New record high daily hydrocarbon production of 5.83 mmboe in Q4 2016¹

Hydrocarbon production grew by 4.3% to 265.2 mmtoe in 2016

Liquid hydrocarbon production increased by 3.6% in 2016

Gas production increased by 7.3% to 67.1 bcm in 2016

Development drilling grew by 35% to 9.3 mln m in 2016

Continued active seismic works - over 50% increase in 2016

Domestic refining throughput increased by 3.3% with further capacity optimization and light oil product yield growth by 1.3 p.p. in 2016 

Upstream

Rosneft average daily hydrocarbon production increased by 11.8% in Q4 2016 (vs. Q3 2016) to the new record high of 5.83 mmboed. In 2016 the Company¡¯s average daily hydrocarbon production amounted to 5.37 mmboed (or 265.2 mmtoe total for the year).

Q4 2016 average daily liquid hydrocarbon production amounted to 4.46 mmboed with 12.1% increase vs. Q3 2016 and 13.3% - vs. Q4 2015. The main growth factors were Bashneft integration in October, commissioning of production assets at the East Messoyakhskoe field and comprehensive testing of oil production, treatment and transport facilities at Suzun field, consistent improvement at RN-Yuganskneftegaz (+2.5% vs. Q4 2015), Samaraneftegaz (+3.0% vs. Q4 2015) and RN-Severnaya Neft (+8.8% vs. Q4 2015).

Total liquid hydrocarbon production in 2016 grew by 3.6% to 210.0 mmtoe. Net of Bashneft acquisition the liquid hydrocarbon production increased by 0.9% YoY.

The development drilling in 2016 increased by 35% to 9.3 mln m in accordance with planned figures. Commissioning of over 2.6 th. new wells in 2016 (43% YoY increase) 32% of which were horizontal represented the new record for the Company. The share of in-house drilling service in the overall footage steadily exceeds 50%.

For further development of in-house services the Company in 2016 acquired 15 sets of new heavy drill rigs BU 5000/320 and purchased Targin service company. By the end of 2016 the number of active drilling rigs increased to 280 units (+26% YoY).

In mid-November accumulated production from the development startup at RN-Yuganskneftegaz reached 2.2 bln tons. Despite the field¡¯s long history current production trend in RN-Yuganskneftegaz is steadily positive: annual liquid hydrocarbon production grew by 2.0% to 63.7 mmt.

The East Messoyakhskoye field was brought on stream in September. Due to modern technical and engineering solutions the field infrastructure was built within less than 3 years. In preparing for the 1^st development stage, the Company started comprehensive testing of oil treatment and transportation facilities at Suzun field: final operations at 1^st Start Up Complex of Oil Treatment Facility with a rated capacity of 4.5 mmtpa and the pipeline from Suzun OTF to Vankor OTF, continued infrastructure setup at 6 well pads and related infrastructure. 2016 oil production at Suzun and Vostochno-Messoyakhskoye fields already exceeded 1.7 mmt.

In Q3 2015 Labaganskoe field was put on stream. 0.9 mmt were produced at the field in 2016 in accordance with basic targets.

The construction of Central Processing Facility (CPF) started at Russkoe field ahead of schedule for preparation of the field for FFD. The facility with the throughput capacity of more than 6.3 mmt will be intended for the oil treatment to ensure its commercial properties for further transportation. The CPF construction project will be implemented in 3 stages. The Company also started construction of pressure pipeline with annual capacity of 7 mmt for oil transportation.

In Q4 2016 the Company implemented a project on early oil transfer from Yurubcheno-Tokhomskoe field to fill main oil pipeline Kuyumba-Taishet based on the temporary accounting scheme pending the commissioning of Yurubchen relay pumping station. It became possible to start the early oil supplies due to construction and pre-commissioning works on the 1st stage of field infrastructure setup.

Also managed pressure drilling technologies were successfully tested at Yurubcheno-Tokhomskoe field. Introduced drilling technology allowed for reduction of the horizontal section drilling cycle by record 30% preventing the mud loss. The well flow rates were 4.5 times higher in comparison with average flow rate at the pad with lower watercut and GOR. Further rollout of the technology is planned.

