Financial Risks

Financial risks faced by the Company are managed by employees in accordance with their professional activities.

The Financial Risk Management Committee determines the unified approach to financial risk management at the Company and subsidiaries. The activities of Company employees and the Financial Risk Management Committee help to reduce potential financial damage and achieve stated goals.

Description of risks

Risk management measures

CREDIT RATING OF COUNTERPARTIES

As some of the Company’s counterparties may experience financial difficulties, particularly during crisis periods, Company executives devote extra attention to the credit risk management process.

Gazprom Neft has implemented measures making it possible to manage risks, including an assessment of the creditworthiness of counterparties, the establishment of individual limits depending on the financial condition of counterparties, control of advance payments and measures for working with receivables by business area, among others.

RISK ASSOCIATED WITH BORROWING

The imposition of sanctions on OJSC Gazprom Neft by the US and EU has significantly narrowed the range of financing instruments available to the Company.

Gazprom Neft effectively manages risk associated with the borrowing of funds.

Despite the levying of sanctions against the Company by the US and EU in September 2014, the Company fully implemented a programme to attract funding in 2014 and also signed agreements with Rosselkhozbank and Sberbank to raise loans that may be used in 2015.

The Company continues to explore alternative sources of funding.

CURRENCY RISKS

The bulk of the gross revenue of OJSC Gazprom Neft comes from export transactions for the sale of oil and petroleum products. Consequently, fluctuations in currency exchange rates against the ruble affect the results of the Company’s financial and business activities.

Government requirements for the mandatory sale of foreign exchange revenue on the domestic market could have a negative impact. No such requirements are in place now, but the Russian Government and Central Bank have resorted to such measures in the past.

The Company’s currency risk is significantly mitigated by the existence of liabilities denominated in foreign currency. The Company has raised a considerable portion of its loans on the international credit market in US dollars. The current liabilities for servicing these loans are also denominated in US dollars.

The currency structure of revenue and liabilities acts as a hedging mechanism whereby opposing factors compensate one another. A balanced structure of assets and liabilities minimises the impact of currency market factors on the results of the Company’s financial and business activities.

INTEREST RISK

As a major borrower, the Company is exposed to risks associated with changes in interest rates. Much of the debt portfolio consists of credits and loans denominated in US dollars. The interest rate for servicing part of the existing credits (the percentage is not fixed and may vary) is based on interbank loan rates, primarily LIBOR. An increase in these interest rates may lead to higher debt servicing costs for the Company. Growth in the cost of credits for the Company may negatively impact creditworthiness and liquidity indicators.

The current structures of the OJSC Gazprom Neft debt portfolio and the interest rate level ensure a moderate level of interest risk impact on the Company.