ROSN.L Regulatory News (ROSN)

Operating Results for Q3 2016 and 9M 2016

· Growth in daily hydrocarbon production by 1.4% to 5.21 mmboe for 9M 2016

· Daily liquid hydrocarbon production increased by 1.0%, compared to Q2 2016 positive dynamics of cumulative production for 9M 2016

· Planned launch of new production facilities at the East Messoyakhskoye field

· Growth in development drilling by 42% over 9M 2016

· Gas production increased by 7.4% to 49.3 bcm for 9M 2016 due to the commissioning of new capacities

· Refining depth increased by 5 pp to 71% followed by the 21% reduction in fuel oil output for 9M 2016

Upstream

Hydrocarbon production continued improving steadily in Q3 2016. Average daily hydrocarbons production grew by 1.4% to 5.21 mmboe for 9M 2016.

Development drilling footage increased by 42% to 7.0 mln meters for 9M 2016. The number of new wells commissioned grew by 49% compared to 9M 2015 to reach 1.9 thousand wells, while the share of horizontal wells remained at c. 30% in line with the annual target. The share of in-house services in the total drilling volumes consistently exceeds 50%.

Average daily liquid hydrocarbon production in Q3 2016 grew by 1.0% vs. Q2 2016 and by 1.3% vs. Q3 2015 to 4.15 mmbpd despite ongoing turnarounds at production projects in Sakhalin. First of all, it is worth highlighting the successive improvements at Yuganskneftegaz (+4.2% vs Q3 2015 and by +1.8% vs Q2 2016), advances at Samaraneftegaz, Tomskneft and projects of the Vankor group vs. Q2 2016, as well as the start of production at the East Messoyakhskoye field. By the end of 9M 2016, the average daily liquid hydrocarbon production grew by 0.3% to 152.2 mbpd

In preparing for the 1st phase of the Suzun field development, the Company started comprehensive testing of oil treatment and transportation facilities: final operations at the 1st Start Up Complex of Oil Treatment Facility with a rated capacity of 4.5 mmtpa, pipeline from Suzun OTF to Vankor OTF, and continued infrastructure setup at 6 well pads. In September, production reached 243 kt of oil (c. 60 kbd), thus improving the overall dynamics of the Company's liquid hydrocarbon production in Q3 2016. This year oil production forecast of the Suzun field is c. 1.2 mmt (expected oil production in 2017 - 4.5 mmt).

On September 21, the East Messoyakhskoye field (the northernmost onshore Russian field) was put on stream. The command to start oil shipment from the East Messoyakhskoye field was given by the President of the Russian Federation Vladimir Putin, via video link-up. Thanks to the implementation of modern technical and engineering solutions, the East Messoyakhskoye field infrastructure was built within less than 3 years. The operating stock of producing wells at the end of Q3 was 65 units, a supply pipeline of 98 km connects with the main pipeline Zapolyarie-Purpe, a gas turbine power plant (GTPP) with a capacity of 84 MW was put into operation.

As part of new program to introduce new technological solutions, the Company is successfully implementing a program of drilling multilateral wells (MLW). Thus, 4 MLWs were commissioned at the Samotlor field with an average initial flow rate of over100 tpd of oil, which is 1.5 times higher than the average flow rates of new wells of the field since the beginning of the year. At the Yurubcheno-Tokhomskoye gas condensate field, the first multilateral well was completed with an expected production rate of about 200 tpd. MLW construction is aimed at obtaining additional oil production by increasing productivity and reducing projected well stock by increasing the reservoir sweep area. This technology enables us to put on stream a greater volume of reserves per well and increase the economic benefit.

Gas production for 9M 2016 amounted to 49.33 bcm, 7.4% up from the same period of 2015. Production growth was mainly due to running in comprehensive testing mode in Q4 2015 of the 2nd stage of Rospan's Novo-Urengoy gas and condensate treatment plant, launch of the 4th and 5th wells in the northern tip of Chayvo, offshore Sakhalin, the commissioning of a gas treatment facility in December 2015 at Barsukovskoye field of Purneftegaz, and execution of the project to increase gas production at Sibneftegaz's Khadyryakhinskoye field.

