Oil and Gas Gazprom Neft

Transcription

1 Initiation of analytical coverage December, 217 Oil and Gas Gazprom Neft Altynay Ibraimova Ticker Recommendation Current price, RUB/share ( ) Target price (12M), RUB/share Fig. 1. Dynamics of Brent crude oil prices, SIBN RX shares, MICEX index Source: Bloomberg SIBN RX BUY Upside/Downside 28% Expected dividend, RUB/share Expected dividend yield Expected total return Ticker Recommendation Current price, $/GDR ( ) Target price (12M), $/GDR Upside/Downside Expected dividend, $/share Expected dividend yield Expected total return Number of shares (mn) 3M average daily trading volume (RUB mn, MICEX) % 33% GAZ LI BUY %.2 1.1% 29% Free float 4.32% Market capitalization (RUB bn) Financials, 216A 217F 218F RUB bn Revenue EBITDA Net profit Equity Net debt EPS (RUB) Valuation 216A 217F 218F Net debt/ebitda Debt/Equity EV/Sales (x) n/a EV/EBITDA (x) n/a P/E (x) n/a Rel. Rel. FTSE Share price dyn Abs. MICEX 1 1М -5.1% -3.2% -8.1% 3М 9.1% 5.6% 5.9% 12М 16.8% 24.% 16.1% Max 52 weeks Min 52 weeks % 18% 16% 14% 12% 1% 8% 6% 4% 2% SIBN RX MICEX Brent % Strong positions of Gazprom Neft on the market, including the company's strong ability to respond to negative market changes, are the main indicator of the stability of the company's financial performance. Increased optimism about oil prices and the prospects for a growing consumption of oil products strengthen the company's position and are a good reason for anticipating positive cash flows. We estimate the 12M upside potential of Gazprom Neft's share price at 28% and we recommend to BUY Gazprom Neft shares with 12M target price of RUB319/share. Gazprom Neft is among the top three Russian oil companies in terms of oil refining volumes and ranks fourth in terms of oil production. The main activities of the Company are exploration, development of oil and gas fields, production of oil and gas, production of petroleum products, as well as their sale on the retail market. Gazprom Neft structure includes more than 7 oil producing, oil refining and marketing enterprises in Russia, CIS countries and abroad. In addition to its own production, the Company has a 5% stake in Slavneft, Tomskneft VNK, Salym Petroleum Development (SPD), SeverEnergia (4.2%) and NIS (56.15%). Gazprom Neft is among the top three Russian oil companies in terms of oil refining volumes. Gazprom Neft products are exported to more than 5 countries. The share of high-tech wells at the end of 216 is 5%, which is the largest indicator among Russian oil and gas companies. In addition, the Company was among the first to start oil production on the Russian shelf of the Arctic. Favorable outlook on the oil market and increased consumption of petroleum products will support income. The bulk of Gazprom Neft's sales is oil products 68% for 9M217. According to Eurostat, the main consumer of oil products is the transport sector, in the structure of which 48% of demand is generated by road transport. The Russian automotive market, in view of the significant deferred demand accumulated since the beginning of the market contraction in 213, shows signs of recovery, thereby increasing the potential for sales of petroleum products. At the same time, optimism about oil prices is increasing, OPEC measures and demand from China are a strong argument in favor of restoring oil prices. Attractive dividend story. In the end of 216, Gazprom Neft paid a record dividend in the company's history of 1.68 rubles per share, 25% of net profit, while dividend policy implies payment of at least 15% of net profit. Taking into account the results of 9M217, we expect net profit growth by 29% yoy to 271bn rubles in 217. If the Company keeps dividend payments at the level of 216, we expect that the dividend for 217 will be rubles per share. We see the potential for increasing dividend payments and believe that the Company will prefer to adhere to a payout ratio of 25% during the entire forecast period. Exchange rate policy of the Central Bank of the Russian Federation ensures the Company's sustainability to oil shocks. Gazprom Neft's revenues are composed of the sale of oil, gas and oil products. The company's revenue for the past three years demonstrates strong growth (CAGR - 7%), despite a significant correction in oil prices, due to the depreciation of the ruble. Over the past three years, despite the low oil prices, we have not seen a reduction in the cost of acquiring oil, gas and petroleum products, as well as saving on oil taxes. However, we note that, due to low oil prices and the transition of the Central Bank of Russia to a floating exchange rate regime the growth in expenses was slower (+4%) and did not show significant growth in comparison with revenues (+52%). We believe that the company is resistant to fluctuations in oil prices due to the adapted exchange rate policy of the Central Bank of Russia and increased production. 12M TP RUB319/share, BUY recommendation. In our opinion, the increase in the sale of oil products, accompanied by the gradual stabilization of oil prices, will contribute to a steady increase in the prices of Gazprom Neft shares. We also note the high liquidity of the Company's shares, the average daily trading volume of which is 192mn rubles. We estimate the fair value of one share at 319 rubles and we recommend to Buy.

