NOVATEK

Annual Report (ESEF) • Apr 21, 2022

ПУБЛИЧНОЕ АКЦИОНЕРНОЕ ОБЩЕСТВО "НОВАТЭК" 2138008R6GCRVBDFA581 2021-12-31 2138008R6GCRVBDFA581 2020-12-31 2138008R6GCRVBDFA581 2020-01-01 2020-12-31 2138008R6GCRVBDFA581 2021-01-01 2138008R6GCRVBDFA581 2020-01-01 2138008R6GCRVBDFA581 2020-01-01 ifrs-full:RevaluationSurplusMember 2138008R6GCRVBDFA581 2020-01-01 ifrs-full:NoncontrollingInterestsMember 2138008R6GCRVBDFA581 2020-01-01 ifrs-full:EquityAttributableToOwnersOfParentMember 2138008R6GCRVBDFA581 2020-01-01 ifrs-full:RetainedEarningsMember 2138008R6GCRVBDFA581 2020-01-01 ifrs-full:IssuedCapitalMember 2138008R6GCRVBDFA581 2020-01-01 ifrs-full:AdditionalPaidinCapitalMember 2138008R6GCRVBDFA581 2020-01-01 ifrs-full:TreasurySharesMember 2138008R6GCRVBDFA581 2020-01-01 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 2138008R6GCRVBDFA581 2020-01-01 2020-12-31 ifrs-full:NoncontrollingInterestsMember 2138008R6GCRVBDFA581 2021-01-01 2021-12-31 ifrs-full:NoncontrollingInterestsMember 2138008R6GCRVBDFA581 2020-01-01 2020-12-31 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ifrs-full:RevaluationSurplusMember 2138008R6GCRVBDFA581 2021-12-31 ifrs-full:EquityAttributableToOwnersOfParentMember 2138008R6GCRVBDFA581 2020-12-31 ifrs-full:TreasurySharesMember 2138008R6GCRVBDFA581 2021-12-31 ifrs-full:TreasurySharesMember 2138008R6GCRVBDFA581 2021-12-31 ifrs-full:IssuedCapitalMember 2138008R6GCRVBDFA581 2020-12-31 ifrs-full:RetainedEarningsMember 2138008R6GCRVBDFA581 2020-12-31 ifrs-full:IssuedCapitalMember 2138008R6GCRVBDFA581 2021-12-31 ifrs-full:RetainedEarningsMember 2138008R6GCRVBDFA581 2021-12-31 ifrs-full:AdditionalPaidinCapitalMember 2138008R6GCRVBDFA581 2020-12-31 ifrs-full:AdditionalPaidinCapitalMember 2138008R6GCRVBDFA581 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 2138008R6GCRVBDFA581 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 2138008R6GCRVBDFA581 2021-01-01 2021-12-31 iso4217:RUB iso4217:EUR xbrli:shares xbrli:pure iso4217:RUB xbrli:shares . false Annual Report 2021 3 Contents Letter to Shareholders.................................................4 Strategic Priorities........................................................6 Sustainability Management......................................... 7 Key Events and Achievements.....................................8 Business Model............................................................. 10 Key Indicators ...............................................................12 Hydrocarbon Reserves ................................................14 Arctic LNG 2 ..................................................................16 Geological Exploration and Production ....................18 Processing of Gas Condensate.................................19 Natural Gas Sales........................................................20 LNG Sales......................................................................22 Liquid Hydrocarbons Sales.........................................24 Environmental and Social Responsibility..................26 Climate Change...........................................................28 Management and Corporate Governance 59 Corporate Governance System ...............................59 General Meeting of Shareholders.............................60 Board of Directors .....................................................60 Board Committees .....................................................63 Management Board ....................................................66 Remuneration to Members of the Board of Directors and Management Board ...................... 67 Risk Management and Internal Control System..... 67 Share Capital ............................................................... 74 Dividends ..................................................................... 75 Information Transparency ......................................... 75 Additional Information 77 About the Company 30 31 Key business risks........................................................ 77 Information on Members of NOVATEK’s Board of Directors ......................................................86 Information on Members of NOVATEK’s Management Board ....................................................89 Report on major, and interested-party transactions that the Company did in the reporting year..............................................................93 Corporate Governance Code Compliance Report ....................................................93 Forward–looking Statements................................... 116 Conversion Factors.................................................... 116 Terms and Abbreviations ...........................................117 Contact Information.................................................. 118 Constructing Our Future Energy Transition Today Review of Operating Results Licenses.........................................................................31 Hydrocarbon Reserves ..............................................32 Geological Exploration ...............................................33 Field Development.......................................................35 Hydrocarbon Production............................................35 LNG Projects ................................................................37 Processing of Gas Condensate................................40 Natural Gas Sales .......................................................42 Liquid Hydrocarbons Sales ........................................44 The theme for this year’s Annual Review is “Constructing Our Future Energy Transition Today” as we made great strides with our next large-scale LNG project, Arctic LNG 2, and the build out our LNG platform to meet the world’s growing energy needs. The style we chose as our design concept for the Annual Review was based on the “Constructivism” and “Suprematism” period of architecture and art that redefined Russia’s contribution to the global art world and established one of the most influential art movements of the 20th Century led by revolutionary artists such as Kazimir Malevich, Vladimir Tatlin, El Lissitzky and Alexander Rodchenko. Environmental and Social Responsibility 46 Environmental Protection ..........................................46 Occupational Health and Safety..............................49 Human Resources........................................................52 Social Policy and Charity............................................55 2021 Annual Report 2021. Constructing future energy transition today Letter to Shareholders 4–5 Letter to Shareholders In September 2021, the first modules for Train 1 of field in the fourth quarter of 2021) fully offset the declines in hydrocarbons production at mature fields of our subsidiaries and joint ventures. first of three stages of international certification for long-term CO underground storage sites in the Yamal and Gydan2peninsulas. Arctic LNG 2 were successfully delivered to the LNG Construction Center that represented an important milestone towards launching this project on time. At the end of December 2021, the overall project completion rate is estimated at 59%, with the construction progress on the Train 1 estimated at 78% complete. Our 2021 hydrocarbon production totaled 626.3 mln boe, including 79.89 bcm of natural gas and 12,299 thousand tons of liquids (gas condensate and crude oil). Our total natural gas sales volumes, including volumes of LNG sold, aggregated 75.8 bcm. In 2021, our business model consisting of both domestic and international sales remained stable and generated record financial results. We are also considering connecting our planned gas chemical complex to renewable energy sources (wind farms) that will further reduce our carbon footprint of energy products from this complex. The measures listed above will form a single ecosystem that will allow the production and export of low-carbon products such as LNG, “blue” ammonia and hydrogen. Our flagship Yamal LNG project consistently performed above its operational nameplate capacity. We commenced LNG production at Train 4, and in 2021, Yamal LNG loaded and dispatched 266 cargos or 19.5 million tons of LNG. Total revenues amounted to RR 1,157 bln, the highest level in the Company’s history, while our normalized EBITDA(2) amounted to RR 748 bln, demonstrating a significant increase of 91% compared to last year period. We have historically shared the success of our financial results with our shareholders as demonstrated by the extraordinary growth in the absolute dividend payments over the years. Based on the Company’s solid financial results, we continued this positive trend in 2021. Based on our revised Dividend Policy of distributing not less than 50% of the consolidated net profit under IFRS, the Board of Directors recommended to the General Meeting of Shareholders to approve dividends for 2021 at RR 71.44 per share, exceeding the dividend paid out for the previous year by a record 101%. “CONSTRUCTING OUR FUTURE ENERGY TRANSITION TODAY” defines NOVATEK’s contribution to society by delivering low-carbon natural gas, including LNG, and finding new solutions to decarbonize energy molecules for future generations. Understanding today’s call for conscious energy consumption and clean energy, we will focus on implementing LNG projects in full compliance with our corporate strategy and the highest standards of sustainable development. ALEXANDER NATALENKO Chairman of the Board of Directors Dear Shareholders, NOVATEK always places the interests of its employees, shareholders and all of its stakeholders at the forefront. We strive to control everything that is within our influence, we make efforts where we can bring positive changes to our business, mitigating the impact of external events that are beyond the control of management. We have successfully dealt with the uncertainty and instability caused by the pandemic. Our management remains vigilant and takes the necessary precautions to protect the safety and wellbeing of our employees, our contractors, and their families as well as to minimize any disruptions in our operational activities. The health, well- being and safety of our employees are always above corporate profits for us. Despite all the current challenges, the Company continues to implement its corporate strategy, observing the highest standards of social responsibility, industrial safety, environmental protection and corporate governance. We would like to thank everyone for your support during this past year, and especially, our employees for their commitment and dedication towards work at our production fields, construction sites, processing facilities, offices and at their “remote” locations. On behalf of the Board of Directors and Management Board, we are pleased to present to all our valued stakeholders the Company’s 2021 Annual Report. LEONID MIKHELSON Chairman of the Management Board In 2021, the importance of natural gas to fuel renewed economic growth was quite evident. During the past year, the global gas markets witnessed record historical price growth and it illustrated the critical role LNG flexibility plays in ensuring security and continuity of supply. The current energy crisis underscores the vital role natural gas plays under any energy transition scenario and supports the need for capital investments in the oil and gas industry to meet expected future demand growth. During the past year, NOVATEK continues active exploration work on the Gydan and Yamal peninsulas, as well as in the UGSS zone, which will contribute to the future growth of our proven reserves according to the international classification. Correspondingly, as a result of geological exploration, as of 31 December 2021, our overall hydrocarbon proved reserves increased to 16,409 million barrels of oil equivalent (boe) under SEC(1), including 2,261 billion cubic meters (bcm) of natural gas and 189 million tons of liquid hydrocarbons. Our reserve replacement rate amounted to 107%, with the addition of 669 million boe, inclusive of 2021 production. Sincerely, ALEXANDER NATALENKO, Chairman of the Board of Directors LEONID MIKHELSON, Chairman of the Management Board We agree with the current common opinion that the transition to a net zero economy will take time. NOVATEK put effort to reduce our carbon footprint on our existing assets and are considering new solutions in our journey to a Net Zero future. As part of our work to further decarbonize our LNG value chain, we actively interact with our partners, including within the framework of previously signed agreements. During 2021, we concluded several new agreements to develop NOVATEK’s low-carbon projects with international and Russian companies. In February 2022, we successfully completed the The main achievement of TWO THOUSAND AND TWENTY-ONE for NOVATEK became the exceptional progress in constructing our LNG Construction Center in Murmansk, the world’s first facility for “large-scale manufacture” of natural gas liquefaction trains on gravity-based structures. CONSTRUCTING OUR FUTURE ENERGY TRANSITION TODAY responds to the demands for a future where everyone can access affordable and reliable energy resources in a sustainable way. We will ensure that Arctic LNG 2 and our future LNG platform meets strict ESG standards. The commissioning of gas condensate deposits within the fields of the North-Russkiy cluster (the North-Russkoye and East-Tazovskoye fields in the third quarter of 2020, as well as the Kharbeyskoye 1. Including the Company’s share in JVs. 2. Excluding the effects from the disposal of interests in subsidiaries and joint ventures and including the share in EBITDA of JVs. Annual Report 2021. Constructing future energy transition today Overview 6–7 Strategic Priorities Sustainability Management The energy sector has a vital role to play in the transition to a low-carbon economy. Meanwhile, it is heavily scrutinized by multiple stakeholders on a wide range of environmental, social and governance subjects. Conservative financial policies NOVATEK's approach to sustainability is based on our firm belief in the continued demand for natural gas as industry and society adapt to the energy transition to a low-carbon economy. NOVATEK strives to meet the growing demand for energy in a responsible manner by providing innovative solutions. Our sustainable development concept encompasses economic, environmental and social responsibility and is incorporated into our corporate strategy. We endeavor to mitigate the environmental impact as much as possible and be resource efficient. Optimize marketing channels Our ESG Priorities E. Environmental Increase hydrocarbon production Build low cost scalable LNG platform Sustainable development Corporate governance S. Social G. Governance RESOURCE BASE GROWTH Climate and environmental impact mitigation Ensuring safe working conditions and contributing to community development Continuous improvement in corporate governance Maintain low cost structure Reduce air pollutant emissions per unit of production by 20% by 2030 Reduce LTIFR by 5% among the Company's employees Continuously improve governance practices Maintain high transparency Reduce greenhouse gas emissions Provide good education to employees Efficient investment decisions Combating corruption in all its forms Increase the share of waste directed to utilization and disposal to 90% by 2030 Support educational institutions, implement educational programs in the regions where the company operates Resourse base growth Maintain low cost structure • Organic resource growth from exploration and development activities on the Yamal and Gydan peninsulas • Strategic acquisitions and active participation in license tenders • Remain one of the lowest cost hydrocarbon producers in the global oil & gas industry • Optimize cost structure through strategic investment of capital • Develop low cost LNG value chain Learn more about our Environmental and Climate Change Targets on the Company's website Sustainable development Optimize marketing channels • Reduce and prevent negative environmental impact • Maximize use of Northern Sea Route and develop key transshipment points • Increase the efficiency and rational use of natural resources, energy efficiency • Build diversified LNG trading portfolio • Develop strategic partnerships with industry partners in key markets Our contribution to the UN Sustainable Development Goals In 2019, following the analysis of the Company's operations, we identified five priority UN Sustainable Development Goals where we can make the greatest contribution. To achieve these five goals, NOVATEK has already set its own internal targets and launched the implementation of relevant action plans. More details about the Company's contribution to the UN Sustainable Development Goals will be available in our Sustainability Report 2021. Increase hydrocarbon production Build low cost scalable LNG platform • Increase gas production through development of projects within the UGSS and LNG projects in the Arctic • Development of deeper Jurassic and Achimov layers • Increase production through development of scalable LNG projects • Development of proprietary LNG technologies • Integrated projects for production and • liquefaction of natural gas • Fully utilize processing capacity of Ust-Luga complex Good Health Quality Affordable Decent Work Climate Action and Well-being Education and Clean Energy and Economic Growth Annual Report 2021. Constructing future energy transition today Overview 8–9 Key Events and Achievements Sales and transportation • We sold to TotalEnergies a 10% participation interest in Arctic Transshipment, which will operate two LNG transshipment complexes currently under construction in the Kamchatka Territory and the Murmansk Regions. • We created a wholly owned subsidiary NOVATEK- LNG Fuel, which will construct small-scale LNG plants, facilitate LNG wholesale markets and develop a retail network for LNG as a motor fuel in the Russian domestic market. Sustainable Development • As part of our work to further decarbonize our LNG value chain and develop the Company’s low-carbon projects, we signed agreements with international and Russian companies. • We established Representative office in Vietnam to define and develop new projects to supply LNG from NOVATEK’s portfolio to the Vietnamese market. • NOVATEK became signatory to the Principles of the UN Global Compact regarding human rights, labor standards, environmental protection, and anti-corruption. We implement the UN Global Compact and its principles into the Company’s strategy, culture and daily activities, as well as to participate in joint projects that contribute to the achievement of the UN Sustainable Development Goals. Development of LNG business • We launched the 4th train of the Yamal LNG plant with a nameplate capacity of 0.9 mmtpa of LNG. The total nameplate capacity was increased to 17.4 mmtpa. • The Board of Directors of PAO NOVATEK approved Cooperation the Company’s Human Rights Policy. • We signed Cooperation agreement with the • At the end of 2021, the overall project completion rate of the Arctic LNG 2 was estimated at 59%, with the progress on the construction of GBS #1 estimated at 78% complete. • We established a Subcommittee on Climate and Alternative Energy under the Company’s Strategy Committee of the Board of Directors. Leningrad Region covering social and economic development in the Leningrad Region and Cooperation agreement with the Government of the Kamchatka Territory and Rosprirodnadzor on the environmental monitoring of the water area adjacent to the Kamchatka Peninsula. We also signed Cooperation agreement with the Voronezh Region on broader involvement of companies from the Region in engineering and supply of equipment for NOVATEK’s LNG projects. Expanding the resource base and production • We joined the Arctic Economic Council, an international business forum established in 2014 at the initiative of the Arctic Council in order to facilitate business-to-business activities and promote responsible economic development of the Arctic region. • We completed concrete casting works for GBS #1 at Arctic LNG 2 project. All 14 modules for the GBS #1 arrived at the LNG Construction Center in Murmansk from the contractors’ shipyards(1). • We obtain mineral licenses for the North- Gydanskiy license area, Arkticheskoye and Neytinskoye fields, which will expand the Company’s resource base for our future LNG projects. • Arctic LNG 2 signed the loan agreements for external financing with Russian and international financial institutions and commercial banks with a maximum aggregate volume of 9.5 billion euros for up to 15 years. • NOVATEK signed Memorandum of cooperation on ammonia, hydrogen and carbon capture, utilization and storage with the Ministry of Economy, Trade and Industry of Japan. • We started production from gas condensate deposits at the Kharbeyskoye field, part of the North-Russkiy cluster to maintain production output in the area of the Unified Gas Supply system. • We commissioned the new Airport Utrenniy built specifically for the Arctic LNG 2 project on the Gydan Peninsula in the Yamal-Nenets Autonomous Region, the facility started receiving regular flights. 1. As of February 2022. Annual Report 2021. Constructing future energy transition today Overview 10–11 Sales volume Business Model international market domestic market 90% 10% 70% 30% 84% 16% LNG projects LNG 75.8 3.9 3.5 bcm mmt mmt Natural gas by pipeline Producing fields Природный газ Нефть Crude oil СУГ LPG Natural gas Separation and treatment Crude oil by pipeline 84% 16% 100% 25% Stable gas condensate Unstable gas condensate by pipeline 2.3 6.8 tankers mmt mmt Purovsky Plant (nameplate capacity – СГК condensate Нефтепродукты Stable gas Petroleum 27% LPG 12 mmtpa) products Stabilization of gas condensate 63% Naphtha 16% Jet fuel 10% Fuel oil 73% Stable gas condensate Комплекс в Усть-Луге Ust-Luga Complex (проектная мощность (nameplate capacity – 7.0 mmt 6 млн т в год) 6 mmtpa) Fractionation 12.8mmt Фракционирование of stable gas стабильного газового condensate конденсата 75% Stable gas condensate by rail 11% Gasoil Annual Report 2021. Constructing future energy transition today Overview 12–13 Key Indicators Unit 2020 2021 Change Unit 2020 2021 Change Operating indicators(1) Financial indicators Total revenues(3) RR mln RR mln RR mln RR mln 711,812 160,766 392,008 169,020 1,156,724 278,384 748,337 421,304 62.5% 73.2% 90.9% 149.3% Proved natural gas reserves (SEC) Proved liquid hydrocarbon reserves (SEC) Total hydrocarbon reserves (SEC) Natural gas production bcm 2,244 197 2,261 189 0.8% (4.1%) 0.3% 3.3% 0.5% 5.4% 3.0% 3.3% mmt Normalized profit from operations(4) Normalized EBITDA (including share in EBITDA of JVs)(4) mmboe bcm 16,366 77.4 16,409 79.9 Normalized profit attributable to shareholders of PAO NOVATEK(4) excluding the effect of foreign exchange gains (losses)(5) Liquid hydrocarbons production Proportionate share in LNG production of JVs Total production mt 12,237 11,553 608.2 1.66 12,299 12,180 626.3 1.72 mt Normalized earnings per share, basic and diluted(4) excluding the effect of foreign exchange gains (losses)(5) RR 56.26 140.36 149.5% mmboe mmboe/day Daily production Net cash provided by operating activities Cash used for capital expenditures(6) Free cash flow(7) RR mln RR mln RR mln 171,896 204,577 (32,681) 419,466 191,251 228,215 144.0% (6.5%) n/a Positions in Russia Share in natural gas production(2) Share in liquid hydrocarbons production % % 11.0% 2.4% 10.5% 2.3% (0.5 p.p.) (0.1 p.p.) Total proved hydrocarbon reserves (SEC), mmboe Proved natural gas reserves (SEC), bcm Operating cash flow, RR bln Normalized EBITDA(4), RR bln 16,366 16,409 2,261 16,265 2,234 2,244 15,789 2,177 2,098 15,120 180.4 2017 216.3 2018 307.4 2019 171.9 419.5 2021 256.5 415.3 461.2 2019 392.0 748.3 2021 39% 61% 39% 61% 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2020 2017 2018 2020 Proved developed Proved undeveloped Liquids production, mmt Natural gas production, bcm Normalized profit attributable to shareholders of PAO NOVATEK(4) excluding the effect of foreign exchange gains (losses)(5), RR bln Dividends per share, RR 12.3 12.2 12.1 11.8 11.8 71.44(8) 2021 156.2 2017 232.9 2018 245.0 2019 169.0 2020 421.3 2021 14.95 26.06 2017 2018 32.33 2019 35.56 63.4 2017 68.8 2018 74.7 77.4 79.9 35% 65% 2017 2018 2019 2020 2021 2019 2020 2021 2020 Gas condensate Crude oil 3. Net of VAT, export duties, excise and fuel taxes, where applicable. 4. Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal and subsequent non-cash revaluation of contingent consideration). 5. Excluding the effect of foreign exchange gains (losses) of subsidiaries and our proportionate share in foreign exchange gains (losses) of our joint ventures. 6. Cash used for capital expenditures represents purchases of property, plant and equipment, materials for construction and capitalized interest paid per Consolidated Statement of Cash Flows net of payments for mineral licenses and acquisition of subsidiaries. 7. Free cash flow represents the difference between Net cash provided by operating activities and Cash used for capital expenditures. 8. Recommendation of the Board of Directors. 1. Oil and gas production and reserves are calculated based on 100% of production and reserves of our subsidiaries and our proportionate share in the production and reserves of our joint ventures including fuel gas. Production and reserves of the South-Tambeyskoye field of Yamal LNG are reported at 60%. 2. According to CDU TEK information. Annual Report 2021. Constructing future energy transition today Overview 14–15 Hydrocarbon Reserves 31 Our production and processing assets are located in the Russian Federation. 33 Krasnoyarsk Territory 57 40 58 59 63 62 44 29 32 77 56 69 12 60 74 53 36 37 41 45 75 64 38 51 54 43 54 bln Yamal-Nenets Autonomous Region 78 25 52 16.4boe 61 Total proved hydrocarbons reserves (SEC) 39 30 50 76 34 66 79 Producing fields and license areas Prospective fields and license areas 73 Fields and Gydan 35 peninsula Yamal license areas peninsula 20.Yumantilskiy LA 53.Ladertoyskiy 1 LA 1. Yurkharovskoye field 2. East-Tarkosalinskoye field 3. Khancheyskoye field 4. Olimpiyskiy LA (Urengoyskoye, Dobrovolskoye, Sterkhovoye fields) 5. West-Yurkharovskoye field 6. Samburgskiy LA (Samburgskoye, Urengoyskoye, East- Urengoyskoye+North- Esetinskoye fields) 7. North-Urengoyskoye field 8. North-Khancheyskoye field 9. Yaro-Yakhinskiy LA 10. Termokarstovoye field 11. Yarudeyskoye field 12. South-Tambeyskoye field 13. West-Yaroyakhinskiy LA 14. Beregovoy LA 15. North-Russkoye field 16. Syskonsynyinskiy LA (located in KMAO) 17. South-Khadyryakhinskoye field 18. Dorogovskoye field 19. East-Tazovskoye field 42.Kharbeyskoye field 49. Ust-Yamsoveyskiy LA 73 71 5 21. West-Urengoiskiy LA 22.North-Yubileynoye field 23.North-Russkiy LA 24.Ukrainsko-Yubileynoye field 25.Geofizicheskiy 1 LA 26.West-Chaselskoye field 27. Yevo-Yakhinskiy LA 28.North-Chaselskiy LA 29.Utrenneye field 54.Gydanskiy 1 LA 55.Dorogovskiy 1 LA 56.South-Leskinskiy LA 57. Dorofeevskiy LA 1 67 19 7 58.West-Dorofeevskiy LA 59.Khalmeriakhskiy LA 60.Shtormovoy 1 LA 61. Soletsko-Khanaveyskoye field 62.South-Dorofeevskiy LA 63.South-Khalmeriakhskiy LA 64.East-Ladertoyskiy LA 65.South-Yamburgskiy LA 66.Bukharinskiy LA 67. East-Tazovskiy 1 LA 68.East-Tarkosalinskiy 1 LA 69.Syadorskiy 1 LA 70.West-Urengoiskiy 1 LA 71. West-Yurkharovskiy 1 LA 72.Yaro-Yakhinskiy 2 LA 73.Nyakhartinskiy 1 LA 74.North-Gydanskiy LA 75. Neytinskoye field 65 23 15 18, 55 42 46 48 9, 72 30.Geofizicheskiy LA 31. North-Obskiy LA 32.East-Tambeyskiy LA 33.North-Tasiyskiy LA 34.Trekhbugorniy LA 35.Nyakhartinskiy LA 36.Ladertoyskiy LA Novy Urengoy 22 6 11 13 28 21 27 47 49 14 24 70 26 10 37. Nyavuyahskiy LA 38.West-Solpatinskiy LA 39.North-Tanamskiy LA 40.Syadorskiy LA 4 8 20 17 2 Yamal-Nenets Autonomous Region 41. Tanamskiy LA 68 3 43.Gydanskiy LA 44.Shtormovoy LA 76. Arkticheskoye field 77. Obskiy LA 45.Verhnetiuteyskiy+West- Seyakhinskiy LA 78.Tadebyayakhinskiy LA 79. North-Vrangelevskiy LA (located in the eastern part of the East Siberian Sea and the western part 46.Osenniy LA NOVATEK’s gas condensate pipelines 47. Chernichnoye field 48.Raduzhnoye field 50.Payutskiy LA of the Chukchi Sea) 51. Central-Nadoyakhskiy LA 52.Palkurtoiskiy LA 16 Arctic LNG 2 Yamal LNG Ust-Luga Complex Purovsky Plant Khanty-Mansiysk Autonomous Region Annual Report 2021. Constructing future energy transition today Overview 16–17 LNG Construction Center is the world’s first facility for “mass production” of natural gas liquefaction trains on gravitybased structures (GBS). Arctic LNG 2 bcm Key advantages: 537of gas • Optimize and reduce CAPEX per ton of LNG liquefaction • Low cost, onshore conventional natural gas • Reduce construction and logistical costs as main LNG equipment is built and installed at the LNG construction center • High local content and 22 mmt of liquid hydrocarbons – proved reserves of the field (SEC) as of 31 December 2021 • Modular construction minimizes scope of work in the Arctic area, directly at the Center’s sites, in conditions of undeveloped infrastructure and the harsh climate of the Far North 19.8mmtpa Total design capacity of the three LNG trains September 2021 — The first modules for Train 1 of Arctic LNG 2 were successfully delivered to the LNG Construction Center in Murmansk. As of February 2022, all 14 modules for the GBS #1 arrived from the contractors’ shipyards. We completed concrete casting works for GBS #1. 2021 The resource base of the project: Utrenneye field October 2020 — Arctic LNG 2’s ice-class tanker fleet formation was completed and long-term charter agreements were signed for 21 Arc7 ice-class LNG tankers. 2020 LNG Construction Center Belokamenka September 2019 — Final investment decision (FID) made. Utrenneye field Arctic LNG 2 2019 Yamal-Nenets Autonomous Region October 2018 — Front-end engineering design (FEED) was completed. 2018 Project status as of 31 December 2021 The LNG Construction Center main parts: Arctic LNG 2 participants, % Concrete casting of the first GBS platform Overall Project progress • GBS yard including two dry docks • Topsides yard • Marine infrastructure • Utilities • Accommodation camp and administrative facilities wells 60% 10% 10% 10% 10% NOVATEK TotalEnergies CNPC 56drilled Utrenneye field' development CNOOC 59% 78% 100% 91% Consortium of Mitsui&Co and JOGMEC Completion progress on the first GBS-based LNG train Concrete casting of the second GBS platform * As of 31 December 2021. Annual Report 2021. Constructing future energy transition today Overview 18–19 Geological Exploration and Production Processing of Gas Condensate NOVATEK uses a systematic and comprehensive approach to exploration and development of its fields and license areas, beginning with the collection and interpretation of seismic data to the creation of dynamic field models for the placement of exploration and production wells. We employ modern geological and hydrodynamic modelling as well as new well drilling and completion techniques to maximize the ultimate recovery of hydrocarbons in a cost effective manner. With this approach, we are able to carry out prospecting, exploration and production in a cost effective and environmentally prudent manner. Stabilization of gas condensate Unstable gas condensate NGL Stable gas condensate Fractionation and transshipment of stable gas condensate Production Hydrocarbon production breakdown, including share in of marketable LPG production by JVs, % 626.3mmboe 26% NOVATEK-YURKHAROVNEFTEGAS' fields Hydrocarbon production 22% 20% 11% ARCTICGAS' fields South-Tambeyskoye North-Russkiy cluster (NOVATEK-TARKOSALENEFTEGAS) Our subsidiaries and JVs are producing natural gas with a significant content of liquid hydrocarbons (gas condensate). After being separated and de- ethanized at the field, the main part of unstable (de-ethanized) gas condensate is delivered via a system of condensate pipelines owned and operated by the Company for further stabilization at our Purovsky Plant. 9% NOVATEK-TARKOSALENEFTEGAS' other fields Yarudeyskoye North-Urengoyskoye Termokarstovoye Others SIBUR’s Tobolsk Petrochemical Complex 5% 3% 2% 2% Purovsky Plant Ust-Luga Complex bln 16.4boe Total proved hydrocarbons reserves (SEC) as of 31 December 2021 The Purovsky Plant provides us complete 1,000 m 1,700 m Total output of the Purovsky Plant in 2021, mt operational control over our processing needs and access to higher yielding marketing channels for our stable gas condensate. The Purovsky Plant processes unstable gas condensate into stable gas condensate and natural gas liquids (NGL). Cenomanian layers "Dry" gas not containing liquid hydrocarbons 9,352 Stable gas condensate 21% 65% 14% USD 0.65 per boe 3,390 24 NGL and LPG Regenerated methanol Lifting costs Most of the stable gas condensate volumes produced at the Purovsky Plant are delivered by rail to Ust-Luga for further processing or transshipment to exports, with the remaining volume of stable gas condensate sold directly from the plant to the domestic market. All of the NGL volumes (feedstock for LPG production) produced at the plant are delivered by pipeline to SIBUR’s Tobolsk Petrochemical Complex for further processing. The Ust-Luga Complex processes stable gas condensate into light and heavy naphtha, jet fuel, ship fuel component (fuel oil) and gasoil, and enables us to ship the value-added petroleum products to international markets. Valanginian layers Gas containing liquid hydrocarbons — "wet" gas RR 90.98bln 3,200 m Investments in resource base development Achimov layers "Wet" gas with high share of liquid hydrocarbons. The layers have low permeability and require special development techniques. Total output of the Ust-Luga Complex in 2021, mt 2,253 2,091 1,062 725 Heavy naphtha Light naphtha Jet fuel Ship fuel component 46years Proved and probable reserve to production ratio (PRMS) Jurassic layers "Wet" gas with the highest share of liquid hydrocarbons. The deposits are characterized with complex geology and difficult drilling conditions due to abnormally high formation pressure. 648 Gasoil Annual Report 2021. Constructing future energy transition today OКрvаeтrvкiиeйwобзор 20–21 Natural Gas Sales Our sales of natural gas in the Russian domestic market are mainly through trunk pipelines and regional distribution networks, as well as sales of LNG produced at our small-scale LNG plant in the Chelyabinsk Region through our refueling complexes. Total natural gas sales in 2021, bcm Natural gas sales breakdown on the Russian domestic market by customers in 2021, % 7,949 Sales on international markets 42 34 14 Power generation companies Large industrial consumers 67,868 Sales in the Russian Federation Wholesale traders, ex-field 75,817 8 2 Others 16 24 Households Main regions of gas sales Other regions of gas sales 1 NOVATEK has a key role in ensuring supplies of natural gas to the domestic market. During 2021, the Company supplied natural gas to 40 regions within the Russian Federation. Our sales of natural gas on international markets are sales of LNG purchased primarily from our joint ventures, Yamal LNG and Cryogas-Vysotsk. 3 2 4 6 In 2021, the total volume of natural gas sold in the Russian Federation amounted to 67.87 bcm, increasing by 1.8% compared to the previous year. 5 16 7 10 8 9 12 15 Execute high-value added projects to develop new growth areas in domestic gas market 14 13 11 NOVATEK is implementing a pilot project for the sale of LNG as a motor fuel and for autonomous gasification. The implementation of this project is operated by our wholly owned subsidiary OOO NOVATEK–LNG Fuel, registered in 2021, which will construct small-scale LNG plants, facilitate LNG wholesale markets and develop a retail network for LNG as a motor fuel in the Russian domestic market. 40regions Natural gas sales in the Russian Federation 1. Leningrad Region Smolensk Region 3. Vologda Region 4. Moscow 5. Moscow Region 6. Kostroma Region 7. Tula Region 8. Lipetsk Region 15. Khanty-Mansiysk Autonomous Region 16. Yamal-Nenets 2 9. Belgorod Region 10. Nizhny Novgorod Region 11. Stavropol Territory 12. Perm Territory Autonomous Region 13. Chelyabinsk Region 14. Tyumen Region NOVATEK's strengths at the Russian domestic gas market • High proportion of wet gas resources (81%) to monetize through liquids value chain • Low cost conventional natural gas resources • Uninterrupted access to the UGSS pipeline structure • Leading edge technology to develop deeper producing horizons at existing fields • Diversified consumer base 67.9 bcm of natural gas was sold in the Russian Federation in 2021 13 LNG refueling stations for automobile transport were in operations In 2021, the volume of sales at filling stations increased fivefold In 2021, over 14 thousand tons of LNG were sold from the Magnitogorsk LNG plant Annual Report 2021. Constructing future energy transition today OКрvаeтrvкiиeйwобзор 22–23 LNG transportation LNG Sales In 2021, an all-time record was set for performing voyages via the eastern part of the Northern Sea Route (NSR). 44 LNG cargoes were delivered to the Asia-Pacific Region market by Yamal LNG both under long- term contracts and as part of spot optimization deliveries. In 2021, NOVATEK sold 7.9 bcm of gas (5.7 mmt of LNG). Our sales of natural gas on international markets are sales of LNG purchased primarily from our joint ventures, Yamal LNG and Cryogas-Vysotsk. In addition, we sell on the European market regasified liquefied natural gas arising during the transshipment of LNG (boil-off gas), as well as during the regasification of purchased LNG at our own regasification stations in Poland and Germany. Longer period of navigation along the NSR due to almost halving the distance and time of shipping to ports in Asia-Pacific Region compared to the traditional southern route through the Suez Canal makes it possible to mitigate carbon footprint of our LNG. Arctic ocean Yamal LNG Murmansk Russia Finland Norway Sweden Estonia Lithuania Poland South Korea Japan China 73 India Pacific ocean UAE Large-scale LNG cargos were sold by NOVATEK in 2021 Thailand Indian ocean Atlantic ocean Brazil Cryogas-Vysotsk United Kingdom Delivery point Transshipment Small- and medium-scale LNG Netherlands Belgium NOVATEK's large-scale LNG since the Yamal LNG launch France LNG thousand tons Carbon emissions reduction per round trip bcm 44cargos 7 7.9 of gas Spain Delivered to the Asia-Pacific Region via NSR by Yamal LNG Sold internationally in 2021 Annual Report 2021. Constructing future energy transition today Overview 24–25 Liquid Hydrocarbons Sales Arctic Ocean NOVATEK sells liquid hydrocarbons (stable gas condensate, petroleum products, light hydrocarbons, LPG and crude oil) domestically and internationally. We strive to respond quickly to changing market conditions by optimizing our customer base and supply geography, as well as developing and maintaining an efficient and profitable logistics liquids infrastructure. In 2021, NOVATEK’s liquids sales volumes reached 16,555 mt and our liquids sales revenues increased to RR 611.1 billion, or by 79.4% as compared to 2020, mainly driven by higher global benchmark prices. Russia Purovsky Plant Ust-Luga Complex United Kingdom Atlantic Ocean Canada France South Korea Japan China USA Finland UAE Norway Taiwan Saudi Arabia Pacific Ocean Estonia Sweden Indian Ocean Latvia Denmark Malaysia Singapore Liquid hydrocarbons sales, % Stable gas condensate Heavy naphtha Netherlands Belgium Poland LPG Jet fuel Gasoil Light naphtha Crude oil 41 Ust-Luga products Crude oil Germany Fuel oil 24 14 RR Stable gas condensate NGL LPG Others 16.6mmt 611bln Export markets 13 Liquid hydrocarbons sales volumes Liquid hydrocarbons sales revenues 8 <0.1 Annual Report 2021. Constructing future energy transition today Overview 26–27 RR Environmental and Social Responsibility 2.8bln Social expenses and compensatory payments directly invested by NOVATEK and its subsidiaries on charitable and medical projects and activities, cultural and educational programs, and support for indigenous communities NOVATEK adheres to the principles of effective and responsible business conduct and considers the welfare of its employees and their families, environmental and industrial safety, the creation of a stable and beneficial social environment as well as contributing to Russia’s overall economic development as priorities and responsibilities of the Company. In 2021, the Company continued to pay close attention to projects aimed at supporting the culture, preserving and revitalizing national values and spiritual legacy of Russia, developing mass and high-performance sports. December 2021 The Board of Directors approved NOVATEK’s Human Rights Policy that incorporates all the fundamental human rights principles November 2021 NOVATEK carried out an experimental study of methane leaks detection in the Arctic zone involving space monitoring based on Social expenses for employees, % October 2021 An independent NOVATEK held the first evaluation of NOVATEK’s Board of Directors was conducted 39 Targeted compensation and social support payments program Arctic LNG Vessel Owners a geo-information Conference to promote green shipping and introduce sustainable technical solutions with a view to reducing carbon footprint during marine operations in the Arctic platform July 2021 14 13 13 7 Therapeutic resort treatment and rehabilitation program Voluntary medical insurance for employees program Repayable financial aid program The Company adopted a Biodiversity Conservation Management Standard, which establishes universal principles and approaches to biodiversity conservation for NOVATEK operations NOVATEK established a Subcommittee on Climate and Alternative Energy within the Board of Directors’ Strategy Committee Pension program 6 State guarantees support program Cultural and sports events program NOVATEK-Veteran social protection foundation Rehabilitation of children with disabilities Others 4 2 1 1 Environmental expenses, % 41 17 Environmental and climate change targets program Environmental protection against production and consumption waste 13 12 7 Land and soil protection Protection and use of water resources Measures for the protection of flora and fauna and preservation of biodiversity 5 2 Environmental monitoring Atmospheric air protection and climate change mitigation 2 1 Environmental management Subsurface protection Environmental damage compensation Others RR RR <0.2 <0.1 2.0bln 18,404employees 2.9 bln Social expenses for employees in 2021 at NOVATEK, its subsidiaries and joint ventures as of 31 December 2021 Environmental expenses in 2021(1) 1. Including NOVATEK’s share in JVs. Annual Report 2021. Constructing future energy transition today Overview 28–29 Controlled emissions reduction Climate Change We are making significant efforts to further reduce greenhouse gas emissions at existing assets and considering new solutions towards carbon neutrality. Our approach As the global economy transitions to low-carbon development, the world is faced with the challenge of meeting the growing energy demand while reducing greenhouse gas emissions and achieving the goals of the Paris Agreement. NOVATEK is part of the solution to both these objectives and seeks to become a leading company in low-carbon hydrocarbon production by providing reliable, affordable and clean energy. In the reporting year, we continued the energy efficiency improvement activities and approved the Energy-Saving Program for 2022-2024. As part of our study of in-house renewable power generation development opportunities, we began a cycle of wind measurements in Yamal. In early 2022, we signed an agreement with Fortum to supply renewable electricity to the Cryogas-Vysotsk plant. Green product development As part of the development efforts to produce low- carbon ammonia, hydrogen, and other low-carbon gas processing products, we started our pre-FEED study for our gas chemical complex to produce low-carbon “blue” ammonia to be produced with carbon capture and storage (CCS) facilities. In 2021, NOVATEK and Uniper signed a Term Sheet on long-term supply of up to 1.2 mmt of low-carbon ammonia per annum to primarily German market. The imported low-carbon ammonia will be used as hydrogen carrier, transformed into gaseous hydrogen and fed into the future German hydrogen pipeline system, as well as supplied directly as a clean feedstock and as a fuel. As a Russian natural gas producer, we strongly support Russia's efforts to achieve carbon neutrality by 2060. NOVATEK set its Environmental and Climate Change Targets for the period up to 2030 back in 2020. We assessed potential CO2 storage sites in Yamal and Gydan and started investigating CO2 sequestration opportunities. Our targets Reinforcing climate change governance Climate change matters are monitored at the strategic (Board of Directors, Strategy Committee, Management Board) and operational (heads of business units, heads of subsidiaries) management levels. Reduce methane emissions per unit of production in the Production, Processing and LNG segments by 4% by 2030 In 2021, NOVATEK's Board of Directors established the Subcommittee on Climate and Alternative Energy (within the Strategy Committee), which had four sessions over six months. A business unit responsible for decarbonization projects was also created in the reporting year. Reduce greenhouse gas emissions per unit of production in the Upstream segment by 6% by 2030 Climate-related voluntary undertakings In 2021, NOVATEK became a signatory to the Ten Principles of the UN Global Compact to facilitate responsible governance. Since 2019, when disclosing information we take into account the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD), which seeks to improve voluntary reporting on climate-related financial risks. Reduce greenhouse gas emissions per ton of LNG produced by 5% by 2030 Increasing data transparency, accuracy and reliability NOVATEK supports UN Sustainable Development Goals (SDG). We identified five priority goals, including SDG 13 – Climate action, and SDG 7 – Affordable and clean energy. In 2008, NOVATEK started to disclose carbon reporting as part of its participation in the CDP project. The company has been considering TCFD recommendations when disclosing information in sustainability reports from 2019. We are committed to increasing the level of climate information disclosure every year. For instance, 2021 became the first time when we published a number of major indicators, including Scope 3 greenhouse gas emissions, as well as Scope 1 greenhouse gas emissions broken down by source. In accordance with TCFD recommendations, we have expanded the description of climate risks and relevant risk management actions. Increase the associated petroleum gas utilization rate to 99% by 2030 NOVATEK is a member of the International Group of LNG Importers (GIIGNL), which is actively working to improve the sustainability of LNG import operations and improve transparency of information on greenhouse gas emissions from LNG cargoes. We take an active part in the global Methane Guiding Principles (MGP) initiative, which identifies areas for actions to reduce methane emissions across the natural gas value chain. In order to improve data accuracy, we launched a satellite project to monitor methane emissions at our fields. In order to improve data reliability, greenhouse gas emissions were certified for the first time by an independent auditor separately from the Sustainability Report verification process, and our greenhouse gas management system was validated for compliance with international ISO standards. Details on the progress towards our Environmental and Climate Change Targets will be available in the Sustainability Report 2021 Annual Report 2021. Constructing future energy transition today Review of Operating Results 30–31 About the Company Review of Operating Results NOVATEK is one of the largest independent natural gas producers in Russia. The Company is ranked 3rd globally among publicly traded companies in terms of proven natural gas reserves under the Security and Exchange Commission (SEC) reserves methodology and is ranked among the 10 top companies globally in terms of natural gas production. The Company is also considered one of the lowest-cost producers in the global oil and gas industry in key industry metrics regarding “finding and development”, “reserve replacement” costs and “lifting” costs. We adhered to our goals and objectives for the Licenses In the reporting year, NOVATEK significantly expanded its portfolio of licenses: year ended 31 December 2021 as outlined in our long-term corporate strategy covering the period up to 2030 presented in 2017. NOVATEK’s core fields and license areas are located in the Yamal-Nenets Autonomous Region and in the Kransoyarsk Territory. In 2021, we obtained new licenses in the Yamal-Nenets Autonomous Region where the Company operates, in close proximity to existing licenses. • following the results of auctions, 3 new licenses were obtained for geological study, exploration and production for the North-Gydanskiy subsoil license area and two subsoil license areas, which includes the Arkticheskoye and Neytinskoye fields; The Company has a number of key competitive advantages to successfully implement our corporate strategy: the size and structure of its hydrocarbon resource base; the close proximity of existing infrastructure to core producing fields; a well-developed customer base for natural gas sales; natural gas liquefaction capacity and LNG project execution experience; and facilities for gas condensate processing and product exports. The development of a low-cost LNG platform and delivering cost-competitive LNG export sales to key consuming regions are key strategic priorities for the Company. Another core priority is to increase production within the reach of the UGSS through sustainable and responsible development of new fields and exploration activities, targeting lower producing horizons and complimented by acquisitions meeting certain financial and operational criteria. Our high level of operational flexibility and our consistent and efficient use of leading edge technologies in production and processing practices as well as our adherence to sound and prudent business management support our competitive position. The Yamal-Nenets Autonomous Region is one of the world’s largest natural gas producing regions and accounts for approximately 80% of Russian natural gas production and around 15% of global natural gas production. The concentration of the Company’s fields in this prolific gas-producing region provides favorable opportunities for increasing NOVATEK’s shareholder value with a minimum level of risks, low finding cost, and efficient replacement of reserves. With more than 25 years of operational experience in the region, NOVATEK is in a good position to efficiently monetize its resource base. • geological study, exploration and production licenses for Nyakhartinskiy 1 license area (deposit flank of the Nyakhartinskoe field); and NOVATEK plays a significant role in the Russia’s energy sector: in 2021, the Company accounted for 10.5% of total Russian natural gas production. NOVATEK sells its natural gas on the Russian domestic market through the Unified Gas Supply System (UGSS) and on international markets mainly in the form of liquefied natural gas (LNG) since December 2017. • within the decarbonization program, two licenses were obtained for geological study and assessment of the suitability of the the Obskiy and Tadebyayakhinskiy license areas for the construction and operation of underground facilities not related to hydrocarbon production. In February 2022, the first stage of international certification for long-term CO2 underground storage sites was successfully completed.The Company boasts a vast resource base in the Yamal-Nenets Autonomous Region. With new licenses, NOVATEK is expanding its resources to support LNG projects as well as able to maintain the resource base for its existing fields to ensure stable hydrocarbons production. NOVATEK’s main businesses are the exploration and production, processing, transportation and marketing of natural gas and liquid hydrocarbons. The Company’s production assets are located mainly in the Yamal-Nenets Autonomous Region (YNAO), one of the largest and most prolific natural gas regions in the world. Exploration and production of hydrocarbons in Russia is subject to federal licensing regulations. As of 31 December 2021, NOVATEK’s subsidiaries and joint ventures held a total 79 subsoil licenses for areas within Russia. There are also exploration and production agreements in place for four offshore blocks in Montenegro and two offshore blocks in Lebanon. NOVATEK’s main strategic priorities are: Our commitment to the principles of sustaible development, social responsibility and to observing the latest environmental, health and safety standards are integral parts of NOVATEK’s development strategy and managerial philosophy. NOVATEK strives to strictly observe all of its license obligations and conducts continuous monitoring of license tenders in order to expand its resource base in strategically important regions. • Ensuring development of the Company’s hydrocarbon resource base, including efficient reserve management; The duration of licenses for the Company’s core fields exceeds 13 years. In particular, the license for the Utrenneye field is valid until 2120, for the East- Tarkosalinskoye – until 2043, for the Yurkharovskoye field – until 2034, for the Samburgskiy license area of ARCTICGAS – until 2130. In accordance with standard practice, licenses are extended based on design documents by the field development time. • Growing its hydrocarbon production; • Maintaining a low-cost structure; • Optimizing marketing channels; • Building a low cost, scalable LNG platform; and • Operating according to sustainable development principles. Annual Report 2021. Constructing future energy transition today Review of Operating Results Field / license area 32–33 Hydrocarbon Reserves (SEC) or reserves-to-production ratio (R/P ratio) was 26 years. Participating interest Duration of license Natural gas reserves, bcm Liquids reserves, mmt Most of the Company’s reserves are located, or can be developed from, onshore and fall into the conventional hydrocarbon categories (capable of being exploited using conventional technologies, in contrast to unconventional gas deposits such as shale gas or coal-bed methane). Urengoyskoye (Ust-Yamsoveyskiy LA) Beregovoy LA 100% 100% 100% 100% 100% 2198 2070 2034 2043 2059 2124 43 39 37 28 25 18 5 3 As of 31 December 2021, the Company’s total PRMS proved and probable reserves, including the Company’s proportionate share in joint ventures, aggregated 28,970 mmboe, including 3,948 bcm of natural gas and 363 mmt of liquid hydrocarbons, with the total R/P ratio of 46 years. Urengoyskoye (Yevo-Yakhinskiy LA) Nyakhartinskoye 8 2 DeGolyer and MacNaughton (“D&M”), an independent petroleum engineers firm, estimates the Company’s reserves on an annual basis under both the SEC and PRMS reserves reporting standards. Olimpiyskiy LA 2 The reserves growth in 2021 was driven by positive exploration results at the Geofizicheskoye, Gydanskiy, South-Tambeyskoye, Urengoyskoye field (Samburgskiy LA), production drilling at the Utrenneye, South-Tambeyskoye, Urengoyskoye (Samburgskiy and Yevo-Yakhinskiy license Yarudeyskoye 51% (100% of reserves) 19 Samburgskoye 50% 100% 51% 2130 2025 2097 2130 17 17 16 10 1 1 As of 31 December 2021, NOVATEK’s SEC proved reserves, including the Company’s proportionate share in joint ventures, aggregated 16,409 million barrels of oil equivalent (mmboe), including East-Urengoyskoye + North-Yesetinskoye (West-Yaroyakhinskiy LA) areas), North-Russkoye fields as well as recovery improvement at the Yurkharovskoye field. Termokarstovoye 4 1 2,261 billion cubic meters (bcm) of natural The Company continues intensive exploration on the Gydan and Yamal Peninsulas and within the UGSS, thus contributing to the future growth of proved reserves according to the international classification. East-Urengoyskoye + North-Yesetinskoye fields (ARCTICGAS) gas and 189 million metric tons (mmt) of liquid hydrocarbons. The Company’s proved reserves grew by 0.3% (excluding the 2021 production), and the reserve replacement ratio stood at 107%, which corresponds to the reserves addition of 669 mmboe including production. Our gas reserve replacement ratio was 120%, which corresponds to the reserves addition of 96 bcm including production. At year- end 2021, the Company’s proved reserves life 50% Khancheyskoye Other 100% — 2044 — 5 1 41 6 The high quality of the reserve base enables NOVATEK to maintain its position as one of the lowest cost producers in the global oil and gas industry. Geological Exploration was confirmed. Following the testing of a well with horizontal drain and multi-stage hydraulic fracturing, a commercial inflow of gas and condensate was achieved at more than 1 mmcm per day. A high-density 3D seismic campaign covering 1,300 square km has been completed. By exploring Jurassic deposits and bringing Jurassic wells onstream, the South-Tambeyskoye field’s resource base and the production plateau could be further extended. We have launched the project for pilot production of Jurassic deposits. NOVATEK aims to expand its resource base through geological exploration at fields and license areas not only in close proximity to existing transportation and production infrastructure, but also in new potentially prospective hydrocarbon areas. The Company ensures the efficiency of geological exploration work by deploying state-of- the-art technologies and relying on the experience and expertise of the specialists in its geology department, and the Company’s Scientific and Technical Center located in Tyumen. SEC proved reserves as of 31 December 2021 (based on the Company’s equity ownership interest in joint ventures) and duration of licenses Field / license area Participating interest Duration of license Natural gas reserves, bcm Liquids reserves, mmt Total reserves 2,261 189 South-Tambeyskoye 50.1% (59.97% of reserves) 2045 394 12 Further appraisal of the Southern Dome within the Utrenneye field has been completed. Two well tests demonstrated the commercial reserves held within 12 reservoirs of the field’s Southern Dome. The field’s proved reserves (SEC) have increased by 170 mmboe and reached 537 bcm of gas and 22 mmt of condensate while the proved and probable reserves (PRMS) are estimated at 1,446 bcm of gas and 92 mmt of condensate. The Company uses a systematic and Utrenneye 60% 50% 2120 2130 2034 2044 2034 2031 2044 2046 2119 322 213 195 168 142 87 13 49 2 comprehensive approach to exploration and development of its fields and license areas, beginning with the collection and interpretation of seismic data to the creation of dynamic field models for the placement of exploration and production wells. We employ modern geological and hydrodynamic modelling as well as new well drilling and completion techniques to maximize the ultimate recovery of hydrocarbons in a cost effective manner. With this approach, we are able to carry out prospecting, exploration and production in a cost effective and environmentally prudent manner. Urengoyskoye (ARCTICGAS) Geofizicheskoye 100% 100% 100% 100% 100% 100% 50% Verkhnetiuteyskoye+West-Seyakhinskoye Yurkharovskoye 6 6 A large-scale exploration campaign is underway at the fields belonging to the Arctic LNG 1 project. In 2021, we drilled exploration wells at all five license areas of the project, namely the Geofizicheskiy, Trekhbugorniy, Gydanskiy, Bukharinskiy, and Soletsko-Khanaveyskiy areas. 3D seismic surveys covered 1,580 square km, 6 exploration wells were drilled, drilling of two more wells is underway. The overall progress since the start of activities at Arctic LNG 1 project’s license areas is 7,975 square km of 3D seismic and 14 drilled wells. The exploration campaign has been completed at the Geofizicheskoye field. North-Russkoye 5 Gydanskoye 67 3 Soletsko-Khanaveyskoye Yaro-Yakhinskoye 61 0.3 9 58 In 2021, NOVATEK mostly conducted geological exploration in the Yamal and Gydan peninsulas to ensure timely and efficient preparation of the resource base for future LNG projects. North-Chaselskoye 100% lifetime of the field 57 2 East-Tarkosalinskoye Kharbeyskoye 100% 100% 50% 2043 2036 2141 56 51 12 7 Following seismic surveys and exploration drilling, proved and probable Jurassic reserves within the South-Tambeyskoye field under PRMS standards increased by 339 mmboe (including production for 2021) to 425 mmboe and their commerciality North-Urengoyskoye East-Tazovskoye 51 4 6 As a result of drilling and testing wells of the Geofizicheskoye and Trekhbugorniy fields, the unified structure of the Cenomanian deposit was 100% 2033 43 Annual Report 2021. Constructing future energy transition today Review of Operating Results 34–35 confirmed. The Geofizicheskoye field’s proved The exploration campaign resulted in an increase in the Urengoyskoye field’s proved Achimov reserves (SEC) by 202 mmboe (including production for 2021) to 3,634 mmboe and 5,557 mmboe under PRMS standards. The tests in the Achimov interval without hydraulic fracturing resulted in a commercial gas flow, with the condensate content reaching as high as 800 g per m3 of gas. The work is ongoing within the Osenniy license area for the purposes of maturation and development of Achimov deposits. The logs show that there are pay zones exceeding 20 m in thickness. The testing campaign involving hydraulic fracturing is underway. Geological Exploration reserves (SEC) increased by 60 mmboe to 1,287 mmboe, the proved and probable reserves (PRMS) are at 2,153 mmboe. Exploration drilling targeting Achimov deposits is underway within the Gydanskiy and the Soletsko-Khanaveyskiy license areas. Units 2020 2021 Change 2D seismic linear km linear km linear km 757 757 — 2,090 275 176% (64%) n/a Subsidiaries Joint ventures The successful testing of an exploration well at the Bukharinskiy license area discovered a gas and condensate field and identified reserves with a high condensate content. The field holding around 35–40 bcm of gas and 2.2 mmt of condensate in estimated recoverable reserves will be the part of Arctic LNG 1 project’s resource base. 1,815 3D seismic square km square km square km 5,893 3,784 2,109 3,996 2,232 1,764 (34%) (44%) (16%) Subsidiaries Joint ventures Successful wells drilling and testing in the eastern portion of the North-Russkoye field resulted in an increase in proved reserves (SEC). The field’s proved reserves (SEC) increased by 138 mmboe (including production for 2021) to 622 mmboe, the proved and probable reserves (PRMS) are at 777 mmboe. Exploration drilling Subsidiaries '000 m '000 m '000 m 45.4 22.8 22.6 61.6 40.7 20.9 39% 85% (8%) Exploration campaign is nearing completion at the Verkhnetiuteyskoye and West-Seyakhinskoye fields. These helped demonstrate the productivity of the Aptian-Albian and Neocomian deposits with high condensate content and allowed us to acquire data on fluid composition for the purposes of LNG plant design. Joint ventures Following the exploration campaign at the Kharbeyskoye field, an oil production project was launched that could potentially produce more than 1 mmtpa. Field Development NOVATEK’s Scientific and Technical Center put into operation a laboratory and research center in Tyumen, which includes a core storage with a capacity of 150 linear km, 6 different laboratories to perform a full range of core, fluids, drilling fluids and permafrost soils studies. The laboratories are equipped with modern facilities that will allow us to quickly solve the main technological challenges facing the Company without involving third-party organizations. In order to maintain the pipeline gas production level and the volumes sent to the Purovsky Plant, exploration is ongoing within the fields and license areas located in the Purovsky and Tazovsky In 2021, NOVATEK continued ongoing development activities at producing and prospective fields as well as building field infrastructure. In the reporting year, the Company’s subsidiaries invested RR 90.98 bln in resource base development. districts of the Yamal-Nenets Autonomous Region. In 2021, production drilling, including joint ventures, totaled 723,000 m, which is a 13% increase year on year. Production drilling was conducted at the Beregovoye, East-Tazovskoye, East-Tarkosalinskoye, West-Seyakhinskoye, Samburgskoye, North- Russkoye, North-Urengoyskoye, Urengoyskoye (at the Olimpiyskiy LA, Yevo-Yakhinskiy and Ust- Yamsoveyskiy LA), Utrenneye, Kharbeyskoye, South- Tambeyskoye, Yumantilskoye, Yurkharovskoye, Yaro-Yakhinskoye and Yarudeyskoye fields. Hydrocarbon Production In 2021, NOVATEK carried out commercial hydrocarbon production at 25 fields. The Company’s production, including our attributable share in the production of JVs, amounted to 626.3 mmboe, up 3.0% versus 2020. The key contributor to the production increase was the start of production from gas condensate deposits at the North-Russkiy cluster (the North-Russkoye and East-Tazovskoye fields in 3Q 2020 and the Kharbeyskoye field in 4Q 2021). Technologies to develop deep layers New technology A total of 104 production wells were brought onstream, including 78 natural gas and gas and condensate wells and 26 oil wells. Technology previously used Achimov Mid-Jurassic Low-Jurassic Achimov layers In 2021, the Company started pilot production of hot commissioning quantities of gas and condensate at the Kharbeyskoye field that is part of the North-Russky cluster. An integrated gas treatment plant, a booster compressor station (BCS) and a condensate de-ethanization unit were commissioned, and two well pads were launched. An export gas pipeline and an export condensate pipeline were commissioned. The production decline at mature fields of our subsidiaries and joint ventures was mainly due to natural drop in formation pressure within the current gas producing horizons. 1,500 m Jurassic layers > 4,000 m Total production of natural gas including the Company’s share in production of joint ventures aggregated 79.89 bcm, representing 83.4% of our total hydrocarbon output. The share of gas produced from gas condensate bearing layers (or “wet gas”) in proportion to total gas production was 81.3%. Production of natural gas increased by 3.3%, as compared to 2020 volumes. 600 m 1,500–2,000 m Construction of upstream facilities began within the Yevo-Yakhinsky and Ust-Yamsoveysky license areas, export transport facilities were built (a gas pipeline with a gas metering station and a condensate pipeline), and 6 wells at the well pad were hooked up. At the Urengoyskoye field, construction and commissioning of a 72-MW BCS was completed. At the Yaro-Yakhinskoye field, a low-temperature APG separation line was commissioned. Increase in wells productivity, Including increase in low permeable formations Hydrofracking Production of liquid hydrocarbons including the Company’s share in production of joint ventures totaled 12,299 mmt, of which gas condensate accounted for 65% of this volume and crude oil – Annual Report 2021. Constructing future energy transition today Review of Operating Results 36–37 for the remaining 35%. Marketable production In 2021, we continued to achieve some of the lowest lifting costs in the industry. The Company’s lifting costs were RR 47.8 (USD 0.65) per boe this year. LNG Projects Russian production. In November 2021, Yamal LNG successfully tested the first three technological trains in operation mode at a load of up to 120% of the design capacity. Based on the results of the tests, the design institute developed design documentation for increasing the design capacity and we received the approval of a technical expert review that three Trains can effectively operate at 120% of nameplate capacity at below-zero temperatures. of liquid hydrocarbons increased by 0.5%, as compared to 2020, with gas condensate production amounting to 7,995 mmt and crude oil production totaling 4,304 mmt. Yamal LNG Project Yamal LNG is an integrated project including production, liquefaction and sales of natural gas and gas condensate. OAO Yamal LNG is the operator and the owner of all the assets. The shareholder structure of Yamal LNG: NOVATEK – 50.1%, TotalEnergies – 20%, CNPC – 20%, and the Silk Road Fund – 9.9%. Hydrocarbon production (including share in production by joint ventures) Units 2020 2021 Change In 2021, the first planned overhaul of the first train was completed. The actual reliability of technological installations of three Trains for 2021 was 99%, which is one of the best indicators in the industry. The South-Tambeyskoye field located in the North- East of the Yamal Peninsula is the resource base of the Project. As of 31 December 2021, the field’s SEC proved reserves totaled 656 bcm of natural gas and 20 mmt of liquid hydrocarbons. According to the PRMS standards, the proved and probable reserves of the South-Tambeyskoye field as of the end of 2021 totaled 954 bcm of natural gas and 37 mmt of liquid hydrocarbons. The field is being developed with horizontal wells with total drilled lengths up to 5,000 meters and horizontal sections of up to 1,500 meters. Total mmboe mmcm mmboe mt 608.2 77,367 506.0 12,237 102.2 626.3 79,894 522.5 12,299 103.8 3.0% Gas 3.3% In 2021, Yamal LNG produced 19.6 mmt of LNG and 0.9 mmt of stable gas condensate. Liquid hydrocarbons 0.5% mmboe Fifteen unique Arc7 ice class LNG carriers were specifically designed and built for the Yamal LNG project, capable of navigating the Northern Sea Route (NSR) without icebreaker support. In 2021, 266 LNG cargos (19.5 mmt) and 21 stable gas condensate cargos (0.9 mmt) were shipped. Since the project launch in 2017, over 65 mmt of LNG were produced and 890 tankers were shipped. Gross hydrocarbon production (including share in production by joint ventures) Gas, mmcm 2020 Liquids, mt Construction and start-up of three trains with the total design capacity of 16.5 mmtpa (5.5 mmtpa each) was completed. Yamal LNG was commissioned ahead of initial schedule and on budget, which is an outstanding achievement in the global oil and gas industry. The second and third trains of the plant were started up six months and more than a year ahead of the initial schedule, respectively. The three trains of Yamal LNG reached its full capacity in December 2018. Change Change 2021 2020 2021 In 2021, ООО Arctic Transshipment, NOVATEK’s joint venture (90%)(2), completed 9 ship-to-ship LNG transshipments in the Kildin Strait of the Barents Sea in the Russian Federation. Total 77,367 79,894 3.3% 12,237 12,299 0.5% NOVATEK-YURKHAROVNEFTEGAS’ fields (100%)(1) 26,106 24,891 (4.7%) 1,380 1,384 0.3% NOVATEK-TARKOSALENEFTEGAS’ fields (100%) 12,890 16,518 28.1% 1,914 2,473 29.2% In December 2021, the Extraordinary General Meeting of Shareholders of Yamal LNG resolved to pay dividends to the Project’s shareholders for the first nine months of 2021. The total dividend payments will amount to RR 31.4 billion. ARCTICGAS’ fields (50%) South-Tambeyskoye (59.97%) North-Urengoyskoye (50%) Termokarstovoye (51%) Yarudeyskoye (100%) Other 15,383 17,093 2,931 1,269 1,648 47 15,073 18,008 2,513 1,325 1,478 88 (2.0%) 5.4% 4,479 701 4,468 605 206 384 2,779 — (0.2%) (13.7%) (14.5%) 0.3% In 2Q 2021, we commissioned Train 4 of the plant with the design capacity of 0.9 mmtpa, which was built using the main equipment of (14.3%) 4.4% 241 383 3,139 — (10.3%) 87.2% (11.5%) — Yamal LNG In 2021: Our first integrated project for production, liquefaction and sales of natural gas. • We launched the 4th train of the Yamal LNG plant with a nameplate capacity of 0.9 mmtpa of LNG, which was built using the main equipment of Russian production. • Yamal LNG produced 19.6 mmt of LNG and 0.9 mmt of stable gas condensate. • 266 LNG cargos (19.5 mmt) and 21 stable gas condensate cargos (0.9 mmt) were shipped. The resource base of the project South-Tambeyskoye field Since the project launch in 2017: 20mmt 656bcm • Over 65 mmt of LNG were produced and 890 tankers were shipped. • LNG from the Yamal LNG plant has been consumed in 33 countries. Total proved liquid hydrocarbons reserves (SEC) as of 31 December 2021 Total proved natural gas reserves (SEC) as of 31 December 2021 1. As a result of AO NOVATEK-Pur dissolution in August 2021 and its merger with OOO NOVATEK-Yurkharovneftegas, AO NOVATEK-Pur production is included in 2020 and 2021 production. 2. In July 2021, the Group sold a 10 percent participation interest in ООО Arctic Transshipment, which was a Group’s subsidiary at that time, to TOTAL E&P Transshipment SAS. Annual Report 2021. Constructing future energy transition today Review of Operating Results 38–39 Arctic LNG 2 Project As of year-end 2021, the overall project completion external finance requirements. As of year-end 2021, more than 5.3 billion US dollars were financed by the Project’s participants. NOVATEK’s commercial activities to provide clean- burning LNG for the consumers in the Murmansk Region and the Company’s network of LNG fueling stations. status was estimated at 59%. GBS #1 concrete works have been completed, and installation of equipment and topside modules started: all 14 modules of the project’s first train have arrived to Murmansk from the contractors’ yards. As of 31 December 2021, a total of 56 wells were drilled with five drilling rigs being in operation. Enough production wells have now been drilled to ensure the loading of the project’s first train during start-up. As at the end of 2021, production drilling was carried out by 5 drilling rigs. Arctic LNG 2 is the second large-scale LNG project. The Utrenneye field, the resource base for Arctic LNG 2, is located in the Gydan Peninsula in YNAO approximately 70 km across the Ob Bay from the Yamal LNG project. Cryogas-Vysotsk Project In June 2021, NOVATEK and European energy company Fortum signed a Memorandum of Understanding on cooperation in renewable power. In line with the Memorandum, a power purchase agreement for green electricity was signed. According to the Agreement, the electricity requirements of the Company’s Cryogas-Vysotsk LNG plant are fully covered with energy produced at Russian wind farms of Fortum and its joint ventures. Purchasing the green electricity allows NOVATEK to reduce Scope 2 carbon footprint (purchased electricity) of the LNG produced by the Vysotsk plant. One of our LNG strategic initiatives is to develop small- to medium-scale projects. This approach allows us to build premium marketing channels to sell our products in different markets. We see vast prospects in using LNG as marine fuel and motor fuel to substitute for fuel oil and diesel, that will contribute to curbing emissions and improving the environment. As of 31 December 2021, proved reserves of the field under the SEC reserves methodology totaled 537 bcm of gas and 22 mmt of liquid hydrocarbons. According to the PRMS reserve standards, the proved and probable reserves totaled 1,446 bcm of natural gas and 92 mmt of liquid hydrocarbons. ООО Arctic LNG 2 is the project operator and owner of all of the assets and holds the LNG export license. Cryogas-Vysotsk is our first medium-scale LNG project. The Cryogas-Vysotsk shareholders are NOVATEK (51%) and Gazprombank (49%). 59% As of the end of 2021, the project’s participants are NOVATEK (60%), TotalEnergies (10%), CNPC (10%), CNOOC (10%), and Japan Arctic LNG, a consortium of Mitsui & Co and JOGMEC (10%). In September 2019, the project participants made the Final Investment Decision. In 2019, Cryogas-Vysotsk commenced operations and began regular shipments of LNG. Low-carbon Projects Arctic LNG 2 overall progress as of 31 December 2021 In 2021, we started our pre-FEED study for our gas chemical complex to produce low-carbon “blue” ammonia to be produced with carbon capture and storage (CCS) facilities. The nameplate capacity of the complex will be 2.2 mmt of ammonia per year (two ammonia synthesis trains of 1.1 mmtpa). The project’s core facility is the LNG production and transshipment terminal in the port of Vysotsk, located in the Leningrad Region. The 660 mmtpa plant, consisting of two gas liquefaction trains with the capacity of 330 mmtpa each, is located in the North-West of Russia near the Gulf of Finland, 140 km away from St. Petersburg. All three sections of the Utrenny terminal’s quayside were commissioned. Prior to the GBS arrival, the quayside is used to receive materials and equipment. Ice barriers construction was progressed. The Project involves the development of the field, construction of the Utrenniy terminal and three natural gas liquefaction trains on gravity-based structures (GBS), with the capacity to produce 6.6 mmtpa of LNG each and cumulative stable gas condensate capacity up to 1.6 mmtpa. The total LNG capacity of the three trains will be 19.8 mmtpa. The GBS design concept as well as extensive localization of equipment and materials manufacturing in Russia will considerably reduce the capital expenditures per ton of LNG produced; thus, ensuring low liquefaction cost per ton of LNG produced. The Verkhnetiuteyskoye and West-Seyakhinskoye fields located in the north-eastern part of the Yamal Peninsula are the project’s resource base. As of 31 December 2021, proved reserves under the SEC reserves methodology totaled 168 bcm of gas and 6 mmt of gas condensate. According to the PRMS standards, the proved and probable reserves totaled 251 bcm of gas and 16 mmt of gas condensate. The project infrastructure also includes a 42 mcm LNG storage tank and a loading terminal designed to receive LNG carriers with a capacity of up to 30 mcm. The project targets small- and medium- scale LNG deliveries to regional markets by LNG trucks and gas carriers. The growing bunkering segment in the Baltics region is another important sales market. In October 2021, the first delivery of LNG was shipped to a bunkering vessel. At the site of the complex for topside modules within the framework of the Arctic LNG 2 project, steel pretreatment and cutting workshops, a metalwork assembly workshop for modules of the topside modules of the LNG plant, as well as abrasive processing and painting of metal structures workshops are operated. The integration assembly of modules of the 2nd and 3rd technological trains of the LNG plant is on progress. At the site of the complex for the manufacture of pipelines and air ducts for the modules of the topside modules of the LNG plant, all production workshops are also being operated. As part of the project, NOVATEK received licenses for the Obskiy (Yamal peninsula) and Tadebyayakhinskiy (Gydan peninsula) with the purpose of CO2 injection and long-term storage. In early 2022, the first stage of international certification for long-term CO underground storage sites in the Yamal and2Gydan Peninsulas has been successfully completed and that site feasibility certificates have been issued for further study of the sites and subsequent certification stages. Det Norske Veritas (DNV), an independent certification and classification society, issued certificates of conformity with international standards ISO 27914:2017 Carbon Dioxide Geological Storage and DNVGL-SE-0473 Certification of Sites and Projects for Geological Storage of Carbon Dioxide. NOVATEK is building an LNG Construction Center in Belokamenka near Murmansk to fabricate the GBSs, and assemble and install topside modules. The center’s infrastructure comprises two dry docks and production facilities to build GBSs and topside modules. The center is a state-of-the-art technical foundation for LNG technologies in Russia, creates new jobs, and contributes to the economic development of the region. The plant’s first train is scheduled to be launched in 2023, Train 2 – in 2024, and Train 3 scheduled for launch in 2025. Our Cryogas-Vysotsk project also demonstrated strong operational results during 2021, operating at 115% of its nameplate capacity, and produced an all-time high volume of 757 mmt, or one third more than in 2020. The increase in annual productivity in 2021 was achieved by debottlenecking and removing production restrictions, as well as achieving a higher reliability rate for the complex compared to the initially planned. To further improve the productivity of the complex, The construction of dormitories of the shift residential complex in the village of Belokamenka with a capacity of up to 17 thousand seats has been completed. In June 2021, the first plane landed at the Utrenniy airport built specifically for the Arctic LNG 2 project on the Gydan Peninsula. The airport increased the efficiency of rotational personnel logistics for the project by replacing helicopter operations with aircraft. In 2021, the airport handled more than two thousand flights. construction of a booster compressor station is being considered for 2023, which will increase the LNG output level to 820 mmt per year. In 2020, Arctic LNG 2’s ice-class tanker fleet formation was completed and long-term charter agreements were signed for 21 Arc7 ice-class LNG tankers: 15 tankers to be built at the Zvezda shipyard in Russia and 6 tankers to be built at Daewoo Shipbuilding & Marine Engineering in Korea. The state-of-the-art Arc7 ice-class gas tanker fleet together with Russia’s new nuclear icebreakers will allow for the year round eastbound transport of LNG along the NSR to the Asia-Pacific Region. Since the project commenced operations in 2019, overall volume of LNG produced was 1.66 mmt. In 2021, Cryogas-Vysotsk dispatched 721 thousand tons of LNG – 130 LNG carriers and more than 2,000 trucks. Pursuant to the issued certificates, the geological formations within the Obskiy and Tadebyayakhinskiy license areas have the capacity to store at least 600 million tons of CO each, which is supported by calculations. The2calculations were made by NOVATEK’s Scientific and Technical Center with the involvement of international service companies. In 2021, we signed credit facility agreements with international financial institutions and commercial banks. The maximum aggregate loan amount under the facilities to be provided by the Russian and international banks is EUR 9.5 billion for up to 15 years. The facilities fully cover the project’s Sales geography includes Finland, Sweden, Lithuania, the Netherlands, Estonia, Poland and Spain. The project supplied more than 1,030 trucks to the Russian domestic market as part of Annual Report 2021. Constructing future energy transition today Review of Operating Results 40–41 In December 2021, NOVATEK and Uniper signed a Ust-Luga Complex High value-added petroleum products produced Term Sheet on long-term supply of up to 1.2 mmt of low-carbon ammonia per annum to primarily German market. The product price will be indexed to relevant European and global benchmarks. The Term Sheet details the terms of the supply by NOVATEK to Uniper of low-carbon ammonia to be produced at the Company’s planned gas chemical complex, which will include CCS facilities, and delivered to Uniper’s planned ammonia import terminal in Wilhelmshaven, equipped with an ammonia cracker operating with renewable power. The imported low-carbon ammonia will be used as hydrogen carrier, transformed into gaseous hydrogen and fed into the future German hydrogen pipeline system, as well as supplied directly as a clean feedstock and as a fuel. at the Ust-Luga Complex have a significant positive impact on the profitability of our liquid hydrocarbons sales and the Company’s cash flow generation. The Gas Condensate Fractionation and Transshipment Complex (the “Ust-Luga Complex”) is located at the all-season port of Ust-Luga on the Baltic Sea. The Ust-Luga Complex processes stable gas condensate into light and heavy naphtha, jet fuel, ship fuel component (fuel oil) and gasoil, and enables us to ship the value-added petroleum products to international markets. The Ust-Luga Complex also allows for transshipment of stable gas condensate to the export markets. After launching in 2013, the complex improved our logistics and reduced transportation costs. 12,820 As the Ust-Luga Complex reached full processing capacity we transshipped stable gas condensate to the export markets by sea. thousand tons Processing volumes of de-ethanized condensate of the Purovsky Plant in 2021 In the reporting year, the Ust-Luga Complex processed 6,957 mt of stable gas condensate into 6,779 mt of end products, including 4,344 mt of light and heavy naphtha, 1,062 mt of jet fuel and 1,373 mt of ship fuel component (fuel oil) and gasoil. of the Purovsky Plant is in line with the total production capacity of NOVATEK and its joint ventures fields that supply feedstock to the Purovsky Plant. The 2021 output mix included 9,352 mt of stable gas condensate, 3,390 mt of NGL and LPG and 23.8 mt of regenerated methanol. Processing of Gas Condensate In 2019, the Ust-Luga Complex commenced Purovsky Plant constructing a hydrocracker unit and capacity expansion of the complex. The launch will increase the depth of processing of stable gas condensate into higher grade value-added petroleum products. The Purovsky Plant is connected via its own railway line to the Russian rail network at the Limbey rail station. Subsequent to the launch of the Ust- Luga Complex in 2013, most of the stable gas condensate volumes produced at the Purovsky Plant are delivered by rail to Ust-Luga for further processing or transshipment to exports, with the remaining volume of stable gas condensate sold directly from the plant to the domestic market. Our subsidiaries and joint ventures are producing natural gas with a significant content of liquid hydrocarbons (gas condensate). After being separated and de-ethanized at the field the main part of unstable (de-ethanized) gas condensate is delivered via a system of condensate pipelines owned and operated by the Company for further stabilization at our Purovsky Plant located in the YNAO in close proximity to the city of Tarko-Sale. All of the NGL volumes (feedstock for LPG production) produced at the plant are delivered by pipeline to SIBUR’s Tobolsk Petrochemical Complex for further processing. The Purovsky Plant is the central element in our vertically integrated value chain that provides us complete operational control over our processing needs and access to higher yielding marketing channels for our stable gas condensate. The Purovsky Plant processes unstable gas condensate into stable gas condensate and natural gas liquids (NGL). In the reporting period, the Purovsky Plant processed 12,820 mt of de-ethanized gas condensate, representing a 8.8% increase compared to 2020. The processing capacity Processing volumes and output of the Purovsky Plant, thousand tons Processing of de-ethanized condensate Processing volumes and output of the Ust-Luga Complex, thousand tons 2020 2021 Change 2020 2021 Change 11,786 12,820 8.8% Stable gas condensate processing 7,007 6,957 (0.7%) Output: Output: Stable gas condensate NGL and LPG 8,934 2,788 14.0 9,352 3,390 23.8 4.7% 21.6% 70.0% Heavy naphtha Light naphtha Jet fuel 2,298 2,087 1,036 749 2,253 2,091 1,062 725 (2.0%) 0.2% Regenerated methanol 2.5% Ship fuel component (fuel oil) Gasoil (3.2%) (2.8%) 667 648 Annual Report 2021. Constructing future energy transition today Review of Operating Results 42–43 Natural Gas Sales (boil-off gas), as well as during the regasification of purchased LNG at our own regasification stations in Poland and Germany. than 94% of our total gas sales in the Russian Federation. of LNG), 63 tanker cargoes and about 2,000 truck cargo lots in the small-scale and mid-scale LNG markets (totalling 0.3 mmt), including 61 tanker cargo lots and about 900 truck cargoes from the Cryogas-Vysotsk plant, as well as boil-off gas (0.1 mmt). Our sales of natural gas in the Russian domestic market are mainly through trunk pipelines and regional distribution networks, as well as sales of LNG mainly through its own refueling complexes. The LNG sold on the domestic market is produced at our small-scale LNG plant in the Chelyabinsk Region, or purchased mainly from our joint venture OOO Cryogaz-Vysotsk. Our sales of natural gas on international markets are sales of LNG purchased primarily from our joint ventures, OAO Yamal LNG and OOO Cryogas-Vysotsk. In addition, we sell on the European market regasified liquefied natural gas arising during the transshipment of LNG In order to manage seasonal gas demand, NOVATEK has entered into an agreement with Gazprom for underground storage services. Natural gas inventories are accumulated during warmer periods when demand is lower and then used to meet increased demand during periods of colder weather. At year-end 2021, our inventories of natural gas amounted to 0.77 bcm. In 2021, natural gas sales volumes, including volumes of LNG sold, aggregated 75.8 bcm, representing a marginal increase of 0.3% as compared to 2020. An increase in natural gas volumes sold on the domestic market completely offset a decline in natural gas volumes sold on the international markets. The increase in natural gas volumes sold on the domestic market resulted from the launch of additional production facilities, as well as higher demand from end-customers due to weather conditions. The decline in natural gas volumes sold on the international markets was due to a decrease in LNG sales volumes purchased primarily from our joint venture OAO Yamal LNG, as a result of an increase in the share of Yamal LNG’s direct LNG sales under long-term contracts and the corresponding decrease in LNG spot sales to shareholders, including the Group. The decrease in international sales volumes was due to the reduction of LNG volumes acquired from our joint venture Yamal LNG because of the increase of Yamal LNG direct sales share under long-term contracts and respective reduction of LNG spot sales via shareholders, including NOVATEK. NOVATEK is implementing a pilot project for the sale of LNG as a motor fuel and for autonomous gasification. The implementation of this project is operated by our wholly owned subsidiary OOO NOVATEK–LNG Fuel, registered in 2021, which will construct small-scale LNG plants, facilitate LNG wholesale markets and develop a retail network for LNG as a motor fuel in the Russian domestic market. One of our key priorities is to expand the geography of supplies and enhance our presence in key markets. To achieve these goals, the Company continues to actively increase the cargo turnover via the Northern Sea Route and is working to expand the navigation window for LNG deliveries from our Arctic projects along the eastern sector of the NSR. LNG sales are carried out from our small-scale LNG plant in Magnitogorsk, launched in 2020, located in the Chelyabinsk Region. In 2021, over 14 thousand tons of LNG were sold from the Magnitogorsk LNG plant. Our natural gas revenues amounted to RR 524.1 billion, representing an increase of 46.0%, as compared to 2020 largely due to an increase in sales prices on international markets, as well as an increase in prices and sales volumes on the domestic market. In 2021, an all-time record was set for performing voyages via the eastern part of the NSR – 44 LNG cargoes were delivered to the Asia-Pacific Region market both under long-term contracts and as part of spot optimization deliveries. Among these deliveries were two voyages that delivered cargoes via the NSR in January 2021 to China and South Korea two months later than the traditional navigation season closure. 