OJSC Severneftegazprom Annual Report 2012 (English)

ANNUAL REPORT • 2012

Translation Note

The following text in English is a translation from the original Russian version. While every effort

is made to ensure that the translation is accurate, there may nevertheless be differences of meaning

between this and the original Russian version. Therefore, please note that the following translation is

provided for information only and is not intended for any other use.

Intr

od

uctio

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2

This Annual Report (hereinafter referred to as the Report) de-

tails the key performance indicators of Severneftegazprom Open

Joint-Stock Company operations (hereinafter referred to as

OJSC Severneftegazprom, the Company) for 2012 and the deve-

lopment prospects aimed at setting and reaching strategic goals

and ensuring the Company’s long-term sustainable development.

In the Report we have taken into account all the significant in-

formation for the prospected users. The provided information has

been officially accepted by the Company and proved by internal

documentation as well as publicly available materials. The Report

information was processed using the methods comparable to the

ones used in the earlier periods. The Report in general contains

no professional terminology or data requiring specific knowledge.

The data presented in the Report makes it possible for the

interested parties to get familiar with the results of Company’s

operations in 2012 and evaluate their impact on the economy,

environment, and society.

Given the responsibility and public interest in its operations,

the Company for the second time discloses the information in

compliance with the provisions of the Global Reporting Initiative

(GRI) and integrates them in the Report. The information pro-

vided is organized under corporate information requests pro-

duced in accordance with the GRI recommendations (version

G3.1) and disclosure completeness. Determining materiality of

the Report’s content, results of cooperation with the key inte-

rested parties have been taken into account.

The Report contains evaluations and forecasts of the

Company’s authorized management bodies regarding its

performance and future events and/or actions, including the

Company’s plans and the probability of certain events and

actions.

The forward-looking statements, by virtue of their nature,

are associated with inherent risk and uncertainty of both general

and specific character. The Company emphasizes that actual

results may differ considerably from those stated, whether di-

rectly or indirectly, in these forward-looking statements. In par-

ticular, economic, political, social, technology-related and other

conditions may affect Company operations.

Introduction

3


Message from the Chairman of the Board of Directors ................4Message from the General Director ..............................................6Key Events 2012 .............................................................................8Key Events 2013 ...........................................................................11Key Performance Indicators 2012 ...............................................13Severneftegazprom’s Position in the Industry and Development Prospects ...............................14

1 Management Bodies ..............................................18Financial and Business Operations Management

and Control Bodies ............................................................19

Structure of the management bodies ................................19

The General Meeting of Shareholders ................................19

The Board of Directors .......................................................20

Technical Committee .........................................................21

Company’s Board of Directors Report

on progress in priority areas ..............................................22

Executive Body ..................................................................23

Information on the Company auditor ..................................23

Audit Commission ..............................................................24

2 Authorized CapitalReport on Dividend Payments...............................26Authorized Capital ..............................................................27

Report on the Payment of Announced (Accrued)

Dividend (Participating Interest Income)

on Shares (Participating Interests

in the Authorized Capital) of the Company .........................28

3 Gas Exploration, Production and Marketing.........30Reserve Status...................................................................31

Development of the Cenomanian

and Turonian Gas Deposits ................................................32

Exploration .........................................................................33

Production Drilling ..............................................................34

Gas Production ..................................................................34

4 Financial Results ....................................................36Implementation of the Annual Work Programmе

and Budget of the Company in 2012 .................................37

Analysis of change in indicators of the Statement

on 2012 financial results .....................................................40

Analysis of change in the liabilities structure

of the Company in 2012.....................................................44

Analysis of debt liabilities ....................................................46

Analysis of cash flow ..........................................................47

Analysis of Key Financial Ratios..........................................48

5 Investments ............................................................50

6 Technology and Innovations ..................................52Well No. 184 ......................................................................53

The control system for gas process losses

and the system for greenhouse gas extraction

and collection ....................................................................54

Energy Consumption .........................................................55

7 Sustainable Development ......................................58Social policy .......................................................................59

Health and safety ...............................................................62

Environmental protection and industrial safety ....................64

Main indicators of environmental protection activities .........68

Acknowledgement .............................................................71

8 Key Risks Associated With the Company’s Business ...............................72Operational risks ................................................................73

Financial risks.....................................................................75

Legal risks ..........................................................................76

9 Code of Corporate Governance Compliance Report ................................................78

10 General Information ...............................................80Registration Details ...........................................................81

The Company’s Representative Offices ..............................81

11 Summary ................................................................82Report Parameters .............................................................83

Information Disclosure .................................................................84Appendix 1.

Global Reporting Initiative (GRI) Content Index ...................84

Appendix 2. List of Company’s Transactions

in the Year 2012 Considered As Major Transactions

In Accordance with the Federal Law

“On Joint Stock Companies” ..............................................90

List of Company’s Transactions

in the Year 2012 Considered As Interested Party

Transactions In Accordance with the Federal Law

“On Joint Stock Companies” ..............................................90

4

Message from the Chairman of the Board of Directors

Dear shareholders!

In 2012, OJSC Severneftegazprom continued to develop

its successful activity. The Company demonstrates prominent

stability among most efficient exploration and production com-

panies of Gazprom Group.

OJSC Severneftegazprom is one of the main resource bases of

the international infrastructure project – the Nord Stream pipe-

line; the fact justifies the responsibility of OJSC Severneftegaz-

prom for development of the Yuzhno-Russkoye oil and gas

condensate field effectively and to guarantee stable gas supply

to the European countries.

In the reporting year the management of the Company con-

tinued the Turonian development project in the Yuzhno-Russ-

koye oil and gas condensate field. The project is considered to

be a key one not only for Gazprom, but for the whole Russian

gas industry as well, and symbolizes the beginning of the new

era of development of hard-to-recover deposits.

The Company implements the strategy of resource mobi-

lization to update production technologies and operational ef-

ficiency. The management of OJSC Severneftegazprom pays

special attention to industrial safety and labor protection, sus-

tainable use of natural resources and policy aimed to minimize

ecological risks and save energy.

Alexander Medvedev

Chairman of the Board of Directors of OJSC Severneftegazprom

Mes

sag

e fr

om

the

Cha

irman

of

the

Bo

ard

of

Dire

cto

rs

5


Commitment and responsibility of the management of the

Company, professionalism and hard work of the employees, faci-

litated the achievements in production and financial indicators

and also the shareholders contributed as they defined the stra-

tegic direction and supported initiatives of the management.

On behalf of the Board of Directors I would like to express

gratitude to the personnel of OJSC Severneftegazprom for their

successful work, and wish them new achievements in solution

of large-scale tasks of the Company.

Sincerely,Deputy Chairman of the Management Committee of Gazprom

Chairman of the Board of Directors of OJSC Severneftegazprom

Alexander Medvedev

6

Mes

sag

e fr

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the

Gen

eral

Dire

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Message from the General Director

Dear shareholders, partners, and colleagues!

Summarizing the results of the operational activity of

OJSC Severneftegazprom in 2012, I would like to point out

that we have achieved high production and financial indicators!

The last year proved again that industrial and technical potential,

elabo-rated forms and methods of corporate management gua-

rantee the steady development of the Company and the achieve-

ment of strategic goals and objectives.

Despite the fact that only five years have passed since the start

of the development of the Yuzhno-Russkoye oil and gas conden-

sate field, the total volume of gas produced by the end of 2012

amounted approximately to 116 billion cubic meters. Nowadays

OJSC Severneftegazprom is the fifth in production level of Gaz-

prom Group and also one of good examples of international co-

operation in oil and gas industry.

The start of the Turonian production highlights the status of the

Company as a technological leader in solving a problem of develop-

ing hard-to-recover gas deposits. The gained experience in the

sphere is the basis of further development of the Company and

reflects the global progressive tendencies in effective gas supply.

Nowadays OJSC Severneftegazprom plans to expand its pro-

duction activity in developing the Cenomanian and Turonian gas

deposits of the Yuzhno-Russkoye oil and gas condensate field,

Stanislav Tsygankov

General Director of OJSC Severneftegazprom

7


aimed to achieve strategic goals of the Company. In 2012, bear-

ing in mind the importance of the projects and the principle of bal-

ance between the state and the industry interests, the Company

was included in the List of organizations implementing investment

projects considered to be priority in the YNAA in accordance with

the rules of the law.

In 2012 the world financial community distinguished the result

of the work on Project Financing with the consortium of international

banks and OJSC Gazprombank, the total amount of which equaled

to 1,1 billion Euro. The transaction was marked as ‘The Deal of the

Year’ by the respectable edition ‘Project Finance Magazine’ (PFM).

The Company carries out its commitments to service the loan and

had paid approximately one third of it by the end of 2012.

Being aware that the team is the most valuable asset and the

formula of success in any company, in 2012 OJSC Severnefte-

gazprom took measures to improve the system of labor protection

and health of the workers, their training, raising the level of their

skills and social protection, which is reflected in the new version of

the Collective Agreement.

Due to the professionalism of the employees and the partners,

with the support of the shareholders, we will be able to ensure

further continuous work and development of the Company on a

long-term basis.

Sincerely,General Director of OJSC Severneftegazprom

Stanislav Tsygankov

8

Key

Eve

nts

2012

Key Events 2012

JANUARY

Securing project finance for the deve-lopment of the Yuzhno-Russkoye oil and gas condensate field was named “deal of the year” by the magazine Project Finance International, pub-lished by Thomson Reuters, and by Project Finance Magazine, published by Euromoney Institutional Investor plc.

The second audit of the integrated

management system for compliance

with the international standards ISO

9001:2008, ISO 14001:2004, OHSAS

18001:2007 was conducted.

FEBRUARY

Stanislav Tsygankov, General Director of

the Company , and Ivan Kostogriz, Head

of Administration of the town of Novy

Urengoy, signed a General Agreement

for Cooperation between OJSC Sever-

neftegazprom and Administration of

Novy Urengoy.

MARCH

Stanislav Tsygankov, General Direc-

tor of OJSC Severneftegazprom, and

Vasily Parshakov, Head of the Admini-

stration of the Krasnoselkup District,

signed an Agreement on Cooperation

between the Company and the District

Administration for 2012.

9


APRIL

The ceremony of launching the first pro-

duction well in the Turonian gas depo-

sit in Western Siberia was held at the

Yuzhno-Russkoye oil and gas conden-

sate field developed by OJSC Sever-

neftegazprom in the presence of Alexan-

der Medvedev, Deputy Chairman of Gaz-

prom Management Board and Chairman

of the Board of Directors of OJSC Sever-

neftegazprom, and Stanislav Tsygankov,

General Director of OJSC Severnefte-

gazprom.

MAY

The 100 billionth cubic metre was reco-

vered from the Yuzhno-Russkoye oil and

gas condensate field.

JUNE

The General meeting of the Company‘s

shareholders took place on June 29, at

which the Company performance indica-

tors for the year 2011 were reviewed, the

Annual report and the Annual accounting

statement were unanimously approved,

the Company’s auditor for 2012 was ap-

pointed, the members of the Board of

Directors and Audit commission were

elected, and a number of interested par-

ty transactions for the next fiscal year

were approved. A decision on payment

of 2011 dividends was made.

10

Key

Eve

nts

2012

OCTOBER

October 25 was the five year anniver-

sary of the start of the production on the

Yuzhno-Russkoye oil and gas conden-

sate field.

AUGUST

A contest was held in OJSC Severnefte-

gazprom among oil and gas field opera-

tors on August 8, to select the one to

be awarded “The Best Professional” title.

NOVEMBER

The Company passed the re-certifica-

tion audit of the integrated manage-

ment system for quality, health and

safety, environmental protection and in-

dustrial safety for compliance with the

international standards ISO 9001:2008,

ISO 14001:2004, OHSAS 18001:2007.

Based on the audit results, the Compa-

ny was certified for another three-year

period.

11


Key Events 2013

JANUARY

OJSC Severneftegazprom was grant-

ed the Statement GRI Application Level

Check, a certificate of the Global Report-

ing Initiative (GRI), confirming the comp-

liance of the Company Annual Report for

2011 with GRI level C requirements.

FEBRUARY

According to the results of the re-certifi-

cation audit of the Company’s integrat-

ed management system by international

certification authorities, OJSC Sever-

neftegazprom was granted certificates

confirming the compliance of the Com-

pany’s management system for quality,

health and safety environmental protec-

tion and industrial safety with the inter-

national standards ISO 14001:2004, ISO

9001:2008, OHSAS 18001:2007.

MARCH

Stanislav Tsygankov, General Director of

OJSC Severneftegazprom, and Dmitry

Kobylkin, Governor of the Yamal-Nenets

Autonomous Area, signed an Agreement

on social and economic cooperation for

2013-2017.

DECEMBER

On December 5, in Tyumen, the re-sults of the regional contest coincid-ing with the Day of the Inventor and Innovator were announced. To mark the excellent performance indicators, the staff of OJSC Severneftegazprom and its General Director Stanislav Tsygankov were awarded “The Best in Innovations” diploma.

In 2012 OJSC Severneftegazprom

fully completed the action plan on gas

infrastructure development in the settle-

ment of Krasnoselkup. The gas pipeline

launch ceremony was held on December

25, 2012.

On December 24, 2012, the Law of

the Yamal-Nenets Autonomous Area

No. 146-ZAO “On amending the Law of the

Yamal-Nenets Autonomous Area “On the

list of organizations implementing priority

investment projects in the Yamal-Nenets

Autonomous Area” (No. 151-ZAO dated

23.12.2011), under which OJSC Sever-

neftegazprom is entitled to profit tax re-

lief for the period of 2013-2017 and pro-

perty tax relief for the period of 2015-2017,

payable into the regional budget.

12

Key

Per

form

ance

Ind

icat

ors

201

2

Gas collecting system at Yuzhno-Russkoe oil and gas condensate field

13


Key Performance Indicators 2012

Indicator, billion m3 2010 2011 2012 Change, %

2011 /2010 2012 /2011

Gas reserves 1,040. 780 1,122. 427 1,096. 628 +7% -2%

Gross production 25.359 25.651 25.347 +1% -1%

Gas sales 25.327 25.581 25.280 +1% -1%

Indicator, million rubles

2010 2011 2012 Change, %

2011 /2010 2012 /2011

Sales revenue 36,902 26,038 33,962 - 29% +30%

Sales profit 24,578 9,558 9,741 - 61% +2%

Net profit 19,304 5,940 8,978 - 69% +51%

Net cash from operations (current operations)

23,322 13,796 14,851 - 41% +8%

Net assets 42,248 34,733 41,879 - 18% +21%

Production indicators

Key performance indicators

Sev

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Severneftegazprom’s Position in the Industry and Development Prospects

The gas industry is strategically important for the develop-

ment and economy of Russia, contributing about 10% of the na-

tional gross domestic product. In the structure of the fuel balance

in Russia, gas accounts for about a half of the total fuel produc-

tion1.

Russia is the most important segment of the global gas in-

dustry. The country holds the first position in the global gas

production market (over 18%), its share of the global proven re-

serves of natural gas is 25% and Russia exports about a quar-

ter of the global gas export volume.

Natural gas, a highly efficient source of fuel, which has a

minimal adverse impact on the environment, satisfies over half

of the domestic energy needs.

The largest part of the measured natural gas reserves is lo-

cated in Siberia. The Tyumen Region accounts for 90% of the

total gas volume produced in Russia, with Yamal playing a key

1 Source: http://www.bp.com/

role: a large fuel and energy, oil and gas production complex

has been established within the autonomous area.

OJSC Severneftegazprom performs production opera-

tions in the Yuzhno-Russkoye oil and gas condensate field

situated in the Krasnoselkup District of the Yamal-Nenets

Autonomous Area. The field is over 85 km long and over

14 km wide.

Russia

Iran

Qatar

Turkmenistan

USA

Saudi Arabia

United Arab Emirates

Venezuela

Nigeria

Algeria

0 5 10 15 20 25 30 35 40 45

Proven reserves of natural gas, trln m3

OJSC Severneftegazprom performs

production operations in the Yamal-

Nenets Autonomous Area and is part

of the Gazprom Group, which is one

of the largest vertically integrated

energy companies in the world

OJS

pro

Ne

the

o

roductio

Nenets Aut

of the Gazp

of the la

ener

15


The closest populated area, the Krasnoselkup settlement,

is located 135 km to the east of the field.

The Company is part of Gazprom Group, which is one of

the largest vertically integrated energy companies in the world,

having the rights to develop one fifth of the global gas reserves

and accounting for one sixth of global gas production.

According to the 2012 results, OJSC Severneftegazprom

is among the top five gas suppliers in the Gazprom Group.

The share of natural gas produced by the Company in 2012

increased to 5% of the total gas produced by the Gazprom

Group (4% in 2011).

It is worth mentioning that the Yuzhno-Russkoye oil and gas

condensate field is the main source of gas supply for the Nord

Stream pipeline, through which 11.5 billion m3 of gas were sup-

plied to Europe in 2012.

The successful cooperation of western technologies and

the Russian experience of working in adverse weather con-

ditions within the framework of the project on developing the

Yuzhno-Russkoye oil and gas condensate field, was empha-

sized at the meeting of the Chairmen of the management

boards of JSC Gazprom and E.ON AG, held in June 2012.

