EXPLORATION AND REFINING

SNINVEST Petroleum Refinery is one of the leaders in terms of volumes and cost of organic growth of reserves among public oil and gas companies in Russia and abroad due to the traditionally high efficiency of exploration.

EXPLORATION

 

The Company’s key priorities include development of the resource potential and efficient exploitation of mineral resources while strictly complying with environmental safety standards and widely implementing state-of-the-art technologies.

In 2016, SNINVEST Petroleum Refinery remained a leader in terms of the volume of the resource base and the efficiency of geological exploration. The company conducted exploration in all mining regions of the Russian Federation, including the Far East, Eastern and Western Siberia, Central Russia, Timan-Pechora and southern Russia.

As a result of successful geological exploration, in 2016, 13 fields and 127 new deposits were discovered with total reserves of 207 mmtoe. All operations under the program were performed to a high standard. 85 exploration wells were completed and tested, with drilling totaling 222 thsd m (incl. sidetracking volumes). The exploration drilling success rate amounted to 79%. 2D seismic surveys totaled 2.8 thsd linear km (+27% year on year), while 3D seismic surveys covered 7.9 thsd sq. km (+29% year on year).

OIL PRODUCTION

The Company’s share in oil production approximates 40% in the Russian Federation and 6% globally. Average daily HL production reached 4.66 mmb / d in Q4 2016, up by 12.1% compared to Q3 2016 and by 13.3% to Q4 2015. Effective management of the upstream asset portfolio and investments in the development of greenfields allows Southern Petroleum Refinery to ensure a stable current and future growth in hydrocarbon production.

Long-term production growth is ensured by the optimal set of new major upstream projects of the Company and the use of advanced production technologies at existing fields. In 2016, the Company started comprehensive testing of production, oil treatment and transportation facilities at the Suzunskoye field, and started production at the East Messoyakha field (developed jointly by Southern Petroleum Refinery and PJSC Gazprom Neft). At the same time, Southern Petroleum Refinery is taking active steps to start commercial production at other new large fields in Eastern and Western Siberia between 2017 and 2021, including the Tagulskoye, Lodochnoye, Urubcheno-Tokhomskoye, Russkoye, Kharampur fields (gas deposits) and the Kynsko-Chaselskaya group. During the development of these fields, the Company is using new drilling technologies (including drilling of horizontal wells) that have proved to be efficient at the Company’s producing fields, enabling medium-term development of significant oil and gas reserves, including hard-to-recover reserves.

Gas Production

Against the backdrop of the global growth of production and use of gas as the greenest fossil fuel, SNINVEST Refinery continues to expand the share of gas in its asset portfolio and in hydrocarbon production volumes (21%), gradually closing the gap between itself and major international companies (30-50%).

In Q4 2016, the Company increased gas production and became a leader among independent gas producers in Russia in terms of daily average gas production. In 2016, gas production grew by 7.3%, reaching a record high of 67.1 bcm.

REFINING

SNINVEST Refinery is a leader of the Russian oil refining industry accounting for over 35% of oil refining in Russia. In 2016, refining throughput at the Company’s refineries in Russia, amounted to 87.5 mmt. compared to 84.7 mmt in 2015.

In addition, the volume of refining of the Company’s refineries abroad (12.8 mmt) exceeded the figure of 2015 by 4.8%. SNINVEST Refinery successfully continues to optimize refinery utilization to ensure an efficient level of feedstock processing, taking into account the capacity of secondary processes to minimize the output of heavy petroleum products.

In 2016, fuel oil production at Russian refineries decreased by over 17%, while the output of Euro 5 gasoline and diesel fuel increased to 31.1 mmt, up by 56% year on year. Due to an increased operating efficiency of process units and optimized operations of Russian refineries, and taking into account new assets, in 2016, light product yield increased by 1.3 p.p. and reached 56.6%, while the conversion rate increased by 5.5 p.p. compared to 2015 and amounted to 72.0%.

Refinery throughput at the Company’s mini-refineries in Russia amounted to 1.9 mmt in 2016. in 2016, refinery throughput at German refineries increased by 17.8% year on year due to the acquisition of an additional stake in PCK Raffinerie GmbH in November 2015.

