechnologies and the partner’sexperience in implementation of largescaleprojects.Increasing business scale will provideGazprom Neft with the largest totalshareholder return amongst Russia’soil companies and maintain theCompany as one of the three leaders ineffectiveness among Russia’s verticallyintegrated oil companies.Implementation of these plans enablesJSC Gazprom Neft to become aninternational oil and gas company witha regionally diversified package ofassets along the entire value chain andto be a worthy competitor on the globalenergy markets.Among the main tasks for 2010 thereare: strategy updates for particularbusiness areas, improvement in themanagement of business processes;increasing effectiveness of operationsfor depleted resource potential. For2010 it is also planned to continueimplementing large-scale projects toprepare for the development of theMessoyakhskiye and Novoportovskoyefields in the North of the YNAD, andfor the development of the Companyabroad. Some of the tasks that theCompany started to address in thesecond half of 2009 will remainof importance in 2010. The mostsignificant of them are optimizationof business processes and costreduction.In downstreaming the year 2010 willbe the year of active implementation ofprojects for raising the quality level andoil processing depth at the company’splants, and continued renovation andrebranding of the filling stations.59


7INVESTMENT:TECHNICAL RE-EQUIPMENT ANDDEVELOPMENT OFTHE COMPANY

7INVESTMENT: TECHNICAL RE-EQUIPMENT AND DEVELOPMENTOF THE COMPANYEnergy for lifeENERGY FOR PEOPLEINVESTMENT:TECHNICAL RE-EQUIPMENT ANDDEVELOPMENT OF THECOMPANYThe large-scale business development plansin all spheres entail considerable investment.The total amount of investments to maintainthe current activities and for furtherdevelopment, including buying assets on themarket, before 2020 will rise to 80 bn USD.Due to the price recovery of oil and petroleum products JSC Gazprom Neft hasalready in 2009 increased the Investment program by 35% compared to the initialBusiness plan (excluding the acquisition of Sibir Energy). The total amount ofinvestments in 2009 was 5.5 bn USD. Capital investments of JSC Gazprom Neft in“organic growth” and traditional asset maintenance in 2009 was 2.6 bn USD whichis 22.5% less than the capital investments of 2008:AAcapital investment in oil production decreased by 32.2% and totaled 2.0 bn USD;AAoil refining in 2009 received 334 mln USD which is almost 2-fold more (+76.7%)than the money allocated in 2008;AAmore investments than the previous year were allocated for sales of petroleumproducts: 188 mln USD (+ 18%);AAother investments amounted to 64 mln USD.1.7 bn USD was allocated in 2009 for the purchase of Sibir Energy; and 0.5 bnUSD — for the purchase of NIS. Total investments in ‘non-organic’ growthamounted to 2.8 bn USD.In 2010 the Company plans to increase the amount of investments in “organicgrowth” to a significant extent: up to 4.0 bn USD, including investments inexploration and production — by 32%, in oil refining — 137%, in sales of petroleumproducts — by 63%. Acquisition of new major assets in 2010 is not planned.Implementation of the large-scale Investment program in 2010 should solve thefollowing major tasks:AAMaintaining the current production level at traditional assets, with a productiondrop rate of not more than 3%;AAActivation of exploration activities and the start of development of new deposits:Ravninny, Severo-Romanovsky, Vorgensky, Ort’yagunsky plots, Messoyakhskiyeand Kuyumbinskiye groups of deposits, Novoportovskoye fields; and foreignprojects: Venezuela, Libya, that will allow the production level to reach 100 mlnTOE by 2020;AARenovation of oil refineries to meet technical regulations: transition to Euro-4starting from 2012, and to Euro-5 — from 2015, and increasing production of highoctane gasolines;AARenovation of the NIS refinery as per the terms of the acquisition deal;AARenovation and rebranding of filling stations, and entry into premium segments ofoils markets;AAIn oil related services a large-scale program to replace drilling machines with newequipment to be purchased is planned.Meanwhile, the Company’s operating results in 2010-2012 will be mainlydetermined by traditional assets whose efficiency cannot be improved toa significant extent, taking into account the drop in production and the growth ratesof natural monopolies. Stable results are planned to be achieved in oil refining,and the renovation program will start affecting revenues in 2012. In sales the majorgrowth is planned to be achieved after the year 2011.62

JSC GAZPROM NEFTANNUAL REPORT2009CAPITAL EXPENDITURESBY BUSINESS SEGMENTS,MLN USD40003500300025002000150010005000SOURCE:COMPANYDATATo minimize the negative effect of reducing production on traditional assets and thegrowth of rates of natural monopolies the Company’s management has plannedactivities aimed at raising operating efficiency in all of its business spheres witha total effect in 2010 of more than 14 bn rubles. With the help of these activities it isplanned to maintain EBITDA at the level of 2009 in comparable market conditionseven on traditional assets in 2010.At the same time, the investment program has huge growth potential: both due to“reserve” projects and programs that were not included, and potential possibilities,mainly in the unallocated stock of fields.2008 2009 2010 (forecast)Exploration and ProductionMarketing & SalesRefiningOther63


8PERFORMANCEAND FINANCIALINDICATORS

8PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLEPERFORMANCEAND FINANCIALINDICATORSKEY PERFORMANCE INDICATORSproven hydrocarbonreserveshydrocarbon Production,(mln TOE)Refining (mln tons)SOURCE:COMPANYDATASOURCE:COMPANYDATASOURCE:COMPANYDATA932529741110848,76,310,132,3+3%50,22,20,96,09,731,428,43,36,718,4+17%33,42,45,86,818,401.01.200901.01.20102008 20092008 2009ProductionExploration and Reestimationof prev. estimatesSibir EnergyGazprom NeftSlavneftTomskneftNISSEOmskYaroslavlMoscowNISExports to Non-CIS (mln tons)Exports to CIS (mln tons)Petroleum Product Sales inRussian Federation (mln tons)SOURCE:COMPANYDATASOURCE:COMPANYDATASOURCE:COMPANYDATA16,318,315,62008 20093,3 3,32008 200916,22008 200966

JSC GAZPROM NEFTANNUAL REPORT2009Petroleum Product Exports(mln tons)CRUDE BALANCE, %REFINING CAPACITIESUTILIZATION (2009), %SOURCE:COMPANYDATASOURCE:COMPANYDATASOURCE:COMPANYDATA12,81,9+21,1%15,52,353%60%61%70%OmskRefineryYANOS909547%40%39%30%MoscowRefinery822008 20092006 2007 2008 2009ExportCISOil SalesRefining and MarketingPETROLEUM PRODUCT EXPORTS11939SOURCE:COMPANYDATA7292009, %32DieselGasolineJet fuelFuel oilOilsBitumensOther67

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLEKEY FINANCIAL RESULTSREVENUES (mln US$)EBITDA* (mln US$)NET INCOME (mln US$)SOURCE:COMPANYDATASOURCE:COMPANYDATASOURCE:COMPANYDATA33 87024 1668 6105 9774 6583 0132008 20092008 20092008 2009* — including share in equity investeesREVENUE STRUCTURE 20090,429,92,14,430,22009, %SOURCE:COMPANYDATA27,64,11,2Oil exportOil export to CISOil domestic marketPetroleum products exportPetroleum products CISPetroleum products domestic marketGas salesOther68

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLEManagement’s Discussion andAnalysis of Financial Conditionand Results of Operations for2009, 2008 and 2007Forward-Looking StatementsThis discussion contains forward-looking statements concerning the financialcondition, results of operations and businesses of Gazprom Neft and itsconsolidated subsidiaries. All statements other than statements of historical factare, or may be deemed to be, forward-looking statements. Forward-lookingstatements are statements of future expectations that are based on management’scurrent expectations and assumptions and involve known and unknown risks anduncertainties that could cause actual results, performance or events to differmaterially from those expressed or implied in these statements.Forward-looking statements include,among other things, statementsconcerning the potential exposureof Gazprom Neft to market risksand statements expressingmanagement’s expectations, beliefs,estimates, forecasts, projectionsand assumptions. These forwardlookingstatements are identified bytheir use of terms and phrases suchas ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’,‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’,‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’,‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’,‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ andsimilar terms and phrases. There area number of factors that could affectthe future operations of Gazprom Neftand could cause those results to differmaterially from those expressed in theforward-looking statements includedin this Report, inclusively (withoutlimitation): (a) price fluctuations incrude oil and gas; (b) changes indemand for the Company’s products;(c) currency fluctuations; (d) drillingand production results; (e) reserveestimates; (f) loss of market andindustry competition; (g) environmentaland physical risks; (h) risks associatedwith the identification of suitablepotential acquisition properties andtargets, and successful negotiationand completion of such transactions;(i) economic and financial marketconditions in various countries andregions; (j) political risks, project delayor advancement, approvals and costestimates; and (k) changes in tradingconditions.All forward-looking statementscontained in this discussion areexpressly qualified in their entirety bythe cautionary statements containedor referred to in this section. Readersshould not place undue reliance onthese forward-looking statements. Eachforward-looking statement speaks onlyas of the date of this discussion. NeitherGazprom Neft nor any of its subsidiariesundertake any obligation to publiclyupdate or revise any forward-lookingstatement as a result of new information,future events or other information.The following discussion is intendedto assist you in understanding of JSCGazprom Neft’s financial position asof December 31, 2009 and resultsof operations for the years endedDecember 31, 2009, 2008 and 2007and should be read in conjunction withthe Consolidated Financial Statementsand notes thereto, which were preparedin accordance with accountingprinciples generally accepted in theUnited States of America.Such terms as “Gazprom Neft”,“Company” and “Group” in theirdifferent forms in this report representJSC Gazprom Neft and its consolidatedsubsidiaries and affiliated companies.This report represents JSC GazpromNeft’s financial condition and results ofoperations on a consolidated basis.Tonnes of crude oil produced aretranslated into barrels using conversionrates reflecting oil density from eachof our oil fields. Crude oil purchasedas well as other operational indicatorsexpressed in barrels are translated fromtonnes using a conversion rate of 7.33barrels per tonne. Translations of cubicmeters to cubic feet were made at therate of 35.31 cubic feet per cubic meter.Translations of barrels of crude oil intobarrels of oil equivalent (“BOE”) weremade at the rate of 1 barrel per BOEand of cubic feet into BOE at the rate of6 thousand cubic feet per BOE.70

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLECHEVRON ITALIA S.P.A. BRANDIN BARI (ITALY)JSC Gazprom Neft acquired 100% ofoils and lubricants producing facility inBari (Italy) from Chevron Global Energy.The facility’s productive capacityincludes 30 thousand tonnes of oilsand 6 thousand tonnes of lubricantsannually. The production range includes150 types of oils used in cars andcommercial transport as well as oilsmeant for industrial use. Productioncapacity also allows for production of25 different special high-technologylubricants used particularly in the courseof drilling operations. In accordancewith technological agreement, ChevronGlobal Energy has provided a licenseon technical data as well as patentrights for 2 years on “Texaco” brand inItaly to LLC Gazprom Neft – Lubricants.Products manufactured at the facilityunder “Gazprom neft” trade mark will bedistributed both in Italian and Russianmarkets.2008/2007TomskneftIn December 2007 the Companyacquired a 50% equity interest inTomskneft and its subsidiaries froma subsidiary of OJSC Oil CompanyRosneft for US$ 3,567 million. As partof this transaction, the Company andRosneft agreed to jointly manage thebusiness operations of Tomskneft andpurchase their respective share ofTomskneft’s annual production.Main MacroeconomicFactors AffectingResults of OperationsThe main factors affecting theCompany’s results of operationsinclude:AAChanges in market prices of crude oiland petroleum products;AARussian Ruble (“RR”) exchange rateversus the US Dollar (“USD”) andInflation;AATaxation;AAChanges in transportation tariffs ofcrude oil and petroleum productsChanges in MarketPrices of CrudeOil and PetroleumProductsThe prices for crude oil and petroleumproducts in the international andRussian markets are the primary factoraffecting the Company’s results ofoperations. In 2009 average Brentcrude oil price plummeted by 36.6%to $61.67 per barrel from $97.26 barrela year ago.At the same time within the course of2009 Brent crude oil price has beensteadily increasing from its minimalvalues in the beginning of the year($39 per barrel on February 18) to$80 per barrel on December 1. In2009 Brent crude price averaged at$61.67 per barrel and as of year endit stood at $77.67 per barrel. Growingcrude pricing environment in 2009 wasfollowing recovery on global marketsfueled by massive liquidity injectionsprovided by world largest centralbanks as well as other measures bygovernments. Crude prices were alsosupported by the reduced supply flowsfrom OPEC members effective fromJanuary 1, 2009.The following table provides informationon average crude oil and petroleumproducts prices in the international anddomestic markets during the periodsanalyzed:The following chart containsinformation about average prices for oiland petroleum products on internationaland domestic markets over the periodsunder analysis:Change, %2009 2008 2007 2009–2008 2008–2007International marketUSD per barrelBrent 61,67 97,26 72,34 (36,6) 34,4Urals Spot (average Med. + NWE) 61,22 94,79 69,23 (35,4) 36,9USD per tonPremium gasoline (average NWE) 578,99 841,55 697,41 (31,2) 20,7Naphtha (average Med. + NWE) 527,28 779,84 662,27 (32,4) 17,8Diesel fuel (average NWE) 536,98 948,49 667,70 (43,4) 42,1Gasoil 0.2% (average Med. + NWE) 512,67 903,81 640,69 (43,3) 41,1Fuel oil 3.5% (average NWE) 341,66 452,55 330,76 (24,5) 36,8Domestic marketUSD per tonHigh-octane gasoline 600,06 1 023,15 835,47 (41,4) 22,5Low-octane gasoline 494,07 803,38 656,82 (38,5) 22,3Diesel fuel 419,88 880,67 617,92 (52,3) 42,5Fuel oil 204,38 329,05 219,45 (37,9) 49,9Source: Platts (international market) and Kortes (domestic market)72

JSC GAZPROM NEFTANNUAL REPORT2009Ruble vs. US DollarExchange Rate andInflationA substantial part of the Company’srevenues from sales of crude oil andpetroleum products is denominatedin US Dollars, while most of theexpenses are settled in Russian Rubles.Accordingly, any Ruble appreciationto the US Dollar negatively affects theresults of the Company’s operations,though this is partially offset by Rubledenominated revenue from sales inRussia. In 2009 Ruble depreciatedagainst the US Dollar in nominal terms,which positively affected the Company’smargins. In order to mitigate the effectsof fluctuation in Ruble – US Dollarexchange rate the Company is engagedin using derivative instruments. Refer toNote 16 to the Consolidated FinancialStatements.The following table comprisesthe information on exchange ratemovements and inflation during theperiods analyzed:2009 2008 2007Consumer Price Index (CPI), % 8,8 13,3 11,9Producer Price Index (PPI), % 13,9 (7,0) 25,1Ruble/US dollar exchange rate as of the end of the period 30,24 29,38 24,55Average Ruble/US dollar exchange rate for the period 31,72 24,86 25,58Real appreciation (depreciation) of the Ruble against the US dollar, % 5,7 (5,3) 20,0Nominal period average appreciation (depreciation) of the Ruble against the US dollar, % (21,6) 2,9 6,3Source: the Central Bank of the Russian Federation, the Federal State Statistics Service.TaxationThe following table provides information on average enacted tax rates specific to the oil and gas industry in Russia for theperiods indicated:Change , %2009 2008 2007 2009–2008 2008–2007Export customs dutyCrude oil (US$ per tonne) 179,93 355,08 206,70 (49,3) 71,8Crude oil (US$ per barrel) 24,55 48,44 28,20 (49,3) 71,8Light and middle distillates products (US$ pertonne) 133,54 251,53 151,59 (46,9) 65,9Fuel oil (US$ per tonne) 71,92 135,51 81,64 (46,9) 66,0Mineral extraction taxCrude oil (RUR per tonne) 2 299,00 3 329,09 2 472,69 (30,9) 34,6Crude oil (US$ per barrel) 9,89 18,27 13,19 (45,9) 38,5Natural gas (RUR per 1,000 cm) 147,00 147,00 147,00 – –Crude oil export customs dutyrateExport customs duty rate per tonne ofcrude oil is established on a monthlybasis by the Government of the RussianFederation. The actual rate is based onthe average Urals price in the periodfrom the 15th calendar day in the monthto the 14th calendar day of the followingmonth (monitoring period). The rate iseffective on the first day of the comingmonth after the monitoring period.The Government sets export customduty rates according to the followingformulas:Quoted Urals price (P),USD per tonneMaximum Export Custom Duty Rate0 — 109,50 0%109,50 — 146,00 35.0% * (P – 109.50)146,00 — 182,50 12.78 USD + 45.0% * (P – 146.00)>182,50 29.20 USD + 65.0% * (P – 182.50)73

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLEIn 2009 the export customs duty oncrude oil declined by 49.3% to US$24.55 per barrel compared to 2008.The reduction was associated withthe decline of Urals prices, whichdecreased by 35.4% to US$ 61.22 perbarrel in 2009 compared to US$ 94.79per barrel in 2008.In 2008 the export customs duty oncrude oil increased by 71.8% to US$48.44 per barrel from US$ 28.20 perbarrel in 2007. The increase was dueto the growth of Urals prices, whichincreased by 36.9% to US$ 94.79 perbarrel in 2008 compared to US$ 69.23per barrel in 2007.Export customs duty rate onpetroleum productsThe export customs duty rate onoil products is determined by theGovernment based on the prices forcrude on international markets is setseparately for light and middle distillatesand for fuel oil.Mineral extraction tax (MET)Starting from January 1, 2007 mineralextraction tax rate on crude oil (R) iscalculated using the following generalformula: R = 419 * (P – 9) * D/261,where P is the average monthlyUrals oil price on the Rotterdam andMediterranean markets (US$/bbl)and D is the actual RUR/US$ averageexchange rate. Effective from January1, 2009 the formula was amended toincorporate higher threshold oil price:R = 419 * (P – 15) * D/261.Depleted oil assets are subject to lowerMET. Depleted oil assets are those thathave depletion rate exceeding 80%.Depletion rate is calculated by dividingaccumulated production volume fromoil filed (N) by the field’s total reserves(V, where V is ABC1 + C2 reservesvolume as per Russian classification).Should the field’s depletion rate exceed80% general MET formula is multipliedby coefficient C, which is calculated asfollows: C = -3.5 * N/V + 3.8. Thus everymarginal percent of depletion in theexcess of 80% reduces MET payableby 3.5%.In 2009 mineral extraction tax rate oncrude oil decreased by 45.9% to US$9.89 per barrel compared to 2008. Thedecrease was driven by the decliningUrals prices, which decreased by35.4% to US$ 61.22 per barrel in 2009compared to US$ 94.79 per barrel in2008.In 2008 mineral extraction tax rateon crude oil increased by 38.5%to US$ 18.27 per barrel primarilydue to a 36.9% increase in averagecrude oil prices as compared to thecorresponding period of 2007.NATURAL GAS MINERAL EXTRACTIONTAX RATEThe rate of mineral extraction tax fornatural gas has remained stable sinceJanuary 1, 2006 and equals 147.00Rubles per thousand cubic meters ofnatural gas.Transportationof Crude Oil andPetroleum ProductsGazprom Neft transports its crude oilfor export primarily through Russia’sstate-owned pipeline system, which isoperated by JSC Transneft (“Transneft”).Russian Ministry of Industry and Energyis in charge of providing access to thepipeline system. Capacity in the pipelinenetwork system is generally allocatedamong all users in proportion to theirquarterly supply volumes to the systemand on the basis of their requests.Pursuant to the Natural MonopoliesLaw, pipeline terminal access rights areallocated among oil producers and theirparent companies in proportion to thevolumes of oil produced and deliveredto the Transneft pipeline system (andnot in proportion only to oil productionvolumes).The Federal Energy Agency currentlyapproves quarterly schedules detailingthe precise volumes of oil eachproducer can transport through theTransneft system. Once the accessrights are allocated, oil producersgenerally cannot increase their allottedcapacity in the export pipeline system,although they have limited flexibility inaltering delivery routes. Oil producersare generally allowed to assign theiraccess rights to others. Alternativeaccess to international marketsbypassing Transneft export routescan be obtained through railroadtransport, by tankers, and by the ownexport infrastructure of oil producingcompanies.Most of the oil produced by theCompany is classified as ‘‘SiberianLight’’ crude or “SILCO” and has subaveragedensity of 34.20 degrees APIor 830-850 kg/cm and sub-averagesulfur content of 0.56% compared toaverage Russian crude oil. When notblended with other Russian crude oil,crude oil produced by the Companymight be sold with a premium over theUrals blend. This advantage, however,is generally lost because crude oilproduced by the Company is blendedwith crude oil belonging to otherRussian companies when transportedthrough the trunk pipeline system.The Company exports SILCO throughTuapse, where the delivery is madethrough a special pipeline for this typeof crude oil.In 2009 the Company shipped 45% ofcrude oil for export through the BalticSea ports (mainly Primorsk); 21%of crude oil was exported throughTransneft’s Druzhba pipeline (mainly toGermany, Poland and Slovakia); 29%of crude oil shipped from various BlackSea ports Novorossiysk, Tuapse and theUkrainian port Yuzhniy and 5% of crudeoil was exported to China via transitpipeline through Kazakhstan.Transportation of refined productsin Russia is performed by means ofrailway transport and the pipelinesystem of OJSC Transnefteproduct.The Russian railway infrastructure isowned and operated by JSC RussianRailways. Both these companies arestate-owned. Besides transportation ofrefined products, JSC Russian Railwaysprovides oil companies with crude oiltransportation services. We transportthe major part of our refined productsby railway transport.The transportation tariff policies aredefined by the state authorities toensure the balance of interests ofthe state and all participants in thetransportation process. Transportationtariffs of natural monopolies are setby the Federal Tariffs Service of theRussian Federation (“FTS”). Thetariffs are dependent on transportdestination, delivery volume, distance74