75.8bcm Total natural gas sales in 2021, including LNG Additionally, to provide fuel for automobile transport in the North-Western and Central Federal Districts, LNG is purchased from Cryogaz- Vysotsk. In 2021, the sold volume amounted to more than 15 thousand tons. Longer period of navigation along the NSR due to almost halving the distance and time of LNG shipping to ports in Asia-Pacific Region compared to the traditional southern route through the Suez Canal makes it possible to mitigate carbon footprint and reduce carbon emissions by 7,000 tons per round trip. At the end of 2021, 13 LNG refueling stations for automobile transport were in operations in the Urals, as well as North-Western, Central and Volga Federal Districts of Russia (two of them were built in the reporting year in Naberezhnye Chelny and Samara). These stations are located on the main federal highways, in cities and on the territory of industrial enterprises and allow to provide clean- burning fuel to commercial and municipal transport, as well as heavy haul and highway trucks. In 2021, the volume of sales at filling stations increased fivefold. Natural gas sales, mmcm 2020 2021 Change Total gas sales 75,620 8,928 75,817 7,949 0.3% (11.0%) 1.8% The transshipment facility in the Murmansk Region is another important step in the development of the LNG supply chain from the Russian Arctic to global gas markets. Building the transshipment infrastructure allows the Company to develop its own competences and perform LNG transshipment in Russia, as well as optimize the operation of its own unique Arctic-class tanker fleet. International sales Sales within the Russian Federation, including: End customers 66,692 63,632 3,060 67,868 64,868 3,000 95.6% 1.9% Traders (2.0%) 0.2 p.p. Sales on International Markets Share of end customers in domestic gas sales 95.4% In 2021, NOVATEK sold 7.9 bcm of gas (5.7 mmt of LNG). We sold 73 tanker cargo lots of large-scale LNG (including 71 cargoes from the Yamal LNG plant) totalling 7.3 bcm of gas (5.2 mmt of LNG); in the small-scale and mid-scale LNG markets, the Company sold 0.6 bcm of gas (0.4 mmt of LNG), including 92 tanker cargo lots and over 3,800 truck cargo lots, which included 82 tanker cargoes and about 1000 truck cargoes from the Cryogas- Vysotsk plant, and also we sold a total of 0.1 mmt of boil-off gas. In 2020, we sold a total of 8.9 bcm of gas (6.4 mmt of LNG), with 85 large-scale tanker cargo lots of LNG (including 81 cargoes from the Yamal LNG plant) totalling 8.4 bcm of gas (6.0 mmt As part of its long-term strategy, NOVATEK has been implementing a plan to build a network of LNG retail stations in Europe to provide clean-burning fuel for heavy-duty trucks at key transport nodes in Germany and Poland. Sales in the Russian Federation within the Russian Federation. Our end customers and traders were located primarily in the following regions: Chelyabinsk Region, Moscow and Moscow Region, Khanty-Mansiysk Autonomous Region, Lipetsk Region, Perm Territory, YNAO, Vologda, Stavropol, Tula, Tyumen, Smolensk, Nizhny In 2021, the Company commissioned 10 cryogenic filling stations (8 in Germany and 2 in Poland) and 27 regasification units in Poland. The total number of operating facilities on the European market at the end of 2021 was 16 LNG filling stations (12 in Germany, 4 in Poland) and 48 regasification units (1 in Germany, 47 in Poland). In 2021, the total volume of natural gas sold in the Russian Federation amounted to 67.87 bcm, increasing by 1.8% compared to the previous year. NOVATEK has a key role in ensuring supplies of natural gas to the domestic market. During 2021, the Company supplied natural gas to 40 regions Novgorod, Leningrad, Belgorod and Kostroma Regions. The above regions accounted for more Annual Report 2021. Constructing future energy transition today Review of Operating Results 44–45 In November 2021, the first delivery of bioLNG was performed to a cryogenic filling station in Rostock, Germany. large wholesale supplies to the domestic market stood at 615 mt, representing 81% of our domestic LPG sales. We also sold 144 mt of LPG via our retail network and small wholesale stations located mainly in the Chelyabinsk, Volgograd, Rostov and Astrakhan Regions. As of the end of the year, sales were made through 86 retail gas stations and 6 gas filling stations. Sales of crude oil in 2021 totaled 3,909 mt, which is 13% lower compared with 2020. We sold 70% of our crude oil volumes in the domestic market, with the remaining volumes exported to international markets. NOVATEK’s strategy as a natural gas and LNG producer implies greater involvement in the promotion of natural gas as motor fuel both in Russia and abroad. This market segment represents significant growth potential in the context of increasingly stringent environmental standards. Compared to diesel, LNG significantly reduces the emissions of nitrogen oxides, carbon dioxide and almost completely eliminates particulate matter emissions. 611RR bln Liquid hydrocarbons sales revenues in 2021 Liquid hydrocarbons sales, thousand tons 2020 2021 Change In 2021, the Company signed Memorandums of Understanding on LNG supply decarbonization with TotalEnergies and RWE Supply&Trading GmbH. The parties intend to explore opportunities in the area of carbon-neutral LNG supply. Total 16,387 6,773 4,468 2,169 1,591 1,368 18 16,555 6,785 3,909 2,341 2,180 1,326 14 1.0% 0.2% Petroleum products (Ust-Luga) Crude oil In 2021, our liquids sales revenues increased to RR 611.1 billion, or by 79.4% as compared to 2020, mainly driven by higher global benchmark prices. (12.5%) 7.9% Stable gas condensate Light hydrocarbons LPG In September 2021, NOVATEK signed a Strategic Cooperation Agreement on Low Carbon Footprint Projects with the Japan Bank for International Cooperation (JBIC). NOVATEK and Ministry of Economy, Trade and Industry of Japan signed a Memorandum of Cooperation on Ammonia, Hydrogen and Carbon Capture, Storage and Utilization. The parties intend to provide bilateral support for projects in the field of production and sale of ammonia and hydrogen, as well as carbon capture and storage technologies in Russia and Japan. 37.0% (3.1%) (22.2%) High-value added petroleum products from the Ust-Luga Complex accounted for a 41% share of our overall liquids sales volumes. We sold a total of 6,785 mt of stable gas condensate products, including 4,398 mt of naphtha, 1,039 mt of jet fuel and 1,348 mt of fuel oil and gasoil. The majority of petroleum products (95%) were exported. Export volumes were distributed as follows: Europe – 38%, Asia-Pacific Region – 41%, North America – 16% and Middle East – 5%. Most of our heavy naphtha was exported to Asia-Pacific Region markets, light naphtha – to Asia-Pacific Region and Northwest Europe markets, and jet fuel, gasoil and fuel oil – to Northwest Europe. Other The successful sales of our LNG to the world’s leading markets, the variability and optimization of logistics solutions to reduce the already low carbon footprint of our LNG demonstrate the high competitiveness of Arctic LNG around the world. We estimate that so far LNG from the Yamal LNG plant has been consumed in 33 countries since the launch of the Project. Export and domestic sales of stable gas condensate continued in 2021. Total stable gas condensate sales volumes amounted to 2,341 mt. A portion of light hydrocarbons produced at the Purovsky Plant is processed on tolling terms at SIBUR’s Tobolsk Petrochemical Complex into marketable LPG, which is then delivered to NOVATEK’s customer base, while the rest of the light hydrocarbons volumes sold to SIBUR. We sold 2,180 mt of light hydrocarbons in 2021. Liquid Hydrocarbons Sales NOVATEK sells liquid hydrocarbons (stable gas condensate, petroleum products, light hydrocarbons, LPG and crude oil) domestically and internationally. We strive to respond quickly to changing market conditions by optimizing our customer base and supply geography, as well as developing and maintaining an efficient and profitable logistics liquids infrastructure. Marketable LPG sales volumes totaled 1,326 mt in 2021, representing a 3% decrease compared to 2020. LPG export sales volumes amounted to 567 mt or 43% of the total LPG sales volumes. Novatek Green Energy, our wholly owned LPG trading company in Poland, sold all of our LPG export volumes. In 2021, NOVATEK’s liquids sales volumes reached 16,555 mt, or 1.0% more than in 2020. In 2021, our export sales volumes decreased by 8.1% as compared to 2020 and amounted to 8,517 mt. In the domestic market, our LPG is sold through large wholesale channels as well as through our retail network and small wholesale stations. In 2021, Annual Report 2021. Constructing future energy transition today Environmental and Social Responsibility 46–47 Force on Climate-related Financial Disclosure (TCFD), which seeks to improve voluntary reporting on climate-related financial risks. Details on the progress towards the climate targets will be available in our 2021 Sustainability Report. In 2021, as a member of International Group of LNG Importers (GIIGNL), NOVATEK participated in MRV and GHG Neutral Framework methodology elaboration aimed at GHG emissions measurement, reporting, verification and neutrality. Environmental and Social Responsibility In 2020, NOVATEK joined the Methane Guiding Principles (MGP), a global oil and gas initiative in the areas of climate neutrality and a low-carbon economy. In October 2021, NOVATEK held the Company’s first Arctic LNG Vessel Owners Conference to promote green shipping and introduce sustainable technical solutions with a view to reducing the carbon NOVATEK adheres to the principles of effective and responsible business conduct and considers the welfare of its employees and their families, environmental and industrial safety, the creation of a stable and beneficial social environment as well as contributing to Russia’s overall economic development as priorities and responsibilities of the Company. footprint during marine operations in the Arctic. From November to December 2021, we carried out an experimental study of methane leaks detection in the Arctic zone involving space monitoring based on a geo-information platform. Three license areas of two NOVATEK subsidiaries, including the most significant sources of methane emissions, such as well pads, gas and condensate transportation and treatment facilities, were selected as pilot sites. No methane leaks were detected during the test period. The studies demonstrated that these methods could be feasible and efficient in the future. Environmental Protection Urengoyskoye and North-Yesetinskoye fields, helping to reduce gross GHG and air pollutants emissions. The equipment used for these studies was connected to existing gas gathering lines. After the process was completed, the gas was returned to the gas header and then sent to the gas processing plant; NOVATEK’s core producing assets are located in the Far North, a harsh Arctic region with vast mineral resources and a fragile and vulnerable environment. The Company is committed to environmental protection in its operations. In 2021, the Company’s overall expenses on environment protection and sustainable nature management amounted to RR 2.9 billion (including NOVATEK’s share in joint ventures). 2.9RR bln Environmental expenses in 2021 • The certification of the relevant state authority was secured for the Automated Industrial Emissions Monitoring System (AIEMS) of the Vysotsk LNG Production and Transshipment Terminal. Following the certification process, the system was registered with the Federal Information Fund for Ensuring the Uniformity of Measurements. This allowed to improve measurement accuracy and achieve compliance with international best practices. Furthermore, in order to ensure reliable accounting of In 2020, the NOVATEK Board of Directors approved the Company’s Environmental and Climate Change targets for the period up to 2030, which include the reduction of specific emissions, methane emissions reduction in upstream, processing and LNG production segments as well as greenhouse gas emissions reduction in upstream and LNG. Moreover, the Company intends to improve its associated petroleum gas utilization rate as well as waste disposal and utilization rate. greenhouse gases in flue gases, the AIEMS was upgraded and equipped with CO2 sensors at the end of the year, hence the plan to re-certify the measurement system in 2022. In 2021, we started the implementation of the action plan under the Integrated program to achieve environmental targets. Below are some of the key results achieved so far: In the reporting year, the Company continued its participation in the Carbon Disclosure Project (CDP), whereby information on greenhouse gas emissions and operations energy efficiency is disclosed, as well as in the CDP Water Disclosure Project to disclose data on the use of water resources. Taking part in these projects, the Company strives to achieve a balance between the climate change risks and efficiency of investment projects. The Company offers all stakeholders full access to its environmental information, including by publications in federal and local printed media, on its website, and social media. • At the end of the year, an experimental launch was performed at the process water treatment and re-injection unit at the Yurkharovskoye field. This will pave the way for a significant reduction of air pollutants and GHG emissions from wastewater flaring, as well as for lower gas losses to flaring; • Gas dynamic and gas condensate studies without emitting gas into the atmosphere were carried out at several wells at the Urengoyskoye, Yurkharovskoye, West-Yurkharovskoye, East- Since 2019, when disclosing information, we take into account the recommendations of the Task Annual Report 2021. Constructing future energy transition today Environmental and Social Responsibility 48–49 The Company pursues a responsible approach Occupational Health and Safety gas and liquid hydrocarbons, which implies setting up complex technological processes for operating fire and explosion hazardous facilities. Fire and explosion hazardous industrial facilities are operated in accordance with OHS legislation. Group entities have licenses to operate Hazard Class I, II and III fire, explosion and chemical hazardous industrial facilities. to preservation of natural ecosystems in all the regions of operation, actively cooperates with scientific and environmental organizations and implements the principles of rational and efficient use of natural resources at all operational levels. In its operations, NOVATEK abides by the requirements of Russian environmental legislation as well as international practices, standards and conventions. In 2021, our key biodiversity conservation activities included: NOVATEK is fully committed to putting the life and health of its employees above its business results, and is aware of its responsibility for ensuring accident-free operations and safe labor conditions for its personnel, as well as for protecting the health of the population in the Company’s regions of operations. 604ha Total reforestation area In 2021, regional branches of Rostechnadzor registered 267 hazardous production facilities that are in operation, including: Given the scale of the Company’s business, including operations in the challenging Arctic climate, and the significant scope of work associated with developing large-scale projects, NOVATEK strives to maintain an adequate level of monitoring at all levels of operations and continues to implement the existing Occupational Health and Safety (OHS) Action Plan, despite the environment created by the new coronavirus spread. • Adopting NOVATEK’s Biodiversity Conservation Management Standard, which establishes universal principles and approaches to • Class I (extremely high hazard) – 14 facilities; • Class II (high hazard) – 53 facilities; • Class III (medium hazard) – 174 facilities; • Class IV (low hazard) – 26 facilities. biodiversity conservation for NOVATEK operations both in the Russian Federation and abroad; In line with our focus on implementing our LNG projects in full compliance with the highest sustainable development standards, in 2021, we disclosed several Arctic LNG 2 project documents on its website, including the Environmental, Safety and Health Impact Assessment, the Biodiversity Implementation Strategy and the GHG and Energy Efficiency Management Plan. • Signing an agreement on cooperation to preserve biological diversity in Kamchatka Territory with Kronotsky Nature Reserve, as well as an agreement with the Government of Kamchatka Territory and Rosprirodnadzor on cooperation to implement a comprehensive program of scientific study of the offshore area around the Kamchatka Peninsula; The Company continuously improves its OHS management system, involving its employees and management, as well as contractors. We do our best to implement a “zero injury” culture, wherein a safe environment is the main priority for each employee. For Class I and II hazardous industrial facilities, industrial safety management systems and industrial safety declarations were developed providing estimates and specifying actions for: The Company is actively promoting cooperation between various industries in order to establish an efficient dialog on the natural resources rational use and the climate change mitigation. Thus, NOVATEK and TotalEnergies signed the Memorandum of Cooperation on Decarbonization, Hydrogen and Renewables in 2021. The Parties intend to cooperate on reducing GHG emissions at joint projects by implementing carbon capture and storage technologies and utilizing renewable energy sources at joint LNG projects as well as the production and usage of hydrogen as a low-carbon fuel. To this end, a Working Group encompassing seven workstreams was created, including a workstream on Nature Based Solutions. This workstream aims to develop and support the investment projects for carbon capture and GHG emissions reduction taking into account the interests of all stakeholders. • identifying, assessing and forecasting accident risks; • Conducting comprehensive survey and Below are the key principles that all the Company’s employees must follow: monitoring of the environmental condition of the Ob Bay’s offshore area with the involvement of leading Russian research institutes. These studies are aimed to develop an efficient • planning and implementing accident risk mitigation measures; 1. Responsible attitude to the population and the area of the Company’s operations through compliance with all safety requirements; action plan to monitor major environmental risks, including cumulative impacts, and an assessment (supported by scientific data) of changes in hydrological features, fishery indicators, state of rare and protected species, unique ecosystems, and local communities’ access to natural resources, associated with the implementation of the Company’s projects in the Ob Bay. The efforts made during the reporting period resulted in determining the boundaries of the projects’ impact on the Ob Bay ecosystems (including noise impact), assessing the current state of the pinniped and marine mammal population based on aerial surveys, as well as the environmental condition of the Sabetta port’s offshore area (it was confirmed that there were no non-native species in the offshore area); • coordinating accident and incident prevention measures; 2. Continuous development of industrial safety expertise across the working career; • production supervision procedures; and 3. Management involvement in identifying hazards and reducing levels of operational risks; • employees’ involvement in the development and implementation of accident risk mitigation measures. 4. Acknowledgment of the right to refuse to perform the work in case of danger to the employees life or health; and To compensate for the damage inflicted to third parties and the environment as a result of an accident at a hazardous industrial facility, all hazardous industrial facilities are insured in accordance with Federal Law No. 225-FZ On Mandatory Third Party Liability Insurance for Owners of Hazardous Facilities for Damage Inflicted by Accidents at Hazardous Facilities. With the majority of the Company’s production facilities located in the Russian Arctic zone, the front-end engineering, design, construction and operation of buildings and facilities is performed with a particular focus on research, evaluation, forecast and monitoring of permafrost and cryogenic processes. Across the lifecycle of its projects, the Company focuses on identifying and forecasting permafrost hazards considering the global and regional climate trends. Advanced engineering technologies combined with thermal calculations, which are subsequently verified based on geotechnical monitoring data, enable a top-notch assessment of the permafrost and engineering facilities condition. Moreover, the local environmental monitoring program includes actions to identify areas with intensifying cryogenic processes. In 2021, the Company continued its geotechnical monitoring. 5. Priority of prevention over reaction. According to effective legislation, workplaces undergo special assessment of working conditions. As of 31 December 2021, special assessment of working conditions was completed at 10,302 workplaces with 9,065 (87.9%) workplaces certified to have acceptable working conditions. At workplaces with harmful working conditions, we implemented a set of measures to eliminate or mitigate harmful factors. No workplaces with hazardous working conditions were identified. • In 2021, compensatory fish stocking was performed in rivers belonging to the Ob-Irtysh (within the Khanty-Mansiysk and Yamal-Nenets Autonomous Regions) and North-Western Basins. Several subsidiaries were involved in releasing the juvenile fish of Siberian sturgeon, salmon and whitefishes (including muksun) into the water bodies to re-stock commercially important fish species. A total of more than 11 mln juvenile fish were released; Executives and specialists of the Group’s subsidiaries and joint ventures subject to Rostechnadzor supervision undergo certification on industrial safety rules on a regular basis. Industrial safety assessment commissions are set up in the entities to evaluate staff and permit them to independently work at hazardous production facilities using the Unified Testing Portal Information System. The Company places an emphasis on safety culture, ensures efficient emergency response, as well as records all incidents in accordance with applicable laws, regulations and internal standards, enabling timely root cause analysis and the development of corrective action plans. OHS training is mandatory for all categories of employees and is in place at all entities. In accordance with the Russian legislation, chief executives, their deputies, and managers in charge of workplace organization receive safety training and undergo knowledge check in licensed training • In 2021, reforestation works were mainly carried out in the Tarkosalinskoye, Noyabrskoye and Nadymskoye forest districts of Yamal-Nenets Autonomous Region. The reforestation area totaled 604.3 ha. The Company is engaged in exploration, production, transportation, processing and sales of natural Annual Report 2021. Constructing future energy transition today Environmental and Social Responsibility 50–51 centers. To offer in-house training to white-collar 2. The Company organizes drills and exercises on possible accident containment and response scenarios and actions for the personnel involved in the maintenance of equipment items, buildings, and structures within hazardous production facilities. 5,658 training sessions were held in 2021. subcontractors, other individuals) and healthcare workers at first-aid posts, as well as their interaction with other business units participating in the emergency response in accordance with the statutory employer obligations to ensure timely and high-quality first aid to its employees. identification of infection by medical staff at employees, the Company has developed training programs and set up certification commissions to assess trainees’ knowledge of OHS regulations. Training classes in each entity are equipped with process flow diagrams, dummies to practice first- aid skills, information boards and training materials. production facilities continue; • Data on the epidemiological situation at production facilities are collected and analyzed, and the condition of those infected is monitored, including by information systems; At NOVATEK fields, emergency medical response plans aimed at minimizing the consequences of an accident or acute illness are put in place. The plans are developed on the basis of production risk assessment, as well as employees health risks, conducted at particular production sites, and are necessary to ensure timely first aid and medical evacuation to the appropriate medical facilities providing healthcare services. Training sessions are held to test the effectiveness and relevance of these plans. As of the end of 2021, 14,979 employees received OHS training, which is in line with the established training plan. In 2021, standing OHS control commissions carried out 631 compliance checks in subsidiaries and joint ventures. The results were documented in relevant reports and special measures were elaborated to eliminate identified non-compliances. Employees in charge submit monthly remedial action reports to their respective OHS units to further analyze risks of possible hazardous situations. In 2021, there were: • 13 work-related incidents; • 2 accidents: • Telecommuting procedure was defined along with the introduction of electronic interaction protocols and IT actions to enable telecommuting; • COVID-19 testing of employees is arranged; and – On 23 January 2021 in ARCTICGAS (destruction of an air cooler unit with the depressurization of the tubes and subsequent combustion); – On 17 August 2021 in YARGEO (destruction of a tank with mechanical damage to the tank walls and basement). • Medical response measures were put in place: isolation and observation facilities were deployed and equipped, medical equipment was purchased, a stock of medications was created, the number of medical personnel, including specialists in various disciplines (pulmonologists, cardiologists, infectious disease specialists), was increased. To secure sanitary and epidemiological welfare at the Company’s facilities, NOVATEK monitors water supply and disposal, sanitary and hygienic condition of public catering facilities, accommodation and industrial premises and waste disposal. In the reporting year, there were no cases of infectious diseases among employees, related to catering services or water supply. In 2021, the Compaby continued targeted audits of its subsidiaries and joint ventures for compliance with OHSE requirements by a NOVATEK committee. In the reporting year, targeted audits of YARGEO, NOVATEK-Ust-Luga and ARCTICGAS were performed. Based on the findings, relevant reports were produced and remedial actions were developed. In accordance with the legislation, an investigation of the causes and circumstances of accidents was performed. Based on the results of the investigation, preventive measures were taken on the similar equipment, and additional safety measures were introduced in the entities’ internal regulations. When developing action plans, one of the key priorities is to mitigate the risks of work- related incidents, accidents and emergencies at the equipment in operation. The timely and efficient measures together allowed to maintain the production facilities in operation. With the help of coordinated efforts of all stakeholders in the healthcare management, high work efficiency was maintained amid the COVID-19 pandemic during the reporting year. Fire Safety, Civil Defence and Emergency Response At the Company level, data are collected and analyzed regarding remediation of all violations of both scheduled and unscheduled audits carried out by the government supervisory authorities and integrated and targeted audits of the Company’s committee. Since the Group’s business directly involves operation of facilities exposed to fire and explosion risks, fire safety is a top priority for NOVATEK. The Group has a fire safety system compliant with the Russian legislation. The system’s objective is to prevent fires and protect people and property in case of a fire or an emergency. Employee Health Protection We continued our operations in accordance with the Action Plan to Safeguard against the Coronavirus at NOVATEK and its Controlled Entities to protect employees and prevent transmission and spread of the new coronavirus at the Company’s facilities. Healthcare management is an integral part of the Company’s OHS Management System. To prevent accidents and incidents at hazardous operating facilities: The healthcare management system used for NOVATEK employees health protection, including prevention of diseases and promotion of employees health, is continuously improving. The system is maintained by NOVATEK and its subsidiaries and joint ventures management, responsible for occupational health, OHS specialists, as well as third-party medical organizations (healthcare providers). At NOVATEK fields’ residential and production areas, the Company’s and contractors’ first-aid posts operate 24/7. In 2021, 8 controlled entities held active 1. Each year the Company develops and consistently implements technical inspection, certification and test schedules for various types of technical equipment (external and internal inspection, hydrostatic and pneumatic tests, and industrial safety audits). In 2021, the Company performed industrial safety audits of 630 equipment items and extended their safe operating life. licenses to service firefighting equipment and 6 controlled entities to perform firefighting as well as emergency response and rescue operations, a large share of licensed fire safety services are outsourced to contractors. There are 29 professional emergency response and rescue teams to ensure the safety of the controlled entities operating hazardous production facilities that produce, collect, process and manufacture explosive and flammable substances. In addition, we have decided to build fire stations and establish emergency response and rescue teams within prospective field development and field infrastructure projects. The following anti-COVID emergency response centers continue their operations: PAO NOVATEK, Novy Urengoy, Tarko-Sale, Leningrad Region, Murmansk, YNAO LNG projects. Special action plans have been developed and introduced: • Algorithms of observation and logistic schemes of rotation personnel transportation were prepared to minimize the risks of coronavirus spread into the production areas (the duration of the rotation shift was reduced to two months); NOVATEK’ subsidiaries and joint ventures have in place an integrated OHS management system. In accordance with the international standard ISO 45001:2018, the integrated management system also includes provisions on employees healthcare management. NOVATEK subsidiaries and joint ventures adopted OHS policies approved by the corporate orders, assuming responsibility for the lives and health of employees and contractors. • Campaigns continued to raise employees’ awareness on prevention of acute respiratory viral infections and the need for vaccination against the COVID-19; In 2021, the total headcount of fire and emergency brigades serving the facilities on a 24-hour basis stood at 1,123 certified rescue workers. There were 87 engineers in the controlled entities who directly monitored and supervised the fire safety and emergency response preparedness at our facilities. 14,979 • Briefing of employees is performed about the use of personal protective equipment (masks). The necessary amount of personal protective equipment, means and equipment for disinfecting premises, hand treatment, as well as contactless means for temperature measurement is ensured; daily temperature measurement of employees and active The subsidiaries and joint ventures developed regulations and standards on ensuring preparedness for emergency medical assistance and evacuation, as well as other first-aid requirements for production facilities. The documents describe the actions of incident witnesses (employees, contractors, employees Inspections are regularly carried out at controlled entities to assess the emergency response preparedness of the Company’s business units and personnel, and evaluate the capabilities of in-house and external professional emergency response and Received OHS training in 2021 Annual Report 2021. Constructing future energy transition today Environmental and Social Responsibility 52–53 rescue teams. The controlled entities’ facilities competitiveness. In 2021, the primary activities of training and professional development included: are fully compliant with the requirements to oil, petroleum product, and other hydrocarbon spill response. Materials and equipment available to the emergency response and rescue teams comply with all existing requirements. The Company ensures timely re-equipment of both basic and specialized fire vehicle fleets. • Implementing In-house Training program to improve the competences of the Company’s employees; • Implementing the Steps in Discovering Talents program for young specialists targeted at training highly qualified personnel whose competence level fully meets business needs; Fire safety, civil defense and emergency response training, as well as fire and emergency drills, are an important element of the overall system of fire safety and readiness to respond to fires and emergencies. In 2021, the Company organized 33,972 fire safety briefings that featured guidance materials and visual aids, as well as hands-on presentations. Basic fire safety training was provided to 10,084 people, with 2,409 tactical fire exercises performed as part of the Oil Spill Response Plan, Emergency Containment and Response Action Plan as well as evacuation drills. Oil Spill Response Plan and Emergency Containment and Response Action Plan have been developed and implemented within the Company’s production facilities. In 2021, a fire occurred at a non- • Developing and improving the Corporate System for the Evaluation of Technical Competencies; and • Engaging Company’s young specialists to take part in research and practice conferences; and • Cooperating with higher education institutions to train specialists in the area of LNG. NOVATEK Scientific and Technical Center has hosted an In-House Training Program since 2016. In 2021, NOVATEK Scientific and Technical Center experts delivered classroom training courses on the following subjects: Seismic Exploration Fundamentals; Integrated Interpretation of Seismic and Logging Data; Complexing Logging Methods to Address Geological Tasks. Basics of Log Interpretation and Practical Application; Application of Regulations for Selection, Storage, Transportation, Laboratory Research and Entering into the Core Database; Interpretation and Planning of Hydrodynamic Studies; Production Engineering For Underexplored Fields; Basics of Hydraulic Fracturing; Basics of Hydrodynamic Modeling; Dynamic Simulation of Multiphase Streams in Pipelines and Wells using Software OLGA: Principal Tasks and Examples of their Solution. Practical Modelling Experience in the Software Environment, Software OLGA; Basics of Intra- and Inter-Field Hydrocarbons Transportation. The training course Basics of Hydraulic Fracturing was also conducted online. A total of 46 of the Company’s employees received training under this program in 2021. production facility (warehouse). No one was injured as a result of the accident. the Mentoring Culture training courses together with their mentors. In total, 22 mentors attended the training. Moscow State Technical University and NOVATEK’s experts with extensive practical experience are engaged in the program. The Company considers successful graduates of the Program holding a master’s degree for hiring and engaging in the implementation of Russia’s major LNG projects. During the training, “A” students and “B” students also receive an additional scholarship from the Company. In 2021, the first students graduated from the program (2019–2021 enrollment): 22 students having a master’s degree, 18 of whom graduated with honors. 11 graduates were employed by NOVATEK Group companies. 15 first-year master’s students (2020–2022 enrollment) passed summer on-the-job training at the entities of Yamal LNG, Arctic LNG 2 and Cryogas-Vysotsk. In 2021, 25 master’s students (2021–2023 enrollment) were assigned to the Program. NOVATEK fully complies with fire safety, civil defense and emergency response standards and regulations: all of its facilities are equipped with automatic fire detection, alarm and extinguishing systems. NOVATEK Group’s controlled entities are ready to respond to, contain and mitigate fires and emergencies. In October 2021, Moscow hosted the 16th Interregional Research-to-Practice Conference for the Company’s young specialists attended by 74 employees from 14 subsidiaries and joint ventures. 55 projects were submitted for consideration by the contest committee. All the conference winners received cash prizes. After the release of restrictive measures caused by COVID-19, 12 first place winners will be awarded a trip to one of the foreign countries to visit oil and gas and energy companies. In 2021, 19 winners of the 14th and 15th Interregional Research-to-Practice Conferences were able to visit oil and gas facilities of the Caspian Area, Azerbaijan and Astrakhan. In 2021, РАО NOVATEK, NOVATEK-PUROVSKY ZPK, NOVATEK-TARKOSALENEFTEGAS, NOVATEK Scientific and Technical Center, Arctic LNG 2, NOVATEK – Ust-Luga and NOVATEK-YURKHAROVNEFTEGAS were awarded the Laureate Diploma of the International competition of scientific, technical and innovative solutions for the energy and mining sectors For Contribution to Innovative Development of the Fuel and Energy Industry. Human Resources Employees are NOVATEK’s most valuable resource, allowing the Company to grow rapidly and effectively. The Company’s human resource management system is based on the principles of fairness, respect, equal opportunities for professional development, dialogue between management and employees, as well as continuous, comprehensive training and personal development opportunities for the Company’s employees at all levels. In 2017, the Innovator Corporate Idea Management System was launched in NOVATEK. Currently, 21 Group entities are connected to the System. The Innovator System is an automated framework to collect and process employees’ proposals on improving and developing business of the Company. 718 ideas on improving business operations, reduction of production costs and implementation of new work methods were submitted by the employees in 2021. More than 1,700 ideas have been submitted over 5 years of operation of the Innovator System, of which 339 were approved for implementation and 175 ideas were implemented. They generated a positive economic effect of RR 4.57 bln. In 2021, NOVATEK continued its efforts to advance the professional capabilities of its employees, improve working conditions and train its personnel on safe working practices at its production facilities. A total of 56.8% of employees upgraded their skills. In 2021, the Corporate System for the Evaluation of Technical Competencies tested 1,240 employees across the Group, including 58 persons who were tested at recruitment and 162 persons at promotion. As of the end of 2021, NOVATEK, its subsidiaries and joint ventures had 18,404 employees, with 32.5% working in exploration and production, 25.8% in LNG production, 12.5% in marketing, 8.1% in processing, 7.3% in power supply, 6% are administrative personnel, 5.2% in transportation, and 2.6% are engaged in ancillary services. The predominant age of the personnel is between 30 and 50. The average age of the Company’s employees is 41 years. In 2018, NOVATEK launched cooperation with the Gubkin Russian State University of Oil and Gas under the master’s degree program on cryogenic technologies and gas-related equipment. The program is being implemented by the Department of Oil Refining and Gas Processing Equipment of the Faculty of Mechanical Engineering. This unique program pursues a multi-disciplinary approach to deliver a combination of management skills and technical knowledge in LNG production, storage and regasification. Apart from the faculty staff of the university, visiting tutors from Bauman In 2021, 84 young specialists participated in the Steps in Discovering Talents Program. We held our ninth class and 34 specialists graduated from the on-the-job adaptation and professional development program, while 18 young specialists guided by 17 mentors completed the first step of the Program. In autumn 2021, another 32 young specialists and 26 mentors assigned to them joined the Program. Young specialists received Personnel Training and Development Amid the rapid development of technologies and management systems, our multilevel training and professional development program enable our employees to contribute to raising the Company’s Annual Report 2021. Constructing future energy transition today Environmental and Social Responsibility 54–55 Social Programs Social Policy and Charity Cooperation with Indigenous Peoples of the Far North Our focus in employee relations is on implementing social programs. According to the Core Concept of the Company’s social policy, adopted in 2006, the social benefits package for employees includes the following programs: Social Policy and Charity make up an important part of NOVATEK’s activities. In 2021, the Company continued to pay close attention to projects aimed at supporting the culture, preserving and revitalizing national values and spiritual legacy of Russia, developing mass and high-performance sports. NOVATEK continued to fulfill the Agreements with local governments in the regions of the Company’s operations, by further implementing the plan for promoting living standards and preserving distinctive cultural identity of indigenous peoples of the Far North. NOVATEK participates in organizing and staging traditional ethnic festivals of indigenous peoples (Reindeer Herder’s Day, Fisherman’s Day, Indigenous Peoples of the Far North Day as well as events commemorating anniversaries and memorable dates of Nenets writers and poets) and supports cultural heritage site preservation. In particular, the Company funds the Limbya Nomad Camp ethnographic park, implements the Choree Project to develop a Literary Map of Yamal and finances activities to preserve traditional lifestyle, culture and language of the indigenous people of the Far North. To make pre-school education available to nomadic communities at the Nareidalva camp in the village of Nakhodka, the Company financed the acquisition and equipping of a modular kindergarten, as well as and supported athletes from among the indigenous peoples of the Far North. NOVATEK distributes food packages as a matter of financial and humanitarian aid to those in need from among the indigenous peoples of the Far North. Voluntary medical insurance for employees Targeted compensation and social support payments The program includes full outpatient care, dental care, and emergency and scheduled hospitalization. To reduce the risk of occupational diseases in the Company’s subsidiaries and joint ventures located in the Far North, in-depth medical examinations of employees are conducted once every two years. This program provides targeted free support to the Company’s employees in specific life circumstances, including childbirth, to large families, the event of natural disasters or fire, compensation for care of a child up to three years of age, financial aid for care of disabled children, financial aid for burial, compensation for sports and recreation classes for employees, as well as on the occasion of the jubilee. In 2021, Social expenses and compensatory payments directly invested by NOVATEK and its subsidiaries on charitable and medical projects and activities, cultural and educational programs, and support for indigenous communities amounted to RR 2.8 billion, including RR 71.4 million to assist the regions in their epidemic containment efforts (purchase of medical and laboratory equipment, medical protective suits and masks for hospitals). Therapeutic resort treatment and rehabilitation Employees and their families can purchase health resort vouchers at a discount. Under this program the NOVATEK employees may spend their vacations in 50 health resorts located in Russia’s most picturesque settings. In 2021, 6,253 employees took advantage of the program. Pension program Cooperation with the Regions The Company also finances fueling services as well as the purchase of snowmobiles and a boat motor for indigenous communities, including for delivering forage to prevent mass reindeer mortality. The Company keeps in touch with the people whose work contributed to the Company’s achievements, and continues to take care of them after their retirement. Since 2007, the Regulations on Social Benefits for Retired NOVATEK Group Employees has come into effect. The procedure for calculating monthly social benefit is determined in accordance with the above Regulations and the benefit amount is subject to the employee’s average salary, employment track record and geographical location. As of 31 December 2021, the number of participants in the program was 1,254 people. Under the agreements signed with various regions, the Company invested in the Yamal-Nenets and Khanty-Mansiysk Autonomous Regions, the Tyumen, Chelyabinsk, Leningrad, Murmansk and Kostroma Regions and the Kamchatka Territory throughout 2021. The Company allocated funds for social and youth policy implementation, educational programs, support for culture and sports, kindergartens and art schools, indigenous peoples of the Far North. The elderly, veterans, severely ill and disabled children, as well as people who faced hardships received aid. During the reporting year, NOVATEK provided financial support to the Yamal for Descendants Association of indigenous peoples of the Far North and its district branches. Repayable financial aid program Educational Programs The special-purpose loans program has two focus areas: For years, NOVATEK has been developing its continuing education program, which enables the Company to recruit highly qualified and educated youth from the regions of our operation. In 2021, the Company together with the • Short-term special-purpose loans intended for employees who experience economic hardship; Government of the Yamal-Nenets Autonomous Region continued to implement a unique “Teacher for Russia” program aimed at engaging graduates of Russia’s leading universities to teaching in small regional schools and preparing young specialists for teaching, as well as ensuring equal educational opportunities for children in different regions and towns of Russia. NOVATEK-Veteran social protection foundation Recruitment and career guidance for potential future employees start with the Gifted Children Program implemented at School No. 8 in Novokuybyshevsk, school No. 2 in Tarko-Sale, school No. 81 in Tyumen, and school No. 2 in Salekhard. In 2021, school No. 36 in Murmansk joined the program. • Special-purpose interest-free home loans to employees residing in Tarko-Sale, Novy Urengoy, Moscow, Nadym, Sosnovy Bor, Tyumen and Vysotsk. The NOVATEK-Veteran social protection fund was established in 2005 to provide social assistance to people who have worked for a long time in the Russian oil and gas industry in the Far North. The Fund provides retired people with quarterly financial assistance, allocates lump-sum benefits, pays for treatment and the purchase of medicines, organizes therapeutic resort treatment and rehabilitation and also provides other types of required assistance. As part of a pilot project for converting boiler houses in the Murmansk Region to LNG, the Special classes are formed on a competitive basis from the most talented grade 10 and 11 students with above-average test scores. Rehabilitation of children with disabilities supply of equipment for receiving, storing and regasification of LNG was financed for two boiler houses located in Murmansk and Severomorsk. In addition, in 2021, NOVATEK financed the design and construction of a recreational zone on the territory of the Harbeysky geological natural monument. In 2021, as part of an agreement between NOVATEK and the Higher School of Economics, all students in the classes had the opportunity to use an online school to better prepare for the Unified State Exam in the Russian language, specialized mathematics, physics, and computer science. This program is aimed at supporting the employees families who raise children with disabilities. As part of the program, children undergo individual rehabilitation courses and receive qualified medical care. NOVATEK acquired for the Tula Region’ hospital two mobile medical units with medical offices “Diagnostics” and “Laboratory” with specialization “Women’s Health” and “X-ray diagnostics”. In 2017, a resource center for industry-relevant student training – the Natural Science Center – was built and fully equipped in Tarko-Sale, Purovsky Annual Report 2021. Constructing future energy transition today Environmental and Social Responsibility 56–57 District, Yamal-Nenets Autonomous Region. The payments. During their studies, the students are offered paid internships. This experience allows them to apply the knowledge obtained at lectures and seminars to real-life situations and gain experience in the professions they’ve chosen, while the Company receives an opportunity to meet potential employees. Sports Projects Basketball Association regional division, in which Center began to operate in 2018. At year-end 2021, the Center is attended by 641 students from Tarko-Sale and 33 students from the settlement of Khanymei, aged 5 to 18 years. The Center offers 29 additional education programs and 25 individual learning paths focusing on natural sciences and technologies. Activities in all subjects include solving of problems at an advanced level and training of students for national contests and competitions. about 9 teams participate annually. NOVATEK attaches great importance to programs for the development of mass and high- performance sports. The Company, its subsidiaries and joint ventures regularly hold tournaments in the most popular and wide-spread sports: football, volleyball, swimming, ski, etc. In 2021, all tournaments were held in full compliance with the requirements of the Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rospotrebnadzor). In addition, in 2021, various regions hosted master classes and exhibition performances by athletes arranged by the Student Basketball Association, Federation of Dancesport and Acrobatic Rock’n’Roll. Preserving Cultural Heritage In the reporting period, NOVATEK continued cooperation with the Russian Football Union as the General Partner of the Russian National Football Teams. The Company supported women’s volleyball club Dinamo (Moscow) and the NOVA Volleyball Club (Novokuybyshevsk). In 2021, NOVATEK continued its cooperation with Russia’s leading museums, including the Russian State Museum, the State Tretyakov Gallery, the Moscow Museum of Modern Art (ММОМА). The Company is also implementing two Grants programs for schoolchildren and teachers living in the Purovsky District of the Yamal-Nenets Autonomous Region. Throughout the year NOVATEK continued to promote development of children and youth sports in the regions of its operations by providing teams participating in indoor football, acrobatic rock’n’roll and student basketball competitions with equipment, official competition balls, uniform, prizes, cups and medals. The Russian Museum hosted the exhibition “Cosmism in Russian Art” with the Company’s support (17 November 2021 – 10 March 2022). The exhibition for the first time brought together paintings and graphics of famous and lesser-known artists of the beginning of the 20th century: Wassily Kandinsky, Kazimir Malevich, Alexander Labas, Kuzma Petrov-Vodkin and other artists, who sought to understand the laws of the Universe and a man’s place in it. The Grants program for schoolchildren is aimed at academic and creative development and encouraging a responsible attitude towards studies. Under the program, pupils of 5th-11th grades are awarded grants from the Company. In 2021, the Company awarded 52 grants to students under this program. The Grants program for teachers is intended to raise the prestige of the teaching profession and create favorable conditions for developing new and talented teachers. In 2021, eight teachers from the Purovsky District received grants under this program. Help to Children in Desperate Need In 2021, pursuant to NOVATEK’s corporate charity policy the Company continued to implement projects aimed at helping children in desperate need in the regions of the Company’s operations. The Company continued to support the pilot federal innovative project “Become a Champion” intended for identifying children’s predisposition to certain sports through testing. Under the “Health Territory” project, leading doctors from the Russian Children’s Clinical Hospital (RCCH) visited eight towns: Tarko-Sale, Novy Urengoy, Kostroma, Chelyabinsk, Magnitogorsk, Petropavlovsk-Kamchatsky, Murmansk and Tyumen. As a result, 716 severely ill children received help. 153 children were hospitalized to the RCCH and other federal hospitals. During examinations and consultations by the RCCH visiting teams, the necessary safety measures were taken; the Company also provided children, parents and doctors with personal protective equipment. In the reporting year, the Company held NOVATEK supported the exhibition “Vyacheslav Koleichuk. Live line” (3 June 2021– 26 September 2021) organized by the Tretyakov Gallery and dedicated to one of the pioneers of kinetic art in Russia and a talented engineer. Koleichuk embodied his passion for physics, optics, and design in his works. “NOVATEK – Step to Bigger Football” Indoor Football Championships that have already become a tradition among the schools of the Chelyabinsk and Kostroma Regions and the Kamchatka Territory. More than 17,000 boys and girls took part in the competition in these regions. In 2021, indoor football pitches were built for the schools of the winning teams of the Championship: three in the Chelyabinsk Region and two in the Kostroma Region. In total, starting from 2013, 45 football pitches have been built within the “Step to Bigger Football” project. In an effort to create conditions for more effective use of university and college resources in preparing students for future professional activities, the Company has developed and successfully implemented the NOVATEK-University program. The program is an action plan for focused, high-quality training for specialists with higher education in key areas of expertise in order to grow the Company’s business and meet its needs for young specialists. The program is based at the Saint-Petersburg University of Mines, the Gubkin Russian State University of Oil and Gas in Moscow and the Tyumen Industrial University. In the Year of Germany in Russia, the Company supported the opening of the international project “Diversity. Unity. Contemporary Art of Europe. Berlin. Moscow. Paris” (23 November 2021 – 13 March 2022) in the Tretyakov Gallery. The project has already been exhibited in Berlin. Then it was brought to Moscow and it will later go to Paris. The project explores the European art created over the past 30 years, the main message of which is to show how important it is to preserve European unity in times of turbulence. In their works, 90 artists from 34 countries discuss the issues of public concern, including pandemics, climate disasters, inequality, democracy, disputes and conflicts between states. In 2021, the work under the Telemedicine Center project to equip and connect the Kamchatka Territory Children’s Hospital and the Magnitogorsk Maternal Health and Childhood Protection Center to the unified telemedical network, was completed. Currently, the unified telemedical network connects the RCCH multimedia center with regional partner clinics of Novy Urengoy, Tarko-Sale, Murmansk, Chelyabinsk, Magnitogorsk, Petropavlovsk- Kamchatsky, Tyumen and Kostroma. In 2021, as part of the development of corporate sports, the All Russian Federation of Dancesport and Acrobatic Rock’n’Roll successfully continued to implement a joint project Corporate Clubs for Acrobatic Rock’n’Roll with NOVATEK. The project is currently being implemented in 5 cities of the Russian Federation: Moscow, Kostroma, Murmansk, Tyumen and Chelyabinsk. More than 220 boys and girls, including children of employees of the NOVATEK Group companies, attend clubs in these cities. Despite the pandemic, trainings and competitions continued to be held in 2021. Students of corporate clubs took part in regional acrobatic rock’n’roll competitions. In early December, athletes of corporate clubs participated in the All-Russian Championship and Competition held in Moscow. Students who have passed their exams with good and excellent results receive additional monthly In 2021, as part of the Targeted Therapy project aimed at helping children with cancer undergoing treatment in the Dmitry Rogachev National Medical Research Center of Pediatric Hematology, Oncology and Immunology, 74 children received molecular tests to select individual treatment, which significantly increases their chances of recovery. In cooperation with NOVATEK, the Moscow Museum of Modern Art organized a retrospective exhibition of the art group “World Champions. Strokes of Joy” (December 15, 2021 – February 13, 2022), a late- 1980s association of Moscow artists, who started their artistic journey as school friends. The group is famous for their absurd, provocative and often hooligan actions that satirize contemporary art. The exhibition displays more than 200 paintings, graphics and works on fabric. 2.8RR bln The project to help children with vision impairments has also moved forward. In 2021, vision protection rooms were set up in specialized kindergartens in Chelyabinsk and Petropavlovsk-Kamchatsky, where 236 children with visual impairments underwent rehabilitation. Earlier, the Company set up vision protection rooms in kindergartens of Kostroma, Murmansk and Novy Urengoy. Social expenses and compensatory payments on charitable and medical projects and activities, cultural and educational programs, and support for indigenous communities In 2021, NOVATEK continued its cooperation with the Student Basketball Association. With the support of NOVATEK, the Student Basketball Association held competitions for student basketball teams across the country with more than 800 teams and 10,000 athletes participating from over 70 regions of the Russian Federation. Since 2017, the Kostroma Region has hosted the competition of the Student In 2021, NOVATEK remained a General Partner of the Moscow Soloists Chamber Ensemble under the direction of Yuri Bashmet. Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 58–59 As part of the “High-Tech Equipment” project, Other Charitable Activities the Company financed the purchase of medical equipment: two medical ventilators and one ultrasonography machine for the Kostroma Regional Children’s Hospital, one medical ventilator for the Mother and Child Health Center of Magnitogorsk and neonatal screening equipment for the Mother and Child Center of the Kostroma Region. Management and Corporate Governance In the Chelyabinsk Region in 2021, the Company provided financial assistance for restoration of memorials in nine municipalities, provided charitable gas supply throughout the Region for gasified Eternal Flame memorials, landscaped areas of restored memorials in the Trotsky and Kunashaksky districts. As part of the Childhood Protection social project, the Company financed Chelyabinsk Boarding School No. 13 and Aistenok Center to repair their classrooms and living quarters, as well as organized vacation for children at a children’s sanatorium in Anapa. Throughout the year, the Company provided targeted support to orphans and disabled Corporate Governance System standards. NOVATEK’s supreme governing body is the General Meeting of Shareholders. The corporate governance system comprises the Board of Directors, the Board Committees, and the Management Board, as well as internal control and audit bodies and the Corporate Secretary. The activity of all these bodies is governed by the applicable laws of the Russian Federation, NOVATEK’s Articles of association and internal documents available on our website children, and people with disabilities. The Company donated funds to the orphanage of the Trinity Church in Kolomna to purchase an annual supply of medicines and pay for medical services, re-equip children’s bedrooms and buy winter clothes and shoes for its care recipients. NOVATEK financed a playground installation for the St. Petersburg Psychoneurological Treatment Centre № 6 for children from 0 to 4 years of age, as well as financed the purchase of roller blinds for 17 wards in the RCCH kidney transplantation department. NOVATEK strives to commit to the highest standards of corporate governance. We believe that such standards are an essential prerequisite to business integrity and performance and provide a framework for socially responsible management of the Company’s operations. A regional children drawing contest, with over 400 children participating, was conducted by NOVATEK-Kostroma together with the Department of Education and Science. Winners and medalists were awarded diplomas, prizes and gifts by the Company. The Company has established an effective and transparent system of corporate governance complying with both Russian and international (www.novatek.ru/en/). Throughout 2021, NOVATEK traditionally supported projects aimed at preserving and increasing rare animal populations: Siberian tiger and Amur leopard. Supreme governing body Financial and business activity control bodies In 2021, the key activities of the volunteer movement All Together also remained unchanged: support for orphans and children with various illnesses, seniors and disabled people. General Meeting of Shareholders Revision Commission In June 2021, NOVATEK annual charity auction was held to mark the International Day for Protection of Children. NOVATEK employees offered 334 lots for the auction, all the money raised was used for treatment and rehabilitation of the Company’s employees’ children. Strategic governance body Board Committees Board of Directors Remuneration and Nomination Committee Strategy Committee Audit Committee Subcommittee on Climate and Alternative Energy Chairman of the Management Board (CEO) Internal Audit Division Collegial executive body 716 children Management Board Subdivisions Received help under the "Health Territory" project in 2021 Corporate Secretary Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 60–61 NOVATEK strives to consider the principles of General Meeting of Shareholders The current members of the Board of Directors were elected at the Annual General Meeting of Shareholders on 23 April 2021. The Board of Directors is comprised of 9 members(1), of which 8 are non-executive directors, including 3 directors who are considered to be independent. The Board Chairman is Alexander Natalenko. The Chairman is responsible for leading the Board and ensuring its effectiveness. • recommended an interim dividend payment for first half 2021, based on interim financial results for the period, and a full year dividend payment for 2021, based on full year financial results; corporate governance outlined in the Corporate Governance Code recommended by the Central Bank of Russia (Letter № 06-52/2463 dated 10 April 2014). The Company follows the recommendations of the Code, as well as offering to our shareholders and investors other solutions that are intended to protect their rights and legitimate interests. The General Meeting of Shareholders is NOVATEK’s supreme governing body. The activity of the General Meeting of Shareholders is governed by the laws of the Russian Federation, the Company’s Articles of association, and the Regulations on the General Meetings approved by NOVATEK’s General Meeting of Shareholders in 2005 (Minutes No. 95 of 28 March 2005) with further alterations and amendments. • made decisions to convene an Extraordinary and Annual General Meetings of shareholders. During the meetings in 2020 telecommunications facilities were used to provide shareholders with remote access to participate and to fill out an electronic form of ballots; Since the Company’s shares are listed on the London Stock Exchange in the form of depositary receipts, NOVATEK places great emphasis on the UK Corporate Governance Code and the Regulation of the European Parliament and of the Council on Market Abuse and follows their recommendations as far as practicable. The members of NOVATEK’s Board have a wide range of expertise as well as significant experience in strategic, operational, financial, commercial and oil and gas activities. The Board members hold regular meetings with NOVATEK’s senior management to enable them to acquire a detailed understanding of NOVATEK’s business activities and strategy and the key risks impacting the business. In addition to these formal processes, Directors have access to the Company’s medium-level managers for both formal and informal discussions to ensure the regular exchange of information needed to participate in the Board meetings and make balanced decisions in a timely manner. The General Meeting of Shareholders is responsible for the approval of annual reports, annual financial statements, the distribution of profit, including dividends payout, the election of the Board of Directors and the Revision Commission, approval of the Company’s Auditor and other corporate and business matters. • reviewed and approved NOVATEK’s business plan for 2022; • changed the composition of the Management Board; The Company also adheres to the internal Code of Business Ethics approved by the Board of Directors in 2011 (Minutes No. 133 of 24 March 2011). The Code establishes general norms and principles governing the conduct of members of the Board of Directors, the Management Board and the Revision Commission, as well as NOVATEK’s management and employees, which were drafted on the basis of moral and ethical values and professional standards. The Code also determines the rules governing mutual relationships inside the Company and NOVATEK’s relationships with its subsidiaries and joint ventures, shareholders, investors, the government and public, consumers, suppliers, and other stakeholders. • reviewed and approved NOVATEK’s Sustainability Report 2020; On 23 April 2021, the Annual General Meeting of Shareholders approved the annual report, annual financial statements (in accordance with the Russian Accounting Standards), distribution of profit and the size of dividends based on the results of FY2020. The meeting also elected the Board of Directors and the Revision Commission and approved remuneration to members of the Board of Directors, Revision Commission and the Company’s external auditor for 2021. • approved a new edition of NOVATEK’s Regulations on Risk Management and Internal Control System; Efficient operation of the Board of Directors is supported by the Corporate Secretary, who has sufficient independence (appointed and dismissed by the Board of Directors) and endowed with the necessary powers and resources to carry out its tasks in accordance with the Regulations on the Corporate Secretary (approved by the Board of Directors, Minutes No. 168 of 28 April 2014 with further alterations and amendments). • made decision to acquire a 100% share of the NOVATEK–LNG Fuel by NOVATEK in order to implement the investment project “Small scale LNG production and sales of LNG and CNG (compressed natural gas) as motor fuel”; On 30 September 2021, the Extraordinary General Meeting of Shareholders approved the amount of interim dividend for the first half of 2021. • made decision on NOVATEK’s participation in the International Marine Forum of Oil Companies (OCIMF); In December 2021, the Board of Directors of PAO NOVATEK approved the Company’s Human Rights Policy. The Policy formalizes the Company’s position on human rights and incorporates all the fundamental principles, including respect for human dignity, providing safe working conditions, non-discrimination, as well as respect for the rights, distinctive culture, and customs of local communities, including indigenous minorities. • made decision on creation of the Subcommittee on Climate and Alternative Energy within Strategy Committee; Board of Directors The Board of Directors membership (elected at the Annual General Meeting of Shareholders on 23 April 2021): The Board of Directors (the Board, BoD) activity is governed by the laws of the Russian Federation, the Company’s Articles of association and the Regulations on the Board of Directors approved by NOVATEK’s General Meeting of Shareholders in 2005 (Minutes No. 96 of 17 June 2005) with further alterations and amendments. • approved NOVATEK’s Human Rights Policy; • Alexander E. Natalenko – Chairman of the Board of Directors • approved a new NOVATEK Buyback Program; and • Andrei I. Akimov The Company monitors changes of the current legislature and the Listing Rules of PAO Moscow Exchange and London Stock Exchange and harmonizes its internal documents according to the changes. NOVATEK’s current regulations on the Company’s corporate bodies, Internal Audit Policy, Regulations on Risk Management and Internal Control System, Regulations on the Corporate Secretary, and other regulations are up to date and don’t require any amendments. • Arnaud Le Foll • approved the plan of activities of the Internal audit Department of NOVATEK for 2022. • Dominique Marion • Robert Castaigne • Leonid V. Mikhelson • Tatyana A. Mitrova • Victor P. Orlov(1) The Board carries out the overall strategic In order to improve efficiency of corporate governance and in accordance with the recommendations of the Russian Corporate Governance Code the Company carried out an external assessment of the BoD and the BoD Committees activities by engaging an external independent consultant once every three years and self assessment annually. management of the Company’s activity on behalf of and in the interests of all its stakeholders, and ensures the Company’s efficient and effective performance with the aim to increase shareholder value in a prudent and responsible manner. • Gennady N. Timchenko Board activities during the 2021 corporate year(2) The Board determines the Company strategy and priority lines of business, endorses long- term and annual business plans, reviews financial performance, internal control, risk management and other matters within its competence, including optimization of corporate structure, approval of major transactions, making decisions on investment projects and recommendations on the size of dividend per share and its payment procedure, and convening General Meeting of Shareholders. The General Meeting of Shareholders elects the members of the Board of Directors. NOVATEK’s corporate governance practices make it possible for its executive bodies to effectively manage ongoing operations in a reasonable and good faith manner and to the benefit of the Company and its stakeholders. To ensure the Company’s efficient performance, the Board meetings are convened on a regular basis at least once every two months. During corporate year 2021, the Board of Directors met 10 times, of which 4 meetings were held in the form of joint attendance. The following key issues were discussed and respective decisions made: During the period from December 2021 to February 2022, an independent external consultant OOO PricewaterhouseCoopers Advisory conducted an independent evaluation of the Board of Directors of PAO NOVATEK. The results of the evaluation were considered at the meeting of the Board of Directors. • reviewed and approved the Company’s 2021 full year operating and financial results; 1. The powers of the elected member of the Board of Directors Victor P. Orlov were prematurely terminated on 23 August 2021 due to his premature death. 2. From the Annual General Meeting of Shareholders on 23 April 2021 until 21 April 2022. Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 62–63 The assessment perimeter included the following The activity of the Board of Directors of NOVATEK and its committees was analyzed and assessed in terms of its compliance with the recommendations of the Corporate Governance Code of the Russian Federation, Moscow Exchange Listing Rules, the recommendations of the Central Bank of the Russian Federation on the organization of risk management, internal control, internal audit, the work of the committee of the Board of Directors (Supervisory Board) on audit in public joint stock companies, the recommendations of the Central Bank on the formation and succession of the Board of Directors, as well as the best international and Russian practices. Board Committees specific decisions are analyzed and the necessary recommendations are issued prior to general Board discussions. The minutes of the Committees meetings are circulated to the Board members and are accompanied by necessary materials and explanatory notes. areas: The Company has 3 Board Committees: the Audit Committee, the Remuneration and Nomination Committee and the Strategy Committee. The Committees’ activities are governed by the specific Committee Regulations approved by the Board of Directors and are available on our website. In 2021, the Board of Directors made decision to create the Subcommittee on Climate and Alternative Energy within Strategy Committee. • evaluation of the effectiveness of the Board of Directors as a whole; • evaluation of the effectiveness of each committee of the Board of Directors; In order to carry out their duties, the Committees may request information or documents from members of the Company’s executive bodies or heads of the Company’s relevant departments. For the purpose of considering any issues being within their competence, the Committees may engage experts and advisers having necessary professional knowledge and skills. • evaluation of the effectiveness of the Chairman of the Board of Directors; and • evaluation of the effectiveness of the Corporate Secretary. The Committees play a vital role in ensuring that the high standards of corporate governance are maintained throughout the Company and that The assessment methodology involves a survey (questionnaire) of members of the Board of Directors, individual interviews with members of the Board of Directors and some key executives of the Company, as well as an analysis of the Charter and internal documents of PAO NOVATEK that regulate the activities of the Board of Directors and its committees, materials for meetings and minutes of meetings of the Board of Directors and committees, etc. During the appraisal process the key areas of the BoD and the Committees activities were analyzed, including the formation of strategy, supervisory and control functions, effectiveness of interaction with the top management, risk management, remuneration, succession and development of key managers. Board of Directors’ Committees membership: Audit Committee Strategy Committee Subcommittee on Climate and Alternative Nomination Committee Energy Remuneration and Chairman Members Robert Castaigne Tatyana A. Mitrova Dominique Marion Victor P. Orlov(1) Based on the evaluation we determined directions for increasing the Board of Directors performance efficiency. Tatyana A. Mitrova(2) Robert Castaigne Tatyana A. Mitrova Victor P. Orlov(1) Andrei I. Akimov Arnaud Le Foll Alexander E. Natalenko(3) Arnaud Le Foll Robert Castaigne Tatyana A. Mitrova Alexander E. Natalenko Board and Committee meetings attendance in the 2021 corporate year Alexander E. Natalenko(3) Dominique Marion Alexander E. Natalenko Gennady N. Timchenko Member Independence Board of Directors Audit Committee Remuneration and Nomination Committee Strategy Committee Alexander E. Natalenko Andrei I. Akimov 10/10 10/10 10/10 9/10 4/4 4/4 4/4 4/4 Tatiana A. Mitrova Dominique Marion Robert Castaigne Arnaud Le Foll independent independent Audit Committee audit report of the Company’s activities for the year end; The primary function of the Audit Committee is control over financial and operating activities of the Company. In order to assist the Board in performing control functions the Committee is responsible for but not limited to evaluating accuracy and completeness of the Company’s full year financial statements, the candidature of the Company’s external auditor and the auditor’s report, and the efficiency of the Company’s internal control procedures and risk management system. 10/10 9/10 4/4 4/4 5/5 5/5 • reviewed the risk register of NOVATEK Group; 4/4 4/4 • reviewed the reports on compliance with the Information Policy and Anti-corruption policy; Leonid V. Mikhelson Victor P. Orlov(1) executive 10/10 4/10 independent 1/4 2/5 • reviewed quarterly financial indicators of the Company; Gennady N. Timchenko 10/10 • approved the reports on the activities of the Company’s Internal Audit Department for the first six months and full year; The Audit Committee works actively with the Revision Commission, the external auditor and the Company’s executive bodies, inviting NOVATEK’s managers responsible for the preparation of the financial statements to attend the Committee meetings. • made recommendations to the Board of Directors on approval of the Company’s Annual report and Internal Audit Plan; • made recommendations on the Company’s Auditor nominee and amount of remuneration; In corporate year 2021, the Audit Committee met 4 times, including 3 meetings in presentia, where: • considered the conclusion of the Internal Audit Department on assessing the reliability and effectiveness of the risk management system, internal control system, and corporate governance; • held two meetings with the Company’s external Auditor to discuss the Audit Plan and review an 2. The Chairwoman of the Remuneration and Nomination Committee since 07 December 2021, the member of the Committee until 07 December 2021. 3. Since 07 December 2021. 1. The powers of the elected member of the Board of Directors Victor P. Orlov were prematurely terminated on 23 August 2021 due to his premature death. Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 64–65 • preliminarily reviewed and made In corporate year 2021, the Remuneration and Nomination Committee met 5 times, including 2 meetings in presentia, where: Strategy Committee Subcommittee on Climate and Alternative Energy (within Strategy Committee) recommendations to the Board of Directors on approval of a new edition of NOVATEK’s Regulations on Risk Management and Internal Control System; and The primary functions of the Strategy Committee are the determination of strategic objectives of the operations and control over the implementation of the strategy, as well as recommendations on the dividend policy. In July 2021, the Board of Directors established a Subcommittee on Climate and Alternative Energy (Subcommittee) within the Board’s Strategy Committee. The dedicated Board Subcommittee will facilitate regular in-depth reviews of NOVATEK’s climate strategy implementation and submit timely proposals on climate mitigation and abatement for consideration by the Board of Directors. • reviewed NOVATEK’s 2020 Sustainability Report and recommended for approval by the BoD; • considered other issues within the competence of the Audit Committee. • reviewed NOVATEK Group’s 2020 HSE performance report; In carrying out its responsibilities and assisting the members of the Board in discharging their duties, the Strategy Committee is responsible for but not limited to: Remuneration and Nomination Committee • made recommendations in accordance with NOVATEK Group’s Executive Bodies and Other Key Employees Remuneration and Expense Reimbursement Policy; The primary functions of the Remuneration and Nomination Committee is the development of an efficient and transparent compensation practice of members of the Company’s management, enhancement of the professional expertise, improvement of the Board of Directors’ effectiveness, and preparation of recommendations for the Company’s Board of Directors for decisions making to determine priority areas of activity in sustainable development, industrial safety, environmental protection, climate impact, corporate governance and social activities. In order to assist the Board, the Committee performs the following functions: The Subcommittee will review various aspects of the Company’s business operations and develop recommendations for the Board on the Company’s strategy on climate and decarbonization issues, development of renewable energy sources and the potential production of low carbon fuels, including hydrogen. • evaluating the effectiveness of the Company’s operations in the long-term; • reviewed NOVATEK’s HR management policy performance report in 2021; • preliminarily reviewing and making recommendations on the Company’s participation in other organizations; • reviewed the report on NOVATEK’s social performance in the regions where the Company operated in 2021; • assessing voluntary and mandatory offers to acquire the Company’s securities; In corporate year 2021, the Committee met 4 times, including 3 meetings in presentia, where: • made recommendations to the BoD to form the BoD’s Committees in accordance with recommendations of the Corporate Governance Code a well as information about members of the BoD; • considering the financial model and business valuation of the Company and its business • reviewed principles and criteria for selecting projects on renewable and alternative energy; segments in order to make recommendations to the Board of Directors in making decisions on the definition of business priorities of the Company; • presented status update on the low-carbon ammonia project implementation as part of NOVATEK’s hydrogen energy business development; • develop and regularly review the Company’s policy on remuneration of the members of the Board of Directors, members of the collective executive body and the sole executive body of the Company, oversee its implementation and realization; • made recommendations to the General Meeting of Shareholders on remuneration to the BoD members; • providing recommendations to the Board of Directors on transactions subject to approval by the Board of Directors; and • presented status update on the Sabetta wind farm project implementation as part of NOVATEK’s renewable energy business development; • held a meeting with representatives of OOO PricewaterhouseCoopers Advisory to review information on the upcoming external assessment of the activities of the Board of Directors and Committees; • providing recommendations to the Board of Directors with respect to the Company’s policy on the use of its non-core assets. • preliminarily assess the work of the executive body of the Company for the year in accordance with the Company’s remuneration policy; • reviewed status update on the efforts to achieve NOVATEK’s environmental and climate targets until 2030; In corporate year 2021, the Committee met 4 times, including 3 meetings in presentia, where: • annual detailed and formalized performance self-appraisal or external appraisal of the Board of Directors and its members, as well as of BoD Committees, determination of the priority areas for reinforcing the Board of Director’s composition; • reviewed the report on external appraisal of NOVATEK’s Board of Directors and BoD Committees’ Performance; • made recommendations regarding the amount and form of dividend payment for the first half and full year 2020; • reviewed status update on CCS project implementation in Yamal as part of NOVATEK’s LNG and gas chemical decarbonization (carbon footprint reduction) projects development; and • preliminarily reviewed and made recommendations to the Board of Directors on approval of the Company’s Human rights Policy; and • reviewed information on the implementation of the Corporate Strategy of PAO NOVATEK for the period up to 2030 in terms of: • interaction with shareholders, which shall not be limited to major shareholders only, with a view to generate recommendations to the shareholders with respect to voting on the election of • reviewed NOVATEK’s LNG marketing strategy amid the advancing climate agenda: green LNG, global emissions trading, EU taxonomy. • considered other issues within the competence of the Committee. – analysis of domestic and international markets, logistics, risks and their assessment, targets; nominees to the Company’s Board of Directors; – implementation of the Arctic LNG 2 project; – status and preparation progress of the hydrocarbon resource base for the Arctic LNG 1 project; and • plan appointments of members of the executive body and the sole executive body on the base of continuity principles; – development of the NSR: the status of development of icebreaking and tanker fleets; • supervision over disclosure of information on the Company’s shares owned by the members of the Board of Directors and Management Board, and other key management employees; and • preliminary reviewed and made recommendations on the approval of the main parameters of NOVATEK’s business plan (consolidated) for 2022, including sensitivity analysis of the business plan for 2022 depending on macro parameters; and • annual review reports on industrial safety, environmental protection, climate impact, corporate governance and social activities, as well as review the Company’s Sustainability Reports. • considered other issues within the competence of the Committee. Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 66–67 Management Board Remuneration to Members of the Board of remuneration for the performance of its functions in the amount of RR 30 million per corporate year. Directors and Management Board NOVATEK’s Management Board is a collegial executive body responsible for the day-to-day management of the Company’s operations. The Management Board is governed by the laws of the Russian Federation, NOVATEK’s Articles of Association, resolutions of the General Meetings of Shareholders and the Board of Directors and by other internal documents. More information regarding the Management Board’s competence is provided in NOVATEK’s Articles of Association. Members of the Board of Directors are also paid remuneration for attending the meetings of the The procedure for calculating the remuneration and compensations to members of NOVATEK’s Board of Directors is governed by the Regulations on Remuneration and Compensations payable to members of NOVATEK’s Board of Directors approved by the Annual General Meeting of Shareholders (Minutes No. 122 of 24 April 2015) with subsequent changes made by the decision of the Annual General meeting of shareholders on 23 April 2019. According to the Regulations the remuneration consists of the following types: Board of Directors in the maximum amount of RR 4.5 million per corporate year and remuneration for attending the meetings of the committees of the Board of Directors in the maximum amount of RR 3 million per corporate year. The Board members are also compensated for travel and lodging expenses related to implementation of their functions as NOVATEK’s Board of Directors’ members. Members of the Management Board are elected by the Board of Directors from among the Company’s key employees. The Management Board is subordinated to the Board of Directors and the General Meeting of Shareholders. The Chairman of the Management Board is responsible for leading the Board and ensuring its effectiveness as well as organizing the Management Board meetings and implementing decisions of the General Meeting of Shareholders and the Board of Directors. The Management Board was elected by the Board of Directors on 25 August 2017 (Minutes No. 198 of 25 August 2017) with further amendments by resolution of the Board of Directors on 12 July 2018, 21 September 2018, 14 November 2018, 14 December 2018, 19 March 2019, 02 November 2020, 17 December 2021. The procedure for and criteria of calculating remuneration to the Chairman and members of NOVATEK’s Management Board, as well as the compensation of their expenses, are prescribed in the Regulations for the Management Board, the NOVATEK group Executive Bodies and other Key Employees Remuneration And Expense Reimbursement Policy (approved by the BoD on 17 December 2019, Minutes No. 226 of 17 December 2019) and the employment contracts they sign with the Company. • fixed part of remuneration; Management Board Members from 1 January 2021 to 31 December 2021: • remuneration for attending the Board of Directors meetings; and • Leonid V. Mikhelson – Chairman • Vladimir A. Kudrin – Deputy Chairman of the Management Board – Director for Geology (elected on 17 December 2021) • remuneration for attending the meetings of the committees of the Board of Directors. • Lev V. Feodosyev – First Deputy Chairman The fixed part of remuneration to a Board member constitutes RR 15 million per corporate year. The Chairman of the Board of Directors is paid a fixed • Evgeniy N. Ambrosov – Deputy Chairman of the Management Board – Director for Marine Operations, Shipping and Logistics • Tatyana S. Kuznetsova – Deputy Chairman of the Management Board • Denis B. Solovyоv – Deputy Chairman of the Management Board – Director of Information Policy Department • Vladimir A. Baskov – Deputy Chairman of the Information on remuneration of members of NOVATEK’s Board of Directors and Management Board in 2021, RR mln Management Board Board of Directors(1) Management Board • Viktor N. Belyakov – Deputy Chairman of the • Sergey G. Solovyov – Deputy Chairman of the Management Board – Director for Prospective Projects (since 17 December 2021; until 17 December 2021 Deputy Chairman of the Management Board – Director for Geology) Management Board for Economics and Finance Total paid, including: 192.6 — 3,295.3 1,036.0 2,259.3 — • Eduard S. Gudkov – Deputy Chairman of the Salaries Management Board Bonuses — • Mark A. Gyetvay – Deputy Chairman of the • Ilya V. Tafintsev – Deputy Chairman of the Fees 192.4 0.2 Management Board Management Board Other property advancements — • Evgeny A. Kot – Deputy Chairman of the Management Board – LNG Director (the authorities were terminated on 17 December 2021) • Sergey V. Vasyunin – Deputy Chairman of the Management Board – Operations Director Risk Management and Internal Control System The Company’s RMICS is implemented on a constant basis and covers all levels of corporate governance, areas of activities and business processes in all NOVATEK structural and standalone units. Risk Management and Internal Control System Model The Company’s RMICS functioning implies the involvement of all levels of corporate governance in the activity for timely risks and discrepancies identification and management and includes the alignment of RMICS at strategic and tactical management levels as well as ensuring independent evaluation and oversight over the RMICS functioning (see the table below). The Company has a comprehensive Risk Management and Internal Control System (RMICS) aimed at protecting assets, improving business processes, enhancing operational efficiency and complying with applicable laws and regulations. Timely identification of discrepancies and sources of inefficiency, analysis and forecasting of future scenarios, development of measures to prevent or reduce risks impact contribute sufficiently to achieving the Company’s operational and strategic goals. 1. Some members of NOVATEK’s Board of Directors are simultaneously members of the Management Board. Payments to such members in relation to their activities as members of the Management Board are included in the total payments to members of the Management Board. Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 68–69 NOVATEK’s Risk Management and Internal Control System model Internal Audit Division Organizational Independence Internal Audit Division is: In order to assist the Company’s Board of Directors and its executive bodies in preserving and increasing the value of the NOVATEK Group, the NOVATEK Internal Audit Division performs objective internal audits based mainly on the risk-oriented approach. Strategic governance • functionally subordinated to the Board of Board of Directors Board of Directors Audit Committee • Oversight over RMICS reliability and efficiency Directors, which, among other things, approves the Internal Audit Policy and the Internal Audit Division Working Plan; and • • Approval of RMICS policy Recommendations on RMICS improvement The internal audit function in NOVATEK is centralized. • administratively subordinated to the sole executive body, the Chairman of the Management Board, who facilitates the implementation of the Internal Audit Policy and internal audit activities. Tactical management 1st Line Owners of business processes and controls In its activities, the Internal Audit Division is guided by the applicable laws of the Russian Federation, NOVATEK’s internal documents and International Standards for the Professional Practice of Internal Auditing. The main document regulating internal audit activities is NOVATEK’s Internal Audit Policy, in which the Board of Directors defined the internal audit’s goals, objectives, functions and powers, as well as the internal audit’s place in the Company’s organizational structure. Management Board, Chairman of the Management Board Day-to-day risk management • Risk management in structural units and at facilities by business functions To efficiently perform the internal audit function: • • Establishment and maintenance of RMICS Arrangement of actions to identify and assess risks and develop RMIC actions by business streams and processes • the Internal Audit Division is provided unimpaired access to any assets, documents, accounting entries and other information related to the activities of the NOVATEK Group; and 2nd Line Risk Control Division and Controlling Units Internal control and support • Coordination and operational control over risk management, assessment of efficiency of the risk management activities Development of RMIC methodology, compliance, training • the Internal Audit Division head may directly approach the Chairman of the Board of • Updates to the Board of Directors on the RMICS results • Directors, the Chairman of the Audit Committee and the Chairman of the Management Board. Independent assessment and supervision Revision Commission External audit 3rd Line Internal Audit Division Internal audit • Assessment of RMICS reliability and efficiency Administrative reporting Key documents governing NOVATEK’s RMICS(1) Board of Directors Supplier Code of Conduct Regulations on Risk Management and Internal Control System Insider Information Access and Distribution Policy Anti-Corruption Policy Internal Audit Policy Chairman of the Management Board Audit Committee Code of Business Ethics Human Rights Policy The main RMICS principles and approaches, goals and targets, participants obligations and cooperation procedures are regulated by the Regulations on NOVATEK Risk Management and Internal Control System approved by the Board of Directors. organizing the RMICS, as well as the changes in the Company’s organization structure. Internal Audit Division In order to implement the Regulations on NOVATEK RMICS, the Company developed Internal Documents, governing various aspects of the RMICS functioning, including internal audit, combating corruption, compliance with business ethics, control over insider information distribution, processing and use of personal data, etc. Most of the documents are available at the Company’s official website. The 2021 updated version of the Regulations on NOVATEK RMICS (BoD meeting Minutes No. 247 of 27 August 2021) takes into account the best international practices used in the Company, Russian Central Bank’s recommendations on Functional reporting 1. The list includes only the main high-level policies and does not include Internal Regulations on individual aspects of RMICS, developed pursuant to these documents. Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 70–71 Activities in the reporting period Risk Management System Risk Insurance All of NOVATEK’s insurance programs are implemented with the engagement of major In 2021, the Internal Audit Division carried out its activities based on the annual plan prepared using mainly risk-oriented approach and approved by the Board of Directors after preliminary review by the Audit Committee. The Internal Audit Division monitored the implementation of recommendations to eliminate the risks identified by internal audits and improve the internal control system. NOVATEK has built a risk management system to ensure sustainable development in the context of uncertainty and ambiguous environment, which involves systemic assessment and response to all risks that may hinder the achievement of the Company’s goals. Given the scale of operations and complexity of the projects being implemented, NOVATEK extensively applies compulsory and voluntary insurance programs, described in the table below. Russian and international insurance and reinsurance companies with trustworthy reputations and high ratings. In 2021, no insured major accidents or incidents occurred. The Company’s risk management system implies identifying and quantifying risks, designing activities to prevent or mitigate the adverse effects of possible risk materialization, and an ongoing monitoring of the implementation thereof during the year. In 2021, the Internal Audit Division monitored the hotline for Code of Business Conduct and Ethics compliance and, from December 2021, the hotline for Human Rights Policy compliance. Property Damage and Business Interruption (PD/BI) insurance program Investment projects risks insurance programs Includes insurance coverage for property, inter alia risk of mechanical failures, and business interruption with respect to the Group's key assets, with the view to mitigat- ing the consequences of possible accidents and loss of profit Comprehensive insurance programs for major projects (such as Yamal LNG, Arctic LNG 2, etc.) across the project's lifecycle stages (engineering, exploration and production, construction, operation, transportation of finished products) As the third element of the risk management and internal control system, internal audit annually evaluates the system reliability and efficiency. Based on the 2021 performance, the Internal Audit Division issued an opinion on the reliability and efficiency of the RMICS, which is referred by the Federal Law “On Joint Stock Companies” to information (materials) to be provided to persons entitled to participate in a general meeting of shareholders. Risk management is an integral part of the Company’s operational and strategic planning process and is carried out in accordance with the principles and approaches established by the RMICS Regulations and other internal regulations, which detail the following aspects of the risk management process: 1. risk identification; 2. risk classification; The results of the NOVATEK Internal Audit Division work in 2021 were reviewed by the Audit Committee comprised of independent directors who recognized NOVATEK’s internal audit performance in 2021 as efficient. 3. risk assessment; Liability insurance program for owners of HPF and vehicles Third-party and environmental liability insurance program 4. risk management practices; and Includes assessment and insurance of liability risks in the operation of HPF and vehicles of the Company (injuries and death from incidents and accidents) Third-party liability and environmental pollution insurance program, including against personal injury or property damage to third parties and environmental damage as a result of incidents at the Company's facilities 5. control over risk management activities and their development. Internal and external quality assessment To describe risks, the Company uses risk maps that systematize the risks of all business processes and business lines of the Company which may create threats to the achievement of the Company’s goals over a period of 1-3 years. The Internal Audit Division implements a program to assess and improve the quality of the internal audit function, whereby: • internal quality assessment is performed annually; and The Company regularly informs the Management Board and the Board of Directors about the results of risk management activities. • an independent external quality assessment is performed once every five years. Property damage insurance program Well insurance program The Additional Information section of this report contains a list of the Company’s key risks and an overview of measures to prevent/mitigate the negative impact of these risks on the Company’s business. In 2018, the Internal Audit Division initiated the first independent external assessment. The initiative was supported by executive management and the Audit Committee. The assessment by EY identified the compliance of NOVATEK’s Internal Audit Division activities with International Standards for the Professional Practice of Internal Auditing (Certificate dated 22 March 2019). Insurance program for non-production facilities (administration buildings, accommo- dation camps and other social infrastructure facilities) The Group's producing subsidiaries and affiliates procure control of well insurance as well as insurance against risks of damage to drilling equipment Coordination of activities with other parties Directors and officers (D&O) liability insurance program Marine risks insurance program The Internal Audit Division interacts with an external auditor in sharing information related to working plans, inspection results and other matters of relevance. To improve the efficiency and optimize the costs, the Internal Audit Division employees serve on the revision commissions of the Company affiliates. Insurance for senior executives and the Group's liability and in case of third-party claims related to improper actions or deci- sions by the management bodies Insurance of finished products and project cargoes during transportation, marine hull and machinery insurance, ship owner's and charterer's liability insurance Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 72–73 Business continuity plans Company operates. The commitment to maintaining Business Ethics Compliance Directors regarding the candidatures of external auditors and the price of their services. Based on the Committee’s recommendations, the Board proposes the auditor’s candidature for the consideration and for approval by the Annual General Meeting of Shareholders. advanced legal and ethical standards is the Company’s corporate governance standard, which applies not only to the Company’s employees, but also to all partners with whom the Company interacts. In addition to the requirements under Russian legislation for regular identification and control of risks at hazardous production facilities, since 2018 the Company develops business continuity plans for large production facilities. The purpose of developing continuity plans is to secure rapid recovery of production processes by implementing previously developed measures and procedures for staff interaction to mitigate consequences of accidents at the key Company’s facilities. The development of business continuity plans covers all of the Group’s subsidiaries and joint ventures and continued on a systematic basis in 2021. In order to comply with the Code of Business Conduct and Ethics approved by the Board of Directors (Minutes No. 133 of 24 March 2011), any interested person can report known violations to the following address: ethics@novatek.ru, or by other means of communication indicated on the Company’s website. All queries related to ethics issues are received by the Internal Audit Division. Supplier Code of Conduct for NOVATEK Group suppliers includes the principles of business transparency and integrity, business ethics and sustainable development which NOVATEK’s suppliers are expected to follow. AO PricewaterhouseCoopers Audit (an internationally recognized audit firm) was chosen as the Company’s external auditor to conduct the audit of the annual financial statements for 2021 under RAS, as well as independent reviews of the Company’s quarterly consolidated financial statements and audit of the annual consolidated financial statements under IFRS and Sustainability report. Queries through the 24/7 hotline are also available at ethics@novatek.ru for any problems or concerns about human rights violations. NOVATEK guarantees confidentiality and the prevention of pressure or influence measures against a person who has reported such violations conscientiously. NOVATEK’s Human Rights Policy formalizes the Company’s position on human rights and incorporates all the fundamental principles, including respect for human dignity, providing safe working conditions, non-discrimination, as well as respect for the rights, distinctive culture, and customs of local communities, including indigenous minorities. In selecting the auditor’s candidature, attention is paid to the level of their professional qualifications, independence, possible risk of any conflict of interest, terms of the contract, and the amount of remuneration requested by the candidates. Revision Commission Compliance with Law Requirements The Revision Commission consisting of four members is elected at the Annual General Meeting of Shareholders for a period of one year. The competence of the Revision Commission is governed by the Russian Federation Law On Joint Stock Companies No. 208-FZ dated 26 December 1995 as well as the PAO NOVATEK Articles of Association and the Regulations on the Revision Commission Procedures approved by the General Meeting of Shareholders in 2005 (Minutes No. 95 of 25 March 2005) for the matters which are not set out in the aforementioned law. NOVATEK’s activities are based on the fundamental principle of full compliance with the norms and requirements established by Russian legislation, international legislation and all international treaties and agreements. Compliance with Anti-Corruption Laws The Audit Committee oversees the external auditor’s independence and objectivity as well as the quality of the audit conducted. The Committee annually provides to the Board of Directors the results of review and evaluation of the audit opinion regarding the Company’s financial statements. The Audit Committee meets with the auditor’s representatives at least twice per year. NOVATEK believes that one of the most important conditions for sustainable business development is strict compliance with applicable anti-corruption laws. As part of RMICS, the Company continuously implements control procedures to ensure compliance with applicable laws in all areas of the Company’s operations and disclosure of information about the Company’s activities as required by law. The Anti-Corruption Policy, approved by the Board of Directors, is in place since 2014(Minutes No. 170 of 1 September 2014). The Company hereby declares that it rejects unlawful business practices and assumes anti-corruption obligations in all areas of its activities and in its interaction with partners. NOVATEK’s management is aware of and accepts recommendations on the independence of the external auditor by restricting such auditor’s involvement in providing non-audit services. The Revision Commission is an internal control body responsible for oversight of the Company’s financial and business activities. The Revision Commission performs audits of the Company’s financial and business performance for the year, as well as any other period as may be decided by its members or other persons authorized in accordance with Russian Federation law and the Company’s Articles of Association. The results are presented in the form of findings by the Revision Commission. External Auditor The Company develops and implements best international and Russian anti-corruption practices, analyzes potential corruption-related risks on a regular basis, and implements the required internal control procedures to prevent corruption. Given the importance of compliance with anti-corruption laws for the Company’s reputation as an honest and reliable partner, NOVATEK regularly trains its employees in the Anti-Corruption Policy norms and the Company’s ethical values. The Annual General Meeting of Shareholders approved an external auditor to conduct independent review of NOVATEK’s financial statements. The Audit Committee gives recommendations to the Company’s Board of In accordance with auditing standards, in order to maintain independence, the Company’s External Auditor regularly rotates its key audit partner, at least once every seven years. The previous key audit partner was rotated in 2018. Auditor’s fees in 2021, RR mln In March 2022, the Revision Commission completed the on-site audit revision of financial and business activities of the Company for the year 2021. As a result, the conclusions about the reliability of the data contained in the Company’s 2021 Financial Statements (under the Russian accounting standards), 2021 Annual Report and Report on interested-party transactions were prepared and submitted to the Annual General Meeting of Shareholders. Audits of PAO NOVATEK (audit of the Group’s consolidated financial statements and audit of statutory financial statements of PAO NOVATEK) 38 The Company also has a security hotline (https:// www.novatek.ru/en/about/Hotline/), which any employee, counterparty or other stakeholder can contact to report any facts or signs of corruption in relation to any aspect of the Company’s activities. Following each report, an internal investigation is arranged within the Company, with relevant mitigation actions taken. Other services 11 Total auditor’s fees and services 49 The Company ensures regular provision of information to the Board of Directors on the results of activities aimed at compliance with Anti-Corruption Policy and about all the reports submitted to the Security Hotline. Corporate Ethics and Compliance In performing its operations and interacting with partners, NOVATEK focuses on compliance with ethical standards and ensuring that its activities comply with the laws of the countries where the Annual Report 2021. Constructing future energy transition today Management and Corporate Governance 74–75 Share Capital The Federal Financial Market Service issued to Dividends of Directors consider the current competitive and financial position of the Company, as well as its development prospects, including operating cash flow and capital expenditure forecasts, financing requirements, debt servicing and other such factors as it may deem relevant to maintaining financial stability and flexible capital structure of the Company. NOVATEK is strongly committed to its dividend policy. NOVATEK a permit for circulation of shares beyond the Russian Federation of 910,589,000 ordinary shares comprising 29.99% of the Company’s share Our share capital is RR 303,630,600 and consists of 3,036,306,000 ordinary shares, each with a nominal value of RR 0.1. As of 31 December 2021, NOVATEK did capital. not have preference shares. The Company’s Dividend Policy is regulated by the Regulations on Dividend Policy of PAO NOVATEK, with its new amendments approved by the Board of Directors on 18 December 2020 (Minutes No. 236 of 18 December 2020). The new Dividend Policy increased the minimum target payout level from 30% to 50% of the adjusted consolidated net profit according to the International Financial Reporting Standards (IFRS), considering sustainably strong operating and financial results as well as significant growth in the scale of the Company’s operations. The changes are aimed at strengthening NOVATEK’s investment case and increasing total shareholder returns. Our Global Depositary Receipts (GDR) are listed Our shares are traded in Russian roubles on the Moscow Exchange and have a first grade listing (symbol: NVTK). on the London Stock Exchange (symbol: NVTK), with each GDR representing 10 ordinary shares. As of 31 December 2021, NOVATEK’s GDRs were issued on 530,043,850 ordinary shares comprising 17.46% of the Company’s share capital. On 18 March 2022, the Board of Directors of PAO NOVATEK recommended to the Annual General Meeting of Shareholders to pay dividends for FY 2021 in the amount of RR 43.77 per ordinary share or RR 437.70 per one Global Depositary Receipt (GDR), exclusive of RR 27.67 of interim dividends per ordinary share or RR 276.70 per one GDR paid for the first six months of 2021. Equity stakes in NOVATEK’s share capital and the number of shares owned by members of the Board of Directors and Management Board(1) As of Equity stake Number of ordinary shares, including GDRs certifying rights of ordinary shares NOVATEK’s dividend policy is based on keeping the balance between the Company’s business goals and shareholder’s interests. A decision to pay dividends as well as the amount of the dividend, the payment deadline and form of the dividend is passed by the Annual General Meeting of Shareholders according to the recommendation of the Board of Directors. Dividends are paid twice a year. In determining the recommended amount of dividend payments to be distributed the Board Thus, should the General Meeting of Shareholders approve the recommended dividend, the dividends for 2021 will total RR 71.44 per ordinary share (RR 714.40 per one GDR), and the total amount of dividends payable for 2021 will be RR 216,913,700,640. This will represent a 101% increase in dividend per share compared to 2020. Board of Directors Alexander E.Natalenko Andrei I. Akimov 31.12.2021 31.12.2021 23.04.2021 31.12.2021 31.12.2021 31.12.2021 31.12.2021 23.08.2021 31.12.2021 31.12.2021 — — — — Michael Borrell — — Robert Castaigne Dominique Marion Leonid V. Mikhelson Tatyana A. Mitrova Victor P. Orlov — — — — Accrued and paid dividends on NOVATEK shares for the period 2016 to 2021 0.0067 202,238 Dividend Accrual Period Amount of dividends, RR per share Total amount of dividends accrued, RR Total amount of dividends paid, RR — — — — — — — — 2016 13.90 14.95 26.06 32.33 35.56 27.67 42,204,653,400 45,392,774,700 79,126,134,360 98,163,772,980 107,971,041,360 84,014,585,664 42,204,606,695 45,392,729,448 78,746,621,007 97,207,985,267 106,783,857,524 83,046,005,167 Gennady N. Timchenko Arnaud Le Foll 2017 2018 Management Board Evgeniy N. Ambrosov Vladimir A. Baskov Viktor N. Belyakov Lev V. Feodosyev Mark A. Gyetvay Eduard S. Gudkov Evgeny A. Kot 2019 31.12.2021 31.12.2021 31.12.2021 31.12.2021 31.12.2021 31.12.2021 17.12.2021 31.12.2021 31.12.2021 31.12.2021 31.12.2021 31.12.2021 31.12.2021 — — 2020 0.0288 874,408 First half 2021 — — The amount of paid dividends accrued for the years 2016 to 2020, and for the first six months 2021 is reported as of 31 December 2021. Partial payment of the accrued dividends was made due to provision by shareholders of incorrect postal and/or banking details, as well as due to the return of unpaid dividends by nominal shareholders. authorized disclosure channels and by posting such information on the Company’s website. The information is disclosed in full compliance with Russian and international legal requirements. The Company discloses quarterly financial statements in accordance with the Russian (“RAS”) and International Financial Reporting Standards (“IFRS”), Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as presentations for investors. — — — — — — — — Vladimir A. Kudrin Tatyana S. Kuznetsova Denis B. Solovyov Sergey G. Solovyov Ilya V. Tafintsev — — 0.1944 — 5,903,035 — Information Transparency NOVATEK complies with the best practices for information disclosure while adhering to a maximum level of information transparency. The Regulations on Information Policy approved by the Board of Directors as amended and restated in 2017 (Minutes No. 198 of 25 August, 2017), define main principles for disclosing information and increasing The Company’s website provides detailed information on all aspects of its activities, including our Sustainability Report. NOVATEK has been annually reporting on its GHG emissions and energy efficiency of its operations via the global Carbon Disclosure Project (CDP), as well as other industry’s publications and studies. 0.0012 0.0012 0.0003 37,660 35,000 9,320 Sergey V. Vasyunin information transparency. The Company maintains an ongoing dialog with shareholders and investors in order to ensure full awareness of investment community about its activities. The main channels of communication Material information about the Company is disclosed in a timely manner in the form of press releases and notification of material facts through 1. The equity stakes are given based on the records in the register of NOVATEK’s shareholders and notification received from members of the Board of Directors and Management Board, in accordance with the Russian Federation laws. Annual Report 2021. Constructing future energy transition today Additional Information 76–77 with the investment community are through the Last year, there was a significant increase in the number of public events that covered the Company’s operations. A large-scale press tour for the Russian and international mass media journalists was arranged to visit the operation sites of the LNG Construction Center and Arctic LNG 2. During the Contractors and Suppliers Forum held at LNG Construction Center in Murmansk, a tour and a press conference for journalists were arranged, which made it possible to talk about the progress of the LNG Construction Center construction and the Arctic LNG 2 prospects. Visits of regional and federal media to the Company’s production facilities in the Murmansk Region and the Yamal- Nenets Autonomous Region were organized. A series of public events with participation of the Chairman of the Management Board were held, including media briefings, online speeches, in- person signing ceremonies with partners. Chairman of the Management Board, Deputy Chairman and the Investor Relations department. The Company’s representatives meet on a regular base with key financial audiences to discuss issues of interest to them. Additional Information In 2021, the effective implementation of the Regulations on NOVATEK Information Policy allowed NOVATEK to build a steady goodwill as Russia’s largest independent natural gas producer and one of the global leaders in LNG production. Key business risks Criticality of risk The Company’s business is associated with operating in complex and rapidly evolving environments. The Company’s ability to achieve its targets and ambitions is maintained through timely risk identification, assessment and management. High Medium Low Pursuant to the information policy principles, NOVATEK is actively involved in relations with federal, international and regional media. Following the 2021 results, there were more than 78 thousand publications about the Company, which is a 30% increase year on year. Beyond that, the number of publications in federal mass media increased significantly and reached 66% (compared to 57% in the previous year), which testifies to the strengthening of the NOVATEK’s position in the media space. 25% of all pieces were publications in local media, and 9% came from the international media. The criticality of risk is an integral indicator of the risk impact on the Company’s operations, including the combined impact of current forecasts of the probability of risk and a quantitative assessment of the consequences of its implementation. It is calculated based on the internal risk assessment methodology used by PAO NOVATEK. The table below represents NOVATEK’s key business risks, which may have the most significant impact on the achievement of the Company’s operational and strategic goals, the operation of the Company’s business model and the shareholder value generation, with its estimated potential impact on the Company’s operations. The active interaction with federal, local and international journalists made it possible to increase significantly the quality of the Company positioning in the media. The following corporate periodicals are published to position the Company and inform its employees, their family members and third parties of the Company activities: the NOVATEK newspaper and the NOVATEK PLUS magazine, containing materials on production plans and results as well as on cultural, sports and charity programs and projects. Risk Risk causes and consequences Actions to mitigate risk impact The news topics included Yamal LNG and Arctic LNG 2 projects development, LNG Construction Center construction progress, as well as the Company’s active involvement in the Arctic exploration, expanding of the navigation window via the NSR, LNG transshipment terminals OPERATIONAL RISKS Process risks • • Risks of property damage and The Company continuously monitors the compliance with business interruption due to accidents at key production facilities Russian laws related to industrial safety and control over process parameters of machines and equipment across all production sites and industrial facilities of NOVATEK’s entities. construction in Kamchatka and Murmansk, entering new sales markets, localization of production and cooperation with Russian manufacturers of equipment for LNG plants. In addition to traditional production-related topics, great attention in 2021 was given to news related to the ESG agenda. In the Company’s strategy for the period up to 2030, sustainable development is one of the key elements. NOVATEK continues its work to reduce the Company’s carbon footprint, reduce GHG emissions at its facilities, provide consumers with cleaner energy and produce low- carbon products. The ESG topics in the Company’s business were widely covered in the media. The main NOVATEK news are published on the Company’s official website and intranet portal. For interaction with public, NOVATEK makes use of up-to-date channels of information dissemination through social media. The Company keeps its accounts in English and Russian on Facebook, VKontakte, Twitter, Instagram, and Youtube, Telegram where the channel subscribers stay updated on the Company’s activities and its projects’ implementation. Around 850 publications were posted in the Company’s accounts in 2021. At year-end, the number of subscribers was 40,593 people (year on year growth is over 20%). Over 12,000 posts and comments with references to the Company were published in social media in the reporting period. Risks of damage to third In compliance with OHSAS 18001:2007 and ISO 45001:2018, the Company has developed and deployed an integrated safety parties, life or health of the Company’s employees during management system, which is used to implement approaches operation of hazardous production facilities and action plans based on international standards to mitigate incident and accident risks for the purposes of reducing potential losses and avoiding occupational health risks. • Risks of damage to third parties during operation of vessels and other production incident response. Each of the Company’s entities has internal facilities The Company’s Central Dispatch Office enables prompt regulations and standards for prevention and containment of accidents and emergency situations (Emergency Containment Action Plans, Oil Spill Response Plans, etc.) and undergoes regulatory inspections for compliance with OHS requirements. When engineering and developing of new facilities and projects, the Company uses technology and equipment with high reliability and safety indexes for accident risk avoidance. In 2021, the qualitative indicators of media activity improved with the nature of publications about the Company taking a more positive tone. The number of positive publications rose by 19%. This resulted from the focused efforts to highlight the prospective projects, ESG topics, in particular, decarbonization. High citation index (14%) testifies to the weight of the Company’s and its speakers’ opinion in the media. In order to mitigate the risk of damage to third parties and potential damage or interruption of operations due to accidents, the Company uses insurance covering a wide range of areas: damages and business interruption, cargo transportation, liability, etc. The Company develops and implements business continuity plans enabling prompt accidents containment and recovery. Annual Report 2021. Constructing future energy transition today Additional Information 78–79 Risk Risk causes and consequences Actions to mitigate risk impact Risk Risk causes and consequences Actions to mitigate risk impact Environmental risks • Risks of impact on (damage to) the environment and biodiversity in the course of the Company’s operation and operations on the environment. as a result of accidents at production facilities The Company has an environmental management system according to ISO 14001:2015 to ensure rational use of resources and minimize potential adverse effects of the Company’s • Risks associated with the global Energy Transition and international efforts to combat climate change (changes in value chains due to the transition to a low-carbon economy, renewables, changes in The introduction of carbon policies in Russia and in the EU may entail incremental costs for the Company to meet the requirements. The Company monitors carbon initiatives as they are being adopted, in order to remain aware of the requirements of policymakers and customers of the Company. The Company has developed a procedure to notify and coordinate subdivisions in the event of emergency situations In 2020, the Company committed to 2030 environmental targets aiming to reduce man-made climate impact across • Risks of stricter environmental in order to prevent damage to production facilities and the laws and new policies environment. demand and requirements of the globe. In 2021, the action plan to achieve these targets customers for the Company’s was being implemented. The Company has a corporate greenhouse gas emission management system, which provides for incorporation of accounting, monitoring and emission mitigation planning into the Integrated Management System. The Company develops a GHG emission reporting system and uses efficient modern technologies for emission reduction during production, processing and transportation of hydrocarbon gases and liquids, natural gas liquefaction, power generation and other processes. products, etc. (transition risks) Force Majeure risks (terrorism, mass epidemics) • • Risks of business interruption/ The Company has put in place action plans to prevent terrorist damage due to terrorist attacks at the Company’s upstream and transportation comprehensive inspections of counter terrorist security of the facilities threats at production facilities, transportation facilities and general infrastructure. Russian supervisory authorities conduct Company’s facilities on a regular basis. Risks associated with to the COVID-19 pandemic (maintaining occupational health and uninterrupted operation of facilities, ensuring compliance with regulatory requirements to working remotely, coping with global demand fluctuations, etc.) For the purposes of maintaining occupational health and uninterrupted operation across the Company’s entities in the face of the spread of COVID-19, in 2021 the Company continued to implement the action plans and fulfill the orders of Russian authorities aiming to prevent the spread of the coronavirus infection, including: When preparing and executing its large-scale projects, including all LNG projects, the Company always analyzes and implements actions to prevent and mitigate potential impact of the Company’s operations on local ecosystems in regions and areas where the Company operates in order to prevent damage to vegetation, soil, air, and animals. • regular testing of the Company’s employees in order to promptly detect and prevent the spread of the infection; monitoring the health of rotational workers; encouraging vaccination and promoting mass immunity among employees; In 2020, the Company’s Board of Directors approved its environmental and climate targets to 2030, including CO2 emission reduction, utilization of associated petroleum gas, and waste disposal. • • • • • • organizing remote work for employees; providing employees with PPE; In 2021, the Company was searching for and developing engineering solutions to reduce greenhouse gas emissions in line with the 2030 emission reduction targets. online monitoring of infection cases dynamics; and complying with the orders of local authorities with regard to employees’ work mode, etc. In 2020, the Company also joined the International Methane Guiding Principles initiative (MGP), whereunder many actions have been taken during 2021. Despite the relative recovery of the global economy from the year 2020’s coronavirus epidemic, COVID-19 was still causing a major impact across the globe in 2021. In 2021, the Company continuously monitored the epidemiological situation and responded promptly to any changes. To reduce environmental risks, the Company uses insurance covering risks of damage to the environment in case of accidents. Vendor and contractor risks • Risks of not meeting the deadlines for maintenance The Company has implemented comprehensive approaches to control the quality and timing of the counterparties’ and commissioning capacities performance of their obligations under goods, materials Climate risks • • Risks associated with All entities continuously monitor temperatures, speed and operating in adverse weather strength of wind and other factors to maintain safe operation due to the failure by counterparties to perform their obligations (quality and timing of materials and equipment supply, works execution and services provision) and equipment supply contracts, construction contracts, and service agreements, including inspections of fabrication plants during equipment manufacturing and testing, as well as offloading control and incoming inspection at the Company facility. conditions of the Far North (low temperatures, ice navigation, polar night and day, etc.) and occupational health in the Far North. Project cargoes and end products are delivered to customers using ice class vessels taking into account weather and ice conditions. Permafrost soils are monitored during engineering and operation of production facilities. Works are performed using piling technologies with thermal stabilization of soil. The risks of air temperature rise and permafrost thawing are being analyzed on a regular basis and relevant mitigation plans are being developed. Risks of the negative impact of climate change on the Company’s business (global warming, rising sea-levels, increased number of hurricanes and floods, increase in ambient temperature and other climate anomalies (physical risks)) To eliminate the risks of contracting unreliable suppliers and vendors, the Company has introduced a procedure to qualify counterparties against the criteria of reliable performance of obligations, as well as financial, fiscal, and legal standing. The Company implements a long-term contracting approach • • Risks of cost increase due to procurement of materials and equipment, works and services at prices higher than towards strategic and successful counterparties. the market ones Suppliers and contractors are selected under transparent competitive procedures aimed at ensuring free access to restriction and malpractice by all participants, which makes it possible to achieve the best employees commercial terms for the contracts. To avoid the impact of climate risks on production facilities and business processes the Company uses insurance covering its production facilities and liability. Risks of the competition Annual Report 2021. Constructing future energy transition today Additional Information 80–81 Risk Risk causes and consequences Actions to mitigate risk impact Risk Risk causes and consequences Actions to mitigate risk impact • Risks of longer vessel return voyages, a disruption of The Company has implemented modern methods procurement aimed at reducing the cost of purchasing feedstock, materials At each exploration stage, the Company engages Russian and foreign experts and contractors that use modern equipment and technologies and undergo annual audit for compliance with the Company’s requirements. Quality control and analysis of the data obtained is performed by our own research and development (NOVATEK Scientific and Technical Center). marketable products offtake, and equipment, works and services, including long-term and tank tops, as well as default on obligations to buyers in terms of timely cargo delivery via the NSR contracting strategies, direct contracts with manufacturers to remove intermediaries, and conducting procurement procedures through electronic trading platforms etc. The Company’s procurement activities are organized in accordance with the applicable internal regulations, which set forth distribution of authority, corporate approval of The Company’s exploration management approaches enable cost efficient prospecting, exploration and production of hydrocarbons and annual confirmation of its resource base’s sufficiency to maintain the Company’s operations in the long term. • Risks of monopoly suppliers of transportation services (Gazprom, Transneft, Russian procurement procedures and control over the Company’s Railways) (transportation tariffs growth, access to responsible employees at all stages – from qualification of suppliers and signing contracts to provision of services and transportation infrastructure) delivery of goods, materials and equipment, to contract performance, to payment. IT and information security risks (cyber risks) • • Risks of loss of key information, integrity and stable operation of the IT To mitigate IT risks, the Company uses modern tools and technologies to ensure information security, protect confidentiality and maintain integrity and security of critical systems due to cyber attacks IT infrastructure and key data. The Company has internal documents and procedures in place across all its business The Company openly declares zero tolerance to corruption and conducts its interactions with suppliers and vendors in adherence to the rules set forth by the following NOVATEK’s documents: Risk of losses/interruption of production as a result of incidents at IT infrastructure facilities units and entities to ensure protection of infrastructure against malware, viruses, fishing, etc. The risks of unauthorized access to any IT infrastructure elements is reduced through a wide range of actions using modern equipment and software. The Company has internal regulations in place governing the use of software, protection of confidential information, organization of data access and data handling. The Company continuously monitors compliance with these regulations. • • • Anti-Corruption Policy; Code of Business Conduct and Ethics; and Supplier Code of Conduct. The Company continuously monitors the compliance with the above documents. The Company has approved the NOVATEK Group’s IT development strategy that maintains the Company’s information security at a high level in the long term. The Company uses the Northern Sea Route (NSR) for LNG and gas condensate shipping, including by ice-class carriers. To mitigate the risks related to transportation via NSR, the Company has signed long-term contracts with Atomflot, Rosmorport, and Northern Sea Route Administration to ensure necessary icebreaker support along the NSR and required that all vessels’ officers have necessary experience in ice navigation. The Company complies with all legal requirements to ensure information security of Russian strategic assets. In accordance with the requirements of Federal Law No. 187-FZ dated July 26, 2017, essential elements of the Company’s critical information infrastructure were broken down into categories and the relevant centralized information security system was designed. Each element of the security system is being constantly monitored in terms of its condition and reliability. To reduce dependence on monopoly suppliers of transportation services, the Company enters into long-term contracts and exercises ongoing control over the offtake schedule and transportation tariffs. To reduce the risks, the Company concludes agreements enabling it to use alternative methods of product transportation (an agreement with SIBUR for the supply of light hydrocarbons to Tobolsk Petrochemical Complex) and develops its own pipeline system for transporting gas condensate. Project risks • Risks of project execution delays and/or incremental project costs due to: The Company implements large-scale and ambitious projects to expand existing and build new LNG production and petroleum processing facilities in various regions of Russia. – updated or new technical legislation relating to engineering, construction and operation; The Company analyzes and develops forecasts for all stages of future projects, including risk identification and assessment as well as elaboration of action plans to manage the identified risks. The matters related to arranging financing Geological risks • • Risks of non-confirmation of commercial hydrocarbons reserves The Company makes an annual assessment and evaluation of its commercially significant reserves based on the exploration and production drilling and other research information. DeGolyer and MacNaughton (“D&M”), an independent petroleum engineers firm, validates the Company’s reserves on an annual basis under both the SEC and PRMS reserves – increasing cost of relevant and contracting of the products of the Company’s major materials, equipment, services and works; – contractors’ failure to maintain the schedule; investment project are addressed long before the project is put into operation and include detailed schedules of all stages and operational control of compliance therewith. When selecting projects, the investments are channeled only to Risks of inconsistency between the actual hydrocarbon volumetrics and reporting standards. reserves held within developed – delays in project financing, those projects that are most likely to achieve their strategic goals in the long term with risk exposure manageable by the Company. etc. fields and the simulations To reduce the risks of non-confirmation of commercial hydrocarbons reserves, the Company carries out a comprehensive analysis of the geological and geophysical data, including geotechnical simulations of the fields using state-of-the-art software and methodologies. Based on the simulations and the analysis of features of each license area or field, research plans and actions are developed to reduce the risks given the actual natural, technical and technological restrictions. • Risks of change in initial project execution plans due to changes in market conditions for the sale of the Company’s products The Company follows a strategy of LNG projects standardization and application of technical design solutions that were well-proven in the Company’s previously implemented LNG projects. The Company is focused strongly on sourcing materials and equipment as well as on selecting contractors to perform works and services. Suppliers and contractors certified by the Company are involved for project implementation. The control of compliance with the developed activity-based schedules is carried out at all stages of project implementation. The investment project implementation status is regularly reviewed by the Company’s top management. Annual Report 2021. Constructing future energy transition today Additional Information 82–83 Risk Risk causes and consequences Actions to mitigate risk impact Risk Currency risks Risk causes and consequences Actions to mitigate risk impact • The risk of changes in the Company’s budget revenue and spending on the The Company’s activities are connected with foreign currency transactions (export of products, import of foreign equipment and technologies, attract external financing raising, etc.). FINANCIAL AND MARKET RISKS Market risks • Risks of lower revenue in case The Company continuously monitors pricing environment and Company’s operations in of a drop in prices for the Company’s products in the international markets price outlooks in the international oil, gas, and LNG markets. foreign currencies as a result The Company’s overall strategy is aimed at eliminating the of changes in foreign and domestic currency exchange rates significant risk of exchange rate differences due to changes in currency exchange rates. Foreign currency transactions in the revenue and spending part of the Company’s budget, mainly in USD and EUR, counterbalance each other and are a natural mechanism for hedging currency risks. The Company may use foreign currency derivatives to manage currency risks. To mitigate the risks of falling prices, the Company implements a wide range of measures including entering into efficient sale and purchase agreements with protective pricing mechanisms (for instance, S-curves in oil-linked contracts), using derivative financial instruments (linked to European gas hubs) and entering into commodity derivative contracts for price risk hedging purposes. • • Risks associated with state regulation of prices for gas sold in Russia Risks of increased costs due to rising consumer prices in The Company also carries out operational control of all its currency transactions in order to forecast the impact of exchange rate differences on current financial results. In the short- and long-term models of the Company’s operations, a scenario analysis of the Company’s financial flow sensitivity to changes in foreign exchange rates is conducted. Russia and rising inflation rate The Company takes into account potential price volatility in the international markets by exercising prompt monitoring and relocating supply volumes, considers price changes in operational financial plans, and conducts an ongoing assessment and analysis of the contract portfolio sensitivity to changes in global prices and macro parameters. Credit risks • • Risks of increased debt burden in case of growth of interest rates on the Company’s external borrowings As a major borrower, the Company is exposed to risks associated with an increased debt burden with variable interest rates (i.e. rates linked to floating international and Russian base rates). The Company conducts real-time monitoring of the loan resources market in order to choose the best financing option. The Company pursues a balanced To mitigate the impact of price risks, the Company strives to maximize the output of products with high added value and expands its deep hydrocarbon processing capacities at the Purovsky Gas Condensate Processing Plant and the Ust-Luga Stable Gas Condensate Fractionation and Transshipment Complex. Risk of early demand of banks policy of maximizing the share of long-term commitments with for repayment of issued funds fixed rates and maintaining the flexibility of its investment in case of non-compliance with the terms and conditions of loan agreements program. The vertically integrated value chain, large resource base, and high rate of new facilities’ commissioning enhance the Company’s resilience to price volatility in the international markets by enabling prompt management of production and marketing cycles. In the event of significant increase in base rates, the Company may resort to refinancing the debt at a more favorable rate. • • Risk of failure to perform obligations in due time (liquidity risk) The Company’s centralized approach to funds managing allows it to promptly adjust the level of its consolidated debt burden and meet its subsidiaries’ financing needs, which contributes significantly to reduction of the Company’s sensitivity to the volatility of external lending interest rates. The level of the Company’s investment potential and financial standing is regularly confirmed by such global and Russian rating agencies as Moody’s, Standard & Poor’s, Fitch and Expert RA. The Company was assigned investment grade ratings at the level of the Russian sovereign rating. The unprecedented rally in prices for oil, gas and other hydrocarbons in 2021 created favorable market conditions for the Company. Risks of losses due to customers’ failure to pay for shipped products (overdue accounts receivable) Despite the announcements by some countries in 2021 about transition to renewable energy, the Company expects no significant change in the global energy balance and forecasts the price volatility in the world markets to remain high. As an independent gas producer, the Company is not subject to state regulation of natural gas prices, except for the quantities sold to the household market. At the same time, the Company’s gas prices for the domestic market are largely driven by the prices set by the government for natural monopolies in the energy and transportation sector. Despite that the state-regulated gas prices in the domestic market are not characterized as highly volatile, the Company still considers them as a factor when planning its activities. To diversify its natural gas marketing portfolio, the Company engages in trading natural gas on the St. Petersburg International Mercantile Exchange. The Company may use various short-term borrowings, for example, credit facilities and bank overdrafts, to meet its short-term financing needs. When selling products in foreign and domestic markets, the Company uses a number of instruments to mitigate the risks of late payment and overdue indebtedness including, if applicable, the following: • customer solvency analysis through KYC (know your customer/client) procedure and regular updating of this status; The current inflation level does not present threats for the Company’s financial standing. • • • sales on the basis of advance payment; grant of injunctive relief (bank guarantee, surety, etc.); and claim-related work with non-payers. The Company forecasts its performance by regular modeling of its activities for different scenarios and analyzing cash flow sensitivity to changes in market parameters. Annual Report 2021. Constructing future energy transition today Additional Information 84–85 Risk Risk causes and consequences Actions to mitigate risk impact Risk Strategic risks Risk causes and consequences Actions to mitigate risk impact • Risk of the Company’s failure to meet its strategic The Company endeavors to achieve its strategic targets and objectives as well as analyzes and manages the risks that REGULATORY AND STRATEGIC RISKS targets due to major changes impede their achievement. in external or internal Legislative and regulatory risks • Risks of the legislative regulation impact on the Company’s activities in the following areas: The Company carries out its activities in full compliance with the legislative norms established by the Government of the Russian Federation and other governmental authorities exercising control over certain areas of the Company’s activities. The Company constantly monitors changes in legislative initiatives, participates in the work of special- purpose committees under the Russian Government and the Russian State Duma on the activities of the fuel and energy complex and relevant associations. environment, including: The Company’s management is always focused on any matters related to the development of new energy technologies. The Company pursues the policy of adaptation – risks associated with the development of alternative to these changes by implementing a number of programs fuel and energy production and activities, such as setting long-term environmental goals – taxes, excises, duties, mandatory payments; – control over hydrocarbon production, processing, storage and sales activities (HSE, etc.); – licensing requirements for natural resource extraction; technologies; by 2030, developing and adopting technologies to reduce emissions from gas and liquid hydrocarbons production and processing, analyzing opportunities to use renewable energy sources and alternative fuels and energy, including through joint partnerships with global fuel and energy companies. – risks associated with significant increase in competition for LNG technologies and sales markets; The Company operates under state regulation of product transportation prices and tariffs of natural monopolies (Gazprom, Russian Railways, and Transneft). – risks of material events affecting the Company’s operational or financial activities (materialization of one or more risks listed in this section) In implementing its long-term strategy, the Company takes into account the increased role of the Energy Transition, decarbonization, and alternative energy agendas and develops programs to adapt to all emerging changes. Given the low carbon footprint of natural gas and LNG compared to other non-renewable energy sources, the Company considers the development of LNG projects as a contribution to the advancement of low-carbon energy in Russia and worldwide. – state regulation of Russian In performing its subsoil use activities, the Company complies gas prices and tariffs of natural monopolies; – control of operations in certain economic zones (the Arctic) with the terms and conditions or makes timely adjustments to the terms and conditions set forth in license agreements. Litigation risks • • Risk of potential losses in case legal claims by counterparties against the Company are satisfied When conducting its business, the Company adheres to the principle of prudence and checks and qualifies counterparties prior to concluding cooperation agreements with them. If the counterparties fail to perform and it is impossible to reach a pre-trial settlement, the Company may take legal recourse. The Company, through its subsidiary Novatek Gas & Power Asia Pte. Ltd., is a member of the international association of major LNG producers and consumers (GIIGNL) since December 2019. Membership in GIIGNL allows the Company to receive information and exchange experience on advanced solutions in the field of LNG production, transportation and sales as well as represent a coordinated position of LNG producers in addressing issues related to the development of the global LNG market. Risks of potential losses in case the Company loses litigation against counterparties The Company implements a program of liability insurance of officials (Directors & officers liability insurance, D&O) to decrease the impact of litigation risks. In 2021, the Company was not involved in any material litigation. The Company takes into account the increased competition on the global LNG markets with other producers in terms of technologies and sales markets when developing its strategic plans. Political risks • Risks of impact on the Company’s business from In 2014, the Company was designated in the US sectoral sanctions list whereby the US persons are prohibited to sanctions imposed by foreign participate in long-term financing of the Company. states on the Company or its The Company expands its footprint in the global LNG market, increases its customer base and makes spot, mid-term and long-term LNG sale and purchase agreements, long-term time charter parties for carriers, optimizes its supplies through swaps and supply diversions, which enables mitigating risks associated with a specific market or counterparty. business partners, including: The Company raises external financing in the Russian, European, and Asian capital markets to implement its major investment projects. – due to ban on the use of foreign software; – due to restrictions introduction on the supply The Company pursues imports substitution and localization of foreign equipment production in Russia whenever appropriate. To reduce the impact of risks on its strategic goals, the Company applies a scenario-based approach to long- term financial and economic forecasting of the Company’s development and updates these forecasts on a regular basis. When making strategic decisions, the Company is guided by the principles of prudence and financial stability and promptly responds to all changes in the external and internal environment. of imported equipment and For instance, the Company in conjunction with Russian technologies and foreign manufacturers builds and implements plans for technology transfer and competence development to manufacture equipment and materials for LNG projects in • Risks of impact on the Company’s business because Russia. of political and economic situation in Russia and other The Company invests in developing in-house production countries where the Company capabilities to build LNG trains and in creating proprietary operates liquefaction technologies, including through state support mechanisms. When making decisions on the use of foreign software, equipment and information technology, the Company always investigates the alternative of using Russian software. In case stricter US sanctions or new sanctions of other states are imposed on the Company or its counterparties, the Company’s management will use every effort to mitigate the impact of sanction restrictions on the Company’s business. To reduce political risks in Russia and other countries where the Company operates, the Company always keeps track of changes in Russian and foreign legislation, analyzes the political situation and builds long-term partnership relations with authorities and concerned parties. Annual Report 2021. Constructing future energy transition today Additional Information 86–87 Information on Members of NOVATEK’s Board of Directors the Chairman of the Management Board, the of Economy, and L. Chatel, Secretary of State in charge of Industry. the Board of Directors of PAO SIBUR Holding Deputy Chairman of the Board of Directors of Gazprombank (OAO). He is a member of Board of Directors of PAO Gazprom, AO Rosneftegaz. and from 2011 to 2013 he was a member of the Supervisory Board of the OAO Russian Regional Development Bank. Mr. Mikhelson is the recipient of the Russian Federation’s Order of the Badge of Honor, the 2 Degree Order of Merit for the Fatherland and the title of honor “Honored man of the gas industry”, Medal “for the Arctic preservation” and the First Degree “for development of the energy sector”. Arnaud Le Foll joined Total in 2010 as Analyst Strategy, Total Holding. In 2010 he was promoted to a position of Vice-president strategy and business development Asia-Pacific, Total Marketing & Services (Singapore). From 2013 to 2016 he headed Total Maroc affiliate as Managing Director. MR. ALEXANDER E. NATALENKO Born in 1946 MR. ROBERT CASTAIGNE Born in 1946 In 2016 Arnaud Le Foll moved from Marketing & Services branch of Total to Exploration & Production, and was appointed Strategy and Portfolio Management Director, Total E&P Angola. • Chairman of NOVATEK’s Board of Directors • Member of NOVATEK’s Strategy Committee • Independent member of NOVATEK’s Board of Directors MS. TATYANA A. MITROVA Born in 1974 • Member of NOVATEK’s Subcommittee on Climate and Alternative Energy (within Strategy Committee) • Chairman of NOVATEK’s Audit Committee From January 1, 2018 to the end of 2021, Arnaud Le Foll held the position of General Director, • Member of NOVATEK’s Remuneration and Nomination Committee TotalEnergies EP Russie. From July 2020, he has been appointed Senior Vice President North Sea and Russia, which comprises the United Kingdom, Norway, Denmark, the Netherlands and Russia. From September 2021, Arnaud Le Foll is appointed Senior Vice President North Sea-Russia – New Business. • Independent member of NOVATEK’s Board of Directors Mr. Natalenko completed his studies at the Irkutsk State University in 1969 with a primary focus in Geological Engineering. Subsequently, he worked with the Yagodinskaya, Bagdarinskaya, Berelekhskaya, Anadirskaya and East-Chukotskaya geological expeditions. In 1986, Mr. Natalenko headed the North-East Industrial and Geological Association and, in 1992, he was elected president of ZАО “Magadan Gold & Silver Company”. He subsequently held various executive positions in Russian and foreign geological organizations. From 1996 to 2001, Mr. Natalenko held the position of Deputy Minister of Natural Resources of the Russian Federation. From 2013 to 2015 he was a member of the Board of Directors of AO Rosgeologia. From 2004 to present he is the Chairman of NOVATEK’s Board of Directors. • Member of NOVATEK’s Subcommittee on Climate and Alternative Energy (within Strategy Committee) • Chairman of NOVATEK’s Strategy Committee • Member of NOVATEK’s Audit Committee Mr. Castaigne graduated from the Ecole Centrale de Lille in 1968 and the Ecole nationale supérieure du pétrole et des moteurs, he holds a doctorate in economics. He has spent his whole career at TOTAL SA, first as an engineer, then in various positions. From 1994 to 2008, he was Member of the Executive Committee, Executive Vice-President and Chief Financial Officer of TOTAL SA. From 2000 to 2018, he was Member of the Board of Directors of Sanofi and from 2009 to 2018 – Member of the Board of Directors of Societe General. He is Member of of VINCI’s Board of Directors. He is Chevalier of the National Order of the Legion of Honour. • Member of NOVATEK's Remuneration and Nomination Committee MR. LEONID V. MIKHELSON Born in 1955 • Member of NOVATEK’s Subcommittee on Climate and Alternative Energy (within Strategy Committee) • Member of NOVATEK’s Board of Directors • Chairman of NOVATEK’s Management Board In 1995, Ms. Mitrova graduated from the Department of Economics, the Lomonosov Moscow State University. From 1993 to 2002, Ms. Mitrova worked for consulting companies in the energy sector. In 2002, Ms. Mitrova joined the Energy Research Institute of the Russian Academy of Science (ERI RAS) where she held various positions from a researcher to the Head of Research Group. Since 2011, she has led the Global and Russian Energy Outlook Until 2040 Project. Since 2008, Ms. Mitrova has been associate professor in the Gubkin Russian State University of Oil and Gas. Ms. Mitrova has been a Visiting Professor at the Institute of Political Studies, School of International Affairs (Sciences Po, France) since 2014. Ms. Mitrova has been a Senior Researcher of Oxford Institute of Energy Studies (OIES) since 2015. Since 2016, Ms. Mitrova has been a Visiting Researcher of the Center on Global Energy Policy, Columbia University (CGEP, USA). In 2016-2017, she was a Visiting Researcher at the King Abdullah Petroleum Studies and Research Center (KAPSARC, Saudi Arabia). Mr. Mikhelson received his primary degree from the Samara Institute of Civil Engineering in 1977, where he specialized in Industrial Civil Engineering. That same year, Mr. Mikhelson began his career as foreman of a construction and assembling company in Surgut, Tyumen Region, where he worked on the construction of the first section of Urengoi-Chelyabinsk gas pipeline. In 1985, Mr. Mikhelson was appointed Chief Engineer of Ryazantruboprovodstroy. In 1987, he became General Director of Kuibishevtruboprovodstroy, which in 1991, was the first company in the region to sell its shares and became private company, AO SNP NOVA. Mr. Mikhelson remained AO SNP NOVA’s Managing Director from 1987 through 1994. Subsequently, he became a General Director of the management company “Novafininvest”. Mr. Natalenko is the recipient of the State Prize of the Russian Federation and an Honored Geologist of Russia. MR. ARNAUD LE FOLL Born in 1978 MR. ANDREI I. AKIMOV Born in 1953 • Member of NOVATEK’s Board of Directors • Member of NOVATEK’s Strategy Committee • Member of NOVATEK’s Board of Directors • Member of NOVATEK’s Strategy Committee • Member of NOVATEK’s Subcommittee on Climate and Alternative Energy (within Strategy Committee) Mr. Akimov graduated from the Moscow Financial Institute in 1975 where he specialized in international economics. Between 1974 and 1987, Mr. Akimov held various executive positions in the Bank for Foreign Trade of the USSR. From 1985 to 1987 he served as Deputy Chief General Manager of the Bank for Foreign Trade branch in Zurich (Switzerland) and between 1987 and 1990, Mr. Akimov was the Chairman of the Management Board of Donau Bank in Vienna (Austria). From 1991 to 2002 he was Managing Director of financial company, IMAG Investment Management & Advisory Group AG (Austria). Since 2003, Mr. Akimov has been Graduate of “École polytechnique” and “École des mines de Paris” (France) Arnaud Le Foll began his professional career in French ministries and administrations. Between 2003 and 2006 he was Head of Regional Industrial Environment Inspectorate, Rhône-Alpes (Lyons, France), then he moved to a position of Auditor at General Inspectorate of Finance, Ministry of Finance, where he served from 2006 to 2007. In 2007 he became an Advisor on matters related to environment, energy and industry in the offices of C. Lagarde, Minister Since 2003, Mr. Mikhelson has served as a member of the Board of Directors and Chairman of the Management Board of NOVATEK. From March 2008 to December 2010, he has been a member of the Board of Directors and the Chairman of the Board of Directors of AO Stroytransgas. From 2009 to 2010 he was the Chairman of the Board of Directors of ОАО Yamal LNG and from 2008 to 2011 he was a member of the Board of Directors of OOO Art Finance. From 2011 he is the Chairman of From 2020 – Professor, Head of Research, SKOLKOVO Energy Centre. Between 2014 and 2017, Ms. Mitrova was a member of Unipro’s Board of Directors (E.ON Russia before June 2016), and from July 2018 she served on the Board of Directors of Schlumberger NV, a global oilfield services company. Ms. Mitrova has been member of the International Supervisory Board of Energy Academy Europe Annual Report 2021. Constructing future energy transition today Additional Information 88–89 since 2013. Ms. Mitrova has written more MR. GENNADY N. TIMCHENKO Born in 1952 Information on Members of and the Russian Government Marine Board; For than 200 articles in scientific and business journals and digests focused on energy issues as well as co- authored 10 monographs. Merits in Developing Russia’s Transportation Industry, as well as the Order For Naval Merits awarded by a Russian Presidential Executive Decree. Elected a member of the Management Board of PAO NOVATEK in November 2020. NOVATEK’s Management Board • Member of NOVATEK’s Board of Directors • Member of NOVATEK’s Strategy Committee Since July 2020, he has been the Chairman of the Supervisory Board of the association of energy industry professionals “WOMEN IN ENERGY”. MR. LEONID V. MIKHELSON Born in 1955 In 1976, Mr. Timchenko graduated with a Master’s of Science from the Mechanical University in Leningrad. He began his career at the Izjorskii Factory in Leningrad, an industrial plant which made components for the energy industry. Between 1982 and 1988, he was a Senior Engineer at the Ministry of Foreign Trade. Mr. Timchenko has more than 20 years of experience in Russian and International energy sectors and he has built interests in trading, logistics and transportation related companies. MR. VLADIMIR A. BASKOV Born in 1960 • Chairman of NOVATEK’s Management Board • Member of NOVATEK’s Board of Directors MR. DOMINIQUE MARION Born in 1961 • Deputy Chairman of NOVATEK’s Management Board Details on Mr. Leonid V. Mikhelson are available in the “Information on Members of NOVATEK’s Board of Directors” section. • Member of NOVATEK’s Board of Directors • Member of NOVATEK’s Strategy Committee In 1986, Mr. Baskov graduated from the Moscow Higher Police School of the USSR. In 2000, he completed courses at the Management Academy at the Russian Ministry for Internal Affairs. From 1981 to 2003, he served in various departments within the Russian Ministry for Internal Affairs. From 1991 to 2003, Mr. Baskov held managerial positions within the aforementioned Ministry’s organizational structures. • Chairman of NOVATEK’s Subcommittee on Climate and Alternative Energy (within Strategy Committee) In 1988, Mr. Timchenko became a Vice President of Kirishineftekhimexport, the export and trading arm of the Kirishi refinery. In 1991, he worked MR. EVGENIY N. AMBROSOV Born in 1957 Dominique Marion is a graduate of Ecole Nationale Supérieure de Géologie de Nancy, France (MSc, 1983) and Stanford University, California (PhD, 1990). He joined TOTAL in 1990 and has worked in France and affiliate companies in Gabon, UK, Qatar, where he held senior management positions in Geosciences, Reservoir Engineering, and Research and Development. for Urals Finland which specialized in oil and petrochemical trading. Between 1994 and 2001, Mr. Timchenko was Managing Director of IPP OY Finland and IPP AB Sweden. Between 1997 and 2014, he co-founded Gunvor, a leading independent oil- trading company. Mr. Timchenko was a member of the Board of Directors of OOO Transoil and OOO BalttransService, and Airfix Aviation OY. Since 2009, he is a member of the Board of Directors of PAO NOVATEK. He is a member of the Board of Directors of PAO SIBUR Holding, the Chairman of the Board of Directors of the Ice Hockey Club SKA St- • Deputy Chairman of NOVATEK’s Management Board – Director for Marine Operations, Shipping and Logistics In 2003, he was appointed Director of the Business Support Department for NOVATEK. In 2005, Mr. Baskov was appointed Deputy Chairman of NOVATEK’s Management Board and in 2007, he became a member of NOVATEK’s Management Board. In 1979, Mr. Ambrosov graduated from the Navigation Department, Admiral Nevelskoy Far Eastern Higher Marine Engineering College, where he specialized in the operation of water transport. After graduating, he was employed by the Far Eastern Shipping Company where he rose through the ranks from a cargo officer to Deputy General Director – Director of the Core Operations Department. In January 2000, Mr. Ambrosov was appointed First deputy General Director of Sovcomflot. In September 2002, he was approved as the General Director and Chairman of the Management Board, Far Eastern Shipping Company. In 2008-2009, Mr. Ambrosov worked as President of the FESCO Transportation Group Management Company and Chairman of the Management Board, Far Eastern Shipping Company. Since 2009, he has been the First Deputy General Director, Member of the Management Board of Sovcomflot. Since 2014, Mr. Ambrosov has been Deputy Chairman and Member of the Executive Committee of the Arctic Economic Council. In May 2021, he was appointed Chairman of the Arctic Economic Council. Mr. Ambrosov received the following state and industry awards: Honorary Maritime Fleet Worker; Honorary Transportation Worker of Russia; Traditions and Standards badge of honor from the Russian Chamber of Shipping, the Star of Seafarers from the Russian Fleet Support Foundation, the Russian Ministry of Transportation. He was also awarded with the following medals: 300th Anniversary of the Russian Navy, Admiral Gorshkov, Russian Shipowners Association medal, the Medal For Maritime Excellence by the Russian Government Mr. Baskov is Ph.D. in Law. He was awarded the Order For Personal Courage, the Russian Federation’s Order of the Badge of Honor and other state and departmental awards: Honorary Diplomas of the President of the Russian Federation, the Minister of Internal Affairs, the Governor of the Moscow Region. Mr. Baskov also has the awards of the Russian Orthodox Church (Order of Holy Prince Daniel of Moscow, Order of Saint Seraphim of Sarov and a medal of St. Sergius). Beginning 2007, he held the position of Vice President Corporate Reserves, based in Paris. In 2011, he became E&P Vice President Reservoir and Geosciences in France and was the member of Total E&P Norge Board of Directors. In 2018, he was appointed General Manager of Total Austral and Country Сhair Argentina. On January 1, 2022 he took the position of General Director, TotalEnergies EP Russie. Petersburg, as well as the Chairman of the Board of Directors of OOO Kontinental Hockey League, a member of the Board of Trustees of the All-Russian public organization Russian Geographical Society, the Chairman of the Supervisory Board of the Russian Chinese Business Council, Vice-President and member of the Executive Committee of the Olympic Committee of the Russian Federation, Co-Chairman of the Economic Council of the Franco-Russian Chamber of Commerce (CCIFR). MR. VICTOR P. ORLOV Born in 1940 MR. VIKTOR N. BELYAKOV Born in 1973 MS. ZULMIRA A. RAZAKOVA Born in 1981 • Independent member of NOVATEK’s Board of Directors • Deputy Chairman of NOVATEK’s Management Board for Economics and Finance • Chairman of NOVATEK’s Remuneration and Nomination Committee Mr. Belyakov graduated from Tver State Technical University majoring in Automated Data Processing and Management Systems (1995) and in Information Systems in Economics (1997). In 2000, he completed an MBA degree program with Kingstone University (UK). A holder of CMA (Certified Management Accountant). • NOVATEK’s Corporate Secretary • Member of NOVATEK’s Audit Committee Ms. Razakova holds a higher Legal education degree and began working for NOVATEK in 2004. Between 2007 and 2012, Ms. Razakova held the position of lead specialist of the Management Board and Board of Directors staff. In April 2012, Ms. Razakova was elected as Secretary of the Board of Directors. Since 2014, Ms. Razakova has been NOVATEK’s Corporate Secretary. The powers of the elected member of the Board of Directors Victor P. Orlov were prematurely terminated on 23 August 2021 due to his premature death. His biography can be found in the section Information on Members of NOVATEK’s Board of Directors in our Annual Report 2020. From 2004 until 2014 Mr. Belyakov worked for PAO Uralkali, where he successively held the positions of Head of Division, Deputy Chief Financial Officer, Annual Report 2021. Constructing future energy transition today Additional Information 90–91 Chief Financial Officer, Vice President for Finance, Mr. Gyetvay is the recipient of the Extel’s award as “Best CFO For IR – Oil and gas” for 2019 and 2020. 