Naftna Industrija Srbije : Quarterly report for the third quarter of 2023 - NIS a.d., Novi Sad

NIS Group

The Quarterly Report for Third Quarter of 2023 presents a factual overview of NIS Group's activities, development and performance in third quarter and the first nine months of 2023.

The Report covers and presents data for NIS Group, comprising NIS j.s.c. Novi Sad and its subsidiaries. If the data pertain only to certain individual subsidiaries or only NIS j.s.c. Novi Sad, it is so noted in the Report. The terms: 'NIS j.s.c. Novi Sad' and 'the Company' denote the parent company NIS j.s.c. Novi Sad, whereas the terms 'NIS' and 'NIS Group' pertain to NIS j.s.c. Novi Sad with its subsidiaries.

The Quarterly Report for Third Quarter of 2023 is compiled in Serbian, English and Russian. In case of any discrepancy, the Serbian version shall be given precedence.

The Quarterly Report for Third Quarter of 2023 is also available online on the corporate website. For any additional information on NIS Group, visit the corporate website www.nis.rs.

2

Quarterly report for third quarter of 2023

Contents
Contents	3
Foreword	4
Management Business report	5
Highlights	5
Group NIS	8
NIS worldwide	11
Risk management	11
Business environment	16
Performance analyses	20
Key performance indicators	23
Securities	45
Corporate Governance	48
Related-Party Transactions	49
Human resources	50
Research and Development	53
Financial Statements	54
Standalone financial statements	54
Consolidated financial statements	74
Statement of individuals responsible for the preparation of report	92
Contacts	93
Glossary	94

3

NIS Group

Foreword

In the third quarter of 2023, the NIS Group continued with the implementation of the planned investment cycle, and in this period, RSD 10.4 billion were set aside for capital investments, which is 129 percent more than the investments from the same period last year. Thus, a total of RSD 21.9 billion were invested in the modernization of the NIS Group in the period January-September, which is an increase of 80 percent compared to the first nine months of 2022. Most investments were made in the area of exploration and production of oil and gas. Among other things, the ECO digital platform was applied to the oil wells of NIS, which is important for the process of monitoring and control of the production of wells. Investments were also made in the development of the retail network, so the second NIS facility along the "Miloš Veliki" highway was put into operation. With this investment, NIS also contributes to the development of road infrastructure in the Republic of Serbia.

In addition to the investment momentum, the second priority of the NIS Group was also successfully achieved - stability was maintained on the domestic market, which is properly supplied with all types of oil derivatives. Contributing to the energy stability of the Republic of Serbia will be one of the main goals of the NIS Group in the rest of the year.

When it comes to the financial results of NIS, they are in line with the current macroeconomic circumstances, primarily lower oil prices and regulation of fuel prices. Thus, the average price of "Brent" oil in the reporting period was 82.1 USD per barrel, which is 22 percent lower than the average price from January to September last year. The net profit of the NIS Group in the period January-September amounts to RSD 31.8 billion, which is 54 percent less compared to the same period last year. The EBITDA indicator is 46 percent lower and amounts to RSD 56.5 billion. Accrued liabilities for public revenues of the NIS Group are RSD 181.7 billion, which is 2 percent lower compared to the first nine months of 2022. In addition, NIS contributed to the stability of the budget of the Republic of Serbia by paying dividends for the year 2022 in a record amount of RSD 23,364,924,716. At the same time, indebtedness to banks was also reduced, which at the end of the period amounts to EUR 548.1 million, which is 4 percent less compared to the end of September last year.

Good results were also achieved when it comes to operational indicators. Oil and gas production is 868.1 thousand t.o.e., which is 1.3 percent less compared to last year. The volume of crude oil and semi-finished products was reduced by six percent and amounted to 3.054 million tons. In total, 2.995 million tons of petroleum products were sold, which is 7 percent less compared to the period January-September 2022. The achieved results are in line with lower demand for oil derivatives in key markets.

Being a socially responsible company, NIS continued to support the efforts to improve the standards of citizens of Serbia and signed a Cooperation Agreement with the Republic Fund for Pension and Disability Insurance, which defines the benefits for Pensioner card users when purchasing fuel and supplementary products at all NIS Petrol and Gazprom gas stations.

