Energy Panel

GLOBAL OIL MARKET –

ON THE PATH TO SUSTAINABLE

DEVELOPMENT

June 2, 2017

St. Petersburg International Economic Forum

Igor I. Sechin

Chief Executive Officer

2

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Sustainability of Main Producers in 30-40-50 $/bbl Scenarios

Sources: IEA, Wood Mackenzie, IHS Markit, analysts estimates

20

10

0

100

90

80

70

60

50

40

30

Bre

ake

ve

n p

rice

, $

/bb

l

Liquids production, mmbpd

Russia Iran

Saudi Arabia

OPEC Iraq

USA

(conv.)

Non-OPEC OPEC

Non-OPEC

Other Northern

Europe

(offshore)

Average

• Heavy oil, Canadian sands, projects in mature basins of Western Africa offshore, North Sea and Gulf of Mexico are not economically

viable at long term prices below 50 $/bbl

• Projects with combined production over 12 mmbpd and investment over $800 bln will not be sanctioned at prices below 50 $/bbl

Onshore non-OPEC

Onshore OPEC

Deepwater Offshore

Offshore

Tight/shale

USA

Canada

sands

USA

NGL

Breakeven costs by the resource type

3

Fiscal Stimulus to Electric Vehicles Buyers

* Tax and other incentives in the first 5 years of EV usage

Sources: UBS, Morgan Stanley

Economic benefits to EV buyers, thousand $ per vehicle

19,0

17,6

8,5

7,3 6,8 6,7

6,2 6,0

4,3

1,1 0,2

Norway Denmark China France UK Japan USA Netherlands Italy Portugal Germany

Other incentives*

One-time tax benefits

4

Investment Optimization

Oil and Gas Resources of Sanctioned Projects, bln boe

Source: Wood Mackenzie, Rystad Energy, companies’ data

Global Spending in Exploration and Production, $ bln

• Steep reduction of new projects launch in 2015 and 2016 after period of prior high activity

0

20

40

60

80

100

120

140

160

1996 2000 2004 2008 2012 2016

49

88

19

1291

1020

863 923

2014 2015 2016 2017

Opex LNG/PipelinesOffshore Onshore (unconventional)Onshore

-44% -33%

5

1,3

0,2

-0,6

0,5

0,3

1,2

0,1

-0,2

0,6

0,1

1,8

0,6

-0,4

0,8 0,8

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

I II III IV I

2016 17

EIA МЭА ОПЕК

0,5

1,0

1,5

2,0

2,5

3,0

2014 2015 2016 2017

EIA МЭА ОПЕК Forecast

Variation in Estimates of Global Demand & Supply Dynamics

Leads to Different Expectations

Excess of Global Liquid Hydrocarbons Supply over Demand,

mmbpd

Growth of Global Liquid Hydrocarbon Demand (y/y)

according to various energy agencies, mmbpd

• According to leading agencies, scale of oversupply in Q1

2017 significantly varies – from 0.1 to 0.8 mmbpd

Sources: EIA, IEA, OPEC

• Estimation of the demand growth forecast by different

agencies in the last two years have almost coincided

• Forecasts for Q2 - Q4 2017 vary

OPEC IEA OPEC IEA

The only quarter when

demand consensus

exceeded supply

~1,4

6

Oil Futures Trading Volume and Open Interest

Daily trading volumes and Open Interest for WTI

thousand contracts

Source: Bloomberg

Daily trading volumes and Open Interest for Brent

thousand contracts

• Brent futures market has significantly increased over the last 10 years

• Current liquidity indicators and frequency in futures trading substantially exceed 2008 numbers

0

100

200

300

400

500

600

700

2005 2007 2009 2011 2013 2015 2017

Тысячи

Объем торгов (в среднем за день)

Открытый интерес (open interest)

0

50

100

150

200

250

300

350

400

2005 2007 2009 2011 2013 2015 2017

Тысячи

Объем торгов (в среднем за день) Открытый интерес (open interest)

Trading volume (daily average)

Open interest

Trading volume (daily average)

Open interest

7

Equity Raising in Oil & Gas Sector

• New equity is not the main source of financing for the most of oil and gas companies

Global public offerings,

Jan 2011 – April 2017*, $ bln

Oil and gas companies’ public offerings,

Jan 2011 – April 2017*, $ bln

* Subject to effective transaction dates ** Jan-Apr 2017

Source: Bloomberg

0

200

400

600

800

1000

1200

2012 2013 2014 2015 2016 2017

Other sectors

Oil&Gas sector

45% 65%

67% 64%

81%

81% 0

10

20

30

40

50

60

2012 2013 2014 2015 2016 2017

Other regions

North America

** **

8

470

106 24 22

-2 036 -1 886

-1 264

Production Cut by the Agreement Parties is Mostly

Compensated by Production Growth in the USA and Other Countries

Note: Northern Europe includes Norway, UK, the Netherlands and Denmark. Figures for non-OPEC countries also include condensate, while for the USA – NGLs