The areas of priority for OJSC Severneftegazprom:

• fulfilling the license agreement conditions on the use of

the Yuzhno-Russkoye subsoil plot;

• ensuring the planned gas production level of 25 billion

m3 per year;

• implementing design solutions and activities for the

control of development of the Yuzhno-Russkoye oil and

gas condensate field;

• accomplishing the planned exploration works and re-

serve increases;

• undertaking works aimed at the reconstruction, moder-

nization and technical upgrade of the Yuzhno-Russkoye

oil and gas condensate field facilities;

• complying with the agreement on project finance con-

cluded with a consortium of foreign banks and the Rus-

sian OJSC Gazprombank;

Russia (677)

USA (651)

Canada (160)

Qatar (151)

Iran (149)

Other Countries (1600)

Russia (23)

Qatar (14)

Norway (12)

Canada (8)

Algeria (6)

Other Countries (37)

Natural gas production, billion m3 Export of natural gas, billion m3

Sev

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• effective functioning of the integrated management sys-

tem for quality, health and safety, environmental protec-

tion and industrial safety in compliance with the require-

ments of the international standards ISO 9001:2008,

ISO 14001:2004, OHSAS 18001:2007;

• participating in social and economic development of

the local municipal units, the Krasnoselkup and Pur Dis-

tricts, and implementing of programs aimed at support-

ing indigenous minorities of the North.

OJSC Severneftegazprom is an advanced company, using

the latest technical solutions to increase efficiency, save energy

and protect the environment. The Company is constantly look-

ing for new technologies and innovative solutions to develop

and equip the Yuzhno-Russkoye oil and gas condensate field

and to fulfil the existing gas supply contracts.

Yamal-Nenets Autonomous Area

17


Yuzhno-Russkoye oil and gas condensate field

Management Bodies

1


19

1

Financial and Business Operations Management and Control Bodies

Structure of the management bodies

The General Meeting of Shareholders is the highest

governing body, whose competencies cover all the important

Company issues.

The Board of Directors is the governing body that pro-

vides general Company leadership and is responsible for stra-

tegic management aimed at accomplishing long-term objec-

tives and goals, as well as controlling the Company’s operating

efficiency.

The General Director is the sole executive body, managing

the current activities of the Company.

For the purpose of controlling financial and business opera-

tions, the General meeting of shareholders elects the Audit

Commission, which is responsible for the audit and analysis of

the Company’s financial standings, the operation of the inter-

nal control system, and verification of the legality of business

operations.

The Company engages an external auditor to conduct the

annual audit of financial statements, prepared in accordance

with the Russian Accounting Standards (RAS) and the Interna-

tional Financial Reporting Standards (IFRS). The independent

audit is annually approved by the General meeting of share-

holders upon suggestion by the Board of Directors.

The issues associated with the establishment, competence

and organization of activities of the management and control

bodies are determined by the Company’s Charter and relevant

internal documents.

The Charter is available to all interested parties on the Com-

pany’s official website: http://www.severneftegazprom.com/.

The General Meeting of Shareholders

Three General meetings of shareholders of the Company

were held in 2012 including the annual meeting, at which the

shareholders approved the Annual Report and the Annual ac-

counting statement of OJSC Severneftegazprom for 2011, as

well as the Company auditor for 2012, elected the members

of the Board of Directors and the Audit Commission, and re-

viewed the issues associated with the distribution of profits and

payment of remuneration to the Board of Directors members.

The extraordinary General meetings of the sharehol-

ders, held on June 24 and December 27, 2012, approved the

amendments to gas supply contracts regarding price fixing for

the second half of 2012 and the first half of 2013, as well as the

volume of gas to be supplied in 2013.

The General Meeting of Shareholders

The Board of Directors

The General Director

Structure of the management bodies

The key principle of workflow

management in the Company is

corporate governance, based on the

clear distribution of the management

bodies’ responsibilities in relation

to decision making, to safeguard

the interests of the shareholders

and to increase the investment

attractiveness of the Company

Man

agem

ent

Bo

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s

1

20

Alexander IvanovichMedvedev,

Chairman of the Board of Directors

ElenaVladimirovna

Mikhailova

Vsevolod Vladimirovich

Cherepanov

AlexanderPavlovich

Dushko

Born on August 14, 1955 in the

town of Shakhtersk, Sakhalin

Region. Graduated from

Moscow Institute of Physics

and Technology. Candidate of

Economics.

2002-2008 – Member of the

Management Committee of

Gazprom, General Director of

LLC Gazexport.

Since 2008, Deputy Chairman

of the Management Committee

of Gazprom, General Director of

LLC Gazprom Export.

Born on April 28, 1977 in the

Pskov Region. Graduated

from Moscow State Industrial

University, majoring in Law,

obtained a MBA from the Russian

Presidential Academy of National

Economy.

Since 2003, Deputy General

Director for Corporate Relations

and Asset Management of

LLC Gazprom Mezhregiongaz

Since 2012, Member of the

Gazprom Management

Committee, Head of Asset

Management and Corporate

Relations Department of

JSC Gazprom.

Born on November 25, 1966 in

Frunze. Graduated from

M.V. Lomonosov Moscow State

University. Candidate of Geology

and Mineralogy Sciences.

2008-2010 – Deputy Director

General and Chief Geologist at

LLC Gazprom Dobycha Nadym

Since 2010, Member of

the Gazprom Management

Committee, Head of the Gas, Gas

Condensate and Oil Production

Department of JSC Gazprom.

Born on June 22, 1964 in

Novodruzhesk. Graduated from

Saint Petersburg State University

of Engineering and Economics.

Since 2005, Deputy Head of

the Department of Finance and

Economics of JSC Gazprom.

Board of Directors over the period of January 1 – June 29, 2012

Board of Directors over the period of June 29 – December 31, 2012

Alexander Ivanovich Medvedev Alexander Ivanovich Medvedev

Olga Petrovna Pavlova Elena Vladimirovna Mikhailova

Vsevolod Vladimirovich Cherepanov Vsevolod Vladimirovich Cherepanov

Alexander Pavlovich Dushko Alexander Pavlovich Dushko

Dr. Rainer Seele Dr. Rainer Seele

Mario Mehren Mario Mehren

Alan James Weatherill Alan James Weatherill

Frank Allan Sivertsen Frank Allan Sivertsen

Information on changes in the Company’s Board of Directors in the reporting year

The members of the Company’s Board of Directors at the end of the accounting period

The Board of Directors

Pursuant to the Charter, the Board of Directors of the Com-

pany shall consist of 8 members.

The Chairman and Members of the Board of Directors did

not hold any shares in the Company in the accounting year.

There were no deals for the acquisition or transfer of Company

shares conducted by the Members of the Board of Directors in

the accounting year.


21

1

Technical Committee

For the purpose of preliminary reviewing of the most impor-

tant issues falling under the competence of the Board of Direc-

tors and obtaining recommendations for decision-making on

such issues, the Company established the Technical Committee.

The process of establishing and operating the Technical

Committee is governed by the Shareholders’ Agreement of

OJSC Severneftegazprom and the Regulations on the Techni-

cal Committee, approved by the Board of Directors.

The Technical Committee consists of 8 members, who are

appointed by the Board of Directors. Candidates are proposed

by the shareholders of the Company as follows: 4 candidates

from JSC Gazprom, and 2 candidates each from Wintershall

Holding GmbH and E.ON E & P GmbH.

The function of the Technical Committee is to provide recom-

mendations to the Board of Directors regarding all significant

technical aspects of the Company’s business within its com-

petence, including the approval by the Board of the Long-Term

Development Plan and Budget, the Additional Field Develop-

ment Plan Draft, the Additional Field Development Plan and

Annual Work Programme and Budget, as well as any amend-

ments and/or supplements thereto.

The establishment of the Committee, which consists of

members possessing significant experience and knowledge in

specialized areas, increases the efficiency and quality of work

of the Board of Directors and consequently provides effective

mechanisms of control over activities of the Company’s execu-

tive body.

Dr. Rainer Seele Mario Mehren Alan James Weatherill

Frank Allan Sivertsen

Born on September 2, 1960

in Bremerhaven (Germany).

Graduated from the University

of Göttingen (Germany), has a

PhD in Chemistry

2000-2009 – Executive

Director of Wingas GmbH & Co.

2002-2009 – Member of the

Board of Executive Directors of

Wintershall Holding GmbH.

2005-2009 – Executive

Director of Wintershall Erdgas

Handelshaus GmbH & Co. KG,

Executive Director of WINGAS

Holding GmbH.

Since 2009, Chairman of the

Board of Executive Directors

of Wintershall Holding

GmbH, Executive Director of

Wintershall Erdgas Beteiligungs

GmbH.

Born on November 24, 1970 in Koblenz (Germany).

Graduated from Saarland University (Germany),

majoring in Business Administration.

2006-2011 – Head of the Finance and Information

Management Department of Wintershall Holding

GmbH, Managing Director of Heidkopf GmbH,

Managing Director of Nordkaspische Explorations-

und-Produktions GmbH, Managing Director of

Wintershall Libyen Oil & Gas GmbH, Managing

Director of Gewerkschaft Röchling GmbH,

Managing Director of Wintershall Russland GmbH.

2007-2011 – Member of the Management Board of

Wintershall AG.

2009-2011 – Managing Director of Wintershall

Norwegen Explorations-und-Produktions GmbH

2008-2011 – Managing Director of Wintershall

Middle East GmbH.

Since 2011, Member of the Management Board of

Wintershall Holding GmbH.

Born on December

17, 1955 in Singapore.

Graduated with a

Bachelor of Mechanical

Engineering from

the University of

Southampton.

2005-2010 – Chief

Engineer of Shell

Global Solutions B.V.

(Netherlands).

Since 2010, General

Director of E.ON

Exploration and

Production Russia (the

legal successor of E.ON

Ruhrgas Exploration and

Production Russia).

Born on 21 August, 1957 in

Time (Norway). Graduated

from the Norwegian School

of Economics and Business

Administration. Master of

Business Administration

(MBA).

2005-2007 – Managing

Director of E.ON Ruhrgas

UK North Sea (Great

Britain).

Since 2008, Chief Executive

Officer of E.ON Exploration

and Production GmbH (the

legal successor of E.ON

Ruhrgas E & P GmbH).

Meeting of Technical Committee

Man

agem

ent

Bo

die

s

1

22

No members of the Technical Committee hold shares of the

Company. There were no deals for the acquisition or transfer

of Company shares conducted by members of the Technical

Committee in the accounting year.

Company’s Board of Directors Report on progress in priority areas

The Board of Directors plays the most important role in en-

suring shareholders’ rights, planning the development strategy

of the Company and ensuring its successful financial and eco-

nomic operations.

The Board of Directors judges the performance of the Com-

pany in priority business areas as being generally successful in


Eight meetings of the Board of Directors took place in 2012,

at which 36 issues regarding various aspects of the Company’s

business were considered.

The Board of Directors of OJSC Severneftegazprom fo-

cused on the following important issues relating to the current

activities of the Company:

• reviewing the shareholders’ proposals regarding candi-

dates for the position of member of the Board of Direc-

tors, to be appointed by vote at the General meeting of

shareholders;

• recommendations regarding the amount of dividend on

the Company shares and terms of payment, based on the

result of the 2011 financial year;

• the approval of the Company’s Annual programme of

works and Budget for 2013;

• the approval of interested party transactions;

• the approval of the amount of remuneration for auditor ser-

vices;

• the convocation of extraordinary General meetings of

shareholders

No. Name Place of work Position

1Stanislav Evgenievich Tsygankov

OJSC Severneftegazprom General Director

2Yulia Viktorovna Sukhanova

OJSC Severneftegazprom Deputy General Director of Economics and Finance

3Egor Alekseevich Efimochkin

JSC Gazprom

Deputy Head of the Directorate – Head of the

Division of Mergers and Acquisition of the

Department of Foreign Economic Activities

4Nazhib Abdulkadyrovich Bilalov

JSC Gazprom

Chief Product Engineer of the Unit for

Reconstruction and Expansion of the Gas, Gas

Condensate and Oil Production Department

5 Dr. Rolf Udo Norbert Pilling Wintershall Russland GmbHDeputy Managing Director for Technical

Development and Joint Ventures Support

6 Ubbenjans Hermann OJSC SeverneftegazpromDeputy General Director for Development and

Strategic Planning

7 Alan James WeatherillE.ON Exploration and Production Russia

(the legal successor of E.ON Ruhrgas Geological

Exploration and Mining Russia)

General Director

8 Dr. Peter ReichetsederE.ON Exploration and Production GmbH

(the legal successor of E.ON Ruhrgas E & P GmbH)Managing Director for Production and Technology

The members of the Technical Committee as of December 31, 2012


23

1

As part of preparing for the extraordinary General meetings

of shareholders, the Board of Directors considered the follow-

ing matters:

• fixing the selling price of gas for the second half of 2012

and the first half of 2013;

• recommendations to the General meeting of sharehold-

ers to approve the supplement agreements to the long-

term gas supply contracts

Remuneration to the Board of Directors members

Members of the Board of Directors received remuneration

to the total value of 4,250,000 RUB in 2012, based on the re-

sults of work in 2011.

Executive Body

According to the Charter of the Company, there is no colle-

gial executive body of the Company (Management Board). The

sole executive body of the Company is the General Director.

Information on the Company auditor

The auditor of the Company is CJSC PricewaterhouseCo-

opers Audit (CJSC PwC Audit)

Address: 10 Butyrsky Val, Moscow 125047, Russian Fede-

ration

The certificate of state registration of the joint stock compa-

ny No. 008.890, issued by the Moscow Registration Chamber

on February 28, 1992.

The certificate of record entry into the Unified State Re-

gister of Legal Entities registered before July 1st, 2002 under

No. 1027700148431, dated August 22, 2002, issued by the

Interdistrict Inspectorate of the Ministry for Taxes and Levies of

the Russian Federation No. 39 for Moscow.

Member of the Non-Commercial Partnership “Audit Cham-

ber of Russia” (NP APR), a self-regulating organization of audi-

tors – registration number 870 in the registry of NP APR mem-

bers.

The audit was approved by the general meeting of share-

holders of the Company on June 30, 2011.

Brief personal profile of the General Director

Term of office: from 25/02/2011 to the present

Born on July 27, 1966 in Moscow.

Graduated from the Plekhanov Russian University of Economics, majoring in Finance and Credit.

Positions occupied in the last 5 years:

2002-2011 – Head of the International Business Department of JSC Gazprom.

Since February 25, 2011 – General Director of OJSC Severneftegazprom.

The labour remuneration of the Company’s General Director is based on the Agreement on labour remu-

neration, a supplement of the Employment Agreement that stipulates the list of social protection and compen-

sation payments.

The General Director does not hold any shares in OJSC Severneftegazprom. No transactions for acquisition

or transfer of Company shares were executed by the General Director in the accounting year.

Stanislav E. TsygankovGeneral Director of OJSC Severneftegazprom

Man

agem

ent

Bo

die

s

1

24

Audit Commission

The Audit Commission is a permanent internal control body,

independent of the officials, management bodies and manage-

ment of the Company.

In its work, the Audit Commission is guided by the Federal

Law “On Joint Stock Companies”, the Charter of the Compa-

ny and the Regulations on the Audit Commission. Pursuant to

the Charter of the Company, the Audit Commission consists of

3 members.

No members of the Internal Audit Commission hold shares

in the Company. No transactions for acquisition or transfer of

Company shares were executed by members of the Internal

Audit Commission in the accounting year.

No. Full name Place of work Position

1 Yulia N. Antonovskaya JSC Gazprom

Chief Economist of the Organizational Directorate

of the Department of Internal Audit of the

Management Committee Administration

2 Judith BussE.ON Exploration and Production GmbH (the legal

successor of E.ON Ruhrgas E & P GmbH)Chief Finance Officer

3 Larissa Janz Wintershall Russland GmbHHead of the Department of Finance and Information

Technologies

Members of the Company’s Audit Commission at the end of the accounting period


25

1


Authorized Capital

Report on Dividend Payments

2


27

2

Authorized Capital

The authorized capital is shown as the sum of the nominal

value of ordinary and preferred shares issued by the Company.

The Company’s authorized capital is divided into 533,330 shares;

it was 39,999,749.40 RUB at the end of the reporting period.

The Company’s authorized capital is fully paid.

All the Company’s issued shares were state registered by the

Federal Service for Financial Markets Regional Office of the Ural

Federal District.

The Company mobilized no financial and other assets result-

ing from the issue of securities in the reporting year.

The Company’s securities were not declared for listing with

stock market operators, nor have been market quoted.

No Kind of securities

Issued shares: Including:

Shares (pcs.) Par value (RUB) Fully paid (pcs.)Partially paid

nominal value (RUB)

1. Company’s authorized capital: 533,330 ------- 533,330 None

2.

2.1.

Ordinary shares,incl. those accounted in the balance sheet

533,324

None60.00

None533,324

NoneNone

None

3. Preferred shares, incl. 6 6 None

3.1.

3.1.1.

Type A preferred sharesincl. those accounted in the balance sheet

2

None2,461,620.00

None2

NoneNone

None

3.2.

3.2.1.

Type B preferred sharesincl. those accounted in the balance sheet

3

None666,692.40

None3

NoneNone

None

3.3.

3.3.1.

Type C preferred sharesincl. those accounted in the balance sheet

1

None1,076,992.20

None1

NoneNone

None

Information on authorized capital as of December 31, 2012

Kind and category (type) of securities

Nominal value of each security

in the issue, RUB

Total number of allotted securities

in the issue

State registration issue number

State registration issue date

Ordinary registered shares 60 533,324 1-02-31375-D July 5, 2011

Type A preferred shares 2,461,620 2 2-10-31375-D October 3, 2011

Type B preferred shares 666,692.4 3 2-08-31375-D October 3, 2011

Type C preferred shares 1,076,992.2 1 2-09-31375-D October 3, 2011

Information on the Company’s equity securities

Aut

horiz

ed C

apita

l. R

epo

rt O

n D

ivid

end

Pay

men

ts

2

28

Report on the Payment of Announced (Accrued) Dividend (Participating Interest Income) on Shares (Participating Interests in the Authorized Capital) of the Company

According to 2011 results, and in compliance with the deci-

sion of the extraordinary General Meeting of Shareholders held

on June 29, 2012 (Minutes No. 25/2012 of June 29, 2012)

RUB 1,831,884 thousand were allocated to pay dividends.