In implementation of the 2^nd development stage of Srednebotuobinskoe field the construction of the linear section of increased capacity pressure pipeline was completed to transport oil to main transport system (ESPO). The project envisages increase of the annual production to 5 mmt, expansion of the existing central processing facility and LACT with 70 th. cubic m tank farm.

The 2016 gas production amounted to 67.1 bcm, 7.3% up vs. 2015. Production growth was mainly due to running in comprehensive testing mode in Q4 2015 of the 2^nd stage of Rospan's Novo-Urengoy gas and condensate treatment plant, launch of three wells in the end of 2015 and 2016 in the northern tip of Chayvo, offshore Sakhalin, the commissioning of a gas treatment facility in December 2015 at Barsukovskoye field of RN-Purneftegaz, and execution of the project to increase gas production at Sibneftegaz's Khadyryakhinskoye field.

Gas production in Q4 2016 increased by 10.4% vs. Q3 2016 to 17.77 bcm mainly due to scheduled and preventive maintenance activities at the fields of Sibneftegaz, RN-Purneftegaz, northern tip of Chayvo in Q3 2016 and due to seasonal increase of demand in autumn and winter.

The level of associated petroleum gas (APG) utilization in 2016 grew to 90.0% (vs. 87.9% in 2015).

In 2016, over 2,800 km of onshore 2D seismic surveys and over 7,900 sq km of onshore 3D seismic surveys were acquired by the Company, exceeding the results of 2015 by 27% and 29% respectively. 85 E&A wells were tested with a success rate of 79%.

By the end of 2016 field season, the Company delivered an extensive program of offshore geological exploration and exceeded its license obligations more than two times. In the field season of 2016, the Company performed 2D seismic survey in the Barents, Pechora, Kara, East Siberian, Chukchi and Laptev seas in the amount of more than 33,000 km. Besides, more than 4,000 sq km of 3D seismic was acquired in the Kara and Okhotsk seas.

87,000 km of aerial gravity magnetic exploration was completed in the waters of the East Siberian and Laptev seas. Three field geological expeditions were organized in the Caucasus, West Sakhalin and the island of Novaya Sibir.

The overall seismic acquisition both onshore and offshore in 2016 grew by over 58%.

In the result of exploration in 2016 the Company discovered 127 fields and 13 new deposits with total §¡§£1§³1+B2§³2 reserves of 207 mmtoe².

Nertsetinskoe field (NAO) with 21.4 mmtoe of reserves and Verkhnecheirskoe field (Irkutsk Region) with reserves of over 60 mmtoe were the major discoveries in 2016.

Expected §¡§£1§³1 exploration reserves addition amounts to 322 mmtoe². In 2016 expected §¡§£1§³1+B2§³2 remaining recoverable reserves amount to 138 bln boe which is 5% higher than 2015 level.

Downstream

The Company's refining throughput at Russian refineries in Q4 2016 achieved 27.05 mmt, showing 25.5% growth vs. Q3 2016 level including the effect of Bashneft acquisition. Volume of oil refining net of Bashneft acquisition increased by 3.2% up to 22.2 mmt.

2016 total refining volume at the Russian refineries in 2016 increased up to 87.5 mmt vs. 84.7 mmt in 2015. In addition, volume of the Company's oil refining at foreign refineries (12.8 mmt) surpassed the figure of 2015 by 4.8%.

Resulting from improved efficiency of facilities operation and optimized operations at Russian refineries, light products yield increased by 1.3 p.p. and achieved 56.6% in 2016, conversion rate increased by 5.5 p.p. vs. 2015 level.

The Company successfully continues to optimize refining capacity utilization in order to ensure an effective level of feedstock processing, taking into account the capacity of secondary processes to minimize the output of dark products. The volume of fuel oil production at Russian refineries in 2016 reduced by 14.9%, while the production of Euro-5 gasoline and diesel fuel increased up to 31.1 mmt, exceeding the level of 2015 by 55.6%.

