PJSC Rosneft Oil Company

Pavel Fedorov - First Vice President Eric Liron - First VP Upstream Didier Casimiro - VP Refining, Petrochemical, Commerce & Logistics Andrey Lazeev - Chief Geologist & Head of Exporation Vlada Rusakova - VP Gas Business Avril Conroy - VP Retail Business Development Yury Narushevich - VP Internal Services Alexei Karavaikin - Head of Investments Analysis Andrew Balgarnie - Direct of Strategic Development Dmitry Torba - Chief Accountant Andrey Baranov - Director Investor Relations Oleg Ivanov - Director PPM Gas Business

Alexander Kornilov - Aton Evgenia Dyshlyuk - Gazprombank Ildar Khaziev - HSBC Igor Kuzmin - Morgan Stanley

Good afternoon, ladies and gentlemen. Thank you for participating on our call today.

Presenting Rosneft 2Q and first half results, I’m Pavel Fedorov, together with me we have Senior Management of Rosneft. Let me introducing for you, so that you are able to know who to ask your questions to.

First, we have Eric Liron, First VP, Upstream, Didier Casimiro, VP Refining, Petrochemical, Commerce and Logistics essentially a Head of Downstream, Andrey Lazeev, Chief Geologist and Head of Exporation, Vlada Rusakova, VP, Gas Business, Avril Conroy, VP for Retail Business Development, Yury Narushevich, VP, Internal Services, Alexei Karavaikin, Head of Investments Analysis and VP, Andrew Balgarnie, Direct of Strategic Development, Dmitry Torba, Chief Accountant, Andrey Baranov, Director Investor Relations, Oleg Ivanov, Director, PPM Gas Business, [indiscernible], Director Reporting and other members of our team. Let me first start with an overview of the quarter’s results.

I hope you have seen the press release and more details disclosed in the presentation that we have published on the Web site. So we’ll do a brief overview of our results and then we would like to move straight to Q&A session.

Well to start with very obviously, the second quarter had a much more positive environment and the price of oil increase by 20% in rubles and 36% in dollar terms. The volatility in general with somewhat lower and that obviously had positive results on our company performance in the quarter.

Talking about name operational highlights. The progress that we have achieved is very feasible in terms of production performance in crude oil, you have seen that liquid production was up by 0.5% quarter-on-quarter, primarily due to solid growth at Yuganskneftegaz, our key assets.

And then also increased production in Samotlorneftegaz and Sakhalin and we believe this is an indication, this is a testimony to the changes that we are starting to see and would like to see going forward in the next quarters. In terms of production performance in July, we saw growth of 1% year-on-year for the second half of the year.

We have scheduled the launch of a number of new projects of which the key one is Suzun. The commissioning of which will be implemented in the next couple of months and we hope that due to these factors the production performance will increased even further.

On the gas production side, we continue to ramp up production and in the first half it amounted to 33 bcm, that’s 7% above versus the same period of the previous year. We have a number of factors contributing to that primarily that is Rospan, Purneftegaz and development of the northern tip of Chayvo field.

Average daily hydrocarbon production in the first half of the year increased by 0.7% to 5.21 million barrels of oil equivalent that is a new record for our company. In terms of macro, obviously our main situation here is the macro for the downstream, is our main driver and also we continue to see the tax environments of our refineries.

So in the second half of the year we’ll continue to work on the throughputs of refineries and we will also continue stimulating, increasing life products yield and conversion debt. On the financial side, the financial highlights in the second quarter our main achievements were on the continued focus of increased efficiency.

We managed to contain our SG&A cost, they were flat and we tried to keep upstream operating expenses in-line with inflation. As you may have seen our operating expenses in the second quarter were down year-on-year.

In terms of EBITDA, in the second quarter that number is RUB348 billion, that’s 28% growth in rubles and 43% growth in U.S. dollars.