4

Quarterly report for third quarter of 2023

Management Business report

Highlights

January - September

January

February

March

April

May

June

July

August

September

Setting of the solar panels on three PSs

Extension of the PS network with TAG devices

Under the auspices of the "May New Hopes be Born" campaign, NIS Company handed out 225 gift packages for first-born babies in 2023 in 15 selected maternity hospitals in Serbia

With the support of the NIS Company, the first FIDE Chess Olympiad for people with disabilities was held

January

February

March

April

May

June

July

August

September

Signing of the contract on lease of PS Niš Istok

The mobile application of NIS Company - Drive.Go was awarded with a special - Top 50 prize, granted by the magazine PC Press to the best online contents in the category of Digital Innovation

Anton Cherepanov, Deputy CEO of NIS, presented the results of the NIS Group's operations for the year 2022 to the professional and expert public

January

February

March

April

May

June

July

August

September

The first scientific and technical conference was held in Refining Block, with the objective to recognise the potential of the employees of Refining Block and develop their competencies

The sale of jet fuel to a wholesale customer in Bulgaria started

Vadim Smirnov, Deputy CEO of NIS, participated in the panel "Education: Paths to Competencies" at the Kopaonik Business Forum and presented the efforts of NIS to support education in Serbia

January

February

March

April

May

June

July

August

September

The test mode of electronic work permits was completed in the Refining Block

The NIS company received an award from the magazine "Diplomacy&Commerce" for the best socially responsible campaign in 2022, as well as a special plaque from "Večernje novosti" for many years of humanitarian activities

The 7th season of student internship at NIS as part of the "NIS Calling" program has started

5

NIS Group

January

February

March

April

May

June

July

August

September

Obtained ISCC certificate1 that enables the placement of fuel produced in the Refining Block, by blending mineral diesel and biodiesel

Participation of representatives of the Refining Block in the international conference: Petrochemical and Refining Congress 2023

The Board of Directors of NIS approved EUR 60 mln to support the projects of the Government of the Republic of Serbia in the field of education, social and health care

Photovoltaic power plants were installed at 7 more NIS petrol stations, making this project a total of 15 facilities

NIS received the award "Captain Miša Anastasijević" in the category "Leader of Social Responsibility" for 15 years of implementing the "Common Cause Community" program

The 2022 Sustainable Development Report, the 13th consecutive company-verified report on sustainable development, has been published

The Minister of Science, Technological Development and Innovation in the Government of the Republic of Serbia, Dr. Jelena Begović, visited the Science and Technology Center of NIS in Novi Sad

January

February

March

April

May

June

July

August

September

In accordance with the Strategic Partnership Agreement between the Republic of Serbia, NIS j.s.c. Novi Sad and HIP Petrohemija, the transaction was closed on June 9.

Employees from the Refining Block presented the project of reducing the CO2 footprint and increasing the energy efficiency of the Vacuum Distillation at the final event of the Young Energy Europe 2.0 Project, held in Berlin

Expanding petrol station network outfitted with electric chargers for vehicles (Bački Vinogradi petrol station)

The NIS shareholders' assembly held the XV regular session where, among other things, it made a decision on the payment of dividends to shareholders for 2022

NIS has announced a competition within the "Common Cause Community" program for 2023, the focus of which is to support the development of science and education in partner cities and municipalities throughout Serbia

The NIS company and members of its volunteer club, led by CEO, Kirill Tyurdenev, participated in the cleaning operation of the "Fruška gora" National Park

January

February

March

April

May

June

July

August

September

Completed commissioning of 10 new vacuum tank trucks for the transport of dangerous goods (ADR)

1 ISCC certificate is an internationally recognized standard for the sustainable control of biomass and biofuels

6

Quarterly report for third quarter of 2023

January

February

March

April

May

June

July

August

September

Commissioning of PS Brus, Kosjerić

NIS Science and Technology Centre and State Oil Company Research and Development Centre from Angola signed a Memorandum of Understanding

As part of digitalization process, the ECO digital platform was applied to NIS oil wells, which is important for the process of monitoring and control of well development

As a dividend for 2022, NIS paid RSD 23,364,924,716 to its shareholders (the gross amount), which is the largest annual amount paid since the beginning of the dividend payments in 2013

January

February

March

April

May

June

July

August

September

In the first 9 months of 2023, 38 development wells were drilled in Serbia, as well as 2 exploration wells in Serbia and one development well in Romania. In the first 9 months of this year, 34 development wells in Serbia and 1 exploration well in Serbia were put into operation

Pursuant to the Contract on Implementation of 2D projects, seismic data acquisition at the exploration area in Turkey is ongoing

Equipping the surface infrastructure facilities in the Iđoš field in the first nine months of 2023

Implementation of the projects "Reparation of the Jermenovci Pipeline" during the third quarter of 2023, and "Reparation of the Pipeline Gathering Station 4 to AMI-3 , as well as "Replacement of Compressor Units on the Kikinda Field" and "Disposal of Formation Water at the Dispatch and Gathering Station Sirakovo" and additional works on connecting the pump to the Gathering Oil and Gas Station Rusanda