As of December 31st, 2012, dividends were paid in full,

and there are no dividends in arrears.

Information on Changes in the Company’s Capital Reserve

In compliance with the the Company’s Charter, the Com-

pany forms the capital reserve totaling 5 percent of the

Charter capital. The capital reserve was formed in full as of

December 31, 2011, equal to RUB 2,000 trousand.

Information on Changes in the Company’s Additional Capital

As of December 31, 2012, the additional capital was

RUB 25,099,046 thousand. In the reporting year, the capital

surplus amount did not change.

Category (Type) of SecurityAmount of Dividends Paid,

TOTAL, RUB thousandDividend Payment Date

Ordinary shares 1,465,507.20 August 2012

Preferred shares, type A 225,468.28 August 2012

Preferred shares, type B 91,594.20 August 2012

Preferred shares, type C 49,314.32 August 2012

Total: 1,831,884.00 August 2012

Report on the Payment of Announced Dividend on Shares of the Company

Shareholder Number of shares Par value, RUBInterest in authorized

capital, % Percentage of

ordinary shares, %

JSC Gazprom Ordinary shares

Type A preferred shares

Type B preferred shares

Type C preferred shares

266,668266,668

-

-

-

16,000,080.0016,000,080.00

-

-

-

40.000450602840.0004506028

-

-

-

50.0011250250.00112502

-

-

-

Wintershall Holding GmbH Ordinary shares




133,331133,328

2

-

1

13,999,912.20 7,999,680.00

4,923,240.00

-

1,076,992.20

34.999999775019.9993252958

12.3081771107

-

2.6924973685

24.9994374924.99943749

-

-

-

E.ON Exploration & Production GmbH Ordinary shares




133,331133,328

-

3

-

9,999,757.207,999,680.00

-

2,000,077.20

-

24.999549622219.9993252958

-

5.0002243264

-

24.9994374924.99943749

-

-

-

Total 533,330 39,999,749.4 100.00% 100.00%

Company shareholders holding more than 5% of voting shares, at the end of the reporting period


29

2

Cluster of wells at Yuzhno-Russkoye oil and gas condensate field

Gas Exploration,

Production and Marketing

3


31

3

Reserve Status

The Company holds the SLKh No. 11049 NE license on the

geological survey and hydrocarbon raw materials production

within the Yuzhno-Russkoye subsoil area. The area includes

three fields: the Yuzhno-Russkoye oil and gas condensate field,

brought into development in 2007; and the Yarovoye and Za-

padno-Chaselskoye ones, registered in the governmental ba-

lance sheet as exploration fields.

As of December 31, 2012, all the Company’s license liabili-

ties regarding the subsoil geological study were fulfilled in full.

Field

Hydrocarbon reserves as of December 31, 2012.

Gas, bln m3 Condensate, mln tonnes Crude oil, mln tonnes

АВС1

С2

АВС1

С2

АВС1

С2


912.783 163.182 - 3.823 9.288 30.894

Yarovoye field 2.796 10.468 0.212 0.993 0.057 1.203

Zapadno-Chaselskoye field 7.367 0.032 0.043 - - -

Total: 922.946 173.682 0.255 4.816 9.345 32.097

Hydrocarbons

Reserves as of January 1st, 2012

Changes in reserves in 2012 Reserves as of December 31st, 2012

Production + losses

Exploration Reevaluation Transfer

АВС1

С1

АВС1

С2

АВС1

С2

АВС1

С2

АВС1

С2

Crude oil (mln tonnes)

9.345 32.097 - - - - - - - 9.345 32.097

Gas (bln m3) 947.646 174.781 25.363 - - - - 0.662 -1.099 922.946 173.682

Condensate (mln tons)

0.255 4.816 - - - - - - - 0.255 4.816

Description of the raw materials base at the end of the reporting period

Reserve flow of the ABC1 and C

2 categories in the reporting period

Creating long-term growth potential –

improving exploration work efficiency

using state-of-the-art technologies –

is one of the main principles of the

Company’s work

im

ng

is o

mproving e

using state

is one of

Gas

Exp

lora

tion,

Pro

duc

tion

and

Mar

ketin

g

3

32

Development of the Cenomanian and Turonian Gas Deposits

Indexes2012

Project Actual

Annual gas production, total, bln m3/year 25.168 25.363

including:

Cenomanian (PK1)

25.100 25.305

Turonian (Т1-2

) 0.068 0.058

Total gas production, bln m3 114.868 115.657

including:

Cenomanian (PK1)

114.800 115.570

Turonian (Т1-2

) 0.068 0.087

Gas production as a share of initial balance sheet reserves, % 11.448 11.527

including:

Cenomanian (PK1)

17.300 17.376

Turonian (Т1-2

) 0.02 0.026

Gas production in 2012 as a share of initial balance sheet reserves, %

2.508 2.528

including:

Cenomanian (PK1)

3.700 3.805

Turonian (Т1-2

) 0.02 0.017

Commissioning of wells, pcs. 0 4

Producing 0 0

Observation 0 4

Wells stock as of year end, pcs. 163 166

Producing 143 143

including active 143 143

Observation 18 21

Disposal 2 2

Power Capacity of the Booster Pump Stations 4*16 MW 4*16 MW

Well utilization rate 0.95 0.98

Well stock utilization rate 1 1

Comparative characteristics of project and actual development indexes


33

3

Exploration

The 2012 geological exploration in the Yuzhno-

Russkoye license area was carried out in accordance with

the adjusted geological exploration assignment, as ap-

proved by V.A. Markelov, JSC Gazprom Management Board

Deputy Chairman on August 21st, 2012.

These works were carried out in three main directions:

• topical and R&D;

• seismic survey;

• environmental activities and mitigation of adverse con-

ditions of construction.

No exploration wells were constructed in 2012, and no cased

hole tests were performed.

In 2012, the field stage of the comprehensive seismic explo-

ration works on the basis of 3D common depth point method,

with increased density, for 420 km2 of the Turonian-Cenoma-

nian sediments was completed. The comprehensive process-

ing and interpretation of the seismic survey results has started.

The environmental activities and mitigation of adverse con-

ditions of construction were performed; eight obsolete geologi-

cal exploration wells from the old well stock (No. 1, 4, 10, 12,

14, 29, 30 and 107) were abandoned.

Work was completed on the design of the Additional Explo-

ration Project of the Yuzhno-Russkoye license area (continued

from 2011). The Project was reviewed and approved by the

Protocol No. 11-z/2012 of April 20, 2011 of the JSC Gazprom

Gas Industry Commission for Field Development and Subsoil

Use; it also received the positive expert opinion of the West-

Siberian Branch of the State Commission for Mineral Reserves,

No. 020.12-ZS of March 28, 2012.

Within the framework of the adjusted 2012 geological assign-

ment (approved on August 21, 2012), development of the Group

Work Project began for the construction of Yuzhno-Russkoye oil and

gas condensate field wells No. 50, 51, 52, 53, 54 and 55. The com-

prehensive engineering surveys for drilling sites and access roads

were performed; the assignment for project development was de-

veloped and approved; the land allocation surveying and cadastral

works are under way. The continuation of the project work is envi-

sioned by the 2013 Geological Assignment of December 18, 2012.

In 2012, prospecting and appraisal wells No. 40 and 41 and

exploration well No. 113 were reentered and transferred to ob-

servation well stock.

The first production well on the Turonian natural gas deposit at Yuzhno-Russkoye oil and gas condensate field

Gas

Exp

lora

tion,

Pro

duc

tion

and

Mar

ketin

g

3

34

Index 2012 2011 2010

Production (extracted from the reservoir) 25.363 25.667 25.384

Process losses 0.016 0.016 0.025

Gross production of natural gas 25.347 25.651 25.359

Gas for technical needs 0.065 0.068 0.031

Gas losses during exploitation technological equipment

0.002 0.002 0.001

Sales gas volume 25.280 25.581 25.327

Gas Production in 2010-2012, bln m3

The C1 and C

2 category reserves changed in the Zapad-

no-Chaselskoye field within the Zapadno-Chaselskiy, Kynsko-

Chaselskiy, and Yuzhno-Russkoye license areas and the undis-

tributed Yamal-Nenets Autonomous Area subsoil fund.

The review by the State Commission for Mineral Reserves

“Rosnedra” resulted in the changed gas reserves of the Yuzhno-

Russkoye license area (Protocol of State Commission for Mine-

ral Reserves FAN No 18/671-pr of October 18, 2012) being

transferred to the OJSC Severneftegazprom balance:

Production Drilling

In 2012, the project for the construction of production well

No. 184 at the Yuzhno-Russkoye oil and gas condensate field

began. Within the Project framework, the comprehensive en-

gineering surveys for drilling sites and access roads were per-

formed; the design assignment was developed and approved.

No drilling was carried out in 2012 (vs. 2,667 metres in

2011). Within the reporting period, Well 2N was included in the

observation well stock.

Gas Production

The 2012 gas production plan was 25.000 bln m3.

The 2012 actual gross production was 25.347 bln m3.

The plan assignment was 101.4% (+ 347 mln m3) fulfilled.Field

Reserves increment, category С1

Gas, bln m3

Crude oil, mln tonnes

Condensate, mln tonnes

Zapadno-Chaselskoye field

0.662 0 0

Total 0.662 0 0

Changes in gas reserves accruing

to the Yuzhno-Russkoye oil and gas

condensate field


35

3

160

0

20

40

60

80

2007 2008 2009 2010 2011 2012

100

120

140

30,000

–

5,000

10,000

15,000

20,000

25,000

42

1,256

15,066

22,584 23,359 25,651 25,347

106

141 142 143 143

Operating production wells

Sales gas, bln m3

Pro

duction w

ells

, p

cs.

2007 – 2012 Gross production of natural gas

Gas-collecting system of Yuzhno-Russkoye oil and gas condensate field

Financial Results

4


37

4

This section represents the review of the financial status of OJSC Severneftegazprom as of December 31, 2012 and shall be considered in association with the Financial state-ment of the Company for 2012, formed up in accordance with the Russian account-ing standards and available to all concerned parties on the Company’s official web site at: http://www.severneftegazprom.com/

Implementation of the Annual Work Programmе and Budget of the Company in 2012

The Annual Work Programme and the Budget of the Company were approved by the Board of Directors in accordance with

the resolution of the Minutes No. 56/2011, dated the 5th of December, 2011.

All gas produced by the Company is sold under long-term

gas supply agreements to the following consumers:

• 40% - JSC Gazprom;

• 35% - CJSC Gazprom YRGM Trading;

• 25% - CJSC Gazprom YRGM Development.

The quality requirements of the gas delivered to consumers

from the Yuzhno-Russkoye oil and gas condensate field is regu-

lated in accordance with the corporate standard of Gazprom

089-2010 “Combustible natural gas supplied and transpor-

ted via main gas pipelines. Technical specifications.” The given

standard is aimed at improving the quality of production and

ensuring the safety and efficiency in the function of gas trans-

portation systems.

Current gas quality is measured at the gas measuring station in

the Yuzhno-Russkoye oil and gas condensate field using the inter-

ference dew point analyzer Kong-Prima-10 and flow chromato-

graph. Additionally, 4 times a month, according to the Technical

Agreement between LLC Gazprom Transgaz Surgut and OJSC

Severneftegazprom, gas laboratory analysis is performed in an ac-

Item2012 Deviation actual / budget 2012

Budget Actual In thousand m3 %

ANNUAL PROGRAMME OF WORKS

Gross gas production, thousand m3 25,000,000 25,346,741 346,741 1%

Volume of marketable gas,thousand m3 24,903,619 25,280,292 376,673 2%

Total marketable gas sales, thousand m3, incl.:

24,903,619 25,280,292 376,673 2%

JSC Gazprom 9,961,447 10,112,117 150,670 2%

CJSC Gazprom YRGM Trading 8,716,267 8,848,102 131,835 2%

CJSC Gazprom YRGM Development 6,225,905 6,320,073 94,168 2%

2012 Annual Programme of Works

JSC Gazprom (40%)

CJSC Gazprom YRGM Trading (35%)

CJSC Gazprom YRGM Development (25%)

Sales of the gas produced by the Company

Fin

anci

al R

esul

ts

4

38

In million RUB, excl. VAT2012 Deviation actual / budget 2012

Budget Actual in million RUB %

CURRENT OPERATING EXPENDITURE: 26,350 25,890 -460 -2%

Materials 331 328 -4 -1%

Energy purchase 3 11 8 240%

Payroll, social benefits and payments 1,631 1,580 -51 -3%

Insurance premiums 251 269 18 7%

Depreciation 6,035 6,027 -9 0

Lease of fixed assets 126 119 -7 -5%

Taxes and other obligatory payments, incl: 13,709 13,865 156 1%

Mineral extraction tax (MET) 12,724 12,901 177 1%

Other taxes included in cost value of gas (works, services)

985 964 -21 -2%

Geological exploration (contracting mode) 535 541 6 1%

Expenditure on insurance contracts 296 282 -14 -5%

Overhaul (contracting mode, excl. inventory) 0 0 0 0

Other expenditure, incl.: 3,433 2,868 -565 -16%

Interests and one-off payments due on loans 1,811 1,420 -391 -22%

Current Operating Expenditure

credited laboratory in the Yuzhno-Russkoye oil and gas condensate field.

Certificate of gas quality is issued based on the laboratory test results.

Actual revenue in 2012 increased by 8% in comparison

with the budget indicator due to:

• Increase in the actual volume of gas sales;

• Increase of gas sale price in the second half of 2012 in

accordance with the price calculation formula, settled

by the Shareholders’ agreement and Gas supply agree-

In million RUB, excl. VAT2012 Deviation actual / budget 2012


TOTAL REVENUE: 31,545 33,962 2 417 8%

JSC Gazprom 12,618 13,585 967 8%

CJSC Gazprom YRGM Trading 11,041 11,887 846 8%

CJSC Gazprom YRGM Development 7,886 8,490 604 8%

Revenues from gas sales


39

4

ments.

The actual expenditure of the Company, budgeted under

current activity for 2012, amounted to 25,890 million RUB,

which is lower by 460 million RUB or 2% lower than budget in-

dicator. The indicated saving is mainly caused by:

• Reduction of actual expenditure under the budget

clause “Interests and one-off payments due on loans”,

caused by early partial redemption of debt in 2012, a

decrease of actual inter-bank rates, and also apprecia-

tion of the national currency;

• Optimization of the operational process and implemen-

tation of retrenchment programme, carried out by the

Company.

The 1% growth of MET payments against a planned indicator

is caused by an increase in the volume of actual gas production.

The reduction of capital expenditure by 19% in comparison

with budget indicator is due to the refinement of design and

engineering arrangements, resulting in adjustments of progress

schedule.

All ratios under the Annual work programme and Budget

for 2012 were fully executed. Deviations of the actual indicators

against budget are within the limits of permissible value.

In million RUB, excl. VAT 2012 Deviation actual / budget 2012


CAPITAL EXPENDITURES: 1,433 1,161 -272 -19%

31,545

+8%

33,962

Budget 2012 Actual 2012 Budget 2012 Actual 2012

24.904 25.280

+2%

Budget 2012 Actual 2012

1.267 1.343

+6%

Capital Expenditures

Gas sales revenue,

in mln RUB

Sales gas,

in bln m3

Annual average gas sale

price, in RUR

per thousand m3

Fin

anci

al R

esul

ts

4

40

Analysis of change in indicators of the Statement on 2012 financial results

The following factors influenced the indicators in the 2012

Statement of financial results and accordingly the amount of

net profits over the accounting period, in comparison with the

previous year:

• gas sales revenue increased by 7,923 million RUB or by

30% in comparison with the previous year and amounted

to 33,962 million RUB. The growth in gas sales revenue

is due to an increase in the gas sales price by 32% as

compared to the previous year. The calculation of gas

sales price is done according to the gas price formula,

fixed by the Shareholders’ Agreement and gas supply

agreements;

• the cost of gas sold increased by 7,868 million RUB or

by 52% as compared to the previous year and amount-

ed to 23,086 million RUB. The increase in expenditure

is mainly due to an increase in the mineral extraction tax

as the rate has more than doubled (237 rubles in 2011,

509 rubles in 2012);

• the balance of other incomes and expenses over 2012

resulted in the positive value of 1,172 million RUB. Posi-

tive balance increase of other incomes and expenses

of 2,234 million RUB, in comparison with the previous

accounting period, is caused by the essential increase

of exchange gains from re-evaluation of the Company’s

liabilities in foreign currency, as well as reduction over

2012 of one-off payments within project facility agree-

ment obligations;

• current profit tax increased by 557 million RUB due

to the increase of the tax base caused by gas sales

revenue growth and growth of non-operating income

Unit of measurement – thousand RUB

Item Line No. 2012 2011Deviation

2012 / 2011

Change in %2012/2011

(+/-)

Revenue 2110 33,961,806 26,038,396 7,923,410 30%

Cost of sales 2120 -23,086,086 -15,217,725 7,868,361 52%

Gross profit 2100 10,875,720 10,820,671 55,049 1%

Commercial expenses 2210 0 0 0 0

Administrative expenses 2220 -1,134,394 -1,262,402 -128,008 -10%

Sale profit 2200 9,741,326 9,558,269 183,057 2%

Interest receivables 2320 809,261 625,677 183,584 29%

Interest payable 2330 -1,414,246 -1,499,582 -85,336 -6%

Balance of other income and expenses (2340+2350) 1,172,116 - 1,062,314 2,234,430 210%

Profit before tax 2300 10,308,457 7,622,050 2,686,407 35%

Current profit tax 2410 -1,502,988 -945,966 557,022 59%

Tax on previous years profit 2411 -193,527 380,351 -573,872 -151%

Change in deferred tax liabilities 2430 -563,474 -989,510 426,036 -43%

Change in deferred tax assets 2450 -5,285 -114,057 108,772 -95%

Other 2460 935,010 -12,667 947,677 -

Net profit for the accounting period 2400 8,978,193 5,940,201 3,037,992 51%

Analysis of change in indicators of the Statement on 2012 financial results


41

4

(exchange differences), as compared to the previous

year;

• a significant growth factor in the Company’s net prof-

it for the accounting period was the right to use the

profit tax benefit in accordance with the Law of YNAA

No. 146-ZAO, dated 24th of December, 2012 “Con-

cerning the introduction of amendments to the Law

of Yamal-Nenets Autonomous Area “About the list of

companies implementing the priority investment proj-

ects within the Yamal-Nenets Autonomous Area”. Since

2013 and for the next five years the Company has the

right to apply the reduced profit tax rate of 15,5% (in-

stead of the common rate of 20%). In conjunction with

the applicable tax benefit, the Company restated the

deferred tax assets and liabilities in 2012, resulting in an

increase in the net profit of the Company for 2012 to the

value of 935 million RUB.

