OPERATING RESULTS FOR Q3 AND 9M 2018

• EFFICIENT PRODUCTION RECOVERY RESULTING FROM OPEC+ LIMITATIONS EASING
• Q3 2018 AVERAGE DAILY HYDROCARBON PRODUCTION REACHED 5.83 MMBOE, DEMONSTRATING A 2.1% GROWTH VS. Q2 2018 LEVEL
• AVERAGE DAILY LIQUIDS PRODUCTION UP BY 2.6% QoQ
• GAS PRODUCTION UP BY 1.0% VS. Q2 2018 LEVEL
• REFINING THROUGHPUT IN RUSSIA REACHED 76.6 MMT, DEMONSTRATING A 1.8% GROWTH YoY
  

Upstream

Hydrocarbon production amounted to 72.4 mmtoe (5.83 mmboed) in Q3 2018 and 211.8 mmtoe (5.75 mmboed) in 9M 2018, exceeding the level of Q2 2018 and 9M 2017 by 3.3% and 0.5% respectively.

As a result of OPEC+ limitations easing the Company’s average daily liquids production amounted to 4.73 mmbl in Q3 2018, demonstrating growth of 2.6% QoQ and 3.4% YoY, on the back of efficient production recovery at a number of brownfields (mainly, RN-Nyaganneftegaz, Varyoganneftegaz, RN-Purneftegaz, Orenburgneft) through optimal well stock selection and its management. The Company continues ramping up production taking into account the proposals made at OPEC+ countries’ Ministers Monitoring Committee held in Algeria at the end of September 2018. As a result, oil and gas condensate production reached 4.78[1] mmbpd in October, exceeding the level of May 2018 by >200 kbpd and the level of October 2016[2] (prior to the OPEC+ Agreement) by >100 kbpd.

The growth in average daily production of oil and gas condensate in Russia in September 2018 vs. October 2016 production level amounted to 138 kbpd, of which >62% is Rosneft’s share. In addition, the Company’s average daily production in Russia increased by 4.7% in September 2018 YoY.

Due to the key contribution from Rosneft, average daily production of oil and gas condensate in Russia reached its historic maximum in October 2018, swiftly exceeding the production level prior to the OPEC+ deal commencement (October 2016).

As a result, the Company promptly realized the earlier stated technological potential to ramp up liquids output in the amount of ~200 kbpd, which confirms appropriate strategic selection of assets for production cut. In accordance with the approved Strategy, the Company plans to continue liquids production growth to reach 5.09 mmbpd (250 mmt) by 2022.

Average daily liquids production in 9M 2018 increased by 48 kbpd or 1.0% YoY as a result of the record performance at RN-Yuganskneftegaz, the Company's largest asset, and active development of new projects.

Development drilling increased in Q3 2018 by 4% QoQ and in 9M 2018 by 5% YoY, exceeding the level of 9 mln meters while sustaining the in-house drilling share at 60%. In 9M 2018 the number of new wells commissioning increased by 13% YoY up to 2.6 th. wells with horizontal wells share up to 46% and the number of new horizontal wells with multistage fracturing up by 69%.

In early August, the Company set the new industry record in daily drilling – 56,708 meters, exceeding the previous achievement by almost 7%. The increase in drilling was possible due to planning and drilling management system improvement and the efficient implementation of new technologies.

In September RN-Yuganskneftegaz, the Company's largest asset, set the new industry record in daily oil production - 195.3 th. t (1.45 mmbbl). This is the highest figure of RN-Yuganskneftegaz in recent Russian history that was achieved due to large-scale application of innovative technologies and the introduction of proprietary scientific developments in drilling. In 9M 2018 the asset's liquids output growth reached 6.5% YoY.

The Company continues developing and preparing for commissioning of the new assets in accordance with the approved plan. Total liquids output in 9M 2018 at the Suzun, East-Messoyakha, Yurubcheno-Tokhomskoye and Kondinskoye fields amounted to 58 mmbbl.

