1Q 2018 IFRS FINANCIAL RESULTS May 29, 2018
Forward-looking statements Certain statements in this presentation are not historical facts but are forward-looking. Examples of such forward-looking statements include, but are not limited to: projections or forecasts of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios statements of our plans, objectives or goals, including those related to products and services statements of future economic performance and statements of assumptions underlying such statements. Words such as believes, expects, assumes, projects, intends and plans and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements By nature, forward-looking statements imply certain inherent risks and unclear points, both general and specific, and there is a risk that plans, expectations, forecasts and other forward-looking statements will not be realized. You should be aware that a number of important factors could cause actual results to differ significantly from the plans, objectives, expectations, estimates and intentions expressed in such forwardlooking statements. When relying on forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which we operate. Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved Such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. 2
Operational results Hydrocarbon production ex. West Qurna-2, Kboepd Throughput at own refineries Kbpd 2,213 2,286 2,286 1,319 1,378 1,312 Continued structural improvements in core businesses Gas 422 524 523 Rapid production growth in Uzbekistan Liquids 1,791 1,762 1,763 Progress with the Caspian sea projects 1Q17 4Q17 1Q18 1Q17 4Q17 1Q18 High margin barrels 19% 23% 24% Light product 65% 69% 71% yield 3
Financial results 1Q18 4Q17 % RUB bln 1Q18 1Q17 % 1,631 1,662 (1.9) Revenue 1,631 1,432 13.9 Record free cash flow before changes in working capital Stringent cost control Lower CAPEX 220 224 (1.9) EBITDA 220 208 5.7 172 173 (0.6) Upstream 172 128 34.5 47 49 (4.4) Downstream 47 71 (33.6) 109 121 (9.5) Profit to shareholders 109 62 75.0 121 138 (12.1) CAPEX 121 130 (7.0) 46 73 (37.3) Free cash flow (FCF) 46 1 x33 92 77 19.4 Adjusted FCF* 92 69 32.5 313 286 9.3 Net debt 313 466 (32.9) * Free cash flow before working capital changes, West Qurna-2 project 4
Growing free cash flow Adjusted free cash flow (before changes in working capital, West Qurna-2 project and income tax on sale of diamond business) RUB bln Strong business fundamentals Structural improvements High cost discipline 350 300 250 200 150 Quarterly basis LTM rolling sum Balanced investment 100 programm 69 50 77 92 0 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 5
Progressive dividend policy Priority of dividend payments Distribution of at least 25% of IFRS profit that may be adjusted by the amount of non-recurring losses and gains Intention to annually increase dividends by not less than the ruble inflation rate Cash distribution priorities Dividend yield DPS 2017 to average share price in 2017 8% 6% Scrip M&A Investments Dividends Financial stability Total dividend for 2017 BoD recommendation 215 RUB per share +10% y-o-y in RUB +7% y-o-y in USD (FX rates as of announcement dates) Key dates: AGM June 21 Record date July 11 7% 4% 2% 0% International O&G Russian O&G 6
