PJSC Rosneft Oil Company

Pavel Fedorov - Vice President Artem Prigoda - VP and Advisor Alexander Krastilevskiy - Advisor

Ron Smith - Citigroup Alexander Kornilov - Aton LLC Ildar Khaziev - HSBC Evgenia Dyshlyuk - Gazprombank Henri Patricot - UBS Investment Bank Ildar Davletshin - Wooden Company Igor Kuzmin - Morgan Stanley

Good afternoon, dear ladies and gentlemen. Thank you for connecting to teleconference dedicated to the first result by Rosneft Q1.

My name is Pavel Fedorov, first Vice President of the company. Also we have Eric Liron with me who is Vice President of the Marketing; Didier Casimiro, Vlada Rusakova, who is Vice President and In-charge of the Gas business.

And other top management of the company including the finance and economics and various responsible CFOs of different business streams. Covering the whole spectrum of business operations but if it is not of this presentation amongst other things contains information about future events and outlook with respect to limitation of liabilities.

Now speaking about their view of the market economic during the first quarter during the first two months macroeconomics has substantially improved since the end of last year. The market has demonstrated a stable trend towards the oil price growth.

The average during the quarter under view brand price was $67 per barrel which is 9.24% above the Q4 and Q1 last year, respectively. Against the backdrop of some weakening of the ruble exchange rate, ruble denominated better price during Q1 also grew as quarter-on-quarter as well as year-on-year, through end of the reporting period the oil price reached RUB4, 000 per barrel which is $75 per barrel currently exceeding RUB4.700 per barrel which is considerably above the business plan levels.

Now speaking about the performance results of the company during Q1. I'd like to note the following things.

First of all, the production of hydrocarbon during Q1 remained at the level of the Q4 last year, and this is 5.7 million barrels of oil equivalent today. The average daily output of liquid hydrocarbons in Q1 grew by 0.3% quarter-on-quarter up to 4.57 million barrels, but declined by 1.2% year-on-year because of the company's adhering to its commitments within the OPEC-plus agreement.

The company continues to enact over the key projects going to flexibly respond in terms of the production development which enable one in case as need to very quickly recover the level of production which towards the end of reporting period exceeded 100,000 barrels a day, which is approximately 2% of the current level of production based on --which is the reserve capacities which we currently have in our position. In this way against no restriction to company was enabled to demonstrate the internal recovery of these production in their working period in December last year, we started producing gas from the Zohr field in the Egyptian Offshore as in there are five production wells ,which have been commissioned operation which provide for the gas output of 21 million cubic meters gas a day and perhaps is one is to count in terms of the cost of the project, the company share here is about 4 million cubic meters a day in terms of production.

In Q1, the amount of refining of the Russian refineries that the company has amounted 24.7 million tons. At the same time, the company has been able to grow the percentage of the output of the light product up to 57% where the depth of refining grew by 1.4% up to 75% thanks to various activities undertaking and as far as the upgrading program was concerned.

So the total amount of refining in the Russian and foreign refineries in Q1 amounted to 27.6 million tons of refining. Now as to the financial performance results in Q1, one can considerably note the growing revenue in the quarter by 25%, EBITDA grew by 19% compared to Q1, 2017.

First off because of the optimization of sales channels and the oil price growing so the net profit grew by more than six fold of free cash flow almost 50% compared to similar period last year. As to the key financial performance dynamics, the Rosneft is one of the leaders in the industry and speaking amongst those were published in the global appears who published their reporting very recently the Board of Directors conceded the presented by management set of initiatives aimed act in raising the investment attraction of the company and thanks to the such initiatives were made up of the generation of a stable high cash flow with the production of the aggregate debt burden and liabilities of the company, the main level of the aggregate debt burden declined including amongst other things if we take into this calculation, the commercial liability at the end of 2018 has been set at the overall RUB50 billion in which we reached by reducing capital spending by about 20% down to RUB800 billion then reducing the working capital by RUB200 billion and continuing optimization of the debt portfolio of the company.

So achieving this performances will be done through further accelerated project management development methods, as well as optimizing the supplies of the company as well as the alienation of certain tail assets, as well as the non-core assets, additionally Board of Directors also reviewed the proposal made by the management of the company all by possible taking of the buyback of the shares and various options of this particular program to be done are currently e being worked on following which it will be submitted to be approved by respective corporate governance bodies. In Q1, the capital investment grew year-on-year by 16% up to the level of RUB253 billion.

