GPB Rosneft Supermajor 25092013

25.09.
2013 OIL AND GAS
Research Department
Rosneft: the early days of a supermajor

Rosneft is the largest listed vertically integrated oil company in the world in terms of both
oil reserves and production volumes. With the acquisition of TNK-BP, Rosneft has
entered a new phase of development with a good chance of becoming a true
supermajor on the oil market and taking its respective position on the stock market. Still,
to achieve a stock re-rating, the company must clearly display its commitment to focus
on value accretion, demonstrate efficient integration of TNK- and show its readiness to
settle issues with TNK-BP Holding minority stakeholders in an equitable manner.
Source: company, Gazprombank estimates
We initiate coverage of Rosneft based on consolidated figures including TNK-BP with a
NEUTRAL recommendation and DCF-based target price of $8.8 per share, implying 6.8%
Rosneft relative performance vs. MSCI Russia index
upside potential. With this report we also cease coverage of shares of RN Holding
110%
(formerly TNK-BP Holding).
105%
Worlds largest oil producer and reserves holder. Rosneft is the global leader in
100%
terms of oil production and proved oil reserves among listed companies. The
95%
company produces about 5% of global oil and holds around 1.8% of the world's
90%
proven oil reserves. After the TNK-BP acquisition, Rosneft accounts for almost
85%
40% of Russian oil output and 35% of the country's oil reserves, and outpaces
80%
ExxonMobil by 18.5% in hydrocarbon reserves and 8.5% in production.
75%
Attractive long-term growth prospects. Rosneft's asset portfolio allows for a further
70%
substantial increase in oil and hydrocarbon production with 1.2% and 2.7% organic
CAGR by 2020, respectively. The main growth drivers for Rosneft are greenfield
projects in Northwestern and Eastern Siberia, and gas fields, with growth to be
supported by only a quite limited decline of production at the company's
Rosneft (LSE)
MSCI Russia Index
brownfields. Over 270 bln bbl of risked prospective offshore resources create
Source: company, MICEX, Gazprombank estimates
opportunities for long-term production growth ultimately depending on the
outcome of geological exploration, drilling and estimates of development costs. The
Rosneft shareholders structure
new oil supply contract with CNPC envisages an increase of crude exports to China
BP
from a current 0.3 to 0.6-0.8 mln bpd and provides additional resources for further
19.75%
production growth, including prepayment, estimated at over $65 bln.
All the makings of a supermajor Rosneft holds a unique position in global energy,
GDRs*
combining the advantages of a national oil champion with the business model of a
8.0%
public commercial company aiming at value creation for its shareholders. Ambitious
long-term goals and the commitment to pay out 25% of net income as dividends
Other
2.75%
should prompt the management to increase efficiency, capture synergies from the
acquisition of N-, and hopefully help eliminate most of the inefficiencies that
investors in state companies in emerging markets often shy away from. BP's position
as the company's largest minority shareholder denotes a high level of trust and
reduces risks for minority shareholders.
Rosneftegaz
69.50%
but Rosneft has yet to emerge in a new light. That being said, to achieve a stock
re-rating Rosneft still needs to address concerns about its future development
*excl. 1.25% stake in Rosneft held by BP in GDRs
model, risks of a decline in efficiency and deterioration of corporate governance
Source: Bloomberg, Gazprombank estimates
problems that are common in a range of state-controlled EM companies. Rosneft
must also put forward a comprehensive long-term strategy with clear project
prioritization, and outline capital requirements for its strategic plans and debt
management strategy, while settling key outstanding issues with minority
shareholders of RN Holding (formerly TNK-BP Holding).
Reasonable valuation. On 2015E EV/EBITDA Rosneft trades with premiums of 8%

to Russian oils and 15% to developed market peers, but at a 10% discount to
emerging market oils. On 2015E P/E which does not take into account
differences in the level of net debt Rosneft trades with a 9% premium to
Russian oils but at 32% and 36% discounts to emerging market and developed
market oils, respectively. We consider the premiums on EV/EBITDA as
reasonable given the company's resource base and production growth outlook.
Jul 13
May 13
Mar 13
Jan 13
Consolidated financial forecasts, $ mln*

Rosneft
Revenues
EBITDA
EBITDA margin, %
Net income
Capex
FCF**
DPS, $/share
EV/EBITDA
P/E
Sep 13
Rosneft
8.3
87,654
8.8
6.8%
NEUTRAL
X $ per share
Price,
Market capitalization, $ mln
Target price, $ per share
Upside, %
Recommendation
2011
2012
2013E
2014E
2015E
2016E
92,449
21,973
23.8%
10,748
-13,299
2,450
0.09
6.2
8.2
98,069
19,601
20.0%
10,975
-14,998
676
0.22
7.0
8.0
145,454
28,119
19.3%
13,804
-22,636
10,782
0.26
4.9
6.3
161,767
31,568
19.5%
13,825
-24,674
21,242
0.33
4.3
6.3
167,408
35,242
21.1%
14,830
-24,921
21,269
0.33
3.9
5.9
177,293
38,044
21.5%
15,147
-23,810
14,159
0.35
3.6
5.8
*TNK-BP figures included from March 21, 2013

** including prepayments on oil supply agreements
Ivan Khromushin
+7 (495) 980 4389
Ivan.Khromushin@gazprombank.ru
Alexander Nazarov
+7 (495) 980 4381
Alexander.Nazarov@gazprombank.ru
Source: company data, Gazprombank estimates

Copyright 2003-2013. Gazprombank (Open Joint-Stock Company)
25.09.2013
Research Department
+7 (495) 287 6318
Contents
4
12
17
Investment summary
Valuation
Rosneft as a national oil company
The role of national oil companies in the global oil and gas industry
Mechanisms of state support of national oil companies
Drawbacks of national oil companies
Privatization of national oil companies
The position of national oil companies in Russia: hybrid industry regulation model is
an advantage
Further evolution of Rosnefts business model: a chance to build a supermajor
TNK-BP acquisition: focus on integration and synergies realization

Upstream outlook: greenfields to provide production growth
Brownfields: nurturing the cash cow
Greenfields: key source of oil production growth
Tight oil development: potential outweighs risks
The role of tax reform in the improving production trend
Gas business development
Offshore production: new frontiers for Russias oil and gas industry
Refining and marketing: adjusting to the new market model

Rosnefts refinery modernization program
Risks of refinery modernization
Retail business development
18
22
22
23
26
28
30
35
36
38
41
44
50
54
56
56
62
63
International projects: a selective approach

Rosneft dividend policy 25% of IFRS net income
Key financial forecasts
Rosneft financial model
Appendix: Rosneft industry position and benchmarking vs. peers
64
67
68
75
78
25.09.2013
Research Department
+7 (495) 287 6318
Summary page
Rosneft
Bloomberg tickers
Closing price, $
Target price, $
Upside, %
Recommendation
Shares outstanding, mln
Authorized shares, mln
Market capitalization, $ mln
EV, $ mln
EV, end 2013E
Free float
Shareholders structure
ROSN RX, ROSN LI

8.3
8.8
6.8%
NEUTRAL
10,598
6,333
87,654
137,303
143,593
10.8%
Company description
Rosneft is the world's largest listed crude oil producer and reserves holder and second-largest listed hydrocarbons
producer and reserves holder after Gazprom. In March 2013, Rosneft completed the acquisition of TNK-BP,
increasing its reserves by 64% and hydrocarbons production by 75%. With annual hydrocarbon production on
GDRs*
a consolidated basis with TNK-BP of 1,728 mln boe and PRMS hydrocarbon reserves of 39,540 mln boe,
8.0%
Rosneft's share in global oil production is 4.9%, and in PRMS reserves 1.8%. The company is engaged in
Other 2.75% exploration and production of hydrocarbons, and the production of petroleum products and petrochemicals. Most
of Rosneft's activity is located in Russia with its main resource base being Western Siberia, with Eastern Siberia
being the second-largest producing region. Rosneft has a large risked resource portfolio of over 270 bln boe on
the Russian sea shelf. As a vertically integrated oil and gas company, Rosneft owns significant oil refining capacity
both in Russia and abroad. In Russia, the company has ten refineries in Russia and seven in other countries,
with 2012 throughput totaling 696 mln bbl. Rosneft has 2,443 retail stations in Russia out of a total of 2,801
stations.
2015E
2016E
Income statement, $ mln
2012
2013E
2014E
2015E
2016E
110.3
112.5
Revenues
98,069
145,454
161,767
167,408
177,293
32.50
32.80
Share in affiliates income
998
619
487
503
586
5.7%
5.5%
Operating expenses
Crude and product purchases
11,941
12,128
13,531
13,786
15,518
5.9
5.8
Operating costs
7,081
12,483
15,246
15,920
17,141
3.9
3.6
Transportation costs
7,757
12,328
12,854
13,305
14,162
2.6
3.1
SG&A
2,189
3,251
3,640
3,767
3,989
0.8
0.8
DD&A
7,306
11,276
14,804
16,423
18,003
77.1
72.8
Taxes other than income
20,760
32,174
36,278
38,760
42,843
n/a
n/a
Export duties
28,999
42,359
44,967
43,505
42,877
4.2%
4.3%
Other
740
535
971
1,004
1,241
24.3%
16.2%
EBITDA
19,601
28,119
31,568
35,242
38,044
2015E
2016E
EBIT
11,297
18,920
19,476
20,939
21,518
1.40
1.43
PBT
14,065
17,232
17,532
18,897
19,345
0.35
0.36
Income tax
-3,058
-2,920
-3,006
-3,314
-3,430
Minority share
-32
-508
-701
-752
-769
21.1%
21.5%
Net income
10,975
13,804
13,825
14,830
15,147
12.5%
12.1%
Cash flow statement, $ mln
11.3%
10.9%
Change in working capital
966
-1,484
-219
-39
-243
8.9%
8.5%
Net change in prepayments
0
12,500
16,875
14,250
4,125
4.68
4.86
Operating cash flow
16,608
34,961
48,125
48,420
40,409
19.8
20.2
Capex
-14,998
-22,636
-24,674
-24,921
-23,810
-1.52
-1.32
Other
676
-39,154
0
0
0
-0.15
-0.13
Investing cash flow
-14,322
-61,790
-24,674
-24,921
-23,810
-0.13
-0.13
Dividends paid to shareholders
-2,285
-2,744
-3,451
-3,456
-3,708
12.6%
11.7%
Other
4,474
27,049
-20,715
-20,075
-9,760
12.3%
12.1%
Financing cash flow
2,189
24,305
-24,166
-23,531
-13,467
12.5%
12.7%
Change in cash
4,184
-2,523
-715
-31
3,131
0.11
0.07
Ref: free cash flow
676
10,782
21,242
21,269
14,159
0.14
0.10
Balance sheet, $ mln
Cash and equivalents
9,844
7,087
6,372
6,341
9,472
1,525
1,557
ST investments
2,963
2,670
2,670
2,670
2,670
371
465
Accounts receivable
7,803
11,158
11,612
11,696
12,143
1,782
1,887
Inventories
4,412
5,978
6,648
6,880
7,286
1,896
2,021
Other CA
5,926
7,530
8,346
8,628
9,122
980
980
Total CA
30,949
34,423
35,648
36,214
40,693
665
665
Inv. in equity affiliates and JVs
6,124
10,688
11,053
11,431
11,870
316
316
PP&E
86,854
168,340
177,240
184,733
189,299
2012 PRMS 2012 SEC
Other non-current assets
7,243
8,944
8,944
8,944
8,944
39,540
29,931
Total assets
131,170
222,395
232,885
241,322
250,806
30,620
23,758
ST debt
4,091
18,506
17,844
7,321
4,314
8,920
6,173
Accounts payable
6,753
9,888
11,090
11,469
12,259
27,162
n/a
Other CL
3,019
4,631
5,151
5,330
5,645
27,234
n/a
Total CL
13,864
33,025
34,085
24,120
22,218
2015E
2016E
LT debt
27,175
51,296
33,452
26,131
21,817
3.5%
5.9%
Other non-current liabilities
10,321
37,378
53,577
67,173
70,665
11.6%
8.0%
Total non-current liabilities
37,496
88,674
87,029
93,304
92,482
7.3%
2.1%
Total shareholders equity
76,450
96,783
107,157
118,531
129,971
1.0%
-4.5%
Minority interest
1,284
3,913
4,614
5,367
6,135
3.9%
6.6%
Total liabilities and equity
131,170
222,395
232,885
241,322
250,806
22.9%
25.3%
Debt and net debt, $ mln
0.1%
2.1%
Total debt
31,266
69,802
51,296
33,452
26,131
0.0%
0.0%
Net debt
21,422
62,714
44,924
27,111
16,660
BP,
19.75%
Rosneftegas
69.50%
Brent price, $/bbl

RUB/USD, average
CPI (Russia) %
2012
112.0
31.07
6.6%
2013E
109.0
31.70
6.8%
2014E
108.1
32.00
6.0%
P/E
EV/EBITDA
EV/DACF
EV/Sales
EV/Production
EV/Reserves (PRMS)
Dividend yield
FCF yield
Per share data
EPS, $
DPS, $
8.0
7.0
8.2
1.4
149.8
3.5
3.1%
0.8%
2012
1.17
0.26
6.3
4.9
3.5
0.9
91.8
n/a
3.9%
12.3%
2013E
1.30
0.33
6.3
4.3
2.6
0.8
79.9
n/a
3.9%
24.2%
2014E
1.30
0.33
EBITDA margin, %
20.0%
EBIT margin, %
11.5%
Pre-tax margin, %
14.3%
Net margin, %
11.2%
Lifting costs, $/boe
2.65
EBITDA/boe
21.4
Capex/depreciation
-2.05
Capex/sales
-0.15
Capex/fixed assets
-0.17
ROAE
15.7%
ROIC
10.0%
ROACE
10.1%
Net debt/(debt+equity)
0.16
Debt/(debt+equity)
0.24
Key operating data
Oil production, total, mln boe
893
Gas production, total, mln boe
123
Hydrocarbons production, consolidated, mln boe
917
Hydrocarbons production, total, mln boe
1,016
Refining throughput, mln bbl
451
Russian, mln bbl
373
International, mln bbl
78
Oil and gas reserves, proforma including TNK-BP, mln boe
Proved
n/a
oil
n/a
gas
n/a
Probable
n/a
Possible
n/a
Growth
2012
Revenues
6.1%
EBITDA
-10.8%
Net income
2.1%
Capex
12.8%
Hydrocarbons production
4.5%
Gas production
28.1%
Oil production
2.8%
Refining throughput
6.4%
19.3%
13.0%
11.8%
9.5%
4.12
18.8
-2.01
-0.16
-0.13
15.7%
13.1%
11.0%
0.28
0.31
19.5%
12.0%
10.8%
8.5%
4.53
18.4
-1.67
-0.15
-0.14
13.0%
11.4%
11.2%
0.19
0.22
1,364
237
1,495
1,602
673
570
103
1,523
302
1,719
1,825
980
665
316
n/a
n/a
n/a
n/a
n/a
2013E
48.3%
43.5%
25.8%
50.9%
57.7%
92.5%
52.8%
49.2%
n/a
n/a
n/a
n/a
n/a
2014E
11.2%
12.3%
0.2%
9.0%
13.9%
27.1%
11.6%
45.7%
25.09.2013
Research Department
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Investment summary
Investment case
After the completion of the TNK-BP acquisition, Rosneft has become the worlds
largest publicly traded oil producer and reserves holder, and the second-largest
listed hydrocarbon producer and reserves holder with the lowest operating costs
among oil majors and boundless ambitions for further growth. The Rosneft story
offers investors long-term exposure to abundant high-quality oil and gas reserves as
well as outstanding exploration potential in the Arctic, an attractive production
profile, and fair profit distribution between shareholders, for the time being. BPs
position as the largest minority shareholder substantially reduces corporate
governance and regulatory risks.
Rosneft has a rare opportunity to efficiently combine the advantages of a national oil
champion with the business model of a public commercial company operating in a
competitive environment and focused on long-term value creation for its
shareholders. Meanwhile, the aim of mobilizing the companys resources to achieve
long-term strategic goals, its considerable leverage and the commitment to pay out
25% of IFRS net income in dividends is prompting efforts to further improve cost
control, operating and financial efficiency, thus eliminating a substantial part of the
risks that investors in state companies in emerging markets tend to shy away from.
However, to achieve a substantial stock re-rating, Rosneft needs to clearly address
fears about its future development model, risks of a decline in efficiency and
deterioration of corporate governance problems that are inherent in a range of
state-controlled EM companies. Rosneft must also map out a comprehensive longterm strategy with clear project prioritization, outline capital requirements for its
strategic plans and debt management strategy, and settle key outstanding issues with
TNK-BP Holding minority shareholders.
Rosneft currently trades at a 2015E EV/EBITDA of 3.9x and a 2015E P/E of 5.9x,
implying a premium of 8% to Russian oils and discount of 10% to emerging market
peers on EV/EBITDA. At current valuation levels, we see 6.8% upside potential and
initiate coverage of Rosneft with a NEUTRAL recommendation and DCF-based
target price of $8.8 per share.
With this report we also cease coverage of TNK-BP Holding common and
preferred shares and withdraw our UNDERWEIGHT recommendation. In our view,
the price of TNK-BP Holding shares mostly depends on Rosneft managements
decisions on the future role of the entity within Rosneft group, in particular the
possibility and terms of a buyout of TNK-BP Holding shares or conversion into
Rosneft shares, an issue that may not be correlated with the companys
fundamentals.
Leading industry positions
Worlds largest listed oil producer and reserves holder. With production of
over 4.7 mln boe per day and 29.9 bln boe of proved reserves on an SEC
basis (39.5 bln on a PRMS basis), Rosneft has become the worlds largest
listed oil producer and reserves holder. In Russia, Rosneft controls the best
upstream assets in the industry, including the youngest large West-Siberian
brownfield Yuganskneftegas and the largest greenfield Vankorneft, accounting
for 40.6% of Rosneft's oil production. Rosneft accounts for ca. 40% of Russian
production and 35% of estimated proved oil reserves.
Efficient in the global context. Thanks to access to some of the world's largest
onshore oil reserves (almost 100% of current production is onshore), Rosneft is
highly efficient vs. international majors. Thus, even taking into account the
acquisition of TNK-BP, Rosneft still had the lowest lifting costs among Russian
and global oil majors of just $3.7/boe in 2012. Rosneft also occupies the best
positions vs. international majors on F&D costs, and upstream capex per boe.
Giant resource potential on the sea shelf. Rosneft holds over 270 bln boe of risked
hydrocarbon resources in offshore areas in Russia, mostly in the Arctic Ocean and
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the Sea of Okhotsk, which are among the largest underexplored territories in the
world. Strategic partnerships with some of the largest global industry players
(ExxonMobil, Statoil, ENI, CNPC, and potentially BP) enhance access to expertise
and technologies, while Rosneft partners also finance exploration in offshore areas.
Active interest among the leading Asian energy companies of China, Japan and
Korea is set to accelerate exploration, development and monetization of offshore oil
and gas resources in the Sea of Okhotsk. More precise resource estimates and the
production outlook on the shelf will be determined by the outcome of further
geological exploration, drilling and well testing.
An attractive growth profile
Sustainable liquids and hydrocarbon production growth. Rosneft holds the largest
greenfield portfolio in the industry, capable of providing 2.7% hydrocarbons and
1.2% liquids organic production CAGR by 2020, according to our estimates. The
company conservatively guides at least 1% organic crude and hydrocarbons
production growth in 2013. Key growth areas include the Vankor production
cluster, greenfields in the north of West Siberia, Yurubcheno-Tokhomskoye,
Kuyumbinskoye, Verkhnechonskoye fields in East Siberia, and the Kharampurskoye
gas field. The production trend will be supported by rising output from greenfields
and flat production at Yuganskneftgas, which remains the best large brownfield
asset in Russia.
Gas production is targeted at 100 bcm by 2020. Rosneft plans to achieve organic
gas production growth of 11.9% CAGR by 2020, boosting output from the pro
forma level (including TNK-BP and ITERA) of 45.5 bcm in 2013 to 100 bcm by
2020. We expect Rosneft's gas production profile to be determined by overall
development of the supply/demand balance on the Russian gas market and the
volume of new asset acquisitions in the gas industry. The minimum production
volumes will most likely be determined by long-term contracts concluded with
Russian utilities and chemicals companies, which remain at an impressive 85 bcm
of gas from 2017.
Transformational TNK-BP acquisition
Value-accretive acquisition. In the TNK-BP acquisition, Rosneft acquired control

over 15 bln bbl of PRMS hydrocarbon reserves (out of which 80% are oil
reserves) at $3.6/boe, below the valuation of Rosneft's own reserves, as well as
the Russian and global averages. The acquisition increased Rosnefts reserves by
67% and hydrocarbon production by 75%, ranking the company as the global
leader among listed oil producers and reserves holders and second among
public hydrocarbon producers and reserves holders after Gazprom.
Synergies from TNK-BP integration. Rosneft management estimates the NPV of

total synergies from the TNK-BP acquisition at $12 bln (or 15% of Rosnefts
capitalization), out of which 22% is to be realized in upstream, 20% in marketing
and logistics, and 30% in procurements. Capex savings are expected to account
for over 40% of total synergies. Rosneft expects to unlock over 20% of
synergies in the first three years after the acquisition. Our estimates of the NPV
of potential synergies of up to $7.8-10.5 bln are lower than Rosnefts estimates.
However, in addition to direct synergies, we indicate that the NPV of capex
savings from the likely abandonment of the project to construct a greenfield
refinery in Moscow region and instead use TNK-BP Ryazan refinery may reach
over $7 bln.
Policy toward TNK-BP Holding minority shareholders. Having acquired the

parent company of TNK-BP Holding, Rosneft had no legal obligation to make an
offer to TNK-BP minority shareholders. The lack of clarity regarding the future
role of TNK-BP Holding (recently renamed RN Holding) within Rosneft, its
profitability and potential exit options for RN Holding minority shareholders
remain important issues that need to be addressed by Rosneft. However,
considering the management's willingness to substantially increase Rosnefts
shareholder value, we expect at least gradual progress in this area.
25.09.2013
Research Department
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Potential new acquisitions
Outlook for new acquisitions. The outlook for new acquisitions remains one of
the most controversial facets of Rosnefts investment story. The company is wellknown as an example of rapid transformational growth over the past 10 years
(mostly achieved through large-scale acquisitions), has a very strong and ambitious
management team, and benefits from state support. However the scale achieved
of the companys business, anti-monopoly regulations and significant leverage
reduce the potential for further large-scale acquisitions. Still, we believe that
following the arrangement of large-scale long-term prepayments from CNPC and
several other customers, the company has sufficient resources even for new largescale M&A activity and would very closely consider opportunities for further
substantial acquisitions in Russia. We expect the companys potential acquisitions
on international markets to be relatively small in scale and mostly include Rosnefts
participation in a relatively limited number of projects of its partners, including
upstream assets in Iraq and Venezuela.
Tax stimulus
Tax stimulus for greenfields. New tax break packages for offshore fields, extension
of tax holidays for East Siberia, and a uniform methodology for granting export
duty tax breaks for greenfields in East Siberia, the Far East, Northwest Siberia and
North Timan-Pechora are currently being considered by government ministries.
The law on tax breaks for tight oil was recently approved. In the gas sector, the
new gas MET formula, containing tax breaks for greenfields, is also expected to
take effect from July 2014. Importantly, the volumes of the currently discussed tax
breaks in the oil sector are set in such a way to provide IRR of greenfields at
16.3% over their lifetime. We expect that Rosneft, which has Russia's largest
portfolio of greenfield projects, would be the key beneficiary of these changes.
Further tax reform. 1) Brownfields. We expect higher MET differentiation to be

introduced for brownfields over the next two to three years. The gas MET
formula will bring MET discounts to several types of projects, including discounts
for Turonian gas, and gas fields in several regions of East Siberia and the Far
East. 2) Downstream. The volume of tax stimulus to Russian refining will likely
be reduced. The State Duma approved changes to the Tax Code envisaging a
gradual reduction of the crude export duty with a simultaneous increase of the
MET in 2014-16. The fuel oil export duty is set to increase to 100% of the
crude duty from 2016-17. The growth rates of excise taxes may be moderately
increased. The elaboration of a long-term taxation model for refining will be
required to provide a sustainable regulatory base for the sector.
3) Profit-based taxation. The final decision on the terms of transition to profitbased upstream taxation has yet to be made and in fact may be substituted by
further development of a system of tax breaks. The outlook will depend on the
results of pilot projects, scheduled for 2015-16.
Market diversification. Long-term partnership with Chinese and Asian companies.

Rosneft is the largest and most active player in the Russian Far East. The company
plays the key role in establishing long-term partnerships with Chinese and Asian
companies in the Russian oil and gas sector. Strengthening partnerships with key
companies from China and other Asia-Pacific countries provide market diversification,
new sources of stable long-term demand and additional resources for further production
growth. Long-term contracts for crude supply to CNPC concluded in 2009 and 2013
provided over $80 bln in long-term resources for Rosnefts development. Crude
exports to Asia reached 24% of export volumes and are set to rise to over 49% by
2020. We expect that the companies may further expand collaboration in the Russian
upstream and Chinese downstream sectors and even in international project
development. Rosnefts ambitious gas program, including plans to build an LNG plant
in the Russian Far East and develop Arctic offshore resources, lays the foundation for
long-term collaboration in the gas business.
Strong management team
We note that Rosnefts new president Igor Sechin has given a strong impulse to Rosneft.
He has a strategic vision of the long-term industry as well as the companys development
and seems to have a firm personal commitment to actively promote Rosnefts business
25.09.2013
Research Department
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development, as well as increase its market value. We note that since 2012, major
progress has been achieved in a number of key areas of business development, including:
the TNK-BP acquisition;
substantial expansion of the range of strategic partnerships and JVs with

international majors on Russian shelf development and broader cooperation;
new tax breaks for offshore fields and tight oil, and extension of the volume of
tax breaks for greenfields; Rosneft was one of the key proponents of these tax
breaks;
substantial extension of the reserve base on the shelf, with estimated resources
reaching 270 bln boe;
announcement of an ambitious gas strategy, and conclusion of long-term gas

contracts on the Russian market for 85 bcm starting in 2017; and
accepting a commitment to keep dividend payout ratios at 25% of IFRS net

income.
Potential for long-term share price appreciation will depend on the choice of
business model
All the makings of a supermajor We think that due to the structure and
current model of Russian oil industry regulation and the company's positions
within the industry, Rosneft has good chances to combine opportunities for
further business development typical for a national oil company with the
business model of an efficient public commercial company. At the same time,
the aim of mobilizing the company's resources to achieve ambitious long-term
strategic goals, considerable leverage and the commitment to pay out 25% of
IFRS net income as dividends is prompting efforts to achieve further improve
cost control and operating and financial efficiency, thus eliminating a substantial
part of the risks investors in state companies in emerging markets are afraid of.
but Rosneft has yet to emerge in a new light. Still, the potential for a further
substantial stock re-rating will largely depend on whether the management is
indeed willing and able to run Rosneft as an efficient public commercial
company, focused on long-term value creation. The company's progress in key
areas sensitive for the market may be indicative of the company's further
strategy and development model. Such areas include unveiling a clear,
comprehensive long-term development strategy and key project prioritization,
addressing investor concerns about a potential decline in efficiency and
corporate governance, the current and target level of debt and relative valuation
levels to Russian peers, and achieving clear headway in the TNK-BP integration
and a viable solution to issues concerning TNK-BP Holding minority
shareholders.
Comparable valuations. Rosneft trades at 2015E EV/EBITDA and P/E ratios of 3.9x and
5.9x, implying 8% and 9% premiums to Russian oils but 10% and 32% discounts to
emerging market oils, respectively. Relative to international majors, Rosneft trades with a
15% premium on 2015E EV/EBITDA and a 36% discount on 2015E P/E.
Due to its considerable leverage, in the case of Rosneft the most relevant comparisons
with peers can be made on an EV/EBITDA basis, while for the same reason comparisons
on a P/E basis are substantially less reliable. Nonetheless, we note that a higher share of
taxes other than income tax in the total tax contribution is one of the key factors
corresponding to the premium on EV/EBITDA to international majors. We believe that
Rosnefts valuation premium to Russian oils on EV/EBITDA is reasonable given the
companys extensive resource base, outlook for further production growth and differences
in the tax system with other jurisdictions.
We initiate coverage with a NEUTRAL recommendation and target price of $8.8 per
share
We initiate coverage of Rosneft with a NEUTRAL recommendation and 12M DCFbased target price of $8.8 per share, implying 6.8% upside potential.
25.09.2013
Research Department
+7 (495) 287 6318
That said, we believe that Rosneft may have substantially greater long-term
potential. We think that due to the structure of Russias oil industry, the current
model of industry regulation and its positions within the industry, Rosneft has an
opportunity to combine the advantages of business development more typical for
national oil companies in key oil production nations with the business model of an
efficient public commercial company focused on value creation. Whether or not
this chance will be used will largely influence the companys long-term re-rating
potential, in our view.
Ceasing coverage of TNK-BP Holding
With this report we also cease coverage of RN Holding (formerly TNK-BP Holding)
common and preferred shares and recall our UNDERWEIGHT recommendation. In
our view, the price of TNK-BP Holding shares is not determined by the companys
fundamentals and mostly depends on decisions by Rosnefts management on the
future role of the entity within Rosneft group, in particular the possibility and terms
of a buyout or conversion into Rosneft shares, which may not be correlated with
the companys fundamentals.
Key potential risks

Substantial decline in the oil price. A substantial prolonged decline in the oil price
may considerably reduce the companys operating cash flow.
Substantial increase in interest rates. The majority of Rosnefts debt has floating rates
and is based on LIBOR, which is currently close to historic long-term lows of around
0.25%. A substantial increase in LIBOR would considerably raise the volume of
interest payments.
Overall reduction of operating and financial efficiency. Having reached leading
positions in the industry and unconditional leadership in Russia, Rosneft may
gradually lose its eagerness for active business development or lower its
requirements for profitability of investment projects, thus gradually allowing the
achieved level of efficiency to be eroded.
Reduction of dividend payouts. Any signal of a possible reduction of the announced
25% payout rates would be a substantial negative for the stock.
Weak upstream performance. The risks here are of a decline in oil production at
Yuganskneftegas, and acceleration of the production decline at TNK-BP core
subsidiaries. There is also the threat of not meeting 1% production growth guidance
and not fully delivering on gas strategy goals.
Substantial increase of capex, lack of clear project prioritization. A substantial increase
of capex budgets for existing projects and for further expansion of companys
business, including Arctic projects from 2015-16. The market needs to see a
comprehensive strategy with clear project prioritization and better understand
capex for these projects and their sources of financing.
Integration of TNK-BP. Rosneft may not be able to realize the full $12 bln volume of
announced synergies, retain a high level of operational and management efficiency of
the acquired company, retain the best representatives of TNK-BP management and
most efficiently use the potential of its broader management team.
Corporate governance. The risks include: a substantial reduction of TNK-BPs income
base, a decrease in TNK-BPs dividend payout below the level of Rosneft, inability to
resolve the problem with TNK-BP Holding minority shareholders, and any
substantial disputes between Rosneft and BP as its largest minority shareholder.
Questionable acquisitions. New substantial acquisitions without a clear positive effect
on the company.
Share overhang. Scheduling privatization of up to a 19.5% stake in Rosneft capital for
2014-15.
Negative changes in tax environment. Substantial increase in excise taxes, earlier than
expected increase of export duty for fuel oil, additional increase in oil MET rates.
25.09.2013
Research Department
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Key macroeconomic assumptions

