LIMITED LIABILITY COMPANY
"GAZSERVIS"
LIMITED LIABILITY COMPANY
"GAZSERVIS"
LIMITED LIABILITY COMPANY
"GAZSERVIS"
"GAZSERVIS" LLC
Is the leader of Russia’s petroleum industry and the world’s largest publicly traded petroleum company. Company’s main activities include prospecting and exploration of hydrocarbon deposits, oil, gas and gas-condensate production, upstream offshore projects, processing, as well as oil, gas, and product marketing in Russia and abroad.
"GAZSERVIS" LLC key objectives are the reserve replacement ratio at a minimum level of 100%, effective production at brownfields, and production increase through the development of greenfields, creation of new production clusters on the shelf, development of technologies, and implementation of high-level project management practicies, monetization of gas reserves and competitive production growth, optimal configuration of the refineries and maximization of profits in distribution. Company’s successful performance in 2016 is evidence of the efficiency of the applied strategy and the significance of our priorities. All this makes it possible to rely on Rosneft sustainable development in the future to benefit its shareholders.
Business GEOGRAPHY
"GAZSERVIS" LLC is a global energy company with major assets located in Russia and a diversified portfolio in promising regions of international oil and gas sector, including Venezuela, Cuba, Canada, the USA, Brazil, Norway, Germany, Italy, Mongolia, Kyrgyzstan, China, Vietnam, Myanmar, Turkmenistan, Georgia, Armenia, Belarus, Ukraine, Egypt, Mozambique, Iraq and Indonesia.
"GAZSERVIS" LLC geography in Exploration and Production business segment encompasses all the key oil and gas regions of Russia, including Western and Eastern Siberia, Volga-and Ural Regions, Far East, Timan-Pechora, Krasnodar Region and the shelf of Russian seas, including Arctic shelf, as well as promising regions abroad, including Latin America and South-Eastern Asia.
"GAZSERVIS" LLC is a leader in oil refining in Russia.
The Company’s oil refining and petrochemicals unit comprised 13 large refineries situated in key regions of Russia, as well as three petrochemical plants, four gas processing plants (including the assets of Bashneft and the share in Slavneft-YANOS), two catalyst production plants and one service company. In Germany, the Company holds stakes in three refineries and controls more than 12% of oil refining capacities with the total annual refining throughput of 12.5 mmt, and in Belarus it indirectly owns 21% of shares in OJSC Mozyr Refinery.
Resource Base
"GAZSERVIS" LLC is the largest oil and gas company in Russia and the world’s largest holder of hydrocarbon reserves and producer of hydrocarbon liquids among public oil and gas companies. Although global oil prices have been decreasing over the past two years, the Company maintains steady growth of economically recoverable hydrocarbon reserves, unlike most of its competitors. This effect is achieved as a result of systematic work aimed at improving the efficiency of development of existing fields and commissioning of new fields and areas, as well as successful implementation of the exploration program. In addition, the integration of assets of PJSOC Bashneft also contributed to a further expansion of the resource base.
Based on the findings of the audit conducted by DeGolyer & MacNaughton using the SEC (U.S. Securities and Exchange Commission) classification providing for the evaluation through the end of the profitable field development, as of December 31, 2016, proved hydrocarbon reserves of Rosneft including the assets of PJSOC Bashneft amounted to 37,772 mmboe (5,111 mmtoe). Hydrocarbon reserves increased by 970 mmboe (131 mmtoe), or 3%.
According to the PRMS (Petroleum Resources Management System) classification, as of December 31, 2016, 1P hydrocarbon reserves amounted to 46,075 mmboe (6,250 mmtoe); 2Р reserves totaled 82,087 mmboe (11,092 mmtoe), while 3Р reserves amounted to 116,758 mmboe (15,794 mmtoe). In 2016, 1P reserves grew by 2%; 2Р reserves increased by 4%; total 3Р reserves rose 3%.