At the same time, we expect that the future quarter will demonstrate dynamics to the above set objective based on the results of Q1, the level of the short term financial liability of the company was reduced to [Indiscernible]. Of note that work aimed at refinancing certain liabilities shall continue in order to further improve the structure of debt portfolio.

We continue as planned to reimburse the supplies of oil which we've been doing as opposed to previously paid by this which in Q1 went up to US$1.5 billion, we reimbursed Glencore and Vitol of this particular payments which we done in 2013 and we will definitely further continue to improve the financial results of the company in the best of interest of our shareholders. Thank you very much for attention.

Now, we switch over to the Q&A session. Thank you very much.

Thank you gentlemen for the conference call. Quick question looking a little bit forward and thinking about some of the new Greenfield that you have ready to come online.

And particular about Rospan, when can we expect Rospan production to start climbing? Is it something that will happen in the course of this year?

Is that more of a 2019 story? Thank you.

Ron, thank you very much for your question. But as you know at Rospan project we continue to actively complete the key facilities of the project infrastructure asset and today speaking as of the end of Q1, 2018 at the gas condensate treatment we have installed 14 reservoirs and the 14 gas condensate stabilization as well as the propane-butane treatment units which accounts for more than 40, if remember correctly, units of big type of equipment.

We have also installed the main technological equipment and at every point there is a low temperature separation ensured so work is following according to plan and we do expect that I would guess that the project capacity will be achieved within 2019. If you talk about a formal ramp up a point but the commissioned unit operation will take place within this year, but I would rather say that it would be more of a fine tuning where pre-launching so the main effect as far as the financial results is concerned we will be witnessing that in 2019.

Thank you.

Good evening. Thank you very much for presentation and the opportunity to ask a question.

I have got two questions and both of them are about CapEx. The first question like you mentioned the target of RUB800 billion as far as the annual capital is concerned.

Historically, Q1 usually was and we were witnessing the lowest CapEx and looking at from quarter-to-quarter so what are your plans? Could you give us few more details in terms of - are you planning to stay within RUB800 billion framework expect in Q1 almost 30% from this amount.

And my second question could you possibly as far as this RUB800 billion are concerned to give us some sort of guidance or give us details, how much of this amount you would be dedicating to upstream? How much to refining and marketing or to any other major projects would you definitely understand how much money those will require?

Just to itemize these amounts so that we could get a better picture.

All right. Thank you very much for your question.

With your permission I'd like to focus today upon the results of the first quarter. First and foremost and as far as the detailed guidance is concerned in between different streams and specifically as far as specific CapEx volume is concerned is what we are going to share on June 21 as part of the general shareholders meeting where we are going to present the details of that program in between different streams.

But speaking about our target for is particularly, yes, we believe that this figure is feasible and in the first they are just going to be achieved through the company I should say re-optimizing CapEx projects it currently has in where we don't have any confirmation of the tax regimes which meet our performance expectations. And so based on the actual results we are not going to - within these projects to go to the final decision making until we have a fiscal regime for them confirmed.

So if we see such clarity, we will make soft decisions and this decision which will be most economically viable but right now we handed up our minds with respect to a whole number of projects where we don't have any fiscal regime confirmed. So we just audit to put on hold capital investments into that first thing.

Second important factor which is quite a disruption of supply. So as which we are currently undertaking which was initiated in the end of the first quarter which were - is we are accounting the whole supply chain and service providers so I believe that there significant efficiency is already quite tangible, now optimization between different streams as I said will made available towards the end of this year.

But our objective I believe is very realistic and we do not see any particular risks in our specific end.

Good evening, gentlemen. Thank you very much for the permission to ask a question.

I've got just two. And my first question during the past presentation a quarter ago which was Q4, 2017, you gave us very detailed information about the Venezuelan debt according to which the amount of prepayment at the end of year was US$2.2 billion.

Could tell us what is current sort of figure towards the end of the first quarter? That was my first question.

My second question the most measures that you've undertaken to improve capitalization something which you announced in May 1st, you also stated about the working capital being liberated with respect to the low US$200 billion. Could you give us a more details?

What are the sources of this particular liberation of capital? Is it something from the receivables or is there anything else was tempting to it?

Yes. Thank you very much for your question.

In our general presentation if you can take a look at, page 24 that is where we said for the dynamics of Venezuelan prepayment, you see the way by US$600 million as this figure went down based on the results of Q1. That was kind of a marker that one had to bear in mind.