2 About Company Gazprom neft russian oil company, the main activities of which are exploration, development of oil and gas fields, oil and gas extraction, petroleum products production and their sale on retail market. The company was founded in 1995 by the decree of the Russian President Boris Yeltsin as the "Siberian Oil Company". In 25, a controlling stake in the company was acquired by Gazprom and in 26 Sibneft was renamed Gazprom neft. Gazprom neft structure includes more than 7 oil producing, oil refining and marketing enterprises in Russia, CIS countries and far abroad. Gazprom is the first company to start oil production on the Russian shelf of the Arctic. The share of high-tech wells of Gazprom Neft at the end of 216 is 5%, which is the largest indicator among Russian oil and gas companies. The Company's business is divided into the main segments: exploration and production of oil and gas, refining, sale of oil and oil products. The Company's strategy calls for an increase in oil production to 1mn tons per year by 22 (216: 59.85mn tons), with the level of proven reserves for 15 years and the achievement of processing volumes to 4mn tons per year (216: million tons), an increase in depth processing in the Russian Federation to 95% (216: 82%) and an increase in the yield of light oil products in Russia to 8% (216: 64.4%). Gazprom Neft is also a participant in several PSAs (production sharing agreement) and hydrocarbon exploration and production projects in Iraq and Venezuela. Fig. 2. Gazprom Neft extraction of crude oil (mn tons) Fig. 3. Gazprom Neft extraction of gas (bn cube m) Exploration and production Gazprom Neft has the rights to use subsoil in more than 9 licensed areas in Russia. In 216, 3 new fields and 26 hydrocarbon deposits were discovered in the licensed areas of the Company. In Russia, the company's main mining enterprises are elaborating fields in the Yamal-Nenets and Khanty-Mansiysk autonomous regions, in the Omsk, Tomsk, Tyumen, Orenburg, Irkutsk regions, the Republic of Sakha (Yakutia) and the shelf of the Pechora Sea. Russian projects Timeframes for 2P Design Share of Timing of reaching the reserves, capacity, mn participation input designed mn tons tons/year capacity Extraction Novyi port 9% Messoyaha 5% Prirazlomnoe 1% Kuyumba 5% Chonskiy 1% н/д.3 SeverEnergiya 47% Nortaz 5% Dolginskoye 1% н/д 227 n/a n/a n/a Gazprom Neft is also a participant in several PSAs (production sharing agreement) and hydrocarbon exploration and production projects in Iraq and Venezuela. In Iraq, the company participates in the development of the Badra field and exploration of the Garmian blocks (4% share), Shakal (8% share) and Halabja (8%) located in the south of Iraqi Kurdistan. In Venezuela, Gazpromneft through the National Oil Consortium LLC participates in a joint venture PetroMiranda for additional exploration and further development of the heavy oil field Junin-6, located in the Orinoco river basin. In addition to its own production, Gazprom Neft has a share in the production of associates: Slavneft (5%), Tomskneft VNK (5%), Salym Petroleum Development (5%), SeverEnergia, Nortgaz, Messoyakhaneftegaz ". 2

3 Fig. 4. Structure of refinery products (mn tons) Gasoline -automotive % -process % Fuel -diesel % -aviation % -shipboard % Masut % Bitumen and coke % Other % Total % Fig. 5. Volume of refining oil by refineries, mn tons Fig. 6. Marketing scheme of crude oil and refinery product г/г Omsk Refinery Moscow Refinery YANOS NIS GAZPROM NEFT Sale of oil Buyers in Russia Buyers in the Near Abroad Buyers in the Far Abroad Oil flows Refinery products flows - wholesale Refinery products flows - retail Mozyr Refinery The Trading Company, part of the Gazprom Neft Group Sales subsidiaries that sell aviational and ship fuel, lubricants and bituminous materials The oil supply companies, which are part of Gazpromneft Group Buyers in the Far Abroad Buyers in Russia and the Near Abroad Petrol station network Gazprom neft Based on the report of independent engineers-valuers of DeGolyer and MacNaughton stocks as of December 31, 216, Gazprom Neft's total hydrocarbon reserves (taking into account the share in joint ventures) of the "proved" and "probable" (2P) categories under SPE-PRMS international standards totaled 2.72 bn tons of oil equivalent. Growth in comparison with the indicator of 215 was.8%. The indicator of the supply of proven reserves of hydrocarbons (according to SPE-PRMS standards) is 18 years. In 216, Gazprom neft increased hydrocarbon production by 8.2% yoy to 86.2mn tons, which is the best indicator of growth among Russian vertically integrated companies. Over the past five years, Gazprom neft's production increased by 44%. The company is also actively developing the gas business - the total gas production in the Company following the results of 216 was 32.82bn cub. m. Oil refining Gazprom neft is among the top three Russian oil companies in terms of oil refining volumes. By the end of 216, the volume of oil refining amounted to 41.89mn tons. The company has five processing assets, of which three are own ones (Moscow Refinery, Omsk Refinery and processing complex NIS) and two joint ventures (Slavneft-YANOS and Mozyr Oil Refinery). The main processing facilities of the Company are Omsk Refinery and Moscow Refinery. Omsk Oil Refinery is one of the most modern refineries in Russia and one of the largest in the world. The installed capacity of the plant is 2.89mn tons of oil per year. Moscow refinery provides more than 35% of the needs of the Moscow region in petroleum products. The installed capacity of the Moscow Refinery is 11mn tons of oil per year. Among the main types of products manufactured at the company's plants are automobile gasolines, diesel fuel, oils, construction and road bitumen, marine fuels, boiler fuel (fuel oil), jet fuel, paraffin wax products, and an assortment of aromatic hydrocarbons