PJSC Rosneft Oil Company

Andre Baranov – Investor Relations Artem Prigoda – Chief-Upstream Alexander Krstevski – Downstream Eric Liron – First Vice President

Igor Kuzmin – Morgan Stanley Artem Konchin – Otkritie Capital Ildar Khaziev – HSBC Henri Patricot – UBS Ron Smith – Citi Alex Fak – Sberbank Evgenia Dyshlyuk – Gazprombank

[Foreign Language]

[Audio Gap] who is the Senior Accountant; and Artem Prigoda, who is Chief of Upstream; and Alexander Krstevski, who is in charge of Downstream. Similarly, with us joined on the line, Andre Baranov, who is in charge of Investor Relations.

Please note that this presentation and today’s materials contain references to future events and outlook. And as far as the main highlights of the past quarter is concerned, the commodity market environments during the first quarter remained stable.

The oil price overall stabilized at the level of about $55 per barrel in the first two months as well as in March, declining down to about $50. Traditional main question for the market is the search for the balanced level considering the dynamics of the key oil producers and the forthcoming OPEC decisions average oil price and refined product price in the first quarter somewhat grew as opposed to Q4 2016, and that favorably affected the level of the operational income of the company.

The negative effect came from the appreciation of the ruble at about 7%, which led to increase of the operational cost in dollar denominations and a certain effect from the exchange rate differences, which you have noted in our reporting. And as far as the operating results in Q1, you can detect positive achievements throughout a whole number of areas.

First of all, the average daily oil output was 100% year-on-year, thanks to an organic growth both in the brownfields and greenfield as well as integration of the new acquisitions considering the operational results of Bashneft and the consolidation of folder company this year. As of January 2016, this particular indicator grew by more than 2%.

The company demonstrated growth in the production drilling, additional 1% on top of the level of first quarter 2016. The commissioning of the new wells grew as well as the horizontal wells that were at 50% production of gas compared to the indications of the 2016 quarter grew by 3%.

We also saw a 4% growth compared to year-on-year of the refining throughput in the Russian-acquired assets, specifically in Bashneft. And so considering the operational results of Bashneft since the beginning of 2015, the throughput year-on-year was 35%, achieving a greater amount of output of lighter product up to 9% in terms of the depth, up to 74%.

In Q1 27% we can see – continued seeing the volatility of the external commodity market as well as additional restrictions upon the production of – overall, the company completely complied with the guidelines that it was given as well as the appreciation of ruble exchange rate. And all of these factors produced the result upon – performance results.

The dollars remained at the level of 2016 being $5.7 billion, which also came from the reduction of the average operation cost and the control over the administrative cost. The EBITDA in rubles quarter-on-quarter went down by 9% because of the appreciation of the national currency being RUB350 billion.

The CapEx during the reporting period was RUB2 billion. That growth year-on-year was about 10%, which reflects a focus upon the execution of a whole number of upstream projects and the completion within the forthcoming quarters and the reduction of the capital expenditures quarter-on-quarter was brought about by whole series of factors.

So overall, despite quite an inclement environment, cash flow remained in a positive area, having grown by more than threefold compared to the level of fourth quarter 2016. So towards the end of the Q1 this year, the correlation between net debt to EBITDA in dollar was 1.56, and stable cash flow was enabling us to ensure a scheduled repayment of our external loans as well as – to act on our commitments in terms of the Bashneft minority shares buyout, which is part of the mandatory offering.

Just a couple of words with respect to the M&A activities, which are currently being done by the company and which are going through the process of completion. Some of them were announced and completed already past the reporting period.

As you may know at present, before the end of the current quarter, we’re planning to close the deal in acquiring Essar assets, which is in refining activities as well as the Egyptian where we’re buying about 25% of the shares. Separately speaking, about the Russian transactions in April, the company completed the deal in acquiring the Kondaneft project asset as part of which we are developing four acreage in Khanty-Mansiysk Autonomous District.

The group of fields which was acquired is in proximity to one of the key fields of the company, Priobskoe, and bordering on the biggest field which is in the undistributed fund of the Russian Federation. We see that the integrated approach to their development will enable to achieve a very high synergy as well as accelerated development of the resource potential, bearing in mind the already existing infrastructure in further development of the region at the start of the production at this particular field is being planned within the current year.

So overall, the company continues to demonstrate good financial performance despite very difficult external environment. And we will be very happy to answer your additional questions, and we shall continue working for your benefit.

Thank you for your utmost attention. Let’s now switch to the Q&A session.

Thank you very much.

Good afternoon to you colleagues. Thanks very much for the opportunity to ask questions.

