Operating Results for Q2 2016 and H1 2016

• Average daily hydrocarbon production 5.22 mmboe, a 0.2% increase compared to Q1 2016, with oil production growth by 0.5% to 4.11 mmbpd
• Development drilling grew by 48% in H1 2016 in accordance with the business plan
• Gas production was up by 7% to 33.23 bcm against to H1 2015 due to new capacity additions
• Refining throughput optimization with light product yield improvement to 55.8% in H1 2016

Upstream

Q2 2016 showed the upward trend in hydrocarbon production (0.2% growth vs. Q1 2016), despite the seasonal decline in gas consumption. Production level reached 5.21 mmboed in H1 2016, increasing by 0.7% vs. H1 2015.

In 2Q 2016, the Company continued to intensify development drilling, having increased this indicator by 16% compared to Q1 2016 to 2.4 mn m. The footage of development drilling increased by 48% tо 4.5 million meters in H1 2016. In June 2016,  a new record in daily drilling footage was set at all producing assets of the Company: 40,339 m, translating into record 1,010,684 m drilled throughout the month. New wells commissioning rose by more than 50% compared to H1 2015 to reach 1.2 thousand wells with the share of horizontal wells remaining at about 30% in accordance with the targets established for the year. The share of in-house services in the total drilling footage consistently exceeds 50%.

Liquid hydrocarbon production in Q2 2016 increased by 0.5% vs. Q1 2016 up to 4.11 mmbpd. The key brownfield asset Yuganskneftegaz has shown an upward production trend (+1.5% vs. Q1 of 2016). There were also further improvements at the fields of RN-Severnaya Neft (+3.3%) and on the Sakhalin-1 project (+3.1%).

In 2Q 2016, RN-Uvatneftegaz set a new record in the commercial drilling rate in mainland Russia. The 2,639 m deep well was drilled in 6.5 days. The previous record in commercial drilling rate that was also set at Uvat project in November 2015 was exceeded by 242 m/rig per month (+2%).

In 2Q 2016, six new horizontal wells targeting BV8 (1-3) were commissioned at the Samotlor field with an average start-up flow rate of over 300 ktpd.

The Company continues preparation for the commissioning of the Phase 1 of the Suzun field development scheduled for September 2016. In Q2 2016, construction approached the final stage, and pre-commissioning and start-up operations entered the active phase at all infrastructure facilities involved in the trial start-up process: 1st Start Up Complex of Oil Treatment Facility with capacity of 4.5 mmtpa and the pipeline from Suzun OTF to Vankor OTF, and infrastructure setup at 6 well pads.

Preparation of the site for construction of a new 150 МWt gas-turbine power station Polyarnaya at the Vankor field was started in April 2016. A new power station will be using the existing infrastructure to satisfy the growing demand for electric power at the Vankor cluster fields – Suzun, Таgul and Lodochnoye fields, which are currently at different stages of development. Three 110 KV substations and 170 km of 110 KV electric power transmission lines will be built for this purpose.

Gas production amounted to 33.23 bcm in H1 2016 , which is 6.9% higher than in H1 2015. Growth in gas production was driven by the launch and trial run of the 2nd stage of Novo-Urengoy gas and condensate treatment facility (Rospan) in Q4 2015 and the commissioning of a gas treatment unit at Barsukovskoe field (RN-Purneftegaz) in December 2015, and by development of the Northern Chaivo (RN-Shelf Dalny Vostok) in the Sakhalin shelf.

Associated petroleum gas (APG) utilization level increased to 90% in H1 2016, compared to 87% in H1 2015.

In H1 2016, over 2,400 km of onshore 2D seismic surveys, and over 4,800 sq.km of onshore 3D seismic surveys were acquired, exceeding the results of H1 2015 by 17% and 10% respectively. A total of 11 exploration and appraisal wells were tested with a success rate of 91%. 42 new deposits and 4 new fields were discovered with ABC1 + C2 reserves of about 35 mmtoe.

In H1 2016, 2D and 3D seismic acquisition operations started at Albanovsky and Vostochno-Pribrezhny license blocks in the Barents Sea and the Sea of Okhotsk. Preparation is underway for the full-scale exploration in the license blocks of the Laptev Sea, East Siberia Sea, Chukchee Sea, Kara Sea, Barents Sea and the Black Sea, that will include 2D and 3D seismic surveys, airborne gravity and magnetic surveys, geochemical surveys, and site investigation surveys.

