GAZPROM’S FINANCIAL AND ECONOMIC POLICY PRESS CONFERENCE · 1 LIMITATION OF LIABILITY This presentation is prepared by Gazprom (hereafter – the Company) and contains corporate

0 г. Москва

GAZPROM’S FINANCIAL AND ECONOMIC POLICY

PRESS CONFERENCE

JUNE 25, 2015

1

LIMITATION OF LIABILITY

1

This presentation is prepared by Gazprom (hereafter – the Company) and contains corporate information for investors. This presentation is not an offer for sale or an

incentive of any offer for purchasing any shares or other securities, implying a shareholding interest in the Company, or a subscription for such. The presentation and

information it contains as well as the fact of its display or publishing can’t be regarded with respect to any contract or investment decision.

For no purpose should the information contained in this presentation be relied on as well as any other materials provided in any other presentation in terms of their

completeness, accuracy or impartiality. The information contained in this presentation should not be regarded as an investment consultation. The Company made every

effort for making sure this presentation was reliable and opinions voiced in it were reasonable and impartial. Therefore, no guarantees or assurances either self-evident

or implied are provided in relation to accuracy, completeness or impartiality of information or opinions contained in this presentation on behalf of the Company, its

shareholders, directors, officials or employees, or any other persons. Not one of the Company’s directors, its shareholders, directors, officials or employees, or any other

persons incur any responsibility for any losses which may occur as a result of using this presentation or its contents in any form or in any other connection to this

presentation.

This presentation may contain forward-looking statements. Such forward-looking statements include the data which are not accomplished facts, statements of the

Company’s intentions, suggestions or current expectations in relation to, inter alia, the Company’s operational results, its financial state and liquidity, prospects, growth,

strategy and development of the Company’s activity sector. For the reason of being related to future events and depending on circumstances that may occur in the

future, forward-looking statements inherently involve risks and uncertainties. The Company notifies in advance that it provides no guarantees for forward-looking

statements to be effectuated and that actual operational results, financial state and liquidity as well as the Company’s activity sector development may differ essentially

from forecasts or suggestions contained or implied in the said forward-looking statements. In addition, in case the Company’s operational results, its financial state and

liquidity as well as the Company’s activity sector development conform with forward-looking statements contained herein, such results and circumstances do not reflect

the results and circumstances of future periods.

Data and statements contained in this presentation are relevant as of the time of its display and may be changed without prior notice. No party shall be under legal

obligation for updating and renewing the data contained herein.

Attendance at this presentation means that you agree to abide by the limitations mentioned above.

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 25, 2015

2

26; 124;195

GAZPROM’S STRONG FINANCIAL STANDING IN

GLOBAL OIL AND GAS SECTOR

2014 results 5 largest global oil and gas companies by

EBITDA*, 2014

• Gazprom’s EBITDA adjusted for impairment loss

56.9

51.9 51.7 51.4

36.5

0

10

20

30

40

50

60

70

80 USD bln

• Among world’s top 3 public oil and gas

companies by EBITDA (USD 52 bln)

• World’s top public oil and gas company by free

cash flow (USD 17 bln)

• For five years Gazprom has been in world’s top

5 companies annual ranking by key financial

indicators


3

26; 124;195

SUSTAINABLE GENERATION OF FREE CASH FLOW

Operating cash flow

Free cash flow

RUB bln • For 9 years in row Gazprom has been

generating positive free cash flow

• For 9 quarters in row Gazprom has been

generating free cash flow despite business

seasonality

RUB bln

Seasonal sales low

1 349 1 397 1 262

124

345 654

0

500

1000

1500

2000

2012 2013 2014

CAPITAL INVESTMENTS FREE CASH FLOW

1 473

1 742

1 916

82 114

142

15

74

290

76

5

283

0

50

100

150

200

250

300

Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014


4

26; 124;195

DIVIDENDS

* Dividend yield is defined as approved dividends for period divided by share price as of June 22, 2015. Major oil and gas companies by capitalization as of June 22, 2015

