PJSC Rosneft Oil Company

Pavel Fedorov – First Vice President Didier Casimiro – Vice President Refining, Petrochemicals, Commerce and Logistics Eric Liron – Vice President in-charge of Upstream Dmitry Torba – Chief Accountant

Alexander Kornilov – Aton Igor Kuzmin – Morgan Stanley Artem Konchin – Otkritie Capital Olga Danilenko – Prosperity Capital Management Evgeny Stroinov – Renaissance Capital Evgenia Dyshlyuk – Gazprombank Katarina Smic – BofA Merrill Lynch Ildar Davletshin – Renaissance Capital

Good evening, dear ladies and gentlemen, thank you for attending this conference call dedicated to disclosure of Rosneft's operating results for the third quarter this year. My name is Pavel Fedorov, I am First Vice President to the company.

With me up this conference call we have all our key senior managers attending in charge of the key business area. They are the people who you know quite well Eric Liron, Vice President in-charge of Upstream; Didier Casimiro, Vice President Refining, Petrochemicals, Commerce and Logistics.

Andrey Lazeev, our Chief Geologist; Vlada Rusakova, Vice President for Gas Business; Avril Conroy, Vice President in-charge of Retail Business; Mr. Narushevich, Vice President Internal Services; Alexey Karavaykin, Advisor to the President and Director of Investment Analysis Department in the rank of Vice President; Dmitriy Torba our Chief Accountant; Andrey Baranov, Director of Investor Relations Department; and some other experts.

And we will be fully prepared to answer you questions. After a brief overview of the results, we will happy I believe to hold a very productive question and answer session because the results are interesting and the events in the life of the company have been quite a few.

Well in an apparent way I would note that the presentations we are going to go through will contain certain statistical references about our future expectations and forecasts so please bear in mind this particular thing in terms of our collective liability. Now speaking about the main events of Q3 I would like to not that the situation in the commodity markets remain quite complex and stressed because the average oil price quarter on quarter effectively hasn’t changed staying at about $44 per barrel.

But if you look back over the same period of time, we see that the prices have considerably subsided but if we talk about the outlook for nine months and compare it year-on-year we have witnessed some very serious worsening of external factors, related to both to the taxation regime as well as with the tariff burden that the Company had to carry. But if we are to talk about an effect or this negative effect, I mean in terms of the big tax maneuver, then considering the results of nine months of 2016 this figure amounted to about RUB82 billion.

In a clear way, this was related to the fact that the base MET rate grew up to RUB857 which is 12% growth, the MET for gas grew by 4% and similarly we applied the higher MET rate on gas condensate. So this all put together generated a negative effect and unfortunately, as far as this was concerned the Company couldn't exert any substantive control over these statistics that emanated from these factors.

So I would certainly note, the kind of growth which we had in as far as the transportation tariffs are concerned because we talked about the transportation of crude along the trunk pipelines and you all saw the indexing by almost 6% as of January 01, 2016. As far as refined products are concerned, in the majority of these – because we have indexing by 12% as of January 01.

So, if we are to talk about comparing the nine months of this year and the nine months of the last year, we are existing in a seriously different taxation and tariff environment. Well, nevertheless on it's part -- the Company continue to run the optimization of its portfolio during the last quarter.

In the course of the third quarter, we successfully closed deals and selling the Vankorneft share and Taas-Yuryakh for the consortium of Indian investors. The Pertamina company, we signed a memorandum of understanding with respect to our cooperation in the Northern Chayvo project.

Now speaking about various events which took place closer to the completing this report, we have two landmark events which are worth mentioning separately, although it didn't produce any effect over our financials in last quarter, was the acquisition of the state owned stake in Bashneft, the company, for RUB430 billion. Essentially Rosneft gained control over good quality assets, with growth prospects that will produce over 20 million tonnes of oil per year, and include one of the best refining.

We are quite optimistic about the Bashneft integration process and I think that the Company will be in a position to outperform the average market expectations which we have currently towards the total synergies, and active work is currently being done towards that end. The sum of it, I mean this effect has been defined by the people in the Company as practically being achieved.

Now the second landmark, which I would like to refer to, was signing the purchase and sale agreement for the acquisition of 49% stake in Essar Oil. Once this deal is closed the Company will obtain a significant share in India's second largest refinery with the high level of technological complexity profitability of the product mix.

Understandably, in addition to gaining access to the fast-growing Indian market, the acquisition of Essar Oil shares will facilitate further growth of the Company's international trading operations in the region, and the development, basically, of its international trading activities, not only in the Pan Asian area but overall globally considering its presence in the Venezuelan market. Now speaking about the operational results of the third quarter, please allow me to note several factors.

