Market Risks
The main areas of Gazprom Neft operation are oil and gas production, oil refining and the sale of oil and petroleum products, all of which expose the Company to risks that are traditionally inherent to the oil and gas industry, namely:
- risks associated with a possible change in prices for purchased raw materials and services
- risks associated with a possible change in oil and petroleum product prices
- risks associated with industry-wide competition
- risks caused by economic instability in the industry
Description of risks |
Risk management measures |
RISKS ASSOCIATED WITH THE POSSIBLE CHANGE IN PRICES FOR PURCHASED RAW MATERIALS AND SERVICES |
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In the process of its business operations, Gazprom Neft uses the infrastructure of monopoly service providers for the transportation of oil and petroleum products and the supply of electricity. The Company has no control over the infrastructure of these monopoly service providers and the amount of tariffs charged. It should be noted that although tariffs are regulated by the oversight of the authorities of the Russian Federation, tariffs are increased each year despite this fact. This leads to increased costs for the Company. At the same time, additional expenses may arise as a result of the following factors:
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The Company has implemented a number of proactive measures aimed at mitigating the impact of such risks:
These measures make it possible to reduce risks associated with the use of external services and the acquisition of goods from monopoly providers to an acceptable level and ensure the Company’s continuity in operations. |
RISKS ASSOCIATED WITH THE POSSIBLE CHANGE IN OIL AND PETROLEUM PRODUCT PRICES |
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The Company’s financial indicators are directly related to the price level of crude oil and petroleum products. The price level depends on a number of factors which the Company cannot fully control. Such factors include:
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Comprehensive measures have been prepared to reduce the cost of extracting minerals. The Company has a business planning system which at its core has a scenario-based approach when determining the Company’s key performance indicators dependant on oil prices on the global market. This approach makes it possible to cut costs, including by reducing them or carrying them over to future periods of investment programmes. These measures enable the Company to reduce risks to an acceptable level and fulfil obligations it has undertaken. |
RISKS ASSOCIATED WITH INDUSTRY-WIDE COMPETITION |
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There is intense competition in the Russian oil and gas industry between the leading Russian oil and gas companies in the main areas of production and economic activities, including:
In addition, there is competition from the suppliers of alternative energy sources, including eco-friendly sources such as solar energy and wind energy. |
Gazprom Neft has extensive experience in geological exploration work and employing the latest geophysical methods for prospecting and hydrocarbon exploration as well as advanced technologies in drilling and the development of fields which serve to diminish the probability of such risks. The implementation of the portfolio of strategic projects by management aimed at developing key areas of OJSC Gazprom Neft activities ensures the gradual strengthening of the Company’s positions in the oil and gas industry by ensuring a reduction in risks associated with competition. |
RISKS CAUSED BY ECONOMIC INSTABILITY IN THE INDUSTRY |
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Sustained in large part by the production and export of large volumes of oil and natural gas, the Russian economy is particularly sensitive to price fluctuations of crude oil, natural gas and other raw materials commodities on the global market. Negative oil price dynamics on the global market and a slowdown in the Russian economy may have an adverse effect on the Company’s business. Over the past decade, the Russian economy has at different times experienced:
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In order to mitigate the negative effects of these factors on the Company’s performance results, work is being conducted to expand sales markets and increase the volume of products sold in foreign countries. The Gazprom Neft companies also provide support to the country’s economy as major taxpayers and take part in large-scale infrastructure and socially significant projects. The Company is constantly improving production and working on improving performance efficiency, including by implementing investment projects and updating and modernising fixed assets. |