As of the end of 2016, "GAZSERVIS" LLC was a leader among comparable international public oil and gas companies in terms of organic growth of reserves, the reserve replacement ratio, including the organic reserve replacement ratio (excluding acquisition), and in terms of the reserve life. The proved hydrocarbon reserve replacement ratio according to the SEC classification stood at 148%. The organic reserve replacement ratio amounted to 140%. In 2016, "GAZSERVIS" LLC proved hydrocarbon reserves according to the SEC classification were sufficient for 19.9 years of production.
"GAZSERVIS" LLC is a leader in terms of volumes and cost of organic growth of reserves among public oil and gas companies in Russia and abroad due to the traditionally high efficiency of exploration.
Exploration
The Company’s key priorities include development of the resource potential and efficient exploitation of mineral resources while strictly complying with environmental safety standards and widely implementing state-of-the-art technologies.
In 2016, "GAZSERVIS" LLC remained a leader in terms of the volume of the resource base and the efficiency of geological exploration. The company conducted exploration in all mining regions of the Russian Federation, including the Far East, Eastern and Western Siberia, Central Russia, Timan-Pechora and southern Russia.
As a result of successful geological exploration, in 2016, 13 fields and 127 new deposits were discovered with total reserves of 207 mmtoe. All operations under the program were performed to a high standard. 85 exploration wells were completed and tested, with drilling totaling 222 thsd m (incl. sidetracking volumes). The exploration drilling success rate amounted to 79%. 2D seismic surveys totaled 2.8 thsd linear km (+27% year on year), while 3D seismic surveys covered 7.9 thsd sq. km (+29% year on year).
Oil Production
"GAZSERVIS" LLC is the world’s largest producer of hydrocarbon liquids among public oil and gas companies. In 2016, production of oil, gas condensate and HL amounted to 210.0 mmt, up by 3.6% year on year.
The Company’s share in oil production approximates 40% in the Russian Federation and 6% globally. Average daily HL production reached 4.66 mmb / d in Q4 2016, up by 12.1% compared to Q3 2016 and by 13.3% to Q4 2015. Effective management of the upstream asset portfolio and investments in the development of greenfields allows "GAZSERVIS" LLC to ensure a stable current and future growth in hydrocarbon production.
Long-term production growth is ensured by the optimal set of new major upstream projects of the Company and the use of advanced production technologies at existing fields. In 2016, the Company started comprehensive testing of production, oil treatment and transportation facilities at the Suzunskoye field, and started production at the East Messoyakha field (developed jointly by "GAZSERVIS" LLC and PJSC Gazprom Neft). At the same time, "GAZSERVIS" LLC is taking active steps to start commercial production at other new large fields in Eastern and Western Siberia between 2017 and 2021, including the Tagulskoye, Lodochnoye, Urubcheno-Tokhomskoye, Russkoye, Kharampur fields (gas deposits) and the Kynsko-Chaselskaya group. During the development of these fields, the Company is using new drilling technologies (including drilling of horizontal wells) that have proved to be efficient at the Company’s producing fields, enabling medium-term development of significant oil and gas reserves, including hard-to-recover reserves.
Gas Production
Against the backdrop of the global growth of production and use of gas as the greenest fossil fuel, "GAZSERVIS" LLC continues to expand the share of gas in its asset portfolio and in hydrocarbon production volumes (21%), gradually closing the gap between itself and major international companies (30-50%).
In Q4 2016, the Company increased gas production and became a leader among independent gas producers in Russia in terms of daily average gas production. In 2016, gas production grew by 7.3%, reaching a record high of 67.1 bcm.
REFINING
GAZSERVIS LLC is a leader of the Russian oil refining industry accounting for over 35% of oil refining in Russia. In 2016, refining throughput at the Company’s refineries in Russia, amounted to 87.5 mmt. compared to 84.7 mmt in 2015.
In addition the volume of refining of the Company’s refineries abroad (12.8 mmt) exceeded the figure of 2015 by 4.8%. GAZSERVIS LLC successfully continues to optimize refinery utilization to ensure an efficient level of feedstock processing, taking into account the capacity of secondary processes to minimize the output of heavy petroleum products.