The implementation of the second development stage started at the Suzun field, which includes construction of the gas program facilities (gas treatment facility with compressor station, gathering gas pipeline Suzun-Vankor, gas well pads). Expected production plateau of ~4.5 mmt is planned to be achieved in 2019.

Successful development of East-Messoyakha field is in progress. The development involves multilateral and high-tech wells with the Fishbone technology, polymer flooding pilot operations to improve efficiency of hard-to-recover reserves development.   The production plateau of 3 mmt (in the Company’s share) is planned to be reached in 2021.

Implementation of a series of infrastructure setup activities at the Yurubcheno-Tokhomskoye field and technological start-up of the second stage facilities, which includes oil production increase up to 5 mmt in 2019, is in progress. Construction of the second oil treatment facility (OTF-2) where oil will be treated to meet the commercial standards is in progress. The production plateau of ~5 mmt is expected to be reached next year.

The Erginsky cluster is being developed in line with the plan. Efficiency of the drilling operations and the use of modern technologically advanced solutions made it possible to reach one million tons of cumulative oil production in less than one year since the start of commercial development of the Kondinskoye field. High performance was achieved on the back of efficient management of the development drilling program and consistent implementation of the exploration surveys results to revise the reservoirs geology. The plan is to reach the production plateau of >2.5 mmt in 2019.

Technologies, such as geo-steering while drilling – real-time well trajectory management – are used at the Erginsky cluster fields. This facilitates improvement in drilling efficiency through the productive formations. Additionally, well-logging operations involving nuclear-magnetic, acoustic and other methods are being carried out. Modern methods of hydrodynamic and geomechanical simulation aimed to optimize horizontal wells completion and reservoir multi-stage fracturing planning are being applied.

The Company is working on gradual launch of the second stage of Srednebotuobinskoye, Tagulskoye, Russkoye and Kuyumbinskoye fields.

Second stage facilities were launched at the Srednebotuobinskoye field (oil pipeline, central processing facility, crude oil delivery and acceptance point), which facilitate oil treatment and delivery up to 5 mmtpa.  The infrastructure and field facilities construction is ongoing. Horizontal and multilateral wells drilling program is being implemented. In 9M 2018, field oil production exceeded 2 mmt. Expected production plateau ~5 mmt is planned to be reached in 2021.

Development drilling continues at the Tagulskoye field (39 wells were drilled in 9M 2018), the field facilities construction operations are in progress (oil treatment facility, well pads, oil pipelines and other). A series of works using mobile oil treatment facilities are carried out in order to minimize geological risks and ensure planned production levels. Expected production plateau >4.5 mmt is planned to be achieved after 2022.

At the Russkoye field with high-viscosity oil reserves the Russkoye CPF - Zapolyarnoe CODAP pressure pipeline construction is in final stage. The construction and installation works and preparations for the process technological start-up of the main field facilities are ongoing.  As of end-Q3 2018, >170 wells with >9 ktpd oil production potential were drilled at the field. Expected production plateau of >6.5 mmt is planned to be achieved after 2022.

Construction and installation works and pre-commissioning of oil gathering and treatment facilities (CPF and oil gathering line from the right bank of the Podkamennaya Tunguska River) of the first start-up complex at the Kuyumba field are ongoing. Development drilling is increasing at the field. As part of implementation of the priority works involving pre-commissioning and integrated testing of the equipment Central Processing Facilities were filled with oil in October 2018. The plan is to reach the production plateau of >1.5 mmt (in the Company’s share) after 2021.

Q3 2018 gas production totaled 16.62 bcm demonstrating a 1.0% growth QoQ, mainly due to the increased Egyptian offshore Zohr project capacities, and the increased production of associated petroleum gas (APG) due to the OPEC+ oil production limitations easing.  APG utilization level in Q3 2018 amounted to 83.6%.

Active phase of the key infrastructure facilities construction is in progress at Rospan project. Corrosion protective treatment of pipelines and racks at the East-Urengoy license area gas and condensate treatment unit are in progress. Technological equipment assembling at the second stage methanol regeneration unit is in final stage. Installation of the utility systems continues at the East-Urengoy license area gas-turbine power plant. Launch of the project is scheduled for 2019 with a further increase of gas production up to >19 bcm and liquids output up to > 5 mmtpa.

