GAZPROMS FINANCIAL AND ECONOMIC POLICY PRESS CONFERENCE Moscow - - PowerPoint PPT Presentation

Moscow

GAZPROM’S FINANCIAL AND ECONOMIC POLICY PRESS CONFERENCE

JUNE 22, 2017

1 DISCLAIMER 1

This presentation was prepared by Gazprom (hereafter “the Company”). It contains corporate information for investors. This presentation does not constitute an offer to sell or a solicitation of any offer to purchase any shares or other securities for equity participation in the Company, or a subscription for such. The presentation and information contained herein, as well as the fact of the display or publication thereof, cannot be regarded in connection with any contract or investment decision. The information contained herein should not be construed as investment advice. The Company made every effort to ensure that the facts contained in this presentation would be reliable and the opinions voiced herein would be reasonable and impartial. However, no guarantees or assurances, either expressed or implied, are provided as to the accuracy and completeness of the information or opinions contained or reviewed herein on behalf of the Company or any of its shareholders, directors, officials, employees or any other persons. None of the Company’s directors, shareholders, officials, employees or any other persons assume any responsibility for any losses that may occur as a result of using this presentation or its contents in any form or in any other way relating to this presentation. This presentation may contain forward-looking statements. Such forward-looking statements include the following: the data that are not accomplished facts; statements

• f the Company’s intentions; and suggestions or current expectations in relation to, inter alia, the Company’s operating results, its financial condition and liquidity,

prospects, growth, strategy, and development of the industry the Company operates in. Due to being related to future events and depending on the circumstances that may occur in the future, forward-looking statements inherently involve risks and uncertainties. The Company wishes to advise that it provides no guarantees for forward- looking statements to be realized and that the actual operating results, financial condition and liquidity, as well as the development of the industry the Company operates in, may differ essentially from the projections or suggestions contained or implied in the said forward-looking statements. Furthermore, regardless of whether the Company’s operating results, financial condition and liquidity, as well as the development of the industry the Company operates in, conform with forward-looking statements contained herein, such results and circumstances do not reflect the results and circumstances of the future periods. The data and statements contained in this presentation are relevant as of the time of its display and are subject to change without prior notice. No party is under legal

• bligation to update and amend the data contained herein.

By attending this presentation, you agree to abide by the limitations mentioned above. GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

2 FUNDAMENTAL ASPECTS OF FINANCIAL POLICY

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

Key developments in Gazprom’s financial performance throughout 2016

• Increased severance tax on natural gas
• Reduced revenue from gas sales (caused

by lower contract gas prices) offset by record gas exports

• Positive free cash flow (RUB 202 bln)
• Strong discipline with regard to capital

expenditures

• Dividends increase to RUB 190 bln in 2016
• High level of corporate governance at

Gazprom confirmed by Moscow Exchange

167 42.0 66.9 166 48.0 63.3 50 100 150 200

GAS EXPORT PRICE OIL RUB/USD

Basic planning assumptions for 2017 budget

USD

2016 2017 actual budget 2016 2017 actual budget 2016 2017 actual budget

3 GAZPROM GROUP’S KEY FINANCIAL INDICATORS

(1) Net of excise tax, VAT and customs duties (2) EBITDA is adjusted by changes in asset impairment reserves (3) Annual profit attributable to Gazprom shareholders (4) Average quarterly figures RUB bln 20 40 60 80 100 120 1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 1q16 2q16 3q16 4q16 1q 17 OIL NBP GAZPROM'S AVERAGE EXPORT PRICE FOR EUROPE

Oil and gas prices, 2014-2017

%

(1) (2) (3) (4)

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

5,590 1,963 159 6,073 1,875 787 6,111 1,322 952 2,000 4,000 6,000

Revenue Adjusted EBITDA Net profit

2014 2015 2016

4 KEY INVESTMENT PROJECTS IN GAS BUSINESS

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

Oil 26% Power generation 3% Other lines of business 3% Gazprom’s investment program (RUB 911 bln) Other lines of gas business Gas business 68%

Gazprom Group’s Investment Program for 2017 Major projects under Gazprom’s Investment Program for 2017