Oil price forecast
We expect Brent oil prices to average $109/bbl in 2013, $108/bbl in 2014 and rise
gradually with a 2% CAGR to $121/bbl by 2020.
Our forecasts are quite close to the Bloomberg consensus for the period until 2015.
Oil price forecast, $/bbl
Global oil demand 2006-13, mln bpd
140
92
91
130
90
120
89
88
110
87
100
86
90
85
84
80
2012
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
83
82
GPB
Consensus
2006
2007
2008
2009
2010
2011
2012
2013E
Source: IEA, EIA, OPEC, BP, Gazprombank estimates
We see oil prices remaining above $100/bbl in the medium term, driven by ongoing
demand growth, especially in Asia and non-OECD countries in other regions, a natural
decline in oil production from existing fields and limited availability of additional supply.
It should be noted that the oil market showed remarkable resilience in 2011-12,
despite a high level of volatility in financial markets and intensification of the European
debt crisis.
In recent years, crude oil has taken on an increasingly important role as a financial
asset. While acting as a vital commodity for the world economy, oil at the same time
remains one of the most liquid financial assets and its price is highly sensitive to major
trends on the global financial market. Futures contracts for crude and other
commodities are widely held in the portfolios of institutional investors and daily trading
volumes in these instruments exceed annual global crude output by more than 10fold. The current policy of the US Federal Reserve, the European Central Bank and
monetary authorities of leading industrial countries as well as the outlook for future
policy trends look supportive for medium-term oil price dynamics.
That said, we note that a sharp deterioration in conditions on global financial markets,
which we consider among other risk factors, would lead to a selloff across all markets
globally and likely result in conspicuous reduction of long positions in oil futures while
exerting significant pressure on the oil price.
Fundamentally, despite energy-security policies and climate concerns, oil demand
continues to grow and the global economy relies on crude more than any other fuel.
According to the International Energy Agency, global crude demand is set to increase
by 12.5% from the current historic high of 88 mln bpd to a new record of 99 mln bpd
by 2030. Almost the entire net increase in global oil demand comes from the
transportation sector in non-OECD countries, being particularly robust in India, China
and Middle Eastern countries.
The increase in the global oil demand forecast may seem relatively moderate at first
glance, but it is important to remember that the oil industry is operating at historically
high production levels. Output at existing fields is on average subject to a ca. 4%
decline rate per year. Meanwhile, the quality, accessibility and availability of new oil
resources are in decline, which leads to consistent growth of the industrys exploration,
development, and operating costs.
25.09.2013
Research Department
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A substantial increase and quite often even maintenance of production capacity all
over the world, on almost all types of projects, whether at conventional or shale
fields, requires large-scale capital investment. Any delays in the development of new
projects due to production quotas or political, economic and financial obstacles
would have a negative effect on the supply pattern and lead to higher oil prices.
Global liquids demand 1990-2035, mln bpd
Structure of global liquids supply, mln bpd
120
120
100
100
80
80
60
60
40
40
20
Currently
producing
20
0
2010
1990
2000
Currently producing
2010
2020E
2030E
2035E
To be developed
To be found
NGL
other
Source: Bloomberg, IEA, Gazprombank estimates
Decline in production Increase in demand

2010-2035E
2010-2035E
Non-OPEC
OPEC Middle East
Decline in production
Increase in demand
2035E
OPEC other
Source: IEA, EIA, OPEC, BP, Gazprombank estimates
Despite a considerably improved production outlook in non-OPEC countries due to

the expansion of shale oil projects, OPEC countries will play a key role in the
development of the global oil market in the long term. We note that nearly three
quarters of global proved oil reserves are concentrated in OPEC countries and the
majority of non-OPEC countries still have only very limited potential to further
increase production.
A marked disparity in the distribution of proved reserves and free production
capacity between OPEC countries and the rest of the world, as well as the limited
availability of oil resources outside OPEC, has prompted producers to embark on
increasingly complex projects, including development of ultra-deepwater and
offshore Arctic fields develop shale gas and shale oil technologies and find other
ways to meet growing global energy demand in the coming decades.
In view of such an environment, we expect demand for non-OPEC crude, which
would balance OPECs strength on the oil market, to remain high, leading to higher
costs of each incremental barrel required to meet rising oil demand.
Capital and production costs of new projects on the higher end of the supply curve
are already approaching $100/bbl, providing long-term support to oil price levels.
Other assumptions
Key assumptions used for our modeling include:
gradual increase of MET tax and reduction of export duties in 2014-16, 100%
export duty rates for crude and fuel oil in 2017 and beyond;
substantial improvement of the refining basket of Rosneft refineries from 2017;
in the longer run (i.e. after 2017), tougher competition on the domestic oil product
market and pressure from rising operating costs due to higher depletion of the core
reserve base;
relatively stable ruble exchange rates, reaching RUB 33.3/$ by 2020;
dividends conservatively assumed at 25% of IFRS net income until 2020; and
possible postponement until 2017 of the introduction of a 100% export duty for
fuel oil, eating into the export margin for fuel oil, to allow oil companies (including
Rosneft) to complete key refining modernization projects.
Our key macroeconomic assumptions are summarized in the table below.
10
25.09.2013
Research Department
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Key macroeconomic assumptions

Macroeconomic parameters
RUB/USD, period average
RUB/USD, end of period
GDP growth (Russia)
CPI (Russia)
PPI (Russia)
Oil price
Oil price, Brent, $/bbl
Oil price, Urals, $/bbl
Domestic oil price, Russia, $/bbl
Product prices, $/tonne
Gasoline price, Europe
Diesel price, Europe
Fuel oil price, Europe
Gasoline price, Russia
Diesel price, Russia
Fuel oil price, Russia
Taxation
MET, crude oil, $/bbl
MET, gas, RUB/mcm
Export duty, crude oil $/bbl
Export duty, gasoline, $/tonne
Export duty, middle distillates, $/tonne
Export duty, fuel oil, $/tonne
Excise tax, gasoline, $/tonne
Euro-5
Euro-4
Euro-3
Non-classified
Naphta
Excise tax, diesel, $/tonne
Euro-5
Euro-4
Euro-3
Non-classified
Profit tax (Russia)
VAT (Russia)
2011
2012
2013E
2014E
2015E
2016E
29.40
32.20
4.3%
6.1%
12.0%
31.07
30.80
3.5%
6.6%
8.5%
31.70
32.62
1.8%
6.8%
8.3%
32.00
32.00
2.7%
6.0%
7.8%
32.50
32.50
2.4%
5.7%
7.5%
32.80
32.80
2.5%
5.5%
7.0%
111.3
109.3
45.2
112.0
110.3
46.4
109.0
107.3
45.3
108.1
106.4
44.9
110.3
108.6
45.5
112.5
110.7
46.2
925
933
615
898
760
319
933
960
632
910
802
330
908
922
600
937
870
315
900
914
595
946
879
312
918
933
607
970
892
312
937
951
619
990
910
280
20.7
237
56.0
342
274
208
22.7
251
55.2
363
266
266
23.2
333
53.4
351
258
258
24.1
496
52.1
343
247
251
26.5
536
51.6
340
238
249
28.6
563
51.2
337
228
247
175
175
193
204
207
192
220
246
257
252
172
276
308
319
323
180
294
335
347
352
191
319
396
410
415
200
333
414
429
434
76
76
85
94
20%
18%
105
115
131
135
20%
18%
139
158
185
185
20%
18%
149
170
201
201
20%
18%
161
184
238
238
20%
18%
169
192
249
249
20%
18%
Source: Gazprombank estimates
11
25.09.2013
Research Department
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Valuation
DCF
We value Rosneft using the DCF method. We use multiple-based valuations to test
the results obtained from the DCF model.
WACC calculation
11.7%
3.5%
8.0%
0.96
1.03
4.1%
5.1%
20.0%
80%
20%
10.2%
Cost of equity
Risk-free rate
Equity risk premium
Sector beta
Company-specific beta
Cost of debt
Yield on companys eurobonds
Tax rate
Weighting of equity
Weighting of debt
WACC rate
Rosneft valuation, DCF, $ mln*

Rosneft
Revenues
EBITDA
EBITDA margin
EBIT
Cash taxes on EBIT
DD&A
NOPAT
Capex
FCF
Year of discounting
Discounting ratio
DCF
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
145,454
28,119
19.3%
18,920
-3,619
11,276
26,577
-22,636
-1,484
2,456
1
0.26
646
161,767
31,568
19.5%
19,476
-3,682
14,804
30,598
-24,674
-219
5,704
1
0.91
5,178
167,408
35,242
21.1%
20,939
-3,968
16,423
33,393
-24,921
-39
8,433
2
0.82
6,947
177,293
38,044
21.5%
21,518
-4,063
18,003
35,459
-23,810
-243
11,405
3
0.75
8,528
185,006
41,075
22.2%
22,377
-4,303
19,554
37,629
-24,340
-391
12,898
4
0.68
8,753
190,656
41,409
21.7%
20,521
-3,902
21,130
37,749
-24,641
-77
13,031
5
0.62
8,027
196,714
42,420
21.6%
19,309
-3,731
22,690
38,268
-23,960
-144
14,165
6
0.56
7,920
205,296
43,795
21.3%
18,432
-3,646
24,197
38,982
-23,160
-285
15,536
7
0.51
7,884
WACC, %
DCF, 2013-2020, $ mln
Terminal growth, %
Terminal value, $ mln
PV of terminal value, $ mln
Enterprise value, $ mln
Less: net debt, $ mln
Less: minority interest, $ mln
JVs, affiliates and other adjustments, $ mln
NPV of prepayments
Equity value, $ mln
Number of shares, mln
NPV/share, $/share
Target price, $/share
Upside, %
Rosneft
10.2%
53,884
1.0%
171,029
86,795
140,679
62,714
3,913
10,688
1,469
86,210
10,598
8.1
8.8
6.8%
*TNK-BP figures consolidated from March 21, 2013
Our 12-month target price is $8.8 per share. We assign a NEUTRAL

recommendation to the stock.
Our target price is 100% DCF-based.
12
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Research Department
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Sensitivity
Rosneft target price sensitivity to WACC/TGR, $ per share
-1.0%
8.2%
9.1
9.2%
8.0
10.2%
7.1
11.2%
6.3
12.2%
5.6
0.0%
10.3
9.0
7.9
7.0
6.2
1.0%
11.7
10.1
8.8
7.8
6.8
2.0%
13.7
11.6
10.0
8.7
7.6
Rosneft target price sensitivity to oil price, $/bbl

90
7.0
Target price sensitivity
Gazprombank scenario
8.8
120
10.2
Gazprombanks oil price scenario envisages Brent oil prices of $109/bbl in 2013 and
$108/bbl in 2014, rising gradually with 2% CAGR to $122/bbl by 2020.
Gazprombank oil price scenario
Brent price, $/bbl
2013E
109.0
2014E
108.1
2015E
110.3
2016E
112.5
2017E
114.7
2018E
117.0
2019E
119.4
2020E
121.7
Multiples-based comparisons
We use a multiples-based valuation to test the results of our DCF valuation.

Russian oil majors vs. peers
Russian oil majors trade at a 17% discount to emerging market oils on 2015E
EV/EBITDA and a 37% discount on 2015E P/E. Compared to international oil majors
Russian oils trade with 7% premium on 2015E EV/EBITDA and 41% discount on 2015E
P/E. A higher share of taxes other than income tax in the total tax contribution is one of
the key factors corresponding to substantially lower discounts on EV/EBITDA multiples.
On 2015E EV/Production and EV/Reserves multiples, the Russian oil industry trades
at considerable discounts of 64% and 73%, respectively, to emerging market peers
and 51% and 71% to global oil majors. In the current market, we regard
comparisons based on operating multiples as a secondary tool, illustrating very longterm financial and valuation upside based on a companys operating potential.
Rosneft vs. Russian oils and international peers
Rosneft trades at a 2015E EV/EBITDA and P/E of 3.9x and 5.9x, implying an 8% premium
to Russian oil majors on 2015E EV/EBITDA and a 9% premium on 2015E P/E. A
comparison on P/E multiples does not account for differences in financial leverage.
On a 2015E EV/EBITDA basis, Rosneft also trades at a 15% premium to
international majors. Still, on a 2015E P/E basis the company shows a 36% discount
to developed market peers.
Relative to emerging market peers, Rosneft trades at 10-32% discounts. The discount on
2015E EV/EBITDA of just 10% is substantially below the 32% discount on 2015E P/E.
Rosnefts closest EM peers are PetroChina and Petrobras. Relative to PetroChina (the
largest listed arm of CNPC one of Rosnefts key international partners) the company
trades at a 40% discount on 2015E P/E and 10% discount on 2015E EV/EBITDA.
Relative to Petrobras, Rosneft trades at a 14% discount on 2015 E P/E and 12% discount
on 2015 E EV/EBITDA.
We note that Russian oils typically trade at substantially higher discounts on
EV/Production and EV/Reserves operating multiples vs. international peers due to
their higher R/P ratios and differences in the tax system.
We believe that taking into account Rosnefts position in Russian and world energy, its
attractive growth profile and vast exploration potential, the companys current premiums
to developed market peers and Russian oil majors on an EV/EBITDA basis are justified.
In the long term we see potential for a further narrowing of the discounts to EM peers
depending on the choice of the companys long-term strategy and quality of its
execution, as well as efficiency of capital allocation and trends in regulation.
13
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Rosneft vs. peers on key valuation multiples

Company name
Rosneft
Premium/discounts to
Russian integrated oils
Emerging markets
Developed markets
Russian oils
Alliance Oil
Bashneft
Gazprom Neft
Lukoil
Rosneft
SurgutNG
Tatneft
TNK-BP Holding
Average
Russian gas
Gazprom
NOVATEK
Average
Emerging market oils
PetroChina
CNOOC Limited
Sinopec
Kunlun
Petrobras
YPF
PTT PCL
ONGC
Sasol Ltd
Indian Oil Corp
NIS
MOL
KazMunaiGas EP
Average
Developed market majors
BP
Chevron
ConocoPhillips
ENI
ExxonMobil
Repsol
RD Shell
Statoil
Total
Average
Country
Russia
Closing
price, $
8.3
MCap, $
mln
87,654
Russia
Various
Various
EV/EBITDA
P/E
EV/Production
EV/Reserves
2013E
4.9
2014E
4.3
2015E
3.9
2013E
6.3
2014E
6.3
2015E
5.9
2013E
92
2014E
80
2015E
77
2012
24%
-1%
32%
19%
-7%
24%
8%
-10%
15%
8%
-35%
-39%
17%
-32%
-34%
9%
-32%
-36%
0%
-64%
-54%
-11%
-68%
-58%
-13%
-69%
-57%
-5%
-74%
-73%
4.6
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
8.3
59.5
4.4
64.1
8.3
0.9
7.1
1.6
1,773
12,721
20,819
54,540
87,632
36,750
15,907
25,068
4.4
5.1
2.5
3.0
4.9
3.9
5.6
2.2
4.0
3.9
4.9
2.5
2.4
4.3
4.2
4.9
2.2
3.7
3.7
4.9
2.6
2.1
3.9
4.8
4.7
2.2
3.6
5.2
8.1
4.2
5.2
6.3
5.8
8.2
4.0
5.9
3.7
7.4
4.2
4.1
6.3
6.5
7.0
4.3
5.4
3.1
6.8
5.0
3.6
5.9
7.5
6.8
4.8
5.4
178
129
47
85
92
66
94
42
92
178
129
46
80
80
66
94
44
90
178
129
44
74
77
66
94
45
88
10.6
7.2
2.4
3.3
4.6
5.8
2.8
1.7
4.8
Russia
Russia
4.6
11.9
109,942
36,219
2.5
8.7
5.6
2.4
6.6
4.5
2.2
5.9
4.1
3.3
13.4
8.3
3.3
10.0
6.6
3.0
8.9
6.0
42
78
60
42
71
56
41
70
56
1.1
2.2
1.6
China
China
China
China
Brazil
Argentina
Thailand
India
South Africa
India
Serbia
Hungary
Kazakhstan
1.2
2.1
0.8
1.4
17.3
31.9
5.5
4.6
48.5
3.6
10.0
72.9
14.3
233,581
92,596
86,921
11,647
108,202
12,565
21,725
39,396
31,477
8,639
1,624
7,616
6,004
5.0
3.6
4.5
6.5
5.5
4.1
4.3
4.0
6.0
7.5
n/a
5.3
3.1
5.0
4.7
3.3
4.1
5.6
4.9
3.6
3.9
4.0
5.5
8.5
n/a
4.8
3.1
4.7
4.3
3.1
3.8
4.9
4.4
2.8
4.0
3.4
5.8
7.5
n/a
4.6
3.4
4.3
11.2
9.0
7.6
12.3
8.6
13.8
10.7
8.7
11.5
8.0
n/a
10.5
5.4
9.8
10.5
8.6
7.0
10.6
7.6
14.9
10.2
8.9
10.8
9.0
n/a
9.6
4.9
9.4
9.9
8.5
6.8
9.3
6.8
12.1
10.8
7.4
11.5
7.5
n/a
8.1
5.5
8.7
223
290
322
726
178
88
201
113
377
n/a
237
281
23
255
212
290
305
726
168
88
201
113
377
n/a
237
281
23
252
199
290
288
726
163
88
201
113
377
n/a
237
281
23
249
13.8
26.8
36.0
15.8
13.1
15.8
27.7
5.5
20.7
n/a
n/a
20.3
0.5
17.8
UK
US
US
Italy
US
Spain
Netherlands
Norway
France
7.1
126.0
70.9
24.2
89.7
25.0
33.2
22.8
57.5
134,072
243,396
86,769
87,800
394,606
32,585
214,325
72,635
136,599
4.0
3.9
3.6
3.3
4.8
5.1
3.2
2.0
3.3
3.7
3.9
3.7
3.5
2.9
4.6
5.1
3.1
1.9
3.1
3.5
3.7
3.6
3.4
2.7
4.5
4.8
3.0
1.9
2.9
3.4
9.2
10.4
12.0
12.6
11.7
11.1
8.8
9.1
8.7
10.4
7.8
10.3
11.3
10.3
11.4
11.2
8.2
8.3
8.3
9.7
7.4
10.0
10.8
9.5
11.1
10.4
8.0
8.3
8.0
9.3
143
228
147
174
256
384
166
129
172
200
135
220
141
165
250
353
160
125
165
191
135
207
136
157
241
324
155
119
158
181
8.8
19.4
9.5
15.0
15.5
39.5
14.8
15.6
13.0
16.8
Source: company data, Bloomberg, Gazprombank estimates
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Research Department
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Rosneft shareholders structure

Share capital. Rosnefts share capital of RUB 105,981,778.17 is divided into
10,598,177,817 common shares each with a par value of RUB 0.01. The company
has no preferred shares.
Treasury shares. After the sale of treasury shares to BP, Rosneft has no treasury
shares on its balance sheet.
Authorized shares. Rosneft has 6,332,510,632 authorized shares (59.8% of
outstanding shares) each with a par value of RUB 0.01. The placement of authorized
shares could be carried out by a BoD decision if placement is made by way of open
subscription for up to 25% of shares outstanding. Such a BoD decision has to be
approved unanimously or by all board members except for one (not including the
votes of directors who left the board during its tenure). In all other cases,
AGM/EGM approval is required for the placement.
The government is the largest shareholder with a 69.5% stake. Rosneftegaz, which is
100% controlled by the government of the Russian Federation, owns 69.5% of
Rosnefts capital.
BPs share is 19.75%. BP is the largest Rosneft minority shareholder, with a 19.75%
share in Rosnefts capital. Out of BPs stake in Rosneft 1.25% is held in the form of
GDRs.
GDRs. The share of GDRs in Rosnefts capital is 9.2%. One GDR is equivalent to 1
Rosneft share.
Individuals. The share of individual investors is 0.49%. The bulk of the shares held by
individuals were acquired during Rosnefts IPO in 2006.
Free float. We estimate Rosnefts free float at 10.75%. Almost 75% of free float is
represented by Rosneft GDRs.
Rosneft shareholders capital
Total number of shares outstanding
Including preferred shares
Par value, RUB
Share capital, RUB
States share
BPs share
Other
Share of GDRs*
Authorized shares
% of shares outstanding
10,598,177,817
0
0.01
105,981,778,17
69.50%
19.75%
10.75%
9.2%
6,332,510,632
59.8%
* BP Holds 1.25% in Rosnefts capital in the form of GDRs
Source: company data
Rosneft shareholding structure
Share of GDRs in Rosnefts capital

BP,
19.75%
GDRs*,
8.0%
Other, 2.75%
Common shares,
90.8%
GDRs,
9.2%
Rosneftegaz
69.50%
* except for GDRs belonging to BP

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Research Department
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Rosneft share market

Trading floors. Rosneft shares are traded on the MICEX stock exchange in Russia.
GDRs on Rosneft shares are traded on the London Stock Exchange, OTC in the US
and on several regional exchanges in Europe, including Deutsche Boerse, BOAT UK,
BATS Chi-X Europe and Turquoise Equities.
Liquidity. The most liquid market for Rosneft shares is the LSE. Average daily
trading volume on this bourse over the past three months totals $82 mln, or 0.1%
of the companys market capitalization.
Share price range. Over the past 52 weeks, Rosneft shares have traded in a range of
$6.39-9.27 per GDR (RUB 203-275 per share). The maximum level was reached on
January 3, and the minimum level was reached on June 11.
Rosneft share performance vs. MSCI Russia index
110%
105%
100%
95%
90%
85%
80%
75%
70%
65%
60%
Jan-13
Rosneft share price and liquidity

110%
1000
100%
800
90%
600
80%
400
70%
Mar-13
Rosneft (LSE)
May-13
Jul-13
Sep-13
MSCI Russia Index

Source: Bloomberg
60%
200
50%
Trading volume MICEX, $ mln, RHS

Trading volume LSE, $ mln, RHS
Rosneft (MICEX), LHS
Source: Bloomberg
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Research Department
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Rosneft as a national oil company

Our view:
State-owned national oil companies control hydrocarbon reserves and the

production of most OPEC countries, and are the largest producers and reserve
holders in the world. Globally, national oil companies control nearly 70% of oil
reserves and 60% of production, have similar market shares in the gas industry,
and exercise control over many of the major oil and gas transportation systems
worldwide. Among large oil producers, the largest exclusions from the rule of
government control over key oil and gas resources are the US, Canada and the
UK. Russia has a transitory model combining government control over key
assets with a still high share of private capital in the industry.
International oil companies have a substantially lower level of access to

resources and actively collaborate with national oil companies in their domestic
countries. This cooperation mainly involves the most complex projects, with
national oil companies benefiting from the expertise and technologies of
international companies, for example in deepwater oil and gas production, and
LNG projects.
The privatizations that followed the wave of nationalizations in the 1970s were the
most important drivers for increasing the share of the private sector in the oil and
gas industry. As a result of the privatizations held in the 1980s-2000s, the shares of
a significant number of national oil companies (mostly relatively small reserves
holders, including several European companies) appeared on the stock market. The
countries that were the largest reserves holders have essentially not participated in
the privatization process, preferring to retain control over the industry. On that
background, Russia remains the worlds largest oil producer and reserves holder,
with key oil and gas companies represented on the stock market and free float
exceeding 30-40% in many cases.
Rosneft fully complies with the basic criteria of national oil companies. One of
the companys most important advantages is its status as the worlds largest
listed oil producer and a genuine supermajor by scale, comparable with some
of the worlds largest national oil companies. Still, Rosneft is positioned as a
listed commercial company, and aims for profit maximization and the creation
of shareholder value. Meanwhile, its competition with private oil companies
stimulates efficiency and substantially reduces the risk of any unfavorable
changes in regulation on an individual basis.
We expect national oil companies to retain their dominant share of the oil and
gas market in the foreseeable future. The role of international oil companies
may, however, gradually increase due to the higher share of hard-to-recover
hydrocarbon deposits, requiring expertise of international majors. In Russia,
further industry consolidation is still likely, but further evolution of state-owned
companies will be determined by government decisions on the target
(required) level of competition and target regulation model for the oil and gas
industries. The privatization program and reform of oil and gas industry
regulations will likely be key drivers for further changes. We do not see a
substantial reduction of the role of national oil companies in the Russian oil and
gas sector in the foreseeable future.
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The role of national oil companies in the global oil and gas industry
The emergence of national oil companies took place in the decade between 1960
and 1970. First created as national alternatives to foreign oil companies, national oil
companies were set up by oil producers with the goals of exercising control over
resources and concentrating financial and other resources for the development of
large-scale and capital-intensive oil field development projects. National oil
companies in oil importing countries were created to coordinate oil imports and
develop downstream infrastructure.
Key national oil and gas companies on the world energy map
Statoil
Rosneft, Gazprom,
Transneft, Zarubezhneft
CNPC,
PetroChina,
Sinopec, CNOOC
KPC
Sonatrach
Saudi
Aramco
Pemex
PDVSA
ONGC
ADNOC
Petrobras
Petronas
Sonangol
Source: OPEC, Gazprombank estimates
Reserves and production volumes of Rosneft and key national oil companies
Saudi Aramco
(S.Arabia)
5.0
4.5
Hydrocarbons production, mn boe
4.0
Gazprom
(Russia)
3.5
3.0
NIOC (Iran)
2.5
2.0
1.5
1.0
CNPC
Petro (China)
China
Rosneft
(Russia)
Pemex
(Mexico)
Sonatrach
(Algeria)
Petrobras
(Brazil)
0.5
NNPC
(Nigeria)
INOC
(Iraq)
PDVSA (Venezuela)
Qatar
General
Petroleum
Corp
NOC
(Libya)
0.0
0
KPC
(Kuwait)
ADNOC
(UAE)
50
100
150
200
Proved reserves, bln boe
250
300
350
400
Source: company data, BP Statistical Review of World Energy, Gazprombank estimates
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National oil companies promptly became common vehicles for the exercise of
control over and development of oil and gas resources for OPEC counties, which
currently control 72.4% of the worlds proven oil reserves and 42.4% of production.
The creation of OPEC and the rising role of national oil companies in key oil
producing countries substantially reduced the role of international oil companies in
the Middle East, and of other OPEC members.
The concept of national oil companies has also become popular among developing
countries. Apart from OPEC countries, national oil companies were created in large
oil-producing countries outside of OPEC, such as China (PetroChina, CNPC,
Sinopec, CNOOC), Brazil (Petrobras) and Kazakhstan (KazMunaiGas), and in large
consumers of oil, including India (Reliance, ONGC Videsh), Thailand (PTT), Spain
(Repsol), Italy (ENI) and France (Total).
The idea was to concentrate the bulk of existing resources and key elements of
downstream infrastructure in a single government-controlled company, take active
part in international exploration and development projects, and exercise control
over regular supply to the domestic market via crude and petroleum products.
Although national oil companies in most of the worlds key hydrocarbon producers
and reserves holders operate in both the oil and gas industries, the term national oil
companies is most often used due to the dominant position of oil in the
hydrocarbon reserves and production of key OPEC countries.
Role of national oil companies in oil exporting and importing countries
Groups of countries
Key functions
Exercise of control over hydrocarbon reserves,
production, exports
Oil producing and exporting countries
Development of domestic oil fields, downstream and
transportation infrastructure in collaboration with
international oil companies
Organization and coordination of oil, gas and oil
product imports
Provision of security of energy supply
Participation in international E&P projects
Net oil importing countries
Consolidation of control over domestic downstream
infrastructure
Development of key infrastructure, including storage and
transportation facilities
Examples
National oil companies of OPEC countries, Gazprom,
Petrobras, KazMunaiGas
PetroChina, CNPC, Sinopec, ONGC, ENI, Repsol, Naftogaz

(Ukraine)
Source: OPEC, World Bank, Gazprombank estimates
The oil and gas sectors are usually considered by governments to be areas of
strategic importance for national security, which often leads to a substantially higher
level of control over oil and gas versus other industries.
A government typically has three primary ways to exercise control over the sector:
1) ownership of oil and gas producers;
2) taxation and regulation; and
3) ownership of key infrastructure (e.g. trunk pipelines in Russia).
We note that in countries with an Anglo-Saxon legal system (the US and UK),
access to oil and gas resources is substantially liberalized. A number of oil and gas
companies compete with one another, and there is an effective market for oil and
gas properties.
Continental Europe is moving toward liberalization of the energy market. However,
due to a lack of oil and gas resources (except for the Netherlands and Norway), the
focus among regulators has mostly remained on downstream assets and the
liberalization of supply and trade of energy resources, with the goal of fostering
competition and creating required infrastructure for the development of free energy
markets. This is supplemented by control through taxation of the supply of energy
resources to final consumers. In Norway, the energy sector is mostly controlled by
the government the Norwegian national oil company Statoil is the top player on
the domestic energy market. International oil companies participate in the countrys
energy sector on the basis of specific projects.
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Regulatory model of national oil companies

Co untry's o bjectives
Co untry's c onstraints
Political
Economic
Social
Exo genous factors
Geology and geography

Structure of the economy
Energy sources
Institutional and regulatory framework
Ownership of and access to reserves
Market regulation
Oil and gas price

