OPERATING RESULTS FOR Q4 AND 12 MONTHS 2017

• HYDROCARBON PRODUCTION ROSE BY 6.5% TO 5.72 MMBOED IN 2017
• LIQUIDS PRODUCTION INCREASED BY 7.3% IN 2017
• GAS PRODUCTION WAS UP BY 2.0% TO 68.41 BCM IN 2017
• LAUNCHING THE KEY PROJECTS ON TIME
• REFINING QUALITY IMPROVED: LIGHT PRODUCT YIELD REACHING 58.4%, REFINING DEPTH – 75.2%

 Upstream

Hydrocarbon production reached 5.71 mmboed in Q4 2017 (70.9 mmtoe ), and 5.72 mmboed in 2017 (281.7 mmtoe). Growth amounted to 0.7% QoQ and to 6.5% YoY.

Average daily liquids production amounted to 4.55 mmboe in Q4 2017. The Company produced 225.5 mmtoe (4.58 mmboed) liquid hydrocarbons in 2017, raising the average daily production level by 7.6%. Despite the external constraints imposed in October 2016 Rosneft demonstrated positive production dynamics in 2017 taking into account  Bashneft operating performance from January 2016 and on stand-alone basis.

The development drilling increased by 29.5% YoY to 12 mln m, the number of new wells commissioning rose by 28% to 3.4 th. wells in 2017. The share of horizontal wells improved to 36%, the number of horizontal wells with multi-stage fracs jumped by 67%. The share of in-house drilling services in the overall footage remains at about 60%.

Accelerating production growth at RN-Yuganskneftegaz became one of the key achievements in 2017. The subsidiary raised the oil output by 4.5% to above 66.5 mln t in 2017, while Q4 2017 daily production exceeded 190 th. t (above 69 mmt in annual terms). This production level was achieved more than a year ahead of the approved plan on the back of applying the modern technologies in drilling, real time technical support in wells drilling and completion and enhanced oil recovery methods including optimized hydraulic fracturing and mutli-stage hydraulic fracturing operations. Following the pilot testing at the Prirazlomnoye and the Priobskoye fields, the drilling cycle of the horizontal wells with multi-stage fracs more than halved.

RN-Nyaganneftegaz (+1.6%), Varyoganneftegaz (+0.7%), and Samaraneftegaz (+1.4%) were among other major brownfields, demonstrating positive daily production growth, which was mainly driven by existing tax incentives for the fields with the tight reservoirs.

Investment incentives for the Company’s Samotlor field in the form of RUB 35 bn annual MET reduction for 10 years were approved by the Federal Law No. 335 “On Introduction of Amendments to Part One and Part Two of the Tax Code and to Certain Legislative Acts of the Russian Federation” dated November 27, 2017. The amendments came into effect on January 1, 2018. The Board of Directors formalized commitments of the Company to drill more than 2.4 th. wells in 2018-2027, assuming their incremental oil production over 50 mm t.  The introduction of these tax incentives will fully unlock the resource potential of the Samotlor field, intensifying the operating activity, which would also improve the employment in the region. 

The Company started commercial development of the three fields within the Uvat project: the Severo-Tyamkinsky, the Severo-Tamarginsky and the Kosukhinsky fields. The recoverable АВ1С1+В2С2 reserves at these fields were at about 54 mm t of oil as of January 1, 2018.

Major new projects such as Suzun and Messoyakhaneftegaz are being developed fully in line with the plan. The Company's crude oil production share from these fields was more than 5.7 mln tons in 2017. These projects’ development drilling program is in progress, construction of the second stage of OTF at the Suzun field and expansion of the CPF oil treatment facilities at the East Messoyakha field are on final stages.

Rosneft launched the production at a number of new major projects in 2017. The Erginsky cluster start-up complex was officially commissioned and shipment of the first oil into Transneft pipeline system started in November 2017. The Company launched comprehensive technological testing of the oil treatment facility (OTF-1) at the Yurubcheno-Tokhomskoye field in East Siberia, the construction and installation works of the first project stage are being finalized; further drilling and development of production and supporting infrastructure are in progress. The total production at these projects reached about 1 mln t in 2017, while daily output exceeding 50 th. bbl at the end of the year.

Q4 2017 gas production reached 17.55 bcm, rising by 5.3% QoQ mainly on the back of the completion of planned preventive maintenance works at Chaivo onshore treatment complex, Tyumen compressor station and gas processing plants of Sibur performed in Q3 2017.

2017 gas production amounted to 68.41 bcm, increasing by 2.0% YoY. The production growth was related to the acquisition of Bashneft assets in Q4 2016, launching new wells at Varyoganneftegaz in 2017, and an increase in gas delivery volumes through Tyumen compressor station after its reconstruction, launching the new wells and flow rates optimization at the existing wells at Sibneftegaz.

Associated petroleum gas (APG) utilization level was at 89.2% in 2017.

In December, Rosneft as a member of an international consortium started the gas production at the Egyptian offshore Zohr field. Realization of the project of such a scale in cooperation with the foreign partners will allow Rosneft expanding its experience in the offshore fields development and strengthening its position on the strategically important market in Egypt.