Balanced distribution of additional free cash flow to shareholders $80 bln for 10 years Progressive dividend policy: guaranteed annual dividend growth at least at ruble inflation rate Policy of balanced distribution of additional cash flow (for example, at >$50/bbl oil price) Distribution to shareholders Share buyback 50:50 (on strategy horizon) Operating cash flow Investments at $50/bbl Free cash flow Guaranteed dividend Excess cash flow Reinvestment Organic growth projects - priority Carefully selected M&A with a conservative approach to risks 7
UPSTREAM Growing share of high-margin barrels 8
Key operating results Hydrocarbon production Kboepd WQ-2 31 36 40 29 34 Q-o-Q Y-o-Y Total 2,213 2,222 2,219 2,286 2,286 0% 3% Production dynamics Gas in Russia 284 301 296 293 294 0% 4% Growing share of highmargin barrels Development of gas Mature fields 1,549 1,508 1,476 1,470 1,463 0% (6%) projects in Russia and Uzbekistan External limitations on Hard-to-recover New projects 97 99 77 82 90 303 331 356 426 430 3% 28% 1% 42% liquids production in 1Q17 2Q17 3Q17 4Q17 1Q18 Russia (OPEC+) High-margin barrels 19% 20% 21% 23% 24% +1 p.p. +5 p.p. 9
Price and tax environment $61 $65 Q-o-Q Y-o-Y 7% 25% 1Q18 / 1Q17 Increase in net oil price despite stronger ruble 1Q18 / 4Q17 Urals Export duty Mineral extraction tax $52 $12 $19 $48 $12 $17 $51 $11 $18 $13 $16 $23 $25 21% 35% 10% 35% Decrease in net oil price due to lower positive export duty lag Net price RUB $22 $20 $22 $25 $24 1,268 1,144 1,305 1,446 1,371 (3%) (5%) 12% 8% effect 1Q17 2Q17 3Q17 4Q17 1Q18 Export duty lag effect $0.2 -$0.5 $0.9 $1.5 $0.0 (98%) (85%) RUB/$ average exchange rate 58.8 57.1 59.0 58.4 56.9 (3%) (3%) 10
Upstream EBITDA 173 (5.2) 4.1 172 Russia Q-o-Q: lower positive export duty lag effect (-), stronger ruble (-), higher oil price (+), lower lifting costs (+) Y-o-Y: increased share of high-margin barrels (+), higher net oil price (+), stronger ruble (-) 4Q17 Russia International 1Q18 International 172 Q-o-Q and Y-o-Y: growth in gas production volumes in Uzbekistan (+), higher oil and gas prices (+), higher EBITDA from WQ-2 project (+), stronger ruble (-) 128 32.6 11.5 1Q17 Russia International 1Q18 11
Filanovsky field 2 nd stage Production Kboepd Oil Gas 138 136 Advantages High-margin barrels Production growth Short transportation leg, low lifting costs, high oil quality Net price in 2018 Under $50/bbl, RUB 60/USD 82 5 76 108 13 113 15 95 98 19 18 119 117 1Q18 results One production well and one injector drilled from the second platform Substructure for the third platform >90% complete, topside 50% complete Export duty MET Net price 42% Standard taxation 85% Filanovsky 1Q17 2Q17 3Q17 4Q17 1Q18 Plans for 2Q18 4Q18 2 nd stage: to drill three wells (two multilateral production wells and one injector) 3 rd stage: to install the substructure for the third platform 12
Hard-to-recover: heavy crude oil Net price in 2018 Under $50/bbl, RUB 60/USD Export duty MET Net price 42% 62% 96% Oil production Kbpd Usinskoe Permian deposit 51 14 37 58 17 41 Yaregskoe 65 22 43 72 25 74 28 47 46 Advantages High-margin barrels Production growth potential 1Q18 results Yaregskoe: one SAGD well, 31 underground wells, steam generation capacity of 125 tons per hour Usinskoe: 13 production wells Plans for 2Q18 4Q18 Yaregskoe: steam generation capacity of 50 tons per hour; produced water utilization facilities Usinskoe: steam generation capacity of 60 tons per hour Standard taxation Usinksoe (Permian deposit) Yaregskoe 1Q17 2Q17 3Q17 4Q17 1Q18 13