Economic cycle
International sanctions
S ector p olicy and in stitutional framework
Pace of
exploration
Degree of
regulatory
intervention
Institutional
responsibilities
Sector
participation
Local content
requirements
Po licy tools
NOC
Allocation
system
Fiscal regime
Other
Source: World Bank, Gazprombank estimates
Globally, the role of national oil and gas companies differs substantially, from being
the monopolists on the domestic market to just one of several market participants.
Options for the level of competition and participation of national oil companies in the oil and gas sector
Source: World Bank, Cambridge University, Gazprombank estimates
The key determinants of the role and operating conditions for national oil
companies include the overall industry structure, the number of players in the
industry and their relative size. In cases where the industry is comprised of several
large players, there are limited opportunities for simultaneous regulation on an
individual basis.
National oil companies: level of competition on the domestic market
Level of competition
Examples
Monopoly positions
Saudi Aramco, national oil companies of most OPEC countries
Monopoly rights over some
Gazprom (export and gas transportation monopoly), Transneft (oil
business areas/activities
transportation monopoly)
Access to offshore oil reserves (Rosneft, Gazprom),
PDVSA
Leading positions on the domestic market
Rosneft, Gazprom, ENI, Repsol, Petrobras
(national champions)
Business conditions comparable to private
Gazprom Neft, Zarubezhneft
companies
NOCs differ with regard to a number of very important variables, including the level
of competition on the market in which they operate, their business profile along the
value chain, and their degree of commercial orientation and internationalization. On
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the other hand, most NOCs share at least some core characteristics: for example,
they are usually tied to a national purpose, and serve or focus on political and
economic goals other than maximizing the firms profits.
In some cases, the shares of national oil companies are traded on stock exchanges.
In most instances, the shares were placed to raise additional capital from the market.
One of the largest share placements in recent history was conducted by Petrobras,
which raised $70 bln to finance the development of pre-salt offshore oil deposits. In
Russia, Rosneft held an IPO in 2006, raising capital to refinance bank loans attracted
for the acquisition of Yukos assets and for asset base development.
Key national oil companies: key features
Country
Company
Saudi Arabia
Mexico
Brazil
Venezuela
Indonesia
Saudi Aramco
Pemex
Petrobras
PDVSA
Petronas
North oil company (Iraqi Oil
Ministry)
South oil company (Iraqi Oil
Ministry)
ENI
Kuwait Petroleum Corporation
Qatargas
Repsol
Statoil
CNPC
Sinopec
PetroChina
CNOOC
Rosneft
Gazprom
Transneft
PTT
Iraq
Italy
Qatar
Spain
Norway
China
Russia
Thailand
Monopoly
position
National
champion
Privileged
access to
resources
Ownership of key Competitive

market
infrastructure
environment
Foreign
participation in Traded shares
specific projects
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Mechanisms of state support of national oil companies

The level of state support of national oil companies largely depends on the industry
structure and the positions of national oil companies within the industry.
In most cases, governments consider national oil and gas companies as strategic
vehicles for the development of national resources and meeting the countrys
requirements for oil and gas supplies from either domestic production or imports,
and are often one of the most important sources of tax revenues.
As they perform the leading role in domestic energy sectors, in most cases national
oil companies benefit from various forms of government support.
The most important method of government support, especially in resource-rich
OPEC countries, is privileged or monopoly access to a countrys hydrocarbon
resources. Additional measures of government support can vary in terms of form
and volume, but usually include:
1) better terms of regulation or informal support for business development;
2) support of projects with strategic importance for the government via tax
breaks or other stimulus mechanisms;
3) government support in crisis periods.
Government support of national oil companies
Area
Form of government support
Access to resources
Privileged or exclusive access to hydrocarbon resources
Monopoly rights for some business activities. Better terms of regulation or
Regulation
informal support for business development
Tax breaks for greenfield projects, hard-to-recover resources, strategically
Taxation
important projects
Government provision of guarantees on companys debt or provision of
Support in crisis periods
direct financial support
Drawbacks of national oil companies

National oil companies control the lions share of global hydrocarbon resources and
production, and act as strategic vehicles in the energy sector for national
governments. Some companies are listed on the stock market, providing investors
with access to high-quality oil reserves, large-scale infrastructure assets and
production capacity.
However, in many cases national oil companies are criticized for their lower level of
efficiency versus private companies.
The most common concerns among market participants typically include:
conflicts of interest between profit maximization, returns to

shareholders and other goals set by the government, including support
of the national economy;
regulation of domestic prices for gas and oil products;
government intervention in capital allocation decisions;
potential for an increased tax take from national oil companies to raise
budget income.
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Case study: practical difficulties and setbacks with national oil companies. World Bank view
Key areas
Comment
The historical context of the establishment of national oil companies (NOCs) may make decision-making susceptible
to ideology, which can interfere with the maximization of economic efficiency and the generation of social welfare.
However, in many cases the cultural and operational gap between NOCs and private oil companies (POCs) seems to
have narrowed. Chinese state companies PetroChina and Sinopec have joint ventures with Western POCs to build
Historical context and ideology
retail networks and petrochemical plants in China, as well as run upstream operations throughout the world. Middle
Eastern NOCs, such as Saudi Aramco and Kuwait Petroleum Corporation (KPC), have acquired equity interests in
private overseas refining and marketing assets (e.g. Showa Shell in Japan). Even the large-scale takeover of private
firms and assets through NOCs has become a regular feature of the industry.
The importance of the petroleum industry is often cited as an argument in favor of direct state intervention. But
this is a political rather than an economic argument, and any such benefits from state control often come with
Economic cost of political control
substantial economic costs.
NOCs are frequently accused of sub-standard operational efficiency due to inadequate technical and managerial
Operational inefficiencies
capabilities and misguided human resource policies.
Governments have often granted monopoly rights or at least a highly protected business environment to their
NOCs. Even when there were potential competitors, NOCs were often able to create significant barriers to entry by
manipulating the regulatory environment to their advantage. Furthermore, powerful interest groups within public
Lack of competition
enterprises including management, employees, and unions have an incentive to oppose the introduction of
competitive forces.
In many importing and exporting countries, NOCs bear the burden of petroleum product subsidies. In net importing
countries, subsidies may be one of an NOCs principal non-commercial obligations. Many governments assumed that
NOCs would be able to successfully deliver on both commercial and non-commercial objectives. This perception was
partly based on the size of an NOC, which is often the largest local enterprise, and its significant rents, particularly
Subsidies and non-commercial objectives
in the upstream. But many have argued that the pursuit of several, often conflicting objectives imposes costs on
NOCs and reduces their incentive to maximize profits. According to most empirical studies, NOCs typically are not
very efficient in delivering on non-commercial objectives, and other public sector bodies would be better placed to
perform such duties.
This may be a consequence of both an NOCs managers and government officials not having strong incentives to
enforce corporate governance standards. NOC managers may strive to maximize their scope of discretionary decisionmaking, while the government may have political reasons to obscure the exact uses of cash. The boards of directors
Weak corporate governance
(BODs) of NOCs are considered to have less decision-making power than their counterparts in other SOEs, since their
members are frequently government officials or appointed on political grounds.
The level of budgetary and financial autonomy of an NOC can have important consequences for its efficiency and
Funding strategy and requirements
market strategy.
Conflicts of interest may affect the efficiency and mandate of NOCs. In many countries, the NOC devises and
implements sector policy, and even in countries where a ministry is formally in charge, the NOC often contributes
Conflict of interests and balance of control
substantially to decision-making due to its superior resources and industrial expertise.
Source: World Bank
Privatization of national oil companies

The wave of asset nationalizations in the oil and gas industry in the 1970s was
followed in the 1980-1990s by privatizations in Europe, Latin America and Russia,
with some limited sales taking place in China, Japan and India.
The aim of these privatizations was typically to raise capital, implement institutional
change in the national oil and gas industry, and increase corporate efficiency. The
largest volume of privatizations occurred in Europe, where 12 national oil companies
were sold between 1977 and 1999.
We note that the privatizations were mostly held in countries with diversified
economies, developed institutions and a relatively low share of income derived from
the oil and gas industries. Oil importing countries have shown a substantially higher
inclination to privatize oil and gas companies vs. oil exporters.
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Privatization of national oil and gas companies in the 1970s-2000s

Limited privatizations, Large privatizations,
Full exit from
No
retention of absolute
reduction of
national
oil and gas
privatization majority or controlling government stakes
companies
stakes
below controlling
Diversified economy
Strong institutions
Large oil and gas resources
High share of hydrocarbons in
exports
Emerging markets
Developed markets
Net oil exporters
Net oil importers
Periods of low oil prices
Privatizations of national oil companies
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
25
26
25
26
27
28
Company
Country
BP
Britoil
CNOOC
Elf Aquitaine
Eni
Enterprise Oil
Fortum
Hellenic Petroleum
Inpex
Japex
MOL
OGDCL
OMV
ONGC
Pakistan Petroleum
Petrobras
Petro-Canada
PetroChina
Petron
PKN
PTT E&P
PTT
Repsol
Rosneft
Sinopec
Slavneft
Slavneft
Sinopec
Statoil
Total
Tupras
UK
UK
China
France
Italy
UK
Finland
Greece
Japan
Japan
Hungary
Pakistan
Austria
India
Pakistan
Brazil
Canada
China
Philippines
Poland
Thailand
Thailand
Spain
Russia
China
Russia
Belarus
China
Norway
France
Turkey
Date
Jun-77
Nov-82
Mar-01
Sep-86
Nov-95
Jul-84
Dec-98
Jun-98
Nov-04
Dec-03
Nov-95
Nov-03
Nov-87
Mar-04
Jun-04
Aug-00
Jun-91
Apr-00
Aug-94
Nov-99
Mar-93
Nov-01
Apr-89
Jul-06
Oct-00
Dec-02
Nov-02
Oct-00
Jun-01
Jul-92
Apr-00
Initial share issue privatizations

State ownership, %
Issue size, $ mln
Before
After
972
68%
51%
911
100%
49%
1,400
100%
71%
493
67%
56%
3,907
100%
85%
524
100%
0%
1,045
98%
76%
311
100%
77%
584
54%
36%
287
66%
50%
153
100%
72%
120
100%
95%
117
100%
85%
2,350
84%
74%
96
93%
78%
4,030
62%
50%
478
100%
81%
2,890
100%
90%
335
60%
40%
513
85%
55%
52
100%
85%
729
100%
69%
1,140
96%
69%
10,700
100%
75.2%
3,470
100%
78%
1,860
75%
0.0%
207
11%
0.0%
3,470
100%
78%
3,292
100%
81%
906
32%
4%
1,200
96%
66%
Follow-on share-issue privatizations
Current state ownership
1979, 1983, 1987, 1995

1985
2006
1991, 1992, 1994, 1996
1996, 1997, 1998, 2001
0%
0%
64%
0%
30%
0%
51%
35%
21%
35%
25%
75%
32%
79%
71%
50.3%
0%
86%
0%
28%
51%
51%
0%
69.5%
76%
0.0%
0.0%
76%
67%
0%
0%
2002
2000
1997, 1998, 2004
2006
1989, 1996
2001, 2012
1992, 1995, 2004
2007
2000
1994, 1998
1993, 1995, 1996, 1997
2013
2005
1996
2005
Source: Cambridge University, World Bank, Gazprombank estimates
A separate group of countries was formed in emerging markets that are net
importers of oil but still possess substantial hydrocarbon reserves and production
capacities (China, Brazil, Argentina and India) which have a strategic role for national
economies. The privatization of oil and gas assets in these countries took place
mostly in the early 2000s, but national governments were very cautious about
reducing stakes in key oil and gas companies. The governments stake in almost all
cases has not dropped below 50%, and in many cases still stands above 75%.
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Large holders of oil and gas reserves oriented toward hydrocarbon exports as one
of the key sources of budget revenues (mostly OPEC countries) traditionally
perceive oil and gas as a strategic sector and, with the exceptions of Norway and
Russia, have not taken active part in the privatization process.
In many countries, both developed and emerging markets, the minimum levels of
government participation as well as limitations on the maximum ownership of
foreign shareholders and a single non-controlling shareholder are fixed by law. Such
limitations are applied even in developed countries with diversified economies.
For example, Brazilian law requires that the government own no less than 50.26% of
Petrobras common shares, which are the only voting shares. Italy limits the
maximum participation of a single shareholder other than the state and its entities
and controlled companies to 3% of Eni.
Case study: Eni privatization
The privatization of Eni began in 1995. In just over two and a half years, the Ministry
of the Treasury via four offerings placed over 60% of Eni's share capital on the
market, with proceeds totaling more than EUR 21 bln (ITL 41,000 bln). As of June
1998, this represented the highest total income ever achieved by a government in
continental Europe for the sale of a single company.
Eni shares have attracted an ever-growing number of individual investors, from the
194,000 subscribers of the IPO, to the more than 1.7 mln who participated in the
fourth round of Enis privatization in 1998. Employees also made a decided
contribution to the success of the various placements: while 30,000, or 40% of those
eligible, subscribed to the IPO, 41,000, or 70% of those eligible, participated in Eni. In
February 2001, an operation to place 5% of the company's share capital was carried
out among institutional investors at a price of EUR 6.8 per share, which raised a total
of EUR 2,720 mln.
Currently the government controls 30.1% of Enis capital. According to Italian law, no
shareholder except for the state, public entities or entities controlled by them can hold
more than 3% of Enis capital. Shares held above this limit are not allowed to exercise
the right to vote or other rights, except for the right to participate in profits.
ENI share placements
Offer price
Number of shares
placed
of which through
bonus shares
% of share capital
Proceeds
Government shares
after placement
EUR/share
1995
5.42
1996
7.4
1997
9.90
1998
11.80
2001
13.60
mln
601.9
647.5
728.4
608.1
200.1
1.9
15
24.4
39.6
16.2
4,596
68.8%
18.2
6,869
50.6%
15.2
6,714
35.4%
5
2,721
30.1%
mln
%
EUR mln
%
15
3,254
85%
Source: Eni
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The position of national oil and gas companies in Russia: hybrid

industry regulation model is an advantage
Russia remains the world leader in terms of size of oil and gas reserves and
production volumes represented on the securities market. In Russia, state-controlled
companies control 46% of hydrocarbon reserves and 66% of production, including
47% of oil reserves and 52% of oil production.
In Russia, the national oil companies are represented by Gazprom, Rosneft,
Gazprom Neft, Transneft and Zarubezhneft.
Effectively, national oil and gas companies play the leading role on the Russian
market, concentrating key assets in the oil and especially the gas industries. They also
have better opportunities to accumulate the basis for long-term growth, including
through the transfer of rights to explore and develop offshore blocks from the
government.
The government also controls the oil and gas industry through ownership of key
infrastructure by Transneft (trunk oil pipelines) and Gazprom (key gas storage
facilities and the transportation system), the gas export monopoly.
Key national oil and gas companies in Russia
Hydrocarbon Hydrocarbon Government share in
reserves,
production,
voting Comment
capital
mln boe
mln boe
shares
The largest listed hydrocarbon and gas producer, largest gas exporter in the world.
Monopoly rights for gas exports, owner of united gas transportation system in Russia.
Gazprom
123,000
3,446
50.002% 50.002% Along with Rosneft has privileged access to offshore resources. The company has a higher
MET tax rate vs. other gas producers.
incl. Gazprom Neft
8,873
439
47.8%* 47.8%* Oil wing of Gazprom, the fourth-largest oil producer and reserves holder in Russia.
The largest listed crude oil producer and reserves holder, and the second-largest
Rosneft
39,540
1,728
69.5%
69.5% hydrocarbon producer and reserves holder in the world. Along with Gazprom has
privileged access to offshore resources.
The company specializes in projects in a number of foreign countries, including Cuba,
Zarubezhneft
701
32
100%
100% Vietnam, India, Serbia and the CIS.
Transneft
0
0
78.1%
100% Natural monopoly in transportation of crude and products by trunk pipelines.
Key state-controlled
163,241
5,206
n/a
n/a
companies in Russia
304,241
Total Russia
7,803
n/a
n/a
State-controlled companies,
% of total Russia
53.7%
66.7%
n/a
n/a
* effective share the company is controlled through Gazprom

Russia remains an important exception from the global trends of ownership

distribution of oil and gas reserves and their representation on stock markets.
In contrast to the worlds largest reserve holders, private ownership of oil and gas
reserves and producing assets in Russia effectively coexists with government
ownership. Private companies, including Lukoil, Surgutneftegas, Bashneft and
NOVATEK, produce over 45% of crude and 33% of hydrocarbons and participate
actively in industry development.
Active participation of private capital in the Russian oil and gas industry has its roots
in the privatization process of 1993-2005, when the government gave up control
over controlling stakes in key oil and gas companies, which were consolidated by
financial-industrial groups, in most cases during the shares-for-loans auctions (TNK,
Yukos, Sibneft and Surgutneftegas). Minority stakes in key Russian oil and gas
companies were distributed among company employees and mostly bought out by
the structures of core shareholders or professional security market participants (with
subsequent resale on the organized securities market).
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Volumes of hydrocarbon reserves represented on the security market, bln boe
Share of government ownership in key Russian oil and gas companies, proved
hydrocarbon reserves, bln boe
400
Gazprom
350
Rosneft+TNK-BP
300
Rosneft
250
Lukoil
200
Iran
Venezuela
Saudi Arabia
Russia
Canada
Tatneft
Qatar
SurgutNG
Iraq
50
UAE
Gazprom Neft
Kuwait
TNK-BP
100
US
150
State property
private sector
Source: BP Statistical Review of World Energy, Gazprombank estimates
Bashneft
0
20
40
60
80
100
120
140
Government
Others
Source: BP Statistical Review of World Energy, Gazprombank estimates
The share of government participation in the industry began rising again starting from 2005.
The landmark M&A deals within this trend were the acquisition of Sibneft by Gazprom in
2005-06, the purchase by Rosneft of the majority of Yukos assets in the process of the
companys bankruptcy in 2004-07, and the acquisition of TNK-BP by Rosneft in 2013.
Rosneft vs. national and private oil companies
Rosneft vs. national oil companies
Rosneft vs. private companies
Key advantages
Operation in a competitive environment as a commercial Portfolio of hydrocarbon reserves and resources
company aimed at profit maximization, stimulating
comparable to some key national oil companies.
efficiency and lowering the risks of unfavorable changes
Largest portfolio of offshore resources.
in regulation on an individual basis
Large-scale collaboration with international oil Large-scale partnerships with international oil
companies, wide range of joint projects
companies
No commitment to OPEC quota system
Economies of scale, higher bargaining power, ability
to efficiently implement large-scale projects on its
own or in partnership with other industry players
High quality, large-scale reserve base, exceeding that Better access to part of the customer base
of a significant number of national oil companies
Better terms of access to financial markets, ability to
attract large long-term advance payments
Key challenges
Ensuring positive oil and hydrocarbon production Maintaining a high level of efficiency, including cost
dynamics in the long term
control and optimal capital allocation
Addressing the risk of rising operating and capital Efficient selection of investment projects, ensuring
costs due to gradual depletion of the reserve base in
target level of return throughout the whole range of
the long term
investment projects, including strategic projects
The relatively diversified oil industry structure, competition between companies, and
the combination of interests of state-controlled and private companies play an
important role in shaping industry regulation and leveling business conditions for all
industry players, especially in the field of taxation.
One of Rosnefts most important advantages is its status as the worlds largest listed
oil producer and a genuine supermajor by scale, comparable with some of the
largest national oil companies. Rosneft is positioned as a listed commercial company,
aimed at profit maximization and the creation of shareholder value, while its
competition with private oil companies stimulates efficiency and substantially reduces
the risk of any unfavorable changes in regulation on an individual basis.
To summarize, we believe that Rosneft has several important advantages over
private Russian oil companies as well many other national oil companies.
In contrast, we note that due to a higher concentration of resources and a relatively limited
number of active industry players, the business environment and regulation of the Russian
gas industry differs substantially for Gazprom and independent gas producers, and the
overall level of market-based regulation is substantially below that of the oil industry.
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Further evolution of Rosnefts business model: a chance to build a

supermajor
State-owned companies effectively control over 50% of Russian hydrocarbon

reserves and production, have exclusive access to offshore resources, and
enjoy a monopoly on gas exports as well as oil and oil product transportation
via trunk pipelines.
Russia, one of the worlds largest producers and reserve holders, is an

important exception from global trends. Its national oil companies compete
with private-sector participants on market-based principles and a single
regulatory framework is applied to the whole industry, which reduces the risks
of unfavorable regulation on an individual basis.
The government is considering a large-scale privatization program that

includes two national companies in the oil and gas sphere Rosneft and
Transneft. The stake in Rosneft may potentially be lowered to 50%+1 share
from the current 69.5%, which may become the largest privatization in Russia.
The outlook for evolution of the industry structure remains uncertain and
mostly depends on the governments policy actions. International experience
suggests that the governments of large oil exporters tend to move very
carefully in privatizing national oil companies, in most cases retaining 75%+ or
at least controlling stakes. The privatization process can run in parallel with
further industry consolidation.
We expect Rosneft to be the one of the most active players in both the oil
and gas industries. We expect the company to continue consolidating assets,
especially in the upstream. The company may consider further large-scale
acquisitions, but such acquisitions would require direct government approval.
Positioned as a listed commercial company aimed at creating shareholder

value, Rosneft has an historic chance to combine the benefits from its position
as a national oil company with the best practices of private oil companies,
thereby transforming itself into a genuine supermajor on a global scale and a
long-term shareholder value story. Rosnefts strategy seems to focus on this
aim, but delivering on this goal and maintaining a high level of efficiency and
optimal capital allocation remain the biggest challenges.
In Russia, state-owned companies effectively control over 50% of reserves and

production as well as exclusive rights to exploration and development of offshore
licenses (Gazprom, Rosneft, Zarubezhneft), have monopoly rights for gas exports
(Gazprom), and own trunk pipeline transportation assets (Gazprom and Rosneft).
State-controlled companies in the oil gas industry have good access to capital
markets, which substantially expands their ability to consolidate new assets.
The evolution of the role of state-owned companies in Russia will primarily
depend on the trends in industry regulation and the governments policy actions,
especially possible limitations on the M&A activity of state-owned companies and
the pace of the privatization program.
The government has announced a large-scale privatization program until 2017 and
included Rosneft and Transneft in the privatization plan. With regard to Rosneft,
the government is considering reducing its controlling stake and evaluating a
further reduction of its share in the companys capital. As for Transneft, the
government plans to reduce its stake to 75% +1 share of the companys capital.
The second stage of Rosnefts privatization after the IPO in 2006 was held in
2013, when the government sold 5.66% in the companys capital to BP
for $4.87 bln.
However, international experience suggests that governments, especially in emerging
markets, are typically unwilling to substantially reduce the level of ownership in key
oil and gas producers, especially below controlling stakes. In key oil and gas
producing countries, the largest oil and gas producers are controlled by the
government.
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Outlook for privatization of key Russian state-controlled companies in Russias oil and gas sector
Current government stake
Target government Potential time frame of
stake in capital
privatization
Capital
Voting shares
Rosneft
69.5%
69.5%
50%+1 share*
2014-17
Transneft
78.1%
100%
75%+1 share
2014
Gazprom
50.002%
50.002%
50.002%
n/a
Gazprom Neft
47.8%**
47.8%**
47.8%
n/a
Zarubezhneft
100%
100%
100%
n/a
* the government is considering reducing its stake in Transneft to below a controlling stake in the long term
** effective share in capital; Gazprom owns 95.68% of Gazprom Nefts capital
The largest exceptions from this rule, where large-scale oil and gas assets are
available on the market, are the US and UK. Russia still has a transitional model of
state control over the industry, with a one of the highest shares of private capital in
the oil and gas sphere among key global energy producers.
The key decision points in the future industry regulation model that could have a
specific effect on the position of state-controlled companies would be the following:
the level of target government participation in key companies in the oil and gas
industry;
the pace and volume of the privatization program;
the target level of participation of state-owned companies in the oil and gas
industry, as well as the regulation of M&A activity of state-owned companies;
the optimal regulation model of the gas industry (prices, competition, taxation,
export monopoly, creation of a gas market, conditions of access to gas
transportation infrastructure by independent producers, and the level of
subsidies to the national economy through domestic price regulation); and
the advantages for state-controlled oil companies of participating in strategic

projects, and the rules of access to offshore fields.
We expect the issue of the required level of government control to remain one of
the most controversial for future industry regulation.
We do not exclude that the processes of privatization and asset consolidation by
state-owned companies may run in parallel in Russia. We believe that statecontrolled companies will likely retain the key role in the Russian oil and gas sector
in the foreseeable future. One of the key advantages of state-owned companies will
likely remain better access to new resources, especially in the oil sector.
In the gas sector, we do not exclude a further reduction of Gazproms market share
in Russia due to higher competition with NOVATEK and Rosneft, which may seek
to occupy the second most important role on the Russian gas market.
We expect Rosneft to be the one of the most active players in both the oil and gas
industries. We expect the company to continue consolidating assets, especially in
the upstream. The company may consider further large-scale acquisitions, but such
acquisitions would require direct government approval.
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TNK-BP acquisition: focus on integration and

synergies realization
Highlights:
Value-accretive $55.3 bln acquisition. We view the TNK-BP acquisition as valueaccretive for Rosneft. The acquisition of TNK-BP was a unique opportunity to
acquire a highly efficient Russian oil major at $3.8/PRMS reserves.
New oil giant on a global scale. The achieved business scale increases the
interest of international and Russian companies in realizing joint projects with
Rosneft, including asset exchanges and offshore projects.
Complementary assets. The assets of Rosneft and TNK-BP are mostly

complementary, with only a relatively small overlap in refining and marketing.
Key upstream greenfields of both companies are located in close proximity,
reducing costs for infrastructure creation and enabling joint development
Integration process to take two to three years. Key challenges consist in the
realization of announced synergies, conservation and the best of both
principle.
$12 bln in potential synergies. Rosneft management placed the value of synergies
from the acquisition at $12 bln, mostly related to savings on capex to develop
greenfields around Vankor.
Long-term advances solve refinancing problem. Long-term advances from oil

traders and Chinese partners reduce formal leverage and may be used for up to
full refinancing of syndicated loans, drawn for the TNK-BP acquisition.
TNK-BP Integration
TNK-BP integration with Rosneft
Rosneft closed the two transactions to acquire TNK-BP on March 21.
To prepare for the integration, Rosneft created 21 working groups, a coordination
committee and a secretarial department. Work on the TNK-BP integration plan is
still underway and the detailed plan has to be presented to Rosnefts BoD in 2013.
We estimate that implementation of the full-scale integration of TNK-BP into the
Rosneft structure may take two to three years. Rosneft targets January 1, 2014 as
the deadline for completion of the first stages of the integration process, including
the integration of business units. The process will be realized according to the
integration plan approved by Rosnefts BoD.
The key goals at that stage are optimization of the corporate structure, key
processes and procedures, the elimination of duplicated functions at all levels, and
full capture of synergies arising from the merger. Rosneft declared an aim to stick to
the best of both principle in the long term.
Requirements of the Federal Antimonopoly Service
Rosneft received consent for the TNK-BP acquisition from the Russian government,
as well as the Russian and Ukrainian antimonopoly services. Russias Federal
Antimonopoly Service (FAS) approved the transactions with several conditions.
The FAS conditions relate primarily to policy on the domestic petroleum product
market. The requirements to reduce the share on retail markets to below 50%
apply to regions, where the company is acknowledged to have over a 50% share
of the gasoline and gasoil market. According to preliminary FAS estimates, such a
situation is present in seven Russian regions, including Orel region.
Within one year after TNK-BP acquisition Rosneft is required to sell part of its retail
station network to reduce its market share below 50%. However, the limitation does
not apply to regions where Rosneft or TNK-BP already had over a 50% market share.
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The FAS also requires Rosneft to conclude contracts with other consumers
regarding wholesale deliveries of diesel and gasoline, as well as render services in
case of technical availability of oil product storage for third parties. Rosneft must sell
at least 10% of oil products on domestic petroleum exchanges, and approve and
present to the FAS guidelines on pricing and sales of gasoline and diesel on the
domestic market. These guidelines must include an acknowledgement of the priority
of the domestic market, uniform competitive pricing principles, and the publicity and
accessibility of information on domestic product pricing.
Key synergies between Rosneft and TNK-BP

Rosneft estimates the total value of synergies from the TNK-BP acquisition at up to
$12 bln.
The largest synergies are expected to be delivered by the upstream block (mainly
via joint development of greenfields in the Vankor area).
The management announced plans to provide periodic updates on the realization of
synergies from integration.
Key synergies from the TNK-BP acquisition. Rosneft estimate
Area
Potential value % of total

of synergy
synergies
$ bln
Synergy description
Personnel
Joint use of Vankor infrastructure, optimization of exploration

portfolio
Optimization of crude and petroleum product supply chains
and filling station network
Optimization of modernization programs of both companies
refineries and gas processing plants
Reduction of G&A costs, efficiently uniting the potential of the
management teams of both companies
Procurements
Unification of purchase terms
Upstream
Marketing and
logistics
Refining
Other
Total
2.7
22%
2.3
19%
0.5
4%
1.0
8%
3.7
31%
1.8
15%
12.0
Outlook for realization of synergies our view

Large-scale acquisitions usually provide substantial room for business optimization
and extraction of substantial synergies. After the close of the TNK-BP acquisition, we
believe that one of the serious challenges for Rosneft becomes the efficient
integration of TNK-BPs operations and realization of the announced $12 bln
in synergies.
In the case of Rosneft and TNK-BP, the synergies from joint development of
upstream greenfields look most evident. Another important result from the
acquisition, in our view, was that Rosneft has seemingly abandoned a very capital
intensive project to build a greenfield refinery in Moscow region.
The plans to realize $2.4 bln in synergies until 2015 (ca. 3% of the expected capex
program for 2013-15, or 1.5% of 2012 revenues of Rosneft and TNK-BP)
seem feasible.
Expectations for the realization of over 75% of expected synergies after 2015, as
well as the breakdown of synergies by business segment, indicate that the bulk of
the synergies is expected to come from realization of upstream greenfields in the
Vankor area and East Siberia (Yurubcheno-Tokhomskoye, Kuyumbinskoye). As a
word of caution, we also note that when considering M&A transactions of such
scale, any estimates of synergies are subject to substantial uncertainties and
conditionality, and the actual volumes of achieved synergies is difficult to verify. We
note that prior to the acquisition, Rosneft was already the leader in Russias oil
industry and TNK-BP was the third-largest company by oil production volume.
Moreover, TNK-BP was known as a highly efficient company in terms of capex and
operating expenses, which reduces the scope for potential synergies.
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The central goal for Rosneft in the process of the TNK-BP integration consists in
retaining the best practices and the achieved efficiency level of TNK-BP, seizing
additional opportunities from asset combination, and full realization of the combined
potential of the new company. In our view, the volume of achieved synergies will
ultimately depend on the quality of integration planning and execution of the
integration process.
We also provide our analysis of potential synergies from the TNK-BP acquisition
based on key points from Rosnefts presentation on synergies and our model
assumptions.
Key synergies arising from Rosnefts acquisition of TNK-BP
Business segment
Upstream oil
Joint development of
Vankor field with
Tagul, Suzun,
Russkoye, Lodochnoye
and other fields.
(Vankor production
cluster)
Synergy description
Potential
capex
savings
$ bln
<3.5
Joint development of Vankor Lodochnoye and other Rosneft fields in the region with Tagul,
Suzun, Russkoye, and other fields, fully or jointly with a partner.
Economies of scale. Tagul, Suzun, Russkoye, Lodochnoye and other fields near the
Vankor area can be more efficiently developed on the basis of a single plan.
Better bargaining power and unification leads to synergies in inventory
procurement. Rosnefts experience in developing Vankor field may be efficiently
applied to Lodochnoye and other TNK-BP fields in the region.
Infrastructure sharing.
Around 6 mln tpa of oil from Suzun and Tagul may be transported by the VankorPurpe pipeline. The planned capacity of the Zapolyarnoye-Purpe pipeline may
be revisited to reduce peak capacity and pipeline tariffs. Capacity of the
Vankor-Purpe pipeline may be increased at lower cost vs. ZapolyarnoyePurpe.
Vankors power plant capacity may be expanded to supply adjacent fields, <2.0
including key TNK-BP fields in the region.
The mini-refinery at Vankor field can be used to supply adjacent fields with
diesel fuel.
Igarka airport and roads to Vankor field, Suzun and Tagul may be used to
supply Lodochnoye and neighboring TNK-BP fields.
Part of equipment from Vankor field, including drilling equipment, may be
used for the development of Lodochnoye and neighboring TNK-BP fields.
Gas utilization. Gas from Tagul, Suzun, Russkoye, Lodochnoye and RusskoRechenskoye fields may be collected in a single pool and used for electricity
generation or directed to Gazproms pipeline system via Lukoil infrastructure.
Expansion of Vankor power plants capacity will further increase the consumption
of associated gas and gas utilization rates at Vankor.
Joint development of Economies of scale, infrastructure sharing. Joint infrastructure solutions for
<1.0
YurubchenoKuyumbinskoye (TNK-BP and Gazprom Neft) and Yurubcheno-Tokhomskoye fields
Tokhomskoye and
(Rosneft). Opportunity to develop both fields on the basis of a single plan, and
Kuyumbinskoye fields reduce costs due to economies of scale and infrastructure sharing.
(East-Siberian
production cluster)
Optimization of
Logistics optimization, economies of scale. Capex and opex optimization for
<0.5
Venezuelan assets
development and operation of five JVs involving both companies in Venezuela,
including the large-scale Hunin-6 and Carabobo-2 projects.
Gas business
Joint development of
Rosneft gas assets in
West Siberia and
Rospan
Increased scale and
commercial position in
gas marketing
Potential
reduction of
annual
Comment
operating
expenses
$ mln/year
<375-500
<250-300 We expect over 50% of potential
synergies from the TNK-BP acquisition
to come from the development of
greenfields around Vankor (the
Vankor production cluster), including
Suzun, Tagul, Lodochnoye, RusskoyeRechenskoye fields and Rosnefts
license blocks in the Vankor area.
Associated gas utilization program
from Vankor area fields substantially
reduces costs for the construction and
use of gas utilization infrastructure
even vs. sharing this infrastructure
between independent companies on a
commercial basis.
75-125
The potential for synergies utilization

is broadly similar for the development
of greenfields around the Vankor area,
though it is smaller in scale.
<50-75
Mostly capex, procurement and G&A

synergies.
<0.25-0.4 <50-80
Coordinated development of Rosnefts Kynsko-Chaselvskiy block, Kharampurskoye <0.25-0.4 25-40
field, and ITERAs gas assets with TNK-BPs Rospan.
Infrastructure sharing. Gas processing capacity, pipeline network, marketing chains.
Economies of scale.
Access to final customers. Increased scale and enhanced commercial position.
<25-40
Extension of customer base, more flexibility in gas downstream, utilization of
Rosnefts client base and marketing infrastructure. Rosneft has concluded longterm gas contracts for over 30 bcm from 2013, and 75 bcm from 2015.
Relatively small synergies, mostly in

centralization of management and
planning.
Rosnefts long-term contracts improve
the prospects for gas monetization of
TNK-BPs gas assets.
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Refining
Abandonment of
Moscow refinery
project
38-80
Potential to expand the modernization plan for TNK-BPs Ryazan refinery and
Slavneft-Yaroslavl refinery instead of Rosnefts plans to build a large greenfield
refinery near Moscow at an estimated cost of $7-10 bln.
7-10 bln
reduction in
capex
requirements
Optimization of Volga Logistics optimization, optimization of modernization program, economies of scale.