Start of work of the new PS Sokolići 2 and its restaurant

Start of construction of the new PS Bečej 2 and reconstruction of PS Bajmok

The fourth season of the young people employment programme "NIS Energy" started. This programme is the winner of the "Digital Awards" award for the HR Employer branding online campaign, which was awarded as part of the conference #Digital2023

Kirill Tyurdenev, the CEO of NIS, participated in the panel discussion dedicated to the sustainable development "Our Sustainable Community", attended by Dubravka Đedović Handanović, the Minister of Mining and Energy of the Republic of Serbia, and Milun Todorović, the Mayor of Čačak, who also gave their opinions

NIS and the Pension and Disability Insurance Fund of the Republic of Serbia signed the Cooperation Agreement defining the benefits for the users of Pensioner Cards when buying fuel and non-fuel products at all NIS Petrol and Gazprom petrol stations

7

NIS Group

Group NIS

The NIS Group is one of the largest vertically integrated energy systems in Southeast Europe. NIS' core activities include exploration, production and refining of crude oil and natural gas, sale and distribution of a wide range of petroleum and gas products and the implementation of energy and petrochemistry projects.

The headquarters and main assets of the NIS Group are located in the Republic of Serbia, but the Group also has subsidiaries and representative offices in several other countries, primarily in the neighbouring countries. The most valuable asset of the NIS Group is a team of around 12,000 employees.

NIS aims to create new value for its shareholders, employees and the community, despite the challenging macroeconomic environment, as well as to contribute to energy stability in the markets where it operates.

In addition to its business activities, NIS also runs a number of socially responsible projects aimed at improving the life of the community. NIS' efforts in this area are especially focused on young people, who are the bearers of future development.

The NIS Group is committed to improving environmental protection and allocates significant funds for the implementation of environmental projects and projects that contribute to environmental protection. In terms of occupational safety, the objective of NIS is work processes without injuries and harmful effects on the environment.

Business activities

Business activities of the NIS Group are organized within the parent company NIS j.s.c. Novi Sad, into the Exploration and Production Block and Downstream, which are supported by the nine Functions in the parent company:

• Finance, Economics, Planning and Accounting Function;
• Strategy and Investments Function;
• Procurement Function;
• Organizational Affairs Function;
• HSE Function;
• Legal and Corporate Affairs Function;
• Corporate Security Function;
• Government Relations and Corporate Communications Function;
• Internal Audit, Risks and Internal Control Function.

One of the Deputy CEO's is in charge of petrochemicals operations.

Exploration and production Block

Exploration and production

NIS is the only company in Serbia engaged in oil and gas exploration and production. NIS performs the activities of operational support to production, management of oil and gas reserves, management of oil and gas reservoir engineering, and implementation of large-scale projects in the field of exploration and production.

The majority of oil and gas fields owned by NIS are located in Serbia. The company is also involved in exploration works in Romania and Bosnia and Herzegovina. The oldest concession abroad is in Angola, where NIS has been operating since 1985.

The plant for the preparation of natural gas, production of LPG and gasoline, and CO2 stripping, based in Elemir, near Zrenjanin operates as part of the Exploration and Production Block. An amine unit for processing of natural gas using the high pressure acidgas capture technology is also located in Elemir. This method of gas processing completely prevents carbon dioxide emissions into the atmosphere and, in addition to the business effects, creates significant environmental benefits.

NIS also has a modern training center in Elemir dedicated to, training workers in the oil industry. It is a unique complex equipped with modern equipment in which the training is performed in real conditions, with the possibility of

8

Quarterly report for third quarter of 2023

simulating all the tasks that oil workers encounter in the process of production, preparation and shipment of oil and gas.

As for the exploration and production, the scientific and technological support of the NIS Group is provided by the subsidiary Scientific and Technological Center (NTC) NIS ‒ Naftagas LLC Novi Sad.

Services

NIS has its own service capacities, which fully meet the needs of the Group and provide services to third parties. The Services provide services in the field of exploration and production of oil and gas through geophysical well testing, construction, completion and workover, as well as through conducting special operations and measurements in wells. As part of their portfolio, the Services also provide maintenance of equipment, construction and maintenance of oil and gas systems and facilities. In this business segment, the goal is to strengthen its presence in the international market. For this reason, the priority is to modernize the equipment, ensure the best possible quality of services provided, increase the technical and technological efficiency, and improve work efficiency in NIS and other companies.

Downstream

The Downstream business consists of the Refining Block, Sales and Distribution Block, Energy Block and the field of petrochemicals.