The first was the continuing stable growth of output whereby in the third quarter, the average daily output reached 2 million barrels of oil equivalent against the growth of the liquid hydrocarbons by 1% comparing it to the second quarter of 2016. In the first place, this is thanks to the success in Yuganskneftegaz and the development of the new fields.

In October, the growth of liquid hydrocarbon production exceeded 2% from the low level of production in October 2015, even without taking into account the consolidation of Bashneft's operating performance. This shows continued significant improvement in the dynamics of operating indicators of the Company's production portfolio.

The Company continued to increase its gas production which in the first nine months of 2016 amounted to over 49 billion cubic meters, an increase of almost 7.4%. Starting from September the production exceeds the largest so far company Novatek, so starting from September the Rosneft is the second gas producer in Russia.

Speaking about the dynamics of cumulative hydrocarbon production, the growth in nine months was 1.4%. The growth was underpinned by greenfield production and containment of natural decline rates at brownfields.

The East Messoyakha in September was put on stream. The Sirgut field – the Suzun field was also developed and the production is expected to reach 1.5 million tonnes by the end of the year.

We continued to optimize a lot of our refineries in order to ensure an effective level of feedstock processing and in nine months the oil refining throughput of Russian refineries declined by 9% while fuel output dropped by more than 19%. Speaking about financial results, I've already commented on the greater fiscal burden, tariff burden, and I would like to note the customs tariff and the negative factor was about RUB60 against the second quarter.

At the same time, the Company continues working to improve the efficiency of its operations and enhances cost controls thanks to the redistribution of trade flows in the quarter, keeping the third-quarter revenues almost unchanged. At the same time, we have seen a small decline in oil prices in ruble terms.

Specific operating expenses remain at the level of the second quarter this year, so eventually the Company continues operating with costs of RUB154 per barrel. As a result, despite negative impact of external factors, the profitability grew to 25.4% in EBITDA margin looking at nine months of 2016, while oil prices fell by than 15%.

Now in the third quarter, net income remained significantly low because of non-cash ForEx losses. Net income remains decreased because of non-recurring effects, foreign exchange, and factors we've already mentioned, the net income decreased down to RUB125 billion while the adjusted gains on foreign exchange differences and other one-time effects amounted to RUB352billion.

The growth of CapEx in the third quarter and nine months is mainly due to the expanding development drilling program as well as intensive development in the projects. Despite the volatility on the markets and fiscal burden, the Company has been generating positive cash flow for 18 consecutive quarters, which is a unique indicator for the oil and gas sector today in the world.

With the specific free cash flow at $2.9 per barrel of oil equivalent Rosneft in fact remains a leader in the global oil and gas sector. Despite the difficult macroeconomic conditions, this enables us to maintain our debt leverage on a comfortable level for the Company, all of that on the background of significantly growing debt of our competitors.

Net debt of the Company by the end of third quarter is $26 billion. The Company continues operating and generating significant cash flow despite indeed difficult external conditions.

We will be happy to answer your questions, thank you very much. We will now proceed to question and answers.

Thank you.

Good evening ladies and gentlemen. Thanks very much for raising your question.

I've got a couple of short questions. The first one to understand correctly that the cash performance in the Essar Oil amounts to 49% from $12.9 billion, which you noted on slide 5, which is my first question.

My second question, in the context of increasing the export duty on Marzout up to 100%, can you please share with us your expectation in terms of what is the amount of refining that you would expect in terms of these particular dynamics in 2017. Thank you.

Well look, speaking about the second part of your question, which was about our refining operations next year, we will produce a very detailed press release towards the end of the year as our business plan will be getting endorsed. In December, this year we will have a separate road show dedicated to it and I believe that we will be able to elaborate on it, also including our capital expenditures as well as the key operational results for next year as we expect them.

Now as far as Essar Oil is concerned, the figures as you may understand, are not very straightforward because this 49% from the value of the shareholder capital in the press release that you definitely remember seeing published about the deal, there was a bit of a definition of that figure, because currently the deal is still a closed one. We continue working to complete verification of the key line items of the balance of the company.

So the figure that was quoted in the press release, it was all around $3.8 billion and I believe that this figure will further be validated but it will stay at approximately this level. Thank you.

Thank you.

Good afternoon, dear colleagues. I would like to ask you to please specify approximately and as you feel it the facts from the transactions that have been finished recently.