As a result,

the Company’s net profit for 2012

increased by 3,038 million RUB

or 51% as compared

to the previous year, and amounted

to 8,978 million RUB Flowline of the gas-collecting system at Yuzhno-Russkoye oil and gas condensate field

Fin

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42


Item Line No.

Changes in natural termsChange of specific weight

in assets

At the end

of the period

At the beginning

of the period

Change over the period Specific weight

in thous. RUB

In %

At the end

of the period

At the beginning

of the period

Change

I. NON-CURRENT ASSETS 1100 52,553,042 57,469,398 -4,916,356 -9% 65% 71% -6%

Intangible assets 1110 3,192 5,155 -1,963 -38% 0 0 0

Results of research and development

1120 26,885 11,094 15,791 142% 0 0 0

Fixed assets including: 1150 51,253,627 56,332,850 -5,079,223 -9% 64% 70% -6%

Fixed assets 1151 50,670,566 54,332,838 -3,662,272 -7% 63% 67% -4%

Capital investments in progress 1154 583,061 2,000,012 -1,416,951 -71% 1% 3% -2%

Deferred tax assets 1180 115,661 154,525 -38,864 -25% 0 0 0

Other non-current assets 1190 1,151,566 963,595 187,971 20% 1% 1% 0

II. CURRENT ASSETS 1200 27,385,599 23,372,955 4,012,644 17% 35% 29% 6%

Inventories, including: 1210 741,906 673,532 68,374 10% 1% 1% 0

Raw materials, other materials and

other similar valuables 1211 730,517 667,359 63,158 9% 1% 1% 0

Finished products for resale 1214 11,389 6,173 5,216 84% 0 0 0

VAT recoverable 1220 0 53 -53 -100% 0 0 0

Receivables including: 1230 4,626,982 5,052,553 -425,571 -8% 6% 6% 0

Receivables due after 12 months 1231 291,172 430,643 -139,471 -32% 0 0 0

Receivables due within 12 months incl: 1235 4,335,810 4,621,910 -286,100 -6% 5% 6% 0

Purchasers and customers 1236 3,902,004 2,748,962 1,153,042 42% 5% 3% 2%

Advances issued 1238 214,768 247,036 -32,268 -13% 0 0 0

Other receivables 1239 219,038 1,625,912 -1,406,874 -87% 0 2% -2%

Financial investments 1240 3,583,538 0 3,583,538 100% 5% 0 5%

Cash, including: 1250 18,362,514 17,575,679 786,835 5% 23% 22% 1%

Settlement accounts 1252 17,016,715 12,767,517 4,249,198 33% 21% 16% 6%

Currency accounts 1253 192,834 516 192,318 37,271% 0 0% 0

Other cash 1259 1,152,965 4,807,646 -3,654,681 -76% 1% 6% -5%

Other current assets 1260 70,659 71,138 -479 -1% 0 0 0

BALANCE (lines 1100 + 1200) 1600 79,938,641 80,842,353 -903,712 -1% 100% 100% 0

Analysis of change in the asset structure of the Company in 2012


43

4

Within the accounting period, the Company’s assets re-

duced integrally by 904 million RUB (-1%) and equaled to

79,939 million RUB.

The assets reduced under the following balance sheets:

• fixed assets decreased by 3,662 million RUB or by 7%,

due to the accumulated depreciation for the account-

ing period;

• capital investments in progress decreased by 1,417 mil-

lion RUB or by 71%, due to the completion of construc-

tion and commissioning of fixed assets;

• receivables decreased by 426 million RUB or by 8%.

At the same time, long-term receivables for the accounting

period decreased by 140 million RUB, which was caused by

JSC Gazprom settling a part of the liabilities (penalty) for failure to

take gas off in 2009. According to accepted liabilities within the

gas supply agreements, the total penalty amount should to be

paid within 5 years from January 1, 2011, to December 31, 2015.

The reduction of short-term receivables within accounting

period by 286 million RUB was mainly caused by the retrench-

ment of tax payments. Herein, trade receivables (purchasers

and customers) increased due to gas sale price escalation.

The assets increased under the following balance sheets:

• financial investments increased by 3,584 million RUB or

by 100% due to the placement of bank deposits for the

period of more than 3 months;

• cash increased by 787 million RUB or by 5%;

• inventories increased by 68 million RUB or by 10% due

to the formation of emergency stocks and exchange

fund of spare parts, in accordance with industrial safe-

ty requirements for the operation of hazardous produc-

tion facilities.

Fixed Assets

Capital Investments in Progrerss

Others

54,333

2,000

1,136

5831,299

-9%

50,671

2011 2012

52,553 MRURas of 31 Dec 2012

Cash

Finansial Investments

Receivables

Others

27,386 MRURas of 31 Dec 2012

17,576

5,053

744

813

+17%

18,363

3,584

4,626

2011 2012

Non-current assets, in million RUB Current assets, in million RUB

Fin

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44

Analysis of change in the liabilities structure of the Company in 2012


Item Line No.

Changes in natural termsChange of specific weight

in assets

At the end of the

period

At the beginning

of the period

Change over the period Specific weight

in thous. RUB

In % At the

end of the period

At the beginning

of the period

Change

III. EQUTY AND RESERVES 1300 41,879,454 34,733,145 7,146,309 21% 52% 43% 9%

Share capital 1310 40,000 40,000 0 0 0 0 0

Revaluation of non-current assets

1340 47,142 47,142 0 0 0 0 0

Additional capital 1350 25,099,046 25,099,046 0 0 31% 31% 0

Reserve fund 1360 2,000 2,000 0 0 0 0 0

Retained earnings 1370 16,691,266 9,544,957 7,146,309 75% 21% 12% 9%

IV. LONG-TERM LIABILITIES

1400 27,115,017 36,745,629 -9,630,612 -26% 34% 45% -12%

Borrowed funds, including: 1410 23,778,741 33,004,231 -9,225,490 -28% 30% 41% -11%

Bank loans repayable

after 12 months 1412 23,778,741 33,004,231 -9,225,490 -28% 30% 41% -11%

Deferred tax liabilities 1420 3,336,276 3,741,398 -405,122 -11% 4% 5% -1%

V. SHORT-TERM LIABILITIES

1500 10,944,170 9,363,579 1,580,591 17% 14% 12% 2%

Borrowed funds, including: 1510 7,106,006 6,902,967 203,039 3% 9% 9% 0

Current long-term debt 1513 7,106,006 6,902,967 203,039 3% 9% 9% 0

Payables, including: 1520 3,522,755 2,157,728 1,365,027 63% 4% 3% 2%

Suppliers and contractors 1521 299,056 231,606 67,450 29% 0 0 0

Payables to state non-

budgetary funds1523 21,597 0 21,597 100% 0 0 0

Payables to personnel 1522 34,933 0 34,933 100% 0 0 0

Payable taxes and duties 1524 3,110,142 1,918,818 1,191,324 62% 4% 2% 2%

Other payables 1525 57,027 7,304 49,723 681% 0 0 0

Provisions for liabilities 1540 315,409 302,884 12,525 4% 0 0 0

BALANCE (lines 1300+1400+1500)

1700 79,938,641 80,842,353 -903,712 -1% 100% 100% 0

Analysis of change in the liabilities structure of the Company in 2012


45

4

Within the accounting period, the Company’s liabilities de-

creased by 904 million RUB (-1%) and equaled to 79,939 mil-

lion RUB.

The amount of liabilities decreased due to a reduction in

long-term liabilities under bank loans by 9,225 million RUB or

by 28% as compared to the previous year.

The amount of liabilities increased within the accounting

period mainly under the following balance sheets:

• retained earnings increased by 7,146 million RUB or by

75%. The retained earnings markup is caused by the

net profit of 8,978 million RUB, earned during 2012.

A reduction in profit of 1,832 million RUB for the pre-

vious years was due to dividend payment in 2012,

according to the results of 2011;

• payables increased by 1,365 million RUB or by 63%,

which was caused mainly by a 1,191 million RUB in-

crease in tax liabilities under the mineral extraction tax

and VAT as of the end of the accounting period, due to

the raising of the tax base subject to revenue growth.

Long-term Credit Loans

Deferred Tax Liabilities

33,004

3,741

-26%

23,779

3,336

2011 2012

27,115 MRURas of 31 Dec 2012

Current Long-term Debt

Payable Taxes and Duties

Other Short-term Indebtedness

6,903

1,919

+17%

7,106

3,110

2011 2012

542

728

10,944 MRURas of 31 Dec 2012

Shareholders’ Equity

Profit of Previous Years

Net Profit for the Accounting Period

25,188

9,545

+21%

25,188

2011 2012

7,713

8,978

41,879 MRURas of 31 Dec 2012

Long-term liabilities,

in million RUB

Short-term liabilities,

in million RUB

Equity and reserves,

in million RUB

Fin

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46

Interest rate 2011 2012 Deviation 2012/2011

EUR tranche, floating rate 3.79 3.14 - 0.65

USD tranche, floating rate 2.65 2.81 + 0.16

RUB tranche, fixed rate 11.4 11.4 -

Analysis of debt liabilities

On the 25th of May 2011, financial closure of the transaction

was effected, pursuant to the project facility agreement signed in

March 2011 for the total amount equivalent to EUR 1.1 bln, pro-

vided by the international consortium of banks and “Gazprom-

bank” (Open Joint-Stock Company). The loan repayment date is

31st of December 2018 with the possibility of prepayment (Cash

sweep).

The Company executed partial redemption of multi-currency

obligations during 2012, which integrally reduced the debt bur-

den by 19% as compared to the previous year.

The interest rate for foreign currency tranches is deter-

mined at the rate of Libor/Euribor + margin (2.35% from 2011

to March 31, 2014; 2.50% from April 1, 2014 to March 31,

2017; 2.75% from April 1, 2017 to December 31, 2018).

The interest rate for ruble tranche is fixed at 11.4%. Euro

USD

RUR

5,079

-19%

4,098

450

2011 2012

324

557

402

Currency, in mln

Raised funding under project

facility agreement

Settlement in 2011

Settlement in 2012

EUR 474 72 78

USD 657 100 108

RUB 5,993 914 981

Annual average interest rate for loans

Loan liabilitiesLoan liabilities, in mln


47

4

Analysis of cash flow

• Net cash from current operations increased by 8% up

to 14,851 million RUB. The increase of net cash from

current operations is caused by a growth in gas sales

revenue, and also by a decline in profit tax payments

due to intake within the accounting period of advance

made payments.

• Reduction in net cash from investment activity is caused

by movements of deposit accounts with more than

3 months maturity. In December 2011, the amounts

placed in deposits with maturity exceeding 3 months

were received back (reflected in the line Proceeds from

investment activities) and were allocated to pay divi-

dends to the Company’s shareholders. As of Decem-

ber 31, 2012, the funds standing to the credit of debt

service reserve accounts were placed in fixed term de-

posits with maturity exceeding 3 months in an overseas

bank account in accordance with provisions of project

facility agreement.

• Net cash used in financial operation decreased by

33% as compared to the previous year and equaled

to 9,402 million RUB. This change is mainly caused by

a reduction in dividend payments (1,711 million RUB

in 2012; 12,329 million RUB in 2011, with the deduc-

tion of profit tax). The total amount of credit redemp-

tion within accounting period amounted to 7,691 mil-

lion RUB.

Indicator, million RUB As of 31/12/2012 As of 31/12/2011 Deviation 2012 /

2011

Change in % 2012/2011

(+/-)

Short-term credits and loans 7,106 6,903 203 + 3%

Long-term credits and loans 23,779 33,004 -9,225 - 28%

Cash and cash equivalents including cash deposited for terms over 3 months and accounted for as financial investments

- 21,946 - 17,576 - 4,370 + 25%

Net debt 8,939 22,331 - 13,390 - 60%

Indicator, million rubles 2012 2011 Deviation 2012 /

2011Change in %

2012/2011(+/-)

Net cash from current operations 14,851 13,796 1,055 8%

Net cash from (used in) investment operations

-4,623 9,878 -14,501 -147%

Net cash from (used in) financial operations

-9,402 -14,050 4,648 -33%

Net debt

Analysis of cash flow

Fin

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Analysis of Key Financial Ratios

RatioAs of

31 Dec 2012As of

31 Dec 2011Change over

the periodEconomic value of ratios

Equity Ratio 0.52 0.43 +0.09 Equity to Total Capital

Financial Leverage Ratio 0.91 1.33 -0.42 Borrowed Capital to Equity

Working capital financed by equity to total assets ratio

-0.39* -0.97* +0.58 Own current assets to total current assets

Investment coverage Ratio 0.86 0.88 -0.02 Equity and long-term liabilities to total capital

Current Assets to Equity Ratio -0.25* -0.65* +0.4 Own current assets to equity sources

Current Assets Mobility Ratio 0.80 0.75 +0.05The most mobile part of current assets to total

value of current assets

Reserves to Production Ratio -14.39* -33.76* +19.37 Own current assets to stock (inventories) value

* For calculation of the above ratios, long-term liabilities under project financing are taken into account when determining own current assets. In the case of calculation of own current assets without taking into account long-term liabilities under project financing, the ratios have the following values:

• - the working capital financed by equity to total assets ratio = 0.48 (as of 31/12/2011 = 0.44);• - the Current Assets to Equity Ratio = 0.31 (as of 31/12/2011 = 0.30); • - the Reserves to Production Ratio = 17.66 (as of 31/12/2011 = 15.24).

RatioAs of 31 Dec

2012As of 31 Dec

2011Change over

the periodEconomic value of ratios

Current Liquidity Ratio (Asset Coverage Ratio)

2.48 2.45 +0.03

Current assets to short-term liabilities. Shows

coverage of short-term liabilities by all current

assets

Quick (Intermediate) Liquidity Ratio 2.41 2.38 +0.03

Liquid assets to short-term liabilities. Shows

security of short-term liabilities with monetary

funds and short-term financial assets and short-

term receivables

Absolute Liquidity Ratio 2.01 1.88 +0.13

High-liquid assets to short-term liabilities.

Shows the part of short-term liabilities which

may be repaid immediately

Key Financial Stability Ratios

Key Liquidity Ratios


49

4

Rates of Return 2012 2011 Change over the period

Profit margin (in kopecks per ruble of revenues)

28.7 36.7 -8.0

Return on sales by EBIT, in % 34.5 35.0 -0.5

Return on sales by net profit (in kopecks per ruble of revenues)

26.4 22.8 +3.6

Interest Payable Coverage Ratio (ICR) 8.3 6.1 +2.2

Profitability Analysis

Absorbers of the gas-dehydration complex at Yuzhno-Russkoye oil and gas condensate field

Investments

5


51

5

The Company’s key objectives in capital investing are:

• achieving the key indicators of the Long-term Develop-

ment Plan for the Cenomanian and Turonian Deposits

in the Yuzhno-Russkoye oil and gas condensate field;

• fulfilling the geological exploration works plan according

to the existing license liabilities;

• implementing the approved design solutions for com-

missioning, reconstructing and upgrading the main pro-

duction facilities at the main and auxiliary production;

• minimising risks.

The principal directions of investment are:

• completing in 2012 the construction and commissioning

of the bilateral double bottom operating production gas

well for the Turonian field, and several Yuzhno-Russkoye

oil and gas condensate field systems and facilities;

• continuing in 2012 project development and construc-

tion of the facilities envisioned for launching in 2013 and

later on;

• launching in 2015 Booster Compressor Station #1 stage

2, envisioned in the Company’s long-term development

plan;

• reconstruction and upgrade of the facilities, equipment,

and systems of the Yuzhno-Russkoye oil and gas con-

densate field to ensure their safe operation according

to health and safety, and environmental requirements.

An essential aspect

of the Company’s activities

is ensuring a reliable basis

for sustainable development

o

i

fo

Indicator in million RUB, excl. VAT

2011 2012Change

2012 / 2011

Actual Plan Actual +/- %

Capital investments

1,062 1,433 1,161 + 99 + 9%

Capital investments

535

2,379

2,384

Actual 2011 Budget 2012 Actual 2012

Geological Exploration

Construction

Production Drilling

Equipment not Covered by Estimates of Constructions Costs

32

19

16

13

Execution of Scientific-research,

Design-experimental and Technological Works

R&D of Future Years

625

272

165

954

128

2011 2012

Commissioned fixed assets, in million RUB

Capital expenditure, in million RUB

Technology and Innovations

6


53

6

Well No. 184

In 2010, OJSC Severneftegazprom began implementing a

pilot project to construct the first experimental bilateral produc-

tion well No. 174 for the Yuzhno-Russkoye oil and gas conden-

sate field’s Turonian deposits. In December 2011, the Turonian

gas came to the Unified Gas Supply System of Russia.

