Main macroeconomic factors affecting operational results

The main factors affecting the Group’s operational results include:

• Changes in market prices for crude oil and petroleum products;
• Changes in the exchange rate between the Russian rouble and the US dollar; inflation;
• Taxation;
• Changes in transportation tariffs for crude oil and petroleum products.

Changes in market prices for crude oil and petroleum products

Prices for crude oil and petroleum products on international and Russian markets are the primary factor affecting the Group’s operational results.

Petroleum product prices on international markets are primarily determined by world prices for crude oil, petroleum product supply and demand, and competition on different markets. Petroleum product price trends on international markets in turn determine domestic prices. Price trends are different for different types of petroleum products.

The decrease in crude oil and petroleum product prices on international markets in 12 months 2016 had a negative impact on the Group’s results, but the drop in oil prices was largely offset by changes in the exchange rate for the US dollar relative to the Russian rouble.

ROUBLE vs. US dollar exchange rate and inflation

The Group’s management has determined that the Russian rouble is the presentation currency for the Group’s financial statement. The functional currency of each subsidiary is considered the currency of the economic environment in which the company does business and is the Russian rouble for most subsidiaries.

Hydrocarbon taxes