liquefied hydrocarbon gases and catalysts. At the end of 216, the total volume of production of oil products decreased by 3% yoy to 39.95mn tons due to lower production of marine fuel (-34%) and fuel oil (-7%). At the same time, the production of motor fuels and aviation fuel increased by 1.2%. Sales of crude oil and petroleum products Gazprom neft products are exported to more than 5 countries. The company also sells raw materials in the domestic market. In 216, the volume of oil sales increased by 37% yoy to 22.71mn tons, including the growth of exports to non-cis countries, while exports to the CIS were reduced due to a reduction in the schedule of oil supplies to the Republic of Belarus. The Company delivered 7.43mn tons of oil to the domestic market at the end of 216, which is 21% more than in 215 due to higher production levels and increased efficiency of trading operations on the domestic market. In 216 the Company sold 43.6mn tons of oil products, which is 3% less than in 215. Petroleum products produced at its own enterprises, Gazprom Neft sells wholesale and retail through its own network of filling stations. The Company's filling stations network includes 1,852 stations in Russia, the CIS and Europe. In Russia and the CIS, the number of gas stations Gazpromneft amounted to 1,429 stations 3

4 Fig. 7. Petrol stations chain Fig. 8. Sales of oil, mn tons Domestic market Export to the CIS Fig. 9. Revenue structure Russia CIS Europe % 9М216 4% 21% 2% Export to non-cis countries International sales 68% 9М217 Fig. 1. Crude oil sales mn rubles 9М216 9М217 yoy Export from the Russia (without the CIS), gross % Minus: Export duty (31 12) (35 242) 14% Export from the Russia (without the CIS), netto % International sales % CIS, gross % Minus: Export duty (129) - -1% CIS, netto % Domestic market % Total oil sales, gross % Minus: Export duty (31 141) (35 242) 13% Total revenue from oil sales % 3% 27% Crude oil sales Gas sales Refinery products sales Other 2% at the beginning of 217. The company produces goods under two own trademarks - the Network of gas stations Gazpromneft and the premium fuel brand G-Drive. Gasoline-powered fuels (liquefied hydrocarbon gas, further LPG and compressed natural gas, further CNG), the Company sells through multi-fuel refueling complexes under the Gazpromneft brand. In 216, the number of filling stations that sold gasoline was 163 units. The sales volume in 216 was 115 ths tons of LPG and 17,5 ths cubic meters of CNG. Gazpromneft-Alternative Fuel acts as the subsidiary company engaged in sales of gas-powered fuels. Ship fuel is sold through the subsidiary company Gazpromneft Marine Bunker, which occupies a leading position in the bunkering market of Russia. The total annual sales volumes of the company's marine fuel amounted to 2.87mn tons. At present, Gazpromneft Marine Bunker has the most extensive geographic activity in Russia and operates in all key Russian ports (2 offshore and 14 river), as well as in the international ports of Europe - Tallinn (Estonia) and Constance (Romania). The implementation of aviation fuel includes the refueling of aircraft and the sale of aviation fuel "in the wing" and provides the Company with absolute leadership in sales of aviation fuel in Russia. At the end of 216, the total volume of aviation fuel sales was more than 3.23 mn tons. As of the end of 216, the Company provided aircraft fuel services at 235 airports in 63 countries in Southeast Asia, Europe, Africa, Australia, North and Latin America. The sales network of Gazpromneft-Aero includes 47 facilities, including 46 in Russia and 1 in Kyrgyzstan. The Company also practices the exchange sale of petroleum products, carried out at the St. Petersburg International Commodity and Raw Materials Exchange since 29. Shareholding structure The largest shareholder of Gazprom Neft is PJSC Gazprom, a global energy company controlled by the Russian government, whose main activities are geological exploration, production, transportation, storage, processing and sale of gas, gas condensate and oil, gas sales as motor fuel, and also the production and marketing of heat and electricity. Gazprom directly and indirectly owns 95.68% of Gazprom Neft. The remaining 4.3% of shares are in free float and are traded on the Moscow, London, Frankfurt and Berlin stock exchanges. Despite a small percentage of free float, we note the high liquidity of the Company's shares - the average daily trading volume for the last three months is 192mn rubles. Revenue structure For 9M217, the Company's revenue increased by 22% yoy and amounted to 1,352bn rubles. Crude oil. Revenues from oil sales for 9M217 increased by 52%, amounting to 36bn rubles or 27% of the total revenue of the Company. Revenues from oil exports (excluding CIS) increased by 85% to 261bn rubles (73% of oil sales), supported by higher physical volumes of export sales (+ 58% yoy) and an increase in the average selling price by 19% yoy in connection with the rise in price of oil. The increase in oil sales for export by 58% yoy was due to the increase in oil production at Novoportovskoye, Messoyakhsky and Prirazlomnoye fields and a decrease in the volume of oil supply to the refinery. 4