And as far as working is concerned, again, there are two, three sources. This is working with our suppliers and vendors and contractor.

That making second changes into the way. We are carrying on our commercial operations and overall changing the project portfolio something that I previously described.

So three main factors behind it. And again detailed itemization is something that we can make available on June 21st.

But I believe that amongst what I just mentioned you can find full answers. Thank you.

Thank you very much. Good evening and thank you very much for the presentation.

I've got just two questions about prepayment which was received from Venezuela. You said that this amount went down by US$600 million but I am looking at page 32 in your presentation.

It says that the setting was RUB800 million so I wanted to understand what else is included in it? And my second quick question is about Komsomolsk found out as it happens that this very impressive production growth at Angarsk it came effectively not from the [Indiscernible] but from upper fields could you please give us a few more details about what is going on there?

What kinds of field have been commissioned to operation and from where this production grows?

Well, speaking about your first question on page 24 and 32, different figures are being specified because page 24 speaks about now repaying the principal while the 32 includes also the interest which was paid by the Venezuelan, that explains the delta. And as far as the production dynamics, it constantly got us concerned.

I'd like Artem Prigoda who is the CFO of Upstream to comment on the key elements of the way that fields operating there.

Yes, thank you very much. I like your question.

Effectively Angarsk, at Angarsk, we are having currently drilling work going on throughout all of the fields and so we are basically ranking them in terms of their efficiency and growth of recovery. We will - main volumes come from the already developed fields which we understand very well.

We do additional drilling and we also covering the edges and so just to be able to identify specific fields is what we did in set ourselves at a task. We set out ourselves specific goals for every well within every acreage that the fields are covering and so respectively.

I mean if you would like to have more detail we would be eager to have separate meetings and demonstrate to you the way every well is operating rather than just giving you a lengthy explanation about our well modeling.

Good afternoon. Thank you very much for allowing me to ask question.

Upstream and gas, if I remember correctly that initiative to raise the investor efficiency would be described to us during the summer? But could you possibly give us a few highlights about the buyback program?

First of all I wanted to understand will this include any options program-- generally what are the plans? And the second point the strategic optimization of your asset portfolio.

What is this all about? I would also like to understand in a few details at least.

Yes, thank you very much for your question. With respect to the asset portfolio, we have come to a strategic review a number of our tailing assets which we are considering to divest from or potentially bringing a partner to further do them.

So these are the kind of two approaches pertaining to the assets which fall into a lower quartile in terms of the ranking and also in terms of - this is our first approach while the second question, the second question now speaking about the buyback details. As I described previously, the details of approaches will considered by the Board of Directors.

We have certain gauging, certain ranking in between different approaches which we are currently undertaking with the enrollment of the internal and external experts. And so I'd say that based on the additional review by the Board of Directors in June we will be able to disclose certain results because currently it is premature to try and look deeper into this topic.

Thank you.

Good afternoon. Thank you very much for your presentation.

I got two questions. The first one is related to your production capacities.

Because you said that approximately 1,000 barrels a day is what is the capacity of this current not being utilized. How quickly you would be able to recover this particular capacity?

Could you please explain? And from which field also saw information in the media that Kuibyshev was launch postponed till 2019.

Could you also comments slightly on this one? And my second question is related to the supplies in terms of the CFC, so from the previously concluded contract, are these contracts still in force?

Are you going to possibly reconsider them something about this?

Well, let me have Artem Prigoda with your permission answer your question as far as the first two which is the reserve capacity for the upstream. And as far as our commercial operations are concerned Mr.

Casimiro will comment on that also.

Thank you very much again for the opportunity to respond to your question. And as far as being able to recover our pre OPEC level principally speaking, if you recall we restricted our output based on the capability to be able to quickly come back to the production level which we have for the OPEC contract.

So the level of possible recovery in terms of the timeframe for this particular purpose will take up to two months, while the main output in terms of the biggest volume recovery we'll be able to do within just a 30 days.

Good afternoon. And as far as commercial contracts are concerned I'd simply wanted to say that all of the contracts that Rosneft is committing itself and as far as the main body of it is concerned are being displayed publicly but with respect to the commercial details, we are not able to disclose them because these are bilateral terms and they are of a confidential nature.

Good evening. Thank you very much for the presentation and the opportunity to ask a question.

I got two quick questions related to the initiatives which you announced on May 1st. You said that the details about the buyback program will be considered later but is there any understanding at this point in time when this program will be started?