I mean the acquisition of the Bashneft share stock, Essar Oil, and the divestiture from the shares in – such as Vankorneft, so as to understand what you feel. If you could add up all of the facts from these deals would you also expect that the result of it, that the effect of your net profit is going to be a positive one or not.

If positive, then possibly could you voice it in a form of figure, be it in a percentage or in absolute terms?

I can’t understand you clearly are you talking about the total cumulative effect from the deals upon the profit of the Company or the value of the Company? I just couldn't hear clearly.

Yes, net profit, the net profit at the level of your earnings.

Well look, in order to achieve the final understanding in a clear way we will need to first finish off most of these deals. The fact undoubtedly speaking about the accretion and dilution is going to accretive as far as Rosneft’s indicators are concerned.

I mean if we speak about the ultimate effect, and that applies in the first place to Bashneft, which principally speaking, despite the fact that the market defined as a premium value compared to the market value then, as given by the exchange, this is an accretive deal to us. Undoubtedly and that applies to quite strong synergies, in fact many of which are currently being strongly felt and where the Indian consortium, as far as Vankor field is concerned, we have defined the premium, evaluation of that asset, and it is also going to be an accretive one in terms of the fact for the shareholders.

As far as Essar is concerned, in the nearest quarter there will be additional information as far as the closing of the deal is concerned. But also see very strong positive effect over the net value of the Company and very considerable effect as you concluded, not only related to the alterations of this fast growing business, but also the effect from the swap crude supplies in the region, involving the key geographical destinations where we see a very clear potential.

We will abstain from giving you a clear indicators but most probably as they say under- promised, over delivered as the English say, we will try and not give too much of promises but definitely over exceed your expectations.

Thank you very much. I simply wanted to ask you to be a bit more specific about clearly Bashneft.

Hello, yes, yes, carry on.

Oh right, yes, there was some interference in the line. I wanted to ask you to be a bit more specific.

I understand that Bashneft’s deal leads to a greater net earnings than the Essar Oil deal as you’re saying, yes, I understand. But it would take into account the fact from reducing our base of assets pertaining to Vankor and Taas-Yuryah.

Well, I mean I’m just trying to verify whether I have understood you correctly. That even despite the fact that some of the assets – somehow we are deducting from the net profit base, the net effect from all of the deals nevertheless is supposed to be positive as you expected, if I understand it correctly.

Well, I was talking not about the effect, and this is very important to understand, not about the absolute effect or the absolute earnings. I was talking about the P/E attrition.

I was talking – on the basis of the comparative multipliers within these deals whether we are going to see the multiplier base grow stronger. So the Vankor deal in terms of the premium valuation of the Vankor project is undoubtedly accretive in terms of its effect over the P/E.

Do you understand what I’m talking about?

I do, yes, I do, but you’re not ready to give me a comprehensive answer so I need to somehow additionally think about it.

All right, if your question is about the absolute level of the earnings, we are not ready to give it to you yet, but maybe a separate comment and we will prepare in our investor relations a separate note to just understand the opposite effect on the net profit, if it is relevant because we usually simply look at an attrition dynamics.

Yes, yes, nevertheless, thank you very much.

Yes, and thank you.

Yes, good evening, thank you very much for the opportunity to ask you a question. My question is based on the Interfax information that you changed the schedule of payment on your debt.

Unfortunately, I didn’t have the opportunity to verify this, but could you please comment if indeed some sort of change of payment schedules took place? I mean specifically the statement for 2017 and 2018 and the end of the fourth quarter of 2016.

Well, I don’t know what kind of information you’re talking about. The Company didn’t do any change in terms of its debt schedule payment.

We are having quite a long-term very planned strategy in refinancing our business, which is being worked on very successfully. And here we don’t have the slightly intention to change it just yet.

Thank you.

I’m sorry, I didn’t double check it, so that was my fault.

Good afternoon, thanks very much for this conference call and the opportunity to ask a question. I have questions about your acquisitions this year, so two questions.

The first one about Essar Oil, are there any particulars – as far as I understand the deal is still being endorsed. Now are there any peculiarities about funding which you would like to reflect upon?

Like for example, the subsequent sales option, or any special things about financing, like for example, the non-reports financing that you use in terms of applying the Essar’s own cash flow, something like that? My second question about Bashneft, which you also acquired this year.

What is the strategy for the role of the Company as you see currently, or for the immediate future, where you see the main points of synergy? In fact, would you be able to comment about how you would like to develop your relationship with Bashkortostan and what is going to be your dividend policy, at the level of Rosneft itself or in some other way?