Rosneft continues to successfully implement the refinery upgrade program in Russia: FCC and MTBE units¡¯ construction were completed at the Kuibyshev refinery in 2016, that will enable the refinery to meet the demand for high-octane components for gasolines by producing them at their own facilities, and to increase the production of high-quality motor fuels. In addition, catalyst reduction unit was commissioned at the Novokuybyshevsk refinery and pressure swing adsorption unit at the Syzran refinery.

As part of the import substitution program undertaken by the Company in 2016, the kerosene cut hydrotreatment unit at the Achinsk refinery and catalytic reforming unit at the Ryazan Oil Refinery Company were switched to using catalysts manufactured by the Angarsky Catalyst and Organic Synthesis Plant.

By improving diversification of oil supplies, the Company increased volumes of eastwards supplies by 8.6% in 2016 up to 43.1 mmt vs. 2015 level.

As part of cooperation development with its key partners in Q4 2016 Rosneft concluded the contracts for 2017 for oil supplies to Belarus of up to 10.2 mmt and to Germany of up to 7.3 mmt.

In addition, the agreement for an increase of oil supplies to China transited through the territory of the Republic of Kazakhstan for 3 mmtpa (up to 10 mmt) was signed, with the contract being extended till 2019-2023. Therefore, an additional volume of up to 56 mmt till 2023 can be shipped in this direction.

The Company also continues to develop cooperation with its key partners as part of oil products supplies. In Q4 2016 Rosneft signed the new contract with JX Nippon Oil & Energy Corporation for the delivery of straight-run gasoline in the volume reaching 1.1 mmt during 2017

At year-end 2016, small wholesale and retail sales volumes of oil products remained at the 2015 level, and in view of Bashneft integration, sales volumes increase accounted for 6%. Main focus in retail business activity is aimed at improving operations efficiency, including standardization and systematization of business processes, initiatives implementation aimed to optimize regional business, quality control programs, reduction of losses and costs as well as the improvement of personnel competencies. In 2016 a significant consolidation of retail business subsidiaries was carried out with the objective to form an optimum business management structure. Thanks to the efforts made, increase in profitability of the segment sales accounted for 5% in 2016 vs. 2015 in view of Bashneft integration in Q4 2016. As part of retail business development, the new loyalty program Family team implemented for customers of Rosneft retail sites network, which is active in 26 regions of the Russian Federation, involving more than 2.8 mln active participants. On 21 December 2016, BP Club loyalty program was launched at BP retail sites in all regions of presence, above 250 th. cards were issued to the customers during the first week of program implementation. In order to promote the accompanying products and services, the first 5 Italian A-Cafe roadside diners opened at Rosneft retail sites in the Moscow region from 20 December 2016. It is planned to further cooperate with Autogrill and open A-Cafe at other Rosneft retail sites.

Assets Acquisition and International Operations

In October, as part of the integral privatization transaction, the acquisition of the Government stake in Bashneft was completed. One of the Company¡¯s priorities over this year is to continue with the integration of assets as well as unlocking the transaction synergies, including optimization of mutual oil supplies, transportation and logistics costs, reduced drilling costs, joint use of production assets infrastructure, advanced technologies and know-how. Following the transaction, the liquid hydrocarbon production of the combined company grew by 10%, refining - by 20%, strengthening its position as the largest publicly traded oil and gas company globally.

The Company successfully attracts international partners for projects implementation in Russia. On the basis of the Vankor Cluster a unique international energy hub was created: ONGC, as well as the Consortium of Indian Companies which includes Oil India Limited (head of the Consortium), Indian Oil Corporation Limited and Bharat PetroResources Limited acquired 49.9% of shares in Vankorneft. Meanwhile, Rosneft retained a majority stake, the majority on the Vankorneft board of directors, control over the company operating activities, as well as a 100% control of the overall infrastructure of the cluster. Based on Taas-Yuryakh Neftegazodobycha, another international consortium has been also setup including, apart from Rosneft (with its stake of 50.1%), BP and Indian state oil and gas companies. The base price  assessments of stakes in the projects exceeded 6 bln USD where around 4 bln USD were transferred by the strategic investors in Q4 2016.

