Report on priority work performed by the Gazprom Neft PJSC Board of Directors in 2016

Structure of items considered by the Board of Directors in 2012-2016 by theme Source: Company data

In the course of its work, the Board of Directors consistently implemented the main objectives in the priority areas of activities of Gazprom Neft PJSC, including strategic development, increasing investment appeal, ensuring effective monitoring of the administration of assets, investment, financial and economic activities, enhancing the effectiveness and transparency of internal management mechanisms and improving the monitoring and accountability system of the Company's management bodies.

The Gazprom Neft PJSC Board of Directors performed activities on the basis of approved semi-annual work plans. A total of 59 meetings were held in 2016.

Statistics on the participation of members of the Board of Directors in meetings in 2016

Members of the Board of Directors took part in all meetings of the Board of Directors except for Alexander Dyukov since he does not attend meetings where related party transactions are considered.

Statistics on the number of meetings of the Board of Directors in 2012-2016 Source: Company data
Participation of members of the Board of Directors in meetings in 2016
Board of Directors Member Number of meetings attended by the Member of the Board of Directors (including providing a written opinion) Total number of meetings the Member of the Board of Directors could have attended
A. B. Miller
Chairman of the Board of DirectorsNon-executive Director
59 59
V. A. Golubev
Non-executive Director
59 59
A. V. Kruglov
Non-executive Director
59 59
A. V. Dyukov
Executive Director
33 59
M. L. Sereda
Non-executive Director
59 59
K. G. Seleznev
Non-executive Director
59 59
Y. V. Mikhailova
Non-executive Director
59 59
N. N. Dubik
Non-executive Director
59 59
V. I. Alisov
Non-executive Director
59 59
V. V. Cherepanov
Non-executive Director
59 59
V. P. Serdyukov
Independent Director
59 59
M. M. Garayev
Non-executive Director
59 59
S. A. Fursenko
Independent Director
59 59
Strategic development

In accordance with the recommendations of the Code of Corporate Governance, matters concerning the strategic development and priority areas of activities of Gazprom Neft PJSC are considered at in-person meetings of the Board of Directors.

The Board of Directors considered the following issues in strategic and investment planning in 2016:

  • The implementation of the Gazprom Neft PJSC Development Strategy until 2025.
  • The resource base development strategy of Gazprom Neft PJSC.
  • The Gazprom Neft PJSC development programme on the shelf of the Russian Federation.
  • The international business development plans of Gazprom Neft PJSC.
  • The effectiveness and prospects of activities in small wholesale and retail segments for the sale of petroleum products.
  • The implementation of the Investment Programme based on the Company’s performance results in 2015 and its implementation in 2016.
  • The preliminary results of the implementation of the Gazprom Neft Group’s Investment Programme and Budget for 2016.
  • The future plans for the development of raw materials processing capacity in the current economic conditions.
  • The Gazprom Neft Group’s procurement activities in the changed market conditions and measures to minimise the share of import procurements.
  • The status and prospects for the development of the exchange trading of Gazprom Neft PJSC oil and petroleum products on the Russian market.
  • An analysis of the development of new energy and transport technologies and their impact on the future of the oil and gas industry.

The Board of Directors took under advisement information about the implementation of the Gazprom Neft PJSC Development Strategy. The existing Gazprom Neft PJSC Development Strategy until 2025 was approved by the Board of Directors in 2013 and updated in 2016 as regards the reserves target. The Gazprom Neft Board of Directors has approved the Company’s main priorities for the development of the resource base for the next five years. The primary objective in this area is to provide Gazprom Neft with resources to achieve its strategic goal of reaching production of 100 million tonnes of hydrocarbons per year by 2020 and maintaining this level after 2020.

The Gazprom Neft Board of Directors considered information about the implementation of the Company’s investment programme on two occasions in 2016. The investment programme aims to achieve the company’s medium- and long-term goals and is implemented taking into account previously approved plans. The Gazprom Neft Board of Directors decided to maintain the Company’s investment programme for 2016 at the level approved a year earlier.

The Company’s development programme on the Russian shelf was also submitted to the Gazprom Neft Board of Directors for consideration. In recent years, Gazprom Neft and its subsidiaries have carried out extensive work to confirm the cost-effectiveness of offshore projects that fall within the Company’s jurisdiction. The research conducted by the Company confirms there are prospects for increasing commercial hydrocarbon reserves by continuing geological exploration work on the shelf of Russia’s Arctic and also confirms the feasibility of the effective development of offshore fields.

The Board of Directors considered information in 2016 about plans to develop the international business of Gazprom Neft. At present, the Gazprom Neft portfolio includes over 20 projects involving the exploration and production of hydrocarbons, oil refining and the sale of petroleum products outside of Russia.

In an effort to achieve the goals envisaged in the Company’s long-term strategy, Gazprom Neft is considering options to further develop and improve the efficiency of existing foreign projects as well as the possibility of joining new oil production and refining projects. The feasibility of attracting foreign partners for joint work in Russia is also under consideration.

The Gazprom Neft PJSC Board of Directors took under advisement information about the Gazprom Group’s procurement activities in the changing market conditions and measures to minimise procurements of imported goods. Gazprom Neft is committed to providing comprehensive support to domestic producers in helping them to develop new types of products and technologies and promotes the development of a national production base and network of suppliers. When choosing services and equipment to implement its projects, the Company gives preference to goods, work and services of Russian origin. More than 90% of the funds that Gazprom Neft spends on procurements go to Russian contractors. The Company is also actively involved in the work of intersectoral groups to support initiatives associated with the establishment of joint ventures and the localisation of production capacity as well as the research and development work of leading foreign producers working in Russia.