In December, Rosneft with Eni as a partner also started the realization of a unique project on drilling the first ultra-deep-water prospecting and appraisal well Maria-1 in the Russian offshore (the Black Sea), using a semi-submersible drilling rig Scarabeo-9. Target well depth is 6,126 meters; sea depth at the drilling point is over 2 th. meters.

In 2017, more than 46 th. linear km of 2D seismic was conducted at the offshore license areas of the Laptev, Kara, Chukchi, East Siberian, and Japanese Seas; and 5.8 th. sq. km of 3D seismic - at the license areas of the Pechora and Okhotsk Seas. This exceeded the 2016 results by 40% and 44% respectively. Engineering and geological surveys were carried out in the Barents, Kara and Black Seas.

In 2017, ~7 th. km of 2D and ~10 th. sq. km of 3D onshore seismic surveys were conducted in Russia, exceeding 2016 levels by 2.5 and 1.3 times respectively. 155 exploration wells were tested with a 86% success rate.

The total volume of seismic surveys both onshore and offshore in 2017 increased by more than 30% YoY.

As a result of the exploration activity the Company discovered 162 new deposits and 31 new fields with total АВ1С1+B2С2 reserves of 233 mmtoe in 2017.

АВ1С1 reserves addition from exploration amounted to 404 mmtoe. In 2017, АВС1+С2 remaining recoverable reserves amounted to ~142 bln boe which is 4.2% higher YoY.

Downstream

The Company's oil refining throughput at Russian refineries increased to 25.4 mmt  in Q4 2017 (+1.3% vs. Q3 2017) with improving market environment. At the same time, the refining volume decreased by 6.3% YoY due to the refineries turn-around cycle. The total refining throughput, including the operations at the foreign enterprises, reached 28.5 mmt in Q4 2017.

On the back of  Bashneft assets integration in Q4 2016, the oil refining throughput at Russian refineries increased by 15.0% tо 100.6 mmt in 2017. Light product yield improved by 1.8 p.p. YoY tо 58.4%, аnd refining depth went up by 3.2 p.p. YoY tо 75.2%.

As a part of Bashneft integration process into Rosneft refineries portfolio high-octane component deliveries started from Ufa Refineries to the Rosneft refineries.

As a part of main activities in the Year of Ecology-2017 in Russia, Ufaneftekhim, Bashneft subsidiary, launched one of the world's largest biological waste treatment plant. Additionally, the construction project of a new central laboratory at Kuibyshev refinery was completed.

In Q4 2017, large-scale repairs and reconstruction are completed at the distillation unit AT-6  at the Ryazan refinery. The reconstruction of the gas fractionation unit with a dry gas desulphurization block was also completed at the refinery.

The equipment for the hydrocracking complex and methyldiethanolamine regeneration unit was delivered to the Novokuibyshevsky refinery, and the main high-capacity process equipment for the diesel fuel hydrotreater under construction was installed at Angarsk Petrochemical Company in H2 2017. Commissioning of the units will allow improving the high quality diesel fuel and gasoline output. 

The catalysts for the gasoline reforming units at the Kuibyshev and Saratov refineries were replaced with the catalysts produced at the Angarsk Plant for Catalysts and Organic Synthesis as part of ongoing import substitution program.

Reconstruction of isopropylbenzene (cumene) production facilities and comprehensive testing of production operations are underway in Ufaorgsintez. An air separation unit was commissioned.

In 2017, the Company continued supplies diversification between the western and eastern destinations: eastbound shipments increased by 10.7% YoY to 47.7 mmt.

Development of the premium oil products sales channels, including jet fueling, bunkering and bitumen segments, is among the Company's priorities.

Jet fuel is sold through the 26 controlled and 23 third-party fueling facilities. On the back of improving purchasing ability and, consequently, traffic volume growth in Russia, the volume of jet fuel increased in 2017 by 10% YoY and reached 3.3 mmt. A joint venture was set up to construct a jet fueling facility in Pulkovo with the aim to increase jet fuel sales to end consumers at one of the key Russian airports.

In 2017, the Company's continued maintaining and extending its market share at bunkering fuel market. In Q2 2017, the Komsomolsk refinery and Angarsk Petrochemical Company switched from straight run fuel oil production to cracking fuel oil production, improving the market competitiveness and sales volumes to the world's largest bunkering consumers – the ocean container lines in the ports of  Primorsky region.

Rosneft’s activity in the bunkering business covers all the main sea and river ports in Russia, and a number of foreign destinations. The volume of bunker fuel sales in 2017 rose by 47% YoY to 2.8 mmt.

In the bitumen segment, Rosneft develops the production and sales of innovation polymer modified asphalt cement, which improves significantly the quality of the road coating.  The sales volume of that high-margin product increased by 70% YoY in 2017.

As a result of Bashneft acquisition, sales through the high-margin retail channel increased by 7% YoY in 2017. The federal roll-out of the new loyalty program was completed, more than 6.5 million participants entered the program in 56 regions of the Russian Federation. Comprehensive renewal of the corporate style was completed at 150 retail sites of the Company in accordance with Rosneft retail brand standards. In order to improve a non-fuel offer for the clients of the retail sites network, a number of retail sites with roadside diners increased by 21%. As of the end of 2017, coffee was sold in all retail sites and majority of filling stations.