MAJOR INVESTMENTPROJECTS CAPITAL INVESTMENTS IN 2017, RUB BLN

• St. Petersburg

Moscow Torzhok Blagoveshchensk Ukhta

POWER OF SIBERIA RUB 159 BLN AMUR GPP RUB 102 BLN CHAYANDINSKOYE OIL, GAS AND CONDENSATE FIELD RUB 64 BLN UKHTA – TORZHOK 2 RUB 62 BLN NORD STREAM 2 RUB 111 BLN TURKSTREAM RUB 42 BLN

Anapa

BOVANENKOVSKOYE OIL, GAS AND CONDENSATE FIELD RUB 37 BLN

RUSSIA

TURKEY

Kiyikoy (Turkey)

GERMANY

Greifswald (Germany)

CHINA

Gas business

5 COST OPTIMIZATION FOCUS AREAS AND PRIORITIES FOR 2017

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

• Strategic planning for 10-year period

Scope of work Main cost optimization stages

• Gazprom’s 3-year budget plan and

investment program

• Gazprom’s budget and investment program

for upcoming year

• Defining key development targets for Gazprom and scope of priority

projects, building long-term financial model, and developing three development scenarios for Gazprom

Major steps in restraining cost escalation

• Project development
• Project execution
• Detailed analysis and design
• Appraisal and optimization of project solutions
• Setting limits for investment program and operating expenses
• Ranking investment projects and preliminary approval thereof. Control of

claimed costs

• Setting limits for investment program
• Approving investment program. Control of claimed costs
• Control over project execution
• Procurement optimization. Control over contract performance

6

* Prime cost of gas production – costs for production of 1,000 m3 of gas by 7 major gas producing subsidiaries of Gazprom ** Average severance tax rate for taxable volume of gas production *** Prime cost of gas transmission – costs for transmission of 1,000 m3 of gas per 100 km by Gazprom’s gas transmission subsidiaries (within Russian Federation)

WELL-BALANCED COST MANAGEMENT POLICY

53 57 65 65 70 20 40 60 80 2013 2014 2015 2016 2017P 631 717 872 880 906 602 719 677 722 991 400 800 1200 1600 2000 2013 2014 2015 2016 2017P UNIT COST OF GAS PRODUCTION SEVERANCE TAX FOR GAS** RUB /1,000 m3 RUB /1,000 m3 per 100 km 1,896 1,233 1,436

Prime cost of gas production* Prime cost of gas transmission***

1,549 1,601

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

Foreca cast t effect fect from Progr gram in 2017: 7: RUB 12 12.2 2 bln:

• Operating activities:

current costs: RUB 6.9 bln financial costs: RUB 0.2 bln

• Investment activities: RUB 5.1 bln

Effec ect t from Progr gram in 2016: 6: RUB 19.7 7 bln:

• Operating activities:

current costs: RUB 9.8 bln financial costs: RUB 1.2 bln

• Investment activities: RUB 8.7 bln

Cost optimization (reduction) program, 2016–2017

7 TAX PAYMENT STRUCTURE

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

Tax payment by Gazprom Group’s companies (RUB mln)

31% 3% 12% 31% 5% 6% 12%

Tax payments in 2016 НДПИ НДС Акциз Таможенные пошлины Налог на прибыль Налог на имущество Прочие Excise tax Profit tax Others Customs duties Property tax 2015 2016 Customs duties 693,746 617,788 Severance tax 599,433 601,985 Excise tax 219,105 236,892 Property tax 110,123 120,391 Profit tax 104,729 95,576 VAT 27,586 53,771 Others 191,942 240,048 Total: 1,946,664 1,966,451 Severance tax VAT

8

?

Upward revision

• f

withholding ratio in severance tax formula for gas and condensate produced by Gazprom Group:

• 0.2051 in 2016

Upward revision of Cgp coefficient in severance tax formula for gas produced by Gazprom Group:

• 1.7969 in 2017
• 1.4022 in 2018
• 1.4441 in 2019

CHANGES IN SEVERANCE TAX FOR NATURAL GAS PRODUCTION BY GAZPROM GROUP

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

0.15 0.15 0.2051 0.2103 0.2166 0.2166 719 677 1,001 557 531 586 611 563 722 1,063 809 891 910 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