Net income also saw a positive trend that was more than 600 times growth in that key metric and if we adjust for one-off items such as effects primarily then the reduction of profits in the first half of the year was only 9% although the price was down 19% in the ruble. As you might know, the focus of our company today is to maintain our free cash flow, you may be aware that this has been and continues to remain a key competitive advantage of our company and we are quite comfortable here despite the reduction of the dollar price for crude oil and increasing CapEx.

So in total for the first half, the company generated U.S. $2.8 billion of free cash flow.

That obviously will contribute to the continued repayments of the debt of the deleveraging and also to the financing of our CapEx program. In this metric, the company maintains industry leadership versus the competition, this is quite a unique performance as I am sure you will appreciate for our industry and in terms of continuing performance we will intend to build up on the results of this quarter and we will continue to work for our shareholders to create shareholder value and to navigate the volatile environment going forward.

Thank you for your attention. We will now move to a Q&A session.

Good afternoon, thank you for the call and the opportunity to ask a question. My question is this, it’s in terms of your CapEx forecast for this year.

Previously and please correct me if I am wrong, Rosneft expected to spend RUB0.5 trillion and then this year you have spent 308 billion in the first half of the year. So I would like to know if you have any updated guidance for the CapEx full year.

Thank you.

Thank you for your question. Yes, you have seen our numbers I am sure.

So in terms of our strategic guidance we will be able to stay with it. We are implementing our CapEx programs quite intensively, but on the other hand we also work being on track with our key projects.

Given the seasonality factor, you will appreciate that our main driver is the timeline and the deadlines that we have in front of us and that have been approved by the investment committee. So I hope that the parameter that has been approved by the board of directors that was approved by the board of directors at the end of last year we will be able to stay with it.

So, you should be expecting 5% to 10% optimization on a number of projects, but we will be telling you more about it in the next few months as we work on the business plan for the next year.

Good afternoon. Thank you for the presentation and the opportunity to ask question.

My question is about the working capital in the second quarter. According to my assessment the free cash flow could have been higher if not for the increase in the accounts receivable and inventories; could you please comment on that?

Was that a seasonal factor or was it driven by something else?

Well, I can give you a very simple answer here. If the growth of the price for crude oil and oil products that does have an impact on the working capital, so that's a temporary factor, a one off factor I would say that is due to the re-measurements of our inventories and similar things.

And if we net for that, if we clear for that the increase of the working capital was not -- was insignificant at all and you, I am sure you will see better performance going forward, so that's a pricing factor primarily.

Second question if I may. What is your guidance for East Siberia [ph] actions for the sale of controlling stakes and assets there, could you please give us some guidance in the second half of the year, what proceeds do you expect to receive from those transactions?

Well, I suggest that we take it offline with you, Andrey Baranov, our Head of IR will be happy to share it with you. You may know that we are planning a number of transactions, some of them have been closed, but then we will need to adjust this number as we move on.

So we'll get back to you with that in the next fortnight shall I say. Thank you.

Good evening and thank you for the opportunity to ask questions. I have two of them.

First of all the privatization of Bashneft, I appreciate this may not be the most relevant question given the recent developments, but still I would like to know your attitude and approach to whether you intend to participate in the privatization and whether the recent comments by the governments had any impact on your intention to participate? And my second question is on the Essar Oil transaction.

What's your progress there in the negotiations and can you please share any details on the transaction structure? Thank you.

Talking about the second transaction, indeed work is ongoing and we're negotiating with our Indian partners. Currently, we cannot disclose the details of those negotiations.

That’s standard corporate practice that we don't comment on any ongoing negotiations, but I think that the guidance that we have provided in terms of our intentions to go into that transaction that remains unchanged. But negotiations continue and we will be keeping the markets informed as we need to make any additional disclosures.

That's for Essar. As for Bashneft, the comments that we had for that, we have given through our press service.

Thank you. And one other question, last week in debt amnesty [ph] paper there was a mention regarding your Essar transaction that you have concluded a long term contract for crude oil supply the numbers that were in the debt amnesty are these numbers right?

