GAZPROM NEFT: RESPONSIBLE DEVELOPMENT€¦ · Ekaterina Avramenkova Irina Bagautdinova Dmitry Baranov Yuri Bakhmat Elena Bashuk Irina Bezmenova Sergey Bilkey Denis Brusnitsyn Nikolay

GAZPROM NEFT: RESPONSIBLE DEVELOPMENTSUSTAINABILITY REPORT FOR 2007

Yevgeny AkopovLyudmila AlpatovaLyubov AritkulovaEkaterina Avramenkova Irina Bagautdinova Dmitry BaranovYuri BakhmatElena BashukIrina BezmenovaSergey BilkeyDenis BrusnitsynNikolay Bukharov Vladimir BykovAlexander ChizhAlexei DvortsovKhasan DelbiyevVictor DolgovOlga DolgovaAndrey DredunovAlexander DybalMikhail DyurikNikolay DyurikMariya FakhretdinovaYelena FedoseyevaDanil FenerSvetlana FeshchenkoDmitry FilimonovGalina GamovaGulshat Garyayeva Natalya GoncharGulnara GrigoryevaNadezhda GurtovetsVladimir IvanishinAlexader IlchenkoLevan KadagidzeYuri KalnerAbdulla KarayevAlexander Karchkov

Artyom KashinTatyana Khokhlova Lyudmila KhomaYuri KhomichAdlan KikayevAlyona KnyazevaValentina KoltsunVladimir KonstantinovGrigory KonvissarNatalya KorneychukNalalya Korotkova Alexander KrylovPavel KryukovYulia LekhovaGalina LisitsaValery LukyanovYelena LyapinaTatyana LyashkoAlexander MakarchukSergey Makeyev Kseniya MartynovaNatalya MezentsevaVadim MishinVictor MisnikVladimir MyakotinSvetlana Nazarenko Natalya NikitinaOleg NikolayenkoSvetlana NovikovaLyudmila Ostrovskaya Anatoly PakaloTatyana PanovaMikhail PasechnikMikhail PerevyshinFyodor Petrov Yanina PitertsevaAlexander PodorogaVladimir Popov

Nina ProkhorovaVictoria RazuvayevaTatyana Rubezhanskaya Gulnara SayfiyevaAndrey ShvetsovMarina ShraynerVladimir ShutilinAndrey ShutovOleg SidomonidzeVasiliy SidorovAndrey SkladchikovVadim SmirnovSergey StommaVladimir SychyovYevgeniya TallerNatalya TomenkoDmitry TrotsenkoLyubov TupikovaVitaly UlitinYevgeny UnyatitskySergey VasilenkoLyudmila VlasovaDmitry VolokhovLyudmila VoroninaVadim VoronovNatalia VyalkinaAlexei YankevichNikolay YeliseyevGennady YermolayevIrina YurkinaYevgeny YurovskikhLyubov YusupovaGalina ZakusiloNatalya ZhevlakovaStanislav ZhivolupAnatoly Zyulev

Acknowledgements from the Chairman of the Board, JSC Gazprom NeftI would like to express my gratitude to all specialists and managers representing the Company’s various divisions and regions of presence who contributed to the preparation of this Report. Thank you:

SUSTAINABILITY REPORT FOR 2007

GAZPROM NEFT: RESPONSIBLE DEVELOPMENT

This Report “Gazprom Neft”: Responsible Development” (hereinafter “The Report”) presents an outline of the Company’s approach toward management of economic, social, and environmental aspects of its activities in the context of sustainability (Chapter 1), the respective results achieved in 2007 and plans for the mid-term perspective (Chapters 2-5).

The reporting principles, boundaries and scope of the Report are described in detail in Annex 1. Annex 2 contains the index of the performance indicators disclosed. Terms and abbreviations used are explained in Annex 3.

BRIEF INTRODUCTION TO THE COMPANY AND THIS REPORTGazprom Neft is one of the largest integrated oil and gas companies in the Russian Federation, whose operations include oil and gas production, oil refining, sales of oil and petroleum products, and provision of oilfield services. The Company conducts its production and sales operations in 16 regions of the Russian Federation and 4 foreign countries, and exports oil and petroleum products to 41 countries of the world.

1

2 Alexey Miller: Major potential, serious responsibility

4 Alexander Dyukov: We believe that responsible development is the key to achieving Gazprom Neft’s leadership

Chapter 1. Governing responsible development

8 Components of governance framework for responsible development12 Corporate governance14 Operational management in the field of responsible development16 Corporate communications

Chapter 2. Economic development

26 Company profile30 Economic performance and efficiency34 Development strategy

Chapter 3. Employee development and support

42 Approach to personnel management48 Motivation and remuneration52 Social security58 Recruitment and training

Chapter 4. Contribution to regional development

68 Approach to participation in regional development70 Collaboration in the regions80 Engagement with customers and suppliers

Chapter 5. Environment and health protection – safe development

88 Approach to ensuring safe development92 Mitigation of environmental impacts106 Health and safety at work110 Emergency preparedness and response

116 Annex 1. Application of the sustainability reporting principles 119 Annex 2. Performance indicators disclosed in the Report139 Annex 3. Terms and definitions

143 Contact information and feedback

CONTENTS

2

Alexei MILLER

Chairman of the Boardof Directors JSC Gazprom Neft,

Chairman of the BoardJSC Gazprom

Major potential, serious

responsibility

3

Gazprom Neft is the foundation of Gazprom’s oil business. The Company develops energetically, working to improve the efficiency of its operations. In 2007, Gazprom Neft stabilized oil production and increased oil refining, while concluding partnership agreements with a number of the largest Russian oil companies. By embarking on international projects, the Company created conditions for establishing itself on the international market, while continuing intense growth and development. The Company reviewed and elaborated in detail its strategy regarding the key aspects of its oper-ational performance, including oil production and refining output, as well as retail sales of petro-leum products. Major potential of the Company opens unlimited growth prospects: Gazprom Neft is able to strengthen its position, becoming one of the leaders of the Russian oil sector, and enter the global arena in the nearest future.

In this regard, it is a pleasant fact that the Company followed the example of Gazprom, which has been publishing environmental reports aimed at the general public for many years. By preparing and publishing its first sustainability report, Gazprom Neft reached a new level. Such reports are produced by virtually all leading oil companies of the world. The release of the report indicates the seriousness of the Company’s approach toward sustainability and its readiness for an open dia-logue. Gazprom Neft makes a serious commitment, but this is a deliberate choice. The Company not only demonstrates a responsible attitude toward its socially significant goals and objectives, but also has the capacity to accomplish them.

Respectfully Yours,Chairman of the Boardof Directors JSC Gazprom Neft,Chairman of the BoardJSC Gazprom Miller A. B.

4

We believethat responsible

development is the key to achieving

Gazprom Neft’s leadership

Alexander DYUKOV

Chairman of the Board, JSC Gazprom Neft

5

You are holding in your hands our first sustain-ability report. To Gazprom Neft and to me per-sonally, the decision to publish such a report was an obvious one — this was necessary not only to improve the information transparency, but also to enhance the quality of management. Being one of the five largest oil and gas com-panies in the Russian Federation, we intend to establish a leading position in the sector, which would be impossible without active implemen-tation of the corporate responsibility principle, without realization of sustainable development ideas. This is the way we are going to hold to, and we call it “responsible development”.

To us, these ideas are a necessary condition for achieving our strategic goals, including long-term competitiveness, efficiency, and growth of share-holders’ equity. We believe that regular and effec-tive engagement of our stakeholders, including everyone potentially affected by or affecting our performance, is a cornerstone of stability and suc-cessful development of the Company’s business.

We realize that we will not be able to turn our ambitious plans into reality without making our management system transparent to all our stakeholders. Therefore in 2007 we active-ly worked to optimize the organizational struc-ture of the Company, further elaborated our long-term strategy, and developed mechanisms of corporate governance and corporate com-munications. Among important objectives for the future, we see the implementation of an in-tegrated risk management system covering, in particular, non-financial risks related to re-sponsible development.

It is impossible to establish a leading position without support and participation from our em-ployees; therefore, attracting and retaining peo-ple is among our priority objectives. In 2007, we focused our efforts on development of a person-nel motivation system, while in the next year we will give even more attention to professional de-velopment of our staff and fostering corporate culture shared throughout the Company.

We continue to closely cooperate with the author-ities of our regions of operations, seeking to con-tribute to improvement of both the social climate and well-being of their population, including, in particular, our customers. We see our responsi-bility to customers in continuous improvement of quality of products and services, while to sup-pliers our responsibility lies in establishing clear requirements for them and maintaining a trans-parent procurement process. In 2007, we active-ly promoted stakeholder engagement in our re-gions of operations using a variety of means: concluding official agreements with regional governments, maintaining hotlines to get cus-tomer feedback, and introducing electronic ten-dering system to work with our suppliers.

While working on enhancing our operational and financial performance, we think of the potential impact of our activities on human health and the environment. Our goal is to minimize any nega-tive effects, and it can be achieved through ef-ficient use of resources and modern technol-ogies, through decision-making processes incorporating opinions and suggestions of our stakeholders, including shareholders, business partners, employees, local communities, non-

governmental organizations. Therefore in 2007, we started to implement an integrated health, safety and environmental management system based on the international standards, which, we are sure, will allow us to improve the environ-mental performance and reduce injury rate.

In preparing this report, we relied on the sus-tainability standards and sectoral guidelines the most widely used throughout the world*. Already in this Report, we have provided infor-mation on all indicators in accordance with the highest GRI Guidelines Application Level, being the first among the Russian oil and gas compa-nies in this respect. We intend to further develop sustainability reporting systems and processes, and in the next year provide you with an update on the implementation of our plans.

I would like to express my hope that together we will be able to address many objectives faced by Gazprom Neft and discussed in this report.

*Sustainability Reporting Guidelines by the Global Reporting Initiative (G3 Guidelines), AA1000 series of standards by AccountAbility (the Institute of Social and Ethical Accountability), Oil and Gas Industry Guidance on Voluntary Sustainability Reporting by International Petroleum Industry Environmental Conservation Association and American Petroleum Institute (IPIECA/API).

Respectfully Yours,Chairman of the Board, JSC Gazprom NeftDyukov A.V.

GOVERNINGRESPONSIBLE DEVELOPMENT

8 GOVERNING RESPONSIBLE DEVELOPMENT

VISION OF RESPONSIBLE DEVELOPMENTEfficient development is possible only providing that the risks that may impede the achievement of established goals are controlled and opportunities for gaining additional economic benefits are tak-en. Addressing them responsibly, i.e. taking into account these risks and potential benefits in all ar-eas of the Company’s activities is a part of Gazprom Neft’s development strategy aimed at increas-ing its capitalization (see Development Strategy).

That is why Gazprom Neft has defined the notion of responsible development to rely on in its activities.

Responsible development is development of the Company’s business that involves systematic and effective management of economic, environmental, and social risks and opportunities in order to increase the long-term shareholder value.Essentially, the Company views responsible development as synonymous with the terms “corpo-rate responsibility” and “sustainable business development” widely used all around the world. The Company fully shares and accepts general vision of these concepts presented, in particular, in the IPIECA/API Voluntary Reporting Guidance and on pages 10–11 of the Social Horizons review (http://www.gazprom-neft.ru/social/).

THE COMPANY REALIZES THAT IN ORDER TO ACHIEVE ITS STRATEGIC GOALS IT HAS TO DEVELOP IN A MANNER PROVIDING FOR THE MOST EFFECTIVE AND EFFICIENT IMPLEMENTATION OF ALL ITS PLANS.

GOVERNINGCOMPONENTS OF

FRAMEWORKFOR RESPONSIBLE DEVELOPMENT

9GOVERNING RESPONSIBLE DEVELOPMENT

In order to ensure systematic and effective management of risks and opportunities the Company identifies four key components of responsible development as follows:

Economic development of the Company — growth of capitalization through increase of output in accordance with the corporate strategy, improvement of production efficiency, and distribution of the value created

Employee development and support — job creation, implementation of an integrated motivation and remuneration system, social support, training, responsible approach toward workforce downsizing

Contribution to regional development — regional cooperation, including socio-economic agreements and charitable activities, provision of customers with products while maintaining high quality of services and fair prices, as well as creation of opportunities for suppliers based on clear and transparent requirements for them

Safe development — protection of the environment, as well as employees’ and public health through minimization of environmental impacts, resource efficiency, strict compliance with the environmental legislation, and timely response to incidents and accidents.


Responsible and thus successful development of the Company depends on a large number of individ-uals and organizations. That is why at the core of governing responsible development is the engage-ment of so-called stakeholders – those who can be affected by or affect the corporate performance of Gazprom Neft. It is stakeholder engagement that is the main instrument of identifying risks and op-portunities, which also helps develop and implement mechanisms for their management.

MECHANISMS OF STAKEHOLDER ENGAGEMENT

In order to improve systems and processes used for stakeholder engagement, in 2007 a Company Working Group comprising representatives of various business functions elaborated a vision of key stakeholder groups of the Company (see Figure 1.1). The Company needs such classification in or-der to identify common interests of different stakeholder groups, choose the right engagement ap-proaches and methods. During the last year the Company engaged with representatives of all these groups (examples of such engagement regarding different components of responsible development are provided in the respective sections of this Report).

The effectiveness of stakeholder engagement is ensured by Company’s mechanisms of corporate governance and operational management, which collectively comprise the governance and man-agement system of Gazprom Neft. These mechanisms together with corporate communications in-struments used by the Company make it possible to maintain the engagement at all levels of or-

FIGURE 1.1 STAKEHOLDER ENGAGEMENT


ganizational hierarchy, in all regions of operations, and regarding all components of responsible development.

Specific engagement forms and methods employed by the Company depend on particular region of operations, stakeholder group and interests of the latter (see, in particular, Corporate Commu-nications).

Partnership is a stakeholder engagement method of particular importance to the Company. In 2007, key groups of Gazprom Neft’s partners, i.e. organizations and individuals with whom the Company concluded official cooperation agreements, included

oil and gas production and petrochemical companies – through joint investments in new projects and jointly owned businesses (see Economic Development for more details)

Company's employees – through employment contracts and collective agreements (see Employee Development and Support for more details)

regional authorities and local communities – through socio-economic agreements (see Contribution to Regional Development for more details)

suppliers and customers – through business contracts (see Contribution to Regional Development for more details)


BOARD OF DIRECTORSThe Board of Directors elected by the General Meeting of Shareholders, the supreme governing body of the Company, plays a key role in determining strategic priorities and principles of the Com-pany, including its position with regard to responsible development.

The Board of Directors is chaired by Alexei Miller, the Chairman of the Management Board of JSC Gazprom. The Board comprises ten members who are listed at the corporate website: http://www.gazprom-neft.com/company/management/boadr-of-directors/

Board members Marco Alvera and Stefano Cao are independent directors according to the crite-ria set forth in the FFMS’s Code of Corporate Conduct. Substantial practical experience and deep knowledge of the Russian and global oil and gas sector allow the Board members to make optimal and effective decisions on the key issues of managing the Company. In order to avoid a conflict of interest in decision-making and to comply with the existing legislation, the decision on a transac-tion with respect to which there exists an interest is made by a majority vote of the Board members having no interest in the transaction.

CORPORATE

GOVERNANCEGOOD CORPORATE GOVERNANCE IS A KEY ELEMENT OF RESPONSIBLE DEVELOPMENT AND DECISION-MAKING AFFECTING THE STAKEHOLDERS. THE COMPANY ENSURES COMPLIANCE OF THE CORPORATE GOVERNANCE PRACTICES OF ITS OWN AND ITS SUBSIDIARY COMPANIES WITH THE CODE OF CORPORATE CONDUCT BY THE FEDERAL FINANCIAL MARKETS SERVICE OF RUSSIAN FEDERATION, AND USES INTERNATIONAL PRINCIPLES AND STANDARDS IN THE FIELD AS GUIDANCE, CONTINUOUSLY IMPROVING THE TRANSPARENCY OF ITS OPERATIONS AND THE QUALITY OF TAKING PUBLIC INTERESTS INTO ACCOUNT.


The Board of Directors has two standing committees including (1) Audit Committee and (2) Person-nel and Remuneration Committee. The Committees are advisory bodies intended to implement ob-jectives set by the Board. The Audit Committee proposes to the Board nominees to serve as external auditors, reviews regular financial records and audit findings, and evaluates performance of the in-ternal audit system. The functions of the Personnel and Remuneration Committee include prepar-ing recommendations on evaluating the performance of the corporate governing bodies’ members, their remuneration, criteria for selecting candidates for these positions, and informing the share-holders on the individuals nominated for election to corporate governing bodies.

A shareholder(s) owning in total not less than two percent of the voting shares of the Company has the right to submit agenda items for an Annual General Meeting of Shareholders, and to nominate candidates for the Board of Directors and Auditing Commission of the Company. Any shareholder is able at any time to submit to the Company an inquiry or recommendations on an issue of interest. All such inquiries are reviewed and, when necessary, may be submitted to the Board of Directors or a General Meeting of Shareholders for consideration.

Elena ILYUKHINA

Member of the Management Board,Deputy CEO for Legal and Corporate Affairs

For such a large oil and gas company as Gazprom Neft, the issues of efficient use of non-renewable natural resources, ensuring safety of operations, creating decent working conditions for the personnel, assistance in development of infrastructure and social sector in the regions of our operations are among the key priorities. The Board of Directors representing interests of shareholders and providing strategic management and supervision always pays close attention to these areas. Indeed, deep involvement of the Board in such topics as occupational safety, environmental impacts, and development of regional cooperation seriously contributes to building credibility of the Company among minority shareholders, many of whom are ordinary people – workers of the oil sector or members of their families.

What is the role of the Board of Directors in the responsible

development management?


ROLE OF DIRECTORS AND TOP MANAGEMENT IN RESPONSIBLE DEVELOPMENT

Gazprom Neft has appointed top management representatives responsible for coordinating manage-ment of one or more of material topics areas at the Company level (see Figure 1.2). With respect to some topics, several managers or bodies may share responsibilities within one general area; links with corporate governance bodies are also maintained. For example, the corporate Development Strategy is approved by the Board of Directors, submitted to the Board by the Chairman of the Man-agement Board, and prepared by the Strategic Planning Department jointly with business functions; the latter then become responsible for its implementation.

INTRODUCING UNIFORM RESPONSIBLE DEVELOPMENT POLICIES AND STANDARDS IN THE SUBSIDIARY COMPANIESThe Company realizes the utmost importance of top management’s commitment to the ideas of sustainable development and corporate responsibility. But of equal significance is the introduction of unified responsible development principles, practices and approaches throughout the Company, including its subsidiary entities.

OPERATIONAL

MANAGEMENTIN THE FIELD OF RESPONSIBLE DEVELOPMENT

THE COMPANY RECOGNIZES CLEARLY THAT IT IS NECESSARY TO CONTINUOUSLY IMPROVE EFFICIENCY OF ENGAGING WITH STAKEHOLDERS ON MATERIAL TOPICS BOTH AT GAZPROM NEFT’S TOP MANAGEMENT LEVEL AND IN ALL ITS SUBSIDIARY ENTERPRISES.


DEPUTY CHAIRMAN OF THE MANAGEMENT BOARD, Development strategyDEPUTY CEO FOR EXPLORATION AND PRODUCTION Economic performance Occupational health and safetyCEO OF JSC GAZPROMNEFT-NEFTESERVICE Environmental protection Industrial safetyDEPUTY CHAIRMAN OF THE MANAGEMENT BOARD, Customer relationsDEPUTY CEO FOR LOGISTICS, PROCESSING AND SALES Supplier relations

DEPUTY CHAIRMAN OF THE MANAGEMENT BOARD, Economic performanceDEPUTY CEO FOR ECONOMICS AND FINANCE

DEPUTY CHAIRMAN OF THE MANAGEMENT BOARD, Organizational structure of responsible developmentDEPUTY CEO FOR ADMINISTRATION Attraction and training of personnel Motivation and compensation Social support Occupational health and safety Environmental protection Industrial safety

MEMBER OF THE MANAGEMENT BOARD, Regional cooperation including charitable activitiesDEPUTY CEO FOR CORPORATE COMMUNICATIONS Corporate communications MEMBER OF THE MANAGEMENT BOARD, Customer relationDEPUTY CEO FOR CONSTRUCTION AND MATERIALS MANAGEMENT

MEMBER OF THE MANAGEMENT BOARD, Corporate governanceDEPUTY CEO FOR LEGAL AND CORPORATE AFFAIRSМ

STRATEGIC PLANNING DEPARTMENT Development strategy

CHAIRMAN OF THE MANAGEMENT BOARD

Managing responsible development as a whole

Economic performance Development strategy

As a part of the management system reform started in 2007, JSC Gazprom Neft will introduce a “Strategic Supervisor” model, under which the Head Office will define strategic lines of develop-ment and supervise their implementation while leaving to subsidiary companies operational auton-omy based on a unified strategy, policies, standards, and shared corporate culture. This common foundation of responsible development is currently being developed as an integrated system by the Head Office.

Thus, it is business functions of the subsidiary companies that in the future will be responsible for the implementation of responsible development policies and standards of the Company, including introduction of non-financial risk management systems at the local level. Specialists of the Head Office will assist them in practical application of the unified approaches. The work on introducing this system has already started, and the Company plans to present the results achieved in subse-quent reports.

FIGURE 1.2 RESPONSIBILITIES FOR THE KEY RESPONSIBLE DEVELOPMENT TOPICS AT THE TOP MANAGEMENT LEVEL

LEGEND: - MATERIAL TOPICS FOR WHICH TOP MANAGERS

AND/OR BODIES OF THE COMPANY ARE RESPONSIBLE


OPINION STUDIES AND STAKEHOLDER DIALOGUE

The Company studies the opinions of its stakeholders and maintains a dialogue with them in order to make sure that their interests are understood and taken into account in the corporate decision-making processes. In 2007, Gazprom Neft carried out polls and questionnaire surveys of its staff in order to assess the socio-psychological climate among the Company’s workforce (see Chapter 3). As a means of customer communication, the Company maintains hotlines aimed at addressing the issues regarding the quality of services and products in a timely manner (see Chapter 4).