The Company started the project for the gas development option at the Kharampur field, which is the second promising gas project after Rospan. The Company drilled 34 out of 63 wells, and laid 28 km linear pipeline out of 156 km at the gas pipeline. In the short-term, works involving Cenomanian gas field surface facilities construction are planned to be performed. The project is expected to be launched in 2020 and subsequently reaching production plateau at 11 bcmpa.

The implementation of the Egyptian offshore Zohr, where gas production started in December 2017, is progressing ahead of schedule. The field production capacity was increased by >25% up to >56.6 mmcmpd (100% of the project, ~10.2 mmcmpd in the Company share). This was made possible through the implementation of the 5th technological unit of gas processing facility (GPF) and the commissioning of the 2nd transport gas pipeline from the field to the GPF and new production wells. Such performance was achieved just in 9 months after the field launch. Gas production in 9M 2018 totaled ~7.1 bcm of gas (100% of the project, 1.3 bcm in the Company’s share). Considering the attained progress in new facilities commissioning, the planned production volume of >76 mmcmpd of gas can be achieved as early as in 2019.

In 9M 2018 4.8 th. km of onshore 2D seismic surveys and 8.2 th. sq. km of onshore 3D seismic surveys were acquired. The Company carried out the large-scale seismic operations in the strategic regions of presence – the Khatanga cluster and continued implementation of the projects in Yakutia. Currently, the processing and interpretation of the obtained data are in progress, following which exploration and appraisal drilling will be performed.

In accordance with the approved Strategy, the Company aimed at drilling quality and exploration and appraisal drilling success rate improvement. In 9M 2018, the testing of 77 exploration and appraisal wells was completed with an 84% success rate. 58 new deposits and 14 new fields were discovered with АВ1С1+B2С2 reserves amounting to 117 mmtoe.

Refining, Commerce and Logistics

Q3 2018 oil refining throughput at the Company's refineries in the Russian Federation rose by 6.7% QoQ up to ~26.8 mmt. 9M 2018 refining throughput reached 76.6 mmt (+1.8% YoY on the back of improving market environment). The total refining throughput, including the foreign operations, reached ~30 mmt in Q3 a 6% QoQ growth and ~85.5 mmt in 9M with a 1.4% growth YoY.

In 9M 2018, light products yield at the Company's refineries in Russia decreased slightly by 0.2 p.p. YoY to 58.2%. Refining depth remained at 9M 2017 level and amounted to 75.2%.

In August 2018, the Company commissioned the second for the year water treatment facility - the post-treatment unit with the membrane bioreactor at the wastewater treatment facilities of the Novokuibyshevsk Refinery.  This unit ensures a high level of treatment and return of water to the production cycle, thus minimizing water resources consumption. The commissioning of innovative wastewater post-treatment technology is an important step forward in the practical implementation of Rosneft's Environmental Policy and will have a positive impact on the surrounding water basin.

In September 2018, following the Company's Ufa group of refineries, the Saratov oil refinery started commercial production of high-octane gasoline “Euro-6” class with the improved environmental and performance properties. The fuel is already delivered to the most of Rosneft's filling stations in the Krasnodar Krai.

The Company focused on the development of its technological potential. For instance, in Q3 2018, the Ufa group of refineries started the production of road bitumen compliant with the new intergovernmental standards. The new production technology ensures the endurance of the produced road asphaltic binders.

With regard to the development of partnerships with major Russian companies, Rosneft signed an Agreement for the delivery of naphthyl rocket fuel with Roscosmos and a long-term contract for the shipment of marine fuel with the Russian Fishery Company at the IV Eastern Economic Forum in September.

Additionally, Rosneft and SOCAR Trading S.A. signed the contract for the delivery of REBCO crude oil during December 2018 – November 2019 to the Turkish refinery based on FOB in port Novorossiysk in the quantity of up to 1 mmt using formula-based pricing.

