Financial risks

Financial risks at Gazprom Neft are managed by employees in accordance with their professional activities.

The Financial Risk Management Committee determines the unified approach to financial risk management at Gazprom Neft and its subsidiaries. This approach is based on mitigating the degree of risk impact and the probability of such risks occurring by implementing the relevant measures and control procedures.

The activities of the employees of the Company and the Financial Risk Management Committee help to reduce potential financial damage and achieve stated goals.

Credit risk of counterparties

Gazprom Neft is exposed to credit risk, which is caused by the provision of payment deferrals to customers in accordance with market terms as well as prepayments to suppliers:

  • if payment deferrals are granted to customers, there is a risk of default on the receivables repayment conditions;
  • the failure by suppliers to fulfil their obligations when making prepayment for capital construction or equipment supplies entails the risk of the prepayments not being returned.

Company executives devote extra attention to the credit risk management process, particularly during crisis periods, since some of the Company’s counterparties may experience financial difficulties.

Risk management measures

In an effort to mitigate this risk, the Company is implementing a number of measures that aim to develop the credit risk management system, including an assessment of creditworthiness, the establishment of internal credit ratings depending on the financial condition of counterparties as well as limits on the receivables of customers. The hierarchy of independent credit controllers established within the credit risk management system makes it possible to monitor the performance of debt repayment measures and also prevent past-due receivables from arising.

A number of measures that regulate restrictions on prepayments without a bank guarantee for the return of the prepayment and procedures that aim to select contractors taking into account an assessment of their financial stability allow for negating the risk of suppliers failing to perform their obligations.

Risk associated with borrowing

The imposition of sanctions on Gazprom Neft by the U.S. and EU has significantly narrowed the range of financing instruments available to the Company.

Risk management measures

Gazprom Neft effectively manages risk associated with the borrowing of funds.

Despite the levying of sanctions against the Company by the U.S. and EU in 2014, the Company fully implemented a programme to attract funding in 2016 and also signed credit agreements for financing that may be used in 2017-2020, including revolving facilities, which will provide the Company’s financial policy with additional flexibility and improve liquidity management efficiency.

The Company is also searching for alternative sources of funding.

Currency risk

The bulk of Gazprom Neft’s gross revenue comes from export transactions for the sale of oil and petroleum products. Consequently, fluctuations in currency exchange rates versus the rouble affect the results of the Company’s financial and business activities.

Risk management measures

The currency structure of revenue and liabilities acts as a hedging mechanism, whereby opposing factors compensate one another. A balanced structure of assets and liabilities in foreign currency minimises the impact of currency market factors on the results of the Company’s financial and business activities. As regards the unbalanced proportion of claims and liabilities, the Company hedges such risks and in each specific situation utilises internal tools and provisions that allow for effectively managing the currency risk and guaranteeing the performance of its obligations.

Interest risk

As a major borrower, the Company is exposed to risks associated with changes on financial markets. Much of the debt portfolio consists of loans denominated in U.S. dollars. The interest rate for servicing the existing credits is based on interbank loan rates (primarily LIBOR). An increase in these interest rates may lead to higher debt servicing costs for the Company. Growth in the cost of credits for the Company may negatively impact creditworthiness and liquidity indicators.

Risk management measures

The Company in each specific situation utilises internal tools and provisions to manage financial risks that guarantee the performance of its obligations.