OPERATING RESULTS FOR 4Q AND 12M 2019

• THE COMPANY BECAME A CONSTITUENT OF FTSE4GOOD EMERGING INDEX LEADING ON CORE SUSTAINABILITY METRICS
• 2019 AVERAGE DAILY HYDROCARBON PRODUCTION AMOUNTED TO 5.79 MMBOE, WHILE AVERAGE DAILY LIQUIDS PRODUCTION WAS AT 4.67 MMBBL, THE INDICATORS REMAINED AT 2018 LEVEL
• 4Q AVERAGE DAILY HYDROCARBON PRODUCTION AMOUNTED TO 5.81 MMBOE, WHILE AVERAGE DAILY LIQUIDS PRODUCTION WAS AT 4.67 MMBBL, GROWING BY 1.3% AND 0.3% QOQ, RESPECTIVELY
• 2019 GAS PRODUCTION AMOUNTED TO 66.95 BCM, INCLUDING 17.22 BCM PRODUCED IN 4Q, GROWING BY 5.6% QOQ
• AS A RESULT OF GEOLOGICAL EXPLORATION 258 NEW DEPOSITS AND 23 NEW FIELDS WERE DISCOVERED WITH AB1C1+B2C2 HYDROCARBON RESERVES AMOUNTING TO 352 MMTOE
• 2019 OIL REFINING THROUGHPUT AT THE COMPANY’S REFINERIES AMOUNTED TO 110.2 MMT, INCLUDING 100.1 MMT WERE PROCESSED AT THE REFINERIES IN RUSSIA
• 2019 MOTOR FUEL SUPPLIES TO DOMESTIC MARKET AMOUNTED TO 29.9 MMT, UP BY 6% YOY
• IN 2019 THE COMPANY EXCEEDED THE QUOTAS FOR MOTOR FUEL SALES VOLUMES ON THE EXCHANGE BY MORE THAN 2 TIMES
• IN 2019 THE VOLUME OF «WING-TIP» JET FUEL SALES TO CIVIL AVIATION AMOUNTED TO 2.5 MMT, GROWING BY 12.4% YOY

Implementation of strategic initiatives in sustainable development

2019 was a transformational year for the Company in terms of the environmental agenda. Rosneft has firmly established itself as one of the industry leaders with low unit carbon emissions.

In April 2019 the Company presented its updated public statement “Rosneft: Contribution to Implementation of UN Sustainable Development Goals” which was approved by the Board of Directors in December 2018. The public statement confirms Rosneft’s intention to enter the first quartile of international oil and gas companies in Health, Safety & Environment area by 2022, as well as to develop human resources and contribute to the integrated socio-economic development of the regions.

Rosneft Oil Company has joined the initiative of the world’s leading oil and gas companies and signed “The Guidelines for Methane Emission Reduction in Natural Gas Supply Chain”. The signed Guidelines are aimed at increasing the effectiveness of the efforts to reduce methane emissions at all stages of the gas industry supply chain, promoting rational policy and regulations of methane emissions, and ensuring transparency of emission reporting.

Carbon Management subcommittee has been set up as part of the HSE Committee with the objective to help achieve the Company’s strategic objectives in climate change area.

In December 2019 the Company was included in the international FTSE4Good Emerging Index. Based on 2019 results, Rosneft joined the leading global oil and gas companies – participants of the global CDP (Carbon Disclosure Project) Climate Change Rating. As a result of an independent assessment, Rosneft was assigned the “B” rating - the highest among the participating Russian oil and gas companies and two levels higher than the average rating of participating European companies. Taking into account water management decisions, Rosneft’s operations were assigned the “B-” rating. The high-performance assessment demonstrates the efficiency of the environmental policy of the Company, which has never participated in the CDP Water Resources rating before.

Rosneft is ahead of the majority of global oil and gas companies with respect to reporting transparency, according to Bloomberg and Refinitv ratings. The Company will continue to combat anthropological effect on the environment, which is a key priority for Rosneft.

Hydrocarbon production

In 2019 hydrocarbon production amounted to 5.79 mmboed (285.3 mmtoe annualy), virtually remaining at 2018 level. In 4Q 2019 the average daily production of hydrocarbons was at 5.81 mmboe (72.2 mmtoe over the period), demonstrating an increase of 1.3% QoQ.