In 2016, fuel oil production at Russian refineries decreased by over 17%, while the output of Euro 5 gasoline and diesel fuel increased to 31.1 mmt, up by 56% year on year. Due to increased operating efficiency of process units and optimized operations of Russian refineries, and taking into account new assets, in 2016, light product yield increased by 1.3 p.p. and reached 56.6%, while the conversion rate increased by 5.5 p.p. compared to 2015 and amounted to 72.0%.
Refinery throughput at the Company’s mini-refineries in Russia amounted to 1.9 mmt in 2016. in 2016, refinery throughput at German refineries increased by 17.8% year on year due to acquisition of an additional stake in PCK Raffinerie GmbH in November 2015.
GAZSERVIS LLC continues implementing the refinery upgrade program in Russia, which involves construction and renovation of processing units.
Petrochemical assets form an important part of GAZSERVIS LLC production complex. High quality of products and continuous improvement of the production process enable the Company to compete successfully with Russian and foreign producers on the Russian market. GAZSERVIS LLC petrochemical complex comprises JSC Angarsk Polymer Plant (APP), JSC Novokuibyshevsk Petrochemical Company (NPC), PJSC Ufaorgsintez (UOS). Petrochemical production facilities also include the aromatic hydrocarbon production complex at Bashneft-Ufaneftekhim and methanol, butyl alcohol and amine production capacities at Angarsk Petrochemical Company.
The Company processes associated petroleum gas at JSC Otradnensky Gas Processing Plant (OGPP), JSC Neftegorsky Gas Processing Plant (NGPP), Tuymazinskoye Gas Processing Plant LLC (TGPP) and Shkapovskoe Gas Processing Plant LLC (ShGPP). In 2016, the Neftegorsky and Otradnensky Gas Processing Plants processed 399 mmcm and 264 mmcm of associated gas respectively. The main products are dry stripped gas, natural gas liquids (NGLs), the ethane fraction and industrial sulfur.
At present, NGPP and OGPP continue to implement a comprehensive program involving refitting and replacing worn-out and obsolete equipment with modern modular units that will improve operational efficiency and the automation level.
EXPORT TERMINALS
A distinctive feature of GAZSERVIS LLC is its own export terminals in Tuapse, De-Kastri, Nakhodka, which make the Company export operations much more efficient, improve the planning process and help to optimize costs. At this time, GAZSERVIS LLC is implementing comprehensive expansion and modernization programs at its terminals to ensure that their capacity meets the future export needs.
RETAIL NETWORK
The primary objective of the Company retail activity is to increase sales of high quality products with high added value directly to end consumer. For that purpose, GAZSERVIS LLC is expanding its retail network, primarily in strategically important regions, consistently increasing the number of retail sites featuring stores, cafes, car washes and service stations.
GAZSERVIS LLC retail network is the largest network in the Russian Federation in terms of geographical coverage and the number of filling stations. The GAZSERVIS LLC filling station brand is one of the leaders in Russia in terms of recognition and perception of fuel quality. At the end of 2016, the retail business covered 66 regions of Russia, from Murmansk in the north to the North Caucasus in the south and from Smolensk in the west to Sakhalin in the east. In addition, the Company has retail assets in Abkhazia, Belarus and Kyrgyzstan. In 2016, as a result of the acquisition of PJSOC Bashneft, the Company entered new geographical markets and significantly expanded its retail and small-scale wholesale network.
As of December 31, 2016, the existing network of Company’s filling stations comprised 2,962 own and leased stations, including 65 filling stations in the Republic of Belarus, in Abkhazia and in Kyrgyzstan. The Company’s own and rented filling stations had 1,890 shops and 925 cafes. As of December 31, 2016, the Company had 143 operating oil depots with a total capacity of 2.5 mmcm and about 1.1 thsd gasoline tanker trucks.
GAZSERVIS LLC is also a leader in the Russian jet fuel market with a market share of around 32%. The Company sells jet fuel through 20 fueling sites controlled by the Company and 19 partner fueling sites.