Thank you.

All right, yes, thank you very much for this question. Well look, speaking about Essar Oil, everything is quite straightforward here.

I believe that all the information which was mentioned in the press release in a very detailed manner and here we don’t have anything additional to comment. So quite clearly you understand yourself that the Company acquired a minority stake in the operating business and it will be proportionately represented on its Board.

And it will also work on ensuring the maximum efficiency to itself through the ability to supply crude to the refinery. Clearly Essar Oil works in the Indian market, it’s an excellent thing that they’re able to support this business and the Company will continue working with it.

So based on the actual situation, this is a bit of a formal project finance for the Indian business and we as a minority shareholder will be able to effectively in a very good manner cooperate with an Indian shareholder. We don’t see any problems here and the most important thing is that the business is going to develop successfully, as long as this strategic cooperation continues.

So as far as Essar’s concerned, no different comments here. Now speaking about Bashneft, we are currently very actively working on integrating this business and we have a clear understanding of where and how the main synergies are going to be achieved.

Quite understandably, this business is going to be developed as an integral part of Rosneft. You’ve seen the news that we offered this mandatory offer to the management of the Company and so are going to now work to try and integrate this business into Rosneft as best as possible.

The reason that we believe this is the right way to go, because quite clearly this is the maximization of the synergy fact that we have spoken about. And the figures about the market sees which are conservatives, and in the next quarter we’ll come out with information about what kind of a synergy effect was achieved and where.

And here I think that the Rosneft shareholders are going to be quite content with the results we’re going to demonstrate. The next question please.

Could you please add a word about the dividend policy, if possible?

Well, dividend policy is decided by the Board of Directors, a decision which is actively being worked on in as far as the Government’s representatives are concerned, we have non-executive directors also. So whatever the directors decide, we will clearly follow that.

Thank you.

Good afternoon and thank you very much for the opportunity to raise a question mark. First question is about the suppliers of crude based on prepayment.

As I note the total amount in U.S. dollars with your suppliers in this quarter grew about $1 billion, although in the previous quarters were about $0.8 billion.

Could you please explain what is the reason behind it? And also could you somehow let us understand what one should expect in 2017 and 2018, I mean in as far as the shipment of crude against prepayment is concerned?

And the second question, you mentioned that you are interested in the maximum level of integration with Bashneft. Could you also comment on how that might affect the preferred stock?

Are you planning the buyout or something like that or no? Thank you.

Well look, as far as the first question is concerned, you will hear from Didier Casimiro, who’s in charge of this particular stream. As far as the second question is concerned, I will give you an answer.

As far as the preferred stock is concerned, I mean the preferred stock of Bashneft. We’re going to act in the strict adherence to the current legislation, so that is why we don’t have any issues here.

As you’ve noted, the tender which we have launched is about the ordinary stock owners in Bashneft and I believe this is it. We don’t have any plans in this as far as the preferred stock is concerned and we are going to work over – in strict compliance with the current legislation we will work with the holders of the preferred stock for the Company.

There are quite a few companies who are operating in this particular mode and Rosneft on its part undoubtedly is going to protect the right of these shareholders at the level of the high standards which are defined by the legislation of Russia. In so far as the first question is concerned, I would ask Didier Casimiro to comment.

Yes, we started basically working this particular mode back in 2015. And as far as the long-term contracts are concerned, shipments of refined products worth $45 billion.

But in 2015, we particularly started repayment of the prepaid amounts according to the schedule that is currently in place and throughout the whole year we supplied oil on the basis of our obligations under this contract. It was about $15 billion worth of it and reduced the overall amount of prepayment by about $5 billion.

So this year, during the nine months of this year, the level of prepayment to the long-term contracts, we reduced that amount up to $39.9 billion. So we have already paid about $26 billion already.

And could you be more specific in explaining what are your plans about repayments for next years, 2018 please?

Well look, these repayments are following the schedule and the schedule is different in between different contracts. But those figures are included in our financial report, if you want to, I’ll show you separately where you can find them in the financial report.

But there is a very precise schedule for payments in 2017, 2018 and IR will definitely explain to you where to find these figures in our financial report, which we’re disclosing.

Thank you very much.

Good evening, I have two additional questions about the acquisition of shares or stock of Essar Oil, how this deal is going to be funded. Will Rosneft dedicate its own funds to it, or will there be a certain prepayment and a long-term contract?

How are you going to finance this deal? And also about privatization, could you possibly comment on the privatization with respect to your own shares, which is currently being discussed by the media?