Hard-to-recover: low permeability Oil production Kbpd Imilorskoe Vinogradov Advantages High-margin barrels Production growth potential 20 20 20 Net price in 2018 Under $50/bbl, RUB 60/USD Export duty MET 17 6 11 18 6 12 6 7 7 13 13 13 1Q18 results Imilorskoe: 16 production wells Vinogradov: two horizontal production wells Plans for 2Q18 4Q18 Imilorskoe: 59 production wells Vinogradov: 16 production wells Net price 42% 58% Standard taxation Imilorskoe*, Vinogradov 1Q17 2Q17 3Q17 4Q17 1Q18 * MET benefits applicable since 2019 14
Gas projects in Uzbekistan Gas production (LUKOIL share) Kboepd Kandym 93 26 105 35 68 70 Gissar 138 73 65 182 77 105 191 72 119 Advantages Proven track record in the region Production growth potential International prices (export to China) 1Q18 results Final construction works at the second train of Kandym gas processing complex with subsequent launch in April 2018 Plans for 2Q18 4Q18 Reaching production plateau in Uzbekistan 1Q17 2Q17 3Q17 4Q17 1Q18 15
DOWNSTREAM Better light product yield Optimized maintenance works schedule at refineries Growth in premium sales channels 16
Price Environment Benchmark refining margins $ per bbl Europe MED/NWE average 7.2 6.5 6.2 Europe Slowly recovering margins supported by cold weather Russia Higher excise rates, domestic prices lagging export netbacks Russia 3.3 2.6 2.4 Prices Europe, USD/t 1Q17 2Q17 3Q17 4Q17 1Q18 Premium gasoline 545 527 560 596 645 Diesel fuel 479 450 488 556 592 Fuel oil 290 278 296 336 354 Russia, th. RUB/t Premium gasoline 35.2 37.1 38 37.8 36.2 Diesel fuel 31.5 31.9 33 36.8 36.8 Fuel oil 9.7 9 11.2 12.2 11.9 17
Key operating results Throughput volumes at own refineries Kbpd Q-o-Q Y-o-Y 1,319 1,321 1,383 1,378 1,312 (5%) (1%) Lower throughput volumes due to maintenance Europe 463 479 506 490 445 (9%) (4%) Higher light product yield in Russia Russia 856 841 877 888 868 (2%) 1% 1Q17 2Q17 3Q17 4Q17 1Q18 Light product yield in Russia 65% 71% 71% 69% 71% 2 p.p. 6 p.p. 18
Premium sales channels 1Q18 / 1Q17 Filling stations +2% motor fuels sales volumes ECTO fuels sales volumes: +10% in Russia +9% internationally Non-fuel profit: +25% in Russia +19% internationally Lubricants +1% growth in premium motor and industrial lubricants Aircraft refuelling +7% into-plane sales volumes growth Bunkering +1% sales volumes growth 19
Efficient allocation of Russian oil 80 70 60 Prices $/bbl Brent Volumes mln t 20.5 20.5 20.0 0.6 0.5 0.7 Sales in Russia Enhanced integrated margin driven by strong performance in premium sales channels 50 40 10.5 11.1 10.7 Delivery to own refineries in Russia 30 20 10 0 Oil netback for refining in Russia* Oil export netback** 1Q17 2Q17 3Q17 4Q17 1Q18 Exports 8.1 6.9 6.7 1.3 2.0 1.9 1Q17 4Q17 1Q18 Other Reduced export duty * Including retail margin of refined products produced at the refineries across all marketing channels ** West Siberian oil, standard taxation 20
Downstream EBITDA Russia Q-o-Q: lower benchmark refining margins (-), negative inventory effect (-), better product slate (+), strong petchem results (+), seasonally strong power generation (+), stronger marketing (+) Y-o-Y: lower benchmark refining margins (-), lower negative inventory effect (+), better product slate (+), strong petchem results (+) International Q-o-Q : lower benchmark refining margins (-), maintenance works (-), lower positive inventory effect (-) Y-o-Y : lower benchmark refining margins (-), maintenance works (-), weaker trading results (-), one-off accounting factors related to trading (-) 49 71 3.0 (5.2) 4Q17 Russia International 1Q18 4.5 (28.1) 1Q17 Russia International 1Q18 47 47 21
FINANCE Robust results 22