** Proposed by Board of Directors

2.66

0.36

2.39

3.85

8.97

5.99

7.2 7.2

17.5

4.9 9.1

25.0 24.1 25.5 27.1

90.2

0

10

20

30

40

50

60

70

80

90

100

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014

Dividend per share % of Gazprom net profit under RAS (right scale)

RUB / share %

**

Dividend payout Dividend yield of shares in major oil and gas

companies worldwide*

Dividend yield of Gazprom shares is at level with major global oil and gas companies

SOURCE:COMPANY’S DATA, BLOOMBERG


6.6% 6.2%

5.8% 5.3% 5.1%

4.8% 4.7% 4.3%

3.9% 3.8%

0%

2%

4%

6%

8%

10%

5

4% 20%

60%

15%

HIGH PROFITABLE

MID PROFITABLE

LOW PROFITABLE

UNPROFTABLE

GAZPROM NOVATEK

69%

17%

14%

62%

25% 12%

ROSNEFT

CHANGES IN GAS PRICE REGULATION

76% 71% 68%

24% 29% 32%

0%

20%

40%

60%

80%

100%

2012 2013 2014

GAZPROM GROUP'S GAS

INDEPENDENT SUPPLIERS' GAS

Due to differentiation of regulated prices by price bands in Russia, supplier obtains different profits and sometimes

bears losses when selling gas to consumers in various regions

• Independent producers provide gas mostly to regions with high profitability,

while enjoying discounts to regulated prices

• Gazprom is being displaced to low-profitable and unprofitable regions

• Russian Government is reviewing issue of transiting to regulated prices by

establishing price range with discount of up to 15% without differentiation by

regions

• Transition to new price regulation will allow Gazprom establishing flexible gas

price policy for Russian industrial consumers

Gas supplies in Russian market by profitability levels

Gas supply to Russian consumers


6

0,051,102

0,102,204

153,204,255

153,051,000

255,102,000

255,204,000

255,204,153

191,191,191

102,163,224

26; 124;195

• Gazprom provides substantial support to Russian economic development by supplying gas at regulated prices. Russian gas prices are still lowest as

compared to Europe and USA

• Average gas prices for industrial consumers and population in Europe and USA are much higher than prices in key trading floors or Gazprom’s prices

• In countries with advanced market economy gas prices for domestic consumers are much higher compared to prices for major industrial consumers

1 445

1 333

1 140 1 060 1 057

947 904 898

773 695

519

444 384

125

0

200

400

600

800

1 000

1 200

1 400

1 600

Japan (LNG)

NBP

GAS PRICES IN RUSSIA, EUROPE, USA AND JAPAN

Average retail gas prices for domestic consumers in Russia, Europe and USA, 2014(*, **)

Average gas prices for industrial consumers in Russia, Europe and USA, 2014(*,***)

USD / 1,000 m3

Henry Hub

530 482 444 441 432 425 412 398 387 384 366

363 194

132

0

200

400

600

800

1 000

1 200

1 400

1 600

Japan (LNG)

NBP

* With account of gas distribution organization tariffs, payment for distribution and logistical support services ** VAT included *** VAT not included


Henry Hub

SOURCE: CERA, IEA, EIA, FTS, MOSOBLGAZ

USD / 1,000 m3

7

0,051,102

0,102,204

153,204,255

153,051,000

255,102,000

255,204,000

255,204,153

191,191,191

102,163,224

FLUCTUATION OF GAS TRANSMISSION TARIFFS

8.92

4.81

2.62 2.30

1.85

7.04

2.39

1.87 2.08 1.94

3.03

2.30

1.26

0

2

4

6

8

10

DE

DA

N (G

erm

an

y)

NE

TG (G

erm

an

y)

ME

TG (G

erm

an

y)

HE

TPA

(Ger

ma

ny)

Op

en

Gri

d (G

erm

an

y)

PW

(Au

stri

a)

WA

G (A

ust

ria

)

TAG

(A

ust

ria

)

Slo

vaki

a

Cze

ch R

ep

ub

lic

Faye

ttev

ille

Pip

elin

e (U

SA

)