In 2019 liquids production amounted to 4.67 mmbpd (230.2 mmt annually), remaining at 2018 daily production volume. This figure was achieved despite the effect of external restrictions, such as the extension of the OPEC+ Agreement and the temporary constraints on the intake of oil into the Transneft trunk pipeline system. In the reporting quarter the average daily production of liquid hydrocarbons amounted to 4.67 mmbbl (58.0 mmt over the period), an increase of 0.3% QoQ. The quarterly growth is mainly driven by the introduction of advanced technologies to engage hydrocarbon reserves from low-permeable reservoirs into active development, along with the oil recovery coefficient increase. Production grew at large new projects – Srednebotuobinskoye, Vostochno-Messoyakhskoye and Kuyumbinskoye fields.

Due to the achieved planned production volumes in 2019, the Company was able to make a significant contribution to setting a new post-Soviet record for Russia in terms of oil production volumes (560.3 mmt).

As a result of legislatively established investment incentives at the Samotlor field, the Company continues the work towards increasing its development efficiency by expanding the drilling program and new wells commissioning. The declining trend in production, which maintained until 2018 at an average annual rate of 5%, was broken due to the implemented measures. In 2018-2019 the Company reduced its production decline to c. 1%, reaching 136 mmbbl at the year end. In the reporting quarter the level of liquid hydrocarbons production at the field amounted to 0.37 mmbpd, demonstrating a 0.4% increase from the 3Q 2019 level.

The further progress at RN-Yuganskneftegaz is highly contingent upon the development of a significant share of low-permeability and high water cut reserves, the development of which is economically unviable under current tax environment without additional incentives.

4Q gas production reached 17.22 bcm, demonstrating a 5.6% increase QoQ. The increase in production is mainly attributable to the scheduled preventive repairs conducted in 3Q 2019 both at the Company’s own production facilities and at Sibur gas processing plants, along with a seasonal increase in demand in the autumn-winter period. Gas production in 2019 amounted to 66.95 bcm, which corresponds to the 2018 level (with minor variances).

Development drilling and new wells commissioning

4Q 2019 development drilling footage amounted to 2.2 mln m, reaching 10.0 mln m in 2019. The share of in-house drilling footage is traditionally maintained above 50% level. The Company focuses on construction of hi-tech wells, which ensure more efficient reservoir development and enhanced oil recovery compared to directional wells drilling.

In 2019 the number of new wells commissioned amounted to 2.9 th. units. New horizontal wells commissioning increased by 1% compared to 2018 level, while their share in the total number of newly commissioned wells grew by 9 p.p. to 57%. Production per horizontal well increased by 11% YoY and amounted to c. 9 th. t per well, which is 2.4 times higher than the directional wells figure. In 2019 the number of newly commissioned horizontal wells with multistage hydrofracturing reached 986 units, which represents 34% of the total number of new wells commissioned in the reporting period.

Modern technologies implementation in the upstream

As part of implementing Rosneft-2022 strategy the Company proceeds with the rollout of modern technological solutions at every stage of its production operations.

A number of records were set at RN-Yuganskneftegaz – the first two-string horizontal multihole well with Fishbone technology was constructed. The total length of the well amounted to 5,234 m, with horizontal wellbore at 2,161 m. Initial oil flow rate amounted to 600 t, which is several times higher compared to the nearest standard horizontal wells. Furthermore, RN-Yuganskneftegaz later set another industry record for the fastest two-string horizontal well construction. This well was drilled at Salymskoye field in merely 7.44 days, which exceeds the previous record by 20%. At the same time, the commercial drilling speed exceeded 14 th. m per single rig per month.

Varyeganneftegaz successfully completed the pilot tests of horizontal wells with combination string drilling technology. This innovative approach optimizes well construction process by eliminating a number of extra operations, which accelerates drilling speed and increases economic effectiveness of drilling. As a result of the tests the drilling speed increased almost twofold.

The pioneering hundred-ton hydrofracturing project was conducted at Kondaneft sandstones with the use of low viscosity liquid based on a synthetic polymer. The innovative solution increases the effective crack length by 30% in comparison with standard methods, which is particularly relevant for low-permeability reservoirs.

