Production and manufacturing expenses

Production and manufacturing expenses (RUB mn)
2015 2016 ∆, %
Upstream expenses 98,095 106,490 8.6
Consolidated subsidiaries inside Russia 72,854 80,392 10.3
including Brownfields 61,225 65,960 7.7
RUB per toe 1,582 1,692 6.9
USD Translated to USD at the average exchange rate for the period. per boe 3.54 3.44 (2.8)
Greenfields 11,629 14,432 24.1
Consolidated subsidiaries outside Russia (including PSA) PSA refers to production sharing agreement. 9,426 9,655 2.4
Joint operations 15,815 16,443 4
RUB per toe 1,787 1,892 5.9
USD Translated to USD at the average exchange rate for the period. per boe 4 3.85 (3.7)
Downstream expenses 53,549 53,132 (0.8)
Refining expenses at own refineries 30,724 30,619 (0.3)
RUB per tonne 882 893 1.2
USD Translated to USD at the average exchange rate for the period. per bbl 1.97 1.82 (7.9)
Refining expenses at refineries of joint ventures Refining expenses of joint ventures is based on processing agreement. 14,648 12,453 (15)
RUB per tonne 1,778 1,639 (7.8)
USD Translated to USD at the average exchange rate for the period. per bbl 3.98 3.33 (16.2)
Lubricants manufacturing expenses 8,177 10,060 23
Transportation expenses to refineries 27,541 29,561 7.3
Other operating expenses 35,082 12,679 (63.9)
Total 214,267 201,862 (5.8)

Upstream expenses include expenditures for raw materials and supplies, maintenance and repairs of production equipment, labor costs, fuel and electricity costs, enhanced oil recovery activities and other similar costs at our upstream subsidiaries.

Upstream expenses at consolidated subsidiaries in Russia increased by 10.3% YOY due to increased crude production at greenfields and increased workover operations to intensify production.

Upstream expenses per toe at consolidated subsidiaries at brownfields increased by 6.9% YOY due to:

  • Enhanced oil recovery activities, including the partial substitution of new well drilling by more effective workover operations;
  • Accelerated transition to the electric submersible pump (ESP) rental program;
  • Expanded activities under the HSE program
  • Higher natural monopoly tariffs and inflationary pressures;
  • Management actions to offset expenses increase.

Upstream expenses at consolidated subsidiaries outside Russia increased by 2.4% YOY due to increased production in Iraq (Badra project).

Upstream expenses at joint operations increased by 4.0% YOY mainly due to:

  • an increase in SPD expenses as a result of ASP project development 4 , an increase in average well stock, the transition to the electric submersible pump (ESP) rental program, increased expenses for repair;
  • an increase in Tomskneft expenses as a result of higher tariffs, increased HSE program activities, increased well workover operations to intensify production.

Refining expenses at the refineries of consolidated subsidiaries include expenditures for raw materials and supplies, maintenance and repairs of production equipment, labor and electricity costs, and other similar costs at the Group’s refineries.

Refining expenses per tonne at own refineries increased by 1.2% YOY primarily due to higher tariffs of natural monopolies. Tariffs growth was partually offset by:

  • Optimized consumption of fuel (fuel oil consumption instead of natural gas at Omsk refinery);
  • Optimized use of additives and components in diesel production.

Refining expenses per tonne at refineries of joint ventures declined by 7.8% YOY due to a decline in processing costs at YANOS refinery in accordance with legislation on transfer pricing and market conditions.

Transportation expenses to refineries increased by 7.3% YOY mainly due to a 5.8% increase in oil transportation tariffs.

Other operating expenses decreased by 63.9% YOY mainly due to transfer of operator function to Messoyakha.

Selling, general and administrative expenses

Selling, general and administrative expenses include general business expenses, wages, salaries (except wages and salaries at production subsidiaries and own refineries), insurance, legal fees, consulting and audit services, and other expenses.

4 Construction was completed on a plant that will mix the three-component alkaline-surfactant-polymer blend at the Salym group of fields.

Selling, general and administrative expenses increased by 8.8% YOY, driven by:

  • Higher expenses at foreign subsidiaries due to rouble depreciation
  • Business growth, Group expansion and marketing campaigns.

Transportation expenses

Transportation expenses include costs to transport crude oil and petroleum products to final customers. These costs consist of pipeline transportation, sea freight, rail, shipping, handling, and other transportation costs.

Transportation expenses remained unchanged YOY. Crude oil transportation expenses increased due to higher crude sales volumes. Petroleum product transportation expenses decreased due to a reduction of petroleum product sales volumes and logistics chain optimization.

Depreciation, depletion and amortization

Depreciation, depletion and amortization expenses include depreciation of oil and gas properties, refining and other assets and impairment provision.

Depreciation, depletion and amortization expenses increase by 13.8% YOY in line with an increase in depreciable assets driven by implementation of the investment program and increased production.

Taxes other than income tax (RUB mn)
2015 2016 ∆, %
Mineral extraction taxes 256,477 237,300 (7.5)
Excise 68,358 112,102 64
Social security contributions 15,599 18,530 18.8
Other taxes 12,711 13,199 3.8
Total taxes other than income tax 353,145 381,131 7.9

Taxes other than income tax increased by 7.9% YOY. Excise taxes increased by 64.0% due to higher rates and imposition of an excise tax on middle distillates. The increase was partly offset by an 7.5% YOY MET decrease due to a decline in oil prices