The analysis of well No. 174 operation in 2012 supported

the chosen solutions: the well had a large enough horizontal

tailing-in (300 m) for productive horizons, which enabled a daily

production rate of about 200,000 m3 and about 56 mln m3 of

gas production in 2012.

It should be noted that the Western Siberia has practically

no experience in developing the Turonian deposits, hence the

necessity of the pilot works to select the most promising well

construction and operation techniques.

In 2012, within the framework of the “Yuzhno-Russkoye

Field’s Turonian Gas Deposits Reservoir Development Chart”,

the OJSC Severneftegazprom Directorate for field geology, de-

velopment, and licensing and LLC TiumenNIIgiprogaz specialists

analysed the various designs of wells for different penetrations

of the Turonian sub-layers.

The analysis has shown that increasing the wellbore penet-

ration by seam up to 500 m and more will yield a significant

increase of the single bottom well. The uprise wellbore wells

have the best productivity due to the longer bore and the best

among the analysed profiles fluid carryover.

To substantiate the new technologies, and clarify the de-

posit properties, the decision was made to arrange in the vici-

nity of the cluster No.18 a single bore ascending wellbore well

with 800m penetration.

The construction of uprise profile Well No. 184 will allow to:

• optimise the wells’ design and the earlier solutions for the

Yuzhno-Russkoye oil and gas condensate field’s Turoni-

an deposit development;

• optimise the expenses and improve the cost efficiency

for the Yuzhno-Russkoye oil and gas condensate field’s

Turonian deposit development.

The Company’s gas production principle:

applying innovative solutions

and state-of-the-art techniques

and technologies of field

development and exploitation,

improving exploration work

and efficiency of gas production

The ceremony of official commencing of the first production well on the Turonian natural gas deposit

Tech

nolo

gy

and

Inno

vatio

ns

54

6

The control system for gas process losses and the system for greenhouse gas extraction and collection

To improve the energy efficiency of the single chain of

natural gas production, transport, processing, storage,

and distribution processes at all stages of operation, the

OJSC Severneftegazprom has, within the R&D framework,

developed and patented the innovative control system for

gas process losses after Stationary Gas Unit GPA-16DKS-09

“Ural” in the Yuzhno-Russkoye oil and gas condensate field.

The implementation of the innovative System pilot prototype

at the R&D stage will allow the general concept of efficient energy

saving and environmental safety to be determined in the Rus-

sian fuel and energy complex and other industries, where the

gas pumping units with dry gas dynamic seals to protect the

magnetic bearings and ensure the safe operation conditions of

the gas pumping units of booster compressor stations are used.

RUSSIAN FEDERATIONUTILITY MODEL PATENT

№ 122131

AUTOMATED SYSTEM FOR CONTROL OF PROCESS GAS LOSSES

OF GAS PUMPING UNITS OF BOOSTER COMPRESSOR STATIONS

Title holder(s): Open Joint Stock Company Severnefte-

gazprom (RU)

Author(s): Tsygankov Stanislav Evgenievich (RU), Sorokin

Anatoliy Aleksandrovich (RU), Kasyanenko Andrey Aleksandro-

vich (RU)

Application No 2012118165

Utility model priority 03 May 2012

Registered in Russian Federation State Register of uti-

lity models on 20 November 2012.

Term of patent expires on 03 May 2022.

Head of Federal Agency for intellectual property

B.P. Simonov

RUSSIAN FEDERATIONUTILITY MODEL PATENT

№ 119415

GREENHOUSE GASES REMOVAL AND COLLECTION SYSTEM FROM GAS PUMPING UNITS

Title holder(s): Open Joint Stock Company Severnefte-

gazprom (RU)

Author(s): Tsygankov Stanislav Evgenievich (RU), Sorokin

Anatoliy Aleksandrovich (RU), Kasyanenko Andrey Aleksandro-

vich (RU)

Application No 2012112970

Utility model priority 03 April 2012

Registered in Russian Federation State Register of uti-

lity models on 20 August 2012.

Term of patent expires on 03 April 2022.

Head of Federal Agency for intellectual property

B.P. Simonov


55

6

Energy Consumption

The Company has been working to ensure efficient energy

use, and developing and implementing measures for reducing

heat and power consumption, as well as programmes for efficient

use of energy resources.

Key goals for improving energy efficiency:

• using advanced energy efficiency management methods

and approaches;

• optimising the available technological processes and

improving the energy efficiency in terms of energy con-

sumption, and maintaining the key parameters of tech-

nological processes;

• permanent monitoring of economic and efficient use of

energy resources;

• improving the energy efficiency in the electricity and

heat energy transmission and distribution systems;

• employing the energy efficiency criteria to analyse

and improve the available business processes and

when designing and implementing new production

facilities; and

• implementing up-to-date systems for the energy and

key process parameters of technological accounting.

No.Type of the energy resources

UoM.

2011 2012 Deviation from 2011

report plan report

+,- %total

Incl. own

productiontotal total

Incl. own

production

Natural gas mln. m3 68.24 68.24 93.95 64.87 64.87 -3.37 -5%

mln. rubles 43.73 43.73 90.63 59.44 59.44 15.71 36%

2 Power

thousand.

kW*h26,635 25,573 32,401 27,066 25,964 431 2%

mln. rubles 216.34 213.7 255.35 265.02 262.14 48.68 22%

3 Heat energyGcal 32,956 31,817 40,916 32,958 29,709 2 0%

mln. rubles 75.56 73.46 99.96 81.96 71.58 6.40 8%

4 Diesel fuel

thousand.

tonnes0.75 - - 0.74 - -0.01 -1%

mln. rubles 20.17 - - 22.01 - 1.84 9%

5 Car petrol AI-95

thousand.

tonnes0.19 - - 0.29 - 0.10 55%

mln.

rubles.5.38 - - 9.09 - 3.71 69%

6 Car petrol AI-92

thousand.

tonnes0.27 - - 0.25 - -0.02 -7%

mln. rubles 6.98 - - 6.74 - -0.24 -3%

Consumption of energy resources in physical and monetary terms

Tech

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gy

and

Inno

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ns

56

6

Key activities

Resulting saving in fuel and energy resources

Natural gas, mln m3

Electric energy, mln kW*h

Heat energy, Gcal

Fuel and energy resources,

tonnes of reference fuel

Plan Actual Plan Actual Plan Actual Plan Actual

Replacing incandescent lamps with energy saving

ones 0.240 0.176 - -

Installing a frequency regulator on the electric

drive of the fire water supply circulating pump- - 0.035 0.035 - - - -

Applying liquid heat insulation onto pipes inheat

units of buildings and structures - - - - 30.420 30.420 - -

Implementing the “Booster Compressor Station-1

factory control system” algorithm5.360 5.360 - - - - 6.185 6.185

TOTAL 5.360 5.360 0.275 0.211 30.420 30.420 6.185 6.185

The Company’s Energy Saving Programme performance

To improve operating efficiency, the Company has been

consistently implementing the policy of energy saving and im-

proving the energy efficiency of production processes. This

system-based work employs medium and long-term planning

mechanisms.

The 2012–2014 energy efficiency improvement plan was

approved in December 2011.

The Company’s primary targets in this area are:

• maximally realising the energy saving potential in all the

activities based on the Company’s energy saving policy

and improvement in energy saving management;

• improving the Company’s energy efficiency based on

innovative technologies and equipment use; and

• ensuring a reduction in the environmental footprint.


57

6


Sustainable Development

7


59

7

Social policy

In order to achieve strategic and operational objectives,

OJSC Severneftegazprom is relying upon the formation of a

competitive, highly professional and cohesive team, whose

energy and responsible behavior is the key to efficient and un-

interrupted production activities of the Company.

The Company has established itself as a socially responsible

employer, building a system of governance based on respect

for each employee’s rights, as well as ensuring occupational

and industrial safety standards, implementation of modern cor-

porate culture and professional ethics. OJSC Severneftegaz-

prom guarantees its every worker unconditional respect to-

wards labor rights in accordance with the Labor Code of the

Russian Federation and international laws.

The Company has been consistently implementing best

Russian and international practices for creating a favorable

work environment for its employees, and provides most active

and responsible of them with development opportunities and

career advancement. OJSC Severneftegazprom staff is provid-

ed with various benefits, health insurance and a private pen-

sion scheme.

The Company’s production activities are concentrated in

uninhabited, remote areas with harsh environmental condi-

tions. The rotation method used by the Company for organis-

ing labor at the sites of the Yuzhno-Russkoye oil and gas con-

densate field is the most effective and widely used in the Far

North. In 2012, 58% of the workforce was employed on the ro-

tation basis. Procedures for the organisation of work and rest,

time tracking and payments are settled in “the Regulations on

the organisation of rotational work”, which is a Supplement to

the Collective Agreement.

Persons under 18, pregnant women and women with chil-

dren up to three years of age, as well as persons with contrain-

dications to working in the Far North, according to the medical

report issued in line with the procedure established by federal

laws and other normative legal acts of the Russian Federation,

are not permitted to work on a rotational basis.

A regular working shift lasts no more than one month.

The length of the working shift can be increased up to three

months to ensure interoperability in the absence of an employee

because of illness or seasonal conditions (seasonal absence of

the pontoon bridge crossing over the river Pur, etc.).

As of December 31, 2012, 1,024 employees worked for

OJSC Severneftegazprom, compared to 991 employees at the

end of the previous reporting period. 16 employees were hired

by the Company on a fixed-term employment contract.

The primary area of Company operations is the Yamal-Nenets

Autonomous Area of the Tyumen region. The Company is regis-

tered in the village of Krasnoselkup and has offices in the settle-

ment of Urengoy, the town of Novy Urengoy, Tyumen and Moscow.

From a sustainable development point of view, the Com-

pany makes the greatest impact on the labor market of Kras-

noselkup and Pur districts as well as on the city of Novy Uren-

goy. At the end of 2012, 940 people (including 168 women and

772 men) worked in these areas. In the reporting period, 98 em-

ployees from the Far North regions retired, and 15 employees

from other areas of the Company’s presence. The Company’s

overall employee turnover rate is less than 4% (see table on the

next page).

In the course of its business,

the Company has been continuously

searching for the optimal balance

of environmental, social

and economic components

th

sea

In

the Compa

searchin

a

2005

1050

56226

668 882 933 963 991 1024850

650

450

250

502006 2007 2008 2009 2010 2011 2012

Number of

OJSC SEVERNEFTEGAZPROM employees

at the end of reporting period

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HR indicators 2012 2011

Number of employees hired during the year 146 149

Number of employees who left jobs during the year 113 121

By gender:

Men, % 73 70

Women, % 27 30

By age:

Younger than 30 years 62 54

From 30 to 50 years 35 47

Older than 50 years 16 20

Labour turnover, % 4 4

Number of employees, in total 1,024 991

Number of employees, by gender:

Men, % 79 80

Women, % 21 20

Retired employees 11 12

Staff composition, by age Managers Specialists Industrial and office workers

Younger than 30 years 10 74 75

From 30 to 40 years 90 124 165

From 40 to 50 years 75 71 192

Older than 50 years 47 26 75

In total 222 295 507

Staff structure

Staff composition by age

The Company is actively engaging young professionals. More than half of the team consists of workers under the age of 40.


61

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Taking into account that the production processes of the

Company have a potentially negative social and environmental

impact1, OJSC Severneftegazprom, according to Convention

138 of the International Labor Organization, “On the minimum

age for employment” of 1973 and the Russian Labor Law, does

not hire workers under 18 years of age to work at industrial sites.

The Company continues to evaluate the basic needs and

problems of workers and strives to provide them with a com-

fortable and safe work environment, as well as with adequate

wages. During the accounting year, the Company successfully

implemented a comprehensive programme of human resource

management for the period of 2011–2015, aimed at improving

the organization of work, the system of staff motivation, cor-

porate communications, as well as staff training and develop-

ment. In 2012, as part of the programme and in accordance

with the current law to carry out a plan for the certification of

workplaces’ working conditions, 178 management workplaces

in the office and in the new workplaces created in the Yuzhno-

Russkoye oil and gas condensate field, were certified. During

the period from 2009 to 2012, a total of 622 workplaces were

certified for having appropriate working conditions.

Additionally, as part of increasing staff motivation in 2012,

provisions for professional skills contests “The Best in the Pro-

fession”, “The Best Department”, “For implementation and in-

vention,” including cash awards for winners, were developed.

To encourage staff to participate in the professional skills con-

tests, a system of incentive wage supplements was developed,

for winners as well as for all competition participants.

1 A conclusion of Environmental Resource Management, an independentenvironmental consultant, prepared in accordance with the Equator Principlesand Standards of the International Finance Corporation.

The Collective Agreement is the main instrument for ensur-

ing an attractive level of benefits and compensation for all em-

ployees and retirees of the Company, in line with the Labor Law

of the Russian Federation.

In order to improve the provisions of the Collective Agree-

ment, discussions were held in 2012 regarding proposals

made by the Company’s employees, as part of the Commis-

sion on the regulation of social and labor relations, and staff

meetings. The new version of the document, for 2013 to 2015,

was registered with the Labor and Social Security Administra-

tion of the Krasnoselkup District Municipality, and reflects the

agreement reached between the Company’s management and

the employees’ representatives. With continuous monitoring of

the Collective Agreement conditions, all the employer’s obliga-

tions to provide social benefits, guarantees and compensation

to employees and pensioners were carried out in 2012, in full in

accordance with the financial plan.

In addition, OJSC Severneftegazprom has a Commission

for the regulation of social and labor relations. The Commission

provides the Company’s employees with the opportunity to in-

fluence the decisions made by management in the area of labor

and social and economic relations. The Commission is formed

on an equal basis from the duly authorized representatives of

the employer and employees.

Creating a management talent pool is the one of the strate-

gic initiatives of the Company’s HR Department. A quality talent

pool allows the minimization of staffing risks and simultaneously

improves employee motivation.

The Company is interested in the personal and profes-

sional development of its employees. A training programme

Giving of gifts to «Geologist» ice-hockey team of Urengoy settlement

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was developed and implemented for these purposes. The train-

ing is mostly conducted at the corporate training centers of

JSC Gazprom. In 2012, the Company’s employees attended

about 32 thousand hours of advanced training. This reflects the

policy of the Company’s management to support the theoreti-

cal knowledge and practical skills of employees at a high level

at the expense of the enterprise, which is certainly an additional

motivational incentive for the employees.

Item No

Employee category Number of employeesTotal number of training

hoursAverage number of training

hours per person

1 Managers 216 14,460 67

2 Specialists 136 9,792 72

3 Other employees 4 312 78

4 Workers 64 7,168 112

Total 420 31,732 76

In 2012, 356 professionals and executives of the Compa-

ny underwent training, including 114 as per the 2012 schedule

for training and retraining of managers and specialists of the

JSC Gazprom.

A competition was carried out for a OJSC Severneftegaz-

prom grant for postgraduate studies and conduct of research

on a relevant topic of Company production. A three party

agreement with FGBOU VPO “Gubkin Russian State University

of Oil and Gas” was signed.

In September 2012, together with the NOU “Corporate Uni-

versity of JSC Gazprom”, training for E.ON Ruhrgas AG spe-

cialists was carried out at the Company’s production facilities. A

Partnership agreement was concluded in 2012 with LLC Win-

tershall Russland GmbH, under which employees of the Com-

pany take part in traineeship on production issues at foreign

enterprises. The Company organises practical training for stu-

dents of energy sector institutions of higher, vocational and basic

education. A total of 43 students took part in practical training

during the reporting period.

There are regularly held sport matches in mini-football, vol-

leyball and other sports, as well as cultural events for the em-

ployees.

The Company sees its primary objective as ensuring that

the replacement of the most experienced and professional

retiring employees is done gradually and smoothly, and new

workers are consistent with the professional requirements of

the Company. In order to guarantee dignity and social protec-

tion for retired employees, the Company has an additional pri-

vate pension scheme carried out through the NPF “Gazfond”

pension fund. In 2012, the Company provided social support

to pensioners of the Company, including targeted social assis-

tance if required.

Over the years, the Company has proven that its activities

are crucial and important to many people, who can be con-

fident in the stability of their future jobs, social support and

economy.

Health and safety

One of the basics of the Company’s production activities is

to ensure industrial health and safety because production effi-

ciency depends on the reliable, trouble-free operation of equip-

ment and actions of workers.

Operation of production facilities of the Company is per-

formed on the basis and in accordance with Russian laws, cor-

porate and international standards.

The integrated management system of the Company has

been certified for compliance with international standards in

the field of occupational health and safety OHSAS 18001:2007

“Occupational Health and Safety Management”.

The Company regularly monitors the state of the environ-

ment at the workplace, the compliance with the safety require-

ments in the operation of hazardous facilities, and compliance

with the rules of labour protection and industrial safety.

The organisation of training and knowledge testing for the

Information on the average number of employee training hours for 2012


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7

protection and safety of workers is performed in accordance

with Russian regulations and corporate standards. Employee

fire safety training is performed in accordance with the rules of

fire safety “Fire Safety Training for employees of organizations”,

approved by order No. 645 of Ministry of Emergency Situations

on December 12, 2007.

During the reporting period, OJSC Severneftegazprom has

recorded one minor injury as a result of a road traffic accident.