JSC GAZPROM NEFTANNUAL REPORT2009of transportation, and several otherfactors. Changes in the tariffs dependon inflation forecasts made by theMinistry of Economic Developmentof the Russian Federation, theinvestment needs of owners of transportinfrastructure, other macroeconomicfactors, and compensation ofeconomically reasonable expensesincurred by entities of naturalmonopolies. Tariffs are to be revisedby FTS at least annually, comprisinga dispatch tariff, loading, transshipment,pumping and other tariffs.The main Russian crude oil productionregions are remote from the maincrude oil and refined productsmarkets. Therefore, the access ofcrude oil production companies to themarkets is dependent on the extent ofdiversification of transport infrastructure.Consequently, transportation cost isan important macroeconomic factoraffecting our results.Resource BaseAccording to the independent reservoirengineers, DeGolyer and MacNaughtonon the basis of the standards set forthby the Society of Petroleum Engineers,Petroleum Reserves ManagementSystem (“PRMS”) as of December 31,2009 the Company had 4,989 millionsof barrel of oil equivalent (BOE),including proved crude oil reserves of4,610 millions of barrel and proved gasreserves of 2.3 trillion cubic feet.The Company’s proved reservesincluding equity investees were 7,462millions of BOE, including proved crudeoil reserves of 6,924 millions of barreland proved gas reserves of 3.2 trillioncubic feet.The PRMS reserves above differ fromthose reported in the supplementaryinformation on oil and gas activitiesincluded with our consolidated financialstatements. Oil and gas reservesincluded in this supplementaryinformation are prepared usingdefinitions provided by the USSecurities and Exchange Commission(SEC), which require the use ofa 12-month average of the first dayof the month price for each monthwithin the reporting period. The PRMSreserves above use management’s bestestimate of future crude oil and naturalgas prices.The following table represents the Company’s reserves for the periods indicated:(millions barrels of oil equivalent (BOE) December 31,2009December 31,2008Total Proved (consolidated subsidiaries)Beginning of year 4 847 4 945Production (247) (248)Purchases of minerals in place 15 –Revision of previous estimates 374 150End of year 4 989 4 847Total Proved (company's share of equity method investees)*Beginning of year 1 961 1 961Production (132) (109)Purchases of minerals in place 268 –Revision of previous estimates 376 109End of year 2 473 1 961Total consolidated and equity interests in proved reserves - end of year 7 462 6 808Total consolidated and equity interests in probable reserves - end of year 4 069 4 927Total consolidated and equity interests in possible reserves - end of year 1 850 1 856* 49.9% reserves of JSC Slavneft; 50% of reserves of JSC Tomskneft and 50% of Salym Petroleum Development.75

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLEProduction of CrudeOil, Gas and PetroleumProductsCRUDE OIL PRODUCTIONGazprom Neft is engaged in theexploration, development andproduction of crude oil and gasprincipally through fields located in theYamal-Nenetsky and Khanti-Mansiyskyautonomous districts, the Omsk andTomsk regions.The Company’s major crudeoil production entities are JSCGazpromneft-Noyabrskneftegaz(Noyabrskneftegaz), Gazpromneft-Khantos LLC (Khantos) andGazpromneft-Vostok LLC (Vostok).Within the course of 2007 the Companyestablished two new operatingsubsidiaries: Gazpromneft-Yamal LLC(Yamal) and Gazpromneft-AngaraLLC (Angara). Gazpromneft-YamalLLC (Yamal) conducts exploration anddevelopment of JSC Gazprom’s oilfields (the Company’s parent company),whereas Gazpromneft-Angara LLC(Angara) was established to develop theCompany’s new crude oil fields in theEastern Siberia.Noyabrskneftegaz, the Company’smajor production unit (41% of theCompany’s total proved reserves underPRMS classification), operates about30 fields in the Yamal-Nenetsky andKhanti-Mansiysky autonomous districtsand produces about 62% of Company’sconsolidated production volume.Khantos is developing Zimnee fieldin the Khanti-Mansiysky autonomousdistrict and Tumen region. It alsoprovides operating services to Sibneft-Yugra LLC (“Sibneft-Yugra”). Sibneft-Yugra holds production licenses for twofields: Priobskoye and Palyanovskoyein the Khanti-Mansiysky autonomousdistrict. Priobskoye field is one of theCompany’s largest and most promisingoil field, which account for 46% ofthe Company’s total proved reservesunder PRMS classification. Fullscaledevelopment of Priobskoe waslaunched in 2004. By the end of 2009the field was already producing about27% of the Company’s consolidatedproduction volume.Vostok operates Archinskoye,Shinginskoye and Urmanskoye fields inTomsk and Zapadno-Krapivinskoye inOmsk region. All these fields form a newproduction center with a yearly increasein crude oil output that constitutesfor about 5% of the Company’s totalproduction. Following acquisition ofassets of Malka oil in February 2010,Vostok will be an operator for its fields.The NIS Exploration and Productiondivision produces crude oil and naturalgas in Serbia. In addition NIS holdsa 7% non-operating interest in anAngola concession-type contract, fromwhich it receives production volumes.Crude oil produced in Serbia is primarilyrefined by NIS’s Refining division.Slavneft (equally split and controlled byGazprom Neft and TNK-BP) developsoil assets in the Urals Federal Districtand conducts exploration in the SiberianFederal District.Tomskneft (equally split and controlledby Gazprom Neft and Rosneft) holdslicenses for the development of fields inthe Tomsk region and Khanty-Mansiyskyautonomous district.Following the acquisition of Sibir theCompany simultaneously gained controlover it’s production subsidiary Magmaand 50.0% share in Salym PetroleumDevelopment (an upstream joint venturebetween Royal Dutch Shell and Sibir).The following table represents theCompany’s production for the periodsindicated:Change , %(millions of barrels) 2009 2008 2007 2009–2008 2008–2007Crude oil produced by consolidatedsubsidiaries 224.9 228.6 243.2 (1.6) (6.0)Company’s share in production of equityinvestees 124.3 114.2 77.3 8.8 47.7Total crude oil production 349.2 342.8 320.5 1.9 7.0In 2009 and in 2009 the Company’sproduction of crude oil including sharein equity investees increased by 1.9%and by 7.0% to 348.6 million barrels(47.7 million tonnes) and to 342.1 millionbarrels (46.3 million tonnes) comparedto the corresponding periods,respectively. The increase was due tothe acquisition of 50% interest in SalymPetroleum Development (“SPD”) inJune 2009 and due to the acquisition of50% interest in Tomskneft in December2007. Company’s crude oil productionincludes our share in equity investees’production which increase by 8.8% in2009 compared to 2008 and by 47.7%in 2008 compared to 2007.The following table summarizes theCompany’s crude oil purchases for theperiods indicated::Change , %(millions of barrels) 2009 2008 2007 2009–2008 2008–2007Crude oil purchases in Russia and CIS* 24,9 12,0 16,3 107,5 (26,4)Crude oil purchases internationally 16,2 15,3 3,9 5,9 292,3Total crude oil purchases 41,1 27,3 20,2 50,5 35,1* Crude oil purchases in Russia exclude purchases from Company’s equity investees Slavneft, Tomskneft and Salym Petroleum Development76

JSC GAZPROM NEFTANNUAL REPORT2009In 2009 and 2008 the Companyincreased the volumes of crude oilpurchased by 50.5% and 35.1% to41.1 million barrels (5.6 million tonnes)and 27.3 million barrels (3.7 milliontonnes) compared to the correspondingperiods, respectively, as a result oftrading activities expansion.Gas productionproduction of equity investees), anincrease of 3.2%, compared to 3.1billions of cubic meters in 2008. Thisincrease relates to the Company’sprogram for the utilization of associatedgas, which is described below andrecent acquisitions during 2009.In 2008 the Company produced 3.1billions of cubic meters of associatedand natural gas with an increase of63.2% compared to 2007. This increaserelates to the Company’s program forthe utilization of associated gas, which isdescribed below.In February 2008, Gazprom Neftadopted a medium term program forthe utilization of associated gas withthe goal of increasing its efficient use,mitigating environmental and tax risksand increasing revenues from the saleof additional volumes of associatedgas and its refined products. TheCompany plans to invest Rubles 2.1billion (approximately US$ 69 million) toimplement this program during 2010.In particular, the program providesfor the construction of associatedgas transportation facilities from theShinginskoye, Yuzhno-Priobskoye oilfields, commissioning of the Phase Twoof Yuzhno-Priobskaya gas turbine powerplant (GTPP) and implementation of theunified automated data managementsystem for collection of associatedpetroleum gas data on the oilfields of theCompany.Production of petroleumproductsThe following table summarizes theCompany’s production of petroleumproducts for the periods indicated:Increase, %(millions of tonnes) 2009 2008 2007 2009–2008 2008–2007Production of petroleum products at theCompany’s refineries 21.5 17.2 15.5 25.0 11.0Production of petroleum productsinternationally 2.2 - - - -Production of petroleum products at equityrefineries 7.9 9.5 9.2 (16.8) 3.3Total production of petroleum products 31.6 26.7 24.7 18.4 8.1Petroleum products purchases in Russia 1.0 1.1 0.3 (9.1) 266.7Petroleum products purchases internationally 1.2 1.7 1.6 (29.4) 6.3Total petroleum products purchases 2.2 2.8 1.9 (21.4) 47.4* Including acquiring petroleum products in Russia and abroad.In 2009 and 2008 the Companyproduced 31.6 million tonnes and26.7 million tonnes (including sharein production of equity investees),respectively. The increase of 18.4%and 8.1% in corresponding periodswas primarily due the Company’smodernization program and recentacquisitions during 2009.The Company processes domesticcrude oil into refined products primarilyat its Omsk Refinery, Moscow Refineryand Yaroslavl Refinery. GazpromNeft owns the Omsk Refinery andhas access to the Yaroslavl Refineryin proportion of its equity interest. Asa result of the acquisition of 54.71%interest in Sibir the Company alsoobtained control over Moscow Refinery,having increased its effective sharein Moscow Refinery from 38.63% to59.75%.The NIS Refining division consists ofPancevo and Novi Sad refineries withcapacity of 7.2 millions tonnes of crudeoil processing per year including 5.2million tonnes in Pancevo and 2 milliontonnes in Novi Sad. The refineriesalso process external oil under tollingagreements whereby customersprovide crude oil and necessarychemicals to refineries for processingand pay refining fee. The volume oftolling agreements is below 20% of totalprocessing volumes.The Company primarily markets its owncrude oil and petroleum products forexport through Gazprom Neft TradingGmbH, its trading subsidiary in Austria.The Company’s petroleum productsare distributed within Russia and CISprimarily through 25 subsidiaries.Most of these subsidiaries are retaildistribution companies engaged inwholesale distribution or operate inthe gas station retail markets. CJSCGazprom Neft Aero, GazpromneftSmazochny Materialy LLC andGazprom Neft Marine Bunker LLCspecialize in the sale of particularpetroleum products.NIS Distribution division operates thelargest network of crude oil storagesand 478 oil and gas retail stations andis a leading supplier of oil productson the Serbian market. NIS producesabout 80% of all domesticallyconsumed oil products.77

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLEAt the beginning of 2009, we owned944 retail stations, operating underdifferent brands. The Sibir and NISacquisitions added a further 612stations. In the middle of 2009, welaunched a program to consolidateand rebrand all our stations on thedomestic market under the brandof Gazprom Neft. A scale project ofestablishing a unified network of fillingstations involves modernization ofover 1000 filling stations in 14 territorialsubjects of the Russian Federationwithin 2009 – 2012. It is anticipated thatthe investments into the complex fillingstations rebranding program will makeabout RUR 7 bln within the next threeyears.The launch of the project was precededby a complex of preliminary worksincluding unification of managementand organizational principles at allterritorial sales outlets of GazpromNeft. There are several standarddesign formats developed for GazpromNeft branded filling stations inaccordance with the size and functionalinterpretation of the outlet. This is notjust about new signs, but retrainingservice personnel, adding services,installing a computer network, etc. Theimpact on our bottom line will be growthin volumes per location and also marginexpansion as we roll the rebranding outover the next few years.Results of OperationsThe following table represents theCompany’s results of operations for theyears ended December 31, 2009, 2008and 2007:mln USD 2009 2008 2007RevenuesRefined products and oil and gas sales 23 648 33 205 22 248Other 518 665 520Total 24 166 33 870 22 768Costs and other deductionsCrude oil, petroleum and other products purchased 5 636 8 296 3 928Operating expenses 1 862 2 015 1 941Selling, general and administrative expenses 1 280 1 046 854Transportation expenses 1 982 1 810 1 279Depreciation, depletion and amortization 1 475 1 309 929Export duties 3 948 7 328 4 372Taxes other than income taxes 3 982 5 353 4 107Exploration expenses 147 193 184Cost of other sales 283 271 275Loss on sale of assets, net 142 - -Total 20 737 27,621 17,869Operating income 3 429 6 249 4,899Other income (expense)Income from equity affiliates 212 407 408Gain from Sibir Energy acquisition 470 - -Interest income 108 100 94Interest expense (369) (167) (149)Other (expense) income, net (3) 89 45Foreign exchange (loss) gain, net 50 (517) 161Total 468 (88) 559Income before provision for income taxes 3 897 6 161 5 458Provision for income taxes 804 1 425 1 342Deferred income tax expense (benefit) 12 39 (27)Total 816 1 464 1 315Net income 3081 4697 4143Less: Net income attributable to non-controlling interest (68) (39) -78

JSC GAZPROM NEFTANNUAL REPORT2009RevenuesThe following table analyses revenues for the periods indicated:Change, %(in US$ million) 2009 2008 2007 2009–2008 2008–2007Crude oilExport and sales on international markets 6 749 11 349 7 498 (40,5) 51,4Export to CIS 990 1 410 874 (29,8) 61,3Domestic sales 52 297 486 (82,5) (38,9)Total crude oil sales 7 791 13 056 8 858 (40,3) 47,4Gas 107 148 44 (27,7) 236,4Petroleum productsExport and sales on international markets 7 139 8 166 6 403 (12,6) 27,5Export and sales to CIS 1 080 1 304 850 (17,2) 53,4Domestic sales 7 531 10 531 6 093 (28,5) 72,8Total petroleum products sales 15 750 20 001 13 346 (21,3) 49,9Other sales 518 665 520 (22,1) 27,9Total sales 24 166 33 870 22 768 (28,7) 48,8Sales volumesThe following table analyses sales volumes for the periods indicated:Change, %2009 2008 2007 2009–2008 2008–2007Crude oil (millions of barrels)Export and sales on international markets 114,3 119,5 110,7 (3,7) 7,9Export to CIS 24,2 24,2 18,3 - 32,2Domestic sales 1,8 6,6 11,7 (72,7) (43,6)Crude oil (millions of tonnes)Export and sales on international markets 15,6 16,3 15,1 (3,7) 7,9Export to CIS 3,3 3,3 2,5 - 32,0Domestic sales 0,3 0,9 1,6 (72,2) (43,8)Total crude oil sales 19,3 20,5 19,2 (6,1) 6,8Gas (bcm) 3.7 3.9 2.4 - 68.2Petroleum products (mln tons)Export and sales on international markets 13.2 10.9 11.4 21.1 (4.4)Export and sales to CIS 2.3 1.9 1.9 21.1 -Domestic sales 18.3 16.2 13.4 13.0 20.9Total petroleum products sales 33.8 29.0 26.7 16,6 8,679

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLERealized Average Sales PricesThe following table analyses the Company’s average realized export and domestic prices for the periods indicated:Change, %2009 2008 2007 2009–2008 2008–2007Crude oil (US$ per barrel)Export 59,05 94,97 67,73 (38,3) 40,2CIS 40,91 58,26 47,76 (29,8) 22,0Domestic 28,89 45,00 41,54 (35,8) 8,3Crude oil (US$ per tonne)Export 432,63 696,26 496,56 (38,3) 40,2CIS 300,00 427,27 349,60 (29,8) 22,2Domestic 208,00 330,00 303,75 (37,0) 8,6Petroleum products (US$ per tonne)Export 540,83 749,17 561,67 (27,8) 33,4CIS 469,57 686,32 447,37 (31,6) 53,4Domestic 411,53 650,06 454,70 (36,7) 43,0In 2009 the Company’s revenuesdecreased by 28.7% to US$ 24,166million compared to US$ 33,870 millionin 2008. The decrease in revenues wasprimarily due to a significant decrease inmarket prices.During 2008 the Company’s revenuesincreased by 48.8% to US$ 33,870million compared to US$ 22,768 millionin 2007.The changes in revenues were primarilydue to the following:AAan increase in crude oil andpetroleum products production;AAan increase in sales volumes of crudeoil and petroleum products.AAan increase in average pricesCrude Oil Export SalesIn 2009 crude oil export revenuesdecreased by 40.5% to US$ 6,749million compared to US$ 11,349 millionin 2008. The decrease was driven bya significant decline in sales prices(-38.3%) as well as a reduction in therelative volumes of crude oil (-3.7%).The decline in sales prices was due todecrease in Urals prices (-35.4%).In 2008 our revenues from exportcrude oil sales increased by 51.4% toUS$ 11,349 million compared to US$7,498 million in 2007. This growth wasprimarily due to an increase in salesprices by 40.2% and a 7.9% increase insales volumes. The price increase wasattributable to the growth in Urals priceby 36.9%. The growth in volumes wasprimarily due to the acquisition of our50% interest in Tomskneft in December2007.Crude Oil Sales to CISIn 2009 the Company’s revenues fromCIS crude oil sales decreased by 29.8%to US$ 990 million compared to US$1,410 million in 2008. The decreasewas due to reduction in sales prices by29.8%. The decline in sales prices wasdue to decrease in world prices.In 2008 the Company’s revenues fromCIS crude oil sales increased by 61.3%to US$ 1,410 million compared to US$874 million in 2007. This growth wasprimarily due to an increase in salesprices by 22.0% and a 32.2% increasein sales volumes. The price increasewas driven by the general growth inworld prices. Increase in sales volumeswas primarily due to the acquisitionof our 50% interest in Tomskneft inDecember 2007.Crude Oil Domestic SalesIn 2009 our revenues from domesticcrude oil sales decreased by 82.5%to US$ 52 million compared to US$297 million in 2008. This was primarilya result of a significant decrease insales prices by 35.8% and a 72.7%decrease in sales volumes. The declinein sales prices was due to decrease inUrals prices (-35.4%).In 2008 our revenues from domesticcrude oil sales decreased by 38.9%to US$ 297 million compared to US$486 million in 2007. The decrease indomestic crude oil sales was causedby an increase in the relative volume ofcrude oil that the Company sent to theexport and CIS markets.Petroleum Products ExportSalesIn 2009 the Company’s revenuesfrom export petroleum product salesdecreased by 12.6% to US$ 7,139million compared to US$ 8,166 millionin 2008. The decrease was primarilya result of a decline in sales prices by27.8%, which was partially offset bya 21.1% increase in sales volumes.The increase in sales volumes wasattributable to the Company’s recentacquisitions of NIS and Sibir. Theprice reduction was attributable to thedecrease in Urals price by 35.4%.In 2008 the Company’s revenuesfrom export petroleum product salesincreased by 27.5% to US$ 8,166million compared to US$ 6,403 millionin 2007. This growth was primarilya result of an increase in sales pricesby 33.4%%, which was partially offsetby a 4.4% decrease in sales volumes.80

JSC GAZPROM NEFTANNUAL REPORT2009The price increase was driven by thegeneral growth in world prices.Petroleum Products Salesto CISIn 2009 our revenues from CISpetroleum product sales were US$1,080 million compared to US$ 1,304million in 2008, a decrease of US$ 224million or 17.2%. The decrease wasprimarily due to a reduction in salesprices by 31.6%, which was offset by21.1% increase in the relative volumes.The increase in sales volumes wasattributable to the Company’s recentacquisitions of Sibir. The price decreasewas attributable to the general reductionin sales prices.In 2008 our revenues from CISpetroleum product sales increased by53.4% to US$ 1,304 million comparedto US$ 850 million in 2007. This growthwas primarily due to an increase insales prices by 53.4%.Petroleum Products DomesticSalesIn 2009 the Company’s revenues fromdomestic petroleum product salesdecreased by 28.5% to US$ 7,531million compared to US$ 10,531 millionin 2008. This decrease was primarilydue to a decrease in sales prices by36.7%, which was offset by a 13.0%increase in sales volumes. The growthin volumes was primarily due to theCompany’ acquisitions of Sibir.In 2008 the Company’s revenues fromdomestic petroleum product salesincreased by 72.8% to US$ 10,531million compared to US$ 6,093 millionin 2007. This growth was primarily dueto an increase in sales prices by 43.0%and a 20.9% increase in sales volumes.The price increase was driven by thegeneral growth in world prices.Other SalesOther revenues consist primarily ofsales of services such as processingservices, transportation, construction,utilities and other services and arerecognized when goods are provided tocustomers and services are performedproviding that the price for the servicecan be determined and no significantuncertainties regarding realization exist.Other sales were US$ 518 million in2009 that is lower by 22.1% comparedto 2008 (665 US$ million in 2008 whichis 27.9% higher than in 2007) due to thefall (increase) in prices and volumes.Expenses and otherspendingCrude Oil, Petroleum and Other ProductsPurchasedIn 2009 cost of purchased crude oil, gasand petroleum products decreased by32.1% to US$ 5,636 million compared to2008. This decrease was primarily dueto a significant decline in crude oil andpetroleum products prices.In 2008 cost of purchased crude oil, gasand petroleum products increased by111.2% to US$ 8,296 million comparedto US$ 3,928 million in 2007. The growthwas primarily due to the acquisition ofour 50% interest in Tomskneft, whichresulted in an increase in crude oilpurchases in the domestic market by42.7% (32.5 million barrels) in 2008.Operating expensesThe following table comprises operatingexpenses for the periods indicated:Change, %(in US$ million) 2009 2008 2007 2009–2008 2008–2007Hydrocarbon extraction expenses 1 203 1 371 1 368 (12,3) 0,2Refining expenses at own refineries 410 310 282 32,3 9,9Refining expenses at equity investee refineries 249 334 291 (25,4) 14,8Total operating expenses 1 862 2 015 1 941 (7,6) 3,8Hydrocarbon ExtractionExpensesOur hydrocarbon extraction expensesinclude expenditures related to rawmaterials and supplies, maintenanceand repairs of extraction equipment,labor costs, fuel and electricity costs,activities to enhance oil recovery andother similar costs at our extractionsubsidiaries.In 2009 the Company’s extractionexpenses decreased by 12.3% to US$1,203 million compared to US$ 1,371million in 2008. This was primarily dueto Ruble depreciation to the US Dollarand the Company’ acquisitions of Sibirand NIS during 2009. The Company’saverage hydrocarbon extraction costper barrel of oil equivalent decreasedfrom US$ 5.72 to US$ 5.07, or by 11.4%compared to 2008.In 2008 the Company’s extractionexpenses increased by 0.2% to US$1,371 million compared to US$ 1,368million in 2007. This was primarilydue to an increase in expenses forenergy supply, workovers, materialsand labor. The Company’s averagehydrocarbon extraction cost per barrelof oil equivalent increased from US$5.43 to US$ 5.72, or by 5.3% comparedto 2007.Refining Expenses at OwnRefineriesIn 2009 the Company’s refiningexpenses at our own refineriesincreased by US$ 100 million, or 32.3%,compared to 2008. The increase relatesto the acquisition of NIS and obtainingcontrol over Moscow Refinery, whichbecame the Company’s subsidiary. TheCompany’s average refining expensesper barrel at own refineries decreased81

