Tatneft : Directors' Report for 2022

DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2022

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE YEARS ENDED 31 DECEMBER 2022 AND 2021

PJSC TATNEFT n.a. V.D. Shashin
MD&A for the year ended 31 December 2022
Content
Background	3
Key financial and operational results	4
Segment information	4
Exceptional items	5
Results of the Group operations for the year ended 31 December 2022 compared to the year ended 31 December 2021	6
Revenues (excluding financial services)	7
Revenues breakdown (excluding financial services)	7
Costs and other expenses (excluding financial services)	8
Other (expenses)/income	8
Income taxes	9
EBITDA reconciliation	9
Financial Condition Summary Information	9
Liquidity and Capital Resources	10
Contractual obligations, other contingencies and off-balance sheet arrangements	10
Critical accounting policies	11
Forward-looking statements	11
Corporate Governance Statement (as of 31 December 2022)	12
Corporate Governance Code	12
Main Features of Internal Control and Risk Management Systems in Relation to the Financial Reporting Process	12
Information About Share Capital	12
Description of the Composition and Operation of the Administrative, Management and Supervisory Bodies and Their
Committees	14
Statement regarding TCFD disclosures	20

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PJSC TATNEFT n.a. V.D. Shashin

MD&A for the year ended 31 December 2022

The following discussion should be read in conjunction with the audited consolidated financial statements in accordance with IFRS and the related notes, approved for issue and signed prior to publishing of this Management's Discussion and Analysis of financial condition and results of operations (MD&A). This report includes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in the forward-looking statements as a result of numerous factors, including those discussed later in this MD&A. Words such as "believes," "anticipates," "expects," "estimates," "intends," "plans," etc. - that reflect management's current estimates and beliefs, but are not guarantees of future results. Please see "Forward-looking statements" for a discussion of some factors that could cause actual results to differ materially.

For financial reporting purposes, Tatneft converts metric tonnes of crude oil to barrels using a conversion factor of 7.123. This factor represents a blend of varying conversion factors specific to each of Tatneft's fields. Because the proportion of actual production by field varies from period to period, total reserves and production volumes for the Group in barrels converted from tonnes using the blended rate may differ from total reserves and production calculated on a field-by-field basis. Translations of cubic meters to cubic feet were made at the rate of 35.31 cubic feet per cubic meter. Translations of barrels of crude oil into barrels of oil equivalent ("BOE") were made at the rate of 1 barrel per BOE and of cubic feet into BOE at the rate of 6 thousand cubic feet per BOE.

Background

PJSC Tatneft n.a. V.D. Shashin (the "Company") and its subsidiaries (jointly referred to as the "Group" or "Tatneft") is one of the largest vertically integrated oil companies in Russia in terms of crude oil production, proved oil reserves, and refining capacity. The Company is a public joint-stock company organized under the laws of the Russian Federation with the headquarters located in City of Almetyevsk, Tatarstan. The principal business of the Group is to explore for, develop, produce, process, and market crude oil and refined products. The Group is also involved in gas treatment and refining, petrochemicals' production and marketing, manufacturing of equipment, engineering, procurement, and construction services for oil, gas and petrochemical projects, and in financial services.

As of 31 December 2022 and 31 December 2021, the Tatarstan Government controls approximately 36% of the Company's voting stock. Tatarstan also holds a "Golden Share", a special governmental right, in the Company. The exercise of its powers under the Golden Share enables the Tatarstan Government to appoint one representative to the Board of Directors and one representative to the Revision Committee of the Company as well as to veto certain major decisions, including those relating to changes in the share capital, amendments to the Charter, liquidation or reorganization of the Company and "major" and "interested party" transactions as defined under Russian law. The Golden Share currently has an indefinite term.

The majority of the Group's crude oil and gas production, refining capacity, and other operations are located in Tatarstan, a republic of the Russian Federation, situated between the Volga River and the Ural Mountains, with its capital city Kazan 797 kilometers southeast of Moscow.

The Group currently holds most of the exploration and production licenses and produces substantially all its crude oil in Tatarstan.