Thank you.

I'll handover to Didier Casimiro, Head of Downstream who can share more comments on that.

So as far as the supply is concerned to the Essar plant that had been agreed we've done previously, I mean we do not know which numbers you're talking about. But that is already in agreement that we had with them, which is based first of all on euro [ph] supply with the possibility to actually replace that crude with other crudes.

But that is an agreement that we had earlier on as part of the deal making.

Thank you for the opportunity to ask a question, I have two actually. First on the cash flow, on the cash side you have started to show changes in long-term contract supplies, so can you please give some guidance whether that number will hold for Q3 and Q4?

And my second question is on refinery modernization that's currently ongoing if we look at the 2Q presentation and 1Q presentation Slide 15, one may get an impression that the progress in the modernization has somewhat paused. So what should we expect going forward?

Is it related to the -- is it with the low margins and refineries you will not continue with modernizations or is it with the guidance that you had for 2016 and 2017 to hold? And other question is for domestic refineries.

Indeed this quarter has demonstrated very impressive decline of operating expenses in domestic refinery and what is the reason for that cost optimization, what is the driver of that? Thank you.

Let's start with last the question, in terms of refinery utilization today depends not just on the price of oil that also the tax maneuver involved et cetera. And then essentially there is this last ton item that will look at.

So our guidance for the year is 83 million tons in terms of refining. So part of that is efficiency in refining, it's clear that within that stream work we will supply the domestic market with a full range of products, we have our commitments that perhaps to deliver on and the other projects -- on projects and modernization.

We are currently working on a five-year business plan and there we look at projects that, A, have high efficiency and, B, have a high degree of readiness, and I can tell you even now that we may want in fact to fast track some of projects to start them earlier, such as for example hydrocracking unit in three refineries. So work is ongoing here but we will prioritize it for the higher marginal, better performing project.

In terms of the prepayments I'll now hand over to my colleague.

Rina Anderson [ph]. Let me comment about prepayments.

According to our financial statement total prepayments for crude oil supplies in 2013-2015 was $45 billion and then we started paying off and according to the agreed schedule. And then in 2015 we delivered crude oil for U.S.

$3 billion and then at the end of the year the prepayment stood -- went down and stood at U.S. $42.5 billon.

At the end of the 30th of June, the prepayments outstanding was U.S. $40.9 billion, you can see that in our financial statement.

We will continue with supplies of crude oil against the prepayment and as you will see in our financial statements, we will accordingly reduce the prepayments obligation that we have. Thank you.

Good afternoon. Thank you for the presentation.

I have two questions. First is about on the cost side.

If I understand correctly the interest rate on your prepayment is linked to LIBOR, which has going up considerably in the recent year. But I don’t see any growth in interest expense.

So can you please explain what is the formula there and what happens with interest rate? That’s my first question.

My second question is about marketing expenses as far as I remember correctly in the second half of 2014, they went up significantly and have been at that level in 2015. And now we see that there is a significant reduction year-on-year.

So can you please explain and comment as to what’s going on there?

[Indiscernible] Anderson, Head of PPM Downstream will answer your question.

On the first question indeed. The interest on prepayment is LIBOR linked.

I don’t think, we can go into any details. No interest is capitalized, all interest is expensed into interest expense.

And as for your second question about marketing expenses, in terms of marketing expenses, we have just started a new substantial project in marketing that’s the new loyalty program that has now been rolled out in several regions. And we hope that by year-end, it will be rolled out to some 80% of our volumes and presences and that’s what drives it basically.

Good afternoon. I would like to check with my first question for the second half of the year.

So what trends do you see in terms of OpEx and maybe with some breakdown year-on-year? And my second question also on the second half of the year.

What are your expectations for increase or decrease or flat in terms of the volume of production of liquids, crude oil and condensate? Thank you.

[Indiscernible], Head of Reporting will answer your first question. And your second question will be handled by Eric Liron’s team.