200 400 600 800 1000

2014 2015 2016 2017 2018 2019 2020

Average rates, RUB / 1,000 m3 Withholding ratio

0.3411 0.2695 Fixed severance tax rate for Gazprom Group RUB 700 / 1,000 m3

Q1-Q2 2014 Q3-Q4 2014

2016

Q1-Q3 2017 Q4 2017

Introduction

• f

formula-based severance tax. Single withholding ratio for Gazprom Group and independent producers:

• 0.15 with no time limit
• 2015

Upward revision of Cgp coefficient in severance tax formula for gas produced by Gazprom Group:

• 2.2738 in Q4 2017
• 1.4441 in 2020

2016 scenario 2014 scenario 2017 initial scenario 2017 updated scenario

9 NEED FOR EQUAL CONDITIONS FOR DOMESTIC GAS SALES

Current terms Measures aimed at creating equal conditions for competition in domestic market

Wholesale gas price regulation Regulated prices and tariffs do not offset costs of gas transmission via UGSS For independent gas producers For Gazprom Increased tax burden on gas production Obligations to ensure reliability of gas supplies to all consumer categories, including in peak consumption periods Social obligations for gas supplies to and gasification of regions Free gas pricing Lower tariffs for gas transmission services Preferential taxation (severance tax) Gas supplies mostly to major industrial consumers in high-yield regions 1. Various approaches are being explored for gradual transition from stringent regulation of Gazprom’s gas prices in the domestic market to pricing within a regulated range and free pricing. 2. Work is underway on deregulation of gas prices, providing for gas liquefaction at any stage of gas delivery. 3. Proposals are under development to allow Gazprom to sell its natural gas at unregulated prices to companies specializing in gas liquefaction for export purposes. 4. A joint working group for domestic gas market development was set up under the Federal Antimonopoly Service of Russia. 5. Gas volumes supplied via an established trading platform are increasing. Short transportation distances

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

10 DEVELOPMENT OF CENTRALIZED MANAGEMENT SYSTEM FOR GAZPROM GROUP’S LIQUIDITY

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

Centralized Management of Gazprom Group’s Cash Flows Efficient Liquidity Management at Gazprom Centralized Management of Financial Risks

• developing ruble-based

cash pooling system

• developing cash pooling

system involving Gazprom Group’s companies based abroad

• setting up single

transaction processing center for Gazprom Group

• expanding list of

treasury instruments

• maintaining liquidity

reserve through short- term credit lines

• improving financial

discipline across Gazprom Group

• introducing uniform

standards for financial risk management

• setting limits on credit

institutions, including foreign ones

• creating internal control

and efficiency evaluation system for treasury operations

11

20 20 23.4 40.9 28.2 48.1 55.7 47.4 54.7 50.5 33.5 23.5

• 16.2
• 21.2
• 28.7
• 25

25

• 34.3
• 52.8
• 43.4
• 43.9
• 33.2
• 27.1
• 20.5

3.8 2.2 12.1 3.2 13.7 2.9 4.0 10.8 17.2 6.4 3.0

• 60
• 40
• 20

20 40 60 80 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 OPERATING CASH FLOW CAPITAL INVESTMENTS FREE CASH FLOW

CONSISTENT GENERATION OF FREE CASH FLOW

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

USD bln

unfavorable price environment for natural gas at foreign markets low prices for oil and petroleum products growing debt burden strong trend for gas exports increasing revenue from oil and power generation businesses tight discipline in capital investment management

+ USD 3.0 bln

• f free cash flow

In 2016: :

Conse servati tive fina nanci ncial policy cy : : genera rati ting ng posi siti tive e free cash flow for 11 11 years s

12

* As of late 2016 ** Including capitalized interest

DEBT BURDEN

Repayment schedule of Gazprom Group’s debt for 2017–2020*

7.4 11.7 6.9 4.3 3 6 9 12 15 2017 2018 2019 2020 USD bln GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017 2.7 1.4 5.8% 8.4%