Gazprom Neft representatives conducted meetings with shareholders and investors, participated in conferences and roundtable meetings addressing important issues of oil and gas sector, as well as of sustainable development as a whole. The Company discussed important topics relevant to socio-economic development of Russian regions with non-governmental organizations, representatives of local communities and governmental authorities (see Chapter 4).

Gazprom Neft’s Department of Corporate Communications monitors on a regular basis both media and web publications on the Company’s activities in order to identify important issues that may poten-tially be of interest to stakeholders or that could lead to conflicts with them. Based on the monitoring results, the Company adjusts its approaches and works to improve the quality of its communications. One of the channels for stakeholder feedback is the corporate website (a form for submitting com-ments is available at http://www.gazprom-neft.ru/feedback/). The Company will continue to study stakeholders’ opinions and maintain a dialogue with external stakeholders on a systematic basis.

CORPORATECOMMUNICATIONSTHE COMPANY ACTIVELY DEVELOPS INSTRUMENTS AND CHANNELS OF INTERNAL AND EXTERNAL COMMUNICATIONS, SEEKING TO IMPROVE THE PERFORMANCE OF ITS STAKEHOLDER ENGAGEMENT ACTIVITIES.


INFORMING STAKEHOLDERS

Gazprom Neft believes that it is critically important to provide diverse information to the stake-holders in order to raise their awareness of the Company’s activities. Therefore the Company actively works to broaden the range of information channels used and to improve the quality of these channels.

In 2007, the Company put considerable effort into improving the content and usability of the corpo-rate website, which now offers its users more information on all aspects of Gazprom Neft’s opera-tions. The work on improving the corporate intranet has started. In 2007, Gazprom Neft and its subsidiary companies continued publishing information of im-portance to stakeholders in corporate periodicals, including the monthly magazine “Sibirskaya Neft” (Siberian Oil) and newspapers “Sibirskiy Neftianik” (Siberian Oil Worker), “Slovo Neftian-ika” (The Word of Oil Worker), “Nashe Delo” (Our Cause), and “Muravlenkovskie Novosti” (Mu-ravlenko News).

Other means of informing stakeholders used in 2007 included public statements of directors and managers of Gazprom Neft, corporate press releases, publications on the Company in federal and regional media, mailing of various information materials (letters, information memorandums, booklets, and brochures), as well as the Annual Report of the Company.

INFORMING THE STAFF

A study of internal corporate communications of Gazprom Neft carried out in late 2007 showed that the corporate magazine “Sibirskaya Neft” (Siberian Oil) was the second source of information on the Company’s affairs in terms of popularity among the staff surveyed. The recently created corporate intranet and the renovated website also took an important place among the sources used by the staff.

Co-workers and colleagues“Sibirskaya Neft” magazine

Federal and regional newspapers, televisionImmediate supervisor and meetings

Corporate website and intranetBulletin board at the plants

Corporate (plant) publicationsMeetings with Company’s and plant management

External websitesOther sources

Do not know

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%


RESPONSIBLE DEVELOPMENT REPORTING

The process of responsible development reporting occupies a special place within the Company’s system of corporate communications. On the one hand, such a report is a channel for informing stakeholders; on the other, it is a platform for studying their concerns and a foundation for stake-holder dialogue, essential to effective management of non-financial risks and opportunities rele-vant to the Company’s business, as well as for the improvement of the quality of management.

SVETLANA Borodina, Director of Corporate Governance Ratings Services, Standard&Poor's

Gazprom Neft started to prepare, disclose, and publicly discuss its sustainability reports, and this is a very important move toward meeting the needs of all its stakeholders. Since our partners include foreign and, recently, increasingly more Russian investors, we view corporate reporting from the perspective of this particular stakeholder group. It is important for investors to understand prospects for growth of the investment value, potential factors of and obstacles to this growth. Reviewing sustainability reports, in-vestors look for the information on how companies manage their non-financial risks – reputational, or-ganizational, environmental, social etc. – the risks we attempt to assess with our corporate governance ratings. We hope that the Company will continue to improve its risk management system thus contribut-ing to enhancing its investment attractiveness and the quality of corporate governance.

MATERIAL TOPICS COVERED BY THE REPORT

RESPONSIBLE DEVELOPMENT Managing responsible development as a whole Corporate communicationsGOVERNANCE AND MANAGEMENT Corporate governanceе Operational management in the field of responsible development

ECONOMIC DEVELOPMENT OF THE COMPANY Economic performance Development strategy

EMPLOYEE DEVELOPMENT AND SUPPORT Motivation and remuneration Social support Attraction and training of personnel

CONTRIBUTION TO REGIONAL DEVELOPMENT Regional cooperation, including charitable activities Customer relations Supplier relations

SAFE DEVELOPMENT Environmental protection Occupational health and safety Industrial safety


Gazprom Neft realizes that building a corporate process for such reporting requires a lot of effort, particularly aimed at organizing collection, analysis and checking of information relat-ed to responsible development of the Company. Therefore in late 2007 Gazprom Neft decid-ed to establish a system for managing such information based on the requirements of the G3 Guidelines and IPIECA/API Oil and Gas Industry Guidance on Voluntary Sustainability Report-ing – documents widely used throughout the world.

In addition to a system for collection, analysis and checking of information, one also needs a tool to define appropriate quality and content of the Report in order to provide its users a com-plete picture of the Company’s performance. For this purpose the reporting principles pro-posed by the G3 Guidelines were analyzed and adapted (see Annex 1).

Corporate reporting is a continuously evolving process. Continuing social reporting practices of Sibneft company, whose assets formed the core of Gazprom Neft’s business, in late 2007 the Company published “Gazprom Neft: Social Horizons” (http://www.gazprom-neft.ru/social/gazprom-neft-socialnyje-gorizonty.pdf), a review focused mainly on social programs and so-cial performance of Gazprom Neft.

KIRILL KRAVCHENKO

Deputy Chairman of the Management Board,Deputy CEO for Administration,Supervisor of the Working Groupfor Preparation of the Sustainability Report for 2007.

When preparing and publishing this Report, we set ambitious goals for ourselves. We believe that now, when the Company starts to work on many aspects of responsible development, the Report will help us identify possible steps forward. For the first time we disclose information on many topics significant to the Company. This information is expected to provide a foundation for a future productive stakeholder dialogue and initiate changes both within the Company and around it. It is feedback from Report readers that will show us whether we succeeded in accomplishing the goals set. The Company welcomes comments and suggestions that will help us correct deficiencies and gain a deeper insight into relevant issues, and will contribute to our responsible development as a whole.

What did the Company want to achieve

by publishing this Report?


Now the Company is taking the next step by releasing a public document covering material economic, environmental, and social topics. These topics were identified by the Working Group in the process of materiality assessment (see Annex 1) and were reflected in the structure and content of this Report.

In order to ensure high quality and usefulness of the Report to both the Company itself and its stakeholders, Gazprom Neft presented the draft Report at meetings with a broad range of stake-holders (Omsk) and sustainability experts (Moscow). A number of comments and suggestions pro-posed by the participants were addressed in finalizing the Report; the rest will be taken into account in further development of stakeholder engagement in the future and in preparing the next sustain-ability report of the Company.

IGOR Zuga, Deputy to the Legislative Assembly of the Omsk region, Member of the Committee for Economic Policy and Investments of the Legislative Assembly,Director General of JSC Omskneftekhimproject

Publication of the sustainability report and conducting the roundtable in Omsk are important and necessary initiatives. There’s not enough information in the media on activities and life of the real sector of the economy. It is good that the Company now tells people what it is busy with, but I still think it is not sufficient — it is necessary to actively demonstrate Gazprom Neft’s successes and initiatives. Why don’t Omsk inhabitants know that JSC Gazpromneft-ONPZ [Omsk Refinery Plant] has reduced its emissions more than by the factor of two, takes an active part in the development of the city’s living environment, and so on?

Gazprom Neft plans to publish similar reports annually, expanding stakeholder engagement and reporting on implementation of its responsible development plans in a timely manner.



• Systematize the dialogue with external stakeholders• Improve the system for collection, analysis and checking (in particular, by means

of external assurance) of quantitative data in the field of responsible development • Prepare and publish sustainable development reports based on stakeholders’

feedback on the published Report• Join the Social Charter of Russian Business• Develop and approve key responsible development codes and policies, and ensure

their implementation at all enterprises of the Company• Develop the corporate non-financial risk management system

MAIN PLANS FOR THE MID-TERM PERSPECTIVE

ECONOMICDEVELOPMENT

26 ECONOMIC DEVELOPMENT

COMPANY

PROFILEGAZPROM NEFT IS ONE OF THE LARGEST RUSSIAN OIL AND GAS

COMPANIES. IT ACTIVELY DEVELOPS ITS PARTNERSHIPS WITH OTHER

LARGE COMPANIES IN THIS SECTOR AND ENTERS NEW MARKETS

IN THE COUNTRY AND ABROAD.

HISTORY OF THE COMPANY AND OWNERSHIP STRUCTUREJSC Gazprom Neft emerged in its current form on the basis of Sibneft oil company, when Gazprom Group became a majority shareholder of the latter. The Company controls 50% of shares of JSC NGK Slavneft, which is currently managed jointly by Gazprom Neft and TNK-BP. In 2006 Gazprom Neft entered the retail market of Central Asia. In late 2007 the Company acquired a 50% interest in Tomskneft and made an agreement with Rosneft, the owner of the second half of the shares. At the same time the Company reached an agreement regarding management of the Moscow Oil Refinery with other shareholders of the enterprise. Thus the Company was able to considerably expand the scale of its operations and strengthen its position in the Russian oil and gas sector. Open joint stock company Gazprom Neft has its registered corporate address in St. Petersburg, while the headquar-ters of the Company are located in Moscow.

ECONOMIC DEVELOPMENT 27

MAJOR AREAS OF BUSINESS AND REGIONS OF OPERATIONS

Major areas of the Company’s business include oil and gas production, oil refining, wholesale and retail sales of oil and petroleum products, both domestic and international, as well as providing specialized oil and gas field services, including exploration, drilling, construction and repair of wells and pipelines. Gazprom Neft carries out its production activities in Russia’s largest oil- and gas-bearing regions, including Khanty-Mansi, Yamalo-Nenets and Chukotka Autonomous Areas, as well as in Tomsk and Omsk Regions. The Company also holds licenses for exploration and production operations in other Russian regions (see Figure 2.1). Gazprom Neft has expanded its distribution network in Russia and the CIS (see Figure 2.2).

Vadim YAKOVLEV

Deputy Chairmanof the Management BoardDeputy CEO for Economicsand Finance

Gazprom Neft continuously expands its operations to new regions. The main geographic areas of the Company’s activities include Siberian and Central Federal Districts, while the distribution network currently covers 12 Russian regions. The Company also expands sales of petroleum products in the countries of Central Asia. In fact, Gazprom Neft has already reached the international level: in partnership with JSC Rosneft and JSC Transneft we participate in the international Burgas–Alexandroupolis Trans-Balkan pipeline project. Our current objective is to achieve the efficiency level of the world leaders in the oil and gas sector.

Where will we see the Company

in the future?STRUCTURE OF OWNERSHIPOF JSC GAZPROM NEFT(AS OF DECEMBER 31, 2007)

Minority shareholder 4,32 Eni PetroRussia B.V. 20,00 Gazprom Finance B.V. 16,67 JSC Gazprom 59,01


FIGURE 2.1 REGIONS OF OIL PRODUCTION OPERATIONS AND LICENSE AREAS OF THE COMPANY (INCLUDING ACTIVITIES OF SUBSIDIARY AND DEPENDENT COMPANIES) •- OIL PRODUCTION OPERATIONS AND RESERVES, •- RESERVES


FIGURE 2.2OIL REFINERIES AND SALES REGIONS (INCLUDING ACTIVITIES OF SUBSIDIARY AND DEPENDENT COMPANIES) •- REGIONS WITH RETAIL PRESENCE, •- REGIONS WITH WHOLESALE SALES ONLY, - REFINERY


KEY RESULTS FOR 2007Due to a number of objective factors the growth rate of the Russian oil sector is currently low. In 2007, many companies showed a decline in production and insignificant increase in oil re-fining. A detailed analysis of Gazprom Neft’s operational performance (see Table 2.1) in the context of the Russian oil and gas sector’s development is provided in the Annual Report for 2007 and in the second issue of “Sibirskaya Neft,” the corporate magazine of the Company, for 2008 (http://www.gazprom-neft.ru/press-center/corp-press/). In 2007, the Company suc-ceeded in reducing the oil production decline rate, while its oil reserves increased by 125.9 million tons.

Oil production: In the reporting period JSC Gazpromneft-Noyabrskneftegaz remained the main oil production enterprise of Gazprom Neft. At the same time the Company actively developed other production subsidiaries and created new enterprises in the prospective regions. Oil production by the Company’s subsidiaries in 2007 virtually stabilized. The Company resolved the issue of produc-tion decline at traditional oilfields, thus creating a foundation for further growth of production.

Refining: JSC Gazpromneft-ONPZ (the Omsk Refinery) — the key refining enterprise of the Com-pany — in 2007 showed a steady increase in petroleum refining and, in particular, in the output of light petroleum products.

PERFORMANCEECONOMIC

AND EFFICIENCYGAZPROM NEFT IS STRENGTHENING ITS CAPACITY FOR LONG-TERM SUSTAINABILITY AND ECONOMIC GROWTH. IN 2007, ITS CAPITALIZATION ON THE MICEX (MOSCOW INTERBANK CURRENCY EXCHANGE), WHERE MOST OF THE COMPANY’S SHARES ARE TRADED, INCREASED BY 27.5%. AS OF DECEMBER 31, 2007, THE OVERALL CAPITALIZATION OF THE COMPANY WAS RUB 725 BILLION. THE VALUE OF THE COMPANY’S ASSETS HAS ALSO BEEN GROWING — FROM USD9.930 BILLION AT THE END OF 2006TO USD10.433 BILLION BY DECEMBER 31, 2007, I.E. BY 5.3% FOR THE REPORTING PERIOD.


Sales: The Company increased oil and petroleum products sales in Russia, while showing a slight decrease in the export and a growth in retail sales.

Oilfield services: In 2007, the Company began restructuring its oilfield services business. In Sep-tember 2007, Gazprom Neft set up Gazpromneft–Nefteservice LLC, a subsidiary company to man-age the Company’s oilfield service assets, including JSC Gazpromneft–Noyabrskneftegasgeophisi-ka, Kapitalniy Remont Skvazhin – Service LLC, Servisnaya Burovaya Kompaniya LLC and other enterprises. Consolidation of the service enterprises will make it possible to actively develop the oilfield service business of the Company and increase its performance.

ECONOMIC EFFICIENCY

With its high share of produced oil being refined, optimal balance between sales of oil and petroleum products, major retail business, and strong R&D potential, the Company holds the leading position among the largest Russian oil companies in terms of economic efficiency. According to the published data for the first nine months of 2007, Gazprom Neft has the highest specific net profit and earnings before interest, taxes, depreciation and amortization (EBITDA) per barrel of oil produced, as well as the best return on average capital employed (ROACE) among the five largest Russian oil companies.

Yuri LEVIN

Head of Department of Develop-ment and New Projects

In 2007, Gazprom Neft and LUKOIL oil company created a joint venture for developing new hydrocarbon deposits in Timan-Pechora Basin. In addition, the Company continued joint operations with US Chevron oil company aimed at developing new oil fields in Yamalo-Nenets Autonomous District on the basis of JSC Severnaya Taiga Neftegaz created in 2006. In 2008, the Company plans to expand its operations into new oil-bearing regions, including East Siberia, Central Asia, Middle East, and North Africa.

What new partner projects did the

Company start in 2007


2005 2006 2007

Oilfield services, billion RUB n/a n/a 18,7 Oil production, thousand tons 45 121 44 367 43 121 incl. subsidiaries 33 040 32 717 32 666 Gas production, million m3 2 020 2 068 1 773 incl. associated petroleum gas, million m3 1 974 2 041 1 746 Petroleum refining, thousand tons 17 635 24 359 26 227 incl. Omsk Refinery 14 500 16 275 16 498 Output of light oil products and aromatic hydrocarbons, thousand tons 12 301 16 493 17 508

incl. Omsk Refinery 10 527 11 857 11 903 Refining depth (Omsk Refinery), % 84.1 84.5 83.4 Oil sales, thousand tons 19 857 21 221 21 410 incl. in Russia 446 1 375 4 270 incl. export sales 19 411 19 845 17 140 Sales of petroleum products, thousand tons 19 045 24 126 24 778 incl. in Russia 10 521 11 865 13 176 incl. export sales 8 524 12 261 11 602 incl. wholesale sales 17 488 22 219 22 517 incl. retail sales 1 557 1 906 2 261

R&D INVESTMENTS MAKE SERIOUS CONTRIBUTION TO THE GROWTH OF OIL PRODUCTION AND PROFITABILITYIn late 2007, the Company re-organized its Research and Analytical Department into Gazprom Neft Research and Development Center LLC, a standalone corporate research and production center in the field of explora-tion, design, monitoring, and oil and gas production. It is planned that in 2008 specific R&D spending by Gaz-prom Neft will approach the level of such companies as ВР, Chevron, and Statoil. This is what the investment plan of the R&D Center is aimed at: for example, preliminary estimates show that effective water isolation works based on the Center’s proposal will result in oil production increased by 100–150 thousand tons per years. It is expected that drilling of additional horizontal sidetracks will result in a production increase by 120–170 thousand tons per years, while hydraulic fracturing measures implemented by the R&D Center will provide another 200–220 thousand tons per year. Moreover, according to the estimates by Gazprom Neft’s management, activities of the Center will make it possible to reduce the cost of interpret-ing seismic data by 60–75%. Thus, economic benefit from creating the new subsidiary is obvious. Systematic approach toward development of technology component of the Company’s business will help fully realize the potential created by the former Research and Analytical Department, and strengthen Company’s positions at the domestic and international markets.

TABLE 2.1. KEY OPERATIONAL PERFORMANCE INDICATORS OF THE COMPANY


DISTRIBUTION OF THE COMPANY’S PROFITS

Gazprom Neft makes considerable contributions to the economic development of Russia and its re-gions. The Company invests in maintaining stability of operations and efficient use of oil and gas re-sources, creates jobs and pays decent wages to its employees (see Chapter 3).

Gazprom Neft is a good taxpayer and a responsible business partner (see “Engagement with cus-tomers and suppliers”), it pays dividends to shareholders and interest on its borrowings on a timely basis.

The Company sponsors socio-economic partnership programs and charitable projects in its re-gions of operations (see “Collaboration in the regions”), and reserves remaining funds for future in-vestments, research and development. The data on revenues and expenses (Table 2.2) show the dis-tribution of the value generated between these items.

TABLE 2.2 DIRECT ECONOMIC VALUE GENERATED AND DISTRIBUTED, USD BILLION

NOTE: Hereinafter financial and economic indicators cover only the entities included in the reporting boundary according to US GAAP (see Annex 1 for more details). This accounts, in particular, for the difference in payroll data between this table and Table 3.2 in Chapter 3, which provides the data for the Company as a whole. In 2006 and 2007, average weighted RUB/USD exchange rate was 27.8 and 25.6 respectively.

2006 2007

Value generated (revenues) 20.220 21.271 Value distributed (expenses), including: 14.777 15.305 operating costs 6.793 7.812 salaries and other payments to employees, including payroll taxes 0.606 0.759 payments to providers of capital, including dividends 0.711 2.164 payments to governments, including taxes 7.328 6.702 charitable activities 0.050 0.032 Value retained 5.443 5.966


STRATEGYDEVELOPMENT

IN 2007 THE COMPANY STARTED DETAILED ELABORATION OF ITS LONG-TERM DEVELOPMENT STRATEGY. ACCORDING TO THE STRATEGY, THE COMPANY’S GOAL IS TO INCREASE ITS MARKET CAPITALIZATION TO USD 100 BILLION BY 2020.

The key targets the Company plans to achieve by 2020 include (compared to the current values):

2007 Target for 2020

Proven recoverable hydrocarbon reserves 601.8 million tons 2200–2400 million tons Oil production 32.7 million tons 90–100 million tons Refining output 26 million tons 70–80 million tons Retail network 770 filling stations 5000–5500 filling stations Sales of petroleum products through Company’s own distribution network 2.3 million tons 12 million tons.

In order to achieve these targets the Company plans to invest a total of USD70 billion by 2020.

The plan of reaching the production level set for 2020 envisions staged development of all Gazprom Neft’s explored oil fields (taking into account the Company’s 50% interests in JSC NGK Slavneft and JSC Tomskneft) and expansion of the resource base by putting into operation oil fields currently on the balance sheets of other Gazprom Group companies, and by acquiring new licenses.

STRATEGIC GOALS OF THE COMPANY


Yuri KALNER

Head of the Strategic Planning Department

In 2007 the Company started to introduce a systemic approach toward formulating its concept of strategic development. Within the framework of this approach we develop and annually update both the top-level Strategy and a number of strategies for various business functions and divisions, which are intended to guide the development of individual business segments. The strategic concept, as well as functional and divisional strategies are developed for short-term, mid-term and long-term time horizons. The so-called KPI pyramid, a quantitative representation of the degree to which the strategic goals are achieved, serves as a foundation for the managers’ motivation system at various levels of the organizational hierarchy.

How has the Company improved

its Strategy?

