• AVERAGE H1 2017 DAILY HYDROCARBON PRODUCTION INCREASED BY 10.2% TO 5.74 MMBOE
• H1 2017 LIQUIDS PRODUCTION REACHED 4.59 MMBPD
• H1 2017 GAS PRODUCTION INCREASE BY 2.9% Y/Y TO 34.20 BCM
• H1 2017 LIGHT OIL PRODUCTS YIELD REACHING 58.4%, REFINING DEPTH 74.2%
• FURTHER GROWTH IN SUPPLIES TO EASTERN ROUTES BY 8.4%

Upstream

The Company produced 70.0 mmtoe (5.70 mmboed) of hydrocarbons in Q2 2017. H1 2017 average daily hydrocarbon output amounted to 5.74 mmboed (140.3 mmtoe), rising by 10.2% y/y on the back of the acquisitions and new projects development.

Q2 2017 average daily liquids production declined by 1.2% vs. Q1 2017 to 4.57 mmbpd due to the limitations for the Russian oil producers related to the agreements with the OPEC+ countries. Nevertheless, the Company managed to demonstrate 12% y/y growth in H1 2017 (1.4% y/y taking into account Bashneft operations since January 2016).

Despite the production limitation in H1 2017, the Company managed to demonstrate the positive average daily production dynamics y/y mainly on the back of the new assets development, such as Suzun and Messoyakhaneftegaz, as well as production growth at the brownfields, including RN-Yuganskneftegaz (+2.3%), Samaraneftegaz (+3.2%), RN-Nyaganneftegaz (+3.4%) and Varyeganneftegaz (+2.4%).

The Company efficiently manages the brownfields. In July RN-Yuganskneftegaz reached a new maximum daily liquids production since 1986 - more than 184,549 toepd. RN-Yuganskneftegaz production growth reached 3.7% in Q2 2017 y/y. The key success factors are new wells commissioning growth, wellwork qualitative improvement, including the use of horizontal wells with multi-stage fracturing.

In Q2 2017 the Company further intensified the development drilling activity, raising the meters drilled by 40.7% vs. Q1 2017 level to 3.2 mln m, or in line with the full year targets. H1 2017 development drilling grew by 22% y/y - to 5.5 mln m. The share of in-house drilling services in the  drilling amounted to c. 60%. H1 2017 new wells commissioning increased by more than 15% - up to 1.4 th. wells y/y with the share of horizontal wells at 34%.

The Company started building the first startup complex of the oil treatment facility with 2.3 mmtpa designed capacity preparing for Tagul development. The facility is designed for oil treatment to commercial properties for further transportation through 4.5 km pipeline to the tie-in point with the Vankor-Purpe trunk oil pipeline. Development drilling is in progress at the 4 pads. 

The Yurubcheno-Tokhomskoye field facilities launching is expected later this year in accordance with the approved targets. The construction of the main production setup facilities is in progress: oil treatment facility with 2.5 mmtpa designed capacity, delivery and acceptance point as well as construction of the oil pipelines and support infrastructure. Currently, the construction and installation works are in progress at the 77 field setup facilities. Development drilling is under way at 8 pads.

The Company reinforced its leading position in terms of the gas production among the Russian independent producers. In H1 2017 the gas output reached 34.20 bcm, rising by 2.9% y/y. The growth is driven by putting two wells in operation at the Northern tip of Chayvo field on Sakhalin Island in 2016, reaching the design capacity at Rospan Novo-Urengoy gas and condensate treatment plant in August 2016, successful launching three new wells at the Tyumen suite of Yem-Yegovskoye field in Q1 2017, as well as growing gas deliveries from Van-Yeganskoye field after revamping the Tyumen compressor station and a gas production increase at the Severo-Varyeganskoye field on the back of commissioning new wells.

Active phase of the key Rospan production facilities construction is in progress: in H1 2017 14 spherical tanks and 8 columns of the 4 condensate stabilization unit lines were assembled at the Gas and Condensate Treatment Unit of Vostochno-Urengoysky license area; 5 compressor units assembled at the booster compressor station, 7 gas turbine facilities assembled at the gas turbine power plant of Vostochno-Urengoysky license area; construction of the rail loading terminal at Korotchaevo station, trunk and intra field pipelines and power supply facilities are in progress.

In H1 2017 the Company acquired 5.7 th. km of onshore 2D seismic surveys and 5.6 th. sq. km of onshore 3D seismic surveys, exceeding the H1 2016 levels by two times and by 17% accordingly. 44 exploration wells were tested with a 82% success rate. 24 new deposits and 13 new fields were discovered with АВ1С1+B2С2 reserves of 21 mmtoe.

Based on the conducted comprehensive geological and geophysical studies Rosneft is drilling the northernmost exploration well in the Eastern Arctic offshore. A core sample was taken from the depth of 2,305 to 2,390 meters during Tsentralno-Olginskaya-1 well drilling from the coast of Khara-Tumus peninsula at the shelf of the Khatanga Bay in the Laptev Sea, which showed high oil saturation with light oily fractions. Hydrocarbons presence in the core sample confirms the geological model, elaborated by the Company’s specialists.

In H1 2017 2D seismic acquisition started at the Tsentralno-Tatarsky license area in the Sea of Japan, 3D shooting - at the Pomorsky, Russky and Severo-Pomorsky-2 areas in the Pechora Sea. The full-scale exploration activities are being prepared at the license areas in the Laptev Sea, the East Siberian Sea, the Chukchi Sea, the Kara Sea, the Barents Sea, the Black Sea and the Sea of Okhotsk, that will include 2D and 3D seismic and site investigation surveys.

Unprecedented regional works on Arctic, Far East and South sea shelfs based on geological and geophysical studies including results of field geological surveys on key Russian land border sea areas are in progress.

