Operational Risks

Description of risks

Risk management measures

RISKS ASSOCIATED WITH GEOLOGICAL EXPLORATION OPERATIONS

One of the Company’s key strategic objectives is the quantitative and qualitative growth of its raw hydrocarbon resource base to ensure the required level of production. This in turn largely depends on the success of geological exploration.

The main risk associated with geological exploration activities is the failure to confirm the planned level of hydrocarbon reserves. Another important factor is geological exploration work in different geographic regions, which often leads to the risk of increased costs.

Estimates depend on a number of variable factors and assumptions, including the following:

  • the correlation of the historical level of productivity in a given region of production with the productivity of other regions that are comparable in terms of characteristics
  • the interpretation of geological exploration data
  • the effect of requirements of government structures on geological exploration

Gazprom Neft has considerable experience in conducting geological exploration work and employing the latest geophysical methods to prospect for and explore hydrocarbon deposits as well as advanced technologies for the drilling and development of fields. This experience results in the decreased probability of such risks.

The Company has hired the auditor DeGolyer & MacNaughton to perform an independent audit of reserves based on the estimates of the Gazprom Neft subsidiaries.

PROJECT RISKS

The Company continuously develops and implements investment projects that aim to achieve strategic goals, in particular growth in the extraction of raw commodities and improvements in the quality of the products manufactured.

When implementing projects, the Company encounters a variety of risks that could lead to a nonobervance of deadlines and/or increased costs of a given project. The main factors behind such risks are poor planning, violations of the project terms by contractors as well as new circumstances, including the increased cost of materials, errors in the assessment of infrastructure conditions and switching equipment suppliers.

The Company manages these risks paying special attention to a project’s expert evaluation during the stage of its development and coordination. In 2014, a project was implemented to introduce a risk management system for the process of preparing and implementing major projects. The Company has also determined risk management requirements for contractors and implemented a project monitoring system.

RISKS ASSOCIATED WITH HUMAN RESOURCES

The Company’s business depends on highly skilled employees in key positions. A lack of skilled labour, in particular in the areas of engineering and technical professionals, may lead to risks associated with a shortage of personnel.

The Company’s success largely depends on the ability to recruit and retain such highly skilled personnel. Competition for personnel in Russia and abroad may intensify due to the limited number of skilled specialists on the labour market. The inability to recruit new skilled personnel and/or retain existing skilled personnel could have a negative effect on the Company’s appeal as an employer.

Demand for skilled employees and the related expenses are expected to grow, thereby reflecting the considerable interest in such resources from other industries and social projects.

The Company offers competitive salaries and provides training for employees in specially designed programmes. In addition, the Company is improving personnel recruiting procedures and implementing measures that aim to reduce personnel turnover and encourage the self-development of personnel.

RISKS ASSOCIATED WITH INDUSTRIAL SAFETY

The Company is exposed to risks involving the safety of its employees and the safety of their operations. Numerous factors may have a negative effect on the Company’s core activities, including the breakdown or failure of equipment, natural disasters, political disputes or acts of terrorism.

Any of the above mentioned risk factors may have a significantly adverse impact on the business, financial condition and results of the Company’s activities.

In order to prevent risks, the Company strives to provide safe working conditions for its employees to avoid personal injury or death as well as prosecution or damage to its business reputation. Safety threats are under constant supervision and control and extra attention is paid to compliance with safety regulations.

ENVIRONMENTAL RISKS

Gazprom Neft production activities are fraught with the potential risk of environmental damage or pollution which may result in civil liability and the need for operations to counteract and eliminate such damage.

The Company is fully aware of its social responsibility to create safe working conditions and maintain a favourable ecological balance in environments of its operations and continuously monitors its activities to ensure compliance with relevant environmental standards. To further this end, the Company is implementing an environmental protection programme.

In the future, costs associated with observing environmental requirements or obligations may increase.

The Gazprom Neft environmental protection policy aims to ensure compliance with the requirements of current environmental legislation by investing substantial funds into environmental measures, including the use of technologies that ensure minimal negative impact on the environment. These activities have resulted in a significant decline in the probability of risks associated with environmental pollution.

The Company is also following the changes in environmental legislation in the different countries in which it operates