2012, Mr. Gudkov worked at the Executive Office of the Russian Federation Government. In 2013, he was appointed Assistant to Deputy Prime Minister of the Russian Federation – Head of the Executive Office of the Russian Federation Government. Director, Deputy General Director – Chief Engineer, ARCTICGAS, and in 2015 he headed ARCTICGAS. In 2016, Mr. Kudrin received the NOVATEK Certificate of Commendation. In 2020, he received the Certificate of Merit from the Russian Ministry of Energy. Deputy General Director, Executive Director. In 2015, he was appointed Vice President for Economics and Finance of PAO Far East Shipping Company (FESCO group). In February 2016, Viktor Belyakov joined PAO NOVATEK in the position of Deputy Chairman of the Management Board for Economics and Finance. From 2003 to 2014, Mr. Gyetvay was a member of NOVATEK’s Board of Directors and served on the Investment and Strategy Committee. From 2003 to 2014, he has been Chief Financial Officer and, in August 2007, Mr. Gyetvay was elected to NOVATEK’s Management Board. In July 2010, he became Deputy Chairman of NOVATEK’s Management Board. Since September 2018, Mr. Gudkov has been Deputy Chairman of NOVATEK’s Management Board. In 2018, Mr. Gudkov was awarded the Medal of the II Degree Order for Merits and Dedicated Service to the Country. MS. TATYANA S. KUZNETSOVA Born in 1960 MR. MARK A. GYETVAY Born in 1957 • Deputy Chairman of NOVATEK’s Management Board MR. SERGEY V. VASYUNIN Born in 1967 MR. EVGENY A. KOT Born in 1974 • Deputy Chairman of NOVATEK’s Management Board Ms. Kuznetsova graduated from the Far East State University with a degree in Law. From 1986, she was Senior Legal Advisor for a legal bureau. In 1993, Ms. Kuznetsova became Deputy General Director for Legal Issues and from 1996, Marketing Director for OAO Purneftegasgeologiya. In 1998, she was appointed Deputy General Director of OAO Nordpipes. Since 2002, she has been Director of the Legal Department at NOVATEK. Since 2005, she has been the Deputy Chairman of NOVATEK’s Management Board and in August 2007, she became a member of NOVATEK’s Management Board. Ms. Kuznetsova has the title “Honored employee of PAO NOVATEK”, and is awarded the 2 Degree Order of Merit for the Fatherland. • Deputy Chairman of NOVATEK’s Management Board – Operations Director Mr. Gyetvay studied at Arizona State University (Bachelor of Science, Accounting, 1981) and later at Pace University, New York (Graduate Studies in Strategic Management, 1995). After graduation, Mr. Gyetvay worked in various capacities at a number of U.S. independent oil and gas companies where he specialized in financial and economic analysis for both upstream and downstream segments of the petroleum industry. • Deputy Chairman of NOVATEK’s Management Board – Director for LNG(1) In 1993, Sergey Vasyunin graduated from the Ufa Oil Institute, specializing in the Mr. Kot graduated from the Tyumen State Academy of Architecture and Civil Engineering. He received PhD in Economics from the Saint Petersburg State University of Engineering and Economics. Development and Operation of Oil and Gas Fields. Between 1993 and 1997, Mr. Vasyunin was employed with Condor as deputy director, Stroykomplekt as head of sales department, and with OAO Spetsnefteenergomontazhavtomatika – as marketing engineer. From 1998, he worked in the Urengoygazprom industrial association of OAO Gazprom where he served in the capacity of an oil, gas and condensate production foreman. Between 2002 and 2017, Mr. Vasyunin was employed in the positions of Gas Condensate Production Shop Manager, Deputy General Director for operations, and First Deputy General Director – Chief Engineer of OOO NOVATEK- YURKHAROVNEFTEGAS. In April 2017, he was appointed Deputy Chairman of the Management Board – Director for Operations of NOVATEK. Between 1997 and 2001, Mr. Kot worked in the Tyumen branch of Gazprombank. From 2001 to 2002, he was employed by OAO SNP NOVA and OAO Oil and Gas Company ITERA. In 1994, Mr. Gyetvay began his work at Coopers and Lybrand, as Director, Strategic Energy Advisory Services. He subsequently moved to Moscow in 1995 with Coopers & Lybrand to lead the oil and gas practice. He was admitted as a partner of PricewaterhouseCoopers Global Energy where he assumed the role of client service engagement partner, Utilities and Mining practice, based in Russia (Moscow office). Mr. Gyetvay was an engagement partner on various energy and mining clients providing overall project management, financial and operational expertise, maintaining and supporting client service relationships as well as serving as concurring partner on transaction services to the petroleum sector. In 2002, Mr. Kot joined NOVATEK. Between 2009 and 2011, he held the position of Deputy Chairman of the Management Board – Director of LNG Business Development of NOVATEK. Between 2010 and 2014, he was Chairman of the Board of Directors of Yamal LNG. From 2014 to 2018, Mr. Kot was General Director of Yamal LNG. MR. DENIS B. SOLOVYOV Born in 1977 • Deputy Chairman of NOVATEK’s Management Board – Director of Information Policy Department In December 2018, he was appointed Deputy Chairman of the Management Board – Director for LNG of NOVATEK. In 2005, the Russian Ministry of Industry and Energy issued a commendation to Sergey Vasyunin. He holds the Honored Employee of NOVATEK title. In 2000, Mr. Solovyev graduated from the Lomonosov Moscow State University (Philosophy faculty) with a degree in Political Science. In 2003, he completed postgraduate studies at the Lomonosov Moscow State University with a degree in History. In 2000, he was appointed Deputy General Director of Senat PR LLC. In 2004, Denis Solovyov assumed the role of an adviser to the Krasnoyarsk Territory Deputy Governor and Assistant First Deputy Governor at the Krasnoyarsk Territory Board of Administration. Between 2006 and 2008, he headed an election projects group of the United Russia Central Electoral Commission Directorate. Mr. Gyetvay is a Certified Public Accountant (inactive status), a member of the American Institute of Certified Public Accountants and an associate member of the Society of Petroleum Engineers. He is a recognized expert in the oil and gas industry, a frequent speaker at various industry and investor conferences, has published numerous articles on various oil and gas industry topics and was a former member of PwC’s Petroleum Thought Leadership team. He has been recognized by Investor Relations Magazine as one of the best CFO’s in Russia and the CIS, and by Institutional Investor magazine as one of the Top Five CFO’s in Europe’s Oil and Gas sector. Institutional Investor voted him as the Best CFO in the EMEA Oil and Gas category for 2017 and 2018. Finance Monthly magazine named Mark Gyetvay the Best CFO in Russia for the consecutive years of 2015 to 2020, and he received the Game Changer 2017 and 2018 Award for Russia. MR. VLADIMIR A. KUDRIN Born in 1979 MR. EDUARD S. GUDKOV Born in 1980 • Deputy Chairman of NOVATEK’s Management Board – Director for Geology(2) • Deputy Chairman of NOVATEK’s Management Board In 2001, Mr. Kudrin graduated from the Tyumen State Oil and Gas Institute, specializing in the Oil and Gas Fields Development and Exploitation. From 2001 to 2011, he worked in Northgas and NOVATEK-Yurkharovneftegas, where he rose through the ranks from gas extraction operator to the head of operational dispatch service. In 2011, he was transferred to Sibneftegas as First Deputy General Director – Chief Engineer. Since 2014, he held positions of Deputy General Director – Technical In 2002, Mr. Gudkov graduated from the Penza State University where he specialized in law. In 2006, he received PhD in Law. Mr. Solovyev has been working for NOVATEK since 2008: in the capacity of Public Relations Director (until 2014), and Communications Director – Director of Public Relations Department (from January 2014.). Between 1999 and 2003, Mr. Gudkov worked in the Russian Ministry for Antitrust Policy and Support of Entrepreneurship. In 2003, he joined the Russian Supreme Arbitrazh Court where he held the position of Assistant to the First Deputy Chairman. From 1. The authorities were terminated from 17 December 2021. 2. Since 17 December 2021. Annual Report 2021. Constructing future energy transition today Additional Information 92–93 Since Septembetr 2018, Mr. Solovyev was appointed MR. ILYA V. TAFINTSEV Born in 1985 Report on major, and interested-party transactions that the Company did in the reporting year Corporate Governance Code Compliance Report Deputy Chairman of NOVATEK’s Management Board and Director of Corporate Communications Department. • Deputy Chairman of the NOVATEK’s Management Board Mr. Solovyev has received several letters of recognition, honorable mentions from the Russian Ministry of Natural Resources and the Environment as well as from the Parliament of the Khanty- Mansiysk Autonomous Region. In 2018, he received an award from the Russian Ministry of Energy and an honorable mention from the Governor of the Yamal-Nenets Autonomous Region. In January 2022, he was awarded the medal of the Order of Merit for the Fatherland of the II degree. The list of transactions made by the Company in the reporting year, recognized in accordance with the Federal Law “On Joint Stock Companies” as major transactions and (or) interested-party transactions, is not disclosed in accordance with Resolution of the Government of the Russian Federation No. 400 dated 4 April 2019. This Corporate Governance Code Compliance Report (hereinafter “the Report”) was reviewed at the meeting of PAO NOVATEK’s Board of Directors on 18 March 2022 (Minutes No. 252). In 2006, Mr. Tafintsev obtained a BA in Economics from the Higher School of Economics in Moscow. In 2007, he graduated from the University of London (UK), where he majored in investment and finance. The Board of Directors certifies that data in this Report contain full and reliable information on compliance by the Company with the principles and recommendations of the Corporate Governance Code for 2020. From 2007 to 2011, Mr. Tafintsev held the position of Deputy Director of NOVATEK’s Representative Office in London. Between 2011 and 2014, he was a Finance and Investment Advisor with United Bureau of Consultants Limited. When assessing our compliance with corporate governance principles as set out in the Code we were guided by the Guidelines for Reporting on Compliance with the Corporate Governance Code recommended by the Bank of Russia in its Letter No. IN-06-28/102 dated 27 December 2021. MR. SERGEY G. SOLOVYOV Born in 1978 From 2013 to 2015, he served as Strategic Projects Director of NOVATEK. From 2013 to 2018, Mr. Tafintsev was Member of the Board of Directors of SIBUR Holding. Between 2014 and 2016, he held the position of Chairman of the Board of Directors of Yamal LNG. In December 2015, Mr. Tafintsev was appointed Member of the Management Board – Director for Strategic Projects of NOVATEK. • Deputy Chairman of the Management Board – Director for Prospective Projects(1) An overview of the most relevant aspects of the corporate governance model and practices in the Company is presented in the Corporate Governance section of this Annual Report. Graduated from the Gubkin Russian State University of Oil and Gas in 2001 with a degree in Oil and Gas Fields Development and Operation, in 2003 – with a degree in Economics and Management in Oil and Gas Industry. Since September 2018, he has been Deputy Chairman of NOVATEK’s Management Board. No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance From 2002 to 2004, worked in Nortgas as well diagnostics operator and well diagnostics foreman. From 2004 to 2005, worked in Yurkharovneftegas as engineer and lead engineer in the Field Development Group. In 2005, he was employed by NOVATEK where he worked as chief specialist and head of Field Development Analysis Group. In 2007, he was transferred to NOVATEK-YURKHAROVNEFTEGAS to the position of Deputy General Director – Chief Geologist. Since 2009, he held the position of managing director of OOO NEU, in 2010 he became the general director of ZAO Investgeoservis. In 2011, he was elected General Director of NOVATEK- YURKHAROVNEFTEGAS. In 2014, he was elected General Director of Arctic LNG 2. In 2017, he became the General Director of Cryogas-Vysotsk. 1.1 The Сompany should ensure equitable and fair treatment of every shareholder exercising their right to take part in managing the Сompany. MR. LEV V. FEODOSYEV Born in 1979 1.1.1 The Сompany ensures the most favorable conditions for its 1. The Сompany provides This principle is complied with. — accessible means of communication via hotline, e-mail or an online forum for shareholders to voice their opinions and submit questions on the agenda in preparing for the General Meeting. The above means of communication were organized by the Company and provided to shareholders in the course of preparation for each General Meeting held in the reporting period. • First Deputy Chairman of NOVATEK’s Management Board shareholders to participate in the General Meeting, develop an informed position on agenda items of the General Meeting, coordinate their actions, and voice their opinions on items considered. In 2002, Mr. Feodosyev graduated from the Bauman Moscow State Technical University with a degree in Machinery and Foundry Engineering Technologies. In 2002, Mr. Feodosyev was appointed lead specialist at the Ministry of Energy of the Russian Federation. From 2003, he has served as lead specialist, senior specialist, adviser, deputy head of section, Deputy Director of Department at the Ministry of Economic Development and Trade of the Russian Federation. Since October 2007, Lev Feodosyev has worked for NOVATEK. Before 2011, he worked in NOVATEK as Director of the Strategic Planning and Development Department. From 2011, he was appointed as Deputy Commercial Director, Director of the In April 2019, Sergey Solovyov was appointed NOVATEK’s Deputy Chairman of the Management Board – Director for Geology. In December 2021, was appointed NOVATEK’s Deputy Chairman of the Management Board – Director for Prospective Projects. 1.1.2 The procedure for giving 1. In the reporting period, the This principle is complied with. — notice of, and providing relevant materials for, the General Meeting enables shareholders to properly prepare for attending the General Meeting. notice of an upcoming General Meeting of shareholders is posted (published) on the Company's website online at least 30 days prior to the date of the General Meeting, unless a longer time period is required by the applicable Russian law. Marketing and Gas Sales Department of NOVATEK. Since February 2015, Mr. Feodosyev has been 2. The notice of an upcoming meeting specifies the documents required for admission.3. appointed Deputy Chairman of the Management Board, Commercial Director of NOVATEK. Shareholders were given access to the information on who proposed the agenda items and who proposed nominees to the Company’s Board of Directors and the revision commission. From February 2018, he was appointed First Deputy Chairman of NOVATEK’s Management Board. In 2014, Mr. Feodosyev was awarded NOVATEK’s Honorary Certificate. 1. Since 17 December 2021, until 17 December 2021 – Deputy Chairman of the Management Board – Director for Geology. Annual Report 2021. Constructing future energy transition today Additional Information 94–95 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance — No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance — 1.1.6 The procedure for holding a General 1. General Meetings of Shareholders held in the reporting period in the form of a meeting (i.e. joint presence with. of shareholders) provided for sufficient time for making reports on and for discussing agenda items. The shareholders were given the opportunity to voice their opinions and ask questions on agenda items. This principle is complied 1.1.3 In preparing for, and holding of, the General Meeting, shareholders were able to receive clear and timely 1. In the reporting period, shareholders were able to put questions to members of executive with. bodies and members of the Board of Directors during the preparation for the meeting and in the course of the General Meeting of shareholders. This principle is complied Meeting set by the Company provides equal opportunities for all persons attending the Meeting to voice their opinions and ask questions. information on the meeting and related materials, put questions to the Company’s 2. The position of the Board of Directors (including dissenting opinions entered into the minutes, if any) on each agenda item of General Meetings held in the reporting period was included in the materials to the General Meeting of Shareholders. This principle When convening General is not fully complied with. Meetings of Shareholders, the Board of Directors reviews all agenda items of the relevant meeting and presents them to the Meeting for consideration or provides necessary advice. executive bodies and the Board of Directors, and to communicate with each other. 2. The Company invited nominees to the Company’s governing and control bodies and took all necessary actions to ensure their participation in the General Meeting of Shareholders at which their nominations were put to vote. The candidates for the management and control bodies of the Company who were present at the General Meeting of shareholders were available to answer questions from shareholders. This principle is complied with. — Materials to the General Meeting of Shareholders include recommendations of the Board of Directors as required by law. In accordance with paragraph 1 of Art. 54 of the Russian Federal Law “On Joint Stock Companies”, the list of information (materials) provided to shareholders in preparation for the General Meeting of Shareholders is determined by the Board of Directors. Accordingly, the Board of Directors, if it deems it necessary, to include its position on the issues on the agenda of the General Meeting of shareholders, if it deems it necessary. 3.The Company's sole executive body, person in charge of This principle is complied with. — — accounting, Chairman or other members of the Audit Committee of the Board of Directors were available to answer questions of shareholders at the General Meetings of Shareholders held in the reporting period. 4. In the reporting period the This principle is complied with. Company used telecommunication means for the shareholders to participate remotely in the General Meetings or the Board of Directors passed a justified decision that there was no need (possibility) to use such means in the reporting period. The Company considers the established procedure to be balanced, not bearing any risks for the Company and its shareholders, and does not plan to change the existing approach. 1.2 Shareholders are given equal and fair opportunities to share profits of the Company in the form of dividends. 3. The Company gave duly This principle is complied with. — 1.2.1 The Company has designed and put in place a transparent 1.The Company's Regulations on the This principle — authorized shareholders access to the list of persons entitled to attend the General Meeting, as from the date of its receipt by the Company, for all General Meetings held in the reporting period. dividend policy is approved by the Board of Directors and disclosed is complied with. and clear mechanism to through the Company's website. determine the dividend amount and payout procedure. 2. If the dividend policy of the Company, issuing consolidated financial statements, uses reporting figures to determine the dividend amount, then relevant provisions of the dividend policy take into account the consolidated financial statements. 1.1.4 There were no unjustified 1.The Company's Articles of This principle is complied with. — difficulties preventing shareholders from exercising their right to request that a General Meeting be convened, to propose nominees to the Company’s Association determines the deadline for shareholders to submit proposals for the agenda of the Annual General Meeting which is at least 60 days after the end of the relevant calendar year. 3. Justification of the proposed distribution of net profit, including for dividend payment and the Company's own needs, and an assessment of its compliance with the Company's dividend policy, with explanations and economic justification of the need to direct a particular part of net profit to the Company's own needs in the reporting period, was included in the materials to the General Meeting of Shareholders, where the agenda included an item on profit distribution (including on payment (declaration) of dividends). governing bodies, and to 2. In the reporting period, the make proposals for the agenda of the General Meeting. Company did not reject any proposals for the agenda or nominees to the Company’s governing bodies due to misprints or other insignificant flaws in the shareholder’s proposal. 1.1.5 Each shareholder was able to freely exercise their voting right in 1. The Company's Articles of Association provide for the possibility to fill in the electronic voting ballot at a website, specified in the notice of the General Meeting of Shareholders. This principle is complied with. — the simplest and most convenient way. Annual Report 2021. Constructing future energy transition today Additional Information 96–97 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance — 1.2.2 The Company does not resolve to pay out 1. The Company's Regulations on the dividend policy identifies, in This principle is complied with. 2.1 The Board of Directors provides strategic management of the Company, determines key principles of, and approaches to, setting up a corporate risk management and internal control framework, monitors performance by the Company’s executive bodies, and performs other key functions. dividends if such payout, addition to restrictions imposed while formally compliant by law, the financial and economic with law, is economically circumstances wherein the unjustified and may lead Company shall not resolve to pay to a false representation out dividends. of the Company’s 2.1.1 The Board of Directors is responsible for 1. The Board of Directors has the authority stipulated in the Articles of Association to appoint and remove members of executive bodies and to set out the terms and conditions of their contracts. This principle The issue of determining is not fully complied with. the amount of remuneration appointing and paid to the Chairman of the Management Board based on the results of the work for the year, falls withing the authority of the Board of Directors. dismissing executive bodies, including for improper performance of their duties. The Board of Directors also ensures that the Company’s performance. 1.2.3 The Company does not allow for dividend rights of its existing shareholders to be impaired. 1. In the reporting period, the Company did not take any actions that would lead to the impairment of the dividend rights of its existing shareholders. This principle is complied with. — In accordance with the Company's Articles of Association, the members of the Management Board are elected by the Board of Directors from among the Company's employees, solely on the executive bodies act in accordance with the Company’s approved development strategy and core lines of 1.2.4 The Company makes every effort to prevent its shareholders from using other means to profit (gain) from the Company other than 1. In the reporting period the Company's controlling persons did not use any means of receiving profit (gain) from the Company (for example, transfer pricing, unjustified provision of services This principle This principle is not complied is complied with. with as the Company believes that statutory controls are sufficient for relevant purposes. The Company does not transact with persons under control by substantial shareholders, which prevents substantial shareholders from profiting (gaining) from the Company. business. recommendation of the Chairman of the Management Board. The amounts of official salaries and other terms of employment contracts with the Company's employees, including members of the Management Board, are determined by the Chairman of the Management Board taking into account the parameters of the Company's business plan approved by the Board of Directors in accordance with the NOVATEK Group Executive Bodies and other Key Employees Remuneration And Expense Reimbursement Policy approved by the Board of Directors. dividends and liquidation to the Company at an inflated value. price by the Company's controlling person, provision of internal loans substituting dividends to the Company's controlling person or to his or her persons under control) other than dividends. The Company does not see any risks in the established practice, as the system of procurement procedures introduced in the Company ensures the conclusion of contracts on market terms. 1.3 Corporate governance framework and practices should ensure equality for the shareholders owning the same type (class) of shares, including minority and non-resident shareholders, and their equitable treatment by the Company. The Company considers the 1.3.1 The Company has created conditions for fair treatment of each shareholder by the 1. In the reporting period the Company's controlling persons did not allow abusing rights with respect to the Company's shareholders; there were This principle is complied with. — established procedure to be effective, balanced, not bearing any risks for the Company and its shareholders, and does not plan to change the existing approach. Company’s governing and control bodies, including conditions that Company's controlling persons rule out abuse by major shareholders against minority shareholders. no conflicts between the 2. In the reporting period, the nomination/HR committee reviewed the compliance of professional qualification, skills and experience of members of the executive bodies with the Company's current and expected needs determined by the approved strategy of the Company. This principle The Remuneration and and shareholders, and if there were any, they have been duly addressed by the Board of Directors. is not fully complied with. Nomination Committee of the Board of Directors considers the compliance of professional qualification, skills and experience of the nominees to the 1.3.2 The Company does not take any actions that lead or may lead to 1. No quasi-treasury shares were issued or used to vote in the reporting period. This principle is complied with. — Company’s Management Board. The compliance of professional qualification, skills and experience of the elected members of the Management Board with the Company’s current and expected needs determined by the approved strategy of the Company is not assessed regularly. The Company considers the established procedure to be appropriate and does not plan to change the existing approach. artificial redistribution of corporate control. 1.4 Shareholders are provided with reliable and efficient means of recording their rights to shares and are able to freely dispose of their shares without any hindrance. 1.4. Shareholders are 1. The technology used by This principle is complied with. — provided with reliable and efficient means of recording their rights to shares and are able to freely dispose of the Company's registrar and the conditions of services provision are in line with the needs of the Company and its shareholders, ensure accounting 3. In the reporting period, the Board This principle — their shares without any of rights to shares and exercise hindrance. of Directors reviewed the report(s) by the sole executive body or members of the collective executive body on the implementation of the Company’s strategy. is complied with. of shareholders' rights in the most efficient manner. Annual Report 2021. Constructing future energy transition today Additional Information 98–99 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance — No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 2.1.2 The Board of Directors sets key long-term targets for the 1. At its meetings in the reporting period, the Board of Directors reviewed strategy implementation and updates, approval of the Company’s financial and business This principle is complied with. 2.2 The Board of Directors is accountable to the Company’s shareholders. 2.2.1 Performance of the Board of Directors is disclosed and made available to the 1. The Company’s annual report for the reporting period includes the information on the attendance of the Board of Directors and committee meetings by each of the Board of Directors' members. This principle is complied with. — Company, assesses and approves its key performance indicators plan (budget), and criteria and and key business goals, as well as the strategy and business plans for the Company’s core lines of business. performance (including interim) of the Company’s strategy and business plans. shareholders. 2. The annual report discloses key results of the Board of Directors' performance assessment (self- assessment) in the reporting period. 2.1.3 The Board of Directors defines the Company's risk management 1. The Company's risk management This principle In the reporting period, the Audit and internal control principles and approaches are defined by the Board of Directors and established the Company's internal documents that define the risk management and internal control policy. is not fully complied with. Committee did not consider issues related to the Company's risk appetite, respectively, the Company did not comply with criterion 2 in 2021. The Corporate Governance Code does not contain a recommendation to assess risk appetite annually. The Company's Board of Directors or the Audit Committee reviews the risk appetite as necessary. and internal control principles and approaches. 2.2.2 The chairman of the Board of Directors is available to 1. The Company has in place a transparent procedure enabling shareholders to address the chairman of the Board of Directors and obtain the relevant feedback. This principle is complied with. — communicate with the Company’s shareholders. 2. In the reporting period, the Board of Directors approved (reviewed) the amount of risks (risk appetite) which is acceptable for the Company; or the Audit Committee and/or Risk Committee (if available) considered the advisability of submitting the issue of revising the Company's risk appetite to the approval by the Board of Directors. 2.3 The Board of Directors manages the Company in an efficient and competent manner and make fair and independent judgments and decisions in line with the best interests of the Company and its shareholders. 2.3.1 Only persons of impeccable business 1. In the reporting period, the Board of Directors (or its This principle is complied with. — and personal reputation nomination committee) assessed who have knowledge, expertise and nominees to the Board of Directors for required experience, knowledge, business reputation, absence of conflicts of interest, etc. experience required to make decisions within the authority of the Board of Directors and essential to perform its functions in an efficient way are elected to the Board of Directors. 2.1.4 The Board of Directors determines the 1. The Company developed and put in place a remuneration and This principle is complied with. — Company’s remuneration reimbursement (compensation) and reimbursement (compensation) policy for its directors, members of executive bodies and other key executives. policy (policies), approved by the Board of Directors, for its directors, members of executive bodies and other key executives. 2.3.2 The Company’s 1. Whenever the General Meeting of shareholders was held in the reporting period, the agenda This principle is complied with. — 2. In the reporting period, the Board of Directors discussed matters related to such policy (policies). directors are elected via a transparent procedure that enables of which included election of shareholders to obtain the Board of Directors, the information on nominees Company provided shareholders sufficient to judge on their personal and professional qualities. 2.1.5 The Board of Directors plays a key role in 1. The Board of Directors plays a key role in preventing, identifying and resolving internal conflicts. This principle is complied with. — — with the biographical data of all nominees to the Board of Directors and the results of assessing the compliance of their professional qualifications, experience and skills with the Company's current and expected needs by the Board of Directors (or its nomination committee), as well as the information on whether the nominee meets the independence criteria set forth in Recommendations 102–107 of the Code, as well as the nominees’ written consent to be elected to the Board of Directors. preventing, identifying and resolving internal conflicts between the Company’s bodies, shareholders and 2. The Company set up mechanisms to identify transactions leading to a conflict of interest and to resolve such conflicts. employees. 2.1.6 The Board of Directors plays a key role in 1. The Company's internal documents identify persons responsible for implementing the This principle is complied with. ensuring that the Company is transparent, information policy. timely and fully discloses its information, and provides its shareholders with unhindered access to the Company’s documents. 2.3.3 The Board of Directors has a balanced 1. In the reporting period the Board of Directors reviewed its requirements to professional qualifications, experience and business skills, and determined competence level requirements for the Board of Directors in the short and long term. This principle is complied with. — 2.1.7 The Board of Directors 1. In the reporting period the This principle is complied with. — controls the Company’s Board of Directors reviewed the membership, including in terms of directors’ qualifications, corporate governance practices and plays a key role in material results of self-assessment and/ or external assessment of the Company’s corporate governance experience, expertise and business qualities, and enjoys its corporate events of the practices. Company. shareholders’ trust. Annual Report 2021. Constructing future energy transition today Additional Information 100–101 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance — No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 2.3.4 The Company has a sufficient number of directors to organize the Board of Directors’ activities in the 1. In the reporting period, the Board of Directors considered whether the number of directors met the Company’s needs and shareholders’ interests. This principle is complied with. 2.4.3 Independent directors make up at least one third of the elected board members. 1. Independent directors make up at least one third of the Board members. This principle Because of the passing of is not fully complied with. an independent member of the board Viktor P. Orlov, the Company's independent directors were making up less than a third of the Board of Directors between August 23 and December 31, 2021. most efficient way, including ability to set up committees of the Board of Directors and enable the Company’s substantial minority shareholders to elect a nominee to the Board of Directors for whom they vote. In order to maintain full functionality of the Board's committees, the audit committee and the remunerations and nominations committee comprising 3 members were set up at the Board meeting on December 07, 2021. Two independent members of the Board of Directors (Robert Castaigne and Tatyana Mitrova) were elected to the committees, as well as Alexander Natalenko, Chairman of the Board, who is not an independent director. 2.4 The Board of Directors includes a sufficient number of independent directors. 2.4.1 An independent director 1. In the reporting period, all This principle is complied with. — is a person who is independent directors met all sufficiently professional, independence criteria set out experienced and in Recommendations 102–107 independent to develop of the Code or were deemed their own position, and capable of making unbiased judgements in good faith, free of influence by the independent by the Board of Directors. Partial compliance with this principle is limited in time. The upcoming annual General Meeting of shareholders of the Company is expected to elect a Board of Directors comprising the necessary number of Company’s executive bodies, individual groups of shareholders or other stakeholders. It should be noted that a nominee (elected director) who is related to the Company, its substantial shareholder, substantial counterparty or competitor of the Company, or related to the government, may not be considered as independent under normal circumstances. independent directors, and the newly elected Board of Directors will form the Audit Committee and Remunerations and Nominations Committee, comprising independent directors only. 2.4.4 Independent directors play a key role in 1. In the reporting period independent directors (with no conflicts of interest) run a This principle In accordance with the is not fully complied Company’s Articles of preventing internal Association, the Regulations on the Board of Directors and the Regulations on the Committees of the Board of Directors, a large block of issues related to significant corporate actions is preliminarily considered by the Audit Committee and the Remuneration Committee consisting of independent directors. In addition, most of such decisions shall be approved by the Board of Directors, if 8 out of 9 directors voted for the corresponding decision. Thus, any two independent directors may block the adoption of an undesirable decision in their opinion. conflicts in the Company preliminary assessment of material with. and in ensuring that the Company performs material corporate actions. corporate actions implying a potential conflict of interests and submitted the results to the Board of Directors. 2.4.2 The Company 1. In the reporting period, This principle is complied with. — assesses compliance of nominees to the Board of Directors and reviews compliance of independent directors with independence criteria on a regular basis. In such the Board of Directors (or its nomination committee) made a judgment on independence of each nominee to the Board of Directors and provided its opinion to shareholders. 2. In the reporting period the assessment, substance Board of Directors (or its should prevail over form. nomination committee) reviewed, at least once, the independence of incumbent directors (after their election). The Company believes that independent directors have sufficient capacity to assess significant corporate actions. 3. The Company has in place procedures defining the actions to be taken by a member of the Board of Directors if they cease to be independent, including the obligation to timely notify the Board of Directors thereof. Annual Report 2021. Constructing future energy transition today Additional Information 102–103 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 2.6.2 The rights and duties of directors are clearly 1. The Company adopted and published an internal document This principle is complied with. — 2.5 The chairperson of the board ensures that the Board of Directors discharges its duties in the most effective and efficient way. stated and incorporated that clearly defines the rights and in the Company’s internal documents. duties of directors. 2.5.1 The Board of Directors is chaired by an 1. The Board of Directors is chaired by an independent director, or a senior independent director This principle The role of independent directors is not fully complied with. on the Company's Board of Directors is very important, since the Audit Committee and the Remuneration and Nomination Committee of the Board of Directors are comprised of independent director, 2.6.3 Directors have sufficient 1. Individual attendance at Board This principle is complied with. — or a senior independent is appointed from among the time to perform their duties. and Committee meetings, as well as sufficient time devoted to work on the Board of Directors, including in its committees, was recorded as part of the procedure for assessing (self-assessing) the Board of Directors' performance in the reporting period. director supervising the activities of other independent directors independent directors. 2. The role, rights and duties of and interacting with the the Chairman of the Board of independent directors only. Formally, the Chairman of the Board of Directors is not an Independent Director. However, the Chairman of the Board of Directors meets all independence criteria, except for his tenure on the Board of Directors. For chairmanship purposes, the directors elected the most experienced of the Board members who is not an independent director. chairman of the Board of Directors is chosen Directors (and, if applicable, of the senior independent director) from among the elected are duly set out in the Company’s independent directors. internal documents. 2. Under the Company’s internal documents, directors notify the Board of Directors of their intentions to be elected to governing bodies in other entities (apart from the entities controlled by the Company), and of their election to such bodies. The Company considers the established procedure to be balanced and does not plan to change the existing approach. 2.6.4 All directors shall have equal access to the 1. In accordance with the This principle is complied with. — Company's internal documents directors are entitled to receive information and documents they need to perform their Company’s documents and information. Newly elected directors are 2.5.2 The chairman of the Board of Directors 1. Performance of the Chairman of the Board of Directors was This principle is complied with. — furnished with sufficient duties related to the Company maintains a constructive assessed as part of assessment information about the Company and performance of the Board of Directors as soon as possible. and controlled entities, and the Company's executive bodies shall ensure provision of relevant information and documents. environment at (self-assessment) of the Board of Directors’ performance in the reporting period. meetings, enables free discussion of agenda items, and supervises the execution of 2. The Company has in place a formalized onboarding program for newly elected Directors. resolutions passed by the Board of Directors. 2.5.3 The chairman of the 1. The Company’s internal This principle is complied with. — Board of Directors takes documents set out the duty 2.7 Meetings of the Board of Directors, preparation for such meetings and participation of board members therein ensure efficient performance by the Board of Directors. all steps necessary for the timely provision to members of the Board of Directors of information required to pass resolutions on agenda items. of the Chairman of the Board of Directors to take all steps necessary for the timely provision of complete and reliable information on agenda items of the Board meeting to members of the Board of Directors. 2.7.1 Board meetings are held 1. The Board of Directors held at This principle is complied with. — as needed, taking into account the scale of operations and goals of the Company at a particular time. least six meetings in the reporting year. 2.6 Directors act reasonably and in good faith in the best interests of the Company and its shareholders, on a fully informed basis and with due care and diligence. 2.7.2 The Company's internal 1. The Company has an approved This principle is complied with. — regulations stipulate the internal document that describes procedure to prepare for and hold the board's holding meetings of the Board meetings, enabling the directors to make proper preparations for meeting shall be given, as a rule, them. the procedure for arranging and 2.6.1 Directors pass resolutions on a 1. The Company’s internal This principle is complied with. — documents provide that a director should notify the Board of Directors of any existing conflict of interest as to any agenda item of the meeting of the Board of Directors or its committee, prior to discussion of the relevant agenda item. of Directors and sets out, in particular, that the notice of the fully informed basis, with no conflict of interest, subject to equal treatment of the Company’s shareholders, and assuming normal business risks. at least five days prior to such meeting. 2. In the reporting period members of the Board of Directors absent from the venue of the meeting were given an opportunity to participate in discussions on agenda items and vote remotely via video or telephone conference calls. 2. The Company’s internal documents provide that a director should abstain from voting on any item in connection with which he has a conflict of interest. 3. The Company has in place a procedure enabling the Board of Directors to get professional advice on matters within its remit at the expense of the Company. Annual Report 2021. Constructing future energy transition today Additional Information 104–105 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance — No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 2.7.3 The format of the 1. The Company’s Articles of This principle is complied with. 2.8 The Board of Directors sets up committees for preliminary consideration of the most important issues related to the business of the Company. meeting of the Board of Association or internal documents Directors is determined taking into account the matters (as per the list set provide for the most important 2.8.1 To preview matters related to controlling 1. The Board of Directors has set up an audit committee comprised This principle See comment to item 2.4.3. importance of items on the agenda. The most important matters are dealt with at meetings of the Board of out in Recommendation 168 of the Code) to be passed at in- person meetings of the Board of Directors. is not fully complied with. the Company’s financial solely of independent directors. and business activities, it is recommended to set up an audit committee comprised of independent directors. 2. The Company’s internal documents set out the tasks of the audit committee, including those listed in Recommendation 172 of the Code. This principle is complied with. — Directors held in person. 2.7.4 Resolutions on most important matters relating to the 1. The Company’s Articles of This principle The Company’s Articles of Association provides for the most important matters set out in Recommendation 170 of the Code to be passed at a meeting of the is not fully complied with. association do not provide for resolutions of the Board to be passed by qualified majority on the following matters: Company’s operations are passed at a meeting of the Board of Board of Directors by a qualified Directors by a qualified majority of at least three quarters majority or by a majority or by a majority of all elected of all elected board members. 3. At least one member of the audit committee represented by an independent director has experience and knowledge of preparing, analyzing, assessing and auditing accounting (financial) statements. • submission to the General Meeting of matters relating to the Company’s liquidation board members. • submission to the General Meeting of matters relating to amendments to the Company’s Articles of association 4. Meetings of the audit committee were held at least once a quarter during the reporting period. • review of material issues relating to operations of legal entities controlled by the Company. 2.8.2 To preview matters related to adopting an efficient and 1. The Board of Directors has set up a remuneration committee comprised solely of independent directors. This principle See comment to item 2.4.3. is not fully complied with. transparent remuneration scheme, a remuneration committee is set up, comprised of independent directors and headed by an independent director who is not the chairman of the Board of The Company deems sufficient the existing norm stipulated in the legislation and the Articles of Association according to which decisions on amendments and additions in the Company's Articles of Association, including approval of the latter in a new wording, as well as on Company's liquidation, appointment of a winding up commission and approval of the interim and final liquidation balance shall be made by the general shareholders meeting by the three-forths majority of the votes of shareholders holding the voting shares and taking part in the general shareholders meeting. 2. The Remuneration Committee is headed by an independent director who is not the Chairman of the Board of Directors. This principle is complied with. — 3. The Company's internal documents set out the tasks of the Remuneration committee, including those listed in Directors. Recommendation 180 of the Code, as well as events (circumstances) upon the occurrence of which the Remuneration Committee considers reviewing the Company's policy on remunerating its directors, executive body members and other key executives. 2.8.3 To preview matters related to talent management 1. The Board of Directors has set up a Nomination Committee (its tasks listed in Recommendation 186 of the Code are fulfilled by another committee) predominantly comprised of independent directors. This principle Due to the fact that this is not complied with. criteria was recommended by the Bank of Russia at the end of December 2021, the Company had no opportunity to assess the possibility of its implementation. (succession planning), professional The Company considers the established procedure to be balanced, not bearing any risks, and does not plan to change the existing approach. composition and efficiency of the Board of Directors, a nomination (HR) committee is set up, predominantly comprised of 2. The Company’s internal documents set out the tasks of the Nomination Committee (or the tasks of the committee with combined functions), including those listed in independent directors. Recommendation 186 of the Code. Annual Report 2021. Constructing future energy transition today Additional Information 106–107 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 3. To form a Board of Directors that best meets the goals and objectives of the Company, 2.9 The Board of Directors ensures performance assessment of the Board of Directors, its committees and members of the Board of Directors. the Nomination Committee, 2.9.1 The Board of Directors’ performance 1. The Company's internal documents outline the procedures for performance assessment (self-assessment) of the Board of Directors. This principle is complied with. — independently or together with other committees of the Board of Directors or the Company's division authorized to interact with shareholders, organized interaction with shareholders in the reporting period, not limited to major shareholders only, with a view to select nominees to the Company's Board of Directors. assessment is aimed at determining the efficiency of the Board of Directors, its committees and members, consistency of their work with the 2. Performance assessment (self-assessment) of the Board of Directors carried out in the reporting Company’s development period included performance requirements, as well as assessment of the committees, bolstering the work of the Board of Directors each individual member of the Board of Directors, and the Board 2.8.4 Taking into account the Company’s 1. In the reporting period, the Company's Board of Directors considered whether the structure of the Board of Directors was consistent with the scope and nature, goals and needs, and risk profile of the Company. Additional committees were either set up or not deemed necessary. This principle is complied with. — and identifying areas for of Directors in general. improvement. scope of business 3. Results of performance and level of risks, the Company’s Board of Directors made sure that the composition of its committees assessment (self-assessment) of the Board of Directors carried out in the reporting period were reviewed at the in-person meeting of the Board. is fully in line with Company’s business goals. Additional 2.9.2 Performance of the Board of Directors, 1. The Company engaged an external advisor to conduct an independent assessment of the This principle is complied with. — committees were either set up or not deemed necessary (strategy committee, corporate governance committee, ethics committee, risk management committee, budget committee, health, safety and environment committee, etc.). its committees and directors is assessed on Board of Directors’ performance a regular basis at least once a year. An external reporting periods. organization (advisor) is engaged at least once in three years to conduct an independent assessment of the Board of Directors’ performance. at least once over the last three 2.8.5 Committees are composed so as to enable comprehensive discussions of matters under preview, taking into account the 1. The Audit Committee, the Remuneration Committee, the Nomination Committee (or the relevant committee with combined functions) were headed in the reporting period by independent directors. This principle is complied with. — 3.1 The Company’s corporate secretary ensures efficient ongoing interaction with shareholders, coordinates the Company’s efforts to protect shareholder rights and interests and supports the activities of the Board of Directors. 3.1.1 The corporate secretary 1. The biographical data (including This principle is complied with. — diversity of opinions. has the knowledge, experience and age, education, qualification, track record) of the corporate secretary 2. The Company’s internal qualifications sufficient as well as information on positions in documents (policies) include provisions stipulating that persons who are not members of the Audit Committee, the Nomination Committee (or the relevant committee with combined functions) and the Remuneration committee may attend committee meetings only by invitation of the Chairman of the respective committee. to perform his/her duties, as well as an impeccable reputation and the trust of other legal entities' governing bodies held by the corporate secretary for at least 5 most recent years are published on the corporate website and in the Company’s annual report. shareholders. 3.1.2 The corporate 1. The Company has adopted and This principle is complied with. — secretary is sufficiently published an internal document – independent of the Company’s executive bodies and has the powers and resources regulations on the corporate secretary. 2. The Board of Directors approves 2.8.6 Committee chairmen inform the Board 1. During the reporting period, committee chairmen reported regularly to the Board of Directors This principle is complied with. — required to perform his/ the nomination for the corporate her tasks. secretary position and terminates the corporate secretary's powers, decides on the payment of additional remuneration to the corporate secretary. of Directors and its chairman on the work of on the work of committees. their committees on a regular basis. 3. Pursuant to the Company's internal documents, the corporate secretary may seek and obtain the Company's documents and information from the Company's governing bodies, business units and officials. Annual Report 2021. Constructing future energy transition today Additional Information 108–109 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 4.1 Remuneration paid by the Company is sufficient to attract, motivate and retain persons who have competencies and qualifications required by the Company. Directors, executive body members and other key managers are remunerated as per the Company's remuneration policy. 4.2 Directors' remuneration ensureS that their financial interests are aligned with long-term financial interests of shareholders. 4.2.1 The Company pays fixed 1. In the reporting period, the This principle is complied with. — 4.1.1 The amount of 1. The remuneration of the remuneration paid by the Company's Board of Directors, Company to members of executive bodies, and other key This principle is complied with. — annual remuneration to members of the Board of Directors. The Company does not pay remuneration for attending particular meetings of the Board of Directors or its Company paid remuneration to members of the Board of Directors as per the Company's remuneration policy. the Board of Directors, executive bodies and other key executives creates sufficient executives is set forth based on benchmarks for comparable companies' remuneration level. 2. In the reporting period, the Company did not apply any form of short-term motivation or additional financial incentive contingent on the Company's performance results (indicators) for members of the Board of Directors. No remuneration was paid for attending particular incentives for them to work efficiently, while enabling the Company to engage and retain competent and qualified specialists. At the same time, the Company committees. The Company does not apply any form of short-term motivation or additional financial avoids unnecessarily high remuneration, as well as unjustifiably large gaps between remunerations of the above persons and the Company’s employees. incentive for members of meetings of the Board of Directors the Board of Directors. or its committees. 4.2.2 Long-term ownership of 1. If the Company’s internal This principle Not applicable, since the the Company’s shares helps align the financial document(s) – the remuneration policy (policies) stipulates is complied with. Regulations on Remuneration and Compensations Payable to Members of PAO NOVATEK Board of Directors does not provide for remuneration of the directors with Company shares. interests of members of (stipulate) provision of the the Board of Directors Company’s shares to members with long-term interests of the Board of Directors, clear 4.1.2 The Company’s 1. During the reporting period, the remuneration committee considered the remuneration This principle is complied with. — — — remuneration policy is developed by the of shareholders to the utmost. At the same time, the Company does not link the right to dispose of shares to performance targets, and members of the Board of Directors do not participate in stock option plans. rules for share ownership by board members are defined and disclosed, aimed at stimulating long-term ownership of such shares. remuneration committee policy (policies) and/or the and approved by the Board of Directors. The Board of Directors, assisted by the practical aspects of its (their) introduction, assessed their efficiency and transparency, and presented relevant remuneration committee, recommendations to revise the ensures control over the introduction and implementation of the Company’s remuneration policy, revising and same to the Board of Directors as required. 4.2.3 The Company does not provide for any extra payments or compensations in 1. The Company does not provide for any extra payments or compensations in the event of early termination of office of members of the Board of Directors This principle is complied with. — amending it as required. 4.1.3 The Company’s 1. The Company’s remuneration policy (policies) includes (include) transparent mechanisms for determining the amount of This principle is complied with. the event of early remuneration policy includes transparent mechanisms for termination of office of resulting from the change of members of the Board of Directors resulting from the change of control or any other reasons whatsoever. control or any other reasons whatsoever. determining the amount remuneration due to members of of remuneration due to members of the Board of Directors, executive bodies and other key executives of the the Board of Directors, executive bodies and other key executives of the Company, and regulates (regulate) all types of expenses, benefits and privileges provided to 4.3 Remuneration of executive body members and other key managers is linked to the Company's results and their personal contribution thereto. Company, and regulates such persons. all types of expenses, benefits and privileges provided to such 4.3.1 Remuneration due to members of executive bodies and other key executives of the 1. In the reporting period, annual performance results approved by the Board of Directors were used to determine the amount of the This principle The procedure for defining is complied with. and payment of bonuses to members of the Management Board and other key executives existing in the Company does not allow illegal receipt of persons. Company is determined variable part of remuneration due 4.1.4 The Company defines a 1. The remuneration policy policy on reimbursement (policies) defines (define) the This principle is complied with. in a manner providing for reasonable and justified ratio of the fixed and variable parts of remuneration, depending on to members of executive bodies and other key executives of the Company. bonus payments by the persons named. The Company believes the executive bodies' members' civil liability norms set out in the applicable law to be sufficient. (compensation) of rules for reimbursement of costs incurred by members of the Board of Directors, executive bodies and other key executives of the Company. costs detailing a list of reimbursable expenses and specifying service levels that members of the Board of Directors, executive bodies and other key executives of the Company can claim. Such policy can make part of the Company’s remuneration policy. 2. During the latest assessment of the system of remuneration for members of executive bodies and other key executives of the Company, the Board of Directors (remuneration committee) made sure that the Company applies efficient ratio of the fixed and variable parts of remuneration. the Company’s performance and the employee’s personal contribution. Annual Report 2021. Constructing future energy transition today Additional Information 110–111 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 5.1.3 The Company’s risk management and 1. The Company has an approved anti-corruption policy. This principle is complied with. — 3. In order to to avoid incentivizing excessively risky management decisions, the Company's risks are factored in when establishing the remuneration for members of executive bodies and other key executives of the Company is established. internal controls ensure an objective, fair and clear view of the current state and future prospects of the Board of Directors or the board’s Company, the integrity audit committee of breaches and transparency of the of any violations of the law, the Company’s reporting, as well as reasonable and acceptable risk exposure. 2. The Company established a safe, confidential and accessible method (hotline) of notifying the 4.3.2 The Company put in place a long-term 1. If the Company has in place a long-term incentive program for incentive programme for members of executive bodies This principle Currently, The Company Company’s internal procedures and code of ethics. is not does not consider necessary implementing a long-term incentive program for members of executive bodies and other key executives of the Company with the use of the Company’s shares (financial instruments based on the Company’s shares). complied with. members of executive bodies and other key executives of the and other key executives of the Company with the use of the Company’s shares (financial instruments based on the 5.1.4 The Company’s Board of Directors shall take necessary measures to make sure that 1. In the reporting period, the Board of Directors (Audit Committee and/or Risk Committee (if any) arranged assessment of the reliability and efficiency of the risk management and internal controls. This principle is complied with. — Company with the use of the Company’s shares (options and other derivative Company’s shares), the program implies that the right to dispose of such shares and other financial instruments takes effect at least three years after such shares or other financial instruments are granted. The right to dispose of such shares or other financial instruments is linked to the the Company’s risk management and instruments where the Company’s shares are the underlying asset). internal controls are consistent with the principles of, and 2. In the reporting period, the Board of Directors considered results of the assessment of the reliability and efficiency of the Company's risk management and internal controls, and data on the results of the consideration are included in the Company's annual report. approaches to, its setup determined by the Board of Directors, and that the system is functioning efficiently. Company’s performance targets. 4.3.3 The compensation (golden parachute) payable by the 1. In the reporting period, the compensation (golden parachute) This principle is complied — payable by the Company in case of with. early termination of the powers of executive bodies or key executives at the Company’s initiative, provided that there have been no actions in bad faith on their part, did not exceed the double amount of the fixed part of their annual Company in case of early termination of powers of members of executive bodies or key executives at the Company’s initiative, provided that there 5.2 The Company arranges for an internal audit, to assess reliability and performance of the risk management and internal control system on a regular and independent basis. 5.2.1 The Company set up a separate business unit or engaged an 1. To perform internal audits, the Company set up a separate business unit – internal audit division, functionally reporting to the Board of Directors, or engaged an independent external organization with the same line of reporting. This principle is complied with. — have been no actions in remuneration. bad faith on their part, does not exceed the independent external organization to carry out internal audits. double amount of the fixed part of their annual remuneration Functional and administrative reporting lines of the internal audit department are delineated. The internal audit unit functionally reports to the Board of Directors. 5.1 The Company put in place an effective risk management and internal control system to guarantee, in a reasonable manner, fulfillment of the Company's goals. 5.1.1 The Board of Directors of the Company has defined the Company's risk management 1. Functions of different This principle is complied with. — management bodies and divisions of the Company in the risk management and internal controls are clearly defined in the Company’s internal documents / relevant policy approved by the Board of Directors. 5.2.2 The internal audit division assesses the performance of the internal controls, risk management, and corporate governance. The Company applies generally accepted standards of internal audit. 1. In the reporting period, This principle is complied with. — and internal control principles and approaches. assessment of the reliability and efficiency of the risk management and internal controls was made as part of the internal audit. 5.1.2 The Company’s executive bodies 1. The company’s executive This principle is complied with. — bodies ensured the distribution of duties, powers and responsibility related to risk management and internal controls between the heads (managers) of divisions and departments accountable to them. 1. In the reporting period, ensure establishment and continuous operation of efficient risk management and internal controls in the Company. assessment of the corporate governance framework (practices) was made within the internal audit framework, including information interaction procedures (i.a. those concerning internal control and risk management) at all levels of the Company's governance, including interaction with stakeholders. Annual Report 2021. Constructing future energy transition today Additional Information 112–113 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 6.2.2 The Company avoids a 1. The Company's information This principle The Company discloses its 6.1 The Company and its operations are transparent for its shareholders, investors and other stakeholders. formalistic approach to policy sets out approaches to is not fully complied with. capital structure to the extent required by the applicable laws. information disclosure and discloses material information on its operations, even if disclosure of such information is not required by law. disclosing information information on other events (actions) that have a material impact on the Company’s evaluation and the price of its securities, disclosing information on which is not required by law. 6.1.1 The Company has developed and 1. The Company’s Board of This principle is complied with. — Directors approved an information policy developed in accordance with the Code’s recommendations. implemented an information policy ensuring an efficient exchange of information 2. In the reporting period, the by the Company, its Board of Directors (or one of its shareholders, investors, committees) considered efficiency and other stakeholders. of the exchange of information of Company, shareholders, investors 2. The Company discloses information on its capital structure in accordance with recommendation 290 of the Code both in the annual report and on the Company’s website. and other stakeholders and the feasibility (necessity) to revise the Company's information policy. 6.1.2 The Company discloses information on its 1. The Company discloses This principle is complied with. — 3. The Company makes disclosures on controlled entities that are material to the Company, including disclosures on their core business areas, mechanisms ensuring their accountability, the Board of Directors' authority in respect of shaping the strategy and assessing the performance of controlled entities. information on its corporate governance and general principles of corporate governance, including disclosure on its website. corporate governance and practice, including detailed information on compliance with the principles and 2. The Company discloses recommendations of the information on the membership Code. of its executive bodies and Board of Directors, independence of the directors and their membership in the board’s committees (as defined by the Code). 4. The Company makes non-financial disclosures through the sustainability report, the environmental report, the corporate social responsibility report or any other report containing non- financial information, including environmental aspects (e. g. ecological aspects and aspects related to climate change), social aspects, and governance aspects, excluding the report of the issuer of securities and the annual report of the joint-stock Company. 3. If the Company has a controlling person, the Company publishes a memorandum of the controlling person setting out this person’s plans for the Company’s corporate governance. 6.2 The Company discloses up-to-date, complete and reliable information on its operations in due time, to enable its shareholders and investors to make informed decisions. 6.2.1 The Company discloses information based 1. The Company has defined the procedure to align all the structural units and employees of the Company whose activities are related to or may require information disclosure. This principle is complied with. — on the principles of regularity, consistency and promptness, as well as availability, reliability, completeness and comparability of disclosed data. 6.2.3 The Company’s annual report, as one of the 1. The Company’s annual report contains information on the audit This principle is complied with. — most important tools of committee's assessment of third- its information exchange party and internal audit process 2. If the Company’s securities are traded on foreign organized markets, the Company ensured concerted and equivalent disclosure of material information in the Russian Federation and in the said markets in the reporting year. with shareholders and other interested parties, contains information efficiency. 2. The Company’s annual report enabling assessment of contains information on the the Company’s annual performance results. Company's environmental policy and social policy. 6.3 The Company provides information and documents requested by its shareholders in accordance with principles of fairness and ease of access. 3. If foreign shareholders hold a material portion of the Company’s shares, information was disclosed both in the Russian language and one of the most widely used foreign languages in the reporting period. 6.3.1 The Company provides information and 1. The Company's information policy (internal documents This principle The Company’s Information is not fully complied with. Policy determines an easy procedure for providing documents requested by its shareholders in accordance with principles of fairness and ease of access. governing the information policy) sets forth an easy procedure for providing shareholders with access to the Company's information and documents upon request. shareholders with access to information, with the exception of information on legal entities controlled by the Company, the provision of which is not prescribed for by law. Annual Report 2021. Constructing future energy transition today Additional Information 114–115 No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance No. Corporate Governance Principles Compliance criteria Compliance status Reasons for non-compliance 7.1.3 When taking material 1. Due to specifics of the This principle is complied with. — 2. The information policy corporate actions which Company’s operations, the (internal documents governing the information policy) makes provisions for the Company to use necessary efforts to obtain from the Company-controlled entities the information on the relevant Company-controlled entities as requested by a shareholder. would affect rights or legitimate interests of shareholders, equal terms and conditions are guaranteed for all shareholders; if the statutory procedure designed to protect shareholders’ rights proves insufficient, additional measures are approved before they were taken. taken to protect their rights and legitimate interests. In doing so, Company’s Articles of Association stipulate that the Board of Directors has the jurisdiction over the approval of other transactions that are material to the Company in addition to the transactions set forth in the legislation. 6.3.2 When providing information to 1. In the reporting period, the Company did not refuse any shareholder requests for information, or such refusals were justified. This principle is complied with. — 2. All material corporate actions in the reporting period were duly shareholders, the Company shall ensure reasonable balance between the interests of particular shareholders and its own interests consisting in preserving the confidentiality of important commercial information which may materially affect its competitiveness. 2. In cases defined by the information policy, shareholders are warned of the confidential nature of the information and undertake to maintain its confidentiality. the Company is guided by the corporate governance principles set forth in the Code, as well as by formal statutory requirements. 7.2 The Company provides a procedure for taking material corporate actions that would enable its shareholders to receive full information about such actions in due time and influence them, and also guarantee that the shareholder rights are observed and duly protected when such actions are taken. 7.1 Actions which will or may materially affect the Company's share capital structure and its financial position and accordingly the position of its shareholders (“material corporate actions”) are taken on fair terms ensuring that the rights and interests of the shareholders and other stakeholders are observed. 7.2.1 Information about material corporate 1. If the Company performed material corporate actions during the reporting period, the Company This principle is complied with. — 7.1.1 Material corporate actions include restructuring of the Company, acquisition of 30% or more of the Company’s voting shares to the Company’s Articles of (takeover), execution by Association, resolutions on the Company of major transactions, increase or decrease of the Company’s authorised capital, listing or de- listing of the Company’s to the jurisdiction of the general shares, as well as other actions which may lead to material changes in the rights of shareholders or violation of their interests. The Company’s Articles of Association provide a list (criteria) of transactions or other actions classified as material corporate actions within the authority of the Company’s Board of Directors. 1. The Company’s Articles of Association include a list of (criteria for) transactions or other actions deemed to be material corporate actions. According This principle The Company’s Articles of actions is disclosed is not fully complied with. Association do not contain a separate section with a list of significant corporate actions. At the same time, decision-making on issues related to significant corporate actions falls within the authority of the Board of Directors. with explanations of the disclosed, timely and in detail, grounds, circumstances information on such actions, and consequences. including the reasons, conditions and consequences of such actions for shareholders. 7.2.2 Rules and procedures related to material 1. The Company’s internal documents define the cases This principle The need to involve an is not complied with. material corporate actions are referred to the jurisdiction of the Board of Directors. When execution of such corporate actions is expressly referred by law appraiser for the valuation of the purchase price of the Company's shares is provided by the current legislation. There is no need to duplicate this requirement in the internal documents of the Company. corporate actions taken and a procedure for engaging an by the Company are set appraiser to estimate the value out in the Company’s internal documents. The Company does not see any risks in this. of assets either disposed of or acquired in a major transaction or a related-party transaction. shareholders meeting, the Board of Directors presents relevant recommendations to shareholders. 2. The Company’s internal documents set out a procedure for engaging an appraiser to estimate the value of shares acquired and redeemed by the Company. 3. If there is no formal interest of a member of the Board of Directors, the sole executive body, a member of the collegial executive body of the Company or a person being the Company's controlling person or a person entitled to give the Company binding instructions, in the Company's transactions, but if there is a conflict of interest or other actual interest of them, the internal documents of the Company provide that such 7.1.2 The Board of Directors plays a 1. The Company has in place a procedure enabling independent directors to express their opinions on material corporate actions prior to approval thereof. This principle Relevant comments are provided is not fully complied with. in items 2.4.4. and 2.5.1 hereof. key role in passing resolutions or making recommendations on material corporate actions, relying on the opinions of the Company’s independent directors. persons shall not participate in the voting on the approval of such transaction. Annual Report 2021. Constructing future energy transition today Additional Information 116–117 Forward–looking Statements and/or independent petroleum reservoir engineers; Terms and Abbreviations This Annual Review includes ‘forward-looking information’ within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. Certain statements included in this Annual Report and Accounts, including, without limitation, statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “will,” “may,” “should” and similar expressions identify forward-looking statements. Forward- looking statements include statements regarding: strategies, outlook and growth prospects; future plans and potential for future growth; liquidity, capital resources and capital expenditures; growth in demand for our products; economic outlook and industry trends; developments of our markets; the impact of regulatory initiatives; and the strength of our competitors. The forward-looking statements in this Annual Review are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Mentions in this Annual Report of “PAO NOVATEK”, “NOVATEK”, “the Company”, “we” and “our” refer to PAO NOVATEK and/or its subsidiaries (according to IFRS methodology) and/or joint ventures (accounted for on an equity basis according to IFRS standards), depending upon the context, in which the terms are used. • inherent uncertainties in interpreting geophysical data; • changes to project schedules and estimated completion dates; • our success in identifying and managing risks to our businesses; barrel one stock tank barrel, or 42 US gallons of liquid volume • the effects of changes to the Russian legal framework concerning currently held and any newly acquired oil and gas production licenses; bcm boe km billion cubic meters barrels of oil equivalent kilometer(s) mboe mcm mt thousand boe thousand cubic meters thousand metric tons • changes in political, social, legal or economic conditions in Russia and the CIS; • the effects of technological changes; mmboe million boe mmcm mmt mmtpa mtpa ton million cubic meters million metric tons million metric tons per annum thousand metric tons per annum metric ton • the effects of changes in accounting standards or practices. This list of important factors is not exhaustive. When relying on forward-looking statements, one should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which we operate. Such forward looking statements speak only as of the date on which they are made. Accordingly, we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. We do not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward- looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. The information and opinions contained in this document are provided as at the date of this review and are subject to change without notice.. CCS CDP ESG GBS GDR GHG LA Carbon capture and storage Carbon Disclosure Project Environmental, Social, Governance Gravity-based structures Global Depositary Receipts Greenhouse gases Although we believe that these assumptions were reasonable when made, these assumptions are inherently subject to significant uncertainties and contingencies, which are difficult or impossible to predict and are beyond our control. As a result, we may not achieve or accomplish these expectations, beliefs or projections. In addition, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include: : License area LPG Liquified petroleum gases Liquified natural gas Methane Guiding Principles Natural gas liquids Open joint-stock company Occupational health and safety Limited liability company Northern Sea Route LNG MGP NGL OAO OHS OOO NSR • changes in the balance of oil and gas supply and demand in Russia and Europe; PAO PRMS RR Public joint-stock company Petroleum Resources Management System Russian rouble • the effects of domestic and international oil and gas price volatility and changes in regulatory conditions, including prices and taxes; Conversion Factors SEC United States Securities and Exchange Commission • the effects of competition in the domestic and export oil and gas markets; 1,000 cubic meters of gas = 6.54 boe. TCFD Task Force on Climate-related Financial Disclosures To convert crude oil and gas condensate reserves from tons to barrels we used various coefficients depending on the liquids density at each field. UGSS UN Unified Gas Supply System United Nations • our ability to successfully implement any of our business strategies; YNAO Yamal-Nenets Autonomous Region • the impact of our expansion on our revenue potential, cost basis and margins; • our ability to produce target volumes in the event, among other factors, of restrictions on our access to transportation infrastructure; • the effects of changes to our capital expenditure projections on the growth of our production; • potentially lower production levels in the future than currently estimated by our management Annual Report 2021. Constructing future energy transition today APPROVED Contact Information by a resolution of the annual General Meeting of Shareholders of PAO NOVATEK on 21 April 2022 Minutes No.138 Office in Tarko-Sale GDR program Administrator 22-A, Pobedy Street, 629850, The Bank of New York Mellon, Depositary Receipts 240 Greenwich Street, New York, NY 10286, USA New York +1 212 815 4158 London +44 207 163 7512 Moscow +7 495 967 3110 PRE-APPROVED Tarko-Sale, Purovsky district, Yamal-Nenets Autonomous Region, Russia by a resolution of the Board of Directors of PAO NOVATEK on 18 March 2022 Minutes No.252 Office in Moscow 2, Udaltsova Street, 119415, Moscow, Russia DATA ACCURACY CERTIFIED Independent Auditor by PAO NOVATEK’s Revision Commission on 4 March 2022 AO PricewaterhouseCoopers Audit White Square Office Center, Butyrsky Val 10, 125047 Moscow, Russia Tel: +7 495 967-6000 Central Information Service Tel: +7 495 730-6000 Fax: +7 495 967-6001 Fax: +7 495 721-2253 E-mail: novatek@novatek.ru Independent Reserves Auditor Press Service DeGolyer and MacNaughton 5001 Spring Valley Road, Suite 800, East Dallas Tel: +7 495 721-2207 E-mail: press@novatek.ru Texas 75244, USA Tel: +1 214 368-6391 Fax: +1 214 369-4061 E-mail: degolyer@demac.com Investor Relations Tel: +7 495 730-6013 Fax: +7 495 730-6000 E-mail: ir@novatek.ru Website: www.novatek.ru/ru/ (Russian version) www.novatek.ru/en/ (English version) Registrar IRC – R.O.S.T. 18/5B office IX, Stromynka Street, Moscow, Russia 107076 Tel: +7 495 989-76-50 Fax: +7 495 780-73-67 E-mail: info@rrost.ru RESPONSIBILITY STATEMENT I hereby confirm that to the best of my knowledge: (a) the set of financial statements, which has been prepared in accordance with International Accounting Standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the undertakings included in the consolidation as a whole as required by the Disclosure and Transparency Rule (DTR) 4.1.6R; (b) the management report includes a fair review of the information required by DTR 4.1.9R-4.1.11R, being a balanced and comprehensive analysis of development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the company faces. Viktor Belyakov, Deputy Chairman of the Management Board for Economics and Finance Consolidated Financial Results 2021 PAO NOVATEK IFRS Consolidated Financial Statements for the Year Ended 31 December 2021 and Independent Auditor’s Report CONTENTS Page Independent Auditor’s Report ................................................................................................................................. 3 Consolidated Statement of Financial Position......................................................................................................... 9 Consolidated Statement of Income........................................................................................................................ 10 Consolidated Statement of Comprehensive Income.............................................................................................. 11 Consolidated Statement of Cash Flows................................................................................................................. 12 Consolidated Statement of Changes in Equity ...................................................................................................... 14 Notes to the Consolidated Financial Statements: Note 1. Organization and principal activities.................................................................................................... 15 Note 2. Basis of preparation.............................................................................................................................. 15 Note 3. Critical accounting estimates and judgments........................................................................................ 16 Note 4. Acquisitions and disposals.................................................................................................................... 18 Note 5. Property, plant and equipment.............................................................................................................. 20 Note 6. Investments in joint ventures................................................................................................................ 22 Note 7. Long-term loans and receivables.......................................................................................................... 28 Note 8. Other non-current assets....................................................................................................................... 29 Note 9. Inventories............................................................................................................................................ 29 Note 10. Trade and other receivables.................................................................................................................. 30 Note 11. Prepayments and other current assets................................................................................................... 30 Note 12. Cash and cash equivalents .................................................................................................................... 