In November, Rosneft signed a Purchase and Sale Agreement with Chinese Beijing Gas Group Company Limited on a 20% stake in Verkhnechonskneftegaz which develops the Verkhnechonskoe oil and gas condensate field in the Irkutsk Region. Besides, Rosneft signed the Agreement on the Area of ​​Mutual Interest in regard to neighboring license areas, as well as the Gas Business Cooperation Agreement with Beijing Gas Group Company Limited. This transaction will enable Rosneft to fully realize the significant development potential of the Verkhnechonskoe field, including natural gas production, and to consolidate its strategic partnership with one of the largest distributors of natural gas in China.

In December, the Company reached the Agreement for acquisition of a 30% stake from ENI in the Concession for development of the Zohr gas field (with an option to purchase additional 5%), and a 15% stake at the Project Operator. The field is located on the southern coast of the Mediterranean Sea in Egypt, it is one of the most important discoveries of the recent years. As a result of the transaction, the Company, in partnership with ENI and BP, has gained access to the strategic market along with the possibility to further expand in the region, diversify and increase its international project portfolio.

In order to progress strategic cooperation between Rosneft and Venezuelan Petr¨®leos de Venezuela, S.A. (PDVSA), the companies signed a number of documents on interaction in the development of the Venezuela offshore assets, oil and oil products trading, energy supply and petrochemicals, and education. Jointly with PDVSA, the Company has been implementing 5 projects in which it owns from 27% to 40% stakes.

With a view to expand its geography and strengthen positions on one of the most promising markets, the Company signed the Sale and Purchase Agreement for 49% of shares in Essar Oil Limited (hereinafter ¨C EOL). Once the deal is completed, Rosneft will have a stake in the 20 mmta Vadinar refinery with its complex infrastructure, one of the largest and most technologically advanced refineries not only in India but in the world, as well as in a large retail network in India with 2,700 sites. The Company expects to unlock synergies from processing Venezuelan heavy oil at the refinery and from cross-supplies of petroleum products to Asia-Pacific markets, which will enhance the economic efficiency of the refinery, propel Rosneft's trading business to the leading position in the Asia-Pacific Region, as well as implement the unique synergies potential between EOL and other assets of the Company.

In order to implement  the project for construction of the Tuban refining and petrochemical complex with a starting capacity of 15 mma in the eastern part of Java (Indonesia), Rosneft and Pertamina signed a Joint Venture Agreement. The parties are currently developing the Project feasibility study (FS). The final investment decision on the Project will be made upon the results of the Feasibility Study, Basic Engineering Design (BED) and Front-End Engineering Design (FEED). Besides, the companies signed Memoranda of Understanding in respect of cooperation on the North Chayvo Project (Sakhalin Island) and the Russkoe Field Development Project. The Memoranda envisage potential acquisition by Pertamina of up to 20% and 37.5% interest in these projects accordingly.

At the end of 2016, Rosneft and BP completed the Ruhr Oel GmbH (ROG) JV dissolution as part of the previously initiated restructuring process of this refining and petrochemical joint venture in Germany. The Company has become a direct shareholder in the Bayernoil Refinery (25%),  MiRO Refinery (24%), PCK (Schwedt) Refinery (54.17%). As a result of the JV restructuring, Rosneft got control of more than 12% of refining capacity in Germany with a total annual refining throughput of 12.5 mmt. Hence, the Company has become the third largest oil refiner in the German market and started developing its own business in the country with its new subsidiary, Rosneft Deutschland.

[1] Data are presented including Bashneft consolidation in 4Q 2016 (unless otherwise stated)
[2] Proforma data (includes Bashneft indicators since 01.01.2015), for the purpose of presentation only

Key operational indicators for Q4 and 12M 2016 including Bashneft:

* Includes Bashneft indicators starting January 1, 2015, for the purpose of this presentation only
** According to management data

Key operational indicators for Q4 and 12M 2016 net of Bashneft:

*According to management data

Information Policy Division
Rosneft
tel.: +7 (495) 411 54 20
Fax: +7 (495) 411 54 21