Surgutneftegas : Annual report of «Surgutneftegas» PJSC for 2020

CONTENTS

MESSAGE FROM DIRECTOR GENERAL

THE COMPANY'S		PLANS AND
	DEVELOPMENT
PROFILE
	PROSPECTS
01	05

Key performance indicators	8
of "Surgutneftegas" PJSC
The Company today	10
The Company and the oil and gas industry	12
Business priorities	18
Key risks related to the Company's operations	19
REPORT OF THE BOARD OF DIRECTORS
OF "SURGUTNEFTEGAS" PJSC ON THE COMPANY'S
PERFORMANCE AND PROSPECTS FOR DEVELOPMENT
OF BUSINESS PRIORITIES

	PRODUCTION
	OPERATIONS
	02
	Resource policy	26
	Oil and gas production	30
	Oil refining and gas processing	36
	Sales of oil products	38
	Power generation	40
"SURGUTNEFTEGAS" PJSC
RESEARCH AND
TECHNOLOGY
	03

Plans and development prospects of "Surgutneftegas" PJSC

CORPORATE

GOVERNANCE

AND SECURITIES

06

The Board of Directors Individual executive body Information on remuneration

Report on the Company's compliance with the principles and recommendations

of the Corporate Governance Code

Report on declared (accrued) dividends on shares of "Surgutneftegas" PJSC

ADDITIONAL

INFORMATION

07

List of the Company's transactions carried out in the reporting year

Energy resources utilized by the Company

68

72

75

75

76

87

90

91

R&D profile Innovations

1. BACKGROUND
2. INFORMATION

Information technologies

47

08

SOCIAL

RESPONSIBILITY

04

Environmental safety HR policy

Social activity, charity and sponsorship

Information about the Company	94
on the Internet
Full corporate name	94

"Surgutneftegas"PJSC,"Company","Surgutneftegas","we","our","us"

1. and"joint stock company" used in the text are interchangeable terms

1. that relate to"Surgutneftegas" PJSC and/or"Surgutneftegas" PJSC

61 and its subsidiaries for core activities subject to the context.

MESSAGE FROM DIRECTOR GENERAL

Dear fellow shareholders!

The reporting 2020 year was a challenge for both the world economy overall and for oil and gas industry and our Company. We had to take actions under unknown conditions. The COVID-19 pandemic caused decline in economic activity,

rapid reduction of demand for oil and oil products, commodity and financial markets uncertainty. The price drop of the energy resources forced the OPEC+ countries into signing a new agreement on the limitation of oil production volumes.

Those agents were impossible to predict, and they outlined the necessary adjustments to plans and production programs for 2020. Nonetheless, the complicated external conditions did not prevent us from doing our job as effective as ever and showing sufficient results in the reporting year.

We continued to carry out production programs with competence and accuracy, implement key investment projects and enhance our technology potential.

In the upstream sector, we had to limit the production volumes as part of the OPEC+ agreement - thus, oil production was reduced by 9.9% compared to 2019 and totaled 54.8 million tonnes. At the same time, we carried on with the development of the promising territories and fields in the planned volumes, including the increase of oil production at the fields in Eastern

Siberia. The Company has seven existing fields there, and their oil production

in the reporting year increased by 5.8% and totaled 9.9 million tonnes - that is a record level for the whole period of development. I would like to mention that we expect further increase of production in this region.

In the reporting year, the Company developed the infrastructure of Eastern Siberia - we constructed new production facilities, upgraded and enhanced

the existing facilities. We create a solid foundation for implementing our production plans; there is a potential for that. At the end of 2020, the Company owned 27 license blocks in the Republic of Sakha (Yakutia), Irkutskaya Oblast and Krasnoyarsky Krai, which have 12 fields on their territory.

In the reporting year, the main bulk of works was carried out in the Republic of Sakha (Yakutia), where, as the result of geological exploration, the additions of 11.9 million tonnes of oil were provided. The additions for the last five years totaled nearly 50 million tonnes. The results like this allow us to feel confident about the future of the Company in Eastern Siberia.

In Western Siberia, which is our main region of operation, we have also showed good performance of geological exploration in 2020. The addition of oil reserves amounted to 47.5 million tonnes, which

is 6% higher than the production volume. In the reporting year, we gave the priority to ensuring efficiency of production processes, implementing modern technologies, intensifying production at the brown fields, and controlling the costs. In 2020, two new fields - Maloperevalnoye and Lungorskoye - were commissioned in the region.

The Company's operating oil well stock reached 25,439 wells, at the same time the share of idle wells decreased to 5.8%. Development drilling performed

by the Company reached more than

4,716 thousand meters. We successfully utilize innovative approaches, especially those that had been tested by experts of our in-house scientific centers. In 2020, the Company adopted new technological processes, new types of production and equipment, which let us gain the economic benefit of over RUB 11.1 billion.

In our activities, we strive to optimally build production ties that not only allow us to further enhance the efficiency

2	"SURGUTNEFTEGAS" PJSC		ANNUAL REPORT 2020	3

of individual processes, but also provide the synergy of contiguous areas. Developing the in-house energy complex secures the supply of energy resources to the Company's facilities, and at the same time tackles the reduction of the man-made impact of production processes on

the environment. In 2020, we increased the electrical energy generation to

5.9 billion kWh, which satisfied 53%

of the upstream demand. It is worth noting that we, at the same time, strive to reduce energy consumption, and for that we implement the program on energy saving and energy efficiency of production every year. In the reporting year, the economic benefit from the implementation of this program was about RUB 2.2 billion.