31 Note 13. Long-term debt..................................................................................................................................... 31 Note 14. Short-term debt and current portion of long-term debt......................................................................... 32 Note 15. Pension obligations............................................................................................................................... 32 Note 16. Trade payables and accrued liabilities.................................................................................................. 34 Note 17. Shareholders’ equity............................................................................................................................. 34 Note 18. Oil and gas sales ................................................................................................................................... 35 Note 19. Purchases of natural gas and liquid hydrocarbons................................................................................ 35 Note 20. Transportation expenses ....................................................................................................................... 36 Note 21. Taxes other than income tax................................................................................................................. 36 Note 22. Materials, services and other ................................................................................................................ 36 Note 23. General and administrative expenses.................................................................................................... 37 Note 24. Finance income (expense) .................................................................................................................... 37 Note 25. Income tax ............................................................................................................................................ 38 Note 26. Financial instruments and financial risk factors ................................................................................... 41 Note 27. Contingencies and commitments.......................................................................................................... 52 Note 28. Principal subsidiaries and joint ventures .............................................................................................. 57 Note 29. Related party transactions..................................................................................................................... 58 Note 30. Segment information ............................................................................................................................ 60 Note 31. Summary of significant accounting policies......................................................................................... 61 Note 32. New accounting pronouncements......................................................................................................... 68 Unaudited supplemental oil and gas disclosures ................................................................................................... 69 Contact Information .............................................................................................................................................. 74 Independent Auditor’s Report To the Shareholders and Board of Directors of PAO NOVATEK: Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of PAO NOVATEK (the “Company”) and its subsidiaries (together – the “Group”) as at 31 December 2021, and the Group’s consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS). What we have audited The Group’s consolidated financial statements comprise:  the consolidated statement of financial position as at 31 December 2021;  the consolidated statement of income for the year then ended;  the consolidated statement of comprehensive income for the year then ended;  the consolidated statement of cash flows for the year then ended;  the consolidated statement of changes in equity for the year then ended; and  the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) and the ethical requirements of the Auditor’s Professional Ethics Code and Auditor’s Independence Rules that are relevant to our audit of the consolidated financial statements in the Russian Federation. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. AO PricewaterhouseCoopers Audit White Square Office Center 10 Butyrsky Val Moscow, Russian Federation, 125047 T: +7 (495) 967 6000, F:+7 (495) 967-6001, www.pwc.ru Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter We updated our understanding of approach to measurement and recognition of commodity derivative contracts by the Group. Accounting for trading activities in Europe The Group conducts natural gas foreign trading in active markets under long-term and short-term purchase and sales contracts, as well as purchases and sells various derivative instruments (with reference to the European natural gas hubs) for delivery optimization and to decrease exposure to the risk of negative impact of natural gas prices changes. We assessed the appropriateness of the valuation methodology applied and the integrity of the models used. We ensured that all valid significant commodity derivative contracts were taken into account for the purpose of fair value measurement of commodity derivative contracts. For significant commodity derivative contracts we identified the market data inputs used by the Group and tested these against independent data. These contracts include pricing terms that are based on a variety of commodities and indices, and/or volume flexibility options. Certain contracts involve the physical delivery of hydrocarbons. For significant commodity derivative contracts we tested the accuracy of the contractual inputs and the appropriateness of key valuation inputs to ensure that the resulting valuation is reasonable. The fair value of commodity derivative contracts is determined based on available futures quotes in the active market or valuation techniques and models. We reviewed the disclosures relating to commodity derivative contracts against requirements of IFRS 7 and IFRS 13. We focused on this area because of the commodity price volatility that may have a significant impact on the Group’s results from natural gas foreign trading and derivative instruments. Information on the trading activities is disclosed in Note 26 of the consolidated financial statements. ii Other matter – Materiality and Group audit scope Overview Materiality Overall Group materiality: Russian Roubles (“RUB”) 13,500 million which represents 4% of adjusted profit before tax excluding currency exchange differences, net gain on disposal of interests in subsidiaries and joint ventures and the Group’s share of joint ventures’ currency exchange differences net of income tax. Group scoping  We conducted audit work covering all significant components in Russia, Switzerland, Singapore and Republic of Cyprus.  Our audit scope addressed more than 99% of the Group’s revenues and more than 99% of absolute value of income and expense items forming the Group’s underlying profit before tax. Materiality As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the consolidated financial statements as a whole. Overall Group materiality How we determined it RUB 13,500 million 4% of adjusted profit before tax excluding currency exchange differences, net gain on disposal of interests in subsidiaries and joint ventures and share of joint ventures’ currency exchange differences net of income tax. iii Rationale for the materiality benchmark applied We chose profit before tax as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured by users, and is a generally accepted benchmark. The use of adjusted profit before tax mitigates the effect of volatility (that could be material) caused by non-recurring factors such as gains on disposals of assets and foreign exchange differences and provides a more stable basis for determining materiality, focusing on the underlying profitability of the Group. We chose 4% which is consistent with quantitative materiality thresholds used for profit-oriented companies in this sector and prior year approach. How we tailored our Group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls and the industry in which the Group operates. In establishing the overall group audit strategy and plan, we determined the type of work that needed to be performed at the reporting units by the group engagement team and by the component auditors from other PwC network firms. For each reporting unit we issued specific instructions to the component auditors within our audit scope. We determined the level of involvement for component auditors whom we need to engage in the audit process at those reporting units so as to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a whole. We determined whether we required an audit of full scope of financial information or whether a defined scope of specified procedures was sufficient. The Group’s consolidated financial statements disclosures and a number of financial statement line items are audited directly by the PAO NOVATEK audit engagement team. Our procedures included, among others, the assessment of accounting estimates and judgements applied by management in respect of fair values and classification of financial assets and liabilities, deferred income tax asset recognition, estimation of oil and gas reserves, expected credit loss allowance of financial assets and impairment of non-financial assets, pension obligations and asset retirement obligations. By performing the procedures described above at the individual component level, combined with the additional procedures performed at the group level, we have obtained sufficient and appropriate audit evidence regarding the financial information of the Group to provide a basis for our opinion on the consolidated financial statements. Other information Management is responsible for the other information. The other information comprises report “Management’s discussion and analysis of financial condition and results of operations of PAO NOVATEK for the years ended 31 December 2021 and 2020” (but does not include the consolidated financial statements and our auditor’s report thereon), which we obtained prior to the date of this auditor’s report, and “Securities Issuer’s Report for the 12 months 2021” as well as “Annual Report of PAO NOVATEK for 2021”, which are expected to be made available to us after that date. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read iv the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the “Annual Report of PAO NOVATEK for 2021” and “Securities Issuer’s Report for the 12 months 2021”, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. v  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The certified auditor responsible for the audit resulting in this independent auditor’s report is Maxim E. Timchenko. 15 February 2022 Moscow, Russian Federation M.E. Timchenko is authorised to sign on behalf of the general director of AO PricewaterhouseCoopers Audit (Principal Registration Number of the Record in the Register of Auditors and Audit Organizations (PRNR) – 12006020338), certified auditor (PRNR – 21906100451) vi PAO NOVATEK Consolidated Statement of Financial Position (in millions of Russian roubles) Notes At 31 December 2021 At 31 December 2020 ASSETS Non-current assets Property, plant and equipment Investments in joint ventures Long-term loans and receivables Other non-current assets 870,541 572,184 310,001 127,871 1,880,597 729,407 450,632 391,053 125,152 1,696,244 5 6 7 8 Total non-current assets Current assets Inventories 17,681 550 129,499 323,240 10,723 302 71,255 98,071 9 Current income tax prepayments Trade and other receivables Prepayments and other current assets Short-term bank deposits with original maturity more than three months Cash and cash equivalents Total current assets 10 11 60,177 45,920 577,067 62,876 119,707 362,934 12 Total assets 2,457,664 2,059,178 LIABILITIES AND EQUITY Non-current liabilities Long-term debt 67,014 3,426 69,113 11,556 6,303 168,988 6,670 64,132 14,397 6,568 13 26 25 Long-term lease liabilities Deferred income tax liabilities Asset retirement obligations Other non-current liabilities Total non-current liabilities 157,412 260,755 Current liabilities Short-term debt and current portion of long-term debt Current portion of long-term lease liabilities Trade payables and accrued liabilities Current income tax payable 113,029 3,589 246,419 5,593 53,152 3,798 83,995 3,048 14 26 16 Other taxes payable 20,153 16,003 Total current liabilities 388,783 159,996 Total liabilities 546,195 420,751 Equity attributable to PАО NOVATEK shareholders Ordinary share capital Treasury shares 393 (33,293) 31,297 393 (20,386) 31,297 Additional paid-in capital Currency translation differences Asset revaluation surplus on acquisitions Retained earnings 9,202 5,617 1,881,186 2,652 5,617 1,600,391 Total equity attributable to PАО NOVATEK shareholders 1,894,402 1,619,964 17 Non-controlling interest Total equity 17,067 18,463 1,911,469 1,638,427 Total liabilities and equity 2,457,664 2,059,178 The accompanying notes are an integral part of these consolidated financial statements. L.V. Mikhelson V.N. Belyakov Chairman of the Management Committee Deputy Chairman of the Management Board for Economics and Finance 15 February 2022 9 PAO NOVATEK Consolidated Statement of Income (in millions of Russian roubles, except for share and per share amounts) Year ended 31 December: 2021 2020 Notes Revenues Oil and gas sales Other revenues 1,135,206 21,518 699,750 12,062 18 Total revenues 1,156,724 711,812 Operating expenses Purchases of natural gas and liquid hydrocarbons Transportation expenses (497,282) (161,506) (88,506) (56,599) (34,442) (34,250) (9,582) (235,224) (154,757) (54,501) (39,238) (29,577) (26,795) (9,103) 19 20 21 5 Taxes other than income tax Depreciation, depletion and amortization Materials, services and other General and administrative expenses Exploration expenses 22 23 5 Impairment expenses, net (1,908) (254) Changes in natural gas, liquid hydrocarbons and work-in-progress Total operating expenses 8,916 (875,159) (2,613) (552,062) Gain on disposal of interests in subsidiaries, net Other operating income (loss), net 662 (3,181) 69 (46,807) 4 26 Profit from operations 279,046 113,012 Finance income (expense) Interest expense Interest income Change in fair value of non-commodity financial instruments Foreign exchange gain (loss), net Total finance income (expense) (8,464) 16,000 19,600 (37,255) (10,119) (4,939) 25,440 (7,397) 147,461 160,565 24 24 26 24 Share of profit (loss) of joint ventures, net of income tax 232,277 (143,981) 6 Profit before income tax 501,204 129,596 Income tax expense Current income tax expense Deferred income tax benefit (expense), net Total income tax expense (44,731) (4,852) (49,583) (52,016) 1,006 (51,010) 25 Profit 451,621 78,586 Profit attributable to: Non-controlling interest Shareholders of PAO NOVATEK 18,694 432,927 10,754 67,832 Basic and diluted earnings per share (in Russian roubles) 144.23 22.58 Weighted average number of shares outstanding (in millions) 3,001.5 3,004.5 The accompanying notes are an integral part of these consolidated financial statements. 10 PAO NOVATEK Consolidated Statement of Comprehensive Income (in millions of Russian roubles) Year ended 31 December: 2021 2020 Notes Profit 451,621 78,586 Other comprehensive income (loss) Items that will not be reclassified subsequently to profit (loss) Remeasurement of pension obligations Share of remeasurement 1,055 (92) 15 of pension obligations of joint ventures 212 (80) 1,267 (172) Items that may be reclassified subsequently to profit (loss) Currency translation differences Share of currency translation differences of joint ventures 6,442 108 (43) (1,119) 6,550 (1,162) Other comprehensive income (loss) Total comprehensive income 7,817 (1,334) 459,438 77,252 Total comprehensive income attributable to: Non-controlling interest Shareholders of PAO NOVATEK 18,694 440,744 10,754 66,498 The accompanying notes are an integral part of these consolidated financial statements. 11 PAO NOVATEK Consolidated Statement of Cash Flows (in millions of Russian roubles) Year ended 31 December: 2021 2020 Notes Profit before income tax 501,204 129,596 Adjustments to profit before income tax: Depreciation, depletion and amortization Impairment expenses, net 56,599 1,908 39,238 254 Foreign exchange loss (gain), net Gain on disposal of interests in subsidiaries, net Interest expense 37,255 (662) 8,464 (16,000) (232,277) (19,600) (147,461) (69) 4 6 4,939 Interest income (25,440) 143,981 7,397 Share of loss (profit) of joint ventures, net of income tax Change in fair value of non-commodity financial instruments Revaluation of commodity derivatives and contingent consideration through profit or loss Other adjustments 2,600 1,678 49,512 1,940 26 Decrease (increase) in long-term advances given 3,536 6,013 Working capital changes Decrease (increase) in trade and other receivables, prepayments and other current assets Decrease (increase) in inventories (78,254) (9,739) (13,766) 2,565 Increase (decrease) in trade payables and accrued liabilities, excluding interest and dividends payable Increase (decrease) in taxes payable, other than income tax 59,078 4,193 (8,615) 2,927 Total effect of working capital changes (24,722) (16,889) Dividends and cash received from joint ventures Interest received 118,786 8,832 11,420 8,442 Income taxes paid excluding payments relating to disposal of interests in subsidiaries (28,135) (40,977) Net cash provided by operating activities 419,466 171,896 Cash flows from investing activities Purchases of property, plant and equipment Payments for mineral licenses Purchases of materials for construction Purchases of intangible assets Capital contributions to joint ventures Proceeds from disposal of interests in subsidiaries and joint ventures, net of cash disposed Income tax payments relating to disposal of interests in subsidiaries (171,620) (14,182) (13,659) (804) (181,195) (434) (17,039) (1,264) - 5 5 (1,749) 6 6 806 195,479 (73) (5,972) (23) (6,343) 4, 25 5 Interest paid and capitalized Net decrease (increase) in bank deposits with original maturity more than three months Payments for acquisition of joint ventures Guarantee fees paid 1,667 (1,655) - 43,057 - (855) 4 Loans provided to/acquisition of loans of joint ventures Repayments of loans provided to joint ventures (103,445) 57,551 (120,798) 41,543 7 7 Net cash used for investing activities (253,135) (47,872) 12 PAO NOVATEK Consolidated Statement of Cash Flows (in millions of Russian roubles) Year ended 31 December: 2021 2020 Notes Cash flows from financing activities Proceeds from long-term debt Repayments of long-term debt 24,919 (76,184) 45,395 (5,935) 13 Proceeds from short-term debt with original maturity more than three months Repayments of short-term debt with original maturity more than three months Increase (decrease) in short-term debt with original maturity three months or less, net Loan commitment fee - - 441 (441) 6,545 - 36 (534) Interest on debt paid (2,253) (154,332) (19,943) (3,687) (12,963) (2,402) (89,857) (11,858) (4,649) (8,271) Dividends paid to shareholders of PAO NOVATEK Dividends paid to non-controlling interest Payments of lease liabilities 17 17 Purchases of treasury shares Net cash used for financing activities (237,898) (2,220) (78,075) 20,518 66,467 53,240 Net effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period (73,787) 119,707 Cash and cash equivalents at the end of the period 45,920 119,707 The accompanying notes are an integral part of these consolidated financial statements. 13 PAO NOVATEK Consolidated Statement of Changes in Equity (in millions of Russian roubles, except for number of shares) Equity attributable to PAO NOVATEK shareholders Asset revaluation surplus on acquisitions Number of ordinary shares (in millions) Ordinary share capital Additional paid-in Currency translation differences Non- controlling interest Treasury shares Retained earnings Total equity capital At 1 January 2020 3,011.2 393 (12,308) 31,297 3,814 5,617 1,618,696 1,647,509 19,567 1,667,076 Profit - - - - - - - - - - - 67,832 (172) 67,832 (1,334) 10,754 - 78,586 (1,334) Other comprehensive loss (1,162) Total comprehensive income (loss) - - - - (1,162) - 67,660 66,498 10,754 77,252 Dividends (Note 17) - - - - - - (89,857) (89,857) (11,858) (101,715) Effect from other changes in joint ventures’ net assets (Note 6) Purchase of treasury shares (Note 17) - - - - - - - - - - 3,892 - 3,892 (8,078) - - 3,892 (8,078) (8.4) (8,078) At 31 December 2020 3,002.8 393 (20,386) 31,297 2,652 5,617 1,600,391 1,619,964 18,463 1,638,427 Profit - - - - - - - - - - - 432,927 1,267 432,927 7,817 18,694 - 451,621 7,817 Other comprehensive income (loss) 6,550 Total comprehensive income (loss) - - - - 6,550 - 434,194 440,744 18,694 459,438 Dividends (Note 17) - - - - - - (154,332) (154,332) (20,090) (174,422) Effect from other changes in joint ventures’ net assets (Note 6) Purchase of treasury shares (Note 17) - - - - - - - - - - 933 - 933 (12,907) - - 933 (12,907) (7.2) (12,907) At 31 December 2021 2,995.6 393 (33,293) 31,297 9,202 5,617 1,881,186 1,894,402 17,067 1,911,469 The accompanying notes are an integral part of these consolidated financial statements. 14 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 1 ORGANIZATION AND PRINCIPAL ACTIVITIES PAO NOVATEK (hereinafter referred to as “NOVATEK” or the “Company”) and its subsidiaries (hereinafter jointly referred to as the “Group”) is an independent oil and gas company engaged in the acquisition, exploration, development, production, processing, and marketing of hydrocarbons with its oil and gas operations located mainly in the Yamal- Nenets Autonomous District (hereinafter referred to as “YNAO”) of the Russian Federation. The Group delivers its natural gas and its liquid hydrocarbons on both the Russian domestic and international markets. The Group sells its natural gas on the Russian domestic market mainly through trunk pipelines and regional distribution networks, as well as sells liquefied natural gas (“LNG”), mainly through its refueling complexes. LNG sold on the domestic market is produced at the Group’s small-scale LNG plant in the Chelyabinsk region or purchased primarily from the Group’s joint venture OOO Cryogas-Vysotsk. The Group sells natural gas in Russia at unregulated market prices (except for deliveries to residential customers); however, the majority of natural gas sold on the Russian domestic market by all producers is sold at prices regulated by the governmental agency of the Russian Federation that carries out state regulation of prices and tariffs for goods and services of natural monopolies in energy, utilities and transportation. The Group’s natural gas sales volumes on the domestic market fluctuate on a seasonal basis mostly due to Russian weather conditions, with sales peaking in the winter months of December and January and troughing in the summer months of July and August. The Group’s joint ventures OAO Yamal LNG and OOO Cryogas-Vysotsk produce liquefied natural gas at their LNG plants. The Group purchases a portion of the LNG produced by Yamal LNG and Cryogas-Vysotsk and sells it primarily on the international markets. The Group’s LNG sales volumes are not subject to significant seasonal fluctuations. The Group also purchases and sells natural gas on the European market under long- and short-term supply contracts to carry out its foreign commercial trading activities, as well as conducts LNG regasification in Europe. The Group processes unstable gas condensate at its Purovsky Gas Condensate Processing Plant located in close proximity to its fields into stable gas condensate and liquefied petroleum gas. The majority of stable gas condensate is further processed at the Group’s Gas Condensate Fractionation and Transshipment Complex located at the port of Ust- Luga on the Baltic Sea into higher-value refined products (naphtha, jet fuel, gasoil and fuel oil). The remaining stable gas condensate volumes are sold on domestic and international markets. The Group sells its liquid hydrocarbons at prices that are subject to fluctuations in underlying benchmark crude oil, naphtha and other gas condensate refined products prices. The Group’s liquids sales volumes are not subject to significant seasonal fluctuations. In July 2021, the Group acquired from PAO Gazprom Neft a 49 percent participation interest in ООО Gazpromneft- Sakhalin, the holder of the license for exploration and development of the Severo-Wrangelevskiy license area located in the eastern part of the East Siberian Sea and the western part of the Chukchi Sea (see Note 4). In July 2021, the Group sold a 10 percent participation interest in ООО Arctic Transshipment to TOTAL E&P Transshipment SAS, a subsidiary of TotalEnergies SE (see Note 4). ООО Arctic Transshipment operates two LNG transshipment terminals currently under construction in the Kamchatka and Murmansk regions. 2 BASIS OF PREPARATION The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by the revaluation of financial instruments categorised at fair value through profit or loss or other comprehensive income. In the absence of specific IFRS guidance for oil and gas producing companies, the Group has developed accounting policies in accordance with other generally accepted accounting principles for oil and gas producing companies, mainly US GAAP, insofar as they do not conflict with IFRS principles. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. 15 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 2 BASIS OF PREPARATION (CONTINUED) Functional and presentation currency. The consolidated financial statements are presented in Russian roubles, the Group’s presentation currency and the functional currency for the Company and the majority of the Group’s subsidiaries. Transactions denominated in foreign currencies are converted into the functional currency of each entity at the exchange rates prevailing on the date of transactions. Monetary assets and liabilities denominated in foreign currencies are converted into the functional currency of each entity by applying the year end exchange rate. Non-monetary assets and liabilities denominated in foreign currencies valued at cost are converted into the functional currency of each entity at the historical exchange rate. Non-monetary assets that are remeasured to fair value, recoverable amount or realizable value, are converted at the exchange rate applicable to the date of remeasurement. Exchange gains and losses resulting from foreign currency remeasurement into the functional currency are included in profit (loss) for the reporting period. On consolidation the assets and liabilities (both monetary and non-monetary) of the Group entities whose functional currency is not the Russian rouble are translated into Russian roubles at the closing exchange rate at each balance sheet date. All items included in the shareholders’ equity, other than profit or loss, are translated at historical exchange rates. The financial results of these entities are translated into Russian roubles using exchange rates at the dates of the transactions or the average exchange rate for the period when this is a reasonable approximation. Exchange adjustments arising on the opening net assets and the profits for the reporting period are taken to other comprehensive income and reported as currency translation differences in the consolidated statement of changes in equity and the consolidated statement of comprehensive income. Exchange rates for foreign currencies in which the Group conducted significant transactions or had significant assets and/or liabilities in the reporting period were as follows: Average rate for the year ended At 31 December: 2021 2020 31 December: 2021 2020 Russian roubles to one currency unit US dollar (USD) Euro (EUR) Polish zloty (PLN) 74.29 84.07 18.30 73.88 90.68 20.01 73.65 87.19 19.10 72.15 82.45 18.54 Significant accounting policies. The principal accounting policies are disclosed in Note 31. In 2021, the Group adopted all IFRS, amendments and interpretations which are effective 1 January 2021 and relevant to its operations. None of them had material impact on the Group’s consolidated financial statements. In addition, the following amendments to the standards were early adopted by the Group starting from 1 January 2021: Amendments to IAS 16, Property, Plant and Equipment (issued in May 2020 and effective for annual periods beginning on 1 January 2022, early adoption permitted). These amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended use. The proceeds from selling such items, together with the costs of producing them, are now recognized in profit or loss. The Group assessed that the adoption of these amendments did not have a material impact on the Group’s consolidated financial position as at the date of their initial application. 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Consolidated financial statements prepared in accordance with IFRS require management to make estimates which the Group’s management reviews on a continuous basis, by reference to past experience and other factors considered as reasonable. Adjustments to accounting estimates and assumptions are recognized in the period in which the estimate is revised if the change affects only that period or in the period of the revision and subsequent periods, if both are affected. The Group’s management also makes certain judgments, apart from those involving estimations, in the process of applying the Group’s accounting policies. Judgments and estimates that have the most significant effect on the amounts reported in these consolidated financial statements are described below. 16 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED) Fair value of financial instruments. The fair value of financial assets and liabilities, other than financial instruments that are traded in active markets, is determined by applying various valuation methodologies. The Group’s management uses its judgment to make assumptions primarily based on market conditions existing at each reporting date. For commodity derivative contracts where observable information is not available, fair value estimations are determined using mark-to-market analysis and other acceptable valuation methods, for which the key inputs include future prices, volatility, price correlation, counterparty credit risk and market liquidity. Fair values of the Group’s commodity derivative contracts and sensitivities are presented in Note 26. In some cases, judgment is required to determine whether contracts to buy or sell commodities meet the definition of a derivative. Contracts to buy or sell LNG are not considered to meet the definition of a derivative, as they are not considered capable of being net settled. Therefore, such contracts are not within the scope of IFRS 9, Financial Instruments, and are accounted for on an accruals basis. Fair value estimation of shareholders’ loans to joint ventures is determined using benchmark interest rates adjusted for the borrower credit risk and free cash flows from the borrower’s strategic plans approved by the shareholders of the joint ventures. Fair values of the shareholders’ loans to joint ventures and sensitivities are presented in Note 26. Discounted cash flow analysis is used for loans and receivables as well as debt instruments that are not traded in active markets. The effective interest rate is determined by reference to the interest rates of financial instruments available to the Group in active markets. In the absence of such instruments, the effective interest rate is determined by reference to the interest rates of active market financial instruments available adjusted for the Group’s specific risk premium estimated by management. Deferred income tax asset recognition. Management assesses deferred income tax assets at each reporting date and determines the amount recorded to the extent that realization of the related tax benefit is probable. In determining future taxable profits and the amount of tax benefits that are probable in the future management makes judgments and applies estimations based on prior years taxable profits and expectations of future income that are believed to be reasonable under the circumstances. Estimation of oil and gas reserves. Oil and gas reserves have a direct impact on certain amounts reported in the consolidated financial statements, most notably depreciation, depletion and amortization, as well as impairment expenses and asset retirement obligations. The Group’s principal oil and gas reserves have been independently estimated by internationally recognized petroleum engineers whereas other oil and gas reserves of the Group have been determined based on estimates of hydrocarbon reserves prepared by the Group’s management in accordance with internationally recognized definitions. Depreciation rates on oil and gas assets using the unit-of-production method are based on proved developed reserves and total proved reserves estimated by the Group in accordance with rules promulgated by the Securities and Exchange Commission (SEC) for proved reserves. The Group also uses estimated probable and possible reserves to calculate future cash flows from oil and gas properties, which serve as an indicator in determining their economic lives and whether or not property impairment is present. A portion of the reserves estimated by the Group includes reserves expected to be produced beyond license expiry dates. The Group’s management believes that there is requisite legislation and past experience to extend mineral licenses at the initiative of the Group and, as such, intends to extend its licenses for properties expected to produce beyond the current license expiry dates. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change over time as additional information becomes available, such as from development drilling and production activities or from changes in economic factors, including product prices, contract terms or development plans. In general, estimates of reserves for undeveloped or partially developed fields are subject to greater uncertainty over their future life than estimates of reserves for fields that are substantially developed and depleted. 17 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED) Impairment of investments in joint ventures and property, plant and equipment. Management assesses whether there are any indicators of possible impairment of investments in joint ventures and property, plant and equipment at each reporting date based on events or circumstances that indicate that the carrying value of assets may not be recoverable. Such indicators include changes in the Group’s business plans, changes in commodity prices leading to unprofitable performances, changes in product mixes, and for oil and gas properties, significant downward revisions of estimated proved reserves. When value in use calculations are undertaken, management estimates the expected future cash flows from the asset or cash generating unit and chooses a suitable discount rate in order to calculate the present value of those cash flows. Pension obligations. The costs of defined benefit pension plans and related current service costs are determined using actuarial valuations. The actuarial valuations involve making demographic assumptions (mortality rates, age of retirement, employee turnover and disability) as well as financial assumptions (discount rates, expected rates of return on assets, future salary and pension increases). Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Asset retirement obligations. The Group’s exploration, development and production activities involve the use of wells, related equipment and operating sites, oil and gas gathering and treatment facilities and in-field pipelines. Generally, licenses and other regulatory acts set requirements to decommission such assets upon the completion of production, in accordance with which the Group is obliged to decommission wells, dismantle equipment, restore the sites and perform other related activities. The Group’s estimates of these obligations are based on current regulatory or license requirements, as well as actual dismantling costs and other data. The Group’s management believes that due to the limited history of gas and gas condensate processing plants activities, the useful lives of these assets are indeterminable (while certain of the operating components and equipment have definite useful lives). Because of these reasons, and the lack of clear legal requirements as to the recognition of obligations, the present value of an asset retirement obligation for such processing facilities cannot be reasonably estimated and, therefore, legal or contractual asset retirement obligations related to these assets are not recognized. In accordance with the guidelines of IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar Liabilities, the amount recognized as a provision is the best estimate of the expenditures required to settle the present obligation at the reporting date based on current legislation where the Group’s respective operating assets are located, and is subject to change because of modifications, revisions and changes in laws and regulations and their interpretation thereof. Estimating asset retirement obligations is complex and requires management to make estimates and judgments with respect to removal obligations that will occur many years in the future. 4 ACQUISITIONS AND DISPOSALS Acquisition of a participation interest in ООО Gazpromneft-Sakhalin In June 2021, the Group entered into an agreement for acquisition from PAO Gazprom Neft of a 49 percent participation interest in ООО Gazpromneft-Sakhalin for a cash consideration of RR 1,655 million. The transaction was closed in July 2021. ООО Gazpromneft-Sakhalin holds the license for exploration and development of the Severo- Wrangelevskiy license area located in the eastern part of the East Siberian Sea and the western part of the Chukchi Sea. The Charter of Gazpromneft-Sakhalin stipulates that key financial and operating decisions regarding its business activities require effectively the unanimous approval by both participants. Therefore, the voting mechanism effectively establishes joint control over ООО Gazpromneft-Sakhalin and the Group accounts for the investment in this entity under the equity method. In accordance with IFRS 11 “Joint Arrangements”, the Group assessed fair values of the identified assets and liabilities of OOO Gazpromneft-Sakhalin at the acquisition date, which primarily related to the property, plant and equipment. Purchase consideration approximated fair value of the Group’s share in net assets of OOO Gazpromneft-Sakhalin. 18 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 4 ACQUISITIONS AND DISPOSALS (CONTINUED) Disposal of a 10 percent participation interest in OOO Arctic Transshipment In June 2021, the Group and TOTAL E&P Transshipment SAS, a subsidiary of TotalEnergies SE, entered into an agreement for acquisition by TOTAL E&P Transshipment SAS of a 10 percent participation interest in ООО Arctic Transshipment, the operator of two LNG transshipment terminals currently under construction in the Kamchatka and Murmansk regions. The transaction was closed in July 2021. Consideration comprises the cash payment in the amount of RR 368 million (equivalent of USD 5 million) which was received in July 2021, as well as potential payments in the amount of up to USD 20 million equivalent subject to certain events in the future. The Group retained a 90 percent participation interest in OOO Arctic Transshipment after closing the transaction; at the same time, the terms of the transaction stipulate that key strategic, operational and financial decisions are subject to unanimous approval by participants. As a result of these changes, upon closing the transaction, the Group’s control over Arctic Transshipment was replaced by joint control. The Group determined Arctic Transshipment to be a joint venture and accounts for this investment under the equity method. At 30 June 2021, the conditions for recognition of OOO Arctic Transshipment as an asset held for sale had been met in accordance with IFRS 5, Non-current assets held for sale and discontinued operations. The Group treated the transaction on the sale of a 10 percent participation interest in Arctic Transshipment as a contribution of a non-monetary asset to a newly formed joint venture. In accordance with IAS 28, Investments in associates and joint ventures, the Group recognized within the gain on the transaction the part of a gain resulting from the remeasurement at fair value of the participation interest retained only to the extent of the unrelated investor’s interest in the new joint venture. The gain on disposal of a 10 percent participation interest amounted to RR 662 million, before associated current income tax of RR 73 million. Below is a breakdown of major classes of assets and liabilities of Arctic Transshipment at the date of disposal: RR million Property, plant and equipment Other non-current assets Cash and cash equivalents Other current assets Long-term debt Other non-current liabilities Other current liabilities 3,137 62 137 1,211 (4,091) (115) (111) Total identifiable net assets at disposal 230 Disposal of OOO Chernichnoye In the fourth quarter of 2020, the Group sold a 100 percent participation interest in OOO Chernichnoye to the Group’s joint venture ZAO Terneftegas for RR 730 million. Chernichnoye is a holder of the license for exploration and production of hydrocarbons within the Chernichniy license area located in YNAO. The carrying value of the net assets of Chernichnoye at the disposal date was RR 591 million. The Group’s gain on the disposal after the elimination of an unrealized gain on the consolidation level amounted to RR 69 million, before associated income tax of RR 23 million. 19 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 5 PROPERTY, PLANT AND EQUIPMENT Movements in property, plant and equipment are as follows: Assets under construction and advances Oil and gas properties and equipment for construction Other Total Cost 609,958 (238,633) 371,325 168,743 - 22,294 800,995 Accumulated depreciation, depletion and amortization (5,564) (244,197) Net book value at 1 January 2020 168,743 16,730 556,798 Additions Transfers 3,267 124,504 (613) 1,352 (36,852) (5) 206,770 (130,369) - 5,865 (1) 210,037 - Disposal of subsidiary (see Note 4) Change in asset retirement costs Depreciation, depletion and amortization Disposals, net (19) (633) 1,352 (38,543) (1,852) 2,248 - - - (1,691) (108) 56 (1,739) 230 Currency translation differences 1,962 Cost 737,953 (273,013) 464,940 243,616 - 28,107 (7,256) 20,851 1,009,676 (280,269) 729,407 Accumulated depreciation, depletion and amortization Net book value at 31 December 2020 243,616 Additions Transfers 16,590 167,396 (3,608) (54,289) (229) (1,263) (198) (364) 189,576 (171,811) - - 4,415 - (1,823) - 206,166 - (3,608) (56,112) (576) (3,137) (1,146) (453) Change in asset retirement costs Depreciation, depletion and amortization Impairment Reclassification to assets held for sale (see Note 3) Disposals, net - (347) (1,863) (870) (71) (11) (78) (18) Currency translation differences Cost 915,098 (326,123) 588,975 258,230 - 32,169 (8,833) 23,336 1,205,497 (334,956) 870,541 Accumulated depreciation, depletion and amortization Net book value at 31 December 2021 258,230 Included in additions to property, plant and equipment for the years ended 31 December 2021 and 2020 are capitalized interest and foreign exchange differences of RR 8,453 million and RR 10,624 million, respectively. Included within assets under construction and advances for construction are advances to suppliers for construction and equipment of RR 65,307 million and RR 66,415 million at 31 December 2021 and 2020, respectively. In September 2021, the Group purchased through auctions oil and gas exploration and production licenses for the Arkticheskoye and Neytinskoye license areas located on the Yamal peninsula in the YNAO for the total amount of RR 13,155 million, which was included within oil and gas properties and equipment. In March 2021, the Group won an auction for an oil and gas exploration and production license for the North-Gydanskiy license area located in the YNAO on the Gydan peninsula and partly in the shallow waters of the Gydan Bay of the Kara Sea for a payment of RR 775 million, which was included within oil and gas properties and equipment. 20 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 5 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The table below summarizes the Group’s carrying values of total acquisition costs of proved and unproved properties included in oil and gas properties and equipment: At 31 December 2021 At 31 December 2020 Proved properties acquisition costs 118,738 103,002 Less: accumulated depreciation, depletion and amortization of proved properties acquisition costs Unproved properties acquisition costs (23,509) 11,837 (21,856) 10,924 Total acquisition costs 107,066 92,070 The Group’s management believes these costs are recoverable as the Group has plans to explore and develop the respective fields. Reconciliation of depreciation, depletion and amortization (DDA): Year ended 31 December: 2021 2020 Depreciation, depletion and amortization of property, plant and equipment Add: DDA of intangible assets Less: DDA capitalized in the course of intra-group construction services 56,112 716 (229) 38,543 1,091 (396) DDA as presented in the consolidated statement of income 56,599 39,238 At 31 December 2021 and 2020, no property, plant and equipment were pledged as security for the Group’s borrowings. In 2021, the Group recognized an impairment of property, plant and equipment in the amount of RR 576 million in respect of assets related to Yumantylskiy license area as a result of the decision to return the license in 2022. In 2020, no impairment of property, plant and equipment was recognized. Capital commitments are disclosed in Note 27. Leases. Included in property, plant and equipment at 31 December 2021 and 2020 are the right-of-use assets primarily related to long-term agreements on time chartering of marine tankers. Movements in the carrying amounts of the right- of-use assets are as follows: Oil and gas properties and equipment Other Total Net book value at 1 January 2020 9,745 466 10,211 Additions 547 (2,864) 1,755 409 (264) 45 956 (3,128) 1,800 Depreciation, depletion and amortization Other movements Net book value at 31 December 2020 9,183 656 9,839 Additions 13 (2,901) - 59 (215) (5) 72 (3,116) (5) Depreciation, depletion and amortization Disposals, net Other movements (148) (17) (165) Net book value at 31 December 2021 6,147 478 6,625 The maturity analysis of lease liabilities is disclosed in Note 26. 21 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 5 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Included in property, plant and equipment at 31 December 2021 are the assets subject to operating lease agreements where the Group is a lessor with carrying value of RR 139,299 million and accumulated depreciation of RR 12,590 million (2020: RR 39,328 million and RR 1,415 million). These operating lease agreements primarily relate to leasing of facilities of the Group’s the LNG construction center located in the Murmansk region, used for the construction of LNG plants, as soon as these facilities become ready for their intended use. Income from operating lease is recognized in the line item “Other revenues” in the consolidated statement of income, and for the years ended 31 December 2021 and 2020 was RR 11,103 million and RR 5,668 million, respectively. At 31 December 2021, future undiscounted lease payments to be received under operating lease agreements, where the Group is a lessor, for the period up to their maturity (primarily through 2024) amounted to RR 70 billion (2020: RR 73 billion). Exploration for and evaluation of mineral resources. The amounts of assets, liabilities, expense and cash flows arising from the exploration and evaluation of mineral resources comprise the following: Year ended 31 December 2021 2020 Net book value of assets at 1 January 15,310 20,382 Additions Write off to exploration expenses Reclassification to proved properties and development expenditures 17,989 (405) (17,437) 10,998 (1,372) (14,698) Net book value of assets at 31 December 15,457 15,310 Liabilities Cash flows used for operating activities Cash flows used for investing activities 842 9,106 16,837 190 8,466 10,453 For the years ended 31 December 2021 and 2020, the Group has recognized exploration expenses within operating expenses in the amount of RR 9,582 million and RR 9,103 million, respectively. These expenses included employee compensations in the amount of RR 697 million and RR 621 million, respectively. 6 INVESTMENTS IN JOINT VENTURES At 31 December 2021 At 31 December 2020 Joint ventures: OOO Arctic LNG 2 OAO Yamal LNG AO Arcticgas ZAO Nortgas ZAO Terneftegas OOO Cryogas-Vysotsk ООО Gazpromneft-Sakhalin ООО Arctic Transshipment OOO SMART LNG Rostock LNG GmbH 264,035 132,505 118,387 43,701 5,771 3,835 3,288 492 250,470 - 151,886 43,805 4,157 - - - 170 28 286 - Total investments in joint ventures 572,184 450,632 The Group considers that Arctic LNG 2, Yamal LNG, Arcticgas, Nortgas, Terneftegas, Cryogas-Vysotsk, Gazpromneft-Sakhalin, Arctic Transshipment and SMART LNG constitute jointly controlled entities based on existing contractual arrangements. The charters and/or participants’ agreements of these entities stipulate that strategic and/or key decisions of a financial, operating and capital nature require effectively the unanimous approval by all participants or by a group of participants. The Group accounts for its interests in joint ventures under the equity method. 22 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 6 INVESTMENTS IN JOINT VENTURES (CONTINUED) OOO Arctic LNG 2. The Group holds a 60 percent ownership in OOO Arctic LNG 2, along with TotalEnergies SE (10 percent), CNPC (10 percent), CNOOC Limited (10 percent) and Japan Arctic LNG B.V. (10 percent). Arctic LNG 2 undertakes a project to construct a liquefied natural gas plant on the Gydan peninsula based on the hydrocarbon resources of the Salmanovskoye (Utrenneye) field (the “Arctic LNG 2 project”). The project will have an annual nameplate capacity of 19.8 million tons (three LNG trains of 6.6 million tons of LNG per annum each). For the year ended 31 December 2020, the Group received cash transfers in the amount of RR 195,324 million (the equivalent of USD 2,800 million) from the sales of a 40 percent participation interest in OOO Arctic LNG 2 in 2019. At 31 December 2021, the Group’s 60 percent ownership in Arctic LNG 2 was pledged in connection with credit line facility agreements signed by Arctic LNG 2 to obtain external project financing. OAO Yamal LNG. The Group holds a 50.1 percent ownership in Yamal LNG, along with TotalEnergies SE (20 percent), CNPC (20 percent) and Silk Road Fund Co. Ltd. (9.9 percent). Yamal LNG undertakes a project on natural gas production, liquefaction and shipping based on the feedstock resources of the South-Tambeyskoye field located in YNAO (the “Yamal LNG project”). Annual nameplate capacity of the liquefaction plant after the launch of the fourth LNG train in May 2021 is 17.4 million tons of LNG (5.5 million tons for the first three trains and 0.9 million tons for the fourth train). At 31 December 2021 and 2020, the Group’s 50.1 percent ownership in Yamal LNG was pledged in connection with credit line facility agreements signed by Yamal LNG with a number of Russian and foreign banks to obtain external project financing. The Group’s investment in Yamal LNG at 31 December 2020 was valued at RR nil in the consolidated statement of financial position due to the Group’s proportionate share of accumulated losses exceeding the Group’s cost of investment in the amount of RR 27,763 million as a result of significant non-cash foreign exchange losses. For the year ended 31 December 2021, the Group’s share of profit of Yamal LNG amounted to RR 175,756 million of which RR 27,763 million were not recognized in the consolidated statement of income as were offset against the previously unrecognized share of losses. AO Arcticgas. The Group holds a 50 percent ownership in Arcticgas, its joint venture with PAO Gazprom Neft. Arcticgas operates the Samburgskoye, Urengoyskoye, East-Urengoiskoye+North-Esetinskoye fields within the Samburgskiy license area and the Yaro-Yakhinskoye field, located in the YNAO. ZAO Nortgas. The Group holds a 50 percent ownership in Nortgas, its joint venture with PAO Gazprom Neft. Nortgas operates the North-Urengoyskoye field, located in the YNAO. ZAO Terneftegas. The Group holds a 51 percent ownership in Terneftegas, its joint venture with TotalEnergies SE. Terneftegas operates the Termokarstovoye field, located in the YNAO. OOO Cryogas-Vysotsk. The Group holds a 51 percent participation interest in Cryogas-Vysotsk, its joint venture with AO Gazprombank. Cryogas-Vysotsk operates a medium-scale LNG plant with annual capacity of 660 thousand tons, located at the port of Vysotsk on the Baltic Sea. At 31 December 2021 and 2020, the Group’s 51 percent participation interest in Cryogas-Vysotsk was pledged in connection with credit line facility agreements signed by the joint venture to obtain project financing. The Group’s investment in Cryogas-Vysotsk at 31 December 2020 was valued at RR nil in the consolidated statement of financial position due to the Group’s proportionate share of accumulated losses exceeding the Group’s cost of investment in the amount RR 2,483 million as a result of significant non-cash foreign exchange losses. For the year ended 31 December 2021, the Group’s share of profit in OOO Cryogas-Vysotsk amounted to RR 6,318 million of which RR 2,483 million were not recognized in the consolidated statement of income as were offset against the previously unrecognized share of losses. ООО Gazpromneft-Sakhalin. The Group holds a 49 percent participation interest in ООО Gazpromneft-Sakhalin acquired in July 2021 (see Note 4). ООО Gazpromneft-Sakhalin is a joint venture with PAO Gazprom Neft (51 percent). The joint venture holds the license for exploration and development of the Severo-Wrangelevskiy license area located in the eastern part of the East Siberian Sea and the western part of the Chukchi Sea. 23 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 6 INVESTMENTS IN JOINT VENTURES (CONTINUED) ООО Arctic Transshipment. In July 2021, the Group sold a 10 percent participation interest in ООО Arctic Transshipment, which was a Group’s subsidiary at that time, to TOTAL E&P Transshipment SAS (see Note 4). The Group retained a 90 percent participation interest in OOO Arctic Transshipment after closing the transaction and began to exercise joint control over the company. The Group determined Arctic Transshipment to be a joint venture and accounts for this investment under the equity method. Arctic Transshipment operates two LNG transshipment terminals currently under construction in the Kamchatka and Murmansk regions. OOO SMART LNG. The Group holds a 50 percent participation interest in OOO SMART LNG, its joint venture with PAO Sovcomflot. SMART LNG will lease Arctic ice-class LNG tankers to transport LNG from the Arctic LNG 2 project. At 31 December 2021, the Group’s 50 percent participation interest in SMART LNG was pledged in connection with lease agreements for Arctic ice-class LNG tankers entered into by SMART LNG. Rostock LNG GmbH. As at 31 December 2020, the Group held a 49 percent ownership interest in Rostock LNG GmbH, its joint venture with Fluxys Germany Holding GmbH. In September 2021, shareholders made a decision to liquidate Rostock LNG GmbH. The table below summarizes the movements in the carrying amounts of the Group’s joint ventures: Year ended 31 December: 2021 2020 At 1 January 450,632 585,340 Share of profit from operations Share of finance income (expense) Share of total income tax benefit (expense) Unrecognized share of loss (profit) of joint ventures 330,357 (10,205) (57,630) (30,245) 113,952 (325,707) 37,529 30,245 Share of profit (loss) of joint ventures, net of income tax 232,277 (143,981) Share of other comprehensive income (loss) of joint ventures 320 (1,198) Dividends and cash from joint ventures Effect from other changes in joint ventures’ net assets Capital contributions (118,786) 933 (10,920) 3,892 - 1,794 Sale of interests in subsidiaries resulting in the recognition of investments in joint ventures (see Note 4) Acquisitions of joint ventures (see Note 4) 525 1,655 (71) - Effect from initial measurement of loans provided by the Group to joint ventures (see Note 26) net of deferred income tax Group’s costs capitalized in investments - - 17,418 1,173 Elimination of the Group’s share in unrealized profits of joint ventures from balances of hydrocarbons purchased from joint ventures 2,834 (1,021) At 31 December 572,184 450,632 For the years ended 31 December 2021 and 2020, Arcticgas declared and paid dividends in the total amount of RR 198.7 billion and RR 20.5 billion, respectively, of which RR 99.4 billion and RR 10.25 billion, respectively, were attributable to NOVATEK. For the years ended 31 December 2021 and 2020, the Group received from Terneftegas cash and dividends distributed to the Group in the total amount of RR 3.7 billion and RR 0.67 billion, respectively. For the year ended 31 December 2021, Yamal LNG declared and paid dividends in the total amount of RR 31.4 billion, of which RR 15.7 billion were attributable to NOVATEK. 24 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 6 INVESTMENTS IN JOINT VENTURES (CONTINUED) For the year ended 31 December 2021, the capital of OOO Gazpromneft-Sakhalin was increased through proportional contributions by its participants totalling RR 3,351 million, of which RR 1,642 million were contributed by the Group. In 2021, the participants of OOO SMART LNG made a decision to increase its capital through proportional contributions totaling RR 304 million, of which RR 152 million are attributable to the Group. For the year ended 31 December 2020, the capital of OOO Arctic LNG 2 was increased by RR 57,647 million through the cash contributions made by the other participants in the form of contributions to the assets representing a part of the consideration for the disposal of a 40 percent participation interest in OOO Arctic LNG 2 (see Note 4). The difference between the Group’s share in the contributions made and the amount previously recognized within the investment in OOO Arctic LNG 2 comprised RR 4,512 million and was recorded as an increase in the investment in OOO Arctic LNG 2, with the corresponding effect recognized in the consolidated statement of changes in equity in accordance with the Group’s accounting policy. The Group’s participation interest in OOO Arctic LNG 2 did not change as a result of these transactions. For the year ended 31 December 2020, the Group recorded a decrease in equity in the amount of RR 949 million from initial measurement of the loans (net of deferred income tax) provided to OOO Arctic LNG 2 by the other participants. The Group eliminates its share in unrealized profits of joint ventures from the balances of natural gas and liquid hydrocarbons purchased from the joint ventures. The summarized statements of financial position and statements of comprehensive income (loss) for the Group’s principal joint ventures as at and for the year ended 31 December 2021 are as follows (100 percent base): At 31 December 2021 Arctic LNG 2 Arcticgas Yamal LNG Nortgas Property, plant and equipment and materials for construction Other non-current non-financial assets Non-current financial assets Total non-current assets 1,284,025 112 421,917 1 53 421,971 2,394,640 2,918 110,614 23 18 110,655 - - 1,284,137 2,397,558 Cash and cash equivalents Other current financial assets Current non-financial assets Total current assets 70,044 6,299 23,120 99,463 2,568 29,491 4,232 49,647 79,497 38,683 167,827 1,361 1,834 449 36,291 3,644 Non-current financial liabilities Non-current non-financial liabilities Total non-current liabilities (739,346) (48,991) (788,337) (120,000) (1,842,965) (55,011) (10,003) (175,011) (1,852,968) - (20,839) (20,839) Trade payables and accrued liabilities Other current financial liabilities Current non-financial liabilities Total current liabilities (46,795) (152,235) (1,119) (13,146) (10,000) (23,331) (46,477) (22,449) (413,328) (12,016) (690) (3,876) (1,493) (6,059) (200,149) (447,793) Net assets 395,114 236,774 264,624 87,401 25 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 6 INVESTMENTS IN JOINT VENTURES (CONTINUED) For the year ended 31 December 2021 Arctic LNG 2 Arcticgas Yamal LNG Nortgas Revenues 3,995 (131) 294,834 (26,546) 668,861 (115,859) 19,028 (9,673) Depreciation, depletion and amortization Profit (loss) from operations (1,029) 163,383 477,471 212 Interest expense (349) (6,570) (112,588) (635) Change in fair value of non-commodity financial instruments Foreign exchange gain (loss), net (7,895) 41,423 - 27 (59,896) 119,290 - - Profit (loss) before income tax 32,460 157,500 424,315 (357) Income tax benefit (expense) (9,850) (25,865) (73,279) 72 Profit (loss), net of income tax 22,610 131,635 351,036 (285) Ownership 60% 50% 50.1% 50% Total based on ownership interest 13,566 65,818 175,774 (143) Elimination of the Group’s share in unrealized profits of joint ventures from balances of hydrocarbons purchased from joint ventures - - (2,389) - (18) (139) - Unrecognized share of profit of joint ventures (27,763) Share of profit (loss) of joint ventures, net of income tax 13,566 63,429 147,993 (282) Reconciliation of the summarized financial information presented to the Group’s share in net assets of the joint ventures: As at and for the year ended 31 December 2021 Arctic LNG 2 Arcticgas Yamal LNG Nortgas Net assets at 1 January 2021 372,505 303,771 (55,446) 87,610 Profit (loss), net of income tax Other comprehensive income (loss) Dividends 22,610 131,635 117 (198,749) 351,036 453 (31,419) (285) 76 - (1) - Net assets at 31 December 2021 395,114 236,774 264,624 87,401 Ownership 60% 50% 50.1% 50% Group’s share in net assets 237,068 118,387 132,505 43,701 Future capital contributions 26,967 - - - Investments in joint ventures 264,035 118,387 132,505 43,701 At 31 December 2021, the Group’s investment in OOO Arctic LNG 2 totaled RR 264,035 million, which differed from its share in the net assets of Arctic LNG 2. This difference of RR 26,967 million related to the Group’s share in the future cash payments in the form of capital contributions by other participants representing a part of the consideration for the disposal of a 40 percent interest in OOO Arctic LNG 2. 26 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 6 INVESTMENTS IN JOINT VENTURES (CONTINUED) The summarized statements of financial position and statements of comprehensive income (loss) for the Group’s principal joint ventures as at and for the year ended 31 December 2020 are as follows (100 percent base): At 31 December 2020 Arctic LNG 2 Arcticgas Yamal LNG Nortgas Property, plant and equipment and materials for construction Other non-current non-financial assets Non-current financial assets 802,388 118 411,279 6 2,470,727 27,561 120,307 28 937 63 12,619 12 Total non-current assets 803,443 411,348 2,510,907 120,347 Cash and cash equivalents Other current financial assets Current non-financial assets Total current assets 2,001 1,551 14,180 17,732 6,123 22,581 14,930 43,634 22,812 24,813 34,137 81,762 81 1,699 343 2,123 Non-current financial liabilities Non-current non-financial liabilities Total non-current liabilities (373,463) (40,436) (413,899) (30,000) (2,339,045) (55,991) (4,421) (85,991) (2,343,466) (3,860) (23,057) (26,917) Trade payables and accrued liabilities Other current financial liabilities Current non-financial liabilities Total current liabilities (29,934) (4,359) (478) (14,479) (36,151) (14,590) (65,220) (13,795) (290,541) (313) (975) (5,821) (1,147) (7,943) (34,771) (304,649) Net assets 372,505 303,771 (55,446) 87,610 For the year ended 31 December 2020 Arctic LNG 2 Arcticgas Yamal LNG Nortgas Revenues - 171,076 (30,645) 328,640 (109,950) 15,296 (6,938) Depreciation, depletion and amortization (20) Profit (loss) from operations (2,015) 73,677 151,821 (485) Interest expense (103) (3,061) (162,618) (980) Change in fair value of non-commodity financial instruments Foreign exchange gain (loss), net (681) (40,523) - 31,172 (444,213) - - (45) Profit (loss) before income tax (43,268) 70,923 (423,780) (1,393) Income tax benefit (expense) 13,343 (11,376) 66,976 260 Profit (loss), net of income tax (29,925) 59,547 (356,804) (1,133) Ownership 60% 50% 50.1% 50% Total based on ownership interest (17,955) 29,774 (178,662) (567) Elimination of the Group’s share in unrealized profits of joint ventures from balances of hydrocarbons purchased from joint ventures - - 819 - (1) 107 - Unrecognized share of loss of joint ventures 27,763 Share of profit (loss) of joint ventures, net of income tax (17,955) 30,593 (150,900) (460) 27 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 6 INVESTMENTS IN JOINT VENTURES (CONTINUED) Reconciliation of the summarized financial information presented to the Group’s share in net assets of the joint ventures: As at and for the year ended 31 December 2020 Arctic LNG 2 Arcticgas Yamal LNG Nortgas Net assets at 1 January 2020 317,347 264,798 301,446 88,744 Profit (loss), net of income tax Other comprehensive income (loss) Capital contributions Other equity movements Dividends (29,925) (11) 57,647 27,447 - 59,547 (356,804) (2,430) (1,133) (74) (1) - - - 2,342 - - - - (20,500) Net assets at 31 December 2020 372,505 303,771 (55,446) 87,610 Ownership 60% 50% 50.1% 50% Group’s share in net assets 223,503 151,886 (27,763) 43,805 Unrecognized share of loss of joint ventures Future capital contributions - - - 27,763 - - - 26,967 Investments in joint ventures 250,470 151,886 - 43,805 At 31 December 2020, the Group’s investment in OOO Arctic LNG 2 totaled RR 250,470 million, which differed from its share in the net assets of Arctic LNG 2. This difference of RR 26,967 million related to the Group’s share in the future cash payments in the form of capital contributions by other participants representing a part of the consideration for the disposal of a 40 percent interest in OOO Arctic LNG 2. 7 LONG-TERM LOANS AND RECEIVABLES The following table presents long-term loans (including interest accrued) and receivables: At 31 December 2021 At 31 December 2020 Long-term loans receivable Other long-term receivables 472,872 602 431,880 426 Total 473,474 432,306 Less: current portion of long-term loans receivable (163,473) (41,253) Total long-term loans and receivables 310,001 391,053 The Group’s long-term loans receivable by borrowers are as follows: At 31 December 2021 At 31 December 2020 OOO Arctic LNG 2 OAO Yamal LNG OOO Cryogas-Vysotsk OOO Arctic Transshipment 296,195 151,084 20,674 4,919 215,336 209,637 6,907 - Total long-term loans receivable 472,872 431,880 OOO Arctic LNG 2. The Group provided euro credit line facilities to Arctic LNG 2, the Group’s joint venture. The loans interest rates are set based on market interest rates and interest rates on borrowings of participants. The repayment schedules are linked to free cash flows of the joint venture. In 2021, Arctic LNG 2 signed agreements for bank project financing, and subsequent to the balance sheet date, in January 2022, repaid a part of the loans and accrued interest to the Group in the total amount of RR 84,765 million. 28 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 7 LONG-TERM LOANS AND RECEIVABLES (CONTINUED) OAO Yamal LNG. In prior years the Group provided US dollar and euro credit line facilities to Yamal LNG, the Group’s joint venture. The loans interest rates are set based on market interest rates, interest rates on borrowings of shareholders and/or combination thereof. The repayment schedules are linked to free cash flows of the joint venture. For the years ended 31 December 2021 and 2020, Yamal LNG repaid to the Group a part of the loans and accrued interest in the total amount of RR 61,221 million and RR 48,297 million, respectively. Subsequent to the balance sheet date, in January 2022, Yamal LNG repaid to the Group a part of the loans and accrued interest in the total amount of RR 31,538 million. OOO Cryogas-Vysotsk. The Group provided Russian rouble denominated loans under agreed credit line facilities to Cryogas-Vysotsk, the Group’s joint venture. In November 2021, the Group also acquired a portion in the project financing previously provided to OOO Cryogas-Vysotsk by the second participant in euros. The loans are repayable from 2021 to 2033 and bear variable interest rates. For the year ended 31 December 2021, Cryogas-Vysotsk repaid to the Group a part of the loans and accrued interest in the total amount of RR 2,541 million. ООО Arctic Transshipment. The Group provided euro credit line facilities to OOO Arctic Transshipment, the Group’s joint venture. The repayment schedules are linked to free cash flows of the joint venture and bear variable interest rates. No provisions for expected credit losses for long-term loans and receivables were recognized at 31 December 2021 and 2020. The carrying values of long-term loans and receivables approximate their respective fair values. 8 OTHER NON-CURRENT ASSETS At 31 December 2021 At 31 December 2020 Financial assets Contingent consideration (see Note 26) Commodity derivatives 79,782 684 76,918 13 Other financial assets 38 13 Non-financial assets Deferred income tax assets Materials for construction Intangible assets, net Long-term advances Other non-financial assets 22,565 21,186 2,896 - 22,694 18,341 2,820 3,536 817 720 Total other non-current assets 127,871 125,152 At 31 December 2020, the “Long-term advances” line item represented advances to OAO Russian Railways. The advances were paid in accordance with the Strategic Partnership Agreement signed with Russian Railways in 2012. 9 INVENTORIES At 31 December 2021 At 31 December 2020 Natural gas and liquid hydrocarbons Materials and supplies (net of provision of RR 1 million and RR 4 million at 31 December 2021 and 2020) Other inventories 13,036 7,055 4,519 126 3,609 59 Total inventories 17,681 10,723 No inventories were pledged as security for the Group’s borrowings or payables at both dates. 29 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 10 TRADE AND OTHER RECEIVABLES At 31 December 2021 At 31 December 2020 Trade receivables (net of provision for expected credit losses of RR 1,838 million and RR 506 million at 31 December 2021 and 2020, respectively) 104,576 64,073 Other receivables (net of provision for expected credit losses of RR 293 million and RR 305 million at 31 December 2021 and 2020, respectively) 24,923 7,182 Total trade and other receivables 129,499 71,255 Credit risks attributable to trade and other receivables are described in Note 26. At 31 December 2020, other receivables included RR 575 million of receivables in relation to the sale of OOO Chernichnoye (see Note 4). These receivables were fully paid in 2021. The carrying values of trade and other receivables approximate their respective fair values. Trade and other receivables were categorized as Level 3 in the fair value measurement hierarchy described in Note 26. Movements in the Group’s provision for impairment of trade receivables are as follows: Year ended 31 December: 2021 2020 At 1 January 506 362 Additional provision for expected credit losses recorded Receivables written off as uncollectible Provision reversed 1,382 (19) (31) 295 (115) (36) At 31 December 1,838 506 The provision for expected credit losses for trade and other receivables has been included in the consolidated statement of income in “Impairment expenses, net” line item. 11 PREPAYMENTS AND OTHER CURRENT ASSETS At 31 December 2021 At 31 December 2020 Financial assets Current portion of long-term loans receivable (see Note 7) Commodity derivatives (see Note 26) Other financial assets 163,473 113,467 265 41,253 13,041 1,316 Non-financial assets Value-added tax receivable Prepayments and advances to suppliers Recoverable value-added tax Deferred transportation expenses for liquid hydrocarbons Deferred transportation expenses for natural gas Prepaid customs duties 22,589 9,159 4,424 2,090 1,910 971 15,703 9,088 10,767 1,996 1,779 616 Deferred export duties for liquid hydrocarbons Other non-financial assets 871 4,021 649 1,863 Total prepayments and other current assets 323,240 98,071 30 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 12 CASH AND CASH EQUIVALENTS At 31 December 2021 At 31 December 2020 Cash at current bank accounts Bank deposits with original maturity of three months or less 32,290 13,630 41,247 78,460 Total cash and cash equivalents 45,920 119,707 Credit risks related to cash and cash equivalents are described in Note 26. 13 LONG-TERM DEBT At 31 December 2021 At 31 December 2020 Eurobonds – Ten-Year Tenor (par value USD 1 billion, repayable in 2022) Eurobonds – Ten-Year Tenor (par value USD 650 million, repaid in 2021) Loan from Silk Road Fund Bank loans 74,265 73,820 - 24,079 75,421 48,012 46,076 54,232 Total 173,765 222,140 Less: current portion of long-term debt (106,751) (53,152) Total long-term debt 67,014 168,988 Eurobonds. In December 2012, the Group issued US dollar denominated Eurobonds in the amount of USD 1 billion. The US dollar denominated Eurobonds were issued with an annual coupon rate of 4.422 percent, payable semi-annually. The Eurobonds have a ten-year tenor and are repayable in December 2022. In February 2011, the Group issued US dollar denominated Eurobonds in the amount of USD 650 million. The US dollar denominated Eurobonds were issued with an annual coupon rate of 6.604 percent, payable semi-annually. The Eurobonds have a ten-year tenor and were fully repaid according to their maturity schedule in February 2021. Loan from Silk Road Fund. In December 2015, the Group obtained a loan from China’s investment fund Silk Road Fund that is repayable until December 2030 by semi-annual equal installments starting from December 2019 and includes the maintenance of certain restrictive financial covenants. In December 2021, the Group decided to repay the loan ahead of its maturity schedule by two equal instalments – in December 2021 and after the reporting date in February 2022. The amortized cost of the liability was recalculated based on the new repayment schedule, and the difference of RR 3,886 million was recognized in the consolidated statement of income within the “Interest expense” line item (see Note 24). Bank loans. In December 2016, the Group obtained EUR 100 million under a revolving credit line facility from the Russian subsidiary of a foreign bank. The loan was initially repayable until April 2020. In March 2020, it was extended to March 2022. The loan includes the maintenance of certain restrictive financial covenants. In June 2020, the Group obtained a credit line facility from a Russian bank in the amount up to EUR 1.5 billion with a variable interest rate available to withdraw until March 2022. Interest is paid on a quarterly basis. At the reporting date, EUR 800 million were withdrawn under the credit line facility, repayable until September 2025. The credit line facility includes the maintenance of certain restrictive financial covenants. The fair value of long-term debt including its current portion was RR 176,198 million and RR 235,473 million at 31 December 2021 and 2020, respectively. The fair value of the corporate bonds was determined based on market quote prices (Level 1 in the fair value measurement hierarchy described in Note 26). The fair value of other long-term loans was determined based on future cash flows discounted at the estimated risk-adjusted discount rate (Level 3 in the fair value measurement hierarchy described in Note 26). 31 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 13 LONG-TERM DEBT (CONTINUED) Scheduled maturities of long-term debt are disclosed in Note 26. Available credit line facilities. In addition to disclosed above, at 31 December 2021, the Group had available long-term bank credit line facilities with credit limits for the total amount of RR 160 billion. The facilities include the maintenance of certain restrictive financial covenants. 14 SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT At 31 December 2021 At 31 December 2020 Loans with original maturity three months or less 6,278 - Total 6,278 - Add: current portion of long-term debt 106,751 53,152 Total short-term debt and current portion of long-term debt 113,029 53,152 Available credit line facilities. At 31 December 2021, the Group had available short-term bank credit line facilities with credit limits for the total amount of RR 20 billion and EUR 235 million. At 31 December 2021, EUR 75 million were withdrawn under these credit line facilities, which were repaid after the reporting date in January 2022. Furthermore, at 31 December 2021, the Group had available revolving credit line facilities under which the Group may obtain loans with original maturities of three months or less to finance trade activities, secured by cash revenues from specifically determined liquid hydrocarbons export sales contracts. At 31 December 2021, these loans were repaid. 15 PENSION OBLIGATIONS Defined contribution plan. For the years ended 31 December 2021 and 2020, total amounts recognized as an expense in respect of payments made by employer on behalf of employees to the Pension Fund of the Russian Federation were RR 3,802 million and RR 3,907 million, respectively. Defined benefit plan. The Group operates a post-employment benefit program for its retired employees. Under the current terms of the pension program, employees who are employed and retire from the Group on or after the statutory retirement age will receive from the Group pension benefits in the form of a lump sum retirement benefit and/or monthly life payments unless they are reemployed. The type and amounts of payments to be disbursed depend on the employee’s average salary, duration and location of employment. The program represents an unfunded defined benefit plan and is accounted for as such under provisions of IAS 19, Employee Benefits. The present value of the defined benefit obligation is included in “Other non-current liabilities” line item in the consolidated statement of financial position. The impact of the program on the consolidated financial statements is disclosed below. 32 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 15 PENSION OBLIGATIONS (CONTINUED) The movements in the present value of the defined benefit obligation are as follows: Year ended 31 December: 2021 2020 At 1 January 5,687 5,111 Interest cost Current service cost Past service cost 358 515 286 242 423 - Benefits paid (170) (181) Actuarial gains (losses) arising from: - changes in financial assumptions - changes in demographic assumptions - experience adjustments (1,095) (73) (238) (91) 421 113 At 31 December 5,621 5,687 Defined benefit plan costs were recognized in: Year ended 31 December: 2021 2020 Materials, services and other (as employee compensation General and administrative expenses (as employee compensation Other comprehensive loss (income) ) 762 397 (1,055) 390 275 92 ) The principal actuarial assumptions used are as follows: At 31 December 2021 At 31 December 2020 Weighted average discount rate Projected annual increase in employee compensation Expected increases to pension benefits 8.4% 6.5% 5.0% 6.4% 5.1% 5.0% The discount rate was determined by reference to Russian rouble denominated bonds issued by the Government of the Russian Federation chosen to match the duration of the post-employment benefit obligations. The assumed average salary and pension payment increases for Group employees have been calculated on the basis of inflation forecasts, analysis of increases of past salaries and the general salary policy of the Group. Mortality assumptions are based on the Russian mortality tables published by the Federal State Statistics Service from the year 2018 adjusted for estimates of mortality improvements in the future periods. The Group’s management has assessed that reasonable changes in the principal significant actuarial assumptions will not have a significant impact on the consolidated statement of income or the consolidated statement of comprehensive income or the liability recognized in the consolidated statement of financial position. 33 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 16 TRADE PAYABLES AND ACCRUED LIABILITIES At 31 December 2021 At 31 December 2020 Financial liabilities Commodity derivatives (see Note 26) Trade payables Interest payable Dividends payable to non-controlling interest Other payables 118,173 91,680 199 147 14,711 14,278 55,149 1,529 - 3,786 Non-financial liabilities Advances from customers Salary payables 6,408 1,073 14,028 4,245 1,042 3,966 Other liabilities and accruals Total trade payables and accrued liabilities 246,419 83,995 The carrying values of trade payables and accrued liabilities approximate their respective fair values. Trade and other payables were categorized as Level 3 in the fair value measurement hierarchy described in Note 26. During the years ended 31 December 2021 and 2020, advances from customers in the amount of RR 4,177 million and RR 4,194 million, respectively, remained at the beginning of the respective period were recognized as revenue. 17 SHAREHOLDERS’ EQUITY Ordinary share capital. Share capital issued and paid in consisted of 3,036,306,000 ordinary shares with a par value of RR 0.1 each at 31 December 2021 and 2020. The total authorized number of ordinary shares was 10,593,682,000 shares at both dates. Treasury shares. In accordance with the Share Buyback Programs authorized by the Board of Directors, the Group’s wholly owned subsidiary, Novatek Equity (Cyprus) Limited, purchases ordinary shares of PAO NOVATEK in the form of Global Depository Receipts (GDRs) on the London Stock Exchange (LSE) and ordinary shares on the Moscow Exchange through the use of independent brokers. NOVATEK also purchases its ordinary shares from shareholders where required by Russian legislation. During the years ended 31 December 2021 and 2020, the Group purchased 7.2 million and 8.4 million ordinary shares at a total cost of RR 12,907 million and RR 8,078 million, respectively. At 31 December 2021 and 2020, the Group held in total 40.7 million and 33.5 million ordinary shares at a total cost of RR 33,293 million and RR 20,386 million, respectively. The Group has decided that these shares do not vote. Dividends. Dividends (including tax on dividends) declared and paid were as follows: Year ended 31 December: 2021 2020 Dividends payable at 1 January Dividends declared () Dividends paid () - - 89,857 (89,857) 154,332 (154,332) Dividends payable at 31 December - - Dividends per share declared during the year (in Russian roubles) Dividends per GDR declared during the year (in Russian roubles) 51.41 514.10 29.92 299.20 () – Excluding treasury shares. 34 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 17 SHAREHOLDERS’ EQUITY (CONTINUED) The Group declares and pays dividends in Russian roubles. Dividends declared in 2021 and 2020 were as follows: Final for 2020: RR 23.74 per share or RR 237.40 per GDR declared in April 2021 Interim for 2021: RR 27.67 per share or RR 276.70 per GDR declared in September 2021 72,082 84,015 Total dividends declared in 2021 156,097 Final for 2019: RR 18.10 per share or RR 181.00 per GDR declared in April 2020 Interim for 2020: RR 11.82 per share or RR 118.20 per GDR declared in September 2020 54,957 35,889 Total dividends declared in 2020 90,846 Distributable retained earnings. The basis for distribution of profits of a company to shareholders is defined by Russian legislation as net profit presented in its statutory financial statements prepared in accordance with the Regulations on Accounting and Reporting of the Russian Federation, which may differ significantly from amounts calculated on the basis of IFRS. At 31 December 2021 and 2020, NOVATEK’s closing balances of the accumulated profit including the respective year’s net statutory profit totaled RR 1,142,851 million and RR 980,624 million, respectively. 18 OIL AND GAS SALES Year ended 31 December: 2021 2020 Natural gas Naphtha Crude oil 524,071 208,713 123,179 100,170 99,142 359,040 112,963 78,381 58,913 48,725 41,728 Other gas and gas condensate refined products Liquefied petroleum gas Stable gas condensate 79,931 Total oil and gas sales 1,135,206 699,750 19 PURCHASES OF NATURAL GAS AND LIQUID HYDROCARBONS Year ended 31 December: 2021 2020 Natural gas 258,989 245,400 10,764 125,844 102,568 12,221 Unstable gas condensate Other liquid hydrocarbons Reverse excise (17,871) (5,409) Total purchases of natural gas and liquid hydrocarbons 497,282 235,224 The Group purchases not less than 50 percent of the natural gas volumes produced by its joint venture ZAO Nortgas, some volumes of natural gas produced by its joint venture AO Arcticgas, all volumes of natural gas produced by its joint venture ZAO Terneftegas and some volumes of liquefied natural gas produced by its joint ventures OAO Yamal LNG and OOO Cryogas-Vysotsk (see Note 29). The Group purchases all volumes of unstable gas condensate produced by its joint ventures Nortgas, Arcticgas and Terneftegas at ex-field prices primarily based on benchmark reference crude oil prices, as well as some volumes of stable gas condensate produced by its joint venture Yamal LNG (see Note 29). In accordance with tax legislation, the Group obtains reverse excise on raw oil (blend of hydrocarbons comprised of one or more components of crude oil, stable gas condensate, vacuum gasoil, tar and fuel oil) sent for processing. The amount of reverse excise on raw oil is reported as a deduction to expense for purchases of hydrocarbons in the “Reverse excise” line item, as the Group obtains most of its raw oil from unstable gas condensate purchased from its joint ventures. 