In order to improve its performance in all areas of activities and build a foundation for implementa-tion of the Strategy, in 2007 the Company:

Introduced tendering systems to improve efficiency and transparency of procurement and wholesale sales of petroleum products Consolidated its oilfield services assets in order to improve competitiveness of this business Strengthened its own research base for wide implementation of advanced techniques to improve efficiency of production and oil recovery factor Developed a mid-term strategy for achieving a high rate of associated gas recovery Concluded important partnership agreements with other companies Further developed its retail network and created new lines of retail business including bunkering of vessels and fuelling of aircrafts Started a reform of the management system in order to shift from tactical to strategic planning and management Started the implementation of an integrated health, safety, and environmental management system at the enterprises of the Company Systematized approaches toward personnel motivation, attraction and development, providing decent social benefits, and formation of a shared corporate culture Continued fruitful cooperation with its regions of operations

IMPLEMENTATION OF THE STRATEGY IN 2007


Boris ZILBERMINTS

Deputy CEO for Exploration and Production

We will work in several key areas. These include bidding for the acquisition of new license areas, further exploration of discovered oil fields, and introduction of the most advanced techniques for the improvement of oil recovery factor. Increased efficiency and output of joint ventures, development of Gazprom Group’s oil fields, and acquisition of operating assets both in Russia and abroad will also contribute to overall growth of production. In 2008-2010, within the framework of the Associated Gas Recovery Program already approved by the Company, we plan to reach a 95% gas recovery rate, in particular, through cooperation with the SIBUR Group. I would like to particularly emphasize that all measures in the areas listed above will undergo an efficiency assessment, and only the most profitable and feasible ones will be implemented in practice.

According to its Strategy, Gazprom Neft should almost

double its oil production by 2020. How is the Company going to

achieve this goal?


Oleg VITKA

CEO of JSC Gazpromneft – Nefteservice

The development strategy of the Company’s oilfield services business envisions not only providing services to Gazprom Neft itself and other companies of the Gazprom Group, but entering the market with competitive services. We are planning to improve the efficiency of the business by offering a broader range of services, using modern equipment and the most advanced technologies. Cooperation with other companies specializing or having significant experience in providing oilfield services also contributes to our dynamic growth and increased quality of services. The key role in the service business development belongs to our staff, its professionalism, high qualifications, and extensive experience. The Company will improve working conditions, elaborate a motivation system and programs for professional upgrading and retraining, and develop social support of personnel. The introduction of new technologies, advanced managerial and organizational approaches will help improve the performance of each employee. Active efforts made by Gazprom Neft in the last year (2007) provide a good foundation for realization of the Company’s development potential and achievement of the key targets envisioned by the Strategy.

How will the Company

develop its oilfield

services business?

Anatoly CHERNER

Deputy Chairman of the ManagementBoard, Deputy CEO for Logistics, Processing and Sales

The high quality of our refineries’ products is recognized by customers. The integrated development program of the Omsk Refinery in the near future will make it possible to produce gasoline and diesel fuel conforming to the European environmental safety standards (Euro 4 from 2011, Euro 5 from 2015). We plan to increase the number of our filling stations, not only expanding our retail network in our traditional regions of operations and the regions with a constantly high demand, but actively entering new regions, prospective to us. We will work to unify the appearance of our filling stations, provide a broader range of additional services, improve the quality of services in accordance with modern standards, analyze demand for and customer satisfaction with our services, develop loyalty programs for our clients. We will also continue the development of new lines of business, including bunkering of vessels, fuelling of aircrafts and sales of motor oils, and will work to increase the efficiency of wholesale sales, improving the tendering system for sales of petroleum products.

Which factors will determine

the growth in retail sales of the

Company?


• Expand oil production through development of explored oil fields, improvement of oil recovery factor at the oil fields being developed, and acquisition of new license areas and assets

• Achieve further integration of oilfield services business and improve its competitiveness

• Establish the Research and Development Center on the basis of the Company’s Research and Analytical Department, and implement respective investment program

• Produce environmentally safe types of motor fuel• Expand and develop the Company’s retail business


DEVELOPMENTEMPLOYEE

AND SUPPORT

42 EMPLOYEE DEVELOPMENT AND SUPPORT

RESPONSIBILITY IN THE FIELD OF PERSONNEL MANAGEMENT

It is the Human Resources Department that is responsible for strategic aspects of personnel man-agement. The Department includes four offices whose functions are described by their names: Of-fice of Personnel Administration and Selection, Office of Personnel Development and Training, Of-fice of Motivation, Remuneration and Benefits, and Office of Social Security. In the field of informing personnel the Human Resources Department cooperates with the Corporate Communications De-partment.

DEVELOPMENT PRIORITIES OF THE PERSONNEL MANAGEMENT SYSTEM

At the current stage, the Company’s priorities in the field of personnel development and support include:

Development of an integrated system of employees’ performance evaluation encompassing all stages of their work

Creation of a system of continuous training and development of the Company’s personnel Formation of an integrated system of personnel motivation Development of a candidate pool within the Company, creation of an effective promotion and rotation system

Improvement of a system of social assistance to the Company’s employees Attraction of highly qualified staff and development of adaptation programs for new employees

APPROACH

MANAGEMENTTO PERSONNELGAZPROM NEFT INVESTS IN PERSONNEL, SUPPORTING INITIATIVES AND INNOVATIONS AIMED AT THE IMPROVEMENT OF EFFICIENCY OF OPERATING AND MANAGEMENT PRACTICES. THE COMPANY ACTS AS A RESPONSIBLE EMPLOYER MAINTAINING EQUAL RELATIONSHIPS WITH ITS PERSONNEL, PROVIDING DECENT WAGES, DEVELOPMENT OPPORTUNITIES, AND COMFORTABLE WORKING CONDITIONS.

43EMPLOYEE DEVELOPMENT AND SUPPORT

Integrated achievement of these priority objectives will contribute to the formation of a highly pro-fessional team with a shared corporate culture.

In 2007, Gazprom Neft Asia enterprise implemented a targeted pro-gram aimed at training and motivation of junior staff. This Gazprom Neft subsidiary, which employs 612 filling station attendants, orga-nized a series of training workshops for them.It is the filling station attendant who represents the face of the Company when greeting and serving a client, receiving payments for the service, and seeing him or her off. Therefore the training program covered, in addition to legal liabilities and safe working practices, topics on quality of services, business etiquette, and the Company’s values. It was decided to increase salaries of the junior staff and to intro-duce a new remuneration system aimed at providing incentives for good work. According to the new scheme, the employee’s remu-neration includes a guaranteed salary, a bonus linked to accom-plishment of responsibilities and compliance with workplace con-duct requirements, and an incentive part depending on sales of the filling station. The management of Gazprom Neft Asia believes that these measures will improve employees’ loyalty to the Company and strengthen the corporate spirit.

Oleg SIDOMONIDZE

Head of Human Resources Department

We have to become a cohesive, strong team of professionals, where each member contributes to achieving common goals at his or her workplace. Our current goal is personnel development and formation of a collective that would meet the Company’s growing needs in highly qualified managerial and technical staff, while ensuring both continuity and innovative development. We strive to fill opening vacancies with our own employees and to attract young staff that meets the highest requirements while being able to quickly adapt to Gazprom Neft’s corporate culture and practices.

How do you see the Company’s personnel five years from now?


POLICY AND STANDARDS IN THE FIELD OF PERSONNEL MANAGEMENT

Currently Gazprom Neft is developing a draft unified Human Resources Policy, and expects to ap-prove and begin implementing it in 2008. In order to produce a balanced and comprehensive docu-ment, representatives of regional subsidiaries are involved in drafting the policy together with spe-cialists of all offices of the Human Resources Department.

In order to define a standard approach toward labor relations at all its enterprises, the Company works on a standard collective agreement which would include unified employer obligations for all Gazprom Neft’s subsidiaries. Each subsidiary company will be able to amend the agreement with additional elements, adapting universal benefits and conditions to its particular situation.

In 2007, the Company also began to develop a set of new personnel management standards, in-cluding “Management by Objectives. Procedure of Setting Objectives and Performance Evaluation,” “Procedure of Organizing Personnel Training,” “Planning and Training the Candidate Pool for Tar-get Positions,” “Procedure of Working with Young Professionals,” “Procedure of Providing Quarterly Bonuses to the Personnel,” “Personnel Awards and Corporate Celebrations,” etc.

Currently the Company is developing a corporate Code of Ethics, formulating its key principles on the basis of expert judgments and opinion surveys of stakeholders with primary focus on the share-holders and employees. The key corporate values identified as a result of this work include: Later these values will be set forth in the Code, whose adoption and application will contribute to the formation of an integrated corporate culture of the Company.

FIGURE 3.1. KEY CORPORATE VALUES


PERSONNEL PROFILE

At present Gazprom Neft together with its subsidiaries employs more than 48,000 individuals work-ing in 16 Russian regions, Kyrgyzstan, Kazakhstan, and Tajikistan (see Figure 3.2). In particular, about 6% of the personnel are employed in Moscow and Moscow Region, about half of them in the Head Office. 17% of the personnel work in Omsk and Omsk Region, more than half of them at the Omsk Refinery. However, the biggest region in terms of Gazprom Neft employment is Yamalo-Nenets Autonomous Area, where more than half of the Company’s personnel work. Distribution of personnel by region and country is shown in Figure 3.3.

Most of those working at the Head Office of the Company are between 30 and 50 years of age (more than 50%). 30% of the Head Office personnel are younger than 30, about 5% are working pension-ers. About 30% of the managers working at the Head Office are women (women comprise about half of the total personnel of the office). The share of women among the Company personnel as a whole is slightly more than 25%. Workers comprise almost three-fourths of Gazprom Neft person-nel; the share of specialists and office staff is about 18%. The average age of a Gazprom Neft em-ployee is 40 years of age.

RECRUITMENT AND LEAVING

The key factors determining changes in the Company personnel (see Table 3.1) include Company’s development, restructuring, and growth. For example, in 2005 more than 6100 employees of JSC Sibneft-Noyabrskneftegaz left the Company, and more than 4600 were hired; thus the overall num-ber of enterprise personnel decreased by more than 1500. Some employees were transferred to the

5 000

4 000

3 000

2 000

1 000

0

44 49447 965 48 327

31.12.05 31.12.06 31.12.07

FIGURE 3.2.GAZPROM NEFT HEADCOUNT


Company’s oilfield service enterprises. Almost 1900 employees were hired by JSC Novosibirskneft-eproduct VNK, where 1455 new jobs were created. In 2006, the largest contribution to the personnel growth was made by JSC Gazprom Neft Asia, where almost 1400 new jobs were created. In 2007, the number of Company personnel increased insignificantly.

If a planned restructuring of a Company’s division requires layoffs, employees of the division in question are notified at the general meeting at least two months prior to the dismissal, as required by the existing legislation. The Company, in cooperation with labor union organizations, uses this period for consultation with the employees and offers them employment options such as transfer-ring to other positions or divisions, other subsidiaries of the Company or project centers. Those ap-proaching retirement age are offered early retirement on terms negotiated between the parties. If an employee accepts neither of these options, he or she is paid dismissal compensation. In case of a violation of employee rights, in particular, with regard to dismissal, all necessary efforts are made to enable amicable resolution of the dispute and to remedy the breach. At the key enterprises of the Company**, there were two cases of illegal dismissal in 2005, one in 2006, and three in 2007. All of them took place in the Company’s retail business. All affected employees were paid compensations and restored to their former positions.

PERSONNEL EXPENSES

The Company pays its employees competitive wages and provides decent social benefits. In 2007, personnel expenses grew more than 20% from the previous year, reaching almost RUB 20 billion (see Table 3.2).

TABLE 3.2. PERSONNEL EXPENSES OF THE COMPANY

2005 2006 2007

Total personnel expenses, million RUB, without payroll taxes 13 748 16 478 19 958

incl. total payroll, million RUB 13 309 15 982 19 259 social payments, million RUB 439 496 699

2005 2006 2007

Average number of personnel 44 640 45 775 47 686 Recruited by the Company 11 981 12 561 9 932 Left the Company 10 343 9 545 9 584 Personnel turnover* 23% 21% 20%

TABLE 3.1. CHANGES IN THE HEADCOUNT

*Ratio of those leaving the Company to the average number of personnel

**Companies listed in Annex 1.


FIGURE 3.3. GEOGRAPHIC DISTRIBUTION OF THE COMPANY PERSONNEL (AS OF DECEMBER 31, 2007)LEGEND: •- MORE THAN 50%, •- MORE THAN 15%, •- FROM 1% TO 10%, •- LESS THAN 1%


PERFORMANCE-BASED REMUNERATION SYSTEM

An effective personnel motivation system is able to make a serious contribution to accomplish-ment of Company’s business goals by facilitating employee performance. Gazprom Neft introduces and develops an integrated motivation system based on competitive wages, performance-based re-wards, and non-financial incentives.

In 2007, the Company introduced the Management by Objectives (MBO) approach that links annual bonuses of top and middle management to accomplishment of both their individual objectives and corporate objectives of the Company. A system of key performance indicators (KPI) is being intro-duced for the personnel of the Company and its subsidiaries. The KPIs include, in particular, signif-icant performance indicators in the field of occupational health and industrial safety. Managers of the business functions and the Strategic Planning Department participated in the development of KPIs. The Company plans to complete implementation of the system in 2008.

GROWTH OF WAGE LEVEL

Striving to attract and retain the best workforce available, Gazprom Neft carefully tracks competi-tiveness of the wages paid to its employees. Ratios of average wages at the Company's enterprises to average wages in the regions of operations are shown in Figure 3.6. The Company wants wages

MOTIVATIONAND REMUNERATIONTHE COMPANY SUPPORTS EMPLOYEES’ DRIVE TO WORK BY BUILDING A FOCUSED TEAM THAT IS AIMED AT CONSISTENTLY HIGH RESULTS.


of oil workers to grow faster than the inflation rate. During the reporting period, year 2007, the av-erage wage for the Company as a whole rose 16 % (see Figure 3.4). The next increase of the wage level is expected in late April 2008. In 2008 it is planned to modify the remuneration system in order to make the remuneration size depend more on the qualifications, experience, and performance of an employee, and less on the fo mal position in the organizational hierarchy.

EMPLOYEE SATISFACTION

In 2007, Gazprom Neft, assisted by ZIRCON Group, a sociology research center, carried out a study of internal communications and socio-psychological climate at its enterprises. The study included a survey of 7500 employees of 10 enterprises representing different areas of the Company’s busi-ness. During the survey, among other important questions, employees were asked about their sat-isfaction with work.

According to the survey results, the vast majority of employees (more than 70%) are generally sat-isfied with work at their enterprises. The distribution of answers is presented in Figure 3.5. At some Company’s enterprises the level of employee satisfaction is even higher. In particular, at Gazprom-neft-Noyabrskneftegeaz, one of the largest Company’s subsidiaries, 73.8% of employees are satis-

Alyona KNYAZEVA

Head of the Office of Moti-vation, Remuneration, and Benefits

To encourage people to work for the Company with full commitment while knowing that their efforts will be decently rewarded, we need a motivation system aligned with goals and objectives of the Company and its business. Gazprom Neft has introduced a balanced compensation system for its employees. At present the Company is developing a system for evaluating personnel performance, which will logically complement the existing motivation system.

What’s new in the Company’s

remuneration system?FIGURE 3.4. AVERAGE SALARY LEVEL IN THE COMPANY

40

35

30

25

20

15

10

05

002005 2006 2007


fied with their work. This situation is primarily a result of the wage level at the Company’s enterpris-es. Despite this high level of employee satisfaction, in 2008 the Company plans to put an emphasis on improving the system of monetary and non-monetary incentives, fostering a shared corporate culture, strengthening personnel loyalty and engagement, and increasing the effectiveness of the internal communications system. In order to measure positive changes in the personnel attitude, Gazprom Neft plans to carry put similar surveys on a regular basis.

RECOGNITION OF EMPLOYEE ACHIEVEMENTS

The existing personnel motivation system involves not only monetary incentives, but also various kinds of non-monetary rewards. The most productive workers and winners of professional contests are awarded sectoral and corporate honorary signs, their achievements are publicized by the cor-porate media, and their images are featured on honorary boards. Corporate professional and sports competitions are organized. All this helps employees realize their individual contributions to the common cause, strengthen the corporate culture and shared values.

In 2007, five staff members of JSC Gazpromneft-Noyabrskneftegaz were awarded the honorary title of Meri-torious Worker of JSC Gazprom-Neft. At a special ceremony organized in Moscow, Alexander Dyukov, the Chairman of the Management Board of the Company, presented a gold badge with the Company’s symbols and a monetary remuneration of 100,000 RUB to each of the five employees. The honorary title of Meritorious Worker of JSC Gazprom-Neft was established as a reward for years of pro-ductive work, high professional level, and achievements in increasing the performance of Gazprom Neft.

FIGURE 3.5. LEVEL OF EMPLOYEE SATISFACTION WITH WORK

Satisfied 72,1

Not satisfied 27,2

No answer 0,7


FIGURE 3.6. RATIOS OF AVERAGE WAGES AT THE COMPANY’S ENTERPRISES AND IN RUSSIAN REGIONS IN 2007 (FOR THE REGIONS WHERE MORE THAN 1% OF THE COMPANY PERSONNEL IS EMPLOYED)LEGEND: •-MORE THAN 200%, •-FROM 100 TO 200%


Social programs complement monetary compensation as an instrument of attracting and retaining qualified workforce. Various corporate events, competitions and celebrations also play an important role in the Company’s life, gathering together all staff members. All this strengthens the corporate spirit and makes employees feel they are members of a single cohesive team.

BENEFITS PACKAGE

The Company’s employees, in addition to the benefits envisioned by the existing legislation, are pro-vided a benefit package that includes:

Voluntary medical insurance Payment of expenses for meals Jubilee bonuses Monetary assistance Payment of recreation and travel expenses, vacation allowance Additional child care allowance Holiday gifts for employees and members of their families Accident insurance Death allowance

Since each subsidiary of the Company has a different scope and budget of social programs as a result of its unique history, Gazprom Neft initiated systematization and improvement of such pro-

SOCIAL

SECURITYSOCIAL BENEFITS PROVIDED TO PERSONNEL NOT ONLY HELP CREATE COMFORTABLE CONDITIONS AND INCREASE CONFIDENCE IN THE FUTURE, BUT ALSO STRENGTHEN THE CORPORATE CULTURE BY DEMONSTRATING COMPANY’S RESPONSIBLE ATTITUDE TOWARD ITS EMPLOYEES.


grams in order to provide a standardized decent benefits package focused on the benefits of the most interest to the personnel. The Company develops an occupational pension scheme (calcula-tions for two schemes, one to be funded by the Company only, and one involving also employee’s payments, were made). Currently a housing program for young professionals has been introduced and preferential loan schemes are being developed. The Company also works on enhancing its ap-proach toward voluntary medical insurance of the staff.

In 2007, average social payments for an employee reached RUB 14.700, or 35% more than in 2006 (RUB 10,900). Still there remain considerable differences between the levels of benefits at different enterprises and in different regions, as can be seen in Figure 3.7.

According to the collective agreement, employees of JSC Sverdlovsknefteproduct are provided a considerable benefits package of about thirty items, including free health services and vaccinations, partial coverage of recreation expenses, assistance to pensioners and mothers having many children, etc. All these obligations are strictly observed by the company. The company employees share not only a place of work, but their interest toward active recreations. Corporate celebrations usually include contests and competitions. The employees are eager to participate in regular corporate competitions in different sports. Sverdlovsknefteproduct’s sports initiatives spread beyond the com-pany boundaries – its employees actively participate in bowling competitions between oil companies operating in Sverdlovsk region. One more good tradition of the company is to reward talented and proactive employees. Throughout the year Sverdlovsknefteproduct conducts competitions in professional excellence rewarding winners with valuable priz-es and monetary bonuses. The company organizes regular Best Idea Contests aimed at the improvement of qual-ity of services at filling stations, development of a new station design, cost reduction, innovative sales promotions etc. All these activities help improve performance of the enterprise and strengthen cohesion of its team.


FIGURE 3.7. SHARE OF SOCIAL PAYMENTS IN THE TOTAL PERSONNEL EXPENSES (FOR THE REGIONS WHERE MORE THAN 1% OF THE COMPANY PERSONNEL IS EMPLOYED)LEGEND: •- MORE THAN 3.5 %, •- FROM 1 TO 3.5%, •- LESS THAN 1%


RELATIONS WITH LABOR UNIONS

Gazprom Neft actively collaborates with labor unions of its employees to jointly address social issues. Union committees representing employees involved in different types of operations are present at the largest subsidiaries of the Company, including Noyabrskneftegaz and Omsk Refinery. Most enterpris-es are covered by collective agreements. Meetings of union leaders with the top management of the Company are conducted twice a year. Working meetings of union representatives with heads of Com-pany’s department and offices usually occur on a much more frequent basis.

Members of union committees represent the positions of labor collectives and are actively involved in development and implementation of benefits programs: in particular they participate in revision of wages and distribution of recreation packages. Union committees also participate in organizing corporate sports competitions and cultural events. When necessary, the unions help resolve labor disputes occurring at the enterprises.

More than two thirds of the Company’s employees are union members; these include more than 85 % of those employed in Omsk Region and Khanty-Mansi Autonomous Area, and more than 60% of those employed in Kemerovo Region. 76% of the Company’s personnel are covered by collective agreements; these include almost all employees of the enterprises located in Omsk Region, Khan-ty-Mansi Autonomous Area, Yekaterinburg and Sverdlovsk Region, and more than 89% of those em-ployed in Kemerovo Region.


CORPORATE SPORTS AND HEALTH IMPROVEMENT

Sports events help strengthen team spirit, unite employees, and promote a healthy way of life. Ac-cording to a survey carried out by the Company in 2007, an absolute majority of employees – about 70% of those surveyed — were satisfied with conditions for sports and fitness at their enterprises, and only 30% considered these opportunities insufficient.

In 2007, two corporate tournaments – football and chess – were organized with 180 representatives of 12 enterprises participating in them. The Company created the Council for Sports and Health Im-provement. For 2008, Gazprom Neft budgeted more than RUB 30 million for organizing sport events and acquiring sports uniform and equipment for Company employees and veterans. The Compa-ny plans to organize volleyball, table tennis, billiard and chess competitions for Company veter-ans (non-working pensioners) living in Noyabrsk and Omsk. In May–July 2008, qualifying rounds for Gazprom Neft’s Corporate Olympics will be organized in the Company’s regions of operations. The Olympics themselves, associated with the Day of Oil Worker, will be held in August–September and will include seven of the most popular sports among employees. In addition, corporate basketball and ski racing competitions will be held in the same year. It is expected that more than 1000 em-ployees will participate in all corporate level competitions.