Mid

con

tin

ent

Exp

ress

(US

A)

Ga

zpro

m (

Ru

ssia

)

Czech Republic

Fayetteville Pipeline (USA)

0.85 0.99 0.95 1.28 1.38 1.46 1.47 1.26

0

2

4

6

8

10

2007 2008 2009 2010 2011 2012 2013 2014 2015П

**

EUR / 1,000 m3 per 100 km

• At present, Russian tariffs on gas transmission services

are lower than European and most of US tariffs***

Average tariffs on gas transmission in Russia,

Europe and USA* in 2014

• In 2014 tariff freezing sent transmission profitability for independent

suppliers down below zero (-2.4%).

• In 2015 tariff increase by 2,0 % from July 1, as proposed by Russian

FTS, will not result in loss reduction (-2.2%).

SOURCE: COMPANY’S DATA

* Provided maximum capacity load factor (load factor = 1) ** Considering average rate of RUB 65 per 1 EUR *** In USA tariffs differ among companies and account for average of USD 1.4 to USD 6.4 for 1,000 m3 per 100 km

1.00

EUR / 1,000 m3 per 100 km

EUROPE

USA


Average regulated tariffs on gas transmission

services for independent suppliers

8

26; 124;195

TRANSITION TO FORMULA-BASED SEVERANCE TAX FOR GAS

147

237

509

602

719 745

0

200

400

600

800

2010 2011 2012 2013 2014 2015F

SEVERANCE TAX FOR GAS, GAZPROM (RUB/1,000 M3)

RUB

Severance tax formula for gas in effect

since July 1, 2014 Benefits

• Direct link of tax amount to actual gas selling prices

• Tax exemptions for basic, new, mature and hard-to-recover

fields

• Transparency of taxation

Main tax exemption areas: • New production centers: Yamal Peninsula and Gydan

Peninsula, Irkutsk and Krasnoyarsk regions, Far East

• Mature fields: depletion exceeds 70%

• Hard-to-recover fields: Astrakhan region

• Deep gas fields: depth exceeding 1,700 m

Severance tax for gas = 15% * Average gas selling price * Difficulty of gas extraction + Transmission expenses

Calculation of severance tax rate for gas*

• Average gas severance tax rate in 2H of 2014 and 2015 is provided for 7 major subsidiaries


9

Operating and investment activities

FINANCIAL STRATEGY IN NEGATIVE GLOBAL FINANCIAL MARKET

ENVIRONMENT

Financial strategy

Risk management Debt and liquidity

management Investor relations Budgeting

Capital cost

management

Financial

investments

management

Operating expenses

management

Working capital

management

Cutting down

accounts receivable

Inventory

optimization

Managing accounts

payable

FS analysis with due

account of crisis

factors

Wider use of

project financing

for execution of

Gazprom Group’s

projects

Slashing expenses

across entire

Gazprom Group

Variance-based

budget with

expense

prioritization

accounting for

possibility of

doubtful expenses

Self-financing

Monitoring of

performance

Prioritization of

projects

Reducing costs of

Administration and

subsidiaries

Synchronized

purchase of gas

Giving priority to

intra-Group financial

resources

Supporting

international credit

ratings

Setting of risk limits

on credit agencies

Optimization of cash

flows

Ensure typical

procedures for

payments

Extending volume of

debt financing from

Russian and Asia-

Pacific capital

markets

Listing at Asian

exchanges

Expanding Asia-

Pacific investor base

On-line management

of intra-Group

liquidity

Optimization of

taxation Centralization of

external borrowings

with follow-up

lending of

subsidiaries and

affiliates

Control over use of

funds from

Eurobond

placements and

foreign loans

Financial strategy in negative global market environment calls for further tightening of financial aspects of Gazprom Group’s operating and

investment activities

Financial activities

Разработка Плана

мероприятий по повышению

эффективности деятельности

Группы Газпром


10

26; 124;195

* Prime cost of gas production – costs of 1,000 m3 of commercial gas production by 7 major gas producing subsidiaries of Gazprom * * Average estimated severance tax rate to taxable gas volume *** Prime cost of gas transmission – costs of 1,000 m3 of gas transmission per 100 km by Gazprom’s gas transmission subsidiaries (within Russian Federation)