25-50
refining cluster
Rosnefts Kuybyshev refining complex (Kuybyshev, Novokuybyshevsk, Syzran
refineries) and TNK-BPs Saratov refinery may be modernized on the base of a
single plan.
Improvement of
Logistics optimization. Crude supply to Rosnefts Strezhevoy refinery in West Siberia
3-5
Strezhevoy refinery
from neighboring TNK-BP fields.
efficiency
Optimization of crude Logistics optimization. Additional flexibility in using TNK-BPs export flow to
10-25
deliveries to Ruhr Oel supply Ruhr Oel refinery. Potential to use Ruhr Oels technologies and practices
to optimize the united companys refining and marketing.
Marketing
75-100
Integrated supply and Opportunities to combine the resources, contracts and sales channels of both
50-65
trading
companies and receive better contract terms for crude and oil product deliveries,
incl. pre-payments.
Logistics optimization. Substitution scheme for Vankor and Verkhnechonskoye oil.
25-35
Shorter transportation distance to the Chinese market. More flexibility in project
development due to concentration of 100% capital by Rosneft in
Verkhnechonskoye, which is located more than 2,500 km closer to the Chinese
market than other large Rosneft fields.
Retail
20-30
Optimization of retail Logistics optimization, economies of scale, increase of market share, potential for
20-30
network
rebranding (Rosneft, TNK-BP, Tyumen Oil Company, BP brands).
Other
25-50
Optimization of organizational structure, personnel, other SG&A costs.
25-50
Total potential
3.75-3.9,
583-865
synergies
7-10 bln
reduction in
capex
requirements
NPV of potential
$7.8-10.5 bln
synergies
Outlook for the position of RN Holding in Rosneft Group. The

problem of TNK-BP Holding minority shareholders
Status of RN Holding within Rosneft. The future status of RN Holding (renamed
from TNK-BP Holding in 2013) and its position within Rosneft Group are the key
issues for RN Holding minority shareholders.
One of the most important decisions with regard to the integration process is
whether the head companies of TNK-BP Group and listed company RN Holding
(ex. TNK-BP Holding) will be held as standalone entities and profit centers, at least
for the transition period.
We note that Rosneft International (renamed from TNK-BP International in 2013)
will likely remain as a profit center due to obligations to the companys eurobond
holders. However, all TNK-BP Group eurobonds are consolidated on the Rosneft
International level. The total debt level of RN Holding is only around $200 mln.
Still, as TNK-BP Holding represented most of TNK-BP Internationals cash flow in
TNK-BP Group, we expect RN Holding to also remain a profit center within TNKBP Group until a solution to the problem involving RN Holding minority
shareholders is found.
Currently, the key scenarios for the integration of RN Holding minorities into
Rosneft include the following:
parallel trading of RN Holding shares, a substantial reduction of RN

Holdings income base, and a substantial reduction of RN Holding
dividends. This variant is the key risk for RN Holding shareholders.
parallel trading of Rosneft and RN Holding shares similar to Gazprom and

Gazprom Neft within Gazprom Group. Retention of RN Holding as a profit
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center for TNK-BP assets, revision of RN Holdings dividend policy.
buyout of RN Holding minority shareholders by Rosneft.
conversion of RN Holding shares into Rosneft, potential use of Rosnefts

declared shares.
No obligation for a tender offer to RN Holding minority shareholders. Due to the

structure of the acquisition held at the parent company level of RN Holding, Rosneft
has no formal obligation to make a tender offer to RN Holding minority
shareholders.
However, a tender offer to minorities would be in line with best corporate
governance practices, according to which an acquiring company has to provide
minorities with an exit opportunity (a buyout or exchange into its own shares).
Russian law requires a buyout in case of acquisition of more than 30% of a company,
but there is no such requirement with regard to the acquisition of a parent
company, as was the case with TNK-BP.
No obligation for a tender offer to Rosneft minority shareholders. According to Russian
law, Rosneft also has no legal obligation to buy its own shares back from minority
shareholders, as the volume of each of the two transactions was below 50% of
Rosnefts book value and they were not subject to approval by a Rosneft EGM.
Loans from RN Holding and TNK-BP Group to Rosneft. In March, Rosnefts BoD
approved loans totaling more than $9.7 bln from TNK-BP Group, including $3.7 bln in
loans from key companies of TNK-BP Holding, which was perceived by the market as a
sign that TNK-BP Holding minority shareholders should not expect any meaningful
dividends in the foreseeable future. We note that Rosnefts BoD has yet to approve
these loans.
Outlook for RN Holding dividends 25% of IFRS net income is the most likely
scenario
During Rosnefts Investor Day in London on April 23, Rosneft President Igor
Sechin stated that due to underinvestment in previous years by TNK-BP, it would
not be rational to request from TNK-BP Holding a similar level of dividends as in
previous years and reiterated that Rosneft would stick to its policy of paying 25%
of IFRS net income in dividends starting from the date of closing of the acquisition.
We think that Rosneft may pay 25% of RN Holdings net income as dividends in
the medium term.
We note that retaining RN Holding as a profit center of TNK-BP Group and
announcing a fair long-term dividend policy comparable to that of Rosneft could
become a medium-term solution for RN Holding minority shareholders.
Outlook for a buyout offer to RN Holding minority shareholders no quick solution
We do not exclude that Rosneft could eventually offer an exit opportunity to RN
Holding minorities, though the risk is that the buyout or price of conversion into
Rosneft shares may be set with a substantial discount to the fair value of TNK-BP
Holding shares. For example, the price may be calculated based on the six-month
average price of RN Holding shares. We note that the outcome and time frame for
reaching a solution to the problem remains highly uncertain.
We note that Mr. Sechin has acknowledged the problem involving RN Holding
minority shareholders, expressed a readiness to protect the interests of all Rosneft
shareholders, and urged holders of RN Holding shares to make proposals to Rosneft
management on how to resolve the situation.
The latest comments from Rosneft management indicate that the company may
possibly make a decision on this issue by year end, though the outcome for minority
shareholders remains unclear.
We believe that a solution to the problem involving RN Holding minority
shareholders will eventually be found and expect the benefits for Rosnefts valuation
to substantially exceed the additional costs of such a resolution.
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Upstream outlook: greenfields to provide

production growth
Rosnefts production profile is defined by the combination of oil greenfield
production growth, the pace of gas greenfield development and the rates of
production decline at Rosnefts brownfields. Rosneft management guides at least 1%
oil and hydrocarbon production growth rates in 2013. Still, in the longer term the
company may reach substantially higher growth rates, in our view. We expect that
Rosneft may provide a 1.2% liquids production CAGR and 2.7% hydrocarbons
production CAGR until 2020.
Key Rosneft upstream assets
Belarus
Polar Lights
Severnaya Neft
Russian
Federation
Messoyakhaneftegaz
Ukraine
Nyagan
Krasnodarneftegaz
Udmurtneft
Samaraneftegaz
Stavropolneftegaz
Orenburgneftegaz
Grozneftegaz
Dagneft
Dagneftegaz
Suzun
Vankor
Tagul, Lodochnoye, Russkoye, Russko-Rechenskoye
Kynsko-Chaselskoye
Kharampur
Yuganskneftegaz
Samotlorneftegaz
Sakhalinmorneftegaz
Srednebotuobinskoye
Kuyumbinskoye
Uvat
North Chayvo
Tomskneft
Verkhnechonskoye
Sakhalin 1, 3, 5
YurubchenoTokhomskoye
Rospan
Purneftegaz
Legend
Greenfield project
Gas project
Brownfield
Rosneft assets
TNK-BP assets
Reserves base. Rosneft has the most diversified production base among Russian oil
companies, extending from the Caucasus to the Far East. Jointly with TNK-BP, the
companys audited proved crude oil reserves reach 30.6 bln bbl according to PRMS
standards and 23.8 bln boe on SEC-LOF standards, representing 35.1% and 27.2%
of total Russian reserves.
Proved hydrocarbon reserves reach 39.5 bln boe on a PRMS basis and 29.9 bln boe
on an SEC basis. Rosnefts share in Russias hydrocarbon reserves reaches 13.0% and
9.8% respectively.
Rosneft is also the largest holder of hydrocarbon resources in the Russian offshore. In
addition to proved, probable and possible reserves, the companys license portfolio
includes 275 bln boe of risked hydrocarbon resources, 80% of which are located in
the offshore Arctic, 11% in the Okhotsk Sea, and 9% in Black, Azov and Caspian Seas.
Production. With an oil production level of 4.2 mln bbl per day and hydrocarbon
production of 4.7 mln boe per day, Rosneft produces 39.4% and 22.1% of Russian
oil and hydrocarbon production.
Rosnefts core upstream assets include Yuganskneftegas, the youngest of West
Siberias large-scale oil assets (bought in the process of the Yukos bankruptcy) and
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Vankorneft, providing 40.6% of the companys total oil production. The second
major production center is formed by TNK-BPs core West Siberian fields, including
Samotlor, which is the largest field in Russia but already substantially depleted.
Key Rosneft upstream assets
Type of asset
Brownfield
Greenfield
Brownfield
Brownfield
Brownfield
Mainly
brownfields
Yuganskneftegas
Vankorneft
Samaranegtegas
Purneftegas
Tomskneft
Others
Total Rosneft
Orenburgneft
Samotlorneftegas
Other West Siberian brownfields, incl. Slavneft
VerkhnechonskNG
TNK-Uvat
Rospan
Brownfield
Brownfield
Brownfield
Greenfield
Greenfield
Greenfield
Mainly
brownfields
Others
Total TNK-BP
Total Rosneft+TNK-BP
Oil production Gas production 2010-12 oil production

2012, mln bbl
bcm
growth CAGR
488.8
3.16
0.6%
133.9
0.47
20.1%
78.8
0.53
2.0%
50.7
4.07
-1.9%
37.4
0.84
-0.4%
2010-2012 hydrocarbon Capex, 2012

production growth
$ mln
0.9%
3,476
20.2%
3,058
2.1%
354
0.5%
579
1.0%
n/a
103
7.32
-1.0%
4.9%
998
892.6
153.9
137.1
233.8
52.9
48.4
5.5
16.39
2.2
5.4
4.0
1.1
0.2
3.3
2.6%
1.0%
-7.0%
-5.5%
64.7%
28.1%
3.8%
3.7%
2.0%
-6.1%
-3.9%
68.3%
28.7%
9.0%
8,658
1,300
600
1,073
600
900
200
9.9
0.1
895.0%
411.5%
33
641.5
1,534.1
16.3
32.69
1.3%
2.1%
2.4%
3.1%
4,852
13,510
Source: company data, Infotek
Brownfields: nurturing the cash cow

One of the key issues for the company is to address the brownfield production
decline, especially at TNK-BPs Samotlor field and several other assets owned by
TNK-BP and Slavneft in West Siberia. Still, Rosneft has to re-assess the production
profiles of TNK-BPs key fields before announcing the medium-term production
growth rate of the enlarged company. The combination of the remaining potential
of production growth at Vankor, growth potential in Orenburg and Volga regions,
and stable output at the companys largest brownfield Yuganskneftegas may provide
marginally positive overall oil production growth rates over the next two to three
years until the launch of a new wave of greenfields.
As with most Russian oil majors, Rosnefts core brownfields are located in West
Siberia. Brownfields currently represent one of the key sources of cash flow for
the company. One of Rosnefts important advantages over its peers is that the
company has substantially younger core production assets vs. other Russian oil
majors. Despite concerns about the achieved depletion level and the threat of a
new wave of declining production, West Siberian oil fields, which form the base of
Rosnefts production, have several important advantages:
low production costs. Average lifting costs at West Siberian oil fields range from
$1.5-6.5/bbl. The average lifting costs of Russian oil majors do not exceed $5.56.0/bbl, which is low compared to the international industry averages.
low capital cost. The bulk of Rosnefts and Russian oil production comes from
West Siberia and Volga-Urals region with developed infrastructure, which
reduces capital costs.
almost 100% onshore production. The share of onshore production in Russia

still exceeds 95%.
conventional oil. Over 95% of Russian oil production is conventional oil, not
requiring complex treatment to meet the specifications of Urals blend.
high concentration of key production centers. The key production centers in

West Siberia are located in a relatively small area with developed infrastructure.
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Rosneft: expected production profile, mln bbl
Key Rosneft brownfields: expected production profile
2,500
1,400
1,200
2,000
1,000
800
1,500
600
1,000
400
200
500
0
2011
2012
2013E
Rosneft brownfields
2014E
2015E
TNK-BP brownfields
2016E
2017E
Rosneft greenfields
2018E
2019E
TNK-BP greenfields
2020E
Gas
2011 2012 2013E 2014E 2015E 2016E

YuganskNG
SamaraNG
Other Rosneft
SamotlorNG
Other TNK-BP West-Siberia
Other TNK-BP
2017E
2018E 2019E
PurNG
TNK-Orenburg
2020E
Yuganskneftegas. Rosnefts largest upstream subsidiary Yuganskneftegas, located in

West Siberia, produced 489 mln barrels of oil in 2012, which is equivalent to 32% of
the combined oil production volumes of Rosneft and TNK-BP. Yuganskneftegas was
set up in 1977 and its largest field, Priobskoye, was discovered only in 1982. The
development started only in 1988, almost 15-20 years after the development of key
West Siberian fields. Due to its substantially younger age, Yuganskneftegas has the
lowest operating costs among large Russian upstream assets less than $2/bbl.
Yuganskneftegas fields are developed by vertical and directional wells with active
application of hydraulic fracturing, required due to the low permeability of the oilbearing layers. Technically it is still possible to increase Yuganskneftegas production
by more than 20%, but current production volumes are optimal from the standpoint
of cash flow maximization. Rosneft plans to maintain flat production volumes at
Yuganskneftegas for the foreseeable future and extend the plateau production for
the maximum possible period. The combination of a substantially younger age of the
field with the potential for wider application of horizontal drilling with multi-stage
hydraulic fracturing leads us to believe that this goal is realistic.
Samotlorneftegas
Samotlorneftegas is TNK-BPs key production subsidiary developing the giant
Samotlor field, accounting for almost 40% of TNK-BPs production, or around 9% of
Rosnefts and TNK-BPs combined production.
The field is also being developed by another TNK-BP production unit, TNKNizhnevartovsk. Samotlorneftegas share in Samotlor fields production is
approximately 75%, while TNK-Nizhnevartovsk accounts for less than 25%.
The fields production is declining we estimate a 5-6% YoY decrease in crude oil
output for 2013. The decline in Samotlor field production is one of the main risks
for Rosnefts brownfield production in the medium term. The company aims to
stabilize the decline rate at 2-3% in 2014-15 and likely further to 1% starting in
2016, when crude production at the field should stand at slightly above 20 mln
tonnes. This would represent just 13% of peak production achieved at the
beginning of the 1980s.
We believe that such plans are realistic given the accumulated experience of field
development and typical deceleration of production decline rates during the final
stages of development of super-giant fields, which may last more than 10-20 years.
Despite falling production, Samotlor is also a source of free cash flow and new
technologies for the company. It is already a perfectly developed field with all
infrastructure in place and no large capex requirements. Samotlor is also a rich source of
technologies in water flood management. As a simple example, in order to produce
about 21.6 mln tonnes of oil, TNK-BP pumps out more than 350 mln tonnes of liquid; as
a result, water flood management technologies are crucial for field development.
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Orenburg brownfields
Orenburg is currently one of the pleasant surprises for Russian crude oil production
as a whole and TNK-BP in particular. The region has no large major fields, but plenty
of small fields. Together with a softer climate and excellent infrastructure, Orenburg
region is a source of oil production growth for TNK-BP as well as Gazprom Neft,
Gazprom and Tatneft. At more than 100 license fields in Orenburg region, TNK-BP
produced approximately 21 mln tonnes of crude in 2012, which is around 10% of
Rosnefts and TNK-BPs combined production. According to our estimates, the
largest of those fields yielded less than 3.5 mln tonnes of crude in 2012. We
estimate that Rosneft may produce about 24 mln tonnes of crude in Orenburg by
2017, with a CAGR of almost 5%. We project production of 24 mln tonnes of
crude as a plateau at Orenburg through 2020.
Slavneft West-Siberian oil fields and other West Siberian assets
This group of fields, predominantly consisting of mature West Siberian fields in 2012,
accounted for 15.2% of Rosnefts and TNK-BPs combined production. Along with
Samotlor field, this group is the key source of production decline for Rosneft. In
2012, oil production at this group declined 5.5%.
An increase in upstream capital spending and natural deceleration of decline rates may
lead to a gradual reduction of decline rates to 3-4% in the medium term.
Among these assets we note the subsidiary TNK-Nyagan, which contains ca. 1 bln boe
of Tyumen formation tight oil resources and may potentially make a substantial
contribution to the production profile of this group of assets in the future.
Mature assets outside of West Siberia. Mature assets with stable oil production
volumes located mainly in the Volga-Urals region and the south of Russia account
for less than 15% of Rosnefts oil production. The majority of these assets were
launched before production began in West Siberia and now have flow rates below
the Russian industry average as well as higher water cuts. On the positive side, these
assets typically have stable or moderately declining production, and are mostly
located closer to export markets and refining centers in regions with better climate
conditions than West Siberia. As a result, they require below-average capital
expenditures. The examples of Bashneft and Tatneft show that such fields remain
profitable even during periods of significantly lower oil prices.
An illustrative example of the remaining potential of Russias brownfields was
demonstrated by Bashneft. The company operates one of the countrys oldest fields,
which are 30-40 years older than the average age of West Siberian fields. After
decades of standing on the long tail at the end of the production curve, the
company was able to boost production over 30% in three years and is striving to
maintain the new output levels, at least for the next several years and perhaps until
the end of the current decade. We believe that Tatneft and several subsidiaries of
large oil companies could potentially show similar patterns, though up to this point
they have mostly preferred to continue current production practices for strategic,
economic or geological reasons.
The most important exclusions from these trends are the companies RosneftSamaraNG and Lukoil-Perm, which have been showing consistent moderate
production growth rates on a substantially depleted reserve base over the past
several years.
Greenfields: key source of oil production growth

Producing greenfields
The company has the largest portfolio of greenfields in the Russian oil industry and
outstanding long-term exploration potential on Russias continental shelf. Its
greenfield strategy is focused on East Siberia and north of West Siberia. Key Rosneft
greenfields include Vankor and Vankor cluster fields (Suzunskoye, Tagulskoye,
Lodochnoye) in East Siberia, and Yurubcheno-Tokhomskoye and Russkoye fields in
the North of West Siberia. Jointly with Gazprom Neft, Rosneft also participates with
a 50% share in projects to develop the Messoyakha fields in the North of West
Siberia and Kuyumbinskoye field in East Siberia.
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Active development of the companys gas assets, including the companys largest gas
field, Kharampurskoye, is capable of making a substantial contribution to hydrocarbon
production growth rates until 2020. Over 60% of greenfields in Russia expected to be
commissioned by 2020 are Rosneft fields or have Rosneft participation.
Rosnefts three largest producing greenfields include Vankor and Verkhnechonskoye
fields, located in East Siberia, and Uvat field in West Siberia.
Rosneft greenfields expected production profile, mln bbl
500
450
400
350
300
250
200
150
100
50
0
2,011
2,012
2013E
2014E
Vankor
2015E
Vankor area fields
2016E
East Siberia
2017E
Timano-Pechora
2018E
2019E
2020E
Other
In addition to the best portfolio of onshore greenfields in the Russian oil

industry, Rosneft has outstanding positions on the Russian continental shelf,
including Arctic seas, with prospective resources preliminarily estimated at more
than 270 bln bbl.
Key Russian upstream greenfields to be launched until 2020
ABC1+C2 reserves (Russian reserve classification), mln toe
700
600
YurubchenoTokhomsk
(Rosneft)
Vankor
(Rosneft)
500
400
300
Talakan
(SurgutNG) C. Khoreiverskoye
(Rusvietperto)
200
100
Verkhnechonskoye
(TNK-BP,
Rosneft)
0
2008
Korchagin
(Lukoil)
2010
Prirazlomnoye
(Gazprom Neft)
Trebs&Titov
(Bashneft,
Lukoil)
2012
Rosneft greenfields
EastRusskoye
(TNK-BP) Messoyahskoye
(Gazprom Neft,
TNK-BP)
West-Messoyahskoye
Kuyumbinskoye
Novoportovskoye (Gazprom neft)
(Gazprom Neft,
(Gazprom Neft,
TNK-BP)
Filanovsky
TNK-BP)
Imilorkoye Tagulskoye N.Rogozh(Lukoil))
(Lukoil)
(TNK-BP) nikovskoye
Russko
North
-Rechenskoye
(SurgutNG)
Chayvo
Pyakyahinskoye
(TNK-BP)
(Rosneft)
(Lukoil)
Lodochnoye
(TNK-BP)
Suzunskoye
Naulsk
(TNK-BP)
(Rosneft)
2014
2016
2018
2020
Expected comissioning date
Other greenfields
Source: Energy Ministry, Gazprombank estimates
Vankorneft. With peak oil production at a level of 450 kbpd (165 mln bbl)
expected to be reached in 2014, Vankor field, developed by Rosneft subsidiary
Vankorneft, is the largest oil greenfield in Russia. The field is located in the
Northeast part of West Siberia, ca. 200 km west of the town of Igarka. The
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production trend will be supported by the development of satellite fields and the
commissioning of gas utilization infrastructure in 2014. Vankor crude is lighter and
has less sulfur content compared to Urals blend. The lions share of Vankor oil is
exported to China and Asian markets by the ESPO pipeline.
Verkhnechonskneftegas. As a result of the acquisition of TNK-BP, Rosneft has
consolidated 100% of Verkhnechonskneftegas, which develops the
Verkhnechonskoye field in East Siberia. In 2012, oil production at the field reached
52.9 mln bbl, or 3.4% of the combined oil production by Rosneft and TNK-BP.
The field is still in the stage of production growth and is expected to peak in 2017
at 8.0 mln tonnes (58 mln bbl) per annum, potentially staying at this level for at
least five years. Oil production from the field is mostly exported to the Asian
market, including China via the ESPO pipeline.
Uvat. Another major greenfield project, Uvat field, is located in the southern part of
West Siberia with 2012 production of about 6.6 mln tonnes of crude. The field is
expected to maintain close to the current production level until at least 2015.
Prospective onshore oil greenfields
Key Rosneft prospective oil greenfields include greenfields in the Vankor area
(including Suzun, Tagul, Lodochnoye), Gydan peninsula greenfields in the North of
West Siberia, several projects in East Siberia (Yurubcheno-Tokhomskoye,
Kuyumbinskoye, Srednebotuobinskoye) as well as Naulskoye field in TimanoPechora and North-Chayvo field on the Sakhalin shelf.
Over the next two years Rosneft plans to start crude production from three
greenfield projects North Chayvo, Naulskoye and Srednebotuobinskoye.
Still, most of the companys efforts in terms of greenfield development are
concentrated on acceleration of development of greenfields adjacent to Vankor
field (Vankor cluster), including Suzun, Tagul and Lodochnoye, which are expected
to come on stream in 2016-17. In 2016-18, the company also expects to launch
Messoyakha and Russkoye fields in the North of West Siberia, and YurubchenoTokhomskoye and Kuyumbinskoye fields in East Siberia.
Greenfields in the Vankor area. The acquisition of TNK-BP brought to Rosnefts
portfolio several large greenfields, including Tagulskoye, Lodochnoye and
Suzunskoye located in close proximity from Vankor and in some cases on the
route of the Rosneft-owned Vankor-Purpe pipeline. In addition, Rosneft in 200912 acquired licenses for several license blocks adjacent to Vankor that hold
substantial exploration potential. Joint development of these fields on a single plan
and using existing pipelines, roads, energy supply and gas utilization infrastructure
for their development is one of the key areas for capturing synergies from the
TNK-BP acquisition. The first oil from the fields is expected in 2016-17, peak
production may exceed 20-22 mln tonnes by 2022. Vankor and the Vankor
cluster of greenfields will be the main source of crude supply to China.
Gydan peninsula greenfields. In addition to Vankor area greenfields, Rosneft has
several other substantial greenfields on the Gydan peninsula and north of West
Siberia. This group includes the Messoyakha, Russkoye and Russko-Rechenskoye
fields. The start of production is expected in 2016-18 following completion of the
Zapolyarie-Purpe pipeline, built by Transneft. Peak production may exceed 20 mln
tonnes and Rosnefts share may exceed 15 mln tonnes. The Messoyakha field is
being jointly developed with Gazprom Neft on a 50/50 basis.
Yurubcheno-Tokhomskoye field. Located in East Siberia, the YurubchenoTokhomskoye field is expected to come onstream by end 2016, when Transneft
completes construction of a 600 km connection to ESPO. Rosneft plans to develop
the field in several stages, beginning with production drilling at the first section of the
field and the construction of field infrastructure. We expect Rosneft to accelerate
investments in field development after the approval of export duty tax breaks for
the project. The peak production level may reach over 5 mln tonnes per annum.
We expect the oil from the field to be delivered by the ESPO route to China, other
Asian countries and partly for refining in the Russian Far East.
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Other East Siberian greenfields

Other prospective East Siberian greenfields include Kuymba field, jointly developed
with Gazprom Neft, and Srednebotuobiniskoye field. Production is set to start in 2017
and 2014, respectively. Peak production levels at these fields may reach 10.3 mln toe
and 5.6 mln toe, respectively. Rosneft has a 50% share in the Kuyumba project and
35.3% in Srednebotuobinskoye field. The FAS recently granted permission to Rosneft
to consolidate 100% of Taas-Yuriakh Neftegazodobycha, which fully controls
Srednebotuobinskoye field. The oil from East Siberian fields will be mostly delivered via
ESPO to China, Asian countries and partly for refining in the Russian Far East.
Other prospective greenfields
Among other prospective greenfields, we note two relatively small projects
Naulskoye field in Timano-Pechora and offshore North-Chayvo fields on the
Sakhalin shelf, expected to be launched in 2013-14. Peak production levels are
expected to reach 2.5 and 1.6 mln tonnes, respectively.
Tight oil development: potential outweighs risks

In addition to conventional oil reserves, Russia has large potential for additional
production from so-called challenged or hard-to-recover oil reserves. The largest
group of challenged reserves is tight oil reserves.
Tight oil deposits in Russia, mainly located in the Bazhenov and Abalak formations,
are among the most important prospective sources of oil production growth and
stabilization for Russian oil companies.
Key groups of hard-to-recover oil reserves and resources
Group of reserves and resources
Low permeability layers
Unconventional collectors
Low-saturated deposits in low-permeability collectors
High-viscosity oil deposits with gas caps
Remaining oil reserves in fields with high watercut
in Russia
Examples
Priobskoye field boundary zones, Achimov layers of Prirazlomnoye field (onshore), Tyumen formation
Bazhenov and Abalak formations
Ryabchik layer of Samotlor field, Vikulov formation, Kamennoye license area
Russkoye and Messoyakha fields, North-Komsomolskoye field, layer PK-1, Van-Eganskoye field, Pokursk layers
Samotlor field, key layers, North Varieganskoye field
Source: Rosneft
The development of tight oil formations has already changed the production trend in the
US and, according to Rosneft, Russia may have comparable tight oil resources.
The geological structure of Bazhenov is similar to that of the liquids-rich Bakken play in the
US. Technology and experience from the US, such as horizontal drilling with multiple
hydrocracking, could be deployed for tight oil development in Russia. The Bazhenov
formation was described by the International Energy Agency (IEA) as probably the most
extensive shale formation in the world. We note that the Bazhenov formation is the
original source rock for about 80% of West Siberian conventional oil reserves.
Potential tight oil resources in Russia, bln tonnes
Potential oil production from challenging reserves in Russia by 2020, mln bpd
12
Challenged resources (Russia), Energy