New upstream projects

The Company is the leader of the Russian oil industry in launching high margin greenfields. Since 2016 such large greenfields as Suzunskoye, Vostochno-Messoyakhskoye, Yurubcheno-Tokhomskoye, Kondinskoye, Tagulskoye, Russkoye, Kuyumbinskoye fields, 2nd stage of Srednebotuobinskoye field, Zapadno-Erguinskoye field have been launched. In 2019 the Company’s share in total liquid hydrocarbons production at the abovementioned new assets amounted to 18.9 mmt (384 kbpd), which is 27% higher than 2018 level. In 4Q 2019 the assets produced 4.9 mmt (397 kbpd). Their share in Rosneft’s 2019 and 4Q 2019 total liquid hydrocarbons production amounted to 8% and 8.5%, respectively.

The Company continues to develop its projects in accordance with the plan.

The development of Erguinsky cluster is in progress with Kondinskoye and Zapadno-Erguinskoye fields launched as part of the project. Over 2019 the daily production at the cluster’s fields increased by 75% and reached 60 kbpd in 4Q 2019. Proactive efforts are made at another two fields of the cluster – Chaprovskoye and Erguinsky license area of Priobskoye field, where 55 wells were drilled in 2019 and surface infrastructure is under construction.

The Company and its partner Equinor ASA approved the decision to initiate the first stage of the full-scale development of Severo-Komsomolskoye field. Construction of the primary and supporting infrastructure is scheduled for the next few years as part of this stage of development. Over the past period of cooperation the parties have successfully conducted pilot tests at the field.

The Company proceeds with the works towards developing Danilovsky oil and gas production cluster (which consists of four fields: Severo-Danilovskoye, Yuzhno-Danilovskoye, Verkhneicherskoye, and Lisovsky fields). As part of the Severo-Danilovskoye field launch a large-scale construction of well pads, infield roads, and engineering preparations for the production facilities construction is conducted. The construction of a 93 km oil pipeline was initiated, which is designed to connect the Severo-Danilovskoye field with the Verkhnechonskoye field for transporting feedstock to the oil treatment units and trunk pipeline system.

Pursuant to the task of the President of the Russian Federation to load the Northern Sea Route, the Company is setting up the base for execution of a large-scale hydrocarbon production project that will allow to implement a complex development program for a new oil and gas province in the north of the Krasnoyarsk Territory (the Vostok Oil project). In October 2019 the right to use the Zapadno-Irkinsky license area with 3P reserves of 277 mmt of oil and 834 mmt of oil equivalent resources, according to DeGolyer&MacNaughton report, was obtained. Furthermore, in December 2019 the right to use the mineral resources of Mezeninsky, Severo-Dzhangodsky and Yangodsky license areas was obtained. In January 2020 the Government of the Russian Federation approved a draft of the federal law on the provision of tax incentives for projects to develop oil and gas fields in specific areas of the Arctic region of the Russian Federation. In February 2020 the document was sent to the State Duma of the Federal Assembly of the Russian Federation.

Egyptian offshore Zohr field development is in progress. As part of the infrastructure development works, which were completed ahead of schedule, the design capacity of the project was achieved – 76 mmcmpd (100% of the project). The gas production doubled in 2019 YoY and amounted to 23.4 bcm (4.1 bcm in the Company’s share) on the back of successful implementation of the project.

Geological exploration works and hydrocarbon reserves

During 2019 2.6 th. linear km of 2D and 9.0 th. sq. km of 3D onshore seismic works were conducted in Russia, 143 exploration and appraisal wells were tested with an 88% success rate. Taking into consideration the large scale of seismic operations carried out in the strategic regions of presence, the Company continues to process and interpret the previously obtained significant amount of seismic data, the results of which will be used for further exploration and appraisal drilling.

During 2019 0.3 th. linear km of offshore 2D seismic works were conducted in the area of the Sea of Japan along with 2.3 th. sq. km of offshore 3D seismic works in the area of the Kara Sea and the Sea of Okhotsk. Three geological expeditions (on Sakhalin Island, the Severnaya Zemlya archipelagos and the Novosibirsk Islands) were carried out, as a result of which a significant amount of stone material was selected for laboratory and analytical studies, new oil and gas seepages were discovered, confirming the prospects of the adjacent offshore area.

As a result of geological exploration 258 new deposits and 23 new fields were discovered with AB1C1+B2C2 hydrocarbon reserves amounting to 352 mmtoe.