WELL-BALANCED COST MANAGEMENT POLICY

49 53 54

59

0

20

40

60

80

2012 2013 2014 2015P

536 623 716 766

509 610

719 745

0

400

800

1200

1600

2012 2013 2014 2015P

PRIME COST OF GAS PRODUCTION SEVERANCE TAX FOR GAS**

RUB / 1,000 m3

RUB / 1,000 m3 per 100 km

1 045

1 233

1 435

Prime cost of gas production*

Prime cost of gas transmission***

1 510

Forecast effect of Program execution in 2015 – RUB 13.1 bln:

• Operating activities:

current costs – RUB 6.6 bln

financial costs – RUB 0.2 bln

• Investment activities – RUB 6.3 bln

Effect of Program execution in 2014 – RUB 21.8 bln:

• Operating activities:

current costs – RUB 8.0 bln

financial costs – RUB 0.6 bln

• Investment activities – RUB 13.2 bln – due to bidding for

goods, works/services, materials and equipment

Cost optimization (reduction) program,

2014–2015


11

91

47

9

14

4

2

0

20

40

60

80

100

120

Main process equipment Pipes GCU spare parts and motor

repair services

SCOPE OF SUPPLY IN AGREED PRICES CUTTING OF INITIAL BID

COST OPTIMIZATION IN VITAL MATERIALS AND EQUIPMENT

PRICING IN 2014

RUB bln RUB / t*

* Net of VAT

Savings in vital materials and equipment exceeded RUB 20 bln

Savings due to cutting suppliers’ bid for vital materials

and equipment in 2014

Pricing formula effect between 2012 and

2014


56 000

58 000

60 000

62 000

Jan

ua

ry 2

01

2

Ma

rch

20

12

Ma

y 2

01

2

July

20

12

Se

pte

mb

er

20

12

No

vem

ber

20

12

Jan

ua

ry 2

01

3

Ma

rch

20

13

Ma

y 2

01

3

July

20

13

Se

pte

mb

er

20

13

No

vem

ber

20

13

Jan

ua

ry 2

01

4

Ma

rch

20

14

Ma

y 2

01

4

July

20

14

Se

pte

mb

er

20

14

No

vem

ber

20

14

ИНДИКАТИВНАЯ ЦЕНА, РАССЧИТЫВАЕМАЯ ЕЖЕМЕСЯЧНО ПО ФОРМУЛЕ

НАЧАЛЬНАЯ (МАКСИМАЛЬНАЯ ЦЕНА), РАССЧИТАННАЯ НА ОСНОВАНИИ СОГЛАШЕНИЙ

INDICATIVE FORMULA-BASED MONTHLY PRICE

INITIAL (MAXIMUM) AGREEMENT-BASED PRICE

12

ESTABLISHING SINGLE TREASURY OF GAZPROM GROUP

Consolidation of all Group’s funds on parent

Company’s bank accounts

Centralized management of Group’s financial

risks

Centralized management of Group’s cash flows

Transparency and monitoring of subsidiaries’