Revenue 1Q18 / 4Q17 RUB bln 1,662 4 0 Lower crude oil trading volumes Inventory build-up Lower refinery throughput (54) 21 (29) 8 6 3 8 1,631 Seasonally lower sales in Russia 4Q17 Oil (Russia) Oil (International) Refined products (Russia) Refined products (International) Other 1Q18 Volume factor Price and structure factor 23
OPEX 1Q18 / 4Q17 Operating expenses RUB bln 118 Lifting costs in Russia RUB per boe 243 248 245 257 244 107 14 109 Lower lifting costs Lower refining expenses 14 11 3 11 1 21 10 3 12 5 23 13 9 3 12 3 22 Other Power Petrochemical Crude oil transportation to refineries Refining at the third party refineries Own refining expenses 1Q17 2Q17 3Q17 4Q17 1Q18 Breakdown of lifting costs by key subsidiaries (1Q18) RUB per boe 347 254 244 46 51 47 Hydrocarbon extraction expenses (ex. WQ-2) 110 161 1Q17 4Q17 1Q18 L-Nizhnevolzhskneft L-Perm L-West Siberia L-Komi Average L-Nizhne volzhskneft L-Perm L-West Siberia L-Komi Average in Russia 24
EBITDA 1Q18 / 4Q17 RUB bln Lower operating expenses, SG&A, exploration and transport costs 224 (31.7) 10.2 9.6 220 Taxes offset higher oil price 11.8 (16.0) 9.5 2.5 EBITDA 4Q17 Revenue Purchases Taxes and duties OPEX Transportation SG&A Exploration EBITDA 1Q18 25
Profit 1Q18 / 4Q17 RUB bln 121 Higher DD&A due to 4Q17 one-offs and launching new production facilities (4.2) (11.5) (6.6) 8.6 2.3 109 Lower FX effect due to intragroup capital structure optimization and lower FX rate volatility Net impairment loss in 4Q17 Profit 4Q17 EBITDA DD&A Finance income / costs and other FX Income tax Profit 1Q18 26
CAPEX 1Q18 / 4Q17 RUB bln Upstream Downstream Lower international upstream capex due to completion of key construction works in Uzbekistan 138 1.3 (7.3) 2.9 0.4 (4.8) Seasonally lower capex in the Caspian Sea Seasonally lower capex in the Russian retail (2.6) (7.0) 0.4 0.1 121 Russia International CAPEX 4Q17 West Siberia (Yamal) Caspian Other WQ-2 Uzbekistan Other Russia International Corporate and other CAPEX 1Q18 27
Cash flows 1Q18 / 4Q17 RUB bln Adjusted free cash flow 77 (2.1) 17.1 92 (47.9) 4Q17 CAPEX ex. WQ-2 OCF ex. WC and WQ-2 1Q18 214.8 (121.1) 330 (60.9) (8.6) (10.1) 297 Cash and cash equivalents at the beginning of 1Q18 OCF before Working capital working capital change, inc. payment on LT incentives plan CAPEX Dividends Debt and interest Other Cash and cash equivalents at the end of 1Q18 28
Financial position (as of 31.03.2018) Credit lines* Total debt RUB 609 bln Net debt 148 313 Debt maturity schedule 0.4 Net debt / EBITDA Cash and cash equivalents 297 117 80 83 46 98 185 2018 2019 2020 2021 2022 2023 and further Debt structure Credit ratings USD / EUR / USD / EUR / Other Other debt Secured / Secured / Unsecured unsecureddebt 11% 89% 89% 9% 2% Moody s Baa3 Fixed / Fixed / variable Variable rate 59% 41% S&P BBB Eurobonds (all in $) / Eurobonds ($) / other Other debt 57% 43% Fitch BBB+ * Stand-by revolving committed credit lines. 29
2018 Outlook Upstream Production growth by 1-2% (ex. WQ-2 project) Development of growth projects in Russia: Launch of the 2 nd stage at Korchagin field 2 nd stage drilling program at Filanovsky field Start of production drilling at D41 Moving to full development stage at Imilorskoe field FID on Rakushechnoe field Reaching daily production plateau level in Uzbekistan post completion of gas treatment facilities Refining Maintaining refining volumes and light products yield at 2017 level Maintenance works at the refineries Completion of polyethylene line upgrade at Stavrolen Finance ~$8 bln CAPEX (ex. WQ-2 project): Upstream / Downstream: 85% / 15% Russia / International: 80% / 20% 30