Will it be in the end of this year or in 2019? My second question in your press release you are also saying that the share buyback program it will be funded amongst others from the sale of non-core assets.

So is there any clarity at this point in time, is there any specific assets that you are currently targeting for this? And one additional question do you have any plans for M&A activities through 2018?

Thank you.

Yes. Thank you for these questions.

Now if we try and - try and categorize these three questions. And as far as M&A plans are concerned, you are right through Eka and you saw what we are planning to maximize the efficiency of our currently existing assets.

So this strategic line is something that is self-evident and I guess we set out ourselves a course and we are going to stay this course and that is being confirmed by our objectives to generate the free cash flow and our initiatives that also were published in the beginning of May, first thing. Second thing, the program to improve our capitalization amongst other things by bringing instructions for the share buyback program is a midterm kind of an effort which was defined as part of the press release for 2018, 2020.

And so within the midterm outlook it is going to be worked on, while the details as I previously mentioned we are going to disclose one way or another in relationship to our annual general shareholders meeting because this teleconference is related to the results of the first quarter prominence and I believe that would be very inappropriate if in a few weeks' time we will talk more substantially if that the way we would improve our capitalization. Thirdly, the press release we published in May didn't directly relate or connect the share buyback funding to issue for many assets.

That was not the way we put it. We were saying that the company within the next few months is going to focus itself upon reducing the CapEx spending and working capital and generally reducing the level of its commercial and financial debt.

While at the same time it will optimize its portfolio of assets, trying to find additional points to improve efficiency by selling non-core assets. So the share buyback program in terms of when it is done and if it is done is what we are going to see that it will be done in the first place, start of the general cash flow rather than just saying that it would be related to any specific asset being divested.

We never put it in these words.

Excellent, thank you for the presentation. I have two questions for me.

The first one on capital allocation and then for commercialization. From capital allocation I was wondering given the very favorable market conditions at the moment for the oil price and durable, what are your priorities in terms of capital allocation?

Will you try to maximize the net debt reduction or higher oil prices would that give potential room to increase inorganic or organic spending or perhaps the buyback, what are the priorities between the three options? And then secondly of Venezuela.

Thank you for providing the information on debt repayment. Is this $600 million good quarterly run rate for repayments for the Venezuela?

Thank you.

Thank you very much for your questions. Now you know speaking about our priorities in terms of utilizing the kind of effect that we achieve from the current market economics.

Without doubt these goals are very well aligned with our strategy we announced in the beginning of May, the first generating cash flow and reducing the debt burden on the company because we believe that under the current environment conditions, we can quite quickly achieve some very substantial results almost before the end of this year. One of the goals has already been set and so I'd say this is going to be the kind of the milestone that we should go for.

Now speaking about Venezuelan component. A lot more depend on the macroeconomics but overall give or take is the kind of the milestone that you can keep in mind for the next quarter.

Thank you.

Good afternoon. Great, many thanks for the opportunity to ask question.

I believe that I would also first talk about two issues. The first is about capital investments for more of a midterm perspective.

Let's say two to three years. What are your expectations?

If one should come from RUB800 billion. Do you expect this figure to grow or it will stay unchanged?

And if possible also in the line of upstream and refining and could you particularly pay attention to refining bearing in mind that the thing although the amount of darker product is growing but it is not as high as far as I understand. Haven't yet completed your upgrading program?

And again go back to this program because I recall it was about US$25 billion invested long time ago of which about $10 billion to $15 billion already been invested. So what's the future in this CapEx and refining and then cost through involved in terms of the production of oil.

In fact unit of product, if I am not mistaken, do you want to show us the growth of 10% year-on-year in rubles. So on that question so what expectations in terms of the future of this particular dynamics.

And it can't be related to the need to deter on a production as part of the OPEC-plus agreement, if it just 60 days it will take you to recover the free OPEC-level, could it mean that the level of your cost would also go down based upon the positive dynamics that this would demonstrate.

Oh yes, thank you very much for these good questions. Please allow me to answer the first two questions.

In response to level of cost concern we will have Andrey Baranov commenting on. So now speaking about prioritization and between downstream and upstream and the upgrading program that we are currently working.

We are continuing to invest into the refining segment. And as far as the projects are concerned where specifically we can see a very short period of time to complete them.

And where we have very specific pathway to commission into operation very specific units at different refineries. But altogether to speak about the long term indicators in our investment program, we need to have additional clarity.