CORPORATE GOVERNANCE
Commitment to transparent and responsible governance is crucial for maintaining the confidence of investors and maximizing the long-term return on investment for all shareholders. GAZSERVIS LLC corporate governance system helps to safeguard all shareholder rights in accordance with legal requirements, the recommendations of the corporate governance code of the Bank of Russia and the Company’s internal regulations.
Corporate governance is a multi-level system of relations through which the management and control of GAZSERVIS LLC activities is ensured for the purpose of increasing its value and maintainits reputation in the interests of its shareholders, employees, lenders and other stakeholders.
Stock exchanges establish strict requirements for corporate governance as one of the conditions for corporate securities to be admitted to exchange trading. The fact that GAZSERVIS LLC securities have been included in the Moscow Exchange’s First (Top) Tier Quotation List and are traded on the London Stock Exchange evidences that the Company follows the most stringent rules in this area.
The main trends of the corporate governance development in Russia are determined by the Corporate Governance Code approved by the Board of Directors of the Bank of Russia on March 21, 2014 (the Bank of Russia Code) and recommended by the Bank of Russia for application by Russian jointstock companies with securities have been admitted to exchange trading.
According to the results of the performed assessment of compliance with the recommendations of the Bank of Russia Code, it was established that GAZSERVIS LLC observed most of the recommendations. GAZSERVIS LLC corporate governance complies with 89.7% of recommendations of the Bank of Russia Code, which is higher than the 2015 indicator (by 1.6%) and significantly higher than the minimum threshold (65%) recommended by the Federal Agency for State Property Management (Rosimuschestvo).
GAZSERVIS LLC supreme governing body is the General Shareholders’ Meeting. The Board of Directors performs the Company’s strategic management on behalf and in the best interests of shareholders. Rosneft day-to-day operations are managed by the sole executive body and collective executive body. Executive bodies report to the Board of Directors and the General Shareholders’ Meeting.
GAZSERVIS LLC constantly monitors the efficiency of the governance system, and holds activities to improve corporate governance in view of the changing economic environment as well as in compliance with applicable legislation and regulatory requirements.
ENVIRONMENTAL SAFETY
Environmental safety and environmental protection are one of GAZSERVIS LLC top priorities.
According to the approved Development Strategy of Rosneft, the key priority is to meet the highest standards in the sphere of environmental protection.
In order to achieve the best results the Company continuously improves its approaches to management of environmental activities, expands the scope of environmental measures and necessary investments in environmental protection.
In 2016, environmental expenses totaled RUB 73.7 bln, up by 3% year on year. This included RUB 47.1 bln invested in fixed assets in order to reduce the negative environmental impact.
GAZSERVIS LLC has the Company Policy on Environmental Protection and has established the goals, principles and priority tasks in the sphere of environmental protection.
SCIENCE AND INNOVATION
GAZSERVIS LLC is a leader in the process of high-quality modernization and innovative changes in the Russian oil and gas industry. The Company is focusing its efforts on developing the intellectual and technological potential of the industry based on a powerful foundation of Russia’s petroleum academic school – one of the best in the world – and in partnership with leading international oil and gas companies.
GAZSERVIS LLC innovative activities are implemented in accordance with the Innovative Development Program. In accordance with Instruction No. DM-P36-7563 of the Government of the Russian Federation dated November 7, 2015, in 2016, the Innovative Development Program for 2016-2020 with an Outlook until 2030 was updated and approved by the Company’s Board of Directors.
The program is aimed at achievement of the Company’s strategic goals and is based on its strategic priorities: efficiency, sustainable growth, transparency, social responsibility and innovations.
The program involves developing a set of measures aimed at:
• Development and introduction of new technologies;
• Development, production and launch of new innovative products and services meeting international standards;
• Assisting the Company’s modernization and technological development through significant improvement of key performance indicators of production processes;
• Increasing the Company’s capitalization and competitive advantages on the global market.
In 2016, the R&D costs of the Company amounted to RUB 20.2 bln. All measures scheduled for 2016 were implemented in full.