In Q3 2016 gas production declined by 2.5% against Q2 2016 and amounted to 16.10 bcm. The production decrease was a result of the planned preventive maintenance and was partially offset by increased production at Rospan.

Associated petroleum gas (APG) utilization rate over 9M 2016 rose to 89.8% compared to 86.8% over 9M 2015).

In the 9M 2016, over 2,500 km of onshore 2D seismic surveys and over 5,900 sq km of onshore 3D seismic surveys were acquired, exceeding the results of 9M 2015 by 17% and 10%, respectively. 30 E&A wells were tested with a success rate of 83%. 47 new deposits and 7 new fields were discovered with АВ1С1+B2С2 reserves of about 47 mmtoe.

Following the drilling of exploratory wells in Verkhneichersky license area in the Irkutsk region, Rosneft discovered a deposit with 61 mmtoe of C1 + C2 reserves.

The Company has a large-scale program underway for offshore seismic exploration. 2D seismic acquisition was completed in the Pechora Sea covering 1,150 km, 2D and 3D offshore seismic surveys are continuing in the license areas of the Barents, Kara, East Siberian, Chukchi and Laptev seas. Over 9M 2016, about 22 thousand km of 2D seismic acquisition and more than 1,600 sq. km of 3D seismic surveys were completed, which is more than twice those in 9M 2015.

Downstream

In Q3 2016, the oil refining throughput at Russian refineries rose by 11.1% to 21.55 mmt compared to Q2 2016 caused by seasonal demand increase on the domestic market. Meanwhile, the Company continues to optimize refining capacity utilization in order to ensure an efficient level of feedstock processing taking into account the capacity of secondary processes to minimize the output of heavy oil products. As a result, in 9M 2016, the oil refining throughput of Russian refineries declined by 5.9% to 60.42 mmt, while fuel oil output dropped by 20.9%.

Thanks to improved efficiency and optimized operation of Russian refineries, light product yield increased by 0.8 pp reaching 56.1% in 9M 2016, while the conversion rate increased by 5 pp reaching 71.3% compared to the respective period of 2015, The Company built up the production of Euro-5 gasoline and diesel fuel to 20.8 mmt for 9M 2016 exceeding the level of 2015 by 1.5 times.

Rosneft continues to successfully implement the refinery upgrade program in Russia: new FCC and MTBE units' construction were completed at the Kuibyshev refinery in 2016. The new facilities will enable the refinery to meet the demand for high-octane components for gasolines by producing them at their own facilities, and to increase the production of high-quality motor fuels.

As part of the import substitution program undertaken by the Company in Q3 2016, an improved catalyst produced by the Angarsk Catalysts and Organic Synthesis Plant was launched for the kerosene fraction hydrotreatment unit, which will enable the Company to meet the requirement for the catalyst by own production.

The company successfully continues to diversify supplies between the western and eastern routes. Supplies eastwards grew by 8% to almost 31 mmt for 9M 2016 compared with the same period of 2015.

In 9M 2016, small wholesale and retail sales of refined products remained almost unchanged compare to the level of last year. The main focus in the retail business is to improve the efficiency of operations, i.e. optimize assets, reduce losses and cut costs. Thanks to these efforts, the segment's sales profit margin grew by 6% in the reporting period compared to the same period last year. As part of the effort to expand the retail business, a new loyalty program continues for customers of the retail network, which is already in operation across 20 regions of Russia, covering more than 1.5 million active members.

International operations and asset acquisitions

On October 12, Rosneft completed the acquisition of the Government stake in Bashneft. The Company as well as the market in general highly values the potential synergies from the transaction, including optimization of mutual oil supplies, transportation and logistics costs, reduced drilling costs, joint use of production assets infrastructure, advanced technologies and know-how. Rosneft's successful track-record in the integration of major oil and gas assets is a guarantee of its speedy and efficient monetization. Following the transaction, the liquid hydrocarbon production of the combined company will grow by 10%, refining - by 20%, strengthening its position as the largest publicly traded oil and gas company globally.