According to the results of the hydrocarbon reserves audit conducted by DeGolyer & MacNaughton, Rosneft’s SEC proved hydrocarbon reserves as of December 31, 2019 increased by 1% to 42 bn boe, proved hydrocarbon reserves replacement ratio amounted to 129%. According to the PRMS classification as of December 31, 2019, 1Р hydrocarbon reserves stood at 47 bn boe, 2Р – 85 bn boe, 3Р – 125 bn boe.

Oil refining

The Company’s 2019 refining throughput amounted to 110.2 mmt, which is 4.2% lower than 2018 level. In 4Q oil refining throughput constituted 28.3 mmt, demonstrating a 5.8% reduction QoQ and 4.1% reduction YoY. The reduction in the throughput volumes is mainly attributable to the Company’s refineries in Russia.

2019 throughput at the Company’s refineries in Russia amounted to 100.1 mmt of oil, which is 3.1% lower than 2018 level. 4Q metric constituted 25.5 mmt and declined by 6.3% QoQ and by 4.8% YoY. The reduction in throughput volumes at the Company’s refineries in Russia was caused by scheduled maintenance works and processing units optimization under the current petroleum products demand.

As of reporting quarter end refining depth amounted to 73.0%, light products yield was at 56.7%.

Motor fuels assortment expansion

The Company continues to expand its eco-friendly motor fuels assortment. Production of AI-95-K5 Euro 6 gasoline was initiated at the Ryazan refinery as part of the supplies of fuels with improved eco-friendly properties to the Moscow region. Komsomolsk refinery and Ufa refining complex started the production of low sulphur marine fuel RMLS that complies with IMO 2020 requirements. Bunkering with this fuel minimizes the negative effects of the transport on the environment. Ufa refining complex began the full-scale production of high-octane AI-100 gasoline using its own technology.

In 2019 Rosneft’s bunkering business operator RN-Bunker started using eco-friendly fuel LMF type A (low-viscosity marine fuel) produced by Novokuibyshevsk refinery. The sulphur content in the fuel amounts to less than 0.1%, which fully complies with the International Convention for the Prevention of Pollution from Ships.

In-house catalysts and additives production

Commercial testing of the first batch of catalysts for hydrotreatment processes was conducted at the Ufa refining complex. This allows for production of diesel fuel in accordance with Euro 5 standards. This is the first hydrotreatment catalyst for the Russian oil refining industry, which is capable of fully substituting foreign alternatives. The tests demonstrated that the in-house designed catalyst enables diesel fuel production that complies with all modern technical requirements. The catalyst is on par with the best global alternatives and surpasses them in certain characteristics.

The first Russian-made additives package for hydraulic oils from Rosneft Gidrotec HVLP product line successfully passed the tests and received approval from the leading global hydraulic equipment producers, Bosch Rexroth and Danieli. This unique for Russia hi-tech product was created by Rosneft R&D team.

Crude oil and petroleum products supplies

In 2019, as part of sustaining and broadening cooperation with crude end-users, Rosneft signed two-year contract with PKN Orlen SA to supply crude oil to Poland via Druzhba pipeline and extended the contract with PKN Orlen SA to supply crude oil to the Czech Republic refineries for the next 3 years. In addition, a contract was signed with Japanese JXTG Nippon to supply ESPO and SOKOL grades crude in 2020.

In 2019 the international crude oil supplies to non-CIS countries amounted to 140.7 mmt which is 22.4% higher than 2018 level. 4Q 2019 indicator reached 37.9 mmt, showing growth of 7.7% QoQ and 22.7% YoY. The Company continues to increase crude oil supplies in the Eastern direction. In 2019 the volume of these supplies amounted to 79.7 mmt (including 23.3 mmt in 4Q 2019). Their share in the total volume of crude sales abroad increased to 53.3% and 58.1% in 2019 and 4Q 2019, respectively.

In 2019 the Company sold 112.0 mmt of petroleum products, of which 37.5% were sold on the domestic market (including sales of bunker fuel to end-users). Over the same period motor fuels supplies to the domestic market increased by 5.7% YoY and amounted to 29.9 mmt (including 7.4 mmt in 4Q 2019).

Rosneft actively trades at SPIMEX. In 2019 the Company exceeded the quotas for motor fuel sales volumes on the exchange by more than 2 times.

In 2019 jet fuel sales volume amounted to 3.8 mmt (a 7.2% increase vs. 2018 level). The volume of “wing-tip” sales to civil aviation amounted to 2.5 mmt (a 12.4% increase vs. 2018 level).