Ministry estimates
10
8
Bazhenov formation (Russia)
6
Challenged resources (Rosneft)
4
2
Tyumen formation (Russia)
0
Russian conventional oil
production, 2012
US tight oil resources
Source: Shpilman Research Center, Energy Ministry, CERA, Rosneft
current production
Rosneft, challenged resources Russia, challenged resources

(Rosneft)
(Energy Ministry)
production estimates
production estimates, optimistic variant
Source: Energy Ministry, Rosneft
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The Bazhenov formation, like the similar Achimov and Tyumen formations, differs by
geological composition and its development is challenging due to narrow pay-zones
and low permeability. One of the key problems in oil production from the Bazhenov
formation is high clay content, leading to low permeability. The Bazhenov formation
is located in West Siberia at a depth of ca. 2 km, varies from 600 m to 3.8 km and
increases from the south to the north of West Siberia. Its thickness is only 20-30 m
and in some places reaches up to 100 m.
Key tight oil and tight gas resource basin in Russia
Russian
Federation
Legend
West-Siberian basin geologic province border
Shelf-sourced Bazhenov fractured reservoirs
Source: USGS, Gazprombank
Resources and production estimates

The estimates of challenged (also called hard-to-recover) resources in Russia vary
significantly industry sources provide resource estimates from 3.8 to 22 bln bbl and the
most optimistic estimates even reach 1,000 bln bbl. The Energy Ministry has estimated
total hard-to-recover oil reserves in Russia at 2.5 bln tonnes (18.3 bln bbl).
Rosneft recently provided an estimate of Bazhenov formation resources in Russia at ca.
22 bln bbl, referring to data from Shpilman Research Center and CERA. Gazprom Neft
estimated resources of the Bazhenov formation at 9.7 bln tonnes (71 bln bbl). Russian
subsoil agency Rosnedra in 2012 estimated resources of the Bazhenov formation in
West Siberia at 25-50 bln tonnes of recoverable reserves (182-366 mln bbl).
According to the Energy Ministry, output from Bazhenov formations could provide
0.8-2.0 mln bpd (40-100 mln tonnes) by 2020, or up to 20% of overall Russian
production. The Natural Resources Ministry forecasts potential output from
Bazhenov of 15 mln tonnes (0.3 mln bpd) by 2020, over 50 mln tonnes (1 mln bpd)
by 2025 and 84 mln tonnes (1.7 mln bpd) by 2030.
Rosneft tight oil production potential
Rosneft estimates recoverable reserves from tight-oil reservoirs at 9.2 bln bbl, of
which almost 60% are located in West Siberia and 36% in Irkutsk region in East
Siberia. The company estimates production potential from such fields in the medium
term at over 0.5 mln bpd.
Tax breaks
Tight oil production in Russia (including production from Bazhenov formations)
within the boundaries of the current tax regime is mostly non-economical. The
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government has decided to grant tax breaks for tight-oil deposits. In May, the
Finance Ministry removed its requirement for separate accounting of hard-torecover oil, which in fact required the construction of a substantial amount of
duplicative pipeline infrastructure and was one of the largest obstacles for approval
of the new regulations. The law on tax breaks for tight oil was signed by the
President of the Russian Federation in July 2013.
JV with ExxonMobil on West Siberia tight oil exploration and development
In December 2012, Rosneft and ExxonMobil agreed to jointly assess the possibility
of commercial production of tight oil reserves at the Bazhenov and Achimov
formations in West Siberia. The companies set up a JV for a pilot program and
potential commercial production with equity interests of 51% for Rosneft and 49%
for ExxonMobil. Work will be carried out at Rosnefts 23 license blocks covering a
total area of more than 10,000 km2.
Rosneft must provide staff and access to existing infrastructure, while ExxonMobil
will provide financing for up to $300 mln for the pilot program, technologies and
specialists in geology, development, well engineering and completion.
The pilot program is set to encompass work across a number of areas, including
drilling of new horizontal and vertical wells using the latest fracturing technologies,
deepening of existing wells and re-development of idle wells. The companies also
plan to run an advanced core survey program that will include geomechanical
surveys. Drilling to Achimov/Bazhenov layers of Yuganskneftegas is planned for 2013.
Implementation of the program began in 2012, and the partners have outlined the
technical program, identified prospective drilling zones, and plan to drill and test the
first 20 wells.
Upon completion of the pilot program, Rosneft and ExxonMobil plan to jointly
select blocks for commercial development in 2015.
Rosneft agreements with ExxonMobil on development of challenged reserves in Russia
Formation
Reserve and production potential
Recoverable reserves: 176 mln bbl within Rosneft license areas, 1.7 bln bbl in
Bazhenov
undistributed license fund. Production potential > 36 mln bbl/year
Achimov
Recoverable reserves: 1.3 mln bbl, production potential up to 44 mln bbl/year
Rosneft has also acquired from ExxonMobil a 30% interest in the Cardium tight oil
formation in Canada, operated by ExxonMobil. Participation in project development
will help Rosneft accumulate experience in developing tight oil projects.
JV with Statoil
In June 2012, Rosneft teamed up with Norway's Statoil to work on joint technical
evaluation of Russian tight oil assets in West Siberia (North Komsomolsk field) and
southern Russia (Khadumsky formation fields in Stavropol region) as part of a major
cooperation agreement.
A JV between Rosneft (66.7%) and Statoil (33.3%) will be set up if the development of
these tight oil fields proves economically viable. Statoil has agreed to cover expenditures
for desktop study and the pilot phase, including seismic surveying, drilling of vertical and
horizontal wells, testing, pilot production, research and modeling at selected blocks.
The partners outlined the pilot program, and selected a drilling target at the NorthKomsomolskoye field and drilling targets for the Khadumsky formation.
Another joint project with Statoil includes development of Domanic shale
formations at 12 Rosneft license blocks in Samara region.
Our take:
We consider tight oil and other hard-to-recover resources as important

potential sources of support for the oil production trend in Russia in the
medium term. We share the view that West Siberian fields may contain large
quantities of commercially recoverable reserves of tight oil. The Bazhenov and
Abalak formations look the most promising.
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Tax breaks are required for tight oil production projects. MET tax breaks come
into force from 2014.
In West Siberia, a full set of existing infrastructure and accumulated seismic and
other geologic data may be used for tight oil exploration, production and
transportation to markets.
High-quality exploration and reservoir modeling is essential for the

development of tight oil deposits. Natural fractures in the Bazhenov and
Abalak formations will likely be the priority targets for drilling. In some cases,
risk minimization can be achieved by drilling wells suitable for both Bazhenov
and conventional oil-bearing layers.
There is still not enough information for reliable estimates of tight oil reserves
and production potential. Drilling results and well testing are essential to
determine the further outlook on tight oil in Russia. Like other tight oil
formations, Bazhenov wells are likely to experience a swift decline in flow rates.
We do not expect Rosnefts tight oil production to exceed 300-400 kbpd by

2020. At this stage, due to a lack of reliable drilling and well-testing results we
do not account for tight oil production in our model, although it may become
an important potential driver for Rosnefts production in the medium term.
The role of tax reform in the improving production trend

Highlights:
The current revenue-based system of upstream taxation has been criticized by

the industry, as it lacks incentives for the development of greenfields, small-scale
fields and fields with hard-to-recover oil resources.
A number of adjustments in both upstream and downstream taxation have

been made over the past five years to incentivize the industry to increase oil
production and refining depth as well as upgrade the quality of refined products.
The most important changes have been the mineral extraction tax, export duty
tax breaks for greenfields, and introduction of the 60/66 taxation system.
The first wave of upstream projects supported by the MET and export tax
breaks is approaching peak production levels and has largely exhausted its
potential for further production growth. Even though absolute production levels
remain one of the key priorities for the government, Russian oil production is
likely to peak by 2015-17.
The resources are still there, but producing the marginal barrel is barely
economical under the current tax system. The industry requires additional tax
stimulus to prevent further production declines and argues that such measures
would increase the NPV of tax revenues for the government.
An industry-wide solution for upstream taxation could potentially be a transition

from the current revenue-based tax system to a profit-based one. This would
provide incentives for the development of a wide range of currently
unprofitable fields and substantially extend the length of the production plateau.
The main drawback to the profit-based taxation system and the main
impediment to its implementation is the difficulty of administration.
Further extension and improvements in regulation of the volume of tax breaks

for specific groups of projects may in fact substitute for the transition to profitbased taxation.
The prospects and potential time frame for the transition to a profit-based tax
system will depend on the overall Russian oil production trend as well as the results
of pilot projects expected to be launched in 2015-16. We do not anticipate rapid
headway in this area for the next two to three years.
Changes in the tax regime are the most important drivers for the development of
greenfield projects (in particular, shelf projects) in Russia.
The two main taxes in the current revenue-based system are the export duty and
mineral extraction tax (MET), both of which have linear progressive scales and are
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pegged to the price of oil on the international market. Together, the export duty
and MET account for 42% of oil export revenues. The proportion of income tax
to revenues is much smaller in absolute terms and relative to international majors.
The government has started to stimulate the development of greenfields via a
system of tax breaks. The current tax system stimulates the development of
lower-cost brownfields, but substantially reduces the profitability of the
development of higher-complexity brownfields and especially greenfields requiring
large upfront capital investment.
Share of key taxes in Rosnefts revenues, RUB bln, 2012
Rosneft
3,047
527
901
79
95
39
1,641
Revenues
MET
Export duty
Excise tax
Income tax
Other taxes
Total taxes
* adjusted for crude and product purchases
% of revenues*
17.3%
29.6%
2.6%
3.1%
1.3%
53.9%
A long-term industry-wide solution for upstream taxation could potentially be a

transition from the current revenue-based tax system to one based on profit. This
would provide substantial incentives for the development of a wide range of
currently unprofitable fields and considerably extend the length of the production
plateau. The main drawback of the profit-based taxation system and the main
impediment to its implementation is the difficulty of administration.
First steps of tax reform: tax breaks for MET and export duty for greenfields,
60/66 scheme
An overhaul of the tax regime in the Russian oil industry has been under discussion for
years. By 2006-07, the regulators had reached a consensus with the industry that the
development of a new wave of greenfield projects requires a reduction of the tax
burden. The first major steps in this direction were taken in 2006 with the introduction
of the first MET tax breaks for greenfield and some high-complexity brownfield projects.
Key changes in oil industry taxation, 2009-12
12
Tax
100% Fuel maneuver
oil export
duty
Higher rates
excise tax
indexation
MET
indexation
Profit-based
taxation
10
60/66
8
6
Scope
4
High
viscocity
oil
Regional
MET tax
breaks
Extension of
Depleted
export duty
fields
Small
tax bresks
fields
Export
duty
tax breaks
60-66
compensation
Offshore
tax
breaks
-8
-6
-4
-2
10
12
-2
significance
In addition to the tax breaks described above, the sharp decline in oil prices in
autumn 2008 prompted a revision of the export duty formula. The lag between the
current price of oil and the price used to calculate the export duty was reduced
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from two months to one, thereby significantly alleviating the tax burden on oil
companies during periods of falling oil prices.
On the whole, the 2008 economic downturn and subsequent collapse in the oil
price was an important trigger for the government to expand tax stimulus
for the industry.
With the recovery of oil prices from the lows of end 2008-09, the initial policy of
granting full exemption for export duties for greenfields in new oil producing regions
(mainly East Siberia) was replaced by special reduced export duty rates (almost half
the standard rates at current oil prices). The special rates were granted to a limited
number of fields and are typically combined with an MET exemption (see list of
eligible fields in the table below).
The 60/66 tax scheme, which took effect in 4Q11, redistributed part of the tax
burden from upstream to downstream and unified export duties for light and dark
oil products. By creating a fiscal incentive to increase production of higher-quality
light products, the 60/66 scheme increased the attractiveness of programs to
modernize Russian refineries.
60
40
40
20
20
0
FCF
60
CAPEX
80
Income tax
80
SG&A
100
OPEX
100
Transport
120
Export duty
120
MET
Increase of export netback as a result of introducing 60/66 tax scheme

($/bbl at Urals price $100/bbl)
Oil price
Brownfield free cash flow assuming 100% export and Urals price $100/bbl, $/bbl
31.1
27.4
Crude
price
Export
duty
MET
Netback
old
Crude
price
Export
duty
MET
Netback
60-66
Crude oil export duty tax breaks

Region
Key parameters*
East Siberia and Far East (list of specific fields) Special formula, 45% of the difference between Urals price and $50/bbl
3
3
Applicable to a specific list of fields, for crude with a density between 694.7 kg/m and 887.6 kg/m with a sulfur content
between 0.04-1.5%, except for crude produced at Talakan field (Eastern block), Zapadno-Ayanskoye field, Yaraktinskoye,
Markovskoye, Alinskoye and Danilovskoye fields
North Caspian continental shelf
Special formula, 45% of the difference between Urals price and $50/bbl
Dulisma field
Special formula, 45% of the difference between Urals price and $50/bbl (starting on Jan. 1, 2012)
Prirazlomnoye field
Special formula, 45% of the difference between Urals price and $50/bbl
High-viscosity oil
10% of standard export duty, applicable for oil with viscosity of more than 10,000 MPAxC for 10 years or until Jan. 1,
2023, or whichever comes earlier
* no formal criteria for the terms of the tax breaks, but the breaks are expected to be abolished as soon as the projects reach 16.3% IRR
Source: Russian government
As the industry gradually depletes the production potential of its brownfields and
struggles to keep the overall production trend positive, the steady development of
greenfield projects has become one of the key priorities for the government.
However, due to the large upfront capital investment required for the development
of new projects, greenfields are typically unattractive for oil companies unless they
benefit from government support, which can mean participation in infrastructure
creation (Transneft, Federal Grid Company) and/or tax incentives. Currently, a
number of large greenfield projects are approaching the point where the final
investment decision will be made. We have a positive outlook, as the regulators
have clearly shown their readiness to stimulate greenfield development, provided it
leads to an increase of the NPV of tax revenues over the life of the project.
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MET tax breaks

Region
All
All
All
Yamal Peninsula, YamalNenets region
Yamal Peninsula, YamalNenets region
Number
of years
Cumulative
production,
mln tonnes
n/a
n/a
n/a
n/a
n/a
n/a
12
250 bcm
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
10/15
25
10
25
10/15
35
10
35
10/15
25
10
25
7/12
15
7/12
15
10/15
20
10
20
10/15
30
10
30
7/12
10
7/12
10
n/a
n/a
n/a
n/a
All
All
All
Republic of Sakha
(Yakutia), Irkutsk Region,
Krasnoyarsk Region
Continental shelf North

of Arctic Circle
North of 65 N latitude
in Yamal-Nenets region
(except for Yamal
Peninsula)
Nenets Autonomous
Region, Yamal Peninsula
Black Sea
Sea of Okhotsk
Azov and Caspian Sea

shelves
Bashkortostan
Tatarstan
Key parameters
Gas
Associated gas. Zero MET.
Natural gas. Pumping back into the ground. Natural gas used to support subsoil pressure for gas condensate production (since 2012).
Natural gas. A new gas MET formula, approved by the State Duma among other parameters, takes into account the weighted-average
realization price, geographic location, depletion and the depth of production layers.
Natural gas. Zero MET for gas intended for LNG production for a cumulative volume of up to 250 bcm, 12 years (production license),
or starting on the first day of the first month of gas production (starting from Jan. 1, 2012).
Gas condensate
Gas condensate. Zero MET for gas condensate produced together with gas intended for LNG for a volume of cumulative condensate of
up to 25 mln tonnes, 12 years, or starting on the first day of the first month of gas production (starting from Jan. 1, 2012). The
new gas MET formula, approved by the State Duma, takes into account among other parameters the average realization price,
geographic location, depletion and depth of production layers.
Crude
Depleted fields. A special ratio applies to license blocks with a depletion ratio in the range of 80-100%. The formula is 3.83.5*(cumulative production/initial reserves ABC1+C2 as of Jan. 1, 2006). The ratio cannot be less than 30% (starting from Jan. 1,
2007).
Small fields. A special rate applies to license blocks with initial recoverable reserves of less than 5 mln tonnes with a depletion ratio
below 5%. The formula is 0.125*initial recoverable reserves+0.375 (starting from Jan. 1, 2012).
Oil with super-high viscosity. Zero MET for crude with viscosity of more than 200 MPAxC (starting from Jan. 1, 2007).
East Siberia. Zero MET for 10 years (production license) or 15 years (exploration or exploration + production license), or until 25
mln tonnes of cumulative production is reached (depending on which happens first) (starting from Jan. 1, 2007).
For licenses issued before January 2007 to fields with a depletion rate between 0-5%, as of January 2007 a zero MET rate is applied
for 10 years or until 25 mln tonnes of cumulative production is reached, depending on which happens first (starting from Jan. 1,
2007).
Offshore North of Arctic Circle. Zero MET for cumulative production of 35 mln tonnes for 10 years (production license) or 15 years
(exploration or exploration + production license), depending on which happens first (starting from Jan. 1, 2009).
For licenses issued before January 2009 for fields with a depletion rate between 0-5%, as of January 2009 a zero MET rate is
applicable for 10 years or when 35 mln tonnes of cumulative production is reached, depending on which happens first (starting from
Jan. 1, 2009).
Onshore North of 65 N latitude (except for Yamal Peninsula). Zero MET for cumulative production of 25 mln tonnes is applicable for
10 years (production license) or 15 years (exploration or exploration + production license), depending on which happens first
(starting from Jan. 1, 2012).
For licenses issued before January 2012 to fields with a depletion rate between 0-5%, as of January 2012 a zero MET rate is
applicable for 10 years or until 25 mln tonnes of cumulative production is reached, depending on which happens first (starting from
Jan. 1, 2012).
Yamal Peninsula and Nenets Autonomous Region. Zero MET for cumulative production of 15 mln tonnes is applicable for seven years
(production license) or 12 years (exploration or exploration + production license), depending on which happens first (starting from
Jan. 1, 2009).
applicable for seven years or until 15 mln tonnes of cumulative production is reached, depending on which happens first (starting
from Jan. 1, 2009).
Black Sea. Zero MET for accumulated production of 20 mln tonnes is applicable for 10 years (production license) or 15 years
(exploration or exploration + production license), depending on which happens first (starting from Jan. 1, 2012).
applicable for 10 years or until 20 mln tonnes of cumulative production is reached, depending on which happens first (starting from
Jan. 1, 2012).
Sea of Okhotsk. Zero MET for cumulative production of 30 mln tonnes for 10 years (production license) or 15 years (exploration or
exploration + production license), depending on which happens first (starting from Jan. 1, 2012).
For licenses issued before January 2012 to fields with a depletion rate between 0-5%, as of January 2012 a zero MET rate is applied for
10 years or until 30 mln tonnes of cumulative production is reached, depending on which happens first (starting from Jan. 1, 2012).
Azov and Caspian Sea. Zero MET for accumulated production of 10 mln tonnes is applicable for seven years (production license) or 12
years (exploration or exploration + production license), depending on which happens first (starting from Jan. 1, 2009).
For licenses issued before January 2009 for fields with a depletion rate between 0-5%, as of January 2009 a zero MET rate is
applicable for seven years or 10 mln tonnes of cumulative production, depending on which happens first (starting from Jan. 1, 2009).
Bashkortostan. Special tax deduction of RUB 630 mln/year applied for 2012-15. Zero deduction if crude export duty is above the
amount calculated using the formula introduced under the 60/66 system (since 2012).
Tatarstan. A special tax deduction of RUB 193.5 mln/year is applicable for 2012-16. Zero deduction if crude export duty is above the
amount calculated using the formula introduced with the 60/66 system (since 2012).
Source: Russian government
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Key principles of tax reform
priority support for greenfield and shelf projects;
tax incentives that redistribute the tax burden over time; minimum taxation
during the initial stages of field development with higher taxation set to take
effect at a later date;
the volume of stimulus in the oil industry is calculated with the aim of raising IRR to
comply with company standards; currently a target level of 16.3% is being discussed.
predictability of the tax burden for the entire life cycle of a project; and
shift of focus from case-by-case provision of tax breaks to group-by-group.
New tax breaks to come into force from 2013-14

Onshore greenfields. Extension of export duty tax breaks, uniform methodology in
granting tax breaks for greenfields in East Siberia, north of Yamal-Nenets
Autonomous District. The term of the breaks is set so that the project would
achieve a 16.3% IRR. The draft law is currently being considered by the State Duma.
Offshore greenfields. There is a special tax regime for offshore shelf projects. All
offshore projects were divided into four categories, depending on complexity,
geographic location and water depth with the volume of tax breaks dependent on
project complexity. The first category includes relatively simple projects, located in
the Baltic and Azov seas, and the fourth category refers to offshore projects located
in the Kara Sea, the northern part of the Barents Sea and the eastern part of the
Arctic region. The key elements of the future tax regime for offshore projects were
outlined in the Government Decree #443-r as of April 12, 2012. The tax regime is
set to include an ad valorem MET rate of 0-30% depending on the project category,
tax breaks for property tax, VAT and import duties for equipment. The government
has also committed to provide guarantees against negative changes in the tax regime
for 5-15 years, also depending on the project category.
Tight oil. In July 2013, the State Duma approved amendments to the Tax Code
involving MET tax breaks for hard-to-recover reserves. The projects were split into
four categories with the volume of the tax breaks depending on the complexity of
oil production from the respective layers.
Proposed tax breaks for offshore greenfields
Shelf project categories
1st category. Basic complexity level, including projects in the Azov
and Baltic Seas
2nd category. Elevated complexity level, including the Black (up to
100 m depth), Pechora and White Seas, and the southern part of
the Okhotsk Sea (south to 55 latitude), including the Sakhalin shelf
3rd category. High complexity level, including deepwater projects in
the Black Sea (over 100 m depth), the northern part of the
Okhotsk Sea (55 latitude and north from 55 latitude) and the
southern part of Barents Sea (south from 72 latitude)
4th category. Arctic level of complexity, including shelf projects in
the Kara Sea, on the northern part of the Barents Sea (to the
north from 72 latitude) and in the East Arctic (Laptev, East
Siberian, Chukotka and Bering Seas)
Proposed MET rate,

% of projects
revenues
Freezing of tax
Additional tax benefits
conditions period, years
30%
5 years, but no later

than until 2022
15%

than until 2032
10%

than until 2037
5%

than until 2042
Zero export duty

Tax loss carryforward for up to 70 years
Allowance of reserves creation for projects
liquidation, including creation of reserves on
the base of insurance instruments, reducing
income tax
Import duties, VAT, property tax breaks for
equipment and materials used for offshore
projects development
Additional tax benefits possible in case oil
prices drop below $60/bbl, and for projects
with core revenues coming from gas sales
Source: Government resolution 443-r as of April 12, 2012
Key elements of further tax reform
The ongoing dialog between the oil industry and the government concerning the
priorities and challenges of new project development has coalesced into a consensus
concerning the need for tax reform aimed at supporting greenfield development.
Lower taxation for new offshore fields, onshore greenfields and higher-complexity
fields makes them financially viable, leads to production growth and increases total
tax revenues.
48
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MET for gas and gas condensate is expected to be set based on a special formula,
built on principles similar to the oil MET formula. The State Duma has approved
amendments to the Tax Code on the gas MET formula, and it is expected to come
in force from July 2014. The proposed formula, among other parameters, takes into
account weighted-average realization prices, geographical location, depletion and
depth of productive layers of gas fields. It has also discussed an idea to reflect the
dynamics of gas transportation tariffs in the formula.
Further progress in reforming the tax system will depend on the position of the
government, which will largely be determined by the level of budget revenues and
the dynamics of daily crude production. We note that in September 2013, the
government approved changes to the Tax Code increasing the level of the overall
tax take by more than RUB 170 bln in three years via a gradual increase of MET tax
and reduction of export duties. We expect further decisions on tax breaks to be
taken on the basis of an analysis of NPV of budget revenues from the proposed tax
breaks and tax revenue distribution over the life of the respective projects.
The extension of the volume of MET and export duty tax breaks, the decision on a
special tax regime for offshore oil production, and positive results from Russian oil
companies in stimulating production at brownfields appear to substantially delay the
chances for a further reduction of the export duty ratio from 60% to 55% and
movement toward transition to profit-based taxation.
The prospects and potential time frame for the transition to a profit-based tax
system will also depend on the overall Russian oil production trend as well as the
results of pilot projects expected to be launched in 2014-15. We do not expect to
see any rapid progress in this area for the next two to three years.
Target tax model: lower taxation of higher-complexity fields
100
100
non-commercial reserves
90
Oil price before tax
80
70
60
TAX TAKE
80
70
70
60
60
50
40
40
30
Oil price after tax
20
10
Operating costs
Recoverable reserves, bln tonnes
0
1
non-commercial reserves
90
Oil price before tax
80
70
60
TAX TAKE
50
50
40
40
30
20
20
10
10
9 10 11 12 13 14 15 16 17 18 19 20 21 22
100
commercial reserves
90
80
50
30
100
Total costs, $/bbl
commercial reserves
90
Total costs, $/bbl
Current tax model: uniform taxation of all fields (revenue-based taxation)
30
Oil price after tax
20
Operating costs
10
Recoverable reserves, bln tonnes
0
1
9 10 11 12 13 14 15 16 17 18 19 20 21 22
Source: Gazprom Neft, Gazprombank estimates
Source: Gazprom Neft, Gazprombank estimates
Possible time frame for upstream tax reform

Key parameters of the target tax regime
Gas and gas
Gas and gas condensate MET to reflect average realization prices, geographic location
condensate
of the fields, level of depletion and depth of production layers
Further reduction of export duty under the framework of the 60/66 scheme and
Onshore brownfield
possible introduction of a 55/72 scheme
projects
Increase of the number of MET tax breaks for high-complexity projects

Onshore greenfield
Extension of export duty tax breaks for wider range of fields

projects
Zero export duty beyond 60/66 or 55/72 schemes

Offshore greenfield
MET replaced by royalty at higher level than current MET

projects
Royalty differentiation depending on field complexity (i.e. lower royalty for Arctic than
(including Arctic)
for Caspian).
Possible time frame

2014
2014-18
2013-14
2013-15
Target offshore tax model is likely to be achieved
earlier than for onshore projects
Source: Factiva, Finance Ministry, Energy Ministry, Gazprombank estimates
49
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Gas business development
Gas has traditionally accounted for a very low share of Russian oil majors business
and companies have faced substantial challenges in its development. Rosneft has
been no exception. On a consolidated basis with TNK-BP, gas currently accounts
for 22.6% of the companys PRMS proved reserves and 11.2% of production.
After the acquisition of TNK-BP and the remaining 49% in ITERA, Rosneft has
become Russias third-largest gas producer after Gazprom and NOVATEK.
Rosneft made a breakthrough in gas business development in 2012, acquiring
50% of the independent gas producer ITERA and concluding long-term
contracts with Russian customers for 85 bcm by 2017. Rosneft also announced
plans to acquire Alrosas gas assets.
Due to regular indexation of domestic gas prices, increasing competition between

gas producers and slow growth in demand, the Russian gas market is gradually
becoming more attractive but substantially more competitive. The key risk for
development of the gas business remains possible gas oversupply on the domestic
market by 2015-17. The market situation will depend to a large extent on global
demand for Russian gas and the level of gas imports from Central Asia.
The company has set an ambitious target to more than double gas production by
2020 to 100 bcm. For Rosneft, the key drivers for gas production growth are the
development of the Kharampurskoye field and the Rospan project, and increasing
gas utilization at Vankor. We expect Rosneft to become one of the most active
and ambitious players on the Russian domestic gas market by gas production and
sales volumes, approaching Russias second-largest gas producer NOVATEK.
Due to Gazproms export monopoly, 100% of its gas is sold on the domestic
market. Rosneft is considering construction of the companys first LNG plant on
the base of Sakhalin gas by 2018, aimed at the gas markets of Japan, China,
South Korea and other Asia-Pacific countries. Longer term, prospects include
gas monetization of the shelf projects, which may potentially transform the
company into Russias largest LNG producer and exporter. We note that the
expected cancelation of the monopoly on LNG exports would provide
opportunities to Rosneft to market gas internationally and become an important
player on the global LNG market.
In 2013, Rosneft became Russias third-largest gas producer after Gazprom and
NOVATEK. After the acquisition of TNK-BP and 100% of ITERA, Rosnefts gas
reserves reached 8.9 mln boe (22.6% of the companys total PRMS reserves), while
proforma gas production of Rosneft, TNK-BP and ITERA reached 43 bcm (14% of
Rosnefts pro forma hydrocarbons production for 2012).
Efficient in terms of operating costs, Rosnefts gas production has the potential to
more than double by 2020 reaching up to 100 bcm, substantially contributing to
overall hydrocarbons growth, and become a substantial source of income for
Rosneft. We estimate that gas may provide up to 8% of Rosnefts EBITDA by 2020.
The majority (67.6%) of gas produced by Rosneft is associated gas. Key Rosneft gas
production
centers
include
Purneftegas,
Rospan,
Yuganskneftegas,
Krasnodarneftegas, TNK-BP assets in West Siberia and Rosnefts share in ITERAs
production.
The largest sources of natural gas production are Purneftegas, Krasnodarneftegas
and Rospan. In 2012, natural gas accounted for 32.4% of the combined gas
production of Rosneft and TNK-BP.
The largest sources of associated gas production are TNK-BP assets in West Siberia,
Purneftegas and Yuganskneftegas.
In 2013, we expect Rosneft to produce 27 bcm of gas and 43 bcm on a pro forma basis.
50
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Rosneft commercial gas production, bcm

Rosneft
PurNG
YuganskNG
KrasnodarNG
SamaraNG
Severnaya Neft
Vankorneft
Sakhalin-1
Other
Total subsidiaries
Tomskneft
ITERA*
Other
Total JVs
Total Rosneft
TNK-BP
Rospan
TNK-BP West Siberia
TNK-BP Orenburgneft
Vietnam
Total subsidiaries
Slavneft
Venezuela associates
Total JVs
Total TNK-BP
ITERA*
Total Rosneft+TNK-BP+ITERA
Natural gas
Associated gas
Region
2012
2011
2010 2010-12 CAGR
West Siberia
West Siberia
South Russia
Central Russia
Timano-Pechora
East Siberia
Far East
Various
4.07
3.16
2.9
0.53
0.29
0.47
0.34
1.13
12.89
0.84
2.62
0.04
3.5
16.39
3.71
2.86
2.73
0.5
0.26
0.37
0.31
1.25
11.99
0.73
4.6
2.65
2.71
0.47
0.28
0.28
0.29
1.35
12.63
0.65
0.07
0.8
12.79
0.06
0.71
12.34
-5.9%
9.2%
3.4%
6.2%
1.8%
29.6%
8.3%
-8.5%
1.0%
13.7%
n/a
-18.4%
122.0%
15.2%
3.3
9.4
2.2
1
15.9
0.3
0.1
0.4
16.3
32.69
10.2
42.9
20.6
22.3
3.3
9
1.8
0.2
14.3
0.3
0.1
0.4
14.7
27.49
12.6
40.1
19.9
20.2
2.7
8.6
1.6
0
12.9
0.3
0
0.3
13.2
25.54
12.5
38.1
20.8
17.3
10.6%
4.5%
17.3%
n/a
11.0%
0.0%
n/a
15.5%
11.1%
13.1%
1.2%
6.1%
-0.5%
13.5%
West Siberia
West Siberia
Various
West Siberia
West Siberia
Volga-Urals
International
West Siberia
International
* total ITERA gas production for 2012 12.8 bcm