For the registration and investigation of accidents, the Com-

pany uses the Ministry of Labor Decree of October 24, 2002

No. 73 “On the approval of document forms required for the in-

vestigation and registration of occupational accidents and the

provisions of the peculiarities of accidents investigation at work

in specific sectors and organizations”. A 24 hour health centre

operates at the housing complex, for the purpose of rendering

first aid to workers during shifts.

The Company annually performs preliminary and periodical

medical examinations of workers. To prevent the incidence of

SARS and influenza in 2012, workers were immunised with a

specific vaccine, as well as receiving non-specific vitamin com-

plexes and antiviral drugs, which helped to avoid an influenza

outbreak.

In the Far North, it is particularly important for workers to

obtain quality health care services. To this end, the Company

signed an agreement for voluntary health insurance with the

SOGAZ Insurance Group. The contract provides the following

services:

• medical care in clinics equipped with advanced medi-

cal technologies and modern equipment for diagnosis

and treatment;

• the provision of dental care, including prosthetics;

• inpatient care;

• health resorts and rehabilitation treatment.

In 2012, all employees of the Company were assigned to

various hospitals in the region of their workplace. The voluntary

medical insurance programme offers medical care at 1,324 fa-

cilities. In cases where medical services could not be provided

by the state system of compulsory health insurance, workers

were sent to specialized clinics outside the Far North.

During the reporting period, the rehabilitative treatment of

the Company’s employees was organised at the health cen-

ters of the Russian Federation under the contract of voluntary

health insurance.

Thanks to an integrated approach to the organisation of

work and recreation, the maintenance of staff health and per-

formance, the company is able to successfully cope with pro-

duction tasks.

Swimming pool at the Health Center of Yuzhno-Russkoye oil and gas condensate field

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Environmental protection and industrial safety

When implementing its key objectives and strategic goals,

OJSC Severneftegazprom defines environmental safety as a

basis for their activity. While implementing a strategy of en-

vironmental friendliness and rational management of natu-

ral resources, the Company not only complies with legal re-

quirements, but also consistently extends the application of

industry best practices. Under control of production opera-

tions, OJSC Severneftegazprom carries out regular environ-

mental monitoring at its facilities, which includes:

• identifying the sources of polluting emissions;

• recording the types and quantity of pollutants released

into the environment from the pollution sources;

• monitoring the compliance with established regulations

regarding the impact on the environment, discharges

and emissions, production and domestic wastes;

• analysing the reports of state experts on construction,

reconstruction, and modernisation projects;

• determining the availability of licenses and permits re-

quired by the environmental legislation of the Russian

Federation;

• timely provision of reliable reporting documentation re-

quired by the state reporting laws;

• implementing environmental protection measures,

guidelines and recommendations of the authorised

state bodies.

In June 2012, the Federal Service for Environmental, Tech-

nological and Nuclear Supervision reissued the license to the

OJSC Severneftegazprom to perform “The operation of flam-

mable and explosive production facilities” for an indefinite period.

In 2012, the Company fully implemented the Action plan to

ensure industrial safety at OJSC Severneftegazprom, as well as

the Company management developing and approving the ac-

tion plan for 2013.

As part of the OJSC Severneftegazprom complex,

16 hazardous industrial facilities were registered in the corre-

sponding state register and insured under civil liability for injury

Day of Reindeer Herder an the settlement of Ratta


65

7

to life, health or property of other persons and the environment,

in the event of accidents at the enterprise facilities. The Com-

pany carries out production supervision in accordance with

the “Regulations on the production supervision for compliance

with industrial safety requirements at hazardous production fa-

cilities of the OJSC Severneftegazprom” in agreement with the

North Ural Department of the Federal Service for Environmen-

tal, Technological and Nuclear Supervision.

Since 2010, the Integrated Management System is used in

the Company, based on the international ISO 9001:2008, ISO

14001:2004 and OHSAS 18001:2007 standards.

The environmental management system places a great em-

phasis on the Far North ecosystem.

In 2012, the annual surveillance audit of the Company was

held, confirming its compliance with international environmen-

tal standards. In addition, the Company successfully passed

the re-certification process undertaken by Bureau Veritas Cer-

tification in November 2012, which demonstrated the effective-

ness of the integrated management system and the Company’s

commitment to its continuous improvement. One of the most

important principles of the Company is to constantly and sys-

tematically reduce the impact on the environment by using the

latest technologies combined with in-house solutions. This al-

lows the Company to achieve a high level of performance in en-

vironmental and ecological safety.

In accordance with corporate and international standards,

the Company:

• controls and monitors greenhouse gas emissions;

• implements a programme to reduce gas flaring, which

makes it possible to reduce the main part of green-

house gas emissions;

• implements a programme to reduce energy con-

sumption.

Emissions of air pollutants (tons)

2011 2012

Permitted emissions 11,610.470 3,492.704

Actual emissions 2,023.639 2,054.914

Emissions of air pollutants

Methane (38,5%)

Carbon Monoxide (26,7%)

Nitrogen Oxide (28,5)

Solid Aerosols and VOC (6,3%)

Hazardous substance Mass of emission (t) 2011 Mass of emission (t) 2012

Methane 1,326.783 792.827

Carbon monoxide 337.676 548.830

NOх in terms of NO

2205.167 585.638

Methanol 93.644 92.860

Sulphur dioxide 1.467 0.192

Volatile organic compounds (VOC) 151.774 120.616

Solid pollutants 0.771 0.537

Emissions from organised sources 1,775.160 1,854.533

Emissions from non-organised sources 248.479 200.381

Mass of hazardous emission 2011-2012

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The total volume of air emissions from production sources

in 2012 amounted to 2,054.914 tonnes, 31.275 tonnes more

than in 2011. The increase in the total mass of emissions is as-

sociated with the booster compressor station operating at its

full capacity.

Permitted emission of pollutants into the atmosphere

in 2012 was 3,131.737 tonnes at the operational facilities,

355.531 tonnes at the drilling facilities, and 5.436 tonnes from

the settlement of Urengoy.

Methane, the major component of the emissions, is formed

during venting and emptying of the plant process equipment for

integrated gas treatment and gas gathering collectors for the

purpose of conducting regular preventive work, as well as the

continuously operating flares at the pumping units of the boo-

ster compressor station. Significant amounts of carbon mono-

xide and nitrogen oxides are formed during the combustion of gas

on gas stoves while well testing, as well as during gas burning

for Company’s own needs (power generation, gas compression).

The specific mass of pollutants released into the atmo-

sphere was 0.081 tonnes/mln m3 of gas produced.

Out of the total mass of pollutant emissions into the air,

emissions from the processes equaled 988.611 tonnes, from

the burning of fuel to generate electricity and thermal energy –

267.202 tonnes.

Regular checks for toxicity of vehicles exhaust gases are

carried out in the mechanical repair workshop of the gas field.

In 2012, the Company carried out a number of activities

to reduce emissions. In particular, work continued on the re-

duction of gas flaring at the treatment facility through the use

of separated gas as fuel for TEG regeneration. At present,

the work on the design and construction documents is com-

pleted. Measures were taken to reduce energy consumption

during field facilities by replacing incandescent lamps and

sodium vapor lamps with energy-saving LED spotlights and

lamps, 2,669 pieces in total.

In 2012, neither accidents nor essential and nonessential

spills occurred at the hazardous production facilities. Acciden-

tal emissions and discharges of pollutants into the environ-

ment did not occur. No accidents occurred during the report-

ed period in the contracting companies carrying out work for

OJSC Severneftegazprom.

During the reporting year, total greenhouse gas emis-

sions (the calculation is based on the STO Gazprom 102-2011

“Inventory of greenhouse gas emissions”) made up

167,815 tonnes of CO2-equivalent, 557 tonnes of which were

indirect emissions, according to the method of EPMS calcula-

tion of The Company Wintershall Holding GmbH. The growth of

the indirect emissions is due to changes in the applicable con-

version factor for CO2 when receiving electricity from the public

grid (old is 0.317, new is 0.639).

As for the ozone-depleting substances included in Appen-

dices A, B, C and E of the Montreal Protocol on Substances

that Deplete the Ozone Layer, there were no emissions in 2012.

Freon (R404A), which is used in air conditioning and refrige-

ration (for food storage), has zero ozone depletion potential.

At present in Russia there are no planned restrictions on the

use of the R404A type Freon up to 2020, which corresponds

to the Montreal Protocol requirements.

The Company is extracting water from an underground

aquifer, with no removal of water from the surface water

reservoirs. Water is supplied on the basis of the required

permits.

Total volume of extracted water in 2012 was 74,202 m3,

including:

• 67,014 m3 from the underground aquifer (56,440 m3 in

2011, 60,490 m3 in 2010);

• 7,188 m3 – stratum water extracted simultaneously with

natural gas (8,160 m3 in 2011).

Extraction of fresh water from aquifers was only 37.3% of

the established limit of 199,180 m3 (28.4% in 2011, 30.4% in

2010). Extracted water has been treated in the Company’s own

water treatment plants in accordance with sanitary standards.

The increase in water consumption in 2012 compared to

2011 was due to the construction and commissioning of a

Health Complex.

An on-site wastewater disposal system operates at the gas

field, allowing industrial and domestic wastewater to be inject-

ed back into the aquifers after they have been cleaned at spe-

cial facilities.

Power consumption

including own generation

26,635 25,573 32,4 31,062 27,065 25,963

Actual 2011 Actual 2012Plan 2012

1,6%1,5%

Energy consumption, mln kW•h


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7

The Company maintains the technical condition of the pro-

duction equipment at an appropriate level, and performs envi-

ronmental protection measures in order to minimise possible

environmental pollution and to reduce the negative impact of

industrial activities on wildlife.

Statistical data on the main results of production control

and the state of industrial safety of the hazardous production

facilities of the Company has been provided to the Novy Uren-

goy Integrated Department of the North Ural Directorate of the

Federal Environmental, Technological and Nuclear Supervision

Service every three months.

Subsoil Aquifier

Produced Water

10 000

20 000

30 000

40 000

50 000

60 000

70 000

20122011

87% 90%

13% 10%

Allocation

Actual Extraction

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011

Volume of extracted water, thousand m3 Fresh water extraction

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Main indicators of environmental protection activities

No. Indicator Unit of measurement 2010 2011 2012

1. Gross hazardous emissions into the atmosphere – total thous. tonnes 1.678 2.023 2.054

Including:

within permissible emission limits (PEL) -«- 1.678 1.996 2.040

within temporarily approved emission limit (TAEL) (above

PEL)-«- 0 0 0

above-limit emissions (above TAEL) -«- 0 0.026 0.014

Including:

gross emissions of methane -«- 0.908 1.326 0.792

Specific NOx emissions (per transport unit) tonnes/bln. m3•km 0 0 0

Specific NOx emissions (per unit of fuel gas) thous. tonnes /mln. m3 0.002 0.002 0.008

2. Intake of water – total thous. m3 86.57 56.4 67.01

3. Water discharge – total thous. m3 47.87 52.72 59.99

4. Wastes per year – total thous. tonnes 3.848 2.093 0.155

Including wastes sent for disposal thous. tonnes 3.751 1.998 0.076

5. Waste ratio sent for disposal

% of waste produced during the reporting period taking into consideration the presence of waste at the beginning of the year

97.45 95.4 44.23

6. Re-cultivated land area per year hectare 1,687.06 160.7 155.51

7. Expenses for environmental protection – total mln.rub 384.7 103.5 208.58

8.Current expenses for environmental protection measures – total

thous. rub. 103,837 103,502 205,574

9.Expenses for development and approval of environmental documents

thous. rub. 93.76 1,182 758

10.Expenses for production environmental monitoring and production ecological control

thous. rub. 6,772.36 6,006 3,612

11.Expenses for major repairs of fixed assets involved in environmental protection

thous. rub. 10,320.3 0 0

12. Payment for negative environmental impacts – total thous. rub. 1,423.68 1,108.4 365.39

Including:

environmental impact within permitted limits (emissions,

discharges, waste disposal)-«- 1,423.68 1,026.6 351.97

environmental impact above permitted limits (emissions,

discharges, waste disposal)-«- 0 81.8 13.42

Fines imposed for breaking of environmental regulations thous. rub. 0 0 0

Legal actions for recovery of compensation of damage

caused to environment, including resulting from accidents thous. rub. 0 0 0

13.Investments into Fixed capital, directed to environmental protection – total

mln. rub. 280.94 0 3.036

14. Number of inspections by state environmental agencies Number 0 0 0

15.Number of violations of environmental regulations (according to inspection acts of state environmental agencies)

Number 0 0 0

Main indicators of environmental protection activities (continued overleaf)


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The strategic priorities of OJSC Severneftegazprom are

also important for the territory on which the Company operates.

Gas production plays the leading role in the economy of the

Yamal-Nenets Autonomous Area. The Company is active-

ly interacting with the federal and municipal authorities to im-

plement environmental, social and cultural projects aimed at

improving the quality of life and social welfare.

To support economic development in the areas of operation,

the Company sticks to the obligations of the license agreement

and its own policy of competitive procedures, and, all other

things being equal, gives preference to Russian companies, es-

pecially local suppliers, who are registered in the Yamal-Nenets

Autonomous Area.

Interaction with the regions is regulated on the basis of the

General Agreements on cooperation concluded between the

Company and the Administration of the Pur and Krasnoselkup

Districts and the town of Novy Urengoy, as well as additional

annual agreements.

The General Agreements on social-economic coopera-

tion with the administration of Novy Urengoy was concluded in

2012 for the first time.

The priorities of the General Agreements are activities

such as:

• the rational and effective use of the subsoil and lands

located in the regions, where the Company carries out

its economic activities;

• creating conditions for successful interaction, aimed at

the social and economic development of the munici-

pality population;

• respect for the opinion of the interested party;

Subject of interaction

Str

ate

gy

an

d d

eve

lop

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nt

Co

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rate

go

vern

an

ce

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l re

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on

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liga

tio

ns

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rma

tio

n d

isc

losu

re

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viro

nm

en

tal p

rote

cti

on

La

bo

r p

rote

cti

on

an

d in

du

stri

al s

afe

ty

Ch

ari

ty

State bodies and public offices • • • • • • •

Suppliers/buyers • • • •

Shareholders • • • •

Non-commercial organizations • •

Media •

General population • • •

Employees • • • • • •

Main directions of regional policy and interactions with interested parties

Interested parties

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• timely notification of interested parties;

• regular interaction;

• preserving the natural environment and ensuring envi-

ronmental safety.

Within the framework of these agreements, OJSC Sever-

neftegazprom implements activities aimed at the social and

economic development of these territories, including helping

to sustain the cultural traditions of local minorities, providing

charitable assistance to fishermen and reindeer herders, pro-

viding funding for the development of national settlements,

procuring vehicles, fuel, lubricants and equipment, supporting

traditional sectors of agriculture, providing funding to the asso-

ciation of indigenous people of the Far North “Yamal – for the

future generations!” to carry out statutory activities.

Sustainable development of the Company is inextricably

linked with maintaining the long-term partnership with opera-

tions areas and interacting with interested parties through the

implementation of mutual projects in accordance with the prin-

ciple of the observance of the common obligations undertaken

and the requirement to observe them by the interested parties.

In order to determine key interested parties and social in-

tegration links, which can influence, or on the contrary, can be

influenced in the process of implementing production activi-

ties, and to define channels of interaction with such people and

organisations, the Company has developed an internal docu-

ment – the Public Consultation and Disclosure Plan (PCDP).

The document describes the procedures of information

disclosure in accordance with the requirements of the Rus-

sian Law and international standards, of carrying out Company

consultations with interested parties, as well as describing the

mechanism for recording the responses and opinions of the

population and Company employees on a regular basis during

the entire life cycle of the project.

Being aware of its responsibility for the development of

operation areas, the Company strives to develop the areas

where its industrial and economic activities are carried out.

The traditional areas of OJSC Severneftegazprom activities

include the Krasnoselkup and Pur districts of the Yamal-Ne-

nets Autonomous Area – the lands originally inhabited by the

indigenous peoples of the Russian North. Mutual relations

with native citizens, government bodies and local government

bodies are regulated by the General Agreements on coopera-

tion, concluded between the Company and the Administra-

tion of the Pur and Krasnoselkup districts, as well as regular

updates hereto.

External interested partyScope of finance as part

of the General Agreements, RUB Other charity, RUB

Krasnoselkup District 31,000,000 5,281,912

Pur District 10,000,000 1,284,490

Novy Urengoy 10,000,000 155,977

TOTAL 51,000,000 6,722,379

OJSC Severneftegazprom interaction with external interested parties in 2012


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ACKNOWLEDGEMENT

Dear Stanislav Evgenievich!I would like to express you our gratitude for the great contribution into

social-economic and cultural development of the Krasnoselkup Municipal District.

We highly appreciate your attention and support for children, financing various types

of educational, cultural and artistic development, organisation of information visits

to the field and trips to Germany.

I wish you robust health, well, good-luck and prosperity!

Head of Administration of the Krasnoselkup District

Vasily Parshakov

8

Key Risks Associated

with the Company’s Business


73

8

Operational risksThe Company is exposed to operational risks when conduct-

ing its business, the most important being prices for raw hydro-

carbons and technological risks associated with the particulars

of the production process. Moreover, general operational risks

include transport restrictions of a technological nature, which

may become a serious obstacle to achieve the long-term objec-

tives of the Energy Strategy of Russia. Search and development

of deposits, transportation and processing of gas and liquid hy-

drocarbons represents a complicated and capital-intensive pro-

cess bearing technological and ecological risks. The company

strictly observes industry requirements and standards, and im-

plements new technologies and equipment at all stages of the

production process, thus minimising these risks.