5 Fig. 11. Refinery products sales mn rubles 9М216 9М217 yoy Export from the Russia (without the CIS), gross % Minus: Export duty (21 623) (2 684) -4% Export from the Russia (without the CIS), netto % International sales, gross % Minus: Excize (56 649) (48 837) -14% International sales, netto % CIS, gross % Minus: Export duty (793) (93) 14% CIS, netto % Domestic market % Total refinery products sales, gross % Minus: Export duty and Excize (79 65) (7 424) -11% Total revenue from refinery products % Fig. 12. Dependence of revenues on oil prices and physical volumes , Bloomberg Fig. 13. Dependence of sales of oil and oil products on the price of oil and physical volumes Total oil sales Brent price $/bbl Fig. 14. Cost of sales and other expenses Fig. 15. Costs that depend on oil price, Bloomberg Total petroleum products sales Total revenue (right scale) bn rubles М217 Revenues from sales of crude oil (right) млрд.руб. Revenue from the sale of petroleum products (right) млрд.руб. Oil sales volume (left) млн. тонн Sales of petroleum products (left) млн. тонн Brent price (left) mn rubles 9М216 9М217 yoy Procurement of oil, gas and petroleum products % Production and operating expenses % Commercial and administrative expenses % Transportation costs % Depreication % Taxes, except for income tax % Expenses for geological exploration work % Total operating expenses % М217 Procurement of oil, gas and petroleum products Depreication Цена на нефть (лев.шк) Revenues from oil sales to the CIS market and international sales were also increased by 8% and 72%, but had a smaller effect on oil sales growth compared to exports due to a low share in sales, 6% and 4%, respectively. Especially, the volume of exports to the CIS market was reduced by 8% due to the reduction in the export schedule of the Ministry of Energy of Russia in the direction of the Republic of Belarus. Meanwhile, oil supplies to the domestic market for 9M217 decreased by 18% compared to 9M216, and despite the strengthening of the average selling price by 12%, revenues from oil sales to the domestic market decreased by 6%. Gas. Due to the growth in natural gas production by subsidiaries, the volume of gas sales to the domestic market for 9M217 increased by 7% and, coupled with an increase in the average selling price by 19%, revenues from gas sales showed an increase of 23% yoy. Costs Operating expenses of the company include all production costs, taxes other than income tax and the cost of purchased oil. In 216, the Company's operating expenses amounted to 1,37bn rubles (+4%). For 9M217 there is a more rapid growth in operating costs compared to 9M216 by 21%. The largest share in the Company's operating expenses is taken up by costs that are directly dependent on the price of oil: the cost of acquiring oil, gas and petroleum products (3% of all operating expenses) and taxes other than income tax ("oil" taxes, 3% of all operating expenses). In the reporting period, the cost of acquiring oil, gas and petroleum products increased by 32% to 335bn rubles, due to the growth in the volume of purchases of petroleum products (due to reduced processing) and the increase in the cost of purchased oil (due to rising prices in the domestic and international markets). Oil taxes for 9M217 increased by 32% yoy, reflecting, in the main, high MET expenses (+ 42% yoy) due to an increase in the tax rate in the Russian Federation and the introduction of an additional increase factor, as well as an increase in oil production and prices. The increase in excise rates also affected the increase in tax expenses. Production and operating expenses increased by 8% yoy to 158bn RUR due to an increase in production costs (+ 7% y / y) and processing costs (+ 5%). We note that the increase in the physical volumes of purchased oil and the increase in tax rates have had a greater impact on the increase in costs than the prices of raw materials. Over the past three years, despite the low oil prices, we have not seen a reduction in the cost of acquiring oil, gas and petroleum products, as well as saving on oil taxes. However, we note that, due to low oil prices and the transition of the Central Bank of Russia to a floating exchange rate regime the growth in expenses was slower (+4%) and did not show significant growth in comparison with revenues (+52%). Industry analysis Crude oil price. World oil production in 216 amounted to 4.3bn tons, an increase of only.5% y/y, resuming the slowdown, which has not been observed since 213. Nevertheless, the dynamics of oil production remain in the growth phase, largely due to the increase in production in Saudi Arabia (+ 3%), Russia (+ 3%) and Iraq (+ 11%). The USA, on the contrary, reduced oil production by 4% y/y, being the only outsider among the largest oil producers. The contribution of the United States to global production in 216 amounted to 12.4%, slightly behind Saudi Arabia (13.4%) and 5

6 Fig. 16. Oil production by country Source: BP Fig. 17. Oil consumption by country Source: BP Saudi Arabia Russia USA Canada Iraq Other USA China India Japan Saudi Arabia Russia Other Fig. 18. Consumption of oil products by sector Source: Eurostat 8.% 8.6 % 2.2% 2.6% 5.9 % 52% 51% 5.4 % 47.5 % 14.5 % 4.8 % Energy sector Non-energy use Industry Road transport Aviation Shipping (domestic + international bunkers) Other transport Residential Fishing Agriculture/Forestry Services 13% 5% 5% 2% 4% 3% 13% 12% 13% 4% 5% Russia (12.6%), but significantly leading ahead of Canada and Iraq, whose shares accounted for 5% respectively. In total, the above countries produced 2.1bn tons of oil, providing almost half (48%) of all oil production in 216. The rest of the world, including mainly China (4.6%), the UAE (4.2%), Kuwait (3.5%), Mexico (2.8%), Venezuela (2.8%) and Nigeria (2.3%), slightly reduced production (-.48%). At the same time, the supply of oil was equal to the demand, given that the deficit on the market in 216 amounted to 36mn tons of oil. For example, oil-consuming countries, including the United States, which provides 2% of demand, and China (13% of demand), have increased oil consumption by 1% and 3%, respectively. Among the largest oil consumers, which include India (5%), Japan and Saudi Arabia (5% each respectively) and Russia (3%), besides China and the United States, only Japan decreased consumption (-2% ). It is noteworthy that, with the current oil shortage in 216, the average price of oil fell by an additional 17%. Moreover, over the past year, the price of oil has reached a minimum level of $43.7/bbl over the past 12 years, continuing