The Company's in-house power plants are integrated into the complex system for utilization of associated petroleum gas, which enables us to hold a leading position in the industry in terms of APG utilization for several years in a row. In the reporting year, this indicator was 99.52%. I would like to emphasize that the environmental policy is a key factor of the Company's sustainable development. Every year we invest substantial funds in implementation of environmental protection measures.

In 2020 alone, the amount of investments in the environmental programs totaled RUB 29.4 billion.

In the oil refining and gas processing sector, we maintain stable levels

of production volumes in accordance with the consumer demand, economic efficiency of refining and processing and technological capability of production facilities. In 2020, the volume of oil refining totaled 18.2 million tonnes; 5.8 billion cubic meters of gas were delivered to the gas processing plant.

The Company's refinery - LLC "KINEF" - continued to upgrade production facilities and carry out their repairs aimed at improving the environmental and quality characteristics of products. In the reporting year, the percentage of light oil products increased to 56.5%; production of motor gasoline and diesel fuel increased by 2%. We will continue our efforts to increase the conversion ratio and the percentage of light oil products. To tackle this task,

we began preparing for the implementation of a project for the construction of a complex for processing heavy oil residues.

In the marketing sector, we are working on improving the efficiency of the marketing network, ensuring a high quality of services and products sold. In the sector of retail sale, the Company paid close attention to the growth of sales profitability of related products and services. In the reporting year, almost a third of operating expenses of the gas stations were covered by the gains from the related business.

Evaluating the production results of the year, I would like to especially note the contribution of the employees of our Company, whose knowledge, competence and solidarity let us successfully solve the complicated production challenges. The high level of personal responsibility, not just for oneself, but also for the team, coupled with the self-discipline of each employee, played an important role in achieving the set goals.

When talking about our 2020 financial performance, we should first take into account the negative impact of oil and oil products price drop and the production decline. Sales profit decreased by more than half compared to the previous year and totaled RUB 180.9 billion. At the same

time, the net profit increased because of the revaluation of the Company's foreign currency assets due to the growth of the foreign currency to ruble exchange rate. By the end of the year, the net profit totaled RUB 729.6 billion.

Following the Company's Charter and Regulations on Dividend Policy, the Board of Directors of "Surgutneftegas" PJSC adopted a resolution to propose to the general shareholders' meeting to pay dividends in the amount of RUB 6.72 on one preference share and RUB 0.7 on one ordinary share

of "Surgutneftegas" PJSC.

Despite the challenges of the reporting year, not only did we continue to implement a full range of corporate social programs, but we also introduced additional guarantees and compensations to the employees, following measures that prevent the new coronavirus infection from spreading.

Using the means and resources available in the field of staff health, the Company made unequaled efforts to protect the health of its employees.

The beginning of 2021 brings moderate optimism about gradual recovery of the world economy and establishment of the acceptable conditions for producers in the oil market. Yet, there are still the high risks related to COVID-19 pandemic and unstable economic situation that may have a significant influence on the production and financial performance.

Nevertheless, I am certain that because of our broad experience, available resources and the proficient competence of our employees, we will not only rise

to the new challenges, but also continue to confidently make our way towards achieving the set goals, with respect to the interests of the society and the shareholders.

Vladimir Leonidovich Bogdanov

Director General

"Surgutneftegas" PJSC

4	"SurgutneftegaS" PJSC		AnnuAl RepoRt 2020	5

01

The Company's profile

Key performance indicators of "surgutneftegas" PJsC

the Company today

the Company and the oil and gas industry

Business priorities

Key risks related to the Company's operations

KEY PERFORMANCE INDICATORS

OF "SURGUTNEFTEGAS" PJSC

Oil production	Gas production
'000 tonnes	mn cub m

61,849	60,545	60,886	60,758	54,752	9,760	9,957	9,667	9,633	9,053
2016	2017	2018	2019	2020	2016	2017	2018	2019	2020

Revenue (RSBU)		Sales profit (RSBU)
RUB bn		RUB bn
1,525	1,556		392	375
1,144		1,062
993
	235	232

181

2016 2017 2018 2019 20202016 2017 2018 2019 2020

Total dividends declared		Dividend per share
RUB bn		RUB
82	77	7.62
	6.72

26	34	31
			1.38	0.97
				0.6

2016	2017	2018	2019	2020	2016	2017	2018	2019	2020
					0.6	0.65	0.65	0.65	0.7

Dividend per one preference share

Dividend per one ordinary share

Consolidated operating results

Indicators	Unit	2020
Oil production	mn tonnes	54.8
Gas production	bcm	9.1
Primary hydrocarbon processing	mn tonnes	18.2
Yield of main types of oil products:	mn tonnes	17.8
- motor gasoline		2.5
- diesel fuel		7.2
- jet kero		0.5
- mazut		6.3
- others		1.3
Power generation (output)	mn kWh	5,909.7
Gas processing	bcm	5.8
Investments:	RUB mn	221,895
- oil production		216,802
- oil refining		4,359
- marketing		734
New oil wells brought online	wells	1,155
Injection wells brought online	wells	573
Average number of production wells online	wells	24,243
Gas stations in operation	stations	278
Average number of personnel:	people	111,866
- oil production		100,839
- oil refining		7,813
- marketing		3,214

Financial performance (RSBU)

Revenue	RUB mn	1,062,232
Cost of sales	RUB mn	787,734
Net profit (loss)	RUB mn	729,578
Average annual value of assets	RUB mn	4,904,382
Sales margin	%	17
Dividend per one share:
- ordinary share	RUB	0.7
- preference share	RUB	6.72

8	"SURGUTNEFTEGAS" PJSC		ANNUAL REPORT 2020	9