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLEfrom US$ 2.30 to US$ 2.23 or by 3.0%in 2009 compared to 2008.In 2008 the Company’s refiningexpenses at our own refineriesincreased by US$ 28 million, or 9.9%,compared to 2007. This resultedprimarily from increase in expensesfor electricity costs due to inflationand a 11.5% increase in the refinerythroughout. The Company’s averagerefining expenses per barrel at ownrefineries decreased from US$ 2.33 toUS$ 2.30 or by 1.3% in 2008 due to anincrease refining throughput.Refining Expenses at EquityInvestee RefineriesIn 2009 the Company’s refiningexpenses at equity investee refineriesdecreased by US$ 85 million, or 25.4%,compared to 2008. As mentionedabove the Moscow Refinery becamethe Company’s subsidiary from June2009 and its expenses were includedas Refining Expenses at Own Refineriestogether with relative volumes for thatperiod. The Company’s average refiningexpenses per barrel at equity investeerefineries decreased from US$ 4.51to US$ 4.10 per barrel, or by 9.1%,compared to 2008.In 2008 the Company’s refiningexpenses at equity investee refineriesincreased by US$ 43 million, or 14.8%,compared to 2007. This resultedprimarily from increased cost ofprocessing services due to higherelectricity costs. The Company’saverage refining expenses per barrelat equity investee refineries increasedfrom US$ 4.09 to US$ 4.51 per barrel,or by 10.3%, compared to 2007.Selling, General and AdministrativeExpensesSelling, general and administrativeexpenses include general businessexpenses, wages, salaries, socialbenefits (except for wages andsalaries at our production and refiningsubsidiaries), insurance, bankingcommissions, legal fees, consulting andaudit services, charity, allowances fordoubtful accounts and other expenses.In 2009 and 2008 the Company’sselling, general and administrativeexpenses increased by 22.4% and22.5% to US$ 1,280 million andUS$ 1,046 million compared to thecorresponding periods. The growthwas due the Company’s M&A activitiesduring the periods and an increase intrading activities.Transportation ExpensesTransportation expenses include coststo transport crude oil and petroleumproducts to final customers. Thesecosts consist of pipeline transportation,sea freight, railway, shipping, handlingand other transportation costs.In 2009 and 2008 our transportationexpenses increased by 9.5% and 41.5%to US$ 1,982 million and US$ 1,810million, compared to the correspondingperiods. This was primarily due toincrease in transportation tariffs inRussia and recent acquisitions of Sibirand NIS during the periods.Depreciation, Depletion andAmortizationDepreciation, depletion andamortization expenses include depletionof oil and gas producing assets anddepreciation of other fixed assets.In 2009 and 2008 our depreciation,depletion and amortization expensesincreased by 12.7% and 40.9% toUS$ 1,475 million and US$ 1,309million, respectively, compared tothe corresponding periods. Theincrease was a result of the growthin depreciable assets due to theCompany’s capital expenditureprogram.Export dutiesExport customs duties include dutiesrelated to the export of both crude oiland petroleum products.The following table presents exportcustoms duties for the periods analyzed(see below).In 2009 export customs dutiesdecreased by 46.1% as compared to2008 and amounted to 3 948 mln USdollars. The decrease was caused bya decrease in the rate for oil by 49.3%and for petroleum products – by 46.9%.Export customs duties went down dueto a decrease in prices for Urals mix oilby 35.4%.In 2008 export customs duties grewby 67.6% to 7 328 mln US dollars ascompared to 4 372 mln US dollarsin 2007. The growth was caused bya growth in rates for oil by 71.8% andfor petroleum products – by 66.0%.Export customs duties went up due toan increase in prices for Urals mix oilby 36.9% and growth in the amount ofoil exported and sold to CIS countries:by 7.9% and 32.0% respectively due toacquisition of a 50% share in Tomskneft.Taxes Other Than Income TaxesThe following table summarizes theCompany’s taxes other than incometaxes for the periods indicated. (see onthe right)In 2009 taxes other than income taxdecreased by 25.6% to US$ 3,982million compared to 2008 primarily dueto a decrease in mineral extractiontaxes, which was partially offset by anincrease in excise tax. The increase inexcise tax was driven by an increasein refined production volumes at theCompany’s refineries by 17.9%.Change, %(in US$ million) 2009 2008 2007 2009–2008 2008–2007Export customs duties for crude oil 2,790 5,316 3,093 (47.5) 71,9Export customs duties for petroleum products 1,158 2,012 1,279 (42.4) 57.3Total export customs duties 3,948 7,328 4,372 (46.1) 67.682

JSC GAZPROM NEFTANNUAL REPORT2009Change, %(in US$ million) 2009 2008 2007 2009–2008 2008–2007Mineral extraction taxes 2 215 4 202 3 139 (47,3) 33,9Excise 1 412 828 681 70,5 21,6Property tax 123 107 87 15,0 23,0Other taxes 232 216 200 7,4 8,0Total taxes other than income tax 3 982 5 353 4 107 (25,6) 30,3In 2008 taxes other than income taxincreased by 30.3% to US$ 5,353million compared to US$ 4,107 millionin 2007. This growth was a result ofthe increase in mineral extraction taxrate on crude oil by 38.5% and excisetax caused by increase in volumes ofproduction of petroleum products by8.1%.Income from Equity AffiliatesThe Company has investments inaffiliated companies and joint ventures.These companies are primarily engagedin crude oil production, refining anddistribution activities in Russia.In 2009 income from equity affiliatesdecreased by 47.9% to US$ 212 millioncompared to the same period of 2008due to a decrease in crude oil pricesdecline. In 2008 income from equityaffiliates states approximately at thesame level as in 2007.Interest IncomeIn 2009 and 2008 interest incomeincreased by 8.0% and 6.4% to US$108 million and US$ 100 million,respectively, compared to thecorresponding periods. This was dueto an increase in cash and depositsplaced in banks during the relatedperiods.Interest ExpenseIn 2009 interest expense increased by121.0% to US$ 369 million comparedto 2008. The growth was mainly dueto an increase in outstanding loanscompared to the correspondingperiods of 2008 and due to higherinterest rates applied to the loansreceived in 2009 compared to 2008.In 2008 interest expense increased by12.1% to US$ 167 million compared toUS$ 149 million in 2007. The increasewas attributable to obtaining a US$ 1billion syndicated loan in May and Julyof 2008.Income Tax ExpensesIn 2009, 2008 and 2007 effectiveincome tax rate was 20.9%, 23.8% and24.1%, which state at a statutory levelfor the respective years.Reconciliation of Net income to EBITDA (Earnings before Interest,Income Tax, Depreciation and Amortization)(in US$ million) 2009 2008 2007Adjusted EBITDA $ 5,977 $ 8,610 $ 6,601The Company’s share in EBITDA of equityaffiliates (931) (1,052) (773)Gain from acquisition of Sibir Energy 470 - -Share in income of equity affiliates 212 407 408Foreign exchange gain (loss), net 50 (517) 161Other (expense) income, net (3) 89 45Loss on sale of assets, net (142) - -Interest expense (369) (167) (149)Interest income 108 100 94Depreciation, depletion and amortization (1,475) (1,309) (929)Income before income taxes $ 3,897 $ 6,161 $ 5,45883

PERFORMANCE ANDFINANCIAL INDICATORSEnergy for lifeENERGY FOR PEOPLEEBITDA represents earnings beforeinterest, income tax, depreciation andamortization. EBITDA is a supplementalnon-GAAP financial measure usedby management, as well as industryanalysts, to evaluate operations.Management believes that EBITDArepresents useful means of assessingthe performance of the Company’songoing operating activities, as itreflects the Company’s earningstrends without showing the impact ofcertain charges. EBITDA is not usedby management as an alternativeto net income as an indicator of theCompany’s operating performance,as an alternative to any other measureof performance in conformity with USGAAP or as an alternative to cash flowfrom operating activities as a measureof liquidity. EBITDA does not havea standardized meaning prescribed byUS GAAP.Liquidity and Capital ResourcesCASH FLOWSChange %(in US$ million) 2009 2008 2007 2009-2008 2008-2007Net cash provided by operating activities 3,474 5,483 5,316 (36.6) 3.1Net cash used in investing activities (4,879) (3,502) (5 636) 39.3 (37.9)Net cash provided by (used in) financing activities185 (566) (320) (132.7) 76.9NET CASH PROVIDED BY OPERATINGACTIVITIESIn 2009 net cash provided by operatingactivities was US$ 3,474 million ascompared to US$ 5,483 million in thesame period of 2008. The decrease ofUS$ 2,009 million or 36.6% in net cashprovided by operating activities is dueto the following:AAa decrease in income before tax ofUS$ 2,264 million;AAan increase in working capital of US$399 million;AAa decrease in income taxes of US$648 million.In 2008 net cash provided by operatingactivities was US$ 5,483 million ascompared to US$ 5,316 million in thesame period of 2007. The increase ofUS$ 167 million or 3.1% in net cashprovided by operating activities is dueto the following:AAan increase in income before taxof US$ 703 million;AAan increase in working capital ofUS$ 977 million;AAan increase in income taxes ofUS$ 149 million.NET CASH USED IN INVESTINGACTIVITIESIn 2009 net cash used in investingactivities was US$ 4,879 millioncompared to US$ 3,502 million in 2008(39.3% increase). The increase of US$1,377 million in the net cash used ininvesting activities was mainly due tothe Company’ acquisitions of NIS andSibir during 2009.In 2008 net cash used in investingactivities was US$ 3,502 millioncompared to US$ 5,636 million in 2007(or 37.9% decrease). These changesin the net cash used in investingactivities were due to acquisition of50% interest in Tomskneft in December2007 and due to an increase of capitalexpenditures by US$ 1,154 million in2008 compared to 2007, which wasdue to the necessity to maintain theCompany’s production on existingfields and development of the relatedinfrastructure.Net Cash Provided by (Used in)Financing ActivitiesIn 2009 net cash provided by financingactivities was US$ 185 million ascompared to US$ 566 million of cashused in financing activities for the sameperiod of 2008. An increase was mainlydue to increase in net loans proceedsover repayments by US$ 851 million,which was partially offset by an increasein dividend payments of US$ 145 millionin 2009 compared to the same periodof 2008.In 2008 net cash used in financingactivities was US$ 566 million ascompared to US$ 320 million of netcash used in financing activities for thesame period of 2007. The increase ofUS$ 246 million or 76.9% was due tonet loans repayments over proceeds byUS$ 1,480 million, which was partiallyoffset by a decrease in dividendpayments of US$ 1,279 million in 2008compared to the same period of 2007.84

JSC GAZPROM NEFTANNUAL REPORT2009CAPITAL EXPENDITURESThe following table represents the Company’s capital expenditures:Change %(in US$ million) 2009 2008 2007 2009-2008 2008-2007Exploration and production 2,021 2,979 2,045 (32.2) 45.7Refining 334 189 107 76.7 76.6Marketing and distribution 188 159 60 18.2 165.0Others 64 39 - 64.1 -Total capital expenditures 2,607 3,366 2,212 (22.5) 52.2In 2009 the Company’s capitalexpenditures decreased by 22.5% toUS$ 2,607 million as compared to thecorresponding periods of 2008. Thedecrease was primarily driven by theexploration and production decrease,which was partially offset by theincrease in refining and marketing anddistribution. Exploration and productiondecreased by 32.2% to US$ 2,021million due to the Ruble depreciationand cost cutting efforts, refining –increased by 76.7% to US$ 334 millioncompared to 2008. The increase wasdue to a result of the modernizationprogram launched at the Omsk Refineryand consolidation on Moscow Refineryduring the period June 23, 2009 throughDecember 31, 2009.In 2008 the Company’s capitalexpenditures increased by 52.2% toUS$ 3,366 million as compared toUS$ 2,212 million in 2007. The growthwas primarily driven by the explorationand production and refining activities.Exploration and production increasedby 45.7% to US$ 2,979 million due tothe rapid development of Priobskoeoilfield, refining - by 76.6% to US$ 189million in 2008 compared to 2007.The increase in refining segment wasa result of the modernization programlaunched at the Omsk Refinery.DEBT OBLIGATIONSAs of December 31, 2009 theCompany’s long-term debt was US$5,628 million as compared to US$ 3,080million as of December 31, 2008. Anincrease of US$ 2,548 million or 82.7%was mainly due to the acquisition of NISand Sibir during 2009.The following table shows maturities oflong-term loans as of December 31,2009 (in US$ million):Year dueAmount due2010 $ 1,4662011 2,1672012 1,7472013 1312014 and further 117$ 5,62885


9MAJOR RISKFACTORS

9MAJOR RISKFACTORSEnergy for lifeENERGY FOR PEOPLEMAJOR RISKFACTORSRISK MANAGEMENT POLICY OF THE COMPANYIn 2008 JSC Gazprom Neft developed a Risk Management Policy setting outthe risk management principles and objectives for the purpose of enhancing theefficiency of the Company’s operations in the short and long-term. The main Policyimplementation tool is the introduction of an integrated risk management system(IRMS) covering all levels and areas of the Company’s operations. In the middleof 2009 the Management Board of the Company initiated the process of applyingIRMS in subsidiaries and equity investees.INDUSTRY RISKSThe main areas of operations of GazpromNeft are production of oil and gas, oilrefining, sales of oil and petroleumproducts.Russia’s economic development in 2009was affected by the global financial crisisand was not level. By the middle of 2009the economic slowdown in Russia hadhalted. Since June a monthly growth inGDP has been seen. As a result of that,during the third quarter the productiondynamics adjusted to season went upin a positive manner, and in the fourthquarter further increases in growth wereseen.In the medium term no further aggravationis expected in the sector due to the stabledemand for oil and petroleum products ondomestic and foreign markets.Risks Associated with Potential Changesin the Prices of Target Raw Materialsand Services and their Impact on theCompany’s OperationsIn the course of its business, JSCGazprom Neft uses the infrastructureof monopoly providers of oil, petroleumproduct transportation, and energy supplyservices.The Company has no control over theinfrastructure of such monopoly providersand the amount of rates charged. It isimportant to note that though the amountof rates is regulated by the controllingbodies of the Russian Federation the ratesgrow annually and it leads to an increasein the expenses of the Company.Having no control over the infrastructure ofservice providers could lead to failures ofthe Company’s logistics system.To reduce exposure to these risks theCompany:AAperforms long-term planning ofcommodity flows, timely reserves oiland petroleum product throughputvolumes and required rolling stock;AAconducts optimal redistribution ofcommodity flows by type of transport;AAtakes measures to use alternative andown power generation sources.These measures allow the Companyto reduce risks associated with the useof services and goods acquired frommonopoly providers to an acceptablelevel and to ensure continuing operationof the Company.RISKS ASSOCIATED WITH POTENTIALCHANGES IN OIL AND PETROLEUMPRODUCT PRICESThe financial performance indicatorsof the Company are directly related tothe level of oil and petroleum productprices. The Company cannot controlprices for its products which dependon global and domestic changes tothe supply and demand balance,the volume of consumption of thesemarkets, as well as the actions ofregulatory authorities.The major consequence of a drop inoil and petroleum product prices isa deterioration in the corporate financialindicators.To reduce adverse exposure to theabove risks the Company has taken thefollowing measures:AAhas developed comprehensivemeasures for reducing the cost ofmineral production;AAhas introduced a flexible commodityflow distribution system allowing theCompany to promptly and timelyredistribute commodity flows in theevent of a gap in oil and petroleumproduct prices between the foreignand domestic markets;AAhas a business planning systembased upon a scenario approachto identifying the key performanceindicators of the Company dependenton the level of world oil prices. Thisapproach enables the Company toreduce costs, among other things,by scaling back or postponing itsinvestment programs.88

JSC GAZPROM NEFTANNUAL REPORT2009These measures allow the Company toreduce risks to an acceptable level andperform the obligations assumed.It is important to note that as per theanalytical reports of the Ministry ofEconomic Development for 2009, sinceApril 2009 there has been a tendencytowards growing exports’ value asa result of the recovery of the oil pricegrowth (from 43.5 dollars per barrel inQ1 to 74.1 dollars per barrel in Q4).INDUSTRY COMPETITION RISKSThe oil-and-gas industry is known fortough competition between the leadingRussian oil and gas companies in themain areas of production and economicoperations, including:AAobtaining subsoil licenses forhydrocarbon production at thebiddings organized by Russiangovernment authorities;AAacquisition of other companiesthat hold subsoil licenses forhydrocarbon production or existingassets associated with hydrocarbonproduction;AAimplementation of foreign projects;AAengagement of leading independentservice companies;AApurchase of high-tech equipment;AApurchase of existing retail networkenterprises and land plots for theconstruction of new ones;AAexpansion of sales markets andvolumes.Implementation of a portfolio of strategicprojects aimed at the development ofJSC Gazprom Neft across key areasof operation enables the Company tostrengthen its competitive positions inthe oil and gas industry step by step byreducing industry competition risks.EXPLORATION RISKSThe key strategic goal of the Companyis to increase its hydrocarbon resourcebase in quantity and quality to ensurean adequate production level which,in turn, is largely dependent on thesuccess of exploration activities.The major exploration risk is failure toconfirm the estimated hydrocarbonreserves. An important factor is theconduct of exploration in differentgeographical regions, including areaswith adverse climatic conditions, whichoften incurs the risk of cost growth.At the same time, JSC Gazprom Nefthas extensive experience in conductingexploration work and using stateof-the-arthydrocarbon prospectingand exploration methods as well asadvanced drilling and field infrastructuredevelopment technologies, which, asa result, reduces the probability of suchrisks.COUNTRY AND REGIONALRISKSPolitical RisksAs of now the political situation in Russiais stable which is characterized by thesustainability of the federal and regionalbranches of power.JSC Gazprom Neft is registered asa taxpayer in Saint-Petersburg which isthe second biggest city of the RussianFederation and the administrative centerof the North-Western Federal District whichhas a considerable nature and resourcepotential, highly-developed industry, andextensive transport network.JSC Gazprom Neft is represented bysubsidiaries in the Siberian and CentralFederal Districts.On the whole, the Company estimates thepolitical situation in the country as stableand believes that at the moment there areno signs of probable adverse risks.Foreign Asset RisksExpansion into new regions creates boththe possibility of gaining a commercialadvantage and a risk of misjudging thepolitical and economic situation in thecountries where the Company holdsassets, which may result in the loss ofassets and failure to meet the targetefficiency indicators.The first step was the establishment ofGazprom Neft Asia LLC in Kyrgyzia. Anoperator of 77 filling stations, GazpromNeft Asia LLC is already firmly establishedin the Kyrgyz market and in future plansto become a significant player amongcompanies selling petroleum products inAsia.In December 2008 JSC Gazprom Neftclosed the purchase deal for a 51%interest in Serbian company NaftnaIndustrija Srbije (NIS). NIS is one of thelargest vertically integrated oil companiesof Central Europe which produces andrefines oil and distributes petroleumproducts.In recent years the political situation inthe countries where the Company holdsits foreign assets has been stable. Since2009 the Company has implementeda number of foreign projects aimed at89

MAJOR RISKFACTORSEnergy for lifeENERGY FOR PEOPLEthe geographic expansion of productionoperations. Presently JSC Gazprom Neftviews the level of its foreign asset risks asacceptable, however, negative changescannot be ruled out, since said risks arebeyond the Company’s control.FINANCIAL RISKSThe Company’s policy in risk managementis aimed at establishing and analyzingrisks that the Company identifies,setting appropriate limitations andcontrol procedures, monitoring risksand conformity to the limitations set.Risk management policy is reviewed ona regular basis in order to correctly reflectthe current market environment and theGroup’s operations in this environment.Financial risk management at theCompany is performed by Companyemployees in accordance with theirprofessional fields of activity.The Financial Risk ManagementCommittee outlines a uniform approachto financial risk management at theCompany and its subsidiaries. Thisapproach is based on reducing the levelof risk exposure and probability of riskoccurrence through implementationof appropriate measures and controlprocedures.The work performed by Companyemployees and the Financial RiskManagement Committee is instrumental inreducing potential financial damage to theCompany and meeting the objectives set.Credit RiskThe management of the Companypays increasing attention to creditrisk management. The Company hasimplemented a range of measuresproviding for effective monitoring andmanagement of this risk, including:counterparties’ creditworthinessevaluation, setting individual limitationsdepending on the financial state ofthe counterparty, controlling advancepayments, dealing with debts receivableby line of business, and other measures.These actions allow Management ofthe Company to be assured that at themoment there are no significant risksof damage exceeding the amount ofaccumulated reserves.The Company places funds on depositwith a number of Russian banks. TheCompany has a Policy which is used toregularly evaluate the creditworthiness ofthe banks holding its deposits and to rankthese banks by reliability.Borrowing RiskIn connection with the world financialcrisis many Russian companies haveencountered a problem in borrowing.This risk is effectively managed byJSC Gazprom Neft. In addition to bankcrediting, the Company actively employsalternative sources of borrowing. Forinstance, in 2009 the Company attractedthe funds required by placing two issuesof bonds with a total cost of 18 bn rubles.In addition, the stable financial state of theCompany as confirmed by internationalrating agencies (the Company has ratingsin effect at Moody’s (Ваа3), S&P (BВB-))enables the attraction of necessary creditresources from Russian and foreign banksfreely.Currency RiskThe major part of JSC Gazprom Neft’sgross revenues consists of exportoperations for sales of oil and petroleumproducts. Therefore, fluctuations incurrency rates against the ruble have animpact on the results of the Company’sfinancial and economic operations whichis a risk factor.The currency risk of the Company issignificantly lower due to expensesdenominated in foreign currencies.A considerable share of the loans istaken by the Company is in US dollarsfrom the international credit market.Current obligations of these loans are alsodenominated in dollars.The currency structure of revenuesand obligations function as a hedgingmechanism where differently directedfactors compensate each other. Balancedarrangement of foreign currency claimsand obligations minimize currency riskexposure on the result of the Company’sfinancial and economic operations.With a share of these claims andobligations unbalanced, the Companyhedges these risks and, additionally, ineach specific situation draws upon internalinstruments and reserves, allowing it toeffectively manage the currency risk andguarantee the performance of obligationsby the Company.Interest Rate RiskAs a major borrower the Company isexposed to interest rate risks. The mainsource of borrowing is the internationalfinancial market. The debt portfolio mainlyconsists of credits and loans denominatedin US dollars. The interest rate for a smallportion of these loans (the share is notfixed and may vary) is based on interbankLIBOR rates, which, if raised, may resultin higher debt servicing costs for theCompany. An increase in the cost of loansfor the Company may adversely affect thecreditworthiness and liquidity indicators.However currently the LIBOR rate is ata relatively low historical level and hasa medium-term tendency for stabilizing,and that taken together with a relativelysmall share of LIBOR-based loans createsa low exposure of the Company to aninterest rate risk.Inflation RiskInflation risk is taken into account in thepreparation of the Company’s financialplans. The current and projected inflationrates are far from critical for the Companyand the industry on the whole, hence theimpact of inflation factors on the financialstability of the Company does not looksignificant in the long-term.Risk Associated with CurrencyRegulation ChangesThe Company is a participant of foreigneconomic relations. Part of the Company’sassets and liabilities are denominated inforeign currency, therefore any changes incurrency regulation mechanisms made bythe state may generally affect the financialand economic operations of the Company.Having said that, today the currencyregulation of the Russian Federationis significantly liberalized, which isattributable to the general policy of thestate designed to ensure free convertibilityof the ruble.The conducted liberalization of currencyregulations reduces the risks of adverseconsequences for the Company’soperation associated with future changesin the currency legislation.90