The risk of reduction in sales

The risk of reduction in sales is associated with the possi-

bility of a long-term decline in the demand for hydrocarbons,

which may adversely affect project indicators. However, ac-

cording to long-term gas supply contracts, the purchaser pays

for the entire volume of contracted gas notwithstanding the ac-

tual intake, which excludes the considered risk for the Compa-

ny until expiration of such contracts.

Operational risks Financial risks Legal risks

Low Level of Risk

Medium Level of Risk

High Level of Risk

Structure and assessment of the Company’s risks

The riskof reduction of salesof Inflation risks

Risksassociated with application

and possible changesin Russian tax laws

socassociatedand p

in

Legal RisksAssociated

with Applicationand Possible Change

of Currency Lawsand

Risksof Legal Proceedings

and Restrictionsof the Company’s Business

of Le

the Coof th

The riskof material change

in the market price for gaso

the min t Interest risk

Risks associatedwith validity of licenseswith v Currency risk

Environmental risksE

Technological risksT

Key

Ris

ks A

sso

ciat

ed w

ith t

he C

om

pan

y’s

Bus

ines

s

8

74

The risk of significant change in the market price for gas

A significant decrease in the market price for gas may affect

the cash flows required for stable production and business ope-

rations of the Company. The risk is considered low since, ac-

cording to gas supply contracts, the price of gas is determined

according to the formulae taking into account the Company’s

expenses and the required rate of return.

Risks associated with validity of licences

The Company undertakes activities in relation to the

Yuzhno-Russkoye oil and gas condensate field pursuant to

the licences for the use of subsoil and other licensed activities.

Applicable laws of the Russian Federation and/or licenses pro-

vide for possible limitation, suspension or early termination of

the right to use the subsoil/exercise a licensed activity in the

case of non-observance of conditions of licence agreements or

violation of the requirements of applicable Russian laws in the

area of licensing.

The Company has completely fulfilled the requirements of

licence agreements and has taken all the necessary steps to

observe the applicable laws governing licensing, in order to

minimise this risk.

Environmental Risks

The Company’s activities, associated with the development

of the Yuzhno-Russkoye oil and gas condensate field, are po-

tentially exposed to the risk of environmental impact. There-

fore, one of the priority directions of the Company’s efforts is

environmental protection. Key project solutions applied in the

course of constructing infrastructural and operational facilities

at the deposit comply with Russian environmental standards.

Technological Risks

The Company’s production activities, associated with the

operation of the Yuzhno-Russkoye oil and gas condensate

field, may be exposed to the impact of negative factors asso-

ciated with failure of equipment. Meanwhile, technologies used

for mining, treatment and transportation of gas comply with up-

to-date requirements for reliability and safety in operation of the

equipment, which enables minimisation of such risks.

In addition, the Company conducts training and certifica-

tion of staff in the area of occupational health, industrial, fire

and well-kill safety, based on the course “Well Control. Control

of Wells at Oil, Gas and Water Show”, which also reduces the

above risks.

For the purpose of resolving the primary objectives asso-

ciated with planning of efforts for prevention and liquidation

of extraordinary situations for hazardous production facilities

at the Yuzhno-Russkoye oil and gas condensate field, the fol-

lowing documents were prepared: the Plan for the Liquidation

of Possible Accidents, the Plan for the Prevention and Liqui-

dation of Oil Spills at the Site of Technological Capacities of

Reagents and Oils at the gas treatment unit of the Yuzhno-

Russkoye oil and gas condensate field of OJSC Severneft-

egazprom, the Plan for the Prevention and Liquidation of Oil

Spills at Fuelling Stations (stations for the fuelling of motor

transport) of OJSC Severneftegazprom, and the Technological

regulations “On the operation of the gas treatment unit of the

Yuzhno-Russkoye oil and gas condensate field 05.125-TP”

with Amendments No.1 and No.2. Pursuant to the above

plans, emergency response drills are carried out to train staff

on how to respond in an emergency.

In addition, in order to minimise and avoid emergen-

cy situations, a contract was concluded with LLC “Gazprom

Gazobezopasnost” to ensure well-kill safety on the Yuzhno-

Russkoye oil and gas condensate field wells, and with

LLC “Gazprom Transgaz Surgut” for operating the Yuzhno-

Russkoye oil and gas condensate field sales gas pipeline.

Administrative and production control of occupational health,

industrial, and fire and well-kill safety has been organized and

undertaken. This procedures allow to reduce the aforemen-

tioned risks.

Certified equipment and technical devices meeting up-to-

date safety and reliability requirements are applied at hazardous

production facilities of the Yuzhno-Russkoye oil and gas con-

densate field. The equipment and technical devices are main-

tained in a timely manner by the Company’s personnel or spe-

cialised organizations, which also reduces the aforementioned

risks.


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8

Financial risks

Inflation Risks

The inflation rate in 2012 was 6.7%. According to observa-

tions, inflation rates are relatively stable and the Russian Minis-

try of Finance forecasts that inflation in 2013 will correspond to

forecasts of about 5-6%. On the basis of this, the conclusion

can be made that inflation will not cause any material impact

on the financial and economic indicators of the Company in the

foreseeable future.

Interest Risk

Being a large borrower, the Company is exposed to risks

associated with changes in interest rates. The debt portfolio

of the Company within the framework of the raised project fa-

cility is mainly presented by loans denominated in USD and

EUR. The interest rate for the service of such loans is based

on internal credit rates (LIBOR/Euribor). An increase in such

interest rates may render the service of the Company’s debt

more expensive. An increase in the cost of loans for the Com-

pany may affect solvency and liquidity indicators. However,

LIBOR is currently at a relatively low historical level and has

a medium-term tendency towards stabilisation. Taking into

consideration gas supply contracts, in which the gas price is

determined according to the formula, which also considers the

compensatory component, the risk is deemed as low.

Currency Risk

Since the debt portfolio of the Company includes liabilities,

which are assessable, accruable and repayable in foreign cur-

rencies, fluctuations of exchange rates to the ruble materially

affect the result of financial and business operations of the

Company. Due to the absence of any revenues in foreign cur-

rency, the balanced currency structure of claims and liabilities,

used as a hedging mechanism, is not applicable to the Compa-

ny, taking into consideration that according to gas supply con-

tracts, the gas price is determined according to the formula,

which also considers the compensatory component, the risk is

deemed as moderate.

Recuperators of the boosting compressor station at Yuzhno-Russkoye oil and gas condensate field

Key

Ris

ks A

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76

Legal risks

Risks associated with the application and possible changes in tax laws of the Russian Federation

Some laws have been adopted during recent years which

introduce significant amendments to tax laws.

Amendments introduced into the Russian tax system are

aimed at eliminating its deficiencies, and therefore some provi-

sions of the Russian Tax Code may be amended, which may

result in a future increase or reduction of the tax burden versus


Amendments of Russian Federation tax laws, which nega-

tively affect the taxpayer, do not apply retrospectively as a rule

(unlike various interpretations of some provisions of tax laws).

Since interpretations of some tax law norms by tax authori-

ties (the Ministry of Finance of the Russian Federation and ju-

dicial authorities) may not match interpretations by the Com-

pany’s management, the amount of tax liabilities following the

results of tax audits at the Company, both in the accounting

year and preceding periods, may change and cause tax risks

(in particular, additional taxes, penalties and fines may be im-

posed on the Company).

In order to avoid tax risks, the Company regularly monitors

any amendments made to the Russian Tax Code and law en-

forcement practice with further application of the same in its

activities.

Pursuant to Russian accounting rules, any change in tax

liabilities over preceding periods is accounted for in statements

over that period when such changes were actually effected.

Risks of legal proceedings and restrictions of the company’s business

No change in legal practice in regard to matters associated

with the Company’s activities as well as rules of legal proceed-

ings will have a material impact on the Company’s business

since the Company tries to settle any disputes extra judicially.

At present, the Company is not involved in any significant

legal proceedings and does not bear any liability for debts of

third parties.

Legal risks associated with the application and possible change in currency laws

The Company concludes foreign economic transactions

and executes currency operations with non-residents, and

therefore changes in currency regulation may affect the fulfil-

ment of the Company’s liabilities to foreign counteragents. In

particular, changes in currency regulation which may concern

enforcement of control over execution of currency transactions

and introduction of restrictions, may lead to losses under foreign

trade contracts and/or delays in the fulfilment thereof. Due to

the existence of foreign economic transactions, the Company

is exposed to risks of bringing to administrative liability for vio-

lations of currency laws of the Russian Federation and acts of

currency regulators, including without limitation, violation of the

established unified rules of execution (re-execution) of transac-

tion passports and non-observance of the established proce-

dure or terms of submission of accounting forms and reports

on currency transactions. For the purpose of observing the cur-

rency laws of the Russian Federation, within the framework of re-

lations with non-resident companies, structural subdivisions of the

Company take measures of control over timely and quality sub-

missions of documentation required for the execution of cur-

rency transactions.


77

8


9

Code of Corporate Governance

Compliance Report


79

9

Code of Corporate Governance Compliance Report

OJSC Severneftegazprom, as an open joint stock company, strives to comply with the following provisions of the Code of

Corporate Conduct, recommended by the Order issued by the Federal Commission for the Securities Market of Russia under

No. 421/r on April 4, 2002:

• The shareholders must have access to the list of per-

sons entitled to take part in the general meeting of share-

holders, beginning from the date when information about

holding the general meeting of shareholders was pub-

lished, and until the closure of the general meeting of

shareholders held in person, and in case of an absentee

general meeting of shareholders – prior to the deadline

fixed for accepting voting bulletins;

• The shareholder must have the opportunity to bring in items

for the agenda of a general meeting of shareholders or re-

quire the convocation of a general meeting of share-

holders without presenting an extract from the regis-

ter of shareholders if the shareholder’s right to shares is

registered with the maintenance system of the register

of shareholders;

• The Charter of the Company must provide for authorities

of the Board of Directors related to the annual approval of

the Company’s financial and economic plan;

• Absence of people found guilty of committing crimes in

the field of economic activities or crimes against state

authorities, interests of state service and local authorities,

on which administrative punishments were imposed for

civil injuries in the field of entrepreneurial activities, finan-

ces, taxes, charges or securities market, among the

members of the Company’s Board of Directors;

• Persons holding the position of general director, a mem-

ber of the management board or an employee of a legal

person competing with the Company must not occupy

positions in the Company’s Board of Directors;

• The Charter of the Company must provide for the require-

ment to elect the Board of Directors by cumulative voting;

• The sessions of the Company’s Board of Directors must

be held at least once every six weeks during the year of

preparing the annual report;

• The presence of the Company’s internal documents ap-

proved by the Board of Directors, providing for the proce-

dure of forming and operating standing committees of the

Board of Directors;

• The procedure of approving operations exceeding the

limits of the Company’s financial and economic plan must

be provided in the Company’s inner documents;

• A special official (the Company’s secretary) in charge of

compliance with the procedural requirements guarantee-

ing the implementation of rights and legal interests of the

Company’s shareholders by the Company’s bodies and

officials, must be employed by the Company;

• The Charter of the Company or internal documents must

provide for the requirement of approval of a large-scale

transaction prior to it being implemented;

• The Charter of the Company must not exempt the trans-

feree from the obligation to offer shareholders to sell the

ordinary shares held by them in the Company upon re-

demption;

• The presence of a special department in the Company

ensuring compliance with the internal control procedures

(internal audit department);

• Absence of people found guilty of committing crimes in

the field of economic activities or crimes against state

authorities, interests of state service and local govern-

ments or people, on which administrative punishments

were imposed for civil injuries in the field of entrepreneurial

activities, finances, taxes, charges or securities market,

among members of the audit service;

• Persons, occupying positions as the Company’s execu-

tive authorities as well as a general director, member of

the management bodies or employee of a legal person

competing with the Company, must not occupy positions

in the audit service.

General Information

10


81

1

Registration Details Full company name:Severneftegazprom Open Joint Stock Company.Short business name of the Company in Russian:

ОАО «Севернефтегазпром».Full business name of the Company in English:

Open Joint Stock Company Severneftegazprom.Short business name of the Company in English:

OJSC Severneftegazprom.

Legal and postal address:Legal address: 22 Lenin St, Krasnoselkup, Krasnoselkup

District, 629380, Yamal-Nenets Autonomous Area.

Postal address: PO Box 1130, Novy Urengoy, 629300,

Yamal-Nenets Autonomous Area.

E-mail: [email protected].

Information sources, in which the Company discloses information in compliance with securities law requirementsOJSC Severneftegazprom website at

http://www.severneftegazprom.com/.

News feed, an information resource updated in real time and

provided to the Company by the Interfax Information Agency

(CJSC Interfax is a news agency for the securities market) at

http://www.e-disclosure.ru/index.aspx.

State Registration Date and Registration Number Certificate No. R-16625.16 of registration and entry in the state

register of commercial entities, issued to OJSC Severneftegaz-

prom in connection with the reorganization of LLC Severnefte-

gazprom based on Minutes No. 5 of the extraordinary General

Meeting of Company Members dated June 1, 2001. Issued

on June 15, 2001 by the State Registration Chamber at the

Ministry of Justice of the Russian Federation.

Certificate of entry made in the Unified State Register of Le-

gal Entities of the legal entity registered before July 1, 2002,

under Main State Registration Number 1028900699035 dated

19 December, 2002 was issued by the Interdistrict Inspecto-

rate of the Ministry of Taxation No. 3 for the Yamal-Nenets

Autonomous Area.

Information on the Company’s RegistrarCJSC “Specialised Registrar – Gas Industry Shareholders’

Registrar” (CJSC SR-DRAGa)

Location and postal address: 31/72 Novocheremuskinskaya

St, Moscow, 117420

Tel: +7 (495) 719-40-44,

Fax: +7 (495)719-45-85.

Register maintenance operations licence dated December 26,

2003 No. 10-000-1-00291, issued by the Federal Securities

Market Commission of Russia for an indefinite term.

Core operations• Yuzhno-Russkoye oil and gas condensate field develop-

ment and construction of facilities;

• recovery, collection, disposition and sales of natural

gas;

• prospecting and exploration work;

• construction management.

The Company holds the following main licenses:• a licence for the exploration and production of raw

hydrocarbons within the Yuzhno-Russkoye mining site

situated in the Krasnoselkup District of Yamal-Nenets

Autonomous Area of the Tyumen Region. Series SLKh

No. 11049 NE. Issued on June 22, 2001. Valid until

December 31, 2043;

• a licence for operating explosion-hazardous production

facilities, No. EV-00-007716 (DK). Active from August 7,

2007. Valid until August 7, 2012.

Moreover, the Company holds over 10 permits (licenses)

for other kinds of operations and is a member of Associa-

tion of Gas and Oil Industry Constructors Non-Commercial

Partnership.

The Company’s Representative OfficesOJSC Severneftegazprom has representative offices in Novy

Urengoy, the settlement of Urengoy, Tyumen and Moscow.

The Company has no subsidiaries and affiliates.

11

Summary


83

1

Report Parameters

The Contents of the Report

The report for 2012 provides an analysis of the corporate

activity in connection with the exploration and production of

natural gas, economic activities, social policy, industrial safety

and environment protection. This is the second time that the

Company has disclosed information pursuant to the provisions

of the GRI and has integrated them into its Annual Report.

The cycle of the report’s development is one calendar year.

The Limits and Scope of the Report

The report records the activities of the Company in the Rus-

sian Federation as well as its relationship with international part-

ners. The information used herein has been prepared using con-

sistent methods as applied in the previous reporting periods.

The Company’s management statements and audited fi-

nancials, developed per Russian Accounting Standards, were

used when preparing this Report. Information, presented in the

Report, was filed as part of the corporate information systems

per lines of activity based on information requests, taking into

account GRI recommendations (G3.1 version) and the require-

ments for complete disclosure. In addition, the results of inter-

action with key interested parties were also taken into account

when determining the key topics. All this enabled the Report to

cover a wide range of aspects, which may be interesting to the

maximum number of people. The Company tried to balance

out the information, when developing the Report. The Report

reflects advantages and disadvantages, providing an adequate

outlook for the potential users of the Report on the Company’s

impact on the economy, environment and society.

Principles Applied to Ensure the Quality of the Report

In its Report, the Company has tried to provide a ba-

lanced presentation of items required by Russian law and of

interest to interested parties. The Report includes data offi-

cially recognised by the Company and supported by inter-

nal documents and publicly available information. The Report

generally does not contain either specific terms or data requir-

ing special knowledge. One of the purposes of the Report is to

explain to interested parties the nature of the Company’s activi-

ties and the characteristics of its decision making.

Contact Information for Issues Regarding the Report

Anatoliy Anatolyevich VecherkaDeputy General Director for Legal Issues

and Corporate Management

Telephone: +7 (495) 620 63 33

E-mail: [email protected]

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1. STRATEGY AND ANALYSIS

1.1Statement from the most senior decision-maker of the organization about the relevance of

sustainability to the organization and its strategy.4-7

1.2 Key impacts, risks and opportunities 73-76

2. ORGANIZATIONAL PROFILE

2.1 Name of the organization 81

2.2 Primary brands, products and services 37, 81

2.3 Operational structure 19-24

2.4 Location of organization’s headquarters and operations 81

2.5Number of countries in which the organization operates and name of countries where its

main operations are located or are especially relevant to the questions of sustainability

covered by the report

14-16

2.6 Nature of ownership and legal form 27-28, 81

2.7 Markets served 14-15, 81

2.8 Scale of the organization (headcount, sales, revenue) 13, 59-60

2.9 Significant changes regarding size, structure or ownership during the reporting period No significant changes

2.10 Awards received in the reporting period 8-11, 71

3. REPORT PARAMETERS

3.1 Reporting period (such as fiscal/calendar year) for the information provided 83 Calendar year

3.2 Date of most recent previous report (if any) June 2012

3.3 Reporting cycle (annual, biennial, etc.) 83

3.4 Contact information for issues related to the Report or its contents 83

3.5 Defining report content (essentiality, subjects priorities, needs of interested parties) 2, 83

3.6 Boundary of the report (organizations which the Report have effect on). 2, 83

3.7 Statement about any specific limitations on the scope or boundary of the report No limitations

Global Reporting Initiative (GRI) Content Index

Information Disclosure

Appendix 1. Global Reporting Initiative (GRI) Content Index

85


Page Comment

3.8Basis 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.

