9M 2017 AVERAGE DAILY HYDROCARBON PRODUCTION ROSE BY 9.7% TO 5.72 MMBOEPD

9M 2017 LIQUIDS PRODUCTION INCREASED BY 11.0% YoY

9M 2017 GAS PRODUCTION WAS UP BY 3.1% TO 50.86 BCM

REFINING THROUGHPUT QUALITY IMPROVED: 9M 2017 LIGHT PRODUCT YIELD REACHING 58.4%, REFINING DEPTH - 75.2%

Upstream

Hydrocarbon production reached 70.5 mmtoe in Q3 2017 (5.67 mmboed) and 210.8 mmtoe in 9M 2017 (5.72 mmboed). Growth was at 0.7% QoQ and at 9.3% YoY.

Average daily liquids production amounted to 4.57 mmboed in Q3 2017 and remained almost unchanged QoQ despite the pressure from external limitations imposed on the Russian oil companies. The organic production dynamics remained positive YoY, while the output increased by 10.1%, taking into account the acquisitions.

The average daily liquids production grew by 11.4% (0.8% taking into account Bashneft operating performance from January 2016).

The Company continued the implementation of the approved operating plans. 9M 2017 development drilling rose by 26% YoY to 8.8 mln m, with a ~60% share of in-house drilling services in the total meterage drilled. The number of the commissioned new wells increased by 19% YoY to 2.3 th. wells with a 34% horizontal wells share.

In August, RN-Yuganskneftegaz drilled more than 600 th. meters, achieving the highest monthly level among the Russian companies. This record was set thanks to using the modern drilling technologies, including rotary steerable systems, replacement of standard wireline test with logging while drilling, and also with a technical support of wells drilling and completion in real time. These significant efforts of RN-Yuganskneftegaz resulted in the average daily liquids production increase by 6.2% in Q3 2017 and by 3.6% in 9M 2017 YoY, reaching the maximum production level for last 30 years.

On the back of the drilling activity improvement, the average daily production at such large mature West Siberian assets as RN-Nyaganneftegaz (+3.4%) and Varyoganneftegaz (+2.7%) also increased. Mainly this was driven by the existing tax incentives for the fields with low-permeability reservoirs.

In pursuance of the Company's strategy to develop a sustainable technological advantage in exploration and production, the first commercial simulator of hydraulic fracturing in Eurasia, RN-GRID, was set up. This import-substituting development will ensure the Company's technological independence in computer modelling and higher efficiency of hydraulic fracking operations.

In October, the Russian Ministry of Finance introduced a bill to provide the investment incentives to the Company's Samotlor field in the form of MET annual reduction in the amount of RUB 35 bn for 10 years. The introduction of these tax incentives will fully unlock the resource potential of the Samotlor field, intensifying the operating activity, which would also improve the employment in the region.

The Company has started the commercial development of two fields at the Tyamkinsky Hub of the Uvat project: Severo-Tyamkinsky and Severo-Tamarginsky. In August the first oil was produced and filling of the oil pipeline started, at the Kosukhinskoye field, followed by the commissioning of the drilled development wells. As of 01.01.2017, ÀÂ1Ñ1+Â2Ñ2 recoverable reserves of the abovementioned fields were at 53 mmt of oil. The field development will be conducted with applying the modern  technologies.

Major new projects such as Suzun and Messoyakhaneftegaz are being developed fully in line with the plan. The Company's crude oil production share from these fields was more than 4 mmt for 9M17. The development drilling program at the projects were under way, the construction of the second stage of OTF at Suzun field and expansion of the CPF oil treatment facilities at the East Messoyakha field were in progress.

In September, the Company started comprehensive technological testing of the oil treatment and the transportation facilities at the Yurubcheno-Tokhomskoye field: the construction and installation works were completed at the oil treatment facility with the design capacity of 2.5 mmtpa and at the custody transfer station and the oil pipeline, 10 well pads and related infrastructure were under construction. The field’s cumulative production amounted to 0.3 mmt of oil at the end of Q3 2017. The crude oil output is expected at 0.8 mmt this year.

As part of the first stage of the Kondinskoye field commercial development, the construction of the custody transfer terminal was completed, the development drilling was finished at seven well pads, the construction and installation and commissioning works were completed at the 1st start-up complex for the main facilities, the CPF-custody transfer terminal pipeline (68 km) and other facilities that ensured the timely commissioning of the field scheduled for Q4 2017.

In Q3 2017, the gas production reached 16.66 bcm, demonstrating 3.5% YoY growth. In 9M 2017, the Company increased gas output by 3.1% YoY to 50.86 bcm. This was driven by the following key factors: the acquisition of Bashneft assets in Q4 2016, launching new wells at  Varyoganneftegaz in 2017 and an increase in gas delivery volumes through Tyumen compressor station after its reconstruction, launching the new wells and flow rates optimization at the existing wells at Sibneftegaz.

In 9M 2017, ~6 th. km of onshore 2D and ~7.4 th. sq. km of onshore 3D seismic surveys were conducted in Russia, exceeding the 9M 2016 levels by 2.4 times and 25% respectively. 80 exploration wells were tested with a 86% success rate. 40 new deposits and 19 new fields were discovered with ÀÂ1Ñ1+B2Ñ2 reserves at 34 mmtoe.

Based on the drilling results of the first exploratory well Centralno-Olginskaya 1 at Khatangsky license area in the Laptev Sea on the Eastern Arctic shelf, the State Reserves Commission in October 2017 confirmed the discovery of Centralno-Olginskoye field with more than 80 mmt of oil recoverable reserves (C1+C2).