Q&A 31
Appendix 32
Price and Tax Environment Upstream 1Q18 4Q17 % Prices and FX rate 1Q18 1Q17 % 66.8 61.4 9 Brent, USD / bbl 66.8 53.7 24 65.3 60.6 8 Urals, USD / bbl 65.3 52.2 25 56.9 58.4 (3) RUB / USD 56.9 58.8 (3) 2 89 (98) Export duty lag effect, RUB / bbl 2 14 (86) 24.1 24.8 (3) Net price, USD / bbl 24.1 21.6 12 1.37 1.45 (5) Net price, th. RUB / bbl 1.37 1.27 8 Taxes in Russia Export duty 16.0 13.2 21 USD / bbl 16.0 11.8 35 6.6 5.6 18 th. RUB / t 6.6 5.1 31 MET 25.1 22.8 10 USD / bbl 25.1 18.5 35 10.4 9.7 7 th. RUB / t 10.4 8.0 31 33
Price and Tax Environment Downstream 1Q18 4Q17 % Prices 1Q18 1Q17 % Russia, th. rubles per t 36.8 36.8 Diesel fuel 36.8 31.5 17 11.9 12.2 (2) Fuel oil 11.9 9.7 23 36.2 37.8 (4) Premium gasoline 36.2 35.2 3 Europe, dollars per t 592 556 6 Diesel fuel 592 479 24 354 336 5 Fuel oil 354 290 22 645 596 8 Gasoline 645 545 18 Taxes in Russia Export duty, th. rubles per t 2.0 1.7 18 Diesel fuel 2.0 1.5 31 6.6 5.6 18 Fuel oil 6.6 5.1 31 Excise, th. rubles per t 11.2 10.1 11 Gasoline (Euro-5) 11.2 10.1 11 7.7 6.8 13 Diesel fuel 7.7 6.8 13 34
Financial results Revenue 1,432 1,359 1,483 1,662 1,631 +13.9% y-o-y 1Q17 2Q17 3Q17 4Q17 1Q18 208 179 221 224 220 +5.7% y-o-y EBITDA 1Q17 2Q17 3Q17 4Q17 1Q18 97 76 104 122 110 +13.5% y-o-y Profit * 1Q17 2Q17 3Q17 4Q17 1Q18 1Q17 2Q17 3Q17 4Q17 1Q18 * Excluding FX, net impairments and sale of diamonds business 35
Revenue 1Q18 / 1Q17 RUB bln 9 1,631 15 11 (48) 127 1,432 2 2 (3) 84 1Q17 Oil (Russia) Oil (International) Refined products (Russia) Refined products (International) Other 1Q18 Volume factor Price and structure factor 36
EBITDA 1Q18 / 1Q17 RUB bln 199.1 (148.9) 208 (44.7) (1.1) 7.7 (0.5) 0.3 220 1Q17 Revenue Purchases Taxes and duties OPEX Transportation SG&A Exploration 1Q18 37
Profit 1Q18 / 1Q17 RUB bln (7.4) 109 42.1 62 11.9 (6.9) 7.1 1Q17 EBITDA DD&A Finance income / costs and other FX Income tax 1Q18 38
CAPEX 1Q18 / 1Q17 RUB bln Upstream Downstream 130 1.2 (5.0) 5.7 1.4 (19.3) 2.3 0.1 121 (2.6) 6.9 Russia International 1Q17 West Siberia (Yamal) Caspian Other WQ-2 Uzbekistan Other Russia International Corporate and other 1Q18 39
Statement of Profit or Loss (in USD mln, at the average exchange rate for the period) 1Q18 1Q17 1Q18 4Q17 Revenue 28,660 24,347 Sales (including excise and export tariffs) 28,660 28,467 Costs and other deductions (1,909) (1,828) Operating expenses (1,909) (2,022) (15,667) (12,629) Cost of purchased crude oil, gas and products (15,667) (15,465) (1,161) (1,254) Transportation expenses (1,161) (1,174) (646) (617) Selling, general and administrative expenses (646) (804) (1,541) (1,374) Depreciation, depletion and amortization (1,541) (1,305) (3,281) (2,614) Taxes other than income taxes (3,281) (2,944) (2,130) (1,861) Excise and export tariffs (2,130) (2,054) (8) (13) Exploration expenses (8) (173) 2,317 2,158 Profit from operating activities 2,317 2,526 62 56 Finance income 62 94 (129) (161) Finance costs (129) (89) 92 63 Equity share in income of affiliates 92 89 (25) (740) Foreign exchange gain (loss) (25) 89 12 (42) Other income (expenses) 12 (200) 2,329 1,334 Profit before income taxes 2,329 2,510 (321) (217) Current income taxes (321) (426) (86) (51) Deferred income taxes (86) (9) (406) (268) Total income tax expense (406) (435) 1,923 1,066 Profit for the period 1,923 2,075 (6) (6) Profit for the period attributable to non-controlling interests (6) (11) 1,917 1,060 Profit for the period attributable to PJSC LUKOIL shareholders 1,917 2,064 40