to experience negative consequences of the excess supply at the beginning of the year (1.7mn boe according to the IEA). China's minimum GDP growth over the past 25 years and the increase in US Fed rates also put pressure on prices. At the same time, by the end of the year, prices have recovered to $55/bbl, playing out OPEC measures for balancing the oil market. The results of 216 indicate a resumption of the supply deficit in the oil market and, in our opinion, are a sign of a gradual recovery in prices. We believe that the main support for oil will be provided by the increase in demand from China, which has steadily increased its consumption of black gold by an average of 4% (CAGR) over the past ten years, while the average annual growth in oil production is only 1%. The automotive market in Russia and the CIS. The bulk share of Gazprom Neft's sales is oil products - 68% for 9M217. According to Eurostat, the main consumer of oil products is the transport sector, in the structure of which 48% of demand is generated by road transport, which necessitates the analysis of the automobile market. According to EY for the past 1 years, sales of cars and light commercial vehicles increased by about 3%. If in growth was provided mainly at the expense of developing countries, today it is stimulated by Western European countries (China and India). Thus, according to LMC Automotive data, in 216 the global market for passenger cars and light commercial vehicles demonstrated growth of 4% yoy, which was achieved due to growth in sales in China (+ 11%), India (+ 7%) and Western Europe (+ 6%). In Russia, following the results of 216, the decline of the automotive market observed over the past four years has slowed down, showing a decrease in sales by 11% yoy, compared with a 36% decline in 215. By results of 216 the automobile market of the Russian Federation took the fifth place among the European countries, having conceded the positions of Germany, the Great Britain, France and Italy. In 216, according to the Automobile Business, the number of cars in Russia per 1, adult population was 358, which lower by 42% than the average in Western Europe (615 units) and 55% lower than in North America (776 units). The average age of a car fleet in Russia is about 12 years: the average age of foreign cars is much smaller - about 1 years and 6

7 Fig. 2. Volume of car sales in Russia (mn units) F 218F 219F 22F Source: AEB, analytical agency "AUTOSTAT", LMC Automotive, EY analysis domestic cars - about 16 years. The age structure of the fleet indicates the growing need to replace obsolete and technically worn-out vehicles. According to EY forecasts, the automotive market in Russia has a recovery potential due to the significant deferred demand accumulated since the beginning of the market contraction in 213. Sales of trucks are expected to be more dynamic recovery process due to the need to replace worn-out equipment and purchase a new one to meet deferred demand, as well as the implementation of previously curtailed investment projects in connection with the restoration of oil prices. Petroleum products are also used for non-energy purposes, providing 14.5% of consumption and taking second place after the transport sector. Non-energy consumption implies the use of bitumen for road surfaces, lubricants to reduce friction, and the use of petroleum products in the chemical industry. Financial modeling and forecasts Fig. 19. Production forecasts П 218П 219П 22П 221П 222П Share in Messoyakha oil production Share in Nortgaz oil production Share in Arcticgaz oil production Share in Slavneft oil production Gazprom Neft production (consolidated companies), Halyk Finance forecasts Extraction. The resource base of the Company's current assets due to the majority of fields entering the late stage of development is characterized by low oil recovery. In this regard, in our forecasts we are limited to an average annual growth in production at consolidated and share fields by 1%. We expect an increase in the share in Arctic gas production by 2% (average) to 222, growth in production at the Badra by 13%, Gazpromneft Vostok by 12% and Gazpromneft-Orenburg by 8%, while laying down production in the share of Slavneft production (-5%), Noyabrskneftegaz (-4%), Tomskneft (-2%) and SPD (-4%). The deadlines for reaching the designed capacity for most of the Company's projects are planned after 222, which is why we keep conservative expectations in the forecast period, but we lay the terminal growth of 3% after the forecast period. Revenue. Proceeding from the growth rates of production and starting from the ratio of supplies in the directions, we forecast a slight increase in sales volumes, which corresponds to an average annual increase of 1%. At the same time, we believe that the forecast oil prices used by us in calculating average selling prices compensate for stagnation in terms of sales volumes. Brent price F 218F 219F 22F 221F 222F $/bbl Bloomberg consensus forecast for oil prices, assuming an average annual price increase of 5% by 222, compensates for low production volumes and allows to assume a stable growth in revenues from the sale of oil and petroleum products. mn rubles F 218F 219F 22F 221F 222F Export from the Russia (without the CIS), gross Minus: Export duty (41 524) (48 451) (5 985) (53 96) (56 921) (57 43) (6 588) Export from the Russia (without the CIS), netto International sales CIS, gross Minus: Export duty (129) (151) (158) (167) (177) (178) (188) CIS, netto Domestic market Total oil sales, gross Minus: Export duty (41 653) (48 62) (51 143) (54 73) (57 98) (57 581) (6 776) Total revenue from oil sales We assume an increase in sales volumes of petroleum products by 3.8%, which, in our opinion, will ensure a balance between the level of produced oil and the growth of petroleum products consumption in the automotive industry. We expect a positive dynamics in revenue over the next five years, which, in addition to volumes, will be supported by a higher oil price. 7