During 9M 2017, 32.3 th. linear km of 2D seismic surveys was conducted on the shelf at the license areas of the Laptev, Kara, Chukchi, East Siberian, and Japanese Seas, and 4.8 th. sq. km of 3D seismic - at the license areas of the Pechora and Okhotsk Seas, which exceeds the 9M 2016 results by 47% and by 2.8 times respectively. Engineering and geological surveys are underway in the Barents, Kara and Black Seas.

In Q3 2017, two geological expeditions were successfully conducted: in the area of East Taimyr and the Northern flank of the Khatanga Bay, as well as in the southeastern part of Sakhalin Island. The results obtained are used for specifying the hydrocarbon potential of the adjacent sections of the Laptev and the Okhotsk Sea shelf, and for reducing the geological risks for all elements of petroleum systems.

Downstream

In Q3 2017 the Company's Russian oil refining throughput rose to 25.0 mmt (+1.7% vs. Q2 2017 level) in Russia as a result of a seasonal improvement in demand for oil products and by 16.1% YoY on the back of the integration of new assets. The total oil refining throughput, including the foreign subsidiaries operations, achieved 28.3 mmt in Q3 2017.

As a result of the Company's refining optimization and acquisition of Bashneft’s refining assets, the 9M 2017 light product yield improved by 2.3 p.p. YoY and reached 58.4%, and refining depth went up by 3.9 p.p. to 75.2%.

In Q3 2017, the Company carried out a number of measures to implement the program of oil refining capacity upgrade, including delivery of large-capacity equipment for the hydrocracking complex (nine towers) to the Novokuibyshevsky refinery.

In order to improve the efficiency of the production process and the environmental and industrial safety levels, technical re-equipment of the liquefied gas storages at the Ryazan Refinery were completed.

As part of the Company’s import substitution program in Q3 2017, the catalysts for the gasoline reforming units at the Kuibyshev Refinery and at the Saratov Refinery were replaced with the catalysts produced at the Angarsk Plant for Catalysts and Organic Synthesis.

The Company successfully continues diversification of the supplies between the western and eastern destinations: 9M 2017 eastbound shipments increased by 10% YoY to 35.2 mmt. In addition, the first oil deliveries to China were made under the new contracts expiring in 2020.

As a result of Bashneft acquisition, the sale through the high-margin retail channel increased by 11% YoY in 9M 2017. Retail distribution remains one of the most profitable for the Company. The federal roll-out of the new Loyalty Program has been completed as of 01.10.2017, as a result of which more than 5.9 million participants became involved in 53 constituent entities of the Russian Federation. The Company plans to introduce it in all Rosneft’s presence regions by the end of this year. As part of the program of commodity inventory management and optimization of working capital, a list of actions aimed at reducing commodity balances has been developed and implemented.

To ensure the safe-keeping and quality of petroleum products, the main focus of 2017 is step-by-step total automation of measurements at all material flows of the retail network and controlling procedures in the trading and accounting systems of oil depots and retail sites, and introduction of an electronic system at fuel trucks for the guaranteed oil products delivery in terms of quantity and quality. Standard technical solutions for measurement and control processes automation were prepared.

International operations, assets acquisition and cooperation with partners

In August Rosneft successfully closed a strategic deal to acquire a 49% stake in Essar Oil Limited. Acquisition of the stake in the first-class asset with significant development potential allowed the Company to enter the Indian oil refining market – one of the most fastest growing in the world. Rosneft has already started highly efficient oil supplies to the refinery in Vadinar from its portfolio of contracts.

In early September Rosneft and CEFC China Energy signed a Strategic Cooperation Agreement and a long-term oil supply contract. Cooperation with new strategic shareholder suggests developing joint exploration and production projects, joint activity in refining, crude oil and oil products trading, increasing the Company’s crude oil supplies to China.

Rosneft continues to expand its cooperation with Cubametales. In May-June 2017, delivery of 200 th. tons of oil to the aforementioned company was organized under the Intergovernmental Agreement between the Republic of Cuba and the Russian Federation, and in July-August base oils totaling ~17 th. tons were shipped. An agreement for subsequent supplies of oil and petroleum products was negotiated and signed in the course of further negotiations with Cubametales.

An agreement was signed between Rosneft and Statoil in September providing for a new phase of cooperation for Severo-Komsomolskoye field. According to the signed document, it is planned that Statoil will acquire 33.33% in SevComNeftegaz, besides that, the agreement specifies the procedure of the asset management in the joint development of Severo-Komsomolskoye field.

In early October, the Company closed a deal with Eni to acquire 30% in a concessional agreement to develop Zohr field, one of the largest gas fields in the Mediterranean . The project is being undertaken in partnership with Eni (60% stake) and BP (10% stake). Participation in the development of this unique producing asset will allow Rosneft to significantly increase gas production abroad in a short time and enter the gas market of Egypt with the prospect of further activities development in the country and the region as a whole.

In October, the Company and the Government of the Kurdish Autonomous Region of Iraq signed the documents required for the enactment of Production Sharing Agreements (PSA) for five production blocks with a conservative estimate of recoverable oil reserves of 670 mln bbl which are located in the Kurdish Autonomous Region. The key terms of the agreements and the basic principles of production distribution are similar to the PSA in Iraqi Kurdistan that were signed by other international oil and gas companies.

In October, during the X Eurasian Economic Forum in Verona, the parties announced the launch of a joint infrastructure project to operate an oil pipeline in the Kurdish Autonomous Region. Rosneft share in the project may reach 60%. The other project participant with 40% share will be KAR Group the current oil pipeline operator.

Key operational indicators in Q3 and 9M 2017:

*According to management data 

Information Policy Division
Rosneft Oil Company
tel.: +7 (495) 411 54 20
Fax: +7 (495) 4115421