Effect of TNK-BP acquisition and JV with ITERA on Rosnefts gas production volumes,
bcm
Key gas producers in Russia, 2012, bcm
50
Gazprom
NOVATEK 2020 target
Rosneft 2020 target
NOVATEK
Rosneft+TNK-BP+Itera
TNK-BP
Lukoil
SurgutNG
Rosneft
Itera
Gazprom Neft
45
12.8
42.9
ITERA
Rosneft+TNK-BP+ITERA
40
35
16.3
30
25
20
15
13.78
10
5
100
200
300
400
500
600
Source: company, Neftyanaya torgovlya, Gazprombank estimates
Rosneft
TNK-BP
Source: company, Neftyanaya torgovlya, Gazprombank estimates
Acquisition of ITERA. In February 2012, Rosneft reached a strategic cooperation agreement

with ITERA (one of Russias largest independent gas producers and traders) to jointly
develop a set of gas fields in Russia and market the gas. The JV was created in August 2012
on the basis of ITERA Oil and Gas Company and included ITERAs 49% stake in the key
gas producing subsidiaries of Sibneftegas and Purgaz, and a 67% stake in the marketing unit
Uralsevergas-NGK. Rosneft contributed gas assets in the Kynsk-Chaselsk group. Rosneft
received a controlling 51% stake in the JV, while ITERA became the operator of the
merged assets. The recoverable reserves of the JV were estimated at 372 bcm with
production of 13 bcm.
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In May 2013, Rosneft agreed with ITERA shareholders to acquire the remaining 49%
of ITERA for $3 bln, implying EV/Reserves of 4.7x. The acquisition gave Rosneft the
opportunity to accelerate the realization of its gas strategy and considerably
strengthen its gas marketing block.
Rosneft gas realization prices vs. Gazprom and NOVATEK prices
Average regulated gas prices in Russia, 2005-12, RUB/mcm

100
90
80
70
60
50
40
30
20
10
0
Gazprom (average)
NOVATEK (end-customers)
NOVATEK (ex-field)
Rosneft (South Russia)
Rosneft (European Russia)
Rosneft (average)
Rosneft (Far East)

Rosneft (West Siberia)
TNK-BP (average)
Gazprom Neft (average)
0
20
40
Rosneft
60
80
100
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Others
$/mcm (lhs)
RUB/mcm (rhs)
Source: Gazprom
Indexation of domestic prices. Domestic gas prices are typically formed on the basis of
Gazproms regulated prices, accounting for most of domestic gas sales. The government
is steadily increasing regulated wholesale gas prices, with average wholesale prices
exceeding $90/mcm in 2012. At the same time, considering the reduction of inflation
rates, completion of a significant part of Gazproms large-scale Yamal greenfield megaproject, as well as the requirement to stimulate economic growth, the government is
considering reducing the growth rates of regulated gas prices from 15% in 2010-11 to
the level of inflation in 2014-16. The earlier declared goal of achieving netback parity
with exports to Europe may be delayed for several years or reconsidered.
Still, the achieved level of domestic prices and plans for their further indexation make the
Russian gas market an attractive target for Russian oil majors and independent gas producers.
Rosneft production growth plans. Effectively, Rosnefts plans envisage almost 50%
growth in sales volumes between 2013 and 2016, when the company plans to
launch its largest gas asset Kharampur gas field in West Siberia with estimated
peak production capacity of 30 bcm. By 2020, Rosneft plans to increase gas
production in Russia to 100 bcm vs. our forecast of 94 bcm.
Rosneft gas production growth forecast, bcm
100
90
80
70
60
13
50
23
40
9.75
30
18.6
20
30
10
16.1
0
2013E
2016E
Rosneft
TNK-BP
12
29.3
52.6
2020E
Itera
Rosneft domestic gas sales forecast, bcm

100
90
80
70
60
50
40
30
20
10
0
2011
2012 2013E
Gas sales
2014E
2015E 2016E 2017E

Long-term contracts
2020E
Domestic gas delivery contracts will reach 85 bcm by 2017. Rosneft has already
concluded domestic gas delivery contracts for 39 bcm in 2013, 41 bcm in 2014,
45 bcm in 2015, 81 bcm in 2016 and 85 bcm in 2017. The companys long-term
goal is to increase commercial gas output to 100 bcm by 2020.
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Gas will be produced on the basis of the companys conventional gas assets as well
as the Kynsko-Chaselskiy group of fields and Kharampurskoye field, which we
estimate may provide up to 5 bcm and 30 bcm per year, respectively. Among key
customers, Rosneft sees energy companies such as E.ON, Enel, Fortum, ITERAs
customer base and new entities.
According to Rosneft, the company has agreed with Gazprom on the terms of
connection of its largest onshore gas greenfield Kharampur to Gazproms gas
transportation system.
Long-term gas strategy: LNG plant in Russias Far East, offshore gas production
Rosnefts long-term gas strategy envisages the start of gas production from offshore
fields, where the company has ca. 120 bln boe of estimated recoverable gas
resources. In particular, Rosneft has already concluded agreements with ExxonMobil
and Marubeni to study and collaborate on implementation of the LNG project in
the Russian Far East. The resource base of the project will likely incorporate gas
from Rosnefts Sakhalin fields and may potentially include the resources of Rosnefts
offshore license areas in the Okhotsk Sea depending on the results of exploration.
Currently Gazprom has the monopoly right for Russian gas exports, including LNG.
However, it is expected that the government will grant export permissions for LNG
projects of Russian independent gas producers, including Rosneft and NOVATEK.
Rosnefts long-term plans for gas business development may potentially transform the
company into Russias largest LNG producer and exporter and an important player on the
global LNG market.
Considering Rosnefts strategy of market diversification, the increasing role of Asian markets
in the companys export strategy and plans to build the first LNG plant on the bank of the
Sea of Okhotsk, we expect that Rosnefts LNG strategy will be mostly focused on the
Asian markets (Japan, S.Korea, China and others) in the foreseeable future.
Risks
The key risk in this segment is that of gas oversupply on the domestic market by 201517. This depends largely on global demand for Russian gas and the level of gas imports
from Central Asia. Given the plans of independent gas producers and Russian oil majors,
Gazprom and other gas companies may face a significant rise in domestic competition.
The development of Kharampurskoye field alone may require up to $5-7 bln in
capex, while investment in an LNG plant may exceed $10 bln.
Given the need for a considerable increase in capex to implement the gas program
alongside intensifying competition on the domestic gas market, Rosneft may face
significant challenges in developing its gas business. However, the companys plans in the
gas business should be taken seriously Rosneft has made a determined attempt to gain
significant market share in the Russian gas market.
Key sources of Rosnefts gas production growth, bcm
12.9
Rosnefts risked gas resources on the sea shelf, bln boe

5
6.0
94
16.3
60
50
25.0
40
12.8
30
16.4
2020E
Other
Vankor
Rospan
Kharampur
ITERA acquisition
TNK-BP acquisition
20
2012
100
90
80
70
60
50
40
30
20
10
0
10
0
Barents Sea
Kara Sea
Other Arctic Seas
Okhotsk Sea
Black, Azov,
Caspian
53
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Offshore production: new frontiers for Russias oil and gas industry
The Russian Arctic shelf remains the largest unexplored prospective hydrocarbon
basin in the world and is believed to be an extension of the West Siberia oil basin. If
preliminary reserve estimates are confirmed, the region may become a main source
of oil and gas supply for several decades to come. The Russian government has
committed to providing a special tax regime for Arctic and other offshore
greenfields aimed at ensuring sufficient rates of return for the projects.
Currently, only government-controlled companies may work on the shelf. Among
the listed Russian companies, only Rosneft and Gazprom have access to the shelf.
Key Rosneft license blocks on the Russian sea shelf
16
15
17
6
4
5
7
14
11
10
12
13
18
19
20
22
21
1
Russian
Federation
23
24 25
26
27
Legend
Rosneft's licence blocks on Russian shelf
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Block
West-Chernomorsky
Tuapse Through
South-Chernomorsky
Fedynsky
Central Barents
Perseevsky
West-Prinovozemelsky
East-Prinovozemelsky-1
North-Karsky
Ust-Oleneksky
Ust-Lensky
Anisinsko-Novosibirsky
Rosneft partner
ENI
ExxonMobil
ENI
ENI
Statoil
CNPC
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
ExxonMobil
Sea
Black Sea
Black Sea
Black Sea
Barents Sea
Barents Sea
Barents Sea
Barents Sea
Kara Sea
Kara Sea
Kara Sea
Kara Sea
Laptev Sea
Laptev Sea
Laptev Sea
Number
15
16
17
18
19
20
21
22
23
24
25
26
27
Block
North-Vrangelevsky-2
North-Vrangelevsky-1
South-Chukotsky
Magadan-3
Magadan-2
Magadan-1
Lisyansky
Kashevarosky
Astrakhan-Sea-Nekrasovsky
North-Dome Odoptu-more
Lebedisnky
North-Chayvo
Veninsky (Sakhalin-3)
Rosneft partner
ExxonMobil
ExxonMobil
ExxonMobil
INPEX
INPEX
Statoil
Statoil
Statoil
Sinopec
Sea
Chukotka Sea
Chukotka Sea
Chukotka Sea
Okhotsk Sea
Okhotsk Sea
Okhotsk Sea
Okhotsk Sea
Okhotsk Sea
Caspian Sea
Okhotsk Sea
Okhotsk Sea
Okhotsk Sea
Okhotsk Sea
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Rosneft has consolidated 41 licenses for exploration and development on the Russian shelf,
including the Arctic Ocean, and several licenses in the Okhotsk, Black and Caspian Seas.
With 275 bln boe of prospective hydrocarbon resources in the Russian shelf,
Rosneft has the largest exploration portfolio in Russia.
Rosnefts estimated risked recoverable resources on the Russian shelf, bln boe
Oil
Barents Sea
26
Kara Sea
48
East-Siberian, Chukotskoye and Laptev Seas
42
Okhotsk Sea
16
Black, Azov, Caspian Seas
21
Total
155
Gas
21
55
29
14
0
120
Total
48
104
72
30
22
275
Rosnefts shelf projects embrace one of the largest underexplored areas in the world
and despite being technologically challenging and capital intensive are very important
sources of long-term production growth. The first exploration wells are to be drilled in
the Kara and Black Seas in 2014, and commercial production may commence by 2018.
Rosneft will have to finance its 66.7% share of capex after exploration. We expect that
Rosnefts share of capex may be financed from future project revenues. Test results
from the first wells in 2014-15 will provide essential information for adjustment of
reserve estimates and the potential production outlook.
In 2012-13, Rosneft established partnerships for Arctic exploration and subsequent
development with several large international oil and gas companies, including
ExxonMobil, ENI, Statoil, CNPC, Impex and PetroVietnam. Several other companies,
including BP, may enter into alliances for shelf development with Rosneft in the future.
Rosnefts partnerships with international companies for shelf project development are
built on uniform basic conditions: the partner receives 33.3% in the project, and carries
out and finances exploration on a risk basis. Agreements also envisage the opportunity
for Rosneft to enter partners international projects, technological collaboration, and
exchange of staff. Most of the agreements also embrace partnerships in other spheres,
specifically tight oil field development and collaboration on potential LNG projects.
Rosneft has made similar proposals to private Russian oil companies.
According to Rosneft, initial investments by the companys partners in joint offshore
and tight oil projects on a risk basis are estimated at $14 bln
Rosnefts JV with ExxonMobil, which covers three license blocks in the Kara Sea
(water depth 35-400 m) and the Tuapsinskiy block in the Black Sea (water depth
40-2,000 m), may become one of the largest players on the Russian shelf. Rosnefts
stake in the JV is 66.7%, while ExxonMobil holds the remaining 33.3%.
Rosneft strategic partnerships on the Russian shelf
Partner
Partnership on offshore projects
Other elements of strategic partnerships
Signed strategic cooperation agreements
ExxonMobil 30% stake in 20 projects in the US Development of tight oil fields, Rosnefts participation in
Gulf of Mexico
ExxonMobil projects with a focus on building offshore and
tight oil expertise
Statoil
Joint bidding for offshore license Tight oil: joint technical evaluation and development
block on the Norwegian Shelf
ENI
3 license blocks in the Barents and Development of logistic and infrastructure networks
Black Sea
CNPC
3 license areas in the Barents and Crude supplies with prepayment
Pechora Seas
Inpex
2 license areas in the Okhotsk Sea
PetroVietnam 8 License blocks in the Barents Sea
Potential partnerships
BP
License blocks in the Barents Sea
We consider Rosnefts assets on the Russian sea shelf to have outstanding exploration
potential. Still, there is substantial uncertainty regarding resource estimates and potential
production volumes that have to be confirmed and adjusted by further exploration.
55
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Refining and marketing: adjusting to the new

market model
The modernization of Russias refineries has long been a key government priority for
the oil and gas sector.
Several tariff and regulatory measures have been taken to incentivize the process:
1.
Low export duties for fuel oil until 2011. A period of preferential low export
duties for fuel oil provided the industry with additional funds for refinery
modernization.
2.
Unification of export duties, further increase of export duty for fuel oil to the
level of the crude oil duty from 2015. The unification of the export duty for
petroleum products at 60% of the oil export duty with plans in place to further
raise the export duty for fuel oil to 100% of the crude export duty significantly
reduced the profitability of the production of dark oil products (mainly fuel oil).
3.
Higher quality standards. The introduction of new minimum fuel quality

standards has substantially increased the requirements for the quality of
petroleum products, including their compliance with stricter environmental
standards. The new standards are being introduced piecemeal, with
requirements for petroleum product quality increasing gradually.
4.
Excise tax differentiation. The excise tax rate was differentiated depending of
the quality of petroleum products, with lower rates for higher-quality products.
5.
Multilateral agreements with regulators on refinery modernization. Multilateral

agreements between oil companies, the Federal Antimonopoly Service,
Rostekhnadzor, and Rosstandard were signed in 2011, and outlined the
obligations of oil companies regarding the modernization of their refineries. In
particular, this includes a list of projects and accompanying time frames for their
completion.
Change in regulation has served as a catalyst for acceleration of modernization

programs by key Russian oil companies.
Rosnefts refinery modernization program

Rosneft is currently the largest refiner in Russia with 10 facilities located in almost all
major regions of the country, one refinery in Ukraine, and shares in one refinery in
Russia (Yaroslavl) and four refineries in Germany (Ruhr Oel).
Rosneft refines 45% of production. The companys refining basket is composed of
gasoline (20%), diesel (32%), fuel oil (29%), and other products (19%). Rosnefts
share in Russian refining reaches 31% of the nationwide total.
Given the scale of the companys operations and still relatively low complexity of its
key refineries, Rosneft has embarked upon the largest refining modernization
program in the Russian oil and gas industry, scheduled for completion by 2018-20
and estimated at over $30 bln.
Until now, Rosneft has made considerable progress in modernization of the two
refineries that had historically belonged to the company Komsomolsk and Tuapse.
At the same time, the five refineries obtained as a result of the Yukos bankruptcy
have remained close to their original state.
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Key Rosneft refineries
Belarus
Mozyr
Mozyr
Mozyr refinery
refinery
refinery
refinery
Mozyr
Mozyr
Mozyr
refinery
YaNOS
YaNOS
YaNOS
YaNOS
YaNOS
YaNOS
Ukraine
Lisichansk
Lisichansk
Lisichansk
Lisichansk
Lisichansk
Lisichansk
refinery
refinery
refinery
Tuapse
Tuapse
Tuapse
Tuapse
Tuapse
Tuapse
refinery
refinery
refinery
Ryazan
Ryazan
Ryazan
refinery
refinery
Ryazan
Ryazan
Ryazan refinery
refinery
refinery
refinery
Russian
Syzran
Syzran
Syzran refinery
refinery
refinery
refinery
Syzran
Syzran
Syzran
refinery
Saratov
Saratov
Saratov
Saratov
Saratov
Saratov
refinery
refinery
refinery
Federation
Kuibyshev
Kuibyshev refinery
refinery
refinery
Kuibyshev
refinery
Kuibyshev
Kuibyshev
refinery
Novokuibyshevsk
Novokuibyshevsk
Novokuibyshevsk refinery
refinery
refinery
Achinsk
Achinsk
Achinsk refinery
refinery
refinery
refinery
Achinsk
Achinsk
Achinsk
refinery
Angarsk
Angarsk
Angarsk
refinery
refinery
Angarsk
Angarsk
Angarsk refinery
refinery
refinery
refinery
Komsomolsk
Komsomolsk
Komsomolsk
Komsomolsk
Komsomolsk
Komsomolsk
refinery
refinery
refinery
Legend
Refinery
Rosneft assets
TNK assets
Source: company data, Gazprombank
Key parameters of Rosneft refineries

Throughput
2012, mln
tonnes
Rosneft
61,582
Kuibyshev
6,680
Novokuibyshevsk
7,764
Syzran
6,655
Tuapse
4,554
Angarsk
10,050
Achinsk
7,446
Komsomolsk
7,484
other
219
Share in Ruhr Oel
10,730
refineries
TNK-BP
35,227
Ryazan
16,422
Saratov
6,960
Lisichansk
901
Other, including
1,602
mini-refineries
Share in Mozyr
1,702
refinery
Share in Yaroslavl
7,640
refinery
Total
96,809
Share of
secondary Light product
yield
processes
58.2%
63.60%
72.1%
54%
47.3%
53%
79.8%
56%
0.0%
52%
37.6%
63%
39.1%
58%
8.9%
58%
0.0%
86%
27.05%
39.00%
26.50%
30.40%
44.30%
26.20%
38.00%
37.50%
4.30%
Nelson
Complexity
Index
4.8
5.7
5.7
5.1
1.7
3.5
4.0
2.7
1.0
Share of
fuel oil
Capex, 2012,
$ mln
4,538
354
418
257
2,446
290
451
290
32
137.0%
95%
2.50%
8.1
n/a
58.6%
62.5%
39.2%
63.0%
52.90%
56%
45%
0%
28.60%
33.80%
29.10%
0.00%
5.4
6.3
4.3
6.4
547
400
100
1
0.0%
84%
2.20%
1.0
46
63.8%
56.90%
39.20%
4.3
n/a
68.0%
56%
33.30%
7.0
n/a
58.40%
59.70%
0.00%
5.0
5,085
Source: company data, Slavneft, Infotek, Oil and Gas Journal, Neftyanaya Torgovlya, Gazprombank estimates
Key investment projects of Rosnefts refining modernization program are specified in

agreements made with the Federal Antimonopoly Service. The agreements include
32 projects, most of which should be completed by 2015.
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Rosneft and TNK-BP investments in refining modernization, $ mln

2009
2010
Tuapse refinery
208
724
Komsomolsk refinery
92
99
Angarsk refinery
79
99
Achinsk refinery
54
132
Syzran refinery
77
99
56
99
Kuibyshev refinery
69
132
Total Rosneft
635
1,383
Ryazan refinery
n/a
157
Saratov refinery
n/a
30
Linik refinery
n/a
71
Other refineries
n/a
17
Total TNK-BP
184
275
819
1,658
2011
2,007
170
204
170
170
238
204
3,163
206
221
0
31
458
3,621
2012
2,446
290
290
451
257
418
354
4,506
400
100
0
47
547
5,053
2009-12
5,385
650
672
806
603
811
759
9,687
763
351
71
95
1,464
11,151
Essentially, Rosnefts and TNK-BPs refining modernization programs consist of the

following elements:
Fuel quality program
With stricter fuel quality standards and the prospect of the fuel oil export duty being
hiked to the level of the crude export duty starting in 2015, the companys primary
goal is to accelerate the fuel quality program with the aim of fully complying with
fuel quality standards. The main projects within the fuel quality program are typically
less expensive vs. the main part of the modernization program, and typical
construction time is two to three years.
Construction and modernization of hydrotreatment units at all refineries.

This is a priority project essential for compliance with Euro 4 and Euro 5
gasoline and gasoil standards.
Construction of isomerization units at the majority of the company's

refineries. Priority projects required to comply with Euro 4 and Euro 5
gasoline standards and boost the volumes of premium gasoline production.
Alkylation units and MTBE production. Required for premium quality

gasoline production and achieving compliance with Euro 4 and Euro 5
gasoline standards.
Improvement of product mix. Reduction of fuel oil production

Complex and capital intensive projects. Typical construction time is two to five years.
Tuapse refinery modernization. The largest project in Rosneft's refining

modernization program, leading to an increase in refining capacity from 5 to
12 mln tonnes and full-scale modernization of the plant. The NCI of the
plant should exceed 8.0 vs. the current 1.7, while light products yield 90%.
The estimated cost of the project is $8.2 bln, of which $4.8 bln has already
been invested.
Hydrocracking units. An essential element in improving the product mix and

reducing fuel oil production. One of the most expensive parts of the
refining modernization program. Construction of four hydrocrackers at
Rosneft refineries and one at Ryazan refinery may cost over $8 bln.
Coking and flexicoking units. One of the most important elements in

improving the product mix and reducing the share of fuel oil production.
Substantially less expensive than hydrocracking.
Other units. Other elements of the modernization program vary

substantially across refineries depending on existing configuration,
complexity level and the competitive environment.
The company estimates investments in refinery modernization by 2017 (excl.

TNK-BP refineries) at $25 bln, and over $30 bln with installation of flexicoking
units at key Rosneft refineries and modernization of TNK-BP refineries by 2020,
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out of which $9 bln has already been spent. The company has already launched 16
new refining units.
TNK-BPs refinery modernization program envisages investments of up to $2.6 bln
until 2016 and consists of the fuel quality program and the program for
modernization of refining assets.
Key projects include construction of large hydrocracker and hydrotreatment units at
Ryazan refinery, modernization of the FCC unit at Ryazan refinery, and construction
of isomerization units at Ryazan and Saratov refineries.
Rosneft and TNK-BP investments in refining modernization, $ mln
Rosneft refining capex outlook, $ mln
5,000
8,000
4,500
7,000
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
6,000
5,000
4,000
3,000
2,000
1,000
0
2012
2005
2006
2007
2008
2009
Rosneft
2010
2011
2012
TNK-BP
2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Tuapse refinery
Achinsk refinery
Komsomolsk refinery
Kuibyshev refining cluster
Angarsk refinery
TNK-BP refineries
Rosneft refining modernization program, Russian refineries

Samara
refining
group
Distillation
Hydrocracking
Tuapse
Rosneft
Komsom Angarsk
olsk
Catalytic cracking
Coking/flexicoking
Reforming
Isomerization
Hydrotreating
Achinsk
New
capacity,
mln tpa
12
Total
12.0
1.00
13.0
2.5
0.4
0.20
3.1
5.5
5.5
3.0
24.7
0.4
MTBE
0.2
Slavneft
Yaroslavl New
*
capacity,
mln tpa
Alkylation
Total
New
capacity,
mln tpa
10
TNK-BP
Saratov
Ryazan
60.3
0.8
0.36
3.2
1.19
26.9
0.03
0.4
0.01
0.3
2.78
67.4
0.1
4.3
new construction
modernization
* effective ownership 50%

Source: Rosneft, RBC Daily, Neftyanaya Torgovlya, Gazprombank estimates
After the modernization program is completed, Rosneft expects to increase light

product yield from 56% to 80% and provide full compliance of gasoline and diesel
fuel with Euro 5 standards.
The period of active investment in refinery modernization will last until 2016. In 2013,
Rosneft will launch the first stage of its capacity expansion project at Tuapse refinery.
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Multilateral agreement on modernization of Rosnefts refineries*

Refinery
Refining unit
Angarsk
Catalytic reforming
Alkylation
Oxygenation
Hydro treating (gasoline)
Hydro treating (gas oil)
Achinsk
Catalytic reforming
Hydrocracking
Hydro treating
Komsomolsk
Catalytic reforming
Hydrocracking
Novokuibyshevsk
Isomerization
Catalytic reforming
Hydrocracking
Hydro treating
Kuibyshev
Isomerization
Catalytic reforming
Catalytic reforming
Oxygenation
Catalytic cracking
Hydrocracking
Syzran refinery
Catalytic reforming
Catalytic reforming
Alkylation
Oxygenation
Catalytic cracking
Tuapse
Isomerization
Catalytic reforming
Hydrocracking
Design capacity
Reconstruction
130
70
500
4,000
1,000
2,000
1,600
Reconstruction
2,000
1,600
280
1,200
2,000
2,750
280
Reconstruction
Reconstruction
150
1,250
Reconstruction
Reconstruction
Reconstruction
Reconstruction
160
40
1,250
2,500
800
1,500
4,350
4,100
Expected launch date

2011
2014
2014
2014
2014
2016-2020
2014
2014
2011
2014
2014
2013
2013
2014
2014
2013
2011
2013
2013
2014
2011-2012
2011
2014
2011
2014
2014
2014
2014
2013
2013
2013
2013
* agreements between Rosneft, Federal Antimonopoly Service, Russian Standards Service, Rostekhnadzor (Russian technical
supervision service)
Source: RBC daily, Gazprombank estimates
Rosneft Nelson complexity index of key Rosneft refineries before and after
modernization program
Share of fuel oil product mix before and after modernization, %
12
90%
9.8
10
8.0
7.8
5.8
5.7
5.7
5.1
4.0
4
2.7
56%
60%
50%
3.5
1.7
40%
30%
28%
Angarsk
Achinsk
Syzran
Tuapse
Komsomolsk
Before modernization
Novokuibyshevsk
20%
Kuibyshev
70%
7.2
5.7
80%
80%
8.9
After modernization
5%
10%
0%
Before modernization
Share of fuel oil
After modernization
Light product yield
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Risks of refinery modernization

The key risks associated with the refinery modernization program include:
Unfavorable regulatory changes after completion of the main part of refining

modernization by Russian oil majors.
Oversupply of diesel fuel in several regions of Russia.
Lack of sufficient and efficient transportation capacity for gasoline and diesel.
Substantial increase of diesel and gasoline exports to Europe, incurring higher

transportation costs, pressure on European refining margins and reduction of
European product prices.
Errors in analysis of the competitive landscape, determining optimal

configuration of refineries, choice of equipment.
Capex overruns, especially in an environment of massive refinery modernization
Risk of the closure of more basic refineries due to reduction of profitability.
Key risks of refining modernization program

Key risks
Ways of mitigation
Unfavorable changes of regulation after completion of Open and consistent dialogue with regulators, industry
the main part of refining modernization
participations in elaboration of long-term regulatory
environment for refining in Russia
Oversupply of diesel fuel in several regions of Russia
Optimization of transportation channels, construction
of South and extension of North oil product
pipelines. De-bottlenecking of Transnefteproduct
network and its extension to Achinsk refinery
Lack of efficient transportation capacity for gasoline and Extension of Transnefteproduct pipeline networks.
diesel
Long-term agreements with Russian Railways and
railroad operators
Substantial increase of diesel and gasoline exports to Optimization of products marketing, improving
Europe, incurring higher transportation costs, pressure relationships and concluding LT contracts with oil and
on European refining margins and reduction of European products traders and end customers, optimization of
products prices
supply channels
Errors in analysis of competitive landscape, determining Extensive analysis of own and competitors
optimal configuration of refineries, choice of equipment
modernization programs, optimization of the
remaining parts of the programs
Capex overruns, especially in an environment marked by Strict control over capex budgets, capturing economies
massive refinery modernization in Russia
of scale and potential savings from duplication of
typical solutions at different refineries
Risk of the closure of mini-refineries due to reduction of Dialog with the regulators on the potential role of
profitability
mini-refineries
Comment
Reduction of refining margins likely after
modernization. Key drivers of refining margins
geographical location and configuration of refineries
Refineries located in Volga regions are in higher risk
zone, at least until construction of South products
pipeline to Novorossiysk
Companies have to further develop product marketing

strategies and supply channels as European market
becomes more competitive. Strict adherence to fuel
quality standards becomes essential
Synergy potential between neighbor refineries has to
be fully used. The problem of increasing sulfur
content has to be addressed
Massive modernization exerts pressure to equipment
and construction costs
Regulators have to make a decision on the future of
mini-refineries. At least part of them remain essential
for products supply to remote regions
Production, consumption and exports of key oil products in Russia, mln tonnes
100
Key oil product balance, mln tonnes

60
80
40
60
20
40
20
0
-20
Gasoline
Diesel fuel
Fuel oil
Other
-20
-40
-40
-60
-60
Russia
-80
Production
Consumption
Exports
Source: Neftyanaya Torgovlya, Federal Customs Service, Gazprombank estimates
Europe
Gasoline
Middle East
Gasoil
Asia-Pacific
North America
Fuel oil
Source: ENI, Gazprombank estimates
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As one of the key risks we note that an expected increase of volumes of diesel production
as a result of the refining modernization process may lead to an oversupply of diesel fuel,
which is already the key export oil product in the Russian market. At the same time, the
construction of new refineries and higher diesel output in the Middle East and Asia-Pacific
countries may increase exports to Europe and thus reduce demand on key export
markets for Russian diesel.
Less sophisticated refineries, which comprise the bulk of small-scale facilities in
Russia, may experience a sharp drop in profitability and face the risk of bankruptcy,
unless specific exemptions are provided for such players. The modernization of
medium and large-scale refineries is controlled via multilateral agreements with
several regulatory bodies.
Retail business development