35 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 20 TRANSPORTATION EXPENSES Year ended 31 December: 2021 2020 Natural gas transportation by trunk and low-pressure pipelines Stable gas condensate and liquefied petroleum gas transportation by rail Stable gas condensate and refined products, crude oil and liquefied natural gas transportation by tankers Crude oil transportation by trunk pipelines 106,628 36,499 100,594 34,198 9,907 6,754 1,718 10,283 8,042 1,640 Other Total transportation expenses 161,506 154,757 21 TAXES OTHER THAN INCOME TAX The Group is subject to a number of taxes other than income tax, which are detailed as follows: Year ended 31 December: 2021 2020 Unified natural resources production tax Property tax Other taxes 83,281 4,803 422 50,204 3,929 368 Total taxes other than income tax 88,506 54,501 22 MATERIALS, SERVICES AND OTHER Year ended 31 December: 2021 2020 Employee compensation Repair and maintenance Materials and supplies Preparation and processing of hydrocarbons Electricity and fuel Transportation services Fire safety and security expenses Liquefied petroleum gas volumes reservation expenses Insurance expenses 17,033 3,791 2,412 2,227 1,818 1,304 1,304 1,205 634 14,027 3,294 1,833 2,323 1,702 1,140 1,152 1,205 462 Rent expenses 591 592 Labor safety expenses 565 703 Other 1,558 1,144 Total materials, services and other 34,442 29,577 36 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 23 GENERAL AND ADMINISTRATIVE EXPENSES Year ended 31 December: 2021 2020 Employee compensation Social expenses and compensatory payments Legal, audit, and consulting services Advertising expenses 26,122 2,753 1,358 988 17,849 4,128 1,289 599 Repair and maintenance expenses Fire safety and security expenses Business travel expense 740 616 283 947 581 187 Rent expenses 161 184 Other 1,229 1,031 Total general and administrative expenses 34,250 26,795 Auditor’s fees. AO PricewaterhouseCoopers Audit has served as the independent external auditor of PAO NOVATEK for each of the reported financial years. The independent external auditor is subject to appointment at the Annual General Meeting of shareholders based on the recommendations from the Board of Directors. The aggregate fees for audit and other services rendered by PricewaterhouseCoopers Audit to the parent company of the Group included within legal, audit, and consulting services are as follows: Year ended 31 December: 2021 2020 Audits of PAO NOVATEK (audit of the Group’s consolidated financial statements and audit of statutory financial statements of PAO NOVATEK) Other services 38 11 37 11 Total auditor’s fees and services 49 48 24 FINANCE INCOME (EXPENSE) Year ended 31 December: 2021 2020 Interest expense (including transaction costs) Interest expense on fixed rate debt Interest expense on variable rate debt 6,849 1,076 9,879 172 The effect from recalculating of the amortized cost of a financial liability due to a change in the repayment schedule (see Note 13) 3,886 11,811 (4,768) - 10,051 (6,641) Total Less: capitalized interest Interest expense on debt 7,043 3,410 Provisions for asset retirement obligations: effect of the present value discount unwinding Interest expense on lease liabilities Other interest expense 886 426 109 960 566 3 Total interest expense 8,464 4,939 37 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 24 FINANCE INCOME (EXPENSE) (CONTINUED) Year ended 31 December: 2021 2020 Interest income Interest income on loans receivable classified as at amortized cost Interest income on loans receivable classified as at fair value through profit or loss Interest income on cash, 1,113 10,935 936 20,329 4,175 cash equivalents, deposits and other assets 3,952 Total interest income 16,000 25,440 Year ended 31 December: Foreign exchange gain (loss) 2021 2020 Gains 23,069 340,662 Losses (60,324) (193,201) Total foreign exchange gain (loss), net (37,255) 147,461 25 INCOME TAX Reconciliation of income tax. The table below reconciles actual income tax expense and theoretical income tax, determined based on the applicable rates for each of the Group’s entities and their accounting profit before income tax. Year ended 31 December: 2021 2020 Profit before income tax 501,204 129,596 Theoretical income tax expense at applicable rate of the Group’s entities Increase (decrease) due to: 93,873 21,079 Permanent differences in respect of the Group’s share of loss (profit) of joint ventures Other differences (47,022) 2,732 29,000 931 Total income tax expense 49,583 51,010 Domestic and foreign components of current income tax expense were: Year ended 31 December: 2021 2020 Russian Federation income tax Foreign income tax 42,511 2,220 50,602 1,414 Total current income tax expense 44,731 52,016 Effective income tax rate. The Russian statutory income tax rate for 2021 and 2020 was 20 percent. A number of the Group’s investment projects were included by the government authorities in the list of priority projects, in respect of them the Group was able to apply a reduced income tax rate. Profits of the Group’s foreign subsidiaries are taxed at rates applicable in accordance with legislation of the respective jurisdiction. The Group recognizes in profit before income tax its share of net profit (loss) from joint ventures, which influences the consolidated profit of the Group but does not result in additional income tax expense (benefit) at the Group’s level. Net profit (loss) of joint ventures was recorded in their financial statements on an after-tax basis. The dividend income received from the joint ventures in which the Group holds at least a 50 percent interest is subject to a zero withholding tax rate according to the Russian tax legislation. 38 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 25 INCOME TAX (CONTINUED) For the years ended 31 December 2021 and 2020, the Group made cash payments for income tax in the amount of RR 28.2 billion and RR 41 billion, respectively, and offset other taxes by applying a refund against income tax in the amount of RR 14.4 billion and RR 7.1 billion, respectively. Without the effect of net profit (loss) from joint ventures and effects from disposal of interests in subsidiaries and joint ventures (initial recognition of gain on disposal and subsequent non-monetary revaluation of contingent consideration), the effective income tax rate for the years ended 31 December 2021 and 2020 was 18.7 percent and 18.8 percent, respectively. In respect of PAO NOVATEK and the majority of its Russian subsidiaries, the Group submits a single consolidated income tax return in accordance with Russian tax legislation (see Note 31). Deferred income tax. Differences between IFRS and tax regulations give rise to certain temporary differences between the carrying value of certain assets and liabilities for financial reporting purposes and for income tax purposes. Deferred income tax balances are presented in the consolidated statement of financial position as follows: At 31 December 2021 At 31 December 2020 Long-term deferred income tax assets (other non-current assets) Long-term deferred income tax liabilities 22,565 (69,113) 22,694 (64,132) Net deferred income tax liabilities (46,548) (41,438) Deferred income tax assets expected to be realized within twelve months as at 31 December 2021 and 2020 were RR 12,037 million and RR 6,194 million, respectively. Deferred tax liabilities expected to be reversed within twelve months as at 31 December 2021 and 2020 were RR 4,435 million and RR 1,420 million, respectively. Movements in deferred income tax assets and liabilities during the years ended 31 December 2021 and 2020 were as follows: Other Statement of Financial At 31 December At 31 December 2020 Statement of Comprehensive Income effect Income effect Position effect 2021 Property, plant and equipment Contingent consideration Other (54,290) (15,383) (1,420) (5,027) (573) (3,078) 3 - 4 34 - 59 (59,280) (15,956) (4,435) Deferred income tax liabilities Less: deferred tax assets offset Total deferred income tax liabilities (71,093) 6,961 (8,678) 3,597 7 - 93 - (79,671) 10,558 (64,132) (5,081) 7 93 (69,113) Tax losses carried forward Property, plant and equipment Asset retirement obligations Inventories Trade payables and accrued liabilities Loans receivable 10,922 3,844 2,895 5,627 175 4,151 (3,146) (299) 4,314 1,594 (2,737) (51) - - - 2 (60) 2 16 1 (18) - 15,013 700 2,612 9,944 1,747 2,761 346 (4) (302) 5 5,800 392 Other - Deferred income tax assets 29,655 (6,961) 22,694 3,826 (3,597) 229 (299) - (59) - 33,123 (10,558) 22,565 Less: deferred tax liabilities offset Total deferred income tax assets Net deferred income tax liabilities (299) (292) (59) 34 (41,438) (4,852) (46,548) 39 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 25 INCOME TAX (CONTINUED) Other Statement of Financial At 31 December At 31 December 2019 Statement of Comprehensive Income effect Income effect Position effect 2020 Property, plant and equipment Contingent consideration Other (44,931) (20,278) (1,845) (9,345) 4,895 510 (4) - (85) (10) (54,290) (15,383) (1,420) - - Deferred income tax liabilities Less: deferred tax assets offset Total deferred income tax liabilities (67,054) 4,908 (3,940) 2,053 (89) - (10) - (71,093) 6,961 (62,146) (1,887) (89) (10) (64,132) Tax losses carried forward Property, plant and equipment Asset retirement obligations Inventories Trade payables and accrued liabilities Loans receivable 8,241 3,545 2,542 1,950 1,412 1,349 669 2,686 299 352 3,681 (1,257) (451) (364) 2 - - (7) - 1 - 10,922 3,844 2,895 5,627 175 (4) 20 2,414 87 - 2,488 - 5,800 392 Other Deferred income tax assets 19,708 (4,908) 14,800 4,946 (2,053) 2,893 2,519 - 2,482 - 29,655 (6,961) 22,694 Less: deferred tax liabilities offset Total deferred income tax assets Net deferred income tax liabilities 2,519 2,430 2,482 2,472 (47,346) 1,006 (41,438) At 31 December 2021, the Group had recognized deferred income tax assets of RR 15,013 million (31 December 2020: RR 10,922 million) in respect of unused tax loss carry forwards of RR 75,215 million (31 December 2020: RR 54,752 million). In accordance with the effective tax legislation of the Russian Federation, taxable profits can be reduced in the amount of tax losses carried forward for relief during unlimited period of time, and at the same time during the periods till the end of 2024 tax losses carried forward cannot exceed 50 percent of taxable profits. In determining future taxable profits and the amount of tax benefits that are probable in the future, the Group’s management makes judgments including expectations regarding the Group’s ability to generate sufficient future taxable income and the projected time period over which deferred tax benefits will be realized. 40 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS The accounting policies and disclosure requirements for the Group’s financial instruments have been applied to the line items below: At 31 December 2021 At 31 December 2020 Financial assets Non-current Current Non-current Current At amortised cost Long-term loans receivable Trade and other receivables Short-term bank deposits with original maturity more than three months Cash and cash equivalents Other 26,847 602 7,941 129,499 11,558 426 6,017 71,255 - - 38 60,177 45,920 265 - - 13 62,876 119,707 1,316 At fair value through profit or loss Long-term loans receivable Contingent consideration Commodity derivatives 282,552 79,782 684 155,532 - 113,467 379,069 76,918 13 35,236 - 13,041 Total financial assets 390,505 512,801 467,997 309,448 Financial liabilities At amortised cost Long-term debt Long-term lease liabilities Short-term debt Interest payable Trade and other payables Dividends payable to non-controlling interest 67,014 3,426 106,751 3,589 6,278 199 106,391 147 168,988 6,670 53,152 3,798 - 1,529 58,935 - - - - - - - - - At fair value through profit or loss Commodity derivatives 682 118,173 880 14,278 Total financial liabilities 71,122 341,528 176,538 131,692 Fair value measurement. The Group evaluates the quality and reliability of the assumptions and data used to measure fair value in accordance with IFRS 13, Fair Value Measurement, in the three hierarchy levels as follows: i. quoted prices in active markets (Level 1); ii. inputs other than quoted prices included in Level 1 that are directly or indirectly observable in the market (externally verifiable inputs) (Level 2); or iii. inputs that are not based on observable market data (unobservable inputs) and require applying judgment by the Group (Level 3). Commodity derivative instruments. The Group conducts natural gas foreign trading in active markets under long-term and short-term purchase and sales contracts, as well as purchases and sells various derivative instruments (with reference to the European natural gas hubs) for delivery optimization and to decrease exposure to the risk of negative impact of natural gas prices changes. In addition, from time to time, the Group enters into commodity derivative contracts to manage price risks relating to the Group’s own use liquid hydrocarbons purchase agreements. These contracts include pricing terms that are based on a variety of commodities and indices, and/or volume flexibility options that collectively qualify them under the scope of IFRS 9, Financial Instruments, although the activity surrounding certain contracts involves the physical delivery of hydrocarbons. All contracts mentioned above are recognized in the consolidated statement of financial position at fair value with movements in fair value recognized in the consolidated statement of income. 41 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) The amounts recognized by the Group in respect of the commodity derivative contracts measured in accordance with IFRS 9, Financial Instruments, are as follows: At 31 December 2021 Level 1 Level 2 Total Within other non-current and current assets Within other non-current and current liabilities 67,384 (63,275) 46,767 (55,580) 114,151 (118,855) At 31 December 2020 Within other non-current and current assets Within other non-current and current liabilities 2,751 (2,542) 10,303 (12,616) 13,054 (15,158) Year ended 31 December: Included in other operating income (loss) 2021 2020 Operating realized income (loss) Change in fair value (1,278) (2,600) 1,479 (1,689) The fair value of commodity derivative contracts related to Level 1 is determined based on available quotes on an active market (mark-to-market analysis). The fair value of commodity derivative contracts related to Level 2 is determined based on different valuation techniques and models (the mark-to-market and mark-to-model analysis), mainly based on input data directly or by implication observable on an active market. The table below represents the effect on the fair value estimation of portfolio of commodity derivative contracts that would occur from hydrocarbon prices changes by ten percent: Year ended 31 December: Effect on the fair value 2021 2020 Increase by ten percent Decrease by ten percent 1,537 (1,537) (285) 285 Recognition and remeasurement of the shareholders’ loans to joint ventures. Terms and conditions of certain shareholders’ loans provided by the Group to its joint ventures OAO Yamal LNG and OOO Arctic LNG 2 contain certain financial (benchmark interest rates adjusted for the borrower credit risk) and non-financial (actual interest rates on the borrowings of shareholders, expected free cash flows of the borrower and expected maturities) variables and in accordance with the Group’s accounting policy were classified as financial assets at fair value through profit or loss. The following table summarizes the movements in the carrying amounts of shareholders’ loans provided to joint ventures, which are accounted for at fair value through profit or loss: Year ended 31 December: 2021 2020 At 1 January 414,305 268,024 Loans provided 86,931 (60,051) 120,552 (48,380) Repayment of loans and accrued interest Initial measurement at fair value allocated to increase the Group’s investments in joint ventures (see Note 6) Subsequent remeasurement - (19,906) at fair value recognized in profit or loss as follows: – Interest income (using the effective interest rate method) – Foreign exchange gain (loss), net 10,935 (33,636) 20,329 81,083 – Remaining effect from changes in fair value (attributable to free cash flows of the borrowers and interest rates) 19,600 (7,397) At 31 December 438,084 414,305 42 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) Fair value measurement of shareholders’ loans to joint ventures is determined using benchmark interest rates adjusted for the borrower credit risk and internal free cash flows models based on the borrower’s strategic plans approved by the shareholders of the joint ventures. Due to the assumptions underlying fair value estimation, shareholders’ loans are categorized as Level 3 in the fair value hierarchy, described above. The fair value of the shareholders’ loans is sensitive to benchmark interest rates changes. The table below represents the effect on fair value of the shareholders’ loans that would occur from one percent changes in the benchmark interest rates. Year ended 31 December: Effect on the fair value 2021 2020 Increase by one percent Decrease by one percent (9,948) 10,399 (15,975) 16,909 Contingent consideration. According to the terms of the transactions on the sale in 2019 of a 40 percent participation interest in OOO Arctic LNG 2, total consideration comprises, inter alia, contingent cash payments in total of up to USD 3,200 million equivalent depending on average crude oil benchmark prices level for the year preceding each payment. The contingent payments dates are linked to the dates of launching the Arctic LNG 2 project’s LNG trains. Under IFRS 9, Financial Instruments, this contingent consideration contains a commodity based embedded derivative and was classified as a financial asset measured at fair value through profit or loss. Interest income, foreign exchange differences and the remaining effect from fair value remeasurement of the contingent consideration (included in “Other operating income (loss)” line item) are disclosed separately in the consolidated statement of income. The following table summarizes the movements in the carrying amounts of the contingent consideration: Year ended 31 December: 2021 2020 At 1 January 76,918 101,391 Subsequent remeasurement at fair value recognized in profit or loss as follows: – Interest income (using the effective interest rate method) – Foreign exchange gain (loss), net 2,409 455 2,730 20,620 – Remaining effect from changes in fair value (attributable to crude oil benchmark prices forecast) - (47,823) At 31 December 79,782 76,918 Fair value measurement of the contingent consideration is determined based on cash flow model using a discount rate, internal projections of the crude oil benchmark price dynamics and the Arctic LNG 2 project’s realization schedule. Due to the assumptions underlying fair value estimation, the contingent consideration is categorized as Level 3 in the fair value hierarchy, described above. The table below represents the effect on the fair value estimation of the contingent consideration that would occur from crude oil price changes throughout the valuation period: Year ended 31 December: Effect on the fair value 2021 2020 Increase by one percent Decrease by one percent 5,238 (5,522) 5,048 (5,321) Financial risk management objectives and policies. In the ordinary course of business, the Group is exposed to market risks from fluctuating prices on commodities purchased and sold, prices of other raw materials, currency exchange rates and interest rates. Depending on the degree of price volatility, such fluctuations in market prices may create volatility in the Group’s financial results. To effectively manage the variety of exposures that may impact financial results, the Group’s overriding strategy is to maintain a strong financial position. 43 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) The Group’s principal risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to these limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. Market risk. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and commodity and equity prices, will affect the Group’s financial results or the value of its holdings of financial instruments. The primary objective of mitigating these market risks is to manage and control market risk exposures, while optimizing the return on risk. The Group is exposed to market price movements relating to changes in commodity prices such as crude oil, oil and gas condensate refined products and natural gas (commodity price risk), foreign currency exchange rates, interest rates, equity prices and other indices that could adversely affect the value of the Group’s financial assets, liabilities or expected future cash flows. (a) Foreign exchange risk The Group is exposed to foreign exchange risk arising from various exposures in the normal course of business, primarily with respect to the US dollar and euro. Foreign exchange risk arises primarily from future commercial transactions, recognized assets and liabilities when assets and liabilities are denominated in a currency other than the functional currency. 44 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) The Group’s overall strategy is to have no significant net exposure in currencies other than the Russian rouble, the US dollar and euro. The Group may utilize foreign currency derivative instruments to manage the risk exposures associated with fluctuations on certain firm commitments for sales and purchases, debt instruments and other transactions that are denominated in currencies other than the Russian rouble, and certain non-Russian rouble assets and liabilities. The carrying amounts of the Group’s financial instruments are denominated in the following currencies: Russian At 31 December 2021 Financial assets rouble US dollar Euro Other Total Non-current Long-term loans receivable Trade and other receivables Contingent consideration Commodity derivatives Other 5,408 348 - - 303,991 - 252 - - 38 309,399 602 79,782 684 2 - 684 - - - - 79,782 - - 38 Current Current portion of long-term loans receivable Trade and other receivables Commodity derivatives Short-term bank deposits with original maturity more than three months Cash and cash equivalents Other - 35,191 - - 35,588 - 163,473 56,980 113,467 - 1,740 - 163,473 129,499 113,467 - 25,870 - 60,177 4,292 - - 14,831 265 - 927 - 60,177 45,920 265 Financial liabilities Non-current Long-term debt Long-term lease liabilities Commodity derivatives - (124) - - (1,851) - (67,014) (1,251) (682) - (200) - (67,014) (3,426) (682) Current Current portion of long-term debt Short-term debt - - (98,343) - (8,408) (6,278) - - (106,751) (6,278) Current portion of long-term lease liabilities Interest payable (115) - (2,235) (198) (1,089) (1) (150) - (3,589) (199) Trade and other payables Dividends payable (55,208) (4,976) (45,762) (445) (106,391) to non-controlling interest Commodity derivatives (147) - - - - - - (147) (118,173) (118,173) Net exposure 11,223 72,236 405,035 2,162 490,656 45 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) Russian At 31 December 2020 Financial assets rouble US dollar Euro Other Total Non-current Long-term loans receivable Trade and other receivables Contingent consideration Commodity derivatives Other 6,907 348 14,227 369,493 - 78 - - 13 390,627 426 76,918 13 - - - 13 - - - - 76,918 - - 13 Current Trade and other receivables 33,089 26,963 9,758 1,445 71,255 Current portion of long-term loans receivable Commodity derivatives Short-term bank deposits with original maturity more than three months Cash and cash equivalents Other - - 35,166 - 6,087 13,041 - - 41,253 13,041 - 13,056 908 62,876 78,812 - - 26,519 408 - 1,320 - 62,876 119,707 1,316 Financial liabilities Non-current Long-term debt Long-term lease liabilities Commodity derivatives - (276) - (114,755) (3,706) - (54,233) (2,367) (880) - (321) - (168,988) (6,670) (880) Current Current portion of long-term debt Current portion - (53,152) - - (53,152) of long-term lease liabilities Interest payable Trade and other payables Commodity derivatives (260) (2,220) (1,528) (4,487) - (1,162) (1) (6,500) (14,278) (156) (3,798) (1,529) (58,935) (14,278) - (47,568) - - (380) - Net exposure 6,204 115,114 345,898 1,999 469,215 The Group chooses to provide information about market risk and potential exposure to hypothetical loss from its use of financial instruments through sensitivity analysis disclosures in accordance with IFRS requirements. The sensitivity analysis depicted in the table below reflects the hypothetical profit (loss) that would occur assuming a ten percent increase in exchange rates and no changes in the portfolio of instruments and other variables at 31 December 2021 and 2020, respectively: Year ended 31 December: Effect on profit before income tax Increase in exchange rate 2021 2020 RUB / USD RUB / EUR 10% 10% 7,224 40,504 11,511 34,590 The effect of a corresponding ten percent decrease in exchange rate is approximately equal and opposite. (b) Commodity price risk The Group’s overall commercial trading strategy in natural gas and liquid hydrocarbons is centrally managed. Changes in commodity prices could negatively or positively affect the Group’s results of operations. The Group manages the exposure to commodity price risk by optimizing its core activities to achieve stable price margins. 46 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) Natural gas supplies on the Russian domestic market through the Unified Gas Supply System. As an independent natural gas producer, the Group is not subject to the Government’s regulation of natural gas prices, except for those volumes sold to residential customers. Nevertheless, the Group’s prices for natural gas sold are strongly influenced by the prices regulated by the governmental agency of the Russian Federation that carries out state regulation of prices and tariffs for goods and services of natural monopolies in energy, utilities and transportation. Wholesale natural gas prices for sales to all customer categories on the domestic market were increased by the Federal Anti-Monopoly Service by 3 percent effective 1 August 2020 and remained unchanged through the end of the second quarter 2021. Effective 1 July 2021, the wholesale prices were increased by 3 percent. Management believes it has limited downside commodity price risk for natural gas in the Russian Federation and does not use commodity derivative instruments for trading purposes. The Group’s natural gas purchase and sales contracts in the domestic market are not considered to meet the definition of a derivative and are not within the scope of IFRS 9, Financial Instruments. However, to effectively manage the margins achieved through its natural gas trading activities, management has established targets for volumes sold to wholesale traders and end-customers. LNG supplies. The Group sells liquefied natural gas purchased primarily from its joint ventures Yamal LNG and Cryogas-Vysotsk mainly on international markets under short- and long-term contracts at prices based on benchmark natural gas prices at the major natural gas hubs and benchmark crude oil prices. The Group sells liquefied natural gas produced at its small-scale LNG plant in the Chelyabinsk region mainly on the domestic market through its refueling complexes at prices depending on oil products prices on the domestic market. The Group’s LNG purchase and sales contracts are not considered to meet the definition of a derivative and are not within the scope of IFRS 9, Financial Instruments. LNG regasification activity in Europe. The Group purchases and sells regasified LNG in Europe primarily at prices linked to natural gas prices at major European natural gas hubs. Regasified LNG purchase and sales contracts are not considered to meet the definition of a derivative and are not within the scope of IFRS 9, Financial Instruments. Natural gas trading activities on the European markets. The Group purchases and sells natural gas on the European markets under short- and long-term supply contracts, as well as purchases and sells different derivative instruments based on formulas with reference to benchmark natural gas prices quoted for the North-Western European natural gas hubs, crude oil and oil products prices and/or a combination thereof. Therefore, the Group’s results from natural gas foreign trading and derivative instruments foreign trading are subject to commodity price volatility based on fluctuations or changes in the respective benchmark prices. Liquid hydrocarbons supplies. The Group sells its crude oil, stable gas condensate and gas condensate refined products under short-term contracts. Stable gas condensate and naphtha volumes sold to the Asia-Pacific Region, European and North American markets are primarily based on benchmark crude oil prices of Brent and/or naphtha prices, mainly of Naphtha Japan or Naphtha CIF NWE, plus a premium or a discount, depending on current market situation. Other gas condensate refined products volumes sold mainly to the European market are based on benchmark jet fuel prices of Jet CIF NWE and gasoil prices of Gasoil 0.1 percent CIF NWE plus a premium or a discount, depending on current market situation. Crude oil sold internationally is based on benchmark crude oil prices of Brent or Dubai, plus a premium or a discount, and on a transaction-by-transaction basis or based on benchmark crude oil prices of Brent or Urals or a combination thereof for volumes sold domestically. As a result, the Group’s revenues from the sales of liquid hydrocarbons are subject to fluctuations in the crude oil and gas condensate refined products benchmark prices. The Group’s liquid hydrocarbons purchase and sales contracts are mainly concluded to meet supply requirements to fulfill contract obligations or for own consumption and are not within the scope of IFRS 9, Financial Instruments. From time to time, the Group also enters into commodity derivative contracts to manage price risks relating to the Group’s own use liquid hydrocarbons purchase agreements. Such commodity derivative contracts are accounted for in accordance with IFRS 9, Financial Instruments. 47 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) (c) Cash flow and fair value interest rate risk The Group is subject to interest rate risk on financial liabilities with variable interest rates. Changes in interest rates impact primarily debt by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). To mitigate this risk, the Group’s treasury function performs periodic analysis of the current interest rate environment and depending on that analysis management makes decisions whether it would be more beneficial to obtain financing on a fixed-rate or variable-rate basis. In cases where the change in the current market fixed or variable interest rates is considered significant management may consider refinancing a particular debt on more favorable interest rate terms. The interest rate profiles of the Group’s interest-bearing financial instruments are as follows: At 31 December 2021 At 31 December 2020 RR million Percentage RR million Percentage At fixed rate At variable rate 113,029 67,014 63% 37% 176,623 45,517 80% 20% Total 180,043 100% 222,140 100% The Group centralizes the cash requirements and surpluses of controlled subsidiaries and the majority of their external financing requirements, and applies, on its consolidated net debt position, a funding policy to optimize its financing costs and manage the impact of interest rate changes on its financial results in line with market conditions. In this way, the Group is able to ensure that the balance between the floating rate portion of its debt and its cash surpluses has a low level of exposure to any changes in interest rates over the short-term. This policy makes it possible to significantly limit the Group’s sensitivity to interest rate volatility. The Group’s financial results are sensitive to changes in interest rates on the floating rate portion of the Group’s debt portfolio. If the interest rates applicable to floating rate debt were to increase by 100 basis points (one percent) at the reporting dates, assuming all other variables remain constant, it is estimated that the Group’s profit before taxation would decrease by the amounts shown below: Year ended 31 December: Effect on profit before income tax 2021 2020 Increase by 100 basis points 670 455 The effect of a corresponding 100 basis points decrease in interest rate is approximately equal and opposite. Credit risk. Credit risk refers to the risk exposure that a potential financial loss to the Group may occur if a counterparty defaults on its contractual obligations. Credit risk is managed on a Group level and arises from cash and cash equivalents, other bank deposits, as well as credit exposures to customers, including outstanding trade receivables and committed transactions. Cash, cash equivalents and deposits are placed only with banks that are considered by the Group during the whole deposit period to have minimal risk of default. The Group’s trade and other receivables consist of a large number of customers, spread across diverse industries and geographical areas. The Group has developed standard credit payment terms and constantly monitors the status of trade and other receivables and the creditworthiness of the customers. Most of the Group’s international natural gas and liquid hydrocarbons sales are made to customers with independent external ratings; however, if the customer has a credit rating below BBB-, the Group requires the collateral for the trade receivable to be in the form of letters of credit from banks with an investment grade rating. Most of domestic sales of liquid hydrocarbons are made on a 100 percent prepayment basis. As a result of the domestic regional natural gas trading activities, the Group is exposed to the risk of payment defaults of small and medium-sized industrial users and individuals. To minimize credit risk the Group monitors the recoverability of these debtors by analyzing ageing of receivables by type of customers and their respective prior payment history. 48 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position. The table below highlights the Group’s trade and other receivables to published credit ratings of its counterparties and/or their parent companies: Moody’s, Fitch and/or Standard & Poor’s At 31 December 2021 At 31 December 2020 Trade and other receivables secured by letters of credit Trade and other receivables not secured by letters of credit: – investment grade rating 51,059 14,568 54,109 984 37,073 205 – non-investment grade rating – no external rating 23,347 19,409 Total trade and other receivables 129,499 71,255 The table below highlights the Group’s cash, cash equivalents and short-term bank deposits with original maturity more than three months to published credit ratings of its banks and/or their parent companies: Moody’s, Fitch and/or Standard & Poor’s At 31 December 2021 At 31 December 2020 Investment grade rating Non-investment grade rating No external rating 106,020 45 182,542 34 7 32 Total cash, cash equivalents and short-term bank deposits with original maturity more than three months 106,097 182,583 As at 31 December 2021, the Group’s bank deposits with original maturity more than three months included financial instruments for the total amount of RR 37 billion, consisting of multiple arrangements, structured to be economically equivalent to a bank deposit, which in accordance with the Group’s accounting policy were accounted as a single transaction (as a bank deposit at amortised cost). Investment grade ratings classification referred to as Aaa to Baa3 for Moody’s Investors Service, and as AAA to BBB- for Fitch Ratings and Standard & Poor’s. In addition, the Group provides long-term loans receivable to its joint ventures for development, construction and acquisitions of oil and gas assets. Required amount of loans and their maturity schedules are based on the budgets and strategic plans approved by the shareholders of the joint ventures. Liquidity risk. Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. In managing its liquidity risk, the Group maintains adequate cash reserves and debt facilities, continuously monitors forecast and actual cash flows and matches the maturity profiles of financial assets and liabilities. The Group prepares various financial plans (monthly, quarterly and annually) which ensures that the Group has sufficient cash on demand to meet expected operational expenses, financial obligations and investing activities for a period of 30 days or more. The Group has entered into a number of short-term credit facilities. Such credit lines and overdraft facilities can be drawn down to meet short-term financing needs. To fund cash requirements of a more permanent nature, the Group will normally raise long-term debt in available international and domestic markets. 49 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) The following tables summarize the maturity profile of the Group’s financial liabilities, except for commodity derivative contracts, based on contractual undiscounted payments, including interest payments: Less than Between Between More than 5 years At 31 December 2021 1 year 1 and 2 years 2 and 5 years Total Debt Principal Interest 113,566 5,064 3,774 106,391 147 - 1,585 3,031 - 67,255 2,745 - - 72 - 180,821 9,394 7,189 106,391 147 Lease liabilities Trade and other payables Dividends payable to non-controlling interest 312 - - - - Total financial liabilities 228,942 4,616 70,312 72 303,942 At 31 December 2020 Debt Principal Interest Lease liabilities Trade and other payables 53,159 8,322 3,949 88,083 6,416 3,819 - 60,758 7,690 3,436 - 25,696 3,194 71 227,696 25,622 11,275 58,935 58,935 - Total financial liabilities 124,365 98,318 71,884 28,961 323,528 The following tables represent the maturity profile of the Group’s commodity derivative contracts based on undiscounted cash flows: Less than 1 year Between 1 and 2 years At 31 December 2021 Total Cash inflow 430,578 2,151 432,729 Cash outflow (435,686) (2,151) (437,837) Net cash flows (5,108) - (5,108) At 31 December 2020 Cash inflow 155,732 18,975 174,707 Cash outflow (156,944) (19,843) (176,787) Net cash flows (1,212) (868) (2,080) 50 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED) Reconciliation of liabilities arising from financing activities. The movements in the Group’s liabilities arising from financing activities were as follows: Debt and interest payable Long-term lease liabilities Total 163,852 26,902 At 1 January 2020 153,389 10,463 Cash flows () 30,751 (3,849) Non-cash movements Non-cash additions Interest accrued - 10,051 29,478 956 566 2,332 956 10,617 31,810 Foreign exchange movements At 31 December 2020 223,669 10,468 234,137 Cash flows (52,945) (3,687) (56,632) Non-cash movements Non-cash additions Interest accrued - 11,811 (2,293) 72 426 (264) 72 12,237 (2,557) Foreign exchange movements At 31 December 2021 180,242 7,015 187,257 () – Excluding prepayments under lease agreements, in respect of which lease liabilities were not recognized. Capital management. The primary objectives of the Group’s capital management policy are to ensure a strong capital base to fund and sustain its business operations through prudent investment decisions and to maintain investor, market and creditor confidence to support its business activities. At 31 December 2021, the Group had investment grade ratings of BBB by Standard & Poor’s, BBB by Fitch Ratings and Baa2 by Moody’s Investors Service. The Group has established certain financial targets and coverage ratios that it monitors on a quarterly and annual basis to maintain its credit ratings. The Group manages its capital on a corporate-wide basis to ensure adequate funding to sufficiently meet the Group’s operational requirements. The majority of external debts raised to finance NOVATEK’s wholly owned subsidiaries are centralized at the parent level, and financing to Group entities is facilitated through inter-company loan arrangements or additional contributions to share capital. The Group has a stated dividend policy that distributes not less than 50 percent of the Group’s consolidated net profit determined according to IFRS, adjusted for one-off profits or losses (until December 2020, the minimum dividend payout level was set at 30 percent of the Group’s adjusted consolidated net profit). The dividend payment for a specific year is determined after taking into consideration the Group’s development strategy. Dividends are recommended by the Board of Directors of NOVATEK and approved by the NOVATEK’s shareholders. The Group defines the term “capital” as equity attributable to PAO NOVATEK shareholders plus net debt (total debt less cash and cash equivalents and bank deposits with maturity more than three months). There were no changes to the Group’s approach to capital management during 2021. At 31 December 2021 and 2020, the Group’s capital totaled RR 1,968 billion and RR 1,660 billion, respectively. 51 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 27 CONTINGENCIES AND COMMITMENTS Operating environment. The Russian Federation continues to display some characteristics of an emerging market. In addition, the Russian economy is particularly sensitive to world oil and gas prices. The tax, currency and customs legislation is subject to varying interpretations and frequent changes. The Group’s business operations are primarily located in the Russian Federation and are thus exposed to the economic and financial markets of the Russian Federation. The spread of the COVID-19 virus in 2020 has caused financial and economic stress to the global markets that is out of the Group’s management control. In particular, the COVID-19 pandemic has led to lower demand for crude oil, natural gas and oil products, which combined with the increase in the supply of crude oil due to the cancellation of the OPEC+ production agreement in March 2020 has led to a fall in global hydrocarbon commodity prices. From the second quarter 2020, global economic activity began a gradual recovery following the partial removals of restrictions aimed at preventing the epidemic spread, as well as a partial recovery in benchmark crude oil prices following the new OPEC+ production agreement reached in April 2020 and the compliance to the target cuts by its participants. In 2021, the OPEC+ participants continued to restrict their production targets due to the ongoing instability caused by the spread of the COVID-19 virus and its variants, as well as stricter quarantine measures enforced by some countries. The maintenance of the restricted production targets as well as an increase in hydrocarbons consumption due to the severe cold weather in Europe, Asia and North America have led to a significant increase in benchmark hydrocarbons prices in the first quarter 2021. Starting from May 2021, OPEC+ began to gradually lift the restrictions on crude oil production targets due to the increased mobility of population, signs of renewed economic activities and crude oil demand recovery in the major consumer countries. In July 2021, the OPEC+ participants made a decision to further increase crude oil production volumes and extended the agreement on production restrictions until the end of 2022. Nevertheless, the crude oil supply still lagged behind global demand due to faster than expected economic recovery resulting in further price increases in the second and third quarters 2021. In addition, actual crude oil production by OPEC+ was not consistent with the increased production plans due to accidents and repair works on oil facilities in a number of countries, which has led to a growth in a deficit in crude oil and an increase in benchmark prices in the fourth quarter. As a result, during 2021, benchmark crude oil prices returned to the pre-pandemic levels of 2019 and continued further growth. The European and Asian natural gas markets in 2021 were impacted by faster than expected recovery of demand after it was hit by the COVID-19 pandemic, weather factors (cold winter and hot summer, low wind speeds in Europe and droughts in South America) and supply disruptions that have led to low storage levels in key consuming regions and a strong price rally in the second half of 2021. Further developments surrounding the COVID-19 virus spread remain uncertain and may continue to influence our future earnings, cash flows and financial position. The Group’s management is taking necessary precautions to protect the safety and well-being of employees, contractors and their families against the infectious spread of COVID-19, while maintaining commitment to meet the energy needs of customers domestically and internationally. The Group’s management continues to work closely with federal, regional and local authorities, as well as partners, to contain the spread of the coronavirus and to take appropriate actions, where necessary, to minimize the possible disruptions of the Group’s business operations. Sectoral sanctions imposed by the U.S. government. On 16 July 2014, the Office of Foreign Assets Control (OFAC) of the U.S. Treasury included PAO NOVATEK on the Sectoral Sanctions Identification List (the “List”), which prohibits U.S. persons or persons within the United States from providing new financing to the Group for longer than 60 days. Whereas all other transactions, including financial, carried out by U.S. persons or within the United States with the Group are permitted. The inclusion on the List has not impacted the Group’s business activities, in any jurisdiction, nor does it affect the Group’s assets and debt. Management has reviewed the Group’s capital expenditure programs and existing debt portfolio and has concluded that the Group has sufficient liquidity, through internally generated (operating) cash flows, to adequately fund its core oil and gas business operations including financing planned capital expenditure programs of its subsidiaries, as well as to repay and service Group’s short-term and long-term debt existing at the current reporting date and, therefore, inclusion on the List does not adversely impact the Group’s operational activities. The Group together with its foreign partners currently raises necessary financing for our joint ventures from non-US debt markets and lenders. 52 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 27 CONTINGENCIES AND COMMITMENTS (CONTINUED) Contractual commitments. At 31 December 2021, the Group had contractual capital expenditures commitments aggregating approximately RR 221 billion (at 31 December 2020: RR 248 billion) mainly for development of LNG projects (through 2025), and for development at the Kharbeyskoye (through 2023) and Geofizicheskoye (through 2022) fields, the Yevo-Yakhinskiy (through 2024) license area and the Gydanskoye (through 2023) field, all in accordance with duly signed agreements as well as for construction of a hydrocracker unit with related expansion of the Gas Condensate Fractionation and Transshipment Complex located at the port of Ust-Luga on the Baltic Sea (through 2023). At 31 December 2021 and 2020, the Group was a participant of joint operations on exploration and production in Montenegro (50 percent participation interest) and in Republic of Lebanon (20 percent participation interest) under the agreements concluded with the State of Montenegro and the Ministry of Energy and Water of Republic of Lebanon, respectively. Jointly with other participants of these agreements, the Group committed to conduct mandatory work program exploration activities during the established periods, as stipulated by these agreements. At the date of the issuance of these financial statements, the maximum amount to be paid by the Group in case of non-performance of work program exploration activities is EUR 6 million to the State of Montenegro and EUR 4.6 million to the Republic of Lebanon (at 31 December 2020: EUR 42.5 million and EUR 5.8 million, respectively). The Group has entered into a number of marine tankers time charter agreements for the period from 12 to 29 years, under which provision of the services has not yet commenced. At 31 December 2021, the Group’s future minimum payments under these charter agreements amounted to RR 201 billion (at 31 December 2020: RR 135 billion). At 31 December 2020, OOO Arctic Transshipment, which was a Group’s subsidiary at that time and starting from July 2021 became a Group’s joint venture (see Note 4), entered into floating gas storage units bareboat charter agreements for the period of 20 years, under which provision of the services has not yet commenced. These floating gas storage units will become a part of the two LNG transshipment terminals currently under construction in the Kamchatka and Murmansk regions. In the second quarter 2021, OOO Arctic Transshipment signed a long-term take-or-pay agreement with the Group’s joint venture OOO Arctic LNG 2 on the usage of these LNG terminals. At 31 December 2020, future minimum payments of OOO Arctic Transshipment under these bareboat charter agreements amounted to RR 99 billion. Guarantees issued. In accordance with the project financing agreements of OAO Yamal LNG, the Group issued guarantees, financial and non-financial, which cover only limited specific risks of the project. Non-financial guarantees represent undertakings to provide repayable funds to the project to the extent necessary for the project to fulfil its obligations to creditors, upon occurrence of limited events, and may not exceed USD 5.9 billion at 31 December 2021 and 2020. Payments under financial guarantees may be claimed only upon Yamal LNG’s default on its obligations to creditors, and the amount of these financial guarantees depends on macroeconomic factors (benchmark hydrocarbon prices and foreign exchange rates), but may not exceed USD 2.4 billion and EUR 1.0 billion at 31 December 2021 and 2020. Based on the current estimations and long-term macroeconomic forecasts of the Group’s management, the likelihood of claims under these financial guarantees is remote. The aggregated amount of non-financial guarantees in respect of the Arctic LNG 2 project issued by the Group to a number of third parties (LNG-vessels owners, LNG-terminals operators and banks) in favor of the Group’s joint venture OOO Arctic LNG 2 totaled EUR 3.0 billion and USD 2.1 billion at 31 December 2021 (at 31 December 2020: USD 2.0 billion). These non-financial guarantees have various terms depending mostly on the successful project completion (finalization of the LNG plant construction and achievement of its full production capacity). 53 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 27 CONTINGENCIES AND COMMITMENTS (CONTINUED) At 31 December 2020, the aggregated amount of non-financial guarantees issued by the Group to a Russian bank in respect of the Group’s joint venture Cryogas-Vysotsk totaled EUR 276 million. In 2021, these guarantees have been withdrawn as all the conditions proving successful project completion have been met. The Group also issued non-financial performance guarantees to OOO Arctic LNG 2 in respect of the obligations of the joint venture OOO SMART LNG relating to provision of services under long-term marine tankers time charter agreements, to the extent of the Group’s participation interest in OOO SMART LNG. The outflow of resources embodying economic benefits required to settle the obligations under the aforementioned guarantees issued by the Group is not probable; therefore, no provision for these liabilities was recognized in the consolidated financial statements. Taxation. Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Correspondingly, the relevant regional and federal tax authorities may periodically challenge management’s interpretation of such taxation legislation as applied to the Group’s transactions and activities. Furthermore, events within the Russian Federation suggest that the tax authorities may be taking a more assertive position in its interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods. Management believes that its interpretation of the relevant legislation is appropriate and that it is probable that the Group’s tax, currency and customs positions will be sustained. Where management believes it is probable that a position cannot be sustained, an appropriate amount has been accrued in the consolidated financial statements. Mineral licenses. The Group is subject to periodic reviews of its activities by governmental authorities with respect to the requirements of its mineral licenses. Management cooperates with governmental authorities to agree on remedial actions necessary to resolve any findings resulting from these reviews. Failure to comply with the terms of a license could result in fines, penalties or license limitation, suspension or revocation. The Group’s management believes any issues of non-compliance will be resolved through negotiations or corrective actions without any material adverse effect on the Group’s financial position, results of operations or cash flows. The majority of the Group’s oil and gas fields and license areas are located in the YNAO. Licenses are issued by the Federal Agency for the Use of Natural Resources of the Russian Federation and the Group pays unified natural resources production tax to produce crude oil, natural gas and unstable gas condensate from these fields and contributions for exploration of license areas. 54 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 27 CONTINGENCIES AND COMMITMENTS (CONTINUED) The principal licenses of the Group and its joint ventures and their expiry dates are: Field License holder License expiry date Subsidiaries: Geofizicheskoye Gydanskoye Soletskoye+Khanaveyskoye Verhnetiuteyskoye and West Seyakhinskoye Yurkharovskoye OOO Arctic LNG 1 OOO Arctic LNG 1 OOO Arctic LNG 1 2034 2044 2046 2044 2034 OOO Obskiy GCC OOO NOVATEK-Yurkharovneftegas Urengoyskoye (within the Yevo-Yakhinsky and Ust-Yamsoveysky license areas) North Chaselskoye Beregovoye Nyakhartinskoye OOO NOVATEK-Yurkharovneftegas OOO NOVATEK-Yurkharovneftegas OOO NOVATEK-Yurkharovneftegas OOO NOVATEK-Yurkharovneftegas 2034/2198 Life of field 2070 2043 East Urengoyskoye+North Yesetinskoye ( within the Yevo-Yakhinsky and OOO NOVATEK-Yurkharovneftegas OOO NOVATEK-Yurkharovneftegas OOO NOVATEK-Yurkharovneftegas OOO NOVATEK-Yurkharovneftegas OOO NOVATEK-Tarkosaleneftegas OOO NOVATEK-Tarkosaleneftegas OOO NOVATEK-Tarkosaleneftegas OOO NOVATEK-Tarkosaleneftegas 2034/2025 2029 West Yaro Yakhinsky license areas) West Yurkharovskoye Yevo-Yakhinskoye Syskonsyninskoye North Russkoye East Tarkosalinskoye Kharbeyskoye East Tazovskoye 2034 2054 2031 2043 2036 2033 Urengoyskoye (within the Olimpiyskiy license area) Dorogovskoye OOO NOVATEK-Tarkosaleneftegas OOO NOVATEK-Tarkosaleneftegas OOO NOVATEK-Tarkosaleneftegas OOO NOVATEK-Tarkosaleneftegas 2059 2033 2044 2031 Khancheyskoye South Khadyryakhinskoye Dobrovolskoye (within the Olimpiyskiy license area) North Khancheyskoye+Khadyryakhinskoye Sterkhovoye (within the Olimpiyskiy license area) Yarudeyskoye OOO NOVATEK-Tarkosaleneftegas OOO NOVATEK-Tarkosaleneftegas OOO NOVATEK-Tarkosaleneftegas OOO Yargeo 2059 2076 2059 2124 2048 2048 Arkticheskoye Neytinskoye OOO Yamal LNG Resource OOO Yamal LNG Resource Joint ventures: South-Tambeyskoye Salmanovskoye (Utrenneye) Urengoyskoye OAO Yamal LNG OOO Arctic LNG 2 2045 2120 AO Arcticgas AO Arcticgas 2130 2119 (within the Samburgskiy license area) Yaro-Yakhinskoye Samburgskoye AO Arcticgas 2130 (within the Samburgskiy license area) East Urengoyskoye+North Esetinskoye (within the Samburgskiy license area) North Urengoyskoye AO Arcticgas ZAO Nortgas ZAO Terneftegas 2130 2141 2097 Termokarstovoye Management believes the Group has the right to extend its licenses beyond the initial expiration date under the existing legislation and intends to exercise this right on all of its fields. 55 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 27 CONTINGENCIES AND COMMITMENTS (CONTINUED) Environmental liabilities. The Group operates in the oil and gas industry in the Russian Federation and abroad. The enforcement of environmental regulation in the Russian Federation and other countries of operation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations and, as obligations are determined, they are recognized as an expense immediately if no future benefit is discernible. Potential liabilities arising as a result of a change in interpretation of existing regulations, civil litigation or changes in legislation cannot be estimated. Under existing legislation, management believes that there are no probable liabilities, which will have a material adverse effect on the Group’s financial position, results of operations or cash flows. Legal contingencies. The Group is subject of, or party to a number of court proceedings (both as a plaintiff and a defendant) arising in the ordinary course of business. In the opinion of management, there are no current legal proceedings or other claims outstanding, which could have a material effect on the result of operations or financial position of the Group and which have not been accrued or disclosed in the consolidated financial statements. 56 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 28 PRINCIPAL SUBSIDIARIES AND JOINT VENTURES The principal subsidiaries and joint ventures of the Group and respective effective ownership in the ordinary share capital at 31 December 2021 and 2020 are set out below: Ownership percent at 31 December: Country of incorporation Principal activities 2021 2020 Subsidiaries: OOO NOVATEK-Yurkharovneftegas OOO NOVATEK-Tarkosaleneftegas 100 100 100 100 Russia Russia Exploration and production Exploration and production Exploration, development and production OOO Yargeo 51 51 Russia AO NOVATEK-Pur (merged with OOO NOVATEK- Yurkharovneftegas from August 2021) - 100 100 100 Russia Russia Russia Exploration and production Exploration and development Exploration and development OOO Arctic LNG 1 OOO Arctic LNG 3 100 100 Scientific and technical support of OOO NOVATEK-NTC 100 100 100 100 Russia Russia exploration and development Construction of large-scale offshore structures OOO NOVATEK-Murmansk Gas Condensate Processing Plant Transportation services OOO NOVATEK-Purovsky ZPK OOO NOVATEK-Transervice 100 100 100 100 Russia Russia Fractionation OOO NOVATEK-Ust-Luga OOO NOVATEK-AZK 100 100 100 100 100 100 100 100 100 100 100 100 Russia Russia Russia Russia Russia Russia and Transshipment Complex Wholesale and retail trading Trading and marketing Trading and marketing Trading and marketing Trading and marketing Preparation and undertaking of LNG and gas-chemical projects OOO NOVATEK-Chelyabinsk OOO NOVATEK-Kostroma OOO NOVATEK-Perm OOO NOVATEK Moscow Region OOO Obskiy GCC (before June 2021 OOO Obskiy LNG) 100 100 100 100 100 100 Russia Switzerland Singapore Novatek Gas & Power GmbH Trading and marketing Trading and marketing Novatek Gas & Power Asia Pte. Ltd. Novatek Green Energy Sp. z o.o. (before February 2020 100 100 Poland Trading and marketing Novatek Polska Sp. z o.o.) 57 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 28 PRINCIPAL SUBSIDIARIES AND JOINT VENTURES (CONTINUED) Ownership percent at 31 December: Country of incorporation Principal activities 2021 2020 Joint ventures: Exploration and development, production of LNG OAO Yamal LNG 50.1 50.1 Russia Exploration and development, construction of LNG plant OOO Arctic LNG 2 AO Arcticgas ZAO Nortgas 60 50 50 51 60 50 50 51 Russia Russia Russia Russia Exploration and production Exploration and production Exploration and production ZAO Terneftegas Operation of ООО Cryogas-Vysotsk OOO SMART LNG 51 50 51 50 Russia Russia medium-scale LNG plant Leasing of LNG tankers Construction of LNG transshipment complexes Exploration and development OOO Arctic Transshipment (subsidiary until July 2021) 90 49 100 - Russia Russia ООО Gazpromneft-Sakhalin 29 RELATED PARTY TRANSACTIONS Transactions between NOVATEK and its subsidiaries, which are related parties of NOVATEK, have been eliminated on consolidation and are not disclosed in this Note. For the purposes of these consolidated financial statements, parties are generally considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence or joint control over the other party in making financial and operational decisions. Management has used reasonable judgments in considering each possible related party relationship with attention directed to the substance of the relationship, not merely the legal form. Related parties may enter into transactions, which unrelated parties might not, and transactions between related parties may not be affected on the same terms, conditions and amounts as transactions between unrelated parties. Year ended 31 December: Related parties – joint ventures 2021 2020 Transactions Revenues from oil and gas sales Other revenues 5,586 17,960 4,136 7,375 Purchases of natural gas and liquid hydrocarbons Transportation expenses (473,208) (76) (214,228) (283) Materials, services and other (158) (214) Materials, services and other (82) (25) (437) (9) (capitalized within property, plant and equipment) General and administrative expenses Purchases of property, plant and equipment and materials for construction Gain on disposal of interests in subsidiaries, net Interest income on loans receivable Dividends declared and cash received (330) - 11,962 118,786 (316) 69 21,170 10,920 58 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 29 RELATED PARTY TRANSACTIONS (CONTINUED) Related parties – joint ventures At 31 December 2021 At 31 December 2020 Balances Long-term loans receivable Current portion of long-term loans receivable Trade and other receivables Trade payables and accrued liabilities 309,399 163,473 4,398 390,627 41,253 2,974 62,858 27,532 The terms and conditions of the loans receivable from the joint ventures are disclosed in Note 7. The Group issued guarantees in favor of its joint ventures as described in Note 27. Year ended 31 December: 2021 2020 Related parties – entities with significant influence and their subsidiaries Transactions Revenues from oil and gas sales Other revenues Purchases of natural gas and liquid hydrocarbons Gain on disposal of interests in subsidiaries, net Other operating income (loss), net Interest income 67,501 171 (3,091) 662 (707) 672 36,436 - (443) - (10,789) 741 Related parties – entities with significant influence and their subsidiaries At 31 December 2021 At 31 December 2020 Balances Contingent consideration Trade and other receivables Trade payables and accrued liabilities 22,269 325 21,470 8,943 114 621 Year ended 31 December: Related parties – parties under control of key management personnel 2021 2020 Transactions Transportation expenses Purchases of construction services (capitalized within property, plant and equipment) (11,615) (12,280) (10,815) (18,268) Related parties – parties under control of key management personnel At 31 December 2021 At 31 December 2020 Balances Advances for construction Prepayments and other current assets Trade payables and accrued liabilities 5,799 685 1,060 4,768 585 2,126 Key management personnel compensation. The Group paid to key management personnel (members of the Board of Directors and the Management Committee) short-term compensation, including salary, bonuses and excluding dividends, in the following amounts: Year ended 31 December: Related parties – members of the key management personnel 2021 2020 Board of Directors 192 211 Management Committee 3,295 7,125 Total compensation 3,487 7,336 59 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 29 RELATED PARTY TRANSACTIONS (CONTINUED) Such amounts include personal income tax and are net of payments to non-budget funds made by the employer. Some members of key management personnel have direct and/or indirect interests in the Group and receive dividends under general conditions based on their respective shareholdings. 30 SEGMENT INFORMATION The Group’s activities are considered by the chief operating decision maker (hereinafter referred to as “CODM”, represented by the Management Committee of NOVATEK) to comprise one operating segment: “exploration, production and marketing”. The Group’s management reviews financial information on the results of operations of the reporting segment prepared based on IFRS. The CODM assesses reporting segment performance based on profit comprising among others revenues, depreciation, depletion and amortization, interest income and expense, income tax and other items as presented in the Group’s consolidated statement of income. The CODM also reviews capital expenditures of the reporting segment for the period defined as additions to property, plant and equipment (see Note 5). Geographical information. The Group operates in the following geographical areas: • • Russian Federation – exploration, development, production and processing of hydrocarbons, and sales of natural gas, stable gas condensate, other gas and gas condensate refined products, liquefied petroleum gas and crude oil; Countries of Europe (primarily, France, the Netherlands, the United Kingdom, Belgium, Spain, Poland, Norway, Latvia, Lithuania, Finland, Estonia, Denmark, Germany, Sweden, Italy and Montenegro) – sales of natural gas, naphtha, stable gas condensate, gas condensate refined products, liquefied petroleum gas, crude oil and exploration activities within joint operations; • Countries of the Asia-Pacific Region (primarily, China, including Taiwan, South Korea, Japan, Singapore, Malaysia, Philippines, Thailand and India) – sales of naphtha, natural gas, crude oil and stable gas condensate; • • Countries of North America (primarily, the USA) – sales of naphtha and stable gas condensate refined products; Countries of the Middle East (primarily, Saudi Arabia, the United Arab Emirates, Oman, Turkey and Lebanon) – sales of naphtha, stable gas condensate, crude oil, natural gas and exploration activities within joint operations. Geographical information of the Group’s oil and gas sales for the year ended 31 December 2021 and 2020 is as follows: Year ended 31 December: 2021 2020 Russia 533,492 393,358 Europe 327,734 230,068 48,508 17,136 55 178,245 108,142 25,434 12,133 2 Asia-Pacific Region North America The Middle East Other Less: export duties (21,787) (17,564) Total outside Russia 601,714 306,392 Total oil and gas sales 1,135,206 699,750 Revenues pertaining to geographical information are prepared based on the products geographical destination. For products transported by tankers, the geography is determined based on the location of the port of discharge/transshipment designated by the Group’s customer. Substantially all of the Group’s operating assets are located in the Russian Federation. 60 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 30 SEGMENT INFORMATION (CONTINUED) Major customers. For the year ended 31 December 2021 and 2020, the Group had one major customer to whom individual revenue exceeded 10 percent of total external revenues, which represented 11.9 percent (RR 138.1 billion) and 16 percent (RR 113.7 billion) of total external revenues, respectively. The Group’s major customer resides within the Russian Federation. 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation. These consolidated financial statements present the assets, liabilities, equity, income, expenses and cash flows of PAO “NOVATEK” and its subsidiaries as those of a single economic entity. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvements with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Accounting policies of the Group’s subsidiaries have been changed where necessary to ensure consistency with the Group’s policies. Joint arrangements. The Group undertakes a number of business activities through joint arrangements, which exist when two or more parties have joint control. Joint arrangements are classified as either joint operations or joint ventures, based on the contractual rights and obligations between the parties to the arrangement. Interests in joint ventures are accounted for using the equity method. With regard to joint operations, the Group records its share of assets, liabilities, revenues and expenses of its joint operations in the consolidated financial statements on a line-by-line basis. Under the equity method, an investment in a joint venture is initially recognized at cost. The difference between the cost of an acquisition and the share of the fair value of the joint venture’s identifiable net assets represents goodwill upon acquiring the joint venture. Post-acquisition changes in the Group’s share of net assets of a joint venture are recognized as follows: (a) the Group’s share of profits or losses is recorded in the consolidated profit or loss for the year as share of financial result of joint ventures; (b) the Group’s share of other comprehensive income or loss is recognized in other comprehensive income or loss and presented separately; (c) dividends received or receivable from a joint venture are recognized as a reduction in the carrying amount of the investment; (d) all other changes in the Group’s share of the carrying value of net assets of a joint venture are recognized within retained earnings in the consolidated statement of changes in equity. After application of the equity method, including recognizing the joint venture’s losses, the entire carrying amount of the investment is tested for impairment as a single asset whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. The interest in a joint venture is the carrying amount of the investment in the joint venture together with any long-term interests that, in substance, form part of the Group’s net investment in the joint venture, including receivables and loans for which settlement is neither planned nor likely to occur in the foreseeable future. Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in joint ventures; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. Business combinations. The acquisition method of accounting is used to account for acquisitions of subsidiaries. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. 61 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognized in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed and reviews appropriateness of their measurement. The consideration transferred for the acquiree is measured at the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Disposals of subsidiaries, associates or joint ventures. When the Group ceases to control a subsidiary as a result of its contribution to a joint venture, a joint operation or an associate, the subsidiary is deconsolidated and the retained interest in the entity is remeasured to its fair value only to the extent of the unrelated investors’ interest in the joint venture, the joint operation or the associate, with the change in carrying amount recognized in profit or loss. If the ownership interest in a joint venture is reduced but joint control is retained or replaced with significant influence, the Group continues to apply the equity method and does not remeasure the retained interest. Extractive activities. The Group follows the successful efforts method of accounting for its oil and gas properties and equipment whereby property acquisitions and development costs are capitalized, whereas exploration costs (geological and geophysical expenditures, expenditures associated with the maintenance of non-proven reserves and other expenditures relating to exploration activity), excluding exploratory drilling expenditures and exploration license acquisition costs, are recognized within operating expenses in the consolidated statement of income as incurred. Exploration license acquisition costs and exploratory drilling costs are recognized as exploration assets within property, plant and equipment until it is determined whether proved reserves justifying their commercial development have been found. If no proved reserves are found, the relevant costs are charged to the consolidated statement of income. When proved reserves are determined, exploration license acquisition costs are reclassified to proved properties acquisition costs and exploratory drilling costs are reclassified to development expenditure categories within property, plant and equipment. Exploration license acquisition costs and exploratory drilling costs recognized as exploration assets are reviewed for impairment on an annual basis. The costs of 3-D seismic surveys used to assist production, increase total recoverability and determine the desirability of drilling additional development wells within proved reservoirs are capitalized as development costs. All other seismic costs are expensed as incurred. Production costs and overheads are charged to expense as incurred. Property, plant and equipment. Property, plant and equipment are carried at historical cost of acquisition or construction and adjusted for accumulated depreciation, depletion, amortization and impairment. The cost of self-constructed assets includes the cost of direct materials, direct employee related costs, a pro-rata portion of depreciation of assets used for construction and an allocation of the Group’s overhead costs. Depreciation, depletion and amortization of oil and gas properties and equipment is calculated using the unit-of- production method for each field based upon total proved reserves for costs associated with acquisitions of proved properties and common infrastructure facilities, and proved developed reserves for other development costs, including wells. Where unit-of-production method does not reflect useful life and pattern of consumption of particular oil and gas assets, such as processing facilities serving several properties, those assets are depreciated on a straight-line basis. Property, plant and equipment, other than oil and gas properties and equipment, are depreciated on a straight-line basis over their estimated useful lives. Land and assets under construction are not depreciated. 62 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The estimated useful lives of the Group’s property, plant and equipment depreciated on a straight-line basis are as follows: Years Machinery and equipment Processing facilities Buildings 5-15 20-30 25-50 At each reporting date management assesses whether there is any indication of impairment in respect of property, plant and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less selling costs and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). The carrying amount is reduced to the recoverable amount and the impairment loss is recognized in profit or loss for the respective period. An impairment loss recognized for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount. Borrowing costs. Interest costs on borrowings and exchange differences arising from foreign currency borrowings (to the extent that they are regarded as an adjustment to interest costs) used to finance the construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are recognized in the consolidated statement of income. Asset retirement obligations. An asset retirement obligation is recognized when the Group has a present legal or constructive obligation to dismantle, remove and restore items of property, plant and equipment whose construction is substantially completed. The obligation is recognized when incurred at the present value of the estimated costs of dismantling the assets, including abandonment and site restoration costs, and are included within the carrying value of property, plant and equipment. Changes in the asset retirement obligation relating to a change in the expected pattern of settlement of the obligation, or in the estimated amount of the obligation or in the discount rates, are treated as a change in an accounting estimate in the current period. Such changes are reflected as adjustments to the carrying value of property, plant and equipment and the corresponding liability. Changes in the obligation resulting from the passage of time are recognized in the consolidated statement of income as interest expense. Leases. A contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets are initially measured at cost and depreciated by the earlier of the end of the useful life of the right- of-use asset or the end of the lease term. The cost of right-of-use assets comprises initial measurement of the lease liability, any lease payments made before or at the commencement date and initial direct costs. After the commencement date, the right-of-use assets are carried at cost less accumulated depreciation and impairment losses in accordance with IAS 16, Property, Plant and Equipment. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date and subsequently measured at amortised cost with the interest expense recognized within finance income (expense) in the consolidated statement of income. In accordance with IFRS 16, Leases, the Group elected not to apply accounting requirements under this standard to short-term leases. Lease contracts where the Group acts as the lessor are classified as operating leases when substantially all the risks and rewards incidental to ownership do not transfer to the lessee. Lease payments under such contracts are recognized on a straight-line basis within other revenue in the consolidated statement of income. Non-current assets held for sale. Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use, and the sale within a year from the date of classification is highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell. 63 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property, plant and equipment are not depreciated once classified as held for sale. The Group ceases to use the equity method of accounting in relation to an interest in a joint venture or an associate classified as an asset held for sale. Inventories. Natural gas, gas condensate, crude oil and gas condensate refined products are valued at the lower of cost or net realizable value. The cost of natural gas and liquid hydrocarbons includes direct cost of materials, direct operating costs, and related production overhead expenses and is recorded on weighted average cost basis. Net realizable value is the estimate of the selling price in the ordinary course of business, less selling expenses. Materials and supplies are carried at amounts which do not exceed their respective recoverable amounts in the normal course of business. Financial instruments. Financial assets are classified in the following measurement categories: those to be measured subsequently at amortised cost, those to be measured at fair value through profit or loss, and those to be measured at fair value through other comprehensive income. The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. If a hybrid contract contains a host that is a financial asset, the classification requirements apply to the entire hybrid contract. Financial assets are classified as at amortised cost only if both of the following criteria are met: the asset is held within a business model with the objective of collecting the contractual cash flows, and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. Certain shareholders’ loans provided by the Group to its joint ventures include embedded derivatives that modify cash flows of the loans based on financial (market interest rates) and non-financial (interest rate on borrowings of the lender and free cash flows of the borrower) variables. The risks relating to these variables are interrelated; therefore, terms and conditions of each of these loans related to those variables were defined as a single compound embedded derivative. The Group classified these loans as financial assets at fair value through profit or loss (see Note 26). The difference between the loans provided and the fair value at initial recognition is recorded as the Group’s investment in the joint ventures. Subsequently, the loans are measured at fair value at each reporting date with recognition of the revaluation through profit or loss. Interest income (calculated using the effective interest method), foreign exchanges differences and the remaining effect from fair value remeasurement of such loans are disclosed separately in the consolidated statement of income. Other shareholders’ loans provided by the Group, trade and other financial receivables, and cash and cash equivalents, are classified as at amortised cost. The Group does not have financial assets classified as at fair value through other comprehensive income. The Group’s non-derivative financial liabilities are measured at amortised cost. Derivatives are classified as at fair value through profit or loss. The Group does not apply hedge accounting. Where there is an active market for a commodity, commodity contracts are accounted for as derivatives except for contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a commodity in accordance with the Group’s expected purchase, sale or usage requirements. Gains or losses arising from changes in the fair value of commodity derivatives are recognized within other operating income (loss) in the consolidated statement of income (see Note 26). An allowance for expected credit losses (“ECL”) shall be recorded for financial assets classified as at amortised cost. Loss allowances are measured on either of the following bases: 12-month ECLs that result from possible default events within the 12 months after the reporting date; and lifetime ECLs that result from all possible default events over the expected life of a financial instrument. For trade receivables, the Group measures loss allowances applying a simplified approach at an amount equal to lifetime ECLs. To measure the expected credit losses, expected loss rates are applied to trade receivables grouped based on the days past due. For other financial assets classified as at amortised cost, including some shareholders’ loans provided, loss allowances are measured as 12-month ECLs unless there has been a significant increase in credit risk since origination, in which case the allowance is based on the lifetime ECLs. 64 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The effective interest rate is the rate that exactly discounts future cash payments and receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying value of the financial asset or financial liability. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognized amounts, and there is an intention to either settle on a net basis, or to realize the asset and settle the liability simultaneously. Provisions for liabilities and charges. Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events; when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Provisions are reassessed at each reporting date, and those changes in the provisions resulting from the passage of time are recognized in the consolidated statement of income as interest expense. Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. Pension obligations. The Group performs mandatory contributions to the Pension Fund of the Russian Federation on behalf of its employees based on gross salary payments. These contributions represent a defined contribution plan, are expensed when incurred and are included in the employee compensation in the consolidated statement of income. The Group also operates a non-contributory post-employment defined benefit plan based on employees’ years of service and average salary (see Note 15). The liability recognized in the consolidated statement of financial position in respect of the defined benefit pension plan is the present value of the defined benefit obligations at the balance sheet date. The defined benefit obligations are calculated annually by independent actuaries using the projected unit credit method. Actuarial gains and losses on assets and liabilities arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise. They are not reclassified to profit or loss in subsequent periods. Past-service costs are recognized in profit or loss in the period when a plan is amended or curtailed. Guarantees issued. The Group issued a number of guarantees, financial and non-financial, for the obligations of its joint ventures. Non-financial guarantees contracts issued by the Group meet the definition of insurance contracts and are accounted in accordance with IFRS 4, Insurance Contracts. Liabilities in respect of non-financial guarantee contracts are recognized when an outflow of funds (economic benefits) required to settle the liability is probable. Liabilities are recognized based on the best estimate of such an outflow. Financial guarantees contracts issued are initially recognized as a liability at fair value. They are subsequently measured at the higher of two amounts: the amount of the loss allowance determined in accordance with IFRS 9, Financial Instruments, and the amount initially recognized less, where applicable, the accumulated income recognized in accordance with IFRS 15, Revenue from Contracts with Customers. Income taxes. The income tax charge or benefit comprises current tax and deferred tax and is recognized in the consolidated statement of income unless it relates to transactions that are recognized, in the same or a different period, in other comprehensive income or directly in equity. Current tax is the amount expected to be paid to or recovered from the tax authorities in respect of taxable profits or losses for the current and prior periods. Russian tax legislation allows to prepare and file a single, consolidated income tax declaration by the taxpayers’ group comprised of a holding company and any number of entities with at least 90 percent ownership in each (direct or indirect). Eligible taxpayers’ group must be registered with tax authorities and meet certain conditions and criteria. The tax declaration can be submitted then by any member of the group. The Group prepares a consolidated tax return for the taxpayers’ group including the Company and majority of its subsidiaries in Russia. 65 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred tax assets and liabilities are recognized on temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax balances are measured at tax rates enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary differences will reverse or when the tax loss carry forwards will be utilized. The Group applies a net-basis accounting in respect of temporary differences arising from right-of-use assets and long-term lease liabilities. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilized. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes balances relate to the same taxation authority and the same taxable entity, consolidated tax group of entities or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are netted only with respect to individual companies of the Group (for companies outside the consolidated tax group of companies) and within the consolidated tax payers’ group of companies. The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains upon their disposal. The Group does not recognize deferred tax liabilities on such temporary differences except to the extent that management expects the temporary differences to reverse in the foreseeable future. Treasury shares. Where any Group company purchases PAO NOVATEK’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to PAO NOVATEK shareholders until the shares are cancelled or reissued or disposed. Where such shares are subsequently reissued or disposed, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to PAO NOVATEK shareholders. Treasury shares are recorded at weighted average cost. Gains or losses resulting from subsequent sales of shares are recorded in the consolidated statement of changes in equity, net of associated costs including taxation. Dividends. Dividends are recognized as a liability and deducted from equity at the balance sheet date only if they are declared before or on the balance sheet date. Dividends are disclosed when they are proposed or declared after the balance sheet date but before the consolidated financial statements are authorized for issue. Revenue recognition. Revenues represent the fair value of consideration received or receivable for the sale of goods and services in the normal course of business, net of discounts, export duties, value-added tax, excise and fuel taxes. Revenues from oil and gas sales are recognized when control over such products has transferred to a customer, which refers to ability to direct the use of, and obtain substantially all of the remaining benefits from the products. The Group considers indicators of the transfer of control, which include, but are not limited to the following: the Group has a present right to payment for the products; the Group has transferred physical possession of the products; the customer has legal title to the products; the customer has the significant risks and rewards of ownership of the products; the customer has accepted the products. Not all of the indicators have to be met for management to conclude that control has transferred and revenue could be recognized. Management uses judgment to determine whether factors collectively indicate that the customer has obtained control over the products. Revenues from services are recognized in the period in which the services are rendered. When the consideration includes a variable amount, minimum amounts must be recognized that are not at significant risk of reversal. If sales contract includes the variability associated with market price it represents a separated embedded derivative that is treated as part of revenue. Accordingly, at the date of sale the sales price is determined on a provisional basis, and the fair value of the final sales price adjustment is re-estimated continuously with changes in fair value recognized as an adjustment to revenue. Trade receivables are recognized when the goods are transferred as this is the point in time that the consideration is unconditional and only the passage of time is required before the payment is due. No significant element of financing is deemed present as the sales are made with short-term credit terms consistent with market practice. 