I got a couple of them. First question is about your dividends.

The next dividend payment, the interim one, I believe, for the first half year. When are you going to estimate your dividends?

Are you going to apply an adjusted net to profit? I mean, the net profit as it is, bearing in mind the fact that in Q1 you really suffered from the losses because of exchange rate difference?

My second question, could you possibly share your expectations with respect to when you’re going to complete your big two M&As, which is [indiscernible] and Essar well? Thank you.

Yes, thank you very much for the question. We’ve got very simple answers to them as far as completing the deals.

Like I’ve specified in the course of my presentation remarks, we expect to complete them before the end of the second quarter. The first and second deal, so that is going to be the timeframe in terms of guidance.

And as far as the dividends are concerned, the company, generally speaking, has always been applying and will be applying the net profit indication without any adjustments, so I believe, that is going to be the kind of guidance that we would like to give you and as far as dividends are going to be based on the results of 2016. Thank you.

Thank you.

Thank you. I would like to ask you to specify with respect to the synergy potential from the Bashneft’s integration.

In your presentation referring to 2016, you’ve mentioned the figures RUB40 billion, which was set forth by the business plan for 2016. I would like to ask you, haven’t you changed your expectations at all at this point in time?

Igor, thank you very much for this question. Our expectations are remaining as they were in terms of our energy expectations – synergy expectations.

And I would like Artem Prigoda and Alexander Krstevski in terms of these synergies and specifically, the ones that we have been achieving so far, good comments, so that you could have a better understanding of what they are. Artem, please?

Yes. Good afternoon.

Artem Prigoda speaking from the point of view of these assets we have already done completely in half of what the synergy effects expectations were expected. The more complicated ones are remaining, which are basically on the engineering technical side.

So in terms of any possible deviations, there are none at this point in time. I would even say that we have the reason to believe that the results may turn out to be more positive because that requires certain engineering and technical applications.

And as far as the downstream is concerned, Alexander Krstevski speaking. In downstream, the main synergy is found in the trading area when switching over to the contracts, which are being entered into on behalf of Rosneft.

And so the synergy has been completely achieved, even with some additional lag. The other side of synergy, the technical side of things is supplies of the lighter products to the group of the Bashneft and refineries in full amount and throughput and the third group of synergies in terms of components, meaning sort of reshuffling in between the [indiscernible] groups and the Rosneft’s refineries, which is completely covered by all the contractual bases.

So you will be able to see it in our future reporting. Thank you.

Thank you very much. And could you additionally specify the RUB40 billion figure, if I understand correctly.

The sustainable effect, as they say, is it true?

RUB40 billion is the part of the synergy, which I would put in the category of cash synergy. So this is the soft figure, which in terms of cash, we’re going to fully implement this year from the total synergy that one would ultimately be looking at.

Well, I mean, specifically – yes, yes, this is something that we have done already.

I understand it now. Thank you very much.

Yes. Good morning.

Thank you very much for opportunity to ask the question. I have two ones.

In your report, you are saying that the oil production dynamics reflected two factors, which was the weather and your commitments to deter the production cost growth or limit your production output because of the agreements existing between OPEC and the other producers. Would you possibly give us a few more details in terms of how much and what we saw in the Q1 figures came from the colder – normally cold weather?

And how much of it came from your efforts – I mean, physical efforts to limit your production as well as make it possible for us to feel, if most probably these agreements are going to hold till the end of the year, by which margin this limit may be raised? So this was first question.

And the second one is about the Kondaneft asset. Could you tell us, have there been any liability that you have acquired along with the company?

And what is the target plateau level for the production? Is it true that it’s about 100,000 barrels a day?

And how much CapEx has remained? Because as far as I understand, this particular asset has been almost halved?

How much additionally you will need to invest in order to achieve the plateau?

Yes. Artem, thank you very much.

Well, look, from the point of view of achieving the kind of objectives, which we face to reduce the production. As you know, the company accounted for almost 5% of the overall reduction of oil production within the crude, which haven’t defined for Russia.

And one, I believe may be sign that one-sided effect in terms of the external weather conditions as well as the reduction of output as part of the commitments to OPEC. So to separate these two factors is a bit problematic.

And we may say that we have achieved the objective, which we were set for with, I should think, minimum losses by the company. Moreover, from the point of view of the overall effect of the price environment, these agreements definitely produced what was expected.

So the net effect was a positive one. So currently, I believe it’s a bit premature to speculate about what kind of measures are going to be implemented past pack making agreement because first of all, one has to understand the scale of such decisions and the time frame within which these agreements are going to be reachieved, because we currently don’t have 100% understanding.