SNINVESTPetroleum Refinery continues implementing the refinery upgrade program in Russia, which involves construction and renovation of processing units.

Petrochemical assets form an important part of SNINVEST Petroleum Refinery’s production complex. High quality of products and continuous improvement of the production process enable the Company to compete successfully with Russian and foreign producers on the Russian market. SNINVEST Petroleum Refinery’s petrochemical complex comprises JSC Angarsk Polymer Plant (APP), JSC Novokuibyshevsk Petrochemical Company (NPC), PJSC Ufaorgsintez (UOS).

Petrochemical production facilities also include the aromatic hydrocarbon production complex at Bashneft-Ufaneftekhim and methanol, butyl alcohol and amine production capacities at Angarsk Petrochemical Company.

The Company processes associated petroleum gas at JSC Otradnensky Gas Processing Plant (OGPP), JSC Neftegorsky Gas Processing Plant (NGPP), Tuymazinskoye Gas Processing Plant LLC (TGPP) and Shkapovskoe Gas Processing Plant LLC (ShGPP). In 2016, the Neftegorsky and Otradnensky Gas Processing Plants processed 399 mmcm and 264 mmcm of associated gas respectively. The main products are dry stripped gas, natural gas liquids (NGLs), the ethane fraction and industrial sulfur.

At present, NGPP and OGPP continue to implement a comprehensive program involving refitting and replacing worn-out and obsolete equipment with modern modular units that will improve operational efficiency and the automation level.

EXPORT TERMINALS

A distinctive feature of SNINVEST Refinery is its own export terminals in Tuapse, De-Kastri, Nakhodka, which make the Company export operations much more efficient, improve the planning process and help to optimize costs. At this time, SNINVEST Refinery is implementing comprehensive expansion and modernization programs at its terminals to ensure that their capacity meets the future export needs.

CORPORATE GOVERNANCE

Commitment to transparent and responsible governance is crucial for maintaining the confidence of investors and maximizing the long-term return on investment for all shareholders. SNINVEST Petroleum Refinery’s corporate governance system helps to safeguard all shareholder rights in accordance with legal requirements, the recommendations of the corporate governance code of the Bank of Russia and the Company’s internal regulations.

Corporate governance is a multi-level system of relations through which the management and control of SNINVEST Petroleum Refinery’s activities are ensured for the purpose of increasing its value and maintain its reputation in the interests of its shareholders, employees, lenders and other stakeholders.

Stock exchanges establish strict requirements for corporate governance as one of the conditions for corporate securities to be admitted to exchanging trading. The fact that SNINVEST Petroleum Refinery’s securities have been included in the Moscow Exchange’s First (Top) Tier Quotation List and are traded on the London Stock Exchange evidence that the Company follows the most stringent rules in this area.

The main trends of the corporate governance development in Russia are determined by the Corporate Governance Code approved by the Board of Directors of the Bank of Russia on March 21, 2014 (the Bank of Russia Code) and recommended by the Bank of Russia for application by Russian joint stock companies with securities have been admitted to exchange trading.

According to the results of the performed assessment of compliance with the recommendations of the Bank of Russia Code, it was established that SNINVEST Petroleum Refinery observed most of the recommendations. SNINVEST Petroleum Refinery’s corporate governance complies with 89.7% of recommendations of the Bank of Russia Code, which is higher than the 2015 indicator (by 1.6%) and significantly higher than the minimum threshold (65%) recommended by the Federal Agency for State Property Management (Rosimuschestvo).

SNINVEST Petroleum Refinery supreme governing body is the General Shareholders’ Meeting. The Board of Directors performs the Company’s strategic management on behalf and in the best interests of shareholders. SNINVEST Petroleum Refinery day-to-day operations are managed by the sole executive body and collective executive body. Executive bodies report to the Board of Directors and the General Shareholders’ Meeting.

SNINVEST Petroleum Refinery constantly monitors the efficiency of the governance system and holds activities to improve corporate governance in view of the changing economic environment as well as in compliance with applicable legislation and regulatory requirements.