66 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In 2019, with the commencement of the completion stage of the tax maneuver in the oil and Reverse excise on raw oil . gas industry in the Russian Federation, a reverse excise on raw oil (a mixture of hydrocarbons composed of one or more components of crude oil, stable gas condensate, vacuum gasoil, tar, and fuel oil) was introduced. This deduction was introduced to compensate economic losses of oil and gas refining companies arising from the tax maneuver and the transfer of tax burden from export duties to the UPT in the amount of full export duty rate for crude oil while export duties for oil products are paid at a discount to crude oil export duty rate. In 2021, an investment premium to the reverse excise on raw oil was also introduced for companies, which concluded an investment agreement with the Ministry of Energy of the Russian Federation prior to 1 October 2021 for construction or modernization of raw oil deep processing facilities. The Group receives the reverse excise on raw oil based on volumes of stable gas condensate sent for processing to its Gas Condensate Fractionation and Transshipment Complex at Ust-Luga. Effective July 2021, the reverse excise the Group receives also includes the investment premium under an investment agreement for construction of a hydrocracker unit with the respective expansion of the Ust-Luga complex. The Group assessed the requirements of IAS 20 and applied judgement in decision to account for the reverse excise on raw oil on an accruals basis in the consolidated statement of income, as a deduction to expense for purchases of hydrocarbons for the respective period, as most of unstable gas condensate volumes used to produce stable gas condensate the Group purchases from its joint ventures. General and administrative expenses. General and administrative expenses represent overall corporate management and other expenses related to the general management and administration of the business unit as a whole. They include management and administrative compensation, legal and other advisory expenses, insurance of administrative buildings, social expenses and compensatory payments of general nature not directly linked to the Group’s oil and gas activities, charity and other expenses necessary for the administration of the Group. Accounting for certain multiple arrangements as a single transaction. The Group accounts for certain multiple arrangements as a single transaction considering their terms, conditions and economic effects. One or more of the following may indicate that multiple arrangements should be accounted as a single transaction: they are entered into at the same time or in contemplation of each other; they form a single transaction designed to achieve an overall commercial effect; the occurrence of one arrangement is dependent on the occurrence of at least one other arrangement; one arrangement considered on its own is not economically justified, but it is economically justified when considered together with other arrangements. Earnings per share. Earnings per share are determined by dividing the profit or loss attributable to PAO NOVATEK shareholders by the weighted average number of shares outstanding during the reporting period. Consolidated statement of cash flows. Cash and cash equivalents comprises cash on hand, cash deposits held with banks and short-term highly liquid investments which are easily convertible to known amounts of cash and which are not subject to significant risk of change in value and have an original maturity of three months or less. The Group reports cash receipts and the repayments of short-term borrowings which have a maturity of three months or less on a net basis in the consolidated statement of cash flows. 67 PAO NOVATEK Notes to the Consolidated Financial Statements (in Russian roubles [tabular amounts in millions], unless otherwise stated) 32 NEW ACCOUNTING PRONOUNCEMENTS The following amendments to standards have been issued, which the Group has not early adopted: Amendments to IFRS 10, Consolidated Financial Statements, and IAS 28, Investments in Associates and Joint Ventures (issued in September 2014, in November 2015 the effective date was postponed indefinitely). These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments stipulate that a full gain or loss is recognized when a transaction involves a business. A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are held by a subsidiary. The Group is considering the implications of these amendments for the Group’s consolidated financial statements, and the timing of their adoption by the Group. 68 PAO NOVATEK Unaudited Supplemental Oil and Gas Disclosures UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). In the absence of specific IFRS guidance for the oil and gas industry, the Group has reverted to other relevant disclosure standards, mainly US GAAP, that are consistent with norms established for companies in the oil and gas industry. While not required under IFRS, this section provides unaudited supplemental information on oil and gas exploration and production activities but excludes disclosures regarding the standardized measures of discounted cash flows related to oil and gas activities. The Group’s exploration and production activities are mainly within the Russian Federation; therefore, the majority of the information provided in this section pertains to this country. The Group operates through various oil and gas production subsidiaries, and also has an interest in oil and gas companies that are accounted for under the equity method. Oil and Gas Exploration and Development Costs The following tables set forth information regarding oil and gas acquisition, exploration and development activities. The amounts reported as costs incurred include both capitalized costs and costs charged to expense, and are presented comprising amounts classified as assets held for sale and amounts allocated to fair values of the identified assets in acquisitions of subsidiaries (see Note 4), except for the effects from non-monetary transactions. These costs do not include LNG liquefaction and transportation operations (amounts in millions of Russian roubles). Year ended 31 December: 2021 2020 Costs incurred in exploration and development activities Acquisition of unproved properties Acquisition of proved properties Exploration costs 775 13,348 27,200 85,805 317 58 21,156 Development costs 112,213 Total costs incurred in exploration and development activities The Group’s share in joint ventures’ 127,128 49,898 133,744 cost incurred in exploration and development activities 52,630 At 31 December 2021 At 31 December 2020 Capitalized costs relating to oil and gas producing activities Proved and unproved properties Wells, related equipment and facilities Support equipment and facilities 130,575 396,203 188,679 145,199 113,926 348,900 176,171 106,086 Uncompleted wells, related equipment and facilities Total capitalized costs relating to oil and gas producing activities 860,656 745,083 Less: accumulated depreciation, depletion and amortization (283,101) (246,111) Net capitalized costs relating to oil and gas producing activities 577,555 498,972 The Group’s share in joint ventures’ capitalized costs relating to oil and gas producing activities 585,642 565,843 69 PAO NOVATEK Unaudited Supplemental Oil and Gas Disclosures UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED) Results of Operations for Oil and Gas Producing Activities Results of operations for oil and gas producing activities of the Group’s subsidiaries and the Group’s share in the results of operations of joint ventures are shown below (amounts in millions of Russian roubles). Year ended 31 December: 2021 2020 Subsidiaries Revenues from oil and gas sales (less transportation) 314,973 204,417 Lifting costs (20,572) (87,939) (38,207) (9,581) (607) (18,732) (54,024) (30,235) (9,103) (1,926) (537) Taxes other than income tax Depreciation, depletion and amortization Exploration expenses Social expenses and charity (1) Other operating expenses (2) Total operating expenses (574) (157,480) (114,557) Results of operations for oil and gas producing activities before income tax 157,493 89,860 Less: related income tax expenses (29,831) (16,987) Results of operations for oil and gas producing activities of the Group’s subsidiaries 127,662 72,873 Group’s share in joint ventures Revenues from oil and gas sales (less transportation) 404,738 167,334 Lifting costs (8,221) (55,109) (26,266) (1,858) (444) (7,193) (34,994) (25,959) (2,225) (32) Taxes other than income tax Depreciation, depletion and amortization Exploration expenses Social expenses and charity (1) Other operating expenses (2) Total operating expenses (553) (92,451) (433) (70,836) Results of operations for oil and gas producing activities before income tax 312,287 96,498 Less: related income tax expenses (52,134) (16,049) Group’s share in results of operations for oil and gas producing activities of joint ventures 260,153 387,815 80,449 Total results of operations for oil and gas producing activities of the Group’s subsidiaries and joint ventures 153,322 (1) Represent social expenses and compensatory payments related mainly to continued support of charities and social programs in the regions where production and development activities are performed. Represent mainly materials, services and other expenses, as well as administrative expenses being by nature operating expenses relating to fields in exploration and development stage. (2) The results of operations for hydrocarbons producing activities are presented only for volumes produced by the Group’s subsidiaries and joint ventures and do not include general corporate overheads, processing costs incurred after saleable hydrocarbons are received, such as stable gas condensate processing costs and natural gas liquefaction costs. Revenues from oil and gas sales are calculated based on hydrocarbons production volumes and netback prices determined at the point of marketable products production and do not include export duties, transportation expenses to customers, storage, sales and other similar expenses. 70 PAO NOVATEK Unaudited Supplemental Oil and Gas Disclosures UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED) Operating expenses include only the amounts directly related to the extraction of natural gas, gas condensate and crude oil, such as lifting costs (materials, services and other expenses, as well as administrative expenses being by nature operating expenses of oil and gas producing activities), taxes other than income tax, depreciation, depletion and amortization and other expenses. Income tax expense is calculated based on income tax rates applicable to each Group’s subsidiary and joint venture. Proved Oil and Gas Reserves The following information presents the quantities of proved oil and gas reserves and changes thereto as at and for the years ended 31 December 2021 and 2020. The Group estimates its oil and gas reserves in accordance with rules promulgated by the Securities and Exchange Commission (SEC) for proved reserves. The Group’s oil and gas reserves estimation and reporting process involves an annual independent third party reserve appraisal as well as internal technical appraisals of reserves. The Group maintains its own internal reserve estimates that are calculated by qualified engineers and technical staff working directly with the oil and gas properties. The Group’s technical staff periodically updates reserve estimates during the year based on evaluations of new wells, performance reviews, new technical information and other studies. The oil and gas reserve estimates reported below are determined by the Group’s independent petroleum reservoir engineers, DeGolyer and MacNaughton (“D&M”). The Group provides D&M annually with engineering, geological and geophysical data, actual production histories and other information necessary for the reserve determination. The Group’s and D&M’s technical staffs meet to review and discuss the information provided, and upon completion of this process, senior management reviews and approves the final reserve estimates issued by D&M. The following reserve estimates were prepared using standard geological and engineering methods generally accepted by the petroleum industry. The method or combination of methods used in the analysis of each reservoir is tempered by experience with similar reservoirs, stages of development, quality and completeness of basic data, and production history. Extensions of production licenses are assumed to be at the discretion of the Group. Management believes that proved reserves should include quantities which are expected to be produced after the expiry dates of the Group’s production licenses. The principal licenses of the Group for exploration and production expire between 2029 and 2198. Legislation of the Russian Federation states that, upon expiration, a license is subject to renewal at the initiative of the license holder provided that further exploration, appraisal, production or remediation activities are necessary and provided that the license holder has not violated the terms of the license. Management intends to extend its licenses for properties expected to produce beyond the license expiry dates. Proved reserves are defined as the estimated quantities of oil and gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic conditions. In some cases, substantial new investment in additional wells and related support facilities and equipment will be required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change over time as additional information becomes available. Proved developed reserves are those reserves which are expected to be recovered through existing wells with existing equipment and operating methods. Undeveloped reserves are those reserves which are expected to be recovered as a result of future investments to drill new wells, to re-complete existing wells and/or install facilities to collect and deliver the production. Net reserves exclude quantities due to others when produced. The reserve quantities below include 100 percent of the net proved reserve quantities attributable to the Group’s consolidated subsidiaries and the Group’s ownership percentage of the net proved reserves quantities of the joint ventures including volumes of natural gas consumed in hydrocarbons production and development activities. Production and reserves of the South-Tambeyskoye field of Yamal LNG are reported at 60 percent including an additional 9.9 percent interest not owned by the Group, since the Group assumes certain economic and operational risks related to this interest. 71 PAO NOVATEK Unaudited Supplemental Oil and Gas Disclosures UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED) For convenience, reserves estimates are provided both in English and Metric units. Net proved reserves of natural gas are presented below: Group’s share in Net proved reserves Billions joint ventures Total net proved reserves Billions Billions of cubic meters Billions of cubic feet of cubic meters Billions of cubic feet Billions of cubic feet of cubic meters At 31 December 2019 40,597 1,149 38,299 1,085 78,896 2,234 Changes attributable to: Revisions of previous estimates Extension and discoveries Acquisitions () 471 1,075 138 13 30 4 (603) 2,018 - (17) 57 (132) 3,093 138 (4) 87 4 - Production (1,435) (40) (1,297) (37) (2,732) (77) At 31 December 2020 40,846 1,156 38,417 1,088 79,263 2,244 Changes attributable to: Revisions of previous estimates Extension and discoveries Production (566) 2,891 (1,515) (15) 82 (43) (311) 1,377 (1,306) (9) 39 (37) (877) 4,268 (2,821) (24) 121 (80) At 31 December 2021 41,656 1,180 38,177 1,081 79,833 2,261 Net proved developed reserves (included above): At 31 December 2019 At 31 December 2020 At 31 December 2021 11,527 12,128 13,630 326 343 386 18,612 17,922 17,179 527 508 486 30,139 30,050 30,809 853 851 872 Net proved undeveloped reserves (included above): At 31 December 2019 At 31 December 2020 At 31 December 2021 29,070 28,718 28,026 823 813 794 19,687 20,495 20,998 558 580 595 48,757 49,213 49,024 1,381 1,393 1,389 () – Relate to an additional 50 percent interest in reserves of the Yevo-Yakhinskiy license area acquired by the Group as a result of the reorganization of Arcticgas in 2019 (part of reserves was estimated in 2020). The net proved reserves of natural gas reported in the table above included reserves attributable to a non-controlling interest in a Group’s subsidiary of 311 billion cubic feet (9 billion cubic meters) and 337 billion cubic feet (10 billion cubic meters) at 31 December 2021 and 2020, respectively, and reserves attributable to an additional 9.9 percent interest in Yamal LNG not owned by the Group (see above) of 2,294 billion cubic feet (65 billion cubic meters) and 2,341 billion cubic feet (66 billion cubic meters) at 31 December 2021 and 2020, respectively. 72 PAO NOVATEK Unaudited Supplemental Oil and Gas Disclosures UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED) Net proved reserves of crude oil, gas condensate and natural gas liquids are presented below: Group’s share in Net proved reserves joint ventures Total net proved reserves Millions of barrels Millions of metric tons Millions of barrels Millions of metric tons Millions of barrels Millions of metric tons At 31 December 2019 822 98 832 95 1,654 193 Changes attributable to: Revisions of previous estimates Extension and discoveries Acquisitions () 30 50 5 3 6 1 (16) 66 (2) 8 - 14 116 5 1 14 1 - Production (52) (6) (50) (6) (102) (12) At 31 December 2020 855 102 832 95 1,687 197 Changes attributable to: Revisions of previous estimates Extension and discoveries Production (48) 49 (55) (6) 6 (7) (15) 55 (49) (2) 6 (5) (63) 104 (104) (8) 12 (12) At 31 December 2021 801 95 823 94 1,624 189 Net proved developed reserves (included above): At 31 December 2019 At 31 December 2020 At 31 December 2021 335 349 350 42 43 42 457 439 422 52 50 49 792 788 772 94 93 91 Net proved undeveloped reserves (included above): At 31 December 2019 At 31 December 2020 At 31 December 2021 487 506 451 56 59 53 375 393 401 43 45 45 862 899 852 99 104 98 () – Relate to an additional 50 percent interest in reserves of the Yevo-Yakhinskiy license area acquired by the Group as a result of the reorganization of Arcticgas in 2019 (part of reserves was estimated in 2020). The net proved reserves of crude oil, gas condensate and natural gas liquids reported in the table above included reserves attributable to a non-controlling interest in a Group’s subsidiary of 72 million barrels (9 million metric tons) and 82 million barrels (11 million metric tons) at 31 December 2021 and 2020, respectively, and reserves attributable to an additional 9.9 percent interest in Yamal LNG not owned by the Group (see above) of 18 million barrels (2 million metric tons) and 19 million barrels (2 million metric tons) at 31 December 2021 and 2020, respectively. 73 PAO NOVATEK Contact Information PAO NOVATEK was incorporated as a joint stock company in accordance with the Russian law and is domiciled in the Russian Federation . The Group’s registered office is: Ulitsa Pobedy 22a 629850 Tarko-Sale Yamal-Nenets Autonomous District Russian Federation The Group’s office in Moscow is: Ulitsa Udaltsova 2 119415 Moscow Russian Federation Telephone: Fax: 7 (495) 730-60-00 7 (495) 721-22-53 www.novatek.ru 74 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Year Ended 31 December 2021 CONTENTS Page General provisions...................................................................................................................................................3 Overview.................................................................................................................................................................3 Recent developments...............................................................................................................................................4 Basis of presentation ...............................................................................................................................................6 Selected data............................................................................................................................................................7 Selected macro-economic data................................................................................................................................9 Certain factors affecting our results of operations................................................................................................. 10 Current economic environment ......................................................................................................................... 10 Natural gas prices .............................................................................................................................................. 11 Stable gas condensate and refined products, crude oil and liquefied petroleum gas prices............................... 12 Transportation tariffs......................................................................................................................................... 13 Our tax burden and obligatory payments........................................................................................................... 15 Oil and gas reserves............................................................................................................................................... 18 Operational highlights ........................................................................................................................................... 21 Results of operations for the year ended 31 December 2021 compared to the year ended 31 December 2020 .... 28 Total revenues ................................................................................................................................................... 29 Operating expenses............................................................................................................................................ 32 Net gain on disposal of interests in subsidiaries................................................................................................ 36 Other operating income (loss) ........................................................................................................................... 36 Profit from operations and EBITDA ................................................................................................................. 37 Finance income (expense) ................................................................................................................................. 37 Share of profit (loss) of joint ventures, net of income tax ................................................................................. 38 Income tax expense ........................................................................................................................................... 39 Profit attributable to shareholders and earnings per share................................................................................. 40 Liquidity and capital resources.............................................................................................................................. 41 Cash flows ......................................................................................................................................................... 41 Liquidity and working capital............................................................................................................................ 44 Capital expenditures .......................................................................................................................................... 45 Quantitative and qualitative disclosures and market risks..................................................................................... 47 Terms and abbreviations........................................................................................................................................ 49 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 GENERAL PROVISIONS You should read the following discussion and analysis of our financial condition and results of operations as of 31 December 2021 and for the year then ended in conjunction with our audited consolidated financial statements as of and for the year ended 31 December 2021. The consolidated financial statements and the related notes thereto have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial and operating information contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” comprises information of PAO NOVATEK, its consolidated subsidiaries and joint ventures (hereinafter jointly referred to as “we” or the “Group”). OVERVIEW We are Russia’s second largest natural gas producer and one of the world leaders in terms of proved natural gas reserves under the Petroleum Resources Management System (“PRMS”) and the Securities and Exchange Commission (“SEC”) reserve reporting methodologies. Our exploration and development, production and processing of natural gas, gas condensate and crude oil are conducted mainly within the Russian Federation. The natural gas assets of our subsidiaries and joint ventures include projects where we sell natural gas through the Unified Gas Supply System in the Russian domestic market and liquefied natural gas (“LNG”) delivered mainly to international markets. The Group’s LNG producing projects are Yamal LNG, Cryogas-Vysotsk and an LNG plant in the Chelyabinsk region. The Group through its joint venture OAO Yamal LNG undertakes a project on natural gas production, liquefaction and shipping based on the feedstock resources of the South-Tambeyskoye field located in YNAO (the “Yamal LNG project”). The total annual nameplate capacity of the liquefaction plant is 17.4 million tons of LNG, including the first three LNG trains with an annual capacity of 5.5 million tons for each and the fourth train, launched in May 2021, with an annual capacity of 0.9 million tons of LNG. Yamal LNG is one of the largest suppliers of LNG to international markets and one of the lowest in terms of greenhouse gas emissions per ton of produced LNG globally. We purchase a part of the LNG volumes produced by Yamal LNG and sell these volumes to international markets via tankers under long-term contracts and on a spot basis. Through its joint venture OOO Cryogas-Vysotsk, the Group undertakes a project on a medium-scale LNG production at the plant located at the Russian port of Vysotsk on the Baltic Sea. We purchase a part of the LNG volumes produced at the project and sell these volumes mainly to international markets via tankers and trucks, as well as through refueling complexes, and also sell LNG used for marine bunkering. We also produce LNG at our small-scale domestic plant in the Chelyabinsk region. The LNG is sold through the Group’s refueling complexes in the Chelyabinsk region and neighboring areas, as well as directly from the LNG plant without incurring additional transportation expenses. In addition, through our joint venture OOO Arctic LNG 2, we are presently undertaking a project on LNG plant construction on the Gydan peninsula that will utilize the hydrocarbon resources of the Salmanovskoye (Utrenneye) field (the “Arctic LNG 2 project”). The project includes the construction of an LNG plant built on gravity-based platforms with an annual capacity of 19.8 million tons of LNG per annum (three processing trains of 6.6 million tons of LNG each) and up to 1.6 million tons of stable gas condensate per annum. The launch of the first train is expected to be in 2023, the second train – in 2024 and the launch of the third train is planned in 2025. We deliver unstable gas condensate produced by our subsidiaries and our joint ventures Arcticgas, Nortgas and Terneftegas to our Purovsky Gas Condensate Plant (the “Purovsky Plant”) for processing into stable gas condensate and natural gas liquids (“NGL”). The Purovsky Plant allows us to process more than 13 million tons of unstable gas condensate per annum. 3 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Most of our stable gas condensate is sent for further processing to our Gas Condensate Fractionation and Transshipment Complex located at the port of Ust-Luga on the Baltic Sea (the “Ust-Luga Complex”). The Ust- Luga Complex processes our stable gas condensate into light and heavy naphtha, jet fuel, gasoil and fuel oil, nearly all of which we sell to the international markets allowing us to increase the added value of our liquid hydrocarbons sales. The Ust-Luga Complex allows us to process about seven million tons of stable gas condensate annually. The excess volumes of stable gas condensate received from the processing at the Purovsky Plant over volumes sent for further processing to the Ust-Luga Complex are sold on both the domestic and international markets (from the Purovsky Plant without incurring additional transportation expenses, by rail or from the port of Ust-Luga on the Baltic Sea by tankers). A significant part of our NGL volumes produced at the Purovsky Plant is dispatched via pipeline for further processing at the petrochemical complex of PAO SIBUR Holding group in Tobolsk (the “Tobolsk Refining Facilities”). The remaining volumes are sold directly from the Purovsky Plant without incurring additional transportation expenses. After processing at the Tobolsk Refining Facilities, we receive liquefied petroleum gas (“LPG”) with higher added value, the majority of which are transported by rail to our end-customers in the domestic and international markets with the remaining portion sold directly from the Tobolsk Refining Facilities without incurring additional transportation expenses. NGL sold directly from the Purovsky Plant and sales of LPG received from the processing at the Tobolsk Refining Facilities are presented within LPG sales in this report. We deliver our crude oil to both domestic and international markets. RECENT DEVELOPMENTS Arctic LNG 2 project The Group, jointly with international partners TotalEnergies SE, China National Petroleum Corporation (“CNPC”), CNOOC Limited and Japan Arctic LNG B.V. (a joint venture of Mitsui & Co., Ltd and Japan Oil, Gas and Metals National Corporation (“JOGMEC”)), through its joint venture OOO Arctic LNG 2 is implementing an integrated project for natural gas production, liquefaction and shipping based on the hydrocarbon resources of the Salmanovskoye (Utrenneye) field on the Gydan peninsula (the “Arctic LNG 2 project”). The Arctic LNG 2 plant is built on gravity-based structures (“GBS”) and will consist of three processing trains with an annual capacity of 6.6 million tons of LNG each, or an aggregated capacity of 19.8 million tons of LNG per annum, and up to 1.6 million tons of stable gas condensate. The final investment decision (FID) on the Arctic LNG 2 project was made in September 2019. The first train is expected to be launched in 2023, the second train – in 2024 and the launch of the third train is planned in 2025. Gravity-based structures and other major units for the plant are built at our own LNG construction center in the Murmansk region (the “Murmansk yard”), which will also be used for the Group’s subsequent LNG projects. At present, the casting of the first GBS for the first train of the Arctic LNG 2 plant is completed at the Murmansk yard, and the topsides installation on it is in process. In addition, the casting of the second GBS for the second train is underway, the topsides for this platform are under construction. The use of gravity-based structures technology for the plant construction, as well as localizing fabrication in the Russian Federation will contribute to lower LNG liquefaction costs compared to other LNG projects and allows to minimize the impact on the environment. The Salmanovskoye (Utrenneye) field’s development is ongoing. By the end of 2021, 56 production wells were drilled, which is sufficient to launch the first LNG train. In December 2021, commissioning works at the gas turbine power plant, the main power generation facility for the Arctic LNG 2 project, have begun. At present, the construction of the water treatment facility, the sewage pumping stations site and the landfill has been completed. Regular flights to the Utrenniy airport have begun. The berthing facilities for the GBS installation have been put into operation. Construction of the first gas treatment plant necessary for the launch and ongoing operation of the first LNG train is underway. 4 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 All volumes of LNG produced by the Arctic LNG 2 project will be sold to the project’s participants under long- term agreements in proportion to their equity interest. At present, the agreements with all participants have been signed. The Group, in turn, continues its consistently effort to contract its share of volumes through active negotiations and signing long-term and medium-term agreements for LNG deliveries with major LNG industry players mainly from the Asian-Pacific region countries. To ensure LNG deliveries from the Arctic LNG 2 project, long-term agreements on time chartering of 21 Arc7 ice-class tankers were signed: 15 tankers will be built by the Zvezda Shipbuilding Complex in Russia and 6 tankers – by Daewoo Shipbuilding & Marine Engineering in South Korea. In 2021, Arctic LNG 2 entered into credit facility agreements with international and Russian banks for external financing in the total amount of up to EUR 9.5 billion for the period until the end of 2035, marking an important step in the project implementation. The launch of the fourth train of the LNG plant at Yamal LNG project In the second quarter 2021, the Groups’ joint venture OAO Yamal LNG launched the plant’s fourth liquefaction train with a nameplate annual capacity of 0.9 million tons of LNG. The fourth LNG train was constructed using equipment almost entirely manufactured in Russia and based on a proprietary natural gas liquefaction technology developed by the Group’s specialists utilizing our patented technology “Arctic Cascade”. The launch of the fourth train increased the total nameplate capacity of the plant from 16.5 million tons to 17.4 million tons of LNG per annum. Low-carbon projects The Group is considering the construction of a gas chemical complex to produce “blue” ammonia, other low- carbon emitting products, and hydrogen near the Sabetta village. Currently, the Group is conducting pre-front-end engineering design works (Pre-FEED) with engineering companies and licensors possessing advance low-carbon technologies to select the most efficient technical solutions for the gas chemical complex and define the key project parameters. At the end of 2021, we obtained the licenses for the Obskiy and Tadebyayakhinskiy license areas located in the Yamal and Gydan peninsulas in YNAO to make possible the capturing of carbon dioxide generated at our own production facilities and its long-term underground storage. In the beginning of 2022, we completed the first of three stages of international certification for these license areas, which confirmed that the geological formations within the license areas have the geological storage capacity of at least 600 million tons of carbon dioxide each. Having certified carbon dioxide geological storage sites will allow reducing the carbon footprint of the Group’s existing and prospective projects and is an important element of the Group’s strategy to decarbonize production clusters for LNG and low-carbon gas chemicals. Sale of a 10% participation interest in OOO Arctic Transshipment In July 2021, the Group sold a 10% participation interest in its subsidiary OOO Arctic Transshipment to TOTAL E&P Transshipment SAS, a member of the TotalEnergies SE group. Arctic Transshipment will be an operator of the two LNG transshipment complexes currently under construction in the Kamchatka and Murmansk regions. The terminals will ensure efficient LNG transportation from the Arctic LNG 2 and other Group’s projects through arranging LNG transshipments from Arc7 ice-class tankers to conventional tankers. Upon closing the transaction, the key project’s financial and operational decisions are approved unanimously by all participants, implying joint control over the company. As a result, the Group started to treat Arctic Transshipment as a joint venture and to account for the investment retained under the equity method. Increasing our resource base and production facilities In November 2021, the Group launched the Kharbeyskoye field within the North-Russkiy cluster with the estimated annual production capacity of 3.6 billion cubic meters of natural gas and 0.6 million tons of gas condensate. The launch of the Kharbeyskoye field contributes significantly to the maintenance of hydrocarbons production levels in the area of the Unified Gas Supply System. 5 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 In 2021, the Group obtained rights for geological research works, exploration and production of hydrocarbons at three license areas located in the YNAO in close proximity to the Group’s existing assets:  In September 2021, we won auctions for the rights to use license areas, which include the Arkticheskoye and Neytinskoye fields. Combined hydrocarbon reserves of the two fields appraised under the Russian resource classification are estimated at 413 billion cubic meters (bcm) of natural gas and 28 million tons of liquids, or approximately 2.9 billion barrels of oil equivalent (boe). The license areas are located on the Yamal Peninsula in YNAO in close proximity to the Group’s other license areas. The aggregate payment for the licenses amounted to RR 13.2 billion. The licenses for the rights to use license areas, which include the Arkticheskoye and Neytinskoye fields, were obtained in October 2021.  In March 2021, the Group won an auction for the right to use the North-Gydanskiy license area. The license area has estimated hydrocarbon resources of 1,244 bcm of natural gas and 209 million tons of liquids, or approximately 9.8 billion boe, under the Russian resource classification. The North-Gydanskiy license area is located in the YNAO on the Gydan peninsula and partly in the shallow waters of the Gydan Bay of the Kara Sea and borders with the Group’s other license areas: the Salmanovskiy (Utrenniy), Gydanskiy, Shtormovoy and the flank of the Ladertoyskiy license area. The payment for the license amounted to RR 775 million. The license for the right to use the North-Gydanskiy license area was obtained in June 2021. The acquisition of these license area expands our resource base for implementing new LNG projects. In July 2021, PAO NOVATEK and PAO Gazprom Neft closed a transaction to form a joint venture to develop the North-Vrangelevskiy license area. As part of the transaction, the Group purchased a 49% participation interest in OOO Gazpromneft-Sakhalin, which was a subsidiary of PAO Gazprom Neft. Gazpromneft-Sakhalin owns a license for geological research works, exploration and production of hydrocarbons at the North-Vrangelevskiy license area located in the eastern part of the East Siberian Sea and the western part of the Chukchi Sea. The creation of a new joint venture to develop the North-Vrangelevskiy license area expands our long-term resource base for implementation of new projects in the Arctic Zone of Russia. BASIS OF PRESENTATION Oil and gas production and reserves in the current report are calculated based on 100% of our subsidiaries production and reserves and our proportionate share in the production and reserves of our joint ventures including volumes of natural gas consumed in oil and gas producing and development activities. Meanwhile, production costs per barrel of oil equivalent are calculated based on production volumes net of the volume of consumed natural gas. Production and reserves of the South-Tambeyskoye field developed by the Group’s joint venture OAO Yamal LNG are reported at 60% including an additional 9.9% interest not owned by the Group, since the Group assumes certain economic and operational risks related to this interest. Our oil and gas revenues and average realized net prices are presented net of VAT, export duties, and fuel taxes, where applicable, and excise on stable gas condensate refined products sales on the domestic market and hydrocarbons sales in Poland. The Group also receives the reverse excise on raw oil based on volumes of stable gas condensate sent for processing to our Ust-Luga Complex and reports it as a deduction to our operating expenses in the line “Purchases of natural gas and liquid hydrocarbons” in our consolidated statement of income (see “Our tax burden and obligatory payments” below). 6 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 SELECTED DATA Year ended 31 December: Change % millions of Russian roubles except as stated 2021 2020 Financial results (1) Total revenues 1,156,724 (875,159) 748,337 711,812 (552,062) 392,008 62.5% 58.5% 90.9% Operating expenses Normalized EBITDA (2),(3) Normalized profit attributable to shareholders of PAO NOVATEK (3) Normalized profit attributable to shareholders of PAO NOVATEK (3) 432,338 106,044 307.7% , excluding the effect of foreign exchange gains (losses) (4) Normalized earnings per share (3) (in Russian roubles) Normalized earnings per share (3), excluding the effect of foreign exchange gains (losses) (4) (in Russian roubles) Net debt (5) 421,304 144.04 169,020 35.30 149.3% 308.1% 140.36 73,946 56.26 39,557 149.5% 86.9% Production volumes (6) Hydrocarbons production (million barrels of oil equivalent) Daily production (million barrels of oil equivalent per day) 626.3 1.72 608.2 1.66 3.0% 3.3% Sales volumes Natural gas (million cubic meters) Naphtha (thousand tons) Crude oil (thousand tons) Liquefied petroleum gas (thousand tons) Other stable gas condensate refined products (thousand tons) Stable gas condensate (thousand tons) 75,817 4,398 3,909 3,506 2,387 2,341 75,620 4,294 4,468 2,959 2,479 2,169 0.3% 2.4% (12.5%) 18.5% (3.7%) 7.9% Oil and gas SEC reserves (6) Total proved reserves (billion barrels of oil equivalent) Total natural gas proved reserves (trillion cubic meters) Total liquids proved reserves (million tons) 16.4 2.26 189 16.4 2.24 197 0.3% 0.8% (4.1%) Cash flow results Net cash provided by operating activities 419,466 191,251 228,215 171,896 204,577 (32,681) 144.0% (6.5%) n/a (7) Cash used for capital expenditures (8) Free cash flow (1) Net of VAT, export duties, excise and fuel taxes, where applicable. (2) EBITDA represents profit (loss) adjusted for the add-back of depreciation, depletion and amortization, net impairment expenses (reversals), finance income (expense), income tax expense, as well as income (loss) from changes in fair value of derivative financial instruments. EBITDA includes EBITDA from subsidiaries and our proportionate share in the EBITDA of our joint ventures. Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal and subsequent non-cash revaluation of contingent consideration). Excluding the effect of foreign exchange gains (losses) of subsidiaries and our proportionate share in foreign exchange gains (losses) of our joint ventures (see “Profit attributable to shareholders and earnings per share” below). Net debt represents our total debt net of cash, cash equivalents and bank deposits with original maturity more than three months. (3) (4) (5) (6) Oil and gas production and reserves are calculated based on 100% of production and reserves of our subsidiaries and our proportionate share in the production and reserves of our joint ventures including fuel gas. Production and reserves of the South-Tambeyskoye field of Yamal LNG are reported at 60% (see “Basis of presentation” above). Cash used for capital expenditures represents purchases of property, plant and equipment, materials for construction and capitalized interest paid per Consolidated Statement of Cash Flows net of payments for mineral licenses and acquisition of subsidiaries. Free cash flow represents the difference between Net cash provided by operating activities and Cash used for capital expenditures. For the analysis of factors that impacted our free cash flow, please refer to “Net cash provided by operating activities” and “Capital expenditures” below. (7) (8) 7 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Reconciliation of normalized EBITDA is as follows: Year ended 31 December: Change % millions of Russian roubles 2021 2020 Profit 451,621 78,586 n/a Depreciation, depletion and amortization Impairment expenses (reversals), net Loss (income) from changes in fair value of commodity derivative instruments Total finance expense (income) Total income tax expense 56,599 1,908 39,238 254 44.2% n/a 2,600 10,119 49,583 1,689 (160,565) 51,010 53.9% n/a (2.8%) Share of loss (profit) of joint ventures, net of income tax (232,277) 143,981 n/a EBITDA from subsidiaries 340,153 154,193 120.6% Net gain on disposal of interests in subsidiaries Changes in fair value of contingent consideration reported within the “Other operating income (loss)” (662) - (69) n/a n/a 47,823 Normalized EBITDA from subsidiaries Share in EBITDA of joint ventures 339,491 408,846 201,947 190,061 68.1% 115.1% including: OAO Yamal LNG AO Arcticgas others 297,082 92,477 19,287 131,085 52,885 6,091 126.6% 74.9% 216.6% Normalized EBITDA 748,337 392,008 90.9% 8 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 SELECTED MACRO-ECONOMIC DATA Exchange rate, RR for one foreign currency unit (1) 1Q 2Q 3Q 4Q Year 2021 2020 Change Y-o-Y, % 2021 2020 2021 2020 2021 2020 2021 2020 US dollar (USD) Average for the period At the beginning of the period 74.34 66.38 74.22 72.36 73.47 73.56 72.61 76.22 73.88 61.91 75.70 77.73 72.37 69.95 72.76 79.68 73.65 72.15 2.1% 73.88 61.91 74.29 73.88 19.3% 0.6% At the end of the period 75.70 77.73 72.37 69.95 72.76 79.68 74.29 73.88 Depreciation (appreciation) of RR to US dollar 2.5% 25.6% (4.4%) (10.0%) 0.5% 13.9% 2.1% (7.3%) 0.6% 19.3% 87.19 82.45 n/a Euro Average for the period At the beginning of the period 89.70 73.23 89.39 79.65 86.66 85.97 83.07 90.81 90.68 69.34 88.88 85.74 86.20 78.68 84.88 93.02 5.7% 90.68 69.34 84.07 90.68 30.8% (7.3%) At the end of the period 88.88 85.74 86.20 78.68 84.88 93.02 84.07 90.68 Depreciation (appreciation) of RR to Euro (2.0%) 23.7% (3.0%) (8.2%) (1.5%) 18.2% (1.0%) (2.5%) (7.3%) 30.8% n/a (1) Based on the data from the Central Bank of Russian Federation (CBR). The average rates for the period are calculated as the average of the daily exchange rates on each business day (rate is announced by the CBR) and on each non-business day (rate is equal to the exchange rate on the previous business day). ● ● ● 1Q 2Q 3Q 4Q Year 2021 2020 Change Y-o-Y, % Average for the period 2021 2020 2021 2020 2021 2020 2021 2020 Benchmark natural gas prices, USD per mmbtu (2) NBP (National Balancing Point) TTF (Title Transfer Facility) 6.9 3.2 3.1 9.1 9.0 1.6 16.4 16.7 2.7 30.5 31.4 5.4 15.8 16.0 3.2 393.8% 400.0% 6.6 1.7 2.7 5.1 3.2 Benchmark crude oil prices (3) Brent, USD per barrel Urals, USD per barrel Urals, RR per barrel 61.1 59.6 50.1 48.0 69.0 66.8 29.6 31.6 73.5 70.6 42.9 43.0 79.8 77.8 44.2 44.5 70.9 68.8 5,067 3,023 41.8 41.9 69.6% 64.2% 67.6% 4,431 3,186 4,958 2,287 5,187 3,163 5,649 3,392 Benchmark crude oil prices excluding export duties (4) Urals, USD per barrel Urals, RR per barrel 53.6 37.8 59.0 28.5 61.8 37.0 68.1 38.6 60.7 4,471 2,569 35.6 70.5% 74.0% 3,985 2,509 4,379 2,062 4,540 2,722 4,945 2,942 Benchmark oil products (5) and liquefied petroleum gas (6) prices, USD per ton Naphtha Japan Naphtha CIF NWE Jet fuel Gasoil Fuel oil 559 544 512 493 408 502 437 411 484 467 348 322 606 596 577 555 432 456 276 240 242 281 196 240 676 667 627 599 468 642 397 376 336 353 268 362 744 731 719 680 510 721 408 393 374 365 301 388 647 636 610 583 455 582 381 357 360 367 279 331 69.8% 78.2% 69.4% 58.9% 63.1% 75.8% Liquefied petroleum gas Export duties, USD per ton (7) Crude oil, stable gas condensate Naphtha Jet fuel, gasoil Fuel oil 44.0 74.2 40.7 22.2 74.2 1.3 57.1 31.3 17.1 57.1 11.8 22.4 12.3 6.7 22.4 0.0 64.6 35.5 19.3 64.6 26.3 44.1 24.2 13.2 44.1 70.5 38.7 21.1 70.5 43.2 23.7 12.9 43.2 0.0 59.1 32.4 17.7 59.1 42.1 46.0 25.2 13.7 46.0 0.4 28.5% 28.6% 29.2% 28.5% n/a 24.1 13.2 44.0 0.0 Liquefied petroleum gas 0.0 130.4 (2) (3) (4) (5) Based on spot natural gas prices at natural gas hubs in the United Kingdom (NBP) and the Netherlands (TTF). Based on Brent (dtd) and Russian Urals CIF Rotterdam spot assessments prices. Export duties per barrel were calculated based on export duties per ton divided by the coefficient 7.3. Based on Naphtha C+F (cost plus freight) Japan, Naphtha CIF NWE, Jet CIF NWE, Gasoil 0.1% CIF NWE, Fuel Oil 1.0% CIF NWE prices. Based on spot prices for propane-butane mix at the Belarusian-Polish border (DAF, Brest). Export duties are determined by the Russian Federation government in US dollars and are paid in Russian roubles (see “Our tax burden and obligatory payments” below). (6) (7) 9 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 CERTAIN FACTORS AFFECTING OUR RESULTS OF OPERATIONS Current economic environment Commodity price volatility continues to exert significant influence on financial and operational results in the global oil and gas industry. Our financial results are obviously impacted by these global developments as our export sales are linked to the specific underlying benchmark commodity prices, but we believe our business model, representing one of the lowest cost producers in the world, insulates us from severe financial and operational stress. In each reporting period, the Group demonstrated sustainable operating and financial results. The declines in hydrocarbon prices on commodity markets in 2020 negatively impacted oil and gas companies. The main reasons for the financial and economic stress on the global commodity markets were the spread of COVID-19 and its negative effect on economic activities, as well as the cancellation of the OPEC+ production agreement in the first quarter 2020. From the second quarter 2020, global economic activity began a gradual recovery following the partial removals of restrictions aimed at preventing the epidemic spread, as well as a partial recovery in benchmark crude oil prices following the new OPEC+ production agreement reached in April 2020 and the compliance to the target cuts by its participants. In 2021, the OPEC+ participants continued to restrict their production targets due to the ongoing instability caused by the spread of the COVID-19 virus and its variants, as well as stricter quarantine measures enforced by some countries. The maintenance of the restricted production targets as well as an increase in hydrocarbons consumption due to the severe cold weather in Europe, Asia and North America have led to a significant increase in benchmark hydrocarbons prices in the first quarter 2021. Starting from May 2021, OPEC+ began to gradually lift the restrictions on crude oil production targets due to the increased mobility of population, signs of renewed economic activities and crude oil demand recovery in major consumer countries. In July 2021, the OPEC+ participants made a decision to further increase crude oil production volumes and extended the agreement on production restrictions until the end of 2022. Nevertheless, the crude oil supply still lagged behind global demand due to faster than expected economic recovery resulting in further price increases in the second and third quarters 2021. In addition, actual crude oil production by OPEC+ was not consistent with the increased production plans due to accidents and repair works on oil facilities in a number of countries, which has led to a growth in a deficit in crude oil and an increase in benchmark prices in the fourth quarter 2021. As a result, during 2021, benchmark crude oil prices returned to the pre-pandemic levels of 2019 and continued further growth. The European and Asian natural gas markets were impacted by faster than expected recovery of demand after it was hit by the COVID-19 pandemic, declared energy transition policy, as well as weather factors (cold winter and hot summer, low wind speeds in Europe and droughts in South America) and the supply disruptions. All this caused storage level reduction in key consuming regions and a strong price rally in the second half of 2021. Further developments surrounding the COVID-19 virus spread remains uncertain and may continue to influence our future earnings, cash flows and financial position. The Group’s management is taking necessary precautions to protect the safety and well-being of our employees, our contractors and our families against the infectious spread of COVID-19, while maintaining our commitment to meet the energy needs of our valued customers domestically and internationally. We continue working closely with federal, regional and local authorities, as well as our partners, to contain the spread of the virus and will take appropriate actions, where necessary, to minimize the possible disruptions of our operations. Management continues to closely monitor the economic and political environment in Russia and abroad, including the domestic and international capital markets, to determine if any further corrective and/or preventive measures are required to sustain and grow our business. We also closely monitor the present commodity price environment and its impact on our business operations. We do not expect any asset impairments or write-offs resulting from a lower commodity price environment. We conduct regular reviews of our capital expenditure program and existing debt obligations. In our opinion, the Group’s financial position is stable and expected operating cash flows are sufficient to service and repay our debt, as well as to execute our planned capital expenditure programs. 10 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Political events in Ukraine in the beginning of 2014 have prompted a negative reaction by the world community, including economic sanctions levied by the United States of America, Canada and the European Union against certain Russian individuals and legal entities. In July 2014, NOVATEK was included on the OFAC’s Sectoral Sanctions Identification List (the “List”), which imposed sanctions that prohibit individuals or legal entities registered or working on the territory of the United States from providing new credit facilities to the Group for longer than 60 days. Despite the inclusion on the List, the Group may conduct any other activities, including financial transactions, with U.S. investors and partners. NOVATEK was included on the List even though the Group does not conduct any business activities in Ukraine, nor does it have any impact on the political and economic processes taking place in this country. Management has assessed the impact of the sanctions described above on the Group's activities taking into consideration the current state of the world economy, the condition of domestic and international capital markets, the Group’s business, and long-term projects with foreign partners. We have concluded that the inclusion on the List does not significantly impede the Group’s operations and business activities in any jurisdiction, nor does it affect the Group’s assets and debt, and does not have a material effect on the Group’s financial position. We together with our international partners are undertaking all necessary actions to implement our joint investment projects on time as planned, including, but not limited to, attracting financing from domestic and non-US capital markets. Natural gas prices Our sales of natural gas in the Russian domestic market are mainly natural gas sales through trunk pipelines and regional distribution networks, as well as sales of LNG mainly through our refueling complexes. LNG sold on the domestic market is produced at our small-scale LNG plant in the Chelyabinsk region or purchased primarily from our joint venture OOO Cryogas-Vysotsk. Our sales of natural gas on international markets are sales of LNG purchased primarily from our joint ventures, OAO Yamal LNG and OOO Cryogas-Vysotsk. In addition, we sell on the European market regasified liquefied natural gas arising during the transshipment of LNG (boil-off gas), as well as during the regasification of purchased LNG at our own regasification stations in Poland and Germany. The Group’s natural gas prices in Russia are strongly influenced by the prices set by the Federal Anti-Monopoly Service, a federal executive agency of the Russian Federation that carries out governmental regulation of prices and tariffs for products and services of natural monopolies in energy, utilities and transportation (the “Regulator”), as well as present market conditions. In 2020, wholesale natural gas prices for sales to all customer categories on the domestic market were increased by the Regulator by 3.0% effective 1 August 2020 and remained unchanged through the end of the second quarter 2021. Effective 1 July 2021, the wholesale prices were increased by 3.0%. In September 2021, the Ministry of Economic Development of the Russian Federation published the “Forecast of Socio-economic Development of the Russian Federation for 2022 and the planned period 2023 and 2024”, providing for an increase in wholesale natural gas prices for sales to all customer categories, except for residential customers, from July 2022 by 5.0% and from July 2023 to 2024 by 4.0% on an annual basis. Wholesale natural gas prices for sales to residential customers are expected to be increased from July 2022 to 2024 by 3.0% on an annual basis. The Russian Federation government continues to discuss various concepts relating to the natural gas industry development, including natural gas prices and transportation tariffs growth rates on the domestic market. The specific terms for delivery of natural gas affect our average realized prices. The majority of our natural gas volumes on the domestic market are sold directly to end-customers in the regions of natural gas consumption, so transportation tariff to the end-customer’s location is included in the contract sales price. The remaining volumes of natural gas are sold “ex-field” to wholesale gas traders, in which case the buyer is responsible for the payment of further gas transportation tariff. Sales to wholesale gas traders allow us to diversify our natural gas sales without incurring additional commercial expenses. We deliver natural gas to residential customers in the Chelyabinsk and Kostroma regions of the Russian Federation at regulated prices through our subsidiaries OOO NOVATEK-Chelyabinsk and OOO NOVATEK-Kostroma, respectively. We disclose such residential sales within our end-customers category. 11 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 In addition, we periodically sell natural gas at the Saint-Petersburg International Mercantile Exchange based on market conditions. We disclose such sales within our sales to end-customers category. The Group’s prices for LNG sold in Russia are based on oil products prices on the domestic market. The Group’s natural gas prices on international markets are influenced by many factors, such as the balance between supply and demand fundamentals, weather, the geography of sales, and the delivery terms to name a few. The Group sells LNG on international markets under short- and long-term contracts with prices based on the prices for natural gas at major natural gas hubs and on benchmark crude oil prices. We sell boil-off gas in Europe at prices linked to natural gas prices at major European natural gas hubs. The Group’s prices for regasified LNG sold as natural gas on the Polish market are based on the prices regulated by the Energy Regulatory Office of Poland. The following table shows our aggregate average realized natural gas sales prices on the domestic and international markets (excluding VAT, where applicable): Year ended 31 December: 2021 2020 Change % Average natural gas price, RR per mcm 6,912 94.0 4,748 65.9 45.6% 42.6% Average natural gas price, USD per mcm (1) (1) Operations initially priced in Russian roubles were translated into US dollars using the average exchange rate for the period. In 2021, our aggregate average price for natural gas in Russian roubles increased by 45.6% primarily due to an increase in LNG prices on international markets, as well as an increase in the regulated Russian domestic price (by 3.0% effective 1 August 2020 and 1 July 2021). Stable gas condensate and refined products, crude oil and liquefied petroleum gas prices Crude oil, stable gas condensate, LPG and oil products prices on international markets have historically been volatile depending on, among other things, the balance between supply and demand fundamentals, the ability and willingness of oil producing countries to sustain or change production levels to meet changes in global demand and potential disruptions in global crude oil supplies due to war, geopolitical developments, terrorist activities, natural disasters, or pandemics. The actual prices we receive for our liquid hydrocarbons on both the domestic and international markets are dependent on many external factors beyond the control of management. Among many other factors volatile movements in benchmark crude oil and oil products prices can have a positive and/or negative impact on the contract prices we receive for our liquids sales volumes. In addition, our actual realized net export prices for crude oil, stable gas condensate and its refined products are affected by the so-called “export duty lag effect”. This lag effect is due to the differences between actual crude oil prices for a certain period and crude oil prices based on which export duty rate is calculated for the same period (see “Our tax burden and obligatory payments” below). In periods when crude oil prices are rising, the duty lag effect normally has a positive impact on the Group's financial results, as the export duty rates are set on the basis of lower crude oil prices compared to the actual prices. Conversely, in periods of declining crude oil prices, the export duty rate is calculated based on higher prices compared to the actual prices, resulting in a negative financial impact. Most of our liquid hydrocarbons sales prices on both the international and domestic markets include transportation expenses in accordance with the specific terms of delivery. The remaining portion of our liquids volumes is sold without additional transportation expenses (ex-works sales of liquefied petroleum gas from the Purovsky Plant and the Tobolsk Refining Facilities, as well as certain other types of sales). We commonly sell our stable gas condensate and refined products, as well as liquefied petroleum gas to the international markets with a premium to the respective international benchmark reference products prices. We export SILCO (low-sulfur “Siberian Light Crude Oil”) and ESPO (“East Siberia – Pacific Ocean”) grades of crude oil to international markets with a premium or a discount to the benchmark Brent and Dubai crude oil depending on current market situation. 12 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 The following table shows our average realized net stable gas condensate and refined products, crude oil and LPG sales prices. Average realized net prices are shown net of VAT, export duties, excise and fuel taxes, where applicable: Year ended 31 December: 2021 2020 Change % Russian roubles or US dollars per ton (1) Naphtha Average net price, RR per ton Average net price, USD per ton 47,454 26,311 80.4% 75.3% 645 368 Other stable gas condensate refined products Average net price, RR per ton Average net price, USD per ton 41,649 566 23,426 328 77.8% 72.6% Crude oil Average net price, RR per ton Average net price, USD per ton 31,511 428 17,541 245 79.6% 74.7% LPG Average net price, RR per ton Average net price, USD per ton 28,283 384 16,467 228 71.8% 68.3% Stable gas condensate Average net price, RR per ton Average net price, USD per ton 34,140 463 19,239 264 77.5% 75.4% (1) Operations initially priced in Russian roubles were translated into US dollars using the average exchange rate for the period. In 2021, our weighted-average realized net prices for our liquid hydrocarbons increased compared to the corresponding period in prior year due to an increase in the underlying benchmark prices for these products excluding export duties (see “Selected macro-economic data” above). The dynamics of our weighted average realized net prices for each product category also reflects changes in volumes sold within periods and changes in the geography of shipments that may significantly impact our average prices in periods of high benchmark prices volatility on international markets. In addition, the specifics of pricing mechanism for each particular product (such as time lag of international benchmark crude oil prices and export duty rates used in price calculation, price setting on an individual transaction basis for some deliveries and other factors) also have an impact on the dynamics of our weighted-average realized net prices. Transportation tariffs Natural gas by pipelines We transport our natural gas within the Russian Federation territory through our own pipelines into the Unified Gas Supply System (“UGSS”), which is owned and operated by PAO Gazprom, a Russian Federation government controlled monopoly. Transportation tariffs charged to independent producers for the use of the Gas Transmission System (“GTS”), as part of the UGSS, are set by the Regulator (see “Terms and abbreviations” below). In accordance with the existing methodology of calculating transportation tariffs for natural gas produced in the Russian Federation for shipments to consumers located within the customs territory of the Russian Federation and the member states of the Customs Union Agreement (Belarus, Kazakhstan, Kyrgyzstan, and Armenia), the transportation tariff consists of two parts: a rate for the utilization of the trunk pipeline and a transportation rate per mcm per 100 kilometers (km). The rate for utilization of the trunk pipeline is based on an “input/output” function, which is determined by where natural gas enters and exits the trunk pipeline and includes a constant rate for end-customers using Gazprom’s gas distribution systems. The constant rate is deducted from the utilization rate for end-customers using non-Gazprom gas distribution systems. In 2020 and 2021, the average tariff for natural gas transportation through the trunk pipeline did not change. The transportation rate amounted to RR 13.04 per mcm per 100 km (excluding VAT), and the rate for utilization of the trunk pipeline was set in the range from RR 62.57 to RR 2,014.16 per mcm (excluding VAT). 13 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 In September 2021, the Ministry of Economic Development published the Forecast for 2022 and the planning periods for 2023 and 2024, which does not provide for any increase in the tariffs for natural gas transportation through the trunk pipeline in 2022 to 2024. The Russian Federation government continues to discuss various concepts relating to the natural gas industry development, including natural gas prices and transportation tariffs growth on the domestic market. Stable gas condensate and LPG by rail Substantially all of our stable gas condensate and LPG (excluding volumes sold ex-works from the Purovsky Plant and the Tobolsk Refining Facilities) we transport by rail owned by Russia’s state-owned monopoly railway operator – OAO Russian Railways (“RZD”). The railroad transportation tariffs are set by the Regulator and vary depending on the type of product, and the direction and the length of the transport route. In addition, the Regulator sets the range of railroad tariffs as a percentage of the regulated tariff within which RZD may vary railroad transportation tariffs within the Russian Federation territory based on the type of product, direction and length of the transportation route, and taking into account current railroad transportation and market conditions. Effective January 2021, railroad freight transportation tariffs for all types of hydrocarbons were increased by 3.7% relative to the 2020 tariffs and did not change until the end of 2021. In January 2022, the Regulator increased the aforementioned tariffs by 6.8% relative to the 2021 tariffs. In 2020 and 2021, we applied the discount coefficient of 0.94 to the existing railroad transportation tariffs for stable gas condensate deliveries from the Limbey rail station to the port of Ust-Luga and to end-customers on the domestic and international markets. The discount coefficient is set by the decision of the Management Board of RZD as part of the Strategic Partnership Agreement between the Group and RZD. In addition, from April and through the end of 2020, we applied discount coefficients to the existing railroad transportation tariffs for LPG deliveries within the Russian Federation territory from the Tobolsk rail station, which were temporarily introduced due to unfavorable macroeconomic environment. In the second quarter 2020, the coefficients were initially set at 0.75 and 0.872 depending on the transportation distance and, from mid-June, a single discount coefficient of 0.6 applied. Stable gas condensate, refined products and liquefied natural gas by tankers We deliver part of our stable gas condensate and substantially all stable gas condensate refined products, as well as liquefied natural gas (excluding volumes purchased and sold to customers in the same location) to international markets by chartered tankers. In addition to time chartering expenses, we may also incur transshipment, bunkering, port charges and other expenses depending on the delivery terms, which are included in the transportation by tankers expense category. The distance to the final port of destination, tanker availability, seasonality of deliveries and other factors also influence our tanker transportation expenses. Crude oil We transport nearly all of our crude oil through the pipeline network owned by PAO Transneft, Russia’s state- owned monopoly crude oil pipeline operator. The Regulator sets tariffs for transportation of crude oil through Transneft’s pipeline network, which includes transport, dispatch, pumping, loading, charge-discharge, transshipment and other related services. The Regulator sets tariffs for each separate route of the pipeline network, so the overall expense for the transport of crude oil depends on the length of the transport route from the producing fields to the ultimate destination, transportation direction and other factors. Effective 1 January 2021, crude oil transportation tariffs through the pipeline network within the Russian Federation territory were increased by an average of 3.6% relative to the 2020 tariffs and remained unchanged until the end of 2021. Effective 1 January 2022, transportation tariffs were increased by an average of 4.3% relative to the 2021 tariffs. 14 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Our tax burden and obligatory payments We are subject to a wide range of taxes imposed at the federal, regional, and local levels, many of which are based on revenue or volumetric measures. In addition to income tax, significant taxes and obligatory payments to which we are subject include VAT, unified natural resources production tax (“UPT”, commonly referred as “MET” – mineral extraction tax), export duties, excise, property tax and social contributions to non-budget funds. In practice, Russian tax authorities often have their own interpretation of tax laws that rarely favors taxpayers, who have to resort to court proceedings to defend their position against the tax authorities. Differing interpretations of tax regulations exist both among and within government ministries and organizations at the federal, regional and local levels, creating uncertainties and inconsistent enforcement. Tax declarations and other documentation such as customs declarations, are subject to review and investigation by a number of tax authorities, each of which may impose fines, penalties and interest charges. Generally, taxpayers are subject to an inspection of their activities for a period of three calendar years immediately preceding the year in which the audit is conducted. Previous audits do not completely exclude subsequent claims relating to the audited period. In addition, in some instances, new tax regulations may have a retroactive effect. We have not employed any tax minimization schemes using offshore or domestic tax zones in the Russian Federation. Detailed information regarding UPT, export duties, excise and social contributions to non-budget funds is described below based on the current versions of the Tax Code of the Russian Federation and the law “On Customs Tariff”. In 2019, the completion stage of the tax maneuver in the oil and gas industry in the Russian Federation began and will continue until the end of 2024. The tax maneuver envisages a gradual decrease in export duties for crude oil and oil products with a respective increase in unified production taxes for crude oil and gas condensate, as well as the introduction of reverse excise for raw oil. The legislation changes aimed at the completion of the tax maneuver, with other factors being equal, influence line items in our consolidated financial statements by increasing our liquids net prices and revenues due to a gradual decrease in export duties, increasing our UPT expenses and increasing our hydrocarbons purchases as a result of opposite effects of increased purchase prices and excise tax deductions for raw oil. Export duties Procedure for the calculation and payment of export duties is set in the Law of the Russian Federation “On Customs Tariff”. According to this law, we are subject to export duties on our exports of liquid hydrocarbons (stable gas condensate and refined products, LPG and crude oil). Crude oil export duty rate formulas are set by the Russian Federation government and are based on the average Urals crude oil price (Mediterranean and Rotterdam) for the so called “monitoring period” (the period from the 15th calendar day in the previous month to the 14th calendar day of the current month): Average Urals crude oil price for the monitoring period, USD per ton (Р) Formula for export duty rate calculation less 109.5 (inclusive) Zero rate К × [0.35 × (Р – 109.5)] К × [0.45 × (Р – 146) + 12.78] К × [0.3 × (Р – 182.5) + 29.2] between 109.5 and 146 (inclusive) between 146 and 182.5 (inclusive) above 182.5 К – adjusting coefficient The adjusting coefficient (K) will gradually decrease on an annual basis from 0.833 in 2019 to zero in 2024, thus gradually decreasing the export duty rate for crude oil to zero by 2024. In 2020 and 2021, the adjusting coefficient amounted to 0.667 and 0.5, respectively; in 2022, the coefficient is set at 0.333. We pay export duties for our stable gas condensate export sales volumes at the export duty rate for crude oil. 15 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 The export duty rates for oil products are calculated based on the export duty rate for crude oil adjusted by a coefficient (discount) set for each category of oil products. The export duty rates for our exported stable gas condensate refined products as a percentage of the crude oil export duty rate are presented below: % from the crude oil export duty rate Naphtha Jet fuel Gasoil 55% 30% 30% Fuel oil 100% The export duty rate for LPG for the next calendar month is calculated based on the average LPG price at the Polish border (DAF, Brest) for the current monitoring period and is calculated using the formula presented in the table below: Average LPG price, USD per ton (P) Formula for export duty rate calculation less 490 (inclusive) Zero rate 0.5 × (Р – 490) 75 + 0.6 × (Р – 640) 135 + 0.7 × (Р – 740) between 490 and 640 (inclusive) between 640 and 740 (inclusive) above 740 We record export duties as a deduction to our revenues in the consolidated statement of income. UPT – natural gas We pay UPT for natural gas on a monthly basis. The UPT rate for natural gas is set in Russian roubles per one mcm of extracted natural gas. The UPT rate for natural gas is calculated as a product of the base UPT rate (RR 35 per mcm), the base value of a standard fuel equivalent and a coefficient characterizing the difficulty of extracting natural gas and gas condensate from each particular field. The result is then increased by a parameter characterizing natural gas transportation costs (was set at zero in both reporting periods). The base value of a standard fuel equivalent is calculated by a taxpayer based on a combination of factors including natural gas prices, Urals crude oil prices and crude oil export duty rate. UPT – crude oil We pay UPT for crude oil on a monthly basis. The UPT rate for crude oil is set in Russian roubles per ton of extracted crude oil. The UPT rate is calculated as a product of a coefficient characterizing the dynamics of world crude oil prices and the base UPT rate (RR 919 per ton) adjusted for parameters characterizing crude oil production peculiarities (the reserves’ depletion (only in 2020), complexity of extraction, the region, crude oil properties). The result is then increased by a fixed amount (RR 428 per ton in both reporting periods). Further, the UPT rate for crude oil is gradually increased by the amount of the corresponding decrease in the crude oil export duty rate due to the completion of the tax maneuver (see “Export duties” above). According to the Tax Code of the Russian Federation, a reduced UPT rate is applied to the license areas that are located to the north of the 65th degree of the northern latitude in the YNAO. The reduced UPT rate is effective until the latest of the dates: 1 January 2022 or the end of a certain period after the date of the state registration of the subsoil use license (10 or 15 years depending on the type of a license). The reduced base UPT rate amounted to RR 360 per ton in both reporting periods, and we applied it in respect of the crude oil produced at our East- Tarkosalinskoye, Khancheyskoye, Yarudeyskoye and Kharbeyskoye (launched in the end of 2021) fields. Starting from 2022, we will continue to use this benefit only in respect of the crude oil produced at the Kharbeyskoye field, for which it will remain effective till the end of 2026. 16 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Where the average export alternative prices for petrol and diesel fuel exceed the regulated wholesale prices for these products on the Russian domestic market, the UPT rate for crude oil is also increased by the so called “petrol and diesel fuel premiums”, which depend on the export and domestic price differentials for these products. The petrol and diesel fuel premiums are payable by all crude oil producers regardless of whether the extracted crude oil volumes will be further sold or refined. UPT – gas condensate We pay UPT for gas condensate on a monthly basis. The UPT rate for gas condensate is set in Russian roubles per ton of extracted gas condensate. The UPT rate for gas condensate is calculated as a product of the base UPT rate (RR 42 per ton), the base value of a standard fuel equivalent, a coefficient characterizing the difficulty of extracting natural gas and gas condensate from each field and an adjusting coefficient of 6.5. The base value of a standard fuel equivalent is calculated by a taxpayer based on the combination of factors including natural gas prices, Urals crude oil prices and crude oil export duty rate. The Group reduces its overall UPT expense accrued for gas condensate production volumes by applying a UPT tax deduction on gas condensate volumes produced for processing into NGL. The amount of the tax deduction is calculated monthly by multiplying a coefficient of NGL recovery from gas condensate processing, the quantity of gas condensate produced and processed, and the tax deduction rate in Russian roubles per ton of NGL derived. The tax deduction rate was set at RR 147 per ton for January 2018 and since then was increasing monthly by the same amount until the end of 2020. Starting from December 2020, the tax deduction rate is fixed at RR 5,280 per ton of produced NGL. The UPT rate for gas condensate is increased by 75% of the decrease in the crude oil export duty rate. The share of 75% is deemed to represent volumes of produced gas condensate excluding the share of NGL received from gas condensate processing. Excise for raw oil In 2019, with the commencement of the completion stage of the tax maneuver in the oil and gas industry in the Russian Federation, a reverse excise on raw oil was introduced. Raw oil represents a mixture of hydrocarbons composed of one or more components of crude oil, stable gas condensate, vacuum gasoil, tar, and fuel oil. This deduction was introduced to compensate economic losses of oil and gas refining companies arising from the tax maneuver and the transfer of tax burden from export duties to the UPT in the amount of full export duty rate for crude oil while export duties for oil products are paid at a discount to crude oil export duty rate. We receive the reverse excise on raw oil based on volumes of stable gas condensate sent for processing to our Ust- Luga Complex. The excise tax rate on raw oil is calculated based on the average Urals crude oil prices, the mix of processed products, region of processing, and the adjusting coefficient, which will be gradually increased on an annual basis from 0.167 in 2019 to 1.0 in 2024 as part of the completion stage of the tax maneuver in the oil and gas industry. In 2020 and 2021, the adjusting coefficient amounted to 0.333 and 0.5, respectively; in 2022, the coefficient is set at 0.667. In 2021, an investment premium to the reverse excise on raw oil was introduced for companies, which concluded an investment agreement with the Ministry of Energy of the Russian Federation prior to 1 October 2021 for construction or modernization of raw oil deep processing facilities. Effective July 2021, the reverse excise we receive includes the investment premium, which we obtain under an investment agreement for construction of a hydrocracker unit with the respective expansion of our Ust-Luga Complex. We report the reverse excise on raw oil as a deduction to our operating expenses in the line “Purchases of natural gas and liquid hydrocarbons” in our consolidated statement of income as most of our unstable gas condensate volumes used to produce stable gas condensate we purchase from our joint ventures. 17 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Social contributions The Group makes contributions to the Pension Fund, the Federal Compulsory Medical Insurance Fund, and the Social Insurance Fund on behalf of employees in Russia. The base for social contributions accrual is the amount of salaries and similar employee compensation stipulated by the employment contracts. The rates for social contributions depend on the fund and the employee’s annual income: 2020 2021 2022 Base, Base, Base, RR thousand Rate, % RR thousand Rate, % RR thousand Rate, % Pension Fund of the Russian Federation less 1,292 above 1,292 22.0% 10.0% less 1,465 above 1,465 22.0% 10.0% less 1,565 above 1,565 22.0% 10.0% Federal Compulsory Medical Insurance Fund No limit 5.1% No limit 5.1% No limit 5.1% Social Insurance Fund of the Russian Federation less 912 above 912 2.9% 0.0% less 966 above 966 2.9% 0.0% less 1,032 above 1,032 2.9% 0.0% 18 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 OIL AND GAS RESERVES We do not file with the Securities and Exchange Commission (“SEC”) nor we are obliged to report our reserves in compliance with these standards. However, we have consistently disclosed proved oil and gas reserves as unaudited supplemental information in the Group’s IFRS audited consolidated financial statements. The Group’s total proved reserves, comprised of proved developed and proved undeveloped reserves, as of 31 December 2021 and 2020, are provided using the SEC reserves reporting classification. We also provide additional information about our hydrocarbon reserves based on the widely-industry accepted PRMS reserves reporting classification, which in addition to total proved reserves discloses information on our probable and possible reserves. The Group’s reserves are located in the Russian Federation, primarily in the Yamal-Nenets Autonomous Region (Western Siberia), thereby representing one geographical area. The Group’s oil and gas estimation and reporting process involves an annual independent external appraisal, as well as internal technical appraisals of reserves. The internal technical appraisals of reserves are performed by the Group’s qualified technical staff working directly with the oil and gas reserves and are periodically updated during the year based on evaluations of new wells, performance reviews, new technical information and other studies. The annual independent external appraisal of our reserves is performed by independent petroleum engineers, DeGolyer and MacNaughton (“D&M”). The Group provides D&M annually with engineering, geological and geophysical data, actual production histories and other information necessary for reserves appraisal. The method or combination of methods used in the analysis of each reservoir is tempered by experience with similar reservoirs, stages of development, quality and completeness of basic data, and production history. Our reserves estimates were prepared using standard geological and engineering methods generally accepted in the oil and gas industry. The Group and D&M’s technical staffs meet to review and discuss the information provided, and upon completion of the process, senior management reviews and approves the final reserves estimates issued by D&M. The Reserves Management and Assessment Group (“RMAG”) is comprised of qualified technical staff from various departments responsible for geology and geophysics, gas and liquids commercial operations, engineering and capital construction, production, and long-term financial planning, and also includes representatives from the Group’s subsidiaries, which are the principal holders of the mineral licenses for geological research works, exploration and production of hydrocarbons. The person responsible for overseeing the work of the RMAG is a member of the Management Board. The approval of the final reserve estimates is the sole responsibility of the Group’s senior management. The information below about the Group’s oil and gas production and reserves under SEC and PRMS reserve classifications is presented based on 100% of production and reserves attributable to all consolidated subsidiaries (whether or not wholly owned) and our proportionate share in the production and reserves in companies accounted for by the equity method based on our equity ownership interest, including volumes of natural gas consumed in oil and gas production and development activities (primarily, as fuel gas). Production and reserves of the South- Tambeyskoye field of Yamal LNG are reported at 60% including an additional 9.9% interest not owned by the Group, since the Group assumes certain economic and operational risks related to this interest (see “Basis of presentation” above). 