Jointly with its strategic partner Statoil, the Company started drilling two exploration wells in Magadan-1 and Lisyanskiy areas of the Sea of Okhotsk under the carry financing arrangement.   Modern drilling equipment prepared in a special way and upgraded, was employed for this purpose.

In April 2016, Rosneft commenced the drilling of an extended-reach horizontal development well at Lebedyanskoye oil and gas condensate field in the continental shelf of the Sea of Okotsk. The well with the measured depth of over 5, 000 m was constructed and completed in July 2016 with the start-up flow rate over 400 kbpd. A total of three horizontal production wells with the length of 5, 000 to 7, 000 m are to be drilled within the project scope.

Drilling operations carried out in the shelf of Vietnam from Hakuryu-5 semi-submersible drilling rig were completed in Q2 2016. Drilling operator is RN-Vietnam. PLDD well discovered Wild Orchid gas condensate field at Block 06.1. Volume of reserves and commercial attractiveness of the discovery are to be confirmed. There is a potential synergy, given the proximity of Lan Tay platform which is also operated by RN-Vietnam.

Refining, Commerce and Logistics

In 2Q 2016, Russian refineries of the Company processed 19.4 mmt of crude oil, which was 0.5% down q/q. The decrease in crude oil refining throughput was caused by the optimization of refineries' utilization rate in the current macro-economic environment aimed at ensuring an efficient level of feedstock processing and optimal utilization rate of secondary processes, required for minimizing the output of heavy oil products in order to fully satisfy domestic demand for high-quality motor fuels. Meanwhile, the volume of oil refining in refineries abroad (3.1 million tons) remained almost at the level of Q1 2016.

Enhancement of facilities’ operational efficiency and optimization of Russian refineries' operations resulted in light products yield improvement by 0.6 pp to 55.8% and the refining depth by 4.3 pp to 70%, in H1 2016 year-on-year. The Company increased production of Euro-5 gasoline and diesel fuel to 13.6 mm t in H1 2016, exceeding 1.6 times the level of H1 2015.

Catalytic cracking unit was constructed and started up at Kuybyshev Refinery in June 2016 under the oil refining facilities upgrade program. The unit is intended for producing components of high-octane gasoline and diesel fuel via vacuum gasoil processing. The startup of the unit will increase the yield of light products by 2.5 pp.

The Company is the leading supplier of oil products to the domestic market: in H1 2016, products sales increased by 1.4% year-on-year, reaching 14.5 mmt. As part of wider cooperation and satisfying the needs of the federal customers, Rosneft and its subsidiaries were appointed as the only suppliers of motor fuels to the Russian Ministry of the Interior institutions in 2016 by the Russian Federation Government Order dated 10.06.2016.

The retail business of the Company demonstrated stable sales volumes in H1 2016, despite economic downturn in the Russian Federation. A new loyalty program for retail sites customers was launched in June 2016 as part of retail business development. More than 750,000 participants have joined the program since the start of the program. The project of retail sites lease in prospective regions without significant investments requirements is in progress: the retail sites lease project has been successful in Novosibirsk; the search for options and negotiations are underway in other regions.

In order to ensure security and efficient supplies of oil to end consumers on the domestic market the Company signed a long-term contract in Q2 2016 with  ООО Neftegazindustriya-Invest for crude oil deliveries via pipeline to the Afipsky refinery in the amount ranging from 6.0 tо 7.8 mm t for the next 3.5 years.

The company successfully continues to diversify supplies between the western and eastern destinations. East-bound shipments in H1 2016 rose by 13.1% year-on-year and reached 21.6 mmt.

The Company fully complies with its contractual obligations in terms of gas supplies not only to its industrial consumers and marketing companies, but also to the population and housing and utility sector. In 2Q 2016, due to a seasonal decline in gas demand, The Company's gas sales volumes went down by 18% compared to Q1 2016 and amounted to 14.6 bcm. Supplies under the new long-term contracts started in 2016, led to the increase in total gas sales in H1 2016 by 11% compared to H1 2015.

The Company continued trading gas through the exchange, selling 1.5 bcm of gas over 6M 2016.