JSC GAZPROM NEFTANNUAL REPORT2009Risk Associated with TaxLegislation ChangesJSC Gazprom Neft is one of the toptaxpayers whose operations are basedon the principles of good faith and taxtransparency.The Company bears the burden of payingvalue-added tax, income tax, mineralextraction tax, property tax, land tax.The results of the tax reform can beestimated as positive: the taxation systemhas been structured, taxation mechanismsand procedures have been simplified,and tax rates have been cut. As perthe experience of reviewing cases inthe Constitutional court of the RussianFederation, the statements of the basiclaw affect the taxation laws of economicentities and protect tax-payers from illfoundedand sudden increase of taxburden.Since the taxable period 2009 the cutoffprice of mineral extraction tax hasbeen increased from 9 to 15 USD perbarrel; depreciation bonus for new capitalassets has been increased; licenseamortization period has been reducedto two years. Since the taxable period2009 depreciation terms of some typesof equipment and oil and gas industrystructures (including oil producingwells) have been reduced. Since 2010depreciation terms of drilling equipment,and some types of oil and gas industrystructures have been reduced as well.The aforementioned factors enable usto conclude that Russia’s tax systemis becoming more stable, and theoperations of economic entities in theRussian Federation are becoming morepredictable. However, one should notrule out the possibility of the state raisingthe tax burden for tax-payers which mayresult from changes in specific elementsof taxation, cancellation of tax privileges,growth of duties, etc.In the course of business the Companyperforms online monitoring of taxlegislation changes, changes in theapplication of current provisions. TheCompany also acts as an expert in thelaw-making process by assessing anddeveloping draft laws, including taxones. JSC Gazprom Neft assesses andforecasts the extent of potential adverseimpact of tax legislation changes, directingits efforts to minimize the related risks. TheCompany’s management believes that theCompany’s positions connected with thatare stable and will not have a significanteffect on consolidated financial state andoperating results of the Company.LEGAL RISKSJSC Gazprom Neft operates in strictcompliance with the civil, tax, customsand currency legislation.The Company cannot guarantee therewill be no adverse changes in Russianlegislation in the long-term, since most riskfactors are beyond the Company’s control.The adverse exposure to this categoryof risks is reduced by monitoring andtimely responding to the changes madeto different sections of legislation as wellas by active interaction with legislativeand executive authorities, and publicorganizations over the interpretation andimprovement of legislation.Risks Associated with CurrencyRegulation ChangesLimitations set by the state which entailreducing the possibilities for convertingincome denominated in rubles to foreigncurrencies and reverse converting toruble due to requirements of obligatoryrepatriation and conversion may have anunfavorable impact on the Company’soperating results. The Company isa participant of foreign economic relations.Today currency regulation in the RussianFederation is significantly liberalized,which considerably reduces the risks ofadverse consequences for the Company’soperations.Risks Associated with TaxLegislation ChangesJSC Gazprom Neft is one of the toptaxpayers paying federal, regional andmunicipal taxes; among them: mineralextraction tax, value-added tax, incometax, unified social tax, property tax, andland tax.Today the process of reforming of Russia’staxation law has been completed. Thelegislative stock has been codified.General part of the Tax Code which isin effect since 1999 sets down the mainprinciples of taxation and introduction ofnew taxes; the effect of these principlesand targeting on protection of propertyinterests of tax-payers has been realizedin law-enforcement practice. A specialpart of the Tax Code sets down taxesbuilding up the tax burden of the issuerand defines taxation items. Over the last10 years the rate of the value added taxhas been reduced by 2%, the rate ofincome tax – by 15%, the descendingrate scale for unified social tax hasbeen set up, and sales tax and someother compulsory payments have beencancelled.The results of the tax reform are seen aspositive: the taxation system has beenstructured, taxation mechanisms andprocedures have been simplified, and taxrates have been cut down.From our experience reviewing cases inthe Constitutional court of the RussianFederation, the statements of the basiclaw affect the taxation laws of economicentities and protect tax-payers from illfoundedand sudden increase of taxburden.The aforementioned factors enable usto conclude that Russia’s tax systemis becoming more stable, and theoperations of economic entities in theRussian Federation are becoming morepredictable.In the course of business the Companyperforms online monitoring of taxlegislation changes, changes in theinterpretation and application of currentprovisions of the tax legislation. TheCompany also acts as an expert in theprocess of improving the legal frameworkand developing new tax draft laws.Risks Associated with Changesin Customs Regulations andDutiesJSC Gazprom Neft is a participant offoreign economic relations, hence itis exposed to risks associated withchanges in the legislation governingforeign economic activities as well as theCustoms Legislation governing relationswith respect to establishment of theprocedure for transfer of goods throughthe customs border of the RussianFederation, imposition and application ofcustoms regimes, imposition, introductionand collection of customs payments. The91

10CORPORATEGOVERNANCEEnergy for lifeENERGY FOR PEOPLECORPORATEGOVERNANCEIn the long term perspective JSC GazpromNeft positions itself as an internationalvertically integrated oil company of Russianorigin, one of the leaders in oil industry.In order to achieve this goal the Companyrecognizes the necessity to perfect thecorporate governance system of JSCGazprom Neft. High-level corporate cultureincreases investment appeal of the Company(both to Russian and foreign investors),its information and financial transparencyand ensures the trust of partners andshareholders.The Company aims for high-levelcorporate governance that can only beachieved through:AASetting up efficient procedures forstrategic and investment planning;AAPublic financial statements, that allowboth shareholders and investors toobjectively assess the results of theCompany’s activity;AAHaving a system of internal controland audit and a risk managementsystem to give a reasonableguarantee of the Company achievingits strategic goals;AAUnderstanding social responsibility;AAAn efficient staffing policy in order toattract highly qualified professionals tothe Company;AAAn adequate remuneration policy forthe Company’s senior management;AAAn information policy, aimed tofully satisfying the informationalrequirements of the shareholders,investors and other parties andproviding timely and reliableinformation.JSC Gazprom Neft carries out theabove by means of:AAEnsuring transparency of theownership structure and of thestructure of JSC Gazprom NeftGroup;AAPlanning activities for different timehorizons (short-, medium- and longtermplanning);AAInvolving the Board of Directorsin controlling the major areas ofcorporate governance (strategic,investment, budget planning, internalcontrol and risk management, etc);AAPlanning Company’s investments;AADrawing up financial statementsin accordance with the GenerallyAccepted Accounting Principles (USGAAP);AAMaking detailed public financialstatements (including informationon the related-party transactions,major counterparties, list of interestedparties for the transactions, quarterlyfinancial statements with notes);AAEnsuring high financial transparencyby adhering to the internationalstandards for financial statements andissuing the management reports bothin Russian and in English;AAEstablishing a separate structuralentity for risk management, ensuringthe integrated system of riskmanagement and strategic planning;AAActive social policy of the Company,making public CSR reports;AAImplementing an efficient motivationsystem for the senior executivemanagement of the Company;AAEstablishing positive relations withregional and local authorities,regulatory bodies of the industry,employees and major counterparties;AAImproving workplace safety andcompliance with environmental safetyrequirements.Over the reporting period in orderto improve the level of corporategovernance the Company has done thefollowing:AALaunched a project aiming at quickerfinancial closing and publishing theconsolidated financial statements atan earlier date than most Russiancompanies;AAReduced dividend payout period;AASignificantly expanded the scope ofinformation available to investors onthe official website of the Company:apart from the information subject toobligatory disclosure, JSC GazpromNeft publishes the following:––Investor’s Calendar;––Company’s financial statements;94

JSC GAZPROM NEFTANNUAL REPORT2009––Quarterly management reports;––Minutes of the GeneralShareholders’ Meetings;––Information for investors;––Information on the organizationalstructure of the Company;––Charters, bylaws and internaldocuments of the Company, thatare not required to be made publicby the current legislation;––Information of the Company’sshares price changes;––Information on Company’smanagement;––Information on Company’ssubsidiaries;––Analytical information;––Databook on consolidatedCompany activity indicators for the5-year period;––Press releases, supplying promptinformation disclosure concerningmajor events;AAThe Company has launched anefficient internal control and auditand integrated risk managementimplementation project;AAThe Company has set up an investorrelations department, ensuringpositive and continuous interactionwith investors.The governance system of theCompany is based on compliancewith the current Russian legislation,the Charter, bylaws and other internaldocuments of the Company and iscomposed of the following:AAGeneral Shareholders’ Meeting,the supreme governing body of theCompany;AABoard of Directors, whose mainfunctions are to ensure the exerciseand protection of the shareholders’rights, provide for long-term growthof the Company’s shareholdervalue, strategic planning of theCompany’s activities, create effectivemechanisms of internal control;AAExecutive Bodies (ManagementBoard. General Director), managingday-to-day operations of theCompany;AAInternal Audit Committee, ensuringcontrol over financial and economicactivities of the Company;AAExternal Audit, elected at the GeneralShareholders’ Meeting for auditingfinancial and economic activities ofthe Company.The governing bodies of theCompany act within the scope oftheir competence clearly defined bythe Charter of JSC Gazprom Neft.Organizational aspects of the activityare governed by internal documents,approved by the General Shareholders’Meeting:AARegulations for JSC Gazprom NeftGeneral Shareholders’ Meeting;AARegulations for JSC Gazprom NeftBoard of Directors;AARegulations for JSC Gazprom NeftManagement Board;AARegulations for JSC Gazprom NeftGeneral Director;AARegulations for JSC Gazprom NeftAuditing Comission.The above documents are available onthe Company’s official website at thefollowing address: http://ir.gazprom-neft.ru/corporate-governance/.95

CORPORATEGOVERNANCEEnergy for lifeENERGY FOR PEOPLEMEMBERSHIP OF THEBOARD OF DIRECTORSThe Chairman and members of the Boardof Directors did not hold Company sharesduring the reporting year. Members of theBoard of Directors did not enter into anytransactions for the purchase or sale ofCompany shares in the reporting year.In 2009 no suit was brought against themembers of the Board of Directors.Being in charge of strategic planning of theCompany’s operations the Board of Directorsis a key element of top level corporategovernance, which explains a high degreeof attention paid to its activities by theshareholders and investment community,independent experts and analysts, andCompany’s managers.The Board of Directors of JSC GazpromNeft consists of 10 members with a verywide scope of professional knowledgeand experience, which ensures a fullfledgedcomprehensive analysis ofthe issues submitted for the Board ofDirectors’ consideration.Activities of the Board of Directorsare aimed at strategic developmentof the Company with the purpose ofraising its capitalization and investmentattractiveness in the long term, andmaximizing the income upon shares,that complies with the interests of theCompany’s shareholders.In accordance with the structure of JSCGazprom Neft’s shareholders’ equityof which more than 95% is held byJSC Gazprom, representatives of themajor shareholder of the Company aremembers of the Board of Directors.In addition, the Board of Directorscomprises the executive managementof the Company represented byits Director General. This ensuresa balance of influence in the Boardof Directors and objective supply andassessment of information during itsactivities. The Company is compliantwith the regulations of the currentlegislation regarding the ratio ofexecutive and non-executive directors inthe Board of Directors.The right of shareholders to freely electmembers of the Board of Directors isprovided for by the Policy of forming theCompany’s Board of Directors due to:AAmaximum transparency of the Boardof Directors’ election procedure;AAobligatory cumulative voting whenelecting members of the Board ofDirectors that allows to take intoaccount views of all shareholders,including the owners of small stocksof the Company’s shares;AAproviding all the information on thecurrent Board of Directors, includingnames, biographies, informationmembership in boards of directorsor positions in other legal entities,the amount of participation in theCompany’s stock capital, the datesof election to the Board of Directors,direct and indirect connections withthe Company, its management, familymembers of the founders, majorshareholders, and other stakeholders,the services provided to the Company(aside from membership in the Boardof Directors) and other significantinformation;AAproviding information aboutcandidates to the Board of Directorsin a timely manner on the Company’sofficial website, including the Englishversion of it;AAgiving the shareholders an opportunityto nominate candidates for theCompany’s governance bodies within2 months (this term is longer thanrequired by the law);AAinforming shareholders about votingprocedures (by verbal explanationof the procedure (when organizinga meeting with joint participation);Miller Alexei Borisovich(Chairman of the Board of Directors)Born in 1962 in Leningrad, graduated fromN. A. Voznesenskiy Leningrad Finance andEconomics Institute.Positions held over the past five years:Since 2005 – Chairman of the ManagementBoard, JSC Gazprom,since 2005 – Deputy Chairman of the Boardof Directors, JSC Gazprom.publishing explanation on the backside of the voting ballot);AAannouncing resolutions made at theGeneral Shareholders’ Meeting andthe results of voting at the GeneralShareholders’ Meeting;AApublishing resolutions of the GeneralShareholders’ Meeting (protocols)basing on the results of the meetingon the Company’s official website;AAon-going communication with Supportservices for institutional shareholderson proxy voting at generalshareholders' meetings.96

JSC GAZPROM NEFTANNUAL REPORT2009Alisov Vladimir IvanovichBorn in 1960, graduated from the LawFaculty of the A.A. Zhdanov Leningrad StateUniversity.Positions held over the past five years:2004-2007 – Head of the Legal Directorate ofJSC Gazpromregiongaz.2007-2008 – Deputy Head of the LegalDepartment of JSC GazpromSince 2008 – First Deputy Head of the LegalDepartment of JSC Gazprom.Member of the Russian Lawyers’ Association,Member of the Expert Committee forCorporate Governance at FFMS of RussiaGolubev Valeriy AlexandrovichBorn in 1952, graduated from V. I. Ulyanov(Lenin) Leningrad Electrotechnical Instituteand the Academy of National Economy underthe Government of the Russian Federation.Positions held over the past five years:2005-2006 – Member of the ManagementBoard of JSC Gazprom2005-2006 – Head of the Departmentfor Investments and Construction,JSC Gazprom, General Director,Gazkomplektimpex LLCsince 2006 – Deputy Chairman of theManagement Board of JSC Gazprom.Dubik Nikolai NikolaevichBorn in 1971, graduated from the LomonosovMoscow State University.Positions held over the past five years:2005-2008 – Deputy Head of the LegalDirectorate, JSC Gazprom2008 – First Deputy Head of LegalDepartment, JSC GazpromSince 2008 – Head of Legal Department,JSC Gazprom,Since 2008 – Member of the ManagementBoard of JSC Gazprom.97

CORPORATEGOVERNANCEEnergy for lifeENERGY FOR PEOPLEDyukov Alexander ValerievichBorn in 1967, graduated from the LeningradOrder-of-Lenin Shipbuilding Institute. In 2001obtained an IMISP MBA degree.Positions held over the past five years:2005-2006 – President of JSC SIBUR Holding2006 – Director General, Sibur LLCSince 2006 - Chairman of the Board ofDirectors, JSC SIBUR Holding.2006-2008 – President of JSC Gazprom Neft.Since January, 2008 – Chairman of theManagement Board, Director General, JSCGazprom Neft.Kruglov Andrei VyacheslavovichBorn in 1969, graduated from the Saint-Petersburg Technological Institute of theRefrigeration Industry.Positions held over the past five years:Since 2005 – Deputy Chairman of theManagement Board of JSC Gazprom, Headof the Financial and Economic Department,JSC Gazprom.Mikheev Alexandr LeonidovichBorn in 1944, graduated from the Oiland Gas Department of the Gubkin StateUniversity of Oil and Gas.Positions held over the past five years:Since 2005 - First Deputy Head of Gasand Liquid Hydrocarbons Processing andMarketing Department at OJSC Gazprom.98

JSC GAZPROM NEFTANNUAL REPORT2009Pavlova Olga PetrovnaBorn in 1953, graduated from the Far EasternState University.Positions held over the past five years:Since 2005 – Head of the PropertyManagement and Corporate RelationsDepartment, JSC GazpromSince 2005 – Member of the ManagementBoard of JSC GazpromPodyuk Vasiliy GrigorievichBorn in 1946, graduated from Ivano-Frankovsk Oil and Gas InstitutePositions held over the past five years:2005-2010 – Member of the ManagementBoard, JSC Gazprom, Head of the Gas, GasCondensate and Oil Production Department,JSC Gazprom.SeleznevKyrill GennadievichBorn in 1974, graduated from D.F. UstinovBaltic State Technical University, and theSaint-Petersburg State University.Positions held over the past five years:Since 2005 – Member of the ManagementBoard of JSC Gazprom, Head of theDepartment for Marketing and Processingof Gas and Liquid Hydrocarbons,JSC Gazprom, Director General, LLCMezhregiongaz.Since 2005 - Member of the ManagementBoard of JSC Gazprom99

CORPORATEGOVERNANCEEnergy for lifeENERGY FOR PEOPLETwo committees were formed within JSC Gazprom Neft’s Boardof Directors: the Audit Committee and the Human Resources andRemuneration Committee, both of them operating on the basis ofinternal Regulations approved by the Company’s Board of DirectorsInformation onChanges in theMembership of theBoard of Directors inthe Reporting YearFrom the beginning of 2009 to theannual General Shareholders’ Meetingof JSC Gazprom Neft conducted onJune 22, 2009 the Board of Directors ofthe Company was composed of:AAMiller Alexei Borisovich(Chairman of the Board of Directors)AAGolubev Valery AlexandrovichAADubik Nikolai NikolaevichAADyukov Alexander ValerievichAAClaudio DescalciAAKruglov Andrei VyacheslavovichAAMarco AlveraAAPavlova Olga PetrovnaAAPodyuk Vasily GrigorievichAASeleznev Kyrill GennadievichNo other changes were made in themembership of the Board of Directors.Committees of theBoard of DirectorsMaximum effect of the Board ofDirectors’ activities in the majorfunctional directions (audit, internalcontrol, financial statements, promotionand remuneration, etc) is achievedthrough the creation and systemicoperation of formalized structures –committees of the Board of Directors,set up for the purpose of preliminaryand in-depth study of issues fallingwithin the competence of the Board ofDirectors.The Board of Directors of JSC GazpromNeft has set up two committees: theAudit Committee and the HumanResources and RemunerationCommittee, acting in compliance withthe internal Regulations, approved bythe Company’s Board of Directors.Over the reporting period the Companyhas reviewed the Regulations definingthe activity of both committeesand further elaborated the scopeof competence of each committeein accordance with the corporategovernance policy of the Company andthe existing practice of operation.The Audit Committee fulfills the followingtasks:AAInforming the members of the Boardof the Directors objectively andindependently of the financial andeconomic state of the Company ;AAEvaluating the efficiency of theCompany’s internal control and riskmanagement systems, includingthe mechanisms of control overpreparation and presentation offinancial and other statements, theircompleteness and fairness;AAAnalyzing the effectiveness of theCompany’s internal and externalAudit;AAEnsuring constructive communicationwith the external auditor, bodiessupervising the financial andeconomic activities of the Company;internal audit units of the Company.During 2009 the Audit Committee hasdone the following:AAPreliminary review of the AnnualReport draft;AAAnalysis of the JSC Gazprom Neft2008 annual financial statements;AAAssessed external auditor’s reportconcerning JSC Gazprom Neft’s2008 annual financial statements;AARecommended an external auditorfor approval by the GeneralShareholders’ Meeting for 2009;AAMade recommendations concerningthe fee for the approved externalauditor of the Company;AAMade recommendations concerningthe allocation of the Companyprofit, based on the results of theCompany’s activity in 2008;AARecommended a part of net profit tobe allocated to dividend payout;AAReviewed revised Audit Committeeof the Board of DirectorsRegulations.Over the reporting period the AuditCommittee has also fulfilled thefollowing:AAAnalyzed the issues concerning theCompany’s participation in otherorganizations;AAReviewed a number of transactionsrelating to borrowing by JSCGazprom Neft and acting as suretyfor third party;AAMade proposals concerning theschedule of the Board of Directors.Due to the considerable increase offinancial and economic issues requiringapproval of the Board of Directors, theCompany intends to follow through withthe policy of active involvement of theAudit Committee.As of December 31, 2009 the AuditCommittee was composed as follows:AAKruglov Andrey Vyacheslavovich(Chairman of the Committee)AAPavlova Olga PetrovnaAADubik Nikolay Nikolayevich.100

JSC GAZPROM NEFTANNUAL REPORT2009In 2009 composition of the AuditCommittee remained the same.The committee Chairman, AndreyVyacheslavovich Kruglov holds theposition of deputy Chairman of theManagement Board of JSC Gazpromand concurrently heads the Financialand Economic department of Gazprom.Doctor of Economics, with sufficientwork experience in the financialarena, A.V. Kruglov has the necessarycompetence to act as a member ofthe Board of Directors, concurrentlyChairman of the Audit Committee.The Human Resources andRemuneration Committee of theCompany’s Board of Directors studiesand analyses issues concerningcorporate governance, social sphere,staffing policy, motivation system,including attracting, retaining, motivatingand training staff.In 2009 the members of the HumanResources and RemunerationCommittee reviewed a numberof internal documents that weresubsequently approved (reviewed)by the Company’s Board of Directors,including:AAGazprom Neft Human Resourcesand Remuneration CommitteeRegulations;AAJSC Gazprom Neft CorporateConduct Code.In 2009 in order to prepare for theannual General Shareholders’ Meetingthe members of the Human Resourcesand Remuneration Committeeundertook the following:AAReviewed the draft of the Company’s2008 Annual Report;AASelected the candidates for electionto the Company’s Board of Directors;AAReviewed procedures for the holdingof General Shareholders’ Meeting.In compliance with the internalregulations of JSC Gazprom Neft, themembers of the Human Resources andRemuneration Committee presented forconsideration a number of proposalsduring the preparation of the scheduleof the Board of Directors.Over the whole of the reportingperiod the Human Resources andRemuneration Committee wascomposed of the following:AAPavlova Olga Petrovna(Chairman of the Committee);AAKruglov Andrey Vyacheslavovich;AADubik Nikolay Nikolayevich.Following election at the AnnualGeneral Meeting, the new Board ofDirectors resolved not to change thecomposition of the Human Resourcesand Remuneration Committee.The Company intends to further developthe operation of the Human Resourcesand Remuneration Committee,expanding the scope of issues thatfall within the competence of theCommittee.101