19 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 The table below provides proved oil and gas reserves under SEC reserve classification and the change in reserves in metric units and on a total barrel of oil equivalent basis: As of and for the year ended 31 December: Change % 2021 2020 Natural gas, billions of cubic meters Subsidiaries Share in joint ventures 2,261 1,180 1,081 2,244 1,156 1,088 0.8% 2.1% (0.6%) Liquids, millions of metric tons Subsidiaries Share in joint ventures 189 95 94 197 102 95 (4.1%) (6.9%) (1.1%) Combined reserves, millions of boe 16,409 16,366 0.3% Change in total reserves, millions of boe Production 43 (626) - 101 (608) 31 Acquisitions (1) Organic growth (2) 669 678 Reserves replacement ratio (3), % 107% 107% 117% 112% Normalized reserves replacement ratio (3), (4), % (1) Relate to an additional 50% interest in reserves of the Yevo-Yakhinskiy license area acquired by the Group as a result of the reorganization of Arcticgas in 2019 (a part of these reserves was appraised in 2020). (2) (3) Represents change due to extensions and discoveries, revisions of previous estimates. The reserves replacement ratio is calculated as the change in reserves increased for the production for the year divided by production for the year. (4) Excluding reserves acquisitions and disposals. The Groups’ total proved reserves under the SEC reserve classification methodology as at the end of 2021 increased by 43 million boe, or 0.3%, to 16,409 million boe, representing a reserve replacement ratio of 107%. The increase in total proved hydrocarbons reserves under the SEC reserve classification was primarily due to successful exploration works and production drilling at our subsidiaries and joint ventures. Our subsidiaries obtained positive exploration results at the Geofizicheskoye and Gydanskoye fields, successfully performed production drilling at the North-Russkoye field and the Urengoyskoye field of the Yevo-Yakhinskiy license area, as well as increased recovery rate at the Yurkharovskoye field. The dynamics of the reserves of our joint ventures was positively affected by successful exploration and production drilling at the South-Tambeyskoye field of Yamal LNG and at the Urengoyskoye field of the Samburgskiy license area of Arcticgas, as well as production drilling at the Salmanovskoye (Utrenneye) field of Arctic LNG 2. The following table provides for the Group’s PRMS proved, proved and probable, and proved, probable and possible reserves in metric units and on a total barrel of oil equivalent basis: Natural gas, billions of cubic meters Liquid hydrocarbons, millions of metric tons Combined reserves, millions of boe 31 December 31 December 31 December 31 December 31 December 31 December 2021 2020 2021 2020 2021 2020 Proved reserves (1P reserves) Proved and probable reserves (2P reserves) Proved, probable and possible reserves (3P reserves) 2,484 2,477 213 227 18,085 18,148 3,948 5,206 3,981 5,257 363 502 380 529 28,970 38,444 29,318 38,986 As we continue to invest capital into the development of our fields, we anticipate that we will increase our resource base, as well as migrate reserves among the reserve categories. 20 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 The below table contains information about reserve to production ratios as of 31 December 2021 and 2020 under both reserves reporting methodologies: SEC PRMS At 31 December: At 31 December: Number of years 2021 2020 2021 2020 Total proved reserves to production Total proved and probable reserves to production Total proved, probable and possible reserves to production 26 - - 27 - - 29 46 61 30 48 64 21 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 OPERATIONAL HIGHLIGHTS Oil and gas production costs per unit of production Oil and gas production costs on a barrel of oil equivalent basis are calculated by dividing oil and gas production costs by the barrel of oil equivalent of hydrocarbons produced during the year. Oil and gas production costs include only the amounts directly related to the extraction of natural gas, gas condensate and crude oil and exclude processing costs incurred after saleable hydrocarbons are received, such as stable gas condensate processing costs and natural gas liquefaction costs, as well as transportation and other marketing expenses. Oil and gas production costs comprise of lifting costs (materials, services and other expenses, as well as administrative expenses being by nature operating expenses of oil and gas producing activities), taxes other than income tax and depreciation, depletion and amortization which are disclosed in the “Unaudited Supplemental Oil and Gas Disclosures” in the consolidated financial statements. Natural gas, gas condensate and crude oil volumes produced are converted to a barrel of oil equivalent based on the relative energy content of each fields’ hydrocarbons. Natural gas production volumes used for calculation of production costs per boe differ from the volumes presented in the section “Natural gas production volumes” as the former excludes volumes of natural gas consumed in oil and gas production and development activities (see “Basis of presentation” above). The following tables set forth information with respect to oil and gas production costs on a barrel of oil equivalent basis of our subsidiaries and joint ventures, as well as combined weighted average oil and gas production costs for the Group’s subsidiaries and joint ventures for the reporting periods in Russian roubles and US dollars. Year ended 31 December: 2021 2020 Change % RR per boe Subsidiaries Production costs per boe: Lifting costs 63.9 61.2 4.4% Taxes other than income tax 272.8 176.0 55.0% 41.9% 18.5% Total production costs before DDA per boe 336.7 237.2 Depreciation, depletion and amortization 115.4 97.4 Total production costs of subsidiaries per boe 452.1 334.6 35.1% Joint ventures Production costs per boe: Lifting costs Taxes other than income tax 29.8 191.7 26.1 121.9 14.2% 57.3% Total production costs before DDA per boe 221.5 148.0 49.7% Depreciation, depletion and amortization 95.9 94.6 1.4% Total weighted average production costs of joint ventures per boe (1) 317.4 242.6 30.8% Subsidiaries and joint ventures Production costs per boe: Lifting costs 47.8 44.2 8.1% Taxes other than income tax 234.6 149.8 56.6% Total production costs before DDA per boe 282.4 194.0 45.6% Depreciation, depletion and amortization 106.2 96.0 10.6% Total weighted average production costs of subsidiaries and joint ventures per boe (2) 388.6 290.0 34.0% (1) Calculated based on the Group’s share in the production of each joint venture. (2) Calculated based on 100% of the Group’s subsidiaries production and our share in the production of each joint venture. 22 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Year ended 31 December: Change % USD per boe (1) 2021 2020 Subsidiaries Production costs per boe: Lifting costs Taxes other than income tax 0.87 3.70 0.85 2.44 2.4% 51.6% 38.9% 16.3% Total production costs before DDA per boe 4.57 3.29 Depreciation, depletion and amortization 1.57 1.35 Total production costs of subsidiaries per boe 6.14 4.64 32.3% Joint ventures Production costs per boe: Lifting costs Taxes other than income tax 0.40 2.60 0.36 1.69 11.1% 53.8% Total production costs before DDA per boe 3.00 2.05 46.3% Depreciation, depletion and amortization 1.31 1.31 0.0% Total weighted average production costs of joint ventures per boe (2) 4.31 3.36 28.3% Subsidiaries and joint ventures Production costs per boe: Lifting costs Taxes other than income tax 0.65 3.19 0.61 2.08 6.6% 53.4% Total production costs before DDA per boe 3.84 2.69 42.8% Depreciation, depletion and amortization 1.44 1.33 8.3% Total weighted average production costs of subsidiaries and joint ventures per boe (3) 5.28 4.02 31.3% (1) Production costs in US dollars per boe were translated from Russian roubles amounts using the average exchange rate for the period (see “Selected macro-economic data” above). (2) (3) Calculated based on the Group’s share in the production of each joint venture. Calculated based on 100% of the Group’s subsidiaries production and our share in the production of each joint venture. Hydrocarbon production and sales volumes In 2021, our total natural gas and liquids production including the proportionate share in the production of our joint ventures increased by 3.3% and 0.5%, respectively. The commissioning of gas condensate deposits within the fields of the North-Russkiy cluster (the North-Russkoye and East-Tazovskoye fields in the third quarter 2020, as well as the Kharbeyskoye field in the fourth quarter 2021) fully offset the declines in hydrocarbons production at mature fields of our subsidiaries and joint ventures. In 2021, our total natural gas sales volumes marginally increased by 197 mmcm, or 0.3%. An increase in natural gas sales volumes on the domestic market fully offset a decline in volumes sold on the international markets. The increase in volumes sold on the domestic market resulted from the launch of additional production facilities, as well as higher demand from end-customers due to weather conditions. The decline in natural gas volumes sold on the international markets was due to a decrease in LNG sales volumes purchased primarily from our joint venture OAO Yamal LNG as a result of an increase in the share of Yamal LNG’s direct LNG sales under long-term contracts. In 2021, our liquids sales volumes increased by 168 thousand tons, or 1.0%, primarily due to an increase in gas condensate production. 23 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Natural gas production volumes The following table presents natural gas production of the Group’s subsidiaries by major production fields and our proportionate share in natural gas production of joint ventures by entities: Year ended 31 December: 2021 2020 Change % millions of cubic meters if not stated otherwise Production by subsidiaries from: Yurkharovskoye field 21,626 23,104 (6.4%) North-Russkiy cluster (1) East-Tarkosalinskoye field Beregovoye field 9,318 4,644 1,947 1,478 1,021 984 4,831 5,305 1,905 1,648 1,312 1,055 92.9% (12.5%) 2.2% (10.3%) (22.2%) (6.7%) Yarudeyskoye field Khancheyskoye field Olimpiyskiy license area (2) East-Urengoyskoye + North-Esetinskoye field (West-Yaroyakhinskiy license area) Other fields 477 1,397 530 957 (10.0%) 46.0% Total natural gas production by subsidiaries (3),(4) 42,892 40,647 5.5% Group’s proportionate share in the production of joint ventures: Yamal LNG (5) Arcticgas Nortgas Terneftegas Arctic LNG 2 18,008 15,073 2,513 1,325 83 17,093 15,383 2,931 1,269 44 5.4% (2.0%) (14.3%) 4.4% 88.6% Total Group’s proportionate share in the natural gas production of joint ventures (3),(4) 37,002 79,894 218.9 36,720 77,367 211.4 0.8% 3.3% 3.5% 5.4% Total natural gas production including proportionate share in the production of joint ventures Average daily natural gas production including proportionate share in the production of joint ventures Total LNG production including proportionate share in the production of joint ventures (thousands of tons) (5) 12,180 11,553 (1) Includes production at the North-Russkoye, East-Tazovskoye, Dorogovskoye and Kharbeyskoye fields. Includes production at the Urengoyskoye, Dobrovolskoye and Sterkhovoye fields. Excluding natural gas volumes injected to maintain reservoir pressure. (2) (3) (4) Natural gas production includes natural gas volumes consumed in oil and gas production and development activities (primarily, as fuel gas): in subsidiaries in joint ventures (Group’s proportionate share) 2,033 547 1,785 491 13.9% 11.4% (5) Natural gas and LNG production at Yamal LNG are reported at 60% (see “Basis of presentation” above). In 2021, our total natural gas production (including our proportionate share in the production of joint ventures) increased by 2,527 mmcm, or 3.3%, to 79,894 mmcm from 77,367 mmcm in 2020. The main factor positively impacting our production growth was an increase in natural gas production within the North-Russkiy cluster resulting from the commissioning of gas condensate deposits at the North-Russkoye field and the launch of the East-Tazovskoye field in the third quarter 2020, as well as the launch of the Kharbeyskoye field in the fourth quarter 2021. This factor fully offset the declines in production at mature fields of our subsidiaries (the Yurkharovskoye, East-Tarkosalinskoye and Khancheyskoye fields) and joint ventures (Nortgas and Arcticgas) resulted mainly from natural declines in the reservoir pressure at the current gas producing horizons. In the second quarter 2021, Yamal LNG launched the fourth LNG train (see “Recent developments” above), which together with the achievement of increased productivity of LNG trains and the shorter planned maintenance works in 2021 resulted in an increase in production in the current year compared to the prior year. 24 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Natural gas sales volumes In 2021, our total natural gas sales volumes marginally increased by 197 mmcm, or 0.3%, to 75,817 mmcm from 75,620 mmcm in 2020. Year ended 31 December: 2021 2020 Change % millions of cubic meters Production by subsidiaries Purchases from the Group’s joint ventures Other purchases 42,892 40,647 5.5% (5.2%) 2.7% 27,383 7,801 28,870 7,597 Total production and purchases 78,076 77,114 1.2% Own usage (1) and other movements Decrease (increase) in natural gas inventory balance (2,132) (127) (1,920) 426 11.0% n/a Total natural gas sales volumes 75,817 75,620 0.3% Sold to end-customers Sold ex-field Subtotal sold in the Russian Federation 64,868 3,000 67,868 63,632 3,060 66,692 1.9% (2.0%) 1.8% Sold on international markets 7,949 8,928 (11.0%) (1) Own usage represents volumes of natural gas consumed in oil and gas producing and development activities (primarily, as fuel gas), as well as used to maintain the refining process at the Purovsky Plant and production of LNG and methanol. In 2021, natural gas purchases from our joint ventures decreased by 1,487 mmcm, or 5.2%, to 27,383 mmcm from 28,870 mmcm in 2020 primarily due to a decrease in spot LNG purchases from our joint venture Yamal LNG. The decrease in LNG purchases resulted from an increase in the share of Yamal LNG’s direct sales under long-term contracts and the corresponding decrease in LNG spot sales to shareholders, including the Group. Other natural gas purchases are included in our natural gas volumes for sale, which allows us to coordinate sales across geographic regions as well as to optimize our end-customers portfolios. In the years ended 31 December 2021 and 2020, we purchased from third parties 7,529 mmcm and 7,169 mmcm of natural gas, respectively, on the Russian domestic market, and 272 mmcm and 428 mmcm, respectively, on international markets. At 31 December 2021, our cumulative natural gas inventory balance, mainly representing our inventory balances of natural gas in the UGSF, aggregated 924 mmcm and increased by 127 mmcm during the year as compared to a decrease by 426 mmcm in 2020. Natural gas inventory balances tend to fluctuate period-to-period depending on the Group’s demand for natural gas withdrawal from the UGSF for the sale in the subsequent periods. 25 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Liquids production volumes The following table presents liquids production of the Group’s subsidiaries by major production fields and our proportionate share in the liquids production of joint ventures by entities: Year ended 31 December: 2021 2020 Change % thousands of tons Production by subsidiaries from: Yarudeyskoye field East-Tarkosalinskoye field North-Russkiy cluster (1) Yurkharovskoye field Beregovoye field 2,779 1,203 1,070 972 3,139 1,294 392 1,021 267 (11.5%) (7.0%) 173.0% (4.8%) 0.0% 267 Khancheyskoye field Other fields 142 203 162 158 (12.3%) 28.5% Total liquids production by subsidiaries 6,636 6,433 3.2% including crude oil including gas condensate 3,944 2,692 4,355 2,078 (9.4%) 29.5% Group’s proportionate share in the production of joint ventures: Arcticgas 4,468 605 384 4,479 701 383 (0.2%) (13.7%) 0.3% Yamal LNG (2) Terneftegas Nortgas 206 241 (14.5%) Total Group’s proportionate share in the liquids production of joint ventures 5,663 5,804 (2.4%) 0.5% 0.8% Total liquids production including proportionate share in the production of joint ventures Average daily liquids production including proportionate share in the production of joint ventures 12,299 12,237 33.7 33.4 (1) Including production at the North-Russkoye, East-Tazovskoye and Kharbeyskoye fields. (2) Production at the South-Tambeyskoye field of Yamal LNG is reported at 60% (see “Basis of presentation” above). In 2021, our total liquids production (including our proportionate share in the production of joint ventures) increased by 62 thousand tons, or 0.5%, to 12,299 thousand tons from 12,237 thousand tons in 2020. The launch of gas condensate production within the North-Russkiy cluster (the North-Russkoye and East- Tazovskoye fields in the third quarter 2020, as well as the Kharbeyskoye field in the fourth quarter 2021) fully offset a decrease in production at mature fields of our subsidiaries and joint ventures, which was mainly due to natural declines in the concentration of liquids as a result of decreasing reservoir pressure at the current producing horizons. 26 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Liquids sales volumes In 2021, our total liquids sales volumes increased by 168 thousand tons, or 1.0%, to 16,555 thousand tons from 16,387 thousand tons in 2020. Year ended 31 December: 2021 2020 Change % thousands of tons Production by subsidiaries Purchases from the Group’s joint ventures Other purchases 6,636 9,841 429 6,433 10,028 141 3.2% (1.9%) 204.3% Total production and purchases 16,906 16,602 1.8% Losses (1), own usage (2) and other movements (3) Decreases (increases) in liquids inventory balances (284) (67) (215) - 32.1% n/a Total liquids sales volumes 16,555 16,387 1.0% Naphtha export 4,398 2,031 356 4,294 2,259 220 2.4% (10.1%) 61.8% 0.2% Other stable gas condensate refined products export (4) Other stable gas condensate refined products domestic (4) Subtotal stable gas condensate refined products 6,785 6,773 Crude oil export Crude oil domestic Subtotal crude oil 1,157 2,752 3,909 1,559 2,909 4,468 (25.8%) (5.4%) (12.5%) LPG export LPG domestic Subtotal LPG 567 2,939 3,506 568 2,391 2,959 (0.2%) 22.9% 18.5% Stable gas condensate export Stable gas condensate domestic Subtotal stable gas condensate 364 1,977 2,341 589 1,580 2,169 (38.2%) 25.1% 7.9% Other oil products 14 18 (22.2%) (1) Losses associated with processing at the Purovsky Plant, the Ust-Luga Complex and the Tobolsk Refining Facilities, as well as during railroad, trunk pipeline and tanker transportation. (2) (3) (4) Own usage associated primarily with the maintaining of refining process at the Ust-Luga Complex, as well as bunkering of chartered tankers. Other movements relate to volumes of natural gas received from the deethanization of unstable gas condensate purchased from third parties. Other stable gas condensate refined products include jet fuel, gasoil and fuel oil received from the processing of stable gas condensate at the Ust-Luga Complex. Other purchases of liquid hydrocarbons increased due to purchases of unstable gas condensate from a Gazprom group’s company for deethanization and further processing at our Purovsky Plant at the suggestion of Gazprom. Our sales volumes of naphtha and other stable gas condensate refined products fluctuate from period-to-period depending on changes in inventory balances, with volumes of the products received from processing at the Ust- Luga Complex staying relatively flat. Our sales volumes of stable gas condensate represent the volumes remaining after we deliver most of our stable gas condensate for further processing to our Ust-Luga Complex, as well as volumes purchased by the Group for subsequent sale on international markets, including purchases from our joint venture Yamal LNG. In 2021, our liquids inventory balances increased by 67 thousand tons to 868 thousand tons as of 31 December 2021. In 2020, our liquids inventory balances did not change and amounted to 801 thousand tons as of 31 December 2020 and 2019. Our liquids inventory balances may vary period-to-period depending on shipping schedules and final destinations (see “Changes in natural gas, liquid hydrocarbons and work-in-progress” below). 27 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 RESULTS OF OPERATIONS FOR THE YEAR ENDED 31 DECEMBER 2021 COMPARED TO THE YEAR ENDED 31 DECEMBER 2020 The following table and discussion are a summary of our consolidated results of operations for the years ended 31 December 2021 and 2020. Each line item is also shown as a percentage of our total revenues. Year ended 31 December: % of total revenues % of total revenues millions of Russian roubles 2021 2020 Total revenues (1) including: 1,156,724 100.0% 711,812 100.0% natural gas sales liquids sales 524,071 611,135 45.3% 52.8% 359,040 340,710 50.4% 47.9% Operating expenses Gain on disposal of interests in subsidiaries, net Other operating income (loss) (875,159) 662 (3,181) (75.7%) 0.1% (0.3%) (552,062) 69 (46,807) (77.6%) 0.0% (6.6%) Profit from operations 279,046 278,384 (10,119) 24.1% 24.1% (0.9%) 113,012 160,766 160,565 15.9% 22.6% 22.6% Normalized profit from operations (2) Finance income (expense) Share of profit (loss) of joint ventures, net of income tax 232,277 20.1% (143,981) (20.2%) Profit before income tax 501,204 43.3% 129,596 18.2% Total income tax expense (49,583) (4.3%) (51,010) (7.2%) Profit 451,621 39.0% 78,586 11.0% Less: profit (loss) attributable to non-controlling interest (18,694) (1.6%) (10,754) (1.5%) Profit attributable to shareholders of PAO NOVATEK Normalized profit attributable to shareholders of PAO NOVATEK (2), excluding the effect of foreign exchange gains (losses) 432,927 37.4% 67,832 9.5% 421,304 36.4% 169,020 23.7% (1) Net of VAT, export duties, excise and fuel taxes, where applicable. (2) Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal and subsequent non-cash revaluation of contingent consideration). 28 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Total revenues The following table sets forth our sales (excluding VAT, export duties, excise and fuel taxes, where applicable) for the years ended 31 December 2021 and 2020: Change (1) Year ended 31 December: Change % Due to Due to millions of Russian roubles 2021 2020 Total volume (2) price (3) Natural gas sales 524,071 359,040 46.0% 165,031 936 164,095 597 136,488 Stable gas condensate refined products sales Naphtha Other refined products 308,123 171,038 208,713 112,963 80.1% 84.8% 71.2% 137,085 95,750 41,335 2,759 (2,162) 92,991 43,497 99,410 123,179 99,142 79,931 760 58,075 78,381 48,725 41,728 838 Crude oil sales 57.2% 103.5% 91.6% 44,798 50,417 38,203 (78) (9,810) 8,999 3,315 n/a 54,608 41,418 34,888 n/a Liquefied petroleum gas sales Stable gas condensate sales Other products sales (9.3%) Total oil and gas sales 1,135,206 699,750 21,518 12,062 62.2% 435,456 n/a n/a Other revenues 78.4% 9,456 n/a n/a Total revenues 1,156,724 711,812 62.5% 444,912 n/a n/a (1) (2) (3) The figures reflect the impact of sales volumes and average realized net prices factors on the change in total revenues from hydrocarbons sales in millions of Russian roubles for the respective periods. The amount of the change in total revenues due to sales volumes is calculated for each product category as a product of the average realized net price for the previous reporting period and the change in sales volumes. The amount of the change in total revenues due to average realized net prices is calculated for each product category as a product of the volume sold in the current reporting period and the change in average realized net prices. Natural gas sales Revenues from natural gas sales represent our revenues from natural gas sales in the Russian Federation (to end- customers and wholesale traders), and revenues from LNG sales to international and domestic markets, as well as revenues from sales of regasified LNG to customers in Europe. In 2021, our total revenues from natural gas sales increased by RR 165,031 million, or 46.0%, compared to 2020 due to higher gas prices on international markets, as well as an increase in sales prices and volumes in the Russian domestic market (see “Natural gas prices” and “Natural gas sales volumes” above). Stable gas condensate refined products sales Stable gas condensate refined products sales represent revenues from sales of naphtha, jet fuel, gasoil and fuel oil produced from our stable gas condensate at the Ust-Luga Complex. In 2021, our revenues from sales of stable gas condensate refined products increased by RR 137,085 million, or 80.1%, to RR 308,123 million from RR 171,038 million in 2020 mainly due to an increase in average realized prices (see “Stable gas condensate and refined products, liquefied petroleum gas and crude oil prices” and “Liquids sales volumes” above). Revenues from sales of naphtha increased by RR 95,750 million, or 84.8%, as compared to 2020. In the years ended 31 December 2021 and 2020, we exported 4,398 thousand tons and 4,294 thousand tons of naphtha, respectively, mainly to the APR, and the European and North American markets. Our average realized net price, excluding export duties, where applicable, increased by RR 21,143 per ton, or 80.4%, to RR 47,454 per ton from RR 26,311 per ton in 2020. 29 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Revenues from sales of jet fuel, gasoil and fuel oil increased by RR 41,335 million, or 71.2%, as compared to 2020. In the years ended 31 December 2021 and 2020, we exported in aggregate 2,031 thousand tons and 2,259 thousand tons of these products mainly to the European markets, or 85.1% and 91.1% of total sales volumes (on both the domestic and export markets), respectively. Our average realized net price, excluding export duties, where applicable, increased by RR 18,223 per ton, or 77.8%, to RR 41,649 per ton from RR 23,426 per ton in 2020. Crude oil sales In 2021, our revenues from crude oil sales increased by RR 44,798 million, or 57.2%, compared to 2020 due to an increase in average realized prices, the effect of which was partially offset by a decrease in sales volumes. We sold 2,752 thousand tons, or 70.4% of our total crude oil sales volumes, domestically as compared to sales of 2,909 thousand tons, or 65.1%, in 2020 (see “Liquids sales volumes” above). The remaining 1,157 thousand tons of crude oil, or 29.6% of our total crude oil sales volumes, in 2021, and 1,559 thousand tons, or 34.9%, in 2020 were sold to customers with destination points in the APR markets in both periods, as well as in the European and the Middle East markets in 2020. Our average realized net price, excluding export duties, where applicable, increased by RR 13,970 per ton, or 79.6%, to RR 31,511 per ton from RR 17,541 per ton in 2020 (see “Stable gas condensate and refined products, liquefied petroleum gas and crude oil prices” above). Liquefied petroleum gas sales In 2021, our revenues from sales of LPG increased by RR 50,417 million, or 103.5%, compared to 2020 mainly due to an increase in average realized prices and, to a lesser extent, sales volumes. We sold 2,939 thousand tons of LPG, or 83.8% of our total LPG sales volumes, on the domestic market compared to sales of 2,391 thousand tons, or 80.8%, in 2020 (see “Liquids sales volumes” above). The remaining 567 thousand tons of LPG, or 16.2% of our total LPG sales volumes, in 2021 and 568 thousand tons, or 19.2%, in 2020 were sold primarily to the Polish market. Our average realized LPG net price, excluding export and import duties, excise, and fuel taxes expense, where applicable, in 2021 increased by RR 11,816 per ton, or 71.8%, to RR 28,283 per ton from RR 16,467 per ton in 2020 (see “Stable gas condensate and refined products, liquefied petroleum gas and crude oil prices” above). Stable gas condensate sales In 2021, our revenues from sales of stable gas condensate increased by RR 38,203 million, or 91.6%, compared to 2020 primarily due to an increase in average realized prices, as well as in sales volumes. We sold 1,977 thousand tons of stable gas condensate, or 84.5% of our total stable gas condensate sales volumes, on the domestic market as compared to sales of 1,580 thousand tons, or 72.8%, in 2020 (see “Liquids sales volumes” above). The remaining 364 thousand tons of stable gas condensate, or 15.5% of our total stable gas condensate sales volumes, in 2021, and 589 thousand tons, or 27.2%, in 2020 were sold to the European, APR and Middle East (only in 2020) markets. Our average realized net price, excluding export duties, where applicable, increased by RR 14,901 per ton, or 77.5%, to RR 34,140 per ton from RR 19,239 per ton in 2020 (see “Stable gas condensate and refined products, liquefied petroleum gas and crude oil prices” above). Other products sales Other products sales represent our revenues from sales of purchased oil products (diesel fuel and petrol) through our retail stations, as well as sales of other liquid hydrocarbons, including methanol from our own production. In 2021, our revenues from other products sales decreased by RR 78 million, or 9.3%, to RR 760 million from RR 838 million in 2020. 30 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Other revenues Other revenues include revenue from transportation, geological and geophysical research services, repair and maintenance of energy equipment services, rent and other services. In 2021, other revenues increased by RR 9,456 million, or 78.4%, to RR 21,518 million from RR 12,062 million in 2020 primarily due to an increase in revenues from leasing of facilities of our LNG construction center located in the Murmansk region, used for the construction of the LNG plant at the Arctic LNG 2 project. Other revenues also increased due to additional license fees received from the joint venture Yamal LNG for our technology “Arctic Cascade” as a result of the launch of the fourth LNG train, as well as due to an increase in revenues from geological and geophysical research services provided to our joint ventures. 31 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Operating expenses In 2021, our total operating expenses increased by RR 323,097 million, or 58.5%, to RR 875,159 million compared to RR 552,062 million in 2020 mainly due to an increase in global hydrocarbon commodity prices, which resulted in an increase in average hydrocarbon purchase prices (see “Purchases of natural gas and liquid hydrocarbons” below) and UPT rates (see “Taxes other than income tax” below). Year ended 31 December: % of total revenues % of total revenues millions of Russian roubles 2021 2020 Purchases of natural gas and liquid hydrocarbons Transportation expenses Taxes other than income tax Depreciation, depletion and amortization Materials, services and other General and administrative expenses Exploration expenses 497,282 161,506 88,506 56,599 34,442 34,250 9,582 43.0% 14.0% 7.7% 4.9% 3.0% 3.0% 0.8% 0.2% 235,224 154,757 54,501 39,238 29,577 26,795 9,103 33.0% 21.7% 7.7% 5.5% 4.2% 3.8% 1.3% n/a Impairment expenses, net 1,908 254 Changes in natural gas, liquid hydrocarbons and work-in-progress (8,916) n/a 2,613 0.4% Total operating expenses 875,159 75.7% 552,062 77.6% Purchases of natural gas and liquid hydrocarbons In 2021, our purchases of natural gas and liquid hydrocarbons increased by RR 262,058 million, or 111.4%, to RR 497,282 million as compared to RR 235,224 million in 2020. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Natural gas 258,989 125,844 105.8% Unstable gas condensate Other hydrocarbons Reverse excise 245,400 10,764 (17,871) 102,568 12,221 (5,409) 139.3% (11.9%) 230.4% Total purchases of natural gas and liquid hydrocarbons 497,282 235,224 111.4% Purchases of natural gas increased by RR 133,145 million, or 105.8%, as compared to 2020 mainly due to an increase in LNG purchase prices that are based on natural gas prices at major natural gas hubs and benchmark crude oil prices (see “Selected macro-economic data” above), as well as due to domestic gas prices indexation (see “Natural gas prices” above). The impact of these factors was partially offset by a decrease in volumes of LNG purchased from our joint venture OAO Yamal LNG for subsequent sale on international markets due to an increase in the share of direct sales of Yamal LNG under long-term contracts and the corresponding decrease in the share of LNG spot sales to shareholders, including the Group. Purchases of unstable gas condensate increased by RR 142,832 million, or 139.3%, as compared to 2020 mainly due to an increase in purchase prices, which are primarily impacted by international crude oil and LPG prices excluding export duties (see “Selected macro-economic data” above). Other hydrocarbon purchases represent our purchases of crude oil, LPG, stable gas condensate and oil products for subsequent resale depending on the demand for these types of products. Purchases of other hydrocarbons decreased by RR 1,457 million, or 11.9%, as compared to 2020 mainly due to purchases of stable gas condensate from Yamal LNG for subsequent sale in 2020 (there were no such purchases in 2021). We receive the reverse excise on raw oil based on volumes of stable gas condensate sent for processing to our Ust- Luga Complex on a monthly basis (see “Our tax burden and obligatory payments” above). We report the amount of reverse excise as a deduction to our operating expenses in the line “Purchases of natural gas and liquid hydrocarbons” in our consolidated statement of income as most of our unstable gas condensate volumes used to produce stable gas condensate we purchase from our joint ventures. 32 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Transportation expenses In 2021, our total transportation expenses increased by RR 6,749 million, or 4.4%, to RR 161,506 million as compared to RR 154,757 million in 2020. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Natural gas transportation by trunk and low-pressure pipelines Stable gas condensate and 106,628 100,594 6.0% liquefied petroleum gas transportation by rail Stable gas condensate and refined products, crude oil and liquefied natural gas transportation by tankers Crude oil transportation by trunk pipelines Other 36,499 34,198 6.7% 9,907 6,754 1,718 10,283 8,042 1,640 (3.7%) (16.0%) 4.8% Total transportation expenses 161,506 154,757 4.4% Expenses for natural gas transportation by trunk and low-pressure pipelines increased by RR 6,034 million, or 6.0%, to RR 106,628 million from RR 100,594 million in 2020 due to an increase in the transportation distance as a result of, inter alia, production growth at the fields within the North-Russkiy cluster, and a 1.9% increase in our natural gas sales volumes to our end-customers, for which we incurred transportation expenses. Expenses for stable gas condensate and LPG transportation by rail increased by RR 2,301 million, or 6.7%, to RR 36,499 million from RR 34,198 million in 2020. The increase was due to an increase in the weighted average transportation cost per unit resulted from a 3.7% growth in the regulated railroad transportation tariffs effective January 2021 (see “Transportation tariffs” above), as well as a 2.4% increase in volumes of liquids sold and transported via rail. Transportation expenses for our hydrocarbons delivered by tankers to international markets decreased by RR 376 million, or 3.7%, to RR 9,907 million from RR 10,283 million in 2020 mainly due to a decrease in liquids volumes delivered. Expenses for crude oil transportation to customers by trunk pipeline decreased by RR 1,288 million, or 16.0%, to RR 6,754 million from RR 8,042 million in 2020 due to a 12.5% decrease in sales volumes, as well as an increase in the proportion of sales to our domestic customers located at closer regions from our production fields. Other transportation expenses mainly include our short-term vessels time charter expenses and other expenses related to our revenues from hydrocarbons transportation by tankers and transshipment services rendered to our joint ventures and third parties (see “Other revenues” above), as well as expenses for hydrocarbons transportation by trucks. Taxes other than income tax In 2021, taxes other than income tax increased by RR 34,005 million, or 62.4%, to RR 88,506 million from RR 54,501 million in 2020 primarily due to an increase in unified natural resources production tax expense. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Unified natural resources production tax (UPT) 83,281 50,204 65.9% Property tax Other taxes 4,803 422 3,929 368 22.2% 14.7% Total taxes other than income tax 88,506 54,501 62.4% 33 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Unified natural resources production tax expense increased by RR 33,077 million, or 65.9%, to RR 83,281 million from RR 50,204 million in 2020 primarily due to an increase in UPT rates, as well as an increase in gas condensate and natural gas production volumes (see “Hydrocarbon production and sales volumes” above). The increase in UPT rates was due to an increase in benchmark crude oil prices and changes in the UPT rates formulas caused by the completion of the tax maneuver in the oil and gas industry (see “Our tax burden and obligatory payments” above). Property tax expense increased by RR 874 million, or 22.2%, to RR 4,803 million from RR 3,929 million in 2020 primarily due to the launch of new production assets in both reporting periods. Depreciation, depletion and amortization In 2021, our depreciation, depletion and amortization (“DDA”) expense increased by RR 17,361 million, or 44.2%, to RR 56,599 million from RR 39,238 million in 2020 primarily due to additions of new assets: launch of the fields within the North-Russkiy cluster and production facilities of our LNG construction center located in the Murmansk region, used for construction of LNG plant at our Arctic LNG 2 project. We accrue depreciation and depletion on oil and gas assets using the “units-of-production” method and straight-line method for other facilities. Materials, services and other In 2021, our materials, services and other expenses increased by RR 4,865 million, or 16.4%, to RR 34,442 million compared to RR 29,577 million in 2020. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Employee compensation Repair and maintenance Materials and supplies Preparation and processing of hydrocarbons Electricity and fuel Transportation services Fire safety and security expenses Liquefied petroleum gas volumes reservation expenses Insurance expense 17,033 14,027 21.4% 3,791 2,412 2,227 1,818 1,304 1,304 3,294 1,833 2,323 1,702 1,140 1,152 15.1% 31.6% (4.1%) 6.8% 14.4% 13.2% 1,205 634 1,205 462 0.0% 37.2% (0.2%) (19.6%) 36.2% Rent expenses Labor safety expenses Other 591 592 565 703 1,558 1,144 Total materials, services and other 34,442 29,577 16.4% Employee compensation relating to operating personnel increased by RR 3,006 million, or 21.4%, to RR 17,033 million compared to RR 14,027 million in 2020 due to an increase in average number of employees resulting from the launch of new production assets at our subsidiaries and provision of servicing of new assets to our joint ventures (mainly, Arctic LNG 2 and Arcticgas), as well as an indexation of base salaries effective from 1 January 2021, and the related increase in social contributions for medical and social insurance and to the Pension Fund of the Russian Federation. The launch of gas condensate deposits at the fields within the North-Russkiy cluster in 2020 and 2021 (at the North-Russkoye and East-Tazovskoye fields in the third quarter 2020, as well as at the Kharbeyskoye field in the fourth quarter 2021) resulted in an increase in maintenance expenses, expenses for materials and supplies required to maintain the technological process, as well as the expenses for its transportation. In addition, the launch of new assets resulted in an increase in insurance, fire safety and security expenses. In addition to factors mentioned above, repair and maintenance expenses also increased due to an increase in current repair works performed on wells at our core production subsidiaries. Materials and supplies expenses also increased due to a growth in power generation for our joint ventures due to the expansion of their operations at our service subsidiary NOVATEK-Energo, as well as due to outfitting a new crew camp at one of our production subsidiaries. 34 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 The line “Other” increased due to expenses related to the provision of geological and geophysical research services to our joint ventures, which was in line with an increase in revenues from these services (see “Other revenues” above). General and administrative expenses In 2021, our general and administrative expenses increased by RR 7,455 million, or 27.8%, to RR 34,250 million compared to RR 26,795 million in 2020. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Employee compensation Social expenses and compensatory payments Legal, audit and consulting services Advertising expenses Repair and maintenance expenses Fire safety and security expenses Business travel expense 26,122 17,849 46.3% (33.3%) 5.4% 64.9% (21.9%) 6.0% 51.3% (12.5%) 19.2% 2,753 1,358 988 4,128 1,289 599 740 947 616 581 283 187 Rent expense Other 161 184 1,229 1,031 Total general and administrative expenses 34,250 26,795 27.8% Employee compensation relating to administrative personnel increased by RR 8,273 million, or 46.3%, to RR 26,122 million in 2021 from RR 17,849 million in 2020 primarily due to an increase in accrued provision for bonuses to management personnel, as well as an increase in average number of employees resulting from the expansion of the Group's activities, an indexation of base salaries effective from 1 January 2021, and the related increase in social contributions for medical and social insurance and to the Pension Fund of the Russian Federation. Social expenses and compensatory payments amounted to RR 2,753 million compared to RR 4,128 million in 2020. In 2021, we recorded compensatory payments in the total amount of RR 537 million, which primarily related to the development of the East-Tambeyskiy and North-Obskiy license areas and the East-Tarkosalinskoye field. In 2020, compensatory payments amounted to RR 1,602 million and mainly related to the development of the Yurkharovskoye and West-Yurkharovskoye fields, the Nyakhartinskiy and West-Yaroyakhinskiy license areas. The remaining expenses represented our social expenses and related to continued support of charities and social programs in the regions where we operate. Social expenses and compensatory payments fluctuate period-to-period depending on the implementation schedules of specific programs we support. Advertising expenses amounted to RR 988 million compared to RR 599 million in 2020 and mainly related to advertising during sporting events, forums and conferences. Advertising expenses fluctuate period-to-period depending on timing of events. Repair and maintenance expenses decreased by RR 207 million, or 21.9%, to RR 740 million from RR 947 million in 2020 mainly due to settling in and outfitting a new office building for our subsidiaries in Novy Urengoy last year. Other items of our general and administrative expenses changed marginally. Exploration expenses In 2021, our exploration expenses amounted to RR 9,582 million, of which the major part related to exploration works at the Soletsko-Khanaveyskiy, North-Russkiy and Nyakhartinskiy license areas, on the flank of the East- Tazovskoye field, as well as on an offshore block in Montenegro. In 2020, our exploration expenses amounted to RR 9,103 million and related to exploration works at the Gydanskiy, Soletsko-Khanaveyskiy, Shtormovoy, Nyakhartinskiy and North-Russkiy license areas, as well as on an offshore block in Lebanon. Exploration works ensure timely preparation of reserves at our promising fields for development and further progress of the Group’s hydrocarbons production projects in line with our long-term strategy. Exploration expenses fluctuate period-to-period in accordance with the approved exploration work schedule at our production subsidiaries. 35 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 In accordance with our accounting policies, exploration expenses include geological and geophysical research services, expenditures associated with the maintenance of license areas with non-proven reserves, expenses of our science and technology center associated with the exploration activities at our fields, costs related to exploratory wells drilling when reserves are not found, and other expenditures relating to exploration activity. Impairment expenses In 2021 and 2020, we recognized net impairment expenses of RR 1,908 million and RR 254 million, respectively, which in both periods mainly related to impairments of trade accounts receivables, as well as to an impairment of property, plant and equipment in 2021 in the amount of RR 576 million in respect of assets related to the Yumantylskiy license area as a result of the decision to return the license in 2022. Changes in natural gas, liquid hydrocarbons and work-in-progress In 2021, we recorded a reversal of RR 8,916 million to changes in inventory expense due to an increase in most of our hydrocarbons inventory balances and the cost of hydrocarbons purchases as a result of an increase in benchmark crude oil prices. In 2020, we recorded a charge of RR 2,613 million to changes in inventory expense due to a decrease in natural gas inventory balances and a decrease in the cost of hydrocarbons purchases as a result of a decrease in benchmark crude oil prices. In the current year, our cumulative natural gas inventory balance increased by 127 mmcm as compared to a decrease by 426 mmcm in 2020. Natural gas inventory balances tend to fluctuate period-to-period depending on the Group’s demand for natural gas withdrawal for the sale in the subsequent periods. In 2021, our cumulative liquid hydrocarbons inventory balances, recognized as inventory in transit or in storage, increased by 67 thousand tons mainly due to an increase in inventory balances of stable gas condensate in rail cars in transit not realized at the reporting date. In 2020, our cumulative liquid hydrocarbons inventory balances did not change. Inventory balances of stable gas condensate and refined products tend to fluctuate period-to-period depending on shipment schedules and final destination of our shipments. The following table highlights movements in our hydrocarbons inventory balances: 2021 2020 Inventory balances in transit or in storage At At Increase / 1 January (decrease) At At Increase / 1 January (decrease) 31 December 31 December Natural gas (millions of cubic meters) 924 797 127 797 1,223 (426) incl. Gazprom’s UGSF 771 698 73 698 982 (284) Liquid hydrocarbons (thousand tons) incl. stable gas condensate refined products 868 801 67 801 801 - 357 293 99 380 238 81 (23) 55 18 380 238 81 331 272 94 49 (34) (13) stable gas condensate crude oil Net gain on disposal of interests in subsidiaries In the third quarter 2021, the Group sold a 10% participation interest in its subsidiary OOO Arctic Transshipment to TOTAL E&P Transshipment SAS, a member of the TotalEnergies SE group, and recognized a gain on the disposal in the amount of RR 662 million before income tax (see “Recent developments” above). In 2020, we sold a 100% participation interest in OOO Chernichnoye to our joint venture ZAO Terneftegas and recognized a gain on the disposal in the amount of RR 69 million before income tax. Other operating income (loss) Other operating income (loss) includes realized income (loss) from hydrocarbons trading on the international markets, income (loss) from the change in the fair value of the aforementioned contracts, as well as other income (loss) relating to penalty charges, disposal of materials, fixed assets and other transactions. In 2021, we recognized other operating loss of RR 3,181 million compared to other operating loss of RR 46,807 million in 2020. 36 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 In 2021, we purchased and sold approximately 11.6 bcm of natural gas, as well as various derivative commodity instruments within our trading activities, and recognized an aggregate realized loss from trading activities of RR 1,278 million as compared to an income of RR 1,479 million in 2020. At the same time, we recognized a non- cash loss of RR 2,600 million in 2021 due to a decrease in the fair value of the aforementioned contracts as compared to a non-cash loss of RR 1,689 million in 2020. The effect of the change in fair value of the commodity contracts fluctuates from period-to-period depending on the forecast prices for hydrocarbons on international markets and other macroeconomic parameters and may or may not reflect actual future cash flows from trading activities. In addition, in 2020, we recognized a loss of RR 47,823 million due to the non-cash revaluation of fair value of contingent consideration related to the sale of a 40% participation interest in OOO Arctic LNG 2 in 2019, resulting from a decrease in long-term crude oil benchmark prices forecast, which may be revised subject to world market conditions and may or may not reflect actual future cash inflows. Profit from operations and EBITDA In 2021, our profit from operations and EBITDA including our proportionate share of joint ventures, but excluding the effects from the disposal of interests in subsidiaries and joint ventures, increased to RR 608,741 million and RR 748,337 million, respectively, compared to RR 274,718 million and RR 392,008 million in 2020. Profit from operations and EBITDA of our subsidiaries, excluding the effects from the disposal of participation interests, also increased to RR 278,384 million and RR 339,491 million, respectively, compared to RR 160,766 million and RR 201,947 million in 2020. Increases in normalized profit from operations and EBITDA were mainly due to an increase in hydrocarbon commodity prices on international markets in the current year compared to the prior year, as well as the launch of new production assets within the fields of the North-Russkiy cluster in 2020 and 2021. Finance income (expense) In 2021, we recorded net finance expense of RR 10,119 million compared to net finance income of RR 160,565 million in 2020. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Accrued interest expense on loans received Less: capitalized interest (7,925) (10,051) (21.2%) (28.2%) 4,768 6,641 The effect from recalculating of the amortized cost of a financial liability due to a change in the repayment schedule Provisions for asset retirement obligations: (3,886) - n/a effect of the present value discount unwinding Interest expense on lease liabilities and other expenses (886) (535) (960) (569) (7.7%) (6.0%) Interest expense (8,464) (4,939) 71.4% Interest income Change in fair value of non-commodity financial instruments Foreign exchange gain (loss), net 16,000 19,600 (37,255) 25,440 (7,397) 147,461 (37.1%) n/a n/a Total finance income (expense) (10,119) 160,565 n/a Interest expense increased by RR 3,525 million, or 71.4% primarily due to the Group’s decision to repay the loan obtained from China’s investment fund Silk Road Fund ahead of its maturity schedule, in late 2021 – early 2022. The amortized cost of the liability was recalculated based on the new repayment schedule, and the difference of RR 3,886 million, representing a non-cash expense, was recognized within “Interest expense” line. 37 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Interest income decreased by RR 9,440 million, or 37.1%, to RR 16,000 million from RR 25,440 million in 2020 as a result of the termination starting from 2021 of interest income recognition on the shareholders’ loans issued to our joint venture Yamal LNG and accounted for at fair value in accordance with IFRS 9 “Financial instruments”. A portion of the change in fair value of such loans attributable to interest income is determined based on the amortized cost of the loans using the effective rate method based on initial interest rates and anticipated repayment schedules. Upon the expiration of initially anticipated repayment schedules, a portion of the change in the loans fair value reflecting the time value of money is no longer recorded within “Interest income” line but is instead recorded within “Change in fair value of non-commodity financial instruments” line, which also includes other effects of changes in the fair value of these loans (such as changes in interest rates and expected maturities). In 2021, we recognized a non-cash gain of RR 19,600 million compared to a non-cash loss of RR 7,397 million in 2020 due to the remeasurement of the shareholders’ loans issued by the Group to our joint ventures in accordance with IFRS 9 “Financial instruments”. The effect of the fair value remeasurement of shareholders’ loans may change period-to-period due to the change in market interest rates and other macroeconomic parameters and does not affect real future cash flows of loans repayments. The Group continues to record non-cash foreign exchange gains and losses each reporting period due to movements between currency exchange rates. In 2021, we recorded a net foreign exchange loss of RR 37,255 million compared to a net foreign exchange gain of RR 147,461 million in 2020 due to the revaluation of our foreign currency denominated borrowings and loans received and provided, cash balances in foreign currency, trade receivables and contingent consideration related to the transactions on the sale of participation interests in Arctic LNG 2. Share of profit (loss) of joint ventures, net of income tax In 2021, the Group’s proportionate share of profit of joint ventures amounted to RR 232,277 million as compared to the share of loss in the amount of RR 143,981 million in 2020. Year ended 31 December: 2021 2020 Change % millions of Russian roubles (Group’s share) Share of profit from operations 330,357 113,952 189.9% Share of finance income (expense) excluding foreign exchange effects (96,379) (71,685) 34.4% Interest income (expense), net Change in fair value of (61,132) (85,502) (28.5%) non-commodity financial instruments (35,247) 13,817 n/a Share of income tax excluding foreign exchange effects (42,539) (5,303) n/a Share of profit (loss) of joint ventures, net of income tax and excluding foreign exchange effects 191,439 36,964 n/a Share of foreign exchange gain (loss), net Share of income tax 86,174 (254,022) n/a related to foreign exchange gain (loss) (15,091) 42,832 n/a Total 262,522 (174,226) n/a Unrecognized share of loss (profit) of joint ventures (30,245) 30,245 n/a Total share of profit (loss) of joint ventures, net of income tax 232,277 (143,981) n/a 38 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 The following table presents the Group’s proportionate share of profit (loss) of our joint ventures by entities: Yamal LNG Arcticgas Others millions of Russian roubles (Group’s share) 2021 2020 2021 2020 2021 2020 275 Share of profit from operations 239,066 76,020 79,303 37,657 11,988 Share of finance income (expense) excluding foreign exchange effects (86,349) (65,789) (2,955) (1,355) (7,075) (4,541) Interest income (expense), net Change in fair value of (56,357) (81,398) (2,955) (1,355) (1,820) (2,749) non-commodity financial instruments (29,992) 15,609 - - (5,255) (1,792) Share of income tax excluding foreign exchange effects (26,837) (3,163) (12,930) (5,691) (2,772) 3,551 Share of profit (loss) of joint ventures, net of income tax and excluding foreign exchange effects 125,880 7,068 63,418 30,611 2,141 (715) Share of foreign exchange gain (loss), net Share of income tax related to foreign exchange gain (loss) 59,732 (222,431) (9,856) 36,700 13 (22) 26,429 (31,569) (2) 4 (5,233) 6,128 Total 175,756 (178,663) (27,763) 27,763 63,429 30,593 23,337 (26,156) Unrecognized share of loss (profit) of joint ventures - - (2,482) 2,482 Total share of profit (loss) of joint ventures, net of income tax 147,993 (150,900) 63,429 30,593 20,855 (23,674) Our proportionate share in the profit from operations of our joint ventures increased by RR 216,405 million, or 189.9%, from RR 113,952 million to RR 330,357 million mainly due to increases in LNG and liquids average realized prices. Our proportionate share in interest expense decreased by RR 24.4 billion, or 28.5%, primarily due to the termination starting from 2021 of interest expense recognition on the shareholders’ loans issued to our joint venture Yamal LNG and accounted for at fair value in accordance with IFRS 9 “Financial Instruments”. A portion of the change in the fair value of these loans reflecting the time value of money is now recorded within “Change in fair value of non-commodity financial instruments” line (see “Finance income (expense)” above). In 2021, our share in foreign exchange gains amounted to RR 86.2 billion as compared to our share in foreign exchange losses of RR 254.0 billion in 2020. These foreign exchange gains (losses) in both reporting periods were mainly non-cash and primarily related to the revaluation of foreign currency denominated loans in our joint ventures Yamal LNG and Arctic LNG 2. We assess that the impact of foreign currency risk relating to the debt portfolio of OAO Yamal LNG and OOO Arctic LNG 2 is largely mitigated by the fact that all of their products are targeted for the delivery to international markets at prices denominated in foreign currencies. In 2021, a portion of our share of profit of OAO Yamal LNG and OOO Cryogas-Vysotsk in the amount of RR 30.2 billion was not recognized in the consolidated statement of income as it was offset against the unrecognized share of losses in 2020 resulted from the significant foreign exchange losses. Income tax expense The Russian statutory income tax rate for both reporting periods was 20%. The Group recognizes in profit before income tax its share of net profit (loss) from joint ventures, which influences the consolidated profit of the Group but does not result in additional income tax expense (benefit) at the Group’s level. Net profit (loss) of joint ventures was recorded in their financial statements on an after-tax basis. The Group’s dividend income from the joint ventures in which it holds at least a 50% interest is subject to a zero withholding tax rate according to the Russian tax legislation, and also does not result in a tax charge. 39 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Without the effect of net profit (loss) from joint ventures and excluding the effects from the disposal of interests in subsidiaries and joint ventures, the effective income tax rate (total income tax expense calculated as a percentage of profit before income tax) for the years ended 31 December 2021 and 2020 was 18.7% and 18.8%, respectively. Profit attributable to shareholders and earnings per share As a result of the factors discussed in the respective sections above, profit attributable to shareholders of PAO NOVATEK increased by RR 365,095 million, or 6.4 times, to RR 432,927 million in 2021 compared to RR 67,832 million in 2020. Excluding the effects from the disposal of interests in subsidiaries and joint ventures and foreign exchange gains (losses), our profit attributable to shareholders of PAO NOVATEK increased by RR 252,284 million, or 149.3%, and amounted to RR 421,304 million in 2021 compared to RR 169,020 million in 2020. Reconciliation of normalized profit attributable to shareholders of PAO NOVATEK is as follows: Year ended 31 December: 2021 2020 Change % millions of Russian roubles Profit attributable to shareholders of PAO NOVATEK 432,927 67,832 n/a Gain on disposal of interests in subsidiaries, net Income tax expense related to the disposal of interests in subsidiaries Changes in fair value of contingent consideration reported within the “Other operating income (loss)” Income tax expense (benefit) related to changes in fair value of contingent consideration (662) (69) 23 n/a 73 - 217.4% n/a 47,823 (9,565) - n/a Normalized profit attributable to shareholders of PAO NOVATEK 432,338 106,044 307.7% including: profit from subsidiaries share of profit (loss) of joint ventures 200,061 232,277 250,025 (143,981) (20.0%) n/a Reconciliation of normalized profit attributable to shareholders of PAO NOVATEK excluding the effect of foreign exchange gains (losses) is as follows: Year ended 31 December: 2021 2020 Change % millions of Russian roubles Normalized profit from subsidiaries attributable to shareholders of PAO NOVATEK 200,061 250,025 (20.0%) Foreign exchange (gains) losses, net Income tax expense relating to foreign exchange (gains) losses 37,255 (7,451) (147,461) 29,492 n/a n/a Normalized profit from subsidiaries attributable to shareholders of PAO NOVATEK excluding the effect of foreign exchange gains (losses) 229,865 132,056 74.1% Share of profit (loss) of joint ventures, net of income tax and excluding foreign exchange effects (1) 191,439 36,964 n/a Normalized profit attributable to shareholders of PAO NOVATEK, excluding the effect of foreign exchange gains (losses) 421,304 169,020 149.3% (1) See “Share of profit (loss) of joint ventures, net of income tax” above. In 2021, our weighted average basic and diluted earnings per share, calculated from the profit attributable to shareholders of PAO NOVATEK, increased by RR 121.65, or 6.4 times, to RR 144.23 per share compared to RR 22.58 per share in 2020. Excluding the effects from the disposal of interests in subsidiaries and joint ventures and foreign exchange gains (losses), our weighted average basic and diluted earnings per share increased by RR 84.10, or 149.5%, to RR 140.36 per share in 2021 from RR 56.26 per share in 2020. 40 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 LIQUIDITY AND CAPITAL RESOURCES Cash flows The following table shows our net cash flows from operating, investing and financing activities for the years ended 31 December 2021 and 2020: Year ended 31 December: 2021 2020 Change % millions of Russian roubles Net cash provided by operating activities Net cash used for investing activities Net cash used for financing activities 419,466 171,896 144.0% n/a 204.7% (253,135) (237,898) (47,872) (78,075) Net cash provided by operating activities Our net cash provided by operating activities increased to RR 419,466 million from RR 171,896 million in 2020 mainly due to an increase in profit from operations and dividends received from joint ventures. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Profit from operations, excluding the effects from the disposal of interests in subsidiaries and joint ventures Non-cash adjustments (1) Changes in working capital and long-term advances given Dividends and cash received from joint ventures Interest received 278,384 160,766 73.2% 62,785 (21,186) 118,786 8,832 43,121 (10,876) 11,420 8,442 45.6% 94.8% n/a 4.6% Income taxes paid excluding payments relating to disposal of interests in subsidiaries (28,135) (40,977) (31.3%) 1 Total net cash provided by operating activities 419,466 171,896 144.0% (1) Include adjustments for depreciation, depletion and amortization, net impairment expenses (reversals), change in fair value of non-commodity financial instruments and some other adjustments. In 2021, profit from operations, excluding the effects from the disposal of interests in subsidiaries and joint ventures, and adjusted for non-cash items increased primarily due to a strong growth in hydrocarbon prices on international markets, as well as an increase in our hydrocarbon production volumes. At the same time, income tax payments, on the contrary, decreased in 2021 due to the recognition of foreign exchange losses in our subsidiaries as compared to the recognition of substantial foreign exchange gains in 2020. Moreover, the Group offset other taxes refund in the amount of RR 14.4 billion against income tax in the current year compared to RR 7.1 billion in 2020. In 2021 and 2020, we received RR 99,375 million and RR 10,750 million, respectively, of dividends from our joint venture Arcticgas, as well as RR 3,679 million and RR 670 million, respectively, of cash distributed in favor of the Group and dividends from our joint venture Terneftegas. In addition, in 2021, we received RR 15,732 million of dividends from our joint venture Yamal LNG. The “Interest received” line primarily represents interest on deposits, as well as interest on loans provided to our joint ventures. In 2021 and 2020, we received RR 7.1 billion and RR 6.9 billion, respectively, of interest on loans provided to our joint ventures Yamal LNG and Cryogas-Vysotsk (only in 2021). 41 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Net cash used for investing activities In 2021, our net cash used for investing activities amounted to RR 253,135 million compared to RR 47,872 million in 2020. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Cash used for capital expenditures Proceeds from disposal of interests in subsidiaries and joint ventures, net of cash disposed Actual income tax payments relating to disposal of interests in subsidiaries (191,251) (204,577) (6.5%) 806 195,479 (99.6%) (73) (14,182) (103,445) 57,551 (23) (434) (120,798) 41,543 217.4% n/a (14.4%) 38.5% n/a Payments for mineral licenses Loans provided to/acquisition of loans of joint ventures Repayments of loans provided to joint ventures Acquisition of joint ventures Capital contributions to joint ventures Net decrease (increase) in bank deposits with original maturity more than three months Other (1,655) (1,749) - - n/a 1,667 (804) 43,057 (2,119) (96.1%) (62.1%) Net cash used for investing activities (253,135) (47,872) n/a In 2021, cash used for capital expenditures amounted to RR 191,251 million compared to RR 204,577 million in 2020. A significant part of our capital investments related to the development of the infrastructure for our LNG projects, the ongoing development and the launch of the fields within the North-Russkiy cluster (the North- Russkoye, East-Tazovskoye, Dorogovskoye and Kharbeyskoye fields), the construction of a hydrocracker unit at our Ust-Luga Complex, the development of the Yevo-Yakhinskiy, Ust-Yamsoveyskiy, Verhnetiuteyskiy and West-Seyakhinskiy license areas, and exploratory drilling (see “Capital expenditures” below). In 2021, proceeds from disposal of interests related to the sale of the 100% participation interest in OOO Chernichnoye to our joint venture ZAO Terneftegas in the end of 2020 (RR 575 million) and to the sale of a 10% participation interest in OOO Arctic Transshipment to the TotalEnergies SE group (RR 231 million). In 2020, we received the second part of cash payments from the sale of a 40% participation interest in OOO Arctic LNG 2 in 2019 in the aggregate amount of RR 195,324 million (income tax related to this transaction was paid in 2019), as well as RR 155 million from the sale of a participation interest in OOO Chernichnoye. In 2021, we paid in aggregate RR 13,930 million for the acquisition of a license for the rights to use the North- Gydanskiy license area and the license areas, which include the Arkticheskoye and Neytinskoye fields, as well as made a one-time payment fee in the amount of RR 193 million to expand the borders of our Geofizicheskiy license area. In addition, in 2021, we made a final payment in the amount of RR 59 million for the acquisition of the exploration and production license for our discovered Kharbeyskoye field (in 2020, the payment also amounted to RR 59 million). In 2020, we paid an aggregate amount of RR 317 million for the acquisition of the licenses for the East-Ladertoyskiy, South-Yamburgskiy and Bukharinskiy license areas, as well as made a one-time payment fee of RR 58 million to expand the borders of our Ust-Yamsoveyskiy license area. In 2021, we provided loans in the aggregate amount of RR 103,445 million compared to RR 120,798 million in 2020. In both reporting periods, the main part of loans was provided to OOO Arctic LNG 2 for developing its activities. In addition, in November 2021, the Group acquired a portion in the project financing, previously provided to OOO Cryogas-Vysotsk by its second participant. In both periods, the Group received partial repayment of the loans provided in the amount of RR 57,551 million and RR 41,543 million, respectively, mainly from Yamal LNG. In 2021, the Group acquired a 49% participation interest in ООО Gazpromneft-Sakhalin for RR 1,655 million and made capital contributions to the company in the amount of RR 1,642 million. In addition, in 2021, we made capital contributions to our joint venture OOO SMART LNG in the amount of RR 107 million. 42 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 The Group’s cash management involves periodic cash placement on bank deposits with different maturities. Deposits are reported in “Cash and cash equivalents” if opened for three months or less, or otherwise in “Short- term bank deposits with original maturity more than three months”. Transactions with bank deposits with original maturity more than three months are classified as investing activities in the Consolidated Statement of Cash Flows. In 2021, the net decrease in bank deposits with original maturity more than three months amounted to approximately RR 2 billion compared to the net decrease of approximately RR 43 billion in 2020. Net cash used for financing activities In 2021, our net cash provided by financing activities increased by RR 159,823 million, or 204.7%, to RR 237,898 million as compared to RR 78,075 million in 2020. Year ended 31 December: 2021 2020 Change % millions of Russian roubles Dividends paid to shareholders of PAO NOVATEK Dividends paid to non-controlling interest Proceeds from (repayments of) long-term debt, net Proceeds from (repayments of) short-term debt with original maturity three months or less, net Loan commitment fee (154,332) (89,857) 71.8% 68.2% n/a (19,943) (51,265) (11,858) 39,460 6,545 - 36 (534) n/a n/a Purchases of treasury shares Payments of lease liabilities Interest on debt paid (12,963) (3,687) (2,253) (8,271) (4,649) (2,402) 56.7% (20.7%) (6.2%) Net cash used for financing activities (237,898) (78,075) 204.7% In both reporting periods, our major financing cash flows related to payment of dividends. In addition, in 2021, the Group fully repaid ten-year US dollar denominated Eurobonds and partially repaid a loan obtained from China’s investment fund Silk Road Fund in the aggregate amount of RR 76,184 million (USD 1.0 billion). In 2020, the aggregate amount of long-term borrowings repayments totaled RR 5,935 million and related to a partial repayment of a loan from Silk Road Fund in the amount of RR 4,928 million (USD 70 million) and full repayment of a loan obtained under a credit line facility from a Russian bank in the amount of RR 1,007 million, respectively. At the same time, in 2021 and 2020, we obtained long-term loans from a Russian bank under a non-revolving credit line facility in the amount of RR 24,919 million (EUR 300 million) and RR 45,395 million (EUR 500 million), respectively. In both reporting periods, we obtained short-term loans to finance trade activities. In 2021, net proceeds of short- term loans amounted to RR 6,545 million, while in 2020 the total amount of short-term loans repayments substantially corresponded to the amount of proceeds. Other cash flows from financing activities related primarily to shares buy-back, payments of lease liabilities and interest on borrowings. 43 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Liquidity and working capital The following table shows the Group’s liquidity and credit measures as of 31 December 2021 and 2020: 31 December 2021 31 December 2020 Change, % Absolute amounts, RR million Net debt (1) 73,946 188,284 39,557 202,938 86.9% (7.2%) Net working capital position (2) Liquidity and credit ratios Current ratio (3) Total debt to total equity Long-term debt to long-term debt and total equity Net debt to total capitalization (4) Net debt to normalized EBITDA from subsidiaries (5) Interest coverage ratio (6) 1.48 0.09 0.03 0.03 0.22 29 2.27 0.14 0.09 0.02 0.20 20 (34.8%) (35.7%) (66.7%) 50.0% 10.0% 45.0% (1) Net debt represents total debt less cash, cash equivalents and bank deposits with original maturity more than three months. (2) (3) (4) (5) Net working capital position represents current assets less current liabilities. Current ratio is calculated as current assets divided by current liabilities. Total capitalization represents total debt, total equity and deferred income tax liability. Net debt to normalized EBITDA from subsidiaries ratio is calculated as Net debt divided by EBITDA from subsidiaries excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal and subsequent non-cash revaluation of contingent consideration) for the last twelve months. (6) Interest coverage ratio is calculated as normalized EBITDA from subsidiaries divided by accrued interest on debt, including capitalized interest. The Group has consistently demonstrated sustainable operating and financial results, and even in the periods of unfavorable macroeconomic conditions had generated cumulative positive free cash flow. This allowed to maintain sufficient liquidity to increase investments in our main projects in both reporting periods. The Group’s management believes that it presently has and will continue to have the ability to generate sufficient cash flows (from operating and financing activities) to repay all its current liabilities as they become due and to finance the Group’s capital construction programs. 44 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Capital expenditures In both reporting periods, our capital expenditures represent our investments primarily relating to developing our oil and gas assets. The following table shows capital expenditures at our main fields, processing facilities and other assets: Year ended 31 December: millions of Russian roubles 2021 2020 Infrastructure for LNG projects (1) North-Russkiy cluster (2) Ust-Luga Complex Yevo-Yakhinskiy license area Verhnetiuteyskiy and West-Seyakhinskiy license area Geofizicheskoye field 53,326 35,869 13,362 10,265 9,035 8,334 6,309 4,946 4,116 4,079 3,577 3,445 3,415 2,827 1,979 1,734 1,299 981 78,338 39,692 7,781 2,741 10,316 5,723 5,769 4,318 4,066 286 3,951 356 553 5,398 1,097 1,402 162 4,121 563 Yarudeyskoye field Gydanskiy license area Ust-Yamsoveyskiy license area Laboratory research center in Tyumen East-Tarkosalinskoye field Soletsko-Khanaveyskiy license area Olimpiyskiy license area Yurkharovskoye field Nyakhartinskiy license area Novatek Green Energy North-Chaselskiy license area West-Yurkharovskoye field Bukharinskiy license area Trekhbugorniy license area NOVATEK-AZK 924 867 755 30 770 Beregovoye field Administration facilities Other 362 14,793 5,372 5,143 10,147 15,983 Capital expenditures 191,971 208,706 (1) Mainly includes expenditures related to the project for the LNG construction center located in the Murmansk region. Includes expenditures related to the North-Russkoye, East-Tazovskoye, Dorogovskoye and Kharbeyskoye fields. (2) Total capital expenditures on property, plant and equipment in 2021 decreased by RR 16,735 million, or 8.0%, to RR 191,971 million from RR 208,706 million. In both reporting periods, a significant part of our capital expenditures related to the development of the infrastructure for our LNG projects, mainly to the project for the LNG construction center located in the Murmansk region. We also invested in the development and launch of the fields within the North-Russkiy cluster: the preparation for production commencement and the launch of the Kharbeyskoye field, further development of the North-Russkoye field, the launch and the development of the East-Tazovskoye and Dorogovskoye fields. In addition, we continued the development of the Yevo-Yakhinskiy, Ust-Yamsoveyskiy, Verhnetiuteyskiy and West- Seyakhinskiy license areas, the development of our producing assets (the Yurkharovskoye field, Olimpiyskiy license area, the East-Tarkosalinskoye and Yarudeyskoye fields’ crude oil deposits), as well as exploratory drilling, which in 2021 mainly related to the Geofizicheskoye field, as well as the Gydanskiy, North-Chaselskiy, Soletsko- Khanaveyskiy and Nyakhartinskiy license areas. In both reporting periods, we continued to invest in the project for construction of a hydrocracker unit with the respective expansion of our Ust-Luga Complex, which will increase the depth and volume of processing of stable gas condensate and output of light oil products. We also continued to expand the filling stations network at our subsidiary NOVATEK-AZK and to develop our LPG and LNG wholesale and retail network in Germany and Poland through our subsidiary Novatek Green Energy Sp. Z o.o. (Novatek Polska Sp. z o.o. prior to February 2020). The “Administration facilities” line in the table above represents our capital expenditures of an administrative nature, of which a significant part related to construction of our new office building in Moscow. 45 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 In addition, we are constructing a Laboratory research center in Tyumen, which includes a laboratory building with core storage and other supporting facilities. The “Other” line represents our capital expenditures related to other fields and processing facilities of the Group, as well as unallocated capital expenditures as of the reporting date. The allocation of capital expenditures by fields or processing facilities takes place upon the completion of the fixed assets construction stages and depends on the approved fixed assets launch schedule. The following table presents the reconciliation of our capital expenditures and additions to property, plant and equipment per Note “Property, plant and equipment” in the Group’s IFRS Consolidated Financial Statements, and cash used for capital expenditures: Year ended 31 December: 2021 2020 Change % millions of Russian roubles Total additions to property, plant and equipment per Note “Property, plant and equipment” in the Group’s IFRS Consolidated Financial Statements 206,166 210,037 (1.8%) Less: acquisition of mineral licenses Less: right-of-use assets additions (1) (14,123) (72) (375) (956) n/a (92.5%) Capital expenditures 191,971 208,706 (8.0%) Less: advance payments under lease agreements Add (less): change in accounts payable, capitalized foreign exchange losses and other non-cash adjustments - (801) n/a (720) (3,328) (78.4%) Cash used for capital expenditures (2) 191,251 204,577 (6.5%) (1) Related mainly to long-term agreements on energy equipment leases and office premises rentals in 2020. (2) Represents purchases of property, plant and equipment, materials for construction and capitalized interest paid per Consolidated Statement of Cash Flows net of payments for mineral licenses and acquisition of subsidiaries and joint ventures. In 2021, the Group won auctions for geological research works, exploration and production of hydrocarbons at the North-Gydanskiy license area, as well as at license areas, which include the Arkticheskoye and Neytinskoye fields, and paid RR 13,930 million in aggregate. In addition, in 2021, we paid a one-time fee in the amount of RR 193 million to expand the borders of our Geofizicheskoye license area (see “Net cash used for investing activities” above). In 2020, we made final payments in the aggregate amount of RR 317 million for the auctions won in December 2019 for the right to use the East-Ladertoyskiy, South-Yamburgskiy and Bukharinskiy license areas (an advance payment of RR 3,176 million was made in the end of 2019). In addition, we paid a one-time fee in the amount of RR 58 million to expand the borders of the Ust-Yamsoveyskiy license area. 46 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 QUANTITATIVE AND QUALITATIVE DISCLOSURES AND MARKET RISKS We are exposed to market risk from changes in commodity prices, foreign currency exchange rates and interest rates. We are exposed to commodity price risk as our prices for crude oil, stable gas condensate and refined products destined for export sales are linked to international crude oil prices and other benchmark price references. We are exposed to foreign exchange risk to the extent that a portion of our sales, costs, receivables, loans and debt are denominated in currencies other than Russian roubles. We are subject to market risk from changes in interest rates that may affect the cost of our financing. From time to time we may use derivative instruments, such as commodity forward contracts, commodity price swaps, commodity options, foreign exchange forward contracts, foreign currency options, interest rate swaps and forward rate agreements, to manage these market risks, and we may hold or issue derivative or other financial instruments for trading purposes. Foreign currency risk Our principal exchange rate risk involves changes in the value of the Russian rouble relative to the US dollar and the Euro. As of 31 December 2021, all our debt was denominated in foreign currencies. Changes in the value of the Russian rouble relative to foreign currencies will impact the value in Russian rouble terms of our foreign currency-denominated costs, debt, receivables at our foreign subsidiaries and loans provided to our joint ventures. We believe that the risks associated with our foreign currency exposure are partially mitigated by the fact that 52.3% of our total revenues in 2021 was denominated in foreign currencies. In addition, our share of profit (loss) of joint ventures is also exposed to foreign currency exchange rate movements due to the significant amount of foreign currency-denominated borrowings in our joint ventures, mostly in OAO Yamal LNG and OOO Arctic LNG 2. We assess that the impact of foreign currency risk relating to the debt portfolio of OAO Yamal LNG and OOO Arctic LNG 2 is largely mitigated by the fact that all of their products are targeted for the delivery to international markets at prices denominated in foreign currencies. As of 31 December 2021, the Russian rouble depreciated by 0.6% against the US dollar and appreciated by 7.3% against the Euro compared to 31 December 2020. Commodity risk Our export prices for natural gas, stable gas condensate and refined products, LPG and crude oil are primarily linked to international natural gas, crude oil and oil products prices and/or a combination thereof. External factors such as geopolitical developments, natural disasters and the actions of the Organization of Petroleum Exporting Countries affect crude oil prices and thus our export prices. The weather is another factor affecting demand for natural gas. Changes in weather conditions from year to year can influence demand for natural gas and to some extent stable gas condensate and refined products. From time to time we may employ derivative instruments to mitigate the price risk of our sales activities. In our consolidated financial statements, all derivative instruments are recognized at their fair values. Unrealized gains or losses on derivative instruments are recognized within other operating income (loss), unless the underlying arrangement qualifies as a hedge. Within our trading activities, the Group purchases and sells natural gas on the European market under long-term contracts based on formulas with reference to benchmark natural gas prices quoted for the North-Western European natural gas hubs, crude oil and oil products prices and/or a combination thereof. Therefore, the Group’s financial results from natural gas foreign trading activities are subject to commodity price volatility based on fluctuations or changes in the respective benchmark reference prices. 47 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 Pipeline access We transport substantially all of our natural gas within the Russian Federation territory through the Gas Transmission System (“GTS”) owned and operated by PAO Gazprom, which is responsible for gathering, transporting, dispatching and delivering substantially all natural gas supplies in the domestic market. Under existing legislation, Gazprom must provide access to the GTS to all independent suppliers on a non-discriminatory basis provided there is capacity available that is not being used by Gazprom. In practice, Gazprom exercises considerable discretion over access to the GTS because it is the sole owner of information relating to capacity. There can be no assurance that Gazprom will continue to provide us with access to the GTS; however, we have not been denied access in prior periods. Ability to reinvest Our business requires significant ongoing capital expenditures in order to grow our production and meet our strategic plans. An extended period of reduced demand for our hydrocarbons available for sale and the corresponding revenues generated from these sales would limit our ability to maintain an adequate level of capital expenditures, which in turn could limit our ability to increase or maintain current levels of production and deliveries of natural gas, gas condensate, crude oil and other associated products; thereby, adversely affecting our financial and operating results. Forward-looking statements This report includes forward-looking statements concerning future possible events that can impact operational and financial results of the Group. Forward-looking statements can be identified by words such as “believes”, “anticipates”, “expects”, “estimates”, “intends”, “plans” and similar expressions. Forward-looking statements are made based on the current situation with definite and indefinite risks and uncertainties. Actual future results could differ materially from those discussed in the forward-looking statements as they are dependent on various factors beyond and under the control of management. Off balance sheet activities As of 31 December 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements. 48 PAO NOVATEK Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended 31 December 2021 TERMS AND ABBREVIATIONS APR Asian-Pacific Region bbl barrel bcm billion cubic meters boe btu barrels of oil equivalent British thermal unit CBR CIF DDA FEED Central Bank of Russian Federation “Cost, insurance and freight” depreciation, depletion and amortization Front-End Engineering Design Final Investment Decision FID Forecast of the Ministry of Economic Development GTS IFRS List The document “Forecast of Socio-economic Development of the Russian Federation for the period till 2024” prepared by the Ministry of Economic Development of the Russian Federation or the similar document prepared for another period Gas Transmission System part of the UGSS International Financial Reporting Standards the OFAC’s Sectoral Sanctions Identification List liquefied natural gas LNG LPG liquefied petroleum gas mcm thousand cubic meters MET mineral extraction tax Murmansk yard NBP LNG construction center located in the Murmansk region National Balancing Point NGL natural gas liquids OFAC PRMS Purovsky Plant Regulator U.S. Treasury Department’s Office of Foreign Assets Control Petroleum Resources Management System Purovsky Gas Condensate Plant A federal executive agency of the Russian Federation that carries out governmental regulation of prices and tariffs for products and services of natural monopolies in energy, utilities and transportation. Effective July 2015, Federal Anti-Monopoly Service fulfills the Regulator’s role. RR Russian rouble(s) RZD SEC OAO Russian Railways, Russia’s state-owned monopoly railway operator Securities and Exchange Commission Tobolsk Refining Facilities TTF Petrochemical complex of PAO SIBUR Holding group in Tobolsk Title Transfer Facility UGSF UGSS UPT USD, US dollar Ust-Luga Complex Underground Gas Storage Facilities Unified Gas Supply System owned and operated by PAO Gazprom unified natural resources production tax United States Dollar Gas Condensate Fractionation and Transshipment Complex located at the port of Ust- Luga on the Baltic Sea VAT value added tax YNAO Yamal-Nenets Autonomous Region 49