Refining

Pančevo Oil Refinery is one of the most modern and environmentally most developed refining plants in the region, with a maximum designed capacity of 4.8 million tonnes per year. Since 2009, more than EUR 800 million have been invested in the modernization of the Refinery, with significant funds allocated for environmental protection projects. The Pančevo Oil Refinery produces: motor fuel in accordance with Euro-5 standard, aviation fuel, liquid petroleum gas, petroleum coke, fuel oil, bitumen, propylene, aromatics, primary pyrolysis gasoline and other petroleum products (sulphur, other hydrocarbons).

In 2020, a Bottom of the barrel unit with delayed coking technology was officially commissioned. The project worth EUR 300 mln enables NIS to increase the output of the most valuable fuels ‒ diesel, gasoline and liquified petroleum gas and to start the domestic production of petroleum coke. It continues with the third phase of the refinery modernization, capital project being the reconstruction of the FCC (Fluid Catalytic Cracking) plant and the construction of a new plant for the production of ETBE (high-octane petroleum blending component), which started in 2021.

In 2023, the priority of Refining Block is the continuous production of petroleum products in order to contribute to the orderly supply of the market in challenging circumstances.

Numerous projects of digitalization and improvement of energy efficiency are being implemented in the Refinery.

Sales and distribution

NIS operates a network of more than 400 petrol stations in Serbia and the countries of the region, with more than 80 of them outside of Serbia. NIS operates the largest retail network in the country, while simultaneously developing its operations in the neighbouring countries: Bosnia and Herzegovina, Bulgaria and Romania.

NIS is present in the market under two retail brands: NIS Petrol and GAZPROM, with the latter being a premium brand in this segment. The petrol stations of the NIS Group are synonymous with the quality of fuel and non-fuel portfolio, as well as with modern services that meet the consumers' demands. NIS continually invests in the development of its retail network and in improving the quality of its goods and services. One of the priorities includes digital projects that provide consumers with services in line with modern trends, such as fuel payments without going to the payment point, digitalization of loyalty programs, etc.

In addition to the retail sale of finished petroleum products, liquefied petroleum gas and a range of related products, the sales structure of NIS also includes the export and domestic wholesale deliveries of gas and petroleum products,

9

NIS Group

while the apply of aviation fuel, fuel for navigable vessels, and sales of bitumen are developed as separate business directions.

All types of fuel undergo strict and regular laboratory control and meet the highest domestic and international standards.

Energy

This business segment includes the production of electricity and thermal energy from conventional and renewable energy sources, centralized management of the natural gas portfolio for the entire NIS (production and sale of compressed natural gas, sale of natural gas), electricity trade, development and introduction of strategically important energy projects, as well as development and implementation of projects to increase energy efficiency.

The main focus of the Energy Block is expanding the scope of work in the field of electricity production and trade, managing the Company's energy resources, including TE-TO Pančevo, as well as improving energy efficiency and reliability within the NIS Group. The task of the Energy Block, among other things, is to accelerate the company's energy transition.

The construction of the modern combined gas-steam thermal power plant-heating plant Pančevo (TE-TO Pančevo) on natural gas was realized in 2022. The produced electricity is delivered to the transmission power system of Serbia, which contributes to the energy stability of the Republic of Serbia. The main advantage of TE-TO Pančevo is that natural gas as a fuel simultaneously produces thermal energy in the form of process steam for the needs of the Pančevo Refinery and electricity.

Since 2013, in oil and gas fields at eight locations in Serbia, NIS has put into operation mini power plants with an installed electrical power of 14.5 MWe. The environmental advantage of these plants is in the production of electricity and thermal energy from gas that was previously not used due to poor quality, large amounts of carbon dioxide and nitrogen, or could not be valorized due to the lack of gas infrastructure. The heat and electricity produced are used for the needs of NIS, but the electricity is also sold on the market. Electricity is also produced at the Jimbolia gas field in Romania, where electricity is sold on the local market.

In 2022, the construction of solar photovoltaic power plants began and the construction of 8 SSG was completed. In 2023, the construction of solar photovoltaic power plants on other NIS facilities continue.

HIP Petrohemija

In accordance with the Strategic Partnership Agreement between the Republic of Serbia, NIS j.s.c. Novi Sad and HIP Petrohemija the transaction was closed on June 9. HIP Petrohemija is the largest producer of petrochemical products in the Republic of Serbia, and the strategy of further development of HIP Petrohemija will be based on the modernization of basic production capacities and the construction of new facilities, then on increasing energy efficiency and business efficiency, as well as on the implementation of projects in the field of environmental protection.

10