payments

SIN

GLE

TR

EA

SU

RY

OF

GA

ZP

RO

M G

RO

UP

LOCAL CASH POOL

Gazprom

System of cross-border cash pools

Foreign

subsidiary

Foreign

subsidiary

Foreign

subsidiary

Subsidiary Subsidiary

SUB SUB SUB

LOCAL CASH POOL

SUB SUB SUB

Subsidiary

GAZPROM'S FINANCIAL AND ECONOMIC POLICY, JUNE 25, 2015

System of cash pools in Russian Federation

13

26; 124;195

KPI range

809

Key Performance Indicators

SPECIFIC COSTS WITHIN PRODUCTION BUSINESS SEGMENT RUB per t of fuel equivalent

min max

732

Relative share in calculating bonus

for reporting period

15%

65 SPECIFIC COSTS WITHIN TRANSPORTATION BUSINESS SEGMENT

RUB per unit; commodity / goods transportation of 1,000 m3 per 100 km 59 15%

CUTTING PRODUCT (WORK, SERVICE) RELATED COSTS 10% 5%

71 LABOR EFFICIENCY RUB thousand / man-hour

72 5%

5% RETURN ON SHAREHOLDERS INVESTMENTS RUB

15% 10%

9% RETURN ON SHAREHOLDERS EQUITY based on IFRS

15% 20%

Financial and economic KPIs

Industry KPIs

425 GAS SALES VOLUMES by volume - bln m3

470 15%

6 COMMISSIONING OF PRIORITY PRODUCTION FACILITIES 15%

First

presented in

2015

MANAGEMENT KEY PERFORMANCE INDICATORS (KPI) IN 2015


14

• Financing capital investments from own funds

• Placing priority on appealing and viable projects

• Continuous monitoring project implementation efficiency

• Implementing merger and acquisition projects only with regard to possibilities for additional funding

• Stress analysis of possible merger and acquisition projects

SOURCE: FORECAST PROVIDED BY COMPANY’S TOP MANAGEMENT UNDER IFRS

Capital investments of Gazprom Group and

self financing

PRINCIPLES OF INVESTMENT PROGRAM FORMATION

32

26

37

55

50 46

37

142%

113%

140%

105% 109%

125%

152% >100%

0%

20%

40%

60%

80%

100%

120%

140%

160%

0

20

40

60

80

100

2008 2009 2010 2011 2012 2013 2014 2015П

GAS PRODUCTION

GAS TRANSMISSION, PROCESSING AND SALES

OIL AND GAS CONDENSATE PRODUCTION

POWER AND HEAT GENERATION AND SALES

SELF FINANCING

USD bln


Key principles of formation

* Ratio between operational cash flow and capital investments volume

15

MAJOR RUSSIAN DEBTOR

Debt repayment profile**

Cost of debt financing Credit ratings

24% 22% 18% 17%

17% 19% 13% 15%

38% 33%

36% 36%

21% 26% 33% 32%

2011 2012 2013 2014

LESS THAN 1 YEAR 1-2 YEARS 2-5 YEARS MORE THAN 5 YEARS

6.2%

3,0%

5.5%

0

2

4

6

8

10

2008 2009 2010 2011 2012 2013 2014

WEIGHTED FIXED AVERAGE INTEREST RATE

WEIGHTED VARIABLE AVERAGE INTEREST RATE

WEIGHTED AVERAGE INTEREST RATE

%

** Exclusive of bill discounts

Lowest level of using borrowed funds, 2014

0

20

40

60

80

100

120

140

0 1 2 3 4 5

*

Net debt / EBITDA

De

bt,

US

D b

ln

Moody's

A- A3 BBB+ Baa1 BBB Baa2 BBB- Baa3

BB+ Ba1 BB Ba2 BB- Ba3

B+ B1

Dagong,

S&P, Fitch

A A2

A+ A1 AA Aa

AAA Aaa

Jan

2004

Jan

2005

Jan

2006

Jan

2007

Jan

2008

Jan

2009

Jan

2010

Jan

2011

Jan

2012

Jan

2013

Jan

2014

Jan

2015

S&P MOODY'S

FITCH DAGONG

INVESTMENT GRADE Russian sovereign ratings

* Rosneft’s net debt adjusted with regard to pre-payment

under long-term oil supply contracts SOURCE: COMPANYS’ DATA

Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan. Jan.