CORPORATEGOVERNANCEEnergy for lifeENERGY FOR PEOPLEBOARD OF DIRECTORS’ACTIVITIES IN 2009During 2009 the work of JSC Gazprom Neft’sBoard of Directors was minutely scheduled,which serves as evidence of a systemicapproach to the organization of this governingbody. This in turn guarantees efficiency instrategic decision making in the best interestsof the Company and its shareholders.Over the reporting period 4 meetingsin presentia and a number of meetingsin absentia were held. The participationand the regularity of the members’attendance of the meetings ispraiseworthy.The main activities of the Board ofDirectors in 2009 are as follows:AAstrategic planning:––Approved the JSC Gazprom NeftExploration and Production BlockStrategy till 2020, JSC GazpromNeft Oil Refining Strategy till2020 and JSC Gazprom NeftPetrochemicals DistributionStrategy till 2020;––Approved JSC Gazprom Neft’sStrategic Development Concept till2020;AAmonitoring the budget preparation,control over financing third partyoperations and acting as surety forthird party liabilities:––Approved JSC Gazprom Neft’sbudget-plan for 2010;––Reviewed JSC Gazprom Neftbudget draft for 2010;––Approved a number of borrowingtransactions;––Reviewed current level of debt andJSC Gazprom Neft Group financeplans for 2010-2012;––Approved transactions, involvingacting as surety for the liabilitiesof the JSC Gazprom Neft Groupcompanies;AAthe corporate sphere:––Preliminary approved JSC GazpromNeft 2008 Annual Report that wasselected among 180 reports ofRussian and foreign companiesas the best product in the nonfinancialsector by the jury of the XIannual Contest of Annual Reports,organized by the ratings servicesExpert RA;––Recommended an external auditorcandidate for approval by theAnnual General Shareholders’Meeting for conducting the audit ofthe Company in compliance withthe Russian Accounting Standardsand generally accepted accountingstandards (US GAAP);––Determined the external Auditor’sfee for 2009;––Recommended allocation of theCompany’s 2008 profit, includingdividend payout, for the approval ofthe annual General Shareholders’Meeting;––Approved the schedule of theBoard of Directors for the secondhalf of 2009;––Reviewed and recommendedrevised JSC Gazprom NeftCorporate Conduct Codefor approval by the GeneralShareholders Meeting;––Updated JSC Gazprom Neft’sinformation policy;––Approved new Regulationsconcerning the Audit Committeeand the Human Resources andRemuneration Committee;––Due to the appearance of newmanagers in JSC Gazprom Neft’stop management, corrected thecomposition of the ManagementBoard of JSC Gazprom Neft;AAimproving the corporate structure:––As part of the JSC GazpromNeft Group’s distribution assetsconsolidation in the Central region,approved the transfer of polyfuelfilling stations from the ownershipof JSC Gazprom Neft into theownership of the Company’ssubsidiary;102

JSC GAZPROM NEFTANNUAL REPORT2009––Decided to purchase an interest inCJSC Cultural and Business centre“Okhta”, belonging to the city of St.Petersburg;––As part of corporate restructuring,made a number of decisionsconcerning participation/withdrawing participation of theCompany in other organizations;AAinvestment planning:––Reviewed the progress statusof the Medium-term Investmentprogramme for 2008-2010 “Associated Gas Recovery andUsage Efficiency Improvement”;AAthe social sphere:––Approved sponsor support to thesport clubs in the areas of presenceof JSC Gazprom Neft – FC Zenitand HC SKA, as part of the athleticseason.AAother:––Reviewed the initial activity reportof JSC Serbian Oil Industry (NaftnaIndustrija Serbije A.D., Novi Sad),a Company’s asset acquired in thebeginning of 2009;––Approved a number of related-partytransactions103

CORPORATEGOVERNANCEEnergy for lifeENERGY FOR PEOPLEMEMBERSHIP OF THEMANAGEMENT BOARDIn accordance with legislation theimplementation of goals, strategy and policyof the Company is assigned to the executivebodies: Management Board (collectiveexecutive body) and Director General (soleexecutive body) holding the position ofthe Chairman of the Management Boardacting based on the Charter of the companyand relevant corporate Provisions of JSCGazprom Neft.Since December 2006 Director Generalof the Company has been AlexanderValerievich Dyukov representing theexecutive management of the Companyon the Board of Directors.In 2009 the Management Board ofJSC Gazprom Neft held 38 meetingsdiscussing the following key issues:AAResults of JSC Gazprom Neftactivities in 2008 and the first half of2009;AAPlanning Company’s activities for oneyearperspective (2009);AAThe concept of implementation of theintegrated risk management system inthe Company;AAPersonnel policy of JSC GazpromNeft;AALaunching the internal control systemin the Company;AAStrategic planning of activities of JSCGazprom Neft;AAAnnual business-plan and budget ofthe Company;AAPlans and methods of financing thecurrent activities of the Company.The Company has an objective,effective and complex system of topexecutive remuneration ensuringa connection between the Company’sstrategic goals and the value of topexecutive remuneration. Individual goalsfor top executives are composed ofa balanced combination of indicators.The variable component of topexecutive remuneration is calculatedbased on achieving the goal for theseindicators. In general, the top executiveremuneration system complies with themarket remuneration principles andconditions.During 20009 the membership of theManagement Board of the Companychanged twice:AAIn June 2009 V.V.Baranov waselected member of the ManagementBoard and appointed Deputy DirectorGeneral for Administration;AAIn November 2009 based ona resolution of the Board of Directorsof the Company the number ofmembers of the Management Boardgrew from 9 to 10 people andV.V.Baryshnikov, Deputy DirectorGeneral for International BusinessDevelopment, joined the ManagementBoard.In 2009 no suits were brought againstDirector General or members of theManagement Board.As of December 31, 2009 the membersof the Management Board of theCompany were:Dyukov Alexander ValerievichChairman of the Management Board,Director GeneralBorn in 1967 in Leningrad, graduated fromthe Leningrad Order-of-Lenin ShipbuildingInstitute. In 2001 obtained an IMISP MBAdegree.Positions held over the past five years:2005 – 2006 – President of JSC SIBURHolding.2006 – Director General of SIBUR LLC.Since 2006 - Chairman of the Board ofDirectors, JSC SIBUR Holding.2006 – 2008 President of JSC Gazprom Neft.Since January 2008 – Chairman of theBoard of Directors, Director General of JSCGazprom Neft.104

JSC GAZPROM NEFTANNUAL REPORT2009Zilbermints Boris SemenovichDeputy Chairman of the ManagementBoard, Deputy Director General forExploration and ProductionBorn in 1967, graduated from the GeologyFaculty of Gubkin Russian State University ofOil and Gas In 1997 was awarded a MastersDegree in economics by Southern MethodistUniversity (Dallas, USA).Positions held over the past five years:2002 - 2008 - Regional Director of LUKOILOverseas Service Ltd. in Kazakhstan.Since February 2008 - Deputy DirectorGeneral for Exploration and Production,JSC Gazrpom Neft. In charge of reserves,geology, exploration and production.Cherner Anatoliy MoiseevichDeputy Chairman of the ManagementBoard, Deputy Director General forLogistics, Refining and DistributionBorn in 1954, graduated from Groznyy OilInstitute.Positions held over the past five years:Since 2006 - Vice-President of JSC GazpromNeft for Refining and Distribution.Since January 2008 - Deputy Chairmanof the Management Board, JSC GazpromNeft, Deputy Director General for Logistics,Refining and Distribution. In charge ofoil refining, logistics and sales of oil andpetroleum products.Yakolev Vadim VladislavovichDeputy Chairman of the ManagementBoard, Deputy Director General forEconomics and FinanceBorn in 1970, graduated from MoscowEngineering Physics Institute, Higher Schoolof Finance at the International University inMoscow. In 1999 qualified as a Memberof the Association of Chartered CertifiedAccountants (ACCA). In 2009 obtaineda diploma from the British Institute ofDirectors (ID).Positions held over the past five years:In 2005-2006 - Deputy Director General forEconomics and Finance, LLC SIBUR-RussianTyres.2006-2008 - Head of the Budget PlanningDepartment, JSC Gazprom Neft.Since January 2008 - Deputy Chairman ofthe Management Board, JSC Gazprom Neft,Deputy Director General for Economicsand Finance. In charge of economics andfinance.105

CORPORATEGOVERNANCEEnergy for lifeENERGY FOR PEOPLEBaranov Vitaly VitalyevichDeputy Chairman of the ManagementBoard, Deputy Director General forAdministrationPositions held over the past five years:Since 2003 employed with SIBUR Group firstas Advisor to President for General Matters,Head of President’s Administration. SinceMay 2006 - Vice-President for ManagerialMatters at SIBUR.Since March 2009 employed as DeputyDirector General for Managerial Matters atJSC Gazprom Neft. In June 2009 electedMember of the Management Board of JSCGazprom Neft.Baryshnikov Vladislav ValeryevichMember of the Management Board,Deputy Director General for InternationalBusiness DevelopmentBorn in 1965 graduated from the MilitaryKrasnoznamenny Institute.Positions held over the past five years:2002 - 2009 - Director of JSC Gazprom repoffice in China – the regional rep office in theAsia-Pacific Region.3-Class Counsellor of State of the RF.Since April 2009 – Deputy Director Generalfor International Business Development,since November 2009 – Member of theManagement Board of JSC Gazprom Neft.V.V.Baryshnikov supervises matters relatedto international business development,relations with international partners,entering new international markets, andimplementation of international projects.Dybal Alexander MikhailovichMember of the Management BoardDeputy Director General for CorporateCommunicationsBorn in 1966, graduated from LeningradElectrotechnical Institute.Positions held over the past five years:2005-2007 – Chairman of the Board ofDirectors of OJSC Gazprom-Media.2007-2008 – Vice-President of JSC GazpromNeft.Since January 2008 – Member of theManagement Board of JSC Gazprom Neft,Deputy Director General for CorporateCommunications.Responsible for information and regionalpolicy, interior corporate and marketingcommunications.106

JSC GAZPROM NEFTANNUAL REPORT2009Ilyukhina Elena AnatolievnaMember of the Management BoardDeputy Director General for Corporateand Legal MattersBorn in 1969, graduated from Ulyanov(Lenin) Saint Petersburg StateElectrotechnical University and from SaintPetersburg State University. In 2001 wasawarded a Ph.D. in economics.Positions held over the past five years:2001-2007 - Deputy Director General,FGUP Rublevo-Uspensky LOK (medicaland recreational complex) of the PropertyManagement Department of the President ofthe Russian Federation.Prior to employment with JSC Gazprom Neftheld a position of Executive Director of North-Western Investment Company LLC.Since January 2008 – Member of theManagement Board of JSC Gazprom Neft,Deputy Director General for Corporate andLegal Matters. Responsible for providinglegal and corporate support to thecompany’s activities.Kravchenko Kyrill AlbertovichMember of the Management Board,Deputy Director General for ForeignAssets ManagementBorn in 1976, graduated from theLomonosov Moscow State University,the Open British University, IMD BusinessSchool. Doctor of Science in Economics,Professor.Positions held over the past five years:2004 - 2007 – Administrative Director,JSC MHK EuroHim. Many times electedMember of the boards of directors of majorcompanies.2007 - 2008 - Vice-President of JSCGazprom Neft.2008 – 2009 – Deputy Chairman of theManagement Board of JSC Gazprom Neft,Deputy Director General for ManagerialMatters, JSC Gazprom.Since February 2009 - Director General ofthe Serbian oil company NIS.Since March 2009 – Deputy Director Generalfor Foreign Assets Management at JSCGazprom Neft.Antonov Igor KonstantinovichMember of the Management BoardDeputy Director General for SecurityBorn in 1951, graduated from the LeningradAeronautic Engineering Institute.Positions held over the past five years:2000-2005 – Director General of theSt.Petersburg State Unitary Enterprise“Informatika”.2005 – 2007 - Vice-President for Security atJSC “Sibneft”.Since 2007 – Deputy Director General forSecurity at JSC Gazprom Neft.107

CORPORATEGOVERNANCEEnergy for lifeENERGY FOR PEOPLEInformation on JSC Gazprom NeftShares Held by Members of the Boardof Directors and Management Board(as of December 31, 2009)Members of the Board of Directors andManagement Board, JSC Gazprom NeftNumber of CommonSharesShare in AuthorizedCapital, %Zilbermints Boris Semenovich 20 000 0,0004218253TOTAL AMOUNT OF REMUNERATION TO THEMEMBERS OF THE BOARD OF DIRECTORS ANDMANAGEMENT BOARDIn 2009 the members of the Boardof Directors were not paid anyremuneration (no resolution was madeon remuneration to be paid to themembers of the Board of Directors atyear end of 2008 at the annual GeneralMeeting of the Shareholders held onJune 22, 2009).The total amount of payments to themembers of the Management Board in2009 was 406,022 mln rub. Paymentsincluded salary for the reporting period,taxes assessed on salary and othermandatory payments to the relevantbudgets and extra-budgetary funds,payment for annual paid leave for workin the reporting period, treatment andmedical expenses.No additional remuneration is paid tothe members of the Management Boardfor work in management bodies of JSCGazprom Neft or its affiliated entities.108


11ENVIRONMENT,ENERGY SAVING,INNOVATION

11ENVIRONMENT, ENERGY SAVING,INNOVATIONEnergy for lifeENERGY FOR PEOPLEENVIRONMENT,ENERGY SAVING,INNOVATIONINTRODUCTION OF AN INTEGRATEDMANAGEMENT SYSTEMThe corporate “Health, Safety andEnvironmental Policy” lowers risksof injuries, occupational diseases,accidents at work, and environmentalproblems through the implementation ofleading innovations in areas throughout“Gazprom Neft”, including personalliability for personal safety and safety ofothers.The Company has developeda program for implementing therequirements of the Policy andIntegrated Management System in thearea health, safety and environment.The Company began to realize thisprogram in 2008, the plan for thatyear was to become more disciplinedin registering all incidents, createa statistical database which wouldcomply with international procedures.This database enables the developmentof adequate measures in the area ofhealth, safety and environment, dealwith system problems and the majorcauses of these incidents. In 2009,this was used as a basis for analyzingcauses and dynamics of incidents. Alsoa set of regulations was developed,which enabled the adoption of a unifiedapproach to solving issues in this areathroughout the company, facilitates fulland immediate exchange of informationbetween industries. Therefore a newstrong foundation for the Company’snew type of activity in the area was laid.This Policy was adopted by all daughterjoint-stock companies. In order torealize this Policy, the Company istaking steps to implement the integratedmanagement system in areas of health,safety and environmental protection(hereinafter HSE). The stages ofrealizing the integrated managementsystem in the area of HSE weredeveloped and approved by the Boardof “Gazprom Neft”. The company’smanagement system in the area ofHSE is based on the best internationalmodels and mechanisms, and seeks toconstantly improve.DECREASING NUMBER OF INJURIESAMONG EMPLOYEESAs a result of implementing the first andsecond stages of realizing the Policythe Company gathered and analyzedstatistical information regarding injuresat work, and developed top prioritystandards. Based on the gatheredincident data, special correctionalmeasures were developed. We beganto implement these measures, whichresulted in a significantly lower numberof deaths and stopped the growingnumber of accidents leading totemporary inability to work.In 2009 the incident transparency indexwas 20 times higher, compared to 2007,and is now the same as that of leadinginternational oil companies.STAGE 1STAGE 2STAGE 3STAGE 4STAGE 5TRANSPARENCYSTATISTICS,INCIDENTS DATABASEREGULATIONSINVESTIGATIONINDUSTRIAL MONITORINGAUDITINGMONITORINGIMPLEMENTATION OFCORPORATE STANDARDSRISK ASSESSMENTPLANNINGCORRECTIONALMEASURESPROJECTS, PROGRAMS2008 2009 2010 2011...IMPLEMENTATIONMONITORINGANALYSISCORRECTION112

JSC GAZPROM NEFTANNUAL REPORT2009FAR30,2312,39SOURCE:COMPANYDATA2,532007 2008 2009In 2009 the fatal accident rate (FAR)went down, lost injury time frequencyrate (LTIFR) remained at last year’slevel, which reflects a very positivedynamic, considering also the fact thatthe Company is now more disciplined inregistering incidents.As a result of implementing a standardfor regulating the investigation ofincidents, the chances of using a formalapproach are now minimal, and theemphasis is now on identificationof major causes, rather than fingerpointing.To prevent identical incidents,the subsidiaries and affiliates exchangeinformation about incidents and thelessons learned from them. Theprocess of recording minor incidentsand prerequisites thereof has beenestablished, thus enabling the Companyto take preventive measures to avoidmajor incidents rather than deal withtheir consequences.LTIFR159,0158,5158,0157,5157,0156,5SOURCE:COMPANYDATA2007 2008 2009INCREASING COMPETENCE OFEMPLOYEES IN THE AREA OF HSEIn order to increase the employees’competence and efficiency of theirparticipation in the HSE and CP(Health, Safety, Environment and CivilProtection) Management System, theCompany adopted the M-16.03.01-01 manual “Training Guidelines forEmployees in the Area of HSE and CP in2008-2010”.The Training Program that theseGuidelines put forward was developedin order to provide preventive measuresto decrease the number of incidents,work related injuries and occupationaldiseases. It stipulates general provisionsfor HSE and CP training in additionto training procedures required bylegislation. All Company employees,including executive management, haveto undergo this training.122 coaches inside the Companyhad been trained by the time thisreport came out: 58 driving/roadsafety coaches and 64 HSE and CPcoaches. These coaches trained14050 employees of subsidiaries andaffiliates, 7013 of them received trainingin defensive driving, and 7037 – in HSEand CP.PROVIDING EMPLOYEES WITHMODERN PERSONAL PROTECTIVEEQUIPMENT“Gazprom Neft” consistently works toidentify industrial hazards by monitoringwork stations. Employees are suppliedwith personal protective equipment.They are trained in the area of healthand safety at their work place. Evenin difficult economic conditions theCompany has not cut its safety budget.Employees’ health and safety is thearea in which the Company’s leadershipand trade unions work togetherin a constructive manner. Mutualobligations are stipulated by labourcontracts.Since 2009 the Company’s supplydepartment has been purchasing allpersonal protective equipment (PPE),in compliance with the TechnicalConditions and corporate identityof “Gazprom Neft”. Budgeted PPEexpenses for 2010 are 360 millionrubles. The catalogue of authorized PPEis constantly updated and improved.As of today, average cost of PPE forone employee is 12.5 thousand rubles.The company conducts regular trainingteaching employees how to select, usePPE and take care of it.113

ENVIRONMENT, ENERGY SAVING,INNOVATIONEnergy for lifeENERGY FOR PEOPLEThe main goal of scientific research is to accelerate thedevelopment of technical progress achievements, to implement newtools and technologies at a level necessary for dynamic productiondevelopment.INCREASING DRIVING SAFETYIn order to promote safe driving, theCompany is implementing a procedurefor safe driving of the Company’s motorvehicles.The standard requirements havestricter regulations for registeringroad accidents. At this point all roadaccidents are to be registered, includingminor ones and the ones where a thirdparty is at fault. The Company conductsinternal investigation of road accidents.In order to have ongoing education ofdrivers, internal coaches have beentrained, who are now in charge ofimproving driving in the Company.A simulation machine has beenpurchased in order to provide driverswith opportunities to practice theirskills and learn how to act in extremeand emergency situations. Afterimplementing this program, the numberof people injured in road accidents hasgone down by 50% in 2009.MANAGING ENVIRONMENTAL SAFETYOil companies have an inevitableanthropogenic impact on theenvironment, including atmosphericemissions, utilization of water andland resources and their pollutionand contamination. The Company’sEnvironmental Strategy aims tominimize this impact, to balance theutilization of natural resources and dealwith damages inflicted by previousgenerations. The Company strives tocomply with all the requirements ofEnvironmental Law, fulfill its licenseobligations, and compensate forany damages to the environment.The Company puts large emphasison making environmentally friendlyproducts.The amount of payments for exceedingexisting environmental impact standardsat the major enterprises of GazpromNeft in 2009 totaled 89 mln rub., whichis a 58% decrease compared to2008. A total of 2 mln rub. was paid inpenalties for violation of environmentallegislation. In 2009 measures weretaken to correct the violations found.The Company plans to further developthe procedures for investigation andanalysis of incidents related to violationof legislation and introduce correctivemeasures which will enable it tominimize the probability of such eventsoccurring again.ENVIRONMENTAL EXPENDITUREThe Company’s current and capitalexpenditure on environmentalmeasures, including the use oftechnologies minimizing the adverseenvironmental impact significantlyexceed payments made by theCompany for environmentalcontamination. Current costs alsoinclude expenses on the developmentof regulatory documents, environmentalmonitoring, industrial environmentalcontrol, improving environmentalcompetence and environmental trainingof specialists.In 2009, environmental expenditureincreased. It included financingenvironmental measures to protectwater from contamination (liquidatingblowing wells), modernizing thetreatment bank for process condensate,installing KT-1/1 at the Omsk Refinery,reconstruction of purification facilities,conservation (recultivation) of wastetank.114

ENVIRONMENT, ENERGY SAVING,INNOVATIONEnergy for lifeENERGY FOR PEOPLEENVIRONMENTAL COSTS,MLN RUBTOTAL HARMFUL ATMOSPHERICEMISSIONS, Th. TWATER CONSUMPTION(WATER USED TOTAL) MLN M 3SOURCE:COMPANYDATASOURCE:COMPANYDATASOURCE:COMPANYDATA250020001500100050002007 2008 20091901801701601501402007 2008 20091301109070502007 2008 2009ATMOSPHERIC EMISSIONSThe Company’s enterprises constantlywork on reducing harmful atmosphericemissions. In 2007-2009 total emissionsat Gazprom Neft have increased due toan increased scope of operations.The bulk of the Company’s emissionsoccur in the oil and gas productionsector, whereas in the oil refiningsector they are on a decline. Loweremissions in refining can be attributedto environmental measures: renovationsof refining capacities, replacement ofburner units, equipping reservoirs withmodern emission lowering devices,introduction of an installation ensuringprecise and leak proof oil loading.PRODUCTION OFENVIRONMENTALLY-FRIENDLY FUELThe oil refining sector of the Companyworks consistently on improving theenvironmental friendliness of its fuels.The Omsk Refinery has come up witha development program designed toensure a complete transition to theproduction of environmentally-friendlyfuels by 2012. By the end of 2009 theplant completed modernization of theL-24/6 diesel fuel hydrotreater. Afterrestoration of the split-flow system, theinstallation can upgrade both summerand winter diesel fuel to Euro-3, 4, anddo it simultaneously. Construction ofan isomerization unit for light naphtha“Isomalk 2” plays an important role inthe further development of GazpromNeft. The main objective of this new unitis to increase production of gasolinesof Euro 4 and Euro 5 standards.Implementation of the isomerizationunit will enable processing of oil atdeeper levels and increase productionof gasolines. Isomerizate which“Isomalk-2” will produce is consideredthe most valuable component for highoctane fuel, free from olefine andaromatic hydrocarbons.UTILIZATION OF WATER RESOURCESThe Company’s enterprises seek toutilize water resources with maximumefficiency by injecting reservoir watersback into the wells to maintain thereservoir pressure during oil productionand by setting closed cooling cyclesin refining. In 2009 water consumptionfor the Company’s own needs was upby 4.4% compared to 2008 due to anincrease in oil production volumes andinjecting reservoir waters back into thewells in order to maintain the reservoirpressure.Water consumption grew slower thanthe Company’s operations. It was alsoslower than the last year’s growth rate(in 2008 water consumption for theCompany’s own needs was up by 15%,compared to 2007).WASTE TREATMENTThe Company strives to reduce wasteaccumulation and improve its wastetreatment practices. The largest shareof accumulated waste is representedby the drilling waste of hazard classIV (low hazard). In total, IV and Vclass (low hazard and essentiallynon-hazardous) waste accounts forover 90%. Drilling waste accumulatesduring the operations of oil producingand oil service (overall share of theseenterprises is over 90%). The mainmethod of drilling waste treatmentremains the placing of such waste indesignated storage areas. In 2009, 135sludge pits have been recultivated. Asa result of these measures, the risk ofabove-limit payments for prolongedstorage of drilling waste in the amountover 1 bln rubles was avoided.All industrial sectors of the Companywork on improving their waste treatmenttechnologies. The Omsk Refinery,for example, processes 100% ofaccumulated oils independently.New efficient technologies are beingintroduced in petroleum productdistribution, these include a mobiletreatment complex, designed to cleanthe inside of tanks from solid deposits.Gazprom Neft has also been successfulin implementing the pre-drillingprogram, when drilling of developmenttest wells with significant displacementof whole targets is done from alreadymade pads. So the geological structureand mining potential of the deposit areclarified in the zone of developmenttest pads without prior back filling. Thisenables the Company to spare the landwhere areal limits of soil sand havenot been confirmed. This technology116