After the acquisition of TNK-BP, Rosneft became the leader on the Russian market
by retail sales volume and the number of retail stations, which are located in most
regions of the country. Rosneft has 2,801 retail stations, of which 2,443 are located
in Russia, and three retail brands BP, Rosneft and TNK, covering main customer
segments from premium to popular.
Rosneft retail stores breakdown by brand, number of stations
Rosneft retail stores by brand
BP
TNK and other
Rosneft
Total
Total
124
864
1,813
2,801
In Russia
121
677
1,645
2,443
Due to the geographic positions of its refineries, Rosneft has especially strong
marketing positions in East Siberia and the Far East. The company also has a
footprint on the Ukrainian and Belarusian markets. The average sales volume
through a station of 12.7 tpd is 8% above the average for Russian oil majors.
Key Rosneft and TNK-BP retail assets
Belarus
Mozyr
Mozyr
Mozyr refinery
refinery
refinery
refinery
Mozyr
Mozyr
Mozyr
refinery
YaNOS
YaNOS
YaNOS
YaNOS
YaNOS
YaNOS
Ukraine
Lisichansk
Lisichansk
Lisichansk
Lisichansk
Lisichansk
Lisichansk
refinery
refinery
refinery
Tuapse
Tuapse
Tuapse
Tuapse
Tuapse
Tuapse
refinery
refinery
refinery
Ryazan
Ryazan
Ryazan refinery
refinery
refinery
Russian
Federation
Syzran
Syzran
Syzran refinery
refinery
refinery
refinery
Syzran
Syzran
Syzran
refinery
Saratov
Saratov
Saratov
Saratov
Saratov
Saratov
refinery
refinery
refinery
refinery
refinery
refinery
Kuibyshev
Kuibyshev
Kuibyshev
refinery
refinery
Kuibyshev
Kuibyshev
Kuibyshev refinery
refinery
refinery
refinery
Novokuibyshevsk
Novokuibyshevsk
refinery
refinery
refinery
Novokuibyshevsk
Novokuibyshevsk
Novokuibyshevsk
refinery
Achinsk
Achinsk
Achinsk
refinery
refinery
Achinsk
Achinsk
Achinsk refinery
refinery
refinery
refinery
Legend
Angarsk
Angarsk
Angarsk refinery
refinery
refinery
refinery
Angarsk
Angarsk
Angarsk
refinery
Retail marketing (>10 sites)

Rosneft
TNK-BP
Rosneft and TNK-BP
Komsomolsk
Komsomolsk
Komsomolsk
Komsomolsk
Komsomolsk
Komsomolsk
refinery
refinery
refinery
Refineries
Rosneft
TNK-BP
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Retail sales ensure stable marketing of key oil products gasoline and diesel fuel at
premium prices. The opportunity to sell additional volumes in Russia is no less
important than getting added retail premium. Distribution to the Russian market of
domestically refined oil products remains the most profitable large channel of crude
allocation for Russian oil companies.
Average realized prices in Russia substantially exceed the level of wholesale prices, mostly
due to the better structure of oil product sales (no fuel oil sales through retail channels),
higher average sales prices. We estimate the net retail margin in Russia at $150-200/tonne.
Rosneft currently sees opportunities to scale up its presence in the markets of St Petersburg,
the Volga region and Southern Russia. The company also plans to substantially expand the
sales of compressed natural gas through its own retail network.
The key retail markets in Russia are the Moscow and St Petersburg regions, and
Rosneft has access to both of them via Ryazan and Yaroslavl refineries.
Notably, Rosneft has achieved remarkable progress in rolling out its own retail network
and inherited an efficient TNK-BP retail chain, including premium BP retail stations.
Average realized prices of petroleum product sales in Russia, 2012, $/t
Rosneft
Wholesale
650
Retail
946
Retail premium, $/t*
296
Retail premium, %
45.5%
Average
743
Lukoil
697
981
284
40.8%
820
Bashneft
589
966
377
64.0%
637
* gross retail premium excluding the effect of a better retail sales structure and additional transportation and SG&A costs
An additional opportunity to further increase the retail margin arises from selling branded
fuels (BP Ultimate, Rosneft Fora, TNK Pulsar) and opening stores at retail stations.
Amid increasing competition on the domestic product market due to the effects of
refining modernization, the development of a retail network, especially in regions
adjacent to key refining facilities, becomes an important goal for Russian oil companies.
The most attractive markets for product marketing lie within a range of 500 km
from the refineries and it is economically viable to locate retail stations in a range of
1,000 km from refineries. More remote markets can be efficiently accessed in case
there are no other refineries in the region (East Siberia, Far East).
Retail exposure of Rosneft vs other Russian oil companies, 2012
TNK- Rosneft+
Gazprom
Rosneft
Lukoil
Bashneft
BP TNK-BP
Neft
Number of retail stations
1,645 798
2,443 2,336 1,060
488
in Russia
Total number of retail
1,650 1,151
2,801 5,600 1,609
488
stations
Throughput per station,
11.8 14.6
12.7 8.8 17.7*
7.6
tonnes/day
Retail sales, mln tonnes
6.8 4.2
11.0 8.9
6.9*
1.4
% of domestic sales
31.8% 30.4% 31.2% 43.5% 27.5% 12.7%
Tatneft SurgutNG
Russian oil
majors
506
298
7,131
641
298
11,437
6.5
8.2
11.7
1.5
38.9%
0.9
56.1%
30.6
31.5%
* in Russia
The post-merger market share limitations, imposed by the FAS, affect only a limited
number of regions, and minimal divestments are required for compliance.
We see substantial room for further development of the companys retail network,
mostly in the following ways:
expanding retail presence in Volga and Urals regions to increase demand for motor
fuels produced by the company's refineries in Volga region, and increase the quality
of the retail network in these areas in order to further boost market share;
creating efficient channels for evacuation of products from company refineries in

Volga region. Development of infrastructure and expansion of retail network in
the regions covered by such channels;
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further development of the company's loyalty program;
reaching an agreement with BP or creating a potential JV on further development of

BP's branded retail network in Russia;
increasing the number of stores at Rosneft retail stations, targeting consistent

development of non-fuel sales through the retail network; and
lifting compressed natural gas sales through Rosnefts retail network.
International projects: a selective approach

Until 2010, Rosnefts portfolio of international assets did not play a significant role in
the companys overall business. The first significant international forays were the
acquisition of a 50% stake in Ruhr Oel and the creation of a strategic partnership
with ExxonMobil, which, in addition to partnering on Arctic development,
presupposes future cooperation on projects in different parts of the world.
Key Rosneft international projects
Except for projects in Venezuela, Rosneft plans to use most of its international
projects to gain experience, particularly in offshore project development, gas
projects, and oil production from complex projects.
Key Rosneft international projects include the following:
US and Canada
30% interest in 20 non-producing ExxonMobil greenfield blocks in the Gulf

of Mexico, minority shares in several tight oil fields in the US and Canada.
30% interest in the unconventional project La Escalera Ranch in West

Texas.
30% interest in Hartmann acreage of the Cardium formation in Alberta,

Canada.
an option to acquire a 25% interest in the Point Thomson natural gas and
condensate project in Alaska operated by ExxonMobil.
Germany
Ruhr Oel JV (50%/50% Rosneft with BP). Acquired at end 2010, Rosnefts
50% stake in Germanys Ruhr Oel Group is the companys sole asset in the
European market and its largest asset outside Russia. Ruhr Oel has stakes in
four German refineries, with total effective refining capacity of 470 mln bpd,
which constitutes 20% of the total German refining market. The other 50%
is owned by BP, which operates the refineries. By participating in the
project, Rosneft benefits from acquiring technological and marketing
expertise, as well as additional crude marketing channels. Nonetheless, we
expect that European refining will not have a material effect on Rosnefts
EBITDA in the medium term.
Italy
A 13.7% stake in Saras refinery, with 300 kbpd of refining capacity, 80% light
product yield and a 10.1 Nelson complexity index.
50/50 JV with Saras S.p.A. on crude processing and product marketing.
Venezuela
National Petroleum Consortium (Junin-6). Rosneft is one of the key

participants of the National Petroleum Consortium, holding a 24% stake.
The license blocks contain resources of up to 50 bln bbl. Production started
in 2013 and could reach 50 kbpd by year end. Peak production volume is
expected to be reached by 2016 and total 450 kbpd.
Carabobo-2 (40% Rosneft, 60% PDVSA). Rosneft has reached an

agreement with Venezuelan state oil company PDVSA to acquire a 40%
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stake in the heavy oil field Carabobo-2 for $1 bln. According to the terms
of the agreement, Rosneft has also provided loans worth $1.2 bln to
PDVSA. The estimated resource base of the project is 6.5 bln bbl with peak
production volumes possibly reaching 420 kbpd.
Vietnam
HRT Oil & Gas (Rosneft 45%, HRT Oil & Gas 55%). In March 2012, TNK-BP
acquired an interest in concession agreements for 21 exploratory blocks in
the Brazilian Solimoes Basin. According to the acquisition agreement, starting
from April 2012 the company should pay $1 bln in five semi-annual
installments. Estimated probable reserves amount to 789 mln boe.
Production of hydrocarbons is set to start in 2013.
China
In 2011, TNK-BP acquired an interest in gas producing field Block 06.1 (Rosneft
35%, ONGC 45%, PetroVietnam 20%) and the related Nam Con Son pipeline
(TNK-BP 32.7%, PetroVietnam 51%, ConocoPhillips 16.3%). The groups net
share of gas production from the gas fields amounted to 16 kboepd in 2012.
Estimated reserves of the fields amount to 30.6 mln boe.
Brazil
JV PetroMonagas (16.7% Rosneft, 83.3% PDVSA). The acquisition of

interests in the operations was completed by TNK-BP in June 2011.
PetroMonagas produces and processes heavy crude oil into synthetic crude
for sale. Estimated oil reserves amount to 200.3 mln boe, with TNK-BPs
share in production totaling 22 kbpd in 2012.
Tianjin refinery. (JV Rosneft 49%, CNPC 51%). In 2010, the partners signed
an agreement to prepare a feasibility study for construction of a refinery in
the Chinese city of Tianjin, which is 40 km from the coast. The refinery will
have a capacity of 13 mln tpa with a light product yield of more than 80%.
Thus, 9 mln tpa of the refinery's overall capacity of 13 mln tpa is expected
to be imported from Russia. Petrochemical facilities and a network of filling
stations should be added later.
Other international projects
Kurmangazy, Kazakhstan. (25% Rosneft, 50% KazMunaiGas, 25% managed

by Rosneft). The license blocks are located on the Kazakh continental shelf.
Two exploration wells were unsuccessful, and negotiations on the project's
future continue.
Aday block, Kazakhstan. (50% Rosneft, 50% Sinopec). PSA project in the
Atyrau region in West Kazakhstan. The project is in the stage of 2D
exploration and 3D seismic data acquisition.
We expect Rosneft to maintain a relatively moderate share of international projects

in the medium term. The focus areas for the company, in our view, will be
Venezuela, CIS countries, and European downstream assets. Rosneft will also
consider participation in the projects of its partners especially in the offshore
upstream, LNG and the tight oil business.
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Key Rosneft international projects

Project stage
Current
production/start of
production, year
Peak
production
Reserve estimates
Signed, evaluation of
potential international
projects for joint
development
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
% share
Country
Strategic partnership with ExxonMobil (exploration of

Russian Arctic)
67%
Russia
Strategic partnership with ExxonMobil (option for Rosneft to

acquire a project operated by ExxonMobil in Alaska)
25%
US
30%
US
n/a
Russia
n/a
Russia
n/a
Russia
Venezuela National Petroleum Consortium
24%
Venezuela
Extra-heavy oil greenfield

opportunity
n/a / 2014
Carabobo-2
40%
Venezuela
Production of heavy oil
0/2016
Adaysky block
50%
Kazakhstan
Exploration
Kurmangasy
25%
Kazakhstan
Exploration
n/a
2 wells failed to
produce crude; 3
wells to be drilled
60% controlled
by JV RosneftStroytransgas
Algeria
Exploration
JV PetroMonagas
17%
Venezuela
Block 06.1
35%
Vietnam
33%
45% of 21
exploratory blocks
Rosneft stake
Vietnam
Ruhr Oel refining (50% share)
50%
Germany
Saras refinery
13.7%
Italy
Tianjin refinery
49%
China
Acquisition of Gulf Mexico blocks held by ExxonMobil

Partnership with Statoil (exploration of the Barents Sea and
Sea of Okhotsk)
Partnership with Eni (joint exploration of the Black and
Barents Seas)
JV with CNPC (exploration of three blocks in the Barents
and Pechora Seas)
Signed strategic
cooperation agreement
Signed strategic
cooperation agreement
Signed partnership
agreement for joint
development
Exploration and production
Block 245-south, Algeria
Nam Con Son pipeline

HRT O&G
Refining and marketing
n/a
450 kboepd in
2016
420 kbpd in
2020
n/a
6.5 mln bbl
n/a
n/a
n/a
n/a
Production and processing

35 kboepd
22 kboepd share
of heavy crude oil into
share of TNKof TNK-BP
synthetic crude
BP
Offshore upstream
15 kboepd of gas
n/a
production
Gas pipeline
n/a
n/a
Brazil
Onshore exploration
Country
Status
0/2013
Refining capacity
11.7 mln tpa
Operating
(235 mln bpd)
(Rosneft share)
Rosneft share 41.1
Operating
mln bpd
Preparation of feasibility 13 mln tpa (260.4
study
mln bpd) 100%
50 mln bbl
n/a
200.3 mln boe

30.6 mln boe
n/a
probable
789 mln
n/a
boe
Nelson complexity index
Rosneft share average 8.1

(ranging from 6.8 to 9.4)
10.1
>8
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Rosneft dividend policy 25% of IFRS net income

Rosneft has traditionally adhered to a conservative dividend policy with the bulk of the
cash flow directed to large-scale acquisitions and intensive business development.
In June 2012, Rosneft made a radical change in dividend practices following a request from
Russias President. The company boosted the dividend payout to 25% of consolidated IFRS
net income from 2011 and unveiled plans to maintain this level in the future.
In September 2013, the government approved a plan to increase state companies
dividends to 35% of IFRS net income starting from dividends for 2015. We note the
substantial probability of a further increase of Rosnefts dividend payout to 35%, but
at this stage we conservatively forecast dividends at 25% IFRS net income until 2020.
At the same time, the official dividend policy of paying as a rule at least 10% of nonconsolidated RAS net income of the parent company of Rosneft group has not been
changed yet.
Dividend policy: Rosneft
Formal dividend policy
Dividend practice
Management guidance
Dividends for 2012
Dividend yield, 2012
Payout ratio, since 2011
>10% of RAS net income of the head company of Rosneft Group

25% of IFRS net income
Stay in compliance with 25% IFRS-based payout ratio
RUB 8.05
3.1%
25% of IFRS net income
Currently, Rosneft is not planning any share buybacks.

Rosneft dividend history
Dividends
announced on
Non-consolidated Payout ratio, % Net income attributable Payout ratio, %
all issued Dividend net income under
of RAS net
to shareholders of
of IFRS net
shares per share
RAS
income
Rosneft under IFRS
income
RUB mln
RUB
RUB mln
%
RUB bln
%
2004
1,755
0.19
17,553
10
2005
11,336
1.25
56,678
20
2006
14,096
1.33
106,031
13.3
2007
16,957
1.6
162,022
10.5
2008
20,349
1.92
141,313
14.4
2009
24,376
2.3
208,180
11.7
155
15.7
2010
29,251
2.76
191,916
15.2
293
10.0
2011
78,492
7.53
236,819
33.1
316
24.8
2012
85,315
8.05
302,501
28.2
341
25.0
Source: company data, Gazprombank estimate
Dividend yields of Rosneft vs. Russian and international majors, 2012, %

7.7%
5.3% 5.3% 5.3% 5.2%
TNK-BP Holding pref
0.0% 0.0%
TNK-BP Holding ord
YPF
0.8% 0.5%
Transneft pref
1.3%
Bashneft
SurgutNG
NOVATEK
1.9% 1.8% 1.8%
Bashneft pref
ExxonMobil
3.1% 2.8%
2.5%
Chevron
ConocoPhillips
Tatneft
Petrochina
Petrobras
Gazprom
Lukoil
RD Shell
Statoil
Total
BP
ENI
SurgutNG pref
Gazprom neft
4.4% 4.1%
4.0% 4.0% 3.9% 3.7%
Rosneft
6.7% 6.3%
5.9%
Tatneft pref
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Source: company data, Bloomberg
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Key financial forecasts

Our forecasts are based on a proprietary DCF financial model for the period until
2020.
Key model assumptions
stable $100+ oil prices, reaching $121/bbl in nominal terms by 2021.
oil product pricing on domestic market mostly based on export parity principle.
Rosneft hydrocarbon production of 5.9 mln bpd by 2020, including 4.4 mln bpd
of oil and 1.5 mln boepd of gas, 1.2% crude and 2.7% hydrocarbon organic
production CAGR by 2020.
slowdown in growth rates of domestic regulated gas tariffs to 5-6% per annum
in 2015-20.
relatively stable ruble exchange rates, reaching RUB 33.3/$ by 2020.
gradual increase of MET tax and reduction of export duties in 2014-16, export
duty for fuel oil at 100% of crude oil duty from 2017.
moderate increase in excise taxes, rising on average by ca. 30% by 2021 in

nominal terms.
substantial improvement of the refining basket in 2016-17 after completion of

key refinery modernization programs.
Transneft tariffs rising within the level of inflation.
WACC of 10.2%.
terminal growth rate of 1%.
Brent oil price forecast, $/bbl
RUB/USD forecast
130
34.0
120
33.0
110
32.0
100
31.0
30.0
90
29.0
80
28.0
70
27.0
60
26.0
50
2020E
2019E
2018E
2017E
2016E
2015E
2013E
2012
2011
2010
2009
2008
2007
2006
2005
2020E
2019E
2018E
2017E
2016E
2015E
2014E
2012
2011
2010
2009
2008
2007
2006
2005
2013E
24.0
2014E
25.0
40
Revenues. We expect Rosnefts revenues to be driven by a gradual increase of the

oil price on international markets, oil product prices, indexation of domestic gas
tariffs, and further growth in oil and gas production.
The effect from the TNK-BP acquisition will be fully accounted in Rosnefts financial
statements for the first time in 2014, as the company was consolidated into Rosneft
group only at end March 2013. The largest component of Rosnefts revenues
remains sales of crude oil on international markets, accounting for over 44% of total
revenues. Two other key revenue components include international and domestic
oil product sales, accounting on average for 25% and 20% of total revenues for
2013-20, respectively.
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We see toughening competition on the domestic oil product market after the
completion of refining modernization by key Russian oil majors, which may exert
pressure on the realization prices of oil products on the domestic market, especially
in Volga region, where there is a high concentration of refineries.
The share of gas in Rosnefts revenue structure was only 0.7% in 2012, but we
expect it to increase to 5.5% by 2020 as a result of the acquisition of ITERA, the
launch of the Kharampur field, production growth at key gas greenfields of the
united company, and higher associated gas utilization. The key variable determining
the outlook for gas revenues remains the growth rates of domestic gas prices. The
government intends to cap domestic gas prices within the inflation rate.
Rosneft revenue structure, $ bln
Rosneft operating expenses, $ bln
250
200
150
100
50
0
2011
2012
2013E
2014E
Oil international sales

Oil products domestic
Gas domestic sales
2015E
2016E
2017E
2018E
2019E
2020E
Oil domestic sales

Oil products international sales
Other
200
180
160
140
120
100
80
60
40
20
0
2011 2012
Operating expenses
Transportation
2013E
2014E 2015E
DD&A
2016E
2017E
2018E 2019E
SG&A
2020E
Export duties
Other
Key operating expenses

Taxes other than income. The largest items in Rosnefts operating expenses are
taxes other than income the Mineral Extraction Tax (MET), export duties, excise
tax, property and other taxes accounting for over 57% of total operating
expenses. Key taxes in the Russian oil sector are revenue-based, as they are
calculated by special formulas depending on the oil price on international markets.
Gas MET is expected to be calculated using a similar formula starting from July 2014.
The government introduced a number of MET tax breaks and some export duty tax
breaks to stimulate development of oil greenfield projects and hard-to-recover
reserves. Over 2014-16, the government decided to gradually increase the oil MET
and reduce export duties.
In the refining and marketing segment, the government announced plans to raise the
export duty for fuel oil to 100% of the crude oil export duty, which is the key
regulatory stimulus for refining modernization. However, we assume that the
introduction of a 100% export duty for fuel oil, which would eat into the export
margin on heavy products, could be postponed for two years to 2017 to allow oil
companies (including Rosneft) time to complete key refinery modernization projects.
An important variable remains the growth rates of excise taxes on oil products.
Scheduled growth of excise taxes is 14% on Euro 5 gasoline and 19% on diesel by
2015. After 2015, we expect excise taxes to grow presumably in line with inflation.
We do not believe Russian oil companies will be capable of fully passing on to
domestic customers the anticipated increase of domestic excise taxes on gasoline
and diesel fuel. Excise tax rates for lower-quality diesel fuel and gasoline will be
substantially higher than for Euro 4 and Euro 5 products, which is an additional
incentive for oil companies to improve the quality of their oil products.
After the acquisition of TNK-BP, Rosneft will become the largest taxpayer in Russia.
We expect key taxes, including taxes other than income and export duties, to
account on average for 51% of Rosnefts revenues in 2013-20.
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Excise taxes for diesel and gasoline, $/tonne
Export duty for crude and products, % of crude duty
600
110%
500
100%
90%
400
80%
300
70%
200
60%
100
50%
0
2011
2012
Diesel Euro-5
2013
2014
2015
2016
Gasoline Euro-5
2017
2018
Diesel Euro-3
2019
2020
Gasoline Euro-3
Source: Consultant Plus, Gazprombank estimates
40%
2011
2012
crude oil
2013
2014
2015
gasoline
2016
2017
2018
2019
middle distillates
2020
fuel oil
Source: Consultant Plus, Gazprombank estimates
Crude and oil products purchased. Rosneft acquires crude oil from associated
companies, other oil companies and the market for its foreign refineries (Ruhr Oel)
as well as trading operations. Oil products are mainly purchased for the companys
marketing network in Russia. We expect the share of crude and product purchases
in total operating expenses to be relatively flat until 2020, rising from 9.6% in 2013
to 10.5% in 2020.
Operating expenses and transportation costs. Except for taxes and export duties, the
largest cash components of operating expenses are direct operating costs and
transportation costs, which we expect to account for 9.8% and 8.2% of total
operating expenses in 2013-20, respectively.
Operating expenses. An increase in the depletion rates of the company's

key fields and the higher complexity of Rosneft refineries as a result of the
refinery modernization program will put pressure on the level of operating
costs. That said, the higher quality of Rosneft's reserve base vs. Russian oil
majors and the highest volume of greenfields in the upstream portfolio as
well as a higher scope of application of the latest production technologies
and cost-cutting efforts should enable the company to keep the growth
rates of operating costs at a CAGR of 6.0% in 2014-20 on the background
of 1.2% expected oil and 2.7% hydrocarbons production growth.
Transportation costs. The volume of transportation costs will be

determined by the level of Transneft and railroad tariffs as well as changes
in average transportation volumes of Rosneft crude and oil products. We
expect Transneft and railroad tariffs to be capped by the level of inflation
until 2020. Still, we estimate the CAGR of transportation costs to average
5.5% in 2014-20, moderately exceeding the level of inflation due to
increased crude oil output as well as average crude transportation distance
due to the higher share of exports to China, and changes in the turnover
structure.
DD&A. Statements by Rosneft management indicate a high likelihood that TNK-BPs

DD&A rates will be increased to the level of Rosneft, which may reduce EBIT by ca.
$300-500 mln in 2014, but likely with no substantial effect on cash flow.
Exploration expenses. We expect the volume of exploration expenses to almost
triple in 2013-2020 due to substantially higher scope of the exploration program
and a shift in focus to new regions. Still, they would have a minor share in Rosnefts
overall operating expenses.
EBITDA and EBITDA margin. We forecast Rosnefts EBITDA margin to be relatively
stable over the forecast period, fluctuating around the 20% level. Overall cost
inflation, higher electricity prices, excise taxes and transportation tariffs should exert
substantial pressure on Rosnefts profitability. This, however, should be
counterbalanced by cost control and optimization efforts as well as the effect of tax
breaks on greenfields.
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Rosneft EBITDA and EBITDA margin outlook, %
Rosneft FCF outlook, $ bln
45
40
35
30
25
20
15
10
5
0
35%
50
30%
40
25%
20%
2012
2013
2014
EBITDA
2015
2016
2017
2018
2019
20
10
15%
10%
-10
5%
-20
0%
2011
30
2020
EBITDA margin (RHS)
-30
2011
2012
2013
2014
2015
OCF less tax
2016
CAPEX
2017
2018
2019
2020
FCF
* OCF and FCF adjusted for long-term prepayments for crude delivery
Rosneft capex outlook

We expect the evolution of Rosnefts capex program to be defined by the following key
elements: 1) onshore greenfield developments; 2) maintenance and stimulation of
brownfields; 3) refinery modernization; and 4) development of offshore Arctic projects.
Rosneft has yet to present the integrated companys updated long-term strategy to
the market. One of the central elements of Rosnefts new strategy will be to identify
the companys strategic priorities and goals by key business segments as well as
provide clear prioritization of the vast array of the companys projects.
Excluding the effect of further potential acquisitions, we expect Rosneft to spend over
$190 bln in 2013-20. According to the companys guidance, over 80% of capex will be
spent in the upstream segment. The companys capex guidance for 2013 is $20-24 bln.
Brownfields. The largest element of Rosnefts capex program will be maintenance of
the companys brownfield portfolio. Ensuring a sustainable long-term production
trend at the companys core brownfields requires a consistent flow of investments in
drilling, hydrofracing and other methods of production stimulation. One of the key
goals is to contain the decline rates of TNK-BP brownfields, including the giant
Samotlor field. Gradually declining quality of the reserve base calls for the application
of more sophisticated and more expensive technologies. We expect investments in
Rosneft brownfields to exceed $80 bln until 2020, or ca. $10.6 bln per annum on
average, tending to rise by the end of the decade.
Greenfields. We estimate that the development of Rosneft greenfields, including key
greenfield clusters in the Vankor area, East Siberia and gas greenfields, would require
some $67 bln by 2020, or $8.4 bln per year on average. Investment in greenfields is
supported by a stimulative tax policy, designed to provide a 16.3% IRR over the life
of the projects, primarily through the provision of MET tax breaks. Based on the
current set of Rosneft projects, we expect consolidated greenfield capex to peak in
2016-17 at ca. $7.0 bln per year.
Gas program. In the upstream segment, investments in the gas program will be
mainly channeled into development of gas greenfields, with the largest projects being
Kharampur and Rospan. We expect investments in Rosnefts gas program until 2020
to reach over $11 bln. Rosneft is also considering building an LNG plant on Sakhalin
Island by 2018. The cost of the project is preliminarily estimated at over $10 bln.
We do not factor the Sakhalin LNG plant into our model, as a final decision has yet
to be reached on the project.
Upstream international projects. Rosnefts international upstream projects are mostly
concentrated in Venezuela, where the company has five major projects, including
Junin-6 and Carabobo-2, as well as three ex-TNK-BP projects. Other international
upstream assets include several projects in the US Gulf of Mexico, Canada, Vietnam
and several other countries. We estimate Rosnefts capex requirements for
international upstream project development at over $9 bln by 2020 (or $1.2 bln per
year), the bulk of which would be allocated to Venezuela. We estimate
consolidated upstream capex in existing projects at over $3 bln.
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Offshore project development. Over 90% of Rosnefts offshore projects are located
in the Arctic region and are among the most technologically challenging and
expensive offshore projects in the world. Capex for construction of one production
platform in the Arctic may exceed $10 bln. Total capex in Arctic offshore projects
may exceed $120-150 bln by 2020. However, we do not expect Rosnefts share in
the financing of offshore projects to exceed $50 bln until 2020. The exploration
stage will be entirely financed by Rosnefts partners on a risk basis, and we believe a
similar scheme will likely be applied to further development of Arctic projects in
case of substantial discoveries. The projects are likely to be predominantly financed
by Rosnefts partners, with the expenses compensated by Rosneft at a later stage
from project revenues. At this stage, we do not include capex for offshore project
development in our Rosneft capex forecasts.
Refining modernization program. We expect Rosnefts capex for the refining
modernization program to exceed $30 bln by 2020 in nominal terms, or $3.9 bln
per year on average. A comparative analysis of Rosnefts refining modernization
program with peers leads us to believe that the capex estimates for the refining
modernization program may be further increased by up to $10 bln for 2017-21,
with additional investments required to reduce the share of fuel oil in the refining
basket to 2-3% at Rosneft refineries and complete the modernization process of
TNK-BP refineries. We do not include potential additional investments in refining
modernization at this point.
Other downstream projects. Except for refining modernization projects, Rosnefts
key potential downstream projects include construction of a Far East petrochemical
complex, a greenfield refinery in China (Tianjin), potential construction of an LNG
plant on Sakhalin, and potential greenfield refineries in Moscow region and the
Chechen Republic in the North Caucasus. There is still a high level of uncertainty as
to the configuration and time frame for the construction of the Far East
petrochemical complex and Tianjin refinery as well as the likelihood of
implementation of other projects. We do not include these projects in our capex
forecasts at this stage.
Effect of potential acquisitions. We do not include budgets for acquisitions or the
effects of potential acquisitions in our capex modeling.
Rosneft capex outlook, $ mln
30,000
25,000
20,000
15,000
10,000
5,000
0
2013E
2014E
2015E
Rosneft brownfields
TNK-BP brownfields
2016E
Rosneft greenfields
2017E
TNK-BP greenfields
2018E
Refining and marketing
2019E
2020E
Other
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Free cash flow and dividends

In line with our oil price scenario, which envisions gradual growth in the Brent price
to $121/bbl by 2020 and our capex forecasts and the companys current capex
guidance of over $200 bln until 2022, we expect the volume of Rosnefts FCF to
increase to $9.0 bln by 2015 and $15 bln by 2020. Substantial growth of the FCF
profile by the end of the forecast period is a result of gradually rising oil prices, oil
and gas production growth. Our forecasts do not account for offshore Arctic
projects and acquisitions, which could substantially reduce the level of free cash flow
available to the company.
Beginning with dividends for 2011, Rosneft adopted a new dividend practice of
paying 25% of IFRS net income as dividends. We expect the company to stick to the
25% payout ratio in the forecast period. The Government currently considers
further increase of dividend payouts by state-controlled companies to 35% of net
income from 2015-2016.
Prepayments on oil supply agreements
In 2013, Rosneft has entered into several large-scale long-term contracts on crude
deliveries envisaging long-term prepayments from customers. According to Rosneft
management, the prepayment mechanisms involve a discount to market prices of
crude oil, calculated on the basis of prepayment volumes, LIBOR rates and some
premium over LIBOR. The terms of prepayments with oil traders and PKN Orlen
have a higher premium over LIBOR vs. that of CNPC.
The largest prepayment was arranged within the framework of a long-term contract
with CNPC. Rosneft management confirmed that information on the size of
prepayment published in the press (over $65 bln) was relatively accurate and stated
that the prepayment was split into five tranches, of which the first two should be
available quite soon. Near 50% of the total volume of the prepayment should be
provided by 2015.
Except for CNPC, Rosneft has also concluded long-term crude delivery contracts
involving prepayment with oil traders Glencore, Vitol and Trafigura as well as with
Polish oil refinery PKN Orlen. The volume of prepayment agreed with Glencore and
Vitol totals $10 bln. The volume of arranged prepayments with Trafigura and PKN
Orlen was not disclosed, but we estimate that it might have totaled ca. $5 bln.
Rosneft management made clear that it plans to actively use contracts with
prepayments in the future.
Thus, the total volume of the arranged prepayments is nearly $75 bln, which
exceeds the volume of Rosnefts debt. Of this volume, over $30 bln should be
available to Rosneft within a year, and we estimate an additional $15 bln by 2015.
The key question remains whether the company will use prepayments for
refinancing and acceleration of the capex program or would prefer to consider
further large-scale acquisitions.
Rosneft debt and long-term prepayments, $ bln
Rosneft net debt, $ bln