In addition to internal events of the Company, it is planned to organize competitions between man-agerial teams of oil companies and international Omsk Refinery Prize Football Tournament among petroleum refineries, and to take part in inter-corporate competitions of the Sports League of Oil and Fuel Companies. Company teams and individual athletes will also participate in regional com-petitions and tournaments.


ASSISTANCE TO COMPANY VETERANS

Patronage of veteran organizations and assistance to retired employees is one more important component of the Gazprom Neft’s social policy. The Company does not forget those who worked for it for many years and supports them to the extent possible. Gazprom Neft’s enterprises provide monetary assistance to their pensioners, organize cultural events, and make every effort possible to ensure decent life of their veterans. Some enterprises pay supplementary pensions for long ser-vice. Members of Omsk “Fakel” (Torch) Club number almost 4000 veterans who worked at the Omsk Refinery for at least 15 years. The refinery pays the veterans supplementary pensions, provides free health services and space for club meetings and events. Other subsidiaries of the Company also maintain their veterans associations. In 2007, total charitable aid to the veterans of the Omsk Refin-ery increased more than half compared to 2006, and reached 26.3 million RUB.

As the International Day of Older Persons was approaching, JSC Gazpromneft-Tyumen provided charitable aid to vet-eran organizations of Tyumen and Tyumen Regions com-prising, in particular, retired employees of the enterprise. The funds were used to organize events and celebrations, which were attended by more than 700 senior citizens. Gazpromneft-Tyumen acquired essential goods and medi-cations and gave them to Care for the Elderly NGO for fur-ther distribution among pensioners. The Council of War and Labor Veterans of Mys settlement was provided with gasoline. More than 500 retired and working pensioners received monetary aid associated with the Day of Older Persons.


Systematic efforts aimed at personnel development help employees fully realize their potential and acquire new knowledge and skills. In the future the Company plans to fill up to 80% of opening va-cancies with its own employees (currently this figure is much less). Gazprom Neft already has more than 2% of the employees in its candidate pool. The Company will also work to attract young tal-ented employees.

ATTRACTING YOUNG PROFESSIONALS

When recruiting new employees, the Company will look for talented, promising and goal-oriented young people capable of contributing to the inflow of fresh ideas and dynamic growth of the busi-ness. Realizing that excellent specialists are fostered in university auditoriums, Gazprom Neft col-laborates with many Russian universities, assisting them in training students. In particular, in 2007 the Company recruited more than 300 graduates, while in 2008 it plans to recruit another 400 stu-dents. Gazprom Neft maintains a special adaptation and development program for newly recruit-ed students.

RECRUITMENT

AND TRAININGTHE COMPANY STRIVES TO BECOME ONE OF THE SECTOR LEADERS IN EFFICIENCY AND IS INTERESTED IN ATTRACTING TALENTED SPECIALISTS. THE KEY AREAS OF PERSONNEL DEVELOPMENT IN THE COMPANY INCLUDE WORK WITH YOUNG PROFESSIONALS, FORMATION OF A CANDIDATE POOL, AND CREATION OF AN INTEGRATED CONTINUOUS TRAINING SYSTEM COVERING ALL PERSONNEL CATEGORIES AND ALL LEVELS OF THE ORGANIZATIONAL HIERARCHY.


The Young Professional Program takes three years. During this period newly recruited specialists — new graduates — develop their professional, technical, and leadership skills, at the same time planning their career paths. For all three years a young professional is assisted by a mentor who initially helps the new employee adapt to the corporate environment, and then assists in developing his or her professional and corporate competencies, identifying the leadership potential.

The Company organizes special training for the mentors themselves, thus helping them perform their functions effectively. The program provides for rotation of young professionals between differ-ent divisions and business functions; the most talented and successful are included in the strate-gic candidate pool. In 2007, Gazprom Neft recruited 334 young professionals, or 9% more than the previous year. By the end of 2007 the Company employed a total of 696 young professionals. The program is considered a success — in 2008 it is planned to increase the recruitment of young pro-fessionals by 2.5 times. The growth of young professionals’ recruitment is shown in Figure 3.8. According to forecasts, the overall share of young professionals among the Company employees should reach at least 3%.

Irina BEZMENOVA

Head of the Office for Personnel Development and Training

Our Company, one of the largest in Russia, continues its active development. We have programs for supporting students and young professionals. Gazprom Neft offers graduates a broad range of opportunities in terms of both professional and personal development.

Why is Gazprom Neft attractive to graduates?

FIGURE 3.8. RECRUITMENT OF YOUNG PROFESSIONALS

350

300

250

200

150

100

50

002005 2006 2007

283306 334


COLLABORATION WITH EDUCATIONAL INSTITUTIONS

For many years Gazprom Neft and its subsidiaries have closely collaborated with universities. This partnership helps make training process closer to real practice due to a well-established collaboration system that includes on-site training of students and internship of teachers at the Company’s enterprises, funding research and development activities of universities relevant to the Company and, finally, recruiting best graduates. Gazprom Neft cooperates with a number of universities, including:

G. V. Plekhanov St. Petersburg State Mining Institute M. Gubkin Russian State Oil and Gas University M. V. Lomonosov Moscow State University Tyumen Oil and Gas State University Ufa State Oil Technical University Tomsk Polytechnic University Kazan State University Omsk State University Omsk State Technical University Novosibirsk State University Samara State Technical University Siberian State Automobile and Road Academy


A good example of the Company’s partnership with educational establishments is the col-laboration of the Omsk Refinery with Chemistry Department of the Omsk State University, Chemical and Mechanical College, and Industrial and Economic College. The best students of these establishments have been granted Ivan Litskevich Awards (named after a former Refinery director) for eight years already. Since March 2002, the Refinery funds stipends for the best senior students of Technical and Agrarian Universities. The stipends are grant-ed based on the results a competition, which takes into account, in addition to learning achievement, the students’ performance during their onsite training in the working collec-tives of the refinery.

In addition to targeted cooperation with universities, the Company collaborates with secondary pro-fessional educational institutions on a regular basis. This helps the Company recruit graduates of such institutions for worker positions in its largest subsidiaries including JSC Gazpromneft-Noyabr-skneftegaz and JSC Sibneft–ONPZ. As for the latter company, graduates of secondary professional educational institutions account for almost 60 % of young professional recruited annually.Our key partners in the field of secondary professional education include:

Noyabrsk Oil College Omsk Industrial and Economic College Omsk Chemical and Mechanical College Moscow Geological Exploration Technical College


EMPLOYEE TRAINING

Gazprom Neft traditionally gives serious attention to training and professional development of its employees. In 2007, training activities involved more than 30% of employees; in 2008 it is planned to increase this number by 2.5 times. The integrated personnel training and development system in place provides good conditions for development of employee creativity and lead, their profession-al and career growth. Gazprom Neft’s integrated training system is designed to meet the requirements of the Company’s business and its corporate culture. Corporate training programs include three main components:

Professional training programs aimed at acquiring knowledge and skills relevant to specific professions, positions, and functions

Programs aimed at development of corporate competencies

Programs aimed at development of business thinking, economic literacy, and understanding of business.

In 2008, Gazprom Neft plans to put special emphasis on creating new and enhancing existing cor-porate training centers, which would result in a considerable improvement of the quality of employ-ee training. The Company introduces advanced training techniques including simulators and spe-cially equipped training grounds.

The Company develops a career planning system. The key element of this system is Personal De-velopment Plans based on job requirements, employee strengths, and recommendations of imme-diate supervisors and mentors. As a part of improvement of the corporate personnel development system, in 2008 it is planned to introduce training methods based on best practices, including the-matic master classes.



• Introduce a system of key performance indicators, and develop a systemof qualification grades, while linking the remuneration and benefits scheme to it

• Define of a common approach toward the scope of benefits packages and align social assistance level across Company’s subsidiaries

• Form a shared corporate culture, strengthening personnel loyalty and motivation,in particular, through the development and application of the Company’s Codeof Ethics

• Expand recruitment of young professionals and broaden collaborationwith universities and technical colleges

• Establish new and improve existing corporate training centers, expand programsof professional training and development of organizational and managerial skills


REGIONALCONTRIBUTION TO

DEVELOPMENT

68 CONTRIBUTION TO REGIONAL DEVELOPMENT

The Company is a major taxpayer; a number of Gazprom Neft enterprises are major workplace and tax income sources for the towns in which they are located. Gazprom Neft maintains a dialogue and collaborates with stakeholders in its regions of operations. It also implements charitable pro-grams aimed at the development of cultural and social infrastructure of the regions, improvement of health services, as well as education and upbringing of children and youth.Company’s collabo-ration in its regions of operations is described in more details in the section “Collaboration in the regions.”

Large-scale operations of Gazprom Neft facilitate development of auxiliary economic sectors and small businesses in the regions. The Company produces basic materials for the chemical indus-try, provides petroleum products for private and public transport, cargo transportation, and heat-ing of remote villages. The principles of the Company's engagement with customers and suppli-ers are described in the section “Engagement with customers and suppliers.”

Gazprom Neft strives to participate in regional development in a manner providing for maximum benefits both to society and to the Company, and to make joint projects with regional stakeholders effective both in social and economic terms.

APPROACH TO

IN REGIONAL DEVELOPMENTPARTICIPATIONTHE COMPANY’S ACTIVITIES SIGNIFICANTLY AFFECT THE SOCIAL SPHERE AND ECONOMICS OF ITS REGIONS OF PRESENCE. GAZPROM NEFT TAKES AN ACTIVE ROLE IN RESOLVING PRIORITY TASKS OF REGIONAL DEVELOPMENT.

69CONTRIBUTION TO REGIONAL DEVELOPMENT


RESPONSIBILITY IN THE FIELD OF REGIONAL COLLABORATION

In 2007, Gazprom Neft created the Commission for Regional Policy comprised of representatives of the key divisions of the Company and its regional subsidiaries. Functions of the Commission include planning actions related to Company’s policy in its regions of operations, and overseeing the imple-mentation of socio-economic cooperation programs. Practical implementation of the programs is a responsibility of the Office of Regional Policy and Internal Communications of the Department of Corporate Communications and of regional subsidiaries of the Company.

The Commission for Charity created in 2007 is responsible for coordination of charitable activities of the Company, oversight of respective expenses, and review of the results of individual charitable projects.

PARTNERSHIP AGREEMENTS WITH THE REGIONS OF OPERATIONS

Agreements on socio-economic cooperation are the main instrument of Company’s collaboration with regional and municipal authorities in its regions of operations. Such agreements are usual-ly initiated by the Company itself, since they make it possible to coordinate Gazprom Neft’s strat-

COLLABORATION

IN THE REGIONS THE COMPANY’S COLLABORATION WITH THE REGIONS OF ITS OPERATIONS IS BASED UPON SOCIO-ECONOMIC COOPERATION AGREEMENTS AND THE CHARITY POLICY.


egy with regional needs and join efforts to address the issues of priority to the Company and the regions. The Company’s approach to designing such agreements is described in detail in the docu-ment “Gazprom Neft: Social Horizons. Overview of Corporate Social Programs 2007.”

In 2007, the Company concluded socio-economic agreements with Yamalo-Nenets and Khanty-Mansi Autonomous Areas, Omsk, Tomsk (Kargasoksky and Parabelsky districts), Tyumen (Uvatsky district), and Krasnodar Regions. The overall Company’s expenses within the framework of all agreements amounted to 595.7 million RUB (see. Table 4.1).

The funding under the Yamalo-Nenets Autonomous Area agreement was reduced in 2007, since the Company, with the consent of the Area Administration, planned to reserve a part of the funds for fi-nancing the preparation and initial implementation of the Noyabrsk Town development strategy. All the projects planned in Yamalo-Nenets Autonomous Area for 2007 were fully implemented. The re-gions participating in the cooperation agreements with the Company are presented in Figure 4.1; the activities under these agreements in the three key regions are described below.

TABLE 4.1. BUDGET OF SOCIO-ECONOMIC AGREEMENTS WITH THE REGIONS, MILLION RUB

REGION (MUNICIPALITY) 2006 2007 Yamalo-Nenets Autonomous Area 592 360.3 Khanty-Mansi Autonomous Area 100 150 Omsk Region 60 62 Tomsk Region (Kargasoksky and Parabelsky districts) 7 13 Tyumen Region (Uvatsky district) 3 5 Krasnodar Region - 5.4 Total 762 595.7

FIGURE 4.1. REGIONS WHERE THE COMPANY IMPLEMENTED SOCIO-ECONOMIC AGREEMENTS IN 2007


YAMALO-NENETS AUTONOMOUS AREA

The General Agreement on Cooperation for 2006–2008 between the Company and the Administra-tion of Yamalo-Nenets Autonomous Area envisions implementation of socio-economic development programs in the towns of Noyabrsk and Muravlenko, and in Nadymsky, Purovsky, and Krasnoselk-upsky districts.

In 2007, a number of socially significant programs, including those aimed at supporting small and indigenous peoples of the North, were implemented in the Autonomous Area. In particular, the Noyabrsk Ice Palace, an important sports facility, was reconstructed; in Purovsky District a Cen-ter of National Cultures was built in the Town of Tarko-Sale, assistance was provided to local ru-ral communities and to the Purovskoe Branch of the “Yamal for Our Descendants!” Association. In Krasnoselkupsky District, several residential houses were built and musical instruments for the brass band of the Tolkinskoe Children’s School of Arts were acquired. In Nadymsky District, equip-ment for the boiler shop in Kutopyugan village was acquired, and traditional competition of North-ern reindeer herders was financed. In 2007, the Company traditionally sponsored the Festival of Reindeer Herders – one of the most important events in the calendar of the Nenets people, dedicat-ed to the coming of spring. The main forms of assistance included:

food fuel, lubricants and construction materials work clothing transport health care services covering expenses for secondary and university education


Mikhail PEREVYSHIN

Head of the Office of Social Security

Our Company is concerned about the future of the regions where we work. Moreover, the objectives of socio-economic development of the regions and of the Company’s growth are inseparable from one another. Gazprom Neft is interested in improvement of living conditions in Noyabrsk, in making the population feel good about their future prospects, since our subsidiaries operating in the Autonomous Area, including Noyabrskneftegaz company and service companies affiliated with JSC Gazpromneft–Nefteservice, collectively employ 23,000 local residents. Therefore we consider our participation in the preparation of the town’s strategy as an important strategic step.

Why does the Company participate in the preparation of

the Noyabrsk Town Development Strategy?

LONG-TERM STRATEGY OF THE SOCIO-ECONOMIC DEVELOPMENT OF THE TOWN OF NOYABRSK

Preparation and implementation of the long-term socio-economic development strategy of the Town of Noyabrsk is an important initiative supported by the Company. It was originally proposed in 2007 by the municipal authorities and Gazprom Neft and sup-ported by large oil companies operating in Noyabr-sky district including, in addition to Gazprom Neft, Schlumberger, Gazpromneft-Noyabrskneftegaz, and Gazprom Dobycha Noyabrsk. It is planned to involve in the process other companies working in the re-gion. It was decided to form a working group which would coordinate the formulation and implementa-tion of the town’s socio-economic strategy up to 2025. In order to finance the project, the Noyabrsk Devel-opment Foundation, a non-commercial organization, was established. The strategy preparation will involve an analysis of the town’s development prospects and identification of opportunities for the business sec-tor to participate in this development. The objectives the companies and municipal authorities set for themselves imply maintaining steady development of Noyabrsk through expansion of competitive sectors and diversification of the local economy, which would make it possible to preserve jobs and ensure com-fortable living conditions for the town residents.


KHANTY-MANSI AUTONOMUS AREA – YUGRA

The agreement between Gazprom Neft and the Administration of Khanty-Mansi Autonomus Area – Yugra for 2006-2008 is aimed at socio-economic development of the Area and its municipalities, in-cluding implementation of the priority national projects, organizing temporary employment of teen-agers during school vacations, recreation and health improvement, supporting youth policy, culture, education, and health services.

Natalya ZAPADNOVA, First Deputy Head of the Government for Social Policy, Khanty–Mansi Autonomous Area – Yugra

We energetically cooperate with Gazprom Neft within the framework of the socio-economic agree-ment, and it is interesting for us to learn about the whole range of programs implemented by the Company in its regions of operations. In its report, the Company decided to disclose both its current activities and objectives for the future thus demonstrating its openness. That is why in the next year we would like one of the roundtable meetings dedicated to discussing Company’s social and eco-nomic performance to be conducted in Yugra, and results of the meeting to be taken into account by Gazprom Neft in implementing the social partnership agreement.

In 2007, under the general agreement with Khanty-Mansi Autonomous Area the Company financed a number of activities, including the Ninth “Save and Preserve” Environmental Television Festival, arrangement of the Samarovsky Ostanets geological monument site, assistance to the Chess Fed-eration of Khanty-Mansi Autonomous Area, the Spirit of Fire International Film Festival. In Nefteyu-gansk District equipment and furniture for educational institutions were acquired, in Russkinskaya village of Surgutsky District the funds were used to support activities of the Ethnic Center of Small


indigenous Peoples of the North, in Nizhnevartovsky District temporary employment of indigenous teenagers (from 14 to 18 years of age) was organized.

OMSK REGION

The cooperation of the Company with the Administration of Omsk Region under the general agreement for 2006-2008 is aimed at the implementation of social programs in the region, in-cluding assistance to social facilities, as well as joint implementation of environmental and re-source efficiency programs and projects. In 2007, the funds allocated under the agreement were used, in particular, for social assistance to orphanages, schools and residential schools (“Devel-opment of the Educational System of Omsk Region to 2007” and “Children of Omsk Region” re-gional targeted programs, “The Road to Life” Governor’s program aimed at social assistance to orphan children). In Tarsky District the Company funded a major repair of the local outpatient clinic building, supported the introduction of energy-saving technologies and equipment in local municipal utilities, etc.

OTHER REGIONS OF OPERATIONS

The Company is involved in implementing socio-economic programs in other Russian regions, where it conducts production and sales operations. For example, under the general cooperation agree-ment with Krasnodar Region, the Company provided support to the Cossack Cathedral of St. Alex-ander Nevsky, and plans to participate in social, environmental, and research projects till 2009.


CHARITABLE ACTIVITIES

In June 2007, Gazprom Neft adopted its Charity Policy, which, prior to the final approval, was re-viewed by all structural divisions of the Company. The Policy defines goals, principles, and priorities of Gazprom Neft’s charitable activities, as well as procedures for implementing individual projects. According to the Charity Policy, the key principles of the Company’s charitable activities include:

Regional principle Charitable projects are implemented immediately in the regions of operational, commercial or other business-related interest to the Company

Long-term outlook Company’s charitable projects are not limited to its current regions of operations. Gazprom Neft views charitable activities in the regions of importance to its mid-term or long-term development strategy as investments in the future

Efficiency Charitable aid should be rendered in a manner that ensures maximum efficiency in terms of both use of funds by the recipients and contribution to enhancing social climate in the Company’s regions of operations

Accessibility and transparency Scope and social significance of Company’s charitable projects should fit the needs of the citizens and communities. Projects should be selected based on understandable principles and managed in a transparent manner. The Company ensures oversight of spending in its charitable projects

Uniqueness Charitable projects reflect values of Company’s corporate culture, its unique identity. In most of its charitable projects the Company is the only corporate sponsor representing the oil sector


Sergey BILKEY

Head of the Office of Regional Policy and Internal Communications

The Company supports effective, transparent and comprehensible projects in its actual or prospective regions of operations. The priorities include development of local infrastructure, support of children and youth, and sports.

What are the priorities of the charitable

activities of the Company?

Regional social programs based on these principles are described in more details in the document “Gazprom Neft: Social Horizons. Overview of Corporate Social Programs 2007” (see http://www.gazprom-neft.ru/social/). The priority areas of corporate charitable programs include:

Supporting children and youth

Supporting educational sector

Protecting cultural heritage

Supporting health care sector

Supporting sports

Total charitable spending in the reporting period, including expenses under the Socio-Econom-ic Cooperation Agreements, amounted to about RUB 820 million. Systematization of the Compa-ny’s charitable activities and identification of clear priorities (“Regional Collaboration,” “Supporting Children and Youth,” and “Sports”) in 2007 made it possible to reduce corporate charitable spend-ing (the funding of sports organizations and indirect support through charitable organizations, foun-dations, and associations was reduced), while making it more focused. The Company substantial-ly increased funding of social assistance programs aimed at orphanages, schools and residential schools, cultural institutions, as well as authorities of districts, towns, and regions of Company’s presence. Gazprom Neft is proud to be one of the primary sponsors of Zenit Football Club, the win-ner of 2007 Russian Championship. The Company also supports SKA – St. Petersburg Ice Hockey Club, and is a co-founder of Avangard Ice Hockey Club.


The Company will continue to focus its charitable activities on strategic priority areas where long-term effects of investments can be expected, and with all due responsibility will take into ac-count stakeholders’ opinions and expectations when determining targets and scale of its chari-table programs.

The most significant priority is assistance to development of children and youth and supporting their health. These priorities are taken into account in designing both general socio-economic agree-ments with the regions of operations and individual charitable programs and projects; they are fol-lowed by both the Head Office and regional subsidiaries of the Company. For example, in 2007 Gaz-promneft-Noyabrskneftegaz company organized a charitable action “Gift for the School Season” associated with the beginning of a new school year and aimed at low-income families. More than 120 school students from Noyabrsk, Muravlenko and Vyngapurovsky received new schoolbags with all the necessary stationery. Similar actions were organized by Gazpromneft-Tyumen and Gazprom-neft-Khantos, while Omsknefteproduct provided support to the Eleventh “Overcoming” Festival, an Omsk City arts festival for children with disabilities.