No activities to be disclosed

3.9Data 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.

3.10Explanation of the effect of any re-statements of information provided in earlier reports, and

the reasons for such re-statement.

No re-statements were

performed

3.11Significant changes from previous reporting periods in the scope, boundary, or

measurement methods applied in the report.

No changes were

introduced

3.12 Table identifying the location of the Standard Disclosures in the report. 84-89

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

4. GOVERNANCE, COMMITMENTS AND ENGAGEMENT

4.1Governance structure of the organization, including main committees within the highest

governance body, responsible for specific tasks 19-23

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

General Director is not the

Chairman of the Board of

Directors

4.3For 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.

There are no independent

members

4.4Mechanisms for shareholders and employees to provide recommendations or direction to

the highest governance body.21-22, 61, 70

4.14 List of stakeholder groups engaged by the organization. 69

4.15 Basis for identification and selection of stakeholders with whom to engage. 69-70, 83

ECONOMIC PERFORMANCE INDICATORS

EC1Direct 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.

38-40

EC2Financial implications and other risks and opportunities for the organization's activities due

to climate change.

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

EC4 Significant financial assistance received from government. 11, 41

EC5Range of ratios of standard entry level wage compared to local minimum wage at

significant locations of operation.

EC6Policy, practices, and proportion of spending on locally-based suppliers at significant

locations of operation.69, 44

EC7Procedures for local hiring and proportion of senior management hired from the local

community at significant locations of operation.

EC8Development and impact of infrastructure investments and services provided primarily for

public benefit through commercial, in-kind, or pro bono engagement.

Global Reporting Initiative (GRI) Content Index (continued overleaf)

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ENVIRONMENTAL PERFORMANCE INDICATORS

EN1 Materials used by weight or volume.

EN2 Percentage of materials used that are recycled input materials.

EN3 Direct energy consumption by primary energy source.

EN4 Indirect energy consumption by primary source.

EN5 Energy saved due to conservation and efficiency improvements

EN6Initiatives to provide energy-efficient or renewable energy based products and services,

and reductions in energy requirements as a result of these initiatives.

EN7 Initiatives to reduce indirect energy consumption and reductions achieved

EN8 Total water withdrawal by source.

EN9 Water sources significantly affected by the removal of water

EN10 Percentage and total volume of water recycled and reused

EN11Location and size of land owned, leased, managed in, or adjacent to, protected areas and

areas of high biodiversity value outside protected areas.

EN12Description of significant impacts of activities, products, and services on biodiversity in

protected areas and areas of high biodiversity value outside protected areas.

EN13 Habitats protected or restored

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

EN15Number of IUCN Red List species and national conservation lists species with habitats in

areas affected by operations, by level of extinction risk

EN16 Total direct and indirect greenhouse gas emissions by weight. 65-66, 68

EN17 Other relevant indirect greenhouse gas emissions by weight.

EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved.

EN19 Emissions of ozone-depleting substances by weight.

EN20 NOx, SOx, and other significant air emissions by type and weight. 65, 68

EN21 Total water discharge by quality and destination.

EN22 Total weight of waste by type and disposal method.

EN23 Total number and volume of significant spills. 66

EN24Weight 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


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EN25Identity, size, protected status, and biodiversity value of water bodies and related habitats

significantly affected by the reporting organization’s discharges of water and runoff

EN26Initiatives to mitigate environmental impacts of products and services, and extent of impact

mitigation.

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

EN28Monetary value of significant fines and total number of non-monetary sanctions for non-

compliance with environmental laws and regulations.

EN29Significant environmental impacts of transporting products and other goods and materials

used for the organization’s operations, and transporting members of the workforce

EN30 Total environmental protection expenditures and investments by type.

PERFORMANCE INDICATORS ON APPROACHES TO LABOR PRACTICES AND DECENT WORK

LA1Total workforce by employment type, employment contract, and region, broken down by

gender59-60

LA2 Total number and rate of employee turnover by age group, gender, and region. 60

LA3Benefits provided to full-time employees that are not provided to temporary or part-time

employees, by major operations.

LA4 Percentage of employees covered by collective bargaining agreements. 61

LA5Minimum notice period(s) regarding significant operational changes, including whether it is

specified in collective agreements.

LA6Percentage of total workforce represented in formal joint management-worker health

and safety committees that help monitor and advice on occupational health and safety

programmes.

LA7Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-

related fatalities by region.62-63

LA8Education, training, counseling, prevention, and risk-control programmes in place to assist

workforce members, their families, or community members regarding serious diseases.

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

LA10 Average hours of training per year per employee by employee category. 61-62

LA11Programmes for skills management and lifelong learning that support the continued

employability of employees and assist them in managing career endings

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

LA13Composition of governance bodies and breakdown of employees per category according

to gender, age group, minority group membership, and other indicators of diversity.

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


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HUMAN RIGHTS PERFORMANCE INDICATORS

HR1Percentage and total number of significant investment agreements that include human

rights clauses or that have undergone human rights screening

HR2Percentage of significant suppliers and contractors that have undergone screening on

human rights and actions taken

HR3Total hours of employee training on policies and procedures concerning aspects of human

rights relevant to operations, including the percentage of employees trained

HR4 Total number of incidents of discrimination and actions taken.

HR5Operations identified in which the right to exercise freedom of association and collective

bargaining may be at significant risk and actions taken to support these rights61

HR6Operations identified as having significant risk for incidents of child labour, and measures

taken to contribute to the elimination of child labour61

HR7Operations identified as having significant risk for incidents of forced or compulsory labour,

and measures taken to contribute to the elimination of forced or compulsory labour

HR8Percentage of security personnel trained in the organization’s policies or procedures

concerning aspects of human rights that are relevant to operations

HR9Total number of incidents of violations involving rights of indigenous people and actions

taken

SOCIETY PERFORMANCE INDICATORS

SO1Life 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.

69-71

SO2Total 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

SO3Type of product and service information required by procedures,procedures and

percentage of significant products and services subject to such information requirements.


concerning product and service information and labelling by type of outcomes

SO5Practices related to customer satisfaction, including results of surveys measuring customer

satisfaction.

SO6Programmes for adherence to laws, standards, and voluntary codes related to marketing

communications, including advertising, promotion, and sponsorship.


concerning marketing communications, including advertising, promotion, and sponsorship,

by type of outcomes

SO8Total number of substantiated complaints regarding breaches of privacy and loss of

customer data


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PRODUCT RESPONSIBILITY PERFORMANCE INDICATORS

PR1Life 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.

PR2Total 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

PR3Type of product and service information required by procedures,procedures and

percentage of significant products and services subject to such information requirements.37-38


concerning product and service information and labelling by type of outcomes

PR5Practices related to customer satisfaction, including results of surveys measuring customer

satisfaction.

PR6Programmes for adherence to laws, standards, and voluntary codes related to marketing

communications, including advertising, promotion, and sponsorship.


concerning marketing communications, including advertising, promotion, and sponsorship,

by type of outcomes

PR8Total number of substantiated complaints regarding breaches of privacy and loss of

customer data

PR9Monetary value of significant fines for non-compliance with laws and regulations

concerning the provision and use of products and services.

Global Reporting Initiative (GRI) Content Index (end)

fully disclosed

partially disclosed

not disclosed

GRI Application Levels communicate the extent to which the content of the G3.1 Guidelines has been used in the submitted sustainability reporting. The Check confirms that the required set and number of disclosures for that Application Level have been addressed in the reporting and that the GRI Content Index demonstrates a valid representation of the required disclosures, as described in the GRI G3.1 Guidelines.

Ap

pen

dix

2

90

Appendix 2. List of Company’s Transactions in the Year 2012 Considered As Major Transactions In Accordance with the Federal Law “On Joint Stock Companies”

No transactions considered to be major transactions under the Federal Law “On joint stock companies” were completed in


List of Company’s Transactions in the Year 2012 Considered As Interested Party Transactions In Accordance with the Federal Law “On Joint Stock Companies”

№ Essential conditionsPersons interested in settlement of the transaction

Management body that took the decision on approval of the transaction

1.

Supplementary Agreement No. 16 of March 21, 2012 to Agreement for maintenance of

the inscribed stock holders register No. Э-203-2005 of August 15 2005 concluded with

CJSC SR-DRAGa on the change of the Registrar services starting from January 1 2012.

The agreement amount is RUB 145,350 per year VAT included.

JSC Gazprom,

shareholder of the

Company

Board of Directors,

Minutes No.59/2012

of March 12, 2012

2.

Supplementary Agreement No. 13 of April 19, 2012 to Gas Supply Agreement Pk-2007

of December 13, 2007 concluded with JSC Gazprom, according to which the change

affects the gas supply location (location of gas handover and the change of ownership)

from the Supplier (the Company) to the Buyer (JSC Gazprom).

JSC Gazprom,

shareholder of the

Company, Members of

the Board of Directors:

A. I. Medvedev,

O. P. Pavlova,

V. V. Cherepanov

Board of Directors,

Minutes No.59/2012

of March 12 2012

3.

Supplementary Agreement No. 14 of June 29, 2012 to Gas Supply Agreement

No.25 Pk-2007 of December 13, 12.2007 concluded with JSC Gazprom, on setting

the price of gas supplied in the second half of the year of 2012 in the amount of

RUB 1,413.25 per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom,

shareholder of the

Company, Members of


A. I. Medvedev,

O. P. Pavlova,

V. V. Cherepanov

General Meeting,

Minutes

No. 24/2012 of

June 15, 2012

4.

Supplementary Agreement No. 11 of June 29, 2012, 2012 to Gas Supply Agreement

No.28 Pk-2007 of December 13, 2007 concluded with CJSC Gazprom YRGM Trading,

on setting the price of gas supplied in the second half of the year of 2012 in the amount

of RUB 1,413.25 per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom,

shareholder of the

Company,

Member of the Board of

Directors: M.Mehren

General Meeting,

Minutes

No. 24/2012 of

June 15, 2012

5.

Supplementary Agreement No. 7 of June 29th, .2012 to Gas Supply Agreement No.14/

SNGP- 2009 of October 29, 10.2009 concluded with CJSC Gazprom YRGM Trading, on

setting the price of gas supplied in the second half of the year of 2012 in the amount of

RUB 1,413.25 per 1, 000 cu.m. of gas (excl. VAT).

JSC Gazprom,

shareholder of the

Company,

Members of the Board of

Directors F.Sivertsen,

A.Weatherill

General Meeting,

Minutes

No. 24/2012 of

June 15, 2012

6.

Agreement No. 12026 of September 3rd, 2012 concluded with

OJSC YUZHNIIGIPROGAZ for conducting the design and exploration work for subject

‘Development of the Yuzhno- Russkoye oil and gas field. Gas plant. Booster compressor

department No.1 (2 stage)’ in the amount of RUB 182,000,000 incl. VAT. Implementation

time from June 28, and until December 31, 2013

JSC Gazprom,

shareholder of the

Company

Board of Directors,

Minutes

No.63/2012

of August 7, 2012

7.

Agreement No. 196/SNGP-2012-P-E-8960 of August 10, 2012 concluded with

SOJSC Gazproektengineering for developing the single-stage design ‘System of

information security of Yuzhno- Russkoye oil and gas field information-management

system’. The agreement amount is RUB 14,226,070.56 incl. VAT. Implementation time

from August 15, to June 30, 2013

JSC Gazprom,

shareholder of the

Company

Board of Directors,

Minutes No.63/2012

of August 7, 2012

List of Company’s Transactions in the Year 2012 Considered As Interested Party Transactions In

Accordance with the Federal Law “On Joint Stock Companies”

91


№ Essential conditionsPersons interested in settlement of the transaction

Management body that took the decision on approval of the transaction

8.

Agreement No. 237/SNGP-2012-P-E of September 3 2012 concluded with

SOJSC Gazproektengineering for conducting the design and survey on the basis of TOR

‘Upgrade and further equipping of the technical security equipment set implemented at

the Yuzhno- Russkoye oil and gas field’. The agreement amount is 25 696 084.86 incl.

VAT. Implementation time from September 3, 2012 to June 30 2013

JSC Gazprom,

shareholder of the

Company

Board of Directors,

Minutes No.63/2012

of August 7, 2012

9.

Agreement No. 339-2012 of May 12 2012 concluded with LLC TyumenNIIgiprogaz for

development of works based on TOR ‘Design supervision of development of Turonian

gas deposit of the Yuzhno- Russkoye oil and gas field’ in the amount of RUB 2 999 973

incl. VAT. Implementation time from 02 April and until November 30 , 2012.

JSC Gazprom,

shareholder of the

Company

General Meeting,

Minutes

No.19/2011

of June 30, 2011

10.

Agreement No. 340-2012 of May 12 2012 concluded with LLC TyumenNIIgiprogaz

for development of works based on TOR ‘Design supervision of development of

Cenomanian gas deposit of the Yuzhno- Russkoye oil and gas field’ in the amount of

RUB 4 999 660 incl. VAT. Implementation time from 02 April and until

November 30, 2012.

JSC Gazprom,

shareholder of the

Company

General Meeting,

Minutes

No.19/2011

of June 30, 2011

11.

Agreement No. 101/SNGP-2012-P-K of April 24, 2012 concluded with OJSC Georesurs

for performance of geophysical exploration and works in wells during development

control of Yuzhno- Russkoye oil and gas field. The agreement amount is

RUB 86 ,522,961.45 incl. VAT. Implementation time from April 24, 2012 and until

February 15, 2013.

JSC Gazprom,

shareholder of the

Company

General Meeting,

Minutes

No.19/2011

of June 30 2011

12.

Agreements of deposits in Rubles and foreign currency with the maximum amount on

each transaction not exceeding RUB 1,000,000,000 pursuant to General Agreement

No. 34/SNGP-2009 of March 11, 2009 concluded with Gazprombank (Open Joint Stock

Company).

JSC Gazprom,

shareholder of the

Company

General Meeting,

Minutes

No. 19/2011

of June 30, 2011

13.

Agent commission No.38-АD-010/46-8 of November 19, 2012, according to which the

Company (principal) commissions, and LLC Gazprom komplektatsiya (agent) concludes

supply contracts of chemicals for the Company from its own name but at the cost of the

principal in the amount of 50,185, 400. Time of delivery 1-4 Q of 2013.

JSC Gazprom,

shareholder of the

Company

General Meeting,

Minutes

No. 25/2012

of June 29, 2012

14.

Supplementary Agreement No. 8 of December 10, 12.2012 to Agreement

No.13/SNGP-2007 of March 12, 2007 concluded with JSC Gazprom

SOJSC Tsentrenergogas, according to which JSC Gazprom SOJSC Tsentrenergogas

conducts manufacturing and repair of standard and non-standard equipment of Yuzhno-

Russkoye oil and gas field’. Cost of works according to the price list. The agreement amount

is 800 000 RUB incl. VAT. Implementation time is extended until December 31, 2013.

JSC Gazprom,

shareholder of the

Company

General Meeting,

Minutes

No.25/2012

of June 29, 2012

15.

Agreement No. 218/SNGP-2012-P-O of July 25, 2012 concluded with LLC ‘Firma

Gazenergonaladka’ OJSC Gazenergoservis for operational tuning of gas burner

units BOR-30-1/2 of Yuzhno- Russkoye oil and gas field. The agreement amount is

490,303.05 RUB incl. VAT. Implementation time from 01 September 2012 to

November 30, 2012.

JSC Gazprom,

shareholder of the

Company

General Meeting,

Minutes

No. 25/2012

of June 29, 2012

16.

Supplementary Agreement No. 15 of December 29, 2012 to Gas Supply Agreement

No.25 Pk-2007 of December 13, 2007 concluded with JSC Gazprom on setting the price

of gas supplied in the first half of the year of 2013 in the amount of RUB 1,360.27

per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom,

shareholder of the

Company, Members of


A. I. Medvedev,

O. P. Pavlova,

V. V. Cherepanov

General Meeting,

Minutes

No.26/2012

of December 27, 2012

17.

Supplementary Agreement No. 12 of 29.12.2012 to29.12.2012 to Gas Supply Agreement

No.28 Pk-2007 of December 13, 2007, 2007 concluded with CJSC Gazprom YRGM

Trading on setting the price of gas supplied in the first half of the year of 2013 in the

amount of RUB 1,360.27 per1,360.27 per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom,

shareholder of the

Company, Member of


М. Mehren

General Meeting,

Minutes

No. 26/2012


18.

Supplementary Agreement No. 8 of December 29, 2012 to2012 to Gas Supply

Agreement No.144/SNGP-2009 of 29.10.2009 concluded with CJSC Gazprom YRGM

Development on setting the price of gas supplied in the first half of the year of 2013 in the

amount of RUB ,of RUB, 360.27 per360.27 per 1,000 cu.m. of gas (excl. VAT).

JSC Gazprom,

shareholder of the

Company, Members of


F.Sivertsen,

A.Weatherill

General Meeting,

Minutes

No. 26/2012


List of Company’s Transactions in the Year 2012 Considered As Interested Party Transactions In

Accordance with the Federal Law “On Joint Stock Companies” (end)

Documents

OJSC Severneftegazprom Annual Report 2012 (English)