8 mn rubles F 218F 219F 22F 221F 222F Export from the Russia (without the CIS), gross Minus: Export duty (31 565) (32 664) (37 249) (39 383) (41 586) (41 938) (44 265) Export from the Russia (without the CIS), netto International sales, gross Minus: Excize (75 87) (72 572) (89 457) (94 582) (99 873) (1 718) (16 37) International sales, netto CIS, gross Minus: Export duty (1 131) (1 83) (1 335) (1 411) (1 49) (1 53) (1 586) CIS, netto Domestic market Total refinery products sales, gross Minus: Export duty and Excize (18 53) (16 319) (128 4) ( ) ( ) ( ) ( ) Total revenue from refinery products Costs. Operating expenses were projected taking into account the impact of inflation in Russia, which, according to Bloomberg forecasts, varies in the range of 4-5%. We proceed from the forecast oil prices in for forecasting the costs of acquiring oil, gas and their processing products and tax expenses (taxes other than income tax). Fig. 21. Capital expenditures forecast F 218F 219F 22F 221F 222F, Halyk Finance forecasts Fig. 22. Debt/EBITDA F 218F 219F 22F 221F 222F Net debt/ebitda Debt/EBITDA "Debt / EBITDA" threshold, Halyk Finance forecasts Capital expenditures The Company's capital expenditures are mainly directed to exploration and production (63%) and refining (2%). For 9M217, capital expenditures amounted to 243 billion rubles, which is lower than 9M216 by 9% due to completion of the first stage of infrastructure construction at the Novoportovskoye field and decrease in drilling volumes at mature fields. For 9M217, the company increased capex for refining by 93%, sending within 9M217 funds for the second stage of the modernization program at the Omsk and Moscow refineries (reconstruction of the catalytic cracking unit and construction of the Euro + unit at the Moscow refinery). In subsequent periods we assume a moderate increase in capital expenditure in proportion to the dynamics of production. In our opinion, the dividend policy, coupled with the repayment of debts in , will encourage the Company to take a restrained approach to the planning of capital expenditures. Debt The Company's liabilities are mainly represented by bonds and syndicated and bilateral loans. Foreign currency loans account for 69% of all liabilities and are mainly represented by Eurobonds issued in 212 and 213 in the amount of USD 3bn and EUR 75mn with maturities in 222 and 218, respectively. Ruble bonds of the company at the end of 216 are 82bn rubles and are due in At the end of 9M217 net debt Gazpromneft narrowed by 7% (from the beginning of the year). According to our calculations, the Company will be able to repay the bonds in without much pressure on cash flows. The ratio of net debt to EBITDA for 9M217 was 1.27x, down from 1.78x for the year. In accordance with the terms of the Company's loan agreements, the debt / EBITDA ratio should not exceed 3x. According to our forecasts, the Debt / EBITDA ratio will also be within the threshold value during and the Net debt / EBITDA value will not exceed 1.6x. The company adheres to a fairly conservative policy in attracting debt financing. Given the set growth in oil prices, we believe that the Company will not have to raise additional loans in Dividends The dividend policy of the Company implies the payment of at least 15% of the consolidated financial result of the Group under IFRS or 25% of the Company's net profit under RAS. 8

9 Fig. 23. Dividends 222F F F F F F , Halyk Finance forecasts Company demonstrates positive dynamics of dividend payment. The dividend payout ratio for 215 was increased to 28% from the previous 25%. In 216, the Company paid a record dividend in the amount of 1.68 rubles per share. Taking into account the 9M217 results, we expect net profit growth by 29% yoy in 217 to 271bn rubles. We expect that the dividend for 217 will be rubles per share. We see the potential for increasing the size of dividend payments, but we believe that in terms of repayment of loans, the Company will prefer to adhere to a payout ratio of 25% throughout the forecast period. Calculation of the fair value of shares - 12M TP RUB319/share, Buy" recommendation. During the analysis and financial modeling of Gazprom Neft, the main assumption in forecasting the Company's cash flows was the physical volumes of oil production, the prospects for consumption of petroleum products and the price of oil. In DCF calculations, we reflected the average annual production growth of 1%, the growth in sales of petroleum products by 3.8% and the increase in the average oil price in by 5% and the forecast level of inflation in Russia in the range of 4% -5%, which implies a comparable increase in operating costs. The calculation of the weighted average cost of capital (WACC) was made on the basis of the rate of return on 1-year russian treasuries (7.6%) and market risk premium (3.6%). In addition, we took into account the risk of further limiting the Company's ability to borrow capital on foreign markets against the backdrop of anti-russian sanctions imposed by the United States and Europe, which we estimated at 4% (the difference in Eurobond and ruble bond rates) and the risk of low demand for the Company's financial instruments we pawn at the level of 3%. In our opinion, the discount rate of 13% fully reflects the current economic situation in Russia and takes into account the risks of extending and / or tightening the current package of sanctions against Gazprom Neft. Target price, RUB/share 319 Source: Halyk Finance calculations 218F 219F 22F 221F 222F EBIT Depreciation Capex Change in working capital Income tax Free cash flow WACC 13% First stage DCF Terminal value PV of terminal value Equity value Net debt Enterprice value We pawn the rate of growth of cash flows at 3%, which takes into account the achievement of a Company's fields of design capacity after the terminal year. In our opinion, the gradual stabilization of oil prices, coupled with increased sales of oil products, will contribute to a steady increase in the prices of Gazprom Neft shares. We estimate the fair value of Gazprom Neft shares at 319 rubles and recommend Buy. 9