80
70
60
50
40
30
20
10
0
-10
90
80
70
60
50
40
30
20
10
0
2011
2012
2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Short-term debt
Long-term debt
Long-term prepayments
2011
2012
2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Net debt
Net debt with prepayments
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We expect Rosnefts net debt/EBITDA ratio to decrease from 2.0x as of June 30,
2013 to 0.8x by 2015 and become negative from 2018.
Debt and net debt to EBITDA
Debt and net debt plus long-term prepayments to EBITDA
3.0
3.5
2.5
3.0
2.0
2.5
1.5
2.0
1.0
1.5
0.5
1.0
0.0
0.5
-0.5
2011
2012
2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Debt to EBITDA
Net debt to EBITDA
0.0
2011
2012
2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Debt to EBITDA
Net debt to EBITDA
Rosneft likely to optimize its debt portfolio in 2013-14

Given the additional flexibility that the company received by drawing long-term
large-scale prepayments for crude deliveries from customers, we expect Rosneft to
optimize its debt portfolio in 2013-14 by partially or fully refinancing the syndicated
loans drawn for the TNK-BP acquisition with new debt, extending the maturity of
the portfolio and likely increasing the share of market debt instruments, as well as
partially repaying upcoming debt maturities from the companys operating cash flow.
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Rosneft financial model

Income statement, $ mln
Revenues
crude oil
gas
oil products
other
Share of income from equity affiliates
Costs and other deductions
Operating costs
Crude and products purchases
DD&A
SG&A
Transportation
incl. excise taxes
incl. MET
Export duties
Exploration costs
Operating profit
EBITDA
EBITDA margin
Interest income
Interest expense
Total other income/(expense)
PBT
Income tax
Minority interest
Net income
2012
98,069
48,407
702
39,106
9,854
998
86,772
7,081
11,941
7,306
2,189
7,757
20,760
2,543
16,962
28,999
740
12,295
19,601
0
772
-483
1,481
14,065
-3,058
-32
10,975
2013E
145,454
71,994
2,533
65,953
4,973
619
126,534
12,483
12,128
11,276
3,251
12,328
32,174
4,237
26,092
42,359
535
19,539
28,119
0
384
-1,543
-1,149
17,232
-2,920
-508
13,804
2014E
161,767
77,395
3,815
75,339
5,217
487
142,291
15,246
13,531
14,804
3,640
12,854
36,278
4,378
29,890
44,967
971
19,962
31,568
0
248
-2,209
-469
17,532
-3,006
-701
13,825
2015E
167,408
78,877
5,399
77,783
5,350
503
146,470
15,920
13,786
16,423
3,767
13,305
38,760
4,219
32,456
43,505
1,004
21,442
35,242
0
159
-2,231
-473
18,897
-3,314
-752
14,830
2016E
177,293
82,984
7,496
81,276
5,537
586
155,775
17,141
15,518
18,003
3,989
14,162
42,843
4,507
36,126
42,877
1,241
22,104
38,044
0
159
-2,439
-478
19,345
-3,430
-769
15,147
2017E
185,006
86,497
8,808
83,994
5,708
673
162,628
17,882
15,851
19,554
4,163
14,761
44,251
5,657
36,289
44,872
1,295
23,050
41,075
0
237
-2,316
-483
20,488
-3,690
-811
15,987
2018E
190,656
90,262
9,468
85,065
5,860
804
170,135
19,260
16,158
21,130
4,290
15,662
45,811
5,919
37,527
46,489
1,335
21,325
41,409
0
348
-2,602
-488
18,583
-3,310
-738
14,536
2019E
196,714
93,609
10,205
86,883
6,017
913
177,405
20,254
16,572
22,690
4,426
16,543
46,775
6,209
38,133
48,768
1,377
20,222
42,420
0
333
-2,296
-493
17,767
-3,157
-705
13,904
2020E
205,296
98,534
10,999
89,552
6,211
1,048
186,865
21,643
19,570
24,197
4,619
17,694
48,066
6,776
38,759
49,638
1,437
19,480
43,795
0
320
-1,938
-498
17,364
-3,091
-689
13,584
75
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Cash flow statement, $ mln

Net income
Net income before minorities
Income tax expense
Depreciation, depletion and amortization
Dry well expenses
Equity share in affiliates' (profits)/losses
Financial expense
Financial income
Other adjustments (incl. prepayments)
Change in LT assets and liabilities
Net cash provided by operating activities before tax and interest
Income tax payment
Interest received
Dividends received
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Acquisitions
Other
Net cash used in investing activities
Financing activities
Proceeds from loans and borrowings
Repayment of loans and borrowings
Dividends paid to shareholders
Interest paid and other
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at the end of the period
2012
10,975
11,007
3,058
7,306
97
-998
483
-772
2013E
13,804
14,312
2,920
11,276
535
-619
1,543
-384
2014E
13,825
14,526
3,006
14,804
971
-487
2,209
-248
2015E
14,830
15,583
3,314
16,423
1,004
-503
2,231
-159
2016E
15,147
15,916
3,430
18,003
1,241
-586
2,439
-159
2017E
15,987
16,798
3,690
19,554
1,295
-673
2,316
-237
2018E
14,536
15,273
3,310
21,130
1,335
-804
2,602
-348
2019E
13,904
14,609
3,157
22,690
1,377
-913
2,296
-333
2020E
13,584
14,273
3,091
24,197
1,437
-1,048
1,938
-320
-2,446
8,904
16,875
14,250
4,125
750
750
-8,750
-6,750
966
-1,484
-219
-39
-243
-391
-77
-144
-285
433
18,700
-2,446
322
32
16,608
1,039
38,041
-3,619
384
155
34,961
0
51,437
-3,682
248
122
48,125
0
52,103
-3,968
159
126
48,420
0
44,166
-4,063
159
146
40,409
0
43,102
-4,303
237
168
39,205
0
43,171
-3,902
348
201
39,818
0
33,990
-3,731
333
228
30,820
0
36,532
-3,646
320
262
33,468
-14,998
-1,641
2,317
-14,322
-22,636
-39,154
0
-61,790
-24,674
0
0
-24,674
-24,921
0
0
-24,921
-23,810
0
0
-23,810
-24,340
0
0
-24,340
-24,641
0
0
-24,641
-23,960
0
0
-23,960
-23,160
0
0
-23,160
10,332
-5,665
-2,285
-193
2,189
4,474
5,155
9,610
42,384
-13,791
-2,744
-1,543
24,305
-2,523
9,610
7,087
0
-18,506
-3,451
-2,209
-24,166
-715
7,087
6,372
0
-17,844
-3,456
-2,231
-23,531
-31
6,372
6,341
0
-7,321
-3,708
-2,439
-13,467
3,131
6,341
9,472
0
-4,314
-3,787
-2,316
-10,416
4,448
9,472
13,920
0
-9,174
-3,997
-2,602
-15,773
-596
13,920
13,324
0
-1,460
-3,634
-2,296
-7,390
-529
13,324
12,795
0
-1,776
-3,476
-1,938
-7,190
3,118
12,795
15,913
76
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Balance sheet, $ mln

Current assets
Cash and cash equivalents
Restricted cash
Other financial assets
Accounts receivable
Inventories
Prepayments and other current assets
Total current assets
PP&E
Intangible assets
Other financial assets
Investments in associates and JVs
Bank loans granted
Deferred tax assets
Goodwill
Other non-current non-financial assets
Total non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities
Loans and borrowings
Income and other tax liabilities
Other current liabilities
Total current liabilities
Non-current liabilities
Loans and borrowings
Deferred tax liabilities
Provisions
Other non-current liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Treasury shares
Additional paid-in capital
Other reserves
Retained earnings
Total shareholders' equity
Non-controlling interests
Total equity
Total liabilities and equity
2012
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
9,844
132
2,963
7,803
4,412
5,795
30,949
86,854
626
772
6,124
428
560
4,741
97
100,222
131,170
7,087
257
2,670
11,158
5,978
7,273
34,423
168,340
1,287
1,190
10,688
386
1,062
4,922
97
187,971
222,395
6,372
257
2,670
11,612
6,648
8,088
35,648
177,240
1,287
1,190
11,053
386
1,062
4,922
97
197,237
232,885
6,341
257
2,670
11,696
6,880
8,370
36,214
184,733
1,287
1,190
11,431
386
1,062
4,922
97
205,107
241,322
9,472
257
2,670
12,143
7,286
8,865
40,693
189,299
1,287
1,190
11,870
386
1,062
4,922
97
210,113
250,806
13,920
257
2,670
12,672
7,603
9,250
46,373
192,790
1,287
1,190
12,375
386
1,062
4,922
97
214,108
260,481
13,324
257
2,670
13,059
7,835
9,533
46,679
194,966
1,287
1,190
12,978
386
1,062
4,922
97
216,887
263,566
12,795
257
2,670
13,474
8,084
9,836
47,116
194,858
1,287
1,190
13,662
386
1,062
4,922
97
217,464
264,581
15,913
257
2,670
14,061
8,437
10,265
51,604
192,385
1,287
1,190
14,449
386
1,062
4,922
97
215,777
267,381
6,753
4,091
2,727
292
13,864
9,888
18,506
4,045
586
33,025
11,090
17,844
4,499
652
34,085
11,469
7,321
4,656
675
24,120
12,259
4,314
4,930
715
22,218
12,853
9,174
5,145
746
27,918
13,498
1,460
5,302
769
21,029
14,129
1,776
5,471
793
22,168
14,939
0
5,709
828
21,476
27,175
8,182
2,175
292
37,496
51,360
51,296
20,953
3,281
643
88,674
121,699
33,452
20,277
3,281
643
87,029
121,114
26,131
19,623
3,281
643
93,304
117,424
21,817
18,990
3,281
643
92,482
114,701
12,643
18,377
3,281
643
83,446
111,364
11,183
17,785
3,281
643
82,143
103,172
9,408
17,211
3,281
643
71,043
93,211
9,408
16,656
3,281
643
63,738
85,215
33
-9,844
12,676
-198
72,499
76,450
1,284
75,166
131,170
33
0
13,287
-97
83,560
96,783
3,913
100,695
222,395
33
0
13,287
-97
93,934
107,157
4,614
111,771
232,885
33
0
13,287
-97
105,308
118,531
5,367
123,897
241,322
33
0
13,287
-97
116,747
129,971
6,135
136,106
250,806
33
0
13,287
-97
128,948
142,171
6,946
149,117
260,481
33
0
13,287
-97
139,487
152,710
7,684
160,394
263,566
33
0
13,287
-97
149,757
162,980
8,389
171,369
264,581
33
0
13,287
-97
159,864
173,088
9,078
182,166
267,381
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Appendix: Rosneft industry position and

benchmarking vs. peers
Top industry position. Largest listed producer and reserve holder in the world.
Rosneft is the worlds largest oil producer and reserves holder among listed
companies. Rosneft is also the second-largest listed hydrocarbon producer and
reserves holder after Gazprom.
Rosneft performs a noticeable role in global energy. The company controls 4.9% of
global oil production and 1.0% of estimated proved oil reserves. Rosnefts share in
Russia reaches 40.4% of oil production and 22.1% of hydrocarbon production.
Key Rosneft operating data, 2012*
Hydrocarbon reserves, PRMS, mln boe
Hydrocarbon Reserves, SEC, mln boe
Oil production, mln boe
Gas production, bcm
Refining, mln tonnes
Oil international sales, mln tonnes
Number of retail stations
Rosneft
Share in Russia
Share in the world
39,540
29,931
1,534
32
95
99.5
2,801
13.0%
9.8%
39.4%
5.5%
31.3%
44.3%
14.0%
1.4%
1.0%
4.9%
1.0%
2.3%
3.7%
0.6%
* pro forma, including Rosneft and 100% of TNK-BP

Source: company data, Gazprombank estimates, Neftyanaya Torgovlya, BP Statistical Review of World Energy
Rosnefts oil and hydrocarbon production volumes are close to the levels achieved
by the worlds largest national oil companies. Compared to the whole range of oil
and gas producers, including non-public national oil companies, after the acquisition
of TNK-BP Rosneft became the worlds second largest oil producer after Saudi
Aramco and the fourth-largest hydrocarbon producer after Saudi Aramco, Gazprom
and National Iranian oil Company. Combined oil production of Rosneft and TNK-BP
exceeds that of the largest listed international major ExxonMobil by over 90%
and hydrocarbon production by almost 8%.
Rosneft is the worlds second-largest oil producer and fourth-largest hydrocarbon producer. Hydrocarbon production, Rosneft vs. Russian and international peers, bln boe
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
Qatar Petroleum
INOC (Iraq)
Chevron
Rosneft
KNPC (Kuwait)
BP
RD Shell
ADNOC (UAE)
Gas
PDVSA (Venezuela)
Oil
Pemex (Mexico)
ExxonMobil
Rosneft+TNK-BP
NOIC (Iran)
Gazprom
Saudi Aramco
0.0
PetroChina
0.5
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However, in terms of hydrocarbon reserves, Rosneft is substantially smaller than the

national oil companies of key OPEC countries. In the global ranking including
national oil companies, Rosneft is rated 11th by proved hydrocarbon reserves.
However, it should be noted that in contrast to Rosneft and other Russian oil and
gas majors, in most cases oil and gas reserves of national oil companies are not
verified by independent auditors. On SEC reserves standards, the combined proved
hydrocarbon reserves of Rosneft and TNK-BP exceed that of ExxonMobil by 18.5%
and proved oil reserves by 85.4%.
Rosneft has the worlds second-largest hydrocarbon reserves among listed oil and gas companies, but ranks only eleventh if ranked with non-public national oil companies.
Hydrocarbon reserves. Rosneft vs. Russian and international peers, bln boe
400
350
300
250
200
150
100
Oil
BP
Lukoil
PetroChina
Rosneft
ExxonMobil
Rosneft+TNK-BP
NOC (Libya)
NNPC (Nigeria)
KNPC (Kuwait)
Gazprom
ADNOC (UAE)
INOC (Iraq)
Qatar Petroleum
PDVSA (Venezuela)
Saudi Aramco
NOIC (Iran)
50
Gas
Source: company data, BP statistical review of the world energy, Gazprombank estimates
Rosnefts reserves and production volumes are comparable with the respective
volumes of the largest oil and gas producing countries.
Rosneft reserve life vs. peers
300
250
200
150
100
Statoil
Pemex (Mexico)
RD Shell
ENI
SurgutNG
Chevron
Total
BP
Petrobras
ConocoPhillips
ExxonMobil
Petrochina
Bashneft
Alliance oil
Malaysia (Petronas)
Gazprom neft
TNK-BP
Lukoil
TNK-BP Holding
Rosneft+TNK-BP
Rosneft
Tatneft
Gazprom
Novatek
NNPC (Nigeria)
Saudi Aramco
ENOC (UAE)
KNPC (Kuwait)
NOC (Libya)
Qatar Petroleum
INOC (Iraq)
NOIC (Iran)
PDVSA (Venezuela)
50
Compared with global and Russian peers, Rosneft ranks ninth by liquids production
growth. However, the company is the leader in terms of hydrocarbons
production growth.
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Rosneft ranks second among listed companies by three-year liquids production growth. Rosnefts oil production growth 3Y CAGR vs. major oil producers, %
15%
13%
12%
8%
10%
8%
8%
7%
7%
6%
4%
5%
3%
3%
3%
2%
2%
1%
1%
0%
0%
0%
-1% -1% -1%
-2% -3% -3%
-3% -3%
-4% -4%
-5%
-6%
-10%
-15%
ConocoPhillips
BP
Eni
Total
YPF
NOC (Libya)
ExxonMobil
Statoil
Lukoil
Chevron
RD Shell
Pemex (Mexico)
Petrobras
Tatneft
SurgutNG
NK-BP Holding
TNK-BP
Gazprom Neft
PetroChina
NNPC (Nigeria)
Gazprom
Rosneft
Saudi Aramco
Alliance Oil
ENOC (UAE)
KNPC (Kuwait)
Bashneft
Qatar Petroleum
NOVATEK
INOC (Iraq)
-17%
-20%
Rosnefts regulatory model substantially differs from that of the national oil
companies of OPEC countries. The companys shares are listed on the stock market
and it is positioned as a commercial company. The states stake in Rosneft is 69.5%,
BP owns 19.75% in the companys charter capital, and the regulators are considering
further privatization of the states stake in Rosneft, planning to maintain the states
equity position above the 50% threshold.
Government share in key state-controlled companies
120%
100%
100%
100%
100%
100%
100%
100%
100%
100%
86%
71%
70%
67%
64%
60%
51%
51%
50%
Gazprom
75%
PTT E&P
76%
Fortum
79%
80%
50%
40%
Petrobras
CNOOC
Statoil
Rosneft
Pakistan
Petroleum
OGDCL
Sinopec
ONGC
PetroChina
NOC (Libya)
Pemex (Mexico)
NNPC (Nigeria)
ENOC (UAE)
Saudi Aramco
KNPC (Kuwait)
Qatar Petroleum
0%
INOC (Iraq)
20%
After the acquisition of TNK-BP, Rosneft confirmed its industry leadership among
listed oil majors on upstream opex per barrel and also ranks among industry leaders
in terms of upstream capex per barrel. The companys leading positions in these
areas are mainly attributable to the high quality and relatively young age of Rosnefts
key upstream production assets as well as the still very low share of capital intensive
offshore oil production projects in the total asset portfolio.
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Rosneft upstream capex per boe, vs. Russian and international peers, $/boe
20
YPF
18
16
Chevron
Updtream OPEX, $/boe
14
Petrobras
12
BP
ConocoPhillips
10
PetroChina
RD Shell
ExxonMobil
8 Bashneft
Tatneft
ENI
Total
Gazprom Neft
Statoil
TNK-BP
Lukoil
SurgutNG
Rosneft+TNK-BP
Rosneft
Gazprom
NOVATEK
0
0
350
700
1,050
1,400
1,750
Production, mln boe
2,100
2,450
2,800
3,150
3,500
Note: Size of bubble indicates hydrocarbon production volumes.

Rosneft upstream opex per boe

20
YPF
18
16
Chevron
Upstream OPEX, $/boe
14
Petrobras
12
ConocoPhillips
10
8
BP
PetroChina
RD Shell
ExxonMobil
Bashneft Tatneft
Eni
Total TNK-BP
Gazprom Neft
Statoil
SurgutNG
Rosneft+TNK-BP
Lukoil
Gazprom
Rosneft
NOVATEK
0
0
350
700
1,050
1,400
1,750
Production, mln boe
2,100
2,450
2,800
3,150
3,500
Note: Size of bubbles indicates hydrocarbon production volume.

Rosneft has one of the lowest finding and developing costs in the industry, which
stems from the still significant exploration potential and relatively low level of
development costs in Russia.
While being one of the worlds best oil and gas producers in terms of upstream cost
efficiency, Rosneft ranks below global industry averages in terms of EBITDA per
barrel. A lower position on this indicator is the result of a substantially less
developed refining and marketing segment vs. international peers. In Russia, Rosneft
also shows lower EBITDA per barrel vs. companies with a higher share of refining in
overall production volumes, such as Bashneft, Gazprom Neft and Lukoil.
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F&D costs per boe
EBITDA per boe
Eni
Chevron
RD Shell
Total
BP
Statoil
ConocoPhillips
ExxonMobil
PetroChina
Petrobras
YPF
Lukoil
Gazprom Neft
Rosneft
TNK-BP
Rosneft+TNK-BP
NOVATEK
ExxonMobil
RD Shell
Chevron
Statoil
Total
Eni
BP
ConocoPhillips
PetroChina
Alliance oil
Petrobras
Gazprom Neft
Bashneft
Lukoil
YPF
Rosneft
TNK-BP
Tatneft
Gazprom
SurgutNG
NOVATEK
10
15
20
25
30
35
40
45
10
20
30
40
50
60
70
80
90
In Russia, Rosneft is the industry leader in terms of absolute volume of crude

exports and international sales and a leader in terms of the share of oil exports
relative to total oil production.
Oil international sales, mln tonnes
Oil international sales, % of production

70%
Share of interantional sales in production, %
Rosneft+TNK-BP
Rosneft
Lukoil
TNK-BP
SurgutNG
Gazprom Neft
Tatneft
Bashneft
0
20
40
60
Non-CIS
80
100
120
CIS
60%
Rosneft
Tatneft
50%
TNK-BP
Gazprom Neft
40%
30%
Rosneft+TNK-BP
SurgutNG
Lukoil
Bashneft
20%
10%
0%
0
200
400
600
800
1,000
Crude oil international sales, mmbbl

Note: Size of bubbles indicates absolute volume of international sales.
However, by the volume of international oil product sales in absolute terms, Rosneft
ranks second after Lukoil. In relative terms, by the share of international oil product
sales in total product sales, Rosneft ranks close to the industry average levels.
Oil product international sales, mln tonnes
Oil product international sales, % of production
Lukoil
Rosneft
Rosneft+TNK-BP
Tatneft
Rosneft
SurgutNG
TNK-BP
Rosneft+TNK-BP
Gazprom Neft
TNK-BP
SurgutNG
Lukoil
Bashneft
Gazprom Neft
Tatneft
Bashneft
0
10
20
30
40 50 60 70 80 90 100
0%
10%
20%
30%
40%
50%
60%
82
25.09.2013
Research Department
+7 (495) 287 6318
Rosneft has a substantially lower refining capacity vs. global oil majors. Most of
Rosnefts refining assets are located in Russia.
International majors also have a substantially higher refining cover ratio, showing the
ratio of refining throughput to oil production volumes. In contrast to Rosneft and the
majority of its Russian peers, international majors have up to several times greater
downstream capacity vs. own upstream production volumes.
Rosneft ranks below industry averages on refining throughput volumes and refining cover
Rosneft refining volumes vs. Russian and international peers, mln tons
Rosneft refining cover vs. Russian and international peers, %
ExxonMobil
RD Shell
PetroChina
BP
Total
Petrobras
Rosneft+TNK-BP
Chevron
Lukoil
Rosneft
Gazprom
Gazprom Neft
TNK-BP
Eni
Bashneft
SurgutNG
Statoil
ExxonMobil
RD Shell
Total
Alliance oil
Bashneft
BP
Gazprom
YPF
Petrochina
Chevron
Petrobras
Lukoil
Gazprom Neft
ENI
Rosneft
Rosneft+TNK-BP
TNK-BP
Statoil
SurgutNG
Tatneft
50
100
0%
150
200
250
300
50%
100%
150%
200%
250%
Among Russian major oil and gas companies, Bashneft, Gazprom Neft and Lukoil have
substantially higher refining cover ratios vs. Rosneft.
Rosneft is the leader in the Russian oil industry by refining throughput, but ranks close to the industry average by refining cover
Rosneft vs. key Russian peers on refining volumes, kbpd
Rosneft vs. Russian oil majors on refining cover, %

Bashneft
Rosneft+TNK-BP
Rosneft
Gazprom Neft
Lukoil
Lukoil
Gazprom Neft
Rosneft
TNK-BP
Rosneft+TNK-BP
Bashneft
TNK-BP
SurgutNG
SurgutNG
Tatneft
500
1000
1500
2000
2500
in Russia
Total
Source: company data, Neftyanaya Torgovlya, Gazprombank estimates
Tatneft
0%
50%
100%
150%
By complexity levels of Russian refineries, Rosneft ranks moderately below Russian

industry averages, which is one of the reasons for the implementation of a largescale refining modernization program.
83
25.09.2013
Research Department
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Rosneft refineries vs. Russian peers on Nelson Complexity Index, 2012

10
9
Bashneft-Ufaneftekhim
Bashneft-Novoil
Lukoil-Perm
Slavneft-Yanos*
Bashneft-Ufa
GPN-Omsk
Nelson Index
7
Rosneft-Kuibyshev
Rosneft-Novokuibyshev
Rosneft-Syzran
Krasnodar
TNK-BP-Saratov
Lukoil-Ukhta
Alliance-Khabarovsk
Rosneft-Tuapse
TNK-BP-Ryazan
Lukoil-Volgograd
Gazprom-Salavat
GPN-Moskva
Rosneft-Achinsk
Rosneft-Angarsk
SurgutNG-Kirishi
TAIF-Tatarstan
Rosneft-Komsomolsk
1
0
0
5,000
10,000
15,000
20,000
25,000
Throughput, mln toe
* 50% share
Source: Oil and Gas Journal, Gazprombank estimates
Rosneft is the largest producer of gasoline and diesel fuel in Russia in absolute terms.
The companys shares in total gasoline and diesel fuel production in Russia are 38%
and 32%, respectively.
Rosneft vs. Russian peers by volume of gasoline and diesel fuel production, 2012
Gasoline production in Russia, mln tonnes
Diesel production in Russia, mln tonnes
Rosneft+TNK-BP
Rosneft+TNK-BP
Rosneft
Rosneft
Gazprom Neft
Lukoil
Lukoil
Gazprom Neft
TNK-BP
TNK-BP
Bashneft
Bashneft
SurgutNG
SurgutNG
0
2
4
6
8
10
12
14
16
5
10
15
20
25
30
Rosneft is also the largest producer of jet fuel and fuel oil in Russia. The company
will have to minimize fuel oil output by 2015-17, when the government plans to
increase export duties for fuel oil up to the level of the crude oil export duty.
84
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Research Department
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Jet fuel production in Russia, 2012, mln tonnes
Fuel oil production in Russia, 2012, mln tonnes
Rosneft+TNK-BP
Rosneft+TNK-BP
Gazprom Neft
Rosneft
Lukoil
Lukoil
TNK-BP
TNK-BP
SurgutNG
Rosneft
Gazprom Neft
SurgutNG
Bashneft
Bashneft
Tatneft
0
5
10
15
20
25
30
Rosneft is the second-largest company in Russia by number of retail stations and

average sales volume per station.
Russian oil companies by number of filling stations
Average sales volume per station, tonnes/day

Gazprom Neft
Lukoil
TNK-BP
Rosneft+TNK-BP
Rosneft+TNK-BP
Rosneft
Rosneft
Gazprom Neft
Russian majors average
Tatneft
Lukoil
Bashneft
SurgutNG
SurgutNG
Bashneft
0
1,000
Russia
2,000
3,000
4,000
5,000
6,000
Tatneft
International
10
15
20
85
Research Department
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HQ: 16/1 Nametkina St., Moscow 117420, Russia
(Office: 63 Novocheremushkinskaya St.)
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Alexey.Demkin@gazprombank.ru
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Sales
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Trading
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Head of FI S&T, ED
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+ 7 (495) 913 74 44
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Denis Voynikonis
Sales
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Copyright 2003-2013. Gazprombank (Open Joint Stock Company). All rights reserved
This report has been prepared by the analysts of Gazprombank (Open Joint Stock Company) (hereinafter Gazprombank) and is based on information obtained from public sources believed to
be reliable, but is not guaranteed as necessarily being accurate. With the exception of information directly pertaining to Gazprombank, the latter shall not be liable for the accuracy or
completeness of any information shown herein. All opinions and judgments herein represent solely analysts personal opinion regarding the events and situations described and analyzed in this
report. They should not be regarded as Gazprombanks position and are subject to change without notice, also in connection with new corporate or market events that may transpire.
Gazprombank shall be under no obligation to update, amend this report or otherwise notify anyone of any such changes. The financial instruments mentioned herein may be unsuitable for
certain categories of investors. This report should not be the only basis used when adopting an investment decision. Investors should make investment decisions at their own discretion, inviting
independent consultants, if necessary, for their specific interests and objectives. The authors shall not be liable for any actions resulting from the use of this report.
Any information contained herein or in the appendices hereto shall not to be construed as a solicitation or an offer to buy or sell any securities or advertisement, unless otherwise expressly
stated herein or in the appendices hereto.

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25.09.

2013 OIL AND GAS

Rosneft: the early days of a supermajor

Reasonable valuation. On 2015E EV/EBITDA Rosneft trades with premiums of 8%

Consolidated financial forecasts, $ mln*

*TNK-BP figures included from March 21, 2013

Source: company data, Gazprombank estimates

TNK-BP acquisition: focus on integration and synergies realization

Refining and marketing: adjusting to the new market model

International projects: a selective approach

Rosneft: the early days of a supermajor

ROSN RX, ROSN LI

Brent price, $/bbl

Rosneft: the early days of a supermajor

Transformational TNK-BP acquisition

Value-accretive acquisition. In the TNK-BP acquisition, Rosneft acquired control

Synergies from TNK-BP integration. Rosneft management estimates the NPV of

Policy toward TNK-BP Holding minority shareholders. Having acquired the

Rosneft: the early days of a supermajor

Potential new acquisitions

Further tax reform. 1) Brownfields. We expect higher MET differentiation to be

Market diversification. Long-term partnership with Chinese and Asian companies.

the TNK-BP acquisition;

substantial expansion of the range of strategic partnerships and JVs with

announcement of an ambitious gas strategy, and conclusion of long-term gas

accepting a commitment to keep dividend payout ratios at 25% of IFRS net

Rosneft: the early days of a supermajor

Key potential risks

Key macroeconomic assumptions

Global oil demand 2006-13, mln bpd

Rosneft: the early days of a supermajor

Structure of global liquids supply, mln bpd

Decline in production Increase in demand

OPEC Middle East

Source: IEA, EIA, OPEC, BP, Gazprombank estimates

Despite a considerably improved production outlook in non-OPEC countries due to

Key assumptions used for our modeling include:

substantial improvement of the refining basket of Rosneft refineries from 2017;

relatively stable ruble exchange rates, reaching RUB 33.3/$ by 2020;

Our key macroeconomic assumptions are summarized in the table below.

Rosneft: the early days of a supermajor

Key macroeconomic assumptions

Source: Gazprombank estimates

Rosneft: the early days of a supermajor

Source: Bloomberg, Gazprombank estimates

Rosneft valuation, DCF, $ mln*

Our 12-month target price is $8.8 per share. We assign a NEUTRAL

Rosneft: the early days of a supermajor

Source: Gazprombank estimates

Rosneft target price sensitivity to oil price, $/bbl

Target price sensitivity

Source: Gazprombank estimates

Source: Gazprombank estimates

We use a multiples-based valuation to test the results of our DCF valuation.

Rosneft: the early days of a supermajor

Rosneft vs. peers on key valuation multiples

Source: company data, Bloomberg, Gazprombank estimates

Rosneft: the early days of a supermajor

Rosneft shareholders structure

Rosneft shareholding structure

Share of GDRs in Rosnefts capital

* except for GDRs belonging to BP

Source: company data