So it is difficult for us to comment upon things, which are out of our control and are the subject of an agreement yet to be achieved because if such agreement is achieved, we will definitely be adhering to it. And here, I believe they first have to – we have first have to have a very clear understanding of this being a lucrative decision for the shareholders.

And as far as Kondaneft is concerned, this particular acquisition took place during the reporting period. So full presentation we’ll prepare and share with you based on the results of the Q2 because the company continues to invest into developing this project.

I mean, the project is running okay and believe it’s a very large scale, unique, very interesting project. And we will share with you the results based on the results of Q2.

I understand. Thank you very much.

Then we will again revisit the issue back in August.

Good afternoon. Thank you very much for your presentation.

I have a question about downstream. In Q1, you demonstrated the decline quarter-on-quarter in dollars by more than 50%.

Could you possibly comment what is the reason behind it? And to what extent the fuel oil duty rate played up it?

And have there been any factors in Q4? Because in Q4, you demonstrated very strong profit in this particular segment.

And my second question about Suzun [indiscernible] past two months, the output from this particular field was going down. Could you please explain why?

Thank you.

Yes. Very well, thank you very much for these questions.

Very simply, I would direct to Alexander, and then the second question to go to Artem Prigoda. Yes, thank you very much, lldar.

The Q4 traditionally, indeed, is believed to be the strongest one in the downstream segment because we observe the highest prices, which stabilize the refining margin despite the maneuver. Naturally, compared to Q1, the main factors which played down is the reduced throughput because of the seasonal reasons and the wholesale prices, which doesn’t play up to a strong refining margin as well as low cracks in the export market as well as the reduced refining throughput as a traditional maintenance downtime.

So all put together, that produced an intensive pressure up on the margin and based on my estimation, about 30% from this particular decline came from the 100% duty on fuel oil, which is the final stage of the maneuver in 2017. Thank you.

This is Eric. I’ll answer the question on Suzun if he’s online.

Ildar, okay, regarding, Suzun, okay, we’re planning to have 100% [indiscernible] replacement. So we are planning to do it towards the year-end.

So what we have done is to prepone it and this helps us, yes, for the OPEC cuts, accordingly, but it was in the plan. So this will bring up the pressure that was around.

We still plan to achieve what we had promised for the business plan depending on what will happen in terms of decision on the OPEC cuts. Thanks.

Thank you.

Yes, I have one. Thank you for the presentation.

Two questions from me. First one to follow up on M&A, but on the disposal side at this time.

Have you made any progress on the further upstream disposals? Should we expect some transactions to happen this year?

And then secondly, on the recent news around Sistema and Bashneft, can you give us any more details on your claims against Sistema? And when is the earliest you’d expect to be able to achieve some payments for [indiscernible] Thank you.

Thank you so much for the questions. I think, if I understand your question correctly – I suppose, this connection is not great.

But to be answering the first question correctly, you’re asking to comment on any potential upstream disposals?

Yes. That’s correct.

Okay. In light of corporate policy, we do not comment on the situation at this stage.

There is nothing to comment on. Obviously, the company is progressing its strategy of monitoring the reserve base and making sure we reach that resource potential.

More of the work that [indiscernible] partners to bring more capital skills to our reserve base but actually saw nothing transactional to comment on. The first point that will be only seeking to move partners where there are technological setup, where that capital could be provided to ensure [indiscernible] supply development of resource for our shareholders.

With regard to Sistema and Bashneft, I believe the matter is currently in the court, which we should review potential conclusions and counter-conclusions. So it’s just a normal process, which, I believe, is the right way to approach the solutions from the company’s side [indiscernible] release.

Okay, thank you.

Thank you.

Thank you. I would like to ask you, are there any news about the possibility of achieving additional tax exemption with high water cut levels, including in the Samotlor area?

Thank you.

Igor, thank you very much. Well, look, principally speaking, we’ve given quite a detailed presentation of our investment case in terms of possible tax exemptions at all the levels that the executive power is making available and – as well as all the government agencies that are involved in making such a decision.

The rationale behind such incentives is quite straightforward, which makes it possible for the company to profitably invest into one of the most infrastructurally endowed resource areas because the Samotlor and adjoining areas are the ones which may produce quite an effect in terms of the results as compared to other projects, which require a greater involvement of external capital because Samotlor from the very start to the very finish is our project, and it is located in a very well-developed area, which we have a complete sub-surface knowledge of which is being developed along with exclusively local contractors. And so the multiplier effects here is going to be very strong.

But as far as government is concerned, we’ve been able to demonstrate the potential effect not only coming from this multiplier effect, but from our investment acumen, which also includes additional exemptions. And that really would constitute a very serious performance worth the fact of hundreds of billions of added value in the future.