JSC GAZPROM NEFTANNUAL REPORT2009CONTAMINATED LANDREMEDIATION, HASOURCE:COMPANYDATA1801701761601501401301841482008 2009cancels the need to set up additionalsludge pits, drilling waste is processedat the pad, which means that sludgedoes not need to be transportedelsewhere. The consolidated footingbraces pollutants and lowers therisk of them migrating elsewhere toa minimum. This solid drilling mix couldbe later used as a construction coatingfor firming up roads and laying down thebody of the pad.LAND CONTAMINATION CONTROLAND REMEDIATIONThe Company takes measures todecontaminate land and removeunauthorized waste storage spots. In2009, 219 ha of contaminated land wereremediated. To reduce the number ofareas with disturbed land the Companyplans to continue implementing pitlessdrilling.The Company’s enterprises useadvanced chemical biological agentsfor land remediation (like Fare Zyme),designed to destroy oil. They are basedon mineral, rather than biologicalcomponents, feeding the naturalflorula and facilitating land restoration.Biological remediation also involvesplanting area-specific grass andperennials.UTILIZATION OF ASSOCIATED GASIn the production sector a lot of workis being done on increasing the levelof associated gas utilization. The rateof associated gas (hereinafter – AG)utilization across the Company’s majorproduction enterprises remains at themedium level – 48.1% of recovered gaswas used in 2009 (in the tables belowyou can see the volumes of receivedand utilized AG in 2006-2009).Increasing the AG utilization rate isa priority set by the state, and in orderto contribute to reaching this goal, in2008 the Company adopted a MediumtermInvestment program for 2008-2010on AG utilization and more efficient use(hereinafter MTIP). Based on the MTIPGazprom Neft has now developed anupdated Gas program. Actual financingof the MTIP projects in 2009 was 105%of what was planned. Implementationof the Gas program will allow theCompany to bring up the AG utilizationrate to 95% by 2012 at Gazprom Neftproduction assets.Automated AG control system will makemanagement in this area more efficient.Such system was designed in 2009.It will allow to quickly receive preciseinformation on production and usageof AG.117

ENVIRONMENT, ENERGY SAVING,INNOVATIONEnergy for lifeENERGY FOR PEOPLEASSOCIATED GAS resources of Gazprom Neft SUBSIDIARIES, mlncubic metersSubsidiary 2007 2008 2009LSC Gazprom Neft-Noyabrskneftegaz,including Muravlenkovskneft 4247,9 3936,8 3543,2Gazprom Neft-Khantos LLC 515,9 477,0 543,5Gazprom Neft-Vostok LLC 121,7 155,0 195,7ASSOCIATED GAS utilization rate at GazpromNeft SUBSIDIARIES, %Subsidiary 2007 2008 2009LSC Gazprom Neft-Noyabrskneftegaz,including Muravlenkovskneft 39,9 52,6 55,3Gazprom Neft-Khantos LLC 6,0 8,4 13,3Gazprom Neft-Vostok LLC 16,0 18,0 14,7Source: Company DataENERGYRussian oil companies realizeda long time ago that it is a lot better toconstruct your own energy generatorsin the field. Developing local energysystems allows companies to cutenergy expenses and therefore lowerthe prime cost of oil production.In 2006, Gazprom Neft adopteda special program “Utilization andHigher Efficiency of Associated Gas”,which demonstrates that this is a priorityfor the Company. Under this programthe Company constructs so calledinternal generators (IG). At this point theoverall electrical power of Gazprom NeftOGs is 51 MW, the plan is to bring it upto 220 MW by 2013. In December 2009,the first unit (48 MW) of the gas-turbineelectrical plant (GTEP) at the Yuzhno-Priobskoye field was launched, this fieldis developed by Gazprom Neft-Khantos.The second unit (48 MW) of the Yuzhno-Priobskaya GTEP is being constructed.Yuzhno-Priobskaya GTEP is a “mediumgeneration” object. Specialists set thepower range for such objects at 100-500 MW (“small” generation is up to 100MW). The Priobskoye field is one of thekey assets of Gazprom Neft upstreamblock, it is the fastest growing asset. In2009, oil production here amounted to27% of the Company’s production.Such emphasis on energy projects isdue to the Company’s internal demand,regardless the energy system. Thereare also potential external prospectsfor developing this sector. The Yuzhno-Priobskoye field is only 70 km awayfrom the fast growing city of Khanti-Mansiysk, and Gazprom Neft’s GTEPmay become the energy sources for thecity.The Company’s overall energyconsumption dropped from 5,536 mlnkW/h in 2008 to 5,484 mln kW/h in 2009,so it decreased by 53 mln kW/h (1%)due to decreasing volumes of liquidproduction by 1.9% and oil — by 2.8%.The Company’s thermal energyconsumption went up from 314 th. Gcalin 2008 to 334 th. Gcal in 2009.Specific power consumption at JSEGazprom Neft has increased due to theincrease in operations, mostly resultingfrom energy consumption in thereservoir pressure maintenance systemat Gazprom-Khantos LLC.Gazprom Neft works on ensuringefficient use of energy. The Companyintroduces energy consumption controland reduction measures, developsand implements efficient energy useprograms.Implementation of the energy saving inoil production program saved 34 mlnrubles in 2006, 152 mln rubles — in2007, 880 mln rubles — in 2008, and1071 mln rubles — in 2009.118

JSC GAZPROM NEFTANNUAL REPORT2009INNOVATIVE ACTIVITIESThe main objective in the area ofscience and technology is acceleratedimplementing of new technologies,introducing new technical equipmentto ensure dynamic development ofproduction.The priority science and technologyaspects for Gazprom Neft are thefollowing:AAUsing geographic methods todiscover potential gas and oildeposits;AAConducting production log testsin pioneer, exploration, anddevelopment wells in order to dissectthe geological cross-section, findpay horizons, assess technicalconditions of the well and monitorfield development;AAConducting research, experimentaland methodological, pilot-plan works,to increase geological and economicefficiency of the geophysicalresearch, improving its methods andtechniques;AADevelopment, testing andimplementation of new technicalequipment and technologies forstudying the subsurface, naturalcompletion, lowering expenses perton of produced oil;AACreating science and technologyproducts: design and technologicaldocuments, plans for developingfields and producing oil, technicaleconomicproposals and justifications(TEP, TEJ), including geologicaland hydrodynamic models, otherdocuments needed for developingnew fields of hydrocarbons;AAFurther improvement of designmethods and control over fielddevelopment at later stages,creating permanent geological andmathematical models.EXPLORATION AND PRODUCTIONTECHNOLOGIESinnovations. This concept defines themain goals, objectives and principlesof the Company’s policy on managingprotection of intellectual property.In 2009, Gazprom Neft-NTC LLC spentthe following amounts on science andtechnology:AAgeology and exploration — 698.7 mlnrub. (179% increase compared to2008);AAdesign and control over development— 812.9 mln rub. (184% increase);AAplanning and surveying — 109.5 mlnrub.The main purpose of innovations inexploration is developing efficientsurvey complexes, improving reservesestimation methods, lowering geologicalrisks and reaching precision inidentifying exploration targets.In 2009, JSC Gazprom Neft conductedgeotechnical operations (GTO) at 1,088wells, this resulting in extra productionof 4,705.8 th. tons of oil.One of the most important results of theCompany’s technology improvementis extensive use of oil productionintensification and enhanced oilrecovery (EOR) methods. In 2009 totalproduction from the EOR operationsconducted in the reporting year (withoutthe carryover effect) was 1.13 mln tonsor 2.3% of the Company’s total output.These methods allow Gazprom Neftto substantially increase recoverablereserves and bring into productionlow quality reserves (high viscosity, inimpermeable reservoirs).The Company uses physical, chemical,hydrodynamic and thermal recoverystimulation methods. The bulk ofadditional production was attributableto physical methods, first and foremost,to hydraulic fracturing (HF) — 378 th.t. Hydrodynamic and chemical fielddevelopment methods that were used indifficult geological conditions to achievefuller reserve recovery yielded additionaloil production of 119.4 th. tons and158.1 th. tons respectively. 656 newwells were launched in 2009, 172 HFwere created (without HF at the newwells), 45 wells were sidetracked and 47deepened into lower formations.The key factor for innovationaldevelopment of any industry is anability to create and use new technicalsolutions, technologies and techniques.Application of the latest technologiesbecomes the most important criteria fora company’s competitive abilities:AAIn 2009 Gazprom Neft continued toapply latest technologies in drillingand casingAAA dimensional visualization centeropened up at the Gazprom NeftResearch and Technology Centerin St.-Petersburg. It uses the latesttechnologies in the area of geologicaland hydrodynamic simulation. Thegoal of the new division is to designtrajectories for new wells, createa 3D seismological simulation inorder to enhance field development.The visualization center will improvethe joint efforts of the researchers,geoscientists, geologists, and drillingspecialists working at the center. It willalso help to analyze the structure andcharacteristics of the fields in moredetail.AAGazprom Neft-Khantos implementeda new technology “dual completionarrangement” (DC), which providessolutions to several problems: controlover field development, better qualityof reserve recovery, shortens thewells’ down time: now specialists getdata on the flow from each reservoironline in real time.AAUpon Gazprom Neft’s request,specialists from the Oil and GasResearch Center in Sarov are workingon developing the Iskender Programand Industrial Complex, which isan instrument for hydrocarbonsBy the end of 2007 the Company’sanalytical department was turnedinto Gazprom Neft-NTC LLC, anindependent corporate scienceproductioncenter in the area ofgeological exploration, design,control and oil and gas production. InSeptember 2009, Gazprom Neft-NTCLLC adopted a Concept for protectingthe Company’s intellectual property andGeoteLOGICAL AND ENGINEERING Operations in 2007–20092007 2008 2009Number of wells 1 003 1 194 1 088Extra production, th. t 4 919,3 4 649,3 4 705,8Source: Company Data119

ENVIRONMENT, ENERGY SAVING,INNOVATIONEnergy for lifeENERGY FOR PEOPLEreservoirs studies through computernumerical calculations. Iskenderenables the performing of suchcalculations as determination of theperfect well and downhole equipmentoperations, more precise estimationof deposit reserves in the gross.In addition, utilizing Iskender willenable the completion of a numberof application tasks: drawing upfeasibility studies and draft fielddevelopment projects, analyzingfield development risks, forecastingproduction performance, etc.AAGazprom Neft-Noyabrskneftegazlaunched a new device for heatingthe well annular space at theVyngapurovskoye field. The newheaters for the valve of a well mouthprevent freezing of the valve on theXmas tree and failure to operate. Italso enables the reduction of directoil losses by 90% and requires fewerpersonnel and equipment.OIL REFINING TECHNOLOGIES2009 saw this performance of researchand development (R&D) in oil refining,commissioned by Gazprom Neft, fora total of 18.3 mln rub. The main areasof R&D in 2009 were related to safetyand environmental protection; as wellas product quality maintenance andproduction technologies, efficientinventory consumption technologies,including those used to inspectinstallations and issue operationoptimization recommendations.The Company pays special attention tomodernization and new construction forthe purpose of meeting the technicalregulations “On Requirements for Motorand Aviation Gasoline, Diesel andMarine Fuel, Jet Fuel and Residual FuelOil”, which came into force in 2009.To meet the legislative requirementsa motor fuel quality upgrade programwas developed for the OJSCGazprom Neft-Omsk Refinery and theOJSC Moscow Oil Refinery. Underthis program in 2009 the Companycontinued to work on the followingprojects:AAOJSC Gazprom Neft-Omsk Refinery— implementation of isomerization,diesel fuel hydrotreatment andcatalytic cracking gasolinehydrotreatment, L-24/9 and L-24/6hydrotreater reconstructionAAOJSC Moscow Refinery — selectionof licensors and development ofbasic projects for implementingisomerization, catalytic crackinggasoline hydrotreatment, choosingcatalytic system for L-24/2000 dieselfuel hydrotreater reconstruction.120


12SOCIAL POLICY

12SOCIAL POLICYEnergy for lifeENERGY FOR PEOPLESOCIAL POLICYPersonnel,Occupational Safetyand HealthGazprom Neft invests in personnel,supporting initiatives and innovationsdesigned to enhance operation andmanagement efficiency. The Companyacts as a responsible employermaintaining equal relations with theemployees, ensuring decent wages,career opportunities and comfortableworking conditions.PERSONNEL MANAGEMENT POLICYAND STANDARDSIn 2009 Gazprom Neft developedand approved a uniform personnelmanagement strategy, identified keypriorities and areas in dealing withemployees.To design uniform principles and wagesystem, implementation of the gradingsystem continues in subsidiaries andassociates of the Company (SAC). Inall SACs top management positions(Director General and their Deputies)have been assessed and assignedgrades.In 2009 the efficiency control systemwas developed further to establishcorrelation between the employeeswage and assessment results of theirperformance based on KPIs.In order to design methodologicalapproaches to a uniform wage systemand social benefit policy, in 2009the Company and SACs continueddeveloping the Company standardsfor personnel incentives and socialwelfare, including “Procedure forPosition Assessment and Its Grading”,“Procedure for Setting CompensationPackages and Individual Grades forCompany and SACs’ Employees”,“Procedure for Paying Bonuses toEmployees from the Executive’sReserves”, «Procedure for VoluntaryMedical Insurance”, “Procedure forCalculating, Depositing and PayingBonuses to SACs’ Employees forTheir Contribution into ImplementingCorporate Projects”, “Procedure forImplementing the Corporate MortgageProgram”, “Specific Features of CivilLaw Contracts with Individuals, Controland Payment Procedures”; improvedthe version of the Standard “Procedurefor Paying Quarterly Bonuses toEmployees of Subsidiaries andAssociates of the Company”.In 2009 the Company started todevelop a uniform concept for grantingsocial benefits in the GazpromNeft group adjusted to the marketpractice. The Company has analyzedexisting social benefits in SACsunder effective collective contractsand other local statutory regulations,as well as analyzed actual costsunder the mentioned articles andsearched for ways to optimize thesocial benefit package maintainingits competitiveness in terms of itscomponents. A template has beendesigned for the uniform collectivecontract that will be recommended foruse in all SACs.AVERAGE NUMBER OF PERSONNEL IN 2005–2009, PEOPLEIn 2009 the grading system wasfully introduced in 9 SACs, includingGazprom Neft-Khantos, LLC, JSC OmskOil Refinery (Gazprom Neft-ONPZ),CJSC Gazprom Neft-Kuzbass, JSCGazprom Neft – Omsk, Gazprom Neft– Lubricants LLC, Gazprom Neft– Nefteservice LLC, Gazprom Neft –NTC LLC, LLC Gazprom Neft – Aero,Complex Galernaya 5 LLC.510005000049000480004700046000450004400044 64045 77547 68648 339 50 1532005 200620072008 2009SOURCE:COMPANYDATA124

JSC GAZPROM NEFTANNUAL REPORT2009Distribution of Gazprom NeftPersonnel by Region in 2009CHANGES IN PERSONNEL COSTSIN 2005–2009 (ТHOU. RUB)Average Employee Wages atthe Company in 2005–2009, rub.2009, %SOURCE:COMPANYDATA30 000 00025 000 00020 000 00015 000 00010 000 000SOURCE:COMPANYDATA5 000 0002005 2006 2007 2008 2009SOURCE:COMPANYDATA4500040000350003000025000200001500010000500002005 2006 2007 2008 2009Moscow & Moscow RegionSt. Petersburg & Leningrad RegionOmsk RegionKhanty-Mansi Autonomous DistrictYamal-Nenets Autonomous DistrictTyumen RegionKemerovo RegionYekaterinburg & Sverdlovsk RegionNovosibirsk RegionKyrgyzstanYaroslavl RegionOther regionsOther regions are those with the averageheadcount less than 100, including:– Kazakhstan – 88 employees;– Tajikistan – 70 employees;– Kaluga Region – 51 employees;– Murmansk Region – 35 employees;– Sakhalin Region, Bryansk Region, ZabaikalskRegion – 4 employees per region.As of today Gazprom Neft enterprisesemploy over 50 thousand peopleworking in more than 20 regions ofthe Russian Federation as well asin Kyrgyzia, Kazakhstan, Tajikistan,and Belorussia. The largest part ofGazprom Neft personnel – abouthalf of the Company total headcount(46%) – is concentrated in the Yamal-Nenets Autonomous District. Theshare of Omsk and the Omsk Regionis 17% of Company employees(47% of them employed at the OmskRefinery). Moscow and the MoscowRegion account for about 11% of theemployees, roughly 21% of them workat the Head Office.PERSONNEL COSTS AND WAGEGROWTHThe Company ensures competitivewages and decent social benefits to itsemployees in accord with the markettrends. Personnel costs in 2009 showeda 13,5% increase compared to the yearbefore and totaled 28.2 bn rub.The 2009 average wage amounted to44 227 rubles that is 10.4% higher thanthe year before. Overall average wageincrease amounts to 78% for the period2005-2009.A perfect employee incentive system,providing for effective work by thepersonnel, enables the Companyto achieve its business objectives.Therefore, Gazprom Neft continues todevelop and introduce a comprehensiveincentive system based on competitivewages, performance bonuses andintangible elements.SOCIAL PACKAGECompany employees, in addition tostatutory benefits, are provided witha social package, which includesvoluntary medical insurance, accidentinsurance, free meals, material aidfor different occasions, paymentfor employee trips as well as leaveallowance and additional allowances,e.g. childcare allowance, deathallowance, etc.In 2009 social package paymentsreduced by 3% compared to theprevious year due to optimization of thesocial benefits in a number of SACs (onaverage, 31 th. rub. per employee spentover the year in comparison to 32 th.rub. in 2008). During this period sociallysignificant benefits were preservedfor the personnel (voluntary medicalinsurance, accident insurance, freemeals, etc.)COOPERATION WITH EDUCATIONALINSTITUTIONS AND RECRUITMENT OFYOUNG SPECIALISTSIn 2009 Gazprom Neft continuedits cooperation with three highereducational institutions – the Company’sstrategic partners, i.e. G.V. PlekhanovSaint-Petersburg State Mining Institute,Gubkin Russian State University of Oiland Gas, M.V. Lomonosov MoscowState University. The Company alsoconcluded a cooperation agreementwith Moscow Geological ExplorationCollege.In 2009 the Company continued itsinitiatives as part of cooperation withthe higher educational institutions.Jointly with G.V. Plekhanov Saint-Petersburg State Mining Institute theCompany organized Olympiads forschool graduates in the cities where theCompany operates (Noyabrsk, Omsk)to select winners and enroll them toin the higher educational institution.The Company arranged internshipfor students of the partner highereducational institutions at the Companyenterprises. The total number of internswas about 530 persons. Gazprom NeftNTC, LLC and Gubkin Russian StateUniversity of Oil and Gas made anagreement on starting a basic subdepartment in the university.125

SOCIAL POLICYEnergy for lifeENERGY FOR PEOPLEThe Company seeks to become oneof the industry leaders in efficiencyand is interested in the recruitment oftalented specialists. The key areas ofpersonnel development in the Companyinclude working with young specialists,building a personnel reserve, creatinga comprehensive continuing trainingsystem which would embrace allcategories of personnel and all levels ofmanagement.The main purpose of cooperation – isto recruit talented graduates to work forthe Company. In 2009 the Companyunits recruited 305 young specialists.EMPLOYEE PROFESSIONALDEVELOPMENTGazprom Neft is traditionally committedto the professional development of itspersonnel. In 2009 1290 employeesreceived training. The training rateremains high (over 1.1) in the last threeyears. In 2009 training and professionaldevelopment costs totaled 105.550 mlnrub.Gazprom Neft’s professional trainingsystem is designed to comply withthe requirements of the Company’sbusiness and its corporate culture.Gazprom Neft’s training anddevelopment programs include threemain sections: professional trainingprograms designed to provideknowledge and skills for particularspecialties and functions, corporateand management competencedevelopment programs, and businessawareness development programs.Personnel training and developmentprograms comprise additional corporatemandatory training and developmentof the personnel reserve and youngspecialists.In 2009 642 persons attended corporatemanagement competence developmenttrainings for Company personnel, whichis five times more than in the previousperiod.In 2009 the Company introducedmodular programs for thecomprehensive development ofmanagement potential of GazpromNeft personnel, managers of variouslevels, “Business Leaders”, “SuccessVector”, “Growth Managers”, and“Growth Managers +”. The programswere developed based on an analysisof the Company business needs. Theprograms are designed to train 250-280persons annually in total.In 2009 the Company launched a largeproject for proficiency developmentof its personnel. It started designinga professional competence systemfor specific activities followed byassessment and focus on aspects ofthe personnel target development.For personnel the key career planningtool is Individual Development Plans,which are prepared taking into accountthe requirements for a specific position,assessment results of employeedevelopment capabilities, and alsoopinions of line managers and mentors.SOCIAL RESPONSIBILITYThe Company approved a “CharityPolicy” setting out the principles andobjectives of Gazprom Neft’s charitableactivities, major priorities and rules ofspecific projects.JSC Gazprom Neft’s key charitablepriorities are determined by thefollowing programs:AASupport of children and youthAARegional cooperationAASupport of sports.Total charitable expenses, includingthose under socio-economicagreements with the regions of theCompany’s operation, were over 800mln rub. in the reporting period.The activities of the Charity Commissionset up by JSC Gazprom Neft in 2008allowed the Company to systematizeits charitable activities and to workon priority areas. It helped reducetotal expenses (financing of sportsorganizations, indirect supportthrough charitable organizations,foundations and associations wasscaled down), while at the same timeincreased the funding of social aidprograms for orphanages, schools andboarding schools, cultural institutions,administrations of the districts, cities andregions where the Company operates.Over several years the Company hasbeen actively involved in financingprofessional and amateur sportsand is one of the largest sponsors ofprofessional sports among Russian oilcompanies: Gazprom Neft supportsZenit Football Club (Saint-Petersburg),Avangard Hockey Club (Omsk) and SKAHockey Club (Saint-Petersburg).In the future the Company will continueits commitment to strategic priorities,first and foremost, to supporting thehealth and development of childrenand youth and, when determiningthe charitable targets and the scopeof charitable programmes, will do itsutmost to take into account the opinionsand expectations of all interestedparties.These priorities apply to both the socioeconomicagreements with the regionsof operation and to specific charitableprograms and projects.Thus, in 2008 in the settlement of Purpe,construction of a sports-and-fitnesscenter was undertaken (acceptanceof the facilities is scheduled for 2010),in 2009 renovation of the stadium wascompleted in Muravlenko town (Yamal-Nenets Autonomous District).In Noyabrsk town JSC Gazprom Neft-Noyabrskneftegaz continues to supportsuch children’s sports events like theMini-Football Town Championship forNoyabrsk school children, MotorcrossCompetition for the Yamal-NenetsAutonomous District Cup, and Mini-Football Tournament.In 2009, supported by JSCGazprom Neft – Vostok school childrenfrom Kargasoksky and ParabelskyDistricts of the Tomsk Region, and fromthe Tarsky District of the Omsk Regionspent their holidays at children’s holidaycenters.OJSC Gazprom Neft-Omsk Refineryis implementing a special-purposeprogram: “To Provide Assistanceto Educational Institutions in theBolsherechie Municipal District”.It has become a tradition to holdthe Interregional Gazprom Neft CupChildren’s Ice Hockey Tournament.In 2007 the first tournament tookplace in Omsk supported by theOmsk Region government boastingover 100 participants from Tyumen,Omsk, Tomsk, Noyabrsk, Salekhardand Khanty-Mansiisk. Arranging the126