In 2019 the Company strengthened its position on the jet fuel supply market of Georgia and Mongolia, “wing-tip” fuelling began at German airports. From January 1, 2020 refuelling of Russian airlines aircrafts began in Spain, the UAE and China. In 2019 RN-Aero, the operator of Rosneft’s aircraft fuelling business, supplied 480 th. t of jet fuel to foreign airports, which 4 times exceeds the 2018 figure.

Retail business

In 2019 petroleum products sales via retail channels increased by 6% YoY. Revenue from non-fuel sales on filling stations increased by 2% due to continued improvement of product mix policy and increase of non-fuel sales volume.

The two loyalty programs’ (Family Team and BP CLUB) member base continues to grow in 64 constituent entities of the Russian Federation. At the end of 2019 the number of involved programs participants amounted to 13.6 mln people.

The Company is gradually expanding the geography of sales of Euro 6 gasoline with improved operational and environmental properties, which was included in the “Top 100 Russia’s Goods” list. As of end 2019 the list of constituent entities of Russia where this new fuel is supplied to Rosneft filling stations has increased by three times. The fuel is on sale in 9 constituent entities in Russia, including Moscow and Moscow Region.

Regarding the development of alternative fuel supply, compressed natural gas (CNG) is sold as motor fuel at 12 stations in Ulyanovsk, Voronezh, Saratov and Stavropol Territory.

In 2019 the Company completed acquisition of 100% shares in companies of “Petersburg Fuel Company” group. As a result of the deal, the Company occupied one of the leading positions on the regional market of the country and increased its network of filling stations to 3,069 as of year-end.

International operations

In January 2019 the concession agreement for the operation of export crude oil pipeline in Iraqi Kurdistan came into force. The project capacity of the pipeline is up to 950 kbpd. The term is 20 years with a 5-year extension option. The Company's share in the project is 60%.

Nayara Energy Limited, a 49.13% stake of which is held by Rosneft, at the beginning of 2019 brought into operation the first hi-tech rail depot for petroleum products and lubricants. The depot area with more than 200 th. sq. meters and capacity of about 16 mln liters of petroleum products will be an important part of the сompany’s Wardha city (central India) distribution channel expansion. Nayara also expanded its retail network to over 5,000 filling stations as of end 2019. The company’s plans include the possibility to expand the filling station network up to 7,000 units, and entry into the Indian petrochemicals market.

A joint venture of Rosneft and the Indonesian state oil and gas company Pertamina (PT Pertamina Rosneft Pengolahan dan Petrokimia) signed a contract with Spanish Tecnicas Reunidas SA for the basic (BED) and front end engineering design (FEED) of the Tuban (island of Java, Indonesia) oil refining and petrochemical complex project. The final investment decision (FID) for the project can be made in 2021 based on the results of the BED and FEED stages and the search for project financing. It is assumed that the plant will become one of the most hi-tech in the world (with 13.1 Nelson index). The design capacity of primary oil refining is planned at the level of up to 15 mmtpa, of the petrochemical complex - more than 1 mmtpa for ethylene and 1.3 mmtpa for aromatic hydrocarbons.

Rosneft Deutschland GmbH, a subsidiary of Rosneft in Germany, completed the deal to acquire a 3.57% stake in Bayernoil Raffineriegesellschaft mbH oil refinery from British BP. As result of this deal, the Company increased its shareholding from 25% to 28.57%. Due to the transaction completion, the Company increased its share in the refining capacities of the Bayernoil refinery to almost 3 mmtpa, and also strengthened its position both in Bavaria, which is one of the largest industrial regions of Germany, and Austria.

In January 2019 Rosneft Deutschland GmbH initiated the direct marketing of petroleum products, which are produced at three German refineries where Rosneft is a shareholder, including gasoline, diesel, heating oil, jet fuel, LPG, bitumen and petrochemical products. The company supplies petroleum products directly from the refineries and more than 30 lifting locations throughout Germany via road, rail and barge transport. Rosneft Deutschland has an established customer base of more than 500 customers in Germany, Poland, Czech Republic, Switzerland, Austria and France. 

Key operating results for 4Q and 12M 2019:

* According to management data
** Including marine fuel

Information Policy Division
Rosneft
Tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21
February 19, 2020

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.