Alexander DYBAL

Member of the Management Board, Deputy CEO for Corporate Communications

When planning and implementing our charitable programs, we think, first of all, of actual help we can render to the residents of all Gazprom Neft’s regions of operations. We do not limit ourselves to corporate programs aimed at our employees only, since we realize that successful operations and development of our Company depends on well-being and social comfort of most residents in its regions of presence. We try to ensure that everyone has access to sports activities, necessary health care services, recreation, education, and personal development.

What do you consider to be the most important

in the charitable programs of Gazprom Neft?

PARTICIPATION IN THE “GAZPROM TO CHILDREN” PROGRAM

In addition to its own initiatives aimed at social development of the regions of operations, since March 2007 Gazprom Neft has participated in the “Gazprom to Children” charitable program. A prominent example of the program implementation is the interregional Gazprom Neft Cup Ice Hockey Children’s Com-petition organized in Omsk in November 2007.The Company’s regional subsidiaries also participate in the program. For example, JSC Gazpromneft-Tyumen financed New Year’s celebrations in the Karasul special residential school, social rehabilitation center in Omutinskoe village, and Tobolsk residential school #5. Gazpromneft-Noyabrsknefte-gaz, among other actions within the framework of the “Gaz-prom to Children” program, sponsored a mini-football chil-dren’s competition dedicated to World Football Day.


Gazprom Neft uses fair pricing practices complying with the anti-monopoly legislation. The quality of fuel produced by the Company’s enterprises is complemented by high quality of services provid-ed to retail customers at the filling stations and to the wholesale buyers, and by permanent quali-ty control at every stage from production to sales. The Company maintains a high transparency lev-el of procurement and sales of petroleum products, thus ensuring equal market conditions for all its partners.

RESPONSIBILITY IN THE FIELD OF SALES AND PROCUREMENT

It is the Regional Sales Department that is responsible for both retail and wholesale sales of pe-troleum products. The Corporate Communications Department is responsible for the re-branding program, which involves, in particular, redesign of the Company’s filling stations. The responsibility in the field of procurement and supplier relations lies with the Materials Management Department. Procurement tenders are organized by the Tender Committee which is immediately subordinate to the Chairman of the Management Board. The establishment and work of the Committee is one of the key measures aimed at preventing incidents of fraud and corruption.

QUALITY OF CUSTOMER SERVICE

In 2008 the Company will begin to implement a new program of re-branding and modernization of its filling stations, which is being currently designed, offering new services and continuing to im-prove the quality of services. Gazprom Neft plans to eventually reach European level of service at all

ENGAGEMENTWITH CUSTOMERS AND SUPPLIERSTHE COMPANY MAKES EVERY EFFORT TO ENSURE THE MOST COMFORTABLE EXPERIENCE OF BOTH RETAIL AND WHOLESALE CUSTOMERS, OFFERING HIGH QUALITY FUEL AT THE PRICES CORRESPONDING TO THE MARKET DEMAND.


its stations, using several basic formats depending on the station’s location – in a city or on a high-way – and expected demand for additional services. In some regions, clients of the Company’s fill-ing stations are already able to have a cup of coffee in a cafe, to use a car wash, to get free tire infla-tion, to buy periodicals and books, and to pay for mobile communications services. In order to ease the choice of fuel for the clients, in the next years the Company plans to introduce its own brands. Gazprom Neft conducts interesting sales promotions and prize draws for its clients, and introduces the “Mobile Card” non-cash payment system.

Already in 2005, the Company introduced a unified phone hotline to quickly address customer com-plaints. Later Gazprom Neft switched to a scheme that better met customer needs and enabled faster responses. This scheme involves a 24-hour hotline maintained by each retail division; the re-spective phone number is prominently posted at each filling station. The work of the hotline servic-es is supervised by the Head Office on a weekly basis. Each complaint filed through a hotline trig-gers an internal investigation, and the Company takes necessary measures communicating with the concerned customer. For example, if a complaint deals with the quality of fuel, the customer is invited to be present during official analysis of the fuel samples; if terms of sales promotions or dis-count programs raise customers’ questions, detailed explanations are provided.

Communications of the Company’s managers with wholesale buyers are guided by well-established procedures, and positive experience of the customers gives them confidence about the quality of products and reliability of supply. In the nearest years, the Company will develop common customer service standards applicable to all its enterprises as a part of unified corporate policies.

Alexander KRYLOV

Head of the Regional Sales Department

We plan on modernization our filling station network in all regions. Eventually all our filling stations will reach the world level – with a high quality of services, additional services, and attractive appearance.

What do we do to make our filling stations more

convenient to clients?


JSC Gazpromneft-Omsk maintains 40 self-service mini-markets at the filling stations of its retail network. Recently the sales of mini-markets at the Company’s stations in Omsk increased 30%. Each shops offers customers some three thousand items, including food and drinks, car and household goods, as well as the latest issues of newspapers and magazines. The services are not limited to merely selling goods – a driver is always able to drink a cup of hot coffee or tea, to buy fresh baked goods. Station attendants can help fill a car, 15 stations are equipped with free tire inflation systems and vacuum cleaners.

TRANSPARENCY OF WHOLESALE TRADE AND PROCUREMENTIn addition to creation and work of the Tender Committee, since 2007 the Company uses best in-ternational practices of open tendering for wholesale sales of petroleum products aiming, in par-ticular, to prevent incidents of corruption and fraud. In 2007, overall sales of petroleum products through an electronic tendering system, which can be accessed via the corporate website (http://www.gazprom-neft.ru/tender-np/), amounted to 3.21 million tons, or about 30% of the total domes-tic wholesale sales of the Company. The introduction of the system allowed Gazprom Neft to achieve maximum efficiency of sales and ensured equal access of all buyers to the Company’s resources.

The responsible approach of the Company to foreign trade was rewarded in 2007, when Gaz-prom Neft became the winner of the Customs Olympus competition in the “Leader of Russian Foreign Trade” category. The annual competition was organized by the Federal Customs Ser-


vice in order to identify and reword the most bona fide participants of international trade among Russian companies.

The key criteria in procurement of materials, equipment, and services for the Company include maximum efficiency, delivery on time, and appropriate quality. The development of the Russian economy allows the Company to rely on domestic suppliers, thus contributing to further develop-ment of non-extracting economic sectors. Russian suppliers account for 90-95% of all Company’s purchases; only unique or special goods are purchased abroad. The Company has developed and introduced a procurement system which allows for centralized selection of suppliers for standard-ized goods and services on a competitive basis: through open competitions, requests for propos-als, and an electronic tendering system. And often it is offers from local suppliers that turn out to be the most profitable. If necessary goods are produced by monopoly companies or a limited num-ber of key suppliers, the Company builds strategic partnership relations, ensuring mutual benefits and stable working conditions for both itself and its clients.

According to the “National Rating of Procurement Transparency” for 2007, the Company received the highest score of 328 participants and was given the highest rating – “Guaranteed Transparen-cy”. The rating was maintained by the National Association of Electronic Trade and supported by the Federal Antimonopoly Service.

Alexander ABRAMKOV

Member of the Board,Deputy CEO for Construction and Materials Management

Full transparency and openness of the procurement process, as well as predictability of terms and conditions, are important both to us and our business partners. Recently introduced tendering systems for procurement of standardized goods and services are accessible through the Company’s website and make it possible for organizations of any size to participate on equal terms with our traditional suppliers. This allows us to broaden the range of suppliers and use regional potential, including opportunities of small and medium business. At the same time we continue to maintain relationships with our long-term partners developing cooperation strategies convenient and beneficial to both sides.

What does the Company do

for its suppliers?


• Optimize charitable expenses based on the priorities set forth by the Charity Policy• Develop a detailed methodology for assessing the efficiency of charitable projects• Accomplish existing cooperation agreements with the regional authorities and

further develop regional collaboration• Develop and implement unified client service standards• Expand the filling station network and range of services offered to retail customers,

while improving the quality of services


ENVIRONMENT AND HEALTH

PROTECTION— SAFE DEVELOPMENT

88 ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT

RESPONSIBILITY IN THE FIELD OF HEALTH, SAFETY, AND ENVIRONMENT

In late 2007, the Office of Health, Safety, and Environment (HSE) was created in the Head Office of the Company. The new body will develop strategic approaches in the field of industrial safety, occu-pational health and safety, and the environment, coordinating activities of business functions and subsidiary companies in this area. The Office also addresses the issues of emergency preparedness and response jointly with the Section of Special Programs. Highly qualified HSE professionals work in all production departments of the Company and its subsidiaries.

HEALTH, SAFETY, AND ENVIRONMENT POLICY

As guidance for its occupational health and safety, industrial safety, and environmental activities, the Company has developed a Health, Safety, and Environment Policy approved in March 2008. The Policy defines the strategic goal of the Company – to achieve a leading position in terms of HSE among the world’s oil and gas companies, proving this with actual performance and advanced ap-proaches. According to the Policy, the safety of employees, population, and the environment is the priority in making economic and technical decisions. Company’s commitments established by the

APPROACH TO ENSURING

SAFE DEVELOPMENTTHE COMPANY REALIZES ITS RESPONSIBILITY FOR THE SAFETY OF ITS OPERATIONS FOR THE ENVIRONMENT AND HUMAN HEALTH. GAZPROM NEFT AIMS TO EFFICIENTLY USE NATURAL RESOURCES AND TO REDUCE NEGATIVE IMPACTS. THE COMPANY STRIVES TO PREVENT AND APPROPRIATELY RESPOND TO INJURIES AND EMERGENCIES.

89ENVIRONMENT AND HEALTH PROTECTION — SAFE DEVELOPMENT

Policy include continuous improvement of working conditions, as well as industrial and environ-mental safety, implementation and continuous improvement of an effective management system, development of stakeholder communications, enhancement of employee competence and their in-volvement in the Policy implementation, imposing uniform safety requirements on both employees and contractors of the Company.

Evgeny SHVARTS, Director for Conservation Policy, WWF Russia, Doctor of Science (Geography)

According to assessments by World Wildlife Fund Russia (WWF Russia), in 2005–2006 Gazprom Neft lagged considerably behind private Russian companies, including, for example, TNK-BP and LUKOIL, in terms of environmental policy and openness to non-governmental organizations. This certainly raised concerns about the path the country has taken – whether it evolved toward the Norwegian mod-el or, say, toward Nigeria and Venezuela. The process of preparing the Gazprom Neft’s Sustainability Report for 2007 raises the hope that the company and the country as a whole may begin the evolution toward better development models, the most friendly to humans and the environment.

Oleg NIKOLAYENKO

Head of the Office of Health, Safety, and Environment

Taking into account the experience of the world’s leading oil and gas companies, we are building an integrated management system based on international standards. Gazprom Neft plans to implement the most effective system aimed at protecting human life and health, and the environment through the management of key industrial and environmentl risks.

How does the Company plan to implement an

integrated health, safety, and environmental management

system?


The Policy sets forth the key commitments of the Company, which would help it in accomplishing established goals. In order to support the Policy implementation, key objectives for 2008 encom-passing various HSE areas have been identified. The main priorities for 2008 include situation as-sessment at the largest subsidiary companies and development of corporate standards in a num-ber of areas including: environmental management; safety and health risk assessment; personal protective equipment; and safe driving In this year the Company will initiate a project on introduc-ing a unified system of management reporting in the field of HSE, begin the development of a reg-ister of safety risks and creation of corporate HSE training programs.

IMPLEMENTATION OF AN INTEGRATED MANAGEMENT SYSTEM

In 2008, the Company plans to embark on the implementation of an integrated HSE management system compliant with the key requirements of relevant international standards, including OH-SAS 18001 (occupational health and safety), ISO 14001 (environmental management), and ISO 9001 (quality management), and recommendations of the International Association of Oil and Gas Pro-ducers. Based on the results of the integrated system implementation, a decision on the need for its certification will be made.



ENVIRONMENTAL COMPLIANCE AND PREVENTION OF ADVERSE IMPACTS

The Company strives to fully comply with the requirements of the existing environmental legisla-tion. In 2007, the total fees for exceeding established environmental impact limits and costs of re-pairing environmental damages by major Gazprom Neft subsidiaries were about RUB 2 million, an insignificant sum given the scale of the Company’s operations. Total fines for breaches of environ-mental legislation amounted to RUB 1 million only; measures to eliminate the violations identified were taken.

The Company plans to develop procedures for investigation and analysis of incidents involving breaches of environmental legislation and, based on the analysis results, implement corrective measures to minimize the probability of similar incidents in the future.

In accordance with the existing legislation, the Company conducts an environmental impact assess-ment when planning new activities. After obtaining a positive conclusion of the State Expert Review, it implements selected options making efforts to minimize environmental impacts. All new prod-ucts in the process of their development undergo an assessment of customer safety; safety issues are taken into account at all stages of development and production. The approved HSE Policy re-flects the Company’s understanding of potential risks associated with any planned and ongoing ac-tivities, and of the need for an integrated preventive approach.

MITIGATION OF

THE COMPANY TAKES MEASURES TO EFFICIENTLY USE NATURAL RESOURCES AND ENERGY, REDUCE EMISSIONS TO THE ATMOSPHERE AND IMPACTS ON WATER BODIES, TO PROTECT BIODIVERSITY, TO PREVENT OIL SPILLS AND LAND CONTAMINATION.

IMPACTS ENVIRONMENTAL


ENVIRONMENTAL EXPENSES

The Company’s operating and capital expenses on environmental activities, including introduction and use of technologies to minimize environmental impacts, exceed by many times the pollution fees paid by the Company (see Table 5.1). Operating expenses also include costs of developing cor-porate regulations and standards, environmental monitoring and industrial environmental control, professional upgrading and training of environmental specialists. As seen from the table, operat-ing expenses in 2007 were lower than in the previous year with most of them spent for wastewater treatment. This is the result of high environmental expenses in 2006, when, as a priority measure for protecting water bodies, the Company made a major purchase of oil spill cleanup equipment from Lamor company*.

Major capital expenses on the construction of environmental protection facilities were also made in 2006. In particular, about 100 million RUB was invested in the construction of a gas cleaning and separation section at the Omsk refinery; the facility is planned to be put in operation in 2008. It is oil refining and production sectors that accounted for most capital and operating environmental ex-penses in these years. In the future the Company plans to introduce environmentally safer technol-ogies and techniques, making necessary investments in environmental protection equipment and implementation of best available techniques for reclamation of polluted areas. The dynamics of the Company’s environmental expenses in recent years is shown in Table 5.1.

*The expenses were attributed to the “water consumption” budget item.


TABLE 5.1. ENVIRONMENTAL EXPENSES, MILLION RUB

EFFICIENT USE OF RESOURCES AND MATERIALS

Efficient use of natural resources is a key area of the Company’s activities, relevant not only to the field of environmental protection. Important objectives of the oil and gas extraction sector of the Company include improvement of oil recovery factor at the producing oil fields and of associated gas recovery rate. In the refining sector, high refinery depth is a priority. In 2007 the amount of oil processed at the Omsk Refinery, the primary refining asset of the Company, reached almost 16.5 million tons. The refining depth at the refinery decreased 1.08% in 2007 reaching 83.4% (see Table 2.1), as a result of the focus on producing light petroleum products with high value added.

Nevertheless, according to the Russian Ministry of Industry and Energy, the Omsk Refinery is the second Russian refinery in terms of refinery depth. In 2007, the output of key petroleum products increased 1.7%, allowing the refinery to keep the leading position within the sector in terms of this indicator.

In addition to oil, the refinery used 25,000 tons of reagents, catalysts, and basic materials for their production in 2007, reducing their consumption 8.5% compared to the previous year as a result of improved resource efficiency. In the extraction sector the consumption of materials considerably grew between 2005 and 2007 as a result of intensified well drilling and construction. The data on the materials consumption are presented in Table 5.2.

2005 2006 2007

Operating expenses, incl.: 518.6 722.7 577.7 expenses on wastewater treatment 366.6 353.6 349.1 expenses on waste management 54.7 41.5 43.7 expenses on water consumption 24.7 226.7 30.7 expenses on air and gas cleaning 1.3 13.3 12.6 payments for violating environmental legislation and expenses

on repairing environmental damages 0.6 1.3 2.2 payments for impacts within established limits 70.5 82.7 128.2 Capital expenses 83.2 256.2 29.9

Note 1: The amount of capital expenses was determined more accurately compared to the Annual Report for 2006 (p. 35) and the “Social Horizons” review (p. 35). Note 2: The data in the table encompass the subsidiary companies listed in the Annex 1. The contribution of the remaining subsidiaries is considered insufficient. Note 3: The data for 2005 in the table do not include the petroleum products supply sector. According to the data for 2006–2007, the share of the supply sector in total energy consumption, water consumption and discharges was insignificant (less then 1%); its share in total emission to the air and waste generation was about 1.5 – 2 %.


ENERGY CONSUMPTION AND EFFICIENCY

Total energy consumption of the Company grew in the recent years as a result of intensified opera-tions in all areas of activity. The overall energy consumption* by key Gazprom Neft enterprises grew from 74x1012 J in 2005 to 80x1012 J and 84x1012 J in 2006 and 2007 respectively. At the same time the share of fuel in the total energy consumption decreased from 12% to 8% (from 8.7x1012 J in 2005 to 6.3x1012 J in 2007). Specific energy consumption (normalized to consumption of primary energy*) in the oil extraction sector increased as a result of intensified operations. Specific energy consump-tion at the Omsk Refinery was decreasing – in 2006 it was 11.7% less than in 2005, while in 2007 it was slightly less than in 2006.

Gazprom Neft makes efforts to improve the energy efficiency of its operations. The Company’s en-terprises conduct energy audits, introduce measures to improve control over energy consumption, and develop and implement programs aimed at more efficient use of energy resources. The imple-mentation of such a program in the oil extraction sector made it possible to save RUB 34 million in 2006, and RUB 152 million in 2007. The Omsk Refinery has developed and implements a program for reducing its heat consumption for the period to 2012. Complete implementation of the program should result in a 17% reduction of specific heat consumption.

TABLE 5.2. CONSUMPTION OF RESOURCES AND MATERIALS, TONS

2005 2006 2007

Oil refining Reagents, catalysts, and basic materials for producing them 26 066 27 424 25 099 Basic materials for producing motor oils, additives and lubricants 5 851 5 872 6141 Oil production Components of drilling fluids 12 313 18 073 21 687 Cement of all grades 43 090 63 245 75 894 Earth for filling 4 340 000 6 370 000 7 644 000 Steel structures and pipes 61 120 89 708 107 649

*The primary energy consumption was calculated based on the total consumption of fuel, heat and electricity, taking into account the amount of fuel required to produce these heatand electricity, estimated using the Basic Indicators Methodology by the Russian Union of Industrialists and Entrepreneurs.


EMISSIONS TO THE AIR

The Company’s subsidiaries make continuous efforts to reduce their emissions to the air. During the period from 2005 to 2007 the total emissions slightly increased as a result of an increase in the Com-pany’s operations (the emission data are presented in Table 5.3). The main source of the Company’s emissions was the oil and gas extraction sector; emissions in the refining sector were decreasing.

In the previous periods the Company’s refinery enterprises also actively worked on reducing their emissions; for example, from 1980 to 2006 the emissions of the Omsk Refinery decreased by four times. Important factors that contributed to this reduction included general modernization of pro-duction facilities, replacement of burner units, optimization of process parameters, reconstruction of tanks, and introduction of equipment for precise and enclosed loading of petroleum products. In the oil and gas extraction sector, the emissions are determined mainly by the amount of associat-ed gas burnt (the data on associated gas recovery are provided below in Table 5.4). Ozone deplet-ing substances are used in some thermostatic and fire extinguishing equipment in amounts several times less than the established standards. The Company has developed and implements plans for replacement of these substances in the respective systems. In 2007, the Company’s operations in Yamalo-Nenets Autonomous Area accounted for more than half of its total pollutant emissions; operations in Omsk Regions for about 30%. The distribution of the emissions by region is shown in Figure 5.1.

RECOVERY OF ASSOCIATED PETROLEUM GAS

The Company actively works on increasing the associated petroleum gas (APG) utilization rate in its oil extraction sector. Currently the level of associated gas recovery at the key production enterpris-es of the Company remains low – about 35.7% of produced gas in 2007. The amounts of produced and recovered gas are shown in Table 5.4. The decline in the utilization rate in 2007 is a result of re-

TABLE 5.3. EMISSIONS TO THE AIR, THOUSAND TONS

2005 2006 2007

Total emissions to the air 159.1 159.4 161.8 incl. CO 79.5 68.1 73.0 NOX 12.8 10.9 10.7 SO2 12.8 12.8 12.5 particulate matter 2.8 4.1 3.6 volatile organic compounds (total) 32.5 42.6 54.3


FIGURE 5.1.DISTRIBUTION OF AIR EMISSIONS BY REGIONLEGEND: •- MORE THAN 50%, •- 25-30%, •- 5-10%


pair work at gas pipelines, changed date of putting the pipeline between the Sugmutskoye oil field and Muravlenko Gas Processing Plant into operation, and decrease in gas recovery rate at the No-vogodneye oil field.

Indeed, increasing the APG utilization rate is an important national objective, and in order to con-tribute to its accomplishment, in February 2008 the Company has adopted a medium-term invest-ment program for the period 2008-2010, aimed at increased recovery and more efficient utilization of associated gas.

The overall budget of the program is RUB 17.6 billion, including RUB 12 billion for the construc-tion of gas-collecting systems and gas-processing facilities, about RUB 5 billion for development of Company’s own generation capacities, and about RUB 600 million for auditing existing APG re-sources, utilization of low-pressure gas, and organizing an associated gas accounting system. The investment program will make it possible to recover 95% of associated gas, contributing to secure energy supply of oil production facilities, and increased sales of associated gas and its derivatives. All oil fields operated by Gazprom Neft are being or will be equipped with new gas collection and transportation systems. By 2010 the Company plans to put into operation 2 gas turbine and 4 gas engine power plants. The implementation of the program will make it possible to utilize an addition-al 10.5 billion m3 of associated gas during the period to 2014.