As part of the oil supplies diversification, the Company continued to increase the oil shipments to the Eastern direction. In 9M 2018 the deliveries increased by 22.4% YoY up to 43.1 mmt. The growth in Q3 2018 was at 12.9% QoQ up to 15.7 mmt.

With regard to the development of lubricants segment, the Rosneft Corporate scientific and engineering complex specialists developed and patented the composition and production technology of the first Russian multifunction package of additives to hydraulic oils for industrial equipment.   Such oils are adapted for harsh conditions, they are made from the domestic raw materials and are 1.5 times cheaper than the imported counterparts.

Additionally, the Company specialists developed motor oils for the Arctic and the Far North, which ensure reliable operation under minus 60⁰ С. The technology has no comparable counterparts and will be used at the Angarsk Petrochemical Company.

In Q3 2018 oil products sales through the retail channel increased by 20% YoY.

Revenues from non-fuel sales in Q3 2018 increased by 6% YoY mainly on the back of the introduction of a new product range policy at all Company's filling stations and on the food offer development. Gross income from the cafe business in Q3 2018 increased by 17% YoY.

After the new loyalty program roll-out completion in 57 regions of the Russian Federation, the work continued towards increasing the number of participants of "Family team" and "BP Club" loyalty programs via targeted campaigns. As of end-3Q 2018, 9.7 mln participants were involved. Pulsar 100 fuel sales started at Rosneft's filling stations in Moscow region and Euro 6 based on AI-95 fuel sales started at Rosneft-Kubannefteprodukt filling stations.

The fuel quality control is being conducted constantly at tank farms and filling stations using stationary and mobile laboratories. More than 5.7 th. inspections were delivered at filling stations in 46 regions of the Russian Federation with the use of own mobile laboratories. Since the beginning of the year, fuel quality tests at tank farms and filling stations have been carried out in all regions of the Company's presence. Such control allows for elimination of the risks of selling fuel with quality deviations to consumers. Also, the dosage of fuel delivered to the end user at the filling stations of the Company is being controlled on a periodic basis.

In pursuance of the multi-fuel supply development, the works have been completed and 10 stations in Ulyanovsk, Voronezh, Saratov and Stavropol Krai have been put into pilot operations, where compressed natural gas (CNG) is sold as a motor fuel.  Above 1 th. vehicles are fueled daily at filling stations. Another one filling station will shortly be launched in Saratov.

International operations

Rosneft and China National Petroleum Corporation (CNPC) signed the Agreement on Cooperation in Exploration and Production in the Russian Federation at the IV Eastern Economic Forum in Vladivostok. Under the agreement, CNPC will have an opportunity to acquire the minority interests in Rosneft's major oil and gas projects, in particular, in Eastern and Western Siberia. In addition, the parties agreed to review the CNPC proposal for provision on market principles of services for these fields in the area of exploration, development and production of hydrocarbons.

Rosneft and Equinor, at the IV Eastern Economic Forum, signed the Agreement for cooperation in the area of process and fire safety, occupational
safety and health and environmental protection as well as transportation safety, including safety during implementation of the joint oil and gas projects. Process safety, occupational safety and environmental protection are Rosneft's top priorities in all areas of operations. The document provides for the facilitation of interaction in this area, including exchange of experience and best practices. The parties also agreed on the format of the interaction, which will facilitate improvement of health, safety and environment management level.

Also, Rosneft and Beijing Gas Group Company Limited, at the IV Eastern Economic Forum, signed the Agreement on the establishment of a joint venture for the construction and operation of >160 CNG filling stations and the potential of using LNG as a gas engine fuel.

Rosneft Deutschland GmbH, a subsidiary of Rosneft, signed the contracts with the German companies on sales of own petrochemical products starting from 2019. In particular, the agreement on sales of propylene produced by Rosneft Deutschland at PCK, Bayernoil and MiRO refineries in Germany was signed with HELM AG. The purchase and sales contract of own aromatic hydrocarbons and sulfur was signed with Brenntag International Chemicals GmbH. 

Key operational indicators in Q3 and 9M 2018:

*According to management data

**Including marine fuel

Information Policy Division
Rosneft
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
November 6, 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.