And as far as fiscal regime is concerned because you are also aware as we are that there is no clarity line that available today because in our part we have voiced various ideas and proposals to the key regulators. But as of today we haven't been given any full understanding about the way taxation in refining is going to function, both in terms of the input and output.

So that is what we don't have I should say and it is a considerable obstacle for us to be able to discuss long-term plans for the development of the refining sector as far as specific investments are concerned. So I guess this should be my answer about refining.

Now speaking about the capital investment for next year and for the subsequent years. Our concern without doubt will be able to witness a certain stable effect from the organizational changes that we are doing today.

And that is about changes into supply chain that is into changes into project based approaches within our key upstream projects. This effect one should understand that it will carry on but in terms of any absolute capital investments particularly speaking about upstream that would depend upon the planned launched that we are going for because a big number of projects be going to be launched within the next 18 months.

So there definitely will be a certain ramp up within the upstream related to the fact that these projects are being launched and so we are currently very active stage in the - now in terms of specific figure for the next year's key performance indicators, we will announce towards the end of this year once the budget indicators are approve which is our standard corporate practice. But longer term let's say up to 2019 and 2020 and again it all depend upon the macroeconomics but also using ask the given these macroeconomics we do expect the capital investment to go down in upstream which will be more than 80% of the total capital investments specifically through the fact that our basic projects which we have been developing during the past two years going through very active construction phase, will finally be launched.

So that is information - that is the kind of guidance we can share with you. Speaking for the next year, figures you will hear them in December.

So long term in 2019, 2020 that will go down definitely but this particular decline will call for stable macroeconomics as is and short mark clearly and that creates trajectory of launching our project next year. Thank you.

I don't think what it is call except about the operation cost. Look, this question is quite simple in terms of answering it.

Why? Because I mean out of 8%, 9% to be more specific in terms of growth, 5.2 is inflation in the first place, this is highest and related fund indexing while they remain up 4% is from growth which the first place is concentrated in New Gulf and [Indiscernible] and why it happened this way?

Because that is way our revenue and production are going to ramping up on the maintenance operations and operations as such which we do now basic well stock. And the amount of restriction that we are facing it does affect our efficiency.

And so watch the OPEC-plant ceases to be an importance an increase of upstream production will be proportion pro rata to the cost going down. And so in terms of the non-controllable costs we have zero because principally we have clearly understand what is happening to every well.

That is an extremely important element that I would like to draw your attention to because we are very stable leaders among the public company in terms of operation cost.

Thank you very much again. Two questions I have remaining.

First out SR. In your MD&A, you disclosed that the share of your profit in that asset was RUB360 million in Q1.

Could you please also share the way these assets affects your EBITDA and the free cash flow, if possible? And my second question, again, is about Venezuela, the cost line noted that your purchase of oil year-on-year went down by about 40%.

The way I understand last year - during the past three quarters of last year, these volumes also included the repayment of - prepayments by [Indiscernible]. Do you understand correctly that in Q1, these volumes shrunk and went down?

And so is it possible to relate these accrued purchases with return of prepayments by Venezuela? Or is it premature to make such a conclusion.

We will have Alexander Krastilevskiy, who is the downstream CFO.

Yes. Thank you very much for the question.

Now just one by one. The SR question today, towards the end of the year we expect EBITDA to be about RUB1, 250 million to RUB180 million.

So based on this particular income we expect that the net profit within the financial calendar year will be about US$400 million so as of right now based on the results of Q1 which has just gone by we believe that we are following that correct pathway now. And as far as Venezuela is concerned, indeed quite luminous now that a figure in terms of bells can be different in between different quarters which depends upon the well-coordinated repayment schedule.

And depends upon also the oil price and the refined product price because the key parameter is here the repayment in US dollars and so with respect where the price and financial micro parameters define as derivative the amount of barrels of which has to be supplied within a certain quota. We are following the schedule today very strictly in incomes the kind of the figure that we are disclosing from Q1, it confirms to the right in the pace that we have agreed upon with the Venezuelan counterpart.

Good afternoon. Is it possible for you to specify to us your plans with respect to the working capital?

So what will be the effect from turning around the negative results that we recall from last year? Have this overall dynamics can look like in Q3?

It would be great if you can give us that.

Hi, Igor. We've told everybody about reducing working capital by RUB200 billion and as we said we are going to achieving it by changing our approaches to supplies and approach to business which are the two key factors, we can see here.

That is the way we are going to do it. Thank you.

Dear, colleagues. Thank you very much for your attention.

For participating in our today's conference call. I hope to see and hear you very soon.