16

NATURAL HEDGING AGAINST NATIONAL CURRENCY VOLATILITY

*Data for 2014 with all other results remaining unchanged, assessment by management

Data on revenues, cash operating expenses and capital investments were adjusted for ruble-denominated sums linked to foreign currency

• Positive effect of ruble depreciation on Company’s business

• Reassessment of foreign currency debt has no negative impact

on Company’s ability to service its debts due to foreign

currency component prevailing in revenues

Build-up of financial results in event of ruble depreciation by 10%*


SOURCE: COMPANY DATA, ASSESSMENT BY MANAGEMENT

+6%

+4%

+2%

Revenues Cash operating expenses Capital investments

+ 360

RUB BLN

+ 160

RUB BLN

+ 31

RUB BLN

+9%

+3%

+12%

Total debt Cash and cash equivalents Net debt

+ 235

RUB BLN

+ 34

RUB BLN

+ 201

RUB BLN

17

26; 124;195

Date of deal: Value: Coupon: Payback period: Achievements

Foreign currency borrowings

February 26, 2014 EUR 750 mln 3.600% 7 years • One of lowest rates among Russian rival companies and developing

markets in Eurobond market

SUCCESSFUL ACTIVITY IN DEBT CAPITAL MARKETS

November 10, 2014 USD 700 mln 4.300% 1 year

• First public issue of Russian debt securities in Europe after sanctions

imposition

• Despite geopolitical conditions, American and British investors remain

key ones

December 4, 2014 EUR 390 mln EURIBOR + 2.75% 1 year • Bilateral credit agreement between Gazprom and UniCredit

• Important for developing cooperation with European officials in

banking sector at times of sanctions pressure on Russia

January 16, 2015 EUR 350 mln EURIBOR + 2.75% 1.5 years

• First bilateral credit agreement in history of relations between

Gazprom and Intesa Sanpaolo Group

• Important for developing cooperation with credit institutions from Italy

and other European countries

April 10, 2015 USD 500 mln LIBOR + 3.25% 3 years • Syndicated loan arranged by JP Morgan, involving Asian banks

Ruble borrowings

October 28, 2014 RUB 15 bln 10.700% 30 years

• One of latest market operations prior to Central Bank of Russian

Federation increasing key interest rate and in context of credit ratings

downgrade regarding Russia and Russian companies

• Issue was in demand by main investor categories; 49 investor

applications were registered, including foreign ones


18

INVESTOR POOL DIVERSIFICATION

Increasing share of Gazprom GDRs owners in Asia

Gazprom’s GDRs included in quotation list of Singapore

Stock Exchange

• Building up international investor pool

• Almost round-the-clock trading of Company’s securities on

international platforms

Gazprom’s Investor Day held in Hong Kong and

Singapore for first time

Gazprom obtained highest credit rating (AAA) from

Asian rating agency Dagong

• According to Dagong, Gazprom’s credit

rating exceeds sovereign credit rating of

Russian Federation (A/stable)

Increasing share of investors in Asia-Pacific paves way

for Company’s listing on Hong Kong Stock Exchange or

other Asian stock exchanges

NORTH

AMERICA

48%

EUROPE

48%

ASIA-

PACIFIC

4%

2008

NORTH

AMERICA

49%

EUROPE

40%

ASIA-

PACIFIC

10%

AFRICA AND

MIDDLE

EAST

1%

2014

SOURCE: INVESTOR IDENTIFICATION RESEARCH BY NASDAQ, AS OF DECEMBER 31, 2014

• Over 230 representatives of investment

community took part in event

(>40% of local Asian investors)


19

26; 124;195

• World’s largest oil & gas Company

• 122.7 bln barrels of oil equivalent of proven

hydrocarbon reserves

• 8.9 bln barrels of oil equivalent of daily

hydrocarbon production

• >100% reserves recovery ratio

• Focus on shareholder value

• Sound dividend policy

• High level of transparency

• Commitment to principles of

sustainable development

• Natural gas is future of global energy

consumption

• Gazprom is global energy Company

• 30% share in European gas market

• Diversification of products and markets is main

factor of Gazprom’s stability

• High profitability level

• Conservative approach to capital costs

management

• Balanced system of operational costs

management

• High liquidity level

Unparalleled fundamentals 1 Strong strategy and stable

market position 2

Improving corporate

governance 3

Conservative financial

policy 4

SHAREHOLDER VALUE GROWTH FACTORS


Documents

GAZPROM’S FINANCIAL AND ECONOMIC POLICY PRESS CONFERENCE · 1 LIMITATION OF LIABILITY This presentation is prepared by Gazprom (hereafter – the Company) and contains corporate