10 Risks Sanctions In 214, the United States, the European Union and some other countries imposed sanctions on the Russian energy sector, which are partially applicable to Gazprom Neft. Sanctions imposed by the United States prohibit all individuals who have US citizenship and all legal entities established under US law (including foreign affiliates of such companies), as well as all individuals in the United States, to conduct transactions, provide financing or perform other transactions related to with new borrowings with a maturity of more than 9 days for a number of energy companies, including the Company, and provide, export or re-export directly or indirectly services (other than financial services) or technologies for projects that are associated with the potential for development and production of oil in the deep-water areas and the Arctic shelf, as well as in shale formations on the territory of Russia or in internal and territorial waters, which the Russian Federation considers as their own, Russian companies, including Gazprom Neft. These sanctions also apply to any person in whose capital companies included in the sanctions list, directly or indirectly, jointly or separately, own 5% or more shares. In January this year, sanctions were extended for another year. The sanctions imposed by the European Union in July 214 prohibit the sale, supply, transfer or export of equipment or technologies related to the development and production of oil in the deep-water areas and the Arctic shelf, as well as in shale formations on the territory of Russia, technical assistance or intermediary services related to such technologies, financing or financial assistance related to any sale, supply, transfer or export of such technologies. The sanctions imposed by the EU in September 214. and some other countries, prohibit the provision of drilling services, development of wells, geophysical exploration of wells, well operational equipment; supply of special floating bases necessary for deepwater exploration and production of oil, as well as for exploration and production of oil on the Arctic shelf and for projects for the extraction of shale oil in Russia; purchase, sale, provision of investment services or assistance in issuing and other transactions with circulating securities, money market instruments and new borrowings with maturity of more than 3 days if issued by certain Russian companies are granted to certain Russian companies, including Gazprom Neft and any legal entity registered outside the EU, the ownership of which exceeds 5%. 1

11 Appendix 1. Forecast of financial statements of the company, mln Rub, except per share data mn rubles, unless otherwise specified Consolidated statement of financial position F 218F 219F 22F 221F 222F ASSETS Cash and cash equivalents Short-term financial assets Receivables Inventories Prepayment on current income tax Other current assets Assets held for sale Total current assets Fixed assets Goodwill and other intangible assets Investments in associates Long-term receivables Long-term financial assets Deferred tax assets Other noncurrent assets Total non-current assets TOTAL ASSETS LIABILITIES AND CAPITAL Short-term loans and borrowings Accounts payable Other current liabilities Current income tax liabilities Other tax liabilities Short-term reserves Liabilities associated with assets held for sale Total current liabilities Long-term loans and borrowings Other long-term financial liabilities Deferred tax liabilities Long-term reserves Other long-term liabilities Total long-term liabilities Authorized capital Own shares redeemed from shareholders Extra capital Retained earnings Other reserves Capital attributable to shareholders of the company Minority interest Total capital TOTAL LIABILITIES Consolidated statement of comprehensive income F 218F 219F 22F 221F 222F Revenue Minus: export duty and excise tax Total sales revenue Cost of sales and other expenses Procurement of oil, gas and petroleum products Production and operating expenses Commercial and administrative expenses (Impairment) / Recoveries of receivables Transportation costs Depreciation Taxes, except for income tax Expenses for geological exploration work Total operating expenses Operating profit Share of profit of associates Profit (loss) from exchange rate differences Financial income Financial expenses Other income (expenses) Total other income / (expenses) Profit / (loss) before taxation Current income tax expense Deferred income tax expense Total income tax expense Profit / (loss) for the period to shareholders of the Company to minority shareholders Consolidated statement of cash flows F 218F 219F 22F 221F 222F Net cash from operating activities Net cash used in investing activities Net cash generated from / (used in) financing activities Net increase / (decrease) in cash for the period Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Источник: Данные Компании, прогнозы Halyk Finance 11