So we believe that the rationale behind such stimuli is very strong and very easily explainable. This is the best kind of incentive that one can offer to the Russian oil industry.

And so it seems to us that we have been heard because we feel there is support and understanding. And so we believe that certain decisions within the next few months are going to be made official by the Russian government and that is very strong hope that we’re having because we will be able to justify and validate our rational approach to is.

So we are of an opinion that – and as far as the economic common sense is concerned, behind the exemptions offered there, they’re there. Thank you very much.

Yes. Good afternoon, thank you gentlemen for the call.

One of my questions has already been answered. The other is on the refinery upgrades.

Do you have any guidance for us as far as the changes in the light product output by year end of 2017 and, say, by year end 2018?

No, [Audio Dip] customers who is [Audio Dip] perspective [Audio Dip].

Yes, thank you very much, Ron, for your question. And as far as upgrading of our refineries are concerned, like we used to say, last year, we did a lot of work to prioritize our portfolio.

At present, our main markets are the hydrocrackers at the Komsomolsk and Achinsk refineries and the crackers at the Kuibyshev and Suzun refineries. Also, after an acquisition of Bashneft, we have a priority objective now to upgrade the hydrocracker at Ufaneftekhim facility.

And this is the first priority, which we’re doing our best to perform within the set time frame in between 2018 to 2020 in terms of the re-commissioning. In terms of the output of lighter weight, we’re trying to achieve up to 65% throughout the whole of refineries.

So that amount of fields will grow almost double, is almost double. Thank you.

Yes. good afternoon.

I noted that the prepayments really grew in terms of the overall figures during Q1, whereas, during the first quarter you dated RUB8.9 billion. Then during Q1, you paid RUB1.7 billion within prepayments.

So what is the reason to it? And to what extent is very high pace of repayments is going to continue?

And my second question. Based on my estimations, I can see that your net debt, if you include into real dollar value of prepayments is about $79 billion, $80 billion.

Am I correctly in seeing it this way? Thank you.

Thank you very much. Andre, Could you please comment?

Andre Baranov, I mean, about our prepayment picture because I have no particular surprise. I mean, clearly – I mean, any questions, which is about the speed of repayment is within the financing area and we feel ourselves quite confident about it.

But in terms of including these repayments into overall debt file, this – the position, which we have always been watching quite closely. This is a form of the client credits, and so in terms of how it was included, and Andrea, please, Could you please give us additional details?

Thank you.

Certainly. Alex, the prepayment are being done in terms of repayment of loans are being done and in true compliance with the compliance with the schedule.

The only thing we can additionally say that the kind of prepayments which took effect of original one where down in favor of the traders, but some of them are going to come to an end, and that is a very good hint for you for the modeling. Thank you.

Okay. if I may, just another follow-up question.

I do understand that you do estimate the size of the net debt in your own way, but you could you please quote us the real dollar denominated amount of prepayments remaining by the end of the first quarter?

$38 billion – no, no. I don’t mean what’s on the books, but none within the – according to the currently belief existing exchange rate, but it’s $38 billion based on the real exchange rate as you’re saying.

So in U.S. dollars, it doesn’t change.

It may be different in ruble.

All right. Yes, thank you very much.

I understand that.

Yes. So again, good afternoon.

I got another question about downstream and additional question I have. I took a look at Bashneft, and I noted that their refining profit has seriously gone down by about 50% quarter-on-quarter, and it seemed to me that it was because they have less of fuel oil, they ought to have been better.

Has anything else happened there? Could you please comment on this?

Ildar, what are you comparing it with? With quarter-on-quarter?

To the first one, yes, yes, quarter-on-quarter in Bashneft information because I really thought that if it’s – first, if you’re comparing the first 2017 to the first quarter 2016. No, no, I mean, the first 2017 to the fourth of 2016, I mean.

Well, I will answer in writing.

All right. Thank you, I would appreciate.

Good afternoon.

Yes, good afternoon. Thank you very much.

I have got a general one. Could you please tell me, against which oil prices Rosneft would feel interested in continuing the OPEC agreement at the current conditions, I mean, in terms of reducing the output?

Looking at the pricing, would you able to be comment on it somehow in this way?

Thank you very much. But it seems to me that it’s a very contextual thing because the whole process do – relates to the ruble exchange rate and many other things.

So just to give you a simple answer wouldn’t be correct because it’s not that we’re not having our own view on things, but this is something that would evolve out of the multinational dialogue. Thank you very much.

Thanks to all the conference participants for your questions. And we’ll see in here each other, again, after the second.