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PJSC TATNEFT n.a. V.D. Shashin

MD&A for the year ended 31 December 2022

Key financial and operational results

	12 months ended	Chg.,
	31 December	31 December	%
	2022	2021
Financial results
Revenues (excluding financial services), net (RR million)	1,427,147	1,205,267	18.4
Profit attributable to shareholders of PJSC Tatneft
(RR million)	284,572	198,412	43.4
EBITDA(1) (RR million)	447,120	283,437	57.7
Adjusted EBITDA(1) (RR million)	475,185	286,773	65.7
Additions to property, plant and equipment (2) (RR million)	160,895	119,106	35.1
Free Cash Flow(3) (RR million)	196,803	148,388	32.6
Net debt(4) (RR million)	(153,363)	(34,315)	>100
Basic and Diluted profit per share (RR)
Common	126.44	88.16	43.4
Preferred	126.44	88.16	43.4
Operational results
Crude oil production by the Group (th. tonnes)	29,114	27,830	4.6
Crude oil production by the Group (th. barrels)	207,379	198,233	4.6
Crude oil daily production (th. barrels per day)	568	543	4.6
Gas production by the Group (million cubic meters)	935	885	5.6
Gas daily production (th. boe per day)	15	14	7.1
Refined products produced (th. tonnes)	15,988	12,413	28.8
Gas products produced(5) (th. tonnes)	1,042	1,057	(1.4)
Refining throughput (th. barrels per day)	324	247	31.2

1. As calculated on page 9
2. As in consolidated statement of cash flows
3. As calculated on page 10
4. At the end of the period
5. Including natural stable gasoline, produced by gas refining division Tatneftegaspererabotka

The net profit of the Group (profit attributable to the Company shareholders) in the twelve months of 2022 compared to the same period of 2021 increased by 43.4%. The main factors affecting the increase in net profit were substantially higher volumes and prices for refined products, as well as the strengthening of the ruble.

Segment information

Our operations are currently divided into the following main segments:

• Exploration and Production - consists of the Company's Oil and Gas Extraction and Production Division, as well as production subsidiaries. Most oil and gas exploration and production activities are concentrated within the Company and centrally managed by Tatneft-Upstream(Tatneft-Dobycha) Division.
• Refining and Marketing - consists of a refining and petrochemical complex in Nizhnekamsk, Tatarstan, operated by TANECO, Gas Collection, Transportation and Refining Division Tatneftegaspererabotka, which also operates a small refinery in Kichui, Tatarstan; the Company's Sales and Marketing Division (URNiN), Tatneft-AZS Center, Tatneft-AZS-Zapad,Tatneft-AZS-Severo-Zapad and other subsidiaries which manage the Tatneft branded gas stations network in Russia and abroad, and carry out refined products wholesale sales; as well as various ancillary companies.
• Financial Services.

The tire business segment was excluded from the main operating segments due to disposal of assets.

These segments are determined by the way management recognizes the segments within the Group for making operating decisions and how they are evident from the Group structure.

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PJSC TATNEFT n.a. V.D. Shashin

MD&A for the year ended 31 December 2022

Togliattikauchuk, which was acquired in the fourth quarter of 2019, and Ecopet Group of Companies, which was acquired in the second quarter of 2021, are included in "Corporate and other" category.

Intersegment sales

Tatneft's two main business segments are interconnected and dependent on each other, and hence a portion of the revenues of one main segment are related to the expenses of the other. In particular, exploration and production Group companies supply part of crude oil for the processing at our own refineries, mainly TANECO, and the refined products are then sold by the Company in domestic or international markets, as well as to the Company's consumer marketing subsidiaries for subsequent distribution.

As a result of certain factors, benchmark crude oil market prices in Russia cannot be determined with certainty. Therefore, the prices set for inter-segment purchases of crude oil and other goods and services reflect a combination of market factors, primarily international crude oil market prices, transportation costs, regional market conditions, the cost of crude oil refining, and other factors. Accordingly, an analysis of either of these segments on a stand-alone basis could give a misleading perception of those segments' underlying financial position and results of operations. For this reason, we do not analyze either of our main segments separately in the discussion that follows. However, we present the financial data for each respective segment in Note 22 "Segment information" to our consolidated financial statements. All intercompany operations are eliminated on the consolidation level.

Exceptional items

The Group's results for the respective reporting periods of 2022 and 2021 were impacted by certain exceptional items, including impairment loss on assets related to exploration and production of superviscous oil, exploration and appraisal assets, related mainly to the oilfields located outside the Republic of Tatarstan, and an impairment provision loss on certain social assets not providing direct future economic benefits, as well as the loss from impairment of other assets due to the current macroeconomic situation. These losses were reflected in the lines "Impairment losses on property, plant and equipment and other non-financial assets net of reversal" and "Expected credit losses on financial assets net of reversal" in the Consolidated Statement of Profit or Loss and other Comprehensive Income of the Group (see page 9):

	12 months ended
	31 December	31 December
(RR million)	2022	2021
Expected credit losses on financial assets net of reversal	(2 165)	39
Impairment losses on property, plant and equipment and other non-financial assets
net of reversal	30 230	3 297
Total exceptional items	28 065	3 336

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