The adopted program will continue the Company’s previous and ongoing activities aimed at APG utili-zation, which have already brought certain results. In particular, the associated gas utilization rate pre-scribed by license agreements for oil field development is already achieved at the Kholmogorsk field cluster. Recently the construction of gas pipelines from Novogodneye, Yarainerskoye, Sugmutskoye,

TABLE 5.4. PRODUCTION AND RECOVERY OF ASSOCIATED PETROLEUM GAS

2005 2006 2007 Production, million m3 5609 4532 4886 Recovery (utilization), million m3 1974 2041 1746 Utilization rate, % 35.2% 45.0% 35.7%


Nikolay YELISEYEV

Head of Gas and Gas Processing Department

We plan to recover 95%of associated petroleum gas starting from 2011. For thispurpose the Company has developed a medium-term investment program witha budget exceedingRUB 17 billion.

The government established an objective for

oil companies concerning recovery of associated gas. To what extent is Gazprom

Neft ready to meet this objective?

and Romanovskoye fields operated by JSC Gazpomneft-Noyabrskneftegaz has been completed. Al-most 93% of associated gas produced at Sutorminskoye, Muravlenkovskoye and Krayneye oil fieldsis processed at the Muravlenko Gas Processing Plant operated by SIBUR Group.

Increased APG recovery will help reduce emissions of pollutants and greenhouse gases, and will also help the Company make an additional contribution into meeting the demand of the national economy for natural gas.

Realizing the importance of climate change issues, the Company plans to continue its energetic efforts in the field primarily by undertaking a company-wide inventory of greenhouse gas emis-sions and by developing a detailed action plan to identify and take opportunities for reducing these emissions.

PRODUCTION OF ENVIRONMENTALLY FRIENDLY FUEL

The refining sector of the Company systematically works on the improvement of environmental qualities of the fuel produced. The Omsk Refinery has prepared a development program aimed at complete transition to producing environmentally friendly types of fuel by 2012. In 2007, the refinery undertook a scheduled major repair of a diesel fuel hydrotreater. As a result, the unit now is able to produce Euro 3 compliant fuel. A serious modernization of the unit, aimed at making it capable of producing Euro 4 and Euro 5 compliant diesel fuel, is planned for 2009. According to the refinery’s plans, about 9 % of motor gasoline produced in 2008 will comply with the Euro 3 standard. Con-sumption of cleaner fuels produced by the Omsk Refinery will reduce emissions of sulphur dioxide by vehicles by approximately 22 tons.


CONSUMPTION OF WATER RESOURCESThe Company makes efforts to ensure the most efficient water use at their enterprises, practicing re-injection of produced water to maintain reservoir pressure in oil production operations, and or-ganizing closed-circuit recycling of cooling water at their refineries.

The Company’s water consumption for its own needs fell by 21.9% in 2007 compared to 2006 as a re-sult of broader use of produced water and gradual increase of water cutting at long-used oil fields developed by JSC Gazpromneft-Noyabrskneftegaz. This also made it possible to reduce consump-tion of surface water for maintaining reservoir pressure and contributed to the increase of water recycling rate in the oil and gas extraction sector. The water recycling rate in the refining sector re-mained very high — more than 97.5%. The overall volume of polluted discharges by the Company in 2005–2007 was about 0.1 million m3. The data on water consumption by the Company are shown in Table 5.5.

MONITORING OF WATER POLLUTIONWater samples are taken at the oil production enterprises twice a year: during spring flood and in the autumn. The sampling points approved by environmental authorities are usually located upstream and downstream from the places where pipelines cross natural watercourses – rivers and streams. The tests involve identifica-tion of not only the content of petroleum products, but also other physical and chemical parameters, includ-ing the content of manganese and iron, nitrates and nitrites, ammonium and other substances. Since due to natural reasons the background content of many chemicals in northern rivers exceeds the limits established for fishery water bodies, it is important to single out the impact of production operations, if it is present at all.

In the reporting period most water was consumed by the Company’s enterprises in Yamalo-Nenets Autonomous Area and Omsk Region; about 10% in Khanty-Mansi Autonomous Area. The distribu-tion of water consumption by region is presented in Figure 5.2.

TABLE 5.5. WATER CONSUMPTION

2005 2006 2007

Total water consumption, million m3 72.8 79.8 73.8 Incl. from underground sources 23.4 29.2 31.4 from surface sources 48.1 49.0 41.1 received from other organizations 1.3 1.4 1.2 Transferred to other organizations (without use) 21.4 22.4 29.1 Water recycling rate (for key enterprises of the Company in all sectors) 84.1% 82.9% 90.0% Water recycling rate (oil and gas production) 17.4% 18.4% 77.4% Water recycling rate (oil refining) 97.7% 97.5% 97.6% Wastewater disposal, million m3 8.55 8.00 9.11 incl. transferred to other organizations (after use) 8.24 7.62 8.42


FIGURE 5.2. DISTRIBUTION OF WATER CONSUMPTION BY REGIONLEGEND: •- 35-50%, •- 10-15%, •- 1-5%


WASTE MANAGEMENTThe Company strives to reduce the amount of waste generated and improve waste management practices. Most of the waste generated (more than half in terms of mass) is represented by drilling waste of 4th hazard grade (low hazard). The overall share of 4th and 5th hazard grade waste (low hazard and virtually no hazard respectively) in the amount of waste generated is more than 90%. Drilling waste is generated by oil production and oilfield service enterprises (collectively these ac-count for more than 90% of waste generated).

Therefore the observed growth of waste generation (see Table 5.6) is a result of developing new oil fields, intensifying drilling works, and constructing new oil production and transportation facilities. Currently most drilling waste is disposed of at special storage sites. At the same time the Company studies the experience of the leading oil companies that practice re-injection of drilling waste.

Efforts to reduce waste generation and increase waste recovery are made by Company’s enter-prises in all its sectors of operation. For example, the Omsk Refinery processes 100% of produced waste oil and more than 85% of petroleum-contaminated waste. In the petroleum products supply sector, the Company introduces new effective technologies, such as mobile cleaning system used for cleaning internal surfaces of tanks from solid deposits. Tank walls are cleaned by a high pres-sure jet of a special chemical mix. Then the system separates gasoline suitable for further use from the resulting emulsion pumped out of the tank, thus providing for waste recovery.

TABLE 5.6. WASTE MANAGEMENT

2005 2006 2007

Waste generation, thousand tons 269 352 393 Waste reuse and recycling (incl. waste transferred to other organizations for reuse and recycling), thousand tons 17 50 63 Waste decontamination and disposal (incl. waste transferred to other organization for decontamination and disposal), thousand tons 232 219 231 Waste stored at the end of the year, thousand tons 185 275 379


PREVENTING LAND CONTAMINATION AND RECLAMATION OF CONTAMINATED LANDSThe Company works on cleanup of contaminated lands and elimination of unorganized consump-tion waste disposal sites. According to the data available, oil spills in 2005–2007 were of local scale in terms of existing classification, although the number of pipeline breaches increased. The data on oil spills are presented in Table 5.7. Gazprom Neft plans to develop internal processes for record-ing, reporting, analysis and removal of causes of incidents involving contamination of land and wa-ter bodies. Currently the Company develops an Accident Reporting and Investigation Standard in or-der to elaborate a unified and effective approach toward this issue.

In order to prevent oil spills and land contamination, the Company carries out inspections and tech-nical monitoring of its pipelines, uses corrosion inhibitors to protect them, and replaces old corrod-ed pipes. More reliable steel pipes with internal polymer coating and GRP (glass-reinforced plastic) pipes are used for construction of new pipelines. A phased program to reduce pipeline breaches has been designed and is currently implemented. At the first stage priority measures included inhibitor protection and other approaches toward preventing breaches caused by corrosion. In 2007, 210 km of pipelines were replaced. At the subsequent stages of the program implementation, from 2008 to 2011, the main efforts will be aimed at the replacement of worn-out pipelines.

The area of disturbed land and the number of mud pits in the oil extraction sector reduced in 2005 as a result of intense reclamation efforts, and then grew again in 2007 due to expanded drilling op-

TABLE 5.7. OIL SPILLS

2005 2006 2007

Oil spilled (tons) 4,1 5,3 5,6 Oil collected (tons) 2.9 4.1 4.8 Total number of pipeline breaches 1424 1823 1861


erations. In 2007, the need for new mud pits to contain drilling waste exceeded pit reclamation rate by 1.3-1.6 times. The data on land use and reclamation are presented in Table 5.8. In 2007, the recla-mation rate of disturbed (affected by the Company’s operations) land somewhat slowed down com-pared to the previous year. This was the result of the fact that in the last three years competent state authorities almost stopped the acceptance of land reclamation results, which made it impossible to include such lands reclaimed by the Company in official reporting. At the same time the Compa-ny continued intense efforts on reclaiming oil-contaminated lands and managed to reduce the area of such land by more than three times in three years. In 2008, the Company plans to reclaim anoth-er 87 ha of contaminated land and increase the rate of mud pit reclamation. In order to reduce land disturbance, the Company plans to introduce pitless drilling at a number of its oil fields.

In its land reclamation projects, the Company uses modern chemical bioagents (of Fare Zyme type) for oil decomposition. Instead of new microbial cultures to be introduced, these agents contain mostly mineral components that support natural microbial flora thus facilitating land restoration. Massive planting of grass and perennial plants adapted to local conditions is also practiced as a bi-ological reclamation method.

TABLE 5.8. LAND USE AND RECLAMATION

2005 2006 2007

Disturbed land, ha by the beginning of the year 11 714 10 400 10 470 by the end of the year 10 400 10 471 11 478 disturbed during the year 349 663 1176 reclaimed during the year 1895 640 214 Oil-contaminated land, ha by the beginning of the year 783 623 354 by the end of the year 623 354 189 reclaimed during the year 160 269 165 Number of mud pits by the beginning of the year 280 249 263 by the end of the year 232 263 288 built during the year 16 14 35 reclaimed during the year 64 25 10


The Company’s system of spill response has the necessary equipment and technical means. Re-moval of causes leading to land contamination and reclamation of previously contaminated areas are common priorities for traditional oil and gas producing regions that suffered from environmen-tally unfriendly production practices in the second half of the 20th century.

BIODIVERSITY PROTECTION

The Company neither carries out nor plans oil production activities in environmental protected areas or in the areas adjacent to them. When developing oil fields in Khanty-Mansi and Yamalo-Nenets Au-tonomous Areas, the Company takes organizational measures to prevent operations in protected en-vironmental areas, including in particular game reserves, and adverse impacts on biodiversity and sensitive tundra ecosystems. The schedules of Company activities take into account vegetation peri-ods, fish spawning periods, and seasonal migrations of birds and other animals in accordance with recommendations of respective environmental impact assessment. All rare or endangered species listed in the Red Book list of endangered species and the ecosystems which are potentially most sen-sitive to adverse factors associated with oil and gas production are identified and recorded.


ORGANIZATIONAL ARRANGEMENTS IN THE FIELD OF OCCUPATIONAL HEALTH AND SAFETY

The Company’s Health, Safety and Environmental Policy, adopted in March 2008, gives great atten-tion to issues of occupational health and safety, including reduction of the injury rate. Issues of em-ployees’ health and safety are reflected in collective agreements and official agreements with labor unions; they are continuously monitored by joint committees comprising workers and managers of large enterprises.

The Office of Health, Safety, and Environment defines a consistent approach of the Company toward the issues of occupational health and safety, in particular, working on unifications of corporate standards in the field. The Working Group on Personal Protective Equipment (PPE), created in order to develop a cor-porate PPE standard, is an example of such activities. The standard will define allowance of work cloth-ing and PPE, specifications for work clothing, and a registry of the best PPE types allowed to be acquired for the Company employees. Gazprom Neft decided to provide two sets of work clothing for each em-ployee and allocated RUB 82 million for this project. The standard being developed will provide clear guidelines on selection of relevant PPE for employees based on their occupational risks, and on the re-

HEALTHAND SAFETY AT WORKGAZPROM NEFT TAKES MEASURES TO REDUCE INJURIES AND OCCUPATIONAL ILLNESSES BY IMPROVING TRAINING AND CONTROL IN HEALTH AND SAFETY, BY INCREASING WORKPLACE SAFETY AND COMFORT OF THE PERSONAL PROTECTIVE EQUIPMENT.


quired PPE quality. In 2007, Company’s occupational health and safety expenses per employee were about RUB 6500, or 13% more than in 2006.

REDUCING THE INJURY RATE

The key priority of the HSE Office is reducing the rate of injuries involving Company employ-ees. In 2007, the overall number of recorded injuries decreased more than by 1.5 times. Given increase in the number of employees, the injury rate and the rate of days lost as a result of in-juries and occupational diseases decreased even more (see Table 5.9).In 2006 and 2007, some cases of occupational diseases contracted earlier were identified as a result of an improved lev-el of health services. In order to prevent injuries and occupational diseases the Company car-ries out an assessment of workplaces (so far 77% of workplaces have been certified as compli-ant with the relevant requirements) and works on elimination of workplace hazards including, for example, increased noise level.

Grigory Konvissar

Head of the Office for Health, Safety, Environment, and Emer-gency Preparedness of the Oiland Gas Production Department

Protecting employee life and health is the ultimate priority of all Company’s operations. This objective is accomplished through introducing safe technologies and working conditions conforming to the best international standards, providing employees with convenient and state-of-the-art personal protective equipment, training them using modern means and facilities, as well as fostering personal responsibility, awareness and creative attitude toward work among the staff.

What is the place of of occupational health

and safety among your Office’s priorities?


TABLE 5.9. OCCUPATIONAL HEALTH AND SAFETY INDICATORS

SAFETY HOTLINE AT THE OMSK REFINERY A Safety Hotline Service was created at the enterprise in June 2006 and proved its effectiveness. It was cre-ated to help employees realize their responsibility for safety of their own and their peers at the enterprise. Calls from employees of the refinery, its subsidiaries and contractors helped prevent collapse of a crane and an illumination pole, eliminate in time gas leakage from a pipeline, and remove numerous other hazards that could potentially lead to workplace injuries. Most calls addressed occupational hazards and inadequate state of industrial and occupational safety at refinery’s facilities and communications, including leaks in pipelines and sealed equipment, and non-compliance with industrial and occupation safety requirements in the perfor-mance of work.

The main causes of grave injuries that occurred in 2007 included neglect of labor and workplace discipline (violation of respective safety guidelines in the performance of work) and violations of es-tablished production processes. Therefore there are obvious opportunities for reducing the inju-ry rate, which include increasing professional qualifications of employees, providing orientation in specific safety requirements in the performance of work, strengthening line managers’ supervision over and responsibility for employees’ compliance with established work procedures and safety re-quirements. Joint management/employee committees created at large enterprises participate in investigating and analyzing causes of grave injuries, and in designing measures aimed to prevent similar incidents in the future.

2005 2006 2007

Number of injuries at work 76 74 48 incl. fatalities 4 5 5 Workplace injury rate* 0.18 0.16 0.10 Occupational disease rate** n/a 0.006 0.013 Lost days rate*** 8.58 9.55 4.64

*Ratio of the total number of injuries involving Company employees to the total time in hours worked by the total workforce in the reporting period multiplied by 200000.**Ratio of the total number of occupational diseases of Company employees (including cases identified earlier) to the total time in hours worked by the total workforce in the reportingperiod multiplied by 200000.***Ratio of the total number of work days lost by Company employees as a result of injuries and occupational diseases to the total time in hours worked by the total workforcein the reporting period multiplied by 200000.



COLLABORATION IN THE FIELD OF INDUSTRIAL SAFETY

The Company’s Office of Health, Safety and Environment, the Section of Special Programs, and specialists of production departments and subsidiary companies all collaborate in the field of industrial safety. The Section of Special Programs created in 2007 addresses the issues of emergency preparedness and response at production facilities of the Company. Joint efforts of these divisions and specialists are aimed at strengthening of the corporate incident, accident, and emergency preparedness and response system.

The Company has formed special emergency units, which are provided with necessary train-ing and special equipment. The Company collaborates with regional divisions of the Ministry of Emergency in order to coordinate potential emergency response action, continues the develop-ment of plans for elimination of accidental oil spills, obtains necessary consent for these plans and approves them. The Company’s emergency response groups have been fully formed and are ready for possible accident and emergency response actions in coordination with the com-petent state authorities.

EMERGENCYPREPAREDNESS AND RESPONSE

GAZPROM NEFT ENDEAVORS TO ACHIEVE A HIGH LEVEL OF SAFETY OF INDUSTRIAL OBJECTS AND PREPAREDNESS TO LOCALIZE AND MITIGATE CONSEQUENCES OF POSSIBLE EMERGENCIES.


ACCIDENT ANALYSIS AND PREVENTION

In 2005–2006 there were two accidents in the Company, one in each year. In 2005, breach of safe-ty rules during cementing a well led to uncontrolled gas outburst and fire outbreak, which finally resulted in rig collapse. In 2006, a fire broke out at the Omsk Refinery, at a gas fractionation unit being prepared for a scheduled repair. In order to prevent gas contamination of the area, the pe-troleum products were allowed to burn out. The fire was localized in two hours and extinguished in three more hours. The planned repair was carried out according to the schedule. Three refin-ery employees were injured during the fire; one of them, operator of the unit, died from burns in a hospital. The Company paid compensation to the operator’s family.

In 2007 there were two accidents in the Company. In one case breach of safety rules during well commissioning resulted in a blowout with a subsequent fire outbreak; no fatalities occurred. The second case involved breaking of a logging cable with a logging device during exploratory drilling. In order to prevent accidents, in late 2006 the Company carried out an initial gap analysis and iden-tification of industrial risks in the refining sector; a system of measures to minimize these risks


has been identified and implemented since 2007. In oil and gas production, refining, and petroleum product supply sectors the Company carries out monitoring of pipelines and other industrial equip-ment, on a timely basis conducts preventive repair or replacement of equipment, takes measure to increase reliability of equipment and ensure compliance with the safety requirements. In addition, attention is given to oversight of employees’ compliance with HSE rules and emergency prepared-ness training. The Company also develops a system for recording and analysis of information on ac-cidents occurring at its enterprises.

In the near future Gazprom Neft plans to intensify the relations with its contractors regarding their HSE performance and strengthen oversight of their compliance with the respective rules. The Com-pany will encourage compliance with HSE standards and rules, while holding its contractors – or-ganizations, managers and individual workers – liable for breaches and non-compliance. The safety record of contractors will be taken into account in tendering; preference will be given to those with better safety performance.



• Implement the Health, Safety and Environmental Policy and establish an integrated management system to accomplish it

• Improve associated petroleum gas recovery rate• Conduct an inventory of greenhouse gas emissions• Reduce employee injury rate and adverse environmental impacts• Raise HSE awareness and competence of the personnel• Provide state-of-the-art personal protected equipment to employees• Increase the safety of road transportation


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Annex 1.

Application of sustainability reporting principles

The Company realizes that preparation of high-quality sustainability reports being of in-terest and use to the stakeholders requires adherence to certain rules of disclosure. Following this approach, Gazprom Neft fully subscribes to the principles for defining re-port content and ensuring report quality set forth in the G3 Guidelines.

The Company’s understanding of these principles and approach to their application in preparing the Sustainability Report for 2007 are summarized in the table below.

1.

INTERPRETATION OF THE REPORTING PRINCIPLES SET FORTH IN THE G3 GUIDELINES

APPLICATION OF THE PRINCIPLES IN PREPARING THE 2007 REPORT

Materiality. In defining topics to be covered by its sustainability reports, the Company is guided by the recommendations of AccountAbility and the requirements of АА1000 series of standards, using so-called “materiality filters”. The process of selecting topics for inclusion in the reports is based on an annual assessment of their materiality, which takes into account the Company’s policies and commitments, sectoral practice of sustainability reporting in Russia and abroad, and issues raised by the stakeholders and the mass media.

In preparing this Report, Gazprom Neft used the following “materiality filters”: Policies and programs approved or being developed by the Company and addressing various social, economic, or environmental aspects of its activities. Topics covered by similar reports for 2006–2007, prepared by other Russian and international oil and gas companies. The Company’s commitments described in the “Social Horizons” publication, an overview of Company’s social programs. Issues that were covered by the media or raised concern among some stakeholders in the course of the Company’s stakeholder engagement activities in 2007.The Company included in the Report comments of key business function managers on some of these material topics

Stakeholder inclusiveness. The Company maintains a process for identification of stakeholders, engages with them, and describes the results of this engagement in its reports. The materiality assessment process includes analysis of issues that attract stakeholders’ attention.

The structure of Gazprom Neft’s stakeholders, procedure used to identify them, and approaches toward identification and analysis of material topics are described in detail in Chapter 1 “Governing Responsible Development”. The Company welcomes feedback on the content and quality of this Report and will take it into account in preparing subsequent ones. The contact information and feedback methods are provided at the end of the Report.

Sustainability context. The company discloses available information on significant economic, environmental, and social issues discussed by the public. The Company also seeksto present its activities in a broader regional, national,or sectoral context.

In preparation of this Report, Gazprom Neft presented data or described its activities in a regional or national context, when such information was available.

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Completeness. The Company defines the scope of its reports based on the results of materiality assessment process, thus allowing its stakeholders to form their opinions on how the Company addresses issues in the areas of interest to them.As the Company improves its information management systems, it gradually expands the reporting boundary.The Company’s reports contain descriptions of theirboundaries and timeframes.