For ensuring the safe-keeping and quality of petroleum products, the main focus of 2017 was on gradual switching towards  total automation of measurements at all the material flows of the retail network and controlling procedures in the trading and accounting systems of oil depots and retail sites, and introduction of an electronic system at fuel trucks for the guaranteed oil products delivery in terms of quantity and quality.

At the end of 2017, the consolidation of retail subsidiaries was almost completed targeting the development of an optimal business management structure – 99% оf the Company's retail subsidiaries were consolidated into a sub-holding. 

International operations, assets acquisition and cooperation with partners

In August Rosneft successfully closed a strategic deal to acquire a 49% stake in Essar Oil Limited. Acquisition of the stake in the first-class asset with significant development potential allowed the Company to enter the Indian oil refining market – one of the most fastest growing in the world. Rosneft has already started highly efficient oil supplies to the refinery in Vadinar from its portfolio of contracts.

In early October, the Company closed a deal with Eni to acquire 30% in a concessional agreement to develop Zohr field, one of the largest gas fields in the Mediterranean . The project is being undertaken in partnership with Eni (60% stake) and BP (10% stake). Participation in the development of this unique producing asset will allow Rosneft to significantly increase gas production abroad in the short term and to enter theEgiptian gas market with the prospect of further intensifying activities in this country and the whole region.

In April, the Company closed the deal to acquire a 100% stake in Kondaneft project, which is developing four license blocks; in July, the Company won the auction for the Erginsky license block.    These license areas in the Khanty-Mansiysk Autonomous Region have significant hydrocarbon reserves and are located near the Priobskoye field – the Company's unique field in terms of reserves, with the developed infrastructure.  Therefore, an integrated approach to the development of the Kondinskoye group of fields and the Erginskoye field will provide substantial synergies and boost the development of the resource potential of the fields, taking into account the existing infrastructure.

In September, an agreement was signed between Rosneft and Statoil providing for a new phase of cooperation for Severo-Komsomolskoye field. According with the signed document, it is planned that Statoil will acquire 33.33% in SevComNeftegaz. In adition, the agreement specifies the procedure of the asset management in the joint development of the Severo-Komsomolskoye field.

Rosneft and BP agreed to implement the project to develop Kharampur and Festivalny license blocks with total in-place reserves over 880 bcm of gas located in the Yamalo-Nenetsky Autonomous Region. The project envisages development of conventional reserves of senomanian gas deposit, pilot development of Turonian gas deposit to be followed by the full-field development, and optimization and increasing of the efficiencyof oil production at the oil reservoirs of these license areas. Rosneft will retain a controlling 51% stake in the project, and BP will receive a 49% stake.

In 2017, Rosneft and CNPC signed an supplementary agreement to increase the supply of oil transiting through Kazakhstan and to extend the 2013 year contract till the end of 2023. Based on the agreement oil supplies volume will reach 91 mmt for 10-year period, it allows the Company supplying crude oil to this strategic destination.

In November 2017, Rosneft and Indonesian state-owned oil and gas company Pertamina completed setting up a joint venture for construction of a new refining and petrochemical facility in Tuban in Eastern Jawa Province. Designed capacity of primary crude refining is planned at the level of 15 mmtpa, the designed capacity of the petrochemical facility is over 1 mmtpa of ethylene and 1.3 mmtpa of aromatics. Investment decisions will be taken at a later stage based on BED/FEED results.

In October, the Company and the Government of the Kurdish Autonomous Region of Iraq signed the documents required for the enactment of Production Sharing Agreements (PSA) for five production blocks with a conservative estimate of recoverable oil reserves of 670 mln bbl which are located in the Kurdish Autonomous Region. The key terms of the agreements and the basic principles of production distribution are similar to the PSA in Iraqi Kurdistan that were signed by other international oil and gas companies. Additionally, during the X Eurasian Economic Forum in Verona, the parties announced the launch of a joint infrastructure project to operate an oil pipeline in the Kurdish Autonomous Region. Rosneft share in the project is 60%, the share of KAR Group (the current operator of the pipeline) in the project is 40%.

In November, 2017, Rosneft, Petrocas Energy и Motor Oil Hellas Corinth Refineries signed a trilateral agreement of intent in the area of crude oil and product supply. The document defines the intentions of parties for arrangement of the mutual supplies of feedstock and oil products during the next 5 years and provides for a potential possibility of increasing of these volumes to 7.5 mtpa.

Pursuant to the intergovernmental agreement between the Russian Federation and the Republic of Cuba, in 2017, Rosneft supplied about 220 th. tons of oil and base oils to Cubametales, the authorized Cuban company.

Key operational indicators for Q4 and 12M 2017:

 _{*According to management data} 

Information Policy Division
Rosneft Oil Company
tel.: +7 (495) 411 54 20
Fax: +7 (495) 4115421
March 19, 2018

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.