JSC GAZPROM NEFTANNUAL REPORT2009tournament, its sponsors pursued theobjective to attract as many youngpeople as possible to play sports,to enhance popularity of hockey,and to prepare teams for All-Russiacompetitions.The tournament fully met expectationsof its sponsors, participants andspectators. The idea was approvedto hold this tournament annually in thecities where the Company operates.In 2008-2009 the hockey tournamentstook place in Khanty-Mansiisk attractingover 400 participants.In 2010 it is planned to hold the 4thInterregional Gazprom Neft CupChildren’s Ice Hockey Tournament inOmsk.Thanks to the Company finance, inNoyabrsk construction of the sportsand-fitnesscenter will commence andprovide a pool and an all-purposestadium with 400 seat terraces,calisthenics hall and gyms.The Company shall take part infinancing the construction of theYouth Center in Tarko-Sale town of thePurovsky District and a multi-functionalgym in Muravlenko town.It has become a tradition to allocatefunds under agreements to createconditions for sustainable developmentof customary activities and householdsof indigenous minorities in the North.With this purpose in the northernsettlements residential housing andfish processing facilities have beenconstructed as well as fishing boats,snowmobiles, and nets are purchased.The Company is involved in arrangingthe 2010 World Chess Olympiad that willtake place in Khanty-Mansiisk.Additionally, as part of the agreementswith the regions, funds will be allocatedfor capital repairs of social facilities,purchase of medical equipment andimprovement of towns and settlements.127


13TO SHAREHOLDERSAND INVESTORS

13TO SHAREHOLDERSAND INVESTORSEnergy for lifeENERGY FOR PEOPLETO SHAREHOLDERSAND INVESTORSAUTHORIZED CAPITAL,SHAREHOLDER CAPITALSTRUCTUREThe Company’s authorized capital is 7586 079.4224 rubles and it is accruedthrough offering 4 741 299 639 commonregistered shares. The par value pershare is 0.0016 rubles. The stateregistration number of JSC GazpromNeft’s issue of common registeredshares is 1-01-00146-А .As of 31.12.2009 the shareholderregister contains 9 688 accounts,including 17 legal entities, 9 660individuals, 1 beneficial owner and 10nominee holders.As of 31 December 2009 JSC GazpromNeft does not have any preferenceshares.STOCK MARKET AND CAPITALIZATIONBackground Information on the Outstanding Securitiesof JSC Gazprom Neft:AACommon registered shares, State Registration Number 1-01-00146-А of17.06.2003AAPar value per issued share: 0.0016 rublesAANumber of issued securities: 4 741 299 639 sharesAAIssue Value: 7 586 079.4224 rublesAAStock Symbol – SIBN.Stock Trading InformationJSC Gazprom Neft shares are traded on the main trading floors in Russia: CJSCMICEX, where, as of December 31, 2009, they accounted for 0.8% in the index andOJSC RTS Stock Exchange (0.9%).The volume of trading in JSC Gazprom Neft shares on the MICEX Exchange totaled77 bn rubles (2 468 mln USD) in 2009, compared to 56 bn rubles (2 295 mln USD)in 2008. At yearend of 2009 the American Depository Receipts (ADR) issued forJSC Gazprom Neft shares accounted for 0.3% of total trading volume amongforeign company ADRs quoted on the London Stock Exchange in the IOB system(641 mln USD).List of registered entities that carry on their accounts the block of securities worthof no less than 1 % of the authorized capitalAs of 31.12.2009 As of 31.12.2008Entities registered in theshareholder registerShare in AuthorizedCapital, %number ofsharesShare in AuthorizedCapital, %number ofsharesJSC Gazprom 66,9837 3 175 898 234 55,9961 2 654 942 903Gazprom Finance B.V. 5,6791 269 261 275 16,6667 790 216 606Deutsche Bank, LLC (Nominee holder) 20,0002 948 271 442 20,0002 948 271 442CJSC Depository Clearing Company(nominee holder) 3,3742 159 982 715 3,4363 162 926 684CJSC ING Bank (Eurasia) (Nominee holder) 2,0960 99 379 791 2,3660 112 179 295“National Depository Center” Non-ProfitPartnership (Nominee holder) 1,2865 60 997 170 1,1104 52 648 608130

JSC GAZPROM NEFTANNUAL REPORT2009At year-end 2009 growth in the price of Company shares was recorded: over theyear the price increased 170.7% (in RTS Trading) to be quoted at 5.55 USD atyearend. JSC Gazprom Neft capitalization as of 31.12.2009 was 26.31 bn USD.Among the major external factors that positively affected the price of Companyshares, the investment community singled out the following:AArecovered oil prices;AAa number of successful M&A transactions;AApositive changes in fiscal policy of governmental authorities regarding oilcompanies.CHANGES IN THE PRICE OF JSC GAZPROM NEFT SHARES, MICEX OIL ANDGAS INDEX AND PRICE OF URALS300%250%200%150%100%50%0%Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecJSC Gazprom NeftMICEX Oil & Gas indexUralsSOURCE:MICEXDespite a substantial increase incapitalization in 2009, there exist seriousfundamental prerequisites for furthergrowth of the Company’s shareholdervalue – it is the best “value-added”business among Russian companiesin terms of the depth of refining,availability of distribution capacities andplans for further development of thedistribution business which, under thecurrent tax regime, create considerablevalue for the Company. Judging bythe commonly accepted market valueindicators, JSC Gazprom Neft 2009was underestimated by the market incomparison both with international oilcompanies and Russian competitors.All these factors provide a significantcompetitive edge for the Company,creating a considerable value growthpotential in the long-term.CHANGES IN THE PRICE OF JSC GAZPROM NEFT SHARES, RTS OIL ANDGAS INDEX, AND PRICE OF URALSSOURCE:RTS300%250%200%150%100%50%0%Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecJSC Gazprom NeftRTS Oil & Gas IndexUrals131

TO SHAREHOLDERSAND INVESTORSEnergy for lifeENERGY FOR PEOPLEPARTICIPATION IN THEAMERICAN DEPOSITORYRECEIPT PROGRAMDuring 2009 the American and GlobalDepository Receipt Programs forCompany shares traded in the US, UK,German, and other over-the-countermarkets was still in operation. OneADR accounts for 5 JSC GazpromNeft’s common shares. At yearend of2009, the total number of ADRs issuedfor common shares was equivalent to84 mln shares, which is 1.8% of theCompany’s authorized capital.In 2009 Gazprom Neft was the firstamong Russian companies to starttrading its ADRs on the OTCQx. For theCompany commencement of tradingon OTCQX means further diversificationof investors’ pool, enhancement ofthe Company securities liquidity oninternational trading floors, as well asincreased Company recognition amongglobal investors. During the first tradingyear on OTCQx JSC Gazprom Neft’sADR volumes amounted to 62 mlnUSD. The depository of JSC GazpromNeft’s receipts is The Bank of New YorkMellon, 101 Barclay Street, 22nd Floor,New York, New York, 10286.Capitalization of JSC Gazprom Neft on the RTS Stock Exchangein 2003–2009, USDSOURCE:RTS45 000 000 00040 000 000 00035 000 000 00030 000 000 00025 000 000 00020 000 000 00015 000 000 00010 000 000 0005 000 000 00001.01.0301.07.0301.01.0401.07.0401.01.0501.07.0501.01.0601.07.0601.01.0701.07.0701.01.0801.07.0801.01.0901.07.0901.01.10Information on JSC Gazprom Neft ADRs:Ticker GZPFY (GAZ, SCF) Closing Price as of 31.12.2009 $26.85CUSIP 36829G107 52 week Max price $30.00Ratio 1 ADR: 5 common shares 52 week Min price $8.42Effective as of April 20, 1999 Average monthly trading volume (IOB) $53 MlnSEDOL 5109407ISINRU0009062467Depository Bank BNY Mellon132

JSC GAZPROM NEFTANNUAL REPORT2009Changes in the Price of JSC Gazprom Neft ADRs,Russia IOB Index and Urals CrudeSOURCE:Bloomberg300%250%200%150%100%50%0%Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecJSC Gazprom NeftRussia IOBUralsJSC Gazprom NeftRussia IOBUralsChanges in Trading Volumes of JSC Gazprom NEFTon rTS, MICEX, LSE, and OTCQx, MLN USD7006005004003002001000SOURCE:BLOOMBERG,OTCQX, RTS,MICEXJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecMICEXRTSLSE IOBOTCQXTrading Volumes of JSC Gazprom NeftADRs 2009 in London (IOB), USDSOURCE:COMPANYDATA160 000 000140 000 000120 000 000100 000 00080 000 00060 000 00040 000 00020 000 000Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec133

TO SHAREHOLDERSAND INVESTORSEnergy for lifeENERGY FOR PEOPLEDIVIDEND HISTORYThe dividend policy of JSC GazpromNeft is based on protection of theshareholders’ interests, maintainingthe balance of interest between theCompany and its shareholders andintended to improve welfare of theCompany shareholders.The main principles of the Companydividend policy are:AAObservance of the effective legislationregulations of the Russian Federation,the Articles of Association and theCompany bylaws;AACommitment to high standards ofcorporate governance;AAImprovement of the Companyinvestment potential;AAEnsuring maximum transparencyof the mechanism to determine theamount of dividends;AAEnsuring positive changes in thedividend payments provided that theCompany net profit increases;AACommitment to providing a mostconvenient way to receive dividendsto the shareholders;AACommitment to paying dividendswithin a short time span.To ensure the greatest transparencyof the dividend allocation mechanismand procedure for its payment, JSCGazprom Neft stated its dividend policythat it had been implementing in recentyears, in the Provision on DividendPolicy approved in January 2010.In the Provision the Company fixeda minimum amount of annual dividendsfor shares - 15% of the Company netprofit, calculated pursuant to the USGAAP.The resolution of the Annual GeneralShareholders’ Meeting of the Company,dated June 22, 2009, established thetotal amount of accrued dividends forthe 2008 financial year at 25 603 018050.60 rubles: the dividend amount percommon share was set at 5.40 rubles.The right to receive dividends isgranted to all shareholders of recordas of the date of compiling the list ofshareholders entitled to participate inthe General Shareholders’ Meeting, atwhich the resolution to pay dividendswas adopted. The registration datefor holders of Company ADRs is setseparately by the depository bank,which is The Bank of New York.Dividend payment period – by May 31of the year following the year in whichthe resolution to pay dividends wasadopted.Dividend History:PERIOD 2005 2006 2007 2008Dividend per share (rub.): 7,90 8,0822 5,40 5,40Total dividend per class of shares (rub.): 37 456 227 806 38 320 131 942 25 603 018 051 25 603 018 051as % of US GAAP net income 47,21 38,50 24,16 22,11Name of the issuer’s governing body whichadopted the resolution to pay dividends:Date of the meeting of the issuer’s governingbody at which the resolution to pay dividendswas adopted, date and No. of the Minutes:GeneralShareholders’Meeting22.06.2006Minutes № 40 of29.06.2006GeneralShareholders’Meeting22.06.2007Minutes № 40 of27.06.2007GeneralShareholders’Meeting20.06.2008Minutes № 45 of30.06.2008GeneralShareholders’Meeting22.06.2009Minutes № 47 of03.07.2009Dividend payment period: By 31.05.07 By 31.05.08 By 31.05.2009 By 31.05.2010Method of payment and other terms: In cash In cash In cash In cashDividends were not paid to the shareholders who failed to provide the data required for dividend transfer under cl.5 of Article 44 of Federal Law № 208-FZ “On JointStock Companies”, dated 26.12.1995. Dividends accrued on shares of unidentified holders are paid as the shareholders’ rights to their securities are established.134

JSC GAZPROM NEFTANNUAL REPORT2009OBSERVING THECORPORATE CONDUCTCODEThe level of the Company corporategovernance may be evaluated first of allthrough the set of guidelines outlined inthe Corporate Code of Conduct of theFederal Commission for the SecuritiesMarket.The JSC Gazprom Neft in itsoperations follows the policy of ultimateimplementation of the corporate cultureprinciples set forth therein.Operations of the Company are basedon the following principles of corporategovernance:AAConducting activities for the benefitof shareholders and observing rightsof the Company employees and otherinterested partiesAAObservance of applicable legislation;AAOobservance and effective protectionof the rights of Company shareholdersthrough:––Giving shareholders the opportunityto manage their shares at their owndiscretion, quickly and at will;––Giving the Company a reliable andeffective system for recording stockownership rights, which is ensuredby cooperation of the Companywith an independent registrar;––Establishing a maximally clearand transparent mechanism fordetermining the dividend amountand ensuring the dividend paymentprocedure that allows shareholdersto best exercise their right toreceive dividends;––Having effective control over thefinancial and economic activitiesof the Company by both theinternal bodies of the Company(Board of Directors, ManagementBoard, Audit Commission, AuditCommittee) and the externalAuditor;––Ensuring equal rights andopportunities for all shareholdersand other interested parties toreceive information;AAEnsuring equal treatment of Companyshareholders holding the same class(type) of shares;AAProviding Company shareholders withthe real opportunity to exercise theirrights associated with participation inthe Company’s operations:––Fixing the responsibility in theCompany Articles of Associationto notify shareholders about theAnnual General Shareholders’Meeting not later than 30 daysprior to its date, unless a longernotification period is stipulated bylaw;––Providing the opportunity tothe shareholders to read theinformation (materials) subject todisclosure during preparation forthe General Shareholders’ Meetingvia the Internet (the informationshould be published online inthe bilingual format (Russian andEnglish) to meet the timeframestipulated by the effective legislationof the Russian Federation);––Ensuring the most simple andunobstructed registration procedurefor the participants of the GeneralShareholders’ Meeting ;––Ensuring the rules of order of theGeneral Shareholders’ Meeting thatguarantee equal opportunities for allshareholders present at the meetingto express their opinions and to askany agenda-based questions;––Ensuring availability of theManagement Board representativesat the General Shareholders’Meeting which gives the opportunityto the shareholders to ask theirquestions;AAmaintaining high standards of socialresponsibility;AACreating an efficient system of theCompany governing bodies basedon:––Clearly stated competence of thegoverning bodies set out in theCompany Articles of Association;––Absence of persons employed bycompetitive entities in the Companygoverning bodies;––Responsibility of governing bodymembers set forth by the Companybylaws to refrain from actions thatmay cause a conflict of interestsas well as to inform the Companyabout any situations (transactions)that may potentially cause a conflictof interests––Absence of persons in theCompany governing bodies thathave been found guilty of economiccrimes or crimes against thestate authorities, or state serviceinterests or local governanceinterests or those that wereimposed administrative penaltiesfor wrongdoing in the spheres ofentrepreneurship or finance or taxand duties or stock market;––Highly professional executives inthe governing bodies;––Setting forth the procedure forholding Board of Directors meetingsin the bylaws;––Assigning strategic managementof the Company’s operations to theBoard of Directors and effectivecontrol of the Board of Directorsover the activities of the Company’sexecutive bodies;––Determining the value threshold oftransactions subject to approval bythe Company Board of Directorsin the Company Articles ofAssociation;––Accountability of the Boardmembers to General ShareholdersMeeting;––Creating Board of Directorscommittees: Audit Committee andHR and Remuneration Committee ;––Existing bylaws approved by theBoard of Directors that describeestablishing and operatingprocedures for the Board ofDirectors committees;––Absence of Company executivesin the HR and RemunerationCommittee;––A special executive in the Company(Secretary of the Board ofDirectors) that ensures observanceby the Company governing bodiesand executives of procedurerequirements that guaranteeshareholders’ rights and their lawfulinterests;––Establishing the procedure forappointment of the Board ofDirectors Secretary and outliningtheir job description in the bylaws;––Collegial executive body(Management Board);––Accountability of the executivemanagement to the Boardof Directors and GeneralShareholders’ Meeting;––Setting forth in the Companybylaws the responsibility ofexecutive bodies to report regularlyto the Board of Directors aboutimplementation of Companyprograms and plans, GeneralShareholders Meeting’s and Boardof Directors’ Decisions, and aboutother results of the Companyoperations, including assetmanagement issues;135

TO SHAREHOLDERSAND INVESTORSEnergy for lifeENERGY FOR PEOPLEAAInformation transparency of theCompany activities that is achievedthrough:––Availability of the bylaws approvedby the Board of Directorsdetermining the Companyinformation policy;––Publishing information about theCompany in Russian and Englishon its corporate website (www.gazprom-neft.ru) to the extentprovided by the current legislationand bylaws of the Company;––Giving its shareholders accessensured by the Provision of theInformation Policy to completeand reliable information, includingthat about the Company'sfinancial standing, the results ofits operations, as well as aboutmaterial facts related to its financialand economic activities;––Not avoiding negative disclosuresabout the Company and itsoperations which are essential forCompany shareholders and allinterested parties;––Making disclosures, on a regularbasis, about the most importantevents and facts of the Company’soperations affecting the interestsof its shareholders and otherinterested parties, using thecommunication means availableto the Company, including onlinepress-release publishing;––Ensuring disclosures about itsoperations are made as soon aspossible to avoid reducing therelevance of such disclosures;––Making sure disclosures madeby different methods and/or indifferent forms are consistent and inagreement with each other;––Using such informationdissemination methods thatprovide for its shareholders andother interested parties free, easyand least expensive access todisclosures;––Not giving preference to meetingthe interests of one audience overanother when making disclosures.136


14MAJORTRANSACTIONSAND RELATEDPARTYTRANSACTIONS

14MAJOR TRANSACTIONSAND RELATED PARTYTRANSACTIONSEnergy for lifeENERGY FOR PEOPLEMAJOR TRANSACTIONSAND RELATED PARTYTRANSACTIONSIn 2009 JSC Gazprom Neft did not enter into any major transactions as defined by the currentlegislation of the Russian Federation.List of Related Party Transactions concluded in 2009 and Approvedby the Governing bodies of JSC Gazprom Neft№ Party toTransactionSubject and material terms ofTransactionRelated party Minutes № ,date1. CJSC FC Zenit Advertising Services Agreement of01.01.2009. Buyer: JSC Gazprom Neft,Executor: CJSC FC Zenit. Contract value 514,2 mln. rub.1. JSC Gazprom, holding through itsaffiliates OJSC GPB and GazpromTransgaz Sankt-Peterburg, a more than a20% interest in CJSC FC Zenit ;2. Member of the Board of Directors,General director of JSC Gazprom Neft, holding the position of Member of theBoard of Directors and President of CJSCFC Zenit:Dyukov A.V.;3. Member of the Board of Directors ofJSC Gazprom Neft, concurrently Memberof the Board of Directors CJSC FC Zenit :Seleznev K.G.№ 179, 01.04.20092. «Gazprom Neft-Tsentr» LLCPolyfuel filling stations Purchase and SaleAgreement of 10.12.2008. Seller: JSCGazprom Neft , Buyer: Gazprom Neft-TsentrLLC. Contract value: 112,01 mln. rub.JSC Gazprom, due to the fact that itsaffiliate – JSC Gazprom Neft holds a morethan 20% interest in the authorized capitalof a party to the transaction№ 179, 01.04.20093. «Gazprom Neft-Tsentr» LLCPolyfuel filling stations Purchase and SaleAgreement of 10.12.2008 . Seller: JSCGazprom Neft , Buyer: Gazprom Neft-TsentrLLC. Contract value: 108,88 mln. rub.JSC Gazprom, due to the fact that itsaffiliate – JSC Gazprom Neft holds a morethan 20% interest in the authorized capitalof a party to the transaction№ 179, 01.04.20094. «Gazprom Neft-Tsentr» LLCPolyfuel filling stations Purchase and SaleAgreement of 10.12.2008 . Seller: JSCGazprom Neft , Buyer: Gazprom Neft-TsentrLLC. Contract value: 105,41 mln. rub.JSC Gazprom, due to the fact that itsaffiliate – JSC Gazprom Neft holds a morethan 20% interest in the authorized capitalof a party to the transaction№ 179, 01.04.20095. «Gazprom Neft-Tsentr» LLCPolyfuel filling stations Purchase and SaleAgreement of 10.12.2009 . Seller: JSCGazprom Neft , Buyer: Gazprom Neft-TsentrLLC. Contract value: 105,93 mln. rub.JSC Gazprom, due to the fact that itsaffiliate – JSC Gazprom Neft holds a morethan 20% interest in the authorized capitalof a party to the transaction№ 179, 01.04.2009140

