Country and Regional Risks

COUNTRY AND REGIONAL RISKS

Description of risks

Risk management measures

RISKS ASSOCIATED WITH MORE SANCTIONS FROM THE EU AND U.S.

In 2014, the U.S., EU countries and certain other nations imposed sanctions on the Russian energy section that partially apply to the Company.

The failure to comply with the sanctions by members of the Company may lead to them being deprived of the ability to interact with the governments of the U.S. or EU or their agencies, the prosecution of the Company and/or its employees, significant fines and the worsening of the Company’s reputation and public image.

The sanctions have had a negligible effect on the Company’s business and financial condition, none of the Company’s members have been included in the list of specially designated nationals and the Company has no grounds to believe that it will be specifically targeted by any new sanctions.

At present, the Company continues to assess the impact of the sanctions, but does not believe that they will have a significant effect on the consolidated financial statement.

POLITICAL RISKS

The political situation in Russia is currently stable, which is characterised by the stability of the federal and regional branches.

OJSC Gazprom Neft is registered as a taxpayer in St Petersburg, which is the second largest city in the Russian Federation and the administrative centre of the Northwest Federal District with significant natural resource potential, highly developed industry and an extensive transportation network.

OJSC Gazprom Neft has subsidiaries in the Central, Northwest, Urals, Volga, Siberian and Far Eastern Federal Districts.

Overall, the Company regards the political situation within the country as stable and believes that there are currently no risks of negative changes.

RISKS ASSOCIATED WITH FOREIGN ASSETS

The Company is implementing a number of foreign projects that aim to expand the geography of production operations.

Entering new regions is associated both with the ability to obtain additional competitive advantages as well as the risks of underestimating the economic and political situation in countries where the Company’s assets are located, which subsequently may lead to the failure to achieve planned performance indicators.

At present, Gazprom Neft assesses the level of risks associated with foreign assets as acceptable, however it cannot guarantee the absence of negative changes since the risks described are beyond the Company’s control.

CORRUPTION RISKS

As the Company actively enters new international markets, the risk increases of U.S. or UK anti-corruption laws extending to it.

Gazprom Neft pursues a strategy of corruption risk management on an ongoing basis. The Company has an approved an anti-fraud and anti-corruption policy and all Gazprom Neft subsidiaries have been given recommendations to approve similar policies. All Gazprom Neft employees are required to review and comply with the policy requirements.

In order to monitor corruption risks when working with third-party contractors, standard forms of anti-corruption reservations have been prepared and approved by an order of the Gazprom Neft CEO for inclusion in Contracts with third parties (both Russian and foreign).

The Company also has a permanent anti-fraud and anti-corruption hotline. An internal inspection is conducted in response to hotline complaints.