In the second half of the year, the only increase of expenses that we can foresee is the natural growth of -- that is always, we partly offset that through better efficiency and through producing from lower water cut that compensates the going water cuts in more mature wells.

We also have cost related to the preparation of connection of new fields, green fields [ph], in particular Suzun. They are also reflected in our numbers, but that is a small increase and it will be compensated a set of by the commission of those fields in the third quarter.

On refining side, we don’t see any excessive increases, so that will be over in our parameters.

What’s the growth at the level of inflation, or would there be some different trends? Can you please clarify?

Well, you will see that, if we look at per barrel costs. They don’t go faster than inflation.

Yes, there is some across the growth, but we have a strict cost discipline. So indeed, the growth rate is much lower than the inflation rates in the economy.

So yes, there is an absolute increase and it’s related to the fact that we do have cost for preparation to the start-up of new field, so we have hired people, they are doing setting up and commissioning while the production is not there. Thank you.

Production expectations, so I’ve stated before we still plan to be flat on liquids by year-end and slightly higher on the hydrocarbon which means that for H2 we’ll increase a little bit the production compared to H1. H1 we finished 0.7 below and this will be called up.

I want to give you a heads-up, so that there are no undue questions in the future. August we are shutting down completely, in fact [indiscernible].

So for 22 days there is zero production, this is truly in-line with the federation regulations, we have to do it once in a while and it was included in the business plan. So you are going to see a drop of product in August.

However, most of this production will be caught up very fast because of an increase of the pressure of the reservoir and with the increase in the Brownfields we’ll catch-up and exceed H1 in the end.

Good afternoon. Thank you for the opportunity to ask the question.

I have two actually, first whether you can share what’s your target for production in Somotlor in 2016 and my second quarter whether you can explain and how is it technically possible that the effect of Venezuela operations, certain Venezuela operations end up in your revenue? Thank you.

Head of Upstream and the second quarter will be answered by Dmitry Torba, our Chief Accountant.

So regarding question one, Somotlor, the target is to finish slightly above 20 million tons during the year again. So it could be between 20.1 million tones and 20.4 million tones.

Thank you. As for the participation in the Venezuelan JV, the results of our operations there translate into our P&L as one line according to the IFRS and that is reflected separately from our operating revenue.

The increase of the shift [ph] that we can see is due to the substantial volatility of national currency versus the U.S. dollar in which the export revenue is nominated.

While at the same time, the cost were largely in the local currency. So this difference translated into our income from participation in subsidiaries line.

Thank you.

Thank you again. I have the question on the upgrade of your refineries.

You said that you are going to privatize a few of the projects with IRR and the ones which are more mature. I would like to know what will happen with the plans with the refineries where you have delays in the upgrade progress and if the deck system remains non-favorable for refining, what are your plans?

Are you planning to reduce refining volume at the refineries?

Thank you for the question. Look the question is the following, that’s true, we are prioritizing our portfolio of refinery in our business plan for the next five year period and next year end of this year we'll have the guidance for the capital investment value in our investment program.

It will be clear what we prioritize and you're right saying that we prioritize the projects with the highest IRR and which are more sustainable. But we do not exclude, it is still possible that there are a number of refineries which will require a set of measures including the state support, the interaction with our key partners in order to reach the requirements return levels set in the company.

We're working on these questions in a quite efficient manner with the government of the Russian Federation and the key regulators. So, we will be orienting at the total results through the optimization of transportation costs through the tax optimization and other incentives which might be seen in the markets where the companies, the guaranteeing supplier for oil products to guarantee the supply to these markets and avoid sharp price changes.

We're working on it, today probably is too early to say that we're planning to use any other decisions unlike optimization and prioritization. Thank you.

Dear colleagues thank you very much for the call. For the questions we are always in touch with you.

So if needed please get in touch with me, with Andrey Baranov, the Head of IR and see you in the end of third quarter. Thank you.