The Report scope is determined by the material topics identified as a result of an assessment encompassing all aspects of sustainability. The Company’s organizational units were selected for inclusion in the Report Boundary based on the magnitude of their impacts with regard to the material topics identified.The Report presents information and data for Calendar Year 2007 (when appropriate and available, data for 2005 and 2006 are included for comparison). Qualitative and quantitative information on financial and economic indicators is presented for the enterprises covered by US GAAP consolidated financial statements (see the Company’s Annual Report), since the financial reporting boundary includes enterprises the most significant in economic terms. All other qualitative and quantitative information, unless otherwise specified and except for the information in Chapter 5, applies to JSC Gazprom Neft and all its subsidiary companies. The informationin Chapter 5, and on certain indicators in Chapter 3 (where specified), is presented for JSC Gazprom Neft and the following subsidiary companies, selected on the basis of their scale (including the number of personnel)and significance of their OHS and environmental impacts: Gazpromneft-Nefteservice LLC JSC Gazpromneft–NoyabrskneftegazgeophisikaKapitalniy Remont Skvazhin – Service LLCMuravlenkovskaya Transportnaya Kompaniya LLCNoyabrskaya Tsentralnaya Trubnaya Baza LLCNoyabrskneftespetsstroy LLCServisnaya Burovaya Kompaniya LLCServisnaya Transportnaya Kompaniya LLCYamalservicetsentr LLCSpetstransservice LLCJSC Gazpromneft-Noyabrskneftegaz and its subsidiaries Gazpromneft-Khantos LLC Gazpromneft-Vostok LLC JSC Gazpromneft-ONPZ and its subsidiariesJSC Gazpromneft-Tyumen and its subsidiaries JSC Gazpromneft-Omsk and its subsidiaries Sibneft-Krasnoyarsknefteproduct LLC CJSC Gazpromneft-Severo-Zapad CJSC Gazpromneft-Kuzbass Gazpromneft-Noyabrsk LLC JSC Sverdlovsknefteproduct Gazprom Neft Asia LLC and its subsidiaries JSC Novosibirsknefteproduct VNK Gazpromneft-AZS-Service LLC.The Company decided not to include in its Sustainability Report for 2007 the data and information on its dependent companies, including in particular JSC NGC Slavneft and its subsidiaries, JSC Moskovskiy NPZ and its subsidiaries, JSC Yekaterinburgnefteproduct, and JSC Mosnefteproduct. The decision on incorporating data and information regarding the dependent companies in subsequent reports can be made in the future,as the corporate systems for collection and analysis of sustainability information mature.

Balance. The Company considers it necessary to disclose both favorable and unfavorable information, describing both achievements and difficulties in its development and stakeholder relations. This balanced approach allows stakeholders to see the complete picture of the Company’s performance.

Gazprom Neft strives to provide information on all material topics identified, covering both achievements and problematic areas. Each chapter of the Report contains the Company’s future objectives regarding most of the material topics.

Comparability. The Company tries to calculate and present all qualitative indicators in a consistent manner, and seeks to ensure continuity of the data presented in order to enable Report users to track changes in the Company’s performance across all reporting periods and compare the indicators presented with similar indicators of other companies.

Gazprom Neft decided to rely on the G3 Guidelines, IPIECA/API Guidance, and Basic Indicators of the Russian Union of Industrialists and Entrepreneurs. A content index helping Report users locate various indicators proposed by these guidelines is provided in Annex 2. It is intended mainly for ensuring comparability of the Report with reports of other organizations. The Company declares “A” GRI Application Level*. When necessary information is available, the Report presents performance data for the last three years.

*Regardless that this level assumes publicising maximal number of standard disclosures, the Level A provides reporting organization with an opportunity to explain reasons for omission or partial provision of indicators.

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1.

2002 in accordance C+ C+ B B+ A A+

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Accuracy. The Company strives to ensure adequate representation of its performance in published qualitative and quantitative sustainability information, and intends to continuously improve the system used for collection and analysis of this information.

In preparing this Sustainability Report, Gazprom Neft used measurement and calculation methods recommended by the G3 Indicator Protocols. A part of the consolidated information presented in this Report is based on expert assessments, while some other indicators were produced using integrated calculations and data from various sources at the level of the Head Office, subsidiary companies, and their production units. The Company recognizes and accepts the fact that presentation of most social and environmental indicators inevitably depends upon the human factor, especially given that the corporate system for sustainability information management is still emerging.

Timeliness. The Company plans to release the sustainability reports annually, aligning their content and schedule with the ones of its Annual Reports.

The process of Report preparation was scheduled to align its release with presentation of the US GAAP Consolidated Financial Statements and the Annual Report of Gazprom Neft.

Clarity. Being convinced that sustainability reports should be interesting and comprehensible to representatives of all the stakeholder groups, the Company works to present information in simple language and explains in its reports the terms and abbreviations used.

In the process of the Report preparation, Gazprom Neft used the services of a professional editor to ensure clarity and consistency of the text. The Report is appended with Annex 3, where the reader can find definitions of terms and expansions of abbreviations used.

Reliability. The Company is convinced that all information presented in the reports should be based on data carefully collected and independently verified using internal and, if possible, external resources.

According to the reporting principles subscribed to by the Company, independent external assurance is an important instrument of ensuring information and data reliability. However, in preparing its first Sustainability Report, the Company decided to limit itself to internal assurance conducted by the employees involved in the Report’s preparation at the level of both the Head Office and subsidiary companies. The assurance methods used included self-checking, analysis and comparison of data from different sources, and cross-checking.

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1 2 3 4 5 6 7

STRATEGY AND ANALYSIS

1.1 Statement from the Chairman of the Board, Statement from the CEO

Statement from the Chairman of the Board, Statement from the CEO

2-5

1.2 Description of key impacts, risks, and opportunities:

Statement from the CEO, Chapter 1. Governing responsible development, Chapter 2. Economic development, Chapter 3. Employee development and support, Chapter 4. Contribution to regional development, Chapter 5. Environment and health protection – safe development

see

belo

w:

The information on key sustainability trends, risks, and opportunities, and their impact on the long-term prospects of the Company is not presented in separate sections.The Company plans to consolidate and publish this information in the long-term perspective, as its approach to the management of sustainability risks develops.

description of the significant impacts the organization has on sustainability and associated challenges and opportunities

Statement from the CEO, Chapter 1. Governing responsible development

4-5,8, 9

an explanation of the approachto prioritizing these challengesand opportunities

The Company did not prioritize sustainability challenges and opportunities yet. It plans to do so and publish the results in the mid-term perspective.

key conclusions about progress in addressing these topics and related performance in the reporting period

Statement from the CEO 4-5

Annex 2.

Performance indicators disclosed in the Report

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1 2 3 4 5 6 7

description of the main processes in place to address performance and/or relevant changes.


12-23

description of the most important risks and opportunities for the organization arising from sustainability trends

At present most enterprises includedin the reporting boundary identify and manage sustainability impacts, risks, and opportunities, relevant to their regions and the context of their operations themselves. The Company plansto consolidate and publish this informationin the long-term perspectives, as its approach to the management of sustainability risks develops.

prioritization of key sustainability topics as risks and opportunities according to their relevance for long-term organizational strategy

The Company did not prioritize key sustainability risks and opportunities yet. It plans to do so andto publish the results in the mid-term perspective.

table(s) summarizing performance against targets, and lessons-learned for the current reporting period

In the reporting period the Company started to set specific sustainability targets; therefore information on accomplishing them during the reporting period is unavailable. This information will be publishedin the short-term perspective.

table(s) summarizing targets for the next reporting period and mid-term objectives and goals related to key risks and opportunities

Chapter 1. Governing responsible development, Chapter 2. Economic development, Chapter 3. Employee development and support, Chapter 4. Contribution to regional development, Chapter 5. Environment and health protection – safe development

23, 39, 65, 85, 115

Provided at the end of each chapter.

concise description of governance mechanisms in place to specifically manage these risks and opportunities, and identification of other related risks and opportunities.

Annex 2. Performance indicators disclosedin the Report

120 The Company develops an integrated risk management system. Key sustainability-related impacts and opportunities of the Company are described in the Report. A generalized analysisof risks is presented in the 2007 Annual Report.At present most enterprises includedin the reporting boundary identify and manage sustainability impacts, risks, and opportunities, relevant to their regions and the context of their operations themselves.

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1 2 3 4 5 6 7

ORGANIZATIONAL PROFILE

2.1 Name of the organization. Chapter 2. Economic development

26

2.2 Primary brands, products, and/or services.


27

2.3 Operational structure of the organization, including main divisions, operating companies, subsidiaries, and joint ventures.


30-31

2.4 Location of organization’s headquarters.


26

2.5 Number of countries where the organization operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report.

Brief introduction to the Сompany and this report, Chapter 2. Economic development

Cover,28-29

2.6 Nature of ownership and legal form.


26

2.7 Markets served (including geographic breakdown, sectors served, and types of customers/beneficiaries).


28-29,33

2.8 Scale of the reporting organization, including:

Chapter 2. Economic development, Chapter 3. Employee development and support

see

belo

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number of employees (breakdown by country/region)


54

net sales, breakdown of sales/revenues by countries/regions that make up 5 percent or more of total revenues

Net sales of the Company are disclosed in the 2007 Annual Report; the Company considers breakdown of sales (revenues) by significant regions to be confidential.

total capitalization Chapter 2. Economic development

30

quantity of products or services provided


32

total assets Chapter 2. Economic development

30

beneficial ownership (including identity and percentage of ownership of largest shareholders)


27

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2.

1 2 3 4 5 6 7

costs by countries/regions that make up 5 percent or more of total revenues

Total costs of the Company are disclosed in the 2007 Annual Report; the Company considers breakdown of costs by significant regions to be confidential.

2.9 Significant changes during the reporting period regarding size, structure, or ownership.


26 Significant changes regarding Company's size during the reporting period did not affect the Report scope. They will be taken into account in the subsequent reports.

2.10 Awards received in the reporting period.


82-83 In 2007, the Company received awards acknowledging its achievements in foreign trade and ensuring transparency of procurement.

REPORT PARAMETERS

3.1 Reporting period. Annex 1. Application of the sustainability reporting principles

117

3.2 Date of most recent previous report (if any).

Annex 1. Application of the sustainability reporting principles

118

3.3 Reporting cycle. Annex 1. Application of the sustainability reporting principles

117

3.4 Contact point for questions regarding the report or its contents.

Contact Information and Feedback

143

3.5 Process for defining report content.

Chapter 1. Governing responsible development, Annex 1. Application of the sustainability reporting principles

18-20,116

3.6 Boundary of the report. Annex 1. Application of the sustainability reporting principles

117

3.7 Limitations on the scope or boundary of the report.


117 The Report scope covers the complete range of significant economic, environmental, and social impacts of the Company.

3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations.


117

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1 2 3 4 5 6 7

3.9 Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the Indicators and other information in the report.


118

3.10 Explanation of the effect of any re-statements of information provided in earlier reports, and the reasons for such re-statement.

Chapter 5. Environment and health protection – safe development, Annex 2. Performance indicators disclosed in the Report

94,123

Technically, this is the first sustainability report of the Company. Nevertheless, the Company considers it important to improve the accuracy of information and data provided in the documents already published. When necessary, the information published earlier is re-stated in this Report; such re-statements are explicitly specified.

3.11 Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report.


117 This is the first sustainability report by the Company with clearly defined scope and boundary.

3.12 Table identifying the location of the Standard Disclosures in the report.

Annex 2. Performance indicators disclosed in the Report

119-139

3.13 Policy and current practice with regard to seeking external assurance for the report.


118 The Company decided not to seek external assurance of this Report; at the same time it used internal assurance mechanisms.

GOVERNANCE, COMMITMENTS, AND ENGAGEMENT

4.1 Governance structure of the organization, including committees under the highest governance body responsible for specific tasks, such as setting strategy or organizational oversight.


15

4.2 Indication whether the Chair of the highest governance body is also an executive officer.


12

4.3 For organizations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members.


12

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1 2 3 4 5 6 7

4.4 Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body.


13 Mechanisms for incorporating shareholders' opinion are described. In the long-term perspective, the Company will publish information on mechanisms for non-shareholder employees to provide recommendations or direction to the Board of Directors, as such mechanisms develop.

4.5 Linkage between compensation for members of the highest governance body, senior managers, and executives (including departure arrangements), and the organization’s performance (including social and environmental performance).

Chapter 1. Governing responsible development, Employee Development and Support, Chapter 3. Employee development and support

13, 48

4.6 Processes in place for the highest governance body to ensure conflicts of interest are avoided.


12

4.7 Processes for determining the qualifications and expertise of the members of the highest governance body for guiding the organization’s strategy on economic, environmental, and social (sustainability) topics.


14

4.8 Internally developed statements of mission or values, codes of conduct, and principles relevant to economic, environmental, and social performance and the status of their implementation.

Chapter 1. Governing responsible development, Chapter 4. Contribution to regional development, Chapter 5. Environment and health protection – safe development

8, 76,88

By now the Company has adopted its Charity Policy and the EHS Policy. The Company set an objective to prepare and approve key responsible development codes and policies at all its enterprises. These documents will be based upon the internationally recognized standards. At present the policies already adopted are being implemented, and information on the extent of their implementation is not yet available. This information will be disclosed in the mid-term perspective, as respective mission statements, codes, and policies are adopted and implemented.

4.9 Procedures of the highest governance body for overseeing the organization’s identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles.


12-13

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1 2 3 4 5 6 7

4.10 Processes for evaluating the highest governance body’s own performance, particularly with respect to economic, environmental, and social performance.


13 The performance evaluation process is based on recommendations of the Personnel and Remuneration Committee, according to item 3.5 of its Charter (see http://www.gazprom-neft.com/investor/corp-governance/Regulation%20on%20the%20Human%20Resources%20and%20Remunerations%20Committee-eng.pdf). Currently the evaluation is based on economic performance of the organization. The information on the processes for performance evaluation will be amended in the long-term perspective, as the respective criteria of environmental and social performance are defined.

4.11 Explanation of whether and how the precautionary approach or principle is addressed by the organization.


92

4.12 Externally developed economic, environmental, and social charters, principles, or other initiatives to which the organization subscribes or endorses.


125 At present the Company has not been subscribed to any of such initiatives.

4.13 Memberships in associations (such as industry associations) and/or national/international advocacy organizations.


125 The Company does not consider its membership in associations as a material factor of its economic, social, and environmental performance.

4.14 List of stakeholder groups engaged by the organization.

Chapter 1. Governing responsible development, Chapter 4. Contribution to regional development

10-11,68

4.15 Basis for identification and selection of stakeholders with whom to engage.


10

4.16 Approaches to stakeholder engagement, including frequency of engagement by type and by stakeholder group.

Chapter 1. Governing responsible development, Chapter 3. Employee development and support, Chapter 4. Contribution to regional development

11,16-20,44, 49,55-57,59-61,

68,70-71,81-82,

106

Approaches to stakeholder engagement used in the reporting period are described in a generalized form; examples of specific engagement methods used are also provided. The Company conducts most of its stakeholder engagement activities at the regional level using context-specific means and methods. Such information has not been consolidated. More detailed information will be provided in the reports in the long-term perspective.

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1 2 3 4 5 6 7

4.17 Key topics and concerns that have been raised through stakeholder engagement, and how the organization has responded to those key topics and concerns, including through its reporting.


18 Key topics raised by stakeholders in the reporting period are listed in the Report; Company’s responses to them are described in the Report in a respective context

ECONOMIC PERFORMANCE INDICATORS

Management Approach 1.1. Key business principles


14-15

ASPECT: ECONOMIC PERFORMANCE

EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments.

ECO–1 Tax Expenses; ECO-A1 Transparency of Payments; ECO-2 Dividends Paid Plus Share Repurchases; ECO-A2 Payroll and Benefits; ECO-3 Capital Expenditures; ECO-A3 Interest Paid

1.2. Sales of products (services)1.3. Taxes and other mandatory payments1.4. Spending on employees1.5. Capital investments1.6. Community investments1.7. Payments to capital providers

Chapter 1. Governing responsible development, Chapter 4. Contribution to regional development

33

EC2 Financial implications and other risks and opportunities for the organization’s activities due to climate change

No such assessment was carried out. Currently the Company plans to assess implications, risks, and opportunities related to climate change; the information on the results will be published in the long-term perspective.

EC3 Coverage of the organization’s defined benefit plan obligations.

1.8. Voluntary pension schemes


In the reporting period the Company did not have obligations under defined retirement plans; information on the future plans regarding additional (occupational) pension schemes is provided. The Company plans to disclose such information in the mid-term perspective, as these schemes are implemented.

EC4 Significant financial assistance received from government.

The Company considers this information confidential.

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1 2 3 4 5 6 7

ASPECT: MARKET PRESENCE

EC5 Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation.


48-49 The data in comparison with average wages in the regions are provided, which is more material than the GRI requirement. The Company plans to provide the data on wages in other contexts in the long-term perspective.

EC6 Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation.


83 General information on the Company's approach, not including data on specific regions and proportion of local procurement, is provided. The Company plans to provide more information on this indicator in the long-term perspective.

EC7 Procedures for local hiring and proportion of senior management hired from the local community at locations of significant operation.

SOC-A3 Local Employment Opportunities


127 The Company gives preference to local workforce in hiring. The information on proportion of senior managers of subsidiary companies hired from the local community has not been consolidated. The Company plans to publish more detailed information on hiring procedures and proportion of senior management hired from the local community in the long-term perspective.

ASPECT: INDIRECT ECONOMIC IMPACTS

EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement.


71-79

EC9 Understanding and describing significan indirect economic impacts, including the extent of impacts.


68 The Company works to better understand its indirect economic impacts, and the information on them provided in this report is not complete. The Company pans to develop its approach to assessment of indirect economic impacts and disclose the results in its reports in the mid-term perspective.

ENVIRONMENTAL PERFORMANCE INDICATORS

Management Approach ENV-6 Environmental Management Systems

1.1. Key business principles


88-90

ASPECT: MATERIALS

EN1 Materials used by weight or volume.


94

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EN2 Percentage of materials used that are recycled input materials.

ENV-A5 Recycled, Reused or Reclaimed Materials

2.1. Percentage of recycled or reused input

materials

Chapter 5. Environment and health protection – safe

development

102

ASPECT: ENERGY

EN3 Direct energy consumption by primary energy source.

ENV-5 Energy Use

2.2. Energy use Chapter 5. Environment and health protection – safe development

95 The data are provided without breakdown by primary source due to the difficulty of consolidating such information. It is planned to publish these data in the mid-term perspective.

EN4 Indirect energy consumption by primary energy source.


95 The data are provided without breakdown by primary source due to the difficulty of consolidating such information. It is planned to publish these data in the mid-term perspective.

EN5 Energy saved due to conservation and efficiency improvements.


95 The data on certain projects are provided. Consolidated data are currently unavailable, since most of such projects were not managed in a centralized way. It is planned to produce and publish such data in the long-term perspective.

EN6 Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiatives.

ENV-A8 New & Renewable Energy Resources

The Company does not implement initiatives to provide energy-efficient or renewable energy based products and services. The information on such initiatives will be published in the long-term perspective, as they are adopted by the Company.

EN7 Initiatives to reduce indirect energy consumption and reductions achieved.


95 The Company works on improving energy efficiency of its operations by producing electricity from associated petroleum gas. Quantitative data on the overall energy savings achieved in this way are unavailable due to the difficulty of consolidation and analysis of such information. They are planned to be disclosed in the long-term perspective.

ASPECT: WATER

EN8 Total water withdrawal by source.

ENV-A7 Freshwater Use

2.3. Freshwater consumption for organization’s own needs


100

EN9 Water sources significantly affected by withdrawal of water.


128 As the Company extracts water from surface water bodies within allowed limits, it is presumed that the impact on the latter is insubstantial; however, specific data on this are unavailable. The Company plans to publish such data in the long-term perspective.

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EN10 Percentage and total volume of water recycled and reused.

2.4. Percentage of water recycled and reused in total water consumption for organization's own needs


100

ASPECT: BIODIVERSITY

EN11 Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas.

ENV-A9 Biodiversity


105 The Company does not conduct operations in environmental protected areas. The information on the areas of high biodiversity value is not consolidated. The Report contains general information on the Company’s understanding of importance of biodiversity. More detailed information will be published in the long-term perspective.

EN12 Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas.


105 The Company does not conduct operations in environmental protected areas. The information on the areas of high biodiversity value is not consolidated. More detailed information will be published in the long-term perspective. The Report contains general information on the Company’s actions aimed at protecting biodiversity.

EN13 Habitats protected or restored.


104

EN14 Strategies, current actions, and future plans for managing impacts on biodiversity.

The Company does not have special strategies and company-wide plans for managing impacts on biodiversity. The Company plans to publish such information in the long-term perspective, as such strategies and/or plans are approved.

EN15 Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk.

The information is not consolidated. The Company plans to publish such information in the long-term perspective.

ASPECT: EMISSIONS, EFFLUENTS, AND WASTE

EN16 Total direct and indirect greenhouse gas emissions by weight.

ENV-3 Greenhouse Gas Emissions

2.5. Greenhouse gas emissions

The information is unavailable, no estimations were performed. The Company plans to disclose these data in the long-term perspective, as necessary estimations are performed.

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EN17 Other relevant indirect greenhouse gas emissions by weight.

2.5. Greenhouse gas emissions

The information is unavailable, no estimations were performed. The Company plans to disclose these data in the long-term perspective, as necessary estimations are performed.

EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved.


99 The Report describes initiatives on improving associated gas recovery rate, which directly lead to reduction of greenhouse emissions, however the amount of reduction has not been estimated. The Company plans to disclose these data in the long-term perspective, as necessary estimations are performed.

EN19 Emissions of ozone-depleting substances by weight.


96

EN20 NOx, SOx, and other significant air emissions by type and weight.

ENV-4 Flared and Vented Gas; ENV-A6 Other Operational Air Emissions

2.6. Air pollutant emissions


96

EN21 Total water discharge by quality and destination.

ENV-2 Controlled Discharges to Water; ENV-A2 Other Effluent Discharges

2.7. Total water discharge2.7.2. Discharge of polluted wastewater


100 The data on water discharge are provided without breakdown by destination and quality, since the overall impact of discharges is insignificant due to their insignificant volume. The Company does not plan to disclose these data considering them non-material, unless changes in volume or quality of discharges occur.

EN22 Total weight of waste by type and disposal method.

2.8. Amount of waste


102 The data on the waste disposal methods are consolidated according to the existing Russian legislation, i.e. in a different way that the one recommended by the respective G3 Protocol. The Company plans to provide the information in accordance with the Protocol in the mid-term perspective.