Is it possible to find out are there any plans like that? At which particular level is this basically possible?

And will interim dividend payment be taking place on the eve of this privatization?

All right, thank you. Well, the answers are very simple and as far as Essar Oil is concerned, the deal is going to be funded by Rosneft’s monies.

So there are no surprises here and this is the answer to your first question. As per your second question, as you know, the privatization project is done by Rosneftegaz together with the Russian minister of government property.

The Company on its part, in a very understandable way, whatever is necessary to provide assistance is doing it. But if you’re asking about the plans of the shareholders, I suggest that you should direct these questions to the shareholders.

As far as we’re concerned, we are doing everything necessary in terms of providing information, as well as ensuring a high level of readiness of the Company for privatization, thank you.

Thank you and could you please tell me about the dividends, nevertheless? It is a question to you.

No, no, no, this is a question to our shareholders, I would suggest, because we mentioned the dividend policy is being defined by the Board of Directors. The Board of Directors, generally speaking, to a very large level, acts on the decisions of our main shareholders.

And these are decisions that we adhere to very strictly.

Thank you.

Good evening, thank you very much for the presentation and the opportunity to ask my questions. I have two, the first one is about using the refining capacities and their utilization and specifically to the extent I know Bashneft has got about 5 million tonnes of free capacity.

Are you intending to load these capacities and respectively, are you intending to also maintain your schedule of producing a little bit over 80 million tonnes of refined products in 2017? My second question is about CapEx.

In your brownfields, specifically Yugansk – as far as Yugansk is concerned, in Q3 year-on-year we saw CapEx grow by more than 20%. During nine months, even there was a bigger growth.

Well, we understand all of this, but what kind of growth are we to expect next year, due to the fact that you are intending to increase the share of the hard-to-recover reserves in that asset? Thank you.

All right, we will have Didier Casimiro answering the first question. The second will be answered by Eric Liron and our CEO and CFO are on.

Didier, please.

Well, the capacity loading is really doesn’t important whether Bashneft or Rosneft, it’s purely an economical issue. So as you might know yourself, for example, we have reduced the refining load in our case this year, but the first thing that we’re looking into is the synergy effect in the Bashneft refinery.

And so the question whether we can better be supplied by oil at those refineries and achieve a better basket or a better pricing for the basket of refined product from those refineries, so are currently revisiting our analysis of the economics effects and we will deal with it accordingly.

Thank you and the first question, Eric Liron please. The second question rather.

Regarding the Yuganskneftegaz CapEx, the plan next year is to drill 2,000 wells, so be a significant increase in CapEx. And then production, we’re speaking about production above 64 million tonnes per annum, exactly on track with our plan.

Thank you.

Thanks.

Good afternoon, yes, thank you very much for an opportunity to attend this call. My basic questions have already been answered, but I may have two additional ones in continuation.

The last figure, which Eric quoted, which was about Yugansk production, could you please repeat it. And the second question is more on the accounting side of things.

In the beginning of the year you had a few deals and selling the shares in a number of your upstream assets, while in the reporting it was not very clear where it was reflected. I mean has this money not been yet received?

Or it was received but was registered in some different line item, because in as far as the cash flow from the investment activity was concerned, I couldn’t find it? If you could please help me, I would be very grateful, thank you.

All right, yes, Eric will answer the first question and then we’ll have Dmitry Torba, Chief Accountant answering the second one.

So the number I mentioned was 64 million tonnes next year per annum.

But isn’t it lower than the current production? You’ve mentioned that you expect it to grow at Yugansk.

Let’s be clear, this year we’re going to finish around 63.4 million tonnes and next year I said above 64 million tonnes per annum.

Okay, thank you very much. Clear, thank you.

Since we when entering into these deals were not losing control in our P&L report, we see the effect on capital side. But in as far as the cash flow the report is concerned in the financial activities, the line items, these inflows have been reflected in as far as the controlling share in the subsidiaries, I mean divestiture.

So that was note number 23, you should look into that and you will find it.

Oh, yes, I see it. Thank you very much.

Thank you very much, Ildar. Well, dear colleagues, thank you very much for the opportunity to speak and hear you.

And as I said, we’re going to actively work on presenting our investment story in the nearest quarter. This is definitely we find important considering the current integration of assets that we’re going through now considering the business plan for next year.

Once we do it, we will hold a meeting for the investors in important geographies. Otherwise, thank you very much.

We’re always open to you, we will continue working with you. Thank you very much.