Sources: OPEC, IEA, EIA, CDU TEK, Ministry of Energy of the Russian Federation

Decline in average daily production of crude oil in April 2017 vs. October 2016, thousand bbl/d

Saudi Arabia

Russia

Others

Changes in production of OPEC and non-OPEC Participants

of the Agreement

Production growth in other countries

Net

Reduction

Overall

Reduction Reduction Growth

Northern Europe

China Brazil

USA

Iraq

Angola

Kuwait

UAE

Mexico

Venezuela

Libya

Kazakhstan

Iran

Malaysia

Nigeria

Gabon

S. Sudan

+ 622

+ 149

+ 771

9

Challenging Time for Majors’ Traditional Business Models

Key Indicators

Hydrocarbons Production CAPEX Debt

Note: Aggregated for ExxonMobil, Shell, BP, Chevron and Total. CAPEX and debt – for the Company in general.

Source: companies’ data

17 16 16 16 15 15 16

0

5

10

15

20

25

0

2

4

6

8

10

12

14

16

18

2010 2011 2012 2013 2014 2015 2016

Production Share in the world

• Low reserves, low R/P rate, production decline

• High OPEX and CAPEX, projects with high breakevens

• High expectations of share buybacks

• Growing debt due to lack of equity

mmboepd $ bln $ bln

110 126

147 166

149 126

67

0

25

50

75

100

125

0

20

40

60

80

100

120

140

160

180

2010 2011 2012 2013 2014 2015 2016

CAPEX % of operational CF

-55%

+45%

156 150 154 182

212 246

306

0

10

20

30

40

50

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016

Total Debt Debt/Equity

10

National Companies – Becoming Stronger

Hydrocarbon production by the largest oil and gas companies, mmboepd

• Pattern of national oil and gas companies becomes more and more apparent

• They are not only holders of large resource base, but also new active players shaping the global market

Note: Companies’ data for 2016, Rosneft – pro-forma data for acquisition of Bashneft. Data for Saudi Aramco, NIOC, Qatar Petroleum, ADNOC and CNPC for 2015.

Source: companies’ data, BP Statistical Review

Saudi Aramco

13.7 Gazprom

9.5

NIOC

7.0

Rosneft

5.7

Qatar Petroleum

4.8

ADNOC

4.8

ExxonMobil

4.1

CNPC

5.2

Shell

3.7

BP

3.3

Chevron 2.6 Total 2.5

11

Unlike Majors National Oil Companies Increased Production

Over the Past 10 Years

Source: companies’ data

Actual change in oil production over 10 years, thousand bbl/d

NOCs

Majors

-400

-200

0

200

400

600

800

1000

1200

1400

BP ExxonMobil

Total Eni Chevron Shell Statoil Роснефть CNOOC Petrobras CNPC Ecopetrol Sinopec

2400

12

Tax Take Reduction in Saudi Arabia – Stimulus to New Investments

Source: Vision 2030, analytics assessment

1 Corporate tax reduction from 85% to 50% is leading to 3 times

increase in Saudi Aramco's profitability

2 Financial restructuring

3 Other initiatives to raise oil price

Government Support to IPO

0

5

10

15

20

25

PetroChina ExxonMobil Saudi Aramco(New TaxSystem)

Saudi Aramco(Old TaxSystem)

Saudi Aramco’s Profitability Increased after Tax Changes

Revenue, $/bbl

44

141

267

2016 2020 Target 2030 Target

Non-Oil Revenues Growth in Saudi Arabia

+34% per

year

+7% per

year

3х

13

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Onshore Шельф NGL Прочие Всего

Growth of Liquids Production in the USA will Intensify in 2017-2018

• By September 2016 liquids production in the USA has declined by 0.8-1 mmbpd from the peak level of April 2015, but in

2016 YoY – only by 0.3 mmbpd

• Shale production was the main factor of this decrease, declining by about 0.6-0.7 mmbpd

Source: FIEF calculations based on EIA data

Structure of liquids production growth (YoY) in the USA, mmbpd

Offshore Total Other

14

Conditions for Production Growth in the USA

Oil and liquids production in the USA (excluding Alaska and the Gulf of Mexico), thousand bbl/d

Source: Wood Mackenzie

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

$50-$60 $60-$70 $70-$80 <$50 Base production

• Sustainable growth in the USA is only possible with oil price higher than 50 $/bbl