12 Appendix 2. Brief information about the Company Gazprom Neft December 217 Gazprom Neft russian oil company, the main activities of which are exploration, development of oil and gas fields, oil and gas extraction, petroleum products production and their sale on retail market. The company was founded in 1995 by the decree of the Russian President Boris Yeltsin as the "Siberian Oil Company". In 25, a controlling stake in the company was acquired by Gazprom and in 26 Sibneft was renamed Gazprom neft. Gazprom neft structure includes more than 7 oil producing, oil refining and marketing enterprises in Russia, CIS countries and far abroad. Gazprom is the first company to start oil production on the Russian shelf of the Arctic. The share of high-tech wells of Gazprom Neft at the end of 216 is 5%, which is the largest indicator among Russian oil and gas companies. The Company's business is divided into the main segments: exploration and production of oil and gas, refining, sale of oil and oil products. The Company's strategy calls for an increase in oil production to 1mn tons per year by 22 (216: 59.85mn tons), with the level of proven reserves for 15 years and the achievement of processing volumes to 4mn tons per year (216: million tons), an increase in depth processing in the Russian Federation to 95% (216: 82%) and an increase in the yield of light oil products in Russia to 8% (216: 64.4%). Gazprom Neft is also a participant in several PSAs (production sharing agreement) and hydrocarbon exploration and production projects in Iraq and Venezuela. 12

13 217 Halyk Finance, a subsidiary of Halyk Bank. For contact details see the information on Halyk Finance website or contact Halyk Finance office. All rights reserved. This document and/or information has been prepared by and, except as otherwise specified herein, is communicated by Halyk Finance. This document is for information purposes only. Opinions and views expressed in this document do not necessarily represent the opinions and views held by Halyk Finance, or other subsidiaries of Halyk Bank. The differences of opinion stem from different assumptions, sources information, criteria and methodology of valuation. Information and opinions expressed herein are subject to change without notice; and neither Halyk Finance, or Halyk Bank, or any of its subsidiaries or affiliates are under any obligation to keep them current. This document is not an offer or an invitation to engage in investment activity. It cannot be relied upon as a representation that any particular transaction necessarily could have been or can be effected at the stated price. This document does not constitute an advertisement or an offer of securities, or related financial instruments. Descriptions of any company or companies or their securities or the markets or developments mentioned herein are not intended to be complete. Views and opinions expressed in this document cannot substitute for the exercise of own judgment and do not attempt to meet the specific investment objectives, financial situation or particular needs of any specific investor. The information and opinions herein have been arrived at based on information obtained from sources believed to be reliable and in good faith. Such sources have not been independently verified; information is provided on an as is basis and no representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness, reliability, merchantability or fitness for a particular purpose of such information and opinions, except with respect to information concerning Halyk Finance and its affiliates. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors and trading in these instruments is considered risky. Past performance is not necessarily indicative of future results. Foreign-currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or the price of, or income derived from, the investment. Halyk Finance and its affiliates, directors, representatives, employees, or clients may have or have had interests in issuers described herein. Halyk Finance may have or have had long or short positions in any of the securities or other financial instruments mentioned herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any such securities or other financial instruments at any time, as principal or agent. Halyk Finance and its affiliates may act or may have acted as market maker in the securities or other financial instruments described herein, or in securities underlying or related to such securities. Employees of Halyk Finance or its affiliates may serve or have served as officers or directors of the said companies. Halyk Finance and its affiliates may have or have had a relationship with or have provided investment banking, capital markets, advisory, investment management, and/or other financial services to the relevant companies. Halyk Finance relies on information barriers to avoid the appearance of conflict of interests within Halyk Finance or in its relations with clients, other issuers, and external investors. The information herein is not intended for distribution to the public and may not be reproduced, redistributed or published, in whole or in part, for any purpose without the written permission of Halyk Finance. Neither Halyk Finance nor any of its affiliates accepts any liability whatsoever for the actions of third parties in this respect. This information may not be used to create any financial instruments or products or any indices. Neither Halyk Finance, nor its affiliates, nor their directors, representatives, or employees accept any liability for any direct or consequential loss or damage arising out of the use of any information herein. Halyk Finance Contacts: Research Murat Temirkhanov Head m.temirkhanov@halykfinance.kz Stanislav Chuyev Deputy Head s.chuyev@halykfinance.kz Assan Kurmanbekov Macroeconomics a.kurmanbekov@halykfinance.kz Elmira Arnabekova Macroeconomics e.arnabekova@halykfinance.kz Altynay Ibraimova Equity a.ibraimova@halykfinance.kz Andrey Kozhokaru Equity a.kozhokaru@halykfinance.kz Sales Mariya Pan Head m.pan@halykfinance.kz Dinara Asambayeva Institutional d.asambayeva@halykfinance.kz Aizhan Moldakhmetova Institutional a.turaliyeva@halykfinance.kz Shynar Zhakanova Retail sh.zhakanova@halykfinance.kz Sabina Mukanova Retail s.mukanova@halykfinance.kz Adress: Halyk Finance Abay av. 19 «В», 5th fl. Almaty, Kazakhstan, A5A1B4 Тел Bloomberg HLFN Thomson Reuters Halyk Finance Factset Halyk Finance Capital IQ Halyk Finance 13