JSC GAZPROM NEFTANNUAL REPORT2009№ Party toTransactionSubject and material terms ofTransactionRelated party Minutes № ,date6. «Gazprom Neft-Tsentr» LLCPolyfuel filling stations Purchase and SaleAgreement of 10.06.2009. Seller: JSCGazprom Neft , Buyer: Gazprom Neft-TsentrLLC. Contract value: 35,27 mln. rub.JSC Gazprom, due to the fact that itsaffiliate – JSC Gazprom Neft holds a morethan 20% interest in the authorized capitalof a party to the transaction№ 179, 01.04.20097. «Gazprom Neft-Tsentr» LLCPolyfuel filling stations Purchase and SaleAgreement of 16.10.2009 . Seller: JSCGazprom Neft , Buyer: Gazprom Neft-TsentrLLC. Contract value: 98,14 mln. rub.JSC Gazprom, due to the fact that itsaffiliate – JSC Gazprom Neft holds a morethan 20% interest in the authorized capitalof a party to the transaction№ 179, 01.04.20098. OJSC NGKSlavneftOJSC Gazprom Neft-Yaroslavl StockPurchase and Sale Agreement of 06.07.2009Contract value 657,14 mln. rub.Members of the Management Board ofJSC Gazprom holding positions in thegoverning bodies (Board of Directors) ofOJSC NGK Slavneft :Dyukov A.V.Zilbermints B.S.,Kravchenko, K.A.,Cherner A.M.,Yakovlev V.V.№ 181, 11.06.20099. NIS a.d., NoviSadSpecial-Purpose Loan Agreement of04.05.2009 for renovation and modernizationof the technological complex NIS.Borrower: NIS a.d. , Novi SadLender: JSC Gazprom NeftContract value is less than 118 mln euro.Maturity date: 15.05.2013, Libor+2%Members of the Management Board ofJSC Gazprom, holding positions in thegoverning bodies (Board of Directors) ofNis a.d. Novi Sad:Kravchenko K.A.,Ilyuhina E.A.,Yakovlev V.V.,Antonov I.K.,Cherner A.M.,Baranov V.V.№ 183, 18.06.200910. ОJSCGazprombankSigning of a Surety Agreement betweenJSC Gazprom Neft (Surety) and OJSCGazprombank (Bank). Surety is liable to theBank for the performance by JSC GazpromNeft ONPZ (Omsk Oil Refinery) (Principal)of the obligations arising from the BankGuarantee Agreement entered into betweenthe Bank and the Principal. Bank guaranteeamount 8,9 bln. rub. Surety Agreementexpires on 28.02.2011.1. JSC Gazprom, holding a more than 20%interest in JSC Gazprom Neft and OJSCGPB;2. Members of the Board of Directors ofJSC Gazprom Neft, concurrently Membersof the Board of Directors of OJSC GPB:Miller A.B. ;Kruglov A.B.;Pavlova O.P.;№ 184, 19.06.200911. ОJSCGazprombankSigning of a Bank Guarantee Agreement, entered into between the Bank and thePrincipal. Bank guarantee amount: 763 mln.rub., fee - 0,5% per annum of the guaranteeamount. Valid through 30.06.20101. OJSC Gazprom, holding a more than20% interest in JSC Gazprom Neft andOJSC GPB;2. Members of the Board of Directors ofJSC Gazprom Neft, concurrently Membersof the Board of Directors of OJSC GPB:Miller A.B. ;Kruglov A.B.;Pavlova O.P.;№ 185, 31.08.200912. OJSCGazprom Neft-UralSigning of Swap Contracts: transferring 20fuel filling stations into the ownership of OJSCGazprom Neft-Ural in exchange for additionalissue shares in the amount of 48 845 sharesat a purchase price 7850 rub per shareJSC Gazprom, due to the fact that itsaffiliate – JSC Gazprom Neft holds a morethan 20% interest in the authorized capitalof a party to the transaction№ 185, 31.08.2009141

MAJOR TRANSACTIONSAND RELATED PARTYTRANSACTIONSEnergy for lifeENERGY FOR PEOPLE№ Party toTransactionSubject and material terms ofTransactionRelated party Minutes № ,date13. CJSC FC Zenit Advertising Services Additional Agreementof 05.10.2009. Buyer: JSC Gazprom Neft,Executor: CJSC FC Zenit. Contract value500,0 mln. Rub.1. JSC Gazprom, holding through itsaffiliates OJSC GPB and GazpromTransgaz Sankt-Peterburg LLC, a morethan a 20% interest in CJSC FC Zenit ;2. Member of the Board of Directors,General director of JSC Gazprom Neft, holding the position of Member of theBoard of Directors and President of CJSCFC Zenit:Dyukov A.V.;3. Member of the Board of Directors ofJSC Gazprom Neft, concurrently Memberof the Board of Directors CJSC FC Zenit :Seleznev K.G.№ 188, 21.10.200914. ОJSCGazprombankSigning a Bank Guarantee Agreement of13.10.2009 to guarantee JSC GazpromNeft’s liabilities in respect to the contract withthe Federal Agency for State reserves. Bankguarantee amount: 20,3 mln rub, fee - 0,5%per annum of the guarantee amount . Validthrough 20.02.20101. OJSC Gazprom, holding a more than20% interest in JSC Gazprom Neft andOJSC GPB;2. Members of the Board of Directors ofJSC Gazprom Neft, concurrently Membersof the Board of Directors of OJSC GPB:Miller A.B. ;Kruglov A.B.;Pavlova O.P.;№ 190, 03.11.200915. CJSC HockeyClub SKASigning a Services Agreement for providingGPN advertisement (sponsor advertisement)manufacture and placement services toCJSC Hockey Club SKA on the followingterms: Period of services: from 01.08.2009 till30.04.2010 , total cost 456,1 mln. rub.Dyukov A.V, who is concurrently Memberof the Board of Directors, single-memberexecutive body of JSC Gazprom Neft andChairman of the Board of Directors ofCJSC Hockey Club SKA.№ 191, 05.11.2009142


15ASSETMANAGEMENT ANDIMPROVEMENT OFTHE CORPORATESTRUCTURE

ASSET MANAGEMENTAND IMPROVEMENT OF THECORPORATE STRUCTUREEnergy for lifeENERGY FOR PEOPLEASSET MANAGEMENTAND IMPROVEMENTOF THE CORPORATESTRUCTUREImprovement of the Company’scorporate governance structure isdesigned to enhance the efficiencyof Gazprom Neft’s operations asa vertically integrated companyand optimize the core businessmanagement structure at the level ofsubsidiaries.In 2009 Gazprom Neft continued theconsolidation of distribution assets.In the Sverdlovskaya region all assetsof the Company are consolidatedinto OJSC Gazprom Neft-Ural. Asa result of the restructuring, OJSCEkaterinburgnefteproduct and OJSCUralnefteproduct are included intoOJSC Gazprom Neft-Ural.In Krasnoyarski Krai the Companycompleted the reorganizationby merging SibKras LLC intoGazprom Neft-Krasnoyarsk LLC.In the Central Federal regionGazprom Neft-Moskva LLC andGazprom Neft-Kaluga LLC wereintegrated into Gazprom Neft-TsentrLLC as part of the consolidation of thedistribution assets strategy.JSC Gazprom Neft continued toconsolidate hydrocarbon productionassets. In 2009 CJSC Pechora-Neftegazand NGP Ortyagunskoye LLC weremerged into OJSC Gazprom Neft-Noyabrskneftegaz with the subsoillicense for Severo-Romanovsky andOrtyagunski licensed areas transferredto the latter.Shinginskoye LLC was merged intoGazprom Neft-Hantos LLC with thesubsoil license for Shinginsky licensedarea transferred to the latter.The Company continued to set upjoint ventures in the area of jet fueldistribution. In 2009 JSC GazpromNeft established Gazprom Neft-AeroDushanbe LLC (Gazprom Neft Group isholding a 50% stake).In 2009 JSC Gazprom Neft jointly withits partner OJSC TNK-BP continuedthe division of the assets of the SlavneftGroup. The division of Slavneft Group’sdistribution assets is completed in theCentral Federal region and in BelarusRepublic. As a result of the divisionand optimization of the network, JSCGazprom Neft had by the end of 2009a network of 77 retail filling stations inYaroslavskaya and Ivanovskaya regionsand a network of 38 retail filling stationsin Belarus Republic under its control.Gazprom Neft-Yaroslavl andGazprom Neft-Belnefteproductwere established for the purpose ofmanaging the acquired assets. Thedivision of Slabneft Group’s assetsallowed JSC Gazprom Neft to expandinto new markets in Yaroslavakaya andIvanovskaya regions and the BelarusRepublic, thus increasing productionvolumes, raising the efficiency of theCompany and providing customers anaccess to the high-quality products andservices, supplied by the Company.Upon completion of the acquisitionof 51% interest in the Serbian oilcompany Naftna Industrija Srbije (“NIS”)in February 2009 JSC Gazprom Neftstarted the process of integrating thenew asset. Decisions concerning NISmanagement are taken on a parity basisjointly with the second shareholder,the Serbian Government, and in fullaccordance with the terms of thepurchase agreement.Gazprom Neft bought out a controllingstake in Sibir Energy. Starting from April23, 2009 ( the date of the acquisitionof the first stake in Sibir Energy) the146

JSC GAZPROM NEFTANNUAL REPORT2009Group has invested a total of 1057 mln.pounds (approximately 53 bln rub) intothe acquisition of 55% of voting sharesin Sibir Energy. This acquisition ensuredthe Company’s direct control overSibir Energy and indirect control overMoscow Oil Refinery, thus increasingthe share of effective ownership of therefinery from 38,63% to 59,75%.Sibir Energy — is a vertically integratedcompany, with its production assetslocated in Western Siberia and itsdistribution assets located in Moscowand Moscow region. Core distributionassets include OJSC Oil CompanyMagma assets (Sibir Energy holdinga 95% interest) and 50% in joint venturewith Royal Dutch Shell, Salym PetroleumDevelopment (SPD). Sibir Energy’scurrent oil production level is over 80000 barrels per day. Apart from that,Sibir Energy holds a 38,63% interestin Moscow refinery, that is under jointmanagement by Sibir Energy and JSCGazprom Neft, and owns a network of134 retail filling stations in Moscow andMoscow region, operating under thebrands MTK and Nefto.In December 2009 JSC GazpromNeft approved and in January 2010signed a services contract for Badraoil field in Iraq as part of the second oillicensing round. In the Badra oil fielddevelopment project, JSC GazpromNeft is acting as an operator of theconsortium. Other members of theconsortium are Kogas (Korea), Petronas(Malaysia) and TPAO (Turkey). The IraqiGovernment holds a 25% interest. Inorder to start working on the project thisyear, the partners plan to invest a totalof more than 200 mln. USD, includingthe signature bonus pay-up.In 2009 JSC Gazprom Neft startedworking on increasing its presenceabroad in the area of productionthrough its participation in projects inIraq, Libya, Equatorial Guinea, Cuba. In2010 Gazprom Neft intends to continueexpansion in this direction.In June 2009 Gazprom Neft becameparty to the National Oil ConsortiumLLC. All the members of the RussianNational Oil Consortium (apart fromGazprom Neft, members includeOJSC Oil Company Rosneft, OJSCLukoil, OJSC TNK-BP Holding andOJSC Surgutneftegaz), that share thecommon goal of the exploration ofVenezuelan oil fields together with thestate company of Venezuela, hope forthe prompt signing of the agreementestablishing a joint venture withPDVSA.In February 2010 Gazprom Neft Grouppurchased a 100% interest in STS-Service LLC from Swedish companyMalka Oil. STS-Service LLC holdsthe license for West-Luginetskoye,Nizhneluginetskoye and a part of theShinginskoye fields, the total reservesof which in categories С1+С2 amountto 11,5 mln. tons. One of the keyfactors that determined the asset’sattractiveness for Gazprom Neft is STS-Service’s location in close proximityto the area of Shinginskoye oil field,developed by Gazprom Neft-Vostok.Expanding Gazprom Neft-Vostokwill create a new impetus to thedevelopment of the enterprise andwill enable the level of production tobe maintained despite the fall due tonatural reasons — depletion of thispart of the oilfield. Supplementaryexploration will also enable an increaseof the reserves of the subsidiary, as wellas consolidating the reserves of theCompany.In 2009 the Company started workingon the acquisition of oil fields of JSCGazprom, coordinated and approvedthe transfer plan for Novoportovskoyeand Orenburgskoye oil fields, beganthe relevant corporate coordination andapproval procedures.147


16CREDIT RATINGSAND DEBTPORTFOLIOMANAGEMENT

CREDIT RATINGS AND DEBTPORTFOLIO MANAGEMENTEnergy for lifeENERGY FOR PEOPLECREDIT RATINGSAND DEBTPORTFOLIOMANAGEMENTChanges in the Company’s Credit Ratings(ВВВ/Negative/А-3) holding a 96%interest in Gazprom Neft remainunchanged, accounting for one-notchuplift in the rating.BBB/Baa2BBB-/Baa3BB+/Ba1BB/Ba2BB-/Ba3B+/B1B/B2B-/B3Investment Grade2003 2004 2005 2006 2007 2008 2009Moody’s Investors ServiceOn July 4, 2008 Moody's InvestorsService upgraded the senior unsecuredratings of JSC Gazprom Neft from “Ba1”to “Baa3”. As part of the upgrade of theinvestment ratings, the Ba1 CorporateFamily Rating and Probability of DefaultRating have been withdrawn.S&PMoodysSTANDARD & POOR’S RATINGSSERVICESOn December 15, 2009 15 Standard &Poor’s Ratings Services changed theoutlook on JSC Gazprom Neft ratingsfrom Stable to Negative and affirmedall the Company’s ratings: a ‘BBB-‘corporate credit rating and a ‘ruAA+’Russia national scale rating.According to S&P Ratings Services, thekey factors that contributed to downsiderating are: the company’s assetacquisition activity, indebtedness andthe Company’s liquidity ratio.S&P continues to rate the business-risksof the Company as “acceptable” andthe financial risks of the Company as“significant”. The S&P expectations ofparental support from JSC GazpromJSC Gazprom Neft ratings havea stable outlook, which is based on theexpectation that the recently upgradedinvestment grade rating will remainunchanged over the immediate term dueto the fundamental factors. To maintainthe current rating Moody's expect theCompany to continue delivering a robustoperational and financial performance,while adhering to its financial policiesand business plan targets.JSC Gazprom Neft’s investment graderatings expand its borrowing optionsand reduce the cost of loans.Information on the credit ratings assigned to JSC Gazprom Neft in 2009Agency Scale Rating OutlookStandard&Poor's International scale in foreign currency ВВВ- NegativeInternational scale in national currency ВВВ- NegativeNational scale (Russia) ruAA+ NegativeMoody's International scale in foreign currency Ваа3 StableIssuer Securities Agency Date Rating OutlookRating of the 3d and the 4th issues(Reg. №№ 4-03-00146-А and 4-04-00146-А of August, 14 2008 )Standard&Poor's (International scale in foreign currency) 17.04.2009 ВВВ-Standard&Poor's (National scale Russia) 17.04.2009 ruAA+150

JSC GAZPROM NEFTANNUAL REPORT2009DEBT OBLIGATIONSAs of December 31, 2009 theCompany’s long-term debt amounted to5 628 mln USD as compared to 3 080mln USD as of December 31, 2008. Theincrease was due to the acquisition of51% interest in The Serbian verticallyintegrated company Naftna IndustrijaSrbije A.D., the acquisition of the controlstock of Sibir Energy, borrowings fromRussian and foreign banks and rublebonds issuance.The loan agreements contain financialcovenants that set requirements forthe Company’s ratios of ConsolidatedEBITDA to Consolidated InterestPayable, Consolidated Indebtednessto Consolidated Tangible Net Worthand Consolidated Indebtedness toConsolidated EBITDA. Managementbelieves that the Company was incompliance with these covenantsas of December 31, 2009 and 2008respectively.Major borrowings in 2009Lender Loan amount Date ofagreementDue DateInterest RateVnesheconombank $600 000 000,00 15.12.2008 tranche 1 15.12.2010;tranche 2 16.03.2011;tranche 3 15.06.2010;tranche 4 14.09.2010;tranche 5 14.12.2010Libor+5,0%VnesheconombankSberbankRuble bondsTranskreditbankSberbankAbsolutbankRuble bondsBTMU, Unicredit, Nordea, Raiffesenbank,Societe GeneralRussian Commercial bankSberbank$375 000 000,00 30.12.2008 24.07.2009 10,75%$724 000 000,00 06.02.2009 30.12.2009 8,40%10 000 000 000,00 rub. 21.04.2009 19.04.2011 16,70%$175 000 000,00 28.05.2009 28.12.2009 6,90%$857 186 080,22 29.05.2009 29.12.2009 8,46%$50 000 000,00 01.07.2009 04.08.2010 5,50%8 000 000 000,00 rub. 21.07.2009 17.07.2012 14,75%$500 000 000,00 07.08.2009 05.10.2012 Libor+5%$624 000 000,00 23.12.2009 24.12.2012 6,50%$857 186 080,22 28.12.2009 28.09.2012 8,46%151

CREDIT RATINGS AND DEBTPORTFOLIO MANAGEMENTEnergy for lifeENERGY FOR PEOPLEBorrowing plans for 2010In 2010 the Company intends toconcentrate on improving its creditportfolio by increasing the average termof the borrowings and by decreasingtheir amount. In 2010 the Companyplans to borrow 2 066 mln. USD forrefinancing of the credit portfolio. JSCGazprom Neft has already borrowed100 mln USD from Nordea bank as ofFebruary, 24 2010Proposed Instruments:AASyndicated Secured Loan;AABilateral Loans;AAExchange-traded debentures;AARuble bonds.JSC Gazprom Neft’s DebtStructure by Type ofBorrowing, %2009, %SOURCE:COMPANYDATAЗ-years foreign currencyЗ-years rubles2-years foreign currency2-years rublesShort-termMaturities of Long-Term Borrowings as of December 31, 2009:Year Due20102011201220132014 and forthwithAmount Due, mln USD1 4662 1671 7471311175 628152

17GLOSSARY OF KEYTERMS AND DEFINITIONSEnergy for lifeENERGY FOR PEOPLEGLOSSARY OF KEYTERMS AND DEFINITIONSADR of JSCGazprom NeftAn American depository receipt (anAmerican depository share) issuedfor JSC Gazprom Neft shares. It isequivalent to four common shares ofJSC Gazprom Neft.FSFilling StationAPRAsia-Pacific Region. It includescountries located in the continental partof Asia and America and the PacificOcean area.BOEBarrel of oil equivalentVIOCVertically-integrated oil companyGCRGas- and / or condensate refineryEWExploration workGazprom NeftGroup, Group,Gazprom NeftJSC Gazprom Neft (parent) and itssubsidiaries taken as a whole.GTOGeotechnical operationsNon-CISForeign countries, other than CIS andBaltic StatesSASubsidiaries and associatesDollars, USDUS dollarsDNEMDifferentially-normalized electricalmeasurementsEUEuropean UnionEBITDAEarnings before interest, taxes,depreciation and amortizationAssociateA company in which Gazprom NeftGroup holds more than 20% of votingshares (if a joint stock company) or 20%of the authorized capital (if a limitedliability company).АВС1 HydrocarbonReservesExplored reserves by Russianclassification standards. They representthe part of geological reserves,extrac¬tion of which, as of the dateof estimation, is cost-effective, takinginto account the market conditionsand rational use of modern equipmentand technologies, and subject tocompliance with the subsoil andenvironmental protection requirements.Explored gas reserves (categoriesABC1) are deemed fully recoverable.For oil and gas condensate reservesa special extraction factor is used,calculated on the basis of geotechnicalfactors.С1+С2 HydrocarbonReservesC1 category - oil or gas reservesestablished to be present in specificwells, with favorable production andgeological data also available for otherwells. C2 category – oil or gas reserveexpected to be present within certainknown gas-bearing areas on the basisof geological and geophysical data.C2 reserves are treated as preliminaryestimates and serve as the basis fororganizing exploration at a specific field.CSCompressor stationm 3Cubic meter of natural gas as measuredat a pressure of one atmosphere and20°CPRMS and SECInternationalStandardsInternational classification andestimation of hydrocarbon reservesby PRMS (Petroleum ReservesManagement System) and SEC(Securities and Exchange Commission)standards. The standards not only154

JSC GAZPROM NEFTANNUAL REPORT2009assess the presence of hydrocarbonsbut also provide estimates as tothe economic practicability of theirextraction and the justification of theirpresence as well as take into accountthe economic life of a field (term of thelicenses for its develop¬ment).MICEXMoscow Interbank Currency ExchangeOGCFOil and gas condensate fieldMETMineral extraction taxVATValue-added taxR&DResearch and developmentNPZRefineryNetbackSelling price excluding transportationexpensesAGAssociated gasUGSUnderground Gas StorageRTSRussian Trading System StockExchangeCISCommonwealth of Independent States– former republics of the USSR, otherthan Latvia, Lithuania and EstoniaJVJoint VentureLNGLiquefied natural gasISO 14001 StandardInternational environmental standard.It identifies the requirements for theenvironmental quality managementsystem, is used to developenvironmental policies subject tolegislative requirements. It appliesto the environmental aspects of anorganization’s activities which can becontrolled and should be influenced.The standard is voluntary and does notreplace legislative requirements.Baltic StatesLatvia, Lithuania and EstoniaTOETon of oil equivalent (coal equivalent).Equal to 877 m3 of natural gas.FERFuel and energy resourcesFCFueling ComplexFTS of RussiaFederal Tariff Service of RussiaFFMS of RussiaFederal Financial Markets ServiceKhMADKhanty-Mansi Autonomous DistrictCentral AsiaKazakhstan, Kyrgyzstan, Tajikistan,Turkmenistan, UzbekistanBFLHBroad fraction of light hydrocarbonsETFElectronic trading floorYNADYamal-Nenets Autonomous District2D, 3DSeismic surveySILCO (Siberian Light)Siberian light crude oil155

18ADDRESSESAND CONTACTSEnergy for lifeENERGY FOR PEOPLEADDRESSESAND CONTACTSFULL NAMEJoint Stock Company Gazprom NeftABBREVIATED NAMEJSC Gazprom NeftLEGAL ADDRESS5A Galernaya St., Saint-Petersburg,117467, Russian FederationCompany registered on November 6, 1995by the Omsk State Registration Chamber.State Registration Certificate № 38606450Primary State Registration Number1025501701686MAILING ADDRESS125A Profsoyuznaya St., Moscow, 117647,RussiaINTERNENT ADDRESSwww.gazprom-neft.ruINFORMATION SERVICETel: +7 (495) 777-3152Fax: +7 (495) 777-3151PRESS SERVICESTENYAKINA EKATERINATel: +7 (495) 777-31-43Fax: +7 (495) 777-31-42E-Mail: Stenyakina.EN@gazprom-neft.ruSHAREHOLDER RELATIONSCHUBAROVA IRINACorporate Governance DepartmentTel: +7 (495) 961-13-24Fax: +7 (495) 961-27-59E-Mail: Chubarova.IV@gazprom-neft.ruINVESTOR RELATIONSHead of the Consolidation and InternationalReporting DepartmentSHVETSOV ANDREITel: +7 (495) 662-75-48E-Mail: Shvetsov.AS@gazprom-neft.ruHead of the Investor RelationsSIDORKINA ANNATel: +7 (495) 662-75-48E-Mail: Sidorkina.AV@gazprom-neft.ruChief Specialist of the Investor RelationsKAMENSKIY ALEXEITel: +7 (495) 662-75-48E-Mail: Kamenskiy.AN@gazprom-neft.ruAUDITORThe 2009 accounting (financial) statementswere audited by independent auditingfirm CJSC PricewaterhouseCoopers Audit(CJSC PwC Audit). Address: 10 ButyrskyVal., “White Square” Business-Centre,125047, Moscow, Russia.Tel: (495) 967-60-00.Fax: (495) 967-6001www.pwc.ruREGISTRARClosed Joint Stock CompanySpecialized Registrar – Holder of theGas Industry Shareholder Register(ZAO Spetsializirovanny RegistratorDerzhatel Reestra Aktsionerov GazovoyPromyshlennosti) (ZAO SP-DRAGa).Address:71/32 Novocheremushkinskaya Street,117420, MoscowPhone: (495 719-40-44.Fax: (495 719-45-85.Web: www.draga.ruE-Mail: info@draga.ruThis Annual Report was preliminarily approved by the Board of Directors of JSC Gazprom Neft on May 14, 2010.(Protocol No. PT-0102/15 dated May 17, 2010).Director GeneralDyukov A.V.Chief AccountanBarabash L.A.156

The Annual Report uses photographsof the staff and subsidiaries of JSC Gazprom NeftDesign by Yellow Dog Studio

ENERGY FOR PEOPLE - JSC Gazprom Neft

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