Downstream

In Q2 2017 refining throughput decreased in Russia by 3.6% q/q to 24.62 mmt due to the planned maintenance. With acquiring new assets in Q4 2016, the oil refining volumes increased by 27% at the Russian refineries y/y in Q2 2017 and by 29% in H1 2017. Taking into account Bashneft indicators since January 2016 the throughput rose by 4.9% y/y in H1 2017 in conditions of improving macro environment.

The light product yield improved by 2.6 p.p. to 58.4%, and refining depth rose by 4.2 p.p. to 74.2% in H1 2017 as a result of acquiring new assets and further optimization work at the refineries.

Application of own anti-ware additive "Complexal - Eco D" for diesel production is started at the Bashneft refineries within the integration process.

An air separation unit was commissioned at Ufaorgsintez after technical revamp in June. This will allow to fully meet the plant’s demand in high quality nitrogen, reducing energy costs and reinforcing the positions of one of the largest Russian petrochemical companies. 

Production of the 3^rd group lubricants with high purification rate, used for the production of high technological synthetic and semi-synthetic lubricants was started at Yaroslavl refinery, which will allow to reduce the costs by using own products and via expanding the sales product range.

The Company continues to diversify oil supplies between the western and eastern destinations: Eastward shipments in H1 2017 grew to 23.4 mmt compared to 21.6 mmt in H1 2016.

As a result of Bashneft acquisition, high marginal retail volumes in H1 2017 increased by 12% y/y. Despite the market trend change in the retail sales channel profitability compared to the previous years, the retail sales remain the most profitable marketing segment. Implementation of the new loyalty programs "Family team" and "BP Club" continued: the programs have been already implemented in 37 regions of presence, including Moscow and Moscow Region, 4.6 mln participants are added. By July 1, 2017 installation of cash register equipment allowing online cash and card transactions data transfer to the tax authorities is installed at all the Company’s retail sites. Installation of the modern automated management systems under the implementation of this project made it possible to secure the retail sites 100% automation.

For ensuring the control over the oil product flows the main focus is on gradual 100% automatization of parameters measurement on all material retail chain flows, control procedures in commercial and accounting systems of oil depots and retail sites, implementation of an electronic system of guaranteed oil products delivery on quantity and quality. In H1 2017 standard technical solutions for measurements and control processes automatization were prepared. Resulting from implemented measures 1H 2017 oil products losses decreased on 2.5% vs. 1H 2016 level, fuel consumption on own needs decreased on 17%.

International operations, assets acquisition and cooperation with partners

In June Rosneft signed a long-term production casting and tubing supply contracts with a formula-based pricing with Tubular Metallurgical Company (TMK) and Chelyabinsk Pipe-Rolling Plant (ChelPipe). Tubular supplies to Rosneft will start in H2 2017. Such form of cooperation provides a reliable market tool enabling higher production efficiency, long-term planning, timely and robust supplies of high quality products.

Joint venture PetroVictoria with the participation of Rosneft and Venezuelan state petroleum company PDVSA started the production under Carabobo-2 pilot operations (oil belt of the Orinoco river) by well CHV-02 startup. Initial well flow rate was 472 bpd. Flow rate after the well stabilization will be 800 bpd. Full scale development of Carabobo project is planned after 2020.

Early July 2017 feasibility study works for the development and infrastructure setup of the offshore fields in Venezuela (Patao, Mejillones and Rio Caribe) were completed according to the Agreement signed between Rosneft and PDVSA. These works are aimed at the elaboration of the offshore fields resource base and selection of the optimal option for its development and infrastructure setup. In perspective the companies can submit the application for gas licenses to the Ministry of Popular Power for Petroleum and Mines.

On June 22, 2017 Rosneft Vietnam B.V. which works at the Vietnam offshore block 06.1 reached an important operational indicator - 15 years of accident-free operations without lost time incidents, which is 30.3 mln man-hours. This indicator is one of the best in the industry and demonstrates the Company operational capabilities for the implementation of the large scale offshore energy projects.  

Rosneft and Iraqi Kurdistan Regional Government signed an investment agreement with the commitments to continue exploration and production cooperation, to monetize the operation of export oil pipeline in Iraqi Kurdistan and signed a number of production sharing agreements. The signed documents outline the main terms of the project which provides for the establishment of a joint venture for the implementation of the long-term contract for the infrastructure project in Iraqi Kurdistan. Rosneft gets access to the management of a large regional transportation system with 700 kboed capacity with planned expansion up to 1 mmboed till the end of 2017. Also, the parties undertook the commitments of putting into effect the signed PSAs with respect to the five blocks with substantial geological potential and outlined other perspective areas of cooperation in exploration and production, including the gas sphere.

Rosneft, Philippines National Oil Company (Philippines) and Pionaire Finance Limited (Hong Kong) have signed the Agreement according to which the companies will make efforts to define the possible cooperation opportunities for oil and oil products trading and oil refining. Based on the Agreement terms the parties intend to sign a long term contract for crude oil and other feedstock supply to Philippines National Oil Company till the end of 2017.

Mutual oil supply contract is signed between Rosneft Trading SA and PTT Public Company Limited (Thailand), under which it is planned to supply up to 10 mmtpa (up to 5 mmtpa - to PTT Public Company Limited and up to 5 mmtpa – to Rosneft Trading SA) within 5 years, starting from October 1, 2017. The contract may be extended in case of the parties` consent; maximum contract duration is 20 years.

Key operational indicators in Q2 and H1 2017:

*According to management data

Information Policy Division
Rosneft Oil Company
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
August 4, 2017

These materials contain statements about future events and expectations that are forward-looking in nature. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.