EN23 Total number and volume of significant spills.

ENV-1 Hydrocarbon Spills to the Environment; ENV-A1 Other Spills and Accidental Releases

2.9. Number of accidents that resulted in environmental damage 2.10. Monetary value of established environmental damages


103-104

The Report contains the data on the total volume of oil spills; the data published can be corrected later, as the reporting systems improves. The Company plans to publish data on all significant spills in the mid-term perspective, as unified accounting and reporting systems are implemented.

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EN24 Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally.

ENV-A3 Hazardous Waste; ENV-A4 Non-Hazardous Waste


131 Non-material. This indicator was excluded based on the results of the materiality assessment process. The Company is involved neither in transboundary waste transportation nor in significant transportation of hazardous waste at all.

EN25 Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the reporting organization’s discharges of water and runoff.

Consolidated information on this indicator is not available. The Company did not conduct an assessment of impact of discharges on biodiversity. It is planned to publish such information in the long-term perspective.

ASPECT: PRODUCTS AND SERVICES

EN26 Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation

H&S-5 Product-related Health Risks

2.11. Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation


99

EN27 Percentage of products sold and their packaging materials that are reclaimed by category.


131 The indicator does not apply to the main products of the Company – oil and petroleum products used as fuel and basic materials for chemical industry. The Company does not reclaim used motor oils produced by it and their packaging.

ASPECT: COMPLIANCE

EN28 Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with environmental laws and regulations.


92 No significant fines and non-monetary sanctions were imposed on the Company in the reporting period.

ASPECT: TRANSPORT

EN29 Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce.


103-104

Only information regarding land transportation of oil is provided.

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ASPECT: OVERALL

EN30 Total environmental protection expenditures and investments by type.

2.12. Investments in environmental protection facilities


93-94 The data are presented in accordance with the accounting approaches used in the Russian Federation. The data compliant with the recommendations of the GRI Protocol are unavailable; the Company plans to consolidate and disclose such data in the long-term perspective.

LABOR PRACTICES AND DECENT WORK PERFORMANCE INDICATORS



42-44

ASPECT: EMPLOYMENT

LA1 Total workforce by employment type, employment contract, and region.

3.1.1. Total workforce by territory


45, 47 Only the data on permanent employees are provided; consolidated data regarding other employee types are unavailable. The Company plans to consolidate and disclosure data on other employment types in the mid-term perspective.

LA2 Total number and rate of employee turnover by age group, gender, and region.

3.1.2. Employee turnover rate due to workforce mobility 3.1.3. Employee turnover rate due to all reasons


45-46 The data are provided without breakdown by age group and gender. The data with the respective breakdown are unavailable; the Company plans to collect and disclose such data in the mid-term perspective.

LA3 Benefits provided to full-time employees that are not provided to temporary or part-time employees, by major operations.


52-54

ASPECT: LABOR/MANAGEMENT RELATIONS

LA4 Percentage of employees covered by collective bargaining agreements.

3.1.4. Percentage of employees covered by collective agreements


55

LA5 Minimum notice period(s) regarding operational changes, including whether it is specified in collective agreements.


46

ASPECT: OCCUPATIONAL HEALTH AND SAFETY

LA6 Percentage of total workforce represented in formal joint management–worker health and safety committees that help monitor and advise on occupational health and safety programs.

H&S-1 Health & Safety Management Systems


106,110

The data on the percentage of workforce represented in joint OHS committees is not provided, since it is not available in consolidated form. The Company plans to disclose this information in the mid-term perspective.

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LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by region.

H&S-3 Workforce Health; H&S-4 Occupational Injury and Illness Rates

3.1.5. Occupational injury rate 3.1.6. Number of fatalities 3.1.7. Number of employees with occupational diseases identified3.1.8. Work time lost because of diseases of any origin


107-108

The data on the work time lost because of all illnesses is not provided, since it is not available in consolidated form. The Company plans to disclose this information in the mid-term perspective.

LA8 Education, training, counseling, prevention, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases.


133 Prevention and risk control regarding serious diseases is a part of prevention programs covered by voluntary medical insurance.

LA9 Health and safety topics covered in formal agreements with trade unions.

H&S-2 Employee Participation


106

ASPECT: TRAINING AND EDUCATION

LA10 Average hours of training per year per employee by employee category.

SOC-5 Training and Development

3.1.10. Hours of training per employee


62 The Company does not collect information in such form; the information on the proportion of employees trained is provided. The Company plans to disclose the information in the form compliant with the GRI Guidelines in the long-term perspective.

LA11 Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings.


62

LA12 Percentage of employees receiving regular performance and career development reviews.


48 The Company does not collect information in such form; general approaches toward the improvement of employee performance and career development are described. The Company plans to disclose the information in the form compliant with the GRI Guidelines in the mid-term perspective.

SOC-A2 Employee Satisfaction


49-50

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ASPECT: DIVERSITY AND EQUAL OPPORTUNITY

LA13 Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity.

3.1.12. Participation of women in organization's management


45 The information regarding the Head Office is provided; it is planned to consolidate information on significant diversity indicators for the whole Company and disclose it in the mid-term perspectives.

LA14 Ratio of basic salary of men to women by employee category.


134 Basic salaries of men and women are equal.

HUMAN RIGHTS PERFORMANCE INDICATORS

Management Approach Chapter 3. Employee development and support

42-44 Because of peculiarities of existing legislationand practice of Company's operations in the Russian Federation, only the indicators regarding employee rights are considered material.This approach can be re-considered in the future.

ASPECT: INVESTMENT AND PROCUREMENT PRACTICES

HR1 Percentage and total number of significant investment agreements that include human rights clauses or that have undergone human rights screening.


134 Non-material. This indicator was excluded based on the materiality assessment results. Because of peculiarities of existing legislation and the fact that the Company makes most of its investments in the Russian Federation, there was no need for a special human rights screening of investment agreements, and such screening was not conducted.

HR2 Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken.


134 Non-material. This indicator was excluded based on the materiality assessment results. Because of peculiarities of existing legislation and the nature of activities of significant suppliers and contractors, there was no need for a special screening of them on human rights, and such screening was not conducted.

HR3 Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained.


134 Non-material. This indicator was excluded based on the materiality assessment results. Because of peculiarities of existing legislation, the issue was not considered material, and the Company did not conduct trainings in human rights.

ASPECT: NON-DISCRIMINATION

HR4 Total number of incidents of discrimination and actions taken.

SOC-4 Non-Discrimination and Equal Opportunity

3.2.2. Incidents of discrimination


46

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ASPECT: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING

HR5 Operations identified in which the right to exercise freedom of association and collective bargaining may be at significant risk, and actions taken to support these rights.

SOC-7 Labor Practices


55 The Company is not involved in activities that result in restricting the right to exercise freedom of association and collective bargaining.

ASPECT: CHILD LABOR

HR6 Operations identified as having significant risk for incidents of child labor, and measures taken to contribute to the elimination of child labor.


135 The Company does not conduct operations involving significant risk for incidents of child labor.

SOC-6 Non-retaliation and Grievance System

3.2.1. Labor disputes


135 There were no labor disputes at the Company's enterprises in the reporting period.

ASPECT: FORCED AND COMPULSORY LABOR

HR7 Operations identified as having significant risk for incidents of forced or compulsory labor, and measures to contribute to the elimination of forced or compulsory labor.


135 The Company does not conduct operations involving significant risk for incidents of forced or compulsory labor.

ASPECT: SECURITY PRACTICES

HR8 Percentage of security personnel trained in the organization’s policies or procedures concerning aspects of human rights that are relevant to operations.

SOC-1 Human Rights; SOC-9 Security


135 Non-material. This indicator was excluded based on the materiality assessment results. Because of peculiarities of existing legislation, the issue was not considered material, and the Company did not conduct such trainings.

ASPECT: INDIGENOUS RIGHTS

HR9 Total number of incidents of violations involving rights of indigenous people and actions taken.

SOC-A6 Indigenous Communities

3.2.3. Incidents of violations involving rights of small and indigenous peoples


135 There were no incidents of violating the rights of small and indigenous peoples by Company's enterprises in the reporting period.

SOCIETY PERFORMANCE INDICATORS



70, 76 The Company continues to develop its approach to managing interactions with the society. Complete information on this item will be provided in the mid-term perspective, as this approach is improved

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ASPECT: COMMUNITY

SO1 Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting.

SOC-8 Community Relationships; SOC-A4 Social Investments; SOC–A5 External Capacity Building; SOC-A7 Resettlement and Land Rights

3.3.1. Collaboration with authorities in addressing objectives of social significance (socio-economic development of organization's areas of presence) 3.3.3. Assessment of impacts of organization's operations on socio-economic development of local communities


76-77 The Company develops systematic approaches to assessment of socio-economic impact on communities, and the Report provides examples of using these approaches. Complete information on this indicator will be provided in the long-term perspective, as these approaches are improved.

ASPECT: CORRUPTION

SO2 Percentage and total number of business units analyzed for risks related to corruption.

SOC-2 Bribery and Corruption


136 The Company works to fight corruption. Incidents of financial violations in all business units are monitored.

SO3 Percentage of employees trained in organization’s anti-corruption policies and procedures.

SOC-2 Bribery and Corruption


136 It is the Economic Security Department that is responsible for preventing economic violations. The Company considers information on the percentage of employees trained in this field confidential.

SO4 Actions taken in response to incidents of corruption.

Chapter 4. Contribution to regional development, Annex 2. Performance indicators disclosed in the Report

80, 82, 136

There were no significant incidents of corruption identified in the reporting period. The Company has a Tender Committee and other mechanisms of supplier relations in place.

ASPECT: PUBLIC POLICY

SO5 Public policy positions and participation in public policy development and lobbying.

SOC-3 Political Contributions; SOC-A1 Political Lobbying and Advocacy

3.3.4. Participation in external initiatives including public policy development


136 The Company did not take any special position regarding public policy development.

SO6 Total value of financial and in-kind contributions t o political parties, politicians, and related institutions by country.


136 There were no incidents of anticompetitive behavior by the Company in the reporting period.

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ASPECT: ANTI-COMPETITIVE BEHAVIOR

SO7 Total number of legal actions for anticompetitive behavior, anti-trust, and monopoly practices and their outcomes.


137 В отчетном периоде не было случаев нарушений в сфере противодействия конкуренции со сторо-ны Компании.

ASPECT: COMPLIANCE

SO8 Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with laws and regulations.


137 The Company strives to comply with all applicable legislation in its operations. No significant fines and non-monetary sanctions were imposed on the Company in the reporting period.

PRODUCT RESPONSIBILITY PERFORMANCE INDICATORS

Management Approach Chapter 5. Environment and health protection – safe development

99

ASPECT: CUSTOMER HEALTH AND SAFETY

PR1 Life cycle stages in which health and safety impacts of products and services are assessed for improvement, and percentage of significant products and services categories subject to such procedures.

H&S-5 Product-related Health Risks


99

PR2 Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes.


137 There were no incidents of Company's non-compliance with product safety requirements in the reporting period

ASPECT: PRODUCT AND SERVICE LABELING

PR3 Type of product and service information required by procedures, and percentage of significant products and services subject to such information requirements.

3.4.1. Information and labeling


137 The existing legislation requires to provide information on conformance of petroleum products to safety standards. This requirement applies to most products of the Company's refining operations and is fully complied with

PR4 Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes.


137 There were no incidents of Company's non-compliance with requirements concerning product information and labeling (accompanying documents) in the reporting period.

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PR5 Practices related to customer satisfaction, including results of surveys measuring customer satisfaction.


81 The Report contains a description of practices used and qualitative information on customer satisfaction; quantitative measurements of customer satisfaction are not consolidated. The Company plans to publish such information in the long-term perspective.

ASPECT: MARKETING COMMUNICATIONS

PR6 Programs for adherence to laws, standards, and voluntary codes related to marketing communications, including advertising, promotion, and sponsorship.


138 The Company strives to comply with legal requirements related to marketing communications and implements a company-wide policy in this field.

PR7 Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by type of outcomes.


138 There were no incidents of Company's non-compliance with requirements concerning marketing communications in the reporting period.

ASPECT: CUSTOMER PRIVACY

PR8 Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data.


138 There were no violations or substantiated complaints regarding breaches of customer privacy in the reporting period.

АСПЕКТ: СООТВЕТСТВИЕ ТРЕБОВАНИЯМ

PR9 Monetary value of significant fines for noncompliance with laws and regulations concerning the provision and use of products and services.


138 No significant fines concerning the provision and use of products and services were imposed on the Company in the reporting period.

2.

LEGEND AND NOTES

* The Company considers it necessary (in accordance with «A» G3 Application Level) to explain its decisions regarding presentation of data or information on the G3 indicators. In some cases a brief information on the indicators or a reference to additional sources that may be useful to the reader are also included.

- fully disclosed in the Report, - partially disclosed in the Report, not disclosed in the Report, - additional indicators

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Terms and Definitions

3.

TERM/ABBREVIATION DEFINITION/EXPANSION USEFUL LINKS

1 2 3

AA1000 (AccountAbility 1000) A series of standards developed by AccountAbility and addressing stakeholder engagement, sustainability reporting, and independent assurance of sustainability reports.

http://www.accountability21.net/default.aspx?id=228 http://www.urbaneconomics.ru/texts.php?folder_id=202&mat_id=104&page_id=8555

Accident Disruption of structures and/or technical equipment used at a hazardous industrial facility; uncontrolled explosion and/or release of hazardous substances.

AccountAbility The Institute of Social and Ethical AccountAbility, the developer of AA1000 series of standards, is an international non-profit organization established in the United Kingdom in 1995. Members of AccontAbitiliy include leading companies, as well as NGOs, research institutions, consultancies, and individuals from all over the world. AccountAbility's goal is to promote accountability of organizations for sustainable development.

http://www.accountability21.net/

Additives Substances, small amounts of which are added to fuels, motor and industrial oils in orderto improve their performance characteristics.

GRI Global Reporting Initiative, an independent non-profit organization with the mission of development and worldwide promotion of common sustainability reporting principles, relying mainly on the Sustainablity Reporting Guidelines. Created in 1998, the organization with headquarters in Amsterdam is governed by multiple stakeholders from all over the world.

http://www.globalreporting.org/

AA1000 (AccountAbility 1000) A series of standards developed by AccountAbility and addressing stakeholder engagement, sustainability reporting, and independent assurance of sustainability reports.

http://www.accountability21.net/default.aspx?id=228 http://www.urbaneconomics.ru/texts.php?folder_id=202&mat_id=104&page_id=8555

Accident Disruption of structures and/or technical equipment used at a hazardous industrial facility; uncontrolled explosion and/or release of hazardous substances.

AccountAbility The Institute of Social and Ethical AccountAbility, the developer of AA1000 series of standards, is an international non-profit organization established in the United Kingdom in 1995. Members of AccontAbitiliy include leading companies, as well as NGOs, research institutions, consultancies, and individuals from all over the world. AccountAbility's goal is to promote accountability of organizations for sustainable development.

http://www.accountability21.net/

Additives Substances, small amounts of which are added to fuels, motor and industrial oils in order to improve their performance characteristics.

API American Petroleum Institute, a US non-governmental organization conducting research of the oil and gas sector.

http://www.api.org/aboutapi/

Assets, enterprises In the context of this report, subsidiary companies of JSC Gazprom Neft

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Associated (petroleum) gas, APG Mixture of various gaseous hydrocarbons dissolved in oil and released in the process of oil extraction.

Basic indicators of RSPP Indicators proposed by the document Guidelines for Using Basic Indicators of Companies' Performance in Corporate Non-Financial Reporting (2007 version, draft), developed by the RSPP Department of Social Policy and Labor Relations for the purpose of reporting in accordance with the Social Charter of Russian Business.

http://www.rspp.ru/Default.aspx?CatalogId=283&d_no=1810

Charitable activities Voluntary activities aimed at non-profit (free of charge or at a reduced rate) transfer of property, including monetary resources, performance of work, provision of services and other support to individuals and organizations.

Company In this Report the Company means JSC Gazprom Neft with all its subsidiary companies.

Corporate communications Interactions, including information exchange, between the Company and its stakeholders.

Corporate responsibility A way of doing business wherein a company manages its economic, environmental, and social risks and opportunities on the basis of systematic stakeholder engagement.

Environmental expenses Operating and capital expenses on reduction (prevention) of environmental impacts, including cleaning of waste gases, wastewater treatment and waste management, and fees for environmental pollution within and beyond established limits.

FFMS of Russia Federal Financial Markets Service of the Russian Federation http://www.fcsm.ru/

G3 Guidelines The third version of the GRI Sustainability Reporting Guidelines. G3 Guidelines provide guidance on sustainability reporting (i.e. reporting that covers social, economic and environmental aspects of organization's performance).

http://www.globalreporting.org/ReportingFramework/G3Online/

G3 Indicator Protocols A part of GRI Reporting Framework, additional documents providing methodological guidance on calculation and interpretation of indicators proposed by the G3 Guidelines.


GRI Application Levels The levels reflecting the extent to which the G3 Guidelines and associated Protocols have been applied in preparing a report.


Head Office JSC Gazprom Neft, the managing company

HSE Health, safety and environment

IPIECA International Petroleum Industry Environmental Conservation Association, an organization providing platform for communication of oil and gas industry with international organizations, including the UN, on social and environmental issues.

http://www.ipieca.org/

IPIECA/API Guidance Oil and Gas Industry Guidance on Voluntary Sustainability Reporting developed by IPIECA/API, 2005 version.

http://www.oilandgasreporting.com/

ISO 14001 Environmental Management Systems – Requirements with Guidance for Use (2004 version), one of the most widely used environmental management standards developed by the International Organization for Standardization.

ISO 9001 Quality Management Systems – Requirements (2000 version), one of the most widely used standards in the field of products and services quality management, developed by the International Organization for Standardization.

JSC Joint Stock Company

KPI Key performance indicator

3.

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LLC Limited Liability Company

Material topics Aspects that reflect significant economic, environmental and social impacts of the Company and/or can significantly affect valuations and decisions of key stakeholders groups. Within the framework of Gazprom Neft's reporting process material topics are identified by the Working Group.

MBO Management by Objectives

MICEX Moscow Interbank Currency Exchange

NGK Oil and gas company

NGO Non-governmental organization

NOX Nitrogen oxides

OHS Occupational health and safety

OHSAS 18001 Occupational Health and Safety Management Systems – Requirements, a part of the Occupation Health and Safety Assessment Series (2007 version), one of the most widely used occupational health and safety management standards.

Oil recovery factor Ratio of produced amount of oil to overall (geological) reserves

Ozone-depleting substances Substances listed in the Montreal Protocol on Substances That Deplete the Ozone Layer to the Vienna Convention for the Protection of the Ozone Layer.

Personnel expenses All kinds of payments to the personnel, and all capital and operating expenses on social assistance to the personnel (except for expenses on personal protective equipment).

PPE Personal Protective Equipment

Primary energy consumption Consumption of fuel plus consumption of heat and electricity normalized to the amount of fuel necessary for their production. The evaluation method used in preparing this Report was based on the RSPP Basic Indicators methodology.

Produced water Water contained in oil-bearing formations being developed, a by-product of oil extraction.

Report Gazprpom Neft's Sustainability Report for 2007 (this Report), a public document disclosing information of the Company's sustainability performance for the reporting period.

Responsible development A concept combining “corporate responsibility” and “sustainable development”

RSPP The Russian Union of Industrialists and Entrepreneurs http://www.rspp.ru/

RUB Russian rubles

SDC Subsidiaries and dependent companies

SO2 Sulphur oxide (IV)

Stakeholders All individuals and organizations who are interested in the Company's performance, affect it, or can be affected by it.

Substantial / category incident Failure of or damage to technical equipment used at a hazardous industrial facility, or deviation from established process conditions, in case such event falls into a category defined by the existing standards or regulations.

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Significant fines Fines exceeding 1% of annual turnover of the enterprise they are imposed on.

Significant non-financial sanctions Non-financial sanctions by regulatory bodies that may result in substantial (more than 1%) changes in revenue or output of the enterprise on which they were imposed.

Sustainability reporting Systems and processes for collection, consolidation, checking, and analysis of information and data on the range of material topics.

Sustainable development The development whose goal is to “meet the needs of the present without compromising the ability of future generations to meet their own needs.” [World Commission on Environment and Development. Our Common Future. Oxford: Oxford University Press, 1987, p.43. (Cited from the G3 Guidelines)].

Thermostatic equipment Equipment for maintaining a constant temperature

UNESCO The United Nations Educational, Scientific and Cultural Organization http://www.unesco.org/

US GAAP Generally Accepted Accounting Principles in the United States, also used is some other countries.

VOC Volatile organic compounds

Working Group A coordinating group comprising managers of various business functions of JSC Gazprom Neft. The objectives of the group include improvement of the responsible development reporting system, and systematization of stakeholder engagement activities.

The Company considers it very importantto receive your feedback regarding all topics presented in this report. Indeed, the Company will not be able to improve its performance without your suggestions and comments.

You may reach us to express your opinion regarding the Report’s content or to aska question of interest to you by telephoneor regular mail, email or fax, usingthe following contact information:

JSC Gazprom Neft125 A, Profsoyuznaya Street, Moscow 117647, Russia.Tel.: +7 (495) 777-3152, 777-3184Fax: +7 (495) 777-3151, 777-3164Office of Social Security of the Human Resources Department [email protected]

Other contact information is available at the following page of the Company’s website:http://www.gazprom-neft.com/contacts/

You can also send us an electronic message using the Company’s feedback webpage:http://www.gazprom-neft.ru/feedback/

Questions and comments we receive will be taken into account in the reporting processand will be reflected in the Company’s subsequent reports.

CONTACT INFORMATION AND FEEDBACK

www.gazprom-neft.ru

Documents

GAZPROM NEFT: RESPONSIBLE DEVELOPMENT€¦ · Ekaterina Avramenkova Irina Bagautdinova Dmitry Baranov Yuri Bakhmat Elena Bashuk Irina Bezmenova Sergey Bilkey Denis Brusnitsyn Nikolay