With the signing of the sale and purchase agreement for 49% stake in Essar Oil Limited, Rosneft has entered the Indian market, one of the world's most promising and fastest growing. Upon the deal completion, the Company will get a stake in the Vadinar refinery with a 20 mmtpa capacity and a comprehensive infrastructure, which is one of the largest and most technologically advanced refineries not only in India but also in the world, as well as a large retail network with 2,700 gas stations in India. The company expects to gain synergies from processing heavy Venezuelan crude and cross-supplies of petroleum products to the Asia-Pacific markets that will enhance the refinery's economic efficiency.

Within short timeframes Rosneft completed the creation a unique international energy hub on the basis of the Vankor cluster: in October, the Company successfully closed the deal to sell 23.9% of Vankorneft shares to a consortium of Indian companies, consisting of Oil India Limited (the leader of the consortium), Indian Oil Corporation Limited and Bharat PetroResources Limited, as well as an additional 11% to the Indian ONGC Videsh Limited. As a result, ONGC Videsh Limited increased its stake in Vankorneft to 26%, while the share of the Indian state-owned companies as a whole increased to 49.9%. Meanwhile, Rosneft retained a majority equity stake, the majority on the Vankorneft board of directors, control over the company operating activities, as well as a 100% control of the overall infrastructure of the cluster.

Furthermore, with a consortium of Indian companies consisting of the Oil India Limited (leader of the consortium), Indian Oil Corporation Limited and Bharat PetroResources Limited, a deal was closed to sell a 29.9% stake in Taas-Yuryakh project. With the deal close the consortium of Indian companies has entered the joint project between Rosneft and BP on the basis of Taas-Yuryakh Neftegasodobycha. The share of Rosneft will remain at 50.1%.

In order to implement the project for the construction of the Tuban refining and petrochemical complex with a starting capacity of 15 mmtpa in the eastern part of Jawa (Indonesia), Rosneft and Pertamina signed a Joint Venture Agreement. The parties are currently developing a feasibility study of the project. The final investment decision on the project will be made upon the results of the feasibility study, basic engineering design (BED) and front-end engineering design (FEED). Besides, the companies Signed Memorandums of Understanding for cooperation within the northern tip of Chayvo project (Sakhalin island) and Russkoye Field Development project, including a possible acquisition by Pertamina of 20% and 37.5% stakes in these projects, respectively.

As part of the Head of terms crude and oil products supplies, Rosneft and Hellenic Petroleum reached an agreement for the first direct deliveries to Greece refineries in the amount of 85 th. tons of CPC blend and up to 90 th. tons of fuel oil produced by the Tuapse refinery in September-November.

Rosnefteflot, a Rosneft subsidiary, and Zvezda Shipyard signed the contracts for the supply of tankers. These tankers will be of a new type of vessels operating on gas motor fuel, meeting high environmental standards and new rules for the limits of emissions of sulfur oxides and greenhouse gases in the area of the Baltic and North Seas, which will be introduced starting from 2020.

Furthermore, Rosneft and the Far Eastern Shipbuilding and Ship Repair Center (FESRC) have signed contracts for the delivery of two unique multi-purpose supply vessels of reinforced ice-class Icebreaker 7. The document provides that the first two ships built by the Zvezda shipyard will be delivered at the end of 2019 and during the first half of 2020.

Rosneft and PDVSA expand their strategic cooperation. The Parties concluded an agreement on the feasibility study of the project for the development and operations at the Patao, Mejillones, and Rio Caribe Blocks offshore Venezuela. New key contract terms were also signed for cross-deliveries of crude and products, based on which the necessary binding documents will be executed for Rosneft to supply crude and products in exchange for Venezuelan crude and products produced by PDVSA. The parties expect that supplies will start as soon as 2016.

Key operational indicators in Q3 and 9M 2016:

*According to management data

Information Policy Division

Rosneft

Tel.: +7 (495) 411 54 20

Fax: +7 (495) 411 54 21

 November 10, 2016

These materials contain statements about future events and expectations that are forward-looking in nature. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.