Under the contract with Egyptian Natural Gas Holding Company, for the first time in its history Rosneft supplied LNG. The delivery was carried out by GOLAR ICE tanker to the port of Ain Sukhna under the contract signed in August 2015.

International operations

In May 2016, Rosneft successfully closed the deal to sell a 15% stake in AO Vankorneft to the Indian company ONGC Videsh Limited. The base deal price was at $ 1.27 billion (about 83 billion rubles). Vankor project is estimated at $3.4 per barrel of hydrocarbon reserves (2P reserves based on PRMS methodology) and reflects a high potential of the project's resource base.

Additionally, a purchase and sales contract for a 23.9% stake in AO Vankorneft and a shareholder agreement were signed with a consortium of Indian investors including Oil India Limited, Indian Oil Corporation and Bharat PetroResources. After the closure of the deal, representatives of the consortium will be on Vankorneft Board of Directors. At the same time Rosneft will retain the majority stake in the project, a majority in Vankorneft Board, control over operations of the entity, and a 100% control of the cluster's infrastructure, which will also be used for development of Suzun, Tagul and Lodochnoye fields.

Rosneft and Sinopec signed a Framework Agreement on the participation in the project of gas processing and petrochemical complex construction in East Siberia. The project will meet the growing demand for polyethylene and polypropylene in Russia and in China. The resource base of the project comprises Rosneft oil and gas fields of Yurubcheno-Takhomsky cluster in East Siberia. In the event of successful outcomes as stipulated by the Framework Agreement, it is supposed to create a joint venture between Rosneft and Sinopec in 2017.

In June 2016, the Heads of Terms for cooperation was signed with Beijing Enterprises Group Company Limited. The parties agreed on the key terms of a potential deal for the sale by Rosneft to the company of Beijing Gas Group of a 20% stake in PJSC Verkhnechonskneftegas holding the license for development of Verkhnechonskoye oil and gas condensate field. The parties expect to sign binding agreements no later than in Q4 2016.

In order to develop strategic partnerships, Rosneft set up a joint venture with BP for the development of prospective resources of the East and West Siberia. The joint venture will carry out exploration activities in the two areas of mutual interest – in West Siberia and in the Yenisei-Khatanga basin, with a total acreage of about 260,000 sq. km. The shares of the partners in OOO Ermak Neftegaz are split as follows: Rosneft – 51%, ВР – 49%. ВР will allocate up to $300 mln. in two stages as its contribution to the funding of exploration phase of joint venture operations.

In June 2016, during SPIEF, Rosneft signed a contract with Vietnamese PV Oil providing for supplies of up to 1.5 mmt per year in 2017-2020 and up to 4.5 mmt per year in 2021-2040 (the total volume is up to 96 mmt).

In order to develop strategic cooperation with the key partners in the Asian and Pacific Region, in Q2 2016 Rosneft concluded a framework agreement on cooperation with Pertamina including, inter alia, Tuban Petrochemical Complex construction in Indonesia. Supplies of motor gasoline to Pertamina already started at the end of July 2016 as part of a wider cooperation in hydrocarbon supplies. The Company continues negotiations to acquire a stake in the charter capital of Essar Oil Limited that owes one of the largest Indian refineries in Vadinar, a network of retail sites, and oil receiving and products marketing infrastructure.

As to crude oil supplies, on 16 June 2016, during SPIEF, Rosneft signed a contract with its long-time business partner, a Polish company PKN Orlen to extend cooperation in crude oil supplies by pipeline to refineries in Czech Republic, which confirmed stable exports to the traditional European market. The contract was extended by 3 years for the monthly supply volume from 230 tо 440 kt.

For strengthening strategic cooperation between Rosneft and China National Chemical Corporation (ChemChina), on 25 June 2016 in Beijing, the companies signed Heads of Terms for cooperation in the joint development of Far Eastern Petrochemical Company (FEPCO) project. The agreement provides for ChemChina’s farming-in a 40% stake in FEPCO with a proportionate participation in funding. Additionally, Rosneft signed a new contract for crude supplies via ESPO to ChemChina in the amount of 2.4 mmt over the period from August 2016 to July 2017 with a premium to be agreed on a monthly basis.

Key operational indicators in Q2 and H1 2016:

 *According to management data

Information Policy Division
Rosneft
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
 August 11, 2016

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.