The Gazprom Neft Board of Directors considered information in 2016 about the development of new energy and transport technologies and their potential impact on the future of the oil and gas industry. In particular, a presentation was given of the most significant technologies and trends that could influence the global energy balance, including gas production from hydrates, technologies that increase the efficiency of internal combustion engines, the development of the electric and unmanned vehicle segments, alternative generation and the use of natural gas in the transport sector. Supply and demand development scenarios are the basis for Gazprom Neft’s long-term development strategy. The company will continue to regularly monitor how technologies develop in the energy sector and related industries and analyse the appropriate risks and business opportunities.

Financial and economic activities and risk management

The Gazprom Neft PJSC Board of Directors devotes significant attention to monitoring the financial, economic and investment activities of the Gazprom Neft Group.

In 2016, the Board of Directors considered the following issues:

  • The debt structure and management of the debt portfolio of the Gazprom Neft Group in 2015 and proposals for its optimisation in 2016.
  • The execution of the Gazprom Neft Group’s Budget (financial plan) and the financial borrowing programme for 2015 based on the Company’s performance results in 2015 (including the forecast of debt ratios based on the 2016 results).
  • The implementation status and effectiveness of the Gazprom Neft Group’s Investment Programme for 2016 based on the Company’s performance in the first half of 2016. Amendments to the Gazprom Neft Group’s Investment Programme and Budget (financial plan) for 2016.
  • The preliminary results of the implementation of the Gazprom Neft Group’s Investment Programme and Budget for 2016.
  • The draft Investment Programme and Budget (financial plan), including the Gazprom Neft Group’s financial borrowing programme and Cost Optimisation (Reduction) Programme for 2017 and the forecast through 2019.

The Board of Directors devoted significant attention to risk management issues at the Company.

The Board of Directors considered reports from the head of the Internal Audit Department about the main results of activities involving the organisation and monitoring of the integrated risk management system at in-person meetings throughout 2016.

In its risk management activities, the Company focused on updating its key risk register, including measures to identify, analyse and assess the risks of subsidiaries and major projects of the Upstream and Downstream Divisions.

In addition, in an effort to develop the integrated risk management system, the Company held training events for risk coordinators at subsidiaries and continues to implement initiatives to integrate the risk management system, business planning processes, and manage major investment projects and internal audits (systematising information about risks that are analysed or identified during audits).

Social activities, industrial safety and the environment

In 2016, the Board of Directors considered the following issues concerning the Company’s sustainable development:

  • The status of energy conservation and improved energy efficiency work at the Gazprom Neft Group.
  • The implementation of the programme to utilise and improve the effective use of associated petroleum gas based on the results of 2015 and the first half of 2016 and plans for 2016-2017.
  • The action plan to utilise associated petroleum gas of Gazprom Neft PJSC.
  • Industrial safety measures carried out by Gazprom Neft PJSC in 2016.
  • The approval of the Report on the Implementation of the Gazprom Neft PJSC Innovative Development Programme for 2015.
  • The approval of sponsorship for sports clubs in the regions where the Company operates (Hockey Club SKA and NP Avangard SC) during sports seasons.

The Board of Directors took under advisement information about the status of energy conservation and improved energy efficiency work at the Gazprom Neft Group and also approved approaches to building and developing the Company’s Energy Management System.

The Gazprom Neft Energy Management System (EMS) is based on the international standard ISO 50001, which regulates systemic energy efficiency management processes. The Company has established an integrated energy management system in accordance with the requirements of the ISO standard. The introduction of modern production management tools enables Gazprom Neft to effectively utilise best global and domestic practices in managing the consumption of fuel and energy resources.

The Gazprom Neft Board of Directors considered the implementation of the programme to utilise and improve the effective use of associated petroleum gas (APG) in the first half of 2016 as well as long-term plans for 2016-2017. At present, the average level of APG utilisation at the Company’s mature assets exceeds 93%. In particular, the APG utilisation level at Gazpromneft-Noyabrskneftegaz reached 95% in 2016 due to the commissioning of a booster gas compressor station with capacity of 200 million cubic metres per year at the Novogodnoye deposit (Purovsky District of the Yamalo-Nenets Autonomous District).

The Board of Directors also took under advisement information about industrial safety measures implemented by Gazprom Neft in 2016. Improving the industrial safety management system is one of the top priorities in the Company’s work. Gazprom Neft is committed to ensuring continuous improvement in industrial safety levels, performs comprehensive work to minimise the accident rate of equipment and industrial injuries and also introduces the best global practices and advanced technologies in this area.

In 2016, the Board of Directors considered the Report on the Implementation of the Gazprom Neft PJSC Innovative Development Programme for 2015. The Gazprom Neft PJSC Innovative Development Programme until 2020 was approved by the Board of Directors in 2013 and contains information about the main areas of the Company’s innovative development, plans for interaction with external organisations as well as key innovative development efficiency indicators. The Board of Directors deemed the implementation of the Gazprom Neft PJSC Innovative Development Programme to be a success in 2015. The Company fulfilled the main measures envisaged by the medium-term plan and achieved the targets for the most important innovative activity efficiency indicators reflecting the level of technological development and efficiency.

Corporate governance

Per the recommendations of the Code of Corporate Governance, the Board of Directors annually considers an assessment of the state of corporate governance at the Company and conducts a self-assessment of its own activities within the Board of Directors.

The Board of Directors took under advisement information about measures to improve corporate governance at Gazprom Neft PJSC in 2015.

Starting in 2016, the Board of Directors introduced the practice of considering reports on the work of its committees: the Audit Committee and the Human Resources and Remuneration Committee. The Board noted that the Committees fully met the goals, objectives and functional duties prescribed by the Code of Corporate Governance, the Regulation on Committees, the resolutions of the Company’s Board of Directors and the Committee Work Plan for 2015.