0% 3% 6% 9% 1 2 3

Interest paid Interest revenues

Average interest rates of borrowings and placements

Interest revenues and expenses** of Gazprom Group in 2016

46.6 14.8 3.1

15 30 45

Total debt Cash and cash equivalents

Gazprom Group’s debt under IFRS*

• Efficient debt and liquidity management
• Conservative financial policy

USD bln USD bln

Bank deposits with maturity of

• ver 3 months

17.9

Cash and cash equivalents

13 SUCCESSFUL PERFORMANCE IN DEBT CAPITAL MARKETS

Q1 2016

EUR 2,000 mln

EURIBOR+3.5%

EUR 800 mln

EURIBOR+2.6% Q4 2016 Q1 2017 Q2 2017

CHF 500 mln

3.375%

CHF 500 mln

2.75%

EUR 1,000 mln

3.125%

Loans Bonds EUR 700 mln

EURIBOR+2.5%

USD 750 mln

4.95%

RUB 30 bln*

8.9%

GBP 850 mln

4.25%

• In March 2016, Gazprom got a EUR 2 billion loan from Bank of China. It was the Company’s largest deal in terms of financing

attracted directly from one credit institution and first bilateral loan facility agreement with Chinese bank.

• In March 2017, Gazprom placed dollar bonds for the first time in three years.
• In April 2017, Gazprom issued bonds for GBP 850 mln, thereby closing the largest deal in the UK among the same-ranking companies

in the emerging markets over the past 3 years.

• Two bond issues were placed in Q1 2017, each with value of RUB 15 bln.
• In June 2017, Gazprom obtained a long-term loan of EUR 300 mln from VTB Bank (Austria), with insurance coverage provided by

Austria's export credit agency OeKB.

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

* Two bond issues each worth RUB 15 bln

EUR 300 mln

14 DIVIDENDS

* Proposed by Board of Directors ** Dividend yield: ratio of dividends for 2016 to share price as of June 16, 2017

Dividend payout Dividend yield on shares in largest global oil and gas companies**

Dividend yield on Gazprom’s shares is commensurate with that of largest global oil and gas companies

SOURCE: COMPANY’S DATA, BLOOMBERG, , JP MORGAN

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

0.36 2.39 3.85 8.97 5.99 7.2 7.2 7.89 8.04 2 4 6 8 10 12 14 2008 2009 2010 2011 2012 2013 2014 2015 2016 RUB/ share

*

7.0% 7.0% 6.7% 5.8% 5.5% 5.2% 4.5% 4.0% 3.6% 2.3% 2.0% 1.4% 0% 2% 4% 6% 8% 10% 12%

* *

15 STREAMLINING CORPORATE GOVERNANCE

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

 Cur

Current ent Boa

• ard
• f
• f

Dir irector ctors inclu includes three ee in indepen ependent ent director ectors (status is confirmed by Russian stock exchanges)

 Aud

udit it Commit Committee ee, largely made up of ind indepen ependent nt dir irector ectors and chair ired ed by by independ pendent ent director ector, was created

 Nomin

• mination

ion and nd Rem emune uneration ion Commit Committee ee, consisting mos mostly ly

• f
• f indepe

epend ndent ent director ectors, was set up

 Cor

Corpor porate Secret ecretary unit unit (responsibility distributed among several structural units) was established

 Gazprom’s key

key co corpor porate doc

• cume

uments nts aimed at protecting shareholders’ rights were updated to best practice standards

Contin tinuous

• us enhanc

ancem emen ent of corpor

• rat

ate governanc ance e standa dards ds in accordanc ance e with th best practices and improvement in transparency of Company’s activities

Goal

Planned efforts: Results of efforts made in 2016:

 to

conduct ind indepen ependent nt aud udit it

• f

Company’s corporate governance; to receive and implement recommendations on further improvement of corporate standards

 to evalua

luate Board of

• f Direc

ectors

• rs and its committees’ performan
• rmance

ce

 to

receive and implement reco ecomme mmendations ions

• n
• n

furt urther er strea eamlining mlining of

• f co

corpor porate stand ndards based on

• n ind

ndepen ependent ent audit it of corporate governance

 to continue practice of arranging co

conf nfer erenc ence ca call lls and nd per person

• nal

meetings meetings of

• f in

indepen ependent nt dir irector ectors with shareholders and investors

16

GAZPROM’S FINANCIAL AND ECONOMIC POLICY, JUNE 22, 2017

KEY OBJECTIVES

Stable tax and regulatory environment needed for sustainable development of Company

Conti tinuo uous us cost t control

• l

and opti timiza mizati tion

• n at all

levels Effici cient nt debt and liqui quidity dity management nt Stable e divide vidend nd policy Corp rpora

• rate governa

nanc nce impr mprovement ent