• Nevertheless, many projects in the USA are profitable at 30-40 $/bbl

• Companies actively use hedging strategies to increase production

15

An Increase In Shale Productivity in the USA

Source: Rystad Energy

2014 2016 Change

Horizontal wells 1 030 322 -69%

Wells completed 22 750 8 930 -60%

Number of drilling rigs older than 2011 72% 28% -44%

Number of stages per well 23 32 +39%

Investments, $ bln 124 36 -71%

Cost of 1 mmbpd of production increase, $ bln 59 30 -49%

Drilling footage per rig, thousand meters per year 41 61 +47%

Initial production rate, bbl/1000 feet of horizontal lateral well 38 42 +11%

Increase In Shale Productivity In the USA

16

Over the Past 20 Years Share of Russia, Saudi Arabia

and the USA in the Market Increased to 39.5%

8,6%

11,5%

13,1%

28,4%

38,5%

1997

12,2%

8,3%

12,5%

31,5%

35,4%

2007

12,7%

13,5%

13,3%

29,4%

31,0%

2016

Other Other Other

Other

OPEC

Other

OPEC Other

OPEC

72,1 mmbpd 82,3 mmbpd 91,4 mmbpd

Total OPEC – 41.5% Total OPEC – 44.0% Total OPEC – 42.7%

Note. Production includes oil, condensate and other types of liquid hydrocarbons, incl. LPG (pentanes, ethane-ethylene fraction, propane, propylene and others). The OPEC countries' extraction is given by the

historical composition of the member countries of the organization for the corresponding year.

Source: BP Statistical Review, Wood Mackenzie

17

47

48

55

58

59

62

70

72

78

80

83

85

91

Turkmenistan

Kuwait

Iran

Iraq

UAE

Qatar

Azerbaijan

Russia

Oman

Saudi Arabia

Kazakhstan

Nigeria

Algeria

Oil Producing Countries’ Budget Deficit

Oil price required for budget balance in 2016, $/bbl

• State budgets of the main oil exporting countries remain in deficit at current price

Brent

Source: IMF, national energy agencies data, IEF estimates

18

bln boe mmboepd $/boe

Leader Among Public Companies

Hydrocarbon reserves1 Hydrocarbons production2 Production costs3

30

30

36

49

51

69

82

137

2,1

2,6

2,8

3,5

3,8

4,1

4,2

5,8

13,2

11,8

11,7

10,9

10,6

8,5

4,1

2,5

Bashneft contribution

Liquids Gas

Growth from 5.2 to 5.8

After acquisition of Bashneft

Note: (1) Rosneft AB1C1+В2C2 reserves under Russian classification as of 01 January 2017 (incl. Bashneft), data for other companies is taken from Wood Mackenzie reserve estimates

including commercial and sub-commercial reserves; (2) Lukoil’s data – preliminary operating results for 1Q 2017; (3) Rosneft and Petrobras data for 1Q 2017, other companies – 2016 data.

19

Integration Enhancement

Setting up JV Expanding presence

Vankor

49.9%

Taas-Yuryakh

49.9%

Ermak Neftegaz

49%

VChNG

20%

Essar

49%

Petro- monagas

Share increase up 40%

23.33%

JV ROG Stake increase

Schwedt – up to 54.17%

Bayernoil – up to 25%

MiRO – up to 24%

JV for

construction

of Tuban Refinery

45%

Targin

100%

Zohr

30%

20

Improvement of the Company’s Performance

Due to Synergy

Synergy Operational indicators

77%

84%

91%

95%

23%

16%

9%

5%

Filling stations, units

Refining, mmt

Liquids production, mmt

Proven oil reserves, blnbbl

Rosneft Bashneft

3 000

114

225

46,0

Operations

Finance

Technologies

Optimization of

deliveries of oil

and petroleum

products

Optimization of

transport and

logistics

Exploration

and

production

Refining Sales and

marketing

Administrative

costs cuts

Reduced

funding

Joint use of

advanced

technologies

180 bln rub.

21

Information, contained in this presentation, was prepared by the Company. Inferences contained herein are based on general information available at

the moment of materials preparation and may be changed without prior notice. The Company fully relies on information obtained from sources, which it

believes reliable. However, the Company does not guarantee either its accuracy or completeness.

These materials contain assumptions on future events and clarifications, which represent a forecast of such events. Any representations in these

materials, unless being statements of historical facts, are forward-looking assumptions, associated with known and unknown risks, uncertainties and

other factors, for which reason our actual results, conclusions and achievements may differ significantly from any future results, inferences or

achievements reflected in or asserted by forward-looking assumptions. We do not assume any liability for due updating of any forward-looking

assumptions contained herein, so that they would reflect actual results, changes in assumptions or changes in factors that influenced such

representations.

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precise or impartial. Information of this presentation shall be subject to verification, finalization and amendment. The content of this presentation was not

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